- Consistent and Strong Demand for Montrose’s
Environmental Solutions -
- Entered into Sustainability-Linked Credit
Facility in April 2021 -
- Acquired MSE Group to Bolster Select
Environmental Service Capabilities -
- Increased Guidance for Full Year 2021 -
Montrose Environmental Group, Inc. (the “Company,” “Montrose” or
“MEG”) (NYSE: MEG) today announced results for the first quarter
ended March 31, 2021.
First Quarter 2021 Highlights
- Total revenue of $133.8 million increased 119.3% compared to
the prior year quarter.
- Net loss of $11.6 million compared to a net loss of $41.2
million in the prior year quarter. Net loss for first quarter 2021
was primarily due to non-cash fair value adjustment expenses.
- Adjusted EBITDA1 of $16.8 million increased 202.5% compared to
the prior year quarter.
- Adjusted EBITDA margin1 improved to 12.6% compared to 9.1% in
the prior year quarter.
- Acquired MSE Group, a premier provider of environmental
planning, permitting and remediation solutions primarily to the
U.S. federal government.
“We are pleased to have started 2021 on a solid footing. Though
the business is best assessed on an annual basis rather than on a
quarterly basis, the strong start coupled with our team’s optimism
across all parts of our business is causing us to increase our
guidance for 2021,” stated Vijay Manthripragada, Montrose’s Chief
Executive Officer. “Our investments in environmental R&D and
commercialization and the response capabilities of our team at CTEH
continue to add value to our customers and support our performance
and outlook.”
Mr. Manthripragada continued, “The economic and political
dynamics in our key markets continue to create opportunities for
Montrose as customers look to create value through environmental
stewardship. For example, some of our customers are voluntarily
accelerating their emissions reduction targets to align with the
recently announced long-term emissions goals in the U.S. Such
developments create tailwinds for each of our business segments,
and I believe they validate our uniquely integrated approach to the
environmental industry.”
(1)
Adjusted EBITDA and Adjusted
EBITDA margin 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 of Adjusted EBITDA
to net income (loss), the most directly comparable GAAP
measure.
First Quarter 2021 Results
Total revenue in the first quarter of 2021 increased 119.3% to
$133.8 million, compared to $61.0 million in the prior year
quarter. Excluding discontinued services, which contributed zero
revenue in the first quarter 2021 and $2.5 million in the first
quarter 2020, total revenue increased 128.7%. The increase in
revenues was driven by CTEH (acquired in April 2020) and organic
growth in our Remediation and Reuse segment, partially offset by a
decrease in revenues in our Measurement and Analysis segment, which
was expected.
Net loss was $11.6 million, compared to a net loss of $41.2
million in the prior year quarter. The year-over-year change was
primarily attributable to an increase in both revenues and margins
as well as lower non-cash fair value adjustment expenses.
Adjusted EBITDA1 increased to $16.8 million, compared to $5.6
million in the prior year quarter. The increase in Adjusted EBITDA1
was primarily driven by higher revenues and favorable shifts in
business mix. Adjusted EBITDA margin1 improved 350 basis points to
12.6%, compared to 9.1% in the prior year quarter, mainly due to
business mix and operating leverage from lower corporate expenses
as a percentage of revenue.
Operating Cash Flow Liquidity and Capital Resources
Cash used in operating activities was $13.9 million in the first
quarter of 2021, compared to cash used in operations of $9.0
million in the prior year quarter. Cash used in operations in both
quarters was driven by seasonality and the payment of annual
bonuses. In addition, in the first quarter of 2021, working capital
increased by $27.1 million as a result of the significant increase
in revenues versus the fourth quarter of 2020. We remain confident
in our ability to generate strong cash flows on a full year basis
in 2021.
At March 31, 2021, Montrose had total debt, net of deferred debt
issuance costs, of $175.6 million and $10.6 million of cash. As of
March 31, 2021, the Company’s leverage ratio under its credit
facility, which includes the impact of acquisition-related
contingent earnout payments that may become payable in cash, was
3.1 times. The leverage ratio increased from December 31, 2020
primarily due to the typical use of cash in the first quarter, the
change in working capital due to the significant increase in the
first quarter revenues, and the acquisition of MSE. With expected
strong operating cash flows for the remainder of 2021, we remain
confident in being able to continue executing on our organic and
acquisition-related strategy while maintaining our leverage between
2.5x-3.5x.
In April 2021 the Company entered into a new
sustainability-linked credit facility in the form of a term loan,
in an aggregate principal amount of $175.0 million, and a revolving
credit facility, in an aggregate principal amount of $125.0
million. The Company used net proceeds from the new debt to repay
all of its outstanding borrowings under its former term loan and
former revolver. The new credit facility’s opening spread of LIBOR
plus 2.0% not only reduces the previous term loan interest rate of
5.5%, but also provides up to a 5 basis point pricing adjustment
based on Montrose’s performance against certain sustainability and
ESG related objectives pursuant to the agreement.
Acquisitions
In January 2021, Montrose acquired MSE Group (“MSE”), a leading
provider of environmental solutions primarily to the U.S. federal
government. The addition of the MSE team is strategically additive
to our Remediation and Reuse Segment, increases our environmental
service offerings for select U.S. federal agencies, and expands our
geographic presence in the Southeast U.S. The Company’s M&A
pipeline and outlook for deal activity in 2021 remain strong.
Full Year 2021 Outlook
Because demand for environmental services does not follow fiscal
quarter patterns, the Company’s business is best assessed on yearly
results. Given its strong start to the year and strength across its
segments, the Company expects full year 2021 Adjusted EBITDA1 to be
in the range of $63.0 million to $70.0 million, which is increased
from its prior full year 2021 guidance of $61.0 million to $67.0
million in Adjusted EBITDA1. This upgraded outlook reflects
anticipated year-over-year revenue growth in excess of 20.0% at the
mid-point and is primarily attributable to the timing of strong
first quarter revenues.
The current outlook is based on a combination of mid-to-high
single digit organic growth plus the contribution of completed
acquisitions. The outlook does not include any benefit from future
acquisitions that have not yet been completed.
We have successfully grown revenue in excess of 20.0% every year
and expect to exceed that threshold in 2021. In addition, we expect
to continue adding strategically and financially accretive
acquisitions that are not yet reflected in our 2021 guidance or
outlook.
Webcast and Conference Call
The Company’s senior management will host a webcast and
conference call on Wednesday, May 12, 2021 at 5:00 p.m. Eastern
time to discuss first quarter 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 1-877-407-9208
(Domestic) and 1-201-493-6784 (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 more than 2,000 employees across over 70 locations
around the world, Montrose combines deep local knowledge with an
integrated approach to design, engineering, and operations,
enabling the Company 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. Further, many of these factors are, and
may continue to be, amplified by the COVID-19 pandemic. 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, 2020,
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)
Three Months Ended
March 31,
2021
2020
REVENUES
$
133,817
$
61,031
COST OF REVENUES (exclusive of
depreciation and
amortization shown below)
95,316
44,398
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE
25,000
20,519
INITIAL PUBLIC OFFERING EXPENSE
—
531
FAIR VALUE CHANGES IN BUSINESS
ACQUISITIONS
CONTINGENT CONSIDERATION
11,064
—
DEPRECIATION AND AMORTIZATION
10,769
7,560
LOSS FROM OPERATIONS
(8,332
)
(11,977
)
OTHER EXPENSE
Other expense
(574
)
(29,830
)
Interest expense—net
(2,688
)
(2,593
)
Total other expenses—net
(3,262
)
(32,423
)
LOSS BEFORE EXPENSE (BENEFIT) FROM INCOME
TAXES
(11,594
)
(44,400
)
INCOME TAXES EXPENSE (BENEFIT)
2
(3,152
)
NET LOSS
$
(11,596
)
$
(41,248
)
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY
TRANSLATION
29
(3
)
COMPREHENSIVE LOSS
(11,567
)
(41,251
)
ACCRETION OF REDEEMABLE SERIES A-1
PREFERRED
STOCK
—
(5,415
)
CONVERTIBLE AND REDEEMABLE SERIES A-2
PREFERRED STOCK DIVIDEND
(4,100
)
—
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS
(15,696
)
(46,663
)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING— BASIC AND DILUTED
25,117
8,904
NET LOSS PER SHARE ATTRIBUTABLE TO
COMMON
STOCKHOLDERS— BASIC AND DILUTED
$
(0.62
)
$
(5.24
)
MONTROSE ENVIRONMENTAL GROUP,
INC.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands, except share
data)
March 31,
December 31,
2021
2020
ASSETS
CURRENT ASSETS:
Cash and restricted cash
$
10,641
$
34,881
Accounts receivable—net
65,771
54,102
Contract assets
61,636
38,576
Prepaid and other current assets
8,830
6,709
Total current assets
146,878
134,268
NON-CURRENT ASSETS:
Property and equipment—net
34,941
34,399
Goodwill
282,199
274,667
Other intangible assets—net
157,315
154,854
Other assets
3,896
4,538
TOTAL ASSETS
$
625,229
$
602,726
LIABILITIES, CONVERTIBLE AND REDEEMABLE
SERIES A-2 PREFERRED STOCK AND
STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued
liabilities
$
52,431
$
34,877
Accrued payroll and benefits
22,564
21,181
Business acquisitions contingent
consideration, current
50,364
49,902
Current portion of long-term debt
6,214
5,583
Total current liabilities
131,573
111,543
NON-CURRENT LIABILITIES:
Business acquisitions contingent
consideration, long-term
16,971
4,565
Other non-current liabilities
2,514
2,523
Deferred tax liabilities—net
2,591
2,815
Conversion option
21,488
20,886
Long-term debt—net of deferred financing
fees
169,425
170,321
Total liabilities
344,562
312,653
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, 2021 and
December 31, 2020; aggregate liquidation
preference of $182.2 million at March 31, 2021
and December 31, 2020
152,928
152,928
STOCKHOLDERS’ EQUITY:
Common stock, $0.000004 par value;
authorized shares: 190,000,000 at
March 31, 2021 and December 31, 2020;
issued and outstanding shares: 25,438,857 and
24,932,527 at March 31, 2021 and December
31, 2020, respectively
—
—
Additional paid-in-capital
261,588
259,427
Accumulated deficit
(133,949
)
(122,353
)
Accumulated other comprehensive income
100
71
Total stockholders’ equity
127,739
137,145
TOTAL LIABILITIES, CONVERTIBLE AND
REDEEMABLE SERIES A-2 PREFERRED STOCK
AND STOCKHOLDERS’ EQUITY
$
625,229
$
602,726
MONTROSE ENVIRONMENTAL GROUP,
INC.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March
31,
2021
2020
OPERATING ACTIVITIES:
Net loss
$
(11,596
)
$
(41,248
)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for bad debt
508
6,333
Depreciation and amortization
10,769
7,560
Stock-based compensation expense
1,805
1,150
Fair value changes in embedded
derivatives
602
29,627
Fair value changes in business
acquisitions
contingent consideration
11,064
—
Deferred income taxes
2
(3,152
)
Other
50
(180
)
Changes in operating assets and
liabilities—net of acquisitions:
Accounts receivable and contract
assets
(29,029)
(319
)
Prepaid expenses and other current
assets
787
(683
)
Accounts payable and other accrued
liabilities
3,183
(5,005
)
Accrued payroll and benefits
(2,058
)
(2,458
)
Other assets
—
(603
)
Net cash used in operating activities
(13,913
)
(8,978
)
INVESTING ACTIVITIES:
Purchases of property and equipment
(922
)
(1,558
)
Proprietary software development and
software
licenses costs
(204
)
(102
)
Cash paid for acquisitions—net of cash
acquired
(6,272
)
—
Net cash used in investing activities
(7,398
)
(1,660
)
FINANCING ACTIVITIES:
Proceeds from line of credit
—
50,453
Payments on line of credit
—
(37,275
)
Repayment of term loan
(547
)
(1,250
)
Payment of contingent consideration and
other
purchase price obligations
—
(4,703
)
Repayment of capital leases
(625
)
(685
)
Payments of deferred offering costs
—
(1,175
)
Debt issuance costs
—
(127
)
Proceeds from issuance of common stock
2,185
—
Dividend payment to the Series A-2
shareholders
(4,100
)
—
Net cash (used in) provided by financing
activities
(3,087
)
5,238
CHANGE IN CASH, CASH EQUIVALENTS AND
RESTRICTED CASH
(24,398
)
(5,400
)
Foreign exchange impact on cash
balance
158
36
CASH, CASH EQUIVALENTS AND RESTRICTED
CASH:
Beginning of year
34,881
6,884
End of period
$
10,641
$
1,520
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid for interest
$
2,500
$
1,745
Cash paid for income tax
$
305
$
64
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Accrued purchases of property and
equipment
$
594
$
613
Property and equipment purchased under
capital leases
$
670
$
1,493
Accretion of the redeemable series A-1
preferred
stock to redeemable value
$
—
$
5,415
Common stock issued to acquire new
businesses
$
2,271
$
—
Acquisitions unpaid contingent
consideration
$
67,335
$
4,082
Offering costs included in accounts
payable and
other accrued liabilities
$
—
$
49
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 Adjusted EBITDA and Adjusted EBITDA margin.
We calculate 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. Adjusted
EBITDA margin represents Adjusted EBITDA as a percentage of
revenues for a given period.
Adjusted EBITDA and Adjusted EBITDA margin are two 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. 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, as well as 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)
or any other performance measure derived in accordance with GAAP.
Our presentation of Adjusted EBITDA and Adjusted EBITDA margin
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, Adjusted EBITDA and Adjusted
EBITDA margin 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 Adjusted
EBITDA and Adjusted EBITDA margin in conjunction with the related
GAAP measures.
Additionally, we have provided estimates regarding Adjusted
EBITDA and Adjusted EBITDA margin for 2021. These projections
account for estimates of revenue, operating margins and corporate
and other costs. However, we cannot reconcile our projection of
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 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 provide information regarding organic
growth, which is one of the measures management uses to assess our
results of operations. We define organic growth as the change in
revenues excluding revenues from acquisitions for the first twelve
months following the date of acquisition and excluding revenues
from businesses disposed of or discontinued. As a result of the
significance of the CTEH acquisition to Montrose, and the potential
annual volatility in CTEH’s revenues, at times we also disclose
organic growth combined with the annual organic revenue growth of
CTEH, but excluding CTEH’s revenues from projects contributing more
than $4 million of revenue. We expect to continue to disclose
organic revenue growth with and without CTEH. Organic growth is
not, however, a measure of revenue growth calculated in accordance
with GAAP and should be considered in conjunction with revenue
growth calculated in accordance with GAAP.
Montrose Environmental Group,
Inc.
Reconciliation of Net Loss to
Adjusted EBITDA
(in thousands)
For the Three Months
Ended March 31,
(in thousands)
2021
2020
Net loss
$
(11,596
)
$
(41,248
)
Interest expense
2,688
2,593
Income tax expense (benefit)
2
(3,152
)
Depreciation and amortization
10,769
7,560
EBITDA
$
1,863
$
(34,247
)
Stock-based compensation (1)
1,805
1,150
Start-up losses and investment in new
services (2)
968
379
Acquisition costs (3)
237
1,307
Fair value changes in financial
instruments (4)
602
29,626
Expenses related to financing transactions
(5)
50
—
Fair value changes in business
acquisitions
contingent consideration (6)
11,064
—
Short term purchase accounting fair value
adjustment
to deferred revenue (7)
—
243
IPO expense (8)
—
531
Discontinued service lines and closing of
Berkley
lab (9)
—
6,417
Other losses and expenses(10)
211
147
Adjusted EBITDA
$
16,800
$
5,553
(1)
Represents non-cash stock-based
compensation expenses related to option awards issued to employees
and restricted stock grants issued to directors.
(2)
Represent start-up losses related
to losses incurred on (i) the expansion of lab testing methods and
lab capacity, including into new geographies and (ii) expansion of
our Remediation and Consulting services and (iv) expansion into
Europe in advance of projects driven by new regulations.
(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 embedded derivatives and warrant option attached
to the Series A-1 preferred stock and the Series A-2 preferred
stock.
(5)
Amounts represent
non-capitalizable expenses associated with refinancing and amending
our debt facilities.
(6)
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.
(7)
Purchase accounting fair value
adjustment to deferred revenue represents the impact of the fair
value adjustment to the carrying value of deferred revenue as of
the date of acquisition of ECT2.
(8)
Represents expenses incurred by
us to prepare for our initial public offering, as well as costs
from IPO-related bonuses.
(9)
Represents losses from the
Discontinued Service Lines and the Berkeley lab.
(10)
Represents non-operational
charges incurred as a result of lease abandonments and
non-capitalizable costs related to the implementation of a new
ERP.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210512005961/en/
Investor Relations: Rodny Nacier (949) 988-3383
ir@montrose-env.com
Media Relations: Doug Donsky (646) 361-1427
Montrose@icrinc.com
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