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Mistras Group Announces Results for Third Quarter FY'14

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Mistras Group Announces Results for Third Quarter FY'14

Apr 8, 2014

PRINCETON JUNCTION, N.J., April 8, 2014 (GLOBE NEWSWIRE) -- Mistras Group, Inc. (NYSE:MG), a leading "one source" global provider of technology-enabled asset protection solutions, today reported financial results for its third quarter and first nine months of fiscal year 2014, which ended February 28, 2014.

During its third quarter, the Company's revenues increased 13.5% over prior year, reaching $151.7 million. Net income for the third quarter was $1.2 million, or $0.04 per diluted share, compared with net income of $2.8 million or $0.09 per diluted share in the prior year period. Excluding acquisition-related items, net income in the third quarter of fiscal year 2014 was $1.8 million or $0.06 per diluted share, compared with $1.9 million or $0.06 per diluted share in the prior year's third quarter. Adjusted EBITDA was $12.5 million in the third quarter of fiscal year 2014 compared with $12.5 million in the prior year period.

During the first nine months of fiscal year 2014, the Company's revenues grew 15.5% over prior year, reaching $444.3 million. Net income for the first nine months was $16.1 million, or $0.55 per diluted share, compared with $16.2 million or $0.56 per diluted share in the prior year period. Excluding acquisition-related items, net income for the first nine months of fiscal year 2014 was $15.0 million or $0.51 per diluted share, compared with $15.7 million or $0.54 per diluted share in the prior year. Adjusted EBITDA was $51.1 million for the first nine months of fiscal year 2014 compared with $51.8 million in the prior year period.

The Company's operations and profitability were adversely impacted by several factors during the third quarter of fiscal year 2014, including shut-downs of numerous customer work sites caused primarily by bad weather, start-up costs related to two important contracts, other one-time costs and weak international results. We believe that the combined impact of these factors reduced Adjusted EBITDA by approximately $3 million and net income by approximately $1.8 million, or $0.06 per diluted share.

Financial Highlights:

Revenues

  • Revenues for the third quarter of fiscal 2014 increased 13.5% over prior year. Despite the adverse weather conditions, organic revenue growth was 7.2%.
  • Revenues for the first nine months of fiscal 2014 increased by 15.5%, consisting of 5.4% organic growth and 10% acquisition growth. Due to key contract wins, organic growth for fiscal year 2014 is still expected to approach 7% for the entire fiscal year.
  • Organic revenue for the Services segment grew 12.8% during the third quarter and 9.6% during the first nine months due to continued strength in our key market segments.
  • The International segment contracted organically by 2.3% during the third quarter, reducing its year-to-date organic growth to 0.5%.
  • The Products and Systems segment contracted organically by 0.5% in the third quarter and by 11.0% year-to-date, due primarily to lower sales to the coal-based power sector.

Gross Profit

  • Gross Profit grew by 15% over prior year for both the third quarter of fiscal 2014 and year-to-date.
  • Gross margin for the third quarter was 25.9% of revenues vs. 25.6% in the prior year.
  • Gross margin for the first nine months was 28.5% of revenues in both current and prior year. Weather and start-up costs adversely impacted third quarter 2014 gross margin by approximately 1.3% of revenues.

Operating Cash Flow

  • The Company's operating cash flow was $22.6 million for the first nine months of fiscal year 2014.

Sotirios Vahaviolos, Chairman and Chief Executive Officer stated, "Our third quarter results and organic revenue growth for Services were strong, considering the magnitude of the adverse weather conditions and the start-up costs we incurred to fully staff-up for our recent contract win in Alaska and to prepare for a new contract that we just signed with a major integrated energy company with significant operations in the Canadian oil sands region. The impact of these factors was not fully expected in the Company's previous earnings guidance. International results were likewise weaker than expected, due primarily to the timing of customer start-up for recent contract wins."

"We remain bullish about the continued health and growth prospects of the North American oil & gas and chemical industries for the next several years, driven both by consumer demand for energy and our customers' needs to improve safety and comply with stringent environmental regulations. Our recent contract wins continue to demonstrate the market's receptivity toward our employees and our company's value based service offerings."

Dr. Vahaviolos added, "Customer feedback indicates that the new Canadian contract win could become one of our largest contracts. Because of the tremendous importance of this new opportunity, we anticipate that our investments made thus far in Canada will intensify during the fourth quarter, in order to ensure that we are poised to begin realizing this opportunity in a meaningful way during our coming fiscal year 2015 and beyond. The Company is therefore reducing its earnings guidance for the remainder of fiscal year 2014 due primarily to the impacts of this additional investment, combined with the third quarter profit shortfall."

Outlook and Guidance for Fiscal 2014

The Company is adjusting its previously issued guidance for fiscal 2014 revenues and Adjusted EBITDA. Previously the Company expected revenue to be in the range of from $590 million to $615 million, and Adjusted EBITDA to be in the range of $77 million to $83 million. The Company now expects that its revenue will be in the range of $600 million to $615 million, and Adjusted EBITDA will be in a range of from $70 million to $74 million.

Conference Call

In connection with this release, Mistras will hold a conference call on Wednesday, April 9, 2014 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 1-800-706-7745 and use confirmation code 75137255 when prompted. The International dial-in number is 1-617-614-3472.

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 year 2013 filed with the Securities and Exchange Commission on August 14, 2013, 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

The term "Adjusted EBITDA" used in this release is a financial measurement not calculated in accordance with generally accepted accounting principles in the U.S. ("US GAAP"). A Reconciliation of Adjusted EBITDA to a financial measurement under US 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 measurements "EBITDA", "Segment and Total Company Income from Operations before Acquisition-Related Expense (Benefit), net", "Net Income Excluding Acquisition-related Items" and "Diluted EPS Excluding Acquisition-related Items," reconciling these measurements to financial measurements under US GAAP. 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.

 
Mistras Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
     
   (unaudited)   
 February 28, 2014May 31, 2013
ASSETS   
Current Assets     
Cash and cash equivalents   $ 9,950  $ 7,802
Accounts receivable, net   126,304  108,554
Inventories   12,516  12,504
Deferred income taxes   3,029  2,621
Prepaid expenses and other current assets   14,637  8,156
Total current assets  166,436  139,637
Property, plant and equipment, net  74,428  68,419
Intangible assets, net  52,180  51,992
Goodwill  132,321  115,270
Other assets  1,352  1,342
Total assets  $ 426,717  $ 376,660
     
LIABILITIES AND EQUITY    
Current Liabilities    
Accounts payable  $ 11,078  $ 8,490
Accrued expenses and other current liabilities  48,212  47,839
Current portion of long-term debt  7,542  7,418
Current portion of capital lease obligations  7,147  6,766
Income taxes payable  1,485  1,703
Total current liabilities  75,464  72,216
Long-term debt, net of current portion  73,883  52,849
Obligations under capital leases, net of current portion  13,036  10,923
Deferred income taxes  13,862  11,614
Other long-term liabilities  19,152  18,778
Total liabilities  195,397  166,380
     
Commitments and contingencies    
     
Equity     
Preferred stock, 10,000,000 shares authorized  --   -- 
Common stock, $0.01 par value, 200,000,000 shares authorized  284  282
Additional paid-in capital  199,254  195,241
Retained earnings  35,081  18,982
Accumulated other comprehensive loss  (3,573)  (4,452)
Total Mistras Group, Inc. stockholders' equity  231,046  210,053
Noncontrolling interests  274  227
Total equity  231,320  210,280
Total liabilities and equity  $ 426,717  $ 376,660
 
 
Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share data)
         
  Three months ended February 28,  Nine months ended February 28, 
 2014201320142013
Revenues:        
Services  $ 142,967  $ 124,510  $ 414,448  $ 351,466
Products and systems  8,760  9,151  29,872  33,311
Total revenues  151,727  133,661  444,320  384,777
Cost of revenues:        
Cost of services  104,196  91,209  291,680  248,769
Cost of products and systems sold  3,702  3,527  12,965  13,022
Depreciation related to services  4,257  4,465  12,333  12,565
Depreciation related to products and systems  272  254  788  593
Total cost of revenues  112,427  99,455  317,766  274,949
Gross profit  39,300  34,206  126,554  109,828
         
Selling, general and administrative expenses  31,794  27,209  90,342  74,063
Research and engineering  757  754  2,186  1,801
Depreciation and amortization  2,771  2,473  7,729  6,535
Acquisition-related expense, net  978  (1,212)  (1,530)  (1,006)
Income from operations  3,000  4,982  27,827  28,435
Interest expense  792  882  2,309  2,458
Income before provision for income taxes   2,208  4,100  25,518  25,977
Provision for income taxes  984  1,349  9,375  9,749
Net income  1,224  2,751  16,143  16,228
Less: net income attributable to noncontrolling interests, net of taxes  (23)  --   (44)  (33)
Net income attributable to Mistras Group, Inc.  $ 1,201  $ 2,751  $ 16,099  $ 16,195
Earnings per common share        
Basic  $ 0.04  $ 0.10  $ 0.57  $ 0.58
Diluted  $ 0.04  $ 0.09  $ 0.55  $ 0.56
Weighted average common shares outstanding:        
Basic  28,396  28,175  28,338  28,121
Diluted  29,374  29,101  29,249  29,078
 
 
Mistras Group, Inc. and Subsidiaries
Unaudited Operating Data by Segment
(in thousands)
         
  Three months ended February 28,  Nine months ended February 28, 
 2014201320142013
 Revenues         
 Services   $ 109,122  $ 90,537  $ 313,794  $ 278,147
 International   38,064  37,516  119,032  88,722
 Products and Systems   7,610  7,645  22,799  25,618
 Corporate and eliminations   (3,069)  (2,037)  (11,305)  (7,710)
   $ 151,727  $ 133,661  $ 444,320  $ 384,777
         
     
  Three months ended February 28,  Nine months ended February 28, 
 2014201320142013
 Gross profit         
 Services   $ 26,216  $ 20,496  $ 83,881  $ 72,128
 International   10,086  9,851  33,499  24,231
 Products and Systems   3,674  3,790  9,776  13,010
 Corporate and eliminations   (676)  69  (602)  459
   $ 39,300  $ 34,206  $ 126,554  $ 109,828
 
 
Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of 
Segment and Total Company Income (Loss) from Operations before Acquisition-Related Expense (Benefit), net (non-GAAP) to 
Segment and Total Company Income (Loss) from Operations (GAAP)
(in thousands)
         
  Three months ended February 28,  Nine months ended February 28, 
 2014201320142013
 Services:         
 Income from operations before acquisition-related expense, net (non-GAAP)   $ 7,759  $ 6,755  $ 33,161  $ 29,752
 Acquisition-related expense (benefit), net   307  462  463  1,155
 Income from operations (GAAP)   7,452  6,293  32,698  28,597
         
 International:         
 Income from operations before acquisition-related expense, net (non-GAAP)   $ 189  $ 855  $ 5,526  $ 3,907
 Acquisition-related expense (benefit), net   105  269  (3,666)  450
 Income from operations (GAAP)   84  586  9,192  3,457
         
 Products and Systems:         
 Income from operations before acquisition-related expense, net (non-GAAP)   $ 87  $ 576  $ 112  $ 4,054
 Acquisition-related (benefit), net   --  (1,123)  (1,035)  (2,427)
 Income from operations (GAAP)   87  1,699  1,147  6,481
         
 Corporate and Eliminations:         
 Income from operations before acquisition-related (benefit), net (non-GAAP)   $ (4,057)  $ (4,416)  $ (12,502)  $ (10,284)
 Acquisition-related expense, net   566  (820)  2,708  (184)
 (Loss) from operations (GAAP)   (4,623)  (3,596)  (15,210)  (10,100)
         
 Total Company         
 Income from operations before acquisition-related expense, net (non-GAAP)   $ 3,978  $ 3,770  $ 26,297  $ 27,429
 Acquisition-related expense (benefit), net   978  (1,212)  (1,530)  (1,006)
 Income from operations (GAAP)   3,000  4,982  27,827  28,435
 
 
Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of 
Net Income to EBITDA and Adjusted EBITDA
(in thousands)
         
  Three months ended February 28,  Nine months ended February 28, 
 2014201320142013
         
Net Income  $ 1,224  $ 2,751  $ 16,143  $ 16,228
Less: net income attributable to noncontrolling interests, net of taxes  (23)  --   (44)  (33)
Net income attributable to Mistras Group, Inc.  $ 1,201  $ 2,751  $ 16,099  $ 16,195
Interest expense   792  882  2,309  2,458
Provision for income taxes   984  1,349  9,375  9,749
Depreciation and amortization   7,300  7,192  20,850  19,693
EBITDA   $ 10,277  $ 12,174  $ 48,633  $ 48,095
Share-based compensation expense   1,266  1,544  4,013  4,749
Acquisition-related expense, net  978  (1,212)  (1,530)  (1,006)
Adjusted EBITDA   $ 12,521  $ 12,506  $ 51,116  $ 51,838
 
 
Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income (GAAP) and Diluted Earnings Per Share (GAAP) to 
Net Income Excluding Acquisition-related Items (non-GAAP) and Diluted EPS Excluding Acquisition-related Items (non-GAAP) 
(in thousands except per share data)
         
  Three months ended February 28,  Nine months ended February 28, 
 2014201320142013
         
Net income (GAAP)  $ 1,224  $ 2,751  $ 16,143  $ 16,228
Acquisition-related expense (benefit), net of tax   597  (812)  (1,158)  (525)
Net Income Excluding Acquisition-related Items (non-GAAP)  $ 1,821  $ 1,939  $ 14,985  $ 15,703
         
         
Diluted earnings per common share (GAAP)  $ 0.04  $ 0.09  $ 0.55  $ 0.56
Acquisition-related expense (benefit), net  0.02  (0.03)  (0.04)  (0.02)
Diluted EPS Excluding Acquisition-related Items (non-GAAP)   $ 0.06  $ 0.06  $ 0.51  $ 0.54
         
Note: Acquisition-related expense (benefit), net of tax, includes income tax (benefit)/expense of $(381) thousand and $400 thousand for the three months ended February 28, 2014 and 2013, respectively and $372 thousand and $481 thousand for the nine months ended February 28, 2014 and 2013, respectively. The aforementioned tax expense are reflective of non-deductible and non-taxable tax differences related to acquisitions of common stock.
CONTACT: Media Contact:

         Nestor S. Makarigakis,

         Group Director of Marketing Communications

         marcom@mistrasgroup.com

         1(609)716-4000