Thank you for joining our Mistras Group's conference call for its first quarter ended March 31, 2024. My name is Briana, and I'll be your event manager today. We'll be accepting questions after management's prepared remarks.

Participating on the call for Mistras will be Manny Stamatakis, the company's Chairman of the Board and Interim President, and Chief Executive Officer. I want to remind everyone that remarks made during this conference call will include forward-looking statements.

The company's actual 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 the 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 Manny Stamatakis. .

Good morning, everyone. Thank you for joining us today. The first quarter was a strong start to the year as we continue to execute on our key financial, operational and strategic initiatives. In particular, we achieved outstanding success in our Project Phoenix program with adjusted EBITDA up 55% compared to the prior year.

Revenue was up nearly 10%, primarily due to the strong spring turnaround activity in the Oil & Gas industry and continued expansion in our Aerospace and Defense industry.

Additionally, our improved commercial focus provided the benefit from the successful implementation of strategic price increases, which consequently contributed to improved gross margin.

Selling, general, and administrative expenses were reduced on both a sequential and year-over-year basis, and we announced the hiring of a Chief Transformation Officer whose primary focus will be on sustaining the momentum generated by Project Phoenix to further improve operating leverage.

Consequently, I am once again reiterating our expectation that fiscal 2024 adjusted EBITDA will be one of our all-time high-performance years. While still early in the process, this is our second consecutive quarter of a strong top and bottom line growth.

With each successive quarter, we are gaining increasing confidence that the strategy and direction that emerged from our refocus in 2023 has put us on a trajectory to achieve record results this year and to maintain steady growth into 2025 and beyond. Let me first share some of my thoughts on the quarter.

Focusing on the objectives I have been outlining for you and the progress that we are making against those initiatives. I am very pleased with our top line up nearly 10%. With our 2 largest end markets, Oil & Gas and Aerospace and Defense, all up double digits year-over-year.

This success thus far, can be attributed to our new commercial focus, which we expected to drive organic growth this year and which has, in fact, materialized. In the Oil & Gas market, which was up 14.7%, we benefited from strong turnaround activity in the quarter, both domestically and internationally.

This included growth in all 3 subsidiaries, sub industries within Oil & Gas of up, mid and downstream. Last quarter, I mentioned how we have been working closely with our customers in obtaining needed price increases to offset cost increases we are seeing.

And I can say that this initiative clearly contributed to our first quarter growth in both revenue and gross profit. I want to thank our customers for working with us to obtain these necessary increases.

Oil & Gas will remain an important market for Mistras, and it is our intention to improve performance by making sure we are getting appropriate returns for the value we provide through both price increases and project selectivity. Aerospace and Defense revenue was up nearly 19%, reflecting strong end market demand.

In particular, I would note that our commercial aerospace business continues to expand and is back to pre-COVID levels within North America. And our private space business is also growing.

As we expand our breadth of services provided to our customers in this market, we plan to continue to make strategic capital expenditures in these higher-margin and most important businesses to accelerate their growth. Our Data Analytical Solution businesses experienced some project delays that pushed back some revenue out into later in the year.

All of the underlying fundamentals are on track, and we expect Data Analytical Solutions to generate strong high-margin growth over the balance of the year in line with their 2024 targets. We will also continue to invest capital to grow this strategic area.

As part of our goal to better leverage our growth, our first quarter bottom line grew significantly faster than the top line. Profitability benefited from a reduction in both direct costs and overhead expenses, mostly attributed to our Project Phoenix activities, therefore, causing operating costs to fall and margins to rise.

The net result was a significant improvement in operating leverage, leading to the company's best ever first quarter adjusted EBITDA. And while free cash flow lagged somewhat due to an increase in working capital related to timing of customer invoicing, we still expect at least $34 million of free cash flow in fiscal 2024.

There have been other significant actions taken and progress made in the first quarter. First, we have brought on Hani Hammad as Executive Vice President and Chief Transformation Officer. Hani managed our Project Phoenix initiative when he worked at AlixPartners, and he previously worked for PwC Consulting, Baker Hughes, and GE.

Hani will report directly to the CEO and is responsible for completing and improving upon the transformation plan arising from Project Phoenix, which initially identified a projected gross annual run rate of $47 million adjusted EBITDA benefit to be achieved by the end of 2025.

With a seasoned executive of Hani's experience and accomplishments now dedicated full-time to this program, along with an invigorated senior leadership team, we are confident that we will achieve our project Phoenix expectations and more.

The search for a permanent CEO remains on track, and we are working with a preeminent leadership advisory firm to identify the best individual to lead the company into its next phase. Our goal is to have our next CEO in place by the end of our third quarter.

And finally, we continue to make significant progress with the organizational and cultural changes that I had previously noted and which are important to our success.

These changes have not only energized and motivated everyone throughout the organization but have also led to the unprecedented collaboration and creativity, enabling us to deliver even greater value to both our customers and shareholders.

I believe we are now more fully aligned and committed to our mission that at any time over the company's history. My focus and that of our next CEO for the company will be profitable growth. Now I'd like to turn this call over to our CEO, Ed Prajzner for his update on our recent results. .

Thank you, Manny, and good morning, everyone. I share Manny's enthusiasm for Mistras' immediate outlook and longer-range future. Our focus on transformative discipline will allow us to leverage our footprint and coupled with our new commercial focus will lead to improved results and profitable growth.

First quarter results continue to demonstrate our commitment to unlocking significant value through the ongoing implementation of Project Phoenix. While we have already made significant progress, there is more work to do as we plan to achieve our target of an incremental SG&A reduction of $12 million in 2024 versus the prior year.

This will not only generate an improved bottom line return, but will also provide funds to reinvest in our high-margin growth initiatives such as Data Analytical Solutions and the Aerospace and Defense industry.

This is an exciting time for Mistras and the entire organization is focused on capitalizing on the unique growth opportunities in our markets. And our first quarter performance demonstrated this with a great start to what we anticipate will be one of our all-time high adjusted EBITDA performance shares in 2024.

For the second consecutive quarter, we exceeded financial expectations while making significant organizational progress. The first quarter marked the second consecutive quarter where we generated significant organic revenue growth, actually increasing from 8.2% in the fourth quarter of last year to 9.8% this quarter.

As Manny noted, we were up in our 2 largest end markets, in part due to contributions from our improved commercial focus, which has provided a benefit from the successful implementation of strategic price increases. The Oil & Gas industry was up nearly 15% on a strong spring turnaround season.

Although turnaround activity remained robust as stated last quarter, we are anticipating this sector's growth to level out in the second half of the year due to a more moderate fall turnaround season compared to the robust spring turnaround, which continued into April 2024.

Aerospace and Defense continued its expansion, continuing its bounce back from the fourth quarter with another quarter of solid growth, up nearly 19%. Our North American Aerospace and Defense business has recovered to pre-pandemic levels in the first quarter of 2024.

The Aerospace and Defense market remains robust and was once again led by the strong performance in our West Penn business.

For the third consecutive quarter, they had record results primarily as a result of the continued ramp-up of our new Georgia facility, as well as increased demand for our services, which are helping to debottleneck the industry supply chain. The International Aerospace business revenues were also up significantly in the quarter.

Private space was also strong in the first quarter, and we expect this business to hold up well over the immediate term as the pace of space launches has not let up. As one of our primary growth initiatives, we are investing in our Aerospace and Defense business to accelerate growth.

So we expect strong results from the Aerospace and Defense segment throughout the year. As Manny noted, Data Analytical Solutions had a slower start than anticipated due to project delays and implementation pushouts.

However, we saw momentum build later in the quarter, which we believe will lead to continued growth during the second quarter and remainder of the year. Again, this is a focused growth area and we are investing in our capabilities by adding highly skilled data analysts and expanding our predictive solutions.

Both gross profit and margin were up in the first quarter despite the slow start for Data Analytical Solutions, driven by overall revenue growth, the cost reduction benefit from Project Phoenix, and the previously mentioned positive pricing actions. This was somewhat offset by higher health care claims expense -- experience in the quarter.

Selling, general and administrative expenses were down $1.6 million or nearly 4% from a year ago, primarily reflecting the effect of Project Phoenix on headcount. We remain committed to our goal of reducing SG&A to approximately 21% of full year 2024 revenue with $12 million of expected savings being the product of Project Phoenix.

As we have mentioned, we are still working our way through a full implementation. For the quarter, we reported GAAP net income of $1 million or $0.03 per share. Excluding reorganization and other nonrecurring costs, net of tax, non-GAAP net income was $2.2 million or $0.07 per share for the quarter.

Adjusted EBITDA was up 55% to $16.2 million, which was our best ever first quarter adjusted EBITDA performance. This follows the record fourth quarter adjusted EBITDA reported just last quarter.

As a result of an increase in working capital and incremental strategic capital expenditures, we generated negative free cash flow in first quarter, which is not unusual for the first quarter of the year.

As it relates to 2024, this negative cash flow was related to an increase in working capital related to timing of customer invoicing, which we are intently focused on improving in the second quarter and remainder of 2024.

We still believe that we will generate at least $34 million in free cash flow for the year despite an increase in growth capital expenditures. Interest expense was $4.4 million for the quarter, increasing by $0.3 million from the prior year due to the higher interest rate environment and an increase in the average debt balance outstanding.

Our trailing 12-month bank defined leverage ratio was 3.06x as of March 31, 2024, which is the lowest this ratio has been since the third quarter of [ 2028 ].

Based on our current 2024 projections, we expect to be able to achieve a targeted 3x or lower ratio by midyear, primarily due to the anticipated increase in our trailing 12-month EBITDA, even if only a modest reduction in outstanding debt. We have articulated a strategy and continue to emphasize debt reduction as our primary use of free cash flow.

However, based on current financial projections, we believe investments in capital expenditures and other resources that support our organic growth strategy, while providing superior returns also represent an excellent use of free cash flow. Longer term, we believe a 2.5x leverage ratio is achievable.

And at that point, we would gain additional optionality as it relates to free cash flows. Actually, we believe a 2.5x leverage ratio can be achieved by the end of '24 and maintained over the longer term. So we will be balancing these 2 priorities to maximize shareholder value.

While these are still early days, our results have been very encouraging, and we are confident in our outlook, but there is more work to be done and additional objectives to be achieved. 2024 is shaping up to be both a transformative and record year.

Most importantly, we expect to set a new foundation on which to grow profitably, given our new commercial focus and its ability to drive profitable growth. We sincerely appreciate your continued support and expect to reward your patients with significantly improved results in 2024.

At this time, I would like to turn the call back over to Manny for his closing remarks before we move on to take your questions. .

Thanks, Ed. NDT is a large market that can reward innovative companies who can cost effectively and expeditiously help their customers keep their assets safe, compliant and efficiently operating. For 40 years, Mistras has been an industry leader with solutions that solve these increasingly complex challenges. Today, we are recommitted to those values.

Mechanical integrity programs have been transitioning from a time-based to a risk-based methodology. Mistras has been a leader in this risk-based approach trend with our industry-leading asset integrity management software via our Data Analytical Solutions.

We are also further -- we are also excited about furthering the development of the digitization of the field inspection process. This will help boost productivity by automating today's manual processes, reducing rework, and standardizing reporting with our cloud-based platform. All of this will reduce customers' downtime, saving millions of dollars.

We will continue to invest in this growing part of our business, and it will become an ever-increasing focus for us in the future. After a year of intense analysis and introspection, we've developed this strategy to capitalize on the trends shaping our markets.

This includes a keen focus on growing our high-margin businesses to provide a meaningful profitability improvement while also enhancing our sales and commercial functions. We will continue to put the right people in place that will execute on this strategy, and we are developing the systems and processes to assure that we remain on track.

Everyone is engaged and committed to these strategic improvements. Consequently, for 2024, we are reaffirming our previously announced guidance of full year revenue between $725 million and $750 million, adjusted EBITDA between $84 million and $89 million.

And we additionally expect to generate the free cash flow of between $34 million and $38 million. This is an exciting time to be leading Mistras. I'm very proud of our nearly 5,000 employees that believe in our plan and are working hard every day to achieve our goals and objectives. You can feel that level of motivation throughout the organization.

We are rebuilding a company that can deliver steady, stable growth over the long term with a bottom line that can increase significantly faster than the top. Much has been done, but much remains to be done. We appreciate you joining us for this journey. At this time, I would like to ask the operator to open the call to your questions. .

At this time, we will conduct the question-and-answer session no. [Operator Instructions] Our first question comes from the line of Chris Sakai of Singular Research. .

I just wanted to ask about -- you're saying Oil & Gas, you're expecting it to moderate in the second half of the year. I wanted to get your sense of that, if you could provide any more color there. .

Sure, Chris. This is Ed. I can take that question. Thanks for the question. Yes. So this first quarter was extremely strong. It was an early start spring turnaround that has had a long duration running into April. So we were very strong across the board, Gulf of Mexico, Alaska international, you name it.

For the fall turnaround season, we're expecting just a normal cycle, back down a little moderation, back to a more routine regular cycle versus you had a little extra time and run time here in the spring turnaround season.

So we don't expect to exactly repeat that, but that's what we're feeling an ordinary normal fall turnaround season versus an extra bit of time in this spring turnaround season, which is coming up to a wrap here shortly. .

And then can you help me understand the capital expenditures were they mainly for Aerospace? And how is that going to improve margins going forward?.

Yes. Good question, Chris. Yes, our CapEx is largely in our shop labs, Aerospace in particular. That is the key focus there. So that will take a little time for that revenue to be started, obviously and impact margins, but you'll have a modest uplift. The shop margins are stronger than the field, not quite as strong as the data side.

So yes, our CapEx is largely geared towards the shop piece of our business, although the field business certainly takes some CapEx as well. But yes, we -- the small, modest gross profit margin improvement this quarter of bits that we saw. That's a good indicator for really what we're expecting going forward, some modest growth there.

But yes, that's a smaller piece of our business at shops right now, but that should be incrementally helping margins. The CapEx is in our higher growth, higher margin type of business. So it will be improving margins over time from the CapEx. .

And then last one for me.

Can you talk about SG&A improvements? What are you seeing there? And how much more can they improve?.

Yes. Great question.

Sorry, Manny, you want to answer or I can add first?.

No, go ahead. Go ahead and answer that. I'll jump in. .

We committed, Chris, due to our Project Phoenix initiatives that we would drop SG&A $12 million year-over-year. We have every intention of doing that. We got partially there more than halfway there in the first quarter. We intend to keep dropping that down. Our full year expectation is to be at 21% of revenue, our SG&A.

We have every anticipation and expectation of getting there. Project Phoenix has done the hard work already. So we have a little more savings to achieve as the year goes along. But we're very confident that we're at that level now and we'll continue to perform towards that objective. .

Our next question comes from Tim Moore of EF Hunton. .

And it was nice to see the strong sales recovery in field services and shop labs growth in North America and the SG&A cost savings shining through, good work. I know there was a lot of time and effort and definitely paying off. I thought I would just start with Aerospace and Defense. It's nice it's bouncing back.

I know you mentioned kind of only back to pre-pandemic levels, which lead me to believe there's ample upside here. And I know you're working on the Georgia facility.

So I was wondering maybe if you can talk a little bit more about the shop labs and facilities expansion, if Georgia is all going to be Aerospace and Defense? And are there any other kind of shop labs and facilities that you're expanding? Where you going to put in other types of customers besides Aerospace and Defense?.

I can start that. Tim, great question. Yes, we love that sector, Aerospace and Defense. So the Georgia facility is primarily commercial Aerospace focused. And that's an area that is growing nicely is expanding. That supply chain is an area that we will continue to extend our service offerings for our customer. Private space is very similar.

We're doing more and more for that sector as well. Defense is the third wheel -- third leg of that stool in Aerospace and Defense. Yes, we will continue to expand and add product line extensions for our customer, more additive manufacturing steps, more mechanical steps beyond the testing.

It is a technology, the faster we can get those parts back to our customer supply chain, the faster that piece of extruded or stamp metal can become a fan blade on a turbine motor, that's what we're there for.

We're speeding up that supply chain, helping our customers work through the glitches that they would be dealing with supplying their end markets. So we will continue to expand there. It is a very good margin business. It's -- you're dealing with the principal customer directly. It's a great value add. It's ROI.

It's per part per linear foot per piece as we test and send it back to them. So -- and it's a very good sector of our business. So we will keep doing more there. And there's other shop labs that focus on other than commercial Aerospace and private space.

We like that business as well and very compelling there to do more for your customer and satisfy their needs and really help them serve their customers well. So we will keep doing more of that. I would say that this Aerospace piece, commercial aerospace is in a very important hub there for us, very important second largest end market in and of itself.

So we will keep doing more there. It's very attractive to us. There's more and more that we can do there. It's a large market with lots of opportunities. So we will keep investing in that.

But prudently, judiciously for things that have quick turnarounds and quick paybacks and where the customer is partnering with us, where they're guaranteeing that volume coming into our shop lab. It's a criteria. We want to assure that it's a nice, healthy, robust growing business with lots of interconnectivity with the customer.

So we do a rather intensive review before we take on new work for the customer. But it's really rewarding, it's very engaging. And I do believe that will continue to be a very strong sector of our business. North America, as we said, is back to pre-pandemic levels. Internationally, we'll get there soon as well.

They're lagging just a little bit behind that recovery, but they're on a growth trajectory as well. So it's a global business for us across the board, these Aerospace labs and the more they think as a unit and grow together all the better, but it's a real key area of focus for us in a very large market of opportunity. .

That's really helpful elaboration. Because I feel like when we met a year ago at our EF Hutton conference.

It's just so interesting how you are adding more value to the chain, not doing just the inspection and the testing and we actually taking some of the work off their hands to the value chain and capturing more of that if it's something important investors maybe didn't know as much a year ago. But just switching to Data Analytical Solutions.

I know it declined in the quarter from project pushouts. Revenue was very strong in the December quarter. I think it was up 18%. But it was only 5% growth in the September quarter.

I'm just wondering maybe if you're quantified or ballparked, or nearly half of Data Analytical Solution revenues, are they really lumpy from big projects would you say? Like an implementation and kind of a conversion rather than kind of like ongoing, more smooth smaller projects?.

Traditionally, it has been ongoing consistent revenue. This first quarter was an anomaly. A couple of projects did get pushed off. But we're on target to meet the numbers by the end of the year. And we have a lot of other exciting things that we're working on that we think is going to really revolutionize how data is collected in the field.

As I mentioned, we're working on digitizing the collection of data. This is something that everybody is trying to get accomplished. We have a good plan to get there. We have the software and the techniques in place to do that.

And we're working on scaling that so that our customers can get their inspection data digitally, which will change the entire bargain. We're really much more efficient. It will be much -- the customer will be able to do a lot more with the data, and it will save a lot of time and energy. .

I just want to switch gears to one other topic more of a low-hanging fruit topic, optimizing your pricing contracts. It seems like that could be maybe at least $5 million of potential there over a couple of years, as those contracts roll over for renewals. You've got that pass through cost inflation clause that's starting to help.

I'm just wondering for the non-pass-through cost inflation, where you're going to be reprice these contracts, add extra features and services.

How has the initial reception and responsiveness been of the customers? And has it made you more aware, maybe which customers or projects to intentionally call and just cut out right now?.

The customers have been very cooperative. This is a difficult time. Costs are going up, and we need to be able to offset those costs in order to remain profitable. Many of our customers understand that and have been very cooperative in working with us to improve the pricing.

Sometimes customers aren't as cooperative, but our focus is to keep our business profitable and to focus on those customers that can work with us. We feel the value that we can add is significant. And our good customers understand and cooperate with us in that regard. So it's working out quite well, and we wanted to continue to improve in that area. .

One last question for you. I believe you said the CEO search might be concluded by the end of this quarter, if I heard correctly.

I'm just wondering how long you plan maybe to stay involved with onboarding afterwards? Or is that duration maybe not going to be too long because you added the Chief Transformational Officer?.

When you say with onboarding, you mean onboarding the new CEO?.

Definitely that, yes. .

Yes. Well, our goal is still to have that person in place by the end of Q3. We're working with an excellent firm who has -- is working hard to identify the right person to come in and take over. I will still be Chairman of the Board, and we'll be committed to working closely with that individual.

But a lot of the work we've been doing for the past 6 months and will continue to do throughout the remainder of the year is to really clear the path so that, that next CEO, when they come in, we'll be positioned to really focus on moving the company forward and to keeping -- committed to cost effectiveness and efficiency.

We are committed to continuing to lower our costs. That is a commitment. We feel that there's opportunities to do that. And it's not just lower our cost, it's to do things better and more efficiently. So that is -- we're committed to that. And that's why we have the Chief Transformation Officer position. It's that important in the company.

We were fortunate to get Hani as our CTO, and we're excited about these prospects moving forward. .

Our next question comes from Mitchell Pinheiro from Sturdivant & Co. .

A couple of questions for you.

First, what did your price increases contribute to revenue in the quarter?.

Mitch, good question. That's approximately 2.5% to 3% of that almost 10% gain. So a nice significant piece of that, a little less than 1/3 or so of the growth came from pure pricing is about the magnitude of it. .

Does that -- I know like you're in turnarounds and things that they don't repeat regularly.

But does the 2.5% to 3% type of level, is that what we should expect for the remaining 3 quarters this year, that type of contribution? Or does it vary?.

It will vary a little bit, but that's a pretty good -- I mean, that is a piece of the growth. I think Q1 may have been a little stronger than average for the full year. But no, there's a meaningful piece of price increase on top of volume that we anticipate this year. So yes, there'll be a portion of the growth absolutely coming from pricing this year.

.

And was the pricing sort of equally distributed across all your subsegments, Oil & Gas, Aerospace and Industrials? Or was it concentrated in your largest Oil & Gas market?.

Great question, Mitch. It was across the board industry-wise, but it was more focused on smaller accounts. We kind of went through Tier 1, 2, 3, 4, 5 and focused on smaller accounts initially for nonrepeat work, then we moved up to more moderate size finally up to the larger accounts. So we're kind of cycling that through.

The larger accounts have longer-term work that would have had more fixed pricing. So we're kind of structurally creating strategic pricing practices to kind of feather that through the whole population.

So as we work through that, we're having that discussion, as Manny said, successfully with many, many customers that we started in smaller pockets and moving up more structurally building this as a process, as a strategy across the board. We're not fully there yet.

We're still working through all of that, but it was an offshoot of Project Phoenix, this whole commercial pricing strategy that we're bringing into place. But it is across all industries, but we kind of went from smaller to larger customer as a process.

And we're still kind of working through the complete process to have a true new strategic pricing plan in place across the board is the ultimate goal. .

And then -- when you look at your gross margin, can you like just talk us through why you wouldn't see more leverage on such a nice growth in your upstream and downstream revenue this quarter? I would have expected maybe some type of leverage, but I'm curious what I'm missing. .

You're talking on the gross margin side, yes, gross margin, the mix advantage wasn't necessarily helping us a whole lot there that Oil & Gas business, which was up would have lower margins than average, so especially turnarounds and whatnot. So it did pick up a large sector of the business growing, not at the best of margins.

Data Solutions, as we mentioned, lagged a little bit in the quarter. That would have been relatively higher margins, but in a lower proportion for the quarter. I mean EBITDA is up significantly, up 5x the revenue increase.

So it trickles down until operating leverage at the OI of EBITDA line, significantly greater, but gross profit margin itself did not have a great favorable sales mix. It was more unfavorable, quite frankly. Aerospace helped -- that helped the mix a little bit. Obviously, they were up higher than average. So that helped gross profit margin.

But yes, the mix there is going to be more sensitive -- gross profit is going to be very sensitive to the mix that's happening and we had a less than ideal mix there. So your gross profit margin didn't go up a whole lot of bits there, but clearly, your EBITDA was up many, many multiples of the top line revenue. .

And within Aerospace and Defense, it is nice to see strong quarter. Within that, the private space business, you talked about -- you've always talked about is growing. I mean how -- I don't know if you've ever given like a size within the category.

But I mean, how fast is private space growing? Or how fast did it grow in the quarter? And what should we expect for the remainder of this year?.

Good question, Mitch. It's -- the commercial aerospace is bigger and growing faster. So the private space is more of a sub story to that, but it is up single-digit kind of growth. It is a nice piece of the business. It's not as large, obviously, as commercial Aerospace is. So yes, we keep those aggregated together.

It is very consistent, and it's growing, and it is a piece of portfolio. It is in the same shop labs. Our Nadcap certified facilities would -- many of them focus on the commercial aerospace and private space. So it's good leveraging there. They're both through the same footprint at the shop lab perspective. So we like that aspect. It's bundled together.

But no, it's an attractive market. It keeps growing and it will continue to do so. It's just thankfully, the commercial aerospace is kind of bigger and larger and taking the spotlight for the moment. It had more room to recover when it is back to pre-COVID levels now in North America and growing fast. So yes, it's there.

It's just a lesser spotlight on the moment private space only because private space -- or commercial space is doing so good right now, but both are attractive markets. We like them, and they're coming through leveraging one another through the same shop labs footprint is where that offering is there to support the customers. .

And then in terms of visibility for the Aerospace and Defense segment, what are you seeing for the remainder of this year?.

We like that sector. The demand -- supply and demand is in a great place. They're catching back up. You've got good production needs there for our customers and more demands on us. So yes, we feel very confident, very comfortable that aerospace, commercial aerospace had a great year in '23. We see more of the same at '24.

So that is one of our high-growth markets. Again, we mentioned earlier, we're investing some CapEx there to keep the growth going. We do like that sector, and we see it growing -- continuing to grow this year much the same way as it did in '23. .

And then I guess, just 2 more questions. First is on the Data Analytical Solutions business.

I was always sort of under the impression that most of that sort of bundled within your broader set of services -- is -- are you selling Data Analytical Solutions? Is it like build separately? And do you have accounts that do nothing but buy your Data Analytical Solution software and program?.

That is a larger part of the business, Mitch. Most of our Data Analytical Solutions customers and business are outside of our inspection customers.

We do have -- offer that for our own customers and one of our goals is to continue to expand that within our customer base, but the majority of our business is business that -- that's all we do for those customers. We analyze their data. We work on a risk-based process methodology and help them identify which assets to focus on and when.

It saves them enormous amounts of money, and that's why we've had good growth in there. But the -- I don't feel we've scratched the surface on that yet. Our plan for the next couple of years is to really scale that portion of our business because it is the future. That, along with the digitization of the data is really where everybody wants to be. .

Doesn't the Data Analytical Solutions product become a sort of a source of new customer, new business for your full service testing and things? Isn't that like a sort of a feeder or a potential feeder?.

That's an interesting question. It can be a feeder. That business, however, focuses on looking at the data that's been collected. And sometimes it can help us get more inspection business of our own. Clearly, when we do the inspection and the analytics, it's much more efficient for the customer and it's much more effective in the long run.

But we can still do analytics on no matter who has collected the data as long as we can get it in an electronic format. And that's what we've been doing for the past several years.

A lot of our business is coming from customers that primarily provide us with their data, and we can collect that data for them electronically, which is the most efficient way to work in that space. .

Just last question. I did notice that shares outstanding diluted shares were up about $1 million from the fourth quarter.

What was driving that? Is that just option related or restricted stock vesting or?.

No. I think actually missed what that is, is because fourth quarter with some of the charges of Project Phoenix, you would have had net loss there on a GAAP perspective before the add-backs. The shares are affected. You don't dilute your loss with the added shares. So there are certain things that are not denominator.

So just mechanical gap change there, not any real change, substantively more just a change in the GAAP numerator due to the -- that's all. .

And then so should we use the first quarter number for the remainder of the year?.

Yes, absolutely. The -- yes, current quarter would be the right number to use on a weighted basis going forward, absolutely. .

And I am showing no further questions at this time. I would now like to turn it back to Manny for closing remarks. .

Thank you, operator, and thank you, everyone, for joining this important call today 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 on our next call. Everyone, please have a safe and prosperous day. .

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect..