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Mistras Group Announces Second Quarter Results

PRINCETON JUNCTION, N.J., Aug. 08, 2017 (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, 2017.

Revenues for the second quarter of 2017 were $170.4 million, 4% lower than in the prior year’s second quarter. Second quarter 2017 net income was $2.2 million or $0.07 per diluted share, versus $2.8 million or $0.09 per diluted share in the prior year. 2017 results included special charges primarily related to closing a handful of small labs which reduced net income by $0.4 million, net of tax, or $0.02 per share. 2016 results included net-of-tax charges of $4.1 million or $0.14 per diluted share that primarily pertained to a legal settlement. Exclusive of these special charges, 2017 second quarter net income and earnings per diluted share, net of tax, were $2.6 million and $0.09 per diluted share, compared with the prior year’s $6.8 million and $0.23 per diluted share.

The Company generated $23.0 million of cash from operating activities and $12.5 million of free cash flow during the first six months of 2017, both amounts reduced by a $6.3 million payment of a prior year legal settlement. The Company used $4.5 million of its free cash flow for an acquisition and $12 million to repurchase common stock. The Company’s net debt (total debt less cash) of $90 million at June 30, 2017 was approximately 1.3x Adjusted EBITDA.

Adjusted EBITDA for the second quarter of 2017 was $16 million, compared with $21 million in the comparable period of the prior year. Performance by segment was as follows:

Services segment Q2 operating income improved $4.8 million, or 65% over prior year. Services Q2 2017 operating income was reduced $0.6 million primarily by costs to close a handful of small labs. Services Q2 2016 operating income was reduced $6.0 million primarily related to a prior year legal settlement. Excluding these special items, Services Q2 2017 operating income declined $0.6 million or 5% versus prior year, on revenues that declined 2%. During Q2 Services results began to improve versus prior year. Excluding the impact of one challenged region in which market difficulties continued to cause a year-on-year decline, Services Q2 revenues were flat and operating income excluding special items improved year-on-year by 20%.

International segment Q2 operating income declined $2.6 million below prior year, on revenues that declined by $2.5 million, or 7%. Unlike Q1, where the Company experienced organic revenue growth and improved profits in Germany, France and Brazil, Q2 saw revenue and profit declines in Germany, the UK and to a lesser extent in France. German results were adversely impacted by the timing of sales volumes, while UK results have suffered in the first and second quarters of 2017 due primarily to the timing of customer projects.

Products and Systems segment Q2 operating income declined by $0.8 million driven by a $1.4 million revenue decline.

Dennis Bertolotti, incoming Chief Executive Officer stated, "I am pleased with the performance of our Services segment. Although spring 2017 market conditions were challenging as expected in North America, our Services results have been resilient, realizing year-on-year revenue and profit gains with the exception of one challenged region. We remain optimistic that the market for North American nondestructive testing services will show modest year-on-year improvement this fall compared with the prior year’s unusually low spending levels.”

Mr. Bertolotti added: “We are working aggressively to position the Company for its next phase of growth. We have implemented a three-pronged plan to drive results, as follows:

  1. Restructuring. In addition to our just-announced management transition at the senior level, we are also transitioning the leadership of the Services segment, elevating four of our top managers to regional leadership positions, and transitioning leadership of our German subsidiary. These changes will drive more accountability, ownership and focus.
  2. Investment. As the third quarter commenced, we made an important acquisition of a Canadian company that performs mechanical services. We are excited about this business and this team, which we will utilize to drive organic growth throughout Canada and the United States. In addition, we hired a manager to add to our capabilities to proactively target and consummate acquisitions and are hiring a new executive to lead our sales function.
  3. Cost Reduction. I am challenging each of our new leaders to drive more business and to reduce costs. We are targeting a global annual cost reduction of $5 million which we expect to implement during the next three months.

Mr. Bertolotti concluded, stating “In addition to these initiatives, we are actively quoting new business and using this time 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."

Updated Guidance for 2017

The market for North American inspection services was in line with Company expectations in the first half of 2017. Customer feedback continues to indicate the market is poised for a modest pick up in the second half of 2017. Services segment first half results were in line with Company expectations and are expected to improve over prior year in the second half of the calendar year. The international segment’s second quarter earnings were below our expectations and are now expected to fall short of prior year operating profit by approximately $6 million. Because of this expected shortfall, the Company is reducing its expected EBITDA forecast to a range of $66 million to $70 million for calendar 2017. Correspondingly, the Company expects its net income to be in a range of from $13 million to $15 million, and its earnings per diluted share to range from $0.42 to $0.52.

Conference Call
In connection with this release, Mistras will hold a conference call on August 9, 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 61105205 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 Transition Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2017, 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 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 and capital lease obligations, 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, 2017 December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents $26,784 $19,154
Accounts receivable, net 129,221 130,852
Inventories 10,949 10,017
Deferred income taxes 6,230
Prepaid expenses and other current assets 16,526 16,399
Total current assets 183,480 182,652
Property, plant and equipment, net 76,218 73,149
Intangible assets, net 40,503 40,007
Goodwill 176,231 169,940
Deferred income taxes 2,085 1,086
Other assets 2,710 2,593
Total assets $481,227 $469,427
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable $9,342 $6,805
Accrued expenses and other current liabilities 56,841 58,697
Current portion of long-term debt 2,116 1,379
Current portion of capital lease obligations 6,386 6,488
Income taxes payable 3,814 4,342
Total current liabilities 78,499 77,711
Long-term debt, net of current portion 99,544 85,917
Obligations under capital leases, net of current portion 8,919 9,682
Deferred income taxes 12,859 17,584
Other long-term liabilities 8,157 7,789
Total liabilities 207,978 198,683
Commitments and contingencies
Equity
Preferred stock, 10,000,000 shares authorized
Common stock, $0.01 par value, 200,000,000 shares authorized, 29,306,510 and 29,216,745 shares issued 293 292
Additional paid-in capital 220,305 217,211
Treasury stock, at cost, 960,882 and 420,258 shares (21,000) (9,000)
Retained earnings 95,712 91,803
Accumulated other comprehensive loss (22,232) (29,724)
Total Mistras Group, Inc. stockholders’ equity 273,078 270,582
Noncontrolling interests 171 162
Total equity 273,249 270,744
Total liabilities and equity $481,227 $469,427




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, 2017 June 30, 2016 June 30, 2017 June 30, 2016
Revenue$170,439 $178,340 $333,757 $345,795
Cost of revenue118,825 121,044 233,828 239,273
Depreciation5,271 5,761 10,433 11,017
Gross profit46,343 51,535 89,496 95,505
Selling, general and administrative expenses37,973 37,217 75,273 72,271
Research and engineering552 623 1,195 1,285
Depreciation and amortization2,613 2,865 5,116 5,627
Legal settlement 6,320 6,320
Acquisition-related expense (benefit), net202 (330) (341) (483)
Income from operations5,003 4,840 8,253 10,485
Interest expense1,015 340 2,033 1,440
Income before provision for income taxes3,988 4,500 6,220 9,045
Provision for income taxes1,770 1,737 2,304 2,825
Net income2,218 2,763 3,916 6,220
Less: net income attributable to non-controlling interests, net of taxes1 2 7 12
Net income attributable to Mistras Group, Inc.$2,217 $2,761 $3,909 $6,208
Earnings per common share
Basic$0.08 $0.10 $0.14 $0.21
Diluted$0.07 $0.09 $0.13 $0.21
Weighted average common shares outstanding:
Basic28,437 28,932 28,562 28,924
Diluted29,599 30,152 29,754 30,083



Mistras Group, Inc. and Subsidiaries
Unaudited Operating Data by Segment
(in thousands)
Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016
Revenues
Services$134,043 $136,358 $260,372 $267,936
International33,904 36,373 68,160 67,353
Products and Systems5,107 6,467 10,657 13,148
Corporate and eliminations(2,615) (858) (5,432) (2,642)
$170,439 $178,340 $333,757 $345,795
Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016
Gross profit
Services$35,490 $36,490 $65,703 $68,948
International8,828 11,867 19,288 20,540
Products and Systems1,966 3,050 4,560 5,789
Corporate and eliminations59 128 (55) 228
$46,343 $51,535 $89,496 $95,505



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,
2017 2016 2017 2016
Services:
Income from operations$12,132 $7,372 $19,513 $18,711
Legal settlement 6,320 6,320
Bad debt provision for a customer bankruptcy 1,200
Severance costs314 330
Asset write-offs and lease terminations123 123
Acquisition-related expense (benefit), net201 (295) 78 (468)
Income before special items12,770 13,397 21,244 24,563
International:
(Loss) income from operations(190) 2,454 2,843 3,174
Severance costs63 645 76 710
Acquisition-related expense (benefit), net (83) (501) (63)
(Loss) income before special items(127) 3,016 2,418 3,821
Products and Systems:
Loss from operations(892) (114) (1,340) (246)
Severance costs 28 17
Acquisition-related expense (benefit), net
Loss before special items(892) (86) (1,340) (229)
Corporate and Eliminations:
Loss from operations(6,047) (4,872) (12,763) (11,154)
Severance costs
Acquisition-related expense (benefit), net1 48 82 48
Loss before special items(6,046) (4,824) (12,681) (11,106)
Total Company
Income from operations$5,003 $4,840 $8,253 $10,485
Legal settlement 6,320 6,320
Bad debt provision for a customer bankruptcy 1,200
Severance costs377 673 406 727
Asset write-offs and lease terminations123 123
Acquisition-related expense (benefit), net202 (330) (341) (483)
Income before special items$5,705 $11,503 $9,641 $17,049



Mistras Group, Inc. and Subsidiaries
Unaudited Summary Cash Flow Information
(in thousands)
Six months ended June 30,
2017 2016
Net cash provided by (used in):
Operating activities$22,972 $37,778
Investing activities(14,218) (7,368)
Financing activities(2,726) (21,951)
Effect of exchange rate changes on cash1,602 384
Net change in cash and cash equivalents$7,630 $8,843


Mistras Group, Inc. and Subsidiaries
Reconciliation of Net Cash Provided by Operating Activities (GAAP) to Free Cash Flow (non-GAAP)
(in thousands)
Six months ended June 30, 2017
GAAP: Net cash provided by operating activities$22,972
Less:
Purchases of property, plant and equipment(9,789)
Purchases of intangible assets(688)
non-GAAP: Free cash flow$12,495



Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income to Adjusted EBITDA
(in thousands)
Three months ended
June 30, 2017 June 30, 2016
Net income$2,218 $2,763
Less: net income attributable to noncontrolling interests, net of taxes1 2
Net income attributable to Mistras Group, Inc.$2,217 $2,761
Interest expense1,015 340
Provision for income taxes1,770 1,737
Depreciation and amortization7,884 8,626
Share-based compensation expense1,697 1,466
Legal settlement 6,320
Acquisition-related expense (benefit), net202 (330)
Severance377 673
Asset write-offs and lease terminations123
Foreign exchange (gain) loss349 (237)
Adjusted EBITDA$15,634 $21,356



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)
Three months ended June 30,
2017 2016
Net income (GAAP) $2,217 $2,761
Special items, net of tax 396 4,056
Net Income Excluding Special Items (non-GAAP) $2,613 $6,817
Diluted EPS (GAAP) $0.07 $0.09
Special items 0.02 0.14
Diluted EPS Excluding Special Items (non-GAAP) $0.09 $0.23


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

Source:MISTRAS Group, Inc.