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MISTRAS Group Announces Second Quarter 2019 Results

Revenue of $201 million, operating income of $15 million and diluted EPS of $0.26

Highlights of the Second Quarter 2019*

  • Q2 revenue up 5% to $200.6 million

  • Q2 gross profit up 9% to $60.1 million and gross margin expands 120 basis points to 29.9%

  • Q2 operating income up 50% to $15.4 million

  • Q2 net income up 24% to $7.4 million or $0.26 per diluted share

  • Q2 non-GAAP net income per diluted share up 10% to $0.22

  • Q2 adjusted EBITDA up 14% to $24.0 million

  • Q2 cash from operations of $12.9 million and debt repayment of $17.5 million

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

PRINCETON JUNCTION, N.J., Aug. 05, 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 second quarter ended June 30, 2019.

For the second quarter of 2019 compared to the prior year period, consolidated revenues increased 5% to $200.6 million from $191.8 million, consolidated gross profit was up 9% to $60.1 million from $55.1 million, consolidated gross margin expanded by 120 basis points to 29.9% from 28.7%, and operating income increased 50% to $15.4 million from $10.3 million.

Chief Executive Officer Dennis Bertolotti stated, "I am very pleased with our second quarter performance and remain confident in our outlook for the balance of the year. Results in the second quarter picked up as anticipated and were consistent with our expectations. Top and bottom line results improved significantly, both year-over-year and sequentially, reflecting continued market share gains and our strategic focus on increasing returns. Our management of working capital and cash generation program are also achieving significant progress, allowing us to pay down $17.5 million of debt in the second quarter alone, bringing the total year to date 2019 reduction to $20.1 million.”

“We are focused on building a business that is sustainable and responsive to the customers we serve, as our industry and its needs evolve. Our redesigned business model is robust, with gross margins significantly improved both year-over-year and sequentially, due to a better sales mix as well as ongoing efficiency and productivity enhancements. We continue to keep tight control on our overhead cost structure, even as we continue to invest in strengthening our business. We remain a recognized industry leader today and are increasing our current market share, and look to continue expanding in the future.”

“In addition to strength in our core businesses, our recent acquisition is also performing as expected. Onstream has performed well in 2019, with a significant increase in volume in the United States, where we have been successful in gaining traction with MISTRAS’ existing midstream relationships. Onstream is a strong pillar of our overall growth strategy focused on pipeline integrity”

Our specific performance by certain segments during the quarter was as follows:

Services segment second quarter revenues increased by $13.5 million or 9%. This improvement in the top line was driven by acquisition expansion coupled with organic growth. Services segment gross profit margins improved 210 basis points in the second quarter to 29.3% from 27.2% due to favorable operating leverage.

International segment second quarter revenues decreased by $4.0 million or 10%, primarily due to unfavorable currency translation and the run-off of German staff leasing contracts. Lower revenue led to a slight decrease in the second quarter International segment gross profit margin compared to the year ago quarter.

The Company generated $21.1 million of cash flows from operating activities and $9.1 million of free cash flow in the first half of 2019, compared to $20.1 million and $8.9 million, respectively, in the prior year period.

Adjusted EBITDA was $24.0 million for the second quarter of 2019 compared with $21.1 million in the prior year, an increase of 14% year over year.

The Company’s net debt (total debt less cash and cash equivalents of $12.5 million) was $257.9 million at June 30, 2019, down from $265.1 million at December 31, 2018. The Company’s gross debt has decreased by $20.2 million during 2019, to $270.4 million at June 30, 2019 from $290.6 million at December 31, 2018, due to repayments made by the Company against outstanding borrowings.

In the second quarter of 2019, the Company recorded a recovery of bad debts of $2.7 million on a pre-tax basis.

Guidance for 2019

The Company is reaffirming its guidance for 2019. The Company’s outlook remains as follows:

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

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

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

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

Mr. Bertolotti concluded, "Our second quarter organic revenue growth, market share gains, expanding margins and improved bottom line results were consistent with our expectations and validate that we are executing to our plan for 2019. Our sequentially improving performance and momentum into the third quarter gives me confidence that we will achieve our outlook for the full year.”

Conference Call
In connection with this release, MISTRAS will hold a conference call on August 6, 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 9961057 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 and commercial aerospace components. 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 2018 Annual Report on Form 10-K dated March 15, 2019, 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.




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

(unaudited)

June 30, 2019

December 31, 2018

ASSETS

Current Assets

Cash and cash equivalents

$

12,501

$

25,544

Accounts receivable, net

155,043

148,324

Inventories

13,685

13,053

Prepaid expenses and other current assets

16,765

15,870

Total current assets

197,994

202,791

Property, plant and equipment, net

95,442

93,895

Intangible assets, net

107,753

111,395

Goodwill

283,017

279,259

Deferred income taxes

2,882

1,930

Other assets

46,385

4,767

Total assets

$

733,473

$

694,037

LIABILITIES AND EQUITY

Current Liabilities

Accounts payable

$

18,840

$

13,863

Accrued expenses and other current liabilities

82,897

73,895

Current portion of long-term debt

7,056

6,833

Current portion of finance lease obligations

3,680

3,922

Income taxes payable

2,497

1,958

Total current liabilities

114,970

100,471

Long-term debt, net of current portion

263,381

283,787

Obligations under finance leases, net of current portion

9,826

9,075

Deferred income taxes

25,041

23,148

Other long-term liabilities

38,976

6,482

Total liabilities

452,194

422,963

Commitments and contingencies

Equity

Preferred stock, 10,000,000 shares authorized

Common stock, $0.01 par value, 200,000,000 shares authorized, 28,685,486 and 28,562,608 shares issued

286

285

Additional paid-in capital

228,883

226,616

Retained earnings

73,691

71,553

Accumulated other comprehensive loss

(21,777

)

(27,557

)

Total Mistras Group, Inc. stockholders’ equity

281,083

270,897

Non-controlling interests

196

177

Total equity

281,279

271,074

Total liabilities and equity

$

733,473

$

694,037



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

Three months ended

Six months ended

June 30,
2019

June 30,
2018

June 30,
2019

June 30,
2018

Revenue

$

200,616

$

191,793

$

377,403

$

379,423

Cost of revenue

135,063

131,084

257,480

264,872

Depreciation

5,482

5,626

10,978

11,323

Gross profit

60,071

55,083

108,945

103,228

Selling, general and administrative expenses

41,923

41,267

83,686

80,301

Bad debt provision for troubled customers, net of recoveries

(2,693

)

2,798

Pension withdrawal expense

534

Research and engineering

754

913

1,611

1,669

Depreciation and amortization

4,119

2,965

8,291

5,916

Acquisition-related expense (benefit), net

549

(366

)

1,002

(1,360

)

Income from operations

15,419

10,304

11,023

16,702

Interest expense

3,579

1,895

7,106

3,686

Income before provision for income taxes

11,840

8,409

3,917

13,016

Provision for income taxes

4,397

2,409

1,760

4,096

Net income

7,443

6,000

2,157

8,920

Less: net income attributable to non-controlling interests, net of taxes

12

19

12

Net income attributable to Mistras Group, Inc.

$

7,431

$

6,000

$

2,138

$

8,908

Earnings per common share:

Basic

$

0.26

$

0.21

$

0.07

$

0.31

Diluted

$

0.26

$

0.20

$

0.07

$

0.30

Weighted average common shares outstanding:

Basic

28,657

28,346

28,616

28,325

Diluted

28,862

29,334

28,918

29,349


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

Three months ended

Six months ended

June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018

Revenues

Services

$

161,210

$

147,718

$

301,507

$

293,313

International

37,090

41,111

72,252

79,567

Products and Systems

4,269

5,386

7,701

11,570

Corporate and eliminations

(1,953

)

(2,422

)

(4,057

)

(5,027

)

$

200,616

$

191,793

$

377,403

$

379,423

Three months ended

Six months ended

June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018

Gross profit

Services

$

47,208

$

40,127

$

84,573

$

74,837

International

11,058

12,689

21,418

23,396

Products and Systems

1,825

2,213

3,064

5,103

Corporate and eliminations

(20

)

54

(110

)

(108

)

$

60,071

$

55,083

$

108,945

$

103,228


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)

Three months ended

Six months ended

June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018

($ in thousands)

($ in thousands)

Services:

Income from operations (GAAP)

$

20,905

$

16,328

$

24,958

$

28,603

Bad debt provision for troubled customers, net of recoveries

(1,977

)

2,778

Pension withdrawal expense

534

Reorganization and other costs

77

77

Acquisition-related expense (benefit), net

397

43

702

(990

)

Income before special items (non-GAAP)

19,402

16,371

29,049

27,613

International:

Income from operations (GAAP)

2,450

2,455

2,234

3,375

Reorganization and other costs

107

492

265

581

Acquisition-related expense (benefit), net

(409

)

(409

)

Bad debt provision for troubled customers, net of recoveries

(716

)

20

Income before special items (non-GAAP)

1,841

2,538

2,519

3,547

Products and Systems:

Loss from operations (GAAP)

(405

)

(656

)

(1,733

)

(384

)

Reorganization and other costs

29

29

Loss before special items (non-GAAP)

(405

)

(627

)

(1,733

)

(355

)

Corporate and Eliminations:

Loss from operations (GAAP)

(7,531

)

(7,823

)

(14,436

)

(14,892

)

Reorganization and other costs

60

Acquisition-related expense, net

152

300

39

Loss before special items (non-GAAP)

(7,379

)

(7,823

)

(14,076

)

(14,853

)

Total Company:

Income from operations (GAAP)

$

15,419

$

10,304

$

11,023

$

16,702

Pension withdrawal expense

534

Bad debt provision for troubled customers, net of recoveries

(2,693

)

2,798

Reorganization and other costs

184

521

402

610

Acquisition-related expense (benefit), net

549

(366

)

1,002

(1,360

)

Income before special items (non-GAAP)

$

13,459

$

10,459

$

15,759

$

15,952


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

Six months ended

June 30, 2019

June 30, 2018

Net cash provided by (used in):

Operating activities

$

21,105

$

20,095

Investing activities

(11,048

)

(10,287

)

Financing activities

(23,139

)

(19,258

)

Effect of exchange rate changes on cash

39

(561

)

Net change in cash and cash equivalents

$

(13,043

)

$

(10,011

)


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

Six months ended

June 30, 2019

June 30, 2018

GAAP: Net cash provided by operating activities

$

21,105

$

20,095

Less:

Purchases of property, plant and equipment

(11,562

)

(10,963

)

Purchases of intangible assets

(441

)

(265

)

non-GAAP: Free cash flow

$

9,102

$

8,867


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

Three months ended

Six months ended

June 30,
2019

June 30,
2018

June 30,
2019

June 30,
2018

Net income

$

7,443

$

6,000

$

2,157

$

8,920

Less: net income attributable to non-controlling interests, net of taxes

12

19

12

Net income attributable to Mistras Group, Inc.

$

7,431

$

6,000

$

2,138

$

8,908

Interest expense

3,579

1,895

7,106

3,686

Provision for income taxes

4,397

2,409

1,760

4,096

Depreciation and amortization

9,601

8,591

19,269

17,239

Share-based compensation expense

1,511

1,703

2,867

2,829

Acquisition-related expense (benefit), net

549

(366

)

1,002

(1,360

)

Reorganization and other related costs

184

521

402

610

Pension withdrawal expense

534

Bad debt provision for troubled customers, net of recoveries

(2,693

)

2,798

Foreign exchange (gain) loss

(568

)

338

(1,198

)

389

Adjusted EBITDA

$

23,991

$

21,091

$

36,678

$

36,397


Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income (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 June 30,

Six months ended June 30,

2019 (1)

2018 (2)

2019 (1)

2018 (2)

Net income attributable to Mistras Group, Inc. (GAAP)

$

7,431

$

6,000

$

2,138

$

8,908

Special items, net of tax

(1,274

)

110

3,031

(532

)

Net income attributable to Mistras Group, Inc. Excluding Special Items (non-GAAP)

$

6,157

$

6,110

$

5,169

$

8,376

Diluted EPS (GAAP)

$

0.26

$

0.20

$

0.07

$

0.30

Special items, net of tax

(0.04

)

0.10

(0.02

)

Diluted EPS Excluding Special Items (non-GAAP)

$

0.22

$

0.20

$

0.17

$

0.28

(1) The Company's tax effect on special items was calculated utilizing the Company's effective tax rate, exclusive of discrete items, for the three and six months ended June 30, 2019, which was 35% and 36% respectively.

(2) The Company modified the prior year tax effect on special items to be consistent with the current year methodology. The effective tax rate for the three and six months ended June 30, 2018, exclusive of discrete items, was 29% for both periods. The impact of this change on the three months ended June 30, 2018 was approximately $0.1 million and $0.01 per diluted share and on the six months ended June 30, 2018 was $0.1 million and no impact per diluted share.


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