Mistras Group Inc (MG) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to MISTRAS Group's Earnings Conference Call for its fourth quarter ended May 31, 2015. My name is Sayeed and I will be your event manager today. We will be accepting questions after management's prepared remarks. Participating on the call from MISTRAS Group will be Dr. Sotirios Vahaviolos, Chairman and CEO; and Jon Wolk, Executive Vice President and CFO. I will now hand the conference over to Dr. Vahaviolos. Please proceed.

Sayeed, thank you very much, and good morning to all. In today's call, we will review MISTRAS Group's financial results for the fourth quarter and the entire fiscal year 2015 that ended May 31 and discuss our prospects going forward.

Our market during our fiscal year 2015 was a tale of two different halves. In the first half, market fundamentals were strong. The price of oil was consistently near $100 per barrel and there were few uncertainties concerned in labor. In the second half, the oil price was reduced by half and the refinery labor strike created tremendous uncertainty because no one knew whose refinery would be the next to be affected. These factors caused projects and turnarounds to be deferred and caused everyone to tie them their belts and look for ways to reduce spending levels.

These factors have affected our business because the deferrals and spend reductions have impacted opportunities for organic growth. In addition, opportunities for price increases in the oil and gas space are virtually new. Simply, holding existing prices has become the short-term goal. Because our business model is highly dependent upon recurring work and is a necessary part of the production process, our financial performance has been resilient. In fact, as Jon will tell you in his commentary, we've managed to improve our profitability in North America despite this difficult backdrop as we have been successful (inaudible) in the businesses both for MISTRAS and for our customers.

Our International operations including Canada were the reason our worldwide profitability was lower than we expected. Accordingly, we have started our operations and made a number of important changes to simplify the way that we do business and reduce costs. These include; first, we divested our international subsidiaries in Russia and Japan. We sold these companies to their respective -- I am sorry -- the respected local management teams. Although we recognized a loss upon sale, we took this action because these subsidiaries were losing money and causing a disproportionate amount of time to manage considering the limited upside that we see from them in the foreseeable future. Two, we recognized our services -- we reorganized our services leadership team. Michael Lange was promoted to Vice Chairman and took over our business development and strategic planning. Dennis Bertolotti was promoted to Group Executive Vice President overseeing the services business in the Americas. We also reduced a senior management by one member and recognized severance costs. Three, we reduced headcount in almost all of our international subsidiaries. We did this in order to bring stocking levels into alignment with existing and expected levels of business.

We also changed a key Operations Manager in Canada. We recognized severance and lease termination costs relating to these initiatives. We expect that the Community Bingo of these changes reduce costs by approximately $3 million in fiscal year 2016. At the same time, we have been actively engaged in dialogues with our customers and our employees developing suggestions that can improve efficiencies, reduce their spending. To improve profitability, we'll continue to press forward on several of our operational initiatives that Jon will now discuss, and as our team knows, these are my top priority. 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. The discussion in 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 yesterday. These reports are available on the Company's website in the Investors section and on the SEC website.

Now, I will summarize our financial results and then I will comment on our initiatives to improve profits. Revenues for the fourth quarter of fiscal year 2015 were $174.7 million, a 2.5% reduction compared to the prior year's Q4. Instead of declining, revenues would have grown by nearly 3% had FX rates been in line with prior year. Services revenues grew by 5% in Q4, but were more than offset by international 24% decline, of which 19% was FX, and products and systems 19% decline. Services revenues were adversely impacted by about $1 million due to a rainy May in the Gulf region. For the entire fiscal year, the Company's revenues grew by $88 million or 14%. Revenues from the Services segment grew by $97 million or 22%, offset in part by single-digit revenue decline for International that were mostly FX and Products and Systems. Most of the Services growth was driven by acquisitions. Services also experienced 6% organic growth for the year that was reduced to 4% for the global company due to single-digit organic declines from International and Products. The Services revenue growth slowed from 38% in the year's first half to 8% in the second half driven by the dramatic change in the market that Sotirios spoke out. During the fourth quarter, we recognized approximately $5 million of pre-tax charges, the majority of which were included as SG&A expenses. Inclusive of these charges, our Q4 gross margin was 25.7%, nearly in line with the prior year's 25.9%. Exclusive of these charges, our gross margin percentage improved by 40 basis points compared with the prior year's Q4. More importantly, at the segment level, Services gross margin improved by 150 basis points compared with the prior year's Q4, driven by improved contract management and utilization of personnel. The Services improvement has been a primary focus and the fourth quarter improvement is a good sign. On the other hand, this improvement was almost completely offset by a 300 basis shortfall in International and most of our Q4 actions are designed to improve International for this reason. Operating expenses continued their positive trend that began in the third quarter. In the third quarter, operating expenses declined as a percentage of sales. In the fourth quarter, they declined in absolute dollars as well excluding the impact of the charges we took. EBITDA improved by $1 million in North America during the fourth quarter and the North American EBITDA margin improved as well despite the difficult market conditions. However, this improvement was negated by a very difficult fourth quarter for International. For the entire fiscal year, North American EBITDA improved by $10 million or 15% over prior year, but this improvement was largely negated by International's decline of nearly $8 million. Cash flow is another positive. Second half operating cash flow more than doubled to over $47 million enabling debt to be paid down by $42 million during this time. For the fiscal year, MISTRAS generated over $50 million of operating cash flow, an improvement over 37% over the prior year. Free cash flow improved by over $15 million for the fiscal year, as the Company was able to reduce capital expenditures by nearly $2 million. Total capital expenditures including non-cash capital lease outlays were $23.1 million or 3.2% of revenue compared with 4.5% in the prior year. Debt and capital lease obligations net of cash was $123 million at May 31 compared with $155 million six months ago. Net debt to forecasted adjusted EBITDA was 1.6 times at May 31, down from over two times at mid-year. And now, I will comment on the actions we have launched to improve our margins. Our initiatives include; one, pricing discussions with customers; two, contract operational reviews; three, our review of SG&A costs; four, reducing unbillable time in certain international countries; and five, improving in the Canadian oil sands region. Our view is that these five areas will have a continuing focus. There will be no finish line for any of them. I mentioned earlier that Services margins had improved in the fourth quarter despite the difficult market conditions, and this is directly related to our focus on contract operational reviews. Sotirios mentioned our headcount reductions earlier and these resulted from our review of SG&A costs and our focus on reducing unbillable time, especially abroad. Sotirios mentioned the important operational leadership change we made in Canada and this is directly related to our push to grow profitably in the Canadian oil sands region. Great emphasis continues on these five areas and we expect to continually improve from here. And with that, Sotirios, I turn it back over to you.

Thank you, Jon. I am proud of my team and its resilience in the tough market. Our plan is working in North America and we are driving actions to get our international performance back up to par. And now, I will update you on some key developments in our business.

In the Service segment, the oil and gas market remains subdued for new construction projects. However, we have redoubled our efforts in such markets as petrochemical, power generation and aerospace, and we have several promising initiatives in our sales pipeline. We are busy supporting a large LNG storage facility that is being built in the Gulf region. Although, we were not the lowest cost provider, we were awarded this business by providing best-in-class productivity and responsiveness providing our customers with the best value given their demand and requirements. This multi-million dollar award positions us well as similar facilities are built in the future. Early indications suggest that the timing for upcoming turnarounds may differ somewhat from traditional patterns, possibly resulting from the refinery strike. For example, we have some unusual summer turnaround work now, but this could cause our false schedule to be a bit lighter. More to come on this as schedules become more firm. Now, let's discuss the International business. As both Jon and I indicated earlier, this segment performed well below our plan and expectations in fiscal year 2015. Accordingly, much of our focus has been spent on diagnosing the problems and putting solutions in place. In some cases as in Russia and Japan, we determined that we're expanding valuable management time and capital in markets that don't offer enough upside to our shareholders, so we decided to divest. In other cases as in Brazil and France, we believe that we have viable business that need to refocus, realign the staffing and cost structures, and improve their profitability -- probability for success, which really means improve profitability. In both of these companies, we have installed new ERP systems, we have installed new financial controllers and in the case of France, we installed a [new CEO].

In Brazil, we're still relying upon Petrobras for half of our workload, but we have [sweet emphasis] to work they consider mandatory to perform as opposed to optional. In France, we have emphasized profitability of our contracts and only taken the work for which acceptable margins [are there]. We expect that all of these changes would improve our results in fiscal year 2016 starting in the first quarter.

In the UK, we suffered impact due to a tough prior year comparison and impact due to workload levels that did not materialize. We have made important branch level management changes and expect the situation to improve in fiscal year 2016.

In Germany and The Netherlands, we experienced the close of startup operations that did not pay their way in fiscal year 2015. We've already achieved or we will now soon achieve full certification status that will begin to end a return on these investments in fiscal year 2016. The biggest upside potential we have in Germany is related to the production of new generation Airbus planes. There is a chance that we will see some of this impact at the beginning of calendar 2016, but our plan does not assume this will be the case.

Now, I will provide a brief business development update. In France, we started the new fiscal year with a full backlog while our customized product business and our sales pipeline is full with promising aerospace and power generation business opportunities. In Germany, we refocused on increasing our aerospace and automotive (inaudible) business, their several promising leads. In the UK, our wind turbine division is very busy with both traditional and advanced services. In addition, we are performing advanced service for customers in Africa and the Middle East including offshore work. In Brazil, we have an extensive backlog, which if uninterrupted, would allow for a return to profitability in fiscal year 2016. We also have a growing railroads inspection business, where we are the only company in South America that performs continuous ultrasonic inspection with automated equipments.

And now for my closing remarks and fiscal year 2016 guidance. Although expectation for the price of oil will vary widely, the consensus view seems to be that the present price range would be the new normal for the foreseeable future. In this environment, we are focused on operating as efficiently and possibly maximizing our sub-utilization and minimizing our capital outlets. Finding incremental volume for our customers and driving our profitability initiatives are our top priorities. Our fiscal year 2016 began in June 1 and we stated in the press release our planning assumptions is that there could improved price of oil be roughly $55 per barrel during this new fiscal year, a bit higher than it was traded the last month, but lower than it was traded a couple of months ago. At this pricing level, we believe the capital projects that have begun will continue, but the vast majority of the tens of millions that have been expected would be deferred. Additionally, the entire sector is seeking to reduce spending. Considering these planning assumptions, we expect that the organic growth that was typical for us would be much harder to achieve. Our fiscal 2016 plan assumes that we will have low single-digit growth from both organic sources and from acquisitions that have already been made. This revenue growth would be offset by the reduction of approximately $20 million from adverse FX assuming that FX rates remain at today's levels. And from our dispositions in Russia and Japan, we expect revenue to range from $710 million to $725 million, an increase including FX and dispositions of 2% to 4% over 2015 and 0% to 2% including these factors. Although these revenue growth levels are much less than we have achieved over the years, we believe it is prudent to set conservative plans in this environment. However, all of our shareholders rest assured that MISTRAS would be aggressively seeking to grow both within and outside of the oil and gas market as long as that growth drives a favorably bottom line in impact. Regarding profit levels, we have made difficult decisions to reduce our cost base and we will continue to be vigilant in doing what the market demands of us. In fiscal year 2015, we had strong profit growth in North America that was offset by shortfalls abroad. In fiscal year 2016, we have a big opportunity to improve our international profitability and we're very focused on achieving this goal. We are establishing our initial EBITDA guidance range to be $72 million to $78 million, which represents an increase from 1% to 9% over fiscal year 2015. In concluding this conference call, I thank our loyal employees with their commitment to safety and quality, our loyal and valued customers and our loyal and valued shareholders. That concludes our prepared remarks and we would like to now open the floor for questions.

Thank you. (Operator instructions) Justin Hauke, Robert W. Baird.

Good morning guys. Thanks for the comments there. And I guess I'd like to start with just focusing on the restructuring since it really is a discrete action you guys have taken this time and it's different than, I don't want to use the term piecemeal, but it seems like it is a more holistic approach to looking at the cost structure and I guess I'm just wondering is this the first step in kind of a broader initiative or do you expect this to be done or will there be more actions like this that we should expect over the coming year?

Well, this restructuring basically as you said is holistic in the nature and of course if we don't really get the results we're expecting, we'll make more additional changes. We're prepared we needed to do whatever it takes in order to improve profitability.

So, I guess that the reminder of your international markets, are those markets as well that you want to have a permanent presence in or is there more pruning that we might see going forward?

Are you talking on the dispositions that we had?

Yes.

Yes. We are actually -- basically we sell a lot of products in these countries. And now representatives who used to be our employees will be the ones in charge to selling it.

Yes, I'd say, Justin, this is Jon. No, we feel good about our footprint going forward. I mean there's still the possibility as Sotirios alluded to that we could do additional pruning back if it turns out that in some markets conditions change or they're not what we expect they are going to be, but for now we feel like our footprint is okay.

Okay, thank you. That's helpful. I guess the next question is, I'm just trying to understand the margin improvement that's embedded in the guidance. It looks like it's implying about 50 basis points or so the EBITDA margin expansion. How much of that is continuing what we saw in the fourth quarter from the services side as a driver versus how much is really more the improvement in international profitability?

I'd say, Justin, that most of it is improvement in international. I think that we believe we will continue to improve in Services because we're in the early innings of really focusing the operation on becoming more profitable and the organization is responding well. The whole team is in sync with this direction and so we feel very good about it. But I think more of the improvement is projected in the international. I think that we can do certainly higher up in the range, the more of that were effective in this improvement internationally.

Okay, thank you. And I guess my last one is just maybe if you could quantify if you can and it may not be a number that you have. But is there any number you can give us as the impact of, I guess, how the refining strike impacted the results and maybe a different way of asking it would be, can you break out the growth rate between the half of your business that's tied to the energy markets versus maybe the other half that is not so impacted by that?

Yes, I'd say that. The impact of the strike really waned in terms of anything that you could put your finger on and directly quantify. There are still some of our large sites that are running with fewer people as a result of the continuing impact, but it's not that material that you'd really want to call it out per se. And as that impact wanes, I think we might have a slight pickup, but again it wouldn't really move the needle. I think that in the oil and gas sector, we feel very confident with our customer retention, we feel very good about our value proposition and our discussions with customers. But I think implied in our guidance going forward is the expectation that growth will be harder to come by in that sectors than it will be elsewhere.

Edward Marshall, Sidoti & Company.

So, I just wanted to be clear the nature acquisitions you made, the Canadian business as well, both of those run through North America or are they in the international segment?

North America.

Right. And so North America still had some pretty good operating results and you've shown some pretty good improvement there even including what's probably are pretty tough businesses. Is there any success that you can kind of talk to the re-commissioning of the assets in Canada?

When you say re-commissioning of the assets in Canada...

You are looking for plan B, right?

Okay.

We're looking for plan B and I think that is working for us, but also plan A started coming and we started getting some business and the origin of the customers are really [brothers] in Canada, but really is in the initial stages and that's all we can say at this present time. But we're really delighted that both plan A and B have started working.

That's right.

So, it was less of a drag, I guess, than previous couple of quarters here in Canada.

That's exactly the way we are looking at it. In Canada, we have modest improvement in the second half of 2015 versus second half of 2014 and we feel we've got some decent momentum as we head into the new fiscal year 2016.

And was that a bigger impact than maybe say some of the pricing or other operational reviews that you've done in North America or was it a combination of pretty much all of those?

Well, I think that you know the impact was really felt in the previous fiscal year -- the second half of the previous fiscal year and it continued into the first half of this fiscal year. We anniversary that really in the second half of fiscal year 2015. So, I think that the Canadian impact sort of baked in there at this point and it's starting to modestly improve. In terms of -- the rest of it in terms of discussions with customers and so forth, those -- we've been able to wither that storm I think and our customers have -- we've worked together with them, as we've really tried to solve for how do we provide value to them, increased value, enhanced abilities to reduce spending, suggestions from our technicians, our teams and so forth to really try to solve for what they need in this market.

Got you. You've done some work on the international business already, taken some structural fixed cost out, you've taken some headcount. These actions were about $5.9 million annually, but my sense is the number -- the benefit to you is most likely larger going forward. Have you been able to quantify that and then of course the timing, I mean headcount generally happens pretty quickly, but is it timing of the recognition of those cost savings?

Yes. I think that we'll save by our count and we think we've taken about $3 million per year out of the cost base. There were some one-time charges in there and so forth that are non-recurring, but we think we've taken a good $3 million out of the cost base going forward with the work that we've done so far.

Okay. And then I guess speak to the contract business, I think you talked about maybe the summer turnaround season being a little bit stronger than -- and unusually stronger than normal. Have you aligned your contracts into the phone? Do you have a sense as to maybe the strength to some of the -- to the fall period as some of your, I guess, competitors or peers alluded to?

That would basically depends. In our case, as I said, it was unusually, but we have summer turnaround. So, that was very exciting to us, but at the same time we do not know if that will affect the fall because there are many changes that are happening daily in the turnaround area.

Yes. The other thing is last year -- last fall we had a large customer that had a large turnaround, and based on our understanding of that customer's timing of their needs and so forth, that probably won't reoccur this fall, but then again there is some other work that will happen later and there are some other projects that will occur too. So, trying to anticipate the fall right now is a little tricky for us because schedules do move and plans do change. We think that our fall might be a little bit lighter than last fall, but not materially so.

And when you think about the smoothing of the seasonality from a headcount -- I mean I am assuming your employment is somewhat seasonal as well based around that. How do you manage the employee base to address maybe the summer season. I'm sure they elated to get some work, but help me out, just think about the potential for employment disruptions there as you have a heavier summer?

Well, that's one of the advantages of being a large national provider as we are, I mean we have got labs throughout the country that we can pull resources from. And so if anything what this does is, it improves utilization in the summer and that's how you manage something like that. Then we also have contractors occasionally that we can pull in, in the real peak fall seasons that take some of the edge off as well. And of course you have got the ability to work overtime with your base and that fills a lot in gaps as well during the real peak seasons.

Yes, that's very important. I think the overtime is really key issue in our business and the other thing, on slow seasons, we train people, we always need to have training.

That's right.

So I am assuming the leverage for the year is actually from a people perspective is probably going to work in your favor based on the smoothing out of that seasonality. Is that a fair way to look at it?

I think there could be a modest positive from that, yes.

Tahira Afzal - KeyBanc Capital.

It seems like what you guys are doing internationally makes a lot of sense, but could not get a sense on -- you know, there are a lot of changes you are bringing in structurally and in terms of people together. Jon, as you have looked and how you baked those into your guidance, can you give us an idea of whether you baked in the cushion in terms of how they gel?

Tahira, I think that there is always some degree of cushion whenever you give guidance. Our degree of conservatism is probably more so in this year than it has been years past just because there is a lot of execution that needs to happen internationally. So, we have hedged our bets a little bit more with our international guys. I mean they are being held to more demanding plans than we have baked into this guidance and we will be expecting them to achieve those numbers and so we hope to be able to exceed. But right now we think that the guidance range is prudent given the amount of execution that has to happen abroad and given the uncertainty in the worldwide market.

Got it, okay. And it seems that's pretty prudent, I think you're one of my few companies that have taken a conservative stand to oil prices. So, probably a good thanks. Does that fit to up for a potential inflection, and Sotirios, maybe you can comment on this when you've seen the sentiment can be improved, have you seen pretty immediate reaction to the positive in your business?

Well, Tahira, when the oil went back up to $55 to $60, okay, for a couple of -- about a couple of weeks ago, everybody started getting excited and we had less people bothering us for price reductions. But now that is down to $45 again, we are worried about what's going to happen.

Sorry. I get what you are saying. Sotirios, if you look at all the deferred maintenance, and clearly with crack spreads running well, it seems there is quite a lot of pent-up maintenance. If I look at the last cycle, it seems that inevitably comes back with a 9-month to 12-month lag. So, it seems you built that conservatively in a sense given oil and gas budget, but as soon as you look out into the spring turnaround, would you say versus what you've baked into your estimate, there is a more chance, upside versus downside?

Well, we're a little bit more conservative because we have seen basically the turnaround is not be as big as it used to be in over years ago, okay, so -- and the [concept] is really solving problems in the refinery rather than doing a complete turnaround. So, with that conservation, we have baked the conservative as Jon mentioned, more conservative this year than ever before.

Got it, okay. And last question and I will hop back in the queue. If I look at your comments on Boeing, they seem prudently conservative in terms of upside over there, can you talk a bit about your sensitivity of Boeing orders actually go the other way and decline as well?

If anything we see an upward trend there, I think we've tried to be constructive there too because you just never know what builds cycles and given the challenges that the airframe manufacturers have in embedding new technology and into the new generation of aircraft. Certainly Boeing has had their problems and we expect Airbus may as well just because there's a lot of engineering and invention that goes into that cycle. So, we've tried to be conservative. We know the backlogs are huge. We're certainly positioned to service that business in the Northwestern US and in Germany, I'd say in the Northwestern US, we're already getting more business. It's already ticking up. In Germany, I think it's a little bit more of a wait and see, because the bill cycle is expected to begin in calendar 2016. It's just a question of will we catch that in this year's fiscal 2016 or will it really move into our fiscal year 2017, but we certainly feel the upside is coming.

(Operator Instructions) Matt Duncan - Stephens.

Sotirios, I want to talk a little bit about the North American market and sort of what your expectations are for spend and how your customers are reacting to the downturn in oil, are you seeing your customers sort of pull back on the level of traditional NDT they are doing and maybe opting for once they find a problem, they bring in an advanced technique to sort of really be able to get better data and determine when they might actually need to fix it. So, maybe they are watching things closer instead of actually repairing them and using your advanced NDT services the way to do that, how exactly are you seeing your customers react to low oil and how is it impacting just sort of your day-to-day business?

Basically as you realize, Matt, we really have a lot of refineries that are nurturing our key business. The customers are still being very conservative. The customers are still looking to spend less. They are not asking us for reduction, but they are looking for spending less and therefore we have to be whatever basically methodologies we have. And just keep in mind also a lot of the customers started using risk-based inspection where basically they cut a lot of their assets by risk and they are doing less assets because they are not all risky. So everybody is watching their spending and that's really the case right now. That's all I can say. That does not mean that it would be zero business. It doesn't mean that there are not going to be more turnarounds. It just means that they might be more conservative in the spending.

Sure. So is it your view then that the North American market and maybe just the US more specifically is going to be a fairly flat market for inspection given that it's sort of a necessary evil, they have to do it. So unless they're closing a plant, they cannot inspect, so is it really just that we kind of flatten the market out here?

As of now, I think we will -- I will see tomorrow is more flat or maybe some increases in the spring.

Okay. And then last question I've got. You've talked a lot about cost cutting actions that you have taken in international markets. I am curious about sort of how you are looking at the US business. You did get a good gross margin improvement this quarter in the services business versus last year. My recollection is last year was a very depressed level as well. And I know historically you have had better gross margins in the Services segment than you have right now. And I am curious what you think the gross margin potential is for the Services segment? Are there opportunities to maybe reduce head count a little bit and sort of geographic hot spots where the energy customer base is cutting back, are you finding opportunities to improve that margin profile as well?

We're still looking to improve, okay. They are not baked on our guidance, but we are still looking to improve and the [cost] will continue.

Yes. Matt, we've seen some dramatic increases in some of our contracts that we really zeroed in on, focused on operational capabilities that we've got and things within our control to manage little bit more efficiently to use resources, a little bit more creative to substitute in some cases resources for some of the people who've been doing some of the work and shuffle resources around. And what we're seeing is in those contracts where we've been able to do that so far, the increases have been impressive. Our contract management team is doing a great job at highlighting these opportunities and our services management team is doing a great job in executing and putting those recommendations and others into play and realizing gains. It's hard to really say, look, here's the range and so forth, but I really do believe that as we continue on this journey, we can get back up to levels that we were at a couple of years ago.

And so, Jon, have you guys taken that sort of stuff into account in the guidance range or with that improvements in those margin service upside to the range?

I think that there would be more upside in the range from those kind of initiatives. I mean, as I look to this guidance, I'd say there's really upside from two sources. There's upside from that factor that we just mentioned, the continued contract management gains and focus. There's also upside in our international subsidiaries doing better than we've sort of conservatively hedged the results to being within this guidance range. On the downside, we are anticipating at least $55 per barrel as sort of a benchmark. And when we say that, it's not like our results directly correlate any particular metric like that. That's more sort of a gauge of sentiment if you will from customers in terms of their willingness to spend and to do projects. And to the extent that we get at least $55 per barrel, I think that implies spending range and willingness to spend within our guidance. If it is much below that, that would be a downside.

Jeff [Goldstein], JP Morgan.

I wanted to focus on your areas of excitement in the areas of focus power, chemical and aerospace. Can you expand a little bit your commentary on what geographies do you target, what are some of the pricing trends that you've seen in those end-markets?

In the case of power generation, we already are in a couple of the nuclear power plant that they are building. And so we have a lot of experience in that area. There is many locations around the country because we're attacking the market not only by services, but also selling products. In the case of the Aerospace, we still think that are very, very strong and certifications play the big role. In Germany, finally we started receiving the certifications that would be very, very appropriate for us to do the business for the new aeroplanes like the 350. So, we're very excited in both the power generation and the aerospace business.

I think you mentioned automotive. Is that an area of focus for you?

No, automotive basically for us is not a big area.

Germany, we are doing.

Yes, some, but it's really small area -- it's a small business, Jeff.

Okay. That's helpful. And then if you take your assumptions for oil, I know it's a big assumption. based on what you're seeing today, does it seem like 2016, a sort of a trough year for revenues, and when you look at the cost efficiencies that you've already achieved, are those enough to deliver new guidance?

The way I put it, Jeff, is that it's hard to know what the trough year is going to be. I mean -- because none of us knows really what the market is going to do going forward. But I think most of the prognosticators seem to feel like this period of time right now is sort of a new normal for now and that there will be upside to the sort of energy market price in the future, what will be, we'll see. So, if that construct -- if that general feeling holds true, then I think this would be sort of a trough year for our growth organically and we will have considerable upside from here. In terms of the cost actions that we've taken in the guidance, certainly we've taken enough actions that we believe will enable us to comfortably achieve this guidance and provide some upside to it. So, that's sort of our general sense of it.

And we were also surprised on what happens to us in the summer because we know we saw some again, we never saw before

In terms of additional turnaround.

in additional turnaround, et cetera. So, it's really we see a market that is very, very strange to us sometimes, okay. It's really -- it has a lot of ups and downs that we never had before.

Yes, that's helpful. Last question from me, just in your revenue growth assumption for 2016, can you split up the impact from divested businesses versus FX in your guidance?

Yes, the FX is about negative 16 or so and the impact of the dispositions is about negative 4 or 5.

Okay. Thank you so much.

Thank you. I'm showing no further questions at this time. I'd like to hand the conference back over to management for closing remarks.

I would like to thank everyone for listening and we wish you all a great day. Thank you very much for listening.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.