What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-05-07 · 261 added, 195 removed, 631 unchanged (42% of the section changed)

4 unchanged sentences

( in thousands, except share and per share data )

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

ASSETS (unaudited)

38 unchanged sentences

and Subsidiaries

Unaudited Condensed Consolidated Statements of Loss

Unaudited Condensed Consolidated Statements of Income (Loss)

( in thousands, except per share data )

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Revenue $ 177,677 $ 124,435 $ 331,412 $ 283,900

8 unchanged sentences

Acquisition-related expense (benefit), net 545 19 822 ( 523 )

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

Income (loss) from operations 11,374 ( 383 ) 6,628 ( 111,611 )

Interest expense 3,155 2,976 6,368 5,765

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

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

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

Income (loss) before benefit for income taxes 8,219 ( 3,359 ) 260 ( 117,376 )

Provision (benefit) for income taxes 2,274 ( 694 ) ( 326 ) ( 16,189 )

Net Income (loss) 5,945 ( 2,665 ) 586 ( 101,187 )

net income (loss) attributable to noncontrolling interests, net of taxes 8 ( 9 ) 11 ( 22 )

Net loss attributable to Mistras Group, Inc.

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

Loss per common share

Net Income (loss) attributable to Mistras Group, Inc $ 5,937 $ ( 2,656 ) $ 575 $ ( 101,165 )

Earnings (loss) per common share

Basic $ 0.20 $ ( 0.09 ) $ 0.02 $ ( 3.49 )

6 unchanged sentences

and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Loss

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands )

Three months ended March 31,

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

Other comprehensive loss:

Three months ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net Income (Loss) $ 5,945 $ ( 2,665 ) $ 586 $ ( 101,187 )

Other comprehensive income (loss):

Foreign currency translation adjustments 2,947 6,122 2,355 ( 10,893 )

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

Comprehensive Income (Loss) 8,892 3,457 2,941 ( 112,080 )

net income (loss) attributable to noncontrolling interest 8 ( 9 ) 11 ( 22 )

Foreign currency translation adjustments attributable to noncontrolling interests 1 — 1 ( 6 )

Comprehensive loss attributable to Mistras Group, Inc.

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

Comprehensive income (loss) attributable to Mistras Group, Inc $ 8,883 $ 3,466 $ 2,929 $ ( 112,052 )

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

7 unchanged sentences

(deficit) Accumulated

comprehensive income (loss) Total

Mistras Group,

Stockholders’ Equity Noncontrolling Interest

Shares Amount Total Equity

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

Net income — — — 5,937 — 5,937 8 5,945

Other comprehensive income, net of tax — — — — 2,946 2,946 1 2,947

Share-based payments — — 1,202 — — 1,202 — 1,202

Net settlement of restricted stock units 85 1 ( 490 ) — — ( 489 ) — ( 489 )

Balance at June 30, 2021 29,432 $ 294 $ 236,125 $ ( 21,273 ) $ ( 13,707 ) $ 201,439 $ 210 $ 201,649

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

Net loss — — — ( 2,656 ) — ( 2,656 ) ( 9 ) ( 2,665 )

Other comprehensive income, net of tax — — — — 6,122 6,122 — 6,122

Share-based payments — — 1,373 — — 1,373 — 1,373

Net settlement of restricted stock units 68 1 ( 121 ) — — ( 120 ) — ( 120 )

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

Six months ended

Common Stock Additional

paid-in capital Retained

(deficit) Accumulated

comprehensive loss Total

3 unchanged sentences

Balance at December 31, 2020 29,234 $ 292 $ 234,638 $ ( 21,848 ) $ ( 16,061 ) $ 197,021 $ 198 $ 197,219

Net income (loss) — — — ( 5,362 ) — ( 5,362 ) 3 ( 5,359 )

Other comprehensive loss, net of tax — — — — ( 592 ) ( 592 ) — ( 592 )

Net income — — — 575 — 575 11 586

Other comprehensive income, net of tax — — — — 2,354 2,354 1 2,355

Share-based payments — — 2,464 — — 2,464 — 2,464

Net settlement of restricted stock units 198 2 ( 977 ) — — ( 975 ) — ( 975 )

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

Balance at June 30, 2021 29,432 $ 294 $ 236,125 $ ( 21,273 ) $ ( 13,707 ) $ 201,439 $ 210 $ 201,649

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

3 unchanged sentences

Net settlement of restricted stock units 165 2 ( 279 ) — — ( 277 ) — ( 277 )

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

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

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

3 unchanged sentences

(in thousands )

Three months ended March 31,

Six months ended June 30,

Cash flows from operating activities

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

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

Net income (loss) $ 586 $ ( 101,187 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities

Depreciation and amortization 17,197 17,997

3 unchanged sentences

Fair value adjustments to contingent consideration 788 ( 523 )

Foreign currency (gain) loss 455 307

Foreign currency loss 932 1,067

Other ( 64 ) 1,179

22 unchanged sentences

Taxes paid related to net share settlement of share-based awards ( 975 ) ( 277 )

Net cash provided by financing activities 435 492

Net cash used in financing activities ( 12,970 ) ( 20,337 )

Effect of exchange rate changes on cash and cash equivalents ( 656 ) 295

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Mistras Group, Inc.

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

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, and decades-long legacy of industry leadership, the Company helps clients in the oil and gas, aerospace and defense, power generation, civil infrastructure, and manufacturing industries towards achieving and maintaining operational excellence.

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 with asset-intensive infrastructure in the oil and gas, aerospace and defense, industrials, power generation and transmission (including alternative and renewable energy), other process industries and infrastructure, research and engineering and other industries towards achieving and maintaining operational excellence.

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

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and building real-time monitoring equipment to enable safe travel across bridges, the Company helps the world at large.

The Company enhances value for its clients by integrating asset protection throughout supply chains and centralizing integrity data through a suite of Industrial IoT-connected digital software and monitoring solutions, including OneSuite™, which serves as an ecosystem platform, pulling together all of the Company’s software and data services capabilities, for the benefit of its customers.

The Company's core capabilities also include non-destructive testing (“NDT”) field inspections enhanced by advanced robotics, laboratory quality control and assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.

The Company serves a global customer base of companies with asset-intensive infrastructure, including companies in the oil and gas, commercial aerospace and defense, fossil and nuclear power, alternative and renewable energy, public infrastructure, chemicals, transportation, primary metals and metalworking, pharmaceutical/biotechnology and food processing industries, and research and engineering institutions.

Recent Developments

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

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

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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;

Similarly, the Company's 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 help 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.

The COVID-19 pandemic uncertainty, 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 beginning in the first quarter of 2020, and as a consequence, the Company's results of operations were adversely impacted.

These negative factors continue to cause volatility and uncertainty in the markets in which the Company operates, although the Company in 2021 has nevertheless begun approaching pre-pandemic levels of activity in certain end markets, particularly oil and gas.

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.

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

The Company has reinstated substantially all of the temporary cost reductions initiatives undertaken in 2020;

although, the Company continues to manage and evaluate these actions in response to the ongoing impact of the COVID-19 pandemic.

Mistras Group, Inc.

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

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

As of June 30, 2021, the cash balance was approximately $ 19.9 million.

Basis of Presentation

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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 Loss.

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

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

3 unchanged sentences

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.

For each of the three and six months ended June 30, 2021 and 2020, no customer represented 10% or more of the Company's revenue.

Significant Accounting Policies

16 unchanged sentences

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 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 of June 30, 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 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.

The Company’s effective income tax rate was approximately 27.7 % and 20.7 % for the three months ended June 30, 2021 and 2020, respectively.

The Company’s effective income tax rate was approximately ( 125.4 )% and 13.8 % for the six months ended June 30, 2021 and 2020, respectively.

The effective income tax rate for the three months ended June 30, 2021, was higher than the statutory rate due to earnings in jurisdictions with higher income tax rates than the United States.

The effective income tax rate for the three months ended June 30, 2020 approximated the statutory rate, as the favorable impact of the CARES Act was offset by the unfavorable impact of taxes in other jurisdictions and other permanent book to tax differences.

The effective income tax rate for the six months ended June 30, 2021 was lower than the statutory rate due to 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 six months ended June 30, 2020 was lower than the statutory rate primarily due to the income tax benefits of the CARES Act, partially offset by impairments for which the Company did not realize income tax benefits.

Recent Accounting Pronouncements

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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):

In March 2020 and updated in January 2021, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848):

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.

41 unchanged sentences

Revenue by Category

The following series of tables present the disaggregated revenue:

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

Revenue by industry was as follows:

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

Three Months Ended June 30, 2021 Services International Products Corp/Elim Total

Oil & Gas $ 91,767 $ 9,580 $ 212 $ — $ 101,559

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Total $ 144,977 $ 31,951 $ 3,203 $ ( 2,454 ) $ 177,677

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

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

Oil & Gas $ 59,279 $ 7,339 $ 68 $ — $ 66,686

6 unchanged sentences

Total $ 100,677 $ 21,343 $ 4,002 $ ( 1,587 ) $ 124,435

Six Months Ended June 30, 2021 Services International Products Corp/Elim Total

Oil & Gas $ 176,451 $ 17,588 $ 268 $ — $ 194,307

Aerospace & Defense 24,602 8,444 64 — 33,110

Industrials 20,061 11,043 745 — 31,849

Power Generation & Transmission 15,607 5,161 1,589 — 22,357

Other Process Industries 18,212 6,539 44 — 24,795

Infrastructure, Research & Engineering 8,343 7,010 1,969 — 17,322

Other 5,999 3,814 1,512 ( 3,653 ) 7,672

Total $ 269,275 $ 59,599 $ 6,191 $ ( 3,653 ) $ 331,412

Six Months Ended June 30, 2020 Services International Products Corp/Elim Total

Oil & Gas $ 142,578 $ 16,443 $ 163 $ — $ 159,184

Aerospace & Defense 28,900 11,010 298 — 40,208

Industrials 23,165 8,736 907 — 32,808

Power Generation & Transmission 12,747 2,904 1,498 — 17,149

Other Process Industries 11,003 4,730 77 — 15,810

Infrastructure, Research & Engineering 7,511 4,481 2,460 — 14,452

Other 3,646 2,106 1,411 ( 2,874 ) 4,289

Total $ 229,550 $ 50,410 $ 6,814 $ ( 2,874 ) $ 283,900

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Revenue per key geographic location was as follows:

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

Three Months Ended June 30, 2021 Services International Products Corp/Elim Total

United States $ 122,762 $ 241 $ 1,668 $ ( 895 ) $ 123,776

3 unchanged sentences

Total $ 144,977 $ 31,951 $ 3,203 $ ( 2,454 ) $ 177,677

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

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

United States 88,205 $ 160 $ 2,053 $ ( 810 ) $ 89,608

3 unchanged sentences

Total $ 100,677 $ 21,343 $ 4,002 $ ( 1,587 ) $ 124,435

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Six Months Ended June 30, 2021 Services International Products Corp/Elim Total

United States $ 227,308 $ 449 $ 3,128 $ ( 1,286 ) $ 229,599

Other Americas 40,166 2,326 168 ( 872 ) 41,788

Europe 890 55,978 963 ( 1,357 ) 56,474

Asia-Pacific 911 846 1,932 ( 138 ) 3,551

Total $ 269,275 $ 59,599 $ 6,191 $ ( 3,653 ) $ 331,412

Six Months Ended June 30, 2020 Services International Products Corp/Elim Total

United States 197,786 $ 314 $ 3,612 $ ( 1,521 ) $ 200,191

Other Americas 30,781 2,464 350 ( 246 ) 33,349

Europe 371 46,266 928 ( 1,041 ) 46,524

Asia-Pacific 612 1,366 1,924 ( 66 ) 3,836

Total $ 229,550 $ 50,410 $ 6,814 $ ( 2,874 ) $ 283,900

Contract Balances

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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.

Revenue recognized during the six months ended June 30, 2021 and 2020 that was included in the contract liability balance at the beginning of such year was $ 3.3 million and $ 3.2 million, respectively.

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

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Share-Based Compensation

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

The Company has share-based incentive awards outstanding to its eligible employees and non-employee directors under two equity incentive plans:

2 unchanged sentences

Awards granted under the 2016 Plan may be in the form of stock options, restricted stock units and other forms of share-based incentives, including performance restricted stock units, stock appreciation rights and deferred stock rights.

At the annual shareholders meeting on May 19, 2020, the Company’s shareholders approved an amendment to increase the total number of shares that may be issued under the 2016 Plan by 2.0 million, for a total of 3.7 million shares that may be issued under the 2016 Plan.

Stock Options

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,

For each of the three and six months ended June 30, 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 June 30, 2021.

The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of June 30, 2021 and 2020:

Six months ended June 30,

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 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.

For the three months ended June 30, 2021 and June 30, 2020, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 0.9 million and $ 1.4 million, respectively.

For the six months ended June 30, 2021 and 2020, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 1.8 million and $ 2.1 million, respectively.

As of June 30, 2021, there was $ 7.7 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 2.8 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:

Three months ended March 31,

Six months ended June 30,

Restricted stock awards vested 238 143

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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:

Three months ended March 31,

Six months ended June 30,

Awards issued 25 15

Grant date fair value of awards issued $ 258 $ 57

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

Three months ended March 31,

Six months ended June 30,

Units Weighted

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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.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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.

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

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.

Compensation cost related to the PRSUs with a market condition is not reversed if the market

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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:

Three months ended March 31,

Six months ended June 30,

Units Weighted

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307 $ 12.56 474 $ 8.17

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.

During the six months ended June 30, 2021 and June 30, 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.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Calendar year 2021 PRSUs decreased by 68,000 units during the six months ended June 30, 2021 based on forecasted results for calendar year 2021.

For the three months ended June 30, 2021 and June 30, 2020, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.3 million and $ 0.3 million, respectively.

For the six months ended June 30, 2021 and June 30, 2020, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.4 million and $ 0.6 million, respectively.

At June 30, 2021, there was $ 1.8 million of total unrecognized compensation costs related to approximately 307,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of 2.4 years.

Earnings (loss) per Share

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(i) the exercise of options to acquire common stock to the extent that the options’ exercise prices are less than the average market price of common shares during the period and (ii) the pro forma vesting of restricted stock units.

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 the computations of basic and diluted earnings per share:

Three months ended March 31,

Basic loss per share

Net loss attributable to Mistras Group, Inc.

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Basic income (loss) per share

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

$ 5,937 $ ( 2,656 ) $ 575 $ ( 101,165 )

Weighted average common shares outstanding 29,602 29,085 29,514 29,024

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

Diluted loss per share:

Net loss attributable to Mistras Group, Inc.

Basic income (loss) per share $ 0.20 $ ( 0.09 ) $ 0.02 $ ( 3.49 )

Diluted income (loss) per share:

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

$ 5,937 $ ( 2,656 ) $ 575 $ ( 101,165 )

29086000 29024000

Weighted average common shares outstanding 29,602 29,085 29,514 29,024

2 unchanged sentences

30,136 29,085 30,039 29,024

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

Diluted income (loss) per share $ 0.20 $ ( 0.09 ) $ 0.02 $ ( 3.49 )

_______________

(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.

(1) For the three and six months ended June 30, 2020, 118,000 and 223,000 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 Loss and were as follows for the three months ended March 31, 2021 and 2020:

Three months ended March 31,

These amounts are reported as Acquisition-related expense, net on the Unaudited Condensed Consolidated Statements of Loss and were as follows for the three and six months ended June 30, 2021 and 2020:

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

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

1 unchanged sentence

Acquisition-related expense, net $ 545 $ 19 $ 822 $ ( 523 )

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.

Accounts Receivable, net

Accounts receivable consisted of the following:

Mistras Group, Inc.

2 unchanged sentences

(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.

Accounts Receivable, net

Accounts receivable consisted of the following:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Trade accounts receivable $ 131,039 $ 115,841

1 unchanged sentence

Accounts receivable, net $ 122,887 $ 107,628

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

The Company had $ 19.3 million and $ 11.9 million of unbilled revenue accrued as of June 30, 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.

For unbilled receivables, the Company considers them as short-term in nature as they are normally converted to trade receivables within 90 days, thus future changes in economic conditions will not have a significant effect on the credit loss estimate.

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

5 unchanged sentences

Property, plant and equipment consisted of the following:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Land $ 2,799 $ 2,724

8 unchanged sentences

Property, plant and equipment, net $ 91,898 $ 92,681

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.

Depreciation expense for each of the three months ended June 30, 2021 and 2020 was approximately $ 6.2 million and $ 6.0 million, respectively.

Depreciation expense for each of the six months ended June 30, 2021 and June 30, 2020 was $ 12.3 million and 12.1 million, respectively.

Mistras Group, Inc.

6 unchanged sentences

Goodwill acquired during the period 388 — — 388

Adjustments to preliminary purchase price allocations — — — —

Foreign currency translation 2,199 ( 420 ) — 1,779

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

Balance at June 30, 2021 $ 192,699 $ 15,476 $ — $ 208,175

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.

16 unchanged sentences

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.

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 Loss for the three months ended March 31, 2020.

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.

Subsequent to March 31, 2020 through June 30, 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 June 30, 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.

Intangible Assets

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

(Years) Gross

8 unchanged sentences

Total $ 189,456 $ ( 124,848 ) $ 64,608 $ 217,380 $ ( 119,944 ) $ ( 28,794 ) $ 68,642

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

Amortization expense for the three months ended June 30, 2021 and 2020 was approximately $ 2.5 million and $ 2.6 million, respectively.

Amortization expense for the six months ended June 30, 2021 and June 30, 2020 was $ 4.9 million and $ 5.9 million, respectively.

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, and Products and Systems segments, as well as Corporate.

2 unchanged sentences

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 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.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Accrued salaries, wages and related employee benefits $ 35,311 $ 30,214

6 unchanged sentences

Total $ 87,472 $ 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:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Senior credit facility $ 119,503 $ 120,312

6 unchanged sentences

Senior Credit 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.

Pursuant to the Amendment described below, the revolving line of credit was reduced from $ 175 million to $ 165 million, and will be further reduced to $ 155 million on September 30, 2021, then to $ 150 million on December 31, 202 1 .

Both the revolving line of credit and the term loan A facility under the Credit Agreement have a maturity date of December 12, 2023.

On May 15, 2020, the Company entered into the Third Amendment (the “Amendment”) to the Credit Agreement.

The amendment was needed because the Company determined that as a result of the uncertain impact of the COVID-19 pandemic and the significant drop in oil prices, it would not meet the then existing financial covenants in the Credit Agreement for upcoming quarters.

Accordingly, the Amendment modified the financial covenants to provide for:

i) elimination of the Funded Debt Leverage Ratio (as defined in the Credit Agreement) for the quarters ended June 30 and September 30, 2020 and increased the Funded Debt Leverage ratio to no greater than 5.25 to 1 beginning for the quarter ending December 31, 2020 and decreasing each successive quarter to no greater than 3.50 to 1 for the quarter ended September 30, 2021, and all quarterly periods thereafter;

ii) an elimination of the minimum Fixed Charge Coverage Ratio (as defined in the Credit Agreement) for the quarters ended June 30, September 30 and December 31, 2020), a decrease to 1.0 to 1 for the quarter ending March 31, 2021 and returning to 1.25 to 1 for the quarter ending June 30, 2021 and thereafter;

iii) the addition of a minimum EBITDA covenant requiring $ 3.44 million for the three months ending June 30, 2020, $ 24.25 million for the six months ending September 30, 2020, and $ 38.55 million for the nine months ending December 31, 2020, with no requirement thereafter;

and iv) the addition of a minimum Liquidity (as defined in the Amendment) covenant of not less than $ 20.0 million at all times through September 30, 2020 and ceasing thereafter.

In addition, the Amendment set a LIBOR floor of 1.0 % applicable to all LIBOR loans, and increased the LIBOR margin range to 1.50 % to 4.15 %, in addition to certain other modifications of the Credit Agreement.

The Amendment also requires that the Company promptly prepay the outstanding amount under the revolving credit facility in an amount equal to the difference between (a) the aggregate sum of cash and cash equivalents of the Company and its subsidiaries held in the United States minus (b) $ 10.0 million if, for a period of two ( 2 ) consecutive business days, (i) the outstanding amount under the revolving credit facility exceeds $ 75.0 million and (ii) the sum of such cash and cash equivalents exceeds $ 10.0 million.

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.

On May 19, 2021, the Company entered into the Fifth Amendment (the “Amendment”) to the Credit Agreement.

The Amendment made the following changes:

• Removed the LIBOR floor of 1.0 %, which provided that if LIBOR is below 1.0 %, the interest rate will be calculated as if LIBOR is 1.0 %.

Now the actual LIBOR rate is used to calculate interest, even if LIBOR is below 1.0 %.

The LIBOR margins and base rate margins are unchanged but are based upon the new Total Consolidated Debt Leverage Ratio (defined below);

previously the margin was based upon the Funded Debt Leverage Ratio.

• Requires the Company to maintain a Total Consolidated Debt Leverage Ratio not to exceed 4.00 to 1.0 as of the end of each quarter through the quarter ending March 31, 2022, and for each quarter thereafter the ratio shall not exceed 3.50 to 1.0.

◦ Total Consolidated Debt Leverage Ratio means the ratio of (a) Total Consolidated Debt to (b) EBITDA (as defined in the Credit Agreement) for the trailing four consecutive quarters.

◦ Total Consolidated Debt means all indebtedness (including subordinated debt) of the Company on a consolidated basis (with a limited exception).

Mistras Group, Inc.

2 unchanged sentences

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

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.

• If the Company incurs certain subordinated debt or other permitted indebtedness, then the Company must maintain a Total Consolidated Debt Leverage Ratio not to exceed 4.50 to 1.0 and maintain a ratio of Senior Debt to EBITDA not to exceed 3.50 to 1.00, with Senior Debt being Total Consolidated Debt, less permitted subordinated debt.

• The Company must repay loans under the Credit Agreement with the net proceeds from certain dispositions of assets under certain circumstances and limits investments in non-guarantor subsidiaries under certain circumstances if the Company’s Total Consolidated Leverage Ratio is above 3.5 to 1.0.

• Borrowing capacity was reduced on the revolving loan line of credit under the Credit Agreement to $ 165 million, and will be further reduced to $ 155 million on September 30, 2021, then to $ 150 million on December 31, 2021.

• Quarterly payments on the term loan increased to $ 3.75 million through March 31, 2022, then to $ 5.0 million for each quarterly payment thereafter and a final balloon payment at maturity.

As a result of the borrowing capacity reduction on the revolving loan line of credit, the Company expensed $ 0.1 million in unamortized capitalized debt issuance costs during the three months ended June 30, 2021, which was included in Selling, general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income (Loss).

The Company incurred $ 0.5 million in financing costs for the Amendment of which $ 0.2 million of third party costs were expensed and included in Selling, general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income (Loss).

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.

As of June 30, 2021, the Company had borrowings of $ 203.9 million and a total of $ 4.3 million of letters of credit outstanding under the Credit Agreement.

The Company has capitalized costs associated with debt modifications of $ 1.1 million as of June 30, 2021, which is included in Other Assets on the Condensed Consolidated Balance Sheets and will be amortized into interest expense over the remaining term of the Credit Agreement through December 12, 2023.

As of June 30, 2021, the Company was in compliance with the terms of the Credit Agreement.

The Company 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.

1 unchanged sentence

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

At June 30, 2021, there was an aggregate of approximately $ 7.5 million outstanding, payable at various times through 2030.

Monthly payments range from $ 1.0 thousand to $ 19.0 thousand and interest rates range from 0.4 % to 3.5 %.

6 unchanged sentences

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:

Three months ended March 31,

Six months ended June 30,

Beginning balance $ 1,640 $ 3,216

8 unchanged sentences

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.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

Leases Classification March 31, 2021 December 31, 2020

The Company’s Condensed Consolidated Balance Sheets include the following related to operating leases:

Leases Classification June 30, 2021 December 31, 2020

ROU assets Other Assets $ 43,879 $ 46,728

3 unchanged sentences

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.

The ROU liability for this facility was approximately $ 3.3 million and $ 3.8 million as of June 30, 2021 and December 31, 2020, respectively.

Total rent payments for this facility were approximately $ 0.3 million and $ 0.2 million for the three months ended June 30, 2021 and June 30, 2020, respectively.

Total rent payments for this facility were approximately $ 0.7 million and $ 0.4 million for the six months ended June 30, 2021 and June 30, 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 $ 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.

The total ROU assets attributable to finance leases were approximately $ 15.0 million and $ 15.8 million as of June 30, 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 Unaudited Condensed Consolidated Statements of Loss for the three months ended March 31, 2020.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

The components of lease costs were as follows:

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

Classification 2021 2020 2021 2020

9 unchanged sentences

Total $ 5,043 $ 4,781 $ 10,473 $ 9,915

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Additional information related to leases was as follows:

Three months ended March 31,

Six months ended June 30,

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

11 unchanged sentences

Operating leases 5.8 % 5.8 %

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

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Maturities of lease liabilities as of June 30, 2021 were as follows:

Finance Operating

12 unchanged sentences

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

Except possibly for certain of the matters described below, the Company does not believe that any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its business, results of operations, cash flows or financial condition.

Except possible losses from 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.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Litigation and Commercial Claims

2 unchanged sentences

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.

The Company filed a lawsuit in the District Court of Bexar County, Texas, 37th Judicial District, in an action captioned Mistras Group, Inc.

Epic Y-Grade Pipeline LP, to recover the $ 1.4 million and other amounts due to the Company.

9 unchanged sentences

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 settlement is subject to court approval and will cover claims for the period from 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

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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 reduction in employees resulted in 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.

The balance of the estimated total amount of this potential liability as of June 30, 2021 is approximately $ 2.5 million, and the charges related to this liability were incurred in 2018 and 2019.

Severance and labor disputes

1 unchanged sentence

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 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.

As of June 30, 2021, the Company has approximately $ 0.1 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 $ 0.1 million of estimated obligations is net of $ 0.5 million in payments made and $ 1.0 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 Company was entitled to indemnification on certain labor claims from the sellers of a company acquired by its Brazilian subsidiary.

The Company and the sellers entered into a settlement agreement for approximately $ 1.0 million, which provided 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 approximately $ 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.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Acquisition and disposition related contingencies

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

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.

As of June 30, 2021, total potential acquisition-related contingent consideration ranged from zero to approximately $ 2.8 million and would be payable upon the achievement of specific performance metrics by certain of the acquired companies over the next 1.3 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 $ 1.1 million is remaining as of March 31, 2021.

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 $ 1.0 million is remaining as of June 30, 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.

On August 3, 2021, the Company entered into an agreement and extended the period by twelve months .

Segment Disclosure

6 unchanged sentences

This segment designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Costs incurred for general corporate services, including finance, legal, and certain other costs that are provided to the segments are reported within Corporate and eliminations.

7 unchanged sentences

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 March 31,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Services $ 144,977 $ 100,677 $ 269,275 $ 229,550

3 unchanged sentences

$ 177,677 $ 124,435 $ 331,412 $ 283,900

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Services $ 43,761 $ 33,940 $ 74,837 $ 66,177

4 unchanged sentences

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

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

Income (loss) from operations

4 unchanged sentences

$ 11,374 $ ( 383 ) $ 6,628 $ ( 111,611 )

Three months ended March 31,

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 June 30, Six months ended June 30,

2021 2020 2021 2020

Depreciation and amortization

4 unchanged sentences

$ 8,632 $ 8,530 $ 17,197 $ 17,997

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

June 30, 2021 December 31, 2020

Intangible assets, net

4 unchanged sentences

$ 64,608 $ 68,642

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Services $ 431,829 $ 427,636

3 unchanged sentences

$ 587,381 $ 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.

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.

Refer to Note 2 – Revenue , for revenue by geographic area for the three and six months ended June 30, 2021 and 2020.

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