Mistras Group, Inc. (NYSE:MG) Q4 2020 Earnings Conference Call March 17, 2021 9:00 AM ET Company Participants Dennis Bertolotti ??? President and Chief Executive Officer Ed Prajzner ??? Executive Vice President, Chief Financial Officer and Treasurer Jon Wolk ??? Senior Executive Vice President and Chief Operating Officer Conference Call Participants Sean Eastman ??? KeyBanc Capital Markets Brian Russo ??? Sidoti Mitch Pinheiro ??? Sturdivant & Company Operator Ladies and gentlemen, thank you for joining Mis ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to ___ Commission File Number 001-34481 Mistras Group, Inc. (Exact name of registrant as specified in its charter) Delaware 22-3341267 (State or other jurisdiction of inc ...

Mistras Group, Inc. (NYSE:MG) Q3 2020 Earnings Conference Call November 5, 2020 9:00 AM ET Company Participants Dennis Bertolotti ??? President and Chief Executive Officer Ed Prajzner ??? Executive Vice President, Chief Financial Officer and Treasurer Jon Wolk ??? Senior Executive Vice President and Chief Operating Officer Conference Call Participants Alex Dwyer ??? KeyBanc Capital Markets Tate Sullivan ??? Maxim Group Mitch Pinheiro ??? Sturdivant David Ridley-Lane ??? BofA Brian Russo ??? Sidoti Operator ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __ to __ | Delaware | 22-3341267 | | --- | --- | | (State or other jurisdiction of | (I.R.S. Employer | | incorporation or organization) ...

Financial Data and Key Metrics Changes - Second quarter revenue decreased by 38% compared to the same quarter last year, coming in at slightly under $125 million [15][5] - Gross margin improved to 33.1%, the highest quarterly level in over five years, despite lower revenue [6][17] - Cash from operations more than doubled year-over-year, with free cash flow up nearly 300% compared to the same period last year [6][5] - Adjusted EBITDA for the second quarter was $11.5 million, down from $24 million in the prior year [22] Business Line Data and Key Metrics Changes - The company maintained a gross profit margin of approximately 29% year-to-date, despite a significant decline in sales [19] - Selling, general and administrative expenses decreased by over 10% compared to the year-ago quarter [20] - The company initiated a cost reduction program in April 2020, reducing overhead by approximately 10% [21] Market Data and Key Metrics Changes - The company anticipates a sequential revenue improvement of up to 20% in the third quarter compared to the second quarter [27] - The oil and gas market is experiencing pressure to condense supply chains, which the company is adapting to [8][10] - The aerospace sector is seeing a trend of consolidation in supply chains, which is expected to increase demand for the company's services [11] Company Strategy and Development Direction - The company is enhancing service offerings and diversifying into new markets, including the industrial Internet of Things [10][30] - There is a focus on transitioning to value-added services, which is expected to accelerate due to the pandemic [7][75] - The company aims to leverage unique technology into markets with significant growth potential [10][75] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a market recovery in the second half of 2020, with resumed revenue growth and adjusted EBITDA expansion [74] - The ongoing pandemic is expected to drive innovation and improvements in operational efficiency [30][75] - Management noted that the current economic environment is creating opportunities for the company to consolidate supply chains for customers [12][75] Other Important Information - The effective income tax rate for the second quarter was a 21% benefit, compared to a 37% expense in the prior year [26] - The company maintained liquidity of over $55 million, exceeding the minimum requirement of $20 million [22] Q&A Session Summary Question: What were the achieved cost reductions in the second quarter? - Management indicated that Q3 would look similar to Q2 in terms of cost reductions, with a continued focus on calibrating the cost footprint to match revenue [35] Question: What portion of planned turnarounds shifted from the first half into the second half? - Management noted that some turnarounds were deferred into 2021, while others were ongoing but extended due to COVID-19 [36][40] Question: What is the outlook for growth in 2021? - Management has not set a budget yet but aims to approximate 2019 levels, with expectations for significant growth off a low 2020 baseline [42][46] Question: Can you discuss the competitive environment and opportunities for gaining market share? - Management highlighted that larger, financially stable vendors will be favored, and there will be a shift towards fewer vendors handling more complex projects [47][48] Question: What is driving the expected decrease in revenue year-over-year? - Management attributed the decrease to delays in turnarounds and reduced spending in the oil and gas sector [50][52] Question: Is the current level of SG&A sustainable? - Management confirmed that the current SG&A level is sustainable and that they are focused on reducing fixed overheads further [72]

PART I—FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Mistras Group, Inc. [ITEM 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents unaudited condensed consolidated financial statements, reflecting significant impacts from COVID-19 and oil price volatility [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at June 30, 2020, and December 31, 2019 | Metric | June 30, 2020 ($k) | December 31, 2019 ($k) | | :------------------------ | :------------------- | :--------------------- | | Total Assets | 567,678 | 719,878 | | Total Liabilities | 391,215 | 433,856 | | Total Equity | 176,463 | 286,022 | [Unaudited Condensed Consolidated Statements of Income (Loss)](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Income%20(Loss)) This section presents the company's revenue and net income (loss) for the three and six months ended June 30, 2020 and 2019 Three Months Ended June 30 | Metric | Three months ended June 30, 2020 ($k) | Three months ended June 30, 2019 ($k) | | :--------------------------------------- | :------------------------------------ | :------------------------------------ | | Revenue | 124,435 | 200,616 | | Net income (loss) | (2,665) | 7,443 | | Basic EPS | (0.09) | 0.26 | | Diluted EPS | (0.09) | 0.26 | Six Months Ended June 30 | Metric | Six months ended June 30, 2020 ($k) | Six months ended June 30, 2019 ($k) | | :--------------------------------------- | :---------------------------------- | :---------------------------------- | | Revenue | 283,900 | 377,403 | | Net income (loss) | (101,187) | 2,157 | | Basic EPS | (3.49) | 0.07 | | Diluted EPS | (3.49) | 0.07 | | Impairment charges | 106,062 | — | [Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section presents the company's comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019 Three Months Ended June 30 | Metric | Three months ended June 30, 2020 ($k) | Three months ended June 30, 2019 ($k) | | :--------------------------------------- | :------------------------------------ | :------------------------------------ | | Net income (loss) | (2,665) | 7,443 | | Comprehensive income (loss) | 3,457 | 11,092 | Six Months Ended June 30 | Metric | Six months ended June 30, 2020 ($k) | Six months ended June 30, 2019 ($k) | | :--------------------------------------- | :---------------------------------- | :---------------------------------- |\ | Net income (loss) | (101,187) | 2,157 | | Comprehensive income (loss) | (112,074) | 7,937 | [Unaudited Condensed Consolidated Statements of Equity](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Equity) This section outlines changes in the company's total equity for the six months ended June 30, 2020 and 2019 Total Equity | Metric | June 30, 2020 ($k) | June 30, 2019 ($k) | | :-------------------- | :----------------- | :----------------- | | Total Equity | 176,463 | 281,279 | - Net loss attributable to Mistras Group, Inc. for the six months ended June 30, 2020, was **$(101,165)k**, compared to net income of **$2,138k** for the same period in 2019[20](index=20&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash flows from operating, investing, and financing activities for the six months ended June 30, 2020 and 2019 Cash Flow Activities | Cash Flow Activity | Six months ended June 30, 2020 ($k) | Six months ended June 30, 2019 ($k) | | :--------------------------------------- | :---------------------------------- | :---------------------------------- | | Net cash provided by operating activities | 34,862 | 21,105 | | Net cash used in investing activities | (7,248) | (11,048) | | Net cash used in financing activities | (20,337) | (23,139) | | Net change in cash and cash equivalents | 7,572 | (13,043) | | Cash and cash equivalents at end of period | 22,588 | 12,501 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures for the financial statements, covering business, COVID-19 impacts, impairment charges, accounting policies, and segment information [1. Description of Business and Basis of Presentation](index=10&type=section&id=1.%20Description%20of%20Business%20and%20Basis%20of%20Presentation) This note describes Mistras Group's business, the impact of COVID-19 and oil price volatility, and related impairment charges and cost reduction programs - Mistras Group, Inc. is a leading global provider of technology-enabled asset protection solutions for critical energy, industrial, public infrastructure, and commercial aerospace components[24](index=24&type=chunk) - The COVID-19 pandemic, significant oil price volatility, and decreased aerospace traffic adversely affected the company's workforce and operations, leading to customer spending cuts and potential contract reductions[25](index=25&type=chunk)[26](index=26&type=chunk) - The company recorded impairment charges in Q1 2020: approximately **$77.1 million** for goodwill, **$28.8 million** for intangible assets, and **$0.2 million** for a right-of-use asset, driven by market volatility[27](index=27&type=chunk) - A cost reduction and efficiency program was initiated in March 2020, including temporary salary reductions for executives (**25-45%**) and other salaried employees, suspension of company match for savings plans, and director payment reductions[29](index=29&type=chunk) Effective Income Tax Rate | Metric | Q2 2020 | Q2 2019 | YTD 2020 | YTD 2019 | | :---------------------- | :------ | :------ | :------- | :------- | | Effective Income Tax Rate | 21% | 37% | 14% | 45% | - The CARES Act provides a five-year carryback of net operating losses (2018-2020), offering a tax benefit in excess of the current federal statutory rate (**35% vs. 21%**) and is projected to result in additional income tax benefit in 2020 and a cash refund in 2021[40](index=40&type=chunk) [2. Revenue](index=13&type=section&id=2.%20Revenue) This note details the company's revenue recognition policies and provides a breakdown of revenue by industry and geographic region - The majority of the company's revenue is derived from providing services on a time and material basis, recognized over time as work progresses[44](index=44&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) - Product sales are recognized at the point in time when the customer obtains control, generally upon shipment[48](index=48&type=chunk) Revenue by Industry (Q2) | Industry | Q2 2020 ($k) | Q2 2019 ($k) | Change ($k) | Change (%) | | :-------------------------------- | :----------- | :----------- | :---------- | :--------- | | Oil & Gas | 66,686 | 121,335 | (54,649) | -45.0% | | Aerospace & Defense | 17,994 | 24,330 | (6,336) | -26.0% | | Industrials | 14,534 | 25,744 | (11,210) | -43.5% | | Power generation & Transmission | 9,503 | 11,470 | (1,967) | -17.1% | | Other Process Industries | 7,683 | 8,956 | (1,273) | -14.2% | | Infrastructure, Research & Engineering | 6,914 | 6,382 | 532 | 8.3% | | Other | 1,121 | 2,399 | (1,278) | -53.3% | | **Total** | **124,435** | **200,616** | **(76,181)** | **-38.0%** | Revenue by Industry (YTD) | Industry | YTD 2

Financial Data and Key Metrics Changes - In Q1 2020, revenues were down less than 10% year-over-year, with oil and gas revenues experiencing the largest decline, offset by nearly $2 million improvement in domestic aerospace and defense [12][19] - Gross profit for the quarter was $40.6 million, representing a margin of 25.5%, down from the previous year due to underutilization and a tighter pricing environment [12][13] - A non-cash impairment charge of $106 million was recorded, primarily related to goodwill and intangible assets, resulting in a net loss of $98.5 million for the quarter compared to a net loss of $5.3 million in the prior year [10][19][16] Business Line Data and Key Metrics Changes - The services segment saw a significant decline due to weakness in energy markets, while international revenues were impacted by a decrease in aerospace revenues, particularly in Europe [12][13] - The company initiated a cost reduction program expected to reduce overhead by approximately 10% starting in Q2 2020, which includes salary reductions and limiting new hires [14][15] Market Data and Key Metrics Changes - The energy market continues to face challenges, with expectations of revenue declines in Q2 potentially reaching the high 30% range year-over-year, but signs of recovery are anticipated in the latter half of 2020 [9][20] - The aerospace sector is expected to experience a modest decline in North America, with a more significant impact in Europe due to shutdowns [43][66] Company Strategy and Development Direction - The company aims to emerge from the pandemic stronger by focusing on digital technology and predictive solutions to enhance efficiency and reduce costs for clients [5][25] - There is a commitment to diversifying revenue streams and leveraging technology to improve productivity and operational efficiency [8][25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in the second half of 2020, contingent on stabilization in crude oil prices and the relaxation of stay-at-home orders [20][21] - Conversations with customers have become more constructive, indicating a potential rebound in demand as the market stabilizes [22][23] Other Important Information - The company has maintained sufficient liquidity to support operations and has already paid down $4.5 million of debt in Q2 2020 [10][18] - The focus remains on cash generation and maintaining positive operating cash flow throughout the year [19][26] Q&A Session Summary Question: What is the outlook for operating expense reduction? - The company anticipates a 10% reduction in overhead, which includes SG&A and indirect costs, with a focus on maintaining a run rate that is additive to the bottom line [30][31] Question: How are customer conversations evolving? - Customers are gradually resuming work, with emergency call-out work being prioritized, but overall project work is still being impacted by reduced hours and personnel [33][34] Question: What is the expectation for the aerospace defense business in Q2? - Aerospace business held up well in Q1, but a modest decline is expected in Q2, particularly in Europe due to shutdowns [43] Question: How does the company view the impact of COVID-19 on labor and future work? - The company has retained most technicians and expects to ramp up labor as workloads increase in the second half of 2020 [62][63] Question: What are the expectations for recovery in different end markets? - Oil and gas is expected to recover quickly, while aerospace may take longer to return to pre-COVID levels [66] Question: How is the company adjusting its capital allocation and focus on end markets? - The company is increasing its focus on diversification and digitization to adapt to the changing landscape and customer needs [76][77]

[PART I—FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This part provides the unaudited financial statements, management's discussion, market risk disclosures, and controls and procedures [Item 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Q1 2020, revealing a significant net loss of **$98.5 million** driven by impairment charges and a decrease in total assets [Condensed Consolidated Financial Statements](index=4&type=section&id=Condensed%20Consolidated%20Financial%20Statements) The financial statements for Q1 2020 show a significant deterioration, with total assets decreasing to **$583.5 million** and a net loss of **$98.5 million** due to impairment charges Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 (unaudited) | December 31, 2019 | | :--- | :--- | :--- | | **Total current assets** | $168,818 | $179,155 | | **Goodwill** | $196,289 | $282,410 | | **Intangible assets, net** | $72,019 | $109,537 | | **Total assets** | $583,545 | $719,878 | | **Total current liabilities** | $101,420 | $109,240 | | **Total liabilities** | $411,792 | $433,856 | | **Total equity** | $171,753 | $286,022 | Condensed Consolidated Statement of Income (Loss) (in thousands) | Account | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :--- | :--- | :--- | | Revenue | $159,465 | $176,787 | | Gross profit | $40,644 | $48,874 | | Impairment charges | $106,062 | $— | | Loss from operations | $(111,228) | $(4,396) | | Net loss attributable to Mistras Group, Inc. | $(98,509) | $(5,293) | | Diluted EPS | $(3.40) | $(0.19) | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Account | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,107 | $8,177 | | Net cash used in investing activities | $(4,204) | $(5,001) | | Net cash provided by (used in) financing activities | $492 | $(3,949) | | Net change in cash and cash equivalents | $2,011 | $(944) | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes detail the financial statements, explaining significant non-cash impairment charges from COVID-19 and oil price drops, revenue disaggregation, and credit facility amendments - The COVID-19 pandemic and a significant drop in oil prices adversely affected the company's operations and financial markets, necessitating a reassessment of asset values[25](index=25&type=chunk)[26](index=26&type=chunk) Impairment Charges for Q1 2020 (in millions) | Asset Type | Impairment Charge | | :--- | :--- | | Goodwill | $77.1 | | Intangible Assets | $28.8 | | Right-of-use Asset | $0.2 | | **Total** | **$106.1** | - Due to uncertainty from the pandemic and oil price drop, the company amended its credit agreement on May 15, 2020, to modify financial covenants[27](index=27&type=chunk)[108](index=108&type=chunk) Revenue by Industry (in thousands) | Industry | Q1 2020 Revenue | Q1 2019 Revenue | | :--- | :--- | :--- | | Oil & Gas | $92,498 | $101,385 | | Aerospace & Defense | $22,214 | $24,755 | | Industrials | $18,274 | $21,630 | | Other | $26,479 | $29,017 | | **Total** | **$159,465** | **$176,787** | Goodwill Impairment by Segment - Q1 2020 (in thousands) | Segment | Impairment Charge | | :--- | :--- | | Services | $(57,227) | | International | $(19,862) | | **Total** | **$(77,089)** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=35&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MD&A attributes the **9.8%** revenue decline and **$111.2 million** operating loss to COVID-19 and oil price drops, detailing cost reductions and liquidity management [Overview](index=35&type=section&id=Overview) This overview describes the company's asset protection solutions business and the adverse impact of COVID-19 and oil price drops, leading to impairment and cost reductions - The company operates as a "OneSource for Asset Protection Solutions®" provider, evaluating the structural integrity of critical infrastructure in energy, aerospace, and industrial markets[146](index=146&type=chunk) - The COVID-19 pandemic and the significant drop in oil prices have adversely affected the company's workforce, operations, and the markets in which it operates[151](index=151&type=chunk)[152](index=152&type=chunk) - In response to the economic downturn, the company initiated a cost reduction program, including temporary salary reductions for named executive officers ranging from **25%** to **45%**[153](index=153&type=chunk) [Results of Operations](index=38&type=section&id=Results%20of%20Operations) Operational performance for Q1 2020 shows a **9.8%** revenue decrease to **$159.5 million** and a **$111.2 million** operating loss, primarily due to impairment charges Financial Performance Summary (in thousands) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Revenues | $159,465 | $176,787 | | Gross Profit | $40,644 | $48,874 | | Gross Profit Margin | 25.5% | 27.6% | | Loss from Operations | $(111,228) | $(4,396) | | Net Loss | $(98,522) | $(5,286) | - The **9.8%** decrease in total revenue was primarily the result of the impact of COVID-19, as many customers cut back operations. All three segments (Services, International, and Products and Systems) experienced revenue declines[161](index=161&type=chunk) - Operating expenses increased by **185%** year-over-year, predominantly due to impairment charges of **$106.1 million** recorded in Q1 2020[169](index=169&type=chunk) Reconciliation of GAAP Loss from Operations to Non-GAAP Income (Loss) before Special Items (in thousands) | | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | **Loss from operations (GAAP)** | **$(111,228)** | **$(4,396)** | | Impairment charges | $106,062 | $— | | Bad debt provision | $— | $5,491 | | Other adjustments | $(557) | $1,203 | | **Income (loss) before special items (non-GAAP)** | **$(5,723)** | **$2,298** | [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity details show cash from operations decreased to **$6.1 million**, with **$17.0 million** cash on hand and a credit agreement amendment to modify financial covenants Cash Flow Summary (in thousands) | Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Operating activities | $6,107 | $8,177 | | Investing activities | $(4,204) | $(5,001) | | Financing activities | $492 | $(3,949) | - As of March 31, 2020, the company had cash and cash equivalents of **$17.0 million** and available borrowing capacity of **$139.7 million** under its Credit Agreement[179](index=179&type=chunk) - On May 15, 2020, the company amended its Credit Agreement to modify financial covenants in response to the uncertain impact of the COVID-19 pandemic and the significant drop in oil prices[181](index=181&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=46&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) No significant changes occurred in the company's quantitative and qualitative disclosures about market risk since the 2019 Annual Report - There have been no significant changes to the company's quantitative and qualitative disclosures about market risk as discussed in the 2019 Annual Report[185](index=185&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of March 31, 2020, due to material weaknesses in income tax accounting, with remediation efforts underway - Management concluded that as of March 31, 2020, the company's disclosure controls and procedures were not effective[186](index=186&type=chunk) - The ineffectiveness is due to material weaknesses in internal control over financial reporting previously disclosed in the 2019 Annual Report, related to accounting for income taxes[188](index=188&type=chunk) - Management is actively engaged in remediation efforts, including enhancing the design of controls and expanding income tax accounting resources[189](index=189&type=chunk) [PART II—OTHER INFORMATION](index=47&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This part details legal proceedings, new COVID-19 related risk factors, unregistered equity sales, and a list of filed exhibits [Item 1. Legal Proceedings](index=47&type=section&id=ITEM%201.%20Legal%20Proceedings) This section details legal proceedings, including a dispute over pipeline weld inspections where the company seeks **$1.4 million** and faces a **$7.6 million** counterclaim - The company is involved in a lawsuit with a customer regarding pipeline weld inspections. The company is seeking to recover **$1.4 million** in past due receivables, while the customer has filed a counterclaim for approximately **$7.6 million** in damages[127](index=127&type=chunk) [Item 1.A. Risk Factors](index=47&type=section&id=ITEM%201.A.%20Risk%20Factors) New risk factors highlight the adverse impact of COVID-19 on operations and demand, including potential difficulty meeting amended credit agreement financial covenants - The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, the company's business, operations, and customer demand, particularly in the oil and gas and aerospace industries[193](index=193&type=chunk) - There is a risk that the company may have difficulty meeting the amended financial covenants in its credit agreement due to the economic disruption from COVID-19, which could lead to a default and impact its ability to continue as a going concern[195](index=195&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered equity sales occurred, but **41,446** shares were repurchased in March 2020 from employees for tax withholding on restricted stock units Repurchases of Equity Securities - Q1 2020 | Month Ending | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 31, 2020 | — | $— | | February 29, 2020 | — | $— | | March 31, 2020 | 41,446 | $3.78 | - The shares were acquired as a result of surrender by employees to satisfy tax withholding obligations in connection with the vesting of restricted stock units[198](index=198&type=chunk) [Item 6. Exhibits](index=49&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including the credit agreement amendment, CEO/CFO certifications, and XBRL data - The report includes several exhibits, such as an amendment to the company's credit agreement, CEO/CFO certifications, and XBRL data files[204](index=204&type=chunk)

PART I This part provides a comprehensive overview of Mistras Group's business, including its solutions, market dynamics, competitive strengths, growth strategy, and financial performance. [ITEM 1. BUSINESS](index=3&type=section&id=ITEM%201.%20BUSINESS) Mistras Group provides global technology-enabled asset protection solutions for critical infrastructure, offering a 'OneSource' portfolio of services, products, and data management, with 2019 revenues of **$748.6 million**. [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements subject to risks and uncertainties, advising readers to consult risk factors. - The report contains **forward-looking statements** based on current expectations and projections, subject to known and unknown **risks and uncertainties** that could cause actual results to differ materially[11](index=11&type=chunk) - Readers are advised to consult **risk factors** and management's discussion and analysis, and the company disclaims any obligation to revise or update **forward-looking statements**[12](index=12&type=chunk) [Our Business](index=4&type=section&id=Our%20Business) Mistras Group offers 'OneSource for Asset Protection Solutions' globally, providing technology-enabled solutions to ensure the safety and integrity of critical infrastructure. - **Mistras Group** provides '**OneSource for Asset Protection Solutions®**' globally, focusing on **technology-enabled solutions** to evaluate the **safety**, **structural integrity**, and **reliability** of **critical energy**, **industrial**, and **public infrastructure**[13](index=13&type=chunk) - These **solutions** aim to maximize **safety** and uptime, ensure **compliance** with **regulations**, extend **asset life**, increase **productivity**, minimize repair costs, and manage **risk**[14](index=14&type=chunk) - Specialized **asset protection solutions** include: **Field Inspections**, **Consulting**, **Maintenance**, **Data Management**, Access, **Monitoring**, Laboratory **Quality Assurance/Control (QA/QC)**, and **Equipment**[15](index=15&type=chunk) - The '**OneSource**' model integrates these **solutions** across the **asset lifecycle**, with many customers outsourcing **inspection** and **integrity data management** on a 'run-and-maintain' basis[15](index=15&type=chunk) [Our Specialized Solutions](index=5&type=section&id=Our%20Specialized%20Solutions) Mistras offers a comprehensive suite of integrated asset protection solutions, combining services, products, data management, and technologies for diverse customer needs. - **Mistras** offers a comprehensive suite of integrated **asset protection solutions**, combining **services**, **products**, **data management**, and **technologies** to meet diverse customer needs, from routine **inspections** to complex **asset integrity management**[18](index=18&type=chunk) [Field Inspections](index=5&type=section&id=Field%20Inspections) This section details the company's field inspection services, including traditional and advanced NDT techniques, predictive maintenance, and automated data acquisition solutions. - Portfolio includes traditional and advanced **Non-Destructive Testing (NDT)** techniques, **predictive maintenance (PdM)** assessments, and **inline inspection (ILI)** for pipelines[19](index=19&type=chunk) - **NDT** allows examination of **assets** without impacting **integrity**, crucial for detecting issues like corrosion, cracking, and leaks in **industrial assets**[20](index=20&type=chunk) - Automated **data acquisition solutions** use smart sensing, robotic **systems**, and digitized spot **inspections** for enhanced **asset integrity data**[21](index=21&type=chunk) [Consulting](index=5&type=section&id=Consulting) The company provides engineering consulting services for process equipment and facilities, including Asset Integrity Management/Mechanical Integrity (AIMS/MI) services. - Provides engineering **consulting services** for process **equipment**, **technologies**, and facilities, including plant **operations** support, turnaround planning, and profit improvement[23](index=23&type=chunk) - **Asset Integrity Management/Mechanical Integrity (AIMS/MI) services** enhance **asset reliability** and **regulatory compliance** through systematic, engineering-based approaches[24](index=24&type=chunk) [Maintenance](index=6&type=section&id=Maintenance) The company performs maintenance and light mechanical services, often complementing inspection services, utilizing multi-disciplined technicians for hard-to-access areas. - Performs **maintenance** and light mechanical **services**, such as corrosion removal, insulation work, electrical **services**, and welding, often complementing **inspection services**[25](index=25&type=chunk) - Multi-disciplined technicians offer **services** in hard-to-access areas using rope access or diving strategies[26](index=26&type=chunk) - Mechanical **services** remain a small part of the business, carefully avoiding conflicts with **inspection services**[26](index=26&type=chunk) [Data Management](index=6&type=section&id=Data%20Management) Mistras offers integrated data management solutions, including its proprietary PCMS™ software and MISTRAS Digital™ platform, for asset protection data collection, storage, and analysis. - Offers integrated **data management solutions** across the **asset protection cycle**, including collection, storage, visualization, and analytics[27](index=27&type=chunk) - Proprietary **Plant Condition Management Software (PCMS™)** is widely used in North American refineries (**estimated 50% of U.S. refining capacity**) for **inspection data storage**, organization, and analysis, providing recurring fees and marketing opportunities[28](index=28&type=chunk)[30](index=30&type=chunk) - **MISTRAS Digital™ platform** digitizes field **inspection data transfer**, captures results, and provides electronic reporting, integrating with **PCMS** and **cloud-based monitoring portals** for real-time access[32](index=32&type=chunk) [Access](index=6&type=section&id=Access) The company specializes in accessing hard-to-reach locations using various methods like scaffolding, rope access, and unmanned systems to minimize human intervention. - The company specializes in accessing hard-to-reach locations (at-height, subsea, confined spaces) using scaffolding, rope access, certified divers, and unmanned aerial/land/subsea **systems** to minimize human intervention in unsafe areas[33](index=33&type=chunk) [Monitoring](index=7&type=section&id=Monitoring) Mistras provides online condition-monitoring solutions for real-time reports and analysis, utilizing a flexible, IIoT-compatible, cloud-based monitoring portal. - Provides online condition-**monitoring solutions** for real-time reports and analysis, alerting personnel to damages before critical failures[34](index=34&type=chunk) - Utilizes a flexible, **IIoT-compatible**, **cloud-based monitoring portal** to centralize and analyze collected **data**, enhancing **safety** by reducing the need for technicians in hazardous locations[35](index=35&type=chunk) - Offers continuous, periodic, and conditional **monitoring** for various **assets** and applications, including tube leaking, power transformer health, and bridge structural health[36](index=36&type=chunk) [Laboratory Quality Assurance/Control (QA/QC)](index=7&type=section&id=Laboratory%20Quality%20Assurance%2FControl%20(QA%2FQC)) The company operates a network of in-house laboratories offering QA/QC solutions for metal, alloy, and composite components, holding various certifications and OEM approvals. - Operates a network of in-house laboratories in North America and Europe, offering **QA/QC solutions** for new and existing metal, alloy, and composite components[37](index=37&type=chunk) - **Services** include **non-destructive evaluation/inspection (NDE/NDI)**, **destructive testing (DT)**, metallurgical testing, chemical analysis, and finishing **services**[38](index=38&type=chunk) - Labs hold various certifications (e.g., **Nadcap**, **AS9100/ISO-9001**, **FAA Repair Station**) and approvals from major **OEMs**, **prime contractors**, and militaries[39](index=39&type=chunk) [Equipment](index=8&type=section&id=Equipment) Mistras designs and manufactures portable, handheld, wireless, and turnkey NDT equipment, sensors, and software, specializing in acoustic emission (AE) and ultrasonic testing (UT) products. - Designs and manufactures portable, handheld, wireless, and turnkey **NDT equipment**, sensors, and **software** for spot **inspections** and long-term **monitoring**[41](index=41&type=chunk) - Sells individual components or complete **systems**, including integrated service-and-system **technology packages** utilizing proprietary testing procedures and advanced **software**[42](index=42&type=chunk) - A leader in **acoustic emission (AE) products** and also designs/manufactures **ultrasonic testing (UT) equipment**, with most hardware produced in its **ISO-9001-certified Princeton Junction facility**[43](index=43&type=chunk)[44](index=44&type=chunk) [Centers of Excellence](index=8&type=section&id=Centers%20of%20Excellence) Centers of Excellence provide specialized support for asset, technology, or industry-specific solutions, leveraging subject matter experts for strategic sales and standardized approaches. - **Centers of Excellence (COEs)** provide specialized support for **asset**, **technology**, or industry-specific **solutions**, leveraging subject matter experts for strategic sales and standardizing approaches to common problems in key market segments[45](index=45&type=chunk) [Asset Protection Industry Overview](index=8&type=section&id=Asset%20Protection%20Industry%20Overview) The asset protection industry is shifting towards integrated solution providers with advanced NDT and data acquisition capabilities, crucial for critical infrastructure integrity. - **Asset protection** is crucial for **critical infrastructure integrity**, with **NDT** being a prominent **solution**[45](index=45&type=chunk)[46](index=46&type=chunk) - The **industry** is shifting from small regional vendors to integrated **solution providers** with advanced **NDT** and **data acquisition capabilities**[46](index=46&type=chunk) - Vendors offering integrated **solutions**, scalable **operations**, skilled personnel, and a global footprint, especially those delivering advanced **solutions** and **data analytics**, gain a **significant competitive advantage** and recurring revenues[47](index=47&type=chunk) [Key Dynamics of the Asset Protection Industry](index=9&type=section&id=Key%20Dynamics%20of%20the%20Asset%20Protection%20Industry) This section outlines key industry drivers including aging infrastructure, outsourcing, corrosion, advanced materials, safety regulations, expanding markets, and crude oil prices. - **Aging Infrastructure & Increased Utilization**: High costs of new **infrastructure** lead to extending the life of existing **assets**, increasing demand for frequent **inspection** and **maintenance**[48](index=48&type=chunk) - **Outs

Mistras Group, Inc. (NYSE:MG) Q4 2019 Results Conference Call March 26, 2020 9:00 AM ET Company Participants Dennis Bertolotti - President and CEO Ed Prajzner - EVP, CFO and Treasurer Jon Wolk - SEVP and COO Conference Call Participants Edward Marshall - Sidoti & Company David Ridley-Lane - BOA Sean Eastman - Keybanc Tate Sullivan - Maxim Group Operator Thanks for joining the Mistras Conference Call for its Fourth Quarter and Year Ended 2019. My name is Kevin and I'll be your event manager today. We'll be a ...