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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023
 
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __ 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) 
 
 

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueMGNew York Stock Exchange

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 every Interactive Data File required to be submitted 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 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o 
Accelerated filer
x
Non-accelerated filer
o 
Smaller reporting company
 Emerging Growth Company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 Yes  ý No


As of November 1, 2023, the registrant had 30,353,100 shares of common stock outstanding.




TABLE OF CONTENTS
 
 PAGE
 
  
 
    
  
    
  
Unaudited Condensed Consolidated Statements of Income (Loss) for the three and nine months ended September 30, 2023 and September 30, 2022
    
  
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023 and September 30, 2022
    
Unaudited Condensed Consolidated Statements of Equity for the three and nine months ended September 30, 2023 and September 30, 2022
  
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and September 30, 2022
    
  
    
 
    
 
    
 
  
 
  
 
    
 
    
 
    
 
    
 
    
 
    
 
  
 
i

PART I—FINANCIAL INFORMATION
 
ITEM 1.    Financial Statements
 


Mistras Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share data)
September 30, 2023December 31, 2022
ASSETS 
Current Assets  
Cash and cash equivalents$12,752 $20,488 
Accounts receivable, net136,363 123,657 
Inventories15,780 13,556 
Prepaid expenses and other current assets18,259 10,181 
Total current assets183,154 167,882 
Property, plant and equipment, net79,762 77,561 
Intangible assets, net44,468 49,015 
Goodwill185,519 199,635 
Deferred income taxes2,229 779 
Other assets41,558 40,032 
Total assets$536,690 $534,904 
LIABILITIES AND EQUITY  
Current Liabilities  
Accounts payable$14,628 $12,532 
Accrued expenses and other current liabilities81,853 77,844 
Current portion of long-term debt8,402 7,425 
Current portion of finance lease obligations5,253 4,201 
Income taxes payable1,025 1,726 
Total current liabilities111,161 103,728 
Long-term debt, net of current portion185,466 183,826 
Obligations under finance leases, net of current portion12,375 10,045 
Deferred income taxes8,542 6,283 
Other long-term liabilities33,362 32,273 
Total liabilities350,906 336,155 
Commitments and contingencies (Note 14)
Equity  
Preferred stock, 10,000,000 shares authorized
  
Common stock, $0.01 par value, 200,000,000 shares authorized, 30,353,100 and 29,895,487 shares issued and outstanding
302 298 
Additional paid-in capital246,075 243,031 
Accumulated deficit(26,436)(11,489)
Accumulated other comprehensive loss(34,463)(33,390)
Total Mistras Group, Inc. stockholders’ equity185,478 198,450 
Non-controlling interests306 299 
Total equity185,784 198,749 
Total liabilities and equity$536,690 $534,904 
 
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.



Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income (Loss)
(in thousands, except per share data)
 Three months ended September 30,Nine months ended September 30,
 2023202220232022
  
Revenue$179,354 $178,462 $523,399 $519,155 
Cost of revenue118,812 119,110 355,304 354,848 
Depreciation6,160 5,568 17,914 17,074 
Gross profit54,382 53,784 150,181 147,233 
Selling, general and administrative expenses39,537 40,767 123,844 123,545 
Bad debt provision for troubled customers, net of recoveries   289 
Reorganization and other costs2,702 130 6,017 65 
Goodwill Impairment Charges13,799  13,799  
Loss on Debt Modification 693  693 
Legal settlement and insurance recoveries, net  150 (994)
Research and engineering438 450 1,428 1,523 
Depreciation and amortization2,588 2,629 7,556 8,058 
Acquisition-related expense, net 1 5 63 
Income (loss) from operations(4,682)9,114 (2,618)13,991 
Interest expense4,167 2,735 12,093 6,790 
Income (loss) before provision (benefit) for income taxes(8,849)6,379 (14,711)7,201 
Provision for income taxes1,489 1,985 229 3,494 
Net Income (Loss)(10,338)4,394 (14,940)3,707 
Less: net income (loss) attributable to noncontrolling interests, net of taxes(40)21 7 54 
Net Income (Loss) attributable to Mistras Group, Inc.$(10,298)$4,373 $(14,947)$3,653 
Earnings (loss) per common share  
Basic$(0.34)$0.15 $(0.49)$0.12 
Diluted$(0.34)$0.14 $(0.49)$0.12 
Weighted-average common shares outstanding:  
Basic30,402 29,965 30,277 29,879 
Diluted30,402 30,245 30,277 30,209 
 
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.



Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
 
 Three months ended September 30,Nine Months Ended September 30,
 2023202220232022
Net Income (loss)$(10,338)$4,394 $(14,940)$3,707 
Other comprehensive loss:  
Foreign currency translation adjustments(5,428)(12,995)(1,073)(20,971)
Comprehensive Loss(15,766)(8,601)(16,013)(17,264)
Less: net income attributable to noncontrolling interest(40)21 7 54 
Comprehensive loss attributable to Mistras Group, Inc$(15,726)$(8,622)$(16,020)$(17,318)
 
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.



Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Equity
(in thousands)
Three months ended
Common StockAdditional
paid-in capital
Retained
earnings
(deficit)
Accumulated
other
comprehensive income (loss)
Total
Mistras Group,
Inc.
Stockholders’ Equity
Noncontrolling Interest 
SharesAmountTotal Equity
Balance at June 30, 202330,302 $302 $245,058 $(16,138)$(29,035)$200,187 $346 $200,533 
Net income— — — (10,298)— (10,298)(40)(10,338)
Other comprehensive loss, net of tax— — — — (5,428)(5,428)— (5,428)
Share-based compensation— — 1,017 — — 1,017 — 1,017 
Net settlement of restricted stock units51 — — — — — — — 
Balance at September 30, 202330,353 $302 $246,075 $(26,436)$(34,463)$185,478 $306 $185,784 
Balance at June 30, 202229,807 $297 $240,697 $(18,708)$(28,287)$193,999 $262 $194,261 
Net income— — — 4,373 — 4,373 21 4,394 
Other comprehensive income, net of tax— — — — (12,995)(12,995)— (12,995)
Share-based compensation— — 1,396 — — 1,396 — 1,396 
Net settlement of restricted stock units35 — — — — — — — 
Balance at September 30, 202229,842 $297 $242,093 $(14,335)$(41,282)$186,773 $283 $187,056 

Nine months ended
Common StockAdditional
paid-in capital
Retained
earnings
(deficit)
Accumulated
other
comprehensive income (loss)
Total
Mistras Group,
Inc.
Stockholders’ Equity
Noncontrolling Interest 
SharesAmountTotal Equity
Balance at December 31, 202229,895 $298 $243,031 $(11,489)$(33,390)$198,450 $299 $198,749 
Net income (loss)— — — (14,947)— (14,947)7 (14,940)
Other comprehensive loss, net of tax— — — — (1,073)(1,073)— (1,073)
Share-based compensation— — 3,985 — — 3,985 — 3,985 
Net settlement of restricted stock units458 4 (941)— — (937)— (937)
Balance at September 30, 202330,353 $302 $246,075 $(26,436)$(34,463)$185,478 $306 $185,784 
Balance at December 31, 202129,546 $295 $238,687 $(17,988)$(20,311)$200,683 $229 $200,912 
Net income— — — 3,653 — 3,653 54 3,707 
Other comprehensive income, net of tax— — — — (20,971)(20,971)— (20,971)
Share-based compensation— — 4,166 — — 4,166 — 4,166 
Net settlement of restricted stock units296 2 (760)— — (758)— (758)
Balance at September 30, 202229,842 $297 $242,093 $(14,335)$(41,282)$186,773 $283 $187,056 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.


Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
 Nine months ended September 30,
 20232022
Cash flows from operating activities  
Net loss$(14,940)$3,707 
Adjustments to reconcile net loss to net cash provided by operating activities  
Depreciation and amortization25,470 25,132 
Goodwill impairment charges13,799  
Deferred income taxes816 1,790 
Share-based compensation expense3,985 4,166 
Bad debt provision for troubled customers, net of recoveries 289 
Change in provision for doubtful accounts346  
Fair value adjustments to contingent consideration  45 
Foreign currency (gain) loss149 (924)
Payment of finance costs (448)
Other(147)969 
Changes in operating assets and liabilities 
Accounts receivable(13,393)(27,692)
Inventories(2,425)(1,146)
Prepaid expenses and other assets(7,572)2,105 
Accounts payable2,094 578 
Accrued expenses and other liabilities4,165 2,539 
Income taxes payable(725)(46)
Payment of contingent consideration liability in excess of acquisition-date fair value(938)(533)
Net cash provided by operating activities10,684 10,531 
Cash flows from investing activities  
Purchase of property, plant and equipment(14,403)(9,050)
Purchase of intangible assets(1,868)(580)
Acquisition of business, net of cash acquired  
Proceeds from sale of equipment1,101 753 
Net cash used in investing activities(15,170)(8,877)
Cash flows from financing activities  
Repayment of finance lease obligations(3,812)(3,173)
Proceeds from borrowings of long-term debt 125,000 
Repayment of long-term debt(5,684)(79,519)
Proceeds from revolver66,110 168,000 
Repayment of revolver(57,851)(213,750)
Payment of financing costs (148)
Payment of contingent consideration for business acquisitions (405)
Taxes paid related to net share settlement of share-based awards(602)(758)
Net cash used in financing activities(1,839)(4,753)
Effect of exchange rate changes on cash and cash equivalents(1,411)(2,927)
Net change in cash and cash equivalents(7,736)(6,026)
Cash and cash equivalents at beginning of period20,488 24,110 
Cash and cash equivalents at end of period$12,752 $18,084 
Supplemental disclosure of cash paid  
Interest, net$12,683 $5,354 
Income taxes, net of refunds$3,704 $(3,764)
Noncash investing and financing  
Equipment acquired through finance lease obligations$7,169 $3,373 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.


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

1.    Description of Business and Basis of Presentation
 
Description of Business
 
Mistras Group, Inc., together with its subsidiaries (the "Company"), is a leading “one source” multinational provider of integrated technology-enabled asset protection solutions helping to maximize the safety and operational uptime for civilization’s most critical industrial and civil assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, and decades-long legacy of industry leadership, the Company helps clients with asset-intensive infrastructure in the oil and gas, aerospace and defense, industrials, power generation and transmission (including alternative and renewable energy), other process industries and infrastructure, research and engineering and other industries towards achieving and maintaining operational excellence. By supporting these organizations that help fuel our vehicles and power our society; inspecting components that are trusted for commercial, defense, and space craft; and building real-time monitoring systems to help avoid catastrophic incidents, the Company helps the world at large.

The Company enhances value for its clients by integrating asset protection throughout supply chains and centralizing integrity data through a suite of Industrial Internet of Things ("IoT")-connected digital software and monitoring solutions, including OneSuite™, which serves as an ecosystem platform, pulling together all of the Company’s software and data services capabilities, for the benefit of its customers.

The Company’s core capabilities also include non-destructive testing (“NDT”) field inspections enhanced by advanced robotics, laboratory quality control, laboratory materials services, shop laboratory assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.

The Company has three operating segments. During the first quarter of 2023, the Company renamed the Services segment to the North America segment to more closely align to the geographical area in which the Services segment operates. We did not recast the corresponding financial information for the historical periods presented, as there was no change in the manner which our chief operating decision maker reviews the financial results of each segment and allocates resources. Our Segments, with the updated naming convention, are as follows:

North America (Referred to as "Services" in prior filings). This segment provides asset protection solutions predominantly in North America, with the largest concentration in the United States, followed by Canada, consisting primarily of NDT, inspection, mechanical and engineering services that are used to evaluate the safety, structural integrity and reliability of critical energy, industrial and public infrastructure and commercial aerospace components. Software, digital and data services are included in this segment.
 
International. This segment offers services, products and systems similar to those of the other segments to select markets within 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.

Recent Developments

During 2022, the Company experienced unfavorable foreign currency exchange impacts as it relates to the Company's European operations. Additionally, the Russian-Ukrainian war continues to create disruptions in the oil and gas market and the supply chain in general, which is resulting in some disruption to our business operations. The Company’s European operations are currently experiencing increased costs associated with higher energy costs, among others, due in part to the Russian-Ukrainian war.


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

In 2022, the Company eliminated substantially all of the COVID related cost reduction initiatives undertaken in 2020, including re-instatement of the savings plan employer match and increasing wages back to pre-pandemic amounts.

During the third quarter of 2023, a triggering event was identified within the Company's reporting units within the International segment due to decreased gross margin in the current period as a result of inflationary pressures and rising energy costs which resulted in an impairment within the reporting unit of $13.8 million. Refer to Note 9-Goodwill.

The Company is currently unable to predict with certainty the overall impact that the factors discussed above and the effect of inflationary pressures may have on its business, results of operations or liquidity or in other ways which the Company cannot yet determine. The Company will continue to monitor market conditions and respond accordingly.

Basis of Presentation
 
The Unaudited Condensed Consolidated Financial Statements contained in this report have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") and Securities and Exchange Commission ("SEC") guidance allowing for reduced disclosure for interim periods. In the opinion of management, the Unaudited Condensed Consolidated Financial Statements include all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods of the years ending December 31, 2023 and December 31, 2022.

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 the Audited Consolidated Financial Statements contained in the Company’s 2022 Annual Report on Form 10-K ("2022 Annual Report").
 
Principles of Consolidation
 
The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of Mistras Group, Inc. as well as its wholly-owned subsidiaries, majority-owned subsidiaries and consolidated variable interest entities (VIE). For subsidiaries in which the Company’s ownership interest is less than 100%, the non-controlling interests are reported in stockholders’ equity in the accompanying Condensed Consolidated Balance Sheets. The non-controlling interests in net results, net of tax, is classified separately in the accompanying Unaudited Condensed Consolidated Statements of Income (Loss). All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations of companies acquired are included from the date of acquisition.

Reclassification

Certain amounts in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have a material effect on the Company’s financial condition or results of operations as previously reported.
 
Significant Accounting Policies
 
The Company’s significant accounting policies are disclosed in Note 1–Summary of Significant Accounting Policies and Practices in the 2022 Annual Report. On an ongoing basis, the Company evaluates its estimates and assumptions, including among other things, those related to revenue recognition, long-lived assets, goodwill and acquisitions. Since the date of the 2022 Annual Report, there have been no material changes to the Company’s significant accounting policies.



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

Income taxes are accounted for under the asset and liability method. We recognize deferred tax assets and liabilities at enacted income tax rates for the temporary differences between the financial reporting bases and the tax bases of our assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. Our net deferred tax assets primarily consist of net operating loss carryforwards, or NOLs. A valuation allowance is provided if it is more likely than not that some or all of a deferred income tax asset will not be realized. A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current and prior years.

As of September 30, 2023, management concluded that it is more likely than not that a substantial portion of the Company’s deferred tax assets will be realized.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

The Company’s effective income tax rate was approximately (16.8)% and 31.1% for the three months ended September 30, 2023 and 2022, respectively. The Company’s effective income tax rate was approximately (1.6)% and 48.5% for the nine months ended September 30, 2023 and 2022, respectively.

The effective income tax rate for the three months ended September 30, 2023 was lower than the statutory rate primarily due to the impact of permanent tax adjustments related to executive compensation and goodwill impairments. The effective income tax rate for the three months ended September 30, 2022 was higher than the statutory rate primarily due to various permanent tax adjustments and a $0.1 million valuation allowance recorded on a foreign jurisdiction.

The effective income tax rate for the nine months ended September 30, 2023 was lower than the statutory rate primarily due to the impact of permanent tax adjustments related to executive compensation and goodwill impairments. The effective income tax rate for the nine months ended September 30, 2022 was higher than the statutory rate due primarily to various permanent tax adjustments and a $0.9 million valuation allowance recorded during the period which was related to a foreign jurisdiction.

Recent Accounting Pronouncements

In March 2020 and updated in January 2021, the FASB issued Accounting Standards Update ("ASU") 2020-04 and 2021-01, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2024. The Company is currently evaluating applicable contracts and the available expedients provided by the new guidance.


2.    Revenue

The Company derives the majority of its revenue by providing services on a time and material basis, and are short-term in nature. The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.


Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
Performance Obligations
The Company provides highly integrated and bundled inspection services to its customers. The majority of the Company’s contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and is, therefore, not distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company’s best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is a relative selling price based on price lists.

Contract modifications are not routine in the performance of the Company’s contracts. Generally, when contracts are modified, the modification is to account for changes in scope to the goods and services that are provided. In most instances, contract modifications are for goods or services that are distinct, and, therefore, are accounted for as a separate contract.

The Company’s performance obligations are satisfied over time as work progresses or at a point in time. The majority of the Company’s revenue is recognized over time as work progresses for the Company’s service deliverables, which includes providing testing, inspection and mechanical services to our customers. Revenue is recognized over time, based on time and material incurred to date which best portrays the transfer of control to the customer. The Company also utilizes an available practical expedient that provides for revenue to be recognized in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date. Fixed fee arrangements are determined based on expected labor, material, and overhead to be consumed on fulfillment of such services. For these arrangements, revenue is recognized on a cost-to-cost method tracked on an input basis.

The majority of our revenue recognized at a point in time is related to product sales when the customer obtains control of the asset, which is generally upon shipment to the customer. Contract costs include labor, material and overhead.

The Company expects any significant remaining performance obligations to be satisfied within one year.

Contract Estimates

The majority of the Company's revenues are short-term in nature. The Company enters into master service agreements ("MSAs") with customers that specify an overall framework and contract terms. The actual contracting to provide services or furnish products are triggered by a work order, purchase order, or some similar document issued pursuant to a MSA which sets forth the scope of services and/or identifies the products to be provided. From time-to-time, the Company may enter into longer-term contracts, which can range from several months to several years. Revenue on certain contracts is recognized as work is performed based on total costs incurred to date in relation to the total estimated costs for the performance of the contract at completion. This includes contract estimates of costs to be incurred for the performance of the contract. Cost estimation is based upon the professional knowledge and experience of the Company's project managers, engineers and financial professionals. Factors that are considered in estimating the work to be completed include the availability of materials, the effect of any delays in the Company's project performance and the recoverability of any claims. Whenever revisions of estimates, contract costs and/or contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.



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

The following series of tables present the Company’s disaggregated revenue:

Revenue by industry was as follows:
Three Months Ended September 30, 2023North AmericaInternationalProductsCorp/ElimTotal
Oil & Gas$94,390 $8,827 $35 $ $103,252 
Aerospace & Defense14,240 5,778 47  20,065 
Industrials 10,325 6,018 310  16,653 
Power Generation & Transmission7,388 1,653 696  9,737 
Other Process Industries6,933 2,864 (5) 9,792 
Infrastructure, Research & Engineering6,042 2,383 1,070  9,495 
Petrochemical3,313 586   3,899 
Other6,183 2,871 676 (3,269)6,461 
Total$148,814 $30,980 $2,829 $(3,269)$179,354 

Three Months Ended September 30, 2022North AmericaInternationalProductsCorp/ElimTotal
Oil & Gas$90,578 $6,418 $35 $ $97,031 
Aerospace & Defense16,784 4,397 112  21,293 
Industrials 9,728 5,834 436  15,998 
Power Generation & Transmission10,378 1,946 456  12,780 
Other Process Industries10,283 3,033 8  13,324 
Infrastructure, Research & Engineering4,936 1,784 1,150  7,870 
Petrochemical3,427 280   3,707 
Other6,664 2,001 881 (3,087)6,459 
Total$152,778 $25,693 $3,078 $(3,087)$178,462 

Nine Months Ended September 30, 2023North AmericaInternationalProductsCorp/ElimTotal
Oil & Gas$281,663 $26,291 $87 $ $308,041 
Aerospace & Defense41,516 15,894 275  57,685 
Industrials30,693 18,274 1,336  50,303 
Power Generation & Transmission17,834 4,840 3,189  25,863 
Other Process Industries24,906 10,567 73  35,546 
Infrastructure, Research & Engineering12,696 6,547 2,759  22,002 
Petrochemical10,027 887   10,914 
Other11,960 7,364 2,178 (8,457)13,045 
Total$431,295 $90,664 $9,897 $(8,457)$523,399 


Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
Nine Months Ended September 30, 2022North AmericaInternationalProductsCorp/ElimTotal
Oil & Gas$270,289 $22,018 $212 $ $292,519 
Aerospace & Defense49,106 14,455 246  63,807 
Industrials28,529 17,868 1,271  47,668 
Power Generation & Transmission22,578 6,505 1,979  31,062 
Other Process Industries32,217 10,305 23  42,545 
Infrastructure, Research & Engineering10,625 6,016 2,489  19,130 
Petrochemical10,056 413   10,469 
Other11,851 5,861 2,446 (8,203)11,955 
Total$435,251 $83,441 $8,666 $(8,203)$519,155 
Revenue per key geographic location was as follows:
Three Months Ended September 30, 2023North AmericaInternationalProductsCorp/ElimTotal
United States$126,239 $120 $1,032 $(849)$126,542 
Other Americas21,907 3,703 49 (1,659)24,000 
Europe465 26,764 510 (701)27,038 
Asia-Pacific203 393 1,238 (60)1,774 
Total$148,814 $30,980 $2,829 $(3,269)$179,354 

Three Months Ended September 30, 2022North AmericaInternationalProductsCorp/ElimTotal
United States$130,206 $240 $1,523 $(1,098)$130,871 
Other Americas21,649 2,064 154 (1,274)22,593 
Europe631 22,648 362 (622)23,019 
Asia-Pacific292 741 1,039 (93)1,979 
Total$152,778 $25,693 $3,078 $(3,087)$178,462 

Nine Months Ended September 30, 2023North AmericaInternationalProductsCorp/ElimTotal
United States$369,811 $709 $4,478 $(1,718)$373,280 
Other Americas57,218 11,013 673 (3,565)65,339 
Europe3,159 75,421 1,275 (2,693)77,162 
Asia-Pacific1,107 3,521 3,471 (481)7,618 
Total$431,295 $90,664 $9,897 $(8,457)$523,399 
Nine Months Ended September 30, 2022North AmericaInternationalProductsCorp/ElimTotal
United States$370,426 $747 $4,366 $(2,319)$373,220 
Other Americas62,254 4,781 338 (2,988)64,385 
Europe1,790 75,921 1,456 (2,501)76,666 
Asia-Pacific781 1,992 2,506 (395)4,884 
Total$435,251 $83,441 $8,666 $(8,203)$519,155 



Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets. Amounts are generally billed as work progresses in accordance with agreed-upon contractual terms, generally at periodic intervals (e.g., weekly, bi-weekly or monthly). Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, the Company sometimes receives advances or deposits from its customers before revenue is recognized, resulting in contract liabilities. These assets and liabilities are aggregated on an individual contract basis and reported on the Consolidated Balance Sheets at the end of each reporting period within accounts receivable, net or accrued expenses and other current liabilities.

Revenue recognized during the nine months ended September 30, 2023 and 2022 that was included in the contract liability balance at the beginning of such year was $5.7 million and $4.0 million, respectively, for each period. Changes in the contract asset and liability balances during these periods were not materially impacted by any other factors. The Company applies the practical expedient to expense incremental costs incurred relating to obtaining a contract when the amortization period of the asset that the Company otherwise would have recognized is one year or less.

3.    Share-Based Compensation
 
The Company grants share-based incentive awards to its eligible employees and non-employee directors under two equity incentive plans: (i) the 2009 Long-Term Incentive Plan (the "2009 Plan") and (ii) the 2016 Long-Term Incentive Plan (the "2016 Plan"). No awards have been granted under the 2009 Plan since the 2016 Plan was approved by shareholders in 2016, and the remaining stock option award granted under the 2009 Plan expired during the three months ended March 31, 2022. Awards granted under the 2016 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. At the annual shareholders meeting on May 23, 2022, the Company’s shareholders approved an amendment to increase the total number of shares that may be issued under the 2016 Plan by 1.2 million, for a total of 4.9 million shares that are authorized for issuance under the 2016 Plan, of which approximately 1,300,000 shares were available for future grants as of September 30, 2023.
 
Stock Options
 
During the three months ended March 31, 2022, all remaining outstanding stock options expired. For each of the three and nine months ended September 30, 2023 and 2022, the Company did not recognize any share-based compensation expense related to stock option awards.
 
Restricted Stock Unit Awards
 
For the three months ended September 30, 2023 and September 30, 2022, the Company recognized share-based compensation expense related to restricted stock unit awards of $0.7 million and $0.9 million, respectively. For the nine months ended September 30, 2023 and 2022, the Company recognized share-based compensation expense related to restricted stock unit awards of $2.5 million and $2.8 million, respectively. As of September 30, 2023, there was $8.1 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which is expected to be recognized over a remaining weighted-average period of 2.7 years. Upon vesting, restricted stock units are generally net share-settled to cover the required withholding tax and the remaining amount is converted into an equivalent number of shares of common stock.

A summary of the vesting activity of restricted stock unit awards, with the respective fair value of the awards, is as follows:
 Nine months ended September 30,
 20232022
Restricted stock awards vested430 326 
Fair value of awards vested$2,639 $2,164 



Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
A summary of the fully-vested common stock the Company issued to its non-employee directors, in connection with its non-employee director compensation, is as follows:
 Nine months ended September 30,
 20232022
Awards issued99 70 
Grant date fair value of awards issued$550 $450 

A summary of the Company’s outstanding, non-vested restricted share units is as follows:
 Nine months ended September 30,
 20232022
 UnitsWeighted
Average
Grant-Date
Fair Value
UnitsWeighted
Average
Grant-Date
Fair Value
Outstanding at beginning of period:1,415 $7.96 1,208 $7.96 
Granted591 $8.37 675 $7.65 
Vested(430)$6.14 (326)$10.03 
Forfeited(120)$7.96 (42)$8.19 
Outstanding at end of period:1,456 $7.71 1,515 $7.37 

Performance Restricted Stock Units

The Company maintains Performance Restricted Stock Units (PRSUs) that have been granted to select executives and senior officers whose ultimate payout may vary between zero and 200% of the target award, based on the Company’s performance over a one-year period based on specific metrics approved by the Compensation Committee of the Board of Directors of the Company.

For 2022, the Compensation Committee utilized the same performance metrics for the Company's PRSUs awarded in 2022 as it utilized for the 2021 PRSUs. The three metrics were:
1.Free Cash Flow defined as net cash provided by operating activities less purchases of property, plant, equipment and intangible assets and is subject to adjustments approved by the Compensation Committee.
2.Adjusted EBITDA defined as net income attributable to the Company 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.
3.Total Shareholder Return ("TSR") measures the total return to shareholders of the Company during 2021 versus the total return to the shareholders of a predefined peer group of companies that provide inspection, testing, certification or similar industrial services. The return will be measured by the year over year percent change in share price. The share prices used to calculate the return are the average share price during the 20-trading day period ending on the initial measurement date (the last 20 trading days of 2021), compared to the average share price during the 20-trading day period ending on the final measurement date (the last 20 trading days of 2022). Any cash dividends or distributions paid in 2022 were added to calculate the return to shareholders during the year. TSR is considered a market condition for which the fair value of PRSUs with this condition is determined using a Monte Carlo valuation model. Key assumptions in the Monte Carlo valuation model included:
a.Expected Volatility. Expected volatility of the Company’s common stock at the date of grant was estimated based on a historical average volatility rate for the approximate 1-year performance period.
b.Dividend Yield. The dividend yield assumption was based on historical and anticipated dividend payouts (assumed at zero).
c.Risk-Free Interest Rate. The risk-free interest rate assumption was based on observed interest rates consistent with the approximate 1-year performance measurement period.



Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
For 2023, the Compensation Committee used different performance metrics for PRSUs approved in that year. The three metrics are:
1.Free Cash Flow defined as net cash provided by operating activities less purchases of property, plant, equipment and intangible assets and is subject to adjustments approved by the Compensation Committee.
2.Adjusted EBITDA defined as net income attributable to the Company 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.
3.Revenue

PRSUs are equity-classified and compensation costs related to PRSUs with performance conditions are initially measured using the fair value of the underlying stock at the date of grant. Compensation costs related to the PRSUs with performance conditions are subsequently adjusted for changes in the expected outcomes of the performance conditions. Compensation cost related to the PRSUs with a market condition is not reversed if the market condition is not achieved, provided the employee requisite service has been rendered. Earned PRSUs generally vest ratably on each of the first four anniversary dates following completion of the performance period, for a total requisite service period of up to five years and have no dividend rights.

A summary of the Company’s PRSU activity is as follows:
 Nine months ended September 30,
20232022