UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 6, 2019
Mistras Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 001- 34481 | 22-3341267 | ||
(State or other jurisdiction | (Commission | (IRS Employer | ||
of incorporation) | File Number) | Identification No.) | ||
195 Clarksville Road | ||
Princeton Junction, New Jersey | 08550 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (609) 716-4000
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d 2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | MG | New York Stock Exchange |
Item 2.02. Results of Operations and Financial Condition
On May 6, 2019, Mistras Group, Inc. (the “Company,” “we” or “us”) issued a press release announcing the financial results for our first quarter, which ended March 31, 2019. A copy of the press release is attached as Exhibit 99.1 to this report.
Disclosure of Non-GAAP Financial Measures
In the press release attached, the Company uses the terms “Adjusted EBITDA”, “free cash flow” and "net debt", which are not measures of financial performance under U.S. generally accepted accounting principles (“GAAP”). Also, in the tables to the press release, the non-GAAP financial measures "Segment and Total Company Income (Loss) before Special Items” and "Diluted EPS excluding Special Items", are presented and reconciled to financial measures under GAAP. Information about these non-GAAP measures are included in the press release.
Our management uses these non-GAAP measurements as a measure of operating performance and liquidity to assist in comparing performance from period to period on a consistent basis, as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations. Adjusted EBITDA and free cash flow are also performance evaluation metrics used to determine incentive compensation for executive officers.
We believe 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 and liquidity on a consistent basis and measure underlying trends and results of the Company's business. Adjusted EBITDA and Segment and Total Company Income (Loss) before Special Items assist in evaluating our operating performance because they remove the impact of certain items that management believes do not directly reflect our core operations. For instance, Adjusted EBITDA generally excludes interest expense, taxes and depreciation and amortization, each of which can vary substantially from company to company depending upon accounting methods and the book value and age of assets, capital structure, capital investment cycles and the method by which assets were acquired. It also eliminates stock-based compensation, which is a non-cash expense and is excluded by management when evaluating the underlying performance of our business operations.
Our management uses free cash flow when evaluating the performance of our business operations. This measurement also takes into account cash used to purchase fixed assets needed for business operations which are not expensed. We believe this measurement provides an additional tool to compare cash generated by our operations on a consistent basis and measure underlying trends and results in our business.
While Adjusted EBITDA and free cash flow are terms and financial measurements commonly used by investors and securities analysts, they have limitations. As non-GAAP measurements, Adjusted EBITDA and free cash flows have no standard meaning and, therefore, may not be comparable with similar measurements for other companies. Similarly, segment and total company income before special items and diluted EPS excluding special items has no standard meaning and may not be comparable to measurements for other companies. Adjusted EBITDA and free cash flow are generally limited as analytical tools because they exclude charges and expenses we do incur as part of our operations as well as cash uses which are included in a GAAP cash flow statement. In addition, free cash flow does not represent residual cash flow available for discretionary expenditures since items such as debt repayments are not deducted in determining such measurement.
None of these non-GAAP financial measurements should be considered in isolation or as a substitute for analyzing our results as reported under U.S. generally accepted accounting principles.
Item 9.01. Financial Statement and Exhibits
(d) Exhibits
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
MISTRAS GROUP, INC. | |||
Date: May 6, 2019 | By: | /s/ Edward J. Prajzner | |
Name: | Edward J. Prajzner | ||
Title: | Senior Vice President, Chief Financial Officer and Treasurer | ||
Exhibit No. | Description | |
3
Exhibit 99.1
MISTRAS Group Announces First Quarter 2019 Results
Affirms Full Year Guidance with Revenue of $765 - $785 Million, Adjusted EBITDA of $90 - $93 Million and Free Cash Flow of $42 - $45 Million
Highlights of the First Quarter 2019*
• | Results consistent with guidance outlook for the full year |
• | Q1 gross profit up 2% to $48.9 million |
• | Q1 gross margin expands 190 basis points to 27.6% from 25.7%; Services segment gross margin expands 280 basis points to 26.6% from 23.8% |
• | Q1 cash flows from operating activities of $8.2 million, up 41% from first quarter 2018 |
*- All comparisons are consolidated and versus the equivalent prior year period.
MISTRAS Group, Inc. May 6, 2019
PRINCETON JUNCTION, N.J., May 6, 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 first quarter ended March 31, 2019.
For the first quarter of 2019, consolidated revenues were $176.8 million compared with $187.6 million in the prior year period. Revenues are consistent with our expectations and reflective of the impact we anticipated from the previously disclosed non-renewal of a contract, effective April 1, 2019. For the quarter, consolidated gross profit was up approximately 2% over 2018 to $48.9 million, as the consolidated gross margin expanded by 190 basis points to 27.6% compared with 25.7% in the same quarter a year ago.
Chief Executive Officer Dennis Bertolotti stated, "Results in the first quarter are consistent with the expectations and embedded in our outlook for the full year. Gross margins were once again significantly improved from a year ago, due to both a better sales mix as well as ongoing efficiency and productivity enhancements. And, while adjusted EBITDA was down year-over-year, cash generation was strong, with a portion of the proceeds being used to pay down outstanding debt.
“With what we previously communicated was going to be a challenging quarter behind us, we are extremely excited about our outlook for the balance of the year. By investing in strengthening the MISTRAS NDT business, we continue to be recognized as an industry leader and increase our market share. This was once again confirmed when we were awarded several significant contracts here in the early part of 2019 amounting to $15 million of revenue on an annualized and incremental basis, across multiple customers, spanning several end market verticals and in various North American regions.
Activity at Onstream has also recently inflected, with a significant increase in activity in the United States, where we have been aggressively promoting them to our existing midstream relationships. Both Onstream and our robust acquisition funnel continue to enhance our MISTRAS digital solutions initiative, which we see as foundational to our long-term growth. There continues to be an active market in smaller acquisitions, many of which could strategically advance MISTRAS digital solutions. In addition, this quarter we generated strong operating cash flow, which has always been a strength.”
Performance by segment during the quarter was as follows:
Services segment first quarter revenues decreased by $5 million or 4%. While currently robust, turnaround activity in the first quarter ramped up significantly later than in the first quarter of a year ago; we also generated approximately $10 million on a contract that was vacated in last year’s second quarter. Services segment gross profit margins improved 280 basis points in the first quarter to 26.6% from 23.8% despite lower revenues as we improve the leverage in our operations.
International segment first quarter revenues decreased by $3 million or 9%, primarily due to unfavorable currency translation but also due to an acceleration in the timing of the termination of the German staff leasing contract. International segment gross profit margin was 29.5% in the first quarter, a 170 basis point improvement from 27.8% in the year ago quarter. Margins benefited from a more favorable product mix reflective of a decrease in the proportion of low margin staff leasing revenues in the quarter.
Products and Systems segment revenue decreased by $2.8 million or 45% in the first quarter of 2019 compared to the prior year. Both revenues and margins in the segment reflect the impact of the 2018 divestment of a product line.
The Company generated $8.2 million of cash flows from operating activities, an increase of nearly $2.4 million, or 41% from the first quarter of 2018. Free cash flow in the first quarter was $2.5 million compared to $0.5 million in the prior year period.
The Company’s net debt (total debt less cash and cash equivalents of $24.6 million) was $263.1 million at March 31, 2019, down from $265.1 million at December 31, 2018.
In the fourth quarter of 2018, the Company recorded a reserve of $0.7 million for a renewable energy industry customer of the Company’s Services Division, based in part on the available information about the financial difficulties of the customer. This customer filed for a voluntary insolvency proceeding on April 9, 2019 at which time payments under the previously agreed to payment plan ceased. As a result, during the first quarter of 2019, the Company recorded an additional charge of $5.7 million to fully reserve the exposure related to this customer. Separately, the Company also recorded an additional $0.5 million provision
related to the estimated pension withdrawal liability that was initially recorded during the third quarter of 2018. We believe this matter is fully reserved for as of March 31, 2019.
Guidance for 2019
The Company is affirming its planning assumptions and guidance for 2019. The Company’s outlook remains as follows:
Total revenues are expected to be between $765 million to $785 million;
Adjusted EBITDA is expected to be between $90 million and $93 million;
Capital expenditures are expected to be up to $25 million; and
Free cash flow is expected to between $42 million to $45 million.
Conference Call
In connection with this release, MISTRAS will hold a conference call on May 7, 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 8288676 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. 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 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on 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 Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited) | ||||||||
March 31, 2019 | December 31, 2018 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 24,600 | $ | 25,544 | ||||
Accounts receivable, net | 138,505 | 148,324 | ||||||
Inventories | 13,571 | 13,053 | ||||||
Prepaid expenses and other current assets | 21,029 | 15,870 | ||||||
Total current assets | 197,705 | 202,791 | ||||||
Property, plant and equipment, net | 93,916 | 93,895 | ||||||
Intangible assets, net | 109,055 | 111,395 | ||||||
Goodwill | 280,696 | 279,259 | ||||||
Deferred income taxes | 2,861 | 1,930 | ||||||
Other assets | 41,204 | 4,767 | ||||||
Total assets | $ | 725,437 | $ | 694,037 | ||||
LIABILITIES AND EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 13,275 | $ | 13,863 | ||||
Accrued expenses and other current liabilities | 79,641 | 73,895 | ||||||
Current portion of long-term debt | 6,787 | 6,833 | ||||||
Current portion of finance lease obligations | 3,764 | 3,922 | ||||||
Income taxes payable | 3,911 | 1,958 | ||||||
Total current liabilities | 107,378 | 100,471 | ||||||
Long-term debt, net of current portion | 280,919 | 283,787 | ||||||
Obligations under finance leases, net of current portion | 9,046 | 9,075 | ||||||
Deferred income taxes | 24,571 | 23,148 | ||||||
Other long-term liabilities | 34,427 | 6,482 | ||||||
Total liabilities | 456,341 | 422,963 | ||||||
Commitments and contingencies | ||||||||
Equity | ||||||||
Preferred stock, 10,000,000 shares authorized | — | — | ||||||
Common stock, $0.01 par value, 200,000,000 shares authorized, 28,626,687 and 28,562,608 shares issued | 286 | 285 | ||||||
Additional paid-in capital | 227,790 | 226,616 | ||||||
Retained earnings | 66,260 | 71,553 | ||||||
Accumulated other comprehensive loss | (25,426 | ) | (27,557 | ) | ||||
Total Mistras Group, Inc. stockholders’ equity | 268,910 | 270,897 | ||||||
Non-controlling interests | 186 | 177 | ||||||
Total equity | 269,096 | 271,074 | ||||||
Total liabilities and equity | $ | 725,437 | $ | 694,037 | ||||
Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of (Loss) Income
(in thousands, except per share data)
Three months ended | |||||||
March 31, 2019 | March 31, 2018 | ||||||
Revenue | $ | 176,787 | $ | 187,630 | |||
Cost of revenue | 122,417 | 133,787 | |||||
Depreciation | 5,496 | 5,698 | |||||
Gross profit | 48,874 | 48,145 | |||||
Selling, general and administrative expenses | 41,763 | 39,034 | |||||
Bad debt provision for troubled customers, net of recoveries | 5,491 | — | |||||
Pension withdrawal expense | 534 | — | |||||
Research and engineering | 857 | 756 | |||||
Depreciation and amortization | 4,172 | 2,950 | |||||
Acquisition-related expense (benefit), net | 453 | (994 | ) | ||||
(Loss) income from operations | (4,396 | ) | 6,399 | ||||
Interest expense | 3,527 | 1,792 | |||||
(Loss) income before (benefit) provision for income taxes | (7,923 | ) | 4,607 | ||||
(Benefit) provision for income taxes | (2,637 | ) | 1,688 | ||||
Net (loss) income | (5,286 | ) | 2,919 | ||||
Less: net income attributable to non-controlling interests, net of taxes | 7 | 12 | |||||
Net (loss) income attributable to Mistras Group, Inc. | $ | (5,293 | ) | $ | 2,907 | ||
(Loss) earnings per common share: | |||||||
Basic | $ | (0.19 | ) | $ | 0.10 | ||
Diluted | $ | (0.19 | ) | $ | 0.10 | ||
Weighted average common shares outstanding: | |||||||
Basic | 28,574 | 28,304 | |||||
Diluted | 28,574 | 29,362 | |||||
Mistras Group, Inc. and Subsidiaries
Unaudited Operating Data by Segment
(in thousands)
Three months ended | |||||||
March 31, 2019 | March 31, 2018 | ||||||
Revenues | |||||||
Services | $ | 140,298 | $ | 145,595 | |||
International | 35,162 | 38,456 | |||||
Products and Systems | 3,432 | 6,184 | |||||
Corporate and eliminations | (2,105 | ) | (2,605 | ) | |||
$ | 176,787 | $ | 187,630 | ||||
Three months ended | |||||||
March 31, 2019 | March 31, 2018 | ||||||
Gross profit | |||||||
Services | $ | 37,365 | $ | 34,710 | |||
International | 10,360 | 10,707 | |||||
Products and Systems | 1,239 | 2,890 | |||||
Corporate and eliminations | (90 | ) | (162 | ) | |||
$ | 48,874 | $ | 48,145 | ||||
Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Segment and Total Company Income (Loss) from Operations (GAAP) to Income (Loss) before Special Items (non-GAAP)
(in thousands)
Three months ended | |||||||
March 31, 2019 | March 31, 2018 | ||||||
Services: | |||||||
Income from operations (GAAP) | $ | 4,053 | $ | 12,275 | |||
Bad debt provision for troubled customers, net of recoveries | 4,755 | — | |||||
Pension withdrawal expense | 534 | — | |||||
Acquisition-related expense (benefit), net | 305 | (1,033 | ) | ||||
Income before special items (non-GAAP) | 9,647 | 11,242 | |||||
International: | |||||||
(Loss) income from operations (GAAP) | (215 | ) | 920 | ||||
Reorganization and other costs | 156 | 89 | |||||
Bad debt provision for troubled customers, net of recoveries | 736 | — | |||||
Income before special items (non-GAAP) | 677 | 1,009 | |||||
Products and Systems: | |||||||
(Loss) income from operations (GAAP) | (1,328 | ) | 273 | ||||
Reorganization and other costs | — | — | |||||
(Loss) income before special items (non-GAAP) | (1,328 | ) | 273 | ||||
Corporate and Eliminations: | |||||||
Loss from operations (GAAP) | (6,906 | ) | (7,069 | ) | |||
Reorganization and other costs | 60 | — | |||||
Acquisition-related expense, net | 148 | 39 | |||||
Loss before special items (non-GAAP) | (6,698 | ) | (7,030 | ) | |||
Total Company: | |||||||
(Loss) income from operations (GAAP) | $ | (4,396 | ) | $ | 6,399 | ||
Pension withdrawal expense | 534 | — | |||||
Bad debt provision for troubled customers, net of recoveries | 5,491 | — | |||||
Reorganization and other costs | 216 | 89 | |||||
Acquisition-related expense (benefit), net | 453 | (994 | ) | ||||
Income before special items (non-GAAP) | $ | 2,298 | $ | 5,494 | |||
Mistras Group, Inc. and Subsidiaries
Unaudited Summary Cash Flow Information
(in thousands)
Three months ended | |||||||
March 31, 2019 | March 31, 2018 | ||||||
Net cash provided by (used in): | |||||||
Operating activities | $ | 8,177 | $ | 5,818 | |||
Investing activities | (5,001 | ) | (4,772 | ) | |||
Financing activities | (3,949 | ) | 4,261 | ||||
Effect of exchange rate changes on cash | (171 | ) | 284 | ||||
Net change in cash and cash equivalents | $ | (944 | ) | $ | 5,591 | ||
Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of Net Cash Provided by Operating Activities (GAAP) to Free Cash Flow (non-GAAP)
(in thousands)
Three months ended | |||||||
March 31, 2019 | March 31, 2018 | ||||||
GAAP: Net cash provided by operating activities | $ | 8,177 | $ | 5,818 | |||
Less: | |||||||
Purchases of property, plant and equipment | (5,637 | ) | (5,182 | ) | |||
Purchases of intangible assets | (88 | ) | (165 | ) | |||
non-GAAP: Free cash flow | $ | 2,452 | $ | 471 | |||
Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net (Loss) Income to Adjusted EBITDA
(in thousands)
Three months ended | |||||||
March 31, 2019 | March 31, 2018 | ||||||
Net (loss) income | $ | (5,286 | ) | $ | 2,919 | ||
Less: net income attributable to non-controlling interests, net of taxes | 7 | 12 | |||||
Net (loss) income attributable to Mistras Group, Inc. | $ | (5,293 | ) | $ | 2,907 | ||
Interest expense | 3,527 | 1,792 | |||||
(Benefit) provision for income taxes | (2,637 | ) | 1,688 | ||||
Depreciation and amortization | 9,668 | 8,648 | |||||
Share-based compensation expense | 1,356 | 1,126 | |||||
Acquisition-related expense (benefit), net | 453 | (994 | ) | ||||
Reorganization and other related costs | 216 | 89 | |||||
Pension withdrawal expense | 534 | — | |||||
Bad debt provision for troubled customers, net of recoveries | 5,491 | — | |||||
Foreign exchange (gain) loss | (630 | ) | 51 | ||||
Adjusted EBITDA | $ | 12,685 | $ | 15,307 | |||
Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net (Loss) Income (GAAP) and Diluted EPS (GAAP) to Net (Loss) Income Excluding Special Items (non-GAAP)
and Diluted EPS Excluding Special Items (non-GAAP)
(in thousands, except per share data)
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Net (loss) income (GAAP) | $ | (5,293 | ) | $ | 2,907 | |||
Special items, net of tax | 4,485 | (570 | ) | |||||
Net (loss) income Excluding Special Items (non-GAAP) | $ | (808 | ) | $ | 2,337 | |||
Diluted EPS (GAAP) | $ | (0.19 | ) | $ | 0.10 | |||
Special items, net of tax | 0.16 | (0.02 | ) | |||||
Diluted EPS Excluding Special Items (non-GAAP) | $ | (0.03 | ) | $ | 0.08 | |||