Mistras Group Announces Results for Period Ended December 31, 2016

PRINCETON JUNCTION, N.J., March 16, 2017 (GLOBE NEWSWIRE) — Mistras Group, Inc. (NYSE:MG), a leading “one source” global provider of technology-enabled asset protection solutions, reported financial results for its abbreviated fiscal period (the “2016 stub period”) which commenced on June 1, 2016 and ended December 31, 2016.  The 2016 stub period is a result of the Company’s previously announced change in its fiscal year to December 31 in order to better align the Company’s budgeting and planning cycles with those of its customers.

Revenues for the 2016 stub period were $404.2 million, or 6% lower than in the comparable period of 2015.  Net income during the 2016 stub period was $9.6 million or $0.32 per diluted share, both measures reflecting declines of approximately 50% compared with the comparable period of 2015. Included in the 2016 stub period were pre-tax charges aggregating approximately $5 million, primarily associated with the acceleration of certain costs to align with the Company’s new December 31 fiscal year-end, and other charges which included severance and the write-off of an intangible asset.

The Company generated $30.3 million of cash from operating activities during the 2016 stub period and approximately $20 million in free cash flow, defined as cash flow from operating activities less cash used to purchase property, plant and equipment and intangible assets. The Company utilized its free cash flow during the 2016 stub period for acquisitions ($8.3 million) and to repurchase $9 million of stock. The Company’s net debt (total debt less cash) of $84.3 million at December 31, 2016 was approximately 1.1x Adjusted EBITDA.

Adjusted EBITDA for the 2016 stub period was $43 million, or 10.6% of revenues, compared with $58 million in the comparable period of the prior year. The decline of $15 million was almost entirely driven by the Company’s Services segment, which experienced a weaker than expected fall 2016 turnaround season.

Dr. Sotirios Vahaviolos, Chairman and Chief Executive Officer stated, “As mentioned in our recent earnings calls, the fall 2016 season was an especially challenging market in North America, as workloads from many customers were less than in prior year. These conditions caused results in our Services segment to suffer a poor comparison to prior year that more than offset continued positive performance in our International segment. Having realized strong improvements in our fiscal year that ended May 31, 2016, the fall off that we experienced in the second half of calendar 2016 was very disappointing.”

Dr. Vahaviolos added: “Unfortunately, the market has not yet rebounded in the spring of 2017. We are using this time to make further adjustments to our cost structure, and to enhance our competitive position by adding capabilities that will help our customers in new and exciting ways. We will use 2017 to position Mistras to drive incrementally more value for our customers, and to make investments that will reignite our profitable growth in 2018 and beyond. “

Planning Assumptions and Guidance for 2017

The Company is introducing its planning assumptions and guidance for fiscal year 2017 that commenced on January 1, 2017. The Company expects that the present range for petroleum prices will persist for the foreseeable future, causing oil and gas customer spend for inspection services to be correspondingly flat to down.

Information obtained from North American oil and gas customers suggests that their spending in the first half of calendar 2017 will continue to trend lower than prior year, albeit at a lower rate of decline than in the fall of 2016. Spending levels are expected to pick up modestly in the second half of 2017. The Company’s results for the first half and second half of 2017 are expected to reflect this dynamic.

Total revenues for 2017 are expected to be between $670 million to $700 million, or roughly flat with calendar 2016 revenues of $685 million. The Company’s net income for calendar 2016 was $16 million, including net of tax charges of approximately $5 million. Net income for 2017 is expected to range from $20 million to $23 million. Earnings per diluted share is expected to range from 68 cents to 78 cents.  Adjusted EBITDA for calendar year 2016 was $74 million, or 11% of revenues. Adjusted EBITDA for calendar 2017 is expected to be between $73 million to $78 million.

The Company expects that its operating cash flow will approximate $50 million, inclusive of funding over $6 million pertaining to a prior year legal settlement. Capital expenditures are expected to be approximately $20 million, inclusive of approximately $5 million to be used to build out the Company’s facilities and equipment to service its recent long-term contract with Safran in France.

Conference Call

In connection with this release, Mistras will hold a conference call on March 17, 2017 at 9:00 a.m. (Eastern). The call will be broadcast over the Web and can be accessed on Mistras’ Website, www.mistrasgroup.com. Individuals in the U.S. wishing to participate in the conference call by phone may call 1-844-832-7227 and use confirmation code 88319215 when prompted. The International dial-in number is 1-224-633-1529.

About Mistras Group, Inc.

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

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

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

Forward-Looking and Cautionary Statements

Certain statements made in this press release are “forward-looking statements” about Mistras’ financial results and estimates, products and services, business model, strategy, growth opportunities, profitability and competitive position, and other matters. These forward-looking statements generally use words such as “future,” “possible,” “potential,” “targeted,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict,” “project,” “will,” “may,” “should,” “could,” “would” and other similar words and phrases. Such statements are not guarantees of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved, if at all. These statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in these statements. A list, description and discussion of these and other risks and uncertainties can be found in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for fiscal 2016 filed with the Securities and Exchange Commission on August 15, 2016, as updated by our reports on Form 10-Q and Form 8-K. The forward-looking statements are made as of the date hereof, and Mistras undertakes no obligation to update such statements as a result of new information, future events or otherwise.

Use of Non-GAAP Measures and Unaudited Proforma Financial Information
In addition to financial information prepared in accordance with generally accepted accounting principles in the U.S. (GAAP), this press release also contains adjusted financial measures that we believe provide investors and management with supplemental information relating to operating performance and trends that facilitate comparisons between periods and with respect to projected information. These adjusted financial measures are non-GAAP and should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. We typically exclude certain GAAP items that management does not believe affect our basic operations and that do not meet the GAAP definition of unusual or non-recurring items. Other companies may define these measures in different ways. The term “Adjusted EBITDA” used in this release is a financial measurement not calculated in accordance with GAAP. A Reconciliation of Adjusted EBITDA to a financial measurement under GAAP is set forth in a table attached to this press release. In addition, the Company has also included in the attached tables non-GAAP measurement” “Segment and Total Company Income (Loss) Before Special Items”, reconciling these measurements to financial measurements under GAAP. The Company uses the term “free cash flow”, a non-GAAP measurement the Company defines as free cash flow as cash provided by operating activities less capital expenditures (which is classified as an investing activity).  Free cash flow does not represent residual cash flow available for discretionary expenditures since items such as debt repayments are not deducted in determining such measures.  The Company also uses the term “net debt”, a non-GAAP measurement defined as the sum of the current and long-term portions of long-term debt and capital lease obligations, less cash and cash equivalents. The Company believes that investors and other users of the financial statements benefit from the presentation of these non-GAAP measurements because they provide additional metrics to compare the Company’s operating performance on a consistent basis and measure underlying trends and results of the Company’s business.

The accompanying unaudited proforma summary operating information and unaudited proforma reconciliations of net income to Adjusted EBITDA for each of the 2016 and 2015 quarterly periods and calendar years presented has been prepared as-if the Company had historically reported on a calendar year basis.  Certain assumptions have been made in preparing the information on this basis.

 
Mistras Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
 
    December 31, 2016   May 31, 2016
ASSETS        
Current Assets        
Cash and cash equivalents   $ 19,154     $ 21,188  
Accounts receivable, net   130,852     137,913  
Inventories   10,017     9,918  
Deferred income taxes   6,230     6,216  
Prepaid expenses and other current assets   16,399     12,711  
Total current assets   182,652     187,946  
Property, plant and equipment, net   73,149     78,676  
Intangible assets, net   40,007     43,492  
Goodwill   169,940     169,220  
Deferred income taxes   1,086     1,000  
Other assets   2,593     2,341  
Total Assets   $ 469,427     $ 482,675  
         
LIABILITIES AND EQUITY        
Current Liabilities        
Accounts payable   $ 6,805     $ 10,796  
Accrued expenses and other current liabilities   58,697     62,983  
Current portion of long-term debt   1,379     12,553  
Current portion of capital lease obligations   6,488     7,835  
Income taxes payable   4,342     2,710  
Total current liabilities   77,711     96,877  
Long-term debt, net of current portion   85,917     72,456  
Obligations under capital leases, net of current portion   9,682     11,932  
Deferred income taxes   17,584     18,328  
Other long-term liabilities   7,789     6,794  
Total Liabilities   198,683     206,387  
         
Commitments and contingencies        
         
Equity        
Preferred stock, 10,000,000 shares authorized        
Common stock, $0.01 par value, 200,000,000 shares authorized, 29,216,745 and 28,939,993 shares issued   292     290  
Additional paid-in capital   217,211     213,737  
Treasury stock at cost, 420,258 and 0 shares   (9,000 )    
Retained earnings   91,803     82,235  
Accumulated other comprehensive loss   (29,724 )   (20,099 )
Total Mistras Group, Inc. stockholders’ equity   270,582     276,163  
Noncontrolling interests   162     125  
Total Equity   270,744     276,288  
Total Liabilities and Equity   $ 469,427     $ 482,675  
                 

Mistras Group, Inc. and Subsidiaries
Unaudited Consolidated Statements of Income
(in thousands, except per share data)
 
    Stub period ended
    December 31,
2016
  December 31,
2015
Revenue   $ 404,161     $ 427,913  
Cost of revenue   274,298     292,718  
Depreciation   12,859     12,005  
Gross profit   117,004     123,190  
Selling, general and administrative expenses   91,058     81,117  
Research and engineering   1,577     1,431  
Depreciation and amortization   6,340     6,503  
Acquisition-related expense (benefit), net   496     (959 )
Income from operations   17,533     35,098  
Interest expense   2,052     3,672  
Income before provision for income taxes   15,481     31,426  
Provision for income taxes   5,870     11,627  
Net income   9,611     19,799  
Less: net income (loss) attributable to noncontrolling interests, net of taxes   43     (15 )
Net income attributable to Mistras Group, Inc.   $ 9,568     $ 19,814  
Earnings per common share        
Basic   $ 0.33     $ 0.69  
Diluted   $ 0.32     $ 0.67  
Weighted average common shares outstanding:        
Basic   28,989     28,810  
Diluted   30,125     29,676  

Mistras Group, Inc. and Subsidiaries
Unaudited Operating Data by Segment
(in thousands)
 
  Stub Period Ended
  December
31,  2016
  December
31, 2015
Revenues      
Services $ 293,218     $ 327,118  
International 104,013     87,411  
Products and Systems 14,541     18,786  
Corporate and eliminations (7,611 )   (5,402 )
  $ 404,161     $ 427,913  
       
       
  Stub Period Ended
  December
31, 2016
  December
31, 2015
Gross profit      
Services $ 75,784     $ 87,514  
International 34,210     26,762  
Products and Systems 6,920     8,986  
Corporate and eliminations 90     (72 )
  $ 117,004     $ 123,190  
       

Mistras Group, Inc. and Subsidiaries  
Unaudited Reconciliation of  
Segment and Total Company Income (Loss) from Operations (GAAP) to Income before Special Items (non-GAAP)  
(in thousands)  
  Stub period ended  
  December
31, 2016
  December
31, 2015
 
Services:        
Income from operations (GAAP) $ 22,411     $ 37,175    
Severance costs 77     188    
Acquisition-related expense (benefit), net 236     (593 )  
Income before special items (non-GAAP) 22,724     36,770    
         
International:        
Income from operations (GAAP) 10,597     6,888    
Severance costs 474     175    
Asset write-offs and lease terminations 1,042        
Acquisition-related expense (benefit), net 29     (457 )  
Income before special items (non-GAAP) 12,142     6,606    
         
Products and Systems:        
(Loss) income from operations (GAAP) (254 )   2,613    
Severance costs 14     17    
(Loss) income before special items (non-GAAP) (240 )   2,630    
         
Corporate and Eliminations:        
Loss from operations (GAAP) (15,221 )   (11,578 )  
Severance costs 133        
Acquisition-related expense (benefit), net 231     91    
Loss before special items (non-GAAP) (14,857 )   (11,487 )  
         
Total Company        
Income from operations (GAAP) $ 17,533     $ 35,098    
Severance costs $ 698     $ 380    
Asset write-offs and lease terminations $ 1,042     $    
Acquisition-related expense (benefit), net $ 496     $ (959 )  
Income before special items (non-GAAP) $ 19,769     $ 34,519    
                 

Mistras Group, Inc. and Subsidiaries
Unaudited Summary Cash Flow Information
(in thousands)
 
  Stub period ended
  December 31, 2016
   
Net cash provided by (used in):  
Operating activities $ 30,259  
Investing activities (17,374 )
Financing activities (12,869 )
Effect of exchange rate changes on cash (2,050 )
Net change in cash and cash equivalents $ (2,034 )
   

Mistras Group, Inc. and Subsidiaries
Reconciliation of Net Cash Provided from Operating Activities (GAAP) to Free Cash Flow (non-GAAP)
(in thousands)
 
    Stub Period ended December
31, 2016
GAAP:  Net cash provided from operating activities   $ 30,259  
Less:    
Purchase of property, plant and equipment   (9,093 )
Purchase of intangible assets   (697 )
non-GAAP: Free cash flow   $ 20,469  

Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Net Income to Adjusted EBITDA
(in thousands)
 
  Stub period ended
  December 31,
2016
  December 31,
2015
               
Net income $ 9,611     $ 19,799  
Less: net income (loss) attributable to noncontrolling interests, net of taxes 43     (15 )
Net income attributable to Mistras Group, Inc. $ 9,568     $ 19,814  
Interest expense 2,052     3,672  
Provision for income taxes 5,870     11,627  
Depreciation and amortization 19,199     18,508  
Share-based compensation expense 4,601     3,792  
Acquisition-related expense (benefit), net 496     (959 )
Severance 698     380  
Foreign exchange (gain) loss (675 )   728  
Asset write-offs and lease terminations 1,042      
Adjusted EBITDA $ 42,851     $ 57,562  
       

Mistras Group, Inc. and Subsidiaries
Unaudited Reconciliation of
Estimated Adjusted EBITDA and Estimated Net Income for 2017
(in millions)
 
  For the Year Ended December 31, 2017
  Low   High
Estimated Net Income $ 20.0     $ 23.0  
Interest expense 3.5     3.5  
Provision for income taxes 11.0     13.0  
Depreciation and amortization 31.5     31.5  
Share-based compensation expense 7.0     7.0  
Estimated Adjusted EBITDA $ 73.0     $ 78.0  
       

Mistras Group, Inc. and Subsidiaries
Unaudited Proforma Summary of Operating Information
(in thousands, except per share data)
 
  Three Months Ended   Year
Ended
  3/31/2016   6/30/2016   9/30/2016   12/31/2016   2016
Revenue $ 167,455     $ 178,340     $ 168,811     $ 170,156     $ 684,762  
Cost of revenue 118,229     121,044     112,754     116,902     468,929  
Depreciation 5,256     5,761     5,406     5,276     21,699  
Gross profit 43,970     51,535     50,651     47,978     194,134  
Selling, general and administrative expenses 35,054     43,537     34,995     39,713     153,299  
Research and engineering 662     623     643     742     2,670  
Depreciation and amortization 2,762     2,865     2,513     2,549     10,689  
Acquisition-related expense (benefit), net (153 )   (330 )   384     94     (5 )
Income from operations 5,645     4,840     12,116     4,880     27,481  
Interest expense 1,100     340     778     857     3,075  
Income before provision for income taxes 4,545     4,500     11,338     4,023     24,406  
Provision for income taxes 1,088     1,737     4,083     1,581     8,489  
Net income 3,457     2,763     7,255     2,442     15,917  
Less: net income attributable to noncontrolling interests, net of taxes 10     2     17     20     49  
Net income attributable to Mistras Group, Inc. $ 3,447     $ 2,761       $ 7,238       $ 2,422       $ 15,868  
Earnings per common share                  
Basic $ 0.12     $ 0.10     $ 0.25     $ 0.08     $ 0.55  
Diluted $ 0.12     $ 0.09     $ 0.24     $ 0.08     $ 0.53  
Weighted average common shares outstanding:                  
Basic 28,915     28,932     29,051     28,943     28,960  
Diluted 29,966     30,152     30,231     29,920     30,114  

Mistras Group, Inc. and Subsidiaries
Unaudited Proforma Reconciliation of Net Income to Adjusted EBITDA
and Unaudited Proforma Segment Data
 (in thousands, except per share data)
 
  Three Months Ended   Year
Ended
  3/31/2016   6/30/2016   9/30/2016   12/31/2016   2016
Net income $ 3,457     $ 2,763     $ 7,255     $ 2,442     $ 15,917  
Less: net income attributable to noncontrolling interests, net of taxes 10     2     17     20     49  
Net income attributable to Mistras Group, Inc. 3,447     2,761       7,238       2,422       15,868  
Interest expense 1,100     340     778     857     3,075  
Provision for income taxes 1,088     1,737     4,083     1,581     8,489  
Depreciation and amortization 8,018     8,626     7,919     7,825     32,388  
Share-based compensation expense 1,729     1,466     1,966     2,163     7,324  
Acquisition-related expense (benefit), net (153 )   (330 )   384     94     (5 )
Severance 54     673     265     433     1,425  
Foreign exchange (gain) loss (282 )   (237 )   (835 )   (11 )   (1,365 )
Legal settlement     6,320             6,320  
Adjusted EBITDA $ 15,001     $ 21,356     $ 21,798     $ 15,364     $ 73,519  
                   
Segment Data:                  
Revenues                  
Services $ 131,579     $ 136,358     $ 127,153     $ 124,289     $ 519,379  
International 30,980     36,373     37,922     43,486     148,761  
Products 6,680     6,467     6,807     6,094     26,048  
Corporate and Eliminations (1,784 )   (858 )   (3,071 )   (3,713 )   (9,426 )
  $ 167,455     $ 178,340     $ 168,811     $ 170,156     $ 684,762  
Operating Income                  
Services $ 11,339     $ 7,372     $ 12,221     $ 6,856     $ 37,788  
International 720     2,454     5,751     5,918     14,843  
Products (132 )   (114 )   806     (740 )   (180 )
Corporate and Eliminations (6,282 )   (4,872 )   (6,662 )   (7,154 )   (24,970 )
  $ 5,645     $ 4,840     $ 12,116     $ 4,880     $ 27,481  
Adjusted EBITDA                  
Services $ 16,773     $ 19,467     $ 18,111     $ 12,121     $ 66,472  
International 2,288     4,954     6,994     8,365     22,601  
Products 445     492     1,358     (88 )   2,207  
Corporate and Eliminations (4,505 )   (3,557 )   (4,665 )   (5,034 )   (17,761 )
  $ 15,001     $ 21,356     $ 21,798     $ 15,364     $ 73,519  

Mistras Group, Inc. and Subsidiaries
Unaudited Proforma Summary of Operating Information
(in thousands, except per share data)
 
  Three Months Ended   Year
Ended
  3/31/2015   6/30/2015   9/30/2015   12/31/2015   2015
Revenue $ 168,873     $ 170,932     $ 187,173     $ 184,306     $ 711,284  
Cost of revenue 121,036     122,005     127,391     125,044     495,476  
Depreciation 5,225     5,270     5,188     5,135     20,818  
Gross profit 42,612     43,657     54,594     54,127     194,990  
Selling, general and administrative expenses 32,814     39,256     34,241     34,408     140,719  
Research and engineering 637     539     661     603     2,440  
Depreciation and amortization 3,047     3,009     2,714     2,788     11,558  
Acquisition-related expense (benefit), net (1,656 )   (2,131 )   (883 )   (76 )   (4,746 )
Income from operations 7,770     2,984     17,861     16,404     45,019  
Interest expense 1,181     1,155     1,960     1,360     5,656  
Income before provision for income taxes 6,589     1,829     15,901     15,044     39,363  
Provision for income taxes 2,479     689     5,982     5,659     14,809  
Net income 4,110     1,140     9,919     9,385     24,554  
Less: net income (loss) attributable to noncontrolling interests, net of taxes (51 )   (35 )   (20 )   9     (97 )
Net income attributable to Mistras Group, Inc. $ 4,161     $ 1,175       $ 9,939       $ 9,376       $ 24,651  
Earnings per common share                  
Basic $ 0.15     $ 0.04     $ 0.35     $ 0.32     $ 0.86  
Diluted $ 0.14     $ 0.04     $ 0.34     $ 0.32     $ 0.83  
Weighted average common shares outstanding:                  
Basic 28,683     28,703     28,776     28,878     28,760  
Diluted 29,595     29,638     29,524     29,720     29,632  

Mistras Group, Inc. and Subsidiaries
Unaudited Proforma Reconciliation of Net Income to Adjusted EBITDA  and Unaudited Proforma Segment Data
(in thousands, except per share data)
 
  Three Months Ended   Year
Ended
  3/31/2015   6/30/2015   9/30/2015   12/31/2015   2015
Net income $ 4,110     $ 1,140     $ 9,919     $ 9,385     $ 24,554  
Less: net income (loss) attributable to noncontrolling interests, net of taxes (51 )   (35 )   (20 )   9     (97 )
Net income attributable to Mistras Group, Inc. 4,161     1,175       9,939       9,376       24,651  
Interest expense 1,181     1,155     1,960     1,360     5,656  
Provision for income taxes 2,479     689     5,982     5,659     14,809  
Depreciation and amortization 8,272     8,279     7,902     7,923     32,376  
Share-based compensation expense 458     1,694     1,909     1,304     5,365  
Acquisition-related expense (benefit), net (1,656 )   (2,131 )   (883 )   (76 )   (4,746 )
Severance 160     1,186     60     320     1,726  
Foreign exchange (gain) loss 127     640     (214 )   399     952  
Charges related to exit of foreign operations     2,516             2,516  
Asset write-offs and lease terminations     1,029             1,029  
Adjusted EBITDA $ 15,182     $ 16,232     $ 26,655     $ 26,265     $ 84,334  
                   
Segment Data:                  
Revenues                  
  Services $ 131,161     $ 132,626     $ 143,249     $ 139,263     $ 546,299  
  International 30,854     32,715     37,936     38,964     140,469  
  Products 8,603     7,980     8,916     7,569     33,068  
  Corporate and Eliminations (1,745 )   (2,389 )   (2,928 )   (1,490 )   (8,552 )
  $ 168,873     $ 170,932     $ 187,173     $ 184,306     $ 711,284  
Operating Income                  
  Services $ 11,689     $ 12,821     $ 17,584     $ 15,584     $ 57,678  
  International (2,190 )   (1,845 )   3,343     4,543     3,851  
  Products 1,586     538     1,526     1,011     4,661  
  Corporate and Eliminations (3,315 )   (8,530 )   (4,592 )   (4,734 )   (21,171 )
  $ 7,770     $ 2,984     $ 17,861     $ 16,404     $ 45,019  
Adjusted EBITDA                  
  Services $ 16,135     $ 17,037     $ 22,178     $ 21,548     $ 76,898  
  International (675 )   1,481     5,646     6,429     12,881  
  Products 2,198     1,232     2,093     1,611     7,134  
  Corporate and Eliminations (2,476 )   (3,518 )   (3,262 )   (3,323 )   (12,579 )
  $ 15,182     $ 16,232     $ 26,655     $ 26,265     $ 84,334  

 

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

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