Highlights of the Third Quarter 2018*
$182.2 million of revenues; increased 1%- Gross Margins of 29%; increased 200 basis points
$3.0 million of income from operations (GAAP)$10.1 million of adjusted income from operations (non-GAAP), up 46%$20.8 million of adjusted EBITDA; increased 22%- Special items; net after-tax charge of
$5.4 million
*- All comparisons are versus the equivalent prior year period.
Review of
Revenues for the third quarter of 2018 were
Gross profit for the third quarter was up 9% year-over-year to
Operating income for the third quarter was
Adjusted EBITDA for the quarter was
Special Items Recorded in the Quarter
During the third quarter of 2018, the Company sold a subsidiary in the Products and Systems segment, addressed a number of issues and made provisions for the cessation of certain activities in its International segment. The Company recorded a net, pre-tax charge of
The special items consisted of the following:
- In the Services Segment, we recorded a
$5.9 million pre-tax, pension withdrawal liability, related to the large contract we exited inApril 2018 ; - In the International Segment, we recorded a
$2.8 million pre-tax, reorganization charge, primarily due to the impending exit of approximately$20 million of relatively low margin staff leasing services attributable to a German legislative change. The reduction of these services is anticipated to have relatively little, if any, impact on segment operating income. This charge also includes employee settlement obligations inBrazil ; - In the Product and Systems Segment, we recorded a
$2.4 million gain on the sale of a subsidiary which we had previously disclosed as having been marketed for sale; and - We recorded an additional
$0.8 million of special items across all segments.
The majority of these items will have a positive impact on our operating margins in 2019, as we prune the underlying non-core, low-margin services, which has either already commenced or in the case of the International segment, will commence at the beginning of the second quarter in 2019.
The Company also recorded an additional 2017 Tax Reform Act adjustment in the third quarter of 2018, which resulted in an increase of
Performance by segment was as follows:
Services segment third quarter revenues were
International segment third quarter revenue decreased by
Products and Systems segment third quarter revenue decreased by
Mr. Bertolotti concluded, “The improvement of the oil and gas market this year, compared to the low levels we saw last year, extended into the third quarter. In addition, our aerospace and complimentary mechanical services businesses also continued to grow. We expect the oil and gas market to remain relatively stable over the next few quarters. In the fourth quarter, we will be comparing against a year ago quarter that benefited from the release of pent-up demand from earlier deferred work. In addition, our Services segment will be lapping a year ago quarter that included more than
Based on strong year-to-date performance, the Company’s reaffirmed key metrics; revenue, adjusted EBITDA and capital expenditures guidance for fiscal 2018. Due to the impact of the various strategic actions, the Company believes GAAP earnings guidance no longer provides a meaningful indication of the Company’s financial performance:
- Total revenues expected to be between
$725 million to $730 million ; - Adjusted EBITDA expected to be approximately
$78 million ; and - Capital expenditures expected to be between
$17 million and $20 million .
Conference Call
In connection with this release,
About
For more information, please visit the company's website at www.mistrasgroup.com or contact
Forward-Looking and Cautionary Statements
Certain statements made in this press release are "forward-looking statements" about
Use of Non-GAAP Measures
In addition to financial information prepared in accordance with generally accepted accounting principles in the U.S. (GAAP), this press release also contains adjusted financial measures that we believe provide investors and management with supplemental information relating to operating performance and trends that facilitate comparisons between periods and with respect to projected information. The term "Adjusted EBITDA" used in this release is a financial measurement not calculated in accordance with GAAP and is defined as net income attributable to
Media Contact:
Nestor S. Makarigakis
Group Director of
marcom@mistrasgroup.com
1(609)716-4000
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited) | ||||||||
September 30, 2018 | December 31, 2017 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 17,073 | $ | 27,541 | ||||
Accounts receivable, net | 155,615 | 138,080 | ||||||
Inventories | 11,133 | 10,503 | ||||||
Prepaid expenses and other current assets | 15,613 | 18,884 | ||||||
Total current assets | 199,434 | 195,008 | ||||||
Property, plant and equipment, net | 86,410 | 87,143 | ||||||
Intangible assets, net | 56,515 | 63,739 | ||||||
Goodwill | 199,625 | 203,438 | ||||||
Deferred income taxes | 1,534 | 1,606 | ||||||
Other assets | 4,630 | 3,507 | ||||||
Total assets | $ | 548,148 | $ | 554,441 | ||||
LIABILITIES AND EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 12,937 | $ | 10,362 | ||||
Accrued expenses and other current liabilities | 73,425 | 65,561 | ||||||
Current portion of long-term debt | 2,225 | 2,358 | ||||||
Current portion of capital lease obligations | 5,085 | 5,875 | ||||||
Income taxes payable | 1,536 | 6,069 | ||||||
Total current liabilities | 95,208 | 90,225 | ||||||
Long-term debt, net of current portion | 147,926 | 164,520 | ||||||
Obligations under capital leases, net of current portion | 8,426 | 8,738 | ||||||
Deferred income taxes | 11,827 | 8,803 | ||||||
Other long-term liabilities | 6,482 | 11,363 | ||||||
Total liabilities | 269,869 | 283,649 | ||||||
Commitments and contingencies | ||||||||
Equity | ||||||||
Preferred stock, 10,000,000 shares authorized | — | — | ||||||
Common stock, $0.01 par value, 200,000,000 shares authorized, 28,496,445 and 28,294,968 shares issued | 284 | 282 | ||||||
Additional paid-in capital | 226,054 | 222,425 | ||||||
Retained earnings | 72,614 | 64,717 | ||||||
Accumulated other comprehensive loss | (20,856 | ) | (16,805 | ) | ||||
Total Mistras Group, Inc. stockholders’ equity | 278,096 | 270,619 | ||||||
Non-controlling interests | 183 | 173 | ||||||
Total equity | 278,279 | 270,792 | ||||||
Total liabilities and equity | $ | 548,148 | $ | 554,441 |
Unaudited Condensed Consolidated Statements of Income (Loss)
(in thousands, except per share data)
Three months ended | Nine months ended | ||||||||||||||
September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||
Revenue | $ | 182,169 | $ | 179,570 | $ | 561,592 | $ | 513,326 | |||||||
Cost of revenue | 124,260 | 126,316 | 389,131 | 360,144 | |||||||||||
Depreciation | 5,577 | 5,357 | 16,902 | 15,790 | |||||||||||
Gross profit | 52,332 | 47,897 | 155,559 | 137,392 | |||||||||||
Selling, general and administrative expenses | 41,931 | 38,217 | 122,232 | 113,491 | |||||||||||
Impairment charges | — | 15,810 | — | 15,810 | |||||||||||
Pension withdrawal expense | 5,886 | — | 5,886 | — | |||||||||||
Gain on sale of subsidiary | (2,384 | ) | — | (2,384 | ) | — | |||||||||
Research and engineering | 745 | 555 | 2,414 | 1,749 | |||||||||||
Depreciation and amortization | 2,920 | 2,738 | 8,834 | 7,854 | |||||||||||
Litigation expenses | — | 1,200 | — | 1,200 | |||||||||||
Acquisition-related expense (benefit), net | 217 | (248 | ) | (1,143 | ) | (589 | ) | ||||||||
Income (loss) from operations | 3,017 | (10,375 | ) | 19,720 | (2,123 | ) | |||||||||
Interest expense | 1,894 | 1,081 | 5,581 | 3,114 | |||||||||||
Income (loss) before provision (benefit) for income taxes | 1,123 | (11,456 | ) | 14,139 | (5,237 | ) | |||||||||
Provision (benefit) for income taxes | 2,133 | (4,503 | ) | 6,229 | (2,199 | ) | |||||||||
Net (loss) income | (1,010 | ) | (6,953 | ) | 7,910 | (3,038 | ) | ||||||||
Less: net income attributable to non-controlling interests, net of taxes | 1 | 15 | 13 | 21 | |||||||||||
Net (loss) income attributable to Mistras Group, Inc. | $ | (1,011 | ) | $ | (6,968 | ) | $ | 7,897 | $ | (3,059 | ) | ||||
Earnings (loss) per common share: | |||||||||||||||
Basic | $ | (0.04 | ) | $ | (0.25 | ) | $ | 0.28 | $ | (0.11 | ) | ||||
Diluted | $ | (0.04 | ) | $ | (0.25 | ) | $ | 0.27 | $ | (0.11 | ) | ||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | 28,429 | 28,274 | 28,360 | 28,465 | |||||||||||
Diluted | 28,429 | 28,274 | 29,447 | 28,465 |
Unaudited Operating Data by Segment
(in thousands)
Three months ended | Nine months ended | ||||||||||||||
September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||
Revenues | |||||||||||||||
Services | $ | 141,340 | $ | 137,194 | $ | 434,653 | $ | 397,565 | |||||||
International | 36,671 | 38,200 | 116,238 | 106,360 | |||||||||||
Products and Systems | 5,716 | 6,268 | 17,286 | 16,925 | |||||||||||
Corporate and eliminations | (1,558 | ) | (2,092 | ) | (6,585 | ) | (7,524 | ) | |||||||
$ | 182,169 | $ | 179,570 | $ | 561,592 | $ | 513,326 | ||||||||
Three months ended | Nine months ended | ||||||||||||||
September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||
Gross profit | |||||||||||||||
Services | $ | 38,838 | $ | 34,729 | $ | 113,675 | $ | 100,432 | |||||||
International | 10,877 | 10,432 | 34,273 | 29,720 | |||||||||||
Products and Systems | 2,604 | 2,753 | 7,707 | 7,313 | |||||||||||
Corporate and eliminations | 13 | (17 | ) | (96 | ) | (73 | ) | ||||||||
$ | 52,332 | $ | 47,897 | $ | 155,559 | $ | 137,392 |
Unaudited Reconciliation of
Segment and Total Company Income (Loss) from Operations (GAAP) to Income before Special Items (non-GAAP)
(in thousands)
Three months ended | Nine months ended | ||||||||||||||
September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||
Services: | |||||||||||||||
Income from operations (GAAP) | $ | 8,289 | $ | 11,699 | $ | 36,892 | $ | 31,211 | |||||||
Bad debt provision for a customer bankruptcy | — | — | — | 1,200 | |||||||||||
Pension withdrawal expense | 5,886 | — | 5,886 | — | |||||||||||
Reorganization and other costs | 292 | 163 | 292 | 616 | |||||||||||
Acquisition-related expense (benefit), net | 181 | (126 | ) | (809 | ) | (48 | ) | ||||||||
Income before special items (non-GAAP) | 14,648 | 11,736 | 42,261 | 32,979 | |||||||||||
International: | |||||||||||||||
Income (loss) from operations (GAAP) | (662 | ) | 1,023 | 2,713 | 3,866 | ||||||||||
Reorganization and other costs | 2,808 | 379 | 3,544 | 455 | |||||||||||
Acquisition-related expense (benefit), net | — | — | (409 | ) | (501 | ) | |||||||||
Income before special items (non-GAAP) | 2,146 | 1,402 | 5,848 | 3,820 | |||||||||||
Products and Systems: | |||||||||||||||
Income (loss) from operations (GAAP) | 2,415 | (15,573 | ) | 2,032 | (16,913 | ) | |||||||||
Impairment charges | — | 15,810 | — | 15,810 | |||||||||||
Gain on sale of subsidiary | (2,384 | ) | — | (2,384 | ) | — | |||||||||
Reorganization and other costs | — | — | 29 | — | |||||||||||
Income (loss) before special items (non-GAAP) | 31 | 237 | (323 | ) | (1,103 | ) | |||||||||
Corporate and Eliminations: | |||||||||||||||
Loss from operations (GAAP) | (7,025 | ) | (7,524 | ) | (21,917 | ) | (20,287 | ) | |||||||
Litigation charges | — | 1,200 | — | 1,200 | |||||||||||
Reorganization and other costs | 305 | — | 305 | — | |||||||||||
Acquisition-related expense (benefit), net | 36 | (122 | ) | 75 | (40 | ) | |||||||||
Loss before special items (non-GAAP) | (6,684 | ) | (6,446 | ) | (21,537 | ) | (19,127 | ) | |||||||
Total Company: | |||||||||||||||
Income (loss) from operations (GAAP) | $ | 3,017 | $ | (10,375 | ) | $ | 19,720 | $ | (2,123 | ) | |||||
Pension withdrawal expense | 5,886 | — | 5,886 | — | |||||||||||
Gain on sale of subsidiary | (2,384 | ) | — | (2,384 | ) | — | |||||||||
Impairment charges | — | 15,810 | — | 15,810 | |||||||||||
Litigation charges | — | 1,200 | — | 1,200 | |||||||||||
Bad debt provision for a customer bankruptcy | — | — | — | 1,200 | |||||||||||
Reorganization and other costs | 3,405 | 542 | 4,170 | 1,071 | |||||||||||
Acquisition-related expense (benefit), net | 217 | (248 | ) | (1,143 | ) | (589 | ) | ||||||||
Income before special items (non-GAAP) | $ | 10,141 | $ | 6,929 | $ | 26,249 | $ | 16,569 |
Unaudited Summary Cash Flow Information
(in thousands)
Nine months ended | |||||||
September 30, 2018 | September 30, 2017 | ||||||
Net cash provided by (used in): | |||||||
Operating activities | $ | 24,184 | $ | 35,226 | |||
Investing activities | (9,831 | ) | (22,516 | ) | |||
Financing activities | (23,905 | ) | (7,114 | ) | |||
Effect of exchange rate changes on cash | (916 | ) | 2,113 | ||||
Net change in cash and cash equivalents | $ | (10,468 | ) | $ | 7,709 |
Unaudited Reconciliation of Net Cash Provided by Operating Activities (GAAP) to Free Cash Flow (non-GAAP)
(in thousands)
Nine months ended | |||||||
September 30, 2018 | September 30, 2017 | ||||||
GAAP: Net cash provided by operating activities | $ | 24,184 | $ | 35,226 | |||
Less: | |||||||
Purchases of property, plant and equipment | (15,386 | ) | (14,413 | ) | |||
Purchases of intangible assets | (385 | ) | (941 | ) | |||
non-GAAP: Free cash flow | $ | 8,413 | $ | 19,872 |
Unaudited Reconciliation of
Net Income (Loss) to Adjusted EBITDA
(in thousands)
Three months ended | Nine months ended | ||||||||||||||
September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | ||||||||||||
Net (loss) income | $ | (1,010 | ) | $ | (6,953 | ) | $ | 7,910 | $ | (3,038 | ) | ||||
Less: net income attributable to non-controlling interests, net of taxes | 1 | 15 | 13 | 21 | |||||||||||
Net (loss) income attributable to Mistras Group, Inc. | $ | (1,011 | ) | $ | (6,968 | ) | $ | 7,897 | $ | (3,059 | ) | ||||
Interest expense | 1,894 | 1,081 | 5,581 | 3,114 | |||||||||||
Provision (benefit) for income taxes | 2,133 | (4,503 | ) | 6,229 | (2,199 | ) | |||||||||
Depreciation and amortization | 8,497 | 8,095 | 25,736 | 23,644 | |||||||||||
Share-based compensation expense | 1,931 | 1,759 | 4,760 | 5,139 | |||||||||||
Litigation charges | — | 1,200 | — | 1,200 | |||||||||||
Impairment charges | — | 15,810 | — | 15,810 | |||||||||||
Acquisition-related expense (benefit), net | 217 | (248 | ) | (1,143 | ) | (589 | ) | ||||||||
Reorganization and other related costs | 3,405 | 542 | 4,170 | 1,071 | |||||||||||
Pension withdrawal expense | 5,886 | — | 5,886 | — | |||||||||||
Gain on sale of subsidiary | (2,384 | ) | — | (2,384 | ) | — | |||||||||
Bad debt provision for unexpected customer bankruptcy | — | — | — | 1,200 | |||||||||||
Foreign exchange loss | 262 | 271 | 651 | 597 | |||||||||||
Adjusted EBITDA | $ | 20,830 | $ | 17,039 | $ | 57,383 | $ | 45,928 |
Unaudited Reconciliation of
Net Income (Loss) (GAAP) and Diluted EPS (GAAP) to Net Income Excluding Special Items (non-GAAP)
and Diluted EPS Excluding Special Items (non-GAAP)
(in thousands, except per share data)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net (loss) income (GAAP) | $ | (1,011 | ) | $ | (6,968 | ) | $ | 7,897 | $ | (3,059 | ) | |||||
Special items, net of tax | 5,368 | 10,921 | 4,924 | 11,178 | ||||||||||||
Net Income Excluding Special Items (non-GAAP) | $ | 4,357 | $ | 3,953 | $ | 12,821 | $ | 8,119 | ||||||||
Diluted EPS (GAAP) | $ | (0.04 | ) | $ | (0.25 | ) | $ | 0.27 | $ | (0.11 | ) | |||||
Special items, net of tax | 0.19 | 0.38 | 0.17 | 0.38 | ||||||||||||
Diluted EPS Excluding Special Items (non-GAAP) | $ | 0.15 | $ | 0.13 | $ | 0.44 | $ | 0.27 |
Source: Mistras Group Inc