SEC Filing | Mistras Group, Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

mg-20200331

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


ý			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __ to __

Commission file number 001- 34481

Mistras Group, Inc.

(Exact name of registrant as specified in its charter)


Delaware						22-3341267
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

195 Clarksville Road Princeton Junction, New Jersey						08550
(Address of principal executive offices)						(Zip Code)

(609) 716-4000

(Registrant’s telephone number, including area code)

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

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

ý Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

ý Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o						Accelerated filer x
Non-accelerated filer o						Smaller reporting company o
						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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes ý No

As of May 11, 2020, the registrant had 29,074,110 shares of common stock outstanding.

Table of Contents

TABLE OF CONTENTS

PAGE

PART I—FINANCIAL INFORMATION

ITEM 1.

Financial Statements

Condensed Consolidated Balance Sheets as of March 3 1 , 20 20 (unaudited) and December 31, 201 9

Unaudited Condensed Consolidated Statements of Income (Loss) for the three months ended March 3 1 , 20 20 and March 3 1 , 201 9

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 3 1 , 20 20 and March 3 1 , 20 19

Unaudited Condensed Consolidated Statements of Equity for the three months ended March 3 1 , 20 20 and March 3 1 , 201 9

Unaudited Condensed Consolidated Statements of Cash Flows for the thr ee months ended March 3 1 , 20 20 and March 3 1 , 201 9

Notes to Unaudited Condensed Consolidated Financial Statements

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

ITEM 4

Controls and Procedures

PART II—OTHER INFORMATION

Unregistered Sales of Equity Securities and Use of Proceeds

ITEM 3.

Defaults Upon Senior Securities

ITEM 4.

Mine Safety Disclosures

PART I—FINANCIAL INFORMATION

ITEM 1. Financial Statements

Mistras Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


	March 31, 2020		December 31, 2019
ASSETS	(unaudited)
Current Assets
Cash and cash equivalents	$	17,027	$	15,016
Accounts receivable, net	125,130		135,997
Inventories	13,510		13,413
Prepaid expenses and other current assets	13,151		14,729
Total current assets	168,818		179,155
Property, plant and equipment, net	94,971		98,607
Intangible assets, net	72,019		109,537
Goodwill	196,289		282,410
Deferred income taxes	1,910		1,786
Other assets	49,538		48,383
Total assets	$	583,545	$	719,878
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable	$	13,110	$	15,033
Accrued expenses and other current liabilities	75,156		81,389
Current portion of long-term debt	7,240		6,593
Current portion of finance lease obligations	3,847		4,131
Income taxes payable	2,067		2,094
Total current liabilities	101,420		109,240
Long-term debt, net of current portion	250,786		248,120
Obligations under finance leases, net of current portion	12,401		13,043
Deferred income taxes	6,761		21,290
Other long-term liabilities	40,424		42,163
Total liabilities	411,792		433,856
Commitments and contingencies
Equity
Preferred stock, 10,000,000 shares authorized	—		—
Common stock, $0.01 par value, 200,000,000 shares authorized, 29,042,069 and 28,945,472 shares issued	290		289
Additional paid-in capital	230,472		229,205
Retained earnings (deficit)	(20,896)		77,613
Accumulated other comprehensive loss	(38,294)		(21,285)
Total Mistras Group, Inc. stockholders’ equity	171,572		285,822
Non-controlling interests	181		200
Total equity	171,753		286,022
Total liabilities and equity	$	583,545	$	719,878

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Income (Loss)

(in thousands, except per share data)


	Three months ended
	March 31, 2020		March 31, 2019

Revenue	$	159,465	$	176,787
Cost of revenue	113,324		122,417
Depreciation	5,497		5,496
Gross profit	40,644		48,874
Selling, general and administrative expenses	41,558		41,763
Bad debt provision for troubled customers, net of recoveries	—		5,491
Impairment charges	106,062		—
Pension withdrawal expense	—		534

Research and engineering	824		857
Depreciation and amortization	3,970		4,172
Acquisition-related expense (benefit), net	(542)		453
Loss from operations	(111,228)		(4,396)
Interest expense	2,789		3,527
Loss before provision (benefit) for income taxes	(114,017)		(7,923)
Benefit for income taxes	(15,495)		(2,637)
Net loss	(98,522)		(5,286)
Less: Net income (loss) attributable to non-controlling interests, net of taxes	(13)		7
Net loss attributable to Mistras Group, Inc.	$	(98,509)	$	(5,293)

Earnings (loss) per common share:
Basic	$	(3.40)	$	(0.19)
Diluted	$	(3.40)	$	(0.19)
Weighted-average common shares outstanding:
Basic	28,963		28,574
Diluted	28,963		28,574

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)


	Three months ended
	March 31, 2020		March 31, 2019

Net loss	$	(98,522)	$	(5,286)
Other comprehensive income (loss):
Foreign currency translation adjustments	(17,009)		2,131
Comprehensive loss	(115,531)		(3,155)
Less: comprehensive income (loss) attributable to non-controlling interest	(19)		9
Comprehensive loss attributable to Mistras Group, Inc.	$	(115,512)	$	(3,164)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Equity

(in thousands)


	Three months ended
	Common Stock					Additional paid-in capital		Retained earnings (deficit)		Accumulated other comprehensive income (loss)		Total Mistras Group, Inc. Stockholders’ Equity		Noncontrolling Interest
	Shares	Amount														Total Equity

Balance at December 31, 2019	28,945	$	289	$	229,205	$	77,613	$	(21,285)	$	285,822	$	200	$	286,022
Net loss	—	—		—		(98,509)		—		(98,509)		(13)		(98,522)
Other comprehensive loss, net of tax	—	—		—		—		(17,009)		(17,009)		(6)		(17,015)
Share-based payments	—	—		1,425		—		—		1,425		—		1,425
Net settlement of restricted stock units	97	1		(158)		—		—		(157)		—		(157)

Balance at March 31, 2020	29,042	$	290	$	230,472	$	(20,896)	$	(38,294)	$	171,572	$	181	$	171,753

Balance at December 31, 2018	28,563	$	285	$	226,616	$	71,553	$	(27,557)	$	270,897	$	177	$	271,074
Net income (loss)	—	—		—		(5,293)		—		(5,293)		7		(5,286)
Other comprehensive income, net of tax	—	—		—		—		2,131		2,131		2		2,133
Share-based payments	61	1		1,426		—		—		1,427		—		1,427
Net settlement of restricted stock units	—	—		(284)		—		—		(284)		—		(284)
Exercise of stock options	3	—		32		—		—		32		—		32
Balance at March 31, 2019	28,627	$	286	$	227,790	$	66,260	$	(25,426)	$	268,910	$	186	$	269,096

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Three months ended
	March 31, 2020		March 31, 2019

Cash flows from operating activities
Net loss	$	(98,522)	$	(5,286)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	9,467		9,668
Impairment charges	106,062		—
Deferred income taxes	(13,739)		244
Share-based compensation expense	1,345		1,356
Bad debt provision for troubled customers, net of recoveries	—		5,491
Fair value adjustments to contingent consideration	(542)		305
Foreign currency (gain) loss	307		(647)

Other	76		(163)
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions
Accounts receivable	7,884		4,904
Inventories	(405)		(505)
Prepaid expenses and other assets	(985)		(5,425)
Accounts payable	(1,526)		(541)
Accrued expenses and other liabilities	(3,315)		(3,189)
Income taxes payable	—		1,965
Net cash provided by operating activities	6,107		8,177
Cash flows from investing activities
Purchase of property, plant and equipment	(4,301)		(5,637)

Purchase of intangible assets	(87)		(88)

Proceeds from sale of equipment	184		724

Net cash used in investing activities	(4,204)		(5,001)
Cash flows from financing activities
Repayment of finance lease obligations	(1,167)		(1,124)
Proceeds from borrowings of long-term debt	280		121
Repayment of long-term debt	(1,639)		(1,694)
Proceeds from revolver	13,500		6,500
Repayment of revolver	(8,500)		(7,500)
Payment of financing costs	(522)		—
Payment of contingent consideration for business acquisitions	(1,303)		—
Taxes paid related to net share settlement of share-based awards	(157)		(284)
Proceeds from exercise of stock options	—		32
Net cash provided by (used in) financing activities	492		(3,949)
Effect of exchange rate changes on cash and cash equivalents	(384)		(171)
Net change in cash and cash equivalents	2,011		(944)
Cash and cash equivalents at beginning of period	15,016		25,544
Cash and cash equivalents at end of period	$	17,027	$	24,600
Supplemental disclosure of cash paid
Interest	$	2,726	$	3,428
Income taxes	$	61	$	1,091
Noncash investing and financing
Equipment acquired through finance lease obligations	$	667	$	1,086

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

1. Description of Business and Basis of Presentation

Description of Business

Mistras Group, Inc. and subsidiaries ("the Company") is a leading “one source” global provider of technology-enabled asset protection solutions used to evaluate the structural integrity and reliability of critical energy, industrial, public infrastructure and commercial aerospace components. The Company combines industry-leading products and technologies, expertise in mechanical integrity (MI), non-destructive testing (NDT) and mechanical services and proprietary data analysis software to deliver a comprehensive portfolio of customized solutions, ranging from routine inspections to complex, plant-wide asset integrity assessments and management. These mission critical solutions enhance customers’ ability to extend the useful life of their assets, increase productivity, minimize repair costs, comply with governmental safety and environmental regulations, manage risk and avoid catastrophic disasters. The Company serves a global customer base of companies with asset-intensive infrastructure, including companies in the oil and gas, commercial aerospace and defense, fossil and nuclear power, alternative and renewable energy, public infrastructure, chemicals, transportation, primary metals and metalworking, pharmaceutical/biotechnology and food processing industries and research and engineering institutions.

Recent Developments

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States. The COVID-19 pandemic has caused significant volatility in domestic and international markets. There is on-going uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies. In addition, oil prices have dropped significantly, and airline traffic has experienced a significant decline. These declines were driven by the uncertainty surrounding the COVID-19 pandemic and, in the case of the oil and gas market, other macroeconomic events such as the geopolitical tensions between OPEC and Russia, which also resulted in a significant drop in oil prices.

The COVID-19 pandemic and significant drop in oil prices has adversely affected the Company's workforce and operations, as well as the operations of its customers, suppliers and contractors. These negative factors have also resulted in significant volatility and uncertainty in the markets in which the Company operates. To successfully navigate through this unprecedented period, the Company continues to focus on the following key priorities:

•Ensuring the health and safety of its employees and those of its customers and suppliers;

•Maintaining business continuity and financial strength and stability; and

•Serving its customers as they provide essential products and services to the world.

While the Company cannot fully assess the impact that the COVID-19 pandemic or the significant drop in oil prices will have on its operations at this time, there are certain impacts that the Company has identified:

•The financial market volatility that resulted from COVID-19 and the drop in oil prices required the Company to reassess the goodwill it had recorded related to various prior acquisitions under the guidance of ASC 350. The Company determined that the fair values of various reporting units were less than their carrying values (including goodwill). As a result, the Company recorded an impairment charge related to goodwill of approximately $77.1 million in the three months ended March 31, 2020. See Note 8–Goodwill.

•This same financial market volatility required the Company to reassess the tangible and intangible assets recorded under the guidance of ASC 360. The Company determined that the fair values of certain asset groups were less than their carrying values (excluding goodwill). As a result, the Company recorded impairment charges related to intangible assets of approximately $28.8 million and a right-of-use asset of approximately $0.2 million in the three months ended March 31, 2020. See Note 9–Intangible Assets and Note 13–Leases.

•As of March 31, 2020, the Company was in compliance with the terms of its $300 million revolving line of credit and $100 million senior secured term loan A facility provided by its banking group. Given the uncertainty of the Company's projected cash flows as a result of the impact of the COVID-19 pandemic and the drop in oil prices, the Company entered into an amendment on May 15, 2020 with its banking group that, among other provisions, modifies

Table of Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

the current financial covenants. The Company believes that it is probable, based on the amended covenants, that the Company will be able to comply with the amended covenants and fulfil its obligations under the credit agreement; however, such matters cannot be predicted with certainty. See Note 11–Long-Term Debt.

To respond to the economic downturn resulting from the COVID-19 pandemic and the drop in oil prices, the Company has initiated a cost reduction and efficiency program. All named executive officers of the Company have voluntarily taken temporary salary reductions ranging from 25% to 45% of their base salary. In addition, the Company instituted a reduction for its other salaried employees, at lower percentages, and suspended the Company's voluntary match under the Company sponsored savings plans for its U.S. and Canadian employees. These reductions are for the second quarter of 2020. If the economic downturn continues beyond the second quarter and there is no sign of economic recovery for the Company or its industry, the Company will assess whether to change these cost saving measures. In addition, the Company’s non-employee directors voluntarily agreed to a $3,750 reduction in their second quarter 2020 payment.

The Company is currently unable to predict with certainty the overall impact that the COVID-19 pandemic and drop in oil prices may have on its business, results of operations, or liquidity. The Company may be impacted by the pandemic and drop in oil prices in other ways which the Company cannot yet determine. The Company will continue to monitor market conditions and respond accordingly.

Basis of Presentation

The condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods of the years ending December 31, 2020 and December 31, 2019. Certain items included in these statements are based on management’s estimates. Actual results may differ from those estimates. The results of operations for any interim period are not necessarily indicative of the results expected for the year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements contained in the 2019 Annual Report.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Mistras Group, Inc. and its wholly and majority-owned subsidiaries. For subsidiaries in which the Company’s ownership interest is less than 100%, the non-controlling interests are reported in stockholders’ equity in the accompanying Condensed Consolidated Balance Sheets. The non-controlling interests in net results, net of tax, is classified separately in the accompanying Unaudited Condensed Consolidated Statements of Income (Loss). All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassification

Certain amounts in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have a material effect on the Company's financial condition or results of operations as previously reported.

Customers

For each of the three months ended March 31, 2020 and 2019, no customer represented 10% or more of the Company's revenue.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in Note 1–Summary of Significant Accounting Policies and Practices in the 2019 Annual Report. On an ongoing basis, the Company evaluates its estimates and assumptions, including among other things, those related to revenue recognition, long-lived assets, goodwill and acquisitions. Since the date of the 2019 Annual Report, there have been no material changes to the Company's significant accounting policies.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided if it is more likely than not that some or all of a deferred income tax asset will not be realized. Financial accounting standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. These standards also provide guidance on de-recognition, measurement, and classification of amounts relating to uncertain tax positions, accounting for and disclosure of interest and penalties, accounting in interim periods and disclosures required. Interest and penalties related to unrecognized tax positions are recognized as incurred within “provision for income taxes” in the consolidated statements of income. ASC 740-270, Income Taxes-Interim Reporting, requires the Company to use an estimated annual effective tax rate (EAETR) for calculating its tax provision for interim periods. At each interim period, the Company is required, with certain exceptions and limitations, to estimate its forecasted worldwide EAETR, which is applied to the Company's year-to-date consolidated ordinary income or loss resulting in the year-to-date income tax provision before considering items not included in ordinary income or loss. The tax effects of events or transactions not considered to represent ordinary income or loss are accounted for discretely in the interim period and are not included in the determination of the EAETR.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act, among other things, includes tax provisions relating to deferment of employer’s social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property (QIP). The ultimate impact of the CARES Act may differ from the estimated impact the Company recorded during this interim period due to changes in interpretations and guidance that may be issued and actions the Company may take in response to the CARES Act. The Company will continue to assess the impact that various provisions will have on its business.

The Company continues to evaluate its deferred tax assets each period to determine if a valuation allowance is required based on whether it is more likely than not that some portion of these deferred tax assets will not be realized. As of March 31, 2020, management concluded that it is more likely than not that a substantial portion of the Company's deferred tax assets will be realized. As part of the Company's analysis, it considered both positive and negative factors that impact profitability and whether those factors would lead to a change in the estimate of the Company's deferred tax assets that may be realized in the future. In the current period, the Company began to see impacts on its business as a result of the COVID-19 pandemic. The Company will continue to monitor the impacts of the COVID-19 pandemic on its business, and any sustained or prolonged reductions in future earnings periods may change the Company's conclusions on whether it is more likely than not to realize portions of the Company's deferred tax assets.

The Company’s effective income tax rate was approximately 14% and 33% for the three months ended March 31, 2020 and 2019, respectively. The effective income tax rate for the three months ended March 31, 2020 was lower than the statutory rate primarily due to impairments recorded during the interim period for which no income tax benefits will be realized by us. However, this unfavorable impact on the Company's effective income tax rate was partially offset by income tax benefits of the CARES Act. The CARES Act provides a five-year carryback of net operating losses generated in years 2018-2020. As the statutory federal income tax rate applicable to certain years within the carryback period is 35%, carryback to those years of the Company's estimated 2020 annual tax loss provides a tax benefit in excess of the current federal statutory rate of 21%, resulting in an increased income tax benefit. The Company projects that the income tax effects of the CARES Act will result in additional income tax benefit recognized throughout the 2020 tax year as part of the estimated annual effective tax rate, and a cash refund in 2021 of taxes paid in prior years. The effective income tax rate for the three months ended March 31, 2019 was higher than the statutory rate due to the impact of discrete items, the global intangible low-taxes income (GILTI), and executive compensation, and other provisions resulting from the December 22, 2017 passage of the Tax Cuts and Jobs Act and foreign tax rates different than statutory rates in the U.S.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities related to outside basis differences. The standard is effective for interim and annual periods beginning January 1, 2021, with certain amendments applied prospectively and others requiring retrospective application. Early adoption is permitted, with any adjustments reflected as of the beginning of the fiscal year of adoption. If early adoption is elected, all changes as a result of the standard must be adopted in the same period. The Company is currently evaluating the impact of this guidance on its consolidated financial position, results of operations, and cash flows.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of this guidance on its consolidated financial position, results of operations, and cash flows.

2. Revenue

The majority of the Company's revenues are derived from providing services on a time and material basis and are short-term in nature. The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company's contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and is, therefore, not distinct. The Company provides highly integrated and bundled inspection services to its customers. Some of the Company's contracts have multiple performance obligations, most commonly due to the contract providing both goods and services. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is a relative selling price based on price lists.

Contract modifications are not routine in the performance of the Company contracts. Generally, when contracts are modified, the modification is to account for changes in scope to the goods and services that are provided. In most instances, contract modifications are for goods or services that are distinct, and, therefore, are accounted for as a separate contract.

The Company's performance obligations are satisfied over time as work progresses or at a point in time. The majority of the Company's revenue recognized over time as work progresses is related to its service deliverables, which includes providing testing, inspection and mechanical services to the Company's customers. Revenue is recognized over time based on time and material incurred to date which best portrays the transfer of control to the customer. The Company also utilizes an available practical expedient that provides for revenue to be recognized in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date. Fixed fee arrangements are determined based on expected labor, material, and overhead to be consumed on fulfillment of such services. Revenue is recognized on a cost-to-cost method tracked on an input basis.

The majority of the Company's revenue recognized at a point in time is related to product sales when the customer obtains control of the asset, which is generally upon shipment to the customer. Contract costs include labor, material and overhead.

The Company expects any significant remaining performance obligations to be satisfied within one year.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Contract Estimates

The majority of the Company's revenues are short-term in nature. The Company has many master service agreements (MSAs) that specify an overall framework and contract terms when the Company and customers agree upon services or products to be provided. The actual contracting to provide services or furnish products is triggered by a work order, purchase order, or some similar document issued pursuant to a MSA which sets forth the scope of services and/or identifies the products to be provided. From time-to-time, the Company may enter into long-term contracts, which can range from several months to several years. Revenue on such long-term contracts is recognized as work is performed based on total costs incurred to date in relation to the total estimated costs for the performance of the contract at completion. This includes contract estimates of costs to be incurred for the performance of the contract. Cost estimation is based upon the professional knowledge and experience of the Company's project managers, engineers and financial professionals. Factors that are considered in estimating the work to be completed include the availability of materials, the effect of any delays in the Company's project performance and the recoverability of any claims. Whenever revisions of estimates, contract costs and/or contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.

Revenue by Category

The following series of tables present the Company's disaggregated revenues:

Revenue by industry was as follows:


Three Months Ended March 31, 2020	Services		International		Products		Corp/Elim		Total
Oil & Gas	$	83,299	$	9,104	$	95	$	—	$	92,498
Aerospace & Defense	14,652		7,415		147		—		22,214
Industrials	12,867		4,919		488		—		18,274
Power generation & Transmission	5,095		1,697		854		—		7,646
Other Process Industries	6,004		2,120		3		—		8,127
Infrastructure, Research & Engineering	4,517		2,461		560		—		7,538
Other	2,439		1,351		665		(1,287)		3,168
Total	$	128,873	$	29,067	$	2,812	$	(1,287)	$	159,465


Three Months Ended March 31, 2019	Services		International		Products		Corp/Elim		Total
Oil & Gas	$	91,666	$	9,704	$	15	$	—	$	101,385
Aerospace & Defense	12,794		11,654		307		—		24,755
Industrials	16,123		5,075		432		—		21,630
Power generation & Transmission	6,262		1,422		1,380		—		9,064
Other Process Industries	6,319		2,242		5		—		8,566
Infrastructure, Research & Engineering	2,590		2,733		847		—		6,170
Other	4,544		2,332		446		(2,105)		5,217
Total	$	140,298	$	35,162	$	3,432	$	(2,105)	$	176,787

Table of Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Revenue per key geographic location was as follows:


Three Months Ended March 31, 2020	Services		International		Products		Corp/Elim		Total
United States	$	109,581	$	154	$	1,559	$	(711)	$	110,583
Other Americas	18,735		1,505		278		(153)		20,365
Europe	108		26,235		340		(379)		26,304
Asia-Pacific	449		1,173		635		(44)		2,213
Total	$	128,873	$	29,067	$	2,812	$	(1,287)	$	159,465


Three Months Ended March 31, 2019	Services		International		Products	Corp/Elim	Total
United States	$	113,136	$	276	$