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, 2020.
Chief Executive Officer Dennis Bertolotti stated, “Mistras
continues to provide the essential services that help organizations
comply with increasingly complex environmental, safety and other
regulations. In these challenging times our employees remain
on the front line, now focused not only on the safety of the
facilities they serve, but on their health as well as the health of
those around them. I am proud of how our team has responded to
these conditions, delivering outstanding service while
simultaneously positioning Mistras to emerge from this global
pandemic stronger and better prepared to further our industry
leadership.”
“As recently forecasted, revenues were down in the first quarter
of 2020 compared to a year ago, though less than anticipated due to
our ability to quickly react to dynamic market conditions.
This reduction impacted margins and profits.”
“Cash flows held strong at $6.1 million, representing one of the
recurring strengths of our business model. Overhead spending
reflects the costs inherited in our New Century acquisition and
spending levels prior to the cost reductions that were put in place
at the start of the second quarter. Overhead spending is
expected to be down approximately 10% over the balance of the year,
as a result of the strategic actions implemented. Consequently, we
remain optimistic we will achieve our plan to generate positive
operating cash flow and adjusted EBITDA, each and every quarter
this year, thereby enabling us to fund operations as well as reduce
our total outstanding debt by year end. We amended our credit
facility effective May 15, 2020, providing for more flexibility in
covenants and saving interest on previously unused capacity, while
maintaining a sufficient level of liquidity.”
“The severe contraction in near term economic activity is
causing delays in projects, primarily in the energy markets, the
result of which will be further decreases in revenues in the second
quarter of 2020. Beyond the second quarter 2020, recent
stabilization in the crude oil markets and the relaxing of certain
stay-in-place mandates are allowing some of our energy industry
customers to consider commencing delayed projects and restarting
idled projects over the second half of the year. While it is
extremely difficult to forecast with any degree of certainty, we
are optimistic the second quarter will represent the low point of
the year, with our prospects progressively improving in the third
and fourth quarter. This should result in operating cash flow
and adjusted EBITDA up significantly in the second half of the year
from the first half of the year. Our plan is to exit fiscal
2020 on a growth trajectory and with momentum heading into next
year.”
“Mistras has previously overcome stiff headwinds and we will
emerge from these challenges all the stronger for it. We are
confident that our long-term prospects have not changed. Our
strategy to continually increase the value we deliver through
innovative new technology, expansion into complementary adjacent
businesses, and the introduction of new services will strengthen
our business and create value for shareholders.”
Performance by key segments during the quarter was as
follows:
Services segment first quarter revenues
decreased by $11.4 million or 8.1%, consistent with the slowdown in
energy markets anticipated last quarter. For the first quarter,
gross profit margins were 25.0%, down from the year-ago quarter of
26.6% due to a lower level of utilization created by the first
quarter energy market slowdown.
International segment first quarter revenues
decreased by $6.1 million or 17.3%, consistent with the anticipated
slowdown in aerospace as well as the continued runoff of the
European Staff Leasing business, in addition to unfavorable
currency translation. International segment first quarter gross
profit margin was 27.6%, down from the year ago quarter of
29.5%.
Non-Cash Impairment ChargesDuring the first
quarter of 2020, the impact of COVID-19 and drop in crude oil
prices was deemed to be a triggering event, requiring the Company
to perform an interim assessment. As a result, the Company recorded
non-cash $106.1 million impairment charges in the first quarter of
2020, comprised of $77.1 million related to goodwill and $29.0
million related to primarily intangible assets. On an
after-tax basis, this was $92.1 million or $3.18 per diluted share.
Since this was a non-cash charge, it had no other impact on
Mistras’ ongoing operations.
Credit Agreement AmendedAlthough the Company
was in compliance with its bank covenants at March 31, 2020, it
nevertheless executed an amendment effective May 15, 2020 to gain
additional covenant flexibility. The Company maintained the
remaining maturity of its existing credit agreement through
December 2023 including a $94 million term loan, but reduced its
revolving credit line to a maximum of $175 million, ensuring an
adequate level of liquidity to fund its business. The Company
additionally maintains a $100 million uncommitted accordion within
the amended credit agreement, for potential expansion in the
future.
The Company’s net debt (total debt less cash and cash
equivalents) was $241.0 million at March 31, 2020, compared to
$239.7 million at December 31, 2019. Gross debt increased by $3.3
million during the first quarter of 2020, from $254.7 million at
the end of the year to $258.0 million at March 31, 2020.
The Company generated $6.1 million of cash flows from operating
activities in the first quarter of 2020, compared with $8.2 million
in the year ago period. The Company generated a net loss of
$98.5 million in the first quarter of 2020, compared with a net
loss of $5.3 million the prior year period, due primarily to the
aforementioned non-cash impairment charges. The Company generated
adjusted EBITDA of $5.4 million in the first quarter of 2020,
compared with $12.7 million in the prior year period.
Guidance for 2020Ongoing macro concerns
attributable to the impact of COVID-19 coronavirus, continue to put
crude oil prices under intense pressure. Given the continuing
economic uncertainty, the Company is not providing guidance for the
full year 2020. The Company does anticipate revenues for the second
quarter of 2020 to decrease up to high 30% from the prior period
level, although cash from operations and adjusted EBITDA are
expected to remain positive. While it is extremely difficult
to forecast with any degree of certainty at this time, the Company
is optimistic that consolidated revenue in the second half of 2020
will be higher than the first half of 2020 with corresponding
improvements in both cash flow and adjusted EBITDA. This
outlook is contingent on continuing macroeconomic improvements,
including stabilization in the crude oil markets and the
relaxing of certain stay-in-place mandates.
Conference CallIn connection with this release,
MISTRAS will hold a conference call on May 19, 2020 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 6350977 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 and aerospace components. 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; mechanical integrity ("MI") and non-destructive
testing ("NDT") services; destructive testing services; and its
proprietary world class data warehousing and analysis software and
online monitoring - 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
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.
Mistras Group, Inc. and
SubsidiariesCondensed Consolidated Balance
Sheets(in thousands, except share and per share data)
|
|
March 31, 2020 |
|
December 31, 2019 |
ASSETS |
|
(unaudited) |
|
|
Current Assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
17,027 |
|
|
$ |
15,016 |
|
Accounts receivable, net |
|
125,130 |
|
|
135,997 |
|
Inventories |
|
13,510 |
|
|
13,413 |
|
Prepaid expenses and other current assets |
|
13,151 |
|
|
14,729 |
|
Total current assets |
|
168,818 |
|
|
179,155 |
|
Property, plant and equipment,
net |
|
94,971 |
|
|
98,607 |
|
Intangible assets, net |
|
72,019 |
|
|
109,537 |
|
Goodwill |
|
196,289 |
|
|
282,410 |
|
Deferred income taxes |
|
1,910 |
|
|
1,786 |
|
Other assets |
|
49,538 |
|
|
48,383 |
|
Total assets |
|
$ |
583,545 |
|
|
$ |
719,878 |
|
LIABILITIES AND
EQUITY |
|
|
|
|
Current Liabilities |
|
|
|
|
Accounts payable |
|
$ |
13,110 |
|
|
$ |
15,033 |
|
Accrued expenses and other current liabilities |
|
75,156 |
|
|
81,389 |
|
Current portion of long-term debt |
|
7,240 |
|
|
6,593 |
|
Current portion of finance lease obligations |
|
3,847 |
|
|
4,131 |
|
Income taxes payable |
|
2,067 |
|
|
2,094 |
|
Total current liabilities |
|
101,420 |
|
|
109,240 |
|
Long-term debt, net of current
portion |
|
250,786 |
|
|
248,120 |
|
Obligations under finance
leases, net of current portion |
|
12,401 |
|
|
13,043 |
|
Deferred income taxes |
|
6,761 |
|
|
21,290 |
|
Other long-term
liabilities |
|
40,424 |
|
|
42,163 |
|
Total liabilities |
|
411,792 |
|
|
433,856 |
|
Commitments and
contingencies |
|
|
|
|
Equity |
|
|
|
|
Preferred stock, 10,000,000 shares authorized |
|
— |
|
|
— |
|
Common stock, $0.01 par value, 200,000,000 shares authorized,
29,042,069 and 28,945,472 shares issued |
|
290 |
|
|
289 |
|
Additional paid-in capital |
|
230,472 |
|
|
229,205 |
|
Retained earnings (deficit) |
|
(20,896 |
) |
|
77,613 |
|
Accumulated other comprehensive loss |
|
(38,294 |
) |
|
(21,285 |
) |
Total Mistras Group, Inc. stockholders’ equity |
|
171,572 |
|
|
285,822 |
|
Non-controlling interests |
|
181 |
|
|
200 |
|
Total equity |
|
171,753 |
|
|
286,022 |
|
Total liabilities and equity |
|
$ |
583,545 |
|
|
$ |
719,878 |
|
|
|
|
|
|
|
|
|
|
Mistras Group, Inc. and
SubsidiariesUnaudited Condensed Consolidated
Statements of Income (Loss)(in thousands, except per share
data)
|
Three months ended |
|
March 31, 2020 |
|
March 31, 2019 |
|
|
|
|
Revenue |
$ |
159,465 |
|
|
$ |
176,787 |
|
Cost of revenue |
113,324 |
|
|
122,417 |
|
Depreciation |
5,497 |
|
|
5,496 |
|
Gross
profit |
40,644 |
|
|
48,874 |
|
Selling, general and administrative expenses |
41,558 |
|
|
41,763 |
|
Bad debt provision for troubled customers, net of recoveries |
— |
|
|
5,491 |
|
Impairment charges |
106,062 |
|
|
— |
|
Pension withdrawal expense |
— |
|
|
534 |
|
Research and engineering |
824 |
|
|
857 |
|
Depreciation and amortization |
3,970 |
|
|
4,172 |
|
Acquisition-related expense, net |
(542 |
) |
|
453 |
|
Loss from
operations |
(111,228 |
) |
|
(4,396 |
) |
Interest expense |
2,789 |
|
|
3,527 |
|
Loss before provision
(benefit) for income taxes |
(114,017 |
) |
|
(7,923 |
) |
Provision for income taxes |
(15,495 |
) |
|
(2,637 |
) |
Net loss |
(98,522 |
) |
|
(5,286 |
) |
Less: Net income (loss) attributable to non-controlling interests,
net of taxes |
(13 |
) |
|
7 |
|
Net loss attributable
to Mistras Group, Inc. |
$ |
(98,509 |
) |
|
$ |
(5,293 |
) |
|
|
|
|
Earnings (loss) per common
share: |
|
|
|
Basic |
$ |
(3.40 |
) |
|
$ |
(0.19 |
) |
Diluted |
$ |
(3.40 |
) |
|
$ |
(0.19 |
) |
Weighted-average common shares
outstanding: |
|
|
0 |
Basic |
28,963 |
|
|
28,574 |
|
Diluted |
28,963 |
|
|
28,574 |
|
|
|
|
|
|
|
Mistras Group, Inc. and
SubsidiariesUnaudited Operating Data by
Segment(in thousands)
|
Three months ended |
|
March 31, 2020 |
|
March 31, 2019 |
Revenues |
|
|
|
Services |
$ |
128,873 |
|
|
$ |
140,298 |
|
International |
29,067 |
|
|
35,162 |
|
Products and Systems |
2,812 |
|
|
3,432 |
|
Corporate and eliminations |
(1,287 |
) |
|
(2,105 |
) |
|
$ |
159,465 |
|
|
$ |
176,787 |
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
March 31, 2020 |
|
March 31, 2019 |
Gross
profit |
|
|
|
Services |
$ |
32,237 |
|
|
$ |
37,365 |
|
International |
8,023 |
|
|
10,360 |
|
Products and Systems |
368 |
|
|
1,239 |
|
Corporate and eliminations |
16 |
|
|
(90 |
) |
|
$ |
40,644 |
|
|
$ |
48,874 |
|
|
|
|
|
|
|
|
|
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 |
|
March 31, 2020 |
|
March 31, 2019 |
Services: |
|
|
|
Income (loss) from operations (GAAP) |
$ |
(81,494 |
) |
|
$ |
4,053 |
|
Bad debt provision for troubled customers, net of recoveries |
— |
|
|
4,755 |
|
Impairment charges |
86,200 |
|
|
— |
|
Pension withdrawal expense |
— |
|
|
534 |
|
Acquisition and reorganization expense (benefit), net |
(520 |
) |
|
305 |
|
Income before special items (non-GAAP) |
$ |
4,186 |
|
|
$ |
9,647 |
|
International: |
|
|
|
Loss from operations (GAAP) |
$ |
(20,419 |
) |
|
$ |
(215 |
) |
Bad debt provision for troubled customers, net of recoveries |
— |
|
|
736 |
|
Impairment charges |
19,862 |
|
|
— |
|
Acquisition and reorganization expense (benefit), net |
(75 |
) |
|
156 |
|
Income (loss) before special items (non-GAAP) |
$ |
(632 |
) |
|
$ |
677 |
|
Products and
Systems: |
|
|
|
Loss from operations (GAAP) |
$ |
(1,680 |
) |
|
$ |
(1,328 |
) |
Loss before special items (non-GAAP) |
$ |
(1,680 |
) |
|
$ |
(1,328 |
) |
Corporate and
Eliminations: |
|
|
|
Loss from operations (GAAP) |
$ |
(7,635 |
) |
|
$ |
(6,906 |
) |
Reorganization and other costs |
— |
|
|
— |
|
Acquisition and reorganization expense (benefit), net |
38 |
|
|
208 |
|
Loss before special items (non-GAAP) |
$ |
(7,597 |
) |
|
$ |
(6,698 |
) |
Total
Company: |
|
|
|
Loss from operations (GAAP) |
$ |
(111,228 |
) |
|
$ |
(4,396 |
) |
Bad debt provision for troubled customers, net of recoveries |
— |
|
|
5,491 |
|
Impairment charges |
106,062 |
|
|
— |
|
Pension withdrawal expense |
— |
|
|
534 |
|
Acquisition and reorganization expense (benefit), net |
(557 |
) |
|
$ |
669 |
|
Income (loss) before special items (non-GAAP) |
$ |
(5,723 |
) |
|
$ |
2,298 |
|
|
|
|
|
|
|
|
|
Mistras Group, Inc. and
SubsidiariesUnaudited Summary Cash Flow
Information(in thousands)
|
Three months ended |
|
March 31, 2020 |
|
March 31, 2019 |
Net cash provided by
(used in): |
|
|
|
Operating activities |
$ |
6,107 |
|
|
$ |
8,177 |
|
Investing activities |
(4,204 |
) |
|
(5,001 |
) |
Financing activities |
492 |
|
|
(3,949 |
) |
Effect of exchange rate changes on cash |
(384 |
) |
|
(171 |
) |
Net change in cash and
cash equivalents |
$ |
2,011 |
|
|
$ |
(944 |
) |
|
|
|
|
|
|
|
|
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, 2020 |
|
March 31, 2019 |
Net cash provided by operating activities
(GAAP) |
$ |
6,107 |
|
|
$ |
8,177 |
|
Less: |
|
|
|
Purchases of property, plant and equipment |
(4,301 |
) |
|
(5,637 |
) |
Purchases of intangible assets |
(87 |
) |
|
(88 |
) |
Free cash flow
(non-GAAP) |
$ |
1,719 |
|
|
$ |
2,452 |
|
|
|
|
|
|
|
|
|
Mistras Group, Inc. and
SubsidiariesUnaudited Reconciliation of
Net Income (Loss) (GAAP) to Adjusted EBITDA
(non-GAAP)(in thousands)
|
Three months ended |
|
March 31, 2020 |
|
March 31, 2019 |
|
|
Net loss (GAAP) |
$ |
(98,522 |
) |
|
$ |
(5,286 |
) |
Less: Net income (loss) attributable to non-controlling interests,
net of taxes |
(13 |
) |
|
7 |
|
Net loss attributable
to Mistras Group, Inc. |
$ |
(98,509 |
) |
|
$ |
(5,293 |
) |
Interest expense |
2,789 |
|
|
3,527 |
|
Benefit for income taxes |
(15,495 |
) |
|
(2,637 |
) |
Depreciation and amortization |
9,467 |
|
|
9,668 |
|
Share-based compensation expense |
1,345 |
|
|
1,356 |
|
Impairment charges |
106,062 |
|
|
— |
|
Acquisition-related expense (benefit), net |
(542 |
) |
|
453 |
|
Reorganization and other related costs (benefit) |
— |
|
|
216 |
|
Pension withdrawal expense |
— |
|
|
534 |
|
Bad debt provision for troubled customers, net of recoveries |
— |
|
|
5,491 |
|
Foreign exchange (gain) loss |
303 |
|
|
(630 |
) |
Adjusted EBITDA
(non-GAAP) |
$ |
5,420 |
|
|
$ |
12,685 |
|
|
|
|
|
|
|
|
|
Mistras Group, Inc. and
SubsidiariesUnaudited Reconciliation
ofNet Loss (GAAP) and Diluted EPS (GAAP) to Net
Loss Excluding Special Items (non-GAAP) and
Diluted EPS Excluding Special Items (non-GAAP)(in
thousands, except per share data)
|
Three months ended |
|
March 31, 2020 |
|
March 31, 2019 |
Net loss attributable to Mistras Group, Inc.
(GAAP) |
$ |
(98,509 |
) |
|
$ |
(5,293 |
) |
Special items |
105,505 |
|
|
6,694 |
|
Tax impact on special items |
(13,842 |
) |
|
(2,209 |
) |
Special items, net of tax |
$ |
91,663 |
|
|
$ |
4,485 |
|
Net loss attributable
to Mistras Group, Inc. Excluding Special Items
(non-GAAP) |
$ |
(6,846 |
) |
|
$ |
(808 |
) |
|
|
|
|
Diluted EPS
(GAAP)(1) |
$ |
(3.40 |
) |
|
$ |
(0.19 |
) |
Special items, net of tax |
3.16 |
|
|
0.16 |
|
Diluted EPS Excluding
Special Items (non-GAAP) |
$ |
(0.24 |
) |
|
$ |
(0.03 |
) |
_______________(1) For the three months ended March 31, 2020, 99
shares related to restricted stock were excluded from the
calculation of diluted EPS due to the net loss for the period. For
the three months ended March 31, 2019, 212 and 168 shares related
to stock options and restricted stock, respectively, were excluded
from the calculation of diluted EPS due to the net loss for the
period.
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