Welcome again to the Baird Global Industrial Conference. I'm Andy Whitman. I cover industrial services at Baird. Really happy to be joined again by Mistras Group. Natalia Shuman is the company's CEO, and Ed Prajzner is the company's CFO. We don't have research coverage on Mistras today, although we know this company pretty well. As a result of it, we're going to spend a little bit more time with some slides on this one. We'll probably do about half the time going through the slides and the company story. I have some questions lined up for after that. I don't know who wants to go first. Natalia, you? Maybe to take us through this?
Thanks, Andy. I'll just read the Safe Harbor first. Obviously, we'll be giving you some forward-looking statements here. So be forewarned that Safe Harbor protections are in place for this presentation. Yep.
All right, great. Thanks for joining us today. Good afternoon. Good evening, everyone. My name is Natalia Shuman. I'm the CEO of Mistras Group. And just a little bit of Mistras. For those who don't know us, we are an asset integrity and testing platform that we're going just to give you a little bit of a history. We're about 50 years old. We started by a visionary entrepreneur, Sotirios Zaharopoulos. He started the company in Princeton, New Jersey, very close to the energy and innovation. Since then, our company is still there. I can tell you that the spirit, the innovative culture is still with us today. Now what we're going kind of it's a story of revival, if you like, or a story of transformation that I can tell you about Mistras that was started by Manny Stamatakis.
He's supposed to be here today, but unfortunately couldn't make it. Manny started this transformation of the company about two years ago when he took over as the interim CEO. I came into Mistras in January of this year. Relatively new, almost going a year. We're going through that, continuing this transformation. What do we do? We provide industrial services, industrial inspection, industrial testing. We're part of our clients' and our customers' manufacturing process. We're part of our clients' infrastructure, mostly industrial infrastructure. We provide our services in multiple verticals. I will go over those. Basically, bottom line is we're here to solve customers' problems when it comes to maximizing the uptime and increasing, improving the reliability of their assets. Here on the screen, you see my executive team, senior executive team.
Behind this team of capable professionals, we have nearly 5,000 employees. Most of them are in the field, in the labs, in data services. If we're going forward, this is our company just very briefly, around $730 million in revenue, roughly 11% EBITDA margin. If you look at our revenue mix, and we're presenting the 2024 here, we are quite geographically diverse. The majority of our business is in North America, almost 80% in North America. If we look at the services that we provide, field inspections where we are actually at the client site every day, testing and inspecting their assets is taking about 75% of our business, followed by 15% in lab services where we are part of the manufacturing process of our clients, where the new parts, new components being sent to us to inspect in the lab.
About 10% of our business is data analytical solutions. I'll be talking more about data services that we provide. We believe that this business has enormous potential, especially when it comes to data analytical solutions and services. If we look at the end markets that we serve, about 57% is in oil and gas, followed by aerospace and defense, industrial power, and infrastructure. I will be talking more about each of these verticals. When we're looking at the services we provide, as I mentioned before, this is sort of all the services that are needed by our customers to expand, to extend the lifecycle of their operations. When we come to the field services, what we wanted to highlight, and I mentioned it before, we are all about innovation. We are all about bringing new technology to the marketplace.
Here are just two examples. One is in the picture above, is the ARC Crawler. This is essentially a robot that allows to capture the images as this robot goes above the ground pipelines. We build this robot, and we have IP on that. Again, that is something that we started in Alaska, and we successfully implemented it. Now we discovered that these ARC Crawlers are needed in the Middle East, in desert environment, in Asia, Australia, and Canada, and so on. Very successful technology. Another one is the OnStream TriStream, which is buried pipelines inspection. Again, this is something that we bring to the market, and we're very, very proud of that, of all these Digital Tools that allow our customers to build their competitive advantage. I won't stay here too long.
Again, for field inspection, our real focus is our differentiation from our competition in leading the market with new technology. When it comes to our in-lab testing, there it is, again, to remind you, is all the parts that are coming to our lab. Those labs are predominantly serving aerospace and defense industry and in our industrials market vertical. There we are very proud to be accredited. We are NADCAP certified. There our prime focus is expansion of our services so we can do more for our clients so they can reduce their time to market. If you look at our vertical that we serve, let's say aerospace, they are all about launch, right? Faster launch to market, faster going to market. We are allowing them by providing them services of testing plus chemical etching or mechanical machining, welding. We allow them to reduce that time to market.
If we're going forward, that's something that we also want to bring to your attention is, as I mentioned before, is data analytical solution. Most of our data is around the PCMS software. What is PCMS software? It's plant condition management software. Think about it as an industrial software that allows customers to capture their inspection and testing data. We've been with this solution since 2003 when we acquired the company from BP, essentially. Since then, we've been updating, upgrading our software. Now it's SaaS-based, it's mobile, we have PCMS Lite. This software, essentially, if you think about it, it captures all the data. Then we're analyzing this data, and we provide customers with insight and information that allows them to decide what asset they're going to inspect or test.
What this software essentially does is transforming the time-based inspection into the risk-based inspection, allowing customers to save millions of dollars. Again, we believe that this is the next generation inspection testing going into that data space. Now it's the right time because our customers are ready for it. If we look at our energy customers, especially in oil and gas, they're all going through the transformation, digital transformation. They are much more, they're advancing much more in capturing data and analyzing data. That's becoming their differentiator. They're very keen on using our PCMS software. It always gets C-level attention from our client standpoint. We've been implementing this software already in many of our customers. In fact, 50% of US refineries are using PCMS software. That's, again, something to think about as we're going into the future.
To recap here very quickly, market served. We're pretty much into the, as I mentioned, facility infrastructure. We are in refining, manufacturing, nuclear structures, stadiums, process plants, offshore. We're covering pretty much all the energy and related sectors. If we look just very briefly into our strategic priorities and as we're finalizing our plan for the next five years, we're focusing on the service expansion and expansion of our wallet share of our clients by introducing more than one services. Think about not just having field services, but data, our products, which are sensors, monitoring technologies, our in-lab testing, right? Having clients buy from us more than one service. Then continuous improvement, continuous innovation with ARC Crawler services, again, rope access, mechanical services. As I talked before, it's in-lab adjacent services. At the same time, we're diversifying.
We all know oil and gas is a highly cyclical market vertical. We are expanding more into aerospace and defense. We're doing more in power and utilities. We are looking at expansion at a greater scale in infrastructure specifically. All of that allows, again, going through that, right? It's really looking at being operationally efficient. In the beginning of this year, we streamlined our operations. We delayered our organization. We looked at better technologies, inside technologies. We're implementing software for deploying our technicians. We're looking at other tools that allow us to effectively deploy our workforce. That is something that, again, we believe that will continue to be our strategic priorities for years to come. That will allow us to differentiate in the market further. Now I'm going to jump a little bit into numbers and Ed, if you would like.
Sure. Thank you, Natalia. This is a quick snapshot of our last couple of years' history here from 2022 forward. What you are seeing there is the revenue growth has been modest, albeit more to come with all the new things we are expanding into and diversifying into and markets. The EBITDA, though, has improved nicely over this track record, significantly up year-over-year. That really came from a very conscious cost focus, productivity, efficiency gains that Natalia mentioned. Mix does not help or does not hurt you either there, but that is going to come in the forward here. Our guidance for the year is revenue, as you can see, is a little bit flat from last year. We did, however, divest some business this year. A few underperforming labs in the field, we exited.
If you put them back in the mix, we'd be flattish this year, had to be not voluntarily exited some underperforming labs. EBITDA, though, is up this year. $86 million–$88 million is our outlook range, which would be just over a 12% EBITDA margin over a year-over-year basis here. Good consistency, good sustainability here as we drive forward. Here's been our recent track record. More to come with all the diversification, with expanding services and continuing to drive up the gross profit margins. Keeping SG&A locked down is how we really improve the EBITDA. This, again, came from Project PHOENIX. If you've heard us talk about that the last couple of years, was really back in 2022 and 2023, maximized into 2024.
Now it's about profitable growth and investing a little in the future to drive profitable growth is really what we're looking at going forward, taking advantage of all the great technology and markets that Natalia just spotlighted for us.
Yep. Cool. All right. Let's go from there. I'm going to chime in here with a little bit of questions. And Natalia, I mean, here you are almost a year in. It's probably worth just because there's been a lot of changes and there's more changes planned, why don't you just talk about kind of your background in the broader tech industry for the benefit of the room and what were the reasons that you took the job and the opportunities that you've assessed in the almost year that you've been here so far?
Yes. So I've been in this particular testing and inspection industry for about nine years now. I started with one of the majors, with Bureau Veritas. I was leading North American operations for BV for a number of years. Then I switched to Eurofins Scientific, which is also a testing company, in-lab testing company, but in a broader scale, life sciences and so on. Yes, not new to the industry. Why did I join Mistras? First of all, I think the depth of the portfolio of Mistras was very impressive. I think that is a huge differentiator on the market, especially when it comes to the data analytical solutions. There is no one else in the industry who has this type of platform and that amount of data altogether.
Now with AI sort of turbocharging that particular platform, for me, I think it has a huge potential for growth. Another thing is that we really have a much broader portfolio, not just NDT niche. It is really having those products, right, that Sotirios started with, product and monitoring technologies and sensors, and then having the field services and on top of that data. To me, having that integrated portfolio, integrated solutions offers so much more value to the customers. My first impression, I actually was very surprised how sophisticated the data analytical platform is. If you look at the broader kind of industrial services portfolio, industrial software, it is really well done. It allows customers to really capture the data and then have those insights. That was probably the biggest surprise.
That's the impression that I got coming in that I didn't have from outside.
Yeah. I mean, it is a different company. As you look around and we've done this, there are some pure service providers. There's a lot of companies that manufacture some of this equipment. Your company's unique in that it has both of those attributes today. Products isn't the biggest part of the business. Obviously, you're making most of your money on the services. It's what investors want you to do. To have a little bit of differentiation there certainly is good. Certainly, the data and analytics is part of it. It's interesting that you mentioned AI with all of this data. Where are you implementing AI today? What do you think can be the most AI'd part of your data sets that you have for your customers where they can really benefit from some of that technology?
Data. I would say data analytical platform, that is, I would say, the biggest differentiator we have today by far.
Having the data or having the AI?
Both. I think AI basically just allows us to analyze this data so much quicker, right? We have captured this data. Let's think about it, right? The data comes from so many different sources. We showed you ARC Crawlers. We showed you these pigs that go into the pipeline. The data comes from so many different sources from our inspectors in the field who are capturing this data. Now with introducing the new AI capabilities, we're able to analyze it and to provide meaningful insights at a much faster rate to our clients. Now, even for the most part, what we're doing is educating clients how they can use our data to their advantage, how they create the competitive advantage with our data. That's.
Is there a role that you can do the data analytics and then give them the solution?
Absolutely. That's what we do.
Okay. That's all right.
Yes. That's exactly what we do. Now the SaaS platform is allowed to connect to their ERP system. It is much more sophisticated than some years ago, right? AI, again, to us is, and we're just on a journey now. It's not by all means.
We all.
Yeah. Everyone is, right? We believe that this certainly will allow us to accelerate that benefit for our clients.
Got it. Right now, the PCMS software is a SaaS program. It has actually been for some time.
Correct.
Then you supplement with build hours for the processing. What's the revenue model behind the analytics that you can provide to the data sets?
Yeah. There are really three streams for revenue when it comes to PCMS and data. One is licensing fee subscription. The second one is implementation. We started really doing more and more implementations, not to depend on other third parties. The third one is really the analytics, that engineering consulting that goes together with the insights, right? We are much more capable right now, again, with having hired a few people from the industry, from the operators who understand exactly the maintenance. They understand the conditioning of the plant and so on. Now we are able to integrate it. This is our leading force. We are bringing the field services behind, right? If you think about the revenue model, that's probably only 10% of our revenue right now, right? It is not producing as much revenue yet, right?
Behind it is our field services.
That makes a lot of sense. Okay. So I'm just kind of curious, when you kind of took your fresh eyes approach, when you walked in the door, are there investments that you need to make either on the income statement with personnel sales to grow it in places, or are there capital needs in the business that you feel like you need to execute the plan that's forthcoming?
Both. I think maybe Ed can add to the capital needs. From my perspective, we have to invest further into the Digital Tools. Digital tools is absolutely important. We are also very keen on giving our inspectors more tools that they can use in the field. We continuously invest into the Data Solutions, data services. Another focus of our investments is in-labs. This is where CAPEX comes in. I do not know if you want to.
Yeah. I would say two things there. On the in-lab, aerospace, defense, commercial, private space, there we want to scale up there. That's machine time. That's constrained by how many Immersion Tanks I can build to bring plate through and rapidly get it down the supply chain. Yeah, that can be some capital expansion there. Yes, you can always use business development folks and whatnot. A big part to grow into new industries. A big part of our footprint here is repurposable, is reusable, is transplantable. All this great know-how in the field, you can flex it over to other end markets. We perfected it maybe on a bridge deck with a sensor that Sotirios built decades ago. That same exact acoustic emission sensor and technology can be flexed over to a new market, wind as an example. We've done that.
Wind turbines can use very similar AE technology that a bridge deck used. We like that because then we do not have to reapply all the overhead, reapply all the investment. You can move it over. Now, the know-how is one thing. Now I need the industry expertise to get in the door where they say, "Oh, how does that work here?" We can show them that. That is a big part of what we will do. We will keep reusing this technology, repurpose it in these diversified markets and expand it and bring this whole platform together as one of Natalia's favorite words. Bridge it all together, the data, the software, the sensor, the technical know-how, the rope access to get it up to that hard-to-get-to location and place it there. All that comes together.
That is technology that we have and innovation that we're going to keep leaning in with automation and workflow, as Natalia said, to make the tech's job easier to satisfy the customer even faster and quicker than before. A lot of this is a repurposing of what we've done over time and is clearly transferable to these adjacent spaces.
If I may just add, another big investment goes into the Sales Force, right? Because you've heard us talking about the integrated solutions where we're kind of bringing it all together for the customer's benefit. This is where we see the investments needed, to really look at building up our commercial capabilities. We've always been very, very strong in technical capabilities. This is, again, coming from our founder, right? The technical expertise, technical credibility, that technical reputation is there. Now we need to get better in telling our story to the clients, how we can have all of those services benefit them. That's where our investment comes. Educating our Sales Force, bringing different levels of salespeople, right, that are able to then sell multiple solutions, not just one kind of niche-only field NDT services, but they can also talk intelligently about the data.
They can talk about our sensors. Then looking at the problem that the customer wants to solve and then introducing Mistras in its depth and breadth, so.
Yeah. As I look at the last few years, I remember even back through COVID, oil and gas demand was weak. There was a lot of the customers were doing crazy things with their capital budgets. That was tough on the company. Come out after COVID, you do Project PHOENIX, work on the cost structure, management change. Your Executive Chairman, Manny, comes in. It was kind of in place for a couple of years during that transition period. Kind of feels like today is like just printed a good quarter. Stock was up a lot. Good demand kind of across the board. Maybe we'll have some time to talk about that. It kind of feels like the revenue base stabilized, the cost structure changed. As you look at the 2026, this is like, are we reset?
Is this the base from now we can really grow starting with the top line more?
That's right.
Is that how we should be thinking about it?
2025 was all about margin expansion. When I took over, we were way behind the industry standard. We have to continue to build up our margins, which we did, right? We continue to do so. The next year, 2026, will be about profitable growth. We will start to reinvest in our business, continue to build those areas that we talked about, whether it is specific tools, like ARC Crawlers and other tools for our inspections, or it is data. We will go after profitable growth. That is the trajectory. It comes down, right, to execution. Sustainability of our revenues, profitability comes down to execution. We had a couple of good quarters now. Our teams are well equipped. We obviously continue to upgrade capabilities of our teams. We are bringing new management in as well.
That's allowed us to, again, focus on that execution and continuous improvement.
Yeah. This is going to be a hard question for you to answer maybe, but I want to ask it anyway because I'm certain you obviously see more margin expansion potential in your business.
Yes.
I don't think you've quantified that. Is there any reason to think that there's another publicly traded NDT company now? Their margins are higher than yours by several hundred basis points.
That's right.
Is there anything different about the mix or their scale? They are bigger. Are there things about their business or your business that preclude you from getting to their levels? I'm just kind of curious as to how investors should think about that as a company. Everybody's going to look at Team and say, "Okay. They're running these margins." What do you say to that?
Yeah. So it's a good question. Look, first of all, of course, they have scale, right? So they are much bigger now. They're two times bigger now.
Yeah. I mean, you're just talking about with this business, though.
That's right. But I do believe that we have potential to improve our margins, further improve our margins as we're gaining scale, as we're gaining more revenue, and as we focus on diversifying our end markets. If we're looking at aerospace and defense, if we're looking at power and utilities, we're looking at infrastructure, those industries, first of all, demand is there, and it's a high-margin business.
Those are higher margin.
High-margin business. We certainly want to protect our core, which is oil and gas currently. We're going to continue with this market. It's a good market for us. It's been a good market for us. The diversification is part of our strategy. Going into those markets, going much more aggressively, with intensity, and then getting much bigger margins. I can tell you in aerospace and defense, we had an excellent, excellent achievement when it comes to pricing because even in the last two quarters, right, we were able to build the value because we were able to raise our prices, and clients are willing to pay for our services. Again, that was great momentum telling us, like, "Hey, we can charge more for our services.
Yeah. Great. It seems like it's an interesting and exciting setup. Good momentum out of the third quarter into year-end.
Thank you.
Hopefully, that continues. Wish you best of luck.
Thank you. Thank you very much.
Thank you so much. That's it for today.
Thank you, Dan.
It's the Industrial Conference, I think. Certainly, yeah. That's it. Thank you. We'll see you all tomorrow. Thanks.