Mistras Group reported 24Q3 EPS of $0.20 vs. 23Q3’s loss of $0.34 and my estimate of $0.24. Revenues of $182.7 million were up 1.9%, as a 3.6% decline in Mistras’s largest segment, Oil & Gas, was more than offset by gains in most other segments. Gross profit rose 0.4% to $54.6 million, with gross margin declining 40 bp to 29.9%. SG&A costs declined $0.5 million to $38.9 million. Reorganization costs were $2.1 million, down from $2.7 million. The company recorded $0.9 million of legal settlement income and $1.5 million of non-recurring other income. Thus, Mistras’s non-GAAP EPS was $0.20, compared with $0.18 a year ago and my estimate of $0.23. Adjusted EBITDA of $23.3 million was up 7.7% over 23Q3 but below my estimate of $26.2 million. Free cash flow of $13.2 reversed last year’s negative free cash flow of $13.3 million, but fell short of my estimate of $19.0 million.
Management now expects that 2024 full year revenues will come in at the low end of its previous guidance range (now $725-$730 million compared with $725-$750 million previously). It also sees full year adjusted EBITDA of $80-$82 million, down from $84-$89 million, and free cash flow of $18-$22 million, down from $34-$38 million. The change in guidance implies that 24Q4 revenues will decline vs. 23Q4 and adjusted EBITDA will be up only slightly. Management attributed the lower free cash flow guidance to an unexpected build-up of accounts receivable. Mistras also gave preliminary 2025 guidance of low single-digit organic revenue growth (a hint perhaps that it is looking at acquisitions), improved net income and low double-digit adjusted EBITDA growth.
I have revised my projections accordingly. They now anticipate 24Q4 revenues of $171.5 million, down 5.8%, adjusted EBITDA (according to the company’s definition) of $19.8 million, up 3.4%, GAAP EPS of $0.14 vs. last year’s loss of $0.08, and free cash flow of $14.4 million, up from $8.7 million in 23Q4. For the full year, my projections show revenues of $728.4 million, adjusted EBITDA of $81.4 million and free cash flow of $20.7 million, all within management’s guidance ranges. All of that translates into projected 2024 GAAP EPS of $0.58, compared with 2023’s $0.58 loss and non-GAAP EPS of $0.68, up from $0.21 in 2023, but below my previous estimate of $0.79.
I have revised my 2025 projections to reflect 24Q3’s disappointing performance, but also to conform with management’s preliminary guidance. They now show revenues of $743.6 million, up 2.1% YOY; adjusted EBITDA of $89.8 million, up 10.3%, and GAAP EPS of $0.79 (down from $0.86 in my previous report). Projected 2025 non-GAAP EPS of $0.88 is down from $0.91 previously. Projected 2025 adjusted EBITDA margin of 12.1% represents a 90 bp improvement over 2024. Projected 2025 free cash flow of $22.5 million compares with $20.7 million for 2024.
Since my last report (8/16), MG’s stock has fallen 18.5%, with most of the decline coming on 10/31, the day of the 24Q3 earnings announcement. That decline compares with the S&P SmallCap 600’s 10.1% gain. Based upon 24Q3 results and management’s guidance, I am lowering my price target from $12.60 to $10.30. That equates to a valuation multiple of 13.0 times projected 2025 GAAP EPS of $0.79. The price target represents a potential return of 10.0% from today’s closing price of $9.36. Accordingly, I am keeping my performance rating at “3” (Neutral). With the company’s ongoing problems with cash flow forecasting and accounts receivable, I am also reducing my safety rating a notch to “D” from “D+.”
Interim CEO Manuel Stamatakis said that the company expects to announce a permanent CEO by year-end. As noted in a previous report, I believe that Mistras should also consider putting itself up for sale.
This is a summary of my recent update report on Mistras Group, Inc. (MG). To obtain a copy of the report, please reach out to me using the contact information provided below.
November 18, 2024 (Report published on November 8, 2024.)
Stephen P. Percoco
Lark Research
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© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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