Q3 2020 Montrose Environmental Group Inc Earnings Call
Greetings and welcome to Montrose environmental groups third quarter.
Quarter 2020 earnings call at this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.
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 would now like to turn the conference over to your host Rodny Nacier Investor Relations. Please go ahead.
Thank you operator, and welcome to our third quarter 2020 earnings call. Joining me on the call are VJ men Threepar.
We gotta, our president and Chief Executive Officer, and Alan Dick's 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.
Today's call will include forward looking statements that are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 995 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.
Our SEC filings, including our funnel final prospectus filed with the SEC on July 20, Threerd 2020, 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.
Non-GAAP financial measures today, including adjusted EBITDA adjusted EBITDA margins, 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.
Please see the appendix of the earnings presentation or our earnings release for a discussion of why we believe these non-GAAP.
Centers are useful to investors and the 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.
This is vijay I'm going to provide a few business highlights.
And then I'll hand, it over to Alan for our financial review and then we'll both then open it up for Q and a.
The presentation Rodney you referenced is online along with our press release.
I won't be going page by page I'll speak generally.
Pages four through 10 of the presentation and I also hope to share.
Menu important perspectives with you.
So since our last call in August we've had another strong quarter and our activity with new and existing clients continues to improve our revenue growth, which has been driven by both organic and inorganic growth is progressing nicely and is trending in excess of.
A historical average of 20% to 25% per year.
Our adjusted EBITDA continues to grow faster than revenue as it has historically.
And our EBITDA margin is on track to expand by over several hundred basis points this year and 2020.
As I talked about with many of you in the past I believe this is a strong performer.
Formants is partially because of our unique focus on the attractive and growing environmental industry.
We provide environmental solutions to our clients and communities and we believe those clients and communities are increasingly focused on the environment.
It is not part of what we do the environment is what we do.
And as examples of the types of services that we provide we measure air quality and greenhouse gas emissions, we treat contaminated water and contaminated soil, we convert agricultural waste to renewable and sustainable energy and we help our clients navigate changes to environmental regulations help them.
Fly with environmental regulations and respond to environmental emergencies. So in essence, the environment is our focus.
With regards to the political and regulatory landscape, which is top of mind for many of US given the recent US election. Many of you have asked me about the impact on Montrose.
It's a bit too early.
To discuss specifics until policies and put in place, but I want to make sure I reiterate one of the key themes about our business that we've talked about before.
Our business model by design is resilient.
And it's largely insulated from the political swings at the federal level.
In the U.S. Montrose has done well through Democratic and Republican.
Republican administrations.
And in Australia, and Canada, we've done well through conservative and Liberal administrations.
So regardless of the outcome mantra.
Montrose is well position.
That said, assuming it is president elect biden and assuming he continues with its current emphasis on the environment. There is the possibility.
Early for some upside over the next four years.
And just to make sure there's no ambiguity with what I am saying, we are already delivering on and expect to continue delivering on the strong outlook. We've shared with you in the past.
Any new initiatives from a by the administration are likely to represent incremental growth opportunities for us.
Okay.
As for Cobot, 19, and the economic backdrop, which is also top of mind for for many of you in for US in terms of economic resilience the strength of Montrose. This past performance through various economic cycles speaks for itself and our strong results. This year. Despite the impacts of the pandemic are another example of.
The business resilience its.
It's I think it's important to clarify that with Covance parts of our business have been impacted by the outbreaks quarantines and travel restrictions across many of our geographies, but other parts of our business like the planning and incident recovery arm of CTG H have benefited because of clients' needs related to cover.
So in aggregate because of the diversified nature of our business and that diversification is by design our business continues to perform well.
And we are increasing our expectations for full year 2020.
And I'll I'll summarize our financial results and talk to that more.
More in a few now and we'll certainly delve more into our financials shortly but LTM revenue.
And this is in the presentation is up 28% compared to 2019 that growth was driven by solid organic and inorganic growth and excluding discontinued operations LTM revenue is up.
It's up 30% compared to 2019.
LTM EBITDA is up 66% compared to last year, our EBITDA is being driven by strong revenue growth and continued leverage operating leverage.
And our EBITDA margins remained very strong.
And as Alan and I talked about.
Before.
Our margins are higher than they otherwise would be because of the temporary and defensive nature of our operating approach since the start of the pandemic.
As for our segments. This year revenues increased in all three segments.
Our assessment permitting and response or advisory segments doing very well given the strength of the Cts.
Monetize CH saw demand from the busy hurricane season, and despite the fact that some of their traditional services were slowed by COVID-19. They are also helping many clients plan for and respond to the pandemic so they're doing great.
Our measurement and analysis are testing segment is seeing really nice.
Nice organic growth and margin expansion.
Our Canadian business in particular, those small is doing very well, even though even through the winter months.
Given candidates focused on greenhouse gas measurement and reduction.
Our third segment, our remediation re segment has had some really nice project wins.
They've also.
Seen many of the project delays, we formerly referenced but Alan and I remain bullish on this business and we're investing in that team and.
And infrastructure, because our solutions and our IP in particular is pulling us organically into new geographies like Europe and Australia.
That business and that segment is evolving rapidly and continues to grow organically.
And we expect growth to accelerate on the other side of the pandemic and we're particularly bullish about what the long term outlook for this group looks like.
On organic growth, we continue to track to mid single digits, excluding CCH in high single digits, including CCH.
As a reminder, we calculate or.
Growth by excluding any impact from acquisitions in the prior 12 months.
We would normally exclude CDH until Q2 of next year, but I include them in my summary, because of their size and relative relative impact on Montrose.
Weve often been asked by many of you why or organic growth is progressing as nicely as it is and.
Theres two examples that I'll share about our cross selling initiatives.
Which I think highlight our commercialization strategy and efforts in a constructive way.
The first example, and this is similar to other examples we've shared with you in the past is.
At one of our major industrial clients engaged.
And to help with PFS water treatment EPS at two of their locations here in the us and as they better understood our capacity our capabilities and got to know our team their needs are now global.
This example, illustrates cross selling one of our services across multiple locations for our clients.
As another example, our account management program, which is a key part of our new commercialization strategy has allowed us to transition a client that generated under $50000 in revenue in 2018 to more than $1 million. This year in 2020, and what looks like the opportunity for over two in 2021 and this this example slightly different.
And that this is.
An illustration of.
US providing many of our services to one client.
And so slightly different approaches, but the same general theme and given our base of around 5000 clients. This type of organic penetration of our existing client base is a key focus for us and.
And our commercialization team.
In addition to that our content driven marketing program and I believe content is key given the highly technical and rapidly evolving nature of the environmental industry. Those content programs that really helped us engage our clients and increase awareness of our brand and capabilities and I would encourage you all to look on our website.
And you will find a lot of what our team is talking about in terms of their capabilities there.
And of course as part of that commercialization effort and given we've talked about this in the past the team is making great progress with the implementation of our CRM.
As that gets implemented we expect to further accelerate our commercialization efforts and our growth.
So all those are the reasons why we continue to grow organically and I would say that our consistent organic growth, especially in this current environment speaks to the efficacy of our commercialization strategy and though it's early days I'm really pleased with how the team has come along since they started at the around the middle of last year.
On acquisitions, we more than surpassed our goal for 2020 with the acquisition of CDH.
The integration of that team is going very well as exceptional group of folks looking forward. Our M&A pipeline remains very strong and continues to build we.
We are confident as we have been in our ability to continue delivering 10.
$2 million in acquired EBITDA per year.
At attractive multiples just as we've done every year since we've been at Montrose.
On the cash flow and balance sheet side, and we had another great quarter. We believe we have ample liquidity and flexibility to execute on our plans and Alan will talk more about all of these topics.
Plus or that's just a quick summary of our financial performance today.
And of course, I'm very pleased with our Q3 and year to date results.
But I need to continue emphasizing.
This one critical point, which is that Montrose is performance needs to continue being assessed annually not quarterly.
Alan and I evaluate the business annually due to the stronger predictability of the business on an annual basis. It's also consistent with how we hire how we staff in how we allocate resources and run the business.
Moving on to the operational side, there are a few updates worth, noting and I'm really proud of some of these recent accomplishments.
Of my team.
First with employee safety, our team's focus this year and as part of that the support of the CCH team and helping us respond.
To the COVID-19 pandemic has been stellar.
Second we successfully launched our new ERP and though it is early days all the intense planning and preparation of that team has been really.
Worthwhile.
Third we launched our new R&D Department and they already had some really nice wins and I look forward to sharing more with you on that in the near future.
Fourth our European operations continue to expand despite our not being able to send our us team across the Atlantic.
I'm really happy with our local European.
Leadership and their efforts in helping US launch our pilots and we're excited to share more about that with you in the near future.
Fifth our talent acquisition program, both with operations and business development has helped us recruit some stellar team members into the Montrose family and this is one of the benefits of improved brand awareness, especially now.
Now that we are public and I'm really excited about our new recruits because I believe they are going to be very additive to our strategy and to our continued execution.
And last but definitely not least we published our first SG framework, which is now available on our website and this is something we will continue to expand in.
In addition to our leadership on the E.
The EPS G.
We've made some great progress on the SNG side as well and so as two examples are we lead women's leadership program and our DFE deny or diversity fairness and includes an inclusion initiatives have made some great progress and.
And some of their recommendations have been and continue to be implement.
Rented.
So thats a quick update on the business and I want to end by saying I'm. So proud of my team because they've done all this while many of our colleagues and teammates have had to work remotely and deal with the very real juggle a family demands at home schooling for parents and the challenges with work.
Second life during a pandemic, we recognize how hard its been for so many of our people and I want to thank and acknowledge all of our colleagues around the world who continue to overcome incredible obstacles to help each other and to continue service serving our clients.
We wouldnt be here without them and we remain confident in the outlook for mantra.
Gross because of the caliber of our team.
So to our Montrose colleagues listening today or via recording.
Congratulations to all of you on another great quarter and to all of our investors who.
Who will be talking to are listening on this call. Thank you for your continued support so with that let me hand, it over to Alan Thanks All.
Thanks Vijay.
Our strong performance in the quarter and year to date reflect many of the positive elements that support our high growth resilient environmental solutions business model.
We have produced record revenue and adjusted EBITDA, while expanding our margins in the third quarter and first nine months of the year.
In addition, we further strengthened.
Capacity for growth through the execution of our IPO in July and the repricing of our term loan in October.
Moving to our revenue performance on slide 12 of the deck, we continued to drive strong growth across our business during the quarter to 19 pandemic, our third quarter revenue increased 47%.
$84.7 million.
Okay adds to the prior year quarter.
Year to date revenues were up 32% versus the prior year period.
The primary driver of revenue in both periods was acquisitions, most notably our recent acquisition of CTG age, which has experienced favorable tailwinds given client demand for toxicology and penny.
To make response services. Despite a patch would patch work of covered related project delays due to shelter in place orders and travel restrictions year to date, our business has generated positive organic growth roughly in line with average levels achieved in recent years the.
The ramp in certain work due to covert has largely offset the impact of.
Sunday projects and other areas of our business.
As mentioned on our prior call at the end of the first quarter, we did decide to discontinue certain service lines and completed that process early in the second quarter of Twentytwenty.
The loss of revenues from these discontinued service lines, partially offset our revenue growth ex.
Excluding this continued service line revenue would have increased 60% in the third quarter and 43% in the nine month year over year.
Looking at our adjusted EBITDA performance on Slide 13.
Our third quarter, adjusted EBITDA more than doubled year over year to 16.6.
7 million and adjusted EBITDA margin expanded 570 basis points to 19.7%.
Year to date, adjusted EBITDA increased 75% compared to the prior year period to 36.2 million with adjusted EBITDA margin up 400 basis points to 16 point.
<unk> percent.
Adjusted EBITDA and adjusted EBITDA margin for both periods benefited from higher revenue.
Notable business mix the exit of discontinued service lines and temporary cost containment measures in response to covered.
All of these factors helped drive significant margin improvement, especially since mid year.
Turning to our business segments on slide 14.
The work we do is organized around the questions that our clients on Skus, which in turn constitute the three segments by which we report our financials each.
Each of these segments are synergistic and together represent our vertically integrated approach to delivering solutions to clients.
During the third quarter, we grew.
Grew revenues in all three segments when compared to the prior year quarter.
In our assessment permitting and response segment, we experienced a more than threefold increase in revenue and adjusted EBITDA.
Revenue grew to 26.6 million and adjusted EBITDA improved to 8.2 million. These.
These increases were driven.
By the acquisition of CCH in April of this year.
This acquisition has significantly expanded our product portfolio and our scientific and technical advisory services footprint.
Since April Ctsh has seen an acceleration in demand to provide pandemic response related services.
In our measurement and announced the segment.
Third quarter revenue increased 12% to $39.8 million, primarily driven by organic growth. This was partially offset by the decline in discontinued service line.
The significant adjusted EBITDA margin improved to 28.2% and was attributable to higher revenues and favorable shifts in business mix as.
As well as to temporary cost mitigation measures taken in response to COVID-19.
In our remediation and Ria segment revenues increased 11% year over year to 18.3 million. This.
This growth reflected organic improvement despite some temporary delays in project starts the benefit of acquisitions.
And in this segment was offset by the impact from discontinued service line.
The decline in remediation adjusted EBITDA margin, primarily reflected investment to support significant anticipated growth and geographic expansion within the segment.
Moving to our capital structure on slide 15 cash.
Cash from operations from operating activities.
Of the use of cash of $3.9 million for the first nine months of Twentytwenty cash.
Cash flow naturally had a number of moving pieces related to our initial public offering in July and our first quarter as a public company cash.
Cash flow used in operating activities included non capitalizable IPO related payments totaling 6.8.
$8 million.
Mainly in the third quarter.
In addition, as a result of the strong overall performance of our prior acquisitions year to date the payment of acquisition related earn outs has been in excess of original expectations.
This represented a cash use of 6.4 million.
Excluding this nonrecurring.
During IPO and acquisition related payments cash flow from operating activities was $9.3 million compared to $12.5 million in the prior year.
This decline reflects a net increase in working capital primarily from higher receivables driven by a 15% increase in revenues from the second to third quarters operator.
Operating cash flows.
Also reflect an increase in cash investments in startup activities and system upgrades as well as higher acquisition related costs.
We continue to expect a long term conversion of adjusted EBITDA into operating cash flow at a rate in excess of 50%. This incorporates our expectation that as a growing company we will continue.
I need to be very focused on balancing the generation of cash and investments in mergers and acquisitions technology and R&D.
As of September Thirtyth, Twentytwenty, we had cash of 38.4 million and total debt of 180.8 million our.
Our net leverage ratio at September 30 Twentytwenty.
As reported under our credit facilities was 2.9 times listen.
This includes the impact of contingent earn out consideration of 9.6 million related to estimated CCH earnings in Twentytwenty one.
Excluding this contingent consideration, which may vary due to the environmental emergency response nature of CCH is.
Work, our leverage ratio was 2.7 times and within our longer term target leverage range of 2.5 to 3.5 times.
As a reminder, our series two preferred stock has no maturity date.
And we have the option to redeem the preferred shares at any time for cash subject to a make whole provision.
The first three years, we view this preferred equity instrument as favorable to the value creation potential in the business given its flexible dynamic.
If you include the 182 million balance of the series a to equity and our market cap. Our total equity capitalization stands at approximately $960 million.
Moving to our full year.
And look on slide 16 based.
Based on our performance during the first nine months, we are increasing the full year adjusted EBITDA estimate to a range of $50 million to $55 million, which implies adjusted EBITDA growth of 60% to 76% year over year.
The increase from the bottom end of our prior range of 40.
$87 million to $55 million reflects our strong Q3 results and a continued stream of project wins, particularly in our assessment permitting and response segment gives.
Given this improved EBITDA dollars range, we now anticipate full year adjusted EBITDA margin to be in the range of 16.5% to 17.5% representing.
300 to 400 basis points of improvement on our continued expectation for annual revenue growth in excess of 20% year over year.
Demand for our services remains resilient. So we do continue to experience uncertainty related to the COVID-19 pandemic the impact of winter and the recent surge uncovered 19 case.
Earnings in the U.S. remains a risk that could result in further temporary project start delays. This could push some expected revenue and earnings into next year. However, we believe our updated full year range accounts for reasonable project disruptions and as a result, we are confident in our ability to deliver on 2020 objectives.
As.
As a consideration for Twentytwenty, one our increase in adjusted EBITDA margin for the current year is well ahead of the 100 to 150 basis point average annual margin expansion that we believe to achieve over the next several years. This is mainly due to the temporary cost mitigation measures that we've taken in response to the pandemic, which are not just.
What anabelle, nor part of our long run plan as a growth oriented company as.
As a result, the general adjusted EBITDA margin level that we anticipate for Twentytwenty is likely to serve as a reasonable run rate for Twentytwenty one.
I'll turn the call back to VJ for closing remarks.
Thanks, Alan where again.
The state to deliver strong results for our second public quarter year to date 2020 and over the past 12 months Montrose has done really well in 2020, our outlook is strong and we're creating value.
We believe we have a unique environmental business that is seeing secular long term tailwinds and is proving to be resilient across political and economic.
Adam Excitable.
And that resilience is particularly relevant at this time with COVID-19 and the electoral uncertainty in the us.
I am grateful for our team and our diverse base of approximately 5000 customers.
We have invested in and plan to continue building our portfolio of unique.
Technologies and processes.
And these are allowing us to create differentiation in the market and to continue capturing organic market share.
Our environmental industry remains highly fragmented, which is creating attractive investment consolidation opportunities for us and as we have demonstrated in the past we will continue to successfully identify.
Hi, execute and integrate acquisitions.
Our goal.
And the reason we started Montrose is to become the leading environmental Brent and solutions provider in this very large growing and increasingly visible environmental industry.
We Alan and I and the rest of the Montrose teams sincerely appreciate.
All of your interest in Montrose and in your partnership in helping us achieve that goal.
Operator, we are ready to open the line for questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad a confirmation.
Will indicate your line is in the question queue. You May press star two if he would like to remove your question from Nick You Park for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Keith.
One moment, please while we poll for questions.
Our first question today.
Comes from Jim Ricchiuti with Needham and company.
Hi, Thank you Hello, Vijay I know HM.
Couple of questions I do do I wanted to go back to that case study that you offered that highlights I guess, just how impactful this.
Counties changes to your go to market strategy have been.
So this client that went from I guess, specifically K to a million can you give us some sense as to.
The type of client that was and maybe walk us through.
Is this a case where you.
One client manager account manager, that's then bringing in the full complement of folks that can offer their expertise.
Yeah, Jim Let me take that show, we [noise], it's a great.
Question and it's <unk>, there's been it's.
Multifaceted set of answers and so let me let me try to touch on some of the key themes I think let me start and you know this Jim but just to reiterate.
Our acquisition strategy.
Is about revenue synergy right, we've talked about this before we.
We think by by virtue of how fragmented this industry is the value.
Is in putting the pieces together so that the answers are simpler and more accessible for our clients and so Montrose has and will continue to be a revenue synergy play and so this specific case study.
Is yet. Another example of this right on the road show as part of the IPO, Jim We talked about other examples just like this and as I said earlier.
And more and more of these incidents are now is going to start popping up as we formalize our approach right. Our historical growth Didnt really have formal sales and marketing and now.
We have that.
And so this is a this is an example of a of a client that came with an.
Acquisition that we made back in 2018.
It's an industrial large industrial client.
And the client lead.
At.
For this client who now got trained in our way of doing account management.
Had a broader portfolio. So this is an individual.
All that was providing one service to this client and that obviously continues but as he became part of the Montrose family He learned about or other capabilities and offered those potential solutions to this client and the client said gosh I needs a lot of these and so.
Whether it's.
Help.
You are permitting.
Whether its help with compliance and regulatory review, whether its help with water treatment.
Our remediation. They said look we need this to be coordinated and we'd like to have more of it and so.
That's exactly right right. This was somebody that Ed hadn't done this before.
Im had the relationship and then pull the broader Montrose portfolio to meet the needs of the client and we're going to hopefully see more and more of that as we begin to formalize our commercial excuse me our commercialization efforts does that answer your question Jim It does I mean, it's it's compelling.
The other question I had is just with respect to since were again.
Taking the question just with the potential with Biden.
Administration, apparently coming in.
Can you talk a little bit about where you might see some incremental opportunities which areas of the business.
I knew you would ask me, Jim which is why I tried to.
To say, it's going to be really hard to talk about specifics, but you cornered me Nonetheless.
No look I you know, it's interesting we need a president elect biden.
Has kind of laid out at least from what we've seen through our advisors four priorities.
And interestingly for the first time for a presidential candidate.
Climate change environmental issues made it onto the top four list right. So addressing the cobot pandemic job creation racial justice and the quality.
And climate change were kind of the four that we've seen listed out.
And so as we think about what that means and.
And again, the Devil is going to be in the details it seems to us that it's.
In both expect that if environmental priorities are that high on the agenda.
That those exact types of priorities and opportunities will create tailwinds from Montrose.
And so we don't know what those are going to be.
So this is pure speculation, but as we think about an emphasis on greenhouse gas measurement and may.
Relation for example, right Thats an area, where we're strong and we expect to continue to benefit right. As we think about the continued push.
As a policy priority and this is really a and these are broad bipartisan efforts, which is important from our perspective.
The shift to renewable energies right, we've talked about parts of that before.
To get you Jim that benefits us as we think about access to clean water across many of the communities, especially the disadvantaged communities.
We think that creates some potential tailwinds and that could benefit us and so it's very hard to know exactly which pieces will fall and how they'll fall, particularly because the Senate.
Are we going to play a big part of that and it's it's candidly why right were largely insulated in either direction, depending on what happens at the federal level, but should there be bi partisan consensus around some of these topics.
Then we think that thats going to create some incremental tailwinds from Entresto is that does that make sense.
It does thanks.
Thank you I'll jump back.
His MCU. Thank you.
And our next question comes from Tim Mulrooney with William Blair.
Good afternoon.
Hey, Tim.
Hey, just a couple of questions from me actually.
Sorry, Jim took a couple of mine so.
On the remediation reuse VJ I think last quarter. It seemed like maybe there were some delays in the billing cycle as a result of COVID-19, how how's the billing cycle look right now and have there been any further delays as a result.
Yes.
Okay surge.
It's it.
Our teams optimism continues to increase at Tim.
Tim So we.
The no no further or major delays relative to our prior conversation with you part of what we have to manage through and this is more impact.
Apple for that segment more than others is because.
We have more international operations there.
As Covidien outbreaks continue in the northern hemisphere that impacts kind of our ability to move assets and resources around and so.
That's why you hear some reticence on our part in terms of being able to talk.
Talk about exactly when thats going accelerate but as we talk to our teams and our leadership in that area. There's nothing else has really gotten pushed but there.
They are cautious about when the floodgates open but they remain very bullish about what the long term prospects look like and so.
As we think about when we really would see.
So some of that pressure easing my guess would be kind of once we get through the winter months and the cobot outbreaks of call. It.
End of Q1 early Q2 of next year, but nothing has nothing major is really shifted compared to our conversation last quarter Tim.
Okay. That's helpful that was kind of our expectation going into it but I'd.
I appreciate the update nonetheless.
Shifting gears to M&A VJ, you mentioned before that the pipeline remains robust and really the main limiting factor with caution around capital allocation heading into what proved.
I'll be very intense couple of COVID-19 months here.
Can you update us on what your thoughts are around M&A right now and just maybe more broadly your capital allocation priorities in general.
Yeah. So look are generally speaking and again. This is I'm speaking in generalities are forgive me, Tim but our primary focus is on organic growth and so.
The commentary I had earlier around commercialization cross selling.
Working with our existing embedded client base of over 5000 customers those that.
R&D that we continue to invest in we think has some real exciting potential those are all examples of investments on.
The organic growth side Tim.
I think that's important for many reasons it it shows our clients that we're worried about the same things they are and we're creating differentiated solutions for them and it allows us candidly to provide answers that others cannot.
So that's going to continue and so we'll talk more about that on.
End of your update and we'll talk about what some of those investments, meaning could mean and what they look like and so that has been a priority and that'll continue to be one of our top priorities on the M&A side I.
I think our commitment to you guys was to do 10 plus million dollars of acquired EBITDA next year and so.
We normally would have.
Started those engines, a little earlier, but because of the cobot pandemic, we've been more cautious and I'll just to kind of.
Restate, what you mentioned, Tim you should expect us to really begin to to hit stride in Q1 of next year.
Our at the commitment we made to you guys is that we expect.
You should expect to see us do something around Q1.
And then we'll kind of continue a modest tempo thereafter, and the reason for that is we don't want to.
Take any large bets, so you'll see us kind of with some small incremental.
Tuck on tuck ins and bolt ons.
So if we're going to do 10 that.
$1 million to $3 million of EBITDA. Each that gives you a sense for what kind of pace will want to pursue over four quarters next year.
It makes sense. Thank you for the update take care.
Thanks, Tim Thanks.
Our next question comes from Andrew Obin with Bank of America.
Hi, yes, good afternoon.
Hey, Andrew.
Wow.
Great quarter guys.
Yeah.
Couple of questions for me. So just want to make sure you guys did say that the organic growth in the quarter was sort of in line with historical average.
So we should assume that.
No sort of pull forwards or anything.
For the quarter the problem on next quarter right.
Yes, yes, that's right.
What we said was year to date organic is roughly in line with.
Historic performance.
Hi, Andrew.
We expect Q4.
For the full year at least will be kind of on track for the same sales.
Same results Ken.
I I know sort of.
The thing on Covance, but look how much project activity for remediation reuse from the quarter.
Specifically, where European pilot project still on.
Digital due to travel restrictions.
And just to go with the theme you did say that everything is on plan, but are you starting to see an impact through these projects with the second Europe covert wave so I.
I think sort of remediation and reuse came a little lighter than we expected. So just.
Yes, a better sense of what's happening here. Thanks, so much.
Yeah, Andrew is a great question. So we certainly saw Europe come out of the gates, a little slower because of what happened early this year.
We are still not able to get our folks there.
But our teams there are getting those projects up and running right.
One and so things are just going slower than they would otherwise, but we havent seen a stoppage if that if that makes sense. So for as an example.
We were dealing with some water issues there the data is coming in.
Well, we have to kind of wait to see where it all shakes out but normally when.
The.
Circumstances on the ground change, we would've been able to send some of our experts from the U.S. that has seen some of these issues before to support our team in the US we couldn't do that and so obviously, we're trying to do as much as we can electronically, but our team there is operating on the ground on their own.
And so thats really the.
And the rate limiting factor, but no we have not lost anything and we haven't seen any slowdowns that are more than what we've already seen today.
Thanks, so much.
I think there are any further questions. Please press star.
Turning to wine to join our queue at this time.
Our next question is a follow up from Jim Ricchiuti with Needham and company.
Yes, I was wondering if if theres any way for you to maybe characterize the the emergency response business in the quarter from seat.
Ph.
Yes. This maybe a question we just keep asking just because that business can be so variable.
Yes.
So they did so Jim if you if you just to kind of step back and Alan should certainly jump into this right. We've talked about that business being kind of a $60 million to $70 million business a year run rate.
So right call it $15 million to $18 million of revenue a quarter and when you look at Q2 and Q3. They did around 37. So they are at the high end of that range.
Jim.
So that gives you a sense for how the rest of the business did and part of the reason candidly that we provide you with the LTM numbers is because right.
Quarter on quarter variance can be so hard if you look at it kind of on a sequential basis.
Over a similar period, you get to see kind of what the core business ecstasy th is doing.
And so does that does that give you a sense for yes. It does CJ no that's helpful and Alan a quick question for you guys.
I'm wondering if there's any color you can give us on.
How we should be thinking about expense going forward, just given yes, definitely you're making what you're seeing in the business.
Yes, well look we're going to be cautious Jim.
I mentioned in my prepared remarks for.
And as we go into winter and has been the huge surge in cases provides a lot of uncertainty. So we're.
We're not going to change in the fourth quarter or any of the significant.
Our cost mitigation.
Efforts, we put in place, we do need to reverse those.
So it's something to keep in mind as we go into.
The two 2020, one as to what the right timing is.
But we're going to be very measured.
In adding to the kind of the fixed cost base.
And.
As a commitment to you guys is as a percentage of revenue that corporate cost over time, we'll continue.
So come down and you've certainly seen that you.
You saw that in Q3.
And over time, we'll see that continue.
So.
The way to think about 21 is maybe some of these temporary.
Measures being layered on gradually.
To me in the early part of the year is that the way to think Brian Yes, yes, but the what we need to try to do is time, putting those costs back in with the reversal of some of the project delays.
Corporate.
Reside so that's what we will.
Try to balance out so that overall margins again or kind of.
Well with where they are this year.
Terrific. Thank you congratulations on the quarter. Thank.
Thank you Jim.
Our next question comes from Noelle Dilts with Stifel.
Hi, Noelle.
Hey, guys and again congrats on a good quarter.
Thanks.
Two questions from me I'm sorry.
A couple questions from me first just on on Alan I. Appreciate your high level guidance on how to think about margins into 2021 any chance you could give us a sense of how you are thinking this segment's a little town Directionally because I think you know in some cases, you're seeing a little bit.
A bit at the benefit from co better than other people, it's somewhat about somewhat of a drag.
Yeah, It's a great question around one that's tough to answer it really depends.
On how quickly the vaccine is widely available and distributed.
What that uptake is our.
If that.
Through the end of the second quarter.
We're going to see very similar front half the as the back half of this year from a covert impact both positive and negative.
And in the back half of the year, we do expect.
Remediation and reuse we will start to see some acceleration.
Take care.
But some of the growth that we've seen in management and now and now segment has been pretty.
Pretty pretty incredible this year, we'll start to see that moderate somewhat.
But but no no major change.
In overall growth rates across the different segments.
You'll see as Weve said.
The the measurement enough the segment as a percentage of revenue will start to come down I was a little over 50%.
In the third quarter that should trend down to 40 and overtime to be about a third of the portfolio and the other two segments.
Will be the other two.
In the third.
So you'll see that that might take a couple of years to fully achieve.
And that trend, we think in the back half of next year will begin.
Perfect. That's helpful. And then second you know I recognized that you also.
Definitely and nascent market.
As it relates to keep absenteeism.
And the opportunity for <unk>, but any thoughts on how a biden covenant see my.
Change, how you're thinking about the council for you know thought at all on the Isle levels, and what button <unk> or the opportunity.
Noelle this is VJ I'll.
Hey, we think the odds of a federal standard are probably higher now than they were perhaps a year ago.
But again, we're speculating right. So we we could be wrong on that but should federal standards come into place. We certainly think that will help accelerate.
Right or the opportunity set in the market, but I think on a prior call. We told you we would expect in an either administrations have seen more activity and a pickup in the U.S. market in kind of late 21 early 22, I still think Thats the case.
And I would characterize a biden administration as creating so.
Incremental tailwinds to that momentum.
Momentum right so.
We think the opportunity set maybe clear and bigger because once this federal standards kind of folks can start to work towards them, but you know we've seen activity continue at the state level right domestic chooses for example, just put in place MC Elds, we talked about.
New.
New Jersey last time.
Im right, we talked a Michigan, we're seeing more activity in other states like North Carolina. So we still think there is a fair amount of state level activity.
And the federal government is certainly continuing to do a fair amount of testing and exploration, but what we think once this federal M.C. elds the momentum will certainly pick up quite.
Surely.
And we think the odds are that are higher now than they were before.
Perfect. Thanks very helpful.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to VJ mantra Pragada for closing remarks.
Great. Thank you all we really appreciate the time stay safe B, well and we look forward to talking to all of you soon take care.
This concludes Tonight's conference you may disconnect your lines at this time. Thank you for your participation.
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