8-K


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 7, 2015
 
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 October 7, 2015, Mistras Group, Inc. (the “Company,” “we” or “us”) issued a press release announcing the financial results for the first quarter, which ended August 31, 2015, of the fiscal year ending May 31, 2016.  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 terms “Adjusted EBITDA” which is not a measure of financial performance under U.S. generally accepted accounting principles (“GAAP”). Information regarding this non-GAAP financial measure and its use by the Company is set forth in the Company’s annual report on Form 10-K filed August 12, 2015.

The tables attached to the press release also include the non-GAAP financial measure “Segment and Total Company Income (Loss) from Operations before Acquisition-Related Expense (Benefit), net,” which is not a measure of financial performance under U.S. generally accepted accounting principles (“GAAP”). This non-GAAP measure excludes from the GAAP measure income from operations (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. The press release also refers to the non-GAAP measure "free cash flow." Information regarding these non-GAAP financial measures and its use by the Company are also set forth in the Company’s annual report on Form 10-K filed August 12, 2015.
 
Item 8.01. Other Events.

On October 7, 2015, the Company announced that its Board of Directors authorized a stock repurchase program of up to $50 million of the Company’s outstanding common stock. The shares may be repurchased from time to time in open market transactions at prevailing market prices or by other means in accordance with federal securities laws. The actual timing, number and value of shares repurchased under the program will be determined by management at its discretion and will depend on a number of factors, including the market price of the Company's stock, general market and economic conditions, legal requirements and compliance with the terms of the Company's credit facility.
 
Item 9.01.  Financial Statement and Exhibits
 
(d)  Exhibits
 
99.1                        Press release issued by Mistras Group, Inc. dated October 7, 2015


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: October 7, 2015
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 7, 2015

3
Exhibit


Exhibit 99.1
 
Mistras Group Announces Strong Results for First Quarter FY'16 and Authorization to Repurchase up to $50 Million of Stock

 
MISTRAS Group, Inc. October 7, 2015 4:01 PM
 
PRINCETON JUNCTION, N.J., October 7, 2015 (GLOBE NEWSWIRE) — Mistras Group, Inc. (MG: NYSE), a leading "one source" global provider of technology-enabled asset protection solutions, reported financial results for its first quarter of fiscal year 2016, which ended August 31, 2015.

Revenues were $179.9 million, an increase of 8.0% over the prior year’s first quarter. On a constant dollar basis excluding the impact of adverse foreign exchange rates, the Company’s revenue improved by 13% over the prior year’s first quarter. Net income for the first quarter was $6.9 million, or $0.23 per diluted share, compared with $1.7 million or $0.06 per diluted share in the prior year period.

Adjusted EBITDA was $22.3 million in the first quarter of fiscal year 2016, or 12.4% of revenues, compared with $13.4 million, or 8.0% of revenues, in the prior year’s first quarter.

Organic revenue growth was the primary driver to the Company’s overall revenue growth, as each of the Company’s three segments achieved organic revenue growth of more than 5%. Revenue growth from previous acquisitions was mostly offset by the adverse impact of foreign exchange rates and dispositions.

Gross profit margins improved to 28.5% from the prior year’s 25.2%. Gross margins improved in each of the Company’s segments by more than 200 basis points over prior year. Primary factors contributing to the improvement included better utilization of service technicians, improvements realized from recent cost reduction initiatives, an improved sales mix and favorable leverage from organic revenue growth.

Cash flow from operations improved to $17.7 million in the first quarter of fiscal year 2016, compared with $9.2 million in the prior year’s first quarter, driven by improved profitability. Net debt was reduced to 1.5X EBITDA, down from nearly 1.7X at May 31, 2015.

The Company also announced that its Board of Directors authorized a stock repurchase program of up to $50 million of the Company’s outstanding common stock. The shares may be repurchased from time to time in open market transactions at prevailing market prices or by other means in accordance with federal securities laws. The actual timing, number and value of shares repurchased under the program will be determined by management at its discretion and will depend on a number of factors, including the market price of the Company's stock, general market and economic conditions, legal requirements and compliance with the terms of the Company's credit facility.

Performance of each of the Company’s segments was as follows:

Services segment revenues were 13% higher than in the prior year’s first quarter, driven by acquisition and organic growth that was offset in part by the impact of the weaker Canadian dollar. Organic growth was aided by small turnarounds that occurred in the summer, which may have been impacted by refinery strikes earlier in the calendar year. Revenue growth from previous acquisitions will be limited for the remainder of the fiscal year.

Services segment gross margin and operating income margin improved by 220 basis points and 300 basis points, respectively, compared with the prior year’s first quarter. Primary drivers included benefits from cost reduction initiatives, contract management and process improvements, and improved sales volume and sales mix.

International segment revenues declined 8%, as the adverse impact from foreign exchange (-17%) and dispositions (-1%) more than offset double digit organic growth. Each of the Company’s four largest country operations achieved positive operating income. The largest improvements in operating income occurred in France and Brazil, driven by improved utilization of personnel, lower costs, and double digit organic revenue growth in both countries.






Products and Systems segment revenues improved by 32%, which drove a 460 basis point improvement in gross margin and operating income of $1.2 million, compared with a small operating loss in the prior year’s first quarter.

Sotirios Vahaviolos, Chairman and Chief Executive Officer stated, "We took a number of decisive actions in our previous fiscal year that were made to improve our results despite oil and gas market conditions that remain challenging and unsettled. We are extremely pleased that we can already see positive impacts from these actions, across our entire business globally. I am proud of my team’s ability to improve our adjusted EBITDA margins by over 400 basis points, while at the same time taking care to service our customers in the world-class fashion that they deserve. ”

Dr. Vahaviolos continued “We have been using our improved cash flow to pay down debt for several quarters. We have improved our financial flexibility and can use our balance sheet to drive additional shareholder value. While we will continue to evaluate potential acquisitions, we believe that our stock price is trading well below its intrinsic value, and we have received approval from our board to commence a stock repurchase program of up to $50 million.”
 
Outlook and Guidance for Fiscal 2016

The Company previously established its revenue guidance at $710 million to $725 million, representing an increase of from 0% to 2% over prior level levels, inclusive of a -3% impact from expected adverse foreign exchange and dispositions.

Adjusted EBITDA guidance was established at $72 million to $78 million, representing an increase of from 1% to 9% above prior year levels.

The Company’s first quarter revenues exceeded its expectations. However, considering the prior year’s strong second quarter comparison and the uncertain market conditions, the Company is maintaining its revenue guidance at this time. The Company’s first quarter profits also exceeded its expectations, and it now expects that profit levels for the year will be at the higher end of this guidance range.

Conference Call

In connection with this release, Mistras will hold a conference call on Thursday, October 8, 2015 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 1-844-832-7227 and use confirmation code 50324625 when prompted. The International dial-in number is 1-224-633-1529.

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 2015 filed with the Securities and Exchange Commission on August 12, 2015, 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” and “Segment and Total Company Income (Loss) from Operations before Acquisition-Related Expense (Benefit), net”, reconciling these measurements to financial measurements under US GAAP. The Company also uses the term free cash flow, a non-GAAP measurement the Company defines as free cash flow as cash provided by operating activities less capital expenditures (which is classified as an investing activity). 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)
 
 
 
(unaudited)
 
 
 
 
August 31, 2015
 
May 31, 2015
ASSETS
 
 

 
 

Current Assets
 
 

 
 

Cash and cash equivalents
 
$
11,686

 
$
10,555

Accounts receivable, net
 
134,065

 
133,228

Inventories
 
10,820

 
10,841

Deferred income taxes
 
5,021

 
5,144

Prepaid expenses and other current assets
 
9,662

 
11,698

Total current assets
 
171,254

 
171,466

Property, plant and equipment, net
 
77,671

 
79,256

Intangible assets, net
 
48,835

 
51,276

Goodwill
 
165,216

 
166,414

Deferred income taxes
 
851

 
1,208

Other assets
 
2,089

 
2,107

Total assets
 
$
465,916

 
$
471,727

LIABILITIES AND EQUITY
 
 

 
 

Current Liabilities
 
 

 
 

Accounts payable
 
$
10,073

 
$
10,529

Accrued expenses and other current liabilities
 
52,758

 
55,914

Current portion of long-term debt
 
16,352

 
17,902

Current portion of capital lease obligations
 
7,170

 
8,646

Income taxes payable
 
581

 
532

Total current liabilities
 
86,934

 
93,523

Long-term debt, net of current portion
 
89,443

 
95,557

Obligations under capital leases, net of current portion
 
10,811

 
10,717

Deferred income taxes
 
18,188

 
16,984

Other long-term liabilities
 
8,732

 
9,934

Total liabilities
 
214,108

 
226,715

Commitments and contingencies
 
 

 
 

Equity
 
 

 
 

Preferred stock, 10,000,000 shares authorized
 

 

Common stock, $0.01 par value, 200,000,000 shares authorized
 
288

 
287

Additional paid-in capital
 
208,727

 
208,064

Retained earnings
 
64,453

 
57,581

Accumulated other comprehensive loss
 
(21,765
)
 
(21,113
)
Total Mistras Group, Inc. stockholders’ equity
 
251,703

 
244,819

Noncontrolling interests
 
105

 
193

Total equity
 
251,808

 
245,012

Total liabilities and equity
 
$
465,916

 
$
471,727







Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share data)
 
 
 
Three months ended August 31,
 
 
2015
 
2014
 
 
 
 
 
Revenue
 
$
179,853

 
$
166,573

Cost of revenues
 
123,400

 
119,722

Depreciation related to products and systems
 
5,179

 
4,857

Gross profit
 
51,274

 
41,994

Selling, general and administrative expenses
 
35,836

 
35,220

Research and engineering
 
621

 
649

Depreciation and amortization
 
2,781

 
3,422

Acquisition-related (benefit), net
 
(896
)
 
(961
)
Income from operations
 
12,932

 
3,664

Interest expense
 
1,922

 
905

Income before provision for income taxes
 
11,010

 
2,759

Provision for income taxes
 
4,163

 
1,088

Net income
 
6,847

 
1,671

Less: net loss (income) attributable to noncontrolling interests, net of taxes
 
25

 
(5
)
Net income attributable to Mistras Group, Inc.
 
$
6,872

 
$
1,666

Earnings per common share
 
 

 
 

Basic
 
$
0.24

 
$
0.06

Diluted
 
$
0.23

 
$
0.06

Weighted average common shares outstanding:
 
 

 
 

Basic
 
28,724

 
28,477

Diluted
 
29,595

 
29,552







Mistras Group, Inc. and Subsidiaries
Unaudited Operating Data by Segment
(in thousands)

 
Three months ended August 31,
 
2015
 
2014
Revenues
 

 
 

Services
$
137,405

 
$
121,932

International
36,859

 
40,038

Products and Systems
8,686

 
6,567

Corporate and eliminations
(3,097
)
 
(1,964
)
 
$
179,853

 
$
166,573

 
 
 
 
 
 
 
 
 
Three months ended August 31,
 
2015
 
2014
Gross profit
 

 
 

Services
$
36,569

 
$
29,771

International
10,780

 
9,468

Products and Systems
3,922

 
2,664

Corporate and eliminations
3

 
91

 
$
51,274

 
$
41,994

 
 
 
 






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 August 31,
 
2015
 
2014
Services:
 

 
 
Income from operations before acquisition-related (benefit) expense, net
$
14,468

 
$
9,141

Acquisition-related (benefit) expense, net
(930
)
 
261

Income from operations
15,398

 
8,880

International:
 

 
 

Income (Loss) from operations before acquisition-related expense, net
$
1,848

 
$
(588
)
Acquisition-related expense, net
30

 
111

Income (Loss) from operations
1,818

 
(699
)
Products and Systems:
 

 
 

Income (Loss) from operations before acquisition-related expense, net
$
1,184

 
$
(433
)
Acquisition-related expense, net

 

Income (Loss) from operations
1,184

 
(433
)
Corporate and Eliminations:
 

 
 

Loss from operations before acquisition-related expense (benefit), net
$
(5,464
)
 
$
(5,417
)
Acquisition-related expense (benefit), net
4

 
(1,333
)
Loss from operations
(5,468
)
 
(4,084
)
Total Company
 

 
 

Income from operations before acquisition-related (benefit), net
$
12,036

 
$
2,703

Acquisition-related (benefit), net
(896
)
 
(961
)
Income from operations
12,932

 
3,664































Mistras Group, Inc. and Subsidiaries
Unaudited Summary Cash Flow Information
(in thousands)

 
Three months ended August 31,
 
2015
 
2014
 
 
Net cash provided by (used in):
 

 
 

Operating Activities
$
17,712

 
$
9,193

Investing Activities
(4,432
)
 
(40,645
)
Financing Activities
(10,881
)
 
30,489

Effect of exchange rate changes on cash
(1,268
)
 
3,439

Net change in cash and cash equivalents
$
1,131

 
$
2,476

 
 
 
 







Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income to EBITDA and Adjusted EBITDA
(in thousands)



 
Three Months Ended 
 August 31,
 
2015
 
2014
 
 
EBITDA and Adjusted EBITDA
 

 
 

Net Income
$
6,847

 
$
1,671

Less: net (loss) income attributable to noncontrolling interests, net of taxes
25

 
(5
)
Net income attributable to Mistras Group, Inc.
$
6,872

 
$
1,666

Interest expense
1,922

 
905

Provision for income taxes
4,163

 
1,088

Depreciation and amortization
7,960

 
8,279

EBITDA
$
20,917

 
$
11,938

Share-based compensation expense
1,957

 
2,167

Acquisition-related (benefit), net
(896
)
 
(961
)
Foreign exchange loss
292

 
252

Adjusted EBITDA
$
22,270

 
$
13,396