Montrose Environmental Group, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Montrose Environmental Group Inc third quarter 2021 earnings call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Rodney Naussier, Investor Relations. Please go ahead.

Thank you, Operator. Welcome to our third quarter 2021 earnings call. Joining me on the call are Vijay Mantripagada, our President and Chief Executive Officer, and Alan Dix, Chief Financial Officer. During our discussion today, we will be referring to our earnings presentation, which is available on the Investors section of the Montrose Environmental website. Our earnings release is also available on the website. Moving to slide two, I would like to remind everyone that today's call will include forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ in a material way due to known and unknown risks and uncertainties that should be considered in evaluating our operating performance and financial outlook. We refer you to our recent SEC filings, including our annual report on Form 10-K for the fiscal year ended December 31, 2020, which identified the principal risks and uncertainties that could affect any forward-looking statements as well as future performance. We assume no obligation to update any forward-looking statements. In addition, we will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA and adjusted EBITDA margins. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. Please see the appendix to the earnings presentation or our earnings release for a discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures, and a reconciliation thereof to their most directly comparable GAAP measure. With that, I would now like to turn the call over to Vijay, beginning on slide four.

Thank you, Rodney, and welcome to all of you who are joining us today. I'm going to provide you with a few business highlights and then hand it over to Alan Dix for our financial review, and then we'll both open it up to Q&A. I will speak generally to pages four through eight of the presentation that all of you have and that we've shared publicly. And let me start by saying the positive momentum in our business continued with our solid third quarter results. These results are due to the efforts of our team members and who are working tirelessly to serve our clients. And without their efforts and unwavering support of each other, we would not have been able to meet our clients' growing demand for our environmental solutions and achieve another quarter of record results. To all of you from Montrose listening, these results belong to you. Thank you very, very much. As we've discussed on previous calls, I would like to highlight our perspective on quarterly results and how we view our business. Since our environmental services don't map neatly to fiscal quarters, and as we have already demonstrated during our short tenure as a public company, Montrose is best assessed and managed on an annual basis. We manage our business on annual trends and annual expectations, and we urge you to do the same. Given our strong results in the first nine months of 2021, we have already exceeded our previously noted full year 2021 objective of over 20% annual base business revenue growth. And in addition, despite substantial investments to support our continued scaling and the unwinding of COVID related defensiveness that we implemented in 2020, as we shared on earlier updates to you, EBITDA in the first nine months of 2021 is already 10% ahead of all of 2020. As a result, as Alan will talk about shortly, we are again, increasing full-year 2021 guidance. Our quarterly and year-to-date results and increased guidance were driven by factors we've discussed with you before. The first factor is strong organic growth across our service lines, especially those focused on greenhouse gas measurement and mitigation, PFAS treatment, and renewable energy, specifically biogas. And of course, our CTH business continues to perform very well. The second factor is accretive acquisitions that have been completed ahead of plan and a robust set of ongoing investment opportunities. Since our last earnings call in August, we have seen several key trends from our customers and regulators that support our organic growth trajectory and strategic rationale for our recent acquisitions. There is growing momentum in federal and state or provincial regulatory initiatives and the continued private sector emphasis on environmental stewardship across our key markets, and they're expected to drive continued demand for our services. As an example, the US EPA recently announced that it is advancing new methane regulations. These methane proposals would address the production, processing, storage, and transmission for new and existing petroleum infrastructure, covering a much broader swath of the oil and gas industry than before. As another example, a few weeks ago, the US EPA unveiled its plan to address impacts stemming from per- and polyfluoroalkyl, or PFAS, compounds. The EPA's plan further validates Montrose's PFAS measurement and remediation strategy, in other words, our strategy of integration of environmental services, and continues to position our business well. As a third example, we were pleased to see the bipartisan support from Congress on the infrastructure bill. This investment in addressing the infrastructure in the United States with an eye to building climate resilience and managing the impacts of environmental change on our communities is a very welcome update and yet another potential driver of demand for Montrose's services. I've said before that I've been disappointed in the politicization of environmental stewardship, as I believe clean air, water, and soil are universally desired. I'm grateful to our Democratic, Republican, and independent leaders in Congress for coming together on this. We are also pleased to partner with our customers who are proactive about their environmental footprint and expect that corporate responses to greenhouse gases, PFAS remediation, renewable energy, and environmental emergency response will continue to drive demand. Corporations are executing proactively on their environmental stewardship initiatives as boards and investors are increasingly focused on corporate and ESG strategies. Perhaps more than regulation, private sector investment and competition are creating incredible opportunities for the environmental industry to innovate and to serve. While our business model by design is resilient and largely insulated from political swings, our increased optimism is due to the emphasis on environmental stewardship by the private sector and capital markets. It is an exciting time for Montrose, and I'm grateful for the privilege of being on this team. A couple of key themes we wanted to touch on, the first of which is year-to-date growth and segment highlights. I'll point to some year-to-date and LTM numbers to help keep focus on the importance of measuring our performance beyond one quarter. Excluding the impact of discontinued services in the prior year, year-to-date 2021 revenue increased 87%. Our CTH business line continues to perform at elevated levels compared to their annual 75 to 95 million per year in revenue. We were also very pleased to see continued organic growth acceleration in the first nine months of 2021, excluding contributions from CTEH. Q3 2021 adjusted EBITDA on a year-to-date basis grew 64% compared to the prior year period, given our strong revenue growth, and despite ongoing investments and the unwinding of our 2020 pandemic-related defensiveness. This exceptional year-to-date performance has put us on path for another year of record results. Within our assessment permitting and response segment, most of this segment is CTEH. The leadership team at CTEH continues to do a stellar job converting the pandemic response and business continuity advice into long-term strategic contracts with new and large industries, the technology and media and entertainment industries in particular. Their business has been driven by, one, More crises driven by climate change, aging infrastructure, or recently the pandemic. The oil spill in California was yet another crisis where CTH's experience and leading market position came through. Two, their business is driven by a larger market share. The number of strategic MSAs has increased in 2021. And three, their business has been driven by more services. CTH's software, for example, helps states administer responses and is a new source of value to our customers. As it relates to CTH supporting clients through the pandemic, we said last quarter that the revenue surge began to modulate in Q3. We saw elevated demand continue into Q3, but at a slower pace than in the first half of 2021. CTH produced approximately $50 million in revenue in Q3, which is well above their run rate, but below the approximately 70 million per quarter in Q1 and Q2. Demand for their pandemic response support is expected to continue longer than we originally anticipated. Within the segment and excluding CTEH, our higher margin assessment permitting and ecological service businesses are seeing a nice organic growth uptick. Our recent acquisition of environmental intelligence in California better positions us to capture what we believe to be growing demand for fire mitigation and ecosystem services. Within our measurement and analysis segment, the revenue decrease versus Q3 of 2020 was due to postponements of certain projects to the fourth quarter, which is why we keep saying quarterly trends aren't that meaningful. Over the longer term, we remain upbeat about continued growth in this segment, which you will see in the near future. For example, our service and software advantages related to methane measurement and mitigation are seeing strong demand across North America. As another example, demand for our environmental testing and specifically our PFAS analytical services remains very strong. This was our reason for adding Vista Analytical to our portfolio and the team has been great and is doing great. Margins remain much higher than industry averages within this segment and are closer to normal for us, so the expectation of normalization we shared with you is panning out as expected. Within our remediation and reuse segment, we are seeing strong demand for our PFAS water remediation, and it is increasingly enhanced by our R&D team and IP portfolio. We are also seeing strong demand for our waste-to-energy services, particularly our ag waste to biogas business. We find this service line compelling because it should continue to help our farmers create jobs and create negative carbon intensity natural gas for our communities. There are a few other key points of note. Our year-to-date organic growth across a broad swath of our services is validation of our strategy and our investments in our people, our R&D, our software, and our commercialization infrastructure, all of which are core to our capital allocation strategy. While wage inflation and higher turnover continue to be areas of focus or concern in the broader market, our recruitment and retention of experienced professionals remains solid, especially at the director level and above. I'm proud of the positive corporate culture we've built and the exceptional team of talented individuals here at Montrose. Our M&A pipeline remains strong. So far in 2021, we have exceeded our annual goal of acquiring 10 million of annualized EBITDA in line with our previous goals and historical cadence. The recent acquisitions of MSC, Vista, EI, Sensible IoT, and ECI are all accretive. and we are already seeing cross-selling success in several key areas, highlighting the benefits from these acquisitions to Montrose. We were also pleased to complete the acquisition of Horizon Water and Environment earlier this month. It supports our environmental advisory presence on the West Coast and augments our water resource knowledge. I'm very happy to have the Horizon team on our squad, helping us think more proactively about our approach to the water market. So in summary, we continue to outperform, and as you, our shareholders, have gotten to know us over the course of the last 15 months, I hope you can see we are transparent with you and do what we say. We appreciate the time you have given us as our story, our strategy, and our approach don't have many comps or precedents which presents challenges in the context of public markets. Those are also reasons why we remain so excited about our future. This is a great time to be part of creating solutions for the world's environmental challenges. I also wanted to reiterate my gratitude for my team. We thank and acknowledge all of our colleagues around the world and the tremendous work they've done for Montrose. More than anything, the caliber of our talent is the reason Alan and I have confidence in our raised outlook for 2021 and beyond. This market remains very fluent and dynamic, and there are lots of opportunities to allocate capital constructively, so we appreciate your support as we continue to do so. Please stay safe and well out there, and we look forward to closing out a strong 2021 and speaking again with you as we look forward to a great 2022. With that, let me hand it over to Alan. Thank you.

Thank you, Vijay. A strong performance in the third quarter and year-to-date reflects the regulatory themes we've discussed since our IPO coming to fruition, as the need for environmental remediation and monitoring, particularly for PFAS, gains momentum across the globe. our resilient core business continues to grow and we continue to execute on our M&A strategy with the recent closing of our sixth acquisition in 2021. In addition, we further strengthened our capacity for growth through the successful completion of our follow-on equity offering in October. Moving to our revenue performance on slide 10, we continue to drive strong growth across our business. Our third quarter revenue increased 57% to $132.6 million compared to the prior year quarter. Year-to-date revenues were up 83% versus the prior year period to $402.6 million. The primary driver of revenue growth in the quarter was organic growth in our CTH emergency response business and our remediation and reuse segment, partially offset by an expected decrease in revenues in our measurement and analysis segment. Revenue growth also benefited from the acquisitions of MSC in January 2021, Vista in June 2021, and Environmental Intelligence in July 2021. The business drivers were similar for the year-to-date period, and it also included the benefit of a full period of results for CTH, which was acquired in April 2020. As mentioned on prior calls, we completed the process of discontinuing service lines early in the second quarter of 2020, which partially offset our year-to-date comparisons. Excluding discontinued service lines, revenues would have increased 87% year-to-date. I would also like to reiterate that we generally don't focus on organic growth on a quarterly basis, as year-over-year quarterly comparisons can be misleading. That being said, we are seeing strong organic growth in 2021, excluding contributions of CTH on the high end of our expected 7% to 9% annual organic growth expectations. Looking at our adjusted EBITDA performance on slide 11, third quarter adjusted EBITDA grew 29% to $21.5 million, and adjusted EBITDA margins declined 350 basis points to 16.2% of revenue. Year-to-date, Adjusted EBITDA grew 64% to 59.2 million, and adjusted EBITDA margin declined 180 basis points to 14.7% of revenue. The improvement in adjusted EBITDA was primarily driven by higher revenues. The year-over-year change in margins for both periods was mainly due to business mix, the planned and expected normalization of margins in certain business lines following temporary COVID-related cost mitigation actions, taken in the prior year, which have been reversed, and public company costs for the full nine months in 2021 compared to two months in the comparable period in 2020. I'll re-emphasize that Montrose performance needs to be assessed annually. This is how we evaluate the business due to the stronger predictability of the business on an annual basis. This is consistent with how we hire staff, allocate resources, and manage the company. Turning to our business segments on slide 12. In our assessment, permitting, and response segment, third quarter revenue grew to 63.4 million from 26.6 million in the prior year, and adjusted EBITDA improved to 15.7 million from 8.2 million in the prior year. The significant year-over-year increases in both revenue and adjusted EBITDA was mainly driven by CTEH, which has seen an acceleration in demand to provide pandemic response related services, and the contribution from the EI acquisition. CTEH revenues in the third quarter were 53.6 million compared to 22.6 million in the prior year. The decline in segment adjusted EBITDA margin to 24.8% was a result of lower margin COVID work performed by CTEH. We expect normalized adjusted EBITDA margins in this segment to run between 25 and 30%. In our measurement and analysis segment, third quarter revenue decreased 2.5% year over year to 38.8 million, primarily attributable to the postponements of certain projects into the fourth quarter and partially offset by revenues from our VISTA acquisition. Adjusted even the margin decline to 21.4% due to business mix and the reinstatement of certain costs that have been temporarily suspended at the outset of the COVID-19 pandemic. We expect adjusted EBITDA margins in this segment to continue to run around 20% over the long term. And finally, in our remediation and reuse segment, third quarter revenues increased 66% year-over-year to $30.4 million, reflecting growing organic demand for PFAS remediation and waste to energy services, as well as the acquisition of MSE. The 700 basis point increase in remediation and reuse adjusted EBITDA margin to 18% was a result of higher revenues. Adjusted EBITDA margin in this segment continues to reflect the impact of elevated fixed costs and investments in anticipation of growth and geographic expansion. At scale, we expect the segment to run in the mid 20% adjusted EBITDA margins. Looking at a review of our base business trajectory, on slide 13. As mentioned in our Q2 quarterly earnings call, we now estimate that CTEH's annual revenue run rate is 75 to 95 million, up from our previous estimate of 60 to 80 million. Although sequential quarterly CTEH revenue continues to normalize, CTEH revenues were 70.6 million in Q1, 65.9 million in Q2, and 53.3 million in Q3, CTEH revenues remain elevated as a result of heightened demand for their COVID-19 related services. That said, demand for these services and the revenue they produce is expected to be transitory in nature and is not expected to recur at the same elevated level in the coming years as the impact of COVID-19 lessens. Excluding the above trend revenue from CTEH, the remainder of our revenue, or what we refer to as our base business, which includes the revenues we would expect to see from CTH in a given year, continues to experience a solid trajectory and is increasingly benefiting from tailwinds, which we believe positions us well for further growth. Moving to our capital structure on slide 14, I'm particularly proud of our operating cash flow generation in the third quarter of $30.8 million, which reflects robust cash earnings and a decrease in working capital, primarily driven by lower receivables. Year-to-date cash flow from operating activities was $13.7 million, an increase of $17.6 million compared to the prior year period. Past from operations includes the payment of acquisition-related contingent consideration of $15.5 million and $6.4 million in the current and prior year, respectively. Excluding these acquisition-related payments, Year-to-date cash from operating activities was 29.2 million in the current year, compared to cash from operating activities of 2.5 million in the prior year, an increase of 26.7 million. This increase was driven primarily by significantly higher year-to-date earnings before contingent consideration payments and non-cash items, partially offset by an increase in working capital in the current year of 17.6 million, versus an increase in working capital in the prior year of 7.8 million. The increase in working capital in the current year is as a result of an increase in accounts receivable and contract assets of 12.5 million, an increase in prepaid expenses and other current assets of 1.8 million, and lower accounts payable and other accrued liabilities of 3.4 million. We continue to expect strong cash flow from operations for the balance of the year and a long-term conversion of adjusted EBITDA into operating cash flow at a rate in excess of 50%. This incorporates our expectation that as a growing company, we will continue to be very focused on balancing the generation of cash with investments in technology, R&D, and infrastructure to ensure continued scalability. Our leverage ratio as of September 30, 2021, which includes the impact of acquisition-related contingent earn-out payments, that may become payable in cash was 2.8 times, down from 3.1 times at the end of the second quarter. In October, we completed a follow-on equity offering, raising net proceeds of approximately 169.8 million. Following this offering, we had 273.8 million of liquidity, including 148.8 million of cash on hand and approximately 125 million of availability on our credit facility. We also have an additional $150 million available under the credit facilities accordion feature. Pro forma for the equity raise, our leverage ratio is 0.8 times, well below our longer-term target leverage of below 3.5 times. The capital raise significantly enhances our liquidity, granting us further flexibility to invest in additional M&A, expand our business operations, fund research and development, invest in working capital. As a reminder, our Series A2 preferred stock has no maturity date, and we have the option, if not the obligation, to redeem the preferred shares at any time for cash, subject to a make-home payment in the first three years. We view this preferred equity instrument as favorable to the value creation potential in the business, given its flexible dynamics. If you include The $182 million balance of the Series A2 equity in our market cap, our total equity capitalization stands at approximately $2.4 billion. Moving to our full year outlook on slide 15. Based on our performance during the first nine months of 2021, we are increasing our full year adjusted EBITDA estimate to a range of $75 to $80 million, which is up from previous guidance of $70 to $75 million. Our updated guidance implies adjusted EBITDA growth of 38 to 47% year-over-year. The increase from our prior range reflects our strong results in the third quarter, an expectation of some continuation of elevated CTEH results from COVID-19 response work in the fourth quarter, a continuous stream of project wins, and our recently closed acquisitions. As a reminder, this outlook is based on a combination of high single-digit the low double-digit organic growth for the year, excluding CTH, plus the contribution of completed acquisitions. As we have mentioned on previous calls, our full year 2020 margins reflected a higher than usual margin increase year over year due to the temporary cost mitigation measures taken in response to the COVID pandemic. These mitigation efforts have been fully reversed in the current year. We are now back to investing in SG&A, R&D, and expansion in accordance with our long-term plan as a growth-oriented company. We will also incur a full year of public company-related costs in 2021. While we had initially expected our full-year 2021 margins to be steady year-over-year, in spite of this, we are now seeing the surge in CTH COVID-19-related work, which is at lower margins than CTH's typical margins, and the resulting change in business mix for 2021 is likely to weaken full-year margins slightly versus the prior year. That being said, our outlook for continued consolidated adjusted EBITDA margin expansion over a four- to five-year period remains unchanged. Overall, demand for our services remains resilient and is accelerating in some of our key service lines. We are thrilled to see continued strong organic growth, both with and without CTEH, as the trends we've discussed since our IPO last year continue to accelerate. To this point, our differentiating solutions to address greenhouse gases, PFAS, and renewables are driving strong momentum in our business, and recent news of additional rules and regulations give us confidence to deliver on our objectives in 2021 and beyond. While the timing of projects can influence quarterly performance, as seen in the shift in some projects to the left during the third quarter in our measurement and analysis segment, Our growth thesis remains intact for the full year 2021. We see an immense addressable market, and we continue to target accretive M&A opportunities that allow us to offer more value to our customers through additional service lines and technological advancements. We have the right strategy and the team to execute, and we expect to continue operating at a high level in the coming quarters and years. We look forward to updating you on progress we've made in our business next year, as we continue to become the leading global environmental solutions brand. We sincerely appreciate your interest in Montrose, and thank you all for joining us today. Operator, we are ready to open the lines to questions.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question is from Andrew Obin from Bank of America. Please go ahead.

Hey, guys. Good morning. This is Emily Hsu on for Andrew Obin.

Hey, Emily. How you doing?

I'm good. I'm good. Thank you. So, yeah, my first question is just, you know, if you could provide any detail and color on CTH performance in 4Q and next year, you know, given expected normalization of COVID-related work, that would be great. So, you know, should CTH COVID-related work in 4Q be similar to 3Q, or do you expect a bit of a step down? And then also, how much of that normalized run rate do you expect to be COVID work next year? Thanks.

Yeah, Emily, this is Vijay. It's really, and we've said this to you before, it's really hard to predict what the pandemic-related or response-related work will be. Let me reframe kind of how we think about our CTH set of opportunities. For all the reasons we've shared with you before, a bigger market share, more incidents, more services, and kind of an expanded team, we think they're really well-positioned to continue performing at or above kind of our $75 to $95 million per year revenue run rate. We currently anticipate, at least through the winter, that the COVID-related work will continue. It's really hard to predict exactly when that's going to ebb and flow, and part of the reason it's difficult to predict is because there's ongoing fluctuation in regulations you saw what the Biden administration did with vaccines and testing. OSHA rules came out. Some of the courts stayed some of that. So our clients, including Montrose, struggle a little bit with exactly how to implement all of that. And the CTH team, of course, with their experience and expertise, is really well positioned to advise folks through that. And for all those reasons, it's really hard to predict exactly when it's going to start and stop. But I think What I can share with you and the confidence Alan and I have leading into the back half of this year, or actually to the end of this year and the first half of next, is that we do anticipate they'll remain elevated, just the magnitude of which is going to be very hard to predict at this stage. Does that answer your question? Okay.

Yes, that's great. Thank you. And then just a follow-up question on measurement and analysis. Just curious, what drove the postponement in projects in the third quarter? Is that just customers delaying projects because of uncertainty around inflation and labor availability, or is there something else to it?

No, there's really nothing else to it. It's just the nature of the work. I think I've said this to you. When you do these tests, and you do them once a year, for example, whether you do it in June or July is meaningless to the client and to Montrose, but it means a lot to folks that measure us on fiscal quarters. So, you know, if you move from September to October or something gets pushed from Q3 to Q4, there is no material impact from our client's perspective or from Montrose's perspective, which is why we keep saying quarterly does not make sense to measure Montrose. So there's nothing untoward in the business. We remain very bullish on it.

Great, thanks. I'll pass it along.

As a reminder, it is Star 1 to ask a question. The next question is from Tim Mulrooney from William Blair. Please go ahead.

BJ, Alan, good morning. Hey, Tim. How are you doing?

Doing well, thanks. Two questions for me. The first is on your guide. You know, your full year guide implies fourth quarter adjusted EBITDA of about $18 million at the midpoint, which is about flat with last year. Is that primarily because of the difficult comparison with CTEH last year, or are there other factors that we might want to take into account as well?

There's certainly, Tim, this is Alan, CTH did $45 million of revenue in the back, in the quarter of 2020. So we're certainly elevated, you're right, so the comparisons in terms of what we forecast are about flat for CTH. And then we've got the public company costs that are higher this year. You've got the unwinding of some of the cost mitigation efforts that were in place for all of last year. So yeah, that's a big part of it. But the organic growth on the revenue side, as we mentioned in our prepared remarks, are accelerating. And so we expect on the revenue side to be a very favorable comparison to earlier.

You know what, Alan? I forgot about the cost mitigation efforts and those costs coming back in. So that makes a lot of sense. Thank you. And then I wanted to ask about CTH revenue. If the step up in CTH revenue in the third quarter was primarily pandemic response related revenue or if there was any, was there any step up in disaster response related revenue from Hurricane Ida down in Louisiana. I heard there was some petrochemical infrastructure that was, you know, taken out of commission for a while. So I didn't know if there was other things here also adding to CTH's revenue stream or, I mean, it sounds like from your prepared remarks that it's a lot, almost all of it sounds to be pandemic related.

No, no, Tim, sorry. And perhaps we don't do it justice. The team does a fantastic job having a pretty broad response portfolio and so there's many many incidents and clients and projects that contribute to their aggregate performance and so yes there is some hurricane response there will be some oil spill response and this goes to my earlier comments they are because of their market leading position Because there's more incidents or events that result in environmental emergencies, because they have more market share, because they have more services, because they have more people, they're able to serve our clients across a broader portfolio. So all of the above applies. The reason we talk about the pandemic so much is because if you think about the 75 to 95 run rate, they've done 190 year to date, right, plus minus. And so, you know, a lot of that excess in aggregate over time is due to the pandemic-related services. And that's why we talk about it. But please don't hear us say that that's all it is. There's a very robust team here across industrial hygiene, health and safety, toxicology, emergency response, disaster recovery. We are serving our clients across kind of a broad portfolio of services.

Got it. Thank you very much. Thanks for taking my questions. Thanks, Tim.

The next question is from Noel Dilt from Stiefel. Please go ahead.

Hi, guys. Good morning. Congrats on the quarter. Hey, Noel. Thanks. Hey. So I was hoping that you could comment on some of the more emerging markets you've talked about in the past, things like biogas and carbon capture, and if you could sort of frame how you're thinking about those opportunities into next year and if you're seeing any areas of particular acceleration as we look out over the next few years.

Thanks. That's a great question, Noel, and we often don't spend time with you on it, but it's a large part of why I'm really optimistic. So, on the biogas space, as we think kind of more geopolitically and macro markets, Any transition, which is clearly the signal we're getting from the political sphere, any transition in kind of energy markets is going to necessitate some degree of transition with natural gas being a big part of it. And that, coupled with the fact that biogas is negative carbon intensity energy, we think is driving continued demand from the client side. And so our clients certainly are asking for a lot more. We are seeing a lot more market opportunity in the team. is doing more. And as a result, that is a big part of the organic growth that you see in the remediation reuse segment. It's why we're seeing organic growth acceleration. You can kind of back into the fact that we're now effectively projecting low double-digit organic with potential for upside into Q4 for the year. So we are seeing sustained demand there, and we think there's some macro factors at play on the biogas side. Carbon capture, we don't generate and don't anticipate generating any revenue in the immediate term. That is an area our research and development team is actively involved in. They're making some nice inroads, but it's way too early, Noel, to speak about the impact of that on our P&L. That is an area that we are implicitly and explicitly involved in. Water and the water infrastructure market, especially now with the infrastructure bill, there's increased dollars at play around remediation and PFAS treatment in particular. And then obviously the DOD allocations also have some of that. So we see a lot of demand there. The demand there is being driven not only Because of the capital allocation and the regulatory push, the EPA just put out their PFIS guidance document. But we also are seeing a lot of activity due to ESG pressures from shareholders, capital markets, and by the companies themselves, the clients that we serve. So we're pretty bullish there. That's also a big part of the organic growth acceleration you're seeing in that segment. And then the other area you didn't ask about, Noelle, but is a big part of our surge, and this impacts both our Canadian markets and U.S. footprint is the greenhouse gas measurement and advisory services. We're seeing a real nice organic uptick there. That's Canada and the U.S. for us. Our team is just surging really nicely, and we're excited about that. And on the water side, because of our expanding IP portfolio, we're seeing more opportunities in the European market as well. So we're pretty excited, kind of in aggregate, as we think about biogas renewables, water, water treatment, and methane mitigation. I would characterize those as our current three primary growth markets that are going to have a near-term impact on our financial trajectory, both at the back end of this year and also 2022 and 2023 and beyond. Great. Does that make sense?

Thanks for that. It's great. Super thorough. Thank you. Really quick, somewhat related follow-up question. What's Horizon, you mentioned that they're helping you take a more proactive approach to the water markets. I guess I've always thought Montrose had a pretty proactive approach. So could you just expand on what you mean by that and just the strategic importance there?

Yeah, they're on our advisory side, right? So they help folks think about the regulation, the various controls, capital dollars at play, especially with something like the infrastructure bill, which has a fair amount of highly nuanced pockets related to that, resiliency, treatment, infrastructure upgrades. And so our existing water treatment technology and portfolio, Noel, is really around PFAS remediation primarily, right? So we are helping mostly industrial clients and DOD clients treat water contaminated with PFAS. Horizon's much broader in terms of how they think about ecological services and water And so they will give us fantastic insights into other ways to cross-sell services, but also potentially penetrate new water markets, given some of the advantages that we have. So that's what I meant by that.

Yep, perfect. Thank you. The next question is from Chris Grenga from Needham and Company. Just go ahead.

Hi, good morning. This is Chris on for Jim. Congrats on the results. Hey, Chris. Thank you. It sounds like there's a pretty rich pipeline of M&A opportunities, and with the capital raise, should we expect a faster pace of M&A, and do you expect the profile of the types of deals that you're doing to change in terms of the size and the rationale, or should we expect a continuation of the strategy? Thank you.

Yeah, Chris, this is Vijay. We are not changing our strategy. We think what we've been doing works, and we hope to continue doing more of the same. We are really well positioned to be opportunistic, and that's what the capital raise was intended to provide. Yes, the pipeline remains really rich, and candidly, look, the market's massively fragmented. So we've said this before. There's been no dearth of assets. There's certainly more of them now that have come to market. But the market valuation expectations also are really frothy, so we're going to remain disciplined. You can that we're still buying at the mid to high single-digit multiples, Chris, and that discipline is important because we are thinking longer term. So for all those reasons, please don't expect us and please don't hear us say we're changing our strategy. We think there's some really attractive opportunities for capital deployment here, not just M&A, but also for organic growth, and we certainly anticipate deploying it proactively. You've seen us do it well so far, so I promise you we intend to continue doing it well going forward.

Perfect. Thank you. That's very helpful.

And with the passage of the infrastructure bill, have you seen any changes yet or anything materialized with respect to clients that might try to be getting out in front of what's coming down the pike over the next couple of years? And do you have a sense of when you could anticipate having greater insight into which areas of the business will be most affected by the bill? Thank you.

Yeah, I think it's a bit early. Look, candidly, I think the expectation was that this bill would pass. Exactly which pieces were always in the air a little bit, given some of the activities in Congress. But we certainly and I believe our clients mostly anticipated this would come through. And so there's been no real immediate change. It's going to take some time for some of that to flow its way through the system. Chris, the parts of our business that we expect will be most impacted by this in a positive way. our assessment and permitting teams. And so as you kind of build infrastructure or even decommission or downgrade or change operations, you often need environmental assessments and permits and the like. And so we expect to see continued demand and increase in demand due to this within our APNR segment. Testing needs often go up as a result. And then the infrastructure bill also had remediation dollars in it. So I expect that our soil remediation practice will benefit from some of the activity. The Superfund, Brownfield, and broader remediation markets are starting to pick up steam as well. So, we're going to see, I expect, across-the-board benefits for Montrose, but it's too early to call that at this point.

Great. Thanks very much. Thank you.

This concludes the question and answer session. I would like to turn the conference back over to Vijay Mandipurgada for any closing remarks.

Thank you all very much for making the time. We really do appreciate it. We appreciate your continued support of Montrose. Take care. Be well out there. Alan and I have been the beneficiaries of a very gracious set of hosts here in Little Rock with our CTH team. And we're really excited about the prospects going into next year. And in gratitude to the CTH team, we'd just like to close by saying go Hogs. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.