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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): November 2, 2023
 
Mistras Group, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware 001-34481 22-3341267
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
 
195 Clarksville Road  
Princeton Junction,New Jersey 08550
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code: (609716-4000
 
Not Applicable
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
 
          Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
           Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d 2(b))
 
            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueMGNew York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o 




Item 2.02.  Results of Operations and Financial Condition
 
On November 2, 2023, Mistras Group, Inc. (the "Company," "we," "us" and "our") issued a press release announcing the financial results for our third quarter of 2023, which ended September 30, 2023. A copy of the press release is attached as Exhibit 99.1 to this report.

Disclosure of Non-GAAP Financial Measures
 
In the press release attached as exhibit 99.1, the Company uses the terms “Adjusted EBITDA”, “free cash flow” and "net debt", which are not measures of financial performance under U.S. generally accepted accounting principles (“GAAP”). Also, in the tables to the press release, the non-GAAP financial measures "Segment and Total Company Income before Special Items” (which includes operating income before special items) and are presented and reconciled to financial measures under GAAP within the table "Segment and Total Company Income (Loss) from Operations (GAAP) to Income (Loss) from Operations before Special Items (Non-GAAP)" and the non-GAAP financial measure "Diluted EPS excluding Special Items", are presented and reconciled to financial measure under GAAP within the table "Net Loss (GAAP) and Diluted EPS (GAAP) to Net Loss Excluding Special Items (non-GAAP) and Diluted EPS Excluding Special Items (non-GAAP)". Information about these non-GAAP measures are included in the press release.

Our management uses these non-GAAP measurements as a measure of operating performance and liquidity to assist in comparing performance from period to period on a consistent basis, as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations. Adjusted EBITDA and free cash flow are also performance evaluation metrics used to determine incentive compensation for executive officers.

We believe that investors and other users of the financial statements benefit from the presentation of these non-GAAP measurements because they provide additional metrics to compare the Company's operating performance and liquidity on a consistent basis and measure underlying trends and results of the Company's business. Adjusted EBITDA and operating income before special items assist in evaluating our operating performance because they remove the impact of certain items that management believes do not directly reflect our core operations. For instance, Adjusted EBITDA generally excludes interest expense, taxes and depreciation and amortization, each of which can vary substantially from company to company depending upon accounting methods and the book value and age of assets, capital structure, capital investment cycles and the method by which assets were acquired. It also eliminates stock-based compensation, which is a non-cash expense and is excluded by management when evaluating the underlying performance of our business operations.

Our management uses free cash flow when evaluating the performance of our business operations. This measurement also takes into account cash used to purchase fixed assets needed for business operations which are not expensed. We believe this measurement provides an additional tool to compare cash generated by our operations on a consistent basis and measure underlying trends and results in our business.

While Adjusted EBITDA and free cash flow are terms and financial measurements commonly used by investors and securities analysts, they have limitations. As non-GAAP measurements, Adjusted EBITDA and free cash flows have no standard meaning and, therefore, may not be comparable with similar measurements for other companies. Similarly, segment and total company income before special items and diluted EPS excluding special items has no standard meaning and may not be comparable to measurements for other companies. Adjusted EBITDA and free cash flow are generally limited as analytical tools because they exclude charges and expenses we do incur as part of our operations as well as cash uses which are included in a GAAP cash flow statement. In addition, free cash flow does not represent residual cash flow available for discretionary expenditures since items such as debt repayments are not deducted in determining such measurement.

None of these non-GAAP financial measurements should be considered in isolation or as a substitute for analyzing our results as reported under U.S. generally accepted accounting principles.

Item 7.01. Regulation FD Disclosure

On November 2, 2023, the Company issued a press release announcing an update to Project Phoenix, our strategic program to increase Income from Operations through reductions in corporate administrative overhead and enhancements to pricing. A copy of the press release is attached as Exhibit 99.2 to this report.

Item 9.01.  Financial Statement and Exhibits
 
Exhibit No.     Description    
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SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 MISTRAS GROUP, INC.
   
   
Date: November 2, 2023By:/s/ Edward J. Prajzner
  Name:Edward J. Prajzner
  Title:Senior Executive Vice President and Chief Financial Officer


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Exhibit 99.1

imageb.jpg

MISTRAS Announces Third Quarter 2023 Results

Continued Revenue Growth in Commercial Aerospace and Data Analytical Solutions Markets Further Reductions in Quarterly Selling, General and Administrative expenses
Provides Update on Project Phoenix and Preliminary Anticipated Impact on 2024 Outlook

PRINCETON JUNCTION, N.J., November 2, 2023 (GLOBE NEWSWIRE) -- MISTRAS Group, Inc. (MG: NYSE), a leading "one source" multinational provider of integrated technology-enabled asset protection solutions, reported financial results for its third quarter and nine months ended September 30, 2023.

Highlights of the Third Quarter 2023*

Revenue of $179.4 million, a 0.5% increase
Gross profit of $54.4 million, with gross profit margin of 30.3%, a 20 basis points increase
Non-cash goodwill impairment charge of $13.8 million in International segment triggered by macroeconomic factors in Europe
Net loss of $10.3 million, reflecting the goodwill impairment charge and reorganization and other related costs, including the associated tax impacts, incurred in the quarter
Adjusted EBITDA (non-GAAP) up 12.5% to $20.9 million

Highlights of the Year-to-Date 2023*

Revenue of $523.4 million, a 0.8% increase
Gross profit of $150.2 million, with gross profit margin of 28.7%, a 30 basis point increase
Net loss of $15.0 million, reflecting the goodwill impairment charge and reorganization and other related costs, including the associated tax impacts, incurred in the year
Adjusted EBITDA up 9.9% to $46.6 million
* All comparisons are consolidated and versus the equivalent prior year period, unless otherwise noted.

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For the third quarter of 2023, consolidated revenue was $179.4 million, a 0.5% increase. Third quarter revenue reflects growth in all sub-categories of Oil & Gas, in addition to continued strength in the Company’s key growth areas, particularly Commercial Aerospace and Data Analytical Solutions markets offset by softness in the Power Generation & Transmission and Other Process Industries due to project timing.

Third quarter 2023 gross profit increased 1.1% with gross profit margin expanding 20 basis points, as compared to the prior year period. The improvement in gross margin to 30.3% was primarily due to a favorable sales mix and lower healthcare expenses. Gross profit margin was up 210 basis points sequentially from the second quarter of 2023, driven by an improved revenue mix.

Selling, general and administrative expenses (“SG&A”) in the third quarter of 2023 were $39.5 million, down 3.0% compared to $40.8 million in the third quarter of 2022 and were also down 4.7% sequentially from the second quarter of 2023, as a result of the ongoing implementation of Project Phoenix. Year to date SG&A is essentially flat with the prior year period and the Company expects further SG&A reduction in the fourth quarter of 2023 due to Project Phoenix related cost actions which have been incorporated into the Company’s updated 2023 guidance ranges discussed below.

The Company reported a GAAP net loss of $10.3 million, or $(0.34) per diluted share in the third quarter of 2023, which was primarily due to a non-cash impairment charge of $13.8 million recorded within the Company’s International Segment and reorganization charges of $2.7 million incurred in the quarter. Net income excluding special items (non-GAAP) was $5.6 million or $0.18 per diluted share.

Adjusted EBITDA was $20.9 million in the third quarter of 2023 compared to $18.6 million in the prior year period, an increase of 12.5%. Year to date Adjusted EBITDA was $46.6 million compared to $42.4 million in the prior year period, an increase of 9.9% primarily attributable to a favorable change in sales mix and overhead cost containment. Manny N. Stamatakis, Chairman of the Board and Interim President and Chief Executive Officer, stated, “I am pleased to be presenting the Company’s results and outlook to you for this quarter. I sincerely appreciate the support and patience that our long-term shareholders have shown to MISTRAS. Our results for the third quarter of 2023 were largely in line with our expectations for revenue and Adjusted EBITDA.”

Mr. Stamatakis continued, “With respect to Project Phoenix, we have completed the validation of a majority of the initial Project Phoenix opportunities. As previously disclosed, we completed our transformation of the Products and Systems Segment in September. We subsequently implemented additional initiatives in the month of October related to streamlining our North American operations and improvements related to pricing actions. The implementation of these transformations to our organization structure are expected to yield a projected annualized proforma cost savings of $24 million in 2024, of which an approximate $9 million overhead reduction is expected to be achieved in 2023 with an incremental $15 million expected be realized in 2024. These initiatives also provide a benefit to the bottom line and provide additional cash flow to invest into our higher growth sectors, such as Data Analytical Solutions.”

Edward Prajzner, Senior Executive Vice President and Chief Financial Officer commented “I also share Manny’s optimism for the future of Mistras. Our target related to Project Phoenix is to achieve a 15% reduction in global non-billable headcount, without any impact on our ability to manage our operations and service customers. With the ongoing implementation of our Project Phoenix initiatives, and our focus on lowering SG&A, improving free cash flow, and reinvigorating and refining our Go-to-Market plans
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and revenue strategies, we believe this will lead to improved overall performance enabling us to achieve meaningful profitable growth in 2024.”

Mr. Stamatakis concluded, “I am pleased to be leading the Company at this crucial juncture, supported by an invigorated senior leadership team. Our Board of Directors and I are optimistic for the future of the Company and believe that the implementation of these initiatives will lead to an increase in shareholder value.”

Refer to the Company’s press release associated with Project Phoenix released on November 2, 2023 for additional details associated with this important initiative.

Performance by certain segments during the third quarter was as follows:

North America segment (Referred to as “Services” in prior filings) third quarter 2023 revenue was $148.8 million, down 2.6% from $152.8 million in the prior year quarter. The revenue decline was primarily due to a decrease in workload under a defense contract and decreases in Power Generation and Other Process Industries due to project timing, which offset the strong growth achieved in our West Penn Aerospace lab, OnStream Pipeline InLine Inspection (“ILI”) business, and other Data Analytical Solutions related offerings. For the third quarter of 2023, gross profit was $44.8 million, compared to $44.9 million in the prior year period. Gross profit margin was 30.1% for the third quarter of 2023, a 70 basis point increase from 29.4% in the third quarter of the prior year. This increase was primarily due to improved sales mix in the current year period and lower healthcare expenses.

International segment third quarter 2023 revenue was $31.0 million, up 20.6% from $25.7 million in the prior year quarter inclusive of favorable foreign currency exchange. This revenue growth was primarily due to increased turnaround projects and higher activity levels than in the prior year comparable quarter in addition to strong commercial aerospace growth. International segment third quarter 2023 gross profit grew by 10.2% with gross margin of 27.4%, compared to 29.9% in the prior year period, a 250-basis point decrease, primarily attributable to inflationary pressures including rising energy costs and incremental subcontractor costs.

During the third quarter of 2023, a triggering event was identified within the Company's reporting units within the International segment due to decreased gross margin in the current period as a result of inflationary pressures and rising energy costs impacting the International reporting units' operations. As a result, the Company performed an interim quantitative goodwill impairment test. The decreased gross margins, in addition to increased interest rates in the current period, contributed to an unfavorable decrease in the reporting unit’s value. Based upon the results of the test, the Company recorded an impairment charge of $13.8 million within the International Segment reporting units.

Cash Flow and Balance Sheet

The Company’s net cash provided by operating activities was $10.7 million for the first nine months of 2023, compared to $10.5 million in the prior year period. Free cash flow, a non-GAAP financial measure, was negative $5.6 million for the first nine months of 2023, compared to a positive $0.9 million in the prior year period. This decrease was primarily attributable to an increase in capital expenditures during the current year and higher than normal accounts receivable balances as of September 30, 2023 due to the timing of projects in the third quarter of 2023. Capital expenditures increased by $6.6 million in the first nine months of 2023 compared to the prior year period, reflecting the Company’s increasing investments in its shop laboratories and Data Analytical Solutions offerings to foster revenue growth.
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The Company’s gross debt was $193.9 million as of September 30, 2023, compared to $191.3 million as of December 31, 2022 and $183.7 million as of June 30, 2023. The increase in gross debt during the period was attributable to the cash flow dynamics described above. The Company’s net debt, a non-GAAP financial measure, was $181.1 million as of September 30, 2023.

Reorganization and Other

For the third quarter of 2023, the Company recorded $2.7 million of reorganization costs related to on-going efficiency and productivity initiatives, primarily related to overhead cost savings achieved via Project Phoenix. For the quarter, these charges included professional fees and certain restructuring charges associated with changes made in the Company’s organizational structure. For the nine months ended September 30, 2023, the Company recorded $6.0 million of total reorganization costs.

Outlook 2023
The Company is lowering its guidance ranges for the full year 2023. Revenue is now expected to be between $695 and $705 million (from $700-$720 million previously) and Adjusted EBITDA is now expected to be between $65 and $68 million (from $68 million to $71 million previously). These reductions in Revenue and Adjusted EBITDA are due to lower than previously forecasted fourth quarter results.

Free Cash Flow guidance is being lowered to be between $7 and $10 million (from $23-$25 million previously, excluding certain cash expenses to achieve cost savings). The reduction in Free Cash Flow guidance was due to an increase in accounts receivable, due to timing of projects in the third quarter and the incurrence of certain cash expenses to achieve Project Phoenix cost savings.

Preliminary 2024 Outlook
The Company anticipates a modest single digit revenue growth in 2024, yet a significant expansion in Adjusted EBITDA, attributable to operating leverage and the ongoing benefits of Project Phoenix. We believe this will result in an all-time high in Adjusted EBITDA in fiscal 2024 of greater than $88 million. This outlook includes approximately $20 million in incremental benefit from Project Phoenix in 2024.

Conference Call
In connection with this release, MISTRAS will hold a conference call on November 3, 2023, at 9:00 a.m. (Eastern).

To listen to the live webcast of the conference call, visit the Investor Relations section of MISTRAS Group’s website at www.mistrasgroup.com

Note there is a new process to participate in the live question and answer session. Individuals wishing to participate may preregister at: https://register.vevent.com/register/BI1d9e10d7ee7d412d8d7ff829b244567f

Upon registering, a dial-in number and unique PIN will be provided to join the conference call. Following the conference call, an archived webcast of the event will be available for one year by visiting the Investor Relations section of MISTRAS Group’s website.

About MISTRAS Group, Inc. - One Source for Asset Protection Solutions®
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MISTRAS Group, Inc. (NYSE: MG) is a leading "one source" multinational provider of integrated technology-enabled asset protection solutions, helping to maximize the safety and operational uptime for civilization’s most critical industrial and civil assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, strong commitment to Environmental, Social, and Governance (ESG) initiatives, and a decades-long legacy of industry leadership, MISTRAS leads clients in the oil and gas, aerospace and defense, renewable and nonrenewable power, civil infrastructure, and manufacturing industries towards achieving operational and environmental excellence. By supporting these organizations that help fuel our vehicles and power our society, inspecting components that are trusted for commercial, defense, and space craft; building real-time monitoring equipment to enable safe travel across bridges; and helping to propel sustainability, MISTRAS helps the world at large.

MISTRAS enhances value for its clients by integrating asset protection throughout supply chains and centralizing integrity data through a suite of Industrial IoT-connected digital software and monitoring solutions. The company’s core capabilities also include non-destructive testing (“NDT”) field inspections enhanced by advanced robotics, laboratory quality control and assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.

For more information about how MISTRAS helps protect civilization’s critical infrastructure, visit www.mistrasgroup.com or contact Nestor S. Makarigakis, Group Vice President of Marketing & Communications at marcom@mistrasgroup.com.

Forward-Looking and Cautionary Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, but are not limited to, our earnings guidance, cost savings and other benefits we expect to realize from Project Phoenix and actions that we expect or seek to take in furtherance of our strategies and activities to enhance our financial results and future growth. These forward-looking statements generally use words such as "future," "possible," "potential," "targeted," "anticipate," "believe," "estimate," "expect," "intend," "plan," "predict," "project," "will," "may," "should," "could," "would" and other similar words and phrases. Such statements are not guarantees of future performance or results and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved, if at all. These statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in these statements. A list, description and discussion of these and other risks and uncertainties can be found in the "Risk Factors" section of the Company's 2022 Annual Report on Form 10-K dated March 15, 2023, as updated by our reports on Form 10-Q and Form 8-K. The forward-looking statements are made as of the date hereof, and MISTRAS undertakes no obligation to update such statements as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures
In addition to financial information prepared in accordance with generally accepted accounting principles in the U.S. (GAAP), this press release also contains adjusted financial measures that are not prepared in accordance with GAAP and that we believe provide investors and management with supplemental information relating to operating performance and trends that facilitate comparisons between periods and with respect to trends and forward-looking information. The term "Adjusted EBITDA" used in this release is a financial measurement not calculated in accordance with GAAP and is defined by the Company as net
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income attributable to MISTRAS Group, Inc. plus: interest expense, provision for income taxes, depreciation and amortization, share-based compensation expense, certain acquisition related costs (including transaction due diligence costs and adjustments to the fair value of contingent consideration), foreign exchange (gain) loss, non-cash impairment charges, reorganization and related charges and, if applicable, certain additional special items which are noted. A reconciliation of Adjusted EBITDA to Net Income (loss) as computed under GAAP is set forth in a table attached to this press release. The Company also uses the term “net debt”, a non-GAAP financial measure defined as the sum of the current and long-term portions of long-term debt, less cash and cash equivalents and the term “free cash flow”, a non-GAAP measure the Company defines as cash provided by operating activities less capital expenditures (which is classified as an investing activity). A reconciliation of these non-GAAP financial measures to GAAP are also set forth in tables attached to this press release. In the tables attached is also a table reconciling “Segment and Total Company Income (Loss) from Operations (GAAP) to Income (Loss) from Operations before Special Items (non-GAAP)", “Net Loss (GAAP) and Diluted EPS (GAAP) to Net Loss Excluding Special Items (non-GAAP) and Diluted EPS Excluding Special Items (non-GAAP)” which reconciles the non-GAAP amounts to GAAP measures. Each of these non-GAAP financial measures has material limitations as a performance or liquidity measure and should not be considered alternatives to net income (loss) or any other measures derived in accordance with GAAP. Because Income (loss) from operations before special items and other non-GAAP financial measures used in this press release may not be calculated in the same manner by all companies, these measures may not be comparable to other similarly titled measures used by other companies.


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Mistras Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
 
September 30, 2023December 31, 2022
ASSETS(unaudited)
Current Assets
Cash and cash equivalents$12,752 $20,488 
Accounts receivable, net136,363 123,657 
Inventories15,780 13,556 
Prepaid expenses and other current assets18,259 10,181 
Total current assets183,154 167,882 
Property, plant and equipment, net79,762 77,561 
Intangible assets, net44,468 49,015 
Goodwill185,519 199,635 
Deferred income taxes2,229 779 
Other assets41,558 40,032 
Total assets$536,690 $534,904 
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable$14,628 $12,532 
Accrued expenses and other current liabilities81,853 77,844 
Current portion of long-term debt8,402 7,425 
Current portion of finance lease obligations5,253 4,201 
Income taxes payable1,025 1,726 
Total current liabilities111,161 103,728 
Long-term debt, net of current portion185,466 183,826 
Obligations under finance leases, net of current portion12,375 10,045 
Deferred income taxes8,542 6,283 
Other long-term liabilities33,362 32,273 
Total liabilities350,906 336,155 
Equity
Preferred stock, 10,000,000 shares authorized— — 
Common stock, $0.01 par value, 200,000,000 shares authorized, 30,353,100 and 29,895,487 shares issued and outstanding302 298 
Additional paid-in capital246,075 243,031 
Accumulated deficit(26,436)(11,489)
Accumulated other comprehensive loss(34,463)(33,390)
Total Mistras Group, Inc. stockholders’ equity185,478 198,450 
Non-controlling interests306 299 
Total equity185,784 198,749 
Total liabilities and equity$536,690 $534,904 


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Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income (Loss)
(in thousands, except per share data)


 
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Revenue$179,354 $178,462 $523,399 $519,155 
Cost of revenue118,812 119,110 355,304 354,848 
Depreciation6,160 5,568 17,914 17,074 
Gross profit54,382 53,784 150,181 147,233 
Selling, general and administrative expenses39,537 40,767 123,844 123,545 
Bad debt provision for troubled customers, net of recoveries— — — 289 
Reorganization and other costs2,702 130 6,017 65 
Goodwill Impairment Charges13,799 — 13,799 — 
Loss on Debt Modification— 693 — 693 
Legal settlement and insurance recoveries, net— — 150 (994)
Research and engineering438 450 1,428 1,523 
Depreciation and amortization2,588 2,629 7,556 8,058 
Acquisition-related expense, net— 63 
Income (loss) from operations(4,682)9,114 (2,618)13,991 
Interest expense4,167 2,735 12,093 6,790 
Income (loss) before provision (benefit) for income taxes(8,849)6,379 (14,711)7,201 
Provision for income taxes1,489 1,985 229 3,494 
Net Income (Loss)(10,338)4,394 (14,940)3,707 
Less: net income (loss) attributable to noncontrolling interests, net of taxes(40)21 54 
Net Income (Loss) attributable to Mistras Group, Inc.$(10,298)$4,373 $(14,947)$3,653 
Earnings (loss) per common share:
Basic$(0.34)$0.15 $(0.49)$0.12 
Diluted$(0.34)$0.14 $(0.49)$0.12 
Weighted-average common shares outstanding:
Basic30,402 29,965 30,277 29,879 
Diluted30,402 30,245 30,277 30,209 

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Mistras Group, Inc. and Subsidiaries
Unaudited Operating Data by Segment
(in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Revenues
North America$148,814 $152,778 $431,295 $435,251 
International30,980 25,693 90,664 83,441 
Products and Systems2,829 3,078 9,897 8,666 
Corporate and eliminations(3,269)(3,087)(8,457)(8,203)
$179,354 $178,462 $523,399 $519,155 
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Gross profit
North America$44,773 $44,869 $121,088 $118,348 
International8,481 7,694 24,247 25,324 
Products and Systems1,096 1,189 4,773 3,514 
Corporate and eliminations32 32 73 47 
$54,382 $53,784 $150,181 $147,233 

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Mistras Group, Inc. and Subsidiaries
Unaudited Revenues by Category
(in thousands)

Revenue by industry was as follows:
Three Months Ended September 30, 2023North AmericaInternationalProductsCorp/ElimTotal
Oil & Gas$94,390 $8,827 $35 $— $103,252 
Aerospace & Defense14,240 5,778 47 — 20,065 
Industrials 10,325 6,018 310 — 16,653 
Power Generation & Transmission7,388 1,653 696 — 9,737 
Other Process Industries6,933 2,864 (5)— 9,792 
Infrastructure, Research & Engineering6,042 2,383 1,070 — 9,495 
Petrochemical3,313 586 — — 3,899 
Other6,183 2,871 676 (3,269)6,461 
Total$148,814 $30,980 $2,829 $(3,269)$179,354 

Three Months Ended September 30, 2022North AmericaInternationalProductsCorp/ElimTotal
Oil & Gas$90,578 $6,418 $35 $— $97,031 
Aerospace & Defense16,784 4,397 112 — 21,293 
Industrials 9,728 5,834 436 — 15,998 
Power Generation & Transmission10,378 1,946 456 — 12,780 
Other Process Industries10,283 3,033 — 13,324 
Infrastructure, Research & Engineering4,936 1,784 1,150 — 7,870 
Petrochemical3,427 280 — — 3,707 
Other6,664 2,001 881 (3,087)6,459 
Total$152,778 $25,693 $3,078 $(3,087)$178,462 

Nine Months Ended September 30, 2023North AmericaInternationalProductsCorp/ElimTotal
Oil & Gas$281,663 $26,291 $87 $— $308,041 
Aerospace & Defense41,516 15,894 275 — 57,685 
Industrials30,693 18,274 1,336 — 50,303 
Power Generation & Transmission17,834 4,840 3,189 — 25,863 
Other Process Industries24,906 10,567 73 — 35,546 
Infrastructure, Research & Engineering12,696 6,547 2,759 — 22,002 
Petrochemical10,027 887 — — 10,914 
Other11,960 7,364 2,178 (8,457)13,045 
Total$431,295 $90,664 $9,897 $(8,457)$523,399 
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Nine Months Ended September 30, 2022North AmericaInternationalProductsCorp/ElimTotal
Oil & Gas$270,289 $22,018 $212 $— $292,519 
Aerospace & Defense49,106 14,455 246 — 63,807 
Industrials28,529 17,868 1,271 — 47,668 
Power Generation & Transmission22,578 6,505 1,979 — 31,062 
Other Process Industries32,217 10,305 23 — 42,545 
Infrastructure, Research & Engineering10,625 6,016 2,489 — 19,130 
Petrochemical10,056 413 — — 10,469 
Other11,851 5,861 2,446 (8,203)11,955 
Total$435,251 $83,441 $8,666 $(8,203)$519,155 

Mistras Group, Inc. and Subsidiaries
Unaudited Revenues by Category (continued)
(in thousands)

The Company has retrospectively reclassified certain Oil and Gas sub-category revenues for each quarterly period in 2022 in order to conform the classification with the current year presentation. Total Oil and Gas sub-category revenues were unchanged in total in each quarterly period and for the full year ended December 31, 2022. The table below presents the reclassified balances for each quarterly period in the prior year.
 2022 Quarterly Revenues
 Three months ended March 31,Three months ended June 30,Three months ended September 30,Three months ended December 31,
Oil and Gas Revenue by sub-category  
Upstream$36,397 $38,051 $35,173 $36,435 
Midstream20,427 27,153 25,885 23,540 
Downstream37,399 36,061 35,973 35,258 
Total$94,223 $101,265 $97,031 $95,233 


 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
Oil and Gas Revenue by sub-category  
Upstream$38,041 $35,173 $116,941 $109,621 
Midstream26,215 25,885 74,739 73,465 
Downstream38,996 35,973 116,361 109,433 
Total$103,252 $97,031 $308,041 $292,519 


Consolidated Revenue by type was as follows:
 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022

Field Services$122,717 $118,526 $348,501 $345,385 
Shop Laboratories14,840 12,528 42,216 35,533 
Data Analytical Solutions17,997 17,151 52,916 45,786 
Other23,800 30,257 79,766 92,451 
Total$179,354 $178,462 $523,399 $519,155 
11


Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Segment and Total Company Income (Loss) from Operations (GAAP) to Income before Special Items (non-GAAP)
(in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
North America:
Income from operations (GAAP)$18,004 $16,700 $39,719 $35,315 
Bad debt provision for troubled customers, net of recoveries— — — 289 
Reorganization and other costs35 12 574 40 
Legal settlement and insurance recoveries, net— — 150 (841)
Acquisition-related expense, net— — — 45 
Income from operations before special items (non-GAAP)$18,039 $16,712 $40,443 $34,848 
International:
Income (loss) from operations (GAAP)$(12,970)$814 $(13,031)$2,678 
Goodwill Impairment charges13,799 — 13,799 — 
Reorganization and other costs, net33 (15)228 (114)
Income from operations before special items (non-GAAP)$862 $799 $996 $2,564 
Products and Systems:
Loss from operations (GAAP)$(557)$(333)$(78)$(1,334)
Reorganization and other costs189 — 189 — 
Income (loss) from operations before special items (non-GAAP)$(368)$(333)$111 $(1,334)
Corporate and Eliminations:
Loss from operations (GAAP)$(9,159)$(8,067)$(29,228)$(22,668)
Loss on debt modification— 693 — 693 
Legal settlement and insurance recoveries, net— — — (153)
Reorganization and other costs2,445 133 5,026 139 
Acquisition-related expense, net— 19 
Loss from operations before special items (non-GAAP)$(6,714)$(7,240)$(24,197)$(21,970)
Total Company:
Income (loss) from operations (GAAP)$(4,682)$9,114 $(2,618)$13,991 
Bad debt provision for troubled customers, net of recoveries— — — 289 
Goodwill Impairment charges13,799 — 13,799 — 
Reorganization and other costs2,702 130 6,017 65 
Loss on debt modification— 693 — 693 
Legal settlement and insurance recoveries, net— — 150 (994)
Acquisition-related expense, net— 64 
Income from operations before special items (non-GAAP)$11,819 $9,938 $17,353 $14,108 


12


Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Gross Debt (GAAP) to Net Debt (non-GAAP)
(in thousands)

September 30, 2023December 31, 2022
Current portion of long-term debt$8,402 $7,425 
Long-term debt, net of current portion185,466 183,826 
Total Gross Debt (GAAP)193,868 191,251 
Less: Cash and cash equivalents(12,752)(20,488)
Total Net Debt (non-GAAP)$181,116 $170,763 

13


Mistras Group, Inc. and Subsidiaries
Unaudited Summary Cash Flow Information
(in thousands)

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net cash provided by (used in):
Operating activities$(7,637)$2,722 $10,684 $10,531 
Investing activities(5,359)(2,378)(15,170)(8,877)
Financing activities9,348 303 (1,839)(4,753)
Effect of exchange rate changes on cash(1,599)(1,172)(1,411)(2,927)
Net change in cash and cash equivalents$(5,247)$(525)$(7,736)$(6,026)


Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Cash Provided by Operating Activities (GAAP) to Free Cash Flow (non-GAAP)
(in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net cash provided by operating activities (GAAP)$(7,637)$2,722 $10,684 $10,531 
Less:
    Purchases of property, plant and equipment(4,602)(2,358)(14,403)(9,050)
    Purchases of intangible assets(1,046)(181)(1,868)(580)
Free cash flow (non-GAAP)$(13,285)$183 $(5,587)$901 

14



Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income (Loss) (GAAP) to Adjusted EBITDA (non-GAAP)
(in thousands)

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net Income (loss) (GAAP)$(10,338)$4,394 $(14,940)$3,707 
Less: Net income attributable to non-controlling interests, net of taxes(40)21 54 
Net Income (loss) attributable to Mistras Group, Inc.$(10,298)$4,373 $(14,947)$3,653 
Interest expense4,167 2,735 12,093 6,790 
Provision for income taxes1,489 1,985 229 3,494 
Depreciation and amortization8,748 8,197 25,470 25,132 
Share-based compensation expense1,010 1,396 3,649 4,166 
Acquisition-related expense— 63 
Reorganization and other related costs, net2,702 130 6,017 65 
Goodwill Impairment charges13,799 — 13,799 — 
Legal settlement and insurance recoveries, net— — 150 (994)
Loss on debt modification— 693 — 693 
Bad debt provision for troubled customers, net of recoveries— — — 289 
Foreign exchange (gain) loss(721)(928)149 (924)
Adjusted EBITDA (non-GAAP)$20,896 $18,582 $46,614 $42,427 

15


Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income (Loss) (GAAP) and Diluted EPS (GAAP) to Net Income (Loss) Excluding Special Items (non-GAAP)
and Diluted EPS Excluding Special Items (non-GAAP)
(dollars in thousands, except per share data)

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net income (loss) attributable to Mistras Group, Inc. (GAAP)$(10,298)$4,373 $(14,947)$3,653 
Bad debt provision for troubled customers, net of recoveries— — — 289 
Goodwill Impairment charges13,799 — 13,799 — 
Reorganization and other costs2,702 130 6,017 65 
Loss on debt modification— 693 — 693 
Legal settlement and insurance recoveries, net— — 150 (994)
Acquisition-related expense, net— 64 
Special Items Total$16,501 $824 $19,971 $117 
Tax impact on special items(653)(188)(1,468)(8)
Special items, net of tax$15,848 $636 $18,503 $109 
Net income (loss) attributable to Mistras Group, Inc. Excluding Special Items (non-GAAP)$5,550 $5,009 $3,556 $3,762 
Diluted EPS (GAAP)(1)
$(0.34)$0.14 $(0.49)$0.12 
Special items, net of tax0.52 0.02 0.61 — 
Diluted EPS Excluding Special Items (non-GAAP)$0.18 $0.16 $0.12 $0.12 
_______________
(1) For the three and nine months ended September 30, 2023, 1,508,255 and 926,224 shares related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the period.


16

image.jpg

MISTRAS Provides Update on Project Phoenix


PRINCETON JUNCTION, N.J., November 2, 2023 (GLOBE NEWSWIRE) -- MISTRAS Group, Inc. (MG: NYSE), a leading "one source" multinational provider of integrated technology-enabled asset protection solutions, today provided an update on the status of Project Phoenix, the Company’s strategic program to increase Income from Operations through reductions in corporate administrative overhead and enhancements to pricing.

In February 2023, the Board of Directors announced that the Company engaged with Alix Partners to undertake an operational review designed to accelerate profitable growth by identifying meaningful margin improvement opportunities and steps to achieve sustained cost savings, referred to as Project Phoenix. In addition, as part of this initiative a new commercial function was established, to drive top-line profitable revenue growth via strategic pricing and sales enablement.

Project Phoenix identified various opportunities, which the Company subsequently vetted through a comprehensive diligence process and has completed the validation of a majority of the initial Project Phoenix opportunities. The first completed initiative was the transformation of the Company’s Products and Systems’ segment announced on October 2, 2023. The Company also implemented additional initiatives in the month of October 2023 related to streamlining our North American operations and improvements related to pricing actions.

The following is a brief overview of the additional actions being implemented as a result of Project Phoenix:

Strategic Pricing: The Company has developed and will be further enhancing a proactive structural pricing strategy intended to address inflationary costs experienced in our business.

Reductions to Overhead: The Company’s goal is to reduce selling, general, and administrative expenses (“SG&A”) to approximately 21% of total revenues by the end of 2024, primarily through a rationalization of the overhead workforce, including a targeted 15% reduction in administrative headcount, without adversely impacting the Company’s technician base or ability to support operations and service its customers.

New Leadership: As part of the Company’s transformation plan to improve shareholder value by lowering SG&A, improving free cash flow, and accelerating growth, the Board made recent changes to senior leadership within the Company to further strengthen the organization and enhance the execution of the various initiatives comprising Project Phoenix.





As summarized in the first row of the table below, the actions completed by the Company during the nine months ended September 30, 2023, are expected to yield annualized projected 2024 cost savings of approximately $12 million, of which approximately $7 million is expected to be realized in 2023, due to actions completed as of September 30, 2023 including the transformation of the Company’s Products and Systems segment announced on October 2, 2023, in addition to other ancillary initiatives.

Subsequent to September 30, 2023, and prior to the release of the Company’s third quarter 2023 financial results, the Company completed further actions that are expected to yield incremental annualized projected 2024 cost reductions of approximately $12 million including the optimization of North America administrative support functions, of which approximately $2 million is expected to be realized in the fourth quarter of 2023, as summarized in the second row of the table below.

Benefit* (amounts in millions)Actual In-year Benefit 2023 SavingsAnnualized Projected 2024 Run Rate Savings
Nine months ended September 30, 2023$$12 
Fourth Quarter 2023212
Anticipated 2023 Totals$$24 

* Benefit is comprised of a reduction in Cost of Revenue or SG&A, as detailed in the table below.

These initiatives, including those previously disclosed, combine to yield a projected annualized cost savings of approximately $24 million, of which approximately $9 million is expected to be realized in fiscal 2023, with the full $24 million benefit expected to be realized in fiscal 2024. This would result in an approximate $15 million incremental benefit from Project Phoenix in 2024 as compared to 2023. The Company will be working to finalize additional opportunities in the fourth quarter of 2023, which are anticipated to provide further benefit to the figures presented above.

In addition to the aforementioned projected cost savings, the Company is focused on the implementation of strategic price increases which will improve revenue in 2023 by approximately $1 million and are expected to provide an additional $6 million revenue benefit in 2024. Refer to the chart below for a summary of the estimated revenue increase and cost saving by year in connection with Project Phoenix.

Anticipated Benefit (amounts in millions)
Fiscal 2023
Fiscal 2024
Revenue
$$
Gross Profit
-
3
SG&A
9
21
Total in Year Benefit
$10 $30 







Manny N. Stamatakis, Chairman of the Board and Interim President and Chief Executive Officer, stated, “In addition to identifying material cost saving opportunities, Project Phoenix has provided a roadmap to long term profitable growth, and I am very optimistic for the future of Mistras. In addition, we intend to invest in initiatives that can expand Mistras into existing and emerging industries that represent growing markets for our software and analytical services.

We will continue to run our legacy businesses with a new focus on optimizing returns through strategic pricing actions to help offset the inflationary cost increases to our business, and produce efficiency and productivity improvements, which will benefit our bottom line. Our goal is for these collective actions to improve our Income from Operations in 2024 by approximately $30 million, before any restructuring or other charges related to implementing Project Phoenix Initiatives in 2024. This would result in an all-time high in Adjusted EBITDA achieved in the history of the Company.”

Edward Prajzner, Senior Executive Vice President and Chief Financial Officer commented “I also share Manny’s optimism for the future of Mistras. We will continue to make strategic investments related to efficiency and productivity, which we believe will help us further benefit from our existing customer base as well as expand into adjacent markets.”

Mr. Stamatakis continued “Mistras has persevered and overcame unprecedented headwinds and challenges over the past several years, including the significant shock of the COVID 19 Pandemic, global supply chain disruptions, and persistent inflation. Nevertheless, Mistras has generated strong cash flow and reduced debt by nearly $100 million since the beginning of 2019.
Given the need to accelerate progress, and knowing we could become more efficient and improve our commercial efforts, Project Phoenix was conceived and launched, and is well on the way towards successful implementation. With the progress made thus far in 2023, I believe that we have a good plan to improve shareholder value in 2024.”


About MISTRAS Group, Inc. - One Source for Asset Protection Solutions®

MISTRAS Group, Inc. (NYSE: MG) is a leading "one source" multinational provider of integrated technology-enabled asset protection solutions, helping to maximize the safety and operational uptime for civilization’s most critical industrial and civil assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, strong commitment to Environmental, Social, and Governance (ESG) initiatives, and a decades-long legacy of industry leadership, MISTRAS leads clients in the oil and gas, aerospace and defense, renewable and nonrenewable power, civil infrastructure, and manufacturing industries towards achieving operational and environmental excellence. By supporting these organizations that help fuel our vehicles and power our society, inspecting components that are trusted for commercial, defense, and space craft; building real-time monitoring equipment to enable safe travel across bridges; and helping to propel sustainability, MISTRAS helps the world at large.




MISTRAS enhances value for its clients by integrating asset protection throughout supply chains and centralizing integrity data through a suite of Industrial IoT-connected digital software and data analytical and monitoring solutions. The company’s core capabilities also include non-destructive testing (“NDT”) field inspections enhanced by advanced robotics, laboratory quality control and assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.
For more information about how MISTRAS helps protect civilization’s critical infrastructure, visit www.mistrasgroup.com or contact Nestor S. Makarigakis, Group Vice President of Marketing & Communications at marcom@mistrasgroup.com.

Forward-Looking and Cautionary Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, but are not limited to, cost savings and other benefits we expect to realize from Project Phoenix and actions that we expect or seek to take in furtherance of our strategies and activities to enhance our financial results and future growth. These forward-looking statements generally use words such as "future," "possible," "potential," "targeted," "anticipate," "believe," "estimate," "expect," "intend," "plan," "predict," "project," "will," "may," "should," "could," "would" and other similar words and phrases. Such statements are not guarantees of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved, if at all. These statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in these statements, including risks and uncertainties related to the timing of and the realization of anticipated cost savings from restructuring initiatives and the ability to identify additional cost savings opportunities including with respect to Project Phoenix. A list, description and discussion of these and other risks and uncertainties can be found in the "Risk Factors" section of the Company's 2022 Annual Report on Form 10-K dated March 15, 2023, as updated by our reports on Form 10-Q and Form 8-K. The forward-looking statements are made as of the date hereof, and MISTRAS undertakes no obligation to update such statements as a result of new information, future events or otherwise.


Use of Non-GAAP Financial Measures

In addition to financial information prepared in accordance with generally accepted accounting principles in the U.S. (GAAP), this press release also contains adjusted financial measures that are not prepared in accordance with GAAP and that we believe provide investors and management with supplemental information relating to operating performance and trends that facilitate comparisons between periods and with respect to trends and forward-looking information. The term "Adjusted EBITDA" used in this release is a financial measure not calculated in accordance with GAAP and is defined by the Company as net income attributable to MISTRAS Group, Inc. plus: interest expense, provision for income taxes, depreciation and amortization, share-based compensation expense, certain acquisition related costs (including transaction due diligence costs and adjustments to the fair value of contingent consideration),



foreign exchange (gain) loss, non-cash impairment charges, reorganization and related charges and, if applicable, certain additional special items which are noted. This non-GAAP financial measure has material limitations as a performance or liquidity measure and should not be considered an alternative to net income (loss) or any other measures derived in accordance with GAAP. As the non-GAAP financial measure used in this press release may not be calculated in the same manner by all companies, this measure may not be comparable to other similarly titled measures used by other companies.


v3.23.3
Cover Page
Mar. 16, 2021
Cover [Abstract]  
Document Type 8-K
Document Period End Date Nov. 02, 2023
Entity Registrant Name Mistras Group, Inc.
Entity Incorporation, State or Country Code DE
Entity File Number 001-34481
Entity Tax Identification Number 22-3341267
Entity Address, Address Line One 195 Clarksville Road
Entity Address, Postal Zip Code 08550
Entity Address, City or Town Princeton Junction,
Entity Address, State or Province NJ
City Area Code 609
Local Phone Number 716-4000
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Common Stock, $0.01 par value
Trading Symbol MG
Security Exchange Name NYSE
Entity Emerging Growth Company false
Entity Central Index Key 0001436126
Amendment Flag false

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