Mistras Group Inc (MG) 2014 Q3 法說會逐字稿

Great day, ladies and gentlemen and welcome to the third-quarter 2014 Mistras Group, Inc. earnings conference call. My name is Katina and I will be your coordinator for today. (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, Mr. Sotirios Vahaviolos, Chairman and CEO. Please proceed.

Katina, thank you very much and good morning to all. Welcome to the Mistras Group earnings conference call. This is Sotirios Vahaviolos, Founder, Chairman and Chief Executive Officer of Mistras Group. Also joining me today is Jon Wolk, the Company's Executive Vice President and Chief Financial Officer, who joined our Company in November.

In today's call, we will review Mistras Group's financial results for the third quarter and first nine months of our fiscal year 2014 that will end on May 31 and discuss our prospects going forward. I will start by saying I am pleased with Mistras' performance for the third quarter even though our profitability was less than expected. Our services segment had double-digit organic revenue growth despite unfavorable weather conditions that impacted our customers and our entire industry.

As a reminder, our guidance for fiscal year 2014 includes organic year-over-year revenue growth ranging from 7% to 12%. Organic revenue growth for the services segment exceeded the range of 12.8% for the quarter and is well within that range at nearly 10% for the first nine months of fiscal year aided by our recent contract win in Alaska.

Our international segment experienced a modest organic revenue decline during the third quarter as recent customer wins were delayed to commence generating revenue. Organic revenue in the products and systems segment was even with the prior year third quarter. Total companywide organic growth was 7% for the third quarter and we expect a strong fourth quarter that will enable the Company to approach the lower end of the organic revenue guidance for the full year.

During last year's call, I was pleased to announce our five-year contract with BP to provide nondestructive examination inspection and support in Prudhoe Bay, Alaska. At this time, I am pleased to announce that just last week we signed another important contract with a major integrated energy company with significant operations in the Canadian oilsands region. These contracts provide strong evidence of our customers' confidence in Mistras to perform as a transit service provider in the most demanding and complex environments. While the new Canadian contract is not exclusive, customer feedback indicates that we will have the opportunity to gain a representative share of this inspection activity and this could become one of the Company's largest contracts.

These multiyear contracts provide recurring revenue that comprise approximately 70% of Mistras' revenue base. The Company's revenues also include opportunistic contract wins to large capital projects, especially in the oil and gas industry, including pipeline construction.

While we are pleased with our revenue growth, we are disappointed in our profitability, which was adversely impacted during the quarter by [sundowns] at numerous customers' worksites due primarily to weather, startup costs for both the new Alaska and Canadian contracts and to a much lesser extent starting costs in advance of revenue commencement for the new contract wins in France.

As we stated in our press release, we plan to intensify our startup efforts in Canada during the fourth quarter to make sure that we are poised to perform extremely well out of the gate for such an important and impactful new relationship. When also considering the unexpected costs we incurred during the third quarter, we have reduced our outlook for the remainder of the fiscal year. I will talk more about that in a few minutes, but first I will turn it over to Jon who will cover this Company's summary financial results. Jon?

Thank you, Sotirios. I remind everyone that the remarks made during this conference call will include some forward-looking statements. The Company's actual results could differ materially from those projected. Some of the factors that could cause actual results to differ are discussed in the Company's most recent Annual Report on Form 10-K 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 US GAAP. Reconciliations of those non-US GAAP financial measures to the most directly comparable US GAAP financial measures can be found in the Company's current report on Form 8-K filed April 8, 2014. These reports are available on the Company's website in the Investors section and on the SEC website. Now I will present the Company's summary financial results for the third quarter and first nine months of fiscal 2014.

Revenues for the third quarter of fiscal 2014 grew by 13.5% above prior year while revenues for the nine months grew by 15.5%. The Company's third-quarter year-on-year revenue growth of $18.1 million, or 13.5%, was driven entirely by its services segment, which grew by $18.6 million, or 20%, of which nearly 13% was organic growth. These gains were noteworthy in an environment where poor weather reduced revenues about 2% and at which competitors have grown at a slower pace.

Our international and products and systems segments experienced modest organic revenue declines during the third quarter reducing the Company's total organic growth rate to a bit over 7% for the quarter. Year to date, our 15.5% revenue growth was driven by our services and international segments. Services revenues grew by more than $35 million, or 13%, most of which was organic. International segment growth of $30 million, or 34%, was driven almost entirely by our prior-year acquisition of our German subsidiary. FX rate movement has been negligible throughout the fiscal year.

Our third-quarter gross profit grew 15% over prior year on a revenue gain of 13.5%. Gross margins were 25.9% in the third quarter compared to 25.6% in the prior year. The improvement in the Company's overall gross margin rate was driven by a 140 basis point improvement in services gross margins as the combination of our international and products and systems segments was roughly flat with last year. Year to date, the Company's gross profit grew by 15.2% compared with revenue growth of 15.5% and the gross margin rate was flat at 28.5%. The gross margin rate improved in both the services and international segments by approximately 80 basis points each, but was offset by a decline in products and systems and by corporate eliminations.

The services Q3 gross margin improvement of 140 basis points was inclusive of the combined impact of adverse weather and startup costs that reduced services gross margin percentage by more than 150 basis points. We estimate that services gross margin rate would have improved by approximately 300 basis points absent these items. Our international Q3 gross margin rate improved marginally over prior year, but declined by over 400 basis points from the second quarter's high watermark that included a favorable sales mix. While we had expected a significantly reduced international gross margin from Q2 to Q3, the decline was slightly more than anticipated driven by staffing costs in advance of work starting in France relating to several important contract wins. Products and systems Q3 gross margins were slightly lower than prior year, although they rebounded considerably from earlier in our fiscal year.

Operating expenses, excluding acquisition-related costs, were 23.3% of revenues in Q3 compared with 22.8% of revenues in the prior year. Large contract startup costs and one-time settlement costs with a former employee drove a portion of this increase, as did an increase in corporate expenses related primarily to higher insurance and recruiting costs. Operating income, excluding acquisition-related items in Q3, was $4 million compared with $3.8 million in the prior year. Excluding the approximate $3 million of reductions due to weather and startup costs, operating income would have been nearly double that of the prior year.

Net income in Q3 was $1.2 million, or $0.04 per diluted share. This included the impact of acquisition-related items of $0.02 per diluted share, plus the impact of adverse weather and startup costs and the one-time settlement costs that reduced earnings by approximately $0.06 per diluted share. Exclusive of these items, our EPS would have been $0.12 per share, relatively close to the consensus earnings estimate.

The Company's adjusted EBITDA of $12.5 million during the third quarter was flat with prior-year results despite being adversely impacted by roughly $3 million due to these same items. During Q3, the Company's top 10 customers represented 43% of revenues and no single customer accounted for as much as 10% of revenues. Revenues from oil and gas industry customers increased over prior year by nearly 20% and comprised 53% of total revenues in Q3 with the strong growth driven by the Company's new Alaska contract and by an increase in revenues from turnarounds.

Finally, a few comments on the Company's balance sheet and cash flows. Mistras generated $22.6 million of operating cash flow during the first nine months of fiscal year 2014. The Company used $11.7 million of cash for capital expenditures and also made non-cash outlays to lease an additional $8.1 million of capital equipment in the first nine months.

The Company's aggregate capital investment during the first nine months of fiscal 2014 was $19.8 million, or 4.4% of revenue. The Company's free cash flow, defined as cash provided by operations less cash used for capital expenditures, was $10.7 million during the first nine months of fiscal 2014. The Company's debt and capital lease obligations net of cash was $91.7 million at February 28, 2014 compared with $70.2 million at May 31, 2013, a ratio of roughly 1.2 times the current fiscal year expected adjusted EBITDA. As of February 28, 2014, Mistras had an undrawn revolver balance of $55.8 million. And with that, Sotirios, I will turn it back over to you.

Thank you, Jon. And now let me take the opportunity to brief you on some key developments and activities within each of our business segments. First, our services segment. The services segment continues to grow, gain in new multiyear [rounds] and maintain contracts, capital projects, fleetwide power plant inspections and engineering services and is now expanding into the oil sands of Canada. These projects will contribute to results in our upcoming fiscal year and then to our already strong position in oil and gas and power generation.

As I mentioned earlier, I am excited about our new three-year contract with a major integrated energy company with significant operations in the Canadian oil sands region. Mistras was chosen to become one of a handful of (inaudible) inspection providers. We expect that our full portfolio of advanced engineering and inspection services and data management software will enable our customers to realize improved productivity, especially in areas where they currently have a very large maintenance spend.

We are also very pleased to be selected for two significant capital projects. One project is an LNG export facility and one is the first gas-to-liquid natural gas facility in the US. Mistras was chosen for this project because of our new pre-developed asset integrity program, which incorporates our recently developed software tools, proven engineering capabilities, best practices and baseline and advanced inspections. These attributes enable Mistras to bridge the gap from design contractor to an end-user client during the build phase. We believe our clients will realize substantial cost savings by developing an asset integrity management program in the [pre-built] stage, including reduced personnel exposure, more efficient inspection plants based on engineering inspection planning and more cost-effective baseline inspections prior to planned startup. We feel confident that our pre-developed asset integrity program will have great appeal for other capital projects as well.

We also won a three-year project for an ethylene expansion for a global EPC contractor for a major US-based energy company. In power generation, we signed a teaming agreement with an internationally-recognized engineering, design and consulting company that will expand the reach of both companies targeting the nuclear and fossil power generation markets and shortly expanding to transmission and distribution with our combined solutions.

We also secured a fleet contract for a major utility as a preferred supplier of energy services for their fleet of 60 fossil fuel plants throughout the country. We expanded our services at an integrated gas-combined cycle, carbon dioxide capture and storage project to include our AIMS, our acid integrity monitoring software, engineering services and our acoustic emission monitoring systems. Our AIMS software business group contracted a number of new and expansion projects requiring licenses, (inaudible) [provision] and risk-based inspection service implementations in both the downstream and midstream segments. Finally, we have already solidified contracts for turnaround work in the fall of 2014 with several American refineries.

Next, our products and systems segment. Sales of our popular through valve leak detection instrument had record sales in the quarter as we continued to assist our refining industry clients in meeting environmental compliance requirements. We are pleased with the initial market acceptance of our recently released Tablet UT instrument. Its high degree of functionality and portability, combined with support of multiple scanning sensors, including our automatic UT mini-scanner, is an excellent solution for service providers and end-users alike. We sold acoustic AMS boiler leak detection systems and remote monitoring to a large Australian utility. This will serve as an entry point for us for sales to other utilities in the region that utilize coal-fired power generation plants.

We also sold several AMS heat recovery steam generators, HRSGs, tube leak detection and remote 24/7 monitoring systems for gas turbine-based generation applications to a large US (inaudible) utility. Finally, a major US utility purchased our acoustic combustion turbine monitoring system, our ACTMS, to detect foreign objects in their gas turbine units. We are very excited about this application since it expands on our base success with starter blade crack detection opening up a large new market potential.

And now let's discuss the international sector. As Jon mentioned earlier, our international gross margin for the third quarter fell short of our expectations, driven by starting levels that preceded revenues related to important new contract wins in France. Our operations in France are fully staffed to cover the six-year contract recently signed with a major oil and gas client for all of their refineries.

Operationally, we are off to a good start focused on top quality execution and project management based on the experience we have gained from our US evergreen contracts. We are now receiving requests for advanced technologies at these sites as we commence our long-term relationship. Additionally, we will complete turnarounds at three of the sites during the fourth quarter.

In Germany, we expect increased aerospace industry business as the volume of quotation grows at our newly qualified laboratories. During the quarter, we added advanced energy personnel to our German team and extended the spectrum of advanced services that we can provide to support the oil and gas petrochemical and other process industries. Our German wind turbine business continues to expand, including blade and tower inspection, repairs using rope access and engineering support.

Our UK thermal operations collaborate regularly to offer best-of-class services in these promising energy fields to Europe. Recently, they have won several wind energy projects from multiple customers that are starting to establish Mistras as a full-range provider to the new wind market. Our newly established geography lab in the Netherlands will help us leverage our existing business with both mechanical contractors in the oil and gas sector, which are both very strong in this region.

In Russia, we sold several PCMS software licenses and in the fourth quarter, we will complete the installation of a large-scale 24/7 AE online monitoring system at a major chemical plant. In Brazil, we expanded our rope access capabilities to provide our customers with very attractive cost savings compared with our using traditional scaffolding. We also received a significant two-year offshore contract.

And now for an update on our outlook and guidance. Our third quarter was a mixed bag. On the positive side, we continue to gain market share as evidenced by our Canadian contract signing and our double-digit organic revenue growth in services, considerably outpacing the industry. On the negative side, our profitability was unacceptably low. Some of the reasons were unavoidable and others were due to choices we made to sacrifice short-term profitability for the opportunity to drive long-term business at healthy profit margins in the future.

These investments will continue without such offsetting revenue in the fourth quarter, which was prompted as to reduce our (inaudible) guidance for the remainder of the fiscal year to between $70 million and $74 million while increasing the lower end of our (inaudible) guidance to between $600 million to $615 million. To those of you who have been listening to these calls before, you will not be surprised to learn that I am extremely bullish about our upcoming fiscal year that will commence in June 1.

There are many reasons for my optimism. Here is a brief list of four reasons. First, the Canadian oilsands contract has tremendous potential to become one of our largest contracts. Second, we have changed the Company emphasis to growing profits at a rate faster than the revenues. Every Mistras operating location in the world will create, be measured and be compensated against operating plans that drive higher profit margins. Third, we will see improvements in our international operations from ERP integrations that we are currently undertaking. Fourth, I have asked Jon to work with IT and services teams to update our existing timekeeping and billing processes to make them electronically instead of manually-driven.

In closing, we are excited about our new customer contracts and we are making the right investment to become even stronger in the future. We believe that our continued focus on providing tremendous value to our customers, combined with the global reach of our expansive and growing technical capabilities will continue to make Mistras the trusted vendor of choice for customers operating in critical and complex environments. We believe that our unique attributes, combined with our growing markets, will drive healthy revenue growth in all of our business segments. We also believe that our stable business model that focuses on recurring revenue, combined with our initiatives and increased focus to achieve higher profitability, will be very impactful for the Company in 2015.

As I conclude this conference call, let me thank our 5,200 plus loyal employees, our loyal customers and our valued shareholders. That concludes our prepared remarks and we would like to open the floor for questions. And I am sorry for my cold here.

Okay, Katina, please open it up.

(Operator Instructions). Andy Wittmann, Baird.

Good morning.

Good morning, Andy.

Good morning, Andy.

Hey, I wanted to dig into this oil sands contract. I am sensing a lot of optimism from you both. Maybe if you could just give us maybe a sense of the magnitude of that. It sounds like it is gone from probably a lot of players to fewer players. What is the annual opportunity at this site with this contract and how do you think investors should think about your share potential at this contract?

Well, Andy, the total really that people are talking about is in the hundreds of millions of dollars of NDT business because it is not only this one; there is also a lot more in line. Total share for us, we will try to capture as much as we can.

That's right. I mean you are talking about hundreds of millions of dollars of NDT spend in the Canadian oil sands region. At the new particular customer, there is more than perhaps $100 million of spend at that particular customer. And since we are one of a handful of qualified vendors for that site, we think we should be able to get our representative share. And as we said in our remarks, this could become one of our largest contracts in the Company.

Got it. And so in terms of -- I mean we heard last quarter that you are moving into Canada to take advantage of these types of opportunities. How do you balance finding the personnel to staff this up knowing that this is a new geography for you, as well as it sounds like there's significant startup costs that hit this quarter? Can you give us a view as to how those will change over time as you get up to speed and really kind of where are you on ramping this project right now just in terms of how we all should think about the contribution as we move into fiscal 2015?

Andy, my second answer will be basically the same as before, is that we will do the same thing we did in Alaska; we will do it again. We have performed in many evergreens throughout the years and we will perform again.

Yes, in terms of the staffing, Andy, I mean we have had to staff up ahead of this in order to be a credible provider to this customer. Certainly we had to have at least a certain amount of critical mass and gravitas to be able to justify confidence in our Company to gain -- to get them to sign on with us. So we have had to do that. We have had to spend, we have had to do conversions of nonunion personnel to union personnel as the year has gone on. So we have been quite busy. We are still layering in infrastructure to make sure that we can really get out of the gate strong.

So I think in the fourth quarter, certainly we've incorporated the additional startup costs, which should be $2 million or $3 million let's say in the fourth quarter. But I think the goal is to really commence the revenue stream toward the end of the fourth quarter and be able to get into fiscal 2015 having revenues that more than offset cost.

I think it is important, Andrew, to stress also that these contracts are very attractive because they are not really short-term capital projects; they are really long-term contracts so the employees know their future. So we did it in Alaska, we have done it many before, we will do it again. Now there is always a case where the more the business, the more trouble you will have in recruiting people, but I think so far we have been successful in doing it. And we have convinced our customers that we have done it in the past and we will do it again.

That's a good point. It kind of feels like what has happened in Alaska and Canada is maybe not that dissimilar from what is going on with the Total contract in your international business. It sounded like, and maybe the question here is, it sounds like you are starting that one a little bit later than you thought. Maybe can you give us a sense about what the annual revenue contribution is to that one? And this also seems like you are suffering, not suffering, but you are taking the short-term pain as you are starting this one up. It seems like startup costs are in excess of revenues. What's that profitability ramp look like and what's the opportunity that investors should be thinking from that type of contract at the end of 2014 moving into 2015?

Well, I think that the profitability opportunity is certainly very exciting for us in the new Canadian contract in that region. So we are excited about, first of all, the relationship with the customer, the growth potential that it affords us, certainly the profitability opportunity. We are excited about all of it. I hesitate to quantify anything right now only because we are in such an early stage. I mean we literally just got the contract last week and we will be going up there later this month to get with the customer and really start to get launched. So we don't really have a great visibility yet as we speak into what the slope of the line will be during the next couple of months. But I think given three, six, nine months from now, we will start to have very good visibility into what the revenue ramp is going to be.

In terms of profitability, we are confident that the contract will certainly be at or higher in line with our corporate margins.

And it's really important, Andy, to also stress that this customer knows us because we have done a very good job for them before.

Right. Yes, I was talking in the international business in France particularly. You mentioned there was a startup delay there, Sotirios.

Yes.

I just wanted some kind of your view on when those burn off and when we might see the profitability shine through in the international segment.

Yes, the problems you have also in international is that whenever you really put new employees in a new contract like we had, it takes time because they have contracts and they really are delayed a lot more than they would be delayed in America. In America, we can get somebody in a week or two weeks in. But in France, you might need three to six months sometimes.

Yes, but to answer that question more specifically, Andrew, I think what you are looking for is the costs were a bit ahead of the revenues in Q3, maybe a couple hundred thousand dollars or so. In Q4, we will be able to make a profit on that contract as the revenues start to flow and beyond that, we should be nicely profitable. In terms of the revenue size, it's quite material to France in terms of -- to Mistras overall. It is a good contract, certainly, a healthy contract, but not one of our largest ones corporatewide.

Got it. Okay, thank you. I will leave it there. Maybe jump back in later. Thanks.

Tahira Afzal, KeyBanc.

Hi, good morning. This is actually Saagar on for Tahira. .

Hi, good morning.

Good morning.

Good morning. So I know the first few questions tried to get some gauge around the size of the contract and I am pretty sure you guys don't want to give that out, but can you give us some more color on maybe what the -- again, what the average size of a contract is in terms of annual contribution in your services segment just so we can get some idea of maybe the size -- the potential contribution from this contract once it does ramp up?

Yes, I mean, on the average, an evergreen contract for us might range in the $5 million to $10 million per year annual revenue range and this contract has the potential to be many times that.

Perfect, thank you. Then, Sotirios, I know in your prepared remarks you went through each of the segments and gave a lot of color on the opportunities and what you guys have won. Specifically within that, you mentioned with your asset integrity program, LNG export facility and GTL facilities. Can you just give us some more color on -- it seems like you have won your first two projects in that area. What size of opportunity could be there going forward over the next few years?

As we all know, really the oil and gas has a lot of capital projects in mind as these capital projects continue to emerge because some of them, if you remember, were canceled. So as these really are coming, I think we are a key player in getting our share of business. And in our case, we combine not only basically the NDT, but we also combine, as I mentioned, AIMS, asset integrity management software, also in between.

Okay. And then lastly on my part, you also mentioned fall turnaround work pretty quickly saying that you have already secured work from some key sponsors. If you were to look at this -- if you were to compare how you are looking at fall turnaround at this point this year versus the same point last year for the 2013 fall turnaround season, what would be your commentary about year over year?

My commentary would be that this year will be better than last year.

Okay. Sounds great. Thank you very much.

Tristan Richardson, D.A. Davidson.

Good morning, guys.

Good morning.

Good morning, Tristan.

Just kind of curious, I mean aside from the project in France and startup costs there, I'm curious, Sotirios, you talked a little bit about Germany and I'm curious is Germany growing currently your operations in that region?

The German business basically right now is not really growing, but it is not going down either. What we have done is that area is we certified two brand-new laboratories and we have a lot of hope for that. Whenever you do destructive testing, you have to have (inaudible) and order certifications and sometimes between America, it might take a year. Abroad, it might even take 18 to -- 18 months or even more. I think (inaudible) we hope in the -- not this -- the fourth quarter, but starting with the new year, we are hoping that this -- that is why I mentioned quotations that we are going to start doing a lot of work because the customer gets promises of work. That is why we made the investment that we made.

Sure. No, that's helpful. Thank you. And then I guess the same question, sort of when you look at Brazil, I mean obviously that -- with the offshore contract, the growth prospects there look better, but should we think about Brazil as sort of a double-digit growth type opportunity next year or is it still too early to say?

Brazil basically we have invested over the years and right now, our strategy is very simple. Right now, we want to see Brazil more profitable rather than more growing.

Yes, yes, the growth prospects I think certainly are there. There is a lot of bidding activity and so forth, but the economy in general, as everybody knows, has had a hard time. And so as Sotirios says, our focus right now is on making sure we can be quite profitable given the volume of business we have there.

Okay, that's helpful. So I guess I'm just trying to wrap that all up and think about where the biggest opportunity in your international segment is. It seems as though this new contract in France seems to be in the most immediate near term going to be the growth driver for the international segment. Is that fair?

Yes, remember also that the nuclear energy in Europe also can be growth for us. Not only in France, but also the same customer we have in France is now doing business in the United Kingdom.

Okay. That's helpful. Thank you guys very much. I appreciate it.

Thank you.

(Operator Instructions). Matt Duncan, Stephens Inc.

Good morning, guys.

Good morning, Matt.

You made it.

I did. Actually just jumped on, so I apologize if some of this has been asked, but I think you guys were asked about the size of the opportunity in Canada. Maybe I can come at that a different way. The contract that you announced last quarter with BP, my recollection is a $40 million to $50 million opportunity. Is the opportunity in Canada similar to that in size?

It can even be higher than that, but I think we really need -- these contracts don't happen -- in Alaska, we have been for almost four or five years. This contract doesn't happen all of a sudden. They ramp up. As a matter of fact, it is the best approach to ramp up because you really train the people properly, safety is an important issue and so therefore the ramping up is very, very important in these contracts. So I think based on that, I think will take some time.

And Sotirios, how should we think about that ramp? You are adding the cost obviously now. The ramp will come as the resources that you add there get busy. Is it something that could weigh on margins a little bit early in your fiscal 2015 before it starts to level out or how should we think about that?

Yes, I mean definitely in fourth quarter of 2014, as you know and as we have talked about, we've reduced guidance because of that very factor. In the first quarter of fiscal year 2015, I think there is still a possibility of some drag due to that reason, but as we get farther into the fiscal year, that should burn off and we should be able to more than offset cost with revenues.

Okay, Jon, sticking with costs for a minute, you have been at Mistras about six months now. As you have looked at the Company's cost structure, where do you see opportunities to maybe reduce some expenses and get some good operating leverage out of what should be an improving revenue growth environment going forward?

Well, it's a great question, Matt. I think the biggest opportunities have to do with our processes and certainly we are working to develop a strategy right now to really modify today's more manually-based processes and to move more electronic and get mobile input. And so we are sort of forming this three-legged stool really centered around processes for the timekeeping and billing within the US services and Canadian services business. We have got the international side where Sotirios alluded to in his comments. Certainly we have got some cyclical things happening with the German labs getting certified, certainly with economies improving, with the French contract starting up. But also to an extent, if we need to do some rightsizing in some markets, for instance, potentially in Brazil, we will be doing some of that as well. So I think there is considerable margin accretion possibilities in Europe.

And then finally back to the US side, US and Canada, we are very focused right now on margin growth. Our team is extremely focused on driving improved margins, gaining additional leverage. We made some investments during the current fiscal year, which are beginning to pay off in terms of some sites and people in order to grow the business and we will be looking to realize on those investments while limiting cost growth from here in our fiscal year 2015. So I think there is several levers that we are looking to pull.

Okay. While, Jon, I certainly understand you are not ready to give guidance for fiscal 2015 yet, it would be safe to assume that there are good margin improvement opportunities out there for you in fiscal 2015 then?

Yes, I'm excited. I mean I think that in fiscal 2015 and beyond, we have ample opportunities to really grow margins from here.

Okay. And then last thing from me, guys, just, Sotirios, if you could give us an update on the M&A environment. Did you guys close any acquisitions during the quarter or maybe subsequent to the quarter and what are you seeing out there on the M&A landscape right now?

My (inaudible) continues to be there and to be robust in some cases and we will continue to really -- to get companies that are more of the bolt-on type companies for us and if we find something that really has some different market that we don't have, we will go after it. And nothing really has changed on our strategy. We hope that we probably can buy three or four, maybe six companies a year, but all of them basically have to fit our model. If they don't fit our model, we are not going to make the acquisition.

Sure. Thanks, guys. I appreciate it.

Thank you, Matt.

With no further questions at this time, I would now like to hand the call back to Mr. Vahaviolos for closing remarks.

Yes, I would to really thank everyone of you and have a great day.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.