Montrose Environmental(MEG) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Montrose Environmental Group, Inc. as of March 31, 2025, and for the three months then ended Unaudited Condensed Consolidated Statements of Financial Position As of March 31, 2025, total assets were $992.2 million, with liabilities at $455.1 million, reflecting changes in cash and debt Condensed Consolidated Balance Sheet (in thousands) | Balance Sheet Items | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $249,394 | $237,999 | | Total Assets | $992,161 | $990,353 | | Total Current Liabilities | $121,778 | $158,662 | | Total Liabilities | $455,089 | $451,161 | | Total Stockholders' Equity | $444,144 | $446,264 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss Revenues increased 14.5% to $177.8 million in Q1 2025, but net loss widened to $19.4 million due to higher expenses Statement of Operations Highlights (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Revenues | $177,834 | $155,325 | | Cost of revenues | $108,406 | $96,557 | | Selling, general and administrative expense | $66,232 | $57,074 | | Loss from operations | $(10,575) | $(10,065) | | Interest expense, net | $(5,065) | $(3,306) | | Net loss | $(19,359) | $(13,357) | | Net loss per share | $(0.64) | $(0.53) | Unaudited Condensed Consolidated Statements of Cash Flows Operating cash flow significantly improved to a $5.5 million inflow in Q1 2025, with cash balance increasing to $30.3 million Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $5,504 | $(22,021) | | Net cash used in investing activities | $(3,705) | $(65,038) | | Net cash provided by financing activities | $15,962 | $73,347 | | Change in cash, cash equivalents and restricted cash | $17,761 | $(13,712) | | Cash at end of period | $30,276 | $9,486 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail accounting policies, segment information, and significant events including debt refinancing and preferred stock redemption - The company operates through three segments: Assessment, Permitting and Response; Measurement and Analysis; and Remediation and Reuse[16][17][18] - No business acquisitions were completed in the three months ended March 31, 2025, but potential aggregate earn-out payments from prior acquisitions total $26.7 million, payable between 2025 and 2027[44][45] - In February 2025, the company entered into a new $500 million credit facility, comprising a $200 million term loan and a $300 million revolving line of credit, to replace its 2021 facility[70] - Subsequent to the quarter end, on April 1, 2025, the company redeemed $60.0 million of its outstanding Series A-2 Preferred Stock in cash[117] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial results, highlighting revenue growth, widened net loss, segment performance, and improved liquidity - Revenue for Q1 2025 increased by $22.5 million (14.5%) year-over-year, primarily from organic growth and acquisitions, partially offset by a decline in the Assessment, Permitting and Response segment[145] - Cost of revenues as a percentage of revenue improved to 61.0% in Q1 2025 from 62.2% in Q1 2024, due to operating leverage and improved margins in the treatment technology business[148] - SG&A expenses increased by $9.2 million (16.0%) year-over-year, driven by acquisitions, higher labor costs, increased bad debt expense, and higher stock-based compensation[150] - The company has temporarily paused its acquisition strategy, though it remains a core part of its long-term growth plan[133] Segment Results of Operations Measurement and Analysis and Remediation and Reuse segments showed strong revenue growth, while Assessment, Permitting and Response revenue declined Segment Revenues (in thousands) | Segment | Q1 2025 | Q1 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Assessment, Permitting and Response | $53,120 | $58,580 | (9.3)% | | Measurement and Analysis | $59,030 | $45,494 | 29.8% | | Remediation and Reuse | $65,684 | $51,251 | 28.2% | | Total Reportable Segments | $177,834 | $155,325 | 14.5% | Segment Adjusted EBITDA (in thousands) and Margin | Segment | Q1 2025 EBITDA | Q1 2025 Margin | Q1 2024 EBITDA | Q1 2024 Margin | | :--- | :--- | :--- | :--- | :--- | | Assessment, Permitting and Response | $10,572 | 19.9% | $16,280 | 27.8% | | Measurement and Analysis | $13,773 | 23.3% | $6,504 | 14.3% | | Remediation and Reuse | $5,927 | 9.0% | $5,012 | 9.8% | | Total Operating Segments | $30,272 | 17.0% | $27,796 | 17.9% | Liquidity and Capital Resources The company maintains strong liquidity with $30.3 million cash and $263.9 million available under its new credit facility - As of March 31, 2025, the company had $30.3 million of cash on hand and $263.9 million available under its 2025 Credit Facility[167] - Net cash from operating activities improved to a $5.5 million inflow in Q1 2025 from a $22.0 million outflow in Q1 2024, mainly due to better working capital management[171] - Future cash needs include potential earn-out payments of up to $26.7 million between 2025 and 2027 related to prior acquisitions[167] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, inflation, and foreign exchange, with potential impacts on income and revenues - A 1.0% increase or decrease in interest rates would impact annual income before taxes by approximately $0.9 million[179] - The company is experiencing higher labor and direct costs due to inflation but has been raising prices on contracts to offset these effects[181] - A 1.0% change in the U.S. dollar exchange rate would impact revenues by approximately $0.3 million due to increased international operations[182] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls - The CEO and CFO concluded that as of March 31, 2025, the company's disclosure controls and procedures were effective at the reasonable assurance level[183] - No changes occurred during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[184] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings but does not anticipate a material adverse effect on its financial position - The company is not a party to any litigation expected to have a material adverse effect on its results of operations or financial position[187] Item 1A. Risk Factors A new risk factor regarding enhanced U.S. tariffs has been added, potentially impacting global economic conditions and company operations - A new risk factor has been added regarding the potential negative effects of enhanced U.S. tariffs and other trade barriers on global economic conditions and the company's business[188][189] - The U.S. government's imposition on April 2, 2025, of a baseline 10% tariff on most imports creates uncertainty that could negatively impact customer businesses, demand for services, and material costs[189] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued common stock as acquisition consideration in Q1 2025 and subsequent to quarter-end, exempt from registration - On March 6, 2025, the company issued 323,834 shares of common stock in total to former owners of Epic and Sensible as part of acquisition consideration[190] - On May 1, 2025, the company issued 32,064 shares of common stock in total to former owners of Epic and ETA as part of acquisition consideration[191] Item 3. Defaults Upon Senior Securities None Item 4. Mine Safety Disclosures Not applicable Item 5. Other Information None Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Amended and Restated Credit Agreement and certifications - Key exhibits filed include the new Amended and Restated Credit Agreement and CEO/CFO certifications[199]