Thank you for joining Mistras Group's Conference Call for its Fourth Quarter and Fiscal Year ended December 31, 2022. My name is Michelle, and I will be your event manager today.

Participating on the call from Mistras Group will be Dennis Bertolotti, the company's President and Chief Executive Officer; and Ed Prajzner, Executive Vice President and Chief Financial Officer. I wanted 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 on this conference call will also include certain financial measures that were not prepared in accordance with US GAAP.

Reconciliation of these non-US GAAP financial measures to the most directly compared US GAAP financial measures can be found in the tables contained in yesterday's press release, and the company's related current report on Form 8-K. The reports are available at the company's website and in the Investors section of the SEC's website.

I will now turn the conference over to Dennis Bertolotti..

Okay. Thank you, Michelle. Good morning, everyone. Thank you for joining us. As a result of the solid fourth quarter, we met our most recent top line and exceeded our bottom line guidance for the year. We continue to organically grow revenue despite the adverse effect of foreign currency exchange, while significantly improving profitability.

Up, mid and downstream revenue were all up in 2022, driven by the continued improvement at our customers and strong demand for our services. Aerospace and defense revenue was also up, led by strength in commercial aerospace, offset by project delays in defense revenue during the fourth quarter.

Gross margin improved to over 30% for the second consecutive quarter, in part due to pricing actions taken earlier in the year, helping to offset the wage inflation that we have been absorbing in addition [ph] to lower employee benefit expenses.

With these customer pricing actions now in place, we expect some benefit to both reoccurring revenue and gross margin for 2023.

In the fourth quarter of 2022, we were able to leverage our gross profit margin expansion into a 152% increase in operating income, through continued cost discipline with selling, general and administrative expenses down from the year ago quarter despite the impact of inflationary costs.

Our financial strength was also significantly improved over the prior year, with net debt reduced to $170.8 million from $178.5 million at the end of last year.

Over the past four years, gross debt has decreased by almost $100 million and our leverage ratio is at the lowest level it has been since immediately prior to the acquisition of Onstream in December of 2018.

Additionally, our bank refinancing completed in August of 2022, added incremental capacity to our total available credit, while also providing more favorable credit terms and further improving our financial flexibility. Our core markets have shown resiliency and we are seeing a surge in demand for our state-of-the-art data solutions offering.

I am pleased to announce that we have surpassed our goal of installing 100 patented Sensoria wind blade monitoring systems in 2022, having installed them in over 130 wind turbines during this past year.

This significant milestone demonstrates to our commitment of providing exceptional value to our renewable energy customers by enhancing their uptime and safety.

The growing demand in our existing customer base present us with numerous opportunities to expand our portfolio to long-term contracts and offer renewable energy customers, our OneSource solution, which takes a comprehensive approach to providing everything they need to keep their onshore and offshore wind turbines operating smoothly.

This includes monitoring, inspection and maintenance service among other offerings. Moreover, our data solutions offerings, which serve our core markets, have experienced strong demand with the Mistras Digital field execution platform and OneSuite Asset Protection Software Ecosystems leading the charge.

Customers who have adopted both applications are now embracing our revolutionary technology as a bundled solution at an ever increasing number of sites.

We are excited to offer our clients yet another solution that maximizes their asset protection and operational efficiency and further supports our brand promise of OneSource for asset protection solutions.

Having implemented OneSuite at over 160 customer sites and issued licenses to more than 1,200 individual subscriptions, the adoption of OneSuite and a Suite of 90 integrated applications now combined with Mistras Digital is setting a new standard in the industry.

We are confident that our recent accomplishments signify substantial progress towards achieving our vision of becoming the go-to integrated solution partner.

Looking ahead, by continuing to leverage our expertise in technology, innovation and customer service, our brands continue to remain aligned and dedicated to our customers' evolving requirements. We have kicked off our operational review with AlixPartners, which we will refer to as Project Phoenix.

This review is designed to accelerate profitable growth and meaningful adjusted EBITDA improvement opportunities, while also identifying steps to achieve sustained cost savings. We and our board are laser-focused on taking steps to position us for success to drive shareholder value.

We will provide updates on the status of this project throughout 2023 as they become available. Despite the lingering effects that the pandemic and more recently inflation have had on our business, we have learned to do more with less, and we expect both market demand and activity to return to pre-pandemic levels in 2023.

Given our successes in this otherwise challenging year of 2022, we are nevertheless on pace to return to our pre-pandemic growth trajectory this year, while also providing the financial strength and flexibility to achieve consistent, sustainable growth over the long term as well.

We are confident we can continue to grow the business, improve our profitability and positive cash flow through our core business and exciting new product offerings. Ed will provide additional commentary on our results. I wanted to quickly review the highlights for the quarter by market.

In our largest market, we had strong revenue growth in the quarter, led by both down and upstream sectors. Consequently, oil and gas revenues ended the year up 6% and were the primary driver to our consolidated revenue growth.

While higher oil prices should sustain the strength of the upstream market, the downstream market remains somewhat less predictable primarily due to tighter customer budgets and reductions in the scope of work. We expect midstream to bounce back on the continued strength of Onstream, which had a record year in 2022.

We have spoken about the lagging impact of pay rate increases throughout 2022, occurring in advance of any related customer pricing increase and the drag has hit on our results. I am pleased to report that we have been successful in negotiating price increases with many of our customers, particularly in the oil and gas market.

These increases reflect passing along of the wage inflation we had previously absorbed, and we expect these price increases to benefit our gross margin in 2023. Aerospace & Defense had a great year, growing 18% compared to last year.

In the fourth quarter, we saw this general trend continue where there is an ongoing recovery in commercial aerospace, new opportunities into the private space market and our own expansion into adjacent services.

The defense side was down primarily due to a large contract that experienced a temporary reduction activity during the fourth quarter due to a delay in building materials. We remain optimistic about our growth prospects in the defense sector.

There is a large market for many of our services from inspecting wells to cycle time reduction solutions and other services where the defense industry is experiencing a shortage of qualified personnel and contractors. The aerospace and defense industry is positioned to show continued strong growth.

Our data solutions revenue increased again this quarter, most notably those related to OneSuite. In particular, our digital offerings are not only making us more connected, they are also continuing to bring in additional work as our users see the benefits of centralizing and digitizing their data.

We see this trend continuing as customers look to implement Mistras' offerings at more of their locations and utilize more of our data solutions capabilities. We continue to demonstrate the viability of our technology, which enables us to provide our customers with valuable data and insight, which proves the value of our technology.

To quickly recap, we experienced a strong finish to yet another year of steady progress. We stabilized our two core operations, oil and gas and aerospace and defense, both of which grew at a combined rate of 8% in 2022. We've made significant strides in our new initiatives, in renewable energy and data solutions.

And we reduced our leverage to the lowest level in years, freeing capital to invest across the organization and all of the exciting opportunities we see in our end markets, while renewing and improving our financing under our new credit facility.

Net income for the year was $6.5 million, and EPS was $0.21, up 68% and 62%, respectively, from a year ago. Consequently, given this bottom line profitability improvement, our adjusted EBITDA exceeded our most recent guidance for 2022.

I will now turn the call over to Ed to give you more detail on our financial results for the fourth quarter and full year 2022..

Thank you, Dennis, and good morning, everyone. It was another strong quarter for Mistras, in which we met or exceeded our guidance expectations.

Consolidated revenue for the quarter was $168.2 million, meeting the midpoint of our most recent outlook range of approximately 0.8% compared to the prior year, excluding the impact of unfavorable foreign exchange of $4.4 million in the fourth quarter, attributable to primarily the weaker euro to US dollar conversion.

For the full year, revenue was $687.4 million, up 1.5% on a GAAP basis, but up approximately 3.7% when adjusting for $15.2 million of unfavorable foreign currency exchange impacts for the full year 2022, again, primarily due to the weaker euro to US dollar conversion.

More importantly, in the fourth quarter, the profitability of our two primary segments, Services and International, both improved from a year ago. Gross margin increased 200 basis points in the Services segment and expanded 50 basis points in the International segment from the year ago quarter.

This drove a 3% increase in consolidated gross profit dollars and a 130 basis point expansion in gross margin. From an overall industry perspective, our oil and gas business was strong, up 4% as reported for the quarter, primarily on the continued strength of both upstream and downstream markets.

Upstream continues to benefit from healthy drilling activity, particularly in the offshore Gulf and onshore Alaska markets, while downstream was also up, as the refinery market was particularly strong in the fourth quarter. Although Onstream continues to contribute strong growth, midstream was down in the quarter.

However, midstream was up for the year, as were downstream and upstream. Our aerospace and defense business is also doing very well, up nearly 18% for the full year.

We saw steady growth in both commercial aerospace and private space throughout 2022, whereas defense revenue was down in the fourth quarter, as Dennis said, primarily due to a temporary slowdown at a major defense contractor. This work is forecasted to ramp back up during the year, so we expect the defense side to generate growth in 2023.

Our expectation is for continued growth in overall aerospace and defense in '23, particularly as we continue to expand our capabilities on mechanical side, for this market, particularly at our shop laboratories.

In this regard, Dennis and I visited our Heath, Ohio near Columbus Aerospace Hub and labs just last week or two weeks ago rather, and we were both very impressed with the ongoing state-of-the-art capabilities that we have purpose-built for our customers.

This demonstrates the benefits of understanding our customers' needs and tailoring our offerings to fit their requirements. As Dennis mentioned, this was our second consecutive quarter of better than 30% gross profit, reflecting the initial impact of price recovery initiatives, as well as a decrease in employee benefit expense in the quarter.

The strong performance over the second half of '22 helped increase gross profit margins for the year to 28.8%, comparable to the prior year gross margin of 29.1%, which benefited from certain temporary pandemic relief oriented program last year.

One example was to choose wage subsidy in Canada, which provided a $3.3 million benefit to our full year results in the prior year. Selling, general and administrative expenses in the fourth quarter were $42.3 million, down from $42.8 million in the year ago quarter.

Note that SG&A expense for the full year '22 was $5.3 million higher than 2021, of which $2.2 million was due to the reinstatement of certain benefit costs, primarily restoring the company's 401(k) matching in the US. Over the past few years, we have had success in holding overhead relatively steady.

Nevertheless, this is an area, where the combination of our ongoing internal initiatives, as well as any opportunities that materialize, as a result of Project Phoenix can accelerate the achievement of our SG&A goal aspiration of it being 20% of revenue over the longer term. Operating income in the quarter was up 152% from a year ago to $5.8 million.

There is significant operating leverage in our model. And this is a metric where we believe we can make continued improvement in '23. Interest expense for the quarter was up, reflecting increases in the benchmark rates due to recent Fed actions.

Despite the increase in interest expense in the quarter, full year interest expense was down slightly due to continued deleveraging, which we believe is a significant milestone, despite the current rising interest rate environment.

As benchmark rates are anticipated to be higher in 2023 than 2022, we expect an increase in our interest expense in 2023 to approximately $13 million for the full year of 2023 but we are focused on continued deleveraging to continue to reduce our outstanding debt balances.

For the fourth quarter, we reported net income of $2.8 million or $0.09 per diluted share compared to a small net loss in the same period a year ago.

Net income benefited from strong operating results, in addition to a significant tax benefit resulting from the completion of a study that generated R&D tax credits of approximately $1.3 million, which was recorded in the fourth quarter.

For modeling purposes, we would anticipate a prospective effective income tax rate of approximately 30%, exclusive of any discrete items in 2023. Net income for the year was $6.5 million, up 68% from $6.9 million a year ago, while EPS was $0.21 per diluted share or a 63% increase from $0.13 in the year ago period.

Adjusted EBITDA for the quarter was $15.7 million, up approximately 8% from a year ago. Full year adjusted EBITDA was $58.2 million, in line with our most recent guidance, yet down from $63 million in 2021. Keep in mind that the adverse foreign currency exchange impact reduced current year adjusted EBITDA by approximately $2.1 million for the year.

As well as the impact of chasing the inflationary pay increases experienced during the first half of 2022, as we mentioned earlier.

Additionally, adjusted EBITDA was adversely impacted by approximately $5.5 million in 2022 due to the aforementioned items, particularly or more explicitly, the expiration of the COVID-related wage subsidies received in Canada during 2021, which was a $3.3 million impact, a missing benefit this year and the expiration of temporary COVID cost reductions, primarily the resumption of the company's 401(k) matching for US employees in August 2021, which was a $2.2 million impact additive cost this year.

Free cash flow for the quarter was $12.1 million, compared to $16.5 million a year ago. Free cash flow was net of a $4.5 million cash repayment made during the fourth quarter of 2022 related to employer payroll taxes deferred under the CARES Act for fiscal 2020.

A payment of this same [ph] was made in the fourth quarter of 2021, and this deferral is now complete. Free cash flow was also adversely impacted by a $2.4 million payment associated with the legal settlement, which was accrued in the prior year.

We anticipate an improvement in working capital, especially accounts receivable days outstanding to provide a substantial benefit to operating cash flow in 2023. Capital expenditures were $3.8 million for the quarter and $13.4 million for the full year, with total capital expenditures for the year down $5.9 million from 2021.

For fiscal 2023, we expect capital expenditures to increase up to $20 million, consistent with pre-pandemic levels. As of December 31, 2022, we had gross debt of approximately $191 million, an $11.3 million reduction during the year. Net debt was $70.8 million, also down from the beginning of the year.

At year-end, our bank-defined leverage ratio was just under 3.5%. This ratio is not only in compliance with all covenants, including significant room to spare, it's also our lowest leverage ratio since immediately before the acquisition of Onstream in December of 2018, as Dennis stated earlier.

We continued to prioritize debt reduction as our primary use of free cash flow. As of today, through continued profitable operations and working capital management, we perceived the opportunity to reduce our leverage ratio to below three times during 2023.

Once that level is achieved, we intend to evaluate our capital allocation strategy and investigate other uses of cash flow as a means to accelerate growth and build shareholder value. As noted in yesterday's press release, we are providing our preliminary full year guidance for 2023.

Based on current market conditions, we anticipate full year revenue to be between $710 million to $740 million and adjusted EBITDA to be between $70 million and $75 million. We additionally expect to generate free cash flow between $30 million to $33 million.

We are optimistic about the current level of activity given stable energy markets, improving commercial aerospace demand and a rapidly developing data solutions offering.

We expect both operating and free cash flow to improve significantly in 2023, not only from continued positive operating results, but also due to a concerted effort to reduce working capital, in particular, by lowering our day sales outstanding. I will now turn the call back over to Dennis, for his wrap-up before we move on to take your questions..

Hey. Thanks, Ed. Let me quickly wrap-up with a few final thoughts. After several years of severe headwinds, we believe the hard work we have done to strengthen the business has enabled us to reach an inflection point as markets normalize to perhaps a new normal.

In addition, in combination with the ongoing operational review via Project Phoenix, we believe we can lever our operations to increase margin, which will improve overall profitability and growth. As part of our 2023 plan, I am taking over the operational oversight previously held by our Chief Operating Officer.

I am excited to return to a more hands-on oversight role, in day-to-day operations of our business. As CEO, I understand the importance of staying connected to our team and ensuring our operations, run smoothly for our customers.

This additional scope to my role could be an extended interim period or could potentially become a permanent part of my responsibilities. I remain fully committed to driving our business forward and leading the company towards even greater success. I'm very optimistic for the future based on our initiatives that we are pursuing.

There are still challenges that Mistras must overcome regardless, having overcome the challenges of the past few years we feel well positioned to capitalize on the growth opportunities in our market to create value for our shareholders.

Before taking your questions, I would like to sincerely thank all mistrust employees for their continued dedication to delivering a safe and superior service offering, in this ever-changing market.

We have always been a strong and profitable company and all the actions that we are focusing on today, will further strengthen our company for tomorrow, allowing us to continue as the market leader in Asset Integrity. Caring Connects does work for us. As I stated last quarter, much has been accomplished, but there is still more to be achieved.

I'm extremely honored to be leading Mistras, at this critical and exciting time in history. And with that, Michelle, please open up the lines for questions..

Thank you. [Operator Instructions] One moment while we compile our Q&A roster. Our first question comes from the line of Chris Sakai with Singular Research. Your line is open. Please go ahead..

Good morning, Dennis and Ed..

Good morning Chris..

Hi Chris..

First question I had was on, what was the main driver for the gross profit improvement in the Services segment?.

Let me take that Dennis..

Sure..

Yeah. Well, Services had good utilization, good mix. Aerospace growth continues to help them. They had solid growth across their core markets, but just really good operating leverage, the higher volume they have certainly helps.

And I think we also leveled out, as we mentioned some of the pay rate increases that were in advance of the bill rate, that kind of leveled out a little bit and flattened out, so that certainly helped profitability year-over-year where we got -- we caught that equation back up that had been lagging for much of the year, certainly helped their gross profit improved in Q4..

Yeah, Chris, I'll add that we were chasing inflation in the first half of the year. We caught off to it. Our data onstream and some of the other businesses are really doing good and we feel like we've got some of this behind us. So hopefully, this looks more normal to us than what we've seen in the past..

Okay, great.

And then as far as debt levels are concerned, do you have a target level for 2023?.

I think, we will still, as we said, we'll still keep applying all of our residual free cash flow to debt service at this time. So, we should be able to pay back a significant piece of that in 2023. Our goal is to get to below a three leverage handle by the end of the year.

So if you take our EBITDA divide that in half as our conversion to free cash flow, we can take a meaningful percent of that and pay down debt. So we're not targeting a dollar amount per se.

We're really targeting that 3.0 leverage handle, we may need to invest a little in working capital as we grow the year in 2023 with higher top line, but we'll still keep taking every nickel of free cash flow and paying debt back down in 2023..

Okay. Thanks.

And then on for Sensoria, do you have -- can you provide any color as far as how many new blades that you expect to install it on in 2023?.

Yeah, Chris, we do have high hopes for that, but it's really based on customers and in purchase orders and it gets lumpy. I mean, right now, you could have nothing and tomorrow, you got a large order.

So we haven't gotten to forecasting that yet, but we believe we can keep continue growing at the system is still for some customers and a proved up stage in our minds, we've got enough data to show people that we are viable and the only thing out there that really monitors the blade directly.

But there's still a lot of customers that have us on various trial basis and waiting for those things to expire and you got to go through not only finding the defects but then doing the repair and verifying it was what we called it. So we haven't gotten to that point yet, but we do believe there is still good growth in what we're doing with that.

Absolutely..

All right. Great. Thanks for the answers..

You got it. Thank you..

Thank you. And one moment for our next question. Our next question comes from the line of Mitch Pinheiro with Sturdivant. Your line is open. Please go ahead..

Hey, good morning..

Morning, Mitch..

So I just want to look at our guidance for a second. So revenue looks like it's a growth of between 3% and 8% low-end to the high-end. And I was just – wonder if you could color that a little more? You talked about stable energy markets. So that should certainly help and you have strength in the aerospace and defense business.

Is there any area that we should be concerned about? And at the low end of the range, -- that seems to be all pricing. You've gotten pricing. So I'd imagine at the low end of the range, it's like pricing growth, not volume growth. And I was wondering if you could provide a little more detail around the bottom end of the range..

I'll answer the best I can. I'm not sure if I understand the part about the bottom, but let me try to start here. I think to your point, the gas and oil sector, which drove last year, we'll do it again this year. We believe the upstream has got a lot of opportunities for us.

So for us, we think the upstream is, for sure, going to be part of what leads the way. We think that downstream is the one that's a little bit more fickle and right now, it looks like a larger, stronger turnaround activity year than in previous.

But you know how it goes, you get a hurricane or storm happens and then everyone's forced to try to do more work and pump more out and put up their utilization. So that's always one that we get a little bit cautious about trying to predict. Midstream, we think is going to push up as well.

Onstream, like we say, it's really been growing doing things in the rest of the market. So we feel good about gas and oil, probably most about up across the board. Aerospace and defense, to your point, we really feel strong on that.

There's not only a lot of demand continuing to come online, depending on who you talk to and what type of aircraft a lot of these units and body counts are back close to pre-pandemic except for the larger twin aisles and all that type of issue.

So we're good there, not only from the market, but we also are doing a lot of innovative things to help process components much faster for not only the end user, but for the casting, forging houses and everyone else – try that supply chain.

Let's face it, the faster they get a product to a more rather [ph] the finish, the sooner they get it out of WIP and into billing and the customer is getting to use it. So we see this as a win across the board for us.

The defense has a load of problems, they're trying to overcome, and you hear about all things that are being used and consumed and having to be replaced and repairs done every day. There's articles out there. It's just about them trying to figure out where materials and spend.

So we see that as won't be, but we see that as a growth part of our business. To your point, on the 3% versus 8% high to low part of our revenue. You always got to provide a range, we think that -- we have line of sight for a lot of it, as we always do.

We have a lot of reoccurring revenue inside the soft portion of the business inside a lot of the gas and oil with the larger contracts and all that. So we have good line of sight on a lot of that. I'm not sure, I guess I lost you a little bit on what you meant by the 3% being more of a lower.

I think -- I understood that, Dennis. I think Mitch, what you were asking about on the low end of the revenue guidance. There is some good uplift to that and low risk. To your point, the pricing increases, which feathered in throughout 2022 later in the year, you'll have the full year effect of that in 2023.

So you'll get 12 twelfthof a price increase -- it might -- you've only gotten five- twelfths or six-twelfth of that in 2022. So you'll have the full year uplift of pricing increases, that certainly helps and derisk the low end of our revenue range.

And keep in mind, too, the FX rate was working against us all year in 2022, to the extent that levels out or works back in our favor, you have some FX uplift and help to revenue in 2023 as well. So yes, we believe there's very little risk on the down -- on the low side of our revenue range.

There's actually uplift there just mathematically from full year price impact in 2023. And if you're in a dollar work back in our favor, some of that swings back in our direction as well..

Okay. How about -- as far as just the first quarter to make sure that expectations are proper.

What is -- in oil and gas, I mean, is there -- what's going to happen with the turnaround season in your estimation? And how do we think about maybe the sequential revenue picture for the year?.

So if you're talking about for the full year, we see the turnaround schedules being proposed by the customers as being more aggressive. It's still early in the year to tell if for sure they're going to hold their schedules. This time of the year, last year, we were still waiting for customers trying to get off their start at this time.

And this year, we're starting to see things already being manned up and having the start that we would expect. But as I say, there's really -- it's uncertain if they're going to go the full length and do everything that they expect to do this early in the season. But the early indications are that everyone is planning for more work.

It's just a matter of how much do they execute on that..

So is there -- is the -- so on a year-over-year basis, the first quarter, it should be a fairly -- nothing -- you're not seeing any delays.

The spring turnaround might be more second quarter, but things in the near term look like you fit into your normal kind of growth range?.

Yes. I mean as of the 9th of March, it looks like they are planning to do what they had intended. How that plays out -- to your point, a lot of times, the spring season can play more of a second quarter than first.

There's been years when they really started a lot of our customers, whether that was the whole marketing up, but a lot of our customers started in January and February. Certainly, last year wasn't that year. Everything started late for us. This year, it's more of a moderate.

It's not all starting in January, February, but it doesn't seem to be waiting until April either. So at this point, that's what they had planned and hopefully, they'll continue going all the way through as forecasted..

Okay.

And then can you talk a little bit more about Project Phoenix? I mean, you gave some detail, but is this -- so where does this from an expense point of view, how meaningful is it in 2023, how quickly could some of their -- some of the changes be affected? And what sort of is the longer-term -- what are we looking to get out of Project Phoenix? Is it a cost side, or is there also like sort of a revenue component to it at all?.

So I'll start with….

Go ahead, Ed, if you want..

Yes, sure. I mean we're early on niche. I mean, we're 30 days into the review. So at this point in time, we're not making any forecast or estimates we will update you as we get to that point. This is an EBITDA improvement opportunity, EBITDA improvement. Yes, we're looking at top to bottom. But we're early on, and we will update you when we get there.

But it's really just accelerating our actions that we've been looking at on maintaining cost, sustaining cost levels and the savings. It's early on, and we'll update you out the year as we have measures that come to the forefront that we act on. But yeah, we're still really early on with our review..

I'll say this, Mitch. As far as to your question of scope, I mean we're looking at everything we're doing to see how we can do it better. We've always talked about trying to have goals to where we want to get our SG&A to and how we want to grow our business and all that.

And I think they're intertwined as we figure out how to do a better job on the cost side. We'll figure out how to move more of that towards the markets we want to go towards too. So it's a holistic as far as the scopes..

I mean the real aim year Mitch is to improve results, make the company more efficient. We want to increase our competitiveness in the market, no doubt. And we will hopefully implement these cost savings to really support our organic growth areas as well. That's something that's important to us.

We talked a lot on just worrying about technology, and we really want to help drive that as well with this process. So as Dennis said, it's a very holistic process we're going through..

And just last question, and it was -- you had mentioned in the prepared remarks, you've seen a surge in demand in your recently launched digital products and things like that.

How is that -- when we say surge, how is that impacting your revenue outlook? I mean is that -- does it tie -- can you see direct impact? And can you talk about that just a little bit more?.

Yeah, I'll take that Mitch. We're going to give more as the year goes on, on our data solutions group. To be fair, our Data Solutions is the smallest of the groups when we look at how we do our work. You do it in the field, you do it and shop environment, but it's all tied to data. But data solutions is across all of our core markets.

It's heavily used in the gas and oil. We're finding ways to make it more beneficial to customers in aerospace and everything else in between. So the data solutions will be a holistic overview of how our customers understand, treat and view their data.

They're going to be saving it archaic ways of things of data getting handled now your dust is full of papers and you show them from one side to the other, you try to find it. What we're going to try to do is make everyone's data always readily available for them as quick as possible up to the following day and have actionable items.

So in that respect, it's going to help all of the groups. And part of it, you'll see in data solutions under application sales and things like that. And part of it, you'll see is us getting more and more strength inside the groups that we serve.

So we won't count that as data solution benefits, but we will be perceiving benefits from just having a stronger offering and offering more actionable things that a customer can do to the data that they normally get and just look at and try to scratch their head. So to your question, it's going to be a little bit of both.

You'll see some in the data side, and we'll be talking more about that through 2023, and that will be growing, but you're also going to see tangible benefits to the customer across the markets we serve..

Okay. That's all for me. Thanks for taking the questions..

Got it. Thanks, Mitch..

Thank you. And one moment for our next question. Our next question comes from the line of Brian Russo with Sidoti. Your line is open. Please go ahead..

Hi. Good morning..

Hey, Brian..

Hey, Brian..

Hey. Just a follow-up on the data question.

Is it fair to say that, these offerings give you a higher retention rate for existing customers, but also the ability to gain profitable market share and expand your customer base? And if so, maybe you could cite some sort of generic example to help us understand that better?.

You're absolutely on where our focus is. I mean, there's no doubt it's going to drive revenue for us in just data solutions and applications and use of that.

But it is a differentiator, it is something that we've seen customers flip over because our services are better than what a competitor were using on the data portion of it, I'm sorry, the data business intelligence, I'd say, right? So we've seen – it's smaller and it's starting, but we have seen customers slip to say this is what we have been looking for and haven't been able to get in anything from offshore to on-land applications.

The idea of what we're trying to do is our folks touch, inspect and look at very critical assets throughout a customer's profile of all the of all the equipment they have, and it's very meaningful to get that data as fast as possible and give the customer some benefits.

But what we're seeing is, we're getting information back to it much quicker, and we're showing them where there is something significant much faster because folks in the field, the old way they just know they're taking a reading, don't always know how much that relates to what it was previously in the short or the long term, and how much difference that was, and these short-term rates can be very critical to an operation of a particular vessel or anything under pressure or temperature.

So what we've got is the ability to start showing customers quicker what they need to look at and focus on kind of return on – on their spend that's much better.

So the goal in the beginning was to make sure we emphasize how our services holistically are a better offering to any customer than anything else that's out there, and that's where we started.

But to both yours and Mitch's point, it will drive additional services, it will drive additional applications and data solutions and things like that, but it's a differentiator for sure, retention as well..

Okay. Great.

And then – on Sensoria, what are the milestones that we should be looking for in 2023? And how soon can you actually move from testing to actual commercialization and start generating revenue from that? Because 130 turbines, I mean, according to my calculation, it's just sliver [ph] or a small fraction of the overall number of turbines currently in operation in the US as well as those in the pipeline to come up -- to become operational in 2023?.

You know, the quick answer to your question is probably 2023 is still going to be proven out the concept to more customers than not because they have a lot of technology out there that is saying that they can do something for a turbine blade. And the truth is, we haven't seen anything that really competes directly like this.

There's other people who put things on parts of the turbine and directly associated that with turbine blade damage, but we haven't really seen anyone effectively compete with us. But we're still in the prove-up stage. All of those 130 are scattered between a lot of different customers.

There's no real strong one or two that have more than others, obviously, but not like it's all dominated by one or two customers, and they're all really trying it for a while.

So what we're trying to do is focus on getting more and more of these trials out there this year and getting customers to understand the benefits of it and help us demonstrate that to the market. But for 2023, we're still going to be in this prove-up mode. That's why it's going to be lumpy as to how fast we're going to be deploying.

But I really -- the reason we speak to it is we really believe it demonstrates the online capability of using AE and some of the other technologies that we have and showing people, let's face it 10, 15 years ago, real-time capability wasn't there.

You're downloading from server and then getting the data and talking back in weekly or monthly pieces of information. Now this data is coming in to ourselves and to our customers in a real-time basis, and we're doing something with it.

So it's something that's really meaningful and we're using only to talk about all the turbines and everything we can do, but just what it means to the market.

So the answer is that we're still going to be more prove up than we would wanted to in 2023 because customers have a very tight profitability window on these things, and they want to make sure what they're spending is things that are beneficial to them. But there's still a lot of necessary [ph] wait and see improvement to me kind of thing out there.

But we'll be giving more data on -- sorry, through 2023 as well that give you our ideas with targets. But you're right, the $130 million is nothing compared to what's out there..

Okay. Great. So it looks like Power Gen and transmission, which I think that's where your renewables services falling is about 6% of 2022 total revenue.

I mean how meaningful do you think that can grow relative to the overall pre-pandemic top-line that you kind of referenced earlier?.

So our Power Gen this year saw a bit of a decline only, because we are on a very long-term project that is just starting to eventually go through its paces in getting to commissioning and running through. We're looking at other projects that could help replace that. So that one is outside of Sensoria and things like that.

That one's a lot more capital or project related, right? You get big projects, you hold on to it and then you try to put a couple more on while others are falling off. So on that one, there's not as much evergreen or run and maintain kind of things. So that can go up and down in a given year.

We think the Sensoria as far as is coming online, we'll start adding some base load to it. But that's going to -- like I say, that's going to take a little bit of time yet..

Keep in mind as well, Brian, that Sensoria is not just the hardware that we sell, install and then monitor on the sensor.

It's also this life cycle of the blade, the maintenance we do on the blades, repairs of the blades that we do now at a fair level that will also be driven forward with Sensoria as an equally compelling part of the equation of the economics for the customer.

So, that's a big piece of what's in that Power Gen now is the fact we have been out there doing a significant amount of work or maintenance and repair blades, we believe Sensoria is going to feed that piece as well, especially as the customer sees more about flat conditions and acts upon that to prevent more damage, we believe that's been a propel along this nice existing business we have on the maintenance side of Wind Blade.

So, they've kind of been reclined and both are compelling to us, but there's more than just Sensoria, it's driving this other piece of the business on the maintenance side that we have already..

Okay. Great.

And then just a clarification, the $13 million of 2023 annual interest expense, is that based on your year-end gross debt number, or will that number of $13 million fluctuate with the level of debt, meaning if you're paying down debt throughout the year, your interest expense ultimately will be lower than $13 million?.

I hope we can under-run that a little bit. That's kind of the assumed interest rate we baked in for 2023 at kind of a year-end debt level. So maybe we can outrun that a little bit, but I think that number will -- it depends where the Fed goes in 2023, but I think that's a pretty fair number, but I'm hoping I can under-run it by just a little bit..

Okay. Great. Thank you very much..

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Dennis Bertolotti for any further remarks..

Okay. Thank you, Michelle. So I'd like to thank everyone today for joining the call, and also for your continued interest in Mistras. I look forward to providing you with an update on our business and progress achieved towards our ongoing initiatives. Everyone, have a safe and prosperous day..

This concludes the conference call. Thank you for participating. You may now disconnect..