UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2020~~March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39394

Montrose Environmental Group, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	46-4195044
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1 Park Plaza, Suite 1000 Irvine, California	92614
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (949) 988-3500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.000004 per share

MEG

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 28, 2020,~~May 7, 2021, the registrant had ~~24,955,430~~26,055,727 shares of common stock, $0.000004 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements ~~(Unaudited)~~	1
	Unaudited Condensed Consolidated Statements of Financial Position	1
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Unaudited Condensed Consolidated Statements of Redeemable Series A-1 Preferred Stock, Convertible and Redeemable Series A-2 Preferred Stock and Stockholders’ (Deficit) Equity	3
	Unaudited Condensed Consolidated Statements of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2928
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4441
Item 4.	Controls and Procedures	4441

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	4542
Item 1A.	Risk Factors	4542
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4542
Item 3.	Defaults Upon Senior Securities	4642
Item 4.	Mine Safety Disclosures	4642
Item 5.	Other Information	4642
Item 6.	Exhibits	4743
Signatures		4844

PART I—~~FINANCI~~ALFINANCIAL INFORMATION

Item 1. Financial Statements.

MONTROSE ENVIRONMENTAL GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(In thousands, except share data)

	June 30,			December 31,			March 31,			December 31,
	2020			2019			2021			2020
ASSETS
CURRENT ASSETS:
Cash and restricted cash	$	44,814		$	6,884		$	10,641		$	34,881
Accounts receivable—net		43,255			45,927			65,771			54,102
Contract assets		22,775			13,605			61,636			38,576
Prepaid and other current assets		10,194			6,823			8,830			6,709
Total current assets		121,038			73,239			146,878			134,268
NON-CURRENT ASSETS:
Property and equipment—net		34,771			27,036			34,941			34,399
Goodwill		273,096			127,058			282,199			274,667
Other intangible assets—net		169,274			102,549			157,315			154,854
Deferred tax asset		1,465			—
Other assets		3,132			1,956			3,896			4,538
Compound embedded option		8,605			—
TOTAL ASSETS	$	611,381		$	331,838		$	625,229		$	602,726
LIABILITIES, REDEEMABLE SERIES A-1 PREFERRED STOCK, CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
LIABILITIES, CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities	$	30,225		$	29,585		$	52,431		$	34,877
Accrued payroll and benefits		15,230			11,032			22,564			21,181
Warrant options		46,978			16,878
Business acquisitions contingent consideration		36,395			8,614
Current portion of long term debt		4,653			7,143
Business acquisitions contingent consideration, current								50,364			49,902
Current portion of long-term debt								6,214			5,583
Total current liabilities		133,481			73,252			131,573			111,543
NON-CURRENT LIABILITIES:
Business acquisitions contingent consideration, long-term								16,971			4,565
Other non-current liabilities		10,993			379			2,514			2,523
Deferred tax liabilities—net		—			3,530			2,591			2,815
Contingent put option		14,125			7,100
Conversion option								21,488			20,886
Long-term debt—net of deferred financing fees		198,089			145,046			169,425			170,321
Total liabilities		356,688			229,307			344,562			312,653
COMMITMENTS AND CONTINGENCIES
REDEEMABLE SERIES A-1 PREFERRED STOCK $0.0001 PAR VALUE—
Authorized, issued and outstanding shares: 12,000 at June 30, 2020 and December 31, 2019; aggregate liquidation preference of $152,199 and $141,898 at June 30, 2020 and December 31, 2019, respectively		139,881			128,822
CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK $0.0001 PAR VALUE—
Authorized, issued and outstanding shares: 17,500 and 0 at June 30, 2020 and December 31, 2019, respectively; aggregate liquidation preference of $181,213 and $0 at June 30, 2020 and December 31, 2019, respectively.		152,928			—
STOCKHOLDERS’ DEFICIT:
Common stock, $0.000004 par value; authorized shares: 25,000,000; issued and outstanding shares: 9,164,746 and 8,370,107 at June 30, 2020 and December 31, 2019, respectively		—			—
Authorized, issued and outstanding shares: 17,500 at March 31, 2021 and December 31, 2020; aggregate liquidation preference of $182.2 million at March 31, 2021 and December 31, 2020								152,928			152,928
STOCKHOLDERS’ EQUITY:
Common stock, $0.000004 par value; authorized shares: 190,000,000 at March 31, 2021 and December 31, 2020; issued and outstanding shares: 25,438,857 and 24,932,527 at March 31, 2021 and December 31, 2020, respectively								—			—
Additional paid-in-capital		54,405			38,153			261,588			259,427
Accumulated deficit		(92,428	)		(64,404	)		(133,949	)		(122,353	)
Accumulated other comprehensive loss		(93	)		(40	)
Total stockholders’ deficit		(38,116	)		(26,291	)
TOTAL LIABILITIES, REDEEMABLE SERIES A-1 PREFERRED STOCK, CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT	$	611,381		$	331,838
Accumulated other comprehensive income								100			71
Total stockholders’ equity								127,739			137,145
TOTAL LIABILITIES, CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK AND STOCKHOLDERS’ EQUITY							$	625,229		$	602,726

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MONTROSE ENVIRONMENTAL GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

(In thousands, except per share data)

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

REVENUES

$
73,766

$
57,401

$
134,797

$
108,355

COST OF REVENUES (exclusive of depreciation and
   amortization shown below)

45,889

39,349

90,287

76,444

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

23,301

11,156

44,232

21,603

RELATED-PARTY EXPENSE

—

120

119

279

DEPRECIATION AND AMORTIZATION

9,784

6,401

17,344

12,850

(LOSS) INCOME FROM OPERATIONS

(5,208
)

375

(17,185
)

(2,821
)
OTHER EXPENSE

Other income (expense)

21,933

(1,228
)

(7,897
)

(1,179
)
Interest expense—net

(5,260
)

(1,181
)

(7,853
)

(2,460
)
Total other expenses—net

16,673

(2,409
)

(15,750
)

(3,639
)
INCOME (LOSS) BEFORE BENEFIT FROM INCOME TAXES

11,465

(2,034
)

(32,935
)

(6,460
)
INCOME TAXES BENEFIT

(1,759
)

(1,712
)

(4,911
)

(896
)
NET INCOME (LOSS)

$
13,224

$
(322
)

$
(28,024
)

$
(5,564
)
EQUITY ADJUSTMENT FROM FOREIGN CURRENCY
   TRANSLATION

(90
)

23

(53
)

23

COMPREHENSIVE LOSS

13,134

(299
)

(28,077
)

(5,541
)
ACCRETION OF REDEEMABLE SERIES A-1 PREFERRED
   STOCK

(5,644
)

(4,777
)

(11,059
)

(9,311
)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS

7,580

(5,099
)

(39,083
)

(14,875
)
WEIGHTED AVERAGE COMMON SHARES
   OUTSTANDING— BASIC

10,649

8,647

9,718

8,602

NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON
   STOCKHOLDERS— BASIC

$
0.71

$
(0.59
)

$
(4.02
)

$
(1.73
)
WEIGHTED AVERAGE COMMON SHARES
   OUTSTANDING— DILUTED

19,139

8,647

9,718

8,602

NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON
   STOCKHOLDERS— DILUTED

$
0.40

$
(0.59
)

$
(4.02
)

$
(1.73
)

	Three Months Ended
	March 31,
	2021			2020
REVENUES	$	133,817		$	61,031
COST OF REVENUES (exclusive of depreciation and amortization shown below)		95,316			44,398
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE		25,000			20,519
INITIAL PUBLIC OFFERING EXPENSE		—			531
FAIR VALUE CHANGES IN BUSINESS ACQUISITIONS CONTINGENT CONSIDERATION		11,064			—
DEPRECIATION AND AMORTIZATION		10,769			7,560
LOSS FROM OPERATIONS		(8,332	)		(11,977	)
OTHER EXPENSE
Other expense		(574	)		(29,830	)
Interest expense—net		(2,688	)		(2,593	)
Total other expenses—net		(3,262	)		(32,423	)
LOSS BEFORE EXPENSE (BENEFIT) FROM INCOME TAXES		(11,594	)		(44,400	)
INCOME TAXES EXPENSE (BENEFIT)		2			(3,152	)
NET LOSS	$	(11,596	)	$	(41,248	)

EQUITY ADJUSTMENT FROM FOREIGN CURRENCY TRANSLATION		29			(3	)
COMPREHENSIVE LOSS		(11,567	)		(41,251	)
ACCRETION OF REDEEMABLE SERIES A-1 PREFERRED STOCK		—			(5,415	)
CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK DIVIDEND		(4,100	)		—
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS		(15,696	)		(46,663	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING— BASIC AND DILUTED		25,117			8,904
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS— BASIC AND DILUTED	$	(0.62	)	$	(5.24	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MONTROSE ENVIRONMENTAL GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE SERIES A-1 PREFERRED STOCK, CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY

(In thousands, except share data)

	Redeemable				Convertible and Redeemable														Notes		Accumulated																									Accumulated			Total
	Series A-1				Series A-2								Additional						Receivable		Other				Total			Redeemable Series A-1				Convertible and Redeemable														Other			Stockholders'
	Preferred Stock				Preferred Stock				Common Stock				Paid-In			Accumulated			from		Comprehensive				Stockholders’			Preferred Stock				Series A-2 Preferred Stock				Common Stock				Additional			Accumulated			Comprehensive			(Deficit)
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit			Stockholders		(Loss) Income				(Deficit)			Shares		Amount		Shares		Amount		Shares		Amount		Paid-In Capital			Deficit			(Loss) Income			Equity
BALANCE—December 31, 2019		12,000	$	128,822		—	$	—		8,370,107	$	—	$	38,153		$	(64,404	)	$	—	$	(40	)		$	(26,291	)		12,000	$	128,822		—	$	—		8,370,107	$	—	$	38,153		$	(64,404	)	$	(40	)	$	(26,291	)
Net loss		—		—		—		—		—		—		—			(41,248	)		—		—				(41,248	)		—		—		—		—		—		—		—			(41,248	)		—			(41,248	)
Accretion of the redeemable series A-1 preferred stock to redeemable value		—		5,415		—		—		—		—		(5,415	)		—			—		—				(5,415	)		—		5,415		—		—		—		—		(5,415	)		—			—			(5,415	)
Stock-based compensation		—		—		—		—		—		—		1,150			—			—		—				1,150			—		—		—		—		—		—		1,150			—			—			1,150
Accumulated other comprehensive loss		—		—		—		—		—		—		—			—			—		37				37
Accumulated other comprehensive income																													—		—		—		—		—		—		—			—			37			37
BALANCE—March 31, 2020		12,000	$	134,237		—	$	—		8,370,107	$	—	$	33,888		$	(105,652	)	$	—	$	(3	)		$	(71,767	)		12,000	$	134,237		—	$	—		8,370,107	$	—	$	33,888		$	(105,652	)	$	(3	)	$	(71,767	)
Net income		—		—		—		—		—		—		—			13,224			—		—				13,224
Accretion of the redeemable series A-1 preferred stock to redeemable value		—		5,644		—		—		—		—		(5,644	)		—			—		—				(5,644	)
Issuance of the convertible and redeemable series A-2 preferred stock		—		—		17,500		152,928		—		—		—			—			—		—				—

BALANCE—December 31, 2020																													—	$	—		17,500	$	152,928		24,932,527	$	—	$	259,427		$	(122,353	)	$	71		$	137,145
Net loss																													—		—		—		—		—		—		—			(11,596	)		—			(11,596	)
Stock-based compensation		—		—		—		—		—		—		1,140			—			—		—				1,140			—		—		—		—		—		—		1,805			—			—			1,805
Dividend payment to the Series A-2 preferred shareholders																													—		—		—		—		—		—		(4,100	)		—			—			(4,100	)
Common stock issued		—		—		—		—		794,639		—		25,021			—			—		—				25,021			—		—		—		—		506,330		—		4,456			—			—			4,456
Accumulated other comprehensive loss		—		—		—		—		—		—		—			—			—		(90	)			(90	)
BALANCE—June 30, 2020		12,000	$	139,881		17,500	$	152,928		9,164,746	$	—	$	54,405		$	(92,428	)	$	—	$	(93	)	��	$	(38,116	)
Accumulated other comprehensive income																													—		—		—		—		—		—		—			—			29			29
BALANCE—March 31, 2021																													—	$	—		17,500	$	152,928		25,438,857	$	—	$	261,588		$	(133,949	)	$	100		$	127,739

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Redeemable

Convertible and
Redeemable

Notes

Accumulated

Series A-1

Series A-2

Additional

Receivable

Other

Total

Preferred Stock

Preferred Stock

Common Stock

Paid-In

Accumulated

from

Comprehensive

Stockholders’

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Deficit

Stockholders

(Loss) Income

Equity (Deficit)

BALANCE—December 31, 2018

12,000

$
109,206

—

$
—

8,137,771

$
—

$
47,869

$
(40,847
)

$
(122
)

$
—

$
6,900

Net loss

—

—

—

—

—

—

—

(5,242
)

—

—

(5,242
)
Accretion of the redeemable
   series A-1 preferred stock to
   redeemable value

—

4,534

—

—

—

—

(4,534
)

—

—

—

(4,534
)
Stock-based compensation

—

—

—

—

—

—

1,228

—

—

—

1,228

Common stock issued

—

—

—

—

1,775

—

6

—

—

—

6

BALANCE—March 31, 2019

12,000

$
113,740

—

$
—

8,139,546

$
—

$
44,569

$
(46,089
)

$
(122
)

$
—

$
(1,642
)
Net loss

—

—

—

—

—

—

—

(322
)

—

—

(322
)
Accretion of the redeemable
   series A-1 preferred stock to
   redeemable value

—

4,777

—

—

—

—

(4,777
)

—

—

—

(4,777
)
Stock-based compensation

—

—

—

—

—

—

1,294

—

—

—

1,294

Common stock issued

—

—

—

—

138,781

—

3,452

—

—

—

3,452

Accumulated other comprehensive
   income

—

—

—

—

—

—

—

—

—

23

23

BALANCE—June 30, 2019

12,000

$
118,517

—

$
—

8,278,327

$
—

$
44,538

$
(46,411
)

$
(122
)

$
23

$
(1,972
)

MONTROSE ENVIRONMENTAL GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Three Months Ended March 31,
	2021			2020
OPERATING ACTIVITIES:
Net loss	$	(11,596	)	$	(41,248	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for bad debt		508			6,333
Depreciation and amortization		10,769			7,560
Stock-based compensation expense		1,805			1,150
Fair value changes in embedded derivatives		602			29,627
Fair value changes in business acquisitions contingent consideration		11,064			—
Deferred income taxes		2			(3,152	)
Other		50			(180	)
Changes in operating assets and liabilities—net of acquisitions:
Accounts receivable and contract assets		(29,029	)		(319	)
Prepaid expenses and other current assets		787			(683	)
Accounts payable and other accrued liabilities		3,183			(5,005	)
Accrued payroll and benefits		(2,058	)		(2,458	)
Other assets		—			(603	)
Net cash used in operating activities		(13,913	)		(8,978	)
INVESTING ACTIVITIES:
Purchases of property and equipment		(922	)		(1,558	)
Proprietary software development and other software costs		(204	)		(102	)
Cash paid for acquisitions—net of cash acquired		(6,272	)		—
Net cash used in investing activities		(7,398	)		(1,660	)
FINANCING ACTIVITIES:
Proceeds from line of credit		—			50,453
Payments on line of credit		—			(37,275	)
Repayment of term loan		(547	)		(1,250	)
Payment of contingent consideration and other purchase price obligations		—			(4,703	)
Repayment of capital leases		(625	)		(685	)
Payments of deferred offering costs		—			(1,175	)
Debt issuance costs		—			(127	)
Proceeds from issuance of common stock for exercised stock options		2,185			—
Dividend payment to the Series A-2 shareholders		(4,100	)		—
Net cash (used in) provided by financing activities		(3,087	)		5,238
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(24,398	)		(5,400	)
Foreign exchange impact on cash balance		158			36
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of year		34,881			6,884
End of period	$	10,641		$	1,520
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for interest	$	2,500		$	1,745
Cash paid for income tax	$	305		$	64
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued purchases of property and equipment	$	594		$	613
Property and equipment purchased under capital leases	$	670		$	1,493
Accretion of the redeemable series A-1 preferred stock to redeemable value	$	—		$	5,415
Common stock issued to acquire new businesses	$	2,271		$	—
Acquisitions unpaid contingent consideration	$	67,335		$	4,082
Offering costs included in accounts payable and other accrued liabilities	$	—		$	49

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MONTROSE ENVIRONMENTAL GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~OF CASH FLOWS~~

~~(In thousands)~~

Six Months Ended June 30,

2020

2019

OPERATING ACTIVITIES:

Net Loss

$
(28,024
)

$
(5,564
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Provision for bad debt

6,263

547

Depreciation and amortization

17,344

12,850

Stock-based compensation expense

2,290

2,522

Fair value changes in the contingent put option

7,025

—

Fair value changes in the compound embedded option

756

—

Fair value changes in the contingent liabilities

3,983

(926
)
Deferred income taxes

(4,911
)

(896
)
Cloud computing costs

(1,346
)

(96
)
Other

983

1,506

Changes in operating assets and liabilities—net of acquisitions:

Accounts receivable and contract assets

7,427

(5,642
)
Prepaid expenses and other current assets

(789
)

(91
)
Accounts payable and other accrued liabilities

(8,296
)

130

Accrued payroll and benefits

1,886

51

Payment of contingent consideration and other assumed purchase price obligations

(6,175
)

—

Net cash (used in) provided by operating activities

(1,584
)

4,391

INVESTING ACTIVITIES:

Purchases of property and equipment

(3,160
)

(1,179
)
Proprietary software development

(155
)

(63
)
Proceeds from net working capital adjustment related to acquisitions

2,819

—

Cash paid for acquisitions—net of cash acquired

(173,473
)

(26,699
)
Net cash used in investing activities

(173,969
)

(27,941
)
FINANCING ACTIVITIES:

Proceeds from line of credit

104,390

64,628

Payments on line of credit

(176,980
)

(40,628
)
Proceeds from term loans

175,000

—

Repayment of term loans

(48,750
)

—

Payment of contingent consideration and other assumed purchase price obligations

(6,005
)

(532
)
Repayment of capital leases

(1,249
)

(821
)
Payments on deferred offering costs

(1,462
)

—

Debt issuance cost

(4,866
)

—

Debt extinguishment costs

(351
)

—

Proceeds from issuance of common stock

21

95

Issuance of convertible and redeemable Series A-2 preferred stock and warrant

173,664

—

Net cash provided by financing activities

213,412

22,742

CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

37,859

(808
)
Foreign exchange impact on cash balance

71

(4
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

Beginning of year

6,884

2,489

End of period

$
44,814

$
1,677

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:

Cash paid for interest

$
6,539

$
2,025

Cash paid for income tax

$
72

$
859

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:

Accrued purchases of property and equipment

$
814

$
555

Property and equipment purchased under capital leases

$
1,704

$
2,136

Accretion of the Redeemable Series A-1 Preferred Stock to redeemable value

$
11,059

$
9,311

Acquisitions unpaid contingent liabilities

$
44,994

$
5,388

Common stock issued to acquire new businesses

$
25,000

$
3,363

Offering costs included in accounts payable and other accrued liabilities

$
941

$
—

~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~

~~Montrose Environmental Group, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

(In thousands, except ~~share data)~~where otherwise indicated)

1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business—Montrose Environmental Group, Inc. (“Montrose” or the “Company”) is a corporation formed on November 2013, under the laws of the State of Delaware. The Company has approximately 70 offices across the United States, Canada and Australia and over ~~1,700 employees. Montrose is highly acquisitive and,~~2,000 employees as of ~~June 30, 2020, had completed 54 acquisitions since its inception.~~March 31, 2021.

Montrose is an environmental services company serving the recurring environmental needs of a diverse client base, including Fortune 500 companies and federal, state and local governments through the following three segments:

Assessment, Permitting and Response—Through its Assessment, Permitting and Response segment, Montrose provides 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. ~~Montrose’s~~The Company’s technical advisory and consulting offerings include regulatory compliance support and planning, environmental, ecosystem and toxicological assessments and support during responses to environmental disruption. Montrose helps clients navigate regulations at the local, state, provincial and federal levels.

Measurement and Analysis—Through its Measurement and Analysis segment, Montrose’s 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. Montrose’s offerings include source and ambient air testing and monitoring, leak detection and repair (“LDAR”) and advanced analytical laboratory services such as air, storm water, wastewater and drinking water analysis.

Remediation and Reuse—Through its Remediation and Reuse segment, Montrose provides clients with engineering, design, implementation and operations and maintenance ~~(“O&M”)~~ services, primarily to treat contaminated water, remove contaminants from soil or create biogas from waste. The Company does not own the properties or facilities at which it implements these projects or the underlying liabilities, nor does it own material amounts of the equipment used in projects; instead, the Company assists clients in designing solutions, managing projects and mitigating their environmental risks and liabilities at their locations.

Initial Public Offering—On July 27, 2020, the Company completed its initial public offering (“IPO”) of common stock, in which it sold 11,500,000 shares, including 1,500,000 shares issued pursuant to the underwriters full exercise on July 24, 2020 of the underwriters’ option to purchase additional shares, at a price to the public of $15.00 per share, resulting in net proceeds to the Company of approximately $161.3 million after deducting underwriting discounts ~~and commissions and estimated~~of $11.2 million. Additionally, the Company offset $4.4 million of deferred IPO costs against IPO proceeds recorded to additional paid in capital. These deferred IPO costs were directly attributable to the IPO offering ~~expenses payable by the Company.~~in accordance with Staff Accounting Bulletin Topic 5: Miscellaneous Accounting. The Company’s common stock began trading on the New York Stock Exchange on July 23, 2020.

Basis of Presentation—The unaudited condensed consolidated financial statements include the operations of the Company and its wholly-owned subsidiaries. These unaudited condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) that permit reduced disclosure for interim periods. The unaudited condensed consolidated financial statements include all accounts of the Company and, in the opinion of management, include all recurring adjustments and normal accruals necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the dates and periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, ~~2019.~~2020. Results for interim periods are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period. All intercompany transactions, accounts and profits, have been eliminated in the unaudited condensed consolidated financial statements.

2. SUMMARY OF NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements—The Company qualifies as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) and therefore intends to take advantage of certain exemptions from various public company reporting requirements, including delaying adoption of new or revised accounting standards until those standards apply to private companies. The Company has elected to use this extended transition period under the JOBS Act. The effective dates shown below reflect the election to use the extended transition period.

In ~~June 2018,~~December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions to the general principles in Accounting Standard Codification (“ASC”) 740 and clarifies and amends certain guidance to promote consistent application. The standard was adopted as of January 1, 2021 and did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting. Under the revised

guidance, the accounting for awards issued to non-employees will be similar to the accounting for employee awards. The new guidance is effective for fiscal years beginning after December 15, 2019. The standard was adopted as of January 1, 2020 and did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. The revised guidance eliminates Step 2 of the current goodwill impairment analysis test, which requires hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment loss will instead be measured at the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. The revised guidance was adopted as of January 1, 2020 and did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted—In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in ~~Entity's~~Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an ~~Entity's~~Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of the standard on the unaudited condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the expected transition away from reference rates that are expected to be discontinued, such as LIBOR. ASU 2020-04 was effective upon issuance. The Company may elect to apply the guidance prospectively through December 31, 2022. The Company is currently evaluating the impact of the ~~standard on its condensed consolidated financial statements.~~

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and clarifies and amends certain guidance to promote consistent application. ASU 2019-12 is effective for the Company’s annual and interim periods beginning on January 1, 2021, with early adoption ~~permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is evaluating the impact~~ of the standard on ~~its~~the unaudited condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). The standard introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses and will apply to trade receivables. The new guidance will be effective for the Company’s annual and interim periods beginning after December 15, 2022. The Company ~~is currently evaluating the impact of~~does not anticipate the adoption of ~~the~~this standard to have a material impact on the unaudited condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-2, Leases (Topic 842), to improve financial reporting regarding leasing transactions. The ASU primarily affects the accounting by the lessee in that it requires a lessee to recognize lease assets and liabilities, initially measured at the present value of the lease payments, on the balance sheets for those leases classified as operating leases under previous guidance. The new leasing standard is effective for the Company’s annual and interim periods beginning after December 15, 2021. The ~~new leasing standard requires modified retrospective transition. The~~ Company ~~is currently evaluating~~anticipates a material increase in assets and liabilities due to the ~~impact~~recognition of the ~~adoption of the updated standard on the condensed consolidated financial statements.~~required right-of-use asset and corresponding liability for all significant lease obligations that are currently classified as operating leases.

3. REVENUES AND ACCOUNTS RECEIVABLE

The Company’s main revenue sources derive from the following revenue streams:

Assessment, Permitting and Response Revenues—Assessment, Permitting and Response revenues are generated from multidisciplinary environmental consulting services. The majority of the contracts are fixed-price or time and material based.

Measurement and Analysis Revenues—Measurement and Analysis revenues are generated from emissions sampling, testing and reporting services, leak detection services, ambient air monitoring services and laboratory testing services. The majority of the contracts are fixed-price or time-and-materials based.

Remediation and Reuse Revenues—Remediation and Reuse revenues are generated from operating and maintenance (“O&M&M”) services (on biogas and waste water treatment facilities), as well as remediation, monitoring and environmental compliance services. Services on the majority of O&M

contracts are provided under long-term fixed-fee contracts. ~~The majority of the remediation,~~Remediation, monitoring and environmental compliance contracts are ~~fixed price or~~predominantly fixed-fee and time-and-materials based.

Disaggregation of Revenue—The Company disaggregates revenue by its operating segments. The Company believes disaggregating revenue into these categories achieves the disclosure objectives to depict how the nature, amount, and uncertainty of revenue and cash flows are affected by economic factors. Disaggregated revenue disclosures are provided in Note ~~20, Segment Information.~~19.

Contract Balances—The Company presents contract balances for unbilled receivables (contract assets), as well as customer advances, deposits and deferred revenue (contract liabilities) within contract assets and accounts payable and accrued expenses, respectively, on the unaudited condensed consolidated statements of financial position. Amounts are generally billed at periodic intervals (e.g., weekly, bi-weekly or monthly) as work progresses in accordance with agreed-upon contractual terms. The Company utilizes the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component as the period between when the Company transfers services to a customer and when the customer pays for those services is one year or less. Amounts recorded as unbilled receivables are generally for services the Company is not entitled to bill based on the passage of time. Under certain contracts, billing occurs subsequent to revenue recognition, resulting in contract assets. The Company sometimes receives advances or deposits from customers before revenue is recognized, resulting in contract liabilities.

The following table presents the Company’s contract balances:

					March 31,		December 31,
	June 30, 2020		December 31, 2019		2021		2020
Contract assets	$	22,775	$	13,605	$	61,636	$	38,576
Contract liabilities		7,736		3,314		6,476		6,114

~~Contracts~~Contract assets acquired through business acquisitions amounted to ~~$6.5~~$0.5 million and ~~$0.7~~$6.5 million as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. Contract liabilities acquired through business acquisitions amounted to ~~$2.2~~$0.5 million and zero as of March 31, 2021 and December 31, ~~2019. Contract liabilities acquired through business acquisitions were not material as of June 30, 2020.~~2020, respectively. Revenue recognized during the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, included in the contract ~~liability~~liabilities balance at the beginning of the year was ~~$0.3 million and $1.6 million, respectively.~~$1.2 million. The revenue recognized from the contract liabilities consisted of the Company satisfying performance obligations during the normal course of business.

The amount of revenue recognized from changes in the transaction price associated with performance obligations satisfied in prior periods during the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 was not material.

Remaining Unsatisfied Performance Obligations—Remaining unsatisfied performance obligations represent the total dollar value of work to be performed on contracts awarded and in progress. The amount of remaining unsatisfied performance obligations increases with new contracts or additions to existing contracts and decreases as revenue is recognized on existing contracts. Contracts are included in the amount of remaining unsatisfied performance obligations when an enforceable agreement has been reached. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was approximately ~~$15.3~~$25.4 million and ~~$13.0~~$24.4 million, respectively. As of ~~June 30, 2020,~~March 31, 2021, the Company expected to recognize approximately ~~$14.0~~$22.3 million of this amount as revenue within the next year and ~~$1.3~~ $3.1 million the year after.

Accounts Receivable, Net—Accounts receivable, net ~~as of June 30, 2020 and December 31, 2019~~ consisted of the following:

							March 31,			December 31,
	June 30, 2020			December 31, 2019			2021			2020
Accounts receivable, invoiced	$	50,359		$	46,643		$	64,314		$	57,228
Accounts receivable, other		1,402			611			5,766			1,139
Allowance for doubtful accounts		(8,506	)		(1,327	)		(4,309	)		(4,265	)
Accounts receivable—net	$	43,255		$	45,927		$	65,771		$	54,102

The Company extends non-interest-bearing trade credit to its customers in the ordinary course of business. Accounts receivable are shown on the face of the unaudited condensed consolidated statements of financial position, net of an allowance for doubtful accounts. In determining the allowance for doubtful accounts, the Company analyzes the aging of accounts receivable, historical bad debts, customer creditworthiness and current economic trends. ~~Subsequent to December 31, 2019,~~During the first quarter of 2020, there was a global outbreak of a new strain of coronavirus, COVID-19. The COVID-19 pandemic has added uncertainty to the collectability of certain receivables, particularly in industries hard hit by the pandemic. As a result, the Company recorded a $6.3 million bad debt reserve during the first

quarter of 2020. The bad debt adjustment included a $5.5 million reserve for one customer in the Company’s Remediation and Reuse

segment in which management concluded to discontinue select service lines as of March 31, 2020 (Note ~~20)~~19). ~~For all periods presented, no~~

As of March 31, 2021 and December 31, 2020, the Company had one customer who accounted for ~~more than 10%~~15.9% and 10.2%, respectively, of our gross accounts receivable. For the three months ended March 31, 2021, the Company had three customers who accounted for 16.3%, 12.7% and 10.2% of revenue. The Company did not have any customers that exceeded 10.0% of revenue ~~or accounts receivable, net.~~as of March 31, 2020. The Company performs ongoing credit evaluations, and accordingly, believes that the balances from these largest customers do not represent a significant credit risk.

The allowance for doubtful accounts ~~as of June 30, 2020 and December 31, 2019~~ consisted of the following:

Beginning
Balance

Bad Debt
Expense

Charged to
Allowance

Other⁽¹⁾

Ending
Balance

Six months ended June 30, 2020

$
1,327

$
6,263

$
(122
)

$
1,038

$
8,506

Year ended December 31, 2019

453

1,246

(556
)

184

1,327

Beginning

Balance

Bad Debt

Expense

Charged to

Allowance

Other⁽¹⁾

Ending

Balance

Three months ended March 31, 2021

4,265

508

(473

)

4,309

Year ended December 31, 2020

1,327

4,532

(2,633

)

1,039

4,265

____________________

(1)	This amount consists of additions to the allowance due to business acquisitions.

4. PREPAID AND OTHER CURRENT ASSETS

Prepaid and other current assets ~~as of June 30, 2020 and December 31, 2019~~ consisted of the following:

	June 30,		December 31,		March 31,		December 31,
	2020		2019		2021		2020
Deposits	$	662	$	605	$	796	$	708
Prepaid expenses		1,288		1,235		5,613		3,510
Prepaid insurance		2,539		170
Supplies		2,313		2,368		2,421		2,491
Offering costs		2,403		1,240
Income tax receivable		989		1,205
Prepaid and other current assets	$	10,194	$	6,823	$	8,830	$	6,709

5. PROPERTY AND EQUIPMENT, NET

Property and equipment are stated at cost or estimated fair value for assets acquired through business combinations. Depreciation and amortization isare provided using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease term, including options that are deemed to be reasonably assured, or the estimated useful life of the improvement.

Property and equipment, net, ~~as of June 30, 2020 and December 31, 2019~~ consisted of the following:

								Estimated	March 31,			December 31,
	Estimated Useful Life	June 30, 2020			December 31, 2019			Useful Life	2021			2020
Lab and test equipment	7 years	$	17,219		$	14,810		7 years	$	19,017		$	18,631
Vehicles	5 years		12,658			11,073		5 years		14,047			13,320
Equipment	3–7 years		30,747			29,922		3–7 years		33,263			32,177
Furniture and fixtures	7 years		2,798			1,119		7 years		3,023			2,938
Leasehold improvements	7 years		6,633			5,954		7 years		6,884			6,767
Aircraft	10 years		834			—		10 years		834			834
Building	39 years		2,975			—		39 years		2,975			2,975
			73,864			62,878				80,043			77,642
Land			725			—				725			725
Construction in progress			—			796				489			219
Less accumulated depreciation			(39,818	)		(36,638	)			(46,316	)		(44,187	)
Total property and equipment—net		$	34,771		$	27,036
Total property and equipment— net									$	34,941		$	34,399

Total depreciation expense included onin the unaudited condensed consolidated statements of operations was ~~$2.0~~$2.2 million and ~~4.0~~$2.0 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and March 31, 2020, respectively. ~~Total depreciation expense included on the condensed consolidated statements of operations was $1.9 million and $3.8 million for the three and six months ended June 30, 2019, respectively.~~

6. BUSINESS ACQUISITIONS

In line with the Company’s strategic growth initiatives, the Company acquired one business during the three months ended March 31, 2021 and several businesses during the ~~six months~~year ended ~~June 30, 2020 and 2019.~~December 31, 2020. The results of each of those acquired businesses are included in the unaudited condensed consolidated financial

statements beginning on the ~~respective~~ acquisition ~~dates.~~date. Each transaction qualified as an acquisition of a business and was accounted for as a business combination. All acquisitions resulted in the recognition of goodwill. The Company paid these premiums resulting in such goodwill for a number of reasons, including expected synergies from combining operations of the acquiree and the Company while also growing the Company’s customer base, acquiring assembled workforces, expanding its presence in certain markets and expanding and advancing its product and service offerings. The Company recorded the assets acquired and liabilities assumed at their acquisition date fair value, with the difference between the fair value of the net assets acquired and the acquisition consideration reflected as goodwill.

The identifiable intangible assets for acquisitions are valued using the excess earnings method discounted cash flow approach for customer relationships, the relief from royalty method for trade names, the patent and external proprietary software, the “with and without” method for covenants not to compete and the replacement cost method for the internal proprietary software by incorporating Level 3 inputs as described under the fair value hierarchy of ASC 820. These unobservable inputs reflect the Company’s own assumptions about which assumptions market participants would use in pricing an asset on a non-recurring basis. These assets will be amortized over their respective estimated useful lives.

Other purchase price obligations (primarily deferred purchase price liabilities and target working capital ~~liabilities) and contingent consideration outstanding from acquisitions~~liabilities or receivables) are included on the unaudited condensed consolidated statements of financial position in accounts payable and other accrued liabilities, other non-current liabilities ~~for long term payables and~~or accounts receivable-net ~~for any~~in the case of working capital ~~deficit receivable balance.~~deficits. Contingent consideration outstanding from acquisitions are included on the unaudited condensed consolidated statements of financial position in business acquisition contingent consideration, current or in business acquisitions contingent consideration, long-term. These obligations are scheduled to be settled if certain performance thresholds are met.

The Company considers several factors when determining whether or not contingent consideration liabilities are part of the purchase price, including the following: (i) the valuation of its acquisitions is not supported solely by the initial consideration paid, (ii) the former stockholders of acquired companies that remain as key employees receive compensation other than contingent consideration payments at a reasonable level compared with the compensation of the Company’s other key employees and (iii) contingent consideration payments are not affected by employment termination. The Company reviews and assesses the estimated fair value of contingent consideration at each reporting period.

~~External transaction~~Transaction costs related to business combinations totaled ~~$3.8~~$0.2 million and ~~$1.1 million for the six months ended June 30, 2020 and June 30, 2019, respectively and $2.5 million and $0.9~~$1.3 million for the three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ respectively. These costs are expensed within ~~the~~ selling, general and administrative expense in the accompanying unaudited condensed consolidated statements of operations.

Acquisitions Completed During the Three Months Ended March 31, 2021

MSE Group—In January 2021, the Company completed the acquisition of MSE Group (“MSE”) by acquiring 100.0% of its membership interests. MSE is a provider of environmental assessment, compliance, engineering, and design services primarily to the U.S. federal government. MSE is based in Orlando, FL with additional offices in Tampa, Orlando, Jacksonville, San Antonio, TX, and Wilmington, NC, and satellite locations nationwide. The upfront cash payment made to acquire ~~The Center for Toxicology and Environmental Health, LLC (“CTEH”)~~MSE was funded through ~~the issuance of the Convertible and Redeemable Series A-2 Preferred Stock (Note 17)~~cash on hand and the common stock portion of the purchase price was funded through the issuance of ~~791,139~~71,740 shares of common stock. ~~Cash payments made to acquire businesses during the six months ended June 30, 2019 were funded through the Company’s prior senior secured credit facility (Note 13).~~

~~Acquisition completed during the Six Months Ended June 30, 2020~~

~~The Center for Toxicology and Environmental Health, LLC~~—In April 2020, the Company completed the acquisition of CTEH by acquiring 100% of its membership interests. CTEH is an environmental consulting company headquartered in Arkansas that specializes in environmental response and toxicology. The transaction qualified as an acquisition of a business and is accounted for as a business combination. The following table summarizes the elements of the purchase price of ~~CTEH:~~MSE:

Cash

Common
Stock

Other
Purchase
Price
Component

Contingent
Consideration
Current

Contingent
Consideration
Long Term

Total
Purchase
Price

CTEH

$
175,000

$
25,000

$
(2,884
)

$
34,451

$
10,543

$
242,110

Cash

Common

Stock

Other

Purchase

Price

Components

Current

Other

Purchase

Price

Components

Long Term

Contingent

Consideration

Current

Contingent

Consideration

Long Term

Total

Purchase

Price

MSE

9,082

2,271

10,146

—

1,804

23,303

The other purchase price components of the MSE purchase price consist of a target working capital amount, a 338 election tax liability, 2020 and 2021 purchase price true ups and contingent consideration. The 2020 and 2021 purchase price true up elements are based on MSE’s actual 2020 and 2021 results. The contingent consideration ~~elements of the purchase price of CTEH’s acquisition~~element is related to earn-outs which are based on the expected achievement of revenue or earnings thresholds as of the date of the acquisition and for which the maximum potential amount is limited. The Company paid the target working capital amount and the 2020 purchase price true up in April 2021 (Note 22). The Company may be required to make up to $6.2 million in aggregate true up and earn-out payments in 2022 and 2023.

The preliminary purchase price attributable to the MSE acquisition was allocated as follows:

	MSE
Cash	$	2,810
Accounts receivable		3,068
Other current assets		31
Current assets		5,909
Property and equipment		513
Customer relationships		8,720
Trade names		521
Covenants not to compete		922
Goodwill		7,532
Total assets		24,117
Current liabilities		(814	)
Total liabilities		(814	)
Purchase price	$	23,303

MSE results of operations have been combined with those of the Company since the date of acquisition. The Company’s unaudited condensed consolidated statement of operations for the three months ended March 31, 2021 includes revenue and pre-tax loss of $4.0 million and $0.3 million, respectively. MSE is included in the Company’s Remediation and Reuse segment.

The weighted average useful lives for the acquired customer relationships and related backlog for the MSE acquisition are 7 years and 2 years, respectively. The weighted average useful lives for the acquired tradenames and covenants not to compete for the MSE acquisition are 2 years and 5 years, respectively.

Goodwill associated with the MSE acquisition is deductible for income tax purposes.

The Company has not yet completed the initial purchase price allocation for this acquisition due to the timing of the close of the transaction.

Acquisitions Completed During the Year Ended December 31, 2020

The Center for Toxicology and Environmental Health, L.L.C.—In April 2020, the Company completed the acquisition of The Center for Toxicology and Environmental Health, L.L.C. (“CTEH”) by acquiring 100.0% of its membership interests. CTEH is an environmental consulting company headquartered in Arkansas that specializes in environmental response and toxicology. The cash payment made to acquire CTEH was funded through the issuance of the Convertible and Redeemable Series A-2 Preferred Stock (Note 16) and the common stock portion of the purchase price was funded through the issuance of 791,139 shares of common stock.

Leed Environmental Inc.— In September 2020, the Company acquired certain testing assets, and operations from Leed Environmental Inc. (“LEED”). LEED provides environmental project management and coordination services. LEED expands the Company’s remediation capabilities in the Northeast region of the United States. The cash payment made to acquire LEED was funded via cash on hand.

American Environmental Testing Co.— In September 2020, the Company acquired certain assets and operations of American Environmental Testing Co. (“AETC”), a stack testing company in Utah. AETC expands the Company’s air measurement and analysis capabilities in the West Coast region. The cash payment made to acquire AETC was funded via cash on hand.

The following table summarizes the elements of purchase price of the acquisitions completed during the year ended December 31, 2020:

	Cash		Common Stock		Other Purchase Price Components Current			Other Purchase Price Components Long Term		Contingent Consideration Current		Contingent Consideration Long Term		Total Purchase Price
CTEH	$	175,000	$	25,000	$	(1,939	)	$	—	$	34,451	$	10,543	$	243,055
All other acquisitions		450		—		50			100		210		—		810
Total	$	175,450	$	25,000	$	(1,889	)	$	100	$	34,661	$	10,543	$	243,865

The contingent consideration elements of the purchase price of the acquisitions is related to earn-outs which are based on the expected achievement of revenue or earnings thresholds as of the date of the acquisition and for which the maximum potential amount is limited.

The CTEH first year ~~earnout is to be~~earn-out was calculated at twelve times CTEH’s 2020 EBITDA (as defined in the purchase agreement) in excess of $18.3 million, with a maximum first year earn-out payment of $50.0 ~~million.~~million, which was fully achieved. The second year earn-out is to be calculated at ten times CTEH’s 2021 EBITDA in excess of actual 2020 EBITDA (with actual 2020 EBITDA subject to a minimum of $18.3 million and a maximum of $22.5 million), with a maximum second year earn-out payment of $30.0 million. The 2020 ~~earn out~~earn-out was initially payable ~~100%~~100.0% in common stock, but as a result of the completion of the Company’s IPO (Note ~~23)~~1), ~~50% of any~~50.0% was payable in cash. In April 2021, the 2020 ~~earnout~~earn-out payment ~~will be payable~~was made with 50.0% paid in cash and ~~50% will be payable, at~~ the ~~Company’s election,~~remaining 50.0% paid in ~~cash or shares~~common stock of ~~common stock.~~the Company (Note 22). The

2021 ~~earn out,~~earn-out, if any, is payable ~~100%~~100.0% in cash. The current portion of the contingent consideration is recorded in accounts payable and other accrued liabilities. The long term portion of the contingent consideration is recorded in other non-current liabilities.

The ~~preliminary~~ purchase price attributable to the ~~acquisition~~acquisitions was allocated as follows:

			CTEH		All Other Acquisitions		Total
Cash	$	1,527	$	1,527	$	—	$	1,527
Accounts receivable		17,059		17,059		—		17,059
Other current assets		1,265		1,265		—		1,265
Current assets		19,851		19,851		—		19,851
Property plant and equipment		7,042
Property and equipment				7,042		75		7,117
Customer relationships		56,000		56,000		—		56,000
Trade names		4,200		4,200		—		4,200
Covenants not to compete		4,000		4,000		109		4,109
Proprietary software		14,700		14,700		—		14,700
Goodwill		146,038		146,983		626		147,609
Total assets		251,831		252,776		810		253,586
Current liabilities		9,721		9,721		—		9,721
Total liabilities		9,721		9,721		—		9,721
Purchase price	$	242,110	$	243,055	$	810	$	243,865

~~The results of operations of~~ CTEH, ~~since the acquisition date have been combined with those of the Company. The Company’s condensed consolidated statement of operations for the three~~LEED and ~~six months ended June 30, 2020 includes revenue and pre-tax income of $14.6 million and $1.2 million, respectively, related to the CTEH acquisition. CTEH is~~AETC are included in the Company’s Assessment, Permitting and Response, ~~segment.~~Remediation and Reuse and Measurement and Analysis segments, respectively.

The weighted average useful lives for the acquired customer relationships and internal proprietary software for ~~this~~the CTEH acquisition are 15 years and 3 years, respectively. The weighted average useful lives for the acquired tradenames, covenants not to compete and external proprietary software for ~~this~~the CTEH acquisition is 5 years.

~~Goodwill associated with the CTEH acquisition is deductible for income tax purposes.~~

~~Acquisitions completed during the Six Months Ended June 30, 2019~~

~~Golden Specialty, Inc.~~—In March 2019, the Company acquired all of the assets and operations of Golden Specialty, Inc. (“Golden”), an air testing laboratory in Texas. Golden expands the Company’s air measurement and analysis capabilities in the Gulf Coast region.

~~Target Emission Services Inc.~~—In April 2019, the Company acquired 100% of the issued and outstanding capital stock of Target Emission Services, Inc. (“TES”), an emission detection company in Canada. TES expands the Company’s LDAR business, increasing the geographic footprint in Canada and initiating growth into international markets.

~~Target Emission Services USA LP~~—In April 2019, the Company acquired 100% of the issued and outstanding capital stock of Target Emission Services USA LP (now Target Emission Services USA LLC) (“TESUS”), an emission detection company in the United States. TESUS expands the Company’s LDAR business throughout the United States.

~~Air Water & Soil Laboratories, Inc.~~—In June 2019, the Company acquired 100% of the issued and outstanding capital stock of Air Water & Soil Laboratories, Inc. (“AWS”), a provider of air, water, and soil testing in the mid-Atlantic region. AWS expands the Company’s air, water, and soil environmental lab services in the East Coast.

~~The following table summarizes the elements of purchase price of the acquisitions completed during the six months ended June 30, 2019:~~

Cash

Common
Stock

Other
Purchase
Price
Components

Contingent
Consideration

Total
Purchase
Price

Golden

$
1,500

$
477

$
1,977

TES

2,359

322

25

4,911

7,617

TESUS

18,683

3,041

1,495

—

23,219

AWS

6,020

—

150

—

6,170

$
28,562

$
3,363

$
1,670

$
5,388

$
38,983

Contingent consideration elements of the purchase price of these acquisitions are related to earn-outs which are based on the expected achievement of revenue or earnings thresholds by the applicable business as of the date of the acquisition and for which the maximum potential amount to be earned is generally not limited.

~~The purchase price attributable to the acquisitions was allocated as follows:~~

Cash

$
1,863

Accounts receivable

2,670

Other current assets

31

Current assets

4,564

Property and equipment

2,450

Customer relationships

11,823

Trade names

463

Covenants not to compete

1,661

Proprietary software

2,560

Goodwill

17,893

Total assets

41,414

Current liabilities

748

Non- current liabilities

1,683

Total liabilities

2,431

Purchase price

$
38,983

The weighted average useful lives for the acquired ~~customer relationships, trade names,~~ covenants not to compete ~~and proprietary software~~ for ~~these~~the other acquisitions ~~are 10 years, 1.5 years,~~is 4 ~~years and 3 years, respectively.~~

For the acquisitions completed during the six months ended June 30, 2019, the results of operations since the acquisition dates have been combined with those of the Company. The Company’s three and six months ended June 30, 2019 condensed consolidated statement of operations includes revenue of $1.6 million and pre-tax income of $0.8 million, respectively, related to these acquisitions. The TES, TESUS and AWS acquisitions are included in the Company’s Measurement and Analysis segment.years.

Goodwill associated with the CTEH, LEED and AETC acquisitions ~~completed during the six months ended June 30, 2019~~ is ~~not~~ deductible for income tax purposes.

Supplemental Unaudited Pro-Forma—The unaudited condensed consolidated financial information summarized in the following table gives effect to the ~~CTEH acquisition~~2021 and the ~~2019~~2020 acquisitions discussed above assuming they occurred on January 1, ~~2019.~~2020. These unaudited consolidated pro forma operating results do not assume any impact from revenue, cost or other operating synergies that are expected or may have been realized as a result of the acquisitions. These unaudited consolidated pro forma operating results are presented for illustrative purposes only and are not indicative of the operating results that would have been achieved had the acquisitions occurred on January 1, ~~2019,~~2020, nor does the information purport to reflect results for any future period.

	Three months ended June 30,													For the Three Months Ended March 31,
	2020						2019							2021								2020
	As reported		Acquisitions Pro-Forma (Unaudited)		Consolidated Pro-Forma (Unaudited)		As reported			Acquisitions Pro-Forma (Unaudited)		Consolidated Pro-Forma (Unaudited)		As reported			Acquisitions Pro-Forma (Unaudited)		Consolidated Pro-Forma (Unaudited)			As reported			Acquisitions Pro-Forma (Unaudited)		Consolidated Pro-Forma (Unaudited)
Revenues	$	73,766	$	31,253	$	105,019	$	57,401		$	59,565	$	116,966	$	133,817		$	—	$	133,817		$	61,031		$	36,197	$	97,228
Net income (loss)		13,224		10,288		23,512		(322	)		19,971		19,649
Net (loss) income															(11,596	)		—		(11,596	)		(41,248	)		11,352		(29,896	)

Six months ended June 30,

2020

2019

As reported

Acquisitions
Pro-Forma
(Unaudited)

Consolidated
Pro-Forma
(Unaudited)

As reported

Acquisitions
Pro-Forma
(Unaudited)

Consolidated
Pro-Forma
(Unaudited)

Revenues

$
134,797

$
31,253

$
166,050

$
108,355

$
88,908

$
197,263

Net (loss) income

(28,024
)

10,288

(17,736
)

(5,564
)

25,959

20,395

During the first quarter of 2020, the Company determined to reduce the footprint of its environmental lab in Berkeley, California, and to exit its non-specialized municipal water engineering service line and its food waste biogas engineering service line, (together, “the Discontinued Service Lines”). Revenues from Discontinued Service Lines included in revenues in the above table for the three months ended March 31, 2021 and March 31, 2020 were zero and $2.5 million, respectively.

7. GOODWILL AND INTANGIBLE ASSETS

Amounts related to goodwill ~~as of June 30, 2020 and December 31, 2019~~ are as follows:

Assessment,
Permitting
and Response

Measurements
and
Analysis

Remediation
and
Reuse

Total

Balance as of December 31, 2019

$
15,173

$
68,628

$
43,257

$
127,058

Goodwill acquired during the period

146,038

—

—

146,038

Balance as of June 30, 2020

$
161,211

$
68,628

$
43,257

$
273,096

	Assessment, Permitting and Response		Measurement and Analysis		Remediation and Reuse		Total
Balance as of December 31, 2020	$	162,156	$	69,054	$	43,457	$	274,667
Goodwill acquired during the period		—		—		7,532		7,532
Balance as of March 31, 2021	$	162,156	$	69,054	$	50,989	$	282,199

Amounts related to finite-lived intangible assets ~~as of June 30, 2020 and December 31, 2019~~ are as follows:

June 30, 2020	Estimated Useful Life	Gross Balance		Accumulated Amortization		Total Intangible Assets—Net
March 31, 2021								Estimated Useful Life	Gross Balance		Accumulated Amortization		Total Intangible Assets—Net
Finite lived intangible assets
Customer relationships	7–15 years	$	164,782	$	44,665	$	120,117	2–15 years	$	173,502	$	58,294	$	115,208
Covenants not to compete	4–5 years		29,832		19,424		10,408	4–5 years		30,864		22,471		8,393
Trade names	1–5 years		16,943		11,518		5,425	1–5 years		17,459		13,445		4,014
Proprietary software	3-5 years		19,561		2,865		16,696	3–5 years		21,260		7,368		13,892
Patent	16 years		17,479		851		16,628	16 years		17,479		1,671		15,808
Total other intangible assets—net		$	248,597	$	79,323	$	169,274
Total other intangible assets —net									$	260,564	$	103,249	$	157,315

December 31, 2019	Estimated Useful Life	Gross Balance		Accumulated Amortization		Total Intangible Assets—Net
December 31, 2020								Estimated Useful Life	Gross Balance		Accumulated Amortization		Total Intangible Assets—Net
Finite lived intangible assets
Customer relationships	7–10 years	$	108,782	$	36,700	$	72,082	7–15 years	$	164,782	$	53,446	$	111,336
Covenants not to compete	4–5 years		25,832		17,572		8,260	4–5 years		29,942		21,469		8,473
Trade names	1–5 years		12,738		10,230		2,508	1–5 years		16,938		12,849		4,089
Proprietary software	3 years		3,885		1,359		2,526	3–5 years		21,007		6,132		14,875
Patent	16 years		17,479		306		17,173	16 years		17,479		1,398		16,081
Total other intangible assets—net		$	168,716	$	66,167	$	102,549
Total other intangible assets —net									$	250,148	$	95,294	$	154,854

Intangible assets with finite lives are stated at cost, less accumulated amortization and impairment losses, if any. These intangible assets are amortized using the straight-line method over the estimated useful lives of the assets.

Amortization expense was ~~$7.8~~$8.6 million and ~~$13.3~~$5.6 million for the three ~~and six~~ months ended ~~June 30,~~of March 31, 2021 and March 31, 2020, ~~respectively and $4.5 million and $9.1 million for the three and six months ended June 30, 2019,~~ respectively.

Future amortization expense is estimated to be as follows for each of the five following years and thereafter:

December 31,
2020 (remaining)	$	15,106
2021		28,043
2021 (remaining)			$	22,667
2022		23,958		26,545
2023		20,005		21,276
2024		16,929		18,096
Thereafter		65,233
	$	169,274
2025				11,854
2026 and thereafter				56,877
Total			$	157,315

8. ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES

Accounts payable and other accrued liabilities consisted of the ~~following as of June 30, 2020 and December 31, 2019:~~following:

					March 31,		December 31,
	June 30, 2020		December 31, 2019		2021		2020
Accounts payable	$	12,255	$	15,034	$	15,470	$	15,481
Accrued expenses		9,931		10,733		19,555		11,469
Other business acquisitions purchase price obligations						9,511		50
Contract liabilities		7,736		3,314		6,476		6,114
Other current liabilities		303		504		1,229		1,507
Income tax payable						190		256
Total accounts payable and other accrued liabilities	$	30,225	$	29,585	$	52,431	$	34,877

9. ACCRUED PAYROLL AND BENEFITS

Accrued payroll and benefits consisted of the ~~following as of June 30, 2020 and December 31, 2019:~~

following:

					March 31,		December 31,
	June 30, 2020		December 31, 2019		2021		2020
Accrued bonuses	$	3,810	$	3,449	$	1,800	$	5,416
Accrued paid time off		2,206		2,154		2,355		2,067
Accrued payroll		7,174		4,470		13,273		9,133
Accrued other		2,040		959		5,136		4,565
Total accrued payroll and benefits	$	15,230	$	11,032	$	22,564	$	21,181

10. INCOME TAXES

The Company calculates its interim income tax provision in accordance with ~~Accounting Standard Codification~~ASC Topic 270, Interim Reporting (“ASC 270”), and ASC 740. The Company’s effective tax rate (“ETR”) from continuing operations was ~~(15.3)%~~(0.12%) and ~~84.2%~~7.11% for the three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019 and 14.9% and 14.0% for the six months ended June 30, 2020 and June 30, 2019, respectively, and~~respectively. Income tax expense recorded by the Company ~~recorded income tax benefits of $1.8 million and $1.7 million for~~during the three months ended ~~June 30, 2020 and June 30, 2019, respectively and~~March 31, 2021 was not material. The Company recorded an income tax ~~benefits~~benefit of ~~$4.9~~$3.2 million ~~and $0.9 million for~~during the ~~six~~three months ended ~~June 30, 2020 and June 30, 2019, respectively.~~March 31, 2020. The difference between the ETR and federal statutory rate of ~~21%~~21.0% is primarily attributable to items recorded for U.S. GAAP but permanently disallowed for U.S. federal income tax purposes, recognition of a U.S. federal and state valuation allowance, state and foreign income tax provisions and Global Intangible Low Taxed Income (“GILTI”).

A valuation allowance is recorded when it is more-likely-than-not some of the Company’s deferred tax assets may not be realized. Significant judgment is applied when assessing the need for a valuation allowance and the Company considers future taxable income, reversals of existing deferred tax assets and liabilities and ongoing prudent and feasible tax planning strategies, in making such assessment. As of ~~June 30, 2020~~March 31, 2021, the Company’s U.S. federal, state and ~~December 31, 2019, the Company expected its~~various foreign net deferred tax assets ~~will~~are not more-likely-than-not to be realized and ~~did not record~~ a full valuation ~~allowance.~~allowance is maintained.

The Company records uncertain tax positions in accordance with ASC 740, ~~Income Taxes,~~ on the basis of a two-step process in which (i) the Company determines whether it is more likely than not a tax position will be sustained on the basis of the technical merits of such position and (ii) for those tax positions meeting the more-likely-than-not recognition threshold, the Company would recognize the largest amount of tax benefit that is more than 50.0% likely to be realized upon ultimate settlement with the related tax authority. The Company has determined it has no uncertain tax positions as of ~~June 30, 2020.~~March 31, 2021. The Company classifies interest and penalties recognized on uncertain tax positions as a component of income tax expense.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“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. Under ASC 740, the effects of new legislation are recognized upon enactment. Accordingly, the effects of the CARES Act have been incorporated into the income tax provision computation for the six months ended June 30, 2020. These provisions did not have a material impact on the income tax provision. The Company anticipates deferring the employer side social security payments for payroll paid for the remainder of 2020 as permitted by the CARES Act.

11. WARRANT OPTIONS

In October 2018, in connection with the issuance of the Redeemable Series A-1 Preferred Stock, the Company issued a detachable warrant to acquire 534,240 shares of common stock at a price of $0.01 per share at any given time during a period of ten years beginning on the instrument’s issuance date. ~~The~~

For the three months ended March 31, 2020, fair value ~~of this warrant was determined to be $16.9 million as of June 30, 2020 and December 31, 2019. The warrant option will be fair valued at each reporting period until exercised. Fair value adjustments~~gains/(losses) recorded in other ~~income (expense)~~expense on the unaudited condensed consolidated statements of operations related to the Redeemable Series A-1 warrant were not ~~material for the three and six months ended June 30, 2020, respectively and $1.5 million for the three and six months ended June 30, 2019, respectively. The warrant~~ ~~was~~ ~~exercised in full for cash on July 30, 2020 (Note 23).~~material.

In April 2020, in connection with the issuance of the Convertible and Redeemable Series A-2 Preferred Stock, the Company issued a detachable warrant to acquire 1,351,960 shares of common stock at a price of $0.01 per share at any time following the occurrence of a qualifying IPO, a sale of the Company, or a redemption in full of the Series ~~A-1~~A-2 preferred stock (each, an “Adjustment Event”), with an expiration date of ten years from the instrument’s issuance date. The number of shares underlying the warrant and issuable upon exercise was subject to adjustment based upon the price per share of common stock upon the occurrence of an Adjustment Event (Note ~~17)~~16) to reflect an aggregate value of $30.0 million. ~~The fair value~~

As a result of ~~this~~the $15.00 per share public offering price in the IPO, the warrant issued in connection with the issuance of the Convertible and Redeemable Series A-2 Preferred Stock was ~~determined~~adjusted pursuant to ~~be $30.1 million as~~its terms and, upon closing of ~~June 30, 2020. The~~the IPO, represented a warrant option will be fair valued at each reporting period until exercised. Fair value adjustments recorded in other income (expense) on the condensed consolidated statements were not material for the three months ended June 30, 2020. The warrant ~~was~~ ~~exercised in full for cash on~~to purchase 1,999,999 shares of common stock (an increase of 648,039 shares).

On July 30, 2020, ~~(Note 23).~~

~~12. CONTINGENT PUT OPTION~~

~~As of June 30, 2019, the Company determined that the fair value of the contingent put option related to~~ the Redeemable Series A-1 Preferred Stock ~~was immaterial as~~and the ~~probability of the feature being exercised was considered remote. As of June 30, 2020~~Convertible and ~~December 31, 2019, the contingent put option issued in connection with the~~ Redeemable Series ~~A-1~~A-2 Preferred Stock ~~had a fair value~~warrants were exercised in full resulting in the issuance of ~~$14.1 million and $7.1 million, respectively. The change in value~~an aggregate of ~~$22.6 million and $7.0 million~~2,534,239 shares of common stock to the holder for ~~the three and six months ended June 30, 2020 was recorded to other income (expense). The contingent put option was redeemed in July 2020 (Note 23).~~an exercise price of $0.01 per share.

~~13.~~12. DEBT

Debt ~~as of June 30, 2020 and December 31, 2019~~ consisted of the following:

	June 30,			December 31,			March 31,			December 31,
	2020			2019			2021			2020
Term Loan Facility	$	175,000		$	48,750
Revolving Line of Credit		25,000			97,590
Term loan facility							$	173,359		$	173,906
Capital leases		3,899			3,765			3,348			3,088
Other leases		5			12
Equipment line of credit		3,420			3,124			2,803			3,018
Less deferred debt issuance costs		(4,582	)		(1,052	)		(3,871	)		(4,108	)
Total debt		202,742			152,189			175,639			175,904
Less current portion of long term debt		(4,653	)		(7,143	)
Less current portion of long-term debt								(6,214	)		(5,583	)
Long-term debt, less current portion	$	198,089		$	145,046		$	169,425		$	170,321

Deferred Financing Costs—Costs relating to debt issuance have been deferred and are presented as discounted against the underlying debt instrument. These costs are amortized to interest expense over the terms of the underlying debt instruments.

Revolving Line of Credit and Term Loan Facility—On April 13, 2020, the Company entered into a Unitranche Credit Agreement (the ~~“New~~“2020 Credit Facility”) providing for a new $225.0 million credit facility comprised of a $175.0 million term loan and a $50.0 million revolving credit facility and repaid all amounts outstanding under the prior senior secured credit facility. ~~As a result of the redemption in full of the Company’s Redeemable Series A-1 Preferred Stock in connection with the Company’s IPO, t~~The ~~facility~~2020 Credit Facility matures in April ~~2025 (Note 23). The~~2025. Up until October 6, 2020, the term loan and the revolver ~~bear~~bore interest at LIBOR plus 5.0% with a 1.0% LIBOR floor or the base rate plus 4.0% and LIBOR plus 3.5% or the base rate plus 2.5%, respectively. Effective October 6, 2020, the Company 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 interest rate remained unchanged. The revolver is also subject to an unused commitment fee of 0.35%. The Term Loan has quarterly repayments ~~starting~~that started on September 30, 2020 of $0.5 million, increasing to $1.1 million on September 30, 2021 and further increasing to $1.6 million on September 30, 2022, with the remaining outstanding principal amount due on the maturity date.The Company has the option to borrow incremental term loans up to an aggregate principal amount of $100.0 million subject to satisfaction of certain conditions, including the borrower’s pro forma compliance with the financial covenants under the ~~New~~2020 Credit Facility. Immediately after giving effect to the incurrence of any such incremental term loans, the ~~unitranche~~ lenders must collectively hold at least ~~70%~~70.0% of all pari passu debt of all lenders under the credit facility. The existing lenders are not obligated to participate in any incremental term loan facility.

The ~~New~~2020 Credit Facility includes a number of covenants imposing certain restrictions on the Company’s business, including, among other things, restrictions on the Company’s ability to incur indebtedness, prepay or amend other indebtedness, create liens, make certain fundamental changes including mergers or dissolutions, pay dividends and make other payments in respect of capital stock, make certain investments, sell assets, change the Company’s lines of business, enter into transactions with affiliates and other corporate actions. The ~~New~~2020 Credit Facility also contains financial covenants requiring the Company to remain below a maximum consolidated total leverage ratio of 4.25 times, which steps 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. The ~~New~~2020 Credit Facility contains mandatory prepayment features upon a number of events, including with the proceeds of certain asset sales, proceeds from the issuance of any debt and proceeds of the capital contribution amounts contributed to cure a financial covenant default. The ~~New~~2020 Credit Facility also includes mandatory prepayments of 50.0% of excess cash flow minus voluntary prepayments of the term loan and, solely to the extent accompanied by a permanent reduction in the revolving commitment, the revolver, if the Company’s consolidated

total leverage ratio for the year ending December 31, 2020 is greater than or equal to 3.25 times and, for any year thereafter, the amount of any such mandatory prepayment shall be reduced to 25.0% of excess cash flow if the leverage ratio is less than 3.00 times. As of March 31, 2021 and December 31, 2020, the Company’s consolidated total leverage ratio (as defined in the credit agreement) was 3.1 times and 2.7 times, respectively.

The weighted average interest rate on the ~~New~~2020 Credit Facility as of ~~June 30, 2020~~March 31, 2021 was ~~5.91%~~5.5%.

The ~~New~~2020 Credit Facility contains a number of customary events of default related to, among other things, the non-payment of principal, interest or fees, violations of covenants, inaccuracy of representations or warranties, certain bankruptcy events, default in payment under or the acceleration of other indebtedness and certain change of control events. In the event of a default, subject to varying cure periods and rights for certain events of default, the required lenders may, at their option, declare the commitments to fund the credit facility to be terminated.

The Company’s obligations under the ~~credit facility~~2020 Credit Facility are guaranteed by certain of the Company’s existing and future direct and indirect subsidiaries, and such obligations are secured by substantially all of the Company’s assets, including the capital stock or other equity interests in those subsidiaries.

Prior Senior Secured Credit Facility—~~As of December 31, 2019, the~~The Company’s Prior Senior Secured Credit Facility (the “Prior Senior Credit Facility”), which was paid in full in April 2020 via proceeds from the issuance of the 2020 Credit Facility, consisted of a $50.0 million term loan and a $130.0 million revolving credit facility.

Borrowings under the Prior Senior Credit Facility ~~borne~~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) Lender A’s prime rate and (c) Eurodollar Rate, which is based on LIBOR, (using a one-month period plus 1.0%), plus the applicable margin, as the Company elects. The applicable margin means a percentage per annum determined in accordance with the following ~~table as of December 31, 2019:~~table:

Pricing Tier	Consolidated Leverage Ratio	Commitment Fee			Eurodollar Rate Loans and LIBOR Letter of Credit Fee			Daily Floating Rate Loans			Rate Loans
1	> 3.75 to 1.0		0.50	%		4.00	%		4.00	%		3.00	%
2	≤ 3.75 to 1.0 but > 3.00 to 1.0		0.50			3.50			3.50			2.50
3	≤ 3.00 to 1.0 but > 2.25 to 1.0		0.40			3.00			3.00			2.00
4	< 2.25 to 1.0		0.30			2.50			2.50			1.50

As of December 31, 2019, the Company fell within Pricing Tier 2 and the Company was subject to a fixed charge coverage ratio of greater than 1.25 and a consolidated total leverage ratio of lower than 4.00. The weighted average interest rate on the Prior Senior Credit Facility as of March 31, 2020 was 4.95%.

The Prior Senior Secured Credit Facility was repaid in full on April 13, 2020 via proceeds from the issuance of the New Credit Facility. The resulting loss on extinguishment amounted to $1.4 million, of which $0.4 million was related to fees paid and $1.0 related to unamortized debt issuance costs. Total loss on extinguishment is recorded in interest expense-net within the condensed consolidated statement of operations for the three and six months ended June 30, 2020.

Equipment Line of Credit—On March 12, 2019, the Company increased its equipment line of credit facility for the purchase of equipment and related freight, installation costs and taxes paid for an additional amount not to exceed $2.0 million. On May 16, 2019, the Company entered into a Canadian equipment line of credit facility for an amount not to exceed $1.0 million Canadian dollars. Interest on the line of credit is determined based on a three-year swap rate at the time of funding.

Capital Lease Obligations—The assets and liabilities under capital lease agreements are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are being amortized over the shorter of their related lease terms or their estimated useful lives ranging from ~~four~~three to ~~six~~seven years. The gross amount of assets under capital leases as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was ~~$7.3~~$6.2 million and ~~$6.9~~ $6.1 million, respectively. The amortization of assets under capital leases was $0.6 million and ~~$1.1~~$0.2 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~respectively and $0.3 million and $0.6 million for the three and six months ended June 30, 2019,~~ respectively, and was included in depreciation and amortization on the unaudited condensed consolidated statements of operations. All capital leases (including those purchased through the Company’s equipment line of credit) mature by 2025 as follows:

June 30,	Payments		Interest		Principal
2021	$	2,863	$	397	$	2,466
March 31,							Payments		Interest		Principal
2022		2,424		300		2,124	$	2,727	$	341	$	2,386
2023		1,872		182		1,690		2,203		227		1,976
2024		940		57		883		1,403		98		1,305
2025		158		2		156		507		23		484
	$	8,257	$	938	$	7,319
Total							$	6,840	$	689	$	6,151

The following is a schedule of the aggregate annual maturities of long-term debt presented on the unaudited condensed consolidated statement of financial position, based on the terms of the ~~credit facility,~~2020 Credit Facility, capital lease obligations and equipment line of ~~credit as of June 30, 2020:~~credit:

June 30,
2021	$	4,653
March 31,
2022		2,130	$	6,214
2023		1,690		7,992
2024		883		7,868
2025		197,968		7,047
2026				150,389
Total	$	207,324	$	179,510

~~14.~~13. FAIR VALUE OF FINANCIAL INSTRUMENTS

~~As of June 30, 2020 and December 31, 2019, the~~The following financial ~~assets and~~ liabilities are measured at fair value on a recurring basis using significant unobservable inputs (Level 3).:

June 30,

December 31,

Level 3 Assets

2020

2019

Compound embedded option

$
8,605

$
—

Level 3 Liabilities

Contingent consideration payable, current

$
36,395

$
8,614

Contingent consideration payable, long term

9,117

379

Contingent put option

14,125

7,100

Warrant options

46,978

16,878

Total

$
98,010

$
32,971

	March 31,		December 31,
	2021		2020
Business acquisitions contingent consideration, current	$	50,364	$	49,902
Business acquisitions contingent consideration, long-term		16,971		4,565
Conversion option		21,488		20,886
Total	$	88,823	$	75,353

The estimated fair value amounts shown above are not necessarily indicative of the amounts that the Company would realize upon disposition, nor do they indicate the Company’s intent or ability to dispose of the financial instrument.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring ~~basis for the six months ended June 30, 2020 and June 30, 2019:~~basis:

Level 3

Assets

Liabilities

Compound
Embedded
Option

Contingent
Consideration
Current⁽¹⁾

Contingent
Consideration
Long Term⁽²⁾

Contingent
Put Option

Warrant
Options

Total

Balance—at December 31, 2018
$
—

$
2,754

$
—

$
—

$
12,818

$
15,572

Acquisitions

—

31

—

—

—

31

Changes in fair value included in earnings

—

(926
)

—

—

1,549

623

Balance—at June 30, 2019
$
—

$
1,859

$
—

$
—

$
14,367

$
16,226

Balance—at December 31, 2019
$
—

$
8,614

$
379

$
7,100

$
16,878

$
32,971

   Payment of contingent consideration
   payable

—

(12,250
)

—

—

—

(12,250
)
    Foreign currency translation of contingent
   consideration payment

—

(208
)

—

—

—

(208
)
   Acquisitions

34,451

10,543

44,994

   Series A-2 compound embedded option

9,361

—

—

—

—

(9,361
)
   Issuance of warrant option

—

—

—

—

30,099

30,099

   Reclass of long term to short term contingent
   liabilities

—

180

(180
)

—

—

—

   Changes in fair value included in earnings

(756
)

5,608

(1,625
)

7,025

1

11,765

Balance—at June 30, 2020
$
8,605

$
36,395

$
9,117

$
14,125

$
46,978

$
98,010

	Business Acquisitions Contingent Consideration, Current			Business Acquisitions Contingent Consideration, Long-term		Conversion Option		Contingent Put Option		Warrant Option			Total
Balance—at January 1, 2020	$	8,614		$	379	$	—	$	7,100	$	16,878		$	32,971
Changes in fair value included in earnings		—			—		—		29,627		(1	)		29,626
Payment of contingent consideration payable		(4,703	)		—		—		—		—			(4,703	)
Foreign currency translation of contingent consideration payment		(208	)		—		—		—		—			(208	)
Balance—at March 31, 2020	$	3,703		$	379	$	—	$	36,727	$	16,877		$	57,686

Balance—at January 1, 2021	$	49,902		$	4,565	$	20,886	$	—	$	—		$	75,353
Acquisitions		—			1,804		—		—		—			1,804
Changes in fair value included in earnings		462			10,602		602		—		—			11,666
Balance—at March 31, 2021	$	50,364		$	16,971	$	21,488	$	—	$	—		$	88,823

~~(1)~~

~~Current portion of the contingent consideration is recorded in accounts payable and other accrued liabilities.~~

~~(2)~~

~~Long term portion of the contingent consideration is recorded in other non-current liabilities.~~

Quantitative Information about Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3):

Business Acquisitions Contingent Consideration ~~Payable~~—~~CTEH’s~~The fair value of the contingent consideration payable ~~fair value~~associated with the acquisition of CTEH and MSE was ~~valued~~determined using a Monte Carlo simulation ~~analysis~~of earnings in a risk-neutral ~~framework with assumptions for volatility, risk-free rate and dividend yield.~~Geometric Brownian Motion framework. The fair values of the contingent consideration payables for the other acquisitions were calculated based on expected target achievement amounts, which are measured quarterly and then subsequently adjusted to actuals at the target measurement date.

The method used to price these liabilities is considered level 3 due to the subjective nature of the unobservable inputs used to determine the fair value. The input is the expected achievement of ~~earnout~~earn-out thresholds.

~~Compound Embedded~~Conversion Option—The fair value of the ~~compound~~ embedded ~~option~~derivative associated with the issuance of the Convertible and Redeemable Series A-2 Preferred Stock (Note 16) was estimated using a “with-and-without” method. The “with-and-without” methodology ~~involves valuing~~considers the ~~whole instrument~~value of the security on an as-is basis and then ~~valuing the instrument~~ without the embedded ~~derivative feature.~~conversion premium. The difference between the ~~entire instrument with~~two scenarios is the ~~embedded derivative feature compared to the instrument without the embedded derivative feature is the~~implied fair value of the embedded derivative. The unobservable ~~inputs are based~~input is the required rate of return on ~~a 100% probability of an IPO event and IPO date.~~the Series A-2. The considerable quantifiable inputs in the ~~compound embedded option were: (i)~~valuation relate to the ~~future value~~timing of the compound embedded option, (ii) the fair value of the Convertible and Redeemable Series A-2 Preferred Stock, (iii) the present value of the total instrument, as well as the present value of the compound embedded feature plus the fair value of the instrument, and (iv) the risk free, discount rates, conversion date and maximum conversion amounts.conversions or redemptions.

Contingent Put Option—The fair value of the contingent put option associated with the issuance of the Redeemable Series A-1 Preferred Stock was estimated using a “with-and-without” method. The “with-and-without” methodology ~~involves valuing~~considers the ~~whole instrument~~value of the security on an as-is basis and then ~~valuing the instrument~~ without the ~~individual~~ embedded contingent put option. The difference between the ~~entire instrument with~~two scenarios is the ~~embedded contingent put option compared to the instrument without the embedded contingent put option is the~~implied fair value of the embedded derivative, recorded as the contingent put option liability. ~~The unobservable inputs are based~~In this case the Series A-1 was redeemed on ~~a 100% probability~~the date of ~~an IPO event and IPO date. The considerable quantifiable inputs in~~value so the ~~contingent put option liability were: (i) the future~~ value of the ~~put option, (ii)~~“with” scenario is known. The unobservable input is the ~~fair value~~required rate of return on the ~~Redeemable~~ Series A-1 ~~Preferred Stock, (iii)~~through to maturity in the ~~present value of the total instrument, as well as the present value of the contingent put option feature plus the fair value of the instrument, and (iv) the risk free and discount rates.~~“without” scenario. The contingent put option was redeemed in July 2020 (Note ~~22)~~15).

Warrant ~~Options~~Option—The warrant option was exercised on July 30, 2020 (Note 11). The fair value of the warrant option associated with the issuance of the Redeemable Series A-1 Preferred Stock was calculated based on the Black-Sholes pricing model using the following assumptions:

	June 30,						March 31,
	2020			2019			2020
Common stock value (per share)	$	31.60		$	26.90		$	31.60
Expected volatility		43.64	%		49.17	%		35.93	%
Risk-free interest rate		0.66	%		2.00	%		0.70	%
Expected life (years)		10			10		10

The fair value of the warrant option associated with the issuance of the Convertible and Redeemable Series A-2 Preferred Stock was calculated based on a Monte Carlo simulation analysis with assumptions for (i) stock price, (ii) volatility based on the median historical volatility of publicly listed comparable companies’ stock price returns, (iii) risk-free rates based on U.S. treasury yields and (iv) dividend yield.

The method used to price ~~these liabilities~~this liability is considered Level 3 due to the subjective nature of the unobservable inputs (common stock value and expected volatility) used to determine the fair value.

~~15.~~14. COMMITMENTS AND CONTINGENCIES

Operating Leases—The Company leases office facilities over various terms expiring through ~~2028.~~2030. Certain of these operating leases contain rent escalation clauses. The Company also has office equipment leases that expire through 2025. The following is a schedule of the future minimum lease payments by year under the ~~leases as of June 30, 2020:~~leases:

June 30,	Rent		Office Equipment		Total
2021	$	6,095	$	344	$	6,439
March 31,							Rent		Office Equipment		Total
2022		4,846		311		5,157	$	7,105	$	371	$	7,476
2023		3,513		201		3,714		5,115		268		5,383
2024		2,030		62		2,092		3,598		90		3,688
2025 and thereafter		1,573		3		1,576
	$	18,057	$	921	$	18,978
2025								1,757		22		1,779
2026 and thereafter								4,896		—		4,896
Total							$	22,471	$	751	$	23,222

Total rent expense under operating leases was ~~$2.1~~$2.5 million and ~~$4.2~~$2.1million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~respectively, and $1.8 and $3.6 for the three and six months ended June 30, 2019, respectively~~respectively.

Other Commitments—The Company has commitments under the ~~New~~2020 Credit Facility, its equipment line of credit and its capital lease obligations (Note ~~14)~~12).

Contingencies—The Company is subject to purchase price contingencies related to earn-outs associated with certain acquisitions (Note 6).

Legal—In the normal course of business, the Company is at times subject to pending and threatened legal actions. In management’s opinion, any potential loss resulting from the resolution of these matters is not expected to have a material effect on the unaudited condensed consolidated results of operations, financial position or cash flows of the Company.

~~16.~~15. REDEEMABLE SERIES A-1 PREFERRED STOCK

On October 19, 2018, the Company issued 12,000 shares of Redeemable Series A-1 Preferred Stock with a par value of $0.0001 per share and a detachable warrant to purchase 534,240 shares of the Company’s common stock. Each preferred share was issued as part of a unit, which consisted of one share of the Redeemable Series A-1 Preferred Stock at $0.01 million per share.

On April 13, 2020, the Company amended and restated the certificate of designation of the Company’s Redeemable Series A-1 Preferred Stock. The most significant changes in the amendment included (i) the Redeemable Series A-1 Preferred Stock became pari passu with the Convertible and Redeemable Series A-2 Preferred Stock (Note ~~17)~~16), (ii) the maturity was extended to October 2024; (iii) the Company ~~may~~could use up to $50.0 million of indebtedness or cash on hand to redeem the Redeemable Series A-1 Preferred Stock, and (iv) upon an IPO, up to 50.0% of accumulated dividends ~~may~~could be paid in shares of common ~~shares~~stock and (v) the Company ~~may~~could elect to reduce the three year make whole penalty to a two year make whole penalty if the warrant issued in connection with the issuance of the Redeemable Series A-1 Preferred Stock iswas redeemed in full at a share price of no less than $31.60. Following a partial redemption of outstanding Redeemable Series A-1 Preferred Stock, the dividend rate of the remaining Redeemable Series A-1 Preferred Stock would be reduced proportionally (between 15.0% and 9.0%) in relation to the proportion of Redeemable Series A-1 Preferred Stock redeemed, with the rate increasing by an additional 1.0% for dividends that are accrued versus paid in cash. Based on a qualitative assessment performed by the Company, the Redeemable Series A-1 Preferred Stock amendments did not represent a significant long-term change to the original terms of the instrument and, therefore, there was no change in the accounting of the instrument.

On July 27, 2020, the Company redeemed in full the Redeemable Series A-1 Preferred Stock, including the guaranteed minimum two-year dividend.

The Redeemable Series A-1 Preferred Stock ~~contains~~contained restrictive covenants. ~~As of June 30, 2020 and December 31, 2019,~~Prior to its redemption, the Company was subject to a consolidated total leverage ratio (including the outstanding principal and accrued dividend on the Redeemable Series A-1 Preferred Stock) limit of less than 10.0 times as of the end of any fiscal quarter ending until maturity. ~~The Company was in compliance with~~

Before redemption, the ~~covenants as of June 30, 2020 and December 31, 2019. The~~ Redeemable Series A-1 Preferred Stock ~~has a liquidation preference of $0.01 million per share.~~

~~The Redeemable Series A-1 Preferred Stock accrues~~accrued dividends quarterly at an annual rate of 15.0% with respect to ~~any~~ dividends that were paid in cash and at an annual rate of 14.2% with respect to dividends that ~~are~~were accrued. In the case of a redemption upon the occurrence of an IPO, the holder is guaranteed a minimum of two years of dividends or in the event of an optional redemption event other than in connection with an IPO, the holder is guaranteed a minimum of three years of dividends. Total accrued and unpaid dividends as of June 30, 2020 and December 31, 2019 were $32.2 million and $21.9 million, respectively.

~~The total accreted amount as of June 30, 2020 was $34.3 million.~~ At issuance the Company determined that the detachable warrant (Note 11) and the contingent put option were required to be accounted for ~~separately (Notes 11 and 12).~~separately. The ~~Redeemable Series A-1 Preferred Stock, including~~contingent put option change in value of $29.6 million for the ~~guaranteed minimum dividend,~~three months ended March 31, 2020 was ~~fully redeemed on July 27, 2020 (Note 23).~~recorded to other expense.

~~17.~~16. CONVERTIBLE AND REDEEMABLE SERIES A-2 PREFERRED STOCK

On April 13, 2020, the Company entered into an agreement to issue 17,500 shares of the Convertible and Redeemable Series A-2 Preferred Stock with a par value of $0.0001 per share and a detachable warrant to purchase shares of the Company’s common stock with a 10-year life, in exchange for gross proceeds of $175.0 million, net of $1.3 million debt issuance costs. ~~Each~~Before the Company’s IPO, each share of Convertible and Redeemable Series A-2 Preferred Stock ~~accrues~~accrued dividends at the rate of 15.0% per annum, with respect to dividends that ~~are~~were paid in cash, and 14.2% per annum, with respect to dividends that ~~are~~were accrued. The Convertible and Redeemable Series A-2 Preferred Stock contains restrictive covenants that include: (i) maximum 4.0 times debt incurrence test and (ii) 10.0 times total leverage cap (inclusive of the outstanding balanceCompany paid dividends on ~~the Convertible and Redeemable Series A-2 Preferred Stock).~~

The Company may, at its option on any one or more dates, redeem all or a minimum portion (the lesser of (i) $50.0 million in aggregate stated value of the Convertible and Redeemable Series A-2 Preferred Stock and (ii) all of the Convertible and Redeemable Series A-2 Preferred Stock then outstanding) of the outstanding Convertible and Redeemable Series A-2 Preferred Stock in cash. In the event the Company redeemed all or a portion of the Convertible and Redeemable Series A-2 Preferred Stock prior to the three year anniversary of the issuance date, such redemption amount shall include principal, accrued but unpaid interest and a make whole payment such that the aggregate redemption amount reflects three years of dividends.

On the occurrence of (i)(x) before a private offering which results in a redemption in full of the Redeemable Series A-1 Preferred Stock, the four-and-a-half-year anniversary of the closing date or (y) after a private offering which results in a redemption in full of the Redeemable Series A-1 Preferred Stock, the five-year anniversary of the closing date, (ii) a change of control, (iii) a sale of the Company, (iv) a non-qualifying IPO, (v) any recapitalization of the Company (other than a redemption of the Redeemable Series A-1 Preferred Stock) or (vi) an event of noncompliance, as defined in the Series A-2 certificate of designation (each, a “mandatory redemption event”), the Company shall, at the option of the holders of a majority of the Convertible and Redeemable Series A-2 Preferred Stock, redeem all shares of the Convertible and Redeemable Series A-2 Preferred Stock ~~for cash, at a price per share~~ of $4.1 million during the three months ended March 31, 2021.

At issuance, the Company determined that Convertible and Redeemable Series A-2 Preferred Stock ~~equal~~and the detachable warrant (Note 11), were required to ~~the applicable redemption price on such mandatory redemption date.~~be accounted for separately.

Upon ~~a qualifying~~the Company’s IPO, following which the Redeemable Series A-1 Preferred Stock iswas fully redeemed, the Convertible and Redeemable Series A-2 Preferred Stock terms automatically ~~update~~updated to the following: (i) no mandatory redemption, (ii) no ~~principal~~stated value cash repayment obligation other than in the event of certain defined liquidation events, (iii) only redeemable at the Company’s option, (iv) the instrument ~~becomes~~became convertible into common stock beginning on the four year anniversary of issuance at a 15.0% discount to the common stock market price (with a limit of $60.0 million in stated value of Convertible and Redeemable Series A-2 Preferred Stock eligible to be converted in any 60-day period prior to the seventh anniversary of issuance and the amount of stated value of the Convertible and Redeemable Series A-2 Preferred Stock eligible for conversion limited to $60.0 million during year 5 and $120.0 million (which includes the aggregate amount of ~~principal~~the stated value of the Convertible and Redeemable Series A-2 Preferred Stock and any accrued but unpaid dividends added to such ~~principal~~stated value of any shares of Convertible and Redeemable Series A-2 Preferred Stock converted in year 5) during year 6), (v) the dividend rate ~~steps~~stepped down to 9.0% per year with required quarterly cash payments, (vi) in an event of noncompliance, the dividend rate shall increase to 12.0% per annum for the first 90-day period from and including the date the noncompliance event occurred, and thereafter shall increase to 14.0% per annum, (vii) the debt incurrence test

ratio ~~increases~~increased to 4.5 times, ~~(unless the Redeemable Series A-1 Preferred Stock is partially repaid with debt but only for so long as such debt remains unpaid) and (vii) removal of~~(viii) the total leverage cap ~~covenant.~~ covenant was removed, and (ix) minimum repayment amount dropped down from $50.0 million to $25.0 million.

The ~~Company’s IPO~~Company may, at its option on any one or more dates, redeem all or a minimum portion (the lesser of (i) $25.0 million in ~~July 2020 constituted a qualifying IPO for purposes of the terms~~aggregate stated value of the Convertible and Redeemable Series A-2 Preferred Stock ~~(Note 23).~~and (ii) all of the Convertible and Redeemable Series A-2 Preferred Stock then outstanding) of the outstanding Convertible and Redeemable Series A-2 Preferred Stock in cash.

With respect to any redemption of any share of the Convertible and Redeemable Series A-2 Preferred Stock prior to the third-year anniversary, the Company is subject to a make whole penalty in which the holders of the Convertible and Redeemable Series A-2 Preferred Stock are guaranteed a minimum repayment equal to outstanding redeemed ~~principal~~stated value plus three years of dividends accrued or accruable thereon.

~~Following a private offering, following which the Redeemable Series A-1 Preferred Stock is fully redeemed, the~~The Convertible and Redeemable Series A-2 Preferred Stock terms automatically update to the following (i) mandatory redemption date extended to 5 years from date of issuance, (ii) the dividend rate steps down to 9.0% per year (payable in cash only) with quarterly cash payments required and (iii) the total leverage cap covenant is removed and (iv) the debt incurrence test ratio increases to 4.5 times (unless the Redeemable Series A-1 Preferred Stock is partially repaid with debt but only for so long as such debt remains unpaid).

Following a partial redemption of outstanding Redeemable Series A-1 Preferred Stock, the dividend rate of the Convertible and Redeemable Series A-2 Preferred Stock is reduced proportionally (between 15.0% and 9.0%) in relation to the proportion of the Redeemable Series A-1 Preferred Stock redeemed, with the rate increasing by an additional 1.0% for dividends are accrued versus paid in cash. Following the completion of the Company’s initial public offering and redemption of the Series A-1 preferred stock on July 27, 2020, the Series A-2 preferred stock dividend rate changed to 9.0% per annum, with such dividends accruing daily and compounding quarterly (Note 23).

~~The Company classified the Convertible and Redeemable Series A-2 Preferred Stock as mezzanine equity since the instrument~~ does not meet the definition of a liability pursuant to “ASC 480- Distinguishing Liabilities from ~~Equity”~~Equity.” However, as (i) the instrument is redeemable upon a change of control as defined in the certificate of designations governing the terms of the Convertible and Redeemable Series A-2 Preferred Stock, and (ii) the Company cannot assert it would have sufficient authorized and unissued shares of common stock to settle all future conversion requests due to the variable conversion terms, the instrument is redeemable upon the occurrence of ~~an event~~events that isare not solely within the control of the ~~Company. Given~~Company, and therefore the Company classifies the Convertible and Redeemable Series A-2 Preferred Stock as mezzanine equity. Subsequent adjustment of the carrying value of the instrument is required if the instrument is probable of becoming redeemable. As of March 31, 2021, the Company has determined that a change of control is not probable. Additionally, as of March 31, 2021, the Company has determined that it is not probable that there will be a future conversion request that the Company is unable to settle with authorized and issued shares based on the Company’s current stock price and available shares as well as the Company’s monitoring efforts to ensure there are a sufficient number of shares available to settle any conversion request. Therefore, as of March 31, 2021, the Company has determined that the instrument is not probable of becoming redeemable, ~~(it is only redeemable upon liquidation/ or a change of control),~~and does not believe subsequent adjustment of the carrying value of the instrument ~~is not~~will be necessary. The Convertible and Redeemable Series A-2 Preferred Stock ~~has~~had an aggregate liquidation preference of ~~$181.2~~$182.2 million as of ~~June 30, 2020.~~March 31, 2021.

The Convertible and Redeemable Series A-2 Preferred Stock contains embedded features that are required to be bifurcated and are subject to separate accounting treatment from the instrument itself. ~~These~~At issuance, these embedded features ~~consist~~consisted of (i) a contingent dividend feature associated with the decrease in the dividend rate upon an IPO and (ii) a conversion option of the preferred shares to shares of common ~~shares~~stock beginning on the fourth-year anniversary of the issuance date. Upon the Company’s IPO, the embedded derivative only consisted of the conversion option. As of ~~June 30, 2020, these~~March 31, 2021, this conversion embedded ~~features~~feature had a net fair value of ~~$8.6~~$21.5 million. The change in value of ~~$0.8~~$0.6 million for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 was recorded to other ~~income (expense). The contingent dividend rate feature and the conversion option are bundled together as a single, compound embedded derivative, as an asset or a liability.~~expense.

~~At issuance, the Company determined that Convertible and Redeemable Series A-2 Preferred Stock and the detachable warrant, was also required to be accounted for separately (Notes 11).~~

~~18.~~17. STOCKHOLDERS’ ~~DEFICIT~~EQUITY (DEFICIT)

Authorized Capital Stock—The Company was authorized to issue ~~25,000,000~~190,000,000 shares of common stock, with a par value of $0.000004 per share as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

Warrants—In May 2015, the Company issued warrants to acquire 116,350 shares of Common Stock at a price of approximately $17.19 per share to the placement agent as consideration for backstopping the financing completed in May 2015. ~~There~~These warrants were ~~no changes related to these warrants~~exercised in full as a cashless transaction during the three ~~and six~~ months ended ~~June 30, 2020 and June 30, 2019.~~March 31, 2021. As a result of this cashless transaction, the resulting number of shares issued was 67,713 shares.

Common Stock Issuances ~~and Repurchases~~—~~During the three and six months ended June 30, 2020, the~~The Company issued ~~791,139~~the following shares of common stock with an average price per share of $31.60, in connection with the CTEH business acquisition and issued 3,500 shares at an average price per share of $6.03, in connection with the exercise of certain employee stock options. During the three months ended June 30, 2019, the Company issued 125,031 shares of common stock with an average price per share of $26.90, in connection with the TES and TESUS business acquisition and 13,750 shares of common stock with an average price per share of $7.38, in connection with the exercise of certain employee stock options. During the six months ended June 30, 2019, the Company issued 125,031 shares of common stock with an average price per share of $26.90, in connection with the TES and TESUS business acquisition and 15,000 shares of common stock with an average price per share of $6.71, in connection with the exercise of certain employee stock options.stock:

	Three Months Ended March,
	2021				2020
	Shares		Average Price per Share		Shares		Average Price per Share
Acquisitions		71,740	$	31.65		—	$	—
Exercise of warrants		67,713		17.19		—		—
Exercise of options		330,060		6.62		—		—
Restricted shares, net		36,817		29.88		—		—
Total		506,330	$	13.27		—	$	—

Employee Equity Incentive Plans—The Company has two plans under which stock-based awards have been issued: (i) the Montrose Amended& Restated 2017 Stock Incentive Plan (“2017 Plan”) and (ii) the Montrose Amended & Restated 2013 Stock Option Plan (“2013 Plan”) (collectively the “Plans”).

As of ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ there was ~~$6.5~~$18.8 million and ~~$6.8~~$7.2 million, respectively, of total unrecognized stock compensation expense related to unvested options and restricted stock granted under the Plans. Such unrecognized expense is expected to be recognized over ~~the next two years.~~a weighted-average three year period. The following number of shares were authorized to be issued and available for ~~grant as of June 30, 2020 and June 30, 2019:~~grant:

	June 30, 2020				March 31, 2021
	2017 Plan		2013 Plan		2017 Plan		2013 Plan		Total
Shares authorized to be issued		1,066,160		2,050,244		3,944,750		2,047,269		5,992,019
Shares available for grant		20,817		—		1,618,996		—		1,618,996

	June 30, 2019				March 31, 2020
	2017 Plan		2013 Plan		2017 Plan		2013 Plan		Total
Shares authorized to be issued		981,800		2,074,604		1,057,785		2,058,619		3,116,404
Shares available for grant		201,183		—		8,217		4,775		12,992

Total stock compensation expense for the Plans was as follows:

	Three Months Ended June 30,																Three Months Ended March 31,
	2020								2019								2021								2020
	2017 plan				2013 plan				2017 plan				2013 plan				2017 plan				2013 plan				2017 plan				2013 plan
	Options		Restricted Stock		Options		Total		Options		Restricted Stock		Options		Total		Options		Restricted Stock		Options		Total		Options		Restricted Stock		Options		Total
Cost of revenue	$	342	$	—	$	61	$	403	$	205	$	—	$	147	$	352	$	606	$	—	$	10	$	616	$	355	$	—	$	70	$	425
Selling, general and administrative expense		299		370		68		737		145		110		687		942		1,004		182		3		1,189		287		370		68		725
	$	641	$	370	$	129	$	1,140	$	350	$	110	$	834	$	1,294
Total																	$	1,610	$	182	$	13	$	1,805	$	642	$	370	$	138	$	1,150

Six Months Ended June 30,

2020

2019

2017 plan

2013 plan

2017 plan

2013 plan

Options

Restricted Stock

Options

Total

Options

Restricted Stock

Options

Total

Cost of revenue

$
697

$
—

$
131

$
828

$
345

$
—

$
293

$
638

Selling, general and administrative expense

586

740

136

1,462

272

212

1,400

1,884

$
1,283

$
740

$
267

$
2,290

$
617

$
212

$
1,693

$
2,522

Montrose Amended & Restated 2017 Stock Incentive Plan

Restricted Stock—During the ~~six~~three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ the Company issued ~~33,229~~14,532 and ~~30,000~~33,229 shares of restricted stock with a fair market value of ~~$31.60~~$30.96 and ~~$24.00~~$31.60 per share, respectively, to certain 2017 Plan participants as Director’s compensation. These shares of restricted stock granted in the ~~six~~three months ended ~~June 30,~~March 31, 2021 and March 31, 2020 vest one year from the date of grant, ~~and the shares of restricted stock granted during the six months ended June 30, 2019 vest over three years,~~ or, in each case, in full upon a change in control, subject to the participant’s continued service as a Director throughout such date, or upon retirement. Members of the Board of Directors that receive stock-based compensation are treated as employees for accounting purposes. NoThere were 36,817 and zero shares of restricted ~~shares~~stock that became fully vested and were released as unrestricted shares of common stock during the ~~six~~three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, respectively. There were no forfeitures of restricted shares during the three months ended March 31, 2021 and ~~June 30, 2019.~~March 31, 2020. There were an aggregate of ~~273,122~~281,705 and ~~242,025~~273,122 restricted shares outstanding as of ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ respectively. ~~There were no forfeitures, cancellations or expirations of restricted shares during the six and three months ended June 30, 2020 and June 30, 2019.~~

Options—Options issued to all optionees under the 2017 Plan vest over four years from the date of issuance (or earlier vesting start date, as determined by the Board of Directors) as follows: one half on the second anniversary of date of grant and the remaining half on the fourth anniversary of the date of grant, with the exception of certain annual grants to certain executive officers, which vest annually over a 3-year and 1-year period. The following summarizes the options activity of the 2017 ~~Plan for the six months ended June 30, 2020 and June 30, 2019:~~Plan:

Options to
Purchase
Common
Stock

Weighted-
Average
Exercise
Price per
Share

Weighted
Average
Grant Date
Fair Value
per Share

Weighted
Average
Remaining
Contract Life
(in Years)

Aggregate
Intrinsic
Value
of In-The-
Money
Options (in
Thousands)

Outstanding at December 31, 2018

257,762

$
20

$
10

—

$
1,151

Granted

308,990

24

13

Forfeitured/cancelled

(14,800
)

24

Outstanding at June 30, 2019

551,952

23

12

—

2,136

Outstanding at December 31, 2019

617,852

24

12

7.82

4,696

Granted

160,712

32

12

Forfeitured/cancelled

(5,500
)

20

Outstanding at June 30, 2020

773,064

26

12

8.03

4,651

Options vested and expected to vest

773,064

$
26

8.57

$
4,651

	Options to Purchase Common Stock			Weighted- Average Exercise Price per Share		Weighted Average Grant Date Fair Value per Share		Weighted Average Remaining Contract Life (in Years)		Aggregate Intrinsic Value of In-The- Money Options (in Thousands)
Outstanding at January 1, 2020		617,852		$	24	$	12		7.82	$	4,696
Granted		158,062			32		12		—		—
Forfeited/ cancelled		(2,000	)		32		—		—		—
Outstanding at March 31, 2020		773,914			26		12		8.50		4,693

Outstanding at January 1, 2021		1,840,229			23		12		9.09		15,598
Granted		224,270			38		20		—		—
Forfeited/ cancelled		(10,000	)		26		—		—		—
Expired		(1,250	)		18		—		—		—
Exercised		(17,188	)		16		—		—		519
Outstanding at March 31, 2021		2,036,061			24		13		8.97		52,317
Exercisable at March 31, 2021		218,379			24		—		7.79		5,702
Options vested and expected to vest		2,036,061			24		—		8.97		52,317

The following weighted-average assumptions were used in the Black-Sholes option-pricing model ~~calculation for the six months ended June 30, 2020 and June 30, 2019:~~calculation:

							March 31,			March 31,
	June 30, 2020			June 30, 2019			2021			2020
Common stock value (per share)	$	31.60		$	26.90		$ 37.61			$ 31.60
Expected volatility		45.26	%		48.42	%		58.01	%		31.87	%
Risk-free interest rate		0.49	%		2.19	%		0.71	%		1.78	%
Expected life (years)		7			7		5.5-7.0			7.0
Forfeiture rate	None			None			None			None
Dividend rate	None			None			None			None

Montrose Amended & Restated 2013 Stock Option Plan—The following summarizes the activity of the 2013 ~~Plan for the six months ended June 30, 2020 and June 30, 2019:~~Plan:

Options to
Purchase
Common
Stock

Weighted-
Average
Exercise
Price per
Share

Weighted
Average
Grant Date
Fair Value
per Share

Weighted
Average
Remaining
Contract Life
(in Years)

Aggregate
Intrinsic
Value
of In-The-
Money
Options (in
Thousands)

Outstanding at December 31, 2018

1,900,404

$
6

$
1

7.30

33,290

Forfeitured/ cancelled

(12,600
)

14

Expired

(4,475
)

8

Exercised

(11,385
)

5

283

Outstanding at June 30, 2019

1,871,944

6

1

6.87

38,235

Outstanding at December 31, 2019

1,855,469

6

1

6.40

46,617

Forfeitured/ cancelled

(1,250
)

6

Expired

(8,550
)

6

Exercised

(3,500
)

6

89

Outstanding at June 30, 2020

1,842,169

6

1

5.91

46,276

Options vested and expected to vest

1,842,169

6

5.43

46,276

	Options to Purchase Common Stock			Weighted- Average Exercise Price per Share		Weighted Average Grant Date Fair Value per Share		Weighted Average Remaining Contract Life (in Years)		Aggregate Intrinsic Value of In-The- Money Options (in Thousands)
Outstanding at January 1, 2020		1,855,469		$	6	$	1		6.14		46,617
Expired		(725	)		6		—		—		—
Outstanding at March 31, 2020		1,854,744			6		1		6.14		46,521

Outstanding at January 1, 2021		1,787,869			6		—		5.40		43,867
Exercised		(311,872	)		6		—		—		12,321
Outstanding at March 31, 2021		1,475,997			6		—		5.14		64,492
Exercisable at March 31, 2021		1,456,922			6		—		5.13		63,740
Options vested and expected to vest		1,475,997			6		—		5.14		64,492

Total shares outstanding from exercised options were ~~205,100~~579,260 shares and 201,600 shares as of ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and December 31, 2019.~~respectively.

Common Stock Reserved for Future Issuances—~~At June 30, 2020 and June 30, 2019, the~~The Company has reserved certain stock of its authorized but unissued common stock for possible future issuance in connection with the following:

					March 31,
	June 30, 2020		December 31, 2019		2021		2020
Warrants		2,002,550		650,590		—		650,590
Montrose 2013 Stock Incentive Plan		2,050,244		2,058,619		2,047,269		2,058,619
Montrose 2017 Stock Incentive Plan		1,066,160		997,785		3,944,750		1,057,785
Common stock reserved for future issuance		5,118,954		3,706,994		5,992,019		3,766,994

~~19.~~18. NET ~~INCOME (LOSS)~~LOSS PER SHARE

Basic net ~~income (loss)~~loss per share is computed by dividing net ~~income (loss)~~loss attributable to common stockholders by the weighted average number of common shares outstanding during each period. The Redeemable Series A-1 Preferred Stock, which was outstanding prior to its redemption on July 27, 2020, and the Convertible and Redeemable Series A-2 Preferred Stock are considered a participating security during the applicable period. Net losses are not allocated to the Redeemable Series A-1 Preferred stockholders nor the Convertible and Redeemable Series A-2 stockholders, as they were not contractually obligated to share in the Company’s losses.

Diluted net ~~income (loss)~~loss per share is computed by dividing net ~~income (loss)~~loss attributable to common stockholders by the weighted average number of common and dilutive common equivalent shares outstanding for the period using the treasury-stock method or the as-converted method. ~~Shares~~During the three months ended March 31, 2020, shares issuable in connection with the warrant options (Note 11) ~~are~~were considered outstanding common shares for purposes of calculating net ~~income (loss)~~loss per share since they dodid not contain any conditions that must be satisfied for the holder to exercise the warrant. Potentially dilutive shares are comprised of restricted stock and shares of common stock underlying stock options outstanding under the Plans and warrants (other than warrant options) to purchase common stock.During the three months ended March 31, 2021 and March 31, 2020, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss and potentially dilutive shares being anti-dilutive.

The following table summarizes the computation of basic and diluted net ~~income (loss)~~loss per share attributable to common stockholders of the ~~Company for the three and six months ended June 30, 2020 and 2019:~~Company:

Three Months Ended June 30,

Six Months Ended June 30,

In thousands, except for net loss per share

2020

2019

2020

2019

Net income (loss)

$
13,224

$
(322
)

$
(28,024
)

$
(5,564
)
Accretion of redeemable preferred stock

(5,644
)

(4,777
)

(11,059
)

(9,311
)
Net income (loss) attributable to common stockholders - basic
   and diluted

7,580

(5,099
)

(39,083
)

(14,875
)
Weighted-average common shares outstanding -
   basic

10,649

8,647

9,718

8,602

Net income (loss) per share attributable to common stockholders -
   basic

$
0.71

$
(0.59
)

$
(4.02
)

$
(1.73
)
Weighted-average common shares outstanding -
   diluted

19,139

8,647

9,718

8,602

Net income (loss) per share attributable to common stockholders -
   diluted

$
0.40

$
(0.59
)

$
(4.02
)

$
(1.73
)

	Three Months Ended March 31,
(In thousands, except for net loss per share)	2021			2020
Net loss	$	(11,596	)	$	(41,248	)
Accretion of redeemable series A-1 preferred stock		—			(5,415	)
Convertible and redeemable series A-2 preferred stock dividend		(4,100	)		—
Net loss attributable to common stockholders – basic and diluted		(15,696	)		(46,663	)
Weighted-average common shares outstanding – basic and diluted		25,117			8,904
Net loss per share attributable to common stockholders – basic and diluted	$	(0.62	)	$	(5.24	)

The following equity shares were excluded from the calculation of diluted net loss per share attributable to common stockholders because their effect would have been ~~anti-dilutive for the periods where a net loss was recorded:~~anti-dilutive:

	June 30,				March 31,
	2020		2019		2021		2020
Stock options		2,685,439		1,960,887		3,293,679		2,095,909
Restricted stock		24,362		168,001		26,201		19,059
Warrants		116,350		116,350		—		116,350

~~20.~~19. SEGMENT INFORMATION

The Company has three operating and reportable segments: Assessment, Permitting and Response, Measurement and Analysis and Remediation and Reuse. These segments are monitored separately by management for performance against budget and prior year and are consistent with internal financial reporting. The Company’s operating segments are organized based upon primary services provided, the nature of the production process, their type of customers, methods used to distribute the products and the nature of the regulatory environment.

Segment Adjusted EBITDA is the primary measure of operating performance for all three operating segments. Segment Adjusted EBITDA is the calculated Company’s Earnings before Interest, Tax, Depreciation and Amortization (“EBITDA”), adjusted to exclude certain transactions such as stock-based compensation, acquisition costs and fair value changes in financial instruments, amongst others. The Chief Operating Decision Maker (“CODM”) does not review segment assets as a measure of segment performance.

Corporate and Other includes costs associated with general corporate overhead (including executive, legal, finance, safety, human resources, marketing and IT related costs) that are not directly related to supporting operations. Overhead costs that are directly related to supporting operations (such as insurance, software, licenses, shared services and payroll processing costs) are allocated to the operating segments on a basis that reasonably approximates an estimate of the use of these services.

Segment revenues and Adjusted EBITDA ~~for~~consisted of the ~~three and six months ended June 30, 2020 and June 30, 2019 were as follows:~~following:

	Three Months Ended June 30,										Six Months Ended June 30,										Three Months Ended March 31,
	2020					2019					2020					2019					2021					2020
			Segment					Segment					Segment					Segment					Segment					Segment
	Segment		Adjusted			Segment		Adjusted			Segment		Adjusted			Segment		Adjusted			Segment		Adjusted			Segment		Adjusted
	Revenues		EBITDA			Revenues		EBITDA			Revenues		EBITDA			Revenues		EBITDA			Revenues		EBITDA			Revenues		EBITDA
Assessment, Permitting and Response	$	18,631	$	4,989		$	5,028	$	2,002		$	23,161	$	6,431		$	9,603	$	3,996		$	75,262	$	15,804		$	4,530	$	1,442
Measurement and Analysis		37,036		11,615			34,617		7,979			73,476		19,176			62,948		12,112			33,440		4,860			36,440		7,379
Remediation and Reuse		18,099		2,375			17,756		2,399			38,160		4,481			35,804		4,875			25,115		2,481			20,061		2,107
Total Operating Segments		73,766		18,979			57,401		12,380			134,797		30,088			108,355		20,983			133,817		23,145			61,031		10,928
Corporate and Other				(5,084	)				(3,842	)				(10,640	)				(7,373	)		—		(6,345	)		—		(5,375	)
Total	$	73,766	$	13,895		$	57,401	$	8,538		$	134,797	$	19,448		$	108,355	$	13,610		$	133,817	$	16,800		$	61,031	$	5,553

Presented below is a reconciliation of the Company’s segment measure to ~~income (loss)~~loss before (expense) benefit from income ~~taxes for the three and six months ended June 30, 2020 and June 30, 2019:~~taxes:

For the Three Months Ended
June 30,

For the Six Months Ended
June 30,

2020

2019

2020

2019

Total

$
13,895

$
8,538

$
19,448

$
13,610

Interest Expense, net

(5,260
)

(1,181
)

(7,853
)

(2,460
)
Income tax benefit

1,759

1,712

4,911

896

Depreciation and Amortization

(9,784
)

(6,401
)

(17,344
)

(12,850
)
Stock-based compensation

(1,140
)

(1,294
)

(2,290
)

(2,522
)
Start-up losses and investment in new services

(296
)

(143
)

(675
)

(457
)
Acquisition costs

(2,454
)

(857
)

(3,761
)

(1,072
)
Fair value changes in contingent put option

22,602

—

(7,025
)

—

Fair value changes in warrant options

(4
)

(1,549
)

(2
)

(1,549
)
Fair value changes in compound embedded option

(756
)

—

(756
)

—

Fair value changes in contingent liabilities

(3,983
)

926

(3,983
)

926

Short term purchase accounting fair value adjustment
to deferred revenue

—

—

(243
)

—

IPO preparation costs

—

(73
)

(531
)

(86
)
Discontinued services⁽ⁱ⁾

(1,078
)

—

(7,496
)

—

Other expenses

—

—

(147
)

—

Expenses related to financing transactions

(277
)

—

(277
)

—

Net Income (Loss)

$
13,224

$
(322
)

$
(28,024
)

$
(5,564
)

	For the Three Months Ended March 31,
	2021			2020
Total	$	16,800		$	5,553
Interest expense, net		(2,688	)		(2,593	)
Income tax (expense) benefit		(2	)		3,152
Depreciation and amortization		(10,769	)		(7,560	)
Stock-based compensation		(1,805	)		(1,150	)
Start-up losses and investment in new services		(968	)		(379	)
Acquisition costs		(237	)		(1,307	)
Fair value changes in financial instruments		(602	)		(29,626	)
Fair value changes in business acquisitions contingent consideration		(11,064	)		—
Short term purchase accounting fair value adjustment to deferred revenue		—			(243	)
Initial public offering expense		—			(531	)
Discontinued services⁽ⁱ⁾		—			(6,417	)
Expenses related to financing transactions		(50	)		—
Other losses or expenses		(211	)		(147	)
Net loss	$	(11,596	)	$	(41,248	)

(i)During the first quarter of 2020, the Company determined to reduce the footprint of its environmental lab in Berkeley, California, and to exit its non-specialized municipal water engineering service line and its food waste biogas engineering service line. As a part of discontinuing service lines, the Company made the decision to book an additional bad debt reserve related to the uncertainty around the ability to collect on receivables related to these service lines (Note 3). It was determined that the discontinuation of these service lines did not represent a strategic shift that had (or will have) a major effect on the Company’s operations and financial results therefore did not meet the requirements to be classified as discontinued operations.

~~21.~~20. RELATED-PARTY TRANSACTIONS

The Company ~~engages~~engaged a related party to provide Quality of Earnings reports on acquisition targets. The Company paid this related party approximately zero and $0.1 million during the ~~six months ended June 30, 2020 and there were no payments made during the~~ three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and~~ ~~$0.1 million during both the three and six months ended June 30, 2019~~respectively for its services. This expense is included within ~~related-party expense~~selling, general and administrative expenses on the unaudited condensed consolidated

statements of operations. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had no significant unpaid invoices to this related party, which would be/are included in accounts payable and other accrued liabilities on the unaudited condensed consolidated statements of financial position. The related party used by the Company is partially owned through investment vehicles controlled by certain members of the Company’s Board of Directors.The Company ceased using the services of this related party during 2020.

During the year ended December 31, 2020, the holder of the Redeemable Series A-1 Preferred Stock and Convertible and Redeemable A-2 Preferred Stock became a stockholder in the Company. On the redemption date of the Redeemable Series A-1 Preferred Stock (Note 15), the Company issued 1,786,739 shares of common stock as dividend payment. Additionally, this related party exercised its warrant options (Note 11), becoming the holder of 2,534,239 additional common shares.

~~22.~~21. DEFINED CONTRIBUTION PLAN

On January 1, 2014, the Company established the Montrose Environmental Group 401(k) Savings ~~Plan.~~Plan (the “401(k) Savings Plan”). As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, plan participants may defer up to 85.0% of their eligible wages for the year, up to the Internal Revenue Service dollar limit and catch up contribution allowed by law. UpPrior to May 22, 2020, the Company provided employer matching contributions equal to 100.0% of the first 3.0% of the participant’s compensation and 50.0% of the participant’s elective deferrals that exceed 3.0% but do not exceed 4.0% of the participant’s compensation. ~~Subsequent to~~Beginning on May 22, 2020, the Company temporarily ceased making employer contributions. Employer contributions were reinstated beginning on April 23, 2021. Employer contributions under the 401(k) Savings Plan for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and March 31, 2020 were~~$0.4~~ zero ~~million~~ and $~~1.2~~0.8 million, respectively, ~~and~~ ~~$0.7 million and $1.3 million for the three and six months ended June 30, 2019, respectively,~~ and are included within selling, general, and administrative expenses on the unaudited condensed consolidated statements of operations.

~~23.~~22. SUBSEQUENT EVENTS

Business Acquisitions—On ~~July 14, 2020,~~April 1, 2021, the Company ~~amended and restated its certificate of incorporation to, among other things, increase the number of~~issued 539,607 shares of common stock valued at a price per share of $46.33 and paid in cash $25.0 million as additional consideration for the ~~Company is authorized~~acquisition of CTEH pursuant to ~~issue to 190,000,000.~~the 2020 earn-out provision of the transaction agreement.

On ~~July 27, 2020, the Company completed its IPO. In the IPO,~~April 1, 2021, the Company issued ~~and sold 11,500,000~~24,200 shares of common stock ~~including 1,500,000 shares issued~~valued at a price per share of $44.81 and paid in cash $8.0 million as additional consideration for the acquisition of MSE pursuant to the ~~underwriters full exercise on July 24, 2020~~purchase price true up and working capital surplus provision of ~~their option to purchase additional shares, at a price to~~ the ~~public of $15.00 per share, resulting in net proceeds to~~transaction agreement.

Debt—Effective April 27, 2021, the Company entered into a new Senior Secured Credit Agreement providing for a new $300.0 million credit facility comprised of ~~approximately $161.3~~a $175.0 million ~~after deducting underwriting discounts~~term loan and ~~commissions~~a $125.0 million revolving line of credit (the “2021 Credit Facility”), and ~~offering expenses of approximately $9.8 million payable by the Company. All shares issued and sold were registered pursuant to~~used a ~~registration statement on Form S-1 (File No.~~ ~~333-239542), as amended, declared effective by the Commission on July 22, 2020.~~

~~The Company used $131.8 million of proceeds and 1,786,739 shares of common stock to redeem in full all outstanding shares~~portion of the ~~Company’s Redeemable Series A-1 Preferred Stock.~~

Asproceeds from the 2021 Credit Facility to repay all amounts outstanding under the 2020 Credit Facility (Note 12). The 2021 revolving credit facility includes a ~~result of the $15.00 per share public offering price in the IPO, the warrant issued in connection with~~$20.0 million sublimit for the issuance of letters of credit. Subject to certain exceptions, all amounts under the ~~Convertible~~2021 Credit Facility will become due on April 27, 2026. The company has the option to borrow incremental term loans or request an increase in the aggregate commitments under the revolving credit facility up to an aggregate amount of $150.0 million subject to the satisfaction of certain conditions.

The 2021 Credit Facility term loan must be repaid in quarterly installments and ~~Redeemable Series A-2 Preferred Stock was adjusted pursuant to its terms and, upon closing of~~ shall amortize at the ~~IPO, represented a warrant to purchase 1,999,999 shares of common stock (an increase of 648,039 shares). On July 30, 2020, the holders of the warrants issued in connection~~following annualized rates beginning with the ~~Redeemable Series A-1~~quarter ended December 31, 2021 with the remaining balance due and ~~Convertible~~payable in full upon the five-year anniversary from the closing date:


	Amortization Table
	Year 1			Year 2			Year 3			Year 4			Year 5
Term Loan		5.0	%		5.0	%		7.5	%		7.5	%		10.0	%

The 2021 Credit Facility term loan and ~~Redeemable Series A-2 Preferred Stock, fully exercised~~ the ~~warrants,~~revolver bear interest subject to the Company’s leverage ratio and ~~paid~~LIBOR as follows:

Pricing Tier	Net Leverage Ratio	Senior Credit Facilities						Commitment Fee		Letter of Credit Fee
		LIBOR			Base Rate
1	≥ 3.75x to 1.0		2.50	%		1.50	%	0.25	%		2.50	%
2	<3.75x to 1.0 but ≥ 3.25 to 1.0		2.25			1.25		0.23			2.25
3	<3.25 to 1.0 but ≥ 2.50 to 1.0		2.00			1.00		0.20			2.00
4	<2.50 to 1.0 but ≥ 1.75 to 1.0		1.75			0.75		0.15			1.75
5	<1.75 to 1.0		1.50			0.50		0.15			1.50

Additionally, the Company ~~in cash~~may receive an interest rate adjustment of up to 0.05% under the ~~aggregate exercise price~~2021 Credit Facility based on the Company’s performance against certain defined sustainability and environmental, social and governance related objectives.

The 2021 Credit Facility includes a number of ~~$0.03 million in cash in return for 2,534,239 shares~~covenants imposing certain restrictions on the Company’s business, as well as financial covenants requiring the Company to remain below a maximum total net leverage ratio of ~~common stock.~~4.25 times, which steps down to 4.00 times beginning with the fiscal quarter ending December 31, 2022 through and including the fiscal quarter ending September 30, 2023 and then to 3.75 times beginning with the fiscal quarter ending December 31, 2023, and a minimum fixed charge coverage ratio of 1.25 times.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity, capital resources and other financial and operating information. We use words such as “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “position,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and similar terms and phrases to identify forward-looking statements in this filing. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we are expecting, including:

our limited operating history;

our history of losses and ability to achieve profitability;

general global economic, business and other conditions, the cyclical nature of our industry and the significant fluctuations in events that impact our business;

the impact of the COVID-19 pandemic on our business operations and on local, national and global economies;

the parts of our business that depend on difficult to predict natural or manmade events and the fluctuations in our revenue and customer concentration as a result thereof;

the highly competitive nature of our business;

our ability to execute on our acquisition strategy and successfully integrate and realize benefits of our acquisitions;

our ability to promote and develop our brands;

our ability to maintain and expand our client base;

our ability to maintain necessary accreditations and other authorizations in varying jurisdictions;

significant environmental governmental regulation;

our ability to attract and retain qualified managerial and skilled technical personnel;

safety-related issues;

allegations regarding compliance with professional standards, duties and statutory obligations and our ability to provide accurate results;

the lack of formal long-term agreements with many of our clients;

our ability to successfully implement our new enterprise resource planning system;

our ability to adapt to changing technology, industry standards or regulatory requirements;

government clients and contracts;

our ability to maintain our prices and manage costs; ›

our ability to protect our intellectual property or claims that we infringe on the intellectual property rights of others;

laws and regulations regarding handling of confidential information;

any failure in or breach of our networks and systems;

our international operations;

product related risks;

environmental regulations and liabilities; and

additional factors discussed in our filings with the Securities and Exchange Commission, or the SEC.

The forward-looking statements in this Quarterly Report on Form 10-Q are based on historical performance and management’s current plans, estimates and expectations in light of information currently available to us and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control, as well as the other factors described in Item 1A. “Risk Factors” in our ~~Final Prospectus dated July 22, 2020.~~Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 24, 2021, or the 2020 Form 10-K. Further, many of these factors are, and may continue to be, amplified by the COVID-19 pandemic.

Additional factors or events that could cause our actual results to differ may also emerge from time to time, and it is not possible for us to predict all of them. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by any forward-looking statement and, therefore, you should not regard any forward-looking statement as a representation or warranty by us or any other person that we will successfully achieve the expectation, plan or objective expressed in such forward-looking statement in any specified time frame, or at all. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us speaks only as of the date on which we make it. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.

Item 2. 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 historical audited and unaudited consolidated financial statements and related notes and other information included elsewhere in this filing and our other filings with the SEC, including our unaudited condensed consolidated financial statements and the accompanying notes as of and for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ included in Part I, Item 1. “Financial Statements” in this Quarterly Report on Form ~~10-Q .~~10-Q. 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 the section entitled “Forward-Looking Statements”, and elsewhere in this filing and our other filings with the SEC.

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 $1.25 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.

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, ~~through June 30, 2020,~~and given our expertise in helping businesses plan for and respond to disruptions, our scientists and response teams have helped clients ~~address COVID-19-related needs on approximately 200 separate projects, and continue to help clients~~ navigate their preparation for and response to the COVID-19 ~~infections.~~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. For more information on each of our operating segments, see Item 1. “Business” in the 2020 Form 10-K.

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, ~~for the first half of 2020,~~ we did experience some changes to our business operations. The changes were primarily composed of client postponement of on-site environmental

compliance testing, delays in project start dates 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 outside of the workplace. 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. We believe these COVID-19 impacts are temporary and accordingly, in the second quarter of 2020 we ~~have~~ instituted temporary cost mitigation measures such as ~~limited furloughs and~~ reducing non-billable time for a subset of our impacted workforce. We have now ended some of these cost containment measures. Some of these cost mitigation measures were reversed at the beginning of 2021, with the remaining measures expected to be fully reversed in the second quarter of 2021. Our businesses exposed to commercial food waste and non-specialized municipal water engineering projects also saw ~~or are seeing~~ 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, ~~our recent CTEH acquisition has~~we have seen benefits from COVID-19 given client demand for ~~its~~CTEH’s toxicology and response ~~services. In~~services, which represented a meaningful revenue stream in the ~~aggregate,~~three months ended March 31, 2021, and that, once the ~~majority~~pandemic subsides, we may not be able to replace in future periods. Although many parts of our business ~~and~~saw some impact from COVID-19, inthe aggregate, our ~~outlook for 2020~~overall businessbenefitted from COVID-19during the three months ended March 31, 2021, primarily as a result of COVID-19 response work performed by CTEH.

COVID-19 has ~~been largely unimpacted to-date.~~had an impact on our historical seasonality trends given the various government stay at home or business closure orders staring 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 ~~new credit facility,~~2021 Credit Facility, replacing our ~~prior senior secured credit facility,~~2020 Credit Facility, and as a result, increased ~~cash on hand and~~ borrowing capacity. We expect our sources of liquidity to be sufficient for our operating needs for the next twelve months. See ~~“Liquidity~~“—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 ~~anticipate utilizing~~utilized certain of these provisions in 2020, including ~~deferring~~the deferral of the employer side social security payments for payroll ~~paid~~ for the ~~remainder~~eligible portion of ~~2020, which~~the year. In total, we ~~expect will defer~~deferred approximately $5.0 million of 2020 payments to 2021 and 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 ~~pandemic, potential testing, treatment or~~roll-out and long-term efficacy of vaccines, ~~for the virus,~~ 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.

Acquisitions

We have been, and expect to continue to be, an acquisitive company. ~~Since January 1, 2017, we have acquired 22 businesses (seven businesses in each of the last three fiscal years and one in the second quarter of 2020).~~

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. ~~In April 2020, we acquired CTEH~~The table below sets forth the number of acquisitions completed, revenues generated by and ~~we acquired three businesses in~~ the ~~second quarter~~percentage of ~~2019. For~~total revenues attributable to those acquisitions completed during the three months ended June 30, 2020 and June 30, 2019, approximately $26.5 million and $1.9 million, or 19.7% and 1.8% of our revenues, respectively, was generated from acquisitions occurring during the applicable period. March 31, 2021:

Revenues

Percentage

Acquisitions

Attributable

(revenues in thousands)

Completed

to Acquisitions

Revenues

Three months ended March 31, 2021

3,981

2.97

We did not acquire any companies induring the ~~first quarter of~~three months ended March 31, 2020. ~~See Note 6 to our unaudited condensed consolidated financial statements.~~

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, in particular, by our recent acquisition of CTEH.~~acquisitions.

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. For the three months ended June 30, 2020 and June 30, 2019, amortization expense was $7.8 million and $4.5 million, respectively. For the six months ended June 30, 2020 and June 30, 2019, amortization expense was $13.3 million and $9.1 million, respectively. 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. For the three months ended June 30, 2020 and June 30, 2019, total acquisition-related costs were $2.5 million and $0.9 million, respectively. For the six months ended June 30, 2020 and June 30, 2019, total acquisition-related costs were $3.8 million and $1.1 million, respectively. 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. ~~For~~The amount of each for the three ~~and six~~ months ended June 30, 2020, change in the fair value of contingent consideration resulted in a net charge of $4.0 million. For the three and six months ended June 30, 2019, change in the fair value of contingent consideration resulted in a net gain of $0.9 million. Additionally, we may be required to make up to $80.0 million in earn-out payments over the next two years in connection with our recent acquisition of CTEH, a portion of which will be paid in theMarch 31, was:

	Three Months Ended March 31,
(in thousands)	2021		2020
Amortization expense	$	8,595	$	5,609
Acquisition-related costs		237		1,307
Fair value changes in business acquisitions contingent consideration		11,064		—

~~form of shares of our common stock. See “Liquidity and Capital Resources.”~~

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 may pay up to $30.0 million in earn-out payments in 2022 in connection with our CTEH acquisition. In connection with our most recent acquisition, MSE, we may make up to $6.2 million in aggregate purchase price true up and earn-out payments in 2022 and 2023. See Note 6 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

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.~~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 may also disclose organic growth combined with the annual organic revenue growth of CTEH, but excluding CTEH’s revenues from projects contributing more than $4.0 million of revenue. We expect to continue to disclose organic revenue growth with and without CTEH on an annual basis. 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 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~~Revenues 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 ~~$0.4 million~~zero and ~~$3.9~~$1.0 million in the three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019, respectively, and $1.3 million and $7.4 million in the six months ended June 30, 2020 and June 30, 2019,~~ respectively. Revenues from our Berkeley lab, which are included in the results of our Measurement and Analysis segment, were ~~$0.9 million~~zero and ~~$1.9~~$1.5 million in the three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019, respectively, and $2.5 million and $3.6 million in the six months ended June 30, 2020 and June 30,2019,~~ respectively. We ~~will not~~no longer generate any revenues from the Discontinued Service ~~Lines after the three months ended June 30, 2020.~~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 quarter to quarter and year to year. ~~See Note 20 to our unaudited condensed consolidated financial statements.~~ Inter-company revenues between business lines within segments have been eliminated. See Note 19 to our unaudited condensed consolidated financial statements included in Part 1, Item 1 “Financial Statements.”

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 three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~ we incurred interest expense of ~~$5.3~~$2.7 million and ~~$1.2~~$2.6 million, respectively. ~~For the six months ended June 30, 2020 and June 30, 2019, we incurred interest expense of $7.9 million and $2.5 million, respectively.~~

On April 13, 2020, we entered into ~~the Unitranche~~a new Credit Agreement providing for a ~~new~~ $225.0 million credit facility comprised of a $175.0 million term loan and a $50.0 million revolving credit facility, the 2020 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 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 a new Credit Agreement, 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%.

As a result of the lower interest rates under the 2021 Credit Facility, we expect interest expense to be lower for the remainder of 2021 as compared to 2020 periods despite higher outstanding debt balances. We expect interest expense to ~~increase as compared to 2019 periods due to the higher interest rates under our new credit facility and that it will~~ remain a significant cost as we continue to leverage our credit facility to support our operations and future acquisitions.

See Notes 12 and 22 to our unaudited condensed consolidated financial statements included in Part 1, Item 1 “Financial Statements” and “Liquidity and Capital Resources.”

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 have allowed us to improve our operating margins.

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 the temporary impact of COVID, 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

~~We expect to experience increased annual and quarterly revenue and earnings volatility as a result of the timing of large contract wins in our Remediation and Reuse segment. In addition, the~~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.~~disaster, and more recently, the benefit from COVID related work. We expect lower demand for COVID-19 related response services by CTEH after the second quarter of 2021. As a result, we may experience revenues and earnings in a quarter or year that are not indicative of future results.

Results of Operations

Three Months Ended ~~June 30, 2020~~March 31, 2021 Compared to the Three Months Ended ~~June 30, 2019~~March 31, 2020

For the Three Months

Ended June 30,

(in thousands, except per share data)

2020

2019

Statements of operations data:

Revenues

$
73,766

$
57,401

Cost of revenues (exclusive of depreciation and amortization)

45,889

39,349

Selling, general and administrative expenses

23,301

11,156

Related party expense

—

120

Depreciation and amortization

9,784

6,401

(Loss) income from operations

$
(5,208
)

$
375

Other income (expense)

21,933

(1,228
)
Interest expense, net

(5,260
)

(1,181
)
Income (loss) before income taxes

11,465

(2,034
)
Income tax benefit

(1,759
)

(1,712
)
Net income (loss)

$
13,224

$
(322
)
Accretion of redeemable preferred stock

(5,644
)

(4,777
)
Net income (loss) attributable to common stockholders

$
7,580

$
(5,099
)
Income (loss) per share

$
0.40

$
(0.59
)
Other financial data:

Adjusted EBITDA⁽¹⁾

$
13,895

$
7,979

Adjusted EBITDA margin⁽¹⁾

18.8
%

13.9
%

	For the Three Months Ended March 31,
(in thousands, except per share and percentage data)	2021			2020
Statements of operations data:
Revenues	$	133,817		$	61,031
Cost of revenues (exclusive of depreciation and amortization)		95,316			44,398
Selling, general and administrative expenses		25,000			20,519
Initial public offering expense		—			531
Fair value changes in business acquisitions contingent consideration		11,064			—
Depreciation and amortization		10,769			7,560
Loss from operations	$	(8,332	)	$	(11,977	)
Other expense		(574	)		(29,830	)
Interest expense, net		(2,688	)		(2,593	)
Loss before income taxes		(11,594	)		(44,400	)
Income tax expense (benefit)		2			(3,152	)
Net loss	$	(11,596	)	$	(41,248	)
Accretion of Series A-1 redeemable preferred stock		—			(5,415	)
Series A-2 dividend payment		(4,100	)		—
Net loss attributable to common stockholders	$	(15,696	)	$	(46,663	)
Weighted average number of shares (basic and diluted)		25,117			8,904
Loss per share	$	(0.62	)	$	(5.24	)
Other financial data:
Operating margin⁽¹⁾		(6.2	)%		(19.6	)%
Adjusted EBITDA⁽²⁾	$	16,800		$	5,553
Adjusted EBITDA margin⁽²⁾		12.6	%		9.1	%

(1)

Operating margin represents loss from operations as a percentage of revenues.

(2)

Non-GAAP measure. See ~~the section entitled “Non-GAAP~~“—Non-GAAP Financial Information” for a discussion of non-GAAP measures and a reconciliation thereof to the most directly comparable GAAP measure.

Revenues

For the three months ended ~~June 30, 2020,~~March 31, 2021, we had revenues of ~~$73.8~~$133.8 million, an increase of ~~$16.4~~$72.8 million, or ~~28.5%~~119.3% over the three months ended ~~June 30, 2019.~~March 31, 2020. Excluding revenues from Discontinued Service Lines of zero and $2.5 million in the three months ended March 31, 2021 and March 31, 2020, respectively, revenues increased $75.3 million or 128.7%. The $75.3 million increase in revenues was driven by acquisitions ~~completed at the end of, and subsequent to, the second quarter of 2019~~, which contributed ~~$20.4~~$74.5 million ~~to revenues~~ during the three months ended ~~June 30, 2020, as well as~~March 31, 2021, and organic ~~growth excluding the impact of the Discontinued Services Lines. The growth was partially offset by a decline in revenues from Discontinued Service Lines of $4.5 million.~~ growth. All segments ~~were~~continue to be impacted by COVID-19 ~~primarily~~ in 2021 compared to Q1 2020 which was mostly prior to the ~~form~~onset of the pandemic. COVID-19 related project delays and other impacts were offset by COVID-19 response work in ~~project start dates.~~

~~For the three months ended June 30, 2020,~~ our Assessment, Permitting and Response segment ~~generated $18.6 million, or 25.3%~~from the CTEH acquisition. Revenue by segment and as a percentage of total revenues ~~our Measurement and Analysis segment generated $37.0 million, or 50.2%~~was as follows:

	Three Months Ended March 31,
	2021					2020
(revenue in thousands)	Revenues		% of Total Revenues			Revenues		% of Total Revenues
Assessment, Permitting and Response	$	75,262		56.2	%	$	4,530		7.4	%
Measurement and Analysis		33,440		25.0			36,440		59.7
Remediation and Reuse		25,115		18.8			20,061		32.9

See “—Segment Results of total revenues, and our Remediation and Reuse segment generated $18.1 million, or 24.5% of total revenues. For the three months ended June 30, 2019, we had revenues of $57.4 million, of which our Assessment, Permitting and Response segment generated $5.0 million, or 8.8% of total revenues, our Measurement and Analysis segment generated $34.6 million, or 60.3% of total revenues, and our Remediation and Reuse segment generated $17.8 million, or 30.9 % of total revenues. Revenue from Discontinued Service Lines was $1.3 million and $5.8 million for the three months ended June 30, 2020 and June 30, 2019, respectively, of which $0.9 million and $1.9 million, respectively, was in our Measurement and Analysis segment, and $0.4 million and $3.9 million, respectively, was in our Remediation and Reuse segment.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~~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.

For the three months ended ~~June 30, 2020,~~March 31, 2021, cost of revenues was ~~$45.9~~$95.3 million or ~~62.2 %~~71.2% of revenues, compared to $39.3 million or 68.6% of revenues for the three months ended June 30, 2019. The decline in cost of revenues as a percentage of revenues was primarily a result of lower equipment costs, driven by the decision to exit the Discontinued Service Lines at the end of the first quarter of 2020, as well as a result of temporary cost containment measures, mostly related to direct labor costs in our Measurement and ~~Analysis segment, taken in response to the uncertainty around COVID-19.~~

~~For the three months ended June 30, 2020, cost of revenues~~ was comprised of direct labor of ~~$30.2~~$36.1 million, outside services (including contracted labor, laboratory, shipping and freight and other outside services) of $41.0 million, field supplies, testing supplies and equipment rental of $11.1 million, project-related travel expenses of $5.1 million and other direct costs of $2.0 million. For the three months ended March 31, 2020, cost of revenues was $44.4 million or 72.7% of revenues, and was comprised of direct labor of $27.4 million, outside services (including construction, laboratory, shipping and freight and other outside services) of ~~$6.5~~$9.3 million, field supplies, testing supplies and equipment rental of ~~$5.1~~$4.3 million, project-related travel expenses of ~~$2.2~~$1.6 million and other direct costs of ~~$1.9~~$1.8 million.

For the three months ended ~~June 30, 2019,~~March 31, 2021, cost of revenues as a percentage of revenue fell 1.5% from the three months ended March 31, 2020, as a result of lower labor as a percentage of revenue. This decline was ~~comprised~~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 ~~$22.6 million, outside services (including construction, laboratory, shipping~~revenues and ~~freight~~a corresponding increase in labor costs recorded as selling, general and ~~other outside services) of $8.8 million, field supplies, testing supplies and equipment rental of $4.4 million, project-related travel~~administrative expenses ~~of $2.1 million and other direct costs of $1.4 million.~~in the current quarter.

Selling, General and Administrative Expenses

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 three months ended ~~June 30, 2020,~~March 31, 2021, selling, general and administrative expenses were ~~$23.3~~$25.0 million, an increase of ~~$12.1~~$4.5 million or ~~108.9%~~21.8% versus the three months ended ~~June 30, 2019,~~March 31, 2020, of which $6.9 million was from the existing selling, general and administrative expenses of companies we acquired at the end of, and subsequent to the second quarter of 2019. The increase was also driven by an increase in expense related to the fair value adjustment of contingent consideration of $4.9 million.

For the three months ended June 30, 2020, selling, general and administrative expenses were comprised of indirect labor of $9.0 million, facilities costs of $2.9 million, stock-based compensation of $0.7 million, expense related to the fair value adjustment of contingent consideration of $4.0 million, acquisition-related costs of $2.5 million, and other costs (including software, travel, insurance, legal, consulting and audit services) of $4.2 million.

For the three months ended June 30, 2019, selling, general and administrative expenses were $11.2 million, which was comprised of indirect labor of $4.0 million, facilities costs of $2.6 million, stock-based compensation of $0.9 million, bad debt expense of $0.5 million, acquisition-related costs of $0.9 million, and other costs (including software, travel, insurance, legal, consulting and audit services) of $3.2 million. For the three months ended June 30, 2019, selling, general and administrative expenses also included a credit of $0.9 million related to the fair value adjustment of contingent consideration.

~~We expect our general and administrative expenses to increase as a result of additional insurance, legal, accounting, investor relations and other costs associated with becoming a public company.~~

~~Related Party Expense~~

Related party expense for the three months ended June 30, 2020 and June 30, 2019, of zero and $0.1 million, respectively, represented fees paid to a related party for acquisition-related diligence support. See Note 21 to our unaudited condensed consolidated financial statements.

~~Depreciation and Amortization~~

Depreciation and amortization expense for the three months ended June 30, 2020, was $9.8 million and was comprised of amortization of finite lived intangibles of $7.8 million, arising as a result of our acquisition activity, and depreciation of property and equipment of $2.0 million. Depreciation and amortization expense for the three months ended June 30, 2019, was $6.4 million and was comprised of amortization of finite lived intangibles of $4.5 million and depreciation of property and equipment of $1.9 million. The increase in both depreciation and amortization for the three months ended June 30, 2020 versus the three months ended June 30, 2019, was primarily a result of acquisitions.

~~Other Income (Expense)~~

Other income for the three months ended June 30, 2020 of $21.9 million was driven primarily by fair value adjustments related to the Series A-1 preferred stock contingent put option. Other expense of $1.2 million for the three months ended June 30, 2019 was

~~driven primarily by fair value adjustments related to the Series A-1 preferred stock warrant option. See Notes 11 and 16 to our unaudited condensed consolidated financial statements.~~

~~Interest Expense, Net~~

Interest expense, net incurred in the three months ended June 30, 2020, was $5.3 million, compared to $1.2 million for the three months ended June 30, 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 using proceeds from the Unitranche Credit facility, which carries a higher rate of interest. Interest expense in the three months ended June 30, 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 13 to our unaudited condensed consolidated financial statements.

~~Income taxes benefit~~

Income tax benefit was $1.8 million and $1.7 million for the three months ended June 30, 2020 and June 30, 2019, respectively. The increase in tax benefit is primarily attributable to our cumulative loss before income tax, partially offset by an increase in permanently disallowed tax deductions for U.S. federal income tax purposes including, but not limited to, non-deductible mark to market adjustments and Global Intangible Low Taxed Income as well as state and foreign income tax provisions.

~~Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019~~

For the Six Months

Ended June 30,

(in thousands, except per share data)

2020

2019

Statements of operations data:

Revenues

$
134,797

$
108,355

Cost of revenues (exclusive of depreciation and amortization)

90,287

76,444

Selling, general and administrative expenses

44,232

21,603

Related party expense

119

279

Depreciation and amortization

17,344

12,850

Loss from operations

$
(17,185
)

$
(2,821
)
Other expense

(7,897
)

(1,179
)
Interest expense, net

(7,853
)

(2,460
)
Loss before income taxes

(32,935
)

(6,460
)
Income tax benefit

(4,911
)

(896
)
Net loss

$
(28,024
)

$
(5,564
)
Accretion of redeemable preferred stock

(11,059
)

(9,311
)
Net loss attributable to common stockholders

$
(39,083
)

$
(14,875
)
Loss per share

$
(4.02
)

$
(1.73
)
Other financial data:

Adjusted EBITDA⁽¹⁾

$
19,448

$
12,653

Adjusted EBITDA margin⁽¹⁾

14.4
%

11.7
%

~~(1)~~

~~Non-GAAP measure. See the section entitled “Non-GAAP Financial Information” for a discussion of non-GAAP measures and a reconciliation thereof to the most directly comparable GAAP measure.~~

~~Revenues~~

For the six months ended June 30, 2020, we had revenues of $134.8 million, an increase of $26.4 million or 24.4% over the six months ended June 30, 2019. The increase in revenues was driven by acquisitions completed at the end of and subsequent to the second quarter of 2019, which contributed $26.5 million to revenues during the six months ended June 30, 2020, as well as growth in our Measurement and Analysis and Remediation and Reuse segments. These increases were partially offset by a decline in revenues from Discontinued Service Lines of $7.2 million and by a decline in revenues in our Assessment, Permitting and Response segment. All segments were impacted by COVID-19, primarily in the form of delays in project start dates, beginning in March 2020.

During the six months ended June 30, 2020, our Assessment, Permitting and Response segment generated $23.2 million, or 17.2% of total revenues, our Measurement and Analysis segment generated $73.5 million, or 54.5% of total revenues, and our Remediation and Reuse segment generated $38.2 million, or 28.3% of total revenues. For the six months ended June 30, 2019, we had revenues of $108.4 million, of which our Assessment, Permitting and Response segment generated $9.6 million, or 8.9% of total revenues, our Measurement and Analysis segment generated $62.9 million, or 58.1% of total revenues, and our Remediation and Reuse segment generated $35.8 million, or 33.0% of total revenues. Revenue from Discontinued Service Lines contributed $3.8 million and $11.0 million to revenues during the six months ended June 30, 2020 and June 30, 2019, respectively, of which $2.5 million and $3.6 million, respectively, was in our Measurement and Analysis segment, and $1.3 million and $7.4 million, respectively, was in our Remediation and Reuse segment.

~~Cost of Revenues~~

For the six months ended June 30, 2020, cost of revenues was $90.3 million or 67.0% of revenues, and was comprised of direct labor of $57.2 million, outside services (including construction, laboratory, shipping and freight and other outside services) of $15.7 million, field supplies, testing supplies and equipment rental of $9.3 million, project-related travel expenses of $3.8 million and other direct costs of $4.3 million. For the six months ended June 30, 2020, cost of revenues as a percentage of revenues fell 3.5% from the prior year, as a result of lower labor and field supplies as a percentage of revenue, partially offset by higher outside services costs. 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.

For the six months ended June 30, 2019, cost of revenues was $76.4 million or 70.5 % of revenues, and was comprised of direct labor of $44.6 million, outside services (including construction, laboratory, shipping and freight and other outside services) of $16.6 million, field supplies, testing supplies and equipment rental of $8.5 million, project-related travel expenses of $3.8 million and other direct costs of $2.9 million.

~~Selling, General and Administrative Expenses~~

~~For the six months ended June 30, 2020, selling, general and administrative expenses were $44.2 million, an increase of $22.6 million or 104.7% versus the prior year, of which $8.5~~$6.3 million was from selling, general and administrative expenses pertaining to companies we acquired ~~at the end of, and~~ subsequent to the ~~second~~first quarter of ~~2019. The remaining $14.1~~2020, an increase in public company related costs of $1.0 million, ~~increase was primarily due to~~as well as 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 bad debt of ~~$5.7~~$5.8 million, primarily related to the 2020 Discontinued Service Lines ~~an increase~~and a decrease in ~~expense~~acquisition related ~~to the fair value adjustment~~costs of contingent consideration of $4.9 million, an increase in costs incurred related to acquisitions of $2.7 million, costs related to preparing for our initial public offering of $0.5 million and investment in corporate infrastructure (primarily finance, sales and marketing, safety, IT and human resources).$1.1 million.

For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, selling, general and administrative ~~expenses were~~expense was comprised of indirect labor of ~~$15.0~~$13.9 million, facilities costs of ~~$5.8~~$3.5 million, stock-based compensation of ~~$1.5~~$1.2 million, acquisition-related costs of $2.5 million, bad debt expense of $6.3 million, a charge related to a change in the fair value of contingent liabilities of $4.0 million, costs related to preparing for our initial public offering of $0.5 million and other costs (including software, travel, insurance, legal, consulting and audit services) of $8.6 million.

For the six months ended June 30, 2019, selling, general and administrative expenses of $21.6 million, were comprised of indirect labor of $8.3 million, facilities costs of $5.2 million, stock-based compensation of $1.8 million, acquisition-related costs of $1.1$0.2 million, bad debt expense of $0.5 million, and other costs (including software, travel, insurance, legal, consulting and audit services) of ~~$5.6 million. These costs were partially offset by a credit recorded as a result of a decrease in the fair value of contingent consideration of $0.9~~$5.7 million.

~~We expect our~~For the three months ended March 31, 2020, selling, general and administrative expenses ~~to increase as a result~~were $20.5 million, and were comprised of ~~additional insurance, legal, accounting, investor relations~~indirect labor of $5.9 million, facilities costs of $2.9 million, stock-based compensation of $0.7 million, acquisition-related costs of $1.3 million, bad debt expense of $6.3 million, and other costs ~~associated with becoming a~~(including software, travel, insurance, legal, consulting and audit services) of $3.4 million.

Initial Public Offering Expense

Initial public ~~company.~~

~~Related Party Expense~~

~~Related party~~offering expense for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, was zero and ~~June 30, 2019, of $0.1 million and $0.3~~$0.5 million, respectively, and represented ~~fees paid~~expenses incurred to ~~a related party~~prepare for ~~acquisition-related diligence support.~~the initial public offering.

Fair Value Changes in Business Acquisitions Contingent Consideration

For the three months ended March 31, 2021, fair value changes in business acquisitions contingent consideration were $11.1 million versus zero for the three months ended March 31, 2020. The increase was primarily driven by fair value adjustments to contingent consideration associated with CTEH’s earn-out. See Note 216 to our unaudited condensed consolidated financial ~~statements.~~statements included in Part I, Item 1. “Financial Statements.”.

Depreciation and Amortization

Depreciation and amortization expense for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, was ~~$17.3~~$10.8 million and was comprised of amortization of finite lived intangibles of ~~$13.3~~$8.6 million, arising as a result of our acquisition activity, and depreciation of property and equipment of ~~$4.0~~$2.2 million. Depreciation and amortization expense for the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, was ~~$12.9~~$7.6 million and

was comprised of amortization of finite lived intangibles of ~~$9.1~~$5.6 million and depreciation of property and equipment of ~~$3.8~~$2.0 million. The increase in both depreciation and amortization for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 versus the ~~six~~three months ended ~~June 30, 2019 is~~March 31, 2020, was primarily a result of acquisitions.

Other Expense

Other expense for the ~~six~~three months ended ~~June 30,~~March 31, 2021 of $0.6 million was driven by fair value adjustments related to the Series A-2 preferred stock conversion option. Other expense of $29.8 million for the three months ended March 31, 2020 ~~of $7.9 million~~ was driven primarily by fair value adjustments related to the Series A-1 preferred stock contingent put option. ~~Other expense for the six months ended June 30, 2019 of $1.2 million related primarily to fair value adjustments to the Series A-1 warrant option.~~ See Notes 1215 and 16 to our unaudited condensed consolidated financial ~~statements.~~statements included in Part 1, Item 1. “Financial Statements.”

Interest Expense, Net

Interest expense, net incurred ~~during~~in the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021, was ~~$7.9~~$2.7 million, compared to ~~$2.5~~$2.6 million for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. 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~~partially offset by lower average interest rates ~~as a result of~~under 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 six months ended June 30, 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.Facility. See Note 1312 to our unaudited condensed consolidated financial ~~statements.~~statements included in Part I, Item 1. “Financial Statements.”

Income ~~taxes benefit~~Taxes Expense (Benefit)

Income tax expense was not material during the three months ended March 31, 2021, compared to an income tax benefit ~~was $4.9 million and $0.9~~of $3.2 million for the ~~six~~three months ended June 30, 2020 and June 30, 2019, respectively. The increase in tax benefit is primarily attributable to the increase in our loss before income tax, partially offset by an increase in permanently disallowed tax deductions for U.S. federal income tax purposes, state and foreign income tax provisions and Global Intangible Low Taxed Income.March 31, 2020.

Segment Results of Operations

Three Months Ended ~~June 30, 2020~~March 31, 2021 Compared to the Three Months Ended ~~June 30, 2019~~March 31, 2020

Three Months Ended June 30,

2020

2019

(in thousands)

Revenues

Adjusted
EBITDA⁽¹⁾

Adjusted
EBITDA
Margin⁽²⁾

Revenues

Adjusted
EBITDA⁽¹⁾⁽³⁾

Adjusted
EBITDA
Margin⁽²⁾

Assessment, Permitting and Response

$
18,631

$
4,989

26.8
%

$
5,028

$
2,002

39.8
%
Measurements & Analysis

37,036

11,615

31.4
%

34,617

7,979

23.0
%
Remediation & Reuse

18,099

2,375

13.1
%

17,756

2,399

13.5
%
Total Operating Segments

$
73,766

$
18,979

25.7
%

$
57,401

$
12,380

21.6
%
Corporate and Other

(5,084
)

n/a

(3,842
)

n/a

~~(1)~~

For purposes of evaluating segment profit, the Company’s chief operating decision maker reviews Adjusted EBITDA as a basis for making the decisions to allocate resources and assess performance. See Note 20 to our unaudited condensed consolidated financial statements.

~~(2)~~

~~Represents Adjusted EBITDA as a percentage of revenues.~~

~~(3)~~

Aggregate amount does not foot to consolidated amount disclosed elsewhere in this filing due to an adjustment at the consolidated level to exclude earnings related to the Discontinued Service Lines. See “Non-GAAP Financial Information” and Note 20 to our unaudited condensed consolidated financial statements.

~~Revenues~~

Assessment, Permitting and Response segment revenues for the three months ended June 30, 2020 were $18.6 million, compared to $5.0 million for the three months ended June 30, 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.

Measurement and Analysis segment revenues for the three months ended June 30, 2020 were $37.0 million, an increase of $2.4 million or 7.0% compared to revenues for the three months ended June 30, 2019 of $34.6 million. The increase was primarily driven by acquisitions completed at the end of, and subsequent to, the second quarter of 2019 which contributed $2.1 million to revenues in the second quarter of 2020, as well as organic growth excluding the impact of the Discontinued Services Lines. The increase was partially offset by a $1.0 million decline in revenues from Discontinued Service Lines. Revenues from Discontinued Service Lines in the Measurement and Analysis segment were $0.9 million and $1.9 million in the three months ended June 30, 2020 and June 30, 2019, respectively.

Remediation and Reuse segment revenues for the three months ended June 30, 2020 were $18.1 million, an increase of $0.3 million or 1.9% compared to revenues for the three months ended June 30, 2019 of $17.8 million. The increase was driven by acquisitions subsequent to the second quarter of 2019, which contributed $3.7 million to revenues in the second quarter of 2020, partially offset by a $3.5 million decline in revenues from Discontinued Service Lines. Revenues from Discontinued Service Lines were $0.4 million and $3.9 million in the three months ended June 30, 2020 and June 30, 2019, respectively.

~~Adjusted EBITDA~~

Assessment, Permitting and Response segment Adjusted EBITDA was $5.0 million for the three months ended June 30, 2020, compared to $2.0 million for the three months ended June 30, 2019. For the three months ended June 30, 2020 and June 30, 2019, Adjusted EBITDA margin was 26.8% and 39.8%, respectively. The increase in Adjusted EBITDA and the lower Adjusted EBITDA margin was primarily a result of the acquisition of CTEH in the second quarter of 2020, which typically operates at lower margins than our legacy segment business.

Measurement and Analysis segment Adjusted EBITDA for the three months ended June 30, 2020 was $11.6 million, an increase of $3.6 million compared to Adjusted EBITDA for the three months ended June 30, 2019 of $8.0 million. For the three months ended June 30, 2020 Adjusted EBITDA margin was 31.4% compared to 23.0% in the prior year. The improvement in Adjusted EBITDA and 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 Adjusted EBITDA was relatively flat at $2.4 million for the three months ended June 30, 2020 and June 30, 2019. For the three months ended June 30, 2020 Adjusted EBITDA margin was 13.1% compared to 13.5% during the six months ended June 30, 2019. The decrease in Adjusted EBITDA margin was a result of higher fixed costs in anticipation of growth and geographic expansion, as well as earnings from Discontinued Service Lines in the prior year of $0.5 million.

Corporate and other costs were $5.1 million, or 6.9% of revenues, for the three months ended June 30, 2020 compared to $3.8 million, or 6.7% of revenues, for the three months ended June 30, 2019. The cost increase was driven by head count additions in sales and marketing, human resources, information technology, safety and finance made in 2019 subsequent to the second quarter to support higher anticipated revenues.

~~Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019~~

	Six Months Ended June 30,																Three Months Ended March 31,
	2020								2019								2021								2020
(in thousands)	Revenues		Adjusted EBITDA			Adjusted EBITDA Margin⁽¹⁾			Revenues		Adjusted EBITDA⁽¹⁾⁽³⁾			Adjusted EBITDA Margin⁽²⁾			Segment Revenues		Segment Adjusted EBITDA⁽¹⁾			Segment Adjusted EBITDA Margin⁽²⁾			Segment Revenues		Segment Adjusted EBITDA⁽¹⁾			Segment Adjusted EBITDA Margin⁽²⁾
Assessment, Permitting and Response	$	23,161	$	6,431			27.8	%	$	9,603	$	3,996			41.6	%	$	75,262	$	15,804			21.0	%	$	4,530	$	1,442			31.8	%
Measurements & Analysis	$	73,476		19,176			26.1	%		62,948		12,112			19.2	%
Remediation & Reuse	$	38,160		4,481			11.7	%		35,804		4,875			13.6	%
Measurement and Analysis																		33,440		4,860			14.5			36,440		7,379			20.2
Remediation and Reuse																		25,115		2,481			9.9			20,061		2,107			10.5
Total Operating Segments	$	134,797	$	30,088			22.3	%	$	108,355	$	20,983			19.4	%	$	133,817	$	23,145			17.3	%	$	61,031	$	10,928			17.9	%
Corporate and Other				(10,640	)	n/a						(7,373	)	n/a						(6,345	)	n/a						(5,375	)	n/a

(1)

For purposes of evaluating segment profit, the Company’s chief operating decision maker reviews Segment Adjusted EBITDA as a basis for making the decisions to allocate resources and assess performance. See Note 2019 to our unaudited condensed consolidated financial statements included ~~elsewhere~~ in ~~this filing.~~Part I, Item 1. “Financial Statements.”

(2)	Represents Segment Adjusted EBITDA as a percentage of revenues.

~~(3)~~

Revenues

Assessment, Permitting and Response segment revenues for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 were ~~$23.2~~$75.3 million, compared to ~~$9.6~~$4.5 million for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The ~~141.2%~~ increase was ~~due to~~driven by the acquisition of CTEH ~~business~~ in the second quarter of ~~2020.~~2020, which expanded our product portfolio and our scientific and technical advisory services footprint. CTEH benefited from COVID-19 related response work performed in the quarter ended March 31, 2021.

Measurement and Analysis segment revenues for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 were ~~$73.5~~$33.4 million, ~~an increase~~a decrease of ~~$10.6~~$3.0 million or ~~16.7%~~8.2% compared to revenues for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 of ~~$62.9~~$36.4 million. The ~~increase~~decrease was partially driven by organic growth excluding the impact of the Discontinued Services Lines, in our continuing businesses, and by acquisitions completed at the end of, or subsequent to, the second quarter of 2019, which contributed $4.2 million to 2020 revenues. The increase was partially offset by a ~~$1.1 million~~ decline in revenues from Discontinued Service Lines. Revenues from Discontinued Service Lines in the Measurement and Analysis segment were ~~$2.5~~zero and $1.5 million for the three months ended March 31, 2021 and ~~$3.6~~March 31, 2020, respectively. Excluding revenues from Discontinued Service Lines, revenues decreased $1.5 million or 4.3%, driven by expected seasonality, the negative impact of COVID in the ~~six months ended June 30, 2020 and June 30, 2019, respectively.~~current year, as well as the timing of projects in the current year versus the prior year.

Remediation and Reuse segment revenues for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 were ~~$38.2~~$25.1 million, an increase of ~~$2.4~~$5.0 million or ~~6.6%~~25.2% compared to revenues for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 of ~~$35.8~~$20.1 million. ~~The increase was driven by acquisitions completed subsequent to~~Revenues from Discontinued Service Lines were $1.0 million for the ~~second quarter of 2019, which contributed $7.7 million to 2020 revenues, partially offset by a $6.1 million decline in~~three months ended March 31, 2020. Excluding revenues from Discontinued Service ~~Lines. Revenues~~Lines, revenues increased $6.0 million or 31.4%. This $6.0 million increase was primarily driven by $4.0 million from the ~~Discontinued Service Lines were $1.3 million~~acquisition of MSE, which closed on January 4, 2021, and ~~$7.4 million for the six months ended June 30, 2020 and June 30, 2019, respectively.~~organic growth.

Segment Adjusted EBITDA

Assessment, Permitting and Response ~~segment~~Segment Adjusted EBITDA was ~~$6.4~~$15.8 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~$4.0~~$1.4 million for the ~~six~~three months ended ~~June 30, 2019 driven by the increase in revenues.~~March 31, 2020. For the ~~six~~three months ended ~~June 30,~~March 31, 2021 and March 31, 2020, ~~and June 30, 2019,~~Segment Adjusted EBITDA margin was ~~27.8%~~21.0% and ~~41.6%~~31.8%, respectively. The ~~decrease~~increase in Segment Adjusted EBITDA ~~margin~~ was ~~driven~~ primarily ~~by the increase in one-time costs associated with~~a result of the acquisition of CTEH in the second quarter of ~~2020 and the fact CTEH typically operates at~~2020. The decline in Segment Adjusted EBITDA margin is as a result of lower ~~margins than our legacy segment business.~~margin COVID response work performed by CTEH.

Measurement and Analysis ~~segment~~Segment Adjusted EBITDA for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was ~~$19.2~~$4.9 million, ~~an increase~~a decrease of ~~$7.1~~$2.5 million compared to Segment Adjusted EBITDA for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 of ~~$12.1~~$7.4 million. For the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 Segment Adjusted EBITDA margin was ~~26.1%~~14.5% compared to ~~19.2%~~20.2% for the three months ended March 31, 2020. The decline in ~~the prior year. The improvement in~~ Segment Adjusted EBITDA and Segment Adjusted EBITDA margin was asprimarily a result of ~~revenue growth, favorable~~lower revenues due to COVID-19 and business ~~mix and temporary cost mitigation initiatives taken in the second quarter of 2020 in response to COVID-19.~~mix.

Remediation and Reuse ~~segment~~Segment Adjusted EBITDA for the ~~six~~three months ended ~~June 30 2020~~March 31, 2021 was ~~$4.5~~$2.5 million, ~~a decrease~~an increase of $0.4 million compared to Segment Adjusted EBITDA for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 of ~~$4.9~~$2.1 million. For the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 Segment Adjusted EBITDA margin was ~~11.7%~~9.9% compared to ~~13.6% during~~10.5% in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The ~~decrease~~increase in Segment Adjusted EBITDA ~~and~~was primarily a result of higher revenues. The slight decline in Segment Adjusted EBITDA margin was ~~attributable to higher fixed costs in anticipation~~a result of ~~additional growth~~business mix and ~~geographic expansion, as well as earnings from Discontinued Service Lines~~continued investment in the ~~prior year of $0.7 million, partially offset by revenue growth.~~segment.

Corporate and other costs were ~~$10.6~~$6.3 million ~~or 7.9% of revenues,~~ for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$7.4~~$5.4 million ~~or 6.8% of revenues,~~ for the ~~six~~three months ended ~~June 30, 2019.~~ March 31, 2020. The cost increase was driven by ~~higher labor costs in sales and marketing, human resources, information technology, safety and finance, as well as an increase in software, insurance, marketing and non-capitalizable IPO~~public company related costs, ~~which were made~~higher recruiting costs and higher IT security and infrastructure investments, partially offset by a decrease in ~~2019 in support~~bad debt expense of ~~anticipated acquisitions and revenue growth.~~$0.3 million.

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 current and prior credit ~~facility, prior senior secured credit facility and~~facilities, other borrowing arrangements, proceeds from the issuance of 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 ~~our credit facility, prior~~ senior secured credit ~~facility and~~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, the CTEH acquisition agreement includes an earn-out provision that provides for the payment of contingent consideration based on CTEH’s 2020 and 2021 results in an aggregate amount not to exceed $80.0 million, with each payment equal to a specified multiple of CTEH’s EBITDA for the relevant year in excess of specified targets. ~~Any earn-out to be paid~~Earn-out

payments in respect of fiscal years 2020 and 2021 ~~will be~~are capped at $50.0 million and $30.0 million, ~~respectively, with any~~respectively. We made a $50.0 million earn-out payment, 50.0% in cash and 50.0% in shares of common stock, in April 2021. Any payment in respect of ~~2020 payable, at our discretion, entirely in common stock or 50% in cash and 50% in common stock, and any payment in respect of~~ 2021 will be payable in cash. See Note 6 to our unaudited condensed consolidated financial ~~statements.~~ statements included in Part 1, Item 1. “Financial Statements.”

We expect to continue to finance our liquidity requirements, including any cash earn-out payments that may be required in connection with ~~the acquisition of CTEH,~~acquisitions, through cash generated from operations and borrowings under our credit facility. We believe these sources will be sufficient to fund our cash needs for the next twelve months. See ~~“COVID-19”~~“—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:

	Six Months Ended June 30,						Three Months Ended March 31,
(in thousands)	2020			2019			2021			2020
Consolidated Statement of Cash flows data:
Net cash (used in) provided by operating activities		(1,584	)	$	4,391
Consolidated Statement of Cash Flows Data:
Net cash used in operating activities							$	(13,913	)	$	(8,978	)
Net cash used in investing activities		(173,969	)		(27,941	)		(7,398	)		(1,660	)
Net cash provided by financing activities		213,412			22,742
Net cash (used in) provided by financing activities								(3,087	)		5,238
Change in cash, cash equivalents and restricted cash		37,859		$	(808	)	$	(24,398	)	$	(5,400	)

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 ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, net cash used in operating activities was ~~$1.6~~$13.9 million, a decrease of ~~$6.0~~$4.9 million, when compared to net cash ~~provided by~~used in operating activities of ~~$4.4~~$9.0 million for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. This decrease in cash flows from operating activities in the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 primarily reflects ~~higher contingent consideration payments~~an increase in change in working capital of ~~$6.2~~$18.6 million driven by revenue growth, higher interest payments of ~~$4.5~~$0.8 million, as well as higher ~~acquisition-related~~taxes paid of $0.2 million, partially offset by higher earnings before non-cash items, including bad debt, depreciation and amortization, stock-based compensation expense and fair value adjustments of $12.7 million, lower acquisition related costs of ~~$2.7~~$1.1 million, ~~and higher~~lower cloud computing costs of ~~$1.3~~$0.6 million (related to the implementation of new ERP ~~(Enterprise Resource Planning)~~ and CRM (Customer Relationship Management) systems), and lower non-capitalizable IPO costs of $0.5 million, when compared to the prior year. ~~These~~

Working capital increased by $27.1 million in the three months ended March 31, 2021, primarily due to an increase in accounts receivable and contract assets of $29.0 million (as a result of significantly higher ~~payments were partially~~revenues in the quarter ended March 31, 2021 when compared to the quarter ended December 31, 2020), offset by ~~a decrease~~an increase in accounts payable and accrued payroll and benefits of $1.1 million, as compared to an increase in working capital of ~~$6.6~~$8.5 million ~~as a result of lower accounts receivable, partially offset~~in the three months ended March 31, 2020, which was driven by a decrease in accounts payable ~~due to the timing~~and accrued payroll and benefits of ~~vendor payments, and higher bonus payments when compared to the six months ended June 30, 2019, as well as lower taxes paid of $0.9~~$7.5 million.

Investing Activities

For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, net cash used in investing activities was ~~$174.0~~$7.4 million, primarily driven by cash paid for the acquisition of ~~CTEH,~~MSE, net of cash acquired, of ~~$170.7~~$6.3 million, as well as purchases of property and equipment for cash consideration of ~~$3.2~~$1.1 million.

For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, net cash used in investing activities was ~~$27.9~~$1.7 million, primarily driven by ~~cash paid for acquisitions, net of cash acquired, of $26.7 million, as well as~~ purchases of property and equipment for cash consideration of ~~$1.2~~$1.6 million.

Financing Activities

For the ~~six~~three months ended ~~June 30,~~March 31, 2021, net cash used in financing activities was $3.1 million. Cash used in financing activities was driven by the payment of the quarterly dividend on the Series A-2 preferred stock of $4.1 million, the repayment of capital leases of $0.6 million, and term loan amortization payments of $0.5 million related to our 2020 credit facility, partially offset by proceeds received from the exercise of stock options of $2.2 million.

For the three months ended March 31, 2020, net cash provided by financing activities was ~~$213.4~~$5.2 million. Cash provided by financing activities was driven by a $13.2 million increase in net borrowings under the Unitranche 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 Unitranche Credit Facility were used primarily to repay the $177.5 million outstanding under the prior seniorour credit facility, ~~whereas proceeds from~~partially offset by the ~~issuance of the Series A-2 preferred stock were used to finance a portion of the acquisition of CTEH. Cash from financing activities was also used to make payments~~payment of acquisition-related contingent consideration of ~~$6.0~~$4.7 million, an amortization ~~payments~~payment of $1.3 million related to our term loan under our prior senior secured credit facility, the repayment of capital leases of ~~$1.2~~$0.7 million, and the payment of debt issuance ~~and debt extinguishment~~ costs of ~~$6.7~~$0.1 million.

~~For~~Credit Facilities

2021 Credit Facility

On April 27, 2021, we entered into a new Senior Secured Credit Agreement (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 ~~six months ended June 30, 2019, net cash provided by financing activities was $22.7 million. Cash provided by financing activities was driven by~~proceeds to repay all amounts outstanding under the 2020 Credit Facility. The 2021 revolving credit facility includes a ~~$24.0~~$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 ~~net borrowings~~the aggregate commitments under ~~our prior senior secured~~the revolving credit facility ~~partially offset by~~up to an aggregate amount of $150.0 million subject to the ~~payment~~satisfaction of ~~acquisition-related contingent consideration of $0.5 million~~certain conditions.

The 2021 Credit Facility term loan must be repaid in quarterly installments and shall amortize at the following annualized rates beginning with the quarter ended December 31, 2021 with the remaining balance due and payable in full upon the five-year anniversary from the closing date:


	Amortization Table
	Year 1			Year 2			Year 3			Year 4			Year 5
Term Loan		5.0	%		5.0	%		7.5	%		7.5	%		10.0	%

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

Pricing Tier	Consolidated Leverage Ratio	Senior Credit Facilities LIBOR			Senior Credit Facilities Base Rate			Commitment Fee			Letter of Credit Fee
1	≥ 3.75 to 1.0		2.50	%		1.50	%		0.25	%		2.50	%
2	< 3.75 to 1.0 but ≥ 3.25 to 1.0		2.25			1.25			0.23			2.25
3	<3.25 to 1.0 but ≥ 2.50 to 1.0		2.00			1.00			0.20			2.00
4	<2.50 to 1.0 but ≥ 1.75 to 1.0		1.75			0.75			0.15			1.75
5	<1.75 to 1.0		1.50			0.50		0.15				1.50

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 fundamental changes including mergers or dissolutions, pay dividends and repurchase or make other payments in respect of capital ~~leases~~stock, make certain investments, sell assets, change our lines of ~~$0.8 million.~~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.

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 22 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

2020 Credit Facility

On April 13, 2020, we entered into a Unitranche Credit Agreement (the “2020 Credit Facility”) providing for ~~a new~~ $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 ~~new credit facility~~2020 Credit Facility to repay all amounts outstanding under the ~~prior senior secured credit facility.~~Prior Senior Secured Credit Facility. The ~~credit facility matures~~2020 Credit Facility would have matured on the earliest of (a) April 13, 2025 and (b) so long as our Series ~~A-1~~A-2 preferred stock ~~has~~had not been redeemed in full or otherwise not converted into common stock of Montrose, the date that is 180 days before the Series A-1 preferred equity mandatory redemption date, unless prior to such date, the Series A-1 preferred equity mandatory redemption date has been extended to a date not earlier than one hundred eighty (180) days after April 13, 2025 and (c) so long as our Series A-2 preferred stock has not been redeemed in full or otherwise not converted into common stock of Montrose, the date that iswas 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 ~~has~~had been extended to a date not earlier than one hundred eighty (180) days after April 13, 2025. ~~The~~

Initially, the term loan ~~bears~~bore interest at a rate of LIBOR plus 5.0% (subject to a 1%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 ~~bears~~bore interest at a rate of LIBOR plus 3.5% or the base rate plus 2.5%. The revolver iswas also subject to an unused commitment fee of 0.35%.

The term loan ~~begins~~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 September 30, 2021 and each other fiscal quarter through and including June 30, ~~2021,~~2022, and (c) $1.6 million for each fiscal quarter ending thereafter. We have the option to borrow incremental term loans up to an aggregate principal amount of $100.0 million subject to the satisfaction of certain conditions, including the borrower’s pro forma compliance with the financial covenants under the credit facility. Immediately after giving effect to the incurrence of any such incremental term loans, the unitranche lenders must collectively hold at least 70% of all pari passu debt of all lenders under the credit facility.

The ~~existing lenders are not obligated to participate in any incremental term loan facility.~~

Our obligations under the new 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 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 fundamental changes including mergers or dissolutions, pay dividends and 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 credit facility2020 Credit Facility also ~~contains~~contained financial covenants requiring us to remain below a maximum consolidated total leverage ratio of 4.25 times, which ~~steps~~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.

The new credit facility contains mandatory prepayment feature upon a number of events, including with the proceeds of certain asset sales, proceeds from the issuance of any debt and proceeds of the capital contribution amounts contributed to cure a financial covenant default. The credit facility also includes mandatory prepayments of 50.0% of excess cash flow minus voluntary prepayments of the term loan and, solely to the extent accompanied by a permanent reduction in the revolving commitment, the revolving loan, if

our consolidated total leverage ratio for the year ending December 31, 2020 is greater than or equal to 3.25 times and, for any year thereafter, the amount of any such mandatory prepayment shall be reduced to 25.0% of excess cash flow if the leverage ratio is less than 3.00 times. As of ~~June 30, 2020,~~March 31, 2021, the Company’s leverage ratio, ~~under~~which included the ~~new credit facility~~impact of contingent consideration payable in cash, was ~~2.73~~3.1 times. The weighted average interest rate on the ~~new credit facility~~2020 Credit Facility as of ~~June 30,~~March 31, 2021 was 5.5%. We were in compliance with all applicable covenants under the 2020 ~~was 5.71%.~~Credit Facility as of March 31, 2021.

See Note 12 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

Prior Credit Facility

Our ~~prior senior secured credit facility~~Prior Senior Secured Credit Facility most recently amended and restated in July 2019 (the “Prior Credit Facility”) consisted of a $50.0 million term loan and a $130.0 million revolving credit facility.

Borrowings under the ~~prior senior secured credit facility~~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 ~~elect)~~elected). The applicable margin ~~means~~meant a percentage per annum determined in accordance with the following table:

Pricing Tier	Consolidated Leverage Ratio	Commitment Fee			Eurodollar Rate Loans and LIBOR Letter of Credit Fee			Daily Floating Rate Loans			Rate Loans
1	> 3.75 to 1.0		0.50	%		4.00	%		4.00	%		3.00	%
2	≤ 3.75 to 1.0 but > 3.00 to 1.0		0.50			3.50			3.50			2.50
3	≤ 3.00 to 1.0 but > 2.25 to 1.0		0.40			3.00			3.00			2.00
4	< 2.25 to 1.0		0.30			2.50			2.50			1.50

The weighted average interest rate on the ~~prior senior secured credit facility~~Prior Credit Facility as of March 31, 2020 was 4.95%. All amounts outstanding under the ~~prior senior secured credit facility~~Prior Senior Secured Credit Facility were repaid on April 13, 2020.

See Note 1312 to our unaudited condensed consolidated financial ~~statements.~~statements included in Part I, Item 1. “Financial Statements.”

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 ~~accrues~~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 are accrued. In the event of a redemption, a holder iswas guaranteed a minimum of either two or three years of dividends depending on the nature of the redemption. Total accrued and unpaid dividends as of March 31, 2020, December 31, 2019 and December 31, 2018 were $27.0 million, $21.9 million and $3.4 million, respectively. The Series A-1 preferred stock is redeemable at our option at any time and, under certain circumstances, including an initial public offering, at the option of the holders of a majority of the Series A-1 preferred stock outstanding. The Series A-1 preferred stock also contains certain restrictive covenants. As of March 31, 2020, ~~December 31, 2019 and December 31, 2018,~~ 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. We were in compliance with the covenants as of March 31, 2020.

On July 27, 2020, ~~December 31, 2019 and December 31, 2018. We~~we redeemed ~~all issued and outstanding shares of~~in full the Series A-1 preferred stock, ~~with a portion~~including the guaranteed minimum two-year dividend. We used $131.8 million of the IPO proceeds ~~from the Company’s initial public offering~~ and ~~the issuance of~~1,786,739 shares of common stock ~~on July 27, 2020.~~to redeem all outstanding shares of the redeemable Series A-1 preferred stock.

See Note 1615 to our unaudited ~~June 30, 2020~~ condensed consolidated financial ~~statements.~~statements included in Part I, Item 1. “Financial Statements.”

Series A-2 Preferred Stock

On April 13, 2020, ~~the Company~~we issued 17,500 shares of the Series A-2 preferred stock with a par value of $0.0001 per share and a warrant to purchase common stock, in exchange for $175.0 million. Prior to the ~~effectiveness~~completion of the ~~Company’s initial public offering,~~IPO, each share of Series A-2 preferred stock accrued dividends at the rate of 15.0% per annum with respect to dividends that ~~are~~were paid in cash, and 14.2% per annum, with respect to dividends that ~~accrue~~accrued and ~~compound before a private offering (in certain circumstances),~~compounded, resulting in an annual dividend rate of 15.0%, and 9.0% per annum after ~~an initial public offering or private offering (in certain circumstances).~~the IPO. Following the completion of the ~~Company’s initial public offering,~~IPO, the Series A-2 preferred stock does not mature or have a cash repayment obligation; however, it is redeemable at ~~the Company’s~~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 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 the ~~Company’s~~

~~initial public offering~~IPO and redemption of the 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 ~~such dividends accruing daily and compounding quarterly.~~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, ~~the Company is~~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 1716 to our unaudited condensed consolidated financial ~~statements.~~statements included in Part I, Item 1. “Financial Statements.”

Off-Balance Sheet Arrangements

WeDuring the period presented, we did not have, ~~during the period presented,~~ and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

Our ~~Final Prospectus filed with the SEC on July 22,~~ 2020 Form 10-K includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no material changes to those critical accounting policies as disclosed therein.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the JOBS Act. 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. We have 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 until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements 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, ~~management uses~~we also present in this Quarterly report on Form 10-Q 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 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 ~~income (loss)~~loss to Adjusted EBITDA:

For the Three Months
Ended June 30

For the Six Months
Ended June 30

(in thousands)

2020

2019

2020

2019

Net income (loss)

$
13,224

$
(322
)

$
(28,024
)

$
(5,564
)
Interest expense

5,260

1,181

7,853

2,460

Income tax benefit

(1,759
)

(1,712
)

(4,911
)

(896
)
Depreciation and amortization

9,784

6,401

17,344

12,850

EBITDA

$
26,509

$
5,548

$
(7,738
)

$
8,850

Stock-based compensation ⁽¹⁾

1,140

1,294

2,290

2,522

Start-up losses and investment in new services ⁽²⁾

296

48

675

169

Acquisition costs ⁽³⁾

2,454

857

3,761

1,072

Fair value changes in contingent put option⁽⁴⁾

(22,602
)

—

7,025

—

Fair value changes in warrant options ⁽⁴⁾

4

1,549

2

1,549

Fair value changes in compound embedded option ⁽⁵⁾

756

—

756

—

Fair value changes in contingent liabilities ⁽⁶⁾

3,983

(926
)

3,983

(926
)
Short term purchase accounting fair value adjustment
to deferred revenue⁽⁷⁾

—

—

243

—

IPO preparation costs ⁽⁸⁾

—

73

531

86

Discontinued Service Lines ⁽⁹⁾

1,078

(464
)

7,496

(669
)
Other losses and expenses ⁽¹⁰⁾

—

—

147

—

Expenses related to financing transactions ⁽¹¹⁾

277

277

Adjusted EBITDA

$
13,895

$
7,979

$
19,448

$
12,653

	For the Three Months Ended March 31,
(in thousands)	2021			2020
Net loss	$	(11,596	)	$	(41,248	)
Interest expense		2,688			2,593
Income tax expense (benefit)		2			(3,152	)
Depreciation and amortization		10,769			7,560
EBITDA	$	1,863		$	(34,247	)
Stock-based compensation ⁽¹⁾		1,805			1,150
Start-up losses and investment in new services ⁽²⁾		968			379
Acquisition costs ⁽³⁾		237			1,307
Fair value changes in financial instruments⁽⁴⁾		602			29,626
Expenses related to financing transactions ⁽⁵⁾		50			—
Fair value changes in business acquisitions contingent consideration ⁽⁶⁾		11,064			—
Short term purchase accounting fair value adjustment to deferred revenue⁽⁷⁾		—			243
IPO expense ⁽⁸⁾		—			531
Discontinued service lines and closing of Berkley lab ⁽⁹⁾		—			6,417
Other losses and expenses⁽¹⁰⁾		211			147
Adjusted EBITDA	$	16,800		$	5,553

(1)	Represents non-cash stock-based compensation expenses related to option awards issued to employees and restricted stock grants issued to directors.

(2)

Represent start-up losses related to losses incurred on (i) the expansion of lab testing methods and lab capacity, including into new geographies, (ii) expansion of our ~~Canadian testing capacity in advance of new regulations~~Remediation and Consulting services and (iii) expansion into Europe in advance of projects driven by new regulations.

(3)	~~Acquisition costs include~~Includes financial and tax diligence, consulting, legal, valuation, accounting and travel costs and acquisition-related incentives related to our acquisition activity.

(4)	Amounts ~~relates~~relate to the change in fair value of the ~~contingent put option attached to the Series A-1~~embedded derivatives and ~~the~~ warrant option attached to the Series A-1 preferred stock and the Series A-2 preferred stock.

(5)	Amounts ~~relates to the change in fair value of the Series A-2 compound embedded derivative.~~represent non-capitalizable expenses associated with refinancing and amending our debt facilities.

(6)	~~Fair value changes in value of contingent liabilities, reflects~~Reflects the difference between the expected settlement value of acquisition related earn-out payments at the time of the closing of acquisitions and the expected (or actual) value of earn-outs at the end of the relevant period.

(7)	Purchase accounting fair value adjustment to deferred revenue represents the impact of the fair value adjustment to the carrying value of deferred revenue as of the date of acquisition of ECT2.

(8)	~~IPO preparation costs relate to~~Represents expenses incurred by us to prepare for ~~the Company’s~~our initial public ~~offering.~~offering, as well as costs from IPO-related bonuses.

(9)	Represents ~~(earnings) loss~~losses from the Discontinued Service ~~Lines. See~~Lines and the ~~section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors that Affect Our Business and Our Results.”~~Berkeley lab.

(10)	Represents non-operational charges incurred as a result of lease ~~abandonments.~~abandonments and non-capitalizable costs related to the implementation of a new ERP.

~~(11)~~

~~Non-capitalizable expenses associated with the issuance of the Convertible and Redeemable Series A-2 Preferred Stock Warrants.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

We have market risk exposure arising from changes in interest rates on our credit facility, which bears interest at rates that are benchmarked against LIBOR. Based on our overall interest rate exposure to variable rate debt outstanding as of ~~June 30, 2020,~~March 31, 2021, a 1.0% increase in interest rates above the 1.0% LIBOR floor on the term loan would increase annual income (loss) before income taxes by approximately ~~$2.0~~$1.7 million. Due to the 1.0% LIBOR floor under the terms of the term loan, and the LIBOR rate of ~~0.16%~~0.1% in effect on the revolver at ~~June 30, 2020,~~March 31, 2021, any decrease in LIBOR rates would have had a de minimis benefit to annual income (loss) before income taxes.

Impact of Inflation

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have been immaterial. We cannot assure you, however, that our results of operations and financial condition will not be materially impacted by inflation in the future.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of ~~June 30, 2020,~~March 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~June 30, 2020,~~March 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level.

Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended ~~June 30, 2020,~~March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our system of internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can provide only reasonable, but not absolute, assurance that the objectives of the system of internal control are met. The design of our control system reflects the fact that there are resource constraints, and that the benefits of such control system must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control failures and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the intentional acts of individuals, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part on certain assumptions about the likelihood of future events, and there can be no assurance that the design of any particular control will always succeed in achieving its objective under all potential future conditions.

~~PART~~ PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we are subject to various legal proceedings that arise in the normal course of our business activities, including those involving labor and employment, anti-discrimination, commercial disputes and other matters. We are not a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our results of operations or financial position. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors.

There have been no material changes to our risk factors from the risk factors disclosed in our ~~Final Prospectus dated July 22,~~ 2020 ~~filed in connection with our initial public offering.~~Form 10-K. The risks described in our ~~Final Prospectus,~~2020 Form 10-K, in addition to the other information set forth in this Quarterly Report on Form 10-Q, are not the only risks facing we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

~~Series A-2 Preferred Stock~~

On ~~April 13, 2020,~~January 1, 2021, we issued an aggregate of ~~17,500 shares of Series A-2 preferred stock, par value $0.0001 per share, and a detachable warrant to purchase 1,351,960~~71,740 shares of common stock ~~subject to adjustment, with a 10-year life,~~as consideration for ~~aggregate consideration of $175.0 million. The proceeds from this issuance were used to pay the cash portion of the purchase price in~~ the acquisition of CTEH. See Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Series A-2 Preferred Stock” for a discussion of the conversion features of the Series A-2 preferred stock.MSE. The warrant had an exercise price of $0.01 per share of common stock and, concurrent with the consummation of our initial public offering, the number of shares of common stock underlying the warrant was adjusted upwards pursuant to the terms thereof to 1,999,999. The warrant was exercised in full on July 30, 2020. The issuance ~~of the Series A-2 preferred stock and the warrant to purchase shares~~ of common stock was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof as a transaction by an issuer not involving any public offering.~~See Note 17 to our unaudited condensed consolidated financial statements.~~

~~CTEH Acquisition~~

On ~~April 13, 2020,~~February 18, 2021, we issued ~~an aggregate of 791,139~~49,154 shares of common stock in connection with the exercise in full of warrants to purchase 87,250 shares of common stock at an ~~accredited investor as~~exercise price of $17.19 per share of common stock. The warrants were exercised on a ~~portion~~cashless basis with a share of common stock valued at $39.37 per share, the ~~consideration paid in~~closing price on the ~~acquisition~~date of ~~CTEH. This~~exercise. The issuance of common stock was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof as a transaction by an issuer not involving any public offering.~~See Note 6~~

On March 1, 2021, we issued 18,559 shares of common stock in connection with the exercise in full of warrants to ~~our unaudited condensed consolidated financial statements.~~purchase 29,100 shares of common stock at an exercise price of $17.19 per share of common stock. The warrants were exercised on a cashless basis with a share of common stock valued at $47.46 per share, the closing price on the date of exercise. The issuance of common stock was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof as a transaction by an issuer not involving any public offering.

On April 1, 2021, we issued 539,607 and 24,230 shares of common stock as additional consideration for (i) the acquisition of CTEH pursuant to the earn-out provision of the transaction agreement, and (ii) the acquisition of MSE pursuant to the purchase price true up provision of the transaction agreement, respectively. These issuances of common shares were exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof as a transaction by an issuer not involving any public offering.

Use of Proceeds

In connection with our initial public offering, we filed a Registration Statement on Form S-1 (File No. 333-239542) on June 29, 2020. The ~~registration statement, as amended, registered up to 11,500,000 shares of our common stock to be issued and sold by us. The~~ SEC declared the registration statement effective on July 22, 2020. In the initial public offering, we sold all 11,500,000 shares of our common stock at a public offering price of $15.00 per share, resulting in aggregate gross proceeds of $172.5 million and aggregate net proceeds to us of approximately $161.3 million after deducting underwriting discounts and commissions. We used $9.8 million of the net proceeds to pay offering expenses and employee bonuses, and we used $131.8 million of the net proceeds to pay a portion of the aggregate redemption price for all outstanding shares of our Series A-1 preferred stock, all of which were held by OCM Montrose Holdings, L.P., an affiliate of Oaktree Capital, which, along with its affiliates, is a greater than 10% beneficial owner of our common stock. The ~~remaining~~ balance of the ~~aggregate redemption price for~~IPO proceeds which were unused as of December 31, 2020 were used to partially fund the ~~Series A-1 preferred stock was paid~~acquisition of MSE in shares of common stock. The offering closed on July 27, 2020. The underwriters were BofA Securities, Inc., William Blair & Company, L.L.C., BNP Paribas Securities Corp., Capital One Securities, Inc., Stifel, Nicolaus & CompanyJanuary 2021 ($6.3 million) and ~~Needham & Company, LLC.~~to fund operating needs during the three months ended March 31, 2021 ($12.9 million).

Item 3. Defaults ~~Upo~~nUpon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit Number		Description


31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith.

Exhibit is furnished and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

~~SIGNATURES~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Montrose Environmental Group, Inc.

Date: ~~August 31, 2020~~May 12, 2021	By:	/s/ Allan Dicks
		Allan Dicks
		Chief Financial Officer

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
REVENUES	$	73,766		$	57,401		$	134,797		$	108,355
COST OF REVENUES (exclusive of depreciation and amortization shown below)		45,889			39,349			90,287			76,444
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE		23,301			11,156			44,232			21,603
RELATED-PARTY EXPENSE		—			120			119			279
DEPRECIATION AND AMORTIZATION		9,784			6,401			17,344			12,850
(LOSS) INCOME FROM OPERATIONS		(5,208	)		375			(17,185	)		(2,821	)
OTHER EXPENSE
Other income (expense)		21,933			(1,228	)		(7,897	)		(1,179	)
Interest expense—net		(5,260	)		(1,181	)		(7,853	)		(2,460	)
Total other expenses—net		16,673			(2,409	)		(15,750	)		(3,639	)
INCOME (LOSS) BEFORE BENEFIT FROM INCOME TAXES		11,465			(2,034	)		(32,935	)		(6,460	)
INCOME TAXES BENEFIT		(1,759	)		(1,712	)		(4,911	)		(896	)
NET INCOME (LOSS)	$	13,224		$	(322	)	$	(28,024	)	$	(5,564	)
EQUITY ADJUSTMENT FROM FOREIGN CURRENCY TRANSLATION		(90	)		23			(53	)		23
COMPREHENSIVE LOSS		13,134			(299	)		(28,077	)		(5,541	)
ACCRETION OF REDEEMABLE SERIES A-1 PREFERRED STOCK		(5,644	)		(4,777	)		(11,059	)		(9,311	)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS		7,580			(5,099	)		(39,083	)		(14,875	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING— BASIC		10,649			8,647			9,718			8,602
NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS— BASIC	$	0.71		$	(0.59	)	$	(4.02	)	$	(1.73	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING— DILUTED		19,139			8,647			9,718			8,602
NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS— DILUTED	$	0.40		$	(0.59	)	$	(4.02	)	$	(1.73	)

	Cash		Common Stock		Other Purchase Price Components		Contingent Consideration		Total Purchase Price
Golden	$	1,500					$	477	$	1,977
TES		2,359		322		25		4,911		7,617
TESUS		18,683		3,041		1,495		—		23,219
AWS		6,020		—		150		—		6,170
	$	28,562	$	3,363	$	1,670	$	5,388	$	38,983

	Assessment, Permitting and Response		Measurements and Analysis		Remediation and Reuse		Total
Balance as of December 31, 2019	$	15,173	$	68,628	$	43,257	$	127,058
Goodwill acquired during the period		146,038		—		—		146,038
Balance as of June 30, 2020	$	161,211	$	68,628	$	43,257	$	273,096

	June 30,		December 31,
Level 3 Assets	2020		2019
Compound embedded option	$	8,605	$	—

Level 3 Liabilities
Contingent consideration payable, current	$	36,395	$	8,614
Contingent consideration payable, long term		9,117		379
Contingent put option		14,125		7,100
Warrant options		46,978		16,878
Total	$	98,010	$	32,971

	Level 3
	Assets			Liabilities
	Compound Embedded Option			Contingent Consideration Current⁽¹⁾			Contingent Consideration Long Term⁽²⁾			Contingent Put Option		Warrant Options		Total
Balance—at December 31, 2018	$	—		$	2,754		$	—		$	—	$	12,818	$	15,572
Acquisitions		—			31			—			—		—		31
Changes in fair value included in earnings		—			(926	)		—			—		1,549		623
Balance—at June 30, 2019	$	—		$	1,859		$	—		$	—	$	14,367	$	16,226

Balance—at December 31, 2019	$	—		$	8,614		$	379		$	7,100	$	16,878	$	32,971
Payment of contingent consideration payable		—			(12,250	)		—			—		—		(12,250	)
Foreign currency translation of contingent consideration payment		—			(208	)		—			—		—		(208	)
Acquisitions					34,451			10,543							44,994
Series A-2 compound embedded option		9,361			—			—			—		—		(9,361	)
Issuance of warrant option		—			—			—			—		30,099		30,099
Reclass of long term to short term contingent liabilities		—			180			(180	)		—		—		—
Changes in fair value included in earnings		(756	)		5,608			(1,625	)		7,025		1		11,765
Balance—at June 30, 2020	$	8,605		$	36,395		$	9,117		$	14,125	$	46,978	$	98,010

	Three Months Ended June 30,						Six Months Ended June 30,
In thousands, except for net loss per share	2020			2019			2020			2019
Net income (loss)	$	13,224		$	(322	)	$	(28,024	)	$	(5,564	)
Accretion of redeemable preferred stock		(5,644	)		(4,777	)		(11,059	)		(9,311	)
Net income (loss) attributable to common stockholders - basic and diluted		7,580			(5,099	)		(39,083	)		(14,875	)
Weighted-average common shares outstanding - basic		10,649			8,647			9,718			8,602
Net income (loss) per share attributable to common stockholders - basic	$	0.71		$	(0.59	)	$	(4.02	)	$	(1.73	)
Weighted-average common shares outstanding - diluted		19,139			8,647			9,718			8,602
Net income (loss) per share attributable to common stockholders - diluted	$	0.40		$	(0.59	)	$	(4.02	)	$	(1.73	)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
Total	$	13,895		$	8,538		$	19,448		$	13,610
Interest Expense, net		(5,260	)		(1,181	)		(7,853	)		(2,460	)
Income tax benefit		1,759			1,712			4,911			896
Depreciation and Amortization		(9,784	)		(6,401	)		(17,344	)		(12,850	)
Stock-based compensation		(1,140	)		(1,294	)		(2,290	)		(2,522	)
Start-up losses and investment in new services		(296	)		(143	)		(675	)		(457	)
Acquisition costs		(2,454	)		(857	)		(3,761	)		(1,072	)
Fair value changes in contingent put option		22,602			—			(7,025	)		—
Fair value changes in warrant options		(4	)		(1,549	)		(2	)		(1,549	)
Fair value changes in compound embedded option		(756	)		—			(756	)		—
Fair value changes in contingent liabilities		(3,983	)		926			(3,983	)		926
Short term purchase accounting fair value adjustment to deferred revenue		—			—			(243	)		—
IPO preparation costs		—			(73	)		(531	)		(86	)
Discontinued services⁽ⁱ⁾		(1,078	)		—			(7,496	)		—
Other expenses		—			—			(147	)		—
Expenses related to financing transactions		(277	)		—			(277	)		—
Net Income (Loss)	$	13,224		$	(322	)	$	(28,024	)	$	(5,564	)

	For the Three Months
	Ended June 30,
(in thousands, except per share data)	2020			2019
Statements of operations data:
Revenues	$	73,766		$	57,401
Cost of revenues (exclusive of depreciation and amortization)		45,889			39,349
Selling, general and administrative expenses		23,301			11,156
Related party expense		—			120
Depreciation and amortization		9,784			6,401
(Loss) income from operations	$	(5,208	)	$	375
Other income (expense)		21,933			(1,228	)
Interest expense, net		(5,260	)		(1,181	)
Income (loss) before income taxes		11,465			(2,034	)
Income tax benefit		(1,759	)		(1,712	)
Net income (loss)	$	13,224		$	(322	)
Accretion of redeemable preferred stock		(5,644	)		(4,777	)
Net income (loss) attributable to common stockholders	$	7,580		$	(5,099	)
Income (loss) per share	$	0.40		$	(0.59	)
Other financial data:
Adjusted EBITDA⁽¹⁾	$	13,895		$	7,979
Adjusted EBITDA margin⁽¹⁾		18.8	%		13.9	%

	For the Six Months
	Ended June 30,
(in thousands, except per share data)	2020			2019
Statements of operations data:
Revenues	$	134,797		$	108,355
Cost of revenues (exclusive of depreciation and amortization)		90,287			76,444
Selling, general and administrative expenses		44,232			21,603
Related party expense		119			279
Depreciation and amortization		17,344			12,850
Loss from operations	$	(17,185	)	$	(2,821	)
Other expense		(7,897	)		(1,179	)
Interest expense, net		(7,853	)		(2,460	)
Loss before income taxes		(32,935	)		(6,460	)
Income tax benefit		(4,911	)		(896	)
Net loss	$	(28,024	)	$	(5,564	)
Accretion of redeemable preferred stock		(11,059	)		(9,311	)
Net loss attributable to common stockholders	$	(39,083	)	$	(14,875	)
Loss per share	$	(4.02	)	$	(1.73	)
Other financial data:
Adjusted EBITDA⁽¹⁾	$	19,448		$	12,653
Adjusted EBITDA margin⁽¹⁾		14.4	%		11.7	%

	For the Three Months Ended June 30						For the Six Months Ended June 30
(in thousands)	2020			2019			2020			2019
Net income (loss)	$	13,224		$	(322	)	$	(28,024	)	$	(5,564	)
Interest expense		5,260			1,181			7,853			2,460
Income tax benefit		(1,759	)		(1,712	)		(4,911	)		(896	)
Depreciation and amortization		9,784			6,401			17,344			12,850
EBITDA	$	26,509		$	5,548		$	(7,738	)	$	8,850
Stock-based compensation ⁽¹⁾		1,140			1,294			2,290			2,522
Start-up losses and investment in new services ⁽²⁾		296			48			675			169
Acquisition costs ⁽³⁾		2,454			857			3,761			1,072
Fair value changes in contingent put option⁽⁴⁾		(22,602	)		—			7,025			—
Fair value changes in warrant options ⁽⁴⁾		4			1,549			2			1,549
Fair value changes in compound embedded option ⁽⁵⁾		756			—			756			—
Fair value changes in contingent liabilities ⁽⁶⁾		3,983			(926	)		3,983			(926	)
Short term purchase accounting fair value adjustment to deferred revenue⁽⁷⁾		—			—			243			—
IPO preparation costs ⁽⁸⁾		—			73			531			86
Discontinued Service Lines ⁽⁹⁾		1,078			(464	)		7,496			(669	)
Other losses and expenses ⁽¹⁰⁾		—			—			147			—
Expenses related to financing transactions ⁽¹¹⁾		277						277
Adjusted EBITDA	$	13,895		$	7,979		$	19,448		$	12,653

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company