Mistras Group, Inc. (NYSE:MG) Q3 2019 Earnings Conference Call - Final Transcript

Nov 05, 2019 • 09:00 am ET

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Mistras Group, Inc. (NYSE:MG) Q3 2019 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

[Operator Instructions] And our first question will come from the line of Edward Marshall with Sidoti & Company. Your line is open.

Analyst
Edward Marshall

Hey, good morning, guys. So I'm looking at the gross margin here and it's easy I guess to attribute to acquisitions made over the last couple of years and maybe the returns you're seeing on that. But you've done considerable work on the cost and that's good to see. Can you kind of break down the gross margin improvement for us and kind of how much of that's generated by these higher-margin acquisitions versus what you're doing from a cost basis?

Executive
Dennis M. Bertolotti

So I'll take the first have a crack at that for you Ed. The truth is Onstream and West Penn have not been performing as strong as we wanted to. So while they are very good cash generators and very good gross margin attributed to our gross margin profile they haven't been pushing it as far as we were looking for. So a lot of the gross margin improvement is simply coming from our sales mix. Our focus on our utilization in Europe our maintenance of making sure that the kind of sales that we get are the type of sales we want. The oil and gas market while it can be competitive you can find the right customers to align yourself. And if you add value we believe we've been doing a good job of getting the gross margins up. I don't know if Ed want to add anything?

Executive
Edward J. Prajzner

Yes. I agree Dennis. It's definitely -- I mean acquisition is an absolute part of it in sales mix. Some of this is that we exited such as staff leasing had lower-than-average margins. But we are also driving utilization and efficiency across the board. International being one that has showed very good improvement there. So it's really across the board on lots of levels improving that gross margin.

Analyst
Edward Marshall

Yes I was surprised to see it actually go up on a down revenue basis. Is this something that you could potentially sustain as we move forward even a difficult revenue environment?

Executive
Edward J. Prajzner

Yes we believe so even if revenue were to dip off a little bit we still -- we are very comfortable and confident that the gross margins would hold off. Absolutely.

Executive
Dennis M. Bertolotti

Yes we are very proud of the fact that our margins are holding even a little bit less than what we wanted for revenue for sure in Q3.

Analyst
Edward Marshall

Got it. I heard the comments about 6% to revenue I guess from Onstream. I'm curious what's the investment been for the new tooling -- larger-diameter tooling in that business? And then maybe ultimately the contribution to earning -- the earnings profile in Q3?

Executive
Jonathan H. Wolk

Ed it's Jon. Thanks for the question. The investment is relatively modest. It's in the high 6 digits to low 7-figure number. The contribution is almost instantaneous and it's very impressive because the high-technology content and effort to design and roll out these kind of