Mistras Group Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 6, 2025

Key Takeaways

  • Robust full‐year 2024 financial results: Revenue rose 3.4% to $729.6 million, adjusted EBITDA grew 25% to $82.5 million, and EBITDA margin expanded by 200 bps to its highest level since 2016, driving net income and EPS to their best performance since 2016.
  • Strong cash generation and balance‐sheet deleveraging: Q4 operating cash flow was $25.7 million and free cash flow $20.8 million, enabling repayment of $20.1 million in debt and reducing leverage below 2.5×, the lowest since Q3 2018.
  • Project Phoenix cost discipline: SG&A expenses fell 6.2% year-over-year to 21.4% of revenue—the lowest level since 2017—while overhead containment delivered a 70% operating leverage conversion of incremental revenue into adjusted EBITDA.
  • Leadership transition and strategic refocus: New CEO Natalia Schuman, with over 20 years of industry experience, has hit the ground running—reviewing the portfolio, prioritizing profitable growth, margin expansion and planning 2025 guidance once FX and tariff impacts are assessed.
  • Diversified end-market momentum: All segments saw revenue growth in 2024, led by aerospace & defense (+13%), while digital IoT software and analytics (PCMS) now cover over 50% of U.S. refineries and midstream is expected to normalize and grow in 2025.
AI Generated. May Contain Errors.
Earnings Conference Call
Mistras Group Q4 2024
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Thank you for joining MISTRAS Group's Conference Call for its fourth quarter and fiscal year ending December 31, 2024. My name is Tanya, and I'll be your event manager today. We'll be accepting questions after management's prepared remarks. I would now like to turn the call over to Thomas Tobolski, Treasurer. Your line is open.

Thomas Tobolski
Thomas Tobolski
SVP of Finance and Treasurer at MISTRAS Group

Thank you, Tanya. Good morning, everyone, and welcome to MISTRAS Group's Fourth Quarter and Full Year 2024 Earnings Conference Call. I'm joined today by Manny Stamatakis, the company's Executive Chairman of the Board; Natalia Shuman, President and Chief Executive Officer; and Ed Prajzner, Senior Executive Vice President and Chief Financial Officer. Our press release and the accompanying slides that we will be referring to today can be found within the investor relations section of our website. As shown on slide number two, I want to remind everyone that remarks made during this conference call, as well as supplemental information provided on our website, contain certain forward-looking statements and involve risks and uncertainties as described in MISTRAS's SEC filings. 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.

Thomas Tobolski
Thomas Tobolski
SVP of Finance and Treasurer at MISTRAS Group

The discussion in this conference call will also include certain non-GAAP financial measures that we believe are useful to investors evaluating the company's performance, but 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 the company's related current report on Form 8-K. These reports are available at the company's website in the investors' section, as well as on the SEC's website. I will now turn the call over to Manny Stamatakis.

Manny Stamatakis
Manny Stamatakis
Executive Chairman of the Board at MISTRAS Group

Thanks, Tommy. Good morning, everyone. Thank you for joining us today. Before we commence today's conference call, I want to take a minute to reflect on the life of Dr. Sotirios Vahaviolos, the company's founder, chairman emeritus, and board director. Sotirios passed away nearly one month ago on February 6, 2025. On behalf of the board of directors and the entire MISTRAS family, I want to express our profound appreciation for the immeasurable contributions Dr. Vahaviolos made to the company, our shareholders, and the communities we serve. A visionary leader and pioneer in the field of non-destructive testing and acoustic emission, Dr. Vahaviolos founded MISTRAS, originally Physical Acoustics Corporation, in 1978 and dedicated over four decades to building it into a global leader in testing, inspection, and asset protection solutions.

Manny Stamatakis
Manny Stamatakis
Executive Chairman of the Board at MISTRAS Group

His expertise, leadership, and commitment to excellence were instrumental in shaping the company's strategic direction and fostering a culture of innovation that remains at the core of MISTRAS today. His legacy will endure and live on as we move MISTRAS forward in his memory. Our products and systems segment, along with our NDT and AE services, will remain as essential competencies at the core of MISTRAS's capabilities, enabling the company to deliver on its overall mission and purpose. On a personal note, on behalf of the entire company, I want to express our deepest sympathies to the entire Vahaviolos family. In remembrance of Dr. Sotirios Vahaviolos, I ask for a brief moment of silence. Thank you. I am sure Sotirios is looking down and smiling about our improved 2024 Q4 and full year results.

Manny Stamatakis
Manny Stamatakis
Executive Chairman of the Board at MISTRAS Group

Our consolidated fourth quarter results allowed us to exceed our revised annual guidance, with the bottom line expanding significantly, demonstrating the margin accretive actions that we have instituted into our business model. On a full year basis, revenue was up in all reported segments, products and systems included, and across all of our industries served, illustrating the increasing diversity of our growing end markets. Adjusted EBITDA was up over 25% versus the prior year, reflecting significant improvement in our operating leverage. Our adjusted EBITDA margin expanded by 200 basis points over the period and was our highest EBITDA margin since 2016. Our operating income of $39.8 million for the full year 2024 was also the highest level since 2016.

Manny Stamatakis
Manny Stamatakis
Executive Chairman of the Board at MISTRAS Group

I am also pleased with our fourth quarter, our fourth consecutive quarter generating net income growth, which was a function of our continued annual revenue growth, gross profit expansion, and selling, general, and administrative expense reductions. Year-over-year, 2024 was a very good year for MISTRAS. I believe 2025 will be even better as the company will continue to build momentum and energy around the profitable growth and to ensure that our leadership team consists of the best and the brightest. I am extremely confident in the course forward for MISTRAS. As Executive Chair, I will remain involved in overseeing the strategic path forward to maximize shareholder value and to support the new invigorated senior leadership team led by our new President and Chief Executive Officer, Natalia Shuman.

Manny Stamatakis
Manny Stamatakis
Executive Chairman of the Board at MISTRAS Group

In our effort to select a new CEO, MISTRAS undertook its most expansive search in the company's history by reviewing over 20 candidates. Our board of directors was thrilled with the selection of Natalia Shuman, and I can share firsthand that she has hit the ground running in her first two months as CEO. I am extremely confident in her ability to lead this company forward. Under her leadership, you will see a new and more invigorated MISTRAS in 2025. Natalia brings more than 20 years of executive leadership experience, including over eight years in the testing, inspection, and certification industry, making her uniquely positioned to lead MISTRAS into its next phase of growth and success. She drove growth at Eurofins Scientific as Group Executive Vice President and Group Operating Council Member from 2021 to 2024.

Manny Stamatakis
Manny Stamatakis
Executive Chairman of the Board at MISTRAS Group

Prior to this, she transformed Bureau Veritas as its North American CEO from 2017 to 2021. Before that, she was innovating at Kelly Services in her role as Head of International Business. Natalia is a proven leader with a track record of success and has driven transformative growth, developed high-performing teams, and led organizations through pivotal periods of change. I would now like to hand the call over to Natalia so that you can hear directly from her before she turns the call over to Ed to give a more detailed overview of our recent financial results. Natalia, the call, the gavel, and the legacy are now in your hands, and we are all excited for the future of MISTRAS, but I'm not putting any pressure on you.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

Good morning, everyone, and thank you. Thank you very much, Manny. I sincerely appreciate the warm welcome from you, the entire board of directors, and my team. I am deeply honored to be leading MISTRAS Group into its next phase of growth, building on the strong foundation established by Dr. Vahaviolos, with the goal of driving meaningful value for all our customers and, in turn, for all our shareholders. I have spent my first 60 days on the job actively talking to customers, being in the field at our in-house laboratories, meeting with the teams, as well as discussing operational strategies with Manny, the board of directors, and other stakeholders. Our strong partnership with our valuable customers, leading technologies, and committed management teams create a solid foundation that aligns well with our long-term vision. I am very excited for the prospect of continued profitable growth heading in 2025 and beyond.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

2024 was a truly pivotal year for MISTRAS under Manny's leadership as interim CEO, wherein the roadmap for success was built, and the company achieved a number of significant milestones, including the second highest level of adjusted EBITDA in the company's history. Additionally, via the successful execution of Project Phoenix, the company's SG&A level, in dollars and as a percentage of revenue, was at the lowest level it has been in over five years. The company's more efficient business model and cost discipline provide a significant level of operating leverage, giving our organic growth aspirations. As shown on slide number seven, the diversification across our end markets and the revenue growth in all of our segments and industries that we serve in full year 2024 over 2023 are creating strong momentum for us.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

I look forward to updating you throughout this year as we make additional progress, and I'm very excited for the journey. I would now like to turn the call over to Ed for more details on the fourth quarter and full year 2024 results.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

Thank you, Natalia, and good morning, everyone. Due to our improved results in operating leverage, as shown on slide eight, we generated $25.7 million of operating cash flow and $20.8 million of free cash flow during the fourth quarter. We used this cash flow to pay down $20.1 million of bank debt during the fourth quarter, and our bank-defined leverage level dropped to below 2.5 times as of December 31, 2024. This is the lowest level this ratio has been since the third quarter of 2018. We continue to fund our organic growth initiatives, including our investment in capital expenditures with cash flow, strengthening our capabilities and footprint to better support our customers. As you might recall, our net cash flow generation lagged our expectations in the earlier part of 2024.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

We are pleased with the gains made in the fourth quarter, and we plan to maintain that momentum as we head into 2025, as we believe self-funded growth represents an attractive and durable option to drive shareholder returns. Turning to our full year results, as shown on slide nine, 2024 consolidated revenue was $729.6 million, a 3.4% increase over 2023. As Natalia said, revenue increased in all reported segments and across all industries served in 2024. This was led by strong performance in the aerospace and defense industry, which experienced a substantial revenue increase of 13% on a full year basis to $87 million. Our core energy industries and infrastructure industry revenue were also up in 2024 over 2023. Full year gross profit increased to $213.1 million, up 4.6% as compared to the prior year, with gross profit margin expanding 30 basis points.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

The increase in gross profit margin to 29.2% was primarily due to the strong growth in our aerospace and defense industry business, which offers a higher-than-average margin. SG&A for the full year 2024 was $156.4 million, down 6.2%, or $10.4 million, compared to $166.8 million in 2023, as a result of ongoing cost calibration and disciplined spending. SG&A for the 12 months ended December 31, 2024, was 21.4% of revenue, a 220 basis point reduction from the prior year and the lowest level it has been since 2017. Reorganization and other costs were $5.5 million for the full year 2024, compared with $12.3 million in the prior year. These costs were incurred to facilitate the company's expense containment as well as the recalibration of our initiatives. Income from operations was $39.8 million for the full year 2024, compared to an operating loss of $1.9 million in 2023.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

On a non-GAAP basis, operating income was $46.2 million for the full year 2024, compared to $25.2 million in the prior year, an increase of 83.3%. This eight-year high was due in large part to our Project Phoenix initiative, strong growth in our aerospace and defense business, and improved performance in our international segment. Interest expense was $3.9 million for the fourth quarter, down from $4.7 million in the prior year quarter. We anticipate lower annual interest expense in 2025 through direct debt paydowns with free cash flow, as well as with continued deleveraging of our adjusted EBITDA growth, both of which would serve to improve our overall cost of debt via a lower credit margin spread.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

We anticipate interest expense being approximately $2 million lower in 2025 versus 2024 to be about $15 million next year, assuming no changes in the underlying SOFR rate and our anticipated TTM leverage level of less than 2.5 times. Our effective income tax rate was 21.8% for the full year 2024 and lower than our statutory rate due to several discrete benefits recognized throughout the year. This effective rate in 2024 was a significant improvement over the 6.5% income tax benefit rate in 2024 due to a non-deductible goodwill impairment in 2023. We anticipate that our effective income tax rate would be approximately 25% in 2025. Our net income was $19 million, or $0.60 per diluted share, for the year ended December 31, 2024. Full year 2024 net income, excluding special non-GAAP items, was $22.7 million, or $0.72 per diluted share, excluding these same special non-GAAP items.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

This EPS performance is the highest level we've generated since 2016. Adjusted EBITDA was $82.5 million for the full year 2024, compared to $65.8 million in the prior year, an increase of $16.7 million, or 25.3%. This increase in adjusted EBITDA was primarily attributable to a favorable business mix and overhead cost containment initiatives. This adjusted EBITDA improvement represents a nearly 70% operating leverage conversion of the incremental revenue increase in 2024 into adjusted EBITDA. With respect to our consolidated results during the fourth quarter, our overall revenue level was down 5.1%, as expected, due to the anticipated decline in oil and gas revenue. However, given the strong operating leverage built into our business model, our income from operations increased by $9.8 million as compared to the fourth quarter of 2023, despite this lower level of revenue.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

Our cash conversion was equally strong in the fourth quarter of 2024, with free cash flow increasing $12.1 million over the fourth quarter of 2023. With respect to our segments, as shown on slide 10, the North America segment revenue in the fourth quarter was $136.9 million, down 7.5% from $148 million in the prior year. This revenue decrease was primarily due to the anticipated decrease in North America midstream industry, as well as a relatively moderate fall turnaround season in 2024, which had been anticipated. This segment's fourth quarter 2024 gross profit was $38.9 million, compared to $42.9 million in the prior year. Gross profit margin was 28.4% for the fourth quarter of 2024, a 60 basis point decrease from the prior year period. This decrease in gross profit margin was primarily due to sales mix.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

The international segment fourth quarter of 2024 revenue was $35 million, up 3.6% from $33.8 million in the prior year. International segment revenue increased in each quarter of 2024 compared to the prior year periods and increased 9.3% on a full year basis. This was primarily attributable to double-digit revenue growth experienced in our international energy and aerospace and defense industries. International segment fourth quarter 2024 gross profit was $10.1 million, with a gross profit margin of 29%, compared to 27.7% in the prior year period. On a full year basis, 2024 international segment gross profit was $39.8 million, an increase of $6.2 million, or 18.5% over full year 2023, with gross profit margin increasing to 29.3% from 27% in 2023. This 230 basis point increase was primarily attributable to improved operating leverage and a favorable business mix.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

The products and systems segment experienced strong growth in profitability, with a 5.2% increase in revenue from $13 million in 2023 to $13.7 million in 2024, yet experienced an 840% increase in income from operations from $0.3 million in 2023 to $2.5 million in 2024. This success was driven by cost reductions and efficiency improvements, which we expect to continue. We are pleased with the performance of this segment and its offerings, including acoustic emission competencies and online monitoring capabilities, which provide us with a competitive advantage that differentiates MISTRAS from competitors. On a full year basis, our net cash provided by operating activities was $50.1 million for 2024, compared to $26.7 million in the prior year. Free cash flow, a non-GAAP financial measure, was $27.1 million for full year 2024, compared to $3.1 million in the prior year.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

This increase was primarily attributable to significantly improved financial results in 2024 and improvements in working capital management, particularly in accounts receivable reduction, despite the higher level of annual revenue. Capital expenditures were fairly consistent year-over-year at $23 million for full year 2024, compared to $23.6 million in the prior year. The company continues to invest in efficiency improvement opportunities, including internal workflow automation and productivity enhancements. Our gross debt was $169.6 million as of December 31, 2024, compared to $190.4 million as of December 31, 2023, a decrease of $20.8 million. This decrease in gross debt year-over-year was attributable to a significant paydown resulting from our favorable cash flow generation in 2024. The company's net debt, a non-GAAP measure, was $151.3 million as of December 31, 2024, compared to $172.8 million as of December 31, 2023.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

All in all, our efforts throughout 2024 are driving improved performance. I am optimistic about 2025 and beyond as we continue to implement initiatives that leverage the unparalleled talent, experience, capabilities, and knowledge that have made MISTRAS a leader in the industry for over 40 years, thanks to the vision of Dr. Sotirios Vahaviolos . We sincerely appreciate your continued support as stakeholders, and we expect to reward your patience with improved results in full year 2025 and beyond. At this time, I would like to turn the call back over to Natalia for her closing remarks before we move on to take your questions.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

Thank you. Thank you, Ed.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

Given my recent appointment as CEO, effective January 1 of this year, the senior leadership team and I have been, and we will continue to review our entire business portfolio with the focus on continuing to grow adjusted EBITDA and earnings per share, as well as continuing to improve our margins. Additionally, the U.S. dollar to euro exchange rate strengthened since we set our budget, and this unanticipated foreign currency exchange risk would unfavorably impact actual revenue translation in 2025. We believe this FX risk will be essentially neutral on our adjusted EBITDA margin and other profitability metrics. Nevertheless, we will be assessing this FX risk as well as the potential impact of the recently announced U.S. foreign tariffs on our business and financial results for fiscal 2025.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

Once this assessment is complete, we anticipate releasing guidance for fiscal 2025 with our goal to continue driving profitable growth, margin expansion, and increasing EPS. There are a few segments and end markets that I am most excited about, our suite of industrial IoT-connected digital software and data analytics being one of them. The data evaluation journey with our customers dates back to our founding as a company, and we will further leverage this competency for growth in the future. Our PCMS software and service offering remains at the core of our one-source application. We will also continue with our long-term strategy of increased investments in solutions for aerospace and defense industries at our in-laboratory testing locations, and we will further extend our service offerings to include more additive manufacturing and mechanical work beyond quality inspection and testing.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

We will also continue to expand our scope of work in the private space industry as a result of robust demand for our non-destructive and destructive testing services in this area. As such, we expect continued strong performance in this industry over the long term. While we acknowledge that there are some challenging market conditions that many of our customers within the oil and gas industry are experiencing, we are encouraged by our current level of data activity and optimistic that we will continue to gain market share by offering a complete suite of integrity services to provide a meaningful ROI to our customers. We will also plan to further diversify our operations into other end markets. Additionally, we'll keep expanding our field inspection business by investing in newer technologies such as the ART crawler, as well as building advanced logistical capabilities using drones, robotics, and rope access.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

Our strong fourth quarter results provide evidence and confidence for our future performance, given our newly found discipline approach and newly established processes. Our continued robust cost management, strategic partnership with our valuable portfolio of clients, and our skillful workforce have us excited for the prospect of continued profitable growth for MISTRAS. I am very pleased to lead nearly 5,000 employees who believe in our vision and are working hard every day to achieve our goals and objectives. I also can feel the high level of energy throughout the organization, and our customers are responding in kind as well, with an increasing level of ROI recognition for the value that MISTRAS employees bring to the equation in delivering on our mission to maximize safety and operational uptime for our customers' critical assets. At this time, I would like to ask the operator to open the call to your questions.

Operator

Certainly.

Operator

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile our Q&A roster. Our first question will be coming from John Franzreb of Sidoti & Company. Your line is open, John.

John Franzreb
Analyst at Sidoti and Company

Good morning, everyone, and thanks for taking the questions. Natalia, welcome aboard. I'd like to start the first question directly to you. You mentioned in your prepared remarks that you not only return facilities, but you met with major customers. I'm curious what kind of feedback you got from customers about their perception of MISTRAS and what they can do better.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

Super encouraged with the positive feedback that we're hearing from the customers, and in fact, they are really excited about the complete suite of our offerings.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

When we are talking about the entire solution for integrity and asset performance management, and I'm starting with the software analytics, engineering services, testing, inspection. There is so much that we can do to unlock the value of our offerings. The customers are really excited about that.

John Franzreb
Analyst at Sidoti and Company

Good to hear. I guess, Ed, this might be more directed towards you. The receivable issue that you had in the past, is that fully behind you, or is there still repricing of some contracts that need to be done?

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

No, we believe that's behind us. We're keeping that in control as a general point for us.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

Yeah, we feel very confident that we'll maintain more momentum in the fourth quarter and stay out in front of that where that's a little less volatile throughout the year, and the cash flows are more even, more smooth over the course of the year. Yes, we believe that's well at hand, and that's become a very top priority for management to focus on. We feel good about that heading into 2025.

John Franzreb
Analyst at Sidoti and Company

Fair enough. I got to admit, everybody, that didn't come through entirely clear on my end, but that might be my issue only. The next question I got is, what are your thoughts about the upcoming turnaround season relative to last year's first-half strong one? Is it a tough comp still, or any kind of qualitative impact or review of the turnaround season would be helpful?

Operator

Please remain on your line.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

I'm sorry.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

Are you still hearing us okay?

John Franzreb
Analyst at Sidoti and Company

That is much, much better.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

Oh, sorry, John. Are you hearing us okay? Sorry, the operator interrupted us there. You hear me okay?

John Franzreb
Analyst at Sidoti and Company

No, the operator. Yes, but I got the last two responses were fairly broken up.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

Sorry. I'm not sure what. Sorry. Hopefully, you hear me okay clearly now?

John Franzreb
Analyst at Sidoti and Company

Much, much better. Yes, sir.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

Okay. Sorry about that. Yeah. We expect 2025 to be a normalized year in the turnaround, oil and gas end turnarounds in particular. As you just pointed out, 2024 was sort of lopsided. The front end was very strong. The spring turnaround season was rather robust. The fall turnaround season we just completed was not. Expect an inverse of that in 2025. We see that the spring will be weaker, the fall will be more robust. Year-over-year, it's normalized.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

The volume is relatively similar, but it does fall into those two halves. 2025 will be essentially the opposite effect as we saw in 2024.

John Franzreb
Analyst at Sidoti and Company

That makes perfect sense. Thanks for the color. One last question. I'll get back into queue. Can you talk a little bit about data analytics? From what I recall, there were some delays in the second half of last year that were pushing jobs into 2025 that would have implied double-digit growth. Is that still the case, or are there additional delays that we should be cognizant of?

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

Our data analytical solution business revenue was indeed down in 2024, and this is due to the timing of certain projects and implementation delays. We will have investments going into this business, and we do anticipate growth in 2025.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

In particular, PCMS continues to be in demand due to the heavier focus on production efficiencies and the capital discipline that is in this oil and gas segment. Jim Redman, who leads our data analytical business, is very optimistic about growth prospects. At this point, PCMS software has been implemented in more than 50% of U.S.-based refineries, and market share continues to grow. We are very optimistic.

John Franzreb
Analyst at Sidoti and Company

Okay. Thanks for taking my questions. I'll get back into queue. Thank you.

Operator

One moment for our next question. Our next question will be coming from Mitchell Pinheiro of Sturdivant & Company. Your line is open, Mitchell. Yeah.

Mitchell Pinheiro
Analyst at Sturdivant and Company

Hi. Good morning. A question. Just curious, how do tariffs affect your business?

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

Excuse me. We're having trouble hearing you on our end. If you could, something is wrong with the communication here. Sorry about that, Mitch.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

We're on the same exact line. We were just speaking in the prepared remarks. We apologize for that. Any better right now?

Mitchell Pinheiro
Analyst at Sturdivant and Company

Right now, it's better. Yes. That's better? Better right now. But yes.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

Okay. Sorry about that.

Mitchell Pinheiro
Analyst at Sturdivant and Company

Yeah. I just had a question. I think we're getting better.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

Okay. Sorry. I'll re-answer that. Sorry. The microphone may have switched in the room here. We apologize for that. Yeah. On the tariff question, too early to tell. We are assessing that, but no, no impact at the moment. We're studying, however, what the tariffs might mean to our business.

Mitchell Pinheiro
Analyst at Sturdivant and Company

Okay. I mean, so not putting out guidance because there is some uncertainty here. I get it, but it's like if it's not going to have that much of an impact, I don't really understand the connection.

Manny Stamatakis
Manny Stamatakis
Executive Chairman of the Board at MISTRAS Group

Mitch, I'll jump in on that.

Manny Stamatakis
Manny Stamatakis
Executive Chairman of the Board at MISTRAS Group

As Natalia said, she and her team are evaluating all our lines of business, and we felt it was appropriate for her to take a little time to do that. Once she has had time to look over everything, we will be releasing guidance. It's not predicated solely on the tariffs.

Mitchell Pinheiro
Analyst at Sturdivant and Company

Okay.

Mitchell Pinheiro
Analyst at Sturdivant and Company

Okay. Got it. Understood. In the oil and gas business, midstream's been down for three straight quarters. I always kind of thought midstream was going to be a more steadier type of revenue line for you guys. Can you talk a little bit about what's going on on the midstream?

Operator

Please stand by.

Mitchell Pinheiro
Analyst at Sturdivant and Company

Hello?

Operator

Please stand by. Your conference will resume momentarily. Ladies and gentlemen, please stand by.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

I received my answer. The midstream subcategory did experience some project delays in 2024, but we do expect growth in 2025.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

There are some regulatory changes that are pending, driving stricter pipeline integrity requirements and increased demand for the advanced inline inspection technologies that we offer. That is what leads us to believe that we will have improved performance in midstream.

Mitchell Pinheiro
Analyst at Sturdivant and Company

Okay. Thank you for that. I would love to learn a little bit more about the data analytical solution segment. I mean, it is obviously a big growth focus, but sales were down last year. They were down in the fourth quarter. I am curious as to why and what type of strategic changes or if there are any strategy changes being made.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

There are no strategic changes per se in data analytics. We continue investments in that. As I mentioned before, there are some delays in implementation, but we continue to invest in this sector of our business.

Natalia Shuman
Natalia Shuman
President and CEO at MISTRAS Group

What is interesting is really that we now have very collaborative sales efforts offering the entire suite of our solutions, starting with the digital software and offering engineering services, the implementation, and then going into the inspection, testing, and also followed by some of our products like monitoring technologies. That is what I think differentiates us. As I mentioned, we are already in 50% of U.S. refineries, so we are certainly not changing our strategy. The idea is to really extend it beyond the oil and gas industry as well as to extend our market share within the oil and gas industry.

Mitchell Pinheiro
Analyst at Sturdivant and Company

Okay. I guess just one more question, and I will get back in the queue, but on the SG&A side, is the fourth quarter level the sustainable level in dollars, or was there some one-time help you had in the fourth quarter?

Mitchell Pinheiro
Analyst at Sturdivant and Company

Can you talk about that, please?

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

No, that's just a quick question. No, that's a relatively normal level to annualize going forward. Yeah, we have internalized this Project Phoenix discipline into our cost control, cost recalibration. Yeah, that's a relatively good base to start for modeling forward. We intend to keep very tight controls on overhead, up in cost of control, as well as down in SG&A. Yeah, that's a good one rate exiting the year with SG&A.

Mitchell Pinheiro
Analyst at Sturdivant and Company

All right. Thank you. I appreciate the answers.

Edward Prajzner
Edward Prajzner
Senior EVP and CFO at MISTRAS Group

Thank you, Mitch.

Operator

Okay. I'm showing no further questions at this time. I would now like to turn the call back to Manny for closing remarks.

Manny Stamatakis
Manny Stamatakis
Executive Chairman of the Board at MISTRAS Group

Thank you, Operator. Thank you, everyone, for joining this important call today and also for your continued interest in MISTRAS.

Manny Stamatakis
Manny Stamatakis
Executive Chairman of the Board at MISTRAS Group

With the baton now officially passed to Natalia, she will be providing you with an update on our business and progress achieved towards our ongoing initiatives on our next earnings call. As I stated, I am very confident in her abilities to succeed me as Chief Executive Officer leading MISTRAS going forward. I will continue to do my best to honor the legacy that Dr. Sotirios Vahaviolos built by being a steward of MISTRAS going forward with a focus on continuing to improve shareholder value. I believe we have an extremely bright future ahead of us with our invigorated executive team who will lead MISTRAS for years to come, delivering improved results and generating enhanced value for our shareholders. Safety and asset integrity will remain our core mission and purpose.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Analysts
    • Natalia Shuman
      President and CEO at MISTRAS Group
    • Manny Stamatakis
      Executive Chairman of the Board at MISTRAS Group
    • Edward Prajzner
      Senior EVP and CFO at MISTRAS Group
    • Mitchell Pinheiro
      Analyst at Sturdivant and Company
    • John Franzreb
      Analyst at Sidoti and Company
    • Thomas Tobolski
      SVP of Finance and Treasurer at MISTRAS Group
Powered by Quartr