Montrose Environmental Group, Inc.

Good day and welcome to the Montrose Environmental Group, Inc. Second Quarter 2024 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists for 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 one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. And now I'd like to turn the conference over to Adrienne Griffin, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Thank you, Operator. Welcome to our second quarter 2024 earnings call. Joining me on the call are Vijay Mantrapagada, our President and Chief Executive Officer, and Alex Dix, our Chief Financial Officer. During our prepared remarks today, we will refer 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 on today's call, we 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, 2023, 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. On today's call, we will discuss or provide certain non-GAAP financial measures, 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 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, and welcome to all of you joining us today. I wanted to start by introducing Adrian Griffin, who is our new head of investor relations, She brings stellar depth of IR experience to Montrose, and as we continue to increase our stakeholder engagement, we look forward to introducing her to all of you in the very near future. Welcome, Adrienne, and thank you. I will open my remarks with an update on our business, operations, and strategy. Alan will then provide the financial highlights, and following our prepared remarks, we will then hold a Q&A session. While today's call will highlight second quarter and year-to-date performance, It's important to reiterate that our business is best assessed on an annual basis. Demand for environmental solutions does not consistently follow quarterly patterns, and we manage our operations using annual perspectives. We are pleased to report our second quarter and first half results, which included our highest ever revenue and adjusted EBITDA. Our solid operational performance and ability to capitalize on demand momentum across our business continues to be driven by our dedicated colleagues around the world. And I would like to thank them for their substantial contributions to our collective success. Our stellar quarterly results included 9% revenue growth and 10% adjusted EBITDA growth. Organic revenue growth across most of our businesses contributed to our record performance. Our organic growth trajectory continues to be positively impacted by further IP development and cross-selling success. We expect continued strong organic growth in the back half of the year, and we reaffirm our full year 2024 organic growth expectation of 10% to 12%. Our focus on strengthening and optimizing margins was evident in our quarterly results, as we reported a 20 basis point increase in consolidated adjusted EBITDA margins compared to the prior year period. Cross-selling success contributed to margin expansion in all three segments, and this is despite the impact of Matrix. And Matrix remains a bright spot and is now realizing low double-digit adjusted EBITDA margins in the quarter. While we are pleased with the significant profitability improvement our team has achieved since acquiring Matrix in June of last year, we remain focused on further optimization. Turning now to slide seven, since our prior update in May and following our equity capital raise, we have maintained our cadence of highly strategic M&A. In June of this year, we acquired Paragon, an exceptional addition to our Canadian footprint and an expansion of our environmental consulting and engineering services in Canada. In July, we acquired Spirit Environmental, a leader in air permitting and modeling, which also enables geographic expansion across the U.S. Mountain and Gulf states. Though both transactions are relatively small, they are very strategically additive to Montrose, and we are thrilled to welcome these new colleagues to Montrose. Our M&A pipeline remains robust and includes numerous opportunities for the coming 12 to 18 months. Regarding secular tailwinds, we remain as confident as ever in Montrose's ability to capitalize on the broad catalysts impacting our end markets. As our customers react to anticipated regulatory complexity following recent U.S. Supreme Court decisions, and as our customers work to comply with state and local regulatory requirements and respond to stakeholder encouragement, demand for Montrose's suite of innovative environmental services, technology, and solutions grows in tandem. We remain very positive on the long-term upside from regulatory drivers and complexity, which I will discuss in detail shortly. I will now discuss our second quarter performance by segment, the details of which are found on slides 13 through 15. Within our assessment, permitting, and response segment, during the second quarter, we saw robust demand for our advisory services as well as growing cross-selling success across multiple business lines. The increase in segment margin was primarily driven by solid organic growth. This segment also includes our environmental emergency response business, and revenue associated with these emergency events does not follow a regular pattern, and emergency response revenue was down substantially in the second quarter because of a response that occurred last year and did not recur this year. Within the measurement and analysis segment, We are seeing the benefits of continued state, local, and federal regulations. Our comparative market outperformance has been primarily organic, driven by our lab services, PFAS, and air testing services. Continued project wins, such as our support of the Department of Defense, are driving success in this segment. Margins during the quarter were higher year over year, mainly due to revenue growth and operating leverage. Within our remediation and reuse segment, revenue growth benefited from acquisitions in the prior year period, including matrix, and strong organic revenue growth in our soil and groundwater remediation business, which more than offset an expected decline in our water treatment and renewable services, which we expect will be back on a solid growth trajectory later this year and into 2025 and beyond. Margins during the quarter increased versus prior year given strong operational improvement in Matrix, acquisitions, and organic revenue growth in our soil and groundwater remediation business. We are thrilled to see increasing revenues and margins from Matrix, validating our integrated strategy, and further substantiating the acquisition component of our method of creating value for our shareholders. Next, I will discuss a few recent regulatory developments and the foundation for our long-term growth outlook. As we discussed on a recent webcast available on our website, the US Supreme Court recently issued several sweeping opinions. In aggregate, they appear to limit the authority of federal agencies, including the US EPA, to interpret ambiguous federal statutory provisions. This may open the door to litigation by potentially affected parties who seek to challenge prior interpretations of agency rules within a six-year statute of limitations. These rulings have introduced quite a bit of uncertainty into our marketplace. Long-term, we believe uncertainty will be lower because shifts in political parties overseeing the EPA will have less of an impact on the statutorily authorized activities of the US EPA. For Montrose, our short-term and long-term business outlook remains unchanged. In fact, we anticipate incremental opportunities arising from the increased regulatory complexity these rulings are likely to introduce. Uncertainty and complexity tend to drive demand for our advisory and consulting services. As a result of these rulings, we also expect state and local regulatory bodies who retain significant enforcement authority to continue and potentially increase their efforts to enforce existing regulations. This shift benefits Montrose given our strong capabilities to serve our clients across multiple state and local jurisdictions. State-level regulations often require more localized expertise, which is a strength of ours and a key differentiator in our business model. In terms of client sentiment, major clients across a diverse cross-section of our end markets with whom we spoke have indicated that They are staying the course in terms of their existing environmental compliance programs and corporate sustainability goals. And they do not foresee any immediate changes in demand for Montrose's services. This sentiment reinforces our confidence in our reiterated business outlook. While the regulatory landscape is evolving, Montrose is well-positioned to navigate these changes and capitalize on the opportunities presented. our business remains anchored on stable, longstanding regulations that we believe are unlikely to change as a result of this shift in legal doctrine. As it relates to other regulatory updates, we've seen continued momentum from the U.S. EPA with regards to PFAS. Building on the EPA's final national primary drinking water regulation for six PFAS compounds issued in April, the Comprehensive Environmental Response, Compensation, and Liability Act, also known as CERCLA, Hazardous substance designation for PFOA and PFOS was finalized in May and became effective on July 8, 2024. This CERCLA regulation triggers the requirement for immediate reporting of releases of one pound or more of either substance. Additionally, CERCLA liability for both chemicals is now in effect. As we mentioned last quarter, we expect this regulatory update to enhance our access to the approximately $200 billion addressable market, for Montrose based on the number of impacted facilities we could engage. While still in its early stages, we anticipate demand for PFAS will ramp up over time. Importantly, we do not anticipate the recent Supreme Court rulings to impact this major milestone in PFAS remediation. Regarding methane emissions, in June, the EPA opened applications for $850 million in federal funding for projects that will help monitor, measure, quantify, and reduce methane emissions from the oil and gas sector. This funding is designed to help mitigate legacy air pollution, create energy jobs in disadvantaged communities, reduce waste and inefficiencies, and realize near-term emissions reductions. This presents longer-term tailwinds for our emissions measuring, monitoring, and assessment solutions as clients evaluate their environmental impacts. The Supreme Court and Congress in the United States have already weighed in on methane emissions regulations, so we don't expect a change to our growth thesis in energy and markets. With regards to the political landscape and the upcoming U.S. presidential election, We remain confident in Montrose's ability to perform well regardless of the outcome. As we've demonstrated on slide eight, our strong performance existed during the Biden, Trump, and Obama administrations. This was by design. Our business model was designed to be resilient and largely insulated from the political swings at the federal level, which we've demonstrated repeatedly. We expect this trend to hold true going forward, given our limited exposure to anyone in market and the higher relative influence of state and local environmental regulations on our customer activity. While our business mix may shift from period to period, we remain as well-positioned as ever to benefit from the evolving landscape. In summary, I'm extremely proud of our team's performance this quarter to close out a strong first half of 2024. The continued organic growth in our business reflects the resilience of our business model and ramping demand for our environmental solutions as our customers increasingly choose Montrose's portfolio of differentiated solutions to work through complex environmental situations. Looking to the remainder of the year, we are as confident as ever given the evolving regulatory landscape and the growing environmental concerns in our end markets. We are reiterating our full year revenue guidance of $690 million to $740 million and consolidated adjusted EBITDA guidance of $95 million to $100 million. We expect to see significant opportunities for both organic growth and further strategic acquisitions in the coming quarters. With that, I'll hand it over to Alan. Thank you. Thanks, Vijay.