Montrose Environmental(MEG) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements detail the company's financial position, operations, equity, and cash flows for the periods ended June 30, 2025, and December 31, 2024 Unaudited Condensed Consolidated Statements of Financial Position Condensed Consolidated Statements of Financial Position (June 30, 2025 vs. December 31, 2024) | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Total Assets | $998,084 | $990,353 | +$7,731 | | Total Liabilities | $494,024 | $451,161 | +$42,863 | | Convertible and Redeemable Series A-2 Preferred Stock | $33,792 | $92,928 | -$59,136 | | Total Stockholders' Equity | $470,268 | $446,264 | +$24,004 | - Current assets increased by $22.9 million, primarily driven by increases in accounts receivable, net, and contract assets[8] - Long-term debt, net of deferred financing fees, significantly increased by $59.7 million, from $204.8 million to $264.6 million[8] Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Condensed Consolidated Statements of Operations (Three Months Ended June 30, 2025 vs. 2024) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $234,543 | $173,325 | +$61,218 | +35.3% | | Income (loss) from operations | $14,941 | $(2,651) | +$17,592 | N/A | | Net income (loss) | $18,356 | $(10,170) | +$28,526 | N/A | | Net income (loss) attributable to common stockholders | $16,956 | $(12,920) | +$29,876 | N/A | | Basic EPS | $0.48 | $(0.39) | +$0.87 | N/A | | Diluted EPS | $0.42 | $(0.39) | +$0.81 | N/A | Condensed Consolidated Statements of Operations (Six Months Ended June 30, 2025 vs. 2024) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $412,377 | $328,650 | +$83,727 | +25.5% | | Income (loss) from operations | $4,366 | $(12,716) | +$17,082 | N/A | | Net income (loss) | $(1,003) | $(23,527) | +$22,524 | N/A | | Net income (loss) attributable to common stockholders | $(5,153) | $(29,091) | +$23,938 | N/A | | Basic EPS | $(0.15) | $(0.91) | +$0.76 | N/A | | Diluted EPS | $(0.15) | $(0.91) | +$0.76 | N/A | Unaudited Condensed Consolidated Statements of Convertible and Redeemable Series A-2 Preferred Stock and Stockholders' Equity - The balance of Convertible and Redeemable Series A-2 Preferred Stock decreased significantly from $92.9 million at December 31, 2024, to $33.8 million at June 30, 2025, primarily due to a $60.0 million redemption in April 2025[12][101] - Total stockholders' equity increased from $446.3 million at December 31, 2024, to $470.3 million at June 30, 2025, driven by net income and stock-based compensation, partially offset by preferred stock dividends and other comprehensive loss[8][12] Unaudited Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, 2025 vs. 2024) | Activity | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $27,398 | $(21,127) | +$48,525 | | Net cash used in investing activities | $(7,932) | $(87,937) | +$80,005 | | Net cash provided by (used in) financing activities | $(21,261) | $102,829 | -$124,090 | | Change in cash, cash equivalents and restricted cash | $(1,795) | $(6,235) | +$4,440 | - Operating cash flow significantly improved, shifting from a net outflow of $21.1 million in H1 2024 to a net inflow of $27.4 million in H1 2025, primarily due to increased cash earnings and improved working capital management[180] - Cash used in investing activities decreased substantially from $87.9 million in H1 2024 to $7.9 million in H1 2025, mainly due to fewer business acquisitions in the current period[182][183] - Financing activities shifted from providing $102.8 million in H1 2024 to using $21.3 million in H1 2025, driven by higher debt repayments and preferred stock redemption, partially offset by new borrowings[184][185] Notes to Unaudited Condensed Consolidated Financial Statements Detailed disclosures explain the financial statements, covering accounting policies, revenue, assets, liabilities, debt, equity, and segment performance 1. Description of the Business and Basis of Presentation The company is a global environmental services provider with three operating segments, and its unaudited financial statements conform to U.S. GAAP - Montrose Environmental Group, Inc. is an environmental services company with over 120 offices and approximately 3,500 employees as of June 30, 2025[18] - The company operates through three segments: Assessment, Permitting and Response; Measurement and Analysis; and Remediation and Reuse, providing scientific advisory, environmental testing, and engineering services[19][20][21] - The unaudited condensed consolidated financial statements are prepared in conformity with U.S. GAAP and SEC regulations for interim periods, including all recurring adjustments and normal accruals[22] 2. Summary of New Accounting Pronouncements Recently issued accounting pronouncements not yet adopted are not expected to have a material impact on the company's financial statements - ASU 2023-09, effective for fiscal years beginning after December 15, 2024, requires greater disaggregation of income tax disclosures but is not expected to materially impact the consolidated financial statements[24][26] - ASU 2024-03, effective January 1, 2027, aims to improve expense disclosures by requiring more detailed information about expense captions, with the Company currently evaluating its impact[27] 3. Revenues and Accounts Receivable Revenue is derived from three service segments, with a significant increase in contract assets and the allowance for doubtful accounts in H1 2025 - Main revenue sources are multidisciplinary environmental consulting, emissions sampling/testing, and engineering/design/implementation services, mostly under fixed-fee or time-and-materials contracts[28][29][30] Contract Balances (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Contract assets | $75,313 | $52,091 | +$23,222 | | Contract liabilities | $12,511 | $9,297 | +$3,214 | Accounts Receivable, Net (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Accounts receivable, invoiced | $166,715 | $160,976 | +$5,739 | | Allowance for doubtful accounts | $(6,711) | $(2,093) | -$4,618 | | Accounts receivable, net | $160,004 | $158,883 | +$1,121 | - The allowance for doubtful accounts increased significantly from $2.1 million at December 31, 2024, to $6.7 million at June 30, 2025, with a bad debt expense of $5.5 million for the six months ended June 30, 2025[39] 4. Prepaid and Other Current Assets Prepaid and other current assets increased slightly due to higher prepaid expenses and supplies Prepaid and Other Current Assets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Deposits | $1,113 | $1,073 | +$40 | | Prepaid expenses | $10,851 | $10,223 | +$628 | | Supplies | $3,153 | $2,794 | +$359 | | Total | $15,117 | $14,090 | +$1,027 | 5. Property and Equipment, Net Net property and equipment decreased as accumulated depreciation outpaced new asset additions Property and Equipment, Net (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Gross Property and Equipment | $133,360 | $126,943 | +$6,417 | | Land | $1,089 | $1,089 | $0 | | Construction in progress | $1,526 | $3,993 | -$2,467 | | Less: Accumulated depreciation | $(74,853) | $(68,249) | -$6,604 | | Total Property and Equipment—Net | $61,122 | $63,776 | -$2,654 | - Total depreciation expense for the six months ended June 30, 2025, was $6.4 million, a decrease from $7.0 million in the prior year period[42] 6. Leases Lease expenses increased year-over-year, and the company entered into a new $15.0 million equipment leasing facility - The Company's operating and finance leases generally have original terms between 1 and 15 years, with some renewal options considered reasonably certain to be exercised[43] Total Lease Cost (in thousands) | Period | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $6,415 | $5,033 | +$1,382 | | Six Months Ended June 30, | $12,361 | $9,956 | +$2,405 | - In May 2024, the Company entered into a $15.0 million equipment leasing facility, with unused capacity expiring on February 25, 2026, and leases financed under this facility are accounted for as finance leases[49][51] Weighted Average Lease Terms and Discount Rates (June 30, 2025) | Lease Type | Remaining Lease Term (years) | Discount Rate | | :--- | :--- | :--- | | Operating Leases | 4.3 | 4.9% | | Finance Leases | 3.6 | 6.6% | 7. Business Acquisitions No acquisitions occurred in H1 2025, but potential earn-out payments for prior acquisitions total up to $24.6 million - No business acquisitions were completed during the six months ended June 30, 2025, but acquisitions remain a core growth strategy[54] - The Company may owe up to $24.6 million in aggregate earn-out payments for past acquisitions between 2025 and 2027, with specific portions payable in cash, common stock, or at the Company's option[55] Transaction Costs Related to Business Combinations (in thousands) | Period | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $300 | $1,100 | -$800 | | Six Months Ended June 30, | $1,000 | $3,600 | -$2,600 | - Acquisitions completed in 2024 included Epic Environmental Pty LTD (Australia), Two Dot Consulting, LLC (US), Engineering & Technical Associates, Inc (US), Paragon Soil and Environmental Consulting Inc (Canada), Spirit Environmental, LLC (US), and Origins Laboratory, Inc (US)[58][59][60][61][62][63] 8. Goodwill and Intangible Assets Goodwill increased slightly due to measurement period adjustments, while other intangible assets decreased due to amortization Goodwill by Segment (in thousands) | Segment | December 31, 2024 | June 30, 2025 | Change | | :--- | :--- | :--- | :--- | | Assessment, Permitting and Response | $205,231 | $206,327 | +$1,096 | | Measurement and Analysis | $118,860 | $119,080 | +$220 | | Remediation and Reuse | $143,698 | $143,574 | -$124 | | Total Goodwill | $467,789 | $468,981 | +$1,192 | Other Intangible Assets, Net (in thousands) | Category | December 31, 2024 | June 30, 2025 | Change | | :--- | :--- | :--- | :--- | | Customer relationships | $125,690 | $115,079 | -$10,611 | | Covenants not to compete | $7,860 | $6,319 | -$1,541 | | Trade names | $2,564 | $1,372 | -$1,192 | | Proprietary software | $4,939 | $5,919 | +$980 | | Patent | $11,703 | $11,155 | -$548 | | Total | $152,756 | $139,844 | -$12,912 | - Amortization expense for the six months ended June 30, 2025, was $15.7 million, an increase from $14.6 million in the prior year period[69] 9. Accounts Payable and Other Accrued Liabilities Accounts payable and other accrued liabilities grew due to increases in accounts payable and contract liabilities Accounts Payable and Other Accrued Liabilities (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Accounts payable | $35,638 | $33,424 | +$2,214 | | Accrued expenses | $13,570 | $16,190 | -$2,620 | | Contract liabilities | $12,511 | $9,297 | +$3,214 | | Total | $66,647 | $63,704 | +$2,943 | 10. Accrued Payroll and Benefits Accrued payroll and benefits increased, driven primarily by higher accrued bonuses Accrued Payroll and Benefits (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Accrued bonuses | $16,580 | $14,433 | +$2,147 | | Accrued paid time off | $4,238 | $4,214 | +$24 | | Accrued payroll | $12,215 | $11,969 | +$246 | | Accrued other | $4,272 | $3,632 | +$640 | | Total | $37,305 | $34,248 | +$3,057 | 11. Income Taxes The company's effective tax rate was 135.1% for H1 2025, driven by disallowed items and a full valuation allowance on deferred tax assets Income Tax Expense (in thousands) | Period | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $988 | $2,619 | -$1,631 | | Six Months Ended June 30, | $3,859 | $3,112 | +$747 | Effective Tax Rate (ETR) | Period | 2025 | 2024 | | :--- | :--- | :--- | | Three Months Ended June 30, | 5.1% | (45.3)% | | Six Months Ended June 30, | 135.1% | (16.8)% | - A full valuation allowance is maintained on U.S. federal, state, and various foreign net deferred tax assets as their realization is not more-likely-than-not[74] - The recently enacted One Big Beautiful Bill Act (OBBB Act) on July 4, 2025, which includes provisions for bonus depreciation and R&E expenditures, is currently being evaluated for its impact on financial results[76] 12. Debt Total debt increased to $273.2 million following the refinancing of the company's credit facility in February 2025 Debt (in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Term loan facility | $200,000 | $189,218 | +$10,782 | | Revolving line of credit | $66,545 | $25,191 | +$41,354 | | Aircraft loan | $8,709 | $9,272 | -$563 | | Less deferred debt issuance costs | $(2,011) | $(997) | -$1,014 | | Total Debt | $273,243 | $222,684 | +$50,559 | | Long-term debt, net of current portion | $264,555 | $204,818 | +$59,737 | - The Company entered into a new $500.0 million 2025 Credit Facility on February 26, 2025, comprising a $200.0 million term loan and a $300.0 million revolving line of credit, which replaced the 2021 Credit Facility[81] - The 2025 Credit Facility term loan amortizes at 1.25% per quarter starting December 31, 2025, and matures on February 26, 2030[82] - As of June 30, 2025, the consolidated total leverage ratio was 2.5 times, and the Company was in compliance with all covenants under the 2025 Credit Facility[86] 13. Fair Value of Financial Instruments Total liabilities measured at fair value decreased, primarily due to a significant reduction in the fair value of the preferred stock conversion option Financial Instruments Measured at Fair Value (Level 3, in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Interest rate swap (Assets) | $0 | $1,544 | -$1,544 | | Business acquisitions contingent consideration, current | $17,284 | $26,872 | -$9,588 | | Business acquisitions contingent consideration, long-term | $7,346 | $6,255 | +$1,091 | | Conversion option related to Series A-2 Preferred Stock | $10,552 | $20,224 | -$9,672 | | Interest rate swap (Liabilities) | $(88) | $0 | -$88 | | Total Liabilities | $35,094 | $53,351 | -$18,257 | - The fair value of the Series A-2 preferred stock conversion option decreased by $9.7 million for the six months ended June 30, 2025, recorded as a gain in other income (expense)[94][103] 14. Commitments and Contingencies The company has various lease, debt, and equipment purchase commitments, while legal proceedings are not expected to be material - The Company leases office facilities and equipment with terms expiring through 2034 and 2030, respectively[95] - Commitments include obligations under the 2025 Credit Facility, Aircraft Loan, and an equipment line of credit[96] - A purchase contract for $4.9 million of equipment over seven years includes minimum spending requirements of $0.2 million for 2025, $0.4 million for 2026, and $0.9 million for 2027[96] - Legal proceedings are not expected to have a material effect on the Company's financial position or results of operations[98] 15. Convertible and Redeemable Series A-2 Preferred Stock A $60.0 million redemption significantly reduced the outstanding balance of Series A-2 Preferred Stock, which is classified as mezzanine equity - On April 1, 2025, the Company redeemed $60.0 million of Series A-2 Preferred Stock, reducing the outstanding principal balance to $62.2 million (5,834 shares) as of June 30, 2025[101] Series A-2 Preferred Stock Dividends (in thousands) | Period | 2025 | 2024 | | :--- | :--- | :--- | | Three Months Ended June 30, (accrued) | $1,400 | $2,750 | | Six Months Ended June 30, (paid) | $2,800 | $5,600 | - The Series A-2 Preferred Stock is classified as mezzanine equity because it is redeemable upon a change of control and the Company cannot assert it would have sufficient authorized shares to settle all future variable conversion requests[102] Fair Value of Conversion Option (in thousands) | Date | Fair Value | | :--- | :--- | | June 30, 2025 | $10,552 | | December 31, 2024 | $20,224 | Change in fair value for the six months ended June 30, 2025: $(9,672) thousand (recorded as other income/expense) 16. Stockholders' Equity The company maintains two equity incentive plans with 1.9 million shares available for grant under the 2017 Plan as of June 30, 2025 Shares Authorized and Available for Grant (in thousands) | Plan | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | 2017 Plan (Authorized) | 8,911,649 | 7,538,276 | | 2013 Plan (Authorized) | 2,035,219 | 2,036,219 | | Total Authorized | 10,946,868 | 9,574,495 | | 2017 Plan (Available for Grant) | 1,902,947 | 1,677,508 | | 2013 Plan (Available for Grant) | — | — | | Total Available for Grant | 1,902,947 | 1,677,508 | - The Board of Directors ratified the addition of 1,372,373 shares to the 2017 Plan in January 2025, pursuant to its annual increase provision[106] 17. Net Income (Loss) Per Share Net income per share improved significantly year-over-year, with potentially dilutive shares excluded from H1 2025 calculations due to anti-dilutive effects Net Income (Loss) Per Share Attributable to Common Stockholders | Period | Basic EPS (2025) | Basic EPS (2024) | Diluted EPS (2025) | Diluted EPS (2024) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $0.48 | $(0.39) | $0.42 | $(0.39) | | Six Months Ended June 30, | $(0.15) | $(0.91) | $(0.15) | $(0.91) | - For the six months ended June 30, 2025, common stock equivalents (stock options, restricted stock, and Series A-2 Preferred Stock) totaling 12.1 million were excluded from diluted EPS calculation because their effect would have been anti-dilutive[108][109] 18. Stock-Based Plans and Compensation Stock-based compensation expense increased to $24.6 million in H1 2025, with $65.1 million in unrecognized expense remaining Total Stock-Based Compensation Expense (in thousands) | Period | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $10,834 | $11,831 | -$997 | | Six Months Ended June 30, | $24,557 | $23,103 | +$1,454 | - As of June 30, 2025, there was $65.1 million of total unrecognized stock-based compensation expense related to unvested options, restricted stock, and SARs, expected to be recognized over a weighted-average 2.1-year period[111] - The 2021 Performance SARs were cancelled effective December 31, 2024, resulting in no related expense for the three and six months ended June 30, 2025[111][113] 19. Segment Information The company's three segments delivered a 25.5% increase in H1 2025 revenue and a 39.6% increase in Segment Adjusted EBITDA - The Company has three reportable segments: Assessment, Permitting and Response, Measurement and Analysis, and Remediation and Reuse, which are monitored separately by management[115] Total Reportable Segments Revenues and Adjusted EBITDA (in thousands) | Period | Revenues (2025) | Revenues (2024) | Change (%) | Adjusted EBITDA (2025) | Adjusted EBITDA (2024) | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $234,543 | $173,325 | 35.3% | $55,883 | $33,909 | 64.8% | | Six Months Ended June 30, | $412,377 | $328,650 | 25.5% | $86,155 | $61,704 | 39.6% | Segment Revenues (Six Months Ended June 30, in thousands) | Segment | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Assessment, Permitting and Response | $157,063 | $112,024 | +$45,039 | 40.2% | | Measurement and Analysis | $121,825 | $100,306 | +$21,519 | 21.5% | | Remediation and Reuse | $133,489 | $116,320 | +$17,169 | 14.8% | | Total | $412,377 | $328,650 | +$83,727 | 25.5% | Segment Adjusted EBITDA (Six Months Ended June 30, in thousands) | Segment | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Assessment, Permitting and Response | $38,127 | $28,901 | +$9,226 | 31.9% | | Measurement and Analysis | $32,071 | $18,863 | +$13,208 | 70.0% | | Remediation and Reuse | $15,957 | $13,940 | +$2,017 | 14.5% | | Total | $86,155 | $61,704 | +$24,451 | 39.6% | 20. Related-Party Transactions The company did not engage in any material related-party transactions during the recent reporting periods - No material related-party transactions occurred during the three and six months ended June 30, 2025, and June 30, 2024[123] 21. Defined Contribution Plan Employer contributions to the company's 401(k) plan decreased significantly in H1 2025 compared to the prior year - The 401(k) Savings Plan allows participants to defer up to 85% of eligible wages, up to IRS limits[124] - Employer matching contributions are 100% of the first 3% of compensation and 50% of deferrals exceeding 3% but not 5%[124] Employer Contributions to 401(k) Savings Plan (in thousands) | Period | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $2,400 | $8,900 | -$6,500 | | Six Months Ended June 30, | $5,200 | $11,600 | -$6,400 | 22. Subsequent Events The company redeemed the remaining Series A-2 Preferred Stock on July 1, 2025, using cash and credit facility borrowings - On July 1, 2025, the Company redeemed the remaining $62.2 million of Series A-2 Preferred Stock and paid $1.4 million in accrued dividends[125] - The redemption was funded using cash on hand and borrowings from the 2025 Credit Facility[125] - The remaining $10.6 million fair value of the conversion option was recorded as other income[125] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, liquidity, and key performance factors for the recent quarter and half-year Overview The company operates within a $1.6 trillion global environmental industry, providing services through its three core segments - The global environmental industry is estimated at $1.6 trillion, with $540.0 billion concentrated in the United States[133] - Montrose provides environmental services through three business segments: Assessment, Permitting and Response, Measurement and Analysis, and Remediation and Reuse[134] Our Segments The company's three operating segments are structured to align with client needs and regulatory frameworks - Assessment, Permitting and Response provides scientific advisory and consulting services for environmental assessments, emergency response, and permits[135] - Measurement and Analysis offers environmental testing and laboratory services for air, water, and soil contaminants[136] - Remediation and Reuse delivers engineering, design, and implementation services for contaminated water treatment, soil remediation, and renewable energy from waste[137] Key Factors that Affect Our Business and Our Results Financial performance is influenced by acquisitions, organic growth, revenue mix, financing costs, infrastructure investments, seasonality, and earnings volatility Acquisitions Acquisitions remain a key growth driver despite a temporary pause in H1 2025, with related costs continuing to be significant - The Company temporarily paused acquisitions in H1 2025 but expects them to continue driving revenue growth[140] Acquisition-Related Financial Impacts (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Amortization expense | $7,326 | $7,137 | $15,716 | $14,566 | | Acquisition-related costs | $325 | $1,082 | $1,036 | $3,607 | | Fair value changes in business acquisition contingencies | $(354) | $(136) | $(831) | $(242) | - Contingent consideration payments of $10.6 million were made in H1 2025 for Epic and Sensible, with $4.0 million in cash and $6.6 million in common stock[142] Organic Growth Organic growth, a key metric excluding emergency response and recent acquisitions, is expected to continue contributing to long-term revenue growth - Organic growth excludes revenues from emergency response, acquisitions for the first 12 months, and businesses held for sale/discontinued[143] - The Company has a history of long-term organic growth and expects this trend to continue[143] Revenue Mix Shifts in revenue mix between segments with varying profitability levels can impact consolidated financial results - Different segments and business lines have varying profitability, causing revenue mix shifts to impact consolidated financial results[144] - Revenue changes are attributed to organic growth (businesses over 12 months) and recent acquisitions (first 12 months)[145] Financing Costs Total debt increased to $273.2 million, and interest expense remains a significant and growing cost for the company - Total debt increased by $50.6 million to $273.2 million at June 30, 2025, driven by increased revolving line of credit usage and a refinanced term loan[146] Interest Expense, Net (in thousands) | Period | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $(4,768) | $(3,976) | $(792) | | Six Months Ended June 30, | $(9,833) | $(7,282) | $(2,551) | - The Company refinanced its 2021 Credit Facility with a new 2025 Credit Facility in February 2025[148] Corporate and Operational Infrastructure Investments The company continues to invest in its corporate infrastructure to support ongoing growth and improve long-term margins - Ongoing investments in corporate infrastructure (logistics, quality, risk management, sales, marketing, safety, HR, R&D, finance, IT) are expected to support continued growth and improve margins[148] Seasonality Quarterly results vary, particularly in the Measurement and Analysis and Remediation and Reuse segments, due to weather impacts on field operations - Operating results in Measurement and Analysis and Remediation and Reuse segments show quarterly variability, with generally lower revenues and earnings in Q1 and Q4 due to weather impacts on field-based teams[149] - As the Company expands, quarterly variability in these segments may deviate from historical trends[149] Earnings Volatility Earnings volatility is driven by unpredictable emergency response projects, which generated significantly higher revenue in H1 2025 - Earnings volatility is influenced by unpredictable emergency response projects, timing of large projects in the Remediation and Reuse segment, and acquisitions[150] Emergency Response Related Services Revenue (in thousands) | Period | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $48,500 | $12,900 | +$35,600 | | Six Months Ended June 30, | $62,400 | $28,600 | +$33,800 | - The higher emergency response revenue in Q2 2025 was primarily due to one large project, making future period comparisons difficult[150] Results of Operations The company achieved significant revenue growth and improved profitability, driven by emergency response, organic growth, and acquisitions Revenues Revenues grew 35.3% in Q2 and 25.5% in H1 2025, driven by higher emergency response revenue, strong organic growth, and acquisitions Revenues (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $234,543 | $173,325 | +$61,218 | 35.3% | | Six Months Ended June 30, | $412,377 | $328,650 | +$83,727 | 25.5% | - The increase in Q2 2025 revenues was primarily due to $35.6 million higher emergency response revenue, $17.1 million strong organic growth, and $9.1 million from acquisitions[152] - The increase in H1 2025 revenues was primarily due to $33.8 million higher emergency response revenue, $28.4 million strong organic growth, and $22.5 million from acquisitions[153] Cost of Revenues Cost of revenues as a percentage of revenue improved due to high-margin emergency response projects and operating leverage Cost of Revenues (exclusive of depreciation and amortization, in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $132,802 | $104,086 | +$28,716 | 27.6% | | Six Months Ended June 30, | $241,208 | $200,643 | +$40,565 | 20.2% | Cost of Revenue as a % of Revenue | Period | 2025 | 2024 | | :--- | :--- | :--- | | Three Months Ended June 30, | 56.6% | 60.1% | | Six Months Ended June 30, | 58.5% | 61.1% | - The improvement in cost of revenues as a percentage of revenue was driven by high-margin emergency response revenues in the Assessment, Permitting and Response segment and operating leverage in Measurement and Analysis[156][157] Selling, General and Administrative Expense SG&A expense increased due to higher labor and bad debt costs, but decreased as a percentage of revenues Selling, General and Administrative Expense (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $73,683 | $59,239 | +$14,444 | 24.4% | | Six Months Ended June 30, | $139,915 | $116,313 | +$23,602 | 20.3% | - The increase in SG&A was primarily due to an $8.9 million increase in labor costs (including a $6.0 million bonus accrual) and a $4.8 million increase in bad debt expense for the three months ended June 30, 2025[159] Selling, General and Administrative Expense as a % of Revenues | Period | 2025 | 2024 | | :--- | :--- | :--- | | Three Months Ended June 30, | 31.4% | 34.2% | | Six Months Ended June 30, | 33.9% | 35.4% | Depreciation and Amortization Depreciation and amortization expense increased moderately due to higher property and equipment balances Depreciation and Amortization (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $12,763 | $12,515 | +$248 | 2.0% | | Six Months Ended June 30, | $26,057 | $24,168 | +$1,889 | 7.8% | - The increase was primarily driven by higher property and equipment balances during the respective periods[162] Other Income (Expense), Net Other income improved significantly due to a large fair value gain on the Series A-2 preferred stock conversion option Other Income (Expense), Net (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $9,171 | $(924) | +$10,095 | (1093%) | | Six Months Ended June 30, | $8,323 | $(417) | +$8,740 | (2096%) | - The positive change was primarily due to a $10.0 million fair value gain on the Series A-2 preferred stock conversion option for the three months, and a $9.7 million gain for the six months ended June 30, 2025[163][164] - This gain was partially offset by losses related to fair value adjustments on interest rate swaps[163][164] Interest Expense, Net Interest expense increased due to higher interest rates and debt balances, including a write-off of deferred debt issuance costs Interest Expense, Net (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $(4,768) | $(3,976) | $(792) | 19.9% | | Six Months Ended June 30, | $(9,833) | $(7,282) | $(2,551) | 35.0% | - The increase was primarily driven by higher interest rates and increased debt balances[165] - Interest expense for the six months ended June 30, 2025, included a $0.9 million write-off of deferred debt issuance costs due to the refinancing of the senior credit facility[165] - Weighted average interest rates were 6.2% as of June 30, 2025, compared to 7.4% as of June 30, 2024[166] Income Tax Expense Income tax expense increased for the six-month period due to a higher net deferred tax liability and pretax book income Income Tax Expense (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30, | $988 | $2,619 | $(1,631) | (62.3%) | | Six Months Ended June 30, | $3,859 | $3,112 | +$747 | 24.0% | - The six-month increase was primarily due to an overall increase in the net deferred tax liability and pretax book income as of June 30, 2025, compared to the prior year[167] Segment Results of Operations All three segments reported increased revenues and Segment Adjusted EBITDA, with notable growth in Assessment, Permitting and Response Revenues (Segment) All segments grew, with Assessment, Permitting and Response showing the largest increase due to emergency response projects Segment Revenues (in thousands) | Segment | Q2 2025 | Q2 2024 | Q2 Change ($) | Q2 Change (%) | H1 2025 | H1 2024 | H1 Change ($) | H1 Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Assessment, Permitting and Response | $103,943 | $53,444 | +$50,499 | 94.5% | $157,063 | $112,024 | +$45,039 | 40.2% | | Measurement and Analysis | $62,795 | $54,812 | +$7,983 | 14.6% | $121,825 | $100,306 | +$21,519 | 21.5% | | Remediation and Reuse | $67,805 | $65,069 | +$2,736 | 4.2% | $133,489 | $116,320 | +$17,169 | 14.8% | - Assessment, Permitting and Response revenue growth was driven by environmental emergency responses ($35.6 million for Q2, $33.8 million for H1) and organic growth in consulting services[169] - Measurement and Analysis revenue growth was a result of strong organic growth ($4.9 million for Q2, $13.4 million for H1) and additional revenue from acquisitions[170] Segment Adjusted EBITDA Segment Adjusted EBITDA increased across all segments, with Measurement and Analysis showing significant margin improvement Segment Adjusted EBITDA (in thousands) | Segment | Q2 2025 | Q2 2024 | Q2 Change ($) | Q2 Margin % (2025) | Q2 Margin % (2024) | H1 2025 | H1 2024 | H1 Change ($) | H1 Margin % (2025) | H1 Margin % (2024) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Assessment, Permitting and Response | $27,555 | $12,621 | +$14,934 | 26.5% | 23.6% | $38,127 | $28,901 | +$9,226 | 24.3% | 25.8% | | Measurement and Analysis | $18,298 | $12,359 | +$5,939 | 29.1% | 22.5% | $32,071 | $18,863 | +$13,208 | 26.3% | 18.8% | | Remediation and Reuse | $10,030 | $8,929 | +$1,101 | 14.8% | 13.7% | $15,957 | $13,940 | +$2,017 | 12.0% | 12.0% | | Corporate and Other | $(16,298) | $(10,593) | $(5,705) | (6.9)% | (6.1)% | $(27,540) | $(21,466) | $(6,074) | (6.7)% | (6.5)% | - Measurement and Analysis Segment Adjusted EBITDA margin improved due to higher revenues and improved operating performance[173] - Corporate and other costs increased primarily due to higher bonus accruals ($5.1 million for Q2, $6.0 million for H1) and $0.9 million in outside service costs for an IT migration[174] Liquidity and Capital Resources The company's liquidity improved with a significant increase in operating cash flow, supported by its credit facility and cash on hand - Principal liquidity sources include credit facility borrowings, other arrangements, common/preferred stock issuance proceeds, and cash from operating activities[176] - As of June 30, 2025, the Company had $232.3 million available under the 2025 Credit Facility and $10.5 million of cash on hand[176] - The Company expects to fund liquidity requirements, including cash earn-out payments, through cash from operations and credit facility borrowings[177] Cash Flows Cash flow from operations turned positive, while investing and financing activities resulted in net cash outflows for H1 2025 Summary of Cash Flows (Six Months Ended June 30, in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Operating activities | $27,398 | $(21,127) | | Investing activities | $(7,932) | $(87,937) | | Financing activities | $(21,261) | $102,829 | | Change in cash, cash equivalents and restricted cash | $(1,795) | $(6,235) | Operating Activities Net cash from operating activities improved by $48.5 million due to higher cash earnings and better working capital performance - Net cash provided by operating activities was $27.4 million for H1 2025, a $48.5 million increase from the $21.1 million net cash used in H1 2024[180] - The increase was primarily due to a $22.5 million increase in cash earnings before non-cash items and a $21.9 million lower cash outflow from improved working capital performance[180] Investing Activities Net cash used in investing activities decreased significantly due to lower cash paid for acquisitions compared to the prior year - Net cash used in investing activities was $7.9 million for H1 2025, a substantial decrease from $87.9 million in H1 2024[182][183] - H1 2025 uses were primarily for purchases of property and equipment ($5.1 million) and proprietary software development ($2.8 million)[182] - H1 2024 uses included $70.3 million for acquisitions and $17.9 million for property and equipment[183] Financing Activities Financing activities shifted to a net cash use, driven by debt repayments and preferred stock redemption - Net cash used in financing activities was $21.3 million for H1 2025, compared to $102.8 million provided in H1 2024[184][185] - H1 2025 cash uses included $364.5 million in debt repayments, $60.0 million for Series A-2 preferred stock redemption, and $4.4 million for contingent consideration, partially offset by $416.0 million in credit facility borrowings[184] - H1 2024 cash provided included $121.8 million from common stock issuance and $50.0 million from an additional term loan, partially offset by $60.0 million for Series A-2 preferred stock redemption[185] Credit Facilities Details regarding the company's credit facilities are provided in Note 12 of the financial statements - Details regarding the Company's credit facilities are provided in Note 12[186] Series A-2 Preferred Stock Information regarding the Series A-2 Preferred Stock is provided in Notes 15 and 22 of the financial statements - Details regarding the Series A-2 Preferred Stock are provided in Notes 15 and 22[186] Stock Repurchase Program A $40.0 million stock repurchase program was approved in May 2025, but no shares were repurchased during the quarter - The Board of Directors approved a stock repurchase program of up to $40.0 million on May 7, 2025, with no set expiration date[188] - No stock repurchases were made during the three months ended June 30, 2025[188] Critical Accounting Policies and Estimates There have been no material changes to the critical accounting policies and estimates disclosed in the company's 2024 Form 10-K - No material changes to critical accounting policies and estimates from the 2024 Form 10-K, except as noted in Note 2 of the current financial statements[189] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates, inflation, and foreign exchange, with established mitigation strategies Interest Rate Risk The company is exposed to interest rate risk on its variable-rate debt, with a 1.0% rate change impacting pre-tax income by $0.8 million - A 1.0% increase or decrease in interest rates on variable rate debt (factoring in interest rate swaps on $200.0 million of debt) would impact annual income (loss) before income taxes by approximately $0.8 million[190] Inflation Risk Inflation has increased costs, but the company has largely offset these effects by raising prices and does not expect a material long-term impact - The Company experienced higher labor, travel, and direct costs due to inflation in H1 2025, particularly in Measurement and Analysis and Remediation and Reuse segments[191] - Price increases on short-term and medium-term contracts have largely offset inflationary effects, and the Company expects this strategy to continue[191] - Management believes inflation will not have a material long-term effect on the business, but an inability to offset future cost increases could adversely affect financial results[191] Foreign Exchange Risk Increased international operations have heightened foreign exchange risk, with a 1.0% change in the U.S. dollar exchange rate impacting revenues by $1.6 million - Foreign exchange risk exposure has increased due to operations in Canada, Australia, and Europe[192] - A 1.0% increase or decrease in the U.S. dollar exchange rate would impact revenues by approximately $1.6 million, with a negligible impact on annual net (loss) income[192] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls Evaluation of Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period - The CEO and CFO concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025[193] Internal Control Over Financial Reporting No material changes to the company's internal control over financial reporting occurred during the most recent fiscal quarter - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[194] Limitations on Effectiveness of Controls Management acknowledges that control systems provide reasonable, not absolute, assurance due to inherent limitations - Management acknowledges that control systems provide only reasonable, not absolute, assurance against errors and fraud[195] - Inherent limitations include resource constraints, faulty judgments, simple errors, and potential circumvention by intentional acts, collusion, or management override[195] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various legal proceedings which are not expected to have a material adverse effect on its financial position - The Company is subject to various legal proceedings in the normal course of business, including labor, employment, anti-discrimination, and commercial disputes[198] - Management does not expect current litigation to have a material adverse effect on the Company's results of operations or financial position[198] Item 1A. Risk Factors There have been no material changes to the company's risk factors from those previously disclosed - No material changes to risk factors from the 2024 Form 10-K and Q1 2025 Form 10-Q[199] - Additional unknown or currently immaterial risks may still adversely affect the business, financial condition, and operating results[199] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued common stock as purchase price consideration for prior acquisitions, exempt from registration under the Securities Act - On May 1, 2025, 2,888 shares and 29,176 shares of common stock were issued to former owners of Epic and ETA, respectively[200] - These shares were issued as purchase price consideration for earnout and deferred payments[200] - The issuances were exempt from registration requirements under Section 4(a)(2) of the Securities Act[200] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[201] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable[202] Item 5. Other Information No other information is reported under this item for the period - No other information is reported[203] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including officer certifications and Inline XBRL documents - Exhibits include certifications (31.1, 31.2, 32.1, 32.2) from the Principal Executive Officer and Principal Financial Officer[205] - Inline XBRL documents (101.INS, 101.SCH, 104) are also filed[205]