UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 August 2, 2024, the registrant had
Table of Contents
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Page |
PART I. |
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Item 1. |
1 |
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Unaudited Condensed Consolidated Statements of Financial Position |
1 |
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Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss |
2 |
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3 |
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4 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
5 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
27 |
Item 3. |
36 |
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Item 4. |
36 |
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PART II. |
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Item 1. |
38 |
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Item 1A. |
38 |
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Item 2. |
38 |
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Item 3. |
38 |
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Item 4. |
38 |
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Item 5. |
38 |
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Item 6. |
39 |
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40 |
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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)
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June 30, |
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December 31, |
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2024 |
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2023 |
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Assets |
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Current assets |
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Cash, cash equivalents and restricted cash |
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$ |
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$ |
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Accounts receivable, net |
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Contract assets |
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Prepaid and other current assets |
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Total current assets |
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Non-current assets |
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Property and equipment, net |
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Operating lease right-of-use asset, net |
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Finance lease right-of-use asset, net |
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Goodwill |
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Other intangible assets, net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities, Convertible and Redeemable Series A-2 Preferred Stock and Stockholders’ Equity |
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Current liabilities |
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Accounts payable and other accrued liabilities |
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$ |
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$ |
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Accrued payroll and benefits |
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Business acquisitions contingent consideration, current |
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Current portion of operating lease liabilities |
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Current portion of finance lease liabilities |
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Current portion of long-term debt |
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Total current liabilities |
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Non-current liabilities |
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Business acquisitions contingent consideration, long-term |
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Other non-current liabilities |
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Deferred tax liabilities, net |
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Conversion option |
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Operating lease liability, net of current portion |
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Finance lease liability, net of current portion |
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Long-term debt, net of deferred financing fees |
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Total liabilities |
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$ |
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$ |
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Convertible and redeemable series A-2 preferred stock $ |
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Authorized, issued and outstanding shares: |
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Stockholders’ equity: |
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Common stock, $ |
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— |
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— |
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Additional paid-in-capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive (loss) income |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities, convertible and redeemable series A-2 preferred stock and stockholders’ equity |
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$ |
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$ |
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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)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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Cost of revenues (exclusive of depreciation and amortization shown below) |
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Selling, general and administrative expense |
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Fair value changes in business acquisition contingencies |
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( |
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Depreciation and amortization |
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Loss from operations |
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( |
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( |
) |
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( |
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( |
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Other income (expense), net |
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( |
) |
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( |
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( |
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Interest expense, net |
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( |
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( |
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( |
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( |
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Total other income (expense), net |
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( |
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( |
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( |
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( |
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Loss before expense from income taxes |
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( |
) |
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( |
) |
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( |
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( |
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Income tax expense |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Equity adjustment from foreign currency translation |
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( |
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— |
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( |
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Comprehensive loss |
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( |
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( |
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( |
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( |
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Convertible and redeemable series A-2 preferred stock dividend |
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( |
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( |
) |
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( |
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( |
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Net loss attributable to common stockholders |
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( |
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( |
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( |
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( |
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Weighted average common shares outstanding— basic and diluted |
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Net loss per share attributable to common stockholders— basic and diluted |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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)
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Accumulated |
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Convertible and Redeemable |
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Additional |
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Other |
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Total |
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Series A-2 Preferred Stock |
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Common Stock |
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Paid-In |
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Accumulated |
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Comprehensive |
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Stockholders' |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
— |
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$ |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Dividend payment to the Series A-2 preferred stockholders |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Common stock issuances pursuant to exercises and vesting of equity awards |
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— |
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— |
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— |
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— |
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— |
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Accumulated other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Dividend payment to the Series A-2 preferred shareholders |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Common stock issuances pursuant to exercises and vesting of equity awards |
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— |
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— |
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— |
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— |
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— |
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Acquisitions consideration paid in common stock |
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— |
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— |
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— |
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— |
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— |
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Accumulated other comprehensive loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at June 30, 2023 |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
$ |
( |
) |
$ |
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Accumulated |
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Convertible and Redeemable |
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Additional |
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Other |
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Total |
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Series A-2 Preferred Stock |
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Common Stock |
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Paid-In |
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Accumulated |
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Comprehensive |
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Stockholders' |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Equity |
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Balance at December 31, 2023 |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Redemption of Series A-2 preferred stock |
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( |
) |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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- |
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Dividend payment to the Series A-2 preferred stockholders |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Common stock issuances pursuant to exercises and vesting of equity awards |
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— |
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— |
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— |
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— |
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— |
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Acquisitions consideration paid in common stock |
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— |
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— |
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— |
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— |
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— |
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Payment of earn-out liability |
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— |
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— |
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— |
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— |
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— |
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Accumulated other comprehensive income |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at March 31, 2024 |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Dividend payment to the Series A-2 preferred shareholders |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Common stock issuances pursuant to exercises and vesting of equity awards |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock pursuant to follow-on offering |
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— |
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— |
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— |
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— |
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— |
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Acquisitions consideration paid in common stock |
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— |
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— |
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— |
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— |
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— |
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Accumulated other comprehensive loss |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at June 30, 2024 |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
$ |
( |
) |
$ |
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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)
|
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For the Six Months Ended June 30, |
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2024 |
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2023 |
|
||
Operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization of right-of-use asset |
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Stock-based compensation expense |
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Other operating activities, net |
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Changes in operating assets and liabilities, net of acquisitions: |
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— |
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Accounts receivable and contract assets |
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( |
) |
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Accounts payable and other accrued liabilities |
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( |
) |
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( |
) |
Accrued payroll and benefits |
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( |
) |
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Payment of contingent consideration |
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— |
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( |
) |
Change in operating leases |
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( |
) |
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( |
) |
Other assets |
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( |
) |
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( |
) |
Net cash (used in) provided by operating activities |
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( |
) |
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Investing activities: |
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Proceeds from corporate owned and property insurance |
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Purchases of property and equipment |
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( |
) |
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( |
) |
Proceeds from the sale of property and equipment |
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Proprietary software development and other software costs |
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( |
) |
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( |
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Purchase price true ups |
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— |
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( |
) |
Minority investments |
|
|
( |
) |
|
|
— |
|
Cash paid for acquisitions, net of cash acquired |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Financing activities: |
|
|
|
|
|
|
||
Proceeds from line of credit |
|
|
|
|
|
— |
|
|
Repayment of the line of credit |
|
|
( |
) |
|
|
— |
|
Proceeds from the aircraft loan |
|
|
— |
|
|
|
|
|
Repayment of aircraft loan |
|
|
( |
) |
|
|
|
|
Proceeds from term loan |
|
|
|
|
|
— |
|
|
Repayment of term loan |
|
|
( |
) |
|
|
( |
) |
Payment of contingent consideration and other purchase price true ups |
|
|
( |
) |
|
|
( |
) |
Repayment of finance leases |
|
|
( |
) |
|
|
( |
) |
Payments of deferred financing costs |
|
|
( |
) |
|
|
— |
|
Proceeds from issuance of common stock for exercised stock options |
|
|
|
|
|
|
||
Proceeds from issuance of common stock in follow-on offering |
|
|
|
|
|
— |
|
|
Dividend payment to the series A-2 stockholders |
|
|
( |
) |
|
|
( |
) |
Repayment to the series A-2 stockholders |
|
|
( |
) |
|
|
— |
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
( |
) |
|
Change in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Foreign exchange impact on cash balance |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
||
Beginning of year |
|
|
|
|
|
|
||
End of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosures of cash flows information: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Cash paid for income tax |
|
$ |
|
|
$ |
|
||
Supplemental disclosures of non-cash investing and financing activities: |
|
|
|
|
|
|
||
Accrued purchases of property and equipment |
|
$ |
|
|
$ |
|
||
Property and equipment purchased under finance leases |
|
$ |
|
|
$ |
|
||
Common stock issued to acquire new businesses |
|
$ |
|
|
$ |
|
||
Acquisitions unpaid contingent consideration |
|
$ |
|
|
$ |
|
||
Acquisitions contingent consideration paid in common stock |
|
$ |
|
|
$ |
— |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
MONTROSE ENVIRONMENTAL GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except where otherwise indicated)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
Montrose Environmental Group, Inc. (“Montrose” or the “Company”) is a corporation formed on
Montrose is an environmental services company serving the recurring environmental needs of a diverse client base, including Fortune 500 companies and federal, state and local governments through the following
Assessment, Permitting and Response segment provides scientific advisory and consulting services to support environmental assessments, environmental emergency response and recovery, toxicology consulting and environmental audits and permits for current operations, facility upgrades, new projects, decommissioning projects and development projects. The Company works closely with clients to navigate the regulatory process at the local, state, provincial and federal levels, identify the potential environmental and political impacts of their decisions and develop practical mitigation approaches, as needed. In addition to environmental toxicology, and given the Company's expertise in helping businesses plan for and respond to disruptions, the Company's scientists and response teams have helped clients navigate their preparation for and response to emergency response situations.
Measurement and Analysis segment is one of the largest providers of environmental testing and laboratory services in North America. The Company's highly credentialed teams test and analyze air, water and soil to determine concentrations of contaminants, as well as the toxicological impact of contaminants on flora, fauna and human health. The Company's offerings include source and ambient air testing and monitoring, leak detection, and advanced multi-media laboratory services, including air, soil, stormwater, wastewater and drinking water analysis.
Remediation and Reuse segment provides clients with engineering, design, and implementation services, primarily to treat contaminated water, remove contaminants from soil or create biogas from waste. The Company's team, including engineers, scientists and consultants, provides these services to assist clients in designing solutions, managing products and mitigating environmental risks and liabilities at their locations. The Company does not own the properties or facilities at which it implements these projects or the underlying liabilities, nor does the Company own material amounts of the equipment used in projects.
Basis of Presentation
The unaudited condensed consolidated financial statements include the operations of the Company and its wholly-owned subsidiaries. These unaudited condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) that permit reduced disclosure for interim periods. The unaudited condensed consolidated financial statements include all accounts of the Company and, in the opinion of management, include all recurring adjustments and normal accruals necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the dates and periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2023. Results for interim periods are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period. All intercompany transactions, accounts and profits, have been eliminated in the unaudited condensed consolidated financial statements.
Within the unaudited condensed consolidated financial statements certain amounts in the prior period have been reclassified to conform with current period presentation. The Company reclassified $
5
2. SUMMARY OF NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2023-07, Improvements to Reportable Segment Disclosures. The amendments improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. ASU 2023-07 is effective for the Company's fiscal year beginning January 1, 2024 and requires the use of a retrospective approach to all prior periods presented. The Company
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2023, the FASB issued ASU 2023-05, under which an entity that qualifies as either a joint venture or a corporate joint venture is required to apply a new basis of accounting upon the formation of the joint venture. Specifically, the ASU provides that a joint venture or a corporate joint venture must initially measure its assets and liabilities at fair value on the formation date. The amendments in ASU 2023-05 are effective for all joint ventures within the ASU’s scope that are formed on or after January 1, 2025. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the standard on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for the Company beginning January 1, 2025 and allows the use of a prospective or retrospective approach. The Company is currently evaluating the impact of the adoption of the standard on its consolidated financial statements.
3. REVENUES AND ACCOUNTS RECEIVABLE
The Company’s main revenue sources derive from the following revenue streams:
Assessment, Permitting and Response Revenues—Assessment, Permitting and Response revenues are generated from multidisciplinary environmental consulting services. The majority of the contracts are fixed-price or time and material based.
Measurement and Analysis Revenues—Measurement and Analysis revenues are generated from emissions sampling, testing and reporting services, leak detection services, ambient air monitoring services and laboratory testing services. The majority of the contracts are fixed-price or time-and-materials based.
Remediation and Reuse Revenues—Remediation and Reuse revenues are generated from engineering, design, implementation and operating and maintenance (“O&M”) services primarily to treat contaminated water, remove contaminants from soil or create biogas from waste. Engineering, design and implementation contracts are predominantly fixed-fee and time-and-materials based. Services on the majority of O&M contracts are provided under long-term fixed-fee contracts.
Disaggregation of Revenue—The Company disaggregates revenue by its operating segments. The Company believes disaggregating revenue into these categories achieves the disclosure objectives to depict how the nature, amount, and uncertainty of revenue and cash flows are affected by economic factors. Disaggregated revenue disclosures are provided in Note 19.
Contract Balances—The Company presents contract balances for unbilled receivables (contract assets), as well as customer advances, deposits and deferred revenue (contract liabilities) within contract assets and accounts payable and other accrued expenses, respectively, on the unaudited condensed consolidated statements of financial position. Amounts are generally billed at periodic intervals (e.g. weekly, bi-weekly or monthly) as work progresses in accordance with agreed-upon contractual terms. The Company utilizes the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component as the period between when the Company transfers services to a customer and when the customer pays for those services is one year or less. Amounts recorded as unbilled receivables are generally for services the Company is not entitled to bill based on the passage of time. Under certain contracts, billing occurs subsequent to revenue recognition, resulting in contract assets. The Company sometimes receives advances or deposits from customers before revenue is recognized, resulting in contract liabilities.
6
The following table presents the Company’s contract balances:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Contract assets |
|
$ |
|
|
$ |
|
||
Contract liabilities |
|
|
|
|
|
|
||
Contract assets acquired through business acquisitions amounted to $
Revenue recognized during the three and six months ended June 30, 2024, included in the contract liabilities balance at the beginning of the year was $
Remaining Unsatisfied Performance Obligations—Remaining unsatisfied performance obligations represent the total dollar value of work to be performed on fixed fee contracts awarded primarily within our soil remediation, water treatment, and renewable business lines. The amount of remaining unsatisfied performance obligations increases with new contracts or additions to existing contracts and decreases as revenue is recognized on existing contracts. Contracts are included in the amount of remaining unsatisfied performance obligations when an enforceable agreement has been reached. As of June 30, 2024 and December 31, 2023, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was approximately $
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Accounts receivable, invoiced |
|
$ |
|
|
$ |
|
||
Accounts receivable, other |
|
|
|
|
|
|
||
Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
Accounts receivable, net |
|
$ |
|
|
$ |
|
||
The Company had
The allowance for doubtful accounts consisted of the following:
|
|
Beginning |
|
|
Bad Debt |
|
|
Charged to |
|
|
Other(1) |
|
|
Ending |
|
|||||