Montrose Environmental (MEG) 9 May 232023 Q1 Earnings call transcript

Hello and welcome to the Montrose Environmental Group, Inc.

First Quarter 2023 Earnings Call. [Operator Instructions] Please note, today's event is being recorded.

I'd now like to turn the conference over to your host today, Rodny Nacier, Investor Relations. Please go ahead, sir.

operator. you, Thank first our earnings call. Welcome quarter to XXXX

Vijay me Allan and President the Dicks, are on call Manthripragada, Chief Financial our Officer. Joining Chief Executive Officer; and

which be During our of to we discussion on will our our Investors today, website. presentation is section available the referring

is on earnings the release Our website. also available

Form XXXX. XX, provisions would uncertainties Reform to statements that refer to the subject that that obligation everyone operating to as to Slide our update results SEC evaluating and our of Private XX-K and XXXX in principal today's forward-looking Litigation that future fiscal risks any Actual recent no Harbor affect on well Securities the to of including in be should We and for Moving way ended year like call which differ as X. outlook. Act our are to performance. the I statements. the considered performance identify due December uncertainties We remind unknown statements a will forward-looking forward-looking you may Safe filings, include could and risks Report material financial known any Annual assume

their not comparable adjusted certain considered the using to and see to We and non-GAAP the useful directly a our In be will discussing appendix measures measure. presentation reconciliation including measures or be in these of thereof directly Please non-GAAP results net of most these adjusted certain these provide release measures. believe GAAP discussion isolation the the and limitations adjusted financial addition, investors, should GAAP measures we purposes comparable today, for providing consolidated earnings most they net earnings income why we to share. or are from EBITDA, income non-GAAP per informational for

would now the call I turn like X. to Vijay, on beginning to Slide With over that,

with financial to it Q&A. business all then will Allan highlights joining you open and of you with and us up Rodny highlights, will will I Thank provide we provide you you, to welcome today.

presentation by I shared like will speak is environmental earnings before But website. the to quarter how for driven our begin, basis, best would several our our key recommend assessed annual our I our how on demand of results, you that not nature is highlighting well. from we business results. reiterate generally to the on like an given by is manage patterns. quarter first I business quarterly to This first we services as XXXX I would and start themes view

quarter, belong colleagues that's note value I we QX around X,XXX As each benefit and to is of created. because being successes Montrose's to the and successes world. collectively the our over It from that XXXX our create get them

and theme is that are tailwinds sustained. first regulatory The substantive

our business most though In our services strong all integrated our measurement air gas services, and lines. with And solutions is services our measurement there greenhouse approach are advisory across service demand saw Our demand of and incredible growing given be our ECTX benefiting we surge services sustained the coming renewable attractive energy year, believe brand, last expected see moderation remediation very for and years. over planned PFAS will in trajectory and we the tailwinds to segment and to some our from environmental mitigation. and treatment their our water QX, environmental lab reuse continue particularly organic and

and theme manifested EBITDA is margins. profitability via EBITDA which second The absolute

from margins anchor on highlight also conversations absolute We you, given we will dollars product it morning. why discuss our questions EBITDA with is but to important this will

Our adjusted year-over-year. X% segment EBITDA approximately margin operating increased

margins increased margins research even our and discontinued total which Including for benefits pricing EBITDA of also in the factors. services consolidated X.X%. for our and business, before you our factors, increased And margin investments approximately last initiatives improvements EBITDA those include we and continued year. with other despite Our highlighted important consolidated like adjusting adjusted development,

is The been COVID-XX this is team clients effectively that providing environmental you, CTEH us. to to support our investors, third CTEH difficult additive working are to hard responses several explain our behind with the to services high-profile year. which theme has and economically were back services but the various response

We fourth The organic year, our reduced cadence surge build. XX%-plus theme the of is pipeline growth acquisitions. continued to our given last acquisitions but M&A

so we of So financially. how have the they year. far remain in expect already fit the of joined strategically course right that teams with and transactions accretive with and over that to caliber present. opportunities thrilled harvest this the I'm The have very us the they with

and swings balance we sheet largely our demonstrate you from to are remained strong, QX and that continue strong, we business Not Finally, insulated each from our year. is flow as well. cash economic as can we that very and results, noted see political always only

industry advantages. to technology rising our our continue date rates acquisitions have funded largely sheet and hedged flow against interest Our cash and our gives in operations investing our remains been through balance environmental us ample to from consolidating flexibility which

discuss and away segment. we I quarter organic performance this Within solid segment, in the COVID-XX-related revenue were higher reasons segment as acquisitions. pleased revenues. see Permitting growth for Response as well contributions Assessment growth in Margins two, will X positive and year-over-year now our our advisory our CTEHs organic by - our from shift to first services; were from

over will segment's the narrative expect of quarters. be organic and a acquisitions meaningful this We growth coming part

remain We high them remain we've be. always continued this where expected XX%-ish and this our Within to about greenhouse in will public growth with is segment, mitigation, expected political which and the environmental margins regarding growing services for for to the to to testing organic upbeat are due continues teens example. to be interest segment. in measurement Annual gas shareholder solutions, demand in analysis and measurement and robust segment

the we the years. brand large initiation very reuse on and projects. not are for were and over ECTX our EBITDA trends with Within the Quarterly reflection meaningful therefore bullish within and our revenues the trends remain segment, and a energy this services segment, renewable of coming opportunity quarterly and or decline remediation our year-over-year expected renewable various the water conclusion given of in for water ECTX

differentiation Many this Montrose of which organic in our the R&D to shareholders to forward believe and and over the look patent segment. our barriers segment for what very in entry, a marketplace trajectory exciting growing quarters. will and opportunities for exciting recent this we are successes awards growth be We represent coming

of I status. recently to will designate Superfund needs, now and regulatory that and industry substances triggers intent discuss trends X an long-term and The which updates support outlook. on more advanced remediation reporting to a PFAS focus EPA few to of the growth recent continues cleanup PFAS our list hazardous notice potential chemicals their issued including U.S.

across will portfolio. Montrose this the action drive expect We demand

leak to is against frequency. high-profile players energy regards EPA largest methane the releases enforcement emissions, in reduce the With actions and the increase pursuing some to detection industry of

We across emissions monitoring are our services. working our clients assessment measuring, and with

pollution executive on Regarding a this and testing protect for justice the from demand environmental in for will The stepping drive demand certain increased primary to environmental our EPA quality consulting new air communities order President been environmental we has anticipate with Biden of emphasis services, better harm. and enforcement services; matters signed testing. our and April, up advisory

these Montrose are grow. exceptionally is the these clients quarters, assist momentum The we've in actions to several to announcements service complementary discussed environmental to landscape. well-positioned offerings rapidly-evolving our the very our clients past due As continues to for in needs protection regulatory those we evidenced of believe navigating existing our over and recent and

grateful summary, incredibly our the day. all business every in for to So they for you to for thank and the you. world to they've each want I our remain I work of and thank around clients do and contributed exceptional colleagues our all

and and shortly. momentum to optimistic we results As QX ever in for are our as remain the as EBITDA of all second our our environmental a which result upon expand in into outlook our will the our our Allan We value create ability stakeholders. full-year problems challenges and business XXXX and of solve XXXX increasing quarter, shareholders

that, it you. to over With me hand Allan. let Thank

Vijay. Thanks,

Our solid performance ongoing for environmental overall solutions. of business reflects first and our the demand model our strength quarter

an business with in-demand of our mix, performance strong segment actions. the mentioned, level and pricing of As our the year-over-year especially as nature our returns are we pleased result from margin favorable Vijay early the a at services operating

more resumption cadence demonstrated the acquisitions year. the as M&A also to of benefited beginning be year, the We this from recent since which our M&A given typical meaningful our by of expect we

quarter our to discontinued reuse first on $XXX.X million the to our Moving first the lower to services quarter and projects lab in was performance in compared segment. prior $XXX.X and a Total million in the demand COVID-XX-related revenue lower timing provided Slide primarily revenues for X. due remediation by CTEH, of for quarter, year

response measurement strong COVID-XX-related revenues year-over-year, businesses, organic CTEH from segments, was revenue an revenue and and the discontinued services permitting growth XX.X% and of Excluding increase in contribution up environmental given in acquisitions. our analysis and assessment and response

of million revenue. consolidated and was adjusted EBITDA quarter XX.X% First $XX.X represented

Excluding of $XX.X no and to the of year, XXXX EBITDA in which to losses year. longer million adjusted back, prior increase including XX.X% adjusted consolidated XX.X% EBITDA in compares XX.X% discontinued margins an $XX.X the businesses start-up and from improved in million QX we consolidated add current

annual Montrose's needs the stronger the we on be business staff, how resources predictability basis. the due manage to This company. with As we've of to performance an highlighted on how is hire prior annually. is business we allocate calls, the assessed This consistent and evaluate

business X and our to on segments XX. Turning Slides

results. targets conversion and for and remain focused primarily dollars exceeding with are our We we flow or our pleased on meeting adjusted cash EBITDA

demand to compared XXX remediation EBITDA transition We than at increased pricing year also expected benefits the in decline to due the we operating margin testing reuse pleased quarter, for revenue. and which services mainly CTEH margin were points adjusted drive improvement to environmental away the and to strong in basis COVID-XX XX.X% continue see level operating from offset our prior the services, the segment's to of and XX.X% more of

discontinued operating points for segment Beginning EBITDA for basis this a excludes the XXX growth business businesses and start-up total and CTEH including better organic revenue of performance year-over-year. prior that assessment, from permitting results our response and margin and year, for losses segment's without variability. provide sense revenue the in increased segment year, underlying to Excluding CTEH adjusted

up across the year-over-year this year mix, XX.X% adjusted to revenue or aggregate than response to increased significant AP&R favorable million, our response was benefits year-over-year revenues of response In our prior year-over-year primarily lesser in in to segment driven segment, revenues increase assessment, the organic XX.X% XX.X% anticipated businesses services. extent, contributions a within growth $XX.X revenues CTEH quarter, margins other reflecting margins in environmental revenue, of organic acquisitions. offset the CTEH, and The decline by and XX.X% higher permitting given increased increase Within the and, million. environmental higher fully a from segment. EBITDA steep from the generate $XX.X COVID-XX-related growth [ph] COVID-XX-related positive revenue and

growth. organic In & increased analysis X% segment, revenue our strong million, $XX.X primarily to to measurement attributable

While EBITDA adjusted M&A as and revenue to a from mainly discontinued a was percent the decline in increased of due EBITDA segment decrease lab. slightly, revenues a adjusted

Excluding increased and strong start-up our testing segment the year, prior prior pricing impact EBITDA the the XX.X% year, for actions. from services including losses XX.X% from of to lab the discontinued adjusted reflecting in in margin the our benefits and demand

reuse revenues. was and EBITDA The lower prior decrease in by percentage a remediation compared as partially was our winding offset to from segment of million result quarter certain a the $XX.X were In year The $XX.X R&R of adjusted revenues projects. segment, down decrease the result in of revenue as of acquisitions. a revenues million high-dollar-value

Slide Moving to on our capital XX. structure

the used used First compared includes consideration of million. of Cash prior in to operating operations million acquisition-related $X cash $XX.X from flow prior cash activities million quarter. year in in was $XX.X the year payment in operations of quarter

the Excluding operating to from cash year of million operating prior compared by $X.X activities provided activities quarter. year-over-year $X.X by this payment, acquisition-related in adjusted cash million increased

$XX.X scalability. offset was primarily corporate lower the earnings flows versus These capital to of current the period technology, of $X.X increase due by of continued strong in cash million of year items R&D balancing an increase operating increase focus working million. partially working year-over-year prior reflect capital ensure noncash infrastructure with cash and generation ongoing on in This our before in investments $X.X the in an to period in million,

March acquisitions January XXXX rising the interest almost sheet we and have obligations X.Xx. acquisition-related the XX, at The current Our rate contingent in the cash, interest we in in balance resulted as leverage which the cash in at to and ratio place swap rates recent have payable put XXXX levels. no borrowing exposure was impact earn-out of of on includes

Our has Series AX stock preferred date. maturity no

the interest to but time potential business, rising fixed option this given not redeem year. the the the for any favorable a to preferred and in environment. creation in value April We dividend equity in of The dynamics have an at cash. penalty prepayment rate preferred of the as obligation, expired the its We shares instrument nature this view flexible

approximately Series and million our of billion. total include capitalization the our equity market AX the $XXX cap, If balance you $X.X at stands equity

XX. improved our full-year to Moving outlook on Slide

We are to raising to million range range on Based EBITDA $XX performance have to for had strong we million. the first in overall start growth $XX to $XX adjusted year. quarter million EBITDA business, prior to outlook compared be the in of consolidated momentum of and in our million a the $XX the our full-year

Our higher represents over prior year. expansion consolidated growth margin EBITDA adjusted double-digit low outlook and the

range Our $XXX for expectation million, to $XXX of the for to full the representing year. high revenue single-digit is unchanged, million in mid- growth

acquisitions adjusted consolidated have Our from revenue completed. not benefit future not any that does been and EBITDA outlook include

expanding in-demand our retention success all the our to solutions, execute expand space. The nature ability market environmental well share our position conclusion, relationships, leader outlook in us solid cross-selling our In strategy. improved our of in our confidence environmental growth to a customer unique customer as services and against XXXX reflects

term, longer renewable are investments greenhouse and the generate remediation, carbon gas PFAS spaces. returns and significant market in energy Over look capture our to end tailwinds as measurement capture in regulatory the expected and we to mitigation, R&D

interest Thank ahead see the on today in to progress for updating you we and our and We you forward continued look joining all us your for quarter. next opportunities Montrose.

ready the to Operator, to are we questions. open line

the with question Tim [Operator Blair. William first from Instructions] And comes Mulrooney

you Matrix and Matrix give more I acquisition. XXX sense employees to Sam think focus this of noticed guess employees We it. can Tim. of I Kusswurm acquisition? acquired XXX I'll on had a for is start, had the size you my This us on first I guess questions the [ph] Solutions CTEH when

might it So a like acquisition. pretty sizable be this seems

close This quarter. vote acquisition expected back second is in law Vijay. the in half process the kind and of for to of That is Canadian shareholder of is the

that too our as going So much will It in business it is I'm an materially but CTEH not way EBITDA to not of it. not of lot the But perspective. a move about from profile did. say the is aggregate size overall people impactful

question maybe broad Well, a more then. of

your market acquisitions, your relative share in Canada you States. could think last Canada. just noticed thoughts, headquartered Maybe the you both characterize guess, in to that I we and X opportunity would United I they're how on the

great question. a Yes, it's

market. in have in And policy, about presence still of are talked our forward-leaning. the provincial heavily to it a And the reasons governments, and oriented America. all for the broader towards We before are very as we've lot substantive Canadian methane both North federal relates in clients a particular the Canadian Alberta environmental measurement mitigation, government,

we've policy. time just that on extension and is for bullish a long market same been an in this so And now of that aggregate

teams market across think also about these join us. we both there's we're be once So the client-based lot And to opportunity geographies. a really going of excited Canadian itself what presents unto

share to approximate generate what margin? was Maybe its for you maybe today EBITDA one to the the for we're how remainder and I of out guidance, to guess figure expect much more you revenue then Can guidance to one attributable guess. XXXX EBITDA raise related that of last I acquisition. the trying me GreenPath

I that around as $X year. in terms would of business of think of million contribution kind this

of performance of the would acquisition So about under due rest to do to half the the the organic a little GreenPath is and guidance the half, raise business

from next And Needham. Ricchiuti question the with comes Jim

for Jim. This is Chris Grenga on

And mentioned durability from go-forward we that be pricing. that margin? how thinking are thinking had a margin segment that about margin improvement You the permitting on about of the you level should benefited and How mix and assessment basis?

CTEH from more business. of consulting well as kind environmental his as our in noted That Chris, CTEH the business, shifted as Allan towards The of has our comments, COVID-XX segment both away business, classic comprises response. traditional

efforts before, part margin margins. benefiting undertaken organic over to we've and top-line, traditional course $XX you our quarters. that about so durable, they strong you and practices then, would the million to of that think run last we've is have is more from million been business And of rate $XX And environmental EBITDA couple of and consulting business. as the other that for as incredibly growth that as I pricing the a highlighted XX%-ish kind that about just continue of think

would in is And profile I margin durable. that aggregate, say, so quite

levels? the maybe markets worth on terms And seeing oil activity that highlighting activity from? of perhaps activity. like could other you expand any you're seeing most areas end there a It what are sounded lot in gas we're of and Are

It's level -- a see, profile our services is activity as year-in, and just can revenue. And across fantastic our just good That but year-out around XX% gas. of is it cadence. The you portfolio oil XX% not question. to our fluctuates in broader and comprises

so And across cycles our testing we're demand seeing business. broad

our both then, field a that's advisory cycle the technology all demand and our So services our of know, which about practice, long-term you nice And the across span really as water biogas span as testing we're lab business. We're all seeing incredibly industries. different our excited and industries, well. different which

this So terms say not definitions. industry. that only end of our I internal would not This segment broad-based, anchored our in of own is terms really on markets in but is one also

that Does Chris? sense, make

Yes. Thank you.

Bank comes America question Andrew next Lynch. of the Obin Merrill And with from

Ridley-Lane the full to the remediation and quarter-to-quarter the year reuse project the lead I This kind timing in revenue line with expect for on growth kind aggregate reuse be guidance of Andrew. in should to pipelines and we can volatility. is current project for XXXX? David understand and remediation of But project the revenue on based timelines, for

wouldn't great Yes, into I quarters. read Dave. too a much the question, it's

me broader and on kind give back step you just my this. perspective Let of

year. last organically digits triple grew business biogas and water Our

others, this be talked moderated. Andrew with we've expected we year and to you about as So and

the XXXX flat for into outlook kind And way remain will strong for XXXX that elevated this organic to it us. despite our to leading be overall that, remains at So growth the of thought XXXX we to XXXX, right, despite incredibly of knowing we about planned kind business year, level.

strength talked this, So the with the speaks to of we broader underlying about just Chris. portfolio again, that

us. I way would cadence want to trajectory We of segment's year. no, on opportunities which incredible sure make think in new same the the is business that that that size, would build and in not tripled and performance global level sure aggregate a reset, as quality feeling the last So the of good I about growth we team because think anchor for on to make continue and

question, your Dave? answer that Does

that services sensitivity potential highly kind are I way slowdown influence from And that broader there activity the Absolutely, yes. Montrose's you're your how construction about say, in, permitting any thinking But trends. business? then maybe CapEx and insulated know in sort of assessment of area? Any is economic would projects and around

a lot to discretionary have don't We No. Dave. of spend, exposure

we're the in come the a despite close clients. and lot to we to so the and is fundamental But outlook do broader our see, of staying is the rest on ways always our we've we're out And clients can you very this and for year attuned gates our this. the as of in in of way that for necessary uncertainty, the year many work macroeconomic that

we're And exposed we are so as nor worried it. it, not to as about

from with And [Operator Wade the next Capital One. question Instructions] comes Suki

greenhouse these this? see you And you are big talk how in methane a results see years? I Can management little this integrating businesses today. X, How could here side you you last Wonder Great GreenPath with think, to of X month's where can very and see expand business agreement Sensors. for moves house. do sort with deliberate you Obviously, gas, on all X, of the about bit if the synergistic?

that. Thank Wade, you Vijay. this is for

a is and our perspective our across measurement thesis. we line across Wade as leaks world past, often the both the firms one to questions part multiple of as highlighted span puts the this of with, as substantive a in base. mitigation Those in testing their position are one America, As questions emissions, we've end-market a and they commitments greenhouse of biggest fence X, necessitate in the net our us unique air sources, of The capabilities key about the really you kind of industrial multi-year leading and a outlook, dealing and and clients portfolio. of the facility, for are to think the related testing North enable gas a from source our well in testing our regulatory across

developed capabilities ECTX share And doing. as the are with couple our progresses we're actually more has our pilot of out teams early again, And continue may clients broader this that so able work to with advisory so entering stage we remove patents. to the team technology our will compelling And but as industrial phase testing it COX our work production this out but the not some from that they're is really process.

broader gas as us we so, an like about greenhouse coming for talked mitigation the very substantive opportunity PFAS, we've that Wade, over And example is years. that measurement historically, think the

the revenue on of kind kind growth part analysis and measurement very To numbers, due QX our measurement business organic in you gas strong. of a greenhouse particular. saw substantive that anchor the organic you to in was mostly That's surge quarter-on-quarter look of

aggregate water and with the and side other even planned what to like team organic because bit again, biogas we the factors. which about remain for Montrose opportunity moderation the break, in for little that this the of pretty give a looks of on excited So growth a we, side

the just questions Any for in for to very us this the would color quarter. a directly are year? those what maybe AP&R, how Can give prior us And on you sense to margins the one dovetail helpful. the rest give obviously margins more play of on be can strong you out of on very might contributed

for expect, What [indiscernible]; take that should run full me is margins in said and be we've that Allan. Yes, segment right to so strong that. This historically it is year, QX. the XX% XX% should we let

something years. of similar couple expect We next over the

like question-and-answer closing concludes this Manthripragada any the for Thank you. to turn floor Vijay session. our to would I comments. And

this course interest your you Thank forward again and year. Thank care. you take all for We you the your with of in look thank for through to you Montrose. engaging time and

Thank conference attending Thank today's presentation. you for concluded. has you. now The

You lines. disconnect your may now