Mistras (MG) - 2025 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents unaudited condensed consolidated financial statements and detailed notes for Mistras Group, Inc. ITEM 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Mistras Group, Inc. and its subsidiaries for the periods ended June 30, 2025, and December 31, 2024 (for balance sheet) or June 30, 2024 (for income, comprehensive income, equity, and cash flow statements) Unaudited Condensed Consolidated Balance Sheets This section presents key balance sheet data, highlighting changes in total assets, liabilities, and equity between December 31, 2024, and June 30, 2025 Key Balance Sheet Data (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total current assets | $213,307 | $172,470 | | Total assets | $571,043 | $523,038 | | Total current liabilities | $128,494 | $114,925 | | Total liabilities | $354,868 | $324,143 | | Total equity | $216,175 | $198,895 | - Total assets increased by $48.0 million (9.2%) from December 31, 2024, to June 30, 2025, primarily driven by increases in accounts receivable, net, and property, plant and equipment, net[12] - Total liabilities increased by $30.7 million (9.5%) over the same period, mainly due to higher long-term debt and accounts payable[12] Unaudited Condensed Consolidated Statements of Income (Loss) This section provides key income statement data, detailing revenue, gross profit, operating income, and net income trends for the three and six months ended June 30, 2025, compared to prior year periods Key Income Statement Data (in thousands, except per share data) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $185,405 | $189,773 | $347,020 | $374,215 | | Gross profit | $53,945 | $51,340 | $94,837 | $97,492 | | Income from operations | $8,428 | $11,959 | $7,416 | $17,511 | | Net income (loss) attributable to Mistras Group, Inc. | $3,017 | $6,369 | $(169) | $7,364 | | Basic EPS | $0.10 | $0.21 | $0.00 | $0.24 | | Diluted EPS | $0.10 | $0.20 | $0.00 | $0.23 | - Revenue decreased by 2.3% for the three months ended June 30, 2025, and by 7.3% for the six months ended June 30, 2025, compared to the prior year periods[14] - Net income attributable to Mistras Group, Inc. decreased significantly for both the three-month (52.7%) and six-month periods (from profit to loss) ended June 30, 2025, compared to the prior year[14] Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents comprehensive income data, highlighting the significant increase in comprehensive income attributable to Mistras Group, Inc. due to favorable foreign currency translation adjustments Key Comprehensive Income Data (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $3,126 | $6,373 | $(42) | $7,377 | | Foreign currency translation adjustments | $11,739 | $(1,616) | $14,212 | $(5,845) | | Comprehensive income | $14,865 | $4,757 | $14,170 | $1,532 | | Comprehensive income attributable to Mistras Group, Inc. | $14,874 | $4,753 | $14,170 | $1,519 | - Comprehensive income attributable to Mistras Group, Inc. significantly increased for both the three-month (213%) and six-month (833%) periods ended June 30, 2025, primarily due to favorable foreign currency translation adjustments[16] Unaudited Condensed Consolidated Statements of Equity This section details changes in total equity, which increased by $17.28 million from December 31, 2024, to June 30, 2025, driven by share-based payments and other comprehensive income Key Equity Data (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Total Mistras Group, Inc. stockholders' equity | $215,848 | $198,568 | | Total Equity | $216,175 | $198,895 | - Total equity increased by $17.28 million (8.7%) from December 31, 2024, to June 30, 2025, driven by share-based payments and other comprehensive income (loss), net of tax, despite a net loss for the six-month period[19] Unaudited Condensed Consolidated Statements of Cash Flows This section presents key cash flow data, showing a shift from cash provided by operating activities in H1 2024 to cash used in H1 2025, while financing activities provided more cash due to increased debt borrowings Key Cash Flow Data (in thousands) | Metric | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(3,619) | $5,115 | | Net cash used in investing activities | $(11,416) | $(11,217) | | Net cash provided by financing activities | $14,910 | $5,261 | | Net change in cash and cash equivalents | $1,640 | $(469) | | Cash and cash equivalents at end of period | $19,957 | $17,177 | - Operating activities shifted from providing $5.1 million cash in H1 2024 to using $3.6 million cash in H1 2025, a decrease of $8.7 million[21] - Financing activities provided significantly more cash in H1 2025 ($14.9 million) compared to H1 2024 ($5.3 million), primarily due to increased net debt borrowings[21] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes explaining the company's business, accounting policies, revenue recognition, share-based compensation, and other financial details 1. Description of Business and Basis of Presentation Mistras Group, Inc. is a multinational provider of integrated technology-enabled asset protection solutions across various industries, operating through three segments, with a recent reclassification of certain costs impacting gross profit - Mistras Group, Inc. is a leading multinational provider of integrated technology-enabled asset protection solutions, serving industries like oil and gas, aerospace, industrials, and power generation[24][25] - The company's operations are divided into three segments: North America, International, and Products and Systems[30] - Effective January 1, 2025, the company reclassified certain overhead and personnel costs from Selling, general and administrative expenses to Cost of revenue, retrospectively applied, impacting Gross profit but not net income or EPS[35][36] Impact of Reclassification on 2024 Financials (in thousands) | Metric | As Previously Reported (3M ended June 30, 2024) | Effect of change | As Adjusted (3M ended June 30, 2024) | | :--------------------------------------- | :---------------------------------------------- | :--------------- | :----------------------------------- | | Cost of revenue | $127,760 | $4,776 | $132,536 | | Gross profit | $56,116 | $(4,776) | $51,340 | | Selling, general and administrative expenses | $40,957 | $(4,776) | $36,181 | | Metric | As Previously Reported (6M ended June 30, 2024) | Effect of change | As Adjusted (6M ended June 30, 2024) | | :--------------------------------------- | :---------------------------------------------- | :--------------- | :----------------------------------- | | Cost of revenue | $255,179 | $9,713 | $264,892 | | Gross profit | $107,205 | $(9,713) | $97,492 | | Selling, general and administrative expenses | $82,144 | $(9,713) | $72,431 | - The effective income tax rate for the three months ended June 30, 2025, was 25.4% (vs. 15.5% in 2024), and for the six months ended June 30, 2025, was 71.4% (vs. 14.9% in 2024), with fluctuations attributed to discrete items related to stock compensation and valuation allowance reversals[43][44][45] - The company is evaluating the impact of the recently enacted H.R.1, the One Big Beautiful Bill Act (OBBBA), which includes broad tax reform provisions[46] 2. Revenue The company primarily recognizes revenue from integrated inspection services over time, with total revenue decreasing by 2.3% for the three months and 7.3% for the six months ended June 30, 2025, driven by declines in North America - The majority of revenue is derived from providing integrated and bundled inspection services, recognized over time based on time and material incurred[53][55] Revenue by Segment (in thousands) | Segment | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | North America | $147,992 | $156,394 | $276,894 | $306,743 | | International | $39,077 | $34,264 | $72,291 | $67,311 | | Products and Systems | $2,740 | $3,373 | $5,831 | $6,583 | | Total | $185,405 | $189,773 | $347,020 | $374,215 | - Total revenue decreased by 2.3% for the three months ended June 30, 2025, and by 7.3% for the six months ended June 30, 2025, compared to the prior year periods[147][151] - North America segment revenue decreased by 5.4% (three months) and 9.7% (six months) due to declines in Oil and Gas and other key markets. International segment revenue increased by 14.0% (three months) and 7.4% (six months) due to organic growth and favorable foreign exchange rates[149][151] Revenue by Industry (in thousands) - Three Months Ended June 30 | Industry | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Oil & Gas | $102,816 | $109,256 | | Aerospace & Defense | $24,002 | $22,340 | | Industrials | $19,604 | $18,294 | | Power Generation & Transmission | $11,793 | $9,033 | | Other Process Industries | $11,049 | $14,909 | | Infrastructure, Research & Engineering | $8,060 | $8,633 | | Petrochemical | $3,113 | $4,019 | | Other | $4,968 | $3,289 | - Oil and Gas customer revenue comprised approximately 55% of total revenue for the three months ended June 30, 2025, and 57% for the six months ended June 30, 2025, showing a slight decrease in its proportion compared to prior year[150][152] - Field Services revenue decreased by $11.0 million (three months) and $27.2 million (six months) due to decreased sales volume in oil and gas, industrials, and infrastructure markets[158] - Shop Laboratory revenue decreased by $1.3 million (three months) and $3.4 million (six months) due to decreased sales volumes in the aerospace and defense market[159] 3. Share-Based Compensation The company grants various share-based incentive awards under its 2016 Long-Term Incentive Plan, recognizing compensation expense for stock options, RSUs, and PRSUs, with significant unrecognized costs remaining - The 2016 Long-Term Incentive Plan was amended to increase authorized shares by 1.3 million, totaling 6.2 million shares, with approximately 823,000 shares available for future grants as of June 30, 2025[68] - 375,000 stock options were granted to Mr. Stamatakis on January 6, 2025, with an exercise price of $9.06, vesting on the first anniversary of the grant date[69][70] - The company recognized $1.0 million in share-based compensation expense for stock options during the six months ended June 30, 2025, with $1.0 million remaining unrecognized[70] Stock Issuances to Non-Employee Directors (in thousands) | Metric | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Awards issued (shares) | 72 | 31 | | Grant date fair value of awards issued | $571 | $274 | - Share-based compensation expense for restricted stock units (RSUs) was $0.9 million (three months) and $2.1 million (six months) for 2025, with $7.1 million of unrecognized costs remaining[72] - Performance Restricted Stock Units (PRSUs) were granted to executives with payout varying based on Free Cash Flow, Adjusted EBITDA, and Revenue performance metrics, with revised goals for 2025 awards[75][77][79] - Unrecognized compensation costs for PRSUs totaled $3.9 million as of June 30, 2025, expected to be recognized over 2.9 years[80] 4. Earnings (loss) per Share Basic and diluted earnings per share for the three months ended June 30, 2025, were $0.10, a decrease from the prior year, while for the six months, both were $0.00 due to a net loss Earnings (Loss) Per Share (in thousands, except per share data) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to Mistras Group, Inc. | $3,017 | $6,369 | $(169) | $7,364 | | Basic earnings (loss) per share | $0.10 | $0.21 | $0.00 | $0.24 | | Diluted earnings (loss) per share | $0.10 | $0.20 | $0.00 | $0.23 | - For the three months ended June 30, 2025, 375,000 stock options and 877,000 restricted stock units were anti-dilutive and excluded from diluted EPS calculation[82] - For the six months ended June 30, 2025, 106,000 stock options and 867,000 restricted stock units were excluded from diluted EPS calculation due to the net loss for the period[82] 5. Accounts Receivable, net Accounts receivable, net, increased to $159.8 million as of June 30, 2025, from $127.3 million at December 31, 2024, including a significant rise in unbilled revenue Accounts Receivable, net (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Trade accounts receivable | $162,727 | $129,894 | | Allowance for credit losses | $(2,904) | $(2,613) | | Accounts receivable, net | $159,823 | $127,281 | - Unbilled revenue accrued was $41.0 million as of June 30, 2025, an increase from $21.3 million at December 31, 2024, and is generally billed within 90 days[83] 6. Inventories Total inventories increased to $15.1 million as of June 30, 2025, from $14.5 million at December 31, 2024, primarily due to an increase in raw materials and consumable supplies Inventories (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Raw materials and consumable supplies | $9,771 | $8,321 | | Work in progress | $1,036 | $1,018 | | Finished goods | $4,311 | $5,146 | | Inventories | $15,118 | $14,485 | 7. Property, Plant and Equipment, net Property, plant and equipment, net, increased to $85.9 million as of June 30, 2025, from $80.9 million at December 31, 2024, mainly due to an increase in machinery and equipment, while depreciation expense decreased Property, Plant and Equipment, net (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Machinery and equipment | $302,803 | $274,907 | | Total gross amount | $344,810 | $322,077 | | Accumulated depreciation and amortization | $(258,901) | $(241,185) | | Property, plant and equipment, net | $85,909 | $80,892 | - Depreciation expense was approximately $6.1 million for the three months ended June 30, 2025 (vs. $6.4 million in 2024) and $12.1 million for the six months ended June 30, 2025 (vs. $12.8 million in 2024)[87][88] 8. Goodwill Goodwill increased to $185.1 million as of June 30, 2025, primarily due to foreign currency translation adjustments, with no impairment identified Goodwill by Segment (in thousands) | Segment | December 31, 2024 | Foreign currency translation | June 30, 2025 | | :---------------- | :---------------- | :--------------------------- | :------------ | | North America | $181,442 | $3,683 | $185,125 | | Total | $181,442 | $3,683 | $185,125 | - The company reviews goodwill for impairment annually on October 1 and did not identify any changes in circumstances indicating impairment through June 30, 2025[89][90] 9. Intangible Assets Net intangible assets remained stable at $39.6 million as of June 30, 2025, with customer relationships and software/technology as major components, and amortization expense decreasing Intangible Assets, Net (in thousands) | Type | June 30, 2025 Net Carrying Amount | December 31, 2024 Net Carrying Amount | | :-------------------- | :-------------------------------- | :------------------------------------ | | Customer relationships | $14,114 | $15,484 | | Software/Technology | $25,110 | $23,484 | | Covenants not to compete | $10 | $20 | | Other | $337 | $720 | | Total | $39,571 | $39,708 | - Amortization expense was approximately $1.6 million for the three months ended June 30, 2025 (vs. $1.9 million in 2024) and $3.4 million for the six months ended June 30, 2025 (vs. $3.9 million in 2024)[92][93] 10. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities increased to $90.5 million as of June 30, 2025, primarily due to higher accrued salaries, wages, and deferred revenue Accrued Expenses and Other Current Liabilities (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Accrued salaries, wages and related employee benefits | $30,820 | $27,990 | | Deferred revenue | $9,811 | $8,096 | | Other accrued expenses | $32,586 | $30,416 | | Total | $90,482 | $85,233 | 11. Long-Term Debt Total debt increased to $189.4 million as of June 30, 2025, due to increased borrowings under the senior credit facility, with the company remaining in compliance with all covenants Long-Term Debt (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Senior credit facility | $84,250 | $59,650 | | Senior secured term loan, net | $102,909 | $107,545 | | Total debt | $189,414 | $169,647 | | Long-term debt, net of current portion | $176,345 | $158,056 | - The company has a $190 million 5-year committed revolving credit facility and a $125 million term loan, both maturing on July 30, 2027[97] - As of June 30, 2025, borrowings under the Credit Agreement totaled $187.2 million, with $3.1 million in letters of credit outstanding[98] - The company was in compliance with all terms and covenants of the Credit Agreement as of June 30, 2025, including maintaining a Total Consolidated Debt Leverage Ratio of no more than 3.75 to 1.0 and a Fixed Charge Coverage Ratio of 1.25 to 1.0[99][100] 12. Fair Value Measurements The company determined that the carrying value of its long-term debt, notes payable, and finance lease obligations approximates their fair value - The carrying value of the company's long-term debt, notes payable, and finance lease obligations approximates their fair value[104] 13. Commitments and Contingencies The company is involved in various legal proceedings and government investigations, including an environmental lawsuit in Arizona and a potential multi-employer pension fund withdrawal liability - The company is subject to a lawsuit by the State of Arizona and the Arizona Department of Environmental Quality (DEQ) alleging environmental violations at its Phoenix testing facility[106] - The Superior Court declined a preliminary injunction but imposed conditions, including prohibiting chromic acid release, requiring facility improvements, and restricting chrome plating operations until improvements are completed and DEQ notified[107] - Mistras Arizona notified the DEQ of completed improvements in April 2025 and recommenced chrome plating operations on April 28, 2025[107] - The company is unable to estimate the range of loss for remediation costs, fines, and penalties related to the Arizona lawsuit[109] - Mistras Arizona was identified as a potentially responsible party by the EPA for the Motorola 52nd Street Superfund Site[110] - The company has an estimated $2.5 million potential withdrawal liability to a multi-employer pension fund[112] 14. Segment Disclosure The company's three reportable segments are North America, International, and Products and Systems, with segment income (loss) from operations as the primary performance measure for resource allocation - The company's three reportable segments are North America, International, and Products and Systems, based on customer type, service requirements, distribution methods, and major product lines[115] - Natalia Shuman, as CEO, is the Chief Operating Decision Maker (CODM) responsible for reviewing financial information at the operating segment level to allocate resources and assess performance[114] - Segment income (loss) from operations is the primary performance measure used by the CODM, which includes revenue, SG&A, and 'other expenses' (cost of revenue, bad debt, impairment, reorganization, environmental, legal settlements, D&A, R&E)[116] Income (Loss) from Operations by Segment (in thousands) - Three Months Ended June 30 | Segment | 2025 | 2024 | | :------------------- | :----- | :----- | | North America | $16,758 | $18,727 | | International | $4,004 | $1,647 | | Products and Systems | $336 | $495 | | Corporate and eliminations | $(12,670) | $(8,910) | | Total | $8,428 | $11,959 | Total Assets by Segment (in thousands) | Segment | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | North America | $416,056 | $390,052 | | International | $117,504 | $97,546 | | Products and Systems | $10,892 | $11,280 | | Corporate and eliminations | $26,591 | $24,160 | | Total | $571,043 | $523,038 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three and six months ended June 30, 2025 and 2024 Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, including impacts from tariffs, trade policy, and ERP system implementation - The report contains forward-looking statements subject to risks and uncertainties, including impacts from tariffs, trade policy changes, and the implementation of a new ERP system[128][129] Overview Mistras Group, Inc. is a multinational provider of integrated technology-enabled asset protection solutions, leveraging its OneSuite™ platform, with strong liquidity and ongoing monitoring of macroeconomic factors - Mistras Group, Inc. is a multinational provider of integrated technology-enabled asset protection solutions, focusing on safety and operational uptime for critical industrial and civil assets[130][131] - The company enhances client value through its OneSuite™ platform, an Industrial Internet of Things (IoT)-connected digital software and monitoring solution, centralizing integrity data and offering over 90 applications[132][139] - Core capabilities include non-destructive testing (NDT) field inspections, laboratory services, sensing technologies, NDT equipment, and asset integrity engineering[134] - The company's cash balance was approximately $20.0 million as of June 30, 2025, maintaining strong liquidity with its Credit Agreement[140] - The company is monitoring the impact of continuing inflationary pressures, tariffs, trade barriers, and geopolitical conflicts (Russia-Ukraine, Middle East) on its business, particularly higher energy costs in European operations[144] Note About Non-GAAP Measures The company utilizes 'Income (loss) from operations before special items' as a non-GAAP financial measure to evaluate operating performance and liquidity, excluding specific non-recurring expenses - The company uses 'Income (loss) from operations before special items' as a non-GAAP financial measure to evaluate operating performance and liquidity, excluding acquisition-related expenses, impairment charges, reorganization costs, and other special items[145] - This non-GAAP measure is used for consistent period-to-period comparison, planning, and forecasting, but is not a substitute for GAAP measures and may not be comparable to other companies' non-GAAP measures[145] Consolidated Results of Operations This section provides a detailed analysis of the company's consolidated financial performance, covering revenue, gross profit, operating expenses, and income from operations for the periods presented Revenue Total revenue decreased by 2.3% for the three months and 7.3% for the six months ended June 30, 2025, primarily due to declines in North America and the Oil and Gas segment, despite growth in International Consolidated Revenue (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $185,405 | $189,773 | $347,020 | $374,215 | - Total revenue decreased by $4.4 million (2.3%) for the three months ended June 30, 2025, and by $27.2 million (7.3%) for the six months ended June 30, 2025, primarily due to organic decreases and voluntary laboratory consolidations[147][149][151] - North America segment revenue decreased by 5.4% (three months) and 9.7% (six months) due to declines in Oil and Gas and other key markets, impacted by macroeconomic factors[149][151] - International segment revenue increased by 14.0% (three months) and 7.4% (six months) due to high/mid-single-digit organic growth and favorable foreign exchange rates[149][151] Oil and Gas Revenue by Sub-category (in thousands) | Sub-category | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Upstream | $38,180 | $41,013 | $75,000 | $80,527 | | Midstream | $18,575 | $20,786 | $33,916 | $39,319 | | Downstream | $46,061 | $47,457 | $90,464 | $102,575 | | Total | $102,816 | $109,256 | $199,380 | $222,421 | - Oil and Gas revenue decreased across all sub-categories for both periods, with Upstream down 7%, Midstream down 11-14%, and Downstream down 3-12%, primarily due to market share losses, decreased exploration, and fewer customer turnarounds[154][155][156] Revenue by Type (in thousands) | Type | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Field Services | $123,484 | $134,528 | $233,659 | $260,883 | | Shop Laboratories | $15,682 | $16,938 | $30,711 | $34,133 | | Data Analytical Solutions | $18,330 | $18,342 | $32,311 | $33,881 | | Other | $27,909 | $19,965 | $50,339 | $45,318 | - Field Services and Shop Laboratory revenues decreased, while 'Other' revenue increased due to higher sales in the defense sector within North America[158][159][161] Gross Profit Gross profit increased by $2.6 million (5.1%) for the three months ended June 30, 2025, driven by an improved business mix and operating efficiencies, leading to margin improvement across all segments Consolidated Gross Profit (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross profit | $53,945 | $51,340 | $94,837 | $97,492 | | Gross profit as a % of Revenue | 29.1% | 27.1% | 27.3% | 26.1% | - Gross profit increased by $2.6 million (5.1%) for the three months ended June 30, 2025, primarily due to an improved business mix and operating efficiencies[162] - Gross profit margin improved to 29.1% (three months) and 27.3% (six months) in 2025, up from 27.1% and 26.1% in 2024, respectively[146][166][167] - North America's gross profit margin increased by 1.8% (three months) and 1.0% (six months) due to improved business mix and operating efficiencies. International's margin increased by 2.5% (three months) and 1.0% (six months) due to a favorable sales mix. Products and Systems' margin increased by 2.7% (three months) and 4.7% (six months) also due to a favorable sales mix[166][167] Operating Expenses Operating expenses increased by $6.1 million (15.6%) for the three months and $7.4 million (9%) for the six months ended June 30, 2025, driven by higher SG&A, reorganization, and new environmental costs Operating Expenses (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Selling, general and administrative expenses | $39,793 | $36,181 | $75,445 | $72,431 | | Reorganization and other costs | $2,951 | $518 | $6,038 | $2,076 | | Environmental expense | $518 | $0 | $1,058 | $0 | | Total Operating Expenses | $45,517 | $39,381 | $87,421 | $79,981 | | % of total revenue | 24.6% | 20.8% | 25.2% | 21.4% | - Selling, general and administrative expenses increased by $3.6 million (three months) and $3.0 million (six months) due to adverse foreign exchange impact, partially offset by cost containment[170][171] - Reorganization and other costs increased by $2.4 million (three months) and $4.0 million (six months) due to continued headcount calibration and related costs[170][171] - Environmental expense increased by $0.5 million (three months) and $1.1 million (six months) due to costs incurred in 2025 that were not present in the prior year[170][171] Income (loss) from Operations GAAP income from operations decreased by $3.5 million (29.5%) for the three months and $10.1 million (58%) for the six months ended June 30, 2025, with non-GAAP income also declining Income (Loss) from Operations (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income from operations (GAAP) | $8,428 | $11,959 | $7,416 | $17,511 | | Income from operations before special items (non-GAAP) | $11,897 | $12,537 | $14,512 | $19,647 | - GAAP income from operations decreased by $3.5 million (29.5%) for the three months and $10.1 million (58%) for the six months ended June 30, 2025[173][174] - Non-GAAP income from operations before special items decreased by $0.6 million (5.1%) for the three months and $5.1 million (26%) for the six months ended June 30, 2025[173][174] - As a percentage of revenue, non-GAAP income from operations before special items decreased by 20 basis points to 6.4% (three months) and by 110 basis points to 4.2% (six months)[173][174] Interest Expense Interest expense decreased by $0.2 million for the three months and $1.2 million for the six months ended June 30, 2025, primarily due to lower debt balances Interest Expense (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest expense | $4,239 | $4,413 | $7,563 | $8,842 | - The decrease in interest expense was a result of lower debt balances during the periods[175] Income Taxes The effective income tax rate for the three months ended June 30, 2025, was 25.4% and for the six months was 71.4%, with fluctuations attributed to discrete items and the company evaluating the OBBBA - Effective income tax rate for Q2 2025 was 25.4% (higher than statutory due to favorable stock compensation discrete item), compared to 15.5% in Q2 2024 (lower than statutory due to favorable stock compensation discrete item)[176][177] - Effective income tax rate for H1 2025 was 71.4% (higher than statutory due to favorable stock compensation discrete item), compared to 14.9% in H1 2024 (lower than statutory due to reversal of valuation allowances)[176][178] - The company is currently evaluating the impact of the One Big Beautiful Bill Act (OBBBA) enacted on July 4, 2025[180] Liquidity and Capital Resources Cash used in operating activities increased significantly in H1 2025 due to working capital changes and ERP system delays, while financing activities provided more cash from increased debt borrowings, maintaining strong liquidity Cash Flows Summary (in thousands) | Metric | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(3,619) | $5,115 | | Net cash used in investing activities | $(11,416) | $(11,217) | | Net cash provided by financing activities | $14,910 | $5,261 | | Net change in cash and cash equivalents | $1,640 | $(469) | - Cash used in operating activities was $3.6 million in H1 2025, a decrease of $8.7 million (171%) year-on-year, mainly due to increased days sales outstanding, working capital movements, and delays from a new ERP system conversion[182][183] - Cash used in investing activities increased slightly by $0.2 million to $11.4 million in H1 2025, primarily due to higher capital expenditures for property, plant, and equipment[184] - Net cash provided by financing activities increased to $14.9 million in H1 2025 from $5.3 million in H1 2024, driven by $9.8 million higher net debt borrowings[185] - As of June 30, 2025, the company had $20.0 million in cash and cash equivalents and $102.6 million of unused commitments under its Credit Agreement, indicating sufficient liquidity for the foreseeable future[187] - The company was in compliance with all terms and covenants of its Credit Agreement as of June 30, 2025[188] Critical Accounting Policies and Estimates There have been no significant changes to the company's critical accounting policies and estimates since the 2024 Annual Report - There have been no significant changes to the company's critical accounting policies and estimates since the 2024 Annual Report[191] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk There have been no significant changes to the company's quantitative and qualitative disclosures about market risk since its 2024 Annual Report - No material changes to quantitative and qualitative disclosures about market risk have occurred since the 2024 Annual Report[192] ITEM 4. Controls and Procedures As of June 30, 2025, the company's management concluded that its disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - As of June 30, 2025, the company's disclosure controls and procedures were deemed effective by management, including the CEO and CFO[193] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[194] PART II—OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, defaults, other disclosures, and exhibits ITEM 1. Legal Proceedings The company's legal proceedings are detailed in Note 13 of the financial statements, with no material developments beyond what is disclosed there or in the 2024 Annual Report - Legal proceedings are described in Note 13 to the Unaudited Condensed Consolidated Financial Statements, with no material developments beyond those disclosed[197] ITEM 1.A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report - No material changes to risk factors have occurred since the 2024 Annual Report[198] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The company had no unregistered sales of equity securities or use of proceeds from public offerings, but acquired 1,800 shares from employees for tax withholding obligations - No unregistered sales of equity securities or use of proceeds from public offerings occurred[199][200] Shares Acquired for Tax Withholding (Quarter Ended June 30, 2025) | Month Ending | Total Number of Shares Purchased | Average Price Paid per Share | | :----------- | :------------------------------- | :--------------------------- | | April 30, 2025 | — | — | | May 31, 2025 | 1,800 | $7.44 | | June 30, 2025 | — | — | ITEM 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[203] ITEM 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable[204] ITEM 5. Other Information No directors, officers, or the company adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three and six months ended June 30, 2025 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three and six months ended June 30, 2025[205] - The company did not adopt, terminate, or modify any Rule 10b5-1 trading arrangements during the three and six months ended June 30, 2025[206] ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and Inline XBRL documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer, as well as various Inline XBRL documents[207] SIGNATURES The report is duly signed on behalf of Mistras Group, Inc. by Edward J. Prajzner, Senior Executive Vice President and Chief Financial Officer, on August 11, 2025 - The report was signed by Edward J. Prajzner, Senior Executive Vice President and Chief Financial Officer, on August 11, 2025[211]