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 maintains a very strong financial foundation as we head into the New Year. Jumping into our various end markets, energy remains our largest and our revenue in this industry was up nearly 17% in 21.

We expect to maintain our growth in the energy market as it continues to rebound back to pre -pandemic levels of activity and expect continued growth within our petrochemical market, which we continued to expand our offerings to this un -deserved market. Our success is built on our ability to respond to the markets demand to get more for less.

This has been a major driver behind our investment in ruggedized tablets and digital data capabilities, as well as complementary mechanical offerings for all of our sectors. These efforts are making our total offerings sticky as buyers look for partners that offer smarter data solution in greater overall project value.

We believe our digital offerings are a true differentiator led by OneSuite, which is a unique offering within the industry. Essentially, it's our industrial version of the app store. Users can access over 85 applications, helping them to better understand and monitor the condition of their plant and equipment assets from a variety of perspectives.

These applications also help them predict window need to conduct needed maintenance, which ideally would minimize repairs and downtime. It's already been widely adopted at nearly 100 customers with over one thousand individual subscriptions since the start of '21. And we anticipate further growth in '22.

These [Indiscernible] users are currently executing several million processes and calculations monthly within the related applications and we anticipate further expansion of OneSuite utilization throughout 2022. Crude oil prices now significantly exceed pre -pandemic levels. And this is certainly a positive for our energy industry customers.

But at the same time, this has caused many refineries to run longer cycle time as they captured the additional income resulting in the postponement or scaling back up plan inspections. And this more for less paradigm is also putting pressure on the industry. Consequently, this may and most likely will impact the spring turnaround timing.

As customers who initially had heavy overlap of projects and certain sectors at a country are now making small timing adjustments with some of the pearls until later this year. And in other case curtailments are the work itself.

Regardless, we believe conditions will improve as we move through 2022 and on a strength of our digital strategy led by MISTRAS digital and OneSuite. Our broad product offering in complementary mechanical services, we believe we can achieve our objective to grow our energy business. MISTRAS has a longer-term strategy to succeed in the energy market.

First by continuing to take profitable market share. Second, by expanding our scope of services, and finally by introducing new proprietary solutions.

For instance, our Onstream acquisition completed in December of 2018 gave us entry into the inline integrity testing market by utilizing internal pipeline inspection gauges to inspect the underground pipe.

Onstream had a record revenue year in '21, and with our expanding diameter toolset service offerings, we expect additional growth from Onstream in '22. Our deep breath of data services and product and service offerings are easily adaptable for us to expand into growing infrastructure and renewable energy sectors as well.

One of our most exciting growth initiatives is the MISTRAS Sensoria Wind Blade Monitoring and Insights Web Portal. Our Wind Blade Monitoring Technology platform.

Sensoria provides real-time detection and visualization of turbine blade damage, utilizing our recently patented wind turbine blade monitoring systems based on our tried-and-true acoustic emission capability. Sensoria is currently in proof-of-concept on dozens of turbines with a variety of owners.

Ultimately, we see Sensoria as the key to expanding what is on already an approximate 17 million wind turbine blade repair and maintenance global business. We envision a service offering that includes the sale and installation of the sensors on the turbine, providing 24/7 monitoring service and ongoing repair and maintenance of any damage detected.

We are finalizing our proof-of-concept for this initiative had generated some positive momentum, and we anticipate being in commercial operation in the later part of '22, monitoring up to 100 turbines. In addition, our goal is to expand our monitoring capacity for up to 1,000 wind turbines by the end of 2023.

I encourage you to learn more about this exciting new offering by visiting sensoriawind.com. Both once we in Sensoria represent an evolution in asset protection and MISTRAS is uniquely qualified to leverage our proven capabilities and expertise to meet the needs of the changing global landscape.

These newer data - centric tools complement our more established Mistras Digital mobile cloud-based field inspection. It's an execution and reporting platform which digitizes the field inspection process via a powerful end-to-end workflow solution.

All these interrelated data solution initiatives when combined together, create a robust predictive, analytical platform, delivering and enhanced customer ROI. We're very excited about our prospects for growth in these new markets. In the aerospace market, we continue to experience outstanding growth in our private space business.

Consequently, despite a weak commercial aerospace market, revenues in this overall vertical were down less than 3% for the full year. Although we still like significantly behind our 2018 market peak.

While commercial aerospace revenues remain soft, we believe the waiting pandemic and results in resumption of air travel to be positive signs of an impending recovery in the industry which we believe for us could begin as soon as the second half of 2022.

Gross margin in the aerospace sector is very attractive and growth in this vertical will provide a nice boost to our consolidated performance.

I also want to note that we generated significant growth in our other Process Industries segment, which includes pharmaceutical and agricultural industries, as well as in our industrial segment, especially in this fourth quarter.

It's great to see the growth being achieved in these other verticals, which is a result of the success of our strategy to find new sales outside of the energy sector.

While the ongoing Ukrainian conflict is certainly causing an extreme volatility in the world oil and gas market, it is not at this time had a significant impact on MISTRAS current business. The U.S. and certain EU countries have imposed immediate restrictions on various Russian oil and gas activity.

And we are in the process of assessing the specific impact this could have on our customers and on us. We're also addressing the overall potential risks the situation might have on our business going forward. But at this time, there are still many unknowns and uncertainties.

In summary, it was a strong finish to a year in which we organically grew the business. We increased profitability and strengthen our financial condition while rapidly approaching pre -pandemic performance.

At the same time, we made significant investments in the business to bring innovation and new products that are market that will fuel the next leg of our growth. I would now like to turn the call over to Ed to give you more detail on our financial results for the fourth quarter and full year '21..

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 $22.3 million. This was an improvement of over 200% for the full year.

For the quarter, we reported a GAAP net loss of just under $100,000 compared to net income of just under $200,000 in the same quarter a year ago. Adjusted EBITDA for the quarter was $14.6 million and was in line with our expectations. As anticipated, operating and free cash flow rebounded quite significantly in the fourth quarter.

Cash flow from operations in the fourth quarter was $19.8 million and free cash flow was $16.5 million. Free cash flow was net of a $4.5 million cash repayment made in December 2021 related to employer payroll taxes on the deferred under the cares Act from fiscal 2020.

Our free cash flow conversion of adjusted EBITDA was over 100% in the fourth quarter, 114% to be more exact. We anticipate being back to our approximate 50% average conversion of adjusted EBITDA into free cash flow during 2022.

Our annual effective income tax rate was approximately 47%, including discrete items recorded earlier in the year that added approximately 17% to the overall rate. We anticipate an effective income tax rate of approximately 30% for full-year of 2022.

Looking back at results for the full year, revenue was up over 14% with all of our end markets growing with the exception of aerospace and defense for all the reasons Dennis mentioned earlier, and infrastructure we had a large bridge project benefiting the prior year results.

Gross profit for the year was $197 million, which is an increase of over 10%. Gross profit margin of 29.1% was a contraction of 100 basis points attributable to higher benefit costs in the U.S. in the current year period and lower relative Canadian wage subsidies in the current year as I had mentioned earlier.

Selling general and administrative expenses were held to just a 2.7% increase on a full-year basis, despite the reversal of remaining COVID-19 temporary cost reductions in August of 2021 as originally implemented in April of 2020.

Thus, by controlling overhead, we expanded the operating leverage in our model with non-GAAP operating income up over 200% for the year, while adjusted EBITDA grew by 21% to $63 million. CapEx for the year was just over $19 million up modestly from a year ago due to the significant revenue increase and this was in line with our expectations.

Because of our asset-light model, you can expect a typical capital expenditures budget of approximately 3% of annual revenue for the upcoming year. As Dennis said, debt reduction remains our number one priority use of cash and this year we use cash to pay down gross debt by $16.3 million.

Over the past three years, we have now reduced our total debt by just over $90 million as of December 31, 2021 our consolidated debt leverage ratio has just over 3.5 times as defined by our credit agreement, is the lowest level it has been since the third quarter of 2018, which was prior to the Onstream acquisition and remains well within the limits of our current covenant requirements.

Our goal is to lower our leverage level to less than three times by the end of 2022 and we are well on our way to doing so. This will facilitate a more flexible capital allocation strategy by 2023 as Dennis mentioned earlier.

Our business has been recovering since the low level of demand experienced beginning in the second quarter of 2020 when the initial effect of COVID-19 peaked. Although energy prices and demand improved during 2021, the ongoing COVID-19 pandemic continues to impact us.

This effect is most pronounced on our second largest market, aerospace and defense, especially in the commercial sector, where a rebound to pre-pandemic levels is lagging other end markets. More recently, with crude oil prices now significantly exceeding pre-pandemic levels.

This has caused many refineries to run longer cycle times, resulting in the postponement are scaling back of plants inspection. Consequently, this may impact the timing of the spring turnaround, as customers who had initially had a heavy overlap of projects in certain regions are either curtailing or deferring work for later in the year.

Regardless, we believe conditions will improve throughout 2022. For the first quarter of 2022, we expect revenue to be a low single-digit increase as compared to the first quarter of 2021. And we expect adjusted EBITDA to be essentially flat in the first quarter of 2022 compared to the first quarter of 2021.

Keep in mind that the first quarter of 2021 benefited from a significant level of Canadian wage subsidies. And the temporary cost reductions that had remained fully in place through August of 2021, thus also benefiting the first quarter of last year.

Overcoming these significant headwinds to achieve a flat first quarter on adjusted EBITDA as compared to the prior year, shows our continued focus on cost containment and expanding our operating leverage.

This outlook is contingent on continuing geopolitical and macroeconomic stability, including stabilization in the crude oil future market, ongoing effectiveness of the international COVID-19 vaccination roll out, no additional global supply chain disruptions or labor shortages, which would impact our ability to work as a critical service provider, and those significant additives inflationary pressures on our business model.

Again, the ongoing conflict in the Ukraine is certainly an extremely volatile situation with unknown impacts to world energy markets. We are reviewing the potential impact this might have on our business in the immediate term, including U.S. and EU sanctions on Russia.

This will certainly have an adverse impact on the world's oil and gas market in the short-term. Over this will be partially mitigated to MISTRAS by the fact that our business is geographically more concentrated in North America and Western Europe than the regions more directly involved in the ongoing conflict.

Currently, we do not maintain any operations within Russia and our exports to Russia are very limited. Over the long term, it is too early to tell yet as to what impact the current crisis and related sanctions will have on our business.

Nevertheless, we are highly confident that our business model is robust and sustainable through the extremes of economic cycles. And we remain firmly committed to executing our plans by maintaining our intense focus on cost containment while continuing to prudently invest in our business. That is our strategy both today and over the long term.

And with that, I will now turn the call back over to Dennis for his wrap up before we move on to take your questions..

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 first stop is to return operations to pre-pandemic levels, and we're rapidly approaching this objective. And some of our metrics, such as gross profit margin, we're ready there as our gross profit margin in '21 was slightly higher than that of 2019. And our SG&A dollars were 4% lower in '21 than they were in 2019.

Both OneSuite and Sensoria represent an evolution in asset protection, and MISTRAS is uniquely qualified to leverage our proven capabilities and expertise such as the acoustic emission monitoring while innovating to meet the needs of the challenging and changing global landscape.

These newer data - centric tools complement our more established MISTRAS digital, which is our cloud-based field inspection, execution, and reporting platform, which digitizes the field inspection process via a powerful end-to-end workflow solution.

All of these interrelated data solutions [Indiscernible], and combines which will differentiate our offerings by creating a robust predictive analytical platform. I'm very excited about our prospects for growth in these new areas of opportunity in 2022.

We believe that our new project-specific mechanical and data services will help us to accelerate our growth objectives. But before taking your questions, I would like to thank all the MISTRAS employees once again, for your understanding and leadership.

It has been almost two years to the day since we started creating strategic goals that address the market disruptions from the pandemic. Those strategic investments we have made in the digital space will help to drive growth in our future targeted end market.

We have observed the extreme consequences that our customers and competitors have experienced during this worldwide crisis. Your focus on caring for every one that we interact with has made MISTRAS more resilient than ever as a valued partner. You have shown an unwavering focus for building on our solid reputation of safety, quality, and innovation.

All while providing outstanding customer service and dedication during these extremely trying times. By sticking to the tenants of our Caring Connects initiative, we can provide a better workplace not only for the MISTRAS family, but for all of whom that we work with on a positive and safe manner. Hawod please open up the phone lines for questions..

[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 in the cold areas and deserts where they're land-based, and locked in, they're not going to change too much.

So it doesn't really affect really 2/3 of our -- it could affect it next year if they believe the prices will stay extremely higher, extremely well. Certainly that's where it comes into it. So for them it's more about sustainability and an idea of what it's going to look like and regulations from government, everything else about leases and all that.

And I think everything that's going on in Europe might make the focus on making sure that we have the same amount of supply to match demand is as you can have because you can curtail supply. But if you don't do anything about demand, the price is just going to go in one direction. On the month of deferrals I can tell you right now.

From what we've seen in the spring, some of that was '20 and '21 deferrals of maintenance. So what they're going to have to do is still get that done. They may be able to try to play with like you're saying, and maybe some of the things that we needed to do in '22, but '20 and '21 items like that, you're going to have to pick it up.

So there is always going to be a drag behind the owners that they have to start making some of this opted app to make it up in any one quarter or a year. Possibly not, but they can't move it out five to ten years. Certainly can't move it out two cycles for them. So they'll have to pick it up in a mini or a major at some point.

So you're going to see a bleeding out, but they can always continue to play with what's mandatory for today versus what they have to make up from last year and a year before.

That makes sense?.

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..