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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021
 
Or
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueMGNew 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
 Emerging Growth Company
 
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).
 Yes  ý No


As of May 3, 2021, the registrant had 29,431,913 shares of common stock outstanding.



Table of Contents
TABLE OF CONTENTS
 
 PAGE
 
  
 
    
  
    
  
Unaudited Condensed Consolidated Statements of Loss for the three months ended March 31, 2021 and March 31, 2020
    
  
    
Unaudited Condensed Consolidated Statements of Equity for the three months ended March 31, 2021 and March 31, 2020
  
    
  
    
 
    
 
    
 
  
 
  
 
    
 
    
 
    
 
    
 
    
 
    
 
  
 
i

Table of Contents
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, 2021December 31, 2020
ASSETS(unaudited) 
Current Assets  
Cash and cash equivalents$24,177 $25,760 
Accounts receivable, net111,960 107,628 
Inventories13,148 13,134 
Prepaid expenses and other current assets20,684 16,066 
Total current assets169,969 162,588 
Property, plant and equipment, net90,238 92,681 
Intangible assets, net66,222 68,642 
Goodwill206,660 206,008 
Deferred income taxes2,064 2,069 
Other assets49,248 51,325 
Total assets$584,401 $583,313 
LIABILITIES AND EQUITY  
Current Liabilities  
Accounts payable$15,052 $14,240 
Accrued expenses and other current liabilities83,629 78,500 
Current portion of long-term debt11,145 10,678 
Current portion of finance lease obligations3,729 3,765 
Income taxes payable2,457 2,664 
Total current liabilities116,012 109,847 
Long-term debt, net of current portion211,161 209,538 
Obligations under finance leases, net of current portion10,635 11,115 
Deferred income taxes9,092 8,236 
Other long-term liabilities45,457 47,358 
Total liabilities392,357 386,094 
Commitments and contingencies
Equity  
Preferred stock, 10,000,000 shares authorized
  
Common stock, $0.01 par value, 200,000,000 shares authorized, 29,346,562 and 29,234,143 shares issued and outstanding
293 292 
Additional paid-in capital235,413 234,638 
Accumulated deficit(27,210)(21,848)
Accumulated other comprehensive loss(16,653)(16,061)
Total Mistras Group, Inc. stockholders’ equity191,843 197,021 
Non-controlling interests201 198 
Total equity192,044 197,219 
Total liabilities and equity$584,401 $583,313 
 
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

1

Table of Contents
Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Loss
(in thousands, except per share data)

 Three months ended March 31,
 20212020
  
Revenue$153,735 $159,465 
Cost of revenue108,243 113,324 
Depreciation5,491 5,497 
Gross profit40,001 40,644 
Selling, general and administrative expenses39,639 41,558 
Impairment charges 106,062 
Legal settlement and litigation charges, net1,030  
Research and engineering727 824 
Depreciation and amortization3,074 3,970 
Acquisition-related expense (benefit), net277 (542)
Loss from operations(4,746)(111,228)
Interest expense3,213 2,789 
Loss before benefit for income taxes(7,959)(114,017)
Benefit for income taxes(2,600)(15,495)
Net Loss(5,359)(98,522)
Less: net income (loss) attributable to noncontrolling interests, net of taxes3 (13)
Net loss attributable to Mistras Group, Inc.$(5,362)$(98,509)
Loss per common share  
Basic$(0.18)$(3.40)
Diluted$(0.18)$(3.40)
Weighted-average common shares outstanding:  
Basic29,425 28,963 
Diluted29,425 28,963 
 
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

2

Table of Contents
Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
 
 Three months ended March 31,
 20212020
Net Loss$(5,359)$(98,522)
Other comprehensive loss:  
Foreign currency translation adjustments$(592)$(17,015)
Comprehensive loss(5,951)(115,537)
Less: net income (loss) attributable to noncontrolling interest3 (13)
Less: Foreign currency translation adjustments attributable to noncontrolling interests (6)
Comprehensive loss attributable to Mistras Group, Inc.$(5,954)$(115,518)
 
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

3

Table of Contents
Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Equity
(in thousands)
Three months ended
Common StockAdditional
paid-in capital
Retained
earnings
(deficit)
Accumulated
other
comprehensive loss
Total
Mistras Group,
Inc.
Stockholders’ Equity
Noncontrolling Interest 
SharesAmountTotal Equity
Balance at December 31, 202029,234 $292 $234,638 $(21,848)$(16,061)$197,021 $198 $197,219 
Net income (loss)— — — (5,362)— (5,362)3 (5,359)
Other comprehensive loss, net of tax— — — — (592)(592)— (592)
Share-based payments— — 1,262 — — 1,262 — 1,262 
Net settlement of restricted stock units113 1 (487)— — (486)— (486)
Balance at March 31, 202129,347 $293 $235,413 $(27,210)$(16,653)$191,843 $201 $192,044 
Balance at December 31, 201928,945 $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 units97 1 (158)— — (157)— (157)
Balance at March 31, 202029,042 $290 $230,472 $(20,896)$(38,294)$171,572 $181 $171,753 




The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

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Table of Contents

Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands
 Three months ended March 31,
 20212020
Cash flows from operating activities  
Net loss$(5,359)$(98,522)
Adjustments to reconcile net loss to net cash provided by operating activities  
Depreciation and amortization8,565 9,467 
Impairment charges 106,062 
Deferred income taxes866 (13,739)
Share-based compensation expense1,262 1,345 
Fair value adjustments to contingent consideration 243 (542)
Foreign currency (gain) loss455 307 
Other(48)76 
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions 
Accounts receivable(5,417)7,884 
Inventories(87)(405)
Prepaid expenses and other assets(4,944)(985)
Accounts payable942 (1,526)
Accrued expenses and other liabilities6,881 (3,315)
Income taxes payable(211) 
Net cash provided by operating activities3,148 6,107 
Cash flows from investing activities  
Purchase of property, plant and equipment(4,003)(4,301)
Purchase of intangible assets(350)(87)
Acquisition of business, net of cash acquired(411) 
Proceeds from sale of equipment588 184 
Net cash used in investing activities(4,176)(4,204)
Cash flows from financing activities  
Repayment of finance lease obligations(1,069)(1,167)
Proceeds from borrowings of long-term debt 280 
Repayment of long-term debt(2,323)(1,639)
Proceeds from revolver23,000 13,500 
Repayment of revolver(17,750)(8,500)
Payment of financing costs (522)
Payment of contingent consideration for business acquisitions(938)(1,303)
Taxes paid related to net share settlement of share-based awards(485)(157)
Net cash provided by financing activities435 492 
Effect of exchange rate changes on cash and cash equivalents(990)(384)
Net change in cash and cash equivalents(1,583)2,011 
Cash and cash equivalents at beginning of period25,760 15,016 
Cash and cash equivalents at end of period$24,177 $17,027 
Supplemental disclosure of cash paid  
Interest, net$2,916 $2,726 
Income taxes, net of refunds$2,877 $61 
Noncash investing and financing  
Equipment acquired through finance lease obligations$643 $667 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
5

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 “OneSource™” multinational provider of integrated technology-enabled asset protection solutions helping to maximize the safety and operational uptime for civilization's most critical industrial and civil assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, and decades-long legacy of industry leadership, the Company helps clients in the oil and gas, aerospace and defense, power generation, civil infrastructure, and manufacturing industries towards achieving and maintaining operational excellence. By supporting these organizations that help fuel our vehicles and power our society; inspecting components that are trusted for commercial, defense, and space craft; and building real-time monitoring equipment to enable safe travel across bridges, the Company helps the world at large.

The Company enhances value for its clients by integrating asset protection throughout supply chains and centralizing integrity data through a suite of Industrial IoT-connected digital software and monitoring solutions.

The Company's core capabilities also include non-destructive testing (“NDT”) field inspections enhanced by advanced robotics, laboratory quality control and assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.

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

The COVID-19 coronavirus (COVID-19) pandemic has caused significant volatility in domestic and international markets and is expected to continue to result in significant economic disruption.

The Company's businesses have been classified as non-healthcare critical infrastructure as defined by the U.S. Centers for Disease Control and Prevention (CDC). As a result, a majority of the Company's customers have been and currently remain open for business. North American facilities have remained, and currently remain operating, with modified staffing in certain locations where appropriate. Similarly, our European facilities have remained, and currently remain operating, with modified staffing in certain locations where appropriate, but at a slower pace than North America.

Overall, the Company has taken actions to ensure the health and safety of Company employees and those of its customers and suppliers; maintain business continuity and financial strength and stability; and serve customers as they provide essential products and services to the world.

The COVID-19 pandemic, significant volatility in oil prices, and decreased traffic in the aerospace industry have adversely affected the operations of the Company's customers, suppliers and contractors, and as a consequence, the Company's results of operations. These negative factors have also resulted in significant volatility and uncertainty in the markets in which the Company operates.

While the Company cannot fully assess the impact that the factors discussed above will have on its operations at this time, there were certain impacts that the Company identified resulting in impairment charges in 2020. See Note 8-Goodwill, Note 9-Intangible Assets and Note 13-Leases for additional information.

To respond to the economic downturn resulting from the factors discussed above, in March 2020 the Company initiated a temporary cost reduction and efficiency program. The Company reinstated several of the temporary cost reductions initiatives undertaken during 2020; although, the Company continues to manage and evaluate these actions in responding to the pandemic.

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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 Company is currently unable to predict with certainty the overall impact that the factors discussed above may have on its business, results of operations or liquidity or in other ways which the Company cannot yet determine. The Company will continue to monitor market conditions and respond accordingly. As of March 31, 2021, the cash balance was approximately $24.2 million.

Basis of Presentation
 
The Unaudited Condensed Consolidated Financial Statements contained in this report have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") and Securities and Exchange Commission guidance allowing for reduced disclosure for interim periods. In the opinion of management, the Unaudited 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, 2021 and December 31, 2020.

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 Company's 2020 Annual Report on Form 10-K ("2020 Annual Report").
 
Principles of Consolidation
 
The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of Mistras Group, Inc. as well as its wholly-owned subsidiaries, majority-owned subsidiaries and consolidated variable interest entities (VIE). 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 Loss. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations of companies acquired are included from the date of acquisition.

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, 2021 and 2020, 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 2020 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 2020 Annual Report, there have been no material changes to the Company's significant accounting policies.

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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. A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current and prior years. US GAAP prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. US GAAP also provides 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.

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, 2021 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.

The Company’s effective income tax rate was approximately 32.7% and 13.6% for the three months ended March 31, 2021 and 2020, respectively. The effective income tax rate benefit for the three months ended March 31, 2021 was higher than the statutory rate due to the capitalization of certain non-US intercompany balances which resulted in a deductible foreign exchange loss in the US. 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 the Company. However, this unfavorable impact on the Company's effective income tax rate was partially offset by income tax benefits of the CARES Act.

In response to the COVID-19 pandemic, the American Rescue Plan Act was signed into law on March 11, 2021. This act, among other things, provides economic relief provisions to individuals and funding to certain businesses and programs. The Company is currently evaluating the impact of this guidance on its consolidated financial position, results of operations, and cash flows, but does not expect it to have a material impact.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The ASU removes certain exceptions from the guidance in ASC 740 related to intra-period tax allocations, interim calculations and the recognition of deferred tax liabilities for outside basis differences and clarifies and simplifies several other aspects of accounting for income taxes. Different transition methods apply to the various income tax simplifications. The Company adopted ASU 2019-12 effective January 1, 2021. The impact of adopting this standard was not material to the Company’s 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 amendments provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing 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 applicable contracts and the available expedients provided by the new guidance.


2.    Revenue

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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 Company derives the majority of its revenue by 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
The Company provides highly integrated and bundled inspection services to its customers. 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. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company's 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's 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 is recognized over time as work progresses for the Company's service deliverables, which includes providing testing, inspection and mechanical services to our 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. For these arrangements, revenue is recognized on a cost-to-cost method tracked on an input basis.

The majority of our 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.

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 are 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 certain 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.

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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 by Category

The following series of tables present the disaggregated revenue:

Revenue by industry was as follows:

Three Months Ended March 31, 2021ServicesInternationalProductsCorp/ElimTotal
Oil & Gas$84,684 $8,008 $56 $ $92,748 
Aerospace & Defense11,823 4,317 35  16,175 
Industrials 8,819 4,849 327  13,995 
Power generation & Transmission5,534 1,978 759  8,271 
Other Process Industries7,856 2,912 9  10,777 
Infrastructure, Research & Engineering3,169 3,756 1,144  8,069 
Other2,413 1,828 658 (1,199)3,700 
Total$124,298 $27,648 $2,988 $(1,199)$153,735 


Three Months Ended March 31, 2020ServicesInternationalProductsCorp/ElimTotal
Oil & Gas$83,299 $9,104 $95 $ $92,498 
Aerospace & Defense14,652 7,415 147  22,214 
Industrials 12,867 4,919 488  18,274 
Power generation & Transmission5,095 1,697 854  7,646 
Other Process Industries6,004 2,120 3  8,127 
Infrastructure, Research & Engineering4,517 2,461 560  7,538 
Other2,439 1,351 665 (1,287)3,168 
Total$128,873 $29,067 $2,812 $(1,287)$159,465 

Revenue per key geographic location was as follows:

Three Months Ended March 31, 2021ServicesInternationalProductsCorp/ElimTotal
United States$104,546 $208 $1,460 $(391)$105,823 
Other Americas18,878 1,177 67 (63)20,059 
Europe294 25,894 460 (612)26,036 
Asia-Pacific580 369 1,001 (133)1,817 
Total$124,298 $27,648 $2,988 $(1,199)$153,735 


Three Months Ended March 31, 2020ServicesInternationalProductsCorp/ElimTotal
United States109,581 $154 $1,559 $(711)$110,583 
Other Americas18,735 1,505 278 (153)20,365 
Europe108 26,235 340 (379)26,304 
Asia-Pacific449 1,173 635 (44)2,213 
Total$128,873 $29,067 $2,812 $(1,287)$159,465 

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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 Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets. Amounts are generally billed as work progresses in accordance with agreed-upon contractual terms, generally at periodic intervals (e.g., weekly, bi-weekly or monthly). Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, the Company sometimes receives advances or deposits from its customers before revenue is recognized, resulting in contract liabilities. These assets and liabilities are aggregated on an individual contract basis and reported on the Consolidated Balance Sheets at the end of each reporting period within accounts receivable, net or accrued expenses and other current liabilities.

Revenue recognized during the three months ended March 31, 2021 and 2020 that was included in the contract liability balance at the beginning of such year was $1.9 million and $1.6 million, respectively. Changes in the contract asset and liability balances during these periods were not materially impacted by any other factors. The Company applies a practical expedient to expense incremental costs incurred related to obtaining a contract. The Company’s expenses are expected to be amortized over a period less than one year.

3.    Share-Based Compensation
 
The Company has share-based incentive awards outstanding to its eligible employees and non-employee directors under two equity incentive plans: (i) the 2009 Long-Term Incentive Plan (the "2009 Plan") and (ii) the 2016 Long-Term Incentive Plan (the "2016 Plan"). No further awards may be granted under the 2009 Plan, although one stock option award granted under the 2009 Plan remains outstanding in accordance with its terms. Awards granted under the 2016 Plan may be in the form of stock options, restricted stock units and other forms of share-based incentives, including performance restricted stock units, stock appreciation rights and deferred stock rights. At the annual shareholders meeting on May 19, 2020, the Company’s shareholders approved an amendment to increase the total number of shares that may be issued under the 2016 Plan by 2.0 million, for a total of 3.7 million shares that may be issued under the 2016 Plan.
 
Stock Options
 
For each of the three months ended March 31, 2021 and 2020, the Company did not recognize any share-based compensation expense related to the stock option award, as the one outstanding stock option award was already fully vested. No unrecognized compensation costs remained related to the stock option award as of March 31, 2021.

The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of March 31, 2021 and 2020:
 Three months ended March 31,
 20212020
 
Common
Stock
Options
Weighted
Average
Exercise
Price
Common
Stock
Options
Weighted
Average
Exercise
Price
Outstanding at beginning of period:5 $22.35 5 $22.35 
Granted $  $ 
Exercised $  $ 
Expired or forfeited $  $ 
Outstanding at end of period:5 $22.35 5 $22.35 
 
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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)
Restricted Stock Unit Awards
 
For the three months ended March 31, 2021 and March 31, 2020, the Company recognized share-based compensation expense related to restricted stock unit awards of $0.9 million and $1.1 million, respectively. As of March 31, 2021, there was $8.7 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which is expected to be recognized over a remaining weighted-average period of 3.0 years. Upon vesting, restricted stock units are generally net share-settled to cover the required withholding tax and the remaining amount is converted into an equivalent number of shares of common stock.

A summary of the vesting activity of restricted stock unit awards, with the respective fair value of the awards, is as follows:
 Three months ended March 31,
 20212020
Restricted stock awards vested111 120 
Fair value of awards vested$1,189 $454 

A summary of the fully-vested common stock the Company issued to its six non-employee directors, in connection with its non-employee director compensation plan, is as follows:
 Three months ended March 31,
 20212020
Awards issued25  
Grant date fair value of awards issued$258 $ 

A summary of the Company's outstanding, non-vested restricted share units is as follows:
 Three months ended March 31,
 20212020
 UnitsWeighted
Average
Grant-Date
Fair Value
UnitsWeighted
Average
Grant-Date
Fair Value
Outstanding at beginning of period:1,076 $7.41 559 $16.92 
Granted519 $10.06  $ 
Released(111)$15.90 (120)$15.87 
Forfeited(10)$8.69 (3)$16.34 
Outstanding at end of period:1,474 $7.70 436 $17.21 

Performance Restricted Stock Units

The Company maintains Performance Restricted Stock Units (PRSUs) that have been granted to select executives and senior officers whose ultimate payout is based on the Company’s performance over a one-year period based on specific metrics approved by the Compensation Committee of the Board of Directors of the Company.

For 2020, the Compensation Committee approved the following four metrics:
1.Revenue
2.Adjusted EBITDA defined as net income attributable to the Company 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).
3.Free Cash Flow as a percentage of revenue
4.Return on Average Book Equity defined as net income divided by average book value of shareholders equity.

The free cash flow and return on average book equity criteria are relative metrics, the performance of which are based upon how the Company performs relative to a peer group.
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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)

For 2021, the Compensation Committee made changes to the Company’s equity incentive compensation plan for its executive officers and approved the new target awards for 2021. For 2021, the three metrics are:
1.Free Cash Flow net cash provided by operating activities less purchases of property, plant, equipment and intangible assets and is subject to adjustments approved by the Compensation Committee.
2.Adjusted EBITDA as defined in the 2020 metric section above.
3.Total Shareholder Return (TSR) measures the total return to shareholders of the Company during 2021 versus the total return to the shareholders of a predefined peer group of companies that provide inspection, testing, certification or similar industrial services. The return will be measured by the year over year percent change in share price. The share prices used to calculate the return are the average share price during the 20-trading day period ending on the initial measurement date (the last 20 trading days of 2020), compared to the average share price during the 20-trading day period ending on the final measurement date (the last 20 trading days of 2021). Any cash dividends or distributions paid in 2021 will be added to calculate the return to shareholders during the year. TSR is considered a market condition for which the fair value of PRSUs with this condition is determined using a Monte Carlo valuation model. Key assumptions in the Monte Carlo valuation model included:
a.Expected Volatility. Expected volatility of the Company’s common stock at the date of grant was estimated based on a historical average volatility rate for the approximate 1-year performance period.
b.Dividend Yield. The dividend yield assumption was based on historical and anticipated dividend payouts (assumed at zero).
c.Risk-Free Interest Rate. The risk-free interest rate assumption was based on observed interest rates consistent with the approximate 1-year performance measurement period.

PRSUs are equity-classified and compensation costs are initially measured using the fair value of the underlying stock at the date of grant. Compensation costs related to the PRSUs are subsequently adjusted for changes in the expected outcomes of the performance conditions. Compensation cost related to the PRSUs with a market condition is not reversed if the market condition is not achieved, provided the employee requisite service has been rendered. PRSUs generally vest ratably on each of the first four anniversary dates upon completion of the performance period, for a total requisite service period of up to five years and have no dividend rights.

A summary of the Company's PRSU activity is as follows:
 Three months ended March 31,
20212020
 UnitsWeighted
Average
Grant-Date
Fair Value
UnitsWeighted
Average
Grant-Date
Fair Value
Outstanding at beginning of period:333 $8.84 260 $16.77 
Granted189 $12.59  $ 
Performance condition adjustments(125)$3.68 1 $13.63 
Released(22)$13.63 (19)$19.46 
Forfeited $  $ 
Outstanding at end of period:375 $12.18 242 $15.42 

During the three months ended March 31, 2021 and March 31, 2020, the Compensation Committee approved the final calculation of the award metrics for calendar year 2020 and calendar year 2019, respectively. As a result, the calendar year 2020 PRSUs decreased by approximately 125,000 units (related to not achieving the 2020 Return on Average Book Equity metric) and the calendar year 2019 PRSUs increased by approximately 1,000 units.

For the three months ended March 31, 2021 and March 31, 2020, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $0.1 million and $0.3 million, respectively. At March 31, 2021, there was $2.7 million of total unrecognized compensation costs related to approximately 375,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of 2.7 years.

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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)
4.    Earnings (loss) per Share
 
Basic earnings (loss) per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, and (2) the dilutive effect of assumed conversion of equity awards using the treasury stock method. With respect to the number of weighted-average shares outstanding (denominator), diluted shares reflects: (i) the exercise of options to acquire common stock to the extent that the options’ exercise prices are less than the average market price of common shares during the period and (ii) the pro forma vesting of restricted stock units.
 
The following table sets forth the computations of basic and diluted earnings per share:
 
 Three months ended March 31,
 20212020
Basic loss per share  
Numerator:  
Net loss attributable to Mistras Group, Inc.$(5,362)$(98,509)
Denominator:  
Weighted average common shares outstanding29,425 28,963 
Basic loss per share$(0.18)$(3.40)
Diluted loss per share:  
Numerator:  
Net loss attributable to Mistras Group, Inc.$(5,362)$(98,509)
Denominator:  
Weighted average common shares outstanding29,425 28,963 
Dilutive effect of stock options outstanding  
Dilutive effect of restricted stock units outstanding (1)
  
29,425 28,963 
Diluted loss per share$(0.18)$(3.40)
_______________
(1) For the three months ended March 31, 2021 and 2020, 509,000 and 99,000 shares, respectively, related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the period.


5.    Acquisitions

Acquisition-Related Expense 
 
In the course of its acquisition activities, the Company incurs costs in connection with due diligence, such as professional fees, and other expenses. Additionally, the Company adjusts the fair value of acquisition-related contingent consideration liabilities on a quarterly basis. These amounts are reported as Acquisition-related expense, net on the Unaudited Condensed Consolidated Statements of Loss and were as follows for the three months ended March 31, 2021 and 2020:

Three months ended March 31,
 20212020
Due diligence, professional fees and other transaction costs$34 $ 
Adjustments to fair value of contingent consideration liabilities243 (542)
Acquisition-related expense, net$277 $(542)

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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 Company's contingent consideration liabilities are included in Accrued expenses and other current liabilities and Other long-term liabilities on the Condensed Consolidated Balance Sheets.


6.    Accounts Receivable, net
 
Accounts receivable consisted of the following:
 
 March 31, 2021December 31, 2020
Trade accounts receivable$120,190 $115,841 
Allowance for credit losses(8,230)(8,213)
Accounts receivable, net$