What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-15 compared with 2022-03-14 · 168 added, 211 removed, 927 unchanged (29% of the section changed)

45 unchanged sentences

We evaluated the reasonableness of management’s forecasted revenue growth rates, gross margins, and selling, general, and administrative expense by comparing the forecasts to historical revenue growth rates, gross margins, and selling, general, and administrative expense and relevant industry reports.

We performed sensitivity analyses over the forecasted gross margins to assess the impact of changes in those assumptions on the Company’s determination of the fair value of its reporting units.

We evaluated the Company’s ability to accurately estimate future revenue growth rates, gross margins, and selling, general, and administrative expense by comparing the historical projected revenue growth rates, gross margins, and selling, general, and administrative expense to actual results for the same period.

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Legal settlement and litigation charges (benefit), net ( 994 ) 2,042 ( 220 )

Pension withdrawal expense — — 848

Research and engineering 1,994 2,518 2,892

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Interest expense 10,505 10,882 12,955

Income (loss) before provision for income taxes 7,288 ( 114,172 ) 10,439

Income (loss) before provision (benefit) for income taxes 9,294 7,288 ( 114,172 )

Provision (benefit) for income taxes 2,720 3,395 ( 14,706 )

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Foreign currency translation adjustments ( 13,084 ) ( 4,252 ) 5,227

Comprehensive income (loss) ( 359 ) ( 94,239 ) 12,355

Comprehensive loss ( 6,510 ) ( 359 ) ( 94,239 )

net income (loss) attributable to noncontrolling interests, net of taxes 75 33 ( 5 )

Foreign currency translation adjustments attributable to noncontrolling interests ( 5 ) ( 2 ) 3

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

Comprehensive loss attributable to Mistras Group, Inc.

$ ( 6,580 ) $ ( 390 ) $ ( 94,237 )

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

Net income — — — 6,060 — 6,060 20 6,080

Net loss — — — ( 99,461 ) — ( 99,461 ) ( 5 ) ( 99,466 )

Other comprehensive income, net of tax — — — — 5,224 5,224 3 5,227

Share-based payments 30 — 5,759 — — 5,759 — 5,759

Share-based compensation — — 5,930 — — 5,930 — 5,930

Net settlement on vesting of restricted stock units 289 3 ( 497 ) — — ( 494 ) — ( 494 )

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

Net loss — — — ( 99,461 ) — ( 99,461 ) ( 5 ) ( 99,466 )

Other comprehensive income, net of tax — — — — 5,224 5,224 3 5,227

Share-based payments — — 5,930 — — 5,930 — 5,930

Net income — — — 3,860 — 3,860 33 3,893

Other comprehensive loss, net of tax — — — — ( 4,250 ) ( 4,250 ) ( 2 ) ( 4,252 )

Share-based compensation — — 5,421 — — 5,421 — 5,421

Net settlement of restricted stock units 312 3 ( 1,372 ) — — ( 1,369 ) — ( 1,369 )

1 unchanged sentence

Net income — — — 6,499 — 6,499 75 6,574

Other comprehensive income, net of tax — — — — ( 4,250 ) ( 4,250 ) ( 2 ) ( 4,252 )

Share-based payments — — 5,421 — — 5,421 — 5,421

Other comprehensive loss, net of tax — — — — ( 13,079 ) ( 13,079 ) ( 5 ) ( 13,084 )

Share-based compensation — — 5,335 — — 5,335 — 5,335

Net settlement of restricted stock units 349 3 ( 991 ) — — ( 988 ) — ( 988 )

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Foreign currency (gain) loss ( 208 ) 417 3,010

Payment of finance costs ( 400 ) — —

Fair value adjustments to contingent consideration 45 949 337

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Income taxes payable 1,084 ( 1,917 ) 384

Payment of contingent consideration in excess of initial estimate ( 533 ) — —

Net cash provided by operating activities 26,406 42,261 67,802

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Repayments of revolver ( 246,750 ) ( 89,065 ) ( 68,050 )

Payments of debt issuance costs ( 550 ) ( 1,497 ) —

Payments of financing costs ( 147 ) ( 550 ) ( 1,497 )

Payment of contingent consideration for business acquisitions ( 405 ) ( 938 ) ( 2,091 )

Taxes paid related to net share settlement of share-based awards ( 977 ) ( 1,370 ) ( 494 )

Proceeds from the exercise of stock options — — 32

Net cash used in financing activities ( 16,323 ) ( 23,245 ) ( 44,169 )

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Mistras Group, Inc.

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

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

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies and decades-long legacy of industry leadership, the Company helps clients with asset-intensive infrastructure in the oil and gas, aerospace and defense, industrials, power generation and transmission (including alternative and renewable energy), other process industries and infrastructure, research and engineering and other industries towards achieving and maintaining operational excellence.

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inspecting components that are trusted for commercial, defense, and space craft;

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

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

The Company's core capabilities also include non-destructive testing 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.

and building real-time monitoring systems to help avoid catastrophic incidents, 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 IIoT - 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 however conditions continued to improve throughout 2021 as compared to 2020.

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

Centers for Disease Control and Prevention (CDC).

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

Issues related to the COVID-19 coronavirus (COVID-19) pandemic have subsided significantly during 2022 as compared to 2021.

The Russian-Ukrainian war is creating disruption in the oil and gas market and the supply chain in general, which is resulting in some disruption to our business operations.

With oil prices high, refineries are working at full capacity and are deferring maintenance and inspection work as much as possible, which is impacting our business as well.

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

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

The COVID-19 pandemic uncertainty, significant volatility in oil prices, and decreased traffic in the aerospace industry have adversely affected the operations of the Company's customers, suppliers and contractors beginning in the first quarter of 2020, and as a consequence, the Company's results of operations were adversely impacted.

These negative factors continue to cause volatility and uncertainty in the markets in which the Company operates, although the Company in 2021 has nevertheless begun approaching pre-pandemic levels of activity in certain end markets, particularly oil and gas 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 17 - Leases for additional information.

The Company has eliminated substantially all of the temporary 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 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.

Earlier in 2022, the Company eliminated substantially all of the COVID related 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 and the effect of inflationary pressures may have on its business, results of operations or liquidity or in other ways which the Company cannot yet determine.

The Company’s European operations are currently experiencing increased costs associated with higher energy costs, among others, due in part to the Russian-Ukrainian war.

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

As of December 31, 2021, the cash balance was approximately $ 24.1 million.

Principles of Consolidation

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The preparation of financial statements in accordance with U.S.

generally accepted accounting principles (GAAP) requires that the Company make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of financial statements.

generally accepted accounting principles ("U.S.

GAAP") requires that the Company make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of the financial statements.

The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable.

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The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Accounts Receivable and Allowance for Credit Losses (formerly Allowance for Doubtful Accounts)

Accounts Receivable and Allowance for Credit Losses

The Company maintains an allowance for credit losses on its accounts receivable balances, which represents its best estimate of current expected credit losses over the contractual life of the accounts receivable.

Beginning January 1, 2020, when evaluating the adequacy of its allowance for credit losses each reporting period, the Company analyzes accounts receivable balances with similar risk characteristics on a collective basis, considering factors such as the aging of receivable balances, payment terms

(primarily with 30 day terms), geographic location, historical loss experience, current information, and future expectations (generally considered one year which is consistent with expected collectability of the Company's trade receivables).

The Company monitors and considers whether historical loss rates are consistent with expectation of supportable forward-looking estimates for its trade receivables noting no current or future economic considerations that would require adjusting the Company’s historical loss experience.

When evaluating the adequacy of its allowance for credit losses each reporting period, the Company analyzes accounts receivable balances with similar risk characteristics on a collective basis, considering factors such as the aging of receivable balances, payment terms (primarily with 30 day terms), geographic location, historical loss experience, current information and future expectations (generally considered one year which is consistent with expected collectability of the Company's trade receivables).

The Company monitors and considers whether historical loss rates are consistent with expectation of supportable forward-looking estimates for its trade receivables noting any current or future economic considerations that would require adjusting the Company’s historical loss experience.

Each reporting period, the Company reassesses whether any accounts receivable no longer share similar risk characteristics and should instead be evaluated as part of another pool or on an individual basis.

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Goodwill represents the excess purchase price of acquired businesses over the fair values attributed to underlying net tangible assets and identifiable intangible assets.

The Company tests goodwill for impairment at a “reporting unit” level (which for the Company is represented by (i) our Services segment, (ii) our Products and Systems segment, and (iii) the European component of our International segment and (iv) the Brazilian component of our International segment).

Our annual impairment test is conducted on the first day of our fourth quarter, which is October 1.

The Company tests goodwill for impairment at a “reporting unit” level (which for the Company is represented by (i) its Services segment, (ii) its Products and Systems segment, (iii) the European component of its International segment and (iv) the Brazilian component of its International segment).

The Company's annual impairment test is conducted on the first day of the Company's fourth quarter, which is October 1.

Goodwill is also tested for impairment whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

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If the fair value of a reporting unit is less than its carrying value, this is an indicator that the goodwill assigned to that reporting unit may be impaired.

As a result of the Company adopting Accounting Standards Update ("ASU") No.

2017-04, Intangibles-Goodwill and Other (Topic 350) , impairment will be recorded in the amount that fair value is less than carrying value, as the ASU eliminated step two of the goodwill impairment process.

The Company considers the income and market approaches to

estimating the fair value of our reporting units, which requires significant judgment in evaluation of economic and industry trends, estimated future cash flows, discount rates and other factors.

An impairment will be recorded in the amount that the fair value is less than the carrying value.

The Company considers the income and market approaches to estimating the fair value of its reporting units, which requires significant judgment in evaluation of economic and industry trends, estimated future cash flows, discount rates and other factors.

See Note 8- Goodwill for additional information related to the Company's goodwill impairment test during 2022.

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Translation gains and losses are reported as a component of other comprehensive income (loss) for the period and included in accumulated other comprehensive income (loss) within stockholders’ equity.

Foreign currency (gains) and losses arising from transactions denominated in currencies other than the functional currency are included in net income, reported in selling, general and administrative expenses, and were approximately $ 0.4 million, $ 3.1 million, and $( 0.5 ) million for the years ended December 31, 2021, 2020 and 2019, respectively.

Foreign currency (gains) losses arising from transactions denominated in currencies other than the functional currency are included in net income, reported in selling, general and administrative expenses, and were approximately $( 0.2 ) million, $ 0.4 million, and $ 3.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Self-Insurance

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As share-based compensation expense is based on awards ultimately expected to vest, the amount of expense is reduced for estimated forfeitures.

The cost of these awards is recorded in selling, general and administrative expense in the Company’s consolidated statements of income.

The cost of these awards is recorded in selling, general and administrative expenses in the Company’s Consolidated Statements of Income (Loss).

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

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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 and 2021-01, “ Reference Rate Reform (Topic 848):

In March 2020 and updated in January 2021, the FASB issued Accounting Standards Update ("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 is currently evaluating applicable contracts and the available expedients provided by the new guidance.

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

The Company derives the majority of its revenue by providing services on a time and material basis that are short-term in

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

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The Company's performance obligations are satisfied over time as work progresses or at a point in time.

The majority of the Company's revenue is recognized over time as work progresses for the Company's service deliverables, which includes providing testing, inspection and mechanical services to our customers.

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

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

The majority of our revenue recognized at a point in time is related to product sales when the customer obtains control of the asset, which is generally upon shipment to the customer.

The majority of the Company's revenue recognized at a point in time is related to product sales when the customer obtains control of the asset, which is generally upon shipment to the customer.

Contract costs include labor, material and overhead.

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Contract Estimates

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

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

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

The actual contracting to provide services or furnish products are triggered by a work order, purchase order, or some similar document issued pursuant to a MSA which sets forth the scope of services and/or identifies the products to be provided.

The actual contracting to provide services or furnish products are triggered by a work order, purchase order, or some similar document issued pursuant to an MSA which sets forth the scope of services and/or identifies the products to be provided.

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

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

Revenue by industry was as follows:

Year ended December 31, 2021 Services International Products & Systems Corp/Elim Total

Revenue by industry was as follows (in thousands):

Year ended December 31, 2022 Services International Products Corp/Elim Total

Oil & Gas $ 356,763 $ 30,654 $ 335 $ — $ 387,752

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Total $ 573,336 $ 112,425 $ 12,727 $ ( 11,115 ) $ 687,373

Year ended December 31, 2020 Services International Products & Systems Corp/Elim Total

Year ended December 31, 2021 Services International Products Corp/Elim Total

Oil & Gas $ 330,880 $ 35,232 $ 808 $ — $ 366,920

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Total $ 555,387 $ 117,245 $ 13,831 $ ( 9,332 ) $ 677,131

Year ended December 31, 2019 Services International Products & Systems Corp/Elim Total

Year ended December 31, 2020 Services International Products Corp/Elim Total

Oil & Gas $ 279,723 $ 39,383 $ 377 $ — $ 319,483

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Total 476,164 107,556 16,449 $ ( 7,598 ) $ 592,571

Revenue per key geographic location was as follows:

Year ended December 31, 2021 Services International Products & Systems Corp/Elim Total

Revenue per key geographic location was as follows (in thousands):

Year ended December 31, 2022 Services International Products Corp/Elim Total

United States $ 485,551 $ 910 $ 6,495 $ ( 3,083 ) $ 489,873

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Total $ 573,336 $ 112,425 $ 12,727 $ ( 11,115 ) $ 687,373

Year ended December 31, 2020 Services International Products & Systems Corp/Elim Total

Year ended December 31, 2021 Services International Products Corp/Elim Total

United States $ 472,125 $ 912 $ 6,469 $ ( 4,284 ) $ 475,222

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Total $ 555,387 $ 117,245 $ 13,831 $ ( 9,332 ) $ 677,131

Year ended December 31, 2019 Services International Products & Systems Corp/Elim Total

Year ended December 31, 2020 Services International Products Corp/Elim Total

United States $ 406,437 $ 911 $ 7,551 $ ( 3,410 ) $ 411,489

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Changes in the contract asset and liability balances during the years ended December 31, 2022 and 2021, were not impacted by any other factors.

The Company applies the practical expedient to expense incremental costs incurred related to obtaining a contract when the asset that the Company otherwise would have recognized is one year or less.

The Company applies the practical expedient to expense incremental

costs incurred related to obtaining a contract when the amortization period of the asset that the Company otherwise would have recognized is one year or less.

Earnings per Share

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

Diluted earnings (loss) per share is computed by dividing net income (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.

Diluted earnings per share is computed by dividing net income by the sum of (i) the weighted average number of shares of common stock outstanding during the period and (ii) 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:

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

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

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

The following table sets forth the computations of basic and diluted earnings (loss) per share (in thousands except share data):

For the year ended December 31,

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Diluted earnings (loss) per share $ 0.21 $ 0.13 $ ( 3.41 )

The following potential common shares were excluded from the computation of diluted earnings per share, as the effect would have been anti-

The following potential common stock were excluded from the computation of diluted earnings per share, as the effect would have been anti-dilutive:

For the year ended December 31,

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Potential common stock attributable to restricted stock units (RSUs) and performance stock units (PSUs) outstanding (1)

1,005 109 790

Potential common stock attributable to stock options outstanding 1 5 5

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Accounts Receivable

Accounts receivable consist of the following:

Accounts receivable consist of the following (in thousands):

Trade accounts receivable $ 127,767 $ 112,739

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The Company recorded a full reserve for these receivables in the prior years.

Inventories consist of the following:

Inventories consist of the following (in thousands):

Raw materials $ 5,351 $ 4,794

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Useful Life 2022 2021

(Years) (in thousands)

Land $ 2,529 $ 2,762

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The Company completed its acquisition accounting for this transaction in accordance with the acquisition method of accounting for business combinations during the year ended December 31, 2021.

During September 2019, the Company completed one acquisition that provides pipeline integrity management software and services to energy transportation companies.

The Company acquired all the equity interest of the acquired entity in exchange for aggregate consideration of $ 4.4 million in cash, contingent consideration of up to $ 4.3 million to be earned based upon the acquired business achieving specific performance metrics over the initial three years of operations from the acquisition date and working capital adjustments.

The goodwill recorded is primarily attributable to expected synergies and is generally deductible for tax purposes.

The Company accounted for this transaction in accordance with the acquisition method of accounting for business combinations.

The following table summarizes the final fair value of the assets acquired and liabilities assumed and the Company's allocation of purchase price:

Cash paid $ 4,380

Working capital adjustments $ ( 152 )

Fair value of contingent consideration $ 1,342

Total consideration $ 5,570

Current net assets $ 142

Other assets $ 34

Property, plant and equipment $ 65

Intangibles $ 3,594

Goodwill $ 1,735

Net assets acquired $ 5,570

Assets and liabilities of the acquired businesses were included in the consolidated balance sheet based on their respective estimated fair value on the date of acquisition as determined in a purchase price allocation, using available information and making assumptions management believes are reasonable.

The amortization periods for the intangible assets acquired range from one year to eighteen years .

Assets and liabilities of the acquired business were included in the Consolidated Balance Sheet based on their respective estimated fair value on the date of acquisition as determined in a purchase price allocation, using available information and making assumptions management believes are reasonable.

Acquisition-Related expense

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

These amounts are recorded as acquisition-related expense, net, on the consolidated statements of income and were as follows for the years ended December 31, 2021, 2020 and 2019:

These amounts are recorded as acquisition-related expense, net, on the Consolidated Statements of Income (Loss) and were as follows for the years ended December 31, 2022, 2021 and 2020 (in thousands):

For the year ended December 31,

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Acquisition-related expense, net $ 76 $ 1,133 $ 337

The Company’s contingent consideration liabilities are recorded on the consolidated balance sheets in accrued expenses and other current liabilities and other long-term liabilities.

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

As of December 31, 2022, the Company’s contingent consideration liabilities are recorded on the Consolidated Balance Sheet in accrued expenses and other current liabilities.

The changes in the carrying amount of goodwill by segment is shown below (in thousands):

Services International Products and Systems Total

Balance at December 31, 2020 $ 190,112 $ 15,896 $ — $ 206,008

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

Adjustments to preliminary purchase price allocations 280 — — 280

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

Impairment charges — — — —

Adjustments to preliminary purchase price allocations 280 — — 280

Foreign currency translation ( 4,946 ) ( 858 ) — ( 5,804 )

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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").

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

("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 Consolidated Statements of Income (Loss) for the three months ended March 31, 2020.

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.

The Company performed a quantitative annual impairment test as of October 1, 2022 and 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 December 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.

The Company's cumulative goodwill impairment as of December 31, 2021 and December 31, 2020 was $ 100.2 million, of which $ 57.2 million related to the Services segment, $ 29.8 million related to the International segment and $ 13.2 million related to the Products and Systems segment.

The Company's cumulative goodwill impairment as of December 31, 2022 was $ 100.2 million, of which $ 57.2 million related to the Services segment, $ 29.8 million related to the International segment and $ 13.2 million related to the Products and Systems segment.

Intangible Assets

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

The gross carrying amount and accumulated amortization of intangible assets were as follows (in thousands):

Amount Accumulated

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Amount Accumulated

Amortization Impairment Net

Amortization Net

Customer relationships 5 - 18

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Total $ 183,588 $ ( 134,573 ) $ 49,015 $ 187,571 $ ( 128,190 ) $ 59,381

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.

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Amortization expense for the years ended December 31, 2022, 2021 and 2020, was approximately $ 9.1 million, $ 9.7 million, and $ 11.0 million, respectively, including amortization of software/technology for these periods of $ 2.9 million, $ 3.0 million, and $ 3.6 million, respectively.

Amortization expense in each of the five years and thereafter subsequent to December 31, 2021 related to the Company’s intangible assets is expected to be as follows:

Amortization expense in each of the five years and thereafter subsequent to December 31, 2022 related to the Company’s intangible assets is expected to be as follows (in thousands):

Thereafter 17,019

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Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

Accrued expenses and other current liabilities consist of the following (in thousands):

Accrued salaries, wages and related employee benefits $ 26,684 $ 33,816

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Long-Term Debt

Long-term debt consisted of the following:

Long-term debt consisted of the following (in thousands):

Senior credit facility $ 65,250 $ 119,500

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Senior Credit Facility

The Company has a credit agreement with its banking group (as amended, the “Credit Agreement”) which provides the Company with a revolving line of credit and a $ 100 million senior secured term loan A facility.

Pursuant to the Amendment described below, the revolving line of credit was reduced from $ 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.

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

The Amendment made the following changes:

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

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

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

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

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

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

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

• 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 year ended December 31, 2021, which was included in selling, general and administrative expenses on the 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 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 December 31, 2021, the Company had borrowings of $ 196.1 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 $ 0.9 million as of December 31, 2021, which is included in Other Assets on the consolidated balance sheet.

As of December 31, 2021, the Company was in compliance with the terms of the Credit Agreement.

The Company continuously monitors its compliance with the covenants contained in its Credit Agreement.

The Company believes that it is probable, based on the amended covenants, that the Company will be able to comply with the financial covenants in the Credit Agreement as modified by the Amendment and that sufficient credit remains available under the Credit Agreement to meet the Company's liquidity needs.

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.

Prior to entering into the New Credit Agreement (defined and described below), the Company had a credit agreement with its banking group (the "Credit Agreement") which provided the Company with a $ 150 million revolving credit facility and a $ 100 million term loan.

The Credit Agreement was most recently amended on May 19, 2021 and had a maturity date of December 12, 2023.

On August 1, 2022, the Company entered into a new credit agreement (the “New Credit Agreement”) which replaced the prior Credit Agreement and provides the Company with a $ 190 million 5 -year committed revolving credit facility and a $ 125 million term loan with a balance of $ 121.4 million as of December 31, 2022.

The New Credit Agreement permits the Company to borrow up to $ 100 million in non-US dollar currencies and to use up to $ 20 million of the credit limit for the issuance of letters of credit.

Both the revolving line of credit and the term loan under the New Credit Agreement have a maturity date of July 30, 2027.

The New Credit Agreement has the following key terms, conditions and financial covenants:

• Borrowings bear interest at Secured Overnight Financing Rate ("SOFR") plus a credit spread adjustment and applicable SOFR margin ranging from 1.25 % to 2.75 %, based upon our Total Consolidated Debt Leverage Ratio (defined below);

under the Credit Agreement, the margin was based upon the LIBOR margin.

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

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

• The Company has the benefit of the lowest SOFR margin if its Total Consolidated Debt Leverage Ratio is equal to or less than 1.25 to 1.0, and the margin increases as the ratio increases, to the maximum margin if the ratio is greater than 3.75 to 1.0.

The New Credit Agreement is secured by liens on substantially all the assets of the Company and certain of its U.S subsidiaries and is guaranteed by those U.S subsidiaries.

• The Company has to maintain a Total Consolidated Debt Leverage Ratio of no more than 4.0 to 1.0 at the end of each quarter through June 30, 2023 and stepping down to a maximum permitted ratio of no more than 3.75 to 1.0 for the remainder of the term.

• The Company has to maintain a Fixed Charge Coverage Ratio of 1.25 to 1.0 for the duration of the New Credit Agreement, as defined in the New Credit Agreement.

• The New Credit Agreement limits the Company’s ability to, among other things, create liens, make investments, incur more indebtedness, merge or consolidate, make dispositions of property, pay dividends, make distributions to stockholders or repurchase our stock, enter into a new line of business, enter into transactions with affiliates and enter into burdensome agreements.

• The New Credit Agreement does not limit the Company’s ability to acquire other businesses or companies except that the acquired business or company must be in the Company's line of business, the Company must be in compliance with the financial covenants on a pro forma basis after taking into account the acquisition, and the Company must provide written notice at least five business days prior to the date of an acquisition of $ 10 million or more.

• Quarterly payments on the term loan of $ 1.56 million through June 30, 2024, then increasing to $ 2.34 million through June 30, 2025, and to $ 3.12 million for each quarterly payment thereafter through maturity.

The New Credit Agreement was accounted for as a modification and the Company expensed $ 0.8 million in unamortized capitalized debt issuance costs and fees during the three months ended September 30, 2022, which was included in selling, general and administrative expenses on the Consolidated Statements of Income (Loss).

The Company incurred $ 1.6 million in financing costs for the New Credit Agreement, of which $ 0.2 million of third party costs were expensed and included in selling, general and administrative expenses on the Consolidated Statements of Income (Loss).

As of December 31, 2022, the Company had borrowings of $ 186.6 million and a total of $ 3.0 million of letters of credit outstanding under the New Credit Agreement.

The Company has capitalized costs associated with debt modifications of $ 1.4 million as of December 31, 2022, which is included in Other assets on the Consolidated Balance Sheet and will be amortized into interest expense over the remaining term of the Credit Agreement through July 30, 2027.

As of December 31, 2022, the Company was in compliance with the terms of the New Credit Agreement.

The Company continuously monitors compliance with the covenants contained in the New Credit Agreement.

The Company believes that it is probable that the Company will be able to comply with the financial covenants in the New Credit Agreement and that sufficient credit remains available under the New Credit Agreement to meet the Company's liquidity needs.

However, such matters cannot be predicted with certainty.

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

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Monthly payments ran ge from $ 1 thousand to $ 15 thousand and interest rates range from 0.4 % to 3.5 %.

Scheduled principal payments due under all borrowing agreements in each of the five years and thereafter subsequent to December 31, 2021 are as follows:

2022 $ 20,180

Scheduled principal payments due under all borrowing agreements in each of the five years and thereafter subsequent to December 31, 2022 are as follows (in thousands):

Thereafter 799

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The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the applicable acquisition agreements.

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

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

Balance at the beginning of the period:

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Share-Based Compensation

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

The Company grants share-based incentive awards 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 million, for a total of 3.7 million shares that may be issued under the 2016 Plan, of which 1,176,888 shares were available for future grants as of December 31, 2021.

As of December 31, 2021, there was an aggregate of approximately 5,000 stock options outstanding under the 2009 Plan.

At the annual stockholders meeting on May 23, 2022, the Company’s stockholders approved an amendment to increase the total number of shares that may be issued under the 2016 Plan by 1.2 million, for a total of 4.9 million shares that are authorized for issuance under the 2016 plan, of which approximately 1,900,000 shares were available for future grants as of December 31, 2022.

Stock Options

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No unrecognized compensation costs remained related to the stock option awards.

Cash proceeds from, and the intrinsic value of, stock options exercised during the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands):

For the year ended December 31,

2021 2020 2019 1

Cash proceeds from options exercised $ — $ — $ 32

Aggregate intrinsic value of options exercised $ — $ — $ 4,530

____________________

1 During 2019, 2.1 million stock options were net exercised, wherein the option holders surrendered a portion of the underlying stock option awards to pay the exercise price and required minimum tax withholding.

The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of December 31, 2021, 2020 and 2019 is as follows (in thousands, except per share amounts and years):

In addition, there were no stock options exercised during the years ended December 31, 2022, 2021 and 2020.

The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of December 31, 2022, 2021 and 2020 as follows (in thousands, except per share amounts and years):

For the years ended December 31,

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— $ — 5 $ 22.35 5 $ 22.35

December 31, 2021

Options Outstanding Options Exercisable

Exercise Price Total

22.35 5 0.2 $ 22.35 5 $ 22.35

Aggregate Intrinsic Value $ — $ —

Restricted Stock Unit Awards

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Upon vesting, restricted stock units are generally net share-settled to cover the required minimum 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:

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

For the year ended December 31,

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Fair value of awards vested $ 2,524 $ 3,434 $ 837

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:

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 (in thousands):

For the year ended December 31,

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Grant date fair value of awards issued $ 450 $ 525 $ 326

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

A summary of the Company's outstanding, non-vested restricted share units is as follows (in thousands, except per share amounts and years):

For the year ended December 31,

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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

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 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 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 metrics for 2021.

For 2021, the three metrics are:

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

Adjusted EBITDA as defined in the 2020 metric section above.

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

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

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

period ending on the final measurement date (the last 20 trading days of 2021).

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

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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 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 presented as follows:

A summary of the Company's PRSU activity is presented as follows (in thousands, except per share amounts and years):

For the year ended December 31,

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For the year ended December 31, 2022, 341,000 PRSUs were granted.

There was a 56,000 net unit reduction to these awards, which represents Company performance against target, during the year ended December 31, 2021.

There was a 376,000 net unit reduction to these awards, which represents Company performance below target, during the year ended December 31, 2022.

For the year ended December 31, 2021, 189,000 PRSUs were granted.

There was a 99,000 unit reduction to these awards, which represents Company performance against target, (including an increase of 1,000 units due to the Compensation Committee approving the final calculation of the award metrics for calendar year 2019), during the year ended December 31, 2020.

There was a 56,000 unit reduction to these awards, which represents Company performance against target, during the year ended December 31, 2021.

For the year ended December 31, 2020, 292,000 PRSUs were granted.

There was a 103,000 unit reduction to these awards, which represents Company performance below target, during the year ended December 31, 2019.

As of December 31, 2019, the aggregate liability related to 29,000 outstanding discretionary PRSUs was less than $ 0.1 million and is classified within Accrued expenses and other liabilities on the consolidated balance sheet.

Compensation expense related to all PRSUs described above was $ 1.2 million, $ 1.4 million, and $ 1.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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For the years ended December 31, 2022, 2021 and 2020, the income tax benefit recognized on all share based compensation arrangements referenced above was approximately $ 1.6 million, $ 1.4 million, and $ 0.6 million, respectively.

Income (loss) before provision for income taxes is as follows:

Income (loss) before provision (benefit) for income taxes is as follows (in thousands):

For the year ended December 31,

2022 2021 2020

Income (loss) before provision for income taxes from:

Income (loss) before provision (benefit) for income taxes from:

operations $ 439 $ 1,527 $ ( 54,190 )

Foreign operations 8,855 5,761 ( 59,982 )

Income (loss) before income taxes $ 7,288 $ ( 114,172 ) $ 10,439

The provision for income taxes consists of the following:

Income (loss) before provision (benefit) for income taxes $ 9,294 $ 7,288 $ ( 114,172 )

The provision (benefit) for income taxes consists of the following (in thousands):

For the year ended December 31,

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Reserve for uncertain tax positions — 155 —

Total deferred provision (benefit) ( 2,176 ) ( 14,070 ) ( 3,812 )

Total deferred benefit ( 1,807 ) ( 2,176 ) ( 14,070 )

Net change in valuation allowance 1,320 2,052 1,136

Net deferred provision (benefit) ( 124 ) ( 12,934 ) ( 3,543 )

Net deferred benefit ( 487 ) ( 124 ) ( 12,934 )

Total provision (benefit) for income taxes $ 2,720 $ 3,395 $ ( 14,706 )

The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal tax rate to income tax as follows:

The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal tax rate to income tax as follows (in thousands):

For the years ended December 31,

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Permanent differences 363 3.9 % 373 5.1 % 944 ( 0.8 ) %

Research and Development Credit ( 1,716 ) ( 18.5 ) % ( 214 ) 2.9 % ( 236 ) 0.2 %

Federal loss carryback — — % — — % ( 1,938 ) 1.7 %

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The permanent differences identified above include normal recurring differences, such as meals, entertainment, and parking fringe benefits as well as a portion of the goodwill impairment charge.

On December 22, 2017, the United States enacted fundamental changes to the federal tax law following the passage of the Tax Cuts and Jobs Act (the "Tax Act").

The Tax Act is complex and significantly changes the U.S.

corporate tax system by, among other things, (a) reducing the federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, (b) replacing the prior system of taxing corporations on foreign earnings of their foreign subsidiaries when the earnings are repatriated with a partial territorial tax system that provides a 100% dividends-received deduction (DRD) to domestic corporations for foreign-sourced dividends received from 10%-or-more owned foreign corporations, (c) subjecting certain unrepatriated foreign earnings to a mandatory one-time transition tax on post-1986 earnings and profits ("the transition tax"), and (d) further limiting a public entity's ability to deduct compensation in excess of $1 million for covered employees.

On June 28, 2019, the Canadian province of Alberta enacted the Job Creation Tax Cut which reduced the Alberta corporate income tax rate from 12% to 11% starting in 2019 with further annual reductions to 10% in 2020, 9% in 2021, and 8% in 2022.

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On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the Coronavirus outbreak, which among other things contains numerous income tax provisions.

The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the Coronavirus outbreak,

which among other things contains numerous income tax provisions.

Some of these tax provisions are effective retroactively for years ending before the date of enactment.

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As the statutory federal income tax rate applicable to certain years within the carryback period is 35%, carryback to those years of our estimated 2020 annual federal tax loss provides a tax benefit in excess of the current federal statutory rate of 21%, resulting in an increased income tax benefit of $ 1.9 million.

The Company expects that the income tax effects of the CARES Act will result in a cash refund of approximately $ 4.9 million in 2021 of taxes paid in prior years.

The income tax effects of the CARES Act resulted in a cash refund of approximately $ 4.9 million in 2021 of taxes paid in prior years.

On December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021, (the "Appropriations Act") an additional stimulus package providing financial relief for individuals and small business.

The Appropriations Act contains a variety of tax provisions, including full expensing of business meals in 2021 and 2022, and expansion of the employee retention tax credit.

The Company does not currently expect the Appropriations Act to have a material impact on our consolidated financial position, results of operations, and cash flows .

The Appropriations Act did not have a material impact on our consolidated financial position, results of operations, and cash flows .

In response to the COVID-19 pandemic, the American Rescue Plan Act was signed into law on March 11, 2021.

This act, among other things, provides economic relief provisions to individuals and funding to certain businesses and programs.

The Company is currently evaluating the impact of this guidance on its consolidated financial position, results of operations, and cash flows, but does not expect it to have a material impact.

Deferred income tax attributes resulting from differences between financial accounting amounts and income tax basis of assets and liabilities are as follows:

This guidance did not have a material impact on our consolidated financial position, results of operations, and cash flows.

In August 2022 the United States enacted the Inflation Reduction Act (“IRA”) of 2022 (Public Law No.

117-169), which includes a 15% book minimum tax on corporations with financial accounting profits over 1 billion US dollars (USD) and a 1% excise tax on certain stock buybacks.

The IRA also contains numerous clean energy tax incentives related to electricity production, carbon sequestration, alternative vehicles and fuels, and residential and commercial energy efficiency.

The company does not expect this act to have a material impact.

Deferred income tax attributes resulting from differences between financial accounting amounts and income tax basis of assets and liabilities are as follows (in thousands):

Deferred income tax assets

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Right-of-use liability 9,886 10,786

R&D Expense 2,836 —

Credits 490 409

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Net deferred income taxes ( 5,506 ) ( 6,211 )

As of December 31, 2021, the Company had federal net operating loss carry forwards (NOLs) of approximately $ 7.7 million expiring in 2032 which may be used subject to limitation under Internal Revenue Code section 382.

As of December 31, 2022, the Company had no federal net operating loss carry forwards (NOLs).

In addition, as of December 31, 2022, the Company had state and foreign NOLs of $ 20.6 million and $ 14.1 million, respectively.

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At December 31, 2022 and December 31, 2021, the Company has a valuation allowance of approximately $ 7.8 million and $ 6.3 million, respectively, primarily against certain state and foreign NOLs and other specific deferred tax assets.

The valuation allowance as of December 31, 2020, also applied against capital losses generated by the disposals of certain foreign subsidiaries.

These losses expired in 2020, so no valuation allowance remains as of December 31, 2021.

The net increase in the valuation allowance of approximately $ 0.1 million is primarily attributable to state and foreign net operating losses and changes in foreign exchange rates, offset by a reduction of expiring losses.

Except for those deferred tax assets subject to the valuation allowance, management believes that it will realize all deferred tax assets as a result of sufficient future taxable income in each tax jurisdiction in which the Company has deferred tax assets.

The following table summarizes the changes in the Company’s gross unrecognized tax benefits, excluding interest and penalties:

The following table summarizes the changes in the Company’s gross unrecognized tax benefits, excluding interest and penalties (in thousands):

For the year ended December 31,

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Additions for tax positions related to prior years 1 1

Impact of foreign exchange fluctuation — ( 5 )

Reductions related to the expiration of statutes of limitations ( 43 ) ( 203 )

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Related Party Transactions

The Company leases its headquarters under an operating lease from a shareholder and officer of the Company.

The Company leases its headquarters under an operating lease from a stockholder and director of the Company.

On August 1, 2014, the Company extended its lease at its headquarters requiring monthly payments through October 2024.

Total rent payments made during the year ended December 31, 2022 were approximately $ 1.0 million.

See 17-Leases for further detail.

See Note 17-Leases for further detail.

The Company receives benefits consulting services from Capital Management Enterprise (“CME”).

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As the Company is unable to determine the discount rate implicit in its lease agreements, the Company uses its incremental borrowing rate on the commencement date to calculate the present value of future payments.

The Company’s Consolidated Balance Sheets include the following related to operating leases as of December 31, 2021 and 2020:

The Company’s Consolidated Balance Sheets include the following related to operating leases as of December 31, 2022 and 2021 (in thousands):

Leases Classification 2022 2021

ROU assets Other Assets $ 36,946 $ 42,451

ROU liability - current Accrued and other current liabilities $ 10,040 $ 10,348

ROU liability - long-term Other liabilities 34,030 37,689

ROU liability - current Accrued expenses and other current liabilities $ 10,376 $ 10,040

ROU liability - long-term Other long-term liabilities 28,066 34,030

Total ROU liabilities $ 38,442 $ 44,070

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Total rent payments for this facility were approximately $ 1.0 million and $ 1.3 million during the years ended December 31, 2022 and 2021.

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 lease concessions.

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.

As of December 31, 2022 and 2021, the total ROU assets attributable to finance leases are approximately $ 13.0 million and $ 13.8 million, respectively, which is included in Property, plant, and equipment, net on the 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 consolidated statements of income (loss) for the year ended December 31, 2020.

The components of lease costs for the year ended December 31, 2021 and 2020 are as follows:

The components of lease costs for the year ended December 31, 2022 and 2021 are as follows (in thousands):

Classification 2022 2021

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Additional information related to leases as of December 31, 2022 and 2021 is as follows:

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

Cash paid for amounts included in the measurement of lease liabilities for finance and operating leases (in thousands):

Finance - financing cash flows $ 4,140 $ 4,060

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Operating leases 5.6 % 5.7 %

Maturities of lease liabilities as of December 31, 2021 is as follows:

Maturities of lease liabilities as of December 31, 2022 is as follows (in thousands):

Finance Operating

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

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

The Company filed a lawsuit in the District Court of Bexar County, Texas, 37th Judicial District, on December 17, 2019, in an action captioned Mistras Group, Inc.

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

The customer filed a counterclaim, alleging breach of contract and seeking recovery of its alleged damages.

The customer filed a

counterclaim on March 6, 2020, alleging breach of contract and seeking recovery of its alleged damages.

The Company believes that any successful claim by the customer regarding the Company’s workmanship will be covered by insurance, subject to payment of a deductible.

At this time, the Company is unable to determine whether it has any liability in connection with this matter and if so, the amount or range of any such liability, and accordingly, has no t established any accruals for this matter.

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

At this time, the Company is unable to determine whether it has any liability in connection with this matter and if so, the amount or range of any such liability.

In the year ended December 31, 2022, the Company recorded a charge of $ 0.1 million for a potential loss from this matter.

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

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

Both cases are captioned Justin Price v.

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

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.

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

The settlement is subject to court approval and will cover claims for the period from June 2016 through July 31, 2021.

Mistras Group, Inc., one being a purported class action lawsuit on behalf of current and former Mistras employees in California, filed on June 10, 2020, and the other was filed on September 18, 2020, behalf of the State of California under the California Private Attorney General Act on the basis of the same alleged violations.

The two cases was consolidated and requested 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, as amended as of May 3, 2022.

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

The settlement as agreed upon by the parties received final court approval on September 26, 2022, and the Company paid the settlement proceeds and related payroll taxes to the claims administrator in the fourth quarter of 2022.

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.

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

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

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

The collective bargaining agreements for the employees of this subsidiary required contributions for these employees to two national multi-employer pension funds.

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

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

The balance of the estimated total amount of this potential liability as of December 31, 2021 is approximately $ 2.6 million, $ 2.5 million of which were incurred in 2018 and 2019 and $ 0.1 million of which were incurred in the three months ended December 31, 2021.

The balance of the estimated total amount of this potential liability as of December 31, 2022 is approximately $ 2.5 million, which was incurred in 2018 and 2019.

Severance and labor disputes

9 unchanged sentences

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

As of December 31, 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 December 31, 2022, total potential acquisition-related contingent consideration ranged from zero to approximately $ 0.9 million.

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.

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.

On August 3, 2021, the parties amended the agreement and extended the period by 12 months .

As of December 31, 2021, approximately $ 1.0 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.

As of December 31, 2022, the commitment was fully satisfied.

Segment Disclosure

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Selected Quarterly Financial Information (unaudited)

The following is a summary of the quarterly results of operations for calendar years 2021, 2020, and 2019.

The following is a summary of the quarterly results of operations for calendar years 2022, 2021, and 2020 (in thousands).

Quarter ended December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022

27 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-K

Item 8. Financial Statements and Supplementary Data