Management report and analysis of financial position and operating results (table dollars are in thousands)

0

ITEM 2. Discussion and analysis by management of the financial position and operating results

The following Management's Discussion and Analysis ("MD&A") provides a
discussion of our results of operations and financial position for the three and
nine months ended September 30, 2021 and 2020. The MD&A should be read together
with our Unaudited 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 for the year ended December 31, 2020, filed with the
Securities and Exchange Commission on March 16, 2021 ("2020 Annual Report").
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
•Note about Non-GAAP Measures
•Consolidated Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Policies and Estimates

Forward-looking statements

This report on Form 10-Q contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934 ("Exchange Act"). Such forward-looking
statements include those that express plans, anticipation, intent, contingency,
goals, targets or future development and/or otherwise are not statements of
historical fact. These forward-looking statements are based on our current
expectations and projections about future events and they are subject to risks
and uncertainties known and unknown that could cause actual results and
developments to differ materially from those expressed or implied in such
statements.

In some cases, you can identify forward-looking statements by terminology, such
as "goals," or "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," "may," "could," "should," "would," "predicts," "appears,"
"projects," or the negative of such terms or other similar expressions. You are
urged not to place undue reliance on any such forward-looking statements, any of
which may turn out to be wrong due to inaccurate assumptions, various risks,
uncertainties or other factors known and unknown. Factors that could cause or
contribute to differences in results and outcomes from those in our
forward-looking statements include, without limitation, those discussed in the
"Business-Forward-Looking Statements," and "Risk Factors" sections of our 2020
Annual Report as well as those discussed in this Quarterly Report on Form 10-Q
and in our other filings with the SEC.

At the time of this report, the COVID-19 pandemic is continuing to have a
negative impact on us and our key markets and is causing ongoing economic
disruption worldwide, although the Company has nevertheless begun approaching
pre-pandemic levels of activity in certain end markets, particularly oil and
gas. Our discussion below is qualified by the unknown impact that the COVID-19
pandemic will continue to have on our business and the economy in general,
including the duration of the health risk the COVID-19 pandemic will cause and
the resulting economic disruption.


Overview

The Company is a leading multinational “single source” provider of integrated technology-based asset protection solutions, helping to maximize the security and operational readiness of civilization’s most critical industrial and civilian assets.

Backed by an innovative, data-driven asset protection portfolio, proprietary
technologies, and decades-long legacy of industry leadership, the Company helps
clients with asset-intensive infrastructure in the oil and gas, aerospace and
defense, industrials, power generation and transmission (including alternative
and renewable energy), other process industries and infrastructure, research and
engineering and other industries towards achieving and maintaining operational
excellence. By supporting these organizations that help fuel our vehicles and
power our society; inspecting components that are trusted for commercial,
defense, and space craft; and building real-time monitoring equipment to enable
safe travel across bridges, the Company helps the world at large.

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                      Mistras Group, Inc. and Subsidiaries

Management report and analysis of the financial position and results of

                                   Operations
                       (tabular dollars are in thousands)

The Company enhances value for its clients by integrating asset protection
throughout supply chains and centralizing integrity data through a suite of
Industrial IoT-connected digital software and monitoring solutions, including
OneSuite™, which serves as an ecosystem platform, pulling together all of the
Company's software and data services capabilities, for the benefit of its
customers.

The Company's core capabilities also include non-destructive testing ("NDT")
field inspections enhanced by advanced robotics, laboratory quality control and
assurance testing, sensing technologies and NDT equipment, asset and mechanical
integrity engineering services, and light mechanical maintenance and access
services.

Our operations consist of three reportable segments: Services, International,
and Products and Systems.
•Services provides asset protection solutions predominantly in North America,
with the largest concentration in the United States, followed by Canada,
consisting primarily of NDT, inspection, mechanical and engineering services
that are used to evaluate the structural integrity and reliability of critical
energy, industrial and public infrastructure and commercial aerospace
components. Software, digital and data services are included in this segment.
•International offers services, products and systems similar to those of the
other segments to select markets within Europe, the Middle East, Africa, Asia
and South America, but not to customers in China and South Korea, which are
served by the Products and Systems segment.
•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.

Given the role our solutions play in enhancing the safe and efficient operation
of infrastructure, we have historically provided a majority of our solutions to
our customers on a regular, recurring basis. We perform these services largely
at our customers' facilities, while primarily servicing our aerospace customers
at our network of state-of-the-art, in-house laboratories. These solutions
typically include NDT and inspection services, and can also include a wide range
of mechanical services, including heat tracing, pre-inspection insulation
stripping, coating applications, re-insulation, engineering assessments and
long-term condition-monitoring. Under this business model, many customers
outsource their inspection to us on a "run and maintain" basis. We have
established long-term relationships as a critical solutions provider to many of
the leading companies with asset-intensive infrastructure in our target markets.
These markets include companies in the oil and gas, aerospace and defense,
industrials, power generation and transmission (including alternative and
renewable energy), other process industries and infrastructure, research and
engineering and other industries.

We have focused on providing 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. We
have made numerous acquisitions in an effort to grow our base of experienced,
certified personnel, expand our service lines and technical capabilities,
increase our geographical reach, complement our existing offerings, and leverage
our fixed costs. We have 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 have provided us with additional service lines, technologies,
resources and customers which we believe will enhance our advantages over our
competition.

We believe long-term growth can be realized in all of our target markets. Our
level of business and financial results are impacted by world-wide macro- and
micro-economic conditions generally, as well as those within our target markets.
Among other things, we expect the timing of our oil and gas customers inspection
spend to be impacted by oil price fluctuations.

We have continued providing our customers with innovative asset protection
software ecosystem through our MISTRAS OneSuite platform. The software platform
offers functions of MISTRAS' popular software and services brands as integrated
apps on a cloud environment. OneSuite serves as a single access portal for
customers' data activities and provides access to 50 plus applications being
offered on one centralized platform.

We have continued to develop new technologies to provide monitoring of wind
blade integrity through our Sensoria™ tool. Sensoria helps provide real-time
monitoring and damage detection of wind turbine blades and allows our customers
to maximize uptime, performance and safety of wind turbine blades. This tool
provides additional growth and expansion of our
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                      Mistras Group, Inc. and Subsidiaries

Management report and analysis of the financial position and results of

                                   Operations
                       (tabular dollars are in thousands)

capabilities to serve both new and existing wind turbines and dramatically improves our product offerings in the renewable energy sector.

Recent developments

The COVID-19 coronavirus (COVID-19) pandemic has continued to cause disruption
and volatility in domestic and international markets and conditions continue to
improve during 2021 as compared to 2020. The Company's businesses have been
classified as non-healthcare critical infrastructure as defined by the U.S.
Centers for Disease Control and Prevention (CDC). Our facilities, and the
Company's customers facilities as well, have remained open with staffing
modifications and precautionary procedures taken as necessary.

Overall, we have taken actions to help ensure the health and safety of our
employees and those of our customers and suppliers; maintain business continuity
and financial strength and stability; and serve our customers as they provide
essential products and services to the world.

The COVID-19 pandemic uncertainty, significant volatility in oil prices and
decreased traffic in the aerospace industry have adversely affected our
workforce and operations, as well as the operations of our customers, suppliers
and contractors beginning in 2020. These negative factors continue to cause
volatility and uncertainty in the markets in which we operate, although we have
nevertheless begun approaching pre-pandemic levels of activity in certain end
markets, particularly oil and gas where crude oil prices have exceeded
pre-pandemic levels.

While we cannot fully assess the impact that the COVID-19 pandemic or the
significant volatility in oil prices will continue to have on our operations at
this time, there are certain impacts that we have identified resulting in
impairment charges in 2020. See Note 8-Goodwill, Note 9-Intangible Assets and
Note 13-Leases to the Notes to the Unaudited Condensed Consolidated Financial
Statements included in this Quarterly Report for additional information.

The Company has eliminated substantially all of the cost reduction initiatives
undertaken in 2020, including re-installment of the savings plan employer match
and increasing wages back to pre-pandemic amounts. Our cash position and
liquidity remains strong. As of September 30, 2021, the cash balance was
approximately $22.6 million.

In April 2021, the Biden Administration announced aggressive initiatives to
battle climate change, which includes a significant reduction in the use of
fossil fuels and a transition to electric vehicles and increased use of
alternative energy. Any legislation or regulations that may be adopted to
implement these measures may negatively impact on our customers in the oil and
gas market over the long-term, which presently is our largest market, although
this initiative will likely benefit the alternative energy market, such as wind
energy, for which we provide products and services. At this time, it is
difficult to determine the magnitude and timing of the impact that climate
change initiatives and legislation, if any, will have on these markets and the
resulting impact on our business and operational results.

We are currently unable to predict the overall impact that the COVID-19 pandemic
uncertainty, volatility in oil prices and climate change initiatives to reduce
the use of fossil fuels may have on our business, results of operations,
liquidity or in other ways which we cannot yet determine. We will continue to
monitor market conditions and respond accordingly. Refer to Item 1A. Risk
Factors in Part I of our 2020 Annual Report.

Note on non-GAAP measures

The Company prepares its consolidated financial statements in accordance with
U.S. GAAP. In this MD&A under the heading "Income (loss) from Operations", the
non-GAAP financial performance measure "Income (loss) before special items" is
used for each of our three operating segments, the Corporate segment and the
"Total Company", with tables reconciling the measure to a financial measure
under GAAP. This presentation excludes from "Income (loss) from Operations"
(a) transaction expenses related to acquisitions, such as professional fees and
due diligence costs, (b) the net changes in the fair value of
acquisition-related contingent consideration liabilities, (c) impairment
charges, (d) reorganization and other costs, which includes items such as
severance, labor relations matters and asset and lease termination costs and (e)
other special items. These adjustments have been excluded from the GAAP measure
because these expenses and credits are not related to our or any individual
segment's core business operations. The acquisition related costs and special
items can be a net expense or credit in any given period. Our management uses
this non-GAAP measure as a measure of operating performance and liquidity 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. We believe investors and other users
of our financial
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                      Mistras Group, Inc. and Subsidiaries

Management report and analysis of the financial position and results of

                                   Operations
                       (tabular dollars are in thousands)

statements benefit from the presentation of this non-GAAP measure in evaluating
our performance. Income (loss) before special items excludes the identified
adjustments, which provides additional tools to compare our core business
operating performance on a consistent basis and measure underlying trends and
results in our business. Income (loss) before special items is not used to
determine incentive compensation for executives or employees, nor is it a
replacement for the reported GAAP financial performance and/or necessarily
comparable to the non-GAAP financial measures of other companies.

Results of operations

Condensed Consolidated Results of Operations for the Three and Nine Months Ended
September 30, 2021 and 2020 were as follows:

                                                 Three months ended 

September 30, Nine months ended September 30,

                                                     2021                   2020             2021                   2020
Revenues                                      $       174,556           $  147,894    $       505,968           $  431,794
Gross profit                                           52,216               47,384            147,553              129,186
Gross profit as a % of Revenue                           29.9   %             32.0  %            29.2   %             29.9  %

Income (loss) from operations                           9,236                5,742             15,864             (105,869)
Income (Loss) from Operations as a % of
Revenue                                                   5.3   %              3.9  %             3.1   %            (24.5) %

Income before provision (benefit) for income
taxes                                                   6,910                2,097              7,170             (115,279)

Net income (loss)                                       3,397                1,553              3,983              (99,634)

Net income (loss) attributable to Mistras
Group, Inc.                                   $         3,380           $    1,523    $         3,955           $  (99,642)



Revenue

Revenue was $174.6 million for the three months ended September 30, 2021, an
increase of $26.7 million, or 18.0%, compared with the three months ended
September 30, 2020. Revenue for the nine months ended September 30, 2021 was
$506.0 million, an increase of $74.2 million, or 17.2%, compared with the nine
months ended September 30, 2020.

Revenue by segment for the three and nine months ended September 30, 2021 and 2020 was as follows:

                                                Three months ended September 30,      Nine months ended September 30,
                                                    2021                2020             2021                   2020

Revenue
Services                                       $   144,976          $  119,721    $        414,251          $  349,271
International                                       29,100              26,477              88,699              76,887
Products and Systems                                 3,308               3,932               9,499              10,746
Corporate and eliminations                          (2,828)             (2,236)             (6,481)             (5,110)
                                               $   174,556          $  147,894    $        505,968          $  431,794



Three Months

In the three months ended September 30, 2021, total revenue increased 18.0%
versus the comparable prior period. The increase was due to organic growth in
our core business as our end markets recover from the effect of COVID-19. In
addition, the Company realized low single-digit favorable revenue impact from
foreign exchange rates. Services segment revenue increased 21.1% and
International segment revenue increased 9.9%, due predominantly to recovery from
the effect of COVID-19 and to single-digit favorable revenue impact from foreign
exchange rates.

Oil and gas customer revenue comprised approximately 56% and 55% of total
revenue for the three months ended September 30, 2021 and 2020, respectively.
Aerospace and defense customer revenue comprised approximately 10% and 10% of
total revenue for the three months ended September 30, 2021 and 2020,
respectively. The Company's top ten customers comprised approximately 32% of
total revenue for the three months ended September 30, 2021, as compared to 29%
for the three months ended September 30, 2020, with no customer accounting for
10% or more of total revenue in either three-month period. For the
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                      Mistras Group, Inc. and Subsidiaries

Management report and analysis of the financial position and results of

                                   Operations
                       (tabular dollars are in thousands)

three months ended September 30, 2021, revenue in all our primary end market
industries increased versus the comparable prior period, except for industrials
which decreased slightly.

Nine months

In the nine months ended September 30, 2021, total revenue increased 17.2%
versus the comparable prior period. The increase was due to organic growth in
our core business as our end markets recover from the effect of COVID-19. In
addition, the Company realized low single-digit favorable revenue impact from
foreign exchange rates. Our Services segment revenue increased 18.5% due
predominantly to recovery from the effect of COVID-19. International segment
revenue increased 15.3% due to mid-single digit organic growth and mid-single
digit favorable revenue impact from foreign exchange rates.

Oil and gas customer revenue comprised approximately 58% and 56% of total
revenue for the nine months ended September 30, 2021 and 2020, respectively.
Aerospace and defense customer revenue comprised approximately 10% and 13% of
total revenue for the nine months ended September 30, 2021 and 2020,
respectively. The Company's top ten customers comprised approximately 33% of
total revenue for the nine months ended September 30, 2021, as compared to 31%
for the nine months ended September 30, 2020, with no customer accounting for
10% or more of total revenue in either nine-month period. For the nine months
ended September 30, 2021 revenue in all our primary end market industries
increased versus the comparable prior period, except for aerospace and defense
and industrial.

Gross Profit

Gross margin increased by $ 4.8 million, or 10.2%, during the three months ended
September 30, 2021 compared to the same period of the previous year, on an increase in turnover of 18.0%.

Gross margin increased by $ 18.4 million, or 14.2%, during the nine months ended
September 30, 2021 on a turnover increase of 17.2%.

Gross margin by segment for the three and nine months ended September 30, 2021
and 2020 was as follows:

                                                  Three months ended September 30,         Nine months ended September 30,
                                                      2021                   2020             2021                   2020

Gross profit
Services                                       $        41,749           $   37,603    $       116,587           $  103,780
  % of segment revenue                                    28.8   %             31.4  %            28.1   %             29.7  %
International                                            9,038                8,197             26,278               21,612
  % of segment revenue                                    31.1   %             31.0  %            29.6   %             28.1  %
Products and Systems                                     1,422                1,628              4,655                3,834
  % of segment revenue                                    43.0   %             41.4  %            49.0   %             35.7  %
Corporate and eliminations                                   7                  (44)                33                  (40)
                                               $        52,216           $   47,384    $       147,553           $  129,186
  % of total revenue                                      29.9   %             32.0  %            29.2   %             29.9  %



Three Months

Gross profit margin was 29.9% and 32.0% for the three-month periods ended
September 30, 2021 and 2020, respectively. Gross profit margin decreased
primarily due to unfavorable sales mix and higher level of reimbursable travel
costs in the Services segment partially offset by favorable sales mix and better
utilization in the International and Products and Systems segments.

Nine months

Gross profit margin was 29.2% and 29.9% for the nine months ended September 30,
2021 and 2020, respectively. Gross profit margin remained flat primarily due to
unfavorable sales mix and higher level of reimbursable travel costs in the
Services segment offset by favorable sales mix and better utilization in the
International and Products and Systems segments.
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                      Mistras Group, Inc. and Subsidiaries
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations
                       (tabular dollars are in thousands)


Operating Expenses

Operating expenses for the three and nine months ended September 30, 2021 and
2020 was as follows:

                                                  Three months ended September 30,         Nine months ended September 30,
                                                      2021                   2020             2021                   2020

Operating Expenses
Selling, general and administrative expenses   $         39,221          $   37,473    $        118,579          $  116,638

Impairment charges                                            -                   -                   -             106,062

Research and engineering                                    595                 638               1,942               2,170
Depreciation and amortization                             2,918               3,182               9,070              10,359

Legal settlement and litigation charges, net                  -                (360)              1,030                (360)
Acquisitions-related expense                                246                 709               1,068                 186



Three Months

Operating expenses increased $1.3 million, or 3%, for the three months ended
September 30, 2021 compared to the three months ended September 30, 2020.
Selling, general and administrative expenses increased $1.7 million during the
three months ended September 30, 2021 compared to the three months ended
September 30, 2020, due to the Company reinstating several of the temporary cost
reduction initiatives undertaken during 2020 in response to the COVID-19
pandemic, as further detailed in the Recent Developments section above. This
increase was partially offset by foreign currency exchange losses.
Acquisition-related expense decreased $(0.5) million for the three months ended
September 30, 2021 compared to the three months ended September 30, 2020 due to
remeasurement of acquisition related contingent consideration.

Nine months

Operating expenses decreased $103.4 million, or 44%, for the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020, due
predominantly to impairment charges of $106.1 million in 2020 as more fully
described in Note 8-Goodwill and Note 9-Intangible Assets included in the Notes
to the Unaudited Condensed Consolidated Financial Statements included in this
Quarterly Report. Excluding the 2020 impairment charges, operating expenses
increased $2.7 million due to the Company reinstating several of the temporary
cost reduction initiatives undertaken during 2020 in response to the COVID-19
pandemic, as further detailed in the Recent Developments section above, as well
as a $1.2 million increase in net legal settlement and litigation charges
primarily related to the Justin Price v. Mistras Group, Inc. matter more fully
described in Note-14 Commitments and Contingencies under the "Litigation and
Commercial Claims" section to the Notes to Unaudited Condensed Consolidated
Financial Statements included in this Quarterly Report. These increases were
partially offset by foreign currency exchange losses. Depreciation and
amortization decreased $1.3 million during the nine months ended September 30,
2021 compared to the nine months ended September 30, 2020, due to the 2020
impairment charges reducing the net book value on certain of our intangible
assets. Acquisition-related expense increased $0.9 million for the nine months
ended September 30, 2021 compared to the nine months ended September 30, 2020
due to remeasurement of acquisition related contingent consideration.

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                      Mistras Group, Inc. and Subsidiaries

Management report and analysis of the financial position and results of

                                   Operations
                       (tabular dollars are in thousands)

Operating income (loss)

The following table shows a reconciliation of the income (loss) from operations
to income (loss) before special items for each of our three segments, Corporate
and Eliminations and the Company in total:
                                              Three months ended September 30,         Nine months ended September 30,
                                                  2021                   2020             2021                   2020

Services:
Income (loss) from operations (GAAP)       $         16,085          $   13,599    $         38,991          $  (57,058)

Impairment charges                                        -                   -                   -              86,200

Reorganization and other costs                            -                  58                  97                 125
Legal settlement and litigation charges,
net                                                       -                (360)              1,650                (360)
Acquisition-related expense, net                        246                 709               1,034                 186
Income before special items (non-GAAP)     $         16,331          $   14,006    $         41,772          $   29,093
International:
Income (loss) from operations (GAAP)       $          1,169          $      (66)   $          2,158          $  (22,422)

Impairment charges                                        -                   -                   -              19,862
Reorganization and other costs                           (2)                 21                 124                 313

Income (loss) before special items
(non-GAAP)                                 $          1,167          $      (45)   $          2,282          $   (2,247)
Products and Systems:
Loss from operations (GAAP)                $           (281)         $     (160)   $           (653)         $   (1,936)

Reorganization and other costs                            -                   5                  27                   5
Loss before special items (non-GAAP)       $           (281)         $     (155)   $           (626)         $   (1,931)
Corporate and Eliminations:
Loss from operations (GAAP)                $         (7,737)         $   (7,631)   $        (24,632)         $  (24,453)
Loss on debt modification                                 -                                     278                 645
Legal settlement and litigation charges,
net                                                       -                   -                (620)                  -
Reorganization and other costs                            -                  14                   -                 137
Acquisition-related expense, net                          -                   -                  34                   -
Loss before special items (non-GAAP)       $         (7,737)         $   (7,617)   $        (24,940)         $  (23,671)
Total Company:
Income (loss) from operations (GAAP)       $          9,236          $    5,742    $         15,864          $ (105,869)

Impairment charges                                        -                   -                   -             106,062

Reorganization and other costs                           (2)                 98                 248                 580
Loss on debt modification                                 -                   -                 278                 645
Legal settlement and litigation charges,
net                                                       -                (360)              1,030                (360)
Acquisition-related expense, net                        246                 709               1,068                 186

Earnings before special items (non-GAAP) $ 9,480 $ 6,189 $ 18,488 $ 1,244

See the Note on Non-GAAP Measures section in this report for an explanation of the use of non-GAAP measures.

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                      Mistras Group, Inc. and Subsidiaries
   Management's Discussion and Analysis of Financial Condition and Results of
                                   Operations
                       (tabular dollars are in thousands)

Three Months

For the three months ended September 30, 2021, the income (loss) from operations
(GAAP) increased $3.5 million, compared with the three months ended September
30, 2020, while income before special items (non-GAAP) increased $3.3 million.
As a percentage of revenue, income before special items increased by 120 basis
points to 5.4% in the three months ended September 30, 2021 from 4.2% in the
three months ended September 30, 2020.

Nine months

For the nine months ended September 30, 2021, income (loss) from operations
(GAAP) increased $121.7 million, compared with the nine months ended September
30, 2020, while income (loss) before special items (non-GAAP) increased $17.2
million. As a percentage of revenue, income (loss) before special items
increased by 340 basis points to 3.7% in the nine months ended September 30,
2021 from 0.3% in the nine months ended September 30, 2020. During the nine
months ended September 30, 2021, the Company experienced overall organic growth.
Specifically, the Company has been recovering from the effect of COVID-19 which
was more impactful to our financial results in 2020. During the nine months
ended September 30, 2020, the COVID-19 initial outbreak and significant drop in
oil prices had adversely affected our workforce and operations, as well as the
operations of our customers, suppliers and contractors. Refer to Item 1A. Risk
Factors in Part I of our 2020 Form 10-K, and the additional risk factors
included in Part II, Item 1.A. of this Form 10-Q for further discussion.

Interest charges

Interest expense was approximately $2.3 million and $3.6 million for the three
months ended September 30, 2021 and 2020, respectively. Interest expense was
approximately $8.7 million and $9.4 million for the nine months ended September
30, 2021 and 2020, respectively. The decrease was a result of a change in the
effective interest rate, due to a lower leverage ratio and the elimination of
the minimum LIBOR floor.

An amendment in May 2021 to our Credit Agreement removed the LIBOR floor of
1.0%, which provided that if LIBOR is below 1.0%, the interest rate will be
calculated as if LIBOR is 1.0%. Now the actual LIBOR rate is used to calculate
interest, even if LIBOR is below 1.0%. This will reduce our interest rate, when
LIBOR is below 1.0%.

The terms of our Credit Agreement are described in Note 11- Long-Term Debt of
the Notes to the Unaudited Condensed Consolidated Financial Statements, under
the heading "Senior Credit Facility".

Income taxes

Our effective income tax rate was approximately 50.8% and 25.9% for the three
months ended September 30, 2021 and 2020, respectively. Our effective income tax
rate was approximately 44.4% and 13.6% for the nine months ended September 30,
2021 and 2020.

The Company's effective income tax rate for the three months ended September 30,
2021 was higher than the statutory rate primarily due to a $1.2 million
valuation allowance recorded during the period which was related to various
state deferred tax assets and earnings in jurisdictions with higher income tax
rates than the United States. The effective income tax rate for the three months
ended September 30, 2020 approximated the statutory rate, as the favorable
impact of the CARES Act was offset by the unfavorable impact of taxes in other
jurisdictions and other permanent book to tax differences.

The income tax rate for the nine months ended September 30, 2021 was higher than
the statutory rate due to a $1.2 million valuation allowance recorded during the
year related to various state deferred tax assets offset by the capitalization
of certain non-US intercompany balances which resulted in a deductible foreign
exchange loss in the US. The effective income tax rate for the nine months ended
September 30, 2020 was lower than the statutory rate primarily due to
impairments for which we did not realize income tax benefits, partially offset
by income tax benefits of the CARES Act.

On December 27, 2020, the United States enacted the Consolidated Appropriations
Act, 2021, (the "Appropriations Act") an additional stimulus package providing
financial relief for individuals and small business. The Appropriations Act
contains a variety of tax provisions, including full expensing of business meals
in 2021 and 2022, and expansion of the employee retention tax credit. We are
currently evaluating the impact of this guidance on our consolidated financial
position, results of operations, and cash flows, but does not expect it to have
a material impact.

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Contents

                      Mistras Group, Inc. and Subsidiaries

Management report and analysis of the financial position and results of

                                   Operations
                       (tabular dollars are in thousands)

The income tax charge varies depending on the pre-tax income and the level of non-deductible expenses, such as certain amounts of meal and entertainment expenses, provisions for depreciation and other permanent differences. It is also affected by discrete elements that may occur in a given year but are not consistent from year to year. Our effective tax rate may fluctuate over the next several years due to many variables, including the amount and future geographic distribution of our pre-tax income, changes resulting from our acquisition strategy and increases or decreases in our differences. permanent.

Liquidity and capital resources

The cash flows are summarized in the table below:

                                                  Nine months ended September 30,
                                                        2021                      2020

Net cash provided by (used in):
Operating activities                      $         22,469                     $ 41,791
Investing activities                               (15,494)                     (10,558)
Financing activities                                (8,866)                     (25,077)
Effect of exchange rate changes on cash             (1,272)                 

944

Net change in cash and cash equivalents   $         (3,163)                 

$ 7,100

Cash flow from operating activities

During the nine months ended September 30, 2021, cash provided by operating
activities was $22.5 million, representing a year-on-year decrease of $19.3
million, or 46%. The decrease was primarily attributable to increased usage of
working capital. Additionally, revenue increased 17.2% versus the prior year
comparable period due to organic growth. Specifically, the Company has been
recovering from the effect of COVID-19 which was more impactful to our financial
results in 2020. As we are increasing our work compared to the comparable prior
period, our cash flows are lower in the current period as collections of
receivables lag behind revenues.

Cash flow from investing activities

During the nine months ended September 30, 2021, cash used in investing
activities was $15.5 million primarily attributable to capital expenditures of
$16.0 million compared to $11.0 million of capital expenditures in the prior
period driven by increased operating activities.

Cash flow from financing activities

Net cash used in financing activities was $8.9 million for the nine months ended
September 30, 2021, compared to net cash used in financing activities of $25.1
million for the nine months ended September 30, 2020. During the nine months
ended September 30, 2021, net borrowings of debt were approximately $15.5
million lower as compared to 2020 resulting in less debt paydown during the
period as cash flows were used to support operating activities.

Effect of exchange rate changes on cash and cash equivalents

The effect of exchange rate changes on our cash and cash equivalents was a decrease of $ 1.3 million in the nine months ended September 30, 2021, compared to an increase in $ 0.9 million for the nine months ended September 30, 2020.

Cash balance and credit facility borrowings

As of September 30, 2021, we had cash and cash equivalents totaling $22.6
million and $22.2 million of unused commitments under our Credit Agreement with
borrowings of $209.2 million and $4.3 million of letters of credit outstanding.
We finance 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.

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Contents

                      Mistras Group, Inc. and Subsidiaries

Management report and analysis of the financial position and results of

                                   Operations
                       (tabular dollars are in thousands)

From September 30, 2021, we were in compliance with the terms of the credit agreement and will continuously monitor our compliance with the covenants contained in the credit agreement.

The May 2021 Amendment to our Credit Agreement also reduced the borrowing
capacity on our revolving loan line of credit $155 million on September 30, 2021
which will be further reduced to $150 million on December 31, 2021.
Additionally, quarterly payments on the term loan increased to $3.75 million
through March 31, 2022, and to $5.0 million for each quarterly payment
thereafter, with a final balloon payment at maturity.

The terms of our credit agreement (as amended) are described in Note 11 – Long-term debt of the notes to the unaudited condensed consolidated financial statements, under the heading “Senior credit facility”.

Contractual obligations

There have been no material changes in our contractual obligations and in the outstanding debt, as reported in the 2020 Annual Report.

Off-balance sheet provisions

During the nine months ended September 30, 2021, we did not have any
relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special purpose entities,
which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes.

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  Table of Contents
Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and
estimates from the information provided in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included in the 2020
Annual Report.

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