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.

Next, we'll look at our business by segment.

Within our assessment, permitting, and response segment, most of the revenue in this segment is driven by CTEH, though we were pleased to see positive contributions from our acquisitions of Environmental Intelligence and Horizon in the second half of 2021. 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 industry in particular. A key differentiator for them is their data management capability and their highly flexible labor pool, which have proven to be very additive to our clients and supported their capture of market share. As it relates to CTEH supporting clients through the pandemic, We've mentioned on our two previous calls the revenue surge which began to modulate during Q3, a trend which continued through Q4 and into 2022. While demand was and is still elevated compared to their historical run rate, we anticipate CTH will normalize through 2022 compared to 2021. As such, we expect revenue from CTH to exceed 100 million in 2022, which is higher than their $75 to $95 million revenue run rate, but lower than their 2021 performance of over $200 million. Within this segment and excluding CTEH, our higher margin assessment permitting and ecological services business continue to see nice organic tailwinds. Within the measurement and analysis segment, We enjoy market leadership in air quality management and our analytical lab footprint, which is one of the largest in North America, was bolstered by our acquisitions of VISTA and ECI. We remain upbeat about continued growth in this segment given growing environmental regulations. For example, our service and software advantages related to methane measurement and mitigation continue to see strong demand across the United States and Canada. As another example, demand for our specialized environmental testing, specifically the developing regulatory environment around addressing PFAS, remains strong. Margins remain higher than industry averages, but are closer to normal for us. The anticipated normalization we shared with you before is panning out as expected. And finally, within our remediation and reuse segment, we are seeing a continued trajectory of strong organic growth driven by demand for our PFAS water treatment and renewable biogas, which is negative carbon-intensive energy services in particular. Margins are accreting, as we noted on prior calls, and as expected, but they remain below normal levels given ongoing investments as the business matures. In summary, our fourth quarter results mark the completion of another outstanding year for Montrose. We could not be more pleased with the value we have created in our business. Going back to our IPO in July of 2020, we ended 2021 ahead of where we thought we would be. Our revenue and earnings grew faster than we anticipated and select services scaled faster than we thought. As a result, we are catching up on establishing our corporate infrastructure so we can capture the tailwinds and profitably grow during the next chapter of Montrose's evolution. We believe we are well-positioned to continue outperforming in spite of inflationary headwinds given the strong demand driving organic revenue growth, the solid M&A pipeline, our low leverage and mostly fixed-rate debt, and our pricing power through our reoccurring work with clients. We are arguably more optimistic than ever as we look at 2022. Before I turn it over to Alan, I would like to end by thanking and acknowledging all of our team members around the world for their tremendous efforts in serving our clients and achieving these outstanding results. I remain grateful for the hard work they've put in through uncertain times and our optimism for Montrose's future is rooted in our confidence in our colleagues. To the Montrose team listening, congratulations to all of you on a milestone 2021. To our investors, thank you for your continued support and the opportunity to continue creating value. Please stay safe and well out there and we look forward to updating you on our results as we progress through this year. and through 2022. With that, let me hand it over to Alan, and thank you.

Thank you, Vijay. We are extremely pleased with our strong fourth quarter and full year 2021 results. As Vijay has mentioned, our strong performance through the year reflects the themes we've discussed over the past 18 months since our IPO, as well as the in-demand nature of our unique environmental solutions. Our growth from organic revenue gains theme as we progress through the year which reflects our expanding relationships with notable customers, early success with our cross-selling initiatives, and strengthened exposure across geographies, all of which are key to our future growth. Moving to our revenue performance on slide 10. In 2021, we drove strong growth across our business segments during both the fourth quarter and full year. Total revenues for the fourth quarter increased 32.2% to a quarterly record of $143.8 million. which is particularly impressive given the fourth quarter is historically one of our weaker quarters for revenues and CTH revenue was down year over year as COVID-related services continued to slow. Full year 2021 revenues were up 66.5% year over year to a record 546.4 million. The primary driver of revenue growth in both periods was organic growth. For the full year, organic growth was 37%, including our CTEH response business. Excluding CTEH, organic growth was 17%. We generally don't focus on organic growth on a quarterly basis, as year-over-year quarterly comparisons can be misleading. In addition to organic growth, our full year 2021 results benefited from a full 12 months of CTEH compared to nine months of results in 2020. Our outperformance in both periods was also driven by our six strategic acquisitions completed during 2021. As we've discussed on prior calls, mainly in response to the COVID-19 outbreak, we discontinued certain service lines at the end of the first quarter 2020. This process was completed early in the second quarter of 2020, which partially offset our 2021 comparisons. Excluding discontinued service lines, revenues would have increased 68% for the year in 2021. Looking at our adjusted EBITDA performance on slide 11, fourth quarter adjusted EBITDA was up slightly to 18.4 million, and adjusted EBITDA margin was 12.8%. Full year 2021 adjusted EBITDA grew 42.5% to 77.6 million, and adjusted EBITDA margin was 14.2% of revenues. The margins for both periods were pressured mainly due to business mix, including the lower margin pandemic response services provided by CTH. The planned and expected normalization of margins in certain business lines following the reversal of COVID-19 related initiatives and investments in corporate infrastructure. Our full year margins were also impacted by a full year of public company costs in the current year that existed during only a portion of the prior year. I'll reemphasize the point Vijay made earlier, that Montrose performance needs to be assessed annually. This is how we evaluate the business, since demand for environmental services is not driven by specific or predictable quarterly patterns and has stronger predictability on an annual basis. This is consistent with how we hire staff, allocate resources, and manage the company. Turning to our business segment on slide 12, In our assessment, permitting, and response segment, full-year revenue grew to $261.9 million from $98.5 million in the prior year, and adjusted EBITDA improved to $57.1 million from $24.2 million in the prior year. The significant year-over-year increases in both revenue and adjusted EBITDA were mainly driven by CTH, which saw sustained demand well above trend through the year to provide pandemic response related services. DTH contributed full year revenues of 231.5 million compared to 82.4 million in the prior year. DTH largely benefited from greater COVID-19 related response work performed in the full year of 2021. The acquisitions of environmental intelligence and horizon in the third and fourth quarters respectively also contributed to 2021 results in this segment. The decline in segment adjusted EBITDA margin to 21.8%, with largely a result of an increase in lower margin COVID response work performed by CTH in 2021. In our measurement and analysis segment, full year revenue increased 1.1%, to 153.2 million, primarily attributable to the acquisitions of VISA, and environmental chemistry in the second and third quarters, respectively, partially offset by a decline in revenues from discontinued service lines and the timing of projects. Adjusted EBITDA margins declined to 20.4% due to business mix and the reinstatement of certain costs that had been temporarily suspended at the outset of the COVID-19 pandemic. And finally, in our remediation and reuse segment, Full-year revenues increased 68% year-over-year to $131.3 million, reflecting a significant increase in demand for PFAS water treatment services, organic growth in our biogas business, and the acquisition of MSD in the first quarter. The 320 basis point increase in remediation and reuse adjusted EBITDA margin to 14.7% 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. Looking at a review of our business trajectory on slide 13. As we discussed last quarter, we believe our CTH business has an expected annual revenue run rate of $75 to $95 million. Although CTH revenue continues to normalize, DTH revenues were $70.6 million in Q1 and fell sequentially each quarter during the year to end at $41.4 million in Q4, DTH revenues remain elevated as a result of heightened demand for 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 reoccur at the same level in the coming years as the impact of COVID-19 related demand continues to wane. When excluding the above-trend revenue from CTH, the remainder of our revenue is what we refer to as our base business, which includes the normalized revenues we would expect to see from CTH. Our base business continues to experience a solid trajectory, reflecting the organic tailwinds we've discussed on this call. Moving to our capital structure on slide 14. We were thrilled to see a step change in our operating cash flow generation for the full year 2021, which increased to $37.6 million compared to $1.9 million last year. Cash flow operations includes the payment of acquisition-related contingent consideration of $15.6 million and $6.4 million in the current and prior year, respectively. Excluding these acquisition-related payments, Full-year cash from operating activities was a record 53.2 million in 2021, compared to cash from operating activities of 8.3 million in 2020, an increase of 44.9 million. This increase was driven primarily by significantly higher full-year earnings before contingent consideration payments and non-cash items, partially offset by an increase in working capital of 9.8 million. Our strong cash flow generation capabilities resulted in a nearly 70% conversion of adjusted EBITDA into operating cash flow for the year, in line with our previously communicated expectations for a long-term conversion of adjusted EBITDA into operating cash flow at a rate in excess of 50%. These strong cash flows reflect our ongoing focus on the balancing of the generation of cash with investments in technology, R&D, and corporate infrastructure to ensure continued scalability. Our leverage ratio as of December 31, 2021, which includes the impact of acquisition-related contingent earn-out obligations, was at 0.8 times unchanged compared to Q3, despite the two acquisitions we completed in the fourth quarter. Our leverage ratio was 2.7 times at the end of the prior year. In January 2022, we entered into an interest rate swap transaction, fixing the variable component of our interest rate on $100 million of borrowing until January 2025. Moves such as this and our follow-on equity offering in October 2021 give us further financial flexibility to execute on our growth objectives. As a reminder, our Series A2 preferred stock has no maturity date, And we have the option, but not the obligation, to redeem the preferred shares at any time for cash, subject to a make-home payment if prepaid prior to April 2023. 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 $1.5 billion. Moving to our full year outlook on slide 15. Based on the strong momentum in our business through 2021 and into 2022, we are confident in our ability to drive base business growth in the full year 2022. We are introducing our outlook for full year 2022 revenue to be in the range of $520 million to $570 million and adjusted EBITDA to be in the range of $73 to $78 million. Our 2022 outlook is based on a combination of double-digit organic growth, excluding CTH, plus the contribution of acquisitions we've already completed. We expect CTH full-year revenue to exceed $100 million due to some continuation of COVID-19-related services, particularly in the first half of 2022, higher than its $75 to $95 million annual revenue run rate, but substantially lower. than its 2021 performance. While full-year 2021 margins were lower compared to full-year 2020 due to business mix, the reversal of prior cost containment efforts, and a full year of public company costs, our outlook remains unchanged for continued consolidated adjusted EBITDA margin expansion over a four- to five-year period. I'll provide some of the building blocks in relation to our margin expectations over that time frame. In our assessment permitting and response segment, we expect normalized adjusted EBITDA margins to run between 25 and 30%. In our measurement and analysis segment, we expect adjusted EBITDA margins to continue to run around 20% over the long term. And finally, in the remediation and reuse segment, which is immature margins currently, due to investments in infrastructure and personnel to support significant anticipated growth, should run in the low to mid 20% adjusted EBITDA margins at scale. Lower corporate costs as a percentage of revenues are expected as our corporate infrastructure matures. In summary, 2021 was another milestone year for Montrose. Demand for our differentiated environmental services remained resilient, and we saw acceleration across our key business lines during the year as results began to normalize to pre-COVID-19 levels. Our investments in talented team members, immediately accretive M&A transactions, and our IT portfolio have driven our exceptional results in the year and put us on strong footing entering 2022. We are increasingly optimistic in our integrated solutions to address greenhouse gases, PFAS, and renewables, as well as evolving rules and regulations, which gives us confidence in our ability to deliver on our growth objectives in the years to come. We look forward to the opportunities we see ahead and to updating you on our financial progress over the year as we work to create further value and capture additional market share in our fragmented industry. 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. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Jim Ricucci with Needham and Company. Please proceed.

Hi, thanks. Good morning. So I just wanted, how are you? I wanted to talk to you a little bit about the investments you're making overall in the infrastructure of the business just to support the growth. There is that, and I wonder if you could talk in terms of where you are. But the follow-up question really relates to the inflationary pressures and the rising compensation costs that are impacting, presumably, that are impacting the business like everyone else. Wondering to what extent are you able to offset some of these pressures, you know, perhaps through just even revised pricing initiatives with your clients?

Hey, Jim, this is Vijay. Why don't I take that and then Alan certainly jump in. On the inflationary pressures in terms of pricing, we have a fair degree of confidence that we will be able to pass the price increases on, Jim. Our relationships with the customers are great. They clearly are seeing the same environment we're seeing in businesses like our advisory businesses. It's a multiple of compensation, so our cost. So as compensation goes up, those costs get passed on. In other aspects of our business, like the water treatment or biogas business, it's not quite as linear or direct, but we're seeing similar ability, and certainly on the testing side as well. So We're not worried about our long-term margin expansion in the context of this inflationary environment. The first part of your question around investments are partially a function of those that are necessitated by being public. So we've seen a material scale-up in year-on-year comparison and costs for being a public company. So the fact that we've grown and gotten bigger at a pace that is quicker than we thought, has caused us to lose our emerging growth status, SOX compliance, faster filing, ESG reporting, additional audit fees. I mean, the list goes on and on. So some of that is just necessary and certainly will stabilize in the very near future. So that's part of it. And then the other part that's more voluntary is we got to a half a billion dollars in revenue at a much quicker clip than we thought, Jim. And so we are putting in place additional compliance measures as we bolster some of our regulatory affairs capabilities, safety infrastructure, technology, business development, marketing. And the way I would characterize that spend is corporate as a percentage of revenues. We watch that very, very closely. And we took advantage of the fact that we had dramatic outperformance last year to put some of those investments in place. So as we look forward to getting to a billion dollars of revenue, we have some of that infrastructure in place to get there. Does that make sense?

It does. Thank you. And my follow-up question, this may have been Alan who alluded to this. The early benefits that you're seeing, some early success from cross-selling, anything you can elaborate on in terms of talking about the progress you're making in this area?

Yeah, we're making great progress, Jim, and if nothing else, you're very consistent. You've asked that question repeatedly, and I think what we promised you is that at the end of Q1 of 2022, we will have kind of our first full year of a quarter-on-quarter comparison, right, given we put in place the Salesforce tools at the beginning of last year. So when we talk to you in May, I think we'll have some more discreet data points, but the With the sales and marketing efforts that have been underway now for a while, we have seen an incredible amount of collaboration between our remediation, reuse, and our advisory segments into our testing segments in particular. So as a small illustrative example, we're winning business on both the advisory side and on the treatment side. And as part and parcel with that one business, we are able to position our testing business as an additive service that is unique in the market but also creates kind of a compelling cross-sell opportunity. So we're seeing a lot of that type of activity, and we'll elaborate more in terms of both dollars and case studies when we speak to you in May.

Got it. Okay. Look forward to it.

And you can see, and Jim, the one other point I would make there is the organic growth surge that you're seeing is partially also a function of that very cross-selling effort. that we talked about, you know, kind of at IPO with you, where we didn't necessarily have the infrastructure to do it, and now the investments are paying off.

Thank you.

Our next question is from Tim Mulrooney with William Blair.

Please proceed.

Hey, guys. This is Sam Flynn for Tim. Thanks for taking our questions here. Hope you're doing well. Hey, how are you? Doing good, doing good. Maybe to start, we'll do some current event questions here, but has the Ukraine crisis and the resulting sanctions changed how you think about the long-term domestic biogas opportunity? And maybe more broadly here, are there any areas of your business that you were thinking about differently as a result of what's going on in Europe?

No. As everyone is, we're really dismayed at what's going on in Europe, and we certainly hope that the situation resolves soon for all the obvious reasons. No, we really have very little exposure, if at all, to any of that. Where we would be impacted is if the U.S. or European governments change their policy materially, both in terms of their fiscal and monetary policy or their regulatory policy. But as of this point, we haven't really seen any shift that impacts Montrose in any way. In terms of the biogas business in particular, I think the long-term trends in terms of demand for negative carbon intensity gas, and we do think gas is going to play a more prominent role as the world transitions from one phase of energy to the next, that's continuing apace. The organic growth, the 17% that we posted, excluding CTH, includes continued momentum in that space. And so we think there's other trends there driving that. that are more fundamental to Montrose than Ukraine and Russia. And if anything, it'll be on the margin additive to that. So we're as bullish as we've ever been. We're really saddened by what's happening in Eastern Europe, but really no impact to Montrose of note.

Okay, great. That's great to hear. Maybe pivoting a bit here, Ben, can you talk a bit more about your leak detection business and how that performed overall in 2021 and maybe what your expectations are for that business heading into 2022? Sure. Would you expect to see a bump in this business from the new EPA proposal or anything from that nature?

Yes. I mean, I would characterize leak detection more broadly as just our greenhouse gas measurement and methane measurement capability. And it is growing faster than our historical organic growth rate. That team is doing a spectacular job. Several of those folks have taken on more prominent roles and promoted into more prominent roles across Montrose with kind of national and global oversight. the business is still small relative to the macro Montrose, but growing at double digits organically. And we see no reason to see that, to have that change into the foreseeable future. The regulatory environment is only more favorable. Our relative market advantages are more prominent and the market's moving in our direction. So we're as bullish as we've ever been. And as should be apparent in Alan's guidance, our, our, uh, our conviction in continued acceleration of organic. If you go back to kind of our historical averages of seven to nine percent, we think we'll continue well above that, and the greenhouse gas and leak detection piece of it is part of that.

Great. Great to hear the thoughts there. One more for us then, really, and more to PFAS. You know, we've seen quite a few articles about the concern around PFAS lingering in air particles. Have any clients brought this issue up to you? Do you guys have any capabilities to address this in your air emissions portfolio? And just how do you see the growth opportunities related to that piece?

Yes and yes. Clients have come to us about it. We have some of the most advanced capabilities in that space, and we're intimately involved in helping folks solve it, test for it. On the air side as well, we happen to have our first organically developed PFAS lab right next to one of our largest environmental lab networks in North Carolina, which also happens to be Administrator Regan's former home state. And he was involved in some of the aerosolization issues associated with incinerating PFAS back there. And so we're well aware of what happened and how to mitigate some of that and some of our capabilities put us on the leading edge of that. So it's... That's inherent and implicit in our numbers already on the measurement analysis side.

Excellent.

Appreciate the answers, guys. Best of luck in the next quarter here. Thank you. Thank you.

As a reminder, just star 1 on your telephone keypad if you would like to ask a question. Our next question is from Andrew Obin with Bank of America. Please proceed.

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

Hey, Emily.

Hey, so I'm curious with Omicron in December, how much did the COVID-related business of CTH sort of outperform your prior forecast? And then how are you thinking about the COVID business for CTH in the first quarter, you know, given that Omicron, you know, Omicron cases were so high in January, if it should be running, you know, above that $100 million run rate?

Thanks. Yeah, Emily, why don't I just kind of talk more holistically, and then Alan jump in with specifics. CTH is a broad business. They have broad-based capabilities across response, toxicology. And I think as you heard us talk about, their software and their flexible workforce gives them some pretty incredible advantages. And so we're really proud of kind of how – They've performed, and the team is incredible. The reason I give you that long preamble is, and for all the reasons we talked about with you, Emily, when we went through some of your modeling, they expected and anticipated a deceleration in their COVID response work through the course of last year. So if you kind of think about where they were in Q1 of 2021, north of $70 million in revenue, they were actually quarter on quarter, Q4, down about 10%, but all in a predicted and anticipated way. And some of that is due to their team performing so well that they were dealing with a significant amount of fatigue and need to kind of catch their breath. And so as we think about 2022, some of that demand continues. And it's as much about Omicron as it is about just broader preparedness and mitigation measures being put in place. And so as we As we put forth our forecast for this year, if you go back to the 75 to 95 million of run rate that we would expect from them year in, year out, they're running about 25% north of that because of the COVID response work, which we think is weighted towards the first half of this year. So it's certainly modulating because they did over 200 million last year, but they continue to be very elevated, continue to perform really well. And we do think some of that is going to continue through the first half of this year, which is implicit in our guidance, both on the revenue side and margin side.

Does that answer your question, Emily?

Yeah, that does. That's super helpful. And then follow-up question, just on the 2022 organic growth outlook, sort of what gives you the confidence for the outperforming? versus the historical high single-digit rate? And then is this double-digit organic growth rate sustainable over the next three to five years? Thanks. That'll be it for me.

Yeah, we're not giving guidance for the next three to five years, Emily. I think we are going to stick to kind of our broader message that we're really bullish on the macro opportunity. But for this year, we have conviction for a couple of reasons. On the PFAS treatment and testing side, Our business has performed really well. We are seeing a lot of private sector demand. So unlike some others that you've alluded to in conversations with us, we're not dependent on future regulations or future project cycles. It's already in our numbers today. On the renewable energy biogas side that I talked about on an earlier comment, we're seeing some really nice demand there. And on the greenhouse gas methane intensity measurement side, we're seeing some really nice demand there. So those three levers – are already performing really well for us. They're part of the reason we were at 17% last year.

And so we have conviction this year on the back of those three specific business segments.

Okay, great. I'll pass it on. Good luck, guys.

Thanks, Emily.

Our next question is from Noel Diltz with Stifel.

Please proceed.

Thanks, guys. Hey, Noel. Hey, so I appreciate the color you just gave Emily on CTEH revenue. I was hoping you could give us a little bit more color on how we should think about the EBITDA margin contribution as we move from, you know, kind of this dilutive effect of the COVID work to a more normalized margin level. That's it for me. Thanks.

Alan, do you want to take that or you want me to?

Yeah. Yeah. Well, so as we look into 2022, The first half we anticipate we'll see some continued elevated demand, and that elevated demand is likely going to be at similar margins to 2021, so depressed versus a typical run rate. And then as they return to a more normalized level of earnings post a lot of the COVID work, we expect the margins are going to expand back to normal, which is that kind of mid 20s range. So you'll see lower back off revenue from them, but higher margin percentages in the back off versus the front off.

I guess more specifically, could you give us the EBITDA dollar contribution from CTH, this in 2021, or are you not giving that specific?

They may be an easier way to do it, and Alan, let me know if this helps, because it's sounds like you're trying to model it, is kind of their business ran high teens margin in Q4 in terms of EBITDA. And so if you kind of think about the impact of that margin profile on our macro segment profile, which Alan in his comments talked about being in that 25% to 30% range, you can see how it's a little bit of a tragedy of riches. They did incredibly well, but because they were so big in that segment, it swung kind of the overall margin profile. Hopefully that allows you to model it a little bit more effectively. I think just stepping back, Noel, I suspect this is a question that's going to come up over and over again. We're really bullish on our ability to accrete margins, and the issue we're having in articulating this as we go forward is really kind of twofold. Our revenue serves in specific areas where margins are a little wonky. So part of that is CTEH, which we just talked about, right? But part of it is also our remediation and reuse business. So we are seeing rapid acceleration on the PFAS treatment and biogas side. And so you can see those margins accrete from, Alan, correct me if I'm wrong, 11% to 15%. That is still way below what would be normal for that business, which is kind of low to mid-20s. And so we're seeing disproportionate growth in parts of the business that are growing, but that are also margin dilutive in the temporary phase of the business. So as that matures on the remediation and reuse side, as CTH normalizes, our adjusted EBITDA excluding corporate will accrete really nicely into the mid-20s, if that makes any sense. And so you'll see some volatility there as different parts of the business ebb and flow, and that's why we keep using this nomenclature business mix. But as we look forward over three to five years, we're really bullish on being able to get to that mid-20s operating EBITDA margin, and then corporate as a percentage of revenue will come down as we get bigger.

Okay. Thank you.

We have reached the end of our question and answer session.

I would like to turn the conference back over to Vijay for closing comments.

We really appreciate all of your time. Thank you for joining us today. Stay safe out there, and we look forward to catching up with you in a couple months as we provide the Q1 2022 update. Thanks to all of you, and thanks to all of the Montrose team members listening. Take care.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.