Executive Summary

Record quarter: revenue $173.3 million (+8.9% y/y), consolidated adjusted EBITDA $23.3 million (+10.0% y/y), with margin expansion across all three segments and management reaffirming FY24 guidance ($690–$740 million revenue; $95–$100 million adjusted EBITDA) .
GAAP net loss widened to $10.2 million (LPS -$0.39) on higher interest and taxes, while diluted adjusted EPS fell to $0.20 due to interest/tax expense and higher share count; YTD operating cash flow was -$21.1 million on receivables build tied to Matrix integration and large new projects, with management expecting a strong back-half OCF inflection .
Strategic actions: $121.8 million equity raise (April), $27 million deployed into Paragon and Spirit acquisitions, liquidity $188.3 million with 2.4x leverage; five accretive acquisitions YTD and robust pipeline .
Policy backdrop: management does not expect the recent US Supreme Court rulings (Loper/Chevron) or the US election to alter the growth outlook; state-level enforcement and PFAS/CERCLA tailwinds should sustain demand across testing, advisory and remediation .

What Went Well and What Went Wrong

What Went Well

Record quarterly revenues ($173.3 million) and consolidated adjusted EBITDA ($23.3 million), with margin expansion in AP&R, Measurement & Analysis, and Remediation & Reuse; “broad-based strength and cross-selling” cited as drivers .
Matrix profitability inflecting (low double-digit EBITDA margins in Q2) and on track for mid-teens by year-end; segment margins improved y/y in Remediation & Reuse on Matrix optimization and organic growth in soil/groundwater .
Regulatory and secular tailwinds (PFAS NPDWR, CERCLA designation; methane funding) underpin strong organic growth and back-half visibility; CEO: “We’re thrilled to build on our strong first quarter performance… record quarterly revenues and record Consolidated Adjusted EBITDA” .

What Went Wrong

GAAP loss widened y/y (net loss $10.2 million; LPS -$0.39) due to higher interest and income tax expense; diluted adjusted EPS fell to $0.20 y/y on interest/tax and higher share count .
AP&R revenue declined y/y (to $53.4 million) on a $14.7 million drop in emergency response; water treatment revenues were lower as the business pivots to higher-margin work; renewables still ramping post-pivot .
YTD operating cash flow -$21.1 million on receivables tied to Matrix/new projects; management flagged near-term working capital headwinds but expects significant OCF improvement in H2 vs. H2’23 .

Financial Results

Metric	Q4 2023 (oldest)	Q1 2024	Q2 2024 (newest)
Revenue ($USD Millions)	$165.7	$155.3	$173.3
GAAP Net Loss Per Share (Basic & Diluted)	-$0.18	-$0.53	-$0.39
Diluted Adjusted EPS ($)	$0.27	$0.16	$0.20
Consolidated Adjusted EBITDA ($USD Millions)	$17.5	$16.9	$23.3
Adjusted EBITDA Margin (%)	10.5%	10.9%	13.5%

Segment breakdown (Revenue and Segment Adjusted EBITDA):

Segment	Q4 2023 Revenue	Q4 2023 Seg Adj EBITDA	Q1 2024 Revenue	Q1 2024 Seg Adj EBITDA	Q2 2024 Revenue	Q2 2024 Seg Adj EBITDA
Assessment, Permitting & Response (AP&R)	$50.1	$9.2	$58.6	$16.3	$53.4	$12.6
Measurement & Analysis (M&A)	$54.0	$9.7 (ex-discontinued)	$45.5	$6.5	$54.8	$12.4
Remediation & Reuse (R&R)	$61.6	$8.3	$51.3	$5.0	$65.1	$8.9

KPIs and Balance Sheet/Cash Flow (Q2 2024 context):

KPI	Value
Liquidity	$188.3 million (cash $16.9m; revolver availability $171.4m)
Leverage Ratio	2.4x under credit facility
Operating Cash Flow (YTD)	-$21.1 million (receivables increase tied to Matrix and large projects; expected H2 improvement)
Equity Raise (April)	$121.8 million net proceeds
M&A Deployments (post-offering)	$27.0 million (Paragon, Spirit)
Preferred Stock Redemption (Jan)	$60.0 million; annual dividend savings ~$5.4 million

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY 2024	$675–$725 million (initiated Feb 29)	$690–$740 million (reiterated May 7 & Aug 6)	Raised (Apr 2), reaffirmed in Q2
Consolidated Adjusted EBITDA	FY 2024	$90–$95 million (initiated Feb 29)	$95–$100 million (reiterated May 7 & Aug 6)	Raised (Apr 2), reaffirmed in Q2
Emergency Response Revenue	FY 2024	—	$50–$70 million	Set/maintained (narrative range)
Q3 Revenue Growth	Q3 2024	—	~10% y/y	New quarterly color
Q3 Adj EBITDA Margin vs. PY	Q3 2024	—	~+100 bps y/y; Q3 and Q4 EBITDA similar	New quarterly color

Earnings Call Themes & Trends

Topic	Q4 2023 (two quarters ago)	Q1 2024 (prior quarter)	Q2 2024 (current)	Trend
PFAS regulation (NPDWR; CERCLA)	Expect large TAM; delays impacted timing; building labs/testing/tech pipeline	Final NPDWR; CERCLA imminent; steady ramp in testing; treatment ramp over 1–2 years	CERCLA effective July 8; demand building across advisory, labs, treatment	Accelerating
Methane emissions	New rule finalized Dec’23; supports measurement/monitoring solutions	Compliance frameworks expanding; tailwinds to sensors/software	$850m EPA funding programs launched (June) bolster demand	Positive tailwinds
Chevron/Loper Bright (Supreme Court)	Not discussed	Not discussed	Outlook unchanged; state/local enforcement to rise; opportunity > risk	Uncertainty → net positive
Cross-selling & organic growth	Cross-selling at >50% of revenue; predictability improving	Strong organic across AP&R and M&A; elevated cadence (10–12%)	“Strong organic growth”; reaffirm 10–12% FY organic	Strengthening
Matrix margin trajectory	Margins nearly doubled run-rate; target mid-teens by YE’24	Seasonally weak Q1; on track for double-digit by YE’24	Low double-digit in Q2; mid-teens target by YE’24	Improving
Emergency response cadence	Above historical run rate in 2023	Tough comp from 2023 event; Q1 down; FY24 guide $50–$70m	Q2 down y/y; FY range reiterated	Normalizing
Water treatment/renewables	Pivot to higher-margin work impacted 2023	Biogas pivot complete; expecting H2 ramp	Water treatment lower in Q2; PFAS treatment to be up H2; renewables back on offense	Recovering
M&A cadence/capital	Pipeline robust; balance sheet strong	Three deals closed (Epic, Two Dot, ETA); equity raise bolsters capacity	Two more (Paragon, Spirit); $27m deployed; guidance unchanged given small size	High activity

Management Commentary

CEO: “Record quarterly revenues and record Consolidated Adjusted EBITDA… year-over-year margin improvement across all three segments. We're especially pleased with our continued organic growth… fueled by the growing traction of our cross-selling initiatives.” .
CEO on policy: “We do not anticipate the recent US Supreme Court decision… or the outcome of the upcoming US presidential election to alter our growth or outlook… we expect further regulatory complexity… anticipated shift of influence to state regulatory agencies… drive incremental demand” .
CFO: “Second quarter revenues increased to a record $173.3 million (+8.9% y/y)… consolidated adjusted EBITDA $23.3 million (13.5% of revenue)… increase driven by organic growth and acquisitions” .
CFO on cash: “YTD cash flow used in operating activities was $21.1 million… driven primarily by an increase in receivables related to Matrix integration and several large new projects… expected to improve over the balance of the year” .

Q&A Highlights

Organic growth: Management reiterated not disclosing quarterly organic but affirmed tracking toward 10–12% for FY24; “well on our way” .
Water treatment and PFAS: PFAS water treatment expected up in H2’24 vs H1; broader treatment technology portfolio up y/y; labs already seeing PFAS testing demand step-up .
Supreme Court/Chevron impact: No change to M&A/resource allocation; more state/local rule influence favors Montrose’s local expertise; 20% ex-US revenue not impacted .
Gross margins: Drivers include pricing success, operating leverage in labs, SG&A leverage from scalable support; back-half EBITDA margins expected stronger y/y .
Matrix margins: Progress from ~5% at acquisition to low double-digit; mid-teens target by YE’24 via pricing/staffing/overhead optimization .
Acquisitions and buybacks: Surpassed $10m EBITDA acquisition goal YTD; buybacks discussed but focus remains high-ROI M&A versus repurchasing at mid/high-teens multiples .

Estimates Context

Wall Street consensus (S&P Global Capital IQ) for Q2 2024 EPS and revenue was unavailable at the time of retrieval due to SPGI rate limit. As a result, vs-consensus comparisons could not be provided. If you would like, I can refresh and append consensus when accessible.

Key Takeaways for Investors

Back-half weighted year: Management expects ~60% of FY24 adjusted EBITDA in H2 given Matrix seasonality and project timing; Q3 revenue growth ~10% y/y and ~100 bps margin expansion y/y; Q3 and Q4 EBITDA similar .
Organic engine healthy: Cross-selling momentum and PFAS/methane tailwinds support elevated organic growth; margin expansion evident in Q2 (13.5% adj EBITDA margin) and expected to continue .
Mix normalization: Emergency response and water treatment volatility weigh on near-term comps, but renewables and PFAS treatment should inflect in H2; labs/advisory remain strong .
Balance sheet capacity: $188.3 million liquidity and 2.4x leverage support continued bolt-ons; two patents added in Q2; recent deals (Paragon/Spirit) strategically additive without moving full-year guide .
Policy resilience: Management views Supreme Court rulings and election outcomes as net-neutral to positive, with state/local enforcement expected to drive demand; 20% ex-US revenue diversifies exposure .
Cash flow pivot: YTD OCF negative on receivables build, but management guides to significantly higher H2 OCF vs H2’23 as working capital normalizes .
Tactical implication: With estimate comparisons unavailable, trading focus should be on sustained revenue/margin trajectory, H2 cash flow inflection, and incremental PFAS/methane contract wins from regulatory catalysts .

Montrose Environmental Group, Inc. (MEG)·Q2 2024 Earnings Summary