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~~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,~~1, 2023, the registrant had ~~28,290,709~~30,353,100 shares of common stock ~~outstanding and 1,146,249 shares of treasury stock.~~outstanding.

Table of Contents

TABLE OF CONTENTS



			PAGE
PART I—FINANCIAL INFORMATION

	ITEM 1.	Financial Statements	1

		Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2023 (unaudited) and December 31, ~~2016~~2022	1

		Unaudited Condensed Consolidated Statements of Income (Loss) for thethree and nine months ended September 30, ~~2017~~2023 and September 30, ~~2016~~2022	2

		Unaudited Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the three and nine months ended September 30, ~~2017~~2023 and September 30, ~~2016~~2022	3

		Unaudited Condensed Consolidated Statements of Equity for the three and nine months ended September 30, 2023 and September 30, 2022	4

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

		Notes to Unaudited Condensed Consolidated Financial Statements	56

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

	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	2737

	ITEM 4	Controls and Procedures	2737

PART II—OTHER INFORMATION

	ITEM 1.	Legal Proceedings	2838

	ITEM 1.A.	Risk Factors	2838

	ITEM 2.	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities	2838

	ITEM 3.	Defaults Upon Senior Securities	2838

	ITEM 4.	Mine Safety Disclosures	2838

	ITEM 5.	Other Information	2938

	ITEM 6.	Exhibits	3039

SIGNATURES			3140

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1.Financial Statements

Mistras Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

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


	(unaudited)
	September 30, 2017			December 31, 2016				September 30, 2023		December 31, 2022
ASSETS							ASSETS
Current Assets							Current Assets
Cash and cash equivalents	$	26,863		$	19,154		Cash and cash equivalents	$	12,752	$	20,488
Accounts receivable, net	140,189			130,852			Accounts receivable, net	136,363		123,657
Inventories	11,237			10,017			Inventories	15,780		13,556
Deferred income taxes	—			6,230
Prepaid expenses and other current assets	16,077			16,399			Prepaid expenses and other current assets	18,259		10,181
Total current assets	194,366			182,652			Total current assets	183,154		167,882
Property, plant and equipment, net	77,173			73,149			Property, plant and equipment, net	79,762		77,561
Intangible assets, net	42,242			40,007			Intangible assets, net	44,468		49,015
Goodwill	165,704			169,940			Goodwill	185,519		199,635
Deferred income taxes	2,108			1,086			Deferred income taxes	2,229		779
Other assets	2,829			2,593			Other assets	41,558		40,032
Total assets	$	484,422		$	469,427		Total assets	$	536,690	$	534,904
LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current Liabilities							Current Liabilities
Accounts payable	$	8,925		$	6,805		Accounts payable	$	14,628	$	12,532
Accrued expenses and other current liabilities	65,608			58,697			Accrued expenses and other current liabilities	81,853		77,844
Current portion of long-term debt	2,490			1,379			Current portion of long-term debt	8,402		7,425
Current portion of capital lease obligations	6,261			6,488
Current portion of finance lease obligations							Current portion of finance lease obligations	5,253		4,201
Income taxes payable	4,576			4,342			Income taxes payable	1,025		1,726
Total current liabilities	87,860			77,711			Total current liabilities	111,161		103,728
Long-term debt, net of current portion	101,803			85,917			Long-term debt, net of current portion	185,466		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	12,375		10,045
Deferred income taxes	9,238			17,584			Deferred income taxes	8,542		6,283
Other long-term liabilities	9,510			7,789			Other long-term liabilities	33,362		32,273
Total liabilities	216,760			198,683			Total liabilities	350,906		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, 30,353,100 and 29,895,487 shares issued and outstanding							Common stock, $0.01 par value, 200,000,000 shares authorized, 30,353,100 and 29,895,487 shares issued and outstanding	302		298
Additional paid-in capital	221,149			217,211			Additional paid-in capital	246,075		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	(26,436)		(11,489)
Accumulated other comprehensive loss	(17,789		)	(29,724		)	Accumulated other comprehensive loss	(34,463)		(33,390)
Total Mistras Group, Inc. stockholders’ equity	267,475			270,582			Total Mistras Group, Inc. stockholders’ equity	185,478		198,450
Non-controlling interests	187			162			Non-controlling interests	306		299
Total equity	267,662			270,744			Total equity	185,784		198,749
Total liabilities and equity	$	484,422		$	469,427		Total liabilities and equity	$	536,690	$	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)

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


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

Revenue	$	179,570		$	168,811	$	513,326		$	514,606		Revenue	$	179,354	$	178,462	$	523,399	$	519,155
Cost of revenue	126,316			112,754		360,144			352,027			Cost of revenue	118,812		119,110		355,304		354,848
Depreciation	5,357			5,406		15,790			16,423			Depreciation	6,160		5,568		17,914		17,074
Gross profit	47,897			50,651		137,392			146,156			Gross profit	54,382		53,784		150,181		147,233
Selling, general and administrative expenses	38,217			34,995		113,491			107,266			Selling, general and administrative expenses	39,537		40,767		123,844		123,545
Impairment charges	15,810			—		15,810			—
Bad debt provision for troubled customers, net of recoveries												Bad debt provision for troubled customers, net of recoveries	—		—		—		289
Reorganization and other costs												Reorganization and other costs	2,702		130		6,017		65

Goodwill Impairment Charges												Goodwill Impairment Charges	13,799		—		13,799		—

Loss on Debt Modification												Loss on Debt Modification	—		693		—		693
Legal settlement and insurance recoveries, net												Legal settlement and insurance recoveries, net	—		—		150		(994)
Research and engineering	555			643		1,749			1,928			Research and engineering	438		450		1,428		1,523
Depreciation and amortization	2,738			2,513		7,854			8,140			Depreciation and amortization	2,588		2,629		7,556		8,058
Litigation charges	1,200			—		1,200			6,320
Acquisition-related expense (benefit), net	(248		)	384		(589		)	(99		)
Acquisition-related expense, net												Acquisition-related expense, net	—		1		5		63
Income (loss) from operations	(10,375		)	12,116		(2,123		)	22,601			Income (loss) from operations	(4,682)		9,114		(2,618)		13,991
Interest expense	1,081			778		3,114			2,218			Interest expense	4,167		2,735		12,093		6,790
Income (loss) before (benefit) provision for income taxes	(11,456		)	11,338		(5,237		)	20,383
(Benefit) provision for income taxes	(4,503		)	4,083		(2,199		)	6,908
Net income (loss)	(6,953		)	7,255		(3,038		)	13,475
Less: net income attributable to non-controlling interests, net of taxes	15			17		21			29
Net income (loss) attributable to Mistras Group, Inc.	$	(6,968	)	$	7,238	$	(3,059	)	$	13,446
Earnings (loss) per common share:
Income (loss) before provision (benefit) for income taxes												Income (loss) before provision (benefit) for income taxes	(8,849)		6,379		(14,711)		7,201
Provision for income taxes												Provision for income taxes	1,489		1,985		229		3,494
Net Income (Loss)												Net Income (Loss)	(10,338)		4,394		(14,940)		3,707
Less: net income (loss) attributable to noncontrolling interests, net of taxes												Less: net income (loss) attributable to noncontrolling interests, net of taxes	(40)		21		7		54
Net Income (Loss) attributable to Mistras Group, Inc.												Net Income (Loss) attributable to Mistras Group, Inc.	$	(10,298)	$	4,373	$	(14,947)	$	3,653

Earnings (loss) per common share												Earnings (loss) per common share
Basic	$	(0.25	)	$	0.25	$	(0.11	)	$	0.46		Basic	$	(0.34)	$	0.15	$	(0.49)	$	0.12
Diluted	$	(0.25	)	$	0.24	$	(0.11	)	$	0.45		Diluted	$	(0.34)	$	0.14	$	(0.49)	$	0.12
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	30,402		29,965		30,277		29,879
Diluted	28,274			30,231		28,465			30,139			Diluted	30,402		30,245		30,277		30,209

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Net Income (loss)	$	(10,338)	$	4,394	$	(14,940)	$	3,707
Other comprehensive loss:
Foreign currency translation adjustments	(5,428)		(12,995)		(1,073)		(20,971)
Comprehensive Loss	(15,766)		(8,601)		(16,013)		(17,264)
Less: net income attributable to noncontrolling interest	(40)		21		7		54

Comprehensive loss attributable to Mistras Group, Inc	$	(15,726)	$	(8,622)	$	(16,020)	$	(17,318)

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

Table of Contents

Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Equity

(in thousands)


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

Balance at June 30, 2023	30,302	$	302	$	245,058	$	(16,138)	$	(29,035)	$	200,187	$	346	$	200,533
Net income	—	—		—		(10,298)		—		(10,298)		(40)		(10,338)
Other comprehensive loss, net of tax	—	—		—		—		(5,428)		(5,428)		—		(5,428)
Share-based compensation	—	—		1,017		—		—		1,017		—		1,017
Net settlement of restricted stock units	51	—		—		—		—		—		—		—

Balance at September 30, 2023	30,353	$	302	$	246,075	$	(26,436)	$	(34,463)	$	185,478	$	306	$	185,784

Balance at June 30, 2022	29,807	$	297	$	240,697	$	(18,708)	$	(28,287)	$	193,999	$	262	$	194,261
Net income	—	—		—		4,373		—		4,373		21		4,394
Other comprehensive income, net of tax	—	—		—		—		(12,995)		(12,995)		—		(12,995)
Share-based compensation	—	—		1,396		—		—		1,396		—		1,396
Net settlement of restricted stock units	35	—		—		—		—		—		—		—

Balance at September 30, 2022	29,842	$	297	$	242,093	$	(14,335)	$	(41,282)	$	186,773	$	283	$	187,056


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

Balance at December 31, 2022	29,895	$	298	$	243,031	$	(11,489)	$	(33,390)	$	198,450	$	299	$	198,749
Net income (loss)	—	—		—		(14,947)		—		(14,947)		7		(14,940)
Other comprehensive loss, net of tax	—	—		—		—		(1,073)		(1,073)		—		(1,073)
Share-based compensation	—	—		3,985		—		—		3,985		—		3,985
Net settlement of restricted stock units	458	4		(941)		—		—		(937)		—		(937)

Balance at September 30, 2023	30,353	$	302	$	246,075	$	(26,436)	$	(34,463)	$	185,478	$	306	$	185,784

Balance at December 31, 2021	29,546	$	295	$	238,687	$	(17,988)	$	(20,311)	$	200,683	$	229	$	200,912
Net income	—	—		—		3,653		—		3,653		54		3,707
Other comprehensive income, net of tax	—	—		—		—		(20,971)		(20,971)		—		(20,971)
Share-based compensation	—	—		4,166		—		—		4,166		—		4,166
Net settlement of restricted stock units	296	2		(760)		—		—		(758)		—		(758)


Balance at September 30, 2022	29,842	$	297	$	242,093	$	(14,335)	$	(41,282)	$	186,773	$	283	$	187,056

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

Table of Contents

Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in ~~thousands)~~thousands)


	Nine months ended September 30,
	2023		2022

Cash flows from operating activities
Net loss	$	(14,940)	$	3,707
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	25,470		25,132
Goodwill impairment charges	13,799		—
Deferred income taxes	816		1,790
Share-based compensation expense	3,985		4,166
Bad debt provision for troubled customers, net of recoveries	—		289
Change in provision for doubtful accounts	346		—
Fair value adjustments to contingent consideration	—		45
Foreign currency (gain) loss	149		(924)

Payment of finance costs	—		(448)
Other	(147)		969
Changes in operating assets and liabilities
Accounts receivable	(13,393)		(27,692)
Inventories	(2,425)		(1,146)
Prepaid expenses and other assets	(7,572)		2,105
Accounts payable	2,094		578
Accrued expenses and other liabilities	4,165		2,539
Income taxes payable	(725)		(46)
Payment of contingent consideration liability in excess of acquisition-date fair value	(938)		(533)
Net cash provided by operating activities	10,684		10,531
Cash flows from investing activities
Purchase of property, plant and equipment	(14,403)		(9,050)

Purchase of intangible assets	(1,868)		(580)
Acquisition of business, net of cash acquired	—		—
Proceeds from sale of equipment	1,101		753

Net cash used in investing activities	(15,170)		(8,877)
Cash flows from financing activities
Repayment of finance lease obligations	(3,812)		(3,173)
Proceeds from borrowings of long-term debt	—		125,000
Repayment of long-term debt	(5,684)		(79,519)
Proceeds from revolver	66,110		168,000
Repayment of revolver	(57,851)		(213,750)
Payment of financing costs	—		(148)
Payment of contingent consideration for business acquisitions	—		(405)
Taxes paid related to net share settlement of share-based awards	(602)		(758)

Net cash used in financing activities	(1,839)		(4,753)
Effect of exchange rate changes on cash and cash equivalents	(1,411)		(2,927)
Net change in cash and cash equivalents	(7,736)		(6,026)
Cash and cash equivalents at beginning of period	20,488		24,110
Cash and cash equivalents at end of period	$	12,752	$	18,084
Supplemental disclosure of cash paid
Interest, net	$	12,683	$	5,354
Income taxes, net of refunds	$	3,704	$	(3,764)
Noncash investing and financing
Equipment acquired through finance lease obligations	$	7,169	$	3,373

Nine months ended
September 30, 2017 September 30, 2016

Cash flows from operating activities

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

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

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

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

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

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

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

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

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

Table of Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

1.Description of Business and Basis of Presentation

Description of Business

Mistras Group, Inc. ~~and~~, together with its 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 the North America segment to more closely align to the geographical area in which the Services 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

During 2022, the Company experienced unfavorable foreign currency exchange impacts as it relates to ~~deliver a comprehensive portfolio of customized solutions, ranging from routine inspections~~the Company's European operations. Additionally, the Russian-Ukrainian war continues to complex, plant-wide asset integrity assessments and management. These mission critical solutions enhance customers’ ability to extend the useful life of their assets, increase productivity, minimize repair costs, comply with governmental safety and environmental regulations, manage risk and avoid catastrophic disasters. The Company serves a global customer base of companies with asset-intensive infrastructure, including companiescreate 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 Company’s European operations are currently experiencing increased costs associated with higher energy costs, among others, due in part to the Russian-Ukrainian war.

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)

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

During the third quarter of 2023, a triggering event was identified within the Company's reporting units within the International segment due to decreased gross margin in the current period as a result of inflationary pressures and rising energy ~~public infrastructure, chemicals, commercial aerospace~~costs which resulted in an impairment within the reporting unit of $13.8 million. Refer to Note 9-Goodwill.

The Company is currently unable to predict with certainty the overall impact that the factors discussed above and ~~defense, transportation, primary metals~~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 ~~metalworking, pharmaceutical/biotechnology 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~~statement 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~~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.~~Income (Loss). All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations of companies acquired are included from the date of acquisition.

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

Reclassification

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

~~Customers~~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.

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)

Income Taxes

~~One customer, primarily generated from the Services segment,~~Income taxes are accounted for ~~approximately 10%~~under the asset and ~~11%~~liability method. We recognize deferred tax assets and liabilities at enacted income tax rates for the temporary differences between the financial reporting bases and the tax bases of our ~~revenues~~assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. Our net deferred tax assets primarily consist of net operating loss carryforwards, or NOLs. A valuation allowance is provided if it is more likely than not that some or all of a deferred income tax asset will not be realized. A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current and prior years.

As of September 30, 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.

The Company’s effective income tax rate was approximately (16.8)% and 31.1% for the three months ended September 30, 2023 and 2022, respectively. The Company’s effective income tax rate was approximately (1.6)% and 48.5% for the nine months ended September 30, ~~2017. This customer accounted for 8% of accounts receivable as of September 30, 2017. One customer accounted for 14%~~2023 and ~~12% of our revenues~~2022, respectively.

The effective income tax rate for the three months ended September 30, 2023 was lower than the statutory rate primarily due to the impact of permanent tax adjustments related to executive compensation and goodwill impairments. The effective income tax rate for the three months ended September 30, 2022 was higher than the statutory rate primarily due to various permanent tax adjustments and a $0.1 million valuation allowance recorded on a foreign jurisdiction.

The effective income tax rate for the nine months ended September 30, ~~2016.~~

~~Significant Accounting Policies~~

~~The Company’s significant accounting policies are disclosed in Note 2 —~~ ~~Summary~~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~~permanent tax adjustments related to ~~revenue recognition, valuations of accounts receivable, long-lived assets,~~executive compensation and goodwill ~~deferred~~impairments. The effective income tax ~~assets~~rate for the nine months ended September 30, 2022 was higher than the statutory rate due primarily to various permanent tax adjustments and ~~uncertain tax positions. Since~~a $0.9 million valuation allowance recorded during the ~~date of the 2016 Transition Report, there have been no material changes~~period which was related to ~~the Company's significant accounting policies.~~a foreign jurisdiction.

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,~~ 2020-04 and 2021-01, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2024. The Company is currently evaluating applicable contracts and the available expedients provided by the new guidance.

2. Revenue

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

Table of ~~the Effective Date,~~ which defers the effective date of ASU 2014-09 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 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. The Company is evaluating the effect that ASU 2016-02 will have on its condensed consolidated financial statements and related disclosures.

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

Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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 September 30, 2023	North America		International		Products		Corp/Elim		Total
Oil & Gas	$	94,390	$	8,827	$	35	$	—	$	103,252
Aerospace & Defense	14,240		5,778		47		—		20,065
Industrials	10,325		6,018		310		—		16,653
Power Generation & Transmission	7,388		1,653		696		—		9,737
Other Process Industries	6,933		2,864		(5)		—		9,792
Infrastructure, Research & Engineering	6,042		2,383		1,070		—		9,495
Petrochemical	3,313		586		—		—		3,899
Other	6,183		2,871		676		(3,269)		6,461
Total	$	148,814	$	30,980	$	2,829	$	(3,269)	$	179,354


Three Months Ended September 30, 2022	North America		International		Products		Corp/Elim		Total
Oil & Gas	$	90,578	$	6,418	$	35	$	—	$	97,031
Aerospace & Defense	16,784		4,397		112		—		21,293
Industrials	9,728		5,834		436		—		15,998
Power Generation & Transmission	10,378		1,946		456		—		12,780
Other Process Industries	10,283		3,033		8		—		13,324
Infrastructure, Research & Engineering	4,936		1,784		1,150		—		7,870
Petrochemical	3,427		280		—		—		3,707
Other	6,664		2,001		881		(3,087)		6,459
Total	$	152,778	$	25,693	$	3,078	$	(3,087)	$	178,462


Nine Months Ended September 30, 2023	North America		International		Products		Corp/Elim		Total
Oil & Gas	$	281,663	$	26,291	$	87	$	—	$	308,041
Aerospace & Defense	41,516		15,894		275		—		57,685
Industrials	30,693		18,274		1,336		—		50,303
Power Generation & Transmission	17,834		4,840		3,189		—		25,863
Other Process Industries	24,906		10,567		73		—		35,546
Infrastructure, Research & Engineering	12,696		6,547		2,759		—		22,002
Petrochemical	10,027		887		—		—		10,914
Other	11,960		7,364		2,178		(8,457)		13,045
Total	$	431,295	$	90,664	$	9,897	$	(8,457)	$	523,399

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)



Nine Months Ended September 30, 2022	North America		International		Products		Corp/Elim		Total
Oil & Gas	$	270,289	$	22,018	$	212	$	—	$	292,519
Aerospace & Defense	49,106		14,455		246		—		63,807
Industrials	28,529		17,868		1,271		—		47,668
Power Generation & Transmission	22,578		6,505		1,979		—		31,062
Other Process Industries	32,217		10,305		23		—		42,545
Infrastructure, Research & Engineering	10,625		6,016		2,489		—		19,130
Petrochemical	10,056		413		—		—		10,469
Other	11,851		5,861		2,446		(8,203)		11,955
Total	$	435,251	$	83,441	$	8,666	$	(8,203)	$	519,155

Revenue per key geographic location was as follows:


Three Months Ended September 30, 2023	North America		International		Products		Corp/Elim		Total
United States	$	126,239	$	120	$	1,032	$	(849)	$	126,542
Other Americas	21,907		3,703		49		(1,659)		24,000
Europe	465		26,764		510		(701)		27,038
Asia-Pacific	203		393		1,238		(60)		1,774
Total	$	148,814	$	30,980	$	2,829	$	(3,269)	$	179,354


Three Months Ended September 30, 2022	North America		International		Products		Corp/Elim		Total
United States	$	130,206	$	240	$	1,523	$	(1,098)	$	130,871
Other Americas	21,649		2,064		154		(1,274)		22,593
Europe	631		22,648		362		(622)		23,019
Asia-Pacific	292		741		1,039		(93)		1,979
Total	$	152,778	$	25,693	$	3,078	$	(3,087)	$	178,462


Nine Months Ended September 30, 2023	North America		International		Products		Corp/Elim		Total
United States	$	369,811	$	709	$	4,478	$	(1,718)	$	373,280
Other Americas	57,218		11,013		673		(3,565)		65,339
Europe	3,159		75,421		1,275		(2,693)		77,162
Asia-Pacific	1,107		3,521		3,471		(481)		7,618
Total	$	431,295	$	90,664	$	9,897	$	(8,457)	$	523,399



Nine Months Ended September 30, 2022	North America		International		Products		Corp/Elim		Total
United States	$	370,426	$	747	$	4,366	$	(2,319)	$	373,220
Other Americas	62,254		4,781		338		(2,988)		64,385
Europe	1,790		75,921		1,456		(2,501)		76,666
Asia-Pacific	781		1,992		2,506		(395)		4,884
Total	$	435,251	$	83,441	$	8,666	$	(8,203)	$	519,155

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)

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~~nine months ended September 30, ~~2017.~~

~~In May 2017,~~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 $5.7 million and $4.0 million, respectively, 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 the practical expedient to expense incremental costs incurred relating 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 and related disclosures.~~one year or less.

2.3. Share-Based Compensation

The Company ~~has~~grants 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 1,300,000 shares were available for future grants as of September 30, 2023.

Stock Options

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

Restricted Stock Unit Awards

For the three months ended September 30, 2023 and September 30, 2022, the Company recognized share-based compensation expense related to restricted stock unit awards of $0.7 million and $0.9 million, respectively. For the nine months ended September 30, ~~2017~~2023 and ~~2016,~~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 $2.5 million and $2.8 million, respectively. As of September 30, 2023, there was $8.1 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.~~2.7 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:


	Nine months ended September 30,
	2023		2022
Restricted stock awards vested	430		326
Fair value of awards vested	$	2,639	$	2,164

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~~fully-vested common stock the Company issued to its non-employee directors, in connection with its non-employee director compensation, is as follows:


	Nine months ended September 30,
	2023		2022
Awards issued	99		70
Grant date fair value of awards issued	$	550	$	450

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


	Nine months ended September 30,
	2023			2022
	Units	Weighted Average Grant-Date Fair Value		Units	Weighted Average Grant-Date Fair Value
Outstanding at beginning of period:	1,415	$	7.96	1,208	$	7.96
Granted	591	$	8.37	675	$	7.65
Vested	(430)	$	6.14	(326)	$	10.03
Forfeited	(120)	$	7.96	(42)	$	8.19
Outstanding at end of period:	1,456	$	7.71	1,515	$	7.37

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 ismay vary between zero and 200% of the target award, 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 performance metrics for the Company's PRSUs awarded in 2022 as it utilized for the 2021 PRSUs. The three metrics were:

1.Free Cash Flow defined asnet 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 were 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.

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~~For 2023, the Compensation Committee ~~(Discretionary PRSUs).~~used different performance metrics for PRSUs approved in that year. The three metrics are:

1.Free Cash Flow defined asnet cash provided by operating activities less purchases of property, plant, equipment and ~~Discretionary~~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 related to PRSUs with performance conditions are initially measured using the fair value of the underlying stock at the date of grant. Compensation costs related to the PRSUs with performance conditions 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. Earned PRSUs generally vest ratably on each of the first four anniversary dates ~~upon~~following completion of the performance period, for a total requisite service period of up to five years and have no dividend rights.

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

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

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


	Nine months ended September 30,
	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	(314)	$	8.34	(269)	$	7.71
Vested	(64)	$	5.58	(17)	$	6.85
Forfeited	(84)	$	(6.95)	—	$	—
Outstanding at end of period:	100	$	9.83	443	$	9.74

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

Granted 128
$ 20.42

Performance condition adjustments (67 ) $ 20.55

Released (64 ) $ 14.87

Forfeited —
$ —

Outstanding at end of period: 287
$ 17.07

During the nine months ended September 30, 2017, the Compensation Committee modified the awards issued during the transition period ended December 31, 2016 from a one-year performance period to a seven month performance period to align the awards with the change in the Company's fiscal year from May 31 to December 31. Accordingly, for the nine months ended September 30, 2017,2023, the Compensation Committee approved ~~these transition period~~the final calculation of the award metrics for calendar year 2022. As a result, the calendar year 2023 PRSUs ~~which resulted in a reduction of~~decreased by approximately ~~3,000 units. There was a reduction of approximately 64,000~~314,000 units ~~to the awards granted in 2017~~ during the nine months ended September 30, ~~2017.~~2023 as a result of the final calculation of award metrics for 2022 awards and based on forecasted results for 2023 as compared to performance metrics determined by the Compensation Committee.

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~~2023 and September 30, ~~2016,~~2022, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately ~~$0.4~~$0.1 million and ~~$0.5~~$0.3 million, respectively.

For the nine months ended September 30, ~~2017~~2023 and September 30, ~~2016,~~2022, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately ~~$1.3~~$0.6 million ~~for each respective period.~~

and $0.9 million, respectively. At September 30, ~~2017,~~2023, there was ~~$2.7~~$0.7 million of total unrecognized compensation costs related to approximately ~~287,000~~100,000 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 years.~~1.0 year.

3.~~Earnings per Share~~

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)

4. Earnings (loss) per Share

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

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


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022

Basic earnings (loss) per share
Numerator:
Net income (loss) attributable to Mistras Group, Inc.	$	(10,298)	$	4,373	$	(14,947)	$	3,653
Denominator:
Weighted average common shares outstanding	30,402		29,965		30,277		29,879
Basic earnings (loss) per share	$	(0.34)	$	0.15	$	(0.49)	$	0.12

Diluted earnings (loss) per share:
Numerator:
Net income (loss) attributable to Mistras Group, Inc.	$	(10,298)	$	4,373	$	(14,947)	$	3,653
Denominator:
Weighted average common shares outstanding	30,402		29,965		30,277		29,879

Dilutive effect of restricted stock units outstanding (1)	—		280		—		330
	30,402		30,245		30,277		30,209
Diluted earnings (loss) per share	$	(0.34)	$	0.14	$	(0.49)	$	0.12

_______________

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~~2023, 1,508,255 and ~~802~~926,224 shares related to restricted stock, respectively, were excluded from the calculation of diluted EPS due to the net loss for the ~~respective periods.~~period.

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

5. Acquisitions

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

Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Acquisition-Related Expense

4.~~Acquisitions~~

~~During~~In the course of its acquisition activities, the Company incurs costs in connection with due diligence, such as professional fees, and other expenses. Additionally, the Company adjusts the fair value of acquisition-related contingent consideration liabilities on a quarterly basis. These amounts are reported as Acquisition-related expense, net on the Unaudited Condensed Consolidated Statements of Income (Loss) and were as follows for the three and nine months ended September 30, ~~2017,~~2023 and 2022:


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Due diligence, professional fees and other transaction costs	$	—	$	1	$	5	$	18
Adjustments to fair value of contingent consideration liabilities			—				45
Acquisition-related expense, net	$	—	$	1	$	5	$	63

The Company's contingent consideration liabilities are included in Accrued expenses and other current liabilities and Other long-term liabilities on the Company completed two acquisitions, one that performs mechanical services at height, located in Canada, and a company located in the U.S. that primarily performs chemical and specialty process services, primarily in the aerospace industry.Condensed Consolidated Balance Sheets.

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

6. Accounts Receivable, net

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


	September 30, 2023		December 31, 2022

Trade accounts receivable	$	138,286	$	127,767
Allowance for credit losses	(1,923)		(4,110)
Accounts receivable, net	$	136,363	$	123,657

The Company ~~accounted for these transactions in accordance with the acquisition method~~had $27.8 million and $13.5 million of ~~accounting for business combinations.~~

~~The assets~~unbilled revenue accrued as of September 30, 2023 and liabilities of the businesses acquired in 2017 were included in the Company's condensed consolidated balance sheet based upon their estimated fair values on the date of acquisition as determined in a preliminary purchase price allocation, using available information and making assumptions management believes are reasonable. The Company is still in the process of completing its valuations of the assets acquired. The results of operations for these acquisitionsDecember 31, 2022, respectively. These amounts are included in the ~~Services segment's results~~trade accounts receivable balances above. Unbilled revenue is generally billed in the subsequent quarter to their revenue recognition. The Company considers unbilled receivables as short-term in nature as they are normally converted to trade receivables within 90 days, thus future changes in economic conditions will not have a significant effect on the credit loss estimate.

The Company was contracted to perform inspections of welds on various pipeline projects in Texas for a customer. As of December 31, 2019, approximately $1.4 million of past due receivables were outstanding from this customer. The Company received notice from the ~~date~~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 ~~acquisition. Goodwill of $4.3 million primarily relates~~contract and seeking its damages. The Company recorded a full reserve for this receivable during 2019. The parties agreed 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.

~~The Company's preliminary purchase price allocations are included~~a settlement in the ~~table below, summarizing~~quarter ending June 30, 2023 with releases executed in July 2023, whereby the ~~estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:~~

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

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

~~Revenues and operating income included in the condensed consolidated statement of operations for 2017 from these acquisitions~~Company released its claim for the ~~period subsequent to~~$1.4 million of outstanding receivables. Accordingly, 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 informationreceivable has been ~~included in this report~~written off. See Note 14-Commitments and Contingencies for ~~either acquisition.~~additional details.

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

7. Inventory

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

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

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

~~from their acquisition dates.~~

Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

~~Acquisition-Related Expense~~

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

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

5.~~Accounts Receivable, net~~

~~Accounts receivable consisted~~Inventories consist of the ~~following:~~following (in thousands):


	September 30, 2023		December 31, 2022

Raw materials and consumable supplies	$	8,694	$	7,745
Work in progress and finished goods	7,086		5,811
Inventories	$	15,780	$	13,556

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

6.8. Property, Plant and Equipment, net

Property, plant and equipment consisted of the following:

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

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


	Useful Life (Years)	September 30, 2023		December 31, 2022

Land		$	2,438	$	2,529
Buildings and improvements	30-40	25,671		24,800
Office furniture and equipment	5-8	21,318		18,057
Machinery and equipment	5-7	262,370		251,282
		311,797		296,668
Accumulated depreciation and amortization		(232,035)		(219,107)
Property, plant and equipment, net		$	79,762	$	77,561

Depreciation expense for the three months ended September 30, ~~2017~~2023 and ~~September 30, 2016~~2022 was ~~$5.7~~approximately $6.6 million and ~~$5.8~~$5.9 million, respectively.

Depreciation expense for the nine months ended September 30, ~~2017~~2023 and ~~September 30, 2016~~2022 was ~~$16.8~~$19.0 million and ~~$17.6~~$18.3 million, respectively.

7.9. Goodwill

~~Mistras Group, Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

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

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

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


	North America		International		Products and Systems		Total
Balance at December 31, 2022	$	185,710	$	13,925	$	—	$	199,635
Foreign currency translation	(191)		(126)		—		(317)
Impairment charges	—		(13,799)		—		(13,799)

Balance at 30, September 30, 2023	$	185,519	$	—	$	—	$	185,519

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~~third quarter of ~~2017, there were pending contract bids which management assessed~~2023, a triggering event was identified within the Company's reporting units within the International segment due to decreased gross margin in the current period as ~~having~~ a ~~reasonable chance~~result of ~~success. These contract bids were not awarded to~~inflationary pressures and rising energy costs impacting the ~~Company.~~International reporting units' operations. 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 any~~interim quantitative goodwill impairment ~~of long-lived assets (see Note 8) as well as an analysis to determine any~~test.

In performing the interim quantitative goodwill impairment ~~of goodwill. For~~test and consistent with prior practice, the ~~goodwill analysis, we used income and market approaches to estimate~~Company determined the fair value of the reporting unit, which requires significant judgment in evaluation of economic and industry trends, estimated future cash flows, discount rates and other factors, and compared that fair value to the carrying value, and determined that the fair valueeach of the reporting ~~unit was less than~~units using a combination of the ~~carrying value. The Company recorded an impairment charge of $13.2 million, based on the difference between the fair value~~income approach and the ~~carrying value~~market approach by assessing each

Table of ~~the reporting unit, which resulted in an impairment of the entire amount of goodwill for the Products and Systems reporting unit.~~

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

Contents

8.~~Intangible Assets~~

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

September 30, 2017 December 31, 2016

Useful Life
(Years)

Gross
Amount

Accumulated
Amortization
Impairment
Net
Carrying
Amount

Gross
Amount

Accumulated
Amortization

Net
Carrying
Amount

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

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

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

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

of these valuation methodologies based upon availability and relevance of comparable company data and determining the appropriate weighting.

~~As described in Note 7,~~Under 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~~approach, the fair value for each of the ~~long-lived assets, which requires significant judgment in evaluation~~reporting units was determined based on the present value of ~~the useful lives of the assets, economic and industry trends,~~ estimated future cash flows, discounted at an appropriate risk-adjusted rate. The Company used internal forecasts, updated for recent events, to estimate future cash flows estimated using a terminal value calculation, which incorporates historical and forecasted trends, including an estimate of long-term future growth rates, based on the Company’s most recent views of the long-term outlook for each reporting unit. The internal forecasts include assumptions about future profitability, including the expected demand for the Company’s goods and services. Due to the inherent uncertainties involved in making estimates and assumptions, actual results may differ from those assumed in the forecasts. The Company derived the discount rates using a capital asset pricing model and ~~other factors.~~analyzing published rates for industries relevant to the reporting units to estimate the cost of equity financing. The ~~result~~Company used discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and in the internally developed forecasts, updated for recent events. Increased interest rates in the current period increased the discount rate associated with the reporting units which contributed in an unfavorable decrease in the reporting units value.

The market approach valuation was derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses was based on the markets in which the reporting units operate, considering risk profiles, size, geography, and diversity of products and services.

Based upon the results of the ~~analysis was~~interim quantitative goodwill impairment test, the Company recorded an impairment charge of ~~$2.4~~$13.8 million ~~to software/technology, $0.2 million to customer relationships~~within the International reporting units. The impairment was calculated based on the difference between the estimated fair value and ~~less than $0.1 million to other intangibles, which are~~the carrying value of the reporting units and is included in ~~the~~Goodwill impairment charges ~~line~~ on the condensed consolidated statements of income (loss) for the three and nine months ended September 30, ~~2017.~~2023. Any significant adverse changes in future periods to the Company’s internal forecasts or the external market conditions, if any, could reasonably be expected to negatively affect its key assumptions and may result in future goodwill impairment charges which could be material.

9.~~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

10.~~Long-Term Debt~~

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

September 30, 2017 December 31, 2016

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

~~Senior Credit Facility~~ Intangible Assets

The ~~Company's revolving credit agreement with its banking group ("Credit Agreement") provides the Company with a $175.0 million revolving line~~gross amount, accumulated amortization and net carrying amount of ~~credit, which, under certain circumstances, can be increased to $225.0 million. The Company may borrow up to $30.0 million in non-U.S. Dollar currencies and use up to $10.0 million of the credit limit~~intangible assets were as follows:


		September 30, 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	$	109,409	$	(87,977)	$	21,432	$	109,683	$	(84,130)	$	25,553
Software/Technology	3-15	53,199		(31,082)		22,117		51,028		(28,669)		22,359
Covenants not to compete	2-5	12,483		(12,429)		54		12,488		(12,416)		72
Other	2-12	10,379		(9,514)		865		10,389		(9,358)		1,031
Total		$	185,470	$	(141,002)	$	44,468	$	183,588	$	(134,573)	$	49,015

Amortization expense for the ~~issuance of letters of credit. The Credit Agreement has a maturity date of October 30, 2019. As of~~three months ended September 30, ~~2017, the Company had borrowings of $95.1~~2023 and 2022 was approximately $2.2 million and ~~a total of $5.0~~$2.3 million, ~~of letters of credit outstanding under the Credit Agreement.~~respectively.

Loans under the Credit Agreement bear interest at LIBOR plus an applicable LIBOR margin ranging from 1% to 1.75%, or a base rate less a margin of 1.25% to 0.375%, at the option of the Company, based upon the Company’s Funded Debt Leverage Ratio. Funded Debt Leverage Ratio is defined as the ratio of (1) all outstanding indebtedness for borrowed money and other interest-bearing indebtedness as of the date of determination to (2) EBITDA (which is (a) net income, less (b) income (or plus loss) from discontinued operations and extraordinary items, plus (c) income tax expenses, plus (d) interestAmortization 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~~nine months ended September 30, 2023 and September 30, 2022 was $6.5 million and $6.9 million, respectively.

Table of four consecutive fiscal quarters immediately preceding the date of determination. The Company has the benefit of the lowest margin if its Funded Debt Leverage Ratio is equal to or less than 0.5 to 1, and the margin increases as the ratio increases, to the maximum margin if the ratio is greater than 2.0 to 1. The Company will also bear additional costs for market disruption, regulatory changes effecting the lenders’ funding costs, and default pricing of an additional 2% interest rate margin on any

Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

11. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


	September 30, 2023		December 31, 2022

Accrued salaries, wages and related employee benefits	$	27,749	$	26,684
Contingent consideration, current portion	—		937
Accrued workers’ compensation and health benefits	3,954		3,660
Deferred revenue	7,523		7,521
Pension accrual	2,458		2,519
Right-of-use liability - Operating	10,777		10,376
Other accrued expenses	29,392		26,147
Total	$	81,853	$	77,844

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

12. Long-Term Debt

Long-term debt consisted of the following:


	September 30, 2023		December 31, 2022

Senior credit facility	$	72,118	$	65,250
Senior secured term loan, net of unamortized debt issuance costs of $0.4 million and $0.5 million, respectively	117,572		121,399

Other	4,178		4,602
Total debt	193,868		191,251
Less: Current portion	(8,402)		(7,425)
Long-term debt, net of current portion	$	185,466	$	183,826

Senior Credit Facility

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 $190 million 5-year committed revolving credit facility and a $125 million term loan with a balance of $118 million as of September 30, 2023. The Credit Agreement permits the Company to borrow up to $100 million in non-U.S. dollar currencies and to use up to $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 ~~are~~have a maturity date of July 30, 2027.

The Credit Agreement has the following key terms, conditions and financial covenants:

•Borrowings bear interest at Secured Overnight Financing Rate ("SOFR") plus a credit spread adjustment and applicable SOFR margin ranging from 1.25% to 2.75%, based upon our Total Consolidated Debt Leverage Ratio (defined below); under the 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.

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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)

◦Total Consolidated Debt means all indebtedness (including subordinated debt) of the Company on a consolidated basis.

•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 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 30, ~~2017,~~2023, the Company had borrowings of $189.7 million and a total of $2.9 million of letters of credit outstanding under the Credit Agreement. The Company has capitalized costs associated with debt modifications of $1.2 million as of September 30, 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, 2027.

As of September 30, 2023, the Company was in compliance with the terms of the Credit ~~Agreement, and will~~Agreement. The Company continuously ~~monitor its~~monitors compliance with the covenants contained in its Credit Agreement.

~~Notes Payable and~~ Other debt

~~In connection with certain of its acquisitions, the Company issued subordinated notes payable to the sellers.~~ The ~~maturity of the notes that remain outstanding are three years from the date of acquisition and bear interest~~Company’s other debt includes bank financing provided at the ~~prime rate for the Bank of Canada, currently 3.2% as of~~local subsidiary level used to support working capital requirements and fund capital expenditures. At September 30, ~~2017. Interest expense is recorded in the condensed consolidated statements~~2023, there was an aggregate of ~~income.~~approximately $4.2 million outstanding, payable at various times through 2030. Monthly payments range from $1.0 thousand to $18.0 thousand and interest rates range from 0.4% to 3.5%.

~~11.~~13. Fair Value Measurements

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

Financial instruments measured at fair value on a recurring basis

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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)

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

~~Mistras Group, Inc. and Subsidiaries~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

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

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

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


	Nine months ended September 30,
	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~~customer. As of September 30, 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 the Company’s inspection of 66 welds (out of approximately 16,000 welds inspected) were not in compliance with the contract, claimed approximately $7.6 million in damages, and ~~collective~~requested that the Company pay these damages and any other damages incurred. The Company filed a lawsuit in the District Court of Bexar County, Texas, 37th Judicial District on December 17, 2019, in an action ~~that resulted from~~captioned Mistras Group, Inc. v. Epic Y-Grade Pipeline LP, to recover the ~~consolidation~~$1.4 million and other amounts due to the Company. The customer filed a counterclaim on March 6, 2020, alleging breach of ~~two cases originally filed~~contract and seeking recovery of its alleged damages. On April 25, 2023, the parties agreed to settle all claims, and in ~~California state court in April 2015. In connection with~~July 2023, the parties executed a settlement agreement. As part of the settlement, the Company paid $0.3 million in July 2023 (which the Company estimates is significantly less than the cost of going to trial) and released its claim of $1.4 million for associated past due receivables which were fully reserved for in prior periods. In the year ended December 31, 2022, the Company recorded a ~~pre-tax~~ charge of ~~$6.3~~$0.1 million for a potential loss from this matter. The Company recorded a reserve in the amount of $1.4 million during the ~~three~~twelve months ended ~~June 30, 2016 and paid the settlement in February 2017.~~December 31, 2019 for these past due receivables.

~~The Company is a defendant in the lawsuit~~ ~~AGL Services Company v. Mistras Group, Inc.,~~ ~~pending in U.S. District Court for the Northern District~~

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

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

Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

~~The Company is a defendant~~Two proceedings were filed in ~~a lawsuit,~~ ~~Triumph Aerostructures, LLC d/b/a Triumph Aerostructures-Vought Aircraft Division~~California Superior Court for the County of Los Angeles regarding alleged violations of the California Labor Code. Both cases were captioned Justin Price v. Mistras Group, ~~Inc~~.Inc., ~~pending~~one being a purported class action lawsuit on behalf of current and former Mistras employees in ~~Texas~~California, filed on June 10, 2020, and the other was filed on September 18, 2020, on behalf of the State ~~district~~of California under the California Private Attorney General Act on the basis of the same alleged violations. The two cases were consolidated and payment was demanded for 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 ~~193rd Judicial District, Dallas County, Texas, filed~~approval on September ~~2016.~~26, 2022, and the Company paid the settlement proceeds and related payroll taxes to the claims administrator in the fourth quarter of 2022. The ~~plaintiff alleges Mistras delivered a defective Ultrasonic inspection system in 2014 and is alleging damages~~Company recorded expense of approximately ~~$2.3 million.~~ $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 the 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 ~~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~~subsidiary is likely to incur partial or complete withdrawal liability to the other pension fund. The balance of the ~~Cudahy facility should be examined, along with numerous other sites in the vicinity. At~~estimated total amount of this ~~time, the Company is unable to determine whether it has any~~potential liability ~~in connection with this matter and if so, the amount or range of any such liability, and accordingly, has not established any accruals for this matter.~~

~~Acquisition-related contingencies~~

~~The Company is liable for contingent consideration in connection with certain of its acquisitions. As~~as of September 30, ~~2017, total potential acquisition-related contingent consideration ranged from zero to~~2023 is approximately ~~$8.6~~$2.5 million, which were incurred in 2018 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.~~2019.

~~13.~~15. Segment Disclosure

The Company’s 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~~North America and International segments by the Products and Systems segment are reflected in the operating performance of each segment. ~~All~~

The accounting policies of the reportable segments are the same as those described in Note 1-Description of Business and Basis of Presentation. Segment income from operations is one of the primary performance measures used by the chief operating decision maker, to assess the performance of each segment and make resource allocation decisions. Certain general and administrative costs such ~~intersegment transactions~~as human resources, information technology and training are ~~eliminated in~~allocated to the ~~Company’s consolidated~~segments. Segment income from operations excludes interest and other financial ~~reporting.~~charges and income taxes. Corporate and other assets are

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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)

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 September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Revenue
North America	$	148,814	$	152,778	$	431,295	$	435,251
International	30,980		25,693		90,664		83,441
Products and Systems	2,829		3,078		9,897		8,666
Corporate and eliminations	(3,269)		(3,087)		(8,457)		(8,203)
	$	179,354	$	178,462	$	523,399	$	519,155


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Gross profit
North America	$	44,773	$	44,869	$	121,088	$	118,348
International	8,481		7,694		24,247		25,324
Products and Systems	1,096		1,189		4,773		3,514
Corporate and eliminations	32		32		73		47
	$	54,382	$	53,784	$	150,181	$	147,233

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 September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Income (loss) from operations
North America	$	18,004	$	16,700	$	39,719	$	35,315
International	(12,970)		814		(13,031)		2,678
Products and Systems	(557)		(333)		(78)		(1,334)
Corporate and eliminations	(9,159)		(8,067)		(29,228)		(22,668)
	$	(4,682)	$	9,114	$	(2,618)	$	13,991


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Depreciation and amortization
North America	$	6,603	$	6,168	$	19,329	$	18,927
International	1,915		1,858		5,663		5,835
Products and Systems	183		221		526		559
Corporate and eliminations	47		(50)		(48)		(189)
	$	8,748	$	8,197	$	25,470	$	25,132

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 Financial Statements

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

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

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


	September 30, 2023		December 31, 2022
Intangible assets, net
North America	$	38,619	$	43,260
International	3,265		4,422
Products and Systems	1,260		1,208
Corporate and eliminations	1,324		125
	$	44,468	$	49,015


	September 30, 2017		December 31, 2016			September 30, 2023		December 31, 2022
Total assets					Total assets
Services	$	306,323	$	291,539
North America					North America	$	414,190	$	407,779
International	150,555		130,427		International	93,951		104,531
Products and Systems	13,944		28,964		Products and Systems	13,557		12,408
Corporate and eliminations	13,600		18,497		Corporate and eliminations	14,992		10,186
	$	484,422	$	469,427		$	536,690	$	534,904

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

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 Financial Statements

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

16. Subsequent Events

~~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.~~9, 2023, Sotirios Vahaviolos ~~to purchase up to 1 million~~retired as Executive Chairman of

~~his shares, commencing in October 2016. Pursuant~~ the Board (the “Board”) of Mistras Group, Inc., but remains employed as a Senior Advisor to the ~~agreement,~~Chief Executive Officer. In addition, Dr. Vahaviolos continues to serve as a member of the Board and as Chairman Emeritus. On the same day, the Board elected Manuel N. Stamatakis to serve as Chairman of the Board to succeed Dr. Vahaviolos in ~~general,~~that role.

On October 9, 2023, the Board also approved the termination without cause of Dennis Bertolotti as the Company’s President and Chief Executive Officer. In connection with his termination as President and Chief Executive Officer, Mr. Bertolotti resigned as a director, effective immediately. The Board appointed Mr. Stamatakis to serve as interim President and Chief Executive Officer until a permanent President and Chief Executive Officer is appointed. The Company ~~will purchase from Dr.~~

~~Vahaviolos up~~expects to $2record approximately $2.6 million during the fourth quarter of ~~shares each month, at a 2% discount~~2023 related to the ~~average daily closing price~~termination.

Table 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~~Contents

Mistras Group, Inc. and Subsidiaries

Management's Discussion and Analysis of ~~$21.93 per share~~Financial Condition and ~~an aggregate cost~~Results 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 sharesOperations

(tabular dollars are 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.~~thousands)

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~~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)

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’s core capabilities also include non-destructive testing (“NDT”) field inspections enhanced by advanced robotics, laboratory quality control, laboratory materials services, shop laboratory 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~~business and financial results are impacted by world-wide macro- and micro-economic conditions generally, as well as those within our target markets. Among other things, we expect the timing of our oil and gas customers inspection spend to be impacted by oil price fluctuations.

We have continued providing our customers with an innovative asset protection software ecosystem through our MISTRAS OneSuite platform. The software platform offers functions of MISTRAS' popular software and services brands as integrated apps on a cloud environment. OneSuite serves as a single access portal for customers' data activities and provides access to 90 plus applications being offered on one centralized platform.

Recent Developments

The Russian-Ukrainian war is creating disruption in the oil and gas market ~~conditions have been soft, driven by lower oil prices~~and the supply chain in general, which ~~have caused many~~is resulting in some disruption to our business operations primarily in Europe due to increased energy costs.

Table of ~~the Company’s customers to curtail spending for our services~~Contents

Mistras Group, Inc. and ~~products. However, during the fall~~Subsidiaries

Management's Discussion and Analysis of ~~2017, market conditions turned modestly positive~~Financial Condition and ~~we believe this will continue for the remainder of 2017 and through the spring of 2018.~~

Results of Operations

(tabular dollars are in thousands)

~~Condensed consolidated~~

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 September 30, 2023, the cash balance was approximately $12.8 million and our Credit Agreement provides us with significant liquidity.

In April 2021, the Biden Administration announced aggressive initiatives to battle climate change, which includes potential plans for 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 and ~~nine months~~an impairment was recorded during the quarter ended September 30, ~~2017~~2023 related to the Company's European reporting units. The Company will continue to monitor market conditions 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. Any measure that eliminates the foregoing items has material limitations as a performance or liquidity measure and should not be considered alternatives to net income (loss) or any other measures derived in accordance with GAAP. Because Income (loss) from operations before special items may not be calculated in the same manner by all companies, this measure may not be comparable to other similarly titled measures used by other companies.

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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)

Results of Operations

Condensed consolidated results of operations for the three and nine months ended September 30, 2023 and 2022 were as follows:


	Three months ended September 30,						Nine months ended September 30,
	2023			2022			2023			2022
Revenues	$	179,354		$	178,462		$	523,399		$	519,155
Gross profit	54,382			53,784			150,181			147,233
Gross profit as a % of Revenue	30.3		%	30.1		%	28.7		%	28.4		%


Income from operations	(4,682)			9,114			(2,618)			13,991
Income from Operations as a % of Revenue	(2.6)		%	5.1		%	(0.5)		%	2.7		%

Income before provision (benefit) for income taxes	(8,849)			6,379			(14,711)			7,201

Net Income (loss)	(10,338)			4,394			(14,940)			3,707

Net Income (loss) attributable to Mistras Group, Inc.	$	(10,298)		$	4,373		$	(14,947)		$	3,653

Revenue

~~Revenues~~Revenue was $179.4 million for the three months ended September 30, ~~2017 were $179.6 million,~~2023, an increase of ~~$10.8~~$0.9 million, or 6%0.5%, compared with the three months ended September 30, ~~2016. Revenues~~2022. Revenue for the nine months ended September 30, ~~2017 were $513.3~~2023 was $523.4 million, ~~a decrease~~an increase of ~~$1.3~~$4.2 million, or ~~less than 1%~~0.8%, compared with the nine months ended September 30, ~~2016.~~2022.

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


														Three months ended September 30,				Nine months ended September 30,
	Three months ended						Nine months ended							2023		2022		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	$	148,814	$	152,778	$	431,295	$	435,251
International	38,200			37,922			106,360			105,275			International	30,980		25,693		90,664		83,441
Products and Systems	6,268			6,807			16,925			19,955			Products and Systems	2,829		3,078		9,897		8,666
Corporate and eliminations	(2,092		)	(3,071		)	(7,524		)	(5,713		)	Corporate and eliminations	(3,269)		(3,087)		(8,457)		(8,203)
	$	179,570		$	168,811		$	513,326		$	514,606			$	179,354	$	178,462	$	523,399	$	519,155

Three Months

In the three months ended September 30, ~~2017, Services~~2023, total revenue increased 0.5% versus the prior year comparable period due predominantly to increased sales volume as compared to the prior period. North America segment ~~revenues increased 8%~~revenue decreased 2.6% due to ~~a combination of acquisition~~decreases in sales volume in our aerospace and defense and power generation & transmission end markets, amongst others. International segment revenue increased 20.6%, due predominantly to low double-digit organic growth and ~~low single digit~~mid single-digit favorable ~~impacts of~~ foreign exchange rates and organic growth. The organic growth was achieved despite the negative impact of the 2017 hurricanes and continued weakness in a challenged region that includes a fairly large customer contract. International segment revenues increased 1%, driven by low single digit favorable impacts of foreign exchange rates, offset by a low single digit organic decline.impact. Products and Systems segment ~~revenues~~revenue decreased ~~by 8% driven by lower~~8.1%, due to decreased sales ~~volume.~~volume as compared to the prior period.

Oil and gas customer ~~revenues~~revenue comprised approximately ~~54%~~58% and ~~56%~~54% of total ~~Company revenues~~revenue for the three months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively. Aerospace and defense customer revenue comprised approximately 11% and 12% of total revenue for the three months ended September 30, 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,~~2023, as compared to ~~38%~~32% for the three months ended September 30, ~~2016. One~~2022, with no customer ~~BP plc., accounted~~accounting for ~~approximately~~ 10% ~~and 14%~~or more of total ~~revenues, respectively, for the three months ended September 30, 2017 and three months ended September 30, 2016.~~revenue in either three-month period.

Nine ~~Months~~months

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

(tabular dollars are in thousands)

In the nine months ended September 30, ~~2017, Services~~2023, total revenue increased 0.8% versus the comparable prior period. The increase was due to organic growth in our core business, partially offset by an unfavorable revenue impact from foreign exchange rates. Our North America segment ~~revenues~~revenue decreased 0.9% due primarily to decreases in sales volume in our aerospace and defense and other process industries end markets which was partially offset by increased ~~1%, as acquisition growth slightly offset a low single digit organic decline.~~sales volume in our oil and gas end market. International segment ~~revenues~~revenue increased ~~1%, as low single digit~~8.7% due to mid single-digit organic growth ~~slightly~~and offset aby low ~~single digit~~single-digit unfavorable revenue impact offrom foreign exchange rates. Products and Systems segment ~~revenues decreased 15%~~revenue increased by 14.2% due to ~~lower~~increased sales ~~volume.~~volume within the power generation & transmission end market, as compared to the prior period.

Oil and gas ~~revenues~~customer revenue comprised approximately ~~58%~~59% and ~~57%~~56% of total ~~Company revenues~~revenue for the nine ~~month periods~~months ended September 30, ~~2017~~2023 and 2022, respectively. Aerospace and defense customer revenue comprised approximately 11% and 12% of total revenue for the nine months ended September 30, ~~2016,~~2023 and 2022, respectively. The Company’s top ten customers comprised approximately ~~38%~~35% of total ~~revenues for both the nine month periods ended September 30, 2017 and September 30, 2016. One customer, BP plc., accounted for approximately 11% of our total revenues~~revenue for the nine months ended September 30, ~~2017 and 12%~~2023, as compared to 33% for the nine months ended September 30, ~~2016.~~2022, with no customer accounting for 10% or more of total revenue in either nine-month period.

The Company has retrospectively reclassified certain Oil and Gas sub-category revenues for each quarterly period in 2022 in order to conform the classification with the current year presentation. Total Oil and Gas sub-category revenues were unchanged in total in each quarterly period and for the full year ended December 31, 2022. The table below presents the reclassified balances for each quarterly period in the prior year.


	2022 Quarterly Revenues
	Three months ended March 31,		Three months ended June 30,		Three months ended September 30,		Three months ended December 31,

Oil and Gas Revenue by sub-category
Upstream	$	36,397	$	38,051	$	35,173	$	36,435
Midstream	20,427		27,153		25,885		23,540
Downstream	37,399		36,061		35,973		35,258
Total	$	94,223	$	101,265	$	97,031	$	95,233


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Oil and Gas Revenue by sub-category
Upstream	$	38,041	$	35,173	$	116,941	$	109,621
Midstream	26,215		25,885		74,739		73,465
Downstream	38,996		35,973		116,361		109,433
Total	$	103,252	$	97,031	$	308,041	$	292,519

Oil and gas upstream customer revenue increased approximately $7.3 million, or 7%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, and $2.9 million, or 8%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 due to increased exploration operations and market share gains compared to the prior period.

Midstream customer revenues increased approximately $1.3 million, or 2%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, and $0.3 million, or 1%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 due to comparable pipe inspection services performed in both years.

Downstream customer revenue increased $6.9 million, or 6%, for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, and $3.0 million, or 8%, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 due to increased sales volume at customer refineries and increased customer turnarounds.

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

(tabular dollars are in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Revenue by type
Field Services	$	122,717	$	118,526	$	348,501	$	345,385
Shop Laboratories	14,840		12,528		42,216		35,533
Data Analytical Solutions	17,997		17,151		52,916		45,786
Other	23,800		30,257		79,766		92,451
Total	$	179,354	$	178,462	$	523,399	$	519,155

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 $3.1 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, and increased $4.2 million, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. The increase in both periods was due to increased sales volume in our oil and gas end market for our North America and International segments.

Shop Laboratory revenues are comprised of quality assurance inspections of components and materials at our Mistras in house laboratory facilities. Shop revenues increased by $6.7 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, and increased $2.3 million for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Shop revenues increased in both periods as compared to the prior year quarter due to increased sales volume related to our commercial aerospace and industrials end markets.

Data Analytical Solutions revenues are comprised of revenue derived from data software sales & subscriptions, implementation services and analytics that offer insights and recommendations to improve asset integrity. Data Solutions revenue is derived from work performed by Mistras employees in our facilities, or at customer locations, using our proprietary portfolio of software applications. Data Solutions revenue increased by $7.1 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, and increased $0.8 million, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 due primarily 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 by $12.7 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, and decreased $6.5 million, for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Other revenues decreased primarily due to decreased sales within the aerospace and defense sector and due to declines in our other end markets within the North America and International segments.

Gross Profit

Gross profit ~~decreased~~increased by ~~$2.8~~$0.6 million, or 5%1.1%, in the three months ended September 30, ~~2017, despite a sales~~2023 versus the prior year comparable period, on an increase in revenue of 6%0.5%. ~~During~~

Gross profit increased by $2.9 million, or 2.0%, in the nine ~~month period~~months ended September 30, ~~2017, gross profit had a year-on-year decrease~~2023 on an increase in revenue of ~~$8.8 million, or 6%, on a sales decline of less than 1%~~0.8%.

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

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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)

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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)


	Three months ended						Nine months ended							Three months ended September 30,						Nine months ended September 30,
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016				2023			2022			2023			2022
	($ in thousands)						($ in thousands)
Gross profit													Gross profit
Services	$	34,729		$	33,704		$	100,432		$	102,652
North America													North America	$	44,773		$	44,869		$	121,088		$	118,348
% of segment revenue	25.3		%	26.5		%	25.3		%	26.0		%	% of segment revenue	30.1		%	29.4		%	28.1		%	27.2		%
International	10,432			13,133			29,720			33,673			International	8,481			7,694			24,247			25,324
% of segment revenue	27.3		%	34.6		%	27.9		%	32.0		%	% of segment revenue	27.4		%	29.9		%	26.7		%	30.3		%
Products and Systems	2,753			3,686			7,313			9,475			Products and Systems	1,096			1,189			4,773			3,514
% of segment revenue	43.9		%	54.2		%	43.2		%	47.5		%	% of segment revenue	38.7		%	38.6		%	48.2		%	40.5		%
Corporate and eliminations	(17		)	128			(73		)	356			Corporate and eliminations	32			32			73			47
	$	47,897		$	50,651		$	137,392		$	146,156			$	54,382		$	53,784		$	150,181		$	147,233
% of total revenue	26.7		%	30.0		%	26.8		%	28.4		%	% of total revenue	30.3		%	30.1		%	28.7		%	28.4		%

Three ~~months~~Months

Gross profit margin was ~~26.7%~~30.3% and ~~30.0%~~30.1% for the ~~three month~~three-month periods ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively. ~~Services~~North America segment realized an increase of 0.7% in gross profit ~~margins had a year-on-year decline of 120 basis points~~margin to ~~25.3% in~~30.1% during the three months ended September 30, ~~2017, driven~~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.~~reduced overhead costs associated with lower revenues, as compared to the prior year period. International segment realized a decrease of (2.5)% in gross ~~margins had a year-on-year decline of 730 basis points~~profit margin to ~~27.3% in~~27.4% during the three months ended September 30, ~~2017. This decline was~~2023 due primarily ~~driven by lower revenues in~~to increased inflationary costs as compared to the ~~Company's German subsidiary, as well as poor margins on a large contract and lower utilization of technical labor in the UK.~~prior year period. Products and Systems segment realized an increase of 0.1% in gross profit margin ~~declined by 1030 basis points for~~to 38.7% during the three months ended September 30, ~~2017~~2023 due to ~~43.9%, driven by lower~~favorable sales ~~volumes.~~mix.

Nine months

Gross profit margin was ~~26.8%~~ 28.7%and 28.4% for the nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively. ~~Services segment gross~~Gross profit ~~margins declined by 70 basis points~~margin increased due to ~~25.3%~~favorable sales mix.

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)

Operating Expenses

Operating expenses for the three and nine months ended September 30, ~~2017, driven primarily by~~2023 and 2022 was as follows:


	Three months ended September 30,						Nine months ended September 30,
	2023			2022			2023			2022

Operating Expenses
Selling, general and administrative expenses	$	39,537		$	40,767		$	123,844		$	123,545
Bad debt provision for troubled customers, net of recoveries	—			—			—			289
Loss on debt modification	—			693			—			693
Reorganization and other costs	2,702			130			6,017			65

Goodwill Impairment Charges	13,799			—			13,799			—
Research and engineering	438			450			1,428			1,523
Depreciation and amortization	2,588			2,629			7,556			8,058

Legal settlement and insurance recoveries, net	—			—			150			(994)
Acquisition-related expense, net	—			1			5			63
	$	59,064		$	44,670		$	152,799		$	133,242
% of total revenue	32.9		%	25.0		%	29.2		%	25.7		%

Three months

Total operating expenses increased $14.4 million for 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 primarily by lower revenues~~2023 compared to the three months ended September 30, 2022, due predominantly to impairment charges of $13.8 million incurred in the ~~Company’s German subsidiary,~~third quarter of 2023 as ~~well poor margins on a large contract~~more fully described in Note 9-Goodwillof the Notes to the Unaudited Condensed Consolidated Financial Statements. Selling, general and ~~lower utilization~~administrative expenses decreased $1.2 million during the three months ended September 30, 2023 compared to the three months ended September 30, 2022, due mainly to favorable foreign currency exchange. Depreciation and amortization was flat during the three months ended September 30, 2023 compared to the three months ended September 30, 2022. During the three months ended September 30, 2023, $2.7 million of ~~technical labor in~~reorganization and other related costs were incurred, which were due to the ~~UK. Products~~Company's on-going efficiency and ~~Systems segment gross margin decreased by 430 basis points to 43.2%~~productivity initiatives.

Nine months

Operating expenses increased $19.6 million for the nine months ended September 30, ~~2017, driven by lower sales volumes.~~2023 compared to the nine months ended September 30, 2022 due predominantly to impairment charges of $13.8 million incurred in the third quarter of 2023 as more fully described in Note 9-Goodwillof the Notes to the Unaudited Condensed Consolidated Financial Statements. Selling, general, and administrative expenses increased $0.3 million during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to favorable foreign currency exchange. Reorganization and other costs for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 increased $6.0 million due to professional fees and restructuring charges associated with changes in the Company's organizational structure. Depreciation and amortization decreased $0.5 million during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

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

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)

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


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022

North America:
Income from operations (GAAP)	$	18,004	$	16,700	$	39,719	$	35,315
Bad debt provision for troubled customers, net of recoveries	—		—		—		289


Reorganization and other costs	35		12		574		40
Legal settlement and insurance recoveries, net	—		—		150		(841)
Acquisition-related expense, net	—		—		—		45
Income from operations before special items (non-GAAP)	$	18,039	$	16,712	$	40,443	$	34,848
International:
Income (loss) from operations (GAAP)	$	(12,970)	$	814	$	(13,031)	$	2,678

Goodwill Impairment charges	13,799		—		13,799		—
Reorganization and other costs, net	33		(15)		228		(114)

Income from operations before special items (non-GAAP)	$	862	$	799	$	996	$	2,564
Products and Systems:
Loss from operations (GAAP)	$	(557)	$	(333)	$	(78)	$	(1,334)

Reorganization and other costs	189		—		189		—
Income (loss) from operations before special items (non-GAAP)	$	(368)	$	(333)	$	111	$	(1,334)
Corporate and Eliminations:
Loss from operations (GAAP)	$	(9,159)	$	(8,067)	$	(29,228)	$	(22,668)
Loss on debt modification	—		693		—		693
Reorganization and other costs	2,445		133		5,026		139
Acquisition-related expense, net	—		1		5		19
Legal settlement and insurance recoveries, net	—		—		—		(153)
Loss from operations before special items (non-GAAP)	$	(6,714)	$	(7,240)	$	(24,197)	$	(21,970)
Total Company:
Income (loss) from operations (GAAP)	$	(4,682)	$	9,114	$	(2,618)	$	13,991
Bad debt provision for troubled customers, net of recoveries	—		—		—		289
Goodwill Impairment charges	13,799		—		13,799		—


Reorganization and other costs	2,702		130		6,017		65
Loss on debt modification	—		693		—		693
Legal settlement and insurance recoveries, net	—		—		150		(994)
Acquisition-related expense, net	—		1		5		64
Income from operations before special items (non-GAAP)	$	11,819	$	9,938	$	17,353	$	14,108

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)
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 Quarterly Report on Form 10-Q for an explanation of the use of non-GAAP measurements.

Three Months

~~Three months~~

For the three months ended September 30, ~~2017,~~2023, income from operations (GAAP) decreased ~~$22.5~~$13.8 million ~~or 186%,~~ compared with the three months ended September 30, ~~2016,~~2022, while income before special items (non-GAAP) ~~decreased $5.8~~increased $1.9 million or

~~46%.~~for the three months ended September 30, 2023 compared with the three months ended September 30, 2022. As a percentage of ~~revenues,~~revenue, income before special items ~~declined~~increased by ~~370~~100 basis points to ~~3.9%~~6.6% in the three months ended September 30, ~~2017~~2023 from ~~7.6%~~5.6% in the three months ended September 30, ~~2016.~~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,~~2023, income from operations (GAAP) decreased ~~$24.7~~$16.6 million, ~~or 109%~~ compared with the ~~prior year, and~~nine months ended September 30, 2022, while income from operations before special items (non-GAAP) ~~decreased $13.2~~increased $3.2 million ~~or 44%.~~for the nine months ended September 30, 2023 compared with the nine months ended September 30, 2022. As a percentage of ~~revenues,~~revenue, income from operations before special items ~~decreased~~increased by ~~260~~60 basis points to ~~3.2%~~3.3% in the nine months ended September 30, ~~2017, as compared to 5.8%~~2023 from 2.7% in the nine months ended September 30, ~~2016.~~

~~Operating expenses increased $16.0 million during~~2022. 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~~2023, 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~~experienced overall organic growth offset by ~~a $5.1 million decrease in litigation expenses for the respective periods.~~increased reorganization costs.

Interest Expense

Interest expense was approximately ~~$1.1~~$4.2 million and ~~$0.8~~$2.7 million for the three months ended September 30, ~~2017~~2023 and ~~2016, respectively, and $3.1~~2022, respectively. Interest expense was approximately $12.1 million and ~~$2.2~~$6.8 million for the nine months ended September 30, ~~2017~~2023 and ~~2016.~~2022, respectively. The ~~increases were~~increase in the three months ended September 30, 2023 was due to ~~increased borrowings on~~an increase in interest rates compared to the ~~Company's revolving line of credit.~~prior year period. The increase in interest expense for the nine months ended September 30, 2023 compared to the prior year period was due to an increase in the interest rates, partially offset by a decrease in outstanding borrowings.

Income Taxes

~~The Company’s~~Our effective income tax rate was approximately ~~39%~~(16.8)% and ~~36%~~31.1% for the three months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively. ~~The Company's~~Our effective income tax rate was approximately ~~42%~~(1.6)% and ~~34%~~48.5% for the nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

The ~~increase in the~~effective income tax rate for ~~these respective periods~~the three months ended September 30, 2023 was lower than the statutory rate primarily due to ~~a discrete item~~the impact of permanent tax adjustments related to ~~the impairment of~~executive compensation and goodwill ~~and intangible assets in the Products and Systems reporting unit. Excluding this item, the~~impairment. The effective income tax rate ~~would have been 35% and 36%, respectively,~~ for the three months ended September 30, 2022 was higher than the statutory rate primarily due to various permanent tax adjustments and a $0.1 million valuation allowance recorded on a foreign jurisdiction.

The effective income tax rate for the nine months ended September 30, ~~2017.~~2023 was lower than the statutory rate primarily due to the impact of permanent tax adjustments related to executive compensation and goodwill impairment. The effective income tax rate for the nine months ended September 30, 2022 was higher than the statutory rate due primarily to various permanent tax adjustments and a $0.9 million valuation allowance recorded during the period which was related to a foreign jurisdiction.

Income tax expense varies as a function of pre-tax income and the level of non-deductible expenses, such as certain amounts of meals and entertainment expense, valuation allowances, and other permanent differences. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. Our effective income tax rate may fluctuate over the next few years due to many variables including the amount and future geographic distribution of our pre-tax income, changes resulting from our acquisition strategy, and increases or decreases in our permanent differences.

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)

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


	Nine months ended September 30,
	2023		2022

Net cash provided by (used in):
Operating activities	$	10,684	$	10,531
Investing activities	(15,170)		(8,877)
Financing activities	(1,839)		(4,753)
Effect of exchange rate changes on cash	(1,411)		(2,927)
Net change in cash and cash equivalents	$	(7,736)	$	(6,026)

Cash Flows from Operating Activities

During the nine months ended September 30, ~~2017,~~2023, cash provided by operating activities was ~~$35.2~~$10.7 million, representing a year-on-year ~~decrease~~increase of ~~$16.9~~$0.2 million, or ~~32%~~1%. The ~~decrease~~increase was primarily ~~attributable~~related to ~~a lower level of net income, as well as movements~~decreased days sales outstanding in ~~working capital, including~~ the ~~2017 payment of a $6.3 million legal settlement~~current year period and ~~thetiming of collections.~~offset by an increase in prepaid expenses and other assets.

Cash Flows from Investing Activities

During the nine months ended September 30, ~~2017,~~2023, cash used in investing activities was ~~$22.5~~$15.2 million, compared ~~with a use of~~to $8.9 million net cash ~~of $12.5 million~~used in investing activities for the ~~comparable~~nine months ended September 30, 2022. The change was primarily attributable to capital expenditures related to property, plant and equipment during the current period ofas compared to the prior year. The first nine months of 2017 included increased outflows of $7.2 million related to acquisitions and an increase of $3.0 million for capital expenditures, as the Company was in the midst of its build-out in France to service an important new customer contract.period.

Cash Flows from Financing Activities

Net cash used in financing activities was ~~$7.1~~$1.8 million for the nine months ended September 30, ~~2017. The Company borrowed $11.5 million, net, on its Credit Agreement,~~2023, compared to ~~help fund the purchase of $15.9 million of treasury stock and towards the funding of $8.4 million for acquisitions. For the comparable period in 2016,~~ net cash used in financing activities of $4.8 million for the nine months ended September 30, 2022. This was ~~$32.5~~primarily due to during the nine months ended September 30, 2023, net repayments of debt were approximately $2.2 million ~~of which $28.9 million was~~higher as compared to ~~reduce the Company's debt and capital lease obligations.~~2022.

Effect of Exchange Rate Changes on Cash and Cash Equivalents

The effect of exchange rate changes on our cash and cash equivalents was a ~~net increase~~decrease of ~~$2.1~~$1.4 million in the ~~first~~ nine months ~~of 2017,~~ended September 30, 2023, compared to a ~~$0.2~~decrease of $2.9 million ~~decrease~~ for the ~~first~~ nine months ended September 30, 2022. The primary driver of ~~2016.~~the change was foreign currency fluctuations related to the Euro and the US Dollar.

Cash Balance and Credit Facility Borrowings

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

As of September 30, ~~2017,~~2023, we had cash and cash equivalents totaling ~~$26.9~~$12.8 million and ~~available borrowing capacity~~$114.2 million of ~~$74.9 million~~unused commitments under our Credit Agreement with borrowings of ~~$95.1~~$189.7 million and ~~$5.0~~$2.9 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,~~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".

Table of Contents

Contractual Obligations

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

Off-balance Sheet Arrangements

During the nine months ended September 30, ~~2017,~~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.

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 Senior Executive Vice President and Chief Financial Officer, 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 Senior Executive Vice President and Chief Financial Officer ~~have~~ concluded that, ~~the Company’s~~as of September 30, 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~~2023 that ~~has~~ materially affected, or isare reasonably likely to materially affect, ~~such~~our internal control over financial reporting.

Table of Contents

PART II—OTHER INFORMATION

ITEM 1. ��Legal Proceedings

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

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.None

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.~~During the three months ended September 30, 2023, none of the Company's directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

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ITEM 6.Exhibits


Exhibit No.		Description

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




10.1		Employment Agreement between the Company and Gennaro A. D'Alterio dated September 11, 2023 (filed herewith).

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

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

_________________

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)~~Principal Accounting Officer)

Date: November ~~9, 2017~~6, 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



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