U.S. Markets close in 2 hrs 33 mins

MISTRAS Group Announces Fourth Quarter and Full Year 2018 Results

Record Annual Revenue of $742 million

Fiscal 2018 Gross Margin Expands to 28.0% from 26.8%; Gross Margins Expand in all segments

Fourth Quarter Margins of 28.9% Reach Highest Fourth Quarter Margin in Three Years

Highlights of the Fourth Quarter 2018*

  • Q4 gross profit up 4% to $52.3 million
  • Q4 gross margin expands 210 basis points to 28.9%, highest fourth quarter margin in three years
  • Q4 net loss of $1.1 million and non-GAAP net income of $1.7 million
  • Q4 adjusted EBITDA of $16.1 million
  • Q4 cash flows from operating activities of $17.5 million

Highlights of the Full Year 2018*

  • FY gross profit of $207.8 million increased 11%
  • FY gross margin of 28.0% increased by 120 bps
  • FY net income of $6.8 million and non-GAAP net income of $16.1 million
  • FY adjusted EBITDA up 15% to $73.5 million
  • FY cash flows from operating activities was $41.7 million

*- All comparisons are consolidated and versus the equivalent prior year period.

PRINCETON JUNCTION, N.J., March 11, 2019 (GLOBE NEWSWIRE) -- MISTRAS Group, Inc. (MG:NYSE), a leading "one source" global provider of technology-enabled asset protection solutions, reported financial results for its fourth quarter and year ended December 31, 2018.

For the full year 2018, consolidated revenues grew 6% to a record $742 million reflecting both organic growth and the impact of strategic acquisitions.  For the year, consolidated gross profit was up nearly 11% over 2017 to $208 million as the consolidated gross margin expanded by 120 basis points to 28.0% compared with 26.8% in the prior year.  Adjusted EBITDA for the full year increased 15% to $73 million.  All three of the company’s business segments reported increased gross profit, gross margin and adjusted EBITDA for the full year 2018.

Chief Executive Officer Dennis Bertolotti stated, "I am pleased to have achieved record revenue, while expanding gross margins across all three segments in 2018.  We ended the year with strong momentum, with fourth quarter consolidated gross margin reaching 28.9%, the best fourth quarter margin in three years.  Results for the year reflect the progress being achieved in positioning MISTRAS for continued growth and improved returns.  In 2018, we exited from certain lower margin contracts, which reduced organic revenue growth, but contributed to improved margins.  Our acquisition strategy continues to provide incremental growth and for the full year 2018, contributed nicely to margin expansion.  I am very excited about our recent Onstream acquisition, which further diversifies our midstream business into the in-line pipeline inspection market.  Onstream also helps accelerate the implementation of our MISTRAS digital solutions initiative and provides another fundamental building block for our overall technology map.  Our acquisition funnel remains active with potential tuck-in opportunities that would strengthen and diversify our business. We intend to continue to pursue these growth avenues to take advantage of what we expect will be a market that continues to improve throughout 2019.   The stability of our pipeline integrity operation, growing aerospace business and our expansion into mechanical services should enable continued improvement in 2019 and in the years to come.”

Performance by segment, both during the quarter and year to date was as follows:

Services segment fourth quarter revenues decreased by $6 million or 4%.  The current period is compared to a year ago fourth quarter that included incremental revenue from previously deferred projects that were released in the prior year period.  Full year 2018 revenues increased by $31 million or 6% over prior year period attributable to acquisitions as well as organic growth despite the impact of the nonrenewal of a large contract.  The impact of this more disciplined growth strategy can be seen in Services segment gross profit margins, which improved 90 basis points in the fourth quarter to 27.4% despite the lower revenue levels.  For the full year 2018 the gross profit margin was 26.4%, an 80 basis point improvement over the prior year period.

International segment fourth quarter revenues decreased by $0.7 million or 2%, primarily due to unfavorable currency translation, offset by organic growth. Fourth quarter revenues were up in local currency.  Full year 2018 revenues increased by $9 million or 6% over prior year period attributable to a combination of organic growth and favorable foreign currency translation.  International segment gross profit margin was 30.1% in the fourth quarter, a 570 basis point improvement from the year ago quarter while full year 2018 gross profit margin were up 260 basis points to 29.6%.  Margins benefited from a more favorable service and product mix reflective of the Company’s more disciplined growth strategy.

Products and Systems segment revenue decreased by $0.2 million or 4% in the fourth quarter compared to the prior year period.  Full year 2018 revenues were up modestly over prior year period despite the product line divestment within this segment during the third quarter of 2018. Products and Systems segment gross profit margin improved by 750 basis points to 46.5% in the fourth quarter and by 300 basis points to 45.1% for the full year 2018.

The Company generated $41.7 million of cash flows from operating activities and $20.5 million of free cash flow for full year 2018.

The Company’s net debt (total debt less cash and cash equivalents of $25.5 million) was $265.1 million at December 31, 2018, compared to $139.3 million at December 31, 2017. This increase in net debt was primarily attributable to the Onstream Acquisition, which closed during the fourth quarter of 2018.

Guidance for 2019
The Company is introducing its planning assumptions and guidance for 2019.

Total revenues expected to be between $765 million to $785 million;

Adjusted EBITDA expected to be between $90 million and $93 million;

Capital expenditures expected to be up to $25 million; and

Free cash flow expected to be between $42 million and $45 million.

Year over year comparable will not be linear in 2019, because of the first quarter of 2019 lapping a year ago quarter that included more than $10 million of Services revenue from a large contract nonrenewal.   Beginning in the first quarter of 2019 we will commence the exit of the staff leasing business in Germany, representing a further reduction of approximately $13 million in full year 2019 revenues.   The Company believes that it can offset the effect of the revenue decreases through continuing margin expansion as was demonstrated throughout 2018.

Conference Call
In connection with this release, MISTRAS will hold a conference call on March 12, 2019 at 9:00 a.m. (Eastern). The call will be broadcast over the Web and can be accessed on MISTRAS' Website, www.mistrasgroup.com. Individuals in the U.S. wishing to participate in the conference call by phone may dial 1-844-832-7227 and use confirmation code 1092346 when prompted. The International dial-in number is 1-224-633-1529.  Those who wish to listen to the call later can access an archived copy of the conference call at the MISTRAS Website.

About MISTRAS Group, Inc.
MISTRAS offers one of the broadest "one source" services and technology-enabled asset protection solution portfolios in the industry used to evaluate the structural integrity of energy, industrial and public infrastructure. Mission critical services and solutions are delivered globally and provide customers with the ability to extend the useful life of their assets, improve productivity and profitability, comply with government safety and environmental regulations and enhance risk management operational decisions.

MISTRAS uniquely combines its industry leading products and technologies - 24/7 on-line monitoring of critical assets; mechanical integrity ("MI") and non-destructive testing ("NDT") services; destructive testing services; and its proprietary world class data warehousing and analysis software - to provide comprehensive and competitive products, systems and services solutions from a single source provider.

For more information, please visit the company's website at www.mistrasgroup.com or contact Nestor S. Makarigakis, Group Director, Marketing Communications at marcom@mistrasgroup.com.

Forward-Looking and Cautionary Statements

Certain statements made in this press release are "forward-looking statements" about MISTRAS' financial results and estimates, products and services, business model, strategy, growth opportunities, profitability and competitive position, and other matters. These forward-looking statements generally use words such as "future," "possible," "potential," "targeted," "anticipate," "believe," "estimate," "expect," "intend," "plan," "predict," "project," "will," "may," "should," "could," "would" and other similar words and phrases. Such statements are not guarantees of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved, if at all. These statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in these statements. A list, description and discussion of these and other risks and uncertainties can be found in the "Risk Factors" section of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2018, as updated by our reports on Form 10-Q and Form 8-K. The forward-looking statements are made as of the date hereof, and MISTRAS undertakes no obligation to update such statements as a result of new information, future events or otherwise.

Use of Non-GAAP Measures

In addition to financial information prepared in accordance with generally accepted accounting principles in the U.S. (GAAP), this press release also contains adjusted financial measures that we believe provide investors and management with supplemental information relating to operating performance and trends that facilitate comparisons between periods and with respect to projected information. The term "Adjusted EBITDA" used in this release is a financial measurement not calculated in accordance with GAAP and is defined as net income attributable to MISTRAS Group, Inc. plus: interest expense, provision for income taxes, depreciation and amortization, share-based compensation expense and certain acquisition related costs (including transaction due diligence costs and adjustments to the fair value of contingent consideration), foreign exchange (gain) loss and, if applicable, certain special items which are noted. A Reconciliation of Adjusted EBITDA to a financial measurement under GAAP is set forth in a table attached to this press release. In the press release, the Company also uses the term “non-GAAP Net Income,” which is GAAP net income adjusted for certain items management believes are unusual and non-recurring.  In the tables attached is a table reconciling “Net Income (Loss) (GAAP)” to “Net Income Excluding Special Items (non-GAAP)” which reconciles the non-GAAP amount to a GAAP measurement. In addition, the Company has also included in the attached tables non-GAAP measurement” “Segment and Total Company Income (Loss) Before Special Items”, reconciling these measurements to financial measurements under GAAP. The Company uses the term “free cash flow”, a non-GAAP measurement the Company defines as cash provided by operating activities less capital expenditures (which is classified as an investing activity).  The Company also uses the term “net debt”, a non-GAAP measurement defined as the sum of the current and long-term portions of long-term debt, less cash and cash equivalents.

Media Contact:
Nestor S. Makarigakis, Group Director of Marketing Communications
marcom@mistrasgroup.com
1 (609) 716-4000

Mistras Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)

  December 31,
  2018   2017
ASSETS      
Current Assets      
Cash and cash equivalents $ 25,544     $ 27,541  
Accounts receivable, net 148,324     138,080  
Inventories 13,053     10,503  
Prepaid expenses and other current assets 15,870     18,884  
Total current assets 202,791     195,008  
Property, plant and equipment, net 93,895     87,143  
Intangible assets, net 111,395     63,739  
Goodwill 279,259     203,438  
Deferred income taxes 1,930     1,606  
Other assets 4,767     3,507  
Total Assets $ 694,037     $ 554,441  
       
LIABILITIES AND EQUITY      
Current Liabilities      
Accounts payable $ 13,863     $ 10,362  
Accrued expenses and other current liabilities 73,895     65,561  
Current portion of long-term debt 6,833     2,358  
Current portion of capital lease obligations 3,922     5,875  
Income taxes payable 1,958     6,069  
Total current liabilities 100,471     90,225  
Long-term debt, net of current portion 283,787     164,520  
Obligations under capital leases, net of current portion 9,075     8,738  
Deferred income taxes 23,148     8,803  
Other long-term liabilities 6,482     11,363  
Total Liabilities 422,963     283,649  
       
Commitments and contingencies      
       
Equity      
Preferred stock, 10,000,000 shares authorized      
Common stock, $0.01 par value, 200,000,000 shares authorized, 28,562,608 and 28,294,968 shares issued 285     282  
Additional paid-in capital 226,616     222,425  
Retained earnings 71,553     64,717  
Accumulated other comprehensive loss (27,557 )   (16,805 )
Total Mistras Group, Inc. stockholders’ equity 270,897     270,619  
Non-controlling interests 177     173  
Total Equity 271,074     270,792  
Total Liabilities and Equity $ 694,037     $ 554,441  
               

Mistras Group, Inc. and Subsidiaries
Consolidated Statements of Income (Loss)
(in thousands, except per share data)

  For the three months ended December 31, (unaudited)   For the year ended December 31,
  2018   2017   2018   2017
               
Revenue $ 180,762     $ 187,643     $ 742,354     $ 700,970  
Cost of revenue 122,892     132,093     512,024     492,238  
Depreciation 5,555     5,230     22,456     21,020  
Gross profit 52,315     50,320     207,874     187,712  
Selling, general and administrative expenses 44,120     39,535     166,352     153,025  
Impairment charges             15,810  
Pension withdrawal expense         5,886      
Gain on sale of subsidiary         (2,384 )    
Research and engineering 896     521     3,310     2,272  
Depreciation and amortization 3,122     2,510     11,957     10,363  
Acquisition-related expense (benefit), net 1,675     1,071     532     482  
Litigation charges     400         1,600  
Income from operations 2,502     6,283     22,221     4,160  
Interest expense 2,370     1,273     7,950     4,386  
Income (loss) before provision for income taxes 132     5,010     14,271     (226 )
Provision for income taxes 1,197     4,141     7,426     1,942  
Net (loss) income (1,065 )   869     $ 6,845     $ (2,168 )
Less: net (loss) income attributable to noncontrolling interests, net of taxes (4 )   (15 )   9     7  
Net (loss) income attributable to Mistras Group, Inc. $ (1,061 )   $ 884     $ 6,836     $ (2,175 )
(Loss) earnings per common share              
Basic $ (0.04 )   $ 0.03     $ 0.24     $ (0.08 )
Diluted $ (0.04 )   $ 0.03     $ 0.23     $ (0.08 )
Weighted average common shares outstanding:              
Basic   28,541     28,294     28,406     28,422  
Diluted 28,541     29,410     29,427     28,422  
                       

Mistras Group, Inc. and Subsidiaries
Unaudited Operating Data by Segment
(in thousands)

  For the three months ended December 31,   For the year ended December 31,
  2018   2017   2018   2017
Revenues              
Services $ 139,966     $ 146,000     $ 574,619     $ 543,565  
International 37,210     37,906     153,448     144,265  
Products and Systems 6,139     6,372     23,426     23,297  
Corporate and eliminations (2,553 )   (2,635 )   (9,139 )   (10,157 )
  $ 180,762     $ 187,643     $ 742,354     $ 700,970  
               
               
  For the three months ended December 31,   For the year ended December 31,
  2018   2017   2018   2017
Gross profit              
Services $ 38,299     $ 38,728     $ 151,974     $ 139,160  
International 11,191     9,255     45,464     38,974  
Products and Systems 2,854     2,485     10,560     9,798  
Corporate and eliminations (29 )   (148 )   (124 )   (220 )
  $ 52,315     $ 50,320     $ 207,874     $ 187,712  
                               

Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Segment and Total Company Income from Operations (GAAP) to Income before Special Items (non-GAAP)
(in thousands)

  For the three months ended December 31,   For the year ended December 31,
  2018   2017   2018   2017
Services:              
Income from operations (GAAP) $ 10,234     $ 15,466     $ 47,126     $ 46,677  
Pension withdrawal expense         5,886      
Bad debt provision for troubled customers 650         650     1,200  
Reorganization and other costs 166     69     458     684  
Acquisition-related expense, net 1,385     440     576     392  
Income before special items (non-GAAP) 12,435     15,975     54,696     48,953  
               
International:              
Income (loss) from operations (GAAP) 1,240     (330 )   3,953     3,537  
Reorganization and other costs 419     600     3,966     1,055  
Acquisition-related (benefit), net         (409 )   (501 )
Income before special items (non-GAAP) 1,659     270     7,510     4,091  
               
Products and Systems:              
Income (loss) from operations (GAAP) 336     (77 )   2,368     (16,991 )
Impairment charges             15,810  
Gain on sale of subsidiary         (2,384 )    
Reorganization and other costs     18     29     18  
Income (loss) before special items (non-GAAP) 336     (59 )   13     (1,163 )
               
Corporate and Eliminations:              
Loss from operations (GAAP) (9,308 )   (8,776 )   (31,226 )   (29,063 )
Litigation charges     400         1,600  
Reorganization and other costs     184     305     184  
Acquisition-related expense, net 290     631     365     591  
Loss before special items (non-GAAP) (9,018 )   (7,561 )   (30,556 )   (26,688 )
               
Total Company:              
Income from operations (GAAP) $ 2,502     $ 6,283     $ 22,221     $ 4,160  
Litigation charges     400         1,600  
Pension withdrawal expense         5,886      
Gain on sale of subsidiary         (2,384 )    
Impairment charges             15,810  
Bad debt provision for troubled customers 650         650     1,200  
Reorganization and other costs 585     871     4,758     1,941  
Acquisition-related expense, net 1,675     1,071     532     482  
Income before special items (non-GAAP) $ 5,412     $ 8,625     $ 31,663     $ 25,193  
                               

Mistras Group, Inc. and Subsidiaries
Summary Cash Flow Information
(in thousands)

  For the year ended December 31,
    2018       2017  
Net cash provided by (used in):      
Operating activities $   41,664     $   55,799  
Investing activities    (155,450 )      (102,797 )
Financing activities    113,969        53,045  
Effect of exchange rate changes on cash    (2,180 )      2,340  
Net change in cash and cash equivalents $   (1,997 )   $   8,387  
               

Mistras Group, Inc. and Subsidiaries
Reconciliation of Net Cash Provided by Operating Activities (GAAP) to Free Cash Flow (non-GAAP)
(in thousands)

  For the year ended December 31,
    2018       2017  
GAAP: Net cash provided by operating activities $   41,664     $   55,799  
Less:      
Purchases of property, plant and equipment    (20,584 )      (19,314 )
Purchases of intangible assets    (541 )      (1,255 )
Non-GAAP: Free cash flow $   20,539     $   35,230  
       

 Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income (Loss) to Adjusted EBITDA
(in thousands)

  For the three months ended December 31,   For the year ended December 31, 
    2018       2017       2018       2017  
       
Net (loss) income $   (1,065 )   $   869     $   6,845     $   (2,168 )
Less: net (loss) income attributable to noncontrolling interests, net of taxes    (4 )      (15 )      9        7  
Net (loss) income attributable to Mistras Group, Inc. $   (1,061 )   $   884     $   6,836     $   (2,175 )
Interest expense    2,370        1,273        7,950        4,386  
Provision for income taxes    1,197        4,141        7,426        1,942  
Depreciation and amortization    8,677        7,740        34,413        31,383  
Share-based compensation expense    1,347        1,436        6,107        6,575  
Litigation charges    —        400        —        1,600  
Impairment charges    —        —        —        15,810  
Pension withdrawal expense    —        —        5,886        —  
Gain on sale of subsidiary    —            (2,384 )      —  
Acquisition-related expense, net    1,675        1,071        532        482  
Reorganization and other costs    585        871        4,758        1,941  
Bad debt provision for troubled customers    650        —        650        1,200  
Foreign exchange (gain) loss    660        7        1,311        604  
Adjusted EBITDA $   16,100     $   17,823     $   73,485     $   63,748  
                               

Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income (Loss) (GAAP) and Diluted EPS (GAAP) to Net Income Excluding Special Items (non-GAAP)
and Diluted EPS Excluding Special Items (non-GAAP)
(in thousands, except per share data)

  Three months ended December 31,     Year ended December 31,
  2018 (1)   2017 (1)     2018 (1)   2017 (1)
Net income (loss) (GAAP) $   (1,061 )   $   884     $   6,836     $   (2,175 )
Impairment charges    —        —        —        11,860  
Reorganization and other costs    496        617        3,718        1,331  
Bad debt provision for troubled customers    488        —        488        908  
Pension withdrawal expense    —        —        4,524        —  
Gain on sale of subsidiary    —        —        (1,833 )      —  
Residual impact of tax act    115        1,565        1,732        (662 )
Acquisition-related expense, net    1,624        874        674        251  
Litigation charges    —        461        —        1,211  
Net income Excluding Special Items (non-GAAP)    1,662        4,401     $   16,139     $   12,724  
                 
Diluted EPS (GAAP) $   (0.04 )   $   0.03     $   0.23     $   (0.08 )
Impairment charges    —        —        —        0.4  
Reorganization and other costs    0.02        0.02        0.13        0.04  
Bad debt provision for troubled customers    0.02        —        0.02        0.03  
Pension withdrawal expense    —        —        0.15        —  
Gain on sale of subsidiary    —        —        (0.06 )      —  
Residual impact of tax act    —        0.05        0.06        (0.02 )
Acquisition-related expense, net    0.06        0.03        0.02        0.01  
Litigation charges    —        0.02        —        0.04  
Diluted EPS Excluding Special Items (non-GAAP) $   0.06     $   0.15     $   0.55     $   0.42  
                               

(1) - On December 22, 2017, the United States enacted fundamental changes to federal tax law following passage of the Tax Act (the “Tax Act”). Accordingly, during the three months and year ended respective periods for December 31, 2018 and 2017, the Company recorded a net charge as highlighted in the table above, primarily attributable to three items; i) the transition tax ii) the remeasurement of federal deferred tax assets and liabilities from 35% to 21% and iii) amounts attributable to deferred tax assets due to changes made to executive compensation rules pursuant to the Tax Act.  In reconciling net income and diluted earnings per share to non-GAAP measures, the Company allocated all the related tax effects inclusive of the Tax Act, as recorded during the three months and year ended periods for December 31, 2017, to the specific special items. The remaining tax impact of the Tax Act, as well as the 2018 adjustment, was reflected as a residual impact, which is shown as a separate line in the non-GAAP reconciliation table above.