EX-99.2 3 a63017exhibit992.htm Q2 PRESS RELEASE Exhibit




Exhibit 99.2


Mistras Group Announces Second Quarter Results
MISTRAS Group, Inc. August 8, 2017 4:01 PM

PRINCETON JUNCTION, N.J., August 8, 2017 (GLOBE NEWSWIRE) - Mistras Group, Inc. (MG: NYSE), a leading "one source" global provider of technology-enabled asset protection solutions, reported financial results for its second quarter ended June 30, 2017.

Revenues for the second quarter of 2017 were $170.4 million, 4% lower than in the prior year’s second quarter. Second quarter 2017 net income was $2.2 million or $0.07 per diluted share, versus $2.8 million or $0.09 per diluted share in the prior year. 2017 results included special charges primarily related to closing a handful of small labs which reduced net income by $0.4 million, net of tax, or $0.02 per share. 2016 results included net-of-tax charges of $4.1 million or $0.14 per diluted share that primarily pertained to a legal settlement. Exclusive of these special charges, 2017 second quarter net income and earnings per diluted share, net of tax, were $2.6 million and $0.09 per diluted share, compared with the prior year’s $6.8 million and $0.23 per diluted share.

The Company generated $23.0 million of cash from operating activities and $12.5 million of free cash flow during the first six months of 2017, both amounts reduced by a $6.3 million payment of a prior year legal settlement. The Company used $4.5 million of its free cash flow for an acquisition and $12 million to repurchase common stock. The Company’s net debt (total debt less cash) of $90 million at June 30, 2017 was approximately 1.3x Adjusted EBITDA.

Adjusted EBITDA for the second quarter of 2017 was $16 million, compared with $21 million in the comparable period of the prior year. Performance by segment was as follows:

Services segment Q2 operating income improved $4.8 million, or 65% over prior year. Services Q2 2017 operating income was reduced $0.6 million primarily by costs to close a handful of small labs. Services Q2 2016 operating income was reduced $6.0 million primarily related to a prior year legal settlement. Excluding these special items, Services Q2 2017 operating income declined $0.6 million or 5% versus prior year, on revenues that declined 2%. During Q2 Services results began to improve versus prior year. Excluding the impact of one challenged region in which market difficulties continued to cause a year-on-year decline, Services Q2 revenues were flat and operating income excluding special items improved year-on-year by 20%.
 
International segment Q2 operating income declined $2.6 million below prior year, on revenues that declined by $2.5 million, or 7%. Unlike Q1, where the Company experienced organic revenue growth and improved profits in Germany, France and Brazil, Q2 saw revenue and profit declines in Germany, the UK and to a lesser extent in France. German results were adversely impacted by the timing of sales volumes, while UK results have suffered in the first and second quarters of 2017 due primarily to the timing of customer projects.





Products and Systems segment Q2 operating income declined by $0.8 million driven by a $1.4 million revenue decline.

Dennis Bertolotti, incoming Chief Executive Officer stated, "I am pleased with the performance of our Services segment. Although spring 2017 market conditions were challenging as expected in North America, our Services results have been resilient, realizing year-on-year revenue and profit gains with the exception of one challenged region. We remain optimistic that the market for North American nondestructive testing services will show modest year-on-year improvement this fall compared with the prior year’s unusually low spending levels.”

Mr. Bertolotti added: “We are working aggressively to position the Company for its next phase of growth. We have implemented a three-pronged plan to drive results, as follows:
1.
Restructuring. In addition to our just-announced management transition at the senior level, we are also transitioning the leadership of the Services segment, elevating four of our top managers to regional leadership positions, and transitioning leadership of our German subsidiary. These changes will drive more accountability, ownership and focus.
2.
Investment. As the third quarter commenced, we made an important acquisition of a Canadian company that performs mechanical services. We are excited about this business and this team, which we will utilize to drive organic growth throughout Canada and the United States. In addition, we hired a manager to add to our capabilities to proactively target and consummate acquisitions and are hiring a new executive to lead our sales function.
3.
Cost Reduction. I am challenging each of our new leaders to drive more business and to reduce costs. We are targeting a global annual cost reduction of $5 million which we expect to implement during the next three months.

Mr. Bertolotti concluded, stating “In addition to these initiatives, we are actively quoting new business and using this time to position Mistras to drive incrementally more value for our customers, and to make investments that will reignite our profitable growth in 2018 and beyond."

Updated Guidance for 2017
The market for North American inspection services was in line with Company expectations in the first half of 2017. Customer feedback continues to indicate the market is poised for a modest pick up in the second half of 2017. Services segment first half results were in line with Company expectations and are expected to improve over prior year in the second half of the calendar year. The international segment’s second quarter earnings were below our expectations and are now expected to fall short of prior year operating profit by approximately $6 million. Because of this expected shortfall, the Company is reducing its expected EBITDA forecast to a range of $66 million to $70 million for calendar 2017. Correspondingly, the Company expects its net income to be in a range of from $13 million to $15 million, and its earnings per diluted share to range from $0.42 to $0.52.
Conference Call
In connection with this release, Mistras will hold a conference call on August 9, 2017 at 9:00 a.m. (Eastern). The call will be broadcast over the Web and can be accessed on Mistras' Website, www.mistrasgroup.com. Individuals in the U.S. wishing to participate in the conference call by phone may call 1-844-832-7227 and use confirmation code 61105205 when prompted. The International dial-in number is 1-224-633-1529.

About Mistras Group, Inc.





Mistras offers one of the broadest "one source" services and technology-enabled asset protection solution portfolios in the industry used to evaluate the structural integrity of energy, industrial and public infrastructure. Mission critical services and solutions are delivered globally and provide customers with the ability to extend the useful life of their assets, improve productivity and profitability, comply with government safety and environmental regulations and enhance risk management operational decisions.

Mistras uniquely combines its industry leading products and technologies - 24/7 on-line monitoring of critical assets; mechanical integrity ("MI") and non-destructive testing ("NDT") services; destructive testing services; and its proprietary world class data warehousing and analysis software - to provide comprehensive and competitive products, systems and services solutions from a single source provider.

For more information, please visit the company's website at www.mistrasgroup.com.

Forward-Looking and Cautionary Statements
Certain statements made in this press release are "forward-looking statements" about Mistras' financial results and estimates, products and services, business model, strategy, growth opportunities, profitability and competitive position, and other matters. These forward-looking statements generally use words such as "future," "possible," "potential," "targeted," "anticipate," "believe," "estimate," "expect," "intend," "plan," "predict," "project," "will," "may," "should," "could," "would" and other similar words and phrases. Such statements are not guarantees of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved, if at all. These statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in these statements. A list, description and discussion of these and other risks and uncertainties can be found in the "Risk Factors" section of the Company's Transition Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2017, as updated by our reports on Form 10-Q and Form 8-K. The forward-looking statements are made as of the date hereof, and Mistras undertakes no obligation to update such statements as a result of new information, future events or otherwise.

Use of Non-GAAP Measures

In addition to financial information prepared in accordance with generally accepted accounting principles in the U.S. (GAAP), this press release also contains adjusted financial measures that we believe provide investors and management with supplemental information relating to operating performance and trends that facilitate comparisons between periods and with respect to projected information. The term "Adjusted EBITDA" used in this release is a financial measurement not calculated in accordance with GAAP and is defined 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 (gain) loss and, if applicable, certain special items which are noted. A Reconciliation of Adjusted EBITDA to a financial measurement under GAAP is set forth in a table attached to this press release. In addition, the Company has also included in the attached tables non-GAAP measurement” “Segment and Total Company Income (Loss) Before Special Items”, reconciling these measurements to financial measurements under GAAP. The Company uses the term “free cash flow”, a non-GAAP measurement the Company defines as cash provided by operating activities less capital expenditures (which is classified as an




investing activity). The Company also uses the term “net debt”, a non-GAAP measurement defined as the sum of the current and long-term portions of long-term debt and capital lease obligations, less cash and cash equivalents.







Mistras Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
 
 
 
(unaudited)
 
 
 
 
June 30, 2017
 
December 31, 2016
ASSETS
 
 

 
 

Current Assets
 
 

 
 

Cash and cash equivalents
 
$
26,784

 
$
19,154

Accounts receivable, net
 
129,221

 
130,852

Inventories
 
10,949

 
10,017

Deferred income taxes
 
—

 
6,230

Prepaid expenses and other current assets
 
16,526

 
16,399

Total current assets
 
183,480

 
182,652

Property, plant and equipment, net
 
76,218

 
73,149

Intangible assets, net
 
40,503

 
40,007

Goodwill
 
176,231

 
169,940

Deferred income taxes
 
2,085

 
1,086

Other assets
 
2,710

 
2,593

Total assets
 
$
481,227

 
$
469,427

LIABILITIES AND EQUITY
 
 

 
 

Current Liabilities
 
 

 
 

Accounts payable
 
$
9,342

 
$
6,805

Accrued expenses and other current liabilities
 
56,841

 
58,697

Current portion of long-term debt
 
2,116

 
1,379

Current portion of capital lease obligations
 
6,386

 
6,488

Income taxes payable
 
3,814

 
4,342

Total current liabilities
 
78,499

 
77,711

Long-term debt, net of current portion
 
99,544

 
85,917

Obligations under capital leases, net of current portion
 
8,919

 
9,682

Deferred income taxes
 
12,859

 
17,584

Other long-term liabilities
 
8,157

 
7,789

Total liabilities
 
207,978

 
198,683

Commitments and contingencies
 
 

 
 

Equity
 
 
 
 

Preferred stock, 10,000,000 shares authorized
 
—

 
—

Common stock, $0.01 par value, 200,000,000 shares authorized, 29,306,510 and 29,216,745 shares issued
 
293

 
292

Additional paid-in capital
 
220,305

 
217,211

Treasury stock, at cost, 960,882 and 420,258 shares
 
(21,000
)
 
(9,000
)
Retained earnings
 
95,712

 
91,803

Accumulated other comprehensive loss
 
(22,232
)
 
(29,724
)
Total Mistras Group, Inc. stockholders’ equity
 
273,078

 
270,582

Noncontrolling interests
 
171

 
162

Total equity
 
273,249

 
270,744

Total liabilities and equity
 
$
481,227

 
$
469,427






Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share data)
 
 
Three months ended
 
Six months ended
 
June 30, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
 
 

 
 

 
 
 
 
Revenue
$
170,439

 
$
178,340

 
$
333,757

 
$
345,795

Cost of revenue
118,825

 
121,044

 
233,828

 
239,273

Depreciation
5,271

 
5,761

 
10,433

 
11,017

Gross profit
46,343

 
51,535

 
89,496

 
95,505

Selling, general and administrative expenses
37,973

 
37,217

 
75,273

 
72,271

Research and engineering
552

 
623

 
1,195

 
1,285

Depreciation and amortization
2,613

 
2,865

 
5,116

 
5,627

Legal settlement
—

 
6,320

 
—

 
6,320

Acquisition-related expense (benefit), net
202

 
(330
)
 
(341
)
 
(483
)
Income from operations
5,003

 
4,840

 
8,253

 
10,485

Interest expense
1,015

 
340

 
2,033

 
1,440

Income before provision for income taxes
3,988

 
4,500

 
6,220

 
9,045

Provision for income taxes
1,770

 
1,737

 
2,304

 
2,825

Net income
2,218

 
2,763

 
3,916

 
6,220

Less: net income attributable to non-controlling interests, net of taxes
1

 
2

 
7

 
12

Net income attributable to Mistras Group, Inc.
$
2,217

 
$
2,761

 
$
3,909

 
$
6,208

Earnings per common share
 

 
 

 
 
 
 
Basic
$
0.08

 
$
0.10

 
$
0.14

 
$
0.21

Diluted
$
0.07

 
$
0.09

 
$
0.13

 
$
0.21

Weighted average common shares outstanding:
 

 
 

 
 
 
 
Basic
28,437

 
28,932

 
28,562

 
28,924

Diluted
29,599

 
30,152

 
29,754

 
30,083






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

 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Revenues
 

 
 

 
 

 
 

Services
$
134,043

 
$
136,358

 
$
260,372

 
$
267,936

International
33,904

 
36,373

 
68,160

 
67,353

Products and Systems
5,107

 
6,467

 
10,657

 
13,148

Corporate and eliminations
(2,615
)
 
(858
)
 
(5,432
)
 
(2,642
)
 
$
170,439

 
$
178,340

 
$
333,757

 
$
345,795

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Gross profit
 

 
 

 
 

 
 

Services
$
35,490

 
$
36,490

 
$
65,703

 
$
68,948

International
8,828

 
11,867

 
19,288

 
20,540

Products and Systems
1,966

 
3,050

 
4,560

 
5,789

Corporate and eliminations
59

 
128

 
(55
)
 
228

 
$
46,343

 
$
51,535

 
$
89,496

 
$
95,505

 
 
 
 
 
 
 
 





Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Segment and Total Company Income from Operations (GAAP) to Income before Special Items (non-GAAP)
(in thousands)

 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Services:
 

 
 
 
 

 
 

Income from operations
$
12,132

 
$
7,372

 
$
19,513

 
$
18,711

Legal settlement
—

 
6,320

 
—

 
6,320

Bad debt provision for a customer bankruptcy
—

 
—

 
1,200

 
—

Severance costs
314

 
—

 
330

 
—

Asset write-offs and lease terminations
123

 
—

 
123

 
—

Acquisition-related expense (benefit), net
201

 
(295
)
 
78

 
(468
)
Income before special items
12,770

 
13,397

 
21,244

 
24,563

International:
 

 
 

 
 

 
 

(Loss) income from operations
(190
)
 
2,454

 
2,843

 
3,174

Severance costs
63

 
645

 
76

 
710

Acquisition-related expense (benefit), net
—

 
(83
)
 
(501
)
 
(63
)
(Loss) income before special items
(127
)
 
3,016

 
2,418

 
3,821

Products and Systems:
 

 
 

 
 

 
 

Loss from operations
(892
)
 
(114
)
 
(1,340
)
 
(246
)
Severance costs
—

 
28

 
—

 
17

Acquisition-related expense (benefit), net
—

 
—

 
—

 
—

Loss before special items
(892
)
 
(86
)
 
(1,340
)
 
(229
)
Corporate and Eliminations:
 

 
 

 
 

 
 

Loss from operations
(6,047
)
 
(4,872
)
 
(12,763
)
 
(11,154
)
Severance costs
—

 
—

 
—

 
—

Acquisition-related expense (benefit), net
1

 
48

 
82

 
48

Loss before special items
(6,046
)
 
(4,824
)
 
(12,681
)
 
(11,106
)
Total Company
 

 
 

 
 

 
 

Income from operations
$
5,003

 
$
4,840

 
$
8,253

 
$
10,485

Legal settlement
—

 
6,320

 
—

 
6,320

Bad debt provision for a customer bankruptcy
—

 
—

 
1,200

 
—

Severance costs
377

 
673

 
406

 
727

Asset write-offs and lease terminations
123

 
—

 
123

 
—

Acquisition-related expense (benefit), net
202

 
(330
)
 
(341
)
 
(483
)
Income before special items
$
5,705

 
$
11,503

 
$
9,641

 
$
17,049







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

 
Six months ended June 30,
 
2017
 
2016
Net cash provided by (used in):
 

 
 

Operating activities
$
22,972

 
$
37,778

Investing activities
(14,218
)
 
(7,368
)
Financing activities
(2,726
)
 
(21,951
)
Effect of exchange rate changes on cash
1,602

 
384

Net change in cash and cash equivalents
$
7,630

 
$
8,843


Mistras Group, Inc. and Subsidiaries
Reconciliation of Net Cash Provided by Operating Activities (GAAP) to Free Cash Flow (non-GAAP)
(in thousands)

 
Six months ended June 30, 2017
GAAP: Net cash provided by operating activities
$
22,972

Less:
 
    Purchases of property, plant and equipment
(9,789
)
    Purchases of intangible assets
(688
)
non-GAAP: Free cash flow
$
12,495







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



 
Three months ended
 
June 30, 2017
 
June 30, 2016
 
 
Net income
$
2,218

 
$
2,763

Less: net income attributable to noncontrolling interests, net of taxes
1

 
2

Net income attributable to Mistras Group, Inc.
$
2,217

 
$
2,761

Interest expense
1,015

 
340

Provision for income taxes
1,770

 
1,737

Depreciation and amortization
7,884

 
8,626

Share-based compensation expense
1,697

 
1,466

Legal settlement
—

 
6,320

Acquisition-related expense (benefit), net
202

 
(330
)
Severance
377

 
673

Asset write-offs and lease terminations
123

 
—

Foreign exchange (gain) loss
349

 
(237
)
Adjusted EBITDA
$
15,634

 
$
21,356






Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income (GAAP) and Diluted EPS (GAAP) to Net Income Excluding Special Items (non-GAAP)
and Diluted EPS Excluding Special Items (non-GAAP)
(in thousands)


 
 
Three months ended June 30,
 
 
2017
 
2016
Net income (GAAP)
 
$
2,217

 
$
2,761

Special items, net of tax
 
396

 
4,056

Net Income Excluding Special Items (non-GAAP)
 
$
2,613

 
$
6,817

 
 
 
 
 
Diluted EPS (GAAP)
 
$
0.07

 
$
0.09

Special items
 
0.02

 
0.14

Diluted EPS Excluding Special Items (non-GAAP)
 
$
0.09

 
$
0.23