Montrose Environmental Group, Inc. (the “Company,” “Montrose” or “MEG”) (NYSE: MEG) today announced results for the second quarter ended June 30, 2023.
Montrose Chief Executive Officer and Director, Vijay Manthripragada, commented, “We are thrilled to report strong second quarter performance, building on our first quarter momentum and marking a stellar first half of this year. Second quarter Revenue and Consolidated Adjusted EBITDA1 both saw strong sequential and year-over-year growth to record levels2 led by robust demand across most of our business lines, particularly in our advisory services, CTEH environmental response services, air testing services, and lab services. Our 2023 focus on optimizing margins and shifting our portfolio of service offerings is being reflected in our results, particularly our margin profile through the first half the year.”
Mr. Manthripragada continued, “Our track record of innovation led by our R&D and software development teams gives Montrose unique competitive advantages, enhancing our ability to tap into organic growth opportunities across our environmental industry. We are pleased to welcome our new team members from the recent acquisitions of Matrix Solutions, GreenPath Energy and Vandrensning. We are also pleased to have invested in the highly innovative team from TreaTech which furthers our mission. These new teams have further expanded our portfolio of industry-leading solutions. The strength of our cash flow continues to give us the financial flexibility to invest in accretive organic and inorganic growth opportunities.
“Regarding the optimism in our outlook, we continue to see strong economic and political tailwinds as customers look to navigate the growing regulatory framework and to proactively meet voluntary sustainability goals. Market trends have increased demand for our services and further validated our integrated approach to environmental solutions. Based on our strong performance year-to-date, we are raising our full year revenue and Consolidated Adjusted EBITDA1 guidance and we remain confident in our ability to create additional shareholder value in the remainder of 2023.”
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(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) | Record second quarter Consolidated Adjusted EBITDA as compared to updated historical periods adjusted to include start-up losses, which are no longer added back in determining Consolidated Adjusted EBITDA | |
Second Quarter 2023 Results
Total revenue in the second quarter of 2023 was $159.1 million compared to $139.9 million in the prior year quarter, an increase of 13.7%. The increase in revenues was primarily due to organic growth in the Assessment, Permitting and Response and the Measurement and Analysis segments, an increase in CTEH environmental response revenues, and the contributions of acquisitions completed during the past twelve months, partially offset by lower revenues in a specialty lab that will be discontinued and the timing of projects in the Remediation and Reuse segment. Excluding revenue from the specialty lab to be discontinued of $2.4 million and $3.4 million, in the second quarters of 2023 and 2022, respectively, revenue in the second quarter of 2023 was $156.7 million compared to $136.5 million in the prior year quarter, an increase of 14.8% over the prior year period.
Net loss was $(7.2) million, or a loss of $(0.38) per share, in the second quarter of 2023 compared to a net loss of $(7.8) million, or a loss of $(0.40) per share, in the prior year quarter. The year-over-year change was primarily attributable to discrete tax items.
Adjusted Net Income1 was $8.9 million, and Adjusted Net Income per Share1 was $0.16, in the second quarter of 2023 compared to Adjusted Net Income1 of $5.4 million, and Adjusted Net Income per Share1 of $0.04 in the prior year quarter. The year-over-year change was primarily attributable to an increase in revenues.
Second quarter 2023 Consolidated Adjusted EBITDA1 was $21.2 million, representing 13.3% of revenue, compared to $15.6 million, representing 11.2% of revenue in the prior year quarter, primarily due to higher revenues driven by organic growth and acquisitions.
First Six Months 2023 Results
Total revenue in the first six months of 2023 increased 5.8% to $290.5 million compared to $274.6 million in the prior year period. The increase in revenues was primarily due to organic growth in the Assessment, Permitting and Response and the Measurement and Analysis segments, an increase in CTEH environmental response revenues, and the contributions of acquisitions completed since the beginning of 2022, partially offset by lower revenues in a specialty lab that will be discontinued, the planned exit from legacy O&M contracts, and the timing of projects in the Remediation and Reuse segment. Excluding revenue from the legacy O&M contracts of zero and $2.3 million, and the specialty lab to be discontinued of $3.9 million and $9.0 million, in the six month periods of 2023 and 2022, respectively, revenue in the first six months of 2023 was $286.6 million compared to $263.3 million in the prior year, an increase of 8.8% over the prior year period.
Net loss was $(21.9) million, or $(1.00) per share, in the first six months of 2023 compared to a net loss of $(15.3) million, or $(0.79) 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, higher interest expense, and higher stock-based compensation in the current year.
Adjusted Net Income1 was $12.2 million, and Adjusted Net Income per Share1 was $0.13, in the first six months of 2023 compared to Adjusted Net Income1 of $10.9 million, and Adjusted Net Income per Share1 of $0.09, in the prior year period.
Consolidated Adjusted EBITDA1 for the first six months of 2023 was $37.8 million, representing 13.0% of revenue, compared to $31.3 million, representing 11.4% of revenue, in the prior year period, primarily due to higher revenues driven by organic growth and acquisitions.
Operating Cash Flow, Liquidity and Capital Resources
Cash provided by operating activities for the first six months ended June 30, 2023 was $24.5 million compared to cash used in operating activities of $(2.9) million in the prior year period. 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 $25.1 million compared to $16.6 million in the prior year period, an increase of $8.5 million.
During the quarter, we entered into a second interest rate swap on an additional $70.0 million of borrowing. As of June 30, 2023, we had total debt, before debt issuance costs, of $170.6 million and $148.3 million of liquidity, including $23.3 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 4.2% as of June 30, 2023.
As of June 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.
Acquisitions
In May 2023, Montrose acquired GreenPath Energy (“GreenPath”), a leading optical gas imaging and methane emissions management services firm in Canada. GreenPath is part of the Company’s Measurement and Analysis segment.
In June 2023, Montrose acquired Matrix Solutions (“Matrix”), one of Canada’s leading environmental consulting and engineering companies. Matrix is part of the Company’s Remediation and Reuse segment.
In July 2023, Montrose acquired Vandrensning, a European-based company specializing in water treatment solutions. Vandrensning is part of the Company’s Remediation and Reuse segment.
Full Year 2023 Outlook
Given continued strong performance in the second quarter, the Company has increased its expectation for full year 2023 revenue and Consolidated Adjusted EBITDA.
2023 Revenue is expected to be in the range of $590 million to $640 million and Consolidated Adjusted EBITDA1 is expected to be in the range of $75 million to $81 million, up from previously issued guidance ranges of $550 million to $600 million and $70 million to $76 million, respectively.
The revenue and Consolidated Adjusted EBITDA1 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, August 9, 2023 at 8:30 a.m. Eastern time to discuss second 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 the 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 June 30, | For the Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
REVENUES | $ | 159,101 | $ | 139,910 | $ | 290,529 | $ | 274,590 | ||||||||
COST OF REVENUES (exclusive of
| 98,196 | 90,429 | 179,829 | 178,815 | ||||||||||||
SELLING, GENERAL AND ADMINISTRATIVE
| 55,247 | 46,456 | 104,860 | 88,263 | ||||||||||||
FAIR VALUE CHANGES IN BUSINESS
| 353 | (3,510 | ) | (45 | ) | (3,531 | ) | |||||||||
DEPRECIATION AND AMORTIZATION | 11,398 | 12,280 | 21,953 | 24,424 | ||||||||||||
LOSS FROM OPERATIONS | (6,093 | ) | (5,745 | ) | (16,068 | ) | (13,381 | ) | ||||||||
OTHER (EXPENSE) INCOME | ||||||||||||||||
Other income (expense)—net | 947 | 343 | (889 | ) | 2,804 | |||||||||||
Interest expense—net | (1,877 | ) | (1,518 | ) | (3,418 | ) | (2,610 | ) | ||||||||
Total other (expense) income—net | (930 | ) | (1,175 | ) | (4,307 | ) | 194 | |||||||||
LOSS BEFORE EXPENSE FROM
| (7,023 | ) | (6,920 | ) | (20,375 | ) | (13,187 | ) | ||||||||
INCOME TAX EXPENSE | 151 | 831 | 1,518 | 2,100 | ||||||||||||
NET LOSS | $ | (7,174 | ) | $ | (7,751 | ) | $ | (21,893 | ) | $ | (15,287 | ) | ||||
EQUITY ADJUSTMENT FROM FOREIGN
| (118 | ) | (84 | ) | (106 | ) | (3 | ) | ||||||||
COMPREHENSIVE LOSS | (7,292 | ) | (7,835 | ) | (21,999 | ) | (15,290 | ) | ||||||||
CONVERTIBLE AND REDEEMABLE
| (4,100 | ) | (4,100 | ) | (8,200 | ) | (8,200 | ) | ||||||||
NET LOSS ATTRIBUTABLE TO
| (11,274 | ) | (11,851 | ) | (30,093 | ) | (23,487 | ) | ||||||||
WEIGHTED AVERAGE COMMON SHARES
| 30,047 | 29,678 | 29,952 | 29,670 | ||||||||||||
NET LOSS PER SHARE ATTRIBUTABLE
| $ | (0.38 | ) | $ | (0.40 | ) | $ | (1.00 | ) | $ | (0.79 | ) | ||||
MONTROSE ENVIRONMENTAL GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In thousands, except share data) | ||||||||
June 30, 2023 | December 31, 2022 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash, cash equivalents and restricted cash | $ | 23,307 | $ | 89,828 | ||||
Accounts receivable—net | 103,720 | 94,711 | ||||||
Contract assets | 57,114 | 52,403 | ||||||
Prepaid and other current assets | 16,469 | 10,986 | ||||||
Total current assets | 200,610 | 247,928 | ||||||
NON-CURRENT ASSETS: | ||||||||
Property and equipment—net | 57,106 | 36,045 | ||||||
Operating lease right-of-use asset—net | 44,040 | 26,038 | ||||||
Finance lease right-of-use asset—net | 11,488 | 9,840 | ||||||
Goodwill | 368,563 | 323,868 | ||||||
Other intangible assets—net | 137,369 | 142,107 | ||||||
Other assets | 6,489 | 6,088 | ||||||
TOTAL ASSETS | $ | 825,665 | $ | 791,914 | ||||
LIABILITIES, CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK AND
| ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable and other accrued liabilities | 66,430 | 63,412 | ||||||
Accrued payroll and benefits | 25,607 | 20,52 | ||||||
