UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2022



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __ to __

Commission file number ~~001- 34481~~

001-34481

Mistras Group, Inc.

(Exact name of registrant as specified in its charter)



~~Delaware~~

	~~22-3341267~~
Delaware			22-3341267
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

195 Clarksville Road ~~Princeton Junction, New Jersey~~			~~08550~~
Princeton Junction,		New Jersey	08550
(Address of principal executive offices)			(Zip Code)

(609) 716-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

ý Yes o No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

ý Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller

reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filero

Accelerated filer

Non-accelerated filero

Smaller reporting companyo

☐

~~(Do not check if a smaller reporting company)~~

Emerging Growth Companyo

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o☐ Yes ý No

As of ~~November 2, 2017,~~July 29, 2022, the registrant had ~~28,290,709~~29,806,941 shares of common stock ~~outstanding and 1,146,249 shares of treasury stock.~~outstanding.

Table of Contents

TABLE OF CONTENTS



			PAGE
PART I—FINANCIAL INFORMATION

	ITEM 1.	Financial Statements	1

		Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2022 (unaudited) and December 31, ~~2016~~2021	1

		Unaudited Condensed Consolidated Statements of Income (Loss) for thethree and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~September~~June 30, ~~2016~~2021	2

		Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~September~~June 30, ~~2016~~2021	3

		Unaudited Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2022 and June 30, 2021	4

		Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~September~~June 30, ~~2016~~2021	45

		Notes to Unaudited Condensed Consolidated Financial Statements	56

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2026

	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	2737

	ITEM 4	Controls and Procedures	2737

PART II—OTHER INFORMATION

	ITEM 1.	Legal Proceedings	2838

	ITEM 1.A.	Risk Factors	2838

	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2838

	ITEM 3.	Defaults Upon Senior Securities	2838

	ITEM 4.	Mine Safety Disclosures	2838

	ITEM 5.	Other Information	2938

	ITEM 6.	Exhibits	3039

SIGNATURES			3140

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1.Financial Statements

Mistras Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share ~~data)~~data)


	(unaudited)
	September 30, 2017			December 31, 2016				June 30, 2022		December 31, 2021
ASSETS							ASSETS	(unaudited)
Current Assets							Current Assets
Cash and cash equivalents	$	26,863		$	19,154		Cash and cash equivalents	$	18,609	$	24,110
Accounts receivable, net	140,189			130,852			Accounts receivable, net	129,572		109,511
Inventories	11,237			10,017			Inventories	12,967		12,686
Deferred income taxes	—			6,230
Prepaid expenses and other current assets	16,077			16,399			Prepaid expenses and other current assets	11,768		15,031
Total current assets	194,366			182,652			Total current assets	172,916		161,338
Property, plant and equipment, net	77,173			73,149			Property, plant and equipment, net	80,585		86,578
Intangible assets, net	42,242			40,007			Intangible assets, net	54,278		59,381
Goodwill	165,704			169,940			Goodwill	203,106		205,439
Deferred income taxes	2,108			1,086			Deferred income taxes	1,232		2,174
Other assets	2,829			2,593			Other assets	43,425		47,285
Total assets	$	484,422		$	469,427		Total assets	$	555,542	$	562,195
LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current Liabilities							Current Liabilities
Accounts payable	$	8,925		$	6,805		Accounts payable	$	17,328	$	12,870
Accrued expenses and other current liabilities	65,608			58,697			Accrued expenses and other current liabilities	84,835		83,863
Current portion of long-term debt	2,490			1,379			Current portion of long-term debt	21,227		20,162
Current portion of capital lease obligations	6,261			6,488
Current portion of finance lease obligations							Current portion of finance lease obligations	3,844		3,765
Income taxes payable	4,576			4,342			Income taxes payable	148		755
Total current liabilities	87,860			77,711			Total current liabilities	127,382		121,415
Long-term debt, net of current portion	101,803			85,917			Long-term debt, net of current portion	179,162		182,403
Obligations under capital leases, net of current portion	8,349			9,682
Obligations under finance leases, net of current portion							Obligations under finance leases, net of current portion	9,444		9,752
Deferred income taxes	9,238			17,584			Deferred income taxes	8,566		8,385
Other long-term liabilities	9,510			7,789			Other long-term liabilities	36,727		39,328
Total liabilities	216,760			198,683			Total liabilities	361,281		361,283
Commitments and contingencies							Commitments and contingencies	0		0
Equity							Equity
Preferred stock, 10,000,000 shares authorized	—			—			Preferred stock, 10,000,000 shares authorized	—		—
Common stock, $0.01 par value, 200,000,000 shares authorized, 29,434,816 and 29,216,745 shares issued	294			292
Common stock, $0.01 par value, 200,000,000 shares authorized, 29,807,038 and 29,546,263 shares issued and outstanding							Common stock, $0.01 par value, 200,000,000 shares authorized, 29,807,038 and 29,546,263 shares issued and outstanding	297		295
Additional paid-in capital	221,149			217,211			Additional paid-in capital	240,697		238,687
Treasury stock, at cost, 1,146,249 and 420,258 shares	(24,923		)	(9,000		)
Retained earnings	88,744			91,803
Accumulated deficit							Accumulated deficit	(18,708)		(17,988)
Accumulated other comprehensive loss	(17,789		)	(29,724		)	Accumulated other comprehensive loss	(28,287)		(20,311)
Total Mistras Group, Inc. stockholders’ equity	267,475			270,582			Total Mistras Group, Inc. stockholders’ equity	193,999		200,683
Non-controlling interests	187			162			Non-controlling interests	262		229
Total equity	267,662			270,744			Total equity	194,261		200,912
Total liabilities and equity	$	484,422		$	469,427		Total liabilities and equity	$	555,542	$	562,195

The accompanying notes are an integral part of these ~~condensed consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Income (Loss)

(in thousands, except per share ~~data)~~data)


	Three months ended					Nine months ended							Three months ended June 30,				Six months ended June 30,
	September 30, 2017			September 30, 2016		September 30, 2017			September 30, 2016				2022		2021		2022		2021

Revenue	$	179,570		$	168,811	$	513,326		$	514,606		Revenue	$	179,031	$	177,677	$	340,693	$	331,412
Cost of revenue	126,316			112,754		360,144			352,027			Cost of revenue	119,980		116,787		235,738		225,030
Depreciation	5,357			5,406		15,790			16,423			Depreciation	5,493		5,554		11,505		11,045
Gross profit	47,897			50,651		137,392			146,156			Gross profit	53,558		55,336		93,450		95,337
Selling, general and administrative expenses	38,217			34,995		113,491			107,266			Selling, general and administrative expenses	40,676		39,719		82,712		79,358
Impairment charges	15,810			—		15,810			—
Bad debt provision for troubled customers, net of recoveries												Bad debt provision for troubled customers, net of recoveries	289		—		289		—

Legal settlement and insurance recoveries, net												Legal settlement and insurance recoveries, net	(153)		—		(994)		1,030
Research and engineering	555			643		1,749			1,928			Research and engineering	522		620		1,073		1,347
Depreciation and amortization	2,738			2,513		7,854			8,140			Depreciation and amortization	2,635		3,078		5,430		6,152
Litigation charges	1,200			—		1,200			6,320
Acquisition-related expense (benefit), net	(248		)	384		(589		)	(99		)
Income (loss) from operations	(10,375		)	12,116		(2,123		)	22,601
Acquisition-related expense, net												Acquisition-related expense, net	13		545		63		822
Income from operations												Income from operations	9,576		11,374		4,877		6,628
Interest expense	1,081			778		3,114			2,218			Interest expense	2,117		3,155		4,055		6,368
Income (loss) before (benefit) provision for income taxes	(11,456		)	11,338		(5,237		)	20,383
(Benefit) provision for income taxes	(4,503		)	4,083		(2,199		)	6,908
Net income (loss)	(6,953		)	7,255		(3,038		)	13,475
Less: net income attributable to non-controlling interests, net of taxes	15			17		21			29
Net income (loss) attributable to Mistras Group, Inc.	$	(6,968	)	$	7,238	$	(3,059	)	$	13,446
Earnings (loss) per common share:
Income before provision (benefit) for income taxes												Income before provision (benefit) for income taxes	7,459		8,219		822		260
Provision (benefit) for income taxes												Provision (benefit) for income taxes	2,793		2,274		1,509		(326)
Net Income (Loss)												Net Income (Loss)	4,666		5,945		(687)		586
Less: net income attributable to noncontrolling interests, net of taxes												Less: net income attributable to noncontrolling interests, net of taxes	23		8		33		11
Net Income (Loss) attributable to Mistras Group, Inc.												Net Income (Loss) attributable to Mistras Group, Inc.	$	4,643	$	5,937	$	(720)	$	575

Earnings (loss) per common share												Earnings (loss) per common share
Basic	$	(0.25	)	$	0.25	$	(0.11	)	$	0.46		Basic	$	0.15	$	0.20	$	(0.02)	$	0.02
Diluted	$	(0.25	)	$	0.24	$	(0.11	)	$	0.45		Diluted	$	0.15	$	0.20	$	(0.02)	$	0.02
Weighted average common shares outstanding:
Weighted-average common shares outstanding:												Weighted-average common shares outstanding:
Basic	28,274			29,051		28,465			28,966			Basic	29,957		29,602		29,840		29,514
Diluted	28,274			30,231		28,465			30,139			Diluted	30,233		30,136		29,840		30,039

The accompanying notes are an integral part of these ~~condensed consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(in ~~thousands)~~thousands)

Three months ended Nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016

Net income (loss) $ (6,953 ) $ 7,255
$ (3,038 ) $ 13,475
Other comprehensive income:

Foreign currency translation adjustments 4,443
(2,641 ) 11,935
1,966
Comprehensive income (loss) (2,510 ) 4,614
8,897
15,441
Less: comprehensive income attributable to non-controlling interest 16
13
25
25
Comprehensive income (loss) attributable to Mistras Group, Inc. $ (2,526 ) $ 4,601
$ 8,872
$ 15,416


	Three months ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Net Income (loss)	$	4,666	$	5,945	$	(687)	$	586
Other comprehensive income (loss):
Foreign currency translation adjustments	(8,531)		2,947		(7,976)		2,355
Comprehensive Income (Loss)	(3,865)		8,892		(8,663)		2,941
Less: net income attributable to noncontrolling interest	23		8		33		11
Less: Foreign currency translation adjustments attributable to noncontrolling interests	—		1		—		1
Comprehensive income (loss) attributable to Mistras Group, Inc	$	(3,888)	$	8,883	$	(8,696)	$	2,929

The accompanying notes are an integral part of these ~~condensed consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Equity

(in thousands)


	Three months ended
	Common Stock				Additional paid-in capital		Retained earnings (deficit)		Accumulated other comprehensive income (loss)		Total Mistras Group, Inc. Stockholders’ Equity		Noncontrolling Interest
	Shares		Amount												Total Equity

Balance at March 31, 2022	$	29,720	$	297	$	239,656	$	(23,351)	$	(19,756)	$	196,846	$	239	$	197,085
Net income	—		—		—		4,643		—		4,643		23		4,666
Other comprehensive loss, net of tax	—		—		—		—		(8,531)		(8,531)		—		(8,531)
Share-based compensation	—		—		1,255		—		—		1,255		—		1,255
Net settlement of restricted stock units	87		—		(214)		—		—		(214)		—		(214)

Balance at June 30, 2022	29,807		$	297	$	240,697	$	(18,708)	$	(28,287)	$	193,999	$	262	$	194,261

Balance at March 31, 2021	$	29,347	$	293	$	235,413	$	(27,210)	$	(16,653)	$	191,843	$	201	$	192,044
Net income	—		—		—		5,937		—		5,937		8		5,945
Other comprehensive income, net of tax	—		—		—		—		2,946		2,946		1		2,947
Share-based payments	—		—		1,202		—		—		1,202		—		1,202
Net settlement of restricted stock units	85		1		(490)		—		—		(489)		—		(489)

Balance at June 30, 2021	29,432		$	294	$	236,125	$	(21,273)	$	(13,707)	$	201,439	$	210	$	201,649


	Six months ended
	Common Stock			Additional paid-in capital		Retained earnings (deficit)		Accumulated other comprehensive income (loss)		Total Mistras Group, Inc. Stockholders’ Equity		Noncontrolling Interest
	Shares	Amount												Total Equity

Balance at December 31, 2021	29,546	$	295	$	238,687	$	(17,988)	$	(20,311)	$	200,683	$	229	$	200,912
Net income (loss)	—	—		—		(720)		—		(720)		33		(687)
Other comprehensive loss, net of tax	—	—		—		—		(7,976)		(7,976)		—		(7,976)
Share-based compensation	—	—		2,770		—		—		2,770		—		2,770
Net settlement of restricted stock units	261	2		(760)		—		—		(758)		—		(758)

Balance at June 30, 2022	29,807	$	297	$	240,697	$	(18,708)	$	(28,287)	$	193,999	$	262	$	194,261

Balance at December 31, 2020	29,234	$	292	$	234,638	$	(21,848)	$	(16,061)	$	197,021	$	198	$	197,219
Net income	—	—		—		575		—		575		11		586
Other comprehensive income, net of tax	—	—		—		—		2,354		2,354		1		2,355
Share-based compensation	—	—		2,464		—		—		2,464		—		2,464
Net settlement of restricted stock units	198	2		(977)		—		—		(975)		—		(975)


Balance at June 30, 2021	29,432	$	294	$	236,125	$	(21,273)	$	(13,707)	$	201,439	$	210	$	201,649

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in ~~thousands)~~thousands)


	Six months ended June 30,
	2022		2021

Cash flows from operating activities
Net income (loss)	$	(687)	$	586
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization	16,935		17,197

Deferred income taxes	(80)		(152)
Share-based compensation expense	2,770		2,464

Fair value adjustments to contingent consideration	45		788
Foreign currency loss	4		932

Other	709		(64)
Changes in operating assets and liabilities, net of effect of acquisitions
Accounts receivable	(23,035)		(15,577)
Inventories	(430)		279
Prepaid expenses and other assets	5,198		299
Accounts payable	4,790		3,751
Accrued expenses and other liabilities	2,676		9,053
Income taxes payable	(553)		(1,430)
Payment of contingent consideration liability in excess of acquisition-date fair value	(533)		—
Net cash provided by operating activities	7,809		18,126
Cash flows from investing activities
Purchase of property, plant and equipment	(6,692)		(10,188)

Purchase of intangible assets	(399)		(618)
Acquisition of business, net of cash acquired	—		(411)
Proceeds from sale of equipment	592		899

Net cash used in investing activities	(6,499)		(10,318)
Cash flows from financing activities
Repayment of finance lease obligations	(2,138)		(2,050)

Repayment of long-term debt	(9,507)		(7,957)
Proceeds from revolver	56,000		37,000
Repayment of revolver	(48,250)		(37,500)
Payment of financing costs	—		(550)
Payment of contingent consideration for business acquisitions	(405)		(938)
Taxes paid related to net share settlement of share-based awards	(756)		(975)

Net cash used in financing activities	(5,056)		(12,970)
Effect of exchange rate changes on cash and cash equivalents	(1,755)		(656)
Net change in cash and cash equivalents	(5,501)		(5,818)
Cash and cash equivalents at beginning of period	24,110		25,760
Cash and cash equivalents at end of period	$	18,609	$	19,942
Supplemental disclosure of cash paid
Interest, net	$	3,525	$	5,898
Income taxes, net of refunds	$	(3,466)	$	3,135
Noncash investing and financing
Equipment acquired through finance lease obligations	$	2,039	$	1,623

Nine months ended
September 30, 2017 September 30, 2016

Cash flows from operating activities

Net income (loss) $ (3,038 ) $ 13,475
Adjustments to reconcile net income (loss) to net cash provided by operating activities

Depreciation and amortization 23,644
24,563
Impairment charges 15,810
—
Deferred income taxes (4,755 ) 512
Share-based compensation expense 5,179
5,161
Bad debt provision for unexpected customer bankruptcy 1,200
—
Fair value adjustments to contingent consideration (880 ) (582 )
Other 226
(2,017 )
Changes in operating assets and liabilities, net of effect of acquisitions

Accounts receivable (4,017 ) 9,968
Inventories (838 ) 200
Prepaid expenses and other assets 995
(2,777 )
Accounts payable 1,466
(1,761 )
Accrued expenses and other liabilities 668
5,247
Income taxes payable (434 ) 120
Net cash provided by operating activities 35,226
52,109
Cash flows from investing activities

Purchase of property, plant and equipment (14,413 ) (11,238 )
Purchase of intangible assets (941 ) (1,106 )
Acquisition of businesses, net of cash acquired (8,356 ) (1,200 )
Proceeds from sale of equipment 1,194
1,057
Net cash used in investing activities (22,516 ) (12,487 )
Cash flows from financing activities

Repayment of capital lease obligations (4,878 ) (6,703 )
Proceeds from borrowings of long-term debt 5,599
761
Repayment of long-term debt (1,638 ) (12,187 )
Proceeds from revolver 38,400
38,200
Repayment of revolver (26,900 ) (49,000 )
Payment of contingent consideration for business acquisitions (554 ) (2,919 )
Purchases of treasury stock (15,923 ) —
Taxes paid related to net share settlement of share-based awards (1,497 ) (2,146 )
Excess tax benefit from share-based compensation —
646
Proceeds from exercise of stock options 277
857
Net cash used in financing activities (7,114 ) (32,491 )
Effect of exchange rate changes on cash and cash equivalents 2,113
(221 )
Net change in cash and cash equivalents 7,709
6,910
Cash and cash equivalents

Beginning of period 19,154
9,599
End of period $ 26,863
$ 16,509
Supplemental disclosure of cash paid

Interest $ 3,031
$ 2,454
Income taxes $ 2,868
$ 9,562
Noncash investing and financing

Equipment acquired through capital lease obligations $ 2,824
$ 7,408
Issuance of notes payable and other debt obligations, primarily related to acquisitions $ —
$ 325

The accompanying notes are an integral part of these ~~condensed consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

1.Description of Business and Basis of Presentation

Description of Business

Mistras Group, Inc. and subsidiaries ~~("the Company")~~(the Company) is a leading “one source” ~~global~~multinational provider of integrated technology-enabled asset protection solutions ~~used~~helping to ~~evaluate~~maximize the ~~structural integrity~~safety and ~~reliability of~~operational uptime for civilization’s most critical ~~energy,~~ industrial and ~~public infrastructure. The~~civil assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, strong commitment to Environmental, Social, and Governance (ESG) initiatives and decades-long legacy of industry leadership, the Company combines industry-leading products and technologies, expertise in mechanical integrity (MI), non-destructive testing (NDT) and mechanical services and proprietary data analysis software to deliver a comprehensive portfolio of customized solutions, ranging from routine inspections to complex, plant-wide asset integrity assessments and management. These mission critical solutions enhance customers’ ability to extend the useful life of their assets, increase productivity, minimize repair costs, comply with governmental safety and environmental regulations, manage risk and avoid catastrophic disasters. The Company serves a global customer base of companieshelps clients with asset-intensive infrastructure ~~including companies~~ in the oil and gas, ~~fossil~~aerospace and ~~nuclear~~defense, industrials, power generation and transmission (including alternative and renewable ~~energy, public infrastructure, chemicals, commercial aerospace and defense, transportation, primary metals and metalworking, pharmaceutical/biotechnology and food processing~~energy), other process industries and infrastructure, research and engineering ~~institutions.~~and other 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 systems to help avoid catastrophic incidents, the Company helps the world at large.

The Company enhances value for its clients by integrating asset protection throughout supply chains and centralizing integrity data through a suite of Industrial Internet of Things ("IoT")-connected digital software and monitoring solutions, including OneSuite™, which serves as an ecosystem platform, pulling together all of the Company’s software and data services capabilities, for the benefit of its customers.

Recent Developments

Issues related to the COVID-19 coronavirus (COVID-19) have subsided significantly, but COVID-19 is still causing some disruption in domestic and international markets although conditions continue to improve during 2022 as compared to 2021. The Russian-Ukrainian conflict is creating disruption in the oil & gas market and the supply chain in general, which is resulting in some disruption to our business operations. With oil prices high, refineries are working at full capacity and are deferring maintenance and inspection work as much as possible, which is impacting our business as well.

Overall, the Company has taken actions to help ensure the health and safety of Company employees and those of its customers and suppliers; maintain business continuity and financial strength and stability; and serve customers as they provide essential products and services to the world.

The Company is currently unable to predict with certainty the overall impact that the factors discussed above and the effect of the Russian-Ukrainian conflict may have on its business, results of operations or liquidity or in other ways which the Company cannot yet determine. To date, the Company’s European operations have begun to see increased costs associated with higher energy costs, among others, due in part to the Russian-Ukrainian conflict. The Company will continue to monitor market conditions and respond accordingly.

Basis of Presentation

The ~~condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements contained in this report ~~are unaudited.~~have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") and Securities and Exchange Commission ("SEC") guidance allowing for reduced disclosure for interim periods. In the opinion of management, the ~~condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements include all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods of the ~~fiscal~~ years ending December 31, ~~2017~~2022 and ~~2016.~~ December 31, 2021.

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Certain items included in these statements are based on management’s estimates. Actual results may differ from those estimates. The results of operations for any interim period are not necessarily indicative of the results expected for the year. The accompanying ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the notes to the ~~audited consolidated financial statements~~Audited Consolidated Financial Statements contained in the Company’s ~~Transition~~2021 Annual Report on Form 10-K ~~(“2016 Transition Report”~~("2021 Annual Report") ~~for the transition period ended December 31, 2016, as filed with the Securities and Exchange Commission on March 20, 2017.~~.

Principles of Consolidation

The accompanying ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements include the accounts of Mistras Group, Inc. as well as its wholly-owned subsidiaries, majority-owned subsidiaries and ~~its wholly and majority-owned subsidiaries.~~consolidated variable interest entities (VIE). For subsidiaries in which the Company’s ownership interest is less than 100%, the non-controlling interests are reported in stockholders’ equity in the accompanying ~~condensed consolidated balance sheets.~~Condensed Consolidated Balance Sheets. The non-controlling interests in net ~~income,~~results, net of tax, is classified separately in the accompanying ~~condensed consolidated statements~~Unaudited Condensed Consolidated Statements of ~~income.~~Income (Loss). All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations of companies acquired are included from the date of acquisition.

On January 3, 2017, the Company's Board of Directors approved a change in the Company's fiscal year end from May 31 to December 31, effective December 31, 2016. The transition period was for the seven months ended December 31, 2016 ("the transition period"). Prior to this change, the Company's International segment was consolidated on a one month lag. Therefore, for this interim report, the condensed consolidated income statements include a one month lag for the International segment for the three and nine months ended September 30, 2016. Management does not believe that any events occurred during the one-month lag period that would have a material effect on the Company’s condensed consolidated financial statements. The one- month lag was removed with the change in the Company's fiscal year noted above, and accordingly, the condensed consolidated income statements do not include a one month lag for the International segment's results for the three and nine months ended September 30, 2017.

Reclassification

Certain amounts in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have a material effect on the ~~Company's~~Company’s financial condition or results of operations as previously reported.

Customers

For each of the three and six months ended June 30, 2022 and 2021, no customer represented 10% or more of the Company’s revenue.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in Note 1–Summary of Significant Accounting Policiesand Practices in the 2021 Annual Report. On an ongoing basis, the Company evaluates its estimates and assumptions, including among other things, those related to revenue recognition, long-lived assets, goodwill and acquisitions. Since the date of the 2021 Annual Report, there have been no material changes to the Company’s significant accounting policies.

Income Taxes

Income taxes are accounted for under the asset and liability method. We recognize deferred tax assets and liabilities at enacted income tax rates for the temporary differences between the financial reporting bases and the tax bases of our assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. Our net deferred tax assets primarily consist of net operating loss carry forwards, or NOLs. A valuation allowance is provided if it is more likely than not that some or all of a deferred income tax asset will not be realized. A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current and prior years.

As of June 30, 2022, management concluded that it is more likely than not that a substantial portion of the Company’s deferred tax assets will be realized.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

The Company’s effective income tax rate was approximately 37.4% and 27.7% for the three months ended June 30, 2022 and 2021, respectively. The Company’s effective income tax rate was approximately 183.6% and (125.4)% for the six months ended June 30, 2022 and 2021, respectively.

The effective income tax rate for the three months ended June 30, 2022, was higher than the statutory rate primarily due to a $0.7 million valuation allowance recorded on a foreign jurisdiction. The effective income tax rate for the three months ended

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

June 30, 2021 was higher than the statutory rate due to earnings in jurisdictions with higher income tax rates than the United States.

~~One customer, primarily generated from~~The valuation allowance of $0.7 million has been recorded to recognize only the ~~Services segment, accounted for approximately 10% and 11%~~portion of ~~our revenues for~~ the three and nine months ended September 30, 2017. This customer accounted for 8% of accounts receivable as of September 30, 2017. One customer accounted for 14% and 12% of our revenues for the three and nine months ended September 30, 2016.

~~Significant Accounting Policies~~

~~The Company’s significant accounting policies are disclosed in Note 2 —~~ ~~Summary of Significant Accounting Policies~~ in the Company's 2016 Transition Report. On an ongoing basis, the Company evaluates its estimates and assumptions, including among other things, those related to revenue recognition, valuations of accounts receivable, long-lived assets, goodwill, deferred tax assets ~~and uncertain tax positions. Since the date~~that are more likely than not to be realized. The amount of the ~~2016 Transition Report, there have been~~deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no ~~material changes~~longer present and additional weight is given to subjective evidence such as our projections for growth.

The effective income tax rate for the ~~Company's significant accounting policies.~~six months ended June 30, 2022 was higher than the statutory rate due primarily to a $0.7 million valuation allowance recorded during the period which was related to a foreign jurisdiction. The effective income tax rate for the six months ended June 30, 2021 was lower than the statutory rate due to capitalization of certain non-US intercompany balances which resulted in a deductible foreign exchange loss in the US.

Recent Accounting Pronouncements

In ~~August 2015,~~March 2020 and updated in January 2021, the FASB issued ASU 2020-04 and 2021-01, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ~~Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-14,~~ Reporting.” The amendments provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating applicable contracts and the available expedients provided by the new guidance.

2. Revenue

The Company derives the majority of its revenue by providing services on a time and material basis, and are short-term in nature. The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers ~~(Topic 606): Deferral~~.

Performance Obligations

The Company provides highly integrated and bundled inspection services to its customers. The majority of the ~~Effective Date,~~ ~~which defers~~Company’s contracts have a single performance obligation as the ~~effective date of ASU 2014-09 for all entities by one year. This update~~promise to transfer the individual goods or services is ~~effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Earlier application~~not separately identifiable from other promises in the contracts and is, permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. ASU 2014-09 will become effective for us beginning 2018, which is when we plan to adopt this standard. The ASU permits two methods of adoption: retrospectivelytherefore, not distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each ~~prior reporting period presented (full retrospective method),~~performance obligation using the Company’s best estimate of the standalone selling price of each distinct good or ~~retrospectively~~service in the contract. The primary method used to estimate standalone selling price is a relative selling price based on price lists.

Contract modifications are not routine in the performance of the Company’s contracts. Generally, when contracts are modified, the modification is to account for changes in scope to the goods and services that are provided. In most instances, contract modifications are for goods or services that are distinct, and, therefore, are accounted for as a separate contract.

The Company’s performance obligations are satisfied over time as work progresses or at a point in time. The majority of the Company’s revenue is recognized over time as work progresses for the Company’s service deliverables, which includes providing testing, inspection and mechanical services to our customers. Revenue is recognized over time, based on time and material incurred to date which best portrays the transfer of control to the customer. The Company also utilizes an available practical expedient that provides for revenue to be recognized in an amount that corresponds directly with the ~~cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The ASU also requires expanded disclosures relating~~value to the ~~nature, amount, timing,~~customer of the entity’s performance completed to date. Fixed fee arrangements are determined based on expected labor, material, and ~~uncertainty~~overhead to be consumed on fulfillment of such services. For these arrangements, revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assetsis recognized ~~from the costs to obtain or fulfill~~on a ~~contract.~~ cost-to-cost method tracked on an input basis.

The Company plans to adopt this guidance using the cumulative catch-up method. We are still in the process of evaluating the effect of adoption on our condensed consolidated financial statements and are currently assessing our contracts with customers across each of its global operating segments. Our assessment is not yet complete and therefore we are unable to quantify the potential impacts. However, as most of our projects are short-term in nature and billed on at time and materials basis, we do not currently anticipate that the adoption of ASU 2014-09 will result in substantial changes to the overall pattern or timingmajority of our revenue ~~recognition.~~recognized at a point in time is related to product sales when the customer obtains control of the asset, which is generally upon shipment to the customer. Contract costs include labor, material and overhead.

~~In November 2015, the FASB issued ASU No. 2015-17,~~ ~~Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.~~ ~~This amendment will simplify the presentation of deferred tax assets and liabilities on the balance sheet and require all deferred tax assets and liabilities~~The Company expects any significant remaining performance obligations to be ~~treated as non-current. ASU 2015-17 is effective for fiscal years, and interim periods~~satisfied within ~~those fiscal years beginning after December 15, 2016, with early adoption permitted. The Company adopted this guidance prospectively beginning in the first quarter~~one year.

Table of ~~2017, which did not have a material impact on the condensed consolidated financial statements and related disclosures.~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842).~~ ~~This amendment supersedes previous accounting guidance (Topic 840)~~ and requires all leases, with the exception of leases with a term of 12 months or less, to be recorded on the balance sheet as lease assets and lease liabilities. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2018, with early adoption permitted. The standard requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is evaluating the effect that ASU 2016-02 will have on its condensed consolidated financial statements and related disclosures.

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Stock Compensation (Topic 718).~~ This amendment simplifies certain aspects of accounting for share-based payment transactions, which include accounting for income taxes and the related impact on the statement of cash flows, an option to account for forfeitures when they occur in addition to the existing guidance to estimate the forfeitures of awards, classification of awards as either equity or liabilities and classification on the statement of cash flows for employee taxes paid to tax authorities on shares withheld for vesting. ASU 2016-09 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2016, with early adoption permitted. The Company adopted this guidance prospectively beginning in the first quarter of 2017, and accordingly, is recording excess tax benefits and tax deficiencies as a component of income tax expense.

Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Contract Estimates

The majority of the Company’s revenues are short-term in nature. The Company enters into master service agreements (MSAs) with customers that specify an overall framework and contract terms. The actual contracting to provide services or furnish products are triggered by a work order, purchase order, or some similar document issued pursuant to a MSA which sets forth the scope of services and/or identifies the products to be provided. From time-to-time, the Company may enter into longer-term contracts, which can range from several months to several years. Revenue on certain contracts is recognized as work is performed based on total costs incurred to date in relation to the total estimated costs for the performance of the contract at completion. This includes contract estimates of costs to be incurred for the performance of the contract. Cost estimation is based upon the professional knowledge and experience of the Company’s project managers, engineers and financial professionals. Factors that are considered in estimating the work to be completed include the availability of materials, the effect of any delays in the Company’s project performance and the recoverability of any claims. Whenever revisions of estimates, contract costs and/or contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.

Revenue by Category

The following series of tables present the Company’s disaggregated revenue:

Revenue by industry was as follows:


Three Months Ended June 30, 2022	Services		International		Products		Corp/Elim		Total
Oil & Gas	$	93,098	$	8,028	$	139	$	—	$	101,265
Aerospace & Defense	17,300		5,118		26		—		22,444
Industrials	9,794		6,506		333		—		16,633
Power generation & Transmission	8,378		1,997		678		—		11,053
Other Process Industries	11,641		3,754		14		—		15,409
Infrastructure, Research & Engineering	3,183		2,193		442		—		5,818
Petrochemical	3,584		55		—		—		3,639
Other	2,550		1,959		1,020		(2,759)		2,770
Total	$	149,528	$	29,610	$	2,652	$	(2,759)	$	179,031


Three Months Ended June 30, 2021	Services		International		Products		Corp/Elim		Total
Oil & Gas	$	85,831	$	9,533	$	212	$	—	$	95,576
Aerospace & Defense	12,779		4,127		29		—		16,935
Industrials	11,242		6,194		418		—		17,854
Power generation & Transmission	10,073		3,183		830		—		14,086
Other Process Industries	10,356		3,627		35		—		14,018
Infrastructure, Research & Engineering	5,174		3,254		825		—		9,253
Petrochemical	5,936		47		—		—		5,983
Other	3,586		1,986		854		(2,454)		3,972
Total	$	144,977	$	31,951	$	3,203	$	(2,454)	$	177,677

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)


Six Months Ended June 30, 2022	Services		International		Products		Corp/Elim		Total
Oil & Gas	$	179,711	$	15,600	$	177	$	—	$	195,488
Aerospace & Defense	32,322		10,058		134		—		42,514
Industrials	18,801		12,034		835		—		31,670
Power generation & Transmission	12,200		4,559		1,523		—		18,282
Other Process Industries	21,934		7,272		15		—		29,221
Infrastructure, Research & Engineering	5,689		4,232		1,339		—		11,260
Petrochemical	6,629		133		—		—		6,762
Other	5,188		3,860		1,565		(5,117)		5,496
Total	$	282,474	$	57,748	$	5,588	$	(5,117)	$	340,693

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement~~



Six Months Ended June 30, 2021	Services		International		Products		Corp/Elim		Total
Oil & Gas	$	165,051	$	17,469	$	268	$	—	$	182,788
Aerospace & Defense	24,602		8,444		64		—		33,110
Industrials	20,061		11,043		745		—		31,849
Power generation & Transmission	15,607		5,161		1,589		—		22,357
Other Process Industries	18,212		6,539		44		—		24,795
Infrastructure, Research & Engineering	8,343		7,010		1,969		—		17,322
Petrochemical	11,400		119		—		—		11,519
Other	5,999		3,814		1,512		(3,653)		7,672
Total	$	269,275	$	59,599	$	6,191	$	(3,653)	$	331,412

Revenue per key geographic location was as follows:


Three Months Ended June 30, 2022	Services		International		Products		Corp/Elim		Total
United States	$	126,286	$	334	$	1,492	$	(567)	$	127,545
Other Americas	22,553		1,376		168		(1,105)		22,992
Europe	415		27,353		514		(955)		27,327
Asia-Pacific	274		547		478		(132)		1,167
Total	$	149,528	$	29,610	$	2,652	$	(2,759)	$	179,031


Three Months Ended June 30, 2021	Services		International		Products		Corp/Elim		Total
United States	$	122,762	$	241	$	1,668	$	(895)	$	123,776
Other Americas	21,288		1,149		101		(809)		21,729
Europe	596		30,084		503		(745)		30,438
Asia-Pacific	331		477		931		(5)		1,734
Total	$	144,977	$	31,951	$	3,203	$	(2,454)	$	177,677

Table of ~~Cash Flows (Topic 230).~~ ~~This amendment will provide guidance~~Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)


Six Months Ended June 30, 2022	Services		International		Products		Corp/Elim		Total
United States	$	240,221	$	507	$	2,843	$	(1,222)	$	242,349
Other Americas	40,605		2,717		184		(1,714)		41,792
Europe	1,159		53,273		1,094		(1,879)		53,647
Asia-Pacific	489		1,251		1,467		(302)		2,905
Total	$	282,474	$	57,748	$	5,588	$	(5,117)	$	340,693



Six Months Ended June 30, 2021	Services		International		Products		Corp/Elim		Total
United States	$	227,308	$	449	$	3,128	$	(1,286)	$	229,599
Other Americas	40,166		2,326		168		(872)		41,788
Europe	890		55,978		963		(1,357)		56,474
Asia-Pacific	911		846		1,932		(138)		3,551
Total	$	269,275	$	59,599	$	6,191	$	(3,653)	$	331,412

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the ~~presentation~~Consolidated Balance Sheets. Amounts are generally billed as work progresses in accordance with agreed-upon contractual terms, generally at periodic intervals (e.g., weekly, bi-weekly or monthly). Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, the Company sometimes receives advances or deposits from its customers before revenue is recognized, resulting in contract liabilities. These assets and ~~classification~~liabilities are aggregated on an individual contract basis and reported on the Consolidated Balance Sheets at the end of ~~specific cash flow items to improve consistency~~each reporting period within accounts receivable, net or accrued expenses and other current liabilities.

Revenue recognized during the ~~statement~~six months ended June 30, 2022 and 2021 that was included in the contract liability balance at the beginning of ~~cash flows. ASU 2016-15 is effective~~such year was $1.4 million and $3.3 million, for ~~fiscal years,~~each period. Changes in the contract asset and ~~interim~~liability balances during these periods ~~within those fiscal years beginning after December 15, 2017, with early adoption permitted.~~were not materially impacted by any other factors. The Company ~~is evaluating the impact that ASU 2016-15 will have on its condensed consolidated financial statements and~~applies a practical expedient to expense incremental costs incurred related ~~disclosures.~~

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230).~~ This amendment will clarify the presentation of restricted cash on the statement of cash flows. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending cash balances on the statement of cash flows. ASU 2016-18 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted.to obtaining a contract. The ~~Company does not expect that ASU 2016-18 will have a material impact on its condensed consolidated financial statements and related disclosures.~~

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles-Goodwill and Other (Topic 350).~~ This amendment eliminates Step Two of the goodwill impairment test. Under the amendments in this update, entities should perform the annual goodwill impairment test by comparing the carrying value of its reporting units to their fair value. An entity should record an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Tax deductibility of goodwill should be considered in evaluating any reporting unit's impairment lossCompany’s expenses are expected to be taken. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company has early adopted ASU 2017-04 in the third quarter of 2017 for its condensed consolidated financial statements and related disclosures. See Notes 7 and 8 for information on the impairment of assets in the Products and Systems reporting unit during the three months ended September 30, 2017.amortized over a period less than one year.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting.~~ This amendment provides guidance concerning which changes to the terms or conditions of a share-based payment require an entity to apply modification accounting. Certain changes to stock awards, notably administrative changes, do not require modification accounting. There are three specific criteria that need to be met in order to prove that modification accounting is not required. ASU 2017-09 is effective for fiscal years, and interim period within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact that ASU 2017-09 will have on its condensed consolidated financial statements and related disclosures.

2.3. Share-Based Compensation

The Company ~~has~~grants share-based incentive awards ~~outstanding~~ to its eligible employees and non-employee directors under ~~three~~2 equity incentive plans: (i) ~~the 2007 Stock Option Plan (the 2007 Plan), (ii)~~ the 2009 Long-Term Incentive Plan (the ~~2009 Plan)~~"2009 Plan") and ~~(iii)~~(ii) the 2016 Long-Term Incentive ~~Plan.~~Plan (the "2016 Plan"). No further awards may be granted under the ~~2007~~2009 Plan, and ~~2009 Plans, although awards~~the remaining stock option award granted under the ~~2007 and~~ 2009 ~~Plans remain outstanding in accordance with their terms.~~Plan expired during the three months ended March 31, 2022. Awards granted under the 2016 Plan may be in the form of stock options, restricted stock units and other forms of share-based incentives, including performance restricted stock units, stock appreciation rights and deferred stock rights. At the annual shareholders meeting on May 23, 2022, the Company’s shareholders approved an amendment to increase the total number of shares that may be issued under the 2016 Plan by 1.2 million, for a total of 4.9 million shares that are authorized for issuance under the 2016 Plan, of which approximately 1,600,000 shares were available for future grants as of June 30, 2022.

Stock Options

For each of the three and six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, the Company did not recognize any share-based compensation expense related to the stock option ~~awards.~~

~~For~~award, as the ~~nine months ended September 30, 2017 and 2016, the Company did not recognize any share-based compensation expense and recognized less than $0.1 million, respectively, related to~~1 outstanding stock option ~~awards.~~

award was already fully vested. No unrecognized compensation costs remained related to ~~stock option awards as of September 30, 2017.~~

~~No stock options were granted during the three and nine months ended September 30, 2017 and September 30, 2016.~~

~~A summary of~~ the stock option ~~activity, weighted average exercise prices and options outstanding~~award as of ~~September~~June 30, ~~2017 and 2016 is as follows:~~2022.

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

For the nine months ended September 30,
2017 2016

Common
Stock
Options

Weighted
Average
Exercise
Price

Common
Stock
Options

Weighted
Average
Exercise
Price

Outstanding at beginning of period: 2,167
$ 13.33
2,265
$ 13.16

Granted —
$ —
—
$ —

Exercised (37 ) $ 7.39
(87 ) $ 9.83

Expired or forfeited —
$ —
—
$ —

Outstanding at end of period: 2,130
$ 13.43
2,178
$ 13.29

The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of June 30, 2022 and 2021:


	Six months ended June 30,
	2022			2021
	Common Stock Options	Weighted Average Exercise Price		Common Stock Options	Weighted Average Exercise Price
Outstanding at beginning of period:	5	$	22.35	5	$	22.35
Granted	—	$	—	—	$	—
Exercised	—	$	—	—	$	—
Expired or forfeited	(5)	$	22.35	—	$	—
Outstanding at end of period:	—	$	—	5	$	22.35

Restricted Stock Unit Awards

For the three months ended ~~September~~June 30, ~~2017~~2022 and ~~September~~June 30, ~~2016,~~2021, the Company recognized share-based compensation expense related to restricted stock unit awards of ~~$1.1~~$0.9 million and ~~$1.2~~$0.9 million, respectively.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~September 30, 2016,~~2021, the Company recognized share-based compensation expense related to restricted stock unit awards of ~~$3.4~~$1.9 million ~~for each respective period.~~and $1.8 million, respectively. As of ~~September~~June 30, ~~2017,~~2022, there was ~~$8.1~~$8.6 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which ~~are~~is expected to be recognized over a remaining ~~weighted average~~weighted-average period of ~~2.4~~2.9 years.

During the first nine months of 2017 and 2016, the Company granted approximately 21,000 and 22,000 shares, respectively, of fully-vested common stock to its five non-employee directors, as provided for under the Company's non-employee director compensation plan. These shares had grant date fair values of $0.4 million and $0.5 million, respectively, which was recorded as share-based compensation expense during the nine months ended September 30, 2017 and September 30, 2016, respectively.

During the first nine months of 2017 and 2016, approximately 175,000 and 182,000 restricted stock units vested for each period. The fair value of these units was $3.2 million and $4.5 million for each respective period. Upon vesting, restricted stock units are generally net share-settled to cover the required ~~minimum~~ withholding tax and the remaining amount is converted into an equivalent number of shares of common stock.

A summary of the ~~Company's~~vesting activity of restricted stock unit awards, with the respective fair value of the awards, is as follows:


	Six months ended June 30,
	2022		2021
Restricted stock awards vested	326		238
Fair value of awards vested	$	2,164	$	2,670

A summary of the fully-vested common stock the Company issued to its 6 non-employee directors, in connection with its non-employee director compensation plan, is as follows:


	Six months ended June 30,
	2022		2021
Awards issued	34		25
Grant date fair value of awards issued	$	225	$	258

A summary of the Company’s outstanding, non-vested restricted share units is ~~presented below:~~as follows:


	Six months ended June 30,
	2022			2021
	Units	Weighted Average Grant-Date Fair Value		Units	Weighted Average Grant-Date Fair Value
Outstanding at beginning of period:	1,208	$	7.96	1,076	$	7.41
Granted	675	$	7.65	528	$	10.07
Released	(326)	$	10.03	(238)	$	10.98
Forfeited	(20)	$	8.49	(39)	$	8.77
Outstanding at end of period:	1,537	$	7.38	1,327	$	7.78

For the nine months ended September 30,
2017 2016
Units Weighted
Average
Grant-Date
Fair Value Units Weighted
Average
Grant-Date
Fair Value
Outstanding at beginning of period: 569
$ 20.81
595
$ 18.89
Granted 124
$ 21.21
218
$ 24.51
Released (175 ) $ 20.61
(182 ) $ 19.66
Forfeited (30 ) $ 21.21
(26 ) $ 19.24
Outstanding at end of period: 488
$ 20.97
605
$ 20.68

Table of Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Performance Restricted Stock Units

The Company maintains Performance Restricted Stock Units (PRSUs) that have been granted to select executives and senior officers whose ultimate payout is based on the Company’s performance over a one-year period based on ~~three~~specific metrics ~~as defined: (1) Operating Income, (2) Adjusted EBITDAS and (3) Revenue. There also is a discretionary portion of the PRSUs~~

~~Mistras Group, Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~(tabular dollars and shares in thousands, except per share data)~~

~~based on individual performance, at the discretion of~~approved by the Compensation Committee ~~(Discretionary PRSUs)~~of the Board of Directors of the Company.

For 2021, the Compensation Committee made changes to the Company’s equity incentive compensation plan for its executive officers and approved the new target awards for 2021. For 2021, the 3 metrics were:

1.Free Cash Flow net cash provided by operating activities less purchases of property, plant, equipment and intangible assets and is subject to adjustments approved by the Compensation Committee.

2.Adjusted EBITDA defined as net income attributable to the Company 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).

3.Total Shareholder Return (TSR) measures the total return to shareholders of the Company during 2021 versus the total return to the shareholders of a predefined peer group of companies that provide inspection, testing, certification or similar industrial services. The return will be measured by the year over year percent change in share price. The share prices used to calculate the return are the average share price during the 20-trading day period ending on the initial measurement date (the last 20 trading days of 2020), compared to the average share price during the 20-trading day period ending on the final measurement date (the last 20 trading days of 2021). Any cash dividends or distributions paid in 2021 will be added to calculate the return to shareholders during the year. TSR is considered a market condition for which the fair value of PRSUs with this condition is determined using a Monte Carlo valuation model. Key assumptions in the Monte Carlo valuation model included:

a.Expected Volatility. Expected volatility of the Company’s common stock at the date of grant was estimated based on a historical average volatility rate for the approximate 1-year performance period.

b.Dividend Yield. The dividend yield assumption was based on historical and ~~Discretionary~~anticipated dividend payouts (assumed at zero).

c.Risk-Free Interest Rate. The risk-free interest rate assumption was based on observed interest rates consistent with the approximate 1-year performance measurement period.

For 2022, the Compensation Committee retained the Company’s prior year equity incentive compensation plan for its executive officers including utilizing the same metrics, as defined above, and approved the new target awards for 2022.

PRSUs are equity-classified and compensation costs are initially measured using the fair value of the underlying stock at the date of grant. Compensation costs related to the PRSUs are subsequently adjusted for changes in the expected outcomes of the performance conditions. Compensation cost related to the PRSUs with a market condition is not reversed if the market condition is not achieved, provided the employee requisite service has been rendered. PRSUs generally vest ratably on each of the first four anniversary dates upon completion of the performance period, for a total requisite service period of up to five years and have no dividend rights.

PRSUs are equity-classified and compensation costs are initially measured using the fair value of the underlying stock at the date of grant, assuming that the target performance conditions will be achieved. Compensation costs related to the PRSUs are subsequently adjusted for changes in the expected outcomes of the performance conditions.

Discretionary PRSUs are liability-classified and adjusted to fair value (with a corresponding adjustment to compensation expense) based upon the targeted number of shares to be awarded and the fair value of the underlying stock each reporting period until approved by the Compensation Committee, at which point they are classified as equity.

A summary of the ~~Company's Performance Restricted Stock Unit~~Company’s PRSU activity is ~~presented below:~~as follows:


	Six months ended June 30,
	2022			2021
	Units	Weighted Average Grant-Date Fair Value		Units	Weighted Average Grant-Date Fair Value
Outstanding at beginning of period:	388	$	10.07	333	$	8.84
Granted	341	$	6.55	189	$	12.59
Performance condition adjustments	(163)	$	8.34	(193)	$	7.80
Released	(17)	$	6.85	(22)	$	13.63
Forfeited	—	$	—	—	$	—
Outstanding at end of period:	549	$	9.12	307	$	12.56

For the nine months ended September 30, 2017
Units Weighted
Average
Grant-Date
Fair Value
Outstanding at beginning of period: 290
$ 16.01

Granted 128
$ 20.42

Performance condition adjustments (67 ) $ 20.55

Released (64 ) $ 14.87

Forfeited —
$ —

Outstanding at end of period: 287
$ 17.07

During the nine months ended September 30, 2017, the Compensation Committee modified the awards issued during the transition period ended December 31, 2016 from a one-year performance period to a seven month performance period to align the awards with the change in the Company's fiscal year from May 31 to December 31. Accordingly, for the nine months ended September 30, 2017, the Compensation Committee approved these transition period PRSUs, which resulted in a reductionTable of ~~approximately 3,000 units. There was a reduction of approximately 64,000 units to the awards granted in 2017 during the nine months ended September 30, 2017.~~

As of September 30, 2017, the liability related to Discretionary PRSUs was less than $0.1 million and is classified within accrued expenses and other current liabilities on the condensed consolidated balance sheet.

For the three months ended September 30, 2017 and September 30, 2016, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $0.4 million and $0.5 million, respectively.

For the nine months ended September 30, 2017 and September 30, 2016, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $1.3 million for each respective period.

At September 30, 2017, there was $2.7 million of total unrecognized compensation costs related to approximately 287,000 non-vested performance restricted stock units, which are expected to be recognized over a remaining weighted average period of 2.1 years.

Contents

3.~~Earnings per Share~~

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

During the six months ended June 30, 2022 and June 30, 2021, the Compensation Committee approved the final calculation of the award metrics for calendar year 2021 and calendar year 2020, respectively. As a result, the calendar year 2022 PRSUs decreased by approximately 163,000 units during the six months ended June 30, 2022 as a result of the final calculation of the 2021 award and based on forecasted results for 2022 as compared to performance metrics determined by the Compensation Committee.

For the three months ended June 30, 2022 and June 30, 2021, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $0.3 million and $0.3 million, respectively. For the six months ended June 30, 2022 and June 30, 2021, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $0.6 million and $0.4 million, respectively. At June 30, 2022, there was $2.0 million of total unrecognized compensation costs related to approximately 549,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of 2.2 years.

4. Earnings (loss) per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, and (2) the dilutive effect of assumed conversion of equity awards using the treasury stock method. With respect to the number of weighted-average shares outstanding (denominator), diluted shares reflects: (i) the exercise of options to acquire common stock to the extent that the options’ exercise prices are less than the average market price of common shares during the period and (ii) the pro forma vesting of restricted stock units.

The following table sets forth the computations of basic and diluted earnings (loss) per share:


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021

Basic earnings (loss) per share
Numerator:
Net income (loss) attributable to Mistras Group, Inc.	$	4,643	$	5,937	$	(720)	$	575
Denominator:
Weighted average common shares outstanding	29,957		29,602		29,840		29,514
Basic earnings (loss) per share	$	0.15	$	0.20	$	(0.02)	$	0.02

Diluted earnings (loss) per share:
Numerator:
Net income (loss) attributable to Mistras Group, Inc.	$	4,643	$	5,937	$	(720)	$	575
Denominator:
Weighted average common shares outstanding	29,957		29,602		29,840		29,514
Dilutive effect of stock options outstanding	—		—		—		—
Dilutive effect of restricted stock units outstanding (1)	276		534		—		525
	30,233		30,136		29,840		30,039
Diluted earnings (loss) per share	$	0.15	$	0.20	$	(0.02)	$	0.02

_______________

Three months ended Nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016

Basic earnings (loss) per share:

Numerator:

Net income (loss) attributable to Mistras Group, Inc. $ (6,968 ) $ 7,238
$ (3,059 ) $ 13,446
Denominator:

Weighted average common shares outstanding 28,274
29,051
28,465
28,966
Basic earnings (loss) per share $ (0.25 ) $ 0.25
$ (0.11 ) $ 0.46

Diluted earnings (loss) per share:

Numerator:

Net income (loss) attributable to Mistras Group, Inc. $ (6,968 ) $ 7,238
$ (3,059 ) $ 13,446
Denominator:

Weighted average common shares outstanding 28,274
29,051
28,465
28,966
Dilutive effect of stock options outstanding n/a
⁽¹⁾
814
n/a
⁽¹⁾
810
Dilutive effect of restricted stock units outstanding n/a
⁽²⁾
366
n/a
⁽²⁾
363
28,274
30,231
28,465
30,139
Diluted earnings (loss) per share $ (0.25 ) $ 0.24
$ (0.11 ) $ 0.45

(1) - For the ~~three and nine~~six months ended ~~September~~June 30, ~~2017, 716 and 802~~2022, 1,412,073 shares ~~respectively~~related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the ~~respective periods.~~period.

~~(2) - For the three and nine months ended September 30, 2017, 308 and 337 shares, respectively, were excluded from the calculation~~

5. Acquisitions

Table of ~~diluted EPS due to the net loss for the respective periods.~~

Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Acquisition-Related Expense

4.~~Acquisitions~~

~~During~~In the ~~nine~~course of its acquisition activities, the Company incurs costs in connection with due diligence, such as professional fees, and other expenses. Additionally, the Company adjusts the fair value of acquisition-related contingent consideration liabilities on a quarterly basis. These amounts are reported as Acquisition-related expense, net on the Unaudited Condensed Consolidated Statements of Income (Loss) and were as follows for the three and six months ended ~~September~~June 30, ~~2017,~~2022 and 2021:


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Due diligence, professional fees and other transaction costs	$	13	$	—	$	18	$	34
Adjustments to fair value of contingent consideration liabilities	—		545		45		788
Acquisition-related expense, net	$	13	$	545	$	63	$	822

As of June 30, 2022, the ~~Company completed two acquisitions, one that performs mechanical services at height, located~~Company’s contingent consideration liabilities are included in ~~Canada,~~Accrued expenses and ~~a company located in~~other current liabilities on the ~~U.S. that primarily performs chemical and specialty process services, primarily in the aerospace industry.~~Condensed Consolidated Balance Sheets.

~~In these acquisitions, the Company acquired the assets~~

6. Accounts Receivable, net

Accounts receivable consisted of the U.S. acquiree and 100% of the common stock of the Canada acquiree in exchange for aggregate consideration of $8.5 million in cash, contingent consideration up to $5.9 million to be earned based upon the acquired business achieving specific performance metrics over the initial three years of operations from the acquisition date and $1.6 million for working capital adjustments yet to be finalized. following:


	June 30, 2022		December 31, 2021

Trade accounts receivable	$	133,600	$	112,739
Allowance for credit losses	(4,028)		(3,228)
Accounts receivable, net	$	129,572	$	109,511

The Company ~~accounted for these transactions in accordance with the acquisition method~~had $18.8 million and $11.9 million of ~~accounting for business combinations.~~

~~The assets~~unbilled revenue accrued as of June 30, 2022 and liabilities of the businesses acquired in 2017 were included in the Company's condensed consolidated balance sheet based upon their estimated fair values on the date of acquisition as determined in a preliminary purchase price allocation, using available information and making assumptions management believes are reasonable. The Company is still in the process of completing its valuations of the assets acquired. The results of operations for these acquisitionsDecember 31, 2021, respectively. These amounts are included in the ~~Services segment's results~~trade accounts receivable balances above. Unbilled revenue is generally billed in the subsequent quarter to their revenue recognition. The Company considers unbilled receivables as short-term in nature as they are normally converted to trade receivables within 90 days, thus future changes in economic conditions will not have a significant effect on the credit loss estimate.

The Company was contracted to perform inspections of welds on various pipeline projects in Texas for a customer. As of December 31, 2019, approximately $1.4 million of past due receivables were outstanding from this customer. The Company received notice from the ~~date of acquisition. Goodwill of $4.3 million primarily relates to expected synergies~~customer in December 2019, alleging that the work performed was not in compliance with the contract. The Company recorded a full reserve for this receivable during 2019 and assembled workforce, of which $1.8 million is generally deductible for tax purposes. Other intangible assets, primarily related to customer relationships and covenants not to compete, were $8.4 million.

~~The Company's preliminary purchase price allocations are included in~~ the ~~table below, summarizing the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:~~

2017
Number of Entities 2
Consideration transferred:
Cash paid $ 8,509
Working capital adjustments 1,604
Contingent consideration 4,126
Consideration transferred $ 14,239

Current assets $ 2,443
Property, plant and equipment 1,140
Intangible assets 8,436
Goodwill 4,271
Current liabilities (881 )
Long-term deferred tax liability (1,170 )
Net assets acquired $ 14,239

~~Revenues and operating income included in the condensed consolidated statement of operations for 2017 from these acquisitions for the period subsequent to the closing~~status of this ~~transaction was approximately $9.1 million~~situation has not changed since 2019. See Note 14-Commitments and ~~$1.1 million, respectively. As these acquisitions were immaterial to the Company's 2017 results, no unaudited pro forma financial information has been included in this report~~Contingencies for ~~either acquisition.~~additional details.

~~The Company completed two acquisitions that provide NDT services, located in Canada, during the nine months ended September 30, 2016. The Company acquired 100%~~

7. Property, Plant and Equipment, net

Table of ~~the common stock of both acquirees in exchange for aggregate~~

~~consideration of $1.2 million in cash, $0.3 million of notes payable and contingent consideration estimated to be $0.4 million to~~

~~be earned based upon the acquired businesses achieving specific performance metrics over their initial three years of operations~~

~~from their acquisition dates.~~

Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

~~Acquisition-Related Expense~~

In the course of its acquisition activities, the Company incurs costs in connection with due diligence, professional fees, and other expenses. Additionally, the Company adjusts the fair value of acquisition-related contingent consideration liabilities on a quarterly basis. These amounts are recorded as acquisition-related expense (benefit), net, on the condensed consolidated statements of income and were as follows for the three and nine months ended September 30, 2017 and 2016:

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Due diligence, professional fees and other transaction costs $ —
$ 28
$ 291
$ 577
Adjustments to fair value of contingent consideration liabilities (248 ) 356
(880 ) (676 )
Acquisition-related expense (benefit), net $ (248 ) $ 384
$ (589 ) $ (99 )

5.~~Accounts Receivable, net~~

~~Accounts receivable consisted of the following:~~

September 30, 2017 December 31, 2016

Trade accounts receivable $ 144,503
$ 133,704
Allowance for doubtful accounts (4,314 ) (2,852 )
Accounts receivable, net $ 140,189
$ 130,852

6.~~Property, Plant and Equipment, net~~

Property, plant and equipment consisted of the following:

Useful Life
(Years)
September 30, 2017 December 31, 2016

Land $ 1,909
$ 1,714
Buildings and improvements 30-40 22,735
19,261
Office furniture and equipment 5-8 13,941
12,574
Machinery and equipment 5-7 179,681
166,423
218,266
199,972
Accumulated depreciation and amortization (141,093 ) (126,823 )
Property, plant and equipment, net $ 77,173
$ 73,149


	Useful Life (Years)	June 30, 2022		December 31, 2021

Land		$	2,526	$	2,762
Buildings and improvements	30-40	24,380		24,787
Office furniture and equipment	5-8	19,482		16,620
Machinery and equipment	5-7	244,205		250,166
		290,593		294,335
Accumulated depreciation and amortization		(210,008)		(207,757)
Property, plant and equipment, net		$	80,585	$	86,578

Depreciation expense for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~September 30, 2016~~2021 was ~~$5.7~~approximately $5.8 million and ~~$5.8~~$6.2 million, respectively.

Depreciation expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~September 30, 2016~~2021 was ~~$16.8~~$12.3 million and ~~$17.6~~$12.3 million, respectively.

7.8. Goodwill

~~Mistras Group, Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~(tabular dollars and shares in thousands, except per share data)~~

Changes in the carrying amount of goodwill by segment is shown below:

Services International Products and Systems Total
Balance at December 31, 2016 $ 123,392
$ 33,351
$ 13,197
$ 169,940
Goodwill acquired during the period 4,271
—
—
4,271
Impairment charges —
—
(13,197 ) (13,197 )
Adjustments to preliminary purchase price allocations (211 ) —
—
(211 )
Foreign currency translation 1,028
3,873
—
4,901
Balance at September 30, 2017 $ 128,480
$ 37,224
$ —
$ 165,704


	Services		International		Products and Systems		Total
Balance at December 31, 2021	$	190,656	$	14,783	$	—	$	205,439



Foreign currency translation	(1,188)		(1,145)		—		(2,333)
Balance at June 30, 2022	$	189,468	$	13,638	$	—	$	203,106

The Company reviews goodwill for impairment on a reporting unit basis on October 1 of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

During the second quarter of 2017, there were pending contract bids which management assessed as having a reasonable chance of success. These contract bids were not awarded to the Company. As a result of this missed opportunity, the annual forecasting process was accelerated, resulting in lower future operating profits and cash flows. As such, there were indicators that the carrying amount of the goodwill for the Products and Systems reporting unit may not be recoverable due to the decline in the projected future cash flows.

The Company performed ~~an analysis to determine~~a quantitative annual impairment test as of October 1, 2021 and the Company did not identify any impairment of long-lived assets (see Note 8) as well as an analysis to determine any impairment of goodwill. For the goodwill analysis, we used income and market approaches to estimate the fair value of the reporting unit, which requires significant judgmentchanges in ~~evaluation of economic and industry trends, estimated future cash flows, discount rates and other factors, and compared~~circumstances that fair value to the carrying value, and determined that the fair value of the reporting unit was less than the carrying value. The Company recorded an impairment charge of $13.2 million, based on the difference between the fair value andwould indicate the carrying value of goodwill may not be recoverable. Additionally, through June 30, 2022, the ~~reporting unit, which resulted~~Company did not identify any changes in ~~an impairment of~~circumstances that would indicate the ~~entire amount~~carrying value of goodwill ~~for~~may not be recoverable. Significant adverse changes in future periods could negatively affect the ~~Products~~Company’s key assumptions and ~~Systems reporting unit.~~

~~The Company's cumulative~~may result in future goodwill impairment ascharges which could be material.

Table of September 30, 2017 was $23.1 million, of which $13.2 million related to the Products and Systems segment and $9.9 million related to the International segment. As of December 31, 2016, the cumulative goodwill impairment was $9.9 million, which is within its International segment.

Contents

8.~~Intangible Assets~~

~~The gross amount, accumulated amortization and net carrying amount of intangible assets were as follows:~~

September 30, 2017 December 31, 2016

Useful Life
(Years)

Gross
Amount

Accumulated
Amortization
Impairment
Net
Carrying
Amount

Gross
Amount

Accumulated
Amortization

Net
Carrying
Amount

Customer relationships 5-14 $ 92,488
$ (56,582 ) $ (170 ) $ 35,736
$ 81,559
$ (50,417 ) $ 31,142
Software/Technology 3-15 19,219
(13,804 ) (2,411 ) 3,004
18,128
(12,577 ) 5,551
Covenants not to compete 2-5 11,687
(10,227 ) —
1,460
11,143
(9,647 ) 1,496
Other 2-12 8,262
(6,188 ) (32 ) 2,042
7,266
(5,448 ) 1,818
Total $ 131,656
$ (86,801 ) $ (2,613 ) $ 42,242
$ 118,096
$ (78,089 ) $ 40,007

~~Amortization expense for the three months ended September 30, 2017 and September 30, 2016 was $2.4 million and $2.1 million, respectively.~~

~~Amortization expense for the nine months ended September 30, 2017 and September 30, 2016 was $6.8 million and $6.9 million, respectively.~~

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

9. Intangible Assets

The gross amount, accumulated amortization and net carrying amount of intangible assets were as follows:


		June 30, 2022				December 31, 2021
	Useful Life (Years)	Gross Amount		Accumulated Amortization		Net Carrying Amount		Gross Amount		Accumulated Amortization		Net Carrying Amount

Customer relationships	5-18	$	109,922	$	(81,443)	$	28,479	$	112,109	$	(80,319)	$	31,790
Software/Technology	3-15	51,903		(27,500)		24,403		52,265		(26,415)		25,850
Covenants not to compete	2-5	12,570		(12,420)		150		12,623		(12,390)		233
Other	2-12	10,477		(9,231)		1,246		10,574		(9,066)		1,508
Total		$	184,872	$	(130,594)	$	54,278	$	187,571	$	(128,190)	$	59,381

As described in Note 7, the Company performed an analysis to determine whether there was any impairment of long-lived assets for the Products and Systems reporting unit. We used income and market approaches to estimate the fair value of the long-lived assets, which requires significant judgment in evaluation of the useful lives of the assets, economic and industry trends, estimated future cash flows, discount rates, and other factors. The result of the analysis was an impairment of $2.4 million to software/technology, $0.2 million to customer relationships and less than $0.1 million to other intangibles, which are included in the impairment charges line on the condensed consolidated statements of incomeAmortization expense for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017.~~2022 and 2021 was approximately $2.3 million and $2.5 million, respectively.

Amortization expense for the six months ended June 30, 2022 and June 30, 2021 was $4.6 million and $4.9 million, respectively.

10. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

September 30, 2017 December 31, 2016

Accrued salaries, wages and related employee benefits $ 29,763
$ 23,442
Contingent consideration, current portion 2,999
1,826
Accrued workers’ compensation and health benefits 5,740
6,351
Deferred revenue 5,440
3,743
Litigation accrual 1,200
6,320
Other accrued expenses 20,466
17,015
Total accrued expenses and other liabilities $ 65,608
$ 58,697


	June 30, 2022		December 31, 2021

Accrued salaries, wages and related employee benefits	$	34,147	$	33,816
Contingent consideration, current portion	938		1,830
Accrued workers’ compensation and health benefits	4,054		3,994
Deferred revenue	8,350		6,202
Pension accrual	2,519		2,519
Right-of-use liability - Operating	10,034		10,040
Other accrued expenses	24,793		25,462
Total	$	84,835	$	83,863

~~10.Long-Term Debt~~

~~Long-term debt consisted of the following:~~

September 30, 2017 December 31, 2016

Senior credit facility $ 95,050
$ 82,776
Notes payable 230
320
Other 9,013
4,200
Total debt 104,293
87,296
Less: Current portion (2,490 ) (1,379 )
Long-term debt, net of current portion $ 101,803
$ 85,917

~~Senior Credit Facility~~

~~The Company's revolving credit agreement with its banking group ("Credit Agreement") provides the Company with a $175.0 million revolving line~~Table of credit, which, under certain circumstances, can be increased to $225.0 million. The Company may borrow up to $30.0 million in non-U.S. Dollar currencies and use up to $10.0 million of the credit limit for the issuance of letters of credit. The Credit Agreement has a maturity date of October 30, 2019. As of September 30, 2017, the Company had borrowings of $95.1 million and a total of $5.0 million of letters of credit outstanding under the Credit Agreement.

Loans under the Credit Agreement bear interest at LIBOR plus an applicable LIBOR margin ranging from 1% to 1.75%, or a base rate less a margin of 1.25% to 0.375%, at the option of the Company, based upon the Company’s Funded Debt Leverage Ratio. Funded Debt Leverage Ratio is defined as the ratio of (1) all outstanding indebtedness for borrowed money and other interest-bearing indebtedness as of the date of determination to (2) EBITDA (which is (a) net income, less (b) income (or plus loss) from discontinued operations and extraordinary items, plus (c) income tax expenses, plus (d) interest expense, plus (e) depreciation, depletion, and amortization (including non-cash loss on retirement of assets), plus (f) stock compensation expense, less (g) cash expense related to stock compensation, plus or minus certain other adjustments) for the period of four consecutive fiscal quarters immediately preceding the date of determination. The Company has the benefit of the lowest margin if its Funded Debt Leverage Ratio is equal to or less than 0.5 to 1, and the margin increases as the ratio increases, to the maximum margin if the ratio is greater than 2.0 to 1. The Company will also bear additional costs for market disruption, regulatory changes effecting the lenders’ funding costs, and default pricing of an additional 2% interest rate margin on any

Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

11. Long-Term Debt

Long-term debt consisted of the following:


	June 30, 2022		December 31, 2021

Senior credit facility	$	127,250	$	119,500
Senior secured term loan, net of unamortized debt issuance costs of $0.1 million and $0.2 million, respectively	67,976		76,673

Other	5,163		6,392
Total debt	200,389		202,565
Less: Current portion	(21,227)		(20,162)
Long-term debt, net of current portion	$	179,162	$	182,403

Senior Credit Facility

~~amounts not paid when due. Amounts borrowed~~

The Company has a credit agreement with its banking group (as amended, the "Credit Agreement") which provides the Company with a revolving line of credit and a $100 million senior secured term loan A facility with a balance of $68.0 million as of June 30, 2022. Pursuant to the Amendment described below, the revolving line of credit was reduced from $155 million to $150 million on December 31, 2021. Both the revolving line of credit and the term loan A facility under the Credit Agreement ~~are secured by liens on substantially all~~have a maturity date of ~~the assets of the Company.~~December 12, 2023.

~~The Credit Agreement contains financial covenants requiring that~~On May 19, 2021, the Company ~~maintain a~~entered into the Fifth Amendment (the “Amendment”) to the Credit Agreement. The Amendment made the following changes:

•Removed the LIBOR floor of 1.0%, which provided that if LIBOR is below 1.0%, the interest rate will be calculated as if LIBOR is 1.0%. Now the actual LIBOR rate is used to calculate interest, even if LIBOR is below 1.0%. The LIBOR margins and base rate margins are unchanged but are based upon the new Total Consolidated Debt Leverage Ratio (defined below); previously the margin was based upon the Funded Debt Leverage Ratio.

•Requires the Company to maintain a Total Consolidated Debt Leverage Ratio not to exceed 4.0 to 1.0 as of ~~no greater than 3.25 to 1~~the end of each quarter through the quarter ending March 31, 2022, and ~~an Interest Coverage Ratio of at least 3.0 to 1. Interest Coverage Ratio is defined as~~for each quarter thereafter the ratio ~~as of any date of determination,~~shall not exceed 3.5 to 1.0.

◦Total Consolidated Debt Leverage Ratio means the ratio of (a) Total Consolidated Debt to (b) EBITDA (as defined in the Credit Agreement) for the ~~12 month period immediately preceding the date of determination, to (b)~~trailing four consecutive quarters.

◦Total Consolidated Debt means all ~~interest, premium payments, debt discount, fees, charges and related expenses~~indebtedness (including subordinated debt) of the Company ~~and its subsidiaries in connection with borrowed money (including capitalized interest)~~on a consolidated basis (with a limited exception).

•If the Company incurs certain subordinated debt or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, paid during the 12 month period immediately preceding the date of determination. The Credit Agreement also limits the Company’s ability to, among other ~~things, create liens, make investments, incur more~~permitted indebtedness, merge or consolidate, make dispositions of property, pay dividends and make distributions to stockholders, enter into a new line of business, enter into transactions with affiliates and enter into burdensome agreements. The Credit Agreement does not limit the Company’s ability to acquire other businesses or companies except that the acquired business or company must be in the Company's line of business,then the Company must ~~be in compliance~~maintain a Total Consolidated Debt Leverage Ratio not to exceed 4.5 to 1.0 and maintain a ratio of Senior Debt to EBITDA not to exceed 3.5 to 1.0, with Senior Debt being Total Consolidated Debt, less permitted subordinated debt.

•The Company must repay loans under the Credit Agreement with the ~~financial covenants on a pro forma basis after taking into account the acquisition,~~net proceeds from certain dispositions of assets under certain circumstances and limits investments in non-guarantor subsidiaries under certain circumstances if the ~~acquired business~~Company’s Total Consolidated Leverage Ratio is above 3.5 to 1.0.

•Quarterly payments on the term loan increased from $3.75 million to $5.0 million during the quarter ended June 30, 2022 with a ~~separate subsidiary, in certain circumstances the lenders will receive the benefit of~~final balloon payment at maturity.

As a ~~guaranty~~result of the ~~subsidiary~~borrowing capacity reduction on the revolving loan line of credit, the Company expensed $0.1 million in unamortized capitalized debt issuance costs during the year ended December 31, 2021, which was included in selling, general and ~~liens~~administrative expenses on ~~its assets~~the Consolidated Statements of Income (Loss). The Company incurred $0.5 million in financing costs for the Amendment, of which $0.2 million of third party costs were expensed and ~~a pledge~~included in selling, general and administrative expenses on the Consolidated Statements of ~~its stock.~~Income (Loss).

Under the Credit Agreement, the Company may borrow up to $100 million in non-U.S. Dollar currencies and use up to $20 million of the credit limit for the issuance of letters of credit.

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

As of ~~September~~June 30, ~~2017,~~2022, the Company had borrowings of $195.3 million and a total of $3.0 million of letters of credit outstanding under the Credit Agreement. The Company has capitalized costs associated with debt modifications of $0.7 million as of June 30, 2022, which is included in Other assets on the Condensed Consolidated Balance Sheets and will be amortized into interest expense over the remaining term of the Credit Agreement through December 12, 2023.

As of June 30, 2022, the Company was in compliance with the terms of the Credit ~~Agreement, and will~~Agreement. The Company continuously ~~monitor its~~monitors compliance with the covenants contained in its Credit Agreement. The Company believes that it is probable that the Company will be able to comply with the financial covenants in the Credit Agreement and that sufficient credit remains available under the Credit Agreement to meet the Company’s liquidity needs. However, due to the uncertainties being caused by the COVID-19 pandemic, the significant volatility in oil prices, and volatility in the aerospace production, such matters cannot be predicted with certainty.

On August 1, 2022, the Company entered into an agreement for a new Senior Credit Facility. See Note 16-Subsequent Events for additional details.

~~Notes Payable and~~ Other debt

~~In connection with certain of its acquisitions, the Company issued subordinated notes payable to the sellers.~~ The ~~maturity of the notes that remain outstanding are three years from the date of acquisition and bear interest~~Company’s other debt includes bank financing provided at the ~~prime rate for the Bank~~local subsidiary level used to support working capital requirements and fund capital expenditures. At June 30, 2022, there was an aggregate of ~~Canada, currently 3.2% as of September 30, 2017. Interest expense is recorded in the condensed consolidated statements of income.~~approximately $5.2 million outstanding, payable at various times through 2030. Monthly payments range from $1.0 thousand to $15.0 thousand and interest rates range from 0.4% to 3.5%.

~~11.~~12. Fair Value Measurements

The Company performs fair value measurements in accordance with the guidance provided by ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a three level hierarchy that prioritizes the inputs used to measure fair value.

Financial instruments measured at fair value on a recurring basis

The fair value of contingent consideration liabilities was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the applicable acquisition agreements.

~~Mistras Group, Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~(tabular dollars and shares in thousands, except per share data)~~

The following table represents the changes in the fair value of Level 3 contingent consideration:

Nine months ended
September 30, 2017
Beginning balance $ 3,094
Acquisitions 4,126
Payments (554 )
Accretion of liability 198
Revaluation (1,078 )
Foreign currency translation 28
Ending balance $ 5,814


	Six months ended June 30,
	2022		2021
Beginning balance	$	1,831	$	1,640
Acquisitions	—		—
Payments	(938)		(938)
Accretion of liability	—		—
Revaluation	45		788
Foreign currency translation	—		—
Ending balance	$	938	$	1,490

Financial instruments not measured at fair value on a recurring basis

The Company has evaluated current market conditions and borrower credit quality and has determined that the carrying value of its long-term debt approximates fair value. The fair value of the Company’s notes payable and ~~capital~~finance lease obligations

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

approximates their carrying amounts based on anticipated interest rates which management believes would currently be available to the Company for similar issuances of debt.

13. Leases

~~12.~~

The Company’s Condensed Consolidated Balance Sheets include the following related to right-of-use ("ROU")


Leases	Classification	June 30, 2022		December 31, 2021
Assets
ROU assets	Other assets	$	40,399	$	42,451

Liabilities
ROU - current	Accrued expenses and other current liabilities	$	10,034	$	10,040
ROU liability - long-term	Other long-term liabilities	31,769		34,030
Total ROU liabilities		$	41,803	$	44,070

Included within the balance of operating leases is a lease for the Company’s headquarters which is with a related party. The ROU liability for this facility was approximately $2.2 million and $2.9 million as of June 30, 2022 and December 31, 2021, respectively. Total rent payments for this facility were approximately $0.2 million and $0.3 million for the three months ended June 30, 2022 and June 30, 2021, respectively. Total rent payments for this facility were approximately $0.5 million and $0.7 million for the six months ended June 30, 2022 and June 30, 2021, respectively. An agreement was reached with the related party to reduce rental payments by 12.5% for the lease of the Company’s headquarters, effective February 2022 as part of a voluntary reduction.

The total ROU assets attributable to finance leases were approximately $12.8 million and $13.8 million as of June 30, 2022 and December 31, 2021, respectively, which is included in Property, plant, and equipment, net on the Condensed Consolidated Balance Sheets.

The components of lease costs were as follows:


		Three months ended June 30,				Six months ended June 30,
	Classification	2022		2021		2022		2021
Finance lease expense
Amortization of ROU assets	Depreciation and amortization	$	1,023	$	1,029	$	2,036	$	2,091
Interest on lease liabilities	Interest expense	156		181		314		373
Operating lease expense	Cost of revenue; Selling, general & administrative expenses	3,203		3,274		6,401		6,577
Short-term lease expense	Cost of revenue; Selling, general & administrative expenses	3		8		9		14
Variable lease expense	Cost of revenue; Selling, general & administrative expenses	551		551		1,088		1,418
Total		$	4,936	$	5,043	$	9,848	$	10,473

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Additional information related to leases was as follows:


	Six months ended June 30,
		2022			2021
Cash paid for amounts included in the measurement of lease liabilities for finance and operating leases
Finance - financing cash flows		$	2,138		$	2,050
Finance - operating cash flows		$	314		$	373
Operating - operating cash flows		$	6,302		$	6,620
ROU assets obtained in the exchange for lease liabilities
Finance leases		$	2,039		$	1,623
Operating leases		$	4,378		$	2,828
Weighted-average remaining lease term (in years)
Finance leases		5.3			5.6
Operating leases		5.0			5.5
Weighted-average discount rate
Finance leases		5.2		%	5.4		%
Operating leases		5.5		%	5.8		%

Maturities of lease liabilities as of June 30, 2022 were as follows:


	Finance		Operating
Remainder of 2022	$	3,449	$	6,104
2023	4,191		11,570
2024	3,279		9,400
2025	1,709		6,903
2026	1,068		5,052
Thereafter	602		9,100
Total	14,298		48,129
Less: Present value discount	1,010		6,326
Lease liability	$	13,288	$	41,803

14. Commitments and Contingencies

Legal Proceedings and Government Investigations

The Company is ~~subject to periodic~~periodically involved in lawsuits, investigations and claims that arise in the ordinary course of business. The Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against it. Except ~~possibly~~ for ~~certain of~~possible losses from the matters described below, the Company does not believe that any currently pending or threatened legal proceeding to which the Company is or is likely to become a party will have a material adverse effect on its business, results of operations, cash flows or financial condition. The costs ~~of defense~~incurred by the Company to defend lawsuits, investigations and claims and amounts ~~that may be recovered against~~ the Company pays to other parties because of these matters may be covered by insurance ~~for certain matters. The Company has accrued an aggregate~~in some circumstances.

Table of approximately $1.6 million for losses related to the matters described below, net of insurance, for which the Company has stated that an accrual has been established. This $1.6 million accrual does not include the California class action matter, described below, as to which the settlement amount has been fully paid.

~~Litigation and Commercial Claims~~

The Company settled a consolidated purported class and collective action that resulted from the consolidation of two cases originally filed in California state court in April 2015. In connection with the settlement, the Company recorded a pre-tax charge of $6.3 million during the three months ended June 30, 2016 and paid the settlement in February 2017.

~~The Company is a defendant in the lawsuit~~ ~~AGL Services Company v. Mistras Group, Inc.,~~ pending in U.S. District Court for the Northern District of Georgia, filed November 2016. The case involves radiography work performed by the Company in 2013 on the construction of a pipeline project in the U.S. The owner of the pipeline project has claimed damages of approximately $5.8 million and contends that certain of the radiography images the Company’s technicians prepared regarding the project did not meet the code quality interpretation standards required by the American Petroleum Institute. At a trial concluded on October 26, 2017, the jury awarded the plaintiff damages plus interest, which the Company believes is fully covered by insurance.

The Company’s subsidiary in France has been involved in a dispute with a former owner of a business purchased by the Company’s French subsidiary. The judgment is being appealed, but the Company recorded an accrual for the judgment during the three months ended June 30, 2016. The loss for this matter is included in the accrual set forth above.

Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Litigation and Commercial Claims

The Company iswas contracted to perform inspections of welds on various pipeline projects in Texas for a ~~defendant~~customer. As of June 30, 2022, approximately $1.4 million of past due receivables were outstanding from this customer. The customer provided the Company with notice in December 2019, alleging that the Company’s inspection of 66 welds (out of approximately 16,000 welds inspected) were not in compliance with the contract, claimed approximately $7.6 million in damages, and requested that the Company pay these damages and any other damages incurred. The Company filed a lawsuit ~~Triumph Aerostructures, LLC d/b/a Triumph Aerostructures-Vought Aircraft Division v.~~in the District Court of Bexar County, Texas, 37th Judicial District, in an action captioned Mistras Group, ~~Inc., pending in Texas State district court, 193rd Judicial District, Dallas County, Texas,~~Inc. v. Epic Y-Grade Pipeline LP, to recover the $1.4 million and other amounts due to the Company. The customer filed ~~September 2016. The plaintiff alleges Mistras delivered~~ a ~~defective Ultrasonic inspection system in 2014~~counterclaim, alleging breach of contract and ~~is alleging damages~~seeking recovery of ~~approximately $2.3 million.~~its alleged damages. The Company ~~has established an accrual for this matter, which is included in~~believes that any successful claim by the ~~amount set forth above.~~

~~Government Investigations~~

~~In May 2015,~~customer regarding the ~~Company received~~Company’s workmanship will be covered by insurance, subject to payment of a notice from the U.S. Environmental Protection Agency (“EPA”) that it performed a preliminary assessment at a leased facility the Company operates in Cudahy, California. Based upon the preliminary assessment, the EPA is conducting an investigation of the site, which includes taking groundwater and soil samples. The purpose of the investigation is to determine whether any hazardous materials were released from the facility. The Company has been informed that certain hazardous materials and pollutants have been found in the ground water in the general vicinity of the site and the EPA is attempting to ascertain the origination or source of these materials and pollutants. Given the historic industrial use of the site, the EPA determined that the site of the Cudahy facility should be examined, along with numerous other sites in the vicinity.deductible. At this time, the Company is unable to determine whether it has any liability in connection with this matter and if so, the amount or range of any such liability, and accordingly, has not established any accruals for this matter. Accordingly, the Company recorded a reserve in the amount of $1.4 million during the twelve months ended December 31, 2019 for these past due receivables.

~~Acquisition-related~~NaN proceedings have been filed in California Superior Court for the County of Los Angeles regarding alleged violations of the California Labor Code. Both cases are captioned Justin Price v. Mistras Group, Inc., 1 being a purported class action lawsuit on behalf of current and former Mistras employees in California and the other was filed on behalf of the State of California under the California Private Attorney General Act on the basis of the same alleged violations. The two cases have been consolidated and are requesting payment of all damages, including unpaid wages, and various fines and penalties available under California law. On May 4, 2021, the Company agreed to a settlement of all claims in the cases, which was more formally documented pursuant to a settlement agreement completed October 5, 2021, as amended as of May 3, 2022. Pursuant to the settlement, the Company will pay $2.3 million to resolve the allegations in these proceedings and will be responsible for the employer portion of payroll taxes on the amount of the settlement allocated to wages. The settlement received preliminary court approval on May 12, 2022, but is still subject to final court approval and will cover claims for the period from June 2016 through July 31, 2021. The Company recorded expense of approximately $1.6 million during the three months ended March 31, 2021 related to this settlement, which is in addition to expense of $0.8 million the Company recorded during the three months ended December 31, 2020.

Pension Related Contingencies

Certain of Company’s subsidiaries had significant reductions in their unionized workers in 2018. The collective bargaining agreements for these employees required contributions for these employees to national multi-employer pension funds. The reduction in employees resulted in a subsidiary incurring a complete withdrawal to one of the pension funds under the Employee Retirement Income Security Act of 1974 ("ERISA"), which was fully satisfied in 2019. The Company has determined that the subsidiary is likely to incur partial or complete withdrawal liability to the other pension fund. The balance of the estimated total amount of this potential liability as of June 30, 2022 is approximately $2.5 million, which were incurred in 2018 and 2019.

Severance and labor disputes

During December 2019, the Company executed an agreement to sell the rights of certain customer "staff leasing" contracts related to its German subsidiary for total consideration of approximately $0.1 million, effective January 1, 2020. No other assets or liabilities other than those employee benefits related to employees working on the customer contracts were included in the sale. As of June 30, 2022, the Company has approximately $0.1 million of accrued estimated severance payment obligations, which takes into account the Company’s estimate with respect to the employees that have been or will be transitioned to the German subsidiaries' other customers. The $0.1 million of estimated obligations is net of $0.4 million in payments made and $1.0 million in reversals due to employees being transitioned to customer contracts.

The Company was entitled to indemnification on certain labor claims from the sellers of a company acquired by its Brazilian subsidiary. The Company and the sellers entered into a settlement agreement for approximately $1.0 million, which provided for payment in 2 installments, the first for approximately 31% of the settlement and the second for the remaining 69%. The first installment in the amount of approximately $0.3 million was paid by the sellers in December 2020 and the Company recognized that amount as a gain in selling, general and administrative expenses in the same period. The remaining payment for $0.6 million was received in the first quarter of 2021 and the Company recognized that amount as a gain in selling, general and administrative expenses in the same period.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Acquisition and disposition related contingencies

The Company is liable for contingent consideration in connection with certain of its acquisitions. As of ~~September~~June 30, ~~2017,~~2022, total potential acquisition-related contingent consideration ranged from zero to approximately ~~$8.6~~$1.9 million and would be payable upon the achievement of specific performance metrics by certain of the acquired companies over the next ~~2.8 years of operations. See Note 4 -~~ ~~Acquisitions~~ ~~to these condensed consolidated financial statements for further discussion~~three months.

During 2018, the Company sold a subsidiary in the Products and Systems segment. As part of the sale, the Company entered into a three-year agreement to purchase products from the buyer, with a cumulative commitment of $2.3 million, of which $0.8 million is remaining as of June 30, 2022. The agreement is based on third-party pricing and the Company's planned purchase requirements over the three-year purchase period to meet the minimum contractual purchases. On August 3, 2021, the Company entered into an agreement and extended the period by twelve months. As of June 30, 2022, approximately $0.8 million is remaining on the amended purchase commitment. The agreement is based on third party pricing and the Company’s ~~acquisitions.~~planned purchase requirements over the duration of the extension to meet the minimum contractual purchases.

~~13.~~15. Segment Disclosure

The Company’s ~~three~~3 operating segments are:

•Services. This segment provides asset protection solutions ~~primarily~~predominantly in North America, with the largest concentration in the United States, ~~and the Canadian services business,~~followed by Canada, consisting primarily of ~~non-destructive testing and~~NDT, inspection, mechanical and engineering services that are used to evaluate ~~and maintain~~ the safety, structural integrity and reliability of critical energy, industrial and public ~~infrastructure.~~

infrastructure and commercial aerospace components. Software, digital and data services are included in this segment.

•International. This segment offers services, products and systems similar to those of the ~~Company’s~~ other ~~two~~ segments to ~~global~~select markets ~~principally in~~within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment.

•Products and Systems. This segment designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States.

Costs incurred for general corporate services, including finance, legal, and certain other costs that are provided to the segments are reported within Corporate and eliminations. During the first quarter of 2022 the Company finalized a transfer pricing study which resulted in additional costs being allocated from Corporate to the operating segments with the majority of the costs allocated to the Services segment. These costs are reflected in operating income (loss) of each segment. Sales to the International segment from the Products and Systems segment and subsequent sales by the International segment of the same items are recorded and reflected in the operating performance of both segments. Additionally, engineering charges and royalty fees charged to the Services and International segments by the Products and Systems segment are reflected in the operating performance of each ~~segment. All~~segment

The accounting policies of the reportable segments are the same as those described in Note 1-Description of Business and Basis of Presentation. Segment income from operations is one of the primary performance measures used by the chief operating decision maker, to assess the performance of each segment and make resource allocation decisions. Certain general and administrative costs such ~~intersegment transactions~~as human resources, information technology and training are ~~eliminated in~~allocated to the ~~Company’s consolidated~~segments. Segment income from operations excludes interest and other financial ~~reporting.~~charges and income taxes. Corporate and other assets are comprised principally of cash, deposits, property, plant and equipment, domestic deferred taxes, deferred charges and other assets. Corporate loss from operations consists of administrative charges related to corporate personnel and other charges that cannot be readily identified for allocation to a particular segment.

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

Selected consolidated financial information by segment for the periods shown was as ~~follows (intercompany~~follows: (with intercompany transactions ~~are~~ eliminated in Corporate and eliminations):


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Revenue
Services	$	149,528	$	144,977	$	282,474	$	269,275
International	29,610		31,951		57,748		59,599
Products and Systems	2,652		3,203		5,588		6,191
Corporate and eliminations	(2,759)		(2,454)		(5,117)		(3,653)
	$	179,031	$	177,677	$	340,693	$	331,412


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Gross profit
Services	$	42,954	$	43,761	$	73,479	$	74,837
International	9,440		9,615		17,630		17,240
Products and Systems	1,157		1,952		2,325		3,233
Corporate and eliminations	7		8		16		27
	$	53,558	$	55,336	$	93,450	$	95,337

Three months ended Nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Revenues

Services $ 137,194
$ 127,153
$ 397,565
$ 395,089
International 38,200
37,922
106,360
105,275
Products and Systems 6,268
6,807
16,925
19,955
Corporate and eliminations (2,092 ) (3,071 ) (7,524 ) (5,713 )
$ 179,570
$ 168,811
$ 513,326
$ 514,606

Three months ended Nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Gross profit

Services $ 34,729
$ 33,704
$ 100,432
$ 102,652
International 10,432
13,133
29,720
33,673
Products and Systems 2,753
3,686
7,313
9,475
Corporate and eliminations (17 ) 128
(73 ) 356
$ 47,897
$ 50,651
$ 137,392
$ 146,156

Three months ended Nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Income (loss) from operations

Services $ 11,699
$ 12,221
$ 31,211
$ 30,932
International 1,023
5,751
3,866
8,925
Products and Systems (15,573 ) 806
(16,913 ) 560
Corporate and eliminations (7,524 ) (6,662 ) (20,287 ) (17,816 )
$ (10,375 ) $ 12,116
$ (2,123 ) $ 22,601

Income (loss) from operations by operating segment includes intercompany transactions, which are eliminated in Corporate and eliminations.


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Income (loss) from operations
Services	$	14,855	$	18,358	$	18,615	$	22,906
International	1,580		1,809		1,864		989
Products and Systems	(420)		209		(1,002)		(372)
Corporate and eliminations	(6,439)		(9,002)		(14,600)		(16,895)
	$	9,576	$	11,374	$	4,877	$	6,628


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Depreciation and amortization
Services	$	6,166	$	6,211	$	12,759	$	12,325
International	1,919		2,175		3,977		4,385
Products and Systems	120		215		337		443
Corporate and eliminations	(77)		31		(138)		44
	$	8,128	$	8,632	$	16,935	$	17,197

Three months ended Nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Depreciation and amortization

Services $ 5,543
$ 5,516
$ 16,330
$ 17,224
International 2,004
1,958
5,736
5,881
Products and Systems 594
552
1,746
1,718
Corporate and eliminations (46 ) (107 ) (168 ) (260 )
$ 8,095
$ 7,919
$ 23,644
$ 24,563

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Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share data)

September 30, 2017 December 31, 2016
Intangible assets, net

Services $ 24,951
$ 19,550
International 14,228
14,139
Products and Systems 2,309
5,482
Corporate and eliminations 754
836
$ 42,242
$ 40,007


	June 30, 2022		December 31, 2021
Intangible assets, net
Services	$	47,900	$	51,862
International	5,071		6,344
Products and Systems	1,182		1,042
Corporate and eliminations	125		133
	$	54,278	$	59,381


	September 30, 2017		December 31, 2016			June 30, 2022		December 31, 2021
Total assets					Total assets
Services	$	306,323	$	291,539	Services	$	428,218	$	424,058
International	150,555		130,427		International	101,086		111,619
Products and Systems	13,944		28,964		Products and Systems	11,476		10,532
Corporate and eliminations	13,600		18,497		Corporate and eliminations	14,762		15,986
	$	484,422	$	469,427		$	555,542	$	562,195

~~Revenues~~Refer to Note 2–Revenue, for revenue by geographic area for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016, respectively, were as follows:~~2021.

16. Subsequent Events

On August 1, 2022 Mistras Group, Inc. entered into a credit agreement (the "Credit Agreement") with JPMorgan Chase Bank N.A., as administrative agent for the lenders and a lender, BofA Securities as Syndication Agent and a lender, and the other lenders set forth in the Credit Agreement.

The Credit Agreement was filed as Exhibit 10.1 to the Company's Form 8-K filed with the SEC on August 2, 2022.

The Credit Agreement, among other things, provides the Company with a $190 million 5-year committed revolving credit facility and a $125 million term loan. The Credit Agreement has a maturity date of July 30, 2027 and permits the Company to borrow up to $100 million in non-US dollar currencies and to use up to $20 million of the credit limit for the issuance of letters of credit. Borrowings bear interest at Secured Overnight Financing Rate ("SOFR") plus a credit spread adjustment and applicable SOFR margin ranging from 1.25% to 2.75%, based upon our Total Consolidated Debt Leverage Ratio. We have the benefit of the lowest SOFR margin if our Total Consolidated Debt Leverage Ratio is equal to or less than 1.25 to 1, and the margin increases as the ratio increases, to the maximum margin if the ratio is greater than 3.75 to 1. The Credit Agreement is secured by liens on substantially all the assets of the Company and certain of its U.S subsidiaries and is guaranteed by those U.S. subsidiaries.

Three months ended Nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Revenues

United States $ 114,249
$ 113,409
$ 344,808
$ 358,343
Other Americas 26,084
16,940
59,452
48,828
Europe 36,264
33,126
97,630
93,265
Asia-Pacific 2,973
5,336
11,436
14,170
$ 179,570
$ 168,811
$ 513,326
$ 514,606

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Mistras Group, Inc. and Subsidiaries

~~Notes to Unaudited Condensed Consolidated~~Management's Discussion and Analysis of Financial ~~Statements~~Condition and Results of Operations

(tabular dollars ~~and shares~~are in ~~thousands, except per share data)~~thousands)

~~14. Repurchase of Common Stock~~

~~On October 7, 2015, the Company's Board of Directors approved a $50 million stock repurchase plan. As part of this plan, on~~

~~August 17, 2016, the Company entered into an agreement with its CEO, Dr. Sotirios Vahaviolos, to purchase up to 1 million of~~

~~his shares, commencing in October 2016. Pursuant to the agreement, in general, the Company will purchase from Dr.~~

Vahaviolos up to $2 million of shares each month, at a 2% discount to the average daily closing price of the Company's common stock for the preceding month. During the nine months ended September 30, 2017, the Company purchased approximately 726,000 shares from Dr. Vahaviolos at an average price of $21.93 per share and an aggregate cost of $15.9 million. From the inception of the plan through September 30, 2017, the Company has purchased 1,000,000 shares from Dr. Vahaviolos at an average price of $21.92 per share for an aggregate cost of approximately $21.9 million and approximately 146,000 shares in the open market at an average price of $20.48 per share for an aggregate cost of approximately $3.0 million. All such repurchased shares are classified as ~~Treasury Stock~~ ~~on the condensed consolidated balance sheet. As of September 30, 2017, approximately $25.1 million remained available to repurchase shares under the stock repurchase plan.~~

ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis (“MD&A”) ~~includes~~provides a ~~narrative explanation and analysis~~discussion of our results of operations and financial ~~condition~~position for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~September 30, 2016.~~2021. The MD&A should be read together with our ~~condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements and related notes included in Item 1 in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our ~~Transition~~Annual Report on Form 10-K for the ~~transition period~~year ended December 31, ~~2016,~~2021, filed with the Securities and Exchange Commission on March ~~20, 2017~~14, 2022 (“~~2016 Transition~~2021 Annual Report”). Unless otherwise specified or the context otherwise requires, “Mistras,” “the Company,” “we,” “us” and “our” refer to Mistras Group, Inc. and its consolidated subsidiaries. The MD&A includes ~~disclosure in~~ the following ~~areas:~~sections:

•Forward-Looking Statements

•Overview

•Note about Non-GAAP Measures

•Consolidated Results of Operations

•Liquidity and Capital Resources

•Critical Accounting Policies and Estimates

Forward-Looking Statements

This report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.

In some cases, you can identify forward-looking statements by terminology, such as “goals,” or “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “could,” “should,” “would,” “predicts,” “appears,” “projects,” or the negative of such terms or other similar expressions. You are urged not to place undue reliance on any such forward-looking statements, any of which may turn out to be wrong due to inaccurate assumptions, various risks, uncertainties or other factors known and unknown. Factors that could cause or contribute to differences in results and outcomes from those in our forward-looking statements include, without limitation, those discussed in the “Business—Forward-Looking Statements,” and “Risk Factors” sections of our ~~2016 Transition~~2021 Annual Report as well as those discussed in this Quarterly Report on Form 10-Q and in our other filings with the ~~Securities~~SEC.

At the time of this report, the COVID-19 pandemic is continuing to have a negative impact on us and ~~Exchange Commission (“SEC”).~~our key markets and is causing significant economic disruption worldwide, although the Company has nevertheless begun approaching pre-pandemic levels of activity in certain end markets, particularly oil and gas. Our discussion below is qualified by the unknown impact that the COVID-19 pandemic will continue to have on our business and the economy in general, including the duration of the health risk the COVID-19 pandemic will cause and the resulting economic disruption.

The Company is currently unable to predict with certainty the overall impact that the factors discussed above and the effect of the Russian-Ukrainian conflict may have on its business, results of operations or liquidity or in other ways which the Company cannot yet determine. To date, the Company’s European operations have begun to see increased costs associated with higher energy costs, among others, due in part to the on-going conflict. The Company will continue to monitor market conditions and respond accordingly.

Overview

~~We offer our customers “one source for asset protection solutions”® and are~~The Company is a leading ~~global~~“one source” multinational provider of integrated technology-enabled asset protection solutions ~~used~~helping to ~~evaluate~~maximize the ~~structural integrity~~safety and ~~reliability of~~operational uptime for civilization’s most critical ~~energy,~~ industrial and ~~public infrastructure. We combine industry-leading products~~civil assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, strong commitment to Environmental, Social, and Governance (ESG) initiatives and decades-long legacy of industry leadership, the Company helps clients with asset-intensive infrastructure in the oil and gas, aerospace and defense, industrials, power generation and transmission (including alternative and renewable energy), other process industries and infrastructure, research and engineering and other industries

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Management's Discussion and Analysis of Financial Condition and Results of Operations

(tabular dollars are in thousands)

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 systems to help avoid catastrophic incidents, the Company helps the world at large.

The Company’s core capabilities also include non-destructive testing (“NDT”) field inspections enhanced by advanced robotics, laboratory quality control and assurance testing, sensing technologies ~~expertise in~~and NDT equipment, asset and mechanical integrity ~~(MI), Non-Destructive Testing (NDT), Destructive Testing (DT),~~engineering services, and light mechanical maintenance and ~~predictive maintenance (PdM) services, process and fixed asset engineering and consulting services, proprietary data analysis and our world class enterprise inspection database~~access services.

management and analysis software, PCMS, to deliver a comprehensive portfolio of customized solutions, ranging from routine inspections to complex, plant-wide asset integrity management and assessments. These mission critical solutions enhance our customers’ ability to comply with governmental safety and environmental regulations, extend the useful life of their assets, increase productivity, minimize repair costs, manage risk and avoid catastrophic disasters. Our operations consist of three reportable segments: Services, International, and Products and Systems.

•Services provides asset protection solutions predominantly in North America, with the largest concentration in the United States, followed by Canada, consisting primarily of NDT, inspection, mechanical and engineering services that are used to evaluate the structural integrity and reliability of critical energy, industrial and public ~~infrastructure.~~

infrastructure and commercial aerospace components. Software, digital and data services are included in this segment.

•International offers services, products and systems similar to those of the other segments to ~~global~~select markets ~~principally in~~within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment.

•Products and Systems designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States.

Given the role our solutions play in ~~ensuring~~enhancing the safe and efficient operation of infrastructure, we ~~provide~~have historically provided a majority of our ~~services~~solutions to our customers on a regular, recurring basis. We ~~serve~~perform these services largely at our customers’ facilities, while primarily servicing our aerospace customers at our network of state-of-the-art, in-house laboratories. These solutions typically include NDT and inspection services, and can also include a ~~global customer base~~wide range of ~~companies with asset-intensive infrastructure,~~mechanical services, including ~~companies in the oil~~heat tracing, pre-inspection insulation stripping, coating applications, re-insulation, engineering assessments and ~~gas (downstream, midstream, upstream~~long-term condition-monitoring. Under this business model, many customers outsource their inspection to us on a “run and petrochemical), power generation (natural gas, fossil, nuclear, alternative, renewable, and transmission and distribution), public infrastructure, chemicals, commercial aerospace and defense, transportation, primary metals and metalworking, pharmaceutical/biotechnology and food processing industries and research and engineering institutions.maintain” basis. We have established long-term relationships as a critical solutions provider to many of the leading companies with asset-intensive infrastructure in our target markets. These markets include companies in the oil and gas, aerospace and defense, industrials, power generation and transmission (including alternative and renewable energy), other process industries and infrastructure, research and engineering and other industries.

We have focused on ~~introducing~~providing our advanced asset protection solutions to our customers using proprietary, technology-enabled software and testing instruments, including those developed by our Products and Systems segment. We have made ~~a number of~~numerous acquisitions in an effort to grow our base of experienced, certified personnel, expand our service lines and technical capabilities, increase our geographical reach, complement our existing offerings, and leverage our fixed costs. We have increased our capabilities and the size of our customer base through the development of applied technologies and managed support services, organic growth and the integration of acquired companies. These acquisitions have provided us with additional service lines, technologies, resources and customers ~~that~~which we believe will enhance our advantages over our competition.

~~Demand for outsourced asset protection solutions has generally increased over the last ten years, creating demand from which our entire industry has benefited.~~ We believe ~~continued~~long-term growth can be realized in all of our target markets. ~~For most~~Our level of ~~2017, current market~~business and financial results are impacted by world-wide macro- and micro-economic conditions generally, as well as those within our target markets. Among other things, we expect the timing of our oil and gas customers inspection spend to be impacted by oil price fluctuations.

We have continued providing our customers with an innovative asset protection software ecosystem through our MISTRAS OneSuite platform. The software platform offers functions of MISTRAS' popular software and services brands as integrated apps on a cloud environment. OneSuite serves as a single access portal for customers' data activities and provides access to 85 plus applications being offered on one centralized platform.

We have continued to develop new technologies to provide monitoring of wind blade integrity through our Sensoria™ tool. Sensoria helps provide real-time monitoring and damage detection of wind turbine blades and allows our customers to

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Management's Discussion and Analysis of Financial Condition and Results of Operations

(tabular dollars are in thousands)

maximize uptime, performance and safety of wind turbine blades. This tool provides additional growth and expansion of our capabilities to serve both new and existing wind turbines and greatly enhances our product offerings within the renewable energy industry.

Recent Developments

The COVID-19 coronavirus (COVID-19) pandemic has continued to cause disruption and volatility in domestic and international markets although conditions continue to improve during 2022 as compared to 2021. The Company’s businesses have been ~~soft, driven~~classified as non-healthcare critical infrastructure as defined by ~~lower oil prices which have caused many of~~the U.S. Centers for Disease Control and Prevention (CDC). Our facilities, and the Company’s customers facilities as well, have remained open with staffing modifications and precautionary procedures taken as necessary.

Overall, we have taken actions to ~~curtail spending~~help ensure the health and safety of our employees and those of our customers and suppliers; maintain business continuity and financial strength and stability; and serve our customers as they provide essential products and services to the world.

The COVID-19 pandemic uncertainty, significant volatility in oil prices and decreased traffic in the aerospace industry have adversely affected our workforce and operations, as well as the operations of our customers, suppliers and contractors beginning in 2020. These negative factors continue to cause volatility and uncertainty in the markets in which we operate, although we have nevertheless begun approaching pre-pandemic levels of activity in certain end markets, particularly oil and gas where crude oil prices have exceeded pre-pandemic levels.

The Company has eliminated substantially all of the cost reduction initiatives undertaken in 2020, including re-installment of the savings plan employer match and increasing wages back to pre-pandemic amounts. Our cash position and liquidity remains strong. As of June 30, 2022, the cash balance was approximately $18.6 million.

In April 2021, the Biden Administration announced aggressive initiatives to battle climate change, which includes a significant reduction in the use of fossil fuels and a transition to electric vehicles and increased use of alternative energy. Any legislation or regulations that may be adopted to implement these measures may negatively impact our customers in the oil and gas market over the long-term, which presently is our largest market, although this initiative will likely benefit the alternative energy market, such as wind energy, for which we provide products and services. At this time, it is difficult to determine the magnitude and timing of the impact that climate change initiatives and legislation, if any, will have on these markets and the resulting impact on our ~~services~~business and ~~products. However, during~~operational results.

We are currently unable to predict the ~~fall~~overall impact that the COVID-19 pandemic uncertainty, volatility in oil prices and climate change initiatives to reduce the use of ~~2017, market conditions turned modestly positive and we believe this will continue for the remainder of 2017 and through the spring of 2018.~~

~~Results of Operations~~

~~Condensed consolidated~~fossil fuels may have on our business, results of operations, ~~for~~liquidity or in other ways which we cannot yet determine.

The Company is currently unable to predict with certainty the ~~three~~overall impact that the factors discussed above and ~~nine months ended September 30, 2017~~the effect of the Russian-Ukrainian conflict may have on its business, results of operations or liquidity or in other ways which the Company cannot yet determine. To date, the Company’s European operations have begun to see increased costs associated with higher energy costs, among others, due in part to the Russian-Ukrainian conflict. The Company will continue to monitor market conditions and ~~September 30, 2016 were as follows:~~respond accordingly. Refer to Item 1A. Risk Factors in Part I of our 2021 Annual Report.

Three months ended Nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
($ in thousands) ($ in thousands)
Revenues $ 179,570
$ 168,811
$ 513,326
$ 514,606
Gross profit 47,897
50,651
137,392
146,156
Gross profit as a % of Revenue 27 % 30 % 27 % 28 %
Total operating expenses 58,272
38,535
139,515
123,555
Operating expenses as a % of Revenue 32 % 23 % 27 % 24 %
Income (loss) from operations (10,375 ) 12,116
(2,123 ) 22,601
Income (loss) from Operations as a % of Revenue (6 )% 7 % — % 4 %
Interest expense 1,081
778
3,114
2,218
Income (loss) before (benefit) provision for income taxes (11,456 ) 11,338
(5,237 ) 20,383
(Benefit) provision for income taxes (4,503 ) 4,083
(2,199 ) 6,908
Net income (loss) (6,953 ) 7,255
(3,038 ) 13,475
Less: net income attributable to non-controlling interests, net of taxes 15
17
21
29
Net income (loss) attributable to Mistras Group, Inc. $ (6,968 ) $ 7,238
$ (3,059 ) $ 13,446

Note About Non-GAAP Measures

The Company prepares its consolidated financial statements in accordance with U.S. GAAP. In this MD&A under the heading "Income (loss) from Operations", the non-GAAP financial performance measure "Income ~~(Loss)~~(loss) before special items” is used for each of our three operating segments, the Corporate segment and the "Total Company", with tables reconciling the measure to a financial measure under GAAP. This ~~non-GAAP measure~~presentation excludes from ~~the GAAP measure~~ "Income ~~(Loss)~~(loss) from Operations" (a) transaction expenses related to acquisitions, such as professional fees and due diligence costs, (b) the net changes in the fair value of acquisition-related contingent consideration liabilities, (c) impairment charges, (d) reorganization and ~~(c)~~other costs, which includes items such as severance, labor relations matters and asset and lease termination costs and (e) other special items. These ~~items~~adjustments have been excluded from the GAAP measure because these expenses and credits are not related to ~~the Company’s~~our or ~~Segment’s~~any individual segment's core business operations. The acquisition related costs and special items can be a net expense or credit in any given period. Our management uses this non-GAAP measure as a measure of operating performance and liquidity to assist in comparing performance from period to period on a consistent basis, as a measure for planning and forecasting overall

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Management's Discussion and Analysis of Financial Condition and Results of Operations

(tabular dollars are in thousands)

expectations and for evaluating actual results against such expectations. We believe investors and other users of our financial statements benefit from the presentation of ~~"Income (loss) before special items"~~this non-GAAP measure in evaluating our performance. Income (loss) before special items excludes the identified adjustments, which provides an additional ~~tool~~tools to compare our core business operating performance on a consistent basis and measure underlying trends and results in our business. Income (loss) before special items is not used to determine incentive compensation for executives or ~~employees.~~employees, nor is it a replacement for the reported GAAP financial performance and/or necessarily comparable to the non-GAAP financial measures of other companies.

Results of Operations

Condensed consolidated results of operations for the three and six months ended June 30, 2022 and 2021 were as follows:


	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021
Revenues	$	179,031		$	177,677		$	340,693		$	331,412
Gross profit	53,558			55,336			93,450			95,337
Gross profit as a % of Revenue	29.9		%	31.1		%	27.4		%	28.8		%


Income from operations	9,576			11,374			4,877			6,628
Income from Operations as a % of Revenue	5.3		%	6.4		%	1.4		%	2.0		%

Income before provision (benefit) for income taxes	7,459			8,219			822			260

Net Income (loss)	4,666			5,945			(687)			586

Net Income (loss) attributable to Mistras Group, Inc.	$	4,643		$	5,937		$	(720)		$	575

Revenue

~~Revenues~~Revenue was $179.0 million for the three months ended ~~September~~June 30, ~~2017 were $179.6 million,~~2022, an increase of ~~$10.8~~$1.4 million, or 6%0.8%, compared with the three months ended ~~September~~June 30, ~~2016. Revenues~~2021. Revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017 were $513.3~~2022 was $340.7 million, ~~a decrease~~an increase of ~~$1.3~~$9.3 million, or ~~less than 1%~~2.8%, compared with the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021.

~~Revenues~~Revenue by segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~September 30, 2016 were~~2021 was as follows:


														Three months ended June 30,				Six months ended June 30,
	Three months ended						Nine months ended							2022		2021		2022		2021
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
	($ in thousands)						($ in thousands)
Revenues
Revenue													Revenue
Services	$	137,194		$	127,153		$	397,565		$	395,089		Services	$	149,528	$	144,977	$	282,474	$	269,275
International	38,200			37,922			106,360			105,275			International	29,610		31,951		57,748		59,599
Products and Systems	6,268			6,807			16,925			19,955			Products and Systems	2,652		3,203		5,588		6,191
Corporate and eliminations	(2,092		)	(3,071		)	(7,524		)	(5,713		)	Corporate and eliminations	(2,759)		(2,454)		(5,117)		(3,653)
	$	179,570		$	168,811		$	513,326		$	514,606			$	179,031	$	177,677	$	340,693	$	331,412

Three Months

In the three months ended ~~September~~June 30, ~~2017,~~2022, total revenue increased 0.8% versus the prior year comparable period due predominantly to a low single-digit organic increase. Services segment ~~revenues~~revenue increased 8%3.1% due to ~~a combination of acquisition~~single-digit organic growth and International segment revenue decreased (7.3)%, due predominantly to low ~~single digit favorable impacts~~double-digit unfavorable impact of foreign exchange rates ~~and~~which was offset by low single-digit organic growth. The organic growth was achieved despite the negative impact of the 2017 hurricanes and continued weakness in a challenged region that includes a fairly large customer contract. International segment revenues increased 1%, driven by low single digit favorable impacts of foreign exchange rates, offset by a low single digit organic decline. Products and Systems segment ~~revenues~~revenue decreased by ~~8% driven by lower~~$0.6 million, due to decreased sales ~~volume.~~volume as compared to the prior period.

Oil and gas customer ~~revenues~~revenue comprised approximately ~~54%~~57% and ~~56%~~54% of total ~~Company revenues~~revenue for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively. Aerospace and defense customer revenue comprised approximately 13% and 10% of total revenue for the three months ended June 30, 2022 and 2021, respectively. The Company’s top ten customers comprised approximately ~~36%~~33% of total ~~revenues~~revenue for the three months ended ~~September~~June 30, ~~2017,~~2022, as compared to ~~38%~~35% for the three months ended ~~September~~June 30, ~~2016. One~~2021, with no customer ~~BP plc., accounted~~accounting for ~~approximately~~ 10% ~~and 14%~~or more of total ~~revenues, respectively, for the three~~revenue in either three-month period.

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(tabular dollars are in thousands)

Six months ~~ended September 30, 2017 and three months ended September 30, 2016.~~

~~Nine Months~~

In the ~~nine~~six months ended ~~September~~June 30, ~~2017, Services segment revenues~~2022, total revenue increased ~~1%,~~2.8% versus the comparable prior period. The increase was due to organic growth in our core business as ~~acquisition growth slightly offset~~our end markets recover from the effects of COVID-19. In addition, the Company realized a low ~~single digit organic decline. International segment revenues increased 1%, as low single digit organic growth slightly offset a low single digit~~single-digit unfavorable revenue impact offrom foreign exchange rates. ~~Products~~Our Services segment ~~revenues~~revenue increased 4.9% due predominantly to organic growth in end-markets. International segment revenue decreased ~~15%~~(3.1)% due to ~~lower sales volume.~~a high single-digit unfavorable revenue impact from foreign exchange rates which was partially offset by mid single-digit favorable organic growth.

Oil and gas ~~revenues~~customer revenue comprised approximately ~~58%~~57% and ~~57%~~55% of total ~~Company revenues~~revenue for the ~~nine month periods~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~September~~2021, respectively. Aerospace and defense customer revenue comprised approximately 12% and 10% of total revenue for the six months ended June 30, ~~2016,~~2022 and 2021, respectively. The Company’s top ten customers comprised approximately ~~38%~~33% of total ~~revenues for both the nine month periods ended September 30, 2017 and September 30, 2016. One customer, BP plc., accounted for approximately 11% of our total revenues~~revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 12%~~2022, as compared to 35% for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021, with no customer accounting for 10% or more of total revenue in either six-month period.


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021

Oil and Gas Revenue by sub-category
Upstream	$	39,443	$	36,205	$	81,108	$	70,131
Midstream	32,949		29,797		57,856		52,235
Downstream	28,873		29,574		56,524		60,422
Total	$	101,265	$	95,576	$	195,488	$	182,788

Oil and gas upstream customer revenue increased approximately $11.0 million, or 16%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, and $3.2 million, or 9% for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 due to continued market share gains and expanded exploration operations compared to the prior period.

Midstream customer revenues increased approximately $5.6 million, or 11%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, and $3.2 million, or 11% for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 due to increased pipe inspection services performed as compared to the prior year.

Downstream customer revenue decreased $(3.9) million, or (6)%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, and $(0.7) million, or (2)% for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 primarily due to delays in timing associated with customer turnarounds.

Gross Profit

Gross profit decreased by ~~$2.8~~$(1.8) million, or 5%3.2%, in the three months ended ~~September~~June 30, ~~2017, despite a sales~~2022 versus the prior year comparable period, on an increase in revenue of 6%0.8%. ~~During the nine month period ended September 30, 2017, gross~~

Gross profit ~~had a year-on-year decrease of $8.8~~decreased by $(1.9) million, or 6%2.0%, in the six months ended June 30, 2022 on ~~a sales decline~~an increase in revenue of ~~less than 1%~~2.8%.

Gross profit by segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~September 30, 2016~~2021 was as follows:

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	Three months ended						Nine months ended							Three months ended June 30,						Six months ended June 30,
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016				2022			2021			2022			2021
	($ in thousands)						($ in thousands)
Gross profit													Gross profit
Services	$	34,729		$	33,704		$	100,432		$	102,652		Services	$	42,954		$	43,761		$	73,479		$	74,837
% of segment revenue	25.3		%	26.5		%	25.3		%	26.0		%	% of segment revenue	28.7		%	30.2		%	26.0		%	27.8		%
International	10,432			13,133			29,720			33,673			International	9,440			9,615			17,630			17,240
% of segment revenue	27.3		%	34.6		%	27.9		%	32.0		%	% of segment revenue	31.9		%	30.1		%	30.5		%	28.9		%
Products and Systems	2,753			3,686			7,313			9,475			Products and Systems	1,157			1,952			2,325			3,233
% of segment revenue	43.9		%	54.2		%	43.2		%	47.5		%	% of segment revenue	43.6		%	60.9		%	41.6		%	52.2		%
Corporate and eliminations	(17		)	128			(73		)	356			Corporate and eliminations	7			8			16			27
	$	47,897		$	50,651		$	137,392		$	146,156			$	53,558		$	55,336		$	93,450		$	95,337
% of total revenue	26.7		%	30.0		%	26.8		%	28.4		%	% of total revenue	29.9		%	31.1		%	27.4		%	28.8		%

Three ~~months~~Months

Gross profit margin was ~~26.7%~~29.9% and ~~30.0%~~31.1% for the ~~three month~~three-month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively. Services segment realized a 1.5% reduction in gross profit ~~margins had a year-on-year decline of 120 basis points~~margin to ~~25.3% in~~28.7% during the three months ended ~~September~~June 30, ~~2017, driven~~2022. This was primarily ~~by an adverse impact from the 2017 summer hurricanes, which reduced revenues by~~

~~more than $1 million while labor costs were largely unchanged, as the Company chose to pay its technicians who were unable to work~~ due to ~~these events.~~higher benefit costs in the US and the end of government wage subsidies received in Canada, both as compared to the prior year period. International segment realized a 1.8% increase in gross ~~margins had a year-on-year decline of 730 basis points~~profit margin to ~~27.3% in~~31.9% during the three months ended ~~September~~June 30, ~~2017. This decline was~~2022 due primarily ~~driven by lower revenues in~~to continued recovery and sales within the Company's German subsidiary, as well as poor margins on a large contract and lower utilization of technical labor in the UK. Products and Systems segment gross margin declined by 1030 basis points for the three months ended September 30, 2017 to 43.9%, driven by lower sales volumes.

~~Nine months~~

Gross profit margin was 26.8% and 28.4% for the nine months ended September 30, 2017 and 2016, respectively. Services segment gross profit margins declined by 70 basis points to 25.3% in the nine months ended September 30, 2017, driven primarily by the aforementioned 2017 hurricane impact and also by a weak spring 2017 turnaround season which adversely impacted utilization of technicians. International segment gross margins declined by 410 basis points to 27.9% in the nine months ended September 30, 2017, driven primarily by lower revenues in the Company’s German subsidiary, as well poor margins on a large contract and lower utilization of technical labor in the UK.aerospace end market. Products and Systems segment gross margin decreased ~~by 430 basis points~~17.3% to ~~43.2%~~43.6% during the three months ended June, 2022 due to unfavorable sales mix.

Six months

Gross profit margin was 27.4%and 28.8% for the ~~nine~~six months ended ~~September~~June 30, ~~2017, driven~~2022 and 2021, respectively. Gross profit margin decreased primarily due to higher benefit costs and the end of government wage subsidies received in Canada within the Services segment, partially offset by ~~lower~~continued recovery and sales ~~volumes.~~within the aerospace end market within the International segment.

Operating Expenses

Operating expenses for the three and six months ended June 30, 2022 and 2021 was as follows:


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021

Operating Expenses
Selling, general and administrative expenses	$	40,676	$	39,719	$	82,712	$	79,358
Bad debt provision for troubled customers, net of recoveries	289		—		289		—



Research and engineering	522		620		1,073		1,347
Depreciation and amortization	2,635		3,078		5,430		6,152

Legal settlement and insurance recoveries, net	(153)		—		(994)		1,030
Acquisition-related expense, net	13		545		63		822

Three Months

Total operating expenses were flat for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Selling, general and administrative expenses increased $1.0 million during the three months ended June 30, 2022 compared to the three months ended June 30, 2021, due to the reversal of remaining COVID-19 temporary cost reductions in August 2021, which had been initially implemented in 2020. Depreciation and amortization decreased $(0.4) million during the

Table of Contents

Mistras Group, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

(tabular dollars are in thousands)

three months ended June 30, 2022 compared to the three months ended June 30, 2021. During the three months ended June 30, 2022 a $0.2 million insurance recovery was recorded.

Six months

Operating expenses decreased $(0.1) million, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Selling, general, and administrative expenses increased $3.4 million during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due to the reversal of remaining COVID-19 temporary cost reductions in August 2021, which had been initially implemented in 2020, and wage subsidies received in 2021. Legal settlements, net of insurance recoveries for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 decreased $2.6 million due primarily to insurance recoveries received in the first quarter of 2022. Depreciation and amortization decreased $(0.7) million during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Acquisition-related expense decreased $(0.8) million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 due to remeasurement of acquisition related contingent consideration which occurred in 2021.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

(tabular dollars are in thousands)

Income ~~(Loss)~~(loss) from Operations

The following table shows a reconciliation of the income (loss) from operations to income (loss) before special items for each of ~~the Company's~~our three segments, Corporate and ~~for~~Eliminations and the Company in total:


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021

Services:
Income from operations (GAAP)	$	14,855	$	18,358	$	18,615	$	22,906
Bad debt provision for troubled customers, net of recoveries	289		—		289		—


Reorganization and other costs	1		26		28		97
Legal settlement and insurance recoveries, net	—		—		(841)		1,650
Acquisition-related expense, net	—		545		45		788
Income from operations before special items (non-GAAP)	$	15,145	$	18,929	$	18,136	$	25,441
International:
Income from operations (GAAP)	$	1,580	$	1,809	$	1,864	$	989


Reorganization and other costs	(187)		30		(99)		126

Income from operations before special items (non-GAAP)	$	1,393	$	1,839	$	1,765	$	1,115
Products and Systems:
Income (loss) from operations (GAAP)	$	(420)	$	209	$	(1,002)	$	(372)

Reorganization and other costs	—		—		—		27
Income (loss) from operations (GAAP)	$	(420)	$	209	$	(1,002)	$	(345)
Corporate and Eliminations:
Loss from operations (GAAP)	$	(6,439)	$	(9,002)	$	(14,600)	$	(16,895)
Loss on debt modification	—		277		—		277
Reorganization and other costs	6		—		6		—
Acquisition-related expense, net	13		—		18		34
Legal settlement and insurance recoveries, net	(153)		—		(153)		(620)
Loss from operations before special items (non-GAAP)	$	(6,573)	$	(8,725)	$	(14,729)	$	(17,204)
Total Company:
Income from operations (GAAP)	$	9,576	$	11,374	$	4,877	$	6,628
Bad debt provision for troubled customers, net of recoveries	289		—		289		—



Reorganization and other costs	(180)		56		(65)		250
Loss on debt modification	—		277		—		277
Legal settlement and insurance recoveries, net	(153)		—		(994)		1,030
Acquisition-related expense, net	13		545		63		822
Income from operations before special items (non-GAAP)	$	9,545	$	12,252	$	4,170	$	9,007

Three months ended Nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
($ in thousands) ($ in thousands)
Services:

Income from operations $ 11,699
$ 12,221
$ 31,211
$ 30,932
Litigation charges —
—
—
6,320
Bad debt provision for a customer bankruptcy —
—
1,200
—
Severance costs 163
43
493
43
Asset write-offs and lease terminations —
—
123
—
Acquisition-related expense (benefit), net (126 ) 345
(48 ) (123 )
Income before special items 11,736
12,609
32,979
37,172
International:

Income from operations 1,023
5,751
3,866
8,925
Severance costs 379
89
455
799
Acquisition-related expense (benefit), net —
11
(501 ) (53 )
Income before special items 1,402
5,851
3,820
9,671
Products and Systems:

Income (loss) from operations (15,573 ) 806
(16,913 ) 560
Impairment charges 15,810
—
15,810
—
Severance costs —
—
—
17
Acquisition-related expense (benefit), net —
—
—
—
Income (loss) before special items 237
806
(1,103 ) 577
Corporate and Eliminations:

Loss from operations (7,524 ) (6,662 ) (20,287 ) (17,816 )
Litigation charges 1,200
—
1,200
—
Severance costs —
133
—
133
Acquisition-related expense (benefit), net (122 ) 28
(40 ) 77
Loss before special items (6,446 ) (6,501 ) (19,127 ) (17,606 )
Total Company

Income (loss) from operations $ (10,375 ) $ 12,116
$ (2,123 ) $ 22,601
Litigation charges 1,200
—
1,200
6,320
Impairment charges 15,810
—
15,810
—
Bad debt provision for a customer bankruptcy —
—
1,200
—
Severance costs 542
265
948
992
Asset write-offs and lease terminations —
—
123
—
Acquisition-related expense (benefit), net (248 ) 384
(589 ) (99 )
Income before special items $ 6,929
$ 12,765
$ 16,569
$ 29,814
See section Note About Non-GAAP Measures in this report for an explanation of the use of non-GAAP measurements.

Table of Contents

Mistras Group, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

(tabular dollars are in thousands)

Three ~~months~~Months

For the three months ended ~~September~~June 30, ~~2017,~~2022, income from operations (GAAP) decreased ~~$22.5~~$(1.8) million, ~~or 186%,~~ compared with the three months ended ~~September~~June 30, ~~2016,~~2021, while income before special items (non-GAAP) decreased ~~$5.8 million, or~~

~~46%.~~$(2.7) million. As a percentage of ~~revenues, income before special items declined by 370 basis points to 3.9% in the three months ended September 30, 2017 from 7.6% in the three months ended September 30, 2016.~~

Operating expenses increased $19.7 million during the three months ended September 30, 2017, driven primarily by the $15.8 million impairment charges, after completion of the analysis described above, for the Products and Systems segment, during the three months ended September 30, 2017 (See Notes 7 and 8). In addition, there was a $1.1 million increase in foreign currency transactional expenses, $1.2 million of additional operating expenses pertaining to Services segment acquisitions and $0.7 in Corporate segment expenses, primarily professional fees.

~~Nine months~~

For the nine months ended September 30, 2017, income from operations (GAAP) decreased $24.7 million, or 109% compared with the prior year, and income before special items (non-GAAP) decreased $13.2 million, or 44%. As a percentage of revenues,revenue, income before special items decreased by ~~260~~160 basis points to ~~3.2%~~5.3% in the ~~nine~~three months ended ~~September~~June 30, ~~2017, as compared to 5.8%~~2022 from 6.9% in the ~~nine~~three months ended ~~September~~June 30, ~~2016.~~2021.

~~Operating expenses increased $16.0 million during~~Six months

For the ~~nine~~six months ended ~~September~~June 30, ~~2017, driven primarily~~2022, income (loss) from operations (GAAP) decreased $(1.8) million, compared with the six months ended June 30, 2021, while income (loss) from operations before special items (non-GAAP) decreased $(4.8) million. As a percentage of revenue, income (loss) from operations before special items decreased by ~~the $15.8 million impairment charges~~150 basis points to 1.2% in the ~~Products and Systems segment. In addition, there was a $2.0 million increase~~six months ended June 30, 2022 from 2.7% in the six months ended June 30, 2021. During the six months ended June 30, 2022, the Company experienced overall organic growth offset by foreign currency transaction expenses for the Company, $2.3 million of additional operating expenses pertaining to Services segment acquisitions and $0.8 million of Corporate segment expenses, primarily professional fees. These increases were primarily offset by a $5.1 million decrease in litigation expenses for the respective periods.headwinds.

Interest Expense

Interest expense was approximately ~~$1.1~~$2.1 million and ~~$0.8~~$3.2 million for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016, respectively, and $3.1~~2021, respectively. Interest expense was approximately $4.1 million and ~~$2.2~~$6.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021, respectively. The ~~increases were~~decrease for both periods was a result of a change in the effective interest rate, due to ~~increased borrowings on~~a lower leverage ratio and the ~~Company's revolving line~~elimination of ~~credit.~~the minimum LIBOR floor in the May 2021 amendment to our credit agreement.

An amendment in May 2021 to our Credit Agreement removed the LIBOR floor of 1.0%, which provided that if LIBOR is below 1.0%, the interest rate will be calculated as if LIBOR is 1.0%. Now the actual LIBOR rate is used to calculate interest, even if LIBOR is below 1.0%. This will reduce our interest rate, when LIBOR is below 1.0%.

Income Taxes

~~The Company’s~~Our effective income tax rate was approximately ~~39%~~37.4% and ~~36%~~27.7% for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively. ~~The Company's~~Our effective income tax rate was approximately ~~42%~~183.6% and ~~34%~~(125.4)% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively.

The ~~increase in the~~effective income tax rate for ~~these respective periods~~the three months ended June 30, 2022 was higher than the statutory rate primarily due to a ~~discrete item related to the impairment of goodwill and intangible assets in the Products and Systems reporting unit. Excluding this item, the~~$0.7 million valuation allowance recorded on a foreign jurisdiction. The effective income tax rate ~~would have been 35% and 36%, respectively,~~ for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017.~~2021 was higher than the statutory rate due to earnings in jurisdictions with higher income tax rates than the United States.

The valuation allowance of $0.7 million has been recorded to recognize only the portion of the deferred tax assets that are more likely than not to be realized. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

The effective income tax rate for the six months ended June 30, 2022 was higher than the statutory rate due primarily to a $0.7 million valuation allowance recorded during the period which was related to a foreign jurisdiction. The effective income tax rate for the six months ended June 30, 2021 was lower than the statutory rate due to capitalization of certain non-US intercompany balances which resulted in a deductible foreign exchange loss in the US.

On December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021, (the "Appropriations Act") an additional stimulus package providing financial relief for individuals and small business. The Appropriations Act contains a variety of tax provisions, including full expensing of business meals in 2021 and 2022, and expansion of the employee retention tax credit. We evaluated the impact of this guidance on our consolidated financial position, results of operations, and cash flows, and it will not have a material impact.

Income tax expense varies as a function of pre-tax income and the level of non-deductible expenses, such as certain amounts of meals and entertainment expense, valuation allowances, and other permanent differences. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. Our effective income tax rate may fluctuate over the

Table of Contents

Mistras Group, Inc. and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

(tabular dollars are in thousands)

next few years due to many variables including the amount and future geographic distribution of our pre-tax income, changes resulting from our acquisition strategy, and increases or decreases in our permanent differences.

Liquidity and Capital Resources

Cash flows are summarized in the table below:

Nine months ended
September 30, 2017 September 30, 2016
($ in thousands)
Net cash provided by (used in):

Operating activities $ 35,226
$ 52,109
Investing activities (22,516 ) (12,487 )
Financing activities (7,114 ) (32,491 )
Effect of exchange rate changes on cash 2,113
(221 )
Net change in cash and cash equivalents $ 7,709
$ 6,910


	Six months ended June 30,
	2022		2021

Net cash provided by (used in):
Operating activities	$	7,809	$	18,126
Investing activities	(6,499)		(10,318)
Financing activities	(5,056)		(12,970)
Effect of exchange rate changes on cash	(1,755)		(656)
Net change in cash and cash equivalents	$	(5,501)	$	(5,818)

Cash Flows from Operating Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, cash provided by operating activities was ~~$35.2~~$7.8 million, representing a year-on-year decrease of ~~$16.9~~$(10.3) million, or ~~32%~~57%. The decrease was primarily attributable to a ~~lower level of~~ net ~~income, as well as movements in~~ working capital ~~including~~increase in the ~~2017 payment~~course of ~~a $6.3 million legal settlement and thetiming of collections.~~normal operations.

Cash Flows from Investing Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, cash used in investing activities was ~~$22.5~~$6.5 million primarily attributable to a reduction in capital expenditures during the current period as compared ~~with a use of cash of $12.5 million in the comparable period of~~to the prior year. The first nine months of 2017 included increased outflows of $7.2 million related to acquisitions and an increase of $3.0 million for capital expenditures, as the Company was in the midst of its build-out in France to service an important new customer contract.period.

Cash Flows from Financing Activities

Net cash used in financing activities was ~~$7.1~~$5.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017. The Company borrowed $11.5 million, net, on its Credit Agreement,~~2022, compared to ~~help fund the purchase of $15.9 million of treasury stock and towards the funding of $8.4 million for acquisitions. For the comparable period in 2016,~~ net cash used in financing activities ~~was $32.5~~of $13.0 million for the six months ended June 30, 2021. During the six months ended June 30, 2022, net repayments of ~~which $28.9~~debt were approximately $6.6 million ~~was~~lower as compared to ~~reduce the Company's debt and capital lease obligations.~~2021 as cash flows were used to support operating activities.

Effect of Exchange Rate Changes on Cash and Cash Equivalents

The effect of exchange rate changes on our cash and cash equivalents was a ~~net increase~~decrease of ~~$2.1~~$(1.8) million in the ~~first nine~~six months ~~of 2017,~~ended June 30, 2022, compared to a ~~$0.2~~decrease of $(0.7) million ~~decrease~~ for the ~~first nine~~six months ended June 30, 2021. The primary driver of ~~2016.~~the change was foreign currency fluctuations during the quarter related to the Euro and the US Dollar.

Cash Balance and Credit Facility Borrowings

The terms of our Credit Agreement have not changed from those set forth in Part II, Item 7 of our 2016 Transition Report under the Section “Liquidity and Capital Resources”, under the heading “Cash Balance and Credit Facility Borrowings,” and Note 10 - ~~Long-Term Debt~~ ~~to these condensed consolidated financial statements in this Quarterly Report, under the heading “Senior Credit Facility.”~~

As of ~~September~~June 30, ~~2017,~~2022, we had cash and cash equivalents totaling ~~$26.9~~$18.6 million and ~~available borrowing capacity~~$11.7 million of ~~$74.9 million~~unused commitments under our Credit Agreement with borrowings of ~~$95.1~~$195.3 million and ~~$5.0~~$3.0 million of letters of credit outstanding. We finance operations primarily through our existing cash balances, cash collected from operations, bank borrowings and capital lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future.

As of ~~September~~June 30, ~~2017,~~2022, we were in compliance with the terms of the Credit Agreement and we will continuously monitor our compliance with the covenants contained in ~~our~~the Credit Agreement.

Quarterly payments on the term loan increased to $5.0 million for each quarterly payment after March 31, 2022, with a final balloon payment at maturity.

Table of Contents

The terms of our Credit Agreement are described in Note 11-Long-Term Debt of the Notes to the Unaudited Condensed Consolidated Financial Statements, under the heading "Senior Credit Facility" and in Note 16 Subsequent Events of the Notes.

Contractual Obligations

There have been no significant changes in our contractual obligations and outstanding indebtedness as disclosed in the ~~2016 Transition Report.~~2021 Annual Report except as noted in Note 16 Subsequent Events.

Off-balance Sheet Arrangements

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

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Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the ~~2016 Transition~~2021 Annual Report.

ITEM 3.Quantitative and Qualitative Disclosures about Market Risk

There have been no significant changes to ~~the Company’s~~our quantitative and qualitative disclosures about market risk as discussed in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk,” included in the ~~2016 Transition~~2021 Annual Report.

ITEM 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~As of September 30, 2017,~~Pursuant to Rule 13a-15(b) under the ~~Company~~Exchange Act, our management carried out an evaluation, under the supervision and with the participation of ~~the Company’s management, including the Company’s~~our President and Chief Executive Officer and ~~the Company’s~~our Executive Vice President, Chief Financial Officer and Treasurer, of the effectiveness of the design and operation of ~~the Company’s~~our disclosure controls ~~and procedures, as such term is~~(as defined in Rule 13a-15(e) of the Exchange ~~Act.~~Act) and procedures. Based ~~on the~~upon that evaluation, ~~the Company’s~~our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer ~~have~~and Treasurer concluded that, ~~the Company’s~~as of June 30, 2022, our disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.were effective.

Changes in Internal Control ~~Over~~over Financial Reporting

There ~~has~~have been no ~~change~~changes in ~~the Company’s~~our internal control over financial reporting ~~that occurred~~ during the ~~Company’s~~ quarter ended ~~September~~June 30, ~~2017~~2022 that ~~has~~ materially affected, or isare reasonably likely to materially affect, ~~such~~our internal control over financial reporting.

Table of Contents

PART II—OTHER INFORMATION

ITEM 1. ��Legal Proceedings

See Note 14-Commitments and Contingencies to the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report for a description of our legal proceedings. There have been no material developments with regard to any matters disclosed under Part I, Item 3 ~~“Legal Proceedings”~~"Legal Proceedings" in our ~~2016 Transition~~2021 Annual Report, except as disclosed in such Note ~~12 (see below).~~

~~See Note 12 -~~ 14-Commitments and Contingencies ~~to the condensed consolidated financial statements included in this Quarterly Report for a description of our legal proceedings.~~.

ITEM 1.A.Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors discussed under the “Risk Factors” section included in our ~~2016 Transition~~2021 Annual Report. ~~There~~Except as described below, there have been no material changes to the risk factors previously disclosed in the ~~2016 Transition~~2021 Annual Report.

ITEM 2.Unregistered Sale of Equity Securities and Use of Proceeds

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds from Public Offering of Common Stock

None.

The following table sets forth the shares of our common stock we acquired during the quarter ~~pursuant to our publicly announced share repurchase plan and~~ as a result of the surrender of shares by employees to satisfy tax withholding obligations in connection with the vesting of restricted stock units.


Month Ending	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 30, 2022	31,508	$	6.66	—	$	—
May 31, 2022	528	$	5.42	—	$	—
June 30, 2022	—	$	—	—	$	—

Month Ending
Total Number of Shares (or
Units) Purchased

Average Price Paid per
Share (or Unit)

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽²⁾
July 31, 2017 94,877
$ 21.08
94,877
$ 27,004,569
August 31, 2017 139,276
$ 20.20
90,490
$ 25,081,657
September 30, 2017 —
$ —
—
$ 25,081,657

(1) On August 17, 2016, the Company entered into an agreement with its founder, Chairman and Chief Executive Officer, Dr. Sotirios Vahaviolos, which provides for the Company to repurchase up to 1 million shares of its common stock from Dr. Vahaviolos. The plan with Dr. Vahaviolos is included in the $50.0 million of purchases authorized by our Board of Directors described in footnote 2 below. All of the amounts in this column represent the purchases from Dr. Vahaviolos during the third quarter of 2017.

(2) - On October 7, 2015, the Company announced that its Board of Directors approved a share repurchase plan, which authorizes the expenditure of up to $50.0 million for the purchase of the Company's common stock.

ITEM 3.Defaults Upon Senior Securities

None.

ITEM 4.Mine Safety Disclosures

Not applicable.

ITEM 5.Other Information

None.

Table of Contents

ITEM 6.Exhibits


Exhibit No.		Description

~~Exhibit No.~~	~~Description~~




10.1		Settlement Agreement, amended May 3, 2022, regarding the settlement of the two legal proceedings captioned Price v. Mistras Group, Inc

10.2		Third Amendment to Mistras Group, Inc. 2016 Long-Term Incentive Plan

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Schema Document

101.CAL		XBRL Calculation Linkbase Document

101.LAB		XBRL Labels Linkbase Document

101.PRE		XBRL Presentation Linkbase Document

101.DEF		XBRL Definition Linkbase Document

_________________

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			MISTRAS GROUP, INC.

			By:			/s/ ~~Jonathan H. Wolk~~Edward J. Prajzner
						~~Jonathan H. Wolk~~Edward J. Prajzner
						~~Senior~~ Executive Vice President, ~~Chief Operating Officer,~~ Chief Financial Officer and Treasurer
						(Principal Financial and Accounting Officer and duly authorized officer)

Date: ~~November 9, 2017~~August 5, 2022



	For the nine months ended September 30,
	2017				2016
	Common Stock Options		Weighted Average Exercise Price		Common Stock Options		Weighted Average Exercise Price
Outstanding at beginning of period:	2,167		$	13.33	2,265		$	13.16
Granted	—		$	—	—		$	—
Exercised	(37	)	$	7.39	(87	)	$	9.83
Expired or forfeited	—		$	—	—		$	—
Outstanding at end of period:	2,130		$	13.43	2,178		$	13.29



	2017
Number of Entities	2
Consideration transferred:
Cash paid	$	8,509
Working capital adjustments	1,604
Contingent consideration	4,126
Consideration transferred	$	14,239

Current assets	$	2,443
Property, plant and equipment	1,140
Intangible assets	8,436
Goodwill	4,271
Current liabilities	(881		)
Long-term deferred tax liability	(1,170		)
Net assets acquired	$	14,239



	Three months ended September 30,					Nine months ended September 30,
	2017			2016		2017			2016
Due diligence, professional fees and other transaction costs	$	—		$	28	$	291		$	577
Adjustments to fair value of contingent consideration liabilities	(248		)	356		(880		)	(676		)
Acquisition-related expense (benefit), net	$	(248	)	$	384	$	(589	)	$	(99	)