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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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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
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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)
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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:
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Common Stock, par value $0.000004 per share |
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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.
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Large accelerated filer |
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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 May 5, 2022, the registrant had 29,678,697 shares of common stock, $0.000004 par value per share, outstanding.
Table of Contents
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 |
|
|