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 30, 2017~~March 31, 2023



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,~~May 1, 2023, the registrant had ~~28,290,709~~30,301,985 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

						Unaudited Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	1

						Unaudited Condensed Consolidated Statements of Loss for the three months ended March 31, 2023 and March 31, 2022	2

						Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2023 and March 31, 2022	3

						Unaudited Condensed Consolidated Statements of Equity for the three months ended March 31, 2023 and March 31, 2022	4

			~~PAGE~~
~~PART I—FINANCIAL INFORMATION~~

	~~ITEM 1.~~			~~Financial Statements~~	1

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

		~~Unaudited Condensed Consolidated Statements of Income (Loss) for the three and nine months ended September 30, 2017 and September 30, 2016~~	2

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

		Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~September 30, 2016~~March 31, 2022	45

						Notes to Unaudited Condensed Consolidated Financial Statements	56

			ITEM 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	2024

			ITEM 3.			Quantitative and Qualitative Disclosures about Market Risk	2733

			ITEM 4			Controls and Procedures	2733

PART II—OTHER INFORMATION

			ITEM 1.			Legal Proceedings	2834

			ITEM 1.A.			Risk Factors	2834

			ITEM 2.			Unregistered Sales of Equity Securities and Use of Proceeds	2834

			ITEM 3.			Defaults Upon Senior Securities	2834

			ITEM 4.			Mine Safety Disclosures	2834

			ITEM 5.			Other Information	2934

			ITEM 6.			Exhibits	3035

SIGNATURES							3136

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1.Financial Statements

Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

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


	(unaudited)
	September 30, 2017			December 31, 2016				March 31, 2023		December 31, 2022
ASSETS							ASSETS	(unaudited)
Current Assets							Current Assets
Cash and cash equivalents	$	26,863		$	19,154		Cash and cash equivalents	$	16,717	$	20,488
Accounts receivable, net	140,189			130,852			Accounts receivable, net	120,425		123,657
Inventories	11,237			10,017			Inventories	14,763		13,556
Deferred income taxes	—			6,230
Prepaid expenses and other current assets	16,077			16,399			Prepaid expenses and other current assets	14,008		10,181
Total current assets	194,366			182,652			Total current assets	165,913		167,882
Property, plant and equipment, net	77,173			73,149			Property, plant and equipment, net	78,816		77,561
Intangible assets, net	42,242			40,007			Intangible assets, net	47,360		49,015
Goodwill	165,704			169,940			Goodwill	199,956		199,635
Deferred income taxes	2,108			1,086			Deferred income taxes	326		779
Other assets	2,829			2,593			Other assets	38,448		40,032
Total assets	$	484,422		$	469,427		Total assets	$	530,819	$	534,904
LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current Liabilities							Current Liabilities
Accounts payable	$	8,925		$	6,805		Accounts payable	$	13,640	$	12,532
Accrued expenses and other current liabilities	65,608			58,697			Accrued expenses and other current liabilities	77,127		77,844
Current portion of long-term debt	2,490			1,379			Current portion of long-term debt	7,372		7,425
Current portion of capital lease obligations	6,261			6,488
Current portion of finance lease obligations							Current portion of finance lease obligations	4,752		4,201
Income taxes payable	4,576			4,342			Income taxes payable	333		1,726
Total current liabilities	87,860			77,711			Total current liabilities	103,224		103,728
Long-term debt, net of current portion	101,803			85,917			Long-term debt, net of current portion	181,972		183,826
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	11,170		10,045
Deferred income taxes	9,238			17,584			Deferred income taxes	7,874		6,283
Other long-term liabilities	9,510			7,789			Other long-term liabilities	30,431		32,273
Total liabilities	216,760			198,683			Total liabilities	334,671		336,155
Commitments and contingencies
Commitments and contingencies (Note 14)							Commitments and contingencies (Note 14)
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, 30,230,446 and 29,895,487 shares issued and outstanding							Common stock, $0.01 par value, 200,000,000 shares authorized, 30,230,446 and 29,895,487 shares issued and outstanding	302		298
Additional paid-in capital	221,149			217,211			Additional paid-in capital	244,131		243,031
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	(16,475)		(11,489)
Accumulated other comprehensive loss	(17,789		)	(29,724		)	Accumulated other comprehensive loss	(32,117)		(33,390)
Total Mistras Group, Inc. stockholders’ equity	267,475			270,582			Total Mistras Group, Inc. stockholders’ equity	195,841		198,450
Non-controlling interests	187			162			Non-controlling interests	307		299
Total equity	267,662			270,744			Total equity	196,148		198,749
Total liabilities and equity	$	484,422		$	469,427		Total liabilities and equity	$	530,819	$	534,904

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)~~Loss

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


	Three months ended					Nine months ended							Three months ended March 31,
	September 30, 2017			September 30, 2016		September 30, 2017			September 30, 2016				2023		2022

Revenue	$	179,570		$	168,811	$	513,326		$	514,606		Revenue	$	168,016	$	161,662
Cost of revenue	126,316			112,754		360,144			352,027			Cost of revenue	116,051		115,758
Depreciation	5,357			5,406		15,790			16,423			Depreciation	5,888		6,012
Gross profit	47,897			50,651		137,392			146,156			Gross profit	46,077		39,892
Selling, general and administrative expenses	38,217			34,995		113,491			107,266			Selling, general and administrative expenses	42,823		41,922
Impairment charges	15,810			—		15,810			—

Reorganization and other costs												Reorganization and other costs	2,076		114

Legal settlement and insurance recoveries, net												Legal settlement and insurance recoveries, net	—		(841)
Research and engineering	555			643		1,749			1,928			Research and engineering	480		551
Depreciation and amortization	2,738			2,513		7,854			8,140			Depreciation and amortization	2,525		2,795
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	3		49
Loss from operations												Loss from operations	(1,830)		(4,698)
Interest expense	1,081			778		3,114			2,218			Interest expense	4,068		1,938
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:
Loss before benefit for income taxes												Loss before benefit for income taxes	(5,898)		(6,636)
Benefit for income taxes												Benefit for income taxes	(920)		(1,283)
Net Loss												Net Loss	(4,978)		(5,353)
Less: net income attributable to noncontrolling interests, net of taxes												Less: net income attributable to noncontrolling interests, net of taxes	8		10
Net Loss attributable to Mistras Group, Inc.												Net Loss attributable to Mistras Group, Inc.	$	(4,986)	$	(5,363)

Loss per common share												Loss per common share
Basic	$	(0.25	)	$	0.25	$	(0.11	)	$	0.46		Basic	$	(0.17)	$	(0.18)
Diluted	$	(0.25	)	$	0.24	$	(0.11	)	$	0.45		Diluted	$	(0.17)	$	(0.18)
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	30,021		29,634
Diluted	28,274			30,231		28,465			30,139			Diluted	30,021		29,634

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)~~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 March 31,
	2023		2022

Net Loss	$	(4,978)	$	(5,353)
Other comprehensive loss:
Foreign currency translation adjustments	$	1,273	$	555
Comprehensive Loss	(3,705)		(4,798)
Less: net income attributable to noncontrolling interest	8		10

Comprehensive loss attributable to Mistras Group, Inc.	$	(3,713)	$	(4,808)

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		Accumulated deficit		Accumulated other comprehensive loss		Total Mistras Group, Inc. Stockholders’ Equity		Noncontrolling Interest
	Shares	Amount												Total Equity

Balance at December 31, 2022	29,895	$	298	$	243,031	$	(11,489)	$	(33,390)	$	198,450	$	299	$	198,749
Net income (loss)	—	—		—		(4,986)		—		(4,986)		8		(4,978)
Other comprehensive income (loss), net of tax	—	—		—		—		1,273		1,273		—		1,273
Share-based payments	—	—		1,877		—		—		1,877		—		1,877
Net settlement of restricted stock units	335	4		(777)		—		—		(773)		—		(773)

Balance at March 31, 2023	30,230	$	302	$	244,131	$	(16,475)	$	(32,117)	$	195,841	$	307	$	196,148

Balance at December 31, 2021	29,546	$	295	$	238,687	$	(17,988)	$	(20,311)	$	200,683	$	229	$	200,912
Net income (loss)	—	—		—		(5,363)		—		(5,363)		10		(5,353)
Other comprehensive income, net of tax	—	—		—		—		555		555		—		555
Share-based payments	—	—		1,515		—		—		1,515		—		1,515
Net settlement of restricted stock units	174	2		(546)		—		—		(544)		—		(544)

Balance at March 31, 2022	29,720	$	297	$	239,656	$	(23,351)	$	(19,756)	$	196,846	$	239	$	197,085

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)~~In Thousands)


	Three months ended March 31,
	2023		2022

Cash flows from operating activities
Net loss	$	(4,978)	$	(5,353)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization	8,413		8,807

Deferred income taxes	1,801		196
Share-based compensation expense	1,877		1,515
Bad debt provision for troubled customers, net of recoveries	(30)		—
Fair value adjustments to contingent consideration	—		45
Foreign currency loss	219		686

Other	(315)		86
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions
Accounts receivable	3,777		(17,831)
Inventories	(1,137)		(96)
Prepaid expenses and other assets	(4,234)		3,421
Accounts payable	992		(440)
Accrued expenses and other liabilities	(766)		3,605
Income taxes payable	(248)		493
Payment of contingent consideration liability in excess of acquisition-date fair value	(938)		(533)
Net cash provided by (used in) operating activities	4,433		(5,399)
Cash flows from investing activities
Purchase of property, plant and equipment	(4,332)		(3,061)

Purchase of intangible assets	(361)		(151)

Proceeds from sale of equipment	233		475

Net cash used in investing activities	(4,460)		(2,737)
Cash flows from financing activities
Repayment of finance lease obligations	(1,174)		(1,076)

Repayment of long-term debt	(1,904)		(4,152)
Proceeds from revolver	27,000		26,000
Repayment of revolver	(27,100)		(15,500)

Payment of contingent consideration for business acquisitions	—		(405)
Taxes paid related to net share settlement of share-based awards	(773)		(544)

Net cash provided by (used in) financing activities	(3,951)		4,323
Effect of exchange rate changes on cash and cash equivalents	207		(376)
Net change in cash and cash equivalents	(3,771)		(4,189)
Cash and cash equivalents at beginning of period	20,488		24,110
Cash and cash equivalents at end of period	$	16,717	$	19,921
Supplemental disclosure of cash paid (received)
Interest, net	$	5,112	$	1,711
Income taxes, net of refunds	$	1,949	$	(4,661)
Noncash investing and financing
Equipment acquired through finance lease obligations	$	2,800	$	848

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.

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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)

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 helping to maximize the safety and operational uptime for civilization's most critical industrial and civil assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, 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 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.

The Company has three operating segments. During the first quarter of 2023, the Company renamed the Services segment to more closely align to the geographical area in which the Segment operates. We did not recast the corresponding financial information for the historical periods presented, as there was no change in the manner which our chief operating decision maker reviews the financial results of each Segment and allocates resources. Our Segments, with the updated naming convention, are as follows:

•North America (Referred to as "Services" in prior filings). This segment 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 safety, structural integrity and reliability of critical energy, industrial and public ~~infrastructure. The Company combines industry-leading~~infrastructure and commercial aerospace components. Software, digital and data services are included in this segment.

•International. This segment offers services, products and ~~technologies, expertise~~systems similar to those of the other segments to select markets within Europe, the Middle East, Africa, Asia and South America, but not to customers in ~~mechanical integrity (MI), non-destructive testing (NDT)~~China and ~~mechanical~~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 ~~proprietary data analysis software~~systems, including equipment and instrumentation, predominantly in the United States.

Recent Developments

Overall, the Company has taken actions to ~~deliver a comprehensive portfolio~~help ensure the health and safety of ~~customized solutions, ranging from routine inspections~~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 ~~complex, plant-wide asset integrity assessments and management. These mission critical solutions enhance customers’ ability~~the world.

During 2022, the Company experienced unfavorable foreign currency exchange impacts as it relates 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 companies with asset-intensive infrastructure, including companiesCompany's European operations, which has continued in 2023. Additionally, the Russian-Ukrainian war continues to create disruptions in the oil and gas ~~fossil~~market and ~~nuclear power, alternative~~the supply chain in general, which is resulting in some disruption to our business operations. The

Table of Contents

Mistras Group, Inc. and ~~renewable~~Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Company’s European operations are currently experiencing increased costs associated with higher energy ~~public infrastructure, chemicals, commercial aerospace~~costs, among others, due in part to the Russian-Ukrainian war.

In 2022, the Company eliminated substantially all of the COVID related cost reduction initiatives undertaken in 2020, including re-installment of the savings plan employer match and ~~defense, transportation, primary metals~~increasing wages back to pre-pandemic amounts.

The Company is currently unable to predict with certainty the overall impact that the factors discussed above and ~~metalworking, pharmaceutical/biotechnology~~the effect of inflationary pressures may have on its business, results of operations or liquidity or in other ways which the Company cannot yet determine. The Company will continue to monitor market conditions and ~~food processing industries and research and engineering institutions.~~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~~2023 and ~~2016.~~ December 31, 2022.

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~~Company's 2022 Annual Report on Form 10-K ~~(“2016 Transition Report”~~("2022 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.~~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 financial condition or results of operations as previously reported.

~~Customers~~Significant Accounting Policies

The Company’s significant accounting policies are disclosed in Note 1–Summary of Significant Accounting Policiesand Practices in the 2022 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 2022 Annual Report, there have been no material changes to the Company's significant accounting policies.

Income Taxes

As of March 31, 2023, 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.

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)

~~One customer, primarily generated from the Services segment, accounted for~~The Company’s effective income tax rate was approximately ~~10%~~15.6% and ~~11% of our revenues~~19.3% 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%~~March 31, 2023 and ~~12% of our revenues~~2022, respectively. The effective income tax rate benefit 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~~March 31, 2023 was lower than the statutory rate primarily due to the impact 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~~unfavorable discrete item related to revenue recognition, valuations of accounts receivable, long-lived assets, goodwill, deferred tax assets and uncertain tax positions. Since the date of the 2016 Transition Report, there have been no material changes to the Company's significant accounting policies.stock compensation.

Recent Accounting Pronouncements

In ~~August 2015,~~March 2020 and updated in January 2021, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued Accounting Standards Update ("ASU") ~~2015-14,~~ ~~Revenue from Contracts with Customers~~2020-04 and 2021-01, “Reference Rate Reform (Topic ~~606)~~848): ~~Deferral~~Facilitation of the ~~Effective Date,~~ ~~which defers~~Effects of Reference Rate Reform on Financial Reporting.” The amendments provide optional guidance for a limited period of time to ease the ~~effective date of~~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 ~~2014-09~~2020-04 are effective for all entities by one year. This update is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Earlier application is permitted only as of ~~annual reporting periods beginning after~~March 12, 2020 through 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: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively 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 to the nature, amount, timing, and uncertainty of 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 assets recognized from the costs to obtain or fulfill a contract. 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 timing of our revenue recognition.

~~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 to be treated as non-current. ASU 2015-17 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, 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.31, 2024. The Company is currently 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~~applicable contracts and the ~~related impact on~~available expedients provided by the ~~statement~~new guidance.

Table 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)

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.

Performance Obligations

The Company provides highly integrated and bundled inspection services to its customers. The majority of the Company's contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and is, therefore, not distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company's best estimate of the standalone selling price of each distinct good or 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 value to the customer of the entity’s performance completed to date. Fixed fee arrangements are determined based on expected labor, material, and overhead to be consumed on fulfillment of such services. For these arrangements, revenue is recognized on a cost-to-cost method tracked on an input basis.

The majority of our revenue 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.

The Company expects any significant remaining performance obligations to be satisfied within one year.

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.

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)

Revenue by Category

~~In August 2016,~~

The following series of tables present the ~~FASB issued ASU No. 2016-15,~~ ~~Statement~~Company's disaggregated revenue:

Revenue by industry was as follows:


Three Months Ended March 31, 2023	North America		International		Products & Systems		Corp/Elim		Total
Oil & Gas	$	89,773	$	8,855	$	37	$	—	$	98,665
Aerospace & Defense	13,611		4,980		11		—		18,602
Industrials	9,302		6,053		558		—		15,913
Power generation & Transmission	4,987		1,657		1,326		—		7,970
Other Process Industries	9,109		3,237		27		—		12,373
Infrastructure, Research & Engineering	2,483		2,136		1,142		—		5,761
Petrochemical	5,137		145		—		—		5,282
Other	2,530		2,344		638		(2,062)		3,450
Total	$	136,932	$	29,407	$	3,739	$	(2,062)	$	168,016


Three Months Ended March 31, 2022	North America		International		Products & Systems		Corp/Elim		Total
Oil & Gas	$	86,613	$	7,572	$	38	$	—	$	94,223
Aerospace & Defense	15,022		4,940		108		—		20,070
Industrials	9,007		5,528		502		—		15,037
Power generation & Transmission	3,822		2,562		845		—		7,229
Other Process Industries	10,293		3,518		1		—		13,812
Infrastructure, Research & Engineering	2,506		2,039		897		—		5,442
Petrochemical	3,045		78		—		—		3,123
Other	2,638		1,901		545		(2,358)		2,726
Total	$	132,946	$	28,138	$	2,936	$	(2,358)	$	161,662

Revenue per key geographic location was as follows:


Three Months Ended March 31, 2023	North America		International		Products & Systems		Corp/Elim		Total
United States	$	120,600	$	309	$	1,801	$	(598)	$	122,112
Other Americas	14,270		3,489		326		(432)		17,653
Europe	1,412		24,183		261		(826)		25,030
Asia-Pacific	650		1,426		1,351		(206)		3,221
Total	$	136,932	$	29,407	$	3,739	$	(2,062)	$	168,016


Three Months Ended March 31, 2022	North America		International		Products & Sytems		Corp/Elim		Total
United States	$	113,935	$	173	$	1,351	$	(655)	$	114,804
Other Americas	18,052		1,341		16		(609)		18,800
Europe	744		25,920		580		(924)		26,320
Asia-Pacific	215		704		989		(170)		1,738
Total	$	132,946	$	28,138	$	2,936	$	(2,358)	$	161,662

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)

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 of specific cash flow items to improve consistency within the statement of cash flows. ASU 2016-15 is effective for fiscal years,~~liabilities are aggregated on an individual contract basis and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted. The Company is evaluating the impact that ASU 2016-15 will have on its condensed consolidated financial statements and 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~~reported on the ~~statement~~Consolidated Balance Sheets at the end of ~~cash flows. Amounts generally described as restricted cash~~each reporting period within accounts receivable, net or accrued expenses 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. The Company does not expect that ASU 2016-18 will have a material impact on its condensed consolidated financial statements and related disclosures.other current liabilities.

~~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 loss 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 unitRevenue recognized during the three months ended ~~September 30, 2017.~~

~~In May 2017,~~March 31, 2023 and 2022 that was included in the ~~FASB issued ASU 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718) Scope~~contract liability balance at the beginning of ~~Modification Accounting.~~ ~~This amendment provides guidance concerning which changes to~~such year was $3.1 million and $2.2 million for each period. Changes in 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~~contract asset and liability balances during these periods were 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.materially impacted by any other factors. The Company applies a practical expedient to expense incremental costs incurred related to obtaining a contract. The Company applies the practical expedient to expense incremental costs incurred related to obtaining a contract when the amortization period of the asset that the Company otherwise would have recognized is ~~evaluating the impact that ASU 2017-09 will have on its condensed consolidated financial statements~~one year or less.

Table of Contents

Mistras Group, Inc. and ~~related disclosures.~~Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

2.3. Share-Based Compensation

The Company has granted share-based incentive awards ~~outstanding~~ to its eligible employees and non-employee directors under ~~three~~two 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~~have been granted under the ~~2007~~2009 Plan since the 2016 Plan was approved by shareholders in 2016, 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 1,100,000 shares were available for future grants as of March 31, 2023.

Stock Options

~~For~~During the three months ended ~~September 30, 2017~~March 31, 2022, all remaining outstanding stock options expired. For each of the three months ended March 31, 2023 and ~~2016,~~2022, the Company did not recognize any share-based compensation expense related to the stock option ~~awards.~~award.

Restricted Stock Unit Awards

For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~March 31, 2022, the Company ~~did not recognize any~~recognized share-based compensation expense ~~and recognized less than $0.1 million, respectively,~~ related to restricted stock ~~option awards.~~

Nounit awards of $0.9 million and $0.9 million, respectively. As of March 31, 2023, there was $10.0 million of unrecognized compensation costs, ~~remained~~net of estimated forfeitures, related to restricted stock ~~option~~unit awards, aswhich is expected to be recognized over a remaining weighted-average period of ~~September 30, 2017.~~3.1 years. Upon vesting, restricted stock units are generally net share-settled to cover the required withholding tax and the remaining amount is converted into an equivalent number of shares of common stock.

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

A summary of the vesting activity of restricted stock ~~option activity, weighted average exercise prices and options outstanding as~~unit awards, with the respective fair value of ~~September 30, 2017 and 2016~~the awards, is as follows:


	Three months ended March 31,
	2023		2022
Restricted stock awards vested	338		226
Fair value of awards vested	$	1,946	$	1,502

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


	Three months ended March 31,
	2023		2022
Awards issued	48		34
Grant date fair value of awards issued	$	275	$	225

A summary of the Company's outstanding, non-vested restricted share units is as follows:


	Three months ended March 31,
	2023			2022
	Units	Weighted Average Grant-Date Fair Value		Units	Weighted Average Grant-Date Fair Value
Outstanding at beginning of period:	1,415	$	6.66	1,208	$	7.96
Granted	542	$	8.50	675	$	7.65
Released	(338)	$	5.76	(226)	$	13.73
Forfeited	(22)	$	7.82	(7)	$	10.50
Outstanding at end of period:	1,597	$	7.44	1,650	$	7.16

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)

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

~~Restricted Stock Unit Awards~~

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

For the nine months ended September 30, 2017 and September 30, 2016, the Company recognized share-based compensation expense related to restricted stock unit awards of $3.4 million for each respective period. As of September 30, 2017, there was $8.1 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which are expected to be recognized over a remaining weighted average period of 2.4 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 outstanding, non-vested restricted share units is presented below:~~

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

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 specific metrics approved by the Compensation Committee of the Board of Directors of the Company.

For 2022, the Compensation Committee utilized the same structure for the Company’s equity incentive compensation plan for its executive officers as 2021, and approved the new target awards for 2022. The three 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 ~~defined: (1) Operating Income, (2) Adjusted EBITDAS~~net income attributable to the Company plus: interest expense, provision for income taxes, depreciation and ~~(3) Revenue. There also is a discretionary portion~~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 2021), compared to the average share price during the 20-trading day period ending on the final measurement date (the last 20 trading days of 2022). Any cash dividends or distributions paid in 2022 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 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 2023, the Compensation Committee made changes to the Company's equity incentive compensation plan for its executive officers including modifying the metrics utilized, and approved the new target awards for 2023. The three metrics are:

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.Revenue

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.

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)

based on individual performance, at the discretion of the Compensation Committee (Discretionary PRSUs). PRSUs and Discretionary 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~~PRSU activity is ~~presented below:~~as follows:


	Three months ended March 31,
	2023			2022
	Units	Weighted Average Grant-Date Fair Value		Units	Weighted Average Grant-Date Fair Value
Outstanding at beginning of period:	280	$	9.96	388	$	10.07
Granted	282	$	8.50	341	$	6.55
Performance condition adjustments	(32)	$	6.55	(56)	$	10.47
Released	(64)	$	5.58	(17)	$	6.85
Forfeited	(84)	$	6.95	—	$	—
Outstanding at end of period:	382	$	9.12	656	$	12.18

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~~three months ended ~~September 30, 2017, the Compensation Committee modified the awards issued during the transition period ended December~~March 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~~2023 and March 31, ~~to December 31. Accordingly, for the nine months ended September 30, 2017,~~2022, the Compensation Committee approved ~~these transition period~~the final calculation of the award metrics for calendar year 2022 and 2021, respectively. As a result, the calendar year 2023 PRSUs ~~which resulted in~~decreased by approximately 32,000 units as a ~~reduction~~result of ~~approximately 3,000 units. There was a reduction~~the final calculation of ~~approximately 64,000 units to the awards granted in 2017 during the nine months ended September 30, 2017.~~award metrics.

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~~March 31, 2023 and ~~September 30, 2016,~~March 31, 2022, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately ~~$0.4~~$0.7 million and ~~$0.5~~$0.3 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,~~March 31, 2023, there was ~~$2.7~~$2.8 million of total unrecognized compensation costs related to approximately ~~287,000~~382,000 non-vested ~~performance restricted stock units,~~PRSUs, which ~~are~~is expected to be recognized over a remaining ~~weighted average~~weighted-average period of ~~2.1~~2.0 years.

3.4. Earnings (loss) per Share

~~Mistras Group, Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

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

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~~

Table of ~~basic and diluted earnings per share:~~

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 months ended September 30, 2017, 716 and 802 shares, respectively were excluded from the calculation of diluted EPS due to the net loss for the respective periods.~~

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

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


	Three months ended March 31,
	2023		2022

Basic loss per share
Numerator:
Net loss attributable to Mistras Group, Inc.	$	(4,986)	$	(5,363)
Denominator:
Weighted average common shares outstanding	30,021		29,634
Basic loss per share	$	(0.17)	$	(0.18)

Diluted loss per share:
Numerator:
Net loss attributable to Mistras Group, Inc.	$	(4,986)	$	(5,363)
Denominator:
Weighted average common shares outstanding	30,021		29,634

Dilutive effect of restricted stock units outstanding (1)	—		—
	30,021		29,634
Diluted loss per share	$	(0.17)	$	(0.18)

_______________

4.~~Acquisitions~~

~~During~~(1) For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023 and 2022, 1,513,000 and 1,212,000 shares, respectively, related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the period.

5. Acquisitions

Acquisition-Related Expense

In the course of its acquisition activities, the Company ~~completed two acquisitions, one that performs mechanical services at height, located~~incurs costs in ~~Canada,~~connection with due diligence, such as professional fees, and ~~a company located in the U.S. that primarily performs chemical and specialty process services, primarily in the aerospace industry.~~

~~In these acquisitions,~~other expenses. Additionally, the Company ~~acquired~~adjusts the ~~assets~~fair value 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,~~acquisition-related contingent consideration ~~up to $5.9 million to be earned based upon~~liabilities on a quarterly basis. These amounts are reported as Acquisition-related expense, net on the ~~acquired business achieving specific performance metrics over~~Unaudited Condensed Consolidated Statements of Loss and were as follows for the ~~initial~~ three ~~years of operations from the acquisition date~~months ended March 31, 2023 and ~~$1.6 million for working capital adjustments yet to be finalized. The Company accounted for these transactions in accordance with the acquisition method of accounting for business combinations.~~2022:


	Three months ended March 31,
	2023		2022
Due diligence, professional fees and other transaction costs	$	3	$	4
Adjustments to fair value of contingent consideration liabilities	—		45
Acquisition-related expense, net	$	3	$	49

The ~~assets and~~Company's contingent consideration 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 acquisitions are included in Accrued expenses and other current liabilities and Other long-term liabilities on the Services segment's results from the date of acquisition. Goodwill of $4.3 million primarily relates to expected synergies 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.Condensed Consolidated Balance Sheets.

~~The Company's preliminary purchase price allocations are included in the table below, summarizing the estimated fair value~~

6. Accounts Receivable, net

Accounts receivable consisted of the ~~assets acquired and liabilities assumed at the date~~following:

Table 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 of this transaction was approximately $9.1 million 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 for either acquisition.

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

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

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

Contents

~~7. Goodwill~~

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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


	March 31, 2023		December 31, 2022

Trade accounts receivable	$	124,066	$	127,767
Allowance for credit losses	(3,641)		(4,110)
Accounts receivable, net	$	120,425	$	123,657

The Company had $21.6 million and $13.5 million of unbilled revenue accrued as of March 31, 2023 and December 31, 2022, respectively. These amounts are included in the 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 customer in December 2019, alleging that the work performed was not in compliance with the contract. The Company filed a lawsuit to recover the $1.4 million and other amounts due to the Company and the customer filed a counterclaim, alleging breach of contract and seeking its damages. The Company recorded a full reserve for this receivable during 2019 and the status of this situation has not changed since 2019 through March 31, 2023. See Note 14-Commitments and Contingencies and Note 16 - Subsequent Events for additional details.

7. Inventories

Inventories consist of the following (in thousands):


	March 31, 2023		December 31, 2022

Raw materials and consumable supplies	$	8,195	$	7,745
Work in progress and finished goods	6,568		5,811
Inventories	$	14,763	$	13,556

8. Property, Plant and Equipment, net

Property, plant and equipment consisted of the following:


	Useful Life (Years)	March 31, 2023		December 31, 2022

Land		$	2,447	$	2,529
Buildings and improvements	30-40	25,457		24,800
Office furniture and equipment	5-8	18,644		18,057
Machinery and equipment	5-7	257,227		251,282
		303,775		296,668
Accumulated depreciation and amortization		(224,959)		(219,107)
Property, plant and equipment, net		$	78,816	$	77,561

Depreciation expense for the three months ended March 31, 2023 and 2022 was approximately $6.3 million and $6.6 million, respectively.

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)

9. Goodwill

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


	North America		International		Products and Systems		Total
Balance at December 31, 2022	$	185,710	$	13,925	$	—	$	199,635



Foreign currency translation	80		241				321
Balance at March 31, 2023	$	185,790	$	14,166	$	—	$	199,956

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, 2022 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 March 31, 2023, 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 ~~as of September 30, 2017 was $23.1 million, of~~charges 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.could be material.

8.10. 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


		March 31, 2023				December 31, 2022
	Useful Life (Years)	Gross Amount		Accumulated Amortization		Net Carrying Amount		Gross Amount		Accumulated Amortization		Net Carrying Amount

Customer relationships	5-18	$	110,094	$	(85,850)	$	24,244	$	109,683	$	(84,130)	$	25,553
Software/Technology	3-15	51,570		(29,498)		22,072		51,028		(28,669)		22,359
Covenants not to compete	2-5	12,495		(12,429)		66		12,488		(12,416)		72
Other	2-12	10,406		(9,428)		978		10,389		(9,358)		1,031
Total		$	184,565	$	(137,205)	$	47,360	$	183,588	$	(134,573)	$	49,015

Amortization expense for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~September 30, 2016~~2022 was approximately $2.1 million and $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.~~

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)

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 income for the three and nine months ended September 30, 2017.

9.11. 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


	March 31, 2023		December 31, 2022

Accrued salaries, wages and related employee benefits	$	25,855	$	26,684
Contingent consideration, current portion	—		937
Accrued workers’ compensation and health benefits	3,789		3,660
Deferred revenue	9,257		7,521

Pension accrual	2,519		2,519
Right-of-use liability - Operating	10,216		10,376
Other accrued expenses	25,491		26,147
Total	$	77,127	$	77,844

~~10.~~12. 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


	March 31, 2023		December 31, 2022

Senior credit facility	$	65,150	$	65,250
Senior secured term loan, net of unamortized debt issuance costs of $0.5 million and $0.5 million, respectively	119,863		121,399

Other	4,331		4,602
Total debt	189,344		191,251
Less: Current portion	(7,372)		(7,425)
Long-term debt, net of current portion	$	181,972	$	183,826

Senior Credit Facility

~~The Company's revolving~~Prior to entering into the Credit Agreement (defined and described below), the Company had a credit agreement with its banking group ("(the "Prior Credit Agreement") which provided the Company with a $150 million revolving credit facility and a $100 million term loan. The Prior Credit Agreement was most recently amended on May 19, 2021 and had a maturity date of December 12, 2023.

On August 1, 2022, the Company entered into a new credit agreement (the “Credit Agreement”) which replaced the Prior Credit Agreement and provides the Company with a ~~$175.0~~$190 million 5-year committed revolving ~~line~~credit facility and a $125 million term loan with a balance of ~~credit, which, under certain circumstances, can be increased~~$120 million as of March 31, 2023. The Credit Agreement permits the Company to ~~$225.0 million. The Company may~~ borrow up to ~~$30.0~~$100 million in ~~non-U.S. Dollar~~non-US dollar currencies and to use up to ~~$10.0~~$20 million of the credit limit for the issuance of letters of credit. Both the revolving line of credit and the term loan under the Credit Agreement have a maturity date of July 30, 2027.

The Credit Agreement has ~~a maturity date of October 30, 2019. As of September 30, 2017,~~ the ~~Company had borrowings of $95.1 million~~following key terms, conditions and ~~a total of $5.0 million of letters of credit outstanding under the Credit Agreement.~~financial covenants:

~~Loans under the Credit Agreement~~•Borrowings bear interest at ~~LIBOR~~Secured Overnight Financing Rate ("SOFR") plus ana credit spread adjustment and applicable ~~LIBOR~~SOFR margin ranging from ~~1% to 1.75%, or a base rate less a margin of~~ 1.25% to ~~0.375%~~2.75%, atbased upon our Total Consolidated Debt Leverage Ratio (defined below); under the ~~option~~Prior Credit Agreement, the margin was based upon the LIBOR margin.

◦Total Consolidated Debt Leverage Ratio means the ratio of (a) Total Consolidated Debt to (b) EBITDA (as defined in the Credit Agreement) for the trailing four consecutive fiscal quarters.

◦Total Consolidated Debt means all indebtedness (including subordinated debt) of the Company ~~based upon the Company’s Funded Debt Leverage Ratio. Funded Debt Leverage Ratio is defined as the ratio~~on a consolidated basis.

Table 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)

~~amounts not paid when due. Amounts borrowed under~~•The Company has the benefit of the lowest SOFR margin if its Total Consolidated Debt Leverage Ratio is equal to or less than 1.25 to 1.0, and the margin increases as the ratio increases, to the maximum margin if the ratio is greater than 3.75 to 1.0. The Credit Agreement ~~are~~is secured by liens on substantially all of the assets of the ~~Company.~~Company and certain of its U.S subsidiaries and is guaranteed by those U.S subsidiaries.

•The ~~Credit Agreement contains financial covenants requiring that the~~ Company has to maintain a ~~Funded~~Total Consolidated Debt Leverage Ratio of no ~~greater~~more than ~~3.25~~4.0 to 11.0 at the end of each quarter through June 30, 2023 and ~~an Interest~~stepping down to a maximum permitted ratio of no more than 3.75 to 1.0 for the remainder of the term.

•The Company has to maintain a Fixed Charge Coverage Ratio of ~~at least 3.0~~1.25 to ~~1. Interest Coverage Ratio is defined as the ratio, as of any date of determination, of (a) EBITDA~~1.0 for the ~~12 month period immediately preceding the date of determination, to (b) all interest, premium payments, debt discount, fees, charges and related expenses~~duration of the ~~Company and its subsidiaries~~New Credit Agreement, as defined in ~~connection with borrowed money (including capitalized interest) 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.~~ Credit Agreement.

•The Credit Agreement ~~also~~ limits the Company’s ability to, among other things, create liens, make investments, incur more indebtedness, merge or consolidate, make dispositions of property, pay dividends, ~~and~~ make distributions to stockholders or repurchase our stock, 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, the Company must be in compliance with the financial covenants on a pro forma basis after taking into account the acquisition, and if the ~~acquired~~Company must provide written notice at least five business isdays prior to the date of an acquisition of $10 million or more.

•Quarterly payments on the term loan of $1.56 million through June 30, 2024, then increasing to $2.34 million through June 30, 2025, and to $3.12 million for each quarterly payment thereafter through maturity.

The Credit Agreement was accounted for as a ~~separate subsidiary,~~modification and the Company expensed $0.8 million in ~~certain circumstances~~unamortized capitalized debt issuance costs and fees during the ~~lenders will receive~~three months ended September 30, 2022, which was included in selling, general and administrative expenses on the ~~benefit~~Consolidated Statements of ~~a guaranty~~Income (Loss). The Company incurred $1.6 million in financing costs for the Credit Agreement, of which $0.2 million of third party costs were expensed and included in selling, general and administrative expenses on the ~~subsidiary and liens on its assets and a pledge~~Consolidated Statements of ~~its stock.~~Income (Loss) during the three months ended September 30, 2022.

As of ~~September~~March 31, 2023, the Company had borrowings of $185.0 million and a total of $2.6 million of letters of credit outstanding under the Credit Agreement. The Company has capitalized costs associated with debt modifications of $1.4 million as of March 31, 2023, 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 July 30, ~~2017,~~2027.

As of March 31, 2023, the Company was in compliance with the terms and covenants of the Credit ~~Agreement, and will~~Agreement. The Company continuously ~~monitor its~~monitors compliance with the covenants contained in ~~its~~the Credit Agreement.

~~Notes Payable~~Other debt

The Company's other debt includes bank financing provided at the local subsidiary level used to support working capital requirements and ~~Other~~fund capital expenditures. At March 31, 2023, there was an aggregate of approximately $4.3 million outstanding, payable at various times through 2030. Monthly payments range from $0.7 thousand to $16 thousand and interest rates range from 0.4% to 3.5%.

13. Fair Value Measurements

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 at the prime rate for the Bank of Canada, currently 3.2% as of September 30, 2017. Interest expense is recorded in the condensed consolidated statements of income.

~~11.Fair Value Measurements~~

The Company performs fair value measurements in accordance with the guidance provided by ASC 820, Fair Value Measurements and ~~Disclosures.~~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

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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)

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


	Three months ended March 31,
	2023		2022
Beginning balance	$	938	$	1,831

Payments	(938)		(938)

Revaluation	—		45

Ending balance	$	—	$	938

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

~~12.~~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 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.in some circumstances.

Litigation and Commercial Claims

The Company ~~settled~~was contracted to perform inspections of welds on various pipeline projects in Texas for a ~~consolidated purported class and collective action~~customer. As of March 31, 2023, 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 ~~resulted from~~ the ~~consolidation~~Company’s inspection of ~~two cases originally filed~~66 welds (out of approximately 16,000 welds inspected) were not in ~~California state court in April 2015. In connection~~compliance with the ~~settlement,~~contract, claimed approximately $7.6 million in damages, and requested that the Company ~~recorded a pre-tax charge of $6.3 million during the three months ended June 30, 2016~~pay these damages and ~~paid the settlement in February 2017.~~

any other damages incurred. The Company isfiled a ~~defendant~~lawsuit in the ~~lawsuit~~ ~~AGL Services Company v.~~District Court of Bexar County, Texas, 37th Judicial District on December 17, 2019, in an action captioned Mistras Group, Inc., ~~pending in U.S. District Court for~~ v. Epic Y-Grade Pipeline LP, to recover the ~~Northern District~~$1.4 million and other amounts due to the Company. The customer filed a counterclaim on March 6, 2020, alleging breach of ~~Georgia, filed November 2016.~~contract and seeking recovery of its alleged damages. The ~~case involves radiography work performed~~Company believes that any successful claim by the ~~Company in 2013 on~~customer regarding the ~~construction~~Company’s workmanship will be covered by insurance, subject to payment 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.

~~Mistras Group, Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

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

~~The Company is a defendant in a lawsuit,~~ ~~Triumph Aerostructures, LLC d/b/a Triumph Aerostructures-Vought Aircraft Division v. Mistras Group, Inc~~., pending in Texas State district court, 193rd Judicial District, Dallas County, Texas, filed September 2016. The plaintiff alleges Mistras delivered a defective Ultrasonic inspection system in 2014 and is alleging damages of approximately $2.3 million. The Company has established an accrual for this matter, which is included in the amount set forth above.

~~Government Investigations~~

In May 2015, the Company received 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~~liability. In the year ended December 31, 2022, the Company recorded a charge of $0.1 million for a potential loss from this matter. 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. See Note 16 - Subsequent Events, for updated information on this matter.

~~Acquisition-related contingencies~~

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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)

Two 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., one being a purported class action lawsuit on behalf of current and former Mistras employees in California, filed on June 10, 2020, and the other was filed on September 18, 2020, behalf of the State of California under the California Private Attorney General Act on the basis of the same alleged violations. The two cases was consolidated and requested 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 agreed to pay $2.3 million to resolve the allegations in these proceedings and to be responsible for the employer portion of payroll taxes on the amount of the settlement allocated to wages. The settlement as agreed upon by the parties received final court approval on September 26, 2022, and the Company paid the settlement proceeds and related payroll taxes to the claims administrator in the fourth quarter of 2022. 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 the employees of these subsidiaries required contributions for these employees to two national multi-employer pension funds.The reduction in employees resulted in the 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 March 31, 2023 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 March 31, 2023, 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 $0.2 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 is liable for contingent consideration in connection with certain of its acquisitions. As of September 30, 2017, total potential acquisition-related contingent consideration ranged from zero to approximately $8.6 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 of the Company’s acquisitions.~~

15. Segment Disclosure

~~13.Segment Disclosure~~

~~The Company’s~~As noted in Note 1-Description of Business and Basis of Presentation, the Company updated the naming convention of one of our three operating segments and the updates are reflected below. Our three operating segments are:

~~Services.~~•North America. 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. 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~~

Table of ~~each segment. All such intersegment transactions are eliminated in the Company’s consolidated financial reporting.~~

Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

segments. Additionally, engineering charges and royalty fees charged to the North America and International segments by the Products and Systems segment are reflected in the operating performance of each 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 as human resources, information technology and training are allocated to the segments. Segment income from operations excludes interest and other financial 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.

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 March 31,
	2023		2022
Revenue
North America	$	136,932	$	132,946
International	29,407		28,138
Products and Systems	3,739		2,936
Corporate and eliminations	(2,062)		(2,358)
	$	168,016	$	161,662


	Three months ended March 31,
	2023		2022
Gross profit
North America	$	36,637	$	30,526
International	7,367		8,190
Products and Systems	2,063		1,168
Corporate and eliminations	10		8
	$	46,077	$	39,892

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 March 31,
	2023		2022
Income (loss) from operations
North America	$	9,378	$	3,761
International	(568)		284
Products and Systems	384		(582)
Corporate and eliminations	(11,024)		(8,161)
	$	(1,830)	$	(4,698)

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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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)


	Three months ended March 31,
	2023		2022
Depreciation and amortization
North America	$	6,357	$	6,593
International	1,859		2,058
Products and Systems	256		218
Corporate and eliminations	(59)		(62)
	$	8,413	$	8,807

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


	March 31, 2023		December 31, 2022
Intangible assets, net
North America	$	41,746	$	43,260
International	4,117		4,422
Products and Systems	1,295		1,208
Corporate and eliminations	202		125
	$	47,360	$	49,015


	September 30, 2017		December 31, 2016			March 31, 2023		December 31, 2022
Total assets					Total assets
Services	$	306,323	$	291,539
North America					North America	$	394,280	$	407,779
International	150,555		130,427		International	104,782		104,531
Products and Systems	13,944		28,964		Products and Systems	13,415		12,408
Corporate and eliminations	13,600		18,497		Corporate and eliminations	18,342		10,186
	$	484,422	$	469,427		$	530,819	$	534,904

~~Revenues~~Refer to Note 2–Revenue, for revenue by geographic area for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, respectively, were as follows:~~2022.

16. Subsequent Events

On April 25, 2023, the Company settled the outstanding litigation described in Note 14-Commitments and Contingencies, Mistras Group, Inc. v. Epic Y-Grade Pipeline LP, pending in Texas state court. The lawsuit involves a claim against a customer for unpaid receivables and the customer’s counterclaim related to inspection of welds on various pipeline projects in Texas. The settlement will result in a payment by the Company of $0.3 million (which the Company estimates is significantly less than the cost of going to trial) and a release of its claim for $1.4 million of associated past due receivables which were fully reserved for in prior periods. The settlement is contingent on the parties executing a settlement agreement, which will include a release of all claims related to the matter and dismissal of the case with prejudice.

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~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~September 30, 2016.~~2022. 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, filed March 20, 2017~~2022 (“~~2016 Transition~~2022 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~~2022 Annual Report as well as those discussed in this Quarterly Report on Form 10-Q and in our other filings with the ~~Securities~~SEC. In addition, there are various developments discussed below which could create risks and ~~Exchange Commission (“SEC”).~~uncertainty about our business, results of operations or liquidity.

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.

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Mistras Group, Inc. and Subsidiaries

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

(tabular dollars are in thousands)

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: North America (which we previously referred to as our Services segment), International, and Products and Systems.

~~Services~~•North America 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 ~~been soft, driven by lower oil prices which~~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 90 plus applications being offered on one centralized platform.

We have ~~caused many~~continued to develop new technologies to provide monitoring of ~~the Company’s~~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 ~~curtail spending for~~maximize uptime, performance and safety of wind turbine blades. This tool provides additional growth and expansion of our ~~services~~capabilities to serve both new and ~~products. However,~~existing wind turbines and greatly enhances our product offerings within the renewable energy industry.

Recent Developments

Issues related to the COVID-19 coronavirus (COVID-19) pandemic have subsided significantly during 2023 as compared to 2022. The Russian-Ukrainian war is creating disruption in the ~~fall~~oil and gas market and the supply chain in general, which is resulting in some disruption to our business operations.

Table of ~~2017, market conditions turned modestly positive~~Contents

Mistras Group, Inc. and ~~we believe this will continue for the remainder~~Subsidiaries

Management's Discussion and Analysis of ~~2017~~Financial Condition and ~~through the spring of 2018.~~

Results of Operations

(tabular dollars are in thousands)

~~Condensed consolidated~~

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.

Earlier in 2022, the Company eliminated substantially all of the COVID related 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 March 31, 2023, the cash balance was approximately $16.7 million, and with our Credit Agreement, provides us with significant liquidity.

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 business and operational results.

The Company is currently unable to predict with certainty the overall impact that the factors discussed above and the effect of inflationary pressures may have on its business, results of operations ~~for~~or liquidity or in other ways which the ~~three~~Company cannot yet determine. The Company’s European operations are currently experiencing higher energy costs, among other increased costs, due in part to the Russian-Ukrainian war. The Company will continue to monitor market conditions and ~~nine months ended September 30, 2017 and September 30, 2016 were as follows:~~respond accordingly

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) from operations 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 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.

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)

Results of Operations

Condensed consolidated results of operations for the three months ended March 31, 2023 and 2022 were as follows:


	Three months ended March 31,
	2023			2022
Revenues	$	168,016		$	161,662
Gross profit	46,077			39,892
Gross profit as a % of Revenue	27.4		%	24.7		%


Loss from operations	(1,830)			(4,698)
Loss from Operations as a % of Revenue	(1.1)		%	(2.9)		%

Loss before benefit for income taxes	(5,898)			(6,636)

Net Loss	(4,978)			(5,353)

Net Loss attributable to Mistras Group, Inc.	$	(4,986)		$	(5,363)

Revenue

~~Revenues~~Revenue was $168.0 million for the three months ended ~~September 30, 2017 were $179.6 million,~~March 31, 2023, an increase of ~~$10.8~~$6.4 million, or 6%3.9%, compared with the three months ended ~~September 30, 2016. Revenues for the nine months ended September 30, 2017 were $513.3 million, a decrease of $1.3 million, or less than 1%, compared with the nine months ended September 30, 2016.~~March 31, 2022.

~~Revenues~~Revenue by segment for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~September 30, 2016~~2022 were as follows:


														Three months ended March 31,
	Three months ended						Nine months ended							2023		2022
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
	($ in thousands)						($ in thousands)
Revenues
Services	$	137,194		$	127,153		$	397,565		$	395,089
Revenue													Revenue
North America													North America	$	136,932	$	132,946
International	38,200			37,922			106,360			105,275			International	29,407		28,138
Products and Systems	6,268			6,807			16,925			19,955			Products and Systems	3,739		2,936
Corporate and eliminations	(2,092		)	(3,071		)	(7,524		)	(5,713		)	Corporate and eliminations	(2,062)		(2,358)
	$	179,570		$	168,811		$	513,326		$	514,606
Total													Total	$	168,016	$	161,662

Three Months

In the three months ended ~~September 30, 2017, Services segment revenues~~March 31, 2023, total revenue increased 8%3.9% versus the prior year comparable period due predominantly to a ~~combination of acquisition growth~~single-digit organic increase. North America segment revenue increased 3.0%, driven predominantly by a single-digit organic increase and increased turnarounds in the current year, minimally offset by low ~~single digit favorable impacts~~single-digit unfavorable impact of foreign exchange ~~rates and organic growth. The~~rates. International segment revenue increased 4.6%, due predominantly to high single-digit organic growth ~~was achieved despite the negative~~mostly offset by mid single-digit unfavorable 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.~~rates. Products and Systems segment ~~revenues decreased~~revenue increased by ~~8% driven by lower~~27.3%, due to increased sales ~~volume.~~volume and shipments as compared to the prior period.

Oil and gas customer ~~revenues~~revenue comprised approximately ~~54%~~59% and ~~56%~~58% of total ~~Company revenues~~revenue for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively. Aerospace and defense customer revenue comprised approximately 11% and 12% of total revenue for the three months ended March 31, 2023 and 2022, respectively. The Company’s top ten customers comprised approximately 36% of total ~~revenues~~revenue for the three months ended ~~September 30, 2017,~~March 31, 2023, as compared to ~~38%~~34% for the three months ended ~~September 30, 2016. One~~March 31, 2022, with no customer ~~BP plc., accounted~~accounting for ~~approximately~~ 10% ~~and 14%~~or more of total ~~revenues, respectively, for~~revenue in either three-month period.

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 March 31,
	2023		2022

Oil and Gas Revenue by sub-category
Upstream	$	36,939	$	32,265
Midstream	21,231		24,907
Downstream	40,495		37,051
Total	$	98,665	$	94,223

For the three months ended ~~September 30, 2017 and three months ended September 30, 2016.~~

~~Nine Months~~

InMarch 31, 2022, the nine months ended September 30, 2017, Services segment revenues increased 1%, as acquisition growth slightly offset a low single digit organic decline. International segment revenues increased 1%, as low single digit organic growth slightly offset a low single digit unfavorable impact of foreign exchange rates. Products segment revenues decreased 15% dueCompany reclassified $9.4 million from Upstream to ~~lower sales volume.~~

Downstream in order to reflect the proper classification in the current period. Oil and gas upstream customer revenue increased approximately $4.7 million, or 14%, due primarily to market share gains and increased exploration activity as compared to the prior period. Midstream customer revenues decreased approximately $(3.7) million, or (15)%, due to decreased pipe inspection services performed as compared to the prior year quarter. Downstream customer revenues increased $3.4 million or, 9%, primarily due to increased customer turnarounds in the current year that were delayed in the prior period.


	Three months ended March 31,
	2023		2022

Revenue by type
Field Services	$	109,680	$	105,495
Shop Laboratories	13,132		13,089
Data Solutions	16,812		12,399
Other	28,392		30,679
Total	$	168,016	$	161,662

Field Services revenues are comprised of revenue derived primarily by technicians performing asset inspections and maintenance services for our customers at locations other than Mistras properties. Field Services revenue increased by $4.2 million as compared to the prior year primarily due to increases in sales volume in our oil and gas and petrochemical end markets for our North America and International segments and increased sales volumes within our the power generation and infrastructure end markets for our Products segment.

Shop Laboratory revenues are comprised of quality assurance inspections of components and materials at our Mistras in house laboratory facilities. Shop revenues were flat as compared to the prior year quarter due to similar sales volumes related to our aerospace end market in both periods.

Data Solutions revenues are comprised of revenue derived from data software sales & subscriptions, implementation services and analytics which offer insights and generate value from asset protection. Data Solutions revenue is derived from work performed by Mistras employees in our facilities, or at customer locations. Data Solutions revenue increased by $4.4 million due to increased sales volume within PCMS, Onstream and other Data Solutions offerings within our North America segment.

Other revenues are comprised of locations that perform both asset inspection services and testing of components and materials at in house Mistras laboratories. Other revenues decreased approximately ~~58% and 57% of total Company revenues for~~$2.3 million as compared to the ~~nine month periods ended September 30, 2017 and September 30, 2016, respectively. The Company’s top ten customers comprised approximately 38% of total revenues for both~~prior year primarily due to decreased sales within the ~~nine month periods ended September 30, 2017 and September 30, 2016. One customer, BP plc., accounted for approximately 11% of our total revenues for~~defense sector within the ~~nine months ended September 30, 2017 and 12% for~~North America segment offset by increased private space shop related activities during the ~~nine months ended September 30, 2016.~~quarter.

Gross Profit

Gross profit ~~decreased~~increased by ~~$2.8~~$6.2 million, or 5%15.5%, in the three months ended ~~September 30, 2017, despite a sales increase of 6%. During~~March 31, 2023 versus the ~~nine month~~prior year comparable period, ~~ended September 30, 2017, gross profit had a year-on-year decrease of $8.8 million, or 6%,~~ on a ~~sales decline~~increase in revenue of ~~less than 1%~~3.9%.

Gross profit by segment for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~September 30, 2016~~2022 was as follows:

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 Nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
($ in thousands) ($ in thousands)
Gross profit

Services $ 34,729
$ 33,704
$ 100,432
$ 102,652
   % of segment revenue 25.3 % 26.5 % 25.3 % 26.0 %
International 10,432
13,133
29,720
33,673
   % of segment revenue 27.3 % 34.6 % 27.9 % 32.0 %
Products and Systems 2,753
3,686
7,313
9,475
   % of segment revenue 43.9 % 54.2 % 43.2 % 47.5 %
Corporate and eliminations (17 ) 128
(73 ) 356
$ 47,897
$ 50,651
$ 137,392
$ 146,156
   % of total revenue 26.7 % 30.0 % 26.8 % 28.4 %


	Three months ended March 31,
	2023			2022

Gross profit
North America	$	36,637		$	30,526
% of segment revenue	26.8		%	23.0		%
International	7,367			8,190
% of segment revenue	25.1		%	29.1		%
Products and Systems	2,063			1,168
% of segment revenue	55.2		%	39.8		%
Corporate and eliminations	10			8
	$	46,077		$	39,892
% of total revenue	27.4		%	24.7		%

Three ~~months~~Months

Gross profit margin was ~~26.7%~~27.4% and ~~30.0%~~24.7% for the ~~three month~~three-month periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively. ~~Services~~North America segment realized an increase of 3.8% in gross profit ~~margins had a year-on-year decline of 120 basis points~~margin to ~~25.3% in~~26.8% during the three months ended ~~September 30, 2017, driven~~March 31, 2023. 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.~~better sales mix in the period and increased rebates received for insurance claims as compared to the prior year period. International segment realized a 4.0% decrease in gross ~~margins had a year-on-year decline of 730 basis points~~profit margin to ~~27.3% in~~25.1% during the three months ended ~~September 30, 2017. This decline was~~March 31, 2023 due primarily ~~driven by lower revenues~~to sales mix and increased energy costs in the ~~Company's German subsidiary, as well as poor margins on a large contract and lower utilization of technical labor in the UK.~~current period. Products and Systems segment gross margin ~~declined by 1030 basis points~~had a increase of 15.4% to 55.2% during the three months ended March 31, 2023 due to increased sales volume and better sales mix, as compared to the prior period.

Operating Expenses

Operating expenses for the three months ended ~~September 30, 2017 to 43.9%, driven by lower sales volumes.~~March 31, 2023 and 2022 was as follows:

~~Nine months~~


	Three months ended March 31,
	2023		2022

Operating Expenses
Selling, general and administrative expenses	$	42,823	$	41,922


Reorganization and other costs	2,076		114

Research and engineering	480		551
Depreciation and amortization	2,525		2,795

Legal settlement and insurance recoveries, net	—		(841)
Acquisition-related expense, net	3		49

~~Gross profit margin was 26.8% and 28.4%~~Three Months

Operating expenses increased $3.3 million, or 7.4%, for the ~~nine~~three months ended ~~September 30, 2017 and 2016, respectively. Services segment gross profit margins declined by 70 basis points~~March 31, 2023 compared to ~~25.3% in~~ the ~~nine~~three months ended ~~September 30, 2017, driven primarily by~~March 31, 2022. Selling, general and administrative expenses increased $0.9 million during 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 ninethree months ended ~~September 30, 2017, driven~~March 31, 2023 compared to the three months ended March 31, 2022, due to increased costs and unfavorable foreign exchange impact as compared to the prior period. Reorganization and other costs increased by approximately $2.0 million as compared to the prior year due primarily ~~by lower revenues~~to an increase in severance costs during the ~~Company’s German subsidiary,~~period, including separation of the former COO, as well ~~poor margins on a large contract~~as other restructuring costs. Depreciation and ~~lower utilization of technical labor in~~amortization decreased $0.3 million during the ~~UK. Products and Systems segment gross margin decreased by 430 basis points to 43.2% for the nine~~three months ended ~~September 30, 2017, driven by lower sales volumes.~~March 31, 2023 compared to the three months ended March 31, 2022.

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 Elimination and for the Company in total:


	Three months ended March 31,
	2023		2022

North America:
Income from operations (GAAP)	$	9,378	$	3,761



Reorganization and other costs	61		27
Legal settlement and insurance recoveries, net	—		(841)
Acquisition-related expense, net	—		44
Income from operations before special items (non-GAAP)	$	9,439	$	2,991
International:
Income (Loss) from operations (GAAP)	$	(568)	$	284


Reorganization and other costs	107		87

Income (Loss) from operations before special items (non-GAAP)	$	(461)	$	371
Products and Systems:
Income (Loss) from operations (GAAP)	$	384	$	(582)


Income (Loss) from operations before special items (non-GAAP)	$	384	$	(582)
Corporate and Eliminations:
Loss from operations (GAAP)	$	(11,024)	$	(8,161)


Reorganization and other costs	1,908		—
Acquisition-related expense, net	3		5
Loss from operations before special items (non-GAAP)	$	(9,113)	$	(8,156)
Total Company:
Loss from operations (GAAP)	$	(1,830)	$	(4,698)




Reorganization and other costs	2,076		114

Legal settlement and insurance recoveries, net	—		(841)
Acquisition-related expense, net	3		49
Income (Loss) from operations before special items (non-GAAP)	$	249	$	(5,376)

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.

Three Months

~~Three months~~

For the three months ended ~~September 30, 2017, income~~March 31, 2023, the loss from operations (GAAP) decreased ~~$22.5~~$2.9 million or ~~186%~~61.0%, compared with the three months ended ~~September 30, 2016,~~March 31, 2022, while the income (loss) before special items (non-GAAP) ~~decreased $5.8~~improved by $5.6 million, or

~~46%~~ 104.6%. As a percentage of ~~revenues,~~revenue, the income (loss) before special items ~~declined~~improved by ~~370~~340 basis points to ~~3.9%~~0.1% in the three months ended ~~September 30, 2017~~March 31, 2023 from ~~7.6%~~(3.3)% in the three months ended ~~September 30, 2016.~~March 31, 2022.

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, income before special items decreased by 260 basis points to 3.2% in the nine months ended September 30, 2017, as compared to 5.8% in the nine months ended September 30, 2016.

Operating expenses increased $16.0 million during the nine months ended September 30, 2017, driven primarily by the $15.8 million impairment charges in the Products and Systems segment. In addition, there was a $2.0 million increase in 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.

Interest Expense

Interest expense was approximately ~~$1.1~~$4.1 million and ~~$0.8~~$1.9 million for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016, respectively, and $3.1 million and $2.2 million for~~2022, respectively. The increase was a result of a change in the ~~nine months ended September 30, 2017 and 2016. The increases were~~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.

Income Taxes

~~The Company’s~~

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)

Our effective income tax rate was approximately ~~39%~~15.6% and ~~36%~~19.3% for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively.

The ~~Company's~~ effective income tax rate ~~was approximately 42% and 34%~~benefit for the ~~nine~~three months ended ~~September 30, 2017 and 2016, respectively.~~March 31, 2023 was lower than the statutory rate primarily due to the impact of an unfavorable discrete item related to stock compensation. The ~~increase in the~~effective income tax rate for ~~these respective periods~~the three months ended March 31, 2022 was lower than the statutory rate primarily due to athe impact of an unfavorable discrete item related to stock compensation.

On August 19, 2022, the ~~impairment~~United States enacted the Inflation Reduction Act, (the "Inflation Act"), a package intended to reduce inflation. The Inflation Act contains a variety of ~~goodwill~~tax provisions, including a 15% corporate minimum tax, a tax on stock repurchases, and ~~intangible assets~~various tax credit opportunities. 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 ~~the Products and Systems reporting unit. Excluding this item, the~~any given year but are not consistent from year to year. Our effective income tax rate ~~would have been 35%~~may fluctuate over the next few years due to many variables including the amount and ~~36%, respectively, for the three~~future geographic distribution of our pre-tax income, changes resulting from our acquisition strategy, and ~~nine months ended September 30, 2017.~~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


	Three months ended March 31,
	2023		2022

Net cash provided by (used in):
Operating activities	$	4,433	$	(5,399)
Investing activities	(4,460)		(2,737)
Financing activities	(3,951)		4,323
Effect of exchange rate changes on cash	207		(376)
Net change in cash and cash equivalents	$	(3,771)	$	(4,189)

Cash Flows from Operating Activities

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, cash provided by operating activities was ~~$35.2~~$4.4 million, representing a year-on-year ~~decrease~~increase of ~~$16.9~~$9.8 million, or ~~32%~~182%. The ~~decrease~~increase was primarily attributable to ~~a lower level of net income, as well as~~an improved days sales outstanding and movements in working capital, ~~including~~as compared to the ~~2017 payment of a $6.3 million legal settlement and thetiming of collections.~~prior year quarter.

Cash Flows from Investing Activities

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023 and 2022, cash used in investing activities was ~~$22.5~~$4.5 million ~~compared with a use of cash of $12.5 million~~primarily attributable to increased expenditures for vehicles leased related to customer projects that will be occurring in the ~~comparable period~~remaining quarters of 2023 which did not exist in 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 inby financing activities was ~~$7.1~~$4.0 million for the ~~nine~~three months ended ~~September 30, 2017. The Company borrowed $11.5~~March 31, 2023, compared to net cash provided by financing activities of $4.3 million for the three months ended March 31, 2022. During the three months ended March 31, 2023, net ~~on its Credit Agreement, to help fund the purchase~~borrowings of ~~$15.9 million of treasury stock and towards the funding of~~debt were approximately $8.4 million ~~for acquisitions. For~~higher as compared to 2022 resulting in debt paydown during the ~~comparable period in 2016,~~period. In addition, $0.2 million more taxes were paid related to net ~~cash used in financing activities was $32.5 million,~~share settlement of ~~which $28.9 million was to reduce~~share-based awards during the ~~Company's debt and capital lease obligations.~~three months ended March 31, 2023.

Effect of Exchange Rate Changes on Cash and Cash Equivalents

Table of Contents

The effect of exchange rate changes on our cash and cash equivalents was ~~a net~~an increase of ~~$2.1~~$0.2 million in the ~~first nine~~three months ~~of 2017,~~ended March 31, 2023, compared to a ~~$0.2~~decrease of $0.4 million ~~decrease~~ for the ~~first nine~~three months ~~of 2016.~~ended March 31, 2022.

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 30, 2017,~~March 31, 2023, we had cash and cash equivalents totaling ~~$26.9~~$16.7 million and ~~available borrowing capacity~~$122.2 million of ~~$74.9 million~~unused commitments under our Credit Agreement with borrowings of ~~$95.1~~$185.0 million and ~~$5.0~~$2.6 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 30, 2017,~~March 31, 2023, 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.

The terms of our Credit Agreement are described in Note 12- Long-Term Debt of the Notes to the Unaudited Condensed Consolidated Financial Statements, under the heading "Senior Credit Facility".

Contractual Obligations

There have been no significant changes in our contractual obligations and outstanding indebtedness as disclosed in the ~~2016 Transition~~2022 Annual Report.

Off-balance Sheet Arrangements

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2023, 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~~2022 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~~2022 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 March 31, 2023, 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 30, 2017~~March 31, 2023 that ~~has~~ materially affected, or isare reasonably likely to materially affect, ~~such~~our internal control over financial reporting.

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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~~2022 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.~~and Note 16-Subsequent Events.

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~~2022 Annual Report. ~~There~~Except as described below, there have been no material changes to the risk factors previously disclosed in the ~~2016 Transition~~2022 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)
January 31, 2023	—	$	—
February 28, 2023	—	$	—
March 31, 2023	135,338	$	5.92

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.

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ITEM 6.Exhibits


Exhibit No.						Description
10.1						Separation Agreement and Release between Jonathan Wolk and Registrant (filed as exhibit 10.1 to Current Report on Form 8-K filed on March 8, 2023 and incorporated herein by reference).

~~Exhibit No.~~ 10.2						Description of Compensation for Non-Employee Directors effective January 1, 2023.

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						Inline XBRL Instance Document

101.SCH						Inline XBRL Schema Document

101.CAL						Inline XBRL Calculation Linkbase Document

101.LAB						Inline XBRL Labels Linkbase Document

101.PRE						Inline XBRL Presentation Linkbase Document

101.DEF						Inline XBRL Definition Linkbase Document

Exhibits 10.1 and 10.2 are management contracts or compensation plans, contracts or arrangements.

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,~~and Chief Financial Officer ~~and Treasurer~~
						(Principal Financial and Accounting Officer and duly authorized officer)

Date: ~~November 9, 2017~~May 5, 2023



	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	)