Montrose Environmental Group, Inc. [MEG] Filings

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10-Q 1 meg-20220331.htm 10-Q 10-Q

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


☐	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.

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

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.

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.

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.

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

Montrose Environmental Group, Inc. [MEG] Filings
10-Q	[2022-05-10]
10-K	[2022-03-01]
10-Q	[2021-11-10]
10-Q	[2021-08-11]
10-Q	[2021-05-12]
10-K	[2021-03-24]
S-1	[2020-11-23]
10-Q	[2020-11-12]
10-Q	[2020-08-31]
S-1	[2020-06-29]