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Item 1A. Risk Factors

2023-03-15 compared with 2022-03-14 · 146 added, 136 removed, 163 unchanged (63% of the section changed)

This section describes the major risks to us, our business and our common stock.

You should carefully read and consider the risks described below, together with the other information contained in this Annual Report, including our financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (MD&A) before making an investment decision.

The statements contained in this section constitute cautionary statements under the Private Securities Litigation Reform Act of 1995.

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For example, the COVID-19 pandemic has had a dramatic negative impact on the health of citizens of many countries, and resulted in major disruptions in economies and markets around the world, including our key markets.

In addition, it is unclear what effects the recently engaged conflict between Russia and Ukraine is likely to have on the world economy and certain of our target markets, including particularly the oil and gas market.

In addition, it is unclear what effects the war between Russia and Ukraine is likely to have on the world economy and certain of our target markets, including particularly the oil and gas market, in the near and long term.

In addition, macroeconomic factors such as inflation, unemployment, and interest rates, amongst others, will impact our business.

Accordingly, you should not consider the following to be a complete discussion of all risks and uncertainties pertaining to us and our common stock.

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Although we have expanded our customer base into industries other than the oil and gas industry, we still receive a majority of our revenues from this industry.

Our services are vital to the operators of plants and refineries and we have expanded our services offerings, such as expanding our mechanical services capabilities.

Our services are vital to the operators of plants, refineries, and pipelines, and we have expanded our services offerings, such as expanding our mechanical and in-line inspection services capabilities.

However, economic slowdowns or low oil prices have, and could continue to, result in cutbacks in contracts for our services.

In addition, low oil prices could depress the level of new exploration and construction, which would adversely affect our market opportunities.

If the price of oil were to decrease to prior year levels, our revenues, profits and cash flows may be reduced.

If the price of oil were to decrease, our revenues, profits and cash flows may be reduced.

If the price of oil

reaches record, or near record levels as it did in 2022, we may experience delays or deferrals in performing inspection services to customers in the oil and gas industry.

While we continue to expand our market presence in the aerospace, power generation and transmission, and the chemical processing industries, among others, these markets are also cyclical in nature and as such, are subject to economic downturns.

We may be affected by climate change and market or regulatory responses to climate change

Climate change could have a material adverse effect on our results of operations, financial condition, and liquidity.

Restrictions on emissions, including those that have already been adopted and others that are expected to be adopted in the future, could affect our customers that (a) use commodities to produce energy, (b) use significant amounts of fossil fuel to produce or deliver commodities, or (c) manufacture or produce goods that consume significant amounts of fossil fuels or burn fossil fuels.

Restrictions on emissions, including those that have already been adopted and others that are expected to be adopted in the future, could affect our customers that (i) use commodities to produce energy, (ii) use significant amounts of fossil fuel to produce or deliver commodities, or (iii) manufacture or produce goods that consume significant amounts of fossil fuels or burn fossil fuels.

Significant cost increases, government regulation, or changes of consumer preferences for goods or services relating to alternative sources of energy or emissions reductions could materially affect the markets we serve (including the oil and gas industry), which in turn could have a material adverse effect on our results of operations, financial condition and liquidity.

Government incentives encouraging the use of alternative sources of energy also could affect certain of our customers and the markets we serve in an unpredictable manner.

Any of these factors, individually or in operation with one or more of the other factors, or other unforeseen impacts of climate change could have a material adverse effect on our results of operations, financial condition, and liquidity.

Our long-term growth strategy may include acquisitions.

We may not be able to identify suitable acquisition candidates or integrate acquired businesses successfully, which may adversely impact our results.

Furthermore, acquisitions that we have completed or may complete in the future could expose us to a number of unanticipated operational and financial risks.

A significant factor in our growth has been based upon our ability to make acquisitions and successfully integrate these acquired businesses.

We have used acquisitions both to expand into new markets and to enhance our position in existing markets.

This strategy has provided us with many benefits and has helped fuel our growth, but also carries with it many risks.

While we have not made a material acquisition in the past two years, we do expect to make acquisitions in the future, subject to the restrictions in our debt covenants.

Some of the risks associated with our acquisition strategy include:

• whether we successfully identify suitable acquisition candidates, negotiate appropriate acquisition terms, and complete proposed acquisitions;

• whether we can successfully integrate acquired businesses into our current operations, including our accounting, internal control and information technology systems, marketing and other key infrastructure;

• whether we can adequately capture opportunities that an acquired business may offer, including the expansion into new markets in which we have little to no experience or presence;

• whether we value an acquired business properly when determining the purchase price and terms, and whether we are able to achieve the returns on the investment we expect;

• whether an acquired business can achieve the levels of revenues, profitability, productivity or cost savings we expect;

• whether an acquired business is compatible with our culture and philosophy of doing business;

• the unexpected loss of key personnel and customers of an acquired business;

• the assumption of liabilities and risks (including environmental-related costs) of an acquired business, some of which may not be anticipated;

• the potential disruption of our ongoing business and distraction of our management and other personnel and of those of the acquired business resulting from the efforts to acquire, then integrate, an acquired business;

• the potential for greater exposure to risks associated with international operations;

• the amount and cost of funding (including borrowings under our credit agreement) to acquire and integrate other businesses (some of which may require substantial funding) and the impact of the acquisition and borrowing on our continued compliance with covenants in our credit agreement.

Our a bility to undertake acquisitions is limited by our financial resources, including available cash and borrowing capacity.

Due to our current debt levels and restrictions related to the covenants in our credit facility, we do not expect to make any acquisitions in 2022, other than small acquisitions with the banks’ approval.

Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of substantial additional indebtedness and other expenses, any of which could adversely impact our financial condition and results of operations.

Although we intend to:

(i) evaluate the risks inherent in any particular transaction, (ii) assume only risks we believe to be acceptable, and (iii) develop plans to mitigate such risks, there are no assurances that we will properly ascertain or accurately assess the extent of all such risks.

Difficulties encountered with acquisitions may adversely impact our business, financial condition and results of operations.

In addition, we have a significant amount of goodwill and other intangible assets on our balance sheet from our acquisitions.

This will increase as we complete more acquisitions.

If our acquisitions do not perform as planned and we do not realize the benefits and profitability we expect, we could incur significant write-downs and impairment charges to our earnings due to the impairment of the goodwill and other intangible assets we have acquired or acquire in the future.

We experienced such write-downs and impairment charges in the quarter ended March 31, 2020 (see Notes 8 and 9 to the consolidated financial statements included in Item 8 of this Annual Report).

Any of these factors, individually or with one or more of the other factors, or other unforeseen impacts of climate change could have a material adverse effect on our results of operations, financial condition and liquidity.

Our international operations are subject to risks relating to non-U.S.

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In addition, our international operations as a percentage of our business may increase over time.

Our primary operations outside the United States are in Canada, Germany, France, the United Kingdom and Brazil.

We also have operations in the Netherlands, Belgium, Greece and India.

Our primary operations outside the United States are in Canada, Germany, France, the United Kingdom, the Netherlands and Brazil.

We also have operations in Belgium, Greece and India.

There are numerous risks inherent in doing business in international markets, including:

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We expect to continue expanding and our success depends on how effectively we manage our growth.

We expect to continue experiencing growth in the number of employees and the scope of our operations over the long-term.

While we have not fully recovered to pre-COVID19 levels across all end markets in which we operate, we expect to grow in the scope of our operations over the long-term.

To effectively manage our anticipated future growth, we must continue to implement and improve our managerial, operational, compliance, financial and reporting systems and capabilities, expand our facilities and continue to recruit and train additional qualified personnel.

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Failure to manage our growth effectively could lead us to over or under-invest in technology and operations, result in weaknesses in our infrastructure, systems, compliance programs or controls, and give rise to operational mistakes, the loss of business opportunities, the loss of employees and reduced productivity among remaining employees.

Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of new solutions.

If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our profit margins may suffer, our revenues could decline or may grow more slowly than expected and we may be unable to implement our business strategy as anticipated.

Our anticipated growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of new solutions.

If our management is unable to effectively manage our anticipated growth, our expenses may increase more than expected, our profit margins may suffer, our revenues could decline or may grow more slowly than expected and we may be unable to implement our business strategy as anticipated.

Our operating results could be adversely affected by a reduction in business with our significant customers.

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The loss of any of our significant customers, any substantial decline in sales to these customers or any significant change in the timing or volume of purchases by our significant customers could result in lower revenues and could harm our business, financial condition or results of operations.

Our business, and the industries we currently serve, are currently subject to governmental regulation, and may become subject to modified or new government regulation that may negatively impact our ability to market our asset protection solutions.

We are required to comply with various government regulations and licensing requirements.

For example, the transportation and overnight storage of radioactive materials used in providing certain of our asset protection solutions such as radiography are subject to regulation under federal and state laws and licensing requirements.

Our Services segment is currently licensed to handle radioactive materials by the U.S.

Nuclear Regulatory Commission, more than 20 state regulatory agencies and the Canadian Nuclear Safety Commission.

If we allegedly fail to comply with these regulations, we may be investigated and incur significant legal expenses associated with such investigations, and if we are found to have violated these regulations, we may be fined or lose one or more of our licenses or permits, which would prevent or restrict our ability to provide radiography services.

In addition, while we are being investigated, we may be required to suspend work on the projects associated with our alleged noncompliance, resulting in loss of profits or customers, and damage to our reputation.

Many of our customers have strict requirements concerning safety or loss time occurrences and if we are unable to meet these requirements it could result in lost revenues.

In the future, governmental agencies may seek to change current regulations or impose additional regulations on our business.

Any modified or new government regulation applicable to our current or future asset protection solutions may negatively impact the marketing and provision of those solutions and increase our costs of providing these solutions and have a corresponding adverse effect on our margins.

Additionally, greenhouse gases that result from human activities, including burning of fossil fuels, have been the focus of increased scientific and political scrutiny and are being subjected to various legal requirements.

International agreements, national laws, state laws and various regulatory schemes limit or otherwise regulate emissions of greenhouse gases, and additional restrictions are under consideration by different governmental entities.

We derive a significant amount of revenues and profits from such industries, including oil and gas, power generation and transmission, and chemicals processing.

Such regulations could negatively impact our customers, which could negatively impact the market for the services and products we provide.

This could materially adversely affect our business, financial condition, results of operations and cash flows.

We rely on certification of our NDT solutions by industry standards-setting bodies.

We and/or our subsidiaries currently have International Organization for Standardization (ISO) 9001:2008 certification, ISO 14001:2004 certification and OHSAS 18001:2007 certification.

In addition, we currently have Nadcap (formerly National Aerospace and Defense Contractors Accreditation Program) and similar certifications for certain of our locations.

We continually review our NDT solutions for compliance with the requirements of industry specification standards and the Nadcap special processes quality requirements.

However, if we fail to maintain our ISO, Nadcap or other certifications, our business may be harmed because our customers generally require that we have these certifications before they purchase our NDT solutions.

An accident or incident involving our asset protection solutions could expose us to claims, harm our reputation and adversely affect our ability to compete for business and, as a result, harm our operating performance.

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• our ability to anticipate and support new standards, especially internet-based standards;

• our ability to integrate additional software modules under development by either Mistras or a customer, with our existing technology and operational processes.

• our ability to integrate additional software modules under development by either us or a customer, with our existing technology and operational processes.

If we are unable to adequately address any of these factors, our results of operations and prospects for growth and profitability

would be adversely impacted.

If we are unable to attract and retain a sufficient number of trained certified technicians, engineers and scientists at competitive wages, our operational performance may be harmed and our costs may increase.

If we are unable to attract and retain a sufficient number of trained certified technicians, engineers and scientists at competitive wages, changes in laws and other labor issues could materially affect our financial performance.

We believe that our success depends, in part, upon our ability to attract, develop and retain a sufficient number of trained certified technicians, engineers and scientists at competitive wages.

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When the demand for qualified technicians increases, we will often experience increased labor costs, which we may not recover in the amounts we can charge our customers.

The markets for our products and services require us to use personnel trained and certified in accordance with standards set by domestic or international standard-setting bodies, such as the American Society of Non-Destructive Testing or the American Petroleum Institute.

Because of the limited supply of these certified technicians, we expend substantial resources maintaining in-house training and certification programs.

If we fail to attract sufficient new personnel or fail to motivate and retain our current personnel, our ability to perform under existing contracts and orders or to pursue new business may be harmed, preventing us from growing our business or causing us to lose customers and revenues, and the costs of performing such contracts and orders may increase, which would likely reduce our margins.

In addition, if our costs of labor or related costs increase for other reasons or if new or revised labor laws, rules or regulations or healthcare laws are adopted or implemented that further increase our labor costs, our financial performance could be materially adversely affected.

We operate in competitive markets and if we are unable to compete successfully, we could lose market share and revenues and our margins could decline.

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In addition, because the asset protection solutions industry is evolving, we could lose insight into trends that may be emerging, which would further harm our competitive position by making it difficult to predict and respond to customer needs.

If the market for our asset protection solutions does not continue to develop, our ability to grow our business would be limited and we might not be able to maintain profitability.

If the market for our asset protection solutions does not continue to develop, our ability to grow our business would be limited and we might not be able to maintain

profitability.

If we cannot convince our customers of the advantages and value of our advanced NDT services, we could lose large contracts or suffer lower profit margin.

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We expect that the impact of seasonality will continue.

We incur substantial costs in complying with various government regulations and licensing requirements.

Our Services segment is currently licensed to handle radioactive materials by the U.S.

Nuclear Regulatory Commission (NRC), more than 20 state regulatory agencies and the Canadian Nuclear Safety Commission.

In addition, while we are investigated, we may be required to suspend work on the projects associated with our alleged noncompliance, resulting in loss of profits or customers, and damage to our reputation.

Many of our customers have strict requirements concerning safety or loss time occurrences and if we are unable to meet these requirements it could result in lost revenues.

In the future, governmental agencies may seek to change current regulations or impose additional regulations on our business.

We derive a significant amount of revenues

and profits from such industries, including oil and gas, power generation and transmission, and chemicals processing.

Such regulations could negatively impact our customers, which could negatively impact the market for the services and products we provide.

This could materially adversely affect our business, financial condition, results of operations and cash flows.

We rely on certification of our NDT solutions by industry standards-setting bodies.

We and/or our subsidiaries currently have International Organization for Standardization (ISO) 9001:2008 certification, ISO 14001:2004 certification and OHSAS 18001:2007 certification.

In addition, we currently have Nadcap (formerly National Aerospace and Defense Contractors Accreditation Program) and similar certifications for certain of our locations.

We continually review our NDT solutions for compliance with the requirements of industry specification standards and the Nadcap special processes quality requirements.

Our credit agreement contains financial and operating restrictions that may limit our access to credit.

If we fail to comply with financial or other covenants in our credit agreement, we may be required to repay indebtedness to our existing lenders, which may harm our liquidity.

Our credit agreement contains financial covenants that require us to maintain compliance with specified financial ratios.

fail to comply with these covenants, the lenders could prevent us from borrowing under our credit agreement, require us to pay

all amounts outstanding, require that we cash collateralize letters of credit issued under the credit agreement and restrict us from

making acquisitions.

If the maturity of our indebtedness is accelerated, we then may not have sufficient funds available for

repayment or the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us,

We believe that it is probable, based on the New Credit Agreement (as defined herein), that we will be able to comply

with the financial covenants in our credit agreement and that sufficient credit remains available under the credit agreement to

meet our liquidity needs.

However, due to the uncertainties being caused by the significant volatility in oil prices and volatility

in the aerospace production, such matters cannot be predicted with certainty.

Our current credit agreement also imposes restrictions on our ability to engage in certain activities, such as creating liens,

making certain investments, incurring more debt, disposing of certain property, paying dividends and making distributions and

entering into a new line of business.

While these restrictions have not impeded our business operations to date, if our plans

change, these restrictions could be burdensome or require that we pay fees to have the restrictions waived.

In addition, due to

our current debt levels and restrictions related to the debt covenants in our credit facility, we do not expect to make any

acquisitions in 2023 other than small acquisitions with the banks’ approval.

We face risks regarding our information technology and security.

Significant disruptions of our information technology systems or breaches of information security could adversely affect our

We rely upon information technology systems to operate many parts of our business.

We routinely collect, store and

transmit large amounts of sensitive or confidential information, including data from the results of our testing and inspections.

We deploy and operate various technical and procedural controls to maintain the confidentiality and integrity of such sensitive

or confidential information.

Furthermore, as we automate more of our inspection process and procedures, including through the

use of MISTRAS Digital, we become more vulnerable to security breaches and other system disruptions.

In addition, we rely on

third parties for significant elements of our information technology infrastructure and, as a result, we are managing many

independent vendor relationships with third parties who may or could have access to our confidential information.

complexity of our information technology and information security systems, and those of our third-party vendors with whom we contract (and the large amounts of confidential information that is present on them), make such systems potentially vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees or vendors, or from attacks by malicious third parties.

Such attacks are of ever-increasing levels of sophistication and expertise, including organized criminal groups, “hacktivists” and others.

Due to the nature of some of these attacks, there is a risk that they may remain undetected for a period of time.

While we have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches.

Any such interruption or breach of our systems could adversely affect our business operations and/or result in the loss of critical or sensitive confidential information, and could result in financial, legal, business and reputational harm to us.

We maintain cyber liability insurance.

However, this insurance may not be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems.

The occurrence or perception of security breaches in connection with our asset protection solutions or

our customers’ concerns about internet security or the security of our solutions, whether warranted or not, would likely harm our reputation and business, inhibit market acceptance of our asset protection solutions and cause us to lose customers, any of

which would harm our financial condition and results of operations.

In addition, much of our computer and communications hardware is located at a single facility.

We have a back-up data-center

and storage in a different geographic area.

Should a natural disaster or some other event occur that damages our primary data

center or significantly disrupts its operation, such as human error, fire, flood, power loss, telecommunications failure, break-ins,

terrorist attacks, acts of war and similar events, we could suffer temporary interruption of key functions and capabilities before

the back-up facility is fully operational.

Events such as natural disasters, industrial accidents, epidemics, pandemics, war and acts of terrorism, and adverse weather

conditions could disrupt our business or the business of our customers, which could significantly harm our operations, financial results and cash flow.

Our operations and those of our customers are susceptible to the occurrence of catastrophic events outside our control, which

may include events like epidemics, pandemics and other health crises, severe weather conditions, industrial accidents, and acts

of war and terrorism, to name a few.

We continue to actively monitor the war between Russia and Ukraine and the sanctions

imposed upon Russia in order to assess impacts to our customers and our operations.

At this time, we do not believe there is a

material impact on our operations, however the future impact of the conflict, and additional sanctions imposed, are uncertain.

Any such events could cause a serious business disruption that reduces our customers’ need or interest in purchasing our asset

protection solutions.

In the past, such events have resulted in order cancellations and delays because customer equipment,

facilities or operations have been damaged, or are not then operational or available.

A large portion of our customer base has

operations in the Gulf of Mexico, which is subject to hurricanes and tropical storms.

Hurricane-related disruptions to our

customers’ operations have adversely affected our revenues in the past.

Such events in the future may result in substantial delays in the provision of solutions to our customers and the loss of valuable equipment.

In addition, our results can be adversely impacted by severe winter weather conditions, which can result in lost workdays and temporary closures of customer facilities or outdoor projects.

In addition, these events could disrupt commodity prices or financial markets or have other negative macroeconomic impacts,

such as the on-going war between Ukraine and Russia, which could harm our business.

Our long-term growth strategy may include acquisitions.

We may not be able to identify suitable acquisition candidates or integrate acquired businesses successfully, which may adversely impact our results.

Furthermore, acquisitions that we have completed or may complete in the future could expose us to a number of unanticipated operational and financial risks.

A significant factor in our growth over the years has been based upon our ability to make acquisitions and successfully integrate these acquired businesses.

We have used acquisitions both to expand into new markets and to enhance our position in existing markets.

This strategy has provided us with many benefits and has helped fuel our growth, but also carries with it many risks.

We have not made a material acquisition in the past four years, and we do not expect to make material acquisitions in 2023.

acquisitions provide the potential for greater exposure to risks associated with international operations.

We have a significant amount of goodwill and other intangible assets on our balance sheet from our acquisitions.

Risks Related to Our Common Stock

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The concentrated ownership of our common stock may prevent other stockholders from influencing significant corporate decisions.

Vahaviolos, our founder and Executive Chairman, owns approximately 29% o f our outstanding common stock, and his three adult children own an additional 6%, in the aggregate.

Vahaviolos, our founder and Executive Chairman, owns approximately 6% of our outstanding common stock, his three adult children own an additional 6%, in the aggregate, and a grantor retained annuity trust he created, for which his daughter is the sole trustee, owns approximately 23%.

As a result, Dr.

Vahaviolos has significant control over our Company and has the ability to exert substantial influence over all matters requiring approval by our shareholders, including the election and removal of directors, amendments to our certificate of incorporation, and any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions.

Vahaviolos and his family have significant control over our Company and have the ability to exert substantial influence over all matters requiring approval by our shareholders, including the election and removal of directors, amendments to our certificate of incorporation, and any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions.

This concentration of ownership could be disadvantageous to other shareholders with differing interests from Dr.

Our stock price could fluctuate for numerous reasons, including variations in our results.

Our quarterly operating results have fluctuated in the past and may do so in the future.

Accordingly, we believe that period-to-period comparisons of our results of operations may be the best indicators of our business.

You should not rely upon the results of one quarter as an indication of future performance.

Our revenues and operating results may fall below the expectations of securities analysts or investors in any future period.

Our failure to meet these expectations may cause the market price of our common stock to decline, perhaps substantially.

Our quarterly revenues and operating results may vary depending on a number of factors, including those listed previously under “Risks Related to Our Business.” In addition, the price of our common stock is subject to general economic, market, industry, and competitive conditions, the risk factors discussed below and numerous other conditions outside of our control.

Vahaviolos and his family.

We currently have no plans to pay dividends on our common stock.

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Shares eligible for future sale may cause the market price for our common stock to decline even if our business is doing well.

Future sales by us or by our existing shareholders of substantial amounts of our common stock in the public market, or the perception that these sales may occur, could cause the market price of our common stock to decline.

Future sales by us or by our existing stockholders of substantial amounts of our common stock in the public market, or the perception that these sales may occur, could cause the market price of our common stock to decline.

This could also impair our ability to raise additional capital in the future through the sale of our equity securities.

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• prohibit cumulative voting in the election of directors, which may otherwise allow holders of less than a majority of stock to elect some directors;

• establish advance notice requirements for stockholder nominations to our board of directors or for stockholder proposals that can be acted on at stockholder meetings and limit the right to call special meetings of stockholders to the Chairman of the Board, the Chief Executive Officer, the board of directors acting pursuant to a resolution adopted by a majority of directors or the Secretary upon the written request of stockholders entitled to cast not less than 35% of all the votes entitled to be cast at such meeting.

• establish advance notice requirements for stockholder nominations to our board of directors or for stockholder proposals that can be acted on at stockholder meetings and limit the right to call special meetings of stockholders to the Chairman of our board, our Chief Executive Officer, our board of directors acting pursuant to a resolution adopted by a majority of directors or our Secretary upon the written request of stockholders entitled to cast not less than 35% of all the votes entitled to be cast at such meeting.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a prescribed period of time.

General Risk Factors

Our credit agreement contains financial and operating restrictions that may limit our access to credit.

If we fail to comply with financial or other covenants in our credit agreement, we may be required to repay indebtedness to our existing lenders, which may harm our liquidity.

Our credit agreement contains financial covenants that require us to maintain compliance with specified financial ratios.

If we fail to comply with these covenants, the lenders could prevent us from borrowing under our credit agreement, require us to pay all amounts outstanding, require that we cash collateralize letters of credit issued under the credit agreement and restrict us from making acquisitions.

If the maturity of our indebtedness is accelerated, we then may not have sufficient funds available for repayment or the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us, or at all.

We believe that it is probable, based on the amended covenants to the credit agreement, that we will be able to comply with the financial covenants in our credit agreement and that sufficient credit remains available under the credit agreement to meet our 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.

Our current credit agreement also imposes restrictions on our ability to engage in certain activities, such as creating liens, making certain investments, incurring more debt, disposing of certain property, paying dividends and making distributions and entering into a new line of business.

While these restrictions have not impeded our business operations to date, if our plans change, these restrictions could be burdensome or require that we pay fees to have the restrictions waived.

In addition, due to our current debt levels and restrictions related to the debt covenants in our credit facility, we do not expect to make any acquisitions in 2022 other than small acquisitions with the banks’ approval.

Our stock price could fluctuate for numerous reasons, including variations in our results.

Our quarterly operating results have fluctuated in the past and may do so in the future.

Accordingly, we believe that

period-to-period comparisons of our results of operations may be the best indicators of our business.

You should not rely upon

the results of one quarter as an indication of future performance.

Our revenues and operating results may fall below the expectations of securities analysts or investors in any future period.

Our failure to meet these expectations may cause the market price of our common stock to decline, perhaps substantially.

Our quarterly revenues and operating results may vary depending on a number of factors, including those listed previously under “—Risks Related to Our Business.” In addition, the price of our

common stock is subject to general economic, market, industry, and competitive conditions, the risk factors discussed herein

and numerous other conditions outside of our control.

The COVID-19 pandemic has adversely affected our business and operations and may continue to do so in the future.

The COVID-19 pandemic adversely affected the Company's business and operations during 2020, however our business and operations have rebounded to near pre-pandemic levels during 2021.

The COVID-19 pandemic has continued to cause disruption and volatility in domestic and international markets and in the businesses and operations of our customers.

In addition, as a result of the COVID-19 pandemic, some of our customers have been and could continue to be negatively impacted as a result of disruption in supply and demand, which has led to delays and could lead to defaults on collections of receivables from them.

Such continued delays could negatively impact our business, results of operations and financial condition.

While we have recovered during 2021 from most of the negative effects of the COVID-19 pandemic on our business and operations, we are unable to predict the nature or duration of the COVID-19 pandemic and the effect the pandemic will have on our business, financial condition, liquidity, cash flow and results of operations in the future.

If the pandemic continues longer or in a manner more adverse that expected, or has a greater adverse impact on our customers, our financial conditions could be adversely impacted and we may encounter difficulties meeting the financial covenants in our credit agreement.

Deteriorations in economic conditions in certain markets or other factors may cause us to recognize additional impairment charges for our goodwill.

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

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

stock market also declined significantly amid market volatility.

In addition, oil prices had dropped significantly.

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

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

Based upon the results of the interim quantitative goodwill impairment test during the first quarter of 2020, the Company recorded an aggregate impairment charge of $77.1 million, which included $57.2 million in the services reporting unit within the Services segment, and $19.3 million in the European reporting unit and $0.6 million in the Brazilian reporting unit, both within the International segment.

While we have significantly recovered during 2021, future deterioration in industry or economic conditions in which we operate, including disruptions in Europe or elsewhere as a result of the conflict between Russia and Ukraine, disruptions to our business, not effectively integrating acquired businesses, or other factors, may cause additional impairment charges to our goodwill in future periods.

We may face risks regarding our information technology and security.

Significant disruptions of our information technology systems or breaches of information security could adversely affect our business.

We rely upon information technology systems to operate many parts of our business.

We routinely collect, store and transmit large amounts of sensitive or confidential information, including data from the results of our testing and inspections.

We deploy and operate various technical and procedural controls to maintain the confidentiality and integrity of such sensitive or confidential information.

Furthermore, as we automate more of our inspection process and procedures, including through the use of Mistras Digital, we become more vulnerable to security breaches and other system disruptions.

In addition, we rely on third parties for significant elements of our information technology infrastructure and, as a result, we are managing many independent vendor relationships with third parties who may or could have access to our confidential information.

The size and complexity of our information technology and information security systems, and those of our third-party vendors with whom we contract (and the large amounts of confidential information that is present on them), make such systems potentially vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees or vendors, or from attacks by malicious third parties.

Such attacks are of ever-increasing levels of sophistication and expertise, including organized criminal groups, “hacktivists,” and others.

Due to the nature of some of these attacks, there is a risk that they may remain undetected for a period of time.

While we have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches.

We maintain cyber liability insurance;

however this insurance may not be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems.

The occurrence or perception of security breaches in connection with our asset protection solutions or our customers’ concerns about internet security or the security of our solutions, whether warranted or not, would likely harm our reputation and business, inhibit market acceptance of our asset protection solutions and cause us to lose customers, any of which would harm our financial condition and results of operations.

In addition, much of our computer and communications hardware is located at a single facility.

We have a back-up data-center and storage in a different geographic area.

Should a natural disaster or some other event occur that damages our primary data center or significantly disrupts its operation, such as human error, fire, flood, power loss, telecommunications failure, break-ins, terrorist attacks, acts of war and similar events, we could suffer temporary interruption of key functions and capabilities before the back-up facility is fully operational.

Throughout 2022, conditions continued to improve and subside related to the COVID-19 coronavirus (COVID-19) pandemic in domestic and international markets and operations began approaching pre-pandemic levels of activity.

While we recovered during 2022 from most of the negative effects of the COVID-19 pandemic on our business and operations, we are unable to predict the nature or duration of the COVID-19 pandemic and the effect the pandemic will have on our business, financial condition, liquidity, cash flow and results of operations in the future.

If the pandemic re-emerges, or another similar outbreak occurs, longer or in a manner more adverse that expected, or has a greater adverse impact on our customers, our financial conditions could be adversely impacted and we may encounter difficulties meeting the financial covenants in our credit agreement.

Deteriorations in economic conditions in certain markets or other factors may cause us to recognize impairment charges for our goodwill.

While we significantly recovered during 2022, future deterioration in industry or economic conditions in which we operate, including disruptions in Europe or elsewhere as a result of the war between Russia and Ukraine, disruptions to our business, not effectively integrating acquired businesses, or other factors, may cause impairment charges to our goodwill in future periods.

We are subject to privacy and data security/protection laws in the jurisdictions in which we operate and may be exposed to substantial costs and liabilities associated with such laws and regulations.

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In addition to GDPR, many states in the U.S.

and provinces in Canada have enacted, or are considering, data privacy requirements similar to GDPR, and thus we will need to ensure our procedures comply with these various state laws.

and provinces in Canada have enacted, or are considering, data privacy requirements similar to GDPR, and thus we will need to ensure our procedures comply with these various state and provincial laws.

Compliance with changes in privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes, which could have a material adverse effect on our financial condition and results of operations.

In addition, the payment of potentially significant fines or penalties in the event of a breach privacy and information security laws, as well as the negative publicity associated with such a breach, could damage the Company’s reputation and adversely impact product demand and customer relationships.

Events such as natural disasters, industrial accidents, epidemics, pandemics, war and acts of terrorism, and adverse weather conditions could disrupt our business or the business of our customers, which could significantly harm our operations, financial results and cash flow.

Our operations and those of our customers are susceptible to the occurrence of catastrophic events outside our control, which may include events like epidemics, pandemics and other health crises, severe weather conditions, industrial accidents, and acts of war and terrorism, to name a few.

We continue to actively monitor the conflict between Russia and Ukraine and the sanctions imposed upon Russia in order to assess impacts to our customers and our operations.

At this time, we do not believe there is a material impact on our operations, however the future impact of the conflict, and sanctions imposed, are uncertain.

Any such events could cause a serious business disruption that reduces our customers’ need or interest in purchasing our asset protection solutions.

In the past, such events have resulted in order cancellations and delays because customer equipment, facilities or operations have been damaged, or are not then operational or available.

A large portion of our customer base has operations in the Gulf of Mexico, which is subject to hurricanes and tropical storms.

Hurricane-related disruptions to our customers’ operations have adversely affected our revenues in the past.

Such events in the future may result in substantial delays in the provision of solutions to our customers and the loss of valuable equipment.

In addition, our results can be adversely impacted by severe winter weather conditions, which can result in lost workdays and temporary closures of customer facilities or outdoor projects.

Safety measures have been taken in an attempt to protect our employees during the COVID-19 pandemic.

In addition, these events could disrupt commodity prices or financial markets or have other negative macroeconomic impacts, such as those being caused by COVID-19 coronavirus or the invasion of Ukraine by Russia, which could harm our business.

In addition, the payment of potentially significant fines or penalties in the event of a breach of privacy and information security laws, as well as the negative publicity associated with such a breach, could damage our reputation and adversely impact product demand and customer relationships.

If we lose key members of our senior management team upon whom we are dependent, we may be less effective in managing our operations and may have more difficulty achieving our strategic objectives.

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At this time, we do not have any reason to believe that we may lose the services of any of these key persons in the foreseeable future and we believe our compensation programs will help us retain these individuals.

We believe we have sufficient depth in our executive management to continue our success if we were to lose the services of an executive.

However, an unplanned loss or interruption of the service of numerous key members of our senior management team could harm our business, financial condition and results of operations and could significantly reduce our ability to manage our operations and implement our strategy.

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To date, we have relied principally on copyright, trademark and trade secrecy laws, as well as confidentiality agreements and licensing arrangements, and more recently, patent protection, to establish and protect our intellectual property.

However, we have not obtained confidentiality agreements from all our customers and vendors.

However, we have not obtained confidentiality agreements from all our customers.

Although we obligate our employees to confidentiality, we cannot be certain that these obligations will be honored or enforceable in all circumstances.

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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-K

Item 1A. Risk Factors