Mistras Group, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Mistras Group, Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Mistras Group, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income (loss), comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 46 Table o f Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of goodwill for the services and European reporting units As discussed in Note 1 to the consolidated financial statements, the company tests goodwill for impairment annually on October 1 or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The company considers the income and market approaches to estimate the fair value of its reporting units. As of December 31, 2020, the Company had goodwill of $206.0 million, of which a portion related to the services and European reporting units. During the year ended December 31, 2020, the Company recognized goodwill impairment charges of $77.1 million, of which $57.2 million pertained to the services reporting unit and $19.3 million pertained to the European reporting unit. We identified the evaluation of goodwill impairment for the services and European reporting units as a critical audit matter. Auditor judgment was required to evaluate the selection of discount rates, revenue growth rates, gross margins, and selling, general, and administrative expense used in the income approach as they represented subjective determinations of future market or economic conditions. Additionally, the audit effort associated with the evaluation of goodwill for impairment for the services and European reporting units required specialized skills and knowledge. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s goodwill impairment evaluation process, including controls related to management’s selection of discount rates, revenue growth rates, gross margins, and selling, general, and administrative expense. We evaluated the reasonableness of management’s forecasted revenue growth rates, gross margins, and selling, general, and administrative expense by comparing the forecasts to historical revenue growth rates, gross margins, and selling, general, and administrative expense and relevant industry reports. We evaluated the Company’s ability to accurately estimate future revenue growth rates, gross margins, and selling, general, and administrative expense by comparing the historical projected revenue growth rates, gross margins, and selling, general, and administrative expense to actual results for the same period. In addition, we involved valuation professionals with specialized skills and knowledge who assisted in: • evaluating the Company’s methodology used to estimate the discount rates • evaluating the Company’s discount rate by comparing it against a discount rate range that was independently developed using publicly available market data for comparable entities • testing the estimate of fair value of the services and European reporting units by using the Company’s projected cash flows as well as our discount rate range and comparing the results to the Company’s fair values. Assessment of impairment of a certain asset group within the services segment As discussed in Note 1 to the consolidated financial statements, the company reviews the recoverability of its long-lived asset groups whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset group might not be recoverable. The assessment for potential impairment is based on the Company’s ability to recover the carrying value of its long-lived assets from expected future undiscounted cash flows. If the total expected future undiscounted cash flows are less than the carrying amount of the assets, an impairment loss is recognized for the amount by which the carrying amount of the asset group exceeds its fair value. The company considers the income and market approaches to estimate the fair value of its asset groups. During the year ended December 31, 2020, the Company recognized long-lived asset impairment charges of $28.8 million of which $28.5 million related to a certain asset group within the services segment. We identified the assessment of impairment of a certain asset group as a critical audit matter. Auditor judgment was required to evaluate the selection of the discount rate, revenue growth rates, gross margins, and selling, general, and administrative expense used in the income approach as they represented subjective determinations of future market or 47 Table o f Contents economic conditions. Additionally, the audit effort associated with the evaluation of the asset group for impairment required specialized skills and knowledge. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s long-lived asset impairment evaluation process, including controls related to management’s selection of the discount rate, revenue growth rates, gross margins, and selling, general, and administrative expense. We evaluated management’s forecasted revenue growth rates, gross margins, and selling, general, and administrative expense by comparing them to historical revenue growth rates, gross margins, and selling, general, and administrative expense and relevant industry reports. We evaluated the Company’s ability to accurately estimate future revenue growth rates, gross margins, and selling, general, and administrative expense by comparing the historical projected revenue growth rates, gross margins, and selling, general, and administrative expense to actual results for the same period. In addition, we involved valuation professionals with specialized skills and knowledge who assisted in: • evaluating the Company’s methodology used to estimate the discount rate • evaluating the Company’s discount rate by comparing it against a discount rate range that was independently developed using publicly available market data for comparable entities • testing the estimate of fair value of the asset group by using the Company’s projected cash flows as well as our discount rate range and comparing the results to the Company’s fair value. /s/ KPMG LLP We have served as the Company’s auditor since 2013 Short Hills, New Jersey March 16, 2021 48 Table o f Contents Mistras Group, Inc. and Subsidiaries Consolidated Balance Sheets ( in thousands, except share and per share data ) December 31, 2020 2019 ASSETS Current Assets Cash and cash equivalents $ 25,760 $ 15,016 Accounts receivable, net 107,628 135,997 Inventories 13,134 13,413 Prepaid expenses and other current assets 16,066 14,729 Total current assets 162,588 179,155 Property, plant and equipment, net 92,681 98,607 Intangible assets, net 68,642 109,537 Goodwill 206,008 282,410 Deferred income taxes 2,069 1,786 Other assets 51,325 48,383 Total Assets $ 583,313 $ 719,878 LIABILITIES AND EQUITY Current Liabilities Accounts payable $ 14,240 $ 15,033 Accrued expenses and other current liabilities 78,500 81,389 Current portion of long-term debt 10,678 6,593 Current portion of finance lease obligations 3,765 4,131 Income taxes payable 2,664 2,094 Total current liabilities 109,847 109,240 Long-term debt, net of current portion 209,538 248,120 Obligations under finance leases, net of current portion 11,115 13,043 Deferred income taxes 8,236 21,290 Other long-term liabilities 47,358 42,163 Total Liabilities $ 386,094 $ 433,856 Commitments and contingencies Equity Preferred stock, 10,000,000 shares authorized — — Common stock, $ 0.01 par value, 200,000,000 shares authorized, 29,234,143 and 28,945,472 shares issued 292 289 Additional paid-in capital 234,638 229,205 Retained earnings (deficit) ( 21,848 ) 77,613 Accumulated other comprehensive loss ( 16,061 ) ( 21,285 ) Total Mistras Group, Inc. stockholders’ equity 197,021 285,822 Non-controlling interests 198 200 Total Equity 197,219 286,022 Total Liabilities and Equity $ 583,313 $ 719,878 The accompanying notes are an integral part of these consolidated financial statements. 49 Table o f Contents Mistras Group, Inc. and Subsidiaries Consolidated Statements of Income (Loss) ( in thousands, except per share data ) For the year ended December 31, 2020 2019 2018 Revenue $ 592,571 $ 748,586 $ 742,354 Cost of revenue 391,855 509,489 512,024 Depreciation 22,185 21,800 22,456 Gross profit 178,531 217,297 207,874 Selling, general and administrative expenses 156,937 168,621 165,702 Bad debt provision for troubled customers, net of recoveries — 3,038 650 Impairment charges 106,062 — — Pension withdrawal expense — 848 5,886 Gain on sale of subsidiary — — ( 2,384 ) Research and engineering 2,892 3,045 3,310 Depreciation and amortization 13,520 16,733 11,957 Acquisition-related expense, net 337 875 532 Income (loss) from operations ( 101,217 ) 24,137 22,221 Interest expense 12,955 13,698 7,950 Income (loss) before provision for income taxes ( 114,172 ) 10,439 14,271 Provision (benefit) for income taxes ( 14,706 ) 4,359 7,426 Net income (loss) ( 99,466 ) 6,080 6,845 Less: net income (loss) attributable to noncontrolling interests, net of taxes ( 5 ) 20 9 Net income (loss) attributable to Mistras Group, Inc. $ ( 99,461 ) $ 6,060 $ 6,836 Earnings (loss) per common share Basic $ ( 3.41 ) $ 0.21 $ 0.24 Diluted $ ( 3.41 ) $ 0.21 $ 0.23 Weighted average common shares outstanding: Basic 29,147 28,740 28,406 Diluted 29,147 29,046 29,427 The accompanying notes are an integral part of these consolidated financial statements. 50 Table o f Contents Mistras Group, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (in thousands) For the year ended December 31, 2020 2019 2018 Net income (loss) $ ( 99,466 ) $ 6,080 $ 6,845 Other comprehensive income (loss): Foreign currency translation adjustments 5,227 6,275 ( 10,757 ) Comprehensive income (loss) ( 94,239 ) 12,355 ( 3,912 ) Less: net income (loss) attributable to noncontrolling interests ( 5 ) 20 9 Less: Foreign currency translation adjustments attributable to noncontrolling interests 3 3 ( 5 ) Comprehensive income (loss) attributable to Mistras Group, Inc. $ ( 94,237 ) $ 12,332 $ ( 3,916 ) The accompanying notes are an integral part of these consolidated financial statements. 51 Table o f Contents Mistras Group, Inc. and Subsidiaries Consolidated Statements of Equity (in thousands) Common Stock Additional paid-in capital Retained earnings (deficit) Accumulated other comprehensive income (loss) Total Mistras Group, Inc. Stockholders’ Equity Noncontrolling Interest Shares Amount Total Equity Balance at December 31, 2017 28,295 $ 282 $ 222,425 $ 64,717 $ ( 16,805 ) $ 270,619 $ 173 $ 270,792 Net income — — — 6,836 — 6,836 9 6,845 Other comprehensive loss, net of tax — — — — ( 10,752 ) ( 10,752 ) ( 5 ) ( 10,757 ) Share-based payments 243 3 6,106 — — 6,109 — 6,109 Net settlement on vesting of restricted stock units — — ( 2,188 ) — — ( 2,188 ) — ( 2,188 ) Exercise of stock options 25 — 273 — — 273 — 273 Balance at December 31, 2018 28,563 $ 285 $ 226,616 $ 71,553 $ ( 27,557 ) $ 270,897 $ 177 $ 271,074 Net income — — — 6,060 — 6,060 20 6,080 Other comprehensive income, net of tax — — — — 6,272 6,272 3 6,275 Share-based payments 30 — 5,759 — — 5,759 — 5,759 Net settlement on vesting of restricted stock units 349 4 ( 3,202 ) — — ( 3,198 ) — ( 3,198 ) Exercise of stock options 3 — 32 — — 32 — 32 Balance at December 31, 2019 28,945 $ 289 $ 229,205 $ 77,613 $ ( 21,285 ) $ 285,822 $ 200 $ 286,022 Net loss — — — ( 99,461 ) — ( 99,461 ) ( 5 ) ( 99,466 ) Other comprehensive income, net of tax — — — — 5,224 5,224 3 5,227 Share-based payments — — 5,930 — — 5,930 — 5,930 Net settlement of restricted stock units 289 3 ( 497 ) — — ( 494 ) — ( 494 ) Balance at December 31, 2020 29,234 $ 292 $ 234,638 $ ( 21,848 ) $ ( 16,061 ) $ 197,021 $ 198 $ 197,219 The accompanying notes are an integral part of these consolidated financial statements. 52 Table o f Contents Mistras Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) For the year ended December 31, 2020 2019 2018 Cash flows from operating activities Net income (loss) $ ( 99,466 ) $ 6,080 $ 6,845 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 35,705 38,533 34,413 Deferred income taxes ( 13,409 ) ( 3,599 ) 1,859 Share-based compensation expense 5,851 5,766 6,107 Impairment charges 106,062 — — Bad debt provision for troubled customers, net of recoveries — 3,038 650 Foreign currency (gain) loss 3,010 ( 535 ) 1,311 Gain on sale of subsidiary — — ( 2,384 ) Fair value adjustments to contingent consideration 337 511 ( 716 ) Other 2,398 1,804 462 Changes in operating assets and liabilities, net of effect of acquisitions and dispositions Accounts receivable 27,313 8,298 ( 10,349 ) Inventories 84 ( 302 ) ( 2,764 ) Prepaid expenses and other assets ( 1,288 ) 3,289 1,400 Accounts payable ( 1,020 ) 1,138 2,948 Accrued expenses and other liabilities 1,841 ( 5,042 ) 5,663 Income taxes payable 384 131 ( 3,781 ) Net cash provided by operating activities 67,802 59,110 41,664 Cash flows from investing activities Purchase of property, plant and equipment ( 15,396 ) ( 22,047 ) ( 20,584 ) Purchase of intangible assets ( 376 ) ( 873 ) ( 541 ) Disposition of business — — 4,239 Acquisition of businesses, net of cash acquired — ( 4,228 ) ( 139,980 ) Proceeds from sale of equipment 803 1,868 1,416 Net cash used in investing activities ( 14,969 ) ( 25,280 ) ( 155,450 ) Cash flows from financing activities Repayment of finance lease obligations ( 4,095 ) ( 4,545 ) ( 5,813 ) Proceeds from borrowings of long-term debt 2,284 983 2,358 Repayment of long-term debt ( 5,976 ) ( 6,857 ) ( 2,746 ) Proceeds from revolver 35,750 32,000 175,176 Repayments of revolver ( 68,050 ) ( 61,700 ) ( 49,991 ) Payments of debt issuance costs ( 1,497 ) — ( 826 ) Payment of contingent consideration for business acquisitions ( 2,091 ) ( 852 ) ( 2,277 ) Taxes paid related to net share settlement of share-based awards ( 494 ) ( 3,198 ) ( 2,185 ) Proceeds from the exercise of stock options — 32 273 Net cash provided by (used in) financing activities ( 44,169 ) ( 44,137 ) 113,969 Effect of exchange rate changes on cash and cash equivalents 2,080 ( 221 ) ( 2,180 ) Net change in cash and cash equivalents 10,744 ( 10,528 ) ( 1,997 ) Cash and cash equivalents: Beginning of period 15,016 25,544 27,541 End of period $ 25,760 $ 15,016 $ 25,544 Supplemental disclosure of cash paid Interest, net $ 12,465 $ 14,158 $ 7,751 Income taxes, net $ ( 543 ) $ 6,096 $ 10,983 Noncash investing and financing Equipment acquired through finance lease obligations $ 2,849 $ 9,502 $ 4,845 The accompanying notes are an integral part of these consolidated financial statements. 53 Table o f Contents Mistras Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (tabular dollars in thousands, except per share data) 1. Summary of Significant Accounting Policies and Practices Description of Business Mistras Group, Inc. and subsidiaries (the Company) is a leading “OneSource™” 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, and decades-long legacy of industry leadership, the Company helps clients in the oil and gas, aerospace and defense, power generation, infrastructure, and manufacturing industries towards achieving and maintaining operational 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; and building real-time monitoring equipment to enable safe travel across bridges, the Company helps the world at large. The Company 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. The Company serves a global customer base of companies with asset-intensive infrastructure, including companies in the oil and gas, commercial aerospace and defense, fossil and nuclear power, alternative and renewable energy, public infrastructure, chemicals, transportation, primary metals and metalworking, pharmaceutical/biotechnology and food processing industries, and research and engineering institutions. Principles of Consolidation The Company follows guidance on the consolidation of variable interest entities (VIEs) that requires companies to utilize a qualitative approach to determine whether it is the primary beneficiary of a VIE. The process for identifying the primary beneficiary of a VIE requires consideration of the factors that indicate a party has the power to direct the activities that most significantly impact the VIE’s economic performance, including powers granted to the VIE’s program manager, powers contained in the VIE governing board and, to a certain extent, a company’s economic interest in the VIE. The Company analyzes its joint ventures and classifies them as either: • a VIE that must be consolidated because the Company is the primary beneficiary, or the joint venture is not a VIE and the Company holds the majority voting interest with no significant participative rights available to the other partners; or • a VIE that does not require consolidation and is treated as an equity method investment because the Company is not the primary beneficiary or the joint venture is not a VIE and the Company does not hold the majority voting interest. As part of the above analysis, if it is determined that the Company has the power to direct the activities that most significantly impact the joint venture’s economic performance, the Company considers whether or not it has the obligation to absorb losses or rights to receive benefits of the VIE that could potentially be significant to the VIE. The Company became the primary beneficiary in July 2020 of a VIE in which the Company has a 49 % interest in a limited partnership, and a 49 % shareholder in the corporate general partner of the limited partnership. The Company consolidated the financial statements of the VIE with the financial statements of the Company. As of and the for the year ended December 31, 2020, the VIE had immaterial assets and had no revenue. The Company is the primary sub-contractor of the VIE. The accompanying audited consolidated financial statements include the accounts of Mistras Group, Inc. as well as its wholly-owned subsidiaries, majority-owned subsidiaries and consolidated VIE. For subsidiaries in which the Company’s ownership interest is less than 100%, the non-controlling interests are reported in stockholders’ equity in the accompanying consolidated balance sheets. The non-controlling interests in net results, net of tax, is classified separately in the accompanying consolidated 54 Table o f Contents statements of income (loss). All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations of companies acquired are included from the date of acquisition. Reclassifications Certain amounts in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have a material effect on the Company's financial condition or results of operations as previously reported. Use of Estimates The preparation of financial statements in accordance with U.S. generally accepted accounting principles (GAAP) requires that the Company make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of financial statements. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates, which may cause the Company’s future results to be significantly affected. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Accounts Receivable and Allowance for Credit Losses (formerly Allowance for Doubtful Accounts) The Company maintains an allowance for credit losses on its accounts receivable balances, which represents its best estimate of current expected credit losses over the contractual life of the accounts receivable. Beginning January 1, 2020, when evaluating the adequacy of its allowance for credit losses each reporting period, the Company analyzes accounts receivable balances with similar risk characteristics on a collective basis, considering factors such as the aging of receivable balances, payment terms (primarily with 30 day terms), geographic location, historical loss experience, current information, and future expectations (generally considered one year which is consistent with expected collectability of the Company's trade receivables). The Company monitors and considers whether historical loss rates are consistent with expectation of supportable forward-looking estimates for its trade receivables noting no current or future economic considerations that would require adjusting the Company’s historical loss experience. Each reporting period, the Company reassesses whether any accounts receivable no longer share similar risk characteristics and should instead be evaluated as part of another pool or on an individual basis. Changes to the allowance for credit losses are adjusted through credit loss expense, which is presented within Selling, general and administrative expenses in the Consolidated statements of income. During the year ended December 31, 2020, the Company recorded a net provision for expected credit losses of $ 0.7 million. Concentration of Credit Risk For each of the years ended December 31, 2020 and 2019, no customer represented 10% or more of the Company's revenue. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. At times, cash deposits may exceed the limits insured by the Federal Deposit Insurance Corporation. The Company believes it is not exposed to any significant credit risk or risk of nonperformance of financial institutions. Inventories Inventories are stated at the lower of cost or net realizable value, as determined by using the first-in, first-out method, or market. Work in process and finished goods inventory include material, direct labor, variable costs and overhead. Purchased and Internal-Use Software The Company capitalizes certain costs that are incurred to purchase or to create and implement internal-use software, which includes software coding, installation and testing. Capitalized costs are amortized on a straight-line basis over three years , the estimated useful life of the software. 55 Table o f Contents Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation of property, plant and equipment is computed utilizing the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is computed utilizing the straight-line method over the shorter of the remaining lease term or estimated useful life. Repairs and maintenance costs are expensed as incurred. Goodwill Goodwill represents the excess purchase price of acquired businesses over the fair values attributed to underlying net tangible assets and identifiable intangible assets. The Company tests goodwill for impairment at a “reporting unit” level (which for the Company is represented by (i) our Services segment, (ii) our Products and Systems segment, and (iii) the European component of our International segment and (iv) the Brazilian component of our International segment). Our annual impairment test is conducted on the first day of our fourth quarter, which is October 1. Goodwill is also tested for impairment whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a quantitative impairment test is not necessary. If the Company concludes otherwise, the Company is required to perform a quantitative impairment test. If the fair value of a reporting unit is less than its carrying value, this is an indicator that the goodwill assigned to that reporting unit may be impaired. As a result of the Company adopting Accounting Standards Update ("ASU") No. 2017-04, Intangibles-Goodwill and Other (Topic 350) , impairment will be recorded in the amount that fair value is less than carrying value, as the ASU eliminated step two of the goodwill impairment process. The Company considers the income and market approaches to estimating the fair value of our reporting units, which requires significant judgment in evaluation of economic and industry trends, estimated future cash flows, discount rates and other factors. See Note 8- Goodwill for additional information related to the Company's goodwill impairment tests during 2020. Impairment of Long-lived Assets The Company reviews the recoverability of its long-lived assets (or asset groups) whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset (group) might not be recoverable. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future undiscounted cash flows. If the total expected future undiscounted cash flows are less than the carrying amount of the assets, a loss is recognized for the difference between fair value (computed based upon the expected future discounted cash flows) and the carrying value of the assets. Acquisitions The Company allocates the purchase price of acquired businesses to their identifiable tangible assets and liabilities as well as identifiable intangible assets, such as customer relationships, technology, non-compete agreements and trade names. Certain estimates and judgments are required in the application of the fair value techniques, including estimates of the respective acquisition's future performance and related cash flows, selection of a discount rate and economic lives, and use of Level 3 measurements as defined in ASC No. 820, Fair Value Measurements and Disclosure. Deferred taxes are recorded for any differences between the assigned values and tax bases of assets and liabilities. Research and Engineering Research and product development costs are expensed as incurred. Advertising, Promotions and Marketing 56 Table o f Contents The costs for advertising, promotion and marketing programs are expensed as incurred and are included in selling, general and administrative expenses. Advertising expense was approximately $ 0.8 million, $ 2.1 million and $ 2.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other financial current assets and liabilities approximate fair value based on the short-term nature of the items. Foreign Currency Translation The financial position and results of operations of the Company’s foreign subsidiaries are measured using their functional currencies, which are their local currencies. Assets and liabilities of foreign subsidiaries are translated into the U.S. Dollar at the exchange rates in effect at the balance sheet date. Income and expenses are translated at the average exchange rate during the period. Translation gains and losses are reported as a component of other comprehensive income (loss) for the period and included in accumulated other comprehensive income (loss) within stockholders’ equity. Foreign currency (gains) and losses arising from transactions denominated in currencies other than the functional currency are included in net income, reported in selling, general and administrative expenses, and were approximately $ 3.1 million, $( 0.5 ) million, and $ 1.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. Self-Insurance The Company is self-insured for certain losses relating to workers’ compensation and health benefit claims. The Company maintains third-party excess insurance coverage for all workers' compensation and health benefit claims in excess of approximately $ 0.3 million per occurrence to reduce its exposure from such claims. Self-insured losses are accrued when it is probable that an uninsured claim has been incurred but not reported and the amount of the loss can be reasonably estimated at the balance sheet date. Share-based Compensation The value of services received from employees and directors in exchange for an award of an equity instrument is measured based on the grant-date fair value of the award. Such value is recognized as a non-cash expense on a straight-line basis over the minimum period the individual provides services, which is typically the vesting period of the award with the exception of awards with graded vesting that contain an internal performance measure where each tranche is recognized on a straight-line basis over its vesting period subject to the probability of meeting the performance requirements and adjusted for the number of shares expected to be earned. Awards to certain employees eligible for retirement prior to the award becoming fully vested are amortized to expense over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award. As share-based compensation expense is based on awards ultimately expected to vest, the amount of expense is reduced for estimated forfeitures. The cost of these awards is recorded in selling, general and administrative expense in the Company’s consolidated statements of income. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided if it is more likely than not that some or all of a deferred income tax asset will not be realized. A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current and prior years. US GAAP prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. US GAAP also provides guidance on de-recognition, measurement, and classification of amounts relating to uncertain tax positions, accounting for and disclosure of interest and penalties, accounting in interim periods and disclosures required. Interest and penalties related to unrecognized tax positions are recognized as incurred within “provision for income taxes” in the consolidated statements of income. 57 Table o f Contents In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act, among other things, includes tax provisions relating to deferment of employer’s social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The ultimate impact of the CARES Act may differ from the estimated impact the Company recorded during this period due to changes in interpretations and guidance that may be issued and actions the Company may take in response to the CARES Act. The Company will continue to assess the impact that various provisions of the CARES Act, and how they are interpreted and effected, will have on its business. Recent Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities related to outside basis differences. The standard is effective for interim and annual periods beginning January 1, 2021, with certain amendments applied prospectively and others requiring retrospective application. Early adoption is permitted, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company did not elect early adoption and is currently evaluating the impact of this guidance on its consolidated financial position, results of operations, and cash flows. In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of this guidance on its consolidated financial position, results of operations, and cash flows. 2. Revenue The Company derives the majority of its revenue by providing services on a time and material basis and are short-term in nature. The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company's contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and is, therefore, not distinct. The Company provides highly integrated and bundled inspection services to its customers. Some of our contracts have multiple performance obligations, most commonly due to the contract providing both goods and services. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company's best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is a relative selling price based on price lists. Contract modifications are not routine in the performance of the Company's contracts. Generally, when contracts are modified, the modification is to account for changes in scope to the goods and services that are provided. In most instances, contract modifications are for goods or services that are distinct, and, therefore, are accounted for as a separate contract. The Company's performance obligations are satisfied over time as work progresses or at a point in time. The majority of the Company's revenue recognized over time as work progresses is related to the Company's service deliverables, which includes providing testing, inspection and mechanical services to our customers. Revenue is recognized over time based on time and material incurred to date which best portrays the transfer of control to the customer. The Company also utilizes an available practical expedient that provides for revenue to be recognized in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date. Fixed fee arrangements are determined based on expected labor, material, and overhead to be consumed on fulfillment of such services. Revenue is recognized on a cost-to-cost method tracked on an input basis. 58 Table o f Contents The majority of our revenue recognized at a point in time is related to product sales when the customer obtains control of the asset, which is generally upon shipment to the customer. Contract costs include labor, material and overhead. The Company expects any significant remaining performance obligations to be satisfied within one year . Contract Estimates The majority of the Company's revenues are short-term in nature. The Company has many master service agreements (MSAs) that specify an overall framework and contract terms when the Company and customers agree upon services or products to be provided. The actual contracting to provide services or furnish products are triggered by a work order, purchase order, or some similar document issued pursuant to a MSA which sets forth the scope of services and/or identifies the products to be provided. From time-to-time, the Company may enter into long-term contracts, which can range from several months to several years. Revenue on such long-term contracts is recognized as work is performed based on total costs incurred to date in relation to the total estimated costs for the performance of the contract at completion. This includes contract estimates of costs to be incurred for the performance of the contract. Cost estimation is based upon the professional knowledge and experience of the Company's project managers, engineers and financial professionals. Factors that are considered in estimating the work to be completed include the availability of materials, the effect of any delays in the Company's project performance and the recoverability of any claims. Whenever revisions of estimates, contract costs and/or contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period. Revenue by category The following series of tables present our disaggregated revenues by segment: Revenue by industry was as follows: Year ended December 31, 2020 Services International Products & Systems Corp/Elim Total Oil & Gas $ 298,605 $ 39,728 $ 430 $ — $ 338,763 Aerospace & Defense 50,813 18,166 1,292 — $ 70,271 Industrials 44,919 19,657 1,852 — $ 66,428 Power generation & Transmission 30,005 7,559 2,323 — $ 39,887 Other Process Industries 24,671 10,029 171 — $ 34,871 Infrastructure, Research & Engineering 17,070 10,353 6,364 — $ 33,787 Other 10,081 2,064 4,017 ( 7,598 ) $ 8,564 Total $ 476,164 $ 107,556 $ 16,449 $ ( 7,598 ) $ 592,571 Year ended December 31, 2019 Services International Products & Systems Corp/Elim Total Oil & Gas $ 390,815 $ 44,447 $ 756 $ — $ 436,018 Aerospace & Defense 51,390 41,224 1,237 — $ 93,851 Industrials 64,622 21,405 3,187 — $ 89,214 Power generation & Transmission 30,300 10,289 2,726 — $ 43,315 Other Process Industries 28,495 10,196 418 — $ 39,109 Infrastructure, Research & Engineering 14,269 9,520 9,316 — $ 33,105 Other 15,239 7,190 943 ( 9,398 ) $ 13,974 Total $ 595,130 $ 144,271 $ 18,583 $ ( 9,398 ) $ 748,586 59 Table o f Contents Year ended December 31, 2018 Services International Products & Systems Corp/Elim Total Oil & Gas $ 378,904 $ 37,953 $ 1,255 $ — $ 418,112 Aerospace & Defense 50,500 54,853 2,355 — 107,708 Industrials 60,594 26,209 3,097 — 89,900 Power generation & Transmission 30,687 8,522 4,904 — 44,113 Other Process Industries 26,425 9,497 124 — 36,046 Infrastructure, Research & Engineering 11,283 9,032 5,246 — 25,561 Other 16,226 7,382 6,445 ( 9,139 ) 20,914 Total $ 574,619 $ 153,448 $ 23,426 $ ( 9,139 ) $ 742,354 Revenue per key geographic location was as follows: Year ended December 31, 2020 Services International Products & Systems Corp/Elim Total United States $ 406,437 $ 911 $ 7,551 $ ( 3,410 ) $ 411,489 Other Americas 68,150 4,581 550 ( 446 ) 72,835 Europe 904 99,953 3,154 ( 3,470 ) 100,541 Asia-Pacific 673 2,111 5,194 ( 272 ) 7,706 Total $ 476,164 $ 107,556 $ 16,449 $ ( 7,598 ) $ 592,571 Year ended December 31, 2019 Services International Products & Systems Corp/Elim Total United States $ 487,408 $ 631 $ 12,011 $ ( 4,918 ) $ 495,132 Other Americas 104,081 7,659 407 ( 407 ) 111,740 Europe 2,342 127,581 1,940 ( 3,978 ) 127,885 Asia-Pacific 1,299 8,400 4,225 ( 95 ) 13,829 Total $ 595,130 $ 144,271 $ 18,583 $ ( 9,398 ) $ 748,586 Year ended December 31, 2018 Services International Products & Systems Corp/Elim Total United States $ 478,853 $ 568 $ 11,493 $ ( 3,500 ) $ 487,414 Other Americas 90,823 7,995 1,068 ( 1,638 ) 98,248 Europe 4,252 138,948 3,958 ( 3,846 ) 143,312 Asia-Pacific 691 5,937 6,907 ( 155 ) 13,380 Total $ 574,619 $ 153,448 $ 23,426 $ ( 9,139 ) $ 742,354 Contract Balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the consolidated balance sheet. Amounts are generally billed as work progresses in accordance with agreed-upon contractual terms, generally at periodic intervals (e.g., weekly, bi-weekly or monthly). Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, the Company sometimes receives advances or deposits from its customers before revenue is recognized, resulting in contract liabilities. These assets and liabilities are aggregated on an individual contract basis and reported on the consolidated balance sheet at the end of each reporting period within accounts receivables or accrued expenses and other current liabilities. Revenue recognized for 2020 and 2019, that was included in the contract liability balance at the beginning of the year was $ 4.6 million and $ 4.3 million, respectively. Changes in the contract asset and liability balances during the years ended December 31, 2020 and 2019, were not impacted by any other factors. The Company applies the practical expedient to expense incremental 60 Table o f Contents costs incurred related to obtaining a contract when the asset that the Company otherwise would have recognized is one year or less. 3. Earnings per Share Basic earnings (loss) per share is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net by the sum of (1) the weighted average number of shares of common stock outstanding during the period, and (2) the dilutive effect of assumed conversion of equity awards using the treasury stock method. With respect to the number of weighted average shares outstanding (denominator), diluted shares reflect: (i) the exercise of options to acquire common stock to the extent that the options’ exercise prices are less than the average market price of common shares during the period and (ii) the pro forma vesting of restricted stock units. The following table sets forth the computations of basic and diluted earnings per share: For the year ended December 31, 2020 2019 2018 Basic earnings (loss) per share: Numerator: Net income (loss) attributable to Mistras Group, Inc. $ ( 99,461 ) $ 6,060 $ 6,836 Denominator Weighted average common shares outstanding 29,147 28,740 28,406 Basic earnings (loss) per share $ ( 3.41 ) $ 0.21 $ 0.24 Diluted earnings (loss) per share: Numerator: Net income (loss) attributable to Mistras Group, Inc. $ ( 99,461 ) $ 6,060 $ 6,836 Denominator Weighted average common shares outstanding 29,147 28,740 28,406 Dilutive effect of stock options outstanding — 98 683 Dilutive effect of restricted stock units outstanding — 208 338 29,147 29,046 29,427 Diluted earnings (loss) per share $ ( 3.41 ) $ 0.21 $ 0.23 The following potential common shares were excluded from the computation of diluted earnings per share, as the effect would have been anti-dilutive: For the year ended December 31, 2020 2019 2018 Potential common stock attributable to restricted stock units (RSUs) and performance stock units (PSUs) outstanding (1) 790 42 1 Potential common stock attributable to stock options outstanding 5 5 5 Total 795 47 6 (1) For the twelve months ended December 31, 2020, 254 shares related to RSUs/PSUs, were excluded from the calculation of diluted EPS due to the net loss for the period. 61 Table o f Contents 4. Accounts Receivable Accounts receivable consist of the following: December 31, 2020 2019 Trade accounts receivable $ 115,841 $ 144,282 Allowance for credit losses ( 8,213 ) ( 8,285 ) Accounts receivable, net $ 107,628 $ 135,997 The Company had $ 11.9 million and $ 22.2 million of unbilled revenues accrued as of December 31, 2020 and December 31, 2019, respectively, which is included within the trade accounts receivable balance above. Unbilled revenue is generally billed in the subsequent quarter to their revenue recognition. The Company was contracted to perform inspections of welds on various pipeline projects in Texas for a customer. As of December 31, 2019, approximately $ 1.4 million of past due receivables were outstanding from this customer. The Company received notice from the customer in December 2019, alleging that the work performed was not in compliance with the contract. The Company filed a lawsuit to recover the $ 1.4 million and other amounts due to the Company and the customer filed a counterclaim, alleging breach of contract and seeking its damages. Accordingly, the Company recorded a reserve of $ 1.4 million during the twelve months ended December 31, 2019 for these past due receivables. The status of this situation has not changed during 2020. See Note 18-Commitments and Contingencies for additional details. In the fourth quarter of 2018, the Company recorded a reserve of $ 0.7 million for a renewable energy industry customer, based in part on the available information about the financial difficulties of the customer. During the first quarter of 2019, the Company recorded an additional charge of $ 5.7 million to fully reserve for the amount of the exposure related to this customer. This customer filed for a voluntary insolvency proceeding on April 9, 2019. During the second quarter of 2019, the Company reversed $ 1.0 million of this reserve based on additional information obtained during the quarter. The status of the dispute has not changed since the second quarter of 2019. During 2019, the Company sold to an unaffiliated third party, without recourse, its remaining outstanding receivables owed from a customer which filed for bankruptcy, and for which the Company had initially recorded a charge during the second quarter of 2017. During the first quarter of 2019, the Company recorded a recovery of $ 0.2 million and during the second quarter of 2019, the Company recorded a recovery $ 1.7 million, related to a bad debt provision for the receivables due from this customer. This matter is considered fully resolved. 5. Inventories Inventories consist of the following: December 31, 2020 2019 Raw materials $ 5,006 $ 5,314 Work in progress 770 1,549 Finished goods 4,640 3,957 Consumable supplies 2,718 2,593 Inventories $ 13,134 $ 13,413 62 Table o f Contents 6. Property, Plant and Equipment Property, plant and equipment consist of the following: December 31, Useful Life 2020 2019 (Years) Land $ 2,724 $ 2,672 Building and improvements 30 - 40 25,731 24,537 Office furniture and equipment 5 - 8 16,980 17,227 Machinery and equipment 5 - 7 237,253 225,974 282,688 270,410 Accumulated depreciation and amortization ( 190,007 ) ( 171,803 ) Property, plant and equipment, net $ 92,681 $ 98,607 Depreciation expense was approximately $ 24.7 million, $ 24.2 million, and $ 24.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. 7. Acquisitions and Disposition Acquisitions The Company did no t complete any acquisitions during the year ended December 31, 2020. During September 2019, the Company completed one acquisition that provides pipeline integrity management software and services to energy transportation companies. The Company acquired all the equity interest of the acquiree in exchange for aggregate consideration of $ 4.4 million in cash, contingent consideration of up to $ 4.3 million to be earned based upon the acquired business achieving specific performance metrics over the initial three years of operations from the acquisition date and working capital adjustments. The goodwill recorded is primarily attributable to expected synergies and is generally deductible for tax purposes. The Company accounted for this transaction in accordance with the acquisition method of accounting for business combinations. The following table summarizes the final fair value of the assets acquired and liabilities assumed and the Company's allocation of purchase price: 2019 Cash paid $ 4,380 Working capital adjustments $ ( 152 ) Fair value of contingent consideration $ 1,342 Total consideration $ 5,570 Current net assets $ 142 Other assets $ 34 Property, plant and equipment $ 65 Intangibles $ 3,594 Goodwill $ 1,735 Net assets acquired $ 5,570 The Company accounted for the acquisition completed in 2019 in accordance with the acquisition method of accounting for business combinations. Assets and liabilities of the acquired businesses were included in the consolidated balance sheet based on their respective estimated fair value on the date of acquisition as determined in a purchase price allocation, using available information and making assumptions management believes are reasonable. The amortization periods for the intangible assets acquired range from one year to eighteen years . 63 Table o f Contents Disposition During the third quarter of 2018, substantially all of the assets and liabilities of a subsidiary in the Products and Systems segment were sold for approximately $ 4.3 million. For the year ended December 31, 2018, the Company recognized a gain of approximately $ 2.4 million related to the sale, which is reported as a gain on sale of subsidiary on the consolidated statements of income (loss). The sale also included a three-year agreement to purchase products from the buyer, with a cumulative commitment of $ 2.3 million (see Note 18- Commitments and Contingencies ). Acquisition-Related expense In the course of its acquisition activities, the Company incurs costs in connection with due diligence, professional fees, and other expenses. Additionally, the Company adjusts the fair value of acquisition-related contingent consideration liabilities on a quarterly basis. These amounts are recorded as acquisition-related expense, net, on the consolidated statements of income and were as follows for the years ended December 31, 2020, 2019 and 2018: For the year ended December 31, 2020 2019 2018 Due diligence, professional fees and other transaction costs $ — $ 364 $ 1,248 Adjustments to fair value of contingent consideration liabilities 337 511 ( 716 ) Acquisition-related expense, net $ 337 $ 875 $ 532 The Company’s contingent consideration liabilities are recorded on the consolidated balance sheets in accrued expenses and other current liabilities and Other long-term liabilities. 8. Goodwill The changes in the carrying amount of goodwill by segment is shown below: Services International Products and Systems Total Balance at December 31, 2018 $ 243,476 $ 35,783 $ — $ 279,259 Goodwill acquired during the year 1,535 — — 1,535 Adjustments to preliminary purchase price allocations ( 2,332 ) — — ( 2,332 ) Foreign currency translation 4,536 ( 588 ) — 3,948 Balance at December 31, 2019 $ 247,215 $ 35,195 $ — $ 282,410 Impairment charges ( 57,227 ) ( 19,862 ) — ( 77,089 ) Adjustments to preliminary purchase price allocations 200 — — 200 Foreign currency translation ( 76 ) 563 — 487 Balance at December 31, 2020 $ 190,112 $ 15,896 $ — $ 206,008 The Company reviews goodwill for impairment on a reporting unit basis on October 1 of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. During the first quarter of 2020, the Company’s market capitalization declined significantly compared to the fourth quarter of 2019. Over the same period, the equity value of the Company’s peer group, and the overall U.S. stock market also declined significantly amid market volatility. In addition, oil prices had dropped significantly. These declines were driven in large part by the uncertainty surrounding the COVID-19 pandemic and other macroeconomic events such as the geopolitical tensions between OPEC and Russia. Based on these factors, the Company concluded that multiple triggering events occurred and, accordingly, an interim quantitative goodwill impairment test was performed for each reporting unit as of March 31, 2020. During the first quarter of 2020, the Company also performed an analysis to determine any impairment of long-lived assets (see Note 9-Intangible Assets ) based on the triggering events noted above. In performing the interim quantitative goodwill impairment test and consistent with prior practice, the Company determined the fair value of each of the reporting units using a combination of the income approach and the market approach by assessing each 64 Table o f Contents of these valuation methodologies based upon availability and relevance of comparable company data and determining the appropriate weighting. Under the income approach, the fair value for each of the reporting units was determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The Company used internal forecasts, updated for recent events, to estimate future cash flows with cash flows beyond the specific operating plans estimated using a terminal value calculation, which incorporates historical and forecasted trends, including an estimate of long-term future growth rates, based on the Company’s most recent views of the long-term outlook for each reporting unit. The internal forecasts include assumptions about future market recovery, including the expected demand for the Company’s goods and services. Due to the inherent uncertainties involved in making estimates and assumptions, actual results may differ from those assumed in the forecasts. The Company derived the discount rates using a capital asset pricing model and analyzing published rates for industries relevant to the reporting units to estimate the cost of equity financing. The Company used discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and in the internally developed forecasts, updated for recent events. The market approach valuations were derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses was based on the markets in which the reporting units operate considering risk profiles, size, geography, and diversity of products and services. Based upon the results of the interim quantitative goodwill impairment test during the first quarter of 2020, the Company recorded an aggregate impairment charge of $ 77.1 million, which included $ 57.2 million in the services reporting unit within the Services segment, and $ 19.3 million in the European reporting unit and $ 0.6 million in the Brazilian reporting unit, both within the International segment. The impairment was calculated based on the difference between the estimated fair value and the carrying value of the reporting units and are included in Impairment charges on the Consolidated Statements of Income (Loss) for the year ended December 31, 2020. The Company's cumulative goodwill impairment as of December 31, 2020 was $ 100.2 million, of which $ 57.2 million related to the Services segment, $ 29.8 million related to the International segment and $ 13.2 million related to the Products and Systems segment. The Company's cumulative goodwill impairment as of December 31, 2019 was $ 23.1 million, of which $ 13.2 million related to the Products and Systems segment and $ 9.9 million related to the International segment. The Company elected to perform a qualitative assessment of goodwill on October 1, 2020. The Company's qualitative assessment considered relevant events and circumstances occurring since the interim quantitative goodwill impairment test performed as of March 31, 2020 (see previous paragraphs). Specifically, the Company considered changes in macroeconomic conditions, industry and market conditions, internal forecasts of future revenue and expenses, the Company's stock price, any significant events affecting the Company and actual changes in the carrying values of its net assets. After considering all positive and negative evidence for the assessment as of October 1, 2020, the Company concluded that it was not more likely than not that the carrying values of each reporting unit exceeded their respective fair values and as such, no additional impairment was indicated. Subsequent to October 1, 2020 through December 31, 2020, the Company did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable. Significant adverse changes in future periods could negatively affect the Company's key assumptions and may result in future goodwill impairment charges which could be material. 65 Table o f Contents 9. Intangible Assets The gross carrying amount and accumulated amortization of intangible assets were as follows: December 31, 2020 2019 Useful Life (Years) Gross Amount Accumulated Amortization Impairment Net Carrying Amount Gross Amount Accumulated Amortization Net Carrying Amount Customer relationships 5 - 18 $ 116,101 $ ( 75,649 ) $ ( 2,206 ) $ 38,246 $ 113,861 $ ( 67,853 ) $ 46,008 Software/Technology 3 - 15 77,326 ( 23,519 ) ( 25,874 ) 27,933 77,914 ( 18,756 ) 59,158 Covenants not to compete 2 - 5 12,833 ( 12,162 ) ( 212 ) 459 12,795 ( 11,630 ) 1,165 Other 2 - 12 11,120 ( 8,614 ) ( 502 ) 2,004 10,813 ( 7,607 ) 3,206 Total $ 217,380 $ ( 119,944 ) $ ( 28,794 ) $ 68,642 $ 215,383 $ ( 105,846 ) $ 109,537 As described in Note 8- Goodwill , during the first quarter of 2020, there were negative market indicators that were determined to be triggering events indicating a potential impairment of certain long-lived assets within asset groups in the Services, International, Products and Corporate segments. The asset groups are groupings of assets and liabilities determined at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability testing indicated that certain intangible assets and right of use assets (See Note 17-Leases ) were potentially impaired. For asset groups that required an impairment measurement, similar to the valuations performed to determine the goodwill impairment, the Company used income and market approaches to estimate the fair value of the long-lived assets, which requires significant judgment in evaluation of the useful lives of the assets, economic and industry trends, estimated future cash flows, discount rates, and other factors. The result of the analysis was an aggregate impairment charge of $ 28.8 million, which included $ 25.9 million to software/technology, $ 2.2 million to customer relationships, $ 0.5 million to other intangibles and $ 0.2 million to covenants not to compete, all of which are in the Services reporting unit within the Services segment and are included in Impairment charges on the consolidated statements of income (loss) for the year ended December 31, 2020. Amortization expense for the years ended December 31, 2020, 2019 and 2018, was approximately $ 11.0 million, $ 14.3 million, and $ 10.2 million, respectively, including amortization of software/technology for these periods of $ 3.6 million, $ 5.6 million, and $ 1.4 million, respectively. Amortization expense in each of the five years and thereafter subsequent to December 31, 2020 related to the Company’s intangible assets is expected to be as follows: Expected Amortization Expense 2021 $ 9,915 2022 9,433 2023 8,719 2024 7,355 2025 5,597 Thereafter 27,623 Total $ 68,642 66 Table o f Contents 10. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following: December 31, 2020 2019 Accrued salaries, wages and related employee benefits $ 30,214 $ 30,072 Contingent consideration 1,300 2,614 Accrued workers' compensation and health benefits 3,948 4,467 Deferred revenues 6,538 5,860 Right-of-use liability - Operating 10,348 10,133 Pension accrual 2,519 2,519 Other accrued expenses 23,633 25,724 Total accrued expenses and other current liabilities $ 78,500 $ 81,389 11. Long-Term Debt Long-term debt consists of the following: December 31, 2020 2019 Senior credit facility $ 120,312 $ 151,773 Senior secured term loan, net of unamortized debt issuance costs of $ 0.3 million and $ 0.1 million 89,745 94,919 Other 10,159 8,021 Total debt 220,216 254,713 Less: Current portion ( 10,678 ) ( 6,593 ) Long-term debt, net of current portion $ 209,538 $ 248,120 Senior Credit Facility The Company has a credit agreement with its banking group (“Credit Agreement”) which provides the Company with a revolving line of credit and a $ 100 million senior secured term loan A facility. Pursuant to the Amendment described below, the revolving line of credit was reduced from $ 300 million to $ 175 million. Both the revolving line of credit and the term loan A facility under the Credit Agreement have a maturity date of December 12, 2023. On May 15, 2020, the Company entered into the Third Amendment (the “Amendment”) to the Credit Agreement. The amendment was needed because the Company determined that as a result of the uncertain impact of the COVID-19 pandemic and the significant drop in oil prices, it would not meet the then existing financial covenants in the Credit Agreement for upcoming quarters. Accordingly, the Amendment modified the financial covenants to provide for: i) elimination of the Funded Debt Leverage Ratio (as defined in the Credit Agreement) for the quarters ended June 30 and September 30, 2020 and increased the Funded Debt Leverage ratio to no greater than 5.25 to 1 beginning for the quarter ending December 31, 2020 and decreasing each successive quarter to no greater than 3.50 to 1 for the quarter ended September 30, 2021, and all quarterly periods thereafter; ii) an elimination of the minimum Fixed Charge Coverage Ratio (as defined in the Credit Agreement for the quarters ended June 30, September 30 and December 31, 2020), a decrease to 1.0 to 1 for the quarter ending March 31, 2021 and returning to 1.25 to 1 for the quarter ending June 30, 2021 and thereafter; iii) the addition of a minimum EBITDA covenant requiring $ 3.44 million for the three months ending June 30, 2020, $ 24.25 million for the six months ending September 30, 2020, and $ 38.55 million for the nine months ending December 31, 2020, with no requirement thereafter; and iv) the addition of a minimum Liquidity (as defined in the Amendment) covenant of not less than $ 20.0 million at all times through September 30, 2020 and ceasing thereafter. In addition, the Amendment set a LIBOR floor of 1.0 % applicable to all LIBOR loans, and increased the LIBOR margin range to 1.50 % to 4.15 %, in addition to certain other modifications of the Credit Agreement. The Amendment also requires that the Company promptly prepay the outstanding amount under the revolving credit facility in an amount equal to the difference between (a) the aggregate sum of cash and cash equivalents of the Company and its subsidiaries held in the United States minus (b) $ 10.0 million if, for a period of two ( 2 ) consecutive business days, (i) the outstanding amount under the revolving credit facility exceeds $ 75.0 million and (ii) the sum of such cash and cash equivalents exceeds $ 10.0 million. 67 Table o f Contents The Credit Agreement, as amended, provides that the Company may not make any acquisitions prior to June 30, 2021, and thereafter only if the Company's Funded Debt Leverage Ratio is less than 2.50 to 1, and after giving effect to such acquisition, its pro forma Funded Debt Leverage Ratio will not be greater than 3.25 to 1. The Credit Agreement also limits the Company’s ability to, among other things, create liens, make investments, incur more indebtedness, merge or consolidate, make dispositions of property, pay dividends and make distributions to stockholders or repurchase its stock, enter into a new line of business, enter into transactions with affiliates and enter into burdensome agreements. The Company may borrow up to $ 100 million in non-U.S. Dollar currencies and use up to $ 20 million of the credit limit for the issuance of letters of credit. As of December 31, 2020, the Company had borrowings of $ 210.1 million and a total of $ 4.3 million of letters of credit outstanding under the Credit Agreement. The Company has capitalized costs associated with debt modifications of $ 1.1 million as of December 31, 2020, which is included in Other Assets on the consolidated balance sheet. The Amendment reduced the Company's total available loan capacity, amongst other things, and as a result, the Company expensed approximately $ 0.6 million in capitalized debt issuance costs during the second quarter of 2020, which is included in Selling, general and administrative expenses on the consolidated statements of income (loss). As of December 31, 2020, the Company was in compliance with the terms of the Credit Agreement, as amended, and will continuously monitor its compliance with the covenants contained in its Credit Agreement. The Company believes that it is probable, based on the amended covenants, that the Company will be able to comply with the financial covenants in the Credit Agreement as modified by the Amendment and that sufficient credit remains available under the Credit Agreement to meet the Company's liquidity needs. However, due to the uncertainties being caused by the COVID-19 pandemic, the significant volatility in oil prices, and volatility in the aerospace production, such matters cannot be predicted with certainty. Other Debt The Company's other debt includes local bank financing provided at the local subsidiary levels used to support working capital requirements and fund capital expenditures. At December 31, 2020, there was approximately $ 10.2 million outstanding, payable at various times through 2030. Monthly payments range from $ 1 thousand to $ 18 thousand. Interest rates range from 0.4 % to 3.5 %. Scheduled principal payments due under all borrowing agreements in each of the five years and thereafter subsequent to December 31, 2020 are as follows: 2021 $ 10,678 2022 11,551 2023 194,191 2024 1,282 2025 799 Thereafter 1,715 Total $ 220,216 12. Fair Value Measurements The Company performs fair value measurements in accordance with the guidance provided by ASC 820, Fair Value Measurements and Disclosures . ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a three level hierarchy that prioritizes the inputs used to measure fair value. The three levels of the hierarchy are defined as follows: Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 — Observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data. 68 Table o f Contents Level 3 — Unobservable inputs reflecting the Company’s own assumptions about inputs that market participants would use in pricing the asset or liability based on the best information available. Financial instruments measured at fair value on a recurring basis The fair value of contingent consideration liabilities was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the applicable acquisition agreements. The following table represents the changes in the fair value of Level 3 contingent consideration: December 31, 2020 2019 Balance at the beginning of the period: $ 3,216 $ 2,365 Acquisitions 200 1,142 Payments ( 2,091 ) ( 852 ) Accretion of liability 35 92 Revaluation 302 419 Foreign currency translation ( 22 ) 50 Balance at the end of the period: $ 1,640 $ 3,216 Financial instruments not measured at fair value on a recurring basis The Company has evaluated current market conditions and borrower credit quality and has determined that the carrying value of its long-term debt approximates fair value. The fair value of the Company’s notes payable and finance and operating lease obligations approximates their carrying amounts based on anticipated interest rates which management believes would currently be available to the Company for similar issuances of debt. 13. Share-Based Compensation The Company has share-based incentive awards outstanding to its eligible employees and directors under two employee stock ownership plans: (i) the 2009 Long-Term Incentive Plan (the "2009 Plan") and (ii) the 2016 Long-Term Incentive Plan (the "2016 Plan"). No further awards may be granted under the 2009 Plan, although awards granted under the 2009 Plan remain outstanding in accordance with their terms. Awards granted under the 2016 Plan may be in the form of stock options, restricted stock units and other forms of share-based incentives, including performance restricted stock units, stock appreciation rights and deferred stock rights. At the annual shareholders meeting on May 19, 2020, the Company’s shareholders approved an amendment to increase the total number of shares that may be issued under the 2016 Plan by 2,000,000 , for a total of 3,700,000 shares that may be issued under the 2016 Plan, of which 1,787,000 shares were available for future grants as of December 31, 2020. As of December 31, 2020, there was an aggregate of approximately 5,000 stock options outstanding under the 2009 Plan. 69 Table o f Contents Stock Options For the years ended December 31, 2020, 2019 and 2018, the Company did no t have any share-based compensation expense related to stock option awards. No stock options were granted during the years ended December 31, 2020, 2019 and 2018. As of December 31, 2020, no unrecognized compensation costs remained related to stock option awards. Cash proceeds from, and the intrinsic value of, stock options exercised during the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands): For the year ended December 31, 2020 2019 1 2018 Cash proceeds from options exercised $ — $ 32 $ 273 Aggregate intrinsic value of options exercised $ — $ 4,530 $ 277 ____________________ 1 During 2019, 2.1 million stock options were net exercised, wherein the option holders surrendered a portion of the underlying stock option awards to pay the exercise price and required minimum tax withholding. A summary of the stock option activity, weighted average exercise prices, and options outstanding and exercisable as of December 31, 2020, 2019 and 2018 is as follows (in thousands, except per share amounts and years): For the years ended December 31, 2020 2019 2018 Common Stock Options Weighted Average Exercise Price Common Stock Options Weighted Average Exercise Price Common Stock Options Weighted Average Exercise Price Outstanding at beginning of year: 5 $ 22.35 2,105 $ 13.47 2,130 $ 13.43 Granted — $ — — $ — — $ — Exercised — $ — ( 2,093 ) $ 13.45 ( 25 ) $ 10.75 Expired or forfeited — $ — ( 7 ) $ 10.00 — $ — Outstanding at end of year: 5 $ 22.35 5 $ 22.35 2,105 $ 13.47 December 31, 2020 Options Outstanding Options Exercisable Exercise Price Total Options Outstanding Weighted Average Remaining Life (Years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price 22.35 5 1.2 $ 22.35 5 $ 22.35 Aggregate Intrinsic Value $ — $ — Restricted Stock Unit Awards Restricted Stock Units generally vest ratably on each of the first four anniversary dates of issuance. The Company recognized approximately $ 4.4 million, $ 4.0 million and $ 4.2 million of share-based compensation for the years ended December 31, 2020, 2019 and 2018, respectively, related to restricted stock unit awards. As of December 31, 2020, there were approximately $ 4.9 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which are expected to be recognized over a remaining weighted average period of 2.3 years. Upon vesting, restricted stock units are generally net share-settled to cover the required minimum withholding tax and the remaining amount is converted into an equivalent number of shares of common stock. 70 Table o f Contents A summary of the vesting activity of restricted stock unit awards, with the respective fair value of the awards, is as follows: (in thousands): For the year ended December 31, 2020 2019 2018 Restricted stock awards vested 208 172 258 Fair value of awards vested $ 837 $ 2,495 $ 5,319 A summary of the fully-vested common stock the Company issued to its six non-employee directors, in connection with its non-employee director compensation plan, is as follows (in thousands): For the year ended December 31, 2020 2019 2018 Awards issued 68 30 19 Grant date fair value of awards issued $ 326 $ 450 $ 400 A summary of the Company's outstanding, non-vested restricted share units is presented below (in thousands, except per share amounts): For the year ended December 31, 2020 2019 2018 Units Weighted Average Grant-Date Fair Value Units Weighted Average Grant-Date Fair Value Units Weighted Average Grant-Date Fair Value Outstanding at beginning of period: 559 $ 16.92 443 $ 20.55 532 $ 21.05 Granted 782 $ 3.79 339 $ 14.04 211 $ 19.20 Released ( 208 ) $ 18.71 ( 172 ) $ 20.38 ( 258 ) $ 20.48 Forfeited ( 57 ) $ 9.62 ( 51 ) $ 17.71 ( 42 ) $ 20.52 Outstanding at end of period: 1,076 $ 7.41 559 $ 16.92 443 $ 20.55 Performance Restricted Stock Units The Company maintains Performance Restricted Stock Units (PRSUs) that have been granted to select executives and senior officers whose ultimate payout is based on the Company’s performance over a one-year period based on specific metrics approved by the Compensation Committee of the Board of Directors of the Company. The PRSU awards granted in 2019 included three performance metrics, as defined: (1) Operating Income, (2) Adjusted EBITDAS (defined as net income attributable to MISTRAS Group, Inc. plus: interest expense, provision for income taxes, depreciation and amortization, share-based compensation expense and certain acquisition related costs (including transaction due diligence costs and adjustments to the fair value of contingent consideration), foreign exchange (gain) loss and, if applicable, certain special items which are noted) and (3) Revenue. There also is a discretionary portion of the 2019 PRSUs based on individual performance, granted at the discretion of the Compensation Committee (Discretionary PRSUs). PRSUs and Discretionary PRSUs generally vest ratably on each of the first four anniversary dates upon completion of the performance period, for a total requisite service period of up to five years and have no dividend rights. For 2020 awards, the Compensation Committee changed the criteria for the PRSUs to four metrics, with no discretionary portion. Revenue and Adjusted EBITDAS were retained, and two additional metrics, free cash flow as a percentage of revenue and return on average book equity, replaced Operating Income. These two newly-added metrics are relative metrics, the performance of which are based upon how the Company performs relative to a peer group. PRSUs are equity-classified and compensation costs are initially measured using the fair value of the underlying stock at the date of grant, assuming that the target performance conditions will be achieved. Compensation costs related to the PRSUs are subsequently adjusted for changes in the expected outcomes of the performance conditions. 71 Table o f Contents Discretionary PRSUs are liability-classified and adjusted to fair value (with a corresponding adjustment to compensation expense) based upon the targeted number of shares to be awarded and the fair value of the underlying stock each reporting period until approved by the Compensation Committee, at which point they are equity-classified. A summary of the Company's PRSU activity is presented below (in thousands, except per share amounts): For the year ended December 31, 2020 2019 2018 Units Weighted Average Grant-Date Fair Value Units Weighted Average Grant-Date Fair Value Units Weighted Average Grant-Date Fair Value Outstanding at beginning of period: 260 $ 16.77 277 $ 17.80 278 $ 17.00 Granted 292 $ 3.68 190 $ 13.63 129 $ 19.46 Performance condition adjustments, net ( 99 ) $ 3.82 ( 106 ) $ 13.77 ( 50 ) $ 19.48 Released ( 120 ) $ 17.29 ( 101 ) $ 17.19 ( 68 ) $ 16.03 Forfeited — $ — — $ — ( 12 ) $ 16.16 Outstanding at end of period: 333 $ 8.84 260 $ 16.77 277 $ 17.80 For the year ended December 31, 2020, 292,000 PRSUs were granted. There was a 99,000 net unit reduction to these awards, which represents Company performance against target (including an increase of 1,000 units due to the Compensation Committee approving the final calculation of the award metrics for calendar year 2019), during the year ended December 31, 2020. For the year ended December 31, 2019, 190,000 PRSUs were granted. There was a 103,000 unit reduction to these awards, which represents Company performance below target, during the year ended December 31, 2019. As of December 31, 2019, the aggregate liability related to 29,000 outstanding discretionary PRSUs was less than $ 0.1 million and is classified within Accrued expenses and other liabilities on the consolidated balance sheet. For the year ended December 31, 2018, 129,000 PRSUs were granted. There was a 54,000 unit reduction to these awards, which represents Company performance below target, during the year ended December 31, 2018. As of December 31, 2018, the aggregate liability related to 22,000 outstanding discretionary PRSUs was less than $ 0.1 million and is classified within Accrued expenses and other liabilities on the consolidated balance sheet. The Compensation Committee approved these PRSUs during the first quarter of 2019, which further reduced these awards by 3,000 units. The discretionary portion of these awards were reclassified from a liability to equity on the consolidated balance sheet upon Compensation Committee approval. Compensation expense related to all PRSUs described above was $ 1.2 million, $ 1.3 million, and $ 1.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. At December 31, 2020, there was $ 1.1 million of total unrecognized compensation costs related to approximately 333,000 unvested performance restricted stock units. These costs are expected to be recognized over a weighted-average period of approximately 1.8 years. For the years ended December 31, 2020, 2019 and 2018, the income tax benefit recognized on all share based compensation arrangements referenced above was approximately $ 0.6 million, $ 2.1 million, and $ 1.0 million, respectively. 14. Income Taxes Income (loss) before provision for income taxes is as follows: For the year ended December 31, 2020 2019 2018 Income (loss) before provision for income taxes from: U.S. operations $ ( 54,190 ) $ 7,334 $ 9,853 Foreign operations ( 59,982 ) 3,105 4,418 Income (loss) before income taxes $ ( 114,172 ) $ 10,439 $ 14,271 72 Table o f Contents The provision for income taxes consists of the following: For the year ended December 31, 2020 2019 2018 Current Federal $ ( 6,278 ) $ 2,712 $ 790 States and local 528 519 533 Foreign 4,006 4,572 3,824 Reserve for uncertain tax positions ( 28 ) 99 337 Total current provision (benefit) ( 1,772 ) 7,902 5,484 Deferred Federal ( 2,781 ) 315 2,966 States and local ( 1,244 ) ( 32 ) 399 Foreign ( 10,045 ) ( 4,095 ) ( 2,089 ) Total deferred provision (benefit) ( 14,070 ) ( 3,812 ) 1,276 Net change in valuation allowance 1,136 269 666 Net deferred provision (benefit) ( 12,934 ) ( 3,543 ) 1,942 Total provision (benefit) for income taxes $ ( 14,706 ) $ 4,359 $ 7,426 The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal tax rate to income tax as follows: For the years ended December 31, 2020 2019 2018 Federal tax at statutory rate $ ( 23,976 ) 21.0 % $ 2,192 21.0 % $ 2,997 21.0 % State taxes, net of federal benefit ( 1,175 ) 1.0 % 377 3.6 % 737 5.1 % Foreign tax ( 815 ) 0.7 % 982 9.4 % 807 5.7 % Goodwill impairment 10,003 ( 8.8 ) % — — % — — % Nondeductible compensation 975 ( 0.9 ) % 1,581 15.2 % 183 1.3 % US taxation of foreign earnings 56 — % 213 2.0 % 228 1.6 % Permanent differences 944 ( 0.8 ) % 464 4.4 % 361 2.5 % Transition tax, net of foreign tax credits — — % — — % 1,158 8.1 % Federal loss carryback ( 1,938 ) 1.7 % — — % — — % Change in valuation allowance 1,136 ( 1.0 ) % 269 2.6 % 666 4.7 % Impact of foreign tax rate changes 392 ( 0.3 ) % ( 1,882 ) ( 18.0 ) % — — % Other ( 308 ) 0.3 % 163 1.6 % 289 2.0 % Total provision (benefit) for income taxes $ ( 14,706 ) 12.9 % $ 4,359 41.8 % $ 7,426 52.0 % The permanent differences identified above include normal recurring differences, such as meals, entertainment and parking fringe benefits as well as a portion of the goodwill impairment charge. On December 22, 2017, the United States enacted fundamental changes to the federal tax law following the passage of the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act is complex and significantly changes the U.S. corporate tax system by, among other things, (a) reducing the federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, (b) replacing the prior system of taxing corporations on foreign earnings of their foreign subsidiaries when the earnings are repatriated with a partial territorial tax system that provides a 100% dividends-received deduction (DRD) to domestic corporations for foreign-sourced dividends received from 10%-or-more owned foreign corporations, (c) subjecting certain unrepatriated foreign earnings to a mandatory 73 Table o f Contents one-time transition tax on post-1986 earnings and profits ("the transition tax"), and (d) further limiting a public entity's ability to deduct compensation in excess of $1 million for covered employees. During the year ended December 31, 2018, the Company completed its accounting for the effects of the Tax Act on the period ended December 31, 2017, which resulted in income tax expense of $ 1.7 million. This consisted primarily of $ 0.1 million of an increase in the Company's net deferred tax liabilities due to the reduction in the federal corporate rate from 35% to 21%, an increase of $ 1.3 million in tax expense attributable to the transition tax and a decrease in deferred tax assets of $ 0.4 million due to changes made to executive compensation. On June 28, 2019, the Canadian province of Alberta enacted the Job Creation Tax Cut which reduced the Alberta corporate income tax rate from 12% to 11% starting in 2019 with further annual reductions to 10% in 2020, 9% in 2021, and 8% in 2022. This rate reduction had a favorable impact of approximately $ 1.9 million on the Company’s net deferred tax liabilities in this jurisdiction in 2019. As part of Alberta’s Recovery plan associated with the COVID-19 pandemic, Alberta accelerated the decrease in income tax rates from 10% in 2020 to 8% effective July 1, 2020. The accelerated tax rate reduction did not have a material impact on the Company’s net deferred tax liabilities but did reduce current taxes. On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the Coronavirus outbreak, which among other things contains numerous income tax provisions. Some of these tax provisions are effective retroactively for years ending before the date of enactment. The CARES Act provides a five-year carryback of net operating losses generated in years 2018 through 2020. As the statutory federal income tax rate applicable to certain years within the carryback period is 35%, carryback to those years of our estimated 2020 annual federal tax loss provides a tax benefit in excess of the current federal statutory rate of 21%, resulting in an increased income tax benefit of $ 1.9 million. The Company expects that the income tax effects of the CARES Act will result in a cash refund of approximately $ 4.8 million in 2021 of taxes paid in prior years. On December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021, (the "Appropriations Act") an additional stimulus package providing financial relief for individuals and small business. The Appropriations Act contains a variety of tax provisions, including full expensing of business meals in 2021 and 2022, and expansion of the employee retention tax credit. The Company does not currently expect the Appropriations Act to have a material impact on our consolidated financial position, results of operations, and cash flows . In response to the COVID-19 pandemic, the American Rescue Plan Act was signed into law on March 11, 2021. This act, among other things, provides economic relief provisions to individuals and funding to certain businesses and programs. The Company is currently evaluating the impact of this guidance on its consolidated financial position, results of operations, and cash flows, but does not expect it to have a material impact. 74 Table o f Contents Deferred income tax attributes resulting from differences between financial accounting amounts and income tax basis of assets and liabilities are as follows: December 31, 2020 2019 Deferred income tax assets Allowance for doubtful accounts $ 1,054 $ 1,186 Inventory 459 359 Intangible assets 2,000 1,795 Accrued expenses 6,818 4,421 Net operating loss carryforward 4,190 3,832 Finance lease obligations 942 1,067 Capital losses — 463 Deferred stock based compensation 920 1,145 Interest carryforward — 1,372 Right-of-use liability 11,970 11,891 Credits 312 — Other 1,507 398 Deferred income tax assets 30,172 27,929 Valuation allowance ( 4,540 ) ( 4,067 ) Net deferred income tax assets 25,632 23,862 Deferred income tax liabilities Property and equipment ( 9,109 ) ( 6,485 ) Goodwill ( 4,639 ) ( 10,652 ) Intangible assets ( 6,058 ) ( 14,311 ) Right-of-use asset ( 11,924 ) ( 11,891 ) Other ( 69 ) ( 27 ) Deferred income tax liabilities ( 31,799 ) ( 43,366 ) Net deferred income taxes ( 6,167 ) ( 19,504 ) As of December 31, 2020, the Company had federal net operating loss carry forwards (NOLs) of approximately $ 0.1 million expiring in 2032 which may be used subject to limitation under Internal Revenue Code section 382. In addition, as of December 31, 2020, the Company had state and foreign NOLs of $ 14.8 million and $ 11.7 million, respectively. Approximately $ 8.9 million of the state NOLs expire at various times from 2031 to 2040, while the remainder of the Company's state NOLs do not expire. Approximately $ 0.1 million of the foreign NOLs expire at various times from 2023 to 2040, while the remainder of the Company's foreign NOLs do not expire. In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. Valuation allowances are provided when management believes the Company's deferred tax assets are not recoverable based on future reversals of existing taxable temporary differences, taxable income in prior carryback year(s) if carryback is permitted under the tax law, and an assessment of estimated future taxable income, exclusive of reversing temporary differences and carryforwards, that incorporates ongoing, prudent and feasible tax planning strategies. At December 31, 2020 and December 31, 2019, the Company has a valuation allowance of approximately $ 4.5 million and $ 4.1 million, respectively, primarily against certain state and foreign NOLs and other specific deferred tax assets. The valuation allowance as of December 31, 2019, also applied against capital losses generated by the disposals of certain foreign subsidiaries. These losses expired in 2020, so no valuation allowance remains as of December 31, 2020. The net increase in the valuation allowance of approximately $ 0.5 million is primarily attributable to state and foreign net operating losses and changes in foreign exchange rates, offset by a reduction of expiring losses. Except for those deferred tax assets subject to the valuation allowance, management believes that it will realize all deferred tax assets as a result of sufficient future taxable income in each tax jurisdiction in which the Company has deferred tax assets. 75 Table o f Contents The following table summarizes the changes in the Company’s gross unrecognized tax benefits, excluding interest and penalties: For the year ended December 31, 2020 2019 Balance at beginning of period $ 393 $ 723 Additions for tax positions related to the current fiscal period — — Additions for tax positions related to prior years 32 217 Decreases for tax positions related to prior years — — Current year acquisitions — — Impact of foreign exchange fluctuation ( 5 ) 13 Settlements — ( 465 ) Reductions related to the expiration of statutes of limitations ( 73 ) ( 95 ) Balance at end of period $ 347 $ 393 The Company has recorded the unrecognized tax benefits in other long-term liabilities in the consolidated balance sheets. As of December 31, 2020 and December 31, 2019, there were approximately $ 0.3 million and $ 0.4 million of unrecognized tax benefits, respectively, including penalties and interest. If the Company recognized these unrecognized tax benefits, approximately $ 0.2 million would favorably affect the effective tax rate for both December 31, 2020 and December 31, 2019. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense and are not significant for the years ended December 31, 2020, 2019 and 2018. The Company anticipates a decrease to its unrecognized tax benefits of $ 0.2 million excluding interest and penalties within the next 12 months. The Company is subject to taxation in the United States and various states and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years ending before December 31, 2017 and generally is no longer subject to state, local or foreign income tax examinations by tax authorities for years ending before December 31, 2016. Net income (loss) of foreign subsidiaries was $( 55.7 ) million, $ 2.5 million, and $ 2.0 million for the years ended December 31, 2020, 2019 and 2018, respectively. Generally, it has been the Company's practice and intention to reinvest the earnings of its non-U.S. subsidiaries in those operations. As previously noted, the Tax Act made significant changes to the taxation of undistributed earnings, requiring that all previously untaxed earnings and profits of the Company's controlled foreign operations be subjected to the transition tax. Since these earnings have now been subjected to U.S. federal tax, they would only be potentially subject to limited other taxes, including foreign withholding and certain state taxes. As of December 31, 2020, the Company has no t recognized a deferred tax liability for foreign withholdings and state taxes on its undistributed international earnings or losses of its foreign subsidiaries since it intends to indefinitely reinvest the earnings outside the United States. The Company has estimated that the amount of the unrecorded deferred tax liability related to undistributed international earnings is approximately $ 1.8 million. 15. Employee Benefit Plans The Company provides a 401(k) savings plan for eligible U.S. based employees. Employee contributions are discretionary up to the IRS limits each year and catch up contributions are allowed for employees 50 years of age or older. Under the 401(k) plan, employees become eligible to participate on the first day of the month after three months of continuous service. Under this plan, the Company matches 50 % of the employee’s contributions up to 6 % of the employee’s annual compensation, as defined by the plan. There is a five-year vesting schedule for the Company match. To respond to the economic downturn resulting from the COVID-19 pandemic, significant volatility in oil prices and decreased traffic in the aerospace industry, the Company temporarily suspended its 401(k) match effective with the second quarter of 2020. The Company’s contribution to the plan was $ 1.1 million, $ 4.1 million, and $ 3.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. 76 Table o f Contents The Company's subsidiary participated with other employers in contributing to the Boilermaker-Blacksmith National Pension Trust (EIN 48-6168020) (“Boilermakers”) and Plumbers and Pipefitters National Pension Fund (EIN 52-6152779) (“Pipefitters”), multi-employer defined benefit pension plans, which covers certain U.S. based union employees. The plans provide multiple plan benefits with corresponding contribution rates that are collectively bargained between participating employers and their affiliated Boilermakers and Pipefitters local unions. Both the Boilermakers and Pipefitters plans are between 66 percent and 75 percent funded as of the latest Form 5500 filed. The Company did no t make any contributions to the Boilermakers during the years ended December 31, 2020 and 2019 while making de minimis contributions to the Pipefitters plan during the same periods. The Company’s contributions to the Boilermakers and Pipefitters plans, collectively, were $ 0.6 million for the year ended December 31, 2018. See Note 18-Commitments and Contingencies, Pension Related Contingencies, for additional detail. The Company has other benefit plans covering certain employees throughout the Company. Amounts charged to expense under these plans were not significant in any year. 16. Related Party Transactions The Company leases its headquarters under an operating lease from a shareholder and officer of the Company. On August 1, 2014, the Company extended its lease at its headquarters requiring monthly payments through October 2024. Total rent payments made during the year ended December 31, 2020 were approximately $ 0.7 million. See 17-Leases for further detail. The Company receives benefits consulting services from Capital Management Enterprise (“CME”). Manuel N. Stamatakis, one of the Company's non-employee directors, is the Chief Executive Officer of CME. The Company does no t pay any fees to CME and, any compensation CME receives related to work for the Company is received by commissions paid by the third-party benefit providers. 17. Leases The Company leases certain office and operating facilities, machinery, equipment, and vehicles. Concurrent with the adoption of ASC 842, the Company recognized a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term for each lease agreement. The Company has elected not to recognize a ROU asset and lease liability for leases with terms of 12 months or less and will continue to recognize lease expense for these leases on a straight-line basis over the lease term. The Company has leases with both lease components and non-lease components, such as common area maintenance, utilities, or other repairs and maintenance. For all asset classes, the Company decided to utilize the practical expedient to include both fixed lease components and fixed non-lease components in calculating the ROU asset and lease liability. The Company identified variable lease payments, such as maintenance payments based on actual activities performed or costs incurred, at lease commencement by assessing the nature of the payment provisions, including whether the payments are subject to a minimum charge. Many of the Company's leases include one or more options to renew. When it is reasonably certain that the Company will exercise the option, the Company will include the impact of the option in the lease term for purposes of determining future lease payments. As the Company is unable to determine the discount rate implicit in its lease agreements, the Company uses its incremental borrowing rate on the commencement date to calculate the present value of future payments. The Company’s Consolidated Balance Sheets include the following related to operating leases as of December 31, 2020 and 2019: Leases Classification 2020 2019 Assets: ROU assets Other Assets $ 46,728 $ 45,817 Liabilities: ROU liability - current Accrued and other current liabilities $ 10,348 $ 10,133 ROU liability - long-term Other liabilities 37,689 36,750 Total ROU liabilities $ 48,037 $ 46,883 Included within the balance of operating leases is a lease for the Company’s headquarters which is with a related party. The ROU liability for this facility is approximately $ 3.8 million as of December 31, 2020 and $ 4.5 million as of December 31, 77 Table o f Contents 2019. Total rent payments for this facility were approximately $ 0.7 million and $ 1.0 million during the years ended December 31, 2020 and 2019. An agreement was reached with the related party to reduce rental payments by 20 % and defer payments for 90 days for the lease of the Company’s headquarters, starting in June 2020 through December 2020 as part of COVID-19 related lease concessions. As of December 31, 2020 and 2019, the total ROU assets attributable to finance leases are approximately $ 15.8 million and $ 19.2 million, respectively, which is included in Property, plant, and equipment, net on the Consolidated Balance Sheets. As described in Note 9-Intangible Assets , the Company performed an analysis to determine whether there was any impairment of long-lived assets, which included the ROU assets, within the Services, International, and Products and Systems operating segments as well as Corporate. The result of the analysis was a $ 0.2 million impairment of a ROU asset in an asset group within the Services segment which is included in Impairment charges on the consolidated statements of income (loss) for the year ended December 31, 2020. The components of lease costs for the year ended December 31, 2020 and 2019 are as follows: Classification 2020 2019 Finance lease expense: Amortization of ROU assets Depreciation and amortization $ 4,544 $ 5,091 Interest on lease liabilities Interest expense 847 824 Operating lease expense Cost of revenue; Selling, general & administrative expenses 13,383 12,937 Short-term lease expense Cost of revenue; Selling, general & administrative expenses 66 43 Variable lease expense Cost of revenue; Selling, general & administrative expenses 838 1,220 Total $ 19,678 $ 20,115 Additional information related to leases as of December 31, 2020 and 2019 is as follows: 2020 2019 Cash paid for amounts included in the measurement of lease liabilities for finance leases: Finance - financing cash flows $ 4,095 $ 4,545 Finance - operating cash flows 847 824 Operating - operating cash flows 13,246 12,773 ROU assets obtained in the exchange for lease liabilities: Finance leases $ 2,849 9,502 Operating leases 9,934 18,965 Weighted-average remaining lease term (in years): Finance leases 5.7 5.9 Operating leases 5.8 6.2 Weighted-average discount rate: Finance leases 5.7 % 5.8 % Operating leases 5.7 % 5.9 % Maturities of lease liabilities as of December 31, 2020 is as follows: 78 Table o f Contents Finance Operating 2021 $ 5,353 $ 12,588 2022 4,087 10,495 2023 3,194 8,907 2024 2,261 7,042 2025 688 5,150 Thereafter 754 12,258 Total 16,337 56,440 Less: Present value discount 1,457 8,403 Lease liability $ 14,880 $ 48,037 18. Commitments and Contingencies Legal Proceedings and Government Investigations The Company is subject to periodic lawsuits, investigations and claims that arise in the ordinary course of business. The Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against it. Except possibly for certain of the matters described below, the Company does not believe that any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its business, results of operations, cash flows or financial condition. The costs of defense and amounts that may be recovered against the Company may be covered by insurance for certain matters. Litigation and Commercial Claims The Company was contracted to perform inspections of welds on various pipeline projects in Texas for a customer. As of December 31, 2020 approximately $ 1.4 million of past due receivables were outstanding from this customer. The customer provided the Company with notice in December 2019, alleging that the Company’s inspection of 66 welds (out of approximately 16,000 welds inspected) were not in compliance with the contract, claimed approximately $ 7.6 million in damages, and requested that the Company pay these damages and any other damages incurred. The Company has filed a lawsuit in the District Court of Bexar County, Texas, 37th Judicial District, in an action captioned Mistras Group, Inc. v. Epic Y-Grade Pipeline LP, to recover the $ 1.4 million and other amounts due to the Company. The customer filed a counterclaim, alleging breach of contract and seeking recovery of its alleged damages. The Company believes that any successful claim by the customer regarding the Company’s workmanship will be covered by insurance, subject to payment of a deductible. At this time, the Company is unable to determine whether it has any liability in connection with this matter and if so, the amount or range of any such liability, and accordingly, has no t established any accruals for this matter. Accordingly, the Company recorded a reserve of $ 1.4 million during the twelve months ended December 31, 2019 for these past due receivables. See 4-Accounts Receivable for additional details. Two proceedings have been filed in California Superior Court for the County of Los Angeles regarding alleged violations of California Labor Code. Both cases are captions Justin Price v. Mistras Group, Inc., one being a purported class action lawsuit on behalf of current and former Mistras employees in California and the other was filed on behalf of the State of California under the California Private Attorney General Act on the basis of the same alleged violations. Both cases are requesting payment of all damages, including unpaid wages, and various fines and penalties available under California law. As a result of continued legal proceedings through March 2021, the Company established a liability of $ 0.8 million at December 31, 2020 for a probable loss on this matter. However, no assurance can be given that this will be the limit of the loss, or that the loss will not be materially more than the $ 0.8 million liability. An estimate of the total possible loss or range of the total possible loss cannot be made at this time as matters are in preliminary stages. Pension Related Contingencies The workforce of certain of the Company’s subsidiaries are unionized and the terms of employment for these workers are governed by collective bargaining agreements, or CBAs. Under these CBAs, the Company’s subsidiaries are required to contribute to the national pension funds for the unions representing these employees, which are multi-employer pension plans. The Company was notified that a significant project was awarded to another contractor in January 2018, and as a result, one of the Company’s subsidiaries experienced a significant reduction in the number of its employees covered by one of the CBAs. 79 Table o f Contents Under certain circumstances, such a reduction in the number of employees participating in multi-employer pension plans pursuant to this CBA could result in a complete or partial withdrawal liability to these multi-employer pension plans under the Employee Retirement Income Security Act of 1974 ("ERISA"). Management explored options to retain a level of union work that would avoid withdrawal liability to the pension plans, but concluded during the third quarter of 2018 that the Company's subsidiaries probably would not obtain sufficient union work to avoid withdrawal liability. Therefore, the Company determined that it is probable that its subsidiary would incur a withdrawal liability related to these multi-employer pension plans. Accordingly, the Company recorded a charge of $ 5.9 million during 2018 and $ 0.8 million during 2019 for this potential withdrawal liability. The Company’s subsidiary reached an agreement with one of the pension funds in September 2019 and made a final payment of $ 0.9 million in complete satisfaction of the withdrawal liability of the subsidiary. Excluding the settlement payment, the Company made monthly payments totaling $ 3.3 million through the time of final settlement payment, for total payments of $ 4.2 million. The balance of the estimated total amount of this potential liability as of December 31, 2020 is approximately $ 2.5 million. Severance and labor disputes The Company’s German subsidiary provides employees to customers under temporary staff leasing arrangements. In April 2017, the German Labor Lease Act was passed in Germany limiting the duration of temporary workers to eighteen months , or longer as subsequently agreed with by a customer appropriate authority. Since the passing of the German Labor Lease Act, the Company explored selling its staff leasing services and concluded during the third quarter of 2018 that a sale would not be probable. As a result, the Company decided that it would not renew several of these leasing services contracts when they expired beginning in 2019. Due to the limit on the length of service allowed under the German Labor Lease Act, employees are being transitioned off the customer contracts. The German subsidiary has terminated, or will terminate, some these employees, creating a severance obligation to the terminated employees, and has transitioned, or will transition other employees to the Company's other customers. During December 2019, the Company executed an agreement to sell the rights of certain customer contracts for total consideration of approximately $ 0.1 million, effective January 1, 2020. No other assets or liabilities other than those employee benefits related to employees working on the customer contracts were included in the sale. As of December 31, 2020, the Company has approximately $ 0.2 million of accrued estimated severance payment obligations, which takes into account the Company's estimate with respect to the employees that have been or will be transitioned to the German subsidiaries' other customers. The $ 0.2 million of estimated obligations is net of $ 0.4 million in payments made and $ 1.0 million in reversals due to employees being transitioned to customer contracts. During 2018, the Company recorded approximately $ 1.2 million in charges related to labor claims against its Brazilian subsidiary, which are included within selling, general and administrative expenses. These claims related to employees in a company acquired by the Brazilian subsidiary in a prior period. The Company is entitled to indemnification from the sellers of the acquired company for most of these charges and won an arbitration award against the seller in 2020. The Company and the seller subsequently entered into a settlement agreement for $ 1.0 million, which provides for payment in two installments, the first for approximately 31 % of the settlement and the second for the remaining 69 %. The first installment in the amount of $ 0.3 million was paid by the sellers in December 31, 2020 and recognized as a gain in selling, general and administrative expenses in the same period. The remaining payment is due in the first quarter of 2021, and the recovery resulting from this second payment will be recorded upon receipt. Acquisition and disposition related contingencies The Company is liable for contingent consideration in connection with one of its acquisitions. As of December 31, 2020, total potential acquisition-related contingent consideration ranged from zero to approximately $ 4.3 million and would be payable upon the achievement of specific performance metrics by certain of the acquired companies over the next 1.75 years. With respect to the acquisition made in 2018, the Company filed a claim with the sellers and the Company's insurance carrier through which the Company has representations and warranty insurance. The Company received release of escrow funds from the Seller and is still pursuing its claim with the insurance carrier. During 2018, the Company sold a subsidiary in the Products and Systems segment. As part of the sale, the Company entered into a three-year agreement to purchase products from the buyer, with a cumulative commitment of $ 2.3 million, of which $ 1.2 million is remaining as of December 31, 2020. The agreement is based on third party pricing and the Company's planned purchase requirements over the three-year purchase period to meet the minimum contractual purchases. 19. Segment Disclosure The Company’s three operating segments are: 80 Table o f Contents • Services. This segment provides asset protection solutions predominantly in North America, with the largest concentration in the United States, followed by Canada, consisting primarily of NDT, inspection, mechanical and engineering services that are used to evaluate the safety, structural integrity and reliability of critical energy, industrial and public infrastructure and commercial aerospace components. PCMS software and pipeline related software and data analysis solutions are included in this segment. • International. This segment offers services, products and systems, similar to those of the other segments, to select markets within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment. • Products and Systems. This segment designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States. Costs incurred for general corporate services, including finance, legal, and certain other costs that are provided to the segments are reported within Corporate and eliminations. Sales to the International segment from the Products and Systems segment and subsequent sales by the International segment of the same items are recorded and reflected in the operating performance of both segments. Additionally, engineering charges and royalty fees charged to the Services and International segments by the Products and Systems segment are reflected in the operating performance of each segment. The accounting policies of the reportable segments are the same as those described in Note 1-Summary of Significant Accounting Policies and Practices . Segment income from operations is one of the primary performance measures used by the chief operating decision maker, to assess the performance of each segment and make resource allocation decisions. Certain general and administrative costs such as human resources, information technology and training are allocated to the segments. Segment income from operations excludes interest and other financial charges and income taxes. Corporate and other assets are comprised principally of cash, deposits, property, plant and equipment, domestic deferred taxes, deferred charges and other assets. Corporate loss from operations consists of administrative charges related to corporate personnel and other charges that cannot be readily identified for allocation to a particular segment. Selected financial information by segment for the periods shown was as follows (intercompany transactions are eliminated in Corporate and eliminations): For the year ended December 31, 2020 2019 2018 Revenues Services $ 476,164 $ 595,130 $ 574,619 International 107,556 144,271 153,448 Products and Systems 16,449 18,583 23,426 Corporate and eliminations ( 7,598 ) ( 9,398 ) ( 9,139 ) $ 592,571 $ 748,586 $ 742,354 For the year ended December 31, 2020 2019 2018 Gross profit Services $ 141,084 $ 165,513 $ 151,974 International 31,046 43,145 45,464 Products and Systems 6,826 8,639 10,560 Corporate and eliminations ( 425 ) — ( 124 ) $ 178,531 $ 217,297 $ 207,874 Income (loss) from operations by operating segment includes intercompany transactions, which are eliminated in Corporate and eliminations . 81 Table o f Contents For the year ended December 31, 2020 2019 2018 Income (loss) from operations Services $ ( 44,222 ) $ 49,593 $ 47,126 International ( 21,855 ) 5,856 3,953 Products and Systems ( 936 ) ( 529 ) 2,368 Corporate and eliminations ( 34,204 ) ( 30,783 ) ( 31,226 ) $ ( 101,217 ) $ 24,137 $ 22,221 For the year ended December 31, 2020 2019 2018 Depreciation and amortization Services $ 26,093 $ 28,854 $ 24,079 International 8,659 8,285 8,846 Products and Systems 998 1,213 1,429 Corporate and eliminations ( 45 ) 181 59 $ 35,705 $ 38,533 $ 34,413 December 31, 2020 2019 Intangible assets, net Services $ 58,917 $ 98,284 International 8,664 9,814 Products and Systems 1,012 1,181 Corporate and eliminations 49 258 $ 68,642 $ 109,537 December 31, 2020 2019 Total assets Services $ 427,636 $ 537,518 International 129,228 153,380 Products and Systems 10,996 16,028 Corporate and eliminations 15,453 12,952 $ 583,313 $ 719,878 December 31, 2020 2019 Long-lived assets United States $ 187,251 $ 233,679 Other Americas 123,924 181,550 Europe 56,156 75,325 $ 367,331 $ 490,554 Refer to Note 2-Revenue , for revenues by segment and by geographic area for the years ended December 31, 2020, 2019, and 2018. 20. Selected Quarterly Financial Information (unaudited) The following is a summary of the quarterly results of operations for calendar years 2020, 2019, and 2018. 82 Table o f Contents Quarter ended December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 Revenues $ 160,777 $ 147,894 $ 124,435 $ 159,465 Gross Profit 49,345 47,384 41,158 40,644 Income (loss) from operations 4,652 5,742 ( 383 ) ( 111,228 ) Net income (loss) attributable to Mistras Group, Inc. $ 181 $ 1,523 $ ( 2,656 ) $ ( 98,509 ) Earnings (loss) per common share: Basic $ 0.01 $ 0.05 $ ( 0.09 ) $ ( 3.40 ) Diluted $ 0.01 $ 0.05 $ ( 0.09 ) $ ( 3.40 ) Quarter ended December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 Revenues $ 178,991 $ 192,192 $ 200,616 $ 176,787 Gross Profit 50,583 57,769 60,071 48,874 Income from operations 2,335 10,779 15,419 ( 4,396 ) Net income (loss) attributable to Mistras Group, Inc. $ 829 $ 3,093 $ 7,431 $ ( 5,293 ) Earnings (loss) per common share: Basic $ 0.03 $ 0.11 $ 0.26 $ ( 0.19 ) Diluted $ 0.03 $ 0.11 $ 0.26 $ ( 0.19 ) Quarter ended December 31, 2018 September 30, 2018 June 30, 2018 March 31, 2018 Revenues $ 180,762 $ 182,169 $ 191,793 $ 187,630 Gross Profit 52,315 52,332 55,083 48,144 Income (loss) from operations 2,502 3,017 10,304 6,398 Net income (loss) attributable to Mistras Group, Inc. $ ( 1,061 ) $ ( 1,011 ) $ 6,000 $ 2,908 Earnings (loss) per common share: Basic $ ( 0.04 ) $ ( 0.04 ) $ 0.21 $ 0.10 Diluted $ ( 0.04 ) $ ( 0.04 ) $ 0.20 $ 0.10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.