Mistras Group Inc

Good day, everyone. My name is Layla and I will be your conference operator today. At this time, I would like to welcome you to Mistress Group, Inc. Q2 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, and if you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. At this time, I would like to turn the call over to Thomas Tableski, Senior Vice President of Finance and Treasurer.

Good morning, everyone, and welcome to Mistress Group's second quarter 2025 earnings conference call. I'm joined today by Natalia Schuman, President and Chief Executive Officer, and Ed Preisner, Senior Executive Vice President and Chief Financial Officer. Before we start, 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 Mistress' SEC filings. The major actual factors that can cause Mistress' 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 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 -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'll now turn the conference call over to Natalia Schuman.

Good morning, everyone. Thank you for joining us today. It is my pleasure to be providing you with an update on our progress to date and report on our second quarter and first half results. I'm very pleased to report on our second quarter performance, which resulted in a record-adjusted EBITDA of $24.1 million, up nearly 9% -over-year, reflecting significant improvements in our operating leverage as a result of effective execution of our strategic priorities, diversifying our business, building scale and efficiencies, and engaging with our customers, all while leading with technical innovation. In Q2, we strengthened our performance across several key areas as compared to the prior year, comparable quarter. Most notably, we demonstrated organic growth of over 14% in our international segment, primarily within our European operations, and growth of over 30% in our PCMS service offering within our data solutions business. Within our end markets, we delivered growth of .4% in aerospace and defense and .2% in industrials. These gains were offset by softness in our oil and gas end market, largely due to macroeconomic volatility in the beginning of the year and subsequent customer deferrals and project delays. We do expect a stronger second half in oil and gas, largely due to our strong fall turnaround season. The majority of this work has been awarded to us and is hands in our backlog. I'm also very bullish on the overall energy market. I had the honor to present at New York Energy Week 2025 back in June discussing the future of energy and the role we play in enabling this progress. From extending asset life and supporting the energy transition to rapidly growing demand for the new infrastructure assets, the way we inspect, monitor, analyze the grid has never been more important. And at MISTROS, we are proud to help customers do just that, with data-driven solutions that improve safety, performance, reliability, and uptime, which we believe will help us grow both top line and bottom line for the remainder of the year and into the future. Aerospace and Defense is our second largest end market, and we delivered .4% revenue growth in the second quarter, following a slow start to the year in Q1. The momentum we've seen in this market gives me confidence in our growth prospects within this end market going forward, as we continue to expand and leverage the capabilities in our Aerospace and Defense platform, supporting both Boeing and Airbus supply chains, as well as private spacecraft customers. Given the attractive margin profile in this segment, we believe this growth will produce a meaningful impact on our financial performance in the second half and beyond. As further evidence of the evolution of our platform is our recent National Aerospace and Defense Contractor Accreditation Program, NADCAP, certification for welding services, which adds to our Aerospace Quality System certifications previously achieved. NADCAP certifications ensure that companies meet specific industry standards and requirements, enhancing product quality and reliability, and safety standards are adhered to. This certification reflects our dedication to precision, consistency, innovation, and meeting the highest standards required by leading Aerospace manufacturers. Over the past quarter, as part of our efforts to restart our growth engine, I have established a key strategic initiative for myself, as well as the senior leadership team, both at corporate level and in the field, to improve customer engagement. The voices of the customer is crucial to us. We have been actively listening in order to better understand our customers' evolving needs, as well as their current assessment of our services level. My executive team and I have met with over 100 customers during the first half of 2025 alone, and the message being received is crystal clear. Our customers value our trusted relationships, and they are also asking for a more proactive partnership with integrated, agile, customizable solutions while maintaining cost efficiency. As an example, we've learned that our customers are going through their own management consolidation, restructuring, and reorganizations, specifically in the oil and gas industry. During these conversations, we continue to showcase our differentiation and value proposition to our customers, especially when it comes to our integrated digital offerings, predictive analytical tools, and breadth and depth of our global footprint and coverage, which we believe will greatly assist them in reducing their maintenance cost while improving their reliability. In certain cases, we also learned that we have not connected closely enough to our customers. This input we received is invaluable to us. And our recent actions will be internalized as we continuously and proactively seek feedback moving forward. This dialogue is shaping our capital investment and our R&D roadmap and reinforcing our role as a long-term strategic partner for our customers. With respect to our data solutions business, this business is a key pillar in our forward strategy where we deliver tailored, high-value solutions that integrate our proprietary software and advanced analytics. We recently held our PCMS users conference in Orlando, Florida in June. This conference was once again attended very well with over 110 participants representing over 40 customers. The content was focused on upcoming release of PCMS and recently launched mobile version. We also showcased case studies highlighting real-world customer successes through the use of 3D modeling and digital twins. These case studies were developed based on customer feedback gathered during last year's conference and refined over the intervening period. In a similar manner, our PCMS customers simultaneously expressed their current challenges and needs and shared within a network of industry peers while at the same time actively engaging in the development of the roadmap for future PCMS software updates and upgrades. Many of our customers also share that digital transformation is a top priority for their organization and that they have allocated budgetary spending in this area to improve asset performance and uptime which we are well positioned to capitalize on. Again, our primary objective is active engagement and seeking real-time input from customers in order to evolve our solutions for them collaboratively addressing their needs at the same time maximizing our ROI while maintaining leading edge innovation. As part of our end market diversification efforts, we have experienced increased level of overall commercial bid activity which has resulted in recent wins in other end markets beyond our core in oil and gas. This diversification helped contribute to our 30 basis point improvement in gross profit margin in Q1 of this year which greatly expanded to a 200 basis points increase in Q2 of this year which increased margins across all segments as compared to the prior year comparable periods. We are focusing on areas such as new construction projects related to data centers, AI, and other high margin infrastructure and power generation projects in addition to opportunities in the industrial and other process industries. We have already made good progress in power generation and transmission and market as evidenced by our quarterly revenue growth of over 30%. As we retool, reshape, and reinvigorate our business, we have taken many decisive steps to enhance profitability and sharpen our focus. This reflects the strengths of our operating model, disciplined cost management, and continued focus on driving efficiencies across the business. These results demonstrated our ability to deliver value despite market volatility positioning us well to restarting our growth engine. We have adjusted our company's organizational structure, delayed the organization, reinforced performance management at each lab, and implemented clear KPIs which are used to continuously manage performance and control our costs. These are not just short-term cost calibrations, they are structural improvements designed to improve and expand decision-making capacity, reinforce the field organization, and help ensure operating leverage through all business cycles. As a result of these efforts, in 2025 we decided to close and consolidate several underperforming offices and lab operations, effectively exiting several unprofitable businesses and eliminating operations that had negative income and unclear paths to sustainable returns. The revenue loss tied to these labs amounted to approximately $3 million in Q2 and $5 million in the first half, which drove a portion of our 2.3 -over-year reported revenue decline. Excluding those exited revenues, our overall revenue base was effectively flat in Q2 as compared to the prior year comparable period. At the same time, these actions have contributed to EBITDA improvements in the first half of the year and will positively reflect in our overall 2025 results and beyond. Ultimately, while these labs closures are short-term revenue drag, the strategy to reduce underperforming assets and projects will be an evergreen effort while focusing on profitable growth to drive margin expansion. We have remained focused on the development and retooling of our in-lab services business, a process that began with an appointment of a new senior vice president of in-lab services in April. Since then, we have integrated and standardized operating protocols across all of our lab facilities, hired a new divisional sales leader, secured additional accreditations, and expanded our portfolio of service offerings. Customer conversations have reinforced that the industry continues to face near-term inflationary pressures and supply chain constraints. Having said that, we believe our integrated approach, coupled with the most comprehensive suite of services in this market, positions as well, to create meaningful value for our customers via offering premium services and expanding our capacity. Looking ahead, we will continue to invest in this business through strategic and focused capital expenditures and a sharpened focus on growth over both the near and long term. Overall, despite this performer flat revenue in Q2, we significantly improved profitability. We have increased our adjusted EBITDA by 8.9%, driven in large part by a growth margin expansion by 200 basis points, with expansion across all segments due to diversification efforts and improved operational efficiencies. Our balance sheet also remains strong as we continue to manage our working capital and control discretionary spending while making continuing investment in our capabilities. Our leverage ratio still remains slightly below 2.75 and well below our permitted ratio of 3.75. Our goal is to finish 2025 with a leverage ratio of below 2.5. To conclude my opening remarks, I would like to say that we are not just managing quarter to quarter, we are building for the long term future. We have restarted the growth engine in our industrials and airspace and defense and markets and are keenly focused on improving our performance and capabilities in oil and gas and diversifying to other industries such as infrastructure and power generation and markets, all of which will drive long term growth. We are also reassessing our portfolios through the lens of return on invested capital and alignment with current and future market trends. Our strategic objective is to become an agile, client-focused, innovative asset integrity and testing market leader and ready to scale as demand expands. In short, we are staying close to our customers, changing what we no longer feed, improving our bottom line and investing in what is needed for our customers. As the market continues to evolve, we are focused on aligning our capabilities to meet increasing demand for more integrated and data-enabled solutions. By combining advanced technologies with deep operational expertise, we are positioning MISTROS to lead in high growth sectors and provide critical support where reliability, safety and performance matter the most. With that, I will turn the call over to Ed for more financial details on the second quarter and first half results.