What changed in this filing

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Item 1. Financial Statements

2022-05-06 compared with 2021-11-03 · 191 added, 289 removed, 584 unchanged (45% of the section changed)

2 unchanged sentences

and Subsidiaries

Condensed Consolidated Balance Sheets

Unaudited Condensed Consolidated Balance Sheets

( in thousands, except share and per share data )

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

ASSETS (unaudited)

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and Subsidiaries

Unaudited Condensed Consolidated Statements of Income (Loss)

Unaudited Condensed Consolidated Statements of Loss

( in thousands, except per share data )

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

2021 2020 2021 2020

Three months ended March 31,

Revenue $ 161,662 $ 153,735

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Selling, general and administrative expenses 42,036 39,639

Impairment charges — — — 106,062

Legal settlement and litigation charges, net — ( 360 ) 1,030 ( 360 )

Legal settlement and insurance recoveries, net ( 841 ) 1,030

Research and engineering 551 727

1 unchanged sentence

Acquisition-related expense, net 49 277

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

Loss from operations ( 4,698 ) ( 4,746 )

Interest expense 1,938 3,213

Income (loss) before benefit for income taxes 6,910 2,097 7,170 ( 115,279 )

Provision (benefit) for income taxes 3,513 544 3,187 ( 15,645 )

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

Loss before benefit for income taxes ( 6,636 ) ( 7,959 )

Benefit for income taxes ( 1,283 ) ( 2,600 )

Net Loss ( 5,353 ) ( 5,359 )

net income attributable to noncontrolling interests, net of taxes 10 3

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

Earnings (loss) per common share

Net Loss attributable to Mistras Group, Inc.

$ ( 5,363 ) $ ( 5,362 )

Loss per common share

Basic $ ( 0.18 ) $ ( 0.18 )

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and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(in thousands )

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

2021 2020 2021 2020

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

Other comprehensive income (loss):

Three months ended March 31,

Net Loss $ ( 5,353 ) $ ( 5,359 )

Other comprehensive loss:

Foreign currency translation adjustments $ 555 $ ( 592 )

Comprehensive Income (Loss) ( 2,075 ) 7,516 866 ( 104,558 )

net income (loss) attributable to noncontrolling interest 17 30 28 8

Foreign currency translation adjustments attributable to noncontrolling interests ( 3 ) 4 ( 2 ) ( 2 )

Comprehensive income (loss) attributable to Mistras Group, Inc $ ( 2,089 ) $ 7,482 $ 840 $ ( 104,564 )

Comprehensive Loss ( 4,798 ) ( 5,951 )

net income attributable to noncontrolling interest 10 3

Comprehensive loss attributable to Mistras Group, Inc.

$ ( 4,808 ) $ ( 5,954 )

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

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Common Stock Additional

paid-in capital Retained

(deficit) Accumulated

comprehensive income (loss) Total

Mistras Group,

Stockholders’ Equity Noncontrolling Interest

Shares Amount Total Equity

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 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

Net loss — — — 1,523 — 1,523 30 1,553

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 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

paid-in capital Retained

paid-in capital Accumulated

deficit Accumulated

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Balance at December 31, 2021 29,546 $ 295 $ 238,687 $ ( 17,988 ) $ ( 20,311 ) $ 200,683 $ 229 $ 200,912

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

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

Net income (loss) — — — ( 5,363 ) — ( 5,363 ) 10 ( 5,353 )

Other comprehensive income, net of tax — — — — 555 555 — 555

Share-based payments — — 1,515 — — 1,515 — 1,515

Net settlement of restricted stock units 174 2 ( 546 ) — — ( 544 ) — ( 544 )

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

Balance at March 31, 2022 29,720 $ 297 $ 239,656 $ ( 23,351 ) $ ( 19,756 ) $ 196,846 $ 239 $ 197,085

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

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

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

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

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

Share-based payments — — 1,262 — — 1,262 — 1,262

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

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

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

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

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(In Thousands)

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities

Net income (loss) $ 3,983 $ ( 99,634 )

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

Net loss $ ( 5,353 ) $ ( 5,359 )

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

Depreciation and amortization 8,807 8,565

Impairment charges — 106,062

Deferred income taxes 196 866

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Income taxes payable 493 ( 211 )

Net cash provided by operating activities 22,469 41,791

Payment of contingent consideration liability in excess of acquisition-date fair value ( 533 ) —

Net cash provided by (used in) operating activities ( 5,399 ) 3,148

Cash flows from investing activities

6 unchanged sentences

Repayment of finance lease obligations ( 1,076 ) ( 1,069 )

Proceeds from borrowings of long-term debt — 2,245

Repayment of long-term debt ( 4,152 ) ( 2,323 )

1 unchanged sentence

Repayment of revolver ( 15,500 ) ( 17,750 )

Payment of financing costs ( 550 ) ( 1,497 )

Payment of contingent consideration for business acquisitions ( 405 ) ( 938 )

Taxes paid related to net share settlement of share-based awards ( 544 ) ( 485 )

Net cash used in financing activities ( 8,866 ) ( 25,077 )

Net cash provided by financing activities 4,323 435

Effect of exchange rate changes on cash and cash equivalents ( 376 ) ( 990 )

2 unchanged sentences

Cash and cash equivalents at end of period $ 19,921 $ 24,177

Supplemental disclosure of cash paid

Supplemental disclosure of cash paid (received)

Interest, net $ 1,711 $ 2,916

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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 enhances value for its clients by integrating asset protection throughout supply chains and centralizing integrity data through a suite of Industrial Internet of Things ("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.

Recent Developments

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 COVID-19 coronavirus (COVID-19) pandemic has continued to cause disruption and volatility in domestic and international markets although conditions continue to improve during 2022 as compared to 2021.

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

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These negative factors continue to cause volatility and uncertainty in the markets in which the Company operates, although the Company in 2022 has nevertheless begun approaching pre-pandemic levels of activity in certain end markets, particularly oil and gas where crude oil prices have exceeded pre-pandemic levels.

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.

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

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

To date, the Company's European operations have begun to see increased costs associated with higher energy costs, among others, due in part to the on-going conflict.

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

Mistras Group, Inc.

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

continue to monitor market conditions and respond accordingly.

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

Basis of Presentation

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

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

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

In the opinion of management, the Unaudited Condensed Consolidated Financial Statements include all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods of the years ending December 31, 2022 and December 31, 2021.

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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 Income (Loss).

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

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

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

For each of the three months ended March 31, 2022 and 2021, no customer represented 10% or more of the Company's revenue.

Significant Accounting Policies

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

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.

As of March 31, 2022, 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.

The Company’s effective income tax rate was approximately 19.3 % and 32.7 % for the three months ended March 31, 2022 and 2021, respectively.

The effective income tax rate benefit for the three months ended March 31, 2022 was lower than the statutory rate primarily due to the impact of an unfavorable discrete item related to stock compensation.

The effective income tax rate 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.

Recent Accounting Pronouncements

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):

In March 2020 and updated in January 2021, the FASB issued ASU 2020-04 and 2021-01, “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.

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

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Performance Obligations

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Revenue is recognized over time based on time and material incurred to date which best portrays the transfer of control to the customer.

The Company also utilizes an available practical expedient that provides for revenue to be recognized in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date.

The Company also utilizes an available

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

practical expedient that provides for revenue to be recognized in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date.

Fixed fee arrangements are determined based on expected labor, material, and overhead to be consumed on fulfillment of such services.

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Revenue by industry was as follows:

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

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

Aerospace & Defense 12,717 3,897 101 — 16,715

Industrials 10,560 6,693 336 — 17,589

Power Generation & Transmission 11,412 2,615 660 — 14,687

Other Process Industries 8,819 3,035 32 — 11,886

Infrastructure, Research & Engineering 7,136 2,467 808 — 10,411

Other 5,824 1,773 1,001 ( 2,828 ) 5,770

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

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

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

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

Industrials 12,209 5,261 442 — 17,912

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

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

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

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

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

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

Three Months Ended March 31, 2022 Services International Products Corp/Elim Total

Oil & Gas $ 86,613 $ 7,572 $ 38 $ — $ 94,223

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Infrastructure, Research & Engineering 2,506 2,039 897 — 5,442

Petrochemical 3,045 78 — — 3,123

Other 2,638 1,901 545 ( 2,358 ) 2,726

Total $ 132,946 $ 28,138 $ 2,936 $ ( 2,358 ) $ 161,662

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

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

Oil & Gas $ 79,220 $ 7,936 $ 56 $ — $ 87,212

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Infrastructure, Research & Engineering 3,169 3,756 1,144 — 8,069

Petrochemical 5,464 72 — 5,536

Other 2,413 1,828 658 ( 1,199 ) 3,700

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

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 September 30, 2021 Services International Products Corp/Elim Total

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

Other Americas 21,681 1,446 133 ( 610 ) 22,650

Europe 491 26,378 499 ( 748 ) 26,620

Asia-Pacific 298 1,055 1,114 ( 129 ) 2,338

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

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

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

Other Americas 18,767 1,100 75 ( 124 ) 19,818

Europe 350 24,790 1,002 ( 1,088 ) 25,054

Asia-Pacific 18 394 1,317 ( 112 ) 1,617

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

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

Three Months Ended March 31, 2022 Services International Products Corp/Elim Total

United States $ 113,935 $ 173 $ 1,351 $ ( 655 ) $ 114,804

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Total $ 132,946 $ 28,138 $ 2,936 $ ( 2,358 ) $ 161,662

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

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

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

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

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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 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.

Revenue recognized during the three months ended March 31, 2022 and 2021 that was included in the contract liability balance at the beginning of such year was $ 2.2 million and $ 1.9 million for each period.

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:

(i) the 2009 Long-Term Incentive Plan (the "2009 Plan") and (ii) the 2016 Long-Term Incentive Plan (the "2016 Plan").

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

No further awards may be granted under the 2009 Plan, and the remaining stock option award granted under the 2009 Plan expired during the three months ended March 31, 2022.

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 are authorized for issuance under the 2016 Plan.

Stock Options

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,

For each of the three months ended March 31, 2022 and 2021, 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, 2022.

The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of March 31, 2022 and 2021:

Three months ended March 31,

Outstanding at beginning of period:

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— $ — 5 $ 22.35

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Restricted Stock Unit Awards

For the three months ended September 30, 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.

For the three months ended March 31, 2022 and March 31, 2021, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 0.9 million and $ 0.9 million, respectively.

As of March 31, 2022, there was $ 9.6 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 3.1 years.

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

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

Nine months ended September 30,

Three months ended March 31,

Restricted stock awards vested 226 111

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A summary of the fully-vested common stock the Company issued to its six non-employee directors, in connection with its non-employee director compensation plan, is as follows:

Nine months ended September 30,

Three months ended March 31,

Awards issued 34 25

Grant date fair value of awards issued $ 225 $ 258

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:

Nine months ended September 30,

Three months ended March 31,

Units Weighted

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The Company maintains Performance Restricted Stock Units (PRSUs) that have been granted to select executives and senior officers whose ultimate payout is based on the Company’s performance over a one-year period based on specific metrics approved by the Compensation Committee of the Board of Directors of the Company.

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

Adjusted EBITDA defined as net income attributable to the Company plus:

interest expense, provision for income taxes, depreciation and amortization, share-based compensation expense and certain acquisition related costs (including transaction due diligence costs and adjustments to the fair value of contingent consideration), foreign exchange (gain) loss and, if applicable, certain special items which are noted).

Free Cash Flow as a percentage of revenue.

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

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

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

For 2021, the three metrics are:

For 2021, the three metrics were:

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

Adjusted EBITDA as defined in the 2020 metric section above.

Adjusted EBITDA defined as net income attributable to the Company plus:

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

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

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

The share prices used to calculate the return are the average share price during the 20 -trading day period ending on the initial

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

measurement date (the last 20 trading days of 2020), compared to the average share price during the 20 -trading day period ending on the final measurement date (the last 20 trading days of 2021).

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

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

For 2022, the Compensation Committee retained the Company's prior year equity incentive compensation plan for its executive officers including utilizing the same metrics, as defined above, and approved the new target awards for 2022.

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

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

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.

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

PRSUs generally vest ratably on each of the first four anniversary dates upon completion of the performance period, for a total requisite service period of up to five years and have no dividend rights.

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

Nine months ended September 30,

Three months ended March 31,

Units Weighted

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656 $ 12.18 375 $ 12.18

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 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.

During the three months ended March 31, 2022 and March 31, 2021, the Compensation Committee approved the final calculation of the award metrics for calendar year 2021 and 2020, respectively.

As a result, the calendar year 2022 PRSUs decreased by approximately 56,000 units as a result of the final calculation of award metrics.

For the three months ended March 31, 2022 and March 31, 2021, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.3 million and $ 0.1 million, respectively.

At March 31, 2022, there was $ 2.6 million of total unrecognized compensation costs related to approximately 656,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of 2.5 years.

Earnings (loss) per Share

Basic earnings (loss) per share is computed by dividing net income by the weighted-average number of shares outstanding during the period.

Diluted earnings per share is computed by dividing net income by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, and (2) the dilutive effect of assumed conversion of equity awards using the treasury stock method.

Basic earnings (loss) per share is computed by dividing net loss by the weighted-average number of shares outstanding during the period.

Diluted earnings per share is computed by dividing net loss by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, and (2) the dilutive effect of assumed conversion of equity awards using the treasury stock method.

With respect to the number of weighted-average shares outstanding (denominator), diluted shares reflects:

4 unchanged sentences

(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 September 30, Nine months ended September 30,

2021 2020 2021 2020

Basic income (loss) per share

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

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

Three months ended March 31,

Basic loss per share

Net loss attributable to Mistras Group, Inc.

$ ( 5,363 ) $ ( 5,362 )

Weighted average common shares outstanding 29,634 29,425

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

Diluted income (loss) per share:

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

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

Diluted loss per share:

Net loss attributable to Mistras Group, Inc.

$ ( 5,363 ) $ ( 5,362 )

3 unchanged sentences

29,634 29,425

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

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

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

_______________

(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.

(1) For the three months ended March 31, 2022 and 2021, 1,212,000 and 509,000 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

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 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

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, 2022 and 2021:

Three months ended March 31,

Due diligence, professional fees and other transaction costs $ 4 $ 34

8 unchanged sentences

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Trade accounts receivable $ 130,504 $ 112,739

1 unchanged sentence

Accounts receivable, net $ 127,085 $ 109,511

The Company had $ 21.0 million and $ 11.9 million of unbilled revenue accrued as of September 30, 2021 and December 31, 2020, respectively.

The Company had $ 23.7 million and $ 11.9 million of unbilled revenue accrued as of March 31, 2022 and December 31, 2021, respectively.

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

8 unchanged sentences

Property, plant and equipment consisted of the following:

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Land $ 2,766 $ 2,762

8 unchanged sentences

Property, plant and equipment, net $ 83,689 $ 86,578

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.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Depreciation expense for the three months ended March 31, 2022 and 2021 was approximately $ 6.6 million and $ 6.1 million, respectively.

Changes in the carrying amount of goodwill by segment is shown below:

1 unchanged sentence

Balance at December 31, 2021 $ 190,656 $ 14,783 $ — $ 205,439

Goodwill acquired during the period 280 — — 280

Adjustments to preliminary purchase price allocations — — — —

Foreign currency translation 1,219 ( 249 ) 970

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

Balance at March 31, 2022 $ 191,875 $ 14,534 $ — $ 206,409

The Company reviews goodwill for impairment on a reporting unit basis on October 1 of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

During the first quarter of 2020, the Company’s market capitalization declined significantly compared to the fourth quarter of 2019.

Over the same period, the equity value of the Company’s peer group, and the overall U.S.

stock market also declined significantly amid market volatility.

In addition, oil prices had dropped significantly.

These declines were driven in large part by the uncertainty surrounding the COVID-19 pandemic and other macroeconomic events such as the geopolitical tensions between OPEC and Russia.

Based on these factors, the Company concluded that multiple triggering events occurred and, accordingly, an interim quantitative goodwill impairment test was performed as of the testing date for each reporting unit as of March 31, 2020 (“testing date”).

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.

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 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 performed a quantitative annual impairment test as of October 1, 2021 and the Company did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable.

Additionally, through March 31, 2022, 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.

Intangible Assets

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(Years) Gross

Impairment Net

Customer relationships 5 - 18

6 unchanged sentences

Total $ 188,021 $ ( 130,542 ) $ 57,479 $ 187,571 $ ( 128,190 ) $ 59,381

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.

The asset groups are groupings of assets and liabilities determined at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

Recoverability testing indicated that certain intangible assets and right of use assets (See Note 13- Leases ) were potentially impaired.

For asset groups that required an impairment measurement, similar to the valuations performed to determine the goodwill impairment, the Company used income and market approaches to estimate the fair value of the long-lived assets, which requires significant judgment in evaluation of the useful lives of the assets, economic and industry trends, estimated future cash flows, discount rates, and other factors.

The result of the analysis was an aggregate impairment charge of $ 28.8 million, which 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 nine months ended September 30, 2020.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Amortization expense for the three months ended March 31, 2022 and 2021 was approximately $ 2.4 million and $ 2.5 million, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Accrued salaries, wages and related employee benefits $ 34,423 $ 33,816

6 unchanged sentences

Total $ 87,466 $ 83,863

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Long-Term Debt

Long-term debt consisted of the following:

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Senior credit facility $ 130,000 $ 119,500

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 $ 80.4 million as of September 30, 2021.

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 .

Pursuant to the Amendment described below, the revolving line of credit was reduced from $ 155 million to $ 150 million on December 31, 2021.

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

8 unchanged sentences

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

• 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 4.5 to 1.0 and maintain a ratio of Senior Debt to EBITDA not to exceed 3.5 to 1.0, 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.

• 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 year ended December 31, 2021, which was included in selling, general and administrative expenses on the Consolidated Statements of 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 Consolidated Statements of Loss.

Mistras Group, Inc.

2 unchanged sentences

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

• 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.

• 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 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).

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 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.

As of March 31, 2022, the Company had borrowings of $ 203.1 million and a total of $ 3.3 million of letters of credit outstanding under the Credit Agreement.

The Company has capitalized costs associated with debt modifications of $ 0.8 million as of March 31, 2022, 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 March 31, 2022, 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.

2 unchanged sentences

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.

At March 31, 2022, there was an aggregate of approximately $ 5.9 million outstanding, payable at various times through 2030.

Monthly payments range from $ 0.4 thousand to $ 16 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:

Nine months ended September 30,

Three months ended March 31,

Beginning balance $ 1,831 $ 1,640

7 unchanged sentences

The Company has evaluated current market conditions and borrower credit quality and has determined that the carrying value of its long-term debt approximates fair value.

The fair value of the Company’s notes payable and finance lease obligations approximates their carrying amounts based on anticipated interest rates which management believes would currently be available to the Company for similar issuances of debt.

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

Leases Classification September 30, 2021 December 31, 2020

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

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

approximates their carrying amounts based on anticipated interest rates which management believes would currently be available to the Company for similar issuances of debt.

The Company’s Condensed Consolidated Balance Sheets include the following related to right-of-use ("ROU") operating leases:

Leases Classification March 31, 2022 December 31, 2021

ROU assets Other Assets $ 42,505 $ 42,451

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 $ 3.1 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 $ 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 nine months ended September 30, 2020.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

The ROU liability for this facility was approximately $ 2.4 million and $ 2.9 million as of March 31, 2022 and December 31, 2021, respectively.

Total rent payments for this facility were approximately $ 0.3 million and $ 0.5 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

An agreement was reached with the related party to reduce rental payments by 12.5 % for the lease of the Company’s headquarters, effective February 2022 as part of a voluntary reduction.

The total ROU assets attributable to finance leases were approximately $ 13.4 million and $ 13.8 million as of March 31, 2022 and December 31, 2021, respectively, which is included in Property, plant, and equipment, net on the Condensed Consolidated Balance Sheets.

The components of lease costs were as follows:

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

Three months ended March 31,

Classification 2022 2021

9 unchanged sentences

Total $ 4,913 $ 5,427

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:

Nine months ended September 30,

Three months ended March 31,

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

11 unchanged sentences

Operating leases 5.5 % 5.7 %

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 September 30, 2021 were as follows:

Maturities of lease liabilities as of March 31, 2022 were as follows:

Finance Operating

10 unchanged sentences

Legal Proceedings and Government Investigations

The Company is subject to periodic lawsuits, investigations and claims that arise in the ordinary course of business.

The Company is periodically involved in lawsuits, investigations and claims that arise in the ordinary course of business.

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

Except 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.

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

The costs incurred by the Company to defend lawsuits, investigations and claims and amounts the Company pays to other parties because of these matters may be covered by insurance in some circumstances.

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

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

As of December 31, 2019, approximately $ 1.4 million of past due receivables were outstanding from this customer.

As of March 31, 2022, approximately $ 1.4 million of past due receivables were outstanding from this customer.

The customer provided the Company with notice in December 2019, alleging that the Company’s inspection of 66 welds (out of approximately 16,000 welds inspected) were not in compliance with the contract, claimed approximately $ 7.6 million in damages, and requested that the Company pay these damages and any other damages incurred.

9 unchanged sentences

, one being a purported class action lawsuit on behalf of current and former Mistras employees in California and the other was filed on behalf of the State of California under the California Private Attorney General Act on the basis of the same alleged violations.

Both cases are requesting payment of all damages, including unpaid wages, and various fines and penalties available under California law.

The two cases have been consolidated and 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 of all claims in the cases, which was more formally documented pursuant to a settlement agreement completed October 5, 2021.

2 unchanged sentences

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.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Pension Related Contingencies

3 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 September 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 March 31, 2022 is approximately $ 2.5 million, which 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 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.

As of March 31, 2022, 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 $ 0.2 million of estimated obligations is net of $ 0.4 million in payments made and $ 1.0 million in reversals due to employees being transitioned to customer contracts.

3 unchanged sentences

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 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 .

As of March 31, 2022, total potential acquisition-related contingent consideration ranged from zero to approximately $ 1.9 million and would be payable upon the achievement of specific performance metrics by certain of the acquired companies over the next six 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 September 30, 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 $ 0.9 million is remaining as of March 31, 2022.

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 .

As of March 31, 2022, approximately $ 0.9 million is remaining on the amended purchase commitment.

The agreement is based on third party pricing and the Company's planned purchase requirements over the duration of the extension to meet the minimum contractual purchases.

Segment Disclosure

4 unchanged sentences

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.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

• Products and Systems.

1 unchanged sentence

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.

During the first quarter of 2022 the Company finalized a transfer pricing study which resulted in additional costs being allocated from Corporate to the operating segments with the majority of the costs allocated to the Services segment.

These costs are reflected in operating income (loss) of each segment.

Sales to the International segment from the Products and Systems segment and subsequent sales by the International segment of the same items are recorded and reflected in the operating performance of both segments.

6 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 September 30, Nine months ended September 30,

2021 2020 2021 2020

Three months ended March 31,

Services $ 132,946 $ 124,298

3 unchanged sentences

$ 161,662 $ 153,735

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

2021 2020 2021 2020

Three months ended March 31,

Services $ 30,526 $ 31,076

3 unchanged sentences

$ 39,892 $ 40,001

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 September 30, Nine months ended September 30,

2021 2020 2021 2020

Three months ended March 31,

Income (loss) from operations

4 unchanged sentences

$ ( 4,698 ) $ ( 4,746 )

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

2021 2020 2021 2020

Three months ended March 31,

Depreciation and amortization

4 unchanged sentences

$ 8,807 $ 8,565

September 30, 2021 December 31, 2020

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

March 31, 2022 December 31, 2021

Intangible assets, net

4 unchanged sentences

$ 57,479 $ 59,381

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Services $ 436,996 $ 424,058

3 unchanged sentences

$ 568,228 $ 562,195

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

Refer to Note 2 – Revenue , for revenue by geographic area for the three months ended March 31, 2022 and 2021.

Mistras Group, Inc.

3 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements