Mistras Group Inc (MG)

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Mistras Group (MG)

F4Q10 (Qtr End 05/31/10) Earnings Call

August 11, 2010 9:00 a.m. ET

Executives

Sotirios Vahaviolos – Founder, Chairman, and CEO

Paul "Pete" Peterik – Former CFO

Frank Joyce - CFO

Analysts

William Stein – Credit Suisse

Scott Levine – JP Morgan

Matt Duncan – Stevens Inc.

Fred Buonocore – CJS Securities

Matt Tucker – KeyBanc Capital Markets

Richard Eastman – Robert W. Baird

Jeff Allen – Silvercrest

Presentation

Operator

Good day ladies and gentlemen, and welcome to the fourth quarter 2010 Mistras Group Inc. earnings conference call. [Operator instructions.] I would now like to turn your presentation over to Sotirios Vahaviolos. Please proceed.

Sotirios Vahaviolos

Good morning to all. 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 Pete Peterik, the CFO of record for fiscal 2010, who is transitioning out of his role after we file the annual report, as well as Frank Joyce, our new company chief financial officer, who joined our team last month. Working together, we are assured of financial continuity as Pete passes the baton to his successor.

The purpose of today’s conference call is to discuss our recently released financial results for the company’s fourth fiscal quarter and annual results that ended May 31, 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.

Pete will begin will a brief disclaimer about the information we are providing today and Frank will follow with a summary review of our financial results. I will then follow Frank with remarks and observations about our performance, marketing activity, and prospects. We will then answer any questions you may have. With that, Pete, 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 U.S. Generally Accepted Accounting Principles. Reconciliations of these non-U.S. GAAP financial measures to the most directly comparable U.S. GAAP financial measures can be found in the company’s current reports on Form 8-K, dated August 10 and 11, 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’ll turn the call over to Frank, who will present our financial results.

Frank Joyce

Thank you Sotirios and Pete. For the fourth quarter, revenues were $79.8 million as compared to $55.9 million in the fourth quarter of fiscal 2009. The increase of $23.9 million, or 43%, was the result of significant growth in all of our segments, led by our services segment, which had a 45% increase in revenues for the fiscal fourth quarter. For fiscal 2010, our consolidated revenues grew by 30% to $272.1 million, again led by services, which grew by 36%.

Our fourth quarter gross profit was $25.1 million, representing a 39% increase over the fourth quarter of fiscal 2009. Our gross profit margin, which is calculated as a percentage of revenues, was 31.4% in the fourth quarter versus 32.2% in the fourth quarter of 2009. The gross profit margin for all of fiscal 2010 was 30.4% versus 33.1% in the prior fiscal year.

Our fiscal 2010 fourth quarter operating income was $8.2 million, compared to $4.3 million in the fourth quarter of fiscal 2009. Operating income for all of fiscal 2010 was $20.3 million, representing a 37% increase from fiscal 2009. SG&A for the fourth quarter of 2010 represented 18% of revenues as compared to 20% of revenues in the fourth quarter of fiscal 2009. For the fiscal years 2010 and 2009, SG&A expenses represented 20% and 22%, respectively, of revenues. SG&A decreased as a percentage of revenue in fiscal 2010 despite an increase in stock comp expense of $2.5 million.

Net income attributable to Mistras Group was $4.9 million in the fourth quarter, compared to $1.5 million in the fourth quarter of fiscal 2009. Diluted earnings per share were $0.18 versus a loss of $2.48 per share for last year’s fourth quarter. You may recall that last year’s EPS calculation included the impact of preferred stock accretion, which essentially treats increases in preferred stock valuation as a reduction to EPS.

For the 2010 fiscal year, net income attributable to Mistras Group was $10.1 million versus $5.5 million in fiscal 2009. Diluted earnings per share for fiscal 2010 were $0.41 versus a loss of $1.67 per share in fiscal 2009. Again, preferred stock accretion was a significant factor in contributing to the negative EPS in fiscal 2009.

We use adjusted EBITA as a non-GAAP measure to evaluate our performance and we believe this represents an appropriate short term metric given our level of depreciation and amortization expense, acquisition related costs, and stock compensation expense. Adjusted EBITA for the fourth quarter of fiscal 2010 was $13.2 million, or 16.6% of revenues versus $8 million, or 14.3% of revenues in the fourth quarter of fiscal 2009. This represents a 65% increase in adjusted EBITA over the prior quarter. For the fiscal year 2010, adjusted EBITA was $39 million, or 14.3% of revenues, representing a 25% increase over adjusted EBITA in fiscal 2009.

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