Mistras Group, Inc. Q2 FY2025 earnings call

• Record adjusted EBITDA of $24.1 million, up nearly 9% YOY due to operating leverage from strategic priorities. - Strengthened performance in International (over 14% organic growth), PCMS (over 30% growth), aerospace and defense (7.4% growth), and industrials (7.2% growth). - Focus on customer engagement: Met over 100 customers in H1 2025, aiming for proactive partnership with integrated solutions. - Lab closures and consolidations: Exited unprofitable businesses, with $3M revenue loss in Q2 and $5M in H1. - Retooling in-lab services: Integrated operating protocols, hired sales leader, secured accreditations. - Gross margin expanded by 200 basis points due to diversification and operational efficiencies.

In Q2, the International segment demonstrated organic growth of over 14%, primarily in European operations. The Data Solutions business saw its PCMS service offering grow over 30%. Aerospace and defense delivered 7.4% revenue growth, industrials had 7.2% growth. Oil and gas end market was soft initially due to macroeconomic volatility but expected a stronger second half. The absolute financial performance included a record adjusted EBITDA of $24.1 million, up nearly 9% year-over-year.

• No full year guidance provided, but expect 2025 adjusted EBITDA to exceed 2024's level (second highest annual level on record). - Goal to finish 2025 with a leverage ratio below 2.5.

• Market volatility, including impact of recently enacted tariffs. - Oil and gas end market softness initially due to macroeconomic volatility and customer deferrals. - Midstream end market challenges with increased competition and lower prices. - Integration challenges with new ERP system leading to delay in unbilled and billed receivables.

Q: Mitchell Pinheiro asks about revenue guidance, oil and gas turnaround season, midstream challenges, customer engagement shift, commercial bid activity, power generation growth.

A: Natalia states revenue is hard to predict due to portfolio review, lab exits, and market volatility, but oil and gas turnaround season provides visibility. She mentions midstream challenges with increased competition but sees opportunities, and details customer engagement shift to strategic partnerships. On commercial bid activity, she notes strengthened sales team and lead generation efforts. For power generation, it's a growing area with double-digit growth.

Q: Justin Mechetti asks about PCMS Users Conference takeaways and PCMS Mobile adoption.

A: Natalia reports positive feedback on PCMS, including Digital Twin adoption and new service offerings. Ed mentions PCMS Mobile is being adopted rapidly for quicker data collection and analysis.

Q: Chris Sakai asks about gross profit margin sustainability, new ERP system impact on receivables, reorganization costs.

A: Natalia says gross margins are expected to sustain, driven by high-margin business, operational efficiencies. Ed explains the new ERP system had a learning curve but expects better receivables management in the second half, and reorganization costs will moderate in the second half as one-time charges from the first half don't recur.