10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2013

Or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period to                            

Commission file number 001- 34481

Mistras Group, Inc.
(Exact name of registrant as specified in its charter)

Delaware	22-3341267
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
195 Clarksville Road Princeton Junction, New Jersey	08550
(Address of principal executive offices)	(Zip Code)

(609) 716-4000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   x   Yes   o   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x   Yes   o   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o  Yes  x  No

As of April 1, 2013, the registrant had 28,194,980 shares of common stock outstanding.

TABLE OF CONTENTS

		PAGE
PART I—FINANCIAL INFORMATION
ITEM 1.	Financial Statements	1
	Unaudited Consolidated Balance Sheets as of February 28, 2013 and May 31, 2012	1
	Unaudited Consolidated Statements of Operations for the three and nine months ended February 28, 2013 and February 29, 2012	2
	Unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended February 28, 2013 and February 29, 2012	3
	Unaudited Consolidated Statements of Changes in Equity for the nine months ended February 28, 2013 and February 29, 2012	4
	Unaudited Consolidated Statements of Cash Flows for the nine months ended February 28, 2013 and February 29, 2012	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	33
ITEM 4.	Controls and Procedures	33
PART II—OTHER INFORMATION
ITEM 1.	Legal Proceedings	35
ITEM 1.A.	Risk Factors	35
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
ITEM 3.	Defaults Upon Senior Securities	35
ITEM 4.	Mine Safety Disclosures	36
ITEM 5.	Other Information	36
ITEM 6.	Exhibits	36
SIGNATURES		37

i

PART I—FINANCIAL INFORMATION

ITEM 1. Financial Statements (unaudited)

Mistras Group, Inc. and Subsidiaries

Unaudited Consolidated Balance Sheets

(in thousands, except share and per share data)

	February 28, 2013			May 31, 2012
ASSETS
Current Assets
Cash and cash equivalents	$	8,903		$	8,410
Accounts receivable, net	108,686			104,515
Inventories, net	12,126			12,492
Deferred income taxes	1,891			1,885
Prepaid expenses and other current assets	12,763			6,321
Total current assets	144,369			133,623
Property, plant and equipment, net	69,846			63,527
Intangible assets, net	56,428			34,469
Goodwill	125,532			96,819
Other assets	739			1,378
Total assets	$	396,914		$	329,816
LIABILITIES, PREFERRED STOCK AND EQUITY
Current Liabilities
Current portion of long-term debt	$	7,730		$	5,971
Current portion of capital lease obligations	6,714			5,951
Accounts payable	8,298			11,944
Accrued expenses and other current liabilities	43,411			39,334
Income taxes payable	1,997			1,119
Total current liabilities	68,150			64,319
Long-term debt, net of current portion	65,210			34,258
Obligations under capital leases, net of current portion	11,859			13,094
Deferred income taxes	14,582			4,901
Other long-term liabilities	21,447			19,996
Total liabilities	181,248			136,568
Commitments and contingencies
Preferred stock, 10,000,000 shares authorized	—			—
Equity
Common stock, $0.01 par value, 200,000,000 shares authorized, 28,194,980 and 28,025,507 shares issued and outstanding as of February 28, 2013 and May 31, 2012, respectively	282			280
Additional paid-in capital	193,512			188,443
Retained earnings	23,531			7,336
Accumulated other comprehensive loss	(1,928		)	(3,047		)
Total Mistras Group, Inc. stockholders’ equity	215,397			193,012
Noncontrolling interest	269			236
Total equity	215,666			193,248
Total liabilities, preferred stock and equity	$	396,914		$	329,816

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

Mistras Group, Inc. and Subsidiaries

Unaudited Consolidated Statements of Operations

(in thousands, except per share data)

	Three months ended						Nine months ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Revenues:
Services	$	124,510		$	94,253		$	351,466		$	281,097
Products	9,151			9,865			33,311			28,688
Total revenues	133,661			104,118			384,777			309,785
Cost of revenues:
Cost of services	91,209			66,336			248,769			194,270
Cost of products sold	3,527			4,238			13,022			12,094
Depreciation related to services	4,465			3,760			12,565			10,639
Depreciation related to products	254			200			593			563
Total cost of revenues	99,455			74,534			274,949			217,566
Gross profit	34,206			29,584			109,828			92,219
Selling, general and administrative expenses	27,209			20,806			74,063			59,565
Research and engineering	754			578			1,801			1,769
Depreciation and amortization	2,473			1,805			6,535			4,787
Acquisition-related expense, net (See Note 5)	(1,212		)	973			(1,006		)	1,009
Income from operations	4,982			5,422			28,435			25,089
Other expenses
Interest expense	882			690			2,458			2,121
Loss on extinguishment of long-term debt	—			113			—			113
Income before provision for income taxes	4,100			4,619			25,977			22,855
Provision for income taxes	1,349			1,548			9,749			8,672
Net income	2,751			3,071			16,228			14,183
Net (income) loss attributable to noncontrolling interests, net of taxes	—			(34		)	(33		)	38
Net income attributable to Mistras Group, Inc.	$	2,751		$	3,037		$	16,195		$	14,221
Earnings per common share (see Note 4):
Basic	$	0.10		$	0.11		$	0.58		$	0.51
Diluted	$	0.09		$	0.11		$	0.56		$	0.50
Weighted average common shares outstanding:
Basic	28,175			27,921			28,121			27,794
Diluted	29,101			28,829			29,078			28,563

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

Mistras Group, Inc. and Subsidiaries

Unaudited Consolidated Statements of Comprehensive Income

(in thousands)

	Three months ended					Nine months ended
	February 28, 2013		February 29, 2012			February 28, 2013			February 29, 2012
Net income	$	2,751	$	3,071		$	16,228		$	14,183
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	1,633		(615		)	1,119			(1,990		)
Other comprehensive income (loss)	1,633		(615		)	1,119			(1,990		)
Comprehensive income	4,384		2,456			17,347			12,193
Comprehensive (income) loss attributable to noncontrolling interests	—		(34		)	(33		)	38
Foreign currency translation adjustments	—		5			—			12
Comprehensive income attributable to Mistras Group, Inc.	$	4,384	$	2,427		$	17,314		$	12,243

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Mistras Group, Inc. and Subsidiaries

Unaudited Consolidated Statements of Changes in Equity

(in thousands)

												Total
									Accumulated			Mistras Group,
				Additional					other			Inc.
	Common Stock			paid-in			Retained		comprehensive			Stockholders’			Noncontrolling
	Shares	Amount		capital			earnings		income (loss)			Equity			Interest		Total Equity
Nine months ended February 28, 2013:
Balance at May 31, 2012	28,026	$	280	$	188,443		$	7,336	$	(3,047	)	$	193,012		$	236	$	193,248
Net income	—	—		—			16,195		—			16,195			33		16,228
Other comprehensive income, net of tax	—	—		—			—		1,119			1,119			—		1,119
Stock compensation	13	—		4,749			—		—			4,749			—		4,749
Net settlement on vesting of restricted stock units	85	1		(807		)	—		—			(806		)	—		(806		)
Excess tax benefit from stock compensation	—	—		455			—		—			455			—		455
Exercise of stock options	71	1		672			—		—			673			—		673
Balance at February 28, 2013	28,195	$	282	$	193,512		$	23,531	$	(1,928	)	$	215,397		$	269	$	215,666

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Mistras Group, Inc. and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(in thousands)

	Nine months ended
	February 28, 2013			February 29, 2012
Cash flows from operating activities
Net income	$	16,228		$	14,183
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	19,693			15,989
Deferred income taxes	1,530			(479		)
Provision for doubtful accounts	(345		)	189
Loss on extinguishment of long-term debt	—			113
Loss (gain) on sale of assets	3			(40		)
Amortization of deferred financing costs	94			116
Stock compensation expense	4,749			3,791
Foreign currency loss	51			231
Changes in operating assets and liabilities, net of effect of acquisitions of businesses
Accounts receivable	6,076			(10,160		)
Inventories	985			(2,624		)
Prepaid expenses and other current assets	(5,625		)	(1,386		)
Other assets	652			(42		)
Accounts payable	(5,772		)	(1,310		)
Income taxes payable	(743		)	(2,302		)
Accrued expenses and other liabilities	(10,028		)	4,703
Net cash provided by operating activities	27,548			20,972
Cash flows from investing activities
Purchase of property, plant and equipment	(8,915		)	(6,407		)
Purchase of intangible assets	(897		)	(437		)
Acquisition of businesses, net of cash acquired	(33,601		)	(26,273		)
Proceeds from sale of equipment	1,028			301
Net cash used in investing activities	(42,385		)	(32,816		)
Cash flows from financing activities
Repayment of capital lease obligations	(5,054		)	(5,136		)
Repayment of notes payable and other long-term debt	(4,628		)	(4,420		)
Net borrowings from current revolver	26,008			19,050
Net repayments of other short-term borrowings	—			(1,868		)
Proceeds from borrowings of long-term debt	309			837
Payment of financing costs	—			(623		)
Payment of contingent consideration for business acquisitions	(1,887		)	—
Taxes paid related to net share settlement of restricted stock units	(806		)	(281		)
Excess tax benefit from stock compensation	455			405
Proceeds from the exercise of stock options	673			1,477
Net cash provided by financing activities	15,070			9,441
Effect of exchange rate changes on cash and cash equivalents	260			(545		)
Net change in cash and cash equivalents	493			(2,948		)
Cash and cash equivalents
Beginning of period	8,410			10,879
End of period	$	8,903		$	7,931
Supplemental disclosure of cash paid
Interest	$	2,422		$	1,720
Income taxes	$	13,605		$	11,995
Noncash investing and financing
Equipment acquired through capital lease obligations	$	2,896		$	8,613
Issuance of notes payable and other debt obligations primarily related to acquisitions	$	7,715		$	2,444

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Mistras Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(tabular dollars in thousands, except per share data)

1.Description of Business & Basis of Presentation

Description of Business

Mistras Group, Inc., together with its subsidiaries (the Company), is a leading “one source” global provider of technology-enabled asset protection solutions used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure. The Company combines industry-leading products and technologies, expertise in mechanical integrity (MI) and non-destructive testing (NDT) services and proprietary data analysis software to deliver a comprehensive portfolio of customized solutions, ranging from routine inspections to complex, plant-wide asset integrity assessments and management. These mission critical solutions enhance customers’ ability to extend the useful life of their assets, increase productivity, minimize repair costs, comply with governmental safety and environmental regulations, manage risk and avoid catastrophic disasters. Given the role the services of the Company play in ensuring the safe and efficient operation of infrastructure, the Company has historically provided a majority of its services to its customers on a regular, recurring basis. The Company serves a global customer base of companies with asset-intensive infrastructure, including companies in the oil and gas, fossil and nuclear power, alternative and renewable energy, public infrastructure, chemicals, aerospace and defense, transportation, primary metals and metalworking, pharmaceuticals and food processing industries.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the three and nine months ended February 28, 2013 are not necessarily indicative of the results that may be expected for the year ending May 31, 2013. The balance sheet at May 31, 2012 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited consolidated financial statements should be read together with the financial statements and notes included in our Annual Report on Form 10-K for the year ended May 31, 2012 and other consolidated financial statements of the Company as filed with the Securities and Exchange Commission. In this quarterly report, the Company’s fiscal years, which end on May 31, are identified according to the calendar year in which they end (e.g., the fiscal year ended May 31, 2012 is referred to as “fiscal 2012”).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Mistras Group, Inc. and its wholly or majority-owned subsidiaries. Where the Company’s ownership interest is less than 100%, the noncontrolling interests are reported in equity in the accompanying consolidated balance sheets. The noncontrolling interest in net income, net of tax, is classified separately in the accompanying consolidated statements of operations.

All significant intercompany accounts and transactions have been eliminated in consolidation. Mistras Group, Inc.’s and its subsidiaries’ fiscal years end on May 31 except for the companies in the International segment, which end on April 30. Accordingly, the Company’s International segment subsidiaries are consolidated on a one-month lag. Therefore, in the quarter and year of acquisition, results of acquired subsidiaries in the International segment are generally included in consolidated results for one less month than the actual number of months from the acquisition date to the end of the reporting period. Management does not believe that any events occurred during the one-month lag period that would have a material effect on the Company’s consolidated financial statements as of or for any period presented.

Reclassification

Certain amounts in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have a material effect on the Company’s financial condition or results of operations as previously reported.

During the third quarter of fiscal 2013, the Company reclassified amounts related to interest accretion imputed on its acquisition-related contingent consideration liabilities from interest expense to acquisition-related expense, net, which is a component of income from operations. During fiscal 2012, the amounts reclassified were $0.4 million and $0.1 million for the three month periods ended November 30, 2011 and February 29, 2012, respectively. For the three months ended August 31, 2011 there was no expense related to interest accretion imputed on our acquisition-related contingent consideration liabilities. During fiscal 2013, the amounts reclassified were $0.3 million and $0.2 million for the three month periods ended August 31, 2012 and November 30, 2012, respectively. See Note 5 to these unaudited condensed consolidated financial statements for further discussion with regards to acquisition related expense, net.

6

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

2.             Summary of Significant Accounting Policies

Revenue Recognition

Revenue recognition policies for the various sources of revenues are as follows:

Services

The Company predominantly derives revenues by providing its services on a time and material basis and recognizes revenues when services are rendered. At the end of any reporting period, there may be earned but unbilled revenues that are accrued. Payments received in advance of revenue recognition are reflected as deferred revenues.

Software

Revenues from the sale of perpetual licenses are recognized upon the delivery and acceptance of the software. Revenues from term licenses are recognized ratably over the period of the license. Revenues from maintenance, unspecified upgrades and technical support are recognized ratably over the period such items are delivered. For multiple-element arrangement software contracts that include non-software elements, and where the software is essential to the functionality of the non-software elements (collectively referred to as software multiple-element arrangements), the Company applies the rules as noted below.

Products

Revenues from product sales are recognized when risk of loss and title passes to the customer. The exceptions to this accounting treatment would be for multiple-element arrangements (described below) or those situations where specialized installation or customer acceptance is required. Payments received in advance of revenue recognition are reflected as deferred revenues.

Percentage of Completion

A portion of the Company’s revenues are generated from engineering and manufacturing of custom products under long-term contracts that may last from several months to several years, depending on the contract. Revenues from long-term contracts are recognized on the percentage-of-completion method of accounting. Under the percentage-of-completion method of accounting, revenues are recognized as work is performed. The percentage of completion at any point in time is based on total costs or total labor dollars incurred to date in relation to the total estimated costs or total labor dollars estimated at completion. The percentage of completion is then applied to the total contract revenue to determine the amount of revenue to be recognized in the period. Application of the percentage-of-completion method of accounting requires the use of estimates of costs to be incurred for the performance of the contract. Contract costs include all direct materials, direct labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and all costs associated with operation of equipment. The cost estimation process is based upon the professional knowledge and experience of the Company’s engineers, project managers and financial professionals. Factors that are considered in estimating the work to be completed include the availability and productivity of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any delays in project performance and the recoverability of any claims. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.

Multiple-element Arrangements

The Company occasionally enters into transactions that represent multiple-element arrangements, which may include any combination of services, software, and hardware. When a sales arrangement contains multiple elements, such as hardware and services and/or software products, the Company allocates revenue to each element that has stand-alone value based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence (VSOE) if available, third party evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE is available. The Company has historically utilized the VSOE due to the nature of its products. In software multiple element arrangements that include non-software

7

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

elements, and where software is essential to the functionality of the non-software elements, these elements are bundled together as one unit of accounting for purposes of allocating revenue to units of accounting based on the aforementioned selling price hierarchy.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements. The more significant estimates include valuation of goodwill and intangible assets acquired in connection with business combinations, useful lives of long-lived assets, allowances for doubtful accounts, inventory valuation, reserves for self-insured workers compensation and health benefits, contingent consideration liabilities, and provision for income taxes. Actual results could differ from those estimates.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets of the acquired business at the date of acquisition. The Company tests for impairment annually, in its fiscal fourth quarter. The most recent annual test for impairment performed for fiscal 2012 did not identify any instances of impairment and there were no events through February 28, 2013 which the Company believes warranted a reconsideration of the impairment test results.

Intangible assets are recorded at cost. Intangible assets recognized through the completion of a business combination are recorded at fair value on the date of acquisition. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. At times, cash deposits may exceed the limits insured by the Federal Deposit Insurance Corporation. The Company believes it is not exposed to any significant credit risk or risk of nonperformance of financial institutions.

The Company primarily sells to large companies, extends reasonably short collection terms, performs credit evaluations and does not require collateral. The Company maintains reserves for potential credit losses.

The Company has one customer, BP plc. (BP), which accounted for 13% and 16% of revenues for the three months ended February 28, 2013 and February 29, 2012, respectively, and 12% and 16% of revenues for the nine months ended February 28, 2013 and February 29, 2012, respectively. Accounts receivable from this customer were approximately 13% and 9% of total accounts receivable, net, as of February 28, 2013 and May 31, 2012, respectively. The relationship with BP is comprised of separate contracts for non-destructive testing and inspection services with multiple affiliated entities within the broad BP organization. The Company conducts business with various divisions or affiliates of the BP organization through numerous contracts covering many segments of BP’s business including downstream (refinery), midstream (pipelines) and upstream (exploration). These contracts are typically negotiated locally with the specific BP division or affiliate, are of varying lengths, have different start and end dates and differ in terms of the scope of work and nature of services provided.  Most contracts are based on time and materials.

Equity-based Compensation

The Company measures the cost of employee services received in exchange for an award of equity instruments based upon the grant-date fair value of the award. The Company uses the “straight-line” attribution method for allocating compensation costs and recognizes the fair value of each equity award on a straight-line basis over the requisite service periods of the related awards.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of the stock option awards as of the grant date. The Black-Scholes model, by its design, is highly complex and dependent upon key data inputs estimated by management. The primary data inputs with the greatest degree of judgment are the expected term of stock option awards and the estimated volatility of the Company’s common stock price. The Black-Scholes model is sensitive to changes in these two variables.  Since the Company’s initial public offering (IPO) on October 7, 2009, the expected term of the Company’s stock options is generally determined using the simplified method. Expected stock price volatility is typically

8

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

based on the daily historical trading data for a period equal to the expected term. Because the Company’s historical trading data only dates back to the IPO, the Company has estimated expected volatility using an analysis of the stock price volatility of comparable peer companies.  Prior to the Company’s IPO, the exercise price equaled the estimated fair market value of the Company’s common stock, as determined by its board of directors. Since the Company’s IPO, the exercise price of stock option grants is determined using the closing market price of the Company’s common stock on the date of grant.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which expands the disclosure requirements for amounts reclassified out of accumulated other comprehensive income. The update requires an entity to present either parenthetically on the face of the financial statement where net income is presented or in the notes to the financial statements, the effect of significant items reclassified in their entirety from accumulated other comprehensive income and identification of the respective line items effecting net income for instances when reclassification is required under GAAP. For items that are not required by GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures as required by GAAP. The update does not change the current requirements for reporting net income or other comprehensive income in financial statements and is effective for annual and interim reporting periods beginning after December 15, 2012. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 allows an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This authoritative guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. ASU 2011-05 does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, or the Company’s option to present components of other comprehensive income either net of related tax effects or before related tax effects, nor does it affect how earnings per share is calculated or presented.  Effective June 1, 2012, the Company adopted the provisions of this updated accounting standard related to comprehensive income. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

3.             Capitalization

Common Stock

Dividends on common stock will be paid when, and if, declared by the board of directors. Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held.

Equity Awards

The Company has a Long-Term Incentive Plan (the 2009 Plan). Awards may be granted in the form of stock options, restricted stock units and other forms of stock-based incentives, including stock appreciation rights and deferred stock rights. The term of each incentive and non-qualified stock option is ten years. Vesting generally occurs over a period of four years, the expense for which is recorded on a straight-line basis over the requisite service period. The 2009 Plan allows for the grant of awards of up to approximately 2,286,000 shares of common stock, of which 1,453,000 shares were available for future grants as of February 28, 2013. Prior to the Company’s IPO in October 2009, the Company had two stock option plans: (i) the 1995 Incentive Stock Option and Restricted Stock Purchase Plan (the 1995 Plan), and (ii) the 2007 Stock Option Plan (the 2007 Plan). No additional awards may be granted from these two plans. As of February 28, 2013, there was an aggregate of approximately 2,472,000 stock options outstanding and approximately 552,000 unvested restricted stock units outstanding under the 2009 Plan, the 2007 Plan, and the 1995 Plan.

No stock options were granted during the three or nine month periods ended February 28, 2013 or February 29, 2012.

The Company recognized stock-based compensation expense related to stock option awards of approximately $0.8 million for each of the three month periods ended February 28, 2013 and February 29, 2012. For the nine months ended February

9

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

28, 2013 and February 29, 2012, the Company recognized stock-based compensation expense related to stock option awards of $2.3 million and $2.4 million, respectively. As of February 28, 2013, there was approximately $1.5 million of unrecognized compensation costs, net of estimated forfeitures, related to stock option awards, which are expected to be recognized over a remaining weighted average period of approximately 0.5 years. Cash proceeds from and the aggregate intrinsic value of stock options exercised during the three and nine months ended February 28, 2013 and February 29, 2012 were as follows:

	Three months ended				Nine months ended
	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Cash proceeds from options exercised	$	321	$	152	$	672	$	1,477
Aggregate intrinsic value of options exercised	$	370	$	337	$	856	$	3,399

The Company also recognized approximately $0.8 million and $0.5 million during the three months ended February 28, 2013 and February 29, 2012, respectively, in stock-based compensation expense related to restricted stock unit awards. For the nine months ended February 28, 2013 and February 29, 2012, the Company recognized stock-based compensation expense related to restricted stock unit awards of $2.1 million and $1.1 million, respectively. As of February 28, 2013, there was approximately $8.5 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which are expected to be recognized over a remaining weighted average period of 2.7 years.

In June 2012 and October 2011, the Company granted approximately 13,000 and 9,000 shares, respectively, of fully-vested common stock to its five non-employee directors, in connection with its non-employee director compensation plan. These shares had a grant date fair value of approximately $0.3 million and $0.2 million, respectively, which is included in the stock-based compensation expense recorded during the nine months ended February 28, 2013 and February 29, 2012.

During the nine months ended February 28, 2013 and February 29, 2012, approximately 123,000 and 52,000 restricted stock units vested, respectively. The fair value of these units upon vesting was $1.9 million and $0.5 million, respectively. Upon vesting, restricted stock units are generally net share-settled to cover the required withholding tax and the remaining amount is converted into an equivalent number of shares of common stock. The restricted stock units that vested in the first nine months of fiscal 2013 and 2012 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The Company withheld approximately 37,000 and 16,000 shares in the first nine months of fiscal 2013 and 2012, respectively. The shares withheld were based on the value of the restricted stock units on their vesting date as determined by the Company’s closing stock price. Total payments for the employees’ tax obligations to the taxing authorities were $0.8 million and $0.3 million and are reflected as a financing activity within the consolidated statements of cash flows for the nine months ended February 28, 2013 and February 29, 2012, respectively. These net-share settlements had the effect of share repurchases by the Company as they reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company.

4.             Earnings per Share

Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to Mistras Group Inc. by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, and (2) the dilutive effect of assumed conversion of equity awards using the treasury stock method. With respect to the number of weighted-average shares outstanding (denominator), diluted shares reflects: (i) only the exercise of options to acquire common stock to the extent that the options’ exercise prices are less than the average market price of common shares during the period and (ii) the pro forma vesting of restricted stock units.

The following table sets forth the computations of basic and diluted earnings per share:

10

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

	Three months ended				Nine months ended
	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Basic earnings per share
Numerator:
Net income attributable to Mistras Group, Inc.	$	2,751	$	3,037	$	16,195	$	14,221
Denominator:
Weighted average common shares outstanding	28,175		27,921		28,121		27,794
Basic earnings per share	$	0.10	$	0.11	$	0.58	$	0.51
Diluted earnings per share:
Numerator:
Net income attributable to Mistras Group, Inc.	$	2,751	$	3,037	$	16,195	$	14,221
Denominator:
Weighted average common shares outstanding	28,175		27,921		28,121		27,794
Dilutive effect of stock options outstanding	815		795		806		688
Dilutive effect of restricted stock units outstanding	111		113		151		81
	29,101		28,829		29,078		28,563
Diluted earnings per share	$	0.09	$	0.11	$	0.56	$	0.50

5.             Acquisitions

During fiscal 2013, the Company completed the acquisition of three asset protection companies specializing in destructive and non-destructive services and inspection, and in-house component inspection. Two of these companies are intended to complement the service offerings within the International segment and to expand Mistras’ footprint in Europe. The other company, located in Canada, is intended to complement the service offerings within the Services segment.  In these acquisitions, the Company acquired 100% of the common stock of each acquiree in exchange for an aggregate of approximately $35.0 million in cash and $7.7 million in notes payable over three years. In addition to the cash and debt consideration related to these acquisitions, the Company accrued a liability of approximately $8.3 million, which represents the estimated fair value of contingent consideration expected to be payable in the event that the acquired companies achieve specific performance metrics over the next five years of operations. The total potential contingent consideration for these acquisitions ranges from zero to $15.0 million as of February 28, 2013.

The assets and liabilities of the acquired business were included in the consolidated balance sheets as of February 28, 2013 based on their estimated fair value on the date of acquisition as determined in a purchase price allocation, using available information and making assumptions management believes are reasonable. The Company is still in the process of completing its valuation of the assets, both tangible and intangible, and liabilities acquired, as well as the contingent consideration. These valuations and the related purchase price allocations are expected to be finalized prior to the end of the Company’s fourth quarter of fiscal 2013. The results of operations for these acquisitions are included, as appropriate, in the Services segment’s and International segment’s results of operations from the respective date of acquisition. The Company’s preliminary allocation of purchase price for these acquisitions is included in the table below. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition for the Company’s fiscal 2013 acquisitions:

11

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

Number of entities	3
Cash paid	$	34,968
Subordinated notes issued	7,715
Contingent consideration	8,329
Purchase price	$	51,012
Current assets acquired, net	1,064
Debt and other long-term liabilities	(4,541		)
Property, plant and equipment	8,945
Deferred tax liability	(7,934		)
Intangibles, primarily customer relationships	25,823
Goodwill	27,655
Net assets acquired	$	51,012

The amortization period of intangible assets acquired ranges from two to twelve years. The Company recorded approximately $27.7 million of goodwill in connection with its fiscal 2013 acquisitions, reflecting the strategic fit and revenue and earnings growth potential of these businesses. The goodwill recognized in connection with these three acquisitions is not expected to be deductible for tax purposes.

The Company also has two acquisitions that were completed in the fourth quarter of fiscal 2012 for which the Company is still in the process of completing the allocation of the consideration transferred, including the valuation of the intangible assets acquired. These valuations and related purchase price allocations are expected to be finalized prior to the end of the Company’s fourth quarter of fiscal 2013. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition for the Company’s fiscal 2012 acquisitions that have not yet been finalized:

Number of entities	2
Cash paid	$	2,968
Subordinated notes issued	904
Contingent consideration	464
Purchase price	$	4,336
Current assets acquired, net	48
Debt and other long-term liabilities	—
Property, plant and equipment	791
Deferred tax liability	(300		)
Intangibles, primarily customer relationships	2,222
Goodwill	1,575
Net assets acquired	$	4,336

There have been no significant changes during fiscal 2013 to the initial purchase price allocations for which the final purchase price allocation is not yet complete.

Revenues for the acquisitions completed in fiscal 2013 for the period subsequent to the closing of the transaction were approximately $18.5 million and $24.9 million for the three and nine months ended February 28, 2013, respectively.

12

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

Income from operations for these acquisitions for the period subsequent to the closing of each respective transaction was approximately $0.4 million and $1.0 million for the three and nine months ended February 28, 2013, respectively.

The unaudited pro forma information for the periods set forth below gives effect to the fiscal 2013 acquisitions as if they had occurred at the beginning of each period presented. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time (unaudited, in thousands):

	Three months ended				Nine months ended
	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Revenues	$	134,630	$	127,028	$	419,146	$	394,866
Income from operations	$	4,818	$	3,874	$	30,093	$	22,263

During the three and nine month periods ended February 28, 2013, the Company incurred costs of $0.3 million and $1.2 million, respectively, in connection with due diligence, professional fees, and other expenses for its fiscal 2013 acquisition activity. Additionally, the Company adjusted the fair value of certain acquisition-related contingent consideration liabilities. For the three month and nine month periods ended February 28, 2013, the adjustments resulted in a net decrease of approximately $2.0 million and $3.1 million, respectively, to the Company’s acquisition-related contingent consideration liabilities, which were approximately $17.5 million as of February 28, 2013 and recorded on the balance sheet in accrued expenses and other liabilities. These adjustments also resulted in a corresponding net increase to income from operations of approximately $2.0 million and $3.2 million for the three and nine month periods ended February 28, 2013, respectively. The Company recorded interest accretion related to its contingent consideration liabilities of $0.5 million and $1.0 million for the three and nine months ended February 28, 2013. The fair value adjustments to acquisition-related contingent consideration liabilities, related interest accretion and the acquisition-related transaction costs have been classified as acquisition-related expense, net in the statement of operations for the three and nine months ended February 28, 2013.

During the three and nine month periods ended February 29, 2012, the Company incurred costs of $1.0 million and $1.4 million, respectively, in connection with due diligence, professional fees, and other expenses for its fiscal 2012 acquisition activity. Additionally, the Company adjusted the fair value of certain acquisition-related contingent consideration liabilities. For the three month and nine month periods ended February 29, 2012, the adjustments resulted in a net decrease of approximately $0.1 million and $0.9 million, respectively, to the Company’s acquisition-related contingent consideration liabilities, which were approximately $7.5 million as of February 29, 2012 and recorded on the balance sheet in accrued expenses and other liabilities. These adjustments also resulted in a corresponding net increase to income from operations of approximately $0.1 million and $0.9 million for the three and nine month periods ended February 29, 2012, respectively. The Company recorded interest accretion related to its contingent consideration liabilities of $0.1 million and $0.5 million for the three and nine months ended February 29, 2012. The fair value adjustments to acquisition-related contingent consideration liabilities, related interest accretion and the acquisition-related transaction costs have been classified as acquisition-related expense, net in the statement of operations for the three and nine months ended February 29, 2012.

Interest accretion for the three and nine month periods ended February 28, 2013 and February 29, 2012, respectively, was previously recorded in interest expense.

13

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

6.             Accounts Receivable, net

Accounts receivable consist of the following:

	February 28, 2013			May 31, 2012
Trade accounts receivable	$	110,334		$	106,821
Allowance for doubtful accounts	(1,648		)	(2,306		)
Total	$	108,686		$	104,515

7.Inventories, net

Inventories consist of the following:

	February 28, 2013		May 31, 2012
Raw materials	$	3,230	$	3,054
Work in process	2,594		2,232
Finished goods	3,794		4,287
Supplies	2,508		2,919
Total	$	12,126	$	12,492

Inventories are net of reserves for slow-moving and obsolete inventory of approximately $1.5 million and $1.2 million as of February 28, 2013 and May 31, 2012, respectively.

8.             Property, Plant and Equipment, net

Property, plant and equipment consist of the following:

	Useful Life
	(Years)	February 28, 2013			May 31, 2012
Land		$	1,953		$	1,892
Building and improvements	30-40	21,044			16,950
Office furniture and equipment	5-8	5,247			6,760
Machinery and equipment	5-7	119,225			105,096
		147,469			130,698
Accumulated depreciation and amortization		(77,623		)	(67,171		)
Property, plant and equipment, net		$	69,846		$	63,527

Depreciation expense for the three months ended February 28, 2013 and February 29, 2012 was approximately $5.0 million and $4.2 million, respectively. Depreciation expense for the nine months ended February 28, 2013 and February 29, 2012 was approximately $14.0 million and $11.8 million, respectively.

9.Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

	February 28, 2013		May 31, 2012
Accrued salaries, wages and related employee benefits	$	21,065	$	17,195
Contingent consideration, current portion	4,887		2,371
Accrued worker compensation and health benefits	3,834		3,678
Deferred revenues	3,245		5,390
Other accrued expenses	10,380		10,700
Total	$	43,411	$	39,334

14

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

10.Long-Term Debt

Long-term debt consists of the following:

	February 28, 2013			May 31, 2012
Senior credit facility	$	51,008		$	25,000
Notes payable	17,228			12,532
Other	4,704			2,697
	72,940			40,229
Less: Current maturities	(7,730		)	(5,971		)
Long-term debt, net of current maturities	$	65,210		$	34,258

Senior Credit Facility

In December 2011, the Company entered into a Third Amended and Restated Credit Agreement (Credit Agreement) with Bank of America, N.A., as agent for the lenders and a lender, and JPMorgan Chase Bank, N.A., Keybank National Association and TD Bank, N.A., as lenders.  The Credit Agreement provides the Company with a $125.0 million revolving line of credit, which, under certain circumstances, can be increased to $150.0 million.  The Credit Agreement has a maturity date of December 20, 2016.  The Company may borrow up to $30.0 million in non-U.S. dollar currencies and use up to $10.0 million of the credit limit for the issuance of letters of credit. As of February 28, 2013, there were outstanding borrowings of $51.0 million and a total of $3.3 million of outstanding letters of credit under the current revolving credit facility.

Loans under the Credit Agreement bear interest, at the option of the Company, at LIBOR, plus an applicable margin ranging from 1% to 2%, or base rate less a margin ranging from 0.25% to 1.25%, based upon its Funded Debt Leverage Ratio.  Funded Debt Leverage Ratio is generally the ratio of (1) all outstanding indebtedness for borrowed money and other interest-bearing indebtedness as of the date of determination to (2) EBITDA, as defined in the Credit Agreement, (which is (a) net income, less (b) income (or plus loss) from discontinued operations and extraordinary items, plus (c) income tax expenses, plus (d) interest expense, plus (e) depreciation, depletion, and amortization (including non-cash loss on retirement of assets), plus (f) stock compensation expense, less (g) cash expense related to stock compensation, plus or minus certain other adjustments) for the period of four consecutive fiscal quarters immediately preceding the date of determination.  The Company has the benefit of the lowest margin if its Funded Debt Leverage Ratio is equal to or less than 0.5 to 1, and the margin increases as the ratio increases, to the maximum margin if the ratio is greater than 2.5 to 1. The Company will also bear additional costs for market disruption, regulatory changes effecting the lenders’ funding costs, and default pricing of an additional 2% interest rate margin if the Funded Debt Leverage Ratio exceeds 3.0 to 1. Amounts borrowed under the Credit Agreement are secured by liens on substantially all of the assets of the Company.

The Credit Agreement contains financial covenants requiring that the Company maintain a Funded Debt Leverage Ratio of less than 3.0 to 1 and an Interest Coverage Ratio of at least 3.0 to 1.  Interest Coverage Ratio means the ratio, as of any date of determination, of (a) EBITDA, as defined in the Credit Agreement, for the 12 month period immediately preceding the date of determination, to (b) all interest, premium payments, debt discount, fees, charges and related expenses of the Company in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, paid during the 12 month period immediately preceding the date of determination.  The Credit Agreement also limits the Company’s ability to, among other things, create liens, make investments, incur more indebtedness, merge or consolidate, make dispositions of property, pay dividends and make distributions to stockholders, enter into a new line of business, enter into transactions with affiliates and enter into burdensome agreements.  The Credit Agreement does not limit the Company’s ability to acquire other businesses or companies except that the acquired business or company must be in its line of business, the Company must be in compliance with the financial covenants on a pro forma basis after taking into account the acquisition, and, if the acquired business is a separate subsidiary, in certain circumstances the lenders will receive the benefit of a guaranty of the subsidiary and liens on its assets and a pledge of its stock.

As of February 28, 2013, the Company was in compliance with the terms of the Credit Agreement, and it will continuously

15

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

monitor its compliance with the covenants.

Notes Payable and Other

In connection with certain of the acquisitions the Company has completed, it has, at various times, issued subordinated notes payable to the sellers. The maturity of these notes ranges from three to five years from the date of acquisition with interest rates ranging from 0% to 4%. The Company has discounted these obligations to reflect a 2% to 4% imputed interest rate, where appropriate. Unamortized discount on these notes was de minimis as of February 28, 2013 and totaled approximately $0.1 million as of May 31, 2012. Amortization is recorded as interest expense in the consolidated statement of operations. The Company also has payment obligations ranging from three to five years to the sellers or the shareholders of the sellers pursuant to non-compete agreements which require the sellers and shareholders of the sellers not to compete with the Company.

In December 2011, the Company amended its Credit Agreement bringing the Company’s interest rate to current market rates. The Company has evaluated current market conditions and borrower credit quality and has determined that the carrying value of its long-term debt approximated fair value. The fair value of the Company’s notes payable and capital lease obligations approximates their carrying amounts based on anticipated interest rates which management believes would currently be available to the Company for similar issues of debt.

11.          Fair Value Measurements

The Company performs fair value measurements in accordance with the guidance provided by ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a three level hierarchy that prioritizes the inputs used to measure fair value. The three levels of the hierarchy are defined as follows:

Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 — Observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data.

Level 3 — Unobservable inputs reflecting the Company’s own assumptions about inputs that market participants would use in pricing the asset or liability based on the best information available.

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial liabilities that are required to be remeasured at fair value on a recurring basis:

	As of February 28, 2013
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent consideration	$	—	$	—	$	17,484	$	17,484
Total Liabilities	$	—	$	—	$	17,484	$	17,484

16

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

	As of May 31, 2012
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent consideration	$	—	$	—	$	13,513	$	13,513
Total Liabilities	$	—	$	—	$	13,513	$	13,513

The fair value of contingent consideration liabilities that was classified as Level 3 in the table above was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the acquisition agreements.

12.Commitments and Contingencies

Litigation

The Company is subject to periodic lawsuits, investigations and claims that arise in the ordinary course of business.  Although the Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against it, the Company does not believe that any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its business, results of operations, cash flows or financial condition. The costs of defense and amounts that may be recovered in such matters may be covered by insurance.

Acquisition-related contingencies

The Company is liable for contingent consideration in connection with certain of its acquisitions. As of February 28, 2013, total potential acquisition-related contingent consideration ranged from zero to approximately $27.2 million and would be payable upon the achievement of specific performance metrics by certain of the acquired companies over the next five years of operations. See Note 5 to these consolidated financial statements for further discussion of the Company’s acquisitions.

13.Segment Disclosure

The Company’s three segments are:

Services. This segment provides asset protection solutions primarily in North America with the largest concentration in the United States, consisting primarily of non-destructive testing and inspection services that are used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure.

International. This segment offers services, products and systems similar to those of the other segments to global markets, principally in 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. This segment designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States.

Costs incurred for general corporate services, including accounting, audit, and contract management, that are provided to the segments are reported within Corporate and eliminations. Sales to the International segment from the Products and Systems segment and subsequent sales by the International segment of the same items are recorded and reflected in the operating performance of both segments. Additionally, engineering charges and royalty fees charged to the Services and International segments by the Products and Systems segment are reflected in the operating performance of each segment. All such intersegment transactions are eliminated in the Company’s consolidated financial reporting.

17

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

Segment income from operations is determined based on internal performance measures used by the Chief Executive Officer, who is the chief operating decision maker, to assess the performance of each business in a given period and to make decisions as to resource allocations. In connection with that assessment, the Chief Executive Officer may exclude matters such as charges for stock-based compensation and certain other acquisition-related charges and balances, technology and product development costs, certain gains and losses from dispositions, and litigation settlements or other charges. Certain general and administrative costs such as human resources, information technology, marketing and training are allocated to the segments. Segment income from operations also excludes interest and other financial charges and income taxes. Corporate and other assets are comprised principally of cash, deposits, property, plant and equipment, domestic deferred taxes, deferred charges and other assets. Corporate loss from operations consists of depreciation on the corporate office facilities and equipment, administrative charges related to corporate personnel and other charges that cannot be readily identified for allocation to a particular segment.

Selected consolidated financial information by segment for the periods shown was as follows:

	Three months ended						Nine months ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Revenues
Services	$	90,537		$	80,895		$	278,147		$	253,493
International	37,516			17,164			88,722			38,794
Products and Systems	7,645			9,824			25,618			26,429
Corporate and eliminations	(2,037		)	(3,765		)	(7,710		)	(8,931		)
	$	133,661		$	104,118		$	384,777		$	309,785

Revenues by segment include intercompany transactions, which are eliminated in Corporate and eliminations.  The Services segment had sales to other operating segments of $0.6 million and $0.5 million for the three months ended February 28, 2013 and February 29, 2012, respectively. For the nine months ended February 28, 2013 and February 29, 2012, the Services segment sales to other operating segments totaled $2.8 million and $2.3 million, respectively.

The International segment had sales to other operating segments of $0.2 million and $0.3 million for the three months ended February 28, 2013 and February 29, 2012, respectively. For each of the nine month periods ended February 28, 2013 and February 29, 2012, the International segment had sales to other operating segments totaling $0.5 million.

The Products and Systems segment had sales to other operating segments of $1.3 million and $3.1 million for the three months ended February 28, 2013 and February 29, 2012, respectively. For the nine months ended February 28, 2013 and February 29, 2012, the Products and Systems segment sales to other operating segments totaled $4.2 million and $6.4 million, respectively.

	Three months ended					Nine months ended
	February 28, 2013		February 29, 2012			February 28, 2013		February 29, 2012
Gross profit
Services	$	20,496	$	20,640		$	72,128	$	68,001
International	9,851		4,586			24,231		12,263
Products and Systems	3,790		4,938			13,010		12,952
Corporate and eliminations	69		(580		)	459		(997		)
	$	34,206	$	29,584		$	109,828	$	92,219

	Three months ended						Nine months ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Income from operations
Services	$	6,293		$	7,186		$	28,597		$	27,927
International	586			321			3,457			2,373
Products and Systems	1,699			2,392			6,481			5,652
Corporate and eliminations	(3,596		)	(4,477		)	(10,100		)	(10,863		)
	$	4,982		$	5,422		$	28,435		$	25,089

18

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

Operating income by operating segment includes intercompany transactions, which are eliminated in Corporate and eliminations.

	Three months ended					Nine months ended
	February 28, 2013			February 29, 2012		February 28, 2013			February 29, 2012
Depreciation and amortization
Services	$	4,660		$	4,587	$	13,763		$	12,988
International	1,941			670		4,400			1,474
Products and Systems	617			500		1,596			1,451
Corporate and eliminations	(26		)	8		(66		)	76
	$	7,192		$	5,765	$	19,693		$	15,989

	February 28, 2013		May 31, 2012
Intangible assets, net
Services	$	15,880	$	17,180
International	29,853		6,390
Products and Systems	9,911		10,095
Corporate and eliminations	784		804
	$	56,428	$	34,469

	February 28, 2013		May 31, 2012
Goodwill
Services	$	60,719	$	58,746
International	51,616		24,481
Products and Systems	13,197		13,592
	$	125,532	$	96,819

	February 28, 2013		May 31, 2012
Total assets
Services	$	205,988	$	204,209
International	150,551		82,579
Products and Systems	38,262		43,914
Corporate and eliminations	2,113		(886		)
	$	396,914	$	329,816

Revenues by geographic area for the three and nine months ended February 28, 2013 and February 29, 2012 were as follows:

19

Mistras Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(tabular dollars in thousands, except per share data)

	Three months ended				Nine months ended
	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Revenues
United States	$	83,273	$	74,416	$	255,108	$	237,215
Europe	32,897		13,721		72,878		27,797
Other Americas	13,234		11,500		41,163		32,357
Asia-Pacific	4,257		4,481		15,628		12,416
	$	133,661	$	104,118	$	384,777	$	309,785

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ITEM 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis (“MD&A”) provides a narrative of our results of operations and financial condition for the three and nine months ended February 28, 2013 and February 29, 2012. The MD&A should be read together with our condensed consolidated financial statements and related notes included in Item 1 in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K. In this quarterly report, our fiscal years, which end on May 31, are identified according to the calendar year in which they end (e.g., the fiscal year ended May 31, 2012 is referred to as “fiscal 2012”), and unless otherwise specified or the context otherwise requires, “Mistras,” “the Company,” “we,” “us” and “our” refer to Mistras Group, Inc. and its consolidated subsidiaries. The MD&A includes the following sections:

·Forward-Looking Statements

·Overview

·Consolidated Results of Operations

·Liquidity and Capital Resources

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (Securities Act), and Section 21E of the Securities Exchange Act of 1934 (Exchange Act). Forward-looking statements reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning our possible future results of operations, business and growth strategies, financing plans, our competitive position and the effects of competition, the projected growth of the industries in which we operate, the benefits and synergies to be obtained from our completed and any future acquisitions, and statements of management’s goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in the future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Important factors that could cause such differences include, but are not limited to the factors discussed under the “Risk Factors” section in Part II below.

Overview

We are a leading “one source” global provider of technology-enabled asset protection solutions used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure. We combine industry-leading products and technologies, expertise in mechanical integrity (MI) and non-destructive testing (NDT) services and proprietary data analysis software to deliver a comprehensive portfolio of customized solutions, ranging from routine inspections to complex, plant-wide asset integrity assessments and management. These mission critical solutions enhance our customers’ ability to extend the useful life of their assets, increase productivity, minimize repair costs, comply with governmental safety and environmental regulations, manage risk and avoid catastrophic disasters. Our operations consist of three reportable segments: Services, International and Products and Systems.

·Services provides asset protection solutions primarily in North America with the largest concentration in the United States, consisting primarily of non-destructive testing and inspection services that are used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure.

·International offers services, products and systems similar to those of the other segments to global markets, principally in 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.

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Given the role our services play in ensuring the safe and efficient operation of infrastructure, we have historically provided a majority of our services to our customers on a regular, recurring basis. We serve a global customer base of companies with asset-intensive infrastructure, including companies in the oil and gas, fossil and nuclear power, public infrastructure, chemicals, aerospace and defense, transportation, primary metals and metalworking, pharmaceuticals and food processing industries. As of February 28, 2013, we had approximately 4,500 employees in approximately 90 offices across 16 countries. We have established long-term relationships as a critical solutions provider to many leading companies in our target markets. Our current principal market is the oil and gas industry, which accounted for approximately 50% and 55% of our third quarter revenues of fiscal 2013 and 2012, respectively.

For the last several years, we have focused on introducing our advanced asset protection solutions to our customers using proprietary, technology-enabled software and testing instruments, including those developed by our Products and Systems segment. During this period, the demand for outsourced asset protection solutions, in general, has increased, creating demand from which our entire industry has benefited. We believe continued growth can be realized in all of our target markets. Concurrent with this growth, we have worked to build our infrastructure to profitably absorb additional growth and have made a number of small acquisitions in an effort to leverage our fixed costs, grow our base of experienced, certified personnel, expand our product and technical capabilities and increase our geographical reach.

We have increased our capabilities and the size of our customer base through the development of applied technologies and managed support services, organic growth and the integration of acquired companies. These acquisitions, in the aggregate, have provided us with additional products, technologies, resources and customers that we believe will enhance our advantages over our competition.

The global economy continues to be fragile. Global financial markets continue to experience uncertainty, including tight liquidity and credit availability, relatively low consumer confidence, slow economic growth, persistently high unemployment rates, volatile currency exchange rates and continued uncertainty about economic stability. However, we believe these conditions have allowed us to capitalize on an opportunity to selectively hire new talented individuals that otherwise might not have been available to us, to acquire and develop new technologies in order to aggressively expand our proprietary portfolio of customized solutions, and to make acquisitions of complementary businesses at reasonable valuations.

Consolidated Results of Operations

Three months ended February 28, 2013 compared to the three months ended February 29, 2012

Our consolidated results of operations for the three months ended February 28, 2013 and February 29, 2012 were as follows:

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	Three months ended
	February 28, 2013			February 29, 2012
	($ in thousands)
Statement of Operations Data
Revenues	$	133,661		$	104,118
Cost of revenues	94,736			70,574
Depreciation	4,719			3,960
Gross profit	34,206			29,584
Gross profit as a % of Revenue	25.6		%	28.4		%
Selling, general and administrative expenses	27,209			20,806
SG&A as a % of Revenue	20.4		%	20.0		%
Research and engineering	754			578
Depreciation and amortization	2,473			1,805
Acquisition-related expense, net	(1,212		)	973
Income from operations	4,982			5,422
Income from operations as a % of Revenue	3.7		%	5.2		%
Interest expense	882			690
Loss on extinguishment of long-term debt	—			113
Income before provision for income taxes	4,100			4,619
Provision for income taxes	1,349			1,548
Net income	2,751			3,071
Net (income) loss attributable to noncontrolling interests, net of taxes	—			(34		)
Net income attributable to Mistras Group, Inc.	$	2,751		$	3,037

Our EBITDA and Adjusted EBITDA, non-GAAP measures explained below, for the three months ended February 28, 2013 and February 29, 2012 were as follows:

	Three months ended
	February 28, 2013			February 29, 2012
	($ in thousands)
EBITDA and Adjusted EBITDA data
Net income attributable to Mistras Group, Inc.	$	2,751		$	3,037
Interest expense	882			690
Provision for income taxes	1,349			1,548
Depreciation and amortization	7,192			5,765
EBITDA	$	12,174		$	11,040
Stock compensation expense	1,544			1,244
Acquisition-related expense, net	(1,212		)	973
Loss on extinguishment of long-term debt	—			113
Adjusted EBITDA	$	12,506		$	13,370

Note About Non-GAAP Measures

EBITDA and Adjusted EBITDA are performance measures used by management that are not calculated in accordance with U.S. generally accepted accounting principles (GAAP).  EBITDA is defined in this Quarterly Report as net income attributable to Mistras Group, Inc. plus: interest expense, provision for income taxes and depreciation and amortization.  Adjusted EBITDA is defined in this Quarterly Report as net income attributable to Mistras Group, Inc. plus: interest expense, provision for income taxes, depreciation and amortization, stock-based compensation expense, and, if applicable,

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certain acquisition-related expenses (including adjustments to the estimated fair value of contingent consideration) and certain non-recurring items (which items are listed below or in the reconciliation table above).

Our management uses Adjusted EBITDA as a measure of operating performance to assist in comparing performance from period to period on a consistent basis, as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations.  Adjusted EBITDA is also used as a performance evaluation metric for our executive and employee incentive compensation programs.

We believe investors and other users of our financial statements benefit from the presentation of Adjusted EBITDA in evaluating our operating performance because it provides an additional tool to compare our operating performance on a consistent basis and measure underlying trends and results in our business. Adjusted EBITDA removes the impact of certain items that management believes do not directly reflect our core operations. For instance, Adjusted EBITDA generally excludes interest expense, taxes and depreciation and amortization, each of which can vary substantially from company to company depending upon accounting methods and the book value and age of assets, capital structure, capital investment cycles and the method by which assets were acquired. It also eliminates stock-based compensation, which is a non-cash expense and is excluded by management when evaluating the underlying performance of our business operations.

While Adjusted EBITDA is a term and financial measurement commonly used by investors and securities analysts, it has limitations. As a non-GAAP measurement, Adjusted EBITDA has no standard meaning and, therefore, may not be comparable with similar measurements for other companies. Adjusted EBITDA is generally limited as an analytical tool because it excludes charges and expenses we do incur as part of our operations. For example, Adjusted EBITDA excludes income taxes, but we generally incur significant U.S. federal, state and foreign income taxes each year and the provision for income taxes is a necessary cost. Adjusted EBITDA should not be considered in isolation or as a substitute for analyzing our results as reported under GAAP.

Revenues. Revenues were $133.7 million for the three months ended February 28, 2013 compared to $104.1 million for the three months ended February 29, 2012. Revenues by segment for the third quarter of fiscal 2013 and  fiscal 2012 were as follows:

	Three months ended
	February 28, 2013			February 29, 2012
	($ in thousands)
Revenues
Services	$	90,537		$	80,895
International	37,516			17,164
Products and Systems	7,645			9,824
Corporate and eliminations	(2,037		)	(3,765		)
	$	133,661		$	104,118

We estimate our growth rates for the third quarter of fiscal 2013 and fiscal 2012 were as follows:

	Three months ended
	February 28, 2013			February 29, 2012
	($ in thousands)
Revenue growth	$	29,543		$	24,905
% Growth over prior year	28.4		%	31.4		%
Comprised of:
% of organic growth	5.7		%	16.5		%
% of acquisition growth	22.6		%	15.2		%
% foreign exchange increase (decrease)	0.1		%	(0.3		)%
	28.4		%	31.4		%

Revenues increased $29.5 million, or approximately 28%, for the three months ended February 28, 2013 compared to the three months ended February 29, 2012 as a result of growth in our International and Services segments. The growth in our

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International segment was principally attributable to growth from our fiscal 2012 and fiscal 2013 acquisitions, while growth in our Services segment was primarily due to organic growth.  In the third quarter of fiscal 2013, we estimate that our acquisition growth was approximately 23% compared to approximately 15% in the third quarter of fiscal 2012. For the third quarter of fiscal 2013 and 2012, we estimate that our organic growth rate was approximately 6% and 17%, respectively.

We continued to experience growth in many of our target markets during the third quarter of fiscal 2013. Oil and gas is our largest target market and represented approximately 50% of total revenues in the third quarter of fiscal 2013, compared to approximately 55% in the third quarter of fiscal 2012. Oil and gas revenue in the third quarter of fiscal 2013 increased approximately 16% over the prior year with the largest increase coming from the midstream section of the oil and gas industry. We continued to experience significant growth in most of our other target markets outside of oil and gas, including power generation, aerospace, industrial and infrastructure. Taken as a group, revenues for all target markets other than oil and gas grew approximately 43% in the third quarter of fiscal 2013 over the prior year period. Our largest customer in both periods was BP plc. (BP) and its affiliated companies, accounting for approximately 13% of our revenues in the third quarter of fiscal 2013 and approximately 16% in the third quarter of fiscal 2012. Our top ten customers represented approximately 41% and 38% of our revenues in the third quarter of fiscal 2013 and fiscal 2012, respectively.

Gross Profit. Our gross profit was $34.2 million and increased $4.6 million, or 16% in the third quarter of fiscal 2013 compared to $29.6 million in the third quarter of fiscal 2012. Gross profit by segment for the three months ended February 28, 2013 and February 29, 2012 was as follows:

	Three months ended
	February 28, 2013		February 29, 2012
	($ in thousands)
Gross profit
Services	$	20,496	$	20,640
International	9,851		4,586
Products and Systems	3,790		4,938
Corporate and eliminations	69		(580		)
	$	34,206	$	29,584

As a percentage of revenues, our gross profit was approximately 26% and 28%, respectively, in the third quarters of fiscal 2013 and fiscal 2012. Cost of revenues, excluding depreciation, as a percentage of revenues was 71% and 68% in the third quarter of fiscal 2013 and fiscal 2012, respectively. Depreciation expense included in the determination of gross profit for the third quarter of fiscal 2013 and fiscal 2012 was $4.7 million and $4.0 million, respectively.

The 280 basis point decrease in our gross profit as a percentage of revenues was primarily attributable to a decrease in gross profit margin in each of the segments. The Services Segment decrease was primarily attributed to the mix of project work in the quarter. In addition, revenue from advanced services, which typically command higher gross profit margins, declined as a percentage of total revenues in the quarter versus the prior year, contributing to lower gross profit margins. Additional margin erosion was caused by an increase in employee fringe benefit costs. The International segments’ fiscal 2012 and fiscal 2013 acquisitions contributed to the decreased gross profit margin, as these companies primarily provide lower margin, traditional NDT services. Additionally, revenues from these service offerings in our International segment increased faster than our product sales, which also lowered our gross profit margin. Also contributing to the decrease in gross profit as a percentage of revenues is a change in the mix of Products and Systems segment revenues, which in the quarter included lower overall revenue from large inspection systems, which reduced margins.

Income from Operations. Our income from operations by segment for the three months ended February 28, 2013 and February 29, 2012 were as follows:

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	Three months ended
	February 28, 2013			February 29, 2012
	($ in thousands)
Income from operations
Services	$	6,293		$	7,186
International	586			321
Products and Systems	1,699			2,392
Corporate and eliminations	(3,596		)	(4,477		)
	$	4,982		$	5,422

Our income from operations of $5.0 million for the third quarter of fiscal 2013 decreased $0.4 million, or 8%, compared to the third quarter of fiscal 2012. As a percentage of revenues, our income from operations was approximately 4% and 5% in the third quarter of fiscal 2013 and fiscal 2012, respectively.

Our SG&A expenses, as a percentage of revenues, was approximately 20% for each of the third quarters of fiscal 2013 and fiscal 2012 and increased approximately $6.4 million in fiscal 2013. SG&A for companies acquired within the last twelve months accounted for approximately $4.9 million of the total increase. The increase in expense was primarily due to the cost of additional salary and other infrastructure costs to support our growth in revenues, including the addition of new locations and personnel in connection with our recent acquisitions. Excluding acquisitions, our SG&A expenses included higher compensation and benefit expenses of $1.2 million over the same period in the prior year attributed to normal salary increases, as well as our investment in additional management and corporate staff to support our growth. Other increases in SG&A expenses, excluding acquisitions, included increased professional fees of $0.8 million, stock compensation expense of $0.3 million and marketing costs of $0.2 million, partially offset by a decrease to the provision for doubtful accounts of approximately $0.5 million. Depreciation and amortization included in the determination of income from operations for the third quarter of fiscal 2013 and fiscal 2012 was $2.5 million and $1.8 million, respectively.

Our acquisition-related expense, net for the third quarter of fiscal 2013 was attributed to adjustments to the estimated fair value of certain acquisition-related contingent consideration liabilities that resulted in a net increase to income from operations of $1.5 million. This was offset by $0.3 million in professional fees and other expenses in connection with our fiscal 2013 acquisition activity. Our acquisition-related expense for the three months ended February 29, 2012 included $1.0 million in professional fees and other expenses in connection with our fiscal 2012 acquisition activity and $0.1 million in interest accretion related to our acquisition-related contingent consideration liabilities.

Interest Expense. Interest expense was $0.9 million and $0.7 million for the third quarter of fiscal 2013 and 2012, respectively. The increase in the third quarter of fiscal 2013 related to an increase in average borrowings in the current year quarter compared to prior year.

Income Taxes. Our effective income tax rate was approximately 33% and 34% for the third quarter of fiscal 2013 and 2012, respectively. The decrease was primarily due to changes in the geographic mix of earnings in various state and foreign jurisdictions and higher tax credits, partially offset by an increase related to the impact of certain permanent tax differences.

Nine months ended February 28, 2013 compared to the nine months ended February 29, 2012

Our consolidated results of operations for the nine months ended February 28, 2013 and February 29, 2012 were as follows:

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	Nine months ended
	February 28, 2013			February 29, 2012
	($ in thousands)
Statement of Operations Data
Revenues	$	384,777		$	309,785
Cost of revenues	261,791			206,364
Depreciation	13,158			11,202
Gross profit	109,828			92,219
Gross profit as a % of Revenue	28.5		%	29.8		%
Selling, general and administrative expenses	74,063			59,565
SG&A as a % of Revenue	19.2		%	19.2		%
Research and engineering	1,801			1,769
Depreciation and amortization	6,535			4,787
Acquisition-related expense, net	(1,006		)	1,009
Income from operations	28,435			25,089
Income from operations as a % of Revenue	7.4		%	8.1		%
Interest expense	2,458			2,121
Loss on extinguishment of long-term debt	—			113
Income before provision for income taxes	25,977			22,855
Provision for income taxes	9,749			8,672
Net income	16,228			14,183
Net (income) loss attributable to noncontrolling interests, net of taxes	(33		)	38
Net income attributable to Mistras Group, Inc.	$	16,195		$	14,221

Our EBITDA and Adjusted EBITDA, non-GAAP measures explained below, for the nine months ended February 28, 2013 and February 29, 2012, were as follows:

	Nine months ended
	February 28, 2013			February 29, 2012
	($ in thousands)
EBITDA and Adjusted EBITDA data
Net income attributable to Mistras Group, Inc.	$	16,195		$	14,221
Interest expense	2,458			2,121
Provision for income taxes	9,749			8,672
Depreciation and amortization	19,693			15,989
EBITDA	$	48,095		$	41,003
Stock compensation expense	4,749			3,791
Acquisition-related expense, net	(1,006		)	1,009
Loss on extinguishment of long-term debt	—			113
Adjusted EBITDA	$	51,838		$	45,916

See explanation and definition of EBITDA and Adjusted EBITDA above on page 23.

Revenues. Revenues were $384.8 million for the nine months ended February 28, 2013 compared to $309.8 million for the nine months ended February 29, 2012. Revenues by segment for the nine months ended February 28, 2013 and February 29, 2012 were as follows:

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	Nine months ended
	February 28, 2013			February 29, 2012
	($ in thousands)
Revenues
Services	$	278,147		$	253,493
International	88,722			38,794
Products and Systems	25,618			26,429
Corporate and eliminations	(7,710		)	(8,931		)
	$	384,777		$	309,785

We estimate our growth rates for the nine months ended February 28, 2013 and February 29, 2012 were as follows:

	Nine months ended
	February 28, 2013			February 29, 2012
	($ in thousands)
Revenue growth	$	74,992		$	73,325
% Growth over prior year	24.2		%	31.0		%
Comprised of:
% of organic growth	5.1		%	18.5		%
% of acquisition growth	19.7		%	11.9		%
% foreign exchange increase (decrease)	(0.6		)%	0.6		%
	24.2		%	31.0		%

Revenues increased $75.0 million, or approximately 24% for the nine months ended February 28, 2013 compared to the nine months ended February 29, 2012 principally attributable to growth in our International segment and approximately 10% in our Services segment. Our International segment revenue growth primarily resulted from our fiscal 2012 and fiscal 2013 acquisitions. For the nine months ended February 28, 2013, we estimate that our acquisition growth was approximately 20% compared to approximately 12%, in the nine months ended February 29, 2012. For the nine months ended February 28, 2013 and February 29, 2012, we estimate that our organic growth rate was approximately 5% and 19%, respectively.

We continued to experience growth in many of our target markets during the first nine months of fiscal 2013. Oil and gas is our largest target market and in the first nine months of fiscal 2013 represented approximately 50% of total revenues, compared to approximately 56% in the comparable period of fiscal 2012. Oil and gas revenue in the first nine months of fiscal 2013 increased approximately 11% over the prior year period with the largest increases coming from the midstream section of the oil and gas industry. We also experienced growth in several of our other target markets outside of oil and gas, including power generation, aerospace and defense, industrial, infrastructure and process industries, which include chemical and pharmaceutical. Taken as a group, revenues for all target markets other than oil and gas grew approximately 41% in the nine months ended February 28, 2013 over the comparable prior year period. Our largest customer in both periods was BP plc., (BP), accounting for approximately 12% and 16% of our revenues for the nine months ended February 28, 2013 and February 29, 2012, respectively. Our top ten customers represented approximately 34% and 40% of our revenues for the nine months ended February 28, 2013 and February 29, 2012.

Gross Profit. Our gross profit was $109.8 million and increased $17.6 million, or 19%, during the nine months ended February 28, 2013 compared to $92.2 million during the nine months ended February 29, 2012. Gross profit by segment for the nine months ended February 28, 2013 and February 29, 2012 were as follows:

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	Nine months ended
	February 28, 2013		February 29, 2012
	($ in thousands)
Gross profit
Services	$	72,128	$	68,001
International	24,231		12,263
Products and Systems	13,010		12,952
Corporate and eliminations	459		(997		)
	$	109,828	$	92,219

As a percentage of revenues, our gross profit decreased 130 basis points to approximately 28.5% in the first nine months of fiscal 2013 compared to the comparable prior year period. Cost of revenues, excluding depreciation, as a percentage of revenues was approximately 68% and 67% in the nine months ended February 28, 2013 and February 29, 2012, respectively. Depreciation expense included in the determination of gross profit for the nine months ended February 28, 2013 and February 29, 2012 was $13.2 million and $11.2 million, respectively.

The 130 basis point decrease in our gross profit margin was primarily attributable to decrease in our International segment, which relates to our fiscal 2012 and fiscal 2013 acquisitions, as these companies primarily provide lower margin, traditional NDT services. Additionally, these service offerings in our International segment are increasing faster than our higher margin product sales, which also lowers our overall gross profit margin. The Services segment also decreased primarily due to project mix during the third quarter of fiscal 2013. These decreases were offset by improvements in our Products and Systems segment due to a change in the mix of overall products sales in the nine months ended February 28, 2013 compared to the prior year period.

Income from Operations. Our income from operations by segment for the nine months ended February 28, 2013 and February 29, 2012 were as follows:

	Nine months ended
	February 28, 2013			February 29, 2012
	($ in thousands)
Income from operations
Services	$	28,597		$	27,927
International	3,457			2,373
Products and Systems	6,481			5,652
Corporate and eliminations	(10,100		)	(10,863		)
	$	28,435		$	25,089

Our income from operations of $28.4 million for the nine months February 28, 2013 increased $3.3 million, or 13%, compared to $25.1 million for the nine months ended February 29, 2012. As a percentage of revenues, our income from operations was approximately 7% and 8% for the first nine months of fiscal 2013 and 2012, respectively.

Our SG&A expenses, as a percentage of revenues, was approximately 19% for each of the nine month periods ended February 28, 2013 and February 29, 2012, increasing approximately $14.5 million in fiscal 2013. SG&A for companies acquired within the last twelve months accounted for approximately $11.8 million of the total increase. The increase in expense was primarily due to the cost of additional salary and other infrastructure costs to support our growth in revenues, including the addition of new locations and personnel in connection with our recent acquisitions. Excluding acquisitions, our SG&A expenses included higher compensation and benefit expenses of $2.0 million over the same period in the prior year attributed to normal salary increases, as well as our investment in additional management and corporate staff to support our growth. Other increases in SG&A expenses, excluding acquisitions, included increased stock compensation costs of $1.0 million and professional fees of $0.5 million, partially offset by a decrease to the provision for doubtful accounts of $0.5 million. Depreciation and amortization included in the determination of income from operations for the nine months ended February 28, 2013 and February 29, 2012 was $6.5 million and $4.8 million, respectively each representing approximately 2% of revenues.

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Our acquisition-related expense, net for the nine months ended February 28, 2013 resulted from adjustments to the estimated fair value of certain acquisition-related contingent consideration liabilities that resulted in a net increase to income from operations of $2.1 million. This was offset by $1.2 million in professional fees and other expenses in connection with our fiscal 2013 acquisition activity. Our acquisition-related expense for the nine months ended February 29, 2012 included $1.4 million in professional fees and other expenses in connection with our fiscal 2012 acquisition activity. This was offset by adjustments to the estimated fair value of certain acquisition-related contingent consideration liabilities that resulted in a net increase to income from operations of $0.4 million.

Interest Expense. Interest expense for the nine months ended February 28, 2013 was $2.5 million, an increase of $0.3 million when compared to the prior year period.  The increase related to an increase in average borrowings in the current year period compared to the prior year.

Income Taxes. Our effective income tax rate was approximately 38% for each of the nine month periods ended February 28, 2013 and February 29, 2012, respectively.

Liquidity and Capital Resources

Cash Flows Table

Our cash flows are summarized in the table below:

	Nine months ended
	February 28, 2013			February 29, 2012
	($ in thousands)
Net cash provided by (used in):
Operating Activities	$	27,548		$	20,972
Investing Activities	(42,385		)	(32,816		)
Financing Activities	15,070			9,441
Effect of exchange rate changes on cash	260			(545		)
Net change in cash and cash equivalents	$	493		$	(2,948	)

Cash Flows from Operating Activities

During the nine months ended February 28, 2013, cash provided by our operating activities was $27.5 million, an increase of $6.6 million from the comparable period of fiscal 2012. Positive operating cash flow was primarily attributable to higher net income, excluding depreciation, amortization and other non-cash expenses, of $42.0 million. In addition, the Company significantly reduced its investment in operating assets and liabilities, net of acquisitions, during the period due to a reduction of accrued expenses, accounts payable and other liabilities which decreased operating cash flow, offset by better management of accounts receivable and other elements of working capital.

During the nine months ended February 29, 2012, cash provided by our operating activities was $21.0 million, an increase of $2.3 million from the comparable period of fiscal 2011. Positive operating cash flow was primarily attributable to higher net income, excluding depreciation, amortization and other non-cash expenses, of $34.1 million offset by $13.1 million of cash utilized to fund an increase in our working capital, which primarily related to an increase in our trade accounts receivable.

Cash Flows from Investing Activities

During the nine months ended February 28, 2013, cash used in investing activities was $42.4 million, an increase of $9.6 million from the comparable period of fiscal 2012. Cash used in investing activities included our acquisition of three companies for an aggregate of $33.6 million, net of cash acquired.  Also contributing to the increase were cash purchases of property, plant and equipment of $8.9 million, related to equipment used by our technicians.

During the nine months ended February 29, 2012, cash used in investing activities was $32.8 million, an increase of $8.2 million from the comparable period of fiscal 2011. Cash used in investing activities included our acquisition of eight companies for an aggregate of $26.3 million, net of cash acquired. Cash purchases of property, plant and equipment were $6.4 million and were primarily related to equipment used by our technicians.

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Cash Flows from Financing Activities

Net cash provided by financing activities was $15.1 million for the nine months ended February 28, 2013, an increase of $5.6 million from the comparable period of fiscal 2012. Net cash provided by financing activities related primarily to net borrowings of $26.0 million from our revolving credit facility offset by payments of capital lease obligations, notes payable and other long-term debt, and acquisition related contingent consideration of $5.1 million, $4.6 million, $1.9 million, respectively.

Net cash provided by financing activities was $9.4 million for the nine months ended February 29, 2012, an increase of $13.1 million from the comparable period of fiscal 2011.  Net cash provided by financing activities related primarily to net  borrowings under our revolving credit facility of $19.1 million and proceeds of $1.5 million received from the exercise of stock options, offset by repayments of our capital lease obligations, notes payable and other long-term debt, and other short-term borrowings of $5.1 million, $4.4 million, $1.9 million, respectively.

Effect of Exchange Rate Changes on Cash and Cash Equivalents

The effect of exchange rate changes on our cash and cash equivalents was approximately $0.3 million and ($0.6) million for the nine months ended February 28, 2013 and February 29, 2012, respectively.

Cash Balance and Credit Facility Borrowings

As of February 28, 2013, we had cash and cash equivalents totaling $8.9 million and available borrowing capacity of $70.7 million under our current revolving credit facility. As of February 28, 2013, there were outstanding borrowings of $51.0 million and a total of $3.3 million of outstanding letters of credit under the existing revolving credit facility. We finance our operations primarily through our existing cash balances, cash collected from operations, bank borrowings and capital lease financing. We believe these sources are sufficient to fund our operations for the foreseeable future.

In December 2011, we entered into a Third Amended and Restated Credit Agreement (Credit Agreement) with Bank of America, N.A., as agent for the lenders and a lender, and JPMorgan Chase Bank, N.A., Keybank National Association and TD Bank, N.A., as lenders. The Credit Agreement provides us with a $125 million revolving line of credit, which, under certain circumstances, can be increased to $150 million. The Credit Agreement has a maturity date of December 20, 2016 and permits us to borrow up to $30 million in non-US dollar currencies and to use up to $10 million of the credit limit for the issuance of letters of credit. Loans under the Credit Agreement bear interest, at our option, at LIBOR plus an applicable LIBOR margin ranging from 1% to 2%, or a base rate less a margin of 0.25% to 1.25% or based upon our Funded Debt Leverage Ratio. Funded Debt Leverage Ratio is generally the ratio of (1) all outstanding indebtedness for borrowed money and other interest-bearing indebtedness as of the date of determination to (2) EBITDA, as defined in the Credit Agreement, (which is (a) net income, less (b) income (or plus loss) from discontinued operations and extraordinary items, plus (c) income tax expenses, plus (d) interest expense, plus (e) depreciation, depletion, and amortization (including non-cash loss on retirement of assets), plus (f) stock compensation expense, less (g) cash expense related to stock compensation, plus or minus certain other adjustments) for the period of four consecutive fiscal quarters immediately preceding the date of determination. We have the benefit of the lowest margin if our Funded Debt Leverage Ratio is equal to or less than 0.5 to 1, and the margin increases as the ratio increases, to the maximum margin if the ratio is greater than 2.5 to 1. We will also bear additional costs for market disruption, regulatory changes effecting the lenders’ funding costs, and default pricing of an additional 2% interest rate margin if the Funded Debt Leverage Ratio exceeds 3.0 to 1. Amounts borrowed under our Credit Agreement are secured by liens on substantially all of our assets.

The Credit Agreement contains financial covenants requiring that we maintain a Funded Debt Leverage Ratio of less than 3.0 to 1 and an Interest Coverage Ratio of at least 3.0 to 1. Interest Coverage Ratio means the ratio, as of any date of determination, of (a) EBITDA, as defined in the Credit Agreement, for the 12 month period immediately preceding the date of determination, to (b) all interest, premium payments, debt discount, fees, charges and related expenses of us and our subsidiaries in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, paid during the 12 month period immediately preceding the date of determination. The Credit Agreement also limits our ability to, among other things, create liens, make investments, incur more indebtedness, merge or consolidate, make dispositions of property, pay dividends and make distributions to stockholders, enter into a new line of business, enter into transactions with affiliates and enter into burdensome agreements. The Credit Agreement does not limit our ability to acquire other businesses or companies except that the acquired business or company must be in our line of business, we must be in compliance with the financial covenants on a pro forma basis after taking into account the acquisition, and, if the acquired business is a separate

31

subsidiary, in certain circumstances the lenders will receive the benefit of a guaranty of the subsidiary and liens on its assets and a pledge of its stock.

As of February 28, 2013, we were in compliance with the terms of the credit agreement, and we will continuously monitor our compliance with the covenants contained in our new credit agreement.

Liquidity and Capital Resources Outlook

Future Sources of Cash

We expect our future sources of cash to include cash flow from operations and cash borrowed under our Credit Agreement. This revolving credit facility is available for cash advances required for working capital and for letters of credit to support our operations. To meet our short-and long-term liquidity requirements, we expect primarily to rely on cash generated from our operating activities and borrowings under our Credit Agreement. We are currently funding our acquisitions through our available cash, borrowings under our Credit Agreement and seller notes. We have an effective shelf registration statement with the SEC for the issuance of up to approximately $64.2 million of securities, including shares of common and preferred stock, debt securities, warrants and units. Accordingly, we may also seek to obtain capital through the issuance of debt or equity securities, or a combination of both. As of March 31, 2013, there were outstanding borrowings of approximately $50.0 million and approximately $3.3 million of outstanding letters of credit under our Credit Agreement.

Future Uses of Cash

We expect our future uses of cash will primarily be for acquisitions, international expansion, purchases or manufacture of field testing equipment to support growth, additional investments in technology and software products and the replacement of existing assets and equipment used in our operations. We often make purchases to support new sources of revenues, particularly in our Services segment. We historically spend approximately 3% to 4% of our total revenues on capital expenditures, excluding acquisitions, and expect to fund these expenditures through a combination of cash and lease financing.

Our anticipated acquisitions may also require capital. Since the beginning of fiscal 2013, we completed the acquisition of three companies, with an initial cash outlay of approximately $35.0 million.  In some cases, additional equipment will be needed to upgrade the capabilities of these acquired companies. In addition, our future acquisition and 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. In addition, we will use cash to fund our operating leases, capital leases and long-term debt repayments and various other obligations as they arise.

We also expect to use cash to support our working capital requirements for our operations, particularly in the event of further growth and due to the impacts of seasonality on our business. Our future working capital requirements will depend on many factors, including the rate of our revenue growth, our introduction of new solutions and enhancements to existing solutions and our expansion of sales and marketing and product development activities. To the extent that our cash and cash equivalents and future cash flows from operating activities are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements, public or private equity financings, or debt financings. We also may need to raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses, technologies or products that will complement our existing operations. In the event additional funding is required, we may not be able to obtain bank credit arrangements or effect an equity or debt financing on terms acceptable to us or at all.

Contractual Obligations

In fiscal 2013, the Company completed the acquisition of three asset protection companies specializing in destructive and non-destructive services and inspection, and in-house component inspection. The Company acquired 100% of the common stock of the acquirees in exchange for approximately $35.0 million in cash, and $7.7 million in notes payable. The note is payable in three equal installments of approximately $2.6 million due on the each of the first three anniversary dates of the closing date.  In addition, the acquisition agreements provide for contingent consideration payments totaling approximately $15.0 million upon the achievement of specific annual performance metrics over the next three to five years of operations.

Off-balance Sheet Arrangements

During the nine months ended February 28, 2013, 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

32

purposes.

ITEM 3.                Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Risk

We have foreign currency exposure related to our operations in foreign locations. This foreign currency exposure, particularly the Euro, British Pound Sterling, Brazilian Real, Russian Ruble, Japanese Yen, Canadian Dollar and the Indian Rupee, arises primarily from the translation of our foreign subsidiaries’ financial statements into U.S. Dollars. For example, a portion of our annual sales and operating costs are denominated in British Pound Sterling and we have exposure related to sales and operating costs increasing or decreasing based on changes in currency exchange rates. If the U.S. Dollar increases in value against these foreign currencies, the value in U.S. Dollars of the assets and liabilities originally recorded in these foreign currencies will decrease. Conversely, if the U.S. Dollar decreases in value against these foreign currencies, the value in U.S. Dollars of the assets and liabilities originally recorded in these foreign currencies will increase. Thus, increases and decreases in the value of the U.S. Dollar relative to these foreign currencies have a direct impact on the value in U.S. Dollars of our foreign currency denominated assets and liabilities, even if the value of these items has not changed in their original currency. For our foreign subsidiaries, assets and liabilities are translated at period ending rates of exchange. Translation adjustments for the assets and liability accounts are included in accumulated other comprehensive loss in stockholders’ equity (deficit). We had approximately $1.9 million of foreign currency translation losses in accumulated other comprehensive income as of February 28, 2013. We do not currently enter into forward exchange contracts to hedge exposures to foreign currencies. We may consider entering into hedging or forward exchange contracts in the future.

Interest Rate Sensitivity

The interest rate on our Credit Agreement currently ranges from 1.40% to 2.40% and is variable and adjusts periodically. As of February 28, 2013, there were outstanding borrowings of $51.0 million under our Credit Agreement.  A hypothetical 100 basis point adverse shift in interest rates would not have had a material effect on our results of operations.

From time to time, we may enter into interest rate swap contracts whereby we would receive or pay an amount equal to the difference between a fixed rate and LIBOR on a quarterly basis in order to reduce our potential exposure to interest rate fluctuations. All gains and losses are recognized as an adjustment to interest expense and the combined fair values are recorded in other liabilities on the consolidated balance sheet. As of February 28, 2013, we had no such contracts in effect.

We had cash and cash equivalents of $8.9 million as of February 28, 2013. These amounts are held for working capital purposes and were invested primarily in bank deposits, money market funds and short-term, interest-bearing, investment-grade securities. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates.

Fair Value of Financial Instruments

We do not believe that we have material exposure to market risk with respect to investments, as our investments consist primarily of highly liquid investments purchased with a remaining maturity of three months or less. 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.

ITEM 4.                Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of February 28, 2013, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined in Rule 13a-15(e). Based on the evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

33

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s quarter ended February 28, 2013 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

34

PART II—OTHER INFORMATION

ITEM 1.Legal Proceedings

We have received notice of a governmental investigation concerning an environmental incident which occurred in February 2011, outside on the premises of our Cudahy, California facility.  We acquired this facility as part of the acquisition in October 2010 of the assets and ongoing business operations of General Testing and Inspection, Inc. (“GTI”), a business which provides in-house or shop inspection and non-destructive testing at the Cudahy premises.  On February 11, 2011, while liquid hazardous waste was being pumped into the tanker truck of an unaffiliated certified hazardous waste transporter at the Cudahy facility, a chemical reaction occurred that caused an emission of a vapor cloud.  No human injury or property damage was reported or appears to have been caused as a result of the incident.  The incident was investigated by the L.A. Country Fire Department (the “Fire Department”) and the U.S. Environmental Protection Agency (“EPA”).  At the conclusion of the Fire Department’s investigation, the Fire Department imposed on the Company a fine in the amount of $4,000 for alleged violations of the California Health and Safety Code in April 2011, which was paid shortly thereafter.

The Company received no further governmental communications or notices concerning fines or sanctions related to the incident until January 13, 2012, when we received grand jury subpoenas from the U.S. Attorney’s Office for the Central District of California addressed to the Company, GTI and an employee of the Company.  These subpoenas were issued in connection with an EPA criminal investigation.  The subpoena received by the Company requested documents and information relating to, among other things, our handling, identification, storage and disposal of hazardous waste, training records, corporate environmental policies, the acquisition of GTI and any ongoing organizational relationship with GTI, and analytical results of the tests concerning the hazardous materials involved in the incident.  In April 2012, we were informed by the U.S. Attorney’s Office for the Central District of California that we are a target of a criminal investigation into potential violations of the Resource Conservation and Recovery Act.  The violations are alleged to be related to purportedly improper storage and labeling of hazardous waste at the Cudahy facility.  This U.S. Attorney’s Office also raised a concern about a possible obstruction of justice issue involving the conduct of one or more of our employees at this facility.  Upon receiving the subpoenas, we engaged our outside legal counsel to assist us in conducting an investigation concerning the incident, including interviews with our current employees.  To date, we have produced documents in response to the subpoena, and are aware of at least one of our employees having testified before the grand jury.

While management cannot predict the ultimate outcome of this matter, based on our internal investigation to date, management does not believe the outcome will have a material effect on the Company’s financial condition, results of operations, or its cash flows.

See Note 12 to the financial statements included in this report for a description of our other legal proceedings.

ITEM 1.A.Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed under the “Risk Factors” section included in our 2012 Annual Report on Form 10-K. There have been no material changes to the risk factors previously disclosed in the Annual Report.

ITEM 2.Unregistered Sale of Equity Securities and Use of Proceeds

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds from Public Offering of Common Stock

None.

(c) Repurchases of Our Equity Securities

None.

ITEM 3.Defaults Upon Senior Securities

None.

35

ITEM 4.Mine Safety Disclosures

Not applicable.

ITEM 5.Other Information

None.

ITEM 6.Exhibits

Exhibit No.	Description
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.LAB	XBRL Labels Linkbase Document
101.PRE	XBRL Presentation Linkbase Document
101.DEF	XBRL Definition Linkbase Document

36

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MISTRAS GROUP, INC.
By:	/s/ FRANCIS T. JOYCE
	Francis T. Joyce
	Executive Vice President, Chief Financial Officer and Treasurer
	(Principal Financial Officer and duly authorized officer)

Date: April 9, 2013

37

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13A-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

I, Sotirios J. Vahaviolos, certify that:

1. I have reviewed this report on Form 10-Q of Mistras Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 9, 2013

/s/ Sotirios J. Vahaviolos

Sotirios J. Vahaviolos

Chairman, President and Chief Executive Officer(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13A-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

I, Francis T. Joyce, certify that:

1. I have reviewed this report on Form 10-Q of Mistras Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 9, 2013

/s/ Francis T. Joyce

Francis T. Joyce

Executive Vice President, Chief Financial Officer and Treasurer(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned hereby certifies, for the purposes of section 1350 of chapter 63 of title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Mistras Group, Inc. (the “Company”), that, to his knowledge, the Quarterly Report on Form 10-Q of the Company for the quarter ended February 28, 2013 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. This written statement is being furnished to the Securities and Exchange Commission as an exhibit to the Report.

Dated: April 9, 2013

/s/ Sotirios J. Vahaviolos

Sotirios J. Vahaviolos

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

/s/ Francis T. Joyce

Francis T. Joyce

Executive Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)

XML

Accounts Receivable, net (Details) (USD $) In Thousands, unless otherwise specified	Feb. 28, 2013	May 31, 2012
Accounts Receivable, net
Trade accounts receivable	$ 110,334	$ 106,821
Allowance for doubtful accounts	(1,648)	(2,306)
Total	$ 108,686	$ 104,515

XML

Segment Disclosure (Details) (USD $)	3 Months Ended		9 Months Ended
	Feb. 28, 2013	Feb. 29, 2012	Feb. 28, 2013 item	Feb. 29, 2012	May 31, 2012
Segment Disclosure
Number of operating segments			3
Consolidated financial information by segment
Revenues	$ 133,661,000	$ 104,118,000	$ 384,777,000	$ 309,785,000
Gross profit	34,206,000	29,584,000	109,828,000	92,219,000
Income from operations	4,982,000	5,422,000	28,435,000	25,089,000
Depreciation and amortization	7,192,000	5,765,000	19,693,000	15,989,000
Intangible assets, net	56,428,000		56,428,000		34,469,000
Goodwill	125,532,000		125,532,000		96,819,000
Total assets	396,914,000		396,914,000		329,816,000
Services
Consolidated financial information by segment
Revenues	90,537,000	80,895,000	278,147,000	253,493,000
Revenue from transaction with other operating segments	600,000	500,000	2,800,000	2,300,000
Gross profit	20,496,000	20,640,000	72,128,000	68,001,000
Income from operations	6,293,000	7,186,000	28,597,000	27,927,000
Depreciation and amortization	4,660,000	4,587,000	13,763,000	12,988,000
Intangible assets, net	15,880,000		15,880,000		17,180,000
Goodwill	60,719,000		60,719,000		58,746,000
Total assets	205,988,000		205,988,000		204,209,000
International
Consolidated financial information by segment
Revenues	37,516,000	17,164,000	88,722,000	38,794,000
Revenue from transaction with other operating segments	200,000	300,000	500,000	500,000
Gross profit	9,851,000	4,586,000	24,231,000	12,263,000
Income from operations	586,000	321,000	3,457,000	2,373,000
Depreciation and amortization	1,941,000	670,000	4,400,000	1,474,000
Intangible assets, net	29,853,000		29,853,000		6,390,000
Goodwill	51,616,000		51,616,000		24,481,000
Total assets	150,551,000		150,551,000		82,579,000
Products and Systems
Consolidated financial information by segment
Revenues	7,645,000	9,824,000	25,618,000	26,429,000
Revenue from transaction with other operating segments	1,300,000	3,100,000	4,200,000	6,400,000
Gross profit	3,790,000	4,938,000	13,010,000	12,952,000
Income from operations	1,699,000	2,392,000	6,481,000	5,652,000
Depreciation and amortization	617,000	500,000	1,596,000	1,451,000
Intangible assets, net	9,911,000		9,911,000		10,095,000
Goodwill	13,197,000		13,197,000		13,592,000
Total assets	38,262,000		38,262,000		43,914,000
Corporate and eliminations
Consolidated financial information by segment
Revenues	(2,037,000)	(3,765,000)	(7,710,000)	(8,931,000)
Gross profit	69,000	(580,000)	459,000	(997,000)
Income from operations	(3,596,000)	(4,477,000)	(10,100,000)	(10,863,000)
Depreciation and amortization	(26,000)	8,000	(66,000)	76,000
Intangible assets, net	784,000		784,000		804,000
Total assets	$ 2,113,000		$ 2,113,000		$ (886,000)

XML

Description of Business & Basis of Presentation (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended					9 Months Ended
	Nov. 30, 2012	Aug. 31, 2012	Feb. 29, 2012	Nov. 30, 2011	Aug. 31, 2011	Feb. 28, 2013 item
Principles of Consolidation
Difference of period between the consolidation of International segment subsidiaries						1 month
Number of months less than the actual number of months from the acquisition date for which results of international segment subsidiaries are included in consolidation						1
Reclassification
Interest accretion expense related to contingent consideration liabilities reclassified from interest expense to acquisition-related expense	$ 0.2	$ 0.3	$ 0.1	$ 0.4	$ 0

XML

Acquisitions (Tables)

9 Months Ended

Feb. 28, 2013

Acquisitions

Summary of estimated fair value of assets acquired and liabilities assumed at the date of acquisition

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition for the Company’s fiscal 2013 acquisitions:

Number of entities	3
Cash paid	$	34,968
Subordinated notes issued	7,715
Contingent consideration	8,329
Purchase price	$	51,012
Current assets acquired, net	1,064
Debt and other long-term liabilities	(4,541		)
Property, plant and equipment	8,945
Deferred tax liability	(7,934		)
Intangibles, primarily customer relationships	25,823
Goodwill	27,655
Net assets acquired	$	51,012

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition for the Company’s fiscal 2012 acquisitions that have not yet been finalized:

Number of entities	2
Cash paid	$	2,968
Subordinated notes issued	904
Contingent consideration	464
Purchase price	$	4,336
Current assets acquired, net	48
Debt and other long-term liabilities	—
Property, plant and equipment	791
Deferred tax liability	(300		)
Intangibles, primarily customer relationships	2,222
Goodwill	1,575
Net assets acquired	$	4,336

Schedule of pro forma information of the results of operations

The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time (unaudited, in thousands):

	Three months ended				Nine months ended
	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Revenues	$	134,630	$	127,028	$	419,146	$	394,866
Income from operations	$	4,818	$	3,874	$	30,093	$	22,263

XML

Accrued Expenses and Other Current Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Feb. 28, 2013	May 31, 2012
Accrued Expenses and Other Current Liabilities
Accrued salaries, wages and related employee benefits	$ 21,065	$ 17,195
Contingent consideration, current portion	4,887	2,371
Accrued worker compensation and health benefits	3,834	3,678
Deferred revenues	3,245	5,390
Other accrued expenses	10,380	10,700
Total	$ 43,411	$ 39,334

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Earnings per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Feb. 28, 2013	Feb. 29, 2012	Feb. 28, 2013	Feb. 29, 2012
Numerator:
Net income attributable to Mistras Group, Inc.	$ 2,751	$ 3,037	$ 16,195	$ 14,221
Denominator:
Weighted average common shares outstanding	28,175	27,921	28,121	27,794
Basic earnings per share (in dollars per share)	$ 0.10	$ 0.11	$ 0.58	$ 0.51
Numerator:
Net income attributable to Mistras Group, Inc.	$ 2,751	$ 3,037	$ 16,195	$ 14,221
Denominator:
Weighted average common shares outstanding	28,175	27,921	28,121	27,794
Dilutive effect of stock options outstanding (in shares)	815	795	806	688
Dilutive effect of restricted stock units outstanding (in shares)	111	113	151	81
Weighted average common shares outstanding, diluted	29,101	28,829	29,078	28,563
Diluted earnings per share (in dollars per share)	$ 0.09	$ 0.11	$ 0.56	$ 0.50

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Segment Disclosure (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Feb. 28, 2013	Feb. 29, 2012	Feb. 28, 2013	Feb. 29, 2012
Revenues by geographic area
Revenues	$ 133,661	$ 104,118	$ 384,777	$ 309,785
United States
Revenues by geographic area
Revenues	83,273	74,416	255,108	237,215
Europe
Revenues by geographic area
Revenues	32,897	13,721	72,878	27,797
Other Americas
Revenues by geographic area
Revenues	13,234	11,500	41,163	32,357
Asia-Pacific
Revenues by geographic area
Revenues	$ 4,257	$ 4,481	$ 15,628	$ 12,416

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Summary of Significant Accounting Policies

9 Months Ended

Feb. 28, 2013

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2.             Summary of Significant Accounting Policies

Revenue Recognition

Revenue recognition policies for the various sources of revenues are as follows:

Services

The Company predominantly derives revenues by providing its services on a time and material basis and recognizes revenues when services are rendered. At the end of any reporting period, there may be earned but unbilled revenues that are accrued. Payments received in advance of revenue recognition are reflected as deferred revenues.

Software

Revenues from the sale of perpetual licenses are recognized upon the delivery and acceptance of the software. Revenues from term licenses are recognized ratably over the period of the license. Revenues from maintenance, unspecified upgrades and technical support are recognized ratably over the period such items are delivered. For multiple-element arrangement software contracts that include non-software elements, and where the software is essential to the functionality of the non-software elements (collectively referred to as software multiple-element arrangements), the Company applies the rules as noted below.

Products

Revenues from product sales are recognized when risk of loss and title passes to the customer. The exceptions to this accounting treatment would be for multiple-element arrangements (described below) or those situations where specialized installation or customer acceptance is required. Payments received in advance of revenue recognition are reflected as deferred revenues.

Percentage of Completion

A portion of the Company’s revenues are generated from engineering and manufacturing of custom products under long-term contracts that may last from several months to several years, depending on the contract. Revenues from long-term contracts are recognized on the percentage-of-completion method of accounting. Under the percentage-of-completion method of accounting, revenues are recognized as work is performed. The percentage of completion at any point in time is based on total costs or total labor dollars incurred to date in relation to the total estimated costs or total labor dollars estimated at completion. The percentage of completion is then applied to the total contract revenue to determine the amount of revenue to be recognized in the period. Application of the percentage-of-completion method of accounting requires the use of estimates of costs to be incurred for the performance of the contract. Contract costs include all direct materials, direct labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and all costs associated with operation of equipment. The cost estimation process is based upon the professional knowledge and experience of the Company’s engineers, project managers and financial professionals. Factors that are considered in estimating the work to be completed include the availability and productivity of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any delays in project performance and the recoverability of any claims. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.

Multiple-element Arrangements

The Company occasionally enters into transactions that represent multiple-element arrangements, which may include any combination of services, software, and hardware. When a sales arrangement contains multiple elements, such as hardware and services and/or software products, the Company allocates revenue to each element that has stand-alone value based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence (VSOE) if available, third party evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE is available. The Company has historically utilized the VSOE due to the nature of its products. In software multiple element arrangements that include non-software elements, and where software is essential to the functionality of the non-software elements, these elements are bundled together as one unit of accounting for purposes of allocating revenue to units of accounting based on the aforementioned selling price hierarchy.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements. The more significant estimates include valuation of goodwill and intangible assets acquired in connection with business combinations, useful lives of long-lived assets, allowances for doubtful accounts, inventory valuation, reserves for self-insured workers compensation and health benefits, contingent consideration liabilities, and provision for income taxes. Actual results could differ from those estimates.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets of the acquired business at the date of acquisition. The Company tests for impairment annually, in its fiscal fourth quarter. The most recent annual test for impairment performed for fiscal 2012 did not identify any instances of impairment and there were no events through February 28, 2013 which the Company believes warranted a reconsideration of the impairment test results.

Intangible assets are recorded at cost. Intangible assets recognized through the completion of a business combination are recorded at fair value on the date of acquisition. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. At times, cash deposits may exceed the limits insured by the Federal Deposit Insurance Corporation. The Company believes it is not exposed to any significant credit risk or risk of nonperformance of financial institutions.

The Company primarily sells to large companies, extends reasonably short collection terms, performs credit evaluations and does not require collateral. The Company maintains reserves for potential credit losses.

The Company has one customer, BP plc. (BP), which accounted for 13% and 16% of revenues for the three months ended February 28, 2013 and February 29, 2012, respectively, and 12% and 16% of revenues for the nine months ended February 28, 2013 and February 29, 2012, respectively. Accounts receivable from this customer were approximately 13% and 9% of total accounts receivable, net, as of February 28, 2013 and May 31, 2012, respectively. The relationship with BP is comprised of separate contracts for non-destructive testing and inspection services with multiple affiliated entities within the broad BP organization. The Company conducts business with various divisions or affiliates of the BP organization through numerous contracts covering many segments of BP’s business including downstream (refinery), midstream (pipelines) and upstream (exploration). These contracts are typically negotiated locally with the specific BP division or affiliate, are of varying lengths, have different start and end dates and differ in terms of the scope of work and nature of services provided.  Most contracts are based on time and materials.

Equity-based Compensation

The Company measures the cost of employee services received in exchange for an award of equity instruments based upon the grant-date fair value of the award. The Company uses the “straight-line” attribution method for allocating compensation costs and recognizes the fair value of each equity award on a straight-line basis over the requisite service periods of the related awards.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of the stock option awards as of the grant date. The Black-Scholes model, by its design, is highly complex and dependent upon key data inputs estimated by management. The primary data inputs with the greatest degree of judgment are the expected term of stock option awards and the estimated volatility of the Company’s common stock price. The Black-Scholes model is sensitive to changes in these two variables.  Since the Company’s initial public offering (IPO) on October 7, 2009, the expected term of the Company’s stock options is generally determined using the simplified method. Expected stock price volatility is typically based on the daily historical trading data for a period equal to the expected term. Because the Company’s historical trading data only dates back to the IPO, the Company has estimated expected volatility using an analysis of the stock price volatility of comparable peer companies.  Prior to the Company’s IPO, the exercise price equaled the estimated fair market value of the Company’s common stock, as determined by its board of directors. Since the Company’s IPO, the exercise price of stock option grants is determined using the closing market price of the Company’s common stock on the date of grant.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which expands the disclosure requirements for amounts reclassified out of accumulated other comprehensive income. The update requires an entity to present either parenthetically on the face of the financial statement where net income is presented or in the notes to the financial statements, the effect of significant items reclassified in their entirety from accumulated other comprehensive income and identification of the respective line items effecting net income for instances when reclassification is required under GAAP. For items that are not required by GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures as required by GAAP. The update does not change the current requirements for reporting net income or other comprehensive income in financial statements and is effective for annual and interim reporting periods beginning after December 15, 2012. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 allows an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This authoritative guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. ASU 2011-05 does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, or the Company’s option to present components of other comprehensive income either net of related tax effects or before related tax effects, nor does it affect how earnings per share is calculated or presented.  Effective June 1, 2012, the Company adopted the provisions of this updated accounting standard related to comprehensive income. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

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Long-Term Debt (Details) (USD $)	9 Months Ended
	Feb. 28, 2013 item	May 31, 2012
Long-Term Debt
Long-term debt	$ 72,940,000	$ 40,229,000
Less: Current maturities	(7,730,000)	(5,971,000)
Long-term debt, net of current maturities	65,210,000	34,258,000
Senior credit facility
Long-Term Debt
Long-term debt	51,008,000	25,000,000
Current borrowing capacity	125,000,000
Maximum borrowing capacity	150,000,000
Maximum borrowing capacity in non-U.S. dollar currencies	30,000,000
Maximum amount available for the issuance of letters of credit	10,000,000
Outstanding borrowings	51,000,000
Outstanding letters of credit	3,300,000
Number of consecutive fiscal quarters used for calculating Funded Debt Leverage Ratio	4
Additional interest rate (as a percent)	2.00%
Preceding period used for calculating Interest Coverage Ratio	1 year
Senior credit facility | Minimum
Long-Term Debt
Funded Debt Leverage Ratio at which the entity will bear the maximum interest rate margin	2.5
Funded Debt Leverage Ratio for additional interest payment	3.0
Interest Coverage Ratio	3.0
Senior credit facility | Maximum
Long-Term Debt
Funded Debt Leverage Ratio at which the entity will have the benefit of lowest interest margin	0.5
Funded Debt Leverage Ratio	3.0
Senior credit facility | LIBOR
Long-Term Debt
Reference rate, description	LIBOR
Senior credit facility | LIBOR | Minimum
Long-Term Debt
Margin (as a percent)	1.00%
Senior credit facility | LIBOR | Maximum
Long-Term Debt
Margin (as a percent)	2.00%
Senior credit facility | Base rate
Long-Term Debt
Reference rate, description	base rate
Senior credit facility | Base rate | Minimum
Long-Term Debt
Margin (as a percent)	(0.25%)
Senior credit facility | Base rate | Maximum
Long-Term Debt
Margin (as a percent)	(1.25%)
Notes payable
Long-Term Debt
Long-term debt	17,228,000	12,532,000
Interest rate, minimum (as a percent)	0.00%
Interest rate, maximum (as a percent)	4.00%
Unamortized discount		100,000
Notes payable | Minimum
Long-Term Debt
Maturity term from the date of acquisition	3 years
Imputed interest rate (as a percent)	2.00%
Period for payment under non-compete agreements	3 years
Notes payable | Maximum
Long-Term Debt
Maturity term from the date of acquisition	5 years
Imputed interest rate (as a percent)	4.00%
Period for payment under non-compete agreements	5 years
Other
Long-Term Debt
Long-term debt	$ 4,704,000	$ 2,697,000

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Accrued Expenses and Other Current Liabilities (Tables)

9 Months Ended

Feb. 28, 2013

Accrued Expenses and Other Current Liabilities

Schedule of accrued expenses and other current liabilities

	February 28, 2013		May 31, 2012
Accrued salaries, wages and related employee benefits	$	21,065	$	17,195
Contingent consideration, current portion	4,887		2,371
Accrued worker compensation and health benefits	3,834		3,678
Deferred revenues	3,245		5,390
Other accrued expenses	10,380		10,700
Total	$	43,411	$	39,334

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Property, Plant and Equipment, net (Tables)

9 Months Ended

Feb. 28, 2013

Property, Plant and Equipment, net

Schedule of Property, plant and equipment

	Useful Life
	(Years)	February 28, 2013			May 31, 2012
Land		$	1,953		$	1,892
Building and improvements	30-40	21,044			16,950
Office furniture and equipment	5-8	5,247			6,760
Machinery and equipment	5-7	119,225			105,096
		147,469			130,698
Accumulated depreciation and amortization		(77,623		)	(67,171		)
Property, plant and equipment, net		$	69,846		$	63,527

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Fair Value Measurements (Details) (Recurring basis, USD $) In Thousands, unless otherwise specified	Feb. 28, 2013	May 31, 2012
Level 3
Liabilities:
Contingent consideration	$ 17,484	$ 13,513
Total Liabilities	17,484	13,513
Total
Liabilities:
Contingent consideration	17,484	13,513
Total Liabilities	$ 17,484	$ 13,513

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Long-Term Debt (Tables)

9 Months Ended

Feb. 28, 2013

Long-Term Debt

Schedule of long-term debt

	February 28, 2013			May 31, 2012
Senior credit facility	$	51,008		$	25,000
Notes payable	17,228			12,532
Other	4,704			2,697
	72,940			40,229
Less: Current maturities	(7,730		)	(5,971		)
Long-term debt, net of current maturities	$	65,210		$	34,258

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Fair Value Measurements (Tables)

9 Months Ended

Feb. 28, 2013

Fair Value Measurements

Schedule of fair value of the financial liabilities that are required to be remeasured at fair value on a recurring basis

	As of February 28, 2013
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent consideration	$	—	$	—	$	17,484	$	17,484
Total Liabilities	$	—	$	—	$	17,484	$	17,484

	As of May 31, 2012
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent consideration	$	—	$	—	$	13,513	$	13,513
Total Liabilities	$	—	$	—	$	13,513	$	13,513

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Description of Business & Basis of Presentation

9 Months Ended

Feb. 28, 2013

Description of Business & Basis of Presentation

Description of Business & Basis of Presentation

1. Description of Business & Basis of Presentation

Description of Business

Mistras Group, Inc., together with its subsidiaries (the Company), is a leading “one source” global provider of technology-enabled asset protection solutions used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure. The Company combines industry-leading products and technologies, expertise in mechanical integrity (MI) and non-destructive testing (NDT) services and proprietary data analysis software to deliver a comprehensive portfolio of customized solutions, ranging from routine inspections to complex, plant-wide asset integrity assessments and management. These mission critical solutions enhance customers’ ability to extend the useful life of their assets, increase productivity, minimize repair costs, comply with governmental safety and environmental regulations, manage risk and avoid catastrophic disasters. Given the role the services of the Company play in ensuring the safe and efficient operation of infrastructure, the Company has historically provided a majority of its services to its customers on a regular, recurring basis. The Company serves a global customer base of companies with asset-intensive infrastructure, including companies in the oil and gas, fossil and nuclear power, alternative and renewable energy, public infrastructure, chemicals, aerospace and defense, transportation, primary metals and metalworking, pharmaceuticals and food processing industries.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the three and nine months ended February 28, 2013 are not necessarily indicative of the results that may be expected for the year ending May 31, 2013. The balance sheet at May 31, 2012 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited consolidated financial statements should be read together with the financial statements and notes included in our Annual Report on Form 10-K for the year ended May 31, 2012 and other consolidated financial statements of the Company as filed with the Securities and Exchange Commission. In this quarterly report, the Company’s fiscal years, which end on May 31, are identified according to the calendar year in which they end (e.g., the fiscal year ended May 31, 2012 is referred to as “fiscal 2012”).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Mistras Group, Inc. and its wholly or majority-owned subsidiaries. Where the Company’s ownership interest is less than 100%, the noncontrolling interests are reported in equity in the accompanying consolidated balance sheets. The noncontrolling interest in net income, net of tax, is classified separately in the accompanying consolidated statements of operations.

All significant intercompany accounts and transactions have been eliminated in consolidation. Mistras Group, Inc.’s and its subsidiaries’ fiscal years end on May 31 except for the companies in the International segment, which end on April 30. Accordingly, the Company’s International segment subsidiaries are consolidated on a one-month lag. Therefore, in the quarter and year of acquisition, results of acquired subsidiaries in the International segment are generally included in consolidated results for one less month than the actual number of months from the acquisition date to the end of the reporting period. Management does not believe that any events occurred during the one-month lag period that would have a material effect on the Company’s consolidated financial statements as of or for any period presented.

Reclassification

Certain amounts in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have a material effect on the Company’s financial condition or results of operations as previously reported.

During the third quarter of fiscal 2013, the Company reclassified amounts related to interest accretion imputed on its acquisition-related contingent consideration liabilities from interest expense to acquisition-related expense, net, which is a component of Income from Operations.  During fiscal 2012, the amounts reclassified were $0.4 million and $0.1 million for the three month periods ended November 30, 2011 and February 29, 2012, respectively. For the three months ended August 31, 2011 there was no expense related to interest accretion imputed on our acquisition-related contingent consideration liabilities. During fiscal 2013, the amounts reclassified were $0.3 million and $0.2 million for the three month periods ended August 31, 2012 and November 30, 2012, respectively. See Note 5 to these unaudited condensed consolidated financial statements for further discussion with regards to acquisition related expense, net.

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Segment Disclosure (Tables)

9 Months Ended

Feb. 28, 2013

Segment Disclosure

Schedule of consolidated financial information by segment

	Three months ended						Nine months ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Revenues
Services	$	90,537		$	80,895		$	278,147		$	253,493
International	37,516			17,164			88,722			38,794
Products and Systems	7,645			9,824			25,618			26,429
Corporate and eliminations	(2,037		)	(3,765		)	(7,710		)	(8,931		)
	$	133,661		$	104,118		$	384,777		$	309,785

	Three months ended					Nine months ended
	February 28, 2013		February 29, 2012			February 28, 2013		February 29, 2012
Gross profit
Services	$	20,496	$	20,640		$	72,128	$	68,001
International	9,851		4,586			24,231		12,263
Products and Systems	3,790		4,938			13,010		12,952
Corporate and eliminations	69		(580		)	459		(997		)
	$	34,206	$	29,584		$	109,828	$	92,219

	Three months ended						Nine months ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Income from operations
Services	$	6,293		$	7,186		$	28,597		$	27,927
International	586			321			3,457			2,373
Products and Systems	1,699			2,392			6,481			5,652
Corporate and eliminations	(3,596		)	(4,477		)	(10,100		)	(10,863		)
	$	4,982		$	5,422		$	28,435		$	25,089

Operating income by operating segment includes intercompany transactions, which are eliminated in Corporate and eliminations.

	Three months ended					Nine months ended
	February 28, 2013			February 29, 2012		February 28, 2013			February 29, 2012
Depreciation and amortization
Services	$	4,660		$	4,587	$	13,763		$	12,988
International	1,941			670		4,400			1,474
Products and Systems	617			500		1,596			1,451
Corporate and eliminations	(26		)	8		(66		)	76
	$	7,192		$	5,765	$	19,693		$	15,989

	February 28, 2013		May 31, 2012
Intangible assets, net
Services	$	15,880	$	17,180
International	29,853		6,390
Products and Systems	9,911		10,095
Corporate and eliminations	784		804
	$	56,428	$	34,469

	February 28, 2013		May 31, 2012
Goodwill
Services	$	60,719	$	58,746
International	51,616		24,481
Products and Systems	13,197		13,592
	$	125,532	$	96,819

	February 28, 2013		May 31, 2012
Total assets
Services	$	205,988	$	204,209
International	150,551		82,579
Products and Systems	38,262		43,914
Corporate and eliminations	2,113		(886		)
	$	396,914	$	329,816

Schedule of revenues by geographic area

	Three months ended				Nine months ended
	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Revenues
United States	$	83,273	$	74,416	$	255,108	$	237,215
Europe	32,897		13,721		72,878		27,797
Other Americas	13,234		11,500		41,163		32,357
Asia-Pacific	4,257		4,481		15,628		12,416
	$	133,661	$	104,118	$	384,777	$	309,785

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Inventories, net (Details) (USD $)	Feb. 28, 2013	May 31, 2012
Inventories, net
Raw materials	$ 3,230,000	$ 3,054,000
Work in process	2,594,000	2,232,000
Finished goods	3,794,000	4,287,000
Supplies	2,508,000	2,919,000
Total	12,126,000	12,492,000
Inventory reserves	$ 1,500,000	$ 1,200,000

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Feb. 28, 2013	May 31, 2012
Current Assets
Cash and cash equivalents	$ 8,903	$ 8,410
Accounts receivable, net	108,686	104,515
Inventories, net	12,126	12,492
Deferred income taxes	1,891	1,885
Prepaid expenses and other current assets	12,763	6,321
Total current assets	144,369	133,623
Property, plant and equipment, net	69,846	63,527
Intangible assets, net	56,428	34,469
Goodwill	125,532	96,819
Other assets	739	1,378
Total assets	396,914	329,816
Current Liabilities
Current portion of long-term debt	7,730	5,971
Current portion of capital lease obligations	6,714	5,951
Accounts payable	8,298	11,944
Accrued expenses and other current liabilities	43,411	39,334
Income taxes payable	1,997	1,119
Total current liabilities	68,150	64,319
Long-term debt, net of current portion	65,210	34,258
Obligations under capital leases, net of current portion	11,859	13,094
Deferred income taxes	14,582	4,901
Other long-term liabilities	21,447	19,996
Total liabilities	181,248	136,568
Commitments and contingencies
Preferred stock, 10,000,000 shares authorized
Equity
Common stock, $0.01 par value, 200,000,000 shares authorized, 28,194,980 and 28,025,507 shares issued and outstanding as of February 28, 2013 and May 31, 2012, respectively	282	280
Additional paid-in capital	193,512	188,443
Retained earnings	23,531	7,336
Accumulated other comprehensive loss	(1,928)	(3,047)
Total Mistras Group, Inc. stockholders' equity	215,397	193,012
Noncontrolling interest	269	236
Total equity	215,666	193,248
Total liabilities, preferred stock and equity	$ 396,914	$ 329,816

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Commitments and Contingencies (Details) (Acquisition-related contingencies, USD $)	9 Months Ended
	Feb. 28, 2013
Acquisition-related contingencies
Litigation
Potential acquisition-related contingent consideration, low end of range	$ 0
Potential acquisition-related contingent consideration, high end of range	$ 27,200,000
Period over which potential acquisition-related contingent consideration would be payable	5 years

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Consolidated Statements of Changes in Equity (USD $) In Thousands, unless otherwise specified	Total	Total Mistras Group, Inc. Stockholders' Equity	Common Stock	Additional paid-in capital	Retained earnings	Accumulated other comprehensive income (loss)	Noncontrolling Interest
Balance at May. 31, 2012	$ 193,248	$ 193,012	$ 280	$ 188,443	$ 7,336	$ (3,047)	$ 236
Balance (in shares) at May. 31, 2012			28,026
Increase (Decrease) in Stockholders' Equity
Net income	16,228	16,195			16,195		33
Other comprehensive income, net of tax	1,119	1,119				1,119
Stock compensation	4,749	4,749		4,749
Stock compensation (in shares)			13
Net settlement on vesting of restricted stock units	(806)	(806)	1	(807)
Net settlement on vesting of restricted stock units (in shares)			85
Excess tax benefit from stock compensation	455	455		455
Exercise of stock options	673	673	1	672
Exercise of stock options (in shares)			71
Balance at Feb. 28, 2013	$ 215,666	$ 215,397	$ 282	$ 193,512	$ 23,531	$ (1,928)	$ 269
Balance (in shares) at Feb. 28, 2013			28,195

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Capitalization (Details)	9 Months Ended
	Feb. 28, 2013 item
Capitalization
Number of votes per share	1

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Feb. 28, 2013

Summary of Significant Accounting Policies

Revenue Recognition

Revenue Recognition

Revenue recognition policies for the various sources of revenues are as follows:

Services

The Company predominantly derives revenues by providing its services on a time and material basis and recognizes revenues when services are rendered. At the end of any reporting period, there may be earned but unbilled revenues that are accrued. Payments received in advance of revenue recognition are reflected as deferred revenues.

Software

Revenues from the sale of perpetual licenses are recognized upon the delivery and acceptance of the software. Revenues from term licenses are recognized ratably over the period of the license. Revenues from maintenance, unspecified upgrades and technical support are recognized ratably over the period such items are delivered. For multiple-element arrangement software contracts that include non-software elements, and where the software is essential to the functionality of the non-software elements (collectively referred to as software multiple-element arrangements), the Company applies the rules as noted below.

Products

Revenues from product sales are recognized when risk of loss and title passes to the customer. The exceptions to this accounting treatment would be for multiple-element arrangements (described below) or those situations where specialized installation or customer acceptance is required. Payments received in advance of revenue recognition are reflected as deferred revenues.

Percentage of Completion

A portion of the Company’s revenues are generated from engineering and manufacturing of custom products under long-term contracts that may last from several months to several years, depending on the contract. Revenues from long-term contracts are recognized on the percentage-of-completion method of accounting. Under the percentage-of-completion method of accounting, revenues are recognized as work is performed. The percentage of completion at any point in time is based on total costs or total labor dollars incurred to date in relation to the total estimated costs or total labor dollars estimated at completion. The percentage of completion is then applied to the total contract revenue to determine the amount of revenue to be recognized in the period. Application of the percentage-of-completion method of accounting requires the use of estimates of costs to be incurred for the performance of the contract. Contract costs include all direct materials, direct labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and all costs associated with operation of equipment. The cost estimation process is based upon the professional knowledge and experience of the Company’s engineers, project managers and financial professionals. Factors that are considered in estimating the work to be completed include the availability and productivity of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any delays in project performance and the recoverability of any claims. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.

Multiple-element Arrangements

The Company occasionally enters into transactions that represent multiple-element arrangements, which may include any combination of services, software, and hardware. When a sales arrangement contains multiple elements, such as hardware and services and/or software products, the Company allocates revenue to each element that has stand-alone value based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence (VSOE) if available, third party evidence (TPE) if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE is available. The Company has historically utilized the VSOE due to the nature of its products. In software multiple element arrangements that include non-software elements, and where software is essential to the functionality of the non-software elements, these elements are bundled together as one unit of accounting for purposes of allocating revenue to units of accounting based on the aforementioned selling price hierarchy.

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements. The more significant estimates include valuation of goodwill and intangible assets acquired in connection with business combinations, useful lives of long-lived assets, allowances for doubtful accounts, inventory valuation, reserves for self-insured workers compensation and health benefits, contingent consideration liabilities, and provision for income taxes. Actual results could differ from those estimates.

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets of the acquired business at the date of acquisition. The Company tests for impairment annually, in its fiscal fourth quarter. The most recent annual test for impairment performed for fiscal 2012 did not identify any instances of impairment and there were no events through February 28, 2013 which the Company believes warranted a reconsideration of the impairment test results.

Intangible assets are recorded at cost. Intangible assets recognized through the completion of a business combination are recorded at fair value on the date of acquisition. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives.

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. At times, cash deposits may exceed the limits insured by the Federal Deposit Insurance Corporation. The Company believes it is not exposed to any significant credit risk or risk of nonperformance of financial institutions.

The Company primarily sells to large companies, extends reasonably short collection terms, performs credit evaluations and does not require collateral. The Company maintains reserves for potential credit losses.

The Company has one customer, BP plc. (BP), which accounted for 13% and 16% of revenues for the three months ended February 28, 2013 and February 29, 2012, respectively, and 12% and 16% of revenues for the nine months ended February 28, 2013 and February 29, 2012, respectively. Accounts receivable from this customer were approximately 13% and 9% of total accounts receivable, net, as of February 28, 2013 and May 31, 2012, respectively. The relationship with BP is comprised of separate contracts for non-destructive testing and inspection services with multiple affiliated entities within the broad BP organization. The Company conducts business with various divisions or affiliates of the BP organization through numerous contracts covering many segments of BP’s business including downstream (refinery), midstream (pipelines) and upstream (exploration). These contracts are typically negotiated locally with the specific BP division or affiliate, are of varying lengths, have different start and end dates and differ in terms of the scope of work and nature of services provided.  Most contracts are based on time and materials.

Equity-based Compensation

Equity-based Compensation

The Company measures the cost of employee services received in exchange for an award of equity instruments based upon the grant-date fair value of the award. The Company uses the “straight-line” attribution method for allocating compensation costs and recognizes the fair value of each equity award on a straight-line basis over the requisite service periods of the related awards.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of the stock option awards as of the grant date. The Black-Scholes model, by its design, is highly complex and dependent upon key data inputs estimated by management. The primary data inputs with the greatest degree of judgment are the expected term of stock option awards and the estimated volatility of the Company’s common stock price. The Black-Scholes model is sensitive to changes in these two variables.  Since the Company’s initial public offering (IPO) on October 7, 2009, the expected term of the Company’s stock options is generally determined using the simplified method. Expected stock price volatility is typically based on the daily historical trading data for a period equal to the expected term. Because the Company’s historical trading data only dates back to the IPO, the Company has estimated expected volatility using an analysis of the stock price volatility of comparable peer companies.  Prior to the Company’s IPO, the exercise price equaled the estimated fair market value of the Company’s common stock, as determined by its board of directors. Since the Company’s IPO, the exercise price of stock option grants is determined using the closing market price of the Company’s common stock on the date of grant.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which expands the disclosure requirements for amounts reclassified out of accumulated other comprehensive income. The update requires an entity to present either parenthetically on the face of the financial statement where net income is presented or in the notes to the financial statements, the effect of significant items reclassified in their entirety from accumulated other comprehensive income and identification of the respective line items effecting net income for instances when reclassification is required under GAAP. For items that are not required by GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures as required by GAAP. The update does not change the current requirements for reporting net income or other comprehensive income in financial statements and is effective for annual and interim reporting periods beginning after December 15, 2012. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 allows an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This authoritative guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. ASU 2011-05 does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, or the Company’s option to present components of other comprehensive income either net of related tax effects or before related tax effects, nor does it affect how earnings per share is calculated or presented.  Effective June 1, 2012, the Company adopted the provisions of this updated accounting standard related to comprehensive income. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

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Capitalization (Details 2) (USD $)	9 Months Ended		1 Months Ended		3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended
	Feb. 28, 2013 item	Feb. 29, 2012	Jun. 30, 2012 Non-employee directors	Oct. 31, 2011 Non-employee directors	Feb. 28, 2013 Stock option awards	Feb. 29, 2012 Stock option awards	Feb. 28, 2013 Stock option awards	Feb. 29, 2012 Stock option awards	Feb. 28, 2013 Restricted stock unit awards	Feb. 29, 2012 Restricted stock unit awards	Feb. 28, 2013 Restricted stock unit awards	Feb. 29, 2012 Restricted stock unit awards	Feb. 28, 2013 Incentive stock options	Feb. 28, 2013 Non-qualified stock options	Feb. 28, 2013 2009 Plan
Equity awards
Expiration term													10 years	10 years
Vesting period															4 years
Number of shares authorized for grants															2,286,000
Number of fully vested common stock granted			13,000	9,000
Fair value of shares vested			$ 300,000	$ 200,000							$ 1,900,000	$ 500,000
Number of shares available for future grants															1,453,000
Number of plans prior to company's IPO	2
Number of additional awards available for grant	0
Stock options outstanding (in shares)					2,472,000		2,472,000
Unvested restricted stock units outstanding (in shares)									552,000		552,000
Number of awards granted (in shares)					0			0
Additional disclosures
Recognized stock-based compensation expense					800,000	800,000	2,300,000	2,400,000	800,000	500,000	2,100,000	1,100,000
Unrecognized compensation cost, net of estimated forfeitures, related to stock option awards					1,500,000		1,500,000
Weighted-average period over which unrecognized compensation cost is expected to be recognized							6 months				2 years 8 months 12 days
Cash proceeds from options exercised					321,000	152,000	672,000	1,477,000
Aggregate intrinsic value of options exercised					370,000	337,000	856,000	3,399,000
Unrecognized compensation cost, net of estimated forfeitures, related to restricted stock unit awards									8,500,000		8,500,000
Shares vested											123,000	52,000
Shares withheld by company for employees' tax obligations											37,000	16,000
Payments for employees' tax obligations	$ 806,000	$ 281,000

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Earnings per Share (Tables)

9 Months Ended

Feb. 28, 2013

Earnings per Share

Schedule of computations of basic and diluted earnings per share

	Three months ended				Nine months ended
	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Basic earnings per share
Numerator:
Net income attributable to Mistras Group, Inc.	$	2,751	$	3,037	$	16,195	$	14,221
Denominator:
Weighted average common shares outstanding	28,175		27,921		28,121		27,794
Basic earnings per share	$	0.10	$	0.11	$	0.58	$	0.51
Diluted earnings per share:
Numerator:
Net income attributable to Mistras Group, Inc.	$	2,751	$	3,037	$	16,195	$	14,221
Denominator:
Weighted average common shares outstanding	28,175		27,921		28,121		27,794
Dilutive effect of stock options outstanding	815		795		806		688
Dilutive effect of restricted stock units outstanding	111		113		151		81
	29,101		28,829		29,078		28,563
Diluted earnings per share	$	0.09	$	0.11	$	0.56	$	0.50

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Feb. 28, 2013	Feb. 29, 2012
Cash flows from operating activities
Net income	$ 16,228	$ 14,183
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	19,693	15,989
Deferred income taxes	1,530	(479)
Provision for doubtful accounts	(345)	189
Loss on extinguishment of long-term debt		113
Loss (gain) on sale of assets	3	(40)
Amortization of deferred financing costs	94	116
Stock compensation expense	4,749	3,791
Foreign currency loss	51	231
Changes in operating assets and liabilities, net of effect of acquisitions of businesses
Accounts receivable	6,076	(10,160)
Inventories	985	(2,624)
Prepaid expenses and other current assets	(5,625)	(1,386)
Other assets	652	(42)
Accounts payable	(5,772)	(1,310)
Income taxes payable	(743)	(2,302)
Accrued expenses and other liabilities	(10,028)	4,703
Net cash provided by operating activities	27,548	20,972
Cash flows from investing activities
Purchase of property, plant and equipment	(8,915)	(6,407)
Purchase of intangible assets	(897)	(437)
Acquisition of businesses, net of cash acquired	(33,601)	(26,273)
Proceeds from sale of equipment	1,028	301
Net cash used in investing activities	(42,385)	(32,816)
Cash flows from financing activities
Repayment of capital lease obligations	(5,054)	(5,136)
Repayment of notes payable and other long-term debt	(4,628)	(4,420)
Net borrowings from current revolver	26,008	19,050
Net repayments of other short-term borrowings		(1,868)
Proceeds from borrowings of long-term debt	309	837
Payment of financing costs		(623)
Payment of contingent consideration for business acquisitions	(1,887)
Taxes paid related to net share settlement of restricted stock units	(806)	(281)
Excess tax benefit from stock compensation	455	405
Proceeds from the exercise of stock options	673	1,477
Net cash provided by financing activities	15,070	9,441
Effect of exchange rate changes on cash and cash equivalents	260	(545)
Net change in cash and cash equivalents	493	(2,948)
Cash and cash equivalents
Beginning of period	8,410	10,879
End of period	8,903	7,931
Supplemental disclosure of cash paid
Interest	2,422	1,720
Income taxes	13,605	11,995
Noncash investing and financing
Equipment acquired through capital lease obligations	2,896	8,613
Issuance of notes payable and other debt obligations primarily related to acquisitions	$ 7,715	$ 2,444

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Consolidated Balance Sheets (Parenthetical) (USD $)	Feb. 28, 2013	May 31, 2012
Consolidated Balance Sheets
Preferred stock, shares authorized	10,000,000	10,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	28,194,980	28,025,507
Common stock, shares outstanding	28,194,980	28,025,507

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Long-Term Debt

9 Months Ended

Feb. 28, 2013

Long-Term Debt

Long-Term Debt

10. Long-Term Debt

Long-term debt consists of the following:

	February 28, 2013			May 31, 2012
Senior credit facility	$	51,008		$	25,000
Notes payable	17,228			12,532
Other	4,704			2,697
	72,940			40,229
Less: Current maturities	(7,730		)	(5,971		)
Long-term debt, net of current maturities	$	65,210		$	34,258

Senior Credit Facility

In December 2011, the Company entered into a Third Amended and Restated Credit Agreement (Credit Agreement) with Bank of America, N.A., as agent for the lenders and a lender, and JPMorgan Chase Bank, N.A., Keybank National Association and TD Bank, N.A., as lenders.  The Credit Agreement provides the Company with a $125.0 million revolving line of credit, which, under certain circumstances, can be increased to $150.0 million.  The Credit Agreement has a maturity date of December 20, 2016.  The Company may borrow up to $30.0 million in non-U.S. dollar currencies and use up to $10.0 million of the credit limit for the issuance of letters of credit. As of February 28, 2013, there were outstanding borrowings of $51.0 million and a total of $3.3 million of outstanding letters of credit under the current revolving credit facility.

Loans under the Credit Agreement bear interest, at the option of the Company, at LIBOR, plus an applicable margin ranging from 1% to 2%, or base rate less a margin ranging from 0.25% to 1.25%, based upon its Funded Debt Leverage Ratio.  Funded Debt Leverage Ratio is generally the ratio of (1) all outstanding indebtedness for borrowed money and other interest-bearing indebtedness as of the date of determination to (2) EBITDA, as defined in the Credit Agreement, (which is (a) net income, less (b) income (or plus loss) from discontinued operations and extraordinary items, plus (c) income tax expenses, plus (d) interest expense, plus (e) depreciation, depletion, and amortization (including non-cash loss on retirement of assets), plus (f) stock compensation expense, less (g) cash expense related to stock compensation, plus or minus certain other adjustments) for the period of four consecutive fiscal quarters immediately preceding the date of determination.  The Company has the benefit of the lowest margin if its Funded Debt Leverage Ratio is equal to or less than 0.5 to 1, and the margin increases as the ratio increases, to the maximum margin if the ratio is greater than 2.5 to 1. The Company will also bear additional costs for market disruption, regulatory changes effecting the lenders’ funding costs, and default pricing of an additional 2% interest rate margin if the Funded Debt Leverage Ratio exceeds 3.0 to 1. Amounts borrowed under the Credit Agreement are secured by liens on substantially all of the assets of the Company.

The Credit Agreement contains financial covenants requiring that the Company maintain a Funded Debt Leverage Ratio of less than 3.0 to 1 and an Interest Coverage Ratio of at least 3.0 to 1.  Interest Coverage Ratio means the ratio, as of any date of determination, of (a) EBITDA, as defined in the Credit Agreement, for the 12 month period immediately preceding the date of determination, to (b) all interest, premium payments, debt discount, fees, charges and related expenses of the Company in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, paid during the 12 month period immediately preceding the date of determination.  The Credit Agreement also limits the Company’s ability to, among other things, create liens, make investments, incur more indebtedness, merge or consolidate, make dispositions of property, pay dividends and make distributions to stockholders, enter into a new line of business, enter into transactions with affiliates and enter into burdensome agreements.  The Credit Agreement does not limit the Company’s ability to acquire other businesses or companies except that the acquired business or company must be in its line of business, the Company must be in compliance with the financial covenants on a pro forma basis after taking into account the acquisition, and, if the acquired business is a separate subsidiary, in certain circumstances the lenders will receive the benefit of a guaranty of the subsidiary and liens on its assets and a pledge of its stock.

As of February 28, 2013, the Company was in compliance with the terms of the Credit Agreement, and it will continuously monitor its compliance with the covenants.

Notes Payable and Other

In connection with certain of the acquisitions the Company has completed, it has, at various times, issued subordinated notes payable to the sellers. The maturity of these notes ranges from three to five years from the date of acquisition with interest rates ranging from 0% to 4%. The Company has discounted these obligations to reflect a 2% to 4% imputed interest rate, where appropriate. Unamortized discount on these notes was de minimis as of February 28, 2013 and totaled approximately $0.1 million as of May 31, 2012. Amortization is recorded as interest expense in the consolidated statement of operations. The Company also has payment obligations ranging from three to five years to the sellers or the shareholders of the sellers pursuant to non-compete agreements which require the sellers and shareholders of the sellers not to compete with the Company.

In December 2011, the Company amended its Credit Agreement bringing the Company’s interest rate to current market rates. The Company has evaluated current market conditions and borrower credit quality and has determined that the carrying value of its long-term debt approximated fair value. The fair value of the Company’s notes payable and capital lease obligations approximates their carrying amounts based on anticipated interest rates which management believes would currently be available to the Company for similar issues of debt.

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Document and Entity Information	9 Months Ended
	Feb. 28, 2013	Apr. 01, 2013
Document and Entity Information
Entity Registrant Name	Mistras Group, Inc.
Entity Central Index Key	0001436126
Document Type	10-Q
Document Period End Date	Feb. 28, 2013
Amendment Flag	false
Current Fiscal Year End Date	--05-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		28,194,980
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3

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Fair Value Measurements

9 Months Ended

Feb. 28, 2013

Fair Value Measurements

Fair Value Measurements

11.          Fair Value Measurements

The Company performs fair value measurements in accordance with the guidance provided by ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a three level hierarchy that prioritizes the inputs used to measure fair value. The three levels of the hierarchy are defined as follows:

Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 — Observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data.

Level 3 — Unobservable inputs reflecting the Company’s own assumptions about inputs that market participants would use in pricing the asset or liability based on the best information available.

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial liabilities that are required to be remeasured at fair value on a recurring basis:

	As of February 28, 2013
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent consideration	$	—	$	—	$	17,484	$	17,484
Total Liabilities	$	—	$	—	$	17,484	$	17,484

	As of May 31, 2012
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent consideration	$	—	$	—	$	13,513	$	13,513
Total Liabilities	$	—	$	—	$	13,513	$	13,513

The fair value of contingent consideration liabilities that was classified as Level 3 in the table above was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the acquisition agreements.

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Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Feb. 28, 2013	Feb. 29, 2012	Feb. 28, 2013	Feb. 29, 2012
Revenues:
Services	$ 124,510	$ 94,253	$ 351,466	$ 281,097
Products	9,151	9,865	33,311	28,688
Total revenues	133,661	104,118	384,777	309,785
Cost of revenues:
Cost of services	91,209	66,336	248,769	194,270
Cost of products sold	3,527	4,238	13,022	12,094
Depreciation related to services	4,465	3,760	12,565	10,639
Depreciation related to products	254	200	593	563
Total cost of revenues	99,455	74,534	274,949	217,566
Gross profit	34,206	29,584	109,828	92,219
Selling, general and administrative expenses	27,209	20,806	74,063	59,565
Research and engineering	754	578	1,801	1,769
Depreciation and amortization	2,473	1,805	6,535	4,787
Acquisition-related expense, net (See Note 5)	(1,212)	973	(1,006)	1,009
Income from operations	4,982	5,422	28,435	25,089
Other expenses
Interest expense	882	690	2,458	2,121
Loss on extinguishment of long-term debt		113		113
Income before provision for income taxes	4,100	4,619	25,977	22,855
Provision for income taxes	1,349	1,548	9,749	8,672
Net income	2,751	3,071	16,228	14,183
Net (income) loss attributable to noncontrolling interests, net of taxes	0	(34)	(33)	38
Net income attributable to Mistras Group, Inc.	$ 2,751	$ 3,037	$ 16,195	$ 14,221
Earnings per common share (see Note 4):
Basic (in dollars per share)	$ 0.10	$ 0.11	$ 0.58	$ 0.51
Diluted (in dollars per share)	$ 0.09	$ 0.11	$ 0.56	$ 0.50
Weighted average common shares outstanding:
Basic (in shares)	28,175	27,921	28,121	27,794
Diluted (in shares)	29,101	28,829	29,078	28,563

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Acquisitions

9 Months Ended

Feb. 28, 2013

Acquisitions

Acquisitions

5.             Acquisitions

During fiscal 2013, the Company completed the acquisition of three asset protection companies specializing in destructive and non-destructive services and inspection, and in-house component inspection. Two of these companies are intended to complement the service offerings within the International segment and to expand Mistras’ footprint in Europe. The other company, located in Canada, is intended to complement the service offerings within the Services segment.  In these acquisitions, the Company acquired 100% of the common stock of each acquiree in exchange for an aggregate of approximately $35.0 million in cash and $7.7 million in notes payable over three years. In addition to the cash and debt consideration related to these acquisitions, the Company accrued a liability of approximately $8.3 million, which represents the estimated fair value of contingent consideration expected to be payable in the event that the acquired companies achieve specific performance metrics over the next five years of operations. The total potential contingent consideration for these acquisitions ranges from zero to $15.0 million as of February 28, 2013.

The assets and liabilities of the acquired business were included in the consolidated balance sheets as of February 28, 2013 based on their estimated fair value on the date of acquisition as determined in a purchase price allocation, using available information and making assumptions management believes are reasonable. The Company is still in the process of completing its valuation of the assets, both tangible and intangible, and liabilities acquired, as well as the contingent consideration. These valuations and the related purchase price allocations are expected to be finalized prior to the end of the Company’s fourth quarter of fiscal 2013. The results of operations for these acquisitions are included, as appropriate, in the Services segment’s and International segment’s results of operations from the respective date of acquisition. The Company’s preliminary allocation of purchase price for these acquisitions is included in the table below. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition for the Company’s fiscal 2013 acquisitions:

Number of entities	3
Cash paid	$	34,968
Subordinated notes issued	7,715
Contingent consideration	8,329
Purchase price	$	51,012
Current assets acquired, net	1,064
Debt and other long-term liabilities	(4,541		)
Property, plant and equipment	8,945
Deferred tax liability	(7,934		)
Intangibles, primarily customer relationships	25,823
Goodwill	27,655
Net assets acquired	$	51,012

The amortization period of intangible assets acquired ranges from two to twelve years. The Company recorded approximately $27.7 million of goodwill in connection with its fiscal 2013 acquisitions, reflecting the strategic fit and revenue and earnings growth potential of these businesses. The goodwill recognized in connection with these three acquisitions is not expected to be deductible for tax purposes.

The Company also has two acquisitions that were completed in the fourth quarter of fiscal 2012 for which the Company is still in the process of completing the allocation of the consideration transferred, including the valuation of the intangible assets acquired. These valuations and related purchase price allocations are expected to be finalized prior to the end of the Company’s fourth quarter of fiscal 2013. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition for the Company’s fiscal 2012 acquisitions that have not yet been finalized:

Number of entities	2
Cash paid	$	2,968
Subordinated notes issued	904
Contingent consideration	464
Purchase price	$	4,336
Current assets acquired, net	48
Debt and other long-term liabilities	—
Property, plant and equipment	791
Deferred tax liability	(300		)
Intangibles, primarily customer relationships	2,222
Goodwill	1,575
Net assets acquired	$	4,336

There have been no significant changes during fiscal 2013 to the initial purchase price allocations for which the final purchase price allocation is not yet complete.

Revenues for the acquisitions completed in fiscal 2013 for the period subsequent to the closing of the transaction were approximately $18.5 million and $24.9 million for the three and nine months ended February 28, 2013, respectively.

Income from operations for these acquisitions for the period subsequent to the closing of each respective transaction was approximately $0.4 million and $1.0 million for the three and nine months ended February 28, 2013, respectively.

The unaudited pro forma information for the periods set forth below gives effect to the fiscal 2013 acquisitions as if they had occurred at the beginning of each period presented. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time (unaudited, in thousands):

	Three months ended				Nine months ended
	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Revenues	$	134,630	$	127,028	$	419,146	$	394,866
Income from operations	$	4,818	$	3,874	$	30,093	$	22,263

During the three and nine month periods ended February 28, 2013, the Company incurred costs of $0.3 million and $1.2 million, respectively, in connection with due diligence, professional fees, and other expenses for its fiscal 2013 acquisition activity. Additionally, the Company adjusted the fair value of certain acquisition-related contingent consideration liabilities. For the three month and nine month periods ended February 28, 2013, the adjustments resulted in a net decrease of approximately $2.0 million and $3.1 million, respectively, to the Company’s acquisition-related contingent consideration liabilities, which were approximately $17.5 million as of February 28, 2013 and recorded on the balance sheet in accrued expenses and other liabilities. These adjustments also resulted in a corresponding net increase to income from operations of approximately $2.0 million and $3.2 million for the three and nine month periods ended February 28, 2013, respectively. The Company recorded interest accretion related to its contingent consideration liabilities of $0.5 million and $1.0 million for the three and nine months ended February 28, 2013. The fair value adjustments to acquisition-related contingent consideration liabilities, related interest accretion and the acquisition-related transaction costs have been classified as acquisition-related expense, net in the statement of operations for the three and nine months ended February 28, 2013.

During the three and nine month periods ended February 29, 2012, the Company incurred costs of $1.0 million and $1.4 million, respectively, in connection with due diligence, professional fees, and other expenses for its fiscal 2012 acquisition activity. Additionally, the Company adjusted the fair value of certain acquisition-related contingent consideration liabilities. For the three month and nine month periods ended February 29, 2012, the adjustments resulted in a net decrease of approximately $0.1 million and $0.9 million, respectively, to the Company’s acquisition-related contingent consideration liabilities, which were approximately $7.5 million as of February 29, 2012 and recorded on the balance sheet in accrued expenses and other liabilities. These adjustments also resulted in a corresponding net increase to income from operations of approximately $0.1 million and $0.9 million for the three and nine month periods ended February 29, 2012, respectively. The Company recorded interest accretion related to its contingent consideration liabilities of $0.1 million and $0.5 million for the three and nine months ended February 29, 2012. The fair value adjustments to acquisition-related contingent consideration liabilities, related interest accretion and the acquisition-related transaction costs have been classified as acquisition-related expense, net in the statement of operations for the three and nine months ended February 29, 2012.

Interest accretion for the three and nine month periods ended February 28, 2013 and February 29, 2012, respectively, was previously recorded in interest expense.

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Earnings per Share

9 Months Ended

Feb. 28, 2013

Earnings per Share

Earnings per Share

4.             Earnings per Share

Basic earnings per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to Mistras Group Inc. by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, and (2) the dilutive effect of assumed conversion of equity awards using the treasury stock method. With respect to the number of weighted-average shares outstanding (denominator), diluted shares reflects: (i) only the exercise of options to acquire common stock to the extent that the options’ exercise prices are less than the average market price of common shares during the period and (ii) the pro forma vesting of restricted stock units.

The following table sets forth the computations of basic and diluted earnings per share:

	Three months ended				Nine months ended
	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Basic earnings per share
Numerator:
Net income attributable to Mistras Group, Inc.	$	2,751	$	3,037	$	16,195	$	14,221
Denominator:
Weighted average common shares outstanding	28,175		27,921		28,121		27,794
Basic earnings per share	$	0.10	$	0.11	$	0.58	$	0.51
Diluted earnings per share:
Numerator:
Net income attributable to Mistras Group, Inc.	$	2,751	$	3,037	$	16,195	$	14,221
Denominator:
Weighted average common shares outstanding	28,175		27,921		28,121		27,794
Dilutive effect of stock options outstanding	815		795		806		688
Dilutive effect of restricted stock units outstanding	111		113		151		81
	29,101		28,829		29,078		28,563
Diluted earnings per share	$	0.09	$	0.11	$	0.56	$	0.50

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Capitalization (Tables)

9 Months Ended

Feb. 28, 2013

Capitalization

Schedule of cash proceeds from and the aggregate intrinsic value of stock options exercised

	Three months ended				Nine months ended
	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Cash proceeds from options exercised	$	321	$	152	$	672	$	1,477
Aggregate intrinsic value of options exercised	$	370	$	337	$	856	$	3,399

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Commitments and Contingencies

9 Months Ended

Feb. 28, 2013

Commitments and Contingencies

Commitments and Contingencies

12. Commitments and Contingencies

Litigation

The Company is subject to periodic lawsuits, investigations and claims that arise in the ordinary course of business.  Although the Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against it, the Company does not believe that any currently pending legal proceeding to which the Company is a party will have a material adverse effect on its business, results of operations, cash flows or financial condition. The costs of defense and amounts that may be recovered in such matters may be covered by insurance.

Acquisition-related contingencies

The Company is liable for contingent consideration in connection with certain of its acquisitions. As of February 28, 2013, total potential acquisition-related contingent consideration ranged from zero to approximately $27.2 million and would be payable upon the achievement of specific performance metrics by certain of the acquired companies over the next five years of operations. See Note 5 to these consolidated financial statements for further discussion of the Company’s acquisitions.

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Property, Plant and Equipment, net

9 Months Ended

Feb. 28, 2013

Property, Plant and Equipment, net

Property, Plant and Equipment, net

8.             Property, Plant and Equipment, net

Property, plant and equipment consist of the following:

	Useful Life
	(Years)	February 28, 2013			May 31, 2012
Land		$	1,953		$	1,892
Building and improvements	30-40	21,044			16,950
Office furniture and equipment	5-8	5,247			6,760
Machinery and equipment	5-7	119,225			105,096
		147,469			130,698
Accumulated depreciation and amortization		(77,623		)	(67,171		)
Property, plant and equipment, net		$	69,846		$	63,527

Depreciation expense for the three months ended February 28, 2013 and February 29, 2012 was approximately $5.0 million and $4.2 million, respectively. Depreciation expense for the nine months ended February 28, 2013 and February 29, 2012 was approximately $14.0 million and $11.8 million, respectively.

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Accounts Receivable, net

9 Months Ended

Feb. 28, 2013

Accounts Receivable, net

Accounts Receivable, net

6.             Accounts Receivable, net

Accounts receivable consist of the following:

	February 28, 2013			May 31, 2012
Trade accounts receivable	$	110,334		$	106,821
Allowance for doubtful accounts	(1,648		)	(2,306		)
Total	$	108,686		$	104,515

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Inventories, net

9 Months Ended

Feb. 28, 2013

Inventories, net

Inventories, net

7. Inventories, net

Inventories consist of the following:

	February 28, 2013		May 31, 2012
Raw materials	$	3,230	$	3,054
Work in process	2,594		2,232
Finished goods	3,794		4,287
Supplies	2,508		2,919
Total	$	12,126	$	12,492

Inventories are net of reserves for slow-moving and obsolete inventory of approximately $1.5 million and $1.2 million as of February 28, 2013 and May 31, 2012, respectively.

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Accrued Expenses and Other Current Liabilities

9 Months Ended

Feb. 28, 2013

Accrued Expenses and Other Current Liabilities

Accrued Expenses and Other Current Liabilities

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

	February 28, 2013		May 31, 2012
Accrued salaries, wages and related employee benefits	$	21,065	$	17,195
Contingent consideration, current portion	4,887		2,371
Accrued worker compensation and health benefits	3,834		3,678
Deferred revenues	3,245		5,390
Other accrued expenses	10,380		10,700
Total	$	43,411	$	39,334

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Summary of Significant Accounting Policies (Details) (Customer concentration risk)	9 Months Ended	3 Months Ended		9 Months Ended			12 Months Ended
	Feb. 28, 2013 item	Feb. 28, 2013 Revenues BP	Feb. 29, 2012 Revenues BP	Feb. 28, 2013 Revenues BP	Feb. 29, 2012 Revenues BP	Feb. 28, 2013 Accounts receivable, net BP	May 31, 2012 Accounts receivable, net BP
Concentration of Credit Risk
Number of customers	1
Percentage of concentration risk		13.00%	16.00%	12.00%	16.00%	13.00%	9.00%

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Description of Business & Basis of Presentation (Policies)

9 Months Ended

Feb. 28, 2013

Description of Business & Basis of Presentation

Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Mistras Group, Inc. and its wholly or majority-owned subsidiaries. Where the Company’s ownership interest is less than 100%, the noncontrolling interests are reported in equity in the accompanying consolidated balance sheets. The noncontrolling interest in net income, net of tax, is classified separately in the accompanying consolidated statements of operations.

All significant intercompany accounts and transactions have been eliminated in consolidation. Mistras Group, Inc.’s and its subsidiaries’ fiscal years end on May 31 except for the companies in the International segment, which end on April 30. Accordingly, the Company’s International segment subsidiaries are consolidated on a one-month lag. Therefore, in the quarter and year of acquisition, results of acquired subsidiaries in the International segment are generally included in consolidated results for one less month than the actual number of months from the acquisition date to the end of the reporting period. Management does not believe that any events occurred during the one-month lag period that would have a material effect on the Company’s consolidated financial statements as of or for any period presented.

Reclassification

Reclassification

Certain amounts in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have a material effect on the Company’s financial condition or results of operations as previously reported.

During the third quarter of fiscal 2013, the Company reclassified amounts related to interest accretion imputed on its acquisition-related contingent consideration liabilities from interest expense to acquisition-related expense, net, which is a component of Income from Operations.  During fiscal 2012, the amounts reclassified were $0.4 million and $0.1 million for the three month periods ended November 30, 2011 and February 29, 2012, respectively. For the three months ended August 31, 2011 there was no expense related to interest accretion imputed on our acquisition-related contingent consideration liabilities. During fiscal 2013, the amounts reclassified were $0.3 million and $0.2 million for the three month periods ended August 31, 2012 and November 30, 2012, respectively. See Note 5 to these unaudited condensed consolidated financial statements for further discussion with regards to acquisition related expense, net.

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Accounts Receivable, net (Tables)

9 Months Ended

Feb. 28, 2013

Accounts Receivable, net

Schedule of accounts receivable

	February 28, 2013			May 31, 2012
Trade accounts receivable	$	110,334		$	106,821
Allowance for doubtful accounts	(1,648		)	(2,306		)
Total	$	108,686		$	104,515

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Property, Plant and Equipment, net (Details) (USD $)	3 Months Ended		9 Months Ended
	Feb. 28, 2013	Feb. 29, 2012	Feb. 28, 2013	Feb. 29, 2012	May 31, 2012
Property, Plant and Equipment, net
Property, plant and equipment, gross	$ 147,469,000		$ 147,469,000		$ 130,698,000
Accumulated depreciation and amortization	(77,623,000)		(77,623,000)		(67,171,000)
Property, plant and equipment, net	69,846,000		69,846,000		63,527,000
Depreciation expense	5,000,000	4,200,000	14,000,000	11,800,000
Land
Property, Plant and Equipment, net
Property, plant and equipment, gross	1,953,000		1,953,000		1,892,000
Building and improvements
Property, Plant and Equipment, net
Property, plant and equipment, gross	21,044,000		21,044,000		16,950,000
Building and improvements | Minimum
Property, Plant and Equipment, net
Useful Life			30 years
Building and improvements | Maximum
Property, Plant and Equipment, net
Useful Life			40 years
Office furniture and equipment
Property, Plant and Equipment, net
Property, plant and equipment, gross	5,247,000		5,247,000		6,760,000
Office furniture and equipment | Minimum
Property, Plant and Equipment, net
Useful Life			5 years
Office furniture and equipment | Maximum
Property, Plant and Equipment, net
Useful Life			8 years
Machinery and equipment
Property, Plant and Equipment, net
Property, plant and equipment, gross	$ 119,225,000		$ 119,225,000		$ 105,096,000
Machinery and equipment | Minimum
Property, Plant and Equipment, net
Useful Life			5 years
Machinery and equipment | Maximum
Property, Plant and Equipment, net
Useful Life			7 years

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Feb. 28, 2013	Feb. 29, 2012	Feb. 28, 2013	Feb. 29, 2012
Consolidated Statements of Comprehensive Income
Net income	$ 2,751	$ 3,071	$ 16,228	$ 14,183
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	1,633	(615)	1,119	(1,990)
Other comprehensive income (loss)	1,633	(615)	1,119	(1,990)
Comprehensive income	4,384	2,456	17,347	12,193
Comprehensive (income) loss attributable to noncontrolling interests	0	(34)	(33)	38
Foreign currency translation adjustments		5		12
Comprehensive income attributable to Mistras Group, Inc.	$ 4,384	$ 2,427	$ 17,314	$ 12,243

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Capitalization

9 Months Ended

Feb. 28, 2013

Capitalization

Capitalization

3.             Capitalization

Common Stock

Dividends on common stock will be paid when, and if, declared by the board of directors. Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held.

Equity Awards

The Company has a Long-Term Incentive Plan (the 2009 Plan). Awards may be granted in the form of stock options, restricted stock units and other forms of stock-based incentives, including stock appreciation rights and deferred stock rights. The term of each incentive and non-qualified stock option is ten years. Vesting generally occurs over a period of four years, the expense for which is recorded on a straight-line basis over the requisite service period. The 2009 Plan allows for the grant of awards of up to approximately 2,286,000 shares of common stock, of which 1,453,000 shares were available for future grants as of February 28, 2013. Prior to the Company’s IPO in October 2009, the Company had two stock option plans: (i) the 1995 Incentive Stock Option and Restricted Stock Purchase Plan (the 1995 Plan), and (ii) the 2007 Stock Option Plan (the 2007 Plan). No additional awards may be granted from these two plans. As of February 28, 2013, there was an aggregate of approximately 2,472,000 stock options outstanding and approximately 552,000 unvested restricted stock units outstanding under the 2009 Plan, the 2007 Plan, and the 1995 Plan.

No stock options were granted during the three or nine month periods ended February 28, 2013 or February 29, 2012.

The Company recognized stock-based compensation expense related to stock option awards of approximately $0.8 million for each of the three month periods ended February 28, 2013 and February 29, 2012. For the nine months ended February 28, 2013 and February 29, 2012, the Company recognized stock-based compensation expense related to stock option awards of $2.3 million and $2.4 million, respectively. As of February 28, 2013, there was approximately $1.5 million of unrecognized compensation costs, net of estimated forfeitures, related to stock option awards, which are expected to be recognized over a remaining weighted average period of approximately 0.5 years. Cash proceeds from and the aggregate intrinsic value of stock options exercised during the three and nine months ended February 28, 2013 and February 29, 2012 were as follows:

	Three months ended				Nine months ended
	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Cash proceeds from options exercised	$	321	$	152	$	672	$	1,477
Aggregate intrinsic value of options exercised	$	370	$	337	$	856	$	3,399

The Company also recognized approximately $0.8 million and $0.5 million during the three months ended February 28, 2013 and February 29, 2012, respectively, in stock-based compensation expense related to restricted stock unit awards. For the nine months ended February 28, 2013 and February 29, 2012, the Company recognized stock-based compensation expense related to restricted stock unit awards of $2.1 million and $1.1 million, respectively. As of February 28, 2013, there was approximately $8.5 million of unrecognized compensation costs, net of estimated forfeitures, related to restricted stock unit awards, which are expected to be recognized over a remaining weighted average period of 2.7 years.

In June 2012 and October 2011, the Company granted approximately 13,000 and 9,000 shares, respectively, of fully-vested common stock to its five non-employee directors, in connection with its non-employee director compensation plan. These shares had a grant date fair value of approximately $0.3 million and $0.2 million, respectively, which is included in the stock-based compensation expense recorded during the nine months ended February 28, 2013 and February 29, 2012.

During the nine months ended February 28, 2013 and February 29, 2012, approximately 123,000 and 52,000 restricted stock units vested, respectively. The fair value of these units upon vesting was $1.9 million and $0.5 million, respectively. Upon vesting, restricted stock units are generally net share-settled to cover the required withholding tax and the remaining amount is converted into an equivalent number of shares of common stock. The restricted stock units that vested in the first nine months of fiscal 2013 and 2012 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The Company withheld approximately 37,000 and 16,000 shares in the first nine months of fiscal 2013 and 2012, respectively. The shares withheld were based on the value of the restricted stock units on their vesting date as determined by the Company’s closing stock price. Total payments for the employees’ tax obligations to the taxing authorities were $0.8 million and $0.3 million and are reflected as a financing activity within the consolidated statements of cash flows for the nine months ended February 28, 2013 and February 29, 2012, respectively. These net-share settlements had the effect of share repurchases by the Company as they reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company.

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Inventories, net (Tables)

9 Months Ended

Feb. 28, 2013

Inventories, net

Schedule of inventories

	February 28, 2013		May 31, 2012
Raw materials	$	3,230	$	3,054
Work in process	2,594		2,232
Finished goods	3,794		4,287
Supplies	2,508		2,919
Total	$	12,126	$	12,492

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Acquisitions (Details) (USD $)	3 Months Ended		9 Months Ended			9 Months Ended	3 Months Ended		9 Months Ended				3 Months Ended	9 Months Ended		12 Months Ended
	Feb. 28, 2013	Feb. 29, 2012	Feb. 28, 2013	Feb. 29, 2012	May 31, 2012	Feb. 28, 2013 Series of Individually Immaterial Business Acquisitions	Feb. 28, 2013 Fiscal 2013 acquisitions	Feb. 29, 2012 Fiscal 2013 acquisitions	Feb. 28, 2013 Fiscal 2013 acquisitions item	Feb. 29, 2012 Fiscal 2013 acquisitions	Feb. 28, 2013 Fiscal 2013 acquisitions Minimum	Feb. 28, 2013 Fiscal 2013 acquisitions Maximum	Feb. 29, 2012 Fiscal 2012 acquisitions	Feb. 28, 2013 Fiscal 2012 acquisitions item	Feb. 29, 2012 Fiscal 2012 acquisitions	May 31, 2012 Fiscal 2012 acquisitions item
Acquisitions
Term over which the subordinated notes are payable						3 years
Number of acquisitions of asset protection businesses									3							2
Percentage of common stock acquired						100.00%
Period over which potential acquisition-related contingent consideration would be payable						5 years
Potential acquisition-related contingent consideration, low end of range						$ 0
Potential acquisition-related contingent consideration, high end of range						15,000,000
Estimated fair value of the assets acquired and liabilities assumed
Number of entities									3					2
Cash paid						35,000,000	34,968,000		34,968,000					2,968,000
Subordinated notes issued						7,700,000	7,715,000		7,715,000					904,000
Contingent consideration	(4,887,000)		(4,887,000)		(2,371,000)	(8,300,000)	8,329,000		8,329,000					464,000
Purchase price							51,012,000		51,012,000					4,336,000
Current assets acquired, net							1,064,000		1,064,000					48,000
Debt and other long-term liabilities							(4,541,000)		(4,541,000)
Property, plant and equipment							8,945,000		8,945,000					791,000
Deferred tax liability							(7,934,000)		(7,934,000)					(300,000)
Intangibles, primarily customer relationships							25,823,000		25,823,000					2,222,000
Goodwill							27,655,000		27,655,000					1,575,000
Net assets acquired							51,012,000		51,012,000					4,336,000
Amortization period of intangible assets acquired											2 years	12 years
Revenues and income from operations included in the consolidated statement of operations
Revenues							18,500,000		24,900,000
Income from operations							400,000		1,000,000
Pro forma information of the results of operations
Revenues							134,630,000	127,028,000	419,146,000	394,866,000
Income from operations							4,818,000	3,874,000	30,093,000	22,263,000
Other acquisition information
Acquisition-related costs	(1,212,000)	973,000	(1,006,000)	1,009,000			300,000		1,200,000				1,000,000		1,400,000
Net decrease in acquisition-related contingent consideration liabilities							2,000,000		3,100,000				100,000		900,000
Fair value of contingent consideration liabilities							17,500,000		17,500,000				7,500,000		7,500,000
Net increase in income from operations							2,000,000		3,200,000				100,000		900,000
Interest accretion expense related to contingent consideration liabilities							$ 500,000		$ 1,000,000				$ 100,000		$ 500,000

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Segment Disclosure

9 Months Ended

Feb. 28, 2013

Segment Disclosure

Segment Disclosure

13. Segment Disclosure

The Company’s three segments are:

Services. This segment provides asset protection solutions primarily in North America with the largest concentration in the United States, consisting primarily of non-destructive testing and inspection services that are used to evaluate the structural integrity and reliability of critical energy, industrial and public infrastructure.

International. This segment offers services, products and systems similar to those of the other segments to global markets, principally in 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. This segment designs, manufactures, sells, installs and services the Company’s asset protection products and systems, including equipment and instrumentation, predominantly in the United States.

Costs incurred for general corporate services, including accounting, audit, and contract management, that are provided to the segments are reported within Corporate and eliminations. Sales to the International segment from the Products and Systems segment and subsequent sales by the International segment of the same items are recorded and reflected in the operating performance of both segments. Additionally, engineering charges and royalty fees charged to the Services and International segments by the Products and Systems segment are reflected in the operating performance of each segment. All such intersegment transactions are eliminated in the Company’s consolidated financial reporting.

Segment income from operations is determined based on internal performance measures used by the Chief Executive Officer, who is the chief operating decision maker, to assess the performance of each business in a given period and to make decisions as to resource allocations. In connection with that assessment, the Chief Executive Officer may exclude matters such as charges for stock-based compensation and certain other acquisition-related charges and balances, technology and product development costs, certain gains and losses from dispositions, and litigation settlements or other charges. Certain general and administrative costs such as human resources, information technology, marketing and training are allocated to the segments. Segment income from operations also excludes interest and other financial charges and income taxes. Corporate and other assets are comprised principally of cash, deposits, property, plant and equipment, domestic deferred taxes, deferred charges and other assets. Corporate loss from operations consists of depreciation on the corporate office facilities and equipment, administrative charges related to corporate personnel and other charges that cannot be readily identified for allocation to a particular segment.

Selected consolidated financial information by segment for the periods shown was as follows:

	Three months ended						Nine months ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Revenues
Services	$	90,537		$	80,895		$	278,147		$	253,493
International	37,516			17,164			88,722			38,794
Products and Systems	7,645			9,824			25,618			26,429
Corporate and eliminations	(2,037		)	(3,765		)	(7,710		)	(8,931		)
	$	133,661		$	104,118		$	384,777		$	309,785

Revenues by segment include intercompany transactions, which are eliminated in Corporate and eliminations.  The Services segment had sales to other operating segments of $0.6 million and $0.5 million for the three months ended February 28, 2013 and February 29, 2012, respectively. For the nine months ended February 28, 2013 and February 29, 2012, the Services segment sales to other operating segments totaled $2.8 million and $2.3 million, respectively.

The International segment had sales to other operating segments of $0.2 million and $0.3 million for the three months ended February 28, 2013 and February 29, 2012, respectively. For each of the nine month periods ended February 28, 2013 and February 29, 2012, the International segment had sales to other operating segments totaling $0.5 million.

The Products and Systems segment had sales to other operating segments of $1.3 million and $3.1 million for the three months ended February 28, 2013 and February 29, 2012, respectively. For the nine months ended February 28, 2013 and February 29, 2012, the Products and Systems segment sales to other operating segments totaled $4.2 million and $6.4 million, respectively.

	Three months ended					Nine months ended
	February 28, 2013		February 29, 2012			February 28, 2013		February 29, 2012
Gross profit
Services	$	20,496	$	20,640		$	72,128	$	68,001
International	9,851		4,586			24,231		12,263
Products and Systems	3,790		4,938			13,010		12,952
Corporate and eliminations	69		(580		)	459		(997		)
	$	34,206	$	29,584		$	109,828	$	92,219

	Three months ended						Nine months ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Income from operations
Services	$	6,293		$	7,186		$	28,597		$	27,927
International	586			321			3,457			2,373
Products and Systems	1,699			2,392			6,481			5,652
Corporate and eliminations	(3,596		)	(4,477		)	(10,100		)	(10,863		)
	$	4,982		$	5,422		$	28,435		$	25,089

Operating income by operating segment includes intercompany transactions, which are eliminated in Corporate and eliminations.

	Three months ended					Nine months ended
	February 28, 2013			February 29, 2012		February 28, 2013			February 29, 2012
Depreciation and amortization
Services	$	4,660		$	4,587	$	13,763		$	12,988
International	1,941			670		4,400			1,474
Products and Systems	617			500		1,596			1,451
Corporate and eliminations	(26		)	8		(66		)	76
	$	7,192		$	5,765	$	19,693		$	15,989

	February 28, 2013		May 31, 2012
Intangible assets, net
Services	$	15,880	$	17,180
International	29,853		6,390
Products and Systems	9,911		10,095
Corporate and eliminations	784		804
	$	56,428	$	34,469

	February 28, 2013		May 31, 2012
Goodwill
Services	$	60,719	$	58,746
International	51,616		24,481
Products and Systems	13,197		13,592
	$	125,532	$	96,819

	February 28, 2013		May 31, 2012
Total assets
Services	$	205,988	$	204,209
International	150,551		82,579
Products and Systems	38,262		43,914
Corporate and eliminations	2,113		(886		)
	$	396,914	$	329,816

Revenues by geographic area for the three and nine months ended February 28, 2013 and February 29, 2012 were as follows:

	Three months ended				Nine months ended
	February 28, 2013		February 29, 2012		February 28, 2013		February 29, 2012
Revenues
United States	$	83,273	$	74,416	$	255,108	$	237,215
Europe	32,897		13,721		72,878		27,797
Other Americas	13,234		11,500		41,163		32,357
Asia-Pacific	4,257		4,481		15,628		12,416
	$	133,661	$	104,118	$	384,777	$	309,785