MEG - Montrose Environmental Group Announces Strong Third Quarter 2023 Results
- Revenue Increases 28.9% with Continued Margin Expansion -
- Net Loss of $(7.5) Million; Consolidated Adjusted EBITDA 1 Increases 36.2% to $23.3 Million -
- Significant Increase in Cash Flow from Operations -
Montrose Environmental Group, Inc. (the “Company,” “Montrose” or “MEG”) (NYSE: MEG) today announced results for the third quarter ended September 30, 2023.
Montrose Chief Executive Officer and Director, Vijay Manthripragada, commented, “We are proud to report another quarter of exceptional results. The surge in organic growth across many of our service lines and the contribution from the Matrix acquisition in Canada helped drive record levels of quarterly revenue and Consolidated Adjusted EBITDA 1 . We are particularly pleased with the continued improvement in our margin profile and robust operating cash flow generation, which validate the strategic portfolio shift in our Remediation and Reuse segment, our pricing strategy, and the ongoing integration of the Matrix team. Our recent acquisitions have been very additive and continue to provide scale, expertise and geographic reach.”
Mr. Manthripragada continued, “As we look to the full year 2023, we are reiterating Revenue and Consolidated Adjusted EBITDA 1 guidance. The regulatory landscape, with new and pending rules on methane leak detection and air emissions standards, continues to generate tailwinds. Additionally, the private sector’s commitment to environmental stewardship and resiliency, through initiatives such as net-zero commitments and environmental justice, is creating opportunities throughout our comprehensive service offerings. Our history has shown that our business is resilient across economic and political cycles and despite a very challenging macro-economic backdrop, our teams continue to deliver as we have shown all year. We remain very optimistic about our outlook and incredibly grateful to all of our colleagues around the world.”
| ________________________________ |
| (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. |
Third Quarter 2023 Results
Total revenue in the third quarter of 2023 was $167.9 million compared to $130.3 million in the prior year quarter, an increase of 28.9%. The increase in revenues was primarily due to the acquisition of Matrix, organic growth in the Assessment, Permitting and Response segment, organic growth in the Measurement and Analysis segment, and an increase in CTEH revenues, partially offset by lower revenues in a specialty lab that is being discontinued and our Remediation and Reuse segment driven by the timing of projects and a strategic shift in our biogas business to focus on higher margin services. Excluding revenue from the legacy O&M contracts, and the specialty lab being discontinued, of $2.0 million and $4.6 million, in the third quarters of 2023 and 2022, respectively, revenue in the third quarter of 2023 was $165.9 million compared to $125.7 million in the prior year quarter, an increase of 32.0% over the prior year period.
Net loss was $(7.5) million, or a loss of $(0.39) per share, in the third quarter of 2023 compared to a net loss of $(5.7) million, or a loss of $(0.33) per share, in the prior year quarter. The year-over-year increase was primarily attributable to an increase in the fair value adjustment on our Series A-2 preferred stock in the current year, compared to a fair value gain on our interest rate swap in the prior year, as well as a higher interest and tax expense in the current year, partially offset by improved operating performance.
Adjusted Net Income 1 was $9.4 million, and Adjusted Net Income per Share 1 was $0.18, in the third quarter of 2023 compared to Adjusted Net Income 1 of $7.8 million, and Adjusted Net Income per Share 1 of $0.12 in the prior year quarter. The year-over-year increase was primarily attributable to an increase in revenues.
Third quarter 2023 Consolidated Adjusted EBITDA 1 was $23.3 million, representing 13.9% of revenue, compared to $17.1 million or 13.1% of revenue in the prior year quarter, primarily due to higher revenues driven by organic growth and acquisitions.
First Nine Months 2023 Results
Total revenue in the first nine months of 2023 increased 13.2% to $458.5 million compared to $404.9 million in the prior year period. The increase in revenues was primarily due to organic growth in the Assessment, Permitting and Response, organic growth in the Measurement and Analysis segment, an increase in CTEH revenues, and the contributions of acquisitions completed since the beginning of 2022, partially offset primarily by lower revenues in a specialty lab that is being discontinued and our Remediation and Reuse segment driven by the timing of projects and a strategic shift in our biogas business to focus on higher margin services. Excluding revenue from the legacy O&M contracts, and the specialty lab being discontinued, of $5.9 million and $16.0 million, in the nine-month periods of 2023 and 2022, respectively, revenue in the first nine months of 2023 was $452.6 million compared to $388.9 million in the prior year, an increase of 16.4% over the prior year period.
Net loss was $(29.4) million, or $(1.39) per share, in the first nine months of 2023 compared to a net loss of $(21.0) million, or $(1.12) per share, in the prior year period. The year-over-year change was primarily attributable to changes in the fair value of business acquisition contingencies, the net impact of fair value adjustments related to our Series A-2 preferred stock conversion option and interest rate swaps in the current year compared to the prior year, as well as higher interest expense and higher stock-based compensation in the current year.
Adjusted Net Income 1 was $21.6 million, and Adjusted Net Income per Share 1 was $0.31, in the first nine months of 2023 compared to Adjusted Net Income 1 of $18.7 million, and Adjusted Net Income per Share 1 of $0.22, in the prior year period.
Consolidated Adjusted EBITDA 1 for the first nine months of 2023 was $61.1 million, representing 13.3% of revenue, compared to $48.4 million, or 12.0% of revenue, in the prior year period, an increase of 26.3%. The increase in Adjusted Net Income 1 , Adjusted Net Income per Share 1 , and Consolidated Adjusted EBITDA 1 was primarily due to higher revenues.
Operating Cash Flow, Liquidity and Capital Resources
Cash provided by operating activities for the first nine months ended September 30, 2023 was $41.5 million compared to cash provided by operating activities of $8.2 million in the prior year period, an increase of $33.3 million, or 407.9%. Cash flow from operations includes payment of contingent consideration of $0.6 million and $19.5 million in the current and prior year periods, respectively. Excluding these acquisition-related contingent earnout payments, which are not part of day-to-day operations, cash flow from operating activities was $42.1 million compared to $27.7 million in the prior year period, an increase of $14.4 million, or 52.0%.
As of September 30, 2023, we had total debt, before debt issuance costs, of $168.1 million and $148.2 million of liquidity, including $23.2 million of cash and $125.0 million of availability on our revolving credit facility. At our current leverage ratio and inclusive of our fixed rate on $170.0 million of debt under our interest rate swaps, our weighted average interest rate was 4.4% as of September 30, 2023.
As of September 30, 2023, 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 1.9 times.
Full Year 2023 Outlook
The Company reiterates its full year 2023 Revenue and Consolidated Adjusted EBITDA 1 outlook. The Company expects Revenue to be in the range of $590 million to $640 million. Consolidated Adjusted EBITDA 1 is expected to be in the range of $75 million to $81 million for the full year 2023.
The revenue and Consolidated Adjusted EBITDA 1 outlook does not include any benefit from future acquisitions that have not yet been completed.
Webcast and Conference Call
The Company will host a webcast and conference call on Wednesday, November 8, 2023 at 8:30 a.m. Eastern time to discuss third quarter financial results. Their 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 approximately 3,500 employees across more than 90+ locations around the world, 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, 2022, 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 |
|
|
|
|
| For the Nine Months |
|
|
|
|
|
|
| 2023 |
|
|
|
|
| 2022 |
|
|
|
|
| 2023 |
|
|
|
|
| 2022 |
|
|
| REVENUES |
|
|
| $ |
| 167,937 |
|
|
|
|
| $ |
| 130,312 |
|
|
|
|
| $ |
| 458,466 |
|
|
|
|
| $ |
| 404,902 |
|
|
| COST OF REVENUES (exclusive of |
|
|
|
|
| 102,155 |
|
|
|
|
|
|
| 82,234 |
|
|
|
|
|
|
| 281,984 |
|
|
|
|
|
|
| 261,049 |
|
|
| SELLING, GENERAL AND ADMINISTRATIVE |
|
|
|
|
| 56,901 |
|
|
|
|
|
|
| 42,857 |
|
|
|
|
|
|
| 161,761 |
|
|
|
|
|
|
| 131,120 |
|
|
| FAIR VALUE CHANGES IN BUSINESS |
|
|
|
|
| 459 |
|
|
|
|
|
|
| 59 |
|
|
|
|
|
|
| 414 |
|
|
|
|
|
|
| (3,472 |
| ) |
| DEPRECIATION AND AMORTIZATION |
|
|
|
|
| 11,863 |
|
|
|
|
|
|
| 11,504 |
|
|
|
|
|
|
| 33,816 |
|
|
|
|
|
|
| 35,928 |
|
|
| LOSS FROM OPERATIONS |
|
|
|
|
| (3,441 |
| ) |
|
|
|
|
| (6,342 |
| ) |
|
|
|
|
| (19,509 |
| ) |
|
|
|
|
| (19,723 |
| ) |
| OTHER (EXPENSE) INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other (expense) income —net |
|
|
|
|
| (671 |
| ) |
|
|
|
|
| 1,814 |
|
|
|
|
|
|
| (1,560 |
| ) |
|
|
|
|
| 4,618 |
|
|
| Interest expense—net |
|
|
|
|
| (2,089 |
| ) |
|
|
|
|
| (1,400 |
| ) |
|
|
|
|
| (5,507 |
| ) |
|
|
|
|
| (4,010 |
| ) |
| Total other (expense) income—net |
|
|
|
|
| (2,760 |
| ) |
|
|
|
|
| 414 |
|
|
|
|
|
|
| (7,067 |
| ) |
|
|
|
|
| 608 |
|
|
| LOSS BEFORE EXPENSE (BENEFIT) FROM |
|
|
|
|
| (6,201 |
| ) |
|
|
|
|
| (5,928 |
| ) |
|
|
|
|
| (26,576 |
| ) |
|
|
|
|
| (19,115 |
| ) |
| INCOME TAX EXPENSE (BENEFIT) |
|
|
|
|
| 1,324 |
|
|
|
|
|
|
| (208 |
| ) |
|
|
|
|
| 2,842 |
|
|
|
|
|
|
| 1,892 |
|
|
| NET LOSS |
|
|
| $ |
| (7,525 |
| ) |
|
|
| $ |
| (5,720 |
| ) |
|
|
| $ |
| (29,418 |
| ) |
|
|
| $ |
| (21,007 |
| ) |
| EQUITY ADJUSTMENT FROM FOREIGN |
|
|
|
|
| (198 |
| ) |
|
|
|
|
| 20 |
|
|
|
|
|
|
| (304 |
| ) |
|
|
|
|
| 17 |
|
|
| COMPREHENSIVE LOSS |
|
|
|
|
| (7,723 |
| ) |
|
|
|
|
| (5,700 |
| ) |
|
|
|
|
| (29,722 |
| ) |
|
|
|
|
| (20,990 |
| ) |
| CONVERTIBLE AND REDEEMABLE |
|
|
|
|
| (4,100 |
| ) |
|
|
|
|
| (4,100 |
| ) |
|
|
|
|
| (12,300 |
| ) |
|
|
|
|
| (12,300 |
| ) |
| NET LOSS ATTRIBUTABLE TO |
|
|
|
|
| (11,625 |
| ) |
|
|
|
|
| (9,820 |
| ) |
|
|
|
|
| (41,718 |
| ) |
|
|
|
|
| (33,307 |
| ) |
| WEIGHTED AVERAGE COMMON SHARES |
|
|
|
|
| 30,143 |
|
|
|
|
|
|
| 29,691 |
|
|
|
|
|
|
| 30,016 |
|
|
|
|
|
|
| 29,677 |
|
|
| NET LOSS PER SHARE ATTRIBUTABLE |
|
|
| $ |
| (0.39 |
| ) |
|
|
| $ |
| (0.33 |
| ) |
|
|
| $ |
| (1.39 |
| ) |
|
|
| $ |
| (1.12 |
| ) |
| MONTROSE ENVIRONMENTAL GROUP, INC. |
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
| (In thousands, except share data) |
|
|
|
|
| September 30, 2023 |
|
|
|
|
| December 31, 2022 |
|
|
| ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
| CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash, cash equivalents and restricted cash |
|
|
| $ |
| 23,184 |
|
|
|
|
| $ |
| 89,828 |
|
|
| Accounts receivable—net |
|
|
|
|
| 117,375 |
|
|
|
|
|
|
| 94,711 |
|
|
| Contract assets |
|
|
|
|
| 57,081 |
|
|
|
|
|
|
| 52,403 |
|
|
| Prepaid and other current assets |
|
|
|
|
| 15,419 |
|
|
|
|
|
|
| 10,986 |
|
|
| Total current assets |
|
|
|
|
| 213,059 |
|
|
|
|
|
|
| 247,928 |
|
|
| NON-CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
| Property and equipment—net |
|
|
|
|
| 57,967 |
|
|
|
|
|
|
| 36,045 |
|
|
| Operating lease right-of-use asset—net |
|
|
|
|
| 35,795 |
|
|
|
|
|
|
| 26,038 |
|
|
| Finance lease right-of-use asset—net |
|
|
|
|
| 12,635 |
|
|
|
|
|
|
| 9,840 |
|
|
| Goodwill |
|
|
|
|
| 356,399 |
|
|
|
|
|
|
| 323,868 |
|
|
| Other intangible assets—net |
|
|
|
|
| 151,577 |
|
|
|
|
|
|
| 142,107 |
|
|
| Other assets |
|
|
|
|
| 8,676 |
|
|
|
|
|
|
| 6,088 |
|
|
| TOTAL ASSETS |
|
|
| $ |
| 836,108 |
|
|
|
|
| $ |
| 791,914 |
|
|
| LIABILITIES, CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK AND |
|
|
|
|
|
|
|
|
|
|
|
|
| CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable and other accrued liabilities |
|
|
|
|
| 70,810 |
|
|
|
|
|
|
| 63,412 |
|
|
| Accrued payroll and benefits |
|
|
|
|
| 31,286 |
|
|
|
|
|
|
| 20,528 |
|
|
| Business acquisitions contingent consideration, current |
|
|
|
|
| 3,239 |
|
|
|
|
|
|
| 3,801 |
|
|
| Current portion of operating lease liabilities |
|
|
|
|
| 11,190 |
|
|
|
|
|
|
| 7,895 |
|
|
| Current portion of finance lease liabilities |
|
|
|
|
| 4,127 |
|
|
|
|
|
|
| 3,775 |
|
|
| Current portion of long-term debt |
|
|
|
|
| 14,177 |
|
|
|
|
|
|
| 12,031 |
|
|
| Total current liabilities |
|
|
|
|
| 134,829 |
|
|
|
|
|
|
| 111,442 |
|
|
| NON-CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| Business acquisitions contingent consideration, long-term |
|
|
|
|
| 3,130 |
|
|
|
|
|
|
| 4,454 |
|
|
| Other non-current liabilities |
|
|
|
|
| 91 |
|
|
|
|
|
|
| 13 |
|
|
| Deferred tax liabilities—net |
|
|
|
|
| 10,034 |
|
|
|
|
|
|
| 5,742 |
|
|
| Conversion option |
|
|
|
|
| 27,828 |
|
|
|
|
|
|
| 25,731 |
|
|
| Operating lease liability—net of current portion |
|
|
|
|
| 31,329 |
|
|
|
|
|
|
| 19,437 |
|
|
| Finance lease liability—net of current portion |
|
|
|
|
| 8,482 |
|
|
|
|
|
|
| 6,486 |
|
|
| Long-term debt—net of deferred financing fees |
|
|
|
|
| 152,556 |
|
|
|
|
|
|
| 152,494 |
|
|
| Total liabilities |
|
|
| $ |
| 368,279 |
|
|
|
|
| $ |
| 325,799 |
|
|
| COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
| CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK $0.0001 |
|
|
|
|
|
|
|
|
|
|
|
|
| Authorized, issued and outstanding shares: 17,500 at September 30, 2023 and |
|
|
|
|
| 152,928 |
|
|
|
|
|
|
| 152,928 |
|
|
| STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock, $0.000004 par value; authorized shares: 190,000,000 at |
|
|
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| Additional paid-in-capital |
|
|
|
|
| 524,112 |
|
|
|
|
|
|
| 492,676 |
|
|
| Accumulated deficit |
|
|
|
|
| (208,915 |
| ) |
|
|
|
|
| (179,497 |
| ) |
| Accumulated other comprehensive (loss) income |
|
|
|
|
| (296 |
| ) |
|
|
|
|
| 8 |
|
|
| Total stockholders’ equity |
|
|
|
|
| 314,901 |
|
|
|
|
|
|
| 313,187 |
|
|
| TOTAL LIABILITIES, CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK |
|
|
| $ |
| 836,108 |
|
|
|
|
| $ |
| 791,914 |
|
|
| MONTROSE ENVIRONMENTAL GROUP, INC. |
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (In thousands) |
|
|
|
|
| For the Nine Months |
|
|
|
|
|
|
| 2023 |
|
|
|
|
| 2022 |
|
|
| OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
| $ |
| (29,418 |
| ) |
|
|
| $ |
| (21,007 |
| ) |
| Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Provision (recovery) for bad debt |
|
|
|
|
| 788 |
|
|
|
|
|
|
| (821 |
| ) |
| Depreciation and amortization |
|
|
|
|
| 33,816 |
|
|
|
|
|
|
| 35,928 |
|
|
| Amortization of right-of-use asset |
|
|
|
|
| 7,667 |
|
|
|
|
|
|
| 6,934 |
|
|
| Stock-based compensation expense |
|
|
|
|
| 35,609 |
|
|
|
|
|
|
| 32,375 |
|
|
| Fair value changes in financial instruments |
|
|
|
|
| 1,814 |
|
|
|
|
|
|
| (4,664 |
| ) |
| Fair value changes in business acquisition contingencies |
|
|
|
|
| 414 |
|
|
|
|
|
|
| (3,472 |
| ) |
| Deferred income taxes |
|
|
|
|
| 2,842 |
|
|
|
|
|
|
| 1,892 |
|
|
| Other |
|
|
|
|
| 1,201 |
|
|
|
|
|
|
| 460 |
|
|
| Changes in operating assets and liabilities—net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts receivable and contract assets |
|
|
|
|
| (9,538 |
| ) |
|
|
|
|
| 7,301 |
|
|
| Prepaid expenses and other current assets |
|
|
|
|
| (907 |
| ) |
|
|
|
|
| (1,364 |
| ) |
| Accounts payable and other accrued liabilities |
|
|
|
|
| (772 |
| ) |
|
|
|
|
| (12,943 |
| ) |
| Accrued payroll and benefits |
|
|
|
|
| 6,092 |
|
|
|
|
|
|
| (6,363 |
| ) |
| Payment of contingent consideration |
|
|
|
|
| (611 |
| ) |
|
|
|
|
| (19,457 |
| ) |
| Change in operating leases |
|
|
|
|
| (7,525 |
| ) |
|
|
|
|
| (6,634 |
| ) |
| Net cash provided by operating activities |
|
|
|
|
| 41,472 |
|
|
|
|
|
|
| 8,165 |
|
|
| INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| Purchases of property and equipment |
|
|
|
|
| (24,969 |
| ) |
|
|
|
|
| (5,414 |
| ) |
| Proprietary software development and other software costs |
|
|
|
|
| (2,763 |
| ) |
|
|
|
|
| (397 |
| ) |
| Proceeds from insurance |
|
|
|
|
| 311 |
|
|
|
|
|
|
| 277 |
|
|
| Payment of purchase price obligations |
|
|
|
|
| (1,027 |
| ) |
|
|
|
|
| (439 |
| ) |
| Minority investments |
|
|
|
|
| (2,347 |
| ) |
|
|
|
|
| — |
|
|
| Cash paid for acquisitions—net of cash acquired |
|
|
|
|
| (66,187 |
| ) |
|
|
|
|
| (21,342 |
| ) |
| Net cash used in investing activities |
|
|
|
|
| (96,982 |
| ) |
|
|
|
|
| (27,315 |
| ) |
| FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| Proceeds from the aircraft loan |
|
|
|
|
| 10,935 |
|
|
|
|
|
|
| — |
|
|
| Repayment of aircraft loan |
|
|
|
|
| (335 |
| ) |
|
|
|
|
| — |
|
|
| Repayment of term loan |
|
|
|
|
| (8,785 |
| ) |
|
|
|
|
| (8,751 |
| ) |
| Payment of contingent consideration |
|
|
|
|
| (1,535 |
| ) |
|
|
|
|
| (10,722 |
| ) |
| Repayment of finance leases |
|
|
|
|
| (3,378 |
| ) |
|
|
|
|
| (2,906 |
| ) |
| Proceeds from issuance of common stock for exercised stock options |
|
|
|
|
| 4,529 |
|
|
|
|
|
|
| 812 |
|
|
| Dividend payment to the Series A-2 shareholders |
|
|
|
|
| (12,300 |
| ) |
|
|
|
|
| (12,300 |
| ) |
| Payments of deferred offering costs |
|
|
|
|
| — |
|
|
|
|
|
|
| (183 |
| ) |
| Net cash used in financing activities |
|
|
|
|
| (10,869 |
| ) |
|
|
|
|
| (34,050 |
| ) |
| CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
|
|
| (66,379 |
| ) |
|
|
|
|
| (53,200 |
| ) |
| Foreign exchange impact on cash balance |
|
|
|
|
| (265 |
| ) |
|
|
|
|
| 25 |
|
|
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH: |
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning of year |
|
|
|
|
| 89,828 |
|
|
|
|
|
|
| 146,741 |
|
|
| End of period |
|
|
| $ |
| 23,184 |
|
|
|
|
| $ |
| 93,566 |
|
|
| SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash paid for interest |
|
|
| $ |
| 4,838 |
|
|
|
|
| $ |
| 4,852 |
|
|
| Cash paid for income tax |
|
|
| $ |
| 1,374 |
|
|
|
|
| $ |
| 587 |
|
|
| SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| Accrued purchases of property and equipment |
|
|
| $ |
| 1,626 |
|
|
|
|
| $ |
| 881 |
|
|
| Property and equipment purchased under finance leases |
|
|
| $ |
| 5,728 |
|
|
|
|
| $ |
| 3,939 |
|
|
| Common stock issued to acquire new businesses |
|
|
| $ |
| 2,598 |
|
|
|
|
| $ |
| — |
|
|
| Acquisitions unpaid contingent consideration |
|
|
| $ |
| 6,369 |
|
|
|
|
| $ |
| 6,777 |
|
|
| Acquisitions contingent consideration paid in shares |
|
|
| $ |
| 1,000 |
|
|
|
|
| $ |
| — |
|
|
| MONTROSE ENVIRONMENTAL GROUP, INC. |
| SEGMENT REVENUES AND ADJUSTED EBITDA |
| (In thousands) |
| (Unaudited) |
|
|
|
|
| Three Months Ended September 30, |
|
|
|
|
|
|
|
|
| 2023 |
|
|
|
|
| 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Segment |
|
|
|
|
|
|
|
|
|
|
| Segment |
|
|
|
|
|
|
|
|
| Segment |
|
|
|
|
| Adjusted |
|
|
|
|
| Segment |
|
|
|
|
| Adjusted |
|
|
|
|
|
|
|
|
| Revenues |
|
|
|
|
| EBITDA (1) |
|
|
|
|
| Revenues |
|
|
|
|
| EBITDA (5) |
|
|
|
|
| Assessment, Permitting and Response |
|
|
| $ |
| 57,009 |
|
|
|
|
| $ |
| 14,878 |
|
|
|
|
| $ |
| 46,414 |
|
|
|
|
| $ |
| 9,820 |
|
|
|
|
| Measurement and Analysis |
|
|
|
|
| 50,468 |
|
|
| (2) |
|
|
| 10,352 |
|
|
|
|
|
|
| 43,754 |
|
|
| (2) |
|
|
| 8,483 |
|
|
| (4) |
| Remediation and Reuse |
|
|
|
|
| 60,460 |
|
|
|
|
|
|
| 7,446 |
|
|
|
|
|
|
| 40,144 |
|
|
|
|
|
|
| 7,010 |
|
|
|
|
| Total Operating Segments |
|
|
|
|
| 167,937 |
|
|
|
|
|
|
| 32,676 |
|
|
|
|
|
|
| 130,312 |
|
|
|
|
|
|
| 25,313 |
|
|
|
|
| Corporate and Other |
|
|
|
|
| — |
|
|
|
|
|
|
| (9,373 |
| ) |
|
|
|
|
| — |
|
|
|
|
|
|
| (6,940 |
| ) |
|
|
| Total |
|
|
| $ |
| 167,937 |
|
|
|
|
| $ |
| 23,303 |
|
|
|
|
| $ |
| 130,312 |
|
|
|
|
| $ |
| 18,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
| 2023 |
|
|
|
|
| 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Segment |
|
|
|
|
|
|
|
|
|
|
| Segment |
|
|
|
|
|
|
|
|
| Segment |
|
|
|
|
| Adjusted |
|
|
|
|
| Segment |
|
|
|
|
| Adjusted |
|
|
|
|
|
|
|
|
| Revenues |
|
|
|
|
| EBITDA (1) |
|
|
|
|
| Revenues |
|
|
|
|
| EBITDA (5) |
|
|
|
|
| Assessment, Permitting and Response |
|
|
| $ |
| 170,634 |
|
|
|
|
| $ |
| 42,977 |
|
|
|
|
| $ |
| 142,051 |
|
|
|
|
| $ |
| 30,252 |
|
|
|
|
| Measurement and Analysis |
|
|
|
|
| 143,050 |
|
|
| (3) |
|
|
| 27,528 |
|
|
|
|
|
|
| 125,739 |
|
|
| (3) |
|
|
| 21,852 |
|
|
| (4) |
| Remediation and Reuse |
|
|
|
|
| 144,782 |
|
|
|
|
|
|
| 18,767 |
|
|
|
|
|
|
| 137,112 |
|
|
|
|
|
|
| 22,059 |
|
|
|
|
| Total Operating Segments |
|
|
|
|
| 458,466 |
|
|
|
|
|
|
| 89,272 |
|
|
|
|
|
|
| 404,902 |
|
|
|
|
|
|
| 74,163 |
|
|
|
|
| Corporate and Other |
|
|
|
|
| — |
|
|
|
|
|
|
| (28,175 |
| ) |
|
|
|
|
| — |
|
|
|
|
|
|
| (22,826 |
| ) |
|
|
| Total |
|
|
| $ |
| 458,466 |
|
|
|
|
| $ |
| 61,097 |
|
|
|
|
| $ |
| 404,902 |
|
|
|
|
| $ |
| 51,337 |
|
|
|
|
| _____________________________________ |
| (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. See Note 18 to our unaudited condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q. |
| (2) Includes revenue of $2.0 million and $3.9 million from the Discontinuing Specialty Lab, for the three months ended September 30, 2023 and September 30, 2022, respectively. |
| (3) Includes revenue of $5.9 million and $12.9 million from the Discontinuing Specialty Lab, for the nine months ended September 30, 2023 and September 30, 2022, respectively. |
| (4) Includes Adjusted EBITDA loss of $(0.5) million and $(0.1) million from the Discontinuing Specialty Lab for the three and nine months ended September 30, 2022, respectively. |
| (5) Includes the add back of start-up losses and investment in new services of $1.3 million and $2.9 million for the three and nine months ended September 30, 2022, 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 (Loss) and Adjusted Net Income (Loss) 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 (Loss) as net income (loss) before amortization of intangible assets, stock-based compensation expense, fair value changes to financial instruments and contingent earnouts, discontinuing specialty lab, and other gain or losses, as set forth in greater detail in the table below. Adjusted Net Income (Loss) per Share represents Adjusted Net Income (Loss) attributable to stockholders divided by the weighted average 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 (Loss) and Adjusted Net Income (Loss) 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 (Loss) and Adjusted Net Income (Loss) 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 (Loss) and Adjusted Net Income (Loss) 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 (Loss) and Adjusted Net Income (Loss) per Share in conjunction with the related GAAP measures.
Additionally, we have provided estimates regarding Consolidated Adjusted EBITDA for 2023. 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 our environmental emergency response business, from acquisitions for the first twelve months following the date of acquisition and excluding revenues from businesses held for sale, disposed of or discontinued. As a result of the potential annual volatility in CTEH’s revenues due to the emergency response aspect of their business, we will no longer be including CTEH revenues in the calculation of organic growth. 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 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 |
|
|
|
|
| For the Nine Months |
|
|
|
|
|
|
|
|
| 2023 |
|
|
|
|
| 2022 |
|
|
|
|
| 2023 |
|
|
|
|
| 2022 |
|
|
|
|
| Net loss |
|
|
| $ |
| (7,525 |
| ) |
|
|
| $ |
| (5,720 |
| ) |
|
|
| $ |
| (29,418 |
| ) |
|
|
| $ |
| (21,007 |
| ) |
|
|
| Amortization of intangible assets (1) |
|
|
|
|
| 7,922 |
|
|
|
|
|
|
| 8,668 |
|
|
|
|
|
|
| 22,512 |
|
|
|
|
|
|
| 27,579 |
|
|
|
|
| Stock-based compensation (2) |
|
|
|
|
| 11,484 |
|
|
|
|
|
|
| 11,018 |
|
|
|
|
|
|
| 35,609 |
|
|
|
|
|
|
| 32,375 |
|
|
|
|
| Acquisition costs (3) |
|
|
|
|
| 1,499 |
|
|
|
|
|
|
| 368 |
|
|
|
|
|
|
| 4,970 |
|
|
|
|
|
|
| 1,354 |
|
|
|
|
| Fair value changes in financial instruments (4) |
|
|
|
|
| 806 |
|
|
|
|
|
|
| (1,808 |
| ) |
|
|
|
|
| 1,814 |
|
|
|
|
|
|
| (4,664 |
| ) |
|
|
| Expenses related to financing transactions (5) |
|
|
|
|
| 3 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 7 |
|
|
|
|
|
|
| 7 |
|
|
|
|
| Fair value changes in business acquisition contingencies (6) |
|
|
|
|
| 459 |
|
|
|
|
|
|
| 59 |
|
|
|
|
|
|
| 414 |
|
|
|
|
|
|
| (3,472 |
| ) |
|
|
| Discontinuing Specialty Lab (7) |
|
|
|
|
| 1,302 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 5,321 |
|
|
|
|
|
|
| — |
|
|
|
|
| Other (gains) losses and expenses (8) |
|
|
|
|
| (1 |
| ) |
|
|
|
|
| 482 |
|
|
|
|
|
|
| 215 |
|
|
|
|
|
|
| 1,965 |
|
|
|
|
| Tax effect of adjustments (9) |
|
|
|
|
| (6,573 |
| ) |
|
|
|
|
| (5,260 |
| ) |
|
|
|
|
| (19,841 |
| ) |
|
|
|
|
| (15,440 |
| ) |
|
|
| Adjusted Net Income |
|
|
| $ |
| 9,376 |
|
|
|
|
| $ |
| 7,807 |
|
|
|
|
| $ |
| 21,603 |
|
|
|
|
| $ |
| 18,697 |
|
|
|
|
| Preferred dividends Series A-2 |
|
|
|
|
| (4,100 |
| ) |
|
|
|
|
| (4,100 |
| ) |
|
|
|
|
| (12,300 |
| ) |
|
|
|
|
| (12,300 |
| ) |
|
|
| Adjusted Net Income attributable to |
|
|
| $ |
| 5,276 |
|
|
|
|
| $ |
| 3,707 |
|
|
|
|
| $ |
| 9,303 |
|
|
|
|
| $ |
| 6,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Loss per share attributable to |
|
|
| $ |
| (0.39 |
| ) |
|
|
| $ |
| (0.33 |
| ) |
|
|
| $ |
| (1.39 |
| ) |
|
|
| $ |
| (1.12 |
| ) |
|
|
| Adjusted Net Income per share (10) |
|
|
| $ |
| 0.18 |
|
|
|
|
| $ |
| 0.12 |
|
|
|
|
| $ |
| 0.31 |
|
|
|
|
| $ |
| 0.22 |
|
|
|
|
| Diluted Adjusted Net Income per share (11) |
|
|
| $ |
| 0.14 |
|
|
|
|
| $ |
| 0.10 |
|
|
| (a) |
| $ |
| 0.25 |
|
|
|
|
| $ |
| 0.18 |
|
|
| (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average common shares outstanding |
|
|
|
|
| 30,143 |
|
|
|
|
|
|
| 29,691 |
|
|
|
|
|
|
| 30,016 |
|
|
|
|
|
|
| 29,677 |
|
|
|
|
| Fully diluted shares |
|
|
|
|
| 36,952 |
|
|
|
|
|
|
| 36,147 |
|
|
| (a) |
|
|
| 36,640 |
|
|
|
|
|
|
| 36,101 |
|
|
| (a) |
| ________________________________________ |
| (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 lab we are discontinuing. |
| (8) In 2023 and 2022, amounts include costs associated the aviation loss and the closing of a lab, respectively. |
| (9) Applies Montrose's marginal tax rate of 28.0% to non-GAAP adjustments above, which are each pre-tax. |
| (10) Represents Adjusted Net Income attributable to stockholders divided by the weighted average common shares outstanding. |
| (11) Represents Adjusted Net Income attributable to stockholders divided by fully diluted shares. |
| (a) Prior period amounts have been recalculated from amounts originally disclosed using the current methodology. |
| Montrose Environmental Group, Inc. |
| Reconciliation of Net Loss to Consolidated Adjusted EBITDA |
| (In thousands) |
| (Unaudited) |
|
|
|
|
| Three Months Ended |
|
|
|
|
| For the Nine Months |
|
|
|
|
|
|
| 2023 |
|
|
|
|
| 2022 |
|
|
|
|
| 2023 |
|
|
|
|
| 2022 |
|
|
| Net loss |
|
|
| $ |
| (7,525 |
| ) |
|
|
| $ |
| (5,720 |
| ) |
|
|
| $ |
| (29,418 |
| ) |
|
|
| $ |
| (21,007 |
| ) |
| Interest expense |
|
|
|
|
| 2,089 |
|
|
|
|
|
|
| 1,400 |
|
|
|
|
|
|
| 5,507 |
|
|
|
|
|
|
| 4,010 |
|
|
| Income tax expense (benefit) |
|
|
|
|
| 1,324 |
|
|
|
|
|
|
| (208 |
| ) |
|
|
|
|
| 2,842 |
|
|
|
|
|
|
| 1,892 |
|
|
| Depreciation and amortization |
|
|
|
|
| 11,863 |
|
|
|
|
|
|
| 11,504 |
|
|
|
|
|
|
| 33,816 |
|
|
|
|
|
|
| 35,928 |
|
|
| EBITDA |
|
|
| $ |
| 7,751 |
|
|
|
|
| $ |
| 6,976 |
|
|
|
|
| $ |
| 12,747 |
|
|
|
|
| $ |
| 20,823 |
|
|
| Stock-based compensation (1) |
|
|
|
|
| 11,484 |
|
|
|
|
|
|
| 11,018 |
|
|
|
|
|
|
| 35,609 |
|
|
|
|
|
|
| 32,375 |
|
|
| Acquisition costs (2) |
|
|
|
|
| 1,499 |
|
|
|
|
|
|
| 368 |
|
|
|
|
|
|
| 4,970 |
|
|
|
|
|
|
| 1,354 |
|
|
| Fair value changes in financial instruments (3) |
|
|
|
|
| 806 |
|
|
|
|
|
|
| (1,808 |
| ) |
|
|
|
|
| 1,814 |
|
|
|
|
|
|
| (4,664 |
| ) |
| Expenses related to financing transactions (4) |
|
|
|
|
| 3 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 7 |
|
|
|
|
|
|
| 7 |
|
|
| Fair value changes in business |
|
|
|
|
| 459 |
|
|
|
|
|
|
| 59 |
|
|
|
|
|
|
| 414 |
|
|
|
|
|
|
| (3,472 |
| ) |
| Discontinuing Specialty Lab (6) |
|
|
|
|
| 1,302 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 5,321 |
|
|
|
|
|
|
| — |
|
|
| Other (gains) losses and expenses (7) |
|
|
|
|
| (1 |
| ) |
|
|
|
|
| 482 |
|
|
|
|
|
|
| 215 |
|
|
|
|
|
|
| 1,965 |
|
|
| Consolidated Adjusted EBITDA |
|
|
| $ |
| 23,303 |
|
|
|
|
| $ |
| 17,095 |
|
|
|
|
| $ |
| 61,097 |
|
|
|
|
| $ |
| 48,388 |
|
|
| ________________________________________ |
| (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 adjusted EBITDA add backs related to the lab we are discontinuing. |
| (7) In 2023 and 2022, amounts include costs associated with the aviation loss and the closing of a lab, respectively. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20231107217964/en/
Investor Relations:
Rodny Nacier
(949) 988-3383
ir@montrose-env.com
Media Relations:
Doug Donsky
(646) 361-1427
Montrose@icrinc.com