Highlights of the First Quarter
2019*
MISTRAS Group, Inc. (MG: NYSE), a leading "one source" global
provider of technology-enabled asset protection solutions, reported
financial results for its first quarter ended March 31, 2019.
For the first quarter of 2019, consolidated revenues were $176.8
million compared with $187.6 million in the prior year
period. Revenues are consistent with our expectations and
reflective of the impact we anticipated from the previously
disclosed non-renewal of a contract, effective April 1, 2019.
For the quarter, consolidated gross profit was up approximately 2%
over 2018 to $48.9 million, as the consolidated gross margin
expanded by 190 basis points to 27.6% compared with 25.7% in the
same quarter a year ago.
Chief Executive Officer Dennis Bertolotti stated, "Results in
the first quarter are consistent with the expectations and embedded
in our outlook for the full year. Gross margins were once
again significantly improved from a year ago, due to both a better
sales mix as well as ongoing efficiency and productivity
enhancements. And, while adjusted EBITDA was down
year-over-year, cash generation was strong, with a portion of the
proceeds being used to pay down outstanding debt.
“With what we previously communicated was going to be a
challenging quarter behind us, we are extremely excited about our
outlook for the balance of the year. By investing in strengthening
the MISTRAS NDT business, we continue to be recognized as an
industry leader and increase our market share. This was once
again confirmed when we were awarded several significant contracts
here in the early part of 2019 amounting to $15 million of revenue
on an annualized and incremental basis, across multiple customers,
spanning several end market verticals and in various North American
regions.
Activity at Onstream has also recently inflected, with a
significant increase in activity in the United States, where we
have been aggressively promoting them to our existing midstream
relationships. Both Onstream and our robust acquisition
funnel continue to enhance our MISTRAS digital solutions
initiative, which we see as foundational to our long-term
growth. There continues to be an active market in smaller
acquisitions, many of which could strategically advance MISTRAS
digital solutions. In addition, this quarter we generated
strong operating cash flow, which has always been a strength.”
Performance by segment during the quarter was as follows:
Services segment first quarter revenues
decreased by $5 million or 4%. While currently robust,
turnaround activity in the first quarter ramped up significantly
later than in the first quarter of a year ago; we also generated
approximately $10 million on a contract that was vacated in last
year’s second quarter. Services segment gross profit margins
improved 280 basis points in the first quarter to 26.6% from 23.8%
despite lower revenues as we improve the leverage in our
operations.
International segment first quarter revenues
decreased by $3 million or 9%, primarily due to unfavorable
currency translation but also due to an acceleration in the timing
of the termination of the German staff leasing contract.
International segment gross profit margin was 29.5% in the first
quarter, a 170 basis point improvement from 27.8% in the year ago
quarter. Margins benefited from a more favorable product mix
reflective of a decrease in the proportion of low margin staff
leasing revenues in the quarter.
Products and Systems segment revenue decreased
by $2.8 million or 45% in the first quarter of 2019 compared to the
prior year. Both revenues and margins in the segment reflect
the impact of the 2018 divestment of a product line.
The Company generated $8.2 million of cash flows from operating
activities, an increase of nearly $2.4 million, or 41% from the
first quarter of 2018. Free cash flow in the first quarter
was $2.5 million compared to $0.5 million in the prior year
period.
The Company’s net debt (total debt less cash and cash
equivalents of $24.6 million) was $263.1 million at March 31, 2019,
down from $265.1 million at December 31, 2018.
In the fourth quarter of 2018, the Company recorded a reserve of
$0.7 million for a renewable energy industry customer of the
Company’s Services Division, based in part on the available
information about the financial difficulties of the customer.
This customer filed for a voluntary insolvency proceeding on April
9, 2019 at which time payments under the previously agreed to
payment plan ceased. As a result, during the first quarter of 2019,
the Company recorded an additional charge of $5.7 million to fully
reserve the exposure related to this customer. Separately,
the Company also recorded an additional $0.5 million provision
related to the estimated pension withdrawal liability that was
initially recorded during the third quarter of 2018. We
believe this matter is fully reserved for as of March 31, 2019.
Guidance for 2019
The Company is affirming its planning assumptions and guidance
for 2019. The Company’s outlook remains as follows:
|
Total revenues are expected to be between $765
million to $785 million; |
|
Adjusted EBITDA is expected to be between $90
million and $93 million; |
|
Capital expenditures are expected to be up to $25
million; and |
|
Free cash flow is expected to between $42 million
to $45 million. |
Conference Call
In connection with this release, MISTRAS will hold a conference
call on May 7, 2019 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 dial 1-844-832-7227
and use confirmation code 8288676 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.
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 or contact Nestor S. Makarigakis, Group
Director, Marketing Communications at marcom@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 filed with the
Securities and Exchange Commission on March 15, 2019, 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 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 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 equivalents.
Mistras Group, Inc. and
SubsidiariesCondensed Consolidated Balance
Sheets(in thousands, except share and per share
data)
|
|
(unaudited) |
|
|
|
|
March 31, 2019 |
|
December 31, 2018 |
ASSETS |
|
|
|
|
Current Assets |
|
|
|
|
Cash and
cash equivalents |
|
$ |
24,600 |
|
|
$ |
25,544 |
|
Accounts
receivable, net |
|
138,505 |
|
|
148,324 |
|
Inventories |
|
13,571 |
|
|
13,053 |
|
Prepaid
expenses and other current assets |
|
21,029 |
|
|
15,870 |
|
Total
current assets |
|
197,705 |
|
|
202,791 |
|
Property, plant and
equipment, net |
|
93,916 |
|
|
93,895 |
|
Intangible assets,
net |
|
109,055 |
|
|
111,395 |
|
Goodwill |
|
280,696 |
|
|
279,259 |
|
Deferred income
taxes |
|
2,861 |
|
|
1,930 |
|
Other assets |
|
41,204 |
|
|
4,767 |
|
Total
assets |
|
$ |
725,437 |
|
|
$ |
694,037 |
|
LIABILITIES AND
EQUITY |
|
|
|
|
Current
Liabilities |
|
|
|
|
Accounts
payable |
|
$ |
13,275 |
|
|
$ |
13,863 |
|
Accrued
expenses and other current liabilities |
|
79,641 |
|
|
73,895 |
|
Current
portion of long-term debt |
|
6,787 |
|
|
6,833 |
|
Current
portion of finance lease obligations |
|
3,764 |
|
|
3,922 |
|
Income
taxes payable |
|
3,911 |
|
|
1,958 |
|
Total
current liabilities |
|
107,378 |
|
|
100,471 |
|
Long-term debt, net of
current portion |
|
280,919 |
|
|
283,787 |
|
Obligations under
finance leases, net of current portion |
|
9,046 |
|
|
9,075 |
|
Deferred income
taxes |
|
24,571 |
|
|
23,148 |
|
Other long-term
liabilities |
|
34,427 |
|
|
6,482 |
|
Total
liabilities |
|
456,341 |
|
|
422,963 |
|
Commitments and
contingencies |
|
|
|
|
Equity |
|
|
|
|
Preferred
stock, 10,000,000 shares authorized |
|
— |
|
|
— |
|
Common
stock, $0.01 par value, 200,000,000 shares authorized, 28,626,687
and 28,562,608 shares issued |
|
286 |
|
|
285 |
|
Additional paid-in capital |
|
227,790 |
|
|
226,616 |
|
Retained
earnings |
|
66,260 |
|
|
71,553 |
|
Accumulated other comprehensive loss |
|
(25,426 |
) |
|
(27,557 |
) |
Total
Mistras Group, Inc. stockholders’ equity |
|
268,910 |
|
|
270,897 |
|
Non-controlling interests |
|
186 |
|
|
177 |
|
Total
equity |
|
269,096 |
|
|
271,074 |
|
Total
liabilities and equity |
|
$ |
725,437 |
|
|
$ |
694,037 |
|
Mistras Group, Inc. and
SubsidiariesUnaudited Condensed Consolidated
Statements of (Loss) Income(in thousands, except
per share data)
|
Three months ended |
|
March 31, 2019 |
|
March 31, 2018 |
|
|
|
|
Revenue |
$ |
176,787 |
|
|
$ |
187,630 |
|
Cost of
revenue |
122,417 |
|
|
133,787 |
|
Depreciation |
5,496 |
|
|
5,698 |
|
Gross
profit |
48,874 |
|
|
48,145 |
|
Selling,
general and administrative expenses |
41,763 |
|
|
39,034 |
|
Bad debt
provision for troubled customers, net of recoveries |
5,491 |
|
|
— |
|
Pension
withdrawal expense |
534 |
|
|
— |
|
Research
and engineering |
857 |
|
|
756 |
|
Depreciation and amortization |
4,172 |
|
|
2,950 |
|
Acquisition-related expense (benefit), net |
453 |
|
|
(994 |
) |
(Loss) income
from operations |
(4,396 |
) |
|
6,399 |
|
Interest
expense |
3,527 |
|
|
1,792 |
|
(Loss) income
before (benefit) provision for income taxes |
(7,923 |
) |
|
4,607 |
|
(Benefit)
provision for income taxes |
(2,637 |
) |
|
1,688 |
|
Net (loss)
income |
(5,286 |
) |
|
2,919 |
|
Less: net
income attributable to non-controlling interests, net of taxes |
7 |
|
|
12 |
|
Net (loss)
income attributable to Mistras Group, Inc. |
$ |
(5,293 |
) |
|
$ |
2,907 |
|
(Loss) earnings per
common share: |
|
|
|
Basic |
$ |
(0.19 |
) |
|
$ |
0.10 |
|
Diluted |
$ |
(0.19 |
) |
|
$ |
0.10 |
|
Weighted average common
shares outstanding: |
|
|
|
Basic |
28,574 |
|
|
28,304 |
|
Diluted |
28,574 |
|
|
29,362 |
|
Mistras Group, Inc. and
SubsidiariesUnaudited Operating Data by
Segment(in thousands)
|
Three months ended |
|
March 31, 2019 |
|
March 31, 2018 |
Revenues |
|
|
|
Services |
$ |
140,298 |
|
|
$ |
145,595 |
|
International |
35,162 |
|
|
38,456 |
|
Products
and Systems |
3,432 |
|
|
6,184 |
|
Corporate
and eliminations |
(2,105 |
) |
|
(2,605 |
) |
|
$ |
176,787 |
|
|
$ |
187,630 |
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
March 31, 2019 |
|
March 31, 2018 |
Gross
profit |
|
|
|
Services |
$ |
37,365 |
|
|
$ |
34,710 |
|
International |
10,360 |
|
|
10,707 |
|
Products
and Systems |
1,239 |
|
|
2,890 |
|
Corporate
and eliminations |
(90 |
) |
|
(162 |
) |
|
$ |
48,874 |
|
|
$ |
48,145 |
|
Mistras Group, Inc. and
SubsidiariesUnaudited Reconciliation
ofSegment and Total Company Income (Loss) from
Operations (GAAP) to Income (Loss) before Special Items
(non-GAAP)(in thousands)
|
Three months ended |
|
March 31, 2019 |
|
March 31, 2018 |
Services: |
|
|
|
Income
from operations (GAAP) |
$ |
4,053 |
|
|
$ |
12,275 |
|
Bad debt
provision for troubled customers, net of recoveries |
4,755 |
|
|
— |
|
Pension
withdrawal expense |
534 |
|
|
— |
|
Acquisition-related expense (benefit), net |
305 |
|
|
(1,033 |
) |
Income
before special items (non-GAAP) |
9,647 |
|
|
11,242 |
|
International: |
|
|
|
(Loss)
income from operations (GAAP) |
(215 |
) |
|
920 |
|
Reorganization and other costs |
156 |
|
|
89 |
|
Bad debt
provision for troubled customers, net of recoveries |
736 |
|
|
— |
|
Income
before special items (non-GAAP) |
677 |
|
|
1,009 |
|
Products and
Systems: |
|
|
|
(Loss)
income from operations (GAAP) |
(1,328 |
) |
|
273 |
|
Reorganization and other costs |
— |
|
|
— |
|
(Loss)
income before special items (non-GAAP) |
(1,328 |
) |
|
273 |
|
Corporate and
Eliminations: |
|
|
|
Loss from
operations (GAAP) |
(6,906 |
) |
|
(7,069 |
) |
Reorganization and other costs |
60 |
|
|
— |
|
Acquisition-related expense, net |
148 |
|
|
39 |
|
Loss
before special items (non-GAAP) |
(6,698 |
) |
|
(7,030 |
) |
Total
Company: |
|
|
|
(Loss)
income from operations (GAAP) |
$ |
(4,396 |
) |
|
$ |
6,399 |
|
Pension
withdrawal expense |
534 |
|
|
— |
|
Bad debt
provision for troubled customers, net of recoveries |
5,491 |
|
|
— |
|
Reorganization and other costs |
216 |
|
|
89 |
|
Acquisition-related expense (benefit), net |
453 |
|
|
(994 |
) |
Income
before special items (non-GAAP) |
$ |
2,298 |
|
|
$ |
5,494 |
|
Mistras Group, Inc. and
SubsidiariesUnaudited Summary Cash Flow
Information(in thousands)
|
Three months ended |
|
March 31, 2019 |
|
March 31, 2018 |
Net cash provided by
(used in): |
|
|
|
Operating
activities |
$ |
8,177 |
|
|
$ |
5,818 |
|
Investing
activities |
(5,001 |
) |
|
(4,772 |
) |
Financing
activities |
(3,949 |
) |
|
4,261 |
|
Effect of exchange rate
changes on cash |
(171 |
) |
|
284 |
|
Net change in cash and
cash equivalents |
$ |
(944 |
) |
|
$ |
5,591 |
|
Mistras Group, Inc. and
SubsidiariesUnaudited Reconciliation of Net Cash
Provided by Operating Activities (GAAP) to Free Cash Flow
(non-GAAP)(in thousands)
|
Three months ended |
|
March 31, 2019 |
|
March 31, 2018 |
GAAP: Net cash
provided by operating activities |
$ |
8,177 |
|
|
$ |
5,818 |
|
Less: |
|
|
|
Purchases of
property, plant and equipment |
(5,637 |
) |
|
(5,182 |
) |
Purchases of
intangible assets |
(88 |
) |
|
(165 |
) |
non-GAAP: Free
cash flow |
$ |
2,452 |
|
|
$ |
471 |
|
Mistras Group, Inc. and
SubsidiariesUnaudited Reconciliation
ofNet (Loss) Income to Adjusted
EBITDA(in thousands)
|
Three months ended |
|
March 31, 2019 |
|
March 31, 2018 |
|
|
|
|
|
|
|
|
Net (loss)
income |
$ |
(5,286 |
) |
|
$ |
2,919 |
|
Less: net
income attributable to non-controlling interests, net of taxes |
7 |
|
|
12 |
|
Net (loss)
income attributable to Mistras Group, Inc. |
$ |
(5,293 |
) |
|
$ |
2,907 |
|
Interest expense |
3,527 |
|
|
1,792 |
|
(Benefit) provision for
income taxes |
(2,637 |
) |
|
1,688 |
|
Depreciation and
amortization |
9,668 |
|
|
8,648 |
|
Share-based
compensation expense |
1,356 |
|
|
1,126 |
|
Acquisition-related
expense (benefit), net |
453 |
|
|
(994 |
) |
Reorganization and
other related costs |
216 |
|
|
89 |
|
Pension withdrawal
expense |
534 |
|
|
— |
|
Bad debt provision for
troubled customers, net of recoveries |
5,491 |
|
|
— |
|
Foreign exchange (gain)
loss |
(630 |
) |
|
51 |
|
Adjusted EBITDA |
$ |
12,685 |
|
|
$ |
15,307 |
|
Mistras Group, Inc. and
SubsidiariesUnaudited Reconciliation
ofNet (Loss) Income (GAAP) and Diluted EPS (GAAP)
to Net (Loss) Income Excluding Special Items
(non-GAAP)and Diluted EPS Excluding Special Items
(non-GAAP)(in thousands, except per share
data)
|
|
Three months ended March 31, |
|
|
2019 |
|
2018 |
Net (loss) income
(GAAP) |
|
$ |
(5,293 |
) |
|
$ |
2,907 |
|
Special items, net of
tax |
|
4,485 |
|
|
(570 |
) |
Net (loss) income
Excluding Special Items (non-GAAP) |
|
$ |
(808 |
) |
|
$ |
2,337 |
|
|
|
|
|
|
Diluted EPS (GAAP) |
|
$ |
(0.19 |
) |
|
$ |
0.10 |
|
Special items, net of
tax |
|
0.16 |
|
|
(0.02 |
) |
Diluted EPS Excluding
Special Items (non-GAAP) |
|
$ |
(0.03 |
) |
|
$ |
0.08 |
|
Media Contact: Nestor S. Makarigakis, Group
Director of Marketing Communicationsmarcom@mistrasgroup.com1 (609)
716-4000
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