What changed in this filing

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Item 1. Financial Statements

2021-05-07 compared with 2020-11-06 · 266 added, 391 removed, 560 unchanged (54% of the section changed)

4 unchanged sentences

( in thousands, except share and per share data )

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

ASSETS (unaudited)

28 unchanged sentences

Additional paid-in capital 235,413 234,638

Retained earnings (deficit) ( 22,029 ) 77,613

Accumulated deficit ( 27,210 ) ( 21,848 )

Accumulated other comprehensive loss ( 16,653 ) ( 16,061 )

7 unchanged sentences

and Subsidiaries

Unaudited Condensed Consolidated Statements of Income (Loss)

Unaudited Condensed Consolidated Statements of Loss

( in thousands, except per share data )

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

Revenue $ 153,735 $ 159,465

3 unchanged sentences

Selling, general and administrative expenses 39,639 41,558

Bad debt provision for troubled customers, net of recoveries — — — 2,798

Impairment charges — 106,062

Pension withdrawal expense — ( 45 ) — 489

Legal settlement and litigation charges, net 1,030 —

Research and engineering 727 824

1 unchanged sentence

Acquisition-related expense (benefit), net 277 ( 542 )

Income (loss) from operations 5,742 10,779 ( 105,869 ) 21,802

Loss from operations ( 4,746 ) ( 111,228 )

Interest expense 3,213 2,789

Income (loss) before provision (benefit) for income taxes 2,097 7,820 ( 115,279 ) 11,737

Provision (benefit) for income taxes 544 4,733 ( 15,645 ) 6,493

Net income (loss) 1,553 3,087 ( 99,634 ) 5,244

Net income (loss) attributable to non-controlling interests, net of taxes 30 ( 6 ) 8 13

Net income (loss) attributable to Mistras Group, Inc.

Loss before benefit for income taxes ( 7,959 ) ( 114,017 )

Benefit for income taxes ( 2,600 ) ( 15,495 )

Net Loss ( 5,359 ) ( 98,522 )

net income (loss) attributable to noncontrolling interests, net of taxes 3 ( 13 )

Net loss attributable to Mistras Group, Inc.

$ ( 5,362 ) $ ( 98,509 )

Earnings (loss) per common share:

Loss per common share

Basic $ ( 0.18 ) $ ( 3.40 )

6 unchanged sentences

and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(in thousands )

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Net income (loss) $ 1,553 $ 3,087 $ ( 99,634 ) $ 5,244

Other comprehensive income (loss):

Three months ended March 31,

Net Loss $ ( 5,359 ) $ ( 98,522 )

Other comprehensive loss:

Foreign currency translation adjustments $ ( 592 ) $ ( 17,015 )

Comprehensive income (loss) 7,516 ( 2,338 ) ( 104,558 ) 5,599

comprehensive income (loss) attributable to non-controlling interest 34 ( 8 ) 6 11

Comprehensive income (loss) attributable to Mistras Group, Inc.

Comprehensive loss ( 5,951 ) ( 115,537 )

net income (loss) attributable to noncontrolling interest 3 ( 13 )

Foreign currency translation adjustments attributable to noncontrolling interests — ( 6 )

Comprehensive loss attributable to Mistras Group, Inc.

$ ( 5,954 ) $ ( 115,518 )

8 unchanged sentences

(deficit) Accumulated

comprehensive income (loss) Total

comprehensive loss Total

Mistras Group,

1 unchanged sentence

Shares Amount Total Equity

Balance at June 30, 2020 29,110 $ 291 $ 231,724 $ ( 23,552 ) $ ( 32,172 ) $ 176,291 $ 172 $ 176,463

Net income — — — 1,523 — 1,523 30 1,553

Other comprehensive income, net of tax — — — — 5,963 5,963 4 5,967

Share-based payments — — 1,593 — — 1,593 — 1,593

Net settlement of restricted stock units 82 1 ( 50 ) — — ( 49 ) — ( 49 )

Balance at September 30, 2020 29,192 $ 292 $ 233,267 $ ( 22,029 ) $ ( 26,209 ) $ 185,321 $ 206 $ 185,527

Balance at June 30, 2019 28,685 $ 286 $ 228,883 $ 73,691 $ ( 21,777 ) $ 281,083 $ 196 $ 281,279

Net income — — — 3,093 — 3,093 ( 6 ) 3,087

Other comprehensive income, net of tax — — — — ( 5,425 ) ( 5,425 ) ( 2 ) ( 5,427 )

Share-based payments — — 1,682 — — 1,682 — 1,682

Net settlement of options and restricted stock units 230 3 ( 2,278 ) — — ( 2,275 ) — ( 2,275 )

Balance at September 30, 2019 28,915 $ 289 $ 228,287 $ 76,784 $ ( 27,202 ) $ 278,158 $ 188 $ 278,346

Nine months ended

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, 2020 29,234 $ 292 $ 234,638 $ ( 21,848 ) $ ( 16,061 ) $ 197,021 $ 198 $ 197,219

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Net settlement of restricted stock units 113 1 ( 487 ) — — ( 486 ) — ( 486 )

Balance at September 30, 2020 29,192 $ 292 $ 233,267 $ ( 22,029 ) $ ( 26,209 ) $ 185,321 $ 206 $ 185,527

Balance at March 31, 2021 29,347 $ 293 $ 235,413 $ ( 27,210 ) $ ( 16,653 ) $ 191,843 $ 201 $ 192,044

Balance at December 31, 2019 28,945 $ 289 $ 229,205 $ 77,613 $ ( 21,285 ) $ 285,822 $ 200 $ 286,022

Net income — — — 5,231 — 5,231 13 5,244

Other comprehensive income (loss), net of tax — — — — 355 355 ( 2 ) 353

Net loss — — — ( 98,509 ) — ( 98,509 ) ( 13 ) ( 98,522 )

Other comprehensive loss, net of tax — — — — ( 17,009 ) ( 17,009 ) ( 6 ) ( 17,015 )

Share-based payments — — 1,425 — — 1,425 — 1,425

Net settlement of restricted stock units 97 1 ( 158 ) — — ( 157 ) — ( 157 )

Exercise of stock options 3 — 32 — — 32 — 32

Balance at September 30, 2019 28,915 $ 289 $ 228,287 $ 76,784 $ ( 27,202 ) $ 278,158 $ 188 $ 278,346

Balance at March 31, 2020 29,042 $ 290 $ 230,472 $ ( 20,896 ) $ ( 38,294 ) $ 171,572 $ 181 $ 171,753

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

3 unchanged sentences

( in thousands )

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities

Net income (loss) $ ( 99,634 ) $ 5,244

Net loss $ ( 5,359 ) $ ( 98,522 )

Adjustments to reconcile net loss to net cash provided by operating activities

3 unchanged sentences

Share-based compensation expense 1,262 1,345

Bad debt provision for troubled customers, net of recoveries — 2,798

Fair value adjustments to contingent consideration 243 ( 542 )

24 unchanged sentences

Taxes paid related to net share settlement of share-based awards ( 485 ) ( 157 )

Proceeds from exercise of stock options — 32

Net cash used in financing activities ( 25,077 ) ( 29,521 )

Net cash provided by financing activities 435 492

Effect of exchange rate changes on cash and cash equivalents ( 990 ) ( 384 )

3 unchanged sentences

Supplemental disclosure of cash paid

Interest $ 9,061 $ 9,944

Interest, net $ 2,916 $ 2,726

Income taxes, net of refunds $ 2,877 $ 61

9 unchanged sentences

Mistras Group, Inc.

and subsidiaries ("the Company") is a leading “one source” multinational provider of integrated technology-enabled asset protection solutions helping to maximize the safety and operational uptime for civilization’s most critical industrial and civil assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, 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.

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, civil infrastructure, and manufacturing industries towards achieving and maintaining operational excellence.

By supporting these organizations that help fuel our vehicles and power our society;

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Recent Developments

In March 2020, the World Health Organization declared the outbreak of the COVID-19 coronavirus (COVID-19) as a pandemic, which continues to infect the population throughout the United States and most other parts of the world.

The COVID-19 pandemic has caused significant volatility in domestic and international markets.

There is on-going uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S.

and international economies.

In addition, oil prices have dropped significantly, and airline traffic has experienced a significant decline.

In response to various factors surrounding the COVID-19 pandemic and, in the case of the oil and gas market, other macroeconomic events, companies within the oil and gas and aerospace industries (including our customers) have reduced spending and/or slowed down (or temporarily ceased) production.

This, in turn, resulted in decreases in awards of new contracts or adjustments, reductions, suspensions or cancellations of existing contracts.

The COVID-19 pandemic, significant volatility in oil prices and decreased traffic in the aerospace industry have adversely affected the Company's workforce and operations, as well as the operations of the Company's customers, suppliers and contractors.

The COVID-19 coronavirus (COVID-19) pandemic has caused significant volatility in domestic and international markets and is expected to continue to result in significant economic disruption.

The Company's businesses have been classified as non-healthcare critical infrastructure as defined by the U.S.

Centers for Disease Control and Prevention (CDC).

As a result, a majority of the Company's customers have been and currently remain open for business.

North American facilities have remained, and currently remain operating, with modified staffing in certain locations where appropriate.

Similarly, our European facilities have remained, and currently remain operating, with modified staffing in certain locations where appropriate, but at a slower pace than North America.

Overall, the Company has taken actions to ensure the health and safety of Company employees and those of its customers and suppliers;

maintain business continuity and financial strength and stability;

and serve customers as they provide essential products and services to the world.

The COVID-19 pandemic, significant volatility in oil prices, and decreased traffic in the aerospace industry have adversely affected the operations of the Company's customers, suppliers and contractors, and as a consequence, the Company's results of operations.

These negative factors have also resulted in significant volatility and uncertainty in the markets in which the Company operates.

To successfully navigate through this unprecedented period, the Company continues to focus on the following key priorities:

• Ensuring the health and safety of its employees and those of its customers and suppliers;

• Maintaining business continuity and financial strength and stability;

• Serving its customers as they provide essential products and services to the world.

While the Company cannot fully assess the impact that the factors discussed above will have on its operations at this time, there are certain impacts that the Company has identified:

• The financial market volatility that resulted from COVID-19 and the volatility in oil prices required the Company to reassess the goodwill it had recorded related to various prior acquisitions under the guidance of ASC 350 during the

While the Company cannot fully assess the impact that the factors discussed above will have on its operations at this time, there were certain impacts that the Company identified resulting in impairment charges in 2020.

See Note 8- Goodwill, Note 9- Intangible Assets and Note 13- Leases for additional information.

To respond to the economic downturn resulting from the factors discussed above, in March 2020 the Company initiated a temporary cost reduction and efficiency program.

The Company reinstated several of the temporary cost reductions initiatives undertaken during 2020;

although, the Company continues to manage and evaluate these actions in responding to the pandemic.

Mistras Group, Inc.

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(tabular dollars and shares in thousands, except per share data)

first quarter of 2020.

The Company determined that the fair values of various reporting units were less than their carrying values (including goodwill).

As a result, the Company recorded an impairment charge related to goodwill of approximately $ 77.1 million during the three months ended March 31, 2020.

See Note 8- Goodwill .

• These same events required the Company to reassess the tangible and intangible assets recorded under the guidance of ASC 360 during the first quarter of 2020.

The Company determined that the fair values of certain asset groups were less than their carrying values (excluding goodwill).

As a result, the Company recorded impairment charges related to intangible assets of approximately $ 28.8 million and a right-of-use asset of approximately $ 0.2 million during the three months ended March 31, 2020.

See Note 9- Intangible Assets and Note 13- Leases .

To respond to the economic downturn resulting from the factors discussed above, in March 2020 the Company initiated a cost reduction and efficiency program.

As part of this program, named executive officers of the Company took voluntarily temporary salary reductions ranging from 25 % to 45 % of their base salary.

In addition, the Company instituted a reduction for certain other salaried employees, at lower percentages, and suspended the Company's voluntary match under the Company sponsored savings plans for its U.S.

and Canadian employees.

These reductions became effective at the beginning of the second quarter of 2020 and, except for the salary reductions for certain lower salaried employees, continued through the end of the third quarter of 2020.

In addition, the Company’s non-employee directors voluntarily agreed to a $ 3,750 reduction in their second and third quarter 2020 director's fee payments.

Beginning in the fourth quarter of 2020, all salary and director fee reductions were removed and pay levels were returned to first quarter levels, though certain other cost reduction measures have remained in place.

The Company is currently unable to predict with certainty the overall impact that the factors discussed above may have on its business, results of operations or liquidity or in other ways which the Company cannot yet determine.

The Company will continue to monitor market conditions and respond accordingly.

As of March 31, 2021, the cash balance was approximately $ 24.2 million.

Basis of Presentation

The Unaudited Condensed Consolidated Financial Statements contained in this report have been prepared in conformity with U.S.

generally accepted accounting principles ("GAAP").

generally accepted accounting principles ("GAAP") and Securities and Exchange Commission guidance allowing for reduced disclosure for interim periods.

In the opinion of management, the Unaudited Condensed Consolidated Financial Statements include all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods of the years ending December 31, 2021 and December 31, 2020.

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;

• 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 three months ended September 30, 2020, the VIE had no assets no r did it have any revenue.

The Company is the primary sub-contractor of the VIE.

Certain items included in these statements are based on management’s estimates.

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The results of operations for any interim period are not necessarily indicative of the results expected for the year.

The accompanying Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the notes to the

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Audited Consolidated Financial Statements contained in the Company's 2019 Annual Report on Form 10-K ("2019 Annual Report").

The accompanying Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the notes to the Audited Consolidated Financial Statements contained in the Company's 2020 Annual Report on Form 10-K ("2020 Annual Report").

Principles of Consolidation

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of Mistras Group, Inc.

as well as its wholly-owned subsidiaries, majority-owned subsidiaries and consolidated VIE.

as well as its wholly-owned subsidiaries, majority-owned subsidiaries and consolidated variable interest entities (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 Condensed Consolidated Balance Sheets.

The non-controlling interests in net results, net of tax, is classified separately in the accompanying Unaudited Condensed Consolidated Statements of Income (Loss).

The non-controlling interests in net results, net of tax, is classified separately in the accompanying Unaudited Condensed Consolidated Statements of Loss.

All significant intercompany accounts and transactions have been eliminated in consolidation.

For each of the nine months ended September 30, 2020 and 2019, no customer represented 10% or more of the Company's revenue.

The results of operations of companies acquired are included from the date of acquisition.

Reclassification

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

For each of the three months ended March 31, 2021 and 2020, no customer represented 10% or more of the Company's revenue.

Significant Accounting Policies

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Since the date of the 2020 Annual Report, there have been no material changes to the Company's significant accounting policies.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Income taxes are accounted for under the asset and liability method.

3 unchanged sentences

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.

Financial accounting standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

These standards also provide 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 (Loss).

ASC 740-270, Income Taxes-Interim Reporting, requires the Company to use an estimated annual effective tax rate (EAETR) for calculating its tax provision for interim periods.

At each interim period, the Company is required, with certain exceptions and limitations, to estimate its forecasted worldwide EAETR, which is applied to the Company's year-to-date consolidated ordinary income or loss resulting in the year-to-date income tax provision before considering items not included in ordinary income or loss.

The tax effects of events or transactions not considered to represent ordinary income or loss are accounted for discretely in the interim period and are not included in the determination of the EAETR.

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 (QIP).

The ultimate impact of the CARES Act may differ from the estimated impact the Company recorded during this interim 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.

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.

The Company continues to evaluate its deferred tax assets each period to determine if a valuation allowance is required based on whether it is more likely than not that some portion of these deferred tax assets will not be realized.

As of September 30, 2020, management concluded that it is more likely than not that a substantial portion of the Company's deferred tax assets will

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

As of March 31, 2021 management concluded that it is more likely than not that a substantial portion of the Company's deferred tax assets will be realized.

As part of the Company's analysis, it considered both positive and negative factors that impact profitability and whether those factors would lead to a change in the estimate of the Company's deferred tax assets that may be realized in the future.

The Company’s effective income tax rate was approximately 26 % and 61 % for the three months ended September 30, 2020 and 2019, respectively.

The Company’s effective income tax rate was approximately 14 % and 55 % for the nine months ended September 30, 2020 and 2019, respectively.

The effective income tax rate for the third quarter of 2020 was greater than the statutory rate due to the unfavorable impact of taxes in other jurisdictions and other permanent book to tax differences offset by the favorable impact of the CARES act.

The effective income tax rate for the first nine-months of 2020 was lower than the statutory rate primarily due to impairments for which the Company will not realize income tax benefits, partially offset by income tax benefits of the CARES Act.

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 the Company's 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.

The Company projects that the income tax effects of the CARES Act will result in additional income tax benefit recognized throughout the 2020 tax year and a cash refund in 2021 of taxes paid in prior years.

The effective income tax rate for the three and nine months ended September 30, 2019 was higher than the statutory rate due to the impact of discrete items, the global intangible low-taxed income (GILTI), executive compensation, other provisions resulting from the December 22, 2017 passage of the Tax Cuts and Jobs Act and foreign tax rates different than statutory rates in the U.S .

The Company’s effective income tax rate was approximately 32.7 % and 13.6 % for the three months ended March 31, 2021 and 2020, respectively.

The effective income tax rate benefit for the three months ended March 31, 2021 was higher than the statutory rate due to the capitalization of certain non-US intercompany balances which resulted in a deductible foreign exchange loss in the US.

The effective income tax rate for the three months ended March 31, 2020 was lower than the statutory rate primarily due to impairments recorded during the interim period for which no income tax benefits will be realized by the Company.

However, this unfavorable impact on the Company's effective income tax rate was partially offset by income tax benefits of the CARES Act.

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.

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 intra-period 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.

If early adoption is elected, all changes as a result of the standard must be adopted in the same period.

The Company is currently evaluating the impact of this guidance on its consolidated financial position, results of operations, and cash flows.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes”.

The ASU removes certain exceptions from the guidance in ASC 740 related to intra-period tax allocations, interim calculations and the recognition of deferred tax liabilities for outside basis differences and clarifies and simplifies several other aspects of accounting for income taxes.

Different transition methods apply to the various income tax simplifications.

The Company adopted ASU 2019-12 effective January 1, 2021.

The impact of adopting this standard was not material to the Company’s 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.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing 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.

The Company derives the majority of its revenue by providing services on a time and material basis, which are generally short-term in nature.

The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers .

The Company is currently evaluating applicable contracts and the available expedients provided by the new guidance.

Mistras Group, Inc.

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(tabular dollars and shares in thousands, except per share data)

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 the Company's 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 its best estimate of the standalone selling price of each distinct good or service in the contract.

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 contracts.

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.

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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 its service deliverables, which includes providing testing, inspection and mechanical services to the Company's customers.

The majority of the Company's revenue is recognized over time as work progresses for 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.

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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.

The majority of the Company's 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.

For these arrangements, revenue is recognized on a cost-to-cost method tracked on an input basis.

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.

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Contract Estimates

The majority of the Company's revenue are short-term in nature.

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 is 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.

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.

Revenue on certain 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.

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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 revenue, thus creating a loss, a provision for the total estimated loss is recorded in that period.

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.

Mistras Group, Inc.

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Revenue by Category

The following series of tables present the Company's disaggregated revenue:

The following series of tables present the disaggregated revenue:

Revenue by industry was as follows:

Three Months Ended September 30, 2020 Services International Products Corp/Elim Total

Oil & Gas $ 72,195 $ 9,749 $ 51 $ — $ 81,995

Aerospace & Defense 10,904 3,676 72 — 14,652

Industrials 12,209 5,261 442 — 17,912

Power generation & Transmission 9,053 2,054 390 — 11,497

Other Process Industries 6,023 2,373 85 — 8,481

Infrastructure, Research & Engineering 5,309 2,245 1,223 — 8,777

Other 4,028 1,119 1,669 ( 2,236 ) 4,580

Total $ 119,721 $ 26,477 $ 3,932 $ ( 2,236 ) $ 147,894

Three Months Ended September 30, 2019 Services International Products Corp/Elim Total

Oil & Gas $ 100,927 $ 11,561 $ 71 $ — $ 112,559

Aerospace & Defense 12,420 9,626 438 — 22,484

Industrials 15,612 5,453 506 — 21,571

Power generation & Transmission 7,215 3,462 461 — 11,138

Other Process Industries 6,942 2,674 304 — 9,920

Infrastructure, Research & Engineering 4,205 1,964 2,964 — 9,133

Other 5,251 2,310 777 ( 2,951 ) 5,387

Total $ 152,572 $ 37,050 $ 5,521 $ ( 2,951 ) $ 192,192

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Nine Months Ended September 30, 2020 Services International Products Corp/Elim Total

Three Months Ended March 31, 2021 Services International Products Corp/Elim Total

Oil & Gas $ 84,684 $ 8,008 $ 56 $ — $ 92,748

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Total $ 124,298 $ 27,648 $ 2,988 $ ( 1,199 ) $ 153,735

Nine Months Ended September 30, 2019 Services International Products Corp/Elim Total

Three Months Ended March 31, 2020 Services International Products Corp/Elim Total

Oil & Gas $ 83,299 $ 9,104 $ 95 $ — $ 92,498

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Revenue per key geographic location was as follows:

Three Months Ended September 30, 2020 Services International Products Corp/Elim Total

Three Months Ended March 31, 2021 Services International Products Corp/Elim Total

United States $ 104,546 $ 208 $ 1,460 $ ( 391 ) $ 105,823

3 unchanged sentences

Total $ 124,298 $ 27,648 $ 2,988 $ ( 1,199 ) $ 153,735

Three Months Ended September 30, 2019 Services International Products Corp/Elim Total

Three Months Ended March 31, 2020 Services International Products Corp/Elim Total

United States 109,581 $ 154 $ 1,559 $ ( 711 ) $ 110,583

7 unchanged sentences

(tabular dollars and shares in thousands, except per share data)

Nine Months Ended September 30, 2020 Services International Products Corp/Elim Total

United States $ 298,372 $ 507 $ 5,150 $ ( 2,433 ) $ 301,596

Other Americas 49,548 3,564 425 ( 370 ) 53,167

Europe 721 71,056 1,930 ( 2,129 ) 71,578

Asia-Pacific 630 1,760 3,241 ( 178 ) 5,453

Total $ 349,271 $ 76,887 $ 10,746 $ ( 5,110 ) $ 431,794

Nine Months Ended September 30, 2019 Services International Products Corp/Elim Total

United States $ 368,600 $ 461 $ 8,727 $ ( 3,638 ) $ 374,150

Other Americas 82,494 5,757 209 ( 232 ) 88,228

Europe 1,855 97,098 1,370 ( 3,079 ) 97,244

Asia-Pacific 1,130 5,986 2,916 ( 59 ) 9,973

Total $ 454,079 $ 109,302 $ 13,222 $ ( 7,008 ) $ 569,595

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 Condensed Consolidated Balance Sheets.

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).

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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 Condensed Consolidated Balance Sheets at the end of each reporting period within accounts receivable, net or accrued expenses and other current liabilities.

Revenue recognized during the nine months ended September 30, 2020 and 2019 that was included in the contract liability balance at the beginning of such year was $ 4.4 million and $ 3.4 million, respectively.

These assets and liabilities are aggregated on an individual contract basis and reported on the Consolidated Balance Sheets at the end of each reporting period within accounts receivable, net or accrued expenses and other current liabilities.

Revenue recognized during the three months ended March 31, 2021 and 2020 that was included in the contract liability balance at the beginning of such year was $ 1.9 million and $ 1.6 million, respectively.

Changes in the contract asset and liability balances during these periods were not materially impacted by any other factors.

The Company has elected to utilize a practical expedient to expense incremental costs incurred related to obtaining a contract.

The Company applies a practical expedient to expense incremental costs incurred related to obtaining a contract.

The Company’s expenses are expected to be amortized over a period less than one year .

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(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.

No further awards may be granted under the 2009 Plan, although one stock option award granted under the 2009 Plan remains outstanding in accordance with its 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.

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Stock Options

For the three and nine months ended September 30, 2020 and 2019, the Company did no t recognize any share-based compensation expense related to stock option awards, as all outstanding stock options awards were then already fully vested.

No unrecognized compensation costs remained related to stock option awards as of September 30, 2020.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of September 30, 2020 and September 30, 2019:

Nine months ended September 30,

For each of the three months ended March 31, 2021 and 2020, the Company did no t recognize any share-based compensation expense related to the stock option award, as the one outstanding stock option award was already fully vested.

No unrecognized compensation costs remained related to the stock option award as of March 31, 2021.

The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of March 31, 2021 and 2020:

Three months ended March 31,

Outstanding at beginning of period:

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5 $ 22.35 5 $ 22.35

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Restricted Stock Unit Awards

For the three months ended September 30, 2020 and September 30, 2019, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 1.1 million and $ 1.0 million, respectively.

For the nine months ended September 30, 2020 and September 30, 2019, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 3.2 million and $ 3.0 million, respectively.

As of September 30, 2020, there was $ 5.5 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which is expected to be recognized over a remaining weighted-average period of 2.4 years.

For the three months ended March 31, 2021 and March 31, 2020, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 0.9 million and $ 1.1 million, respectively.

As of March 31, 2021, there was $ 8.7 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which is expected to be recognized over a remaining weighted-average period of 3.0 years.

Upon vesting, restricted stock units are generally net share-settled to cover the required withholding tax and the remaining amount is converted into an equivalent number of shares of common stock.

A summary of the vesting activity of restricted stock unit awards, with the respective fair value of the awards, is as follows:

Nine months ended September 30,

Three months ended March 31,

Restricted stock awards vested 111 120

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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:

Nine months ended September 30,

Three months ended March 31,

Awards issued 25 —

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A summary of the Company's outstanding, non-vested restricted share units is as follows:

Nine months ended September 30,

Three months ended March 31,

Units Weighted

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1,474 $ 7.70 436 $ 17.21

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.

For 2020, the Compensation Committee approved the following four metrics:

Adjusted EBITDA defined as net income attributable to the Company 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).

Free Cash Flow as a percentage of revenue

Return on Average Book Equity defined as net income divided by average book value of shareholders equity.

The free cash flow and return on average book equity criteria are relative metrics, the performance of which are based upon how the Company performs relative to a peer group.

Mistras Group, Inc.

2 unchanged sentences

(tabular dollars and shares in thousands, except per share data)

Performance Restricted Stock Units

For 2019, three metrics, as defined:

(1) Operating Income, (2) Adjusted EBITDAS (defined as net income attributable to MISTRAS Group, Inc.

There also is a discretionary portion of the 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, the Compensation Committee changed the criteria for the PRSUs to four metrics, with no discretionary portion.

Revenue and Adjusted EBITDAS are being retained, and two additional metrics, free cash flow as a percentage of revenue and return on average book equity, will replace 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.

For 2021, the Compensation Committee made changes to the Company’s equity incentive compensation plan for its executive officers and approved the new target awards for 2021.

For 2021, the three metrics are:

Free Cash Flow net cash provided by operating activities less purchases of property, plant, equipment and intangible assets and is subject to adjustments approved by the Compensation Committee.

Adjusted EBITDA as defined in the 2020 metric section above.

Total Shareholder Return (TSR) measures the total return to shareholders of the Company during 2021 versus the total return to the shareholders of a predefined peer group of companies that provide inspection, testing, certification or similar industrial services.

The return will be measured by the year over year percent change in share price.

The share prices used to calculate the return are the average share price during the 20 -trading day period ending on the initial measurement date (the last 20 trading days of 2020), compared to the average share price during the 20 -trading day period ending on the final measurement date (the last 20 trading days of 2021).

Any cash dividends or distributions paid in 2021 will be added to calculate the return to shareholders during the year.

TSR is considered a market condition for which the fair value of PRSUs with this condition is determined using a Monte Carlo valuation model.

Key assumptions in the Monte Carlo valuation model included:

Expected Volatility.

Expected volatility of the Company’s common stock at the date of grant was estimated based on a historical average volatility rate for the approximate 1-year performance period.

Dividend Yield .

The dividend yield assumption was based on historical and anticipated dividend payouts (assumed at zero ).

Risk-Free Interest Rate .

The risk-free interest rate assumption was based on observed interest rates consistent with the approximate 1-year performance measurement period.

PRSUs are equity-classified and compensation costs are initially measured using the fair value of the underlying stock at the date of grant.

Compensation costs related to the PRSUs are subsequently adjusted for changes in the expected outcomes of the performance conditions.

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.

Compensation cost related to the PRSUs with a market condition is not reversed if the market condition is not achieved, provided the employee requisite service has been rendered.

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.

A summary of the Company's PRSU activity is as follows:

Nine months ended September 30,

Three months ended March 31,

Units Weighted

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375 $ 12.18 242 $ 15.42

During the nine months ended September 30, 2020 and September 30, 2019, the Compensation Committee approved the final calculation of the award metrics for calendar year 2019 and calendar year 2018, respectively.

As a result, the calendar year 2019 PRSUs increased by approximately 1,000 units and the calendar year 2018 PRSUs decreased by approximately 3,000 units.

Calendar year 2020 PRSUs decreased by 146,000 units during the nine months ended September 30, 2020 based on forecasted results for calendar year 2020.

Calendar year 2019 PRSUs decreased approximately 33,000 units during the nine months ended September 30, 2019 based on forecasted results for calendar year 2019.

For the three months ended September 30, 2020 and September 30, 2019, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.2 million and $ 0.5 million, respectively.

For the nine months ended September 30, 2020 and September 30, 2019, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.8 million and $ 1.2 million, respectively.

At September 30, 2020, there was $ 1.3 million of total unrecognized compensation costs related to approximately 329,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of 1.8 years.

During the three months ended March 31, 2021 and March 31, 2020, the Compensation Committee approved the final calculation of the award metrics for calendar year 2020 and calendar year 2019, respectively.

As a result, the calendar year 2020 PRSUs decreased by approximately 125,000 units (related to not achieving the 2020 Return on Average Book Equity metric) and the calendar year 2019 PRSUs increased by approximately 1,000 units.

For the three months ended March 31, 2021 and March 31, 2020, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.1 million and $ 0.3 million, respectively.

At March 31, 2021, there was $ 2.7 million of total unrecognized compensation costs related to approximately 375,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of 2.7 years.

Mistras Group, Inc.

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The following table sets forth the computations of basic and diluted earnings per share:

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Basic earnings (loss) per share:

Net income (loss) attributable to Mistras Group, Inc.

Three months ended March 31,

Basic loss per share

Net loss attributable to Mistras Group, Inc.

$ ( 5,362 ) $ ( 98,509 )

Weighted average common shares outstanding 29,425 28,963

Basic earnings (loss) per share $ 0.05 $ 0.11 $ ( 3.43 ) $ 0.18

Diluted earnings (loss) per share:

Net income (loss) attributable to Mistras Group, Inc.

Basic loss per share $ ( 0.18 ) $ ( 3.40 )

Diluted loss per share:

Net loss attributable to Mistras Group, Inc.

$ ( 5,362 ) $ ( 98,509 )

3 unchanged sentences

29,425 28,963

29,311 29,156 29,086 29,022

Diluted earnings (loss) per share $ 0.05 $ 0.11 $ ( 3.43 ) $ 0.18

Diluted loss per share $ ( 0.18 ) $ ( 3.40 )

_______________

(1) For the nine months ended September 30, 2020, 213 thousand shares related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the period.

Acquisitions and Dispositions

The Company did no t complete any acquisitions during the nine months ended September 30, 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.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

The following table summarizes the final fair value of the assets acquired and liabilities assumed, the Company's allocation of purchase price and any subsequent adjustments made for the September 2019 acquisition:

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

(1) For the three months ended March 31, 2021 and 2020, 509,000 and 99,000 shares, respectively, related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the period.

Acquisition-Related Expense

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Additionally, the Company adjusts the fair value of acquisition-related contingent consideration liabilities on a quarterly basis.

These amounts are reported as Acquisition-related expense, net on the Unaudited Condensed Consolidated Statements of Income (Loss) and were as follows for the three and nine months ended September 30, 2020 and 2019:

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

These amounts are reported as Acquisition-related expense, net on the Unaudited Condensed Consolidated Statements of Loss and were as follows for the three months ended March 31, 2021 and 2020:

Three months ended March 31,

Due diligence, professional fees and other transaction costs $ 34 $ —

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Acquisition-related expense, net $ 277 $ ( 542 )

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

The Company's contingent consideration liabilities are included in Accrued expenses and other current liabilities and Other long-term liabilities on the Condensed Consolidated Balance Sheets.

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Accounts receivable consisted of the following:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Trade accounts receivable $ 120,190 $ 115,841

Allowance for doubtful accounts ( 8,425 ) ( 8,285 )

Allowance for credit losses ( 8,230 ) ( 8,213 )

Accounts receivable, net $ 111,960 $ 107,628

The Company had $ 20.5 million and $ 22.2 million of unbilled revenue accrued as of September 30, 2020 and December 31, 2019, respectively.

The Company had $ 19.8 million and $ 11.9 million of unbilled revenue accrued as of March 31, 2021 and December 31, 2020, respectively.

These amounts are included in the trade accounts receivable balances above.

Unbilled revenue is generally billed in the subsequent quarter to their revenue recognition.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

The Company was contracted to perform inspections of welds on various pipeline projects in Texas for a customer.

As of September 30, 2020, approximately $ 1.4 million of past due receivables were outstanding from this 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 $ 0.3 million during the three months ended September 30, 2019 and $ 1.1 million during the three months ended December 31, 2019 for these past due receivables.

The status of this situation has not changed during 2020.

The Company recorded a full reserve for this matter during 2019 and the status of this situation has not changed since 2019.

See Note 14- 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.

Property, Plant and Equipment, net

Property, plant and equipment consisted of the following:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Land $ 2,779 $ 2,724

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Property, plant and equipment, net $ 90,238 $ 92,681

Depreciation and amortization expense for the three months ended September 30, 2020 and 2019 was approximately $ 6.2 million and $ 5.8 million, respectively.

Depreciation expense for the nine months ended September 30, 2020 and 2019 was $ 18.3 million and $ 18.0 million, respectively.

Depreciation and amortization expense for each of the three months ended March 31, 2021 and 2020 was approximately $ 6.1 million and $ 6.1 million, respectively.

Mistras Group, Inc.

6 unchanged sentences

Goodwill acquired during the period 362 — — 362

Impairment charges ( 57,227 ) ( 19,862 ) — ( 77,089 )

Adjustments to preliminary purchase price allocations 200 — — 200

Foreign currency translation 937 ( 647 ) — 290

Balance at September 30, 2020 $ 186,453 $ 15,170 $ — $ 201,623

Balance at March 31, 2021 $ 191,411 $ 15,249 $ — $ 206,660

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.

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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 Unaudited Condensed Consolidated Statements of Income (Loss) for the nine months ended September 30, 2020.

Subsequent to March 31, 2020 through September 30, 2020, the Company did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable.

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 consisted of $ 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.

Subsequent to March 31, 2020 through March 31, 2021, 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.

The Company's cumulative goodwill impairment as of March 31, 2021 and 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.

Mistras Group, Inc.

2 unchanged sentences

(tabular dollars and shares in thousands, except per share data)

The Company's cumulative goodwill impairment as of September 30, 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.

Intangible Assets

The gross amount, accumulated amortization and net carrying amount of intangible assets were as follows:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

(Years) Gross

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Total $ 187,925 $ ( 121,702 ) $ 66,222 $ 217,380 $ ( 119,944 ) $ ( 28,794 ) $ 68,642

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.

Amortization expense for the three months ended March 31, 2021 and 2020 was approximately $ 2.5 million and $ 3.4 million, respectively.

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.

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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 Unaudited Condensed Consolidated Statements of Income (Loss) for the nine months ended September 30, 2020.

Amortization expense for the three months ended September 30, 2020 and 2019 was approximately $ 2.6 million and $ 3.4 million, respectively.

Amortization expense for the nine months ended September 30, 2020 and 2019 was $ 8.5 million and $ 10.5 million, respectively.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

The result of the analysis was an aggregate impairment charge of $ 28.8 million, which consisted of $ 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 Unaudited Condensed Consolidated Statements of Income (Loss) for three months ended March 31, 2020.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Accrued salaries, wages and related employee benefits $ 32,674 $ 30,214

6 unchanged sentences

Total $ 83,629 $ 78,500

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Long-Term Debt

Long-term debt consisted of the following:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Senior credit facility $ 125,132 $ 120,312

Senior secured term loan, net of unamortized debt issuance costs of $ 0.3 million and $ 0.1 million

Senior secured term loan, net of unamortized debt issuance costs of $ 0.2 million and 0.3 million, respectively

87,891 89,745

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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.

The Company has a credit agreement with its banking group (as amended, the "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.

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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.

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 was included in Selling, general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income Loss.

The Credit Agreement 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 Company received an amendment from the lenders to complete an immaterial acquisition during three months ended March 31, 2021.

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.

Under the Credit Agreement, 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.

Mistras Group, Inc.

2 unchanged sentences

(tabular dollars and shares in thousands, except per share data)

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.

The Credit Amendment, 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 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 September 30, 2020, the Company had borrowings of $ 226.4 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 $ 1.2 million as of September 30, 2020, which is included in Other Assets on the Condensed Consolidated Balance Sheets.

As of September 30, 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.

As of March 31, 2021, the Company had borrowings of $ 213.0 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 $ 1.0 million as of March 31, 2021, which is included in Other Assets on the Condensed Consolidated Balance Sheets.

As of March 31, 2021, the Company was in compliance with the terms of the Credit Agreement and will continuously monitor its compliance with the covenants contained in its Credit Agreement.

The Company believes that it is probable that the Company will be able to comply with the financial covenants in the Credit Agreement 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.

The Company's other debt includes local bank financing provided at the local subsidiary level used to support working capital requirements and fund capital expenditures.

At September 30, 2020, there was an aggregate of approximately $ 10.1 million outstanding, payable at various times through 2030.

At March 31, 2021, there was an aggregate of approximately $ 9.3 million outstanding, payable at various times through 2030.

Monthly payments range from $ 1.0 thousand to $ 18.0 thousand and interest rates range from 0.4 % to 3.5 %.

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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.

Financial instruments measured at fair value on a recurring basis

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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.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

The following table represents the changes in the fair value of Level 3 contingent consideration:

Nine months ended September 30,

Three months ended March 31,

Beginning balance $ 1,640 $ 3,216

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The fair value of the Company’s notes payable and finance 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.

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 Condensed Consolidated Balance Sheets includes the following related to operating leases:

Leases Classification September 30, 2020 December 31, 2019

ROU assets Other Assets $ 45,497 $ 45,817

ROU - current Accrued and other current liabilities $ 9,944 $ 10,133

ROU liability - long-term Other liabilities 36,821 36,750

Total ROU liabilities $ 46,765 $ 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 was approximately $ 4.0 million and $ 4.5 million as of September 30, 2020 and December 31, 2019, respectively.

Total rent payments for this facility were approximately $ 0.1 million and $ 0.2 million for the three months

Mistras Group, Inc.

2 unchanged sentences

(tabular dollars and shares in thousands, except per share data)

ended September 30, 2020 and September 30, 2019, respectively.

Total rent payments for this facility were approximately $ 0.5 million and $ 0.7 million for the nine months ended September 30, 2020 and September 30, 2019, respectively.

T he Company’s Condensed Consolidated Balance Sheets include the following related to operating leases:

Leases Classification March 31, 2021 December 31, 2020

ROU assets Other Assets $ 44,580 $ 46,728

ROU - current Accrued expenses and other current liabilities $ 10,201 $ 10,348

ROU liability - long-term Other long-term liabilities 35,807 37,689

Total ROU liabilities $ 46,008 $ 48,037

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 was approximately $ 3.6 million and $ 3.8 million as of March 31, 2021 and December 31, 2020, respectively.

Total rent payments for this facility were approximately $ 0.5 million and $ 0.3 million for the three months ended March 31, 2021 and March 31, 2020, respectively.

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 vendor concessions.

The total ROU assets attributable to finance leases were approximately $ 16.0 million and $ 19.2 million as of September 30, 2020 and December 31, 2019, respectively, which is included in Property, plant, and equipment, net on the Condensed Consolidated Balance Sheets.

The total ROU assets attributable to finance leases were approximately $ 15.2 million and $ 15.8 million as of March 31, 2021 and December 31, 2020, respectively, which is included in Property, plant, and equipment, net on the Condensed 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 Condensed Consolidated Statements of Income (Loss) for the nine months ended September 30, 2020.

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 Unaudited Condensed Consolidated Statements of Loss for the three months ended March 31, 2020.

The components of lease costs were as follows:

Three months ended September 30, Nine months ended September 30,

Three months ended March 31,

Classification 2021 2020

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Additional information related to leases was as follows:

Nine months ended September 30,

Three months ended March 31,

Cash paid for amounts included in the measurement of lease liabilities for finance and operating leases

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Operating leases 5.7 % 5.8 %

Maturities of lease liabilities as of September 30, 2020 were as follows:

Maturities of lease liabilities as of March 31, 2021 were as follows:

Finance Operating

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The Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against it.

Except possible liabilities that could arise 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.

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.

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The Company was contracted to perform inspections of welds on various pipeline projects in Texas for a customer.

As of September 30, 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 over 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.

As of December 31, 2019, 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.

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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 not established any accruals for this matter.

The Company recorded a full reserve in the amount of $ 1.4 million during the second half of 2019 for these past due receivables.

See Note 6– Accounts Receivable, net .

Accordingly, the Company recorded a reserve in the amount of $ 1.4 million during the twelve months ended December 31, 2019 for these past due receivables.

Two proceedings have been filed in California Superior Court for the County of Los Angeles regarding alleged violations of the California Labor Code.

Both cases are captioned 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.

On May 4, 2021, the Company agreed to a settlement whereby the Company will pay $ 2.3 million to resolve the allegations in these proceedings and will be responsible for the employer portion of payroll taxes on the amount of the settlement allocated to wages.

The settlement is subject to court approval and will cover claims dating back to June 2016 through July 31, 2021.

The Company recorded expense of approximately $ 1.6 million during the three months ended March 31, 2021 related to this settlement, which is in addition to expense of $ 0.8 million the Company recorded during the three months ended December 31, 2020.

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.

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 the final settlement payment, for total payments of $ 4.2 million.

The balance of the estimated total amount of this potential liability as of September 30, 2020 is approximately $ 2.5 million.

Certain of Company’s subsidiaries had significant reductions in their unionized workers in 2018.

The collective bargaining agreements for these employees required contributions for these employees to national multi-employer pension funds.

The reduction in employees resulted a subsidiary incurring a complete withdrawal to one of the pension funds under the Employee Retirement Income Security Act of 1974 ("ERISA"), which was fully satisfied in 2019.

The Company has determined that the subsidiary is likely to incur partial or complete withdrawal liability to the other pension fund.

The balance of the estimated total amount of this potential liability as of March 31, 2021 is approximately $ 2.5 million, and the charges related to this liability were incurred in 2018 and 2019.

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.

During December 2019, the Company executed an agreement to sell the rights of certain customer "staff leasing" contracts related to its German subsidiary 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 September 30, 2020, the Company has approximately $ 0.3 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.

As of March 31, 2021, 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 $ 0.9 million in reversals due to employees being transitioned to customer contracts.

The Company is entitled to indemnification on certain labor claims from the sellers of a company acquired by its Brazilian subsidiary.

The Company and the seller 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 2020 and the Company recognized that amount as a gain in selling, general and administrative expenses in the same period.

The remaining payment for $ 0.6 million was received in the first quarter of 2021 and the Company recognized that amount as a gain in selling, general and administrative expenses in the same period.

Mistras Group, Inc.

4 unchanged sentences

The Company is liable for contingent consideration in connection with certain of its acquisitions.

As of September 30, 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 2.0 years.

As of March 31, 2021, 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 1.5 years.

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 $ 1.3 million is remaining as of September 30, 2020.

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 $ 1.1 million is remaining as of March 31, 2021.

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.

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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.

All such intersegment transactions are eliminated in the Company’s consolidated financial reporting.

The accounting policies of the reportable segments are the same as those described in Note 1 - Description of Business and Basis of Presentation .

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.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Selected consolidated financial information by segment for the periods shown was as follows:

(with intercompany transactions eliminated in Corporate and eliminations)

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

Services $ 124,298 $ 128,873

3 unchanged sentences

$ 153,735 $ 159,465

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

Services $ 31,076 $ 32,237

3 unchanged sentences

$ 40,001 $ 40,644

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Income (loss) from operations by operating segment includes intercompany transactions, which are eliminated in Corporate and eliminations.

Three months ended March 31,

Income (loss) from operations

4 unchanged sentences

$ ( 4,746 ) $ ( 111,228 )

Income (loss) from operations by operating segment includes intercompany transactions, which are eliminated in Corporate and eliminations.

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Three months ended March 31,

Depreciation and amortization

4 unchanged sentences

$ 8,565 $ 9,467

September 30, 2020 December 31, 2019

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

March 31, 2021 December 31, 2020

Intangible assets, net

4 unchanged sentences

$ 66,222 $ 68,642

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Services $ 432,014 $ 427,636

3 unchanged sentences

$ 584,401 $ 583,313

Refer to Note 2 – Revenue , for revenue by geographic area for the three months ended March 31, 2021 and 2020.

Subsequent Events

As described in Note 14- Committments and Contingencies , on May 4, 2021, the Company agreed to a settlement of the two California cases, Justin Price v.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Refer to Note 2 –Revenue, for revenue by geographic area for the three and nine months ended September 30, 2020 and September 30, 2019.

Pursuant to the settlement, the Company will pay $ 2.3 million to resolve the allegations in these proceedings and will be responsible for the employer portion of payroll taxes on the amount of the settlement allocated to wages.

The settlement is subject to court approval, and will cover claims dating back to June 2016 through July 31, 2021.

Mistras Group, Inc.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements