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What changed in Mistras Group, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Mistras Group, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+302 added−297 removedSource: 10-K (2024-03-11) vs 10-K (2023-03-15)

Top changes in Mistras Group, Inc.'s 2023 10-K

302 paragraphs added · 297 removed · 228 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

110 edited+33 added−42 removed93 unchanged
Biggest changeKeefe served in various legal roles with Lucent Technologies and AT&T, the last four years as Vice President, Corporate and Securities Law and Assistant Secretary. Mr. Keefe received a BS in Business Administration (Accounting) from Seton Hall University and a J.D. from Seton Hall University School of Law. Michael J.
Biggest changeKeefe worked at International Fight League, a then publicly-traded sports promotion company, from 2007 until 2009, in various executive positions. From 1990 until 2006, Mr. Keefe served in various legal roles with Lucent Technologies and AT&T, the last four years of which he served as Vice President, Corporate and Securities Law and Assistant Secretary. Mr.
Further to this, we are constantly evaluating these processes and procedures to ensure that they remain of high quality and are effective, and consider changes in the manner in which work is performed or lessons that have been learned from any sources, such as industry data.
Further to this, we are constantly evaluating these processes and procedures to ensure that they remain of high quality and are effective, and we consider changes in the manner in which work is performed or lessons that have been learned from any sources, such as industry data.
As a result, these owners and operators are seeking highly-reliable asset protection suppliers with a track record of assisting organizations in meeting increasingly stringent regulations. Our customers benefit from our extensive engineering consulting base that supports them in devising mechanical integrity programs that both meet regulatory compliance standards and enable enhanced safety and uptime at the customer's facilities.
As a result, these owners and operators are seeking highly-reliable asset protection suppliers with a track record of assisting customers in meeting increasingly stringent regulations. Our customers benefit from our extensive engineering consulting base that supports them in devising mechanical integrity programs that both meet regulatory compliance standards and enable enhanced safety and uptime at the customer's facilities.
Our Asset Integrity Management ("AIMS") and MI services help improve asset reliability and regulatory compliance through a systematic, engineering-based approach to ensure the ongoing integrity and safety of equipment and industrial facilities. AIMS/MI services can include conducting an inventory of infrastructure assets; developing, implementing and training personnel in executing inspection and maintenance procedures; and managing MI programs.
Our Asset Integrity Management ("AIMS") and Mechanical Integrity ("MI") services help improve asset reliability and regulatory compliance through a systematic, engineering-based approach to ensure the ongoing integrity and safety of equipment and industrial facilities. AIMS/MI services can include conducting an inventory of infrastructure assets; developing, implementing and training personnel in executing inspection and maintenance procedures; and managing MI programs.
Integrated Data Management: Our expertise and proprietary research and development in data solutions throughout the asset protection cycle provides a competitive advantage. With solutions for integrated data acquisition, storage, visualization and analytics, our integrated data solutions well-position us for the oil and gas increasing movement towards digitalizing and centralizing asset protection to fewer, highly-skilled and multi-disciplined vendors.
Integrated Data Management: Our expertise and proprietary research and development in data analytical solutions throughout the asset protection cycle provides a competitive advantage. With solutions for integrated data acquisition, storage, visualization and analytics, our integrated data analytical solutions well-position us for the oil and gas increasing movement towards digitalizing and centralizing asset protection to fewer, highly-skilled and multi-disciplined vendors.
In addition to these core utilities, the storage and analysis of collected inspection and MI data is also a key aspect of asset protection. NDT has historically been a prominent solution in the asset protection industry due to its capacity to detect defects without compromising the integrity of the tested materials or equipment.
In addition to these core utilities, the storage and analysis of collected inspection and MI data is also a key aspect of asset protection. NDT has historically been a prominent solution in the asset protection industry due to its capacity to detect defects without compromising the structural integrity of the tested materials or equipment.
Collaborating with Our Customers . We have historically expanded our asset protection solution portfolio in response to our customers’ unique performance specifications. Our technology packages have often been developed in close cooperation and partnership with key customers and industry organizations. Experienced Management Team . Our management team has a track record of asset protection organizational leadership.
We have historically expanded our asset protection solution portfolio in response to our customers’ unique performance specifications. Our technology packages have often been developed in close cooperation and partnership with key customers and industry organizations. Experienced Management Team . Our management team has a track record of asset protection organizational leadership.
We have provided testing and structural health monitoring and data solutions on bridges and structures worldwide, including some of the largest and most well-known bridges in the United States and United Kingdom. Our sensors continuously monitor these assets, alerting owner/operators when defects are detected.
We have provided testing and structural health monitoring and data analytical solutions on bridges and structures worldwide, including some of the largest and most well-known bridges in the United States and United Kingdom. Our sensors continuously monitor these assets, alerting owner/operators when defects are detected.
As a result, our revenues in the summer and winter months are typically lower than our revenues in the fall and spring, when demand for our asset protection solutions from the oil and gas as well as the fossil and nuclear power industries increases during their non-peak production periods.
As a result, our revenues in the summer and winter months are typically lower than our revenues in the fall and spring, when demand for our asset protection solutions from the oil and gas as well as the fossil power industries increases during their non-peak production periods.
Research and Development Our research and development is principally conducted by engineers and scientists at our Princeton Junction, New Jersey headquarters, and supplemented by other employees in the United States and throughout the world, including France, Greece the United Kingdom, Brazil and the Netherlands.
Research and Development Our research and development is principally conducted by engineers and scientists at our Princeton Junction, New Jersey headquarters, and supplemented by other employees in the United States and throughout the world, including Canada, France, Greece the United Kingdom, Brazil and the Netherlands.
We serve this rapidly-growing target market by providing a full range of inspection, testing, machining, mechanical, finishing, additive manufacturing and equipment solutions, for which we are Nadcap certified. Our state-of-the-art in-house labratories maintain numerous accreditations from industry organizations, including Nadcap, and some of the largest manufacturers in the world, such as Boeing, Safran, Airbus, Bombardier and Embraer.
We serve this rapidly growing target market by providing a full range of inspection, testing, machining, mechanical, finishing, additive manufacturing and equipment solutions, for which we are Nadcap certified. Our state-of-the-art in-house laboratories maintain numerous accreditations from industry organizations, including Nadcap, and some of the largest manufacturers in the world, such as Boeing, Safran, Airbus, Bombardier and Embraer.
Other key trademarks or service marks that we utilize in localized markets or product advertising include: • Onstream® (word and logo) • PCMS® (word and logo) • Ropeworks® • MISTRAS Digital ® • OneSuite™ • Sensoria™ • OneSource™ • CALIPERAY™ (word and logo) • Physical Acoustics PAC logo • Streamview™ • Sensor Highway™ • TankPAC ® • VPAC™ • Transformer Clinic™ • FieldCal™ • UTwin® • AEwin® • Pocket AE® • Pocket UT® Many elements of our asset protection solutions involve proprietary know-how, technology or data that are not covered by patents or patent applications because they are not patentable or would be difficult to enforce, including technical processes, algorithms and procedures.
Other key trademarks or service marks that we utilize in localized markets or product advertising include: • Onstream® (word and logo) • PCMS® (word and logo) • Ropeworks® • MISTRAS Digital ® • OneSuite™ • Sensoria™ • OneSource™ • CALIPERAY™ (word and logo) • Physical Acoustics PAC logo • Streamview™ • Sensor Highway™ • TankPAC ® • VPAC™ • Transformer Clinic™ • FieldCal™ • UTwin® • AEwin® • Pocket AE® • Pocket UT® 18 Table of Contents Many elements of our asset protection solutions involve proprietary know-how, technology or data that are not covered by patents or patent applications because they are not patentable or would be difficult to enforce, including technical processes, algorithms and procedures.
Prajzner also served in senior finance roles at CDI Corporation (now AE Industrial Partners) and American Infrastructure (now Allan Myers). Mr. Prajzner began his career in public accounting at Ernst & Young, received his B.S. in accountancy from Villanova University, his MBA in finance from Temple University and is a certified public accountant. Michael C.
Prajzner also served in senior finance roles at CDI Corporation (now AE Industrial Partners) and American Infrastructure (now Allan Myers). Mr. Prajzner began his career in public accounting at Ernst & Young, received his B.S. in accountancy from Villanova University, his MBA in finance from Temple University and is a certified public accountant.
We work to help ensure that our clients are in full compliance with all federal, state, and local regulations. Our practices, policies and procedures are designed to help ensure we perform our duties through the use of safe, industry-best practices, seeking to minimize risk wherever possible.
We work to help ensure that our customers are in full compliance with all federal, state, and local regulations. Our practices, policies and procedures are designed to help ensure we perform our duties through the use of safe, industry-best practices, seeking to minimize risk wherever possible.
We also work with customers to develop new products or applications for our technology, including: • Testing of new composites • Detecting crack propagation • Wireless and communications technologies • Development of permanently embedded inspection systems to provide continuous, online, in-service monitoring of critical structural components 18 Table of Contents Research and development expenses are reflected in our Consolidated Statements of Income (Loss) as research and engineering expenses.
We also work with customers to develop new products or applications for our technology, including: • Testing of new composites • Detecting crack propagation • Wireless and communications technologies • Development of permanently embedded inspection systems to provide continuous, online, in-service monitoring of critical structural components Research and development expenses are reflected in our Consolidated Statements of Income (Loss) as research and engineering expenses.
Due to our current debt levels and restrictions related to the debt covenants in our credit facility, we do not expect to make any acquisitions in 2023 other than small acquisitions with the banks’ approval. However, once we reduce our debt, we expect to make selective acquisitions beyond 2023.
Due to our current debt levels and restrictions related to the debt covenants in our credit facility, we do not expect to make any acquisitions in 2024 other than small acquisitions with the banks’ approval. However, once we reduce our debt, we expect to make selective acquisitions beyond 2024.
Typical issues for which our technicians inspect include corrosion, cracking, leaking, faults and flaws in piping, storage tanks and pressure vessels, as well as a wide range of other industrial assets and public infrastructure.
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.
No customer represented 10% or more of our revenue in any of the years ended December 31, 2022, 2021 or 2020. Geographic Areas We have operations in 10 countries and occasionally conduct business in a few other countries.
No customer represented 10% or more of our revenue in any of the years ended December 31, 2023, 2022 or 2021. Geographic Areas We have operations in 10 countries and occasionally conduct business in a few other countries.
As of December 31, 2022, the primary trademarks and service marks that we held in the United States included MISTRAS ® , our stylized globe design and our tag line "One Source for Asset Protection Solutions".
As of December 31, 2023, the primary trademarks and service marks that we held in the United States included MISTRAS ® , our stylized globe design and our tag line "One Source for Asset Protection Solutions".
We believe that expanding our solution offerings and merging and visualizing data across facilities for enterprise data analysis, combined with the trend of customers outsourcing asset protection to service providers with integrated offerings, provides opportunities for significant additional recurring revenues. Continue to Expand Our Customer Base into New End Markets .
We believe that expanding our solution offerings and merging and visualizing data across facilities for enterprise data analysis, combined with the trend of customers outsourcing asset protection to service providers with integrated offerings, provides opportunities for significant additional recurring revenues. 10 Table of Contents Continue to Expand Our Customer Base into New End Markets .
See Note 2-Revenue and Note 19-Segment Disclosure to our audited consolidated financial statements in this Annual Report for further disclosure of our revenues, long-lived assets and other financial information regarding our international operations. Sales and Marketing We sell our asset protection solutions through our direct sales and marketing activities worldwide.
See Note 2-Revenue and Note 19-Segment Disclosure to our audited consolidated financial statements in this Annual Report for further disclosure of our revenues, long-lived assets and other financial information regarding our international operations. 15 Table of Contents Sales and Marketing We sell our asset protection solutions through our direct sales and marketing activities worldwide.
We also seek confidentiality agreements from our customers and business partners before we disclose any sensitive aspects of our technologies or business strategies. We are not currently involved in any material intellectual property claims. 19 Table of Contents Governmental Regulations We are subject to numerous environmental, legal and regulatory requirements related to our operations worldwide.
We also seek confidentiality agreements from our customers and business partners before we disclose any sensitive aspects of our technologies or business strategies. We are not currently involved in any material intellectual property claims. Governmental Regulations We are subject to numerous environmental, legal and regulatory requirements related to our operations worldwide.
The NDT industry continues to move towards more advanced, automated solutions, requiring service providers to find safer and more cost-efficient inspection techniques. We believe that we remain ahead of the technological curve by backing our extensive industry expertise with the investment of resources in research and development.
The NDT industry continues to move towards more advanced, automated solutions, requiring service providers to find safer and more cost-efficient inspection techniques. We believe that we remain ahead of the 9 Table of Contents technological curve by backing our extensive industry expertise with the investment of resources in research and development.
Our asset protection solutions aim to ensure that industrial assets and facilities remain in safe, reliable working condition, which in turn enhances safety for our clients, the public, and the environment.
Our asset protection solutions aim to ensure that industrial assets and facilities remain in safe, reliable working condition, which in turn enhances safety for our customers, the public, and the environment.
OUR SPECIALIZED SOLUTIONS As a OneSource provider of asset protection solutions, we combine our industry-leading services, products, data management solutions and technologies to provide a unique, custom-tailored solution for each customer’s individual asset protection needs, ranging from routine inspections to complex, plant-wide asset integrity management.
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.
Our labratory and field personnel are trained to operate according to strict safety and quality standards so that our processes and procedures regarding hazardous materials, worker safety, and accident prevention are sound and effective.
Our laboratory and field personnel are trained to operate according to strict safety and quality standards so that our processes and procedures regarding hazardous materials, worker safety, and accident prevention are sound and effective.
We help to identify gaps between existing and desired practices and establish quality assurance standards for fabrication, engineering and installation of infrastructure assets. Access Much of our work is conducted in hard-to-access locations, including those in at-height, subsea and confined locations.
We help to identify gaps between existing and desired practices and establish quality assurance standards for fabrication, engineering and installation of infrastructure assets. Access 6 Table of Contents Much of our work is conducted in hard-to-access locations, including those in at-height, subsea and confined locations.
Moreover, we believe that vendors that are able to effectively deliver both advanced solutions and data analytics, by virtue of their access to customers’ data, create a significant barrier to entry for competitors, leading to the opportunity to further create significant recurring revenues.
Moreover, we believe that vendors that are able to effectively deliver both 7 Table of Contents advanced solutions and data analytics, by virtue of their access to customers’ data, create a significant barrier to entry for competitors, leading to the opportunity to further create significant recurring revenues.
In addition, materials we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
In addition, materials we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. 20 Table of Contents
We expect that the demand for big data intelligence and remote data visibility will continue to grow, and are investing in data solutions that help our customers visualize and generate actionable insight from their asset integrity data, regardless of data input.
We expect that the demand for our data analytical solutions which provides big data intelligence and remote data visibility will continue to grow, and we are investing in data analytical solutions that help our customers visualize and generate actionable insight from their asset integrity data, regardless of data input.
A community of caring professionals with a genuine passion for helping people and making a difference together – that is the heart of the program we call “Caring Connects.” Our Safety-Conscious Culture We consider safety the backbone of our operations.
A community of caring professionals with a genuine passion for helping people and making a difference together – that is the heart of the program we call “Caring Connects.” 16 Table of Contents Our Safety-Conscious Culture We consider safety the backbone of our operations.
Our Segments We have three operating segments: (i) Services, (ii) International and (iii) Products and Systems: Services provides asset protection solutions in North America, with the largest concentration in the United States, followed by Canada, consisting primarily of NDT, inspection, mechanical and engineering services that are used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure and commercial aerospace components.
Our Segments We have three operating segments: (i) North America (which we previously referred to as our Services segment), (ii) International and (iii) Products and Systems: North America provides asset protection solutions with the largest concentration in the United States, followed by Canada, consisting primarily of NDT, inspection, mechanical and engineering services that are used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure and commercial aerospace components.
Expanding Addressable End-Markets . The continued emergence of and advances in asset protection technologies and software-based systems are increasing the demand for asset protection solutions in applications where existing techniques were previously ineffective.
Expanding Addressable End-Markets . The continued emergence of and advances in asset protection technologies and software-based systems are increasing the demand for asset protection solutions in applications where existing techniques were previously ineffective. Expanding Aerospace and Defense Industry .
Public authorities tasked with new construction and maintenance of existing public infrastructure 15 Table of Contents increasingly use asset protection solutions to inspect these assets, including the use of embedded sensors to enable online monitoring throughout the life of the asset.
Public authorities tasked with new construction and maintenance of existing public infrastructure increasingly use asset protection solutions to inspect these assets, including the use of embedded sensors to enable online monitoring throughout the life of the asset.
We believe we have one of the most comprehensive portfolios of integrated asset protection solutions worldwide, which positions us to be a leading single-source provider for our customers’ asset 9 Table of Contents protection requirements.
We believe we have one of the most comprehensive portfolios of integrated asset protection solutions worldwide, which positions us to be a leading single-source provider for our customers’ asset protection requirements.
These 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. MISTRAS Digital ® .
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.
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 We are 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.
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.
This provides an opportunity for us to synergistically leverage our digital asset protection solutions, including MISTRAS Digital and OneSuite. Digital transmission of data in various industry sectors, with built-in analytic functions, will allow our customers to better leverage inspection data that is being generated in the field.
This provides an opportunity for us to synergistically leverage our digital asset protection solutions. Digital transmission of data in various industry sectors, with built-in analytic functions, will allow our customers to better leverage inspection data that is being generated in the field.
These individuals also have successfully driven operational growth organically and through acquisitions, which we believe is important to facilitate future growth in the asset protection industry. 10 Table of Contents Our Growth Strategy Our growth strategy emphasizes the following key elements: Continue to Digitalize Asset Protection Data and Processes.
These individuals also have successfully driven operational growth organically and through acquisitions, which we believe is important to facilitate future growth in the asset protection industry. Our Growth Strategy Our growth strategy emphasizes the following key elements: Continue to Digitalize Asset Protection Data and Processes.
Our primary competitors are divisions of large companies and various small companies which generally are limited to a specific product or technology and focused on a niche market or geographic region.
Our primary competitors include large public and private companies, divisions of large companies and various small companies which generally are limited to a specific product or technology and focused on a niche market or geographic region.
Our revenues are diversified, with our top ten customers accounting for approximately 33%, 33% and 32% of our revenues during the years ended December 31, 2022, 2021 and 2020, respectively, with no customer accounting for greater than 10% of our revenues in any such year.
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.
We utilize a combination of intellectual property safeguards, including patents, copyrights, trademarks and trade secrets, as well as employee and third-party confidentiality agreements, to protect our intellectual property. As of December 31, 2022, we held seven U.S. patents by direct ownership and six patent applications pending in the United States. All the patent applications pending have been filed since 2018.
We utilize a combination of intellectual property safeguards, including patents, copyrights, trademarks and trade secrets, as well as employee and third-party confidentiality agreements, to protect our intellectual property. As of December 31, 2023, we held 12 U.S. patents by direct ownership and 5 patent applications pending in the United States. All the patent applications pending have been filed since 2018.
We believe that few, if any, of our competitors currently provide the full range of asset protection and NDT products, enterprise software ("PCMS") and the traditional and advanced services solutions that we offer. Our competition with respect to NDT services include Acuren, SGS Group, the Team Qualspec division of Team, Inc. and APPLUS RTD.
We believe that few, if any, of our competitors currently provide the full range of asset protection and NDT products, enterprise software ("PCMS") and the traditional and advanced services solutions that we offer. Our competition with respect to NDT services include Acuren, SGS Group, the Team IHT Segment and APPLUS RTD.
Our company-sponsored research and engineering expenses were approximately $2.0 million, $2.5 million and $2.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. While we have historically funded most of our research and development expenditures, from time to time we also receive customer-sponsored research and development funding.
Our company-sponsored research and engineering expenses were approximately $1.7 million, $2.0 million and $2.5 million for the years ended December 31, 2023, 2022 and 2021, respectively. While we have historically funded most of our research and development expenditures, from time to time we also receive customer-sponsored research and development funding.
We believe we have significant opportunities to expand our customer base in relatively new end markets, including wind and other alternative energy, natural gas transportation industries pipeline integrity and additive manufacturing.
We believe we have significant opportunities to expand our customer base in relatively new end markets, including the renewable energy industry, specifically, wind and other alternative energy, natural gas transportation industries, pipeline integrity and additive manufacturing.
Our online condition-monitoring solutions 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.
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.
We believe that the introduction of next-generation airframes and aircraft engines has created an inherent demand for inspection, testing, machining and mechanical services required for the production of parts. The recent interest in the use of additive manufacturing techniques to create components also necessitates advanced inspection and testing solutions.
We believe that the introduction of next-generation airframes and aircraft engines has created an inherent demand for inspection, testing, machining and mechanical services required for the production of parts. The recent interest in the use of additive manufacturing techniques to create components also necessitates advanced inspection and testing solutions. Expand Our Focus in the Pipeline Integrity Industry.
Recent industry regulations significantly expanded pipeline integrity management regulations, requiring pipeline owner/operators to inspect, document, and assess the risk of operating conditions for existing lines. This provides us with the opportunity to provide asset protection solutions for both the new construction and integrity phases.
We intend to continue broadening our solutions for the pipeline market. Recent industry regulations significantly expanded pipeline integrity management regulations, requiring pipeline owner/operators to inspect, document, and assess the risk of operating conditions for existing lines. This provides us with the opportunity to provide asset protection solutions for both the new construction and integrity phases.
We believe that increased demand will continue to come over the next several years from the commercial industry due to the approximately decade-long backlog for next-generation commercial aircraft to be built, driving the need for advanced solutions that drive cost and quality efficiencies. Demand continues to be stable in the defense industry while demand in the outerspace industry is growing.
We believe that increased demand will continue to come over the next several years from the commercial industry due to the approximately decade-long backlog for next-generation commercial aircraft to be built, driving the need for advanced solutions that drive cost and quality efficiencies.
The software platform offers functions of our popular software and services brands as integrated apps on a cloud environment. OneSuite serves as a single access portal for customers' data activities and provides access to 90 plus integrated applications being offered on one centralized platform. Expand Our Focus in the Aerospace and Defense Industries .
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.
Most 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 $687.4 million, $677.1 million and $592.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.
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.
The expansion of our addressable markets is being driven by the increased recognition and adoption of advanced asset protection technologies that are supplanting traditional methods. 11 Table of Contents Capitalize on Acquisitions . We have completed several acquisitions to supplement and enhance our solutions, add new customers, expand our sales channels and accelerate our expected growth.
The expansion of our addressable markets is being driven by the increased recognition and adoption of advanced asset protection technologies (such as unmanned drone inspection devices, robotics, etc.) that are supplanting traditional methods. Capitalize on Acquisitions . We have completed several acquisitions to supplement and enhance our solutions, add new customers, expand our sales channels and accelerate our expected growth.
Some of the advanced inspection technologies developed by our internal research and development teams include our Sensoria wind blade monitoring technology, an automated radiographic testing ("aRT") crawler for corrosion under insulation ("CUI") inspections in aboveground pipelines and piping; our Large Structure Inspection ("LSI") scanner, and our real-time radiography ("RTR") crawler for 360° inspections of pipeline girth welds.
Some of the advanced inspection technologies developed by our internal research and development teams include an automated radiographic testing ("aRT") crawler for corrosion under insulation ("CUI") inspections in above ground pipelines and piping; our Large Structure Inspection ("LSI") scanner, and our real-time radiography ("RTR") crawler for 360° inspections of pipeline girth welds. Collaborating with Our Customers .
We have actively continued to develop technologies that enhance the flow of data throughout multiple operational phases and facilities, through solutions such as MISTRAS Digital, our integrated pipeline integrity data portfolio, and our cloud-based monitoring data portal, and Sensoria, our wind blade monitoring technology. Expand our Solution Offerings to Existing Customers .
We have actively continued to develop technologies that enhance the flow of data throughout multiple operational phases and facilities, through our integrated pipeline integrity data portfolio, and our cloud-based monitoring data portal. Expand our Solution Offerings to Existing Customers .
Field Inspections Our field inspections portfolio includes traditional and advanced NDT techniques, along with predictive maintenance assessments of fixed and rotating assets 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 integrity.
Field Inspections 4 Table of Contents 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.
Our core capabilities include Non-Destructive Testing (“NDT”) field inspections enhanced by advanced robotics, laboratory quality control and assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.
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.
We generated net income of $6.6 million, a net income of $3.9 million and net loss of $99.5 million for the years ended December 31, 2022, 2021, and 2020, respectively. For the years ended December 31, 2022, 2021 and 2020, we generated approximately 83%, 82% and 80%, respectively, of our revenues from our Services segment.
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 COEs include: • Acoustic Emission • Aerospace • American Petroleum Institute ("API") Turnarounds • AIMS/MI/Engineering • Automated Ultrasonics 7 Table of Contents • Data Solutions • Fossil Power • Guided Wave Ultrasonics • Infrastructure • PCMS Software and Services • Mechanical Services • MISTRAS Digital® • Nuclear Power • Offshore • Phased Array • Pipeline • Power Generation • Predictive Maintenance • Refractory Inspection • Rope Access/Wind • Substation Reliability • Tank Inspection • Transportation • Tube Inspection • Unmanned Systems ASSET PROTECTION INDUSTRY OVERVIEW Asset protection plays a crucial role in assuring the integrity and reliability of critical infrastructure.
Our COEs include: • Acoustic Emission • American Petroleum Institute ("API") Turnarounds • AIMS/MI/Engineering • Automated Ultrasonics • Fossil Power • Guided Wave Ultrasonics • Mechanical Services • Nuclear Power • Phased Array • Rope Access • Wind • Tank Inspection • Tube Inspection • Unmanned Systems ASSET PROTECTION INDUSTRY OVERVIEW Asset protection plays a crucial role in assuring the integrity and reliability of critical infrastructure.
We recognize that this data is most valuable to our customers when it is accessible and integrated (regardless of vendor, tool, or facility), and have taken significant steps to digitalizing asset protection processes through the release of the first-ever asset protection software ecosystem MISTRAS OneSuite.
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.
All of the materials we file with or furnish to the SEC are available free of charge on our website at http://investors.mistrasgroup.com/sec.cfm, as soon as reasonably practicable after having been electronically submitted to the SEC.
We file reports with the SEC, including Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, Current Reports on Form 8-K and Proxy Statements. All of the materials we file with or furnish to the SEC are available free of charge on our website at http://investors.mistrasgroup.com/sec.cfm, as soon as reasonably practicable after having been electronically submitted to the SEC.
Engineering Consulting We provide a broad range of engineering consulting services, primarily for process equipment, technologies and facilities. Our engineering consultations include plant operations and management support, turnaround/shutdown planning, profit improvement, facilities planning studies, engineering design, process safety reviews, energy optimization evaluations, benchmarking/key performance indicator development and technical training.
Our engineering consultations include plant operations and management support, turnaround/shutdown planning, profit improvement, facilities planning studies, engineering design, process safety reviews, energy optimization evaluations, benchmarking/key performance indicator development and technical training.
Key Dynamics of the Asset Protection Industry We believe the following represent key dynamics of the asset protection industry, and that the market available to us will continue to grow as these macro-market trends continue to develop: Extending the Useful Life of Aging Infrastructure While Increasing Utilization .
Key Dynamics of the Asset Protection Industry We believe the following represent key dynamics of the asset protection industry, and that the market available to us will continue to grow as these macro-market trends continue to develop: Digital Transformation of Asset Protection.
We view energy-related infrastructure and commercial aerospace as our largest market opportunities. We perform inspection and mechanical services for customers in both industries.
We view energy-related infrastructure and commercial aerospace as our largest market opportunities. We perform inspection and mechanical services for customers in both industries. Our revenues are comprised of services offerings at our laboratories and at customer facilities.
We expect that increasingly stringent quality-control requirements and competitive forces will drive the demand for more-costly finishing and polishing which, in turn, creates opportunities for integrated partnerships between us and our customers throughout the production lifecycle. Power Generation and Transmission We provide asset protection solutions for customers in the combined cycle, fossil, nuclear, transmission and distribution and wind/alternative energy industries.
We expect that increasingly stringent quality-control requirements and competitive forces will drive the demand for more-costly finishing and polishing which, in turn, creates opportunities for integrated partnerships between us and our customers throughout the production lifecycle.
Excerpted below are forecasts from various Energy Information Administration (EIA) outlook reports, which are subject to change based on these factors: Electricity generation from coal is projected to fall throughout the mid 2020's and the decrease will be partially offset by an increase in the forecast of combined utility-scale solar and wind generation. 12 Table of Contents The EIA noted U.S. crude oil production averaged 11.2 million barrels per day (bpd) in 2021 and rose to an average 11.9 million bpd in 2022.
Excerpted below are forecasts from various Energy Information Administration (EIA) outlook reports, which are subject to change based on these factors: 13 Table of Contents Electricity generation from coal is projected to fall throughout the mid 2020s and the decrease will be partially offset by an increase in the forecast of combined utility-scale solar and wind generation.
We have also invested significant research and development in pre-machining and advanced testing technologies in a purpose-built facility for an aerospace customer, with the goal of reducing the customer’s production cycle logistics and costs.
These strategic investments enable us to enhance our service offerings to customers and provide valuable insights and predictive analysis. We have also invested significant research and development in pre-machining and advanced testing technologies in a purpose-built facility for an aerospace customer, with the goal of reducing the customer’s production cycle logistics and costs.
Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, and a decades-long legacy of industry leadership, we help clients with asset-intensive infrastructure in the oil and gas, petrochemical, aerospace and defense, renewable and non-renewable energy, civil infrastructure, and manufacturing industries towards achieving and maintaining operational excellence.
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.
With these certifications come a comprehensive range of approvals from prime contractors of major projects, militaries and internationally-renowned original equipment manufacturers ("OEMs") from many of our key markets, including the oil and gas, aerospace and defense, power generation and industrial markets. 6 Table of Contents Maintenance We perform maintenance and light mechanical services to prepare assets for inspection and to return them to working condition post inspection.
With these certifications come a comprehensive range of approvals from prime contractors of major projects, militaries and internationally-renowned original equipment manufacturers ("OEMs") from many of our key markets, including the oil and gas, aerospace and defense, power generation and industrial markets.
Outsourcing of Non-Core Activities and Technical Resource Constraints . Due to the increasing sophistication and automation of NDT programs, a decreasing supply of skilled professionals and increasing governmental regulations, companies are increasingly outsourcing NDT to third-party providers with advanced solution portfolios, engineering expertise and trained workforces. 8 Table of Contents Digital Transformation of Asset Protection.
Due to the increasing sophistication and automation of NDT programs, a decreasing supply of skilled professionals and increasing governmental regulations, companies are increasingly outsourcing NDT to third-party providers with advanced solution portfolios, engineering expertise and trained workforces. Increasing Corrosion from Low-Quality Inputs .
The OneSuite software platform offers functions of our popular software and services brands as integrated apps on a cloud environment. OneSuite serves as a single access portal for customers' data activities and provides access to 90 plus integrated applications being offered on one centralized platform. Plant Condition Management Software (PCMS®).
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 believe that in recent years, acceptance of asset protection solutions has grown in this industry due to the aging of critical power generation and transmission infrastructure.
Power Generation and Transmission 14 Table of Contents We provide asset protection solutions for customers in the combined cycle, fossil, nuclear, transmission and distribution and wind/alternative energy industries. We believe that in recent years, acceptance of asset protection solutions has grown in this industry due to the aging of critical power generation and transmission infrastructure.
Prajzner joined Mistras in January 2018 as our Senior Vice President, Chief Financial Officer and Treasurer becoming our Executive Vice President, Chief Financial Officer and Treasurer effective February 27, 2020. Prior to joining Mistras, Mr.
Prajzner joined Mistras in January 2018 as our Senior Vice President, Chief Financial Officer and Treasurer, was subsequently promoted to Executive Vice President and on March 26, 2023, was promoted to become our Senior Executive Vice President and Chief Financial Officer. Prior to joining Mistras, Mr.
Many of our data solutions are platform-agnostic, allowing us to integrate into customers' existing operations, and thereby expanding the potential customer pool for our solutions.
Many of our data analytical solutions are platform-agnostic, allowing us to integrate into customers' existing operations, and thereby expanding the potential customer pool for our solutions. Our expertise and experience also allow us to tailor our offerings to meet specific customer needs, which sets us apart from our competitors.
PCMS software and pipeline related software and data analysis solutions are included in this segment. International offers services, products and systems similar to those of the other segments to select markets within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment.
International offers services, products and systems similar to those of the other segments to select markets within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment Products and Systems designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States.
Crude Oil Prices. Volatility in the energy sector has been profound during the 2015-2022 period. The collapse of world oil prices in 2015 and 2016 undermined industry expansion.
Demand continues to be stable in the defense industry while demand in the private space industry is growing. Crude Oil Prices. Volatility in the energy sector has been profound during the 2015-2022 period with moderation occurring during 2023. The collapse of world oil prices in 2015 and 2016 undermined industry expansion.
We are also actively seeking to optimize our customers’ asset protection workflows and processes, by creating digital paths between data applications to increase data visibility and reduce manual data entry and human error. We have continued providing our customers with innovative asset protection software ecosystem through our MISTRAS OneSuite platform.
We are also actively seeking to optimize our customers’ asset protection workflows and processes, by creating digital paths between data applications to increase data visibility and reduce manual data entry and human error. Expand Our Focus in the Aerospace and Defense Industries .
Seasonality Our business is seasonal. This seasonality relates primarily to our oil and gas target market, and to a lesser extent within our other target markets. U.S. refineries’ non-peak periods are generally in the fall, when they are retooling to produce more heating oil for winter, and in the spring, when they are retooling to produce more gasoline for summer.
U.S. refineries’ non-peak periods are generally in the fall, when they are retooling to produce more heating oil for winter, and in the spring, when they are retooling to produce more gasoline for summer.
We believe PCMS is one of the most widely used plant condition management software systems in North American refineries. We estimate it is currently used by approximately 50% of the U.S. refiners, as well as by leading midstream pipeline energy companies and major energy companies in Canada and Europe.
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.
We seek to foster a culture of togetherness, safety, respect, and contribution which enables each individual member to feel that he or she is a part of something bigger.
Another program we instituted focuses on our connection by a common thread of caring – about one another, our customers, the environment, and the work we do. We seek to foster a culture of togetherness, safety, respect, and contribution which enables each individual member to feel that he or she is a part of something bigger.
Our Target Markets Overview We operate in a highly competitive, but fragmented market. Domestically, the market is serviced by several national competitors and many regional and/or local companies.
Revenue Overview Revenue by Industry The following charts represent our disaggregated revenue by industry for the years ended December 31, 2023, 2022 and 2021. 11 Table of Contents 12 Table of Contents Our Target Markets Overview We operate in a highly competitive, but fragmented market. Domestically, the market is serviced by several national competitors and many regional and/or local companies.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny of these factors, individually or with one or more of the other factors, or other unforeseen impacts of climate change could have a material adverse effect on our results of operations, financial condition and liquidity. Our international operations are subject to risks relating to non-U.S. operations.
Biggest changeAny of these factors, individually or with one or more of the other factors, or other unforeseen impacts of climate change could have a material adverse effect on our results of operations, financial condition and liquidity. 21 Table of Contents In addition, changes in international, federal, state and local legislation and regulation based on concerns about climate change and increasing climate-related disclosures, including the rules proposed by the SEC, could result in increased compliance and data collection costs if, and when, such laws and regulations become effective.
These provisions: • allow the authorized number of directors to be changed only by resolution of our board of directors; • require that vacancies on the board of directors, including newly created directorships, be filled only by a majority vote of directors then in office; • authorize our board of directors to issue, without stockholder approval, preferred stock that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by our board of directors; • require that stockholder actions must be effected at a duly called stockholder meeting by prohibiting stockholder action by written consent; • prohibit cumulative voting in the election of directors, which may otherwise allow holders of less than a majority of stock to elect some directors; and • establish advance notice requirements for stockholder nominations to our board of directors or for stockholder proposals that can be acted on at stockholder meetings and limit the right to call special meetings of stockholders to the Chairman of our board, our Chief Executive Officer, our board of directors acting pursuant to a resolution adopted by a majority of directors or our Secretary upon the written request of stockholders entitled to cast not less than 35% of all the votes entitled to be cast at such meeting.
These provisions: • allow the authorized number of directors to be changed only by resolution of our board of directors; • require that vacancies on the board of directors, including newly created directorships, be filled only by a majority vote of directors then in office; 27 Table of Contents • authorize our board of directors to issue, without stockholder approval, preferred stock that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by our board of directors; • require that stockholder actions must be effected at a duly called stockholder meeting by prohibiting stockholder action by written consent; • prohibit cumulative voting in the election of directors, which may otherwise allow holders of less than a majority of stock to elect some directors; and • establish advance notice requirements for stockholder nominations to our board of directors or for stockholder proposals that can be acted on at stockholder meetings and limit the right to call special meetings of stockholders to the Chairman of our board, our Chief Executive Officer, our board of directors acting pursuant to a resolution adopted by a majority of directors or our Secretary upon the written request of stockholders entitled to cast not less than 35% of all the votes entitled to be cast at such meeting.
We believe that it is probable, based on the New Credit Agreement (as defined herein), that we will be able to comply with the financial covenants in our credit agreement and that sufficient credit remains available under the credit agreement to meet our liquidity needs.
We believe that it is probable, based on the New Credit Agreement (as defined herein), that we will be able to comply with the financial covenants in our existing credit agreement and that sufficient credit remains available under the credit agreement to meet our liquidity needs.
In addition, due to our current debt levels and restrictions related to the debt covenants in our credit facility, we do not expect to make any acquisitions in 2023 other than small acquisitions with the banks’ approval. We face risks regarding our information technology and security.
In addition, due to our current debt levels and restrictions related to the debt covenants in our credit facility, we do not expect to make any acquisitions in 2024 other than small acquisitions with the banks’ approval. We face risks regarding our information technology and security.
If we are unable to adequately address any of these factors, our results of operations and prospects for growth and profitability would be adversely impacted. 24 Table of Contents If we are unable to attract and retain a sufficient number of trained certified technicians, engineers and scientists at competitive wages, changes in laws and other labor issues could materially affect our financial performance.
If we are unable to adequately address any of these factors, our results of operations and prospects for growth and profitability would be adversely impacted. If we are unable to attract and retain a sufficient number of trained certified technicians, engineers and scientists at competitive wages, changes in laws and other labor issues could materially affect our financial performance.
Our quarterly revenues and operating results may vary depending on a number of factors, including those listed previously under “—Risks Related to Our Business.” In addition, the price of our 28 Table of Contents common stock is subject to general economic, market, industry, and competitive conditions, the risk factors discussed herein and numerous other conditions outside of our control.
Our quarterly revenues and operating results may vary depending on a number of factors, including those listed previously under “—Risks Related to Our Business.” In addition, the price of our common stock is subject to general economic, market, industry, and competitive conditions, the risk factors discussed herein and numerous other conditions outside of our control.
We continually review our NDT solutions for compliance with the requirements of industry specification standards and the Nadcap special processes quality requirements. 23 Table of Contents However, if we fail to maintain our ISO, Nadcap or other certifications, our business may be harmed because our customers generally require that we have these certifications before they purchase our NDT solutions.
We continually review our NDT solutions for compliance with the requirements of industry specification standards and the Nadcap special processes quality requirements. However, if we fail to maintain our ISO, Nadcap or other certifications, our business may be harmed because our customers generally require that we have these certifications before they purchase our NDT solutions.
If we lose key members of our senior management team upon whom we are dependent, we may be less effective in managing our operations and may have more difficulty achieving our strategic objectives. Our future success depends to a considerable degree upon the availability, contributions, vision, skills, experience and effort of our senior management team.
If we lose key members of our senior management team upon whom we are dependent, we may be less effective in managing our operations and may have more difficulty achieving our strategic objectives. 28 Table of Contents Our future success depends to a considerable degree upon the availability, contributions, vision, skills, experience and effort of our senior management team.
The occurrence or perception of security breaches in connection with our asset protection solutions or 26 Table of Contents our customers’ concerns about internet security or the security of our solutions, whether warranted or not, would likely harm our reputation and business, inhibit market acceptance of our asset protection solutions and cause us to lose customers, any of which would harm our financial condition and results of operations.
The occurrence or perception of security breaches in connection with our asset protection solutions or our customers’ concerns about internet security or the security of our solutions, whether warranted or not, would likely harm our reputation and business, inhibit market acceptance of our asset protection solutions and cause us to lose customers, any of which would harm our financial condition and results of operations.
Many of our customers have strict requirements concerning safety or loss time occurrences and if we are unable to meet these requirements it could result in lost revenues. In the future, governmental agencies may seek to change current regulations or impose additional regulations on our business.
Many of our customers have strict requirements concerning safety or loss time occurrences and if we are unable to meet these requirements it could result in lost 22 Table of Contents revenues. In the future, governmental agencies may seek to change current regulations or impose additional regulations on our business.
Vahaviolos and his family have significant control over our Company and have the ability to exert substantial influence over all matters requiring approval by our shareholders, including the election and removal of directors, amendments to our certificate of incorporation, and any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions.
Vahaviolos and his family have significant control over the Company and they have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors, amendments to our certificate of incorporation, and any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions.
For example, the transportation and overnight storage of radioactive materials used in providing certain of our asset protection solutions such as radiography are subject to regulation under federal and state laws and licensing requirements. Our Services segment is currently licensed to handle radioactive materials by the U.S.
For example, the transportation and overnight storage of radioactive materials used in providing certain of our asset protection solutions such as radiography are subject to regulation under federal and state laws and licensing requirements. Our North America segment is currently licensed to handle radioactive materials by the U.S.
If our software or system produces inaccurate information or are incompatible with the systems used by our customers and make us unable to successfully provide our solutions, it could lead to a loss of revenues and customers. Our software and systems are complex and, accordingly, may contain undetected errors or failures.
If our software or system produces inaccurate information or are incompatible with the systems used by our customers and make us unable to successfully provide our solutions, it could lead to a loss of revenues and customers. 23 Table of Contents Our software and systems are complex and, accordingly, may contain undetected errors or failures.
Our operating results could be adversely affected by a reduction in business with our significant customers. We derive a significant amount of revenues from a few customers. Taken as a group, our top ten customers were responsible for approximately 33%, 33%, and 32% of our revenues for the years ended December 31, 2022, 2021 and 2020, respectively.
Our operating results could be adversely affected by a reduction in business with our significant customers. We derive a significant amount of revenues from a few customers. Taken as a group, our top ten customers were responsible for approximately 35%, 33%, and 33% of our revenues for the years ended December 31, 2023, 2022 and 2021, respectively.
If the price of oil 21 Table of Contents reaches record, or near record levels as it did in 2022, we may experience delays or deferrals in performing inspection services to customers in the oil and gas industry.
If the price of oil reaches record, or near record levels as it did in 2022, we may experience delays or deferrals in performing inspection services to customers in the oil and gas industry.
Provisions of our charter, bylaws and of Delaware law could discourage, delay or prevent a change of control of our company, which may adversely affect the market price of our common stock.
Provisions of our certificate of incorporation, bylaws and of Delaware law could discourage, delay or prevent a change of control of our company, which may adversely affect the market price of our common stock.
Although we obligate our employees to confidentiality, we cannot be certain that these obligations will be honored or enforceable in all circumstances. 29 Table of Contents We may require additional capital to support business growth, which might not be available.
Although we obligate our employees to confidentiality, we cannot be certain that these obligations will be honored or enforceable in all circumstances. We may require additional capital to support business growth, which might not be available.
This concentration of ownership could be disadvantageous to other shareholders with differing interests from Dr. Vahaviolos and his family. 27 Table of Contents We currently have no plans to pay dividends on our common stock.
This concentration of ownership could be disadvantageous to other stockholders with differing interests from Dr. Vahaviolos and his family. We currently have no plans to pay dividends on our common stock.
Nuclear Regulatory Commission, more than 20 state regulatory agencies and the Canadian Nuclear Safety Commission.
Nuclear Regulatory Commission, more than 30 state regulatory agencies and the Canadian Nuclear Safety Commission.
This concentration pertains almost exclusively to our Services segment, which accounted for 83%, 82% and 80% of our revenues for the years ended December 31, 2022, 2021 and 2020, respectively. These customers are primarily in the oil and gas sector.
This concentration pertains almost exclusively to our North America segment, which accounted for 82%, 83% and 82% of our revenues for the years ended December 31, 2023, 2022 and 2021, respectively. These customers are primarily in the oil and gas sector.
Vahaviolos, our founder and Executive Chairman, owns approximately 6% of our outstanding common stock, his three adult children own an additional 6%, in the aggregate, and a grantor retained annuity trust he created, for which his daughter is the sole trustee, owns approximately 23%. As a result, Dr.
Vahaviolos, our fo under and Chairman Emeritus, owns approximately 6% of our outstanding common stock, his three adult children own an additional 6%, in the aggregate, and a grantor retained annuity trust he created, for which his daughter is the sole trustee, owns approximately 22%. As a result, Dr.
In addition, it is unclear what effects the war between Russia and Ukraine is likely to have on the world economy and certain of our target markets, including particularly the oil and gas market, in the near and long term.
In addition, it is unclear what effects the on-going war between Russia and Ukraine and the conflict in the Middle East between Israel and Hamas are likely to have on the world economy and certain of our target markets, including particularly the oil and gas market, in the near and long term.
There are numerous risks inherent in doing business in international markets, including: • fluctuations in currency exchange rates and interest rates; • varying regional and geopolitical business and economic conditions and demands; • compliance with applicable foreign regulations and licensing requirements, and U.S. laws and regulation with respect to conducting business in other countries, including export controls, sanctions, anti-terrorist and anti-bribery laws; • the cost and uncertainty of obtaining data and creating solutions that are relevant to particular geographic markets; • the need to provide sufficient levels of technical support in different locations; • the complexity of maintaining effective policies and procedures in locations around the world; • political instability and civil unrest; • increased risk of hacking, malware or security breaches of our data and databases; • restrictions or limitations on outsourcing contracts or services abroad; • restrictions or limitations on the repatriation of funds, or tax consequences on the non-repatriation of overseas operationally generated funds; and • other potentially adverse tax consequences. 22 Table of Contents We expect to continue expanding and our success depends on how effectively we manage our growth.
There are numerous risks inherent in doing business in international markets, including: • fluctuations in currency exchange rates and interest rates; • regional micro and macro-economic pressures, inflationary costs, energy costs and geopolitical factors; • compliance with applicable foreign regulations and licensing requirements, and U.S. laws and regulation with respect to conducting business in other countries, including export controls, sanctions, anti-terrorist and anti-bribery laws; • the cost and uncertainty of obtaining data and creating solutions that are relevant to particular geographic markets; • the need to provide sufficient levels of technical support in different locations; • the complexity of maintaining effective policies and procedures in locations around the world; • political instability, war or conflicts and civil unrest; • increased risk of hacking, malware or security breaches of our data and databases; • restrictions or limitations on outsourcing contracts or services abroad; • restrictions or limitations on the repatriation of funds, or tax consequences on the non-repatriation of overseas operationally generated funds; and • other potentially adverse tax consequences.
However, economic slowdowns or low oil prices have, and could continue to, result in cutbacks in contracts for our services. In addition, low oil prices could depress the level of new exploration and construction, which would adversely affect our market opportunities. If the price of oil were to decrease, our revenues, profits and cash flows may be reduced.
In addition, low oil prices could depress the level of new exploration and construction, which would adversely affect our market opportunities. If the price of oil were to decrease, our revenues, profits and cash flows may be reduced.
While we significantly recovered during 2022, future deterioration in industry or economic conditions in which we operate, including disruptions in Europe or elsewhere as a result of the war between Russia and Ukraine, disruptions to our business, not effectively integrating acquired businesses, or other factors, may cause impairment charges to our goodwill in future periods.
Future deterioration in industry or economic conditions in which we operate, including increased inflationary costs, energy costs, labor costs, social pressures and disruptions in Europe, the Middle East or elsewhere as a result of the war between Russia and Ukraine and the conflict between Israel and Hamas, disruptions to our business, not effectively integrating acquired businesses, macroeconomic factors or other factors, may cause impairment charges to our goodwill in future periods.
For the years ended December 31, 2022, 2021 and 2020, we generated approximately 29%, 30%, and 31% of our revenues outside the United States, respectively. In addition, our international operations as a percentage of our business may increase over time. Our primary operations outside the United States are in Canada, Germany, France, the United Kingdom, the Netherlands and Brazil.
Our international operations are subject to risks relating to non-U.S. operations. For the years ended December 31, 2023, 2022 and 2021, we generated approximately 29%, 29%, and 30% of our revenues outside the United States, respectively. In addition, our international operations as a percentage of our business may increase over time.
A large portion of our customer base has operations in the Gulf of Mexico, which is subject to hurricanes and tropical storms. Hurricane-related disruptions to our customers’ operations have adversely affected our revenues in the past. Such events in the future may result in substantial delays in the provision of solutions to our customers and the loss of valuable equipment.
Hurricane-related disruptions to our customers’ operations have adversely affected our revenues in the past. Such events in the future may result in substantial delays in the provision of solutions to our customers and the loss of valuable equipment.
Risks Related to Our Common Stock A significant stockholder has significant influence over the direction of our business. The concentrated ownership of our common stock may prevent other stockholders from influencing significant corporate decisions. Dr. Sotirios J.
The concentrated ownership of our common stock may prevent other stockholders from influencing significant corporate decisions. Dr. Sotirios J.
Our credit agreement contains financial and operating restrictions that may limit our access to credit. If we fail to comply with financial or other covenants in our credit agreement, we may be required to repay indebtedness to our existing lenders, which may harm our liquidity.
If we fail to comply with financial or other covenants in our credit agreement, we may be required to repay indebtedness to our existing lenders, which may harm our liquidity. 25 Table of Contents Our credit agreement contains financial covenants that require us to maintain compliance with specified financial ratios.
In addition, it is unclear what effects the war between Russia and Ukraine is likely to have on the world economy and certain of our target markets, including particularly the oil and gas market, in the near and long term. In addition, macroeconomic factors such as inflation, unemployment, and interest rates, amongst others, will impact our business.
In addition, it is unclear what the continued effects the war between Russia and Ukraine and the conflict in the Middle East between Israel and Hamas are likely to have on the world economy and certain of our target markets, including particularly the oil and gas market, in the near and long term.
We may be affected by climate change and market or regulatory responses to climate change Climate change could have a material adverse effect on our results of operations, financial condition, and liquidity.
Our European operations are currently experiencing increased costs associated with higher energy costs, among others, due in part to the Russian-Ukrainian war. We may be affected by climate change and market or regulatory responses to climate change Climate change could have a material adverse effect on our results of operations, financial condition, and liquidity.
Accordingly, you should not consider the following to be a complete discussion of all risks and uncertainties pertaining to us and our common stock. Risks Related to Our Business Due to our dependency on customers in the oil and gas industry, we are susceptible to prolonged negative trends relating to this industry that could adversely affect our operating results.
Risks Related to Our Business Due to our dependency on customers in the oil and gas industry, we are susceptible to prolonged negative trends relating to this industry that could adversely affect our operating results. Our customers in the oil and gas industry have accounted for a substantial portion of our historical revenues.
If the market for our asset protection solutions does not continue to develop, our ability to grow our business would be limited and we might not be able to maintain 25 Table of Contents profitability.
If the market for our asset protection solutions does not continue to develop, our ability to grow our business would be limited and we might not be able to maintain profitability. If we cannot convince our customers of the advantages and value of our advanced NDT services, we could lose large contracts or suffer lower profit margin.
We operate in competitive markets and if we are unable to compete successfully, we could lose market share and revenues and our margins could decline. We face strong competition from NDT and a variety of niche asset protection providers, both larger and smaller than we are.
We face strong competition from NDT and a variety of niche asset protection providers, both larger and smaller than we are.
Our customers in the oil and gas industry have accounted for a substantial portion of our historical revenues. Specifically, they accounted for approximately 56%, 54%, and 54% of our revenues for the years ended December 31, 2022, 2021 and 2020, respectively.
Specifically, they accounted for approximately 59%, 56%, and 54% of our revenues for the years ended December 31, 2023, 2022 and 2021, respectively. Although we have expanded our customer base into industries other than the oil and gas industry, we still receive a majority of our revenues from this industry.
In addition, our results can be adversely impacted by severe winter weather conditions, which can result in lost workdays and temporary closures of customer facilities or outdoor projects. In addition, these events could disrupt commodity prices or financial markets or have other negative macroeconomic impacts, such as the on-going war between Ukraine and Russia, which could harm our business.
In addition, our results can be adversely impacted by severe winter weather conditions, which can result in lost workdays and temporary closures of customer facilities or outdoor projects.
Deteriorations in economic conditions in certain markets or other factors may cause us to recognize impairment charges for our goodwill.
Deteriorations in economic conditions in certain markets or other factors may cause us to recognize additional impairment charges for our goodwill. During the year ended December 31, 2023, we recognized goodwill impairment charges of $13.8 million within the International reporting units.
We continue to actively monitor the war between Russia and Ukraine and the sanctions imposed upon Russia in order to assess impacts to our customers and our operations. At this time, we do not believe there is a material impact on our operations, however the future impact of the conflict, and additional sanctions imposed, are uncertain.
We continue to actively monitor the conflict in the Middle East between Israel and Hamas, and the war between Russia and Ukraine and the sanctions imposed upon Russia in order to assess impacts to our customers and our operations.
Any such events could cause a serious business disruption that reduces our customers’ need or interest in purchasing our asset protection solutions. In the past, such events have resulted in order cancellations and delays because customer equipment, facilities or operations have been damaged, or are not then operational or available.
In the past, such events have resulted in order cancellations and delays because customer equipment, facilities or operations have been damaged, or are not then operational or available. A large portion of our customer base has operations in the Gulf of Mexico, which is subject to hurricanes and tropical storms.
If we cannot convince our customers of the advantages and value of our advanced NDT services, we could lose large contracts or suffer lower profit margin. The seasonal nature of our business reduces our revenues and profitability in the winter and summer and related cash flows. Our business is seasonal.
The seasonal nature of our business reduces our revenues and profitability in the winter and summer and related cash flows. Our business is seasonal.
Although we have expanded our customer base into industries other than the oil and gas industry, we still receive a majority of our revenues from this industry. Our services are vital to the operators of plants, refineries, and pipelines, and we have expanded our services offerings, such as expanding our mechanical and in-line inspection services capabilities.
Our services are vital to the operators of plants, refineries, and pipelines, and we have expanded our services offerings, such as expanding our mechanical and in-line inspection services capabilities. However, economic slowdowns or low oil prices have, and could continue to, result in cutbacks in contracts for our services.
We also have operations in Belgium, Greece and India.
Our primary operations outside the United States are in Canada, Germany, France, the United Kingdom, the Netherlands and Brazil. We also have operations in Belgium, Greece and India.
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While we have not fully recovered to pre-COVID19 levels across all end markets in which we operate, we expect to grow in the scope of our operations over the long-term.
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In addition, macroeconomic factors such as inflation, unemployment, and interest rates, amongst others, will impact our business. Accordingly, you should not consider the following to be a complete discussion of all risks and uncertainties pertaining to us and our common stock.
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To effectively manage our anticipated future growth, we must continue to implement and improve our managerial, operational, compliance, financial and reporting systems and capabilities, expand our facilities and continue to recruit and train additional qualified personnel. We expect that all these measures will require significant expenditures and will demand the attention of management.
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However, during 2022, we experienced unfavorable foreign currency exchange impacts as it relates to our European operations. Additionally, the Russian-Ukrainian war continues to create disruptions in the oil and gas market and the supply chain in general, which is resulting in some disruption to our business operations.
Removed
Failure to manage our growth effectively could lead us to over or under-invest in technology and operations, result in weaknesses in our infrastructure, systems, compliance programs or controls, and give rise to operational mistakes, the loss of business opportunities, the loss of employees and reduced productivity among remaining employees.
Added
Our initiatives to improve our financial performance may not achieve results within expected time frames, or at expected levels. We have undertaken strategies to transform our business so that we may operate more effectively, streamline and rationalize our cost structures, and look for strategic opportunities to expand our revenue and become more profitable.
Removed
Our anticipated growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of new solutions.
Added
The extent of our future success depends on how successful we are in these endeavors. In 2023, we commenced a broad review of our operations, which we refer to as "Project Phoenix". Through Project Phoenix, we have been exploring ways to improve profitability and Adjusted EBITDA, through meaningful margin improvement and sustained cost savings.
Removed
If our management is unable to effectively manage our anticipated growth, our expenses may increase more than expected, our profit margins may suffer, our revenues could decline or may grow more slowly than expected and we may be unable to implement our business strategy as anticipated.
Added
We have completed most phases of the project, wherein efficiency and profitability opportunities were identified, actionable initiatives were validated, and many of these actions have been implemented prospectively. Project Phoenix has resulted in significant cost reductions, primarily through headcount reductions, more efficient workflows, and streamlining of processes, and also led to developing and initiating action plans to increase revenue.
Removed
Our credit agreement contains financial covenants that require us to maintain compliance with specified financial ratios.
Added
We believe our Project Phoenix initiatives will benefit the Company and our stockholders in the long run.
Removed
Our long-term growth strategy may include acquisitions. We may not be able to identify suitable acquisition candidates or integrate acquired businesses successfully, which may adversely impact our results. Furthermore, acquisitions that we have completed or may complete in the future could expose us to a number of unanticipated operational and financial risks.
Added
However, we cannot be certain that some of the cost reductions could result in problems with our operations, lost opportunities, weakening of controls and procedures or other adverse effects if we misjudged the impact of the headcount reductions and other changes that we have implemented and are currently implementing.
Removed
A significant factor in our growth over the years has been based upon our ability to make acquisitions and successfully integrate these acquired businesses. We have used acquisitions both to expand into new markets and to enhance our position in existing markets.
Added
In addition, headcount reductions can result in lower employee morale and result in employees deciding to leave the Company, which would further adversely impact our businesses. 24 Table of Contents We operate in competitive markets and if we are unable to compete successfully, we could lose market share and revenues and our margins could decline.
Removed
This strategy has provided us with many benefits and has helped fuel our growth, but also carries with it many risks. We have not made a material acquisition in the past four years, and we do not expect to make material acquisitions in 2023. Non-U.S. acquisitions provide the potential for greater exposure to risks associated with international operations.
Added
Our credit agreement contains financial and operating restrictions that may limit our access to credit.
Removed
We have a significant amount of goodwill and other intangible assets on our balance sheet from our acquisitions.
Added
At this time, we do not believe there is a material impact on our operations, however the future impact of the conflict, and additional sanctions imposed, are uncertain. 26 Table of Contents Any such events could cause a serious business disruption that reduces our customers’ need or interest in purchasing our asset protection solutions.
Removed
If our acquisitions do not perform as planned and we do not realize the benefits and profitability we expect, we could incur significant write-downs and impairment charges to our earnings due to the impairment of the goodwill and other intangible assets we have acquired or acquire in the future.
Added
In addition, these events could disrupt commodity prices or financial markets or have other negative macroeconomic impacts, such as the conflict in the Middle East between Hamas and Israel and the on-going war between Ukraine and Russia, which could harm our business. Risks Related to Our Common Stock A significant stockholder has significant influence over the direction of our business.
Removed
The COVID-19 pandemic has adversely affected our business and operations and may continue to do so in the future. Throughout 2022, conditions continued to improve and subside related to the COVID-19 coronavirus (COVID-19) pandemic in domestic and international markets and operations began approaching pre-pandemic levels of activity.
Removed
While we recovered during 2022 from most of the negative effects of the COVID-19 pandemic on our business and operations, we are unable to predict the nature or duration of the COVID-19 pandemic and the effect the pandemic will have on our business, financial condition, liquidity, cash flow and results of operations in the future.
Removed
If the pandemic re-emerges, or another similar outbreak occurs, longer or in a manner more adverse that expected, or has a greater adverse impact on our customers, our financial conditions could be adversely impacted and we may encounter difficulties meeting the financial covenants in our credit agreement.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWhile we lease most of our facilities, as of December 31, 2022, we owned properties located in Monroe, North Carolina; Trainer, Pennsylvania; LaPorte, Texas; Burlington, Washington; Evanston, Wyoming; and Jonquiere, Quebec, Canada. Our Services segment utilizes approximately 80 facilities throughout North America (including Canada and Mexico). Our Products and Systems segment’s primary location is in our Princeton Junction, NJ facility.
Biggest changeWhile we lease most of our facilities, as of December 31, 2023, we owned properties located in Monroe, North Carolina; Trainer, Pennsylvania; LaPorte, Texas; Burlington, Washington; Evanston, Wyoming; and Jonquiere, Quebec, Canada. Our North America segment utilizes approximately 70 facilities throughout North America (including Canada and Mexico).
ITEM 2. PROPERTIES As of December 31, 2022, we operated approximately 120 facilities in 11 countries, with our corporate headquarters located in Princeton Junction, New Jersey. Our headquarters in Princeton Junction is our primary location, where most of our manufacturing and research and development is conducted.
ITEM 2. PROPERTIES As of December 31, 2023, we operated approximately 110 facilities in 11 countries, with our corporate headquarters located in Princeton Junction, New Jersey. Our headquarters in Princeton Junction is our primary location, where most of our manufacturing and research and development is conducted.
Our International segment has approximately 40 facilities including locations in Belgium, Brazil, France, Germany, Greece, India, the Netherlands and the United Kingdom. We believe that all of our facilities are well maintained and are suitable and adequate for the foreseeable future.
Our Products and Systems segment’s primary location is in our Princeton Junction, New Jersey facility. Our International segment has approximately 35 facilities including locations in Belgium, Brazil, France, Germany, Greece, India, the Netherlands and the United Kingdom. We believe that all of our facilities are well maintained and are suitable and adequate for the foreseeable future.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+2 added−0 removed1 unchanged
Biggest changeMonth Ending Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) Total Number of Shares Purchased as Part of a Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs October 31, 2022 22,166 $ 4.78 — $ — November 30, 2022 — $ — — $ — December 31, 2022 25,227 $ 4.93 — $ — `ITEM 6. [RESERVED] 31 Table of Contents
Biggest changeMonth Ending Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Unit) October 31, 2023 27,352 $ 5.42 November 30, 2023 108 $ 6.71 December 31, 2023 118,102 $ 6.95 `ITEM 6. [RESERVED] 32 Table of Contents
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES Market for Common Stock Our common stock currently trades on the New York Stock Exchange under the ticker symbol “MG.” Holders of Record As of March 10, 2023, there were 10 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES Market for Common Stock Our common stock currently trades on the New York Stock Exchange under the ticker symbol “MG.” Holders of Record As of March 6, 2024, there were 10 holders of record of our common stock.
Dividends 30 Table of Contents No cash dividends have been paid on our Common Stock to date. We currently intend to retain our future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends in the foreseeable future.
Dividends No cash dividends have been paid on our Common Stock to date. We currently intend to retain our future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends in the foreseeable future. Recent Sale of Unregistered Securities None.
Purchases of Equity Securities The following sets forth the shares of our common stock we acquired during the fourth quarter of 2022. All purchases were effected pursuant to the surrender of shares by employees to satisfy minimum tax withholding obligations in connection with the vesting of restricted stock units.
All purchases were effected pursuant to the surrender of shares by employees to satisfy minimum tax withholding obligations in connection with the vesting of restricted stock units.
Added
Stock Performance 31 Table of Contents The line graph below compares the cumulative total shareholder value return of our common shares with the cumulative total returns of an overall stock market index, the Russell 3000, and our peer group index.
Added
This graph assumes an investment of $100 in our common shares and each index (with all dividends reinvested) on December 31, 2018. Purchases of Equity Securities The following table sets forth the shares of our common stock we acquired during the fourth quarter of 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

65 edited+28 added−13 removed56 unchanged
Biggest changeTransactional foreign exchange expense, which is included within selling, general and administrative expenses, was approximately $0.6 million lower in 2022 as compared to 2021, due to volatility in certain foreign currencies. 37 Table of Contents Income (Loss) from Operations The following table shows a reconciliation of segment income (loss) from operations to income (loss) before special items (unaudited) for the years ended December 31, 2022 and 2021: For the year ended December 31, 2022 2021 ($ in thousands) Services: Income from operations (GAAP) $ 49,616 $ 48,458 Bad debt provision for troubled customers, net of recoveries 42 — Reorganization and other costs 99 129 Legal settlement and insurance (recoveries) charges, net (841) 1,650 Acquisition-related expense, net 45 1,128 Income before special items (unaudited, non-GAAP) $ 48,961 $ 51,365 International: Income from operations (GAAP) $ 3,566 $ 1,839 Reorganization and other costs (43) 424 Legal settlement and litigation charges, net — 737 Income before special items (unaudited, non-GAAP) $ 3,523 $ 3,000 Products and Systems: Loss from operations (GAAP) $ (992) $ (117) Reorganization and other costs — 27 Loss before special items (unaudited, non-GAAP) $ (992) $ (90) Corporate and Eliminations: Loss from operations (GAAP) $ (32,391) $ (32,010) Legal settlement and insurance (recoveries) charges, net (153) (345) Loss on debt modification 693 278 Reorganization and other costs 139 93 Acquisition-related expense, net 31 5 Loss before special items (unaudited, non-GAAP) $ (31,681) $ (31,979) Total Company: Income from operations (GAAP) $ 19,799 $ 18,170 Bad debt provision for troubled customers, net of recoveries 42 — Legal settlement and insurance (recoveries) charges, net (994) 2,042 Loss on debt modification 693 278 Reorganization and other costs 195 673 Acquisition-related expense, net 76 1,133 Income before special items (unaudited, non-GAAP) $ 19,811 $ 22,296 See " Note about Non-GAAP Measures" in this Annual Report for an explanation of our use of non-GAAP measures.
Biggest changeIncome (Loss) from Operations The following table shows a reconciliation of segment income (loss) from operations to income (loss) before special items (unaudited) for the years ended December 31, 2023 and 2022: For the year ended December 31, 2023 2022 ($ in thousands) North America: Income from operations (GAAP) $ 55,170 $ 49,616 Bad debt provision for troubled customers, net of recoveries — 42 Reorganization and other costs 960 99 Legal settlement and insurance (recoveries) charges, net 1,058 (841) Acquisition-related expense, net — 45 Income before special items (non-GAAP) $ 57,188 $ 48,961 International: Income (loss) from operations (GAAP) $ (12,229) $ 3,566 Goodwill Impairment charges 13,799 — Reorganization and other costs 351 (43) Income before special items (non-GAAP) $ 1,921 $ 3,523 Products and Systems: Income (loss) from operations (GAAP) $ 267 $ (992) Reorganization and other costs 382 — Income (loss) before special items (non-GAAP) $ 649 $ (992) Corporate and Eliminations: Loss from operations (GAAP) $ (45,112) $ (32,391) Legal settlement and insurance (recoveries) charges, net — (153) Loss on debt modification — 693 Reorganization and other costs 10,576 139 Acquisition-related expense, net 9 31 Loss before special items (non-GAAP) $ (34,527) $ (31,681) Total Company: Income (loss) from operations (GAAP) $ (1,904) $ 19,799 Goodwill Impairment charges 13,799 — Bad debt provision for troubled customers, net of recoveries — 42 Legal settlement and insurance (recoveries) charges, net 1,058 (994) Loss on debt modification — 693 Reorganization and other costs 12,269 195 Acquisition-related expense, net 9 76 Income before special items (non-GAAP) $ 25,231 $ 19,811 See " Note about Non-GAAP Measures" in this Annual Report for an explanation of our use of non-GAAP measures. 39 Table of Contents Total Company income from operations (GAAP) decreased by $21.7 million, or 109.6% compared to the year ended December 31, 2022.
The decrease in effective tax rate was primarily driven by a $1.7 million US R&D tax credit benefit, partially offset by the recording of a $1.1 million valuation allowance recorded in 2022 which was related to certain Canadian entities .
The decrease in effective tax rate was primarily driven by a $1.7 million US R&D tax credit benefit in 2022, partially offset by the recording of a $1.1 million valuation allowance recorded in 2022 which was related to certain Canadian entities .
We believe long-term growth can be realized in our target markets. Our level of 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 spend to be impacted by oil price fluctuations.
We believe long-term growth can be realized in our target markets. Our level of 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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis (this “MD&A”) provides a discussion of our results of operations and financial position for the year ended December 31, 2022. This section generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis (this “MD&A”) provides a discussion of our results of operations and financial position for the year ended December 31, 2023. This section generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
This MD&A includes the following sections: • Forward-Looking Statements • COVID-19 Update • Overview • Note about Non-GAAP Measures • Consolidated Results of Operations • Liquidity and Capital Resources • Critical Accounting Estimates • Recent Accounting Pronouncements Forward-Looking Statements This Annual Report on Form 10-K, including this MD&A, contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.
This MD&A includes the following sections: • Forward-Looking Statements • COVID-19 and Other Updates • Overview • Note about Non-GAAP Measures • Consolidated Results of Operations • Liquidity and Capital Resources • Critical Accounting Estimates • Recent Accounting Pronouncements Forward-Looking Statements This Annual Report on Form 10-K, including this MD&A, contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.
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 made numerous acquisitions in the past 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 continued providing our customers with an innovative asset protection software ecosystem through our MISTRAS OneSuite platform. The software platform offers functions of our popular software and services brands as integrated apps on a cloud environment.
We have continued providing our customers with an innovative asset protection software ecosystem through our MISTRAS OneSuite platform. The software platform offers functions of MISTRAS' software and services brands as integrated apps on a cloud environment.
We believe that the following critical accounting policies comprise the more significant estimates and assumptions used in the preparation of our consolidated financial statements. Revenue Recognition The majority of our revenues are derived from providing services on a time and material basis and are short-term in nature.
We believe that the following critical accounting policies comprise the more significant estimates and assumptions used in the preparation of our consolidated financial statements. Revenue Recognition 42 Table of Contents The majority of our revenues are derived from providing services on a time and material basis and are short-term in nature.
Liquidity and Capital Resources Outlook Future Sources of Cash We expect our future sources of cash to include cash flow generated from our operating activities and borrowings under our New Credit Agreement. Our revolving credit facility is available for cash advances required for working capital and for letters of credit to support our operations.
Liquidity and Capital Resources Outlook Future Sources of Cash 41 Table of Contents We expect our future sources of cash to include cash flow generated from our operating activities and borrowings under our New Credit Agreement. Our revolving credit facility is available for cash advances required for working capital and for letters of credit to support our operations.
Revenue on such long-term contracts is recognized as work is performed based on total costs incurred to date in relation to the total estimated costs for the performance of the contract at completion. This includes contract estimates of costs to be incurred for the performance of the 42 Table of Contents contract.
Revenue on such long-term contracts is recognized as work is performed based on total costs incurred to date in relation to the total estimated costs for the performance of the contract at completion. This includes contract estimates of costs to be incurred for the performance of the contract.
We test goodwill for impairment at a “reporting unit” level (which for us is represented by (i) our Services segment, (ii) our Products and Systems segment, (iii) the European component of our International segment and (iv) the Brazilian component of our International segment).
We test goodwill for impairment at a “reporting unit” level (which for us is represented by (i) our North America segment, (ii) our Products and Systems segment, (iii) the European component of our International segment and (iv) the Brazilian component of our International segment).
In April 2021, the Biden Administration announced aggressive initiatives to battle climate change, which includes a significant reduction in the use of fossil fuels and a transition to electric vehicles and increased use of alternative energy.
In April 2021, the Biden Administration announced aggressive initiatives to battle climate change, which includes potential plans for a significant reduction in the use of fossil fuels and a transition to electric vehicles and increased use of alternative energy.
We historically spend approximately 2% to 3% of our total revenues on capital expenditures, excluding acquisitions, and expect to fund these expenditures through a combination of cash and lease financing. Our cash capital expenditures, excluding acquisitions, for each of the years ended December 31, 2022 and 2021 were approximately 2.0% and 2.8% of revenues, respectively.
We historically spend approximately 2% to 3% of our total revenues on capital expenditures, excluding acquisitions, and expect to fund these expenditures through a combination of cash and lease financing. Our cash capital expenditures, excluding acquisitions, for each of the years ended December 31, 2023 and 2022 were approximately 3.4% and 2.0% of revenues, respectively.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 is included in Part II–Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 14, 2022, which discussion is incorporated herein by reference.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are included in Part II–Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 15, 2023, which discussion is incorporated herein by reference.
In this MD&A under the heading "Income (Loss) from Operations", the non-GAAP financial performance measure "Income (loss) before special items" is used for each of our three operating segments, "Corporate and Eliminations" and "Total Company", with tables reconciling the measure to a financial measure under GAAP.
In this MD&A under the heading "Income (loss) from Operations", the non-GAAP financial performance measure "Income (loss) from operations before special items” is used for each of our three operating segments, the Corporate segment and the "Total Company", with tables reconciling the measure to a financial measure under GAAP.
Effect of Exchange Rate Changes on Cash and Cash Equivalents The effect of exchange rate changes on our cash and cash equivalents was a decrease of $1.5 million for the year ended December 31, 2022, compared to a decrease of $2.1 million for the year ended December 31, 2021.
Effect of Exchange Rate Changes on Cash and Cash Equivalents The effect of exchange rate changes on our cash and cash equivalents was a decrease of $0.2 million for the year ended December 31, 2023, compared to a decrease of $1.5 million for the year ended December 31, 2022.
We often make purchases to support new sources of revenues, particularly in our Services segment. In addition, we annually fund a certain amount of replacement equipment, including a portion of our fleet vehicles.
We often make purchases to support new sources of revenues, particularly in our North America segment. In addition, we annually fund a certain amount of replacement equipment, including a portion of our fleet vehicles.
Our operations consist of three reportable segments: Services, International, and Products and Systems. • Services provides asset protection solutions predominantly in North America, with the largest concentration in the United States, followed by Canada, consisting primarily of NDT, inspection, mechanical and engineering services that are used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure and commercial aerospace components.
Our operations consist of three reportable segments: North America (which we previously referred to as our Services segment), International, and Products and Systems. • North America provides asset protection solutions with the largest concentration in the United States, followed by Canada, consisting primarily of NDT, inspection, mechanical and engineering services that are used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure and commercial aerospace components.
Cash Flows from Financing Activities Net cash used in financing activities for the year ended December 31, 2022 was $16.3 million, compared to $23.2 million for the year ended December 31, 2021. During the year ended December 31, 2022, we entered into a new credit agreement which replaced our prior credit agreement, as detailed more in Note 11-Long-Term Debt .
Cash Flows from Financing Activities Net cash used in financing activities for the year ended December 31, 2023 was $7.7 million, compared to $16.3 million for the year ended December 31, 2022. During the year ended December 31, 2022, we entered into the New Credit Agreement which replaced our prior credit agreement, as detailed more in Note 11-Long-Term Debt.
Income Taxes Our effective income tax rate was approximately 29.3% for the year ended December 31, 2022, compared to 46.6% for the year ended December 31, 2021.
Income Taxes Our effective income tax rate was approximately 6.5% for the year ended December 31, 2023, compared to 29.3% for the year ended December 31, 2022.
Recent Accounting Pronouncements 43 Table of Contents For information about recent accounting pronouncements, see Note 1-Summary of Significant Accounting Policies and Practices to the consolidated financial statements.
Recent Accounting Pronouncements For information about recent accounting pronouncements, see Note 1-Summary of Significant Accounting Policies and Practices of the notes to the consolidated financial statements.
This presentation excludes from "Income (Loss) from Operations" (i) transaction expenses related to acquisitions, such as professional fees and due diligence costs, (ii) the net changes in the fair value of acquisition-related contingent consideration liabilities, (iii) impairment charges, (iv) reorganization and other costs, which includes items such as severance, labor relations matters and asset and lease termination costs and (v) other special items.
This presentation excludes from "Income (loss) from Operations" (a) transaction expenses related to acquisitions, such as professional fees and due diligence costs, (b) the net changes in the fair value of acquisition-related contingent consideration liabilities, (c) impairment charges, (d) reorganization and other costs, which includes items such as severance, labor relations matters and asset and lease termination costs and (e) other special items.
Aerospace and defense customer revenue comprised approximately 12% and 10% of total revenue for the years ended December 31, 2022 and 2021, respectively.
Aerospace and defense customer revenue comprised approximately 11% and 12% of total revenue for the years ended December 31, 2023 and 2022, respectively.
Our discussion below is qualified by the unknown impact that the COVID-19 pandemic, or similar future health crisis, and the Russia - Ukraine war will continue to have on our business and the economy in general, including the resulting economic disruption of both. Refer to Item 1A. Risk Factors in Part I of this Annual Report for further discussion.
Our discussion below is qualified by the unknown impact that the Russia - Ukraine war will continue to have on our business and the economy in general, including the resulting economic disruption. Refer to Item 1A. Risk Factors in Part I of this Annual Report for further discussion.
We will continue to monitor market conditions and respond accordingly. Overview We are 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.
Overview We are 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.
We generated operating cash flows of $26.4 million and $42.3 million for the years ended December 31, 2022 and 2021, respectively.
We generated operating cash flows of $26.7 million and $26.4 million for the years ended December 31, 2023 and 2022, respectively.
We are currently unable to predict with certainty the overall impact that the factors discussed above and the effect of the Russian-Ukrainian war may have on our business, results of operations or liquidity or in other ways which we cannot yet determine.
We are currently unable to predict with certainty the effects that inflationary pressures and the Russian-Ukrainian war may have on our business, results of operations or liquidity or in other ways which we cannot yet determine.
The decrease was primarily attributable to movements in working capital driven primarily by a decrease in net accounts receivable collections, a decrease in accrued expenses and other liabilities and in prepaid expenses and other assets in the current year as compared to the prior year.
The increase was mainly attributable to movements in working capital driven primarily by an increase in net accounts receivable collections, an increase in accrued expenses and other liabilities, and an increase in accounts payable in the current year as compared to the prior year.
Off-Balance Sheet Arrangements During the years ended December 31, 2022 and 2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. 41 Table of Contents Critical Accounting Policies and Estimates The preparation of financial statements in accordance with U.S.
Off-Balance Sheet Arrangements During the years ended December 31, 2023 and 2022, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period.
Critical Accounting Policies and Estimates The preparation of financial statements in accordance with U.S. GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period.
Income (loss) before special items is not used to determine incentive compensation for executives or employees, nor is it a replacement for the reported GAAP financial performance and/or necessarily comparable to the non-GAAP financial measures of other companies. 34 Table of Contents Consolidated Results of Operations Year ended December 31, 2022 vs.
Income (loss) before special items is not used to determine incentive compensation for executives or employees, nor is it a replacement for the reported GAAP financial performance and/or necessarily comparable to the non-GAAP financial measures of other companies.
Our core capabilities also include NDT field inspections enhanced by advanced robotics, laboratory quality control and assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.
The Company’s core 33 Table of Contents capabilities also include non-destructive testing ("NDT") field and in-line inspections enhanced by advanced robotics, laboratory quality control and assurance testing, sensing technologies and NDT equipment, asset and mechanical integrity engineering services, and light mechanical maintenance and access services.
Acquisitions We allocate the purchase price of acquired businesses to their identifiable tangible assets and liabilities as well as identifiable intangible assets, such as customer relationships, technology, non-compete agreements and trade names.
See Note 8-Goodwill of the notes to the consolidated financial statements for additional information. Acquisitions We allocate the purchase price of acquired businesses to their identifiable tangible assets and liabilities as well as identifiable intangible assets, such as customer relationships, technology, non-compete agreements and trade names.
As of December 31, 2022, we had cash and cash equivalents totaling $20.5 million and available borrowing capacity of up to $121.7 million under our New Credit Agreement. Borrowings of $186.6 million and letters of credit of $3.0 million were outstanding under the New Credit Agreement at December 31, 2022.
As of December 31, 2023, we had cash and cash equivalents totaling $17.6 million and available borrowing capacity of up to $116.0 million under our New Credit Agreement. Borrowings of $186.4 million and letters of credit of $2.9 million were outstanding under the New Credit Agreement at December 31, 2023.
The Products and Systems segment decreased by $1.1 million, or 8.0%, driven by lower sales volume. Oil and gas customer revenue comprised approximately 56% and 54% of total revenue for the years ended December 31, 2022 and 2021, respectively.
The Products and Systems segment increased by $0.3 million, or 2.0%, driven by higher sales volume. Oil and gas customer revenue comprised approximately 59% and 56% of total revenue for the years ended December 31, 2023 and 2022, respectively.
Cash Flows from Investing Activities Net cash used in investing activities for the year ended December 31, 2022 was $12.2 million, a decrease of $6.3 million from the prior year. The Company used $5.9 million more cash for purchases of property, plant and equipment and intangible assets in 2022 compared to 2021.
Cash Flows from Investing Activities Net cash used in investing activities for the year ended December 31, 2023 was $22.1 million, an increase of $9.9 million used in investing activities from the prior year period. The Company used $10.2 million more cash for purchases of property, plant and equipment and intangible assets in 2023 compared to 2022.
We finance our operations primarily through our existing cash balances, cash collected from operations, bank borrowings and lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future. See 11-Long-Term Debt of the notes to the consolidated financial statements for additional information.
We finance our operations primarily through our existing cash balances, cash collected from operations, bank borrowings and lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future.
Capital expenditures for the purchase of property, plant and equipment and of intangible assets was $13.4 million and $19.3 million for the years ended December 31, 2022 and 2021, respectively. 39 Table of Contents Cash Flows Table The following table summarizes our cash flows for the years ended December 31, 2022 and 2021: For the year ended December 31, ($ in thousands) 2022 2021 Net cash provided by (used in): Operating activities $ 26,406 $ 42,261 Investing activities (12,238) (18,551) Financing activities (16,323) (23,245) Effect of exchange rate changes on cash and cash equivalents (1,467) (2,115) Net change in cash and cash equivalents $ (3,622) $ (1,650) Cash Flows from Operating Activities Cash provided by operating activities for the year ended December 31, 2022 was $26.4 million, a decrease of $15.9 million from the prior year.
Capital expenditures for the purchase of property, plant and equipment and of intangible assets was $23.6 million and $13.4 million for the years ended December 31, 2023 and 2022, respectively. 40 Table of Contents Cash Flows Table The following table summarizes our cash flows for the years ended December 31, 2023 and 2022: For the year ended December 31, ($ in thousands) 2023 2022 Net cash provided by (used in): Operating activities $ 26,748 $ 26,406 Investing activities (22,133) (12,238) Financing activities (7,706) (16,323) Effect of exchange rate changes on cash and cash equivalents 249 (1,467) Net change in cash and cash equivalents $ (2,842) $ (3,622) Cash Flows from Operating Activities Cash provided by operating activities for the year ended December 31, 2023 was $26.7 million, an increase of $0.3 million from the prior year period.
We continue to take steps to reduce spending and preserve cash. Our New Credit Agreement, does not limit the Company’s ability to acquire other businesses or companies except for certain provisions as described within Note 11-Long-Term Debt. We did not have any acquisitions in 2022.
We continue to take steps to reduce spending and preserve cash. Our New Credit Agreement does not limit the Company’s ability to acquire other businesses or companies except for certain provisions as described within Note 11-Long-Term Debt. Our future capital spending may increase as we pursue growth opportunities and acquire additional equipment to meet or pursue business opportunities.
Gross Profit Gross profit by segment for the years ended December 31, 2022 and 2021 were as follows: For the year ended December 31, 2022 2021 ($ in thousands) Gross profit Services $ 159,049 $ 155,384 % of segment revenue 27.7 % 28.0 % International 33,591 34,282 % of segment revenue 29.9 % 29.2 % Products and Systems 5,490 7,001 % of segment revenue 43.1 % 50.6 % Corporate and eliminations 43 480 $ 198,173 $ 197,147 % of total revenue 28.8 % 29.1 % Gross profit increased $1.0 million, or 0.5%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, with a sales increase of $10.2 million, or 1.5%.
Gross Profit (Loss) Gross profit (loss) by segment for the years ended December 31, 2023 and 2022 were as follows: For the year ended December 31, 2023 2022 ($ in thousands) Gross profit (loss) North America $ 163,960 $ 159,049 % of segment revenue 28.3 % 27.7 % International 33,610 33,591 % of segment revenue 27.0 % 29.9 % Products and Systems 6,457 5,490 % of segment revenue 49.7 % 43.1 % Corporate and eliminations (220) 43 $ 203,807 $ 198,173 % of total revenue 28.9 % 28.8 % Gross profit increased $5.6 million, or 2.8%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, with a sales increase of $18.1 million, or 2.6%.
COVID-19 and Other Updates While our business and operations were negatively impacted the past several years by the COVID-19 pandemic, at the time of this Annual Report, the effects of the COVID-19 pandemic have to a large degree subsided, and we have begun approaching pre-pandemic levels of activity in certain end markets, particularly oil and gas.
COVID-19 and Other Updates While our business and operations were negatively impacted the past several years by the COVID-19 pandemic, at the time of this Annual Report, the effects of the COVID-19 pandemic have subsided and our operations have normalized to pre-pandemic levels.
Year ended December 31, 2021 The following table summarizes our Consolidated Statements of Income (Loss) for the years ended December 31, 2022 and 2021: For the year ended December 31, 2022 2021 ($ in thousands) Revenues $ 687,373 $ 677,131 Gross profit 198,173 197,147 Gross profit as a % of Revenue 28.8 % 29.1 % Income from operations 19,799 18,170 Income from operations as a % of Revenue 2.9 % 2.7 % Income before provision for income taxes 9,294 7,288 Net income 6,574 3,893 Net income attributable to Mistras Group, Inc. $ 6,499 $ 3,860 Revenues Revenues by segment for the years ended December 31, 2022 and 2021 were as follows: For the year ended December 31, 2022 2021 ($ in thousands) Revenues Services $ 573,336 $ 555,387 International 112,425 117,245 Products and Systems 12,727 13,831 Corporate and eliminations (11,115) (9,332) $ 687,373 $ 677,131 Revenue was $687.4 million for the year ended December 31, 2022, an increase of $10.2 million, or 1.5%, compared with the year ended December 31, 2021.
Year ended December 31, 2022 The following table summarizes our Consolidated Statements of Income (Loss) for the years ended December 31, 2023 and 2022: For the year ended December 31, 2023 2022 ($ in thousands) Revenue $ 705,473 $ 687,373 Gross profit 203,807 198,173 Gross profit as a % of Revenue 28.9 % 28.8 % Income (loss) from operations (1,904) 19,799 Income from operations as a % of Revenue (0.3) % 2.9 % Income (loss) before provision for income taxes (18,665) 9,294 Net income (loss) (17,445) 6,574 Net income (loss) attributable to Mistras Group, Inc. $ (17,453) $ 6,499 Revenues Revenues by segment for the years ended December 31, 2023 and 2022 were as follows: For the year ended December 31, 2023 2022 ($ in thousands) Revenue North America $ 579,330 $ 573,336 International 124,414 112,425 Products and Systems 12,986 12,727 Corporate and eliminations (11,257) (11,115) $ 705,473 $ 687,373 Revenue was $705.5 million for the year ended December 31, 2023, an increase of $18.1 million, or 2.6%, compared with the year ended December 31, 2022.
Operating expenses, excluding special items (non-GAAP), as a percentage of revenue, was 25.9% for the year ended December 31, 2022 compared to 25.8% for the year ended December 31, 2021. The primary driver for the increase in total company income was increased sales in 2022 compared to 2021.
Total company income before special items (non-GAAP) increased by $5.4 million or 27.4% compared with the year ended December 31, 2022. Operating expenses, excluding special items (non-GAAP), as a percentage of revenue, was 25.3% for the year ended December 31, 2023 compared to 25.9% for the year ended December 31, 2022.
Our top ten customers comprised approximately 33% of total revenue for the years ended December 31, 2022 and 2021, with no customer accounting for 10% or more of total revenue in either period. 35 Table of Contents For the year ended December 31, 2022 2021 ($ in thousands) Oil and Gas Revenue by sub-category Upstream $ 152,590 $ 135,615 Midstream 111,144 109,527 Downstream 124,018 121,778 Total $ 387,752 $ 366,920 Oil and gas upstream customer revenue increased approximately $17.0 million, or 13%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, due to continued market share gains and expanded exploration operations, as compared to the prior period.
Our top ten customers comprised approximately 35% of total revenue for the years ended December 31, 2023 and 2022, with no customer accounting for 10% or more of total revenue in either period. 36 Table of Contents For the year ended December 31, 2023 2022 ($ in thousands) Oil and Gas Revenue by sub-category Upstream $ 157,828 $ 146,056 Midstream 101,278 97,005 Downstream 156,889 144,691 Total $ 415,995 $ 387,752 Oil and gas upstream customer revenue increased approximately $11.8 million, or 8%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, due to continued market share gains and expanded exploration operations, as compared to the prior year period.
By supporting these organizations that help fuel our vehicles and power our society; inspecting components that are trusted for commercial, defense, and space craft; and building real-time monitoring systems to help avoid catastrophic incidents, we help the world at large.
By supporting these customers that help fuel our vehicles and power our society; inspecting components that are trusted for commercial, defense, and space craft; building real-time monitoring equipment to enable safe travel across bridges; and helping to propel sustainability, MISTRAS helps the world at large.
To date, our European operations experienced increased costs associated with higher energy costs, among others, due in part to the Russian-Ukrainian war. We will continue to monitor market conditions and respond accordingly. Refer to Item 1A. Risk Factors in Part I of our 2022 Annual Report.
To date, our European operations have experienced increased costs associated with higher energy costs, among others, due in part to the on-going war between Russia & Ukraine. We will continue to monitor market conditions and respond accordingly.
PCMS software and pipeline related software and data analysis solutions are included in this segment. • International offers services, products and systems similar to those of the other segments to select markets within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment.
A majority of data analytical solutions revenues are generated by this segment. • International offers services, products and systems similar to those of the other segments to select markets within Europe, the Middle East, Africa, Asia and South America, but not to customers in China and South Korea, which are served by the Products and Systems segment. • Products and Systems designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States.
The increase was driven by the Services segment, which experienced a revenue increase of $17.9 million, or 3.2%, driven by single-digit organic growth in certain end markets. The International segment revenues decreased by $4.8 million, or 4.1%, due predominantly to low double-digit unfavorable impact of foreign exchange rates which was partially offset by mid single-digit organic growth.
The increase was driven by the North America segment, which experienced a revenue increase of $6.0 million, or 1.0%, driven by single-digit organic growth in certain end markets. The International segment revenues increased by $12.0 million, or 10.7%, due predominantly to low single-digit favorable impact of foreign exchange rates and by mid single-digit organic growth.
Income before special items as a percentage of revenue decreased by 40 basis points to 2.9% for the year ended December 31, 2022 from 3.3% for the year ended December 31, 2021.
The primary driver for the increase in total company income before special items was increased sales in 2023 compared to 2022. Income before special items as a percentage of revenue increased by 70 basis points to 3.6% for the year ended December 31, 2023 from 2.9% for the year ended December 31, 2022.
Products and Systems segment gross margins decreased by 750 basis points for the year ended December 31, 2022 to 43.1%, driven by unfavorable sales mix. 36 Table of Contents Operating Expenses Operating expenses for the years ended December 31, 2022 and 2021 was as follows: For the year ended December 31, 2022 2021 ($ in thousands) Operating Expenses Selling, general and administrative expenses $ 166,595 $ 161,334 Bad debt provision for troubled customers, net of recoveries 42 — Research and engineering 1,994 2,518 Depreciation and amortization 10,661 11,950 Acquisition-related expense, net 76 1,133 Legal settlement and litigation charges (benefit), net (994) 2,042 $ 178,374 $ 178,977 % of total revenue 26.0 % 26.4 % Operating expenses decreased $0.6 million, or (0.3)%, for the year ended December 31, 2022 compared to the year ended December 31, 2021 due to insurance recoveries in the current period that were not received in the prior period and decreased costs related to acquisitions in 2022 as compared to 2021.
Operating Expenses Operating expenses for the years ended December 31, 2023 and 2022 was as follows: For the year ended December 31, 2023 2022 ($ in thousands) Operating Expenses Selling, general and administrative expenses $ 166,749 $ 166,400 Goodwill Impairment charges 13,799 — Bad debt provision for troubled customers, net of recoveries — 42 Reorganization and other costs 12,269 195 Research and engineering 1,723 1,994 Depreciation and amortization 10,104 10,661 Acquisition-related expense, net 9 76 Legal settlement and litigation charges (benefit), net 1,058 (994) $ 205,711 $ 178,374 % of total revenue 29.2 % 26.0 % Operating expenses increased $27.3 million, or 15.3%, for the year ended December 31, 2023 compared to the year ended December 31, 2022 due primarily to impairment charges and reorganization charges recorded in the current period that were not 38 Table of Contents in the prior period.
In some cases, additional equipment will be needed to upgrade the capabilities of these acquired companies. In addition, our future capital spending may increase as we pursue growth opportunities. Other investments in infrastructure, training and software may also be required to match our growth, but we plan to continue using a disciplined approach to building our business.
Other investments in infrastructure, training and software may also be required to match our growth, but we plan to continue using a disciplined approach to building our business.
Interest Expense Interest expense was $10.5 million and $10.9 million for the years ended December 31, 2022 and December 31, 2021, respectively.
Interest Expense Interest expense was $16.8 million and $10.5 million for the years ended December 31, 2023 and December 31, 2022, respectively. The increase was due to increased interest rates in the current period.
We have eliminated substantially all of the cost reduction initiatives undertaken in 2020, including re-installing the savings plan employer match and increasing wages back to pre-pandemic amounts. Our cash position and liquidity remains strong. As of December 31, 2022, our cash and cash equivalents balance was approximately $20.5 million.
In 2022, the Company eliminated substantially all of the COVID related cost reduction initiatives undertaken in 2020, including re-installment of the savings plan employer match and increasing wages back to pre-pandemic amounts.
We estimate fair value based on valuation techniques such as a discounted cash flow analysis or a comparison to fair values of similar assets. As of December 31, 2022 and December 31, 2021, we had $77.6 million and $86.6 million in net property, plant and equipment, respectively, and $49.0 million and $59.4 million in intangible assets, net, respectively.
We estimate fair value based on valuation techniques such as a discounted cash flow analysis or a comparison to fair values of similar assets.
We are currently unable to predict the overall impact that the volatility in oil prices and climate change initiatives to reduce the use of fossil fuels may have on our business, results of operations, liquidity or in other ways which we cannot yet determine.
The Company is currently unable to predict with certainty the overall impact that the factors discussed above and the effect of inflationary pressures may have on its business, results of operations or liquidity or in other ways which the Company cannot yet determine.
Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, and decades-long legacy of industry leadership, we help clients with asset-intensive infrastructure 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 towards achieving and maintaining operational excellence.
Backed by an innovative, data-driven asset protection portfolio, proprietary technologies, strong commitment to Environmental, Social, and Governance ("ESG") initiatives, and a decades-long legacy of industry leadership, MISTRAS leads customers in the oil and gas, petrochemical, aerospace and defense, renewable and nonrenewable power, civil infrastructure, and manufacturing industries towards achieving operational and environmental excellence.
International segment gross margins had a year-on-year increase of 70 basis points to 29.9% for the year ended December 31, 2022, due primarily to sales mix and continued growth in end markets including aerospace and defense.
Gross profit margin was 28.9% and 28.8% for the years ended December 31, 2023 and 2022, respectively, due to favorable sales mix. North America segment gross profit margins had a year-on-year increase of 60 basis points to 28.3% for the year ended December 31, 2023, due primarily to favorable sales mix.
Services segment gross profit margins had a year-on-year decrease of 30 basis points to 27.7% for the year ended December 31, 2022, due primarily to inflationary pressures and the end of government wage subsidies received in Canada.
International segment gross margins had a year-on-year decrease of 290 basis points to 27.0% for the year ended December 31, 2023, due primarily to increased inflationary pressures. Products and Systems segment gross margins increased by 660 basis points for the year ended December 31, 2023 to 49.7%, driven by favorable sales mix.
In addition, for the year ended December 31, 2022 we incurred approximately $0.5 million less payments for contingent considerations, offset in part by $0.9 million taxes paid related to net share settlement of share-based awards.
As part of the New Credit Agreement, the prior revolving credit facility and term loan were repaid in full. Net repayment of debt and revolver was approximately $9.6 million higher compared to 2022. In addition, for the year ended December 31, 2023, we incurred approximately $0.6 million more taxes paid related to net share settlement of share-based awards.
We enhance value for our clients by integrating asset protection throughout supply chains and centralizing integrity data through a suite of Industrial Internet of Things ("IIoT")-connected digital software and monitoring solutions, including 32 Table of Contents OneSuite, which serves as an ecosystem platform, pulling together all of our software and data services capabilities, for the benefit of our customers.
The Company enhances value for its customers by integrating asset protection throughout supply chains and centralizing integrity data through a suite of Industrial IoT-connected digital software and monitoring solutions.
As of December 31, 2022, we were in compliance with the terms of the New Credit Agreement and will continuously monitor our compliance with the covenants contained in the New Credit Agreement. 40 Table of Contents The New Credit Agreement permits us to borrow up to $100 million in non-US dollar currencies and to use up to $20 million of the credit limit for the issuance of letters of credit.
As of December 31, 2023, we were in compliance with the terms of the New Credit Agreement and will continuously monitor our compliance with the covenants contained in the New Credit Agreement. See Note 11-Long-Term Debt of the notes to the consolidated financial statements for additional information.
Downstream customer revenue increased $2.2 million, or 2%, for the year ended December 31, 2022 compared to the year ended December 31, 2021 even with delays in timing associated with customer turnarounds in 2022.
Downstream customer revenue increased $12.2 million, or 8%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, due to increased sales volume at customer refineries and increased customer turnarounds. The following table presents revenue by type, explained directly below the table.
See Note 9-Intangible Assets to the consolidated financial statements for the impairment charge recorded in 2020. Goodwill Goodwill represents the excess purchase price of acquired businesses over the fair values attributed to underlying net tangible assets and identifiable intangible assets.
As of December 31, 2023 and December 31, 2022, we had $81.0 million and $77.6 million in net property, plant and equipment, respectively, and $44.0 million and $49.0 million in intangible assets, net, respectively. 43 Table of Contents Goodwill Goodwill represents the excess purchase price of acquired businesses over the fair values attributed to underlying net tangible assets and identifiable intangible assets.
Midstream customer revenues were flat for the year ended December 31, 2022 compared to the year ended December 31, 2021. During 2022, we experienced the growth of our pipe inspection services including our Onstream business within this sub-category.
Midstream customer revenues increased approximately $4.3 million, or 4%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, due to increased pipe inspection services.
Selling, general and administrative expenses increased $5.3 million, or 3.3% for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to our elimination of substantially all temporary cost reduction and efficiency program initiatives undertaken during the first quarter of 2020 in response to COVID-19 as more fully described in "Overview" 2022 Developments .
Selling, general and administrative expenses increased $0.3 million, or 0.2% for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to unfavorable foreign currency exchange.
Removed
We are currently unable to predict with certainty the effect that inflationary pressures and the Russian-Ukrainian war may have on our business, results of operations or liquidity or in other ways which we cannot yet determine. To date, our European operations have experienced increased costs associated with higher energy costs, among others, due in part to the on-going war.
Added
OneSuite serves as a single access portal for customers' data activities and provides access to 90 plus applications being offered on one centralized platform. 2023 Developments The Russian-Ukrainian war and the conflict in the Middle East between Israel and Hamas continue to create disruptions in the oil and gas market and the supply chain in general, which is resulting in some disruption to our business operations primarily in Europe due to increased energy costs in connection with the Russian-Ukrainian war.
Removed
This segment includes data services revenue derived from the selling of licenses and analyzing and synthesizing customer data through our OneSuite platform, field operations revenue derived from work performed in the field at customer locations, and shop revenue derived from operations designing, building, and customizing products in our laboratories for our customers.
Added
At the time of this Annual Report, the effects of the COVID-19 pandemic have subsided, and our operations are continuing to normalize to pre-pandemic levels. 34 Table of Contents Our cash position and liquidity remain strong. As of December 31, 2023, our cash and cash equivalents balance was approximately $17.6 million and our Credit Agreement provides us with significant liquidity.
Removed
This segment includes data services revenue derived from the selling of licenses and analyzing and synthesizing customer data through our OneSuite platform, field operations revenue derived from work performed in the field at customer locations, and shop revenue derived from operations designing, building, and customizing products in our laboratories for our customers, in the specified non-US regions. • Products and Systems designs, manufactures, sells, installs and services our asset protection products and systems, including equipment and instrumentation, predominantly in the United States.
Added
During the third quarter of 2023, a triggering event was identified within the Company's reporting units within the International segment due to decreased gross margin in the current period as a result of inflationary pressures and rising energy costs. This resulted in goodwill impairment charges of $13.8 million within the International reporting units during the third quarter of 2023.
Removed
OneSuite serves as a single access portal for customers' data activities and provides access to 90 plus applications being offered on one centralized platform. 33 Table of Contents We have continued to develop new technologies to provide monitoring of wind blade integrity through our Sensoria tool.
Added
The Company will continue to monitor market conditions and respond accordingly. Refer to Item 1A. Risk Factors in Part I of our 2023 Annual Report. Note about Non-GAAP Measures The Company prepares its consolidated financial statements in accordance with U.S. GAAP.
Removed
Sensoria helps provide real-time monitoring and damage detection of wind turbine blades and allows our customers to maximize uptime, performance and safety of wind turbine blades.
Added
Any measure that eliminates the foregoing items has material limitations as a performance or liquidity measure and should not be considered alternatives to net income (loss) or any other measures derived in accordance with GAAP.
Removed
This tool provides additional growth and expansion of our capabilities to serve both new and existing wind turbines and greatly enhances our product offerings within the renewable energy industry. 2022 Developments Throughout 2022, conditions have continued to improve related to the COVID-19 coronavirus (COVID-19) pandemic in domestic and international markets and operations are approaching pre-pandemic levels of activity.
Added
Because Income (loss) from operations before special items may not be calculated in the same manner by all companies, this measure may not be comparable to other similarly titled measures used by other companies. 35 Table of Contents Consolidated Results of Operations Year ended December 31, 2023 vs.
Removed
Note about Non-GAAP Measures We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").
Added
For the year ended December 31, 2023 2022 ($ in thousands) Revenue by type Field Services $ 470,433 $ 455,051 Shop Laboratories 58,188 48,809 Data Analytical Solutions 72,458 62,410 Other 104,394 121,103 Total $ 705,473 $ 687,373 In presenting the allocation of revenues by type in the table above, management makes certain assumptions in its allocation of revenues from laboratories that provide more than one type of service.
Removed
During 2022 certain end markets returned to pre-pandemic levels and continued organic growth across target end markets resulted in increased sales as compared to the prior period. Gross profit margin was 28.8% and 29.1% for the years ended December 31, 2022 and 2021, respectively, due primarily to inflationary pressures in 2022 as compared to 2021.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+0 added−0 removed7 unchanged
Biggest changeBased on the amount of our variable rate debt of $186.6 million at December 31, 2022, an increase in interest rat es by one hundred basis points from our current rate would increase annual interest expense by approximately $1.9 million. Foreign Currency Risk We have foreign currency exposure related to our operations in foreign locations.
Biggest changeBased on the amount of our variable rate debt of $186.4 million at December 31, 2023 , an increase in interest rates by one hundred basis points from our current rate would increase annual interest expense by approximately $1.9 million. 45 Table of Contents Foreign Currency Risk We have foreign currency exposure related to our operations in foreign locations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Sensitivity Our investment portfolio primarily includes cash equivalents for which the market values are not significantly affected by changes in interest rates. Our interest rate risk results primarily from our variable rate indebtedness under our new credit facility, which is influenced by movements in short-term rates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Sensitivity Our investment portfolio primarily includes cash equivalents for which the market values are not significantly affected by changes in interest rates. Our interest rate risk results primarily from our variable rate indebtedness under our credit facility, which is influenced by movements in short-term rates.
We do not use derivative financial instruments for speculative or trading purposes; however, this does not preclude our adoption of specific hedging strategies in the future. 44 Table of Contents
We do not use derivative financial instruments for speculative or trading purposes; however, this does not preclude our adoption of specific hedging strategies in the future. 46 Table of Contents
For the year ended December 31, 2022, a 10% movement, favorable or unfavorable, in the average U.S. Dollar exchange rates would cause a change in adjusted operating income of approximately $0.1 million. We do not currently enter into forward exchange contracts to hedge exposures denominated in foreign currencies.
For the year ended December 31, 2023, a 10% movement, favorable or unfavorable, in the average U.S. Dollar exchange rates would cause a change in adjusted operating income of approximately $1.5 million. We do not currently enter into forward exchange contracts to hedge exposures denominated in foreign currencies.

Other MG 10-K year-over-year comparisons