- Strong Operating Segment Adjusted EBITDA Growth -
- Solid Margin Expansion in Operating Segment Adjusted EBITDA -
- Net loss of $14.7 million and Consolidated Adjusted EBITDA1 of $16.6 million -
- Continued Improvement in Cash Flow from Operations Year-over-Year -
- Strong Balance Sheet and Cash Generation Support Acquisitions and R&D Successes -
- Raises Consolidated Adjusted EBITDA1 Outlook for Full Year 2023 -
LITTLE ROCK, Ark.--(BUSINESS WIRE)--
Montrose Environmental Group, Inc. (the “Company,” “Montrose” or “MEG”) (NYSE: MEG) today announced results for the first quarter ended March 31, 2023.
Montrose Chief Executive Officer and Director, Vijay Manthripragada, commented, “We are pleased to start 2023 with strong growth and margin improvement in our Operating Segment Adjusted EBITDA and Consolidated Adjusted EBITDA1 and growth in our cash flow generation. We experienced solid organic growth across multiple business lines, particularly in our consulting and testing services. Our multi-year outlook for our remediation and reuse segment remains very robust, though this year is expected to be more moderated following the triple digit growth in our water and renewable energy services last year. CTEH also began the year well, engaging in several environmental responses for the energy and transportation industries, in particular.”
Mr. Manthripragada continued, “We remain very bullish on the capital allocation opportunities in the environmental industry, and we remain forward leaning on strategic acquisitions and technology investments. Since the start of 2023, we have welcomed teams from GreenPath Energy, Frontier Analytical and Environmental Alliance into the Montrose family. We expect several others to follow given our focus on our mission and our reputation as an additive consolidator in our fragmented industry. In terms of technology, our R&D department continues to enjoy success with patent development and technology launches related to PFAS treatment and destruction, carbon dioxide capture, methane emissions monitoring, and the conversion of waste to energy and resources. Our innovation continues to create opportunities for our employees, differentiate us in the marketplace, create barriers to entry with long term organic growth opportunities, and help us towards achieving our mission of helping solve some of the world’s most intractable problems.
On the back of this strong momentum in our business in 2023, we are increasing our Consolidated Adjusted EBITDA1 outlook for the year. We remain as excited as ever about Montrose’s outlook and the continued transformation we anticipate in 2023.”
________________________________
(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.
First Quarter 2023 Results
Total revenue in the first quarter of 2023 was $131.4 million compared to $134.7 million in the prior year quarter. The change in revenues was primarily due to lower demand for COVID-19 related services provided by CTEH, lower revenues in a specialty lab we are discontinuing, and the timing of projects in our Remediation and Reuse segment. Excluding revenue from COVID-19 related services of $3.8 million and $21.4 million, in the respective first quarters of 2023 and 2022, and the lab we are discontinuing of $1.4 million and $5.6 million, in the respective first quarters of 2023 and 2022, revenue in the first quarter of 2023 was $126.2 million compared to $107.7 million in the prior year quarter, an increase of 17.2% over the prior year period, mainly owing to strong organic growth in our Assessment, Permitting and Response and our Measurement and Analysis segments, an increase in CTEH environmental response revenues, and the contributions of acquisitions completed during the past twelve months.
Net loss was $(14.7) million, or a loss of $(0.63) per share, in the first quarter of 2023 compared to a net loss of $(7.5) million, or a loss of $(0.39) per share, in the prior year quarter. The year-over-year change was primarily attributable to higher stock-based compensation expense in the current year, as well as a charge in the current year related to the change in fair values of our interest rate swap and preferred series A-2, compared to a gain on the interest rate swap in the prior year period.
Adjusted Net Income1 was $3.4 million in the first quarter of 2023 compared to Adjusted Net Income1 of $5.5 million in the prior year quarter. The year-over-year change was primarily attributable to a higher tax impact of adjustments as a result of a $4.3 million change in the impact of fair value adjustments to financial instruments.
First quarter 2023 Consolidated Adjusted EBITDA1 was $16.6 million compared to $16.5 million in the prior year quarter, primarily due to replacement of legacy COVID-19 services with environmental responses at CTEH, strong demand for our testing services, and the benefit of pricing, which more than offset the expected decline in Remediation and Reuse revenue. Excluding $1.3 million in Adjusted EBITDA in 2022 from the lab we are discontinuing and the adjustment for start-up losses of $0.8 million (an adjustment no longer being made in 2023), Consolidated Adjusted EBITDA1 in the first quarter of 2023 was $16.6 million, compared to $14.4 million, in the prior year period, which represented 12.8% and 11.2% of revenues, respectively, excluding revenues from the lab we are discontinuing.
Operating Cash Flow, Liquidity and Capital Resources
Cash provided by operating activities was $3.0 million in the first quarter of 2023, compared to cash used in operations of $18.3 million in the prior year quarter. Cash used in operations in the prior year period included payment of contingent consideration of $19.5 million. Excluding acquisition-related contingent earnout payments, which are not part of day-to-day operations, cash provided by operating activities increased by $1.8 million, compared to $1.2 million in the prior year quarter.
As of March 31, 2023, Montrose had total debt, before debt issuance costs, of $164.1 million and $201.8 million of liquidity, including $76.8 million of cash and $125.0 million of availability on its revolving credit facility. At our current leverage ratio and inclusive of our fixed rate on $100.0 million of debt under our interest rate swap through January 2025, our weighted average interest rate was 6.1% as of March 31, 2023.
As of March 31, 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 1.4 times.
Acquisitions
In January 2023, Montrose acquired the business of Frontier Analytical Laboratories (“Frontier”), an environmental laboratory specializing in high-resolution gas chromatography mass spectrometry analytical services based in Northern California. Frontier is a part of the Company’s Measurement and Analysis segment.
In February 2023, Montrose acquired Environmental Alliance (“EAI”), a leading environmental engineering and consulting business in Delaware. EAI is part of the Company’s Remediation and Reuse segment.
In April 2023, Montrose entered into an arrangement agreement to acquire Matrix Solutions (“Matrix”), one of Canada’s leading environmental companies. Subject to obtaining necessary approvals, the transaction is expected to close towards the end of the second quarter of 2023.
In May 2023, Montrose acquired GreenPath Energy (“GreenPath”), a leading optical gas imaging and fugitive emissions management services firm in Canada. GreenPath is part of the company’s Measurement and Analysis segment.
Full Year 2023 Outlook
Given the strong performance in the first quarter, the Company has increased its expectation of full year 2023 Consolidated Adjusted EBITDA1 to be in the range of $70 million to $76 million from previously issued guidance of $68 million to $74 million. Expectations for the full year 2023 revenue range are unchanged at $550 million to $600 million.
Our revenue and Consolidated Adjusted EBITDA1 outlook does not include any benefit from future acquisitions that have not yet been completed, including Matrix Solutions.
Webcast and Conference Call
The Company will host a webcast and conference call on Wednesday, May 10, 2023 at 8:30 a.m. Eastern time to discuss first 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 2,800+ employees across more than 80 locations around the world, Montrose combines deep local knowledge with an integrated approach to design, engineering, and operations, enabling the Company 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
March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
REVENUES
|
|
$
|
131,428
|
|
|
$
|
134,680
|
|
|
COST OF REVENUES (exclusive of
depreciation and amortization shown below)
|
|
|
81,633
|
|
|
|
88,386
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE
|
|
|
49,613
|
|
|
|
41,807
|
|
|
FAIR VALUE CHANGES IN BUSINESS
ACQUISITIONS CONTINGENT
CONSIDERATION
|
|
|
(398
|
)
|
|
|
(21
|
)
|
|
DEPRECIATION AND AMORTIZATION
|
|
|
10,555
|
|
|
|
12,144
|
|
|
LOSS FROM OPERATIONS
|
|
|
(9,975
|
)
|
|
|
(7,636
|
)
|
|
OTHER (EXPENSE) INCOME
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
(1,836
|
)
|
|
|
2,461
|
|
|
Interest expense—net
|
|
|
(1,541
|
)
|
|
|
(1,092
|
)
|
|
Total other (expense) income—net
|
|
|
(3,377
|
)
|
|
|
1,369
|
|
|
LOSS BEFORE EXPENSE FROM
INCOME TAXES
|
|
|
(13,352
|
)
|
|
|
(6,267
|
)
|
|
INCOME TAX EXPENSE
|
|
|
1,367
|
|
|
|
1,269
|
|
|
NET LOSS
|
|
$
|
(14,719
|
)
|
|
$
|
(7,536
|
)
|
|
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY TRANSLATION
|
|
|
12
|
|
|
|
81
|
|
|
COMPREHENSIVE LOSS
|
|
|
(14,707
|
)
|
|
|
(7,455
|
)
|
|
CONVERTIBLE AND REDEEMABLE
SERIES A-2 PREFERRED
STOCK DIVIDEND
|
|
|
(4,100
|
)
|
|
|
(4,100
|
)
|
|
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS
|
|
|
(18,819
|
)
|
|
|
(11,636
|
)
|
|
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING— BASIC AND DILUTED
|
|
|
29,857
|
|
|
|
29,662
|
|
|
NET LOSS PER SHARE ATTRIBUTABLE
TO COMMON STOCKHOLDERS—
BASIC AND DILUTED
|
|
$
|
(0.63
|
)
|
|
$
|
(0.39
|
)
|
|
MONTROSE ENVIRONMENTAL GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023
|
|
|
December 31, 2022
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
76,794
|
|
|
$
|
89,828
|
|
|
Accounts receivable—net
|
|
|
85,472
|
|
|
|
94,711
|
|
|
Contract assets
|
|
|
53,563
|
|
|
|
52,403
|
|
|
Prepaid and other current assets
|
|
|
15,178
|
|
|
|
10,986
|
|
|
Total current assets
|
|
|
231,007
|
|
|
|
247,928
|
|
|
NON-CURRENT ASSETS:
|
|
|
|
|
|
|
|
Property and equipment—net
|
|
|
40,685
|
|
|
|
36,045
|
|
|
Operating lease right-of-use asset—net
|
|
|
31,214
|
|
|
|
26,038
|
|
|
Finance lease right-of-use asset—net
|
|
|
11,391
|
|
|
|
9,840
|
|
|
Goodwill
|
|
|
326,498
|
|
|
|
323,868
|
|
|
Other intangible assets—net
|
|
|
137,271
|
|
|
|
142,107
|
|
|
Other assets
|
|
|
5,111
|
|
|
|
6,088
|
|
|
TOTAL ASSETS
|
|
$
|
783,177
|
|
|
$
|
791,914
|
|
|
LIABILITIES, CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK AND
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
Accounts payable and other accrued liabilities
|
|
|
55,420
|
|
|
|
63,412
|
|
|
Accrued payroll and benefits
|
|
|
16,352
|
|
|
|
20,528
|
|
|
Business acquisitions contingent consideration, current
|
|
|
4,734
|
|
|
|
3,801
|
|
|
Current portion of operating lease liabilities
|
|
|
8,570
|
|
|
|
7,895
|
|
|
Current portion of finance lease liabilities
|
|
|
4,130
|
|
|
|
3,775
|
|
|
Current portion of long-term debt
|
|
|
13,125
|
|
|
|
12,031
|
|
|
Total current liabilities
|
|
|
102,331
|
|
|
|
111,442
|
|
|
NON-CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
Business acquisitions contingent consideration, long-term
|
|
|
3,121
|
|
|
|
4,454
|
|
|
Other non-current liabilities
|
|
|
3
|
|
|
|
13
|
|
|
Deferred tax liabilities—net
|
|
|
7,111
|
|
|
|
5,742
|
|
|
Conversion option
|
|
|
26,636
|
|
|
|
25,731
|
|
|
Operating lease liability—net of current portion
|
|
|
24,093
|
|
|
|
19,437
|
|
|
Finance lease liability—net of current portion
|
|
|
7,507
|
|
|
|
6,486
|
|
|
Long-term debt—net of deferred financing fees
|
|
|
149,342
|
|
|
|
152,494
|
|
|
Total liabilities
|
|
$
|
320,144
|
|
|
$
|
325,799
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK $0.0001
PAR VALUE—
|
|
|
|
|
|
|
|
Authorized, issued and outstanding shares: 17,500 at March 31, 2023 and
December 31, 2022; aggregate liquidation preference of $182.2 million at March 31, 2023 and
December 31, 2022
|
|
|
152,928
|
|
|
|
152,928
|
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
Common stock, $0.000004 par value; authorized shares: 190,000,000 at
March 31, 2023 and December 31, 2022; issued and outstanding shares: 29,961,364 and
29,619,921 at March 31, 2023 and December 31, 2022, respectively
|
|
|
—
|
|
|
|
—
|
|
|
Additional paid-in-capital
|
|
|
504,301
|
|
|
|
492,676
|
|
|
Accumulated deficit
|
|
|
(194,216
|
)
|
|
|
(179,497
|
)
|
|
Accumulated other comprehensive income
|
|
|
20
|
|
|
|
8
|
|
|
Total stockholders’ equity
|
|
|
310,105
|
|
|
|
313,187
|
|
|
TOTAL LIABILITIES, CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK
AND STOCKHOLDERS’ EQUITY
|
|
$
|
783,177
|
|
|
$
|
791,914
|
|
|
MONTROSE ENVIRONMENTAL GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
For the Three Months
Ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(14,719
|
)
|
|
$
|
(7,536
|
)
|
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
Provision (recovery) for bad debt
|
|
|
444
|
|
|
|
(528
|
)
|
|
Depreciation and amortization
|
|
|
10,555
|
|
|
|
12,144
|
|
|
Amortization of right-of-use asset
|
|
|
2,491
|
|
|
|
2,271
|
|
|
Stock-based compensation expense
|
|
|
13,035
|
|
|
|
10,425
|
|
|
Fair value changes in financial instruments
|
|
|
1,873
|
|
|
|
(2,449
|
)
|
|
Fair value changes in business acquisition contingencies
|
|
|
(398
|
)
|
|
|
(21
|
)
|
|
Deferred income taxes
|
|
|
1,367
|
|
|
|
1,269
|
|
|
Other
|
|
|
458
|
|
|
|
143
|
|
|
Changes in operating assets and liabilities—net of acquisitions:
|
|
|
|
|
|
|
|
Accounts receivable and contract assets
|
|
|
9,615
|
|
|
|
10,037
|
|
|
Prepaid expenses and other current assets
|
|
|
(3,363
|
)
|
|
|
(1,776
|
)
|
|
Accounts payable and other accrued liabilities
|
|
|
(11,643
|
)
|
|
|
(12,852
|
)
|
|
Accrued payroll and benefits
|
|
|
(4,350
|
)
|
|
|
(7,876
|
)
|
|
Payment of contingent consideration
|
|
|
—
|
|
|
|
(19,457
|
)
|
|
Change in operating leases
|
|
|
(2,336
|
)
|
|
|
(2,122
|
)
|
|
Net cash provided by (used in) operating activities
|
|
|
3,029
|
|
|
|
(18,328
|
)
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(4,134
|
)
|
|
|
(262
|
)
|
|
Proprietary software development and other software costs
|
|
|
(638
|
)
|
|
|
(50
|
)
|
|
Proceeds from insurance
|
|
|
75
|
|
|
|
266
|
|
|
Payment of purchase price true ups
|
|
|
(505
|
)
|
|
|
(631
|
)
|
|
Cash paid for acquisitions—net of cash acquired
|
|
|
(6,525
|
)
|
|
|
(14,328
|
)
|
|
Net cash used in investing activities
|
|
|
(11,727
|
)
|
|
|
(15,005
|
)
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Repayment of term loan
|
|
|
(2,188
|
)
|
|
|
(4,375
|
)
|
|
Payment of contingent consideration
|
|
|
(27
|
)
|
|
|
(10,543
|
)
|
|
Repayment of finance leases
|
|
|
(1,029
|
)
|
|
|
(943
|
)
|
|
Proceeds from issuance of common stock for exercised stock options
|
|
|
2,690
|
|
|
|
429
|
|
|
Dividend payment to the Series A-2 shareholders
|
|
|
(4,100
|
)
|
|
|
(4,100
|
)
|
|
Payments of deferred offering costs
|
|
|
—
|
|
|
|
(183
|
)
|
|
Net cash used in financing activities
|
|
|
(4,654
|
)
|
|
|
(19,715
|
)
|
|
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(13,352
|
)
|
|
|
(53,048
|
)
|
|
Foreign exchange impact on cash balance
|
|
|
318
|
|
|
|
98
|
|
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
89,828
|
|
|
|
146,741
|
|
|
End of period
|
|
$
|
76,794
|
|
|
$
|
93,791
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,347
|
|
|
$
|
184
|
|
|
Cash paid for income tax
|
|
$
|
155
|
|
|
$
|
—
|
|
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Accrued purchases of property and equipment
|
|
$
|
3,096
|
|
|
$
|
1,144
|
|
|
Property and equipment purchased under finance leases
|
|
$
|
2,405
|
|
|
$
|
512
|
|
|
Acquisitions unpaid contingent consideration
|
|
$
|
7,855
|
|
|
$
|
6,995
|
|
|
MONTROSE ENVIRONMENTAL GROUP, INC.
SEGMENT REVENUES AND ADJUSTED EBITDA
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2023
|
|
|
2022
|
|
|
|
|
|
|
|
|
Segment
|
|
|
|
|
|
Segment
|
|
|
|
|
|
Segment
|
|
|
Adjusted
|
|
|
Segment
|
|
|
Adjusted
|
|
|
|
|
|
Revenues
|
|
|
EBITDA(1)
|
|
|
Revenues
|
|
|
EBITDA(1)(4)
|
|
|
|
Assessment, Permitting and Response
|
|
$
|
52,214
|
|
|
$
|
14,266
|
|
|
$
|
45,600
|
|
|
$
|
9,623
|
|
|
|
Measurement and Analysis
|
|
|
42,527
|
|
(2)
|
|
6,387
|
|
|
|
39,761
|
|
(2)
|
|
6,322
|
|
(3)
|
|
Remediation and Reuse
|
|
|
36,687
|
|
|
|
5,278
|
|
|
|
49,319
|
|
|
|
7,993
|
|
|
|
Total Operating Segments
|
|
|
131,428
|
|
|
|
25,931
|
|
|
|
134,680
|
|
|
|
23,938
|
|
|
|
Corporate and Other
|
|
|
—
|
|
|
|
(9,328
|
)
|
|
|
—
|
|
|
|
(7,487
|
)
|
|
|
Total
|
|
$
|
131,428
|
|
|
$
|
16,603
|
|
|
$
|
134,680
|
|
|
$
|
16,451
|
|
|
_____________________________________
|
(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 our Quarterly Report on Form 10-Q.
|
|
(2)
|
|
Includes revenue of $1.4 million and $5.6 million from the lab we are discontinuing, for the three months ended March 31, 2023 and March 31, 2022, respectively.
|
|
(3)
|
|
Includes Adjusted EBITDA of $1.3 million from the lab we are discontinuing.
|
|
(4)
|
|
Includes the adjustment of start-up losses and investment in new services of $0.8 million. Beginning in the first quarter of 2023, the calculation of Segment Adjusted EBITDA no longer adjusts for start-up losses and investment in new services. See Note 18 to our unaudited condensed consolidated financial statements included in our Quarterly Report on Form 10-Q.
|
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 CTEH, 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)
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Net loss
|
|
$
|
(14,719
|
)
|
|
$
|
(7,536
|
)
|
|
Amortization of intangible assets(1)
|
|
|
7,240
|
|
|
|
9,419
|
|
|
Stock-based compensation (2)
|
|
|
13,035
|
|
|
|
10,425
|
|
|
Acquisition costs (3)
|
|
|
775
|
|
|
|
467
|
|
|
Fair value changes in financial instruments (4)
|
|
|
1,873
|
|
|
|
(2,449
|
)
|
|
Expenses related to financing transactions (5)
|
|
|
4
|
|
|
|
7
|
|
|
Fair value changes in business acquisition contingencies (6)
|
|
|
(398
|
)
|
|
|
(21
|
)
|
|
Discontinuing Specialty Lab (7)
|
|
|
2,436
|
|
|
|
—
|
|
|
Other losses and expenses (8)
|
|
|
134
|
|
|
|
267
|
|
|
Tax effect of adjustments (9)
|
|
|
(7,028
|
)
|
|
|
(5,072
|
)
|
|
Adjusted Net Income
|
|
$
|
3,352
|
|
|
$
|
5,507
|
|
|
Preferred Dividend Series A-2
|
|
|
(4,100
|
)
|
|
|
(4,100
|
)
|
|
Adjusted Net (Loss) Income attributable to
stockholders
|
|
$
|
(748
|
)
|
|
$
|
1,407
|
|
|
|
|
|
|
|
|
|
|
Net Loss per share attributable to
stockholders
|
|
$
|
(0.63
|
)
|
|
$
|
(0.39
|
)
|
|
Adjusted Net (Loss) Income per share(10)
|
|
$
|
(0.03
|
)
|
|
$
|
0.05
|
|
|
Diluted Adjusted Net (Loss) Income per share(11)
|
|
$
|
(0.02
|
)
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
29,857
|
|
|
|
29,662
|
|
|
Fully diluted shares
|
|
|
35,891
|
|
|
|
35,795
|
|
___________________________________
|
(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 instrument 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 (Loss) Income attributable to stockholders divided by the weighted average common shares outstanding.
|
|
(11)
|
|
Represents Adjusted Net (Loss) Income attributable to stockholders divided by fully diluted shares.
|
|
Montrose Environmental Group, Inc.
Reconciliation of Net Loss to Consolidated Adjusted EBITDA
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Net loss
|
|
$
|
(14,719
|
)
|
|
$
|
(7,536
|
)
|
|
Interest expense
|
|
|
1,541
|
|
|
|
1,092
|
|
|
Income tax expense
|
|
|
1,367
|
|
|
|
1,269
|
|
|
Depreciation and amortization
|
|
|
10,555
|
|
|
|
12,144
|
|
|
EBITDA
|
|
$
|
(1,256
|
)
|
|
$
|
6,969
|
|
|
Stock-based compensation (1)
|
|
|
13,035
|
|
|
|
10,425
|
|
|
Start-up losses and investment in new services (2)
|
|
|
—
|
|
|
|
786
|
|
|
Acquisition costs (3)
|
|
|
775
|
|
|
|
467
|
|
|
Fair value changes in financial instruments (4)
|
|
|
1,873
|
|
|
|
(2,449
|
)
|
|
Expenses related to financing transactions (5)
|
|
|
4
|
|
|
|
7
|
|
|
Fair value changes in business
acquisition contingencies (6)
|
|
|
(398
|
)
|
|
|
(21
|
)
|
|
Discontinuing Specialty Lab (7)
|
|
|
2,436
|
|
|
|
—
|
|
|
Other losses and expenses (8)
|
|
|
134
|
|
|
|
267
|
|
|
Consolidated Adjusted EBITDA
|
|
$
|
16,603
|
|
|
$
|
16,451
|
|
___________________________________
|
(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)
|
|
Represent start-up losses related to losses incurred on (i) the expansion of lab testing methods and lab capacity, including into new geographies, (ii) introduction of new software and consulting service lines (iii) expansion into Europe in advance of projects driven by new regulations. Beginning in the second quarter of 2022, the calculation of Consolidated Adjusted EBITDA no longer adjusts for start-up losses and investment in new services. See the Company's Q2 2022 earnings release dated August 8, 2022 for a discussion of the change in methodology.
|
|
(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 instrument 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)
|
|
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.
|
|
(7)
|
|
Amounts consist of adjusted EBITDA add backs 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.
|
Source: Montrose Environmental Group, Inc.