UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 8, 2013
Mistras Group, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 001- 34481 | 22-3341267 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
| 195 Clarksville Road Princeton Junction, New Jersey |
08550 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (609) 716-4000
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d 2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02. | Results of Operations and Financial Condition |
On October 8, 2013, Mistras Group, Inc. (the “Company,” “we” or “us”) issued a press release announcing the financial results for the first quarter of fiscal year 2014, which ended August 31, 2013. A copy of the press release is attached as Exhibit 99.1 to this report.
Disclosure of Non-GAAP Financial Measures
In the press release attached, the Company uses the term “Adjusted EBITDA” which is not a measurement of financial performance under U.S. generally accepted accounting principles (“GAAP”). The tables to the press release also include a table showing “Adjusted Net Income” and “Adjusted Earnings Per Share,” which are also non-GAAP measurements.
Adjusted EBITDA
“Adjusted EBITDA” is defined as net income plus: interest expense, provision for income taxes, depreciation and amortization, share-based compensation expense, and, as applicable, certain acquisition related costs and certain non-recurring items (which items are described or listed in the reconciliation table included in the press release).
Our management uses Adjusted EBITDA as a measure of operating performance to assist in comparing performance from period to period on a consistent basis, as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations. Adjusted EBITDA is also a performance evaluation metric used to determine incentive compensation for executives and employees.
We believe investors and other users of our financial statements benefit from the presentation of Adjusted EBITDA in evaluating our operating performance because it provides an additional tool to compare our operating performance on a consistent basis and measure underlying trends and results of our business. Adjusted EBITDA removes the impact of certain items that management believes do not directly reflect our core operations. For instance, Adjusted EBITDA generally excludes interest expense, taxes and depreciation and amortization, each of which can vary substantially from company to company depending upon accounting methods and the book value and age of assets, capital structure, capital investment cycles and the method by which assets were acquired. It also eliminates share-based compensation, which is a non-cash expense and is excluded by management when evaluating the underlying performance of our business operations.
While Adjusted EBITDA is a term and financial measurement commonly used by investors and securities analysts, it has limitations. As a non-GAAP measurement, Adjusted EBITDA has no standard meaning and, therefore, may not be comparable with similar measurements for other companies. Adjusted EBITDA is generally limited as an analytical tool because it excludes charges and expenses we do incur as part of our operations. For example, Adjusted EBITDA excludes income taxes, but we generally incur significant U.S. federal, state and foreign income taxes each year and the provision for income taxes is a necessary cost. Adjusted EBITDA should not be considered in isolation or as a substitute for analyzing our results as reported in accordance with GAAP.
Adjusted Net Income and Adjusted Net Income Earnings Per Diluted Share
We use the non-GAAP measurements of Adjusted Net Income and Adjusted Earnings Per Share, which refer to GAAP net income attributable to Mistras Group, Inc. and GAAP diluted earnings per common share, respectively, excluding the items identified in the reconciliation schedule included in the press release. These non-GAAP measurements should be considered in addition to, and not as a replacement for or superior to, the comparable GAAP measurements.
Management believes that these measurements provide useful information to investors by reflecting additional ways of viewing aspects of the Company’s operations that, when reconciled to the corresponding GAAP measurements, help our investors to better understand the long-term profitability trends of our business, and facilitate easier comparisons of our profitability to prior and future periods and to our peers. The items that have been excluded from the GAAP measurements have been removed because items of this nature and/or size occur with inconsistent frequency, occur for reasons that may be unrelated to our commercial performance during the period and/or we believe are not indicative of our ongoing operating costs or profits in a given period, which we believe may obscure underlying business trends and make comparisons of long-term performance difficult.
The Company estimates the tax effect of the items identified in the reconciliation schedule above by applying the Company’s estimated effective tax rate for each respective period to the pre-tax amount.
These measurements have limitations because the adjustments to the GAAP measurements are subject to management’s discretion, there are no standards to determine which adjustments should be made, and may not be comparable with similar measurements for other companies. The Adjusted Net Income and Adjusted Earnings Per Share are not metrics used to determine incentive compensation for executives or employees.
Item 9.01. Financial Statement and Exhibits
| (d) | Exhibits |
| 99.1 | Press release issued by Mistras Group, Inc. dated October 8, 2013. |
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: October 8, 2013 | 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 October 8, 2013 |
Exhibit 99.1
Mistras Delivers Strong First Quarter FY’14 Results and Affirms Full Year Guidance.
Revenue increases 20%; Net Income increases 32%
PRINCETON JUNCTION, N.J., October 8, 2013 (GLOBE NEWSWIRE) — Mistras Group, Inc. (NYSE:MG), a leading “one source” global provider of technology-enabled asset protection solutions, today reported financial results for the first quarter of fiscal 2014, which ended August 31, 2013. During the first quarter, the Company had revenue of $135.8 million, an increase of 20% compared to revenue of $113.4 million for the prior year period. Net income for the first quarter was $5.6 million, or $0.19 per diluted share compared to net income of $4.3 million or $0.15 per diluted share in the prior year period. Adjusted EBITDA* was $16.0 million in the quarter compared to $15.5 million in the prior year period. The first quarter of fiscal 2014 includes a favorable acquisition adjustment of $2.1 million (pre-tax).
First Quarter Fiscal 2014 Financial Highlights:
| • | Revenues of $135.8 million grew 20% versus the prior year, consisting of 5% organic growth and 16% acquisition growth. The Services segment achieved 16% organic revenue growth through the expansion of existing evergreen customers as well as new customers in Oil & Gas (refining and pipeline), Aerospace, Power Generation and Industrial markets, and was complemented by advanced service revenues increasing 15% in the quarter from the prior year. The International segment grew revenues by 55%, led by 69% acquisition growth which was partially offset by a 14% decrease in organic revenue due to unscheduled product installation delays, timing of customer turnarounds and cutbacks in Brazil’s Oil & Gas market. Products & Systems revenues were down 31%. The prior year included large product system sales for commercial & military aerospace suppliers as well as sales of infrastructure based systems that were not replaced in the current quarter due to economic uncertainty and U.S. budget sequester impacts in those industries. |
| • | Gross Profit grew 16% to $39.3 million. Gross Margin was 28.9% versus 29.7% in the prior year. The Services segment margin was 27.9% as compared to 25.4% due to a favorable change in the mix of project work and higher margin advanced services. The International segment’s margin was 26.8% as compared to 29.0%, mainly impacted by the mix of new acquisitions having lower margin traditional NDT services. Products & Systems’ margin was 36.2% as compared to 55.0%, impacted primarily by the decrease in revenues due to uncertainty raised with the U.S. budget sequester and unscheduled delays of system installations for major projects in the North Sea and Russia. |
| • | Net cash provided by operating activities was $11.5 million. |
Sotirios Vahaviolos, Mistras Chairman and Chief Executive Officer stated, “Although difficult economic conditions persist in Europe and South America, along with guarded capital spending in the U.S., we are encouraged by signs of improvement in the U.S. Services market.”
“We were very pleased to see our revenues in the Oil & Gas industry increase a healthy 21% in the quarter from the prior year and organic growth of 16% by our Services segment. All indications are showing that maintenance spending for the North American Oil & Gas industry is expected to continue to increase for the next several years, driven by the need for improved safety oversight and meeting current and new environmental regulations. This, combined with significant new global contract awards that included evergreens in the Oil & Gas, Chemical and Power Generation industries, provides the support that Mistras is poised for a strong fiscal 2014.”
Dr. Vahaviolos also added, “from an operational structure perspective, we continue to reengineer our management and businesses practices globally, ensuring that we are creating and delivering value for our customers and Mistras. Management believes that the Services improvements will be followed by similar results in the International Segment.”
Outlook and Guidance for Fiscal 2014
The Company is affirming its previously issued guidance for fiscal 2014 revenues to be in the range of $570 million to $600 million and Adjusted EBITDA* to be in the range of $74 million to $80 million. The Company does not provide quarterly guidance, but expects to update its annual guidance at least quarterly.
Conference Call
In connection with this release, Mistras will hold a conference call on Wednesday, October 9, 2013 at 9:00 a.m. (Eastern). The call will be broadcast over the Web and can be accessed on Mistras’ Website, www.mistrasgroup.com. Individuals in the U.S. wishing to participate in the conference call by phone may call 1-877-703-6102 and use confirmation code 84903146 when prompted. The International dial-in number is 1-857-244-7301.
About Mistras Group, Inc.
Mistras offers one of the broadest “one source” services and technology-enabled asset protection solution portfolios in the industry used to evaluate the structural integrity of energy, industrial and public infrastructure. Mission critical services and solutions are delivered globally and provide customers with the ability to extend the useful life of their assets, improve productivity and profitability, comply with government safety and environmental regulations and enhance risk management operational decisions.
Mistras uniquely combines its industry leading products and technologies—24/7 on-line monitoring of critical assets; mechanical integrity (“MI”) and non-destructive testing (“NDT”) services; destructive testing services; and its proprietary world class data warehousing and analysis software—to provide comprehensive and competitive products, systems and services solutions from a single source provider.
For more information, please visit the company’s website at www.mistrasgroup.com.
Forward-Looking and Cautionary Statements
Certain statements made in this press release are “forward-looking statements” about Mistras’ financial results and estimates, products and services, business model, strategy, growth opportunities, profitability and competitive position, and other matters. These forward-looking statements generally use words such as “future,” “possible,” “potential,” “targeted,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict,” “project,” “will,” “may,” “should,” “could,” “would” and other similar words and phrases. Such statements are not guarantees of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved, if at all. These statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in these statements. A list, description and discussion of these and other risks and uncertainties can be found in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for fiscal year 2013 filed with the Securities and Exchange Commission on August 14, 2013, as updated by our reports on Form 10-Q and Form 8-K. The forward-looking statements are made as of the date hereof, and Mistras undertakes no obligation to update such statements as a result of new information, future events or otherwise.
* Use of Non-GAAP Measures
The terms “Adjusted EBITDA” and “Adjusted Diluted Earnings Per Share” used in this release are financial measurements not calculated in accordance with generally accepted accounting principles in the U.S. (“GAAP”). Reconciliations of Adjusted EBITDA and Adjusted Diluted Earnings Per Share to financial measurements under GAAP are set forth in a table attached to this press release. In addition, the Company has also included in the tables for non-GAAP measurements the non-GAAP measurement “Adjusted Net Income” reconciling this measurement to a financial measurement under GAAP. The Company believes that investors and other users of the financial statements benefit from the presentation of Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted Earnings Per Share because they provide additional metrics to compare the Company’s operating performance on a consistent basis and measure underlying trends and results of the Company’s business.
Mistras Group, Inc.
Unaudited Consolidated Balance Sheets
(in thousands, except share data)
| August 31, 2013 | May 31, 2013 | |||||||
| ASSETS |
||||||||
| Current Assets |
||||||||
| Cash and cash equivalents |
$ | 6,933 | $ | 7,802 | ||||
| Accounts receivable, net |
106,258 | 108,554 | ||||||
| Inventories, net |
12,981 | 12,504 | ||||||
| Deferred income taxes |
2,710 | 2,621 | ||||||
| Prepaid expenses and other current assets |
8,806 | 8,156 | ||||||
|
|
|
|
|
|||||
| Total current assets |
137,688 | 139,637 | ||||||
| Property, plant and equipment, net |
68,076 | 68,419 | ||||||
| Intangible assets, net |
50,560 | 52,428 | ||||||
| Goodwill |
115,325 | 115,270 | ||||||
| Other assets |
1,019 | 906 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 372,668 | $ | 376,660 | ||||
|
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|
|
|
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| LIABILITIES AND EQUITY |
||||||||
| Current Liabilities |
||||||||
| Accounts payable |
$ | 8,476 | $ | 8,490 | ||||
| Accrued expenses and other current liabilities |
44,875 | 47,839 | ||||||
| Current portion of long-term debt |
7,405 | 7,418 | ||||||
| Current portion of capital lease obligations |
6,945 | 6,766 | ||||||
| Income taxes payable |
1,702 | 1,703 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
69,403 | 72,216 | ||||||
| Long-term debt, net of current portion |
45,495 | 52,849 | ||||||
| Obligations under capital leases, net of current portion |
11,278 | 10,923 | ||||||
| Deferred income taxes |
12,651 | 11,614 | ||||||
| Other long-term liabilities |
17,054 | 18,778 | ||||||
|
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|
|
|
|||||
| Total liabilities |
155,881 | 166,380 | ||||||
|
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|
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| Commitments and contingencies |
||||||||
| Equity |
||||||||
| Preferred stock, 10,000,000 shares authorized |
— | — | ||||||
| Common stock, $0.01 par value, 200,000,000 shares authorized, 28,375,135 and 28,210,862 shares issued and outstanding as of August 31, 2013 and May 31, 2013, respectively |
283 | 282 | ||||||
| Additional paid-in capital |
196,377 | 195,241 | ||||||
| Retained earnings |
24,623 | 18,982 | ||||||
| Accumulated other comprehensive loss |
(4,717 | ) | (4,452 | ) | ||||
|
|
|
|
|
|||||
| Total Mistras Group, Inc. stockholders’ equity |
216,566 | 210,053 | ||||||
| Noncontrolling interests |
221 | 227 | ||||||
|
|
|
|
|
|||||
| Total equity |
216,787 | 210,280 | ||||||
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|
|
|||||
| Total liabilities and equity |
$ | 372,668 | $ | 376,660 | ||||
|
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Mistras Group, Inc.
Unaudited Consolidated Statements of Income
(in thousands except per share data)
| Three months ended August 31, |
||||||||
| 2013 | 2012 | |||||||
| Revenues: |
||||||||
| Services |
$ | 128,342 | $ | 99,225 | ||||
| Products and systems |
7,496 | 14,162 | ||||||
|
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|
|
|
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| Total revenues |
135,838 | 113,387 | ||||||
|
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| Cost of revenues: |
||||||||
| Cost of services |
88,624 | 70,516 | ||||||
| Cost of products and systems sold |
3,629 | 5,010 | ||||||
| Depreciation related to services |
4,050 | 3,976 | ||||||
| Depreciation related to products and systems |
258 | 168 | ||||||
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|
|
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| Total cost of revenues |
96,561 | 79,670 | ||||||
|
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|
|
|
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| Gross profit |
39,277 | 33,717 | ||||||
| Selling, general and administrative expenses |
28,699 | 23,492 | ||||||
| Research and engineering |
643 | 517 | ||||||
| Depreciation and amortization |
2,457 | 1,895 | ||||||
| Acquisition-related expense, net |
(2,097 | ) | 107 | |||||
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| Income from operations |
9,575 | 7,706 | ||||||
| Interest expense |
745 | 760 | ||||||
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| Income before provision for income taxes |
8,830 | 6,946 | ||||||
| Provision for income taxes |
3,195 | 2,655 | ||||||
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| Net income |
5,635 | 4,291 | ||||||
| Net loss (income) attributable to noncontrolling interests, net of taxes |
6 | (10 | ) | |||||
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| Net income attributable to Mistras Group, Inc. |
$ | 5,641 | $ | 4,281 | ||||
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| Earnings per common share: |
||||||||
| Basic |
$ | 0.20 | $ | 0.15 | ||||
| Diluted |
$ | 0.19 | $ | 0.15 | ||||
| Weighted average common shares outstanding: |
||||||||
| Basic |
28,241 | 28,045 | ||||||
| Diluted |
29,109 | 29,000 | ||||||
Mistras Group, Inc. and Subsidiaries
Unaudited Operating Data by Segment
(in thousands)
| Three months ended August 31, |
||||||||
| 2013 | 2012 | |||||||
| Revenues |
||||||||
| Services |
$ | 95,810 | $ | 82,397 | ||||
| International |
37,759 | 24,429 | ||||||
| Products and Systems |
6,585 | 9,534 | ||||||
| Corporate and eliminations |
(4,316 | ) | (2,973 | ) | ||||
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| $ | 135,838 | $ | 113,387 | |||||
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| Three months ended August 31, |
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| 2013 | 2012 | |||||||
| Gross profit |
||||||||
| Services |
$ | 26,747 | $ | 20,940 | ||||
| International |
10,120 | 7,081 | ||||||
| Products and Systems |
2,384 | 5,245 | ||||||
| Corporate and eliminations |
26 | 451 | ||||||
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| $ | 39,277 | $ | 33,717 | |||||
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Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income Attributable to Mistras Group, Inc. to EBITDA and Adjusted EBITDA
(in thousands)
| Three months ended August 31, | ||||||||
| 2013 | 2012 | |||||||
| EBITDA and Adjusted EBITDA data |
||||||||
| Net income attributable to Mistras Group, Inc. (GAAP) |
$ | 5,641 | $ | 4,281 | ||||
| Interest expense |
745 | 760 | ||||||
| Provision for income taxes |
3,195 | 2,655 | ||||||
| Depreciation and amortization |
6,765 | 6,039 | ||||||
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| EBITDA (non-GAAP) |
$ | 16,346 | $ | 13,735 | ||||
| Stock compensation expense |
1,707 | 1,634 | ||||||
| Acquisition-related, expense net |
(2,097 | ) | 107 | |||||
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| Adjusted EBITDA (non-GAAP) |
$ | 15,956 | $ | 15,476 | ||||
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Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income Attributable to Mistras Group, Inc. (GAAP) to Adjusted Net Income and Adjusted Earnings Per Share (Non-GAAP)
(in thousands, except per share data)
| Three months ended August 31, | ||||||||
| 2013 | 2012 | |||||||
| Adjusted net income |
||||||||
| Net income attributable to Mistras Group, Inc. (GAAP) |
$ | 5,641 | $ | 4,281 | ||||
| Acquisition-related expense, net ($2.1 million benefit and $0.1 million expense, pre-tax for the three months ended August 31, 2013 and 2012) |
(1,338 | ) | 66 | |||||
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| Adjusted net income (Non-GAAP) |
$ | 4,303 | $ | 4,347 | ||||
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| Adjusted diluted earnings per common share |
||||||||
| Diluted earnings per common share (GAAP) |
$ | 0.19 | $ | 0.15 | ||||
| Acquisition-related expense, net |
(0.04 | ) | — | |||||
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| Adjusted diluted earnings per common share (Non-GAAP) |
$ | 0.15 | $ | 0.15 | ||||
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