Mistras Group Inc (MG) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2010 Mistras Group Inc. earnings conference call. My name is Eric; I will be your audio coordinator for today.

At this time all participants are in a listen-only mode and we will facilitate the question-and-answer session towards the end of the presentation. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn your presentation over to Sotirios Vahaviolos. Please proceed.

Eric, thank you very much and good morning to all. Welcome to the Mistras Group earnings conference call to discuss our recent company performance. Again, my name is Sotirios Vahaviolos; I am the Founder, Chairman, and Chief Executive Officer of Mistras.

Joining me today is Pete Peterik, the CFO of record for fiscal 2010, who is transitioning now off his role after we file annual report as well as Frank Joyce, our new company Chief Financial Officer, who joined our team last month. Working together we are assured of financial continuity as Pete passes the baton to his successor.

The purpose of today's conference call is to discuss our recently released financial results for the Company's fourth fiscal quarter and annual results that ended May 31, 2010. Our primary objective of this call is to provide you with a clear understanding of our performance and prospects. This discussion is intended to supplement our quarterly earnings release and our filings with the Securities and Exchange Commission.

Pete will begin with a brief disclaimer about the information we are providing today and Frank will follow with a summary review of our financial results. I will then follow Frank with remarks and observations about our performance, marketing activity, and prospects. We will then answer any questions you may have.

With that, Pete, let me turn it over to you.

Thank you, Sotirios. First, I want to remind everyone that our discussions during this conference call will include forward-looking statements. Actual results could differ materially from those projected and factors that could cause actual results to differ are discussed in the prospectus for our IPO dated October 7, 2009, and our reports on Form 10-Q and Form 8-K.

Also, the discussions during this conference call will include certain financial measures that were not prepared in accordance with US Generally Accepted Accounting Principles. Reconciliations of those non-US GAAP financial measures to the most directly comparable US GAAP measures can be found in the Company's current reports on Form 8-K dated August 10 and 11, 2010. These reports are available on our website at www.MistrasGroup.com in the Investors, SEC Filings and Reports section, and on the website of the Securities and Exchange Commission.

Now I will turn the call over to Frank, who will present our financial results.

Thank you, Sotirios and Pete. For the fourth quarter revenues were $79.8 million as compared to $55.9 million in the fourth quarter of fiscal 2009. The increase of $23.9 million or 43% was the result of significant growth in all of our segments led by our services segment, which had a 45% increase in revenues for the fiscal fourth quarter. For fiscal 2010 our consolidated revenues grew by 30% to $272.1 million, again led by services which grew by 36%.

Our fourth-quarter gross profit was $25.1 million representing a 39% increase over the fourth quarter of fiscal 2009. Our gross profit margin, which is calculated as a percentage of revenues, was 31.4% in the fourth quarter versus 32.2% in the fourth quarter of 2009. The gross profit margin for all of fiscal 2010 was 30.4% versus 33.1% in the prior fiscal year.

Our fiscal 2010 fourth-quarter operating income was $8.2 million compared to $4.3 million in the fourth quarter of fiscal 2009. Operating income for all of fiscal 2010 was $20.3 million, representing a 37% increase from fiscal 2009.

SG&A for the fourth quarter of 2010 represented 18% of revenues as compared to 20% of revenues in the fourth quarter of fiscal 2009. For the fiscal years 2010 and 2009 SG&A expenses represented 20% and 22%, respectively, of revenues. SG&A decreased as a percentage of revenue in fiscal 2010 despite an increase in stock comp expense of $2.5 million.

Net income attributed to Mistras Group was $4.9 million in the fourth quarter compared to $1.5 million in the fourth quarter of fiscal 2009. Diluted earnings per share were $0.18 versus a loss of $2.48 per share for last year's fourth quarter. You may recall that last year's EPS calculation included the impact of preferred stock accretion which essentially treats increases in preferred stock valuation as a reduction to EPS.

For the 2010 fiscal year net income attributable to Mistras Group was $10.1 million versus $5.5 million in fiscal 2009. Diluted earnings per share for fiscal 2010 were $0.41 versus a loss of $1.67 per share in fiscal 2009. Again, preferred stock accretion was a significant factor in contributing to the negative EPS in fiscal 2009.

We use adjusted EBITDA as a non-GAAP measure to evaluate our performance and we believe this represents an appropriate short-term metric given our level of depreciation and amortization expense, acquisition-related costs, and stock compensation expense.

Adjusted EBITDA for the fourth quarter of fiscal 2010 was $13.2 million or 16.6% of revenues versus $8 million or 14.3% of revenues in the fourth quarter of fiscal 2009. This represents a 65% increase in adjusted EBITDA over the prior quarter. For the fiscal year 2010 adjusted EBITDA was $39 million or 14.3% of revenues representing a 25% increase over adjusted EBITDA in fiscal 2009.

Now I would like to make a few brief comments on our cash flows and balance sheet. The Company continues to generate strong free cash flow. When our 10-K is filed in the next few days I expect our statement of cash flows to show that the Company generated approximately $6 million in free cash flow in the fourth quarter of fiscal 2010 versus $4 million in the fourth quarter of fiscal 2009. Fr this calculation free cash flow is defined as net cash provided by operating activities less capital expenditures. I expect free cash flow for all of fiscal 2010 to be in the $16 million to $17 million range versus $7 million in fiscal 2009.

Our overall accounts receivable has improved slightly with approximately 83% of the current year's balance in the current or 1- to 30-day categories versus 79% in the prior year. DSO at the end of fiscal 2010 was 60 days versus 61 days in fiscal 2009.

Cash capital expenditures for fiscal 2010 were $2 million, representing 0.7% of revenues versus (inaudible) million in fiscal 2009 or 2.6% of revenues. Total CapEx, including equipment financed through capital leases, was $7.9 million in fiscal 2010 or 2.9% of revenues versus $12.9 million or 6.1% of revenues in the prior fiscal year.

As of May 31, 2010, our net debt was $10.6 million versus $75.1 million on May 31, 2009. As of May 31, 2010, the Company had cash and cash equivalents of $16 million and an undrawn revolver balance of $55 million.

With that, Sotirios, I would like to turn it back over to you.

Thanks, Frank and Pete. I want to especially thank Pete for his past service to Mistras. Now I would like to share with you our perspective and commentary as to our recent performance and overall business, both as to this most recent fiscal year and for the future.

Once again I would like to start by reminding you that Mistras is a unique business model of technology-enabled asset protection solutions for the world's aging industrial and public infrastructure. Our model is to be that of a single-source provider, employing industry-leading products, services, and software.

Our approach emphasizes the outsourcing of services by our customers to Mistras where we perform daily inspection and plant maintenance on what we refer to either as run and maintain or an evergreen contract. This model reduces our dependence on capital projects business, which when they occur results in incremental revenues for Mistras.

We are very pleased with our fiscal 2010 revenue and adjusted EBITDA growth, achieving double-digit growth in both categories. Our fiscal year revenue growth of 30%, a corresponding CAGR of 31% over the last four years, as well as 11 consecutive fiscal years with double-digit revenue growth is a testament to our business model.

Our fiscal year 2010 organic growth of 18% was consistent with our average organic growth over the last four years and is quite remarkable given the state of the economy. It is also noteworthy to report that for the fourth quarter in fiscal 2010 we achieved record revenues which were 43% greater than the fourth quarter of 2009.

We are also pleased with the 25% increase in our adjusted EBITDA in fiscal 2010 to $39 million, generating a CAGR of 33% over the last four years. This increase in adjusted EBITDA was a result of higher volumes and leveraging our selling, general, and administrative costs.

Let me say a few words about our revenue growth. We continue to pursue our marketing strategy of obtaining growth primarily from existing customers by offering them more solutions out of our one-source marketing approach as well as pursuing new customers in our target markets. In fiscal 2010 approximately 70% of our growth has been achieved by growth of our top 10 customers with a significant number of contract wins, expanded revenue from acquisitions, and customer acceptance of additional asset protection solutions.

Our large blue-chip customers remain the foundation for our future growth and profitability. In fiscal 2010 we enjoyed robust growth in our power generation and transmission market which grew 31% and our process industry markets, primarily chemicals, which grew by 19%. Thanks to several orders for equipment to test composites for the joint strike fighter our aerospace market was up 18%.

Sales of PCMS enterprise software licenses and related software services in our asset integrity management offerings increased by over 70%. All the above are indicative of our market potential, but these increases were overwhelmed by a 43% increase in our oil and gas market which accounted for approximately 60%, 63% of our fiscal 2010 revenues.

It should, however, be noted that our business in this market is very distributed with approximately 39% of our total revenues coming from the downstream or refinery markets. We now share over 66 evergreen locations where we have resident status employees performing daily services on an outsourced basis and that is providing Mistras with a recurring revenue stream.

During the year we added 25 new evergreen sites to our total including 12 refineries, 10 chemical plants, and three midstream oil and gas locations. Today there are approximately 150 refineries in the US and Mistras shares 46% -- 46 of them for a leading market share. More importantly, Mistras maintains evergreens in 57%; these are the 35 out of 61 of the US largest 100 [barrels] per day or higher refineries.

Even with these outstanding numbers, additional asset protection solution opportunities exist in the locations we serve. Our share of less than 7% of the world market is indicative of the opportunities we have in refineries.

As many of you know, BP has historically been our largest customer and our relationship with them dates back to 1985. In fiscal 2010 they accounted for approximately 17% of our revenue but trending down to 15% in our fourth quarter as we have diversified our oil and gas markets by obtaining more business from other large oil companies. In fiscal 2010 our revenue volume with BP has once again increased and our relationship continues to be as strong as ever.

We support our friends and partners at BP as well as those in the Gulf impacted by this tragedy. We believe that, like any other accident, more emphasis will be paid on additional safety and thus more future inspections and asset protection solutions will be required. Nothing will be immediate but we see more business coming from the offshore industry in the future.

Turning to our profitability and margins, the rapid growth in our Services segment with its four-year CAGR of 37% has presented a challenge for the last two years since much of the revenue increase came from new multi-year contracts where the initial customer services needs are traditional non-destructive testing or base-type American Petroleum Institute, or API work as we call, which along with contract start-up costs produce lower margins.

The margin decrease in our numbers can be attributed to the 36% growth in our Services segment which has a lower margin profile where they may -- can be accounted by pricing pressures from large refinery and chemical customers and entity mix. At the same time the new revenue base obtained during the year becomes our platform for secular growth and delivery of new and existing advanced asset protection solutions.

Although 84% of our revenues came from the Service segment, our two oldest segments, Products and Systems and International, also achieved revenue growth during the year and contribute higher margins to our business. More importantly, these segments provide the high technology that drives our overall growth and profitability. Our operating margins increased and we drove greater adjusted EBITDA dollars as a result of higher volumes and leveraging our selling, general, and administrative costs.

In summarizing fiscal 2010, we had a successful initial public offering, maintained our strong organic and overall revenue growth of 30%, achieved 25% growth in adjusted EBITDA, and increased our operating margins. We also completed a large number of high profile projects, won several significant contracts, increased our headcount by over 600, and counting a small acquisition just completed we now have over 2,300 employees in 70 worldwide locations and 15 countries and are well positioned for continuous growth and improved profitability.

Now let us focus on our outlook for fiscal 2011 and beyond. As noted in our earnings release, we are projecting fiscal 2011 revenues to be in the range of $300 million to $330 million and adjusted EBITDA to be in the range of $44 million to $49 million. These projections anticipate continued organic growth supplemented by acquisitions, as well as improvement in our profitability.

Based on a proven track record of 11 years of double-digit revenue growth and more than 30 years in developing the technology of the future, we are upbeat as to fiscal 2011 and beyond. We will continue our business model of delivering technology-enabled solutions for the world's industrial and public infrastructure, leveraging the talent and experience of our 30 or so PhDs, our older scientists, engineers, and skilled certified technicians of our centers of excellence providing our customers a single-source for their asset protection needs.

We project continued growth in oil and gas as well as our other markets. Although cautious about the profitability of our refining customers, we are encouraged by recent reported financial results. As you likely know, the recent earnings report of several major oil and gas companies, including Chevron, Exxon Mobil, Total, and ConocoPhillips, all pointed out to significant refinery profits as a driver of their improved earnings. In addition, ConocoPhillips reported that their US refining capacity utilization rate to be 96%. We believe these results boded well for our refinery business.

At the same time we will continue on our efforts in our other target markets including power generation and transmission, chemical markets, and infrastructure. Our markets, including aerospace and international sectors, have been sluggish, especially as to our inspection testing, but offer us upside potential. We fully expect additional revenues, both traditional and expanded advanced services from the multi-year services contracts we won this fiscal year and the continued payback from our investment in the centers of excellence which are the incubators of new technology and customer solutions.

We continue to have potential for new revenue from our ultrasonic imaging systems and 24/7 online monitoring projects to monitor bridges, wind turbines, and other structures. Mistras has recently won a major contract for a continuous online structural health monitoring system contract valued at $33.4 million to be installed on the San Francisco Oakland Bay Bridge. Mistras will be the prime contractor for the project responsible for the sensors and systems manufacture, installation and implementation, and providing 24/7 remote health monitoring.

When completed this will possibly be the largest and most advanced automated structure health monitoring system in the world.

This contract is another example that Mistras is the leader in online monitoring 24/7 the integrity of infrastructure. Within the last 10 years alone Mistras has provided testing and health monitoring of hundreds of bridges and structures worldwide, among which include some of the largest and well-known bridges in the United Kingdom, Pennsylvania, and the greater New York metropolitan areas.

Most of the structural health monitoring contracts, particularly for these large historic bridges involve multi-year monitoring of the structural integrity generating annual revenue streams for these four installation services.

We also expect revenue from our business model of successfully making small bolt-on acquisitions. Subsequent to year-end we made a small acquisition in France and one in Washington state. We acquire the Technical Services Division of (inaudible) Corporation, a northwest regional engineering [firm], effective August 2, 2010. [Andrew's] Technical Services Division provides not only non-destructive testing services but also metallurgical testing services, which is a complementary service we can now offer to our customers nationally.

We are continuously evaluating additional acquisitions, not only in the US and France but in the rest of Europe, the Middle East, and South America where we have existing management infrastructure and offer advanced services and product support. Our guidance for fiscal 2011 implies maintained growth in revenues and profitability. After carefully considering current market conditions we believe an improvement of approximately 75 to 100 basis points over last year's is certainly achievable.

Our management is focused on improving margins and profitability in five areas which are -- providing more advanced services to our existing evergreens, aggressively pursuing more aerospace and industrial parts inspection, improving labor utilization and productivity, leveraging our lower margin API inspection work to obtain more asset protection revenues, and controlling our costs.

My father used to say that you need to pay daily attention to the cash register and at Mistras Worldwide we have adopted his words of wisdom as an important part of our culture. The reasons for last year's lower profitability in our business were complex thus solutions cannot be found in a single management cost-cutting action but the relentless effort to better manage our business through the entrepreneurial offices we have created worldwide.

As we continue to grow with national and global multi-year contracts, we must expect tough negotiations and continuing pressure on our margins. Keys to our future profitability must include providing our customers with new technologies and higher-value services, providing -- improving technician productivity and utilization while maintaining that daily habit of watching the cash register.

Our business model continues to provide predictable and consistent revenue, less vulnerability to more cyclical capital projects, and is the basis for leveraging our growth. Both private and public infrastructure continues to age and needs to be assessed and monitored. We believe the solutions we offer are not optional but critical. These trends should enable us to serve our customers more efficiently and have a positive impact on our revenue, growth, and profitability.

Finally, I am very proud and thankful of our employees. Their continued search of excellence in asset protection solutions instills confidence and trust in our customers as they outsource their inspection and plant maintenance to us that the Mistras team will meet and far exceed their expectations.

That concludes our initial remarks. Let us now open it to questions. Eric, can you help us?

(Operator Instructions) William Stein, Credit Suisse.

Good morning, guys. The bridge contract that you mentioned, Sotirios, have you ever participated as a general contractor in this fashion before? And if you can comment on the margins in that kind of business and how long you think it might take to achieve that, I think you mentioned $33 million in revenue.

No, no, $3.4 million. I wish it was $33 million.

Okay. So it's -- got it. And margins on that kind of business and whether you had participated as a general contractor the way you say you are in this business?

Well, typically we do not really discuss margins but I will make the statement that it's higher than the Service gross margins.

Okay. And then the follow-up is regarding acquisitions; you mentioned two of them that closed after the quarter I believe. Have you done any others since the fiscal second quarter of 2010? I think we have -- pre-IPO there were a lot and then it felt like perhaps there hadn't been any since --

Last year -- for the record, last year we did two acquisitions in July of last year and we made one small acquisition, which really was another engineering company that had NDT services that we acquired. That was in the November timeframe -- the November, December timeframe.

And none in the second half?

Not in the second half.

And the guidance for fiscal 2011 includes acquisitions that -- I was confused by this point. It sounded like you were saying that it includes acquisitions that are being contemplated. Is that right?

Will, this is Frank. I think the best way to look at the guidance is that the lower end of the range is organic growth and the top end of the range includes in acquisition. So if you are looking for guidance on just the organic growth --

I am just trying to -- what I am trying to get at is does the guidance include acquisitions that were done recently or that have not been completed yet but you anticipate?

It was a small acquisition that was recently completed that is in the guidance.

And not others that might be completed?

There would be a small number of acquisitions that would be consistent with our pattern. There is nothing very large that would be anticipated, Will.

Okay, got it. Thanks, guys.

Scott Levine, JPMorgan.

It's Scott Levine, JPMorgan. You mentioned that 25 evergreen contracts were added in fiscal 2010. Could you talk about were the additions ratable throughout the year? Did you see building momentum as the year ended?

And maybe if you can provide some color, you mentioned in the oil and gas business some positive earnings reports out of the majors. Anecdotally, what types of spending behavior and patterns you have seen? Are things picking up on the margin as we exited fiscal 2010 and move into 2011?

Well, the refineries, the projects that we got in refineries what happened it was distributed evenly throughout the year actually. There was not really a specific month that we had a lot more than other months. That is the one answer on this.

As far as -- the only thing we can say that the pressure on pricing in the refinery market has really ceased since the beginning of the year. Last year we had a lot of pressure but not this year.

Okay. So it sounds like things have kind of stabilized on the pricing front and your expectation is that that will remain the case throughout 2011?

That is right. We need -- we also -- I am sorry, Scott, we also need to understand that we are really doing the run and maintain which means that our services are really necessary, so we don't depend on capital projects. So, therefore, there is not going to be a lot of changes in our mix of our business.

Got it. And then without asking for guidance within guidance for 2011, is your ex -- can you provide maybe a little bit of color around both seasonality and maybe mix of services versus product and systems in International? Is your expectation that 2011 would be generally consistent with 2010 or do you anticipate any changes in either mix or seasonality?

I think the seasonality will always exist I think.

Okay. And do you expect a mix, a higher mix of products and systems in International to drive some margin expansion in 2011 or do you expect the mix to be consistent with 2010?

I think it will be consistent with 2010.

Okay, great. Thank you.

Matt Duncan, Stephens.

Good morning, guys. Congrats on a good quarter here. The first question I have got I want to try and get a little clarity on the guidance here.

It sounds like, if I am understanding you correctly, the right way to look at the guidance is the business that you own today including the small acquisitions that you have made is sort of the low end to the midpoint of both the revenue and EBITDA guidance. And then the midpoint to the high end would be assumed acquisitions that have not yet closed. Is that the right way to think about it?

We agree on that 100%.

It's a fair way to look at it.

That is the way.

Okay, that is helpful. And then when you look at your margin assumptions that are baked into that guidance, are you assuming that you will get much gross margin increase in 2011 or are you really looking more at SG&A leverage driving the bottom line?

Well, Matt, if you notice in my remarks I mentioned five key points and would like to stick to them.

Okay. And then the last thing I got here and I will jump back in queue, it looks to us like refiner profits are up, refinery utilization rates are up, and theoretically that should be good for you guys especially if you layer in the concerns around plant assets in the wake of the BP oil spill. I am just curious, are you seeing any change in underlying demand for your services at this point as you look out into FY 2011?

Not really. Basically we might have more business because of the more evergreens that we got, but we do not see anything abnormal.

So that would be upside then if that happens?

That is right.

Okay. Thank you, Sotirios.

Fred Buonocore, CJS Securities.

Good morning. Sotirios, on the last call you talked about some clients managing turnarounds differently and the scope and length of time on some of these projects being shorter and kind of leaving you guys under-utilized on your workforce. What had you seen through the fourth quarter in regards to that?

Well, Fred, we really did not see what we saw last year. We saw a little bit, a lot less; maybe there were some small changes but they were really minimal to discuss.

Okay.

There was no comparison to the previous third quarter, let's say.

So in other words, that is a pressure that eased substantially?

It looks like basically -- keep in mind that also there is always the need or inspection because you can't delay it too long. So therefore things are going to really be less and less as they were in the third quarter.

Sure, excellent point. And then my second question relates to acquisitions given that that is a key point or a key aspect to the higher end of your guidance as Matt just pointed out.

Can you talk a little bit about the acquisition environment and where you would be seeking these kinds of transactions and maybe how close you are on some that you may be handicapping with a high probability in terms of getting into that high end of your guidance? Thank you.

First, Fred, I would like really mention that we make the acquisitions for two reasons. One is geography and the second one is basically obtaining certified employees. I can guarantee you, no matter what the market is there, I could not find 600 and 620 certified employees that I needed last year if I did not make this small acquisitions.

So for us it is also the acquisitions are very helpful in really getting more certified employees. That is very, extremely important to us.

The market for acquisition is always there, especially if you cooperate with a lot of the small companies. We have really -- we are very friendly to small companies and they are very friendly to us, because we use them as subcontractors and that is how we evaluate their capabilities. That is all I can say at the present.

Okay, thanks for taking my questions.

Matt Tucker, KeyBanc Capital Markets.

Good morning, gentlemen, and congrats on a strong quarter and strong fiscal year.

Thank you, Matt.

Sorry to belabor the point, just one more question on guidance; I promise that is it. Should we view then the top end of the guidance range in terms of acquisitions as you would need to make acquisitions in order to have the resources to get to that top end?

There is no question about it, I will need the acquisitions to make the top end.

Okay, thanks. And then (multiple speakers).

Again, remember -- Matt, I am sorry to interrupt. Again, remember that we are always talking about very small acquisitions.

Sure. Would you expect that you would need to make a similar level of acquisitions next year that you did in the past year in order to meet your guidance or at least the mid to upper end?

Well, I think the only thing I can say basically that we always think of about one-third acquisitions and two-thirds organic.

Okay, that is helpful. And then your revenue guidance suggests strong growth year-over-year but a little slower than in the past few years. In light of as you mentioned some early signs of recovery in your largest end market, could you just help us put that implied a little bit slower growth in the context of your overall end market outlook?

Well, Matt, we have not seen really the companies that have these large turnarounds that we used to see two or three years ago. So, therefore, we need to be cautious and conservative.

And that makes sense. Just one final question and I will jump back in the queue. It looks like your Products and Systems segment year-over-year growth really jumped up in the fourth quarter. Was there anything to lead you to believe that was a bit of a fluctuation or do you think you are seeing more of a sustainable inflection in demand for that segment?

Well, there are actually two reasons. Number one, of course, the economy for capital equipment improved in the fourth quarter; that is one. The second one is that we have really done a lot of projects where we -- instead of selling equipment we sell solutions to the customers. And so we hope to see that continue in the first quarter and beyond.

That is very helpful. Thanks, guys.

Richard Eastman, RW Baird.

Good morning. From an acquisition standpoint these two small ones, the one in Washington and France, can you just give us an annualized revenue number for the combined acquisitions?

About $8 million.

$8 million would be -- okay. And then a question on margins. Sotirios, you had mentioned that the target is 75 to 100 basis point margin improvement year-over-year. Is that -- are you -- is that a comment on the Services margin or is that a comment on the overall operating margin that you put up for the full year? Just what is that referencing?

Well, the biggest factor might be the Services but it's also overall. It's also in Products we can see improvements in Service and Products, as well as International. We expect more improvements in International.

So against a 7.5% consolidated EBIT margin, you would look for that 75 to 100. Is that --?

Yes, that is exactly --.

Then perhaps, Frank, could you just provide us with an estimated fiscal '11 D&A number, as well as the stock comp number?

Yes, bear with me.

Sure.

Maybe just last question, I promise. Last year when we entered fiscal 2010 I think you had pretty good visibility on a number of incremental evergreen contracts. I think you had talked about securing maybe 25 during the year, but I think we entered the year with some decent visibility on some of the larger pieces of business that would phase in.

Are we in the same situation today as we enter fiscal 2011 where we have got visibility on X amount of incremental revenue from evergreen contracts which will begin to phase in during fiscal 2011? Is there some visibility there?

Well, obviously this and there is a lot of marketing strategy. I can make the statement in the first quarter we already have some new evergreen contracts, but I don't really give a guidance how many I get a year.

Okay.

For competitive reasons.

But you obviously -- on the low end of your revenue guidance and that 10% organic growth rate there is some portion of that that is an annualized contract that is already booked that would be flowing in?

Definitely.

Yes, we are not just waiting on an improvement in maintenance budgets and that type of thing?

No, our -- basically the procurement is really a six month to one year, especially on a large evergreen contracts. It's not something that happens overnight. We plan that for a long time.

Okay, okay.

And I have got an answer to part of your question. Stock comp for next year is in the range of about $4.2 million. D&A I don't have handy and will have to get back to you.

Okay, great. Thank you.

(Operator Instructions) Matt Duncan, Stephens.

Just a couple very small housekeeping questions to help us out with the guidance. Your share count was down quite a bit this quarter. I am assuming that is just stock options that went out of the money. What share count do we need to think about using as we model EPS for 2011?

And then also tax rate was about 35% this quarter, a little bit lower than I think had been expected. You were around 38% for the year. I think the guidance previously had been about a 42% tax rate. Is that still the number to use for FY 2011 or has that changed?

Going forward I would use a tax rate of about 40%. We had some FIN 48 reversals for tax years that rolled off this year, as well as valuation allowances for state taxes that we were able to use. So 40% going forward is a number that I would use.

In terms of share count it's always hard. It depends on stock price but I think as guidance I would probably use the diluted number for the fourth quarter which is about [26.8].

Okay, thanks.

Matt Tucker, KeyBanc Capital Markets.

Just hoping you could comment on how much of your business do you compete on the basis of price in the current environment? Is it mostly priced based in the Services segment and less so in Products and Systems? And have you seen any change in that over the past few months?

First of all, let's make it a very clear point we are not really winning orders because of the price. That is not the most important element, especially when you have a big outsourced contract where the customer depends on you to be their inspection department.

So obviously we are not looking when we get a contract for how much money we make this quarter, let's say, or the next quarter. We are looking over the three-year period and see how much we can offer besides really doing routine work, what other type of work we can do and what we can offer this customer. So, therefore, I would really say that price is not really the most important factor.

Obviously, the customers will always try to undercut the price and everything else, but at the end of the day we will walk away from evergreens that are not really meeting our pricing structure. We have done that in the past and we will do it in the future.

Thank you very much.

(Operator Instructions)

I would just like to mention that the D&A number that was asked before, while we don't give guidance on it specifically, it's going to be in the range of about $15.5 million for 2011.

Scott Levine, JPMorgan.

Good morning, guys. One clarification, I think you indicated that the low end of your guidance for 2011 would be more a function of organic growth and the higher end would reflect new acquisitions that you haven't yet made. Does the lower end also assume the rollover effect of the August acquisitions that you mentioned on the call as well or not?

Yes.

It does? Okay. And then maybe as a follow-up, I think, Sotirios, you indicated on recent earnings calls that the pace of spending from the government with regard to the bridge business maybe hadn't been as robust as you had hoped or expected. Can you talk maybe a little bit about any changes, positive or otherwise, you may be seeing with regard to the spending patterns and behavior of your government customers in particular?

Well, basically, Scott, we have seen really money for research as we are now the recipient -- as we announced at the beginning of the year, we were the recipient of $6.9 million for the National Institute of Standards and Technology contract.

We have not seen the government really spending money, we have seen the Departments of Transportation because -- besides we have several -- besides the one in California we had wins in Virginia, we had wins in Florida. All of these -- really the people who paid us was the Department of Transportation as it will be in California, the Department of Transportation of Florida, Department of Transportation or VODT, which is Virginia Department of Transportation.

So we have not seen -- the government has announced money, but I don't think we have seen anything in that market segment. We still know that we have one-third of our bridges, as the government says, that are structurally deficient.

Okay. So it doesn't sound like you are terribly encouraged that that is going to change anytime soon, no?

Well, I have not seen money -- I have not seen the money, I have not seen really the government really spending money in this area for online monitoring especially or health monitoring. And I have not seen the government helping the department of the local departments of transportation. Maybe it will change in the future.

Okay, I guess we will continue to monitor things. Thanks.

Jeff Allen, Silvercrest.

Good morning. Do you guys have the intangible amortization that flowed through the income statement for the quarter and the full year?

I have got a D&A number. I don't know if just amortization is readily available. I think we are going to have to get back to you on that.

Okay, thanks.

We are currently showing no more questions in queue at this time. I would like to turn the call over to Mr. Sotirios Vahaviolos for closing remarks.

We would like to thank all of you that are attending the meeting and we hope that fiscal 2011 will be better than fiscal 2010.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes our presentation. You may now disconnect and have a good day.