What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-04 compared with 2024-08-02 · 114 added, 98 removed, 210 unchanged (50% 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 and six months ended June 30, 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 nine months ended September 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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Recent Developments

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.

The Company provides products and services to countries throughout the Middle East, where lawfully permitted, and in accordance with United States regulations.

We continue to monitor the on-going conflicts throughout the Middle East.

These conflicts caused disruptions in the Company's European operations in 2023 with increased costs associated with higher energy

Mistras Group, Inc.

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(tabular dollars are in thousands)

costs, amongst others.

These disruptions have largely subsided in 2024 and the Company will continue to monitor market conditions and respond accordingly.

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.

As of September 30, 2024, the cash balance was approximately $20.4 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.

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Results of Operations

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,

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

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

2024 2023 2024 2023

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Gross profit as a % of Revenue 29.9 % 30.3 % 29.1 % 28.7 %

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

Total operating expenses 42,719 59,064 132,415 152,799

Operating expenses as a % of Revenue 23.4 % 32.9 % 23.8 % 29.2 %

Income (loss) from operations 11,858 (4,682) 29,368 (2,618)

Income from Operations as a % of Revenue 6.5 % (2.6) % 5.3 % (0.5) %

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

Other Income (1,479) — (1,479) —

Interest expense 4,303 4,167 13,145 12,093

Income (loss) before provision (benefit) for income taxes 9,034 (8,849) 17,702 (14,711)

Provision (benefit) for income taxes 2,618 1,489 3,909 229

Net Income (loss) 6,416 (10,338) 13,793 (14,940)

Net income (loss) attributable to non-controlling interests, net of taxes 15 (40) 28 7

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

$ 6,401 $ (10,298) $ 13,765 $ (14,947)

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,

Revenue was $182.7 million for the three months ended September 30, 2024, an increase of $3.3 million, or 1.9%, compared with the three months ended September 30, 2023.

Revenue for the nine months ended September 30, 2024 was $556.9 million, an increase of $33.5 million, or 6.4%, compared with the nine months ended September 30, 2023.

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

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

2024 2023 2024 2023

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$ 182,694 $ 179,354 $ 556,909 $ 523,399

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.

In the three months ended September 30, 2024, total revenue increased 1.9% versus the prior year comparable period due to increased sales volume and price increases as compared to the prior period.

North America segment revenue increased 0.7% due to an increase in sales volume in our aerospace and defense, industrials and power generation & transmission end markets, amongst others.

International segment revenue increased 8.7%, due predominantly to growth in our other process industries and

Mistras Group, Inc.

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(tabular dollars are in thousands)

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

power generation and transmission end markets.

Products and Systems segment revenue increased 15.8%, due to increased sales volume as compared to the prior period.

Oil and gas customer revenue comprised approximately 54% and 58% of total revenue for the three months ended September 30, 2024 and 2023, respectively.

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

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

In the nine months ended September 30, 2024, total revenue increased 6.4% 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 5.9% 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,

International segment revenue increased 11.4% due mainly to increased turnaround activity in oil and gas end market and increased sales volume in our aerospace and defense end market.

Products and Systems segment revenue decreased 0.4% due to decreased sales volumes most notably within the power generation and transmission end market, amongst others, as compared to the prior period.

Oil and gas customer revenue comprised approximately 58% and 59% of total revenue for the nine months ended September 30, 2024 and 2023, respectively.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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Total $ 99,503 $ 103,252 $ 321,924 $ 308,041

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,

Oil and gas upstream customer revenue increased approximately $11.0 million, or 9.4%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, and $5.8 million, or 15.2%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, due to increased exploration operations and market share gains compared to the prior period.

Midstream customer revenues decreased approximately $6.5 million, or (8.7)%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, and $4.7 million, or (17.8)%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, due to primarily to decreased pipe inspection services as compared to the prior period.

Downstream customer revenue increased $9.4 million, or 8.1%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, and $(4.9) million, or (12.5)%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, due to increased sales volume at customer refineries and increased customer turnarounds.

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 September 30, Nine Months Ended September 30,

2024 2023 2024 2023

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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 $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 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.

Field Services revenue increased by $39.6 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, and increased $4.5 million, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

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

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

Shop Laboratories revenues increased by $6.9 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, and increased $0.2 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Shop Laboratories 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.

Data Analytical Solutions revenue decreased by $1.2 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, and decreased $0.1 million, for the three months ended September 30, 2024 as compared to the three months ended September 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 September 30, 2024 and decreased sales volume for the same offerings for the nine months ended September 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 $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 by $11.9 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, and decreased $1.2 million, for the three months ended September 30, 2024 as compared to the three months ended September 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,

Gross profit increased by $0.2 million, or 0.4%, in the three months ended September 30, 2024 versus the prior year comparable period, on an increase in revenue of 1.9%.

Gross profit increased by $11.6 million, or 7.7%, in the nine months ended September 30, 2024 on an increase in revenue of 6.4%.

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

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

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 September 30, Nine months ended September 30,

2024 2023 2024 2023

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% of total revenue 29.9 % 30.3 % 29.1 % 28.7 %

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

Gross profit margin was 29.9% and 30.3% for the three-month periods ended September 30, 2024 and 2023, respectively.

North America segment realized a decrease of (1.7)% in gross profit margin to 28.4% during the three months ended September 30, 2024.

This was primarily due to higher healthcare claims expense which was offset by growth in our higher margin end markets, as compared to the prior year period.

International segment realized an increase of 2.7% in gross profit margin to 30.1% during the three months ended September 30, 2024, due primarily to improved operating leverage and the implementation of strategic price increases.

Products and Systems segment realized an increase of 20.3% in gross profit margin to 59.0% during the three months ended September 30, 2024 due to favorable sales mix.

Gross profit margin was 29.1% and 28.7% for the nine months ended September 30, 2024 and 2023, respectively.

North America segment gross profit margin decreased 0.3% to 27.8% due to unfavorable sales mix and higher healthcare claims for the nine months ended September 30, 2024, as compared to the prior year period.

International segment gross profit margin increased 2.7% to 29.4% due to lower inflationary costs and the implementation of strategic price increases during the nine months ended September 30, 2024, as compared to the prior year period.

Products and Systems segment gross profit margin increased 4.9% during the nine months ended September 30, 2024, as compared to the prior year period, due to unfavorable sales mix.

Mistras Group, Inc.

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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 and six months ended June 30, 2024 and 2023 was as follows:

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

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

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

2024 2023 2024 2023

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Reorganization and other costs 2,143 2,702 4,218 6,017

Goodwill impairment charges — 13,799 — 13,799

Research and engineering 241 438 816 1,428

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% of total revenue 23.4 % 32.9 % 23.8 % 29.2 %

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.

Total operating expenses decreased $16.3 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, due predominantly to a goodwill impairment occurring in the prior year period.

Selling, general and administrative expenses decreased $0.7 million during the three months ended September 30, 2024 compared to the three months ended September 30, 2023, due predominantly to reductions occurring in the prior year period.

Depreciation and amortization decreased $0.3 million during the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

During the three months ended September 30, 2024, $2.1 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 $20.4 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due predominantly to reductions occurring in the prior year period.

Selling, general, and administrative expenses decreased $2.8 million during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, due primarily to reductions occurring in the prior year period.

Reorganization and other costs for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 decreased $1.8 million due to reduced professional fees and restructuring charges associated with changes in the Company's organizational structure.

Depreciation and amortization decreased $0.4 million during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Mistras Group, Inc.

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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,

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

2024 2023 2024 2023

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Income (loss) from operations (GAAP) $ 1,778 $ (12,970) $ 4,548 $ (13,031)

Goodwill Impairment charges — 13,799 — 13,799

Reorganization and other costs, net 147 33 410 228

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Products and Systems:

Income from operations (GAAP) $ 495 $ 94 $ 809 $ 478

Income (loss) from operations (GAAP) $ 670 $ (557) $ 1,479 $ (78)

Reorganization and other costs 182 189 184 189

Income from operations before special items (non-GAAP) $ 495 $ 94 $ 811 $ 478

Income (loss) from operations before special items (non-GAAP) $ 852 $ (368) $ 1,663 $ 111

Corporate and Eliminations:

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Total Company:

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

Income (loss) from operations (GAAP) $ 11,858 $ (4,682) $ 29,368 $ (2,618)

Goodwill Impairment charges — 13,799 — 13,799

Reorganization and other costs 2,143 2,702 4,218 6,017

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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)

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.

For the three months ended September 30, 2024, income from operations (GAAP) increased $16.5 million compared to the three months ended September 30, 2023, while income from operations before special items (non-GAAP) increased $1.3 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

As a percentage of revenue, income from operations before special items increased by 60 basis points to 7.2% in the three months ended September 30, 2024 from 6.6% in the three months ended September 30, 2023.

For the nine months ended September 30, 2024, income from operations (GAAP) increased $32.0 million, compared to the nine months ended September 30, 2023, while income from operations before special items (non-GAAP) increased $15.4 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

As a percentage of revenue, income from operations before special items increased by 260 basis points to 5.9% in the nine months ended September 30, 2024 from 3.3% in the nine months ended September 30, 2023.

During the nine months ended September 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.

Interest expense was approximately $4.3 million and $4.2 million for the three months ended September 30, 2024 and 2023, respectively.

Interest expense was approximately $13.1 million and $12.1 million for the nine months ended September 30, 2024 and 2023, respectively.

The increase in interest expense for the three and nine months ended September 30, 2024 compared to the prior year period was due to an increase in the interest rates.

Our effective income tax rate was approximately 29.0% and (16.8)% for the three months ended September 30, 2024 and 2023, respectively.

Our effective income tax rate was approximately 22.1% and (1.6)% for the nine months ended September 30, 2024 and 2023, respectively.

The effective income tax rate for the three months ended September 30, 2024 was higher than the statutory rate primarily due to the impact of permanent items in the period.

The effective income tax rate for the three months ended September 30, 2023 was lower than the statutory rate 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, 2024 was higher than the statutory rate due primarily to the impact of permanent items.

The effective income tax rate for the nine months ended September 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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Cash flows are summarized in the table below:

Six months ended June 30,

Nine months ended September 30,

Net cash provided by (used in):

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Cash Flows from Operating Activities

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.

During the nine months ended September 30, 2024, net cash provided by operating activities was $24.5 million, representing a year-on-year increase of $13.8 million, or 129%.

The increase was primarily related to reduced net working capital, as well as improved operating results, in the current period.

Cash Flows from Investing Activities

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.

During the nine months ended September 30, 2024, net cash used in investing activities was $17.2 million, compared to $15.2 million net cash used in investing activities for the nine months ended September 30, 2023.

The change was primarily attributable to purchase of intangible assets during the current period as compared to the prior period.

Cash Flows from Financing Activities

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.

Net cash used in financing activities was $6.2 million for the nine months ended September 30, 2024, compared to net cash used in financing activities of $1.8 million for the nine months ended September 30, 2023.

This was a result of higher net repayments of debt of $3.7 million during the nine months ended September 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 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 effect of exchange rate changes on our cash and cash equivalents was an increase of $1.6 million in the nine months ended September 30, 2024, compared to a decrease of $1.4 million for the nine months ended September 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 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.

As of September 30, 2024, we had cash and cash equivalents totaling $20.4 million and $109.9 million of unused commitments under our Credit Agreement with borrowings of $186.8 million and $3.1 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 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.

As of September 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

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Off-balance Sheet Arrangements

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.

During the nine months ended September 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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis