Mistras Group Inc (MG) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to first-quarter 2011 Mistras Group, Inc. earnings conference call. My name is [Karma] and I will be your coordinator for today. At this time, all participants are in a listen-only mode. (Operator Instructions).

Later, we will conduct a question-and-answer session. I would like to turn the call over to your host for today, Sotirios Vahaviolos, CEO. Please proceed.

Karma, thank you very much and good morning to all. Welcome to the Mistras Group's 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 Frank Joyce, our Company's Chief Financial Officer, who joined our Company in July.

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

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

With that, Frank, 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 our annual report on Form 10K filed for the period ending May 31, 2010.

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 financial measures can be found in Mistras Group's current report on Form 8-K, dated October 12, 2010. These reports are available on our website. www.mistrasgroup.com in the Investor Section under Financial Information and Reports and on the website of the Securities and Exchange Commission.

Now we would like to present a summary of the financial results in our first fiscal quarter, ended August 31, 2010. As a reminder, we have a fiscal year which ends on May 31.

I am very pleased to announce that revenues in the first quarter of fiscal 2011 increased by 22% to $68.4 million versus $56.1 million in the first quarter of fiscal 2010. Each of our operating segments contributed to the increase with services generating a 21% increase in revenues for the quarter, while products and international produced revenue gains of 46% and 17%, respectively.

Gross profit grew by 21% to $20.8 million in the first quarter of 2011 versus $17.2 million in Q1 of fiscal 2010. Gross margins of 30.4% in Q1 of 2011 were relatively flat with the gross margins of 30.6% reported in the prior year.

SG&A for the first quarter of fiscal 2011 was $15.5 million or 22.6% of revenues as compared to $13.2 million or 23.4% of revenues for the first quarter of fiscal 2010. SG&A decreased as a percentage of revenues in Q1 2011, despite an increase in stock comp expense of $0.5 million over Q1 2010.

Operating income increased 19% to $3.3 million in Q1 2011 versus $2.8 million in Q1 2010. Operating income was negatively impacted by a 0.3 legal provision in Q1 2011 and favorably impacted by a 0.3 reversal of a legal provision in the Q1 2010 quarter. After adjusting both periods for legal provisions, operating income increased 43% in Q1 2011 versus the prior year.

Net income attributable to Mistras Group nearly doubled in Q1 of 2011 to $1.6 million versus $0.8 million in Q1 2010. Diluted earnings per share were $0.06 in the quarter versus $0.04 per share in last year's first quarter. As you might expect, year-over-year comparisons of net income and EPS were similarly impacted by the legal provisions mentioned above.

Adjusted EBITDA increased to $8.5 million or 12.4% of revenues in Q1 2011 versus $7 million or 12.4%, also 12.4% of revenues in the first quarter of fiscal 2010. This represents a year-over-year increase in adjusted EBITDA of 21%. We think EBITDA is one of the best metrics for measuring the operating results of our business due to the significant amount of depreciation and amortization that exist in our business model, both at the gross margin level and also in operating expenses.

Now I would like to make a few brief comments on our cash flows and balance sheet. The Company continues to generate strong cash flows and, in Q1, 2011 net cash provided by operating activities increased by more than 50% to $8.3 million versus $5.4 million in Q1 2010. Similarly, free cash flow increased by more than 50% to $6.4 million versus $4.1 million in Q1 2010. For this calculation, free cash flow is defined as net cash provided by operating activities, less capital expenditures.

Total capital expenditures for Q1 2011 were $2.5 million or 3.6% of revenues versus $2.9 million or 5.3% of revenues in Q1 fiscal 2010. The cash portion of the CapEx was $1.9 million and $1.4 million, respectively, for Q1 2011 and Q1 2010.

As of August 31, 2010, our net debt was $12.7 million versus $10.6 million at May 31, 2010. As of August 31, 2010 the Company had cash and cash equivalents of $13.9 million and an undrawn revolver balance of $55 million.

And with that, Sotirios, I will turn it back over to you.

Thank you, Frank. I will now -- would like to share my perspective on our recent performance and give you an updated (sic) of some of our trends I am seeing in our business. I am obviously very pleased with Mistras Group's results for the first quarter and especially pleased with our continuing double-digit growth in revenues and adjusted EBITDA.

As some of you might recall, our overall revenue growth rate of 22% was achieved despite a fairly strong Q1 of fiscal 2010 when revenues grew 19%, 11% of them organically, 12% of that by acquisition and a negative 3.7% of foreign exchange over Q1 2009. Once again, the majority of our revenue growth was achieved organically as organic revenues grew by nearly 15%, followed by acquisition growth of 8% and a less than 1% decline due to foreign exchange movements. While I was pleased with the Company's overall revenue growth rate of 22%, I was also very pleased to find that a number of our industry segments experienced revenue growth rates significantly higher than the 22% overall rate, including chemical, fossil, power, nuclear, and industrial. Our overall oil and gas market sector grew by 16% over first quarter of fiscal 2010 and now represents 60.6% of total revenues in the current quarter versus 63.4% of total revenues in Q1 2010.

Also within the oil and gas segment, the Company saw growth rates in the midstream, petrochemical, and upstream components, all of which exceeded the Company's overall growth rate for the first quarter. During the first quarter, our services segment grew its run and maintain business with seven new evergreen contracts, five new refineries, and two chemical plants for a new corporate-wide total of 73 evergreens.

As many of you know, evergreen contracts represent recurring revenues to the Company as the Mistras technicians perform outsourced inspection services daily on customer sites. Accordingly, multiyear evergreen revenues are a fairly predictable source of revenues, and in the first quarter of fiscal 2011, they represented around 60% of total service segment revenue.

Part of our strategy is to introduce advanced services to our existing evergreen customers. By introducing advanced services, we will not only be adding higher margin services to our mix of revenues, but we will also be providing favorable economics to our customers as well. Such favorable economics are achieved by either reducing down times at customer facilities or by helping our customers to avoid certain down times altogether.

I was pleased to note the revenues from advanced services increased to 14% of the service [seven] revenues in the first -- in the fiscal first quarter all from above, actually from -- up from 10% of the same quarter of last year. I am also pleased with the activity I have seen in the manner of other areas of our business during the quarter and it is worth [commenting].

Software revenues, wireless still a small piece of our overall Company, continue to grow. During the quarter we won a national contract from a major energy company who will be utilized in our PCMS enterprise software in their midstream terminal facilities. Revenues from our PCMS software nearly doubled in the quarter over the prior year quarter.

We are also pleased with the traction we are seeing in our proprietary non-intrusive inspection technology packages including TANKPAC, where we won a contract for 100+ aboveground storage tanks for a major North American oil company, [while] more to come.

A northern North America oil company accepted TANKPAC for corporate wide time-condition monitoring. Through the quarter products and systems also delivered the first-ever automated testing system to a major valve OEM to detect defects in cast valve bodies used in critical applications for the oil and gas industries. These kinds of offerings contributed to an outstanding quarter for the products and systems segment, showing 47% revenue growth and 19% EBITDA.

On the advanced energy front, we ended used a major oil company, a European oil company with operations in West Africa to our concept of remote data analysis. In this instance, work performed by our European technicians on the ground in West Africa was analyzed in our Houston and Memphis labs and transmitted to the customer in Europe for following morning for customer reported.

We also received the first of what we believe will be several product orders for 24/7 online monitoring equipment used to detect any blade cracks in wind turbines from a unit of Florida Power & Light. During the quarter, we show an increase in customer inquiries relating to our pipeline integrity services and related proprietary products. We believe this increase is due to concerns about additional regulatory scrutiny on the part of a number of large customers following the pipelines' failure in San Bruno, California, and the Gulf Stream earlier in the year. While it is difficult to predict the impact of these events on our revenues going forward, we view this increased activity as a favorable development.

During the quarter, we also obtained a large advance entity automated ultrasonic inspection project of a new pipeline construction from Canada's oil sands region, replacing radiography. It is worthwhile mentioning that, as of August 31, our headcount stands at 2,370 employees, an increase of 110 employees in the first quarter of 2011.

And now I like to spend a minute on the Company's outlook for fiscal 2011. As mentioned in our earnings release, the Company is reaffirming its fiscal 2011 revenue and EBITDA guidance. The Company projects 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. Consistent with prior guidance, these projections anticipate continued organic growth supplemented by acquisitions as well as improvement in the Company's profitability.

Accordingly, the Company is committed to increasing gross margins in the fiscal 2011 over fiscal 2010 and, toward that end, we are targeting a 75 to 100 basis point improvement.

Mistras Group has demonstrated a consistent and unwavering pattern of double-digit performance in revenues and EBITDA growth, despite a challenging business environment. We feel this is a credit to our unique business model of asset protection solutions. Our technology-enabled services coupled with proprietary [niche] products and system offerings has enabled Mistras to be the undisputed leader in the run and maintain customer outsourced inspection and asset protection services markets.

While our customers continue to face downward business pressures, we believe we are at the end of the cycle of price reductions and discounts that have lowered our margins. Based on our current workload, we actually see the beginning of shortages of qualified employees and certified technicians, which we believe will result in higher prices in the near future.

We believe our continued investment in Internet-based training, the continued tutelage worldwide of new technicians and engineers by our level III specialists and scientist PhD's, the introduction of niche proprietary products, systems and services has put Mistras in a position of revenue growth and expansion in various new and old markets, especially organically, as we witness by the recent acceptance of our Acoustic Emission base TANKPAC technology.

Concluding my remarks, may I remind you, that our business model of asset protection solutions provides us with predictable and consistent revenues, less vulnerability to more cyclical capital projects, and it is the base of leverage in our future growth and profitability. Executing on these basic fundamentals of our business model in an outstanding manner will be a very successful business for years and decades to come.

Mistras has the services, products, and software to serve not only the aging public infrastructure, such as bridges and industrial infrastructure such as refineries, but also the new pipeline construction, the new advanced composite materials such as the one used in the new aircraft like the 787, the new nuclear power plants and fossil plants, the new wind turbine green technology, etc. As a credit to our management team and worldwide loyal employees in their pursuit of excellence, Mistras continues its journey to future growth and profitability while providing an outstanding service to our customers. We are committed to doing just that.

That concludes my remarks and I would now like to open it up the floor for questions. Karma.

(Operator Instructions). Scott Levine from JPMorgan.

Hello. It's Rodney Clayton here for Scott. First question, did you complete any acquisitions in the quarter at all?

Yes. During the quarter, we completed two acquisitions, paid about $5 million for them and had negligible impact on the earnings. I think one of those acquisitions we announced at the last earnings call.

Subsequent to the quarter, we made another small acquisition. But none of these are significant.

Okay, fair enough. And so, I think on the last call we talked about the top end of guidance being inclusive of some acquisition activity with [the Sun] and these acquisitions aren't the only -- the bit on the small side. Should we continue to think about it the same way, where currently you are tracking kind of from the low end to the midpoint of guidance based on existing acquisition activity?

I think that is a fair way to look at it. You know, I think that if you look at revenues from $300 million to $310 million and maybe EBITDA of $44 million to $45 million, that is organic, including the very small acquisitions we made in the quarter. The one we made subsequent to the quarter, you know, would be part of additional acquisitions that would push us up to the higher end of that range.

Fair enough. Secondly, you mentioned some of the headcount additions that you're making. Can you give us a little bit of color in terms of where you are making those additions? Is there a particular geography where you are bulking up? Or is there -- are you adding headcount to support a particular service offering?

First of all, some of them came from the acquisitions that Frank mentioned. And second, really the majority of those are from the service organization.

Fair enough and I think one more, if I may. On the international side, I mean, the remote data management contract you mentioned in Africa sounds pretty interesting. You know, when we look at the international business, where would you say you see the nearest or the largest near-term potential? Is there a particular geography or again a particular service offering that you think offers you the most growth opportunity, call it, over the next 12 months or so?

Well, we have stated before, that is really Europe and South America.

All right. Thanks a lot, guys.

Matt Tucker with KeyBanc Capital Markets.

Good morning and congratulations on a strong quarter. My first question just relates to SG&A. Just wondering if there is anything kind of one-time-ish in there in the quarter? And you know, I think recently you had spoke about you're trying to get into a level where it was going to start to flatten out. So maybe you can just talk about your outlook for SG&A for the rest of this year?

Yes. Sure. Good question. Let's see if we can put some perspective in that. You know overall SG&A increased on the dollar percentage by about 18%. Stock comp, however, quarter to quarter was up 5.5% and we had a 0.5% increase in SG&A Q2 acquisitions. If you pull those out you are at about an 11% increase year over year versus a 22% increase in revenues. My sense is that the current quarter SG&A is going to be the run rate we are going to be at for a while.

I should also mention and I'm sure you guys know this, last year in this quarter we were not a public company. This year, we are. That has an impact on there although it is hard to pinpoint.

Thanks. That was very helpful. And then my next question, Sotirios, you mentioned that the tech -- the market for, I guess, technicians is getting kind of tight in terms of capacity. Could you talk about maybe how you think that could impact your labor cost and potentially the expectations of future acquisitions?

Well, as you probably realize, the acquisition offers us the trained certified technicians that we want in some cases. Okay? And we have stated this before. The market really starting up especially their own specialists. And as you know, that's our favorite -- most favorite area. We obtained recently a large -- from a large company where very large master services agreement and we will need a lot more people.

Thank you. And then, as we are entering the calendar fourth quarter here, I imagine a lot of your customers are entering that kind of turnaround phase. So hoping you could talk about maybe how activity levels have been so far in this turnaround season. And if you could talk about the kind of scope of the turnarounds, how they are being managed versus maybe the spring or last fall?

In our case, we don't emphasize turnaround. As a matter of fact, we prefer smaller turnarounds rather than large turnarounds. For us, it is really servicing our existing evergreen contracts. And since we really had added -- you know, last year we added 25 new evergreen contracts and the first quarter we added another seven. That will give us the growth that we are looking for.

I think it is also fair to say that we see it as a little stronger than last year.

Thanks. Just one more quick question and I will jump back in the queue. Those evergreen contracts, were they signed towards the beginning of the quarter, towards the end of the quarter? How much revenue did you see from those in the quarter, I guess?

Very little in this quarter.

Okay. Thanks.

Matt Duncan. Stephens.

Matt?

First question I've got for you is looking at the adoption of your advanced NDT solutions. It is up [4%] as a percent of revenue. I'm curious sort of what you think is driving that increase? Is it you are beginning to see some adoption as some of the evergreens you've won over the last year? Are those advanced solutions? Sort of talk about what is driving that increase.

First of all, the new services that we have provided the last year, year and a half which is a tubing inspection is driving some of that. Another thing that is driving that is, really, there are several evergreens as I pointed out before the several evergreens that we obtained. That now, our customers slowly are accepting more and more advanced technologies because we are saving money, we improve our productivity for them and for us.

Do you have any view on what percent of revenues you think the advanced solutions can ultimately represent?

Well, the goal, there's always a goal, but I think I would prefer to keep it -- to keep it for the time being.

You know, I think to say we are pleased as revenues grew by 22%, the percent of revenues for advanced grew from around 10% to 14%. So that was the quarter.

Sure. And then the last thing on that particular topic, and I've got a couple of others, the gross margin difference between advanced and traditional, and I know for competitive reasons you may not want to give away exact numbers, but help us think about relative to your corporate gross margin. How much better can we think about the advanced solutions being than traditional?

More than 10. More than 10 points. On the basis point, more than 10%.

That's fair.

Then, on the evergreens I guess you won [7] in the quarter. How many total evergreen arrangements do you have now?

Yes. As I stated before, Matt, was -- the total now we are up to 73.

[40] of those have been added in the last year, so theoretically --

We don't hear you.

Matt, you are fading out.

You hear me okay now?

Now we hear you. Go ahead. Try the question again, please.

Sorry about that. So with the evergreen wins that you have had over the last year, theoretically those have been putting some pressure on gross margin. Do you think that gross margin pressure is behind you? I know you talked a little bit about the pricing side impact on gross margin, but maybe can you talk about how the evergreens have theoretically impacted gross margin?

Well, the fact that we really -- quarter to quarter is almost the same gross margin, it implies that we have made a lot of improvements. Because we got a lot of evergreens, we'll really put pressure on our margins, but at the same time we made it up with advanced technologies in the first quarter. And of course with some of the unbillable improved for us, there were several other adjustments that we made, and that has really improved for us.

We see that as a positive step. Having more evergreens and not really going down on margins, I think is a very -- you know. it shows that our model is working.

Yes, I would agree. Thank you.

William Stein from Credit Suisse.

Can you give us an update on the acquisition pipeline? More generally so we can understand these couple of deals recently, what does the pipeline of the deals look like?

The small companies in existence basically are -- it is a big number of them, but we always need to really find out our criteria are very, very difficult and we are very, very choosy in what -- the people that we are picking. There's a lot of them out there, but we are really looking for quality and, of course, at the right price.

And any larger deals in the pipeline at all?

Not at present. And some of that we don't comment, I think.

Fair enough. You also talked about shortages driving potential price increases in the future. Are those contemplated in your updated guidance or is that (multiple speakers) --?

No, absolutely not. Absolutely not.

Okay, so that is potential upside. One more question, if I can. You've reiterated guidance for the full year. Can you remind us of what we should expect for normal seasonality for the revenue pattern over the course of the year?

Well, the -- typically the first quarter is our worst quarter and the next worst is typically the third quarter. And then our best quarters are the second and the fourth.

Great. Thanks.

Richard Eastman from Robert W. Baird.

Good morning. Could -- Sotirios or Frank, could you just walk us back through the components of gross profit margin on the services side? You know, that number being down a little bit, again pressured by a few more evergreen contracts helped by the advanced services piece going higher as a percentage of sales, how did -- was pricing still lower year over year? And also how did utilization look in the quarter?

Interesting questions. You know, pricing is a mixture of a whole series of contracts so it is hard to address it individually. But I think as Sotirios said earlier, we had more evergreens and that means there's lower margin and they're new, both of which have an impact on margins. But also we had an increase in advance services and that was significant. And the advanced somewhat made up for the number of evergreens that we had, and that is actually part of our business model.

I mean if revenues all -- for advanced services, grew by more than 50%, I can tell you that they contributed mice margins. So kind of model that we are talking about, you know, increasing the number of evergreens gives us an opportunity to introduce our advanced services. And unbillable is down as well, too, so that was also a factor.

The positive?

Yes.

You said it was down -- yes, okay. Just a question. Sotirios, these evergreen contracts, you know, the -- maybe the flurry that we've had here in terms of signing these up, are they slanted towards any industry at all? Any end market?

Yes. Basically you have first the oil and gas, than the chemical, and then the power.

Okay. Because I'm curious as to how did -- how did, in services, how did your industrial parts test business, was that up or down in the quarter?

It was 1.2% down in the quarter.

Okay. So pretty small. Okay. And so, when you talk about seeing maybe the prospects of a shortage of people or technicians and maybe better pricing, how are you getting a feel for that? Are you basically seeing that pricing and billable hour number in your new evergreens?

Well, you see the difficulty in staffing people for the quarter -- let's say for the second quarter. It is a lot more difficult for us to staff in the second quarter than it was, let's say, last year.

And the customer is recognizing that and saying, Look, we will give you a higher rate?

Definitely. And you also have to remember when you talk -- Talk about turnarounds, remember that sometimes the various customers are in competition with each other. Because if you do the same turnarounds, at the same time, there's a lot more shortages than spreading them around.

Okay. All right. And then just lastly on the products and systems side of the business, how did you feel about that revenue number? Was that kind of -- was that above or below plan? And is that margin sustainable, that gross margin sustainable on the product and service system side?

The first question, the margin is sustainable. The growth on that business we see by doing more and more applications. The more applications specific we do, but we just don't sell one product like to test and measurement we'll sell. We really sell an application, like I mentioned the valve. We don't only sell the system there, but we sell the know-how. how to do it and how to inspect them and set, basically, the criteria for what is good and what is bad. All of that contributes to our margins.

Okay. But then --.

An excellent utilization of our PhD's in that area, okay? And our scientists.

And then just lastly, just a quick question. D&A and stock comp. Do we run out at this kind of run rate? In other words, D&A about 16.5 for the full year and stock comp I thought was running north of $4 million for the year, but not in the quarter?

I've got -- I have D&A between 17 and 18 and stock comp of between [$2.6 million and $3.0 million].

It is. Okay.

Maybe down a little bit from -- I think last guidance we gave on stock comp was around $4.1 million or so.

Yes, exactly. But it will trend a little bit lower than that.

That's where we see it at this point.

All right. Very good. Thank you. Nice quarter.

Fred Buonocore from CJS Securities.

Good morning. Nice quarter. Just want to revisit the technicians and the shortage there. So just clarify, are you having to increase wages to be able to hire people given that shortage?

No, absolutely not. Absolutely not.

So this isn't something that is impacting your margins at all?

I think it is fair to say we are just noticing a shortage that is coming up, and we believe that that will have favorable impacts on margins going down the road.

You believe it will have favorable impacts on margins?

Correct.

Well, how is that? I mean you --. So in other words, you are saying that you are not having to try to pay these people more to attract them?

There are actually two issues here. Okay, the first issue we noticed in the short term. Because we really have to fulfill certain contracts that we obtain. Now if that continues, that will affect basically the price. In the short term, I don't think you can increase or pay more the people or increase the prices. That is not what we're doing.

Got it.

That really is the precursor of what will happen. That is what we are saying that we see the precursor. That doesn't mean that always the precursor works, okay, but we like to bring to your attention.

Sure. No, good point. And then on the evergreens, very impressive, continuing to add to this recurring revenue stream. Were these -- if -- facilities, new facilities with existing customers predominantly or are you actually adding new customers that you aren't currently working with?

Two of them were from the acquisitions and five of them were brand-new customers.

Brand-new customers.

I might say, I might clarify that by saying locations. Might be the same customer, but it is different locations. And contrary to some companies, they do it nationwide, but some companies really make all the decisions locally.

Right. And just kind of looking at that landscape now, how much more opportunity is there to add to your group of evergreen customers?

Well, we are -- as we stated before, we are only about 7% of the world's refineries. You know, we are participating in about 7% of the world's refineries. We probably participate in about 15 nuclear power plants out of 104 or 106 in America. So you know, the numbers are very staggering, a lot bigger than we really address right now.

Got it. And just revisiting gross margin, you talked about that around 100 basis points or so of year-over-year improvement. Can you just clarify what do you think the primary driver there will be? I mean, will it be pricing, better absorption on your overhead? How does that work?

It is really a mixture, okay? As we have always said before it is a mixture. It is not -- it is really pricing, it's really on billable time, it is really a sub versus sub work that we do. It is also traditional versus advanced NDT. Okay? So here's a lot of components. It is not as simple as some people make it sometimes.

And that's, really, we are working very hard and really analyze it and really try to go after all of the details that I just discussed with you.

Okay. And just an update as it relates to your relationship with BP. I mean in the wake of the issue that they had in the spring and summer, have you seen any changes --?

Well, first of all it is a sensitive subject. We love BP and BP has been a phenomenal customer of mine for many, many years, since 1983. Now having said that, you know BP business grew from last year to this year, but last year was 22.2% in the first quarter and this year it is 18.11%.

Okay, but is that more of a function of just better diversification with other customers?

That's diversification with other companies, we now have another company that does more than 5% of our business. Another refinery that does 5%.

Can you tell us who that is?

No, we keep our customers confidential.

Sure.

I mean the market might know, but we keep it confidential.

Fair enough. And just, can you talk a little bit on your R&D efforts? You know, what avenues you may be pursuing for new kinds of services and products that you would be trying to offer?

The R&D basically right now, a lot of R&D is going into the new green technology which is really turbine -- wind turbine work, and we will address a lot of corrosion-related problems. Because that's really -- corrosion has always been the most expensive item that you see in the aging infrastructure.

We continue to work very hard on finalizing the national industry of standards technology, a $6.9 million project that we do for our friends at the -- for the bridge infrastructure. So there's a lot of work on that, a lot of work and the wireless technology. Because we are [again], leaders in that area and we continue to increase our lead, but you know produce -- actually making some very new and exciting products.

And then just finally, back on the acquisition front. I'm sorry if this question was already asked, and I missed it. But are you looking at any larger sized acquisitions that would be, say, well above your (multiple speakers).

You know Fred, Fred, as you realize, we're -- we are not really discussing -- that's not really something that we discuss, okay?

Okay. Well, thank you very much. I appreciate it and, again, good quarter.

Thanks.

(Operator Instructions). Matt Tucker from KeyBanc Capital Markets.

One more question on the evergreen contracts. Can you just remind us are the rates on those contracts fixed for the life of the contract?

Frank, it depends actually right? But go ahead, Frank.

It is a contract-by-contract thing that varies by customer. And there's certainly provisions for adjustments and things like that in there. It's hard to (multiple speakers) generalize --.

Yes. And it is really different categories, you know, of products and the rates for those products. Very long con -- you know as, since they are long term, you know, longer term they are also very long contracts.

Thanks. That's helpful. And then I think you usually provide this in the 10-Q, but could you just comment on with regard to the acquisition-related revenue in the quarter? Did that fall significantly into one particular segment or another? Or was that kind of spread out?

Mostly in services.

Yes. The contracts, Matt, for your information, have [probably I forgot to say] is quota increases, right.

I'm sorry, that was with regard to last question?

Yes, [call]. We have call increases, okay?

Okay, thank you. And then final question can you just talk -- you know, if you look at the upstream and kind of midstream oil and gas sectors, there's been a lot of activity in various shale plays around the country particularly on the gas side. Do you -- can you just talk about any exposure opportunities you see in the shale plays?

Yes. Actually we are very positive on the sale in the Marcellus, but again we are involved. We have contracts and we like to really not discuss anything more. But we have really an increase in our business there. That is all we can say.

One thing we will mention is that in terms of overall growth rates, growth rates -- upstream, midstream and petrochemical -- were growth rates all in excess of our overall Company growth rate of 22%.

And just to give you an idea of the basically the statistics, upstream was 11% and now is 13% of our total business. Refineries before was basically 39%. Today is -- the first quarter was 34%. So you can see really our business, overall business, is, growing, and that is why I mentioned before, I'd like to really reiterate again, if you look at oil and gas, our -- we ended the year with 63%. Right now we are at 60%.

Elena Wood from BofA Merrill Lynch.

Good morning, everyone. I didn't notice operating income by segment in the release. Is that something you could share with us?

I don't have it with me, but that's something that will be coming out in the Q.

Okay. Thanks. That was my only question.

Richard Eastman from Robert W. Baird.

Just as a follow-up, Sotirios, could you just help us understand, we talked about upstream, midstream, petrochemical, all plus 22% or better growth year over year. What were the lagging areas? Can you just flag a couple?

Not many.

Well, the only thing I mentioned that I flagged as [sub] work was 1.2% down.

Yes so we have that. We had industrial and we know that is a good margin business.

Yes. You know the problem there, but I think, you know we are optimistic. That is an area that we are very optimistic in the future.

And just lastly, I lost my train of thought here. Is there any play on this California explosion? These natural gas pipelines that are buried, that leak? Is there any way to penetrate that market? Or is that kind of outside of your realm of technology?

Well, I reported before and I mentioned that, that exactly that we see -- you know, we see business from the -- that it will come in that area and we prefer to -- right now we are involved and we prefer to really keep it confidential. But there will be -- both of these, both the -- the San Bruno as well as the -- and the previous one, you know, the failure in the Gulf, that will definitely will really help our business.

But there is a -- you know, acoustic. Is there an acoustic solution or [to] underground pipelines that are buried, whatever, 40 feet underground?

Yes there is a lot of -- there's technology and I think we really possess that technology. And you know because you remember one thing also, always, when you do [pigging], you are really saying that the pipeline is okay at the time when the pig passed by. A lot of the accidents don't happen because of value. It happens because of digging, laser and everything else. So we need to really pay attention to that actor and I think we have some of the technology that will help our customers and we are now involved, but we prefer to really keep it confidential.

Okay. Very good. Thank you again.

The other point, you mentioned before you know that -- you mentioned about the growth. Just keep in mind that the first quarter of last year for us was a very -- you know, from 2009 to 2010, it was a very tight growth quarter for us, okay? And the majority of that it was really organic as well as acquisition.

But it's just a little bit tougher, you know, if we look at the organic growth rate and I honestly I'm just kind of thinking services because that's a little bit more predictable. But if your organic growth was plus 11%, core organic growth plus 11% in services, presumably upstream, midstream, petrochemical were all above that and industrial was below that, but --?

Remember that -- remember this year, our organic grade in the first quarter is 15%. Last year, the organic was 11%.

Yes, well, that is total company, I understand that. I was just talking services. But okay, I can follow up on that. I just want to make sure I understand what will really grow the growth organically. But thank you.

We have no further questions at this time. I would now like to turn the call back over to management for closing remarks.

Well, that concludes basically our call. We thank you very much all [for participation to] the conference call and we are looking forward for the second quarter and, basically, in our earnings call in sometimes (sic) in January. Thank you very much for listening to us.

This concludes the presentation for today, ladies and gentlemen. You may now disconnect. Have a wonderful day.