MONTROSE ENVIRONMENTAL GROUP, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)

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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, 2022
and June 30, 2021 included in Part I, Item 1. "Financial Statements" in this
Quarterly Report on Form 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,
including in Item 1A. Risk Factors in the 2021 Form 10-K.

Insight

Since our inception in 2012, our mission has been to help clients and
communities meet their environmental goals and needs. According to data derived
from a 2021 Environmental Industry Study prepared by Environmental Business
International, Inc., or EBI, which we commissioned, the global environmental
industry is estimated to be approximately $1.3 trillion, with $428.0 billion
concentrated in the United States.

Our Segments

We provide environmental services to our clients through three business lines: Assessment, Authorization and Response, Measurement and Analysis, and Remediation and Reuse. For more information about each of our operating segments, see Item 1. “Business” of the 2021 Form 10-K.

Assessment, authorization and response

Through our Assessment, Permitting and Response segment, we provide scientific
advisory and consulting services to support environmental assessments,
environmental emergency response, and environmental audits and permits for
current operations, facility upgrades, new projects, decommissioning projects
and development projects. Our technical advisory and consulting offerings
include regulatory compliance support and planning, environmental, ecosystem and
toxicological assessments and support during responses to environmental
disruption. We help clients navigate regulations at the local, state, provincial
and federal levels. In addition to environmental toxicology, and given our
expertise in helping businesses plan for and respond to disruptions, our
scientists and response teams have helped clients navigate their preparation for
and response to the COVID-19 pandemic.

Measurement and analysis

Through our Measurement and Analysis segment, our highly credentialed teams test
and analyze air, water and soil to determine concentrations of contaminants, as
well as the toxicological impact of contaminants on flora, fauna and human
health. Our offerings include source and ambient air testing and monitoring,
leak detection and advanced analytical laboratory services such as air, storm
water, wastewater and drinking water analysis.

Remediation and reuse

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

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

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COVID-19[feminine]

To date, COVID-19 related adverse impacts such as temporarily delayed project
start dates, particularly within our Remediation and Reuse segment, exiting
certain service lines and employee quarantines have not had a material adverse
effect on our reported results. On the other hand, we have seen benefits from
COVID-19 given client demand for CTEH's toxicology and response services, which
represented a meaningful, although declining, revenue stream in the three and
six months ended June 30, 2022 and June 30, 2021, and that, once the pandemic
subsides, we may not be able to replace in future periods. Although many parts
of our business saw some impact from COVID-19, in the aggregate, our overall
business benefitted from COVID-19 during the three and six months ended June 30,
2022 and June 30, 2021, primarily as a result of COVID-19 response work
performed by CTEH. For additional information regarding the historical impacts
of COVID-19 on our business, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations in the 2021 Form 10-K.

COVID-19 has had an impact on our historical seasonality trends. We have not
experienced a significant slowdown in cash collections, and as a result cash
flow from operations has not been materially adversely impacted.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or
the CARES Act, was enacted. The CARES Act includes several significant
provisions for corporations, including those pertaining to net operating losses,
interest deductions and payroll tax benefits. We utilized certain of these
provisions in 2020, including the deferral of the employer side social security
payments for payroll for the eligible portion of the year. In total, we deferred
approximately $5.0 million of 2020 payments to 2021 and 2022, of which $2.5
million was repaid in December 2021 and we expect to pay the remaining $2.5
million in the fourth quarter of 2022.

It is difficult to predict the future impact COVID-19 may have on our business,
results of operations, financial position, or cash flows. The extent to which we
may be impacted will depend largely on future and rapidly evolving developments,
including new information on the severity of new strains, the roll-out and
long-term efficacy of vaccines, and 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 Affecting Our Business and Results

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

Acquisitions

We have been, and expect to continue to be, an acquisitive company. Acquisitions
have expanded our environmental service capabilities across all three segments,
our access to technology, as well as our geographic reach in the United States,
Canada and Australia. The table below sets forth the number of acquisitions
completed, revenues generated by and the percentage of total revenues
attributable to those acquisitions completed during the three and six months
ended June 30, 2022 and June 30, 2021:

                                    Three Months Ended June 30,            Six Months Ended June 30,
(Revenues in thousands)             2022                  2021              2022               2021
Acquisitions completed                      -                     1                2                  2
Revenues attributable to
  acquisitions in the period                -         $         457     $      7,600       $      7,831
Percentage of revenues                    0.0 %                 0.3 %            2.8 %              2.9 %

Revenue from acquired companies excludes inter-company revenue from revenue synergies realized between business segments within operating segments, as these are eliminated at the consolidated segment and Company level. We expect our revenue growth to continue to be driven largely by 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. Our historical financial
statements also include other acquisition-related costs, including costs
relating to external legal support, diligence and valuation services and other
transaction and integration-related matters. In addition, in any year gains and
losses from changes in the fair value of business acquisition contingencies such
as earn outs could be significant. The amount of each for the three and six
months ended June 30, 2022 and June 30, 2021, was:


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                                     Three Months Ended June 30,             Six Months Ended June 30,
(in thousands)                        2022                 2021              2022                2021
Amortization expense             $        9,492       $        8,407     $      18,911       $      17,002
Acquisition-related costs                   519                  506               986                 743
Fair value changes in business           (3,510 )             12,971            (3,531 )            24,035

acquisition hazards

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

Additionally, we made earn-out payments of $30.0 million and $50.0 million in
March 2022 and April 2021, respectively, in connection with our CTEH
acquisition. $25.0 million of the 2021 CTEH earn-out payment was made in the
form of shares of our common stock. In connection with our Vista, Sensible, ECI
and EnvStd acquisitions, we may make up to $8.5 million in aggregate earn-out
payments between the years 2022 and 2026. See Note 7 to our unaudited condensed
consolidated financial statements included in Part I, Item 1. "Financial
Statements."

See Note 21 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements” for information on acquisitions made after June 30, 2022.

Organic growth

We define organic growth as the change in revenues excluding revenues from
acquisitions for the first twelve months following the date of acquisition and
excluding revenues from businesses disposed of or discontinued. As a result of
the significance of CTEH to Montrose and the potential annual volatility in
CTEH's revenues due to the emergency response aspect of their business, we also
disclose organic growth without the annual organic revenue growth of CTEH. We
expect to continue to disclose organic revenue growth with and without CTEH.
Management uses organic growth as one of the means by which it assesses our
results of operations. Organic growth is not, however, a measure of revenue
growth calculated in accordance with U.S. generally accepted accounting
principles, or GAAP, and should be considered in conjunction with revenue growth
calculated in accordance with GAAP. We have grown organically 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 second quarter of 2022, as part of this evaluation, we
determined to exit all water treatment and biogas operations and maintenance
contracts, collectively, the Discontinued O&M Contracts. The decision to exit
these contracts was reached after a careful consideration of the risks and
rewards associated with them. The work associated with these contracts is
non-specialized and commoditized, and it was determined that the risk of
facility failure taken on by the Company as the O&M contractor, no longer
justified the low margins in these contracts. As a part of exiting these
contracts, a process that is expected to be completed by the end of 2022, we
have eliminated the positions associated with the workstreams. Revenue from our
water treatment and biogas operations and maintenance contracts, which are
included in the results of our Remediation and Reuse segment, were $0.9 million
and $3.3 million in the three months ended June 30, 2022 and June 30, 2021,
respectively, and $2.3 million and $6.8 million in the six months ended June 30,
2022 and June 30, 2021, respectively. This decision does not impact the
Company's specialized PFAS water treatment operations and maintenance contracts.

Composition of income

Our segments generate different levels of profitability and, accordingly, shifts
in the mix of revenues between segments can impact our consolidated reported net
income, net loss margin, Adjusted EBITDA and Adjusted EBITDA margin from quarter
to quarter and year to year. Inter-company revenues between business lines
within segments have been eliminated. See Note 18 to our unaudited condensed
consolidated financial statements included in Part 1, Item 1 "Financial
Statements."

Funding costs

Financing costs, relating primarily to interest expense on our debt, continue to
be a significant component of our results of operations. We incurred interest
expense of $1.5 million and $2.6 million during the three and six months ended
June 30, 2022, respectively, and $6.8 million and $9.5 million during the three
and six months ended June 30, 2021.

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

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2021 Credit Facility varies depending on leverage, with a minimum of LIBOR plus
1.5% and a maximum of LIBOR plus 2.5%. We incurred debt extinguishment costs of
$4.1 million in connection with this refinancing.

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

We expect interest expense to remain a significant cost as we continue to leverage our credit facility to support our business and future acquisitions.

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

Investments in corporate and operational infrastructure

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
margins.

Seasonality

Due to the field-based nature of certain of our services, weather patterns
generally impact our field-based teams' ability to operate in the winter months.
As a result, our operating results in our Measurement and Analysis segment
experience some quarterly variability with generally lower revenues and lower
earnings in the first and fourth quarters and higher overall revenues and
earnings in the second and third quarters. As we continue to grow and expand
into new geographies and service lines, quarterly variability in our Measurement
and Analysis segment may deviate from historical trends.

Earnings volatility

In addition to the impact of seasonality on earnings, the acquisition of CTEH
exposes us to potentially significant revenue and earnings fluctuations tied
both to the timing of large environmental emergency response projects following
an incident or natural disaster, and more recently, the benefit from COVID
related work. The benefit from COVID related work began in the third quarter of
2020, peaked in the first quarter of 2021 and has declined each subsequent
quarter, although demand has continued through June 30, 2022. Demand for
COVID-19 related or environmental emergency response services provided by CTEH
remains difficult to predict and as a result, we may have experienced revenues
and earnings in both the first half of 2022 and 2021 that are not indicative of
future results, making those periods particularly difficult comparisons for
future periods. We do however expect that a portion of the lost COVID-19
response revenues will be offset by other CTEH service line revenues as internal
resources are freed up from the COVID-19 response work. Earnings volatility is
also driven by the timing of large projects, particularly in our Remediation and
Reuse segment, and the impact of acquisitions. As a result of these factors, and
because demand for environmental services is not driven by specific or
predictable patterns in one or more fiscal quarters, our business is better
assessed based on yearly results.

Cyber ​​Security Breach

As previously disclosed, on June 11, 2022 we were the target of an organized
ransomware attack on our IT systems that led to the temporary disruption of our
regular operations. The most affected portion of the business was our Enthalpy
lab network. Upon discovery of the attack, we immediately began restoration and
remediation efforts. By June 30, 2022, we had substantially restored our
operations. The Company's financial systems are cloud based and were not
affected. We engaged third party experts, including cyber legal counsel and a
cybersecurity firm, to perform a fulsome forensic investigation of this attack
and we promptly notified federal law enforcement. Based on the results of the
investigation, we do not believe there has been any misuse of confidential or
sensitive client data, have made notifications to clients, and have proactively
addressed client concerns regarding our security environment. Furthermore, we
have identified a limited number of individuals whose personally identifiable
information may have been accessed from our systems and are in process of making
appropriate notifications to such individuals and required regulators. The
Company has insurance coverage, subject to a $0.3 million deductible, against
recovery costs and business interruption resulting from cyber-attacks and is in
the process of preparing and submitting claims. We believe that the impact on
revenues and income before tax in the quarter ended June 30, 2022 was
approximately $1.0 million, with an additional smaller loss in July 2022.



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Operating results

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30,
2021

                                                           Three Months Ended June 30,
(in thousands, except per share and percentage data)        2022            

2021

Statements of operations data:
Revenues                                               $      139,910       $      136,224
Cost of revenues (exclusive of depreciation and
amortization)                                                  90,429       

92 104

Selling, general and administrative expense                    46,456       

27,366

Fair value changes in business acquisition
contingencies                                                  (3,510 )     

12,971

Depreciation and amortization                                  12,280                9,878
Loss from operations                                   $       (5,745 )     $       (6,095 )
Other income (expense)                                            343                 (511 )
Interest expense, net                                          (1,518 )             (6,798 )
Loss before income taxes                                       (6,920 )            (13,404 )
Income tax expense (benefit)                                      831                 (256 )
Net loss                                               $       (7,751 )     $      (13,148 )
Series A-2 dividend payment                                    (4,100 )             (4,100 )
Net loss attributable to common stockholders           $      (11,851 )     $      (17,248 )
Weighted average number of shares - basic and
diluted                                                        29,678       

26,056

Loss per share - basic and diluted                     $        (0.40 )     $        (0.66 )



Revenues

For the three months ended June 30, 2022, we had revenues of $139.9 million, an
increase of $3.7 million, or 2.7% over the three months ended June 30, 2021. The
period over period increase in revenues was driven by organic growth in our
Measurement and Analysis and Remediation and Reuse segments, and acquisitions
completed in and subsequent to the quarter ended June 30, 2021, which
contributed revenues of $14.6 million. These increases were partially offset by
significantly lower revenue from CTEH driven by lower demand for COVID-19
related services and exiting waste water treatment and biogas O&M contracts.
Revenue from CTEH was $32.1 million in the three months ended June 30, 2022
compared to $65.9 million in the three months ended June 30, 2021. Total revenue
from COVID-19 related services was $20.4 million and $55.2 million in the three
months ended June 30, 2022 and June 30, 2021, respectively. Revenue from
Discontinued O&M Contracts generated revenues of $0.9 million and $3.3 million
in the three months ended June 30, 2022 and June 30, 2021, respectively. Revenue
by segment and as a percentage of total revenues was as follows:

                                                           Three Months Ended June 30,
                                                2022                                         2021
(Revenues in thousands)         Revenues          % of Total Revenues        Revenues          % of Total Revenues
Assessment, Permitting and    $     50,037                 35.8     %      $     70,705                 51.9     %
  Response
Measurement and Analysis            42,224                 30.2                  39,117                 28.7
Remediation and Reuse               47,649                 34.1                  26,402                 19.4
                              $    139,910                                 $    136,224

See “Segment Operating Results” below.

Revenue cost

Revenue cost includes all direct costs necessary to provide services, including direct fixed and variable labor costs, rental of equipment and other external services, field and laboratory supplies, vehicle costs and travel expenses. Revenue variable costs generally follow the same trends as revenue, while fixed costs tend to change primarily due to acquisitions.

For the three months ended June 30, 2022, cost of revenues was $90.4 million or
64.6% of revenues, and was comprised of direct labor of $37.2 million, outside
services (including contracted labor, laboratory, shipping and freight and other
outside services) of $22.7 million, field supplies, testing supplies and
equipment costs of $21.3 million, project-related travel expenses of $5.4
million and other direct costs of $3.8 million.

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For the three months ended June 30, 2021, cost of revenues was $92.1 million or
67.6% of revenues, and was comprised of direct labor of $36.2 million, outside
services (including contracted labor, laboratory, shipping and freight and other
outside services) of $41.9 million, field supplies, testing supplies and
equipment costs of $7.1 million, project-related travel expenses of $3.7 million
and other direct costs of $3.2 million.

For the three months ended June 30, 2022, cost of revenues as a percentage of
revenue decreased 3.0% from the three months ended June 30, 2021, as a result of
significantly lower outside service costs in 2022 when compared to 2021 driven
primarily by a decrease in external lab expenses needed to support CTEH's
COVID-19 response work during 2022, partially offset by higher equipment costs
primarily to support higher water treatment and biogas revenues.

Selling, general and administrative expenses

Selling, general and administrative expenses include the general expenses of the business, including management, legal, financial, security, risk management, human resources, marketing and information technology expenses, as well as indirect operating costs of labour, rent, insurance and stock. compensation.

For the three months ended June 30, 2022, selling, general and administrative
expense was $46.5 million, an increase of $19.1 million or 69.8% versus the
three months ended June 30, 2021. This increase was primarily driven by $8.5
million related to an increase in stock compensation expense, $3.0 million from
selling, general and administrative expense pertaining to companies we acquired
in and subsequent to the second quarter of 2021, $4.4 million related to the
higher labor and medical benefit costs, primarily reflecting inflationary
increases, an increase in headcount to support growth in our PFAS water
treatment business, and investments in corporate infrastructure (primarily
administrative, marketing, finance, IT, legal and human resources) and $1.0
million was from an increase in the defined contribution plan employer
contributions following the reinstatement of employer matching during the second
quarter of 2021, as well as higher travel expenses. See Part I, Item 3.
"Quantitative and Qualitative Disclosures About Market Risk" for additional
information regarding the impact of inflation on our business.

For the three months ended June 30, 2022, selling, general and administrative
expense was comprised of indirect labor of $21.7 million, stock-based
compensation of $10.6 million, facilities costs of $4.3 million,
acquisition-related costs of $0.5 million, a bad debt expense of $0.3 million,
and other costs (including software, travel, insurance, legal, consulting and
audit services) of $9.1 million.

For the three months ended June 30, 2021, selling, general and administrative
expense was $27.4 million and was comprised of indirect labor of $13.3 million,
facilities costs of $3.5 million, stock-based compensation of $2.1 million, bad
debt expense of $0.1 million, acquisition-related costs of $0.5 million, and
other costs (including software, travel, insurance, legal, consulting and audit
services) of $7.9 million.

Changes in fair value in the event of a business acquisition

For the three months ended June 30, 2022, fair value changes in business
acquisition contingencies resulted in a gain of $3.5 million versus an expense
of $13.0 million for the three months ended June 30, 2021. The majority of the
change in value in the three months ended June 30, 2022, was attributable to a
$3.1 million gain related to acquisitions' 338(h)(10) elections make-whole tax
accruals. The majority of the change in value in the three months ended June 30,
2021 was attributable to the CTEH earn-outs. See "-Key Factors that Affect Our
Business and Our Results-Acquisitions" and Notes 7 and 13 to our unaudited
condensed consolidated financial statements included in Part I, Item 1.
"Financial Statements."

Depreciation and amortization

Depreciation and amortization expense for the three months ended June 30, 2022,
was $12.3 million and was comprised of amortization of finite lived intangibles
of $9.5 million, arising as a result of our acquisition activity, depreciation
of property and equipment of $1.8 million and finance leases right-of-use asset
amortization of $1.0 million.

Depreciation and amortization expense for the three months ended June 30, 2021,
was $9.9 million and was comprised of amortization of finite lived intangibles
of $8.4 million, arising as a result of our acquisition activity, depreciation
of property and equipment of $0.7 million and finance leases right-of-use asset
amortization of $0.8 million.

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The increase in amortization, depreciation of property and equipment and the
amortization of finance leases right-of-use asset for the three months ended
June 30, 2022 versus the three months ended June 30, 2021, was primarily a
result of acquisitions. See Notes 5 and 6 to our unaudited condensed
consolidated financial statements included in Part 1, Item 1. "Financial
Statements."

Other income (expenses)

Other income for the three months ended June 30, 2022 of $0.3 million was driven
by the fair value adjustment on our interest rate swap of $1.0 million, which
was partially offset by an expense of $0.6 million related to the fair value
adjustment of the Series A-2 preferred stock conversion option. Other expense of
$0.5 million for the three months ended June 30, 2021 was driven by fair value
adjustments related to the Series A-2 preferred stock conversion option. See
Notes 7, 12 and 15 to our unaudited condensed consolidated financial statements
included in Part 1, Item 1. "Financial Statements."

Interest expense, net

Interest expense, net incurred in the three months ended June 30, 2022, was $1.5
million, compared to $6.8 million for the three months ended June 30, 2021. The
decrease in interest expense was driven by lower outstanding debt balances
during the three months ended June 30, 2022 when compared to the three months
ended June 30, 2021, as well as the $4.1 million loss on extinguishment of debt
realized in the three months ended June 30, 2021 in connection with the
repayment in full of the 2020 credit facility. See "-Key Factors that Affect Our
Business and Our Results-Financing Costs" and Note 12 to our unaudited condensed
consolidated financial statements included in Part I, Item 1. "Financial
Statements."

Income tax expense (benefit)

The income tax expense was $0.8 million in the three months ended June 30, 2022. The tax benefit was ($0.3) million for the three months ended June 30, 2021.

Semester completed June 30, 2022 Compared to the half-year ended June 30, 2021

                                                            Six months ended June 30,
(in thousands, except per share and percentage data)        2022            

2021

Statements of operations data:
Revenues                                                $     274,590       $     270,041
Cost of revenues (exclusive of depreciation and
amortization)                                                 178,815       

187,420

Selling, general and administrative expense                    88,263       

52,366

Fair value changes in business acquisition
contingencies                                                  (3,531 )     

24,035

Depreciation and amortization                                  24,424              21,674
Loss from operations                                    $     (13,381 )     $     (15,454 )
Other income (expense)                                          2,804              (1,393 )
Interest expense, net                                          (2,610 )            (9,486 )
Loss before income taxes                                      (13,187 )           (26,333 )
Income tax expense (benefit)                                    2,100                (254 )
Net loss                                                $     (15,287 )     $     (26,079 )
Series A-2 dividend payment                                    (8,200 )            (8,200 )
Net loss attributable to common stockholders            $     (23,487 )     $     (34,279 )
Weighted average number of shares- basic and diluted           29,670       

25,586

Loss per share- basic and diluted                       $       (0.79 )     $       (1.34 )



Revenues

For the six months ended June 30, 2022, we had revenues of $274.6 million, an
increase of $4.6 million, or 1.7% over the six months ended June 30, 2021. The
period over period increase in revenues was driven by organic growth in our
Measurement and Analysis and Remediation and Reuse segments, and acquisitions
completed in and subsequent to the quarter ended June 30, 2021, which
contributed revenues of $26.9 million. These increases were partially offset by
significantly lower revenues from CTEH, primarily from lower COVID-19 related
services and the exiting of Discontinued O&M Contracts. Revenue from CTEH was
$62.0 million in the six months ended June 30, 2022 compared to $136.5 million
in the six months ended June 30, 2021. Total revenue from COVID-19 related
services was $41.8 million and $113.9 million in the six months ended June 30,
2022 and June 30, 2021, respectively. Revenue from Discontinued O&M Contracts
generated revenues of $2.3 million and $6.8 million in the six months ended June
30, 2022 and June 30, 2021, respectively. Revenue by segment and as a percentage
of total revenues was as follows:



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                                                            Six Months Ended June 30,
                                                2022                                         2021
(revenue in thousands)          Revenues          % of Total Revenues        Revenues          % of Total Revenues
Assessment, Permitting and    $     95,637                 34.8     %      $    145,967                 54.1     %
  Response
Measurement and Analysis            81,985                 29.9                  72,557                 26.9
Remediation and Reuse               96,968                 35.3                  51,517                 19.1
                              $    274,590                                 $    270,041

See “Segment Operating Results” below.

Revenue cost

For the six months ended June 30, 2022, cost of revenues was $178.8 million or
65.1% of revenues, and was comprised of direct labor of $76.0 million, field
supplies, testing supplies and equipment costs of $43.1 million, outside
services (including contracted labor, laboratory, shipping and freight and other
outside services) of $41.8 million, project-related travel expenses of $9.4
million and other direct costs of $8.5 million.

For the six months ended June 30, 2021, cost of revenues was $187.4 million or
69.4% of revenues, and was comprised of direct labor of $72.3 million, outside
services (including contracted labor, laboratory, shipping and freight and other
outside services) of $82.9 million, field supplies, testing supplies and
equipment costs of $18.2 million, project-related travel expenses of $8.8
million and other direct costs of $5.2 million.

For the six months ended June 30, 2022, cost of revenues as a percentage of
revenue decreased 4.3% from the six months ended June 30, 2021, as a result of
significantly lower outside service costs in 2022 when compared to 2021 driven
primarily by a decrease in external lab expenses needed to support CTEH's
COVID-19 response work during 2022, partially offset by higher equipment costs
primarily to support higher water treatment and biogas revenues.

Selling, general and administrative expenses

For the six months ended June 30, 2022, selling, general and administrative
expense was $88.3 million, an increase of $35.9 million or 68.6% versus the six
months ended June 30, 2021. This increase was primarily driven by $17.4 million
related to an increase in stock compensation expense, $5.6 million from selling,
general and administrative expense pertaining to companies we acquired in and
subsequent to the second quarter of 2021, $5.7 million related to the higher
labor and medical benefit costs, primarily reflecting inflationary increases, an
increase in headcount to support growth in our PFAS water treatment business,
and investments in corporate infrastructure (primarily administrative,
marketing, finance, IT, legal and human resources) and $2.7 million was from an
increase in the defined contribution plan employer contributions following the
reinstatement of employer matching during the second quarter of 2021, as well as
higher travel expenses. See Part I, Item 3. "Quantitative and Qualitative
Disclosures About Market Risk" for additional information regarding the impact
of inflation on our business.

For the six months ended June 30, 2022, selling, general and administrative
expense was comprised of indirect labor of $41.2 million, stock-based
compensation of $20.7 million, facilities costs of $8.7 million,
acquisition-related costs of $1.0 million, a bad debt credit of $0.2 million,
and other costs (including software, travel, insurance, legal, consulting and
audit services) of $16.9 million.

For the six months ended June 30, 2021, selling, general and administrative
expense was $52.4 million and was comprised of indirect labor of $27.2 million,
facilities costs of $7.0 million, stock-based compensation of $3.3 million,
acquisition-related costs of $0.7 million, bad debt expense of $0.6 million, and
other costs (including software, travel, insurance, legal, consulting and audit
services) of $13.6 million.

Changes in fair value in the event of a business acquisition

For the six months ended June 30, 2022, fair value changes in business
acquisition contingencies resulted in a gain of $3.5 million versus an expense
of $24.0 million for the six months ended June 30, 2021. The majority of the
change in value in the six months ended June 30, 2022, was attributable to a
$3.1 million gain related to acquisitions' 338(h)(10) elections make-whole tax
accruals. The majority of the change in value in the six months ended June 30,
2021 period was attributable to the CTEH earn-outs. See "-Key Factors that
Affect Our Business and Our Results -Acquisitions" and Notes 7 and 13 to our
unaudited condensed consolidated financial statements included in Part I, Item
1. "Financial Statements."

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Depreciation and amortization

Depreciation and amortization expense for the six months ended June 30, 2022,
was $24.4 million and was comprised of amortization of finite lived intangibles
of $18.9 million, arising as a result of our acquisition activity, depreciation
of property and equipment of $3.6 million and finance leases right-of-use asset
amortization of $1.9 million.

Depreciation and amortization expense for the six months ended June 30, 2021,
was $21.7 million and was comprised of amortization of finite lived intangibles
of $17.0 million, arising as a result of our acquisition activity, and
depreciation of property and equipment of $3.1 million and finance leases
right-of-use asset amortization of $1.6 million.

The increase in amortization, depreciation of property and equipment and the
amortization of finance leases right-of-use asset for the six months ended June
30, 2022 versus the six months ended June 30, 2021, was primarily a result of
acquisitions. See Notes 5 and 6 to our unaudited condensed consolidated
financial statements included in Part 1, Item 1. "Financial Statements."

Other income (expenses)

Other income for the six months ended June 30, 2022 of $2.8 million was driven
by a gain related to the fair value adjustment on our interest rate swap of $4.0
million which was partially offset by an expense of $1.1 million related to the
fair value adjustment of the Series A-2 preferred stock conversion option. Other
expense of $1.4 million for the six months ended June 30, 2021 was driven by
fair value adjustments related to the Series A-2 preferred stock conversion
option. See Notes 12 and 15 to our unaudited condensed consolidated financial
statements included in Part 1, Item 1. "Financial Statements."

Interest expense, net

Interest expense, net incurred in the six months ended June 30, 2022, was $2.6
million, compared to $9.5 million for the six months ended June 30, 2021. The
decrease in interest expense was driven by lower outstanding debt balances
during the six months ended June 30, 2022 when compared to the six months ended
June 30, 2021, as well as the $4.1 million loss on extinguishment of debt
realized in the six months ended June 30, 2021 in connection with the repayment
in full of the 2020 credit facility. See "-Key Factors that Affect Our Business
and Our Results-Financing Costs" and Note 12 to our unaudited condensed
consolidated financial statements included in Part I, Item 1. "Financial
Statements."

Income Tax Charge (Benefit)

The income tax expense was $2.1 million in the six months ended June 30, 2022. The tax benefit was ($0.3) million for the six months ended June 30, 2021.

Segment operating results

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30,
2021

                                                               Three Months Ended June 30,
                                                  2022                                              2021
                                                                 Segment                                          Segment
                                                Segment         Adjusted                          Segment        Adjusted
                                Segment         Adjusted         EBITDA           Segment        Adjusted         EBITDA
(in thousands)                  Revenues       EBITDA (1)       Margin(2)         Revenues       EBITDA(1)       Margin(2)
Assessment, Permitting and
Response                       $   50,037     $     10,809            21.6   %   $   70,705     $    14,856            21.0   %
Measurement and Analysis           42,224            7,047            16.7           39,117           9,491            24.3
Remediation and Reuse              47,649            7,056            14.8           26,402           4,309            16.3
Total Operating Segments       $  139,910     $     24,912            17.8   %   $  136,224     $    28,656            21.0   %
Corporate and Other                     -           (8,399 )           n/a                -          (7,693 )           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 18 to our
unaudited condensed consolidated financial statements included in Part I, Item
1. "Financial Statements."
(2)
Represents Segment Adjusted EBITDA as a percentage of segment revenues.

                                       39
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Revenue

Assessment, Permitting and Response segment revenues for the three months ended
June 30, 2022 were $50.0 million, compared to $70.7 million for the three months
ended June 30, 2021. The decrease was driven by significantly lower CTEH
revenues in the three months ended June 30, 2022 when compared to the three
months ended June 30, 2021, as a result of lower revenue from COVID-19 related
services, partially offset by revenues of $13.9 million from acquisitions
completed in and subsequent to the quarter ended June 30, 2021. CTEH revenues
were $32.1 million in the three months ended June 30, 2022 compared to $65.9
million in the three months ended June 30, 2021. Total revenue from COVID-19
related services was $20.4 million and $55.2 million in the three months ended
June 30, 2022 and June 30, 2021, respectively.

Measurement and Analysis segment revenues for the three months ended June 30,
2022 were $42.2 million, an increase of $3.1 million or 7.9% compared to
revenues for the three months ended June 30, 2021 of $39.1 million. The increase
was driven primarily by organic growth, as well as by revenues of $0.7 million
from acquisitions completed in and subsequent to the quarter ended June 30,
2021.

Remediation and Reuse segment revenues for the three months ended June 30, 2022
were $47.6 million, an increase of $21.2 million or 80.5% compared to revenues
for the three months ended June 30, 2021 of $26.4 million. The increase was
driven by organic growth, driven by increases in demand for our water treatment
technology (PFAS removal) and waste-to-resources (agricultural waste to biogas)
services, partially offset by the exiting of Discontinued O&M Contracts, which
generated revenues of $0.9 million and $3.3 million in the three months ended
June 30, 2022 and June 30, 2021, respectively.

Segment Adjusted EBITDA

Assessment, Permitting and Response Segment Adjusted EBITDA was $10.8 million
for the three months ended June 30, 2022, compared to $14.9 million for the
three months ended June 30, 2021. For the three months ended June 30, 2022 and
June 30, 2021, Segment Adjusted EBITDA margin was 21.6% and 21.0%, respectively.
The decrease in Segment Adjusted EBITDA was a result of a decrease in CTEH
COVID-19 related revenues during the three months ended June 30, 2022 when
compared to the three months ended June 30, 2021. Segment Adjusted EBITDA margin
was relatively flat despite the decrease in revenues primarily due to CTEH
COVID-19 related services' comparatively lower margin profile and the
acquisitions of EI and Horizon in 2021 and EnvStd in 2022, which typically
operate at lower overall margins than the legacy business in this segment prior
to these acquisitions.

Measurement and Analysis Segment Adjusted EBITDA for the three months ended June
30, 2022 was $7.0 million, a decrease of $2.5 million compared to Segment
Adjusted EBITDA for the three months ended June 30, 2021 of $9.5 million. For
the three months ended June 30, 2022 and June 30, 2021 Segment Adjusted EBITDA
margin was 16.7% and 24.3%, respectively. The decrease in both Segment Adjusted
EBITDA and Segment Adjusted EBITDA margin was a result of unfavorable business
mix, significant variable cost increases (including travel, laboratory and field
supplies) in excess of responsive pricing increases implemented earlier in the
year, the timing of projects in some of our specialty labs, and the impact of
the cyber-attack, which temporarily disrupted certain of our labs' ability to
operate.

Remediation and Reuse Segment Adjusted EBITDA for the three months ended June
30, 2022 was $7.1 million, an increase of $2.8 million compared to Segment
Adjusted EBITDA for the three months ended June 30, 2021 of $4.3 million. For
the three months ended June 30, 2022 and June 30, 2021 Segment Adjusted EBITDA
margin was 14.8% and 16.3%, respectively. The increase in Segment Adjusted
EBITDA was a result of significantly higher revenues. The decrease in Segment
Adjusted EBITDA margin was primarily a result of lower margins in our
remediation business, where we have experienced significant increases in direct
labor, travel and sub-contractor costs in excess of responsive pricing increases
implemented earlier in the year that did not go into effect immediately, due to
longer term contracts in this business, the impact of the Discontinued O&M
Contracts, and our continued investments in operating infrastructure in our
biogas and water treatment technology businesses, which temporarily impact
margins.

Corporate and other costs were $8.4 million for the three months ended June 30,
2022 compared to $7.7 million for the three months ended June 30, 2021. The cost
increase was primarily driven by continued investment in corporate support
functions to support anticipated future growth. Corporate and other costs were
6.0% and 5.6% of revenues for the three months ended June 30, 2022 and June 30,
2021, respectively.

                                       40
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Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021


                                                                      Six Months Ended June 30,
                                                        2022                                            2021
                                                                      Segment                                         Segment
                                                      Segment        Adjusted                         Segment        Adjusted
                                       Segment        Adjusted        EBITDA           Segment        Adjusted        EBITDA
(in thousands)                         Revenues      EBITDA(1)      

Margin(2) Revenue EBITDA(1) Margin(2) Valuation, permit and response $95,637 $20,432

21.4   %   $  145,967     $   30,660            21.0   %
Measurement and Analysis                  81,985         13,369            16.3           72,557         14,351            19.8
Remediation and Reuse                     96,968         15,049            15.5           51,517          6,790            13.2
Total Operating Segments              $  274,590     $   48,850            17.8   %   $  270,041     $   51,801            19.2   %
Corporate and Other                                     (15,886 )           n/a                         (14,039 )           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 18 to our
unaudited condensed consolidated financial statements included in Part I, Item
1. "Financial Statements."
(2)
Represents Segment Adjusted EBITDA as a percentage of segment revenues.

Revenue

Assessment, Permitting and Response segment revenues for the six months ended
June 30, 2022 were $95.6 million, compared to $146.0 million for the six months
ended June 30, 2021. The decrease was driven by significantly lower CTEH
revenues in the first half of 2022 when compared to the first half of 2021, as a
result of lower revenue from COVID-19 related services, partially offset by
revenues of $25.3 million from acquisitions completed in and subsequent to the
quarter ended June 30, 2021. CTEH revenues were $62.0 million in the six months
ended June 30, 2022 compared to $136.5 million in the six months ended June 30,
2021. Total revenue from COVID-19 related services was $41.8 million and $113.9
million in the six months ended June 30, 2022 and June 30, 2021, respectively.

Measurement and Analysis segment revenues for the six months ended June 30, 2022
were $82.0 million, an increase of $9.4 million or 13.0% compared to revenues
for the six months ended June 30, 2021 of $72.6 million. The increase was driven
primarily by organic growth, as well as by revenues of $1.6 million from
acquisitions completed in and subsequent to the quarter ended June 30, 2021.

Remediation and Reuse segment revenues for the six months ended June 30, 2022
were $97.0 million, an increase of $45.5 million or 88.2% compared to revenues
for the six months ended June 30, 2021 of $51.5 million. The increase was driven
by organic growth. This organic revenue growth was driven by increases in demand
for our water treatment technology (PFAS removal) and waste-to-resources
(agricultural waste to biogas) services.

Segment Adjusted EBITDA

Assessment, Permitting and Response Segment Adjusted EBITDA was $20.4 million
for the six months ended June 30, 2022, compared to $30.7 million for the six
months ended June 30, 2021. For the six months ended June 30, 2022 and June 30,
2021, Segment Adjusted EBITDA margin was 21.4% and 21.0%, respectively. The
decrease in Segment Adjusted EBITDA was a result of a decrease in CTEH COVID-19
related revenues during the six months ended June 30, 2022 when compared to the
six months ended June 30, 2021. Segment Adjusted EBITDA margin was relatively
flat despite the decrease in revenues primarily due to CTEH COVID-19 related
services' comparatively lower margin profile and the acquisitions of EI and
Horizon in 2021 and EnvStd in 2022, which typically operate at lower overall
margins than the legacy business in this segment prior to these acquisitions.

Measurement and Analysis Segment Adjusted EBITDA for the six months ended June
30, 2022 was $13.4 million, a decrease of $1.0 million compared to Segment
Adjusted EBITDA for the six months ended June 30, 2021 of $14.4 million. For the
six months ended June 30, 2022 and June 30, 2021, Segment Adjusted EBITDA margin
was 16.3% and 19.8%, respectively. The decrease in both Segment Adjusted EBITDA
and Segment Adjusted EBITDA margin was a result of unfavorable business mix,
significant variable cost increases (including travel, laboratory and field
supplies) in excess of responsive pricing increases implemented earlier in the
year, the timing of projects in some of our specialty labs, and the impact of
the cyber-attack in June 2022, which temporarily disrupted certain of our labs'
ability to operate.

Remediation and Reuse Segment Adjusted EBITDA for the six months ended June 30,
2022 was $15.0 million, an increase of $8.2 million compared to Segment Adjusted
EBITDA for the six months ended June 30, 2021 of $6.8 million. For the six
months ended June 30, 2022 and June 30, 2021, Segment Adjusted EBITDA margin was
15.5% and 13.2%, respectively. The increase in both

                                       41
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Segment Adjusted EBITDA and Segment Adjusted EBITDA margin was a result of
significantly higher revenues, partially offset by our continued investments in
operating infrastructure in this segment that temporarily impact margins. The
Segment Adjusted EBITDA margin benefit from higher revenues was partially offset
by lower soil remediation margins as a result of significant increases in direct
labor, travel and sub-contractor costs in excess of responsive pricing increases
implemented earlier in the year that did not go into effect immediately due to
longer term contracts in this business and the impact of the Discontinued O&M
Contracts.

Corporate and other costs were $15.9 million for the six months ended June 30,
2022 compared to $14.0 million for the six months ended June 30, 2021. The cost
increase was primarily driven by continued investment in corporate support
functions to support anticipated future growth. Corporate and other costs were
5.8% and 5.2% of revenues for the six months ended June 30, 2022 and June 30,
2021, respectively.

Cash and capital resources

Liquidity describes the ability of a company to generate sufficient cash flows
to meet the cash requirements of its business operations, including working
capital needs, debt service, acquisitions, other commitments and contractual
obligations. We consider liquidity in terms of cash flows from operations and
other sources, including availability under our credit facility, and their
sufficiency to fund our operating and investing activities.

Our principal sources of liquidity have been borrowings under our credit
facilities, other borrowing arrangements, proceeds from the issuance of common
and preferred stock and cash generated by operating activities. Historically, we
have financed our operations and acquisitions from a combination of cash
generated from operations, periodic borrowings under senior secured credit
facilities, other prior secured and unsecured borrowings and proceeds from the
issuance of common and preferred stock. Our primary cash needs are for day to
day operations, to fund working capital requirements, to fund our acquisition
strategy, to pay interest and principal on our indebtedness and dividends on our
Series A-2 preferred stock, and to make capital expenditures. Additionally, in
connection with certain acquisitions, we agree to earn-out provisions and other
purchase price adjustments that may require future payments. For example, the
CTEH acquisition agreement included an earn-out provision that provided for the
payment of contingent consideration based on CTEH's 2021 results in an aggregate
amount not to exceed $30.0 million, with the earn-out payment equal to a
specified multiple of CTEH's EBITDA for 2021 in excess of a specified target.
CTEH fully achieved the target in 2021 and the $30.0 million payment was paid in
cash in the first quarter of 2022. We may also be required to make up to $3.0
million in aggregate earn-out payments in cash between the years 2022 and 2023
in connection with certain of our business acquisitions. See Note 7 to our
unaudited condensed consolidated financial statements included in Part 1, Item
1. "Financial Statements."

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

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