Montrose Environmental Group, Inc.

Q3 2023 Earnings Conference Call

11/7/2023

spk01: Good morning and welcome to the Montrose Environment Group Inc. Third Quarter 2023 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a call for a specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would like now to turn the conference over to Rodney Melcier from Investor Relations. Please go ahead.
spk09: Rodney Melcier Thank you, and welcome to our third quarter 2023 earnings call. Joining me on the call are Vijay Manthreepragada, our President and Chief Executive Officer, and Alan Dix, Chief Financial Officer. During our discussion today, we will be referring to the 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 visions 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 to 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, 2022, which identified the principal risks and uncertainties that could affect any forward-looking statement as well as future performance. We assume no obligation to update any forward-looking statement. 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, their most directly comparable GAAP measure. With that, I would now like to turn the call over to Vijay, beginning on slide four.
spk07: Thank you, Rodney, and welcome to all of you joining us today. I will provide you with business highlights, Alan will provide you with financial highlights, and we will then open it up to Q&A. I will speak generally to the third quarter earnings presentation shared on our website. As we have noted each quarter, I would like to emphasize that our business is best assessed on an annual basis, given demand for environmental solutions is typically not driven by quarterly patterns. We manage our business on an annual basis, and it is how we recommend you view our results as well. Before we dive into the quarter's performance, I would like to thank our approximately 3,500 colleagues around the world, for whom I am very grateful. Through their efforts, we were able to produce another quarter of the record results and further our leading position in the environmental industry. As for our financial results, we had another quarter of exceptional performance due to reasons consistent with those discussed during the first half of this year. First, we focused 2023 on delivering on our adjusted EBITDA targets and increasing our adjusted EBITDA margins. As you can see from our results, we are achieving both goals. Second, we continue to see strong organic growth in most of our business lines, and our long-term organic growth outlook remains as attractive as ever. Our objectives and strategy have not changed in this regard. During the third quarter of 2023, operating segment adjusted EBITDA and consolidated adjusted EBITDA margins were approximately 20% and 14% respectively, which represents an increase in margins versus the prior year for both. The improvement in our adjusted EBITDA margins is the result of organic revenue growth in most of our business lines and our pivot away from lower margin revenue, particularly within our ECT2 biogas services. The third theme I will highlight is the strength and tailwinds from new and anticipated regulations, as well as our clients' voluntary focus on environmental stewardship. From new regulations affecting PFAS disposal and tightened methane leak detection protocols, Depending rules on climate disclosures and changes in air emissions standards, we are seeing regulatory tailwinds across our business. The fourth theme underscores the sustained advantages from our acquisitions. Our acquisitions are driving scale benefits, technology access, and widening our geographical reach, including the recent addition of Matrix in the Canadian market. We have closed five acquisitions this year, and our acquisition pipeline remains very attractive. Finally, our balance sheet and cash flow remain strong. Year-to-date adjusted cash flow from operations of $42.1 million increased 52% compared to the prior year period, providing us with ample flexibility to continue investing in our business. Our balance sheet capacity remains very robust, and our debt is hedged against rising interest rates, insulating us from the current uncertain rate environment. I will next discuss our third quarter performance by segment. Within our assessment permitting and response segment, we were pleased to see continued strong organic revenue growth in our advisory services, which excludes BTEH. We also saw positive contributions from our acquisitions. CTEH, our environmental response business, performed above run rate levels year-to-date, given several high-profile environmental response projects that continued from earlier this year. The increase in margins for this segment was driven by strong organic revenue growth in our advisory services and CTEH outperformance. We remain bullish on the outlook for our advisory services through the rest of 2023 and beyond. Within the measurement and analysis segment, strong organic revenue growth continues in this segment as well. We are especially pleased with the positive performance from our new data platform, methane and leak detection and measurement services, and PFAS lab service. Given the building regulatory pipeline, we remain upbeat about continued performance in this segment. Though quarterly margins remain elevated and are higher than the prior year, we expect annual margins to remain in the high teens to 20% range. And finally, within our remediation and reuse segment, revenue growth in this segment was primarily due to our acquisition of Matrix, partially offset by the expected moderation in our ECT2 technology services, which includes our water and biogas services. Margins during the quarter were lower, primarily given the impact of the Matrix acquisition, and moderated revenues at ECT2, which saw triple-digit organic growth last year. Our previously communicated shift towards higher-margin biogas services and the improvements we are making within Matrix will enhance our margin profile in this segment. Next, I will discuss recent regulatory updates and industry trends that support our long-term growth outlook. The U.S. EPA continues to focus on PFAS and, in September, finalized an important rule under the Toxic Substances Control Act. This rule requires reporting from companies in a wide variety of industries that have manufactured or imported PFAS chemicals. With regards to methane emissions, the U.S. EPA and Bureau of Land Management have implemented new rules targeting methane emissions, such as flares, vents, and leaks, supporting incremental demand for our measurement and assessment services. And finally, regarding demand for our environmental consulting services in October, the US EPA pledged significant funding to states to support projects aimed at advancing environmental justice. We anticipate these campaigns will drive increased demand for our advisory and our testing services. These recent regulatory developments, in addition to those we've highlighted over the past several quarters, demonstrate that macro tailwinds for our integrated environmental solutions remain very robust. Montrose remains very well positioned to benefit from the rapidly evolving environmental industry and regulatory landscape. So in summary, I remain incredibly grateful to the entire Montrose team. Our continued outperformance is attributable to the hard work and execution of our colleagues around the world. Given this continued momentum in our business, we are reiterating our full year 2023 revenue and consolidated adjusted EBITDA guidance. We remain very optimistic about our outlook and our opportunity to create more shareholder value. With that, I will hand it over to Alan. Thank you. Thanks, Vijay. We are very pleased to have delivered strong third quarter results. Our resilient performance throughout the year thus far reflects the themes we've discussed since becoming a public company over three years ago, as new environmental regulations and corporate mandates continue to drive demand for our unique environmental solutions. Our business remains strong and continues to grow given our successful execution of attractive M&A, ongoing cross-selling successes, and expanding customer relationships. Moving to our revenue performance on slide eight, we saw organic growth across many of our service lines help drive revenues to record levels in the third quarter. Our third quarter revenues increased 28.9% to $167.9 million compared to the prior year quarter. Year-to-date revenues were up 13.2% versus the prior year period of 458.5 million. The primary driver of revenue growth in both periods was the positive contributions from acquisitions, including matrix, strong organic growth in our assessment, permitting, and response, and measurement and analysis segments, and an increase in CTH revenues. This was partially offset by lower revenues in a specialty lab that is being discontinued, and the change in our remediation and reuse segments given the timing of projects and the strategic shift in our biogas business to focus on higher margin, lower revenue services. Growth in our year-to-date revenue was also impacted by our planned exit from legacy O&M contracts in 2022. Excluding revenue from discontinued businesses, revenue was up 32%. to 165.9 million in the third quarter and was up 16.4% to 452.6 million year-to-date. Looking at our consolidated adjusted EBITDA performance on slide nine, third quarter consolidated adjusted EBITDA was a record 23.3 million or 13.9% of revenue. This compares to consolidated adjusted EBITDA of 17.1 million or 13.1% of revenue in the prior year quarter. The year-over-year improvement was driven by higher revenues and higher operating margins, driven in part by the benefit of pricing. Here today, consolidated adjusted EBITDA was $61.1 million, or 13.3% of revenue, compared to consolidated adjusted EBITDA of $48.4 million, or 12% of revenue, in the prior year. With that said, I'll re-emphasize that Montrose's performance needs to be assessed annually, as quarterly results are not always indicative of annual performance. Turning to our business segments on slides 10 and 11. As we previously highlighted, we remain primarily focused on meeting or exceeding our targets for adjusted EBITDA dollars and operating cash flow generation, with the longer-term goal of optimizing our margin profile. To that end, We were pleased to see the impacts of shifts through our service portfolio, which helped contribute to the increase in operating segments adjusted EBITDA margin to 19.5%. In our assessment, permitting, and response segment, revenues increased 22.8% year-over-year to $57 million. The year-over-year increase was driven primarily by organic growth, both in revenues from CTEH and, to a lesser extent, the positive contributions from acquisitions. CTH is entirely in this segment, so that business's increase in environmental response revenues are fully captured here. AP&R's segment-adjusted EBITDA increased 51.5% year-over-year to $14.9 million, or 26.1% of revenue, up from 21.2% in the prior year quarter, reflecting the benefits of organic growth, favorable CTH revenue mix, and higher aggregate margins across our other businesses within this segment. In our measurement and analysis segment, revenue increased 15.3% to $50.5 million, primarily attributable to double-digit organic growth, as well as the benefits from acquisitions completed subsequent to the end of the prior year quarter. M&A segment adjusted EBITDA increased 22% to $10.4 million, or 20.5% of revenue. up from 19.4% in the prior year quarter, reflecting strong demand for our testing services and the benefits from our pricing action. In our remediation and reuse segment, revenues increased 50.6% to $60.5 million, primarily due to the acquisition of Matrix and partially offset by the anticipated decline in revenues from certain large water treatment projects and the recent pivot in our biogas business to focus on higher margin, lower revenue projects. The decrease in R&R segment adjusted EBITDA as a percentage of revenue was due to lower water treatment revenues and the dilutive impact of Matrix, partially offset by the higher contribution margins within our buyer-guest business. Our margin optimization efforts are well on track at Matrix, and we expect to see low to mid-teens adjusted EBITDA margins by the end of 2024, up from low single digits at the time of acquisition. Moving to our capital structure on slide 12. Year-to-date cash flow from operating activities was $41.5 million, which improves compared to cash provided by operating activities of $8.2 million in the prior year period. Cash flow from operations includes the payment of acquisition-related contingent consideration of $0.6 million in the current year and $19.5 million in the prior year, respectively. Excluding these acquisition-related payments, Cash from operating activities was 42.1 million in the first nine months of 2023, compared to cash from operating activities of 27.7 million in the first nine months of 2022, an increase of 14.4 million, and representing an adjusted EBITDA to operating cash flow conversion of 69%. The year-over-year increase in operating cash flows was driven primarily by a lower working capital build and higher earnings before non-cash items compared to the prior year period. These strong operational cash flows reflect our ongoing focus on balancing the generation of cash with investments in technology, R&D, and corporate infrastructure to ensure continued scalability. Our leverage ratio as of September 30, 2023, which includes the impact of acquisition-related contingent earn-out obligations enabling cash, was at a healthy 1.9 times. At our current leverage ratio and inclusive of our fixed rate on $170 million of debt under our interest rate swap, our weighted average interest rate under our credit facility was 4.4% as of September 30, 2023, with no exposure to rising interest rates at current borrowing levels. 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. The holder has the option to convert up to $60 million to common equity in April of next year. We view this preferred equity instrument as favorable to the value creation potential in the business, given its flexible dynamics and the fixed nature of the dividend in a rising interest rate environment. If you include the $182 million of the Series A2 equity in our market cap, our total equity capitalization stands at approximately $948 million. Moving to our reiterated four-year outlook on slide 14. Based on our strong performance so far in 2023 and the expectation for our CTH business to return to run rate levels during the fourth quarter, we reiterate our outlook for full year 2023 revenues to be in the range of $590 to $640 million and for consolidated adjusted EBITDA to be in the range of $75 to $81 million. Our revenue and consolidated adjusted EBITDA outlook for the full year continues to represent double-digit growth and margin expansion over the prior year. As we begin to look ahead to next year, we anticipate strong organic growth in 2024 and will provide a more fulsome outlook next quarter. In summary, demand for our environmental solutions remains robust, and our reaffirmed outlook for 2023 represents our optimism in the positive trajectory of our business. We remain as confident as ever in our ability to deliver shareholder value through our best-in-class suite of environmental solutions and to capitalize on in-market and regulatory tailwinds. Thank you all for joining us today and for your continued interest in Montrose. We look forward to the opportunities we see ahead and updating you on our progress next quarter.
spk04: Operator, we are ready to open the lines to questions.
spk01: Thank you very much. We'll now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster.
spk04: Oh, okay. Oh, hello.
spk01: The first question comes from Tim Mulroney with William Blair, please go ahead.
spk08: Vijay Allen. Good morning.
spk04: Hey Tim. How are you doing?
spk08: All right. Thank you. Uh, just a couple of questions. So I, I know, um, I completely agree with you that the business should be analyzed on an annual basis. And that's certainly how we think about it, but sometimes talking about the quarters can help folks understand what's happening in the business. So my question is just on the adjusted EBITDA margin, which was very strong and, you know, great to see in the third quarter. Implied guidance for the fourth quarter is showing that it would be down sequentially in year. I'm sure there's a good reason for that. If you look at it on a second half 2023 basis, you guys are right in line with doing what you said you were going to do. So it's not so much about, you know, Are you hitting numbers? You're clearly hitting numbers. I'm just curious, what's causing that change in the margin profile from quarter to quarter if there's a specific project or something like that?
spk05: Yeah, it's a great point, Tim. Why don't I start, and Alan can jump in. So you're exactly right. This is an annual business, and so the quarterly comparisons aren't as meaningful. But if we step back, just to kind of answer your question explicitly, we've taken guidance up twice this year, Tim, and so we're feeling really good about the business. and at the midpoint, yes, but for half the range, we could very easily be flat to up quarter on quarter, so it's not necessarily down. The one wild card for us is CTH, which is unpredictable, and as you know from Q4 of last year, that was the one variable that we had a tough time predicting, and so that's the only reason why we're maintaining, and we still feel really bullish on kind of how this year has been panning out and what Q4 could potentially look like.
spk06: Does that answer your question, Tim? The other part of that on the margin question, Tim, is remember Matrix being a Canadian business is very seasonal. They're already a low margin business. Q4 is at or below their average. So that's certainly going to be deteriorative to margin percentage in the fourth quarter.
spk08: Okay, yeah, that is helpful, and that does answer my question. A follow-up on that. might be, you guys usually do call out how CTEH performed in the quarter, which is helpful for us for modeling purposes, especially as we model back towards normalization. How did CTEH perform in the third quarter of 23? I know in the press release you said it was up, but can you quantify that for us?
spk06: Yeah, and all of this will be in the queue that gets filed later today, Tim. So they remained elevated in the quarter. Their large response has now tailed off, but did have an impact on the third quarter. So they did $33.8 million in Q3, and that puts them at $103 million year-to-date.
spk08: Got it. But expecting normalization in the fourth quarter, and that $75 to $95 million range is still relevant. Yeah, they...
spk05: Yeah, when we say normalization, Tim, I mean, we always talk about quarterly averages, right? So six to seven of EBITDA and, you know, call it 20 to 25 of revenue a quarter. They're demobilizing in Q4, so they will be below their normalized levels, if that makes sense. Still an incredible year and a home run by any set of circumstances. But Q4 will be materially lighter, we expect, than the rest of the year has been so far.
spk08: Got it.
spk05: The other... Yeah, Tim, sorry. Just to add to that, the other point that is worth noting here in the context of CTEH, given that this is likely to come up not just with you but with your peers, they've done a really nice job bundling Montrose capabilities, right? So kind of some of the air monitoring and the remediation work that the rest of the platform brings to the table, which has had a positive impact on their performance. And so a lot of credit to that team. where this is not just an episodic response portfolio anymore. It's much broader than that. And so next year, Alan and I will work to separate the pure response part of that business, because the rest of it is much more sustained and predictable, if that makes any sense.
spk08: It does make sense. It makes me wonder if that 75 to 95 is even relevant anymore, Vijay, if you're growing Another part of it that's less variable is it perhaps structurally higher than that. I know you've already raised it from 55 to 65 at the IPO. Now we're talking 75 to 95. Perhaps it's even different and we can dig into that more next quarter.
spk05: Yeah, I think we've got some great news and the team deserves a lot of credit on that. And so we'll separate that out and be a little bit more transparent with you as we begin to forecast 2024 for you.
spk08: Look forward to that. Thanks, guys.
spk04: Thanks, Tim.
spk05: Thanks, Tim.
spk01: Thank you. The next question comes from Jim with Judy with need Hammond company. Please go ahead.
spk02: Hi, good morning. Um, Hey Jim, how are you guys doing? Good to hear. Um, matrix. Uh, I wonder if you could talk a little bit about how the, uh, the integration is going and, um, Alan, you may have given it. I apologize if I missed it. Um, you know, what the revenue contribution was, why I assume we'll see, we'll see it in the queue and maybe some color on the adjusted EBITDA margins in the, in the business. And maybe lastly, uh, you know, just relating to that question about the implied Q4 guidance that Tim just had, um, It's a little bit wider range, not a whole lot, than you normally do, and I'm wondering if some of that might be due to the seasonality of the Matrix business in the December quarter.
spk05: Yeah, why don't I start with the first part of that question, and then Alan can talk about the contribution, and then we can talk about the range. Jim, so the Matrix integration is going really well. If you recall, that business at at acquisition was around 75% of revenue and 4.5% EBITDA margins. Those margins have been nicely accreting up on the back of the team's efforts, not just with integration, but with pricing discipline, higher utilization, and operating performance. And so we're looking forward to sharing a case study with you and others about how well that's been going in the very near future. we are well on track to achieve our goal of mid-teens or higher EBITDA by the end of next year. So the short answer is going really well. It is a seasonal business, but if you look at it on an annual basis, it's going to be a really nice year-on-year comparison, 23 to 24. Why don't I let Alan answer kind of the numbers part of that question, and then we can jump to the range.
spk06: Yeah, so Jim, we don't break out individual businesses. business line revenues, but again, you'll see in the queue that in the third quarter, acquisitions contributed $27.6 million to revenue. The majority of that was Matrix. Just to remind you, Matrix does about $75 million of revenue a year, but very seasonal, right? So about 55% of that is in the back half of the year, and a large chunk of that is in Q3. Their margin profile follows that seasonality, and again, averages in the kind of low to mid single digits currently. So although seasonally the matrix margins were better than average in Q3, there was still margin deteriorative to operating margins in the quarter.
spk05: And, Jim, so to wrap up the last part of your question around range, this is the first time Montrose has had Matrix in our portfolio, which is Q4, in Q4 of a year. So that plus the CTH variability is exactly why we're keeping the range wide, even though we're feeling really good about how the business is performing so far.
spk02: That makes sense. And you'll be talking, I guess, about this – early next year. But yeah, I'm just wondering, as you look out over the next couple of quarters, how we should be thinking about the PFAS water treatment business, the biogas business, particularly on the biogas side, where you've made some adjustments in terms of the way you're pursuing that market.
spk05: Yeah, we're bullish on it. We're bullish on it, Jim. So, you know, this goes back to some of the discussions we've had with you around organic you know other than the remediation reuse segment the rest of our business is seeing double digit organic growth and that a lot of what you're alluding to is that is the conscious pivot we made this year to focus on margins and cash flow and to pivot away from some of the lower margin work in our biogas business following our investment in what we think is very compelling early stage technology so next year as we think about not only harvesting all the margin success we've had this year but then getting back to our historical cadence of double-digit organic, we feel really good about that, and we think that will be part of our story next year as it's been so far.
spk02: Good. Thanks very much, guys.
spk04: Thanks, Jim.
spk01: Thank you. The next question comes from Andrew Obin with Bank of America. Please go ahead.
spk10: Hi, this is David Ridley laying on for Andrew Obin.
spk04: Hey, David.
spk10: Good morning. Just to follow up on that last comment on the remediation and reuse, so is first quarter 24 kind of when you'd fully lap those portfolio optimization efforts? Is that a good like-for-like comparison, or does some of these lower margin projects have a little bit of a longer tail?
spk05: Yeah, it's really, I would think of it more as a second, third quarter lap. The tail is coming off now.
spk10: Got it. And then just because your gross margin progression was quite strong, it looks like Matrix might have pretty good gross margins relative to the EBITDA margin. And I'm sort of reading into the results here. But is some of the margin improvement less about gross margin and more about sort of the cost structure?
spk06: The matrix does have good gross margins, but they're less of a contributor to the year-over-year increase. Again, the biogas pivot, that was very low gross margins given the large equipment sale component. And then we're seeing really strong utilization across the business, and that's certainly helping.
spk05: Yeah, David, when we say pivot, if you think about some of the advantages we have on the water technology side, right, so intellectual property, high bearish to entry, strong moats, we've effectively moved our renewable energy, so it's the biogas side of the business, more into that type of model, which means it's more anchored on technology implementation, and the the engineering associated with it and less around the The part that Alan just talked about so that that's really when we say Pivot the margin flow through not only on the gross margin side But also on the EBITDA margin side and cash flow ultimately was heavily impacted by that pivot which we did Consciously and you're seeing it in the results
spk10: And then last one for me, I know you don't normally talk about bookings or backlog, but are those metrics part of the reason you have the confidence to reiterate your guidance for the full year and any update on the European PFAS pilots?
spk05: Yeah, Europe is going really well, and the acquisition of Van Dransening has been very additive to that portfolio. We still have a small footprint, David, but that's going to be a really nice story that we'll share with you as we talk through 2024. The war notwithstanding, the continued momentum in that market is quite positive, and so we're really happy that we made the investments that we did. As it relates to our Q4, yes, we don't really talk about bookings and backlog. It's not relevant to every part of our business. But we do have strong visibility on an annualized basis. And given the trajectory of the company so far, we're feeling quite good about the Q4 outlook.
spk04: All right. Thank you very much. Thanks. The next question comes from Wade Tsuki with Capital One.
spk01: Please go ahead.
spk03: Good morning, everyone. Thanks for taking my questions. Hey, Wade. Just to follow up, I think it was on Tim's question earlier, and I hate to put you all on the spot, but as we think about margins heading into 24, maybe you could walk us through why margins in 24 might be lower than let's say the, you know, Q2, Q3 average. I mean, is it just a function of CTEH normalizing or, or am I thinking about it the wrong way?
spk06: Yeah, wait, no, that's, if you heard that, that's not what we're saying. We're not ready to guide margins or EBITDA next year. We're, we're very bullish on the, on the top line, um, given the momentum in the business. Um, But we're feeling pretty good about where margins are and the ability over time to continue to move those up.
spk05: Yeah, Wade, I would say it's the opposite. We are not calling for lower margins, and we haven't guided to 2024. But what I was saying earlier is that the work we've done this year with a conscious focus on improving margins and cash flow, we think that we will continue to harvest the benefits of that into 2024, and we'll couple that with getting back to our accelerated organic growth trajectory.
spk03: Awesome. Very helpful. Thank you. And then again, just to kind of follow up on a question earlier on water treatment, you know, last quarter you discussed some of the sort of uncertainties related to the low contaminant thresholds that were being proposed. And I'm wondering if you could give us an update on what, if any change you're seeing in customer behavior along those lines, and maybe just taking a step back. I mean, is this a business that's been switched out maybe a couple of quarters or, When do you expect sort of a major inflection point in this part of the business?
spk05: Yeah, it's a great question, Wade. We just met with some of our large clients, and they are also looking for a little bit more clarity from the regulatory agencies before they really jump into this. But they're certainly prepared to do so. So we've seen, I think, what we would consider forward progress on the projects, but not yet ready to pull the trigger. which is why we say that as we kind of think about our ECT2 business, which is a combination of our water and biogas business, that really in the Q2, Q3 timeframe of next year is when we think you'll start to see some of this uncertainty unwind and getting back to a positive foot, with the one caveat there being it is dependent on the regulatory confirmations, which are expected towards the end of this year and early part of next year.
spk03: Gotcha. Great. Thank you all very much. That's all I had.
spk05: Next slide.
spk01: Once again, if you wish to ask a question, please press star then 1. The next question comes from Stephanie Yee with JP Morgan. Please go ahead.
spk00: Hi, good morning.
spk05: Hey, Stephanie.
spk00: Could I ask about, you had made a comment about how the EPA finalized the rules about the toxic chemicals, and requires additional reporting from companies that manufacture PFAS. Can you kind of talk about Montrose's role in that regulation? Like, are you working with companies like Dow and 3M to help them in measuring and reporting those requirements?
spk05: Yes. We don't talk about our specific clients, Stephanie, but yes, we are working with many of the Fortune 100, Fortune 1000. The rule effectively goes back, I think, to 2011, and if you've transported, manufactured, or sold products with PFAS in it, you have to report on the potential impact and the potential toxicity of it, and that requires a combination of our advisory services, and so you'll see a positive impact on our consulting part of the business, and it does require some of the reporting and testing sides of it as well. So it is a broad incremental tailwind over time for both of our measurement analysis and our APNR segments.
spk00: Okay, that is helpful. Thank you. And can I just ask on how your pricing or how do you feel your pricing is aligned with your cost structure at this point in time and as we kind of head into 2024?
spk05: So I think we spoke about this with you earlier. Our pricing has been very disciplined. Credit to Alan, Todd, Josh, and the team for that. We have a lot of the margin benefits you're seeing this year are a combination of both the organic growth, and that organic growth is partially driven by the pricing solutions that we've implemented over the last actually 18 months. And we expect that that trend will continue into 2024. So some of our bullishness, Stephanie, on our ability to continue margin accretion is partially predicated on the impact of pricing on our overall performance.
spk00: Okay. I appreciate the cover. Thank you.
spk04: Thanks, Stephanie.
spk01: Thank you all very much. This concludes our question and answer session. I would like to turn the conference back over to CEO Vijay Manthreep Bhargava for any closing remarks. Please go ahead, sir.
spk05: Thank you, and thank you all for joining us today. We were thrilled to spend the time with you, and we're excited to share how the rest of the year unfolds and to speak with you again as we look forward to a stellar 2024. Thank you.
spk01: This conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a good day.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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