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, 2017.
Revenues for the second quarter of 2017 were $170.4 million, 4%
lower than in the prior year’s second quarter. Second quarter 2017
net income was $2.2 million or $0.07 per diluted share, versus $2.8
million or $0.09 per diluted share in the prior year. 2017 results
included special charges primarily related to closing a handful of
small labs which reduced net income by $0.4 million, net of tax, or
$0.02 per share. 2016 results included net-of-tax charges of $4.1
million or $0.14 per diluted share that primarily pertained to a
legal settlement. Exclusive of these special charges, 2017 second
quarter net income and earnings per diluted share, net of tax, were
$2.6 million and $0.09 per diluted share, compared with the prior
year’s $6.8 million and $0.23 per diluted share.
The Company generated $23.0 million of cash from operating
activities and $12.5 million of free cash flow during the first six
months of 2017, both amounts reduced by a $6.3 million payment of a
prior year legal settlement. The Company used $4.5 million of its
free cash flow for an acquisition and $12 million to repurchase
common stock. The Company’s net debt (total debt less cash) of $90
million at June 30, 2017 was approximately 1.3x Adjusted
EBITDA.
Adjusted EBITDA for the second quarter of 2017 was $16 million,
compared with $21 million in the comparable period of the prior
year. Performance by segment was as follows:
Services segment Q2 operating income improved
$4.8 million, or 65% over prior year. Services Q2 2017 operating
income was reduced $0.6 million primarily by costs to close a
handful of small labs. Services Q2 2016 operating income was
reduced $6.0 million primarily related to a prior year legal
settlement. Excluding these special items, Services Q2 2017
operating income declined $0.6 million or 5% versus prior year, on
revenues that declined 2%. During Q2 Services results began to
improve versus prior year. Excluding the impact of one challenged
region in which market difficulties continued to cause a
year-on-year decline, Services Q2 revenues were flat and operating
income excluding special items improved year-on-year by 20%.
International segment Q2 operating income
declined $2.6 million below prior year, on revenues that declined
by $2.5 million, or 7%. Unlike Q1, where the Company
experienced organic revenue growth and improved profits in Germany,
France and Brazil, Q2 saw revenue and profit declines in Germany,
the UK and to a lesser extent in France. German results were
adversely impacted by the timing of sales volumes, while UK results
have suffered in the first and second quarters of 2017 due
primarily to the timing of customer projects.
Products and Systems segment Q2 operating
income declined by $0.8 million driven by a $1.4 million revenue
decline.
Dennis Bertolotti, incoming Chief Executive Officer stated, "I
am pleased with the performance of our Services segment. Although
spring 2017 market conditions were challenging as expected in North
America, our Services results have been resilient, realizing
year-on-year revenue and profit gains with the exception of one
challenged region. We remain optimistic that the market for North
American nondestructive testing services will show modest
year-on-year improvement this fall compared with the prior year’s
unusually low spending levels.”
Mr. Bertolotti added: “We are working aggressively to position
the Company for its next phase of growth. We have implemented a
three-pronged plan to drive results, as follows:
- Restructuring. In addition to our
just-announced management transition at the senior level, we are
also transitioning the leadership of the Services segment,
elevating four of our top managers to regional leadership
positions, and transitioning leadership of our German subsidiary.
These changes will drive more accountability, ownership and
focus.
- Investment. As the third quarter commenced, we
made an important acquisition of a Canadian company that performs
mechanical services. We are excited about this business and this
team, which we will utilize to drive organic growth throughout
Canada and the United States. In addition, we hired a manager to
add to our capabilities to proactively target and consummate
acquisitions and are hiring a new executive to lead our sales
function.
- Cost Reduction. I am challenging each of
our new leaders to drive more business and to reduce costs. We are
targeting a global annual cost reduction of $5 million which we
expect to implement during the next three months.
Mr. Bertolotti concluded, stating “In addition to these
initiatives, we are actively quoting new business and using this
time 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."
Updated Guidance for 2017
The market for North American inspection services was in line
with Company expectations in the first half of 2017. Customer
feedback continues to indicate the market is poised for a modest
pick up in the second half of 2017. Services segment first half
results were in line with Company expectations and are expected to
improve over prior year in the second half of the calendar year.
The international segment’s second quarter earnings were below our
expectations and are now expected to fall short of prior year
operating profit by approximately $6 million. Because of this
expected shortfall, the Company is reducing its expected EBITDA
forecast to a range of $66 million to $70 million for calendar
2017. Correspondingly, the Company expects its net income to
be in a range of from $13 million to $15 million, and its earnings
per diluted share to range from $0.42 to $0.52.
Conference CallIn connection with this release,
Mistras will hold a conference call on August 9, 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 61105205 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 Transition Report on Form 10-K filed with the
Securities and Exchange Commission on March 20, 2017, 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
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 and, if applicable,
certain 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 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 and capital lease obligations,
less cash and cash equivalents.
Mistras Group, Inc. and
SubsidiariesCondensed Consolidated Balance
Sheets(in thousands, except share and per share
data) |
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
June 30, 2017 |
|
December 31, 2016 |
ASSETS |
|
|
|
|
Current Assets |
|
|
|
|
Cash and
cash equivalents |
|
$ |
26,784 |
|
|
$ |
19,154 |
|
Accounts
receivable, net |
|
129,221 |
|
|
130,852 |
|
Inventories |
|
10,949 |
|
|
10,017 |
|
Deferred
income taxes |
|
— |
|
|
6,230 |
|
Prepaid
expenses and other current assets |
|
16,526 |
|
|
16,399 |
|
Total
current assets |
|
183,480 |
|
|
182,652 |
|
Property, plant and
equipment, net |
|
76,218 |
|
|
73,149 |
|
Intangible assets,
net |
|
40,503 |
|
|
40,007 |
|
Goodwill |
|
176,231 |
|
|
169,940 |
|
Deferred income
taxes |
|
2,085 |
|
|
1,086 |
|
Other assets |
|
2,710 |
|
|
2,593 |
|
Total
assets |
|
$ |
481,227 |
|
|
$ |
469,427 |
|
LIABILITIES AND
EQUITY |
|
|
|
|
Current
Liabilities |
|
|
|
|
Accounts
payable |
|
$ |
9,342 |
|
|
$ |
6,805 |
|
Accrued
expenses and other current liabilities |
|
56,841 |
|
|
58,697 |
|
Current
portion of long-term debt |
|
2,116 |
|
|
1,379 |
|
Current
portion of capital lease obligations |
|
6,386 |
|
|
6,488 |
|
Income
taxes payable |
|
3,814 |
|
|
4,342 |
|
Total
current liabilities |
|
78,499 |
|
|
77,711 |
|
Long-term debt, net of
current portion |
|
99,544 |
|
|
85,917 |
|
Obligations under
capital leases, net of current portion |
|
8,919 |
|
|
9,682 |
|
Deferred income
taxes |
|
12,859 |
|
|
17,584 |
|
Other long-term
liabilities |
|
8,157 |
|
|
7,789 |
|
Total
liabilities |
|
207,978 |
|
|
198,683 |
|
Commitments and
contingencies |
|
|
|
|
Equity |
|
|
|
|
Preferred
stock, 10,000,000 shares authorized |
|
— |
|
|
— |
|
Common
stock, $0.01 par value, 200,000,000 shares authorized, 29,306,510
and 29,216,745 shares issued |
|
293 |
|
|
292 |
|
Additional paid-in capital |
|
220,305 |
|
|
217,211 |
|
Treasury
stock, at cost, 960,882 and 420,258 shares |
|
(21,000 |
) |
|
(9,000 |
) |
Retained
earnings |
|
95,712 |
|
|
91,803 |
|
Accumulated other comprehensive loss |
|
(22,232 |
) |
|
(29,724 |
) |
Total
Mistras Group, Inc. stockholders’ equity |
|
273,078 |
|
|
270,582 |
|
Noncontrolling interests |
|
171 |
|
|
162 |
|
Total
equity |
|
273,249 |
|
|
270,744 |
|
Total
liabilities and equity |
|
$ |
481,227 |
|
|
$ |
469,427 |
|
Mistras Group, Inc. and
SubsidiariesUnaudited Condensed Consolidated
Statements of Income(in thousands, except per
share data) |
|
|
|
|
|
Three months ended |
|
Six months ended |
|
June 30, 2017 |
|
June 30, 2016 |
|
June 30, 2017 |
|
June 30, 2016 |
|
|
|
|
|
|
|
|
Revenue |
$ |
170,439 |
|
|
$ |
178,340 |
|
|
$ |
333,757 |
|
|
$ |
345,795 |
|
Cost of
revenue |
118,825 |
|
|
121,044 |
|
|
233,828 |
|
|
239,273 |
|
Depreciation |
5,271 |
|
|
5,761 |
|
|
10,433 |
|
|
11,017 |
|
Gross
profit |
46,343 |
|
|
51,535 |
|
|
89,496 |
|
|
95,505 |
|
Selling,
general and administrative expenses |
37,973 |
|
|
37,217 |
|
|
75,273 |
|
|
72,271 |
|
Research
and engineering |
552 |
|
|
623 |
|
|
1,195 |
|
|
1,285 |
|
Depreciation and amortization |
2,613 |
|
|
2,865 |
|
|
5,116 |
|
|
5,627 |
|
Legal
settlement |
— |
|
|
6,320 |
|
|
— |
|
|
6,320 |
|
Acquisition-related expense (benefit), net |
202 |
|
|
(330 |
) |
|
(341 |
) |
|
(483 |
) |
Income from
operations |
5,003 |
|
|
4,840 |
|
|
8,253 |
|
|
10,485 |
|
Interest
expense |
1,015 |
|
|
340 |
|
|
2,033 |
|
|
1,440 |
|
Income before
provision for income taxes |
3,988 |
|
|
4,500 |
|
|
6,220 |
|
|
9,045 |
|
Provision
for income taxes |
1,770 |
|
|
1,737 |
|
|
2,304 |
|
|
2,825 |
|
Net
income |
2,218 |
|
|
2,763 |
|
|
3,916 |
|
|
6,220 |
|
Less: net
income attributable to non-controlling interests, net of taxes |
1 |
|
|
2 |
|
|
7 |
|
|
12 |
|
Net income
attributable to Mistras Group, Inc. |
$ |
2,217 |
|
|
$ |
2,761 |
|
|
$ |
3,909 |
|
|
$ |
6,208 |
|
Earnings per common
share |
|
|
|
|
|
|
|
Basic |
$ |
0.08 |
|
|
$ |
0.10 |
|
|
$ |
0.14 |
|
|
$ |
0.21 |
|
Diluted |
$ |
0.07 |
|
|
$ |
0.09 |
|
|
$ |
0.13 |
|
|
$ |
0.21 |
|
Weighted average common
shares outstanding: |
|
|
|
|
|
|
|
Basic |
28,437 |
|
28,932 |
|
|
28,562 |
|
|
28,924 |
|
Diluted |
29,599 |
|
|
30,152 |
|
|
29,754 |
|
|
30,083 |
|
Mistras Group, Inc. and
SubsidiariesUnaudited Operating Data by
Segment(in thousands) |
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Revenues |
|
|
|
|
|
|
|
Services |
$ |
134,043 |
|
|
$ |
136,358 |
|
|
$ |
260,372 |
|
|
$ |
267,936 |
|
International |
33,904 |
|
|
36,373 |
|
|
68,160 |
|
|
67,353 |
|
Products
and Systems |
5,107 |
|
|
6,467 |
|
|
10,657 |
|
|
13,148 |
|
Corporate
and eliminations |
(2,615 |
) |
|
(858 |
) |
|
(5,432 |
) |
|
(2,642 |
) |
|
$ |
170,439 |
|
|
$ |
178,340 |
|
|
$ |
333,757 |
|
|
$ |
345,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Gross
profit |
|
|
|
|
|
|
|
Services |
$ |
35,490 |
|
|
$ |
36,490 |
|
|
$ |
65,703 |
|
|
$ |
68,948 |
|
International |
8,828 |
|
|
11,867 |
|
|
19,288 |
|
|
20,540 |
|
Products
and Systems |
1,966 |
|
|
3,050 |
|
|
4,560 |
|
|
5,789 |
|
Corporate
and eliminations |
59 |
|
|
128 |
|
|
(55 |
) |
|
228 |
|
|
$ |
46,343 |
|
|
$ |
51,535 |
|
|
$ |
89,496 |
|
|
$ |
95,505 |
|
|
|
|
|
|
|
|
|
Mistras Group, Inc. and
SubsidiariesUnaudited Reconciliation
ofSegment and Total Company Income from Operations
(GAAP) to Income before Special Items
(non-GAAP)(in thousands) |
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Services: |
|
|
|
|
|
|
|
Income
from operations |
$ |
12,132 |
|
|
$ |
7,372 |
|
|
$ |
19,513 |
|
|
$ |
18,711 |
|
Legal
settlement |
— |
|
|
6,320 |
|
|
— |
|
|
6,320 |
|
Bad debt
provision for a customer bankruptcy |
— |
|
|
— |
|
|
1,200 |
|
|
— |
|
Severance
costs |
314 |
|
|
— |
|
|
330 |
|
|
— |
|
Asset
write-offs and lease terminations |
123 |
|
|
— |
|
|
123 |
|
|
— |
|
Acquisition-related expense (benefit), net |
201 |
|
|
(295 |
) |
|
78 |
|
|
(468 |
) |
Income
before special items |
12,770 |
|
|
13,397 |
|
|
21,244 |
|
|
24,563 |
|
International: |
|
|
|
|
|
|
|
(Loss)
income from operations |
(190 |
) |
|
2,454 |
|
|
2,843 |
|
|
3,174 |
|
Severance
costs |
63 |
|
|
645 |
|
|
76 |
|
|
710 |
|
Acquisition-related expense (benefit), net |
— |
|
|
(83 |
) |
|
(501 |
) |
|
(63 |
) |
(Loss)
income before special items |
(127 |
) |
|
3,016 |
|
|
2,418 |
|
|
3,821 |
|
Products and
Systems: |
|
|
|
|
|
|
|
Loss from
operations |
(892 |
) |
|
(114 |
) |
|
(1,340 |
) |
|
(246 |
) |
Severance
costs |
— |
|
|
28 |
|
|
— |
|
|
17 |
|
Acquisition-related expense (benefit), net |
— |
|
|
— |
|
|
— |
|
|
— |
|
Loss
before special items |
(892 |
) |
|
(86 |
) |
|
(1,340 |
) |
|
(229 |
) |
Corporate and
Eliminations: |
|
|
|
|
|
|
|
Loss from
operations |
(6,047 |
) |
|
(4,872 |
) |
|
(12,763 |
) |
|
(11,154 |
) |
Severance
costs |
— |
|
|
— |
|
|
— |
|
|
— |
|
Acquisition-related expense (benefit), net |
1 |
|
|
48 |
|
|
82 |
|
|
48 |
|
Loss
before special items |
(6,046 |
) |
|
(4,824 |
) |
|
(12,681 |
) |
|
(11,106 |
) |
Total Company |
|
|
|
|
|
|
|
Income
from operations |
$ |
5,003 |
|
|
$ |
4,840 |
|
|
$ |
8,253 |
|
|
$ |
10,485 |
|
Legal
settlement |
— |
|
|
6,320 |
|
|
— |
|
|
6,320 |
|
Bad debt
provision for a customer bankruptcy |
— |
|
|
— |
|
|
1,200 |
|
|
— |
|
Severance
costs |
377 |
|
|
673 |
|
|
406 |
|
|
727 |
|
Asset
write-offs and lease terminations |
123 |
|
|
— |
|
|
123 |
|
|
— |
|
Acquisition-related expense (benefit), net |
202 |
|
|
(330 |
) |
|
(341 |
) |
|
(483 |
) |
Income
before special items |
$ |
5,705 |
|
|
$ |
11,503 |
|
|
$ |
9,641 |
|
|
$ |
17,049 |
|
Mistras Group, Inc. and
SubsidiariesUnaudited Summary Cash Flow
Information(in thousands) |
|
|
|
Six months ended June 30, |
|
2017 |
|
2016 |
Net cash provided by
(used in): |
|
|
|
Operating
activities |
$ |
22,972 |
|
|
$ |
37,778 |
|
Investing
activities |
(14,218 |
) |
|
(7,368 |
) |
Financing
activities |
(2,726 |
) |
|
(21,951 |
) |
Effect of exchange rate
changes on cash |
1,602 |
|
|
384 |
|
Net change in cash and
cash equivalents |
$ |
7,630 |
|
|
$ |
8,843 |
|
Mistras Group, Inc. and
SubsidiariesReconciliation of Net Cash Provided by
Operating Activities (GAAP) to Free Cash Flow
(non-GAAP)(in thousands) |
|
|
|
Six months ended June 30, 2017 |
GAAP: Net cash
provided by operating activities |
$ |
22,972 |
|
Less: |
|
Purchases of
property, plant and equipment |
(9,789 |
) |
Purchases of
intangible assets |
(688 |
) |
non-GAAP: Free
cash flow |
$ |
12,495 |
|
Mistras Group, Inc. and
SubsidiariesUnaudited Reconciliation
ofNet Income to Adjusted
EBITDA(in thousands) |
|
|
|
Three months ended |
|
June 30, 2017 |
|
June 30, 2016 |
|
|
Net
income |
$ |
2,218 |
|
|
$ |
2,763 |
|
Less: net
income attributable to noncontrolling interests, net of taxes |
1 |
|
|
2 |
|
Net income
attributable to Mistras Group, Inc. |
$ |
2,217 |
|
|
$ |
2,761 |
|
Interest expense |
1,015 |
|
|
340 |
|
Provision for income
taxes |
1,770 |
|
|
1,737 |
|
Depreciation and
amortization |
7,884 |
|
|
8,626 |
|
Share-based
compensation expense |
1,697 |
|
|
1,466 |
|
Legal settlement |
— |
|
|
6,320 |
|
Acquisition-related
expense (benefit), net |
202 |
|
|
(330 |
) |
Severance |
377 |
|
|
673 |
|
Asset write-offs and
lease terminations |
123 |
|
|
— |
|
Foreign exchange (gain)
loss |
349 |
|
|
(237 |
) |
Adjusted EBITDA |
$ |
15,634 |
|
|
$ |
21,356 |
|
Mistras Group, Inc. and
SubsidiariesUnaudited Reconciliation
ofNet Income (GAAP) and Diluted EPS (GAAP) to Net
Income Excluding Special Items (non-GAAP)and
Diluted EPS Excluding Special Items (non-GAAP)(in
thousands) |
|
|
|
|
|
Three months ended June 30, |
|
|
2017 |
|
2016 |
Net income (GAAP) |
|
$ |
2,217 |
|
|
$ |
2,761 |
|
Special items, net of
tax |
|
396 |
|
|
4,056 |
|
Net Income Excluding
Special Items (non-GAAP) |
|
$ |
2,613 |
|
|
$ |
6,817 |
|
|
|
|
|
|
Diluted EPS (GAAP) |
|
$ |
0.07 |
|
|
$ |
0.09 |
|
Special items |
|
0.02 |
|
|
0.14 |
|
Diluted EPS Excluding
Special Items (non-GAAP) |
|
$ |
0.09 |
|
|
$ |
0.23 |
|
Nestor S. Makarigakis
Group Director of Marketing Communications
marcom@mistrasgroup.com
1(609)716-4000
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