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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39394

 

Montrose Environmental Group, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

46-4195044

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

5120 Northshore Drive,

North Little Rock, Arkansas

72118

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (501) 900-6400

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.000004 per share

 

MEG

 

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of May 5, 2022, the registrant had 29,678,697 shares of common stock, $0.000004 par value per share, outstanding.

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

1

 

Unaudited Condensed Consolidated Statements of Financial Position

1

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Unaudited Condensed Consolidated Statements of Convertible and Redeemable Series A-2 Preferred Stock and Stockholders’ Equity

3

 

Unaudited Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

41

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

43

Signatures

44

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

MONTROSE ENVIRONMENTAL GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(In thousands, except share data)

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and restricted cash

 

$

93,791

 

 

$

146,741

 

Accounts receivable—net

 

 

81,650

 

 

 

98,513

 

Contract assets

 

 

51,716

 

 

 

40,139

 

Prepaid and other current assets

 

 

11,701

 

 

 

8,465

 

Total current assets

 

 

238,858

 

 

 

293,858

 

NON-CURRENT ASSETS:

 

 

 

 

 

 

Property and equipment—net

 

 

32,482

 

 

 

31,521

 

Operating lease right-of-use asset—net

 

 

30,129

 

 

 

23,532

 

Finance lease right-of-use asset—net

 

 

8,493

 

 

 

8,944

 

Goodwill

 

 

316,173

 

 

 

311,944

 

Other intangible assets—net

 

 

159,425

 

 

 

160,997

 

Other assets

 

 

4,685

 

 

 

2,298

 

TOTAL ASSETS

 

$

790,245

 

 

$

833,094

 

LIABILITIES, CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK AND
   STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

58,992

 

 

$

68,936

 

Accrued payroll and benefits

 

 

18,679

 

 

 

25,971

 

Business acquisitions contingent consideration, current

 

 

1,429

 

 

 

31,450

 

Current portion of operating lease liabilities

 

 

8,368

 

 

 

6,888

 

Current portion of finance lease liabilities

 

 

3,477

 

 

 

3,512

 

Current portion of long-term debt

 

 

8,750

 

 

 

10,938

 

Total current liabilities

 

 

99,695

 

 

 

147,695

 

NON-CURRENT LIABILITIES:

 

 

 

 

 

 

Business acquisitions contingent consideration, long-term

 

 

5,566

 

 

 

4,350

 

Other non-current liabilities

 

 

90

 

 

 

100

 

Deferred tax liabilities—net

 

 

5,304

 

 

 

4,006

 

Conversion option

 

 

23,637

 

 

 

23,081

 

Operating lease liability—net of current portion

 

 

22,128

 

 

 

16,859

 

Finance lease liability—net of current portion

 

 

5,372

 

 

 

5,756

 

Long-term debt—net of deferred financing fees

 

 

159,761

 

 

 

161,818

 

Total liabilities

 

 

321,553

 

 

 

363,665

 

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, 2022 and
   December 31, 2021; aggregate liquidation preference of $
182.2 million at March 31, 2022 and
   December 31, 2021

 

 

152,928

 

 

 

152,928

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

Common stock, $0.000004 par value; authorized shares: 190,000,000 at
   March 31, 2022 and December 31, 2021; issued and outstanding shares:
29,675,817 and
   
29,619,921 at March 31, 2022 and December 31, 2021, respectively

 

 

 

 

 

 

Additional paid-in-capital

 

 

470,897

 

 

 

464,143

 

Accumulated deficit

 

 

(155,214

)

 

 

(147,678

)

Accumulated other comprehensive income

 

 

81

 

 

 

36

 

Total stockholders’ equity

 

 

315,764

 

 

 

316,501

 

TOTAL LIABILITIES, CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK
   AND STOCKHOLDERS’ EQUITY

 

$

790,245

 

 

$

833,094

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1


 

MONTROSE ENVIRONMENTAL GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

REVENUES

 

$

134,680

 

 

$

133,817

 

COST OF REVENUES (exclusive of depreciation and
   amortization shown below)

 

 

88,386

 

 

 

95,316

 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

 

 

41,807

 

 

 

25,000

 

FAIR VALUE CHANGES IN BUSINESS ACQUISITIONS
   CONTINGENT CONSIDERATION

 

 

(21

)

 

 

11,064

 

DEPRECIATION AND AMORTIZATION

 

 

12,144

 

 

 

11,796

 

LOSS FROM OPERATIONS

 

 

(7,636

)

 

 

(9,359

)

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

Other income (expense)

 

 

2,461

 

 

 

(882

)

Interest expense—net

 

 

(1,092

)

 

 

(2,688

)

Total other income (expense)—net

 

 

1,369

 

 

 

(3,570

)

LOSS BEFORE EXPENSE FROM
   INCOME TAXES

 

 

(6,267

)

 

 

(12,929

)

INCOME TAX EXPENSE

 

 

1,269

 

 

 

2

 

NET LOSS

 

$

(7,536

)

 

$

(12,931

)

 

 

 

 

 

 

 

EQUITY ADJUSTMENT FROM FOREIGN
   CURRENCY TRANSLATION

 

 

81

 

 

 

29

 

COMPREHENSIVE LOSS

 

 

(7,455

)

 

 

(12,902

)

CONVERTIBLE AND REDEEMABLE SERIES A-2
   PREFERRED STOCK DIVIDEND

 

 

(4,100

)

 

 

(4,100

)

NET LOSS ATTRIBUTABLE TO
   COMMON STOCKHOLDERS

 

 

(11,636

)

 

 

(17,031

)

WEIGHTED AVERAGE COMMON SHARES
   OUTSTANDING— BASIC AND DILUTED

 

 

29,662

 

 

 

25,117

 

NET LOSS PER SHARE ATTRIBUTABLE TO
   COMMON STOCKHOLDERS— BASIC AND DILUTED

 

$

(0.39

)

 

$

(0.68

)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


 

MONTROSE ENVIRONMENTAL GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Convertible and Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

Series A-2 Preferred Stock

 

 

 

Common Stock

 

Additional

 

Accumulated

 

Comprehensive

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

Paid-In Capital

 

Deficit

 

Income

 

Equity

 

BALANCE—December 31, 2020

 

 

17,500

 

 

$

152,928

 

 

 

 

24,932,527

 

 

$

 

$

259,427

 

$

(122,353

)

$

71

 

$

137,145

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,931

)

 

 

 

(12,931

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,805

 

 

 

 

 

 

1,805

 

Dividend payment to the Series A-2
   preferred shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,100

)

 

 

 

 

 

(4,100

)

Common stock issued

 

 

 

 

 

 

 

 

 

506,330

 

 

 

 

 

4,456

 

 

 

 

 

 

4,456

 

Accumulated other comprehensive
   income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29

 

 

29

 

BALANCE—March 31, 2021

 

 

17,500

 

 

$

152,928

 

 

 

 

25,438,857

 

 

$

 

$

261,588

 

$

(135,284

)

$

100

 

$

126,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Convertible and Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

Series A-2 Preferred Stock

 

 

 

Common Stock

 

Additional

 

Accumulated

 

Comprehensive

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

Paid-In Capital

 

Deficit

 

Income

 

Equity

 

BALANCE—December 31, 2021

 

 

17,500

 

 

$

152,928

 

 

 

 

29,619,921

 

 

$

 

$

464,143

 

$

(147,678

)

$

36

 

$

316,501

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,536

)

 

 

 

(7,536

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,425

 

 

 

 

 

 

10,425

 

Dividend payment to the Series A-2
   preferred shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,100

)

 

 

 

 

 

(4,100

)

Common stock issued

 

 

 

 

 

 

 

 

 

55,896

 

 

 

 

 

429

 

 

 

 

 

 

429

 

Accumulated other comprehensive
   income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45

 

 

45

 

BALANCE—March 31, 2022

 

 

17,500

 

 

$

152,928

 

 

 

 

29,675,817

 

 

$

 

$

470,897

 

$

(155,214

)

$

81

 

$

315,764

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

MONTROSE ENVIRONMENTAL GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(7,536

)

 

$

(12,931

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Provision for bad debt

 

 

(528

)

 

 

508

 

Depreciation and amortization

 

 

12,144

 

 

 

11,796

 

Amortization of right-of-use asset

 

 

2,271

 

 

 

1,875

 

Stock-based compensation expense

 

 

10,425

 

 

 

1,805

 

Fair value changes in financial instruments

 

 

(2,449

)

 

 

602

 

Fair value changes in business acquisitions contingent consideration

 

 

(21

)

 

 

11,064

 

Deferred income taxes

 

 

1,269

 

 

 

2

 

Other

 

 

143

 

 

 

358

 

Changes in operating assets and liabilities—net of acquisitions:

 

 

 

 

 

 

Accounts receivable and contract assets

 

 

10,037

 

 

 

(29,029

)

Prepaid expenses and other current assets

 

 

(1,776

)

 

 

787

 

Accounts payable and other accrued liabilities

 

 

(12,852

)

 

 

3,186

 

Accrued payroll and benefits

 

 

(7,876

)

 

 

(2,058

)

Payment of contingent consideration

 

 

(19,457

)

 

 

 

Change in operating leases

 

 

(2,122

)

 

 

(1,878

)

Net cash used in operating activities

 

 

(18,328

)

 

 

(13,913

)

INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(262

)

 

 

(922

)

Proceeds received from corporate owned insurance

 

 

266

 

 

 

 

Proprietary software development and other software costs

 

 

(50

)

 

 

(204

)

Purchase price true ups

 

 

(631

)

 

 

 

Cash paid for acquisitions—net of cash acquired

 

 

(14,328

)

 

 

(6,272

)

Net cash used in investing activities

 

 

(15,005

)

 

 

(7,398

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

Repayment of term loan

 

 

(4,375

)

 

 

(547

)

Payment of contingent consideration

 

 

(10,543

)

 

 

 

Repayment of finance leases

 

 

(943

)

 

 

(625

)

Proceeds from issuance of common stock for exercised stock options

 

 

429

 

 

 

2,185

 

Dividend payment to the Series A-2 shareholders

 

 

(4,100

)

 

 

(4,100

)

Payments of deferred offering costs

 

 

(183

)

 

 

 

Net cash used in financing activities

 

 

(19,715

)

 

 

(3,087

)

CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(53,048

)

 

 

(24,398

)

Foreign exchange impact on cash balance

 

 

98

 

 

 

158

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

 

 

 

 

 

 

Beginning of year

 

 

146,741

 

 

 

34,881

 

End of period

 

$

93,791

 

 

$

10,641

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:

 

 

 

 

 

 

Cash paid for interest

 

$

184

 

 

$

2,500

 

Cash paid for income tax