Mistras Group, Inc. (NYSE:MG) Q3 2022 Earnings Conference Call November 3, 2022 9:00 AM ET Company Participants Dennis Bertolotti - President & Chief Executive Officer Ed Prajzner - Executive Vice President, Chief Executive Officer & Treasurer Jon Wolk - Senior Executive Vice President & Chief Operations Officer Conference Call Participants Chris Sakai - Singular Research Mitch Pinheiro - Sturdivant & Co. Brian Russo - Sidoti Operator Thank you for joining, Mistras Group's Conference Call for its Third Quar ...

Mistras Group, Inc. (NYSE:MG) Q2 2022 Results Conference Call August 4, 2022 10:00 AM ET Company Participants Dennis Bertolotti - President and Chief Executive Officer Ed Prajzner - Executive Vice President, Chief Executive Officer and Treasurer Jon Wolk - Senior Executive Vice President and Chief Operations Officer Conference Call Participants Brian Russo - Sidoti Christopher Sakai - Singular Research Mitchell Pinheiro - Sturdivant Company Operator Good morning, ladies and gentlemen, and thank you for join ...

PART I—FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents Mistras Group's unaudited condensed consolidated financial statements, detailing balance sheets, income, and cash flows [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows total assets decreased slightly to $555.5 million, with stable liabilities and a decrease in total equity to $194.3 million Condensed Consolidated Balance Sheets (in thousands) | Account | June 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $18,609 | $24,110 | | Total current assets | $172,916 | $161,338 | | Total assets | $555,542 | $562,195 | | **Liabilities & Equity** | | | | Total current liabilities | $127,382 | $121,415 | | Total liabilities | $361,281 | $361,283 | | Total equity | $194,261 | $200,912 | [Unaudited Condensed Consolidated Statements of Income (Loss)](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Income%20%28Loss%29) Q2 2022 revenue slightly increased to $179.0 million, but net income decreased to $4.6 million, resulting in a six-month net loss Unaudited Condensed Consolidated Statements of Income (Loss) (in thousands, except per share data) | Metric (in thousands, except per share data) | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $179,031 | $177,677 | $340,693 | $331,412 | | Gross Profit | $53,558 | $55,336 | $93,450 | $95,337 | | Income from Operations | $9,576 | $11,374 | $4,877 | $6,628 | | Net Income (Loss) Attributable to Mistras | $4,643 | $5,937 | $(720) | $575 | | Diluted EPS | $0.15 | $0.20 | $(0.02) | $0.02 | [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations significantly decreased to $7.8 million for H1 2022, leading to a $5.5 million decline in cash and cash equivalents Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,809 | $18,126 | | Net cash used in investing activities | $(6,499) | $(10,318) | | Net cash used in financing activities | $(5,056) | $(12,970) | | Net change in cash and cash equivalents | $(5,501) | $(5,818) | | Cash and cash equivalents at end of period | $18,609 | $19,942 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, revenue, debt, and contingencies, highlighting impacts from the Russian-Ukrainian conflict and a new credit facility - The company provides integrated technology-enabled asset protection solutions for critical industrial and civil assets[22](index=22&type=chunk) - The Russian-Ukrainian conflict disrupts European operations with higher energy costs, and high oil prices cause customers to defer maintenance[26](index=26&type=chunk)[28](index=28&type=chunk) - No single customer accounted for **10% or more** of the company's revenue for the three and six months ended June 30, 2022 and 2021[34](index=34&type=chunk) - Total long-term debt was **$200.4 million** as of June 30, 2022, with a new **$190 million** revolving credit facility and **$125 million** term loan secured post-quarter[92](index=92&type=chunk)[127](index=127&type=chunk)[129](index=129&type=chunk) - The company agreed to a **$2.3 million** settlement for a California labor law case, receiving preliminary court approval[115](index=115&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=30&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial results, noting a slight Q2 revenue increase, gross margin contraction, and enhanced liquidity from a new credit facility [Overview](index=30&type=section&id=Overview) The company provides technology-enabled asset protection solutions across three segments, focusing on proprietary technology for growth - The company operates through **three reportable segments**: Services, International, and Products and Systems[141](index=141&type=chunk)[146](index=146&type=chunk) - Strategic focus includes advanced asset protection solutions via proprietary technology like **MISTRAS OneSuite** and **Sensoria™**[143](index=143&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk) - European operations face increased costs from the Russian-Ukrainian conflict, and high oil prices cause customer maintenance deferrals[135](index=135&type=chunk)[154](index=154&type=chunk) [Consolidated Results of Operations](index=33&type=section&id=Consolidated%20Results%20of%20Operations) Q2 2022 revenue grew 0.8% to $179.0 million, but gross profit declined, with Services segment growth offset by International segment FX impacts Consolidated Results of Operations | Metric | Q2 2022 | Q2 2021 | Change | | :--- | :--- | :--- | :--- | | Revenue | $179.0M | $177.7M | +0.8% | | Gross Profit | $53.6M | $55.3M | -3.2% | | Gross Margin | 29.9% | 31.1% | -120 bps | - Q2 2022 revenue growth was driven by a **3.1% increase** in the Services segment, offset by a **7.3% decrease** in the International segment due to unfavorable foreign exchange rates[160](index=160&type=chunk) - The Q2 gross profit margin decrease was primarily due to a **150 basis point** reduction in the Services segment's margin from higher benefit costs and ended Canadian wage subsidies[173](index=173&type=chunk) - Interest expense decreased to **$2.1 million** in Q2 2022 from **$3.2 million** in Q2 2021, due to a lower leverage ratio and the removal of the **1.0% LIBOR floor**[183](index=183&type=chunk)[184](index=184&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is supported by cash from operations and credit facilities, with operating cash flow decreasing to $7.8 million for H1 2022 Liquidity and Capital Resources (in thousands) | Cash Flow Activity (in thousands) | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,809 | $18,126 | | Net cash used in investing activities | $(6,499) | $(10,318) | | Net cash used in financing activities | $(5,056) | $(12,970) | - The decrease in operating cash flow was primarily due to a net working capital increase[193](index=193&type=chunk) - As of June 30, 2022, the company held **$18.6 million** in cash and **$11.7 million** in unused credit commitments[197](index=197&type=chunk) - Subsequent to quarter-end, a new credit agreement was secured, including a **$190 million** revolving credit facility and a **$125 million** term loan[127](index=127&type=chunk)[199](index=199&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) No significant changes occurred in the company's quantitative and qualitative market risk disclosures since the 2021 Annual Report - There have been no significant changes to the company's market risk disclosures since the 2021 Annual Report[204](index=204&type=chunk) [Controls and Procedures](index=42&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective[205](index=205&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[206](index=206&type=chunk) PART II—OTHER INFORMATION [Legal Proceedings](index=43&type=section&id=ITEM%201.%20Legal%20Proceedings) This section refers to Note 14 for legal proceedings, confirming no material developments since the 2021 Annual Report - For details on legal proceedings, the report refers to Note 14-Commitments and Contingencies in the financial statements[209](index=209&type=chunk) [Risk Factors](index=43&type=section&id=ITEM%201.A.%20Risk%20Factors) No material changes occurred in the company's risk factors since the 2021 Annual Report on Form 10-K - There have been no material changes to the risk factors discussed in the company's 2021 Annual Report[210](index=210&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities, only repurchases from employees for tax withholding obligations - The company did not have any sales of unregistered securities during the period[211](index=211&type=chunk) - Shares were acquired from employees to satisfy tax withholding obligations in connection with the vesting of restricted stock units[213](index=213&type=chunk) [Defaults Upon Senior Securities](index=43&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon its senior securities during the period - None[215](index=215&type=chunk) [Mine Safety Disclosures](index=43&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[216](index=216&type=chunk) [Other Information](index=43&type=section&id=ITEM%205.%20Other%20Information) The company reports no information for this item - None[217](index=217&type=chunk) [Exhibits](index=44&type=section&id=ITEM%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including a settlement agreement, plan amendment, and certifications - Exhibits filed with the report include a settlement agreement, an amendment to the company's 2016 Long-Term Incentive Plan, and certifications from the CEO and CFO[218](index=218&type=chunk)

Financial Data and Key Metrics Changes - Consolidated revenue increased by 5.2% year-over-year to $161.7 million, marking the seventh consecutive quarter of revenue growth since the pandemic [4][24] - Adjusted EBITDA for the quarter was $5.5 million, down from $7 million a year ago, reflecting non-recurring items impacting gross profit [5][29] - GAAP net loss was $5.4 million or $0.18 per diluted share, consistent with the prior year [29] - Gross profit for the quarter was approximately $40 million, with a gross margin of 24.7%, which was lower compared to the previous year due to higher healthcare costs and non-recurring items [25][26] Business Line Data and Key Metrics Changes - Upstream business saw a solid performance, largely unaffected by oil price volatility, with a reported increase of over 10% in the midstream sector for inline inspections [9][24] - Aerospace and defense revenue increased significantly by 24%, indicating a long-term growth market [10][24] - The industrial and other process industry sectors also experienced strong growth, contributing to the overall revenue increase [12] Market Data and Key Metrics Changes - The Downstream sector experienced a slow start due to supply chain issues and customer efforts to capitalize on high barrel prices, with activity expected to align with historical norms moving forward [8][9] - The commercial aerospace market is anticipated to recover, with expectations of significant volumes of material shipping for testing in the second half of 2022 [11][32] Company Strategy and Development Direction - The company is focused on expanding value-added services across all business lines, particularly in renewable energy, private space, and data solutions [5][37] - Growth initiatives related to data solutions, including OneSuite and Sensoria, are expected to enhance customer retention and create new revenue streams [20][21] - The company aims to leverage its existing capabilities to address supply chain challenges faced by customers, particularly in the aerospace sector [15][58] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving revenue growth and expanding adjusted EBITDA margins for the full year, despite ongoing challenges in certain end markets [5][34] - The company anticipates a full-year revenue growth target of between $695 million to $750 million, with adjusted EBITDA expected to be between $65 million to $69 million [33][34] - Management highlighted the importance of cost containment and operational efficiency as key components of their strategy moving forward [36][68] Other Important Information - The company expects free cash flow for the year to approximate 50% of adjusted EBITDA, with capital expenditures projected at $20 million [31] - The net debt increased by $10.4 million in the first quarter, attributed to an increase in net working capital [31] Q&A Session Summary Question: Upstream and Downstream performance - Management confirmed that the Upstream sector was up about 10%, while Downstream was slower due to project delays and labor issues [44][46] Question: Downstream market predictability - Management indicated that many projects were delayed rather than canceled, and they expect a ramp-up in activity later in the year [46][48] Question: Changes in margins post-pandemic - Management noted that while inflation is impacting certain skill sets, overall margins have not permanently changed, and they expect to recover from previous reductions [50][51] Question: OneSuite revenue contribution - OneSuite is expected to contribute across all business lines, enhancing customer retention and generating new revenue streams [52][53] Question: Aerospace market recovery expectations - Management anticipates a return to pre-pandemic levels in the aerospace sector, although supply chain issues may pose challenges [57][58]

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 March 31, 2022 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 (St ...

```markdown PART I [Business](index=4&type=section&id=ITEM%201.%20BUSINESS) Mistras Group provides integrated asset protection solutions, achieving **$677.1 million revenue** and **$3.9 million net income** in 2021 Financial Performance (2019-2021) | Year Ended Dec 31 | Revenue (in millions) | Net Income/(Loss) (in millions) | | :--- | :--- | :--- | | 2021 | $677.1 | $3.9 | | 2020 | $592.6 | $(99.5) | | 2019 | $748.6 | $6.1 | - The Services segment is the primary revenue driver, contributing **approximately 82% of total revenues** in 2021[21](index=21&type=chunk) - The company's customer base is diversified, with the top ten customers accounting for **about 33% of revenues** in 2021, and no single customer representing **more than 10%**[21](index=21&type=chunk) Our Business Overview - Mistras Group is a leading multinational provider of integrated, technology-enabled asset protection solutions, operating under a "One Source for Asset Protection Solutions" model[13](index=13&type=chunk)[16](index=16&type=chunk) - The company serves a wide range of industries, including oil and gas, petrochemical, aerospace and defense, renewable and non-renewable energy, and civil infrastructure[14](index=14&type=chunk)[20](index=20&type=chunk)[26](index=26&type=chunk) - Core capabilities include Non-Destructive Testing (NDT), laboratory testing, sensing technologies, engineering services, and data management through its Industrial Internet of Things (IIoT) connected digital software and monitoring solutions[15](index=15&type=chunk) Our Specialized Solutions - The company offers a comprehensive portfolio of solutions including field inspections, data management (OneSuite, PCMS®), online monitoring, laboratory testing, maintenance, engineering consulting, access services (rope, drone), and equipment manufacturing (Acoustic Emission and Ultrasonic Testing)[22](index=22&type=chunk)[25](index=25&type=chunk) - The Plant Condition Management Software (PCMS®) is a key data management tool, estimated to be used by **approximately 50% of U.S. refining capacity**[33](index=33&type=chunk) - A U.S. patent was received in Q4 2021 for Sensoria™, a wind blade monitoring technology, enhancing offerings in the renewable energy sector[38](index=38&type=chunk) Asset Protection Industry Overview and Trends - Key industry dynamics include the need to extend the life of aging infrastructure, outsourcing of non-core technical activities, and the digital transformation of asset protection processes[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk) - Increasingly strict safety regulations, such as OSHA's National Emphasis Program and PHMSA's "Mega Rule" for pipelines, are driving demand for reliable asset protection suppliers[63](index=63&type=chunk)[67](index=67&type=chunk) - The aerospace and defense industry is expected to see continued demand due to a multi-year backlog for next-generation commercial aircraft[65](index=65&type=chunk) Our Competitive Strengths - The company's "OneSource" model, offering a comprehensive portfolio of integrated solutions, is a key competitive advantage, particularly during plant turnarounds and shutdowns[69](index=69&type=chunk)[70](index=70&type=chunk) - Proprietary data management solutions like PCMS® and integrated data platforms provide a competitive edge and create barriers to entry for competitors[71](index=71&type=chunk)[73](index=73&type=chunk) - A long-standing, trusted relationship with a diversified customer base, including major firms in oil and gas, aerospace, and power generation, reinforces its market position[72](index=72&type=chunk) Our Growth Strategy - Key growth strategies include continuing to digitalize asset protection data with platforms like MISTRAS OneSuite, expanding focus in the aerospace, defense, and pipeline integrity industries, and growing the mechanical services portfolio[79](index=79&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) - The company aims to expand its customer base into new end markets such as wind energy, leveraging new technologies like the Sensoria™ monitoring tool[86](index=86&type=chunk) - While acquisitions have been a part of past growth, the company does not expect to make any significant acquisitions in 2022 due to current debt levels and covenant restrictions[87](index=87&type=chunk) Our Segments - The company operates through three reportable segments: - **Services:** Provides asset protection solutions in North America, representing the largest portion of the business - **International:** Offers similar services and products to markets in Europe, the Middle East, Africa, Asia, and South America - **Products and Systems:** Designs, manufactures, and sells asset protection products and systems, primarily in the United States[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk) Our Target Markets Revenue by Target Market (2021) | Target Market | % of 2021 Revenue | | :--- | :--- | | Oil & Gas | 54% | | Aerospace & Defense | 10% | | Industrial | 10% | | Power Generation & Transmission | 8% | | Other Process Industries | 8% | | Public Infrastructure, Research & Engineering | 5% | | Petrochemical | 3% | - The Oil and Gas market, covering downstream, midstream, and upstream operations, remains the company's largest market[98](index=98&type=chunk) - The Aerospace and Defense market is rebounding from COVID-19, with demand driven by new aircraft production and the use of advanced composite materials requiring advanced inspection solutions[104](index=104&type=chunk)[105](index=105&type=chunk) Human Capital - As of December 31, 2021, the company had **5,400 employees worldwide, with 3,600 in the U.S.**[121](index=121&type=chunk) - The company emphasizes a strong safety culture, reflected in its Total Recordable Incident Rate (TRIR), which was **0.15 for 2021 (excluding COVID-19 cases)**, a reduction from previous years[131](index=131&type=chunk) - In 2020, the Board of Directors established an Environmental, Social and Safety Committee to oversee initiatives in these areas[123](index=123&type=chunk) Competition - The company operates in a highly competitive but fragmented market. Key competitors for NDT services include Acuren, SGS Group, and Team Qualspec[133](index=133&type=chunk) - Significant barriers to entry in the NDT market include the need for advanced technology, complex regulations, certification processes, and capital requirements[133](index=133&type=chunk) Intellectual Property - The company protects its intellectual property through a combination of patents, copyrights, trademarks, and trade secrets. As of December 31, 2021, it held **six U.S. patents by ownership and one by license**[139](index=139&type=chunk)[140](index=140&type=chunk) - Primary trademarks include MISTRAS®, the stylized globe design, and the tagline "One Source for Asset Protection Solutions"[141](index=141&type=chunk) Executive Officers Executive Officers as of December 31, 2021 | Name | Age | Position | | :--- | :--- | :--- | | Sotirios J. Vahaviolos | 75 | Executive Chairman and Director | | Dennis Bertolotti | 62 | President, Chief Executive Officer and Director | | Edward J. Prajzner | 55 | Executive Vice President, Chief Financial Officer and Treasurer | | Michael C. Keefe | 65 | Executive Vice President, General Counsel and Secretary | | Michael J. Lange | 61 | Senior Group Executive Vice President | | Jonathan H. Wolk | 60 | Senior Executive Vice President and Chief Operating Officer | [Risk Factors](index=23&type=section&id=ITEM%201A.%20RISK%20FACTORS) Significant risks include oil and gas dependency, founder influence, and credit agreement covenants - A substantial portion of revenue comes from the oil and gas industry (**54% in 2021**), making the company susceptible to negative trends and price volatility in this sector[154](index=154&type=chunk)[155](index=155&type=chunk) - The company's founder and Executive Chairman, Dr. Sotirios J. Vahaviolos, owns **approximately 29% of the outstanding common stock**, giving him significant influence over corporate decisions[179](index=179&type=chunk) - The credit agreement contains financial covenants that, if breached, could limit access to credit and require repayment of debt. Due to current debt levels, acquisitions in 2022 are not expected without bank approval[185](index=185&type=chunk)[186](index=186&type=chunk) - In the first quarter of 2020, the company recognized significant goodwill and intangible asset impairment charges totaling **over $100 million** due to market declines and uncertainty surrounding the COVID-19 pandemic[160](index=160&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk) [Unresolved Staff Comments](index=34&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reports no unresolved staff comments - None [Properties](index=34&type=section&id=ITEM%202.%20PROPERTIES) The company operates approximately **120 facilities** across **10 countries**, headquartered in Princeton Junction, New Jersey - The company operates approximately **120 facilities** in **10 countries**, with the corporate headquarters in Princeton Junction, New Jersey[203](index=203&type=chunk) [Legal Proceedings](index=34&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) Legal proceedings details are incorporated by reference from Note 18 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 18-Commitments and Contingencies in the financial statements[204](index=204&type=chunk) [Mine Safety Disclosures](index=34&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) The company reports no mine safety disclosures - None PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=34&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY,%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Common stock trades on NYSE under 'MG'; no cash dividends expected as earnings are retained for expansion - Common stock trades on the NYSE under the symbol "MG"[206](index=206&type=chunk) - No cash dividends have been paid, and none are expected in the foreseeable future as earnings are retained for business expansion[208](index=208&type=chunk) [Reserved](index=35&type=section&id=ITEM%206.%20%5BRESERVED%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=36&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) In 2021, revenue increased **14.3% to $677.1 million** from **$592.6 million** in 2020, resulting in **$3.9 million net income** from market recovery Consolidated Results of Operations (2021 vs. 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenues | $677.1M | $592.6M | | Gross Profit | $197.1M | $178.5M | | Gross Profit % | 29.1% | 30.1% | | Income (Loss) from Operations | $18.2M | $(101.2)M | | Net Income (Loss) | $3.9M | $(99.5)M | - The **14.3% revenue increase** in 2021 was primarily due to organic growth in the Services and International segments as markets recovered from the COVID-19 pandemic[233](index=233&type=chunk) - The significant improvement in operating income was predominantly due to the absence of the **$106.1 million in impairment charges** that were recorded in 2020[237](index=237&type=chunk) Revenue by Segment (2021 vs. 2020) | Segment | 2021 Revenue (in thousands) | 2020 Revenue (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Services | $555,387 | $476,164 | +16.6% | | International | $117,245 | $107,556 | +9.0% | | Products and Systems | $13,831 | $16,449 | -15.9% | Gross Profit by Segment (2021 vs. 2020) | Segment | 2021 Gross Profit (in thousands) | 2020 Gross Profit (in thousands) | 2021 Margin | 2020 Margin | | :--- | :--- | :--- | :--- | :--- | | Services | $155,384 | $141,084 | 28.0% | 29.6% | | International | $34,282 | $31,046 | 29.2% | 28.9% | | Products and Systems | $7,001 | $6,826 | 50.6% | 41.5% | - Operating expenses decreased by 36.0% primarily due to the **$106.1 million in impairment charges** recorded in 2020, which were not repeated in 2021[237](index=237&type=chunk) - The effective tax rate was **46.6% in 2021** compared to **12.9% in 2020**, with the increase driven by having income in the current year versus a loss in the prior year[242](index=242&type=chunk) Liquidity and Capital Resources Cash Flow Summary (2021 vs. 2020) | Cash Flow Activity (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by Operating activities | $42,261 | $67,802 | | Net cash used in Investing activities | $(18,551) | $(14,969) | | Net cash used in Financing activities | $(23,245) | $(44,169) | - As of December 31, 2021, the company had **$24.1 million in cash and cash equivalents** and an available borrowing capacity of **$26.2 million under its credit agreement**[255](index=255&type=chunk) - The decrease in cash from operating activities was primarily due to movements in working capital, specifically related to net accounts receivable collections[251](index=251&type=chunk) - Future uses of cash are expected to be for debt repayment, international expansion, equipment purchases, and technology investments. Capital expenditures are expected to be **2-3% of total revenues**[259](index=259&type=chunk) Critical Accounting Policies and Estimates - Key critical accounting policies involve significant estimates for revenue recognition, the valuation of long-lived assets and goodwill, and accounting for acquisitions[263](index=263&type=chunk) - The majority of revenue is recognized over time as work progresses, based on time and materials incurred. For fixed-fee arrangements, a cost-to-cost method is used[268](index=268&type=chunk) - Goodwill is tested for impairment annually on October 1 or when a triggering event occurs. A quantitative test as of March 31, 2020, resulted in a **$77.1 million impairment charge**. No impairment was noted in the October 2021 test[273](index=273&type=chunk)[277](index=277&type=chunk)[278](index=278&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Market risks include interest rate and foreign currency exposure; a **100 basis point increase** raises annual interest expense by **$2.0 million** - The primary market risks are interest rate sensitivity on variable-rate debt and foreign currency risk from international operations[282](index=282&type=chunk)[283](index=283&type=chunk) - Based on **$196.1 million** of variable rate debt at year-end 2021, a **100 basis point increase in interest rates** would increase annual interest expense by approximately **$2.0 million**[282](index=282&type=chunk) [Financial Statements and Supplementary Data](index=49&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) Audited consolidated financial statements for 2021-2019 and KPMG LLP's unqualified audit report are presented - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2021[288](index=288&type=chunk) - The auditor identified the valuation of goodwill for the services and European reporting units as a critical audit matter due to the subjective judgments required in evaluating discount rates and forecasted financial performance[296](index=296&type=chunk) Consolidated Financial Statements Consolidated Balance Sheet Data (as of Dec 31) | Account (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total Current Assets | $161,338 | $162,588 | | Total Assets | $562,195 | $583,313 | | Total Current Liabilities | $121,415 | $109,847 | | Total Liabilities | $361,283 | $386,094 | | Total Equity | $200,912 | $197,219 | Consolidated Income Statement Data (Year Ended Dec 31) | Account (in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | $677,131 | $592,571 | $748,586 | | Gross Profit | $197,147 | $178,531 | $217,297 | | Income (Loss) from Operations | $18,170 | $(101,217) | $24,137 | | Net Income (Loss) | $3,893 | $(99,466) | $6,080 | | Diluted EPS | $0.13 | $(3.41) | $0.21 | Notes to Consolidated Financial Statements - Note 2 provides a detailed disaggregation of revenue by industry and geographic location, showing Oil & Gas as the largest industry and the United States as the largest geographic market[364](index=364&type=chunk)[365](index=365&type=chunk) - Note 8 details the **$77.1 million impairment charge** taken in Q1 2020, with **$57.2 million allocated to the Services segment** and **$19.9 million to the International segment**[383](index=383&type=chunk) - Note 11 describes the Senior Credit Facility, which includes a revolving line of credit and a term loan maturing in December 2023. As of Dec 31, 2021, total borrowings were **$196.1 million**[392](index=392&type=chunk)[397](index=397&type=chunk) - Note 18 discloses a legal proceeding where the company agreed to a **$2.3 million settlement** for alleged violations of the California Labor Code[448](index=448&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=85&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None [Controls and Procedures](index=85&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management concluded that as of December 31, 2021, the company's disclosure controls and procedures were effective[463](index=463&type=chunk) - Management concluded that as of December 31, 2021, the company's internal control over financial reporting was effective, based on the COSO framework[467](index=467&type=chunk) [Other Information](index=85&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) The company reports no other information - None [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=86&type=section&id=ITEM%209C.%20DISCLOSURE%20REGARDING%20FOREIGN%20JURISDICTIONS%20THAT%20PREVENT%20INSPECTIONS) The company reports no disclosures regarding foreign jurisdictions that prevent inspections - None PART III [Directors, Executive Officers and Corporate Governance](index=86&type=section&id=ITEM%2010.%20DIRECTORS,%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Executive officers and corporate governance information is incorporated by reference from the 2022 proxy statement - Information required by this item is incorporated by reference from the company's 2022 proxy statement[473](index=473&type=chunk) [Executive Compensation](index=86&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Executive compensation information is incorporated by reference from the 2022 proxy statement - Information required by this item is incorporated by reference from the company's 2022 proxy statement[474](index=474&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=86&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Security ownership and related stockholder matters are incorporated by reference from the 2022 proxy statement - Information required by this item is incorporated by reference from the company's 2022 proxy statement[475](index=475&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=86&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS,%20AND%20DIRECTOR%20INDEPENDENCE) Certain relationships, related transactions, and director independence are incorporated by reference from the 2022 proxy statement - Information required by this item is incorporated by reference from the company's 2022 proxy statement[476](index=476&type=chunk) [Principal Accountant Fees and Services](index=86&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Principal accountant fees and services information is incorporated by reference from the 2022 proxy statement - Information required by this item is incorporated by reference from the company's 2022 proxy statement[477](index=477&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=86&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists financial statements, schedules, and exhibits filed with or incorporated by reference into the Form 10-K - This item lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report[479](index=479&type=chunk)[480](index=480&type=chunk) [Form 10-K Summary](index=88&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) The company reports no Form 10-K summary - None ```

Financial Data and Key Metrics Changes - Revenues for the full year increased over 14% and gross profit dollars were up over 10% [4] - Adjusted EBITDA for the fourth quarter was in line with expectations, with a year-over-year increase of over 21% [4][19] - Selling, general, and administrative expenses increased only 2.7% for the full year, significantly below the annual revenue growth rate [22] - Free cash flow generated in the fourth quarter was over $16 million, contributing to a total debt reduction of over $90 million over the last three years [5][23] Business Line Data and Key Metrics Changes - Revenue in the energy sector was up nearly 17% in 2021, with expectations for continued growth as the market rebounds [6] - Aerospace and defense revenues were down less than 3% for the full year, with expectations for recovery in the second half of 2022 [13][24] - Significant growth was noted in the other Process Industries segment, including pharmaceuticals and agriculture [15] Market Data and Key Metrics Changes - Crude oil prices have significantly exceeded pre-pandemic levels, positively impacting energy industry customers [9][24] - The ongoing conflict in Ukraine has caused volatility in the oil and gas market, but has not yet significantly impacted current business [15][25] Company Strategy and Development Direction - The company is transitioning to a more data-centric organization, focusing on digital solutions like OneSuite and Sensoria to enhance customer ROI [28][30] - Plans to expand into renewable energy and private space markets are underway, driven by increased regulation and compliance requirements [29][30] - The company aims to reduce outstanding debt and is considering strategic acquisitions to enhance growth once debt levels are lowered [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining growth momentum throughout 2022, particularly in the second half of the year [17][24] - The company anticipates a low single-digit revenue increase for the first quarter of 2022 compared to the same period in 2021 [24] - Management acknowledged the potential risks from geopolitical tensions and inflationary pressures but remains committed to cost containment and strategic investments [25][26] Other Important Information - The company generated significant free cash flow, with a conversion rate of over 100% in the fourth quarter [19] - The effective income tax rate for the full year was approximately 47%, with an anticipated rate of around 30% for 2022 [20] Q&A Session Summary Question: Can you compare the first quarter of 2022 guidance with the fourth quarter? - Management noted that the fourth quarter saw strong activity, particularly in the energy sector, but expects a more normalized growth pattern in the first quarter of 2022 due to seasonal adjustments [37][39] Question: What is the market opportunity for Sensoria? - Management indicated that while the current capacity is limited, they are focused on proving their technology and building credibility with customers before scaling up [40][41] Question: Will aerospace and defense revenues recover to pre-pandemic levels? - Management believes that with strong growth in private space and defense, they can approach pre-pandemic revenue levels by the latter part of 2023 [46][47] Question: What does revenue look like with a thousand turbines under monitoring? - Management explained that revenue would come from installation, monitoring, and maintenance, with significant potential for margin growth [52][54] Question: Is there a sweet spot for energy market operations? - Management stated that volatility in energy prices complicates planning for capital allocations, but there is pent-up demand for maintenance that will need to be addressed [60][64]

MISTRAS Group, Inc. (NYSE:MG) Q3 2021 Earnings Conference Call November 3, 2021 9:00 AM ET Company Participants Dennis Bertolotti - President and CEO Edward Prajzner - EVP, CFO and Treasurer Jonathan Wolk - Senior EVP and COO Conference Call Participants Alex Dwyer - KeyBanc Capital David Ridley-Lane - Bank of America Tate Sullivan - Maxim Group Mitchell Pinheiro - Sturdivant Brian Russo - Sidoti Operator Thank you for joining MISTRAS Group's Conference Call for the Third Quarter Ended September 30, 2021. M ...

Table of Contents ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 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) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Delaware 22-3341267 ...

MISTRAS Group, Inc. (NYSE:MG) Q2 2021 Results Earnings Conference Call August 3, 2021 9:00 AM ET Company Participants Dennis Bertolotti - President and Chief Executive Officer Edward Prajzner - Executive Vice President, Chief Financial Officer and Treasurer Jonathan Wolk - Senior Executive Vice President and Chief Operating Officer Conference Call Participants David Ridley-Lane - Bank of America Merrill Lynch Alex Dwyer - KeyBanc Capital Markets Brian Russo - Sidoti & Company Mitchell Pinheiro - Sturdivant ...