Cash from operations of $28.8 million up 122% and Free cash flow of $25.5 million, up 284%,
from the year ago quarterDebt repayment of $18.8 million, a quarterly record, with Total debt of $239.4 millionGross Profit Margin expands to 33.1%, highest quarterly level in over five years Selling, General & Administrative Expense down 10.3% from the year ago quarter PRINCETON JUNCTION, N.J., Aug. 05, 2020 (GLOBE NEWSWIRE) — Mistras Group, Inc. (MG: NYSE), a leading “one source” global provider of technology-enabled asset protection solutions, reported financial results for its second quarter ended June 30, 2020.Highlights of the Second Quarter 2020*Revenue of $124.4 million, a decrease of 38% as anticipatedCash from operations of $28.8 million, an increase of 122%Free cash flow of $25.5 million, an increase of 284%Capital expenditures of $3.3 million, a decrease of 48% Debt repayment of $18.8 million; net debt** of $216.8 million and cash on-hand of $22.6 millionGross profit margin of 33.1%, up from 29.9%; an improvement of 320 bpsSelling, general and administrative expenses of $37.6 million, down 10.3%Highlights of the First Half 2020*Cash from operations of $34.9 million, an increase of 65%Free cash flow of $27.2 million, an increase of 199%Capital expenditures of $7.6 million, a decrease of 36%Debt repayment $15.1 millionGross profit margin of approximately 29%, equal to that of last yearSelling, general and administrative expenses reduction of $4.5 million* All comparisons are consolidated and versus the equivalent prior year period, unless otherwise noted.
** Net debt equals Gross Debt less Cash and Cash Equivalents
The Company’s net loss was $2.7 million in the second quarter of 2020, compared with net income of $7.4 million the prior year period. The Company generated adjusted EBITDA of $11.5 million in the second quarter of 2020, compared with $24.0 million in the prior year period. The Company generated $28.8 million of cashflow from operations and $25.5 million of free cashflow flow in the second quarter of 2020, compared with $12.9 million of cashflow from operations and $6.7 million of free cash flow in the prior year period.Chief Executive Officer Dennis Bertolotti stated, “Results for the second quarter demonstrate the value of our asset light business model and its ability to generate strong cash flow. Cash from operations more than doubled from a year ago, which enabled us to have a record setting quarter of debt reduction as we aggressively deleverage our balance sheet. As we anticipated, second quarter revenues were down from a year ago in what we still believe is likely to be this years’ trough quarter, primarily due to the slowdown in inspection activity resulting from our clients’ prioritization of safety precautions precipitated by the rapid onset of COVID-19, as well as more cautionary customer budgeting. Although revenues were down, our gross profit margins were at the highest quarterly level in over five years, as numerous cost measures implemented to address current market conditions significantly improved efficiency and productivity. The reduction in selling, general and administrative expenses accelerated sequentially from the first quarter, as the cost control actions undertaken late in the first quarter were fully realized in the second quarter. “Year-to-date, we have worked hard to maintain our gross profit margin at the same 29% level as in the first half of 2019, despite the significant decrease in revenues. Robust operating cashflow remains paramount for Mistras at $34.9 million for the first six months of 2020, representing one of the key strengths of our business model. Free cashflow in the second quarter alone was $25.5 million, enabling us to pay off $18.8 million of bank debt during the second quarter. Hence, Mistras continues to maintain the liquidity it needs to fund operations through the current market down cycle. We remain optimistic about our plan to generate expanding adjusted EBITDA sequentially in the second half of 2020 over the first half, and maintain positive operating cashflow in the second half of 2020, enabling us to continue to further decrease our total outstanding debt by year end.”“Stabilization in the crude oil markets and the continuing relaxation of certain stay-in-place mandates are allowing some of our energy industry customers to start projects in the third quarter that were delayed earlier in the year. While it is still extremely difficult to forecast with any degree of certainty, we still believe our markets will progressively improve in the third and fourth quarter. We built momentum at the end of the second quarter which has continued into the third quarter of 2020. As such, we expect a high-teen up to 20% sequential improvement in revenues during the third quarter over the second quarter of 2020. Our plan is to exit fiscal 2020 on a growth trajectory heading into next year.” “It has been proven many times, that necessity is the driver for dramatic improvements and innovation. We believe the current pandemic is one of those periods wherein industrial companies look at new and innovative ways of performing their work. Mistras believes its customers will be looking for partners with a more sophisticated approach to assist them in condensing their supplier lists and searching for better business intelligence. This is our strategy, knowing that we can apply these tenets not only into our existing customer base, but also new customers or market segments we target in the future.” Performance by key segments during the quarter was as follows:Services segment second quarter revenues were $100.7 million, down 37.5% from the year ago quarter, consistent with the slowdown in energy markets and timing of projects due to COVID-19. For the second quarter, gross profit margins were 33.7%, up from the year-ago quarter of 29.3%, an increase of approximately 440 basis points, due to a favorable mix, coupled with ongoing cost saving initiatives and Canadian wage subsidies.International segment second quarter revenues were $21.3 million, down 42.5% from the year ago quarter, consistent with the anticipated slowdown in European aerospace, continued runoff of the European staff leasing business, timing of projects due to COVID-19 and unfavorable FX translation. International segment second quarter gross profit margin was 25.3%, down from 29.8% in the year ago quarter, due to lower utilization.The Company’s net debt (total debt less cash and cash equivalents) was $216.8 million at June 30, 2020, compared to $239.7 million at December 31, 2019. Gross debt decreased by $15.3 million during the first six months of 2020, from $254.7 million at the end of the year to $239.4 million at June 30, 2020.The Company generated $34.9 million of cash flows from operations in the first half of 2020, compared with $21.1 million in the year ago period. Free cash flow was $27.2 million in the first half of 2020, compared with $9.1 million in year ago period. Free cash flow benefitted from a reduction in cash paid for capital expenditures, interest expense and income taxes. Cash on-hand was $22.6 million at June 30, 2020, an increase of $7.6 million from December 31, 2019.The Company’s net loss was $101.2 million in the first half of 2020, compared with net income of $2.1 million the prior year period, due primarily to the after-tax $92.1 million non-cash impairment charges recorded during the first quarter of 2020. The Company generated adjusted EBITDA of $16.9 million in the first six months of 2020, compared with $36.7 million in the prior year period. Outlook for the Second Half of 2020
The ongoing COVID-19 pandemic continues to impact the Company’s two largest markets, Oil & Gas and Aerospace. Nevertheless, the Company anticipates a high-teen up to 20% sequential improvement in revenues for the third quarter of 2020 compared to the second quarter, but down from the year ago quarter. While it is extremely difficult to forecast with any degree of certainty at this time, the Company believes that consolidated revenue in the second half of 2020 will be higher than the first half of 2020, with a progressive improvement in adjusted EBITDA and continuing positive free cash flow in the second half of 2020. This outlook is contingent on continuing macroeconomic stability, including the recent recovery in the crude oil markets and the ongoing relaxation of certain stay-in-place mandates.Conference Call
In connection with this release, MISTRAS will hold a conference call on August 6, 2020 at 9:30 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 dial 1-844-832-7227 and use confirmation code 3195165 when prompted. The International dial-in number is 1-224-633-1529. Those who wish to listen to the call later can access an archived copy of the conference call at the MISTRAS Website.About MISTRAS Group, Inc. – One Source for Asset Protection Solutions®MISTRAS Group, Inc. (NYSE: MG) 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, MISTRAS leads clients in the oil and gas, aerospace and defense, power generation, civil infrastructure, and manufacturing 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 equipment to enable safe travel across bridges, MISTRAS helps the world at large.MISTRAS enhances value for its clients by integrating asset protection throughout supply chains and centralizing integrity data through a suite of Industrial IoT-connected digital software and monitoring solutions. The company’s core capabilities also include non-destructive testing 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.For more information about how MISTRAS helps protect civilization’s critical infrastructure, visit
https://www.mistrasgroup.com/ or contact Nestor S. Makarigakis, Group Vice President of Marketing at marcom@mistrasgroup.com.Forward-Looking and Cautionary StatementsCertain 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 2019 Annual Report on Form 10-K dated March 27, 2020, 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 MeasuresIn addition to financial information prepared in accordance with generally accepted accounting principles in the U.S. (GAAP), this press release also contains adjusted financial measures that we believe provide investors and management with supplemental information relating to operating performance and trends that facilitate comparisons between periods and with respect to projected information. The term “Adjusted EBITDA” used in this release is a financial measurement not calculated in accordance with GAAP and is defined as net income attributable to MISTRAS Group, Inc. plus: interest expense, provision for income taxes, depreciation and amortization, share-based compensation expense and certain acquisition related costs (including transaction due diligence costs and adjustments to the fair value of contingent consideration), foreign exchange (gain) loss, non-cash impairment charges and, if applicable, certain additional special items which are noted. A reconciliation of Adjusted EBITDA to a financial measurement under GAAP is set forth in a table attached to this press release. In the press release, the Company also uses the term “non-GAAP Net Income”, which is GAAP net income adjusted for certain items management believes are unusual and non-recurring. In the tables attached is a table reconciling “Net Income (Loss) (GAAP)” to “Net Income Excluding Special Items (non-GAAP), which reconciles the non-GAAP amount to a GAAP measurement. In addition, the Company has also included in the attached tables non-GAAP measurement” “Segment and Total Company Income (Loss) Before Special Items”, reconciling these measurements to financial measurements under GAAP. The Company uses the term “free cash flow”, a non-GAAP measurement the Company defines as cash provided by operating activities less capital expenditures (which is classified as an investing activity). The Company also uses the term “net debt”, a non-GAAP measurement defined as the sum of the current and long-term portions of long-term debt, less cash and cash equivalent.
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(tabular dollars in thousands, except per share data)(1) The Company modified the prior year tax effect on special items to be consistent with the current year methodology, which was to apply the current jurisdictional tax rate to each specific special item. The impact of this change on the three months ended June 30, 2019 was approximately $(0.4) million and $(0.02) per diluted share and on the six months ended June 30, 2019 was approximately $0.5 million and $0.02 per diluted share.
(2) For the three and six months ended June 30, 2020, 118 thousand shares and 223 thousand shares related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the period.
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