Mistras Group Inc (MG)

MG 
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Mistras Group, Inc. (MG)

Q3 2010 Earnings Call

April 8, 2010 9:00 am ET

Executives

Sotirios Vahaviolos – President & CEO

Paul Peterik - CFO

Analysts

William Stein – Credit Suisse

Jack Atkins – Stephens Inc.

Scott Levine – JPMorgan

Richard Eastman – Robert W. Baird

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Q3 2010 Mistras Group Inc. earnings conference call. (Operator Instructions) I would now like to turn the conference over to your host for today, Sotirios Vahaviolos.

Sotirios Vahaviolos

Good morning to everyone, welcome to the Mistras Group earnings conference call to discuss our recent company performance. Again my name is Sotirios Vahaviolos, I am the Founder, Chairman, and Chief Executive Officer of Mistras.

Joining me today is Mr. Paul Peterik, the company’s Chief Financial Officer. The purpose of today’s conference call is to discuss our recently released financial results for this company’s third quarter that ended February 28, 2010.

Our primary objective of this call is to provide you with a clear understanding of our performance and prospects. This discussion is intended to supplement our quarterly earnings release and our filings with the Security & Exchange Commission. Paul will begin will a brief disclaimer about the information we are providing today and a summary review of our financial results.

I will then follow Paul with a few remarks and observations about our performance, marketing activity, and prospects. We will then answer any questions you may have. With that, Paul let me turn it over to you.

Paul Peterik

Thank you Sotirios, first I want to remind everyone that our discussions during this conference call will include forward-looking statements. Actual results could differ materially from those projected and factors that could cause actual results to differ are discussed in the prospectus for our IPO dated October 7, 2009, in our reports on Form 10-Q and Form 8-K.

Also the discussions during this conference call will include certain financial measures that were not prepared in accordance with US GAAP. Reconciliations of these non-US GAAP financial measures to the most directly comparable US GAAP financial measures can be found in the Mistras Group, Inc. current report on Form 8-K dated April 7, 2010.

These reports are available on our website at www.mistrasgroup.com, in the Investors SEC Filings and Reports section and on the website of the Securities & Exchange Commission. Now I’d like to present summary financial results for our third quarter. As a reminder we have a May 31 fiscal year end and our third quarter ended February 28, 2010.

The third quarter revenues were $64.4 million compared to $47 million for the third quarter of fiscal 2009. The increase of $17.4 million or 36.9% was attributed to revenue increases in all of our segments with our services segment leading the way with a 40.7% growth rate.

For the first nine months of fiscal 2010 our consolidated revenues were $192.3 million or 25.5% greater than the comparable period in fiscal 2009. Again our services segment had outstanding growth of 32.5% while our other segments were even with the similar period last year.

Our gross profit was $17.6 million in our third quarter of fiscal 2010. This represents an increase of 34.5% from the third quarter of fiscal 2009. As a percentage of revenues our overall gross profit margin was 27.4% and 27.9% for the third quarter of fiscal 2010 and 2009 respectively.

Our fiscal 2010 third quarter operating income was $1.6 million as compared to a $0.3 million loss for the third quarter last year which included $1.2 million for non-recurring items. All the cost after gross margin, after gross profit used to determine operating income were 24.8% of revenues for the third quarter this fiscal year compared to 28.5% for the same quarter last year, an improvement of 370 basis points.

Selling, general, and administrative expenses included in this determination of the quarter’s income from operations were 21.9% of revenues as compared to 25.4% of revenues in the third quarter of fiscal 2009, an improvement of 350 basis points. Net income attributed to Mistras Group Inc. was $0.8 million in the current quarter compared to a net loss of $0.8 million in last year’s third quarter.

Earnings per diluted share were $0.03 versus a negative $0.04 for last year’s third quarter. Last year we did not have the impact of the newly issued shares of our public offering in this calculation. We use adjusted EBITDA, a non-GAAP measurement, to evaluate our performance as we believe this represents a better short-term metric given our acquisition amortization, non-cash stock compensation expense, and certain other non-recurring items.

For the third quarter of fiscal 2010 our adjusted EBITDA was $6.5 million or 10.1% of revenues compared to $4.1 million or 8.7% of revenues in 2009. This represents a 58.6 increase in adjusted EBITDA and 140 basis point improvement in margin.

Now with respect to our balance sheet and cash flows, we continue to be pleased with our performance in related metrics. For the first nine months of fiscal 2010 our cash flow from operations was $12.3 million. For the first nine months of the fiscal year cash used for capital expenditures was $1.7 million and cash used for acquisitions were $14.4 million.

Total capital expenditures including equipment financed through lease [financed] leases was $6.7 million or 3.5% of revenues. As of February 28, 2010 our net debt was $15.4 million including cash and cash equivalents of $13.7 million and we have full availability under our $55 million revolver.

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