- Record Full Year Revenue and Cash Flow from
Operations -
- Net Loss of $30.9 million; Basic and Diluted
Net Loss Per Share of $1.57 -
- Significant Increase in Diluted Adjusted Net
Income Per Share1 -
- Record Full Year Consolidated Adjusted
EBITDA1 -
- Expansion in Segment Level and Consolidated
Adjusted EBITDA1 as Percent of Revenue for Full Year -
- Continued Success Consolidating Fragmented
Industry with Highly Accretive Acquisitions -
- Advanced R&D Initiatives and Expanded IP
and Technology Portfolio -
- Provides Full Year 2024 Revenue and
Consolidated Adjusted EBITDA1 Outlook -
Montrose Environmental Group, Inc. (the “Company,” “Montrose” or
“MEG”) (NYSE: MEG) today announced results for the fourth quarter
and full year ended December 31, 2023.
Montrose Chief Executive Officer and Director, Vijay
Manthripragada, commented, “Our record full year results reflect
continued strength across our business. Demand for our unique,
integrated solutions remains at all-time highs given another year
of exceptional customer revenue retention2 at 96% and
cross-selling3 activity increasing to 51% of full year revenue.
Despite the acquisition of Matrix, which was a low margin business
at the time of acquisition, our Consolidated Adjusted EBITDA1 as a
percent of revenue increased for the full year given the strength
of the rest of our business and the improvement of Matrix’s margins
as we’ve integrated them. Our strong performance resulted in record
full year cash generated from operations and enabled us to continue
investing for future growth.”
“We are particularly proud of the continued success of our
R&D efforts, which help solve major environmental challenges
and create value for our stockholders. Our team filed for nine
unique patents in 2023 addressing several emerging and potentially
significant market opportunities. We expanded our portfolio of PFAS
treatment technologies to meet the needs of our clients with
wastewater and landfill challenges given pending U.S. environmental
regulations. We are also helping many of our clients and
communities with air quality monitoring and greenhouse gas
measurement. We use next generation sensors and proprietary
software in response to the U.S. EPA’s focus on the impact of air
quality on disadvantaged communities.”
“Building on our strong momentum, we believe we are well
positioned to achieve another year of outstanding performance in
2024. Our 2024 expectation is for low double-digit organic revenue
growth, continued margin expansion, and continued strong cash flow
generation given substantive end-market tailwinds and increased
predictability in our business.”
“In addition, both our acquisition pipeline and patent
development pipeline remain very robust. Two accretive acquisitions
have already been completed this year. Collectively, we believe
these expected results and sustained execution will help us
continue to deliver stellar shareholder value.”
_______________________________________ (1)
Consolidated Adjusted EBITDA, Adjusted Net
Income and Diluted Adjusted Net Income 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)
Customer revenue retention defined as the
percentage of revenue excluding CTEH from customers in 2022 that
recurred in 2023. Environmental emergency response revenue is
excluded from the calculation in light of episodic nature of
emergency response work.
(3)
Cross-selling activity defined as the
percentage of total revenue from customers purchasing two or more
Montrose services within the same fiscal year.
Fourth Quarter 2023 Results
Total revenue in the fourth quarter of 2023 was $165.7 million
compared to $139.5 million in the prior year quarter, an increase
of 18.8%. The increase in revenues was primarily due to the
acquisition of Matrix, organic revenue growth in the Assessment,
Permitting and Response segment, organic growth in the Measurement
and Analysis segments, the contribution of environmental emergency
response business, and the contributions of acquisitions, partially
offset by lower revenues in a specialty lab that was discontinued,
the timing of PFAS projects given delays in U.S. EPA PFAS
regulations, and a shift in focus of our biogas business towards
higher margin services. Excluding revenue from discontinued
services, of $2.9 million and $4.1 million, in the fourth quarters
of 2023 and 2022, respectively, revenue in the fourth quarter of
2023 was $162.8 million compared to $135.4 million in the prior
year quarter, an increase of 20.2% over the prior year period.
Net loss was $(1.4) million, or a loss of $(0.18) per share
basic and diluted, in the fourth quarter of 2023 compared to a net
loss of $(10.8) million, or a loss of $(0.50) per share basic and
diluted, in the prior year quarter. The year-over-year reduction in
net loss was primarily attributable to a net gain from fair value
adjustments related to our Series A-2 preferred stock conversion
option and interest rate swaps, as well as an income tax benefit in
the current year, compared to a net loss from fair value
adjustments related to our Series A-2 preferred stock conversion
option and interest rate swaps and an income tax expense in the
prior year, partially offset by a higher net operating loss and
higher interest in the current year.
Adjusted Net Income1 was $10.6 million, and Diluted Adjusted Net
Income per Share1 was $0.27, in the fourth quarter of 2023 compared
to Adjusted Net Income1 of $9.0 million, and Diluted Adjusted Net
Income per Share1 of $0.25 in the prior year quarter. Diluted
Adjusted Net Income per Share1 calculated as Adjusted Net Income1
attributable to stockholders divided by fully diluted shares.
Fourth quarter 2023 Consolidated Adjusted EBITDA1 was $17.5
million, compared to $17.8 million in the prior year quarter.
Excluding Consolidated Adjusted EBITDA1 from discontinued services
of zero and $2.2 million in the fourth quarters of 2023 and 2022,
respectively, Consolidated Adjusted EBITDA1 in the fourth quarter
of 2023 was $17.5 million, compared to $15.6 million in the prior
year quarter. The increase in Consolidated Adjusted EBITDA1,
excluding results from discontinued services, was due to higher
revenues. Lower Consolidated Adjusted EBITDA1 as a percentage of
revenues was driven primarily by the acquisition of Matrix.
Full Year 2023 Results
Total revenue in the full year 2023 increased 14.7% to $624.2
million compared to $544.4 million in the prior year. The increase
in revenues was primarily due to 24.3% organic growth in the
Assessment, Permitting and Response segment, 17.0% organic growth
in the Measurement and Analysis segment, an increase in
environmental emergency response revenues, and the contributions of
acquisitions, partially offset primarily by lower revenues from
discontinued services and lower revenue from our ECT2 service
offering. Our ECT2 service offering was lower year-over-year due to
the wind down of certain large PFAS projects, delays in the timing
of EPA PFAS regulations and a strategic shift in our biogas
business towards higher margin services. Total organic revenue
growth was 2% for the year and has averaged 15% per annum since
2020 (the year of our IPO). Excluding revenue from discontinued
services, of $8.8 million and $20.6 million, in full year 2023 and
2022, respectively, total revenue in full year 2023 was $615.4
million compared to $523.8 million in the prior year, an increase
of 17.5% over the prior year.
Net loss was $(30.9) million, or $(1.57) per share basic and
diluted, in the full year 2023 compared to a net loss of $(31.8)
million, or $(1.62) per share basic and diluted, in the prior year.
The year-over-year change was primarily attributable to an increase
in the net gain from 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 an income
tax benefit in the current year, partially offset by higher
interest expense and an increase in loss from operations in the
current year and an income tax expense in the prior year.
Adjusted Net Income1 was $39.7 million, and Diluted Adjusted Net
Income per Share1 was $1.07, in the full year 2023 compared to
Adjusted Net Income1 of $30.9 million, and Diluted Adjusted Net
Income per Share1 of $0.86, in the prior year.
Consolidated Adjusted EBITDA1 for the full year 2023 was $78.6
million compared to $66.2 million in the prior year, an increase of
18.7%. Excluding Consolidated Adjusted EBITDA1 from discontinued
services of zero and $2.1 million in 2023 and 2022, respectively,
Consolidated Adjusted EBITDA1 in 2023 was $78.6 million, compared
to $64.1 million in the prior year, an increase of 22.6%. The
increase in Adjusted Net Income1, Diluted Adjusted Net Income per
Share1, and Consolidated Adjusted EBITDA1 was primarily due to
higher revenues.
Operating Cash Flow, Liquidity and Capital Resources
Cash provided by operating activities for the full year ended
December 31, 2023 was $56.0 million compared to cash provided by
operating activities of $20.6 million in the prior year period, an
increase of $35.4 million, or 171.3%. Cash flow from operations
includes payment of contingent consideration of $0.6 million and
$19.5 million in the current and prior year, respectively.
Excluding these acquisition-related contingent earnout payments,
which are not part of day-to-day operations, cash flow from
operating activities was $56.6 million compared to $40.1 million in
the prior year period, an increase of $16.5 million, or 41.1%.
As of December 31, 2023, we had total debt, before debt issuance
costs, of $164.6 million and $148.2 million of liquidity, including
$23.2 million of cash and $125.0 million of availability on our
revolving credit facility.
As of December 31, 2023, Montrose’s net 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.
In January 2024, Montrose voluntarily redeemed $60.0 million of
the outstanding Convertible and Redeemable Series A-2 Preferred
Stock with cash. Following this redemption, the principal balance
of the Series A-2 Preferred Stock outstanding was reduced to $122.2
million and remains classified as mezzanine equity.
In February 2024, the Company amended its Senior Secured Credit
Agreement, to provide for an additional $100.0 million in credit
availability, comprised of an additional $50.0 million term loan
and $50.0 million revolving credit facility.
Acquisitions
In January 2024, Montrose acquired Epic Environmental Pty Ltd, a
leading environmental consultancy in Australia. Headquartered in
Brisbane, Epic Environmental is part of the Company’s Remediation
and Reuse segment.
In February 2024, Montrose acquired Two Dot Environmental
Consulting, LLC, a leading environmental consultancy focused on
energy and renewable energy clients in the Rocky Mountain region of
the U.S. Two Dot is part of the Company’s Remediation and Reuse
segment.
Full Year 2024 Outlook
The Company is initiating its full year 2024 outlook for Revenue
to be in the range of $675 million to $725 million. Consolidated
Adjusted EBITDA1 is expected to be in the range of $90 million to
$95 million. 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 Thursday,
February 29, 2024 at 8:30 a.m. Eastern time to discuss fourth
quarter and full year 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 over 3,100 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. CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS (In thousands, except per share
data)
(Unaudited)
For the Quarter Ended December
31,
For the Year Ended December
31,
2023
2022
2023
2022
REVENUES
$
165,742
$
139,514
$
624,208
$
544,416
COST OF REVENUES (exclusive of
depreciation and amortization)
101,919
90,833
383,903
351,882
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE
61,100
45,175
222,861
176,295
FAIR VALUE CHANGES IN BUSINESS ACQUISITION
CONTINGENCIES
(330
)
245
84
(3,227
)
DEPRECIATION AND AMORTIZATION
11,964
11,551
45,780
47,479
LOSS FROM OPERATIONS
(8,911
)
(8,290
)
(28,420
)
(28,013
)
OTHER INCOME (EXPENSE)
Other income (expense)
5,934
(935
)
4,374
3,683
Interest expense—net
(2,286
)
(1,229
)
(7,793
)
(5,239
)
Total other income (expense)—net
3,648
(2,164
)
(3,419
)
(1,556
)
LOSS BEFORE (BENEFIT) EXPENSE FROM INCOME
TAXES
(5,263
)
(10,454
)
(31,839
)
(29,569
)
INCOME TAX (BENEFIT) EXPENSE
(3,822
)
358
(980
)
2,250
NET LOSS
$
(1,441
)
$
(10,812
)
$
(30,859
)
$
(31,819
)
EQUITY ADJUSTMENT FROM FOREIGN CURRENCY
TRANSLATION
73
(45
)
(231
)
(28
)
COMPREHENSIVE LOSS
(1,368
)
(10,857
)
(31,090
)
(31,847
)
CONVERTIBLE AND REDEEMABLE SERIES A-2
PREFERRED STOCK DIVIDEND
(4,100
)
(4,100
)
(16,400
)
(16,400
)
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS
(5,541
)
(14,912
)
(47,259
)
(48,219
)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING— BASIC AND DILUTED
30,185
29,720
30,058
29,688
NET LOSS PER SHARE ATTRIBUTABLE TO
COMMON STOCKHOLDERS— BASIC AND DILUTED
$
(0.18
)
$
(0.50
)
$
(1.57
)
$
(1.62
)
MONTROSE ENVIRONMENTAL GROUP,
INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands, except share data)
December 31, 2023
December 31, 2022
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and restricted
cash
$
23,240
$
89,828
Accounts receivable—net
112,360
94,711
Contract assets
51,629
52,403
Prepaid and other current assets
13,668
10,292
Income tax receivable
27
694
Total current assets
200,924
247,928
NON-CURRENT ASSETS:
Property and equipment—net
56,825
36,045
Operating lease right-of-use asset—net
32,260
26,038
Finance lease right-of-use asset—net
13,248
9,840
Goodwill
364,449
323,868
Other intangible assets—net
140,813
142,107
Other assets
8,267
6,088
TOTAL ASSETS
$
816,786
$
791,914
LIABILITIES, CONVERTIBLE AND REDEEMABLE
SERIES A-2 PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued
liabilities
$
59,920
$
63,412
Accrued payroll and benefits
34,660
20,528
Business acquisitions contingent
consideration, current
3,592
3,801
Current portion of operating lease
liabilities
9,963
7,895
Current portion of finance lease
liabilities
3,956
3,775
Current portion of long-term debt
14,196
12,031
Total current liabilities
126,287
111,442
NON-CURRENT LIABILITIES:
Business acquisitions contingent
consideration, long-term
2,448
4,454
Other non-current liabilities
6,569
13
Deferred tax liabilities—net
6,064
5,742
Conversion option
19,017
25,731
Operating lease liability—net of current
portion
25,048
19,437
Finance lease liability—net of current
portion
8,185
6,486
Long-term debt—net of deferred financing
fees
148,988
152,494
Total liabilities
342,606
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 December 31, 2023 and 2022; aggregate liquidation
preference of $182.2 million at December 31, 2023 and 2022
152,928
152,928
STOCKHOLDERS’ EQUITY:
Common stock, $0.000004 par value;
authorized shares: 190,000,000 at December 31, 2023 and 2022;
issued and outstanding shares: 30,190,231 and 29,746,793 at
December 31, 2023 and 2022, respectively
—
—
Additional paid-in capital
531,831
492,676
Accumulated deficit
(210,356
)
(179,497
)
Accumulated other comprehensive (loss)
income
(223
)
8
Total stockholders’ equity
321,252
313,187
TOTAL LIABILITIES, CONVERTIBLE AND
REDEEMABLE SERIES A-2 PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
$
816,786
$
791,914
MONTROSE ENVIRONMENTAL GROUP,
INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In
thousands)
For the Year Ended December
31,
2023
2022
OPERATING ACTIVITIES:
Net loss
$
(30,859
)
$
(31,819
)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for bad debt
3,142
(1,097
)
Depreciation and amortization
45,780
47,479
Amortization of right-of-use asset
10,194
9,289
Stock-based compensation expense
47,267
43,290
Fair value changes in financial
instruments
(4,129
)
(3,396
)
Fair value changes in business acquisition
contingencies
84
(3,227
)
Deferred income taxes
(980
)
2,250
Other
(84
)
349
Changes in operating assets and
liabilities—net of acquisitions:
Accounts receivable and contract
assets
(2,923
)
4,394
Prepaid expenses and other current
assets
(918
)
(1,763
)
Accounts payable and other accrued
liabilities
(8,912
)
(9,878
)
Accrued payroll and benefits
9,464
(6,830
)
Payment of contingent consideration
(611
)
(19,457
)
Change in operating leases
(10,493
)
(8,935
)
Net cash provided by operating
activities
$
56,022
$
20,649
INVESTING ACTIVITIES:
Proceeds from corporate owned and property
insurance
573
329
Purchases of property and equipment
(29,578
)
(9,583
)
Proceeds from the sale of property and
equipment
971
174
Proprietary software development and other
software costs
(3,352
)
(593
)
Payment of purchase price true ups
(1,425
)
(389
)
Minority investments
(2,626
)
—
Cash paid for acquisitions—net of cash
acquired
(66,187
)
(28,625
)
Net cash used in investing activities
$
(101,624
)
$
(38,687
)
FINANCING ACTIVITIES:
Repayment of term loans
(12,211
)
(8,750
)
Proceeds from the aircraft loan
10,935
—
Repayment of aircraft loan
(591
)
—
Payment of contingent consideration and
other purchase price true ups
(1,949
)
(11,107
)
Repayment of finance leases
(4,584
)
(3,967
)
Payments of deferred offering costs
—
(183
)
Proceeds from issuance of common stock for
exercised stock options
4,690
1,643
Dividend payment to the series A-2
shareholders
(16,400
)
(16,400
)
Net cash used in financing activities
$
(20,110
)
$
(38,764
)
CHANGE IN CASH, CASH EQUIVALENTS AND
RESTRICTED CASH
$
(65,712
)
$
(56,802
)
Foreign exchange impact on cash
balance
(876
)
(111
)
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH:
Beginning of year
89,828
146,741
End of period
$
23,240
$
89,828
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid for interest
$
8,059
$
6,514
Cash paid for income tax, net
$
997
$
789
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Accrued purchases of property and
equipment
$
1,098
$
2,261
Property and equipment purchased under
finance leases
$
8,298
$
5,061
Accrued lease surrender liability
$
5,947
$
—
Common stock issued to acquire new
businesses
$
2,598
$
—
Acquisitions unpaid contingent
consideration
$
6,040
$
8,255
Acquisitions contingent consideration paid
in shares
$
1,000
$
—
Promissory note receivable issued in
connection with the sale of assets of the Discontinued Specialty
Lab
$
4,348
$
—
MONTROSE ENVIRONMENTAL GROUP,
INC. SEGMENT REVENUES AND ADJUSTED EBITDA (In
thousands)
(Unaudited) For the Quarter
Ended December 31,
2023
2022
Segment
Segment
Segment
Adjusted
Segment
Adjusted
Revenues
EBITDA(1)
Revenues
EBITDA(1)(5)
Assessment, Permitting and Response
$
50,093
$
9,171
$
45,183
$
7,206
Measurement and Analysis
54,045
(2)
9,689
46,693
(2)
9,736
(4)
Remediation and Reuse
61,604
8,320
47,638
8,557
Total Operating Segments
165,742
27,180
139,514
25,499
Corporate and Other
—
(9,701
)
—
(8,386
)
For the Year Ended December
31,
2023
2022
Segment
Segment
Segment
Adjusted
Segment
Adjusted
Revenues
EBITDA(1)
Revenues
EBITDA(1)(5)
Assessment, Permitting and Response
$
220,727
$
52,148
$
187,234
$
37,458
Measurement and Analysis
197,095
(3)
37,217
172,432
(3)
31,588
(4)
Remediation and Reuse
206,386
27,087
184,750
30,616
Total Operating Segments
624,208
116,452
544,416
99,662
Corporate and Other
—
(37,876
)
—
(31,212
)
________________________________________
(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 $2.9 million and $4.1
million from the Discontinued Specialty Lab for the quarter ended
December 31, 2023 and 2022, respectively.
(3)
Includes revenue of $8.8 million and $17.0
million from the Discontinued Specialty Lab for the year ended
December 31, 2023 and 2022, respectively.
(4)
Includes Adjusted EBITDA of $2.2 million
and $2.1 million from the Discontinued Specialty Lab for the
quarter and year ended December 31, 2022, respectively.
(5)
Includes the add back of start-up (credit)
losses and investment in new services of $(0.7) million and $2.3
million for the quarter and year ended December 31, 2022,
respectively. These costs are not added-back in 2023.
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 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 (Loss) 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. Diluted Adjusted
Net Income (Loss) per Share represents Adjusted Net Income (Loss)
attributable to stockholders divided by the weighted average number
of diluted 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 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. As a result
of the growth in CTEH non-emergency response work, which is similar
to services provided in our advisory businesses, we are including
CTEH revenues from non-emergency response work in organic growth.
This change did not impact previously reported 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 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)
For the Quarter Ended December
31,
For the Year Ended December
31,
2023
2022
2023
2022
Net loss
$
(1,441
)
$
(10,812
)
$
(30,859
)
$
(31,819
)
Amortization of intangible assets(1)
7,621
8,474
30,130
36,053
Stock-based compensation (2)
11,658
10,915
47,267
43,290
Acquisition costs (3)
1,960
537
6,930
1,891
Fair value changes in financial
instruments (4)
(5,943
)
1,268
(4,129
)
(3,396
)
Expenses related to financing transactions
(5)
28
—
35
7
Fair value changes in business acquisition
contingencies (6)
(330
)
245
84
(3,227
)
Discontinued Specialty Lab (7)
791
—
6,112
—
Other losses or expenses (8)
328
2,494
543
4,459
Tax effect of adjustments (9)
—
—
—
—
Adjusted Net Income
$
14,672
$
13,121
$
56,113
$
47,258
Preferred Dividend Series A-2
(4,100
)
(4,100
)
(16,400
)
(16,400
)
Adjusted Net Income attributable to
stockholders
$
10,572
$
9,021
$
39,713
$
30,858
Net loss per share attributable to
stockholders basic and diluted
$
(0.18
)
$
(0.50
)
$
(1.57
)
$
(1.62
)
Basic Adjusted Net Income per Share
(10)
$
0.35
$
0.30
$
1.32
$
1.04
Diluted Adjusted Net Income per Share
(11)
$
0.27
$
0.25
$
1.07
$
0.86
Weighted average common shares
outstanding
30,185
29,720
30,058
29,688
Fully diluted shares
38,589
35,686
37,128
35,997
________________________________________
(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,
which include $2.2 million in current expected credit losses on the
promissory note receivable issued upon the sale and a $1.8 million
gain on the sale of its assets.
(8) In 2023, amounts are primarily
comprised of lease abandonment charges and expenses related to an
aircraft accident, partially offset by a gain on the surrender of a
lease and an aircraft insurance gain. In 2022, amounts include
costs associated with the closing of a lab and severance costs
related to a restructuring within our soil remediation
business.
(9) The Company determined none of the
adjustments have any tax impact since we are in a full deferred tax
asset valuation allowance due to being in a cumulative 3-year
pre-tax loss position as of December 31, 2023. Prior period amounts
have been recalculated from amounts originally disclosed using the
current methodology.
(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)
For the Quarter Ended December
31,
For the Year Ended December
31,
2023
2022
2023
2022
Net loss
$
(1,441
)
$
(10,812
)
$
(30,859
)
$
(31,819
)
Interest expense
2,286
1,229
7,793
5,239
Income tax (benefit) expense
(3,822
)
358
(980
)
2,250
Depreciation and amortization
11,964
11,551
45,780
47,479
EBITDA
$
8,987
$
2,326
$
21,734
$
23,149
Stock-based compensation (1)
11,658
10,915
47,267
43,290
Acquisition costs (2)
1,960
537
6,930
1,891
Fair value changes in financial
instruments (3)
(5,943
)
1,268
(4,129
)
(3,396
)
Expenses related to financing transactions
(4)
28
—
35
7
Fair value changes in business acquisition
contingencies (5)
(330
)
245
84
(3,227
)
Discontinued Specialty Lab (6)
791
—
6,112
—
Other losses or expenses (7)
328
2,494
543
4,459
Consolidated Adjusted EBITDA
$
17,479
$
17,785
$
78,576
$
66,173
___________________________________
(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,
which include $2.2 million in current expected credit losses on the
promissory note receivable issued upon the sale and a $1.8 million
gain on the sale of its assets.
(7) In 2023, amounts are primarily
comprised of lease abandonment charges and expenses related to an
aircraft accident, partially offset by a gain on the surrender of a
lease and an aircraft insurance gain. In 2022, amounts include
costs associated with the closing of a lab and severance costs
related to a restructuring within our soil remediation
business.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240229592306/en/
Investor Relations: Rodny Nacier (949) 988-3383
ir@montrose-env.com Media Relations: Sarah Kaiser (225) 955-1702
pr@montrose-env.com
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