Mistras Group, Inc. (NYSE:MG) Q3 2018 Earnings Conference Call Transcript

Nov 06, 2018 • 09:00 am ET

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Mistras Group, Inc. (NYSE:MG) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning, ladies and gentlemen, and welcome to the Mistras Group Earnings Conference Call for its Third Quarter ended September 30, 2018. My name is Kevin, and I'll be your event manager today. (Operator Instructions)

Participating on the call for Mistras will be Dennis Bertolotti, the Company's President and Chief Executive Officer; Ed Prajzner, Senior Vice President, Chief Financial Officer and Treasurer; as well as Dr. Sotirios Vahaviolos, Executive Chairman; and Jon Wolk, Senior Executive Vice President and Chief Operating Officer, who will be available for questions.

(Forward-Looking Cautionary Statements) The discussion in this conference call will also include certain financial measures that were not prepared in accordance with US GAAP. Reconciliation of these non-US GAAP financial measures to the most directly comparable US GAAP financial measure can be found at the tables contained in yesterday's press release and the company's related current report on Form 8-K. These reports are available in the company's website in the Investors section and on the SEC's website.

I will now turn the conference over to Mr. Bertolotti. Please proceed.

Executive
Dennis Bertolotti

Thank you, operator, and good morning, everyone. During today's call, we will give you an update on Mistras' business performance and outlook, as well as review Mistras Group's financial results for the third quarter ended September 30, 2018.

I am pleased with our results, as Mistras continues to drive executional improvements and operating excellence, with margins expanding and becoming more consistent and predictable as well as expanding period-over-period. For the quarter, revenues were up, margins reached a two-year high and profitability, as measured by adjusted EBITDA, was up by more than 20%.

At the same time, we also implemented a number of strategic actions. Although we did record a gain on the sale of a noncore subsidiary in our Product segment, we also recognized a net special charge that impacted our GAAP results. Strategically, these actions are all peripheral to our core operations and more importantly, should add certain low-margin services so that they will have a positive impact on operating margins, respectively. Ed will walk you through specific actions taken in detail shortly.

The positive trend in our core end market that began in mid-2017 has continued into the third quarter of 2018. As a result, revenues were up from a year ago, more than overcoming the previously disclosed large customer contract loss last quarter such that we achieved modest organic growth in the quarter. Margins did even better. Our consolidated gross margin in the third quarter was 29%, a 200 basis point improvement over the year-ago quarter. This was our highest gross margin level in two years.

As a result of our strong margins and continued cost discipline, third quarter 2018 adjusted EBITDA increased 22% to nearly $21 million and the adjusted EBITDA margin was 11.4%, our best margin in two years. We believe adjusted EBITDA provides the best measure of the year-over-year improvement in our core operations.

So it is clear we achieved significant progress in the third quarter, consistent with our