Montrose Environmental Group, Inc.

Greetings, ladies and gentlemen, and welcome to the Montrose Environmental Group third quarter of 2022 earnings call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator's assistance during the conference, please press start and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rodney Nassier of Investor Relations. Rodney Nassier Thank you.

Welcome to our third quarter 2022 earnings call. Joining me are Vijay Manthri Purgata, 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 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 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 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. Welcome to all of you joining us today. I will provide a few business highlights and hand it over to Alan Dix for our financial review, and 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. And before I begin, I would like to reiterate two themes that we've highlighted before. The first is that demand for our environmental services does not follow fiscal quarter patterns and is best evaluated on an annual basis. The second theme is that these results belong to our colleagues around the world who have managed through a pandemic, macroeconomic shocks, and geopolitical turbulence. I am proud of all of our team members whose dedication helped us produce another quarter of great results. With that, let me now take a moment to recap several key themes that are relevant to our third quarter 2022 results. First, as it has all year, our business continues to benefit from growing demand across most of our service lines, and in particular, in the areas of PFAS water treatment, greenhouse gas measurement and mitigation, and renewable energy. The quarter also saw strong performance across our air and lab services, and recent acquisitions, which are recurring and are driven primarily by regulations. Our third quarter performance continues to validate the demand tailwinds and regulatory themes we've outlined since our IPO over two years ago. Our stellar organic growth excluding CTEH reflects the continued demand for our integrated service model and differentiated solutions. Second, in addition to strong organic revenue growth excluding CTEH, We are pleased with our overall sequential margin improvement. As noted last quarter, we were able to respond with pricing and other initiatives given some of the unexpected inflationary pressures we saw on select costs such as travel. The impact of those efforts, along with business mix and other factors, allowed us to get back on track with EBITDA margins. Third and finally, We are also happy with the strength of our balance sheet and strong cash generation. Our acquisitions to date have been funded through cash flow from operations and our balance sheet provides us with ample flexibility to continue consolidating our industry and investing in cutting edge environmental innovation. As it relates to acquisitions, our strategy and outlook remain unchanged. We continue to consolidate our highly fragmented industry completing four deals this year. Our acquisitions are usually immediately accretive, and they add great talent and service capabilities to our Montrose team. This year, given the rate of increase in our organic growth excluding CTEH, we tempered our pace of acquisitions as we focused on supporting the surge in organic revenue growth. For example, helping with hiring, training, and quality management programs across multiple geographies. The number of potential acquisitions and average multiples haven't moved, so our pipeline and opportunity to create value remains as strong as ever. Despite our choice to move at a relatively slower cadence of acquisitions in 2022, we were thrilled to welcome the Triad and Air Kinetics teams to Montrose during the third quarter. The addition of Triad's consulting team and focus in the southeastern United States, and the addition of air kinetics, air testing team, and capabilities in the southwestern United States are all very strategically additive to Montrose. We expect our 2023 cadence of acquisitions will accelerate back to where we have historically trended. Next, let me take a few minutes to walk through some recent developments and catalysts that we see for our business moving forward. As it relates to regulatory industry opportunities, we see tailwinds across our business lines as corporate ESG initiatives, environmental regulation and enforcement, and better environmental stewardship remain at the forefront of private sector and government policies. We believe Montrose is exceptionally well positioned to capitalize on these tailwinds, and that fundamental belief underpins the favorable long-term outlook for our business. In terms of select and specific regulatory developments that will have or continue to have the potential to impact Montrose, in September 2022, the EPA proposed to designate PFOA and PFOS as hazardous substances under the Comprehensive Environmental Response Compensation and Liability, or CERCLA, Act. This action will cause PFOA and PFOS to be eligible for cleanup under the recently refunded Superfund program. This designation also triggers a requirement for companies to report any spills to the environment, like when putting out a fire, that could trigger additional contamination investigations as well as remedial actions. Furthermore, the EPA recently announced the addition of certain PFAS chemicals to the toxic release inventory, which likely impacts current and future demand for consulting and advisory services in particular. Outside of direct actions by the EPA, We also saw additional momentum with PFAS regulations at the state level in the United States, and in October, a formal request for continued monitoring of PFAS from 49 members of Congress. We expect all these developments will continue to create tailwinds across our three segments. With regards to methane emissions, late last year, the EPA proposed performance standards for new sources of methane emissions. The proposal expands and strengthens emission reduction requirements and would require states to reduce methane emissions from hundreds of thousands of existing sources nationwide for the first time. We are also aware that the EPA is seeking information about community monitoring opportunities and technologies to support community monitoring programs. Should these regulations be adopted, we would expect to see increased demand for our emissions measuring, monitoring, and assessment services primarily impacting our measurement analysis segment. Regarding our environmental consulting services, in April, the EPA made further changes to the NEPA process. Regulators will now have to account for how government actions may increase greenhouse gas emissions, may fragment wildlife habitats, and may impose new burdens on communities, particularly disadvantaged neighborhoods. Notably, the EPA has also created a new division to oversee the implementation and delivery of the $3 billion climate and environmental justice block grant program created by the 2022 Inflation Reduction Act. While this is a new development that has yet to be fully implemented, we believe that in aggregate, this is a positive update for Montrose given our expertise with environmental advisory, testing, and remediation services. This is all to say that momentum for environmental protection continues to grow. We believe Montrose is exceptionally well positioned to help our clients navigate rapidly evolving priorities and mandates regarding environmental stewardship as it continues to become more and more central to corporate and governmental policies. I would next like to discuss our third quarter business performance by segment. Within our assessment, permitting, and response segment, despite the anticipated deceleration in CTEH COVID-19 revenues, Our CTEH team continues to perform above run rate levels and is doing an exceptional job for our clients with business continuity services. Support following environmental incidents caused by fires and hurricanes in particular have picked up compared to last year. Excluding CTEH, we were pleased to see positive contributions from our acquisitions. 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. Margins in the segment were primarily impacted by the shift in CTH margins and the lower margins of our recent acquisitions. Within our measurement and analysis segment, demand for our testing services remains very strong and drove solid organic growth during the third quarter. Given the regulatory momentum I just discussed, we expect further opportunities in this segment given our position as a market leader. Our margins in this segment continue to normalize in the high teens to 20% range as we've previously discussed. And finally, within our remediation and reuse segment, our organic growth outperformance in the third quarter was once again driven by demand for our PFAS water treatment and renewable biogas services. As we've reiterated on prior calls, margins remain below what we would consider normalized levels, given our ongoing investments into this business. For example, the establishment of our European infrastructure, investments that we believe will enable us to capitalize on the outsized growth opportunity over the next three to five years. That said, we did see sequential margin improvement in this segment, which is in line with our expectations. In summary, and before I turn it over to Alan, I would like to thank all of our team members around the world for their tremendous efforts so far this year. To those of you that are listening, thank you for all the hard work you've put in through these uncertain times. I am incredibly grateful for you. To our investors, thank you for your continued support and for giving us the opportunity to continue creating value while leaving the world a better place. Our third quarter results reflect positive momentum in our business, and based on our current trajectory, our outlook for 2022 remains firm. Alan is going to expand upon that in a moment. We look forward to closing out a strong 2022 and to a great 2023. Thank you. Alan?