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MISTRAS Group Announces Second Quarter 2020 Results

MISTRAS Group, Inc.
·20 mins read

Cash from operations of $28.8 million up 122% and Free cash flow of $25.5 million, up 284%,
from the year ago quarter

Debt repayment of $18.8 million, a quarterly record, with Total debt of $239.4 million

Gross Profit Margin expands to 33.1%, highest quarterly level in over five years

Selling, General & Administrative Expense down 10.3% from the year ago quarter

PRINCETON JUNCTION, N.J., Aug. 05, 2020 (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, 2020.

Highlights of the Second Quarter 2020*

  • Revenue of $124.4 million, a decrease of 38% as anticipated

  • Cash from operations of $28.8 million, an increase of 122%

  • Free cash flow of $25.5 million, an increase of 284%

  • Capital expenditures of $3.3 million, a decrease of 48%

  • Debt repayment of $18.8 million; net debt** of $216.8 million and cash on-hand of $22.6 million

  • Gross profit margin of 33.1%, up from 29.9%; an improvement of 320 bps

  • Selling, general and administrative expenses of $37.6 million, down 10.3%

Highlights of the First Half 2020*

  • Cash from operations of $34.9 million, an increase of 65%

  • Free cash flow of $27.2 million, an increase of 199%

  • Capital expenditures of $7.6 million, a decrease of 36%

  • Debt repayment $15.1 million

  • Gross profit margin of approximately 29%, equal to that of last year

  • Selling, general and administrative expenses reduction of $4.5 million

* All comparisons are consolidated and versus the equivalent prior year period, unless otherwise noted.
** Net debt equals Gross Debt less Cash and Cash Equivalents
The Company’s net loss was $2.7 million in the second quarter of 2020, compared with net income of $7.4 million the prior year period. The Company generated adjusted EBITDA of $11.5 million in the second quarter of 2020, compared with $24.0 million in the prior year period. The Company generated $28.8 million of cashflow from operations and $25.5 million of free cashflow flow in the second quarter of 2020, compared with $12.9 million of cashflow from operations and $6.7 million of free cash flow in the prior year period.

Chief Executive Officer Dennis Bertolotti stated, “Results for the second quarter demonstrate the value of our asset light business model and its ability to generate strong cash flow. Cash from operations more than doubled from a year ago, which enabled us to have a record setting quarter of debt reduction as we aggressively deleverage our balance sheet. As we anticipated, second quarter revenues were down from a year ago in what we still believe is likely to be this years’ trough quarter, primarily due to the slowdown in inspection activity resulting from our clients’ prioritization of safety precautions precipitated by the rapid onset of COVID-19, as well as more cautionary customer budgeting. Although revenues were down, our gross profit margins were at the highest quarterly level in over five years, as numerous cost measures implemented to address current market conditions significantly improved efficiency and productivity. The reduction in selling, general and administrative expenses accelerated sequentially from the first quarter, as the cost control actions undertaken late in the first quarter were fully realized in the second quarter.

“Year-to-date, we have worked hard to maintain our gross profit margin at the same 29% level as in the first half of 2019, despite the significant decrease in revenues. Robust operating cashflow remains paramount for Mistras at $34.9 million for the first six months of 2020, representing one of the key strengths of our business model. Free cashflow in the second quarter alone was $25.5 million, enabling us to pay off $18.8 million of bank debt during the second quarter. Hence, Mistras continues to maintain the liquidity it needs to fund operations through the current market down cycle. We remain optimistic about our plan to generate expanding adjusted EBITDA sequentially in the second half of 2020 over the first half, and maintain positive operating cashflow in the second half of 2020, enabling us to continue to further decrease our total outstanding debt by year end.”

“Stabilization in the crude oil markets and the continuing relaxation of certain stay-in-place mandates are allowing some of our energy industry customers to start projects in the third quarter that were delayed earlier in the year. While it is still extremely difficult to forecast with any degree of certainty, we still believe our markets will progressively improve in the third and fourth quarter. We built momentum at the end of the second quarter which has continued into the third quarter of 2020. As such, we expect a high-teen up to 20% sequential improvement in revenues during the third quarter over the second quarter of 2020. Our plan is to exit fiscal 2020 on a growth trajectory heading into next year.”

“It has been proven many times, that necessity is the driver for dramatic improvements and innovation. We believe the current pandemic is one of those periods wherein industrial companies look at new and innovative ways of performing their work. Mistras believes its customers will be looking for partners with a more sophisticated approach to assist them in condensing their supplier lists and searching for better business intelligence. This is our strategy, knowing that we can apply these tenets not only into our existing customer base, but also new customers or market segments we target in the future.”

Performance by key segments during the quarter was as follows:

Services segment second quarter revenues were $100.7 million, down 37.5% from the year ago quarter, consistent with the slowdown in energy markets and timing of projects due to COVID-19. For the second quarter, gross profit margins were 33.7%, up from the year-ago quarter of 29.3%, an increase of approximately 440 basis points, due to a favorable mix, coupled with ongoing cost saving initiatives and Canadian wage subsidies.

International segment second quarter revenues were $21.3 million, down 42.5% from the year ago quarter, consistent with the anticipated slowdown in European aerospace, continued runoff of the European staff leasing business, timing of projects due to COVID-19 and unfavorable FX translation. International segment second quarter gross profit margin was 25.3%, down from 29.8% in the year ago quarter, due to lower utilization.

The Company’s net debt (total debt less cash and cash equivalents) was $216.8 million at June 30, 2020, compared to $239.7 million at December 31, 2019. Gross debt decreased by $15.3 million during the first six months of 2020, from $254.7 million at the end of the year to $239.4 million at June 30, 2020.

The Company generated $34.9 million of cash flows from operations in the first half of 2020, compared with $21.1 million in the year ago period. Free cash flow was $27.2 million in the first half of 2020, compared with $9.1 million in year ago period. Free cash flow benefitted from a reduction in cash paid for capital expenditures, interest expense and income taxes. Cash on-hand was $22.6 million at June 30, 2020, an increase of $7.6 million from December 31, 2019.

The Company’s net loss was $101.2 million in the first half of 2020, compared with net income of $2.1 million the prior year period, due primarily to the after-tax $92.1 million non-cash impairment charges recorded during the first quarter of 2020. The Company generated adjusted EBITDA of $16.9 million in the first six months of 2020, compared with $36.7 million in the prior year period.

Outlook for the Second Half of 2020
The ongoing COVID-19 pandemic continues to impact the Company’s two largest markets, Oil & Gas and Aerospace. Nevertheless, the Company anticipates a high-teen up to 20% sequential improvement in revenues for the third quarter of 2020 compared to the second quarter, but down from the year ago quarter. While it is extremely difficult to forecast with any degree of certainty at this time, the Company believes that consolidated revenue in the second half of 2020 will be higher than the first half of 2020, with a progressive improvement in adjusted EBITDA and continuing positive free cash flow in the second half of 2020. This outlook is contingent on continuing macroeconomic stability, including the recent recovery in the crude oil markets and the ongoing relaxation of certain stay-in-place mandates.

Conference Call
In connection with this release, MISTRAS will hold a conference call on August 6, 2020 at 9:30 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 3195165 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. - One Source for Asset Protection Solutions®

MISTRAS Group, Inc. (NYSE: MG) is a leading "one source" multinational provider of integrated technology-enabled asset protection solutions, helping to maximize the safety and operational uptime for civilization’s most critical industrial and civil assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, and decades-long legacy of industry leadership, MISTRAS leads clients in the oil and gas, aerospace and defense, power generation, civil infrastructure, and manufacturing industries towards achieving and maintaining operational excellence. By supporting these organizations that help fuel our vehicles and power our society; inspecting components that are trusted for commercial, defense, and space craft; and building real-time monitoring equipment to enable safe travel across bridges, MISTRAS helps the world at large.

MISTRAS enhances value for its clients by integrating asset protection throughout supply chains and centralizing integrity data through a suite of Industrial IoT-connected digital software and monitoring solutions. The company’s core capabilities also include non-destructive testing field inspections enhanced by advanced robotics, laboratory quality control and assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.

For more information about how MISTRAS helps protect civilization’s critical infrastructure, visit
https://www.mistrasgroup.com/ or contact Nestor S. Makarigakis, Group Vice President of Marketing 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 2019 Annual Report on Form 10-K dated March 27, 2020, 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, non-cash impairment charges and, if applicable, certain additional 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 equivalent.


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

June 30, 2020

December 31, 2019

ASSETS

(unaudited)

Current Assets

Cash and cash equivalents

$

22,588

$

15,016

Accounts receivable, net

103,698

135,997

Inventories

14,267

13,413

Prepaid expenses and other current assets

13,045

14,729

Total current assets

153,598

179,155

Property, plant and equipment, net

93,238

98,607

Intangible assets, net

70,848

109,537

Goodwill

199,277

282,410

Deferred income taxes

1,781

1,786

Other assets

48,936

48,383

Total assets

$

567,678

$

719,878

LIABILITIES AND EQUITY

Current Liabilities

Accounts payable

$

8,239

$

15,033

Accrued expenses and other current liabilities

77,308

81,389

Current portion of long-term debt

8,735

6,593

Current portion of capital lease obligations

3,642

4,131

Income taxes payable

2,569

2,094

Total current liabilities

100,493

109,240

Long-term debt, net of current portion

230,661

248,120

Obligations under capital leases, net of current portion

11,964

13,043

Deferred income taxes

6,574

21,290

Other long-term liabilities

41,523

42,163

Total liabilities

391,215

433,856

Commitments and contingencies

Equity

Preferred stock, 10,000,000 shares authorized

Common stock, $0.01 par value, 200,000,000 shares authorized, 29,110,362 and 28,945,472 shares issued

291

289

Additional paid-in capital

231,724

229,205

Retained earnings (deficit)

(23,552

)

77,613

Accumulated other comprehensive loss

(32,172

)

(21,285

)

Total Mistras Group, Inc. stockholders’ equity

176,291

285,822

Noncontrolling interests

172

200

Total equity

176,463

286,022

Total liabilities and equity

$

567,678

$

719,878


Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Income (Loss)
(in thousands, except per share data)

Three months ended June 30,

Six months ended June 30,

2020

2019

2020

2019

Revenue

$

124,435

$

200,616

$

283,900

$

377,403

Cost of revenue

77,954

135,063

191,278

257,480

Depreciation

5,323

5,482

10,820

10,978

Gross profit

41,158

60,071

81,802

108,945

Selling, general and administrative expenses

37,607

41,923

79,165

83,686

Bad debt provision (benefit) for troubled customers, net of recoveries

(2,693

)

2,798

Impairment charges

106,062

Pension withdrawal expense

534

Research and engineering

708

754

1,532

1,611

Depreciation and amortization

3,207

4,119

7,177

8,291

Acquisition-related expense (benefit), net

19

549

(523

)

1,002

Income (loss) from operations

(383

)

15,419

(111,611

)

11,023

Interest expense

2,976

3,579

5,765

7,106

Income (loss) before provision (benefit) for income taxes

(3,359

)

11,840

(117,376

)

3,917

Provision (benefit) for income taxes

(694

)

4,397

(16,189

)

1,760

Net income (loss)

(2,665

)

7,443

(101,187

)

2,157

Less: Net income (loss) attributable to non-controlling interests, net of taxes

(9

)

12

(22

)

19

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

$

(2,656

)

$

7,431

$

(101,165

)

$

2,138

Earnings (loss) per common share:

Basic

$

(0.09

)

$

0.26

$

(3.49

)

$

0.07

Diluted

$

(0.09

)

$

0.26

$

(3.49

)

$

0.07

Weighted-average common shares outstanding:

0

Basic

29,085

28,657

29,024

28,616

Diluted

29,085

28,862

29,024

28,918


Mistras Group, Inc. and Subsidiaries

Unaudited Operating Data by Segment
(in thousands)

Three months ended June 30,

Six months ended June 30,

2020

2019

2020

2019

Revenues

Services

$

100,677

$

161,210

$

229,550

$

301,507

International

21,343

37,090

50,410

72,252

Products and Systems

4,002

4,269

6,814

7,701

Corporate and eliminations

(1,587

)

(1,953

)

(2,874

)

(4,057

)

$

124,435

$

200,616

$

283,900

$

377,403

Three months ended June 30,

Six months ended June 30,

2020

2019

2020

2019

Gross profit

Services

$

33,940

$

47,208

$

66,177

$

84,573

International

5,392

11,058

13,415

21,418

Products and Systems

1,838

1,825

2,206

3,064

Corporate and eliminations

(12

)

(20

)

4

(110

)

$

41,158

$

60,071

$

81,802

$

108,945


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 June 30,

Six months ended June 30,

2020

2019

2020

2019

Services:

Income (loss) from operations (GAAP)

$

10,837

$

20,905

$

(70,657

)

$

24,958

Bad debt provision (benefit) for troubled customers, net of recoveries

(1,977

)

2,778

Impairment charges

86,200

Pension withdrawal expense

534

Reorganization and other costs

45

77

67

77

Acquisition-related expense (benefit), net

19

397

(522

)

702

Income before special items (non-GAAP)

$

10,901

$

19,402

$

15,088

$

29,049

International:

Income (loss) from operations (GAAP)

$

(1,937

)

$

2,450

$

(22,356

)

$

2,234

Bad debt provision (benefit) for troubled customers, net of recoveries

(716

)

20

Impairment charges

19,862

Reorganization and other costs

366

107

292

265

Income (loss) before special items (non-GAAP)

$

(1,571

)

$

1,841

$

(2,202

)

$

2,519

Products and Systems:

Loss from operations (GAAP)

$

(96

)

$

(405

)

$

(1,776

)

$

(1,733

)

Loss before special items (non-GAAP)

$

(96

)

$

(405

)

$

(1,776

)

$

(1,733

)

Corporate and Eliminations:

Loss from operations (GAAP)

$

(9,187

)

$

(7,531

)

$

(16,822

)

$

(14,436

)

Loss on debt modification

645

645

Reorganization and other costs

86

123

60

Acquisition-related expense, net

152

300

Loss before special items (non-GAAP)

$

(8,456

)

$

(7,379

)

$

(16,054

)

$

(14,076

)

Total Company:

Income (loss) from operations (GAAP)

$

(383

)

$

15,419

$

(111,611

)

$

11,023

Bad debt provision (benefit) for troubled customers, net of recoveries

(2,693

)

2,798

Impairment charges

106,062

Pension withdrawal expense

534

Reorganization and other costs

497

184

482

402

Loss on debt modification

645

645

Acquisition-related expense (benefit), net

19

549

(522

)

1,002

Income (loss) before special items (non-GAAP)

$

778

$

13,459

$

(4,944

)

$

15,759


Mistras Group, Inc. and Subsidiaries

Unaudited Summary Cash Flow Information
(in thousands)

Three months ended June 30,

Six months ended June 30,

2020

2019

2020

2019

Net cash provided by (used in):

Operating activities

$

28,755

$

12,928

$

34,862

$

21,105

Investing activities

(3,044

)

(6,047

)

(7,248

)

(11,048

)

Financing activities

(20,829

)

(19,190

)

(20,337

)

(23,139

)

Effect of exchange rate changes on cash

679

210

295

39

Net change in cash and cash equivalents

$

5,561

$

(12,099

)

$

7,572

$

(13,043

)


Mistras Group, Inc. and Subsidiaries

Unaudited Reconciliation of
Net Cash Provided by Operating Activities (GAAP) to Free Cash Flow (non-GAAP)
(in thousands)

Three months ended June 30,

Six months ended June 30,

2020

2019

2020

2019

Net cash provided by operating activities (GAAP)

$

28,755

$

12,928

$

34,862

$

21,105

Less:

Purchases of property, plant and equipment

(3,142

)

(5,925

)

(7,443

)

(11,562

)

Purchases of intangible assets

(108

)

(353

)

(195

)

(441

)

Free cash flow (non-GAAP)

$

25,505

$

6,650

$

27,224

$

9,102


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

Three months ended June 30,

Six months ended June 30,

2020

2019

2020

2019

Net income (loss) (GAAP)

$

(2,665

)

$

7,443

$

(101,187

)

$

2,157

Less: Net income (loss) attributable to non-controlling interests, net of taxes

(9

)

12

(22

)

19

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

$

(2,656

)

$

7,431

$

(101,165

)

$

2,138

Interest expense

2,976

3,579

5,765

7,106

Provision (benefit) for income taxes

(694

)

4,397

(16,189

)

1,760

Depreciation and amortization

8,530

9,601

17,997

19,269

Share-based compensation expense

1,395

1,511

2,740

2,867

Impairment charges

106,062

Acquisition-related expense (benefit), net

19

549

(523

)

1,002

Reorganization and other related costs

497

184

482

402

Pension withdrawal expense

534

Loss on debt modification

645

645

Bad debt provision (benefit) for troubled customers, net of recoveries

(2,693

)

2,798

Foreign exchange (gain) loss

764

(568

)

1,067

(1,198

)

Adjusted EBITDA (non-GAAP)

$

11,476

$

23,991

$

16,881

$

36,678


Mistras Group, Inc. and Subsidiaries

Unaudited Reconciliation of
Net Income (Loss) (GAAP) and Diluted EPS (GAAP) to Net Income (Loss) Excluding Special Items (non-GAAP)
and Diluted EPS Excluding Special Items (non-GAAP)
(tabular dollars in thousands, except per share data)

Three months ended June 30,

Six months ended June 30,

2020

2019

2020

2019

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

$

(2,656

)

$

7,431

$

(101,165

)

$

2,138

Special items

1,161

(1,960

)

106,667

4,736

Tax impact on special items(1)

(191

)

323

(14,041

)

(1,207

)

Special items, net of tax

$

970

$

(1,637

)

$

92,626

$

3,529

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

$

(1,686

)

$

5,794

$

(8,539

)

$

5,667

Diluted EPS (GAAP)(2)

$

(0.09

)

$

0.26

$

(3.49

)

$

0.07

Special items, net of tax

0.03

(0.06

)

3.19

0.12

Diluted EPS Excluding Special Items (non-GAAP)

$

(0.06

)

$

0.20

$

(0.30

)

$

0.19

(1) The Company modified the prior year tax effect on special items to be consistent with the current year methodology, which was to apply the current jurisdictional tax rate to each specific special item. The impact of this change on the three months ended June 30, 2019 was approximately $(0.4) million and $(0.02) per diluted share and on the six months ended June 30, 2019 was approximately $0.5 million and $0.02 per diluted share.
(2) For the three and six months ended June 30, 2020, 118 thousand shares and 223 thousand shares related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the period.