UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~March 31,~~June 30, 2022


☐			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

Mistras Group, Inc.

(Exact name of registrant as specified in its charter)


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
(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 every Interactive Data File required to be submitted 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 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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging Growth Company

☐

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).

☐ Yes ý No

As of ~~April~~July 29, 2022, the registrant had ~~29,805,316~~29,806,941 shares of common stock outstanding.

Table of Contents

TABLE OF CONTENTS


			PAGE
PART I—FINANCIAL INFORMATION

	ITEM 1.	Financial Statements	1

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

		Unaudited Condensed Consolidated Statements of ~~Loss~~Income (Loss) for thethree and six months ended ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021	2

		Unaudited Condensed Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) for the three and six months ended ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021	3

		Unaudited Condensed Consolidated Statements of Equity for thethree and six months ended ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021	4

		Unaudited Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021	5

		Notes to Unaudited Condensed Consolidated Financial Statements	6

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2526

	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	3437

	ITEM 4	Controls and Procedures	3437

PART II—OTHER INFORMATION

	ITEM 1.	Legal Proceedings	3538

	ITEM 1.A.	Risk Factors	3538

	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3538

	ITEM 3.	Defaults Upon Senior Securities	3538

	ITEM 4.	Mine Safety Disclosures	3538

	ITEM 5.	Other Information	3538

	ITEM 6.	Exhibits	3639

SIGNATURES			3740

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. Financial Statements

Mistras Group, Inc. and Subsidiaries

~~Unaudited~~ Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
ASSETS	ASSETS	(unaudited)				ASSETS	(unaudited)
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	19,921	$	24,110	Cash and cash equivalents	$	18,609	$	24,110
Accounts receivable, net	Accounts receivable, net	127,085		109,511		Accounts receivable, net	129,572		109,511
Inventories	Inventories	12,589		12,686		Inventories	12,967		12,686
Prepaid expenses and other current assets	Prepaid expenses and other current assets	11,709		15,031		Prepaid expenses and other current assets	11,768		15,031
Total current assets	Total current assets	171,304		161,338		Total current assets	172,916		161,338
Property, plant and equipment, net	Property, plant and equipment, net	83,689		86,578		Property, plant and equipment, net	80,585		86,578
Intangible assets, net	Intangible assets, net	57,479		59,381		Intangible assets, net	54,278		59,381
Goodwill	Goodwill	206,409		205,439		Goodwill	203,106		205,439
Deferred income taxes	Deferred income taxes	2,225		2,174		Deferred income taxes	1,232		2,174
Other assets	Other assets	47,122		47,285		Other assets	43,425		47,285
Total assets	Total assets	$	568,228	$	562,195	Total assets	$	555,542	$	562,195
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current Liabilities	Current Liabilities					Current Liabilities
Accounts payable	Accounts payable	$	12,422	$	12,870	Accounts payable	$	17,328	$	12,870
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	87,466		83,863		Accrued expenses and other current liabilities	84,835		83,863
Current portion of long-term debt	Current portion of long-term debt	21,336		20,162		Current portion of long-term debt	21,227		20,162
Current portion of finance lease obligations	Current portion of finance lease obligations	3,775		3,765		Current portion of finance lease obligations	3,844		3,765
Income taxes payable	Income taxes payable	1,216		755		Income taxes payable	148		755
Total current liabilities	Total current liabilities	126,215		121,415		Total current liabilities	127,382		121,415
Long-term debt, net of current portion	Long-term debt, net of current portion	187,478		182,403		Long-term debt, net of current portion	179,162		182,403
Obligations under finance leases, net of current portion	Obligations under finance leases, net of current portion	9,552		9,752		Obligations under finance leases, net of current portion	9,444		9,752
Deferred income taxes	Deferred income taxes	8,661		8,385		Deferred income taxes	8,566		8,385
Other long-term liabilities	Other long-term liabilities	39,237		39,328		Other long-term liabilities	36,727		39,328
Total liabilities	Total liabilities	371,143		361,283		Total liabilities	361,281		361,283
Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0
Equity	Equity					Equity
Preferred stock, 10,000,000 shares authorized	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, 29,720,443 and 29,546,263 shares issued and outstanding		297		295
Common stock, $0.01 par value, 200,000,000 shares authorized, 29,807,038 and 29,546,263 shares issued and outstanding						Common stock, $0.01 par value, 200,000,000 shares authorized, 29,807,038 and 29,546,263 shares issued and outstanding	297		295
Additional paid-in capital	Additional paid-in capital	239,656		238,687		Additional paid-in capital	240,697		238,687
Accumulated deficit	Accumulated deficit	(23,351)		(17,988)		Accumulated deficit	(18,708)		(17,988)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(19,756)		(20,311)		Accumulated other comprehensive loss	(28,287)		(20,311)
Total Mistras Group, Inc. stockholders’ equity	Total Mistras Group, Inc. stockholders’ equity	196,846		200,683		Total Mistras Group, Inc. stockholders’ equity	193,999		200,683
Non-controlling interests	Non-controlling interests	239		229		Non-controlling interests	262		229
Total equity	Total equity	197,085		200,912		Total equity	194,261		200,912
Total liabilities and equity	Total liabilities and equity	$	568,228	$	562,195	Total liabilities and equity	$	555,542	$	562,195

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 ~~Loss~~Income (Loss)

(in thousands, except per share data)


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
		2022		2021				2022		2021		2022		2021

Revenue	Revenue	$	161,662	$	153,735		Revenue	$	179,031	$	177,677	$	340,693	$	331,412
Cost of revenue	Cost of revenue	115,758		108,243			Cost of revenue	119,980		116,787		235,738		225,030
Depreciation	Depreciation	6,012		5,491			Depreciation	5,493		5,554		11,505		11,045
Gross profit	Gross profit	39,892		40,001			Gross profit	53,558		55,336		93,450		95,337
Selling, general and administrative expenses	Selling, general and administrative expenses	42,036		39,639			Selling, general and administrative expenses	40,676		39,719		82,712		79,358

Bad debt provision for troubled customers, net of recoveries							Bad debt provision for troubled customers, net of recoveries	289		—		289		—

Legal settlement and insurance recoveries, net	Legal settlement and insurance recoveries, net	(841)		1,030			Legal settlement and insurance recoveries, net	(153)		—		(994)		1,030
Research and engineering	Research and engineering	551		727			Research and engineering	522		620		1,073		1,347
Depreciation and amortization	Depreciation and amortization	2,795		3,074			Depreciation and amortization	2,635		3,078		5,430		6,152
Acquisition-related expense, net	Acquisition-related expense, net	49		277			Acquisition-related expense, net	13		545		63		822
Loss from operations		(4,698)		(4,746)
Income from operations							Income from operations	9,576		11,374		4,877		6,628
Interest expense	Interest expense	1,938		3,213			Interest expense	2,117		3,155		4,055		6,368
Loss before benefit for income taxes		(6,636)		(7,959)
Benefit for income taxes		(1,283)		(2,600)
Net Loss		(5,353)		(5,359)
Income before provision (benefit) for income taxes							Income before provision (benefit) for income taxes	7,459		8,219		822		260
Provision (benefit) for income taxes							Provision (benefit) for income taxes	2,793		2,274		1,509		(326)
Net Income (Loss)							Net Income (Loss)	4,666		5,945		(687)		586
Less: net income attributable to noncontrolling interests, net of taxes	Less: net income attributable to noncontrolling interests, net of taxes	10		3			Less: net income attributable to noncontrolling interests, net of taxes	23		8		33		11
Net Loss attributable to Mistras Group, Inc.		$	(5,363)	$	(5,362)
Net Income (Loss) attributable to Mistras Group, Inc.							Net Income (Loss) attributable to Mistras Group, Inc.	$	4,643	$	5,937	$	(720)	$	575

Loss per common share
Earnings (loss) per common share							Earnings (loss) per common share
Basic	Basic	$	(0.18)	$	(0.18)		Basic	$	0.15	$	0.20	$	(0.02)	$	0.02
Diluted	Diluted	$	(0.18)	$	(0.18)		Diluted	$	0.15	$	0.20	$	(0.02)	$	0.02
Weighted-average common shares outstanding:	Weighted-average common shares outstanding:						Weighted-average common shares outstanding:
Basic	Basic	29,634		29,425			Basic	29,957		29,602		29,840		29,514
Diluted	Diluted	29,634		29,425			Diluted	30,233		30,136		29,840		30,039

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 Comprehensive ~~Loss~~Income (Loss)

(in thousands)

Three months ended March 31,
2022 2021
Net Loss $ (5,353) $ (5,359)
Other comprehensive loss:
Foreign currency translation adjustments $ 555 $ (592)
Comprehensive Loss (4,798) (5,951)
Less: net income attributable to noncontrolling interest 10 3
Comprehensive loss attributable to Mistras Group, Inc. $ (4,808) $ (5,954)


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

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

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

Table of Contents

Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Equity

(in thousands)
Three months ended
Common Stock Additional
paid-in capital Accumulated
deficit Accumulated
other
comprehensive loss Total
Mistras Group,
Inc.
Stockholders’ Equity Noncontrolling Interest
Shares Amount Total Equity
Balance at December 31, 2021 29,546 $ 295 $ 238,687 $ (17,988) $ (20,311) $ 200,683 $ 229 $ 200,912
Net income (loss) — — — (5,363) — (5,363) 10 (5,353)
Other comprehensive income, net of tax — — — — 555 555 — 555
Share-based payments — — 1,515 — — 1,515 — 1,515
Net settlement of restricted stock units 174 2 (546) — — (544) — (544)
Balance at March 31, 2022 29,720 $ 297 $ 239,656 $ (23,351) $ (19,756) $ 196,846 $ 239 $ 197,085
Balance at December 31, 2020 29,234 $ 292 $ 234,638 $ (21,848) $ (16,061) $ 197,021 $ 198 $ 197,219
Net income (loss) — — — (5,362) — (5,362) 3 (5,359)
Other comprehensive loss, net of tax — — — — (592) (592) — (592)
Share-based payments — — 1,262 — — 1,262 — 1,262
Net settlement of restricted stock units 113 1 (487) — — (486) — (486)
Balance at March 31, 2021 29,347 $ 293 $ 235,413 $ (27,210) $ (16,653) $ 191,843 $ 201 $ 192,044


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

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

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

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

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


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

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

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

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


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

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

Table of Contents

Mistras Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(~~In Thousands)~~

in thousands)
Three months ended March 31,
2022 2021
Cash flows from operating activities
Net loss $ (5,353) $ (5,359)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization 8,807 8,565
Deferred income taxes 196 866
Share-based compensation expense 1,515 1,262
Fair value adjustments to contingent consideration 45 243
Foreign currency loss 686 455
Other 86 (48)
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions
Accounts receivable (17,831) (5,417)
Inventories (96) (87)
Prepaid expenses and other assets 3,421 (4,944)
Accounts payable (440) 942
Accrued expenses and other liabilities 3,605 6,881
Income taxes payable 493 (211)
Payment of contingent consideration liability in excess of acquisition-date fair value (533) —
Net cash provided by (used in) operating activities (5,399) 3,148
Cash flows from investing activities
Purchase of property, plant and equipment (3,061) (4,003)
Purchase of intangible assets (151) (350)
Acquisition of business, net of cash acquired — (411)
Proceeds from sale of equipment 475 588
Net cash used in investing activities (2,737) (4,176)
Cash flows from financing activities
Repayment of finance lease obligations (1,076) (1,069)
Repayment of long-term debt (4,152) (2,323)
Proceeds from revolver 26,000 23,000
Repayment of revolver (15,500) (17,750)
Payment of contingent consideration for business acquisitions (405) (938)
Taxes paid related to net share settlement of share-based awards (544) (485)
Net cash provided by financing activities 4,323 435
Effect of exchange rate changes on cash and cash equivalents (376) (990)
Net change in cash and cash equivalents (4,189) (1,583)
Cash and cash equivalents at beginning of period 24,110 25,760
Cash and cash equivalents at end of period $ 19,921 $ 24,177
Supplemental disclosure of cash paid (received)
Interest, net $ 1,711 $ 2,916
Income taxes, net of refunds $ (4,661) $ 2,877
Noncash investing and financing
Equipment acquired through finance lease obligations $ 848 $ 643
.


	Six months ended June 30,
	2022		2021

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

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

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

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

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

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

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

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

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

Table of Contents

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

1. Description of Business and Basis of Presentation

Description of Business

Mistras Group, Inc. and subsidiaries (the Company) is a leading “one source” multinational provider of integrated technology-enabled asset protection solutions helping to maximize the safety and operational uptime for ~~civilization's~~civilization’s most critical industrial and civil assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, strong commitment to Environmental, Social, and Governance (ESG) initiatives and decades-long legacy of industry leadership, the Company helps clients with asset-intensive infrastructure in the oil and gas, aerospace and defense, industrials, power generation and transmission (including alternative and renewable energy), other process industries and infrastructure, research and engineering and other industries 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 ~~equipment~~systems to ~~enable safe travel across bridges,~~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's~~Company’s core capabilities also include non-destructive testing (“NDT”) field inspections enhanced by advanced robotics, laboratory quality control and assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.

Recent Developments

~~The~~Issues related to the COVID-19 coronavirus (COVID-19) ~~pandemic has continued to cause~~have subsided significantly, but COVID-19 is still causing some disruption ~~and volatility~~ in domestic and international markets although conditions continue to improve during 2022 as compared to 2021. The ~~Company's businesses have been classified as non-healthcare critical infrastructure as defined by~~Russian-Ukrainian conflict is creating disruption in the ~~U.S. Centers for Disease Control and Prevention (CDC). Our facilities,~~oil & gas market and the ~~Company's customers facilities~~supply chain in general, which is resulting in some disruption to our business operations. With oil prices high, refineries are working at full capacity and are deferring maintenance and inspection work as ~~well, have remained open with staffing modifications and precautionary procedures taken~~much as ~~necessary.~~possible, which is impacting our business as well.

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

The COVID-19 pandemic uncertainty, significant volatility in oil prices, and decreased traffic in the aerospace industry have adversely affected the operations of the Company's customers, suppliers and contractors beginning in the first quarter of 2020, and as a consequence, the Company's results of operations, were adversely impacted. These negative factors continue to cause volatility and uncertainty in the markets in which the Company operates, although the Company in 2022 has nevertheless begun approaching pre-pandemic levels of activity in certain end markets, particularly oil and gas where crude oil prices have exceeded pre-pandemic levels.

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

~~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)~~

Basis of Presentation

The Unaudited Condensed Consolidated Financial Statements contained in this report 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 Unaudited Condensed Consolidated Financial Statements include all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods of the years ending December 31, 2022 and December 31, 2021.

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

Certain items included in these statements are based on management’s estimates. Actual results may differ from those estimates. The results of operations for any interim period are not necessarily indicative of the results expected for the year. The accompanying Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the notes to the Audited Consolidated Financial Statements contained in the ~~Company's~~Company’s 2021 Annual Report on Form 10-K ("2021 Annual Report").

Principles of Consolidation

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of Mistras Group, Inc. as well as its wholly-owned subsidiaries, majority-owned subsidiaries and 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. The non-controlling interests in net results, net of tax, is classified separately in the accompanying Unaudited Condensed Consolidated Statements of ~~Loss.~~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.

Reclassification

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

Customers

For each of the three and six months ended ~~March 31,~~June 30, 2022 and 2021, no customer represented 10% or more of the ~~Company's~~Company’s revenue.

Significant Accounting Policies

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

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

As of ~~March 31,~~June 30, 2022, management concluded that it is more likely than not that a substantial portion of the ~~Company's~~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 ~~19.3%~~37.4% and ~~32.7%~~27.7% for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. The Company’s effective income tax rate ~~benefit~~was approximately 183.6% and (125.4)% for the ~~three~~six months ended ~~March 31,~~June 30, 2022 ~~was lower than the statutory rate primarily due to the impact of an unfavorable discrete item related to stock compensation.~~ and 2021, respectively.

The effective income tax rate for the three months ended ~~March 31,~~June 30, 2022, was higher than the statutory rate primarily due to a $0.7 million valuation allowance recorded on a foreign jurisdiction. The effective income tax rate for the three months ended

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

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

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

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

Recent Accounting Pronouncements

In March 2020 and updated in January 2021, the FASB issued ASU 2020-04 and 2021-01,~~“Reference~~ “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, 2022. The Company is currently evaluating applicable contracts and the available expedients provided by the new guidance.

2. Revenue

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

Performance Obligations

The Company provides highly integrated and bundled inspection services to its customers. The majority of the ~~Company's~~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~~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~~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~~Company’s performance obligations are satisfied over time as work progresses or at a point in time. The majority of the ~~Company's~~Company’s revenue is recognized over time as work progresses for the ~~Company's~~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

~~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)~~

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.

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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)

Contract Estimates

The majority of the ~~Company's~~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~~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~~Company’s project performance and the recoverability of any claims. Whenever revisions of estimates, contract costs and/or contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.

Revenue by Category

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

Revenue by industry was as follows:


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


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

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

~~Revenue by Category~~


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

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

~~Revenue by industry was as follows:~~

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


Three Months Ended March 31, 2021		Services		International		Products		Corp/Elim		Total

Six Months Ended June 30, 2021												Six Months Ended June 30, 2021	Services		International		Products		Corp/Elim		Total
Oil & Gas	Oil & Gas	$	79,220	$	7,936	$	56	$	—	$	87,212	Oil & Gas	$	165,051	$	17,469	$	268	$	—	$	182,788
Aerospace & Defense	Aerospace & Defense	11,823		4,317		35		—		16,175		Aerospace & Defense	24,602		8,444		64		—		33,110
Industrials	Industrials	8,819		4,849		327		—		13,995		Industrials	20,061		11,043		745		—		31,849
Power generation & Transmission	Power generation & Transmission	5,534		1,978		759		—		8,271		Power generation & Transmission	15,607		5,161		1,589		—		22,357
Other Process Industries	Other Process Industries	7,856		2,912		9		—		10,777		Other Process Industries	18,212		6,539		44		—		24,795
Infrastructure, Research & Engineering	Infrastructure, Research & Engineering	3,169		3,756		1,144		—		8,069		Infrastructure, Research & Engineering	8,343		7,010		1,969		—		17,322
Petrochemical	Petrochemical	5,464		72		—		0		5,536		Petrochemical	11,400		119		—		—		11,519
Other	Other	2,413		1,828		658		(1,199)		3,700		Other	5,999		3,814		1,512		(3,653)		7,672
Total	Total	$	124,298	$	27,648	$	2,988	$	(1,199)	$	153,735	Total	$	269,275	$	59,599	$	6,191	$	(3,653)	$	331,412

Revenue per key geographic location was as follows:


Three Months Ended March 31, 2022		Services		International		Products		Corp/Elim		Total
Three Months Ended June 30, 2022												Three Months Ended June 30, 2022	Services		International		Products		Corp/Elim		Total
United States	United States	$	113,935	$	173	$	1,351	$	(655)	$	114,804	United States	$	126,286	$	334	$	1,492	$	(567)	$	127,545
Other Americas	Other Americas	18,052		1,341		16		(609)		18,800		Other Americas	22,553		1,376		168		(1,105)		22,992
Europe	Europe	744		25,920		580		(924)		26,320		Europe	415		27,353		514		(955)		27,327
Asia-Pacific	Asia-Pacific	215		704		989		(170)		1,738		Asia-Pacific	274		547		478		(132)		1,167
Total	Total	$	132,946	$	28,138	$	2,936	$	(2,358)	$	161,662	Total	$	149,528	$	29,610	$	2,652	$	(2,759)	$	179,031

Three Months Ended March 31, 2021 Services International Products Corp/Elim Total
United States $ 104,546 $ 208 $ 1,460 $ (391) $ 105,823
Other Americas 18,878 1,177 67 (63) 20,059
Europe 294 25,894 460 (612) 26,036
Asia-Pacific 580 369 1,001 (133) 1,817
Total $ 124,298 $ 27,648 $ 2,988 $ (1,199) $ 153,735


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

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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


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



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

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the 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 liabilities are aggregated on an individual contract basis and reported on the Consolidated Balance Sheets at the end of each reporting period within accounts receivable, net or accrued expenses and other current liabilities.

Revenue recognized during the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021 that was included in the contract liability balance at the beginning of such year was ~~$2.2~~$1.4 million and ~~$1.9~~$3.3 million, for each period. Changes in the contract asset and liability balances during these periods were not materially impacted by any other factors. The Company applies a practical expedient to expense incremental costs incurred related to obtaining a contract. The Company’s expenses are expected to be amortized over a period less than one year.

3. Share-Based Compensation

The Company ~~has~~grants share-based incentive awards ~~outstanding~~ to its eligible employees and non-employee directors under 2 equity incentive plans: (i) the 2009 Long-Term Incentive Plan (the "2009 Plan") and (ii) the 2016 Long-Term Incentive Plan (the "2016 Plan"). No further awards may be granted under the 2009 Plan, and the remaining stock option award granted under the 2009 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 ~~19, 2020,~~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 ~~2.0~~1.2 million, for a total of ~~3.7~~4.9 million shares that are authorized for issuance under the 2016 Plan, of which ~~383,743~~approximately 1,600,000 shares were available for future grants as of ~~March 31,~~June 30, 2022.

Stock Options

For each of the three and six months ended ~~March 31,~~June 30, 2022 and 2021, the Company did not recognize any share-based compensation expense related to the stock option award, as the 1 outstanding stock option award was already fully vested. No unrecognized compensation costs remained related to the stock option award as of ~~March 31,~~June 30, 2022.

~~The following table sets forth a summary of the stock option activity, weighted-average exercise prices and options outstanding as of March 31, 2022 and 2021:~~
Three months ended March 31,
2022 2021

Common
Stock
Options
Weighted
Average
Exercise
Price
Common
Stock
Options
Weighted
Average
Exercise
Price
Outstanding at beginning of period: 5 $ 22.35 5 $ 22.35
Granted — $ — — $ —
Exercised — $ — — $ —
Expired or forfeited (5) $ 22.35 — $ —
Outstanding at end of period: — $ — 5 $ 22.35

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


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

Restricted Stock Unit Awards

For the three months ended ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021, the Company recognized share-based compensation expense related to restricted stock unit awards of $0.9 million and $0.9 million, respectively. For the six months ended June 30, 2022 and 2021, the Company recognized share-based compensation expense related to restricted stock unit awards of $1.9 million and $1.8 million, respectively. As of ~~March 31,~~June 30, 2022, there was ~~$9.6~~$8.6 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which is expected to be recognized over a remaining weighted-average period of ~~3.1~~2.9 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.

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


		Three months ended March 31,					Six months ended June 30,
		2022		2021			2022		2021
Restricted stock awards vested	Restricted stock awards vested	226		111		Restricted stock awards vested	326		238
Fair value of awards vested	Fair value of awards vested	$	1,502	$	1,189	Fair value of awards vested	$	2,164	$	2,670

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


		Three months ended March 31,					Six months ended June 30,
		2022		2021			2022		2021
Awards issued	Awards issued	34		25		Awards issued	34		25
Grant date fair value of awards issued	Grant date fair value of awards issued	$	225	$	258	Grant date fair value of awards issued	$	225	$	258

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


		Three months ended March 31,							Six months ended June 30,
		2022			2021				2022			2021
		Units	Weighted Average Grant-Date Fair Value		Units	Weighted Average Grant-Date Fair Value			Units	Weighted Average Grant-Date Fair Value		Units	Weighted Average Grant-Date Fair Value
Outstanding at beginning of period:	Outstanding at beginning of period:	1,208	$	7.96	1,076	$	7.41	Outstanding at beginning of period:	1,208	$	7.96	1,076	$	7.41
Granted	Granted	675	$	7.65	519	$	10.06	Granted	675	$	7.65	528	$	10.07
Released	Released	(226)	$	13.73	(111)	$	15.90	Released	(326)	$	10.03	(238)	$	10.98
Forfeited	Forfeited	(7)	$	10.50	(10)	$	8.69	Forfeited	(20)	$	8.49	(39)	$	8.77
Outstanding at end of period:	Outstanding at end of period:	1,650	$	7.16	1,474	$	7.70	Outstanding at end of period:	1,537	$	7.38	1,327	$	7.78

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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)

Performance Restricted Stock Units

The Company maintains Performance Restricted Stock Units (PRSUs) that have been granted to select executives and senior officers whose ultimate payout is based on the Company’s performance over a one-year period based on specific metrics approved by the Compensation Committee of the Board of Directors of the Company.

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

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

2.Adjusted EBITDA defined as net income attributable to the Company plus: interest expense, provision for income taxes, depreciation and amortization, share-based compensation expense and certain acquisition related costs (including transaction due diligence costs and adjustments to the fair value of contingent consideration), foreign exchange (gain) loss and, if applicable, certain special items which are noted).

3.Total Shareholder Return (TSR) measures the total return to shareholders of the Company during 2021 versus the total return to the shareholders of a predefined peer group of companies that provide inspection, testing, certification or similar industrial services. The return will be measured by the year over year percent change in share price. The share prices used to calculate the return are the average share price during the 20-trading day period ending on the initial

~~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)~~

measurement date (the last 20 trading days of 2020), compared to the average share price during the 20-trading day period ending on the final measurement date (the last 20 trading days of 2021). Any cash dividends or distributions paid in 2021 will be added to calculate the return to shareholders during the year. TSR is considered a market condition for which the fair value of PRSUs with this condition is determined using a Monte Carlo valuation model. Key assumptions in the Monte Carlo valuation model included:

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

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

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

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

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

A summary of the ~~Company's~~Company’s PRSU activity is as follows:

Three months ended March 31,
2022 2021
Units Weighted
Average
Grant-Date
Fair Value Units Weighted
Average
Grant-Date
Fair Value
Outstanding at beginning of period: 388 $ 10.07 333 $ 8.84
Granted 341 $ 6.55 189 $ 12.59
Performance condition adjustments (56) $ 10.47 (125) $ 3.68
Released (17) $ 6.85 (22) $ 13.63
Forfeited — $ — — $ —
Outstanding at end of period: 656 $ 12.18 375 $ 12.18


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

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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)

During the ~~three~~six months ended ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021, the Compensation Committee approved the final calculation of the award metrics for calendar year 2021 and calendar year 2020, respectively. As a result, the calendar year 2022 PRSUs decreased by approximately ~~56,000~~163,000 units during the six months ended June 30, 2022 as a result of the final calculation of the 2021 award ~~metrics.~~and based on forecasted results for 2022 as compared to performance metrics determined by the Compensation Committee.

For the three months ended ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $0.3 million and ~~$0.1~~$0.3 million, respectively. For the six months ended June 30, 2022 and June 30, 2021, the Company recognized aggregate share-based compensation expense related to the awards described above of approximately $0.6 million and $0.4 million, respectively. At ~~March 31,~~June 30, 2022, there was ~~$2.6~~$2.0 million of total unrecognized compensation costs related to approximately ~~656,000~~549,000 non-vested PRSUs, which is expected to be recognized over a remaining weighted-average period of ~~2.5~~2.2 years.

4. Earnings (loss) per Share

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

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


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

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

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

_______________

(1) For the six months ended June 30, 2022, 1,412,073 shares related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the period.

5. Acquisitions

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

Three months ended March 31,
2022 2021
Basic loss per share
Numerator:
Net loss attributable to Mistras Group, Inc. $ (5,363) $ (5,362)
Denominator:
Weighted average common shares outstanding 29,634 29,425
Basic loss per share $ (0.18) $ (0.18)
Diluted loss per share:
Numerator:
Net loss attributable to Mistras Group, Inc. $ (5,363) $ (5,362)
Denominator:
Weighted average common shares outstanding 29,634 29,425
Dilutive effect of stock options outstanding — —
Dilutive effect of restricted stock units outstanding (1)
— —
29,634 29,425
Diluted loss per share $ (0.18) $ (0.18)

~~_______________~~

~~(1)~~ For the three months ended March 31, 2022 and 2021, 1,212,000 and 509,000 shares, respectively, related to restricted stock were excluded from the calculation of diluted EPS due to the net loss for the period.

~~5. Acquisitions~~

Acquisition-Related Expense

In the course of its acquisition activities, the Company 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 ~~Loss~~Income (Loss) and were as follows for the three and six months ended ~~March 31,~~June 30, 2022 and 2021:


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
		2022		2021				2022		2021		2022		2021
Due diligence, professional fees and other transaction costs	Due diligence, professional fees and other transaction costs	$	4	$	34		Due diligence, professional fees and other transaction costs	$	13	$	—	$	18	$	34
Adjustments to fair value of contingent consideration liabilities	Adjustments to fair value of contingent consideration liabilities	45		243			Adjustments to fair value of contingent consideration liabilities	—		545		45		788
Acquisition-related expense, net	Acquisition-related expense, net	$	49	$	277		Acquisition-related expense, net	$	13	$	545	$	63	$	822

~~The Company's~~As of June 30, 2022, the Company’s contingent consideration liabilities are included in Accrued expenses and other current ~~liabilities and Other long-term~~ liabilities on the Condensed Consolidated Balance Sheets.

6. Accounts Receivable, net

Accounts receivable consisted of the following:

~~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)~~


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021

Trade accounts receivable	Trade accounts receivable	$	130,504	$	112,739	Trade accounts receivable	$	133,600	$	112,739
Allowance for credit losses	Allowance for credit losses	(3,419)		(3,228)		Allowance for credit losses	(4,028)		(3,228)
Accounts receivable, net	Accounts receivable, net	$	127,085	$	109,511	Accounts receivable, net	$	129,572	$	109,511

The Company had ~~$23.7~~$18.8 million and $11.9 million of unbilled revenue accrued as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. These amounts are included in the trade accounts receivable balances above. Unbilled revenue is generally billed in the subsequent quarter to their revenue recognition. The Company considers unbilled receivables as short-term in nature as they are normally converted to trade receivables within 90 days, thus future changes in economic conditions will not have a significant effect on the credit loss estimate.

The Company was contracted to perform inspections of welds on various pipeline projects in Texas for a customer. As of December 31, 2019, approximately $1.4 million of past due receivables were outstanding from this customer. The Company received notice from the customer in December 2019, alleging that the work performed was not in compliance with the contract. The Company recorded a full reserve for this receivable during 2019 and the status of this situation has not changed since 2019. See Note 14-Commitments and Contingencies for additional details.

7. Property, Plant and Equipment, net

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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)

Property, plant and equipment consisted of the following:


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

Land	Land		$	2,766	$	2,762	Land		$	2,526	$	2,762
Buildings and improvements	Buildings and improvements	30-40	24,725		24,787		Buildings and improvements	30-40	24,380		24,787
Office furniture and equipment	Office furniture and equipment	5-8	19,721		16,620		Office furniture and equipment	5-8	19,482		16,620
Machinery and equipment	Machinery and equipment	5-7	245,003		250,166		Machinery and equipment	5-7	244,205		250,166
			292,215		294,335				290,593		294,335
Accumulated depreciation and amortization	Accumulated depreciation and amortization		(208,526)		(207,757)		Accumulated depreciation and amortization		(210,008)		(207,757)
Property, plant and equipment, net	Property, plant and equipment, net		$	83,689	$	86,578	Property, plant and equipment, net		$	80,585	$	86,578

Depreciation expense for the three months ended ~~March 31,~~June 30, 2022 and 2021 was approximately ~~$6.6~~$5.8 million and ~~$6.1~~$6.2 million, respectively.

Depreciation expense for the six months ended June 30, 2022 and 2021 was $12.3 million and $12.3 million, respectively.

8. Goodwill

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


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

Foreign currency translation	Foreign currency translation	1,219		(249)		0		970		Foreign currency translation	(1,188)		(1,145)		—		(2,333)
Balance at March 31, 2022		$	191,875	$	14,534	$	—	$	206,409
Balance at June 30, 2022										Balance at June 30, 2022	$	189,468	$	13,638	$	—	$	203,106

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

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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 Company performed a quantitative annual impairment test as of October 1, 2021 and the Company did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable. Additionally, through ~~March 31,~~June 30, 2022, the Company did not identify any changes in circumstances that would indicate the carrying value of goodwill may not be recoverable. Significant adverse changes in future periods could negatively affect the ~~Company's~~Company’s key assumptions and may result in future goodwill impairment charges which could be material.

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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)

9. Intangible Assets

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


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

Customer relationships	Customer relationships	5-18	$	111,883	$	(81,572)	$	30,311	$	112,109	$	(80,319)		$	31,790	Customer relationships	5-18	$	109,922	$	(81,443)	$	28,479	$	112,109	$	(80,319)	$	31,790
Software/Technology	Software/Technology	3-15	52,895		(27,307)		25,588		52,265		(26,415)			25,850		Software/Technology	3-15	51,903		(27,500)		24,403		52,265		(26,415)		25,850
Covenants not to compete	Covenants not to compete	2-5	12,644		(12,450)		194		12,623		(12,390)			233		Covenants not to compete	2-5	12,570		(12,420)		150		12,623		(12,390)		233
Other	Other	2-12	10,599		(9,213)		1,386		10,574		(9,066)			1,508		Other	2-12	10,477		(9,231)		1,246		10,574		(9,066)		1,508
Total	Total		$	188,021	$	(130,542)	$	57,479	$	187,571	$	(128,190)		$	59,381	Total		$	184,872	$	(130,594)	$	54,278	$	187,571	$	(128,190)	$	59,381

Amortization expense for the three months ended ~~March 31,~~June 30, 2022 and 2021 was approximately ~~$2.4~~$2.3 million and $2.5 million, respectively.

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

10. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021

Accrued salaries, wages and related employee benefits	Accrued salaries, wages and related employee benefits	$	34,423	$	33,816	Accrued salaries, wages and related employee benefits	$	34,147	$	33,816
Contingent consideration, current portion	Contingent consideration, current portion	981		1,830		Contingent consideration, current portion	938		1,830
Accrued workers’ compensation and health benefits	Accrued workers’ compensation and health benefits	4,314		3,994		Accrued workers’ compensation and health benefits	4,054		3,994
Deferred revenue	Deferred revenue	7,578		6,202		Deferred revenue	8,350		6,202
Pension accrual	Pension accrual	2,519		2,519		Pension accrual	2,519		2,519
Right-of-use liability - Operating	Right-of-use liability - Operating	10,278		10,040		Right-of-use liability - Operating	10,034		10,040
Other accrued expenses	Other accrued expenses	27,373		25,462		Other accrued expenses	24,793		25,462
Total	Total	$	87,466	$	83,863	Total	$	84,835	$	83,863

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Notes to Unaudited Condensed Consolidated Financial Statements

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

11. Long-Term Debt

Long-term debt consisted of the following:


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021

Senior credit facility	Senior credit facility	$	130,000	$	119,500	Senior credit facility	$	127,250	$	119,500
Senior secured term loan, net of unamortized debt issuance costs of $0.2 million and $0.2 million, respectively		72,949		76,673
Senior secured term loan, net of unamortized debt issuance costs of $0.1 million and $0.2 million, respectively						Senior secured term loan, net of unamortized debt issuance costs of $0.1 million and $0.2 million, respectively	67,976		76,673

Other	Other	5,865		6,392		Other	5,163		6,392
Total debt	Total debt	208,814		202,565		Total debt	200,389		202,565
Less: Current portion	Less: Current portion	(21,336)		(20,162)		Less: Current portion	(21,227)		(20,162)
Long-term debt, net of current portion	Long-term debt, net of current portion	$	187,478	$	182,403	Long-term debt, net of current portion	$	179,162	$	182,403

Senior Credit Facility

The Company has a credit agreement with its banking group (as amended, the "Credit Agreement") which provides the Company with a revolving line of credit and a $100 million senior secured term loan A facility with a balance of ~~$72.9~~$68.0 million as of ~~March 31,~~June 30, 2022. Pursuant to the Amendment described below, the revolving line of credit was reduced from $155 million to $150 million on December 31, 2021. Both the revolving line of credit and the term loan A facility under the Credit Agreement have a maturity date of December 12, 2023.

On May 19, 2021, the Company entered into the Fifth Amendment (the “Amendment”) to the Credit Agreement. The Amendment made the following changes:

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

•Requires the Company to maintain a Total Consolidated Debt Leverage Ratio not to exceed 4.0 to 1.0 as of the end of each quarter through the quarter ending March 31, 2022, and for each quarter thereafter the ratio shall not exceed 3.5 to 1.0.

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

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

•If the Company incurs certain subordinated debt or other permitted indebtedness, then the Company must maintain a Total Consolidated Debt Leverage Ratio not to exceed 4.5 to 1.0 and maintain a ratio of Senior Debt to EBITDA not to exceed 3.5 to 1.0, with Senior Debt being Total Consolidated Debt, less permitted subordinated debt.

•The Company must repay loans under the Credit Agreement with the net proceeds from certain dispositions of assets under certain circumstances and limits investments in non-guarantor subsidiaries under certain circumstances if the ~~Company's~~Company’s Total Consolidated Leverage Ratio is above 3.5 to 1.0.

•Quarterly payments on the term loan increased tofrom $3.75 million ~~through March 31, 2022, then~~ to $5.0 million ~~for each quarterly payment thereafter and~~during the quarter ended June 30, 2022 with a final balloon payment at maturity.

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

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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)~~

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

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Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

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

As of ~~March 31,~~June 30, 2022, the Company had borrowings of ~~$203.1~~$195.3 million and a total of ~~$3.3~~$3.0 million of letters of credit outstanding under the Credit Agreement. The Company has capitalized costs associated with debt modifications of ~~$0.8~~$0.7 million as of ~~March 31,~~June 30, 2022, which is included in Other ~~Assets~~assets on the Condensed Consolidated Balance Sheets and will be amortized into interest expense over the remaining term of the Credit Agreement through December 12, ~~2023~~2023.

As of ~~March 31,~~June 30, 2022, the Company was in compliance with the terms of the Credit Agreement. The Company continuously monitors compliance with the covenants contained in its Credit Agreement. The Company believes that it is probable that the Company will be able to comply with the financial covenants in the Credit Agreement and that sufficient credit remains available under the Credit Agreement to meet the ~~Company's~~Company’s liquidity needs. However, due to the uncertainties being caused by the COVID-19 pandemic, the significant volatility in oil prices, and volatility in the aerospace production, such matters cannot be predicted with certainty.

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

Other debt

The ~~Company's~~Company’s other debt includes bank financing provided at the local subsidiary level used to support working capital requirements and fund capital expenditures. At ~~March 31,~~June 30, 2022, there was an aggregate of approximately ~~$5.9~~$5.2 million outstanding, payable at various times through 2030. Monthly payments range from ~~$0.4~~$1.0 thousand to ~~$16~~$15.0 thousand and interest rates range from 0.4% to 3.5%.

12. Fair Value Measurements

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

Financial instruments measured at fair value on a recurring basis

The fair value of contingent consideration liabilities was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected 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.

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


		Three months ended March 31,					Six months ended June 30,
		2022		2021			2022		2021
Beginning balance	Beginning balance	$	1,831	$	1,640	Beginning balance	$	1,831	$	1,640
Acquisitions	Acquisitions	—		—		Acquisitions	—		—
Payments	Payments	(938)		(938)		Payments	(938)		(938)
Accretion of liability	Accretion of liability	—		—		Accretion of liability	—		—
Revaluation	Revaluation	45		243		Revaluation	45		788
Foreign currency translation	Foreign currency translation	—		—		Foreign currency translation	—		—
Ending balance	Ending balance	$	938	$	945	Ending balance	$	938	$	1,490

Financial instruments not measured at fair value on a recurring basis

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

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Notes to Unaudited Condensed Consolidated Financial Statements

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

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

13. Leases

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


Leases	Leases	Classification	March 31, 2022		December 31, 2021		Leases	Classification	June 30, 2022		December 31, 2021
Assets	Assets						Assets
ROU assets	ROU assets	Other Assets	$	42,505	$	42,451	ROU assets	Other assets	$	40,399	$	42,451

Liabilities	Liabilities						Liabilities
ROU - current	ROU - current	Accrued expenses and other current liabilities	$	10,278	$	10,040	ROU - current	Accrued expenses and other current liabilities	$	10,034	$	10,040
ROU liability - long-term	ROU liability - long-term	Other long-term liabilities	33,719		34,030		ROU liability - long-term	Other long-term liabilities	31,769		34,030
Total ROU liabilities	Total ROU liabilities		$	43,997	$	44,070	Total ROU liabilities		$	41,803	$	44,070

Included within the balance of operating leases is a lease for the Company’s headquarters which is with a related party. The ROU liability for this facility was approximately ~~$2.4~~$2.2 million and $2.9 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. Total rent payments for this facility were approximately ~~$0.3~~$0.2 million and ~~$0.5~~$0.3 million for the three months ended ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021, respectively. Total rent payments for this facility were approximately $0.5 million and $0.7 million for the six months ended June 30, 2022 and June 30, 2021, respectively. An agreement was reached with the related party to reduce rental payments by 12.5% for the lease of the Company’s headquarters, effective February 2022 as part of a voluntary reduction.

The total ROU assets attributable to finance leases were approximately ~~$13.4~~$12.8 million and $13.8 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, which is included in Property, plant, and equipment, net on the Condensed Consolidated Balance Sheets.

The components of lease costs were as follows:


			Three months ended March 31,					Three months ended June 30,			Six months ended June 30,
		Classification	2022		2021			Classification	2022			2021		2022		2021
Finance lease expense	Finance lease expense						Finance lease expense
Amortization of ROU assets	Amortization of ROU assets	Depreciation and amortization	$	1,012	$	1,060	Amortization of ROU assets	Depreciation and amortization	$	1,023		$	1,029	$	2,036	$	2,091
Interest on lease liabilities	Interest on lease liabilities	Interest expense	158		192		Interest on lease liabilities	Interest expense	156			181		314		373
Operating lease expense	Operating lease expense	Cost of revenue; Selling, general & administrative expenses	3,198		3,302		Operating lease expense	Cost of revenue; Selling, general & administrative expenses	3,203			3,274		6,401		6,577
Short-term lease expense	Short-term lease expense	Cost of revenue; Selling, general & administrative expenses	6		6		Short-term lease expense	Cost of revenue; Selling, general & administrative expenses	3			8		9		14
Variable lease expense	Variable lease expense	Cost of revenue; Selling, general & administrative expenses	539		867		Variable lease expense	Cost of revenue; Selling, general & administrative expenses	551			551		1,088		1,418
Total	Total		$	4,913	$	5,427	Total		$	4,936		$	5,043	$	9,848	$	10,473

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Notes to Unaudited Condensed Consolidated Financial Statements

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

Additional information related to leases was as follows:


		Three months ended March 31,								Six months ended June 30,
			2022			2021					2022			2021
Cash paid for amounts included in the measurement of lease liabilities for finance and operating leases	Cash paid for amounts included in the measurement of lease liabilities for finance and operating leases								Cash paid for amounts included in the measurement of lease liabilities for finance and operating leases
Finance - financing cash flows	Finance - financing cash flows		$	1,076		$	1,069		Finance - financing cash flows		$	2,138		$	2,050
Finance - operating cash flows	Finance - operating cash flows		158			192			Finance - operating cash flows		$	314		$	373
Operating - operating cash flows	Operating - operating cash flows		3,163			3,322			Operating - operating cash flows		$	6,302		$	6,620
ROU assets obtained in the exchange for lease liabilities	ROU assets obtained in the exchange for lease liabilities								ROU assets obtained in the exchange for lease liabilities
Finance leases	Finance leases		$	848		$	643		Finance leases		$	2,039		$	1,623
Operating leases	Operating leases		2,772			1,004			Operating leases		$	4,378		$	2,828
Weighted-average remaining lease term (in years)	Weighted-average remaining lease term (in years)								Weighted-average remaining lease term (in years)
Finance leases	Finance leases		5.3			5.6			Finance leases		5.3			5.6
Operating leases	Operating leases		5.2			5.6			Operating leases		5.0			5.5
Weighted-average discount rate	Weighted-average discount rate								Weighted-average discount rate
Finance leases	Finance leases		5.2		%	5.5		%	Finance leases		5.2		%	5.4		%
Operating leases	Operating leases		5.5		%	5.7		%	Operating leases		5.5		%	5.8		%

Maturities of lease liabilities as of ~~March 31,~~June 30, 2022 were as follows:


		Finance		Operating			Finance		Operating
Remainder of 2022	Remainder of 2022	$	4,515	$	9,113	Remainder of 2022	$	3,449	$	6,104
2023	2023	3,990		11,252		2023	4,191		11,570
2024	2024	3,062		9,083		2024	3,279		9,400
2025	2025	1,471		6,763		2025	1,709		6,903
2026	2026	823		5,074		2026	1,068		5,052
Thereafter	Thereafter	482		9,191		Thereafter	602		9,100
Total	Total	14,343		50,476		Total	14,298		48,129
Less: Present value discount	Less: Present value discount	1,016		6,479		Less: Present value discount	1,010		6,326
Lease liability	Lease liability	$	13,327	$	43,997	Lease liability	$	13,288	$	41,803

14. Commitments and Contingencies

Legal Proceedings and Government Investigations

The Company is 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 for 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 incurred by the Company to defend lawsuits, investigations and claims and amounts the Company pays to other parties because of these matters may be covered by insurance in some circumstances.

2021

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Notes to Unaudited Condensed Consolidated Financial Statements

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

Litigation and Commercial Claims

The Company was contracted to perform inspections of welds on various pipeline projects in Texas for a customer. As of ~~March 31,~~June 30, 2022, approximately $1.4 million of past due receivables were outstanding from this customer. The customer provided the Company with notice in December 2019, alleging that the Company’s inspection of 66 welds (out of approximately 16,000 welds inspected) were not in compliance with the contract, claimed approximately $7.6 million in damages, and requested that the Company pay these damages and any other damages incurred. The Company filed a lawsuit in the District Court of Bexar County, Texas, 37th Judicial District, in an action captioned Mistras Group, Inc. v. Epic Y-Grade Pipeline LP, to recover the $1.4 million and other amounts due to the Company. The customer filed a counterclaim, alleging breach of contract and seeking recovery of its alleged damages. The Company believes that any successful claim by the customer regarding the Company’s workmanship will be covered by insurance, subject to payment of a deductible. At this time, the Company is unable to determine whether it has any liability in connection with this matter and if so, the amount or range of any such liability, and accordingly, has not established any accruals for this matter. Accordingly, the Company recorded a reserve in the amount of $1.4 million during the twelve months ended December 31, 2019 for these past due receivables.

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

Pension Related Contingencies

Certain of Company’s subsidiaries had significant reductions in their unionized workers in 2018. The collective bargaining agreements for these employees required contributions for these employees to national multi-employer pension funds. The reduction in employees resulted in a subsidiary incurring a complete withdrawal to one of the pension funds under the Employee Retirement Income Security Act of 1974 ("ERISA"), which was fully satisfied in 2019. The Company has determined that the subsidiary is likely to incur partial or complete withdrawal liability to the other pension fund. The balance of the estimated total amount of this potential liability as of ~~March 31,~~June 30, 2022 is approximately $2.5 million, which were incurred in 2018 and 2019.

Severance and labor disputes

During December 2019, the Company executed an agreement to sell the rights of certain customer "staff leasing" contracts related to its German subsidiary for total consideration of approximately $0.1 million, effective January 1, 2020. No other assets or liabilities other than those employee benefits related to employees working on the customer contracts were included in the sale. As of ~~March 31,~~June 30, 2022, the Company has approximately $0.1 million of accrued estimated severance payment obligations, which takes into account the ~~Company's~~Company’s estimate with respect to the employees that have been or will be transitioned to the German subsidiaries' other customers. The ~~$0.2~~$0.1 million of estimated obligations is net of $0.4 million in payments made and $1.0 million in reversals due to employees being transitioned to customer contracts.

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

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Acquisition and disposition related contingencies

The Company is liable for contingent consideration in connection with certain of its acquisitions. As of ~~March 31,~~June 30, 2022, total potential acquisition-related contingent consideration ranged from zero to approximately $1.9 million and would be payable upon the achievement of specific performance metrics by certain of the acquired companies over the next ~~six~~three months.

During 2018, the Company sold a subsidiary in the Products and Systems segment. As part of the sale, the Company entered into a three-year agreement to purchase products from the buyer, with a cumulative commitment of $2.3 million, of which ~~$0.9~~$0.8 million is remaining as of ~~March 31,~~June 30, 2022. The agreement is based on third-party pricing and the Company's planned purchase requirements over the three-year purchase period to meet the minimum contractual purchases. On August 3, 2021, the Company entered into an agreement and extended the period by twelve ~~months.~~ months. As of ~~March 31,~~June 30, 2022, approximately ~~$0.9~~$0.8 million is remaining on the amended purchase commitment. The agreement is based on third party pricing and the ~~Company's~~Company’s planned purchase requirements over the duration of the extension to meet the minimum contractual purchases.

15. Segment Disclosure

The Company’s 3 operating segments are:

•Services. 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 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 other segments to select markets within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment.

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

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

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

2223

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Notes to Unaudited Condensed Consolidated Financial Statements

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

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


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
		2022		2021				2022			2021		2022		2021
Revenue	Revenue						Revenue
Services	Services	$	132,946	$	124,298		Services	$	149,528		$	144,977	$	282,474	$	269,275
International	International	28,138		27,648			International	29,610			31,951		57,748		59,599
Products and Systems	Products and Systems	2,936		2,988			Products and Systems	2,652			3,203		5,588		6,191
Corporate and eliminations	Corporate and eliminations	(2,358)		(1,199)			Corporate and eliminations	(2,759)			(2,454)		(5,117)		(3,653)
		$	161,662	$	153,735			$	179,031		$	177,677	$	340,693	$	331,412


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
		2022		2021				2022			2021		2022		2021
Gross profit	Gross profit						Gross profit
Services	Services	$	30,526	$	31,076		Services	$	42,954		$	43,761	$	73,479	$	74,837
International	International	8,190		7,625			International	9,440			9,615		17,630		17,240
Products and Systems	Products and Systems	1,168		1,281			Products and Systems	1,157			1,952		2,325		3,233
Corporate and eliminations	Corporate and eliminations	8		19			Corporate and eliminations	7			8		16		27
		$	39,892	$	40,001			$	53,558		$	55,336	$	93,450	$	95,337

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


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
		2022		2021				2022			2021		2022		2021
Income (loss) from operations	Income (loss) from operations						Income (loss) from operations
Services	Services	$	3,761	$	4,548		Services	$	14,855		$	18,358	$	18,615	$	22,906
International	International	284		(820)			International	1,580			1,809		1,864		989
Products and Systems	Products and Systems	(582)		(581)			Products and Systems	(420)			209		(1,002)		(372)
Corporate and eliminations	Corporate and eliminations	(8,161)		(7,893)			Corporate and eliminations	(6,439)			(9,002)		(14,600)		(16,895)
		$	(4,698)	$	(4,746)			$	9,576		$	11,374	$	4,877	$	6,628


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
		2022		2021				2022			2021		2022		2021
Depreciation and amortization	Depreciation and amortization						Depreciation and amortization
Services	Services	$	6,593	$	6,114		Services	$	6,166		$	6,211	$	12,759	$	12,325
International	International	2,058		2,210			International	1,919			2,175		3,977		4,385
Products and Systems	Products and Systems	218		228			Products and Systems	120			215		337		443
Corporate and eliminations	Corporate and eliminations	(62)		13			Corporate and eliminations	(77)			31		(138)		44
		$	8,807	$	8,565			$	8,128		$	8,632	$	16,935	$	17,197

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		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Intangible assets, net	Intangible assets, net					Intangible assets, net
Services	Services	$	50,476	$	51,862	Services	$	47,900	$	51,862
International	International	5,804		6,344		International	5,071		6,344
Products and Systems	Products and Systems	1,071		1,042		Products and Systems	1,182		1,042
Corporate and eliminations	Corporate and eliminations	128		133		Corporate and eliminations	125		133
		$	57,479	$	59,381		$	54,278	$	59,381


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Total assets	Total assets					Total assets
Services	Services	$	436,996	$	424,058	Services	$	428,218	$	424,058
International	International	108,733		111,619		International	101,086		111,619
Products and Systems	Products and Systems	10,534		10,532		Products and Systems	11,476		10,532
Corporate and eliminations	Corporate and eliminations	11,965		15,986		Corporate and eliminations	14,762		15,986
		$	568,228	$	562,195		$	555,542	$	562,195

Refer to Note 2–Revenue, for revenue by geographic area for the three and six months ended ~~March 31,~~June 30, 2022 and 2021.

16. Subsequent Events

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

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

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

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(tabular dollars are in thousands)

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

The following Management’s Discussion and Analysis (“MD&A”) provides a discussion of our results of operations and financial position for the three and six months ended ~~March 31,~~June 30, 2022 and 2021. The MD&A should be read together with our 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 Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 14, 2022 (“2021 Annual Report”). Unless otherwise specified or the context otherwise requires, “Mistras,” “the Company,” “we,” “us” and “our” refer to Mistras Group, Inc. and its consolidated subsidiaries. The MD&A includes the following 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 2021 Annual Report as well as those discussed in this Quarterly Report on Form 10-Q and in our other filings with the SEC.

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

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

Overview

The Company is a leading ~~"one source"~~“one source” 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.

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~~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 ~~equipment~~systems to ~~enable safe travel across bridges,~~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 ~~IoT-connected~~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’s core capabilities also include non-destructive testing (“NDT”) field inspections enhanced by advanced robotics, laboratory quality control and assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.

Our operations consist of three reportable segments: Services, International, and Products and Systems.

•Services provides asset protection solutions predominantly in North America, with the largest concentration in the United States, followed by Canada, consisting primarily of NDT, inspection, mechanical and engineering services that are used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure 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 select markets 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 enhancing the safe and efficient operation of infrastructure, we have historically provided a majority of our solutions to our customers on a regular, recurring basis. We 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 wide range of mechanical services, including heat tracing, pre-inspection insulation stripping, coating applications, re-insulation, engineering assessments and long-term condition-monitoring. Under this business model, many customers outsource their inspection to us on a “run and 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 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 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 which we believe will enhance our advantages over our competition.

We believe long-term growth can be realized in all of our target markets. Our level of 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 5085 plus applications being offered on one centralized platform.

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

~~(tabular dollars are in thousands)~~

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

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

(tabular dollars are in thousands)

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

Recent Developments

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

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

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

The Company has eliminated substantially all of the cost reduction initiatives undertaken in 2020, including re-installment of the savings plan employer match and increasing wages back to pre-pandemic amounts. Our cash position and liquidity remains strong. As of ~~March 31,~~June 30, 2022, the cash balance was approximately ~~$19.9~~$18.6 million.

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

We are currently unable to predict the overall impact that the COVID-19 pandemic uncertainty, volatility in oil prices and climate change initiatives to reduce the use of fossil fuels may have on our business, results of operations, liquidity or in other ways which we cannot yet determine. We

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

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) 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 presentation excludes from "Income (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 other costs, which includes items such as severance, labor relations matters and asset and lease termination costs and (e) other special items. These adjustments have been excluded from the GAAP measure because these expenses and credits are not related to our or any individual segment's core business operations. The acquisition related costs and special items can be a net expense or credit in any given period. Our management uses this non-GAAP measure as a measure of operating performance and liquidity to assist in comparing performance from period to period on a consistent basis, as a measure for planning and forecasting overall

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expectations and for evaluating actual results against such expectations. We believe investors and other users of our financial statements benefit from the presentation of this non-GAAP measure in evaluating our performance. Income (loss) before special items excludes the identified adjustments, which provides additional tools to compare our core business operating

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~~(tabular dollars are in thousands)~~

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, nor is it a replacement for the reported GAAP financial performance and/or necessarily comparable to the non-GAAP financial measures of other companies.

Results of Operations

Condensed consolidated results of operations for the three and six months ended ~~March 31,~~June 30, 2022 and 2021 were as follows:

Three months ended March 31,
2022 2021
Revenues $ 161,662 $ 153,735
Gross profit 39,892 40,001
Gross profit as a % of Revenue 24.7 % 26.0 %
Loss from operations (4,698) (4,746)
Loss from Operations as a % of Revenue (2.9) % (3.1) %
Loss before benefit for income taxes (6,636) (7,959)
Net Loss (5,353) (5,359)
Net Loss attributable to Mistras Group, Inc. $ (5,363) $ (5,362)


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


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

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

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

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

Revenue

Revenue was ~~$161.7~~$179.0 million for the three months ended ~~March 31,~~June 30, 2022, an increase of ~~$7.9~~$1.4 million, or ~~5.2%~~0.8%, compared with the three months ended ~~March 31,~~June 30, 2021. Revenue for the six months ended June 30, 2022 was $340.7 million, an increase of $9.3 million, or 2.8%, compared with the six months ended June 30, 2021.

Revenue by segment for the three and six months ended ~~March 31,~~June 30, 2022 and 2021 ~~were~~was as follows:


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
		2022		2021				2022			2021		2022		2021

Revenue	Revenue						Revenue
Services	Services	$	132,946	$	124,298		Services	$	149,528		$	144,977	$	282,474	$	269,275
International	International	28,138		27,648			International	29,610			31,951		57,748		59,599
Products and Systems	Products and Systems	2,936		2,988			Products and Systems	2,652			3,203		5,588		6,191
Corporate and eliminations	Corporate and eliminations	(2,358)		(1,199)			Corporate and eliminations	(2,759)			(2,454)		(5,117)		(3,653)
Total		$	161,662	$	153,735
								$	179,031		$	177,677	$	340,693	$	331,412

Three Months

In the three months ended ~~March 31,~~June 30, 2022, total revenue increased ~~5.2%~~0.8% versus the prior year comparable period due predominantly to a low single-digit organic increase. Services segment revenue increased ~~7.0%, driven predominantly by a~~3.1% due to single-digit organic ~~increase, minimally offset by~~growth and International segment revenue decreased (7.3)%, due predominantly to low ~~single-digit~~double-digit unfavorable impact of foreign exchange ~~rates. International segment revenue increased 1.8%, due predominantly to high~~rates which was offset by low single-digit organic ~~growth mostly offset by high single-digit unfavorable impact of foreign exchange rates.~~growth. Products and Systems segment revenue decreased by ~~1.7%,~~$0.6 million, due to ~~reduced~~decreased sales volume as compared to the prior period.

Oil and gas customer revenue comprised approximately ~~58%~~57% and ~~57%~~54% of total revenue for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. Aerospace and defense customer revenue comprised approximately ~~12%~~13% and ~~11%~~10% of total revenue for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. The Company’s top ten customers comprised approximately ~~34%~~33% of total revenue for the three months ended ~~March 31,~~June 30, 2022, as compared to 35% for the three months ended ~~March 31,~~June 30, 2021, with no customer accounting for 10% or more of total revenue in either three-month period.

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Three months ended March 31,
2022 2021
Oil and Gas Revenue by sub-category
Upstream $ 41,665 $ 33,926
Midstream 24,907 22,438
Downstream 27,651 30,848
Total $ 94,223 $ 87,212

Oil and gas upstream customer revenue increased approximately $7.7 million, or 23%, due primarily to market share gains and expanded exploration operations compared to the prior period. Midstream customer revenues increased approximately $2.5 million, or 11%, due to increased pipe inspection services performed as compared to the prior year quarter. Downstream customer revenues decreased $3.2 million or, 10%, primarily due to delays in timing associated with customer turnarounds.

~~Gross Profit~~

~~Gross profit decreased by $0.1 million, or 0.3%, in the three months ended March 31, 2022 versus the prior year comparable period, on a increase in revenue of 5.2%.~~

~~Gross profit by segment for the three months ended March 31, 2022 and 2021 was as follows:~~

Three months ended March 31,
2022 2021
Gross profit
Services $ 30,526 $ 31,076
   % of segment revenue 23.0 % 25.0 %
International 8,190 7,625
   % of segment revenue 29.1 % 27.6 %
Products and Systems 1,168 1,281
   % of segment revenue 39.8 % 42.9 %
Corporate and eliminations 8 19
$ 39,892 $ 40,001
   % of total revenue 24.7 % 26.0 %

~~Three Months~~

Gross profit margin was 24.7% and 26.0% for the three-month periods ended March 31, 2022 and 2021, respectively. Services segment realized a 2.0% reduction in gross profit margin to 23.0% during the three months ended March 31, 2022. This was primarily due to higher benefit costs in the US and the end of government wage subsidies received in Canada, both as compared to the prior year period. International segment realized a 1.5% increase in gross profit margin to 29.1% during the three months ended March 31, 2022 due primarily to continued recovery and sales within the aerospace end market. Products and Systems segment gross margin had a decrease of 310 basis points to 39.8% during the three months ended March 31, 2022 due to unfavorable sales mix, as compared to gross margin of 42.9% during 2021.

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Six months

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

Oil and gas customer revenue comprised approximately 57% and 55% of total revenue for the six months ended June 30, 2022 and 2021, respectively. Aerospace and defense customer revenue comprised approximately 12% and 10% of total revenue for the six months ended June 30, 2022 and 2021, respectively. The Company’s top ten customers comprised approximately 33% of total revenue for the six months ended June 30, 2022, as compared to 35% for the six months ended June 30, 2021, with no customer accounting for 10% or more of total revenue in either six-month period.


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

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

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

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

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

Gross Profit

Gross profit decreased by $(1.8) million, or 3.2%, in the three months ended June 30, 2022 versus the prior year comparable period, on an increase in revenue of 0.8%.

Gross profit decreased by $(1.9) million, or 2.0%, in the six months ended June 30, 2022 on an increase in revenue of 2.8%.

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

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

Gross profit
Services	$	42,954		$	43,761		$	73,479		$	74,837
% of segment revenue	28.7		%	30.2		%	26.0		%	27.8		%
International	9,440			9,615			17,630			17,240
% of segment revenue	31.9		%	30.1		%	30.5		%	28.9		%
Products and Systems	1,157			1,952			2,325			3,233
% of segment revenue	43.6		%	60.9		%	41.6		%	52.2		%
Corporate and eliminations	7			8			16			27
	$	53,558		$	55,336		$	93,450		$	95,337
% of total revenue	29.9		%	31.1		%	27.4		%	28.8		%

Three Months

Gross profit margin was 29.9% and 31.1% for the three-month periods ended June 30, 2022 and 2021, respectively. Services segment realized a 1.5% reduction in gross profit margin to 28.7% during the three months ended June 30, 2022. This was primarily due to higher benefit costs in the US and the end of government wage subsidies received in Canada, both as compared to the prior year period. International segment realized a 1.8% increase in gross profit margin to 31.9% during the three months ended June 30, 2022 due primarily to continued recovery and sales within the aerospace end market. Products and Systems segment gross margin decreased 17.3% to 43.6% during the three months ended June, 2022 due to unfavorable sales mix.

Six months

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

Operating Expenses

Operating expenses for the three and six months ended ~~March 31,~~June 30, 2022 and 2021 was as follows:


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
		2022		2021				2022			2021		2022		2021

Operating Expenses	Operating Expenses						Operating Expenses
Selling, general and administrative expenses	Selling, general and administrative expenses	$	42,036	$	39,639		Selling, general and administrative expenses	$	40,676		$	39,719	$	82,712	$	79,358

Bad debt provision for troubled customers, net of recoveries							Bad debt provision for troubled customers, net of recoveries	289			—		289		—

Research and engineering	Research and engineering	551		727			Research and engineering	522			620		1,073		1,347
Depreciation and amortization	Depreciation and amortization	2,795		3,074			Depreciation and amortization	2,635			3,078		5,430		6,152

Legal settlement and insurance recoveries, net	Legal settlement and insurance recoveries, net	(841)		1,030			Legal settlement and insurance recoveries, net	(153)			—		(994)		1,030
Acquisition-related expense, net	Acquisition-related expense, net	49		277			Acquisition-related expense, net	13			545		63		822

Three Months

~~Operating~~Total operating expenses ~~decreased $0.2 million, or 0.4%,~~were flat for the three months ended ~~March 31,~~June 30, 2022 compared to the three months ended ~~March 31,~~June 30, 2021. Selling, general and administrative expenses increased ~~$2.4~~$1.0 million during the three months ended ~~March 31,~~June 30, 2022 compared to the three months ended ~~March 31,~~June 30, 2021, due to ~~increased costs and unfavorable foreign exchange impact as compared to~~ the ~~prior period.~~reversal of remaining COVID-19 temporary cost reductions in August 2021, which had been initially implemented in 2020. Depreciation and amortization decreased ~~$0.3~~$(0.4) million during the

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three months ended ~~March 31,~~June 30, 2022 compared to the three months ended ~~March 31,~~June 30, 2021. ~~This was partially offset during~~During the three months ended ~~March 31,~~June 30, 2022 by a ~~$0.8~~$0.2 million insurance recovery was recorded.

Six months

Operating expenses decreased $(0.1) million, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Selling, general, and administrative expenses increased $3.4 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to the six months ended June 30, 2021 primarily due to the reversal of remaining COVID-19 temporary cost reductions in August 2021, which had been initially implemented in 2020, and wage subsidies received in 2021. Legal settlements, net of insurance recoveries for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 decreased $2.6 million due primarily to insurance recoveries received in the first quarter of 2022. Depreciation and amortization decreased $(0.7) million during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Acquisition-related expense decreased $(0.8) million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 due to remeasurement of acquisition related contingent consideration which occurred in 2021.

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Income (loss) from Operations

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


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
		2022		2021				2022			2021		2022		2021

Services:	Services:						Services:
Income from operations (GAAP)	Income from operations (GAAP)	$	3,761	$	4,548		Income from operations (GAAP)	$	14,855		$	18,358	$	18,615	$	22,906

Bad debt provision for troubled customers, net of recoveries							Bad debt provision for troubled customers, net of recoveries	289			—		289		—

Reorganization and other costs	Reorganization and other costs	27		71			Reorganization and other costs	1			26		28		97
Legal settlement and insurance recoveries, net	Legal settlement and insurance recoveries, net	(841)		1,650			Legal settlement and insurance recoveries, net	—			—		(841)		1,650
Acquisition-related expense, net	Acquisition-related expense, net	44		243			Acquisition-related expense, net	—			545		45		788
Income before special items (non-GAAP)		$	2,991	$	6,512
Income from operations before special items (non-GAAP)							Income from operations before special items (non-GAAP)	$	15,145		$	18,929	$	18,136	$	25,441
International:	International:						International:
Income (Loss) from operations (GAAP)		$	284	$	(820)
Income from operations (GAAP)							Income from operations (GAAP)	$	1,580		$	1,809	$	1,864	$	989

Reorganization and other costs	Reorganization and other costs	87		96			Reorganization and other costs	(187)			30		(99)		126

Income (Loss) from operations before special items (non-GAAP)		$	371	$	(724)
Income from operations before special items (non-GAAP)							Income from operations before special items (non-GAAP)	$	1,393		$	1,839	$	1,765	$	1,115
Products and Systems:	Products and Systems:						Products and Systems:
Loss from operations (GAAP)		$	(582)	$	(581)
Income (loss) from operations (GAAP)							Income (loss) from operations (GAAP)	$	(420)		$	209	$	(1,002)	$	(372)

Reorganization and other costs	Reorganization and other costs	—		27			Reorganization and other costs	—			—		—		27
Loss from operations before special items (non-GAAP)		$	(582)	$	(554)
Income (loss) from operations (GAAP)							Income (loss) from operations (GAAP)	$	(420)		$	209	$	(1,002)	$	(345)
Corporate and Eliminations:	Corporate and Eliminations:						Corporate and Eliminations:
Loss from operations (GAAP)	Loss from operations (GAAP)	$	(8,161)	$	(7,893)		Loss from operations (GAAP)	$	(6,439)		$	(9,002)	$	(14,600)	$	(16,895)

Loss on debt modification							Loss on debt modification	—			277		—		277
Reorganization and other costs							Reorganization and other costs	6			—		6		—
Acquisition-related expense, net							Acquisition-related expense, net	13			—		18		34
Legal settlement and insurance recoveries, net	Legal settlement and insurance recoveries, net	—		(620)			Legal settlement and insurance recoveries, net	(153)			—		(153)		(620)

Acquisition-related expense, net		5		34
Loss from operations before special items (non-GAAP)	Loss from operations before special items (non-GAAP)	$	(8,156)	$	(8,479)		Loss from operations before special items (non-GAAP)	$	(6,573)		$	(8,725)	$	(14,729)	$	(17,204)
Total Company:	Total Company:						Total Company:
Loss from operations (GAAP)		$	(4,698)	$	(4,746)

Income from operations (GAAP)							Income from operations (GAAP)	$	9,576		$	11,374	$	4,877	$	6,628
Bad debt provision for troubled customers, net of recoveries							Bad debt provision for troubled customers, net of recoveries	289			—		289		—

Reorganization and other costs	Reorganization and other costs	114		194			Reorganization and other costs	(180)			56		(65)		250

Loss on debt modification							Loss on debt modification	—			277		—		277
Legal settlement and insurance recoveries, net	Legal settlement and insurance recoveries, net	(841)		1,030			Legal settlement and insurance recoveries, net	(153)			—		(994)		1,030
Acquisition-related expense, net	Acquisition-related expense, net	49		277			Acquisition-related expense, net	13			545		63		822
Loss from operations before special items (non-GAAP)		$	(5,376)	$	(3,245)
Income from operations before special items (non-GAAP)							Income from operations before special items (non-GAAP)	$	9,545		$	12,252	$	4,170	$	9,007

See section Note About Non-GAAP Measures in this report for an explanation of the use of non-GAAP measurements.

~~Three Months~~

For the three months ended March 31, 2022, the loss from operations (GAAP) decreased $0.05 million or 1.0%, compared with the three months ended March 31, 2021, while the loss before special items (non-GAAP) decreased $2.1 million, or 65.7%. As a percentage of revenue, the loss before special items decreased by 120 basis points to (3.3)% in the three months ended March 31, 2022 from (2.1)% in the three months ended March 31, 2021.

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Three Months

For the three months ended June 30, 2022, income from operations (GAAP) decreased $(1.8) million, compared with the three months ended June 30, 2021, while income before special items (non-GAAP) decreased $(2.7) million. As a percentage of revenue, income before special items decreased by 160 basis points to 5.3% in the three months ended June 30, 2022 from 6.9% in the three months ended June 30, 2021.

Six months

For the six months ended June 30, 2022, income (loss) from operations (GAAP) decreased $(1.8) million, compared with the six months ended June 30, 2021, while income (loss) from operations before special items (non-GAAP) decreased $(4.8) million. As a percentage of revenue, income (loss) from operations before special items decreased by 150 basis points to 1.2% in the six months ended June 30, 2022 from 2.7% in the six months ended June 30, 2021. During the six months ended June 30, 2022, the Company experienced overall organic growth offset by foreign currency headwinds.

Interest Expense

Interest expense was approximately ~~$1.9~~$2.1 million and $3.2 million for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. Interest expense was approximately $4.1 million and $6.4 million for the six months ended June 30, 2022 and 2021, respectively. The decrease for both periods was a result of a change in the effective interest rate, due to a lower leverage ratio and the elimination of the minimum LIBOR ~~floor.~~floor in the May 2021 amendment to our credit agreement.

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

Income Taxes

Our effective income tax rate was approximately ~~19.3%~~37.4% and ~~32.7%~~27.7% for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. Our effective income tax rate was approximately 183.6% and (125.4)% for the six months ended June 30, 2022 and 2021, respectively.

The effective income tax rate ~~benefit~~ for the three months ended ~~March 31,~~June 30, 2022 was ~~lower~~higher than the statutory rate primarily due to ~~the impact of an unfavorable discrete item related to stock compensation.~~a $0.7 million valuation allowance recorded on a foreign jurisdiction. The effective income tax rate for the three months ended ~~March 31,~~June 30, 2021 was higher than the statutory rate due to earnings in jurisdictions with higher income tax rates than the United States.

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

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

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

Liquidity and Capital Resources

Cash flows are summarized in the table below:


		Three months ended March 31,					Six months ended June 30,
		2022		2021			2022		2021

Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):
Operating activities	Operating activities	$	(5,399)	$	3,148	Operating activities	$	7,809	$	18,126
Investing activities	Investing activities	(2,737)		(4,176)		Investing activities	(6,499)		(10,318)
Financing activities	Financing activities	4,323		435		Financing activities	(5,056)		(12,970)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(376)		(990)		Effect of exchange rate changes on cash	(1,755)		(656)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	(4,189)	$	(1,583)	Net change in cash and cash equivalents	$	(5,501)	$	(5,818)

Cash Flows from Operating Activities

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, cash ~~used in~~provided by operating activities was ~~$(5.4)~~$7.8 million, representing a year-on-year decrease of ~~$8.5~~$(10.3) million, or ~~272%~~57%. The decrease was primarily attributable to ~~movements in~~a net working capital ~~and an~~ increase in the ~~accounts receivable balance.~~course of normal operations.

Cash Flows from Investing Activities

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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)~~

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, ~~and 2021,~~ cash used in investing activities was ~~$2.7~~$6.5 million primarily attributable to a reduction in capital expenditures ~~and no acquisitions in~~during the ~~three months ended March 31, 2022.~~current period as compared to the prior period.

Cash Flows from Financing Activities

Net cash ~~provided by~~used in financing activities was ~~$4.3~~$5.1 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to net cash ~~provided by~~used in financing activities of ~~$0.4~~$13.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. During the ~~three~~six months ended ~~March 31,~~June 30, 2022, net ~~borrowings~~repayments of debt were approximately ~~$3.4~~$6.6 million ~~higher~~lower as compared to 2021 ~~resulting in debt paydown during the period. In addition, $0.1 million more taxes~~as cash flows were ~~paid related~~used to ~~net share settlement of share-based awards during the three months ended March 31, 2022.~~support operating activities.

Effect of Exchange Rate Changes on Cash and Cash Equivalents

The effect of exchange rate changes on our cash and cash equivalents was a decrease of ~~$0.4~~$(1.8) million in the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to a decrease of ~~$1.0~~$(0.7) million for the ~~three~~six months ended ~~March 31,~~June 30, 2021. The primary driver of the change was foreign currency fluctuations during the quarter related to the Euro and the US Dollar.

Cash Balance and Credit Facility Borrowings

As of ~~March 31,~~June 30, 2022, we had cash and cash equivalents totaling ~~$19.9~~$18.6 million and ~~$11.2~~$11.7 million of unused commitments under our Credit Agreement with borrowings of ~~$203.1~~$195.3 million and ~~$3.3~~$3.0 million of letters of credit outstanding. We finance operations primarily through our existing cash balances, cash collected from operations, bank borrowings and capital lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future.

As of ~~March 31,~~June 30, 2022, we were in compliance with the terms of the Credit Agreement and will continuously monitor our compliance with the covenants contained in the Credit Agreement.

Quarterly payments on the term loan increased to ~~$3.75 million through March 31, 2022, and then to~~ $5.0 million for each quarterly payment ~~thereafter,~~after March 31, 2022, with a final balloon payment at maturity.

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

Contractual Obligations

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

Off-balance Sheet Arrangements

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

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Critical Accounting Policies and Estimates

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

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no significant changes to 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 2021 Annual Report.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer, of the effectiveness of the design and operation of our disclosure controls (as defined in Rule 13a-15(e) of the Exchange Act) and procedures. Based upon that evaluation, our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer concluded that, as of ~~March 31,~~June 30, 2022, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended ~~March 31,~~June 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

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

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 2021 Annual Report. Except as described below, there have been no material changes to the risk factors previously disclosed in the 2021 Annual Report.

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

(a) Sales of Unregistered Securities

None.

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

None.

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

Month Ending Total Number of Shares (or
Units) Purchased Average Price Paid per
Share (or Unit) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 31, 2022 — $ — — $ —
February 28, 2022 — $ — — $ —
March 31, 2022 81,747 $ 6.66 — $ —


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

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

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ITEM 6. Exhibits


Exhibit No.						Description





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

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

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

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

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

101.INS						XBRL Instance Document

101.SCH						XBRL Schema Document

101.CAL						XBRL Calculation Linkbase Document

101.LAB						XBRL Labels Linkbase Document

101.PRE						XBRL Presentation Linkbase Document

101.DEF						XBRL Definition Linkbase Document

_________________

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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/ Edward J. Prajzner
						Edward J. Prajzner
						Executive Vice President, Chief Financial Officer and Treasurer
						(Principal Financial and Accounting Officer and duly authorized officer)

Date: ~~May 6,~~August 5, 2022