What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-11 compared with 2025-05-09 · 142 added, 81 removed, 193 unchanged (54% of the section changed)

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

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

The following Management’s Discussion and Analysis (“MD&A”) provides a discussion of our results of operations and financial position for the three and six months ended June 30, 2025 and 2024.

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 2024 Annual Report.

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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, 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.

trade policy and impacts from the implementation of our new ERP (as defined below) system, 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.

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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 of June 30, 2025, our cash balance was approximately $20.0 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.

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(tabular dollars are in thousands)

offsetting increase in cost of revenue.

an 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.

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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

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

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

Results of Operations

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

Three months ended March 31,

Condensed consolidated results of operations for the three and six months ended June 30, 2025 and 2024 were as follows:

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

2025 2024 2025 2024

Revenue $ 185,405 $ 189,773 $ 347,020 $ 374,215

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Gross profit as a % of Revenue 29.1 % 27.1 % 27.3 % 26.1 %

(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.

Income from operations 8,428 11,959 7,416 17,511

Income from operations as a % of Revenue 4.5 % 6.3 % 2.1 % 4.7 %

Income (loss) before provision (benefit) for income taxes 4,189 7,546 (147) 8,669

Net income (loss) 3,126 6,373 (42) 7,377

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

$ 3,017 $ 6,369 $ (169) $ 7,364

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,

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

Revenue was $185.4 million for the three months ended June 30, 2025, a decrease of $4.4 million, or 2.3%, compared with the three months ended June 30, 2024.

Revenue by segment for the three and six months ended June 30, 2025 and 2024 were as follows:

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

2025 2024 2025 2024

North America $ 147,992 $ 156,394 $ 276,894 $ 306,743

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Total $ 185,405 $ 189,773 $ 347,020 $ 374,215

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.

In the three months ended June 30, 2025, total revenue decreased 2.3% versus the prior year comparable period due predominantly to a low single-digit organic decrease driven by voluntary laboratory consolidations.

North America segment revenue decreased 5.4%, 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.

International segment revenue increased 14.0%, due predominantly to high single-digit organic growth and mid-single-digit favorable impact of foreign exchange rates.

Products and Systems segment revenue decreased by 18.8%, 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.

Oil and gas customer revenue comprised approximately 55% and 58% of total revenue for the three months ended June 30, 2025 and 2024, respectively.

Aerospace and defense customer revenue comprised approximately 13% and 12% of total revenue for the three months ended June 30, 2025 and 2024, respectively.

The Company’s top ten customers comprised approximately 35% of total revenue for the three months ended June 30, 2025, as compared to 35% for the three months ended June 30, 2024, with no customer accounting for 10% or more of total revenue in either three-month period.

In the six months ended June 30, 2025, total revenue decreased 7.3% versus the prior year comparable period due predominantly to a high single-digit organic decrease.

North America segment revenue decreased 9.7%, 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 7.4%, due predominantly to mid-single-digit organic growth and low single-digit favorable impact of foreign exchange rates.

Products and Systems segment revenue decreased by 11.4%, due to decreased sales volume and shipments as compared to the prior year comparable period.

Oil and gas customer revenue comprised approximately 57% and 59% of total revenue for the six months ended June 30, 2025 and 2024, respectively.

Aerospace and defense customer revenue comprised approximately 13% and 12% of total revenue for the six months ended June 30, 2025 and 2024, respectively.

The Company’s top ten customers comprised approximately 37% of total revenue for the six months ended June 30, 2025, as compared to 35% for the six months ended June 30, 2024, with no customer accounting for 10% or more of total revenue in either six-month period.

Mistras Group, Inc.

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(tabular dollars are in thousands)

Three months ended March 31,

The Company has retrospectively reclassified certain Oil and Gas sub-category revenues for each quarterly period in 2024 and the first quarter of 2025 in order to conform the classification with the current period presentation.

Total Oil and Gas sub-category revenues were unchanged in total in each quarterly period and for the full year ended December 31, 2024 and for the quarter ended March 31, 2025.

The table below presents the reclassified balances for each quarterly period in the prior year and the first quarter of 2025.

2024 Quarterly Revenues

Three months ended March 31, Three months ended June 30, Three months ended September 30, Three months ended December 31,

Oil and Gas Revenue by sub-category

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Total $ 113,165 $ 109,256 $ 99,503 $ 96,998

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.

2025 Quarterly Revenues

Three months ended March 31,

Oil and Gas Revenue by sub-category

Upstream $ 36,820

Midstream 15,341

Downstream 44,403

Total $ 96,564

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

2025 2024 2025 2024

Oil and Gas Revenue by sub-category

Upstream $ 38,180 $ 41,013 $ 75,000 $ 80,527

Midstream 18,575 20,786 33,916 39,319

Downstream 46,061 47,457 90,464 102,575

Total $ 102,816 $ 109,256 $ 199,380 $ 222,421

Oil and gas upstream customer revenue decreased approximately $5.5 million, or 7%, for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024, and $2.8 million, or 7%, for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024, due primarily to market share losses and decreased exploration activity as compared to the prior year comparable period.

Midstream customer revenues decreased approximately $5.4 million, or 14%, for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024, and $2.2 million, or 11%, for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024, due to decreased pipe inspection services as compared to the prior year comparable period.

Downstream customer revenue decreased $12.1 million, or 12%, for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024, and $1.4 million, or 3%, for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024, primarily due to decreased customer turnarounds in the current year that were delayed in the prior year comparable period.

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

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

2025 2024 2025 2024

Revenue by type

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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.

Field Services revenue decreased by $11.0 million for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 and decreased by $27.2 million for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024, 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.

Shop Laboratory revenue decreased by $1.3 million for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 and decreased by $3.4 million for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024, primarily 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.

Data Analytical Solutions revenue remained flat for the three months ended June 30, 2025 as compared to the prior year comparable period.

Data Analytical Solutions revenue decreased by $1.6 million for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024, primarily 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.

Other revenue increased by $7.9 million for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024 and increased by $5.0 million for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024, primarily due to increased sales within the defense sector within the North America segment.

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), increased by $2.6 million, or 5.1%, in the three months ended June 30, 2025 versus the prior year comparable period primarily due to an improved business mix and operating efficiencies .

Mistras Group, Inc.

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(tabular dollars are in thousands)

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 by segment for the three and six months ended June 30, 2025 and 2024 was as follows:

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

2025 2024 2025 2024

Gross profit (1)

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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.

Gross profit margin was 29.1% and 27.1% for the three-month periods ended June 30, 2025 and 2024, respectively.

Gross profit margin for the North America segment increased by 1.8% during the three months ended June 30, 2025 as compared to the prior year comparable period primarily due to an improved business mix and operating efficiencies.

International segment realized a 2.5% increase in gross profit margin to 31.4% during the three months ended June 30, 2025 as compared to the prior year comparable period primarily due to a favorable sales mix in the current year period.

Products and Systems segment gross margin had an increase of 2.7% in gross profit margin to 48.8% during the three months ended June 30, 2025 primarily due to a favorable sales mix as compared to the prior period.

Gross profit margin was 27.3% and 26.1% for the six-month periods ended June 30, 2025 and 2024, respectively.

Gross profit margin for the North America segment realized a 1.0% increase in gross profit margin to 25.5% during the six months ended June 30, 2025 as compared to the prior year comparable period primarily due to a favorable sales mix and operating efficiencies.

International segment realized a 1.0% increase in gross profit margin to 29.5% during the six months ended June 30, 2025 as compared to the prior year comparable period primarily due to a favorable sales mix.

Products and Systems segment gross margin had an increase of 4.7% in gross profit margin to 50.8% during the six months ended June 30, 2025 primarily due to a favorable sales mix as compared to the prior period.

Mistras Group, Inc.

and Subsidiaries

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

(tabular dollars are in thousands)

Operating Expenses

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

Three months ended March 31,

Operating expenses for the three and six months ended June 30, 2025 and 2024 was as follows:

Three months ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

($ in thousands)

Operating Expenses

Selling, general and administrative expenses $ 39,793 $ 36,181 $ 75,445 $ 72,431

Environmental expense 540 —

Reorganization and other costs 2,951 518 6,038 2,076

Environmental expense 518 — 1,058 —

Legal settlement and insurance recoveries, net — 60 — 60

Research and engineering 269 231 568 575

Depreciation and amortization 1,986 2,391 4,312 4,839

$ 45,517 $ 39,381 $ 87,421 $ 79,981

% of total revenue 24.6 % 20.8 % 25.2 % 21.4 %

Operating expenses increased $6.1 million, or 15.6%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024.

Selling, general and administrative expenses increased $3.6 million during the three months ended June 30, 2025 compared to the three months ended June 30, 2024, due to adverse foreign exchange impact, partially offset by ongoing cost containment activities.

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 during the three months ended June 30, 2025, which were not incurred during the prior year comparable period.

Reorganization and other costs increased by $2.4 million to $3.0 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 $0.4 million during the three months ended June 30, 2025 compared to the three months ended June 30, 2024.

Operating expenses increased $7.4 million, or 9%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

Selling, general and administrative expenses increased $3.0 million during the six months ended June 30, 2025 compared to the six months ended June 30, 2024, due to an unfavorable foreign exchange impact as compared to the prior year comparable period, partially offset by continued cost discipline and our focus on the calibration of our overhead costs relative to revenue achieved.

Environmental expense increased by $1.1 million as compared to the prior year comparable period due to environmental costs incurred during the six months ended June 30, 2025, which were not incurred during the prior year comparable period.

Reorganization and other costs increased by $4.0 million to $6.0 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 by $0.5 million during the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

Mistras Group, Inc.

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(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 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,

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

2025 2024 2025 2024

($ in thousands) ($ in thousands)

North America:

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Reorganization and other costs 1,113 92 2,471 92

Legal settlement and insurance recoveries, net — 60 — 60

Income from operations before special items (non-GAAP) $ 17,871 $ 18,879 $ 25,744 $ 32,439

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Total Company:

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

Income from operations (GAAP) $ 8,428 $ 11,959 $ 7,416 $ 17,511

Environmental expense 518 — 1,058 —

Reorganization and other costs 2,951 518 6,038 2,076

Legal settlement and insurance recoveries, net — 60 — 60

Income from operations before special items (non-GAAP) $ 11,897 $ 12,537 $ 14,512 $ 19,647

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

For the three months ended June 30, 2025, income from operations (GAAP) decreased $3.5 million or 29.5%, compared with the three months ended June 30, 2024, while income from operations before special items (non-GAAP) decreased by $0.6 million, or 5.1%.

As a percentage of revenue, income from operations before special items decreased by 20 basis points to 6.4% in the three months ended June 30, 2025 compared to 6.6% in the three months ended June 30, 2024.

For the six months ended June 30, 2025, income from operations (GAAP) decreased $10.1 million or 58%, compared with the six months ended June 30, 2024, while income from operations before special items (non-GAAP) decreased by $5.1 million, or 26%.

As a percentage of revenue, income from operations before special items decreased by 110 basis points to 4.2% in the six months ended June 30, 2025 compared to 5.3% in the six months ended June 30, 2024.

Mistras Group, Inc.

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(tabular dollars are in thousands)

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 $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.

Interest expense was approximately $4.2 million and $4.4 million for the three months ended June 30, 2025 and 2024, respectively.

This decrease of $0.2 million in interest expense was a result of lower debt balances during the three months ended June 30, 2025 in comparison to the prior year comparable period.

Interest expense was approximately $7.6 million and $8.8 million for the six months ended June 30, 2025 and 2024, respectively.

This decrease of $1.2 million in interest expense was a result of lower debt balances during the six months ended June 30, 2025 in comparison to the prior year comparable period.

Our effective income tax rate was approximately 25.4% and 15.5% for the three months ended June 30, 2025 and 2024, respectively.

Our effective income tax rate was approximately 71.4% and 14.9% for the six months ended June 30, 2025 and 2024, respectively.

The effective income tax rate for the three months ended June 30, 2025, was higher than the statutory rate primarily due to the impact of a favorable discrete item related to stock compensation.

The effective income tax rate for the three months ended June 30, 2024 was lower than the statutory rate primarily due to the impact of a favorable discrete item related to stock compensation.

The effective income tax rate for the six months ended June 30, 2025, was higher than the statutory rate primarily due to the impact of a favorable discrete item related to stock compensation.

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

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

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

On July 4, 2025, H.R.1, commonly referred to as the One Big Beautiful Bill Act ("OBBBA"), was enacted, which includes a broad range of tax reform provisions.

We are currently evaluating the impact of the OBBBA.

Liquidity and Capital Resources

Cash flows are summarized in the table below:

Three months ended March 31,

Net cash provided by (used in):

Six months ended June 30,

Net cash (used in) provided by:

Operating activities $ (3,619) $ 5,115

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Cash Flows from Operating Activities

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 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.

During the six months ended June 30, 2025, cash used in operating activities was $3.6 million, representing a year-on-year decrease of $8.7 million, or 171%.

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

Specifically, during the second quarter of 2025, we had a buildup in unbilled accounts receivable and a delay in invoicing related to our conversion to a new enterprise resource planning (“ERP”) system effective as of April 1, 2025.

Although unbilled and billed accounts receivable balances

Mistras Group, Inc.

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(tabular dollars are in thousands)

increased during the period ended June 30, 2025 related to the ERP implementation, we expect a reduction in these balances over the remainder of the year.

Cash Flows from Investing Activities

During the six months ended June 30, 2025, cash used in investing activities was $11.4 million, representing a $0.2 million increase compared to the prior year comparable period, primarily attributable to increased expenditures for property, plant, and equipment.

Cash Flows from Financing Activities

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.

Net cash provided by financing activities was $14.9 million for the six months ended June 30, 2025, compared to net cash provided by financing activities of $5.3 million for the six months ended June 30, 2024.

During the six months ended June 30, 2025, net borrowings of debt were approximately $9.8 million higher than compared to the prior year comparable period resulting in net debt borrowings during the period.

The increase in net cash provided by financing activities is partially offset by $0.2 million more in taxes paid related to net share settlement of share-based awards during the six months ended June 30, 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 $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.

The effect of exchange rate changes on our cash and cash equivalents was an increase of $1.8 million in the six months ended June 30, 2025, compared to an increase of $0.4 million for the six months ended June 30, 2024.

Cash Balance and Credit Facility Borrowings

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.

As of June 30, 2025, we had cash and cash equivalents totaling $20.0 million and $102.6 million of unused commitments under our Credit Agreement with borrowings of $187.2 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 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.

As of June 30, 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 ".

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Off-balance Sheet Arrangements

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.

During the six months ended June 30, 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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis