Mistras : 2023 MISTRAS Annual Report

2023

Annual Report

MISTRAS GROUP, INC.

CY20

CY21

CY22

CY23

*As reported and reconciled in the Company's Form 8-K filed on March 6, 2024

SHAREHOLDER LETTER

Dear Esteemed Shareholders,

As we reflect on the events of 2023, it becomes evident that it was indeed a year of transformation for MISTRAS Group. We embarked on a journey of change aimed at improving shareholder value by rebuilding and unlocking the intrinsic value of our Company, while enhancing our financial performance and competitiveness for the long term. We are making meaningful progress in implementing our various initiatives, and I believe going into 2024 that we have now set the groundwork for future success.

Project Phoenix: Igniting Transformation

Central to our transformation in 2023 was our Project Phoenix initiative, designed to expedite profitable growth by identifying significant margin improvement opportunities and implementing measures for sustained cost savings. The impact of Project Phoenix has been nothing short of transformative, reshaping our organization and laying the foundations for sustainable long-term growth.

Our Project Phoenix initiative was more successful than initially expected, as we anticipate achieving a projected gross annual run rate of adjusted EBITDA improvement of $47

Transformation Officer ("CTO") position, who will be reporting directly to the CEO. The new CTO position will help the Company remain competitive moving forward by ensuring our business leaders challenge the way they conduct operations and embrace change regularly. The CTO will help

million by the end of 2025. Moving forward, we will continue to identify new opportunities to improve performance and to improve our business operations.

Financial Highlights of 2023

2023 was a rebuilding year in which we initiated significant changes to improve financial performance over the long term and to unlock our intrinsic value. Although both revenue and adjusted EBITDA fell short of our initial full year 2023 goal, we did finish the year with revenue up 2.6% and adjusted EBITDA up 13.2%. However, our fourth quarter results exceeded expectations, with revenues up over 8% and adjusted EBITDA up nearly 22% from the same quarter a year ago.

In 2023, Project Phoenix attributed nearly $10M of adjusted EBITDA improvement, and we expect an additional $20M of incremental adjusted EBITDA improvement in 2024. Management expects fiscal 2024 adjusted EBITDA will be one of our all-time high performances. Our goals for 2024 also include paying down debt and lowering our leverage ratio below 3.0, while continuing to invest in high-margin growth.

Leadership Transitions and Visionary Legacy

We pay tribute to our esteemed founder, Dr. Sotirios J. Vahaviolos, whose retirement as Executive Chairman and transition to Chairman Emeritus marked the end of an era. His visionary leadership over four decades has been instrumental in shaping MISTRAS into what it is today. As Chairman of the Board and Interim CEO, I am committed to upholding Dr. Vahaviolos' legacy of innovation and excellence into the next era of MISTRAS Group's story.

While our engagement with AlixPartners under Project Phoenix concluded in February 2024, the outcomes of this initiative will remain a permanent fixture in our business strategy. Your Board of Directors has approved the creation of a new Chiefthe Company improve its operational efficiency and effectiveness, which in turn will lead to greater profits, an improved brand reputation, and higher employee retention rates.

Cultural Reshaping and Operational Enhancements

In tandem with our financial focus, we are actively reshaping our Company culture, emphasizing transparency, process improvements, and accountability. These changes, coupled with a renewed emphasis on revenue growth and profitability, position us to capitalize on our core strengths and achieve attractive growth rates.

In the latter part of 2023, Management and the Board undertook an initiative to revamp the Company's Incentive Compensation Plan over the next two years. Several changes were made to the 2024 plan with a focus on accountability, rewarding outstanding performance, and promoting more cross-collaboration amongst our workforce, that we believe will lead to increased shareholder value.

continued on next page

SHAREHOLDER LETTER (CONT.)

Leading the Digital Transformation of Asset Protection

The future of non-destructive testing (NDT) is more exciting today than ever before. In 2024, MISTRAS Group will be expanding its Data Analytical Solutions and our proprietary software systems, which provide MISTRAS customers with strategic insights and actionable intelligence. In turn, this enables them to lower their NDT costs without sacrificing safety and compliance, and at the same time provides the Company with high-margin revenue. Our proprietary data solutions, coupled with our extensive experience in NDT, uniquely position us to lead this digital transformation of asset protection.

Confidence in Momentum for 2024

Project Phoenix and our strong fourth quarter 2023 results are providing good momentum heading into 2024, wherein we expect to realize the majority of the financial benefits from the implementation of the many changes Project Phoenix drove across the Company in 2023.

As part of Project Phoenix, the Board decided to reorganize the Company's marketing efforts and to improve its revenue strategy. This led to the creation of our Chief Commercial Officer position, which thus far has produced extraordinary results and is positioning the Company to achieve its goal of growing revenue back to pre-COVID levels and beyond.

While focusing intently on reshaping the Company, we are also making good headway in identifying the right individual to lead our Company moving forward, and my goal is to finalize this CEO search effort by Q3 of this year.

With nearly six months under my belt as CEO, I can now emphatically state that I am even more optimistic about the future of the Company. I am extremely pleased to be leading the Company at this crucial juncture, supported by an invigorated, highly-skilled, and motivated senior leadership team. Our collective goal is to create long-term value for our shareholders, and I believe we are well on the way to achieving this.

On behalf of the Board of Directors and Management team, I extend our sincerest gratitude for your continued support and trust in MISTRAS Group.

MANUEL N. STAMATAKIS Chairman of the Board and

Interim President and Chief Executive Officer

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

  For the fiscal year ended December 31, 2023

  or

• ☐ 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	(I.R.S. Employer
incorporation or organization)	Identification Number)

195 Clarksville Road

Princeton Junction, New Jersey 08550 (Address of principal executive offices) (Zip Code)

[phone]

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the

Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $.01 par value	MG	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

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. Yes ý No o

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). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or 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 o	Accelerated filer	x
Non-accelerated filer o	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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Yes ☐ No ý

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). Yes ☐ No ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based on the closing price of $7.72 on June 30, 2023, the last business day of the registrant's most recently completed second fiscal quarter, as reported on the New York Stock Exchange, was approximately $158.4 million.

As of March 6, 2024, the Registrant had 30,634,785 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Information required by Part III (Items 10, 11, 12, 13 and 14) is incorporated by reference to portions of the registrant's definitive proxy statement for its 2024 annual meeting of stockholders (the "Proxy Statement"), which is expected to be filed not later than 120 days after the registrant's fiscal year ended December 31, 2023. Except as expressly incorporated by reference, the Proxy Statement shall not be deemed to be a part of this report on Form 10-K.

Auditor Name: PricewaterhouseCoopers LLPAuditor Location: Philadelphia, PennsylvaniaAuditor Firm ID: 238

MISTRAS GROUP, INC. ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I

ITEM 1.	BUSINESS	3
ITEM 1A.	RISK FACTORS	21
ITEM 1B.	UNRESOLVED STAFF COMMENTS	29
ITEM 1C.	CYBERSECURITY	29
ITEM 2.	PROPERTIES	31
ITEM 3.	LEGAL PROCEEDINGS	31
ITEM 4.	MINE SAFETY DISCLOSURES	31
PART II
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
31
ITEM 6.	Reserved	32
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
33
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	45
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
47
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
81
ITEM 9A.	CONTROLS AND PROCEDURES	82
ITEM 9B.	OTHER INFORMATION	82
ITEM 9C.	DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS
82
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	82
ITEM 11.	EXECUTIVE COMPENSATION	82
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS	83
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE	83
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	83
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	83
ITEM 16.	FORM 10-K SUMMARY	85

ITEM 1. BUSINESS

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (this "Annual Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), regarding Mistras Group, Inc. ("Mistras," "MISTRAS," "the Company," "us," "we," "our" and similar expressions) and our business, financial condition, results of operations and prospects. 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," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "may," "could," "should," "would," "predicts," "appears," "projects," or the negative of such terms or other similar expressions, although the absence of such words does not mean that a statement is not forward-looking. Factors that could cause or contribute to differences in results and outcomes from those in our forward-looking statements include, without limitation, those discussed elsewhere in this Annual Report in Part I, Item 1A. "Risk Factors," Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in this Item 1. We undertake no obligation to (and expressly disclaim any obligation to) revise or update any forward-looking statements made herein whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. However, you should consult any further disclosures we may make on these or related topics in our reports on Form 8-K or Form 10-Q filed with the Securities and Exchange Commission ("SEC").

The following discussions should be read in conjunction with the sections of this Annual Report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors."

OUR BUSINESS

Overview

Mistras Group, Inc. 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 most critical industrial and civil assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, and a decades-long legacy of industry leadership, the Company helps customers with asset-intensive infrastructure in the oil and gas, petrochemical, 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 customers that help fuel our vehicles and power our society; inspecting components that are trusted for commercial, defense, and private space; and building monitoring equipment to help avoid catastrophic incidents, the Company helps the world at large.

The Company enhances value for its customers by providing data driven solutions that digitalize the asset protection process and provide valuable insights to our customers that maximize uptime of the assets monitored. Our data analytical solutions offerings, coupled with the traditional non-destructive testing ("NDT"), provide us a competitive advantage over our competitors. With our ability to integrate asset protection throughout supply chains and centralizing data management, we are able to provide insights and actionable recommendations to our customers 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 core capabilities also include NDT field inspections enhanced by advanced robotics, laboratory quality control, laboratory materials services, shop laboratory assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.

Given the role our solutions play in enhancing the safe and efficient operation of our customers' 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 ofmechanical services, including heat tracing, pre-inspection insulation stripping, coating applications, re-insulation, engineering assessments and long-term condition-monitoring. Our traditional NDT solutions, coupled with our data analytical solutions offerings, allow us to provide accessible and easily understood data to our customers that allows them to identify when an asset may fail, in order to prioritize inspections and repair.

Under our 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. In the past, 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 our target markets. Our 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 expenditures 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 OneSuite platform offers functions of MISTRAS' software and services brands as integrated applications on a cloud environment. OneSuite serves as a single access portal for customers' data activities and provides access to 90 plus applications being offered on one centralized platform.

We have 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 primarily consist of:

• • Oil and Gas (Downstream, Midstream and Upstream)

• • Aerospace and Defense

• • Industrial

• • Power Generation and Transmission

• • Infrastructure, Research and Engineering

• • Other Process Industries

• • Petrochemical

A majority of our revenues are generated by deploying technicians at our customers' locations. A majority of our revenues from aerospace and defense as well as certain manufacturing customers are generated by performing inspections and testing at our various in-house laboratories.

We generated revenues of $705.5 million, $687.4 million and $677.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. We generated net loss of $17.4 million, a net income of $6.6 million and net loss of $3.9 million for the years ended December 31, 2023, 2022, and 2021, respectively. For the years ended December 31, 2023, 2022 and 2021, we generated approximately 82%, 83% and 82%, respectively, of our revenues from our North America segment. Our revenues are diversified, with our top ten customers accounting for approximately 35%, 33% and 33% of our revenues during the years ended December 31, 2023, 2022 and 2021, respectively, with no customer accounting for greater than 10% of our revenues in any such year.

OUR SPECIALIZED SOLUTIONS

As a provider of asset protection solutions, we combine our industry-leading services, products, data management and analytical solutions technologies to provide a unique and custom-tailored solution for each customer's individual asset protection needs, ranging from routine inspections to complex, plant-wide asset integrity management programs.

Field Inspections

Our field inspections portfolio includes traditional and advanced NDT techniques and inline inspection for pipelines. We offer these solutions on an individual basis, or as parts of enterprise inspection and testing programs.

NDT is the examination of an asset without materially impacting its structural integrity. The ability to inspect infrastructure assets and not interfere with their operating performance makes NDT a highly-attractive alternative to many traditional techniques, which may require shutting down an asset or entire facility. Typical issues for which our technicians inspect include potential corrosion, cracking, pitting, leaking, faults and flaws in piping, storage tanks and pressure vessels, as well as a wide range of other industrial assets and public infrastructure.

Our automated data acquisition solutions utilize smart sensing and monitoring, robotic inspection systems, and digitized spot inspections to provide asset integrity data with greater insight into current and potentially future asset conditions.

Field inspection services lend themselves to integration with our other offerings, and as such have often served as the initial entry point to more advanced customer engagements that require additional solutions. After an initial field inspection is performed, we are able to provide multiple supplemental solutions, such as maintenance services, engineering consulting and data analytical solutions services we provide, that further serve to solidify our relationships with our customers and drive additional revenue.

Data Analytical Solutions

The asset protection solutions that we provide throughout our customers' asset lifecycles generate mechanical integrity data that needs to be effectively archived, managed, and analyzed. A common difficulty that our customers face is the ability to easily access and analyze large volumes of data from multiple data collection and input sources. We recognize that this data is most valuable to our customers when it is accessible and integrated (regardless of vendor, tool, or facility), and we have taken significant steps to digitalizing asset protection processes through our data analytical solutions product offerings.

Our data acquisition capabilities capture asset data to help our customers follow regulatory compliance, ensure mechanical integrity, and reduce unplanned outages. We capture data using manned and automated techniques that minimize the impact on our customers' operations. Customers can access our collected data for all facilities, structures, and assets that we manage from one easy to use dashboard, which enables customers to evaluate trending and benchmarking across multiple sites seamlessly.

Customer data is managed in our asset protection software ecosystem, OneSuite. Our OneSuite software platform offers functions of our popular software and services brands as integrated applications in a cloud environment. Our OneSuite software platform serves as a single access portal for customers' data activities and provides access to 90 plus integrated applications being offered in one centralized platform.

Many customers take advantage of our data analytics capabilities that utilize technology to automatically generate insights and actionable recommendations that can be implemented to improve our customers' overall productivity. Our managed services integrate our data capabilities with data analysts, field personnel and engineers to provide a comprehensive solution to our customers that reduces our customers' overall costs.

Our customers within the oil and gas and petrochemical industries take advantage of our industry-leading application Plant Condition Management Software (PCMS®). This application is one of the most widely used asset integrity management systems ("AIMS"). We estimate that our PCMS application is currently used by approximately 50% of the U.S. refiners, as well as by leading midstream pipeline energy companies and major oil and gas companies in Canada and Europe. This allows us to provide our customers with industry-leading insights across all their facilities and enables us to provide additional software and solutions to these customers and perform recurring maintenance where necessary.

Our pipeline customers utilize our Onstream® services and New Century® software platform to capture, manage and analyze pipeline integrity data in the midstream and upstream sectors of the oil and gas industry. We provide among the most comprehensive, data-driven pipeline protection solutions available to the industry. Our proprietary pipeline data analysis solutions enable deep integration of inline inspection ("ILI") big data with real-time risk analytics and business intelligence ("BI") to provide capabilities for supporting pipeline integrity, which we believe provides us with an important competitive advantage.

Our wind, power and infrastructure customers implement our online condition-monitoring solutions that provide real-time reports and analysis of infrastructure to alert facility personnel to damages before critical failures occur, while our flexible, IIoT compatible, cloud-based online monitoring portal centralizes and analyzes all collected monitoring data. These monitoring solutions are often installed in hazardous or hard-to-reach locations, helping to enhance safety by reducing the need to send technicians into unsafe locations.