What changed in this filing

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Item 1. Financial Statements

2024-05-03 compared with 2023-11-06 · 198 added, 317 removed, 495 unchanged (51% of the section changed)

2 unchanged sentences

and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

Unaudited Condensed Consolidated Balance Sheets

( in thousands, except share and per share data )

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

ASSETS (unaudited)

Current Assets

39 unchanged sentences

( in thousands, except per share data )

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

2023 2022 2023 2022

Three months ended March 31,

Revenue $ 184,442 $ 168,016

3 unchanged sentences

Selling, general and administrative expenses 41,189 42,823

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

Reorganization and other costs 1,557 2,076

Goodwill Impairment Charges 13,799 — 13,799 —

Loss on Debt Modification — 693 — 693

Legal settlement and insurance recoveries, net — — 150 ( 994 )

Research and engineering 343 480

4 unchanged sentences

Income (loss) before provision (benefit) for income taxes 1,123 ( 5,898 )

Provision for income taxes 1,489 1,985 229 3,494

Provision (benefit) for income taxes 119 ( 920 )

Net income (loss) 1,004 ( 4,978 )

net income (loss) attributable to noncontrolling interests, net of taxes ( 40 ) 21 7 54

net income attributable to noncontrolling interests, net of taxes 9 8

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

11 unchanged sentences

(in thousands )

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

2023 2022 2023 2022

Three months ended March 31,

Net income (loss) $ 1,004 $ ( 4,978 )

4 unchanged sentences

Comprehensive loss attributable to Mistras Group, Inc.

$ ( 3,234 ) $ ( 3,713 )

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

5 unchanged sentences

Common Stock Additional

paid-in capital Retained

(deficit) Accumulated

comprehensive income (loss) Total

Mistras Group,

Stockholders’ Equity Noncontrolling Interest

Shares Amount Total Equity

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

Net income — — — ( 10,298 ) — ( 10,298 ) ( 40 ) ( 10,338 )

Other comprehensive loss, net of tax — — — — ( 5,428 ) ( 5,428 ) — ( 5,428 )

Share-based compensation — — 1,017 — — 1,017 — 1,017

Net settlement of restricted stock units 51 — — — — — — —

Balance at September 30, 2023 30,353 $ 302 $ 246,075 $ ( 26,436 ) $ ( 34,463 ) $ 185,478 $ 306 $ 185,784

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

Net income — — — 4,373 — 4,373 21 4,394

Other comprehensive income, net of tax — — — — ( 12,995 ) ( 12,995 ) — ( 12,995 )

Share-based compensation — — 1,396 — — 1,396 — 1,396

Net settlement of restricted stock units 35 — — — — — — —

Balance at September 30, 2022 29,842 $ 297 $ 242,093 $ ( 14,335 ) $ ( 41,282 ) $ 186,773 $ 283 $ 187,056

Nine months ended

Common Stock Additional

paid-in capital Retained

paid-in capital Accumulated

deficit Accumulated

comprehensive income (loss) Total

comprehensive loss Total

Mistras Group,

2 unchanged sentences

Balance at December 31, 2023 30,598 $ 305 $ 247,165 $ ( 28,942 ) $ ( 28,336 ) $ 190,192 $ 311 $ 190,503

Net income (loss) — — — ( 14,947 ) — ( 14,947 ) 7 ( 14,940 )

Net income — — — 995 995 9 1,004

Other comprehensive loss, net of tax — — — — ( 4,229 ) ( 4,229 ) — ( 4,229 )

Share-based compensation — — 3,985 — — 3,985 — 3,985

Share-based payments — — 1,228 — — 1,228 — 1,228

Net settlement of restricted stock units 313 23 ( 1,064 ) — — ( 1,041 ) — ( 1,041 )

Balance at September 30, 2023 30,353 $ 302 $ 246,075 $ ( 26,436 ) $ ( 34,463 ) $ 185,478 $ 306 $ 185,784

Balance at March 31, 2024 30,911 $ 328 $ 247,329 $ ( 27,947 ) $ ( 32,565 ) $ 187,145 $ 320 $ 187,465

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

Net income — — — 3,653 — 3,653 54 3,707

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

Other comprehensive income, net of tax — — — — 1,273 1,273 — 1,273

Share-based compensation — — 4,166 — — 4,166 — 4,166

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

Net settlement of restricted stock units 335 4 ( 777 ) — — ( 773 ) — ( 773 )

Balance at September 30, 2022 29,842 $ 297 $ 242,093 $ ( 14,335 ) $ ( 41,282 ) $ 186,773 $ 283 $ 187,056

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

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

3 unchanged sentences

(In Thousands)

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities

Net loss $ ( 14,940 ) $ 3,707

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

Net income (loss) $ 1,004 $ ( 4,978 )

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

Depreciation and amortization 8,381 8,413

Goodwill impairment charges 13,799 —

Deferred income taxes ( 144 ) 1,801

1 unchanged sentence

Bad debt provision for troubled customers, net of recoveries 227 ( 30 )

Change in provision for doubtful accounts 346 —

Fair value adjustments to contingent consideration — 45

Foreign currency (gain) loss ( 561 ) 219

Payment of finance costs — ( 448 )

Other 15 ( 315 )

Changes in operating assets and liabilities

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

Accounts receivable ( 8,696 ) 3,777

9 unchanged sentences

Purchase of intangible assets ( 1,117 ) ( 361 )

Acquisition of business, net of cash acquired — —

Proceeds from sale of equipment 273 233

2 unchanged sentences

Repayment of finance lease obligations ( 1,409 ) ( 1,174 )

Proceeds from borrowings of long-term debt — 125,000

Repayment of long-term debt ( 1,907 ) ( 1,904 )

1 unchanged sentence

Repayment of revolver ( 5,000 ) ( 27,100 )

Payment of financing costs — ( 148 )

Payment of contingent consideration for business acquisitions — ( 405 )

Taxes paid related to net share settlement of share-based awards ( 1,557 ) ( 773 )

Net cash used in financing activities ( 1,839 ) ( 4,753 )

Net cash provided by (used in) financing activities 5,127 ( 3,951 )

Effect of exchange rate changes on cash and cash equivalents ( 874 ) 207

22 unchanged sentences

The Company has three operating segments.

During the first quarter of 2023, the Company renamed the Services segment to the North America segment to more closely align to the geographical area in which the Services segment operates.

We did not recast the corresponding financial information for the historical periods presented, as there was no change in the manner which our chief operating decision maker reviews the financial results of each segment and allocates resources.

Our Segments, with the updated naming convention, are as follows:

• North America (Referred to as "Services" in prior filings).

Our segments are as follows:

• North America.

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

5 unchanged sentences

Recent Developments

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

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.

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

maintain business continuity and financial strength and stability;

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

The Russian-Ukrainian war and the conflict in the Middle East between Israel and Hamas 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.

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 will continue to monitor market conditions and respond accordingly.

Mistras Group, Inc.

2 unchanged sentences

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

In 2022, the Company eliminated substantially all of the COVID related cost reduction initiatives undertaken in 2020, including re-instatement of the savings plan employer match and increasing wages back to pre-pandemic amounts.

During the third quarter of 2023, a triggering event was identified within the Company's reporting units within the International segment due to decreased gross margin in the current period as a result of inflationary pressures and rising energy costs which resulted in an impairment within the reporting unit of $ 13.8 million.

Refer to Note 9- Goodwill .

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

Basis of Presentation

1 unchanged sentence

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 statement 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 presentation of the results for the interim periods of the years ending December 31, 2024 and December 31, 2023.

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

16 unchanged sentences

Since the date of the 2023 Annual Report, there have been no material changes to the Company's significant accounting policies.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

1 unchanged sentence

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.

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

A valuation allowance is provided if it is more likely than not that some or all 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 September 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.

As of March 31, 2024, management concluded that it is more likely than not that a substantial portion of the Company's deferred tax assets will be realized.

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

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

The Company’s effective income tax rate was approximately ( 16.8 )% and 31.1 % for the three months ended September 30, 2023 and 2022, respectively.

The Company’s effective income tax rate was approximately ( 1.6 )% and 48.5 % for the nine months ended September 30, 2023 and 2022, respectively.

The effective income tax rate for the three months ended September 30, 2023 was lower than the statutory rate primarily due to the impact of permanent tax adjustments related to executive compensation and goodwill impairments.

The effective income tax rate for the three months ended September 30, 2022 was higher than the statutory rate primarily due to various permanent tax adjustments and a $ 0.1 million valuation allowance recorded on a foreign jurisdiction.

The effective income tax rate for the nine months ended September 30, 2023 was lower than the statutory rate primarily due to the impact of permanent tax adjustments related to executive compensation and goodwill impairments.

The effective income tax rate for the nine months ended September 30, 2022 was higher than the statutory rate due primarily to various permanent tax adjustments and a $ 0.9 million valuation allowance recorded during the period which was related to a foreign jurisdiction.

The Company’s effective income tax rate was approximately 10.6 % and 15.6 % for the three months ended March 31, 2024 and 2023, respectively.

The effective income tax rate benefit for the three months ended March 31, 2024 was lower than the statutory rate primarily due to the impact of a favorable discrete item related to stock compensation.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Recent Accounting Pronouncements

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.

The guidance provides optional expedients and exceptions for applying U.S.

GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued.

The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2024.

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 .

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280) to expand the disclosures about a public entity's reportable segments and address requests from investors for additional, more detailed information about a reportable segment's expenses.

The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

We are currently evaluating the impact of ASU 2023-07 on our financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) to enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid disclosures.

The new standard is effective for fiscal years beginning after December 15, 2024.

We are currently evaluating the impact of ASU 2023-09 on our financial statements.

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

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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 Company enters into master service agreements ("MSA"s) 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.

12 unchanged sentences

Revenue by industry was as follows:

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

Oil & Gas $ 94,390 $ 8,827 $ 35 $ — $ 103,252

Aerospace & Defense 14,240 5,778 47 — 20,065

Industrials 10,325 6,018 310 — 16,653

Power Generation & Transmission 7,388 1,653 696 — 9,737

Other Process Industries 6,933 2,864 ( 5 ) — 9,792

Infrastructure, Research & Engineering 6,042 2,383 1,070 — 9,495

Petrochemical 3,313 586 — — 3,899

Other 6,183 2,871 676 ( 3,269 ) 6,461

Total $ 148,814 $ 30,980 $ 2,829 $ ( 3,269 ) $ 179,354

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

Oil & Gas $ 90,578 $ 6,418 $ 35 $ — $ 97,031

Aerospace & Defense 16,784 4,397 112 — 21,293

Industrials 9,728 5,834 436 — 15,998

Power Generation & Transmission 10,378 1,946 456 — 12,780

Other Process Industries 10,283 3,033 8 — 13,324

Infrastructure, Research & Engineering 4,936 1,784 1,150 — 7,870

Petrochemical 3,427 280 — — 3,707

Other 6,664 2,001 881 ( 3,087 ) 6,459

Total $ 152,778 $ 25,693 $ 3,078 $ ( 3,087 ) $ 178,462

Nine Months Ended September 30, 2023 North America International Products Corp/Elim Total

Three Months Ended March 31, 2024 North America International Products & Systems Corp/Elim Total

Oil & Gas $ 103,027 $ 10,066 $ 72 $ — $ 113,165

7 unchanged sentences

Total $ 150,349 $ 33,047 $ 3,210 $ ( 2,164 ) $ 184,442

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Nine Months Ended September 30, 2022 North America International Products Corp/Elim Total

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

Oil & Gas $ 89,773 $ 8,855 $ 37 $ — $ 98,665

8 unchanged sentences

Revenue per key geographic location was as follows:

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

United States $ 126,239 $ 120 $ 1,032 $ ( 849 ) $ 126,542

Other Americas 21,907 3,703 49 ( 1,659 ) 24,000

Europe 465 26,764 510 ( 701 ) 27,038

Asia-Pacific 203 393 1,238 ( 60 ) 1,774

Total $ 148,814 $ 30,980 $ 2,829 $ ( 3,269 ) $ 179,354

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

United States $ 130,206 $ 240 $ 1,523 $ ( 1,098 ) $ 130,871

Other Americas 21,649 2,064 154 ( 1,274 ) 22,593

Europe 631 22,648 362 ( 622 ) 23,019

Asia-Pacific 292 741 1,039 ( 93 ) 1,979

Total $ 152,778 $ 25,693 $ 3,078 $ ( 3,087 ) $ 178,462

Nine Months Ended September 30, 2023 North America International Products Corp/Elim Total

Three Months Ended March 31, 2024 North America International Products & Systems Corp/Elim Total

United States $ 129,458 $ 296 $ 1,600 $ ( 1,515 ) $ 129,839

3 unchanged sentences

Total $ 150,349 $ 33,047 $ 3,210 $ ( 2,164 ) $ 184,442

Nine Months Ended September 30, 2022 North America International Products Corp/Elim Total

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

United States $ 120,600 $ 309 $ 1,801 $ ( 598 ) $ 122,112

13 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 nine months ended September 30, 2023 and 2022 that was included in the contract liability balance at the beginning of such year was $ 5.7 million and $ 4.0 million, respectively, for each period.

Revenue recognized during the three months ended March 31, 2024 and 2023 that was included in the contract liability balance at the beginning of such year was $ 2.9 million and $ 3.1 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 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.

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)

Share-Based Compensation

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 awards have been granted under the 2009 Plan since the 2016 Plan was approved by shareholders in 2016, 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 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 1,300,000 shares were available for future grants as of September 30, 2023.

The Company grants share-based incentive awards to its eligible employees and non-employee directors under its 2016 Long-Term Incentive Plan (the "2016 Plan").

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-based 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 450,000 shares were available for future grants as of March 31, 2024.

Stock Options

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

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

On October 11, 2023, Mr.

Stamatakis was granted an award of stock options to purchase 250,000 shares of common stock of the Company, with an exercise price of $ 5.36 , the closing price of the Company's common stock as quoted on the New York Stock Exchange on the grant date (the "Options").

The Options were granted as an inducement for Mr.

Stamatakis to accept the position of Interim President and CEO of the Company and were therefore granted outside the 2016 Plan, as permitted by the rules of the NYSE.

The Options can be exercised any time after the grant date until its expiration date, which is the earlier of 10 years from the grant date or one year following the date Mr.

Stamatakis is no longer serving as an officer, director or in any other capacity of the Company.

The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of March 31, 2024 as follows (in thousands, except per share amounts and years):

Three months ended March 31,

Options Weighted

Price Common Stock Options Weighted Average Exercise Price

Outstanding at beginning of year:

250 $ 5.36 — $ —

Granted — $ — — $ —

Exercised — $ — — $ —

Expired or forfeited — $ — — $ —

Outstanding at end of year:

250 $ 5.36 — $ —

The Company recognized all share-based compensation expense related to the stock options granted in the fourth quarter of 2023 and no further unrecognized share-based compensation expense remains as of March 31, 2024.

Stock Issuances to Non-Employee Directors

As part of its compensation program for non-employee directors, the Company makes semi-annual issuances of fully-vested common stock to its non-employee directors.

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

Three months ended March 31,

Awards issued 31 48

Grant date fair value of awards issued $ 274 $ 275

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Restricted Stock Unit Awards

For the three months ended September 30, 2023 and September 30, 2022, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 0.7 million and $ 0.9 million, respectively.

For the nine months ended September 30, 2023 and 2022, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 2.5 million and $ 2.8 million, respectively.

As of September 30, 2023, there was $ 8.1 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 2.7 years.

For the three months ended March 31, 2024 and March 31, 2023, the Company recognized share-based compensation expense related to restricted stock unit awards of $ 1.0 million and $ 0.9 million, respectively.

As of March 31, 2024, there was $ 11.2 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 3.0 years.

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

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

Nine months ended September 30,

Three months ended March 31,

Restricted stock awards vested 364 338

Fair value of awards vested $ 3,261 $ 1,946

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 non-employee directors, in connection with its non-employee director compensation, is as follows:

Nine months ended September 30,

Awards issued 99 70

Grant date fair value of awards issued $ 550 $ 450

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

Nine months ended September 30,

Three months ended March 31,

Units Weighted

3 unchanged sentences

Granted 598 $ 8.52 542 $ 8.50

Vested ( 430 ) $ 6.14 ( 326 ) $ 10.03

Released ( 364 ) $ 8.95 ( 338 ) $ 5.76

Forfeited ( 10 ) $ 8.37 ( 22 ) $ 7.82

3 unchanged sentences

The Company maintains Performance Restricted Stock Units (PRSUs) that have been granted to select executives and senior officers whose ultimate payout may vary between zero and 200 % of the target award, 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 2022, the Compensation Committee utilized the same performance metrics for the Company's PRSUs awarded in 2022 as it utilized for the 2021 PRSUs.

The three metrics were:

Free Cash Flow defined as 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.

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 2021), compared to the average share price during the 20 -trading day period ending on the final measurement date (the last 20 trading days of 2022).

Any cash dividends or distributions paid in 2022 were added to calculate the return to shareholders during the year.

TSR is considered a market condition for which the fair value of PRSUs with this condition is determined using a Monte Carlo valuation model.

Key assumptions in the Monte Carlo valuation model included:

Expected Volatility.

Expected volatility of the Company’s common stock at the date of grant was estimated based on a historical average volatility rate for the approximate 1-year performance period.

Dividend Yield .

The dividend yield assumption was based on historical and anticipated dividend payouts (assumed at zero ).

Risk-Free Interest Rate .

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 used different performance metrics for PRSUs approved in that year.

For 2023, the Compensation Committee utilized the following metrics for the Company's PRSUs awarded to its executive officers, and approved the new target awards for 2023.

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 defined as net income attributable to the Company plus:

For PRSUs awarded in 2024, the Compensation Committee utilized the same metrics as 2023 PRSUs, but with revised performance goals.

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

1 unchanged sentence

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.

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

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:

Nine months ended September 30,

Three months ended March 31,

Units Weighted

4 unchanged sentences

Performance condition adjustments — $ — ( 32 ) $ 6.55

Vested ( 64 ) $ 5.58 ( 17 ) $ 6.85

Released — $ — ( 64 ) $ 5.58

Forfeited — $ — ( 84 ) $ 6.95

1 unchanged sentence

309 $ 9.00 382 $ 9.12

During the nine months ended September 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 314,000 units during the nine months ended September 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 September 30, 2023 and September 30, 2022, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.1 million and $ 0.3 million, respectively.

For the nine months ended September 30, 2023 and September 30, 2022, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.6 million and $ 0.9 million, respectively.

At September 30, 2023, there was $ 0.7 million of total unrecognized compensation costs related to approximately 100,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of 1.0 year.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

Therefore, the calendar year 2022 PRSUs decreased by approximately 32,000 units as a result of the final calculation of award metrics.

For the three months ended March 31, 2024 and March 31, 2023, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $ 0.1 million and $ 0.7 million, respectively.

At March 31, 2024, there was $ 2.4 million of total unrecognized compensation costs related to approximately 309,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of 3.0 years.

Earnings (loss) per Share

3 unchanged sentences

(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.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

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

2023 2022 2023 2022

Three months ended March 31,

Basic earnings (loss) per share

7 unchanged sentences

Weighted average common shares outstanding 30,680 30,021

Dilutive effect of stock options outstanding 250 —

Dilutive effect of restricted stock units outstanding (1)

2 unchanged sentences

_______________

(1) For the three and nine months ended September 30, 2023, 1,508,255 and 926,224 shares related to restricted stock, respectively, 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)

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

Acquisition-Related Expense

1 unchanged sentence

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

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

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

2023 2022 2023 2022

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 months ended March 31, 2024 and 2023:

Three months ended March 31,

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

4 unchanged sentences

Accounts receivable consisted of the following:

September 30, 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)

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

March 31, 2024 December 31, 2023

Trade accounts receivable $ 142,245 $ 134,495

1 unchanged sentence

Accounts receivable, net $ 140,404 $ 132,847

The Company had $ 27.8 million and $ 13.5 million of unbilled revenue accrued as of September 30, 2023 and December 31, 2022, respectively.

The Company had $ 36.5 million and $ 18.5 million of unbilled revenue accrued as of March 31, 2024 and December 31, 2023, respectively.

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

1 unchanged sentence

The Company considers unbilled receivables as short-term in nature as they are normally converted to trade receivables within 90 days, thus future changes in economic conditions will not have a significant effect on the credit loss estimate.

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

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

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

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.

The parties agreed to a settlement in the quarter ending June 30, 2023 with releases executed in July 2023, whereby the Company released 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):

September 30, 2023 December 31, 2022

Raw materials and consumable supplies $ 8,694 $ 7,745

Work in progress and finished goods 7,086 5,811

March 31, 2024 December 31, 2023

Raw materials $ 5,974 $ 6,099

Work in progress 1,003 839

Finished goods 5,495 5,740

Consumable supplies 2,607 2,605

Inventories $ 15,079 $ 15,283

1 unchanged sentence

Property, plant and equipment consisted of the following:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Land $ 2,444 $ 2,453

8 unchanged sentences

Property, plant and equipment, net $ 79,702 $ 80,972

Depreciation expense for the three months ended September 30, 2023 and 2022 was approximately $ 6.6 million and $ 5.9 million, respectively.

Depreciation expense for the nine months ended September 30, 2023 and 2022 was $ 19.0 million and $ 18.3 million, respectively.

Depreciation expense for the three months ended March 31, 2024 and 2023 was approximately $ 6.5 million and $ 6.3 million, respectively.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

2 unchanged sentences

Foreign currency translation ( 1,628 ) — — ( 1,628 )

Impairment charges — ( 13,799 ) — ( 13,799 )

Balance at 30, September 30, 2023 $ 185,519 $ — $ — $ 185,519

Balance at March 31, 2024 $ 185,726 $ — $ — $ 185,726

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.

1 unchanged sentence

As a result, the Company performed an interim quantitative goodwill impairment test.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

of these valuation methodologies based upon availability and relevance of comparable company data and determining the appropriate weighting.

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

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

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

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

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

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

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

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

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

Increased interest rates in the current period increased the discount rate associated with the reporting units which contributed in an unfavorable decrease in the reporting units value.

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

Increased interest rates in the current period increased the discount rate associated with the reporting units which contributed to an unfavorable decrease in the reporting units value.

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

1 unchanged sentence

Based upon the results of the interim quantitative goodwill impairment test, the Company recorded an impairment charge of $ 13.8 million within the International reporting units.

The impairment was calculated based on the difference between the estimated fair value and the carrying value of the reporting units and is included in Goodwill impairment charges on the condensed consolidated statements of income (loss) for the three and nine months ended September 30, 2023.

The impairment was calculated based on the difference between the estimated fair value and the carrying value of the reporting units.

Any significant adverse changes in future periods to the Company’s internal forecasts or the external market conditions, if any, could reasonably be expected to negatively affect its key assumptions and may result in future goodwill impairment charges which could be material.

The Company performed a quantitative annual impairment test as of October 1, 2023 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, 2024, 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:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

(Years) Gross

7 unchanged sentences

Total $ 187,815 $ ( 145,155 ) $ 42,660 $ 188,835 $ ( 144,841 ) $ 43,994

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

Amortization expense for the nine months ended September 30, 2023 and September 30, 2022 was $ 6.5 million and $ 6.9 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 March 31, 2024 and 2023 was approximately $ 1.9 million and $ 2.1 million, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Accrued salaries, wages and related employee benefits $ 28,373 $ 27,372

Contingent consideration, current portion — 937

Accrued workers’ compensation and health benefits 3,590 4,385

6 unchanged sentences

Long-term debt consisted of the following:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Senior credit facility $ 80,368 $ 71,150

6 unchanged sentences

Senior Credit Facility

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

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 $ 118 million as of September 30, 2023.

The Credit Agreement permits the Company to borrow up to $ 100 million in non-U.S.

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 Credit Agreement have a maturity date of July 30, 2027.

The 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 Prior 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 Credit Agreement) for the trailing four consecutive fiscal quarters.

Mistras Group, Inc.

2 unchanged sentences

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

On August 1, 2022, the Company entered into a new credit agreement (the “Credit Agreement”), which provides the Company with a $ 190 million 5-year committed revolving credit facility and a $ 125 million term loan with a balance of $ 116 million as of March 31, 2024.

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.

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

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

◦ 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 fiscal quarters.

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

2 unchanged sentences

• 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 Credit Agreement.

• As of December 31, 2023, the Fixed Charge Coverage Ratio was modified from a ratio of 1.25 to 1.0 to a ratio of 1.1 to 1.0 for the fiscal quarters ended December 31, 2023 and March 31, 2024.

For the period ending June 30, 2024 to maturity, the Fixed Charge Coverage Ratio is 1.25 to 1.

• 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.

1 unchanged sentence

• 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 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 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 September 30, 2023, the Company had borrowings of $ 189.7 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 $ 1.2 million as of September 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 September 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.

As of March 31, 2024, the Company had borrowings of $ 194.9 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 $ 1.2 million as of March 31, 2024, 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, 2024, 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.

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

However, such matters cannot be predicted with certainty.

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

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

At March 31, 2024, there was an aggregate of approximately $ 3.6 million outstanding, payable at various times through 2030.

Monthly payments range from $ 0.7 thousand to $ 16.0 thousand and interest rates range from 0.4 % to 3.5 %.

4 unchanged sentences

Financial instruments measured at fair value on a recurring basis

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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.

1 unchanged sentence

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

Nine months ended September 30,

Three months ended March 31,

Beginning balance $ — $ 938

8 unchanged sentences

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

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

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

While the Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against it, the Company does not believe that any currently pending or threatened legal proceeding to which the Company is or is likely to become a party will have a material adverse effect on its business, results of operations, cash flows or financial condition.

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

Litigation and Commercial Claims

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

As of September 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.

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

On April 25, 2023, the parties agreed to settle all claims, and in July 2023, the parties executed a settlement agreement.

As part of the settlement, the Company paid $ 0.3 million in July 2023 (which the Company estimates is significantly less than the cost of going to trial) and released its claim of $ 1.4 million for 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.

Mistras Group, Inc.

2 unchanged sentences

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

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.

Litigation and Commercial Claims

A subsidiary of the Company, Mistras Arizona Inspection Services LLC (“Mistras Arizona”) is subject to a lawsuit filed by the Arizona Department of Environmental Quality (“DEQ”), which has been filed against the Company, captioned State of Arizona 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, 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 payment was demanded for 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.

and Naiman Phoenix, Ltd., filed on February 27, 2024, in the Superior Court of the State of Arizona for Maricopa County, CV 2024-003866.

The Complaint alleges various violations of the Arizona environmental laws and regulations in connection with the operation of the Mistras Arizona testing facility in Phoenix, Arizona.

The complaint seeks injunctive relief, the closing of a chromic acid plating line and air scrubber, implementation of a site assessment plan approved by the DEQ, corrective and remedial action to bring the facility in compliance, and costs and penalties.

Mistras Arizona and the Company have also received notice of violations from the DEQ for the violations of Arizona environmental laws and regulations and from the Maricopa County Department of Air Quality for violation of various regulations regarding air quality.

This matter is in the early stages and the Company is unable to assess the amount of liability the Company or Mistras Arizona may incur.

Pension Related Contingencies

1 unchanged sentence

The collective bargaining agreements for the employees of these subsidiaries 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 reduction in employees resulted in one of the Company's subsidiaries 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 September 30, 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 March 31, 2024 is approximately $ 2.5 million, which were incurred in 2018 and 2019.

Segment Disclosure

14 unchanged sentences

Segment income from operations excludes interest and other financial charges and income taxes.

Corporate and other assets are

Corporate and other assets are comprised principally of cash, deposits, property, plant and equipment, domestic deferred taxes, deferred charges and other assets.

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.

2 unchanged sentences

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

comprised principally of cash, deposits, property, plant and equipment, domestic deferred taxes, deferred charges and other assets.

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.

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

(with intercompany transactions eliminated in Corporate and eliminations)

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

2023 2022 2023 2022

Three months ended March 31,

North America $ 150,349 $ 136,932

3 unchanged sentences

$ 184,442 $ 168,016

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

2023 2022 2023 2022

Three months ended March 31,

North America $ 39,991 $ 36,637

4 unchanged sentences

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

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

2023 2022 2023 2022

Three months ended March 31,

Income (loss) from operations

4 unchanged sentences

$ 5,553 $ ( 1,830 )

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

2023 2022 2023 2022

Three months ended March 31,

Depreciation and amortization

6 unchanged sentences

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

September 30, 2023 December 31, 2022

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

(tabular dollars are in thousands)

March 31, 2024 December 31, 2023

Intangible assets, net

4 unchanged sentences

$ 42,660 $ 43,994

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

North America $ 411,853 $ 402,782

3 unchanged sentences

$ 542,127 $ 534,776

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

Mistras Group, Inc.

and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Subsequent Events

On October 9, 2023, Sotirios Vahaviolos retired as Executive Chairman of the Board (the “Board”) of Mistras Group, Inc., but remains employed as a Senior Advisor to the Chief Executive Officer.

In addition, Dr.

Vahaviolos continues to serve as a member of the Board and as Chairman Emeritus.

On the same day, the Board elected Manuel N.

Stamatakis to serve as Chairman of the Board to succeed Dr.

Vahaviolos in that role.

On October 9, 2023, the Board also approved the termination without cause of Dennis Bertolotti as the Company’s President and Chief Executive Officer.

In connection with his termination as President and Chief Executive Officer, Mr.

Bertolotti resigned as a director, effective immediately.

The Board appointed Mr.

Stamatakis to serve as interim President and Chief Executive Officer until a permanent President and Chief Executive Officer is appointed.

The Company expects to record approximately $ 2.6 million during the fourth quarter of 2023 related to the termination.

Refer to Note 2 - Revenue , for revenue by geographic area for the three months ended March 31, 2024 and 2023.

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