Good day, ladies and gentlemen. And thank you for joining MISTRAS Group's Conference Call for its Fourth Quarter and year-end 2021. My name is Howard and I will be your event manager today. We'll be accepting questions after management's prepared remarks. Participating on the call for 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 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, Howard. Good morning, everyone. Thank you for joining us today. In the fourth quarter, revenues exceeded expectations for the third consecutive quarter, reinforcing our confidence in our strategic initiatives and addressing the COVID-19 market challenges. Adjusted EBITDA for the fourth quarter was in line with our expectations. It was truly a great finish to a year of strong top-line and bottom-line growth. Revenues for the full year increased over 14%, and gross profit dollars were up over 10%. Selling, general, and administrative expenses were up only a small fraction relative to the revenue increase due to our continuing focus on overhead. As a result, operating income and net income improved substantially year-over-year with adjusted EBITDA up over 21%, significantly more than our increase in revenue, illustrating the operating leverage built into our business model. These results were achieved while also continuing to invest in our growth initiatives throughout '21, including OneSuite, Sensoria, and Mistras Digital, which I will elaborate on more in a few minutes. A very crucial aspect of our recovery is the significant free cash flow we generated. In fact, we generated over $16 million in the fourth quarter alone, which we used to pay down our outstanding debt at year-end, and we will continue to focus on rapidly reducing our debt. We have now paid down just over $90 million of debt over the last three years, significantly strengthening our financial condition. By staying focused on paying down debt through the rest of '22, we anticipate that we will gain flexibility in our capital allocation strategy and be in a position to potentially restart acquisitions by 2023, in order to enhance and accelerate our growth initiatives, our end-market diversity, and add increasingly smart and predictive data-centric solutions to our existing portfolio. Mistras maintains a very strong financial foundation as we head into the New Year. Jumping into our various end markets, energy remains our largest, and our revenue in this industry was up nearly 17% in '21. We expect to maintain our growth in the energy market as it continues to rebound back to pre-pandemic levels of activity and expect continued growth within our petrochemical market, to which we continue to expand our offerings. Our success is built on our ability to respond to the market's demand to get more for less. This has been a major driver behind our investment in ruggedized tablets and digital data capabilities, as well as complementary mechanical offerings for all of our sectors. These efforts are making our total offerings sticky as buyers look for partners that offer smarter data solutions in greater overall project value. We believe our digital offerings are a true differentiator led by OneSuite, which is a unique offering within the industry. Essentially, it's our industrial version of the app store. Users can access over 85 applications, helping them to better understand and monitor the condition of their plant and equipment assets from a variety of perspectives. These applications also help them predict when to conduct needed maintenance, which ideally would minimize repairs and downtime. It's already been widely adopted at nearly 100 customers with over one thousand individual subscriptions since the start of '21. We anticipate further growth in '22. These users are currently executing several million processes and calculations monthly within the related applications, and we anticipate further expansion of OneSuite utilization throughout 2022. Crude oil prices now significantly exceed pre-pandemic levels, and this is certainly a positive for our energy industry customers. But at the same time, this has caused many refineries to run longer cycle times as they captured the additional income, resulting in the postponement or scaling back of plant inspections. This 'more for less' paradigm is also putting pressure on the industry. Consequently, this may and most likely will impact the spring turnaround timing, as customers who initially had heavy overlap of projects in certain sectors are now making small timing adjustments with some of the plants until later this year. In other cases, curtailments are the work itself. Regardless, we believe conditions will improve as we move through 2022 on the strength of our digital strategy led by MISTRAS Digital and OneSuite. Our broad product offering in complementary mechanical services, we believe we can achieve our objective to grow our energy business. MISTRAS has a longer-term strategy to succeed in the energy market, first by continuing to take profitable market share, second by expanding our scope of services, and finally by introducing new proprietary solutions. For instance, our Onstream acquisition completed in December of 2018 gave us entry into the inline integrity testing market by utilizing internal pipeline inspection gauges to inspect the underground pipe. Onstream had a record revenue year in '21, and with our expanding diameter toolset service offerings, we expect additional growth from Onstream in '22. Our breadth of data services and product and service offerings are easily adaptable for us to expand into growing infrastructure and renewable energy sectors as well. One of our most exciting growth initiatives is the MISTRAS Sensoria Wind Blade Monitoring and Insights Web Portal. Our Wind Blade Monitoring Technology platform, Sensoria, provides real-time detection and visualization of turbine blade damage, utilizing our recently patented wind turbine blade monitoring systems based on our tried-and-true acoustic emission capability. Sensoria is currently in proof-of-concept on dozens of turbines with a variety of owners. Ultimately, we see Sensoria as the key to expanding what is already an approximate $17 million wind turbine blade repair and maintenance global business. We envision a service offering that includes the sale and installation of the sensors on the turbine, providing 24/7 monitoring service and ongoing repair and maintenance of any damage detected. We are finalizing our proof-of-concept for this initiative, which has generated some positive momentum, and we anticipate being in commercial operation in the later part of '22, monitoring up to 100 turbines. In addition, our goal is to expand our monitoring capacity for up to 1,000 wind turbines by the end of 2023. I encourage you to learn more about this exciting new offering by visiting sensoriawind.com. Both OneSuite and Sensoria represent an evolution in asset protection, and MISTRAS is uniquely qualified to leverage our proven capabilities and expertise to meet the needs of the changing global landscape. These newer data-centric tools complement our more established MISTRAS Digital mobile cloud-based field inspection. It's an execution and reporting platform which digitizes the field inspection process via a powerful end-to-end workflow solution. All these interrelated data solution initiatives when combined together create a robust predictive analytical platform, delivering an enhanced customer ROI. We're very excited about our prospects for growth in these new markets. In the aerospace market, we continue to experience outstanding growth in our private space business. Consequently, despite a weak commercial aerospace market, revenues in this overall vertical were down less than 3% for the full year. Although we still lag significantly behind our 2018 market peak. While commercial aerospace revenues remain soft, we believe the waiting pandemic and the resumption of air travel to be positive signs of an impending recovery in the industry, which we believe for us could begin as soon as the second half of 2022. Gross margin in the aerospace sector is very attractive, and growth in this vertical will provide a nice boost to our consolidated performance. I also want to note that we generated significant growth in our other process industries segment, which includes pharmaceutical and agricultural industries, as well as in our industrial segment, especially in this fourth quarter. It's great to see the growth being achieved in these other verticals, which is a result of the success of our strategy to find new sales outside of the energy sector. While the ongoing Ukrainian conflict is certainly causing extreme volatility in the world oil and gas market, it has not at this time had a significant impact on MISTRAS’ current business. The U.S. and certain EU countries have imposed immediate restrictions on various Russian oil and gas activity. We are in the process of assessing the specific impact this could have on our customers and on us. We're also addressing the overall potential risks the situation might have on our business going forward. But at this time, there are still many unknowns and uncertainties. In summary, it was a strong finish to a year in which we organically grew the business. We increased profitability and strengthened our financial condition while rapidly approaching pre-pandemic performance. At the same time, we made significant investments in the business to bring innovation and new products to market that will fuel the next leg of our growth. I would now like to turn the call over to Ed to give you more detail on our financial results for the fourth quarter and full year '21.

Thank you, Dennis. And good morning, everyone. We're certainly pleased to report another strong quarter reflecting an ongoing gradual recovery, where we are in our financial performance is steadily approaching pre-pandemic levels. MISTRAS keeps getting stronger each quarter, and this quarter we exceeded our top-line guidance and generated adjusted EBITDA that was in line with our expectations. We exited 2021 with strong momentum, and we expect that we will maintain it throughout 2022, particularly in the second half of this year. Turning to the results for the quarter, consolidated revenue increased 6.5% over the prior year to just over $171 million. Revenue growth in the fourth quarter was driven primarily by industrials, aerospace, and defense, and other process industries. As Dennis mentioned earlier, we are pleased to see the success of our strategy to diversify our revenue base beyond our core energy market. Gross profit for the quarter was $49.6 million, a very nominal increase as compared to the year-ago period. Gross profit margin was 29%, down from 30.7% a year ago, primarily due to higher benefit costs in the U.S. and lower Canadian wage subsidies in the current year quarter compared to a year-ago. Selling general and administrative expenses in the fourth quarter of 2021 were $42.8 million, up from $40.5 million in the fourth quarter of 2020. This increase was due primarily to the removal of temporary COVID-19 cost reductions in August of 2021, which had been initially implemented in 2020. Despite this added cost, we were able to limit our full year overhead increase to just 2.7%, which was significantly below our annual revenue growth rate, again improving the operating leverage in our model. On a full year basis, operating income was up substantially to just over $18 million, and on a non-GAAP basis, it was $22.3 million. This was an improvement of over 200% for the full year. For the quarter, we reported a GAAP net loss of just under $100,000 compared to net income of just under $200,000 in the same quarter a year ago. Adjusted EBITDA for the quarter was $14.6 million and was in line with our expectations. As anticipated, operating and free cash flow rebounded quite significantly in the fourth quarter. Cash flow from operations in the fourth quarter was $19.8 million, and free cash flow was $16.5 million. Free cash flow was net of a $4.5 million cash repayment made in December 2021 related to employer payroll taxes deferred under the CARES Act from fiscal 2020. Our free cash flow conversion of adjusted EBITDA was over 100%, in fact, 114% to be more exact. We anticipate being back to our approximate 50% average conversion of adjusted EBITDA into free cash flow during 2022. Our annual effective income tax rate was approximately 47%, including discrete items recorded earlier in the year that added approximately 17% to the overall rate. We anticipate an effective income tax rate of approximately 30% for the full year of 2022. Looking back at results for the full year, revenue was up over 14%, with all of our end markets growing with the exception of aerospace and defense for all the reasons Dennis mentioned earlier, and infrastructure, where we had a large bridge project benefiting prior year results. Gross profit for the year was $197 million, which is an increase of over 10%. Gross profit margin of 29.1% was a contraction of 100 basis points attributable to higher benefit costs in the U.S. in the current year period and lower relative Canadian wage subsidies in the current year, as I had mentioned earlier. Selling general and administrative expenses were held to just a 2.7% increase on a full-year basis, despite the reversal of remaining COVID-19 temporary cost reductions in August of 2021 as originally implemented in April of 2020. Thus, by controlling overhead, we expanded the operating leverage in our model, with non-GAAP operating income up over 200% for the year, while adjusted EBITDA grew by 21% to $63 million. CapEx for the year was just over $19 million, up modestly from a year ago due to the significant revenue increase, and this was in line with our expectations. Because of our asset-light model, you can expect a typical capital expenditures budget of approximately 3% of annual revenue for the upcoming year. As Dennis said, debt reduction remains our number one priority use of cash, and this year we used cash to pay down gross debt by $16.3 million. Over the past three years, we have now reduced our total debt by just over $90 million, and as of December 31, 2021, our consolidated debt leverage ratio has just over 3.5 times as defined by our credit agreement, is the lowest level it has been since the third quarter of 2018, which was prior to the Onstream acquisition and remains well within the limits of our current covenant requirements. Our goal is to lower our leverage level to less than three times by the end of 2022, and we are well on our way to doing so. This will facilitate a more flexible capital allocation strategy by 2023, as Dennis mentioned earlier. Our business has been recovering since the low level of demand experienced beginning in the second quarter of 2020 when the initial effect of COVID-19 peaked. Although energy prices and demand improved during 2021, the ongoing COVID-19 pandemic continues to impact us. This effect is most pronounced on our second largest market, aerospace and defense, especially in the commercial sector, where a rebound to pre-pandemic levels is lagging other end markets. More recently, with crude oil prices now significantly exceeding pre-pandemic levels, this has caused many refineries to run longer cycle times, resulting in the postponement of or scaling back of plant inspections. Consequently, this may impact the timing of the spring turnaround, as customers who had initially a heavy overlap of projects in certain regions are either curtailing or deferring work for later in the year. Regardless, we believe conditions will improve throughout 2022. For the first quarter of 2022, we expect revenue to be a low single-digit increase compared to the first quarter of 2021. We expect adjusted EBITDA to be essentially flat in the first quarter of 2022 compared to the first quarter of 2021. Keep in mind that the first quarter of 2021 benefited from a significant level of Canadian wage subsidies, and the temporary cost reductions that had remained fully in place through August of 2021, thus also benefiting the first quarter of last year. Overcoming these significant headwinds to achieve a flat first quarter on adjusted EBITDA, as compared to the prior year, shows our continued focus on cost containment and expanding our operating leverage. This outlook is contingent on continuing geopolitical and macroeconomic stability, including stabilization in the crude oil future market, ongoing effectiveness of the international COVID-19 vaccination rollout, no additional global supply chain disruptions or labor shortages, which would impact our ability to work as a critical service provider, and those significant additive inflationary pressures on our business model. Again, the ongoing conflict in Ukraine is certainly an extremely volatile situation with unknown impacts on world energy markets. We are reviewing the potential impact this might have on our business in the immediate term, including U.S. and EU sanctions on Russia. This will certainly have an adverse impact on the world's oil and gas market in the short-term. Over this will be partially mitigated to MISTRAS by the fact that our business is geographically more concentrated in North America and Western Europe than the regions more directly involved in the ongoing conflict. Currently, we do not maintain any operations within Russia, and our exports to Russia are very limited. Over the long term, it is too early to tell yet as to what impact the current crisis and related sanctions will have on our business. Nevertheless, we are highly confident that our business model is robust and sustainable through the extremes of economic cycles. And we remain firmly committed to executing our plans by 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.

Alright. Thanks, Ed. Fiscal '21 was a year of rapid recovery from the twin challenges of COVID-19 and the collapse of the energy markets in 2020. We grew the business, improved profitability, and strengthened our financial condition. Now we're preparing for even greater opportunity. First, we're transitioning the business to a more data-centric organization, delivering an enhanced ROI for customers who are demanding more be done for less. Once we add Sensoria, our most visible changes in an organization are increasingly looking different today than they did just a few short years ago. We strongly believe the expanding acceptance of MISTRAS Digital can add value to all our evergreen projects, making us more firmly the choice of owners for their industrial assets. This growing portfolio should expand our growth opportunities and deliver better margins. Second, we're looking at alternative markets such as renewable energy, private space, and many others where the need for our services is emerging. Increased regulation, compliance requirements, and the drive to optimize the performance of valuable assets is driving industries to increase the market for NDT and our other related services. Third, we are dedicated to reducing outstanding debt. I am proud that we have paid down just over $90 million of total debt over the past 36 months, which equates to roughly $3 per share, although this has not been reflected in our equity valuation over this period. Once we pay down to historic metrics, we intend to consider strategic acquisitions to potentially enhance and accelerate our growth. Finally, we are focused on optimizing our own 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. The first stop is to return operations to pre-pandemic levels, and we're rapidly approaching this objective. In some of our metrics, such as gross profit margin, we're already there as our gross profit margin in '21 was slightly higher than that of 2019, and our SG&A dollars were 4% lower in '21 than they were in 2019. Both OneSuite and Sensoria represent an evolution in asset protection, and MISTRAS is uniquely qualified to leverage our proven capabilities and expertise, such as acoustic emission monitoring while innovating to meet the needs of the challenging and changing global landscape. These newer data-centric tools complement our more established MISTRAS Digital, which is our cloud-based field inspection, execution, and reporting platform that digitizes the field inspection process via a powerful end-to-end workflow solution. All of these interrelated data solutions, combined, will differentiate our offerings by creating a robust predictive analytical platform. I'm very excited about our prospects for growth in these new areas of opportunity in 2022. We believe that our new project-specific mechanical and data services will help us to accelerate our growth objectives. But before taking your questions, I would like to thank all the MISTRAS employees once again for your understanding and leadership. It has been almost two years to the day since we started creating strategic goals that address the market disruptions from the pandemic. Those strategic investments we have made in the digital space will help to drive growth in our future targeted end market. We have observed the extreme consequences that our customers and competitors have experienced during this worldwide crisis. Your focus on caring for everyone with whom we interact has made MISTRAS more resilient than ever as a valued partner. You have shown an unwavering focus on building on our solid reputation for safety, quality, and innovation, all while providing outstanding customer service and dedication during these extremely trying times. By sticking to the tenets of our Caring Connects initiative, we can provide a better workplace not only for the MISTRAS family but for all of those with whom we work in a positive and safe manner. Howard, please open up the phone lines for questions.

Our first question or comment comes from Brian Russo from SIDOTI. Your line is open.

Hi. Good morning.

Morning, Brian.

Just first on the first quarter of 2022 guidance of low single-digit revenue growth. Could you just kind of compare and contrast what you saw in the fourth quarter and the services segment? I believe there's 11% overall growth. Could you kind of drill a little bit deeper into how that growth might have been dispersed between energy versus aerospace and defense versus industrials? And then what you're seeing in the first quarter of 2022 that is kind of trending with the low single-digit guidance.

I'll take it, and throw it over to Ed and Jon. I'll take a quick comment on that. So in the fourth quarter, it's always a little bit volatile with our customers. Sometimes in the energy market, having their budgets exceeded or spending will come off the year quicker than normal. It didn't happen in 2021. We seen the signs of that in previous years, such as 2019, where late November, very early December, you'd start having customers pulling back people, hours, or the capital. They stayed quite a bit later, almost into the holiday season. So that was one of the things that helped us, and we did have a lot of activity inside private space and some of the other sectors. Coming back into this year, what we're seeing is that a lot of customers from six months ago when we were looking at our budget and our planning, there was a lot of activity in the spring, but there was a lot of piling on in certain areas at certain times, and I think that just exceeded the capacity on the local workforce, not only in NDT, but in all the sectors that support it. I think there have been a lot of corrections to that that made some of it move around a little bit. Jon, if you want to give a little bit more insight.

Yeah, sure. Thanks, Dennis. I think, as Dennis said in his comments, we had some projects that ran a little bit longer and stronger in Q4, and from a seasonal perspective versus the prior year's Q4, we had a nice uptick. So, the industries there were, in particular, probably energy-related just with that activity. So, you have some seasonality there which kind of worked in our favor and some projects ramped up. In the first quarter, I think we're looking for a similar industry mix, but as Dennis said in his prepared comments, I think from a seasonality perspective, but also just given a little bit of what's happening in the macro energy markets right now. The turnaround activity that we're expecting for Q1 is kind of in line with what it would have been in last year's Q1. Originally, we might have thought it might have been a little bit advanced versus last year's Q1 from a seasonality perspective. But as Dennis said, things seem like they may have moved a little bit later in the year, so that's why our first-quarter increase is still projected to be good in low single-digits. We might have thought it might have been a little bit higher when we entered the year, but still, we're thinking it's still going to be good.

Okay, great. And then just on Sensoria, and your comments on the global market opportunity, clearly going from a hundred to a thousand turbine capacity or service in the market specific to MISTRAS 2000 supports considerable growth. But if you just look at the number of wind facilities in operation in terms of megawatts, and the number of turbines in operation, and also just the nearly 29,000 or 30,000 megawatts of new wind capacity forecasted by the EIA, it even seems that a thousand turbines is only a small fraction of the U.S. market potential. If you could just add some insight there, whether it be quantitative or qualitative, that would be appreciated.

It's Jon, I can give that one a shot and let Dennis perhaps add on this afterward. But yes, I think we are, as Dennis said in his prepared comments, we are in a number of ongoing trials with some name brand customers. These are going very well, but we're in the early stages of proving ourselves. I think that as we continue to prove ourselves, the commercial orders are starting to come, but we're not trying to rush that process as much as we are trying to make sure that with every step we take, our ability to perform, our ability to never over-promise is sacrosanct because the credibility we need to have in this very important market is key. So we're taking a step-by-step approach. We're not rushing these processes with customers. We did have a great commercial installation in Q1 that just finished. So activities are ongoing, and we're really excited about it. I think that in other numbers we presented, it probably regards to capacity, may prove to be somewhat conservative. But again, we're trying to under-promise and over-deliver with our customers and with you folks on this call.

Yes. Brian, one more comment. It's Dennis here and on the word capacity. Right now, we know the technology works, and we can prove it out, and we're doing that with the proof-of-concept projects that we have. But what's going to happen is as we nail down the software and automate a lot, our capacity will grow. So what we're really looking at is making sure that we get the protection nailed down. We want to ensure that we have the automation of signal enhancement and bring that to the website. Right now, there's a mix of automation and manual verification. So once we get past all that and get the proof-of-concept more in the rear-view mirror, that's when our capacity to grow will become significant. To your point, you know the numbers much better than most will say regarding capacity and the large potential out there. So we're not worried about how much growth potential we have; we just want to make sure, like Jon said, that the system is working right, and the probability of detection is high enough that we're going to capture that growth. And right now we're still really focusing strictly on land-based. We haven't ventured into offshore just yet, but we believe that the same technology will work; we just have to prove that it can reach a little further out. But we don't see at this point any reason that it should be that much different.

Got it. Understood. And then just quick on aerospace and defense; clearly, commercial aerospace is lagging, you know that. You guys have been mentioning that for a couple of quarters, but when you look at the aerospace and defense revenues in 2019 of about $94 million, do you think the recovery gains momentum in the second half of 2022? Do you think you can reach that level for the full year of 2023?

Dennis, do you want to take that or should I?

I'm sorry, I didn't catch that.

Yeah, I'll start. Yes, great question. Great question. I mean, we are, as Dennis said, we're very strong right now in private space. The other area that we're doing very well in is defense. So within aerospace and defense, that used to be when we talked about this two or three years ago, we were almost exclusively talking about commercial air. Nowadays, commercial aero is certainly still the biggest portion of this category for us when it's lagging, as you say, with the growth in defense and private aerospace. I think absolutely we can approach that level in the latter part of '23, and we're trying really hard to get there sooner.

Brian, I will say if our customers from casting foundry houses, OEM manufacturing, and anything else have been expressing that by midyear peak in May, June, July, in that range, that the volume in production will be at a point excluding the wide-bodies will be getting back to some normalization. There has been a lot of activity and discussions with our customers about what they can do to ramp up, not only for us, but we hear from machining and everything else out there that it's starting to become stressed in the industry. So there is an expectation that the volume will get back to a much stronger position on the commercial side by mid-year and start to carry forward into '22 and '23.

Good morning.

Good morning.

Just a follow-up on the wind turbine business. What does revenue look like with a thousand turbines under monitoring? Is it meaningful?

So Mitchell, here's how it looks. We're going to have various types of revenue from those turbines. For installation, it's going to be a few thousand dollars per turbine. We're getting faster at this, and we can install multiple turbines in a day if we have access to several at once. This will generate some revenue. There will also be monitoring, but the annual income from that won't be very high due to tight economics. However, there is good revenue potential from automation when you multiply by 1,000. We will have experts working with the customers to interpret the data. It's not going to be easy money, but it will have a good margin. The third source of income comes from inspecting and repairing damage, which we discovered on the blades while working on the sensor farm. Some damage was visible, and some resulted from previous poor repairs. A significant portion of our income will come from hands-on repair work, which is part of our existing business. The other income will be from the other two revenue streams. While I don't want to disclose exact figures, expect those three different revenue levels: a one-time fee for installation, recurring income from monitoring, and then from payments.

No, that's helpful. You mentioned that you still have a lot to prove to your wind customers. What do you mean by that? Do you need to complete an installation, or is there something more significant that needs to happen?

So I'll cash in and Jon wants to elaborate. It's a good question. There's two things when you say compared to. There isn't really technology comparable for the monitoring that we've seen. There are people that can put video cameras on there and point them out at 24/7 if you want or some kind of microphones and things like that, but nothing really directly attached to the blades that makes sense. You can do things on the blades attached at a hub, to the axles and alignments, and do vibration, and all that. But that's an indirect idea of what's happening with the blade. So comparable, we don't really see much out there, especially when you bring in effect that we will do the manufacturing, the installation, monitoring, and then the maintenance. The proof is that we're trying to ensure to customers that our technology, when you see the signals and not only sees the signals based on the base down to the tip at a high enough sensitivity that it picks up anything significant to the blade, whether it's a small pinhole or something at the very tip that hasn't caused any damage or grown. We are worried about that versus something as you get closer and closer to the blade, obviously the leverage on the defect is greater and greater, and it's more important. So we're trying to prove that out. We're trying to prove that we can find all the different types of damage perforations, lamination, delaminations, laminations, crack installations, lightning strikes, anything that occurs to it and be able to tell them what the different damages are, just not that there's a signal that looks wrong. Identify their characteristics and most importantly, is that damage growing and is it becoming significant to the blade. So all those three things, and anticipation of where you'd be thinking, we've proven all those signals; we're proving that we can see them. Now we just got to prove that we can see them consecutively, and we can nail them with the software. That's where I talked about the probability detection and making sure that we can see them at a high end of probability that regardless of where we detect and the orientation, we can see it grow. Most importantly, accounting for monitoring and giving them data that's not only is there something there, but how rapidly do they need to work on it and do something with it. That's when it becomes valuable to the customer because they can plan their outage time and what they would like. Anything else they want to keep their assets running and keep utilization as high a percentage as they can, so that's where this technology really comes in.

That's helpful, Dennis. Thank you. And then back to sort of the energy markets. When energy prices are low, budgets are tight, and when energy prices are high, no one wants to stop shorter turnaround. Where is there a sweet spot? Is there ever a sweet spot where things just sort of run normally as part one? Part two is, over the last several years, there's got to be pent-up demand for all sorts of maintenance and even new equipment. Can you give us a little color on the extent to which there is pent-up demand or will this pent-up demand just get pushed off forever?

So great questions. A quick way of looking at it from a customer point of view; I don't know if they'll ever tell you there's a sweet spot. But to their point of view, the volatility is not great for them, high or low, because it's hard to plan capital allocations. Many people have asked, well, it's at a $130 a couple of days ago with a $116 a barrel. Now, how does that affect? When you're looking at the upstream and down, especially. Let's just take the down on midstream, really. If you look at those two, their capital budgets are put out a year or so in advance, right? Six months in advance. So they're pretty much locked into what they're going to spend. Certainly, when you get extreme high crack spreads and things like that, they're going to take a little bit of advantage of it. We could talk about possibly the spring turnarounds to see if they can snip off a little more from both ends and pare down just to essentials again. So they can do something like that, but they really can't change too much year in and year out. Their planning and everything is locked in. So for them, it’s more about sustainability and an idea of what it's going to look like and regulations from government, everything else about leases and all that. I think everything that's going on in Europe might make the focus on ensuring that we have the same amount of supply to match demand because you can curtail supply. But if you don't do anything about demand, then the price is just going to go in one direction. On the month of deferrals, I can tell you right now from what we've seen in the spring, some of that was '20 and '21 deferrals of maintenance. So what they're going to have to do is still get that done. They may be able to try to play with like you're saying, and maybe some of the things we needed to do in '22, but '20 and '21 items are going to have to be picked up. So there is always going to be a drag behind the owners that they have to start making some of this up in any one quarter or a year. Possibly not, but they can't move it out five to ten years. Certainly can't move it out two cycles for them. So they'll have to pick it up in a mini or a major at some point. So you're going to see a bleed through, but they can always continue to play with what's mandatory for today versus what they have to make up from last year and a year before. That makes sense?

Yeah. And then, so, I haven't seen the breakdown for the fourth quarter. You haven't released your 10-K yet, but as you look at the energy market and your energy business for 2022, is that on a global basis expected to be up year-over-year?

Yeah, absolutely. Yeah, this is Jon and thanks for the question, Mitch. Absolutely. We're expecting virtually all of our sectors to be up to some degree in 2022 versus 2021 in the energy sector. We see certainly the commodity prices are good for budgets; they're good for encouraging customers to, as Dennis said, if they were thinking about CapEx, assuming that they've got operating windows to implement it, certainly the cash flow is going to be there. So our expectation is that we can be positive in energy revenues in 2022.

And then just the last question for Ed. You're looking at gross profit and I realize you've mentioned the first quarter from last year and some one-time items. Should we expect any labor costs and higher pass-throughs? How should we evaluate gross margin for the full year 2022?

We expect to maintain our position from 2021, looking for a possibility of slight improvement in gross margin. Historically, Q1 tends to have lower gross profit compared to the other quarters, a trend that has been consistent for the past three years because of our business mix. Q2 usually shows much stronger gross profit, followed by a slight dip in Q3 and a weaker Q4 compared to Q2 and Q3. This demonstrates that there are fluctuations throughout the year due to seasonality, which we've been observing for years. While we aim for expansion in gross profit, we are not seeing the same improvements in basis points this year as we have in previous years. Various costs have been added this year, and last year's subsidies are no longer in place, so when we normalize for these factors, we find that we have made a minor improvement in gross profit. We’ll be analyzing the pro forma comparison of 2021 to 2020 closely. We plan to focus on this for 2022, but we must acknowledge the reality of inflation and rising cost pressures. Our goal is to manage and pass on increased costs as effectively as possible, which is a significant challenge. We are hopeful that we can maintain our margins this year and potentially see a slight improvement, but we are also dealing with the loss of last year's supports and increased costs since August 2021, which we need to recover this year, impacting us negatively.

Okay. Thank you very much. I appreciate it. That's all the questions I had.

Okay. Thanks, Mitch.

Thank you. If you have a question or comment at this time, please proceed. Our next question comes from Chris Sakai from Singular Research. Your line is open.

Hi, good morning. I just had a question for Sensoria and OneSuite. What are the profit margins on them?

Alright Chris, I'll take it and I'd like to thank you and welcome you to the call and for picking up coverage for us. I appreciate it. So, anytime you start discussing Sensoria, OneSuite, and similar topics, it's because of their data-centric nature that we'll be providing more data metrics as we go through the 22 numbers. Data consistently offers us the highest margins. You're implementing a lot of automation and delivering high-value services to customers, which significantly enhances our overall blend. Therefore, anything related to Sensoria and all the MISTRAS digital offerings will certainly improve our margins considerably, yielding much better multiples than what you'd find in field services.

Okay. Great. And for Sensoria, how did you get from your — you say a hundred, you're going from a hundred to a thousand by 2023. How did you get to that number?

So again, Chris, what we're looking at there is our capacity to get to that number. We believe that part of selling it is a different issue. We believe there's enough volume out there, and there are enough customers that we're talking to that we can get there. But what we're talking about is right now we're limited to how many we can add on because we're still having a blend of automation and manual. Once we get past all that, and we automate the software and get the proof-of-concept behind us, we’re going to have all signals being characterized automatically. The signals will give a discreet type of identifier to the customer based on their returns. Sometimes it's purely just detrimental to the blades; sometimes they mix the detriment with the blade mechanics and financials for it, so they get an ROI before they want to look at shutting it down. So we'll make sure we have all that set up, and then that's where our capacity can reach from three-digit kind of monitoring to four-digit, five-digit volume levels. So it's more of the capacity is not so much that we're saying we have a customer waiting on the line, but we believe there's enough capacity out there that we can certainly add customers and grow it and do it. So we're just trying to basically say we will be at a point where we're going to be ready to bring online not unlimited lot of customers but a much greater volume than we can handle right now.

It's Jon. I can take that one as well. From an inventory levels perspective, I think they are adequate. We have had some elongated lead times for chips and so forth just as much as the world is experiencing right now across many different industries, but so far we're finding it manageable.

Okay, great. Well, thanks.

Thank you.

Thanks Chris.

Thank you. I'm sure no additional questions in the queue. I'd like to turn the conference back over to management for any closing remarks.

Alright, Howard, thank you. I would like to thank everyone for your continued interest in MISTRAS and for joining our conference call today. Please have a safe and productive day, and we look forward to updating you during our next call in a few months.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone. Have a wonderful day.