MEG Montrose Environmental Group Inc

Second Quarter 2024 Highlights (comparisons to second quarter 2023)

• Highest-ever total revenue of $173.3 million, an increase of $14.2 million, or 8.9%
• Margin expansion in all three segments
• Net loss of $10.2 million, or $0.39 net loss per diluted share attributable to common stockholders (LPS), and Adjusted Net Income1 of $10.8 million, or $0.20 Diluted Adjusted Net Income per share1 (Adj EPS)
• Record Consolidated Adjusted EBITDA1 of $23.3 million, an increase of $2.1 million, or 10.0%
• Reaffirms full-year 2024 guidance for total revenue of $690 million to $740 million, and Consolidated Adjusted EBITDA1 of $95 million to $100 million

First Half 2024 Highlights (comparisons to first half 2023)

• Record total revenue of $328.7 million, an increase of $38.1 million, or 13.1%
• Net loss of $23.5 million, or $0.91 LPS, and Adjusted Net Income1 of $19.3 million, or $0.37 Adj EPS1
• Record Consolidated Adjusted EBITDA1 of $40.2 million, an increase of $2.4 million, or 6.5%

Strategic Capital Allocation Highlights

• Raised net proceeds of $121.8 million in a common stock offering in April
• Invested $27.0 million, since stock offering, on two strategic and accretive acquisitions, while maintaining a robust merger and acquisition pipeline
• Repurchased $60.0 million of Series A-2 stock in January, reducing associated future cash dividends by $5.4 million annually
• Received two patents during the second quarter 2024, bringing total patent portfolio to 19
• Reported significant liquidity2 of $188.3 million, with 2.4x leverage as of June 30, 2024

Montrose Environmental Group, Inc. (the “Company,” “Montrose” or “MEG”) (NYSE: MEG) today announced results for the second quarter and first half periods ended June 30, 2024.

Montrose Chief Executive Officer and Director, Vijay Manthripragada, commented, “We’re thrilled to build on our strong first quarter performance with another period of exceptional results. Broad-based strength across our business lines drove year-over-year growth in our key operating metrics. This resulted in record quarterly revenues and record Consolidated Adjusted EBITDA1, and year-over-year margin improvement across all three segments. We're especially pleased with our continued organic growth this quarter, fueled by the growing traction of our cross-selling initiatives. This strong organic growth, five highly accretive acquisitions completed so far this year, and ongoing secular tailwinds reinforce our confidence in our outlook.”

Mr. Manthripragada continued, “We do not anticipate the recent United States (US) Supreme Court decision in Loper Bright Enterprises v. Raimondo or the outcome of the upcoming US presidential election to alter our growth or outlook. As we demonstrated with our strong performance during the prior Obama and Trump administrations, and our strong performance during the current Biden administration, our perspective remains upbeat regardless of the US election outcome. The impact of US federal policy swings has historically been muted for Montrose given the significant influence of state and local environmental regulations, stakeholder pressure, and our limited exposure to any one end market. Our business mix may shift, but our aggregate outlook and growth algorithms remain unchanged. We expect further regulatory complexity for our US clients and anticipate a shift of influence to state regulatory agencies, which are expected to drive incremental demand across our portfolio of services. It is also important to note that approximately 20% of our revenue is generated in Canada, Australia, and Europe, which continue to see independent, attractive, and secular tailwinds. Demand for our business is strong, and we are seeing increased customer activity across our service lines that we expect to continue. With our flexibility in capital allocation and our ability to adjust investments in innovation based on client relationships, Montrose is well positioned for continued success in delivering value to both our customers and shareholders in this dynamic environmental landscape."

______________________

(1)

Consolidated Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share are non-GAAP measures. See the appendix to this release for a discussion of these measures, including how they are calculated and the reasons why we believe they provide useful information to investors, and a reconciliation for historical periods to the most directly comparable GAAP measures.

(2)

Liquidity of $188.3 million included $16.9 million of cash and $171.4 million of availability on the Company’s revolving credit facility.

Second Quarter 2024 Results

Total revenue in the second quarter of 2024 was $173.3 million compared to $159.1 million in the prior year quarter, an increase of 8.9%. The increase in revenues was primarily due to strong organic revenue growth in our Assessment, Permitting and Response and Measurement and Analysis segments, and the contributions of acquisitions, partially offset by lower environmental emergency response and water treatment revenues, and the shift away from lower margin revenue in our renewable services business.

Net loss was $10.2 million, or $0.39 of LPS, in the second quarter of 2024, compared to a net loss of $7.2 million, or $0.38 LPS, in the prior year quarter. The year-over-year change in net loss was primarily attributable to higher interest and income tax expenses in the current year quarter, partially offset by improved loss from operations. The year-over-year decline in LPS was due to a net loss increase, partially offset by lower dividends on our Series A-2 preferred stock and a higher weighted average outstanding share count.

Adjusted Net Income1 was $10.8 million, and Adj EPS1 was $0.20, in the second quarter of 2024 compared to Adjusted Net Income1 of $14.8 million, and Adj EPS1 of $0.29 in the prior year quarter. Both Adjusted Net Income1 and Adj EPS1 were lower than the prior year primarily the result of higher interest and income tax expenses, partially offset by improved loss from operations. Adj EPS1 was also impacted by a higher weighted average outstanding share count in the current period and lower dividends on our Series A-2 preferred stock.

Second quarter 2024 Consolidated Adjusted EBITDA1 was $23.3 million, or 13.5% of revenues, compared to $21.2 million, or 13.3% of revenues, in the prior year quarter. The increase in Consolidated Adjusted EBITDA1 was due to higher revenues driven by organic growth and acquisitions. Adjusted EBITDA margins increased in all three operating segments.

First Six Months 2024 Results

Total revenue in the first six months of 2024 increased 13.1% to $328.7 million compared to $290.5 million in the prior year period. The increase in revenues was primarily due to organic growth in our Assessment, Permitting and Response, and Measurement and Analysis segments, and the contributions of acquisitions, partially offset by lower environmental emergency response and water treatment revenues, and the shift away from lower margin revenue in our renewable services business.

Net loss was $23.5 million, or $0.91 LPS, in the first six months of 2024 compared to a net loss of $21.9 million, or $1.00 LPS, in the prior year period. The year-over-year increase in net loss was primarily attributable to higher interest and income tax expenses in the current year period, partially offset by an improved loss from operations. Improved LPS was a result of lower dividends on the Series A-2 preferred stock and a higher weighted average outstanding share count, partially offset by a higher net loss.

Adjusted Net Income1 was $19.3 million, and Adj EPS1 was $0.37, in the first six months of 2024 compared to Adjusted Net Income1 of $25.2 million, and Adj EPS1 of $0.47, in the prior year period. Both Adjusted Net Income1 and Adj EPS1 were lower than the prior year primarily as a result of higher interest and income tax expenses, partially offset by improved loss from operations. Adj EPS1 was also impacted by a higher weighted average outstanding share count in the year-to-date period and lower dividends on our Series A-2 preferred stock.

Consolidated Adjusted EBITDA1 for the first six months of 2024 was $40.2 million, or 12.2% of revenues, compared to $37.8 million, or 13.0% of revenues, in the prior year period. The increase in Consolidated Adjusted EBITDA1 was primarily due to higher revenues driven by organic growth and acquisitions. Consolidated Adjusted EBITDA1 as a percentage of revenues decreased primarily due to the first quarter 2024 impact of the Matrix acquisition.

Operating Cash Flow, Liquidity and Capital Resources

Cash used in operating activities for the first six months ended June 30, 2024, was $21.1 million compared to cash provided by operating activities of $24.5 million in the prior year period. Lower cash flow from operations was driven primarily by an increase in receivables, related to the integration of Matrix earlier this year and several large new projects. Cash flow from operating activities is expected to improve over the balance of the year, and operating cash flow in the back half of the current year is expected to be up significantly versus the second half of 2023.

In April 2024, Montrose completed a public offering of 3,450,000 shares of its common stock, raising approximately $121.8 million in proceeds, net of underwriting discounts and commissions. The proceeds from the offering have been and will be used for general corporate purposes and continued acceleration of strategic growth initiatives, including, but not limited to, acquisitions or business expansion, commercialization of intellectual property given expanded environmental regulations, research and development, software development, capital expenditures, working capital and the repayment of debt.

As of June 30, 2024, Montrose had $188.3 million of liquidity, including $16.9 million of cash and $171.4 million of availability on its revolving credit facility.

As of June 30, 2024, Montrose’s leverage ratio under its credit facility, which includes recently completed acquisitions and acquisition-related contingent earnout payments that may become payable in cash, was 2.4 times.

Recent Acquisitions

In April 2024, Montrose acquired Engineering & Technical Associates. (ETA), a leader in Process Safety Management. ETA is part of the Company’s Assessment, Permitting & Response segment.

In May 2024, Montrose acquired Paragon Soil & Environmental Consulting, Inc. (Paragon), a leading environmental consulting firm in Canada. Paragon is part of the Company’s Remediation & Reuse segment.

In July 2024, Montrose acquired Spirit Environmental, LLC. (Spirit), a leading provider of air permitting and compliance services. Spirit is part of the Company’s Assessment, Permitting & Response segment.

Full Year 2024 Outlook

The Company reaffirms its full year 2024 Revenue and Consolidated Adjusted EBITDA1 outlook. The Company expects Revenue to be in the range of $690 million to $740 million. Consolidated Adjusted EBITDA1 is expected to be in the range of $95 million to $100 million for the full year 2024. The midpoints of the ranges incorporate an expectation of low double digit organic revenue growth and continued year-on-year Consolidated Adjusted EBITDA1 margin expansion.

Our Revenue and Consolidated Adjusted EBITDA1 outlook does not include any benefit from future acquisitions.

Webcast and Conference Call

The Company will host a webcast and conference call on Wednesday, August 7, 2024, at 8:30 a.m. Eastern time to discuss second quarter financial results. The prepared remarks will be followed by a question-and-answer session. A live webcast of the conference call will be available in the Investors section of the Montrose website at www.montrose-env.com. The conference call will also be accessible by dialing 1-844-826-3035 (Domestic) and 1-412-317-5195 (International). For those who are unable to listen to the live broadcast, an audio replay of the conference call will be available on the Montrose website for 30 days.

About Montrose

Montrose is a leading environmental solutions company focused on supporting commercial and government organizations as they deal with the challenges of today and prepare for what's coming tomorrow. With ~3,400 employees across 100+ locations worldwide, Montrose combines deep local knowledge with an integrated approach to design, engineering, and operations, enabling Montrose to respond effectively and efficiently to the unique requirements of each project. From comprehensive air measurement and laboratory services to regulatory compliance, emergency response, permitting, engineering, and remediation, Montrose delivers innovative and practical solutions that keep its clients on top of their immediate needs – and well ahead of the strategic curve. For more information, visit www.montrose-env.com.

Forward‐Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may be identified by the use of words such as “intend,” “expect”, and “may”, and other similar expressions that predict or indicate future events or that are not statements of historical matters. Forward-looking statements are based on current information available at the time the statements are made and on management’s reasonable belief or expectations with respect to future events, and are subject to risks and uncertainties, many of which are beyond the Company’s control, that could cause actual performance or results to differ materially from the belief or expectations expressed in or suggested by the forward-looking statements. Additional factors or events that could cause actual results to differ may also emerge from time to time, and it is not possible for the Company to predict all of them. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update any forward-looking statement to reflect future events, developments or otherwise, except as may be required by applicable law. Investors are referred to the Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2023, for additional information regarding the risks and uncertainties that may cause actual results to differ materially from those expressed in any forward-looking statement.

 

MONTROSE ENVIRONMENTAL GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

(In thousands, except per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Revenues

 

$

173,325

 

 

$

159,101

 

 

$

328,650

 

 

$

290,529

 

Cost of revenues (exclusive of depreciation and amortization shown below)

 

 

104,086

 

 

 

98,196

 

 

 

200,643

 

 

 

179,829

 

Selling, general and administrative expense

 

 

59,239

 

 

 

55,247

 

 

 

116,313

 

 

 

104,860

 

Fair value changes in business acquisition contingencies

 

 

136

 

 

 

353

 

 

 

242

 

 

 

(45

)

Depreciation and amortization

 

 

12,515

 

 

 

11,398

 

 

 

24,168

 

 

 

21,953

 

Loss from operations

 

 

(2,651

)

 

 

(6,093

)

 

 

(12,716

)

 

 

(16,068

)

Other income (expense), net

 

 

(924

)

 

 

947

 

 

 

(417

)

 

 

(889

)

Interest expense, net

 

 

(3,976

)

 

 

(1,877

)

 

 

(7,282

)

 

 

(3,418

)

Total other income (expense), net

 

 

(4,900

)

 

 

(930

)

 

 

(7,699

)

 

 

(4,307

)

Loss before expense from income taxes

 

 

(7,551

)

 

 

(7,023

)

 

 

(20,415

)

 

 

(20,375

)

Income tax expense

 

 

2,619

 

 

 

151

 

 

 

3,112

 

 

 

1,518

 

Net loss

 

$

(10,170

)

 

$

(7,174

)

 

$

(23,527

)

 

$

(21,893

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity adjustment from foreign currency translation

 

 

35

 

 

 

(118

)

 

 

—

 

 

 

(106

)

Comprehensive loss

 

 

(10,135

)

 

 

(7,292

)

 

 

(23,527

)

 

 

(21,999

)

Convertible and redeemable series A-2 preferred stock dividend

 

 

(2,750

)

 

 

(4,100

)

 

 

(5,564

)

 

 

(8,200

)

Net loss attributable to common stockholders

 

 

(12,920

)

 

 

(11,274

)

 

 

(29,091

)

 

 

(30,093

)

Weighted average common shares outstanding— basic and diluted

 

 

33,318

 

 

 

30,047

 

 

 

31,850

 

 

 

29,952

 

Net loss per share attributable to common stockholders— basic and diluted

 

$

(0.39

)

 

$

(0.38

)

 

$

(0.91

)

 

$

(1.00

)

 

MONTROSE ENVIRONMENTAL GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(In thousands, except share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash, cash equivalents and restricted cash

 

$

16,905

 

 

$

23,240

 

Accounts receivable, net

 

 

135,669

 

 

 

112,360

 

Contract assets

 

 

73,224

 

 

 

51,629

 

Prepaid and other current assets

 

 

14,222

 

 

 

13,695

 

Total current assets

 

 

240,020

 

 

 

200,924

 

Non-current assets

 

 

 

 

 

 

Property and equipment, net

 

 

63,627

 

 

 

56,825

 

Operating lease right-of-use asset, net

 

 

38,898

 

 

 

32,260

 

Finance lease right-of-use asset, net

 

 

14,827

 

 

 

13,248

 

Goodwill

 

 

435,483

 

 

 

364,449

 

Other intangible assets, net

 

 

142,870

 

 

 

140,813

 

Other assets

 

 

8,191

 

 

 

8,267

 

Total assets

 

$

943,916

 

 

$

816,786

 

Liabilities, Convertible and Redeemable Series A-2 Preferred Stock and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

58,223

 

 

$

59,920

 

Accrued payroll and benefits

 

 

28,339

 

 

 

34,660

 

Business acquisitions contingent consideration, current

 

 

6,351

 

 

 

3,592

 

Current portion of operating lease liabilities

 

 

11,134

 

 

 

9,963

 

Current portion of finance lease liabilities

 

 

4,005

 

 

 

3,956

 

Current portion of long-term debt

 

 

23,667

 

 

 

14,196

 

Total current liabilities

 

 

131,719

 

 

 

126,287

 

Non-current liabilities

 

 

 

 

 

 

Business acquisitions contingent consideration, long-term

 

 

9,595

 

 

 

2,448

 

Other non-current liabilities

 

 

6,118

 

 

 

6,569

 

Deferred tax liabilities, net

 

 

8,238

 

 

 

6,064

 

Conversion option

 

 

19,570

 

 

 

19,017

 

Operating lease liability, net of current portion

 

 

30,003

 

 

 

25,048

 

Finance lease liability, net of current portion

 

 

8,223

 

 

 

8,185

 

Long-term debt, net of deferred financing fees

 

 

188,749

 

 

 

148,988

 

Total liabilities

 

$

402,215

 

 

$

342,606

 

Commitments and contingencies

 

 

 

 

 

 

Convertible and redeemable series A-2 preferred stock $0.0001 par value

 

 

 

 

 

 

Authorized, issued and outstanding shares: 11,667 and 17,500 at June 30, 2024 and December 31, 2023, respectively; aggregate liquidation preference of $122.2 million and $182.2 million at June 30, 2024 and December 31, 2023, respectively

 

 

92,928

 

 

 

152,928

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.000004 par value; authorized shares: 190,000,000 at June 30, 2024 and December 31, 2023; issued and outstanding shares: 34,168,713 and 30,190,231 at June 30, 2024 and December 31, 2023, respectively

 

 

—

 

 

 

—

 

Additional paid-in-capital

 

 

682,879

 

 

 

531,831

 

Accumulated deficit

 

 

(233,883

)

 

 

(210,356

)

Accumulated other comprehensive (loss) income

 

 

(223

)

 

 

(223

)

Total stockholders’ equity

 

 

448,773

 

 

 

321,252

 

Total liabilities, convertible and redeemable series A-2 preferred stock and stockholders’ equity

 

$

943,916

 

 

$

816,786

 

 

MONTROSE ENVIRONMENTAL GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

For the Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(23,527

)

 

$

(21,893

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

24,168

 

 

 

21,953

 

Amortization of right-of-use asset

 

 

5,429

 

 

 

5,041

 

Stock-based compensation expense

 

 

23,103

 

 

 

24,125

 

Other operating activities, net

 

 

4,121

 

 

 

5,439

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

—

 

Accounts receivable and contract assets

 

 

(38,021

)

 

 

2,078

 

Accounts payable and other accrued liabilities

 

 

(938

)

 

 

(5,553

)

Accrued payroll and benefits

 

 

(7,940

)

 

 

411

 

Payment of contingent consideration

 

 

—

 

 

 

(611

)

Change in operating leases

 

 

(6,306

)

 

 

(4,805

)

Other assets

 

 

(1,216

)

 

 

(1,673

)

Net cash (used in) provided by operating activities

 

 

(21,127

)

 

 

24,512

 

Investing activities:

 

 

 

 

 

 

Proceeds from corporate owned and property insurance

 

 

120

 

 

 

86

 

Purchases of property and equipment

 

 

(17,928

)

 

 

(20,951

)

Proceeds from the sale of property and equipment

 

 

2,070

 

 

 

—

 

Proprietary software development and other software costs

 

 

(1,736

)

 

 

(2,041

)

Purchase price true ups

 

 

—

 

 

 

(1,027

)

Minority investments

 

 

(210

)

 

 

—

 

Cash paid for acquisitions, net of cash acquired

 

 

(70,252

)

 

 

(63,050

)

Net cash used in investing activities

 

 

(87,937

)

 

 

(86,983

)

Financing activities:

 

 

 

 

 

 

Proceeds from line of credit

 

 

202,771

 

 

 

—

 

Repayment of the line of credit

 

 

(199,119

)

 

 

—

 

Proceeds from the aircraft loan

 

 

—

 

 

 

10,935

 

Repayment of aircraft loan

 

 

(526

)

 

 

—

 

Proceeds from term loan

 

 

50,000

 

 

 

—

 

Repayment of term loan

 

 

(3,906

)

 

 

(6,597

)

Payment of contingent consideration and other purchase price true ups

 

 

(525

)

 

 

(1,194

)

Repayment of finance leases

 

 

(3,103

)

 

 

(2,198

)

Payments of deferred financing costs

 

 

(348

)

 

 

—

 

Proceeds from issuance of common stock for exercised stock options

 

 

1,375

 

 

 

3,295

 

Proceeds from issuance of common stock in follow-on offering

 

 

121,776

 

 

 

—

 

Dividend payment to the series A-2 stockholders

 

 

(5,564

)

 

 

(8,200

)

Repayment to the series A-2 stockholders

 

 

(60,000

)

 

 

—

 

Net cash provided by (used in) financing activities

 

 

102,829

 

 

 

(3,959

)

Change in cash, cash equivalents and restricted cash

 

 

(6,234

)

 

 

(66,430

)

Foreign exchange impact on cash balance

 

 

(100

)

 

 

(91

)

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Beginning of year

 

 

23,240

 

 

 

89,828

 

End of period

 

$

16,905

 

 

$

23,307

 

Supplemental disclosures of cash flows information:

 

 

 

 

 

 

Cash paid for interest

 

$

6,858

 

 

$

2,937

 

Cash paid for income tax

 

$

699

 

 

$

1,261

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

Accrued purchases of property and equipment

 

$

1,217

 

 

$

2,304

 

Property and equipment purchased under finance leases

 

$

2,666

 

 

$

3,326

 

Common stock issued to acquire new businesses

 

$

9,271

 

 

$

2,598

 

Acquisitions unpaid contingent consideration

 

$

15,946

 

 

$

6,430

 

Acquisitions contingent consideration paid in common stock

 

$

1,087

 

 

$

—

 

 

MONTROSE ENVIRONMENTAL GROUP, INC.

SEGMENT REVENUES AND ADJUSTED EBITDA

(In thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

2024

 

 

2023

 

 

 

 

Segment Revenues

 

 

Segment Adjusted EBITDA(1)

 

 

Segment Revenues

 

 

Segment Adjusted EBITDA(1)

 

 

Assessment, Permitting and Response

 

$

53,444

 

 

$

12,621

 

 

$

61,411

 

 

$

13,833

 

 

Measurement and Analysis

 

 

54,812

 

 

 

12,359

 

 

 

50,055

 

(2)

 

10,789

 

 

Remediation and Reuse

 

 

65,069

 

 

 

8,929

 

 

 

47,635

 

 

 

6,043

 

 

Total Operating Segments

 

$

173,325

 

 

$

33,909

 

 

$

159,101

 

 

$

30,665

 

 

Corporate and Other

 

 

—

 

 

 

(10,593

)

 

 

—

 

 

 

(9,474

)

 

Total

 

$

173,325

 

 

$

23,316

 

 

$

159,101

 

 

$

21,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

2024

2023

 

 

 

 

Segment Revenues

 

 

Segment Adjusted EBITDA(1)

 

 

Segment Revenues

 

 

Segment Adjusted EBITDA(1)

 

 

Assessment, Permitting and Response

 

$

112,024

 

 

$

28,901

 

 

$

113,625

 

 

$

28,099

 

 

Measurement and Analysis

 

 

100,306

 

 

 

18,863

 

 

 

92,582

 

(2)

 

17,176

 

 

Remediation and Reuse

 

 

116,319

 

 

 

13,940

 

 

 

84,322

 

 

 

11,321

 

 

Total Operating Segments

 

$

328,650

 

 

$

61,705

 

 

$

290,529

 

 

$

56,596

 

 

Corporate and Other

 

 

—

 

 

 

(21,466

)

 

 

—

 

 

 

(18,802

)

 

Total

 

$

328,650

 

 

$

40,239

 

 

$

290,529

 

 

$

37,794

 

 

______________________

(1)

For purposes of evaluating segment profit, the Company’s chief operating decision maker reviews Segment Adjusted EBITDA as a basis for making the decisions to allocate resources and assess performance.

(2)

Includes revenue of $2.4 million and $3.9 million from the Discontinued Specialty Lab for the three and six months ended June 30, 2023, respectively.

Non-GAAP Financial Information

In addition to our results under GAAP, in this release we also present certain other supplemental financial measures of financial performance that are not required by, or presented in accordance with, GAAP, including, Consolidated Adjusted EBITDA, Adjusted Net Income and Basic and Diluted Adjusted Net Income per Share. We calculate Consolidated Adjusted EBITDA as net income (loss) before interest expense, income tax expense (benefit) and depreciation and amortization, adjusted for the impact of certain other items, including stock-based compensation expense and acquisition-related costs, as set forth in greater detail in the table below. We calculate Adjusted Net Income as net income (loss) before amortization of intangible assets, stock-based compensation expense, fair value changes to financial instruments and contingent earnouts, discontinued specialty lab, and other gain or losses, as set forth in greater detail in the table below. Basic and Diluted Adjusted Net Income per Share represents Adjusted Net Income attributable to stockholders divided by the fully diluted number of shares of common stock outstanding during the applicable period.

Consolidated Adjusted EBITDA is one of the primary metrics used by management to evaluate our financial performance and compare it to that of our peers, evaluate the effectiveness of our business strategies, make budgeting and capital allocation decisions and in connection with our executive incentive compensation. Adjusted Net Income and Basic and Diluted Adjusted Net Income per Share are useful metrics to evaluate ongoing business performance after interest and tax. These measures are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Further, we believe they are helpful in highlighting trends in our operating results because they allow for more consistent comparisons of financial performance between periods by excluding gains and losses that are non-operational in nature or outside the control of management, and, in the case of Consolidated Adjusted EBITDA, by excluding items that may differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments.

These non-GAAP measures do, however, have certain limitations and should not be considered as an alternative to net income (loss), earnings (loss) per share or any other performance measure derived in accordance with GAAP. Our presentation of Consolidated Adjusted EBITDA, Adjusted Net Income and Basic and Diluted Adjusted Net Income per Share should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items for which we may make adjustments. In addition, Consolidated Adjusted EBITDA, Adjusted Net Income and Basic and Diluted Adjusted Net Income per Share may not be comparable to similarly titled measures used by other companies in our industry or across different industries, and other companies may not present these or similar measures. Management compensates for these limitations by using these measures as supplemental financial metrics and in conjunction with our results prepared in accordance with GAAP. We encourage investors and others to review our financial information in its entirety, not to rely on any single measure and to view Consolidated Adjusted EBITDA, Adjusted Net Income and Basic and Diluted Adjusted Net Income per Share in conjunction with the related GAAP measures.

Additionally, we have provided estimates regarding Consolidated Adjusted EBITDA for 2024. These projections account for estimates of revenue, operating margins and corporate and other costs. However, we cannot reconcile our projection of Consolidated Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, without unreasonable efforts because of the unpredictable or unknown nature of certain significant items excluded from Consolidated Adjusted EBITDA and the resulting difficulty in quantifying the amounts thereof that are necessary to estimate net income (loss). Specifically, we are unable to estimate for the future impact of certain items, including income tax (expense) benefit, stock-based compensation expense, fair value changes and the accounting for the issuance of the Series A-2 preferred stock. We expect the variability of these items could have a significant impact on our reported GAAP financial results.

In this release we also reference our organic growth. We define organic growth as the change in revenues excluding revenues from i) our environmental emergency response business, ii) acquisitions for the first twelve months following the date of acquisition, and iii) businesses held for sale, disposed of or discontinued. Management uses organic growth as one of the means by which it assesses our results of operations. Organic growth is not, however, a measure of revenue growth calculated in accordance with U.S. generally accepted accounting principles, or GAAP, and should be considered in conjunction with revenue growth calculated in accordance with GAAP. We have grown organically over the long term and expect to continue to do so.

 

Montrose Environmental Group, Inc.

Reconciliation of Net Loss to Adjusted Net Income

(In thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net loss

 

$

(10,170

)

 

$

(7,174

)

 

$

(23,527

)

 

$

(21,893

)

Amortization of intangible assets (1)

 

 

7,137

 

 

 

7,350

 

 

 

14,566

 

 

 

14,590

 

Stock-based compensation (2)

 

 

11,831

 

 

 

11,090

 

 

 

23,103

 

 

 

24,125

 

Acquisition costs (3)

 

 

1,082

 

 

 

2,696

 

 

 

3,607

 

 

 

3,471

 

Fair value changes in financial instruments (4)

 

 

1,202

 

 

 

(865

)

 

 

905

 

 

 

1,008

 

Expenses related to financing transactions (5)

 

 

95

 

 

 

353

 

 

 

239

 

 

 

(45

)

Fair value changes in business acquisition contingencies (6)

 

 

136

 

 

 

—

 

 

 

242

 

 

 

4

 

Discontinued Specialty Lab (7)

 

 

—

 

 

 

1,583

 

 

 

596

 

 

 

4,019

 

Other (gains) losses and expenses (8)

 

 

30

 

 

 

82

 

 

 

512

 

 

 

216

 

Tax effect of adjustments (9)

 

 

(543

)

 

 

(301

)

 

 

(922

)

 

 

(301

)

Adjusted Net Income

 

$

10,800

 

 

$

14,814

 

 

$

19,321

 

 

$

25,194

 

Preferred dividends Series A-2

 

 

(2,750

)

 

 

(4,100

)

 

 

(5,564

)

 

 

(8,200

)

Adjusted Net Income attributable to stockholders

 

$

8,050

 

 

$

10,714

 

 

$

13,757

 

 

$

16,994

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss per share attributable to stockholders

 

$

(0.39

)

 

$

(0.38

)

 

$

(0.91

)

 

$

(1.00

)

Basic Adjusted Net Income per share (10)

 

$

0.24

 

 

$

0.36

 

 

$

0.43

 

 

$

0.57

 

Diluted Adjusted Net Income per share (11)

 

$

0.20

 

 

$

0.29

 

 

$

0.37

 

 

$

0.47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

33,318

 

 

 

30,047

 

 

 

31,850

 

 

 

29,952

 

Fully diluted shares

 

 

39,576

 

 

 

37,079

 

 

 

37,631

 

 

 

36,485

 

_____________

(1)

Represents amortization of intangible assets.

(2)

Represents non-cash stock-based compensation expenses related to (i) option awards issued to employees, (ii) restricted stock grants issued to directors and selected employees, (iii) and stock appreciation rights grants issued to selected employees.

(3)

Includes financial and tax diligence, consulting, legal, valuation, accounting and travel costs and acquisition-related incentives related to our acquisition activity.

(4)

Amounts relate to the change in fair value of the interest rate swap instruments and the embedded derivative attached to the Series A-2 preferred stock.

(5)

Amounts represent non-capitalizable expenses associated with refinancing and amending our debt facilities.

(6)

Amounts reflect the difference between the expected settlement value of acquisition related earn-out payments at the time of the closing of acquisitions and the expected (or actual) value of earn-outs at the end of the relevant period.

(7)

Amounts consist of operating losses before depreciation related to the Discontinued Specialty Lab.

(8)

Amount in 2024 consists of costs associated with a lease abandonment. Amount in 2023 consists of costs associated with an aviation loss.

(9)

The Company applied the estimated effective tax rate on portions of the adjustments related to our significant foreign entities, and determined the US portion of the adjustments do not have any tax impact since we are in a full deferred tax asset valuation allowance as of June 30, 2024.

(10)

Represents Adjusted Net Income attributable to stockholders divided by the weighted average number of shares of common stock outstanding.

(11)

Represents Adjusted Net Income attributable to stockholders divided by fully diluted number of shares of common stock.

  Montrose Environmental Group, Inc.

Reconciliation of Net Loss to Consolidated Adjusted EBITDA

(In thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net loss

 

$

(10,170

)

 

$

(7,174

)

 

$

(23,527

)

 

$

(21,893

)

Interest expense

 

 

3,976

 

 

 

1,877

 

 

 

7,282

 

 

 

3,418

 

Income tax expense (benefit)

 

 

2,619

 

 

 

151

 

 

 

3,112

 

 

 

1,518

 

Depreciation and amortization

 

 

12,515

 

 

 

11,398

 

 

 

24,168

 

 

 

21,953

 

EBITDA

 

$

8,940

 

 

$

6,252

 

 

$

11,035

 

 

$

4,996

 

Stock-based compensation (1)

 

 

11,831

 

 

 

11,090

 

 

 

23,103

 

 

 

24,125

 

Acquisition costs (2)

 

 

1,082

 

 

 

2,696

 

 

 

3,607

 

 

 

3,471

 

Fair value changes in financial instruments (3)

 

 

1,202

 

 

 

(865

)

 

 

905

 

 

 

1,008

 

Expenses related to financing transactions (4)

 

 

95

 

 

 

—

 

 

 

239

 

 

 

4

 

Fair value changes in business acquisition contingencies (5)

 

 

136

 

 

 

353

 

 

 

242

 

 

 

(45

)

Discontinued Specialty Lab (6)

 

 

—

 

 

 

1,583

 

 

 

596

 

 

 

4,019

 

Other (gains) losses and expenses (7)

 

 

30

 

 

 

82

 

 

 

512

 

 

 

216

 

Consolidated Adjusted EBITDA

 

$

23,316

 

 

$

21,191

 

 

$

40,239

 

 

$

37,794

 

_____________ (1)

Represents non-cash stock-based compensation expenses related to (i) option awards issued to employees, (ii) restricted stock grants issued to directors and selected employees, (iii) and stock appreciation rights grants issued to selected employees.

(2)

Includes financial and tax diligence, consulting, legal, valuation, accounting and travel costs and acquisition-related incentives related to our acquisition activity.

(3)

Amounts relate to the change in fair value of the interest rate swap instruments and the embedded derivative attached to the Series A-2 preferred stock.

(4)

Amounts represent non-capitalizable expenses associated with refinancing and amending our debt facilities.

(5)

Reflects the difference between the expected settlement value of acquisition related earn-out payments at the time of the closing of acquisitions and the expected (or actual) value of earn-outs at the end of the relevant period.

(6)

Amounts consist of operating losses before depreciation related to the Discontinued Specialty Lab.

(7)

Amount in 2024 consists of costs associated with a lease abandonment. Amount in 2023 consist of costs associated with an aviation loss.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240806019065/en/

Investor Relations: Rodny Nacier (949) 988-3383 ir@montrose-env.com

Media Relations: Sarah Kaiser (225) 955-1702 pr@montrose-env.com