This is John Franzreb from Sidoti & Company. Some minor technical issues here with the MISTRAS Group presentation. Once you get that all corrected, we'll start it. But just to let you know, we are live, and, and we are going forward with it, and I apologize for the delay.
Okay, no worries, John. Apologize to the audience. Appreciate your patience, bearing with us. We will start off here. First and foremost, thank you, John. Thank you, Sidoti, for sponsoring today's conference, and we appreciate your interest in the MISTRAS story. Manny Stamatakis should be joining us shortly here, but I'll get us kicked off on who we are, kind of where we are, what we're doing, where we're going, and catch you up on the story. I'm going to gear this to sort of the newer audience that's a little bit new to the story, give you a little background, but then quickly fast-forward you into where we're going, you know, for the audience that might know a little bit more about us.
Obviously, today, I'll be making some forward-looking statements here, so consider yourself forewarned for the cautionary forward look that, you know, this discussion will migrate into throughout the day here. But basically, who we are, MISTRAS is a non-destructive testing company, non-destructive evaluation. We are based in Princeton here. We went public back in 2009. We are currently led by Manny Stamatakis as our Chairman of the Board and Interim CEO. And we've caught a few new folks on board as well this year. I am the CFO of MISTRAS, and what we are, we are an integrated provider of safety, uptime, and asset integrity at our customers' locations.
It's with data, sensor, software, technicians, a whole battery of skill sets we use to be a one-source provider for our customers, and their mission-critical assets. And I'll walk you through exactly what that means in a minute here, in terms of how we do that and where we do that. But I will start with this whole spectrum of capabilities and sources of strength for our customer. It covers the whole spectrum here. It's a field inspection with the technical labor. Getting access to these sites is not easy, in our customers' locations. There's laboratory testing, quality control testing. There's lots of data analytics. There's maintenance. We offer the equipment as well, and the sensors. So we are doing a full one-stop, you know, offering for the customer, handling all of their needs.
It all comes down to giving them information to know the state of their assets, the condition of use, the fitness for purpose that these assets are... have. These are hard, tangible assets I'm talking about. I'm not talking about software. I'm talking about power plants and refineries, aircraft parts, you name it, you know, mission-critical things in the field that have, you know, robust service duties in the field. Our customers need us to give them assurance that those assets are functioning as designed, with uptime as planned. Safety is an absolute, and if we do our job right, we minimize a lot of unplanned, CapEx repairs, that our customers can avoid. So a pillar of really our strength are our technicians. We have over 3,500 technicians throughout the United States.
And they are highly certified, highly trained, know their customers. They're essentially RT trained, radiographical techniques, ultrasonic techniques. The things that you would do in your dental chair with your, with your dentist are what we're doing out in the field, hanging suspended under a bridge or climbing up a windmill, or in some other hard-to-get-to place, doing that same static test. That's coupled with data and the sensors that feed data along the way. We're all about predicting what's happening at my customer. And it starts with a technician. It's a, it's a very highly trained person. Big part of our workforce comes...
They're ex-military, they're veterans in the US that come to work for us, that's a big piece of the source of our talent, and it's a huge backbone of the strength of our company going forward, in the past and going forward, a vital piece of the link. What is this non-destructive testing thing that I keep talking about? It's the stuff on the page here. It's basically an ultrasonic test. It might just be your eyes, a skilled person looking at something. Visual inspection is the simplest thing you might do to start off, but it's nondestructively looking at what's in front of me here and giving the customer information. I can't break into the equipment.
I've degraded it by doing that, so I have to look from the outside to see what's happening and give them an assessment. There's lots of ways of doing that. One key thing on the page here I'll just resonate is Acoustic Emission. Very cool technology. Our founder, Sotirios, started this decades ago. Acoustic Emission is listening to a passive sound that that metal is making, and it gives you a visualization of the state of the asset from the outside without having to break into it. Huge advantage, where you can get a really good read on what's happening to that, you know, the, the, the life of that asset without having to impair its integrity, obviously. Who do we help? Well, it's a wide stream of industrial customers, as you would think.
It's power plants, it's industrials, it's infrastructure, and it's this combination of being in the field, visiting the asset, leveraging our data to give them a great solution, or bringing that part to my shop, where I'm looking at a raw casting to make sure there's not a void inside of it. I'll X-ray it, to make sure they don't start all this expensive fabrication on a part that may have a flaw inside of it. So it speeds up and prevents defects down the road after someone's been milling and surface treating and notching a part into a fan blade on a motor, going into a turbine motor on an aircraft.
Let's stop that way back in the process when it was a chunk of titanium and not do all those wasted steps there, if in fact, the foundry didn't pour that, you know, that metal correctly in the first place. That's our shop business. But data is really the hub that holds all this together, and where we're going. We've talked a lot about our data analytical solutions. It's a platform to be more predictive, use more risk-based inspection about how we go about solving our customers' problems. It, you know, an older way of doing it would be time-based. I'll just show up every 36 months and do an expensive test with a technician. And sometimes you need to do that. You need to show up and see it for yourself.
But I could be predicting this with data, with an algorithm, with a sensor, and more risk-based, give you more trends and tell you what's happening. That's way more productive in a way that I can see things developing. I can see the propagation of a problem over time and not just come out intermittently and maybe miss important intervals of time when something negative is happening out there. So a hub of this is my PCMS software, Plant Condition Management Software, that I have installed out there at many customer locations. I have newer software. New Century is about additionally risk assessing things with buried pipeline that are hard to find and hard to assess. But it's all about risk-based, gathering the data from my customer, trending it, and making sure we're giving them real-time analytics on what does this mean?
What action should they take? How do they maintain better uptime, minimize unplanned downtime? Safety is an absolute here. No, we don't want anybody getting hurt here, and if we do this right, as I said earlier, the CapEx can go another turn or two or three, and they don't have to, you know, repair things prematurely. They can really leverage the asset base a little bit longer than not. Again, PCMS is a hub of this. PCMS is basically it was founded in refineries, it's expanded out to lots of other asset groups. And this is a hub of what we're going to build upon. And it basically lets the customer better understand what's happening on their own shop floor.
All the empirical data we've collected over time sits in PCMS, and it can be trended and become smart intelligence for the customer to understand state of their assets and condition of the assets, and we can risk-base how they think about and manage risk from, again, for more uptime, better safety. This, this RAG report, red, yellow, green here, amber obviously as well, is telling them what to do. Green is good, those assets are in great condition, don't worry about them. The red assets, you better get someone out there now, there's a mission-critical state that the asset should not be in. The amber is a warning sign that, you know, you better take preemptive actions now. The yellow might be more moderate, where it's a little out of spec, but not a high concern condition.
But either way, this is giving them a visual on state of their assets, what they need to act upon. Maybe there's an overdue test inspection was missing, or maybe there's a real fail-safe problem happening there. This is what's going to bear that out for them, and it is all about data. It's about predictive data, risk-based inspecting. It's expensive. It's very, very expensive to send technicians in the field to be testing things, so this is kind of a way of better managing that and more focused on what we're looking at, as opposed to simple time-based showing up on a recurring frequency. Let's be more strategic about what we test, where we test it, when we test it, how we test it, for a huge advantage for my customer.
And we also use a lot of technology here to accelerate what we're doing. So again, this is, you know, very advanced work, very technical work. What this page here is simply showing you is we've invented, and these are patented things that we have developed ourselves or acquired, robotic technology here. That top left is an RT crawler, that's an automated, RT is radiographic technique, crawling over a pipe. It could be an insulated pipe, a bare pipe, where that's a... You know, that machine is taking an X-ray 360 degrees as it walks along, and it gives vital information to the state of that pipe. Maybe there's a pinhole inside that we all need to know about and take some actions on.
In the past, a poor technician would have had to hoist that over their head and take periodic shots every 18 feet. Now, this device can take a full picture as it goes, much quicker, much safer, and gives the customer invaluable information, more than they got. The bottom picture there is a PIG, as we call it, a pipeline inspection gauge, which runs through buried pipe. That PIG is doing a similar thing, where it's taking inspections of: what does the wall thickness look like in that buried pipe? It's finding an odd pinhole that shouldn't be there, looking for corrosion that shouldn't be there.
There's lots of requirements where the owner/operators under PHMSA, which is a U.S. DOT regulatory group, is requiring everyone validate what is the strength of that, you know, weld that was put into the ground, you know, decades ago. You have to validate the strength of it to hold the pressure of what's running through that line. So this is a very attractive area. We refer to it as in-line inspection testing. It's in the midstream space. It's not very sensitive to crude prices, crude oil prices, so we want to grow this business. It's data front and center.
When that PIG has done its run, we pop the data out, do lots of assessment of it, and again, give the customer real-time information about what they need to do and how they need to interact with that asset to keep it up and running, you know, fail-safe going forward without, you know, they're, you know, absolutely minimizing any downtime is their critical function there. And this is a huge market for us, this whole interplay of what our techs can do, what our sensors can do, what our data can do in these end markets. Lots and lots of assets being analyzed today, 2 million plus assets across, you know, heavy industrial industries, where we are now. Aerospace, infrastructure, industrials, clearly oil and gas, energy, petrochem, you name it, power gen.
Big, heavy industrial users putting assets under, you know, load, pressure, temperature, et cetera. That's, that's where we are, that's where we're operating, mission-critical assets that do all the daily things in life that all of us, you know, rely upon as consumers. We can keep, keep expanding this. There's lots of end markets where, you know, we're, we're not using data, though our customers should be using it. They can trend it out for themselves, and we really believe there's, an expanded niche here where we can collect the data faster, not on a pen and paper, but in a digital tablet. Get it into a database, trend it, risk assess it, help the customer better understand where they're going, what they should do. Huge advantage for them to, you know, to have, a great ROI there.
This data play is, we believe, a real high-growth area for us. We spiked it out just last year. It's about 10% of our revenue now and growing fast, and we really believe this is the future where we can really take full advantage of this in a holistic opportunity for the customer to just be locked in with them real time, showing them exactly what's happening. We kind of sort of help them co-manage their asset integrity risk here by taking on this bigger, more frequent touchpoint with them, showing them more information, more real time, helps them just manage through their risk in a, in a very attractive way, in a much more partnership way with us, and there's more to come from that. It's real savings, it's real opportunities for them.
This slide is a simple couple of cutaway example of what the opportunity is. So, as an example, this downtime that a customer- one of our customers goes through today for a turnaround, when they come offline, cool the pipes down, take off coatings and insulations, and do all this testing, that's expensive time. That can be week over week where they're offline. If we can help them get back up online quickly and save all that downtime, that's a massive savings here. So these are a couple of examples where, you know, for not a, you know, enormous amount of spend here, we can get them up and running much quicker with risk-based, smarter testing, with efficiency, with tightening up the timeline where they were offline. There's millions of dollars of savings here with an enormous return to the customer.
There's more and more of this we can do. Traditionally, you know, we had been boxed in as more of a cost commodity, a cost-plus, you know, contract arrangement. We're flexing more into ROIs and better ways to get a higher return here from the customer, 'cause it's real, it's meaningful, we can demonstrate this. We can put a KPI to the customer's proposition and show them exactly the value we drove for them in short order, and it's real meaningful. These are just two simple, real examples of recent opportunities where we did in fact that, saved a lot of, you know, time, money, and energy for the customer. Huge savings for them, higher margin for us, perfect opportunity to be a better partner to them, growing forward and helping manage their risks, with data being the front and center piece....
of the solution for them going forward, giving them actionable things they can take advantage of here and now with our intelligence. That's the real goal here that really ties us all together as a benefit to them. One key thing that we've done the last, you know, two years now, with Manny's help, is driving Project Phoenix, as we announced last year, going after, you know, revenue growth, profitable growth, locking down overhead, changing how we go to market. We've been very successful with that. We've signaled that in our guidance this year. You know, the huge opportunity, which being realized now, we started earning some of that in 2023, more in 2024 has been realized. And we're not done just yet.
You know, we're still thinking more about how do we keep transforming the business and being more disciplined, and leveraging all this great technology into newer markets on the data side. But Project Phoenix in and of itself did lead to some significant upsides this year with which should result in our highest all-time EBITDA performance year this year. We're taking all the cost outs. Our Q1 was putting us right within that revenue range, as was EBITDA. Free cash flow was off a little in Q1 with some timing of some WIP, which we'll catch up on here in by mid-year.
But transformative change here, you know, that's leading to a lot of positive momentum and, you know, discipline, recurring thoughts on keeping the cost footprint tight, leveraging all this great opportunity into new markets. It all gets kind of tied together, being commercially more astute with how we contract with customers and take on, you know, more of the risk for them, and help share in their challenges of managing their assets. It all comes together in a higher return for us. Again, leveraging a lot of this great investment we've done. We're not new to the data game. We're not new to the software game. We're not new to the sensor game. We've done this for quite some time.
We do have this big, giant empirical data set in PCMS that we now have to leverage and take full advantage of to, you know, bring this as an opportunity for our customers. We will. We are doing that, and there's lots of ways to expand this to customers that have never seen our data before, and we can leverage this same software out to, to, newer markets that we haven't been in before because it is real, it is trended. It does give them a lot, lot of meaningful, actionable things. That's really where we're going, but again, I wanted to just emphasize that it's where we've been as well. Again, we aren't new to this. We're just leveraging a lot of the things that we've built up over time.
This skill set has been demonstrated time and time again, and it's purposeful for the customer, and we'll continue to expand this, and grow with this, and lean into this because the advantages are, you know, very clear to the customer. And on our own results, we believe this is advantageous for us. Where the margins come up from favorable mix, we can leverage this cost footprint and just have a little more discipline in how we're going to market, and be more selective maybe in who we're serving, how we serve them, and going after a more just robust portfolio of services to our, you know, to our customers. So with that, I'll kind of end right there.
I'm sorry we started a little bit late here today, but I think we've got just a couple of minutes left. I'm not sure if Manny was able to join the call. If he is, he can chime in here, or John, you can open it up to questions or ask a couple you have yourself, about MISTRAS, and I will stop talking right now.
Okay, you did a great job, Ed. Thank you very much. I'm actually going to start. There are a fair amount of questions, but just on, on the Project Phoenix that you had a slide on-
Sure.
... could you talk a little bit how much of your success has been driven by cost savings initiative versus pricing initiatives? Particularly interested in the pricing side of that.
Sure, sure, sure. Yeah, definitely. Project Phoenix was initially a cost-out study, but it very quickly morphed into commercial things when we realized we weren't being very disciplined with getting price increases, and we had a lot of costs, you know, COLA increases, which weren't passing through to a customer bill rate. So, yeah, we believe that that's real and alive, and we worked on... We sort of bifurcated our customers, went after the lower tier originally, moved up to bigger customers, and I would say in our first quarter revenue growth of almost 10%, you probably had 2.5%-3% of that coming from pure, pure pricing. So I believe that's a meaningful component.
We've not been getting organic volume nor revenue growth the last couple of years, and I think now we have both of those coming alive now. But the commercial piece, that pricing increase, is real. We've developed more of a strategic model. We have this commercial deal desk now, where when big bids come up, we critique them, we review them, we make sure the pricing is right, we make sure the markups are right, we make sure that, you know, we're forcing in this touch point where the customer's gonna, you know, work with us on the pricing increase. And I'm pleased to report that we've had very good early success so far, and we're not done. Some of this additional improvement that we expect to see throughout the remainder of 2024 and to 2025 will come from additional pricing increases with customers.
So they are working with us and partnering with us because there is a greater ROI. We can demonstrate to that- to them, put a KPI with them, and show them that there is real value there. So yeah, the pricing is real, and we're gonna keep leaning into that to make sure we're getting a fair return for all this investment we're doing in the business for our customers.
Makes sense. A couple of questions here about recent results, so this should be fresh. Good quarter, but you maintained the guidance. Some caution about the turnaround season in the second half of the year. Can you kind of just discuss what you're seeing as far as the turnaround season in the spring versus what you expect to see in the fall?
Sure, sure. Yeah, what we said on the call was basically that the spring was basically sort of an extraordinarily strong, robust spring turnaround season. That, and the fall would return back to sort of normal, is all we said. So the spring started off very early, continued on very robust into April, so that's good. We just feel that may level off in the back end of the year, that the fall turnaround might not be as robust as spring turnaround. It'll just be an ordinary, normal fall turnaround. That's all, that's all we were implying in our statement there. Other end markets are all very solid. Commercial aerospace is extremely strong, as is the rest of oil and gas, our two biggest markets.
Commercial aerospace North America is back to pre-pandemic levels now, starting really Q1 of this year, so that's a solid market. The way we look at it, all of our end markets are strong or resilient. Oil and gas and energy, very resilient now, up, down, and mid, all doing very, very well. Turnarounds might moderate in the fall. That's fine. We're expecting that. Our guidance envisioned that. All the other end markets, aerospace, industrial, very consistent, very solid, seeing a good level of bid activity, good normal pricing, good normal supply-demand balance out there for our customers. We really like this data piece, though. Data is growing. It's a very important piece of the puzzle. But we just think this year doesn't, we don't really see any odd headwinds or tailwinds, relatively ordinary normal year this year.
So let's lean into pricing, lean into volume, lean into service line extensions in commercial aerospace. Doing more for the customer is really what we're going after, and keep overlaying data analytics, doing more, you know, sophisticated trending and analysis for the customer, more sophisticated ways of managing their risk and helping them, you know, be smarter about what they're doing. All that's gonna lead to the upside. You know, data is a lot more of an upsell we can give to them, to the, to the customers who haven't used that offering just yet. But we feel very good. Our end markets are all very consistent. We're, you know, our, our run-and-maintain is good. Our evergreens are good. There's even some new contract construction work popping up in some different sectors. We're, you know, we're robustly bidding there as well.
So yeah, we're very confident in our, in our outlook here. Again, we, we've had modest organic growth, so we want to make sure we deliver on the increase here organically in 2024. Hit that, hit EBITDA. Obviously, the cost outs are there. Project Phoenix is being realized. We want to really focus on that as well, and we're being a little selective in the work we're choosing. We don't want to give away our work for free. So, you know, maybe that moderates where we could have gone on revenue, but all things considered, I'd rather get the profitability and the discipline and the health of a core healthy portfolio. Let's get that locked down first and foremost, generate the free cash flow, and then we kind of grow from there and keep redeploying more, more digital analytical solutions over time.
Leveraging all this wonderful shop lab, aerospace, private space work is really our strength here. And make sure we, you know, we kind of harden and strengthen this field cost-plus business, which hasn't been as profitable as we would've liked. Keep focusing on that with all this discipline and Project Phoenix, and I think that brings everything together very nicely for us, where we have a, you know, a very high level of confidence of hitting this outlook here for fiscal 2024.
Question about the recent addition of a chief transformation officer. Can you describe the anticipated role? And I guess, in conjunction with that, when you think about what inning you are in this turnaround process, can you kind of just surmise where you think you are?
Yeah, great question. I mean, the chief transformation officer did join us, Hani Hammad, from AlixPartners. He had been on the assignment for us. So yeah, he has... And we put out an extensive press release on his background and capabilities. He had been on this assignment for almost a rolling year, so he has a very good knowledge here. His goal is to work on this discipline of continuing to, like, sort of embed this discipline of cost thinking, of structures, of continuing to transform and to keep ourselves leveraged, utilization of technicians, going after new markets. Really just think about being disciplined in how you go about the footprint to support the business. So I think it's a very pivotal area.
It was not being focused on as a process in the company, and that's an area that I think we'll grow from and learn from, and, and we did during the process. Hani will keep that alive by really focusing on keeping our foot to the pedal and keeping cost controls, managed very well, and just thinking outside the box and challenging people to think differently, and how we keep growing and leveraging and doing things efficiently, driving up utilization rates of our, of our cost footprint. That's really what that whole transformation process is about, to make it a formation of how we think going forward, not a periodic thing or an afterthought. Make it a part of, part and parcel to what you're doing in the DNA of how you operate, make decisions, and plan for things.
That's really what that whole CT office- CTO office is all about, and I think it'll drive a lot of good benefit for us going forward. Similarly, we added a chief commercial officer back in the fall, similarly doing a similar thing, looking at pricing and deal desk and bid trackers and CRMs, leveraging customer relationships and growing the top line profitably. That's another balancer there. They're both equally important to how we want to just think differently about really going to market in a smarter way, a more disciplined way, really expanding on all of our wonderful capabilities we've built over time. And, and just sharpening the edge there is, is really what those two roles are about. They're sort of, you know, different ends of a, of a spectrum there, in a way, but equally focused on the growth and the future.
Profitable growth is really what we're going after, and that's the top mission for the moment.
And I'm gonna sneak one more in, even though we're a little bit into overtime here, and they're right up your alley. Can you just talk a little bit about debt repayment, repayment targets by year-end, or maybe by the next two years, and this year, what your free cash flow expectations are? Do you have a guidance number out for that?
Sure. Sure, sure. Good question, John. Yeah, we, we did lever up, right before the pandemic, 2018 and, you know, 2017, 2018, 2019, with a couple big acquisitions. So we've been coming back down from that the last couple of years. So we have been putting all residual free cash flow to debt service over the past three years. We took our debt down from, you know, well over $300 million to under $200 million now, and continuing to go down. So right now, as of March 31, we hit just over a 3 leverage. It had been almost a 6 leverage going back three years ago. Our goal is to bring that leverage down to a 2.5 by mid-year, and we should be closer to a 2 even by the end of the year.
At that point, we'll have a little more functionality, optionality of, you know, more CapEx expenditures and growing the business, invest in the business, versus all that residual free cash flow, you know, going back to service debt. But we've come a long way. We're in a really good place right now. We have a very attractive, you know, bank group with lots of liquidity. Our goal this year is $34 million-$38 million in free cash flow. I believe that's very attainable. That does have a little more CapEx than last year baked in there, because we do want to invest in our, in our commercial aerospace labs to with product line extensions for our customers. But yeah, we're very comfortable there. That's an area that we've been focusing on to bring that back down.
So we will be under a 3 here this year, and our goal would be to bring it back to a 2-2.5, where we historically were as a company, and then from there, kind of leave it at that level and kind of, you know, continue to reinvest in the business. The board will contemplate at some point, you know, other direct return to equity holders at some point, but for here and now, we'll keep paying down debt for, for the moment. But yeah, 2.5 leverage is where we want to get to. We're not far off from that now, and then we'll hold serve there and be in a good place.
But yeah, we're definitely, you know, looking to keep reinvesting in the business here and growing the business, particularly in the data side and the commercial aerospace. So there'll be areas that would take some additional investment going forward. They're worth it, the returns are there, and that's how we're gonna grow the business going forward.
All right. Well, on that note, we'll wrap it up there. Thank you very much for your presentation time. We appreciate you here today at the Sidoti & Company Conference. Do you have any final words?
No, John. Thank you for hosting, and I appreciate everybody's time and attention. Sorry we couldn't get to all your questions, but we do appreciate your interest in the MISTRAS story, and thank you very much for your time today. Have a great, safe, productive day today. Thank you very much.
All right. Thank you, sir. Bye.