10-Q
Table of Contents

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended August 31, 2015
 
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period 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) 
 
 
 
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
 
Accelerated filer x
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes  ý No
 
As of October 1, 2015, the registrant had 28,861,316 shares of common stock outstanding.
 
 
 
 
 



Table of Contents

TABLE OF CONTENTS
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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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)
 
(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

 
The accompanying notes are an integral part of these condensed consolidated financial statements.


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Table of Contents

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 revenue
123,400

 
119,722

 
Depreciation
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

 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


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Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Comprehensive Income
(in thousands)
 
 
Three months ended August 31,
 
2015
 
2014
 
 
 
 
Net income
$
6,847

 
$
1,671

Other comprehensive (loss)/income:
 

 
 

Foreign currency translation adjustments
(652
)
 
(1,905
)
Comprehensive income (loss)
6,195

 
(234
)
less: comprehensive loss (income) attributable to noncontrolling interest
88

 
(5
)
Comprehensive income (loss) attributable to Mistras Group, Inc.
$
6,283

 
$
(239
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


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Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
 
 
Three months ended August 31,
 
2015
 
2014
 
 
 
Note 1
Cash flows from operating activities
 

 
 

Net income
$
6,847

 
$
1,671

Adjustments to reconcile net income to net cash provided by operating activities
 

 
 

Depreciation and amortization
7,960

 
8,279

Deferred income taxes
1,474

 
1,134

Share-based compensation expense
1,957

 
2,167

Charges associated with the exit of foreign operations
(345
)
 

Fair value adjustment to contingent consideration liabilities
(900
)
 
(983
)
Other
(439
)
 
430

Changes in operating assets and liabilities, net of effect of acquisitions of businesses:
 

 
 

Accounts receivable
(1,760
)
 
905

Inventories
(16
)
 
1,431

Prepaid expenses and other current assets
2,036

 
56

Other assets
(108
)
 
(51
)
Accounts payable
(393
)
 
(2,059
)
Accrued expenses and other current liabilities
(112
)
 
(3,086
)
Income taxes payable
9

 
(1,047
)
Net cash provided by operating activities
16,210

 
8,847

Cash flows from investing activities
 

 
 

Purchase of property, plant and equipment
(4,501
)
 
(3,804
)
Purchase of intangible assets
(66
)
 
(358
)
Acquisition of businesses, net of cash acquired

 
(32,657
)
Proceeds from sale of equipment
168

 
318

Net cash used in investing activities
(4,399
)
 
(36,501
)
Cash flows from financing activities
 

 
 

Repayment of capital lease obligations
(1,893
)
 
(2,104
)
Repayment of long-term debt
(10,965
)
 
(2,394
)
Net borrowings against revolver
3,700

 
35,700

Payment of contingent consideration for business acquisitions
(113
)
 

Taxes paid related to net share settlement of share-based awards
(953
)
 
(1,427
)
Excess tax benefit from share-based compensation
(338
)
 
337

Proceeds from the exercise of stock options

 

Net cash provided by financing activities
(10,562
)
 
30,112

Effect of exchange rate changes on cash and cash equivalents
(118
)
 
18

Net change in cash and cash equivalents
1,131

 
2,476

Cash and cash equivalents
 

 
 

Beginning of period
10,555

 
10,020

End of period
$
11,686

 
$
12,496

Supplemental disclosure of cash paid
 

 
 

Interest
$
1,803

 
$
885

Income taxes
$
192

 
$
2,135

Noncash investing and financing
 

 
 

Equipment acquired through capital lease obligations
$
636

 
$
1,951

Issuance of notes payable
$

 
$
20,508

 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars 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 “one source” global provider of technology-enabled asset protection solutions used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure. The Company combines industry-leading products and technologies, expertise in mechanical integrity (MI) and non-destructive testing (NDT) services and proprietary data analysis software to deliver a comprehensive portfolio of customized solutions, ranging from routine inspections to complex, plant-wide asset integrity assessments and management. These mission critical solutions enhance customers’ ability to extend the useful life of their assets, increase productivity, minimize repair costs, comply with governmental safety and environmental regulations, manage risk and avoid catastrophic disasters. The Company serves a global customer base of companies with asset-intensive infrastructure, including companies in the oil and gas, fossil and nuclear power, alternative and renewable energy, public infrastructure, chemicals, commercial aerospace and defense, transportation, primary metals and metalworking, pharmaceutical/biotechnology and food processing industries and research and engineering institutions.
 
Basis of Presentation
 
The condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, the 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 fiscal years ending May 31, 2016 and 2015. Reference to a fiscal year means the fiscal year ended May 31. 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 consolidated financial statements contained in the Company’s Annual Report on Form 10-K (“Annual Report”) for fiscal 2015, as filed with the Securities and Exchange Commission on August 12, 2015.
 
Principles of Consolidation
 
The accompanying unaudited condensed consolidated financial statements include the accounts of Mistras Group, Inc. and its wholly and majority-owned subsidiaries. For subsidiaries in which the Company’s ownership interest is less than 100%, the noncontrolling interests are reported in stockholders’ equity in the accompanying consolidated balance sheets. The noncontrolling interests in net income, net of tax, is classified separately in the accompanying consolidated statements of income.
 
All significant intercompany accounts and transactions have been eliminated in consolidation. Mistras Group, Inc.’s and its subsidiaries’ fiscal years end on May 31 except for the subsidiaries in the International segment, which end on April 30. Accordingly, the Company’s International segment subsidiaries are consolidated on a one month lag. Therefore, in the quarter and year of acquisition, results of acquired subsidiaries in the International segment are generally included in consolidated results for one less month than the actual number of months from the acquisition date to the end of the reporting period. Management does not believe that any events occurred during the one-month lag period that would have a material effect on the Company’s consolidated financial statements.

Immaterial Correction

Subsequent to the issuance of its interim consolidated financial statements as of and for the three months ended August 31, 2014, the Company identified errors related to the classification of amounts reported in the Consolidated Statement of Cash Flows for that period. In accordance with the SEC Staff Accounting Bulletin (SAB) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, management evaluated the materiality of the errors from qualitative and quantitative perspectives, and concluded that the errors were immaterial. Accordingly, management has corrected the presentation of the affected line items of the accompanying consolidated statement of cash flows for the quarter ended August 31, 2014, as summarized below. These changes did not impact the Company’s net income, balance sheet, or stockholders’ equity for any period previously reported.


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Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)



 
 
Previously Reported
 
Revised
Cash flows from operating activities
 
 
 
 
Deferred income taxes
 
6,456

 
1,134

Fair value adjustment to contingent consideration liabilities
 
(1,396
)
 
(983
)
Accounts payable
 
(1,749
)
 
(2,059
)
Accrued expenses and other current liabilities
 
(2,637
)
 
(3,086
)
Net cash provided by operating activities
 
14,515

 
8,847

 
 
 
 
 
Cash flows from investing activities
 
 
 
 
Acquisition of businesses, net of cash acquired
 
(36,801
)
 
(32,657
)
Net cash used in investing activities
 
(40,645
)
 
(36,501
)
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
Repayment of long-term debt
 
(1,875
)
 
(2,394
)
Net borrowings against revolver
 
35,558

 
35,700

Net cash provided by financing activities
 
30,489

 
30,112

 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
(1,883
)
 
18



Significant Accounting Policies
 
The Company’s significant accounting policies are disclosed in Note 2 — Summary of Significant Accounting Policies in the Company's Annual Report. On an ongoing basis, we evaluate its estimates and assumptions, including, among other things those related to revenue recognition, valuations of accounts receivable, long-lived assets, goodwill, deferred tax assets and uncertain tax positions. Since the date of the 2015 Annual Report, there have been no material changes to the Company's significant accounting policies.

Recent Accounting Pronouncements
 
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends the definition of a discontinued operation and requires entities to provide additional disclosures about disposal transactions that do not meet the discontinued operations criteria. This ASU requires discontinued operations treatment for disposals of a component or group of components of an entity that represent a strategic shift that has or will have a major impact on an entity's operations or financial results. ASU 2014-08 also expands the scope of ASC 205-20, "Discontinued Operations," to disposals of equity method investments and acquired businesses held for sale. This ASU is effective prospectively for all disposals or classifications as held for sale that occur in interim and annual reporting periods beginning after December 15, 2014. The Company adopted ASU 2014-08 and there was no material impact on the Company's consolidated financial statements and related disclosures.

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures.

In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. ASU

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Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)



2014-12 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. The Company is currently evaluating the effect that ASU 2014-12 will have on its consolidated financial statements and related disclosures.

In February 2015, the Financial Accounting Standards Board issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidations Analysis, which changes the guidance for evaluating whether to consolidate certain legal entities. Specifically, the amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities. Further, the amendments eliminate the presumption that a general partner should consolidate a limited partnership, as well as affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. The updated guidance is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. Early adoption is permitted. Companies have an option of using either a full retrospective or modified retrospective adoption approach. The Company is evaluating the effect that ASU 2015-02 will have on its consolidated financial statements and related disclosures.
 
2.                                      Share-Based Compensation
 
The Company has share-based incentive awards outstanding to its eligible employees and Directors under two employee equity incentive plans: (i) the 2007 Stock Option Plan (the 2007 Plan), and (ii) the 2009 Long-Term Incentive Plan (the 2009 Plan). No further awards may be granted under the 2007 Plan, although awards granted under the 2007 Plan remain outstanding in accordance with their terms. Awards granted under the 2009 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.
 
Stock Options
 
For the three months ended August 31, 2015 and 2014, the Company recognized share-based compensation expense related to stock option awards of less than $0.1 million for each period respectively. As of August 31, 2015, there was less than $0.1 million of unrecognized compensation costs, net of estimated forfeitures, related to stock option awards, which are expected to be recognized over a remaining weighted average period of 0.5 years.
 
No stock options were granted during the three months ended August 31, 2015 and 2014.
 
Restricted Stock Unit Awards
 
For the three months ended August 31, 2015 and 2014, the Company recognized share-based compensation expense related to restricted stock unit awards of $1.1 million for each period respectively. As of August 31, 2015, there was $8.9 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which are expected to be recognized over a remaining weighted average period of 3.1 years.
 
During the first three months of fiscal 2016 and 2015, the Company granted approximately 15,000 and 10,000 shares, respectively, of fully-vested common stock to its five non-employee directors, in connection with its non-employee director compensation plan. These shares had grant date fair values of $0.2 million for each period respectively, which was recorded as share-based compensation expense during the three months ended August 31, 2015 and 2014.
 
During the first three months of fiscal 2016 and 2015, approximately 205,000 and 217,000 restricted stock units, respectively, vested. The fair value of these units was $3.2 million and $4.7 million, respectively. Upon vesting, restricted stock units are generally net share-settled to cover the required minimum withholding tax and the remaining amount is converted into an equivalent number of shares of common stock.
 
Performance Restricted Stock Units

Fiscal 2016
In the first quarter of fiscal 2016, the Company modified its equity compensation plan for its executive and certain other senior officers. The Company granted 154,000 performance restricted stock units to its executive and certain other senior officers. These units have requisite service periods of five years and have no dividend rights. The actual payout of these units will vary

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Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)



based on the Company’s performance over a one-year period based on three metrics related to the Company’s fiscal 2016 performance: (1) Operating Income, (2) Adjusted EBITDAS, which is net income before interest, taxes, depreciation, amortization, non-cash stock-based compensation expense, acquisition related items, and other non-routine items as determined by the Committee and (3) Revenue. There is also a discretionary portion based on individual performance.

As a condition for receiving any awards under the revised fiscal 2016 plan, the executive and senior officers surrendered and released all rights to receive any shares under the 2014 and 2015 awards with a three-year performance or market condition. The Company has accounted for the fiscal 2016 awards as modifications in accordance with ASC 718, Compensation - Stock Compensation.

Compensation costs are initially measured assuming that the target performance conditions will be achieved. However, compensation costs related to the performance conditions are adjusted for subsequent changes in the expected outcomes of the performance conditions. The discretionary portion of these awards will be liability-classified and adjusted to fair value each reporting period. Compensation costs for the discretionary portion of the awards will be recognized over the same five year requisite service period as the awards based on the Company’s fiscal 2016 performance. For the three months ended August 31, 2015, the Company recognized share-based compensation expense related to these units of less than $0.1 million. At August 31, 2015, there was $2.2 million of total unrecognized compensation costs related to the 154,000 non-vested performance restricted stock units.
Fiscal 2015
In the second quarter of fiscal 2015, the Company granted performance restricted stock units to its executive and certain other senior officers. These units were surrendered as part of the revised fiscal 2016 plan as discussed above. For the three months ended August 31, 2015, the Company recognized share-based compensation expense related to performance restricted stock units of $0.2 million.

Fiscal 2014
In the third quarter of fiscal 2014, the Company granted one-year, two-year and three-year performance restricted stock units to its executive officers and certain other senior officers. These units have requisite service (vesting) periods of three years and have no dividend rights. The units with three-year performance and market conditions were surrendered as part of the revised fiscal 2016 plan as discussed above. For the three months ended August 31, 2015 and 2014, the Company recognized share-based compensation expense related to performance restricted stock units of $0.4 million and $0.8 million, respectively. At August 31, 2015, there was $1.0 million of total unrecognized compensation costs related to approximately 95,000 non-vested performance restricted stock units. These costs are expected to be recognized over a weighted-average period of approximately 1.0 years. The actual payout of these units will vary based on the Company’s performance over one, and two-year periods (based on pre-established targets) and a market condition modifier based on TSR compared to an industry peer group. Compensation cost is initially measured assuming that the target performance condition will be achieved. However, compensation cost related to the performance condition is adjusted for subsequent changes in the expected outcome of the performance condition. Compensation cost related to the TSR condition is fixed at the measurement date, and not subsequently adjusted. The one-year and two-year performance conditions of the fiscal 2014 awards were not achieved. The one-year market condition of the fiscal 2014 awards was achieved and will payout at 170% of target once the requisite service period is complete.
 
3.                                      Earnings per Share
 
Basic earnings 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) only 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:
 

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Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)



 
Three months ended August 31,
 
2015
 
2014
 
 
 
 
Basic earnings per share
 

 
 

Numerator:
 

 
 

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

 
$
1,666

Denominator:
 

 
 

Weighted average common shares outstanding
28,724

 
28,477

Basic earnings per share
$
0.24

 
$
0.06

 
 
 
 
Diluted earnings per share:
 

 
 

Numerator:
 

 
 

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

 
$
1,666

Denominator:
 

 
 

Weighted average common shares outstanding
28,724

 
28,477

Dilutive effect of stock options outstanding
627

 
834

Dilutive effect of restricted stock units outstanding
244

 
241

 
29,595

 
29,552

Diluted earnings per share
$
0.23

 
$
0.06

 
4.                                      Acquisitions and Dispositions

Acquisitions

The Company did not complete any acquisitions during the three months ended August 31, 2015.
 
In the first quarter of fiscal 2015, the Company completed three acquisitions. The Company purchased a company, located in Louisiana, a provider of maintenance and inspection services primarily on offshore platforms. This acquisition expands the service offerings within the Services segment, allowing the Company to provide services to the upstream operations of its customers. The Company also purchased a group of asset protection businesses located in Quebec, Canada to complement service offerings within the Company’s Services segment and continue its market expansion strategy. The Company’s International Segment completed an acquisition of an asset inspection business located in the United Kingdom.
 
In these acquisitions, the Company acquired 100% of the common stock or certain assets of each acquiree in exchange for aggregate consideration of approximately $34.0 million in cash and $22.7 million in notes payable issued as part of the acquisition and other liabilities assumed. The Company accounted for these transactions in accordance with the acquisition method of accounting for business combinations. In addition, the acquisition in Quebec provided for contingent consideration of up to $2.7 million to be earned based upon the acquired business achieving specific performance metrics over the next three years of operation from the acquisition date.

The amortization period of intangible assets acquired in fiscal 2015 ranges from 3 to 10 years. The Company recorded $43.9 million of goodwill in connection with these acquisitions, reflecting the strategic fit and revenue and earnings growth potential of these business.
 
Dispositions

In the first quarter of fiscal 2016, the Company finalized the sales of its subsidiaries in Russia and Japan and recognized an operating loss of $0.3 million.
 
Acquisition-Related Expense 
 
During the three month period ended August 31, 2015, the Company adjusted the fair value of certain previously recorded acquisition-related contingent consideration liabilities. These adjustments resulted in a net decrease of acquisition-related

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Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)



contingent consideration liabilities and a corresponding increase in income from operations of $0.9 million. The Company’s aggregate acquisition-related contingent consideration liabilities were $5.2 million and $6.4 million as of August 31, 2015 and May 31, 2015, respectively.
 
During the three month period ended August 31, 2014, the Company incurred acquisition-related costs of less than $0.1 million in connection with due diligence, professional fees, and other expenses for its acquisition activity. Additionally, the Company adjusted the fair value of certain acquisition-related contingent consideration liabilities. For the three month period ended August 31, 2014, these adjustments resulted in a net decrease of acquisition-related contingent consideration liabilities and a corresponding increase in income from operations of $1.0 million.
 
The fair value adjustments to acquisition-related contingent consideration liabilities and the acquisition-related transaction costs have been classified as acquisition-related expense, net in the condensed consolidated statements of income for the three month periods ended August 31, 2015 and 2014.
 

5.                                      Accounts Receivable, net
 
Accounts receivable consisted of the following:
 
 
August 31, 2015
 
May 31, 2015
 
 
 
 
Trade accounts receivable
$
137,335

 
$
136,208

Allowance for doubtful accounts
(3,270
)
 
(2,980
)
Account receivable, net
$
134,065

 
$
133,228

 
6.                                      Property, Plant and Equipment, net
 
Property, plant and equipment consisted of the following:
 
 
Useful Life
(Years)
 
August 31, 2015
 
May 31, 2015
 
 
 
 
 
 
Land
 
 
$
1,913

 
$
1,856

Buildings and improvements
30-40
 
18,883

 
17,712

Office furniture and equipment
5-8
 
8,306

 
8,084

Machinery and equipment
5-7
 
162,432

 
162,612

 
 
 
191,534

 
190,264

Accumulated depreciation and amortization
 
 
(113,863
)
 
(111,008
)
Property, plant and equipment, net
 
 
$
77,671

 
$
79,256

 
Depreciation expense for the three months ended August 31, 2015 and 2014 was $5.6 million and $5.4 million, respectively.
 

10

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Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)



7.                                      Intangible Assets
 
The gross amount, accumulated amortization and net carrying amount of intangible assets are as follows:
 
 
 
 
August 31, 2015
 
May 31, 2015
 
Useful Life
(Years)
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
5-12
 
$
80,279

 
$
(42,386
)
 
$
37,893

 
$
81,101

 
$
(41,009
)
 
$
40,092

Software/Technology
3-15
 
16,195

 
(10,579
)
 
5,616

 
15,738

 
(10,290
)
 
5,448

Covenants not to compete
2-5
 
11,648

 
(8,798
)
 
2,850

 
11,678

 
(8,605
)
 
3,073

Other
2-5
 
6,851

 
(4,375
)
 
2,476

 
6,910

 
(4,247
)
 
2,663

Total
 
 
$
114,973

 
$
(66,138
)
 
$
48,835

 
$
115,427

 
$
(64,151
)
 
$
51,276

 
Amortization expense for the three months ended August 31, 2015 and 2014 was $2.4 million and $2.9 million, respectively.
 
8.                                      Accrued Expenses and Other Current Liabilities
 
Accrued expenses and other current liabilities consist of the following:
 
 
August 31, 2015
 
May 31, 2015
 
 
 
 
Accrued salaries, wages and related employee benefits
$
26,140

 
$
26,053

Contingent consideration, current portion
2,897

 
3,543

Accrued workers’ compensation and health benefits
5,523

 
3,630

Deferred revenue
3,456

 
3,841

Other accrued expenses
14,742

 
18,847

Total accrued expenses and other liabilities
$
52,758

 
$
55,914

 
9.                               Long-Term Debt
 
Long-term debt consists of the following:
 
August 31, 2015
 
May 31, 2015
 
 
 
 
Senior credit facility
$
86,443

 
$
83,062

Notes payable
13,187

 
24,933

Other
6,165

 
5,464

Total debt
105,795

 
113,459

Less: Current portion
(16,352
)
 
(17,902
)
Long-term debt, net of current portion
$
89,443

 
$
95,557

 
Senior Credit Facility
 
On October 31, 2014, the Company entered into a Third Amendment and Modification Agreement, to its revolving line of credit, the Third Amended and Restated Credit Agreement (“Credit Agreement”) with Bank of America, N.A., as agent for the lenders and a lender, and JPMorgan Chase Bank, N.A., Keybank, National Association and TD Bank, N.A., as lenders. The Credit Agreement provides the Company’s with a $175.0 million revolving line of credit, which, under certain circumstances the line of credit can be increased to $225.0 million. The Company may borrow up to $30.0 million in non-U.S. Dollar currencies and use up to $10.0 million of the credit limit for the issuance of letters of credit. The Credit Agreement has a

11

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Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)



maturity date of October 30, 2019. As of August 31, 2015, the Company had borrowings of $86.4 million and a total of $4.4 million of letters of credit outstanding under the Credit Agreement.
 
Loans under the Credit Agreement bear interest at LIBOR plus an applicable LIBOR margin ranging from 1% to 1.75%, or a base rate less a margin of 1.25% to 0.375%, at the option of the Company, based upon the Company’s Funded Debt Leverage Ratio. Funded Debt Leverage Ratio is generally the ratio of (1) all outstanding indebtedness for borrowed money and other interest-bearing indebtedness as of the date of determination to (2) EBITDA (which is (a) net income, less (b) income (or plus loss) from discontinued operations and extraordinary items, plus (c) income tax expenses, plus (d) interest expense, plus (e) depreciation, depletion, and amortization (including non-cash loss on retirement of assets), plus (f) stock compensation expense, less (g) cash expense related to stock compensation, plus or minus certain other adjustments) for the period of four consecutive fiscal quarters immediately preceding the date of determination. The Company has the benefit of the lowest margin if its Funded Debt Leverage Ratio is equal to or less than 0.5 to 1, and the margin increases as the ratio increases, to the maximum margin if the ratio is greater than 2.0 to 1. The Company will also bear additional costs for market disruption, regulatory changes effecting the lenders’ funding costs, and default pricing of an additional 2% interest rate margin on any amounts not paid when due. Amounts borrowed under the Credit Agreement are secured by liens on substantially all of the assets of the Company.
 
The Credit Agreement contains financial covenants requiring that the Company maintain a Funded Debt Leverage Ratio of no greater than 3.25 to 1 and an Interest Coverage Ratio of at least 3.0 to 1. Interest Coverage Ratio means the ratio, as of any date of determination, of (a) EBITDA for the 12 month period immediately preceding the date of determination, to (b) all interest, premium payments, debt discount, fees, charges and related expenses of the Company and its subsidiaries in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, paid during the 12 month period immediately preceding the date of determination. The Credit Agreement also limits the Company’s ability to, among other things, create liens, make investments, incur more indebtedness, merge or consolidate, make dispositions of property, pay dividends and make distributions to stockholders, enter into a new line of business, enter into transactions with affiliates and enter into burdensome agreements. The Credit Agreement does not limit the Company’s ability to acquire other businesses or companies except that the acquired business or company must be in the Company's line of business, the Company must be in compliance with the financial covenants on a pro forma basis after taking into account the acquisition, and, if the acquired business is a separate subsidiary, in certain circumstances the lenders will receive the benefit of a guaranty of the subsidiary and liens on its assets and a pledge of its stock.
 
As of August 31, 2015, the Company was in compliance with the terms of the Credit Agreement, and will continuously monitor its compliance with the covenants contained in its credit agreement.
 
Notes Payable and Other
 
In connection with certain of its acquisitions through fiscal 2015, the Company issued subordinated notes payable to the sellers. The maturity of the notes that remain outstanding range from two to five years from the date of acquisition with stated interest rates ranging from 0% to 4%. The Company has discounted these obligations to reflect a 2% to 4% market interest. Unamortized discount on the notes was de minimis as of August 31, 2015 and May 31, 2015. Amortization is recorded as interest expense in the consolidated statements of income.
 
The Company has evaluated current market conditions and borrower credit quality and has determined that the carrying value of its long-term debt approximates fair value. The fair value of the Company’s notes payable and capital lease obligations approximates their carrying amounts based on anticipated interest rates which management believes would currently be available to the Company for similar issues of debt.
 
10.                               Fair Value Measurements
 
The Company performs fair value measurements in accordance with the guidance provided by ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a three level hierarchy that prioritizes the inputs used to measure fair value. The three levels of the hierarchy are defined as follows:
 

12

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Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)



Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
 
Level 2 — Observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data.
 
Level 3 — Unobservable inputs reflecting the Company’s own assumptions about inputs that market participants would use in pricing the asset or liability based on the best information available.
 
In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial liabilities that are required to be remeasured at fair value on a recurring basis:
 
 
August 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
Liabilities:
 

 
 

 
 

 
 

Contingent consideration
$

 
$

 
$
5,220

 
$
5,220

Total Liabilities
$

 
$

 
$
5,220

 
$
5,220

 
 
May 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
Liabilities:
 

 
 

 
 

 
 

Contingent consideration
$

 
$

 
$
6,411

 
$
6,411

Total Liabilities
$

 
$

 
$
6,411

 
$
6,411

 
The fair value of contingent consideration liabilities that was classified as Level 3 in the table above was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the applicable acquisition agreements.
 
11.                               Commitments and Contingencies
 
Litigation and Government Investigations
 
The Company is subject to periodic lawsuits, investigations and claims that arise in the ordinary course of business. Although the Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against it, the Company does not believe that any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its business, results of operations, cash flows or financial condition, except for the proceedings described below for which the Company is currently unable to determine the likely outcome or reasonably estimate the amount or range of potential liability estimate. The costs of defense and amounts that may be recovered against the Company in such matters may be covered by insurance, except that the primary claims set forth in the two purported class action cases in California are excluded from insurance coverage.

Litigation and Commercial Claims
 
In April 2015, two separate lawsuits were filed in California as purported class action lawsuits on behalf of current and former Mistras employees. The cases are David Kruger v Mistras Group, Inc., pending in the U.S. District Court for the Eastern District of California and Edgar Viceral v Mistras Group, et al, pending in the U.S. District Court for the Northern District of California. Both cases were originally filed in California state court and were removed to the respective U.S. District Courts for the districts in which the state court cases were filed. These two cases have been consolidated, with the Kruger dismissing his case and joining the Viceral case. As part of this consolidation, the claims in the Kruger case that were not part of the Viceral

13

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Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)



included case were added to the Viceral case by the filing of an amended complaint. The consolidated case alleges violations of California statutes primarily from the California Labor Code and seeks to proceed as a collective action under the U.S. Fair Labor Standards Act. The case is predicated on claims for allegedly missed rest and meal periods, inaccurate wage statements, and failure to pay all wages due, as well as related unfair business practices, and is requesting payment of all damages, including unpaid wages, and various fines and penalties available under California law. The case is in the preliminary stages. The Company is currently unable to determine the likely outcome or reasonably estimate the amount or range of potential liability, if any, related to these matters, and accordingly, has not established any reserves for these matters.

During fiscal 2012 and 2013, the Company performed radiography work on the construction of pipeline projects in the U.S. The Company has received notice that the owner of the pipeline projects contends that certain of the x-ray images the Company’s technicians prepared regarding the project did not meet the code quality interpretation standards required by API (American Petroleum Institute) 1103. The projects owner is claiming damages as a result of the alleged quality defects of the Company’s x-ray images. No lawsuit has been filed at this time. The Company is currently unable to determine the likely outcome or reasonably estimate the amount or range of potential liability related to this matter, and accordingly, has not established any reserves for this matter.
 
Government Investigations

In May 2015, the Company received a notice from the U.S. Environmental Protection Agency (“EPA”) that it had a preliminary assessment performed at a leased facility the Company operates in Cudahy, California. Based upon the preliminary assessment, the EPA would like to conduct an investigation of the site, which would include taking groundwater and soil samples. The purpose of the investigation is to determine whether any hazardous materials were released from the facility. The Company has been informed that certain hazardous materials and pollutants have been found in the ground water in the general vicinity of the site and the EPA is attempting to ascertain the origination or source of these materials and pollutants. Given the historic industrial use of the site, the EPA determined that the site of the Cudahy facility should be examined, along with numerous other sites in the vicinity. At this time, the Company is unable to determine whether it has any liability in connection with this matter and if so, the amount or range of any such liability, and accordingly, has not established any reserves for this matter.

In January 2012, the Company received notice of a governmental investigation concerning an environmental incident which occurred in February 2011 outside on the premises of the Cudahy facility.  No human injury or property damage was reported or appears to have been caused as a result of this incident. While management cannot predict the ultimate outcome of this matter, based on its internal investigation to date, the Company does not believe the outcome will have a material effect on its financial condition or results of operations. To the Company’s knowledge, this matter has been dormant since fiscal 2012.
 
Acquisition-related contingencies
 
The Company is liable for contingent consideration in connection with certain of its acquisitions. As of August 31, 2015, total potential acquisition-related contingent consideration ranged from zero to approximately $19.2 million and would be payable upon the achievement of specific performance metrics by certain of the acquired companies over the next 2.1 years of operations. See Note 4 - Acquisitions to these consolidated financial statements for further discussion of the Company’s acquisitions.
 

12.                               Subsequent Events

Subsequent to August 31, 2015, the Company completed an acquisition of an unmanned aerial system and NDT provider located in the U.S. The Company’s cash outlay for this acquisition was $1.75 million. In addition to the cash consideration, the acquisition provides for contingent consideration to be earned based upon the acquired company achieving specific performance metrics over the next four years of operation. The Company is in the process of completing the preliminary purchase price allocation. This acquisition was not significant and no pro forma information has been included.

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

14

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Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)



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.

13.                               Segment Disclosure
 
The Company’s three operating segments are:
 
Services. This segment provides asset protection solutions primarily in North America with the largest concentration in the United States and the Canadian services business, consisting primarily of non-destructive testing and inspection and engineering services that are used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure.
 
International. This segment offers services, products and systems similar to those of the Company’s other two segments to global markets, principally in Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment.
 
Products and Systems. This segment designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States.
 
Allocations for general corporate services, including accounting, audit, and contract management, that are provided to the segments are reported within Corporate and eliminations. Sales to the International segment from the Products and Systems segment and subsequent sales by the International segment of the same items are recorded and reflected in the operating performance of both segments. Additionally, engineering charges and royalty fees charged to the Services and International segments by the Products and Systems segment are reflected in the operating performance of each segment. All such intersegment transactions are eliminated in the Company’s consolidated financial reporting.
 
The accounting policies of the reportable segments are the same as those described in Note 1 — Description of Business and Basis of Presentation. Segment income from operations is determined based on internal performance measures used by the Chief Executive Officer, who is the chief operating decision maker, to assess the performance of each business in a given period and to make decisions as to resource allocations. In connection with that assessment, the Chief Executive Officer may exclude matters such as charges for share-based compensation and certain other acquisition-related charges and balances, technology and product development costs, certain gains and losses from dispositions, and litigation settlements or other charges. Certain general and administrative costs such as human resources, information technology and training are allocated to the segments. Segment income from operations also excludes interest and other financial charges and income taxes. Corporate and other assets are comprised principally of cash, deposits, property, plant and equipment, domestic deferred taxes, deferred charges and other assets. Corporate loss from operations consists of administrative charges related to corporate personnel and other charges that cannot be readily identified for allocation to a particular segment.
 

Selected consolidated financial information by segment for the periods shown was as follows:
 
 
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

 

15

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Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)



 
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

 
 
Three months ended August 31,
 
2015
 
2014
Income (loss) from operations
 

 
 

Services
$
15,398

 
$
8,880

International
1,818

 
(699
)
Products and Systems
1,184

 
(433
)
Corporate and eliminations
(5,468
)
 
(4,084
)
 
$
12,932

 
$
3,664

 
Income (loss) by operating segment includes intercompany transactions, which are eliminated in Corporate and eliminations.
 
 
Three months ended August 31,
 
2015
 
2014
Depreciation and amortization
 

 
 

Services
$
5,522

 
$
5,385

International
1,972

 
2,161

Products and Systems
563

 
596

Corporate and eliminations
(97
)
 
137

 
$
7,960

 
$
8,279

 
 
August 31, 2015
 
May 31, 2015
Goodwill
 

 
 

Services
$
116,821

 
$
117,279

International
35,198

 
35,938

Products and Systems
13,197

 
13,197

 
$
165,216

 
$
166,414

 

 
August 31, 2015
 
May 31, 2015
Total assets
 

 
 

Services
$
301,889

 
$
307,328

International
125,591

 
126,643

Products and Systems
37,730

 
37,999

Corporate and eliminations
706

 
(243
)
 
$
465,916

 
$
471,727

 

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Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)



Revenues by geographic area for the three months ended August 31, 2015 and 2014, respectively, were as follows:
 
 
Three months ended August 31,
 
2015
 
2014
Revenues
 

 
 

United States
$
130,344

 
$
111,940

Other Americas
11,529

 
14,298

Europe
34,884

 
36,645

Asia-Pacific
3,096

 
3,690

 
$
179,853

 
$
166,573



17

Table of Contents

ITEM 2.                                                Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following Management’s Discussion and Analysis (“MD&A”) includes a narrative explanation and analysis of our results of operations and financial condition for the three months ended August 31, 2015 and 2014. The MD&A should be read together with our condensed consolidated financial statements and related notes included in Item 1 in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for fiscal 2015 filed August 12, 2015 (“2015 Annual Report”). In this quarterly report, our fiscal years, which end on May 31, are identified according to the calendar year in which they end (e.g., the fiscal year ending May 31, 2015 is referred to as “fiscal 2016”), and unless otherwise specified or the context otherwise requires, “Mistras,” “the Company,” “we,” “us” and “our” refer to Mistras Group, Inc. and its consolidated subsidiaries. The MD&A includes disclosure in the following areas:
 
Forward-Looking Statements
Overview
Results of Operations
Liquidity and Capital Resources
Critical Accounting Policies and Estimates
 
Forward-Looking Statements
 
This report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.
 
In some cases, you can identify forward-looking statements by terminology, such as “goals,” or “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “could,” “should,” “would,” “predicts,” “appears,” “projects,” or the negative of such terms or other similar expressions. You are urged not to place undue reliance on any such forward-looking statements, any of which may turn out to be wrong due to inaccurate assumptions, unknown risks, uncertainties or other factors. Factors that could cause or contribute to differences in results and outcomes from those in our forward-looking statements include, without limitation, those discussed in the “Business—Forward-Looking Statements,” and “Risk Factors” sections of our 2015 Annual Report as well as those discussed in our other Securities and Exchange Commission (“SEC”) filings.
 
Overview
 
We offer our customers “one source for asset protection solutions”® and are a leading global provider of technology-enabled asset protection solutions used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure. We combine industry-leading products and technologies, expertise in mechanical integrity (MI), Non-Destructive Testing (NDT), Destructive Testing (DT) and predictive maintenance (PdM) services, process and fixed asset engineering and consulting services, proprietary data analysis and our world class enterprise inspection database management and analysis software, PCMS, to deliver a comprehensive portfolio of customized solutions, ranging from routine inspections to complex, plant-wide asset integrity management and assessments. These mission critical solutions enhance our customers’ ability to comply with governmental safety and environmental regulations, extend the useful life of their assets, increase productivity, minimize repair costs, manage risk and avoid catastrophic disasters. Our operations consist of three reportable segments: Services, International and Products and Systems.
 
Services provides asset protection solutions predominantly in North America with the largest concentration in the United States along with a growing Canadian services business, consisting primarily of NDT, inspection and engineering services that are used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure.

International offers services, products and systems similar to those of the other segments to global markets, principally in Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment. South America consists of our Brazil operations.
 
Products and Systems designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States.
 

18

Table of Contents

Given the role our solutions play in ensuring the safe and efficient operation of infrastructure, we have historically provided a majority of our services to our customers on a regular, recurring basis. We serve a global customer base of companies with asset-intensive infrastructure, including companies in the oil and gas (downstream, midstream, upstream and petrochemical), power generation (natural gas, fossil, nuclear, alternative, renewable, and transmission and distribution), public infrastructure, chemicals, commercial aerospace and defense, transportation, primary metals and metalworking, pharmaceutical/biotechnology and food processing industries and research and engineering institutions. We have established long-term relationships as a critical solutions provider to many of the leading companies in our target markets.

For the last several years, we have focused on introducing our advanced asset protection solutions to our customers using proprietary, technology-enabled software and testing instruments, including those developed by our Products and Systems segment. During this period, the demand for outsourced asset protection solutions, in general, has increased, creating demand from which our entire industry has benefited. We believe continued growth can be realized in all of our target markets. Concurrent with this growth, we are working on building our infrastructure to profitably absorb additional growth and have made a number of acquisitions in an effort to leverage our fixed costs, grow our base of experienced, certified personnel, expand our product and technical capabilities and increase our geographical reach.
 
We have increased our capabilities and the size of our customer base through the development of applied technologies and managed support services, organic growth and the integration of acquired companies. These acquisitions have provided us with additional products, technologies, resources and customers that we believe will enhance our advantages over our competition.
 
Global financial markets continue to experience uncertainty, including tight liquidity and credit availability, relatively low consumer confidence, high unemployment rates, slow economic growth, fluctuating oil prices, which are currently very low, and volatile currency exchange rates. However, we believe these conditions have allowed us to selectively hire new talented individuals that otherwise might not have been available to us, to acquire new technologies in order to expand our proprietary portfolio of customized solutions, and to make acquisitions of complementary businesses at reasonable valuations.

 
Results of Operations
 
Our consolidated results of operations for the three months ended August 31, 2015 and 2014 were as follows:
 
Three Months Ended 
 August 31,
 
2015
 
2014
 
($ in thousands)
Revenues
$
179,853

 
$
166,573

Gross profit
51,274

 
41,994

Gross profit as a % of Revenue
29
%
 
25
%
Total operating expenses
38,342

 
38,330

Operating expenses as a % of Revenue
21
%
 
23
%
Income from operations
12,932

 
3,664

Income from Operations as a % of Revenue
7
%
 
2
%
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

 

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Table of Contents

Our EBITDA and Adjusted EBITDA, non-GAAP measures explained below, for the three months ended August 31, 2015 and 2014 were as follows:
 
 
Three Months Ended 
 August 31,
 
2015
 
2014
 
($ in thousands)
EBITDA and Adjusted EBITDA data
 

 
 

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

 
Note About Non-GAAP Measures
 
Adjusted EBITDA is a performance measure used by management that is not calculated in accordance with U.S. generally accepted accounting principles (GAAP). EBITDA is defined in this Report as net income attributable to Mistras Group, Inc. plus: interest expense, provision for income taxes and depreciation and amortization. Adjusted EBITDA is defined in this Report as net income attributable to Mistras Group, Inc. 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 loss and, if applicable, certain non-recurring items which we note.
 
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 used as a performance evaluation metric for our executive and employee incentive compensation programs.

Later in the MD&A under the heading "Income for Operations", the non-GAAP financial performance measures "Income from operations before acquisition-related expense (benefit), net” is used for each of our three segments and the "Total Company", with tables reconciling the measure to a financial measure under GAAP. This non-GAAP measures 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. These items have been excluded from the GAAP measure because these expenses and credits are not related to the Company’s or Segment’s core business operations and are related solely to the Company’s or Segment’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.

In the MD&A section "Liquidity and Capital Resources", we use the term free cash flow, a non-GAAP measurement. We define free cash flow as cash provided by operating activities less capital expenditures (which is classified as an investing activity). Free cash flow for the first three months of fiscal 2016 was $11.7 million consisting of $16.2 million of operating cash flow less $4.5 of capital expenditures. For the comparable period in fiscal 2015, free cash flow was $5.0 million consisting of $8.8 million of operating cash flow less $3.8 million of capital expenditures.
 
Revenue
 
Revenues for the three months ended August 31, 2015 were $179.9 million, an increase of $13.3 million, or 8.0%, compared to $166.6 million for the three months ended August 31, 2014.

Revenues by segment for the three months ended August 31, 2015 and 2014 were as follows:
 

20

Table of Contents

 
Three months ended August 31,
 
2015
 
2014
 
($ in thousands)
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

 

In the first quarter of fiscal 2016, our revenue growth was driven by our Services and Products and Systems segments. Services segment revenues increased 13% due to acquisition and organic revenue growth, partially offset by the unfavorable impact of the weaker Canadian dollar. Services organic growth benefited from two small turnarounds in the first quarter. Products and Systems segment revenues increased by 32% driven by improved sales volume. International Segment revenues declined by 8%, driven by an unfavorable impact of foreign exchanges rates of 17% and dispositions. Excluding the impact of foreign exchange rates and dispositions, the International Segment showed double digit organic growth driven by increased product sales in the U.K. and increased traditional NDT in France. See Note 4 - Acquisitions and Dispositions for further discussion regarding dispositions in the International segment.

Oil and gas revenues grew by approximately 25% and remained the Company’s most significant vertical market, comprising 56% and 48% of total Company revenues in the first quarters of fiscal 2016 and 2015, respectively. We also experienced growth from customers in other industries, including power generation and process industries. The Company’s top ten customers comprised approximately 36% of total revenues in the first quarter of fiscal 2015 compared with 32% in the first quarter of the prior fiscal year.
 
Gross Profit

Gross profit increased by $9.3 million, or 22%, to $51.3 million in the first quarter of fiscal 2016, compared with $42.0 million in the first quarter of fiscal 2015.

Gross profit by segment for the three months ended August 31, 2015 and 2014 was as follows:
 
 
Three months ended August 31,
 
2015
 
2014
 
($ in thousands)
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



As a percentage of revenues, gross profit was 29% and 25% for the first quarters of fiscal 2016 and 2015, respectively. The increase in gross profit percentage was attributable to each of the operating segments: Services, International, and Products and Systems. Service segment gross profit margin increased 220 basis points compared to the first quarter of fiscal 2015. Services gross profit margin improvement can be attributed to cost reduction initiatives, contract management, and improved staffing utilization. International segment gross margins increased to 29% in the first quarter of fiscal 2016 compared with 24% in the prior year. The 560 basis point increase was driven by improved staffing utilization and higher product sales throughout the segment. Products and Systems segment gross margin improved to 45% compared to 41% in the prior year, driven by a more favorable sales mix of revenues, due to reduced sales of customized solutions.
 

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Income from Operations

The following table shows a reconciliation of the income from operations before acquisition-related expense (benefit), net, to income from operations for each of the Company's three segments and for the Company in total:

 
Three months ended August 31,
 
2015
 
2014
 
($ in thousands)
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

 

For the three months ended August 31, 2015, income from operations exclusive of acquisition-related costs increased $9.3 million, compared with the prior year’s quarter. As a percentage of revenues, income from operations excluding acquisition-related items was 7% and 2% for the first quarters of fiscal 2016 and 2015, respectively.
 
Operating expenses, excluding acquisition-related (benefit), were flat compared with the prior year’s first quarter. The Services segment experienced an organic year-on-year operating expenses increase of $1.5 million, driven by the impact of recent acquisitions. The International segment year-on-year operating expenses declined by $1.1 million, driven by the impact of foreign exchange rates and continued cost reduction initiatives. The Products and Systems segment year-on-year operating expenses declined by $0.4 million, due primarily to actions taken to reduce its cost base.

Interest Expense
 
Interest expense was approximately $1.9 million and $0.9 million for the first quarters of fiscal 2016 and 2015, respectively. The increase was primarily related to an increase in average borrowings in the first quarter of fiscal 2016.
 
Income Taxes
 
The Company’s effective income tax rate was approximately 38% and 39% for the first quarter of fiscal 2016 and 2015, respectively. The decrease was primarily due to lower state taxes and permanent items partially offset by an increase in foreign valuation allowances.


Liquidity and Capital Resources
 

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Table of Contents

Cash Flows Table
 
Our cash flows are summarized in the table below:
 
 
Three months ended August 31,
 
2015
 
2014
 
($ in thousands)
Net cash provided by (used in):
 

 
 

Operating Activities
$
16,210

 
$
8,847

Investing Activities
(4,399
)
 
(36,501
)
Financing Activities
(10,562
)
 
30,112

Effect of exchange rate changes on cash
(118
)
 
18

Net change in cash and cash equivalents
$
1,131

 
$
2,476

 
Cash Flows from Operating Activities
 
During the three months ended August 31, 2015, cash provided by our operating activities was $16.2 million, an increase of $7.4 million or 83% from the comparable period of fiscal 2015. The improvement was primarily attributable to the Company’s $8.9 million improvement in Adjusted EBITDA, as well as a reduction in days sales outstanding of approximately 1.5 days, which prevented a larger offsetting investment in working capital. The Company’s accounts receivable were more than $8 million lower compared with one year ago, despite first quarter sales that increased by 8% over prior year levels.
 
Cash Flows from Investing Activities
 
During the three months ended August 31, 2015, cash used in investing activities was $4.4 million, compared with cash outflow of $36.5 million in the comparable period of the prior year. The prior year's first quarter included $32.7 million outflow related to acquisitions, compared with no cash utilized for this purpose in the first quarter of fiscal 2016. Cash used for capital expenditures was $4.5 million in the first quarter of fiscal 2016 compared with $3.8 million in the prior year period.
The Company more than doubled its free cash flow to $11.7 million, compared with $5.0 million in the prior year’s comparable period, driven by its improvement in operating cash flow.
 
Cash Flows from Financing Activities

Net cash used by financing activities was $10.6 million for the three months ended August 31, 2015, The Company utilized most of the $11.7 million of free cash flow generated in the first quarter of fiscal 2016 to reduce its debt and capital lease obligations by $9.2 million, and to fund other tax-related outflows totaling $1.4 million. The Company generated cash from financing activities in the prior year’s comparable period by taking on a net of $33.3 million of additional debt to fund acquisitions made in the prior year, offset by repayments of capital lease obligations of $2.1 million and tax-related outflows of $1.1 million.

Effect of Exchange Rate Changes on Cash and Cash Equivalents
 
The effect of exchange rate changes on our cash and cash equivalents was a net reduction of $0.1 million in the first quarter of fiscal 2016, compared a minimal impact in the first quarter of fiscal 2015, driven by a stronger U.S. dollar.

Cash Balance and Credit Facility Borrowings
 
The terms of our Credit Agreement have not changed from those set forth in Part II, Item 7 of our 2015 Annual Report under the Section “Liquidity and Capital Resources”, under the heading “Cash Balance and Credit Facility Borrowings,” and Note 9 - Long-Term Debt to these consolidated financial statements in this report, under the heading “Senior Credit Facility.”
 
As of August 31, 2015, we had cash and cash equivalents totaling $11.7 million and available borrowing capacity of $84.2 million under our Credit Agreement with borrowings of $86.4 million and $4.4 million of letters of credit outstanding. We finance our operations primarily through our existing cash balances, cash collected from operations, bank borrowings and capital lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future.
 

23

Table of Contents

As of August 31, 2015, we were in compliance with the terms of the Credit Agreement, and we will continuously monitor our compliance with the covenants contained in our Credit Agreement.
 
Contractual Obligations

Other than the amendment to the Credit Agreement, discussed above under “Liquidity and Capital Resources- Cash Balance and Credit Facility Borrowings”, there have been no significant changes in our contractual obligations and outstanding indebtedness as disclosed in the 2015 Annual Report.

Off-balance Sheet Arrangements
 
During the three months ended August 31, 2015, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
 
Critical Accounting Policies and Estimates
 
There have been no significant changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the 2015 Annual Report.
 
ITEM 3.                                                Quantitative and Qualitative Disclosures about Market Risk
 
There have been no significant changes to the Company’s quantitative and qualitative disclosures about market risk as discussed in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” included in the 2015 Annual Report.
 
ITEM 4.                                                Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
As of August 31, 2015, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Exchange Act. Based on the evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
 
Changes in Internal Control Over Financial Reporting
 
There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s quarter ended August 31, 2015 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.


24

Table of Contents

PART II—OTHER INFORMATION
 
ITEM 1.                                                Legal Proceedings
 
There have been no material developments with regard to any matters disclosed under Part I, Item 3 “Legal Proceedings” in our 2015 Annual Report.

See Note 11 - Commitments and Contingencies to the consolidated financial statements included in this report for a description of our legal proceedings.
 
ITEM 1.A.                                    Risk Factors
 
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed under the “Risk Factors” section included in our 2015 Annual Report. There have been no material changes to the risk factors previously disclosed in the 2015 Annual Report.
 
ITEM 2.                                                Unregistered Sale of Equity Securities and Use of Proceeds
 
(a) Sales of Unregistered Securities
 
None.
 
(b) Use of Proceeds from Public Offering of Common Stock
 
None.
 
(c) Repurchases of Our Equity Securities
 
The following table sets forth the shares of our common stock we acquired during the quarter pursuant to the surrender of shares by employees to satisfy the minimum tax withholding obligations in connection with the vesting of restricted stock units.
 
Fiscal Month Ending
Total Number of Shares (or
Units) Purchased
 
Average Price Paid per
Share (or Unit)
June 30, 2015

 
$

July 31, 2015

 
$

August 31, 2015
61,685

 
$
15.45

 
ITEM 3.                                                Defaults Upon Senior Securities
 
None.
 
ITEM 4.                                                Mine Safety Disclosures
 
Not applicable.
 
ITEM 5.                                                Other Information
 
None.
 

25

Table of Contents

ITEM 6.                                                Exhibits
 
Exhibit No.
 
Description
 
 
 
31.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
 
31.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
 
32.1
 
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Schema Document
 
 
 
101.CAL
 
XBRL Calculation Linkbase Document
 
 
 
101.LAB
 
XBRL Labels Linkbase Document
 
 
 
101.PRE
 
XBRL Presentation Linkbase Document
 
 
 
101.DEF
 
XBRL Definition Linkbase Document



26

Table of Contents

Signatures
 
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 thereunto duly authorized.
 
 
MISTRAS GROUP, INC.
 
 
 
 
By:
/s/ Jonathan H. Wolk
 
 
Jonathan H. Wolk
 
 
Executive Vice President, Chief Financial Officer and Treasurer
 
 
(Principal Financial and Accounting Officer and duly authorized officer)
 
Date: October 13, 2015


27
Exhibit


Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13A-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
I, Sotirios J. Vahaviolos, certify that:
1.
I have reviewed this report on Form 10-Q of Mistras Group, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 13, 2015
 
/s/ Sotirios J. Vahaviolos
 
Sotirios J. Vahaviolos
 
Chairman, President and Chief Executive Officer
 
(Principal Executive Officer)




Exhibit


Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13A-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
I, Jonathan H. Wolk, certify that:
1.
I have reviewed this report on Form 10-Q of Mistras Group, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 13, 2015
 
/s/ Jonathan H. Wolk
 
Jonathan H. Wolk
 
Executive Vice President, Chief Financial Officer and Treasurer
 
(Principal Financial Officer)



Exhibit


Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned hereby certifies, for the purposes of section 1350 of chapter 63 of title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Mistras Group, Inc. (the “Company”), that, to his knowledge, the Quarterly Report on Form 10-Q of the Company for the quarter ended August 31, 2015 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to the Report.

Dated: October 13, 2015

 
/s/ Sotirios J. Vahaviolos
 
Sotirios J. Vahaviolos
 
Chairman, President and Chief Executive Officer
 
(Principal Executive Officer)
 
 
 
/s/ Jonathan H. Wolk
 
Jonathan H. Wolk
 
Executive Vice President, Chief Financial Officer and Treasurer
 
(Principal Financial Officer)