Mistras (MG) - 2019 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements The company's financial statements for the period ended September 30, 2019, reflect total assets of $728.0 million, revenue of $569.6 million, and net income of $5.2 million, with operating cash flow at $40.5 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 (unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $14,372 | $25,544 | | Total current assets | $192,950 | $202,791 | | Goodwill | $283,121 | $279,259 | | Total assets | $728,027 | $694,037 | | Total current liabilities | $111,243 | $100,471 | | Long-term debt, net | $260,753 | $283,787 | | Total liabilities | $449,681 | $422,963 | | Total equity | $278,346 | $271,074 | Condensed Consolidated Statement of Income Highlights (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $192,192 | $182,169 | $569,595 | $561,592 | | Gross Profit | $57,769 | $52,332 | $166,714 | $155,559 | | Income from Operations | $10,779 | $3,017 | $21,802 | $19,720 | | Net Income (Loss) Attributable to Mistras | $3,093 | $(1,011) | $5,231 | $7,897 | | Diluted EPS | $0.11 | $(0.04) | $0.18 | $0.27 | Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $40,476 | $24,184 | | Net cash used in investing activities | $(21,628) | $(9,831) | | Net cash used in financing activities | $(29,521) | $(23,905) | | Net change in cash and cash equivalents | $(11,172) | $(10,468) | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's accounting policies, including the adoption of ASC 842, a $4.8 million acquisition, and a $5.9 million multi-employer pension withdrawal liability, alongside segment performance and debt structure information - The company is a global provider of technology-enabled asset protection solutions, serving industries like oil and gas, aerospace, power generation, and public infrastructure[24] - On January 1, 2019, the Company adopted the new lease accounting standard (ASC 842), resulting in the recognition of a right-of-use (ROU) asset and liability of approximately $38 million for its operating leases[34][36] - During the nine months ended September 30, 2019, the company completed one acquisition for $4.8 million in cash and up to $4.3 million in contingent consideration, providing pipeline integrity management software and services[67] - The company recorded a charge of $5.9 million in Q3 2018 for a probable withdrawal liability from a multi-employer pension plan, with an additional $0.5 million recorded in the first nine months of 2019, leaving an estimated remaining liability of approximately $3.1 million as of September 30, 2019[116] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the financial results, noting a 6% revenue increase in Q3 2019 and improved gross profit margin, detailing segment performance, the Onstream acquisition impact, and special items affecting operating income, while confirming sufficient liquidity with $40.5 million in operating cash flow and $131.4 million available credit Overview The company provides 'OneSource for Asset Protection Solutions®' for critical infrastructure across oil & gas, aerospace, and power generation, driven by aging infrastructure, outsourcing, and stricter regulations, operating through Services, International, and Products and Systems segments - The company's business model focuses on providing a comprehensive portfolio of customized solutions to help customers maximize safety, comply with regulations, and extend asset life[133] - Key market trends supporting the business include the need to extend the life of aging infrastructure, outsourcing of technical services, and increasing safety regulations[145][146][149] - The December 2018 acquisition of Onstream provides a strong foundation in the midstream oil and gas market with its inline inspection capabilities and digital software solutions[144] Results of Operations Q3 2019 revenue increased 6% to $192.2 million with gross profit margin improving to 30.1%, while nine-month revenue grew 1% to $569.6 million, and GAAP income from operations significantly increased to $10.8 million despite prior-year pension charges Revenue by Segment (in thousands) | Segment | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Services | $152,572 | $141,340 | $454,079 | $434,653 | | International | $37,050 | $36,671 | $109,302 | $116,238 | | Products and Systems | $5,521 | $5,716 | $13,222 | $17,286 | | Total | $192,192 | $182,169 | $569,595 | $561,592 | Gross Profit Margin by Segment | Segment | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Services | 28.4% | 27.5% | 28.2% | 26.2% | | International | 31.6% | 29.7% | 30.3% | 29.5% | | Products and Systems | 49.6% | 45.6% | 43.9% | 44.6% | | Total Company | 30.1% | 28.7% | 29.3% | 27.7% | - Q3 2018 income from operations was significantly impacted by a $5.9 million pension withdrawal expense and $2.8 million in reorganization costs in the International segment[169] - Interest expense increased to $10.1 million for the nine months of 2019 from $5.6 million in 2018, primarily due to higher borrowing levels for the acquisition completed in Q4 2018[177] Liquidity and Capital Resources The company's liquidity is primarily from operations, cash balances, and its credit facility, with net cash from operations increasing 67% to $40.5 million for the nine months ended September 30, 2019, and $131.4 million available under its credit facility, while remaining in compliance with all debt covenants - Cash provided by operating activities increased by $16.3 million (67%) to $40.5 million in the first nine months of 2019 compared to the same period in 2018, mainly due to working capital movements[179][180] - As of September 30, 2019, the company had $14.4 million in cash and cash equivalents and $131.4 million available for borrowing under its credit facility[184] - The company was in compliance with all financial covenants of its Credit Agreement as of September 30, 2019[185] Quantitative and Qualitative Disclosures about Market Risk The company reports no significant changes to its quantitative and qualitative disclosures regarding market risk compared to its 2018 Annual Report on Form 10-K - There have been no significant changes to the Company's disclosures about market risk as discussed in the 2018 Annual Report[189] Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2019, the CEO and CFO concluded that the Company's disclosure controls and procedures are effective[190] - No changes occurred during the quarter ended September 30, 2019, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[191] PART II—OTHER INFORMATION Legal Proceedings The company refers to Note 14 of the financial statements for legal proceedings, reporting no material developments since the 2018 Annual Report beyond those disclosed therein - For details on legal proceedings, the report refers to Note 14–Commitments and Contingencies in the financial statements[193] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2018 Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the 2018 Annual Report[194] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities, disclosed shares acquired from employees for tax withholding on vested restricted stock units, and terminated its share repurchase plan effective April 1, 2019 - The company's share repurchase plan, which had $25.1 million remaining, was terminated by the Board of Directors effective April 1, 2019[198] - During the quarter, the company acquired shares from employees to satisfy tax withholding obligations in connection with the vesting of restricted stock units[197] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None reported[199] Mine Safety Disclosures This item is not applicable to the company - Not applicable[200] Other Information The company reported no other information for this item - None reported[201] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - Exhibits filed include certifications by the CEO and CFO as required by the Sarbanes-Oxley Act, and XBRL interactive data files[202]