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Mistras Group Announces First Quarter Results


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Mistras Group Announces First Quarter Results

May 8, 2017

PRINCETON JUNCTION, N.J., May 08, 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 first quarter ended March 31, 2017.

Revenues for the first quarter of 2017 were $163.3 million, 2% lower than in the comparable period of 2016.  Net income during the first quarter of 2017 was $1.7 million or $0.06 per diluted share, inclusive of an $0.8 million after-tax charge pertaining to a bad debt provision taken in relation to the bankruptcy filing of a large customer in the nuclear industry. Exclusive of the bad debt provision, first quarter 2017 net income and earnings per diluted share were $2.5 million and $0.08 per diluted share, respectively, compared with $3.4 million and $0.11 per diluted share, respectively, in the prior year's first quarter.

The Company generated $13.4 million of cash from operating activities and $9.6 million of free cash flow during the first quarter of fiscal year 2017, both amounts reduced by a $6.3 million outflow pertaining to a prior year legal settlement. The Company utilized $4.5 million of its free cash flow for an acquisition and $6 million to repurchase its common stock during the first quarter of 2017. The Company's net debt (total debt less cash) of $85.4 million at March 31, 2017 was approximately 1.1x Adjusted EBITDA.

Adjusted EBITDA for the first quarter of 2017 was $13.3 million, compared with $15.0 million in the comparable period of the prior year. Performance by segment was as follows:

Services segment operating income declined from prior year by 35% in the first quarter of fiscal year 2017, on revenues that declined by 4%. Excluding the special bad debt provision, Services operating income declined by $2.8 million or 24%. The decline in operating income was driven by a mid-single digit organic revenue decline which reflected soft market conditions and a weak spring turnaround season, which in turn caused an 80 basis point reduction in Services gross margin to 23.9% of revenues.

International segment operating income more than tripled prior year levels, growing by $2.3 million over the prior year's first quarter, on revenues that grew by $3.3 million or 11%, driven primarily by strong performance in aerospace business. The Company enjoyed double digit first quarter organic revenue growth compared with prior year in Germany and France, which led to a 250 basis point improvement in the segment gross margin rate to 30.5%.

Products and Systems segment operating income declined by $0.3 million compared with the prior year's first quarter, driven by a volume-driven revenue decline of $1.1 million or 17%.

Dr. Sotirios Vahaviolos, Chairman and Chief Executive Officer stated, "As mentioned in our recent earnings calls, the fall 2016 and spring 2017 seasons were especially challenging in North America, as workloads from many customers were less than in the prior year. These conditions caused results in our Services segment to suffer poor comparisons to prior year that more than offset continued positive performance in our International segment."

Dr. Vahaviolos added: "Although the market rebound has not yet occurred, 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 are actively quoting new business and are 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

Information from North American oil and gas customers continues to suggest that their spending for inspection services in the first half of calendar 2017 will be lower than prior year. However, 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.

The Company's 2017 financial guidance remains unchanged, as follows:

  • Total revenues from $670 million to $700 million;
  • Net income for 2017 from $20 million to $23 million;
  • Earnings per diluted share from 68 cents to 78 cents;
  • Adjusted EBITDA from $73 million to $78 million;
  • Operating cash flow of approximately $50 million;
  • Capital expenditures of approximately $20 million.

Conference Call

In connection with this release, Mistras will hold a conference call on May 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 17141113 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)
  March 31, 2017 December 31, 2016
Current Assets    
Cash and cash equivalents $27,592  $19,154 
Accounts receivable, net 124,221  130,852 
Inventories 10,589  10,017 
Deferred income taxes   6,230 
Prepaid expenses and other current assets 14,772  16,399 
Total current assets 177,174  182,652 
Property, plant and equipment, net 72,898  73,149 
Intangible assets, net 41,226  40,007 
Goodwill 173,907  169,940 
Deferred income taxes 1,897  1,086 
Other assets 2,628  2,593 
Total assets $469,730  $469,427 
Current Liabilities    
Accounts payable $9,345  $6,805 
Accrued expenses and other current liabilities 53,637  58,697 
Current portion of long-term debt 1,766  1,379 
Current portion of capital lease obligations 6,357  6,488 
Income taxes payable 3,659  4,342 
Total current liabilities 74,764  77,711 
Long-term debt, net of current portion 96,042  85,917 
Obligations under capital leases, net of current portion 8,861  9,682 
Deferred income taxes 12,024  17,584 
Other long-term liabilities 8,180  7,789 
Total liabilities 199,871  198,683 
Commitments and contingencies    
Preferred stock, 10,000,000 shares authorized    
Common stock, $0.01 par value, 200,000,000 shares authorized, 29,257,763 and 29,216,745 shares issued 293  292 
Additional paid-in capital 219,176  217,211 
Treasury stock, at cost, 676,512 and 420,258 shares (15,000) (9,000)
Retained earnings 93,496  91,803 
Accumulated other comprehensive loss (28,274) (29,724)
Total Mistras Group, Inc. stockholders' equity 269,691  270,582 
Noncontrolling interests 168  162 
Total equity 269,859  270,744 
Total liabilities and equity $469,730  $469,427 

Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share data)
  Three months ended
  March 31, 2017 March 31, 2016
Revenue $163,318  $167,455 
Cost of revenue 115,002  118,230 
Depreciation 5,163  5,255 
Gross profit 43,153  43,970 
Selling, general and administrative expenses 37,302  35,053 
Research and engineering 643  662 
Depreciation and amortization 2,502  2,762 
Acquisition-related expense (benefit), net (544) (153)
Income from operations 3,250  5,646 
Interest expense 1,018  1,100 
Income before provision for income taxes 2,232  4,546 
Provision for income taxes 534  1,088 
Net income 1,698  3,458 
Less: net income attributable to noncontrolling interests, net of taxes 6  11 
Net income attributable to Mistras Group, Inc. $1,692  $3,447 
Earnings per common share    
Basic $0.06  $0.12 
Diluted $0.06  $0.11 
Weighted average common shares outstanding:    
Basic  28,687  28,915 
Diluted 29,905  29,980 

Mistras Group, Inc. and Subsidiaries
Unaudited Operating Data by Segment
(in thousands)
 Three months ended
 March 31, 2017 March 31, 2016
Services$126,329  $131,579 
International34,256  30,980 
Products and Systems5,550  6,680 
Corporate and eliminations(2,817) (1,784)
 $163,318  $167,455 
 Three months ended
 March 31, 2017 March 31, 2016
Gross profit   
Services$30,213  $32,458 
International10,460  8,673 
Products and Systems2,594  2,738 
Corporate and eliminations(114) 101 
 $43,153  $43,970 

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)
 Three months ended
 March 31, 2017 March 31, 2016
Income from operations$7,380  $11,339 
Bad debt provision for a customer bankruptcy1,200   
Severance costs16   
Acquisition-related expense (benefit), net(124) (173)
Income before special items8,472  11,166 
Income from operations3,034  720 
Severance costs13  65 
Acquisition-related expense (benefit), net(501) 20 
Income before special items2,546  805 
Products and Systems:   
Loss from operations(449) (132)
Severance costs  (11)
Acquisition-related expense (benefit), net   
Loss before special items(449) (143)
Corporate and Eliminations:   
Loss from operations(6,715) (6,281)
Acquisition-related expense (benefit), net81   
Loss before special items(6,634) (6,281)
Total Company   
Income from operations$3,250  $5,646 
Bad debt provision for a customer bankruptcy$1,200  $ 
Severance costs$29  $54 
Acquisition-related expense (benefit), net$(544) $(153)
Income before special items$3,935  $5,547 

Mistras Group, Inc. and Subsidiaries
Unaudited Summary Cash Flow Information
(in thousands)
 Three months ended
 March 31, 2017 March 31, 2016
Net cash provided by (used in):   
Operating activities$13,413  $29,113 
Investing activities(8,137) (4,109)
Financing activities2,853  (18,888)
Effect of exchange rate changes on cash309  (89)
Net change in cash and cash equivalents$8,438  $6,027 

Mistras Group, Inc. and Subsidiaries
Reconciliation of Net Cash Provided from Operating Activities (GAAP) to Free Cash Flow (non-GAAP)
(in thousands)
 Three months ended March 31, 2017
GAAP:  Net cash provided by operating activities$13,413 
Purchases of property, plant and equipment(3,416)
Purchases of intangible assets(376)
non-GAAP:  Free cash flow$9,621 

Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income to Adjusted EBITDA
(in thousands)
 Three months ended
 March 31, 2017 March 31, 2016
Net income$1,698  $3,458 
Less: net income attributable to noncontrolling interests, net of taxes6  11 
Net income attributable to Mistras Group, Inc.$1,692  $3,447 
Interest expense1,018  1,100 
Provision for income taxes534  1,088 
Depreciation and amortization7,665  8,017 
Share-based compensation expense1,683  1,729 
Acquisition-related expense (benefit), net(544) (153)
Severance29  54 
Bad debt provision for customer bankruptcy1,200   
Foreign exchange (gain) loss(23) (282)
Adjusted EBITDA$13,254  $15,000 

Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income (GAAP) and Diluted EPS (GAAP) to Net Income Excluding Bad Debt Provision for a Customer Bankruptcy (non-GAAP) and Diluted
EPS Excluding Bad Debt Provision for a Customer Bankruptcy (non-GAAP)
(in thousands)
  Three months ended March 31, 2017
Net income (GAAP) $1,692 
Bad debt provision for a customer bankruptcy, net of tax 770 
Net Income Excluding Bad Debt Provision for a Customer Bankruptcy (non-GAAP) $2,462 
Diluted EPS (GAAP) $0.06 
Bad debt provision for a customer bankruptcy, net of tax 0.02 
Diluted EPS Excluding Bad Debt Provision for a Customer Bankruptcy (non-GAAP) $0.08 


Media Contact:
Nestor S. Makarigakis, Group Director of Marketing Communications, 

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