Mistras Group, Inc. (NYSE:MG), a leading "one source" global
provider of technology-enabled asset protection solutions, reported
financial results for the first quarter of its fiscal year 2017,
which ended August 31, 2016.
Net income for the first quarter of fiscal year 2017 was $6.6
million, or $0.22 per diluted share, slightly below the prior
fiscal year’s net income of $6.9 million, or $0.23 per diluted
share. Adjusted EBITDA was $21.2 million, or 12.6% of revenues in
the first quarter of fiscal year 2017, compared with the prior
year’s $22.3 million, or 12.4% of revenues.
Revenues for the first quarter of fiscal year 2017 declined by
6% year-on-year to $168.4 million. The revenue decline reflected a
tough prior year comparison as well as the timing of customer
project-related spending.
Gross profit margins improved year-on-year for the 5th
consecutive quarter to 29.7% in the first quarter of fiscal year
2017 compared with the prior year’s 28.5%. International segment
gross margins improved by nearly 400 basis points to 33.0%, while
Services segment gross margin improved by 60 basis points to 27.2%
and Products and Systems gross margin also improved. The increased
gross margin rate was driven by improvements in sales mix, contract
management discipline, utilization of technicians and in the
International segment, by the beneficial impact of organic
growth.
The Company’s operating margin was 6.6% of sales in the first
quarter of fiscal year 2017, as compared with 7.2% in the prior’s
year’s first quarter. Operating income exclusive of special items
for the first quarter of fiscal year 2017 declined by only $0.3
million or 2% compared with prior year.
Cash flow from operating activities was $17.3 million in the
first quarter of fiscal year 2017, representing improvement of $1.1
million, or 7% over prior year. Free cash flow was $13.3 million,
an improvement of $1.7 million, or 14% over prior year. The Company
utilized its free cash flow generated primarily to pay down total
debt by $16.7 million. The Company’s net debt (total debt less
cash) of $73.9 million was approximately 0.8x Adjusted EBITDA at
August 31, 2016.
Performance by segment was as follows:Services
segment operating income before special items declined by $1.5
million, or 10% in the first quarter of fiscal year 2017 compared
with prior year, on revenues that declined by $10.7 million or 8%.
Services year-on-year gross margin improvement of 60 basis points
was offset by the loss of operating leverage that resulted from the
combination of flat operating expenses and the year-on-year revenue
decline. Excluding special items, Services had an operating margin
of approximately 10% in both first quarter periods.
The Services revenue decline was almost entirely organic, as a
small amount of revenues from acquisitions was slightly more than
offset by adverse foreign exchange impact. Factors which
contributed to the Services revenue decline included a) a tough
prior year comparison period, b) timing of customer projects, and
c) the impact of a weak oil and gas market.
International segment operating income before
special items more than doubled to a record quarterly level of $4.8
million in the first quarter of fiscal year 2017, driven by
significant improvements in sales mix in the Company’s German and
UK businesses, as well as mid-single digit organic revenue growth
across the segment.
Total segment revenues increased 2% over prior year, as the
impact of adverse foreign exchange and lost revenues from two small
prior year dispositions offset the mid-single digit organic
growth.
Products and Systems segment operating income
declined by $1.0 million on a revenue decline of $2.5 million, or
29%, compared with the prior year’s first quarter, driven by a
decline in sales volume.
Sotirios Vahaviolos, Chairman and Chief Executive Officer
stated, "I am pleased with our bottom line results, with the
continued improvement in our gross margin and Adjusted EBITDA
margin, and with our strong cash flow and balance sheet position.
However I am also disappointed with our first quarter revenue
decline compared with last year, which is primarily reflective of
the difficult oil & gas market where customers continue to be
very cautious in their spending.”
Dr. Vahaviolos added: “When we established our financial
guidance for fiscal year 2017, we expected that the market for
inspection services would be flat to down and that our first
quarter revenues would be approximately what we achieved. But based
upon recent discussions with customers, we now expect that the fall
season will continue to be weak, which will cause revenues in our
Services segment to continue to generate similar negative
year-on-year comparisons for the remainder of calendar 2016. This
necessitates a reduction in our financial guidance. We remain
confident in our operational direction that has improved our profit
margins, and we are also confident that market share gains such as
our recently announced contract with Safran in France will enable
us to improve in calendar 2017."
Updated Guidance for Fiscal 2017
The Company previously established financial guidance for fiscal
2017 as follows:
- Revenues of $720 million to $735 million, increasing from 0% to
2% over prior year.
- Adjusted EBITDA of $89 million to $95 million, representing an
increase of from 1% to 8% above prior year.
- Earnings per diluted share of $0.99 to $1.12, representing an
increase of from 3% to 17% above prior year, exclusive of a prior
year legal charge.
The Company has updated its financial guidance for fiscal 2017
as follows:
- Revenue range reduced to $690 million to $705 million,
representing a decrease of from 2% to 4% below prior year.
- Adjusted EBITDA of $84 million to $89 million or 5% lower to 1%
higher than prior year.
- Earnings per diluted share of $0.88 to $0.97, or 8% lower to 1%
higher than prior year, exclusive of a prior year legal
charge.
Conference Call
In connection with this release, Mistras will hold a conference
call on Friday, October 7, 2016 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 89738855 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 risks and
uncertainties can be found in the "Risk Factors" section of the
Company's Annual Report on Form 10-K for fiscal year 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
In addition to financial information prepared in accordance with
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 U.S.
GAAP. We typically exclude certain GAAP items that management
believes do not 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 generally accepted accounting
principles in the U.S. ("US GAAP"). A Reconciliation of Adjusted
EBITDA to a financial measurement under US 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 measurements”
“Segment and Total Company Income (Loss) Before Special Items”,
reconciling these measurements to financial measurements under US
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). 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.
|
Mistras Group, Inc. and
Subsidiaries |
Condensed Consolidated Balance
Sheets |
(in thousands, except share and per share
data) |
|
|
|
(unaudited) |
|
|
|
|
August 31, 2016 |
|
May 31, 2016 |
ASSETS |
|
|
|
|
Current Assets |
|
|
|
|
Cash and
cash equivalents |
|
$ |
14,940 |
|
|
$ |
21,188 |
|
Accounts
receivable, net |
|
134,138 |
|
|
137,913 |
|
Inventories |
|
10,049 |
|
|
9,918 |
|
Deferred
income taxes |
|
6,096 |
|
|
6,216 |
|
Prepaid
expenses and other current assets |
|
12,491 |
|
|
12,711 |
|
Total
current assets |
|
177,714 |
|
|
187,946 |
|
Property, plant and
equipment, net |
|
76,662 |
|
|
78,676 |
|
Intangible assets,
net |
|
41,513 |
|
|
43,492 |
|
Goodwill |
|
169,195 |
|
|
169,220 |
|
Deferred income
taxes |
|
975 |
|
|
1,000 |
|
Other assets |
|
2,222 |
|
|
2,341 |
|
Total
assets |
|
$ |
468,281 |
|
|
$ |
482,675 |
|
LIABILITIES AND
EQUITY |
|
|
|
|
Current
Liabilities |
|
|
|
|
Accounts
payable |
|
$ |
8,669 |
|
|
$ |
10,796 |
|
Accrued
expenses and other current liabilities |
|
60,747 |
|
|
62,983 |
|
Current
portion of long-term debt |
|
2,089 |
|
|
12,553 |
|
Current
portion of capital lease obligations |
|
7,041 |
|
|
7,835 |
|
Income
taxes payable |
|
2,472 |
|
|
2,710 |
|
Total
current liabilities |
|
81,018 |
|
|
96,877 |
|
Long-term debt, net of
current portion |
|
68,341 |
|
|
72,456 |
|
Obligations under
capital leases, net of current portion |
|
11,349 |
|
|
11,932 |
|
Deferred income
taxes |
|
19,442 |
|
|
18,328 |
|
Other long-term
liabilities |
|
7,136 |
|
|
6,794 |
|
Total
liabilities |
|
187,286 |
|
|
206,387 |
|
Commitments and
contingencies |
|
|
|
|
Equity |
|
|
|
|
Preferred
stock, 10,000,000 shares authorized |
|
— |
|
|
— |
|
Common
stock, $0.01 par value, 200,000,000 shares authorized |
|
291 |
|
|
290 |
|
Additional paid-in capital |
|
215,420 |
|
|
213,737 |
|
Retained
earnings |
|
88,832 |
|
|
82,235 |
|
Accumulated other comprehensive loss |
|
(23,682 |
) |
|
(20,099 |
) |
Total
Mistras Group, Inc. stockholders’ equity |
|
280,861 |
|
|
276,163 |
|
Noncontrolling interests |
|
134 |
|
|
125 |
|
Total
equity |
|
280,995 |
|
|
276,288 |
|
Total
liabilities and equity |
|
$ |
468,281 |
|
|
$ |
482,675 |
|
|
|
|
|
|
|
|
|
|
Mistras Group, Inc. and
Subsidiaries |
Unaudited Condensed Consolidated Statements of
Income |
(in thousands, except per share
data) |
|
|
|
Three months ended |
|
|
August 31, 2016 |
|
August 31, 2015 |
|
|
|
|
|
Revenue |
|
$ |
168,443 |
|
|
$ |
179,853 |
|
Cost of
revenue |
|
112,981 |
|
|
123,400 |
|
Depreciation |
|
5,406 |
|
|
5,179 |
|
Gross
profit |
|
50,056 |
|
|
51,274 |
|
Selling,
general and administrative expenses |
|
35,278 |
|
|
35,836 |
|
Research
and engineering |
|
632 |
|
|
621 |
|
Depreciation and amortization |
|
2,597 |
|
|
2,781 |
|
Acquisition-related expense (benefit), net |
|
394 |
|
|
(896 |
) |
Income from
operations |
|
11,155 |
|
|
12,932 |
|
Interest
expense |
|
820 |
|
|
1,922 |
|
Income before
provision for income taxes |
|
10,335 |
|
|
11,010 |
|
Provision
for income taxes |
|
3,726 |
|
|
4,163 |
|
Net
income |
|
6,609 |
|
|
6,847 |
|
Less: net
income (loss) attributable to noncontrolling interests, net of
taxes |
|
13 |
|
|
(25 |
) |
Net income
attributable to Mistras Group, Inc. |
|
$ |
6,596 |
|
|
$ |
6,872 |
|
|
|
|
|
|
Earnings per common
share |
|
|
|
|
Basic |
|
$ |
0.23 |
|
|
$ |
0.24 |
|
Diluted |
|
$ |
0.22 |
|
|
$ |
0.23 |
|
Weighted average common
shares outstanding: |
|
|
|
|
Basic |
|
28,976 |
|
|
28,724 |
|
Diluted |
|
30,210 |
|
|
29,595 |
|
|
|
|
|
|
|
|
Mistras Group, Inc. and
Subsidiaries |
Unaudited Operating Data by
Segment |
(in thousands) |
|
|
Three months ended |
|
August 31, 2016 |
|
August 31, 2015 |
Revenues |
|
|
|
Services |
$ |
126,690 |
|
|
$ |
137,405 |
|
International |
37,518 |
|
|
36,859 |
|
Products
and Systems |
6,166 |
|
|
8,686 |
|
Corporate
and eliminations |
(1,931 |
) |
|
(3,097 |
) |
|
$ |
168,443 |
|
|
$ |
179,853 |
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
August 31, 2016 |
|
August 31, 2015 |
Gross
profit |
|
|
|
Services |
$ |
34,445 |
|
|
$ |
36,569 |
|
International |
12,387 |
|
|
10,780 |
|
Products
and Systems |
3,096 |
|
|
3,922 |
|
Corporate
and eliminations |
128 |
|
|
3 |
|
|
$ |
50,056 |
|
|
$ |
51,274 |
|
|
|
|
|
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) |
|
|
Three months ended |
|
August 31, 2016 |
|
August 31, 2015 |
Services: |
|
|
|
Income
from operations |
$ |
12,468 |
|
|
$ |
15,398 |
|
Severance
costs |
176 |
|
|
— |
|
Acquisition-related expense (benefit), net |
345 |
|
|
(930 |
) |
Income
before special items |
12,989 |
|
|
14,468 |
|
International: |
|
|
|
Income
from operations |
4,659 |
|
|
1,818 |
|
Severance
costs |
89 |
|
|
60 |
|
Acquisition-related expense (benefit), net |
11 |
|
|
30 |
|
Income
before special items |
4,759 |
|
|
1,908 |
|
Products and
Systems: |
|
|
|
Income
from operations |
137 |
|
|
1,184 |
|
Acquisition-related expense (benefit), net |
— |
|
|
— |
|
Income
before special items |
137 |
|
|
1,184 |
|
Corporate and
Eliminations: |
|
|
|
Loss from
operations |
(6,109 |
) |
|
(5,468 |
) |
Acquisition-related expense (benefit), net |
38 |
|
|
4 |
|
Loss
before special items |
(6,071 |
) |
|
(5,464 |
) |
Total
Company |
|
|
|
Income
from operations |
$ |
11,155 |
|
|
$ |
12,932 |
|
Severance
costs |
$ |
265 |
|
|
$ |
60 |
|
Acquisition-related expense (benefit), net |
$ |
394 |
|
|
$ |
(896 |
) |
Income
before special items |
$ |
11,814 |
|
|
$ |
12,096 |
|
|
|
|
|
|
|
|
|
Mistras Group, Inc. and
Subsidiaries |
Unaudited Summary Cash Flow
Information |
(in thousands) |
|
|
Three months ended |
|
August 31, 2016 |
|
August 31, 2015 |
|
|
|
|
|
|
|
|
Net cash provided by
(used in): |
|
|
|
Operating
activities |
$ |
17,344 |
|
|
$ |
16,210 |
|
Investing
activities |
(4,975 |
) |
|
(4,399 |
) |
Financing
activities |
(17,847 |
) |
|
(10,562 |
) |
Effect of exchange rate
changes on cash |
(770 |
) |
|
(118 |
) |
Net change in cash and
cash equivalents |
$ |
(6,248 |
) |
|
$ |
1,131 |
|
|
|
|
|
Mistras Group, Inc. and
Subsidiaries |
Unaudited Reconciliation of |
Net Income to Adjusted EBITDA |
(in thousands) |
|
|
Three months ended |
|
August 31, 2016 |
|
August 31, 2015 |
|
|
|
|
|
|
|
|
Net
income |
$ |
6,609 |
|
|
$ |
6,847 |
|
|
|
|
|
|
|
|
|
Less: net
income (loss) attributable to noncontrolling interests, net of
taxes |
13 |
|
|
(25 |
) |
Net income attributable
to Mistras Group, Inc. |
$ |
6,596 |
|
|
$ |
6,872 |
|
Interest expense |
820 |
|
|
1,922 |
|
Provision for income
taxes |
3,726 |
|
|
4,163 |
|
Depreciation and
amortization |
8,003 |
|
|
7,960 |
|
Share-based
compensation expense |
1,906 |
|
|
1,957 |
|
Acquisition-related
expense (benefit), net |
394 |
|
|
(896 |
) |
Severance |
265 |
|
|
60 |
|
Foreign exchange (gain)
loss |
(525 |
) |
|
292 |
|
Adjusted EBITDA |
$ |
21,185 |
|
|
$ |
22,330 |
|
|
|
|
|
Mistras Group, Inc. and
Subsidiaries |
Unaudited Reconciliation of |
Estimated Adjusted EBITDA and Estimated Net
Income for FY 2017 |
(in millions) |
|
|
For the Fiscal Year Ended May 31,
2017 |
|
Low |
|
High |
Estimated Net
Income |
$ |
26.0 |
|
|
$ |
29.0 |
|
Interest
expense |
4.0 |
|
|
4.0 |
|
Provision
for income taxes |
15.5 |
|
|
17.5 |
|
Depreciation and amortization |
32.0 |
|
|
32.0 |
|
Share-based compensation expense |
6.5 |
|
|
6.5 |
|
Estimated
Adjusted EBITDA |
$ |
84.0 |
|
|
$ |
89.0 |
|
|
|
|
|
Media Contact:
Nestor S. Makarigakis, Group Director of Marketing Communications,
marcom@mistrasgroup.com,
1(609)716-4000
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