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Mistras Group Announces Results for Period Ended December 31, 2016

PRINCETON JUNCTION, N.J., March 16, 2017 (GLOBE NEWSWIRE) -- Mistras Group, Inc. (NYSE:MG), a leading "one source" global provider of technology-enabled asset protection solutions, reported financial results for its abbreviated fiscal period (the “2016 stub period”) which commenced on June 1, 2016 and ended December 31, 2016. The 2016 stub period is a result of the Company's previously announced change in its fiscal year to December 31 in order to better align the Company's budgeting and planning cycles with those of its customers.

Revenues for the 2016 stub period were $404.2 million, or 6% lower than in the comparable period of 2015. Net income during the 2016 stub period was $9.6 million or $0.32 per diluted share, both measures reflecting declines of approximately 50% compared with the comparable period of 2015. Included in the 2016 stub period were pre-tax charges aggregating approximately $5 million, primarily associated with the acceleration of certain costs to align with the Company's new December 31 fiscal year-end, and other charges which included severance and the write-off of an intangible asset.

The Company generated $30.3 million of cash from operating activities during the 2016 stub period and approximately $20 million in free cash flow, defined as cash flow from operating activities less cash used to purchase property, plant and equipment and intangible assets. The Company utilized its free cash flow during the 2016 stub period for acquisitions ($8.3 million) and to repurchase $9 million of stock. The Company’s net debt (total debt less cash) of $84.3 million at December 31, 2016 was approximately 1.1x Adjusted EBITDA.

Adjusted EBITDA for the 2016 stub period was $43 million, or 10.6% of revenues, compared with $58 million in the comparable period of the prior year. The decline of $15 million was almost entirely driven by the Company’s Services segment, which experienced a weaker than expected fall 2016 turnaround season.

Dr. Sotirios Vahaviolos, Chairman and Chief Executive Officer stated, "As mentioned in our recent earnings calls, the fall 2016 season was an especially challenging market in North America, as workloads from many customers were less than in prior year. These conditions caused results in our Services segment to suffer a poor comparison to prior year that more than offset continued positive performance in our International segment. Having realized strong improvements in our fiscal year that ended May 31, 2016, the fall off that we experienced in the second half of calendar 2016 was very disappointing.”

Dr. Vahaviolos added: “Unfortunately, the market has not yet rebounded in the spring of 2017. We are using this time to make further adjustments to our cost structure, and to enhance our competitive position by adding capabilities that will help our customers in new and exciting ways. We will use 2017 to position Mistras to drive incrementally more value for our customers, and to make investments that will reignite our profitable growth in 2018 and beyond. "

Planning Assumptions and Guidance for 2017

The Company is introducing its planning assumptions and guidance for fiscal year 2017 that commenced on January 1, 2017. The Company expects that the present range for petroleum prices will persist for the foreseeable future, causing oil and gas customer spend for inspection services to be correspondingly flat to down.

Information obtained from North American oil and gas customers suggests that their spending in the first half of calendar 2017 will continue to trend lower than prior year, albeit at a lower rate of decline than in the fall of 2016. Spending levels are expected to pick up modestly in the second half of 2017. The Company’s results for the first half and second half of 2017 are expected to reflect this dynamic.

Total revenues for 2017 are expected to be between $670 million to $700 million, or roughly flat with calendar 2016 revenues of $685 million. The Company’s net income for calendar 2016 was $16 million, including net of tax charges of approximately $5 million. Net income for 2017 is expected to range from $20 million to $23 million. Earnings per diluted share is expected to range from 68 cents to 78 cents. Adjusted EBITDA for calendar year 2016 was $74 million, or 11% of revenues. Adjusted EBITDA for calendar 2017 is expected to be between $73 million to $78 million.

The Company expects that its operating cash flow will approximate $50 million, inclusive of funding over $6 million pertaining to a prior year legal settlement. Capital expenditures are expected to be approximately $20 million, inclusive of approximately $5 million to be used to build out the Company’s facilities and equipment to service its recent long-term contract with Safran in France.

Conference Call

In connection with this release, Mistras will hold a conference call on March 17, 2017 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 call 1-844-832-7227 and use confirmation code 88319215 when prompted. The International dial-in number is 1-224-633-1529.

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.

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 for fiscal 2016 filed with the Securities and Exchange Commission on August 15, 2016, 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 and Unaudited Proforma Financial Information
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. These adjusted financial measures are non-GAAP and should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. We typically exclude certain GAAP items that management does not believe affect our basic operations and that do not meet the GAAP definition of unusual or non-recurring items. Other companies may define these measures in different ways. The term "Adjusted EBITDA" used in this release is a financial measurement not calculated in accordance with GAAP. A Reconciliation of Adjusted EBITDA to a financial measurement under GAAP is set forth in a table attached to this press release. 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 free cash flow as cash provided by operating activities less capital expenditures (which is classified as an investing activity). Free cash flow does not represent residual cash flow available for discretionary expenditures since items such as debt repayments are not deducted in determining such measures. 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 and capital lease obligations, less cash and cash equivalents. The Company believes that investors and other users of the financial statements benefit from the presentation of these non-GAAP measurements because they provide additional metrics to compare the Company's operating performance on a consistent basis and measure underlying trends and results of the Company's business.

The accompanying unaudited proforma summary operating information and unaudited proforma reconciliations of net income to Adjusted EBITDA for each of the 2016 and 2015 quarterly periods and calendar years presented has been prepared as-if the Company had historically reported on a calendar year basis. Certain assumptions have been made in preparing the information on this basis.

Mistras Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31, 2016 May 31, 2016
ASSETS
Current Assets
Cash and cash equivalents $19,154 $21,188
Accounts receivable, net 130,852 137,913
Inventories 10,017 9,918
Deferred income taxes 6,230 6,216
Prepaid expenses and other current assets 16,399 12,711
Total current assets 182,652 187,946
Property, plant and equipment, net 73,149 78,676
Intangible assets, net 40,007 43,492
Goodwill 169,940 169,220
Deferred income taxes 1,086 1,000
Other assets 2,593 2,341
Total Assets $469,427 $482,675
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable $6,805 $10,796
Accrued expenses and other current liabilities 58,697 62,983
Current portion of long-term debt 1,379 12,553
Current portion of capital lease obligations 6,488 7,835
Income taxes payable 4,342 2,710
Total current liabilities 77,711 96,877
Long-term debt, net of current portion 85,917 72,456
Obligations under capital leases, net of current portion 9,682 11,932
Deferred income taxes 17,584 18,328
Other long-term liabilities 7,789 6,794
Total Liabilities 198,683 206,387
Commitments and contingencies
Equity
Preferred stock, 10,000,000 shares authorized
Common stock, $0.01 par value, 200,000,000 shares authorized, 29,216,745 and 28,939,993 shares issued 292 290
Additional paid-in capital 217,211 213,737
Treasury stock at cost, 420,258 and 0 shares (9,000)
Retained earnings 91,803 82,235
Accumulated other comprehensive loss (29,724) (20,099)
Total Mistras Group, Inc. stockholders’ equity 270,582 276,163
Noncontrolling interests 162 125
Total Equity 270,744 276,288
Total Liabilities and Equity $469,427 $482,675


Mistras Group, Inc. and Subsidiaries
Unaudited Consolidated Statements of Income
(in thousands, except per share data)
Stub period ended
December 31,
2016
December 31,
2015
Revenue $404,161 $427,913
Cost of revenue 274,298 292,718
Depreciation 12,859 12,005
Gross profit 117,004 123,190
Selling, general and administrative expenses 91,058 81,117
Research and engineering 1,577 1,431
Depreciation and amortization 6,340 6,503
Acquisition-related expense (benefit), net 496 (959)
Income from operations 17,533 35,098
Interest expense 2,052 3,672
Income before provision for income taxes 15,481 31,426
Provision for income taxes 5,870 11,627
Net income 9,611 19,799
Less: net income (loss) attributable to noncontrolling interests, net of taxes 43 (15)
Net income attributable to Mistras Group, Inc. $9,568 $19,814
Earnings per common share
Basic $0.33 $0.69
Diluted $0.32 $0.67
Weighted average common shares outstanding:
Basic 28,989 28,810
Diluted 30,125 29,676


Mistras Group, Inc. and Subsidiaries
Unaudited Operating Data by Segment
(in thousands)
Stub Period Ended
December
31, 2016
December
31, 2015
Revenues
Services$293,218 $327,118
International104,013 87,411
Products and Systems14,541 18,786
Corporate and eliminations(7,611) (5,402)
$404,161 $427,913
Stub Period Ended
December
31, 2016
December
31, 2015
Gross profit
Services$75,784 $87,514
International34,210 26,762
Products and Systems6,920 8,986
Corporate and eliminations90 (72)
$117,004 $123,190


Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Segment and Total Company Income (Loss) from Operations (GAAP) to Income before Special Items (non-GAAP)
(in thousands)
Stub period ended
December
31, 2016
December
31, 2015
Services:
Income from operations (GAAP)$22,411 $37,175
Severance costs77 188
Acquisition-related expense (benefit), net236 (593)
Income before special items (non-GAAP)22,724 36,770
International:
Income from operations (GAAP)10,597 6,888
Severance costs474 175
Asset write-offs and lease terminations1,042
Acquisition-related expense (benefit), net29 (457)
Income before special items (non-GAAP)12,142 6,606
Products and Systems:
(Loss) income from operations (GAAP)(254) 2,613
Severance costs14 17
(Loss) income before special items (non-GAAP)(240) 2,630
Corporate and Eliminations:
Loss from operations (GAAP)(15,221) (11,578)
Severance costs133
Acquisition-related expense (benefit), net231 91
Loss before special items (non-GAAP)(14,857) (11,487)
Total Company
Income from operations (GAAP)$17,533 $35,098
Severance costs$698 $380
Asset write-offs and lease terminations$1,042 $
Acquisition-related expense (benefit), net$496 $(959)
Income before special items (non-GAAP)$19,769 $34,519


Mistras Group, Inc. and Subsidiaries
Unaudited Summary Cash Flow Information
(in thousands)
Stub period ended
December 31, 2016
Net cash provided by (used in):
Operating activities$30,259
Investing activities(17,374)
Financing activities(12,869)
Effect of exchange rate changes on cash(2,050)
Net change in cash and cash equivalents$(2,034)


Mistras Group, Inc. and Subsidiaries
Reconciliation of Net Cash Provided from Operating Activities (GAAP) to Free Cash Flow (non-GAAP)
(in thousands)
Stub Period ended December
31, 2016
GAAP: Net cash provided from operating activities $30,259
Less:
Purchase of property, plant and equipment (9,093)
Purchase of intangible assets (697)
non-GAAP: Free cash flow $20,469


Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income to Adjusted EBITDA
(in thousands)
Stub period ended
December 31,
2016
December 31,
2015
Net income$9,611 $19,799
Less: net income (loss) attributable to noncontrolling interests, net of taxes43 (15)
Net income attributable to Mistras Group, Inc.$9,568 $19,814
Interest expense2,052 3,672
Provision for income taxes5,870 11,627
Depreciation and amortization19,199 18,508
Share-based compensation expense4,601 3,792
Acquisition-related expense (benefit), net496 (959)
Severance698 380
Foreign exchange (gain) loss(675) 728
Asset write-offs and lease terminations1,042
Adjusted EBITDA$42,851 $57,562


Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Estimated Adjusted EBITDA and Estimated Net Income for 2017
(in millions)
For the Year Ended December 31, 2017
Low High
Estimated Net Income$20.0 $23.0
Interest expense3.5 3.5
Provision for income taxes11.0 13.0
Depreciation and amortization31.5 31.5
Share-based compensation expense7.0 7.0
Estimated Adjusted EBITDA$73.0 $78.0


Mistras Group, Inc. and Subsidiaries
Unaudited Proforma Summary of Operating Information
(in thousands, except per share data)
Three Months Ended Year
Ended
3/31/2016 6/30/2016 9/30/2016 12/31/2016 2016
Revenue$167,455 $178,340 $168,811 $170,156 $684,762
Cost of revenue118,229 121,044 112,754 116,902 468,929
Depreciation5,256 5,761 5,406 5,276 21,699
Gross profit43,970 51,535 50,651 47,978 194,134
Selling, general and administrative expenses35,054 43,537 34,995 39,713 153,299
Research and engineering662 623 643 742 2,670
Depreciation and amortization2,762 2,865 2,513 2,549 10,689
Acquisition-related expense (benefit), net(153) (330) 384 94 (5)
Income from operations5,645 4,840 12,116 4,880 27,481
Interest expense1,100 340 778 857 3,075
Income before provision for income taxes4,545 4,500 11,338 4,023 24,406
Provision for income taxes1,088 1,737 4,083 1,581 8,489
Net income3,457 2,763 7,255 2,442 15,917
Less: net income attributable to noncontrolling interests, net of taxes10 2 17 20 49
Net income attributable to Mistras Group, Inc.$3,447 $2,761 $7,238 $2,422 $15,868
Earnings per common share
Basic$0.12 $0.10 $0.25 $0.08 $0.55
Diluted$0.12 $0.09 $0.24 $0.08 $0.53
Weighted average common shares outstanding:
Basic28,915 28,932 29,051 28,943 28,960
Diluted29,966 30,152 30,231 29,920 30,114


Mistras Group, Inc. and Subsidiaries
Unaudited Proforma Reconciliation of Net Income to Adjusted EBITDA
and Unaudited Proforma Segment Data
(in thousands, except per share data)
Three Months Ended Year
Ended
3/31/2016 6/30/2016 9/30/2016 12/31/2016 2016
Net income$3,457 $2,763 $7,255 $2,442 $15,917
Less: net income attributable to noncontrolling interests, net of taxes10 2 17 20 49
Net income attributable to Mistras Group, Inc.3,447 2,761 7,238 2,422 15,868
Interest expense1,100 340 778 857 3,075
Provision for income taxes1,088 1,737 4,083 1,581 8,489
Depreciation and amortization8,018 8,626 7,919 7,825 32,388
Share-based compensation expense1,729 1,466 1,966 2,163 7,324
Acquisition-related expense (benefit), net(153) (330) 384 94 (5)
Severance54 673 265 433 1,425
Foreign exchange (gain) loss(282) (237) (835) (11) (1,365)
Legal settlement 6,320 6,320
Adjusted EBITDA$15,001 $21,356 $21,798 $15,364 $73,519
Segment Data:
Revenues
Services$131,579 $136,358 $127,153 $124,289 $519,379
International30,980 36,373 37,922 43,486 148,761
Products6,680 6,467 6,807 6,094 26,048
Corporate and Eliminations(1,784) (858) (3,071) (3,713) (9,426)
$167,455 $178,340 $168,811 $170,156 $684,762
Operating Income
Services$11,339 $7,372 $12,221 $6,856 $37,788
International720 2,454 5,751 5,918 14,843
Products(132) (114) 806 (740) (180)
Corporate and Eliminations(6,282) (4,872) (6,662) (7,154) (24,970)
$5,645 $4,840 $12,116 $4,880 $27,481
Adjusted EBITDA
Services$16,773 $19,467 $18,111 $12,121 $66,472
International2,288 4,954 6,994 8,365 22,601
Products445 492 1,358 (88) 2,207
Corporate and Eliminations(4,505) (3,557) (4,665) (5,034) (17,761)
$15,001 $21,356 $21,798 $15,364 $73,519


Mistras Group, Inc. and Subsidiaries
Unaudited Proforma Summary of Operating Information
(in thousands, except per share data)
Three Months Ended Year
Ended
3/31/2015 6/30/2015 9/30/2015 12/31/2015 2015
Revenue$168,873 $170,932 $187,173 $184,306 $711,284
Cost of revenue121,036 122,005 127,391 125,044 495,476
Depreciation5,225 5,270 5,188 5,135 20,818
Gross profit42,612 43,657 54,594 54,127 194,990
Selling, general and administrative expenses32,814 39,256 34,241 34,408 140,719
Research and engineering637 539 661 603 2,440
Depreciation and amortization3,047 3,009 2,714 2,788 11,558
Acquisition-related expense (benefit), net(1,656) (2,131) (883) (76) (4,746)
Income from operations7,770 2,984 17,861 16,404 45,019
Interest expense1,181 1,155 1,960 1,360 5,656
Income before provision for income taxes6,589 1,829 15,901 15,044 39,363
Provision for income taxes2,479 689 5,982 5,659 14,809
Net income4,110 1,140 9,919 9,385 24,554
Less: net income (loss) attributable to noncontrolling interests, net of taxes(51) (35) (20) 9 (97)
Net income attributable to Mistras Group, Inc.$4,161 $1,175 $9,939 $9,376 $24,651
Earnings per common share
Basic$0.15 $0.04 $0.35 $0.32 $0.86
Diluted$0.14 $0.04 $0.34 $0.32 $0.83
Weighted average common shares outstanding:
Basic28,683 28,703 28,776 28,878 28,760
Diluted29,595 29,638 29,524 29,720 29,632


Mistras Group, Inc. and Subsidiaries
Unaudited Proforma Reconciliation of Net Income to Adjusted EBITDA and Unaudited Proforma Segment Data
(in thousands, except per share data)
Three Months Ended Year
Ended
3/31/2015 6/30/2015 9/30/2015 12/31/2015 2015
Net income$4,110 $1,140 $9,919 $9,385 $24,554
Less: net income (loss) attributable to noncontrolling interests, net of taxes(51) (35) (20) 9 (97)
Net income attributable to Mistras Group, Inc.4,161 1,175 9,939 9,376 24,651
Interest expense1,181 1,155 1,960 1,360 5,656
Provision for income taxes2,479 689 5,982 5,659 14,809
Depreciation and amortization8,272 8,279 7,902 7,923 32,376
Share-based compensation expense458 1,694 1,909 1,304 5,365
Acquisition-related expense (benefit), net(1,656) (2,131) (883) (76) (4,746)
Severance160 1,186 60 320 1,726
Foreign exchange (gain) loss127 640 (214) 399 952
Charges related to exit of foreign operations 2,516 2,516
Asset write-offs and lease terminations 1,029 1,029
Adjusted EBITDA$15,182 $16,232 $26,655 $26,265 $84,334
Segment Data:
Revenues
Services$131,161 $132,626 $143,249 $139,263 $546,299
International30,854 32,715 37,936 38,964 140,469
Products8,603 7,980 8,916 7,569 33,068
Corporate and Eliminations(1,745) (2,389) (2,928) (1,490) (8,552)
$168,873 $170,932 $187,173 $184,306 $711,284
Operating Income
Services$11,689 $12,821 $17,584 $15,584 $57,678
International(2,190) (1,845) 3,343 4,543 3,851
Products1,586 538 1,526 1,011 4,661
Corporate and Eliminations(3,315) (8,530) (4,592) (4,734) (21,171)
$7,770 $2,984 $17,861 $16,404 $45,019
Adjusted EBITDA
Services$16,135 $17,037 $22,178 $21,548 $76,898
International(675) 1,481 5,646 6,429 12,881
Products2,198 1,232 2,093 1,611 7,134
Corporate and Eliminations(2,476) (3,518) (3,262) (3,323) (12,579)
$15,182 $16,232 $26,655 $26,265 $84,334


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

Source:MISTRAS Group, Inc.

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