Montrose Environmental Group Reports Record Second Quarter and First Half 2024 Results, Reaffirms Guidance, and Advances Strategic Capital Allocation Priorities

Second Quarter 2024 Highlights (comparisons to second quarter 2023)

• Highest-ever total revenue of $173.3 million, an increase of $14.2 million, or 8.9%
• Margin expansion in all three segments
• Net loss of $10.2 million, or $0.39 net loss per diluted share attributable to common stockholders (LPS), and Adjusted Net Income¹ of $10.8 million, or $0.20 Diluted Adjusted Net Income per share¹ (Adj EPS)
• Record Consolidated Adjusted EBITDA¹ of $23.3 million, an increase of $2.1 million, or 10.0%
• 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 Half 2024 Highlights (comparisons to first half 2023)

• Record total revenue of $328.7 million, an increase of $38.1 million, or 13.1%
• Net loss of $23.5 million, or $0.91 LPS, and Adjusted Net Income¹ of $19.3 million, or $0.37 Adj EPS¹
• Record Consolidated Adjusted EBITDA¹ of $40.2 million, an increase of $2.4 million, or 6.5%

Strategic Capital Allocation Highlights

• Raised net proceeds of $121.8 million in a common stock offering in April
• Invested $27.0 million, since stock offering, on two strategic and accretive acquisitions, while maintaining a robust merger and acquisition pipeline
• Repurchased $60.0 million of Series A-2 stock in January, reducing associated future cash dividends by $5.4 million annually
• Received two patents during the second quarter 2024, bringing total patent portfolio to 19
• Reported significant liquidity² of $188.3 million, with 2.4x leverage as of June 30, 2024

Montrose Environmental Group, Inc. (the "Company," "Montrose" or "MEG") (NYSE:MEG) today announced results for the second quarter and first half periods ended June 30, 2024.

Montrose Chief Executive Officer and Director, Vijay Manthripragada, commented, "We're thrilled to build on our strong first quarter performance with another period of exceptional results. Broad-based strength across our business lines drove year-over-year growth in our key operating metrics. This resulted in record quarterly revenues and record Consolidated Adjusted EBITDA¹, and year-over-year margin improvement across all three segments. We're especially pleased with our continued organic growth this quarter, fueled by the growing traction of our cross-selling initiatives. This strong organic growth, five highly accretive acquisitions completed so far this year, and ongoing secular tailwinds reinforce our confidence in our outlook."

Mr. Manthripragada continued, "We do not anticipate the recent United States (US) Supreme Court decision in Loper Bright Enterprises v. Raimondo or the outcome of the upcoming US presidential election to alter our growth or outlook. As we demonstrated with our strong performance during the prior Obama and Trump administrations, and our strong performance during the current Biden administration, our perspective remains upbeat regardless of the US election outcome. The impact of US federal policy swings has historically been muted for Montrose given the significant influence of state and local environmental regulations, stakeholder pressure, and our limited exposure to any one end market. Our business mix may shift, but our aggregate outlook and growth algorithms remain unchanged. We expect further regulatory complexity for our US clients and anticipate a shift of influence to state regulatory agencies, which are expected to drive incremental demand across our portfolio of services. It is also important to note that approximately 20% of our revenue is generated in Canada, Australia, and Europe, which continue to see independent, attractive, and secular tailwinds. Demand for our business is strong, and we are seeing increased customer activity across our service lines that we expect to continue. With our flexibility in capital allocation and our ability to adjust investments in innovation based on client relationships, Montrose is well positioned for continued success in delivering value to both our customers and shareholders in this dynamic environmental landscape."

Second Quarter 2024 Results

Total revenue in the second quarter of 2024 was $173.3 million compared to $159.1 million in the prior year quarter, an increase of 8.9%. The increase in revenues was primarily due to strong organic revenue growth in our Assessment, Permitting and Response and Measurement and Analysis segments, and the contributions of acquisitions, partially offset by lower environmental emergency response and water treatment revenues, and the shift away from lower margin revenue in our renewable services business.

Net loss was $10.2 million, or $0.39 of LPS, in the second quarter of 2024, compared to a net loss of $7.2 million, or $0.38 LPS, in the prior year quarter. The year-over-year change in net loss was primarily attributable to higher interest and income tax expenses in the current year quarter, partially offset by improved loss from operations. The year-over-year decline in LPS was due to a net loss increase, partially offset by lower dividends on our Series A-2 preferred stock and a higher weighted average outstanding share count.

Adjusted Net Income¹ was $10.8 million, and Adj EPS¹ was $0.20, in the second quarter of 2024 compared to Adjusted Net Income¹ of $14.8 million, and Adj EPS¹ of $0.29 in the prior year quarter. Both Adjusted Net Income¹ and Adj EPS¹ were lower than the prior year primarily the result of higher interest and income tax expenses, partially offset by improved loss from operations. Adj EPS¹ was also impacted by a higher weighted average outstanding share count in the current period and lower dividends on our Series A-2 preferred stock.

Second quarter 2024 Consolidated Adjusted EBITDA¹ was $23.3 million, or 13.5% of revenues, compared to $21.2 million, or 13.3% of revenues, in the prior year quarter. The increase in Consolidated Adjusted EBITDA¹ was due to higher revenues driven by organic growth and acquisitions. Adjusted EBITDA margins increased in all three operating segments.

First Six Months 2024 Results

Total revenue in the first six months of 2024 increased 13.1% to $328.7 million compared to $290.5 million in the prior year period. The increase in revenues was primarily due to organic growth in our Assessment, Permitting and Response, and Measurement and Analysis segments, and the contributions of acquisitions, partially offset by lower environmental emergency response and water treatment revenues, and the shift away from lower margin revenue in our renewable services business.

Net loss was $23.5 million, or $0.91 LPS, in the first six months of 2024 compared to a net loss of $21.9 million, or $1.00 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 preferred stock and a higher weighted average outstanding share count, partially offset by a higher net loss.

Adjusted Net Income¹ was $19.3 million, and Adj EPS¹ was $0.37, in the first six months of 2024 compared to Adjusted Net Income¹ of $25.2 million, and Adj EPS¹ of $0.47, in the prior year period. Both Adjusted Net Income¹ and Adj EPS¹ were lower than the prior year primarily as a result of higher interest and income tax expenses, partially offset by improved loss from operations. Adj EPS¹ was also impacted by a higher weighted average outstanding share count in the year-to-date period and lower dividends on our Series A-2 preferred stock.

Consolidated Adjusted EBITDA¹ for the first six months of 2024 was $40.2 million, or 12.2% of revenues, compared to $37.8 million, or 13.0% 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. Consolidated Adjusted EBITDA¹ as a percentage of revenues decreased primarily due to the first quarter 2024 impact of the Matrix acquisition.

Operating Cash Flow, Liquidity and Capital Resources

Cash used in operating activities for the first six months ended June 30, 2024, was $21.1 million compared to cash provided by operating activities of $24.5 million in the prior year period. Lower cash flow from operations was driven primarily by an increase in receivables, related to the integration of Matrix earlier this year and several large new projects. Cash flow from operating activities is expected to improve over the balance of the year, and operating cash flow in the back half of the current year is expected to be up significantly versus the second half of 2023.

In April 2024, Montrose completed a public offering of 3,450,000 shares of its common stock, raising approximately $121.8 million in proceeds, net of underwriting discounts and commissions. The proceeds from the offering have been and will be used for general corporate purposes and continued acceleration of strategic growth initiatives, including, but not limited to, acquisitions or business expansion, commercialization of intellectual property given expanded environmental regulations, research and development, software development, capital expenditures, working capital and the repayment of debt.

As of June 30, 2024, Montrose had $188.3 million of liquidity, including $16.9 million of cash and $171.4 million of availability on its revolving credit facility.

As of June 30, 2024, Montrose's leverage ratio under its credit facility, which includes recently completed acquisitions and acquisition-related contingent earnout payments that may become payable in cash, was 2.4 times.

Recent Acquisitions

In April 2024, Montrose acquired Engineering & Technical Associates. (ETA), a leader in Process Safety Management. ETA is part of the Company's Assessment, Permitting & Response segment.

In May 2024, Montrose acquired Paragon Soil & Environmental Consulting, Inc. (Paragon), a leading environmental consulting firm in Canada. Paragon is part of the Company's Remediation & Reuse segment.

In July 2024, Montrose acquired Spirit Environmental, LLC. (Spirit), a leading provider of air permitting and compliance services. Spirit is part of the Company's Assessment, Permitting & Response 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. 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 Wednesday, August 7, 2024, at 8:30 a.m. Eastern time to discuss second 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, 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 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.

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