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PRESS RELEASE: Paid content from Globe Newswire
Press release content from Globe Newswire. The AP news staff was not involved in its creation.

MISTRAS Group Announces Third Quarter 2019 Results

November 4, 2019 GMT

Strong Q3 Cash Flow from Operations of $19 million, with Gross Margin Expansion to 30%

Highlights of the Third Quarter and Year-to-Date 2019*

-- Q3 revenue up 6% to $192.2 million -- Q3 gross profit up 10% to $57.8 million and gross margin expanded 140 basis points to 30.1% -- Q3 operating income up 257% to $10.8 million -- Q3 net income of $3.1 million compared to year ago net loss -- Q3 adjusted EBITDA up 7% to $22.4 million -- Q3 cash from operations up 374% to $19.4 million

-- YTD debt repayment of $23.3 million -- YTD operating income up 11% to $21.8 million but growth rate expected to decline in the fourth quarter (refer to guidance update details on page three of this press release)

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

PRINCETON JUNCTION, N.J., Nov. 04, 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 third quarter ended September 30, 2019.

For the third quarter of 2019, consolidated revenues were $192.2 million compared with $182.2 million in the prior year period, an increase of 6%. For the quarter, consolidated gross profit increased 10% compared with 2018 to $57.8 million, as the consolidated gross margin improved by 140 basis points to 30.1% from 28.7% in the same quarter a year ago. The Company generated $19.4 million and $13.4 million in operating cash flows and free cash flows, respectively, for the third quarter of 2019 compared to $4.1 million in operating cash flows and $(0.5) million in free cash flows for the same quarter a year ago.

Chief Executive Officer Dennis Bertolotti stated, “Third quarter results reflect continued progress positioning MISTRAS for long term success. The increase in gross margins, disciplined expense control, growth in our core market share and increase in operating and free cash flow are all consistent with our strategy to drive long-term value creation. Furthermore, this quarter’s acquisition of New Century Software adds another important component to our MISTRAS Digital strategy, which is already making significant strides applying innovative technology that improves our overall offerings and value proposition for customers. These are the keys to building a strong foundation to capitalize on the significant opportunities in our $14 billion NDT industry, where the market continues to grow as a result of increasing regulatory compliance requirements, rising health and safety concerns, and the need to better protect the global investment in physical assets.”

Mr. Bertolotti additionally commented on the Company’s current outlook for 2019, saying, “The pervasive uncertainty surrounding the global macroeconomic environment has now impacted our core Oil and Gas market. Consequently, despite what we believe to be steady gains in our core market share, the weakness in the Oil and Gas turnaround market has reduced our expectations for the fourth quarter and consequently full year revenues and adjusted EBITDA. We believe this decline in market growth is temporary, and we fully expect performance in our Oil and Gas operations to show renewed strength next year. We believe that our year-to-date 2019 gross margin can be maintained into 2020, even with short-term volatility in revenue volume.”

“Over the long-term we are confident that our strategy will enable us to outpace industry growth in both the near and long term while expanding margins and generating attractive free cash flow. The actions we have taken to dispose of non-core and less profitable operations, improve operating efficiency, and expand into adjacent markets such as mechanical services and platforms such as MISTRAS Digital, both through organic investment as well as strategic acquisitions, has positioned us to capitalize on the emerging demand for faster access to better, and more predictive information.”

Performance by segment during the quarter was as follows:

Services segment third quarter revenues increased by 8%. This improvement in the top line was driven by revenue from acquisitions coupled with organic growth. Services segment gross profit margins improved 90 basis points in the third quarter to 28.4% from 27.5% due to favorable operating leverage, favorable service mix, and a decrease in the proportion of low margin contracts.

International segment third quarter revenues increased 1%, despite the headwinds created by the runoff of the European staff leasing business and a mid-single digit decline in foreign exchange rates. Segment gross margins improved by 190 basis points compared to the year ago quarter, reflecting steady progress improving labor utilization rates and the reduction of low margin contracts.

Products and Systems segment revenue decreased by 3% in the third quarter of 2019 compared to the prior year. The revenue decline was attributable to the segment’s 2018 subsidiary sale, partially offset by new contracts recently procured. Gross profit margin improved by 400 basis points compared to the year ago quarter due to product sales mix.

The Company generated $40.5 million of cash flows from operating activities and $22.5 million of free cash flow in the first nine months of 2019, up strongly from $24.2 million and $8.4 million, increases of 67% and 168%, respectively, in the same prior year period.

The Company’s net debt (total debt less cash and cash equivalents) was $252.9 million at September 30, 2019, down from $265.1 million at December 31, 2018. The Company’s gross debt has decreased by $23.3 million during 2019, to $267.3 million at September 30, 2019 from $290.6 million at December 31, 2018 due to repayments made by the Company. The Company additionally paid a total of $7.7 million for acquisitions and taxes related to net settlement of share-based awards, during the nine months ended September 30, 2019.

Updated Guidance for 2019

Revenues and operating earnings were ahead of fiscal 2018 on a year to date basis through the first nine months, indicating a robust business. However, the strong momentum developed over the past two quarters encountered some headwinds coming into the fourth quarter of 2019. The Company is seeing a weak Oil and Gas market, and an overall Fall season that ended much sooner than anticipated. In particular, the Company sees weaknesses in the Oil and Gas turnaround market that appears to be attributable to supply buildups earlier in the year, as well as refineries shifting resources to prepare for IMO2020. In addition, towards the middle of September 2019 and into October 2019, a note of caution unexpectedly arose amongst Oil and Gas customers, attributable primarily to increased macroeconomic uncertainty. It is the same note of caution that is being heard in various sectors, stemming from many factors, including trade tensions, negative European interest rates, and the slowdown in domestic GDP growth. Although the long-term outlook remains intact, these factors are clearly influencing current activity in the Oil and Gas market, resulting in pushouts of demand.

Although the Company feels very good about where it is and its outlook for the long term, this unexpected pause in the Oil and Gas end markets has created some immediate challenges, which will affect performance for the fourth quarter of 2019 and full year 2019.

Consequently, the Company’s full year outlook is now significantly more modest than originally anticipated, and accordingly the Company is lowering its guidance for 2019 as follows:

Total revenues are expected to be between $740 million to $750 million; Adjusted EBITDA is expected to be between $70 million and $75 million; Capital expenditures are expected to be under $25 million; and Free cash flow is expected to between $28 million to $32 million.

The Company is still developing its 2020 full year budget, but preliminarily anticipates modest single digit top-line growth, while maintaining its year-to-date 2019 gross profit and operating margins and cashflow levels.

Conference Call

In connection with this release, MISTRAS will hold a conference call on November 5, 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 7277122 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 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; mechanical integrity (“MI”) and non-destructive testing (“NDT”) services; destructive testing services; and its proprietary world class data warehousing and analysis software and online monitoring - 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 SubsidiariesCondensed Consolidated Balance Sheets(in thousands, except share and per share data)

September December 30, 2019 31, 2018 ----------- ----------- ASSETS (unaudited) Current Assets Cash and cash equivalents $ 14,372 $ 25,544 Accounts receivable, net 148,024 148,324 Inventories 13,419 13,053 Prepaid expenses and other current assets 17,135 15,870 --------- - --------- - Total current assets 192,950 202,791 Property, plant and equipment, net 95,502 93,895 Intangible assets, net 106,893 111,395 Goodwill 283,121 279,259 Deferred income taxes 2,780 1,930 Other assets 46,781 4,767 --------- - Total assets $ 728,027 $ 694,037 - ------- - - ------- - LIABILITIES AND EQUITY Current Liabilities Accounts payable $ 13,428 $ 13,863 Accrued expenses and other current liabilities 86,452 73,895 Current portion of long-term debt 6,563 6,833 Current portion of finance lease obligations 3,751 3,922 Income taxes payable 1,049 1,958 --------- - --------- - Total current liabilities 111,243 100,471 Long-term debt, net of current portion 260,753 283,787 Obligations under finance leases, net of current portion 10,799 9,075 Deferred income taxes 27,458 23,148 Other long-term liabilities 39,428 6,482 --------- - --------- - Total liabilities 449,681 422,963 Commitments and contingencies Equity Preferred stock, 10,000,000 shares authorized — — Common stock, $0.01 par value, 200,000,000 shares authorized, 28,915,088 and 289 285 28,562,608 shares issued Additional paid-in capital 228,287 226,616 Retained earnings 76,784 71,553 Accumulated other comprehensive loss (27,202 ) (27,557 ) --------- - --------- - Total Mistras Group, Inc. stockholders’ equity 278,158 270,897 Non-controlling interests 188 177 --------- - --------- - Total equity 278,346 271,074 --------- - --------- - Total liabilities and equity $ 728,027 $ 694,037 - ------- - - ------- -

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

Three months ended Nine months ended ------------------------ -------------------------- September September September 30, September 30, 30, 2019 30, 2019 2018 2018 ----------- ----------- ------------- ----------- Revenue $ 192,192 $ 182,169 $ 569,595 $ 561,592 Cost of revenue 129,241 124,260 386,721 389,131 Depreciation 5,182 5,577 16,160 16,902 --------- - --------- - --------- --- --------- - Gross profit 57,769 52,332 166,714 155,559 Selling, general and administrative expenses 42,328 41,931 126,014 122,232 Bad debt provision for troubled customers, net of — — 2,798 — recoveries Pension withdrawal expense (benefit) (45 ) 5,886 489 5,886 Gain on sale of subsidiary — (2,384 ) — (2,384 ) Research and engineering 650 745 2,261 2,414 Depreciation and amortization 4,089 2,920 12,380 8,834 Acquisition-related expense (benefit), net (32 ) 217 970 (1,143 ) --------- - --------- - --------- --- --------- - Income from operations 10,779 3,017 21,802 19,720 Interest expense 2,959 1,894 10,065 5,581 --------- - --------- - --------- --- --------- - Income before provision for income taxes 7,820 1,123 11,737 14,139 Provision for income taxes 4,733 2,133 6,493 6,229 --------- - --------- - --------- --- --------- - Net income (loss) 3,087 (1,010 ) 5,244 7,910 Less: Net income (loss) attributable to non-controlling (6 ) 1 13 13 interests, net of taxes --------- - --------- - --------- --- --------- - Net income (loss) attributable to Mistras Group, Inc. $ 3,093 $ (1,011 ) $ 5,231 $ 7,897 - ------- - - ------- - - ------- --- - ------- - Earnings (loss) per common share: Basic $ 0.11 $ (0.04 ) $ 0.18 $ 0.28 Diluted $ 0.11 $ (0.04 ) $ 0.18 $ 0.27 Weighted-average common shares outstanding: Basic 28,800 28,429 28,678 28,360 Diluted 29,156 28,429 29,022 29,447

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

Three months ended Nine months ended ------------------------ ------------------------ September September September September 30, 30, 30, 30, 2019 2018 2019 2018 ----------- ----------- ----------- ----------- Revenues Services $ 152,572 $ 141,340 $ 454,079 $ 434,653 International 37,050 36,671 109,302 116,238 Products and Systems 5,521 5,716 13,222 17,286 Corporate and eliminations (2,951 ) (1,558 ) (7,008 ) (6,585 ) --------- - --------- - --------- - --------- - $ 192,192 $ 182,169 $ 569,595 $ 561,592 - ------- - - ------- - - ------- - - ------- - Three months ended Nine months ended ------------------------ ------------------------ September September September September 30, 2019 30, 2018 30, 2019 30, 2018 ----------- ----------- ----------- ----------- Gross profit Services $ 43,330 $ 38,838 $ 127,903 $ 113,675 International 11,695 10,877 33,113 34,273 Products and Systems 2,739 2,604 5,803 7,707 Corporate and eliminations 5 13 (105 ) (96 ) --------- - --------- - --------- - --------- - $ 57,769 $ 52,332 $ 166,714 $ 155,559 - ------- - - ------- - - ------- - - ------- -

Mistras Group, Inc. and SubsidiariesUnaudited Reconciliation ofSegment and Total Company Income from Operations (GAAP) to Income before Special Items (non-GAAP)(in thousands)

Three months ended Nine months ended ---------------------------- ------------------------------ September 30, September September 30, September 2019 30, 2019 30, 2018 2018 --------------- ----------- ---------------- ------------ Services: Income from operations (GAAP) $ 15,757 $ 8,289 $ 40,715 $ 36,892 Bad debt provision for troubled customers, net of — — 2,778 — recoveries Pension withdrawal expense (benefit) (45 ) 5,886 489 5,886 Reorganization and other costs 125 292 202 292 Acquisition-related expense (benefit), net (125 ) 181 577 (809 ) ------------- - --------- - -------------- - ---------- - Income before special items (non-GAAP) $ 15,712 $ 14,648 $ 44,761 $ 42,261 International: Income (loss) from operations (GAAP) $ 2,921 $ (662 ) $ 5,155 $ 2,713 Reorganization and other costs 90 2,808 355 3,544 Acquisition-related expense (benefit), net — — — (409 ) Bad debt provision for troubled customers, net of — — 20 — recoveries ------------- - --------- - -------------- - ---------- - Income before special items (non-GAAP) $ 3,011 $ 2,146 $ 5,530 $ 5,848 Products and Systems: Income (loss) from operations (GAAP) $ 509 $ 2,415 $ (1,224 ) $ 2,032 Gain on sale of subsidiary — (2,384 ) — (2,384 ) Reorganization and other costs 218 — 218 29 ------------- - --------- - Income (loss) before special items (non-GAAP) $ 727 $ 31 $ (1,006 ) $ (323 ) Corporate and Eliminations: Loss from operations (GAAP) $ (8,408 ) $ (7,025 ) $ (22,844 ) $ (21,917 ) Reorganization and other costs 44 305 104 305 Acquisition-related expense, net 93 36 393 75 ------------- - --------- - -------------- - ---------- - Loss before special items (non-GAAP) $ (8,271 ) $ (6,684 ) $ (22,347 ) $ (21,537 ) Total Company: Income from operations (GAAP) $ 10,779 $ 3,017 $ 21,802 $ 19,720 ------ ------ - -- ------ - ------ ------- - -- ------- - Pension withdrawal expense (45 ) 5,886 489 5,886 Gain on sale of subsidiary — (2,384 ) — (2,384 ) Bad debt provision for troubled customers, net of — — 2,798 — recoveries Reorganization and other costs 477 3,405 879 4,170 Acquisition-related expense (benefit), net (32 ) 217 970 (1,143 ) ------------- - --------- - -------------- - ---------- - Income before special items (non-GAAP) $ 11,179 $ 10,141 $ 26,938 $ 26,249 ------ ------ - -- ------ - ------ ------- - -- ------- -

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

Nine months ended ------------------------ September September 30, 2019 30, 2018 ----------- ----------- Net cash provided by (used in): Operating activities $ 40,476 $ 24,184 Investing activities (21,628 ) (9,831 ) Financing activities (29,521 ) (23,905 ) Effect of exchange rate changes on cash (499 ) (916 ) --------- - --------- - Net change in cash and cash equivalents $ (11,172 ) $ (10,468 ) - ------- - - ------- -

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

Nine months ended ---------------------- September September 30, 2019 30, 2018 ---------- ---------- Net cash provided by operating activities (GAAP) $ 40,476 $ 24,184 Less: Purchases of property, plant and equipment (17,275 ) (15,386 ) Purchases of intangible assets (704 ) (385 ) -------- - -------- - Free cash flow (non-GAAP) $ 22,497 $ 8,413 - ------ - - ------ -

Mistras Group, Inc. and SubsidiariesUnaudited Reconciliation ofNet Income (Loss) (GAAP) to Adjusted EBITDA (non-GAAP)(in thousands)

Three months ended Nine months ended ---------------------- ---------------------- September September September September 30, 30, 30, 30, 2019 2018 2019 2018 ---------- ---------- ---------- ---------- Net income (loss) (GAAP) $ 3,087 $ (1,010 ) $ 5,244 $ 7,910 Less: Net income (loss) attributable to non-controlling (6 ) 1 13 13 interests, net of taxes -------- - -------- - -------- - -------- - Net income (loss) attributable to Mistras Group, Inc. $ 3,093 $ (1,011 ) $ 5,231 $ 7,897 Interest expense 2,959 1,894 10,065 5,581 Provision for income taxes 4,733 2,133 6,493 6,229 Depreciation and amortization 9,271 8,497 28,540 25,736 Share-based compensation expense 1,725 1,931 4,592 4,760 Acquisition-related expense (benefit), net (32 ) 217 970 (1,143 ) Reorganization and other related costs 477 3,405 879 4,170 Gain on sale of subsidiary — (2,384 ) — (2,384 ) Pension withdrawal expense (benefit) (45 ) 5,886 489 5,886 Bad debt provision for troubled customers, net of recoveries — — 2,798 — Foreign exchange (gain) loss 197 262 (1,001 ) 651 -------- - -------- - -------- - -------- - Adjusted EBITDA (non-GAAP) $ 22,378 $ 20,830 $ 59,056 $ 57,383 - ------ - - ------ - - ------ - - ------ -

Mistras Group, Inc. and SubsidiariesUnaudited Reconciliation ofNet Income Attributable to Mistras Group, Inc. (GAAP) toNet Income Attributable to Mistras Group, Inc. Excluding Special Items (non-GAAP), andDiluted EPS (GAAP) to Diluted EPS Excluding Special Items (non-GAAP)(in thousands, except per share data)

Three months ended Nine months ended --------------------- --------------------- 9/30/2019 9/30/2018 9/30/2019 9/30/2018 --------- ---------- --------- ---------- Net income (loss) attributable to Mistras Group, Inc. (GAAP) $ 3,093 $ (1,011 ) $ 5,231 $ 7,897 Special items 400 7,124 5,136 6,529 Tax impact on special items(2) (3) (173 ) (5,041 ) (2,095 ) (2,108 ) ------- - -------- - ------- - -------- - Special items, net of tax 227 2,083 3,041 4,421 ------- - -------- - ------- - -------- - Net income attributable to Mistras Group, Inc. Excluding Special $ 3,320 $ 1,072 $ 8,272 $ 12,318 Items (non-GAAP) (4) - ----- - - ------ - - ----- - - ------ - Diluted EPS (GAAP)(1) $ 0.11 $ (0.04 ) $ 0.18 $ 0.27 Special items, net of tax 0.01 0.07 0.10 0.15 ------- - ------- - -------- - Diluted EPS Excluding Special Items (non-GAAP) (4) $ 0.12 $ 0.03 $ 0.28 $ 0.42 - ----- - - ------ - - ----- - - ------ -

(1) For the three months ended September 30, 2018, 805 and 364 shares related to stock options and restricted stock, respectively, were excluded from the calculation of diluted EPS due to the net loss for the period.

(2) 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 nine months ended September 30, 2019, which was 43% and 41%, respectively.

(3) 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 nine months ended September 30, 2019, exclusive of discrete items, was 71% and 32%, respectively. The impact of this change on the three months ended September 30, 2018 was approximately $3.3 million and $0.12 per diluted share and on the nine months ended September 30, 2018 was $0.5 million and $0.02 per diluted share.

(4) The table above does not reflect a reduction in net income related to the write-off of certain deferred tax assets of approximately $1.4 million or $0.05 per diluted share for the three and nine months ended September 30, 2019.

Media Contact:Nestor S. MakarigakisGroup Director of Marketing Communicationsmarcom@mistrasgroup.com1(609)716-4000