Mistras Group Inc (MG) 2022 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for joining Mistras Group's conference call for the first quarter of fiscal 2022. My name is Daniel, and I will be your event manager today. We'll be accepting questions after management's prepared remarks. Participating on the call from Mistras will be Dennis Bertolotti, the company's President and Chief Executive Officer; Ed Prajzner, Executive Vice President, Chief Financial Officer and Treasurer; and Jon Wolk, Senior Executive Vice President and Chief Operating Officer.

I want to remind everyone that remarks made during this conference call will include forward-looking statements. The company's actual results could differ materially from those projected. Some of those factors that can cause actual results to differ are discussed in the company's most recent annual report on Form 10-K and other reports filed with the SEC. The discussion in this conference call will also include certain financial measures that were not prepared in accordance with the U.S. GAAP. Reconciliation of these non-U.S. GAAP financial measures to the most directly comparable U.S. GAAP financial measures can be found in the tables contained in yesterday's press release and in the company's related current report on Form 8-K. These reports are available at the company's website in the Investors section and on the SEC's website.

I will now turn the conference over to Dennis Bertolotti.

Thank you, Daniel. Good morning, everyone, and thank you for joining us today. In the first quarter, revenues were up year-over-year for the seventh consecutive quarter since the depth of the pandemic, even as our end markets continue to recover. This is a strong signal that our strategy to expand our value-added services across all of our business lines has been successful, especially considering our growth has been accomplished despite several of our end markets remaining below pre-pandemic levels. Adjusted EBITDA for the first quarter was also essentially in line with our expectations. Consequently, we are confident that we are well positioned to achieve revenue growth with expanding adjusted EBITDA margin for the full year. Ed will provide details on our full year outlook later. We expect to achieve these improved results based on stable performance in our core operations and increasing contribution from our growth initiatives in renewable energy, private space and data solutions. Our growth initiatives related to data solutions are very promising, and we continue to see our offerings winning over new customers and enhancing value to our existing customers.

So not only is OneSuite winning new customers, it is also currently leveraging enhanced functionality of its applications, firmly across our core oil and gas customers. The software will differentiate us in 3 different ways: First, customer retention. We will become an even stickier component of our customers' daily activities as they continue to utilize our more than 85 unique applications; second, by unlocking unique insights and direct benefits, we will create value for our customers from our applications, which they cannot achieve with other vendors; and third, by ultimately monetizing the overall digital platform through greater use of the underlying applications along with related licensing and consulting fees as customers increasingly integrate our applications and seek our analysis of their data. We will leverage our applications and automate analysis where possible. More importantly, subject matter experts who make the most of the data generated for the benefit of our customers on a daily basis will remain a pivotal piece of our value-added services.

Revenue for the quarter was up 5.2% and was achieved despite a slow start to the downstream sector of an otherwise strong spring turnaround season. The slow start primarily reflects delays and other deferrals caused by both supply chain issues at customer sites as well as continued effort by customers to capitalize on high barrel prices. Consequently, ramp-ups that usually take place earlier in the quarter did not fully start until mid-March. April activity is in line with historic norms, and we expect this to continue through the balance of the spring season. Our upstream business was largely unaffected by recent volatility in oil prices or supply chain issues, with strength in offshore drilling and land-based projects in Canada and Alaska. The midstream sector results were as expected with the solid increase for in-line inspections, up over 10%. Downstream and petrochemical sectors were, however, a little slow in the first quarter, due to the overlapping schedules and slight profit taking.

We expect activity to be consistent with historic norms for the full year. These different recovery levels reflect the independent nature of the distinct market of the overall energy space which we participate in. We are very optimistic about our aerospace and defense business, which includes commercial, defense and private space. Revenue was up significantly in this sector in the first quarter at 24%, and we believe this will be a long-term growth market for us.

Our experience helping our customers manage their global supply chains created and executed for Safran in Europe is prompting new opportunities, which are materializing in North America. As an illustration, a customer recently partnered with us on purchasing and qualifying equipment in order to create machining capability for them, which alleviated a major bottleneck in their supply chain. We are optimistic that our growing experience helping to manage our customer supply chains, we will continue to expand this new value-added Mistras service offering, and we are growing increasingly confident the commercial aerospace market, which has been in a severe slump for 2 years is finally on the verge of a recovery.

Foundries, casting houses and others are telling us to be prepared for significant volumes and material. They expect to be shipping to us for testing in the second half of 2022. With our private space business already going strong, we expect this high-margin sector of our business to resume its overall growth later in the year and continue to expect enhanced success in '22. The industrial and other process industry sectors also had very strong growth in the first quarter which further illustrate the benefits being realized in our push for greater diversification in our end markets.

So with the growth experienced in the first quarter, we have a clear path to our full year revenue expectations and we'll give full year guidance later in this call. We also expect gross margin to expand significantly over the balance of the year based on an improvement in sales mix and further efficiency gains. Gross profit dollars in the quarter were flat with a year ago, although gross profit margin was down. However, excluding almost $3 million differential of items, which are onetime in nature and not expected to reoccur particularly in the services segment, both gross profit dollars and margin would have been up from a year ago. International gross margin increased from a year ago. So it's clear to see why we believe gross margin will be up for this year. Ed will walk you through those details.

Overhead costs remain under control, consistent with the level we operated in at the first quarter of 2019's pre-pandemic period as we intently focus on improving our operating leverage. Given that the first quarter is always our seasonally slowest, we believe our performance continues to reflect progress across our strategic initiatives. As noted earlier, our private space life business is not only growing, but it is creating new opportunities. Both aerospace and private space customers are asking us about solutions to their supply chain challenges. We are finding initial success in private space, an industry that is less impacted by historic norms and that is open to new ideas. They are even willing to help us fund the procurement of dedicated equipment with our assurance to assist them with the additional parts for their supply chain.

For instance, our facility in Georgia, we are preparing and partnering with the customer to emulate our Le Creusot, France facility, undertaking a multitude of value-added operations from testing to machining. This saves cycle time and reduces cost for our customer. This is great business for Mistras as it leverages our existing physical assets at very little incremental cost and presents a new solution to many companies experiencing global supply chain challenges. As our aerospace business resumes its growth, it will need incremental growth -- it will add incremental growth to our results and is another reason why we are confident gross profit dollars and gross profit margin for the full year will significantly improve for the first quarter.

I'm also very pleased with the progress being achieved with our Sensoria Wind Blade Monitoring and Insights Web Portal. In the first quarter, we began monitoring a new customer's entire wind turbine farm, expanded our data analytics team and began to finalize the automation of our monitoring capability. Sensoria represents a unique growth opportunity that leverages our existing sensor and acoustic emission technology at minimal incremental cost. It offers the potential for 3 revenue streams: Sensoria sales; 24/7 monitoring; and turbine and blade repair, which align nicely to our current business model and existing revenue streams. Compared to current testing and maintenance practices, Sensoria represents a quantum leap forward in our safety, efficiency and cost for owners and operators of wind farms, both large and small, both onshore and off. As we expand capacity, we expect to see Sensoria contribute to the growth of our power generation revenues. We still expect to be monitoring 60 to 100 turbines by the end of this year, along with the capacity to be monitoring up to 1,000 by the end of 2023. We continue to see the benefit and application of Sensoria to monitor many different OEM and megawatt capacity turbines, and I'm excited for the future of this unique growth opportunity for Mistras.

Finally, OneSuite, which we have previously described as our version of an industrial app store as well as our complementary data solutions, are gaining traction. We've already implemented OneSuite in 36 separate installations, spanning 110 unique customer sites with over 800 individual subscriptions since its inception, starting at 0 users in January of 2021. And we are seeing a steep ramp-up in a number of customers and users [accessing] the OneSuite platform. This is demonstrating that customers are becoming increasingly dependent on the data and tools available in OneSuite. It enables them to turn data into actionable insights using AI, predictive analytics, and the other advanced technology hosted in OneSuite to help them better manage their assets. Because the Mistras data solution strategy has 3 primary objectives: improving customer retention; improving the value-added; and ultimately monetizing our digital capabilities, we anticipate further expansion of OneSuite utilization throughout this year with revenue doubling in the second half into OneSuite's applications. Both OneSuite and Sensoria represent an evolution in asset protection through which Mistras is uniquely qualified to leverage our proven capabilities and expertise. These interrelated data solutions combine to create a robust, predictive analytical platform, delivering an enhanced ROI for our core and new customers. I'm very excited about our prospects for growth in these new areas of opportunity in '22 and beyond. I would now like to turn the call over to Ed to give you more detail on our financial results for the first quarter.

Thank you, Dennis, and good morning, everyone. We met or exceeded our top line expectations for the fourth consecutive quarter with the bottom line near expectations as well. We continue to string together a record of consistent growth despite operating in markets that have not fully returned to pre-pandemic levels. This reflects the ongoing strengthening of our business, the increasing leverage in our business model, and the success of our growth strategy.

Turning to results for the quarter. Consolidated revenue increased 5.2% over the prior year to $161.7 million. Revenue growth in the quarter was driven primarily by strong performance in upstream, aerospace and industrials. Our growing data solutions business, which includes existing software licenses and monitoring, plus the rapid adoption of OneSuite as well as Sensoria's sensor monitoring and data analysis business and other software is growing nicely. We expect OneSuite revenue to double in 2022 over 2021 as we begin to monetize our digital strategy.

Gross profit for the quarter was approximately $40 million, with a gross margin of 24.7%. Gross margin was lower in the first quarter compared to the prior year, primarily due to higher health care costs in North America and other nonrecurring items in the first quarter compared to the year ago period, amounting to almost a $3 million differential year-over-year. That was $2 million more in the current year, $1 million less in the prior year. Normalizing for these items, as Dennis said, gross profit margin was comparable year-over-year.

Furthermore, factoring in the prior year 401(k) match and wage subsidies, which expired, gross margins would have actually improved year-over-year. Note that the 401(k) match resumed in August of '21 and the Canadian waste subsidies expired in October of '21, so these headwinds will continue to impact comparability in the second and third quarter. Despite these headwinds, and as Dennis mentioned, we do expect gross margin over the balance of the year to trend significantly higher than Q1 from an improved sales mix and efficiency improvements. Selling, general and administrative expenses in the first quarter were $42 million, which is down sequentially from the fourth quarter by 1.7%. Cost containment remains a focus, and one of the main reasons we are confident we can increase the leverage in our business model. We expect overhead to remain at about the current level over the remaining quarters of this year.

For the quarter, we reported a GAAP net loss of $5.4 million or $0.18 per diluted share, which was consistent with the prior year. Adjusted EBITDA for the quarter was $5.5 million compared to $7 million a year ago, relatively consistent with our most recent expectation, especially given the nonrecurring items which impacted gross profit, which I mentioned earlier. Our effective income tax rate, actually a benefit this quarter was 19%. For modeling purposes, we would anticipate an effective income tax rate of approximately 30% for the full year '22.

As is typical for us, we consumed cash in the first quarter as we built up net working capital. In particular, accounts receivable extended out 7 days on average, which adversely impacted our free cash flow. This was primarily a function of March being the biggest billing month of the quarter, so the increase in AR is a function of heavy quarter end billings. We expect free cash flow for the year to approximate 50% of our adjusted EBITDA, which is in line with our historical conversion ratio. The only exception is a discrete $4.5 million Cares Act related payment of deferred payroll taxes due by December 22, which will be a reduction in this year's cash flow as well as in the EBITDA conversion ratio. We expect capital expenditures for the year to approximate $20 million. The company's net debt increased by $10.4 million in the first quarter to $188.9 million compared to $178.5 million as of year-end, as a result of the aforementioned increase in net working capital.

Given that our priority use of cash flow continues to be the reduction of outstanding debt, we believe our anticipated full year free cash flow expectations will enable us to end the year at or below our targeted leverage ratio of equal to or less than 3x. At that level, we intend to evaluate our use of cash flow as a means to accelerate growth. Our business has been recovering from the low level of demand experienced in the second quarter of 2020 when the effect of COVID-19 peaked. Energy prices and demand have improved since that time. Our end markets are rebounding to prepandemic levels.

Our second largest market, aerospace and defense, particularly the commercial sector, have been lagging other end market recoveries, although an accelerated improvement is anticipated in commercial aerospace in the second half of '22. Accordingly, for the full year 2022, we expect to grow revenue between $695 million to $715 million, which should generate adjusted EBITDA of between $65 million to $69 million. Our free cash flow is expected to be between $27 million and $30 million after the previously mentioned Cares Act payroll tax payment of $4.5 million by December of this year. Given strong energy markets, improving commercial aerospace demand, robust industrial manufacturing and a rapidly developing data solutions, we are confident in achieving our outlook projections. Our business model is robust and sustainable through extremes of economic cycles, and we remain firmly committed to executing our plans, while maintaining our intense focus on cost containment while continuing to prudently invest in our business. That is our strategy, both today and over the long term.

And with that, I will now turn the call back over to Dennis for his wrap up before we move on to take your questions.

Thanks, Ed. Again, we started '22 as expected, which has us on pace to achieve our third consecutive year of both top and bottom line growth while also reducing debt. We are focused on optimizing our efficiency, improving the operating leverage in our business and generating increased shareholder returns. With adjusted EBITDA expected to grow faster than revenues over the course of '22, you can clearly see our commitment to this objective. We will continue to assess our overhead costs and calibrate to our revenue level to help ensure that we can maximize our returns as revenue continues to rebound.

Our core legacy markets are recovering and just as importantly, we believe this is a transformative year for our growth initiatives as we expect to be exiting the year with a strong foundation of renewable energy revenue via Sensoria, seeing a commercial aerospace recovery, private space growing, and last but certainly not least, with data solutions expanding via OneSuite, which greatly enhances the value we deliver to our core customers as well as new and emerging industries we are participating in. Put directly, our innovative technologies and OneSuite will help drive our core legacy business. We truly believe that we have unique and proprietary technologies that have strong demand in growth markets. As government entities continue to impose new and more restrictive compliance and safety standards in both North America and Europe, there has been significant public interest and investment in much of today's critical industrial infrastructure to ensure they operate at peak efficiency. When coupled with global supply chain issues that demand new innovative thinking, a strong market has involved many opportunities that will support long-term growth.

Our focus remains on developing new and innovative solutions that help organizations meet these challenges and optimize their productivity. I'm very excited about our prospects for growth in '22, and I believe that our expanded mechanical push into aerospace and data services will help us to accelerate our growth objectives.

Before taking your questions, I would like to thank all the Mistras employees for their continuing dedication to constantly evolving customer needs. I'm proud of the team and the way we've executed on our strategic planning goals for the future while continuing to focus on serving our customers in the present. The strategic investments we have made in the digital and expanded services space will drive growth in our targeted end markets. We are focused on caring for the safety and well-being of everyone that we interact with has made Mistras more resilient than ever as a valued partner. By sticking to the tenants of our Caring Connects initiative, we can provide a better workplace not only for the Mistras family, but for all those whom we work with in a positive and safe manner.

Daniel, please open up the phone lines.

(Operator Instructions) Our first question comes from Mitch Pinheiro with Sturdivant.

All right. I think I figured out the mute button. Can you hear me?

We can, Mitch, yes.

Okay. A couple of questions. First, if I heard you correctly, so upstream in the energy markets, the upstream, did I hear that it was up about 10% and downstream was down. Is that correct?

Yes.

So I mean, can you just talk a little bit about downstream? I remember talking to you earlier before, where the sweet spot is for turnarounds and energy prices and crack spreads. And while it was largely in line with what I was expecting, is -- when is there pent-up demand? I mean are we going to see just a big pop in the second quarter for downstream services? Or is it going to get pushed out? Is it evenly spread out throughout the year? I'd love to hear what's happening in that market and from a predictability point of view.

Yes, Mitch, I'll take it first and then throw it to Jon, if he's got a follow-up. So don't read too much into the first quarter. There was a lot of projects 6, 8 months ago that were laid out for the first quarter and things started to move as customers start looking at labor issues within, I'm sure, all the vendors to get worked on when they were so closely spaced. So they started moving things around, delaying them. I believe, of everything we've seen, that only one was pushed out of the year. So everything was just delayed into different quarters, mostly 2 or 3 and 4. So I don't think it's any kind of indicative sign. They definitely try to shorten a little bit on the front or the back if they can. We're not so sure of the back half, but they try to shorten in the front, sometimes just trying to looking at the crack spread. But I think as far as the planning goes and trying to figure out are they looking to do work this year?

The answer is essentially yes. I think they just had a lot of contracted projects on top of each other and they're trying to make the best of how to get it done. So I think the spring was just maybe start a little later and run a little bit longer. I don't see that as being anything too alarming. They've got plenty of projects to get done in '22 plus some '20 and '21. I will say, I think they are still cleaning up some '20 and '21 whether they decide to defer some '22 because of crack spreads and profit taking and all that remains to be seen. And I'm sure it plays out differently for each vendor and customer and maybe even that particular refinery. But I don't think there's a huge amount. I think they're trying to work it back. I think any time you look at deferring an inspection or maintenance cycle, you can only do it for so long. So what they're deferring today is going to be picked up next year or the year out, and that's what's happening now. Jon, I don't know if you got anything different on that.

Dennis, I agree with everything you just said. I think we did see at least 2 decent-sized turnarounds that I'm aware of, push out that were scheduled or toward the end of Q1 that got pushed out to later in the year. That totally supports what you just said.

Okay. And then when you look at margins, I mean, are anything -- has anything permanently changed post the pandemic in the energy side, the services business from a margin perspective other than the things that you had called out specifically?

So I think, Mitch, the only thing you might see dragging on it, there might be a lag between -- right now, inflation is hitting certain skill sets and customers are willing to talk about certain skills having an increase. They're not willing to talk about an entire contract. So what happens is as you give out the skilled increases as needed by market conditions and you recover it by the customer a little bit behind.

But that kind of stuff will catch up on itself. So I don't see that as being anything too major, but that's the only one part of the inflation. As far as the differences in the margins, I don't think so. I mean they're going to try to be careful on mild spend that they're doing, and you can see that here in the last couple of years. But the margins and all that haven't really changed. They're just -- there was -- to be fair, 2020 COVID type of just margin reductions that I believe all the -- I think every customer we've gotten all that back. So there was some of that going on, but there's nothing that's really carried over.

Okay. And then I'm just trying to get my arms around the OneSuite ecosystem here. So is the OneSuite -- where are we finding the revenue? Is it in each -- is it in all of your reported lines? Or -- number one. And then number two, like how -- you say revenue is going to double in this year, the second full year. But is it -- it's more than just doubling of the OneSuite, isn't it? You talked about customer retention and other benefits. How do you -- how should we be looking at OneSuite within, a, your financials? And then where the benefits are coming?

Yes. No, that's a fair question. So to your first question, inside of financials, you're going to see it mostly right now in the service North American sector. Eventually, as we're rolling this out, you'll start to see it in the international. So I -- and even a little bit in products, I would think as Sensoria and all that goes through. So the question to your -- the answer to your first question is it will play across all 3 because it's going to help core as well as emerging customers and markets. So you'll see it in all places. We are breaking out in a sub -- not as a new segment, but in subsales segments, we're going to be showing data and all that. OneSuite isn't all of the data sector. So OneSuite is going to double. For instance, we've added roughly around $3 million in new income over the last year from OneSuite, we will expect to through '22, I should say from what we started doing. And there's also other money coming in from existing customers, but this is existing customers with new money. So OneSuite is part of our data solution and really what it is, Mitch, it just gives our customers the ability to harness many more applications that they never knew or had access to. So your second question is, it's going to make us stickier in not only some of the data parts in the small segment that people see at data sale, but it's -- these applications on the 85, the vast majority of those are for oil and gas customers.

So it's going to have oil and gas customers in all 3 segments up, down and midstream as well as petrochemical and power benefiting from assets to these applications to me, [pays] in those words. So the applications could be anything from storing data to calculating results to predictive such as future life and future fill heights and on tanks and all these other things. So it's going to make us stickier because our job as inspectors is to go out and gather data for them. But it's really to tell them what that piece of equipment at asset, new or used, has value to them as an operation. And does it -- the things that we find, does that materially impact how they run it today? In the past, we would, as an industry, just inspect it and turn it over to them and say, it's your problem to figure it out. That's really not where this is going to evolve to you. You really have to be a more holistic provider and tell them -- instead of telling them weeks or months down the road, immediately what this information does for that piece of equipment. So having all these different applications that they can get to through OneSuite allows them to readily be able to do much more than just see the data and have it up on the screen and store it, which is what the old idea of data was this year, electronically storing what used to be on a piece of paper.

Now we're making information for them that they can actually have that day and understand what they have to do with that equipment. Do they have to do more inspection? Can they run it as is? Can they run it modified, put on a sensor or something that we have to do a 24/7 and look for a more cracking or growth and whatever those defects are? So that's how we see it. So it's absolutely going to make it stickier. And hopefully, the customers will spend more and more of their time using these applications that they basically just didn't know existed before.

Okay. And then just one more question, and I'll get back in the queue. Regarding your aerospace customers and your comments regarding an expectation for some significant second half perhaps demand. Is -- when it comes to that second half in aerospace, would -- are we talking like getting back to sort of pre-pandemic levels or beyond that when you talk about strength in that second half?

Yes, great question. I would say right now, it's mostly talking about getting to that, not so much getting past it. For what we do, we do a lot of the engine components [subs] to a higher stress and tested parts of the planes. We certainly do anything from landing gear to struts and full wing skins, but a lot of it's on the engines and all that's getting back to roughly a pre-COVID right now. You don't have the bodies being built for the international, but double wide aisle plus single wide, we see everything coming back. The one caveat I will say is we believe that demand is getting there, and we'll be there and here very shortly. The supply chain across the board, there's problems. There's problems when everyone of these supply chain vendors laid off folks in '20 and '21. Now they're trying to hire them back and they can't hire back the same skills as fast as they need to or sometimes just the amount of bodies. So us playing along in this supply chain mitigation and trying to do more stuff for them really kind of leans into one of the problems you got in aerospace right now. And we even see it a little bit in the fracking side of oil and gas where customers are saying, get ready, get ready, the work is coming, and you find out they just can't get the components and the valves to their sites as quick as they want to start up.

So you see supply chain dragging across a lot of areas just because people with this great layoff and everyone quitting or being laid off, they're having a hard time across the board, and this is from machining and everything else, just ramping back up to that level. But we believe demand is there and by us trying to play into the into the supply chain mitigation that actually bodes well for us.

(Operator Instructions) Our next question comes from Chris Sakai Singular Research.

Just I wanted to talk about gross margin expansion you guys [faced] and improve throughout the year. Can you share what you guys think it will be at, at the end of the year?

So I'll start...

I think, Chris...

Go ahead. Go ahead.

Yes. So basically, you've got a couple of things in your favor there. Aerospace recovery is one of them as that comes back on stream in the second half of the year, that certainly improves the margins. So Q1 is always our lowest seasonal period on the margins. I mean it will come up kind of higher in Q2 and Q3 and then Q4 maybe level back out.

So we're targeting for -- to replicate last year's margins, get in that ballpark, if not, maybe a little bit of an improvement. The last couple of years, we've been seeing improvement in gross profit margin. We continue to focus on that and want to improve. A lot of it is really a function of mix. We're going after efficiencies as well. But we would like to get back to next -- to last year's margins and hopefully expand ever so modestly from that would be our goal here for '22.

So again, Q1 is always a very distorted period with somewhat underabsorption and significantly lower than the other quarters. Again, Q2 and Q3 are the strong periods on the margin with Q4 kind of leveling back down a little bit.

Okay. Great. And then you mentioned -- well, SG&A sequentially decreased. Is that going to be a trend throughout the year?

No, no. As we said in the remarks, it's -- the level it's that now, $42 million for Q1, that's a pretty good run rate. All the costs have been restored in that number from cost-outs we did in earlier periods of '22 -- '21 and 2020. So yes, $42 million is a pretty good number to use going forward. it's not too sensitive to revenue volume level. So that number may ebb and flow ever so slightly, but the current run rate is a pretty good number to use going forward for SG&A.

Chris, it's Dennis. We are going to be looking to make sure our SG&A and our cost of goods sold doesn't have any fat in there. So we are going to be looking at it as well. So I'm with Ed, I mean, it should be at $42 million. Can we take it down a little bit more? That's our goal. But right now, we don't have any targets to put out there yet.

As we've done for the couple last years, we'll just calibrate overhead costs to current revenue level. We've done that for a couple of years running, and we'll continue, as Dennis said, to study and focus, to keep the balance there and keep the margins consistent, if not growing.

Okay. Great. And then you mentioned you had 40 wind turbines in the first quarter. I can't remember if -- did you have a goal for the year for that?

Jon, if you want to talk a little bit, we had some numbers in there, but Jon's closest on that.

Yes, sure. Thanks for the question. Yes, so we feel really good about the recent activity with Sensoria. We feel really good about recent discoveries we're having daily on defects in our customers' wind turbine blades and these are being confirmed by inspections. So we see pretty good momentum building. It's a little bit tricky when you're kind of starting up from a small base of activity. But I'd say before the year is out, certainly, we want to be in excess of 100 wind turbines being monitored. So we're on a path to do that.

Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Dennis Bertolotti for closing remarks.

Okay. I'd like to thank everyone for your continued interest in Mistras and joining on our conference call today. Please have a safe and productive day, and we look forward to updating you on our next earnings call.

This concludes today's conference call. Thank you for participating. You may now disconnect.