Montrose Environmental Group Announces Fourth Quarter and Full Year 2023 Results

- Record Full Year Revenue and Cash Flow from Operations -

- Net Loss of $30.9 million; Basic and Diluted Net Loss Per Share of $1.57 -

- Significant Increase in Diluted Adjusted Net Income Per Share¹ -

- Record Full Year Consolidated Adjusted EBITDA¹ -

- Expansion in Segment Level and Consolidated Adjusted EBITDA¹ as Percent of Revenue for Full Year -

- Continued Success Consolidating Fragmented Industry with Highly Accretive Acquisitions -

- Advanced R&D Initiatives and Expanded IP and Technology Portfolio -

- Provides Full Year 2024 Revenue and Consolidated Adjusted EBITDA¹ Outlook -

Montrose Environmental Group, Inc. (the “Company,” “Montrose” or “MEG”) (NYSE: MEG) today announced results for the fourth quarter and full year ended December 31, 2023.

Montrose Chief Executive Officer and Director, Vijay Manthripragada, commented, “Our record full year results reflect continued strength across our business. Demand for our unique, integrated solutions remains at all-time highs given another year of exceptional customer revenue retention² at 96% and cross-selling³ activity increasing to 51% of full year revenue. Despite the acquisition of Matrix, which was a low margin business at the time of acquisition, our Consolidated Adjusted EBITDA¹ as a percent of revenue increased for the full year given the strength of the rest of our business and the improvement of Matrix’s margins as we’ve integrated them. Our strong performance resulted in record full year cash generated from operations and enabled us to continue investing for future growth.”

“We are particularly proud of the continued success of our R&D efforts, which help solve major environmental challenges and create value for our stockholders. Our team filed for nine unique patents in 2023 addressing several emerging and potentially significant market opportunities. We expanded our portfolio of PFAS treatment technologies to meet the needs of our clients with wastewater and landfill challenges given pending U.S. environmental regulations. We are also helping many of our clients and communities with air quality monitoring and greenhouse gas measurement. We use next generation sensors and proprietary software in response to the U.S. EPA’s focus on the impact of air quality on disadvantaged communities.”

“Building on our strong momentum, we believe we are well positioned to achieve another year of outstanding performance in 2024. Our 2024 expectation is for low double-digit organic revenue growth, continued margin expansion, and continued strong cash flow generation given substantive end-market tailwinds and increased predictability in our business.”

“In addition, both our acquisition pipeline and patent development pipeline remain very robust. Two accretive acquisitions have already been completed this year. Collectively, we believe these expected results and sustained execution will help us continue to deliver stellar shareholder value.”

Fourth Quarter 2023 Results

Total revenue in the fourth quarter of 2023 was $165.7 million compared to $139.5 million in the prior year quarter, an increase of 18.8%. The increase in revenues was primarily due to the acquisition of Matrix, organic revenue growth in the Assessment, Permitting and Response segment, organic growth in the Measurement and Analysis segments, the contribution of environmental emergency response business, and the contributions of acquisitions, partially offset by lower revenues in a specialty lab that was discontinued, the timing of PFAS projects given delays in U.S. EPA PFAS regulations, and a shift in focus of our biogas business towards higher margin services. Excluding revenue from discontinued services, of $2.9 million and $4.1 million, in the fourth quarters of 2023 and 2022, respectively, revenue in the fourth quarter of 2023 was $162.8 million compared to $135.4 million in the prior year quarter, an increase of 20.2% over the prior year period.

Net loss was $(1.4) million, or a loss of $(0.18) per share basic and diluted, in the fourth quarter of 2023 compared to a net loss of $(10.8) million, or a loss of $(0.50) per share basic and diluted, in the prior year quarter. The year-over-year reduction in net loss was primarily attributable to a net gain from fair value adjustments related to our Series A-2 preferred stock conversion option and interest rate swaps, as well as an income tax benefit in the current year, compared to a net loss from fair value adjustments related to our Series A-2 preferred stock conversion option and interest rate swaps and an income tax expense in the prior year, partially offset by a higher net operating loss and higher interest in the current year.

Adjusted Net Income¹ was $10.6 million, and Diluted Adjusted Net Income per Share¹ was $0.27, in the fourth quarter of 2023 compared to Adjusted Net Income¹ of $9.0 million, and Diluted Adjusted Net Income per Share¹ of $0.25 in the prior year quarter. Diluted Adjusted Net Income per Share¹ calculated as Adjusted Net Income¹ attributable to stockholders divided by fully diluted shares.

Fourth quarter 2023 Consolidated Adjusted EBITDA¹ was $17.5 million, compared to $17.8 million in the prior year quarter. Excluding Consolidated Adjusted EBITDA¹ from discontinued services of zero and $2.2 million in the fourth quarters of 2023 and 2022, respectively, Consolidated Adjusted EBITDA¹ in the fourth quarter of 2023 was $17.5 million, compared to $15.6 million in the prior year quarter. The increase in Consolidated Adjusted EBITDA¹, excluding results from discontinued services, was due to higher revenues. Lower Consolidated Adjusted EBITDA¹ as a percentage of revenues was driven primarily by the acquisition of Matrix.

Full Year 2023 Results

Total revenue in the full year 2023 increased 14.7% to $624.2 million compared to $544.4 million in the prior year. The increase in revenues was primarily due to 24.3% organic growth in the Assessment, Permitting and Response segment, 17.0% organic growth in the Measurement and Analysis segment, an increase in environmental emergency response revenues, and the contributions of acquisitions, partially offset primarily by lower revenues from discontinued services and lower revenue from our ECT2 service offering. Our ECT2 service offering was lower year-over-year due to the wind down of certain large PFAS projects, delays in the timing of EPA PFAS regulations and a strategic shift in our biogas business towards higher margin services. Total organic revenue growth was 2% for the year and has averaged 15% per annum since 2020 (the year of our IPO). Excluding revenue from discontinued services, of $8.8 million and $20.6 million, in full year 2023 and 2022, respectively, total revenue in full year 2023 was $615.4 million compared to $523.8 million in the prior year, an increase of 17.5% over the prior year.

Net loss was $(30.9) million, or $(1.57) per share basic and diluted, in the full year 2023 compared to a net loss of $(31.8) million, or $(1.62) per share basic and diluted, in the prior year. The year-over-year change was primarily attributable to an increase in the net gain from fair value adjustments related to our Series A-2 preferred stock conversion option and interest rate swaps in the current year compared to the prior year, as well as an income tax benefit in the current year, partially offset by higher interest expense and an increase in loss from operations in the current year and an income tax expense in the prior year.

Adjusted Net Income¹ was $39.7 million, and Diluted Adjusted Net Income per Share¹ was $1.07, in the full year 2023 compared to Adjusted Net Income¹ of $30.9 million, and Diluted Adjusted Net Income per Share¹ of $0.86, in the prior year.

Consolidated Adjusted EBITDA¹ for the full year 2023 was $78.6 million compared to $66.2 million in the prior year, an increase of 18.7%. Excluding Consolidated Adjusted EBITDA¹ from discontinued services of zero and $2.1 million in 2023 and 2022, respectively, Consolidated Adjusted EBITDA¹ in 2023 was $78.6 million, compared to $64.1 million in the prior year, an increase of 22.6%. The increase in Adjusted Net Income¹, Diluted Adjusted Net Income per Share¹, and Consolidated Adjusted EBITDA¹ was primarily due to higher revenues.

Operating Cash Flow, Liquidity and Capital Resources

Cash provided by operating activities for the full year ended December 31, 2023 was $56.0 million compared to cash provided by operating activities of $20.6 million in the prior year period, an increase of $35.4 million, or 171.3%. Cash flow from operations includes payment of contingent consideration of $0.6 million and $19.5 million in the current and prior year, respectively. Excluding these acquisition-related contingent earnout payments, which are not part of day-to-day operations, cash flow from operating activities was $56.6 million compared to $40.1 million in the prior year period, an increase of $16.5 million, or 41.1%.

As of December 31, 2023, we had total debt, before debt issuance costs, of $164.6 million and $148.2 million of liquidity, including $23.2 million of cash and $125.0 million of availability on our revolving credit facility.

As of December 31, 2023, Montrose’s net leverage ratio under its credit facility, which includes recently completed acquisitions and acquisition-related contingent earnout payments that may become payable in cash, was 1.9 times.

In January 2024, Montrose voluntarily redeemed $60.0 million of the outstanding Convertible and Redeemable Series A-2 Preferred Stock with cash. Following this redemption, the principal balance of the Series A-2 Preferred Stock outstanding was reduced to $122.2 million and remains classified as mezzanine equity.

In February 2024, the Company amended its Senior Secured Credit Agreement, to provide for an additional $100.0 million in credit availability, comprised of an additional $50.0 million term loan and $50.0 million revolving credit facility.

Acquisitions

In January 2024, Montrose acquired Epic Environmental Pty Ltd, a leading environmental consultancy in Australia. Headquartered in Brisbane, Epic Environmental is part of the Company’s Remediation and Reuse segment.

In February 2024, Montrose acquired Two Dot Environmental Consulting, LLC, a leading environmental consultancy focused on energy and renewable energy clients in the Rocky Mountain region of the U.S. Two Dot is part of the Company’s Remediation and Reuse segment.

Full Year 2024 Outlook

The Company is initiating its full year 2024 outlook for Revenue to be in the range of $675 million to $725 million. Consolidated Adjusted EBITDA¹ is expected to be in the range of $90 million to $95 million. The midpoints of the ranges incorporate an expectation of low double digit organic revenue growth and continued year-on-year Consolidated Adjusted EBITDA¹ margin expansion.

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, February 29, 2024 at 8:30 a.m. Eastern time to discuss fourth quarter and full year 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 1-844-826-3035 (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 over 3,100 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, 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.

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 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 (Loss) 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. Diluted Adjusted Net Income (Loss) per Share represents Adjusted Net Income (Loss) attributable to stockholders divided by the weighted average number of diluted 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 (Loss) and Adjusted Net Income (Loss) 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 (Loss) and Adjusted Net Income (Loss) 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 (Loss) and Adjusted Net Income (Loss) 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 (Loss) and Adjusted Net Income (Loss) 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. As a result of the growth in CTEH non-emergency response work, which is similar to services provided in our advisory businesses, we are including CTEH revenues from non-emergency response work in organic growth. This change did not impact previously reported organic growth. 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.

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