Montrose Environmental Group, Inc.

Good day and welcome to the Montrose Environmental Group, Inc. First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Rodney Nossier with Investor Relations. Please go ahead.

Thank you. Welcome to our first quarter 22 earnings call. Joining me on the call are Vijay Manthari-Pragada, our President and Chief Executive Officer, and Alan Dix. Chief Financial Officer. During our call, we will be referring to our earnings presentation, which is available on the Investors 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 31, 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 margin. 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 measures. With that, I would now like to turn the call over to Vijay, beginning on slide four. Thank you, and welcome to all who are joining us today.

I will provide you with a few business highlights, then hand it over to Alan Dix for our financial review. We will then open it up to Q&A. I will speak generally to pages four through seven of the presentation provided. As for the first quarter of 2022, we were pleased to see the strong demand for our environmental solutions continue. I'm thankful to our teams for their continued efforts. They are executing our strategy and collaborating with one another to provide exceptional service to our clients and create great value for our shareholders. As we discuss our first quarter results, and as we say in each update given its importance, our environmental services don't map neatly to fiscal quarters, So Montrose is best assessed on an annual basis, which is how we manage our business as well. With that qualification, the first quarter of 2022 was really about three key themes. First, we continue to see notable organic revenue growth acceleration in our environmental solutions, excluding CTEH. Our PFAS water solutions and our negative carbon intensity energy or biogas teams are were a big contributor to the surge in organic revenue growth. Second is the deceleration in CTEH's COVID-related work, as we shared with you last quarter. It is proceeding as planned, given the ongoing unwinding of pandemic-related restrictions and testing requirements across the United States. The decline in CTEH was more than offset by growth in the rest of our business, which was very encouraging to see. Third is the continued accretion of our operating segments adjusted EBITDA margins. In addition to our solid overall performance in the quarter, we were also happy to bring additional talent to our team through the acquisition of environmental standards in January. As was the case with previous acquisitions, environmental standards immediately accreted to our results and contributed to our overall revenue growth in the first quarter. Complementary acquisitions such as ESI remain one of our key growth and value creation drivers. Our M&A pipeline remains robust, and our thesis and strategy remain unchanged. Furthermore, looking at broader market regulatory developments, we continue to see many growing environmental needs that validate our strategy and our mission statement of helping to protect the air we breathe the water we drink, and the soil that feeds us. Let me take a few minutes to walk through some recent developments and some of the catalysts that we see for our business moving forward. On the regulatory front, we see opportunity in connection with a proposal by the U.S. Securities and Exchange Commissions to create standardized financial disclosures of climate risk to ensure companies provide sufficient, consistent, comparable, and reliable information. This proposed rule would require companies to include an analysis of risks, opportunities, and business impacts associated with climate-related strategy, outlook, and transition plans. Additionally, public companies would be required to provide climate risk disclosures as well as the materiality of their carbon footprint within the context of Scope 1, 2, and 3 emission reporting requirements. Proposed rules, such as this one, reflects the growing recognition of the need for standardized environmental reporting, which is one of Montrose's strengths. Should this rule be adopted, we would expect to see upside to our business given our existing services, such as climate risk analysis, emissions inventory verification and reporting, and the development of climate risk targets and goals. Another theme we've mentioned on prior calls is PFAS, P-F-A-S. Actions to control and remediate PFAS in the environment continue to advance at a rapid pace, leading to increased activity across all of our segments. For example, the expected designation of PFOA and PFOS by the EPA as hazardous substances under the Comprehensive Environmental Response Compensation and Liability Act, or the CERCLA Act, will have repercussions across the many industries we currently support, including chemicals, refineries, landfills, and wastewater facilities. The passage of this designation will greatly increase the need for environmental assessments, testing, remediation, and treatment. We also expect increased due diligence requirements for property transactions and business acquisitions will be needed to assess the potential presence of PFOA and PFAS from historic activities. Additionally, Increased PFAS testing, and water testing in particular, will be needed as the EPA's fifth unregulated contaminant monitoring rule, or the UCMR-5, gets underway next year. PFAS monitoring will expand to include all public water systems serving between 3,300 and 10,000 people. Of note, one of our specialty laboratories has been approved by the EPA for participation in this program. Separately, later this year, the EPA will be publishing its first analytical method for the analysis of non-potable water and other constituents for PFAS. Amantros Lab has been selected to join the small group of commercial and government labs participating in the method validation study for the EPA, positioning our testing team well for upcoming wastewater monitoring requirements that will be implemented. In addition to the federal regulations I just discussed, over 250 state bills addressing PFAS are currently under consideration. These proposals further underpin the anticipated growth in demand for our services, as monitoring and litigation in these areas will require our services. And beyond the U.S., we're also seeing the adoption of low PFAS limits in water across northern Europe, which continues to create market opportunities for our PFAS treatment technology. Though the impact of PFAS treatment and testing needs are already in our financial results this quarter, these regulatory developments are why we remain very optimistic about future market opportunities. Looking beyond our PFAS services, we're also seeing the growing importance of greenhouse gases, or GHGs, and net zero goals in client environmental mandates driving demand for our unique services targeting greenhouse gas emissions. Voluntary actions to address GHG reductions are on the rise in practically every sector we serve. We are seeing many opportunities to help clients with the development of their GHG baselines and establishing plans to reduce GHG emissions. Recent engagements of note include companies in the oil and gas, construction materials, and metal industries where we are developing net zero implementation plans and identifying production strategies. We are also active in helping clients determine which GHG reporting frameworks are the most appropriate for their operations and stakeholders. Client activities such as these allow us to work across the Montrose portfolio, including advisory services, source emissions testing, leak detection, community monitoring, and environmental permitting and compliance. We believe Montrose is exceptionally well positioned to help customers navigate rapidly evolving priorities and mandates regarding environmental stewardship, as environmental remediation and protection continue to become more and more central to corporate and governmental policies now and in the future.