What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2024-11-04 · 120 added, 170 removed, 154 unchanged (65% of the section changed)

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

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

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

The following Management’s Discussion and Analysis (“MD&A”) provides a discussion of our results of operations and financial position for the three months ended March 31, 2025 and 2024.

Unless otherwise specified or the context otherwise requires, “Mistras,” “the Company,” “we,” “us” and “our” refer to Mistras Group, Inc.

12 unchanged sentences

You are urged not to place undue reliance on any such forward-looking statements, any of which may turn out to be wrong due to inaccurate assumptions, various risks, uncertainties or other factors known and unknown.

Factors that could cause or contribute to differences in results and outcomes from those in our forward-looking statements include, without limitation, those discussed in the “Business—Forward-Looking Statements,” and “Risk Factors” sections of our 2023 Annual Report as well as those discussed in this Quarterly Report and in our other filings with the SEC.

Factors that could cause or contribute to differences in results and outcomes from those in our forward-looking statements, including any impacts from the imposition of tariffs or other trade restrictions and changes to the

trade policy, include, without limitation, those discussed in the “Business—Forward-Looking Statements,” and “Risk Factors” sections of our 2024 Annual Report as well as those discussed in this Quarterly Report and in our other filings with the SEC.

In addition, there are various developments discussed below which could create risks and uncertainty about our business, results of operations or liquidity.

We are a leading "one source" multinational provider of integrated technology-enabled asset protection solutions, helping to maximize the safety and operational uptime for civilization’s most critical industrial and civil assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, and decades-long legacy of industry leadership, the Company helps clients with asset-intensive infrastructure in the oil and gas, aerospace and defense, industrials, power generation and transmission (including alternative and renewable energy), other process industries and infrastructure, research and engineering and other industries towards achieving and maintaining operational excellence.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, and a 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;

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

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

Mistras Group, Inc.

2 unchanged sentences

(tabular dollars are in thousands)

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

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

1 unchanged sentence

North America, International, and Products and Systems.

• North America 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 structural integrity and reliability of critical energy, industrial and public infrastructure and commercial aerospace components.

• North America 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.

8 unchanged sentences

We have focused on providing our advanced asset protection solutions to our customers using proprietary, technology-enabled software and testing instruments, including those developed by our Products and Systems segment.

We have made numerous acquisitions in an effort to grow our base of experienced, certified personnel, expand our service lines and technical capabilities, increase our geographical reach, complement our existing offerings, and leverage our fixed costs.

We have made numerous acquisitions in the past in an effort to grow our base of experienced, certified personnel, expand our service lines and technical capabilities, increase our geographical reach, complement our existing offerings, and leverage our fixed costs.

We have increased our capabilities and the size of our customer base through the development of applied technologies and managed support services, organic growth and the integration of acquired companies.

These acquisitions have provided us with additional service lines, technologies, resources and customers which we believe will enhance our advantages over our competition.

These acquisitions have provided us with additional service lines, technologies, resources and customers which we believe enhance our advantages over our competition.

We believe long-term growth can be realized in our target markets.

1 unchanged sentence

Among other things, we expect the timing of our oil and gas customers inspection spend to be impacted by oil price fluctuations.

We have continued providing our customers with an innovative asset protection software ecosystem through our MISTRAS OneSuite platform.

The software platform offers functions of MISTRAS' popular software and services brands as integrated apps on a cloud environment.

We have continued providing our customers with an innovative asset protection software ecosystem through our OneSuite platform.

The software platform offers functions of our software and services brands as integrated apps on a cloud environment.

OneSuite serves as a single access portal for customers' data activities and provides access to 90 plus applications being offered on one centralized platform.

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

Our cash position and liquidity remains strong.

As of March 31, 2025, our cash balance was approximately $18.5 million and, with our Credit Agreement, provides us with significant liquidity.

As discussed above in Note 1 - Description of Business and Basis of Presentation, we changed the presentation of certain costs incurred at our operational labs as well as for certain lab personnel on our Unaudited Condensed Consolidated Statements of Income (Loss).

This voluntary change in classification of certain overhead and personnel costs, which were determined to be directly related to the delivery of our services, resulted in a decrease in from selling, general and administrative expenses and an

Mistras Group, Inc.

2 unchanged sentences

(tabular dollars are in thousands)

costs, amongst others.

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

Our cash position and liquidity remains strong.

As of September 30, 2024, the cash balance was approximately $20.4 million, and with our Credit Agreement, provides us with significant liquidity.

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

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

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

The Company is currently unable to predict with certainty the overall impact that the factors discussed above and the effect of inflationary pressures may have on its business, results of operations or liquidity or in other ways which the Company cannot yet determine.

The Company’s European operations are currently experiencing higher energy costs, among other increased costs, due in part to the Russian-Ukrainian war and the conflict in the Middle East between Israel and Hamas.

offsetting increase in cost of revenue.

We believe this presentation is preferable as it will provide greater transparency regarding our cost of revenue and better align with how our business is managed.

The Company is currently unable to predict with certainty the overall impact of continuing inflationary pressures or increased costs due to the imposition of tariffs and other trade barriers or changes to U.S.

trade policy may have on its business, results of operations or liquidity or in other ways which the Company cannot yet determine.

The Company’s European operations are currently experiencing higher energy costs, among other increased costs, due in part to the on-going war between Russia and Ukraine and the conflict in the Middle East between Israel and Hamas.

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

On December 5, 2024, our Board of Directors (the “Board”), in furtherance of its management succession planning, appointed Natalia Shuman, as the Company’s President and Chief Executive Officer, with Manny Stamatakis continuing as the Executive Chairman of the Company effective as of January 1, 2025.

Stamatakis served as our Chairman of the Board and Interim President and Chief Executive Officer until December 31, 2024.

On December 12, 2024, we announced the appointment of Hani Hammad to the position of Executive Vice President and Chief Operating Officer effective as of January 1, 2025.

On February 6, 2025, we announced the passing of Dr.

Vahaviolos, our founder and Chairman Emeritus.

On February 13, 2025, we announced the termination of John A.

Smith as our Executive Vice President and President of Services as of February 7, 2025.

Note About Non-GAAP Measures

The Company prepares its consolidated financial statements in accordance with U.S.

generally accepted accounting principles ("GAAP").

The Company prepares its consolidated financial statements in accordance with GAAP.

In this MD&A under the heading "Income (loss) from Operations", the non-GAAP financial performance measure "Income (loss) from operations before special items” is used for each of our three operating segments, the Corporate segment and the "Total Company", with tables reconciling the measure to a financial measure under GAAP.

13 unchanged sentences

Results of Operations

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

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

2024 2023 2024 2023

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

Condensed consolidated results of operations for the three months ended March 31, 2025 and 2024 were as follows:

Three months ended March 31,

Revenue $ 161,615 $ 184,442

Gross profit 40,892 46,153

Gross profit as a % of Revenue 25.3 % 25.0 %

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

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

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

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

Other Income (1,479) — (1,479) —

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

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

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

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

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

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

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

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

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

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

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

(Loss) income from operations (1,012) 5,553

(Loss) income from operations as a % of Revenue (0.6) % 3.0 %

(Loss) income before benefit for income taxes (4,336) 1,123

Net (loss) income (3,168) 1,004

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

$ (3,186) $ 995

Revenue was $161.6 million for the three months ended March 31, 2025, a decrease of $22.8 million, or 12.4%, compared with the three months ended March 31, 2024.

Revenue by segment for the three months ended March 31, 2025 and 2024 were as follows:

Three months ended March 31,

North America $ 128,902 $ 150,349

2 unchanged sentences

Corporate and eliminations (3,592) (2,164)

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

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

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

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

Total $ 161,615 $ 184,442

In the three months ended March 31, 2025, total revenue decreased 12.4% versus the prior year comparable period due predominantly to a high single-digit organic decrease.

North America segment revenue decreased 14.3%, driven predominantly by a decrease in our Oil and Gas market revenue and declines in demand in other key markets due to macroeconomic factors such as uncertainties driven by continuing inflationary pressures and increased costs due to the imposition of tariffs.

International segment revenue increased 0.5%, due predominantly to low double-digit organic growth and low single-digit favorable impact of foreign exchange rates.

Products and Systems segment revenue decreased by 3.7%, due to decreased sales volume and shipments as compared to the prior year comparable period.

Oil and gas customer revenue comprised approximately 60% and 61% of total revenue for the three months ended March 31, 2025 and 2024, respectively.

Aerospace and defense customer revenue comprised approximately 13% and 12% of total revenue for the three months ended March 31, 2025 and 2024, respectively.

The Company’s top ten customers comprised approximately 37% of total revenue for the three months ended March 31, 2025, as compared to 39% for the three months ended March 31, 2024, with no customer accounting for 10% or more of total revenue in either three-month period.

Mistras Group, Inc.

2 unchanged sentences

(tabular dollars are in thousands)

power generation and transmission end markets.

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

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

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

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

In the nine months ended September 30, 2024, total revenue increased 6.4% versus the comparable prior period.

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

Our North America segment revenue increased 5.9% due primarily to increased sales volume in our oil and gas and aerospace and defense end markets.

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

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

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

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

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

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

2024 2023 2024 2023

Three months ended March 31,

Oil and Gas Revenue by sub-category

3 unchanged sentences

Total $ 96,564 $ 113,165

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

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

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

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

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

2024 2023 2024 2023

Oil and gas upstream customer revenue decreased approximately $1.5 million, or 4%, due primarily to market share losses and decreased exploration activity as compared to the prior year comparable period.

Midstream customer revenues decreased approximately $5.6 million, or 26%, due to decreased pipe inspection services performed as compared to the prior year comparable period.

Downstream customer revenues decreased $9.5 million or, 19%, primarily due to decreased customer turnarounds in the current year that were delayed in the prior year comparable period.

Three months ended March 31,

Revenue by type

4 unchanged sentences

Total $ 161,615 $ 184,442

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

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

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

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

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

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

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

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

Data Analytical Solutions revenue decreased by $1.2 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, and decreased $0.1 million, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 due primarily to decreased sales volume within PCMS, Onstream and other Data Analytical Solutions offerings within our North America segment for the three months ended September 30, 2024 and decreased sales volume for the same offerings for the nine months ended September 30, 2024.

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

Other revenues decreased by $11.9 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, and decreased $1.2 million, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

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

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

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

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

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

In presenting the allocation of revenue by type in the table above, management makes certain assumptions in its allocation of revenue from laboratories that provide more than one type of service.

The allocation methodology and assumptions made are consistent for the years presented.

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

Field Services revenue decreased by $16.2 million as compared to the prior year comparable period, primarily due to decreases in sales volume in our oil and gas, industrials and infrastructure, research and engineering end markets within our North America segment and oil and gas end market within our International segment.

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

Shop Laboratory revenue decreased by $2.2 million as compared to the prior year comparable period due to decreased sales volumes in our aerospace and defense end market in our North America and International segments.

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

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

Data Analytical Solutions revenue decreased by $1.6 million as compared to the prior year comparable period due to decreased sales volume within PCMS and other Data Analytical Solutions offerings within our North America segment.

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

Other revenue decreased by $2.9 million as compared to the prior year comparable period primarily due to decreased sales within the defense sector within the North America segment.

Mistras Group, Inc.

2 unchanged sentences

(tabular dollars are in thousands)

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

2024 2023 2024 2023

Gross profit, which reflects the reclassification of certain overhead and personnel costs from selling, general and administrative

expenses to cost of revenue (see Note 1 - Description of Business and Basis of Presentation), decreased by $5.3 million, or 11.4%, in the three months ended March 31, 2025 versus the prior year comparable period primarily due to a decrease in revenue of 12.4%, partially offset by lower healthcare claims expense in the current year period and a favorable sales mix.

Gross profit by segment for the three months ended March 31, 2025 and 2024 was as follows:

Three months ended March 31,

Gross profit (1)

North America $ 30,165 $ 35,245

7 unchanged sentences

% of total revenue 25.3 % 25.0 %

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

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

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

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

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

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

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

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

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

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

(1) As noted in Note 1, the Company changed the presentation of certain costs incurred at its operational labs as well as the costs for certain personnel that indirectly support the Company’s delivery of services on its Consolidated Statements of Income (Loss).

This voluntary change in classification of certain overhead and employee costs, which, were determined to be directly related to the Company’s delivery of services, resulted in a decrease in Selling, general and administrative expenses and an offsetting increase in Cost of revenue.

The impact on gross profit of this change in classification for the year ended December 31, 2024 was approximately $20.9 million.

Gross profit margin was 25.3% and 25.0% for the three-month periods ended March 31, 2025 and 2024, respectively.

Gross profit margin for the North America segment was flat during the three months ended March 31, 2025 as compared to the prior year comparable period.

International segment realized a 0.6% decline in gross profit margin to 27.4% during the three months ended March 31, 2025 as compared to the prior year comparable period due primarily to an unfavorable sales mix and increased energy costs in the current year period.

Products and Systems segment gross margin had an increase of 2.3% in gross profit margin to 52.5% during the three months ended March 31, 2025 due to increased sales volume as compared to the prior period.

Operating Expenses

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

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

2024 2023 2024 2023

Operating expenses for the three months ended March 31, 2025 and 2024 was as follows:

Three months ended March 31,

Operating Expenses

Selling, general and administrative expenses $ 35,652 $ 36,252

Environmental expense 540 —

Reorganization and other costs 3,087 1,558

Goodwill impairment charges — 13,799 — 13,799

Research and engineering 299 343

Depreciation and amortization 2,326 2,447

Legal settlement and insurance recoveries, net (868) — (808) 150

Acquisition-related expense, net — — 1 5

$ 42,719 $ 59,064 $ 132,415 $ 152,799

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

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

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

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

During the three months ended September 30, 2024, $2.1 million of reorganization and other related costs were incurred, which were a result of the Company's on-going efficiency and productivity initiatives.

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

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

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

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

Mistras Group, Inc.

2 unchanged sentences

(tabular dollars are in thousands)

Operating expenses increased $1.3 million, or 3.2%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Selling, general and administrative expenses decreased $0.6 million during the three months ended March 31, 2025 compared to the three months ended March 31, 2024, due to continued cost discipline and our focus on the calibration of our overhead costs relative to revenue achieved, partially offset by an unfavorable foreign exchange impact as compared to the prior year comparable period.

As discussed in Note 1 - Description of Business and Basis of Presentation,

selling, general and administrative expenses reflect the classification change for certain overhead and personnel costs from selling, general and administrative expenses to cost of revenue.

Environmental expense increased by $0.5 million as compared to the prior year comparable period due to environmental costs incurred for the current period, which were not incurred during the prior year comparable period.

Reorganization and other costs increased by $1.5 million to $3.1 million as compared to the prior year comparable period due to continued calibration of the Company’s headcount and other related costs.

Depreciation and amortization decreased $0.1 million during the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Income (loss) from Operations

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

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

2024 2023 2024 2023

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

Three months ended March 31,

North America:

1 unchanged sentence

Reorganization and other costs 1,358 —

Legal settlement and insurance recoveries, net (868) — (808) 150

Income from operations before special items (non-GAAP) $ 7,873 $ 13,561

International:

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

Goodwill Impairment charges — 13,799 — 13,799

Reorganization and other costs, net 147 33 410 228

Income from operations (GAAP) $ 1,081 $ 1,124

Reorganization and other costs 178 102

Income from operations before special items (non-GAAP) $ 1,259 $ 1,226

Products and Systems:

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

Income from operations (GAAP) $ 327 $ 314

Reorganization and other costs 151 2

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

Income from operations before special items (non-GAAP) $ 478 $ 316

Corporate and Eliminations:

Loss from operations (GAAP) $ (8,935) $ (9,446)

Environmental expense 540 —

Reorganization and other costs 1,400 1,454

Acquisition-related expense, net — — 1 5

Loss from operations before special items (non-GAAP) $ (6,995) $ (7,992)

Total Company:

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

Goodwill Impairment charges — 13,799 — 13,799

(Loss) income from operations (GAAP) $ (1,012) $ 5,553

Environmental expense 540 —

Reorganization and other costs 3,087 1,558

Legal settlement and insurance recoveries, net (868) — (808) 150

Acquisition-related expense, net — — 1 5

Income from operations before special items (non-GAAP) $ 2,615 $ 7,111

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

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

Mistras Group, Inc.

2 unchanged sentences

(tabular dollars are in thousands)

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

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

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

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

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

For the three months ended March 31, 2025, (loss) income from operations (GAAP) decreased $6.6 million or 118.2%, compared with the three months ended March 31, 2024, while the income from operations before special items (non-GAAP) decreased by $4.5 million, or 63.2%.

As a percentage of revenue, income (loss) before special items decreased by 230 basis points to 1.6% in the three months ended March 31, 2025 compared to 3.9% in the three months ended March 31, 2024.

Interest Expense

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

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

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

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

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

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

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

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

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

Interest expense was approximately $3.3 million and $4.4 million for the three months ended March 31, 2025 and 2024, respectively.

The decrease was a result of lower overall borrowings in comparison to the prior period.

Our effective income tax rate was approximately 26.9% and 10.6% for the three months ended March 31, 2025 and 2024, respectively.

The effective income tax rate for the three months ended March 31, 2025 was higher than the statutory rate primarily due to the impact of favorable discrete items related to stock compensation.

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

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

1 unchanged sentence

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

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

Liquidity and Capital Resources

Cash flows are summarized in the table below:

Nine months ended September 30,

Three months ended March 31,

Net cash provided by (used in):

5 unchanged sentences

Cash Flows from Operating Activities

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

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

During the three months ended March 31, 2025, cash provided by operating activities was $5.6 million, representing a year-on-year increase of $5.0 million, or 835%.

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

Cash Flows from Investing Activities

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

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

During the three months ended March 31, 2025, cash used in investing activities was $5.4 million, representing a $0.2 million decrease, primarily attributable to decreased expenditures for property, plant, and equipment.

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

Cash Flows from Financing Activities

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

This was a result of higher net repayments of debt of $3.7 million during the nine months ended September 30, 2024, as compared to the prior year period.

Net cash used in financing activities was $0.7 million for the three months ended March 31, 2025, compared to net cash provided by financing activities of $5.1 million for the three months ended March 31, 2024.

During the three months ended March 31, 2025, net borrowings of debt were approximately $6.0 million lower as compared to the prior year comparable period resulting in net debt borrowings during the period.

The decrease in net cash provided by financing activities is partially offset by $0.1 million less taxes paid related to net share settlement of share-based awards during the three months ended March 31, 2025.

Effect of Exchange Rate Changes on Cash and Cash Equivalents

The effect of exchange rate changes on our cash and cash equivalents was an increase of $1.6 million in the nine months ended September 30, 2024, compared to a decrease of $1.4 million for the nine months ended September 30, 2023.

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

The effect of exchange rate changes on our cash and cash equivalents was an increase of $0.7 million in the three months ended March 31, 2025, compared to an decrease of $0.9 million for the three months ended March 31, 2024.

Cash Balance and Credit Facility Borrowings

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

As of March 31, 2025, we had cash and cash equivalents totaling $18.5 million and $114.0 million of unused commitments under our Credit Agreement with borrowings of $169.6 million and $3.1 million of letters of credit outstanding.

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

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

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

As of March 31, 2025, we were in compliance with the terms of the Credit Agreement and will continuously monitor our compliance with the covenants contained in the Credit Agreement.

The terms of our Credit Agreement are described in Note 11 - Long-Term Debt of the Notes to the Unaudited Condensed Consolidated Financial Statements, under the heading " Senior Credit Facility ".

Contractual Obligations

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

There have been no significant changes in our contractual obligations and outstanding indebtedness as disclosed in the 2024 Annual Report.

Off-balance Sheet Arrangements

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

During the three months ended March 31, 2025, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

3 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis