What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-03 compared with 2021-08-04 · 130 added, 149 removed, 743 unchanged (27% of the section changed)

4 unchanged sentences

( in thousands, except share and per share data )

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

ASSETS (unaudited)

40 unchanged sentences

( in thousands, except per share data )

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

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

2021 2020 2021 2020

8 unchanged sentences

Depreciation and amortization 2,918 3,182 9,070 10,359

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

Acquisition-related expense, net 246 709 1,068 186

Income (loss) from operations 9,236 5,742 15,864 ( 105,869 )

3 unchanged sentences

Net Income (loss) 3,397 1,553 3,983 ( 99,634 )

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

net income attributable to noncontrolling interests, net of taxes 17 30 28 8

Net Income (loss) attributable to Mistras Group, Inc $ 3,380 $ 1,523 $ 3,955 $ ( 99,642 )

10 unchanged sentences

(in thousands )

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

Three months ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

19 unchanged sentences

Shares Amount Total Equity

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

Net income — — — 3,380 — 3,380 17 3,397

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

Other comprehensive gain (loss), net of tax — — — — ( 5,469 ) ( 5,469 ) ( 3 ) ( 5,472 )

Share-based payments — — 1,452 — — 1,452 — 1,452

Net settlement of restricted stock units 26 — — — — — — —

Balance at September 30, 2021 29,458 $ 294 $ 237,577 $ ( 17,893 ) $ ( 19,176 ) $ 200,802 $ 224 $ 201,026

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

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

Net loss — — — 1,523 — 1,523 30 1,553

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

Other comprehensive gain (loss), 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 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

Net settlement of options and 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

Nine months ended

Common Stock Additional

7 unchanged sentences

Net income — — — 3,955 — 3,955 28 3,983

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

Other comprehensive gain (loss), net of tax — — — — ( 3,115 ) ( 3,115 ) ( 2 ) ( 3,117 )

Share-based payments — — 3,916 — — 3,916 — 3,916

Net settlement of restricted stock units 224 2 ( 977 ) — — ( 975 ) — ( 975 )

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

Balance at September 30, 2021 29,458 $ 294 $ 237,577 $ ( 17,893 ) $ ( 19,176 ) $ 200,802 $ 224 $ 201,026

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

Net loss — — — ( 99,642 ) — ( 99,642 ) 8 ( 99,634 )

Other comprehensive loss, net of tax — — — — ( 10,887 ) ( 10,887 ) ( 6 ) ( 10,893 )

Other comprehensive gain (loss), net of tax — — — — ( 4,924 ) ( 4,924 ) ( 2 ) ( 4,926 )

Share-based payments — — 4,391 — — 4,391 — 4,391

Net settlement of restricted stock units 247 3 ( 329 ) — — ( 326 ) — ( 326 )

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

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

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

3 unchanged sentences

(in thousands )

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities

57 unchanged sentences

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 ongoing economic disruption.

The COVID-19 coronavirus (COVID-19) pandemic has continued to cause disruption and volatility in domestic and international markets and conditions continue to improve during 2021 as compared to 2020.

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, 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.

Our facilities, and the Company's customers facilities as well, have remained open with staffing modifications and precautionary procedures taken as necessary.

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

2 unchanged sentences

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, 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.

The Company has eliminated substantially all of the cost reduction initiatives undertaken in 2020, including re-installment of the savings plan employer match and increasing wages back to pre-pandemic amounts.

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

Mistras Group, Inc.

2 unchanged sentences

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

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

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

continue to monitor market conditions and respond accordingly.

As of September 30, 2021, the cash balance was approximately $ 22.6 million.

Basis of Presentation

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

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

Significant Accounting Policies

7 unchanged sentences

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

Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards.

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We recognize deferred tax assets and liabilities at enacted income tax rates for the temporary differences between the financial reporting bases and the tax bases of our assets and liabilities.

Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment.

Our net deferred tax assets primarily consist of net operating loss carry forwards, or NOLs.

A valuation allowance is provided if it is more likely than not that some or all of a deferred income tax asset will not be realized.

A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current and prior years.

US GAAP prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.

US GAAP also provides guidance on de-recognition, measurement, and classification of amounts relating to uncertain tax positions, accounting for and disclosure of interest and penalties, accounting in interim periods and disclosures required.

Interest and penalties related to unrecognized tax positions are recognized as incurred within “provision for income taxes” in the consolidated statements of income.

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 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 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.

As of September 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.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

The Company’s effective income tax rate was approximately 50.8 % and 25.9 % for the three months ended September 30, 2021 and 2020, respectively.

The Company’s effective income tax rate was approximately 44.4 % and 13.6 % for the nine months ended September 30, 2021 and 2020, respectively.

The effective income tax rate for the three months ended September 30, 2021, was higher than the statutory rate due to a $ 1.2 million valuation allowance recorded during the period related to various state deferred tax assets and earnings in jurisdictions with higher income tax rates than the United States.

The effective income tax rate for the three months ended September 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 nine months ended September 30, 2021 was higher than the statutory rate due to a $ 1.2 million valuation allowance recorded during the period which was related to various state deferred tax assets offset by 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 nine months ended September 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

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.

On January 1, 2021, the Company adopted new guidance to simplify the accounting for income taxes by, among other things, removing certain exceptions related to intra-period tax allocations, interim calculations and the recognition of deferred tax liabilities for outside basis differences.

The guidance did not have a material impact on the Company's consolidated financial statements.

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

4 unchanged sentences

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

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 .

Mistras Group, Inc.

2 unchanged sentences

(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

17 unchanged sentences

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 Company enters into master service agreements (MSAs) with customers that specify an overall framework and contract terms.

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.

From time-to-time, the Company may enter into longer-term contracts, which can range from several months to several years.

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.

10 unchanged sentences

Revenue by industry was as follows:

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

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

Oil & Gas $ 88,508 $ 8,620 $ 370 $ — $ 97,498

6 unchanged sentences

Total $ 144,976 $ 29,100 $ 3,308 $ ( 2,828 ) $ 174,556

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

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

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

6 unchanged sentences

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

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

Nine Months Ended September 30, 2021 Services International Products Corp/Elim Total

Oil & Gas $ 264,959 $ 26,208 $ 638 $ — $ 291,805

6 unchanged sentences

Total $ 414,251 $ 88,699 $ 9,499 $ ( 6,481 ) $ 505,968

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

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

Oil & Gas $ 214,773 $ 26,192 $ 214 $ — $ 241,179

11 unchanged sentences

Revenue per key geographic location was as follows:

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

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

United States $ 122,506 $ 221 $ 1,562 $ ( 1,341 ) $ 122,948

3 unchanged sentences

Total $ 144,976 $ 29,100 $ 3,308 $ ( 2,828 ) $ 174,556

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

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

United States 100,586 $ 193 $ 1,538 $ ( 912 ) $ 101,405

3 unchanged sentences

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

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

Nine Months Ended September 30, 2021 Services International Products Corp/Elim Total

United States $ 349,814 $ 670 $ 4,690 $ ( 2,627 ) $ 352,547

3 unchanged sentences

Total $ 414,251 $ 88,699 $ 9,499 $ ( 6,481 ) $ 505,968

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

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

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

9 unchanged sentences

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 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.

Revenue recognized during the nine months ended September 30, 2021 and 2020 that was included in the contract liability balance at the beginning of such year was $ 4.4 million for each period.

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

12 unchanged sentences

Stock Options

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,

For each of the three and nine months ended September 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 September 30, 2021.

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

Nine months ended September 30,

Outstanding at beginning of period:

6 unchanged sentences

Restricted Stock Unit Awards

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.

For the three months ended September 30, 2021 and September 30, 2020, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 0.9 million and $ 1.1 million, respectively.

For the nine months ended September 30, 2021 and 2020, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 2.7 million and $ 3.2 million, respectively.

As of September 30, 2021, there was $ 6.8 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 2.6 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:

Six months ended June 30,

Nine months ended September 30,

Restricted stock awards vested 238 183

1 unchanged sentence

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:

Six months ended June 30,

Nine months ended September 30,

Awards issued 51 68

5 unchanged sentences

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

Six months ended June 30,

Nine months ended September 30,

Units Weighted

41 unchanged sentences

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

Six months ended June 30,

Nine months ended September 30,

Units Weighted

8 unchanged sentences

305 $ 12.56 329 $ 11.09

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.

During the nine months ended September 30, 2021 and September 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.

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.

Calendar year 2021 PRSUs decreased by 2,000 units during the nine months ended September 30, 2021 based on forecasted results for calendar year 2021.

For the three months ended September 30, 2021 and September 30, 2020, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.3 million and $ 0.2 million, respectively.

For the nine months ended September 30, 2021 and September 30, 2020, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.7 million and $ 0.8 million, respectively.

At September 30, 2021, there was $ 1.6 million of total unrecognized compensation costs related to approximately 305,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of 2.2 years.

Earnings (loss) per Share

8 unchanged sentences

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

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

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

2021 2020 2021 2020

7 unchanged sentences

$ 3,380 $ 1,523 $ 3,955 $ ( 99,642 )

29086000 29024000

Weighted average common shares outstanding 29,619 29,177 29,550 29,086

2 unchanged sentences

508 134 543 —

30,127 29,311 30,093 29,086

Diluted income (loss) per share $ 0.11 $ 0.05 $ 0.13 $ ( 3.43 )

_______________

(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.

(1) For the nine months ended September 30, 2020, 213,000 shares related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the period.

Acquisition-Related Expense

1 unchanged sentence

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 and six months ended June 30, 2021 and 2020:

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

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, 2021 and 2020:

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

2021 2020 2021 2020

9 unchanged sentences

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Trade accounts receivable $ 135,644 $ 115,841

1 unchanged sentence

Accounts receivable, net $ 127,699 $ 107,628

The Company had $ 19.3 million and $ 11.9 million of unbilled revenue accrued as of June 30, 2021 and December 31, 2020, respectively.

The Company had $ 21.0 million and $ 11.9 million of unbilled revenue accrued as of September 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 considers unbilled receivables 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.

1 unchanged sentence

The Company received notice from the customer in December 2019, alleging that the work performed was not in compliance with the contract.

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

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

See Note 14- Commitments and Contingencies for additional details.

1 unchanged sentence

Property, plant and equipment consisted of the following:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Land $ 2,776 $ 2,724

8 unchanged sentences

Property, plant and equipment, net $ 90,366 $ 92,681

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.

Depreciation expense for the three months ended September 30, 2021 and 2020 was approximately $ 6.1 million and $ 6.2 million, respectively.

Depreciation expense for the nine months ended September 30, 2021 and September 30, 2020 was $ 18.4 million and $ 18.3 million, respectively.

Mistras Group, Inc.

8 unchanged sentences

Foreign currency translation 189 ( 820 ) — ( 631 )

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

Balance at September 30, 2021 $ 190,581 $ 15,076 $ — $ 205,657

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.

6 unchanged sentences

During the first quarter of 2020, the Company also performed an analysis to determine any impairment of long-lived assets (see Note 9- Intangible Assets ) based on the triggering events noted above.

In performing the interim quantitative goodwill impairment test and consistent with prior practice, the Company determined the fair value of each of the reporting units using a combination of the income approach and the market approach by assessing each of these valuation methodologies based upon availability and relevance of comparable company data and determining the appropriate weighting.

Under the income approach, the fair value for each of the reporting units was determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate.

The Company used internal forecasts, updated for recent events, to estimate future cash flows with cash flows beyond the specific operating plans estimated using a terminal value calculation, which incorporates historical and forecasted trends, including an estimate of long-term future growth rates, based on the Company’s most recent views of the long-term outlook for each reporting unit.

The internal forecasts include assumptions about future market recovery, including the expected demand for the Company’s goods and services.

Due to the inherent uncertainties involved in making estimates and assumptions, actual results may differ from those assumed in the forecasts.

The Company derived the discount rates using a capital asset pricing model and analyzing published rates for industries relevant to the reporting units to estimate the cost of equity financing.

The Company used discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and in the internally developed forecasts, updated for recent events.

The market approach valuations were derived from metrics of publicly traded companies or historically completed transactions of comparable businesses.

The selection of comparable businesses was based on the markets in which the reporting units operate considering risk profiles, size, geography, and diversity of products and services.

Based upon the results of the interim quantitative goodwill impairment test during the first quarter of 2020, the Company recorded an aggregate impairment charge of $ 77.1 million, which 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 Income (Loss) for the three months ended March 31, 2020.

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.

Subsequent to March 31, 2020 through September 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 September 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.

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:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(Years) Gross

8 unchanged sentences

Total $ 187,931 $ ( 126,236 ) $ 61,695 $ 217,380 $ ( 119,944 ) $ ( 28,794 ) $ 68,642

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.

Amortization expense for the three months ended September 30, 2021 and 2020 was approximately $ 2.4 million and $ 2.6 million, respectively.

Amortization expense for the nine months ended September 30, 2021 and September 30, 2020 was $ 7.3 million and $ 8.5 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 the six months ended June 30, 2020.

Mistras Group, Inc.

4 unchanged sentences

Accrued expenses and other current liabilities consisted of the following:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Accrued salaries, wages and related employee benefits $ 38,470 $ 30,214

8 unchanged sentences

Long-term debt consisted of the following:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Senior credit facility $ 128,522 $ 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 with a balance of $ 84.1 million as of June 30, 2021.

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 .

Pursuant to the Amendment described below, the revolving line of credit was reduced from $ 165 million to $ 155 million on September 30, 2021 and will be reduced 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.

14 unchanged sentences

• 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).

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 nine months ended September 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).

1 unchanged sentence

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.

As of September 30, 2021, the Company had borrowings of $ 209.2 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 September 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 September 30, 2021, the Company was in compliance with the terms of the Credit Agreement.

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

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

At September 30, 2021, there was an aggregate of approximately $ 6.9 million outstanding, payable at various times through 2030.

Monthly payments range from $ 1.0 thousand to $ 17.0 thousand and interest rates range from 0.4 % to 3.5 %.

11 unchanged sentences

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

Six months ended June 30,

Nine months ended September 30,

Beginning balance $ 1,640 $ 3,216

9 unchanged sentences

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

Leases Classification June 30, 2021 December 31, 2020

Leases Classification September 30, 2021 December 31, 2020

ROU assets Other Assets $ 42,043 $ 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 $ 3.3 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.

The ROU liability for this facility was approximately $ 3.1 million and $ 3.8 million as of September 30, 2021 and December 31, 2020, respectively.

Total rent payments for this facility were approximately $ 0.3 million and $ 0.1 million for the three months ended September 30, 2021 and September 30, 2020, respectively.

Total rent payments for this facility were approximately $ 1.0 million and $ 0.5 million for the nine months ended September 30, 2021 and September 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 $ 15.0 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.

The total ROU assets attributable to finance leases were approximately $ 14.6 million and $ 15.8 million as of September 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.

3 unchanged sentences

The components of lease costs were as follows:

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

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

Classification 2021 2020 2021 2020

10 unchanged sentences

Additional information related to leases was as follows:

Six months ended June 30,

Nine months ended September 30,

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

15 unchanged sentences

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

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

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

Finance Operating

29 unchanged sentences

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.

On May 4, 2021, the Company agreed to a settlement of all claims in the cases, which was more formally documented pursuant to a settlement agreement completed October 5, 2021.

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 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.

2 unchanged sentences

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

Pension Related Contingencies

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

2 unchanged sentences

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 June 30, 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 September 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 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.

As of September 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 $ 0.4 million in payments made and $ 1.0 million in reversals due to employees being transitioned to customer contracts.

5 unchanged sentences

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

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.

As of September 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 twelve months .

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 $ 1.0 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.

3 unchanged sentences

This segment provides asset protection solutions predominantly in North America, with the largest concentration in the United States, followed by Canada, consisting primarily of NDT, inspection, mechanical and engineering services that are used to evaluate the safety, structural integrity and reliability of critical energy, industrial and public infrastructure and commercial aerospace components.

PCMS software and pipeline related software and data analysis solutions are included in this segment.

Software, digital and data services are included in this segment.

• International.

This segment offers services, products and systems similar to those of the other segments to select markets within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment.

• Products and Systems.

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

Mistras Group, Inc.

2 unchanged sentences

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

• Products and Systems.

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

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

9 unchanged sentences

(with intercompany transactions eliminated in Corporate and eliminations)

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

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

2021 2020 2021 2020

4 unchanged sentences

$ 174,556 $ 147,894 $ 505,968 $ 431,794

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

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

2021 2020 2021 2020

4 unchanged sentences

$ 52,216 $ 47,384 $ 147,553 $ 129,186

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

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

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

2021 2020 2021 2020

5 unchanged sentences

$ 9,236 $ 5,742 $ 15,864 $ ( 105,869 )

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,

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

2021 2020 2021 2020

5 unchanged sentences

$ 8,508 $ 8,762 $ 25,705 $ 26,759

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Intangible assets, net

4 unchanged sentences

$ 61,695 $ 68,642

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Services $ 429,650 $ 427,636

3 unchanged sentences

$ 587,228 $ 583,313

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

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