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Mistras Group Announces Second Quarter Results

PRINCETON JUNCTION, N.J., Aug. 08, 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.

/EIN News/ -- 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  

 

Nestor S. Makarigakis 
Group Director of Marketing Communications 
marcom@mistrasgroup.com 
1(609)716-4000

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