Montrose Environmental Group, Inc.

Chairman, greetings and welcome to the Montrose Environmental Group, Inc. Second Quarter 2022 Earnings Conference 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. As a reminder, this conference is being recorded. I will now turn the conference over to your host, Mr. Rodney Nathier, Investor Relations. Please go ahead, sir.

Thank you. Welcome to our second quarter 2022 earnings call. Joining me on the call are Vijay Manthri Pagada, 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. 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 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 consolidated adjusted EBITDA, adjusted net income, and adjusted net income per share. 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 joining us today. I will provide 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 eight of the presentation shared on our website. Regarding the second quarter of 2022, I am proud of the stellar execution of all of our team members who have helped us produce another solid quarter. We successfully navigated a turbulent macroeconomic environment, and we successfully responded to a cyberattack in June that temporarily disrupted our operations for a few weeks. Despite these challenges, we produced a strong, broad-based revenue growth and more than offset the previously communicated and expected normalization of CTEH COVID-19-related revenues. In addition to record second quarter revenue and continued organic revenue growth outperformance excluding CTEH, our solid year-to-date operating cash flow excluding contingent payments was a stellar 16.6 million, which allows us to continue investing in our business. The Montrose team's dedication to providing excellent service to our clients continues to drive our success and define Montrose as one of the leading environmental solutions providers. To our team members joining us for the call, thank you. It is important to reiterate that demand for our environmental services does not follow fiscal quarter patterns and is best evaluated on an annual basis. In the context of our continued business performance, there are several key themes I would like to highlight from this second quarter. First, there was outperformance in organic revenue growth in most of our service lines. Our PFAS water solutions and our negative carbon intensity energy or biogas teams were a big contributor to this organic growth surge through the first half of the year. Second, the deceleration in CTEH's COVID-related work continued as we have discussed over the past few quarters and is trending as expected. As you can see in our results, the decline in CTEH is more than offset by growth in the rest of our business. Third, with costs, we have seen certain variable costs such as travel expenses accelerate faster than anticipated, but we remain confident in our ability to respond with efficiencies and pricing adjustments to produce attractive margins. Our 2022 and long-term margin expectations have not changed. Fourth, our cash flow continues to improve and remains very strong. The strength of our cash flow, as I mentioned earlier, gives us financial flexibility and the ability to continue investing in environmental innovations. Fifth, we continue to execute on our plan to consolidate parts of our highly fragmented environmental industry. Our acquisitions are often immediately accretive and add great talent and service capabilities to our team. Consistent with that track record, we are pleased to welcome the Triad team to Montrose as of last week. Triad are leading environmental consultants based out of Nashville, Tennessee. In addition to providing Montrose with specific clients, industry access, and geographic expansion, the Triad team brings a great culture and history to Montrose. Complementary acquisitions such as Triad remain an important growth lever that underpin our long-term growth and value creation strategy. Finally, as you saw last night in our press release, Based on feedback from various stakeholders, including the SEC, we have removed the add-back of startup investments from the definition of consolidated adjusted EBITDA. This is nothing more than a methodology change. Given the success we are having with R&D and technology development, for example, we expect these startup investments to be less one-time in nature than they have been in the past. This new methodology doesn't change our total guidance for the year, It doesn't change our cash flows or any fundamental economics. This new methodology also doesn't alter our long-term outlook on revenue or margins as previously communicated. We are reiterating our outlook for the year given business momentum, and Alan will address this further in his section. Next, 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. As it relates to regulatory and industry opportunities, First, we continue to see tailwinds from the private sector focused on better environmental stewardship and opportunities created by regulatory activity. We have been able to capitalize on broad demand for PFAS remediation, greenhouse gas measurement and mitigation, and renewable energy in particular. Second, we have recently been awarded large U.S. government projects reflecting the growing importance of our environmental solutions across both the private and public sector. On regulatory changes as it relates to methane emissions, the Inflation Reduction Act passed in the U.S. Senate over the weekend is expected to impose a first-time fee on excess emission of methane from select facilities. Of note, this legislation also includes hundreds of millions of dollars in incentives for the oil and gas industry to monitor and clean up methane leaks to avoid future fees. Improved leak detection, repair, and enhanced methane emissions quantification verification have been key areas of focus for Montrose for years. As the regulatory environment evolves in our favor, for example, with a focus on improving equipment and processes to reduce emissions, supporting innovation, and permanently closing wells on non-federal lands in particular, we expect our software capabilities, our methane testing and measurement, advisory, greenhouse gas detection and mitigation services, and our program management capabilities to see increased tailwinds. The bill also aims to invest over $60 billion to support communities that are disproportionately impacted by the negative environmental and public health effects of climate change. We see additional direct overlap with Montrose capabilities. For example, the increase in demand for projects like our fence line and real-time ambient air monitoring for Suncor Energy in Commerce City and North Denver, Colorado, where the community, industry, and regulators are working together to reduce emissions impacts. The bill is new and needs to be fleshed out, so we will continue to update you as we learn more. But in aggregate, we are really encouraged by what it represents for Montrose. And as it relates to PFAS, in April, the EPA announced three clean water actions as part of its PFAS strategic roadmap. First, a proposal for the Clean Water Act aquatic life criteria for PFAS to permit authorities to reduce discharges of PFAS at the source and measure for absorbable organic fluorine in water samples. This increases demand for our lab and remediation services. In May, the EPA issued five regional screening levels for PFAS which determine whether response remediation activities are needed for cleanups. While these screenings are not enforceable standards, They do serve as guidance for states. Companies rely on Montrose to interpret these guidelines and help them develop remediation plans that will meet federal, state, and local requirements. And in June, the EPA released four drinking water health advisories for PFAS. In conjunction with this announcement, the EPA has also invited states and territories to apply for $1 billion in bipartisan infrastructure law grant funding to address PFAS and other emerging contaminants in drinking water. specifically in smaller and disadvantaged communities. The needs of our clients due to these announcements are very complimentary to our existing service offerings. We expect that demand for our capabilities will continue to gain momentum in both the public and private sector. It is for all these reasons that we believe, as we have for a while, that Montrose is exceptionally well positioned to help our clients navigate the rapidly evolving regulatory landscape as environmental remediation and protection become more and more central to corporate and government policies. I would next like to discuss our second quarter business performance by segment. Within our assessment permitting and response segment, despite the deceleration of CTEH revenues, most of the revenue in this segment continues to be driven by CTEH, which remains at elevated levels relative to their normalized run rate. The CTEH team continues to do an exceptional job for our clients with business continuity services. Excluding CTEH, we are pleased to seek positive contributions from our acquisitions over the past 12 months, which were mostly added to this segment. Our acquisitions supporting West Coast utilities managing fire risk, for example, are performing well along with attractive growth in select areas such as our greenhouse gas advisory services. The shift in MIX is the primary reason for our increase in margins relative to last year. Within our measurement and analysis segment, demand for our services remains very strong and drove solid organic growth during the second quark. Given the regulatory momentum around greenhouse gas emissions and PFAS, as I just discussed, we remain optimistic about the future growth in this segment. Margins in this segment were impacted by MIX and the temporary impact of the cybersecurity attack in June, which primarily impacted our enthalpy lab network. We expect to recoup the impact of the disruption over the subsequent quarters. Putting quarterly variance aside, as fiscal quarters aren't the best way to assess our business, we continue to have conviction that margins will remain at industry leading high teens to 20% annually, as previously discussed. Within our remediation and reuse segment, Our organic growth outperformance in the second quarter was once again driven by demand for our PFAS water treatment and renewable energy services. As noted on prior calls, margins remain below what we consider and expect as normalized levels given our ongoing investments. We are investing in our teams, our geographic footprint, and our technology to harness the increased client demand and regulatory evolving landscape in this space. In summary, I am incredibly grateful to the entire Montrose team for all they do for our business, each other, and our clients. It was through their hard work and execution that we were able to overcome the challenges we faced and continue delivering for our clients and our communities. Our second quarter results reflect the continued momentum in our business, and as a result, we are reiterating full-year guidance. I remain incredibly excited about our future. At Montrose, we look forward to helping solve our collective environmental challenges and to creating value for our shareholders. We also look forward to sharing more with you in the upcoming quarters and are grateful for all of your continued support. With that, let me hand it over to Alan. Thank you. Thank you, Vijay.