Montrose Environmental Group, Inc.

Good day, and welcome to the Montrose Environmental Group's 4Q24 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist 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. I would now like to turn the conference over to Adrienne Griffin, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Thank you, and welcome to our fourth quarter and full year 2024 earnings call. Joining me on the call are Vijay Mansur-Bhagata, our President and Chief Executive Officer, and Alan 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 today's call will include forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to known and unknown risks and uncertainties that should be considered when 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, 2024, which identify the principal risks and uncertainties that could affect any forward-looking statements and our 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, such as 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 the 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.

Thank you, Adrienne, and welcome to everyone joining us today. I will start with an update on our business, provide 2025 guidance, and then speak generally about the fourth quarter and full year earnings presentation shared on our website. Alan will provide the financial highlights, and following our prepared remarks, we will host a question and answer session. Before I begin, I'd like to acknowledge the exceptional work of our approximately 3,500 colleagues around the world who delivered another year of record performance. Their dedication to leading environmental science and technology has furthered our mission of helping to protect the air we breathe, the water we drink, and the soil that feeds us. Montrose continues to demonstrate that we can promote environmental stewardship, promote human development, and create shareholder value. As we discuss our results today, I want to remind everyone that our business is best evaluated on an annual basis since demand for environmental solutions does not follow consistent quarterly patterns. This is how we manage our operations and how we recommend viewing our performance. So with that, I'm extremely pleased to report that 2024 was another exceptional year for Montrose. We delivered 2024 revenue of $696.4 million and consolidated adjusted EBITDA of $95.8 million, both record highs, demonstrating the strength of our integrated environmental platform. Our revenue has grown at a 24% CAGR since 2019, significantly outperforming the industry's growth during this period. Consolidated adjusted EBITDA margin increased as planned achieving a robust expansion of 120 basis points to 13.8% for the year, driven by improved operating leverage across all of our segments. We were also pleased by the continued progress of Matrix in Canada. As you may recall, Matrix joined us in June 2023 at low single digit EBITDA margins, and 18 months later, they exited the fourth quarter at an annualized run rate in the mid to high teen EBITDA margins. This impressive result is one example of many of our acquisition and integration successes. Our strong 2024 performance was driven by robust organic revenue growth of 8.3%. Our organic growth performance hinges on our continued customer retention and cross-selling successes which highlight the power of our integrated strategy and our focus on innovation. Cross-selling improved to 53% of our 2024 revenue, up from 51% in the prior year. We also recorded our third consecutive year with a 96% revenue retention rate, demonstrating the stability of our customer base. This strong organic performance occurred despite significant macro-level changes in our industry mainly in the United States, further demonstrating the resilience of our business model and the benefit of a diversified private sector client base. In addition, approximately 20% of our revenue originated from Canada, Australia, and Europe, which continue to perform very well in aggregate and in each geography. This marks a significant increase from only 4% international revenue in 2021. We expect continued positive momentum, particularly in Canada, under a potential Poiliev administration. Our treatment technology services are growing nicely in the EU, and demand for our treatment technology services in Australia has increased significantly, including our recent project award with Sydney Water. Given many investor questions about the political landscape in the current U.S. administration, we remain confident in our ability to perform over the next four years and beyond. As we've demonstrated with our historical track record, we've been able to significantly expand and grow our business during each of the Obama, Trump, and Biden administrations. Our business model is designed to be largely insulated from political swings at the federal level. We expect this trend to hold going forward, and we believe the new Trump administration will create more tailwinds than headwinds. The administration's focus on cost efficiency, US manufacturing, and domestic energy production fit nicely with our current business mix and business strategy. Independent of that, our strong private sector focus, our limited exposure to any one end market, and the higher relative influence of state regulations on our customer activity enable us to thrive despite federal political changes. For example, 28 states have developed and enforced PFAS regulations independent of federal oversight, which continues to drive demand for our treatment technologies in the US. As a second example, methane emission monitoring services accounted for approximately 3% of our 2024 revenue, with about two-thirds of these activities originating from nine states that have established their own methane emissions regulations independent of federal rules. Specifically, states like Texas, Vermont, Pennsylvania, Ohio, North Dakota, Montana, Utah, Colorado, and California have all implemented state-level methane monitoring requirements independent of federal policy changes. These state-level regulatory frameworks provide stability and predictability for our clients and therefore our business. I would note that our acquisition activity also aligns with states that take an independent and proactive approach to environmental stewardship for all. While PFAS and greenhouse gases are getting most of the attention from Wall Street, I want to highlight that approximately 85% of our business is anchored on other contaminants that have a longer regulated history and continued bipartisan support. We believe, and we're seeing this in the marketplace, that our vertically integrated business model, enhanced by our portfolio of 24 patents and proprietary technologies, will continue to differentiate Montrose. We recently helped a major US energy client address their environmental challenges by leveraging multiple service lines, starting with our advisory services for initial assessments, then utilizing our laboratories for testing, and ultimately implementing our treatment solutions to deliver a solution that would otherwise have required multiple vendors. Our ability to provide this type of integrated environmental solution positions us to help our clients navigate an increasingly complex regulatory landscape. In addition to revenue and EBITDA performance, we were also pleased with the strength of our balance sheet at year end. Our leverage ratio reduced to 2.1 times, and we have more than ample liquidity to execute on our plans for this year, which Alan will expand upon shortly. As noted last year, our goal in 2025 is to simplify our balance sheet through the redemption of our preferred stock, with $60 million planned for redemption this April and the remaining $62 million expected before the end of 2025. As we've highlighted previously, this redemption will be funded through a combination of cash and borrowings under our new credit facility, which Alan will expand upon shortly. While we are temporarily deemphasizing M&A to prioritize balance sheet optimization, acquisitions remain a key part of our long-term strategy, our growth algorithm, and our investment thesis. We will continue prudently managing leverage while deploying capital and driving shareholder value. I would now like to highlight recent shareholder-focused actions that underscore our commitment to shareholder engagement and feedback. In the near term, we are focused on simplifying our financials to better demonstrate the organic growth and earnings power of our underlying business. As part of this effort, the executive team voluntarily canceled all outstanding executive stock appreciation rights or SARs with no commensurate replacement compensation. This eliminates approximately $10 million in non-cash expenses from our P&L annually in 2025 and 2026. For 2025, we also modified our executive compensation structure, removing M&A incentives from my, Alan's, and our general counsel's short-term incentive program and tying executive compensation more closely to progress against key strategic efforts in addition to EBITDA targets. We also continue to add talent to our board of directors and recently added Vin Coleman, as an independent director and member of our audit committee. We welcome Vin to Montrose and I am confident his expertise will be invaluable to our future. We are also considering additional industry experts for future board positions. Finally, following the events of last year, our audit committee engaged an independent legal and an independent accounting firm in connection with its review of the assertions made in a short report regarding Montrose. We are pleased to announce that the independent third-party reports provided to the Audit Committee did not identify any material issues, including with respect to intentional manipulation, misconduct, or management's integrity as alleged. Based on this review, the company determined that no amendment or restatement of historical SEC filings and previously issued financial statements was needed, nor is there any basis to make substantive changes to our disclosures or financial reporting. In summary, regarding 2024, I'm extremely proud of our team and all that they have accomplished, and I'm proud Montrose delivered another year of record results in 2024. Our integrated business model and our technology capabilities continue to differentiate us, and our ability to provide high quality environmental science and technology continues to resonate with our clients across our markets. As it relates to 2025, the outlook for our business is strong. We are introducing guidance of $735 million to $785 million in revenue, and 101 million to 108 million in consolidated adjusted EBITDA. This guidance assumes no impact from future acquisitions, and it reflects our confidence in driving organic revenue growth and concurrently improving margins, as we have been doing, which Alan will expand upon shortly. The near-term simplification of our capital structure and temporary pause in acquisitions will allow the organic growth and cash generation power of the business to shine. We reiterate 7 to 9% expected annual organic growth and 50% plus cash flow conversion. The powerful combination of our proven growth algorithm of strong organic growth driven by cross-selling success and strong customer retention, plus our successful integration of recent acquisitions, In addition to our increased margins and operating efficiency, our balance sheet and cash flow strength, and our innovation success developing patented technologies, all continue to validate the strategic advantages of our business model and position us well to continue creating value for our stakeholders and shareholders as we advance our mission. Thank you for your continued interest in Montrose. And with that, I will hand it over to Alan. Thank you very much.