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):  January 8, 2014

 

Mistras Group, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

001- 34481

 

22-3341267

(State or other jurisdiction

 

(Commission

 

(IRS Employer

of incorporation)

 

File Number)

 

Identification No.)

 

195 Clarksville Road

 

 

Princeton Junction, New Jersey

 

08550

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (609) 716-4000

 

Not Applicable
(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d 2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02.  Results of Operations and Financial Condition

 

On January 8, 2014, Mistras Group, Inc. (the “Company,” “we” or “us”) issued a press release announcing the financial results for the second quarter of fiscal year 2014, which ended November 30, 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”).  Information regarding the Adjusted EBITDA and the non-GAAP term EBITDA and their use by the Company is set forth in the Company’s annual report on Form 10-K filed August 14, 2013, as updated by its reports on Form 10-Q.

 

The tables attached to the press release also include the non-GAAP financial measurements “Segment and Total Company Income from Operations before Acquisition-Related Expense (Benefit), net” “Net Income Excluding Acquisition-related Items” and “Diluted EPS Excluding Acquisition-related Items,” reconciling these measurements to financial measurements under GAAP.  These non-GAAP measurements exclude from the GAAP measurement income from operations or net income (a) transaction expenses related to acquisitions, such as professional fees and due diligence costs and (b) the net changes in the fair value of acquisition-related contingent consideration liabilities.  These items have been excluded from the GAAP measurement because these expenses and credits are not related to the Company’s core business operations and are related solely to the Company’s acquisition activities.  Changes in the fair value of acquisition-related contingent consideration liabilities can be a net expense or credit in any given period, and fluctuate based upon the then current value of cash consideration the Company expects to pay in the future for prior acquisitions, without impacting cash generated from the Company’s business operations.

 

Management believes that these measurements provide investors with useful information and more meaningful period over period comparisons by identifying and excluding these acquisition-related costs so that the performance of the core business operations can be identified and compared.  Management also believes that these measurements help our investors to better understand the profitability trends of our business, and facilitate easier comparisons of our profitability to prior and future periods and to our peers.

 

These non-GAAP measurements should be considered in addition to, and not as a replacement for or superior to, the comparable GAAP measurements.  These measurements have limitations because there are no standards to determine which adjustments to GAAP measurements should be made, and/or may not be comparable with similar measurements for other companies.  In addition, acquisitions are a part of our growth strategy, and therefore acquisition-related items are a necessary cost of the Company’s business.  Segment and Total Company Income from Operations before Acquisition-Related Expense (Benefit), net, Net Income Excluding Acquisition-related Items and Diluted EPS Excluding Acquisition-related Items 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 January 8, 2014

 

2



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

MISTRAS GROUP, INC.

 

 

 

 

Date: January 8, 2014

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 January 8, 2014

 

3


Exhibit 99.1

 

Mistras Delivers Strong Second Quarter FY’14 Results, Raises Full Year Guidance

 

GRAPHIC

MISTRAS Group, Inc. January 8, 2014 4:01 PM

 

PRINCETON JUNCTION, N.J., January 8, 2014 (GLOBE NEWSWIRE) — Mistras Group, Inc. (MG), a leading “one source” global provider of technology-enabled asset protection solutions, today reported financial results for its second quarter and first half of fiscal 2014, which ended November 30, 2013.

 

During the second quarter, the Company had revenue of $156.8 million, an increase of 13.8% over the prior year period. Net income for the second quarter was $9.3 million, or $0.32 per diluted share compared with net income of $9.2 million or $0.32 per diluted share in the prior year period. Adjusted EBITDA* was $22.6 million in the quarter compared with $23.9 million in the prior year period.

 

During the first half of fiscal 2014, the Company had revenue of $292.6 million, an increase of 16.5% over the prior year period. Net income for the first half was $14.9 million, or $0.51 per diluted share, compared with net income of $13.4 million or $0.46 per diluted share in the prior year period. Adjusted EBITDA* was $38.6 million in the first half compared with $39.3 million in the prior year period.

 

Included in results for the second quarter and first half of fiscal 2014 were favorable pre-tax net acquisition-related adjustments of $0.4 million and $2.5 million, respectively, which favorably impacted earnings per diluted share by $0.01 in the second quarter and $0.06 in the first half.

 

Financial Highlights:

 

Revenues

 

·                  Revenues for the second quarter of fiscal 2014 increased 13.8% over prior year, including 4.3% organic growth and 9.4% acquisition growth.

·                  Revenues for the first half of fiscal 2014 increased by 16.5%, consisting of 4.4% organic growth and 12.2% acquisition growth. Due to key contract wins, organic growth for fiscal year 2014 is still expected to be within a range of from 7% to 12%.

·                  Organic revenue for the Services segment grew 2% during the second quarter compared with a robust prior year result, and 8% during the first half due to continued strength in our key market segments.

·                  The International segment grew organically by 17% during the second quarter and improved its first half organic growth to 2.5%.

·                  The Products and Systems segment had 2% organic revenue growth in the second quarter but experienced a revenue decline of 15% in the first half of the fiscal year compared with the prior year, mainly due to the impact of the government sequester.

 



 

Gross Profit

 

·                  Gross Profit grew by 14% over prior year during the second quarter of fiscal 2014 and by 15% during the first half.

·                  Gross margin for the second quarter was 30.6% of revenues vs. 30.4% in the prior year.

·                  Gross margin for the first half was 29.8% of revenues vs. 30.1% in the prior year. The slight decrease was driven by costs incurred to enable future growth, higher fringe benefit rates in our Services segment, and lower sales in our high margin Products and Systems segment.

 

Operating Cash Flow

 

·                  The Company’s operating cash flow was $15.6 million for the first half of fiscal 2014.

 

Sotirios Vahaviolos, Mistras Chairman and Chief Executive Officer stated, “We achieved strong results in the second quarter and first half of fiscal 2014 compared with robust prior year results. Mistras was awarded several new contracts, and was chosen by a key customer to be their exclusive provider for a large multi-year contract at one of their largest facilities in the United States. The Company’s second quarter results included increased costs to secure these contracts and to continue building its capabilities to support future growth, especially in Canada.”

 

“We remain optimistic about the continued health of the market especially within the North American oil & gas industry for the next several years, driven by consumer demand for energy, combined with our customers’ needs to improve safety and comply with the ever growing environmental regulations.  We are also very pleased with our recent contract wins and the feedback and receptivity from our customers toward our employees and our company’s value based service offerings.”

 

Dr. Vahaviolos added, “Unlike last year at this time, we are looking forward to a robust spring turnaround season which will accelerate the growth we experienced in the first half of our fiscal year. This improved environment, coupled with our recent market share gains, improving international results and strategic acquisitions, has led us to increase our guidance for fiscal 2014 results while meeting our organic growth goals.”

 

Outlook and Guidance for Fiscal 2014

 

The Company is increasing its previously issued guidance for fiscal 2014 revenues and Adjusted EBITDA*. Previously the Company expected revenue to be in the range of from $570 million to $600 million, and Adjusted EBITDA* to be in the range of $74 million to $80 million. The Company now expects that its revenue will be in the range of $590 million to $615 million, and Adjusted EBITDA* will be in a range of from $77 million to $83 million.

 

Conference Call

 

In connection with this release, Mistras will hold a conference call on Thursday, January 9, 2014 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 1-866-314-5232 and use confirmation code 33910996 when prompted. The International dial-in number is 1-617-213-8052.

 

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 term “Adjusted EBITDA” used in this release is a financial measurement not calculated in accordance with generally accepted accounting principles in the U.S. (“US GAAP”). A Reconciliation of Adjusted EBITDA to a financial measurement under US GAAP is set forth in a table attached to this press release. In addition, the Company has also included in the attached tables non-GAAP measurements “EBITDA”, “Segment and Total Company Income from Operations before Acquisition-Related Expense (Benefit), net”, “Net Income Excluding

 



 

Acquisition-related Items” and “Diluted EPS Excluding Acquisition-related Items,” reconciling these measurements to financial measurements under US GAAP. The Company believes that investors and other users of the financial statements benefit from the presentation of these non-GAAP measurements because they provide additional metrics to compare the Company’s operating performance on a consistent basis and measure underlying trends and results of the Company’s business.

 



 

Mistras Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

November 30, 2013

 

May 31, 2013

 

ASSETS

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash and cash equivalents

 

$

16,240

 

$

7,802

 

Accounts receivable, net

 

122,418

 

108,554

 

Inventories

 

12,828

 

12,504

 

Deferred income taxes

 

2,647

 

2,621

 

Prepaid expenses and other current assets

 

10,940

 

8,156

 

Total current assets

 

165,073

 

139,637

 

Property, plant and equipment, net

 

70,517

 

68,419

 

Deposit for business combination

 

11,000

 

 

Intangible assets, net

 

49,282

 

51,992

 

Goodwill

 

118,679

 

115,270

 

Other assets

 

1,315

 

1,342

 

Total assets

 

$

415,866

 

$

376,660

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Accounts payable

 

$

11,273

 

$

8,490

 

Accrued expenses and other current liabilities

 

46,967

 

47,839

 

Current portion of long-term debt

 

7,899

 

7,418

 

Current portion of capital lease obligations

 

6,760

 

6,766

 

Income taxes payable

 

1,198

 

1,703

 

Total current liabilities

 

74,097

 

72,216

 

Long-term debt, net of current portion

 

70,799

 

52,849

 

Obligations under capital leases, net of current portion

 

10,728

 

10,923

 

Deferred income taxes

 

12,629

 

11,614

 

Other long-term liabilities

 

17,760

 

18,778

 

Total liabilities

 

186,013

 

166,380

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Preferred stock, 10,000,000 shares authorized

 

 

 

Common stock, $0.01 par value, 200,000,000 shares authorized, 28,382,851 and 28,210,862 shares issued and outstanding as of November 30, 2013 and May 31, 2013, respectively

 

283

 

282

 

Additional paid-in capital

 

197,462

 

195,241

 

Retained earnings

 

33,880

 

18,982

 

Accumulated other comprehensive loss

 

(2,020

)

(4,452

)

Total Mistras Group, Inc. stockholders’ equity

 

229,605

 

210,053

 

Noncontrolling interests

 

248

 

227

 

Total equity

 

229,853

 

210,280

 

Total liabilities and equity

 

$

415,866

 

$

376,660

 

 



 

Mistras Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(in thousands, except per share data)

 

 

 

Three months ended November 30,

 

Six months ended November 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Revenues:

 

 

 

 

 

 

 

 

 

Services

 

$

143,139

 

$

127,731

 

$

271,481

 

$

226,956

 

Products and systems

 

13,616

 

9,998

 

21,112

 

24,160

 

Total revenues

 

156,755

 

137,729

 

292,593

 

251,116

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

Cost of services

 

98,860

 

87,044

 

187,484

 

157,560

 

Cost of products and systems sold

 

5,634

 

4,485

 

9,263

 

9,495

 

Depreciation related to services

 

4,026

 

4,124

 

8,076

 

8,100

 

Depreciation related to products and systems

 

258

 

171

 

516

 

339

 

Total cost of revenues

 

108,778

 

95,824

 

205,339

 

175,494

 

Gross profit

 

47,977

 

41,905

 

87,254

 

75,622

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

29,849

 

23,362

 

58,548

 

46,854

 

Research and engineering

 

786

 

530

 

1,429

 

1,047

 

Depreciation and amortization

 

2,501

 

2,167

 

4,958

 

4,062

 

Acquisition-related expense, net

 

(411

)

99

 

(2,508

)

206

 

Income from operations

 

15,252

 

15,747

 

24,827

 

23,453

 

Interest expense

 

772

 

816

 

1,517

 

1,576

 

Income before provision for income taxes

 

14,480

 

14,931

 

23,310

 

21,877

 

Provision for income taxes

 

5,196

 

5,745

 

8,391

 

8,400

 

Net income

 

9,284

 

9,186

 

14,919

 

13,477

 

Less: net income attributable to noncontrolling interests, net of taxes

 

(27

)

(23

)

(21

)

(33

)

Net income attributable to Mistras Group, Inc.

 

$

9,257

 

$

9,163

 

$

14,898

 

$

13,444

 

Earnings per common share

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

$

0.33

 

$

0.53

 

$

0.48

 

Diluted

 

$

0.32

 

$

0.32

 

$

0.51

 

$

0.46

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

28,378

 

28,144

 

28,309

 

28,094

 

Diluted

 

29,102

 

29,008

 

29,147

 

29,036

 

 



 

Mistras Group, Inc. and Subsidiaries

Unaudited Operating Data by Segment

(in thousands)

 

 

 

Three months ended November 30,

 

Six months ended November 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Revenues

 

 

 

 

 

 

 

 

 

Services

 

$

108,862

 

$

105,213

 

$

204,672

 

$

187,610

 

International

 

43,209

 

26,777

 

80,968

 

51,206

 

Products and Systems

 

8,604

 

8,439

 

15,189

 

17,973

 

Corporate and eliminations

 

(3,920

)

(2,700

)

(8,236

)

(5,673

)

 

 

$

156,755

 

$

137,729

 

$

292,593

 

$

251,116

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended November 30,

 

Six months ended November 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Gross profit

 

 

 

 

 

 

 

 

 

Services

 

$

30,918

 

$

30,692

 

$

57,665

 

$

51,632

 

International

 

13,293

 

7,299

 

23,413

 

14,380

 

Products and Systems

 

3,718

 

3,975

 

6,102

 

9,220

 

Corporate and eliminations

 

48

 

(61

)

74

 

390

 

 

 

$

47,977

 

$

41,905

 

$

87,254

 

$

75,622

 

 



 

Mistras Group, Inc. and Subsidiaries

Unaudited Reconciliation of

Segment and Total Company Income (Loss) from Operations before Acquisition-Related Expense (Benefit), net (non-GAAP) to Segment and Total Company Income (Loss) from Operations (GAAP)

(in thousands)

 

 

 

Three months ended November 30,

 

Six months ended November 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Services:

 

 

 

 

 

 

 

 

 

Income from operations before acquisition-related expense, net (non-GAAP)

 

$

14,387

 

$

16,284

 

$

25,402

 

$

23,260

 

Acquisition-related expense (benefit), net

 

(13

)

483

 

156

 

693

 

Income from operations (GAAP)

 

14,400

 

15,801

 

25,246

 

22,567

 

 

 

 

 

 

 

 

 

 

 

International:

 

 

 

 

 

 

 

 

 

Income from operations before acquisition-related expense, net (non-GAAP)

 

$

3,992

 

$

1,343

 

$

5,337

 

$

3,052

 

Acquisition-related expense (benefit), net

 

(3,301

)

63

 

(3,771

)

181

 

Income from operations (GAAP)

 

7,293

 

1,280

 

9,108

 

2,871

 

 

 

 

 

 

 

 

 

 

 

Products and Systems:

 

 

 

 

 

 

 

 

 

Income from operations before acquisition-related expense, net (non-GAAP)

 

$

450

 

$

1,088

 

$

25

 

$

3,479

 

Acquisition-related (benefit), net

 

(19

)

(615

)

(1,035

)

(1,304

)

Income from operations (GAAP)

 

469

 

1,703

 

1,060

 

4,783

 

 

 

 

 

 

 

 

 

 

 

Corporate and Eliminations:

 

 

 

 

 

 

 

 

 

Income from operations before acquisition-related (benefit), net (non-GAAP)

 

$

(3,988

)

$

(2,869

)

$

(8,445

)

$

(6,132

)

Acquisition-related expense, net

 

2,922

 

168

 

2,142

 

636

 

(Loss) from operations (GAAP)

 

(6,910

)

(3,037

)

(10,587

)

(6,768

)

 

 

 

 

 

 

 

 

 

 

Total Company

 

 

 

 

 

 

 

 

 

Income from operations before acquisition-related expense, net (non-GAAP)

 

$

14,841

 

$

15,846

 

$

22,319

 

$

23,659

 

Acquisition-related expense (benefit), net

 

(411

)

99

 

(2,508

)

206

 

Income from operations (GAAP)

 

15,252

 

15,747

 

24,827

 

23,453

 

 



 

Mistras Group, Inc. and Subsidiaries

Unaudited Reconciliation of
Net Income to EBITDA and Adjusted EBITDA

(in thousands)

 

 

 

Three months ended November 30,

 

Six months ended November 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

9,284

 

$

9,186

 

$

14,919

 

$

13,477

 

Less: net income attributable to noncontrolling interests, net of taxes

 

(27

)

(23

)

(21

)

(33

)

Net income attributable to Mistras Group, Inc.

 

$

9,257

 

$

9,163

 

$

14,898

 

$

13,444

 

Interest expense

 

772

 

816

 

1,517

 

1,576

 

Provision for income taxes

 

5,196

 

5,745

 

8,391

 

8,400

 

Depreciation and amortization

 

6,785

 

6,462

 

13,550

 

12,501

 

EBITDA

 

$

22,010

 

$

22,186

 

$

38,356

 

$

35,921

 

Share-based compensation expense

 

1,040

 

1,572

 

2,747

 

3,206

 

Acquisition-related expense, net

 

(411

)

99

 

(2,508

)

206

 

Adjusted EBITDA

 

$

22,639

 

$

23,857

 

$

38,595

 

$

39,333

 

 



 

Mistras Group, Inc. and Subsidiaries

Unaudited Reconciliation of

Net Income (GAAP) and Diluted Earnings Per Share (GAAP) to Net Income Excluding Acquisition-related Items (non-GAAP) and Diluted EPS Excluding Acquisition-related Items (non-GAAP)

(in thousands except per share data)

 

 

 

Three months ended November 30,

 

Six months ended November 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net income (GAAP)

 

$

9,284

 

$

9,186

 

$

14,919

 

$

13,477

 

Acquisition-related expense (benefit), net of tax

 

(382

)

229

 

(1,755

)

288

 

Net Income Excluding Acquisition-related Items (non-GAAP)

 

$

8,902

 

$

9,415

 

$

13,164

 

$

13,765

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share (GAAP)

 

$

0.32

 

$

0.32

 

$

0.51

 

$

0.46

 

Acquisition-related expense (benefit), net

 

(0.01

)

0.01

 

(0.06

)

0.01

 

Diluted EPS Excluding Acquisition-related Items (non-GAAP)

 

$

0.31

 

$

0.33

 

$

0.45

 

$

0.47

 

 

Note: Acquisition-related expense (benefit), net of tax, includes income tax expense of $29 thousand and $130 thousand for the three months ended November 30, 2013 and 2012, respectively and $753 thousand and $82 thousand for the six months ended November 30, 2013 and 2012, respectively. The aforementioned tax expenses are reflective of non-deductible and non-taxable tax differences related to acquisitions of common stock.