What changed in this filing

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Item 1. Financial Statements

2023-08-07 compared with 2023-05-05 · 238 added, 172 removed, 540 unchanged (43% of the section changed)

2 unchanged sentences

and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

Condensed Consolidated Balance Sheets

( in thousands, except share and per share data )

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

ASSETS (unaudited)

38 unchanged sentences

and Subsidiaries

Unaudited Condensed Consolidated Statements of Loss

Unaudited Condensed Consolidated Statements of Income (Loss)

( in thousands, except per share data )

Three months ended March 31,

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

2023 2022 2023 2022

Revenue $ 176,030 $ 179,031 $ 344,046 $ 340,693

3 unchanged sentences

Selling, general and administrative expenses 41,484 40,856 84,305 82,777

Bad debt provision for troubled customers, net of recoveries — 289 — 289

Reorganization and other costs 1,240 ( 180 ) 3,316 ( 65 )

3 unchanged sentences

Acquisition-related expense, net 1 13 3 63

Loss from operations ( 1,830 ) ( 4,698 )

Income from operations 3,893 9,576 2,065 4,877

Interest expense 3,858 2,117 7,927 4,055

Loss before benefit for income taxes ( 5,898 ) ( 6,636 )

Benefit for income taxes ( 920 ) ( 1,283 )

Net Loss ( 4,978 ) ( 5,353 )

Income before provision (benefit) for income taxes 35 7,459 ( 5,862 ) 822

Provision (benefit) for income taxes ( 341 ) 2,793 ( 1,260 ) 1,509

Net Income (Loss) 376 4,666 ( 4,602 ) ( 687 )

net income attributable to noncontrolling interests, net of taxes 39 23 47 33

Net Loss attributable to Mistras Group, Inc.

Net Income (Loss) attributable to Mistras Group, Inc.

$ 337 $ 4,643 $ ( 4,649 ) $ ( 720 )

Loss per common share

Earnings (loss) per common share

Basic $ 0.01 $ 0.15 $ ( 0.15 ) $ ( 0.02 )

8 unchanged sentences

(in thousands )

Three months ended March 31,

Net Loss $ ( 4,978 ) $ ( 5,353 )

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

2023 2022 2023 2022

Net Income (loss) $ 376 $ 4,666 $ ( 4,602 ) $ ( 687 )

Other comprehensive loss:

3 unchanged sentences

Comprehensive loss attributable to Mistras Group, Inc $ 3,419 $ ( 3,888 ) $ ( 294 ) $ ( 8,696 )

$ ( 3,713 ) $ ( 4,808 )

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

5 unchanged sentences

Common Stock Additional

paid-in capital Accumulated

paid-in capital Retained

(deficit) Accumulated

comprehensive loss Total

comprehensive income (loss) Total

Mistras Group,

1 unchanged sentence

Shares Amount Total Equity

Balance at December 31, 2022 29,895 $ 298 $ 243,031 $ ( 11,489 ) $ ( 33,390 ) $ 198,450 $ 299 $ 198,749

Net income (loss) — — — ( 4,986 ) — ( 4,986 ) 8 ( 4,978 )

Other comprehensive income (loss), net of tax — — — — 1,273 1,273 — 1,273

Share-based payments — — 1,877 — — 1,877 — 1,877

Balance at March 31, 2023 30,230 $ 302 $ 244,131 $ ( 16,475 ) $ ( 32,117 ) $ 195,841 $ 307 $ 196,148

Net income — — — 337 — 337 39 376

Other comprehensive loss, net of tax — — — — 3,082 3,082 — 3,082

Share-based compensation — — 1,091 — — 1,091 — 1,091

Net settlement of restricted stock units 72 — ( 164 ) — — ( 164 ) — ( 164 )

Balance at June 30, 2023 30,302 $ 302 $ 245,058 $ ( 16,138 ) $ ( 29,035 ) $ 200,187 $ 346 $ 200,533

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

Net income — — — 4,643 — 4,643 23 4,666

Other comprehensive income, net of tax — — — — ( 8,531 ) ( 8,531 ) — ( 8,531 )

Share-based payments — — 1,255 — — 1,255 — 1,255

Net settlement of restricted stock units 87 — ( 214 ) — — ( 214 ) — ( 214 )

Balance at June 30, 2022 29,807 $ 297 $ 240,697 $ ( 18,708 ) $ ( 28,287 ) $ 193,999 $ 262 $ 194,261

Six months ended

Common Stock Additional

paid-in capital Retained

(deficit) Accumulated

comprehensive income (loss) Total

Mistras Group,

Stockholders’ Equity Noncontrolling Interest

Shares Amount Total Equity

Balance at December 31, 2022 29,895 $ 298 $ 243,031 $ ( 11,489 ) $ ( 33,390 ) $ 198,450 $ 299 $ 198,749

Net income (loss) — — — ( 4,649 ) — ( 4,649 ) 47 ( 4,602 )

Other comprehensive loss, net of tax — — — — 4,355 4,355 — 4,355

Share-based compensation — — 2,968 — — 2,968 — 2,968

Net settlement of restricted stock units 407 4 ( 941 ) — — ( 937 ) — ( 937 )

Balance at June 30, 2023 30,302 $ 302 $ 245,058 $ ( 16,138 ) $ ( 29,035 ) $ 200,187 $ 346 $ 200,533

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

Net income — — — ( 720 ) — ( 720 ) 33 ( 687 )

Other comprehensive income, net of tax — — — — ( 7,976 ) ( 7,976 ) — ( 7,976 )

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

Share-based compensation — — 2,770 — — 2,770 — 2,770

Net settlement of restricted stock units 261 2 ( 760 ) — — ( 758 ) — ( 758 )

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

Balance at June 30, 2022 29,807 $ 297 $ 240,697 $ ( 18,708 ) $ ( 28,287 ) $ 193,999 $ 262 $ 194,261

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

3 unchanged sentences

(in thousands )

Three months ended March 31,

Six months ended June 30,

Cash flows from operating activities

Net loss $ ( 4,602 ) $ ( 687 )

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

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

Depreciation and amortization 16,722 16,935

1 unchanged sentence

Share-based compensation expense 2,968 2,770

Bad debt provision for troubled customers, net of recoveries ( 30 ) —

Fair value adjustments to contingent consideration — 45

1 unchanged sentence

Other ( 513 ) 709

Changes in operating assets and liabilities, net of effect of acquisitions and dispositions

Changes in operating assets and liabilities

Accounts receivable 5,856 ( 23,035 )

5 unchanged sentences

Payment of contingent consideration liability in excess of acquisition-date fair value ( 938 ) ( 533 )

Net cash provided by (used in) operating activities 4,433 ( 5,399 )

Net cash provided by operating activities 18,321 7,809

Cash flows from investing activities

10 unchanged sentences

Taxes paid related to net share settlement of share-based awards ( 945 ) ( 756 )

Net cash provided by (used in) financing activities ( 3,951 ) 4,323

Net cash used in financing activities ( 11,187 ) ( 5,056 )

Effect of exchange rate changes on cash and cash equivalents 188 ( 1,755 )

2 unchanged sentences

Cash and cash equivalents at end of period $ 17,999 $ 18,609

Supplemental disclosure of cash paid (received)

Supplemental disclosure of cash paid

Interest, net $ 8,899 $ 3,525

9 unchanged sentences

Description of Business

Mistras Group, Inc.

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.

Mistras Group, Inc., together with its 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.

19 unchanged sentences

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

During 2022, the Company experienced unfavorable foreign currency exchange impacts as it relates to the Company's European operations, which has continued in 2023.

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

Mistras Group, Inc.

2 unchanged sentences

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

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

During 2022, the Company experienced unfavorable foreign currency exchange impacts as it relates to the Company's European operations, which has continued in 2023.

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

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.

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.

4 unchanged sentences

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

In the opinion of management, the Unaudited Condensed Consolidated Financial Statements include all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods of the years ending December 31, 2023 and December 31, 2022.

In the opinion of management, the Unaudited Condensed Consolidated Financial Statements include all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods of the years ending December 31, 2023 and December 31, 2022.

Certain items included in these statements are based on management’s estimates.

6 unchanged sentences

For subsidiaries in which the Company’s ownership interest is less than 100%, the non-controlling interests are reported in stockholders’ equity in the accompanying Condensed Consolidated Balance Sheets.

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

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

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

7 unchanged sentences

Since the date of the 2022 Annual Report, there have been no material changes to the Company’s significant accounting policies.

As of March 31, 2023, management concluded that it is more likely than not that a substantial portion of the Company's deferred tax assets will be realized.

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

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

Mistras Group, Inc.

2 unchanged sentences

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

The Company’s effective income tax rate was approximately 15.6 % and 19.3 % for the three months ended March 31, 2023 and 2022, respectively.

The effective income tax rate benefit for the three months ended March 31, 2023 was lower than the statutory rate primarily due to the impact of an unfavorable discrete item related to stock compensation.

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

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

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

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

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

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

As of June 30, 2023, management concluded that it is more likely than not that a substantial portion of the Company’s deferred tax assets will be realized.

The Company’s effective income tax rate was approximately ( 974.3 )% and 37.4 % for the three months ended June 30, 2023 and 2022, respectively.

The Company’s effective income tax rate was approximately 21.5 % and 183.6 % for the six months ended June 30, 2023 and 2022, respectively.

The effective income tax rate for the three months ended June 30, 2023, was lower than the statutory rate primarily due to the impact of favorable discrete item related to stock compensation.

The effective income tax rate for the three months ended June 30, 2022 was higher than the statutory rate primarily due a $ 0.7 million valuation allowance recorded on a foreign jurisdiction.

The effective income tax rate for the six months ended June 30, 2023 was lower than the statutory rate due primarily to an unfavorable discrete item related to stock compensation.

The effective income tax rate for the six months ended June 30, 2022 was higher than the statutory rate due primarily to a $ 0.7 million valuation allowance recorded during the period which was related to a foreign jurisdiction.

Recent Accounting Pronouncements

5 unchanged sentences

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

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

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

Mistras Group, Inc.

2 unchanged sentences

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

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

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

Performance Obligations

32 unchanged sentences

Revenue by industry was as follows:

Three Months Ended March 31, 2023 North America International Products & Systems Corp/Elim Total

Three Months Ended June 30, 2023 North America International Products Corp/Elim Total

Oil & Gas $ 97,500 $ 8,609 $ 15 $ — $ 106,124

7 unchanged sentences

Total $ 145,550 $ 30,277 $ 3,329 $ ( 3,126 ) $ 176,030

Three Months Ended March 31, 2022 North America International Products & Systems Corp/Elim Total

Three Months Ended June 30, 2022 North America International Products Corp/Elim Total

Oil & Gas $ 93,098 $ 8,028 $ 139 $ — $ 101,265

7 unchanged sentences

Total $ 149,528 $ 29,610 $ 2,652 $ ( 2,759 ) $ 179,031

Six Months Ended June 30, 2023 North America International Products Corp/Elim Total

Oil & Gas $ 187,273 $ 17,464 $ 52 $ — $ 204,789

Aerospace & Defense 27,276 10,116 228 — 37,620

Industrials 20,368 12,256 1,026 — 33,650

Power generation & Transmission 10,446 3,187 2,493 — 16,126

Other Process Industries 17,973 7,703 78 — 25,754

Infrastructure, Research & Engineering 6,654 4,164 1,689 — 12,507

Petrochemical 6,714 301 — — 7,015

Other 5,778 4,493 1,502 ( 5,188 ) 6,585

Total $ 282,482 $ 59,684 $ 7,068 $ ( 5,188 ) $ 344,046

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Six Months Ended June 30, 2022 North America International Products Corp/Elim Total

Oil & Gas $ 179,711 $ 15,600 $ 177 $ — $ 195,488

Aerospace & Defense 32,322 10,058 134 — 42,514

Industrials 18,801 12,034 835 — 31,670

Power generation & Transmission 12,200 4,559 1,523 — 18,282

Other Process Industries 21,934 7,272 15 — 29,221

Infrastructure, Research & Engineering 5,689 4,232 1,339 — 11,260

Petrochemical 6,629 133 — — 6,762

Other 5,188 3,860 1,565 ( 5,117 ) 5,496

Total $ 282,474 $ 57,748 $ 5,588 $ ( 5,117 ) $ 340,693

Revenue per key geographic location was as follows:

Three Months Ended March 31, 2023 North America International Products & Systems Corp/Elim Total

Three Months Ended June 30, 2023 North America International Products Corp/Elim Total

United States $ 122,972 $ 280 $ 1,645 $ ( 271 ) $ 124,626

3 unchanged sentences

Total $ 145,550 $ 30,277 $ 3,329 $ ( 3,126 ) $ 176,030

Three Months Ended March 31, 2022 North America International Products & Sytems Corp/Elim Total

Three Months Ended June 30, 2022 North America International Products Corp/Elim Total

United States $ 126,286 $ 334 $ 1,492 $ ( 567 ) $ 127,545

3 unchanged sentences

Total $ 149,528 $ 29,610 $ 2,652 $ ( 2,759 ) $ 179,031

Six Months Ended June 30, 2023 North America International Products Corp/Elim Total

United States $ 243,572 $ 589 $ 3,446 $ ( 869 ) $ 246,738

Other Americas 35,311 7,310 624 ( 1,906 ) 41,339

Europe 2,694 48,657 765 ( 1,992 ) 50,124

Asia-Pacific 905 3,128 2,233 ( 421 ) 5,845

Total $ 282,482 $ 59,684 $ 7,068 $ ( 5,188 ) $ 344,046

Six Months Ended June 30, 2022 North America International Products Corp/Elim Total

United States $ 240,221 $ 507 $ 2,843 $ ( 1,222 ) $ 242,349

Other Americas 40,605 2,717 184 ( 1,714 ) 41,792

Europe 1,159 53,273 1,094 ( 1,879 ) 53,647

Asia-Pacific 489 1,251 1,467 ( 302 ) 2,905

Total $ 282,474 $ 57,748 $ 5,588 $ ( 5,117 ) $ 340,693

Mistras Group, Inc.

8 unchanged sentences

These assets and liabilities are aggregated on an individual contract basis and reported on the Consolidated Balance Sheets at the end of each reporting period within accounts receivable, net or accrued expenses and other current liabilities.

Revenue recognized during the three months ended March 31, 2023 and 2022 that was included in the contract liability balance at the beginning of such year was $ 3.1 million and $ 2.2 million for each period.

Revenue recognized during the six months ended June 30, 2023 and 2022 that was included in the contract liability balance at the beginning of such year was $ 4.6 million and $ 1.4 million, for each period.

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

The Company applies a practical expedient to expense incremental costs incurred related to obtaining a contract.

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.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

Share-Based Compensation

The Company has granted share-based incentive awards 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").

1 unchanged sentence

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 23, 2022, the Company’s shareholders 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 1,100,000 shares were available for future grants as of March 31, 2023.

At the annual shareholders meeting on May 23, 2022, the Company’s shareholders 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 1,200,000 shares were available for future grants as of June 30, 2023.

Stock Options

During the three months ended March 31, 2022, all remaining outstanding stock options expired.

For each of the three months ended March 31, 2023 and 2022, the Company did no t recognize any share-based compensation expense related to the stock option award.

For each of the three and six months ended June 30, 2023 and 2022, the Company did no t recognize any share-based compensation expense related to the stock option award.

Restricted Stock Unit Awards

For the three months ended March 31, 2023 and March 31, 2022, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 0.9 million and $ 0.9 million, respectively.

As of March 31, 2023, there was $ 10.0 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which is expected to be recognized over a remaining weighted-average period of 3.1 years.

For the three months ended June 30, 2023 and June 30, 2022, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 0.8 million and $ 0.9 million, respectively.

For the six months ended June 30, 2023 and 2022, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 1.8 million and $ 1.9 million, respectively.

As of June 30, 2023, there was $ 9.2 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which is expected to be recognized over a remaining weighted-average period of 2.9 years.

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

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

Three months ended March 31,

Six months ended June 30,

Restricted stock awards vested 430 326

Fair value of awards vested $ 2,616 $ 2,164

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

Three months ended March 31,

Six months ended June 30,

Awards issued 48 34

1 unchanged sentence

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

Three months ended March 31,

Six months ended June 30,

Units Weighted

7 unchanged sentences

1,468 $ 7.62 1,537 $ 7.38

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Performance Restricted Stock Units

17 unchanged sentences

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

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

For 2023, the Compensation Committee made changes to the Company's equity incentive compensation plan for its executive officers including modifying the metrics utilized, and approved the new target awards for 2023.

7 unchanged sentences

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.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

Three months ended March 31,

Six months ended June 30,

Units Weighted

8 unchanged sentences

199 $ 9.45 549 $ 9.12

During the three months ended March 31, 2023 and March 31, 2022, the Compensation Committee approved the final calculation of the award metrics for calendar year 2022 and 2021, respectively.

As a result, the calendar year 2023 PRSUs decreased by approximately 32,000 units as a result of the final calculation of award metrics.

For the three months ended March 31, 2023 and March 31, 2022, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.7 million and $ 0.3 million, respectively.

At March 31, 2023, there was $ 2.8 million of total unrecognized compensation costs related to approximately 382,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of 2.0 years.

Earnings (loss) per Share

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

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

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

(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.

During the six months ended June 30, 2023, the Compensation Committee approved the final calculation of the award metrics for calendar year 2022.

As a result, the calendar year 2023 PRSUs decreased by approximately 215,000 units during the six months ended June 30, 2023 as a result of the final calculation of award metrics for 2022 awards and based on forecasted results for 2023 as compared to performance metrics determined by the Compensation Committee.

For the three months ended June 30, 2023 and June 30, 2022, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.2 million and $ 0.3 million, respectively.

For the six months ended June 30, 2023 and June 30, 2022, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.6 million and $ 0.6 million, respectively.

At June 30, 2023, there was $ 1.5 million of total unrecognized compensation costs related to approximately 199,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of 1.6 years.

Mistras Group, Inc.

2 unchanged sentences

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

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

Three months ended March 31,

Basic loss per share

Net loss attributable to Mistras Group, Inc.

Earnings (loss) 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 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.

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

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

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

2023 2022 2023 2022

Basic earnings (loss) per share

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

$ 337 $ 4,643 $ ( 4,649 ) $ ( 720 )

Weighted average common shares outstanding 30,368 29,957 30,214 29,840

Basic loss per share $ ( 0.17 ) $ ( 0.18 )

Diluted loss per share:

Net loss attributable to Mistras Group, Inc.

Basic earnings (loss) per share $ 0.01 $ 0.15 $ ( 0.15 ) $ ( 0.02 )

Diluted earnings (loss) per share:

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

$ 337 $ 4,643 $ ( 4,649 ) $ ( 720 )

2 unchanged sentences

30,660 30,233 30,214 29,840

Diluted loss per share $ ( 0.17 ) $ ( 0.18 )

Diluted earnings (loss) per share $ 0.01 $ 0.15 $ ( 0.15 ) $ ( 0.02 )

_______________

(1) For the three months ended March 31, 2023 and 2022, 1,513,000 and 1,212,000 shares, respectively, related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the period.

(1) For the six months ended June 30, 2023 and 2022, 1,106,595 shares and 1,412,073 shares related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the period.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Acquisition-Related Expense

1 unchanged sentence

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

These amounts are reported as Acquisition-related expense, net on the Unaudited Condensed Consolidated Statements of Loss and were as follows for the three months ended March 31, 2023 and 2022:

Three months ended March 31,

These amounts are reported as Acquisition-related expense, net on the Unaudited Condensed Consolidated Statements of Income (Loss) and were as follows for the three and six months ended June 30, 2023 and 2022:

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

2023 2022 2023 2022

Due diligence, professional fees and other transaction costs $ 1 $ 13 $ 3 $ 18

4 unchanged sentences

Accounts receivable consisted of the following:

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Trade accounts receivable $ 120,634 $ 127,767

1 unchanged sentence

Accounts receivable, net $ 118,773 $ 123,657

The Company had $ 21.6 million and $ 13.5 million of unbilled revenue accrued as of March 31, 2023 and December 31, 2022, respectively.

The Company had $ 20.5 million and $ 13.5 million of unbilled revenue accrued as of June 30, 2023 and December 31, 2022, respectively.

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

5 unchanged sentences

The Company filed a lawsuit to recover the $ 1.4 million and other amounts due to the Company and the customer filed a counterclaim, alleging breach of contract and seeking its damages.

The Company recorded a full reserve for this receivable during 2019 and the status of this situation has not changed since 2019 through March 31, 2023.

See Note 14- Commitments and Contingencies and Note 16 - Subsequent Events for additional details.

The Company recorded a full reserve for this receivable during 2019.

The parties agreed to a settlement in the quarter ending June 30, 2023 with releases executed in July, whereby the Company would release its claim for the $ 1.4 million of outstanding receivables.

Accordingly, the receivable has been written off.

See Note 14- Commitments and Contingencies for additional details.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Inventories consist of the following (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Raw materials and consumable supplies $ 8,841 $ 7,745

3 unchanged sentences

Property, plant and equipment consisted of the following:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Land $ 2,449 $ 2,529

8 unchanged sentences

Property, plant and equipment, net $ 81,297 $ 77,561

Depreciation expense for the three months ended March 31, 2023 and 2022 was approximately $ 6.3 million and $ 6.6 million, respectively.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Depreciation expense for the three months ended June 30, 2023 and 2022 was approximately $ 6.2 million and $ 5.8 million, respectively.

Depreciation expense for the six months ended June 30, 2023 and 2022 was $ 12.4 million and $ 12.3 million, respectively.

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

2 unchanged sentences

Foreign currency translation 1,658 293 — 1,951

Balance at March 31, 2023 $ 185,790 $ 14,166 $ — $ 199,956

Balance at June 30, 2023 $ 187,368 $ 14,218 $ — $ 201,586

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

The Company performed a quantitative annual impairment test as of October 1, 2022 and the Company did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable.

Additionally, through March 31, 2023, the Company did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable.

Additionally, through June 30, 2023, 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.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Intangible Assets

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(Years) Gross

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Total $ 186,219 $ ( 140,074 ) $ 46,145 $ 183,588 $ ( 134,573 ) $ 49,015

Amortization expense for the three months ended March 31, 2023 and 2022 was approximately $ 2.1 million and $ 2.4 million, respectively.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Amortization expense for the three months ended June 30, 2023 and 2022 was approximately $ 2.2 million and $ 2.3 million, respectively.

Amortization expense for the six months ended June 30, 2023 and June 30, 2022 was $ 4.3 million and $ 4.6 million, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Accrued salaries, wages and related employee benefits $ 26,811 $ 26,684

6 unchanged sentences

Total $ 78,972 $ 77,844

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Long-Term Debt

Long-term debt consisted of the following:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Senior credit facility $ 61,150 $ 65,250

8 unchanged sentences

The Prior 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 “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 $ 120 million as of March 31, 2023.

The 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.

5 unchanged sentences

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

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

• The Company has 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.

3 unchanged sentences

• The 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.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

• The 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.

2 unchanged sentences

The Company incurred $ 1.6 million in financing costs for the 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) during the three months ended September 30, 2022.

As of March 31, 2023, the Company had borrowings of $ 185.0 million and a total of $ 2.6 million of letters of credit outstanding under the Credit Agreement.

The Company has capitalized costs associated with debt modifications of $ 1.4 million as of March 31, 2023, which is included in Other Assets on the Condensed Consolidated Balance Sheets and will be amortized into interest expense over the remaining term of the Credit Agreement through July 30, 2027.

As of March 31, 2023, the Company was in compliance with the terms and covenants of the Credit Agreement.

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

As of June 30, 2023, the Company had borrowings of $ 179.5 million and a total of $ 2.9 million of letters of credit outstanding under the Credit Agreement.

The Company has capitalized costs associated with debt modifications of $ 1.3 million as of June 30, 2023, which is included in Other assets on the Condensed Consolidated Balance Sheets and will be amortized into interest expense over the remaining term of the Credit Agreement through July 30, 2027.

As of June 30, 2023, the Company was in compliance with the terms of the Credit Agreement.

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

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

At March 31, 2023, there was an aggregate of approximately $ 4.3 million outstanding, payable at various times through 2030.

At June 30, 2023, there was an aggregate of approximately $ 4.2 million outstanding, payable at various times through 2030.

Monthly payments range from $ 1.0 thousand to $ 16.0 thousand and interest rates range from 0.4 % to 3.5 %.

5 unchanged sentences

The fair value of contingent consideration liabilities was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820.

The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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 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:

Three months ended March 31,

Six months ended June 30,

Beginning balance $ 938 $ 1,831

2 unchanged sentences

Ending balance $ — $ 938

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Financial instruments not measured at fair value on a recurring basis

9 unchanged sentences

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

As of March 31, 2023, approximately $ 1.4 million of past due receivables were outstanding from this customer.

As of June 30, 2023, approximately $ 1.4 million of past due receivables were outstanding from this customer.

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

2 unchanged sentences

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.

On April 25, 2023, the Company settled all claims related to this litigation.

In July 2023, the parties executed a settlement agreement, resulting in a payment by the Company of $ 0.3 million (paid in July 2023 and which the Company estimates is significantly less than the cost of going to trial) and a release of its claim for $ 1.4 million of associated past due receivables which were fully reserved for in prior periods.

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.

See Note 16 - Subsequent Events , for updated information on this matter.

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

Both cases were captioned Justin Price v.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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, 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.

, 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, 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 were 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.

3 unchanged sentences

Pension Related Contingencies

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

2 unchanged sentences

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

The balance of the estimated total amount of this potential liability as of March 31, 2023 is approximately $ 2.5 million, which were incurred in 2018 and 2019.

The balance of the estimated total amount of this potential liability as of June 30, 2023 is approximately $ 2.5 million, which were incurred in 2018 and 2019.

Severance and labor disputes

1 unchanged sentence

No other assets or liabilities other than those employee benefits related to employees working on the customer contracts were included in the sale.

As of March 31, 2023, the Company has approximately $ 0.1 million of accrued estimated severance payment obligations, which takes into account the Company's estimate with respect to the employees that have been or will be transitioned to the German subsidiaries' other customers.

As of June 30, 2023, the Company has approximately $ 0.1 million of accrued estimated severance payment obligations, which takes into account the Company’s estimate with respect to the employees that have been or will be transitioned to the German subsidiaries' other customers.

The $ 0.2 million of estimated obligations is net of $ 0.4 million in payments made and $ 1.0 million in reversals due to employees being transitioned to customer contracts.

Segment Disclosure

As noted in Note 1 - Description of Business and Basis of Presentation , the Company updated the naming convention of one of our three operating segments and the updates are reflected below.

Our three operating segments are:

The Company’s three operating segments are:

• North America.

6 unchanged sentences

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

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

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Additionally, engineering charges and royalty fees charged to the North America and International segments by the Products and Systems segment are reflected in the operating performance of each segment.

5 unchanged sentences

Corporate loss from operations consists of administrative charges related to corporate personnel and other charges that cannot be readily identified for allocation to a particular segment.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Selected consolidated financial information by segment for the periods shown was as follows:

(with intercompany transactions eliminated in Corporate and eliminations)

Three months ended March 31,

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

2023 2022 2023 2022

North America $ 145,550 $ 149,528 $ 282,482 $ 282,474

3 unchanged sentences

$ 176,030 $ 179,031 $ 344,046 $ 340,693

Three months ended March 31,

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

2023 2022 2023 2022

North America $ 39,679 $ 42,954 $ 76,316 $ 73,479

4 unchanged sentences

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

Three months ended March 31,

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

2023 2022 2023 2022

Income (loss) from operations

4 unchanged sentences

$ 3,893 $ 9,576 $ 2,065 $ 4,877

Mistras Group, Inc.

and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

(tabular dollars are in thousands)

Three months ended March 31,

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

2023 2022 2023 2022

Depreciation and amortization

4 unchanged sentences

$ 8,309 $ 8,128 $ 16,722 $ 16,935

March 31, 2023 December 31, 2022

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

June 30, 2023 December 31, 2022

Intangible assets, net

4 unchanged sentences

$ 46,145 $ 49,015

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

North America $ 408,583 $ 407,779

3 unchanged sentences

$ 540,946 $ 534,904

Refer to Note 2 – Revenue , for revenue by geographic area for the three months ended March 31, 2023 and 2022.

Subsequent Events

On April 25, 2023, the Company settled the outstanding litigation described in Note 14- Commitments and Contingencies, Mistras Group, Inc.

Epic Y-Grade Pipeline LP, pending in Texas state court.

The lawsuit involves a claim against a customer for unpaid receivables and the customer’s counterclaim related to inspection of welds on various pipeline projects in Texas.

The settlement will result in a payment by the Company of $ 0.3 million (which the Company estimates is significantly less than the cost of going to trial) and a release of its claim for $ 1.4 million of associated past due receivables which were fully reserved for in prior periods.

The settlement is contingent on the parties executing a settlement agreement, which will include a release of all claims related to the matter and dismissal of the case with prejudice.

Refer to Note 2 – Revenue , for revenue by geographic area for the three and six months ended June 30, 2023 and 2022.

Mistras Group, Inc.

3 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements