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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 March 31, 2024
 
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 May 1, 2024, the registrant had 30,966,973 shares of common stock outstanding.



TABLE OF CONTENTS
 
 PAGE
 
  
 
    
  
    
  
    
  
    
Unaudited Condensed Consolidated Statements of Equity for the three months ended March 31, 2024 and March 31, 2023
  
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and March 31, 2023
    
  
    
 
    
 
    
 
  
 
  
 
    
 
    
 
    
 
    
 
    
 
    
 
  
 
i

PART I—FINANCIAL INFORMATION
 
ITEM 1.    Financial Statements
 


Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
March 31, 2024December 31, 2023
ASSETS(unaudited) 
Current Assets  
Cash and cash equivalents$16,855 $17,646 
Accounts receivable, net140,404 132,847 
Inventories15,079 15,283 
Prepaid expenses and other current assets14,632 14,580 
Total current assets186,970 180,356 
Property, plant and equipment, net79,702 80,972 
Intangible assets, net42,660 43,994 
Goodwill185,726 187,354 
Deferred income taxes2,647 2,316 
Other assets44,422 39,784 
Total assets$542,127 $534,776 
LIABILITIES AND EQUITY  
Current Liabilities  
Accounts payable$15,629 $17,032 
Accrued expenses and other current liabilities84,475 84,331 
Current portion of long-term debt9,464 8,900 
Current portion of finance lease obligations4,907 5,159 
Income taxes payable406 1,101 
Total current liabilities114,881 116,523 
Long-term debt, net of current portion188,962 181,499 
Obligations under finance leases, net of current portion11,151 11,261 
Deferred income taxes2,685 2,552 
Other long-term liabilities36,983 32,438 
Total liabilities354,662 344,273 
Commitments and contingencies (Note 14)
Equity  
Preferred stock, 10,000,000 shares authorized
  
Common stock, $0.01 par value, 200,000,000 shares authorized, 30,910,552 and 30,597,633 shares issued and outstanding
328 305 
Additional paid-in capital247,329 247,165 
Accumulated deficit(27,947)(28,942)
Accumulated other comprehensive loss(32,565)(28,336)
Total Mistras Group, Inc. stockholders’ equity187,145 190,192 
Non-controlling interests320 311 
Total equity187,465 190,503 
Total liabilities and equity$542,127 $534,776 
 
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

1

Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income (Loss)
(in thousands, except per share data)
 Three months ended March 31,
 20242023
  
Revenue$184,442 $168,016 
Cost of revenue127,418 116,051 
Depreciation5,934 5,888 
Gross profit51,090 46,077 
Selling, general and administrative expenses41,189 42,823 
Reorganization and other costs1,557 2,076 
Research and engineering343 480 
Depreciation and amortization2,447 2,525 
Acquisition-related expense, net1 3 
Income (loss) from operations5,553 (1,830)
Interest expense4,430 4,068 
Income (loss) before provision (benefit) for income taxes1,123 (5,898)
Provision (benefit) for income taxes119 (920)
Net income (loss)1,004 (4,978)
Less: net income attributable to noncontrolling interests, net of taxes9 8 
Net income (loss) attributable to Mistras Group, Inc.$995 $(4,986)
Earnings (loss) per common share  
Basic$0.03 $(0.17)
Diluted$0.03 $(0.17)
Weighted-average common shares outstanding:  
Basic30,680 30,021 
Diluted31,356 30,021 
 
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

2

Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
 
 Three months ended March 31,
 20242023
Net income (loss)$1,004 $(4,978)
Other comprehensive loss:  
Foreign currency translation adjustments$(4,229)$1,273 
Comprehensive Loss(3,225)(3,705)
Less: net income attributable to noncontrolling interest9 8 
Comprehensive loss attributable to Mistras Group, Inc.$(3,234)$(3,713)
 
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

3

Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Equity
(in thousands)
Three months ended
Common StockAdditional
paid-in capital
Accumulated
deficit
Accumulated
other
comprehensive loss
Total
Mistras Group,
Inc.
Stockholders’ Equity
Noncontrolling Interest 
SharesAmountTotal Equity
Balance at December 31, 202330,598 $305 $247,165 $(28,942)$(28,336)$190,192 $311 $190,503 
Net income— — — 995 995 9 1,004 
Other comprehensive loss, net of tax— — — — (4,229)(4,229)— (4,229)
Share-based payments— — 1,228 — — 1,228 — 1,228 
Net settlement of restricted stock units313 23 (1,064)— — (1,041)— (1,041)
Balance at March 31, 202430,911 $328 $247,329 $(27,947)$(32,565)$187,145 $320 $187,465 
Balance at December 31, 202229,895 $298 $243,031 $(11,489)$(33,390)$198,450 $299 $198,749 
Net loss— — — (4,986)— (4,986)8 (4,978)
Other comprehensive income, net of tax— — — — 1,273 1,273 — 1,273 
Share-based payments— — 1,877 — — 1,877 — 1,877 
Net settlement of restricted stock units335 4 (777)— — (773)— (773)
Balance at March 31, 202330,230 $302 $244,131 $(16,475)$(32,117)$195,841 $307 $196,148 




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

4

Mistras Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(In Thousands)
 Three months ended March 31,
 20242023
Cash flows from operating activities  
Net income (loss)$1,004 $(4,978)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities  
Depreciation and amortization8,381 8,413 
Deferred income taxes(144)1,801 
Share-based compensation expense1,228 1,877 
Bad debt provision for troubled customers, net of recoveries227 (30)
Foreign currency (gain) loss(561)219 
Other15 (315)
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions 
Accounts receivable(8,696)3,777 
Inventories(23)(1,137)
Prepaid expenses and other assets(6,593)(4,234)
Accounts payable(1,219)992 
Accrued expenses and other liabilities6,905 (766)
Income taxes payable80 (248)
Payment of contingent consideration liability in excess of acquisition-date fair value (938)
Net cash provided by operating activities604 4,433 
Cash flows from investing activities  
Purchase of property, plant and equipment(4,804)(4,332)
Purchase of intangible assets(1,117)(361)
Proceeds from sale of equipment273 233 
Net cash used in investing activities(5,648)(4,460)
Cash flows from financing activities  
Repayment of finance lease obligations(1,409)(1,174)
Repayment of long-term debt(1,907)(1,904)
Proceeds from revolver15,000 27,000 
Repayment of revolver(5,000)(27,100)
Taxes paid related to net share settlement of share-based awards(1,557)(773)
Net cash provided by (used in) financing activities5,127 (3,951)
Effect of exchange rate changes on cash and cash equivalents(874)207 
Net change in cash and cash equivalents(791)(3,771)
Cash and cash equivalents at beginning of period17,646 20,488 
Cash and cash equivalents at end of period$16,855 $16,717 
Supplemental disclosure of cash paid  
Interest, net$4,029 $5,112 
Income taxes, net of refunds$756 $1,949 
Noncash investing and financing  
Equipment acquired through finance lease obligations$1,165 $2,800 
.

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
5

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. Our segments are as follows:

North America. 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

Overall, the Company has taken actions to help ensure the health and safety of Company employees and those of its customers and suppliers; maintain business continuity and financial strength and stability; and serve customers as they provide essential products and services to the world.

The Russian-Ukrainian war and the conflict in the Middle East between Israel and Hamas 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.

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.
6

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

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 presentation of the results for the interim periods of the years ending December 31, 2024 and December 31, 2023.

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 2023 Annual Report on Form 10-K ("2023 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 2023 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 2023 Annual Report, there have been no material changes to the Company's significant accounting policies.

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 carry forwards, or NOLs. A valuation allowance is provided if it is more likely than not that some or all 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 March 31, 2024, 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 10.6% and 15.6% for the three months ended March 31, 2024 and 2023, respectively. The effective income tax rate benefit for the three months ended March 31, 2024 was lower than the statutory rate primarily due to the impact of a favorable discrete item related to stock compensation.
7

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

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280) to expand the disclosures about a public entity's reportable segments and address requests from investors for additional, more detailed information about a reportable segment's expenses. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We are currently evaluating the impact of ASU 2023-07 on our financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) to enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid disclosures. The new standard is effective for fiscal years beginning after December 15, 2024. We are currently evaluating the impact of ASU 2023-09 on our financial statements.
8

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

9

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 March 31, 2024North AmericaInternationalProducts & SystemsCorp/ElimTotal
Oil & Gas$103,027 $10,066 $72 $ $113,165 
Aerospace & Defense15,375 6,732 11  22,118 
Industrials 8,909 5,853 437  15,199 
Power generation & Transmission3,592 1,682 578  5,852 
Other Process Industries7,928 3,933 39  11,900 
Infrastructure, Research & Engineering3,972 2,205 409  6,586 
Petrochemical3,813 531   4,344 
Other3,733 2,045 1,664 (2,164)5,278 
Total$150,349 $33,047 $3,210 $(2,164)$184,442 

Three Months Ended March 31, 2023North AmericaInternationalProducts & SystemsCorp/ElimTotal
Oil & Gas$89,773 $8,855 $37 $ $98,665 
Aerospace & Defense13,611 4,980 11  18,602 
Industrials 9,302 6,053 558  15,913 
Power generation & Transmission4,987 1,657 1,326  7,970 
Other Process Industries9,109 3,237 27  12,373 
Infrastructure, Research & Engineering2,483 2,136 1,142  5,761 
Petrochemical5,137 145   5,282 
Other2,530 2,344 638 (2,062)3,450 
Total$136,932 $29,407 $3,739 $(2,062)$168,016 
Revenue per key geographic location was as follows:
Three Months Ended March 31, 2024North AmericaInternationalProducts & SystemsCorp/ElimTotal
United States$129,458 $296 $1,600 $(1,515)$129,839 
Other Americas17,127 2,295 177 (238)19,361 
Europe1,153 28,663 651 (346)30,121 
Asia-Pacific2,611 1,793 782 (65)5,121 
Total$150,349 $33,047 $3,210 $(2,164)$184,442 

Three Months Ended March 31, 2023North AmericaInternationalProducts & SystemsCorp/ElimTotal
United States$120,600 $309 $1,801 $(598)$122,112 
Other Americas14,270 3,489 326 (432)17,653 
Europe1,412 24,183 261 (826)25,030 
Asia-Pacific650 1,426 1,351 (206)3,221 
Total$136,932 $29,407 $3,739 $(2,062)$168,016 

10

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 three months ended March 31, 2024 and 2023 that was included in the contract liability balance at the beginning of such year was $2.9 million and $3.1 million 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 a practical expedient to expense incremental costs incurred related to obtaining a contract. The Company applies the practical expedient to expense incremental costs incurred related to obtaining a contract when the amortization period of the asset that the Company otherwise would have recognized is one year or less.

11

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
3.    Share-Based Compensation
 
The Company grants share-based incentive awards to its eligible employees and non-employee directors under its 2016 Long-Term Incentive Plan (the "2016 Plan"). 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-based 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 450,000 shares were available for future grants as of March 31, 2024.
 
Stock Options
 
On October 11, 2023, Mr. Stamatakis was granted an award of stock options to purchase 250,000 shares of common stock of the Company, with an exercise price of $5.36, the closing price of the Company's common stock as quoted on the New York Stock Exchange on the grant date (the "Options"). The Options were granted as an inducement for Mr. Stamatakis to accept the position of Interim President and CEO of the Company and were therefore granted outside the 2016 Plan, as permitted by the rules of the NYSE. The Options can be exercised any time after the grant date until its expiration date, which is the earlier of 10 years from the grant date or one year following the date Mr. Stamatakis is no longer serving as an officer, director or in any other capacity of the Company.

The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of March 31, 2024 as follows (in thousands, except per share amounts and years):

 Three months ended March 31,
 20242023
 Common
Stock
Options
Weighted
Average
Exercise
Price
Common Stock OptionsWeighted Average Exercise Price
Outstanding at beginning of year:250 $5.36  $ 
Granted $  $ 
Exercised $  $ 
Expired or forfeited $  $ 
Outstanding at end of year:250 $5.36  $ 

The Company recognized all share-based compensation expense related to the stock options granted in the fourth quarter of 2023 and no further unrecognized share-based compensation expense remains as of March 31, 2024.

Stock Issuances to Non-Employee Directors

As part of its compensation program for non-employee directors, the Company makes semi-annual issuances of fully-vested common stock to its non-employee directors. 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 (in thousands):

 Three months ended March 31,
 20242023
Awards issued31 48 
Grant date fair value of awards issued$274 $275 
 
12

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
Restricted Stock Unit Awards
 
For the three months ended March 31, 2024 and March 31, 2023, the Company recognized share-based compensation expense related to restricted stock unit awards of $1.0 million and $0.9 million, respectively. As of March 31, 2024, there was $11.2 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 3.0 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:
 Three months ended March 31,
 20242023
Restricted stock awards vested364 338 
Fair value of awards vested$3,261 $1,946 

A summary of the Company's outstanding, non-vested restricted share units is as follows:
 Three months ended March 31,
 20242023
 UnitsWeighted
Average
Grant-Date
Fair Value
UnitsWeighted
Average
Grant-Date
Fair Value
Outstanding at beginning of period:1,184 $8.07 1,415 $6.66 
Granted598 $8.52 542 $8.50 
Released(364)$8.95 (338)$5.76 
Forfeited(10)$8.37 (22)$7.82 
Outstanding at end of period:1,408 $8.04 1,597 $7.44 

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 2023, the Compensation Committee utilized the following metrics for the Company's PRSUs awarded to its executive officers, and approved the new target awards for 2023. The three metrics are:
1.Free Cash Flow 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

For PRSUs awarded in 2024, the Compensation Committee utilized the same metrics as 2023 PRSUs, but with revised performance goals.

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. PRSUs generally vest ratably on each of the first four anniversary dates upon completion of the performance period, for a total requisite service period of up to five years, and have no dividend rights.
13

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 Company's PRSU activity is as follows:
 Three months ended March 31,
20242023
 UnitsWeighted
Average
Grant-Date
Fair Value
UnitsWeighted
Average
Grant-Date
Fair Value
Outstanding at beginning of period:60 $9.33 280 $9.96 
Granted249 $8.76 282 $8.50 
Performance condition adjustments $ (32)$6.55 
Released $ (64)$5.58 
Forfeited $ (84)$6.95 
Outstanding at end of period:309 $9.00 382 $9.12 

During the three months ended March 31, 2023, the Compensation Committee approved the final calculation of the award metrics for calendar year 2022. Therefore, the calendar year 2022 PRSUs decreased by approximately 32,000 units as a result of the final calculation of award metrics.

For the three months ended March 31, 2024 and March 31, 2023, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $0.1 million and $0.7 million, respectively. At March 31, 2024, there was $2.4 million of total unrecognized compensation costs related to approximately 309,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of 3.0 years.

4.    Earnings (loss) per Share
 
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) 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) 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.
 
14

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
The following table sets forth the computations of basic and diluted earnings (loss) per share:
 
 Three months ended March 31,
 20242023
Basic earnings (loss) per share  
Numerator:  
Net income (loss) attributable to Mistras Group, Inc.$995 $(4,986)
Denominator:  
Weighted average common shares outstanding30,680 30,021 
Basic earnings (loss) per share$0.03 $(0.17)
Diluted earnings (loss) per share:  
Numerator:  
Net income (loss) attributable to Mistras Group, Inc.$995 $(4,986)
Denominator:  
Weighted average common shares outstanding30,680 30,021 
Dilutive effect of stock options outstanding250  
Dilutive effect of restricted stock units outstanding (1)
426  
31,356 30,021 
Diluted earnings (loss) per share$0.03 $(0.17)
_______________
(1) For the three months ended March 31, 2023, 1,513,000 shares, related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the period.


5.    Acquisitions

Acquisition-Related Expense 
 
In the course of its acquisition activities, the Company incurs costs in connection with due diligence, such as professional fees, and other expenses. Additionally, the Company adjusts the fair value of acquisition-related contingent consideration liabilities on a quarterly basis. These amounts are reported as Acquisition-related expense, net on the Unaudited Condensed Consolidated Statements of Income (Loss) and were as follows for the three months ended March 31, 2024 and 2023:
Three months ended March 31,
 20242023
Due diligence, professional fees and other transaction costs$1 $3 
Adjustments to fair value of contingent consideration liabilities  
Acquisition-related expense, net$1 $3 

The Company's contingent consideration liabilities are included in Accrued expenses and other current liabilities and Other long-term liabilities on the Condensed Consolidated Balance Sheets.


6.    Accounts Receivable, net
 
Accounts receivable consisted of the following:
15

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
 
16

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
 March 31, 2024December 31, 2023
Trade accounts receivable$142,245 $134,495 
Allowance for credit losses(1,841)(1,648)
Accounts receivable, net$140,404 $132,847 
 
The Company had $36.5 million and $18.5 million of unbilled revenue accrued as of March 31, 2024 and December 31, 2023, respectively. These amounts are included in the trade accounts receivable balances above. Unbilled revenue is generally billed in the subsequent quarter to their revenue recognition. The Company considers unbilled receivables as short-term in nature as they are normally converted to trade receivables within 90 days, thus future changes in economic conditions will not have a significant effect on the credit loss estimate.

7.    Inventories

Inventories consist of the following (in thousands):
 March 31, 2024December 31, 2023
Raw materials$5,974 $6,099 
Work in progress1,003 839 
Finished goods5,495 5,740 
Consumable supplies2,607 2,605 
Inventories$15,079 $15,283 
 
8.    Property, Plant and Equipment, net
 
Property, plant and equipment consisted of the following:
 
Useful Life
(Years)
March 31, 2024December 31, 2023
Land $2,444 $2,453 
Buildings and improvements
30-40
26,728 26,663 
Office furniture and equipment
5-8
21,424 21,334 
Machinery and equipment
5-7
270,788 269,306 
  321,384 319,756 
Accumulated depreciation and amortization (241,682)(238,784)
Property, plant and equipment, net $79,702 $80,972 
 
Depreciation expense for the three months ended March 31, 2024 and 2023 was approximately $6.5 million and $6.3 million, respectively.

17

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
9.    Goodwill
 
Changes in the carrying amount of goodwill by segment is shown below:
 North AmericaInternationalProducts and SystemsTotal
Balance at December 31, 2023$187,354 $ $ $187,354 
Foreign currency translation(1,628)  (1,628)
Balance at March 31, 2024$185,726 $ $ $185,726 
 
The Company reviews goodwill for impairment on a reporting unit basis on October 1 of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

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 impacting the International reporting units' operations. As a result, the Company performed an interim quantitative goodwill impairment test.

In performing the interim quantitative goodwill impairment test and consistent with prior practice, the Company determined the fair value of each of the reporting units using a combination of the income approach and the market approach by assessing each of these valuation methodologies based upon availability and relevance of comparable Company data and determining the appropriate weighting.

Under the income approach, the fair value for each of the reporting units was determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The Company used internal forecasts, updated for recent events, to estimate future cash flows using a terminal value calculation, which incorporates historical and forecasted trends, including an estimate of long-term future growth rates, based on the Company’s most recent views of the long-term outlook for each reporting unit. The Company's internal forecasts include assumptions about future profitability, including the expected demand for the Company’s goods and services. Due to the inherent uncertainties involved in making estimates and assumptions, actual results may differ from those assumed in the forecasts. The Company derived the discount rates using a capital asset pricing model and analyzing published rates for industries relevant to the reporting units to estimate the cost of equity financing. The Company used discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and in the Company's internally developed forecasts and which are updated for recent events. Increased interest rates in the current period increased the discount rate associated with the reporting units which contributed to an unfavorable decrease in the reporting units value.

The market approach valuation was derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses was based on the markets in which the reporting units operate, considering risk profiles, size, geography, and diversity of products and services.

Based upon the results of the interim quantitative goodwill impairment test, the Company recorded an impairment charge of $13.8 million within the International reporting units. The impairment was calculated based on the difference between the estimated fair value and the carrying value of the reporting units. Any significant adverse changes in future periods to the Company’s internal forecasts or the external market conditions, if any, could reasonably be expected to negatively affect its key assumptions and may result in future goodwill impairment charges which could be material.

The Company performed a quantitative annual impairment test as of October 1, 2023 and the Company did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable. Additionally, through March 31, 2024, the Company did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable. Significant adverse changes in future periods could negatively affect the Company's key assumptions and may result in future goodwill impairment charges which could be material.

18

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
10.    Intangible Assets
 
The gross amount, accumulated amortization and net carrying amount of intangible assets were as follows:
 
  March 31, 2024December 31, 2023
 Useful Life
(Years)
Gross
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Amount
Accumulated
Amortization
Net
Carrying
Amount
Customer relationships
5-18
$109,413 $(90,463)$18,950 $110,780 $(90,506)$20,274 
Software/Technology
3-15
55,541 (32,690)22,851 55,053 (32,230)22,823 
Covenants not to compete
2-5
12,494 (12,455)39 12,536 (12,488)48 
Other
2-12
10,367 (9,547)820 10,466 (9,617)849 
Total $187,815 $(145,155)$42,660 $188,835 $(144,841)$43,994 
 
Amortization expense for the three months ended March 31, 2024 and 2023 was approximately $1.9 million and $2.1 million, respectively.

11.    Accrued Expenses and Other Current Liabilities
 
Accrued expenses and other current liabilities consisted of the following:
 
 March 31, 2024December 31, 2023
Accrued salaries, wages and related employee benefits$28,373 $27,372 
Accrued workers’ compensation and health benefits3,590 4,385 
Deferred revenue9,244 7,136 
Pension accrual2,458 2,458 
Right-of-use liability - Operating10,743 10,686 
Other accrued expenses30,067 32,294 
Total$84,475 $84,331 
 
12.    Long-Term Debt
 
Long-term debt consisted of the following:
 March 31, 2024December 31, 2023
Senior credit facility$80,368 $71,150 
Senior secured term loan, net of unamortized debt issuance costs of $0.3 million and $0.4 million, respectively
114,499 115,253 
Other3,559 3,996 
Total debt198,426 190,399 
Less: Current portion(9,464)(8,900)
Long-term debt, net of current portion$188,962 $181,499 
 
Senior Credit Facility

19

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
On August 1, 2022, the Company entered into a new credit agreement (the “Credit Agreement”), which provides the Company with a $190 million 5-year committed revolving credit facility and a $125 million term loan with a balance of $116 million as of March 31, 2024. The Credit Agreement permits the Company to borrow up to $100 million in non-US dollar currencies and to use up to $20 million of the credit limit for the issuance of letters of credit. Both the revolving line of credit and the term loan under the Credit Agreement have a maturity date of July 30, 2027.

The Credit Agreement has the following key terms, conditions and financial covenants:

Borrowings bear interest at Secured Overnight Financing Rate ("SOFR") plus a credit spread adjustment and applicable SOFR margin ranging from 1.25% to 2.75%, based upon our Total Consolidated Debt Leverage Ratio (defined below).
Total Consolidated Debt Leverage Ratio means the ratio of (a) Total Consolidated Debt to (b) EBITDA (as defined in the Credit Agreement) for the trailing four consecutive fiscal quarters.
Total Consolidated Debt means all indebtedness (including subordinated debt) of the Company on a consolidated basis.

The Company has the benefit of the lowest SOFR margin if its Total Consolidated Debt Leverage Ratio is equal to or less than 1.25 to 1.0, and the margin increases as the ratio increases, to the maximum margin if the ratio is greater than 3.75 to 1.0. The Credit Agreement is secured by liens on substantially all the assets of the Company and certain of its U.S subsidiaries and is guaranteed by those U.S subsidiaries.

The Company has to maintain a Total Consolidated Debt Leverage Ratio of no more than 4.0 to 1.0 at the end of each quarter through June 30, 2023 and stepping down to a maximum permitted ratio of no more than 3.75 to 1.0 for the remainder of the term.

As of December 31, 2023, the Fixed Charge Coverage Ratio was modified from a ratio of 1.25 to 1.0 to a ratio of 1.1 to 1.0 for the fiscal quarters ended December 31, 2023 and March 31, 2024. For the period ending June 30, 2024 to maturity, the Fixed Charge Coverage Ratio is 1.25 to 1.

The Credit Agreement 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, make distributions to stockholders or repurchase our stock, 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 the Company must provide written notice at least five business days prior to the date of an acquisition of $10 million or more.

Quarterly payments on the term loan of $1.56 million through June 30, 2024, then increasing to $2.34 million through June 30, 2025, and to $3.12 million for each quarterly payment thereafter through maturity.

As of March 31, 2024, the Company had borrowings of $194.9 million and a total of $2.9 million of letters of credit outstanding under the Credit Agreement. The Company has capitalized costs associated with debt modifications of $1.2 million as of March 31, 2024, which is included in Other Assets on the Condensed Consolidated Balance Sheets and will be amortized into interest expense over the remaining term of the Credit Agreement through July 30, 2027.

As of March 31, 2024, the Company was in compliance with the terms and covenants of the Credit Agreement. The Company continuously monitors compliance with the covenants contained in the Credit Agreement. The Company believes that it is probable that the Company will be able to comply with the financial covenants in the Credit Agreement and that sufficient credit remains available under the Credit Agreement to meet the Company's liquidity needs. However, such matters cannot be predicted with certainty.
 
Other debt

20

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
The Company's other debt includes bank financing provided at the local subsidiary level used to support working capital requirements and fund capital expenditures. At March 31, 2024, there was an aggregate of approximately $3.6 million outstanding, payable at various times through 2030. Monthly payments range from $0.7 thousand to $16.0 thousand and interest rates range from 0.4% to 3.5%.

13.    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.

Financial instruments measured at fair value on a recurring basis

The fair value of contingent consideration liabilities 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.

The following table represents the changes in the fair value of Level 3 contingent consideration:
 
 Three months ended March 31,
20242023
Beginning balance$ $938 
Payments (938)
Revaluation  
Ending balance$ $ 
 
Financial instruments not measured at fair value on a recurring basis
 
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 finance lease obligations approximates their carrying amounts based on anticipated interest rates which management believes would currently be available to the Company for similar issuances of debt.
 
14.    Commitments and Contingencies
 
Legal Proceedings and Government Investigations
 
The Company is periodically involved in lawsuits, investigations and claims that arise in the ordinary course of business. While 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 or threatened legal proceeding to which the Company is or is likely to become a party will have a material adverse effect on its business, results of operations, cash flows or financial condition. The costs incurred by the Company to defend lawsuits, investigations and claims and amounts the Company pays to other parties because of these matters may be covered by insurance in some circumstances.

21

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share data)
Litigation and Commercial Claims
 
A subsidiary of the Company, Mistras Arizona Inspection Services LLC (“Mistras Arizona”) is subject to a lawsuit filed by the Arizona Department of Environmental Quality (“DEQ”), which has been filed against the Company, captioned State of Arizona v. Mistras Group, Inc. and Naiman Phoenix, Ltd., filed on February 27, 2024, in the Superior Court of the State of Arizona for Maricopa County, CV 2024-003866. The Complaint alleges various violations of the Arizona environmental laws and regulations in connection with the operation of the Mistras Arizona testing facility in Phoenix, Arizona. The complaint seeks injunctive relief, the closing of a chromic acid plating line and air scrubber, implementation of a site assessment plan approved by the DEQ, corrective and remedial action to bring the facility in compliance, and costs and penalties. Mistras Arizona and the Company have also received notice of violations from the DEQ for the violations of Arizona environmental laws and regulations and from the Maricopa County Department of Air Quality for violation of various regulations regarding air quality. This matter is in the early stages and the Company is unable to assess the amount of liability the Company or Mistras Arizona may incur.

Pension Related Contingencies

Certain of the Company’s subsidiaries had significant reductions in their unionized workers in 2018. The collective bargaining agreements for the employees of these subsidiaries required contributions for these employees to two national multi-employer pension funds. The reduction in employees resulted in one of the Company's subsidiaries incurring a complete withdrawal to one of the pension funds under the Employee Retirement Income Security Act of 1974 ("ERISA"), which was fully satisfied in 2019. The Company has determined that the subsidiary is likely to incur partial or complete withdrawal liability to the other pension fund. The balance of the estimated total amount of this potential liability as of March 31, 2024 is approximately $2.5 million, which were incurred in 2018 and 2019.

15.    Segment Disclosure
 
The Company's three operating segments are:
 
North America. 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.
 
Costs incurred for general corporate services, including finance, legal, and certain other costs 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 North America and International segments by the Products and Systems segment are reflected in the operating performance of each segment.

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 one of the primary performance measures used by the chief operating decision maker, to assess the performance of each segment and make resource allocation decisions. Certain general and administrative costs such as human resources, information technology and training are allocated to the segments. Segment income from operations 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.
22

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

Selected consolidated financial information by segment for the periods shown was as follows: (with intercompany transactions eliminated in Corporate and eliminations)
 
 Three months ended March 31,
 20242023
Revenue  
North America$150,349 $136,932 
International33,047 29,407 
Products and Systems3,210 3,739 
Corporate and eliminations(2,164)(2,062)
 $184,442 $168,016 
 
 Three months ended March 31,
 20242023
Gross profit  
North America$39,991 $36,637 
International9,459 7,367 
Products and Systems1,613 2,063 
Corporate and eliminations27 10 
 $51,090 $46,077 

Income (loss) from operations by operating segment includes intercompany transactions, which are eliminated in Corporate and eliminations.
 Three months ended March 31,
 20242023
Income (loss) from operations  
North America$13,561 $9,378 
International1,124 (568)
Products and Systems314 384 
Corporate and eliminations(9,446)(11,024)
 $5,553 $(1,830)
  
 Three months ended March 31,
 20242023
Depreciation and amortization  
North America$6,218 $6,357 
International1,913 1,859 
Products and Systems164 256 
Corporate and eliminations86 (59)
 $8,381 $8,413 
23

Mistras Group, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
(tabular dollars are in thousands)

 
 March 31, 2024December 31, 2023
Intangible assets, net  
North America$35,803 $37,622 
International2,537 2,998 
Products and Systems1,089 1,168 
Corporate and eliminations3,231 2,206 
 $42,660 $43,994 
 
 March 31, 2024December 31, 2023
Total assets  
North America$411,853 $402,782 
International99,518 99,398 
Products and Systems12,859 13,259 
Corporate and eliminations17,897 19,337 
 $542,127 $534,776 
 
Refer to Note 2 - Revenue, for revenue by geographic area for the three months ended March 31, 2024 and 2023.
 

24

Mistras Group, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
(tabular dollars are in thousands)

ITEM 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following Management’s Discussion and Analysis (“MD&A”) provides a discussion of our results of operations and financial position for the three months ended March 31, 2024 and 2023. The MD&A should be read together with our Unaudited Condensed Consolidated Financial Statements and related notes included in Item 1 in this Quarterly Report on Form 10-Q (the "Quarterly Report") and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Annual Report”). 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 the following sections:
 
Forward-Looking Statements
Overview
Note about Non-GAAP Measures
Consolidated Results of Operations
Liquidity and Capital Resources
Critical Accounting Policies and Estimates

Forward-Looking Statements
 
This Quarterly Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, 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, various risks, uncertainties or other factors known and unknown. 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 2023 Annual Report as well as those discussed in this Quarterly Report and in our other filings with the SEC. In addition, there are various developments discussed below which could create risks and uncertainty about our business, results of operations or liquidity.


Overview
 
We are 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.

25

Mistras Group, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
(tabular dollars are in thousands)

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

Our operations consist of three reportable segments: North America, International, and Products and Systems.
North America 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 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 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 designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States.

Given the role our solutions play in enhancing the safe and efficient operation of infrastructure, we have historically provided a majority of our solutions to our customers on a regular, recurring basis. We perform these services largely at our customers’ facilities, while primarily servicing our aerospace customers at our network of state-of-the-art, in-house laboratories. These solutions typically include NDT and inspection services, and can also include a wide range of mechanical services, including heat tracing, pre-inspection insulation stripping, coating applications, re-insulation, engineering assessments and long-term condition-monitoring. Under this business model, many customers outsource their inspection to us on a “run and maintain” basis. We have established long-term relationships as a critical solutions provider to many of the leading companies with asset-intensive infrastructure in our target markets. These markets include companies 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.

We have focused on providing 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. We have made numerous acquisitions in an effort to grow our base of experienced, certified personnel, expand our service lines and technical capabilities, increase our geographical reach, complement our existing offerings, and leverage our fixed costs. 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 service lines, technologies, resources and customers which we believe will enhance our advantages over our competition.

We believe long-term growth can be realized in our target markets. Our level of business and financial results are impacted by world-wide macro- and micro-economic conditions generally, as well as those within our target markets. Among other things, we expect the timing of our oil and gas customers inspection spend to be impacted by oil price fluctuations.

We have continued providing our customers with an innovative asset protection software ecosystem through our MISTRAS OneSuite platform. The software platform offers functions of MISTRAS' popular software and services brands as integrated apps on a cloud environment. OneSuite serves as a single access portal for customers' data activities and provides access to 90 plus applications being offered on one centralized platform.

Recent Developments

The Russian-Ukrainian war and the conflict in the Middle East between Israel and Hamas are creating disruptions in the oil and gas market and the supply chain in general, which is resulting in some disruption to our business operations primarily in Europe due to increased energy costs.

Our cash position and liquidity remains strong. As of March 31, 2024, the cash balance was approximately $16.9 million, and with our Credit Agreement, provides us with significant liquidity.

In April 2021, the Biden Administration announced aggressive initiatives to battle climate change, which includes a significant reduction in the use of fossil fuels and a transition to electric vehicles and increased use of alternative energy. Any legislation or
26

Mistras Group, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
(tabular dollars are in thousands)

regulations that may be adopted to implement these measures may negatively impact our customers in the oil and gas market over the long-term, which presently is our largest market, although this initiative will likely benefit the alternative energy market, such as wind energy, for which we provide products and services. At this time, it is difficult to determine the magnitude and timing of the impact that climate change initiatives and legislation, if any, will have on these markets and the resulting impact on our business and operational results.

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’s European operations are currently experiencing higher energy costs, among other increased costs, due in part to the Russian-Ukrainian war and the conflict in the Middle East between Israel and Hamas. The Company will continue to monitor market conditions and respond accordingly.

Note About Non-GAAP Measures
 
The Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP"). In this MD&A under the heading "Income (loss) from Operations", the non-GAAP financial performance measure "Income (loss) from operations before special items” is used for each of our three operating segments, the Corporate segment and the "Total Company", with tables reconciling the measure to a financial measure under GAAP. This presentation excludes from "Income (loss) from Operations" (a) transaction expenses related to acquisitions, such as professional fees and due diligence costs, (b) the net changes in the fair value of acquisition-related contingent consideration liabilities, (c) impairment charges, (d) reorganization and other costs, which includes items such as severance, labor relations matters and asset and lease termination costs and (e) other special items. These adjustments have been excluded from the GAAP measure because these expenses and credits are not related to our or any individual segment's core business operations. The acquisition related costs and special items can be a net expense or credit in any given period. Our management uses this non-GAAP measure as a measure of operating performance and liquidity 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. We believe investors and other users of our financial statements benefit from the presentation of this non-GAAP measure in evaluating our performance. Income (loss) before special items excludes the identified adjustments, which provides additional tools to compare our core business operating performance on a consistent basis and measure underlying trends and results in our business. Income (loss) before special items is not used to determine incentive compensation for executives or employees, nor is it a replacement for the reported GAAP financial performance and/or necessarily comparable to the non-GAAP financial measures of other companies. Any measure that eliminates the foregoing items has material limitations as a performance or liquidity measure and should not be considered alternatives to net income (loss) or any other measures derived in accordance with GAAP. Because Income (loss) from operations before special items may not be calculated in the same manner by all companies, this measure may not be comparable to other similarly titled measures used by other companies.

Results of Operations
 
Condensed consolidated results of operations for the three months ended March 31, 2024 and 2023 were as follows:
 Three months ended March 31,
 20242023
Revenues$184,442 $168,016 
Gross profit51,090 46,077 
Gross profit as a % of Revenue27.7 %27.4 %
Income (loss) from operations5,553 (1,830)
Income (loss) from Operations as a % of Revenue3.0 %(1.1)%
Income (loss) before benefit for income taxes1,123 (5,898)
Net Income (Loss)1,004 (4,978)
Net Income (Loss) attributable to Mistras Group, Inc.$995 $(4,986)
 
Revenue
 
27

Mistras Group, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
(tabular dollars are in thousands)

Revenue was $184.4 million for the three months ended March 31, 2024, an increase of $16.4 million, or 9.8%, compared with the three months ended March 31, 2023.

Revenue by segment for the three months ended March 31, 2024 and 2023 were as follows:
 Three months ended March 31,
 20242023
Revenue  
North America$150,349 $136,932 
International33,047 29,407 
Products and Systems3,210 3,739 
Corporate and eliminations(2,164)(2,062)
Total$184,442 $168,016 
 
Three Months

In the three months ended March 31, 2024, total revenue increased 9.8% versus the prior year comparable period due predominantly to a high single-digit organic increase. North America segment revenue increased 9.8%, driven predominantly by a high single-digit organic increase and increased turnarounds in the current year, minimally supported by low single-digit favorable impact of foreign exchange rates. International segment revenue increased 12.4%, due predominantly to low double-digit organic growth and low single-digit favorable impact of foreign exchange rates. Products and Systems segment revenue decreased by 14.1%, due to decreased sales volume and shipments as compared to the prior period.

Oil and gas customer revenue comprised approximately 61% and 59% of total revenue for the three months ended March 31, 2024 and 2023, respectively. Aerospace and defense customer revenue comprised approximately 12% and 11% of total revenue for the three months ended March 31, 2024 and 2023, respectively. The Company’s top ten customers comprised approximately 39% of total revenue for the three months ended March 31, 2024, as compared to 36% for the three months ended March 31, 2023, with no customer accounting for 10% or more of total revenue in either three-month period.

 Three months ended March 31,
 20242023
Oil and Gas Revenue by sub-category  
Upstream$41,767 $36,939 
Midstream21,392 21,231 
Downstream50,006 40,495 
Total$113,165 $98,665 

Oil and gas upstream customer revenue increased approximately $4.8 million, or 13%, due primarily to market share gains and increased exploration activity as compared to the prior period. Midstream customer revenues increased approximately $0.2 million, or 1%, due to decreased pipe inspection services performed as compared to the prior period. Downstream customer revenues increased $9.5 million or, 23%, primarily due to increased customer turnarounds in the current year that were delayed in the prior period.

28

Mistras Group, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
(tabular dollars are in thousands)

 Three months ended March 31,
 20242023
Revenue by type
  
Field Services$126,355 $109,680 
Shop Laboratories17,195 13,132 
Data Analytical Solutions15,539 16,812 
Other25,353 28,392 
Total$184,442 $168,016 

Field Services revenues are comprised of revenue derived primarily by technicians performing asset inspections and maintenance services for our customers at locations other than Mistras properties. Field Services revenue increased by $16.7 million as compared to the prior period primarily due to increases in sales volume in our oil and gas, industrials and infrastructure, research and engineering end markets within our North America segment and oil and gas end market within our International segment.

Shop Laboratory revenues are comprised of quality assurance inspections of components and materials at our Mistras in house laboratory facilities. Shop revenues increase by $4.1 million as compared to the prior period quarter due to increased sales volumes related to our aerospace and defense end market in our North America and International segments.

Data Analytical Solutions revenues are comprised of revenue derived from data software sales & subscriptions, implementation services and analytics which offer insights and generate value from asset protection. Data Analytical Solutions revenue is derived from work performed by Mistras employees in our facilities, or at customer locations. Data Analytical Solutions revenue decreased by $1.3 million as compared to the prior period due to decreased sales volume within PCMS and other Data Analytical Solutions offerings within our North America segment.

Other revenues are comprised of locations that perform both asset inspection services and testing of components and materials at in house Mistras laboratories. Other revenues decreased by $3.0 million as compared to the prior year primarily due to decreased sales within the defense sector within the North America segment offset by increased private space shop related activities during the quarter.

Gross Profit

Gross profit increased by $5.0 million, or 10.9%, in the three months ended March 31, 2024 versus the prior year comparable period, an increase in revenue of 9.8%.

Gross profit by segment for the three months ended March 31, 2024 and 2023 was as follows:
 
 Three months ended March 31,
 20242023
Gross profit  
North America$39,991 $36,637 
   % of segment revenue26.6 %26.8 %
International9,459 7,367 
   % of segment revenue28.6 %25.1 %
Products and Systems1,613 2,063 
   % of segment revenue50.2 %55.2 %
Corporate and eliminations27 10 
 $51,090 $46,077 
   % of total revenue27.7 %27.4 %

Three Months
29

Mistras Group, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
(tabular dollars are in thousands)


Gross profit margin was 27.7% and 27.4% for the three-month periods ended March 31, 2024 and 2023, respectively. North America segment realized a decrease of 0.2% in gross profit margin to 26.6% during the three months ended March 31, 2024 as compared to the prior period. This was primarily due to unfavorable sales mix in the period ended March 31, 2024 as compared to the prior period, and higher benefit claims expense in the current year period. International segment realized a 3.5% increase in gross profit margin to 28.6% during the three months ended March 31, 2024 due primarily to a better sales mix and decreased energy costs in the current period. Products and Systems segment gross margin had a decrease of 5.0% to 50.2% during the three months ended March 31, 2024 due to decreased sales volume as compared to the prior period.

Operating Expenses

Operating expenses for the three months ended March 31, 2024 and 2023 was as follows:

Three months ended March 31,
20242023
Operating Expenses
Selling, general and administrative expenses$41,189 $42,823 
Reorganization and other costs1,557 2,076 
Research and engineering343 480 
Depreciation and amortization2,447 2,525 
Acquisition-related expense, net

Three Months

Operating expenses decreased $2.4 million, or 4.9%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Selling, general and administrative expenses decreased $1.6 million during the three months ended March 31, 2024 compared to the three months ended March 31, 2023, due to cost reduction measures implemented in 2023 and favorable foreign exchange impact as compared to the prior period. Reorganization and other costs decreased by approximately $0.5 million as compared to the prior year due primarily to a decrease in severance costs during the period. Depreciation and amortization decreased $0.1 million during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

30

Mistras Group, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
(tabular dollars are in thousands)

Income (loss) from Operations

The following table shows a reconciliation of the income from operations to income (loss) from operations before special items for each of our three segments, Corporate and Elimination and for the Company in total:
Three months ended March 31,
20242023
North America:
Income from operations (GAAP)$13,561 $9,378 
Reorganization and other costs— 61 
Income from operations before special items (non-GAAP)$13,561 $9,439 
International:
Income (loss) from operations (GAAP)$1,124 $(568)
Reorganization and other costs102 107 
Income (loss) from operations before special items (non-GAAP)$1,226 $(461)
Products and Systems:
Income from operations (GAAP)$314 $384 
Reorganization and other costs— 
Income from operations before special items (non-GAAP)$316 $384 
Corporate and Eliminations:
Loss from operations (GAAP)$(9,446)$(11,024)
Reorganization and other costs1,453 1,908 
Acquisition-related expense, net
Loss from operations before special items (non-GAAP)$(7,992)$(9,113)
Total Company:
Income (loss) from operations (GAAP)$5,553 $(1,830)
Reorganization and other costs1,557 2,076 
Acquisition-related expense, net
Income from operations before special items (non-GAAP)$7,111 $249 

See section Note About Non-GAAP Measures in this report for an explanation of the use of non-GAAP measurements.
 
Three Months

For the three months ended March 31, 2024, income (loss) from operations (GAAP) increased $7.4 million or 403.4%, compared with the three months ended March 31, 2023, while the income from operations before special items (non-GAAP) improved by $6.9 million, or 2,755.8%. As a percentage of revenue, the income (loss) before special items improved by 380 basis points to 3.9% in the three months ended March 31, 2024 compared to 0.1% in the three months ended March 31, 2023.
 
Interest Expense
 
Interest expense was approximately $4.4 million and $4.1 million for the three months ended March 31, 2024 and 2023, respectively. The increase was a result of increased interest rates in the period.

Income Taxes

Our effective income tax rate was approximately 10.6% and 15.6% for the three months ended March 31, 2024 and 2023, respectively.

The effective income tax rate for the three months ended March 31, 2024 was lower than the statutory rate primarily due to the impact of favorable discrete items including stock compensation. The effective income tax rate for the three months ended
31

Mistras Group, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
(tabular dollars are in thousands)

March 31, 2023 was lower than the statutory rate primarily due to the impact of an favorable discrete item related to stock compensation.

Income tax expense varies as a function of pre-tax income and the level of non-deductible expenses, such as certain amounts of meals and entertainment expense, valuation allowances, and other permanent differences. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. Our effective income tax rate may fluctuate over the next few years due to many variables including the amount and future geographic distribution of our pre-tax income, changes resulting from our acquisition strategy, and increases or decreases in our permanent differences.


Liquidity and Capital Resources
 
Cash flows are summarized in the table below:
 
Three months ended March 31,
 20242023
Net cash provided by (used in):  
Operating activities$604 $4,433 
Investing activities(5,648)(4,460)
Financing activities5,127 (3,951)
Effect of exchange rate changes on cash(874)207 
Net change in cash and cash equivalents$(791)$(3,771)
 
Cash Flows from Operating Activities
 
During the three months ended March 31, 2024, cash provided by operating activities was $0.6 million, representing a year-on-year decrease of $3.8 million, or 86%. The decrease was primarily attributable to a decrease in days sales outstanding and movements in working capital, as compared to the prior year quarter.

Cash Flows from Investing Activities
 
During the three months ended March 31, 2024 and 2023, cash used in investing activities was $5.6 million, primarily attributable to increased expenditures for vehicles leased related to customer projects and additional capital expenditures as compared to the prior period.

Cash Flows from Financing Activities

Net cash provided by financing activities was $5.1 million for the three months ended March 31, 2024, compared to net cash used in financing activities of $4.0 million for the three months ended March 31, 2023. During the three months ended March 31, 2024, net borrowings of debt were approximately $10.1 million higher as compared to 2023 resulting in debt borrowings during the period. In addition, $0.8 million more taxes were paid related to net share settlement of share-based awards during the three months ended March 31, 2024.

Effect of Exchange Rate Changes on Cash and Cash Equivalents
 
The effect of exchange rate changes on our cash and cash equivalents was a decrease of $0.9 million in the three months ended March 31, 2024, compared to an increase of $0.2 million for the three months ended March 31, 2023.

Cash Balance and Credit Facility Borrowings
 
As of March 31, 2024, we had cash and cash equivalents totaling $16.9 million and $104.0 million of unused commitments under our Credit Agreement with borrowings of $194.9 million and $2.9 million of letters of credit outstanding. We finance 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.
 
32

As of March 31, 2024, we were in compliance with the terms of the Credit Agreement and will continuously monitor our compliance with the covenants contained in the Credit Agreement.

The terms of our Credit Agreement are described in Note 12 - Long-Term Debt of the Notes to the Unaudited Condensed Consolidated Financial Statements, under the heading "Senior Credit Facility".

Contractual Obligations

There have been no significant changes in our contractual obligations and outstanding indebtedness as disclosed in the 2023 Annual Report.

Off-balance Sheet Arrangements
 
During the three months ended March 31, 2024, 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.
 
33

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 2023 Annual Report.
 
ITEM 3.    Quantitative and Qualitative Disclosures about Market Risk
 
There have been no significant changes to our quantitative and qualitative disclosures about market risk as discussed in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” included in the 2023 Annual Report.
 
ITEM 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer, of the effectiveness of the design and operation of our disclosure controls (as defined in Rule 13a-15(e) of the Exchange Act) and procedures. Based upon that evaluation, our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer concluded that, as of March 31, 2024, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


34

PART II—OTHER INFORMATION
 
ITEM 1.    Legal Proceedings
 
See Note 14 - Commitments and Contingencies to the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report for a description of our legal proceedings. There have been no material legal proceedings and no material developments with regard to any matters disclosed under Part I, Item 3 "Legal Proceedings" in our 2023 Annual Report, except as disclosed herein under Note 14 - Commitments and Contingencies to the Notes to the Unaudited Condensed Consolidated Financial Statements.
 
ITEM 1.A.    Risk Factors
 
In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors discussed under the “Risk Factors” section included in our 2023 Annual Report. There have been no material changes to the risk factors previously disclosed in the 2023 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 as a result of the surrender of shares by employees to satisfy tax withholding obligations in connection with the vesting of restricted stock units.
 
Month EndingTotal Number of Shares (or
Units) Purchased
Average Price Paid per
Share (or Unit)
January 31, 2024— $— 
February 29, 2024— $— 
March 31, 2024279,231 $8.95 


ITEM 3.    Defaults Upon Senior Securities
 
None.
 
ITEM 4.    Mine Safety Disclosures
 
Not applicable.
 
ITEM 5.    Other Information
 
Rule 10b5-1 Trading Plans
During the three months ended March 31, 2024, none of the Company's directors or officers, as defined in Section 16 of the Securities Exchange Act of 1934, adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K of the Securities Exchange Act of 1934.

During the three months ended March 31, 2024, the Company did not adopt, terminate or modify a Rule 10b5-1 trading arrangement.
 
35

ITEM 6.    Exhibits
 
Exhibit No. Description
 
  
 
 
   
101.INS Inline XBRL Instance Document
   
101.SCH Inline XBRL Schema Document
   
101.CAL Inline XBRL Calculation Linkbase Document
   
101.LAB Inline XBRL Labels Linkbase Document
   
101.PRE Inline XBRL Presentation Linkbase Document
   
101.DEF Inline XBRL Definition Linkbase Document

Exhibit 10.2 is a management agreement and compensation plan.



36

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/ Edward J. Prajzner
  Edward J. Prajzner
  Senior Executive Vice President and Chief Financial Officer
  (Principal Financial and Accounting Officer and duly authorized officer)
 
Date: May 3, 2024