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Mistras Group Announces Second Quarter Results

August 6, 2018

Highlights of the Second Quarter 2018*

-- Q2 - $191.8 million of revenues; increased 13% -- Q2 - $10.3 million of income from operations; increased 106% -- Q2 - $6.0 million of net income; increased 171% -- Q2 - $21.1 million of adjusted EBITDA; increased 35% -- Q2 - $0.20 earnings per diluted share (GAAP) and $0.21 earnings per diluted share (non-GAAP)

*- All comparisons are versus the equivalent prior year period.

PRINCETON JUNCTION, N.J., Aug. 06, 2018 (GLOBE NEWSWIRE) -- Mistras Group, Inc. (NYSE:MG), a leading “one source” global provider of technology-enabled asset protection solutions, reported financial results for its second quarter ended June 30, 2018.

Consolidated revenues for the second quarter of 2018 were $191.8 million, 13% higher than the prior year period of $170.4 million. Services segment revenues were $147.7 million for the second quarter of 2018, 10% higher than $134.0 million in the prior year. The increase in revenues was due to the combined effects of organic growth, acquisition expansion and favorable FX rates. All three segments had organic revenue increases year-over-year.

Operating income for the second quarter was $10.3 million, 106% higher than the prior year period of $5.0 million. Second quarter 2018 net income was $6.0 million or $0.20 per diluted share, compared with $2.2 million and $0.07 per diluted share in the prior year period.

The Company generated $20.1 million of net cash from operations during the first six months of 2018. Adjusted EBITDA for the first six months of 2018 was $36.4 million. The Company’s net debt (total debt and capital leases of $165.9 million less cash and cash equivalents of $17.5 million) was $148.4 million at June 30, 2018.

Performance by segment was as follows:

Services segment Q2 revenues increased by $13.7 million or 10% over prior year, attributable to high-single digit acquisition growth coupled with low-single digit organic growth. Services segment Q2 operating income increased by $4.2 million or 35% over prior year. Services segment operating income margin increased by 200 bps.

International segment Q2 revenue increased by $7.2 million or 21% over prior year, attributable to mid-teens organic growth and mid-single digit favorable FX rates. International Q2 operating income increased $2.6 million from the prior year’s operating loss.

Products and Systems segment Q2 revenue increased by $0.3 million or 6% over prior year. Products and Systems Q2 operating loss improved by $0.2 million compared with the prior year.

Dennis Bertolotti, Chief Executive Officer stated, “I am very pleased with our robust top-line growth during Q2, as each segment grew revenue organically. Our services segment also reached another all-time high for Q2 revenue, even after excluding the effect of all 2017 acquisitions. It is particularly noteworthy that our Services segment achieved organic growth in Q2, offsetting the previously disclosed large contract loss that discontinued at the beginning of April 2018. Our strong overall performance was attributable to solid organic growth, the benefit of acquisitions completed last year as well as favorable FX rates. Our consolidated operating margin improved by 250 basis points, driven by a 150 basis point improvement in our gross margin and a 100 basis point improvement in our operating expense ratio.”

Mr. Bertolotti added “Market conditions that strengthened during the second half of 2017 continued to improve in the first half of 2018, with oil and gas customer spending patterns rebounding from low prior year levels. In addition, we have agrowing aerospace business and have also continued our successful push into expanding our complimentary mechanical services.” Mr. Bertolotti concluded, stating “I believe macro-level economics drivers will be positive throughout the second half of 2018, and am confident in maintaining the forward momentum that we’ve built up over the past several successive quarters.”

The Company’s 2018 financial guidance was reaffirmed, with expected revenue and capital expenditures trending towards the high end of the stated ranges, as follows:

-- Total revenues expected to be between $715 million to $730 million; -- Net income expected to be between $21 million to $24 million; -- Earnings per diluted share expected to be between $0.71 to $0.83; -- Adjusted EBITDA expected to be between $78 million to $83 million; -- Operating cash flow expected to be approximately $70 million; and -- Capital expenditures expected to be between $15 million and $20 million.

Conference CallIn connection with this release, Mistras will hold a conference call on August 7, 2018 at 9:00 a.m. (Eastern). The call will be broadcast over the Web and can be accessed on Mistras’ Website, www.mistrasgroup.com. Individuals in the U.S. wishing to participate in the conference call by phone may call 1-844-832-7227 and use confirmation code 6486346 when prompted. The International dial-in number is 1-224-633-1529.

About Mistras Group, Inc.MISTRAS is a leading “one source” global provider of technology-enabled asset protection solutions used to evaluate the structural integrity of critical energy, industrial and public infrastructure. Mission critical services and solutions are delivered globally and provide customers with asset life extension, improved productivity and profitability, compliance with government safety and environmental regulations, and enhanced risk management operational decisions.

MISTRAS uniquely combines its industry-leading products and technologies - 24/7 on-line monitoring of critical assets; mechanical integrity (MI) and non-destructive testing (NDT) services; destructive testing (DT) services; process and fixed asset engineering and consulting services; and its world class enterprise inspection data management and analysis software (PCMS™) to provide comprehensive and competitive products, systems and services solutions from a single source provider.

For more information, please visit the company’s website at www.mistrasgroup.com or contact Nestor S. Makarigakis, Group Director, Marketing Communications at marcom@mistrasgroup.com.

Forward-Looking and Cautionary Statements

Certain statements made in this press release are “forward-looking statements” about Mistras’ financial results and estimates, products and services, business model, strategy, growth opportunities, profitability and competitive position, and other matters. These forward-looking statements generally use words such as “future,” “possible,” “potential,” “targeted,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict,” “project,” “will,” “may,” “should,” “could,” “would” and other similar words and phrases. Such statements are not guarantees of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved, if at all. These statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in these statements. A list, description and discussion of these and other risks and uncertainties can be found in the “Risk Factors” section of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2018, as updated by our reports on Form 10-Q and Form 8-K. The forward-looking statements are made as of the date hereof, and Mistras undertakes no obligation to update such statements as a result of new information, future events or otherwise.

Use of Non-GAAP MeasuresIn addition to financial information prepared in accordance with generally accepted accounting principles in the U.S. (GAAP), this press release also contains adjusted financial measures that we believe provide investors and management with supplemental information relating to operating performance and trends that facilitate comparisons between periods and with respect to projected information. The term “Adjusted EBITDA” used in this release is a financial measurement not calculated in accordance with GAAP and is defined as net income attributable to Mistras Group, Inc. 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. A reconciliation of Adjusted EBITDA to a financial measurement under GAAP is set forth in a table attached to this press release. In addition, the Company has also included in the attached tables non-GAAP measurement” “Segment and Total Company Income (Loss) Before Special Items”, reconciling these measurements to financial measurements under GAAP. The Company uses the term “free cash flow”, a non-GAAP measurement the Company defines as cash provided by operating activities less capital expenditures (which is classified as an investing activity). The Company also uses the term “net debt”, a non-GAAP measurement defined as the sum of the current and long-term portions of long-term debt and capital lease obligations, less cash and cash equivalents.

Mistras Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except share and per share data) (unaudited) ----------- ----------- June 30, December 2018 31, 2017 ----------- ----------- ASSETS Current Assets Cash and cash equivalents $ 17,530 $ 27,541 Accounts receivable, net 144,200 138,080 Inventories 11,580 10,503 Prepaid expenses and other current assets 17,995 18,884 --------- - --------- - Total current assets 191,305 195,008 Property, plant and equipment, net 87,215 87,143 Intangible assets, net 59,171 63,739 Goodwill 199,656 203,438 Deferred income taxes 1,549 1,606 Other assets 5,093 3,507 --------- - Total assets $ 543,989 $ 554,441 - ------- - - ------- - LIABILITIES AND EQUITY Current Liabilities Accounts payable $ 14,627 $ 10,362 Accrued expenses and other current liabilities 63,922 65,561 Current portion of long-term debt 2,225 2,358 Current portion of capital lease obligations 5,294 5,875 Income taxes payable 3,365 6,069 --------- - --------- - Total current liabilities 89,433 90,225 Long-term debt, net of current portion 150,024 164,520 Obligations under capital leases, net of current portion 8,370 8,738 Deferred income taxes 9,247 8,803 Other long-term liabilities 9,061 11,363 --------- - --------- - Total liabilities 266,135 283,649 Commitments and contingencies Equity Preferred stock, 10,000,000 shares authorized — — Common stock, $0.01 par value, 200,000,000 shares authorized, 28,373,535 and 283 282 28,294,968 shares issued Additional paid-in capital 224,634 222,425 Retained earnings 73,624 64,717 Accumulated other comprehensive loss (20,870 ) (16,805 ) --------- - --------- - Total Mistras Group, Inc. stockholders’ equity 277,671 270,619 Non-controlling interests 183 173 --------- - --------- - Total equity 277,854 270,792 --------- - --------- - Total liabilities and equity $ 543,989 $ 554,441 - ------- - - ------- -

Mistras Group, Inc. and Subsidiaries Unaudited Condensed Consolidated Statements of Income (in thousands, except per share data) Three months ended Six months ended June 30, June 30, June 30, June 30, 2018 2017 2018 2017 ----------- ---------- ----------- ----------- Revenue $ 191,793 $ 170,439 $ 379,423 $ 333,757 Cost of revenue 131,084 118,825 264,872 233,828 Depreciation 5,626 5,271 11,323 10,433 --------- - --------- --------- - --------- - Gross profit 55,083 46,343 103,228 89,496 Selling, general and administrative expenses 41,267 37,973 80,301 75,273 Research and engineering 913 552 1,669 1,195 Depreciation and amortization 2,965 2,613 5,916 5,116 Acquisition-related expense (benefit), net (366 ) 202 (1,360 ) (341 ) --------- - --------- --------- - --------- - Income from operations 10,304 5,003 16,702 8,253 Interest expense 1,895 1,015 3,686 2,033 --------- - --------- --------- - --------- - Income before provision for income taxes 8,409 3,988 13,016 6,220 Provision for income taxes 2,409 1,770 4,096 2,304 --------- - --------- --------- - --------- - Net income 6,000 2,218 8,920 3,916 Less: net income attributable to non-controlling interests, — 1 12 7 net of taxes --------- - --------- --------- - --------- - Net income attributable to Mistras Group, Inc. $ 6,000 $ 2,217 $ 8,908 $ 3,909 - ------- - - ------- - ------- - - ------- - Earnings per common share: Basic $ 0.21 $ 0.08 $ 0.31 $ 0.14 Diluted $ 0.20 $ 0.07 $ 0.30 $ 0.13 Weighted average common shares outstanding: Basic 28,346 28,437 28,325 28,562 Diluted 29,334 29,599 29,349 29,754

Mistras Group, Inc. and Subsidiaries Unaudited Operating Data by Segment (in thousands) Three months ended Six months ended June 30, June 30, June 30, June 30, 2018 2017 2018 2017 ----------- ----------- ----------- ----------- Revenues Services $ 147,718 $ 134,043 $ 293,313 $ 260,372 International 41,111 33,904 79,567 68,160 Products and Systems 5,386 5,107 11,570 10,657 Corporate and eliminations (2,422 ) (2,615 ) (5,027 ) (5,432 ) --------- - --------- - --------- - --------- - $ 191,793 $ 170,439 $ 379,423 $ 333,757 - ------- - - ------- - - ------- - - ------- - Three months ended Six months ended June 30, June 30, June 30, June 30, 2018 2017 2018 2017 ----------- ----------- ----------- ----------- Gross profit Services $ 40,127 $ 35,490 $ 74,837 $ 65,703 International 12,689 8,828 23,396 19,288 Products and Systems 2,213 1,966 5,103 4,560 Corporate and eliminations 54 59 (108 ) (55 ) --------- - --------- - --------- - --------- - $ 55,083 $ 46,343 $ 103,228 $ 89,496 - ------- - - ------- - - ------- - - ------- -

Mistras Group, Inc. and Subsidiaries Unaudited Reconciliation of Segment and Total Company Income from Operations (GAAP) to Income before Special Items (non-GAAP) (in thousands) Three months ended Six months ended June 30, June 30, June 30, June 30, 2018 2017 2018 2017 ---------- ---------- ---------- ---------- Services: Income from operations (GAAP) $ 16,328 $ 12,132 $ 28,603 $ 19,513 Bad debt provision for a customer bankruptcy — — — 1,200 Reorganization and other related costs — 437 — 453 Acquisition-related expense (benefit), net 43 201 (990 ) 78 -------- - -------- - -------- - -------- - Income before special items (non-GAAP) 16,371 12,770 27,613 21,244 International: Income (loss) from operations (GAAP) 2,455 (190 ) 3,375 2,843 Reorganization and other related costs 492 63 581 76 Acquisition-related expense (benefit), net (409 ) — (409 ) (501 ) -------- - -------- - -------- - -------- - Income (loss) before special items (non-GAAP) 2,538 (127 ) 3,547 2,418 Products and Systems: Loss from operations (GAAP) (656 ) (892 ) (384 ) (1,340 ) Reorganization and other related costs 29 — 29 — -------- - -------- - Loss before special items (non-GAAP) (627 ) (892 ) (355 ) (1,340 ) Corporate and Eliminations: Loss from operations (GAAP) (7,823 ) (6,047 ) (14,892 ) (12,763 ) Acquisition-related expense (benefit), net — 1 39 82 -------- - -------- - -------- - -------- - Loss before special items (non-GAAP) (7,823 ) (6,046 ) (14,853 ) (12,681 ) Total Company Income from operations (GAAP) $ 10,304 $ 5,003 $ 16,702 $ 8,253 - ------ - - ------ - - ------ - - ------ - Bad debt provision for a customer bankruptcy — — — 1,200 Reorganization and other related costs 521 500 610 529 Acquisition-related expense (benefit), net (366 ) 202 (1,360 ) (341 ) -------- - -------- - -------- - -------- - Income before special items (non-GAAP) $ 10,459 $ 5,705 $ 15,952 $ 9,641 - ------ - - ------ - - ------ - - ------ -

Mistras Group, Inc. and Subsidiaries Unaudited Summary Cash Flow Information (in thousands) Six months ended June 30, June 30, 2018 2017 ----------- ---------- Net cash provided by (used in): Operating activities $ 20,095 $ 22,972 Investing activities (10,287 ) (14,218 ) Financing activities (19,257 ) (2,726 ) Effect of exchange rate changes on cash (562 ) 1,602 --------- - -------- - Net change in cash and cash equivalents $ (10,011 ) $ 7,630 - ------- - - ------ -

Mistras Group, Inc. and Subsidiaries Reconciliation of Net Cash Provided by Operating Activities (GAAP) to Free Cash Flow (non-GAAP) (in thousands) Six months ended June 30, June 30, 2018 2017 ---------- ---------- GAAP: Net cash provided by operating activities $ 20,095 $ 22,972 Less: Purchases of property, plant and equipment (10,963 ) (9,789 ) Purchases of intangible assets (265 ) (688 ) non-GAAP: Free cash flow $ 8,867 $ 12,495 - ------ - - ------ -

Mistras Group, Inc. and Subsidiaries Unaudited Reconciliation of Net Income to Adjusted EBITDA (in thousands) Three months ended Six months ended June 30, June 30, June 30, June 30, 2018 2017 2018 2017 ---------- --------- ---------- ---------- Net income $ 6,000 $ 2,218 $ 8,920 $ 3,916 Less: net income attributable to noncontrolling interests, net — 1 12 7 of taxes -------- - -------- -------- - -------- - Net income attributable to Mistras Group, Inc. $ 6,000 $ 2,217 $ 8,908 $ 3,909 Interest expense 1,895 1,015 3,686 2,033 Provision for income taxes 2,409 1,770 4,096 2,304 Depreciation and amortization 8,591 7,884 17,239 15,549 Share-based compensation expense 1,703 1,697 2,829 3,380 Acquisition-related expense (benefit), net (366 ) 202 (1,360 ) (341 ) Reorganization and other related costs 521 500 610 529 Bad debt provision for unexpected customer bankruptcy — — — 1,200 Foreign exchange loss 338 349 389 326 -------- - -------- -------- - -------- - Adjusted EBITDA $ 21,091 $ 15,634 $ 36,397 $ 28,889 - ------ - - ------ - ------ - - ------ -

Mistras Group, Inc. and Subsidiaries Unaudited Reconciliation of Net Income (GAAP) and Diluted EPS (GAAP) to Net Income Excluding Special Items (non-GAAP) and Diluted EPS Excluding Special Items (non-GAAP) (in thousands, except per share data) Three months ended June 30, Six months ended June 30, 2018 2017 2018 2017 -------- ----------------- --------- -------------- Net income (GAAP) $ 6,000 $ 2,217 $ 8,908 $ 3,909 Special items, net of tax 44 396 (598 ) 1,166 ------- ------- - ------- ------ Net Income Excluding Special Items (non-GAAP) $ 6,044 $ 2,613 $ 8,310 $ 5,075 - ----- - ----- --------- - ----- - - ----- ------ Diluted EPS (GAAP) $ 0.20 $ 0.07 $ 0.30 $ 0.13 Special items, net of tax 0.01 0.02 (0.02 ) 0.04 ------- ------- - ------- ------ Diluted EPS Excluding Special Items (non-GAAP) $ 0.21 $ 0.09 $ 0.28 $ 0.17 - ----- - ----- --------- - ----- - - ----- ------

Media Contact: Nestor S. Makarigakis Group Director of Marketing Communications, marcom@mistrasgroup.com 1(609)716-4000

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