Montrose Environmental Group, Inc.

Greetings. Welcome to Montrose Environmental Group fourth quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Rodney Nassier with Investor Relations. Thank you. You may begin.

Thank you. Welcome to our full year and fourth quarter 2021 earnings call. Joining me on the call are Vijay Manpreet Pagoda, 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 investor section of our website at montrose-env.com. 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 31st, 2021. which identify 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 the 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 joining us today. I will provide you with a few business highlights and hand it over to our CFO, Alan Dix, for the financial review, and we'll then open it up to Q&A. I will speak generally to pages four through eight of the presentation provided to you. I am excited to discuss Montrose's strong full year 2021 and fourth quarter results, which belong to our dedicated team members around the world for whom I am very grateful. Through their efforts, we were able to produce another year of record-breaking results, and further our leading position in the environmental industry. Before I delve into a discussion of our performance, and as we have noted for you before, I'd like to reiterate that our business is best assessed on an annual basis given the nature of demand for environmental services, not being driven by quarterly patterns. An annual basis is how we manage our business and how we recommend others view our results as well. In terms of our financial results, 2021 was another exceptionally strong year for Montrose. We achieved over a half billion dollars in revenue, converted our earnings into over $50 million in operating cash flow, and achieved the highest rate of double-digit organic growth, 37% including CTEH and 17% excluding CTEH since my time here at Montrose. The 17% organic growth excluding CTEH in 2021 is stronger than we expected at the start of the year given our historical average of mid to high single digit organic growth and the ongoing impact of the pandemic. We also greatly exceeded our full year 2021 objective of over 20% annual base business growth. We think of our base business as excluding excess CTEH revenue. with approximately 400 million of base business revenue growing nearly 40% year over year, almost double our targeted growth rate. Our business has scaled more quickly than we expected, which put a lot of pressure on our teams, but also created excitement about the future. Our outperformance in 2021 and expectations for continued outperformance in 2022, all relative to an industry growing two to 3% per year, are being driven by our capabilities related to greenhouse gas measurement and mitigation, PFAS remediation, and waste to energy services in particular. Demand for our services are a direct result of key tailwinds across our business lines as corporate ESG initiatives, environmental regulation and enforcement, and better environmental stewardship remain at the forefront of C-suite and government policy. This is why we have confidence in our newly introduced 2022 outlook, which Alan will discuss later on. In addition to strong organic growth, the other key value driver we have discussed with you before are immediately accretive acquisitions that have added great talent and service capabilities to our team. We added several incredible teams to Montrose in 2021 and started 2022 on a great foot with the addition of the environmental standards team to the Montrose family within our assessment permitting and response segment. Complementary acquisitions, such as environmental standards, remain one of our key growth and value creation drivers. Our M&A pipeline remains very robust, and our thesis and strategy remain unchanged. Our business is the environment, and our mission is to help protect the air we breathe, the water we drink, and the soil that feeds us. This mission statement is increasingly resonating with our clients, our team members, our communities, and our stakeholders. As we've discussed over the past 18 months, we continue to see market drivers arise as government policy catches up with public and market demand for better environmental stewardship. We were pleased to see President Biden sign the $1 trillion infrastructure bill into law with bipartisan support last November. and we are already seeing announcements relevant to our business resulting from the bill. In addition, the US EPA announced the first in a series of actions to respond to concerns of local communities historically and disproportionately impacted by pollution. Our leadership and air quality management uniquely positions us to support both our clients and our communities as they navigate these new regulatory priorities. Beyond the public sector, We continue to partner with our corporate customers to help them navigate rapidly evolving priorities and investor requests regarding environmental stewardship. Our capabilities related to water management and water treatment, as one example of many, allow us to serve our clients and drive value in this regard. A large and growing addressable market, a business well positioned to capture tailwinds in the environmental industry, and an incredible team All of these are reasons it is an exciting time for Montrose, and I'm grateful for the privilege to lead this incredible group. Next, I'll point to some 2021 highlights and accomplishments. Excluding the impact of discontinued service lines in the prior year, 2021 revenue increased 68%. We maintained our strong revenue retention rate of over 90% for the year. which combined with new customer acquisitions fueled growth across our segments. 90% excludes CTEH, our emergency response business, which is non-recurring by definition. 2021 adjusted EBITDA grew 43% compared to the prior year, given our strong revenue growth. We converted approximately 70% of that adjusted EBITDA into operating cash flow, excluding the payment of acquisition-related contingent considerations. Our continued focus on environmental innovation is evident through our R&D investments, and four additional patents were awarded in 2021, along with several patents filed and or awaiting review. We see great long-term opportunities to continue to allocate capital to support innovation with environmental solutions, and we believe these investments will position us well for strong growth in the future. While wage inflation and higher turnover continue to be areas of focus in the broader market, Our concentration on the recruitment and retention of senior level leaders was strong in 2021, especially at the director level and above. I continue to be impressed by the high caliber of our team, and I'm proud of the positive corporate culture we built here at Montrose to attract and retain such talent. Our M&A pipeline remains strong. We completed six strategic acquisitions in 2021 and one in January 2022, all of which were funded almost entirely by internally generated operating cash flow and have added to our evolving environmental capabilities and our exceptional talent pool. Last year, we achieved our 2021 goal of acquiring $10 to $15 million of annualized EBITDA in line with our previous goals and historical cadence. Looking ahead, our immediately accretive acquisition Pipeline supports our expectation for $10 to $15 million in acquired annualized EBITDA per year, including 2022. We were honored to receive an A rating from MSCI, one of the leading ESG rating agencies, particularly given our commitment to environmental and social stewardship. This exceptional performance during our less than two years as a public company gives us confidence in our ability to continue to outperform the market and deliver solid and stable long-term growth for our investors.