MEG Montrose Environmental Group Inc

Third Quarter 2024 Highlights (comparisons to third quarter 2023)

• Highest-ever total revenue of $178.7 million, an increase of $10.8 million, or 6.4%
• Net loss of $10.6 million, or $0.39 net loss per diluted share attributable to common stockholders (LPS), and Adjusted Net Income¹ of $19.1 million, or $0.41 Diluted Adjusted Net Income per share¹ (Adj EPS)
• Record Consolidated Adjusted EBITDA¹ of $28.3 million, an increase of $5.0 million, or 21.5%
• Consolidated margin expansion
• Reaffirms full-year 2024 guidance for total revenue of $690 million to $740 million, and Consolidated Adjusted EBITDA¹ of $95 million to $100 million

First Nine Months 2024 Highlights (comparisons to first nine months 2023)

• Record total revenue of $507.4 million, an increase of $48.9 million, or 10.7%
• Net loss of $34.1 million, or $1.30 LPS, and Adjusted Net Income¹ of $38.6 million, or $0.80 Adj EPS¹
• Record Consolidated Adjusted EBITDA¹ of $68.5 million, an increase of $7.5 million, or 12.2%
• Received five patents in 2024, bringing total patent portfolio to 23, which enhance differentiated capabilities across multiple contaminants, including PFAS

Strategic Capital Allocation Priorities

• Long-term capital allocation strategy unchanged
• Near-term priority is redemption of preferred equity and subsequent deleveraging; concurrently de-emphasizing acquisitions
• Continued focus on cash flow generation

LITTLE ROCK, Ark., Nov. 6, 2024 /PRNewswire/ -- Montrose Environmental Group, Inc. (the "Company," "Montrose" or "MEG") (NYSE: MEG) today announced results for the third quarter and first nine month periods ended September 30, 2024.

Montrose Chief Executive Officer and Director, Vijay Manthripragada, commented, "We are pleased to report another quarter of strong performance with record results driven by continued demand for our comprehensive suite of integrated solutions. Record quarterly revenues and Consolidated Adjusted EBITDA¹, as well as the 190 basis points of margin improvement, evidence the alignment of our in-demand, higher-margin offerings with our strategic and financial goals. Our strong track record of organic growth, including ongoing cross-selling success, alongside the successful integration of recent acquisitions, continue to demonstrate the strategic advantages provided by our business model." 

Mr. Manthripragada continued, "Our long-term capital allocation strategy is unchanged. In the near-term, we will prioritize redemption of the preferred equity and subsequent deleveraging. This provides an opportunity for the underlying organic growth potential of our business to shine. And, we remain steadfast in our commitment to strong cash flow generation. We believe these combined efforts will demonstrate to our employees, clients, colleagues and shareholders the true value creation afforded by our Company."

"As we look ahead, we remain confident in our growth trajectory, supported by overall favorable regulatory tailwinds and resilient client demand. The increasing complexity of environmental regulations, coupled with escalating private sector commitments to environmental stewardship, continue to drive demand for our integrated services across our operations in North America, Australia, and Europe."

Third Quarter 2024 Results

Total revenue in the third quarter of 2024 was $178.7 million compared to $167.9 million in the prior year quarter, an increase of 6.4%. The increase in revenue was primarily comprised of strong organic growth in our Assessment, Permitting and Response and Measurement and Analysis segments, and $15.4 million from acquisitions, partially offset by a $12.8 million reduction in environmental emergency response revenue and lower treatment technology revenue.

Net loss was $10.6 million, or $0.39 of LPS, in the third quarter of 2024, compared to net loss of $7.5 million, or $0.39 LPS, in the prior year quarter. The year-over-year change in net loss was primarily attributable to higher interest in the current year quarter, partially offset by improved loss from operations. The flat comparative period LPS was due to lower dividends on our Series A-2 Preferred Stock (Series A-2) and a higher weighted average outstanding share count, partially offset by a Net loss increase.

In the third quarter of 2024, Adjusted Net Income¹ and Adj EPS¹ were $19.1 million and $0.41, respectively, increases compared to the prior year quarter Adjusted Net Income¹ and Adj EPS¹ of $15.7 million and $0.31, respectively. Adjusted Net Income¹ in the current year period was higher than the prior year period primarily resulting from the improvement in operating income before amortization expense and acquisition costs, partially offset by higher interest expense. In the current year period, Adj EPS¹ was higher than the prior year period primarily due to the increase in Adjusted Net Income and the lower dividends on our Series A-2, partially offset by a higher weighted average outstanding share count in the quarter.

Third quarter 2024 Consolidated Adjusted EBITDA¹ was $28.3 million, or 15.8% of revenue, compared to $23.3 million, or 13.9% of revenue, in the prior year quarter. The increase in Consolidated Adjusted EBITDA¹ was due to higher revenue driven by organic growth and acquisitions. The increase in Consolidated Adjusted EBITDA¹ as a percentage of revenue resulted primarily from organic growth, the benefits from recent acquisitions, and lower corporate expenses, partially timing related.

First Nine Months 2024 Results

Total revenue in the first nine months of 2024 increased 10.7% to $507.4 million compared to $458.5 million in the prior year period. The increase in revenue was primarily comprised of strong organic growth in our Measurement and Analysis and Assessment, Permitting and Response segments, and $63.6 million from acquisitions, partially offset by a $34.9 million reduction in environmental emergency response revenue and lower treatment technology revenue.

Net loss was $34.1 million, or $1.30 LPS, in the first nine months of 2024 compared to a net loss of $29.4 million, or $1.39 LPS, in the prior year period. The year-over-year increase in net loss was primarily attributable to higher interest and income tax expenses in the current year period, partially offset by an improved loss from operations. Improved LPS was a result of lower dividends on the Series A-2 and a higher weighted average outstanding share count, partially offset by a higher net loss.

In the first nine months of 2024, Adjusted Net Income¹ and Adj EPS were $38.6 million and $0.80, respectively, compared to prior year period Adjusted Net Income¹ and Adj EPS¹ of $40.9 million and $0.78, respectively. Adjusted Net Income¹ in the current year period was lower than the prior year period primarily resulting from increases in interest and income tax expenses, partially offset by the improved operating loss. In the current year period, Adj EPS¹ was higher than the prior year period primarily from the lower dividends on our Series A-2, partially offset by lower Adjusted Net Income¹ and a higher weighted average outstanding share count in the year-to-date period.

Consolidated Adjusted EBITDA¹ for the first nine months of 2024 was $68.5 million, or 13.5% of revenues, compared to $61.1 million, or 13.3% of revenues, in the prior year period. The increase in Consolidated Adjusted EBITDA¹ was primarily due to higher revenues driven by organic growth and acquisitions.

Operating Cash Flow, Liquidity and Capital Resources

Cash used in operating activities for the first nine months ended September 30, 2024, was $9.7 million compared to cash provided by operating activities of $41.5 million in the prior year period. The year-over-year decrease was primarily due to an increase in accounts receivable and contract assets associated with higher revenues. The previously discussed temporary invoicing delays associated with the integration of Matrix are substantially addressed and collections are returning to a normal cadence. In addition, slower payments on a single, large, U.S. government funded project are expected to be resolved by year end. Excluding the impact of Matrix and the U.S. government funded project, days sales outstanding were unchanged compared to the prior year period.

As of September 30, 2024, Montrose had $139.8 million of liquidity, including $13.0 million of cash and $126.7 million of availability on its revolving credit facility.

As of September 30, 2024, Montrose's leverage ratio under its credit facility, which includes the impact of recently completed acquisitions of Spirit Environmental and Origins Laboratory, was 2.6x.

Recent Acquisitions

In July 2024, Montrose acquired Spirit Environmental, LLC. ("Spirit"), a leading environmental consultant specializing in air permitting and compliance services across the central U.S. Spirit is included within the Company's Assessment, Permitting & Response segment.

In September 2024, Montrose acquired substantially all the assets of Origins Laboratory, Inc. ("Origins"), an accredited environmental analytical testing laboratory. Origins is included within the Company's Measurement and Analysis segment.

Full Year 2024 Outlook

The Company reaffirms its full year 2024 Revenue and Consolidated Adjusted EBITDA¹ outlook. The Company expects Revenue to be in the range of $690 million to $740 million. Consolidated Adjusted EBITDA¹ is expected to be in the range of $95 million to $100 million for the full year 2024. 

Our Revenue and Consolidated Adjusted EBITDA¹ outlook does not include any benefit from future acquisitions.

Webcast and Conference Call

The Company will host a webcast and conference call on Thursday, November 7, 2024, at 8:30 a.m. Eastern time to discuss third quarter financial results. The 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 1-844-826-3035 (Domestic) and 1-412-317-5195 (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 ~3,400 employees across 100+ locations worldwide, Montrose combines deep local knowledge with an integrated approach to design, engineering, and operations, enabling Montrose to respond effectively and efficiently to the unique requirements of each project. From comprehensive air measurement and laboratory services to regulatory compliance, environmental 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. 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, 2023, for additional information regarding the risks and uncertainties that may cause actual results to differ materially from those expressed in any forward-looking statement.

Contact Information: 

Investor Relations:
Adrianne D. Griffin
(949) 988-3383
ir@montrose-env.com

Media Relations:
Sarah Kaiser
(225) 955-1702
pr@montrose-env.com

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, Consolidated Adjusted EBITDA, Adjusted Net Income and Basic and Diluted Adjusted Net Income per Share. We calculate Consolidated 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. We calculate Adjusted Net Income as net income (loss) before amortization of intangible assets, stock-based compensation expense, fair value changes to financial instruments and contingent earnouts, discontinued specialty lab, and other gain or losses, as set forth in greater detail in the table below. Basic and Diluted Adjusted Net Income per Share represents Adjusted Net Income attributable to stockholders divided by the fully diluted number of shares of common stock outstanding during the applicable period.

Consolidated Adjusted EBITDA is one 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. Adjusted Net Income and Basic and Diluted Adjusted Net Income per Share are useful metrics to evaluate ongoing business performance after interest and tax. 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, and, in the case of Consolidated Adjusted EBITDA, by excluding 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), earnings (loss) per share or any other performance measure derived in accordance with GAAP. Our presentation of Consolidated Adjusted EBITDA, Adjusted Net Income and Basic and Diluted Adjusted Net Income per Share 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, Consolidated Adjusted EBITDA, Adjusted Net Income and Basic and Diluted Adjusted Net Income per Share 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 Consolidated Adjusted EBITDA, Adjusted Net Income and Basic and Diluted Adjusted Net Income per Share in conjunction with the related GAAP measures.

Additionally, we have provided estimates regarding Consolidated Adjusted EBITDA for 2024. These projections account for estimates of revenue, operating margins and corporate and other costs. However, we cannot reconcile our projection of Consolidated 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 Consolidated 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 reference our organic growth. We define organic growth as the change in revenues excluding revenues from i) our environmental emergency response business, ii) acquisitions for the first twelve months following the date of acquisition, and iii) businesses held for sale, disposed of or discontinued. Management uses organic growth as one of the means by which it assesses our results of operations. Organic growth is not, however, a measure of revenue growth calculated in accordance with U.S. generally accepted accounting principles, or GAAP, and should be considered in conjunction with revenue growth calculated in accordance with GAAP. We have grown organically over the long term and expect to continue to do so.

In a given reporting period, when we refer to revenue changes driven by acquisitions, we are referring to the revenue contribution from any acquisition from its closing date through the first 12 months of that acquisition, at which point any subsequent contribution therefrom would be organic. 

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SOURCE Montrose Environmental Group, Inc.