Mistras Group, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Mistras Group, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Mistras Group, Inc. and its subsidiaries (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of income (loss), of comprehensive income (loss), of equity and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters 48 Table of Contents The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition As described in Note 2 to the consolidated financial statements, the Company derives the majority of its revenue by providing services on a time and material basis that are short-term in nature. Revenue is recognized over time as work progresses for the Company's service deliverables, which includes providing testing, inspection and mechanical services to customers. Revenue is recognized over time, based on time and material incurred to date which best portrays the transfer of control to the customer. For the year ended December 31, 2024, the Company’s revenue was $729.6 million, a majority of which relates to revenue recognized for providing services on a time and material basis. The principal consideration for our determination that performing procedures relating to revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company's revenue recognition. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over revenue recognized over time. These procedures also included, among others (i) evaluating revenue transactions by testing the issuance and settlement of invoices and credit memos, tracing transactions not settled to a detailed listing of accounts receivable, and testing the completeness and accuracy of data provided by management; (ii) testing the unbilled revenue accrual at the end of the period, on a test basis, by obtaining the unbilled revenue analysis and supporting documentation, such as invoices, purchase orders/contracts, and timesheets; and (iii) confirming, on a sample basis, outstanding customer invoice balances as of December 31, 2024 and obtaining and inspecting source documents, including invoices, delivery documents, and subsequent cash receipts, where applicable for confirmations not returned. /s/ PricewaterhouseCoopers LLP Philadelphia, Pennsylvania March 11, 2025 We have served as the Company’s auditor since 2023. 49 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Mistras Group, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of income (loss), comprehensive income (loss), equity and cash flows of Mistras Group, Inc. and subsidiaries (the Company) for the year ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations of the Company and its cash flows for the year ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ KPMG LLP We served as the Company’s auditor from 2013 to 2023. Short Hills, New Jersey March 15, 2023, except for Note 19, as to which the date is March 11, 2025 50 Table of Contents Mistras Group, Inc. and Subsidiaries Consolidated Balance Sheets ( in thousands, except share and per share data ) December 31, 2024 2023 ASSETS Current Assets Cash and cash equivalents $ 18,317 $ 17,646 Accounts receivable, net 127,281 132,847 Inventories 14,485 15,283 Prepaid expenses and other current assets 12,387 14,580 Total current assets 172,470 180,356 Property, plant and equipment, net 80,892 80,972 Intangible assets, net 39,708 43,994 Goodwill 181,442 187,354 Deferred income taxes 6,267 2,316 Other assets 42,259 39,784 Total Assets $ 523,038 $ 534,776 LIABILITIES AND EQUITY Current Liabilities Accounts payable $ 11,128 $ 17,032 Accrued expenses and other current liabilities 85,233 84,331 Current portion of long-term debt 11,591 8,900 Current portion of finance lease obligations 5,317 5,159 Income taxes payable 1,656 1,101 Total current liabilities 114,925 116,523 Long-term debt, net of current portion 158,056 181,499 Obligations under finance leases, net of current portion 15,162 11,261 Deferred income taxes 1,973 2,552 Other long-term liabilities 34,027 32,438 Total Liabilities $ 324,143 $ 344,273 Commitments and contingencies (Note 18) Equity Preferred stock, 10,000,000 shares authorized — — Common stock, $ 0.01 par value, 200,000,000 shares authorized, 31,010,375 and 30,597,633 shares issued 402 305 Additional paid-in capital 250,832 247,165 Accumulated Deficit ( 9,984 ) ( 28,942 ) Accumulated other comprehensive loss ( 42,682 ) ( 28,336 ) Total Mistras Group, Inc. stockholders’ equity 198,568 190,192 Non-controlling interests 327 311 Total Equity 198,895 190,503 Total Liabilities and Equity $ 523,038 $ 534,776 The accompanying notes are an integral part of these consolidated financial statements. 51 Table of Contents Mistras Group, Inc. and Subsidiaries Consolidated Statements of Income (Loss) ( in thousands, except per share data ) For the year ended December 31, 2024 2023 2022 Revenue $ 729,640 $ 705,473 $ 687,373 Cost of revenue 492,928 477,671 466,567 Depreciation 23,603 23,995 22,633 Gross profit 213,109 203,807 198,173 Selling, general and administrative expenses 156,388 166,749 166,400 Bad debt provision for troubled customers, net of recoveries — — 42 Reorganization and other costs 5,515 12,269 195 Environmental expense 1,660 — — Goodwill impairment charges — 13,799 — Legal settlement and litigation charges (benefit), net ( 808 ) 1,058 ( 994 ) Research and engineering 1,119 1,723 1,994 Depreciation and amortization 9,407 10,104 10,661 Acquisition-related expense, net 2 9 76 Income (loss) from operations 39,826 ( 1,904 ) 19,799 Other income ( 1,485 ) — — Interest expense 17,067 16,761 10,505 Income (loss) before provision (benefit) for income taxes 24,244 ( 18,665 ) 9,294 Provision (benefit) for income taxes 5,274 ( 1,220 ) 2,720 Net income (loss) 18,970 ( 17,445 ) 6,574 Less: net income attributable to noncontrolling interests, net of taxes 12 8 75 Net income (loss) attributable to Mistras Group, Inc. $ 18,958 $ ( 17,453 ) $ 6,499 Earnings (loss) per common share Basic $ 0.61 $ ( 0.58 ) $ 0.22 Diluted $ 0.60 $ ( 0.58 ) $ 0.21 Weighted average common shares outstanding: Basic 30,926 30,330 29,901 Diluted 31,608 30,330 30,229 The accompanying notes are an integral part of these consolidated financial statements. 52 Table of Contents Mistras Group, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (in thousands) For the year ended December 31, 2024 2023 2022 Net income (loss) $ 18,970 $ ( 17,445 ) $ 6,574 Other comprehensive income (loss): Foreign currency translation adjustments ( 14,342 ) 5,058 ( 13,084 ) Comprehensive income (loss) 4,628 ( 12,387 ) ( 6,510 ) Less: net income attributable to noncontrolling interests, net of taxes 12 8 75 Less: Foreign currency translation adjustments attributable to noncontrolling interests 4 4 ( 5 ) Comprehensive income (loss) attributable to Mistras Group, Inc. $ 4,612 $ ( 12,399 ) $ ( 6,580 ) The accompanying notes are an integral part of these consolidated financial statements. 53 Table of Contents Mistras Group, Inc. and Subsidiaries Consolidated Statements of Equity (in thousands) Common Stock Additional paid-in capital Accumulated Deficit Accumulated other comprehensive loss Total Mistras Group, Inc. Stockholders’ Equity Non-controlling interests Shares Amount Total Equity Balance at December 31, 2021 29,546 $ 295 $ 238,687 $ ( 17,988 ) $ ( 20,311 ) $ 200,683 $ 229 $ 200,912 Net loss — — — 6,499 — 6,499 75 6,574 Other comprehensive income, net of tax — — — — ( 13,079 ) ( 13,079 ) ( 5 ) ( 13,084 ) Share-based compensation — — 5,335 — — 5,335 — 5,335 Net settlement of restricted stock units 349 3 ( 991 ) — — ( 988 ) — ( 988 ) Balance at December 31, 2022 29,895 $ 298 $ 243,031 $ ( 11,489 ) $ ( 33,390 ) $ 198,450 $ 299 $ 198,749 Net income (loss) — — — ( 17,453 ) — ( 17,453 ) 8 ( 17,445 ) Other comprehensive loss, net of tax — — — — 5,054 5,054 4 5,058 Share-based compensation — — 5,712 — — 5,712 — 5,712 Net settlement of restricted stock units 703 7 ( 1,578 ) — — ( 1,571 ) — ( 1,571 ) Balance at December 31, 2023 30,598 $ 305 $ 247,165 $ ( 28,942 ) $ ( 28,336 ) $ 190,192 $ 311 $ 190,503 Net income (loss) — — — 18,958 — 18,958 12 18,970 Other comprehensive loss, net of tax — — — — ( 14,346 ) ( 14,346 ) 4 ( 14,342 ) Share-based compensation — — 5,072 — — 5,072 — 5,072 Net settlement of restricted stock units 412 97 ( 1,405 ) — — ( 1,308 ) — ( 1,308 ) Balance at December 31, 2024 31,010 $ 402 $ 250,832 $ ( 9,984 ) $ ( 42,682 ) $ 198,568 $ 327 $ 198,895 The accompanying notes are an integral part of these consolidated financial statements. 54 Table of Contents Mistras Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) For the year ended December 31, 2024 2023 2022 Cash flows from operating activities Net income (loss) $ 18,970 $ ( 17,445 ) $ 6,574 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 33,010 34,099 33,294 Deferred income taxes ( 4,868 ) ( 5,281 ) ( 517 ) Share-based compensation expense 5,072 5,712 5,335 Impairment charges — 13,799 — Bad debt provision for troubled customers, net of recoveries — — 42 Change in allowance for credit losses 846 346 — Foreign currency (gain) loss ( 1,805 ) 1,030 ( 208 ) Payment of finance costs — — ( 400 ) Fair value adjustments to contingent consideration — — 45 Other ( 437 ) ( 437 ) 786 Changes in operating assets and liabilities, net of effect of acquisitions and dispositions Accounts receivable 1,286 ( 8,026 ) ( 17,225 ) Inventories 100 ( 1,867 ) ( 1,283 ) Prepaid expenses and other assets 1,228 ( 1,852 ) 5,959 Accounts payable ( 5,148 ) 4,177 ( 93 ) Accrued expenses and other liabilities 1,220 4,010 ( 6,454 ) Income taxes payable 655 ( 580 ) 1,084 Payment of contingent consideration in excess of initial estimate — ( 937 ) ( 533 ) Net cash provided by operating activities 50,129 26,748 26,406 Cash flows from investing activities Purchase of property, plant and equipment ( 17,902 ) ( 20,854 ) ( 12,591 ) Purchase of intangible assets ( 5,084 ) ( 2,795 ) ( 825 ) Proceeds from sale of equipment 1,620 1,516 1,178 Net cash used in investing activities ( 21,366 ) ( 22,133 ) ( 12,238 ) Cash flows from financing activities Repayment of finance lease obligations ( 5,495 ) ( 5,047 ) ( 4,140 ) Proceeds from borrowings of long-term debt — 611 125,000 Repayment of long-term debt ( 9,096 ) ( 7,598 ) ( 81,405 ) Proceeds from revolver 72,000 83,000 192,501 Repayments of revolver ( 83,501 ) ( 77,100 ) ( 246,750 ) Payments of financing costs — — ( 147 ) Payment of contingent consideration for business acquisitions — — ( 405 ) Taxes paid related to net share settlement of share-based awards ( 1,306 ) ( 1,572 ) ( 977 ) Net cash used in financing activities ( 27,398 ) ( 7,706 ) ( 16,323 ) Effect of exchange rate changes on cash and cash equivalents ( 694 ) 249 ( 1,467 ) Net change in cash and cash equivalents 671 ( 2,842 ) ( 3,622 ) Cash and cash equivalents: Beginning of period 17,646 20,488 24,110 End of period $ 18,317 $ 17,646 $ 20,488 Supplemental disclosure of cash paid Interest, net $ 15,572 $ 17,078 $ 8,603 Income taxes, net $ 6,410 $ 6,901 $ ( 3,069 ) Noncash investing and financing Equipment acquired through finance lease obligations $ 9,899 $ 7,125 $ 5,076 The accompanying notes are an integral part of these consolidated financial statements. 55 Table of Contents Mistras Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (tabular dollars in thousands, except per share data) 1. Summary of Significant Accounting Policies and Practices Description of Business Mistras Group, Inc., together with its subsidiaries (the "Company"), is a leading “one source” multinational provider of integrated technology-enabled asset protection solutions helping to maximize the safety and operational uptime for civilization’s most critical industrial and civil assets. Backed by an innovative, data-driven asset protection portfolio, proprietary technologies and decades-long legacy of industry leadership, the Company helps customers with asset-intensive infrastructure in the oil and gas, aerospace and defense, industrials, power generation and transmission (including alternative and renewable energy), other process industries and infrastructure, research and engineering and other industries towards achieving and maintaining operational excellence. By supporting these organizations that help fuel our vehicles and power our society; inspecting components that are trusted for commercial, defense, and space craft; building real-time monitoring equipment to enable safe travel across bridges; and helping to propel sustainability, the Company helps the world at large. The Company enhances value for its customers 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. The Company’s core capabilities also include non-destructive testing (“NDT”) field inspections enhanced by advanced robotics, laboratory quality control, laboratory materials services, shop laboratory assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services. The Company has three operating segments. 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. Software, digital and data services are included in this segment. • International. This segment offers services, products and systems similar to those of the other segments to select markets within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment. • Products and Systems. This segment designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States. Recent Developments 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 costs, amongst others. These disruptions have largely subsided in 2024. We may also experience increased costs associated with tariffs or trade barriers (including recent U.S. tariffs imposed or threatened to be imposed on China, Canada, Mexico and other countries and any retaliatory actions taken by such countries). The Company will continue to monitor market conditions and respond accordingly. Principles of Consolidation The Company follows guidance on the consolidation of variable interest entities ("VIEs") that requires companies to utilize a qualitative approach to determine whether it is the primary beneficiary of a VIE. The process for identifying the primary beneficiary of a VIE requires consideration of the factors that indicate a party has the power to direct the activities that most 56 Table of Contents significantly impact the VIE’s economic performance, including powers granted to the VIE’s program manager, powers contained in the VIE governing board and, to a certain extent, a company’s economic interest in the VIE. The Company analyzes its joint ventures and classifies them as either: • a VIE that must be consolidated because the Company is the primary beneficiary, or the joint venture is not a VIE and the Company holds the majority voting interest with no significant participative rights available to the other partners; or • a VIE that does not require consolidation and is treated as an equity method investment because the Company is not the primary beneficiary or the joint venture is not a VIE and the Company does not hold the majority voting interest. As part of the above analysis, if it is determined that the Company has the power to direct the activities that most significantly impact the joint venture’s economic performance, the Company considers whether or not it has the obligation to absorb losses or rights to receive benefits of the VIE that could potentially be significant to the VIE. The Company became the primary beneficiary in July 2020 of a VIE in which the Company has a 49 % interest in a limited partnership, and a 49 % stockholder in the corporate general partner of the limited partnership. The Company consolidated the financial statements of the VIE with the financial statements of the Company. As of and for the year ended December 31, 2024, the VIE had immaterial assets and had approximately $ 6.0 million of revenue. The Company is the primary sub-contractor of the VIE. The accompanying audited consolidated financial statements include the accounts of Mistras Group, Inc. as well as its wholly-owned subsidiaries, majority-owned subsidiaries and consolidated VIE. For subsidiaries in which the Company’s ownership interest is less than 100%, the non-controlling interests are reported in stockholders’ equity in the accompanying Consolidated Balance Sheets. The non-controlling interests in net results, net of tax, is classified separately in the accompanying Consolidated Statements of Income (Loss). All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations of companies acquired are included from the date of acquisition. Reclassifications Certain amounts in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have a material effect on the Company's financial condition or results of operations as previously reported. Use of Estimates The preparation of financial statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") requires that the Company make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of the financial statements. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates, which may cause the Company’s future results to be significantly affected. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Accounts Receivable and Allowance for Credit Losses The Company maintains an allowance for credit losses on its accounts receivable balances, which represents its best estimate of current expected credit losses over the contractual life of the accounts receivable. When evaluating the adequacy of its allowance for credit losses each reporting period, the Company analyzes accounts receivable balances with similar risk characteristics on a collective basis, considering factors such as the aging of receivable balances, payment terms (primarily with 30 day terms), geographic location, historical loss experience, current information and future expectations (generally considered one year which is consistent with expected collectability of the Company's trade receivables). The Company monitors and considers whether historical loss rates are consistent with expectation of supportable forward-looking estimates for its trade receivables noting any current or future economic considerations that would require adjusting the Company’s historical loss experience. Each reporting period, the Company reassesses whether any accounts receivable no 57 Table of Contents longer share similar risk characteristics and should instead be evaluated as part of another pool or on an individual basis. Changes to the allowance for credit losses are adjusted through credit loss expense, which is presented within Selling, general and administrative expenses in the Consolidated Statements of Income (Loss). Concentration of Credit Risk For each of the years ended December 31, 2024 and 2023, no customer represented 10% or more of the Company's revenue. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. At times, cash deposits may exceed the limits insured by the Federal Deposit Insurance Corporation. The Company believes it is not exposed to any significant credit risk or risk of nonperformance of financial institutions. Inventories Inventories are stated at the lower of cost or net realizable value, as determined by using the first-in, first-out method, or market. Work in process and finished goods inventory include material, direct labor, variable costs and overhead. Purchased and Internal-Use Software The Company capitalizes certain costs that are incurred to purchase or to create and implement internal-use software, which includes software coding, installation and testing. Capitalized costs are amortized on a straight-line basis over three years , the estimated useful life of the software. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation of property, plant and equipment is computed utilizing the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is computed utilizing the straight-line method over the shorter of the remaining lease term or estimated useful life. Repairs and maintenance costs are expensed as incurred. Goodwill Goodwill represents the excess purchase price of acquired businesses over the fair values attributed to underlying net tangible assets and identifiable intangible assets. The Company tests goodwill for impairment at a “reporting unit” level (which for the Company is represented by (i) its North America segment, (ii) its Products and Systems segment, (iii) the European component of its International segment and (iv) the Brazilian component of its International segment). The Company's annual impairment test is conducted on the first day of the Company's fourth quarter, which is October 1. Goodwill is also tested for impairment whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a quantitative impairment test is not necessary. If the Company concludes otherwise, the Company is required to perform a quantitative impairment test. If the fair value of a reporting unit is less than its carrying value, this is an indicator that the goodwill assigned to that reporting unit may be impaired. An impairment will be recorded in the amount that the fair value is less than the carrying value. The Company considers the income and market approaches to estimate the fair value of its reporting units, which requires significant judgment and assumptions related to revenue growth rates, gross margins, EBIT margins, and market multiples. See Note 8- Goodwill for additional information related to the Company's goodwill impairment test during 2024. Impairment of Long-lived Assets The Company reviews the recoverability of its long-lived assets (or asset groups) whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset (group) might not be recoverable. The assessment for potential 58 Table of Contents impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future undiscounted cash flows. If the total expected future undiscounted cash flows are less than the carrying amount of the assets, a loss is recognized for the difference between fair value (computed based upon the expected future discounted cash flows) and the carrying value of the assets. Acquisitions The Company allocates the purchase price of acquired businesses to their identifiable tangible assets and liabilities as well as identifiable intangible assets, such as customer relationships, technology, non-compete agreements and trade names. Certain estimates and judgments are required in the application of the fair value techniques, including estimates of the respective acquisition's future performance and related cash flows, selection of a discount rate and economic lives, and use of Level 3 measurements as defined in ASC No. 820, Fair Value Measurements and Disclosure. Deferred taxes are recorded for any differences between the assigned values and tax bases of assets and liabilities. Research and Engineering Research and product development costs are expensed as incurred. Advertising, Promotions and Marketing The costs for advertising, promotion and marketing programs are expensed as incurred and are included in selling, general and administrative expenses. Advertising expense was approximately $ 1.0 million, $ 1.4 million and $ 2.0 million for the years ended December 31, 2024, 2023 and 2022, respectively. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other financial current assets and liabilities approximate fair value based on the short-term nature of the items. Foreign Currency Translation The financial position and results of operations of the Company’s foreign subsidiaries are measured using their functional currencies, which are their local currencies. Assets and liabilities of foreign subsidiaries are translated into the U.S. Dollar at the exchange rates in effect at the balance sheet date. Income and expenses are translated at the average exchange rate during the period. Translation gains and losses are reported as a component of other comprehensive income (loss) for the period and included in accumulated other comprehensive income (loss) within stockholders’ equity. Foreign currency (gains) losses arising from transactions denominated in currencies other than the functional currency are included in net income, reported in selling, general and administrative expenses, and were approximately $( 1.8 ) million, $ 1.3 million, and $( 0.2 ) million for the years ended December 31, 2024, 2023 and 2022, respectively. Self-Insurance The Company is self-insured for certain losses relating to workers’ compensation and health benefit claims. The Company maintains third-party excess insurance coverage for all workers' compensation and health benefit claims in excess of approximately $ 0.3 million per occurrence to reduce its exposure from such claims. Self-insured losses are accrued when it is probable that an uninsured claim has been incurred but not reported and the amount of the loss can be reasonably estimated at the balance sheet date. Share-based Compensation The value of services received from employees and directors in exchange for an award of an equity instrument is measured based on the grant-date fair value of the award. Such value is recognized as a non-cash expense on a straight-line basis over the minimum period the individual provides services, which is typically the vesting period of the award with the exception of awards with graded vesting that contain an internal performance measure where each tranche is recognized on a straight-line basis over its vesting period subject to the probability of meeting the performance requirements and adjusted for the number of shares expected to be earned. Awards to certain employees eligible for retirement prior to the award becoming fully vested are amortized to expense over the period through the date that the employee first becomes eligible to retire and is no longer required to provide service to earn the award. As share-based compensation expense is based on awards ultimately expected to 59 Table of Contents vest, the amount of expense is reduced for estimated forfeitures. The cost of these awards is recorded in selling, general and administrative expenses in the Company’s Consolidated Statements of Income (Loss). Income Taxes Income taxes are accounted for under the asset and liability method. We recognize deferred tax assets and liabilities at enacted income tax rates for the temporary differences between the financial reporting bases and the tax bases of our assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. Our net deferred tax assets primarily consist of net operating loss carry forwards, or NOLs. A valuation allowance is provided if it is more likely than not that some or all of a deferred income tax asset will not be realized. A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current and prior years. 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. Recent Accounting Pronouncements 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 adopted the provisions of this ASU in the fourth quarter of 2024 and applied the provisions retrospectively to each period presented in the consolidated financial statements. Adoption of the new standard did not have a material impact on our consolidated 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 do not expect the impact of ASU 2023-09 to be material on our financial statements. 2. Revenue The Company derives the majority of its revenue by providing services on a time and material basis that are short-term in nature. The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. Performance Obligations The Company provides highly integrated and bundled inspection services to its customers. The majority of the Company's contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and is, therefore, not distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company's best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is a relative selling price based on price lists. Contract modifications are not routine in the performance of the Company's contracts. Generally, when contracts are modified, the modification is to account for changes in scope to the goods and services that are provided. In most instances, contract modifications are for goods or services that are distinct, and, therefore, are accounted for as a separate contract. The Company's performance obligations are satisfied over time as work progresses or at a point in time. The majority of the Company's revenue is recognized over time as work progresses for the Company's service deliverables, which includes providing testing, inspection and mechanical services to our customers. Revenue is recognized over time, based on time and material incurred to date which best portrays the transfer of control to the customer. The Company also utilizes an available practical expedient that provides for revenue to be recognized in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date. Fixed fee arrangements are determined based on expected labor, material, and overhead to be consumed on fulfillment of such services. For these arrangements, revenue is recognized on a cost-to-cost method tracked on an input basis. 60 Table of Contents The majority of our revenue recognized at a point in time is related to product sales when the customer obtains control of the asset, which is generally upon shipment to the customer. Contract costs include labor, material and overhead. The Company expects any significant remaining performance obligations to be satisfied within one year . Contract Estimates The majority of the Company's revenues are short-term in nature. The Company enters into master service agreements ("MSAs") with customers that specify an overall framework and contract terms. The actual contracting to provide services or furnish products are triggered by a work order, purchase order, or some similar document issued pursuant to an MSA which sets forth the scope of services and/or identifies the products to be provided. From time-to-time, the Company may enter into longer-term contracts, which can range from several months to several years. Revenue on certain contracts is recognized as work is performed based on total costs incurred to date in relation to the total estimated costs for the performance of the contract at completion. This includes contract estimates of costs to be incurred for the performance of the contract. Cost estimation is based upon the professional knowledge and experience of the Company's project managers, engineers and financial professionals. Factors that are considered in estimating the work to be completed include the availability of materials, the effect of any delays in the Company's project performance and the recoverability of any claims. Whenever revisions of estimates, contract costs and/or contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period. Revenue by Category The following series of tables present the Company's disaggregated revenue: Revenue by industry was as follows (in thousands): Year ended December 31, 2024 North America International Products Corp/Elim Total Oil & Gas $ 376,333 $ 42,315 $ 275 $ — $ 418,923 Aerospace & Defense 63,111 23,785 120 — 87,016 Industrials 44,310 25,498 1,857 — 71,665 Power Generation and Transmission 27,035 7,629 1,854 — 36,518 Other Process Industries 32,353 17,190 302 — 49,845 Infrastructure, Research & Engineering 19,155 10,606 3,400 — 33,161 Petrochemical 14,437 1,134 — — 15,571 Other 16,793 7,812 5,853 ( 13,517 ) 16,941 Total $ 593,527 $ 135,969 $ 13,661 $ ( 13,517 ) $ 729,640 Year ended December 31, 2023 North America International Products Corp/Elim Total Oil & Gas $ 379,221 $ 36,615 $ 159 $ — $ 415,995 Aerospace & Defense 56,000 20,711 286 — 76,997 Industrials 42,518 26,292 1,773 — 70,583 Power Generation and Transmission 23,598 6,609 3,767 — 33,974 Other Process Industries 33,035 14,456 112 — 47,603 Infrastructure, Research & Engineering 16,620 9,320 3,168 — 29,108 Petrochemical 13,216 1,216 — — 14,432 Other 15,122 9,195 3,721 ( 11,257 ) 16,781 Total $ 579,330 $ 124,414 $ 12,986 $ ( 11,257 ) $ 705,473 61 Table of Contents Year ended December 31, 2022 North America International Products Corp/Elim Total Oil & Gas $ 356,763 $ 30,654 $ 335 $ — $ 387,752 Aerospace & Defense 61,475 18,763 314 — 80,552 Industrials 38,197 23,703 2,083 — 63,983 Power Generation and Transmission 31,197 8,304 2,603 — 42,104 Other Process Industries 40,778 14,021 28 — 54,827 Infrastructure, Research & Engineering 15,283 7,946 3,994 — 27,223 Petrochemical 15,360 536 — — 15,896 Other 14,283 8,498 3,370 ( 11,115 ) 15,036 Total $ 573,336 $ 112,425 $ 12,727 $ ( 11,115 ) $ 687,373 Revenue per key geographic location was as follows (in thousands): Year ended December 31, 2024 North America International Products Corp/Elim Total United States $ 502,005 $ 1,607 $ 5,868 $ ( 2,535 ) $ 506,945 Other Americas 85,139 9,144 1,777 ( 6,047 ) 90,013 Europe 2,590 120,052 2,655 ( 4,118 ) 121,179 Asia-Pacific 3,793 5,166 3,361 ( 817 ) 11,503 Total $ 593,527 $ 135,969 $ 13,661 $ ( 13,517 ) $ 729,640 Year ended December 31, 2023 North America International Products Corp/Elim Total United States $ 495,764 $ 934 $ 5,956 $ ( 2,372 ) $ 500,282 Other Americas 77,880 12,906 850 ( 4,697 ) 86,939 Europe 3,655 105,934 1,927 ( 3,381 ) 108,135 Asia-Pacific 2,031 4,640 4,253 ( 807 ) 10,117 Total $ 579,330 $ 124,414 $ 12,986 $ ( 11,257 ) $ 705,473 Year ended December 31, 2022 North America International Products Corp/Elim Total United States $ 485,551 $ 910 $ 6,495 $ ( 3,083 ) $ 489,873 Other Americas 83,877 9,076 406 ( 4,105 ) 89,254 Europe 2,811 99,714 1,896 ( 3,502 ) 100,919 Asia-Pacific 1,097 2,725 3,930 ( 425 ) 7,327 Total $ 573,336 $ 112,425 $ 12,727 $ ( 11,115 ) $ 687,373 Contract Balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets. Amounts are generally billed as work progresses in accordance with agreed-upon contractual terms, generally at periodic intervals (e.g., weekly, bi-weekly or monthly). Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, the Company sometimes receives advances or deposits from its customers before revenue is recognized, resulting in contract liabilities. 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 for 2024 and 2023, that was included in the contract liability balance at the beginning of the year was $ 6.7 million and $ 6.3 million, respectively. Changes in the contract asset and liability balances during the years ended December 31, 2024 and 2023, were not impacted by any other factors. The Company applies the practical expedient to expense incremental 62 Table of Contents 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. 3. Earnings per Share Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, and (2) the dilutive effect of assumed conversion of equity awards using the treasury stock method. With respect to the number of weighted-average shares outstanding (denominator), diluted shares reflects: (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 shares of common stock during the period and (ii) the pro forma vesting of restricted stock units. The following table sets forth the computations of basic and diluted earnings (loss) per share (in thousands except share data): For the year ended December 31, 2024 2023 2022 Basic earnings (loss) per share: Numerator: Net income (loss) attributable to Mistras Group, Inc. $ 18,958 $ ( 17,453 ) $ 6,499 Denominator Weighted average common shares outstanding 30,926 30,330 29,901 Basic earnings (loss) per share $ 0.61 $ ( 0.58 ) $ 0.22 Diluted earnings (loss) per share: Numerator: Net income (loss) attributable to Mistras Group, Inc. $ 18,958 $ ( 17,453 ) $ 6,499 Denominator Weighted average common shares outstanding 30,926 30,330 29,901 Dilutive effect of stock options outstanding 106 — Dilutive effect of restricted stock units outstanding 576 — 328 31,608 30,330 30,229 Diluted earnings (loss) per share $ 0.60 $ ( 0.58 ) $ 0.21 The following potential shares of common stock were excluded from the computation of diluted earnings per share, as the effect would have been anti-dilutive: For the year ended December 31, 2024 2023 2022 Potential shares of common stock attributable to restricted stock units (RSUs) and performance stock units (PSUs) outstanding (1) 307 547 1,005 Potential shares of common stock attributable to stock options outstanding — — 1 Total 307 547 1,006 (1) For the year ended December 31, 2023, 1,014,527 shares of common stock related to restricted stock and 250,000 stock options, were excluded from the calculation of diluted EPS due to the net loss for the period. 63 Table of Contents 4. Accounts Receivable Accounts receivable consist of the following (in thousands): December 31, 2024 2023 Trade accounts receivable $ 129,894 $ 134,495 Allowance for credit losses ( 2,613 ) ( 1,648 ) Accounts receivable, net $ 127,281 $ 132,847 The Company had $ 21.3 million and $ 18.5 million of unbilled revenues accrued as of December 31, 2024 and December 31, 2023, respectively, which is included within the trade accounts receivable balance above. Unbilled revenue is generally billed in the subsequent quarter to their revenue recognition. 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. 5. Inventories Inventories consist of the following (in thousands): December 31, 2024 2023 Raw materials $ 5,344 $ 6,099 Work in progress 1,018 839 Finished goods 5,146 5,740 Consumable supplies 2,977 2,605 Inventories $ 14,485 $ 15,283 6. Property, Plant and Equipment Property, plant and equipment consist of the following: December 31, Useful Life 2024 2023 (Years) (in thousands) Land $ 2,429 $ 2,453 Building and improvements 30 - 40 27,973 26,663 Office furniture and equipment 5 - 8 16,768 21,334 Machinery and equipment 5 - 7 274,907 269,306 322,077 319,756 Accumulated depreciation and amortization ( 241,185 ) ( 238,784 ) Property, plant and equipment, net $ 80,892 $ 80,972 Depreciation expense was approximately $ 25.3 million, $ 25.6 million, and $ 24.1 million for the years ended December 31, 2024, 2023 and 2022, respectively. 64 Table of Contents 7. Acquisitions Acquisition-Related expense In the course of its acquisition activities, the Company incurs costs in connection with due diligence, such as professional fees, and other expenses. Additionally, the Company adjusts the fair value of acquisition-related contingent consideration liabilities on a quarterly basis. These amounts are recorded as acquisition-related expense, net, on the Consolidated Statements of Income (Loss) and were as follows for the years ended December 31, 2024, 2023 and 2022 (in thousands): For the year ended December 31, 2024 2023 2022 Due diligence, professional fees and other transaction costs $ 2 $ 9 $ 31 Adjustments to fair value of contingent consideration liabilities — — 45 Acquisition-related expense, net $ 2 $ 9 $ 76 8. Goodwill The changes in the carrying amount of goodwill by segment is shown below (in thousands): North America International Products and Systems Total Balance at December 31, 2022 $ 185,710 $ 13,925 $ — $ 199,635 Impairment charges — ( 13,799 ) — ( 13,799 ) Foreign currency translation 1,644 ( 126 ) — 1,518 Balance at December 31, 2023 $ 187,354 $ — $ — $ 187,354 Foreign currency translation ( 5,912 ) — ( 5,912 ) Balance at December 31, 2024 $ 181,442 $ — $ — $ 181,442 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. 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 impacting the International reporting units' operations. As a result, the Company performed an interim quantitative goodwill impairment test. 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 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 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. 65 Table of Contents The market approach valuation was derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses was based on the markets in which the reporting units operate, considering risk profiles, size, geography, and diversity of products and services. 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 year ended December 31, 2023. 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's cumulative goodwill impairment as of December 31, 2024 was $ 114.0 million, of which $ 57.2 million related to the North America segment, $ 43.6 million related to the International segment and $ 13.2 million related to the Products and Systems segment. 9. Intangible Assets The gross carrying amount and accumulated amortization of intangible assets were as follows (in thousands): December 31, 2024 2023 Useful Life (Years) Gross Amount Accumulated Amortization Net Carrying Amount Gross Amount Accumulated Amortization Net Carrying Amount Customer relationships 5 - 18 $ 107,704 $ ( 92,220 ) $ 15,484 $ 110,780 $ ( 90,506 ) $ 20,274 Software/Technology 3 - 15 57,414 ( 33,930 ) 23,484 55,053 ( 32,230 ) 22,823 Covenants not to compete 2 - 5 12,391 ( 12,371 ) 20 12,536 ( 12,488 ) 48 Other 2 - 12 10,218 ( 9,498 ) 720 10,466 ( 9,617 ) 849 Total $ 187,727 $ ( 148,019 ) $ 39,708 $ 188,835 $ ( 144,841 ) $ 43,994 Amortization expense for the years ended December 31, 2024, 2023 and 2022, was approximately $ 7.6 million, $ 8.5 million, and $ 9.1 million, respectively, including amortization of software/technology for these periods of $ 2.9 million, $ 2.9 million, and $ 2.9 million, respectively. Amortization expense in each of the five years and thereafter subsequent to December 31, 2024 related to the Company’s intangible assets is expected to be as follows (in thousands): Expected Amortization Expense 2025 $ 6,996 2026 6,290 2027 5,762 2028 5,153 2029 4,808 Thereafter 10,699 Total $ 39,708 66 Table of Contents 10. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following (in thousands): December 31, 2024 2023 Accrued salaries, wages and related employee benefits $ 27,990 $ 27,372 Accrued workers' compensation and health benefits 4,898 4,385 Deferred revenue 8,096 7,136 Right-of-use liability - Operating 11,375 10,686 Pension accrual 2,458 2,458 Other accrued expenses 30,416 32,294 Total accrued expenses and other current liabilities $ 85,233 $ 84,331 11. Long-Term Debt Long-term debt consisted of the following (in thousands): December 31, 2024 2023 Senior credit facility $ 59,650 $ 71,150 Senior secured term loan, net of unamortized debt issuance costs of 0.3 million and $ 0.4 million 107,545 115,253 Other 2,452 3,996 Total debt 169,647 190,399 Less: Current portion ( 11,591 ) ( 8,900 ) Long-term debt, net of current portion $ 158,056 $ 181,499 Senior Credit Facility On August 1, 2022, the Company entered into a 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 $ 107.5 million as of December 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: • Borrowings bear interest at Secured Overnight Financing Rate ("SOFR") plus a credit spread adjustment and applicable SOFR margin ranging from 1.25 % to 2.75 %, based upon our Total Consolidated Debt Leverage Ratio (defined below); under the Credit Agreement, the margin was based upon the LIBOR margin. ◦ Total Consolidated Debt Leverage Ratio means the ratio of (a) Total Consolidated Debt to (b) EBITDA (as defined in the Credit Agreement) for the trailing four consecutive fiscal quarters. ◦ Total Consolidated Debt means all indebtedness (including subordinated debt) of the Company on a consolidated basis. • The Company has the benefit of the lowest SOFR margin if its Total Consolidated Debt Leverage Ratio is equal to or less than 1.25 to 1.0, and the margin increases as the ratio increases, to the maximum margin if the ratio is greater than 3.75 to 1.0. The Credit Agreement is secured by liens on substantially all of the assets of the Company and certain of its U.S subsidiaries and is guaranteed by those U.S subsidiaries. • The Company is required 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. 67 Table of Contents • The Company is required to maintain a Fixed Charge Coverage Ratio of 1.25 to 1.0 for the duration of the Credit Agreement, as defined in the Credit Agreement. • 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. • The Credit Agreement does not limit the Company’s ability to acquire other businesses or companies except that the acquired business or company must be in the Company's line of business, the Company must be in compliance with the financial covenants on a pro forma basis after taking into account the acquisition, and the Company must provide written notice at least five business days prior to the date of an acquisition of $ 10 million or more. • 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. As of December 31, 2024, the Company had borrowings of $ 167.2 million and a total of $ 3.1 million of letters of credit outstanding under the Credit Agreement. The Company has capitalized costs associated with debt modifications of $ 0.8 million as of December 31, 2024, which is included in Other assets on the Consolidated Balance Sheet and will be amortized into interest expense over the remaining term of the Credit Agreement through July 30, 2027. As of December 31, 2024, the Company was in compliance with the terms 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. Other Debt 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 December 31, 2024, there was an aggregate of approximately $ 2.5 million outstanding, payable at various times through 2030. Monthly payments ran ge fro m $ 1 thousand to $ 15 thousand, and interest rates range from 0.4 % to 3.5 %. Scheduled principal payments due under all borrowing agreements in each of the five years and thereafter subsequent to December 31, 2024 are as follows (in thousands): 2025 $ 11,591 2026 13,062 2027 144,211 2028 357 2029 364 Thereafter 62 Total $ 169,647 12. Fair Value Measurements The Company performs fair value measurements in accordance with the guidance provided by ASC 820, Fair Value Measurements and Disclosures . ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a three-level hierarchy that prioritizes the inputs used to measure fair value. The three levels of the hierarchy are defined as follows: Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. 68 Table of Contents Level 2 — Observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data. Level 3 — Unobservable inputs reflecting the Company’s own assumptions about inputs that market participants would use in pricing the asset or liability based on the best information available. Financial instruments measured at fair value on a recurring basis The fair value of contingent consideration liabilities was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the applicable acquisition agreements. The following table represents the changes in the fair value of Level 3 contingent consideration (in thousands): December 31, 2024 2023 Balance at the beginning of the period: $ — $ 937 Acquisitions — — Payments ( 937 ) Accretion of liability — — Revaluation — — Foreign currency translation — — Balance at the end of the period: $ — $ — Financial instruments not measured at fair value on a recurring basis The Company has evaluated current market conditions and borrower credit quality and has determined that the carrying value of its long-term debt approximates fair value. The fair value of the Company’s notes payable and finance lease obligations approximates their carrying amounts based on anticipated interest rates which management believes would currently be available to the Company for similar issuances of debt. 13. Share-Based Compensation 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 14, 2024, the Company’s shareholders approved an amendment to the 2016 Plan, including an increase to the total number of shares that may be issued under the 2016 Plan by 1.3 million, for a total of 6.2 million shares that are authorized for issuance under the 2016 Plan, of which approximately 1,850,000 shares were available for future grants as of as of December 31, 2024. 69 Table of Contents Stock Options 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 Company recognized all share-based compensation expense related to the stock options granted in the fourth quarter of 2023 when they were granted, and no further unrecognized share-based compensation expense remains as of the end of the current period. For the year ended 2022, the Company did no t recognize any share-based compensation expense related to stock option awards, as the one outstanding stock option award was already fully vested and expired during the year ended 2022. No unrecognized compensation costs remained related to the stock option awards. In addition, there were no stock options exercised during the years ended December 31, 2024, 2023 and 2022. The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of December 31, 2024, 2023 and 2022 as follows (in thousands, except per share amounts and years): For the years ended December 31, 2024 2023 2022 Common Stock Options Weighted Average Exercise Price Common Stock Options Weighted Average Exercise Price Common Stock Options Weighted Average Exercise Price Outstanding at beginning of year: 250 $ 5.36 — $ — 5 $ 22.35 Granted — $ — 250 $ 5.36 — $ — Exercised — $ — — $ — — $ — Expired or forfeited — $ — — $ — ( 5 ) $ 22.35 Outstanding at end of year: 250 $ 5.36 250 $ 5.36 — $ — 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): For the year ended December 31, 2024 2023 2022 Awards issued 60 133 70 Grant date fair value of awards issued $ 549 $ 750 $ 450 Restricted Stock Unit Awards Restricted Stock Units generally vest ratably on each of the first four anniversary dates of issuance. The Company recognized approximately $ 4.1 million, $ 4.9 million and $ 3.7 million of share-based compensation for the years ended December 31, 2024, 2023 and 2022, respectively, related to restricted stock unit awards. As of December 31, 2024, there was approximately $ 7.5 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which are expected to be recognized over a remaining weighted average period of 2.2 years. Upon vesting, restricted stock units are generally net share-settled to cover the required minimum withholding tax and the remaining amount is converted into an equivalent number of shares of common stock. A summary of the vesting activity of restricted stock unit awards, with the respective fair value of the awards, is as follows (in thousands): 70 Table of Contents For the year ended December 31, 2024 2023 2022 Awards issued 467 683 401 Grand date fair value of awards issued $ 4,247 $ 4,269 $ 2,524 A summary of the Company's outstanding, non-vested restricted share units is as follows (in thousands, except per share amounts and years): For the year ended December 31, 2024 2023 2022 Units Weighted Average Grant-Date Fair Value Units Weighted Average Grant-Date Fair Value Units Weighted Average Grant-Date Fair Value Outstanding at beginning of period: 1,184 $ 8.07 1,415 $ 6.66 1,208 $ 7.96 Granted 733 $ 8.52 606 $ 8.30 687 $ 7.59 Released ( 467 ) $ 9.09 ( 683 ) $ 6.25 ( 401 ) $ 6.63 Forfeited ( 219 ) $ 8.35 ( 154 ) $ 8.00 ( 79 ) $ 14.23 Outstanding at end of period: 1,231 $ 8.41 1,184 $ 8.07 1,415 $ 6.66 Performance Restricted Stock Units The Company maintains Performance Restricted Stock Units ("PRSUs") that have been granted to select executives and senior officers whose ultimate payouts 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 (the "Compensation Committee"). For 2022, the Compensation Committee utilized the following three performance metrics for PRSUs approved in that year. The three metrics were: 1. 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. 2. 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. 3. Total Shareholder Return ("TSR") measures the total return to shareholders of the Company during the 1-year performance period 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 preceding the performance period), compared to the average share price during the 20 -trading day period ending on the final measurement date (the last 20 trading days of the performance period). 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: a. 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. b. Dividend Yield . The dividend yield assumption was based on historical and anticipated dividend payouts (assumed at zero ). c. 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. For 2023, the Compensation Committee used the following three performance metrics for PRSUs approved in that year. 1. 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. 71 Table of Contents 2. 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. 3. Revenue 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. Compensation costs related to the PRSUs with performance conditions are subsequently adjusted for changes in the expected outcomes of the performance conditions. Compensation cost related to the PRSUs with a market condition is not reversed if the market condition is not achieved, provided the employee requisite service has been rendered. Earned PRSUs generally vest ratably in four equal annual installments over the four years following completion of the performance period, for a total requisite service period of up to five years , and have no dividend equivalent rights. A summary of the Company's PRSU activity is presented as follows (in thousands, except per share amounts and years): For the year ended December 31, 2024 2023 2022 Units Weighted Average Grant-Date Fair Value Units Weighted Average Grant-Date Fair Value Units Weighted Average Grant-Date Fair Value Outstanding at beginning of period: 60 $ 9.33 371 $ 9.96 388 $ 10.07 Granted 295 $ 8.76 282 $ 8.50 341 $ 6.55 Performance condition adjustments, net ( 201 ) $ 8.76 ( 305 ) $ 8.34 ( 285 ) $ 7.71 Released ( 29 ) $ 9.87 ( 204 ) $ 6.59 ( 73 ) $ 5.17 Forfeited — $ 8.02 ( 84 ) $ 6.95 — $ — Outstanding at end of period: 125 $ 9.12 60 $ 9.33 371 $ 9.96 For the year ended December 31, 2024, 295,000 PRSUs were granted. There was a 201,000 net unit reduction to these awards, which represents the Company's achievement of the threshold level of the Adjusted EBITDA target and not achieving the revenue or FCF performance goals, during the year ended December 31, 2024. For the year ended December 31, 2023, 282,000 PRSUs were granted. There was a 305,000 net unit reduction to these awards, which reflects the Company's performance against specified goals, during the year ended December 31, 2023. For the year ended December 31, 2022, 341,000 PRSUs were granted. There was a 285,000 unit reduction to these awards, which reflects the Company's performance against specified goals, during the year ended December 31, 2022. Compensation expense related to all PRSUs described above was $ 0.4 million, $ 0.7 million, and $ 1.2 million for the years ended December 31, 2024, 2023 and 2022, respectively. At December 31, 2024, there was $ 0.6 million of total unrecognized compensation costs related to approximately 125,000 unvested performance restricted stock units. These costs are expected to be recognized over a weighted-average period of approximately 2.3 years. For the years ended December 31, 2024, 2023 and 2022, the income tax benefit recognized on all share based compensation arrangements referenced above was approxim ately $ 1.6 million , $ 0.8 million, and $ 1.6 million, respectively. 14. Income Taxes Income (loss) before provision (benefit) for income taxes is as follows (in thousands): 72 Table of Contents For the year ended December 31, 2024 2023 2022 Income (loss) before provision (benefit) for income taxes from: U.S. operations $ 16,010 $ ( 6,900 ) $ 439 Foreign operations 8,234 ( 11,765 ) 8,855 Income (loss) before provision (benefit) for income taxes $ 24,244 $ ( 18,665 ) $ 9,294 The provision (benefit) for income taxes consists of the following (in thousands): For the year ended December 31, 2024 2023 2022 Current Federal $ 6,164 $ 1,372 $ ( 644 ) States and local 1,333 705 464 Foreign 2,642 2,063 3,251 Reserve for uncertain tax positions 3 16 136 Total current provision (benefit) $ 10,142 $ 4,156 $ 3,207 Deferred Federal $ ( 3,595 ) $ ( 2,005 ) $ ( 435 ) States and local 143 ( 122 ) 242 Foreign ( 188 ) ( 1,439 ) ( 1,614 ) Reserve for uncertain tax positions — — — Total deferred benefit ( 3,640 ) ( 3,566 ) ( 1,807 ) Net change in valuation allowance ( 1,228 ) ( 1,810 ) 1,320 Net deferred benefit ( 4,868 ) ( 5,376 ) ( 487 ) Total provision (benefit) for income taxes $ 5,274 $ ( 1,220 ) $ 2,720 The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal tax rate to income tax as follows (in thousands): For the years ended December 31, 2024 2023 2022 Federal tax at statutory rate $ 5,091 21.0 % $ ( 3,920 ) 21.0 % $ 1,952 21.0 % State taxes, net of federal benefit 872 3.6 % 611 ( 3.3 ) % 622 6.7 % Foreign tax 444 1.8 % 274 ( 1.5 ) % 218 2.3 % Goodwill impairment — — % 2,901 ( 15.5 ) % — — % Equity compensation ( 20 ) ( 0.1 ) % 716 ( 3.8 ) % — — % US taxation of foreign earnings 19 0.1 % 98 ( 0.5 ) % 100 1.1 % Permanent differences 405 1.7 % 485 ( 2.6 ) % 363 3.9 % Research & Development Credit ( 713 ) ( 2.9 ) % ( 602 ) 3.2 % ( 1,716 ) ( 18.5 ) % Change in valuation allowance ( 1,228 ) ( 5.1 ) % ( 1,810 ) 9.7 % 1,320 14.2 % Impact of foreign tax rate changes — — % — % ( 246 ) ( 2.6 ) % Other 404 1.7 % 27 ( 0.1 ) % 107 1.2 % Total provision (benefit) for income taxes $ 5,274 21.8 % $ ( 1,220 ) 6.6 % $ 2,720 29.3 % The permanent differences identified above include normal recurring differences, such as meals, entertainment, and parking fringe benefits as well as a portion of the goodwill impairment charge. On June 28, 2019, the Canadian province of Alberta enacted the Job Creation Tax Cut which reduced the Alberta corporate income tax rate from 12% to 11% starting in 2019 with further annual reductions to 10% in 2020, 9% in 2021, and 8% in 2022. 73 Table of Contents On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the Coronavirus outbreak, which among other things contains numerous income tax provisions. Some of these tax provisions are effective retroactively for years ending before the date of enactment. The CARES Act provides a five-year carryback of net operating losses generated in years 2018 through 2020. As the statutory federal income tax rate applicable to certain years within the carryback period is 35%, carryback to those years of our estimated 2020 annual federal tax loss provides a tax benefit in excess of the current federal statutory rate of 21%, resulting in an increased income tax benefit of $ 1.9 million. The income tax effects of the CARES Act resulted in a cash refund of approximately $ 4.9 million in 2021 of taxes paid in prior years. On December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021, (the "Appropriations Act") an additional stimulus package providing financial relief for individuals and small business. The Appropriations Act contains a variety of tax provisions, including full expensing of business meals in 2021 and 2022, and expansion of the employee retention tax credit. The Appropriations Act did not have a material impact on our consolidated financial position, results of operations, and cash flows . In response to the COVID-19 pandemic, the American Rescue Plan Act was signed into law on March 11, 2021. This act, among other things, provides economic relief provisions to individuals and funding to certain businesses and programs. This guidance did not have a material impact on our consolidated financial position, results of operations, and cash flows. In August 2022 the United States enacted the Inflation Reduction Act (“IRA”) of 2022 (Public Law No. 117-169), which includes a 15% book minimum tax on corporations with financial accounting profits over 1 billion US dollars (USD) and a 1% excise tax on certain stock buybacks. The IRA also contains numerous clean energy tax incentives related to electricity production, carbon sequestration, alternative vehicles and fuels, and residential and commercial energy efficiency. The Company does not expect this act to have a material impact. 74 Table of Contents Deferred income tax attributes resulting from differences between financial accounting amounts and income tax basis of assets and liabilities are as follows (in thousands): December 31, 2024 2023 Deferred income tax assets Allowance for doubtful accounts $ 470 $ 298 Inventory 1,218 1,201 Intangible assets 808 1,036 Accrued expenses 4,090 4,085 Net operating loss carryforward 4,369 5,329 Finance lease obligations 189 275 Stock Options 183 187 Deferred stock based compensation 911 723 Interest carryforward 6,328 4,174 Right-of-use liability 8,696 8,984 R&D Expense 6,671 5,091 Credits 100 87 Other 442 1,694 Deferred income tax assets 34,475 33,164 Valuation allowance ( 4,034 ) ( 6,029 ) Net deferred income tax assets $ 30,441 $ 27,135 Deferred income tax liabilities Property and equipment $ ( 5,404 ) $ ( 6,472 ) Goodwill ( 10,134 ) ( 9,132 ) Intangible assets ( 1,952 ) ( 2,822 ) Right-of-use asset ( 8,657 ) ( 8,944 ) Other — ( 2 ) Deferred income tax liabilities ( 26,147 ) ( 27,372 ) Net deferred income taxes $ 4,294 $ ( 237 ) As of December 31, 2024, the Company had no federal net operating loss carry forwards (NOLs). In addition, as of December 31, 2024, the Company had state and foreign NOLs of $ 23.8 million and $ 12.2 million, respectively. Approximately $ 11.8 million of state NOLs expire at various times from 2023 to 2042, while the remainder of the Company's state NOLs do not expire. Approximately $ 1.9 million of the foreign NOLs expire at various times from 2023 to 2041, while the remainder of the Company's foreign NOLs do not expire. In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. Valuation allowances are provided when management believes the Company's deferred tax assets are not recoverable based on future reversals of existing taxable temporary differences, taxable income in prior carryback year(s) if carryback is permitted under the tax law, and an assessment of estimated future taxable income, exclusive of reversing temporary differences and carryforwards, that incorporates on going, prudent and feasible tax planning strategies. At December 31, 2024 and December 31, 2023, the Company had a valuation allowance of approximately $ 4.0 million and $ 6.0 million, respectively, primarily against certain state and foreign NOLs and other specific deferred tax assets. The net decrease in the valuation allowance of approximately $ 2.0 million is primarily attributable to state and foreign net operating losses and changes in foreign exchange rates, offset by a reduction of expiring losses. Except for those deferred tax assets subject to the valuation allowance, management believes that it will realize all deferred tax assets as a result of sufficient future taxable income in each tax jurisdiction in which the Company has deferred tax assets. . 75 Table of Contents The following table summarizes the changes in the Company’s gross unrecognized tax benefits, excluding interest and penalties (in thousands): For the year ended December 31, 2024 2023 Balance at beginning of period $ 258 $ 258 Additions for tax positions related to the current fiscal period — — Additions for tax positions related to prior years — — Reductions related to the expiration of statutes of limitations ( 7 ) — Balance at end of period $ 251 $ 258 The Company has recorded the unrecognized tax benefits in other long-term liabilities in the consolidated balance sheets. As of December 31, 2024 and December 31, 2023, there were approximately $ 0.3 million and $ 0.3 million of unrecognized tax benefits, respectively, including penalties and interest. If the Company recognized these unrecognized tax benefits, approximately $ 0.3 million and $ 0.3 million would favorably affect the effective tax rate for both December 31, 2024 and December 31, 2023, respectively. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense and are not significant for the years ended December 31, 2024, 2023 and 2022. The Company anticipates a decrease to its unrecognized tax benefits of $ 0.1 million excluding interest and penalties within the next 12 months. The Company is subject to taxation in the United States and various states and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years ending before December 31, 2017 and generally is no longer subject to state, local or foreign income tax examinations by tax authorities for years ending before December 31, 2019. Currently the Company is undergoing a federal tax audit for years ending December 31, 2018 through December 31, 2020. As previously noted, the Tax Act made significant changes to the taxation of undistributed earnings, requiring that all previously untaxed earnings and profits of the Company's controlled foreign operations be subjected to the transition tax. Since these earnings have now been subjected to U.S. federal tax, they would only be potentially subject to limited other taxes, including foreign withholding and certain state taxes. As of December 31, 2024, the Company has no t recognized a deferred tax liability for foreign withholdings and state taxes on its undistributed international earnings or losses of its foreign subsidiaries since it intends to indefinitely reinvest the earnings outside the United States. The Company has estimated $ 74.4 million of unremitted international earnings which provides an unrecorded deferred tax liability related to undistributed international earnings of approximately $ 1.2 million. 15. Employee Benefit Plans The Company provides a 401(k) savings plan for eligible U.S. based employees. Employee contributions are discretionary up to the IRS limits each year and catch up contributions are allowed for employees 50 years of age or older. Under the 401(k) plan, employees become eligible to participate on the first day of the month after three months of continuous service. Under this plan, the Company matches 50 % of the employee’s contributions up to 6 % of the employee’s annual compensation, as defined by the plan. There is a five-year vesting schedule for the Company match. The Company’s contribution to the plan was $ 4.1 million, $ 3.9 million, and $ 3.0 million for the years ended December 31, 2024, 2023 and 2022, respectively. The Company's subsidiary participated with other employers in contributing to the Boilermaker-Blacksmith National Pension Trust (EIN 48-6168020) (“Boilermakers”) and Plumbers and Pipefitters National Pension Fund (EIN 52-6152779) (“Pipefitters”), multi-employer defined benefit pension plans, which cover certain U.S. based union employees. The plans provide pension benefits with contribution rates that are collectively bargained between participating employers and their affiliated Boilermakers and Pipefitters local unions. Both the Boilermakers and Pipefitters plans are approximately 80 percent funded as of the latest Form 5500 filed, respectively. The Company did no t make any contributions to the Boilermakers plan during the years ended December 31, 2024 and 2023 while making de minimis contributions to the Pipefitters plan during the same periods. See Note 18-Commitments and Contingencies, Pension Related Contingencies, for additional detail. The Company has other benefit plans covering certain employees throughout the Company. Amounts charged to expense under these plans were not significant in any year. 16. Related Party Transactions 76 Table of Contents The Company leases its headquarters under an operating lease from a stockholder and director of the Company. On August 1, 2014, the Company extended its lease at its headquarters requiring monthly payments through October 2024. Total rent payments made during the year ended December 31, 2024 were approximately $ 1.0 million. See Note 17-Leases for further detail. The Company receives benefits consulting services from Capital Management Enterprise (“CME”). Manuel N. Stamatakis, Executive Chairman of our Board of Directors, is the Chief Executive Officer of CME. The Company does no t pay any fees to CME and any compensation CME receives related to work for the Company is received by commissions paid by the third-party benefit providers. 17. Leases The Company leases certain office and operating facilities, machinery, equipment, and vehicles. Concurrent with the adoption of ASC 842, the Company recognized a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term for each lease agreement. The Company elected not to recognize a ROU asset and lease liability for leases with terms of 12 months or less and will continue to recognize lease expense for these leases on a straight-line basis over the lease term. The Company has leases with both lease components and non-lease components, such as common area maintenance, utilities, or other repairs and maintenance. For all asset classes, the Company decided to utilize the practical expedient to include both fixed lease components and fixed non-lease components in calculating the ROU asset and lease liability. The Company identified variable lease payments, such as maintenance payments based on actual activities performed or costs incurred, at lease commencement by assessing the nature of the payment provisions, including whether the payments are subject to a minimum charge. Many of the Company's leases include one or more options to renew. When it is reasonably certain that the Company will exercise the option, the Company will include the impact of the option in the lease term for purposes of determining future lease payments. As the Company is unable to determine the discount rate implicit in its lease agreements, the Company uses its incremental borrowing rate on the commencement date to calculate the present value of future payments. The Company’s Consolidated Balance Sheets include the following related to operating leases as of December 31, 2024 and 2023 (in thousands): Leases Classification 2024 2023 Assets: ROU assets Other Assets $ 40,401 $ 37,512 Liabilities: ROU liability - current Accrued expenses and other current liabilities $ 11,375 $ 10,686 ROU liability - long-term Other long-term liabilities 30,279 28,219 Total ROU liabilities $ 41,654 $ 38,905 Included within the balance of operating leases is a lease for the Company’s headquarters which is with a related party. The ROU liability for this facility is approximately $ 1.8 million as of December 31, 2024 and $ 0.8 million as of December 31, 2023. Total rent payments for this facility were approximately $ 1.0 million and $ 1.0 million during the years ended December 31, 2024 and 2023. An agreement was reached with the related party to reduce rental payments by 12.5 % for the lease of the Company’s headquarters, effective February 2022 as part of a voluntary reduction. As of December 31, 2024 and 2023, the total ROU assets attributable to finance leases are approximately $ 17.9 million and $ 14.5 million, respectively, which is included in Property, plant, and equipment, net on the Consolidated Balance Sheets. 77 Table of Contents The components of lease costs for the year ended December 31, 2024 and 2023 are as follows (in thousands): Classification 2024 2023 Finance lease expense: Amortization of ROU assets Depreciation and amortization $ 5,491 $ 5,152 Interest on lease liabilities Interest expense 1,062 917 Operating lease expense Cost of revenue; Selling, general & administrative expenses 14,213 13,234 Short-term lease expense Cost of revenue; Selling, general & administrative expenses 56 179 Variable lease expense Cost of revenue; Selling, general & administrative expenses 1,683 2,034 Total $ 22,505 $ 21,516 Additional information related to leases as of December 31, 2024 and 2023 is as follows: 2024 2023 Cash paid for amounts included in the measurement of lease liabilities for finance and operating leases (in thousands): Finance - financing cash flows $ 5,495 $ 5,047 Finance - operating cash flows 1,062 917 Operating - operating cash flows 14,243 13,208 ROU assets obtained in the exchange for lease liabilities: Finance leases $ 9,899 $ 7,125 Operating leases 16,254 10,598 Weighted-average remaining lease term (in years): Finance leases 5.0 4.7 Operating leases 4.7 4.4 Weighted-average discount rate: Finance leases 6.5 % 6.5 % Operating leases 6.1 % 6.1 % Maturities of lease liabilities as of December 31, 2024 is as follows (in thousands): Finance Operating 2025 $ 6,402 $ 13,462 2026 5,772 10,880 2027 4,846 8,256 2028 3,178 6,097 2029 1,701 3,498 Thereafter 1,374 5,692 Total 23,273 47,885 Less: Present value discount 2,794 6,231 Lease liability $ 20,479 $ 41,654 18. Commitments and Contingencies Legal Proceedings and Government Investigations 78 Table of Contents The Company is periodically involved in lawsuits, investigations and claims. While uncertainties exist with respect to the ultimate resolution of lawsuits, investigations and claims asserted against it, the Company, based on currently available information, does not believe that any currently pending or threatened legal proceeding to which the Company is a party, or is likely to become a party, including those proceedings identified in this Note 18, 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 and a subsidiary of the Company, Mistras Arizona Inspection Services LLC (“Mistras Arizona”), are subject to a lawsuit filed by the State of Arizona and the Arizona Department of Environmental Quality (collectively “DEQ”). The lawsuit, captioned State of Arizona v. Mistras Group, Inc., Mistras Arizona Inspection Services, LLC and Naiman Phoenix, Ltd., was originally filed on February 27, 2024, in the Superior Court of the State of Arizona for Maricopa County, CV 2024-003866 (the "DEQ Complaint"). The DEQ Complaint alleges various violations of Arizona environmental laws and regulations by the Company and Mistras Arizona in connection with the operation by Mistras Arizona of its testing facility in Phoenix, Arizona. The DEQ Complaint seeks, through injunctive relief, the closing of a chromic acid plating line at the testing facility, implementation of a site assessment plan approved by the DEQ, and corrective and remedial action to bring the testing facility into compliance with laws and regulations. In addition, the DEQ Complaint seeks unspecified penalties and costs. The Superior Court held a hearing September 2024 regarding the DEQ’s request for a preliminary injunction. On October 23, 2024, the Superior Court issued a ruling, which declined to issue the preliminary injunction requested by the DEQ, but imposed the following conditions on the Company and Mistras Arizona unless and until modified by the Superior Court or entry of a final judgement: (1) the Company and Mistras Arizona are prohibited from releasing or permitting any release of chromic acid from the facility; (2) within a reasonable time, the Company and Mistras Arizona must complete improvements to the testing facility designed to prevent future discharges of chromium or chromic acid; (3) the Company must notify the DEQ upon completion of the improvement to enable the DEQ to conduct an inspection; and (4) the Company and Mistras Arizona are prohibited from engaging in any chrome plating operations at the testing facility until they notify the DEQ that the improvements have been completed. The DEQ may seek relief if it determines that the improvements are not sufficient to prevent discharges. The Company intends to comply with the Superior Court's ruling. This matter is still in the relatively early stages, including as to factual and expert discovery. It is probable that remediation costs, fines and penalties may be imposed related to this lawsuit. However, the Company is unable to estimate the range of loss that it may incur. In addition, Mistras Arizona’s operations in Phoenix are located at a leased site within the footprint of the Motorola 52nd Street Superfund Site (the “Motorola Site”). Mistras Arizona received a General Notice Letter from the US Environmental Protection Agency (the "EPA"), dated May 21, 2024, informing Mistras Arizona that the EPA has identified it as a potentially responsible party in relation to the Motorola Site. Pension Related Contingencies Certain of Company’s subsidiaries had significant reductions in their unionized workers in 2018. The collective bargaining agreements for the employees of this subsidiary required contributions for these employees to two national multi-employer pension funds. The reduction in employees resulted in 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 December 31, 2024 is approximately $ 2.5 million , which was incurred in 2018 and 2019. 19. Segment Disclosure The Company’s three operating segments, which are also the Company's reportable segments, are: • 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 79 Table of Contents engineering services that are used to evaluate the safety, structural integrity and reliability of critical energy, industrial and public infrastructure and commercial aerospace components. Software, digital and data services are included in this segment. • International. This segment offers services, products and systems similar to those of the other segments to select markets within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment. • Products and Systems. This segment designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States. Costs incurred for general corporate services, including finance, legal, and certain other costs that are provided to the segments are reported within Corporate and eliminations. Sales to the International segment from the Products and Systems segment and subsequent sales by the International segment of the same items are recorded and reflected in the operating performance of both segments. Additionally, engineering charges and royalty fees charged to the North America and International segments by the Products and Systems segment are reflected in the operating performance of each segment. The chief operating decision maker ("CODM") reviews financial information at the operating segment level to allocate resources and to assess the operating results and financial performance for each operating segment. For the year ended December 31, 2024, our CODM was identified as Manny Stamatakis, the Interim Chief Executive Officer, because he has final authority over performance assessment and resource allocation decisions. Beginning January 1, 2025, our CODM was identified as Natalia Shuman, upon her appointment as our Chief Executive Officer effective January 1, 2025, as she has final authority over performance assessment and resource allocation decisions. Our segments are based on the type and concentration of customers served, service requirements, methods of distribution and major product lines. Segment income (loss) from operations is the primary performance measure used by the CODM to evaluate segment performance and allocate resources, including considering budget-to-actual variances and prior year-to-actual variances on a monthly basis in accordance with GAAP under ASC 280, Segment Reporting. Segment income (loss) from operations for each of the Company's reportable segments are comprised of revenue, selling, general & administrative expenses, and "other expenses." "Other expenses" include cost of revenue, bad debt provision for troubled customers, goodwill impairment charges, reorganization and environmental costs, legal settlements and recoveries, acquisition-related expenses, depreciation and amortization and research and engineering. 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. These items of our operating profit are managed centrally at the corporate level and are excluded from the measure of segment income reviewed by the CODM, as well as the measure of segment performance used for incentive compensation purposes. The accounting policies of the reportable segments are the same as those described in Note 1-Summary of Significant Accounting Policies and Practices . 80 Table of Contents Selected consolidated financial information by segment for the periods shown was as follows. Income (loss) from operations by operating segment includes intercompany transactions, which are eliminated in Corporate and eliminations . For the year ended December 31, 2024 Segment North America International Products and Systems Total Reportable Segments Corporate and eliminations Total Revenue $ 593,527 $ 135,969 $ 13,661 $ 743,157 $ ( 13,517 ) $ 729,640 Selling, general & administrative expenses 95,750 29,879 3,677 129,306 27,082 156,388 Other Expenses 435,491 99,815 7,474 542,780 ( 9,355 ) 533,425 Income (loss) from operations $ 62,286 $ 6,275 $ 2,510 $ 71,071 $ ( 31,245 ) $ 39,826 For the year ended December 31, 2023 Segment North America International Products and Systems Total Reportable Segments Corporate and eliminations Total Revenue $ 579,330 $ 124,414 $ 12,986 $ 716,730 $ ( 11,257 ) $ 705,473 Selling, general & administrative expenses 99,446 29,140 4,049 132,635 34,114 166,749 Other Expenses 424,714 107,503 8,670 540,887 ( 259 ) 540,628 Income (loss) from operations $ 55,170 $ ( 12,229 ) $ 267 $ 43,208 $ ( 45,112 ) $ ( 1,904 ) For the year ended December 31, 2022 Segment North America International Products and Systems Total Reportable Segments Corporate and eliminations Total Revenue $ 573,336 $ 112,425 $ 12,727 $ 698,488 $ ( 11,115 ) $ 687,373 Selling, general & administrative expenses 102,087 27,554 4,236 133,877 32,523 166,400 Other Expenses 421,633 81,305 9,483 512,421 ( 11,247 ) 501,174 Income (loss) from operations $ 49,616 $ 3,566 $ ( 992 ) $ 52,190 $ ( 32,391 ) $ 19,799 The tables above only reconcile to income (loss) from operations as our measure of segment profitability and the remainder of the reconciliation to net income (loss) can be seen on the Consolidated Statement of Income (Loss). For the year ended December 31, 2024, Products and Systems segment revenue was comprised of approximately $ 4.0 million of sales to the International segment, which was eliminated upon consolidation. Intersegment revenue related to sales between other segments was immaterial for the years ended December 31, 2024, 2023, and 2022. December 31, 2024 2023 Intangible assets, net North America $ 30,869 $ 37,622 International 1,377 2,998 Products and Systems 946 1,168 Corporate and eliminations 6,516 2,206 $ 39,708 $ 43,994 81 Table of Contents December 31, 2024 2023 Total assets North America $ 390,052 $ 402,782 International 97,546 99,398 Products and Systems 11,280 13,259 Corporate and eliminations 24,160 19,337 $ 523,038 $ 534,776 December 31, 2024 2023 Long-lived assets North America $ 268,608 $ 279,358 International 24,822 27,967 Products and Systems 1,049 1,423 Corporate and eliminations 7,563 3,572 $ 302,042 $ 312,320 Refer to Note 2-Revenue , for revenue by industry and by geographic area for the years ended December 31, 2024, 2023, and 2022. 20. Subsequent Events On December 5, 2024, the Board, in furtherance of its management succession planning, appointed Natalia Shuman, as the Company’s President and Chief Executive Officer, effective as of January 1, 2025. In these positions, Ms. Shuman will succeed Manuel N. Stamatakis, who has served as the Company’s interim President and Chief Executive Officer since October 9, 2023. Mr. Stamatakis will continue as the Executive Chairman of the Company and, in this position, will continue to lead the Board and exercise supervisory responsibility over the strategic direction of the Company, oversee, and receive reports from, the new President and Chief Executive Officer, and perform such other duties from time to time that may be assigned to him by the Board. On December 12, 2024, the Company announced the appointment of Hani Hammad, previously the Company’s Executive Vice President and Chief Transformation Officer, to the position of Executive Vice President and Chief Operating Officer, effective January 1, 2025. On December 31, 2024, the Compensation Committee approved the grant to Mr. Stamatakis, of a stock option for the purchase of 375,000 shares of the Company’s common stock at an exercise price per share equal to the closing price of the common stock, as reported on the New York Stock Exchange, on January 6, 2025. On February 6, 2025, the Company announced the passing of its founder and Chairman Emeritus, Dr. Sotirios Vahaviolos. On February 7, 2025, the Company terminated the employment of its Executive Vice President, and President of Services, John A. Smith. Mr. Smith’s separation is without cause and he will be entitled to receive severance and related benefits for such a separation, subject to the execution of a release by Mr. Smith. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.