April 6, 2016

Mistras Group Exceeds Profit Expectations for Third Consecutive Quarter and Raises Profit Guidance

  • Quarterly Earnings per Diluted Share of 12 cents More than Doubles Consensus Estimate
  • Adjusted EBITDA Margin Improved vs. prior year Q3 by 250 basis points; YTD by 240 basis points
  • Adjusted EBITDA Guidance Raised by $4 Million for Fiscal Year 2016
  • Operating Cash Flow Improved by over $21 Million (62%) Year-to-date

PRINCETON JUNCTION, N.J., April 06, 2016 (GLOBE NEWSWIRE) -- Mistras Group, Inc. (NYSE:MG), a leading "one source" global provider of technology-enabled asset protection solutions, reported record earnings for its third quarter and first nine months of fiscal year 2016, which ended February 29, 2016.

Revenues for the third quarter declined year-on-year by 1.7% to $160.4 million. Excluding the impact of dispositions and adverse foreign exchange, the Company's third quarter revenue improved by 2%. Revenues for the first nine months of fiscal year 2016 were 0.3% below prior year, at $535 million, inclusive of a cumulative reduction of approximately $24 million, or 4.4%, from the impact of dispositions and adverse foreign exchange.

Net income for the third quarter was $3.6 million, or $0.12 per diluted share, compared with $1.8 million or $0.06 per diluted share in the prior year's third quarter.  Net income for the first nine months of fiscal year 2016 was $21.9 million, or $0.74 per diluted share, compared with $13.9 million or $0.47 per diluted share in the prior year's first nine months. The Company's year-to-date improvements of over 56% in both net income and earnings per diluted share established new performance records and were achieved despite flat revenues in a challenging market. Net income for the three and nine-month periods ended February 29, 2016 were favorably impacted by approximately $0.5 million, or $.02 per diluted share by discrete tax items.

Adjusted EBITDA was $15.3 million or 9.5% of revenues in the third quarter of fiscal year 2016, compared with $11.4 million, or 7.0% of revenues in the prior year's third quarter. Adjusted EBITDA was $66.7 million, or 12.5% of revenues in the first nine months of fiscal year 2016, compared with $54.0 million, or 10.1% of revenues in the prior year's first nine months.

Organic revenue growth for the third quarter increased year-on-year by low to mid-single digits in the Services and International segments, offset by a decline in the Products & Systems segment.  Acquisition growth during the third quarter was immaterial.  Revenue growth from both organic and prior-year acquisitions had low single digit year-to-date increases.

Gross profit margins improved to 26.7% in the third quarter of fiscal year 2016 from the prior year's 23.7% and to 28.2% year-to-date compared with the prior year's 26.0%. The third quarter year-on-year improvement was driven primarily by the International segment, which improved by more than 800 basis points, and the Services segment, which improved by 200 basis points. Drivers included improved technical labor utilization, cost reductions, organic sales growth and an improved sales mix.

The Company's operating margin, exclusive of acquisition-related items, improved to 3.5% for the third quarter compared with the prior year's 1.4%, and to 7.0% for the first nine months of fiscal year 2016, compared with the prior year's 4.2%.

Cash flow from operating activities improved to $55.8 million in the first nine months of fiscal year 2016, compared with $34.5 million in the prior year's first nine months, driven by improved profitability and more efficient use of working capital, as days sales outstanding improved by approximately 3 days or 4% compared with the prior year's first nine months. Net debt was approximately 1.0x Adjusted EBITDA, down from 1.7x at May 31, 2015.

Performance by segment was as follows:

Services segment operating income improved by $2.8 million or 39% over the prior year's third quarter, while revenues grew by 1%, as low single digit organic growth coupled with a small amount of acquisition growth more than offset the adverse impact of a weaker Canadian dollar.

Services operating income improved by $8.1 million or 22% during the nine months year-to-date on a 2% revenue increase.

Services third quarter and year-to-date operating income margins improved over the comparable prior year periods by 210 basis points and 190 basis points, respectively. Services' operating income margin improvements were primarily driven by improvements in its gross margins, which improved during the third quarter and nine months year-to-date by 200 basis points and 110 basis points, respectively. Drivers included improved technical labor utilization, sales mix, contract management and lower overhead costs.

International segment operating income grew by $2.5 million and swung to current year income from a prior year loss during the third quarter, even though revenues declined by 5%, as mid-single digit organic growth was more than offset by adverse foreign exchange and dispositions.

International operating income grew by $5.8 million during the nine months year-to-date, despite a revenue decline of 7%, as high single digit organic growth was more than offset by adverse foreign exchange and dispositions.

International gross margins improved to 29.0% for the third quarter and 30.0% year-to-date, compared with the prior year's 20.9% for the third quarter and 24.3% year-to-date. Improvement has occurred in each of the Company's four largest country locations, driven by prior year management changes and staffing actions that improved technical labor utilization, as well as improvements in sales mix and overhead costs.

Products and Systems segment revenues for the third quarter declined by 20% year-on-year, while operating income declined by 67%. For the first nine months, revenues improved by 3%, while operating income doubled, to $2.7 million.

Dr. Sotirios Vahaviolos, Chairman and Chief Executive Officer stated, "Market conditions have been difficult for the last year. We have listened carefully to our customers and tailored our offerings and our cost structure accordingly. Our management team has responded to this challenge and we are working hard to streamline our processes throughout our company. In addition to improving profit margins in every country, we have improved our cash flow and paid down our debt almost by half over the last 15 months."

Dr. Vahaviolos continued, "The Mistras value proposition has become even more resonant in these challenging times. Even though our revenue growth is less than we hoped, I am confident that we are gaining market share, and I am extremely pleased that we have exceeded our profit expectations despite the challenging market. Our entire team is committed to servicing our customers in the world-class fashion that they deserve, while at the same time generating healthy profits and cash flows that our shareholders can be proud of. "

Outlook and Guidance for Remainder of Fiscal 2016

The Company previously established financial guidance as follows:

  • Revenues increasing from 0% to 2% from prior year, inclusive of a -3% impact from adverse foreign exchange and dispositions, to $710 million to $725 million.

  • Adjusted EBITDA of $72 million to $78 million, representing an increase from 1% to 9% above prior year levels. This guidance was increased three months ago to a range from $79 million to $83 million, or 10% to 15% above prior year levels.

The Company has updated its financial guidance as follows:

  • Revenue range narrowed to $710 million to $715 million. The Company expects to achieve low to mid-single digit organic revenue growth in its fourth quarter that will be mostly offset by adverse foreign exchange and dispositions.

  • Adjusted EBITDA range increased; now $84 million to $87 million or 17% to 21% higher than prior year. The Company expects Adjusted EBITDA may exceed 12% of revenues, compared with 10.1% in the prior year.

Conference Call

In connection with this release, Mistras will hold a conference call on Thursday, April 7, 2016 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 73868390 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 year 2015 filed with the Securities and Exchange Commission on August 12, 2015, 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" and "Segment and Total Company Income (Loss) from Operations before Acquisition-Related Expense (Benefit), net", reconciling these measurements to financial measurements under US GAAP. The Company also uses the term "Adjusted EBITDA Margin", a non-GAAP measurement, which the Company defines as Adjusted EBITDA divided by Revenue. 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 29, 2016 May 31, 2015
ASSETS    
Current Assets    
Cash and cash equivalents $18,095  $10,555 
Accounts receivable, net 128,605  133,228 
Inventories 9,880  10,841 
Deferred income taxes 4,738  5,144 
Prepaid expenses and other current assets 13,263  11,698 
Total current assets 174,581  171,466 
Property, plant and equipment, net 75,665  79,256 
Intangible assets, net 44,331  51,276 
Goodwill 166,719  166,414 
Deferred income taxes 804  1,208 
Other assets 1,857  2,107 
Total assets $463,957  $471,727 
LIABILITIES AND EQUITY    
Current Liabilities    
Accounts payable $10,240  $10,529 
Accrued expenses and other current liabilities 53,184  55,914 
Current portion of long-term debt 12,488  17,902 
Current portion of capital lease obligations 6,864  8,646 
Income taxes payable 2,126  532 
Total current liabilities 84,902  93,523 
Long-term debt, net of current portion 74,878  95,557 
Obligations under capital leases, net of current portion 10,653  10,717 
Deferred income taxes 19,150  16,984 
Other long-term liabilities 7,482  9,934 
Total liabilities 197,065  226,715 
Commitments and contingencies    
Equity    
Preferred stock, 10,000,000 shares authorized    
Common stock, $0.01 par value, 200,000,000 shares authorized 290  287 
Additional paid-in capital 212,013  208,064 
Retained earnings 79,464  57,581 
Accumulated other comprehensive loss (24,991) (21,113)
Total Mistras Group, Inc. stockholders' equity 266,776  244,819 
Noncontrolling interests 116  193 
Total equity 266,892  245,012 
Total liabilities and equity $463,957  $471,727 


Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share data)
 
  Three months ended Nine months ended
  February 29, 2016 February 28, 2015 February 29, 2016 February 28, 2015
         
Revenue $160,355  $163,100  $534,994  $536,566 
Cost of revenue 112,357  119,356  368,477  382,018 
Depreciation 5,189  5,010  15,509  14,781 
Gross profit 42,809  38,734  151,008  139,767 
Selling, general and administrative expenses 33,747  32,758  103,591  105,158 
Research and engineering 677  644  1,899  1,922 
Depreciation and amortization 2,742  3,104  8,345  9,998 
Acquisition-related (benefit), net (115) (1,642) (1,086) (3,037)
Income from operations 5,758  3,870  38,259  25,726 
Interest expense 1,123  1,161  4,380  3,418 
Income before provision for income taxes 4,635  2,709  33,879  22,308 
Provision for income taxes 1,034  941  12,001  8,457 
Net income 3,601  1,768  21,878  13,851 
Less: net (income) loss attributable to noncontrolling interests, net of taxes (8) 49  12  59 
Net income attributable to Mistras Group, Inc. $3,593  $1,817  $21,890  $13,910 
Earnings per common share        
Basic $0.12  $0.06  $0.76  $0.49 
Diluted $0.12  $0.06  $0.74  $0.47 
Weighted average common shares outstanding:        
Basic 28,906  28,656  28,832  28,583 
Diluted 29,899  29,529  29,760  29,559 


Mistras Group, Inc. and Subsidiaries
Unaudited Operating Data by Segment
(in thousands)
 
 Three months ended Nine months ended
 February 29, 2016 February 28, 2015 February 29, 2016 February 28, 2015
Revenues       
Services$123,616  $121,845  $411,484  $404,651 
International31,801  33,554  107,085  114,610 
Products and Systems6,866  8,526  23,343  22,588 
Corporate and eliminations(1,928) (825) (6,918) (5,283)
 $160,355  $163,100  $534,994  $536,566 
        
        
 Three months ended Nine months ended
 February 29, 2016 February 28, 2015 February 29, 2016 February 28, 2015
Gross profit       
Services$30,256  $27,429  $107,943  $101,452 
International9,227  7,018  32,113  27,795 
Products and Systems3,202  4,211  10,957  10,203 
Corporate and eliminations124  76  (5) 317 
 $42,809  $38,734  $151,008  $139,767 


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 Nine months ended
 February 29, 2016 February 28, 2015 February 29, 2016 February 28, 2015
Services:       
Income from operations before acquisition-related expense (benefit), net$9,857  $7,082  $43,478  $36,819 
Acquisition-related expense (benefit), net(214) (175) (807) 611 
Income from operations10,071  7,257  44,285  36,208 
International:       
Income from operations before acquisition-related expense (benefit), net$1,156  $(2,438) $6,488  $(896)
Acquisition-related expense (benefit), net20  (1,123) (437) (2,059)
Income from operations1,136  (1,315) 6,925  1,163 
Products and Systems:       
Income from operations before acquisition-related expense (benefit), net$438  $1,346  $2,677  $1,330 
Acquisition-related expense (benefit), net       
Income from operations438  1,346  2,677  1,330 
Corporate and Eliminations:       
Loss from operations before acquisition-related expense (benefit), net$(5,808) $(3,762) $(15,470) $(14,564)
Acquisition-related expense (benefit), net79  (344) 158  (1,589)
Loss from operations(5,887) (3,418) (15,628) (12,975)
Total Company       
Income from operations before acquisition-related expense (benefit), net$5,643  $2,228  $37,173  $22,689 
Acquisition-related expense (benefit), net(115) (1,642) (1,086) (3,037)
Income from operations5,758  3,870  38,259  25,726 


Mistras Group, Inc. and Subsidiaries
Unaudited Summary Cash Flow Information
(in thousands)
 
 Nine months ended
 February 29, 2016 February 28, 2015
  
Net cash provided by (used in):   
Operating activities$55,802  $34,516 
Investing activities(12,968) (46,137)
Financing activities(34,338) 17,067 
Effect of exchange rate changes on cash(956) (2,081)
Net change in cash and cash equivalents$7,540  $3,365 


Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income to EBITDA and Adjusted EBITDA
(in thousands)
 
 Three months ended Nine months ended
 February 29, 2016 February 28, 2015 February 29, 2016 February 28, 2015
    
Net income$3,601  $1,768  $21,878  $13,851 
Less: net (income) loss attributable to noncontrolling interests, net of taxes(8) 49  12  59 
Net income attributable to Mistras Group, Inc.$3,593  $1,817  $21,890  $13,910 
Interest expense1,123  1,161  4,380  3,418 
Provision for income taxes1,034  941  12,001  8,457 
Depreciation and amortization7,931  8,114  23,854  24,779 
EBITDA$13,681  $12,033  $62,125  $50,564 
Share-based compensation expense1,770  599  4,997  4,856 
Acquisition-related (benefit), net(115) (1,642) (1,086) (3,037)
Severance54  160  293  401 
Foreign exchange (gain) loss(98) 247  357  1,213 
Adjusted EBITDA$15,292  $11,397  $66,686  $53,997 
        

 

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


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