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What changed in Montrose Environmental Group, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Montrose Environmental Group, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+416 added−483 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in Montrose Environmental Group, Inc.'s 2023 10-K

416 paragraphs added · 483 removed · 297 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

53 edited+42 added−77 removed51 unchanged
Biggest changeSince January 1, 2020 we have acquired the following businesses: Acquired Business Date of Acquisition Segment Location 2023 Acquisitions Frontier Analytical Laboratories (“Frontier”) January 3, 2023 Measurement and Analysis El Dorado Hills, CA Environmental Alliance ("EAI") February 1, 2023 Remediation and Reuse Wilmington, DE 11 2022 Acquisitions Environmental Standards, Inc.
Biggest changeOur in-house acquisition team has established extensive relationships throughout the industry and maintains and regularly re-evaluates an established pipeline of potential acquisition opportunities, largely driven by word of mouth and personal introductions. 8 Since January 1, 2021 we have acquired the following businesses: Acquired Business Date of Acquisition Segment Location 2024 Acquisitions Epic Environmental Pty Ltd (“Epic”) January 31, 2024 Remediation and Reuse Brisbane, Australia Two Dot Consulting, LLC ("2DOT") February 29, 2024 Remediation and Reuse Denver, Colorado 2023 Acquisitions Frontier Analytical Laboratories (“Frontier”) January 3, 2023 Measurement and Analysis El Dorado Hills, CA Environmental Alliance, Inc.
Assessment, Permitting and Response . Our Assessment, Permitting and Response segment provides scientific advisory and consulting services to support environmental assessments, environmental emergency response and recovery, toxicology consulting and environmental audits and permits for current operations, facility upgrades, new projects, decommissioning projects and development projects.
Our Assessment, Permitting and Response segment provides scientific advisory and consulting services to support environmental assessments, environmental emergency response and recovery, toxicology consulting and environmental audits and permits for current operations, facility upgrades, new projects, decommissioning projects and development projects.
LeMaire has been our Chief Operating Officer since June 2017, prior to which he was our Vice President, Business Development and Marketing, starting in July 2015. Before Montrose Environmental, from 2011 to 2015, Mr. LeMaire consulted on 16 acquisitions of dental service organizations through his consulting firm, Aries Dental Management Group, LLC and prior to that, Mr.
LeMaire has been our Chief Operating Officer since June 2017, prior to which he was our Vice President, Business Development and Marketing, starting in July 2015. Before Montrose Environmental, from 2011 to 2015, Mr. LeMaire consulted on acquisitions of dental service organizations through his consulting firm, Aries Dental Management Group, LLC and prior to that, Mr.
Many companies around the world have implemented initiatives on Sustainability and Corporate Social Responsibility, or CSR, and Environmental, Social and Governance, or ESG, making environmental impact a core factor in many business decisions. These initiatives are often focused on managing potential future risks, as opposed to past emphasis on regulatory compliance.
Many companies around the world have implemented initiatives on Sustainability and Corporate Social Responsibility, or CSR, and ESG making environmental impact a core factor in many business decisions. These initiatives are often focused on managing potential future risks, as opposed to past emphasis on regulatory compliance.
We believe this segment maintains a number of competitive advantages, including: • strong brands and market leadership, particularly with environmental preparedness and response; • strong relationships with key private and public sector clients with needs for multiple environmental services, facilitating cross selling opportunities; • a core team of approximately 1,150 employees, including well-known technical experts with longstanding client relationships and significant experience across the key disciplines in the segment; • technology, software and data management capabilities, particularly within our response segment; • our proven ability to help clients navigate regulatory, public and legal scrutiny; and • a national reach established by having successfully assessed and permitted hundreds of projects in jurisdictions across the United States.
We believe this segment maintains a number of competitive advantages, including: • strong brands and market leadership, particularly with environmental preparedness and response; • strong relationships with key private and public sector clients with needs for multiple environmental services, facilitating cross selling opportunities; • a core team of approximately 1,100 employees, including well-known technical experts with longstanding client relationships and significant experience across the key disciplines in the segment; • technology, software and data management capabilities, particularly within our response segment; • our proven ability to help clients navigate regulatory, public and legal scrutiny; and • a national reach established by having successfully assessed and permitted hundreds of projects in jurisdictions across the United States.
Instead, each of our segments has competitors with narrower service offerings and/or geographies. Our Assessment, Permitting and Response segment competitors include the environmental divisions of ERM, Ramboll, Geosyntec, Exponent, and other large engineering companies and small businesses.
Instead, each of our segments has competitors with narrower service offerings and/or geographies. Our Assessment, Permitting and Response segment competitors include the environmental divisions of ERM, Ramboll, Geosyntec, Exponent, WSP and other large engineering companies and small businesses.
Compliance with Federal, State/Provincial and Local Laws Our operations subject us to environmental, health and safety laws and regulations in jurisdictions where we operate, including the United States, Australia and Canada.
Compliance with Federal, State/Provincial and Local Laws Our operations subject us to environmental, health and safety laws and regulations in jurisdictions where we operate, including the United States, Canada, Australia and Europe.
We are not dependent upon any single service, product, political approach or regulatory framework. We also serve a diverse set of approximately 5,600 clients across a wide variety of end markets and geographies within the private 4 and public sectors. Funding for our services is typically non-discretionary given regulatory drivers and public health concerns.
We are not dependent upon any single service, product, political approach or regulatory framework. We also serve a diverse set of approximately 5,900 clients across a wide variety of end markets and geographies within the private 4 and public sectors. Funding for our services is typically non-discretionary given regulatory drivers and public health concerns.
To help promote compliance with these and other laws and regulations, our employees are sometimes required to complete tailored ethics and other compliance training relevant to their position and our operations. Information About Our Executive Officers Vijay Manthripragada, 46 – Mr. Manthripragada joined Montrose Environmental as our President in September 2015. In June 2016 Mr.
To help promote compliance with these and other laws and regulations, our employees are sometimes required to complete tailored ethics and other compliance training relevant to their position and our operations. Information About Our Executive Officers Vijay Manthripragada, 47 – Mr. Manthripragada joined Montrose Environmental as our President in September 2015. In June 2016 Mr.
Supported by approximately 1,160 employees across more than 50 locations in the US and Canada, our highly credentialed teams test and analyze air, water and soil to determine concentrations of contaminants, as well as the toxicological impact of contaminants on flora, fauna and human health.
Supported by approximately 1,160 employees across more than 55 locations in the US and Canada, our highly credentialed teams test and analyze air, water and soil to determine concentrations of contaminants, as well as the toxicological impact of contaminants on flora, fauna and human health.
We have long-term, and through our legacy companies, decades-old relationships. We serve a diversified client base in both the private and public sectors. For the fiscal year ended December 31, 2022, our revenues were derived approximately 89% from the private sector and 11% from the public sector.
We have long-term, and through our legacy companies, decades-old relationships. We serve a diversified client base in both the private and public sectors. For the fiscal year ended December 31, 2023, our revenues were derived approximately 89% from the private sector and 11% from the public sector.
Mr. Manthripragada received his Master of Business Administration from The Wharton School, University of Pennsylvania and his Bachelor of Science in Biology from Duke University. Allan Dicks, 50 – Mr. Dicks has been our Chief Financial Officer since August 2016. Before joining Montrose Environmental, Mr.
Mr. Manthripragada received his Master of Business Administration from The Wharton School, University of Pennsylvania and his Bachelor of Science in Biology from Duke University. Allan Dicks, 51 – Mr. Dicks has been our Chief Financial Officer since August 2016. Before joining Montrose Environmental, Mr.
He is a Chartered Accountant in South Africa and is a Certified Public Accountant (inactive) in the State of California. Nasym Afsari, 40 – Ms. Afsari has been our General Counsel since November 2014 and our Secretary since August 2015. Before joining Montrose Environmental, Ms.
He is a Chartered Accountant in South Africa and is a Certified Public Accountant (inactive) in the State of California. Nasym Afsari, 41 – Ms. Afsari has been our General Counsel since November 2014 and our Secretary since August 2015. Before joining Montrose Environmental, Ms.
Afsari earned her Juris Doctorate from the University of California at Los Angeles and a dual Bachelor of Arts degree in Economics and Psychology from the University of California at Berkeley. Joshua W. LeMaire, 49 – Mr.
Afsari earned her Juris Doctorate from the University of California at Los Angeles and a dual Bachelor of Arts degree in Economics and Psychology from the University of California at Berkeley. Joshua W. LeMaire, 50 – Mr.
All employee time associated with safety preparation and training is 15 fully paid to employees. Current initiatives include driving safety, job safety planning and job hazard analysis. Further to our commitment to our employees, we employ a third party occupational medical provider that is available to all employees 24/7 to discuss occupational health concerns.
All employee time associated with safety preparation and training is 14 fully paid to employees. Current initiatives include driving safety, chemical safety, job safety planning and job hazard analysis. Further to our commitment to our employees, we employ a third party occupational medical provider that is available to all employees 24/7 to discuss occupational health concerns.
We seek to acquire businesses at disciplined valuation levels that: (1) are led by high quality scientists and management teams, (2) expand our portfolio of services, (3) provide access to differentiated technologies or processes, and (4) extend our geographic coverage. We have personnel specifically dedicated to identifying acquisition targets, exploring acquisition opportunities, negotiating terms and overseeing acquisition and post-acquisition integration.
We seek to acquire businesses at disciplined valuation levels that: • are led by high quality scientists and management teams, • expand our portfolio of services, • provide access to differentiated technologies or processes, and • extend our geographic coverage. We have personnel specifically dedicated to identifying acquisition targets, exploring acquisition opportunities, negotiating terms and overseeing acquisition and post-acquisition integration.
LeMaire held several leadership roles at Becker-Parkin Dental Supply Co., including Executive Vice President of Sales and Marketing, Vice President of Full Service Sales and National Sales Manager. Mr. LeMaire also worked as a National Sales Manager at Sky Financial Solutions. Jose M. Revuelta, 41 – Mr.
LeMaire held several 15 leadership roles at Becker-Parkin Dental Supply Co., including Executive Vice President of Sales and Marketing, Vice President of Full Service Sales and National Sales Manager. Mr. LeMaire also worked as a National Sales Manager at Sky Financial Solutions. Jose M. Revuelta, 42 – Mr.
Our Measurement and Analysis segment competitors include the environmental divisions of SGS, TRC Companies, Eurofins, Pace Analytical and other large testing companies and small businesses. Our Remediation and Reuse segment competitors include the environmental divisions or remediation segments of Tetra Tech, AECOM, Evoqua, Mead & Hunt, and other large engineering companies and other small businesses.
Our Measurement and Analysis segment competitors include the environmental divisions of SGS, TRC Companies, Eurofins, Pace Analytical and other large testing companies and small businesses. Our Remediation and Reuse segment competitors include the environmental divisions or remediation segments of Tetra Tech, AECOM, Xylem, Veolia, Mead & Hunt, and other large engineering companies and other small businesses.
This segment, which is primarily based on a time and materials, or T&M, revenue model, generated approximately 34% of our revenue for the fiscal year ended December 31, 2022. Measurement and Analysis . Our Measurement and Analysis segment is one of the largest providers of environmental testing and laboratory services in North America.
This segment, which is primarily based on a time and materials, or T&M, revenue model, generated approximately 35% of our revenue for the fiscal year ended December 31, 2023. Measurement and Analysis . Our Measurement and Analysis segment is one of the largest providers of environmental testing and laboratory services in North America.
However, much of the industry is served by small firms that provide limited service offerings addressing specific regulations and geographies. It is difficult for small firms to expand given the technical expertise, accreditations and licenses necessary to serve a broad array of clients and industries across geographies and service lines.
However, much of the industry is served by small firms that provide limited service offerings that address specific regulations and geographies. It is difficult for small firms to expand their offerings or geographies given the technical expertise, accreditations and licenses necessary to serve a broad array of clients and industries across geographies and service lines.
As a result, our business is positioned to be less susceptible to political and economic cycles. Our financial success is driven by both strong organic and acquisition-driven growth, and as a result, our total revenue has grown at a compounded annual growth rate of 30% since 2018.
As a result, our business is positioned to be less susceptible to political and economic cycles. Our financial success is driven by both strong organic and acquisition-driven growth, and as a result, our total revenue has grown at a compounded annual growth rate of 28% since 2019.
Public Demands, Industrial Activity, Climate Change and Regulations Each Increase Need for Environmental Services Heightened public awareness and increasing stakeholder demand for environmental sustainability has increased the need and demand for environmental services.
Public Demands, Industrial Activity, Climate Change and Regulations Each Drive Needs for Environmental Services Heightened public awareness and increasing stakeholder demand for environmental sustainability has increased the need and demand for environmental services.
EBI concludes that strong tailwinds of ESG, energy security, energy transition and climate resilience, in addition to traditional drivers of air quality, water quality, responsible waste management and resource recovery are leading to positive growth across all environmental sectors in the global market.
EBI concludes that strong tailwinds of infrastructure funding, energy security, energy transition, Environmental, Social and Governance, or ESG, and climate resilience, in addition to traditional drivers of air quality, water quality, responsible waste management, resource recovery, remediation and restoration are leading to positive growth across all environmental sectors in the global market.
In addition to environmental toxicology, and given our expertise in helping businesses plan for and respond to disruptions, our scientists and response teams have helped clients navigate their preparation for and response to COVID-19 infections.
In addition to environmental toxicology, and given our expertise in helping businesses plan for and respond to disruptions, our scientists and response teams have helped clients navigate their preparation for and response to emergency response situations.
As a result, our operating results in our Measurement and Analysis segment experience some quarterly variability with generally lower revenues and lower earnings in the first and fourth quarters and typically we experience higher overall revenues and earnings in the second and third quarters.
As a result, our operating results in our Measurement and Analysis segment and, following the acquisition of Matrix in Canada, the Remediation and Reuse segment, experience some quarterly variability with generally lower revenues and lower earnings in the first and fourth quarters and typically we experience higher overall revenues and earnings in the second and third quarters.
Our largest client represented approximately 14% of revenue for fiscal year ended December 31, 2022, with these revenues derived from over 30 separate projects.
Our largest client represented approximately 10% of revenue for fiscal year ended December 31, 2023, with these revenues derived from over 13 separate projects.
Differentiated Technology, Processes and Applications Advanced technology and innovative processes and applications are key competitive advantages in the environmental services industry. Our team of industry leaders are integral drivers of our investments in differentiated services.
This table illustrates a summary of our segments. 7 Differentiated Technology, Processes and Applications Advanced technology, innovative processes, and applications are key competitive advantages in the environmental services industry. Our team of industry leaders are integral drivers of our investments in differentiated services.
These barriers include: • highly technical, costly and time-consuming accreditation and licensure requirements; • ability to deploy/services client needs across geographies; • advanced quality and safety programs and mandated scores; • the complex and geographically varying regulatory landscape that requires significant industry experience; • the need to acquire or develop innovative technologies and processes that are acceptable to regulatory bodies, which in our case occurred over many years of client and regulator engagements and at significant research and development expense; and • emphasis by large clients on size and scale, length of relationship and past service record.
These barriers include: • highly technical, costly and time-consuming accreditation and licensure requirements; • ability to deploy/services client needs across geographies; • advanced quality and safety programs and mandated scores; • the complex and geographically varying regulatory landscape that requires significant industry experience; • the need to acquire or develop innovative technologies and processes that are acceptable to regulatory bodies, which in our case occurred over many years of client and regulator engagements and at significant research and development expense; and • emphasis by large clients on size and scale, length of relationship and past service record. 10 Intellectual Property We utilize a combination of intellectual property safeguards, including patents, copyrights, trademarks, trade secrets and licenses, as well as employee and third-party confidentiality agreements, to protect our intellectual property.
As a result of the nature of CTEH’s environmental response business, our Assessment, Permitting and Response segment may at times experience higher customer concentration levels based on the severity, duration and outcome of certain types of environmental emergencies for which we provide response services, as was the case in 2022 when 38% of CTEH’s revenues were attributable to three customers, each of whom engaged CTEH in connection with COVID-19 response support.
As a result of the nature of our environmental emergency response business, our Assessment, Permitting and Response segment may at times experience higher customer concentration levels based on the severity, duration and outcome of certain types of environmental emergencies for which we provide response services, as was the case in 2023 when 43% of our Assessment, Permitting and Response segment revenues were attributable to three customers.
We believe we have a variety of sustainable competitive advantages in this market, including: • reputable brands; • one of the most prominent air testing companies in North America with vertically integrated testing and analytical capabilities, including ultra-trace analysis; • comprehensive laboratory network in the United States, offering a complete suite of analytical solutions for virtually all environmental projects; • one of the most experienced providers of advanced optical gas imaging “OGI” testing used to detect hydrocarbon gas leaks; and • our proprietary software, technologies, processes and applications, including the ability to detect air contaminants in real time at ultra-trace concentrations. 9 This segment, which is primarily based on a fixed price and, for out-of-scope work, a T&M revenue model, generated approximately 32% of our revenue for the fiscal year ended December 31, 2022.
We believe we have a variety of sustainable competitive advantages in this market, including: • reputable brands; • one of the most prominent air testing companies in North America with vertically integrated testing and analytical capabilities, including ultra-trace analysis; • comprehensive laboratory network in the United States, offering a complete suite of analytical solutions for virtually all environmental projects; • one of the most experienced providers of advanced optical gas imaging “OGI” testing used to detect hydrocarbon gas leaks; and • our proprietary software, technologies, processes and applications, including the ability to detect air contaminants in real time at ultra-trace concentrations.
Compensation and Benefits We strive to maintain a fair and equitable compensation program for comparable roles, experience and performance that is independent of employee race, gender, sexual orientation or other personal characteristics.
Employee Retention and Rewards Core to our talent retention strategy is our carefully designed and comprehensive compensation package. We strive to maintain a fair and equitable compensation program for comparable roles, experience and performance that is independent of employee race, gender, sexual orientation, or other personal characteristics.
Our culture of safety and wellbeing of our employees is supported by a dedicated team of health and safety professionals. Across our organization, we demonstrate our strong commitment of safety to our employees with frequent communications and systems that actively engage employees and encourage all employee's input and involvement.
Across our organization, we demonstrate our strong commitment of safety to our employees with frequent communications and systems that actively engage employees and encourage all employee's input and involvement.
Clients We provide environmental services to approximately 5,600 clients operating in a number of sectors and industries, including but not limited to technology, media, chemicals, energy (oil, gas and/or petrochemical), power and utilities, industrials and manufacturing, financial services, and engineering services as well as local, state, provincial and federal government entities.
Each business we acquire is systematically integrated into our systems and processes, thereby creating revenue synergy opportunities and operating leverage. 9 Clients We provide environmental services to approximately 5,900 clients operating in a number of sectors and industries, including but not limited to energy (oil, gas and/or petrochemical), industrials and manufacturing, power and utilities, technology, chemicals, financial services, engineering services, and media, as well as local, state, provincial and federal government entities.
Federal, state, provincial and local environmental regulations dictate compliance requirements that create demand for environmental services. Increasingly, public and stockholder interest in environmental sustainability is also driving prudent management of our shared and finite environmental resources. Global Environmental Industry is Large and Growing According to data derived from environmental industry studies updated annually by Environmental Business International, Inc.
Federal, state, provincial and local environmental regulations dictate compliance requirements that create demand for environmental services. Increasingly, public and stockholder interest in environmental sustainability is also driving prudent management of our shared and finite environmental resources.
Finally, all of our employees have complete stop work authority and can stop any project or task if there is any concern about a safety issue without any fear of retribution.
Finally, all of our employees have complete stop work authority and can stop any project or task if there is any concern about a safety issue without any fear of retribution. Our dedication and commitment to safety have resulted in us again receiving National Safety Council Award for Operational Excellence.
This segment, which is primarily based on a fixed price and, for out-of-scope work, a T&M revenue model, generated approximately 34% of our revenue for the fiscal year ended December 31, 2022 through a combination of project-based work and recurring, monthly fee operating & maintenance (O&M) revenue stream. 10 This table illustrates a summary of our segments.
This segment, which is primarily based on a fixed price and, for out-of-scope work, a T&M revenue model, generated approximately 33% of our revenue for the fiscal year ended December 31, 2023 primarily through project-based work.
Recent examples of our investment and development activities are related to real time air quality and methane emissions monitoring, environmental data management and visualization software, and PFAS removal and destruction technologies. In fiscal year 2022, our Research and Development team was awarded six patents in the United States related to water treatment technology.
Recent examples of our investment and development activities are related to real time air quality and methane emissions monitoring, environmental data management and visualization software, and PFAS removal and destruction technologies. In total, our research and development team has been awarded seventeen patents and has an additional thirty-three patents submitted for patent consideration in the United States.
Engagement Our employees’ dedication to supporting each other has led to the establishment of The Montrose Community Foundation, a non-profit organization formed and operated by our employees for the benefit of our employees, in 2016. Through its volunteer board, The Montrose Community Foundation uses employee donations to provide resources to our employees in times of need.
Community Development Our employees’ dedication to supporting each other has led to the establishment of The Montrose Community Foundation, a non-profit organization formed and operated by our employees for the benefit of our employees.
("CTEH") April 2020 Assessment, Permitting and Response Little Rock, AR We believe we add value to the businesses we acquire by emphasizing a team-centric culture focused on innovation and investment, expanding career opportunities for new employees from smaller businesses, providing a larger eco-system of environmental services and capabilities to further client relationships, and implementing award-winning safety programs and operating processes.
(“Vista”) June 3, 2021 Measurement and Analysis El Dorado Hills, CA MSE Group, LLC ("MSE") January 1, 2021 Remediation and Reuse Orlando, FL We believe we add value to the businesses we acquire by emphasizing a team-centric culture focused on innovation and investment, expanding career opportunities for new employees from smaller businesses, providing a larger eco-system of environmental services and capabilities to further client relationships, and implementing award-winning safety programs and operating processes.
Our DF&I Task Force actively works with our HR and Talent Acquisition teams to expand our recruiting efforts of science, technology, engineering and math ("STEM") professionals, as well as engaging with colleges and professional organizations that promote individuals from underrepresented populations.
Our DF&I committee also actively works with our human resources and talent acquisition teams to expand our recruiting efforts of science, technology, engineering and math professionals, as well as engaging with colleges and professional organizations that promote individuals from underrepresented populations. For example, we have sponsored events for the Society of Women Environmental Professionals to build a long-term relationship.
See Item 1A. “Risk Factors.” 12 For the fiscal year ended December 31, 2022, 35% of our revenue came from customers buying more than one service, which is nearly double from the 18% generated from this type of customer in the fiscal year ended December 31, 2021.
See Item 1A. “Risk Factors.” For the fiscal year ended December 31, 2023, 51% of our revenue came from customers engaging us to provide more than one service, an increase of 16 percentage points from the 35% we generated from customers buying more than one service in the fiscal year ended December 31, 2022.
Approximately 450 of our employees, including engineers, scientists and consultants, provide these services to assist our clients in designing solutions, managing products and mitigating environmental risks and liabilities at their locations.
Our Remediation and Reuse segment provides clients with engineering, design, and implementation services, primarily to treat contaminated water, remove contaminants from soil or create biogas from waste. Approximately 720 of our employees, including engineers, scientists and consultants, provide these services to assist our clients in designing solutions, managing products and mitigating environmental risks and liabilities at their locations.
Item 1. Bu siness. Since our inception in 2012, our mission has been to help clients and communities meet their environmental goals and needs. Today, we have emerged as one of the fastest growing companies in a highly fragmented and growing $ 1.34 trillion global environmental industry.
Item 1. Bu siness. Since our inception in 2012, our mission has been to help clients and communities meet their environmental goals and needs.
Strategic Acquisitions We operate in a growing and highly fragmented market with thousands of potential acquisition targets. Given our success in identifying, executing and integrating more than 65 acquisitions since our inception in 2012, we believe we can continue to selectively acquire additive businesses.
Given our success in identifying, executing and integrating approximately 70 acquisitions since our inception in 2012, we believe we can continue to selectively acquire additive businesses.
("EBI") and research commissioned by Montrose, as of 2022 the global environmental industry is estimated to generate approximately $1.34 trillion in revenues, with $444 billion concentrated in the United States. According to EBI, this $444 billion U.S. environmental market is expected to grow at a CAGR of 2.8% per year from 2023 through 2026, up from its previous forecast.
Global Environmental Industry is Large and Growing According to EBI and research commissioned by Montrose, as of 2023 the global environmental industry is estimated to generate approximately $1.44 trillion in revenues, with $494 billion concentrated in the United States.
We believe our mission and focus on the environment, our emphasis on ownership opportunities for our employees and our team of renowned industry leaders creates a competitive advantage when competing for talent. 8 Segments We provide environmental services to our clients through our integrated solutions across three business segments—Assessment, Permitting and Response, Measurement and Analysis and Remediation and Reuse.
Segments We provide environmental services to our clients through our integrated solutions across three business segments—Assessment, Permitting and Response, Measurement and Analysis and Remediation and Reuse. Assessment, Permitting and Response .
We LEAD The Montrose Environmental Group Women Empowering Leadership, or WeLEAD, program, which was established in January 2020, is focused on fostering the recruitment, retention and professional development of women at our company. Our WeLEAD program is developing an alliance of women leaders across Montrose, with a key emphasis on mentorship and talent development.
In furtherance of these efforts, we have deployed mandatory inclusion training to our full-time workforce. 13 Our WeLEAD (Women Empowering Leadership) program, which was established in January 2020, is focused on fostering the recruitment, retention and professional development of women at our company.
In addition, The Montrose Community Foundation, a non-profit organization formed and operated by our employees for the benefit of our employees continued to offer assistance to employees in need. Through its volunteer board, The Montrose Community Foundation uses employee donations to provide resources to our employees in times of need.
Through its volunteer board, The Montrose Community Foundation uses donations made by employees, board members, clients and others to provide resources to our employees in times of need. Our employees’ dedication of personal time and resources solely for the benefit of their colleagues exemplifies our team-oriented culture.
As we continue to grow and expand into new geographies and service lines, quarterly variability in our Measurement and Analysis segment may deviate from historical trends. 13 Human Capital Resources Employees As of December 31, 2022, we had approximately 2,900 employees, including approximately 2,250 full-time employees in the United States.
As we continue to grow and expand into new geographies and service lines, quarterly variability in our Measurement and Analysis and Remediation and Reuse segments may deviate from historical trends. 11 Human Capital Resources We believe one of our greatest strengths is our employees who strive to innovate and deliver unparalleled service to our clients and communities.
We also offer equity incentives to a large number of our employees under our stock incentive plans. We believe strongly in employee ownership of Montrose and we believe our approach creates value for our clients, for our employees, for the communities in which our employees live, and for our shareholders.
We believe strongly in employee ownership of Montrose, and we believe our equity incentives can help to retain employees and create value for our clients, for our employees and for our stockholders. We also believe in recognizing our employees for their contributions.
In total, our research and development team has been awarded eighteen patents and has an additional twenty patents submitted for patent consideration in the United States. Our research and development team continued to innovate in the following areas: water treatment, particularly PFAS and selenium removal, PFAS destruction, PFAS testing, foam fractionation, and CO2 capture.
Our research and development team continued to innovate in the following areas: water treatment, particularly PFAS and selenium removal, PFAS destruction, PFAS testing, foam fractionation, vapor treatment and removal, CO2 capture, and resource recovery. Strategic Acquisitions We operate in a growing and highly fragmented market with thousands of potential acquisition targets.
Approximately 97% of our full-time employees work in our U.S. operations and approximately 3% work in foreign operations. None of our facilities are covered by collective bargaining agreements. Employee Communication We continue to advance our employee communication strategy at Montrose.
Employees As of December 31, 2023, we had approximately 3,100 employees (which includes full-time, part-time and stand-by environmental emergency response personnel). Approximately 2,400, or 77%, of our employees work in our U.S. operations and approximately 700 or 23% work in foreign operations. Other than in Sweden, none of our facilities are covered by collective bargaining agreements.
Diversity, Fairness and Inclusion At Montrose, diversity, fairness, and inclusion are key to fulfilling our Company aspirations to be the future of environmental solutions. Our DF&I Task Force, established in July 2020, continues to build awareness across Montrose and to establish and formalize employee development and policies that support diversity, inclusion and fairness.
Diversity, Fairness and Inclusion At Montrose, diversity, fairness, and inclusion (“DF&I”) are key to fulfilling our Company aspirations to be the future of environmental solutions. Our Board’s Compensation Committee has direct oversight of our diversity, fairness and inclusion (“DF&I”) programs, priorities, and strategies.
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Competitive Strengths We are a leading global brand focused on environmental services with a resilient revenue base anchored on long-term client relationships. Our focus on innovation, our ability to acquire and integrate leading companies, our highly accredited businesses and our experienced and credentialed team provide our clients with quality solutions and create significant barriers to entry.
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According to data derived from a 2023 Environmental Industry Study prepared by Environmental Business International, Inc., or EBI, which we commissioned and update annually, the global environmental industry is estimated to be approximately $1.44 trillion, with $494.0 billion concentrated in the United States.
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Our competitive strengths include: Resilient Revenue Across Political and Economic Cycles Our revenues are largely resilient over political cycles primarily because our business is not dependent on any one industry, geography or regulatory framework. We have a diversified client and geographic footprint, and we often help clients comply with multiple regulatory frameworks.
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According to EBI, this $494 billion U.S. environmental market is expected to grow at a CAGR of 3.6% per year from 2024 through 2026, up from its previous forecast of 2.8% per year from 2023 through 2026.
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As a result, we are often insulated from major shifts in individual federal, state, provincial and local regulations. While federal governments set certain minimum standards, many state, provincial or local policies are more stringent. In addition, state, provincial and local governments often define how environmental standards will be met or implemented.
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This segment, which is primarily based on a fixed price and, for out-of-scope work, a T&M revenue model, generated approximately 32% of our revenue for the fiscal year ended December 31, 2023. 6 Remediation and Reuse .
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These different levels of government often serve as counterweights to each other and minimize the risk and impact of sudden shifts in policy. We believe our diverse portfolio of services and end markets also positions us to be resilient across economic cycles.
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("EAI") February 1, 2023 Remediation and Reuse Wilmington, DE GreenPath Energy LTD (“GreenPath”) May 1, 2023 Measurement and Analysis Calgary, Canada Matrix Solutions, Inc. ("Matrix") June 1, 2023 Remediation and Reuse Calgary, Canada Vandrensning ApS. ("Vandrensning") July 31, 2023 Remediation and Reuse Copenhagen, Denmark 2022 Acquisitions Environmental Standards, Inc.
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For example, clients use our services when launching development projects, while maintaining ongoing operations, when decommissioning operations, and when remediating the release of contaminants into air, water or soil. These client activities can occur at different times for different industries, regardless of economic cycles.
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Our employees are passionate about the environment and supporting one another. We are committed to fostering a diverse, fair and inclusive workplace with a focus on respect, trust and belonging. We invest in the success and development of our employees and maintain people-centric strategies from recruiting, engagement, development, compensation and benefits to safety and communication.
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In addition, many of our service offerings are typically non-discretionary and our projects often create significant economic value for our clients (in the form of reduced liability, cost savings or revenue streams), further incentivizing the continued use of our services.
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Talent Attraction We believe that we are part of the future of environmental solutions, and we continue to differentiate ourselves by attracting top talent that brings diverse perspectives, experiences, and expertise that can help solve some of the toughest environmental challenges our clients’ face.
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Furthermore, community demands, such as those for PFAS-free water or better air quality monitoring in disadvantaged communities surrounding industrial facilities, continue regardless of political or economic cycles. As another example, during the COVID-19 shelter-in-place orders, most of our services were deemed essential and continued to be requested by clients.
Added
We are focused on attracting and hiring talented and diverse people while at the same time appreciating each candidates’ career aspirations and development areas. Our internal talent acquisition team has decades of experience that spans industries, enabling them to be forward-thinking, strategic, and anticipatory of talent trends.
Removed
Though there were some delays in the scheduling of certain services due to travel restrictions or social distancing requirements, the environmental and/or regulatory implications of not completing environmental projects resulted in a resilient demand for our services, even during the heights of the pandemic.
Added
This team performs the majority of the recruiting and hiring by partnering closely with our business leaders and technical teams to understand their current and future talent needs. We have developed and maintained relationships with external search firms to better inform them regarding our business and talent requirements.
Removed
Including revenues generated by CTEH, whose clients do not necessarily recur each year due to the emergency response nature of their services, clients generating 95% of revenue in the fiscal year ended December 31, 2021 repeated in the fiscal year ended December 31, 2022.
Added
We leverage these firms for niche and specialized executive, professional and technical roles. We have also advanced our partnerships with select universities by engaging with 20 top-tier universities across the United States and Canada.
Removed
Excluding revenues generated by CTEH, clients generating 96% of revenue in the fiscal year ended December 31, 2021 repeated in the fiscal year ended December 31, 2022.
Added
As part of our engagement efforts in 2023, we met with over 1,000 students, participated in classroom and school panel presentations, and interviewed and hired numerous talented students. We are committed to continuing this initiative with our 2024 spring and fall university relations campaigns.
Removed
Similarly, inclusive of CTEH clients generating 86% of our revenue in the fiscal year ended December 31, 2020 repeated in the fiscal year ended December 31, 2021 and excluding revenues from CTEH, clients generating 93% of our revenue in the fiscal year ended December 31, 2020 repeated in the fiscal year ended December 31, 2021.
Added
We believe these campaigns can better enable us to identify and hire top talent for our internships and entry-level full-time roles, as well as to develop a strong talent pipeline for years to come. Finally, we prioritize developing relationships and affiliations with professional organizations that promote underrepresented populations and affinity groups, such as the Society of Women Environmental Professionals.
Removed
Long-term Relationships Across a Large and Diversified Client Base We currently serve approximately 5,600 clients. We have long-standing relationships with a number of Fortune 1000 companies and government entities, and our legacy acquired businesses have been operating for as long as a century.
Added
We post our career opportunities on various diversity job boards and have expanded our military recruiting initiative. Employee Engagement We actively engage with our employees to help them gain a deeper understanding our business, to provide them with important updates, and to share information about our recently developed patents and acquired businesses.
Removed
We provide services to our largest clients across multiple projects and/or multiple locations, and the number of services we provide to these clients varies from one project per year to several dozen projects per year.
Added
Periodic town halls led by our CEO and quarterly town halls led by our divisional leaders are used to communicate corporate initiatives, reinforce key messages, recognize employee accomplishments and solicit employee feedback. Our monthly newsletter – Montrose Matters – is another communication channel that allows us to highlight projects, provide sustainability updates and recognize employee accomplishments.
Removed
With the exception of CTEH, whose environmental response business may at times experience higher customer concentration levels based on the severity, duration and outcome of certain types of environmental emergencies for which we provide response services, our revenues are not dependent on any one single client or industry.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

101 edited+25 added−38 removed239 unchanged
Biggest changeSome of the more significant risks include: • our history of losses and ability to achieve profitability; • our ability to promote and develop our brands; • general global economic, business and other conditions and the cyclical nature of some of our end markets; • the highly competitive nature of our business; • our limited operating history; • our ability to execute on our acquisition strategy and successfully integrate and realize benefits of our acquisitions; • the parts of our business that depend on difficult to predict natural or manmade events; • our ability to maintain necessary accreditations and other authorizations; • significant environmental governmental regulation; • our ability to attract and retain qualified managerial and skilled technical personnel; • the impact of the COVID-19 pandemic; • our ability to expand our client base; and • lack of compliance with prescribed organizational policies and procedures may result in poor performance or suboptimal transactions. 17 If any of the risks described below actually occurs, our business, financial condition and results of operations could be materially and adversely affected and the trading price of our common stock could decline, causing you to lose all or part of your investment in our common stock.
Biggest changeSome of the more significant risks include: • general global economic, business and other conditions and the cyclical nature of some of our end markets; • the highly competitive nature of our business; • rapidly changing technology and industry and regulatory standards; • our ability to execute on our acquisition strategy and successfully integrate and realize benefits of our acquisitions; • the parts of our business that depend on difficult to predict natural or manmade events; • our work on high profile projects and the risks related thereto; • our ability to maintain necessary accreditations and other authorizations; • significant environmental governmental regulation; • our ability to attract and retain qualified managerial and skilled technical personnel; • safety-related issues; • our ability to expand our client base; and • lack of compliance with prescribed organizational policies and procedures may result in poor performance or suboptimal transactions.
We may work on high profile projects, and any negative publicity or perceived failures of those projects, or litigation resulting from such projects, could damage our reputation and harm our operating results. We may be engaged on high profile projects that garner public attention and scrutiny, particularly with respect to the emergency response division of the CTEH business.
We may work on high profile projects, and any negative publicity or perceived failures of those projects, or litigation resulting from such projects, could damage our reputation and harm our operating results. We may be engaged on high profile projects that garner public attention and scrutiny, particularly with respect to the emergency response division of our CTEH business.
The CTEH business is often responsible for the presentation of plans and advice in emergency situations, including natural disasters and manmade accidents. While the CTEH employees are not responsible for the ultimate approval of such plans, the failure or minimized success of a plan could expose us to potential litigation and damage to our reputation.
Our CTEH business is often responsible for the presentation of plans and advice in emergency situations, including natural disasters and manmade accidents. While our CTEH employees are not responsible for the ultimate approval of such plans, the failure or minimized success of a plan could expose us to potential litigation and damage to our reputation.
Some of the factors that could negatively affect the market price of our common stock or result in significant fluctuations in price, regardless of our actual operating performance, include: • actual or anticipated variations in our quarterly operating results; • changes in market valuations of similar companies; • changes in the markets in which we operate; • additions or departures of key personnel; • actions by stockholders, including sales of large blocks of our common stock; 31 • the continuation of an active trading market in our common stock or any significant volatility in the liquidity of that market; • speculation in the press or investment community; • short selling of our common stock or related derivative securities or hedging activities; • general market, economic and political conditions, including an economic slowdown; • inflation and changes in interest rates; • our operating performance and the performance of other similar companies; • our ability to accurately project future results and our ability to achieve those or meet the expectations of other industry and analyst forecasts; and • new legislation or other regulatory developments that adversely affect us, our markets or our industry.
Some of the factors that could negatively affect the market price of our common stock or result in significant fluctuations in price, regardless of our actual operating performance, include: • actual or anticipated variations in our quarterly operating results; • changes in market valuations of similar companies; • changes in the markets in which we operate; • additions or departures of key personnel; • actions by stockholders, including sales of large blocks of our common stock; • the continuation of an active trading market in our common stock or any significant volatility in the liquidity of that market; • speculation in the press or investment community; • short selling of our common stock or related derivative securities or hedging activities; • general market, economic and political conditions, including an economic slowdown; • inflation and changes in interest rates; • our operating performance and the performance of other similar companies; • our ability to accurately project future results and our ability to achieve those or meet the expectations of other industry and analyst forecasts; and • new legislation or other regulatory developments that adversely affect us, our markets or our industry.
Risks involved with the successful integration of an acquired business include, but are not limited to: • diverting the attention of our management and that of the acquired business; • merging or linking different accounting and financial reporting systems and systems of internal controls and, in some instances, implementing new controls and procedures; • merging computer, technology and other information networks and systems, including enterprise resource planning systems; • assimilating personnel, human resources and other administrative departments and potentially contrasting corporate cultures; • integrating our governmental contracting work with similar services provided by acquired companies; • incurring or guaranteeing additional indebtedness; • disrupting relationships with or losses of key clients and suppliers of our business or the acquired business; • interfering with, or loss of momentum in, our ongoing business or that of the acquired company; • failure to retain our key personnel or that of the acquired company; and • delays or cost-overruns in the integration process.
Risks involved with the successful integration of an acquired business include, but are not limited to: • diverting the attention of our management and that of the acquired business; • merging or linking different accounting and financial reporting systems and systems of internal controls and, in some instances, implementing new controls and procedures; • merging computer, technology and other information networks and systems, including enterprise resource planning systems; • assimilating personnel, human resources and other administrative departments and potentially contrasting corporate cultures; • integrating our governmental contracting work with similar services provided by acquired companies; • incurring or guaranteeing additional indebtedness; • disrupting relationships with or losses of key clients and suppliers of our business or the acquired business; 19 • interfering with, or loss of momentum in, our ongoing business or that of the acquired company; • failure to retain our key personnel or that of the acquired company; and • delays or cost-overruns in the integration process.
For example, our amended and restated certificate of incorporation and amended and restated bylaws include provisions that: • permit us to issue, without stockholder approval, preferred stock in one or more series and, with respect to each series, fix the number of shares constituting the series and the designation of the series, the voting powers, if any, of the shares of the series and the preferences and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of the series; • prevent stockholders from acting by written consent; 33 • limit the ability of stockholders to amend our certificate of incorporation and bylaws; • require advance notice for nominations for election to the board of directors and for stockholder proposals; • do not permit cumulative voting in the election of our directors, which means that the holders of a majority of our common stock may elect all of the directors standing for election; and • establish a classified board of directors with staggered three-year terms.
For example, our amended and restated certificate of incorporation and amended and restated bylaws include provisions that: • permit us to issue, without stockholder approval, preferred stock in one or more series and, with respect to each series, fix the number of shares constituting the series and the designation of the series, the voting powers, if any, of the shares of the series and the preferences and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of the series; • prevent stockholders from acting by written consent; • limit the ability of stockholders to amend our certificate of incorporation and bylaws; • require advance notice for nominations for election to the board of directors and for stockholder proposals; • do not permit cumulative voting in the election of our directors, which means that the holders of a majority of our common stock may elect all of the directors standing for election; and • establish a classified board of directors with staggered three-year terms.
Our credit facility contains a number of covenants that among other things, limit our ability to: • incur additional indebtedness or guarantees; • create liens on assets; • enter into sale and leaseback transactions; • engage in mergers or consolidations; • pay dividends and make distributions and other restricted payments; • make certain investments, loans or advances; • repay subordinated indebtedness; • make certain acquisitions; • engage in certain transactions with affiliates; • change our lines of business; • restrict distributions by our restricted subsidiaries; • amend or otherwise modify organizational documents or certain debt agreements; and • manage cash and other assets in our deposit accounts and securities accounts.
Our 2021 Credit Facility contains a number of covenants that among other things, limit our ability to: • incur additional indebtedness or guarantees; • create liens on assets; • enter into sale and leaseback transactions; • engage in mergers or consolidations; • pay dividends and make distributions and other restricted payments; • make certain investments, loans or advances; • repay subordinated indebtedness; • make certain acquisitions; • engage in certain transactions with affiliates; • change our lines of business; • restrict distributions by our restricted subsidiaries; • amend or otherwise modify organizational documents or certain debt agreements; and • manage cash and other assets in our deposit accounts and securities accounts.
If the results or design we provided do turn out to be errant or we otherwise fail to meet our contractual obligations, 24 because some of the agreements that we have in place with clients require us to indemnify them for losses that they suffer as a result of errors and omissions or negligence by us, we may be subject to legal liability or required to pay significant damages, and the client relationship could be harmed.
If the results or design we provided do turn out to be errant or we otherwise fail to meet our contractual obligations, because some of the agreements that we have in place with clients require us to indemnify them for losses that they suffer as a result of errors and omissions or negligence by us, we may be subject to legal liability or required to pay significant damages, and the client relationship could be harmed.
If our employees, consultants or other third parties with whom we do business do violate these laws or our policies, we may be ultimately held responsible, and any violation could result in severe criminal or civil sanctions, fines and penalties and suspension or debarment from U.S. government contracting, any of which could have a material and adverse effect on our business, financial condition and results of operations.
If our employees, consultants or other third parties with whom we do business do violate these laws or our policies, we may be ultimately 35 held responsible, and any violation could result in severe criminal or civil sanctions, fines and penalties and suspension or debarment from U.S. government contracting, any of which could have a material and adverse effect on our business, financial condition and results of operations.
If we do not adapt to or comply with new regulations or if we are perceived to have not responded appropriately to the growing concern for ESG matters, we may face legal or regulatory actions or the imposition of fines, penalties, or other sanctions and adverse publicity, any of which could materially harm our reputation or have a material adverse effect on our business, financial condition or results of operations.
If we do not adapt to or comply with these and other new regulations or if we are perceived to have not responded appropriately to the growing concern for ESG matters, we may face legal or regulatory actions or the imposition of fines, penalties, or other sanctions and adverse publicity, any of which could materially harm our reputation or have a material adverse effect on our business, financial condition or results of operations.
Any determination to pay dividends to holders of our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, restrictions in our credit facility, the terms of our Series A-2 preferred stock, agreements governing any other indebtedness we may enter into and other factors that our board of directors deems relevant.
Any determination to pay dividends to holders of our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, restrictions in our 2021 Credit Facility, the terms of our Series A-2 preferred stock, agreements governing any other indebtedness we may enter into and other factors that our board of directors deems relevant.
In recognition that representatives of Oaktree and its affiliated entities and funds may serve as members of our board of directors, our amended and restated certificate of incorporation provides, among other things, that none of Oaktree, its affiliates or any of its representatives (including a representative who may serve on our 32 board of directors) has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do.
In recognition that representatives of Oaktree and its affiliated entities and funds may serve as members of our board of directors, our amended and restated certificate of incorporation provides, among other things, that none of Oaktree, its affiliates or any of its representatives (including a representative who may serve on our board of directors) has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do.
Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. If we fail to attract and retain qualified management and skilled technical personnel, our business may be adversely affected. Our long-term success depends, in significant part, upon the continued service and performance of our senior management and other key personnel.
Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. 21 If we fail to attract and retain qualified management and skilled technical personnel, our business may be adversely affected. Our long-term success depends, in significant part, upon the continued service and performance of our senior management and other key personnel.
Similarly, our failure or perceived failure to pursue or fulfill our goals, targets and objectives, to comply with ethical, environmental or other standards, regulations or expectations, or to satisfy various reporting standards with respect to these matters, within the timelines we announce, or 25 at all, could have the same negative impacts, as well as expose us to government enforcement actions and private litigation.
Similarly, our failure or perceived failure to pursue or fulfill our goals, targets and objectives, to comply with ethical, environmental or other standards, regulations or expectations, or to satisfy various reporting standards with respect to these matters, within the timelines we announce, or at all, could have the same negative impacts, as well as expose us to government enforcement actions and private litigation.
Our existing and any future indebtedness could have important consequences, including: • making it more difficult for us to make payments on our existing indebtedness; • increasing our vulnerability to general economic and industry conditions; • requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; 29 • exposing us to the risk of increased interest rates on our borrowings under our credit facility, which is at variable rates of interest; • restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; • limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; and • limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.
Our existing and any future indebtedness could have important consequences, including: • making it more difficult for us to make payments on our existing indebtedness; • increasing our vulnerability to general economic and industry conditions; • requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; • exposing us to the risk of increased interest rates on our borrowings under our 2021 Credit Facility, which is at variable rates of interest; • restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; • limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; and • limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged.
Any failure by us to compete or to generally maintain and improve our competitive position could have a material adverse effect on our business, financial condition and results of operations. 19 If we are unable to develop successful new services or adapt to rapidly changing technology and industry standards or changes to regulatory requirements, our business could be harmed.
Any failure by us to compete or to generally maintain and improve our competitive position could have a material adverse effect on our business, financial condition and results of operations. If we are unable to develop successful new services or adapt to rapidly changing technology and industry standards or changes to regulatory requirements, our business could be harmed.
In addition, our credit facility includes, and other debt instruments we may enter into in the future may include, provisions entitling the lenders to demand immediate repayment of all borrowings upon the occurrence of certain change of control events relating to our company, which also could discourage, delay or prevent a business combination transaction.
In addition, our 2021 Credit Facility includes, and other debt instruments we may enter into in the future may include, provisions entitling the lenders to demand immediate repayment of all borrowings upon the occurrence of certain change of control events relating to our company, which also could discourage, delay or prevent a business combination transaction.
Seasonal effects may vary from year to year and are impacted by weather patterns, particularly by temperatures, rainfall and droughts. In addition, we may experience earnings volatility as a result of the timing of large contract 26 wins and the timing of large emergency response projects following an incident or natural disaster due to the unpredictable nature thereof.
Seasonal effects may vary from year to year and are impacted by weather patterns, particularly by temperatures, rainfall and droughts. In addition, we may experience earnings volatility as a result of the timing of large contract wins and the timing of large emergency response projects following an incident or natural disaster due to the unpredictable nature thereof.
Occurrence of any catastrophic event, including earthquake, fire, flood, tsunami or other weather event, power loss, telecommunications failure, software or hardware malfunctions, cyber-attack, war or terrorist attack, could result in lengthy interruptions in our services. Our insurance coverage may not compensate us for losses that may occur in the wake of such events.
Occurrence of any catastrophic event, including earthquake, fire, flood, tsunami or other weather event, pandemic, power loss, telecommunications failure, software or hardware malfunctions, cyber-attack, war or terrorist attack, could result in lengthy interruptions in our services. Our insurance coverage may not compensate us for losses that may occur in the wake of such events.
Approximately 2,500,000 million shares of common stock held by affiliates and certain other parties entitled to these registration rights were registered on a shelf registration statement filed with the SEC on August 11, 2021 and declared effective on August 20, 2021. This registration statement also registered approximately 320,000 shares held at such time by other executive officers and directors.
Approximately 2,500,000 shares of common stock held by affiliates and certain other parties entitled to these registration rights were registered on a shelf registration statement filed with the SEC on August 11, 2021 and declared effective on August 20, 2021. This registration statement also registered approximately 320,000 shares held at such time by other executive officers and directors.
See Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Dividend Policy.” Accordingly, you may need to sell your shares of our common stock to realize a return on your investment, and you may not be able to sell your shares at or above the price you paid for them.
See Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Dividend Policy.” Accordingly, you 30 may need to sell your shares of our common stock to realize a return on your investment, and you may not be able to sell your shares at or above the price you paid for them.
If we fail to successfully maintain and continue to grow the Montrose Environmental brand and our other brands through promotion and other efforts, incur excessive unanticipated expenses in attempting to promote and maintain our brands, or lose clients as a result, our business, financial condition and results of operations may be adversely affected.
If we fail to successfully maintain and continue to grow the Montrose Environmental brand and our 33 other brands through promotion and other efforts, incur excessive unanticipated expenses in attempting to promote and maintain our brands, or lose clients as a result, our business, financial condition and results of operations may be adversely affected.
Any such litigation proceedings are inherently costly and uncertain, and could have a material adverse effect on our business, financial condition and results of operations. We may not be able to maintain or expand our accreditation and other authorizations, which may adversely affect our ability to provide our services.
Any such litigation proceedings are inherently costly and uncertain, and could have a material adverse effect on our business, financial condition and results of operations. 20 We may not be able to maintain or expand our accreditation and other authorizations, which may adversely affect our ability to provide our services.
Although we have procedures and systems in place to address applicable legal and regulatory requirements for those aspects of our business impacted by these laws, enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase, and we could be subject to such activity.
Although we have procedures and systems in place to address applicable legal and regulatory requirements for those aspects of our business impacted by these laws, 27 enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase, and we could be subject to such activity.
Our failure to comply with obligations under our credit facility or the agreements governing any future indebtedness may result in an event of default under the applicable agreement. A default, if not cured or waived, may permit acceleration of some or all of our other indebtedness and trigger other termination and similar rights under other contracts.
Our failure to comply with obligations under our 2021 Credit Facility or the agreements governing any future indebtedness may result in an event of default under the applicable agreement. A default, if not cured or waived, may permit acceleration of some or all of our other indebtedness and trigger other termination and similar rights under other contracts.
See “Exclusive Forum Clause” in the Description of Securities exhibit incorporated by reference as exhibit 4.2 to this Annual Report on Form 10-K. General Risks Our profitability will suffer if we are not able to price our services appropriately or control our costs.
See “Exclusive Forum Clause” in the Description of Securities exhibit incorporated by reference as exhibit 4.2 to this Annual Report on Form 10-K. 32 General Risks Our profitability will suffer if we are not able to price our services appropriately or control our costs.
We may not be able to borrow additional financing or to refinance our credit facility or other indebtedness we may incur in the future, if required, on commercially reasonable terms, if at all. In addition, our ability to borrow under our credit facility is subject to significant conditions, as described in Item 7.
We may not be able to borrow additional financing or to refinance our 2021 Credit Facility or other indebtedness we may incur in the future, if required, on commercially reasonable terms, if at all. In addition, our ability to borrow under our 2021 Credit Facility is subject to significant conditions, as described in Item 7.
Bribery, corruption and trade laws and regulations, and the enforcement thereof, are increasing in frequency, complexity and severity on a global basis. In many foreign countries it may be a local custom that businesses operating in such countries engage in practices that 36 are prohibited by the FCPA or other similar laws and regulations.
Bribery, corruption and trade laws and regulations, and the enforcement thereof, are increasing in frequency, complexity and severity on a global basis. In many foreign countries it may be a local custom that businesses operating in such countries engage in practices that are prohibited by the FCPA or other similar laws and regulations.
If we fail to implement proper safety procedures or if the procedures we implement are ineffective, or if others working at the site fail to implement and follow appropriate safety procedures, our employees and others may become injured, disabled or even lose their lives, the completion or commencement of our projects 23 may be delayed and we may be exposed to litigation or investigations.
If we fail to implement proper safety procedures or if the procedures we implement are ineffective, or if others working at the site fail to implement and follow appropriate safety procedures, our employees and others may become injured, disabled or even lose their lives, the completion or commencement of our projects may be delayed and we may be exposed to litigation or investigations.
In addition, some of our competitors are vertically integrated and can leverage this structure to their advantage. We may fail to identify optimal service or geographic markets, focus our attention in suboptimal service or geographic markets or fail to execute an appropriate business model in certain service or geographic markets.
In addition, some of our competitors are vertically integrated and can leverage this structure to their 17 advantage. We may fail to identify optimal service or geographic markets, focus our attention in suboptimal service or geographic markets or fail to execute an appropriate business model in certain service or geographic markets.
Our operations, as well as those of our clients, are therefore subject to regulatory, economic, political and other events and uncertainties in countries where these operations are located. Further, our growth strategy includes 35 expansion into additional international markets, including our expansion into Europe.
Our operations, as well as those of our clients, are therefore subject to regulatory, economic, political and other events and uncertainties in countries where these operations are located. Further, our growth strategy includes expansion into additional international markets, including our expansion into Europe.
The security measures and procedures we, our clients and third-party service providers have in place to protect sensitive data and other information may not be successful or sufficient to counter all data breaches, cyber-attacks or system failures.
The security measures and procedures we, our clients, and third-party service providers have in place to protect sensitive data and other information may not be successful or sufficient to counter data breaches, cyber-attacks, or system failures.
Further, 22 we may not be able to obtain or renew the required authorizations for businesses we acquire in the future, or for an organic expansion we wish to pursue, and the failure to obtain these authorizations could limit the opportunity to expand our business.
Further, we may not be able to obtain or renew the required authorizations for businesses we acquire in the future, or for an organic expansion we wish to pursue, and the failure to obtain these authorizations could limit the opportunity to expand our business.
The exercise by any governmental entity of one or more of these rights under its agreements with us could have a material adverse effect on our business, financial condition and results of operations.
The exercise by any governmental entity of one or 26 more of these rights under its agreements with us could have a material adverse effect on our business, financial condition and results of operations.
If an event of default occurs, our lenders will be entitled to take various actions, including the acceleration of amounts due under our credit facility and all actions permitted to be taken by a secured creditor. Any future debt that we incur may contain additional and more restrictive negative covenants and financial maintenance covenants.
If an event of default occurs, our lenders will be entitled to take various actions, including the acceleration of amounts due under our 2021 Credit Facility and all actions permitted to be taken by a secured creditor. 29 Any future debt that we incur may contain additional and more restrictive negative covenants and financial maintenance covenants.
We also compete for acquisitions with other potential acquirers, some of which may have greater 20 financial or operational resources than we do.
We also compete for acquisitions with other potential acquirers, some of which may have greater financial or operational resources than we do.
Although our credit facility and our Series A-2 preferred stock contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also do not prevent us from incurring obligations that do not constitute indebtedness.
Although our 2021 Credit Facility and our Series A-2 preferred stock contain restrictions on the incurrence 28 of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also do not prevent us from incurring obligations that do not constitute indebtedness.
Oaktree also holds all outstanding shares of our Series A-2 stock, which may be converted into shares of common stock in the future and would also receive the benefit of these registration rights. See Note 18 to our audited consolidated financial statements included in Item 8.
Oaktree also holds all outstanding shares of our Series A-2 stock, which may be converted into shares of common stock in the future and would also receive the benefit of these registration rights. See Note 16 to our audited consolidated financial statements included in Item 8.
In addition to the risks discussed elsewhere herein that are common to both our domestic and international operations, we face risks specific to our foreign activities, including but not limited to: • political, social, economic and financial instability, including wars, civil unrest, acts of terrorism and other conflicts; • difficulties and increased costs in developing, staffing and simultaneously managing a large number of varying foreign operations as a result of distance, language and cultural differences; • restrictions and limitations on the transfer or repatriation of funds and fluctuations in currency exchange rates; • complying with varying legal and regulatory environments in multiple foreign jurisdictions, including privacy laws such as the E.U.
In addition to the risks discussed elsewhere herein that are common to both our domestic and international operations, we face risks specific to our foreign activities, including but not limited to: • political, social, economic and financial instability, including wars, civil unrest, acts of terrorism and other conflicts, including the wars in Ukraine and the Middle East and surrounding areas; • difficulties and increased costs in developing, staffing and simultaneously managing a large number of varying foreign operations as a result of distance, language and cultural differences; • restrictions and limitations on the transfer or repatriation of funds and fluctuations in currency exchange rates; • complying with varying legal and regulatory environments in multiple foreign jurisdictions, including privacy laws such as the E.U.
We derive, and expect to continue to derive in the future, revenues from federal, state, provincial or local government clients, which accounted for approximately 11% of our revenues for the fiscal year ended December 31, 2022.
We derive, and expect to continue to derive in the future, revenues from federal, state, provincial or local government clients, which accounted for approximately 11% of our revenues for the fiscal year ended December 31, 2023.
We have a limited history in offering products and designing and building systems as compared to the services we offer, and this expansion subjects us to new and different risks generally associated with offering products manufactured by third parties, including but not limited to: • production difficulties of third-party manufacturers, including problems involving changes in their production capacity and yields, quality control and assurance, component supply and shortages of qualified personnel; • failure to establish or maintain supplier relationships; • supply chain issues of third-party manufacturers and the failure of suppliers to produce components to specification or supply us with a sufficient amount or adequate quality of materials, including those that began during the COVID-19 pandemic; • increases in the cost of raw materials, components or the overall cost of production passed to us; • failure to adequately design new or improved products or respond to changing regulatory requirements; • use of defective materials or workmanship in the manufacturing process; • improper use of our products; • failure to satisfy any warranty or performance guarantee; • product liability claims; and • lack of market acceptance, delays in product development and failure of products to operate properly.
We have a limited history in offering products and designing and building systems as compared to the services we offer, and this expansion subjects us to new and different risks generally associated with offering products manufactured by third parties, including but not limited to: • production difficulties of third-party manufacturers, including problems involving changes in their production capacity and yields, quality control and assurance, component supply and shortages of qualified personnel; • failure to establish or maintain supplier relationships; • supply chain issues of third-party manufacturers and the failure of suppliers to produce components to specification or supply us with a sufficient amount or adequate quality of materials; • increases in the cost of raw materials, components or the overall cost of production passed to us; • failure to adequately design new or improved products or respond to changing regulatory requirements; • use of defective materials or workmanship in the manufacturing process; • improper use of our products; • failure to satisfy any warranty or performance guarantee; • product liability claims; and • lack of market acceptance, delays in product development and failure of products to operate properly.
Further, international operations carry inherent uncertainties regarding the effect of local or domestic actions, such as the impact of the United Kingdom’s departure from the European Union (Brexit), any of which could be material.
Further, international operations carry inherent uncertainties regarding the effect of local or domestic actions, such as the United Kingdom’s departure from the European Union (Brexit), any of which could 34 be material.
Further, as of December 31, 2022, the 2021 Credit Facility provided for an aggregate unused commitment of $125.0 million (without giving effect to any outstanding letters of credit, and subject to borrowing base limitations). The 2021 Credit Facility also allows us to increase the aggregate borrowings thereunder by up to $150.0 million. See Item 7.
As of December 31, 2023, the 2021 Credit Facility provided for an aggregate unused commitment of $125.0 million (without giving effect to any outstanding letters of credit, and subject to borrowing base limitations). The 2021 Credit Facility also allows us to increase the aggregate borrowings thereunder by up to $150.0 million. See Item 7.
Our credit facility and our Series A-2 preferred stock restrict our ability to consummate or use the proceeds from asset sales. We may not be able to consummate those asset sales to raise capital or sell assets at prices that we believe are fair.
Our 2021 Credit Facility, airplane loan, and our Series A-2 preferred stock restrict our ability to consummate or use the proceeds from asset sales. We may not be able to consummate those asset sales to raise capital or sell assets at prices that we believe are fair.
Some of our primary competitors include, in our Assessment, Permitting and Response segment, the environmental divisions of ERM, Ramboll, Geosyntec, Exponent, and other large engineering companies and small businesses, in our Measurement and Analysis segment, the environmental divisions of SGS, TRC Companies, Eurofins, Pace Analytical and other large testing companies and small businesses, and in our Remediation and Reuse segment, the environmental divisions or remediation segments of Tetra Tech, AECOM, Evoqua, Mead & Hunt, and other large engineering companies and other small businesses.
Some of our primary competitors include, in our Assessment, Permitting and Response segment, the environmental divisions of ERM, Ramboll, Geosyntec, Exponent, WSP and other large engineering companies and small businesses, in our Measurement and Analysis segment, the environmental divisions of SGS, TRC Companies, Eurofins, Pace Analytical and other large testing companies and small businesses, and in our Remediation and Reuse segment, the environmental divisions or remediation segments of Tetra Tech, AECOM, Xylem, Veolia, Mead & Hunt, and other large engineering companies and other small businesses.
Our industry is highly fragmented and we believe that our future success depends in part on our ability to maintain and further strengthen the Montrose Environmental brand across the diverse range of environmental services that we provide.
Our industry is highly fragmented and we believe that our future success depends in part on our ability to maintain and further strengthen our core brands, including the Montrose Environmental brand across the diverse range of environmental services that we provide.
Our cybersecurity and processing systems, as well as those of our third-party service providers, newly acquired companies that have not yet been integrated and those of our clients which we periodically manage may experience damage or disruption from a number of causes, including power outages, computer and telecommunication failures, internal design, manual or usage errors, workplace violence or wrongdoing, catastrophic events, natural disasters and severe weather conditions.
In addition to cyber threats, our cybersecurity and processing systems, as well as those of our third-party service providers, including cloud service providers, newly acquired companies that have not yet been integrated, and those of our clients which we periodically manage, may experience damage or disruption from a number of causes, including power outages, computer and telecommunication failures, internal design, manual or usage errors, workplace violence or wrongdoing, catastrophic events, natural disasters, and severe weather conditions.
A significant portion of CTEH’s employees work in emergency situations that pose threats to the environment and surrounding communities. Danger of injury or death is inherent in this role, despite safety precautions, training and compliance with federal, state and local health and safety regulations.
A significant portion of our environmental emergency response employees work in emergency situations that pose threats to the environment and surrounding communities. Danger of injury or death is inherent in this role, despite safety precautions, training and compliance with federal, state and local health and safety regulations.
As previously disclosed, on June 11, 2022 we were the target of an organized ransomware attack on our IT systems that, although not ultimately material to our results of operations for the year ended December 28 31, 2022 or any individual fiscal quarter within the year, the attack led to the temporary disruption of our regular operations and lost revenues.
As previously disclosed, on June 11, 2022, we were the target of an organized ransomware attack on our IT systems that, although not ultimately material to our results of operations for the year ended December 31, 2022, and December 31, 2023, or any individual fiscal quarter within those years, the attack led to the temporary disruption of our regular operations and lost revenues in 2022.
A significant portion of our historical growth has occurred through acquisitions, and we anticipate continued growth through acquisitions in the future. Our growth strategy is primarily dependent on acquiring and integrating the operations of companies in the environmental services industry. Since January 1, 2020, we have acquired 16 companies.
A significant portion of our historical growth has occurred through acquisitions, and we anticipate continued growth through acquisitions in the future. Our growth strategy is partially dependent on acquiring and integrating the operations of companies in the environmental services industry. Since January 1, 2020, we have acquired 19 companies.
Our clients are companies operating in a number of sectors and industries, including the financial, oil & gas, utilities, construction, automotive, real-estate, midstream energy, manufacturing, commodities, petrochemical, tobacco, food and beverage, telecommunications and engineering industries, as well as local, state, provincial and federal government entities.
Our operations depend upon our relationships with our clients. Our clients are companies operating in a number of sectors and industries, including the financial, oil & gas, utilities, construction, automotive, real-estate, midstream energy, manufacturing, commodities, petrochemical, food and beverage, telecommunications and engineering industries, as well as local, state, provincial and federal government entities.
Failure to maintain effective controls and procedures and comply with Section 404 could also delay or otherwise adversely affect our ability to timely produce accurate financial statements and related information, which could restrict our access to capital markets and cause the price of our common stock to fall.
Failure to maintain effective controls and procedures and comply with Section 404 could also delay or otherwise adversely affect our ability to timely produce accurate financial statements and related information, which could restrict our access to capital markets and cause the price of our common stock to fall. Item 1B. Unresolved Staff Comments. None.
Certain of our businesses depend on specific environmental circumstances, including both naturally occurring and manmade events. Our Assessment, Permitting and Response segment, in particular, which includes the operations of CTEH, engages in response activities following an environmental incident or a natural disaster.
Certain of our businesses depend on specific environmental circumstances, including both naturally occurring and manmade events. Our Assessment, Permitting and Response segment, in particular, which includes our environmental emergency response business that engages in response activities following an environmental incident or a natural disaster.
The success of the CTEH business depends on its employees, and an aviation accident or incident that results in the serious injury or death of those employees could have a material adverse effect on the business.
The success of our environmental emergency response business depends on its employees, and an aviation accident or incident that results in the serious injury or death of those employees could have a material adverse effect on the business.
Any failure to successfully respond to the foregoing risks or any others that we may not appreciate as a result of our limited history of production could have material adverse effect on our business, financial condition and results of operations.
Any failure to successfully respond to the foregoing risks or any others that we may not appreciate as a result of our limited history of production could have material adverse effect on our business, financial condition and results of operations. 24 Our operations are subject to environmental laws and regulations and any liabilities may have a material adverse effect on our business.
We are subject to taxation in multiple jurisdictions. Any adverse development in the tax laws of any of these jurisdictions, any disagreement with our tax positions or any changes in effective tax rates could have a material adverse effect on our business, financial condition or results of operations.
Any adverse development in the tax laws of any of these jurisdictions, any disagreement with our tax positions or any changes in effective tax rates could have a material adverse effect on our business, financial condition or results of operations.
The Company has the option to borrow incremental term loans or request an increase in the aggregate commitments under the revolving credit facility up to an aggregate amount of $150.0 million subject to the satisfaction of certain conditions described in greater detail in Item 7.
Further, following the exercise of the accordion feature in February 2024, the Company has the remaining option to borrow incremental term loans or request an increase in the aggregate commitments under the revolving credit facility up to an aggregate amount of $150.0 million subject to the satisfaction of certain conditions described in greater detail in Item 7.
The business of CTEH places its employees in dangerous situations which may present serious and enhanced safety issues that could adversely affect our business. The CTEH business is focused on assisting companies, governments and communities with responses to and recovery from environmental emergencies and in response to the COVID-19 pandemic.
Our environmental emergency response business places our employees in dangerous situations which may present serious and enhanced safety issues that could adversely affect our business. Our environmental emergency response business is focused on assisting companies, governments and communities with responses to and recovery from environmental emergencies.
Therefore, factors that have little or nothing to do with us could cause the price of our common stock to fluctuate, and these fluctuations or any fluctuations related to our company could cause the market price of our common stock to decline materially.
Therefore, factors that have little or nothing to do with us could cause the price of our common stock to fluctuate, and these fluctuations or any fluctuations related to our company could cause the market price of our common stock to decline materially. We have no present intention to pay dividends on our common stock.
We provide environmental services to clients operating in a number of sectors and industries, including the financial, oil & gas, utilities, construction, automotive, real-estate, midstream energy, manufacturing, commodities, petrochemical, tobacco, food and beverage, telecommunications and engineering industries, as well as local, state, provincial and federal government entities.
We compete in various end markets and geographic regions domestically and around the world. We provide environmental services to clients operating in a number of sectors and industries, including the financial, oil & gas, utilities, construction, automotive, real-estate, midstream energy, manufacturing, commodities, petrochemical, food and beverage, telecommunications and engineering industries, as well as local, state, provincial and federal government entities.
An accident or incident involving our aircraft such as the one which occurred on February 22, 2023 could result in significant claims of injured employees and others, as well as repair or replacement of the damaged aircraft and its consequential loss from service.
An accident or incident involving our aircraft could result in significant claims of injured employees and others, as well as repair or replacement of the damaged aircraft and its consequential loss from service.
We experienced net losses in each year since inception, including net losses of $31.8 million and $25.3 million for the fiscal years ended December 31, 2022 and 2021, respectively, and we may incur net losses in the future. As of December 31, 2022, we had an accumulated deficit of $ 179.5 million.
We experienced net losses in each year since inception, including net losses of $30.9 million and $31.8 million for the fiscal years ended December 31, 2023 and 2022, respectively, and we may incur net losses in the future. As of December 31, 2023, we had an accumulated deficit of $210.4 million.
Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.
Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.
For example, this segment’s revenues were significantly higher at the end of 2020 and during in the fiscal year ended December 31, 2021, due in significant part to the contribution of CTEH’s COVID work during the heights of the pandemic.
For example, this segment’s revenues significantly increased during in the fiscal year ended December 31, 2021, due in significant part to the contribution of COVID-19 work during the heights of the pandemic.
We may not be successful in promoting and further developing our brands, which could adversely affect our business. We have a limited operating history as a company and, as a result, the Montrose Environmental brand is not fully established, although many of the brands we use, including those acquired through our acquisition activity, have a longer and more well-established history.
We have a limited operating history as a company and, as a result, the Montrose Environmental brand is not fully established, although many of the brands we use, including those acquired through our acquisition activity, have a longer and more well-established history.
Since our initial public offering in July 2020, the market price of our common stock has been, and may continue to be, highly volatile and subject to wide fluctuations.
The market price of our common stock has been, and may continue to be, highly volatile and subject to wide fluctuations.
We rely on a combination of patents, trademarks, trade names, confidentiality and nondisclosure clauses and agreements and other unregistered rights to define and protect our rights to our brand and the intellectual property used in our business.
Any inability to develop or maintain and protect our intellectual property could have a material adverse effect on us. We rely on a combination of patents, trademarks, trade names, confidentiality and nondisclosure clauses and agreements and other unregistered rights to define and protect our rights to our brand and the intellectual property used in our business.
The volatile nature of our environmental emergency response business, and its dependency on factors beyond our control, as well as the impact the revenues generated by CTEH or our overall results, makes it difficult to predict its potential profitability or success.
The volatile nature of our environmental emergency response business, and its dependency on factors beyond our control, makes it difficult to predict its potential profitability or success and, therefore, at times, ours as well.
If we are not able to raise the rates we charge for our services to offset the impact of any cost increases, we will not be able to sustain our margins and our profitability will suffer. 34 The rates we are able to charge for our services are affected by a number of factors, including: • our clients’ perception of our ability to add value through our services; • general competition; • introduction of new services or solutions by us or our competitors; • pricing policies of our competitors; and • general economic conditions.
The rates we are able to charge for our services are affected by a number of factors, including: • our clients’ perception of our ability to add value through our services; • general competition; • introduction of new services or solutions by us or our competitors; • pricing policies of our competitors; and • general economic conditions.
Litigation and its related costs, as well as the damage to our reputation should any employee or subcontractor injury or death occur during these emergency situations, could have a material adverse effect on our business, financial condition and results of operations.
Litigation and its related costs, as well as the damage to our reputation should any employee or subcontractor injury or death occur during these emergency situations, could have a material adverse effect on our business, financial condition and results of operations. 22 Allegations regarding whether we have complied with professional standards, duties and statutory obligations or our failure to provide accurate results may have an adverse effect on our business.
While we will strive to comply with all safety regulations and ensure the aircraft undergoes necessary and adequate maintenance, accidents or incidents may occur while the aircraft is transporting employees.
While we will strive to comply with all safety regulations and ensure the aircraft undergoes necessary and adequate maintenance, accidents or incidents may occur while the aircraft is transporting employees, as occurred on February 22, 2023, when our airplane crashed killing five employees.
As a result, our business is subject to numerous U.S. and international laws and regulations relating to the protection of the environment. For example, we must comply with a number of U.S. federal and state laws that strictly regulate the handling, removal, treatment, transportation and disposal of toxic and hazardous substances.
For example, we must comply with a number of U.S. federal and state laws that strictly regulate the handling, removal, treatment, transportation and disposal of toxic and hazardous substances.
Any claims or proceedings, particularly those in which we are unsuccessful or for which we did not establish adequate reserves, could have a material adverse effect on our business, financial condition and results of operations. If our research and development activities are unsuccessful, our business could be harmed. The success of our research and development activity is highly uncertain.
Any claims or proceedings, particularly those in which we are unsuccessful or for which we did not establish adequate reserves, could have a material adverse effect on our business, financial condition and results of operations. We are subject to taxation in multiple jurisdictions.
In addition, our credit facility contains certain financial covenants that, among other things, require us not to exceed specified total debt leverage ratios and to maintain a fixed charge coverage ratio. Among other things, we may not be able to borrow money under our credit facility if we are unable to comply with the financial and other covenants included therein.
In addition, our 2021 Credit Facility contains certain financial covenants that, among other things, require us not to exceed specified total debt leverage ratios and to maintain a fixed charge coverage ratio.
A loss of one or more clients, a meaningful reduction in their purchases from us or an adverse change in the terms on which we provide our services and solutions could have a material adverse effect on our business, financial condition and results of operations. 27 Public clients involve unique policy, contract and performance risks, and we may face challenges to our government contracts or our eligibility to serve government clients, any of which could materially adversely impact our business.
A loss of one or more clients, a meaningful reduction in their purchases from us or an adverse change in the terms on which we provide our services and solutions could have a material adverse effect on our business, financial condition and results of operations.
We generally do not have formal long-term agreements with our clients and attempts by clients to change the terms of or terminate their relationships with us may have a negative impact on our business. Our operations depend upon our relationships with our clients.
Any of the above could materially impair our ability to increase sales and revenue and have a material adverse effect on our business, financial condition and results of operations. 25 We generally do not have formal long-term agreements with our clients and attempts by clients to change the terms of or terminate their relationships with us may have a negative impact on our business.
Important factors for our business and the businesses of our clients include macroeconomic conditions, the overall strength of, and our clients’ confidence in, the economy, industrial and governmental capital spending, governmental fiscal and trading policies, environmental and regulatory policies the strength of the residential and commercial real estate markets, unemployment rates, consumer spending, availability of financing, interest rates, tax rates and changes in tax laws, political conditions, energy and commodity prices and programs such as renewable fuel standard programs and low-carbon fuel standard programs. 18 While we attempt to minimize our exposure to economic or market fluctuations by serving a balanced mix of end markets and geographic regions, any of the above factors, individually or in the aggregate, or a significant or sustained downturn in a specific end market or geographic region, can impact our business and that of our clients.
Important factors for our business and the businesses of our clients include macroeconomic conditions, the overall strength of, and our clients’ confidence in, the economy, industrial and governmental capital spending, governmental fiscal and trading policies, environmental and regulatory policies the strength of the residential and commercial real estate markets, unemployment rates, consumer spending, availability of financing, interest rates, tax rates and changes in tax laws, political conditions, energy and commodity prices and programs such as renewable fuel standard programs and low-carbon fuel standard programs.
In addition, as we increase the number of our technical personnel and execute both our strategy for growth, we may not be able to manage a significantly larger workforce, control our costs or improve our efficiency. Any inability to develop or maintain and protect our intellectual property could have a material adverse effect on us.
In addition, as we increase the number of our technical personnel and execute both our strategy for growth, we may not be able to manage a significantly larger workforce, control our costs or improve our efficiency. We have a history of losses and may not be able to achieve or sustain profitability in the future.
Our operations are subject to environmental laws and regulations and any liabilities may have a material adverse effect on our business. We are in regular contact with waste, biogas, chemicals and other hazardous materials in the ordinary course of providing services to our clients. We also operate a number of O&M client sites.
We are in regular contact with waste, biogas, chemicals and other hazardous materials in the ordinary course of providing services to our clients. We also operate a number of O&M client sites. As a result, our business is subject to numerous U.S. and international laws and regulations relating to the protection of the environment.
Risks Related to Provisions in Our Charter Documents Provisions of our amended and restated governing documents, Delaware law and other documents could discourage, delay or prevent a merger or acquisition at a premium price.
Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest. 31 Risks Related to Provisions in Our Charter Documents Provisions of our amended and restated governing documents, Delaware law and other documents could discourage, delay or prevent a merger or acquisition at a premium price.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Pro perties. Our principal executive offices are located at 5120 Northshore Drive, North Little Rock, Arkansas. We currently operate out of approximately 80 locations across North America, Australia and Europe, all of which are leased locations other than our corporate headquarters.
Biggest changeItem 2. Pro perties. Our principal executive offices are located at 5120 Northshore Drive, North Little Rock, Arkansas. We currently operate out of approximately 115 locations across North America, Australia and Europe, all of which are leased locations other than our corporate headquarters and one environmental laboratory in Richmond, Virginia used in our Measurement and Analysis segment.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDate Montrose Environmental Group Russell 2000 Index MSCI USA ESG Leaders 7/23/20 $ 100.00 $ 100.00 $ 100.00 9/30/20 159.00 101.00 104.00 12/31/20 206.00 133.00 116.00 3/31/21 334.60 150.20 123.97 6/30/21 357.73 156.65 134.98 9/30/21 411.60 149.82 136.20 12/31/21 470.07 153.03 152.66 3/31/22 352.87 141.51 143.68 6/30/22 225.07 117.18 120.76 9/30/22 224.33 114.62 113.16 12/31/22 295.93 121.75 121.81 Securities Authorized for Issuance Under Equity Compensation Plans For information on securities authorized for issuance under our equity compensation plans, see Item 12.
Biggest changeDate Montrose Environmental Group Russell 2000 Index MSCI USA ESG Leaders 7/23/20 $ 100.00 $ 100.00 $ 100.00 9/30/20 159.00 101.00 104.00 12/31/20 206.00 133.00 116.00 3/31/21 334.60 150.20 123.97 6/30/21 357.73 156.65 134.98 9/30/21 411.60 149.82 136.20 12/31/21 470.07 153.03 152.66 3/31/22 352.87 141.51 143.68 6/30/22 225.07 117.18 120.76 9/30/22 224.33 114.62 113.16 12/31/22 295.93 121.75 121.81 3/31/23 162.14 125.09 131.78 6/30/23 191.45 131.60 143.35 9/30/23 133.00 124.85 140.23 12/31/23 146.05 142.37 157.30 Securities Authorized for Issuance Under Equity Compensation Plans For information on securities authorized for issuance under our equity compensation plans, see Item 12.
Stock Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, or otherwise subject to the liabilities under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing. 39 The following graph depicts the total cumulative stockholder return on our common stock from July 23, 2020, the first day of trading of our common stock on the NYSE, through December 31, 2022, relative to the performance of the Russell 2000 Index and MSCI USA ESG Leaders.
Stock Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, or otherwise subject to the liabilities under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing. 39 The following graph depicts the total cumulative stockholder return on our common stock from July 23, 2020, the first day of trading of our common stock on the NYSE, through December 31, 2023, relative to the performance of the Russell 2000 Index and MSCI USA ESG Leaders.
Item 5. Market for Registrant’s Common Equity, Related Stock holder Matters and Issuer Purchases of Equity Securities. Market Information for Common Stock Our common stock is traded on the New York Stock Exchange under the symbol “MEG”. Holders of Record As of February 23, 2023, there were approximately 201 stockholders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stock holder Matters and Issuer Purchases of Equity Securities. Market Information for Common Stock Our common stock is traded on the New York Stock Exchange under the symbol “MEG”. Holders of Record As of February 23, 2024, there were approximately 190 stockholders of record of our common stock.
In addition, under Delaware law, our board of directors may declare dividends only to the extent of our surplus, which is defined as total assets at fair market value minus total liabilities, minus statutory capital, or, if there is no surplus, out of our net profits for the then current and immediately preceding year. Unregistered Sales of Equity Securities None.
In addition, under Delaware law, our board of directors may declare dividends only to the extent of our surplus, which is defined as total assets at fair market value minus total liabilities, minus statutory capital, or, if there is no surplus, out of our net profits for the then current and immediately preceding year.
Added
Unregistered Sales of Equity Securities On January 31, 2024, we issued an aggregate of 161,342 shares of common stock to the former owners of Epic as purchase price consideration. The issuance of common stock was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof as a transaction by an issuer not involving any public offering.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFor the Years Ended December 31, 2022 2021 2020 2019 2018 (in thousands except per share and percentage data) Consolidated Statement of Operations Data: Revenues $ 544,416 $ 546,413 $ 328,243 $ 233,854 $ 188,805 Cost of revenues (exclusive of depreciation and amortization) 351,882 369,028 215,492 163,983 134,734 Selling, general and administrative expense 176,295 117,658 85,546 49,719 40,953 Fair value changes in business acquisition contingencies (3,227 ) 24,372 12,942 1,392 (158 ) Depreciation and amortization 47,479 44,810 37,274 27,705 23,915 Loss from operations (28,013 ) (9,455 ) (23,011 ) (8,945 ) (10,639 ) Net loss $ (31,819 ) $ (25,325 ) $ (57,949 ) $ (23,557 ) $ (16,491 ) Weighted average common shares outstanding—basic and diluted 29,688 26,724 16,479 8,789 7,533 Net loss per shares attributable to common stockholders—basic and diluted $ (1.62 ) $ (1.56 ) $ (6.48 ) $ (4.91 ) $ (2.79 ) Consolidated Statement of Cash Flows Data: Net cash provided by (used in) operating activities 20,649 37,581 1,850 17,042 (2,845 ) Net cash used in investing activities (38,687 ) (71,641 ) (179,740 ) (86,983 ) (50,283 ) Net cash (used in) provided by financing activities (38,764 ) 146,103 205,902 74,452 50,850 Change in cash, cash equivalents and restricted cash $ (56,802 ) $ 112,043 $ 28,012 $ 4,511 $ (2,278 ) Consolidated Statement of Financial Position Data: Current assets 247,928 293,858 134,268 73,239 53,999 Non-current assets 543,986 539,236 468,458 258,599 180,372 Total assets $ 791,914 $ 833,094 $ 602,726 $ 331,838 $ 234,371 Current liabilities 111,442 147,695 111,543 73,252 42,365 Non-current liabilities 214,357 215,970 201,110 156,055 75,900 Total liabilities $ 325,799 $ 363,665 $ 312,653 $ 229,307 $ 118,265 Redeemable Series A-1 preferred stock $0.0001 par value—authorized, issued and outstanding shares: 12,000 at December 31, 2019 and 2018; aggregate liquidation preference of $141.9 million and $123.4 million at December 31, 2019 and 2018, respectively - - - 128,822 109,206 Convertible and Redeemable Series A-2 preferred stock $0.0001 par value—authorized, issued and outstanding shares: 17,500 at December 31, 2022, 2021 and 2020; aggregate liquidation preference of $182.2 million at December 31, 2022, 2021 and 2020 152,928 152,928 152,928 - - Total stockholders’ equity (deficit) 313,187 316,501 137,145 (26,291 ) 6,900 Total liabilities, Convertible preferred stock, Redeemable Series A-1 preferred stock, Convertible and Redeemable Series A-2 preferred stock and stockholders’ equity (deficit) $ 791,914 $ 833,094 $ 602,726 $ 331,838 $ 234,371 42
Biggest changeFor the Years Ended December 31, 2023 2022 2021 2020 2019 (in thousands except per share and percentage data) Consolidated Statement of Operations Data: Revenues $ 624,208 $ 544,416 $ 546,413 $ 328,243 $ 233,854 Cost of revenues (exclusive of depreciation and amortization) 383,903 351,882 369,028 215,492 163,983 Selling, general and administrative expense 222,861 176,295 117,658 85,546 49,719 Fair value changes in business acquisition contingencies 84 (3,227 ) 24,372 12,942 1,392 Depreciation and amortization 45,780 47,479 44,810 37,274 27,705 Loss from operations (28,420 ) (28,013 ) (9,455 ) (23,011 ) (8,945 ) Net loss $ (30,859 ) $ (31,819 ) $ (25,325 ) $ (57,949 ) $ (23,557 ) Weighted average common shares outstanding—basic and diluted 30,058 29,688 26,724 16,479 8,789 Net loss per shares attributable to common stockholders—basic and diluted $ (1.57 ) $ (1.62 ) $ (1.56 ) $ (6.48 ) $ (4.91 ) Consolidated Statement of Cash Flows Data: Net cash provided by operating activities 56,022 20,649 37,581 1,850 17,042 Net cash used in investing activities (101,624 ) (38,687 ) (71,641 ) (179,740 ) (86,983 ) Net cash (used in) provided by financing activities (20,110 ) (38,764 ) 146,103 205,902 74,452 Change in cash, cash equivalents and restricted cash $ (65,712 ) $ (56,802 ) $ 112,043 $ 28,012 $ 4,511 Consolidated Statement of Financial Position Data: Current assets 200,924 247,928 293,858 134,268 73,239 Non-current assets 615,862 543,986 539,236 468,458 258,599 Total assets $ 816,786 $ 791,914 $ 833,094 $ 602,726 $ 331,838 Current liabilities 126,287 111,442 147,695 111,543 73,252 Non-current liabilities 216,319 214,357 215,970 201,110 156,055 Total liabilities $ 342,606 $ 325,799 $ 363,665 $ 312,653 $ 229,307 Redeemable Series A-1 preferred stock $0.0001 par value—authorized, issued and outstanding shares: 12,000 at December 31, 2019; aggregate liquidation preference of $141.9 million at December 31, 2019 - - - - 128,822 Convertible and Redeemable Series A-2 preferred stock $0.0001 par value—authorized, issued and outstanding shares: 17,500 at December 31, 2023, 2022, 2021, and 2020; aggregate liquidation preference of $182.2 million at December 31, 2023, 2022, 2021, and 2020 152,928 152,928 152,928 152,928 - Total stockholders’ equity (deficit) 321,252 313,187 316,501 137,145 (26,291 ) Total liabilities, Convertible preferred stock, Redeemable Series A-1 preferred stock, Convertible and Redeemable Series A-2 preferred stock and stockholders’ equity (deficit) $ 816,786 $ 791,914 $ 833,094 $ 602,726 $ 331,838 42
“Financial Statements Supplementary Data.” Except where otherwise noted, our summary consolidated balance sheet data presented below as of December 31, 2020, 2019 and 2018, and our summary consolidated statements of operations and cash flow data presented below for the fiscal years ended December 31, 2019 and 2018 have been derived from our financial statements not included in this Annual Report on Form 10-K. 41 The summary financial data presented below represent portions of our audited consolidated financial statements and are not complete or otherwise intended to replace our audited consolidated financial statements and related notes.
“Financial Statements Supplementary Data.” Except where otherwise noted, our summary consolidated balance sheet data presented below as of December 31, 2021, 2020 and 2019, and our summary consolidated statements of operations and cash flow data presented below for the fiscal years ended December 31, 2020 and 2019 have been derived from our financial statements not included in this Annual Report on Form 10-K. 41 The summary financial data presented below represent portions of our audited consolidated financial statements and are not complete or otherwise intended to replace our audited consolidated financial statements and related notes.
Item 6. [Re served.] Selected Financial Data. Our selected historical consolidated financial and other information presented and discussed below is derived from our audited consolidated financial statements and the notes thereto for the fiscal years ended December 31, 2022 and 2021 included in Item 8.
Item 6. [Re served.] Selected Financial Data. Our selected historical consolidated financial and other information presented and discussed below is derived from our audited consolidated financial statements and the notes thereto for the fiscal years ended December 31, 2023 and 2022 included in Item 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeInvesting Activities For the year ended December 31, 2022, net cash used in investing activities was $38.7 million, primarily driven by cash paid for the acquisitions of Environmental Standards, IAG, Triad, AirKinetics and Huco, net of cash acquired of $28.6 million and purchases of property and equipment for cash consideration of $10.0 million.
Biggest changeInvesting Activities For the year ended December 31, 2023, net cash used in investing activities was $101.6 million, driven by cash paid for the acquisitions of Matrix, GreenPath, Vandrensning, Frontier and EAI, net of cash acquired, of $66.2 million, as well as $29.6 million in cash consideration for purchases of property and equipment (which included the purchase of a $12.2 million replacement aircraft for use in emergency responses following an aircraft crash in February 2023), $3.4 million in proprietary software development costs, $2.6 million related to the minority investment in certain companies and the payment of assumed purchase price obligations of $1.4 million, partially offset by proceeds received from the sale of property and equipment of $1.0 million. 56 For the year ended December 31, 2022, net cash used in investing activities was $38.7 million, primarily driven by cash paid for the acquisitions of Environmental Standards, IAG, Triad, AirKinetics and Huco, net of cash acquired of $28.6 million and purchases of property and equipment for cash consideration of $9.6 million.
Furthermore, we have identified a limited number of individuals whose personally identifiable information may have been accessed from our systems and have made appropriate notifications to such individuals and required regulators. The Company has insurance coverage, subject to a $0.3 million deductible, against recovery costs and business interruption resulting from cyber-attacks.
Furthermore, we identified a limited number of individuals whose personally identifiable information may have been accessed from our systems and made appropriate notifications to such individuals and required regulators. The Company has insurance coverage, subject to a $0.3 million deductible, against recovery costs and business interruption resulting from cyber-attacks.
For the year ended December 31, 2021, cost of revenues was $369.0 million or 67.5% of revenues, and was comprised of direct labor of $147.3 million, outside services (including contracted labor, laboratory, shipping and freight and other outside services) of $143.3 million, field supplies, testing supplies and equipment rental of $50.2 million, project-related travel expenses of $17.8 million and other direct costs of $10.4 million.
For the year ended December 31, 2021, cost of revenues was $369.0 million or 67.5% of revenues, and was comprised of direct labor of $147.3.0 million, outside services (including contracted labor, laboratory, shipping and freight and other outside services) of $143.3 million, field supplies, testing supplies and equipment rental of $50.2 million, project-related travel expenses of $17.8 million and other direct costs of $10.4 million.
For the year ended December 31, 2022, selling, general and administrative expense was $176.3 million, an increase of $58.6 million or 49.8% versus the year ended December 31, 2021.
Selling, General and Administrative Expense For the year ended December 31, 2022, selling, general and administrative expense was $176.3 million, an increase of $58.6 million or 49.8% versus the year ended December 31, 2021.
We consider liquidity in terms of cash flows from operations and other sources, including availability under our credit facility, and their sufficiency to fund our operating and investing activities. Our principal sources of liquidity have been borrowings under our credit facilities, other borrowing arrangements, proceeds from the issuance of common and preferred stock and cash generated by operating activities.
We consider liquidity in terms of cash flows from operations and other sources, including availability under our credit facility, and their sufficiency to fund our operating and investing activities. Our principal sources of liquidity have been cash generated by operating activities, borrowings under our credit facilities, other borrowing arrangements, and proceeds from the issuance of common and preferred stock.
Financing Activities For the year ended December 31, 2022, net cash used in financing activities was $38.8 million.
For the year ended December 31, 2022, net cash used in financing activities was $38.8 million.
Fixed fee contracts—On the majority of fixed fee contracts, we recognize revenue, over time, using either the proportion of actual costs incurred to the total costs expected to complete the contract performance obligation, or the cost to cost method, under the time-elapsed basis.
On the majority of fixed fee contracts, we recognize revenue, over time, using either the proportion of actual costs incurred to the total costs expected to complete the contract performance obligation, or the cost to cost method, under the time-elapsed basis.
For the year ended December 31, 2022, cost of revenues as a percentage of revenue decreased 2.9% from the year ended December 31, 2021, as a result of significantly lower outside service costs in 2022 when compared to 2021 driven primarily by a 48 decrease in external lab expenses needed to support CTEH’s COVID-19 response work during 2022, partially offset by higher equipment costs primarily to support higher water treatment and biogas revenues.
For the year ended December 31, 2022, cost of revenues as a percentage of revenue decreased 2.9% from the year ended December 31, 2021, as a result of significantly lower outside service costs in 2022 when compared to 2021 driven primarily by a decrease in external lab expenses needed to support CTEH’s COVID-19 response work during 2022, partially offset by higher equipment costs primarily to support higher water treatment and biogas revenues.
Some of the more important factors are discussed briefly below. 43 Acquisitions We have been, and expect to continue to be, an acquisitive company. Acquisitions have expanded our environmental service capabilities across all three segments, our access to technology, as well as our geographic reach in the United States, Canada and Australia. See Item 1.
Some of the more important factors are discussed briefly below. 43 Acquisitions We have been, and expect to continue to be, an acquisitive company. Acquisitions have expanded our environmental service capabilities across all three segments, our access to technology, as well as our geographic reach in the United States, Canada, Europe and Australia. See Item 1.
No dividend rates are used in the calculation as these are not applicable to us. Forfeitures are recognized as incurred. Employee options are accounted for in accordance with the guidance set forth by ASC 718. The fair value of stock appreciation rights is estimated at the grant date using the geometric Brownian motion model.
No dividend rates are used in the calculation as these are not applicable to us. Forfeitures are recognized as incurred. Employee options are accounted for in accordance with the guidance set forth by ASC 718. The fair value of stock appreciation rights is estimated at the grant date using the geometric Brownian motion model. 61
The fair value of stock options under its employee stock incentive plan are estimated as of the grant date using the Black-Scholes option valuation model, which is affected by its estimates of the risk-free interest rate, its expected dividend yield, expected term and the expected share price volatility of its common shares over the expected term.
The fair value of 60 stock options under its employee stock incentive plan are estimated as of the grant date using the Black-Scholes option valuation model, which is affected by its estimates of the risk-free interest rate, its expected dividend yield, expected term and the expected share price volatility of its common shares over the expected term.
Certain contracts in our Measurement and Analysis have multiple performance obligations, most commonly due to the contracts providing for multiple laboratory tests which are individual performance obligations. 59 For the Measurement and Analysis contracts with multiple performance obligations, we allocate the transaction price to each performance obligation based on the relative standalone selling price of each performance obligation.
Certain contracts in our Measurement and Analysis have multiple performance obligations, most commonly due to the contracts providing for multiple laboratory tests which are individual performance obligations. For the Measurement and Analysis contracts with multiple performance obligations, we allocate the transaction price to each performance obligation based on the relative standalone selling price of each performance obligation.
“Financial Statements and Supplementary Data.” Assessment, Permitting and Response Through our Assessment, Permitting and Response segment, we provide scientific advisory and consulting services to support environmental assessments, environmental emergency response, and environmental audits and permits for current operations, facility upgrades, new projects, decommissioning projects and development projects.
“Financial Statements and Supplementary Data.” Assessment, Permitting and Response Through our Assessment, Permitting and Response segment, we primarily provide scientific advisory and consulting services to support environmental assessments, environmental emergency response, and environmental audits and permits for current operations, facility upgrades, new projects, decommissioning projects and development projects.
The majority of the change in value in the year ended December 31, 2022, was attributable to a $ 3.5 million gain related to acquisitions' 338(h)(10) elections make-whole tax accruals. The majority of the change in value in the year ended December 31, 2021 period was attributable to the CTEH earn-outs.
The majority of the change in value in the year 51 ended December 31, 2022, was attributable to a $3.5 million gain related to acquisitions' 338(h)(10) elections make-whole tax accruals. The majority of the change in value in the year ended December 31, 2021 period was attributable to the CTEH earn-outs.
Segment Results of Operations Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Year Ended December 31, 2022 2021 (in thousands except percentage data) Segment Revenues Segment Adjusted EBITDA (1) Segment Adjusted EBITDA Margin (2) Segment Revenues Segment Adjusted EBITDA (1) Segment Adjusted EBITDA Margin (2) Assessment, Permitting and Response $ 187,234 $ 37,458 20.0 % $ 261,865 $ 57,128 21.8 % Measurement and Analysis 172,432 31,588 18.3 % 153,208 31,270 20.4 % Remediation and Reuse 184,750 30,616 16.6 % 131,340 19,326 14.7 % Total Operating Segments $ 544,416 $ 99,662 18.3 % $ 546,413 $ 107,724 19.7 % Corporate and Other (31,212 ) n/a $ (30,082 ) n/a (1) For purposes of evaluating segment profit, the Company’s chief operating decision maker reviews Segment Adjusted EBITDA as a basis for making the decisions to allocate resources and assess performance.
Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Year Ended December 31, 2022 2021 (in thousands except percentage data) Segment Revenues Segment Adjusted EBITDA (1)(5) Segment Adjusted EBITDA Margin (2)(5) Segment Revenues Segment Adjusted EBITDA (1)(5) Segment Adjusted EBITDA Margin (2)(5) Assessment, Permitting and Response $ 187,234 $ 37,458 20.0 % $ 261,865 $ 57,128 21.8 % Measurement and Analysis 172,432 (3) 31,588 (4) 18.3 % 153,208 (3) 31,270 (4) 20.4 % Remediation and Reuse 184,750 30,616 16.6 % 131,340 19,326 14.7 % Total Operating Segments $ 544,416 $ 99,662 18.3 % $ 546,413 $ 107,724 19.7 % Corporate and Other $ (31,212 ) n/a $ (30,082 ) n/a (1) For purposes of evaluating segment profit, the Company’s chief operating decision maker reviews Segment Adjusted EBITDA as a basis for making the decisions to allocate resources and assess performance.
Additionally, we made earn-out payments of $30.0 million and $50.0 million in March 2022 and April 2021, respectively, in connection with our CTEH acquisition. $25.0 million of the 2021 CTEH earn-out payment was made in the form of shares of our common stock.
We made earn-out payments of $30.0 million and $50.0 million in March 2022 and April 2021, respectively, in connection with our CTEH acquisition. $25.0 million of the 2021 CTEH earn-out payment was made in the form of shares of our common stock.
Segment Adjusted EBITDA Assessment, Permitting and Response Segment Adjusted EBITDA was $37.5 million for the year ended December 31, 2022, compared to $57.1 million for the year ended December 31, 2021. For the years ended December 31, 2022 and 2021, Segment Adjusted EBITDA margin was 20.0% and 21.8% respectively.
Segment Adjusted EBITDA 54 Assessment, Permitting and Response Segment Adjusted EBITDA was $37.5 million for the year ended December 31, 2022, compared to $57.1 million for the year ended December 31, 2021. For the years ended December 31, 2022 and 2021, Segment Adjusted EBITDA margin was 20.0% and 21.8% respectively.
The decrease in Segment Adjusted EBITDA was a result of an expected decrease in CTEH COVID-19 related revenues during the year ended December 31, 2022 when compared to the year ended December 31, 2021.
The decrease in Segment Adjusted EBITDA was a result of an expected decrease in COVID-19 related revenues during the year ended December 31, 2022 when compared to the year ended December 31, 2021.
For the year ended December 31, 2022, selling, general and administrative expense was comprised of indirect labor of $80.6 million, stock-based compensation of $41.8 million, facilities costs of $18.2 million, acquisition-related costs of $1.9 million, a bad debt recovery of $(1.1) million, and other costs (including software, travel, insurance, legal, consulting and audit services) of $34.9 million.
For the year ended December 31, 2022, selling, general and administrative expense of $176.3 was comprised of indirect labor of $80.6 million, stock-based compensation of $41.8 million, facilities costs of $18.2 million, acquisition-related costs of $1.9 million, a bad debt recovery of $(1.1) million, and other costs (including software, travel, insurance, legal, consulting and audit services) of $34.9 million.
Revenue from our water treatment and biogas operations and maintenance contracts, which were included in the results of our Remediation and Reuse segment, were $3.6 million, $12.1 million and $13.3 million in the years ended December 31, 2022, 2021 and 2020, respectively. This decision did not impact the Company’s specialized PFAS water treatment operations and maintenance contracts.
Revenue from our water treatment and biogas operations and maintenance contracts, which were included in the results of our Remediation and Reuse segment, were $3.6 million and $12.1 million in the years ended December 31, 2022 and 2021, respectively. This decision did not impact the Company’s specialized PFAS water treatment operations and maintenance contracts.
This increase was primarily driven by $33.0 million related to an increase in stock compensation expense primarily related to a one-time grant of restricted stock awards and stock appreciation rights to certain executives and selected employees (See Note 19 to our audited consolidated financial statements included in Item 8.
This increase was primarily driven by $33.0 million related to an increase in stock compensation expense primarily related to a one-time grant of restricted stock awards and stock appreciation rights to certain executives and selected employees (See Note 17 to our audited consolidated financial statements included in Item 8.
“Financial Statements and Supplementary Data.” 49 Other Income (Expense) Other income for the year ended December 31, 2022 of $3.7 million was driven by a gain related to the fair value adjustment on our interest rate swap of $6.0 million which was partially offset by an expense of $2.7 million related to the fair value adjustment of the Series A-2 preferred stock conversion option and $0.7 million impairment loss related to the decision to exit the Berkley lab.
“Financial Statements and Supplementary Data.” Other Income (Expense) Other income for the year ended December 31, 2022 of $3.7 million was driven by a gain related to the fair value adjustment on our interest rate swap of $6.0 million which was partially offset by an expense of $2.7 million related to the fair value adjustment of the Series A-2 preferred stock conversion option and $0.7 million impairment loss related to the decision to exit the Berkeley lab.
Historically, we have financed our operations and acquisitions from a combination of cash generated from operations, periodic borrowings under senior secured credit facilities, other prior secured borrowings and proceeds from the issuance of common and preferred stock.
Historically, we have financed our operations and acquisitions from a combination of cash generated from operations, periodic borrowings under senior secured credit facilities, and proceeds from the issuance of common and preferred stock.
The period-over-period decrease, excluding the impact of contingent consideration, was primarily due to lower earnings before non-cash items, primarily due to expected lower revenue from CTEH’s COVID-19 services, of $9.3 million, and an increase in working capital in the current year of $14.1 million versus an increase in working capital in the prior year of $10.1 million.
The period-over-period decrease, excluding the impact of contingent consideration, was primarily due to lower earnings before non-cash items, of $9.3 million, primarily due to expected lower revenue from COVID-19 services and an increase in working capital in 2022 of $14.1 million versus an increase in working capital in the prior year of $10.1 million.
Impairment of Long-Lived Assets Certain events or changes in circumstances may indicate that the recoverability of the carrying amount of long lived assets should be assessed. When such events or changes in circumstances are present, we estimate the future cash flows expected to result from the use of the asset (or asset group) and its eventual disposition.
Impairments of Long Lived Assets and Goodwill Certain events or changes in circumstances may indicate that the recoverability of the carrying amount of long lived assets should be assessed. When such events or changes in circumstances are present, we estimate the future cash flows expected to result from the use of the asset (or asset group) and its eventual disposition.
Significant estimates inherent in the preparation of the audited consolidated financial statements include, but are not limited to, management’s forecast of future cash flows used as a basis to assess recoverability of long-lived assets, the allocation of purchase price to tangible and intangible assets, allowances for doubtful accounts, the estimated useful lives over which property and equipment is depreciated and intangible assets are amortized, subsequent measurement of goodwill, fair value of contingent consideration payables, the fair value of warrants, fair value of embedded derivatives, fair value of common stock issued, stock-based compensation expense and deferred taxes.
Significant estimates inherent in the preparation of the audited consolidated financial statements include, but are not limited to, management’s forecast of future cash flows used as a basis to assess recoverability of long-lived assets, the allocation of purchase price to tangible and intangible assets, allowances for doubtful accounts, the estimated useful lives over which property and equipment is depreciated and intangible assets are amortized, subsequent measurement of goodwill, fair value of contingent consideration payables, fair value of embedded derivatives, equity-based compensation expense and deferred taxes.
Credit Facilities 2021 Credit Facility On April 27, 2021, we entered into a new Senior Secured Credit Agreement, or the 2021 Credit Facility, providing for a new $300.0 million credit facility comprised of a $175.0 million term loan and a $125.0 million revolving credit facility, and used a portion of the proceeds to repay all amounts outstanding under the 2020 Credit Facility.
Credit Facilities 2021 Credit Facility On April 27, 2021, we entered into a Senior Secured Credit Agreement, or the 2021 Credit Facility, providing for a $300.0 million credit facility comprised of a $175.0 million term loan and a $125.0 million revolving credit facility, and used a portion of the proceeds to repay all amounts outstanding under the prior credit facility.
Changes in fair value of the embedded derivatives are recognized as a component of other expense on our consolidated statements of operations. Stock-based Compensation We currently sponsor two stock incentive plans that allow for issuance of employee stock options and other forms of equity incentives.
Changes in fair value of the embedded derivatives are recognized as a component of other income/ expense on our consolidated statements of operations. Stock-based Compensation We sponsor stock incentive plans that allow for issuance of employee stock options and other forms of equity incentives.
Selling, General and Administrative Expense Selling, general and administrative expenses consist of general corporate overhead, including executive, legal, finance, safety, risk management, human resource, marketing and information technology related costs, as well as indirect operational costs of labor, rent, insurance and stock-based compensation.
Selling, General and Administrative Expense Selling, general and administrative expense consists of general corporate overhead, including executive, legal, finance, safety, risk management, human resource, marketing and information technology related costs, as well as indirect operational costs of labor, rent, insurance and stock-based compensation.
Following the completion of our IPO, the Series A-2 preferred stock does not mature or have a cash repayment obligation; however, it is redeemable at our option. The Series A-2 preferred stock becomes convertible into our common stock beginning on the four-year anniversary of the Series A-2 preferred stock issuance.
The Series A-2 preferred stock does not mature or have a cash repayment obligation; however, it is redeemable at our option. The Series A-2 preferred stock becomes convertible into our common stock beginning on the four-year anniversary of the Series A-2 preferred stock issuance.
See “—Key Factors that Affect Our Business and Our Results —Acquisitions” and Notes 8 and 15 to our audited consolidated financial statements included in Item 8.
See “—Key Factors that Affect Our Business and Our Results —Acquisitions” and Notes 8 and 14 to our audited consolidated financial statements included in Item 8.
Earnings Volatility In addition to the impact of seasonality on earnings, the acquisition of CTEH exposes us to potentially significant revenue and earnings fluctuations tied both to the timing of large environmental emergency response projects following an incident or natural disaster, and more recently, the benefit from COVID-19 related work.
Earnings Volatility In addition to the impact of seasonality on earnings, the acquisition of CTEH exposes us to potentially significant revenue and earnings fluctuations tied both to the timing of large environmental emergency response projects following an incident or natural disaster, and the benefit from COVID-19 related work primarily in 2021.
The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and is, therefore, not distinct.
The assessment requires judgment. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and is, therefore, not distinct.
“Financial Statements and Supplementary Data.” Series A-2 Preferred Stock On April 13, 2020, we issued 17,500 shares of the Series A-2 preferred stock with a par value of $0.0001 per share and a warrant to purchase shares of common stock with a ten-year exercise period, in exchange for $175.0 million.
“Financial Statements and Supplementary Data.” Series A-2 Preferred Stock On April 13, 2020, we issued 17,500 shares of the Series A-2 preferred stock with a par value of $0.0001 per share and a warrant to purchase common stock, in exchange for $175.0 million.
We have grown organically over the long term and expect to continue to do so. Discontinued Service Lines and Contracts Periodically, or when circumstances warrant, we evaluate the performance of our business services to ensure that performance and outlook are consistent with expectations.
We have grown organically over the long term and expect to continue to do so. 44 Discontinued Service Lines and Contracts Periodically, or when circumstances warrant, we evaluate the performance of our business services to ensure that performance and outlook are consistent with expectations, and that the services offered are consistent with the Company’s mission.
According to data derived from a 2022 Environmental Industry Study prepared by Environmental Business International, Inc., or EBI, which we commissioned, the global environmental industry is estimated to be approximately $1.34 trillion, with $444.0 billion concentrated in the United States.
According to data derived from a 2022 Environmental Industry Study prepared by Environmental Business International, Inc., or EBI, which we commissioned, the global environmental industry is estimated to be approximately $1.44 trillion, with $494.0 billion concentrated in the United States.
“Business—Strategic Acquisitions.” The table below sets forth the number of acquisitions completed in each of the last three fiscal years, fiscal year revenues generated by and the percentage of total annual revenues attributable to those acquisitions: (revenues in thousands) Acquisitions Completed Fiscal Year Revenues Attributable to Acquisitions Percentage of Fiscal Year Revenues Fiscal year 2022 5 $ 20,154 3.7 % Fiscal year 2021 6 33,738 6.2 % Fiscal year 2020 3 82,441 25.1 % Revenues from acquired companies exclude intercompany revenues from revenue synergies realized between business lines within operating segments, as these are eliminated at the consolidated segment and Company level.
“Business—Strategic Acquisitions.” The table below sets forth the number of acquisitions completed in each of the last three fiscal years, fiscal year revenues generated by and the percentage of total annual revenues attributable to those acquisitions: (revenues in thousands) Acquisitions Completed Fiscal Year Revenues Attributable to Acquisitions Percentage of Fiscal Year Revenues Fiscal year 2023 5 $ 69,059 11.1 % Fiscal year 2022 5 20,154 3.7 % Fiscal year 2021 6 33,738 6.2 % Revenues from acquired companies exclude intercompany revenues from revenue synergies realized between business lines within operating segments, as these are eliminated at the consolidated segment and Company level.
The decrease was driven by an expected $117.6 million decrease in CTEH revenues in 2022 when compared to 2021, as a result of lower revenue from COVID-19 related services.
The decrease was driven by an expected $117.6 million decrease in environmental emergency response revenues in 2022 when compared to 2021, as a result of lower revenue from COVID-19 related services.
Other expense for the year ended December 31, 2021 of $2.5 million was driven primarily by fair value adjustments related to the Series A-2 preferred stock conversion option. See Notes 7, 15 and 18 to our audited consolidated financial statements included in Item 8.
Other expense for the year ended December 31, 2021 of $2.5 million was driven primarily by fair value adjustments related to the Series A-2 preferred stock conversion option. See Notes 14, 16 and 19 to our audited consolidated financial statements included in Item 8.
See Note 21 to our audited consolidated financial statements included in Item 8.
See Note 13 to our audited consolidated financial statements included in Item 8.
As we continue to grow and expand into new geographies and service lines, quarterly variability in our Measurement and Analysis segment may deviate from historical trends.
As we continue to grow and expand into new geographies and service lines, quarterly variability in our Measurement and Analysis and Remediation and Reuse segments may deviate from historical trends.
For the year ended December 31, 2021, net cash used in investing activities was $71.6 million, primarily driven by cash paid for the acquisitions of MSE, Vista, EI, Sensible, ECI and Horizon, net of cash acquired of $55.7 million, as well as payment of assumed purchase price obligations of $9.3 million and purchases of property and equipment for cash consideration of $7.0 million. 56 For the year ended December 31, 2020, net cash used in investing activities was $179.7 million, primarily driven by cash paid for the acquisition of CTEH, net of cash acquired, of $171.6 million, as well as purchases of property and equipment for cash consideration of $7.8 million.
For the year ended December 31, 2021, net cash used in investing activities was $71.6 million, primarily driven by cash paid for the acquisitions of MSE, Vista, EI, Sensible, ECI and Horizon, net of cash acquired of $55.7 million, as well as payment of assumed purchase price obligations of $9.3 million and purchases of property and equipment for cash consideration of $6.7 million.
We believe these sources will be sufficient to fund our cash needs in the short-term and long-term. 55 Cash Flows The following table summarizes our cash flows for the periods presented: Year Ended December 31, (in thousands) 2022 2021 2020 Consolidated statement of cash flows data: Net cash provided by operating activities $ 20,649 $ 37,581 $ 1,850 Net cash used in investing activities (38,687 ) (71,641 ) (179,740 ) Net cash (used in) provided by financing activities (38,764 ) 146,103 205,902 Change in cash, cash equivalents and restricted cash $ (56,802 ) $ 112,043 $ 28,012 Operating Activities Cash flows from operating activities can fluctuate from period-to-period as earnings, working capital needs and the timing of payments for contingent consideration, taxes, bonus payments and other operating items impact reported cash flows.
We believe these sources will be sufficient to fund our cash needs in the short-term and long-term. 55 Cash Flows The following table summarizes our cash flows for the periods presented: Year Ended December 31, (in thousands) 2023 2022 2021 Consolidated statement of cash flows data: Net cash provided by operating activities $ 56,022 $ 20,649 $ 37,581 Net cash used in investing activities (101,624 ) (38,687 ) (71,641 ) Net cash (used in) provided by financing activities (20,110 ) (38,764 ) 146,103 Change in cash, cash equivalents and restricted cash $ (65,712 ) $ (56,802 ) $ 112,043 Operating Activities Cash flows from operating activities can fluctuate from period-to-period as earnings, working capital needs and the timing of payments for contingent consideration, taxes, bonus payments and other operating items impact reported cash flows.
See Note 14 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” Income Tax Expense Income tax expense was $1.7 million for the year ended December 31, 2021, compared to an income tax expense of $0.9 million for the year ended December 31, 2020.
See Note 13 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” Income Tax Expense Income tax expense was $2.3 million for the year ended December 31, 2022, compared to an income tax expense of $1.7 million for the year ended December 31, 2021.
The amount of each for the last three fiscal years is: Year Ended December 31, (in thousands) 2022 2021 2020 Amortization expense $ 36,053 $ 35,154 $ 28,871 Acquisition-related costs 1,891 2,088 4,344 Fair value changes in business acquisition contingencies (3,227 ) 24,372 12,942 We expect that amortization of identifiable intangible assets and other acquisition-related costs, assuming we continue to acquire, will continue to be significant.
The amount of each for the last three fiscal years is: Year Ended December 31, (in thousands) 2023 2022 2021 Amortization expense $ 30,130 $ 36,053 $ 35,154 Acquisition-related costs 6,930 1,891 2,088 Fair value changes in business acquisition contingencies 84 (3,227 ) 24,372 We expect that amortization of identifiable intangible assets and other acquisition-related costs, assuming we continue to acquire, will continue to be significant.
The period over period decrease in revenues was primarily driven by an expected reduction in revenue from CTEH due to lower demand for COVID-19 related services, of $117.6 million, and exiting the Discontinued O&M Contracts.
The period over period decrease in revenues was primarily driven by an expected reduction in revenue from environmental emergency responses due to lower demand for COVID-19 related services, of $123.5 million, and exiting the Discontinued O&M Contracts.
Results of Operations Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Year Ended December 31, (in thousands except per share data) 2022 2021 Statements of operations data: Revenues $ 544,416 $ 546,413 Cost of revenues (exclusive of depreciation and amortization) 351,882 369,028 Selling, general and administrative expense 176,295 117,658 Fair value changes in business acquisition contingencies (3,227 ) 24,372 Depreciation and amortization 47,479 44,810 Loss from operations $ (28,013 ) $ (9,455 ) Other income (expense) 3,683 (2,546 ) Interest expense, net (5,239 ) (11,615 ) Loss before income taxes (29,569 ) (23,616 ) Income tax expense 2,250 1,709 Net loss $ (31,819 ) $ (25,325 ) Series A-2 dividend payment (16,400 ) (16,400 ) Net loss attributable to common stockholders $ (48,219 ) $ (41,725 ) Weighted average number of shares (basic and diluted) 29,688 26,724 Loss per share - basic and diluted $ (1.62 ) $ (1.56 ) 47 Revenues For the year ended December 31, 2022, revenues were $544.4 million, a decrease of $2.0 million or 0.4% from the year ended December 31, 2021.
The difference between our effective tax rate of 3.3% and the federal statutory rate of 21.0% is primarily attributable to items recorded for GAAP but permanently disallowed for U.S. federal income tax purposes, recognition of a U.S. federal and state valuation allowance of $24.0 million, state and foreign income tax provisions and Global Intangible Low Taxed Income. 49 Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Year Ended December 31, (in thousands except per share data) 2022 2021 Statements of operations data: Revenues $ 544,416 $ 546,413 Cost of revenues (exclusive of depreciation and amortization) 351,882 369,028 Selling, general and administrative expense 176,295 117,658 Fair value changes in business acquisition contingencies (3,227 ) 24,372 Depreciation and amortization 47,479 44,810 Loss from operations $ (28,013 ) $ (9,455 ) Other expense 3,683 (2,546 ) Interest expense, net (5,239 ) (11,615 ) Loss before income taxes (29,569 ) (23,616 ) Income tax expense 2,250 1,709 Net loss $ (31,819 ) $ (25,325 ) Series A-2 dividend payment (16,400 ) (16,400 ) Net loss attributable to common stockholders $ (48,219 ) $ (41,725 ) Weighted average number of shares (basic and diluted) 29,688 26,724 Loss per share - basic and diluted $ (1.62 ) $ (1.56 ) Revenues For the year ended December 31, 2022, revenues were $544.4 million, a decrease of $2.0 million or 0.4% from the year ended December 31, 2021.
The decrease was mostly offset by strong organic growth in our Measurement and Analysis and Remediation and Reuse operating segments, and the businesses in our Assessment, Permitting and Response operating segment other then CTEH, which contributed $71.1 million in organic revenue.
The decrease was mostly offset by strong organic growth in our Measurement and Analysis and Remediation and Reuse operating segments, and the businesses in our Assessment, Permitting and Response operating segment other than environmental emergency responses, which contributed $121.1 million in organic revenue.
“Financial Statements and Supplementary Data.” Depreciation and Amortization Depreciation and amortization expense for the year ended December 31, 2021, was $44.8 million and was comprised of amortization of finite lived intangibles of $35.2 million, arising as a result of our acquisition activity, depreciation of property and equipment of $6.4 million and finance leases right-of-use asset amortization of $3.2 million.
“Financial Statements and Supplementary Data.” Depreciation and Amortization Depreciation and amortization expense for the year ended December 31, 2023, was $45.8 million and was comprised of amortization of finite lived intangibles of $30.1 million, arising as a result of our acquisition activity, depreciation of property and equipment of $10.3 million and finance leases right-of-use asset amortization of $5.4 million.
As a result, our operating results in our Measurement and Analysis segment experience some quarterly variability with generally lower revenues and lower earnings in the first and fourth quarters and higher overall revenues and earnings in the second and third quarters.
As a result, our operating results in our Measurement and Analysis segment and, following the acquisition of Matrix in Canada, the Remediation and Reuse segment, experience quarterly variability with generally lower revenues and lower earnings in the first and fourth quarters and higher overall revenues and earnings in the second and third quarters.
Variable costs of revenues generally follow the same seasonality trends as revenue, while fixed costs tend to change primarily as a result of acquisitions and investments in business infrastructure.
Variable costs of revenues generally follow the same trends as revenue, while fixed costs tend to change primarily as a result of acquisitions.
ASC 505 requires that the fair value of the equity instruments issued to a non-employee be measured on the earlier of: (i) the performance commitment date or (ii) the date the services required under the arrangement have been completed.
Awards that are issued to non-employees in exchange for their services are accounted for under ASC 505, Equity-Based Payments to Non-Employees. ASC 505 requires that the fair value of the equity instruments issued to a non-employee be measured on the earlier of: (i) the performance commitment date or (ii) the date the services required under the arrangement have been completed.
For the year ended December 31, 2020, selling, general and administrative expense of $85.5 million was comprised of indirect labor of $41.0 million, facilities costs of $12.4 million, IPO-related costs of $6.9 million, stock-based compensation of $3.3 million, acquisition-related costs of $4.3 million, bad debt expense of $4.5 million and other costs (including software, travel, insurance, legal, consulting and audit services) of $13.1 million.
For the year ended December 31, 2023, selling, general and administrative expense of $222.9 million was comprised of indirect labor of $114.0 million, stock-based compensation expense of $43.9 million, facilities costs of $23.0 million, acquisition-related costs of $6.9 million, bad debt expense of $3.1 million, and other costs (including software, travel, insurance, legal, consulting and audit services) of $32.0 million.
Demand for COVID-19 related or environmental emergency response services provided by CTEH remains difficult to predict and as a result, we may have experienced revenues and earnings in both 2022 and 2021 that are not indicative of future results, making those periods particularly difficult comparisons for future periods.
Demand for environmental emergency response services remains difficult to predict and as a result, we may have experienced revenues and earnings in prior years that are not indicative of future results, making those periods particularly difficult comparisons for future periods.
Seasonality Due to the field-based nature of certain of our services, weather patterns generally impact our field-based teams’ ability to operate in the winter months.
These investments should allow us to improve our margins over time. Seasonality Due to the field-based nature of certain of our services, weather patterns generally impact our field-based teams’ ability to operate in the winter months.
Total revenue from COVID-19 related services was $65.2 million and $189.9 million in the year ended December 31, 2022 and 2021, respectively. Measurement and Analysis segment revenues for the year ended December 31, 2022 were $172.4 million, an increase of $19.2 million or 12.5% compared to revenues for the year ended December 31, 2021 of $153.2 million.
Measurement and Analysis segment revenues for the year ended December 31, 2022 were $172.4 million, an increase of $19.2 million or 12.5% compared to revenues for the year ended December 31, 2021 of $153.2 million.
The expected decrease in CTEH was partially offset by organic growth in non-CTEH service lines and revenues of $37.1 million from acquisitions completed during 2022 and revenues from 2021 acquisitions prior to their one year anniversary. CTEH revenues were $113.9 million in 2022 compared to $231.5 million in 2021.
The expected decrease in COVID-19 related revenues was partially offset by organic growth in our other service lines and revenues of $37.1 million from acquisitions completed during 2022 and revenues from 2021 acquisitions prior to their one year anniversary.
Cost of Revenues Cost of revenues consists of all direct costs required to provide services, including fixed and variable direct labor costs, equipment rental and other outside services, field and lab supplies, vehicle costs and travel-related expenses.
See “—Discontinued Service Lines and Contracts ” above. See “—Segment Results of Operations” below. Cost of Revenues Cost of revenues consists of all direct costs required to provide services, including fixed and variable direct labor costs, equipment purchases and rental, and other outside services, field and lab supplies, vehicle costs and travel-related expenses.
For the year ended December 31, 2021, selling, general and administrative expense was comprised of indirect labor of $61.2 million, facilities costs of $14.7 million, stock-based compensation of $8.8 million, acquisition-related costs of $2.1 million, bad debt expense of $1.1 million, and other costs (including software, travel, insurance, legal, consulting and audit services) of $29.8 million.
For the year ended December 31, 2022, selling, general and administrative expense of $176.3 was comprised of indirect labor of $80.6 million, stock-based compensation of $41.8 million, facilities costs of $18.2 million, acquisition-related costs of $1.9 million, a 48 bad debt recovery of $(1.1) million, and other costs (including software, travel, insurance, legal, consulting and audit services) of $34.9 million.
See Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” for additional information regarding the impact of inflation on our business.
See “—Key Factors that Affect Our Business and Our Results —Discontinued Service Lines and Contracts” and Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” for additional information regarding the impact of inflation on our business.
Measurement and Analysis Segment Adjusted EBITDA for the year ended December 31, 2021 was $31.3 million, a decrease of $8.1 million compared to Segment Adjusted EBITDA for the year ended December 31, 2020 of $39.4 million. For the year ended December 31, 2021, Segment Adjusted EBITDA margin was 20.4% compared to 26.0% in the prior year.
Measurement and Analysis Segment Adjusted EBITDA for the year ended December 31, 2022 was $31.6 million, an increase of $0.3 million compared to Segment Adjusted EBITDA for the year ended December 31, 2021 of $31.3 million. For the year ended December 31, 2022, Segment Adjusted EBITDA margin was 18.3% compared to 20.4% in the prior year.
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.
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.
Revenue by segment, and as a percentage of total revenues, was as follows: Year Ended December 31, Revenues % of Total Revenues Revenues % of Total Revenues (revenue in thousands) 2022 2021 Assessment, Permitting and Response $ 187,234 34.4 % $ 261,865 47.9 % Measurement and Analysis 172,432 31.7 % 153,208 28.0 % Remediation and Reuse 184,750 33.9 % 131,340 24.0 % $ 544,416 $ 546,413 See “—Segment Results of Operations” below.
Discontinued O&M Contracts generated revenues of $3.6 million and $12.1 million in the years ended December 31, 2022 and 2021, respectively. 50 Revenue by segment, and as a percentage of total revenues, was as follows: Year Ended December 31, (revenue in thousands) 2022 2021 Revenues % of Total Revenues Revenues % of Total Revenues Assessment, Permitting and Response $ 187,234 34.4 % $ 261,865 47.9 % Measurement and Analysis (1) 172,432 31.7 % 153,208 28.0 % Remediation and Reuse 184,750 33.9 % 131,340 24.0 % $ 544,416 $ 546,413 _________________________________ (1) Includes revenue of $17.0 million and $23.9 million from the Discontinued Specialty Lab for the year ended December 31, 2022 and 2021, respectively.
We have the option to borrow incremental term loans or request an increase in the aggregate commitments under the revolving credit facility up to an aggregate amount of $150.0 million subject to the satisfaction of certain conditions. The 2021 Credit Facility term loan must be repaid in quarterly installments.
We have the option to borrow incremental term loans or request an increase in the aggregate commitments under the revolving credit facility up to an aggregate amount of $150.0 million subject to the satisfaction of certain conditions. In February 2024, we partially exercised this option, as discussed below.
For the year ended December 31, 2020, cost of revenues was $215.5 million or 65.7% of revenues, and was comprised of direct labor of $117.8 million, outside services (including contracted labor, laboratory, shipping and freight and other outside services) of $50.9 million, field supplies, testing supplies and equipment rental of $23.2 million, project-related travel expenses of $11.8 million and other direct costs of $11.8 million.
For the year ended December 31, 2023, cost of revenues was $383.9 million or 61.5% of revenues, and was comprised of direct labor of $187.0 million, outside services (including contracted labor, laboratory, shipping and freight and other outside services) of $95.3 million, field supplies, testing supplies and equipment rental of $66.9 million, project-related travel expenses of $21.7 million and other direct costs of $13.0 million.
These uncertainties primarily impact our contracts in the Remediation and Reuse segment. Time-and-materials contracts—Time-and-materials contracts contain variable consideration. However, performance obligations qualify for the “Right to Invoice” Practical Expedient. Under this practical expedient, we are allowed to recognize revenue, over time, in the amount to which we have a right to invoice.
These uncertainties primarily impact our contracts in the Remediation and Reuse segment. Time-and-materials contracts contain variable consideration. However, performance obligations qualify for the “Right to Invoice” Practical Expedient.
See Notes 13, 15, 17 and 18 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” Interest Expense, Net Interest expense, net incurred during the year ended December 31, 2021 was $11.6 million, compared to $13.8 million for the year ended December 31, 2020.
See Notes 7, 14 and 16 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” Interest Expense, Net Interest expense, net incurred in the year ended December 31, 2023, was $7.8 million, compared to $5.2 million for the year ended December 31, 2022.
The 2021 Credit Facility contains a mandatory prepayment feature upon a number of events, including with the proceeds of certain asset sales and proceeds from the issuance of any debt. See Note 14 to our audited consolidated financial statements included in Item 8.
The 2021 Credit Facility contains a mandatory prepayment feature upon a number of events, including with the proceeds of certain asset sales and proceeds from the issuance of any debt.
Cost of Revenues For the year ended December 31, 2021, cost of revenues was $369.0 million or 67.5% of revenues, and was comprised of direct labor of $147.3 million, outside services (including contracted labor, laboratory, shipping and freight and other outside services) of $143.3 million, field supplies, testing supplies and equipment rental of $50.2 million, project-related travel expenses of $17.8 million and other direct costs of $10.4 million.
Cost of Revenues For the year ended December 31, 2022, cost of revenues was $351.9 million or 64.6% of revenues, and was comprised of direct labor of $155.0 million, outside services (including contracted labor, laboratory, shipping and freight and other outside services) of $83.3 million, field supplies, testing supplies and equipment rental of $77.9 million, project-related travel expenses of $19.3 million and other direct costs of $16.4 million.
Organic Growth We define organic growth as the change in revenues excluding revenues from acquisitions for the first twelve months following the date of acquisition and excluding revenues from businesses disposed of or discontinued.
“Financial Statements and Supplementary Data.” 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.
See Note 14 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” Prior Credit Facility Our Prior Credit Facility consisted of a $50.0 million term loan and a $130.0 million revolving credit facility. All amounts outstanding under the Prior Credit Facility were repaid on April 13, 2020 with proceeds from the 2020 Credit Facility.
See Note 19 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” Financing Costs On April 27, 2021, we entered into the 2021 Credit Facility and repaid all amounts outstanding under our prior credit facility. The 2021 Credit Facility consists of a $175.0 million term loan and a $125.0 million revolving credit facility.
The revolving credit facility includes a $20.0 million sublimit for the issuance of letters of credit. The interest rate on the 2021 Credit Facility varies depending on leverage, with a minimum of LIBOR plus 1.5% and a maximum of LIBOR plus 2.5%. We incurred debt extinguishment costs of $4.1 million in connection with this refinancing.
The revolving credit facility includes a $20.0 million sublimit for the issuance of letters of credit. The interest rate on the 2021 Credit Facility varies depending on leverage, which, prior to May 31, 2023, was a minimum of LIBOR plus 1.5% and a maximum of LIBOR plus 2.5%.
Interest expense, net was $5.2 million, $11.6 million (inclusive of the $4.1 million loss on extinguishment of the 2020 Credit Facility) and $13.8 million (inclusive of the $1.4 million loss on extinguishment of the Prior Credit Facility) in the years ended December 31, 2022, 2021 and 2020, respectively.
Interest expense, net was $7.8 million, $5.2 million and $11.6 million (inclusive of the $4.1 million loss on extinguishment of the 2020 Credit Facility) in the years ended December 31, 2023, 2022 and 2021, respectively. We expect interest expense to remain a significant cost as we continue to leverage our credit facility to support our operations and future acquisitions.
See Note 21 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” (2) Represents Segment Adjusted EBITDA as a percentage of revenues. Revenues Assessment, Permitting and Response segment revenues for the year ended December 31, 2022 were $187.2 million, compared to $261.9 million for the year ended December 31, 2021.
See Note 19 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.” (2) Represents Segment Adjusted EBITDA as a percentage of revenues. (3) Includes revenue of $17.0 million and $23.9 million from the Discontinued Specialty Lab for the year ended December 31, 2022 and 2021, respectively. See “—Discontinued Service Lines and Contracts ” above.
For the year ended December 31, 2020, net cash provided by financing activities was $  million.
Financing Activities For the year ended December 31, 2023, net cash used in financing activities was $20.1 million.
“Financial Statements and Supplementary Data.” Other Expense Other expense for the year ended December 31, 2021 of $2.5 million was driven primarily by fair value adjustments related to the Series A-2 preferred stock conversion option.
“Financial Statements and Supplementary Data.” Other Income Other income for the year ended December 31, 2023 of $4.4 million was driven by the fair value adjustment of the Series A-2 preferred stock conversion option of $6.7 million, partially offset by the fair value adjustment on our interest rate swap of $2.6 million.
Measurement and Analysis segment revenues for the year ended December 31, 2021 were $153.2 million, an increase of $1.6 million or 1.1% compared to revenues for the year ended December 31, 2020 of $151.6 million.
Measurement and Analysis segment revenues for the year ended December 31, 2023 were $197.1 million, an increase of $24.7 million or 14.3% compared to revenues for the year ended December 31, 2022 of $172.4 million.
The 2021 Credit Facility also includes financial covenants requiring us to remain below a maximum total net leverage ratio and a minimum fixed charge coverage ratio.
The 2021 Credit Facility also includes financial covenants requiring us to remain below a maximum total net leverage ratio and a minimum fixed charge coverage ratio. As of December 31, 2023, our consolidated total leverage ratio was 1.9 times and we were in compliance with all covenants under the 2021 Credit Facility.
Actual results could materially differ from those estimates. Revenue Recognition Revenue is recognized in accordance with Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers. The following is considered in the recognition of revenue under ASC 606: Our services are performed under two general types of contracts (i) fixed-price and (ii) time-and-materials.
Actual results could materially differ from those estimates. Revenue Recognition Revenue is recognized in accordance with Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers. The following is considered in the recognition of revenue under ASC 606: We account for individual promises in contracts as separate performance obligations if the promises are distinct.
The increase in working capital of $10.1 million in the year ended December 31, 2021, was driven by an increase in accounts receivable and contract assets of $36.2 million (as a result of significantly higher revenues when compared to the prior year), an increase in prepaid expenses and other current assets of $1.1 million, partially offset by an increase in accounts payable and other accrued liabilities of $24.0 million (as a result of higher contract liabilities due to the timing of project completion and the timing of vendor payments) and an increase in accrued payroll and benefits of $3.2 million.
Working capital increased by $3.3 million in the year ended December 31, 2023, primarily due to a decrease in accounts payable and other accrued liabilities of $8.9 million, an increase in accounts receivable and contract assets of $2.9 million and an increase in prepaid expenses and other current assets of $0.9 million, partially offset by an increase in accrued payroll and benefits of $9.5 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+4 added−1 removed0 unchanged
Biggest changeBased on our overall interest rate exposure to variable rate debt outstanding as of December 31, 2022, which factors in our interest rate swap that we entered into on January 27, 2022 and is in effect until January 27, 2025 on $100.0 million of debt, a 1.0% increase or decrease in interest rates on the term loan and revolver would increase annual income (loss) before income taxes by approximately $0.7 million.
Biggest changeBased on our overall interest rate exposure to variable rate debt outstanding as of December 31, 2023, which factors in our interest rate swaps on $170.0 million of debt, a 1.0% increase or decrease in interest rates on the term loan, aircraft loan, and revolver would have minimal impact in our annual income (loss) before income taxes.
If our costs were to become subject to additional and unanticipated significant sustained inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations. 62
If our costs were to become subject to additional and unanticipated significant sustained inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.
Item 7A. Quantitative and Qualitati ve Disclosures About Market Risk. Interest Rate Risk We have market risk exposure arising from changes in interest rates on our credit facility, which bears interest at rates that are benchmarked subject to the Company’s leverage ratio and LIBOR.
Item 7A. Quantitative and Qualitati ve Disclosures About Market Risk. Interest Rate Risk We have market risk exposure arising from changes in interest rates on our credit facility, which bears interest at rates that are benchmarked subject to the Company’s leverage ratio and SOFR.
Although inflation has increased our Selling, general and administrative expense, impacting margins and Segment Adjusted EBITDA, in the year ended December 31, 2022, we do not believe over a longer period of time that inflation will have a material effect on our business, financial condition or results of operations.
We expect to continue to raise prices if direct costs continue to increase, and although inflation has increased our Selling, general and administrative expense in the year ended December 31, 2023, we do not believe over a longer period of time that inflation will have a material effect on our business, financial condition or results of operations.
Inflation Risk We experienced higher labor and significantly higher travel and other direct costs in the fiscal year ended December 31, 2022 as a result of inflation, particularly in our Measurement and Analysis and Remediation and Reuse segments. We believe we have successfully raised prices in businesses with short term contracts to offset these inflationary effects.
Inflation Risk We experienced higher labor and significantly higher travel and other direct costs in the fiscal year ended December 31, 2022 as a result of inflation, particularly in our Measurement and Analysis and Remediation and Reuse segments. In the year ended December 31, 2023, we also experienced, and continue to experience, higher labor costs as a result of inflation.
We also have and are continuing to raise prices on medium term (one to four quarter) contracts as these contracts are renewed or new contracts are won, but the timing of these price increases has lagged behind our cost increases due to the longer term nature of these contracts.
We also have and are continuing to raise prices on medium term (one to four quarter) contracts as these contracts are renewed or new contracts are won, and as a result have been able to offset much of the impact of inflation to date.
Removed
We expect to continue to raise prices if direct costs continue to increase.
Added
We believe we have successfully raised prices in businesses with short term contracts to offset these inflationary effects.
Added
Foreign Exchange Risk Foreign exchange risk exposure arises because we sell our services throughout the United States, Canada, Europe, and Australia. Our exposure to this risk has increased significantly in 2023 due to our acquisition of Matrix in Canada and, to a lesser extent, Vandrensning in Europe in the second and third quarter of 2023, respectively.
Added
Revenues in certain foreign countries as well as certain expenses related to those revenues are transacted in currencies other than the U.S. dollar. As such, our future operating results are exposed to changes in exchange rates. When the U.S. dollar weakens against foreign currencies, the dollar value of revenues denominated in foreign currencies increases.
Added
When the U.S. dollar strengthens, the opposite situation occurs. Additionally, previously invoiced amounts can be positively or negatively affected by changes in exchange rates in the course of collection. 62

Other MEG 10-K year-over-year comparisons