Mistras Group, Inc. 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis (“MD&A”) provides a discussion of our results of operations and financial position for the three and six months ended June 30, 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. Unless otherwise specified or the context otherwise requires, “Mistras,” “the Company,” “we,” “us” and “our” refer to Mistras Group, Inc. and its consolidated subsidiaries. The MD&A includes the following sections: • Forward-Looking Statements • Overview • Note about Non-GAAP Measures • Consolidated Results of Operations • Liquidity and Capital Resources • Critical Accounting Policies and Estimates Forward-Looking Statements This Quarterly Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements. In some cases, you can identify forward-looking statements by terminology, such as “goals,” or “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “could,” “should,” “would,” “predicts,” “appears,” “projects,” or the negative of such terms or other similar expressions. 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, changes to the U.S. 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. Overview 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 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; 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. 25 Table of Contents Mistras Group, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (tabular dollars are in thousands) 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. Our operations consist of three reportable segments: 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 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 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 designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States. Given the role our solutions play in enhancing the safe and efficient operation of infrastructure, we have historically provided a majority of our solutions to our customers on a regular, recurring basis. We perform these services largely at our customers’ facilities, while primarily servicing our aerospace customers at our network of state-of-the-art, in-house laboratories. These solutions typically include NDT and inspection services, and can also include a wide range of mechanical services, including heat tracing, pre-inspection insulation stripping, coating applications, re-insulation, engineering assessments and long-term condition-monitoring. Under this business model, many customers outsource their inspection to us on a “run and maintain” basis. We have established long-term relationships as a critical solutions provider to many of the leading companies with asset-intensive infrastructure in our target markets. These markets include companies 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. 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 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 enhance our advantages over our competition. We believe long-term growth can be realized in our target markets. Our level of business and financial results are impacted by world-wide macro- and micro-economic conditions generally, as well as those within our target markets. 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 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 Our cash position and liquidity remains strong. 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 26 Table of Contents Mistras Group, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (tabular dollars are in thousands) 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. 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 conflicts in the Middle East between Israel and Hamas and between Israel and Iran. The Company will continue to monitor market conditions and respond accordingly. Note About Non-GAAP Measures 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. This presentation excludes from "Income (loss) from Operations" (a) transaction expenses related to acquisitions, such as professional fees and due diligence costs, (b) the net changes in the fair value of acquisition-related contingent consideration liabilities, (c) impairment charges, (d) reorganization and other costs, which includes items such as severance, labor relations matters and asset and lease termination costs and (e) other special items. These adjustments have been excluded from the GAAP measure because these expenses and credits are not related to our or any individual segment's core business operations. The acquisition related costs and special items can be a net expense or credit in any given period. Our management uses this non-GAAP measure as a measure of operating performance and liquidity to assist in comparing performance from period to period on a consistent basis, as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations. We believe investors and other users of our financial statements benefit from the presentation of this non-GAAP measure in evaluating our performance. Income (loss) before special items excludes the identified adjustments, which provides additional tools to compare our core business operating performance on a consistent basis and measure underlying trends and results in our business. Income (loss) before special items is not used to determine incentive compensation for executives or employees, nor is it a replacement for the reported GAAP financial performance and/or necessarily comparable to the non-GAAP financial measures of other companies. Any measure that eliminates the foregoing items has material limitations as a performance or liquidity measure and should not be considered alternatives to net income (loss) or any other measures derived in accordance with GAAP. 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. Results of Operations 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 Gross profit 53,945 51,340 94,837 97,492 Gross profit as a % of Revenue 29.1 % 27.1 % 27.3 % 26.1 % 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 27 Table of Contents Mistras Group, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (tabular dollars are in thousands) Revenue 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 Revenue North America $ 147,992 $ 156,394 $ 276,894 $ 306,743 International 39,077 34,264 72,291 67,311 Products and Systems 2,740 3,373 5,831 6,583 Corporate and eliminations (4,404) (4,258) (7,996) (6,422) Total $ 185,405 $ 189,773 $ 347,020 $ 374,215 Three Months 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 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 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. Six Months 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. 28 Table of Contents Mistras Group, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (tabular dollars are in thousands) 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 Upstream $ 39,514 $ 41,013 $ 40,756 $ 36,753 Midstream 18,533 20,786 20,790 20,033 Downstream 55,118 47,457 37,957 40,212 Total $ 113,165 $ 109,256 $ 99,503 $ 96,998 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. 29 Table of Contents 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 Field Services $ 123,484 $ 134,528 $ 233,659 $ 260,883 Shop Laboratories 15,682 16,938 30,711 34,133 Data Analytical Solutions 18,330 18,342 32,311 33,881 Other 27,909 19,965 50,339 45,318 Total $ 185,405 $ 189,773 $ 347,020 $ 374,215 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 $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 $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 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 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 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 . 30 Table of Contents Mistras Group, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (tabular dollars are in thousands) 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) North America $ 40,384 $ 39,874 $ 70,549 $ 75,250 % of segment revenue 27.3 % 25.5 % 25.5 % 24.5 % International 12,270 9,890 21,358 19,157 % of segment revenue 31.4 % 28.9 % 29.5 % 28.5 % Products and Systems 1,337 1,555 2,960 3,036 % of segment revenue 48.8 % 46.1 % 50.8 % 46.1 % Corporate and eliminations (46) 21 (30) 49 $ 53,945 $ 51,340 $ 94,837 $ 97,492 % of total revenue 29.1 % 27.1 % 27.3 % 26.1 % (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 $20.9 million. Three Months Gross profit margin was 29.1% and 27.1% for the three-month periods ended June 30, 2025 and 2024, respectively. Gross profit margin for the North America segment increased by 1.8% during the three months ended June 30, 2025 as compared to the prior year comparable period primarily due to an improved business mix and operating efficiencies. International segment realized a 2.5% increase in gross profit margin to 31.4% during the three months ended June 30, 2025 as compared to the prior year comparable period primarily due to a favorable sales mix in the current year period. Products and Systems segment gross margin had an increase of 2.7% in gross profit margin to 48.8% during the three months ended June 30, 2025 primarily due to a favorable sales mix as compared to the prior period. Six Months Gross profit margin was 27.3% and 26.1% for the six-month periods ended June 30, 2025 and 2024, respectively. Gross profit margin for the North America segment realized a 1.0% increase in gross profit margin to 25.5% during the six months ended June 30, 2025 as compared to the prior year comparable period primarily due to a favorable sales mix and operating efficiencies. International segment realized a 1.0% increase in gross profit margin to 29.5% during the six months ended June 30, 2025 as compared to the prior year comparable period primarily due to a favorable sales mix. Products and Systems segment gross margin had an increase of 4.7% in gross profit margin to 50.8% during the six months ended June 30, 2025 primarily due to a favorable sales mix as compared to the prior period. 31 Table of Contents Mistras Group, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (tabular dollars are in thousands) Operating Expenses Operating expenses for the three and six months ended June 30, 2025 and 2024 was as follows: Three months ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 ($ in thousands) Operating Expenses Selling, general and administrative expenses $ 39,793 $ 36,181 $ 75,445 $ 72,431 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 % Three Months 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. Six Months 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. 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 $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 $0.5 million during the six months ended June 30, 2025 compared to the six months ended June 30, 2024. 32 Table of Contents Mistras Group, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (tabular dollars are in thousands) Income (loss) from Operations The following table shows a reconciliation of the income from operations to income (loss) from operations before special items for each of our three segments, Corporate and Elimination and for the Company in total: Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 ($ in thousands) ($ in thousands) North America: Income from operations (GAAP) $ 16,758 $ 18,727 $ 23,273 $ 32,287 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 International: Income from operations (GAAP) $ 4,004 $ 1,647 $ 5,085 $ 2,771 Reorganization and other costs 92 161 270 263 Income from operations before special items (non-GAAP) $ 4,096 $ 1,808 $ 5,355 $ 3,034 Products and Systems: Income from operations (GAAP) $ 336 $ 495 $ 663 $ 809 Reorganization and other costs — — 151 2 Income from operations before special items (non-GAAP) $ 336 $ 495 $ 814 $ 811 Corporate and Eliminations: Loss from operations (GAAP) $ (12,670) $ (8,910) $ (21,605) $ (18,356) Environmental expense 518 — 1,058 — Reorganization and other costs 1,746 265 3,146 1,719 Loss from operations before special items (non-GAAP) $ (10,406) $ (8,645) $ (17,401) $ (16,637) Total Company: 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. Three Months 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. Six Months 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. 33 Table of Contents Mistras Group, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (tabular dollars are in thousands) Interest Expense 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. Income Taxes 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. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. 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: Six months ended June 30, 2025 2024 Net cash (used in) provided by: Operating activities $ (3,619) $ 5,115 Investing activities (11,416) (11,217) Financing activities 14,910 5,261 Effect of exchange rate changes on cash 1,765 372 Net change in cash and cash equivalents $ 1,640 $ (469) Cash Flows from Operating Activities 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 34 Table of Contents Mistras Group, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (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 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 $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 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 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 ". Contractual Obligations 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 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. 35 Table of Contents Critical Accounting Policies and Estimates There have been no significant changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the 2024 Annual Report. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk There have been no significant changes to our quantitative and qualitative disclosures about market risk as discussed in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” included in the 2024 Annual Report.