Mistras Group Inc (MG) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2012 Mistras Group earnings conference call. My name is Lacey and I'll be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will facilitate a question-and-answer session towards the end of the presentation. If at any time, (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Sotirios Vahaviolos, President and CEO.

Lacey, thank you very much, and good morning to all. Welcome to the Mistras Group earnings conference call. Again, my name is Sotirios Vahaviolos. I am the founder, Chairman and Chief Executive Officer of Mistras Group. Also joining me today is Frank Joyce, our Company's Chief Financial Officer.

The purpose of today's call is to review our financial results for the Company's first fiscal quarter ending August 31, 2011, and to discuss our prospects going forward. This discussion is intended to supplement our Quarterly Annual's 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 and prospects going forward. 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 and in other reports filed with the SEC.

Also, the discussions during this conference call will include certain financial measures that were not prepared in accordance with 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 filed on Form 8-K as of October the 10th, 2011. These reports are also available on our website at www.mistrasgroup.com in the Investor Relations section. And with that, I'd like to present a brief financial summary of our first quarter's results.

I'm very pleased to report that revenues for the first quarter of fiscal 2012 were $91.4 million, representing a 34% increase over the $68.4 million reported in the first quarter of fiscal 2011. Organic growth of 19% was once again the principal driver behind the first-quarter revenue growth, followed by acquisition growth of 12%, with the balance due to foreign exchange. Each of our operating segments contributed to the revenue increase, with Services posting at 37% increase over the prior year; Products and Systems posting a 41% increase; and International an 8% increase.

In the first quarter of fiscal '12, our top 10 customers represented 40% of revenues versus 44% in the fiscal '11 first quarter. Gross profit in the first quarter grew by 32% to $27.4 million versus $20.8 million in Q1 2011. Gross margins in the first quarter were 30% of revenues versus 30.4% in the prior year. The drop of 4% was due primarily to higher depreciation expense in the current quarter, along with slightly higher unbilled labor expense, which we believe was mostly due to training.

Operating income in the first quarter increased by 80% to $6 million versus $3.3 million in Q1 2011. Operating income margin in the first quarter increased to 6.5% versus 4.8% in Q1 '11. SG&A for the first quarter of 2012 was $19.4 million versus $15.5 million in the first quarter of fiscal 2011. However, SG&A as a percentage of revenue, dropped to 21.2% in the current quarter versus 22.6% in the first quarter of last year. SG&A in the current quarter includes approximately $1.4 million related to companies we acquired over the last 12 months.

Net income attributable to Mistras Group doubled in the first quarter to $3.2 million versus $1.6 million in Q1 2011. Diluted earnings per share rose to $0.11 in Q1 versus $0.06 per share in the prior-year first quarter. Adjusted EBITDA increased by 42% to $12 million in Q1 2012, versus $8.5 million in the first quarter of fiscal 2011. Adjusted EBITDA margins increased to 13.1% versus 12.4% in the same quarter last year.

Now I would like to make a few brief comments on the Company's balance sheet and cash flows. The Company continues to generate strong cash flows, and in the first quarter of fiscal 2012, net cash provided by operating activities grew by 39% to $12.8 million, versus $9.2 million in the first quarter of fiscal 2011. Total capital expenditures for the first quarter of fiscal 2012 were $6.7 million or 7.3% of revenues, and includes $0.5 million for the final installment for the construction of our Gulf Coast operations and training facility in Houston.

Excluding the $0.5 million facility cost, our non-real estate CapEx for the first quarter was $6.2 million or 6.7% of revenues versus $2.5 million or 2.6% of revenues in the same quarter last year. The increased capital expenditure level for fiscal '12 reflects spending on a number of new business opportunities, including the US shale and Canadian oil sands as well as a number of other advanced NDT projects. As of August 31, 2011, our net debt was $27.1 million and our net debt to EBITDA ratio was 0.49. As of 8/31/2011, the Company had cash and cash equivalents of about $6.5 million and an un-drawn revolver balance of $54 million.

And with that, Sotirios, I'd like to turn it back to you.

Thank you, Frank. I'm very pleased with our first quarter results, which, as many of you know, is traditionally one of our softer quarters of the year. Once again in this quarter, we saw solid growth in just about all financial metrics, starting with a revenue growth rate of 34%, followed by growth rates of 80% and 100% in operating income and net income, respectively. And as Frank mentioned, operating income and EBITDA margins continued their advance in the quarter over the prior year. At the same time, the growth we're seeing in revenues and operating income is being converted into equally significant growth in operating cash flows, where in the first quarter, our cash from operations grew by 39%.

I would like to point out that the 34% revenue growth rate we achieved in the first quarter follows a healthy 22% revenue growth rate achieved in last year's first quarter. And similar to one we have seen in the last several quarters, the principal driver behind our first-quarter revenue growth was our organic growth of 19%. We also estimate that one-third of the 12% acquisition growth of the first quarter is synergistic. We believe that strong organic and synergistic growth is the best indicator of how our one source asset protection solutions are being received by our customers.

Oil and gas is our largest target market, and I am pleased to report that in our first quarter, oil and gas revenues grew by 24%. However, as we have seen in the last several quarters, revenues from all markets other than oil and gas grew by more than 40%. We view our growth in other markets as a positive development, as we continue to extend our asset protection solutions across a broader platform of customers in industries.

I would like to now give you a brief update of some of the underlying trends we are seeing across our extensive platform of asset protection solutions. In our Products and Systems segment, we continue to see strength in spending across many of our target markets, including engineering and test companies; power generation, both nuclear and fossil; manufacturing; aerospace and defense; infrastructure; and oil and gas.

The spending includes sales of our many proprietary sensors; portable walk-around products; data acquisition and monitoring systems; and other applications related to 24/7 online monitoring expert systems. New government EPR regulations related to greenhouse gas monitoring continues to drive product sales from several energy and independent testing companies. In addition, we have received orders from an OEM agreement put in place with a Fortune 200 company to test and service their own manufacturer's field equipment at installations worldwide.

A 24/7 online gas turbine blade monitoring system continues to gain market acceptance with the installation and operation of several new systems in the US, and have recently begun penetration in Eurasia as well. Related to Eurasia, we secured a large 24/7 monitoring system contract with a major Russian chemical company. This is an excellent example of our ability to deliver large-scale application-specific, customized asset protection solutions worldwide.

On the Services side, advanced energy grew from 13.9 in fiscal '11 to 16.3 in fiscal '12. Growth in the Oil and Gas sector was strongest in the upstream and midstream portions of our business. We see a continued upward trend on both the US shale plays and the Canadian oil sands. Mistras offers an attractive combination of strategic locations, certified technicians, and advanced equipment and services, to both the energy companies and construction contractors who are active in these newer segments of the energy markets.

In the targeted nuclear market, we have received a number of new contracts related to a licensing and general inspection maintenance at existing nuclear power plant facilities throughout the United States. In addition, we were recently awarded the inspection services at an existing nuclear power plant in the southeast portion of the United States that is adding two new units. Work is expected to commence by November 1, and will continue for the next five to seven years, utilizing our advanced products and services.

We have also seen an increase in our in-house inspection business that provides outsourced inspection services for industrials, for industries such as in aerospace, defense, and specialty metals. As reported in the past, advanced composite materials appear to be a growing area for us, including the supply of large imaging and Gantry systems to inspect parts of the joint strike force new military fighters and Boeing's 787 Dreamliner.

Our Rope Access Group received a significant contract to provide maintenance and [introfeeding] of wind turbines in the North Sea from a major worldwide wind turbine manufacturer. As recently reported, we intend to complement our offering of wind turbine Rope Access work with a 24/7 online, wireless, condition-based monitoring system capable of assessing and communicating the health condition of these remote structures.

Our enterprise software offerings, PCMS, continues to penetrate the upstream oil and gas market worldwide. We are now pleased to announce that one of the largest integrated energy companies in the world, with standardized PCMS for all their US-based refineries, has awarded us a contract to license and implement PCMS in their [over 30] exploration and production asset locations in North America. We see this as a positive trend for other energy companies to follow, with a goal of moving toward risk-based inspection. The acceptance of PCMS was further strengthened by the largest attendance of customers at our Annual Users Conference held in San Antonio in June, with over 80 attendees representing in excess of 40 customer sites.

And now I will turn to the International segment of our business.

As we reported in our 2011 year-end earnings call in August, our international growth strategy involves the implementation of our proven USA business model in key countries of interest. During the first quarter, we acquired two small but strategic companies in France, and continued to look for others in Europe and South America. Simultaneously, we received multiple orders in Russia for new PCMS software licenses. We continue to expand our advanced entity inspection work in several European countries. We have successfully completed our phased array work for welding inspection on a North Sea platform, and are now looking forward to performing similar work worldwide with this newly acquired experience.

On the nuclear energy front, we just successfully completed the installation of a Loose Parts Monitoring System in the Chashma Pakistan nuclear power plant under the auspices of the International Atomic Energy Agency's Safety Program. This experience will indeed be very valuable for future installations worldwide.

On the R&D front, our scientists continue receiving paid contracts for several diverse entity fields in USA; corrosion-based research in France; and software expertise in developing in Greece. It's worth mentioning two exciting projects. First is the five-year's NIST contract for monitoring bridges remotely. Recently, we have started to deploy our wireless online devices on remote bridges, but powered by energy harvesters developed by our university partners.

For the second project, we were informed by the office of Air Force Research Labs that our joint proposal for R&D under the digital threat initiative with our partners, HITCO Carbon Company Composites, Boeing and others, was accepted and funded. Our work will be focused on developing advanced end-to-end automated ultrasonic inspection and analysis capabilities, to accelerate and automate the inspection of large, complex aerospace composite panels and structures, which when completed, will change the way inspections will be performed in the future.

We're off to a good start in fiscal 2012 and our story continues. We are helping customers implement technology-based asset protection solutions for both the public, such as bridges and tunnels, and industrial infrastructure, such as refineries, power plants, but on risk-based methodology that includes non-destructive testing and inspection data analysis software rather than traditional and unnecessary time-scheduled maintenance. As in the past, we see no credible barriers to double-digit growth in the future for the Mistras business model. And while we continue to operate in a competitive environment, we are pleased to see healthy activity across most of our target markets.

And now I would like to spend a minute on the Company's outlook for fiscal 2012. As mentioned in our earnings release, the Company is affirming previously issued guidance for fiscal 2012, and we expect revenue to be in the range of $375 million to $390 million, and adjusted EBITDA to be in the range of $59 million to $64 million. The Company does not give guidance for individual quarters, but will update annual guidance each quarter.

In closing, I am very pleased with Mistras's performance during the first quarter of fiscal 2012, and believe we are off to a good start. This is the net result of 2,900-plus employees, hardworking employees, worldwide. That concludes my remarks and I would like to open the floor for questions.

(Operator Instructions). Scott Levine, JPMorgan.

Well, actually Rodney Clayton here for Scott. Yes, congrats on another nice quarter. So, first, Frank, on SG&A, obviously as a percent of sales, that came in pretty -- came down pretty nicely. Can you give us a sense for how much lower you think that can go, I guess, for this fiscal year? What's -- I think you touched on it a little bit -- did you say lower depreciation was a factor there that offset some of the labor utilization that picked up as a result of training? Is that right?

Well, SG&A, it's actually come down quite a bit, as you know, versus -- as a percentage of revenues, we expect that trend to continue. On an absolute basis, in the quarter, there's about $1.4 million in our SG&A that's related to acquisitions of companies over the last 11 or 12 months. There's another 0.2 or 0.3 in higher stock comp.

We should probably also point out that, in the quarter, we invested in a number of new expansion offices. So, offices that we opened not a result of acquisitions, but expansion offices, and also had noticeably higher spending in sales force. So those are some of the factors on SG&A.

Okay, that's helpful. I guess, moving on to the Evergreen contracts, did you say how many new contracts you may have signed up in the quarter? And then secondly, the margin trends there, we know you typically sign those up at lower margins than what is -- than what the overall business reflects. Just kind of -- if you look at maybe some of the Evergreens that you've had for six to 12 to maybe 18 months, can you comment on how some -- how the margin trends are looking there, as maybe those customers begin to take on some advanced services?

Actually, margin trends quarter-to-quarter for Evergreens are up very slightly year-over-year, but otherwise holding their own. And you know, evergreens are a series of contracts, but -- and there's a lot of things that come into play there, but higher advanced services is one of the pieces. So they've been holding up pretty well.

Okay, and then one more from me. You mentioned two acquisitions in France. Can you just comment a little bit more on exactly -- give us a little more detail on what those companies are and what's the strategy there going forward?

Basically, the same kind -- they're in the same kind of businesses we are, and they're like -- in previous model companies, they have a lot less advanced technologies that we're bringing to them in the future. It's really according to our model.

Both are -- we had three acquisitions in the quarter. All are very small. I'd say in total, the run rate revenues for all three are probably less than $2 million, so -- but strategic, as Sotirios said.

All right. Thanks a lot.

You're welcome.

Matt Duncan, Stephens Inc.

Congrats on a nice quarter. The first question I've got is on your guidance. I just want to make sure I sort of better understand where your heads are at.

You beat the quarter pretty nicely in terms of revenue relative to estimates and left the guidance unchanged. I just want to make sure that that's really more conservatism on your part as opposed to any kind of change in demand for your services in the end market, just given the macroeconomic backdrop and uncertainty right now. Are you seeing any weakening in demand? Or is it really just early in your fiscal year, it's a seasonally low point in your business, rather be conservative with the guide for now?

Basically, Matt, as I said in my remarks here, the story continues, and we see the same growth that we have seen and have discussed in previous earnings calls. It's the beginning of the year. We are entering a busy season. AS a lot of things are basically a lot more opportunities for us, and would prefer to really be more conservative at this point and really discuss the same subject in the next earnings call.

Okay, because I guess if I look at the guidance, the organic growth assumption is kind of in the mid-single digits to around 10%. You've obviously been growing a lot faster than that, so there's really no structural reason the growth rate should slow; it's rather just conservatism early in the year?

Absolute. And as I said, I made it very clear in my -- if you look at the text on my earnings remarks. The story continues. We don't say anything microeconomics really bothering us or anything like that. The story continues, but we prefer as we enter the new year, is to be a little bit more conservative.

Okay, that's very helpful, Sotirios. Thank you. And then, Frank, back on the SG&A cost, I know you opened some new offices, I guess you said, in the quarter. How many did you open? Were those focused on the shales and the oil sands, the two growth markets you pointed out?

We can't -- we wouldn't disclose locations, but there's about four of them that are expansion. And when we open an office, typically, we do that to support business that we see happening. We're not saying the business is 100% there, but that's one of the reasons why we'd have higher SG&A.

Okay, and then lastly, I know for competitive reasons you may not want to break out in full detail where the better markets were, but anything you can tell us about the other markets outside of oil and gas growing 40%-plus? Is there -- are there a handful that stand out as really driving that? Or is that across the board?

It's really (multiple speakers) -- I'm sorry. Go ahead, Frank.

I was just going to say that we don't break out individual markets, but if you -- in terms of markets that perform better than oil and gas, that would include something like power generation, chemical and pharma, our own shop work, and aerospace and defense. So I mean, when Sotirios said across the board, really most markets did better than oil and gas.

Okay, thanks guys. Congrats again on a good quarter.

William Stein, Credit Suisse.

Thanks for taking my question. I'm wondering if you can talk about the M&A pipeline going forward? I think you said you did three deals in the quarter and if you could clarify $2 million run rate per quarter or year? And (multiple speakers) --

That's per year.

Per year. Okay, so quite small. And how does the pipeline of M&A look? And would you consider doing a larger deal?

Well, basically, we'll -- our model really includes the smaller deals that we have, but if an opportunity arises at our price range, a larger deal, we'll be delighted to do it. But it has to be in our price range.

Okay. Can you talk about CapEx trends going forward, what you'd expect? How we should think about the Company's CapEx requirements going forward?

Basically, in the first quarter, we spend CapEx based on opportunities that we see. In the first quarter, we think we've spent more than 25% of the overall year. So we're estimating total CapEx, that would be around probably 17% to 18% for the year. It's our best estimate. If you pull out the 0.5 in real estate, that would bring us to about a little bit over 4% of revenues for the year. Again, we mentioned that some of the spending was to Canadian oil sands and US shale plays.

So we should think about this as 4% of sales going forward? Is that fair?

For this year, yes.

Okay. And maybe taking a step back and just looking at the revenue mix, Services continues to outpace. Can you talk about the Products and Solutions segment, I think is what you call it? Longer-term, is there any expectation that that would be a bigger portion of sales? Or do we think about the split between the three reported segments to be about consistent going forward?

Actually, we'll really have put a lot of emphasis in the Products and growing the Products sales as well as the International. And we'll report that a lot more in the future. But we have a lot of emphasis internally on these two areas, because we believe the market is a lot larger than what we see now.

Great. Thanks very much.

Matt Tucker, KeyBanc.

Congrats on a nice quarter. I was a little bit surprised to see that the gross margin was slightly lower year-over-year, despite the very strong topline growth. Could you talk a little bit about what's behind that, maybe why you didn't get a little more expansion in the gross margin, given the volume growth?

Sure. As you know, Q1 and Q3 are our slower quarters; margins are less in those quarters. But in looking at Q1, there's no one trend that sticks out except for two possible things. One is depreciation expense is higher than last year. Also, if the drop is about point -- is, you know, 40 basis points, maybe even 20 basis points, is related to higher unbilled expense this quarter versus last year. We think a substantial portion of that is related to training. So training typically goes up before the higher Q2 and Q4. But other than that, I wouldn't read too much into it.

You mentioned higher training expenses. Were you adding people during the quarter? And if so, could you talk a little bit about what areas, maybe regionally, or in terms of your services, where you're adding new people?

We added folks across the board mostly on a billable side. I don't have those exact numbers in front of me, but we clearly added --

In the first quarter, Matt, we really added 140 people. And that's historically the first time we have ever done that in the history of the Company, where we added people in the first quarter, which is always the worst quarter that we have in the year. So therefore, as far as we're concerned, we prepared for what's going to happen in the second quarter, et cetera, so we brought people. As Frank basically mentioned, the training costs and the unbillable, that contributed to the lower margins.

Great. Thanks. And just to follow-up on the SG&A, you mentioned $1.4 million related to acquisitions. Can you just help me clarify, is that $1.4 million in SG&A tied to those new additions? Or is that $1.4 million in, like, acquisition-related costs, legal expenses, stuff like that?

It is. It's the former -- it's SG&A related to the companies we acquired over the last 11 months or so.

Great. Thanks. One last question. You mentioned within oil and gas, midstream and upstream spaces growing faster. Could you provide any commentary on what you're seeing on the refining side? Has the growth slowed there? Has it kind of been steady?

(multiple speakers) It's really steady, Matt. It's really steady, as we said before. We added -- we don't really discuss exactly how many new evergreens we got, but our business has increased. And just don't forget that it's 24.7% growth in the first quarter is very -- and actually very good for us.

Great. Thanks a lot, guys. I'll jump back in the queue.

Okay, Matt. Thanks.

John Inch, Merrill Lynch.

So, I want to go back to the question of your revenue guidance for a second. So basically, the midpoint of the revenue guidance would be up about 13%. What is the embedded organic growth that you're anticipating? I guess it sort of depends on your assumptions for M&A and currency. But basically, can you help us a little bit with what you think organic growth is going to be for the course of the year?

Well, John, we like to take the conservative approach, as we discussed in the first earnings call in August. And we'll say that we are very strong in saying that we'll do more than 10%, our double-digit growth will continue. We prefer not to forecast at this point if it is 15%, if it's 18%, but we will say that we will seek to more than double digit growth not only for this year but for the years to come.

So I guess I understand, Sotirios, why you wouldn't want to change the framework because it's only the first quarter, but I'm not 100% sure why you wouldn't give some sort of an update. Like, I just don't really see why your first-quarter trend doesn't carry forward to the second quarter based on your commentary. It just strikes me that the revenue guidance isn't really -- it's like a mile marker; it's not really guidance. I don't know, what am I missing?

Well, first of all, we are preparing -- as I said, we hired 140 more employees in the first quarter for the first time in the history of the Company, so we're preparing for better -- it's obvious that we're preparing for a better fall. We like to really have that behind us and that's when we will report more on the guidance. (multiple speakers) We'll have better days at that time, okay?

It's clearly been a good quarter and we're not seeing anything in our business that concerns us. We've had broad-based growth but we do read the same papers that you do. So in the first quarter, to jack up the fourth quarter's organic growth rate is probably not something that we would do.

Yes. No, that makes sense. Is there some aspect of your business, though, that could -- and I don't know, I'm just sort of thinking out loud -- that could cause an extreme level of lumpiness? I mean, I'm not sure what that would be, but to the point, if you don't see it today but -- is there some reason why perhaps organic growth could really drop off in the February or May quarters, based on something unforeseen today?

Well, John, as we have mentioned here, is that we -- really, we have a multifaceted approach. So really, there are -- we're in several diverse markets, and if we miss one, for instance, another one will really pull us up. So we feel very confident about the double-digit growth, as I said for now and for today and for the future. And in the markets that we're really going after, like the aerospace, is really growing, as you know. And the industrials that we have not been there before, with the in-housework, is very valuable to us. And do not underestimate the work that is happening in the oil shale and the Canadian oil sands.

Let me just add one thing to that. Keep in mind we bill on an hourly basis for most of our revenues. Q2 and Q4 are always fraught with estimates. So, I mean, there's a lot to estimate there. So in Q1, to estimate Q4 wouldn't be hard.

The only thing basically that we cannot forecast and that's where we need to be conservative, is you can't forecast bad weather and we cannot forecast hurricanes. That can affect our own average.

Yes. No, that's -- all right, so that's fair. How is the pricing environment today? And I'm not sure how you would want to answer the question, but I mean -- but basically, is there some way you could put it into a context for us to understand the pricing environment today? Presumably, right, companies maybe not in your industry but presumably, companies are becoming more price-aware or competitors becoming more price-competitive. What's going on in your space, if there's a way to (multiple speakers) --?

The oil and gas, John, is very, very tight. It has always been very tight the last two or three years, and it doesn't matter what the spreads are to customers, basically -- our oil is very, very tight and puts in a very competitive environment. That is why we're very -- we're delighted that really besides oil and gas, we grew by 40%. That's where we put a lot of more resources.

We're really excited about the nuclear work that we have done. This is a brand-new plant that is really they are building and we're there. That's where we get excited -- and we'll be there for five to seven years, I might add. So basically, that's the way, when I mentioned about the multifaceted approach that we're taking, that's how we're going to try to really fill in the [lopness] that you mentioned, okay; fill in the New York potholes, okay? We like to fill them up.

Yes, (laughter). I wish you'd fill more up. One more quick one for me. I mean, I guess, obviously -- I mean, I get the fact that your business mix is not necessarily tied directly to the economy. But you guys do have kind of a -- you do have sort of a window into your own customer sense of spending intentions and expectations and so forth.

I mean, given the global economy -- and maybe this is ex-oil and gas -- but we seem to be at a pretty important inflection point as companies begin to think about 2012 and budgeting and so forth. Do you get the sense that companies -- and maybe not for your businesses, but -- or your business -- but the companies are beginning to pare back capital investment or spending expectations, just even at the hedge that business goes down? I mean, what are you thinking?

Well, from our point of view, John, we have always thought and spoke about capital projects, and we said this is not really where our emphasis is. Our emphasis is in the run and maintain. People in refineries or people in fossil fuel plants or nuclear power plants, they might cut one or two of our labor force. Okay? And with the tight labor force as it is today, we're not going to be affected that much. Okay?

So from our point of view, we see a tighter labor force, especially for talented people, not just for run-of-the-mill people, but for talented people. And at the same time, we see that our customers need it because they have to operate their factories, and that's where we concentrate. The capital projects for us, as I have said in the past, is extra for us. That's when basically the organic growth grows a lot higher than we estimated at the beginning of the year.

Yes, that's fair. Okay, thank you very much.

You're welcome, John.

Tom Hayes, Piper Jaffray.

Again, congratulations on the quarter. Just wondering -- and if I missed it, I apologize -- but I was just wondering if maybe you could comment on the percentage of revenue that came from Advanced Services for the quarter?

Yes, it was 16% for this quarter versus about 14% in the same quarter last year, so it was up about 2%.

Great. And then I guess maybe just asking John's question a little bit differently, are you seeing any delays in customers committing to new service contracts? I mean, are they maybe dragging their feet a little bit more?

No, I have not seen that in the market. I have not seen any slowdown or anything else from the customers. I have seen competition but I have not seen that.

Great. And I guess just lastly, to your comment you just made on the tight labor force. Even with adding 140 headcount this quarter -- or this previous quarter, did you have trouble finding qualified individuals to add to the team?

It is really very difficult, that's why we also sometimes make the acquisitions that we make. It is very difficult to find trained employees, okay, especially for the advanced technologies. That's not really something available in the market.

Great. Thank you.

Rich Wesolowski, Sidoti & Company.

I apologize if I missed it but what share of the service revenue came from Evergreen work in the first quarter?

About 40% in the first quarter.

Okay, that looks down a bit from prior quarters. Is there a reason why?

It's down about 46%. It's basically growth in other areas, is what it comes down to. As we mentioned earlier, we had pretty steady growth in a number of our other target markets.

How much revenue from acquisitions made in fiscal '11 would you expect in fiscal '12 over the balance of the year?

That's a tough one. We had about [7 or 8] in the current quarter. Off the top of my head, as you know, you can't multiply that by four because some of it drops off. I think somewhere around the [15] range is probably something I'd hold out there.

Is that for the full year or does that include the first quarter?

That would be the first -- the full year, including the first quarter.

Okay. And Sotirios had mentioned synergistic growth as potentially in that number. How do you define that?

Basically, we did not buy 12% in companies. We bought probably -- if you multiply in dollars, we bought -- let me just basically be more specific. We -- basically, we bought $5.5 million, we bought basically $5.8 million of business that really grew to about -- grew up to $8.5 million, okay. And that's really do to our work that we did for that synergistically. Basically, we added all the advanced technologies.

When we buy these companies, really, they are bolt-ons, and we basically put them together with our own team. And our own team provides them with all the advanced services and that becomes the synergistic. It really comes from our team. It doesn't really come from the acquisition.

Right, okay. Of your total headcount, how many of those are revenue-generating field techs?

The vast majority. I don't have the percentage of that but certainly the vast majority.

Okay. Sotirios, you mentioned a name brand oil and gas company that took on a PCMS for North American E&P sites. When that happens, are those customers typically switching from their own conditioning management software or from a competitor's version?

In this particular case, well, actually some their own and [two] other small competitors.

Okay. I mean, how many other versions of PCMS are out there?

There might be another two, but I would like not to use the word versions of PCMS. Maybe if you want to say PCMS Light or --

Cheap substitutes.

Yes. Well, I don't want to use -- yes, inexpensive substitutes.

(laughter) Okay. And then lastly, what is the range of what a single PCMS license can generate in a year?

We don't break that out separately but it follows the traditional software model and it is a big chunk upfront. There's a chunk that we get for actually installing the product and then there is like 15% to 20% that we get on an ongoing basis.

Appreciate it. Best of luck.

Thank you.

Andy Wittmann, Robert Baird.

Thanks for taking my question. Just wanted to dig a little bit on the margins. So far, really, this current quarter, second quarter, is the issue of some of the training costs, is that now behind us, as you look at what's happened so far and what's going to happen for the rest of this quarter?

I think it is. You know, I wouldn't read much into it. One way to look at it is, we believe that we've pumped more into training this quarter than last year. That generally means that we have more people and probably anticipate more business. So -- and also, as you probably know, in a quarter like this when revenues are so light, the fixed cost in cost of sales are somewhat magnified. So that's another impact as well.

Yes. That makes sense. And then just on the stock comp, I think last quarter, Frank, you suggested that the add-back, I guess, that you used on the adjusted EBITDA, the non-cash portion of stock comp, was going to be $4.8 million to $4.9 million. I think first quarter suggests a run rate a bit less than that. Can you just maybe give us an update as to what your thoughts are on non-cash stock expenses?

It's still in the same range, $4.8 million to $4.9 million.

So basically accelerating then here as the year goes on?

Yes, but actually right where we thought it would come in.

Okay. And then I guess kind of more just higher level question here, but Sotirios, just your thoughts here -- with crack spreads coming in a bit, I know you referred to them a bit before, but how do you think that affects your oil and gas customers' decisions to maybe make some investments, either in their down time or their traditional shutdown periods, or during the course of their operations?

Basically, Andy, as you see, in our situation, okay, we're more of inspection -- you know, inspection people who don't do any mechanical work or anything else. So we have not really seen any changes from our part. Maybe there's some work that will be done in mechanical and repairs, but in our business, we haven't seen big changes.

Okay, sounds good. And then just, I guess, a final question here on M&A. You've kind of alluded to the market a little bit, but just -- how is your pipeline stacking up today versus maybe what it was six months ago? Are you feeling like some of the uncertainty that's out in the economy today maybe shakes a few others lose that you may be able to go after? Or just how are you feeling about the amount of opportunities out there today?

The opportunities are there and actually I might say to you that is really more than the last year. But we have a business model and we're very strict on that model -- our acquisition model. It has -- any new acquisition has to satisfy certain conditions. I would prefer not to mention in the call here, but certain conditions and we really stick to that. So I would like really to answer and say to you, yes, there is a lot more opportunities than last year, but they have to fit -- to fulfill our model.

Okay. Great. I'll leave it there. Thank you.

(Operator Instructions). At this time, I show that we have no further questions in queue. I would like to turn the call back over to Sotirios Vahaviolos, President and CEO, for closing remarks.

Thank you, Lacey. I would like to thank everyone for listening in our all-call and hope that you have a great day. Thank you very much for listening.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day, everyone.