Mistras (MG) - 2022 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements This section presents Mistras Group, Inc.'s unaudited condensed consolidated financial statements as of and for the periods ended September 30, 2022 Condensed Consolidated Balance Sheets As of September 30, 2022, total assets decreased to $540.4 million from $562.2 million at year-end 2021, primarily due to reductions in goodwill, intangible assets, and property, plant, and equipment Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 (unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $174,433 | $161,338 | | Goodwill | $197,433 | $205,439 | | Total assets | $540,446 | $562,195 | | Total current liabilities | $107,512 | $121,415 | | Long-term debt, net | $193,847 | $182,403 | | Total liabilities | $353,390 | $361,283 | | Total equity | $187,056 | $200,912 | Unaudited Condensed Consolidated Statements of Income For the third quarter of 2022, revenue increased to $178.5 million from $174.6 million year-over-year, and net income attributable to Mistras Group rose to $4.4 million from $3.4 million Q3 2022 vs Q3 2021 Performance (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Revenue | $178,462 | $174,556 | | Gross Profit | $53,784 | $52,216 | | Income from Operations | $9,114 | $9,236 | | Net Income attributable to Mistras Group | $4,373 | $3,380 | | Diluted EPS | $0.14 | $0.11 | Nine Months 2022 vs 2021 Performance (in thousands, except per share data) | Metric | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | | Revenue | $519,155 | $505,968 | | Gross Profit | $147,233 | $147,553 | | Income from Operations | $13,991 | $15,864 | | Net Income attributable to Mistras Group | $3,653 | $3,955 | | Diluted EPS | $0.12 | $0.13 | Unaudited Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2022, net cash provided by operating activities was $10.5 million, a decrease from $22.5 million in the prior year, mainly due to changes in working capital Cash Flow Summary (Nine months ended Sep 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,531 | $22,469 | | Net cash used in investing activities | $(8,877) | $(15,494) | | Net cash used in financing activities | $(4,753) | $(8,866) | | Net change in cash and cash equivalents | $(6,026) | $(3,163) | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations of accounting policies, financial statement components, and recent developments - The company provides technology-enabled asset protection solutions for critical industrial and civil assets, with a focus on ESG initiatives and its OneSuite™ digital platform[24][25][26] - Business operations are being impacted by disruptions in the oil & gas market and supply chain due to the Russian-Ukrainian conflict, leading to deferred maintenance and inspection work by some customers[28][30] - On August 1, 2022, the Company entered into a new 5-year credit agreement, replacing its prior one, providing a $190 million revolving credit facility and a $125 million term loan[97] - The Services segment is the largest, providing asset protection solutions in North America, while the International and Products and Systems segments offer similar services and products globally[130] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance, highlighting a 2.2% revenue increase in Q3 2022 driven by organic growth in the Services segment, partially offset by unfavorable foreign exchange rates Results of Operations For Q3 2022, revenue increased 2.2% to $178.5 million, and gross profit rose 3.0% to $53.8 million, with gross margin improving to 30.1% Consolidated Results of Operations Highlights | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $178,462 | $174,556 | $519,155 | $505,968 | | Gross profit | $53,784 | $52,216 | $147,233 | $147,553 | | Gross profit % | 30.1% | 29.9% | 28.4% | 29.2% | | Income from operations | $9,114 | $9,236 | $13,991 | $15,864 | - Q3 2022 revenue growth was driven by a mid single-digit organic increase, led by the Services segment (+5.4%), partially offset by an 11.7% decline in the International segment due to unfavorable foreign exchange rates[161] - Oil and gas customer revenue increased to 54% of total revenue in Q3 2022 from 53% in Q3 2021, while aerospace and defense revenue grew to 12% of total revenue from 10%[162] - Selling, general and administrative (SG&A) expenses increased by $2.4 million in Q3 2022 compared to Q3 2021, mainly due to the reversal of temporary cost reductions implemented in 2020[178] Liquidity and Capital Resources The company's liquidity remains strong, with $18.1 million in cash and cash equivalents and $105.3 million of unused commitments under its new credit facility as of September 30, 2022 Cash Flow Summary (Nine months ended Sep 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,531 | $22,469 | | Net cash used in investing activities | $(8,877) | $(15,494) | | Net cash used in financing activities | $(4,753) | $(8,866) | - As of September 30, 2022, the company had $18.1 million in cash and cash equivalents, with $196.7 million in borrowings and $105.3 million of unused commitments under its New Credit Agreement[198] - The decrease in cash from operating activities in 2022 was primarily attributable to a build-up of net working capital in the course of normal operations[194] Quantitative and Qualitative Disclosures about Market Risk The company reports that there have been no significant changes to its quantitative and qualitative disclosures about market risk from those discussed in its 2021 Annual Report on Form 10-K - There have been no significant changes to the company's market risk disclosures since the 2021 Annual Report[205] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2022 - Management concluded that as of September 30, 2022, the company's disclosure controls and procedures were effective[206] - No changes occurred in the company's internal control over financial reporting during the quarter ended September 30, 2022, that materially affected, or are reasonably likely to materially affect, internal controls[207] PART II—OTHER INFORMATION Legal Proceedings This section refers to Note 14 of the financial statements for a description of legal proceedings, stating no material developments beyond what is disclosed there and in the 2021 Annual Report - For details on legal proceedings, refer to Note 14—Commitments and Contingencies, as there have been no material developments beyond what is disclosed there and in the 2021 Annual Report[210] Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its 2021 Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the 2021 Annual Report[211] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no sales of unregistered securities during the period and no shares of its common stock were repurchased during the quarter - The company did not have any sales of unregistered securities and did not repurchase any of its equity securities during the quarter[212][214] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[215] Mine Safety Disclosures This item is not applicable to the company - Not applicable[216] Other Information The company reported no other information for this item - None[217] Exhibits This section lists the exhibits filed with the Form 10-Q, including the new Credit Agreement, CEO and CFO certifications, and XBRL data files - Filed exhibits include the Credit Agreement dated August 1, 2022, CEO/CFO certifications (Rule 13a-14(a) and Section 906), and XBRL interactive data files[219]