Don't Take Your Eyes Off Mistras
Mistras Group (NYS: MG) , which provides technology-enabled non-destructive testing solutions, recently reported better-than-expected results for the first quarter with profits surging a whopping 103%. Let's take a closer look at the impressive numbers.
Rise and fall
Revenue increased by 34% to $91.4 million due to increased demand for inspection services along with an increase in "run and maintain" or "evergreen" contracts. Advanced non-destructive testing services, which have higher margins than traditional NDT services, also increased noticeably over the last year. NDT services are basically analysis techniques to evaluate the properties of a material, component, or system cost-effectively and without causing damage. Increased growth of 40% from targets other than oil and gas also added to the revenue.
Oil and gas contributed 56% to the top line, down from 61% in the same period previous year. Gross profits decreased because of lower margins associated with the energy sector caused by longer contracts and a high concentration of traditional NDT services. When it came to new contracts, the company was not able to command prices, which may lead to lower margins in the short term. However, Mistras put a sizable effort in improving gross profits by focusing on utilization rates of its service technicians, controlling other costs of revenues, and introducing more advanced NDT tools to its services segment.
The net effect on the bottom line was a whopping 103% increase to $3.2 million, primarily due to an increase in revenue. The growth could have been higher but was stymied by higher selling, general, and administrative expenses. These were borne from infrastructure- and acquisitions-related costs.
Is it just Mistras or is it an industry trend?
Although the three-digit growth was not felt across the board, peers didn't do badly either. Team (NAS: TISI) put up a good show in its last quarter with a 78% increase in net income. Furmanite (NYS: FRM) also experienced a 98% increase in the bottom line. This shows that the industry is going through a strong positive trend.
And this is a big advantage for Mistras as it is well-positioned as a "one source asset protection solution" provider for its customers. In other words, it is like a one-stop shop. This should assist the company in further enhancing its top line.
Mistras, which earns a major chunk of revenues from the oil and gas industry, has many midstream and upstream companies as its clients. This particular sector is poised for huge growth given the high natural gas reserves around the world and the demand associated with it. The impending expansion should also increase opportunities for Mistras' services.
Mistras Group has shown a strong uptrend through its top-line growth. The company's positioning as a one-stop shop within the target market has the potential to maintain the growth momentum. Given that it can market its services well, I believe it is worth keeping an eye on.
Abantika Chatterjee does not own shares of the companies mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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