Onterris, Inc. (ONT)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes and other information included in Item 8. “Financial Statements and Supplementary Data.” This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K. See “Forward-looking Statements.”

Overview

Since our inception in 2012, our mission has been to help clients and communities meet their environmental goals and needs. According to data derived from a 2024 Environmental Industry Study prepared by Environmental Business International, Inc., or EBI, which we commissioned, the global environmental industry is estimated to be approximately $1.6 trillion, with $540.0 billion concentrated in the United States.

Our Segments

We provide environmental services to our clients through three business segments—Assessment, Permitting and Response, Measurement and Analysis and Remediation and Reuse. For more information on each of our operating segments, see Item 1. “Business” and our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

Assessment, Permitting and Response

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. We work closely with clients to navigate the regulatory process at the local, state, provincial and federal levels, identify the potential environmental and political impacts of their decisions and develop practical mitigation approaches, as needed. 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.

Measurement and Analysis

Measurement and Analysis segment is one of the largest providers of environmental testing and laboratory services in North America. 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. Our offerings include source and ambient air testing and monitoring, leak detection, and advanced multi-media laboratory services, including air, soil, stormwater, wastewater and drinking water analysis.

Remediation and Reuse

Remediation and Reuse segment provides clients with engineering, design, and implementation services, primarily (i) treatment technologies which treat contaminated water or create renewable energy from waste, or (ii) soil remediation. 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. We do not own the properties or facilities at which we implement these projects or the underlying liabilities, nor do we own material amounts of the equipment used in projects.

These operating segments have been structured and organized to align with how we view and manage the business with the full lifecycle of our clients’ targeted environmental concerns and needs in mind. Within each segment, we cover similar service offerings, regulatory frameworks, internal operating structures and client types. Corporate activities not directly related to segment performance, including general corporate expenses, interest and taxes, are reported separately.

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Key Factors that Affect Our Business and Our Results

Our operating results and financial performance are influenced by a variety of internal and external trends and other factors. Some of the more important factors are discussed briefly below.

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. “Business—Strategic Acquisitions.” The table below sets forth the number of acquisitions completed in each of the last three fiscal years, fiscal year revenues contributed by those acquisitions in the year of acquisition, and the percentage of total annual revenues attributable to those acquisitions:

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. We expect our revenue growth to continue to be driven in significant part by acquisitions. See Note 8 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

As a result of our acquisitions, goodwill and other intangible assets represent a significant proportion of our total assets, and amortization of intangible assets has historically been a significant expense. Our historical financial statements also include other acquisition-related costs, including costs relating to external legal support, diligence and valuation services and other transaction and integration-related matters. In addition, in any year gains and losses from changes in the fair value of business acquisition contingencies such as earn outs could be significant. The amount of each for the last three fiscal years is:

We expect that amortization of identifiable intangible assets and other acquisition-related costs, assuming we continue to acquire, will continue to be significant.

We made earn-out payments of $1.5 million in March 2024 in connection with our acquisition of Huco Consulting, Inc. (Huco), of which, $0.4 million was paid in cash, and the remaining $1.1 million in the Company's common stock. In connection with certain of our acquisitions, we may make up to $57.6 million in aggregate earn-out payments between the years 2025 and 2026, of which up to $22.1 million may be paid only in cash, up to $13.6 million may be paid only in common stock and up to $21.9 million may be paid, at our option, in cash or common stock. See Note 8 to our audited consolidated financial statements included in Item 8. “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. 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

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U.S. generally accepted accounting principles, or GAAP, and should be considered in conjunction with revenue growth calculated in accordance with GAAP. We have grown organically over the long term and expect to continue to do so.

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.

As part of this evaluation, during the first quarter of 2023, we determined to sell one of our specialty lab testing businesses, the Discontinued Specialty Lab, whose service offering was non-core to our business. On December 29, 2023, we sold the assets of the Discontinued Specialty Lab for a total sales price of $4.8 million. Proceeds from the sale were paid in cash of $0.5 million, and a promissory note receivable of $4.3 million. We recorded a gain on the sale of the assets of approximately $1.8 million and recorded a current expected loss of $2.2 million against the promissory note receivable. The Discontinued Specialty Lab, which was part of our Measurement and Analysis segment, generated revenues of $8.8 million and $17.0 million in the years ended December 31, 2023 and 2022, respectively. The discontinuation of this specialty service line did not represent a strategic shift that had a major effect on our operations and financial results, therefore it did not meet the requirements to be classified as discontinued operations.

During the fourth quarter of 2022, we determined to exit our lab in Berkeley, California and terminate the related positions. This discontinued lab, which was included in our Measurement and Analysis segment, did not generate any material revenue during the year ended December 31, 2022.

During the second quarter of 2022, we determined to exit all legacy water treatment and renewable energy operations and maintenance contracts, collectively, the Discontinued O&M Contracts. Revenue from our water treatment and renewable energy operations and maintenance contracts, which were included in the results of our Remediation and Reuse segment, were $3.6 million in the year ended December 31, 2022. This decision did not impact the Company’s specialized PFAS water treatment operations and maintenance contracts.

Revenue Mix

Our segments and our business lines within each segment generate different levels of profitability and, accordingly, shifts in the mix of revenues between segments can impact our consolidated reported net income, net loss margin, Segment Adjusted EBITDA and Segment Adjusted EBITDA margin from quarter to quarter and year to year. Inter-company revenues between business lines within segments have been eliminated. See Note 19 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

Our revenues and certain expenses, including selling, general and administrative expense, vary from period to period due primarily to changes in organic growth, the incremental contribution from recent acquisitions and strategic decisions we may make from time to time. When we refer to changes driven by organic growth, we are referring to the contribution from businesses that have been part of Montrose for more than 12 months, with certain limited exclusions as discussed in greater detail above. In a given reporting period, when we refer to revenue changes driven by acquisitions, we are referring to the revenue contribution from any acquisition from its closing date through the first 12 months of that acquisition, at which point any subsequent contribution therefrom would be organic.

Financing Costs

Total debt at December 31, 2024 was $222.7 million net of deferred debt issuance costs, which was an increase of $59.5 million compared to December 31, 2023. The increase was primarily driven by the additional $50.0 million term loan and additional usage of our revolving credit facility, the outstanding balance under which increased to $25.2 million under the revolving credit facility as of December 31, 2024 from no outstanding borrowings as of December 31, 2023, partially offset by repayments and amortization of the various debt noted.

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Interest expense, net was $15.9 million, $7.8 million and $5.2 million in the years ended December 31, 2024, 2023 and 2022, respectively. We expect interest expense to remain a significant cost as we continue to leverage the 2021 Credit Facility to support our operations, partially fund the redemption of the Series A-2 Preferred Stock, and to fund future acquisitions.

In February 2025, we refinanced our 2021 Credit Facility and replaced it with a new 2025 Credit Facility. See Notes 13 and 22 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

Corporate and Operational Infrastructure Investments

Our historical operating results reflect the impact of our ongoing investments in our corporate infrastructure to support our growth. We have made and expect to continue to make investments in our business platform that we believe have laid the foundation for continued growth. Investments in logistics, quality, risk management, sales and marketing, safety, human resources, research and development, finance and information technology and other areas, enable us to support continued growth. 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. As a result, our operating results could 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. 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.

Earnings Volatility

In addition to the impact of seasonality on earnings, our emergency response business exposes us to potentially significant revenue and earnings fluctuations tied to large environmental emergency response projects following an incident or natural disaster or more broad scale events such as the COVID-19 pandemic. Total revenue from emergency response related services was $48.0 million, $91.4 million, and $88.0 million in the years ended December 31, 2024, 2023 and 2022, respectively. 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. Earnings volatility is also driven by the timing of large projects, particularly in our Remediation and Reuse segment, and the impact of acquisitions. As a result of these factors, and because demand for environmental services is not driven by specific or predictable patterns in one or more fiscal quarters, our business is better assessed based on annual results.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes and other information included in Item 8. “Financial Statements and Supplementary Data.” This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K. See “Forward-looking Statements.”

Overview

Since our inception in 2012, our mission has been to help clients and communities meet their environmental goals and needs. 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.

Our Segments

We provide environmental services to our clients through three business segments—Assessment, Permitting and Response, Measurement and Analysis and Remediation and Reuse. For more information on each of our operating segments, see Item 1. “Business” and our audited consolidated financial statements included in Item 8. “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. Our technical advisory and consulting offerings include regulatory compliance support and planning, environmental, ecosystem and toxicological assessments and support during responses to environmental disruption. We help clients navigate regulations at the local, state, provincial and federal levels.

Measurement and Analysis

Through our Measurement and Analysis segment, 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. Our offerings include source and ambient air testing and monitoring, leak detection and advanced analytical laboratory services such as air, storm water, wastewater and drinking water analysis.

Remediation and Reuse

Through our Remediation and Reuse segment, we provide clients with engineering, design, and implementation services, primarily to treat contaminated water, remove contaminants from soil or create biogas from waste. We do not own the properties or facilities at which we implement these projects or the underlying liabilities, nor do we own material amounts of the equipment used in projects; instead, we assist our clients in designing solutions, managing projects and mitigating their environmental risks and liabilities.

These operating segments have been structured and organized to align with how we view and manage the business with the full lifecycle of our clients’ targeted environmental concerns and needs in mind. Within each segment, we cover similar service offerings, regulatory frameworks, internal operating structures and client types. Corporate activities not directly related to segment performance, including general corporate expenses, interest and taxes, are reported separately.

Key Factors that Affect Our Business and Our Results

Our operating results and financial performance are influenced by a variety of internal and external trends and other factors. Some of the more important factors are discussed briefly below.

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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. “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 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. We expect our revenue growth to continue to be driven in significant part by acquisitions. See Note 8 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

As a result of our acquisitions, goodwill and other intangible assets represent a significant proportion of our total assets, and amortization of intangible assets has historically been a significant expense. Our historical financial statements also include other acquisition-related costs, including costs relating to external legal support, diligence and valuation services and other transaction and integration-related matters. In addition, in any year gains and losses from changes in the fair value of business acquisition contingencies such as earn outs could be significant. The amount of each for the last three fiscal years is:

We expect that amortization of identifiable intangible assets and other acquisition-related costs, assuming we continue to acquire, will continue to be significant.

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. In connection with certain of our acquisitions, we may make up to $7.1 million in aggregate earn-out payments between the years 2024 and 2026, of which up to $1.5 million may be paid only in cash, up to $4.5 million may be paid only in common stock and up to $1.1 million may be paid, at our option, in cash or common stock. These amounts reflect a $1.5 million earn-out payment made in the first quarter of 2024 in connection with our Huco acquisition, $1.1 million of which was paid in shares of common stock and $0.4 million was paid in cash. See Note 8 to our audited consolidated financial statements included in Item 8. “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. As a result of the growth in CTEH non-emergency response work, which is similar to services provided in our advisory businesses, we are including CTEH revenues from non-emergency response work in organic growth. This change did not impact previously reported organic growth. Management uses organic growth as one of the means by which it assesses our results of operations. Organic growth is not, however, a measure of revenue growth calculated in accordance with U.S. generally accepted accounting principles, or GAAP, and should be considered in conjunction with revenue growth calculated in accordance with GAAP. We have grown organically over the long term and expect to continue to do so.

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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.

As part of this evaluation, during the first quarter of 2023, we determined to discontinue one of our specialty service lines within the lab testing business, the Discontinued Specialty Lab, whose service offering was non-core to our business. On December 29, 2023, we sold the assets of the Discontinued Specialty Lab for a total sales price of $4.8 million. Proceeds from the sale were paid in cash of $0.5 million, and a promissory note receivable of $4.3 million. We recorded a gain on the sale of the assets of approximately $1.8 million and recorded a current expected loss of $2.2 million against the promissory note receivable. The Discontinued Specialty Lab, which was part of our Measurement and Analysis segment, generated revenues of $8.8 million, $17.0 million and $23.9 million in the years ended December 31, 2023, 2022 and 2021, respectively. The discontinuation of this specialty service line did not represent a strategic shift that had a major effect on our operations and financial results, therefore it did not meet the requirements to be classified as discontinued operations.

During the fourth quarter of 2022, we determined to exit our lab in Berkeley, California and terminate the related positions. This discontinued lab, which was included in our Measurement and Analysis segment, did not generate any material revenue during the years ended December 31, 2022 and 2021.

During the second quarter of 2022, we determined to exit all legacy water treatment and biogas operations and maintenance contracts, collectively, the Discontinued O&M 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.

Revenue Mix

Our segments generate different levels of profitability and, accordingly, shifts in the mix of revenues between segments can impact our consolidated reported net income, net loss margin, Segment Adjusted EBITDA and Segment Adjusted EBITDA margin from quarter to quarter and year to year. Inter-company revenues between business lines within segments have been eliminated. 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, which, prior to May 31, 2023, was 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. Further, on May 31, 2023, we amended our 2021 Credit Facility to transition the reference rate from LIBOR to SOFR plus 0.10%. The transition to SOFR did not materially impact the interest rate we pay or change any material terms of the 2021 Credit Facility.

On May 30, 2023, we amended the interest rate swap transaction we entered into on January 27, 2022, to convert the floating component of the interest rate on $100.0 million of borrowings to 1-Month Term SOFR and a new coupon of 1.319% until January 27, 2025. Prior to the amendment, the floating component of the interest rate was 1.39%. Further, on May 30, 2023, we entered into a second interest rate swap transaction fixing the floating component of the interest rate on an additional $70.0 million of borrowings to 1-Month Term SOFR and a coupon of 3.88% until April 27, 2026.

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 13 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

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Corporate and Operational Infrastructure Investments

Our historical operating results reflect the impact of our ongoing investments in our corporate infrastructure to support our growth. We have made and expect to continue to make investments in our business platform that we believe have laid the foundation for continued growth. Investments in logistics, quality, risk management, sales and marketing, safety, human resources, research and development, finance and information technology and other areas enable us to support continued growth. 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. 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. 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.

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. COVID-19 related revenue was $4.7 million, $65.2 million and $189.9 million in the years ended December 31, 2023, 2022 and 2021, respectively. During 2023, we have also seen significant revenue from emergency response services related to discrete events. Total revenue from emergency response related services, which include COVID-19 revenues, was $91.4 million, $88.0 million and $211.5 million in the in the years ended December 31, 2023, 2022 and 2021, respectively. 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. Earnings volatility is also driven by the timing of large projects, particularly in our Remediation and Reuse segment, and the impact of acquisitions. As a result of these factors, and because demand for environmental services is not driven by specific or predictable patterns in one or more fiscal quarters, our business is better assessed based on yearly results.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes and other information included in Item 8. “Financial Statements and Supplementary Data.” This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K. See “Forward-looking Statements.”

Overview

Since our inception in 2012, our mission has been to help clients and communities meet their environmental goals and needs. 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.

Our Segments

We provide environmental services to our clients through three business segments—Assessment, Permitting and Response, Measurement and Analysis and Remediation and Reuse. For more information on each of our operating segments, see Item 1. “Business” and our audited consolidated financial statements included in Item 8. “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. Our technical advisory and consulting offerings include regulatory compliance support and planning, environmental, ecosystem and toxicological assessments and support during responses to environmental disruption. We help clients navigate regulations at the local, state, provincial and federal levels. 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 the COVID-19 pandemic.

Measurement and Analysis

Through our Measurement and Analysis segment, 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. Our offerings include source and ambient air testing and monitoring, leak detection and advanced analytical laboratory services such as air, storm water, wastewater and drinking water analysis.

Remediation and Reuse

Through our Remediation and Reuse segment, we provide clients with engineering, design, and implementation services, primarily to treat contaminated water, remove contaminants from soil or create biogas from waste. We do not own the properties or facilities at which we implement these projects or the underlying liabilities, nor do we own material amounts of the equipment used in projects; instead, we assist our clients in designing solutions, managing projects and mitigating their environmental risks and liabilities.

These operating segments have been structured and organized to align with how we view and manage the business with the full lifecycle of our clients’ targeted environmental concerns and needs in mind. Within each segment, we cover similar service offerings, regulatory frameworks, internal operating structures and client types. Corporate activities not directly related to segment performance, including general corporate expenses, interest and taxes, are reported separately.

Key Factors that Affect Our Business and Our Results

Our operating results and financial performance are influenced by a variety of internal and external trends and other factors. Some of the more important factors are discussed briefly below.

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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. “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 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. We expect our revenue growth to continue to be driven in significant part by acquisitions. See Note 8 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

As a result of our acquisitions, goodwill and other intangible assets represent a significant proportion of our total assets, and amortization of intangible assets has historically been a significant expense. Our historical financial statements also include other acquisition-related costs, including costs relating to external legal support, diligence and valuation services and other transaction and integration-related matters. In addition, in any year gains and losses from changes in the fair value of business acquisition contingencies such as earn outs could be significant. The amount of each for the last three fiscal years is:

We expect that amortization of identifiable intangible assets and other acquisition-related costs, assuming we continue to acquire, will continue to be significant.

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. In connection with our Vista, Sensible, Environmental Standards and Huco acquisitions, we may make up to $9.5 million in aggregate earn-out payments between the years 2023 and 2026, up to $4.0 million of which may be paid in cash. See Note 8 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

COVID-19

To date, COVID-19 related adverse impacts such as temporarily delayed project start dates, particularly within our Remediation and Reuse segment, exiting certain service lines and employee quarantines have not had a material adverse effect on our reported results or our liquidity. On the other hand, we have seen benefits from COVID-19 given client demand for CTEH’s toxicology and response services, which represented a meaningful revenue stream, particularly in the years ended December 31, 2021 and 2020, and a declining revenue stream in 2022 as the pandemic has subsided, and one that we may not be able to replace in future periods. Although many parts of our business saw some impact from COVID-19, in the aggregate, our overall business benefitted from COVID-19 during the years ended December 31, 2022, 2021 and 2020, primarily as a result of COVID-19 response work performed by CTEH. COVID-19 has had an impact on our historical seasonality trends.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was enacted. The CARES Act included several significant provisions for corporations, including those pertaining to net operating losses, interest deductions and payroll tax benefits. We utilized certain of these provisions in 2020, including the deferral of the employer side social security

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payments for payroll for the eligible portion of the year. In total, we deferred approximately $5.0 million of 2020 payments to 2021 and 2022, of which $2.5 million was repaid in December 2021 and the remaining amount was paid in the fourth quarter of 2022.

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. As a result of the significance of CTEH to Montrose and the potential annual volatility in CTEH’s revenues due to the emergency response aspect of their business, we also disclose organic growth without the annual organic revenue growth of CTEH. We expect to continue to disclose organic revenue growth with and without CTEH. Management uses organic growth as one of the means by which it assesses our results of operations. Organic growth is not, however, a measure of revenue growth calculated in accordance with U.S. generally accepted accounting principles, or GAAP, and should be considered in conjunction with revenue growth calculated in accordance with GAAP. We have grown organically over the long term and expect to continue to do so.

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. The decision to exit the businesses outlined below were reached after careful consideration of the relevant risks and rewards associated with the particular business.

As part of this evaluation, during the fourth quarter of 2022, we determined to exit our start-up lab in Berkley, California and terminate the related positions. This discontinued start-up, which was included in our Measurement and Analysis segment, did not generate any material revenue during the years ended December 31, 2022, 2021 and 2020. We recognized an impairment loss of $0.7 million in connection with vacating the related real estate. See Note 7 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

During the second quarter of 2022, we determined to exit all legacy water treatment and biogas operations and maintenance contracts, collectively, the Discontinued O&M Contracts, as well as the related positions. The work associated with these contracts is non-specialized and commoditized, and it was determined that the risk of facility failure taken on by the Company as the O&M contractor no longer justified the low margins in these 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, $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.

During the first quarter of 2020, we determined to scale back operations of our environmental lab in Berkeley, California, and to exit our non-specialized municipal water engineering service line and our food-waste biogas engineering service line, collectively, the Discontinued Service Lines. The factors underlying these decisions were accelerated and amplified by the COVID-19 pandemic, which for example, has made the collection of commercial food waste used in biodigesters less consistent and delayed the approval or initiation of certain projects dependent on municipal or state funding. As a part of discontinuing these service lines, a process which was completed in the second quarter of 2020, we eliminated select personnel and, in the first quarter of 2020, booked an additional bad debt reserve related to the increased uncertainty around the ability to collect on receivables related to these service lines. Revenue from our non-specialized municipal water engineering service line and our food-waste biogas engineering, which were included in the results of our Remediation and Reuse segment, were $1.4 million in the year ended December 31, 2020. The revenues from our Berkeley environmental lab related to the Discontinued Service Lines, which were included in the results of our Measurement and Analysis segment, were $2.4 million in the year ended December 31, 2020. We no longer generate any revenues from these Discontinued Service Lines.

Revenue Mix

Our segments generate different levels of profitability and, accordingly, shifts in the mix of revenues between segments can impact our consolidated reported net income, net loss margin, Segment Adjusted EBITDA and Segment Adjusted EBITDA margin from quarter to quarter and year to year. Inter-company revenues between business lines within segments have been eliminated. See Note 21 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

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Financing Costs

On April 13, 2020, we entered into the 2020 Credit Facility providing for a $225.0 million credit facility comprised of a $175.0 million term loan and a $50.0 million revolving credit facility, and used the proceeds therefrom to repay in full all amounts outstanding under our prior senior secured credit facility. We incurred debt extinguishment costs of $1.4 million in connection with this refinancing. Effective October 6, 2020, the Company amended its 2020 Credit Facility to provide for a reduction on the applicable interest rate on the term loan from LIBOR plus 5.0% with a 1.0% LIBOR floor to LIBOR plus 4.5% with a 1.0% LIBOR floor. The revolver interest rate remained unchanged.

On April 27, 2021, we entered into the 2021 Credit Facility and repaid all amounts outstanding under the 2020 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.

Furthermore, effective January 27, 2022, we entered into an interest rate swap transaction fixing the floating component of the interest rate on $100.0 million of borrowings to 1.39% until January 27, 2025.

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. 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 14 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

Corporate and Operational Infrastructure Investments

Our historical operating results reflect the impact of our ongoing investments in our corporate infrastructure to support our growth. We have made and expect to continue to make investments in our business platform that we believe have laid the foundation for continued growth. Investments in logistics, quality, risk management, sales and marketing, safety, human resources, research and development, finance and information technology and other areas enable us to support continued growth. 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. 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 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.

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. The benefit from COVID-19 related work began in the third quarter of 2020, peaked in the first quarter of 2021 and has declined each subsequent quarter, although demand has continued through December 31, 2022. 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. We do however expect that a portion of expectedly declining COVID-19 response revenues will be offset by other CTEH service line revenues such as environmental emergency responses as internal resources are freed up from the COVID-19 response work. Earnings volatility is also driven by the timing of large projects, particularly in our Remediation and Reuse segment, and the impact of acquisitions. As a result of these factors, and because demand for environmental services is not driven by specific or predictable patterns in one or more fiscal quarters, our business is better assessed based on yearly results.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes and other information included in Item 8. “Financial Statements and Supplementary Data.” This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K. See “Forward-looking Statements.”

Overview

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 $1.3 trillion global environmental industry.

Our Segments

We provide environmental services to our clients through three business segments—Assessment, Permitting and Response, Measurement and Analysis and Remediation and Reuse. For more information on each of our operating segments, see Item 1. “Business” and our audited consolidated financial statements included in Item 8. “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. Our technical advisory and consulting offerings include regulatory compliance support and planning, environmental, ecosystem and toxicological assessments and support during responses to environmental disruption. We help clients navigate regulations at the local, state, provincial and federal levels. 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 the COVID-19 pandemic.

Measurement and Analysis

Through our Measurement and Analysis segment, 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. Our offerings include source and ambient air testing and monitoring, leak detection and advanced analytical laboratory services such as air, storm water, wastewater and drinking water analysis.

Remediation and Reuse

Through our Remediation and Reuse segment, we provide clients with engineering, design, implementation and operations and maintenance services, primarily to treat contaminated water, remove contaminants from soil or create biogas from waste. We do not own the properties or facilities at which we implement these projects or the underlying liabilities, nor do we own material amounts of the equipment used in projects; instead, we assist our clients in designing solutions, managing projects and mitigating their environmental risks and liabilities.

These operating segments have been structured and organized to align with how we view and manage the business with the full lifecycle of our clients’ targeted environmental concerns and needs in mind. Within each segment, we cover similar service offerings, regulatory frameworks, internal operating structures and client types. Corporate activities not directly related to segment performance, including general corporate expenses, interest and taxes, are reported separately.

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COVID-19

We are closely monitoring the impact of the COVID-19 pandemic on our business, including the impact on our customers, employees and suppliers. While COVID-19 did not have a material adverse effect on our reported results, we did experience some changes to our business operations during 2020 and 2021. The changes were primarily composed of client postponement of on-site environmental compliance testing, delays in project start dates or supply delivery particularly within our Remediation and Reuse segment, and postponement or reformatting of scientific presentations and sales visits. We have also had small numbers of employees either exposed to or contract COVID-19. Exposed employees have been asked to quarantine per Company protocols. To date, COVID-19-related quarantines have not had a material adverse effect on our reported results. In the second quarter of 2020 we instituted temporary cost mitigation measures such as reducing non-billable time for a subset of our impacted workforce. Some of these cost mitigation measures were reversed during the first quarter of 2021, with the remaining measures reversed in the second quarter of 2021. Our businesses exposed to commercial food waste and non-specialized municipal water engineering projects also saw more significant disruptions and, as a result, in the first quarter of 2020 we exited those service lines as described further below. On the other hand, we have seen benefits from COVID-19 given client demand for CTEH’s toxicology and response services, which represented a meaningful revenue stream in 2021 and 2020, and that, once the pandemic subsides, we may not be able to replace in future periods. Although many parts of our business saw some impact from COVID-19, in the aggregate, our overall business benefited from COVID-19 in 2021 and 2020, primarily as a result of COVID-19 response work performed by CTEH.

COVID-19 has had an impact on our historical seasonality trends given the various government stay at home or business closure orders starting in the second quarter of 2020. We have not experienced a significant slowdown in cash collections, and as a result cash flow from operations has not been materially adversely impacted. In addition, in the second quarter of 2021 we entered into a 2021 Credit Facility, replacing our 2020 Credit Facility, and as a result, increased borrowing capacity. We expect our sources of liquidity to be sufficient for our operating needs for the next twelve months. See “—Liquidity and Capital Resources.”

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was enacted. The CARES Act includes several significant provisions for corporations, including those pertaining to net operating losses, interest deductions and payroll tax benefits. We utilized certain of these provisions in 2020, including the deferral of the employer side social security payments for payroll for the eligible portion of the year. In total, we deferred approximately $5.0 million of 2020 payments. Half of these deferred payments were made in 2021 and the other half will be paid in 2022.

It is difficult to predict the future impact COVID-19 may have on our business, results of operations, financial position, or cash flows. The extent to which we may be impacted will depend largely on future and rapidly evolving developments, including new information on the severity of new strains, the roll-out and long-term efficacy of vaccines and vaccine mandates, and actions by various government authorities to contain the pandemic and mitigate its impact. We intend to closely monitor the impact of COVID-19 on our business and will respond as we believe is appropriate.

Key Factors that Affect Our Business and Our Results

Our operating results and financial performance are influenced by a variety of internal and external trends and other factors. Some of the more important factors are discussed briefly below.

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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. “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 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. We expect our revenue growth to continue to be driven in significant part by acquisitions, including the acquisition of CTEH in 2020. See Note 8 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

As a result of our acquisitions, goodwill and other intangible assets represent a significant proportion of our total assets, and amortization of intangible assets has historically been a significant expense. Our historical financial statements also include other acquisition-related costs, including costs relating to external legal support, diligence and valuation services and other transaction and integration-related matters. In addition, in any year gains and losses from changes in the fair value of earn-out related contingent consideration related to acquisitions could be significant. The amount of each for the last three fiscal years is:

We expect that amortization of identifiable intangible assets and other acquisition-related costs, assuming we continue to acquire, will continue to be significant.

Additionally, we made a $50.0 million earn-out payment in April 2021 (50.0% of which was paid in the form of shares of our common stock) and will make a $30.0 million earn-out payment in March 2022 in connection with our CTEH acquisition. In connection with our Vista, Sensible and ECI acquisitions, we may make up to $6.9 million in aggregate purchase price true-up and earn-out payments between the years 2022 and 2025. See Note 8 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

Organic Growth

We have grown organically and expect to continue to do so. 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. As a result of the significance of the CTEH acquisition to Montrose, and the potential annual volatility in CTEH’s revenues, we also disclose organic growth without the annual organic revenue growth of CTEH. We expect to continue to disclose organic revenue growth with and without CTEH. 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.

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generally accepted accounting principles, or GAAP, and should be considered in conjunction with revenue growth calculated in accordance with GAAP. We have grown organically and expect to continue to do so.

Discontinued Service Lines

Periodically, or when circumstances warrant, we evaluate the performance of our business services to ensure that performance and outlook are consistent with expectations. During the first quarter of 2020, as part of this evaluation, we determined to scale back operations of our environmental lab in Berkeley, California, and to exit our non-specialized municipal water engineering service line and our food-waste biogas engineering service line, collectively, the Discontinued Service Lines. The factors underlying these decisions were accelerated and amplified by the COVID-19 pandemic, which for example, has made the collection of commercial food waste used in biodigesters less consistent and delayed the approval or initiation of certain projects dependent on municipal or state funding. As a part of discontinuing these service lines, a process which was completed in the second quarter of 2020, we eliminated select personnel and, in the first quarter of 2020, booked an additional bad debt reserve related to the increased uncertainty around the ability to collect on receivables related to these service lines. Revenue from our non-specialized municipal water engineering service line and our food-waste biogas engineering, which are included in the results of our Remediation and Reuse segment, were zero, $1.4 million and $10.9 million in the years ended December 31, 2021, 2020, and 2019, respectively. Revenues from our Berkeley lab, which are included in the results of our Measurement and Analysis segment, were zero, $2.4 million and $7.5 million for the years ended December 31, 2021, 2020, and 2019, respectively. We no longer generate any revenues from the Discontinued Service Lines.

Revenue Mix

Our segments generate different levels of profitability and, accordingly, shifts in the mix of revenues between segments can impact our consolidated reported net income, operating margin, Adjusted EBITDA and Adjusted EBITDA margin from year to year. See “—Non-GAAP Financial Information” for a discussion of non-GAAP measures and a reconciliation thereof to the most directly comparable GAAP measure. Inter-company revenues between business lines within segments have been eliminated.

Financing Costs

Financing costs, relating primarily to interest expense on our debt, continue to be a significant component of our results of operations. For the year ended December 31, 2021, 2020 and 2019 we incurred interest expense of $11.6 million, $13.8 million and $6.8 million, respectively.

On April 13, 2020, we entered into the 2020 Credit Facility providing for a $225.0 million credit facility comprised of a $175.0 million term loan and a $50.0 million revolving credit facility, and used the proceeds therefrom to repay in full all amounts outstanding under our prior senior secured credit facility most recently amended in July 2019, or the Prior Credit Facility. We incurred debt extinguishment costs of $1.4 million in connection with this refinancing transaction. Effective October 6, 2020, the Company amended its 2020 Credit Facility to provide for a reduction on the applicable interest rate on the term loan from LIBOR plus 5.0% with a 1.0% LIBOR floor to LIBOR plus 4.5% with a 1.0% LIBOR floor. The revolver interest rate remained unchanged.

On April 27, 2021, we entered into the 2021 Credit Facility and repaid all amounts outstanding under the 2020 Credit Facility. The 2021 Credit Facility consists of a $175.0 million term loan and a $125.0 million revolving credit facility. 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 transaction.

As a result of the lower interest rates under the 2021 Credit Facility, interest expense was lower in 2021 as compared to 2020. We expect interest expense to remain a significant cost as we continue to leverage our credit facility to support our operations and future acquisitions.

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See Note 14 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

Corporate and Operational Infrastructure Investments

Our historical operating results reflect the impact of our ongoing investments in our corporate infrastructure to support our growth. We have made and expect to continue to make investments in our business platform that we believe have laid the foundation for continued growth. Investments in logistics, quality, risk management, sales and marketing, safety, human resources, research and development, finance and information technology and other areas enable us to support continued growth.

Seasonality

Because demand for environmental services is not driven by specific or predictable patterns in one or more fiscal quarters, our business is better assessed based on yearly results. In addition, our operating results experience some quarterly variability. Excluding the impact of revenues and earnings from new acquisitions, and excluding the impact of COVID-19, including revenues derived from COVID-19 related projects, we typically generate slightly lower revenues and lower earnings in the first and fourth quarters and higher overall revenues and earnings in the second and third quarters. Historically, quarterly variability has been driven by weather patterns, which generally impact our field-based teams’ ability to operate in the winter months. As we continue to grow and expand into new geographies and service lines, quarterly variability may deviate from historical trends.

Earnings Volatility

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 related work, which began in the third quarter of 2020 and has continued through December 31, 2021. Demand for COVID-19 related or environmental emergency response services provided by CTEH remain difficult to predict, and demand for COVID-19 related support services is likely to decline as COVID-19 cases abate. As a result, we may have experienced revenues and earnings in the second half of 2020 and during the year ended December 31, 2021 that are not indicative of future results, making those periods particularly difficult comparisons for future periods.

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Results of Operations

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

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Revenues

For the year ended December 31, 2021, we had revenues of $546.4 million, an increase of $218.2 million or 66.5% over the year ended December 31, 2020. Excluding revenues from Discontinued Service Lines of zero and $3.8 million in the year ended December 31, 2021 and December 31, 2020, respectively, revenues increased $ 222.0 million or 68.4%. The period over period increase in revenues was driven by significant growth and a full twelve-month period of results from CTEH, which was acquired in the second quarter of 2020, significant organic growth for the rest of the company (excluding CTEH) and acquisitions completed after the year ended December 31, 2020, which contributed $33.7 million in revenues during the year ended December 31, 2021. Organic growth for the year ended December 31, 2021, was 37% including CTEH, and 17%, excluding CTEH. As was the case in the prior year, all segments continue to be impacted by COVID-19 in 2021, however, in the current year, COVID-19 related project delays and other impacts were more than offset by COVID-19 response work in our Assessment, Permitting and Response segment. Revenues from CTEH were $231.5 million in year ended December 31, 2021 as compared to $82.4 million in the year ended December 31, 2020. Revenue by segment, and as a percentage of total revenues, was as follows:

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 rental and other outside services, field and lab supplies, vehicle costs and travel-related expenses. 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.

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 as a percentage of revenue increased 1.9% from the prior year, as a result of significantly higher outside service costs driven primarily by external lab expenses to support the increase in CTEH’s COVID-19 revenues. The increase was partially offset by lower labor as a percentage of revenue primarily attributable to a shift in roles and responsibilities of certain employees from providing direct field support to providing more specialized, multi-location overhead support functions (such as accounting, HR and management) as result of acquisitions and growth in our business. These changes in employee roles resulted in a decrease in labor costs recorded as cost of revenues and a corresponding increase in labor costs recorded as selling, general and administrative expense in the current year.

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.

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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.

For the year ended December 31, 2021, selling, general and administrative expense was $117.7 million, an increase of $32.2 million or 37.5% versus the prior year, of which $6.2 million was from selling, general and administrative expense pertaining to companies we acquired in 2021. The remaining $26.0 million increase was primarily due to an increase in stock-based compensation expense of $5.5 million, and an increase in public company related costs of $4.1 million, a full year of selling, general and administrative expenses for CTEH, which was acquired in April 2020, the impact of the shift of employee roles and responsibilities as described above, and an increase in investments in corporate infrastructure (primarily sales and marketing, finance, administrative, IT, legal and human resources). These increases were partially offset by a decrease in IPO-related costs of $6.9 million, a decrease in bad debt of $3.4 million, primarily related to the Discontinued Service Lines and a decrease in acquisition related costs of $2.3 million. As a percentage of revenue, selling, general and administrative expenses decreased to 21.5% in fiscal year 2021 from 26.1% in fiscal year 2020.

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, 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.

Fair Value Changes in Business Acquisitions Contingent Consideration

For the year ended December 31, 2021, fair value changes in business acquisitions contingent consideration were $24.4 million, an increase of $11.5 million versus $12.9 million for the year ended December 31, 2020. The majority of the change in value in both periods was attributable to the achievement and expected achievement of the maximum 2020 and 2021 CTEH earn-outs, respectively. See Notes 8 and 15 to our audited consolidated financial statements included in Item 8. “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. Depreciation and amortization expense for the year ended December 31, 2020, was $37.3 million and was comprised of amortization of finite lived intangibles of $28.9 million and depreciation of property and equipment of $8.4 million. The increase in amortization for the year ended December 31, 2021 versus the prior year is primarily a result of acquisitions. The decrease in depreciation of property and equipment, and the amortization of finance leases right-of-use asset, is primarily a result of the adoption of Accounting Standard Codification (“ASC”) 842, partially offset by the impact of acquisitions on depreciation. See Notes 3, 6, 7, 8 and 9 to our audited consolidated financial statements included in Item 8. “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. Other expense for the year ended December 31, 2020 of $20.3 million was driven primarily by fair value adjustments related to (i) the Series A-1 preferred stock contingent put option, (ii) the Series A-2 embedded options, and (iii) the Series A-1 and A-2 preferred stock warrant

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options. See Notes 13, 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. The decrease in interest expense was driven by lower average interest rates under the 2021 Credit Facility, partially offset by an increase in write-off of deferred debt issuance costs. Interest expense in the year ended December 31, 2021 includes $3.1 million from the write off of deferred debt issuance costs related to the repayment of our 2020 Credit Facility in April, 2021, whereas interest expense in the year ended December 31, 2020 includes $1.4 million expense from both payments made and the write off of deferred debt issuance costs related to the repayment of the Prior Credit Facility. 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. The difference between our effective tax rate of (7.3)% 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 $27.0 million, state and foreign income tax provisions and Global Intangible Low Taxed Income.

Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

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Revenues

For the year ended December 31, 2020, we had revenues of $328.2 million, an increase of $94.3 million or 40.4% over the prior year. Excluding revenues from Discontinued Service Lines of $3.8 million and $18.4 million in the years ended December 31, 2020 and December 31, 2019, respectively, revenues increased $108.9 million or 50.5%. The $108.9 million increase in revenues was driven by acquisitions, which contributed $97.3 million, and organic growth. All segments were impacted by COVID-19, primarily in the form of delays in project start dates, beginning in March 2020, partially offset by COVID-19 related project work in our Assessment, Permitting and Response segment from the CTEH acquisition. Revenue by segment and as a percentage of total revenues was as follows:

See “—Segment Results of Operations” below.

Cost of Revenues

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, 2020, cost of revenues as a percentage of revenue fell 4.5% from the prior year, as a result of lower labor and outside services as a percentage of revenue. These drivers were primarily as a result of changes in segment mix, as well as labor-related savings from temporary cost mitigation efforts related to COVID-19 and the exiting of Discontinued Service Lines at the end of the first quarter of 2020.

For the year ended December 31, 2019, cost of revenues was $164.0 million or 70.1% of revenues, and was comprised of direct labor of $94.2 million, outside services (including contracted labor, laboratory, shipping and freight and other outside services) of $34.8 million, field supplies, testing supplies and equipment rental of $20.5 million, project-related travel expenses of $8.7 million and other direct costs of $5.8 million.

Selling, General and Administrative Expense

For the year ended December 31, 2020, selling, general and administrative expense was $85.5 million, an increase of $35.8 million or 72.1% versus the prior year, of which $21.1 million was from selling, general and administrative expense pertaining to companies we acquired in 2019 and in 2020. The remaining $14.7 million increase was primarily due to an increase in expenses incurred to prepare for the initial public offering of $6.3 million, bad debt of $3.3 million, primarily related to the Discontinued Service Lines, an increase in acquisition related costs of $0.9 million, investment in corporate infrastructure (primarily finance, sales and marketing, safety, IT and human resources) and public company related costs.

For the year ended December 31, 2020, selling, general and administrative expense 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

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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, 2019, selling, general and administrative expense was $49.7 million, comprised of indirect labor of $18.4 million, facilities costs of $10.7 million, stock-based compensation of $2.9 million, acquisition-related costs of $3.5 million, bad debt expense of $1.2 million, IPO-related costs of $0.6 million and other costs (including software, travel, insurance, legal, consulting and audit services) of $12.4 million.

Fair Value Changes in Business Acquisitions Contingent Consideration

For the year ended December 31, 2020, fair value changes in business acquisitions contingent consideration were $12.9 million, an increase of $11.5 million versus $1.4 million for the year ended December 31, 2019. The increase was driven by fair value adjustments of contingent consideration related to the acquisitions of CTEH and Analytical Environmental Services, Corp., or AES.

Depreciation and Amortization

Depreciation and amortization expense for the year ended December 31, 2020, was $37.3 million and was comprised of amortization of finite lived intangibles of $28.9 million, arising as a result of our acquisition activity, and depreciation of property and equipment of $8.4 million. Depreciation and amortization expense for the year ended December 31, 2019, was $27.7 million and was comprised of amortization of finite lived intangibles of $20.0 million and depreciation of property and equipment of $7.7 million. The increase in both depreciation and amortization for the year ended December 31, 2019 versus the prior year is primarily a result of acquisitions.

Other Expense

Other expense for the year ended December 31, 2020 of $20.3 million was driven primarily by fair value adjustments related to (i) the Series A-1 preferred stock contingent put option, (ii) the Series A-2 embedded options, and (iii) the Series A-1 and A-2 preferred stock warrant options. Other expense for the year ended December 31, 2019 of $11.0 million related primarily to fair value adjustments to the Series A-1 warrant option. See Notes 13, 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, 2020 was $13.8 million, compared to $6.8 million for the year ended December 31, 2019. The increase in interest expense was driven by higher outstanding debt balances and higher borrowings under an equipment line of credit, as well as higher average interest rates, as a result of the repayment of our prior senior secured credit facility in April, 2020, using proceeds from the Unitranche credit facility, which carries a higher rate of interest. Interest expense in the year ended December 31, 2020 also includes $1.4 million from both payments made and the write off of deferred debt issuance costs, related to the repayment of our prior senior secured credit facility. See Note 14 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

Income Tax Expense (Benefit)

Income tax expense was $0.9 million for the year ended December 31, 2020, compared to an income tax benefit of ($3.1) million for the year ended December 31, 2019. The difference between our effective tax rate of (1.5)% 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 $8.2 million, state and foreign income tax provisions and Global Intangible Low Taxed Income.

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Segment Results of Operations

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

Revenues

Assessment, Permitting and Response segment revenues for the year ended December 31, 2021 were $261.9 million, compared to $98.5 million for the year ended December 31, 2020. The increase was primarily driven by the acquisition of CTEH in the second quarter of 2020, and the acquisitions of Environmental Intelligence and Horizon in the second and third quarter of 2021, respectively. The impact of CTEH on the segment was due to two main factors: (i) CTEH and therefore, the segment, benefited from greater COVID-19 related response work in 2021 versus 2020 and (ii) CTEH impacted the segment in the full 2021 period compared to only nine months in 2020.

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. The increase was driven by revenues of $4.9 million from the acquisitions of Vista, ECI and Sensible, partially offset by a decline in revenues from Discontinued Service Lines and the timing of projects. Revenues from Discontinued Service Lines in the Measurement and Analysis segment were zero and $2.4 million for the year ended December 31, 2021 and 2020.

Remediation and Reuse segment revenues for the year ended December 31, 2021 were $131.3 million, an increase of $53.1 million or 68.0% compared to revenues for the year ended December 31, 2020 of $78.2 million. This revenue growth was primarily due to organic growth, driven by increases in demand for our water treatment technology (PFAS removal) and waste-to-resources (agricultural waste to biogas) services, and $16.1 million from the acquisition of MSE, partially offset by the loss of revenues from the Discontinued Service Lines. Revenues from Discontinued Service Lines were $1.4 million for the year ended December 31, 2020.

Segment Adjusted EBITDA

Assessment, Permitting and Response Segment Adjusted EBITDA was $57.1 million for the year ended December 31, 2021, compared to $24.2 million for the year ended December 31, 2020. For the years ended December 31, 2021 and 2020, Segment Adjusted EBITDA margin was 21.8% and 24.6%, respectively. The increase in Segment Adjusted EBITDA was primarily a result of significantly higher revenues. The decline in Segment Adjusted EBITDA margin is a result of an increase in lower margin COVID-19 response work performed by CTEH in 2021.

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

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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. The decline in Segment Adjusted EBITDA and segment adjusted EBITDA margin was primarily a result of business mix and the planned reversal of cost mitigation measures taken at the start of the COVID-19 pandemic in 2020.

Remediation and Reuse Segment Adjusted EBITDA for the year ended December 31, 2021 was $19.3 million, an increase of $10.4 million compared to Segment Adjusted EBITDA for the year ended December 31, 2020 of $8.9 million. For the year ended December 31, 2021, Segment Adjusted EBITDA margin was 14.7% compared to 11.4% in the prior year. The increase in both Segment Adjusted EBITDA and Segment Adjusted EBITDA margin was primarily a result of higher revenues.

Corporate and other costs were $30.1 million for the year ended December 31, 2021 compared to $18.1 million for the year ended December 31, 2020. The cost increase was primarily driven by increased public company costs, higher software costs, and continued investment in corporate support functions to support anticipated future growth. Corporate and other costs were 5.5% of revenues in both the years ended December 31, 2021 and December 31, 2020.

Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

Revenues

Assessment, Permitting and Response segment revenues for the year ended December 31, 2020 were $98.5 million, compared to $21.1 million for the year ended December 31, 2019. The increase was driven by the acquisition of CTEH in the second quarter of 2020, which expanded our product portfolio and our scientific and technical advisory services footprint. CTEH benefited from COVID-19 related response work, particularly in the fourth quarter of 2020.

Measurement and Analysis segment revenues for the year ended December 31, 2020 were $151.6 million, an increase of $16.1 million or 11.8% compared to revenues for the year ended December 31, 2019 of $135.5 million. The increase was primarily driven by organic growth. The increase was partially offset by a $5.1 million decline in revenues from Discontinued Service Lines. Revenues from Discontinued Service Lines in the Measurement and Analysis segment were $2.4 million and $7.5 million for the year ended December 31, 2020 and December 31, 2019, respectively. Excluding revenues from the Discontinued Service Lines, revenues increased $21.2 million or 16.6% primarily driven by organic growth.

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Remediation and Reuse segment revenues for the year ended December 31, 2020 were $78.2 million, an increase of $0.9 million or 1.2% compared to revenues for the year ended December 31, 2019 of $77.3 million. Revenues from Discontinued Service Lines were $1.4 million and $10.9 million for the year ended December 31, 2020 and December 31, 2019, respectively. Excluding revenues from Discontinued Service Lines, revenues increased $10.4 million or 15.7%. This $10.4 million increase was primarily driven by organic growth and $3.8 million from acquisitions. Remediation and Reuse revenues were adversely impacted by COVID-19, which led to contract delays and project postponements.

Segment Adjusted EBITDA

Assessment, Permitting and Response Segment Adjusted EBITDA was $24.2 million for the year ended December 31, 2020, compared to $7.6 million for the year ended December 31, 2019. For the years ended December 31, 2020 and December 31, 2019, Segment Adjusted EBITDA margin was 24.6% and 35.9%, respectively. The increase in Segment Adjusted EBITDA and decline in Adjusted EBITDA margin was primarily a result of the acquisition of CTEH in the second quarter of 2020. CTEH typically operates at lower EBITDA margins than our legacy Assessment, Permitting and Response business lines.

Measurement and Analysis Segment Adjusted EBITDA for the year ended December 31, 2020 was $39.4 million, an increase of $11.6 million compared to Segment Adjusted EBITDA for the year ended December 31, 2019 of $27.8 million. For the year ended December 31, 2020 Segment Adjusted EBITDA margin was 26.0% compared to 20.5% in the prior year. The improvement in Segment Adjusted EBITDA and Segment Adjusted EBITDA margin was primarily as a result of higher revenues, favorable business mix and temporary cost mitigation initiatives taken in the second quarter of 2020 in response to COVID-19.

Remediation and Reuse Segment Adjusted EBITDA for the year ended December 31, 2020 was $8.9 million, a decrease of $0.8 million compared to Segment Adjusted EBITDA for the year ended December 31, 2019 of $9.7 million. For the year ended December 31, 2020 Segment Adjusted EBITDA margin was 11.4% compared to 12.6% in the prior year. The decrease in Segment Adjusted EBITDA and Segment Adjusted EBITDA margin was a result of higher fixed costs in anticipation of growth and geographic expansion.

Corporate and other costs were $18.1 million for the year ended December 31, 2020 compared to $13.6 million for the year ended December 31, 2019. The cost increase was driven by public company related costs, head count additions in sales and marketing, human resources, information technology, safety and finance made in 2019 subsequent to the third quarter to support higher anticipated revenues, as well as higher legal costs, partially offset by lower travel costs and internal labor costs capitalized as part of the ERP implementation. Corporate and other costs decreased slightly as a percentage of revenue to 5.5% in fiscal year 2020 from 5.8% in fiscal year 2019.

Liquidity and Capital Resources

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, other commitments and contractual obligations. 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. 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 and unsecured borrowings and proceeds from the issuance of common and preferred stock. Our primary cash needs are for day to day operations, to fund working capital requirements, to fund our acquisition strategy and any related cash earn-out obligations, to pay interest and principal on our indebtedness and dividends on our Series A-2 preferred stock, and to make capital expenditures. Additionally, in connection with certain acquisitions, we agree to earn-out provisions and other purchase price adjustments that may require future payments.  For example, the CTEH acquisition agreement includes an earn-out provision that provides for the payment of contingent consideration based on CTEH’s 2021 results in an aggregate amount not to exceed $30.0 million, with the earn-out payment equal to a specified multiple of CTEH’s EBITDA for 2021 in excess of a specified target. CTEH fully achieved the target in 2021 and the $30.0

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million payment will be paid in cash in the first quarter of 2022. We may also be required to make up to $6.9 million in aggregate true up and earn-out payments between the years 2022 and 2025 in connection with the acquisitions of Vista, Sensible and ECI. See Note 8 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

We expect to continue to finance our liquidity requirements, including any cash earn-out payments that may be required in connection with acquisitions, through cash generated from operations and borrowings under our credit facility. We believe these sources will be sufficient to fund our cash needs in the short-term and long-term. See “—Overview—COVID-19” above for a discussion of the impact of the pandemic on our liquidity.

Cash Flows

The following table summarizes our cash flows for the periods presented:

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.

For the year ended December 31, 2021, net cash provided by operating activities was $37.6 million compared to net cash provided by operating activities of $1.9 million for the year ended December 31, 2020. Cash used in operations includes payment of contingent consideration of $15.6 million and $6.4 million in the year ended December 31, 2021 and 2020, respectively. Excluding payment of contingent consideration, cash provided by operating activities was $53.2 million, compared to cash provided by operating activities of $8.3 million in the prior year, an increase of $44.9 million. The period over-period increase was primarily due to higher earnings before contingent consideration payments and non-cash items, including provision for bad debt, depreciation and amortization, stock-based compensation expense, fair value changes in financial instruments, fair value changes in business acquisitions contingent consideration, deferred income taxes, amortization of deferred financing fees, debt extinguishment costs and other net non-cash gains of $38.2 million, as well as a decrease in cloud computing costs of $2.9 million as compared to the prior year and a lower increase in working capital in the current year of $9.8 million versus the increase in working capital in the prior year of $13.5 million.

Working capital increased by $9.8 million in the year ended December 31, 2021, primarily due to an increase in accounts receivable and contract assets of $36.2 million (as a result of significantly higher revenues in the quarter ended December 31, 2021 when compared to the prior year), and an increase in pre-paid expenses and other current assets of $0.9 million, partially offset by an increase in accounts payable and accrued payroll and benefits of $27.2 million (primarily as a result of higher deferred revenue and accounts payable accruals).

For the year ended December 31, 2020, net cash provided by operating activities was $1.9 million, a decrease of $15.1 million, when compared to net cash provided by operating activities of $17.0 million, for the year ended December 31, 2019. This decrease in cash flows from operating activities in the year ended December 31, 2020 primarily reflects an increase in change in working capital of $12.8 million, higher acquisition-related contingent consideration payments of $6.4 million, higher non-capitalizable IPO and secondary offering-related costs of $7.0 million, higher interest payments of $6.1 million, higher cloud computing costs of $1.6 million (related to the

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implementation of new ERP and CRM (Customer Relationship Management) systems), and higher acquisition related costs of $0.9 million, partially offset by higher earnings before non-cash items, including bad debt, depreciation and amortization, stock-based compensation expense, income tax expense and fair value adjustments of $18.7 million, as well as lower taxes paid of $1.0 million, when compared to the prior year.

Working capital increased by $13.5 million in the year ended December 31, 2020, due to an increase in accounts receivable and contract assets of $19.0 million (as a result of significantly higher revenues in the quarter ended December 31, 2020 when compared to the prior year), and an increase in pre-paid expenses of $1.0 million, partially offset by an increase accounts payable and accrued payroll and benefits of $6.7 million (primarily as a result of higher bonus accruals and the deferral of payroll tax payments under the CARES Act), as compared to an increase in working capital of $0.7 million in the year ended December 31, 2019, which was driven by an increase in accounts receivable of $7.0 million, offset by an increase in accounts payable and accrued payroll and benefits of $8.3 million and an increase in prepaid expenses of $2.0 million. Excluding contingent consideration payments and non-capitalizable IPO and secondary offering-related costs, cash flow from operating activities decreased $1.8 million, primarily due to higher working capital caused by significant fourth quarter revenue growth in our Assessment, Permitting and Response segment.

Investing Activities

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, purchases of property and equipment for cash consideration of $6.9 million and proceeds received from the sale of property and equipment of $0.6 million.

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, 2019, net cash used in investing activities was $87.0 million, primarily driven by acquisition activity. For the year ended December 31, 2019, we completed a total of seven acquisitions for a total cash consideration of $81.4 million, net of cash acquired. In addition, in 2019 we purchased property and equipment for cash consideration of $4.7 million, and paid $1.5 million related to assumed purchase price obligations from prior year acquisitions. These investments were partially offset by property insurance proceeds and proceeds from the sale of property and equipment of $0.6 million.

Financing Activities

For the year ended December 31, 2021, net cash provided by financing activities was $146.1 million. Cash provided by financing activities was driven by borrowings under the 2021 Credit Facility, consisting of $175.0 million under the term loan and $37.0 million under the revolver, net proceeds received from the follow-on offering of $169.3 million and proceeds received from the exercise of stock options of $7.2 million, partially offset by the use of proceeds from the 2021 Credit Facility to repay the $213.4 million outstanding under the 2020 Credit Facility, the payment of the quarterly dividend on the Series A-2 preferred stock of $16.4 million, the payment of acquisition-related contingent consideration of $9.9 million, and the repayment of finance leases of $2.7 million.

For the year ended December 31, 2020, net cash provided by financing activities was $205.9 million. Cash provided by financing activities was driven by IPO proceeds, net of underwriting fees, of $161.3 million, borrowings under the 2020 Credit Facility, consisting of $175.0 million under the term loan and $25.0 million under the revolver, as well as net proceeds of $173.7 million from the issuance of the Series A-2 preferred stock. Proceeds from the IPO were used primarily to repay the $131.8 million Series A-1 preferred stock (along with the issuance of shares of common stock), as well as to pay IPO offering costs of $4.2 million. Proceeds from the 2020 Credit Facility were used primarily to repay the $177.5 million outstanding under the Prior Credit Facility, whereas

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proceeds from the issuance of the Series A-2 preferred stock were used to finance the acquisition of CTEH. Cash from financing activities was also used to repay the $25.0 million outstanding revolver balance and to make payments of acquisition-related contingent consideration of $6.0 million, term loan amortization payments of $1.3 million and $1.0 million related to our Prior Credit Facility and 2020 Credit Facility, respectively, the payment of debt issuance and debt extinguishment costs of $5.2 million and the payment of the dividends on the Series A-2 preferred stock of $7.0 million.

For the year ended December 31, 2019, net cash provided by financing activities was $74.5 million. Cash provided by financing activities was driven by a $77.6 million increase in net borrowings under our Prior Credit Facility, proceeds from the issuance of common stock of $1.5 million and the collection of a note receivable from stockholders of $0.1 million, partially offset by an amortization payment of $1.3 million related to our term loan under our Prior Credit Facility, the repayment of capital leases of $2.0 million, the payment of acquisition-related contingent consideration of $1.1 million and the payment of debt issuance costs of $0.4 million.

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. The 2021 revolving credit facility includes a $20.0 million sublimit for the issuance of letters of credit. Subject to certain exceptions, all amounts under the 2021 Credit Facility will become due on April 27, 2026. 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 and shall amortize at the following annualized rates that were scheduled to begin with the quarter ended December 31, 2021 and with the remaining balance due and payable in full upon the five-year anniversary from the closing date:

The first quarterly installment repayment, amounting to $2.2 million, was billed and charged by the lenders on January 26, 2022.

The 2021 Credit Facility term loan and the revolver bear interest subject to the Company’s leverage ratio and LIBOR as follows:

Additionally, we may receive an interest rate adjustment of up to 0.05% under the 2021 Credit Facility based on our performance against certain defined sustainability and environmental, social and governance related objectives.

Our obligations under the 2021 Credit Facility are guaranteed by certain of our existing and future direct and indirect subsidiaries, and such obligations are secured by substantially all of our assets. The 2021 Credit Facility includes a number of covenants imposing certain restrictions on our business, including, among other things, restrictions on our ability to incur indebtedness, prepay or amend other indebtedness, create liens, make certain

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fundamental changes including mergers or dissolutions, pay dividends and repurchase or make other payments in respect of capital stock, make certain investments, sell assets, change our lines of business, enter into transactions with affiliates and other corporate actions. The 2021 Credit Facility also includes financial covenants requiring us to remain below a maximum total net leverage ratio of 4.25 times, which steps down to 4.00 times beginning with the quarter ending December 31, 2022 through and including the quarter ending September 30, 2023 and then to 3.75 times beginning with the quarter ending December 31, 2023 (provided that, subject to certain requirements, the maximum net leverage ratio may be increased by 0.50:1.00, not to exceed 4.25:1.00, for a period of four consecutive fiscal quarters in connection with certain permitted acquisitions), and a minimum fixed charge coverage ratio of 1.25 times. As of December 31, 2021, the Company’s consolidated total leverage ratio (as defined in the 2021 Credit Facility) was 0.8 times. The calculation of the Company’s consolidated total leverage ratio under the 2021 Credit Facility is consistent with the calculation of the consolidated total leverage ratio under the 2020 Credit Facility.

The weighted average interest rate on the 2021 Credit Facility for the year ended December 31, 2021 was 2.1%. We were in compliance with all applicable covenants under the 2021 Credit Facility as of December 31, 2021.

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. “Financial Statements and Supplementary Data.”

2020 Credit Facility

On April 13, 2020, we entered into a Unitranche Credit Agreement, or the 2020 Credit Facility, providing for $225.0 million credit facility comprised of a $175.0 million term loan and a $50.0 million revolving credit facility, and used a portion of the proceeds from the 2020 Credit Facility to repay all amounts outstanding under the Prior Credit Facility. The 2020 Credit Facility would have matured on the earliest of (a) April 13, 2025 and (b) so long as our Series A-2 preferred stock had not been redeemed in full or otherwise not converted into common stock of Montrose, the date that was 180 days before the Series A-2 preferred equity mandatory redemption date, unless prior to such date, the Series A-2 preferred equity mandatory redemption date had been extended to a date not earlier than one hundred eighty (180) days after April 13, 2025.

Initially, the term loan bore interest at a rate of LIBOR plus 5.0% (subject to a 1.0% LIBOR floor) or the base rate plus 4.0%. Effective October 6, 2020, we amended the 2020 Credit Facility to provide for a reduction on the applicable interest rate on the term loan from LIBOR plus 5.0% with a 1.0% LIBOR floor to LIBOR plus 4.5% with a 1.0% LIBOR floor. The revolver bore interest at a rate of LIBOR plus 3.5% or the base rate plus 2.5%. The revolver was also subject to an unused commitment fee of 0.35%.

The term loan began amortizing quarterly with fiscal quarter ending September 30, 2020, with a required repayment of (a) $0.5 million for fiscal quarter ending September 30, 2020 and each other fiscal quarter through and including June 30, 2021, (b) $1.1 million for fiscal quarter ending June 30, 2021 and each other fiscal quarter through and including September 30, 2022, and (c) $1.6 million for each fiscal quarter ending thereafter.

The 2020 Credit Facility also contained financial covenants requiring us to remain below a maximum consolidated total leverage ratio of 4.25 times, which stepped down to 4.00 times beginning December 31, 2021 and then to 3.75 times beginning December 31, 2022, and a minimum consolidated fixed charge coverage ratio of 1.25 times. As of December 31, 2020, the Company’s leverage ratio, which included the impact of contingent consideration payable in cash, was 2.7 times. The weighted average interest rate on the 2020 Credit Facility for the year ended December 31, 2020 was 5.8%. We were in compliance with all applicable covenants under the 2020 Credit Facility as of December 31, 2020.

All amounts outstanding under the 2020 Credit Facility were repaid on April 27, 2021.

See Note 14 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

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Prior Credit Facility

Our Prior Credit Facility consisted of a $50.0 million term loan and a $130.0 million revolving credit facility.

Borrowings under the Prior Credit Facility bore interest at either (i) LIBOR plus the applicable margin or (ii) a base rate (equal to the highest of (a) the federal funds rate plus 0.5%, (b) Bank of America, N.A.’s prime rate and (c) the Eurocurrency Rate, which is based on LIBOR, (using a one-month period plus 1.0%), plus the applicable margin, as we elected). The applicable margin meant a percentage per annum determined in accordance with the following table:

The weighted average interest rate on the Prior Credit Facility for the year ended December 31, 2019 was 5.41%. All amounts outstanding under the Prior Credit Facility were repaid on April 13, 2020 with proceeds from the 2020 Credit Facility.

See Note 14 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

Series A-1 Preferred Stock

On October 19, 2018, we issued 12,000 shares of our Series A-1 preferred stock. The Series A-1 preferred stock accrued dividends quarterly at an annual rate of 15.0% with respect to any dividends paid in cash and at an annual rate of 14.2%, compounded quarterly with respect to dividends that were accrued. In the event of a redemption, a holder was guaranteed a minimum of either two or three years of dividends depending on the nature of the redemption. Prior to redemption, we were subject to a maximum consolidated total leverage ratio, including the outstanding principal and accrued dividend on the Series A-1 preferred stock, of 10.0 times as of the end of any fiscal quarter until maturity.

On July 27, 2020, we redeemed in full the Series A-1 preferred stock, including the guaranteed minimum two-year dividend. We used $131.8 million of the IPO proceeds and 1,786,739 shares of common stock to redeem all outstanding shares of the Series A-1 preferred stock.

See Note 17 to our audited consolidated financial statements included in Item 8. “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. Prior to the completion of our IPO on July 27, 2020, each share of Series A-2 preferred stock accrued dividends at the rate of 15.0% per annum with respect to dividends that were paid in cash, and 14.2% per annum, with respect to dividends that accrued and compounded, resulting in an annual dividend rate of 15.0%.  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. Upon the four-year anniversary of the issuance, holders of Series A-2 preferred stock may convert up to $60.0 million of such shares into our common stock at a conversion rate discounted to 85.0% of the volume weighted average trading

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value, with the permitted amount of Series A-2 preferred stock to be converted increasing at each subsequent anniversary of the issuance until the sixth anniversary, after which all of the Series A-2 preferred stock may be converted at the holder’s option. Following the completion of our IPO and the redemption of our Series A-1 preferred stock on July 27, 2020 with a portion of the proceeds therefrom and newly issued shares of common stock, the Series A-2 preferred stock dividend rate changed to 9.0% per annum with required quarterly cash payments. If permitted under our existing debt facilities, we must pay the Series A-2 preferred stock dividend in cash each quarter.

With respect to any redemption of any share of the Series A-2 preferred stock prior to April 13, 2023, we are subject to a make whole penalty in which the holder is guaranteed at least three years of dividend payments on the redeemed amount.

See Note 18 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect amounts reported in our audited consolidated financial statements and related notes, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Management evaluates its accounting policies, estimates and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.

Management evaluated the development and selection of our critical accounting policies and estimates and believes that the following involve a higher degree of judgment or complexity and are most significant to reporting our results of operations and financial position and are therefore discussed as critical. The following critical accounting policies reflect the significant estimates and judgments used in the preparation of our audited consolidated financial statements. With respect to critical accounting policies, even a relatively minor variance between actual and expected experience can potentially have a materially favorable or unfavorable impact on subsequent results of operations. More information on all of our significant accounting policies, as well as recently adopted and issued accounting pronouncements that may have an impact on these policies, can be found in Notes 2 and 3 to our audited consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

Use of Estimates

The preparation of the audited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the audited consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. 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, 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. 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 by the Company in the recognition of revenue under ASC 606:

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The Company’s services are performed under two general types of contracts (i) fixed-price and (ii) time-and-materials. Under fixed-price contracts, customers pay an agreed-upon amount for a specified scope of work agreed to in advance of the project. Under time-and-materials contracts, customers pay for the hours worked and resources used based on agreed-upon rates. Certain of the Company’s time-and-materials contracts are subject to maximum contract amounts. The duration of the Company’s contracts ranges from less than one month to over a year, depending on the scope of services provided.

The Company accounts for individual promises in contracts as separate performance obligations if the promises are 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. 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, the Company allocates the transaction price to each performance obligation based on the relative standalone selling price of each performance obligation. The standalone selling price of each performance obligation is generally determined by the observable price of a service when sold separately.

Fixed fee contracts—On the majority of fixed fee contracts, the Company recognizes 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. The Company determined that the cost to cost method best represents the transfer of services as the proportion closely depicts the efforts or inputs completed towards the satisfaction of a fixed fee contract performance obligation. Under the time-elapsed basis, the arrangement is considered a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e. distinct days of service). The Company applies a time-based measure of progress to the total transaction price, which results in ratable recognition over the term of the contract. For a portion of the Company’s laboratory service contracts, revenue is recognized as performance obligations are satisfied over time, with recognition reflecting a series of distinct services using the output method. The Company determined that this method best represents the transfer of services as the customer obtains equal benefit from the service throughout the service period.

There are inherent uncertainties in the estimation process for cost to cost contracts, as the estimation of total contract costs and estimates to complete is complex, subject to many variables, and requires judgment. It is possible that estimates of costs to complete a performance obligation will be revised in the near-term based on actual progress and costs incurred. These uncertainties primarily impact the Company’s contracts in the Remediation and Reuse segment including those contracts associated with Emerging Compounds Treatments Technologies, Inc., which was acquired in August 2019.

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, the Company is allowed to recognize revenue, over time, in the amount to which the Company has a right to invoice. In addition, the Company is not required to estimate such variable consideration upon inception of the contract and reassess the estimate each reporting period. The Company determined that this method best represents the transfer of services as, upon billing, the Company has a right to consideration from a customer in an amount that directly corresponds with the value to the customer of the Company’s performance completed to date.

Accounting for Acquisitions

We account for acquisitions using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at fair value as of the acquisition date. The purchase price of acquisitions is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on estimated fair values, and any excess purchase price over the identifiable assets acquired and liabilities assumed is recorded as goodwill. Goodwill represents the premium we pay over the fair value of the net tangible and intangible assets acquired. We may use independent valuation specialists to assist in determining the estimated fair values of assets acquired and liabilities assumed, which could require certain significant management assumptions and estimates. Transaction costs associated with acquisitions are expensed as they are incurred.

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Contingent Consideration

Some of our acquisition agreements include contingent consideration arrangements, which are generally based on the achievement of future performance thresholds. For each transaction, we estimate the fair value of contingent consideration payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability. Subsequent changes in the fair value of contingent consideration are recognized as a gain or loss in our consolidated statements of operations. Payments of contingent consideration are reflected in financing activities in our consolidated statements of cash flows to the extent included as part of the initial purchase price, or in operating activities if the payment exceeds the amount included in the initial purchase price.

Embedded Derivatives

Embedded derivatives that are required to be bifurcated from the underlying host instrument are accounted for and valued as a separate financial instrument. These embedded derivatives are bifurcated, accounted for at its estimated fair value, which is based on certain estimates and assumptions, and presented separately on the consolidated statements of financial position. 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. Under one of the plans, there are certain awards that were issued to non-employees in exchange for their services and 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. The fair value of the remaining stock-based payment awards is expensed over the vesting period of each tranche on a straight-line basis. Any modification of an award that increases its fair value will require us to recognize additional expense. 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. 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. This process has been widely used to model stock prices and is the underpinning of the Black-Scholes option pricing model and other extensions of the Random Walk Hypothesis of stock price movements and the Efficient Market Hypothesis.

JOBS Act Accounting Election

We were an emerging growth company, as defined in the JOBS Act, through the end of the year ended December 31, 2021. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. While we were an emerging growth company, we elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. As a result, our financial statements for periods through December 31, 2020 may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Non-GAAP Financial Information

In addition to our results under GAAP, in this Annual Report on Form 10-K we also present certain other supplemental financial measures of financial performance that are not required by, or presented in accordance with, GAAP, including Adjusted EBITDA and Adjusted EBITDA margin. We calculate Adjusted EBITDA as net income (loss) before interest expense, income tax expense (benefit) and depreciation and amortization, adjusted for the impact of certain other items, including stock-based compensation expense and acquisition-related costs, as set forth

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in greater detail in the table below. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of revenues for a given period.

Adjusted EBITDA and Adjusted EBITDA margin are two of the primary metrics used by management to evaluate our financial performance and compare it to that of our peers, evaluate the effectiveness of our business strategies, make budgeting and capital allocation decisions, and in connection with our executive incentive compensation. These measures are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. Further, we believe they are helpful in highlighting trends in our operating results because they allow for more consistent comparisons of financial performance between periods by excluding gains and losses that are non-operational in nature or outside the control of management, as well as items that may differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments.

These non-GAAP measures do, however, have certain limitations and should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items for which we may make adjustments. In addition, Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to similarly titled measures used by other companies in our industry or across different industries, and other companies may not present these or similar measures. Management compensates for these limitations by using these measures as supplemental financial metrics and in conjunction with our results prepared in accordance with GAAP. We encourage investors and others to review our financial information in its entirety, not to rely on any single measure and to view Adjusted EBITDA and Adjusted EBITDA margin in conjunction with the related GAAP measures.

The following is a reconciliation of our net loss to Adjusted EBITDA:

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