What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-02 compared with 2024-05-03 · 137 added, 83 removed, 171 unchanged (56% of the section changed)

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

The following Management’s Discussion and Analysis (“MD&A”) provides a discussion of our results of operations and financial position for the three months ended March 31, 2024 and 2023.

The following Management’s Discussion and Analysis (“MD&A”) provides a discussion of our results of operations and financial position for the three and six months ended June 30, 2024 and 2023.

The MD&A should be read together with our Unaudited Condensed Consolidated Financial Statements and related notes included in Item 1 in this Quarterly Report on Form 10-Q (the "Quarterly Report") and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023, (“2023 Annual Report”).

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and building real-time monitoring systems to help avoid catastrophic incidents, the Company helps the world at large.

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

Mistras Group, Inc.

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(tabular dollars are in thousands)

OneSuite™, which serves as an ecosystem platform, pulling together all of the Company’s software and data services capabilities, for the benefit of its customers.

The Company’s core capabilities also include non-destructive testing (“NDT”) field inspections enhanced by advanced robotics, laboratory quality control and assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.

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The Russian-Ukrainian war and the conflict in the Middle East between Israel and Hamas are creating disruptions in the oil and gas market and the supply chain in general, which is resulting in some disruption to our business operations primarily in Europe due to increased energy costs.

Our cash position and liquidity remains strong.

As of March 31, 2024, the cash balance was approximately $16.9 million, and with our Credit Agreement, provides us with significant liquidity.

In April 2021, the Biden Administration announced aggressive initiatives to battle climate change, which includes a significant reduction in the use of fossil fuels and a transition to electric vehicles and increased use of alternative energy.

Any legislation or

Mistras Group, Inc.

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(tabular dollars are in thousands)

regulations that may be adopted to implement these measures may negatively impact our customers in the oil and gas market over the long-term, which presently is our largest market, although this initiative will likely benefit the alternative energy market, such as wind energy, for which we provide products and services.

Our cash position and liquidity remains strong.

As of June 30, 2024, the cash balance was approximately $17.2 million, and with our Credit Agreement, provides us with significant liquidity.

Any legislation or regulations that may be adopted to implement these measures may negatively impact our customers in the oil and gas market over the long-term, which presently is our largest market, although this initiative will likely benefit the alternative energy market, such as wind energy, for which we provide products and services.

At this time, it is difficult to determine the magnitude and timing of the impact that climate change initiatives and legislation, if any, will have on these markets and the resulting impact on our business and operational results.

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Because Income (loss) from operations before special items may not be calculated in the same manner by all companies, this measure may not be comparable to other similarly titled measures used by other companies.

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

Results of Operations

Condensed consolidated results of operations for the three months ended March 31, 2024 and 2023 were as follows:

Three months ended March 31,

Condensed consolidated results of operations for the three and six months ended June 30, 2024 and 2023 were as follows:

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

2024 2023 2024 2023

Revenues $ 189,773 $ 176,030 $ 374,215 $ 344,046

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Gross profit as a % of Revenue 29.6 % 28.2 % 28.6 % 27.8 %

Income (loss) from operations 5,553 (1,830)

Income (loss) from Operations as a % of Revenue 3.0 % (1.1) %

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

Income from operations 11,959 3,893 17,511 2,065

Income from Operations as a % of Revenue 6.3 % 2.2 % 4.7 % 0.6 %

Income before provision (benefit) for income taxes 7,546 35 8,669 (5,862)

Net Income (loss) 6,373 376 7,377 (4,602)

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$ 6,369 $ 337 $ 7,364 $ (4,649)

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

Revenue was $184.4 million for the three months ended March 31, 2024, an increase of $16.4 million, or 9.8%, compared with the three months ended March 31, 2023.

Revenue by segment for the three months ended March 31, 2024 and 2023 were as follows:

Three months ended March 31,

Revenue was $189.8 million for the three months ended June 30, 2024, an increase of $13.7 million, or 7.8%, compared with the three months ended June 30, 2023.

Revenue for the six months ended June 30, 2024 was $374.2 million, an increase of $30.2 million, or 8.8%, compared with the six months ended June 30, 2023.

Revenue by segment for the three and six months ended June 30, 2024 and 2023 was as follows:

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

2024 2023 2024 2023

North America $ 156,394 $ 145,550 $ 306,743 $ 282,482

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Corporate and eliminations (4,258) (3,126) (6,422) (5,188)

Total $ 184,442 $ 168,016

In the three months ended March 31, 2024, total revenue increased 9.8% versus the prior year comparable period due predominantly to a high single-digit organic increase.

North America segment revenue increased 9.8%, driven predominantly by a high single-digit organic increase and increased turnarounds in the current year, minimally supported by low single-digit favorable impact of foreign exchange rates.

International segment revenue increased 12.4%, due predominantly to low double-digit organic growth and low single-digit favorable impact of foreign exchange rates.

Products and Systems segment revenue decreased by 14.1%, due to decreased sales volume and shipments as compared to the prior period.

Oil and gas customer revenue comprised approximately 61% and 59% of total revenue for the three months ended March 31, 2024 and 2023, respectively.

Aerospace and defense customer revenue comprised approximately 12% and 11% of total revenue for the three months ended March 31, 2024 and 2023, respectively.

The Company’s top ten customers comprised approximately 39% of total revenue for the three months ended March 31, 2024, as compared to 36% for the three months ended March 31, 2023, with no customer accounting for 10% or more of total revenue in either three-month period.

Three months ended March 31,

$ 189,773 $ 176,030 $ 374,215 $ 344,046

In the three months ended June 30, 2024, total revenue increased 7.8% versus the prior year comparable period due predominantly to increased sales volume as compared to the prior period.

North America segment revenue increased 7.5% due to an increase in sales volume in our aerospace and defense and power generation & transmission end markets, amongst others.

International segment revenue increased 13.2%, due predominantly to increased turnaround projects and low double digit aerospace and defense growth.

Products and Systems segment revenue increased 1.3%, due to increased sales volume as compared to the prior period.

Oil and gas customer revenue comprised approximately 58% and 60% of total revenue for the three months ended June 30, 2024 and 2023, respectively.

Aerospace and defense customer revenue comprised approximately 12% and 11% of total revenue for the three months ended June 30, 2024 and 2023, respectively.

The Company’s top ten customers comprised approximately 35% of total revenue for the three months ended June 30, 2024, as compared to 36% for the three months ended June 30, 2023, with no customer accounting for 10% or more of total revenue in either three-month period.

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

In the six months ended June 30, 2024, total revenue increased 8.8% versus the comparable prior period.

The increase was due predominantly to increased sales volume as compared to the prior period.

Our North America segment revenue increased 8.6% due primarily to increased sales volume in our oil and gas and aerospace and defense end markets.

International segment revenue increased 12.8% due to low double-digit organic growth and low single-digit favorable revenue impact from foreign exchange rates.

Products and Systems segment revenue decreased 6.9% due to decreased sales volumes within the majority of end markets, as compared to the prior period.

Oil and gas customer revenue comprised approximately 59% and 60% of total revenue for the six months ended June 30, 2024 and 2023, respectively.

Aerospace and defense customer revenue comprised approximately 12% and 11% of total revenue for the six months ended June 30, 2024 and 2023, respectively.

The Company’s top ten customers comprised approximately 35% of total revenue for the six months ended June 30, 2024, as compared to 35% for the six months ended June 30, 2023, with no customer accounting for 10% or more of total revenue in either nine-month period.

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Oil and Gas Revenue by sub-category

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Total $ 109,256 $ 106,124 $ 222,421 $ 204,789

Oil and gas upstream customer revenue increased approximately $4.8 million, or 13%, due primarily to market share gains and increased exploration activity as compared to the prior period.

Midstream customer revenues increased approximately $0.2 million, or 1%, due to decreased pipe inspection services performed as compared to the prior period.

Downstream customer revenues increased $9.5 million or, 23%, primarily due to increased customer turnarounds in the current year that were delayed in the prior period.

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,

Oil and gas upstream customer revenue increased approximately $5.2 million, or 7%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, and $0.4 million, or 1%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, due to increased exploration operations and market share gains compared to the prior period.

Midstream customer revenues decreased approximately $1.8 million, or 4%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, and $2.0 million, or 7%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, due to decreased pipe inspection services as compared to the prior period.

Downstream customer revenue increased $14.3 million, or 18%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, and $4.7 million, or 13%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, due to increased sales volume at customer refineries and increased customer turnarounds.

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Revenue by type

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Field Services revenues are comprised of revenue derived primarily by technicians performing asset inspections and maintenance services for our customers at locations other than Mistras properties.

Field Services revenue increased by $16.7 million as compared to the prior period primarily due to increases in sales volume in our oil and gas, industrials and infrastructure, research and engineering end markets within our North America segment and oil and gas end market within our International segment.

Field Services revenue increased by $35.1 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, and increased $18.4 million, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

The increase in both periods was due to increased sales volume in our oil and gas end market in our North America and International segments.

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

Shop Laboratory revenues are comprised of quality assurance inspections of components and materials at our Mistras in house laboratory facilities.

Shop revenues increase by $4.1 million as compared to the prior period quarter due to increased sales volumes related to our aerospace and defense end market in our North America and International segments.

Data Analytical Solutions revenues are comprised of revenue derived from data software sales & subscriptions, implementation services and analytics which offer insights and generate value from asset protection.

Data Analytical Solutions revenue is derived from work performed by Mistras employees in our facilities, or at customer locations.

Data Analytical Solutions revenue decreased by $1.3 million as compared to the prior period due to decreased sales volume within PCMS and other Data Analytical Solutions offerings within our North America segment.

Shop Laboratory revenues increased by $6.8 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, and increased $2.7 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Shop Laboratory revenues increased in both periods as compared to the prior year periods due to increased sales volume related to our aerospace and defense end market.

Data Analytical Solutions revenues are comprised of revenue derived from data software sales & subscriptions, implementation services and analytics that offer insights and recommendations to improve asset integrity.

Data Analytical Solutions revenue is derived from work performed by Mistras employees in our facilities, or at customer locations, using our proprietary portfolio of software applications.

Data Analytical Solutions revenue decreased by $1.0 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, and increased $0.2 million, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 due primarily to decreased sales volume within PCMS, Onstream and other Data Analytical Solutions offerings within our North America segment for the three months ended June 30, 2024 and decreased sales volume for the same offerings for the six months ended June 30, 2024.

Other revenues are comprised of locations that perform both asset inspection services and testing of components and materials at in house Mistras laboratories.

Other revenues decreased by $3.0 million as compared to the prior year primarily due to decreased sales within the defense sector within the North America segment offset by increased private space shop related activities during the quarter.

Gross profit increased by $5.0 million, or 10.9%, in the three months ended March 31, 2024 versus the prior year comparable period, an increase in revenue of 9.8%.

Gross profit by segment for the three months ended March 31, 2024 and 2023 was as follows:

Three months ended March 31,

Other revenues decreased by $10.6 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, and decreased $7.6 million, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Other revenues decreased in both periods primarily due to decreased sales in our other end markets within the North America and International segments.

Gross profit increased by $6.4 million, or 12.9%, in the three months ended June 30, 2024 versus the prior year comparable period, on an increase in revenue of 7.8%.

Gross profit increased by $11.4 million, or 11.9%, in the six months ended June 30, 2024 on an increase in revenue of 8.8%.

Gross profit by segment for the three and six months ended June 30, 2024 and 2023 was as follows:

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

2024 2023 2024 2023

North America $ 44,336 $ 39,679 $ 84,326 $ 76,316

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% of total revenue 29.6 % 28.2 % 28.6 % 27.8 %

Gross profit margin was 29.6% and 28.2% for the three-month periods ended June 30, 2024 and 2023, respectively.

North America segment realized an increase of 1.0% in gross profit margin to 28.3% during the three months ended June 30, 2024.

This was primarily due to improved operating leverage, lower healthcare claims expense and growth in our higher margin end markets, as compared to the prior year period.

International segment realized an increase of 1.7% in gross profit margin to 29.4% during the three months ended June 30, 2024, due primarily to improved operating leverage and the implementation of

Mistras Group, Inc.

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(tabular dollars are in thousands)

Gross profit margin was 27.7% and 27.4% for the three-month periods ended March 31, 2024 and 2023, respectively.

North America segment realized a decrease of 0.2% in gross profit margin to 26.6% during the three months ended March 31, 2024 as compared to the prior period.

This was primarily due to unfavorable sales mix in the period ended March 31, 2024 as compared to the prior period, and higher benefit claims expense in the current year period.

International segment realized a 3.5% increase in gross profit margin to 28.6% during the three months ended March 31, 2024 due primarily to a better sales mix and decreased energy costs in the current period.

Products and Systems segment gross margin had a decrease of 5.0% to 50.2% during the three months ended March 31, 2024 due to decreased sales volume as compared to the prior period.

strategic price increases.

Products and Systems segment realized an increase of 1.5% in gross profit margin to 50.1% during the three months ended June 30, 2023 due to favorable sales mix.

Gross profit margin was 28.6% and 27.8% for the six months ended June 30, 2024 and 2023, respectively.

North America segment gross profit increased 0.5% to 27.5% due to favorable sales mix and lower healthcare claims for the six months ended June 30, 2024, as compared to the prior year period.

International segment gross profit increased 2.6% to 29.0% due to lower inflationary costs and the implementation of strategic price increases during the six months ended June 30, 2024, as compared to the prior year period.

Products and Systems segment gross profit decreased 1.9% during the six months ended June 30, 2024, as compared to the prior year period, due to unfavorable sales mix.

Operating Expenses

Operating expenses for the three months ended March 31, 2024 and 2023 was as follows:

Three months ended March 31,

Operating expenses for the three and six months ended June 30, 2024 and 2023 was as follows:

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

2024 2023 2024 2023

Operating Expenses

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Depreciation and amortization 2,391 2,443 4,839 4,969

Legal settlement and insurance recoveries, net 60 150 60 150

Acquisition-related expense, net — 1 1 3

Operating expenses decreased $2.4 million, or 4.9%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Selling, general and administrative expenses decreased $1.6 million during the three months ended March 31, 2024 compared to the three months ended March 31, 2023, due to cost reduction measures implemented in 2023 and favorable foreign exchange impact as compared to the prior period.

Reorganization and other costs decreased by approximately $0.5 million as compared to the prior year due primarily to a decrease in severance costs during the period.

Depreciation and amortization decreased $0.1 million during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

$ 44,157 $ 45,829 $ 89,694 $ 93,734

% of total revenue 23.3 % 26.0 % 24.0 % 27.2 %

Total operating expenses decreased $1.7 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, due predominantly to reductions occurring in the prior year period.

Selling, general and administrative expenses decreased $0.5 million during the three months ended June 30, 2024 compared to the three months ended June 30, 2023, due predominantly to reductions occurring in the prior year period.

Depreciation and amortization was flat during the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

During the three months ended June 30, 2024, $0.5 million of reorganization and other related costs were incurred, which were a result of the Company's on-going efficiency and productivity initiatives.

Operating expenses decreased $4.0 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due predominantly to reductions occurring in the prior year period.

Selling, general, and administrative expenses decreased $2.2 million during the six months ended June 30, 2024 compared to the six months ended June 30, 2023, due primarily to reductions occurring in the prior year period and favorable foreign currency exchange.

Reorganization and other costs for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 decreased $1.2 million due to reduced professional fees and restructuring charges associated with changes in the Company's organizational structure.

Depreciation and amortization decreased $0.1 million during the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Mistras Group, Inc.

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Income (loss) from Operations

The following table shows a reconciliation of the income from operations to income (loss) from operations before special items for each of our three segments, Corporate and Elimination and for the Company in total:

Three months ended March 31,

The following table shows a reconciliation of the income (loss) from operations to income (loss) before special items for each of our three segments, Corporate and Eliminations and the Company in total:

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

2024 2023 2024 2023

North America:

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Reorganization and other costs 92 478 92 539

Legal settlement and insurance recoveries, net 60 150 60 150

Income from operations before special items (non-GAAP) $ 18,879 $ 12,966 $ 32,439 $ 22,404

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Income (loss) from operations (GAAP) $ 1,647 $ 507 $ 2,771 $ (61)

Reorganization and other costs 102 107

Income (loss) from operations before special items (non-GAAP) $ 1,226 $ (461)

Reorganization and other costs, net 161 88 263 195

Income from operations before special items (non-GAAP) $ 1,808 $ 595 $ 3,034 $ 134

Products and Systems:

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Total Company:

Income (loss) from operations (GAAP) $ 5,553 $ (1,830)

Income from operations (GAAP) $ 11,959 $ 3,893 $ 17,511 $ 2,065

Reorganization and other costs 518 1,240 2,075 3,316

Legal settlement and insurance recoveries, net 60 150 60 150

Acquisition-related expense, net — 1 1 3

Income from operations before special items (non-GAAP) $ 12,537 $ 5,284 $ 19,647 $ 5,534

See section Note About Non-GAAP Measures in this report for an explanation of the use of non-GAAP measurements.

For the three months ended March 31, 2024, income (loss) from operations (GAAP) increased $7.4 million or 403.4%, compared with the three months ended March 31, 2023, while the income from operations before special items (non-GAAP) improved by $6.9 million, or 2,755.8%.

As a percentage of revenue, the income (loss) before special items improved by 380 basis points to 3.9% in the three months ended March 31, 2024 compared to 0.1% in the three months ended March 31, 2023.

Interest Expense

Interest expense was approximately $4.4 million and $4.1 million for the three months ended March 31, 2024 and 2023, respectively.

The increase was a result of increased interest rates in the period.

Our 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 for the three months ended March 31, 2024 was lower than the statutory rate primarily due to the impact of favorable discrete items including stock compensation.

The effective income tax rate for the three months ended

See section Note About Non-GAAP Measures in this Quarterly Report on Form 10-Q for an explanation of the use of non-GAAP measurements.

For the three months ended June 30, 2024, income from operations (GAAP) increased $8.1 million compared to the three months ended June 30, 2023, while income from operations before special items (non-GAAP) increased $7.3 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

As a percentage of revenue, income from operations before special items increased by 360 basis points to 6.6% in the three months ended June 30, 2024 from 3.0% in the three months ended June 30, 2023.

Mistras Group, Inc.

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(tabular dollars are in thousands)

March 31, 2023 was lower than the statutory rate primarily due to the impact of an favorable discrete item related to stock compensation.

For the six months ended June 30, 2024, income from operations (GAAP) increased $15.4 million, compared to the six months ended June 30, 2023, while income from operations before special items (non-GAAP) increased $14.1 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

As a percentage of revenue, income from operations before special items increased by 370 basis points to 5.3% in the six months ended June 30, 2024 from 1.6% in the six months ended June 30, 2023.

During the six months ended June 30, 2024, the Company experienced overall organic growth as well as decreased reorganization costs.

Interest Expense

Interest expense was approximately $4.4 million and $3.9 million for the three months ended June 30, 2024 and 2023, respectively.

Interest expense was approximately $8.8 million and $7.9 million for the six months ended June 30, 2024 and 2023, respectively.

The increase in the three months ended June 30, 2024 was due to an increase in interest rates compared to the prior year period.

The increase in interest expense for the six months ended June 30, 2024 compared to the prior year period was due to an increase in the interest rates.

Our effective income tax rate was approximately 15.5% and (974.3)% for the three months ended June 30, 2024 and 2023, respectively.

Our effective income tax rate was approximately 14.9% and 21.5% for the six months ended June 30, 2024 and 2023, respectively.

The effective income tax rate for the three months ended June 30, 2024 was lower than the statutory rate primarily due to the impact of a favorable discrete item such as the reversal of valuation allowances.

The effective income tax rate for the six months ended June 30, 2023 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.

The effective income tax rate for the six months ended June 30, 2024 was lower than the statutory rate due primarily to items such as the reversal of valuation allowances.

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.

Income tax expense varies as a function of pre-tax income and the level of non-deductible expenses, such as certain amounts of meals and entertainment expense, valuation allowances, and other permanent differences.

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Our effective income tax rate may fluctuate over the next few years due to many variables including the amount and future geographic distribution of our pre-tax income, changes resulting from our acquisition strategy, and increases or decreases in our permanent differences.

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

Liquidity and Capital Resources

Cash flows are summarized in the table below:

Three months ended March 31,

Six months ended June 30,

Net cash provided by (used in):

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Cash Flows from Operating Activities

During the three months ended March 31, 2024, cash provided by operating activities was $0.6 million, representing a year-on-year decrease of $3.8 million, or 86%.

The decrease was primarily attributable to a decrease in days sales outstanding and movements in working capital, as compared to the prior year quarter.

During the six months ended June 30, 2024, net cash provided by operating activities was $5.1 million, representing a year-on-year decrease of $13.2 million, or 72%.

The decrease was primarily related to increased working capital in the current period.

Cash Flows from Investing Activities

During the three months ended March 31, 2024 and 2023, cash used in investing activities was $5.6 million, primarily attributable to increased expenditures for vehicles leased related to customer projects and additional capital expenditures as compared to the prior period.

During the six months ended June 30, 2024, net cash used in investing activities was $11.2 million, compared to $9.8 million net cash used in investing activities for the six months ended June 30, 2023.

The change was primarily attributable to capital expenditures related to property, plant and equipment during the current period as compared to the prior period.

Cash Flows from Financing Activities

Net cash provided by financing activities was $5.1 million for the three months ended March 31, 2024, compared to net cash used in financing activities of $4.0 million for the three months ended March 31, 2023.

During the three months ended March 31, 2024, net borrowings of debt were approximately $10.1 million higher as compared to 2023 resulting in debt borrowings during the period.

In addition, $0.8 million more taxes were paid related to net share settlement of share-based awards during the three months ended March 31, 2024.

Net cash provided in financing activities was $5.3 million for the six months ended June 30, 2024, compared to net cash used in financing activities of $11.2 million for the six months ended June 30, 2023.

This was a result of higher net repayments of debt of $16.8 million during the six months ended June 30, 2024, as compared to the prior year period.

Effect of Exchange Rate Changes on Cash and Cash Equivalents

The effect of exchange rate changes on our cash and cash equivalents was a decrease of $0.9 million in the three months ended March 31, 2024, compared to an increase of $0.2 million for the three months ended March 31, 2023.

The effect of exchange rate changes on our cash and cash equivalents was an increase of $0.4 million in the six months ended June 30, 2024, compared to an increase of $0.2 million for the six months ended June 30, 2023.

The primary driver of the change was foreign currency fluctuations related to the Euro and the US Dollar.

Cash Balance and Credit Facility Borrowings

As of March 31, 2024, we had cash and cash equivalents totaling $16.9 million and $104.0 million of unused commitments under our Credit Agreement with borrowings of $194.9 million and $2.9 million of letters of credit outstanding.

As of June 30, 2024, we had cash and cash equivalents totaling $17.2 million and $102.5 million of unused commitments under our Credit Agreement with borrowings of $196.6 million and $3.2 million of letters of credit outstanding.

We finance operations primarily through our existing cash balances, cash collected from operations, bank borrowings and capital lease financing.

We believe these sources are sufficient to fund our operations for the foreseeable future.

As of March 31, 2024, we were in compliance with the terms of the Credit Agreement and will continuously monitor our compliance with the covenants contained in the Credit Agreement.

As of June 30, 2024, we were in compliance with the terms of the Credit Agreement and will continuously monitor our compliance with the covenants contained in the Credit Agreement.

The terms of our Credit Agreement are described in Note 12- Long-Term Debt of the Notes to the Unaudited Condensed Consolidated Financial Statements, under the heading " Senior Credit Facility ".

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

Contractual Obligations

There have been no significant changes in our contractual obligations and outstanding indebtedness as disclosed in the 2023 Annual Report.

There have been no significant increases in our contractual obligations and outstanding indebtedness as disclosed in the 2023 Annual Report.

Off-balance Sheet Arrangements

During the three months ended March 31, 2024, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

During the six months ended June 30, 2024, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

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 2. Management’s Discussion and Analysis