Free Cash Flow

During our webcast conference call scheduled for April 13, 2011 to discuss the results for our third quarter of fiscal 2011, which ended February 28, 2011, we may discuss the financial measurement “free cash flow.”

The term “free cash flow” is not a measurement of financial performance under GAAP.  “Free cash flow” is defined as net cash provided by operating activities, less purchases of property, plant and equipment (but excluding purchases related to real estate and buildings).  Our management uses free cash flow as a measure of cash generated by operations of the business.  The following is a reconciliation of free cash flow to a GAAP measurement.

 

 

 

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Unaudited Reconciliation of Net Cash Provided By

Operating Activities to Free Cash Flow

(In Thousands)

 

		For the nine months ended February 28,
		2011								2010
Net cash provided by operating activities						$	21,365							$	12,351
Less
Purchases of property, plant and equipment			9,729								6,714
Minus real estate related capital expenditures			(2,299	)							—
Net non-real estate capital expenditures							(7,430	)							(6,714	)
Free cash flow						$	13,935							$	5,637

We believe investors and other users of our financial statements benefit from the presentation of free cash flow in evaluating our operating performance because it provides an additional tool to compare cash generated by our operations on a consistent basis and measure underlying trends and results in our business.  This measure also takes into account cash used to purchase fixed assets needed for business operations which are not expensed and which are expenditures we expect to make in a continuing basis.  We do not include real estate capital expenditures in determining free cash flow because we view our current real estate capital expenditures as an unusual expenditure which we do not anticipate to be recurring upon the completion of our new facility near Houston, Texas, expected to be completed in the first quarter of fiscal 2012.

 

While free cash flow is a term and financial measurement commonly used by investors and securities analysts, it has limitations.  As a non-GAAP measurement, free cash flow has no standard meaning and, therefore, may not be comparable with similar measurements for other companies.  Free cash flow is generally limited as an analytical tool because it excludes cash uses which are included in a GAAP cash flow statement.  Accordingly, free cash flow should not be considered in isolation or as a substitute for analyzing our results as reported under GAAP.

 

Item 9.01.  Financial Statement and Exhibits

(d)  Exhibits

99.1	Press release issued by Mistras Group, Inc. dated April 12, 2011.

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:  April 12, 2011	By:	/s/ Michael C. Keefe
		Name:	Michael C. Keefe
		Title:	Executive Vice President, General Counsel and Secretary

 

Exhibit No.		Description
99.1		Press release issued by Mistras Group, Inc. dated April 12, 2011.

 

 

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Exhibit 99.1

 

Mistras Group, Inc. Strong 3rd Quarter Results Demonstrate Continued Growth in Revenues and Profits.

 

Revenues Up 23%, Adjusted EBITDA* Up 61%, Net Income Triples.

 

PRINCETON JUNCTION, N.J., April 12, 2011 (GLOBE NEWSWIRE) — Mistras Group, Inc. (NYSE:MG - News), a leading “one source” global provider of technology-enabled asset protection solutions, today reported financial results for its fiscal third quarter ending February 28, 2011. Revenue for the third quarter of fiscal 2011 was $79.2 million, an increase of $14.9 million, or 23%, compared to $64.4 million reported in the third quarter of fiscal 2010. Adjusted EBITDA*, a non-GAAP measure detailed later in this release, increased 61% to $10.5 million in the third quarter of fiscal 2011 versus $6.5 million in the third quarter of fiscal 2010. Net income for the third quarter of fiscal 2011 tripled to $2.4 million, or $0.09 per diluted share, versus $0.8 million, or $0.03 per diluted share, in the third quarter of fiscal 2010.

 

Revenue growth of 23% in the fiscal third quarter was driven by organic growth of 17% and acquisition growth of 6% with minimal impact from movements in foreign currency. During the third quarter of fiscal 2011, the Company achieved revenue growth across all of its segments, including gains of 26% in the Services segment, 14% in the Products and Systems segment and 7% in the International segment.

 

Additional Financial Highlights for the 3 month and 9 month periods:

 

	·	Revenue grew 23% in the first nine months of fiscal 2011 to $236.5 million, up from $192.3 million in the first nine months of fiscal 2010.
	·	Adjusted EBITDA*, a non-GAAP measure detailed later in this release, grew 35% to $34.9 million in the first nine months of fiscal 2011 versus $25.8 million in the first nine months of fiscal 2010.
	·	Adjusted EBITDA* as a percentage of revenue increased 130 basis points in the first 9 months of fiscal 2011 to approximately 15%.
	·	Net income grew 89% for the first nine months of fiscal 2011 to $9.7 million, or $0.36 per diluted share, up from $5.2 million or $0.21 per diluted share in the first nine months of fiscal 2010.
	·	The Company generated $21.4 million in net cash from operating activities in the first nine months of fiscal 2011, versus $12.4 million in the first nine months of fiscal 2010, representing an increase of 73%.
	·	Gross profit as a percentage of revenue, or gross profit margin, was up in both the third quarter (110 basis points) and first nine months (10 basis points) of fiscal 2011 versus prior year.

 

 

 

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Chairman and Chief Executive Officer, Dr. Sotirios J. Vahaviolos stated that “We are very pleased with the financial results for the third quarter, which is historically one of our softer quarters. Consistent, sustained revenue and EBITDA growth has helped us drive our operating leverage, generate more cash from operations and improve our G&A expenses as a percentage of revenues. Once again, our “one source” asset protection solution model has demonstrated its ability to significantly improve results over the prior year as it will be moving forward.”

 

Business Outlook for Fiscal 2011

 

The Company is forecasting continued double digit growth in Revenues and Adjusted EBITDA* for the remainder of Fiscal 2011. The Company is affirming its previously issued guidance and projects its fiscal 2011 revenues to be above the midpoint of the range of $310 million to $340 million and Adjusted EBITDA* to be above the midpoint of the range of $45 million to $50 million. Mistras does not provide specific guidance for individual quarters, but will reaffirm or update its annual guidance at least quarterly.

 

Conference Call to Discuss Third Quarter Results

 

Mistras will have a conference call on Wednesday, April 13th, 2011 at 9:00 am Eastern Time to discuss its results for the third quarter of fiscal year 2011. The call will be broadcast over the Web and can be accessed on Mistras’ Website, www.mistrasgroup.com. Individuals in the U.S. wishing to participate in the conference call by phone may call (800) 510-9834 and use confirmation code 64642932 when prompted. The International number is (617) 614-3669. 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; 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.

 

 

 

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For more information, please visit the company’s website at www.mistrasgroup.com or contact Frank Joyce, Chief Financial Officer at 609-716-4103.

 

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. 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 August 17, 2010. The forward-looking statements are made as of the date hereof, and Mistras undertakes no obligation to update such statements as a result of new information, future events or otherwise.

 

* Use of Non-GAAP Measures

 

The term “Adjusted EBITDA” is a financial measurement not calculated in accordance with U.S. generally accepted accounting principles. The Company believes that investors and other users of the financial statements benefit from the presentation of Adjusted EBITDA because it provides an additional metric to compare the Company’s operating performance on a consistent basis and measures underlying trends and results of the Company’s business. An explanation of Adjusted EBITDA and a reconciliation of this to a financial measurement under GAAP are set forth in a table attached to this press release.

 

 

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Mistras Group, Inc.

Unaudited Consolidated Balance Sheets

(in thousands, except share data)

		February 28, 2011				May 31, 2010
ASSETS
Current Assets
Cash and cash equivalents		$	6,560			$	16,037
Accounts receivable, net			62,290				54,721
Inventories, net			10,285				8,736
Deferred income taxes			2,271				2,189
Prepaid expenses and other current assets			5,622				5,292
Total current assets			87,028				86,975
Property, plant and equipment, net			46,322				39,981
Intangible assets, net			19,317				16,088
Goodwill			53,442				44,315
Other assets			896				1,273
Total assets		$	207,005			$	188,632
LIABILITIES, PREFERRED STOCK AND EQUITY
Current liabilities
Current portion of long-term debt		$	4,769			$	6,303
Current portion of capital lease obligations			5,997				5,370
Accounts payable			4,733				4,640
Accrued expenses and other current liabilities			22,288				20,090
Income taxes payable			2,212				3,281
Total current liabilities			39,999				39,684
Long-term debt, net of current portion			9,793				5,691
Obligations under capital leases, net of current portion			8,676				9,199
Deferred income taxes			3,526				2,087
Other long-term liabilities			1,058				1,417
Total liabilities			63,052				58,078
Commitments and contingencies
Preferred stock, 10,000,000 shares authorized			—				—
Equity
Common stock, $0.01 par value, 200,000,000 shares authorized, 26,670,181 and 26,663,528 shares issued and outstanding as of February 28, 2011 and May 31, 2010, respectively			267				267
Additional paid-in capital			164,764				162,054
Accumulated deficit			(20,735	)			(30,448	)
Accumulated other comprehensive loss			(707	)			(1,587	)
Total Mistras Group, Inc. stockholders’ equity			143,589				130,286
Noncontrolling interest			364				268
Total equity			143,953				130,554
Total liabilities, preferred stock and equity		$	207,005			$	188,632

 

 

 

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Mistras Group, Inc.

Unaudited Consolidated Statement of Operations

(in thousands, except per share data)

		Three months ended February 28,								Nine months ended February 28,
		2011				2010				2011				2010
Revenues:
Services		$	72,411			$	57,966			$	216,616			$	176,484
Products			6,802				6,390				19,844				15,860
Total revenues			79,213				64,356				236,460				192,344
Cost of Revenues:
Cost of services			50,696				41,641				147,754				120,516
Cost of goods sold			2,460				2,343				7,804				6,184
Depreciation of services			3,307				2,547				9,252				7,262
Depreciation of products			153				198				467				589
Total cost of revenues			56,616				46,729				165,277				134,551
Gross profit			22,597				17,627				71,183				57,793
Selling, general and administrative expenses			16,005				14,110				47,099				40,929
Research and engineering			514				586				1,638				1,518
Depreciation and amortization			1,385				1,299				3,889				3,558
Legal reserve			—				—				351				(297	)
Income from operations			4,693				1,632				18,206				12,085
Other expenses
Interest expense			596				744				1,957				2,825
Loss on extinguishment of long-term debt			—				—				—				387
Income before provision for income taxes and noncontrolling interest			4,097				888				16,249				8,873
Provision for income taxes			1,690				123				6,562				3,692
Net income			2,407				765				9,687				5,181
Net loss (income) attributable to noncontrolling interests, net of taxes			36				9				26				(30	)
Net income attributable to Mistras Group, Inc.			2,443				774				9,713				5,151
Accretion of preferred stock			—				—				—				6,499
Net income attributable to common shareholders		$	2,443			$	774			$	9,713			$	11,650
Earnings per common share:
Basic		$	0.09			$	0.03			$	0.36			$	0.58
Diluted		$	0.09			$	0.03			$	0.36			$	0.21
Weighted average common shares outstanding:
Basic			26,667				26,469				26,665				20,103
Diluted			26,919				27,764				26,824				24,511

 

 

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Mistras Group, Inc.

Unaudited Operating Data by Segment

(in thousands)

		Three months ended February 28,								Nine months ended February 28,
		2011				2010				2011				2010
Revenues
Services		$	66,708			$	52,912			$	198,098			$	159,552
Products and Systems			5,436				4,768				15,974				13,137
International			8,671				8,092				27,062				23,322
Corporate and eliminations			(1,602	)			(1,416	)			(4,674	)			(3,667	)
		$	79,213			$	64,356			$	236,460			$	192,344

 

		Three months ended February 28,									Nine months ended February 28,
			2011				2010				2011				2010
Gross profit
Services		$	16,650			$	11,898			$	53,404			$	41,831
Products and Systems			3,049				2,711				8,440				7,217
International			2,935				3,222				9,466				9,212
Corporate and eliminations			(37	)			(204	)			(127	)			(467	)
		$	22,597			$	17,627			$	71,183			$	57,793

 

 

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Mistras Group, Inc.

Unaudited Reconciliation of

Net Income Attributable to Mistras Group, Inc. to EBITDA and Adjusted EBITDA

(in thousands)

		Three months ended February 28,								Nine months ended February 28,
		2011				2010				2011				2010
EBITDA and Adjusted EBITDA data
Net income attributable to Mistras Group, Inc.		$	2,443			$	774			$	9,713			$	5,151
Interest expense			596				744				1,957				2,825
Provision for income taxes			1,690				123				6,562				3,692
Depreciation and amortization			4,845				4,044				13,608				11,409
EBITDA		$	9,574			$	5,685			$	31,840			$	23,077
Legal reserve			—				—				351				(297	)
Large customer bankruptcy			—				—				—				767
Stock compensation expense			903				827				2,680				1,860
Loss on extinguishment of debt			—				—				—				387
Adjusted EBITDA		$	10,477			$	6,512			$	34,871			$	25,794

“Adjusted EBITDA” is defined as net income attributable to Mistras Group, Inc. plus: interest expense, provision for income taxes, depreciation and amortization, stock-based compensation expense, certain acquisition related costs and certain one-time and generally non-recurring items (which are included in the reconciliation above).

 

 

 

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