Q4 2020 Montrose Environmental Group Inc Earnings Call
[music].
Greetings and welcome to Montrose, Environmental Group, Inc, fourth quarter and full year 2020 conference 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 Rodney Nokia Investor Relations.
Thank you Omar welcome to our fourth quarter and full year 2020 earnings call. Joining me on the call are V. Jay Matt <unk>, our President and Chief Executive Officer, and Allen Dicks, 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'd like to remind everyone that today's call will include forward looking statements that are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 actual results may differ in a material way due to known and unknown risks and uncertainties that should be considered in evaluating our operating performance and financial outlook.
We refer you to our recent SEC filings, including our final prospectus filed with the SEC on July 23, 2020, which identify the principal risks and uncertainties that could affect any forward looking statements as well as future performance. We assume no we assume no obligation to update any forward looking statements.
In addition, we will be discussing on or providing certain non-GAAP financial measures today, including adjusted EBITDA and 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 see the appendix to the earnings presentations or out our URL.
<unk> released for a discussion of why we believe these non-GAAP measures are useful to investors and a reconciliation thereof to their most of the <unk>.
Comparable GAAP measure.
With that I would now like to turn the call over to Vijay beginning on slide number four.
Thank you Rodney and welcome to all of you joining us today.
For those of you that have the presentation I will speak generally to pages four through 11 to highlight.
He themes, which effectively show that since our Q3 earnings call on November Montrose continues to do really well and that we ended 2020 on a high note.
But before I speak to the presentation I want to take this opportunity to acknowledge and thank our mantra colleagues around the world to whom these results belong.
2020 presented some incredible challenges and equally compelling opportunities and the collaboration I saw amongst our teams the dedication they show to our clients and the support we were able to provide to our communities are foundational to these terrific results.
And the continued creation of shareholder value.
So to all of you for Montrose listening today on behalf of all of US. Thank you.
So in terms of the presentation I'm going to focus my comments on a on a few themes.
First the exceptional position of our business within the broader environmental industry.
Secondly, the strength of our performance in 2020.
Third the exciting catalysts and operational investments that drove and continued to drive results for our business and lastly, our outlook for continued success in 2021 following that I'll hand, the call over to Alan <unk>, Our CFO for our financial review and will both then open it up for Q&A.
On the first theme on the unique position of our business and for those of you newer to the mantra story.
Our business is the environment.
And as our mission.
Is to help protect the air we breathe the water, we drink and the soil that feeds us.
What that means to us is that our earnings and our revenue come from helping our clients help the environment.
So as examples of the work that we do we measure and help improve air quality and measure and help reduce greenhouse gas emissions.
We treat contaminated water or soil for our communities and clients.
We convert waste to negative carbon intensity energy, which we believe.
As part of helping our commodity is get to net zero.
We help our clients navigate changes to environmental regulations, we help them comply with those regulations.
And we help them respond to environmental emergencies created for example by climate change.
Each of the services and service examples I mentioned is both mission forward.
And represents a great opportunity to create value given the global push for better environmental stewardship.
Our mantra is uniquely positioned because of how we have and how we continue to put these services together and integrate them.
Which is why even through the pandemic, our footprint continued to grow and expand and we expect quality growth to continue into the foreseeable future.
As you can see on page four we now have over 2000 employees in the U S, Canada, Australia and as of the past few months employees in the EU, we're finding that the need for environmental solutions and innovation is global.
On the second theme as it relates to the strength of our performance. What we saw in 2020 was that our revenue remains sticky and resilient through economic cycles as it has on the past.
Our work is mostly non discretionary and.
And certainly helped the strong organic growth and repeat revenue in 2020, which we've highlighted for you on slide eight.
And we're benefiting from private sector focus on improved environmental stewardship.
In addition in 2020 in each of our geographies, we saw and continue to see increased levels of environmental regulations, which we believe will drive our industry and our business here in the U S. We expect that many of the priorities of the by the administration will support Montrose as growth into the foreseeable future.
And the other key reason for our strong performance in 2000, Twenty's, because our business has been purposefully curated and diversified to increase resiliency across various political and economic cycles.
And what as I've mentioned to you before remains a very large growing and highly fragmented environmental industry.
As an illustration of that in 2020, our top customer was new.
And from a new industry, the technology media and telecom industry and.
And consistent with our past no single industry represented more than 17% of revenue and no customer accounted for more than 7% of revenue in 2012.
We serve that largest customer through 'twenty separate projects, which further diversifies our risk across our portfolio.
So with that framework on slides five and six in terms of financial results 2020 was another very strong year for Montrose.
Excluding services, we discontinued at the start of 2020 year on year revenue grew 51% adjusted.
EBITDA grew 74% and that was driven by growth mix and margin expansion.
Including C T H, our environmental response team, we delivered 17% combined organic growth and excluding C. T. H organic growth was 4% and this is despite the industry having contracted by 2%. According to third party research were also particularly pleased that over 90% of our revenue from clients in 19.
In 2020.
There were several 'twenty 'twenty dynamics impacting these results that either converged with or diverged from our historical trends many of which not surprisingly were due to COVID-19.
Our colleagues and our C th business, who specialize in helping companies response environmental emergencies caused by for example climate change and aging infrastructure.
An increase in Covid related support for our clients and although pandemic response is not core to our offering it wasn't part of our expectations for 2020 in Q1.
Given our response capabilities, our clients requesting our services and we were able to meet their request and demand.
Coupled with climate change driven events like floods and Hurricanes last year demand for our CCH response team has been higher than expected and contributed to our strong performance in 2020.
On the other hand, our remediation of water practices saw projects delayed in 2020 due to COVID-19 travel restrictions closures and other factors for example.
We've seen a nice uptick starting early this year and we continue to be very optimistic about the long term outlook for those services and we continue to invest in them.
And finally, though COVID-19 didn't really impact demand for our testing services and by that I mean, our business saw sustained demand and performed really well margins were higher than what we would consider a run rate given our defensive posture with variable labor on SG&A at the start of the pandemic.
So as I talk through those factors. It's the net effect of these puts and takes that is important as we think about the business post COVID-19, but in the aggregate. They contributed positively to mantras to strong performance in 2020, which speaks again to our unique and diversified environmental portfolio.
In addition to those exogenous factors that play that impacted our business and our clients in 2020, there were operational factors worth highlighting as well.
I mentioned these because it is important to note that we're still early in the evolution of Montrose and we continue to invest in our team and our technology because ultimately our work is rooted in applied science in that vein. The first highlight is that it made the innovation remains a focus for us.
And in 2020, we launched a new R&D Department and they've made great progress Montrose was awarded another patent in February related to concentrating wastes like <unk> in a way that facilitates destruction.
And we have a few more patents that have been filed and are under review.
We see great long term opportunities to continue to allocate capital and additive ways and we believe these investments will position us well for strong growth in the future.
Another key operational highlight was around recruitment and retention of top talent. Both were strong in 2020 on of all the factors at play I continue to be most excited about the caliber of our team, which I believe.
Is a differentiator for us.
And lastly, our progress on the ESG front continued nicely yes.
ESG is a function of our business and culture and it is inherent in what we do on how we do it.
We will be publishing our second reported in the coming months and we have continued to make good progress, especially in the areas of social and governance excellence as articulated on slide 11.
Given the importance of ESG for us and for many of our investors.
I will note that our nominating and governance committee of the Board works closely with me and formally oversees our ESG efforts and disclosures.
Our board members are already from diverse backgrounds, and ages and you'll see that in our proxy that will be filed shortly and our board is focused on continuing to increase diversity by for example, focusing on recruiting more women in the future.
We created a diversity fairness and inclusion task force working directly with me to ensure we always consider how our policies words and actions are perceived by all within our team.
And of our five named executive officers three are from diverse racial and ethnic backgrounds.
We launched our we lead program to promote female leadership and we established internal audit processes to ensure full pay parity between men and women.
And last but definitely not least we continued with safety excellence, which became even more critical during the pandemic employee safety remains a key focus for us and we are grateful to be recognized for our efforts and awarded by the U S National Safety Council in 2020.
And we certainly look forward to updating all of you as we continue to make progress on each of these initiatives in the coming quarters and years.
And then finally, the last thing in terms of our outlook for 2021, we remain very optimistic and excited about the opportunities ahead, and we are introducing 2021 guidance, which Alan will expand upon shortly just.
Just to give you a little color in terms of what informed our outlook and guidance organically, we expect the business to grow in the mid to high single digits. In 2021, we expect the impact of Covid to subside in the back half of this year, but even with Covid customer demand remained strong and 2021 is already off to a very strong start.
As we look forward, we believe that in addition to the private sector demand increasing the regulatory landscape is evolving in ways that will benefit mantra over the long term it certainly this year.
Whether it is an increased emphasis on greenhouse gases and methane heavier regulations around P pause forever chemicals, better preparedness and response to climate change and increased emphasis on reduce carbon intensity and net zero or simply infrastructure investment and consistent enforcement of existing regulations without needing anything new.
Across our various geographies each of these factors is expected to benefit Montrose, especially with organic growth this year and over the long run and we.
Put some of that fourth on slide 10.
The second key consideration regarding our outlook is that our M&A pipeline remains strong we.
We acquired MSC in Q1, and we expect to announce on execute additional deals in Q2 in the coming quarters, we expect 'twenty 2021 to be similar to our historical cadence of over $10 million on acquired annualized EBITDA per year.
And finally as I've said before this is an important point that is just as applicable to 2021.
Our mantra is performance needs to be assessed annually because of the nature of the environmental environmental industry.
And the services that we provide is just consistent with how our team hires staffs and allocates resources and runs the company.
And so just as we did in 2020, we will be clear with you.
With how we're tracking with our annual plan as the quarters unfold.
So in summary, 2020 was a milestone year for us and I want to end, where I started by thanking and acknowledging all of our colleagues around the world who continue to overcome incredible obstacles to help each other and serve our clients.
Caliber of our team and our spirit of teamwork drive success more than anything and again to the mantras team listening congrats to all of you on the terrific year to our investors. Thank you for your trust in US and your continued support it's a unique privilege to be part of a successful business that both creates value and jobs and use the science to help our environment.
Montrose delivered great shareholder value in 2020, and we couldnt be more excited about our prospects for 2021.
So with that let me hand, it over to al. Thank you all.
Thanks P J.
We are extremely pleased to have delivered solid fourth quarter and full year 2020 results as we completed our inaugural year as a public company.
Our strong performance reflects the resiliency of our entire team the focused execution of our growth strategy and the in demand nature of our environmental solutions.
We produced record 2020 revenue and adjusted EBITDA, while expanding our margins in both the fourth quarter and full year.
Moving to our fourth quarter performance on Slide 13, we continue to drive strong growth across our business during the COVID-19 pandemic.
Our fourth quarter revenue increased 60% to $108 7 million compared to the prior year quarter revenue growth was primarily driven by organic growth in our measurement and analysis segment and the acquisition of <unk> in April 2020, which has experienced favorable tailwind given the client demand for toxicology and pandemic response services.
The Ram consistent work due to Covid has largely offset the impact of delayed projects in other areas of our business, particularly in the second half of the year.
As we've mentioned on prior calls at the end of the first quarter of 2020, primarily in response to the COVID-19 outbreak. We did decide to discontinue certain service lines. We've completed that process early in the second quarter the.
Lots of revenues from these discontinued service lines, partially offset our revenue growth.
Excluding revenue from discontinued service line revenue increased 67% in the fourth quarter.
Fourth quarter, adjusted EBITDA grew 74% to $18 3 million and adjusted EBITDA margin expanded by 130 basis points to 16, 8%.
This improvement was primarily driven by higher revenues and favorable business mix.
Now turning to our full year 2020 performance on slide 14.
Full year 2020 revenues were up 40% to $328 2 million versus $233 9 million in 2019.
Excluding revenue from discontinued service lines revenues increased 51% in 2020. The primary driver of this increase was the acquisitions, most notably our acquisition of CCH as well as organic growth.
Organic growth was achieved despite a patchwork of Covid related project delays due to the shelter in place orders and travel restrictions throughout 2020.
Full year 2020, adjusted EBITDA increased 74% compared to the prior year to $54 5 million.
With adjusted EBITDA margin of 320 basis points to 16, 6% adjusted.
Adjusted EBITDA and adjusted EBITDA margin in 2020 benefited from higher revenue favorable business mix. The exited discontinued service lines and temporary cost containment measures taken in response to COVID-19.
Looking at our three business segments. Each of these segments, so synergistic and together represent a vertically integrated approach to delivering solutions to clients during.
During 2020, we grew revenues in all three segments when compared to 2019.
In our assessment permitting in response segment, we experienced a more than four fold increase in revenue and we more than tripled segment adjusted EBITDA.
Revenue grew to $98 $5 million on adjusted EBITDA improved to $24 2 million. These.
These increases were driven by organic growth as well as the acquisition of <unk> in April of 2020. Since April Th has also seen an acceleration in demand to provide pandemic response related services.
And our measurement and analysis segment.
2020 revenue increased 12% to $151 6 million, primarily attributable to organic growth and acquisitions.
A significant adjusted EBITDA margin improvement to 26% was attributable to higher revenues and favorable shifts in business mix as well as the temporary cost mitigation initiatives taken in response to COVID-19.
Finally in our remediation and reuse segment revenues increased year over year to $78 2 million, reflecting organic improvement and the contribution of acquisitions the benefit of acquisitions. In this segment was more than offset by the impact from discontinued service lines.
Decline in remediation, we use adjusted EBITDA margin, primarily reflects investments to support significant anticipated growth and geographic expansion within this segment.
Moving to our capital structure on slide 15.
Cash from operating activities was $1 9 million for the full year 2020.
As a reminder, cash flow naturally has a number of moving pieces related to our initial public offering in July a secondary offering in November in our first year as a public company.
Cash flow from operating activities included non capitalized low IPO and secondary offering related payments totaling $7 7 million.
In addition, as a result of the strong overall performance of our prior acquisitions 2020 operating cash flow includes the payment of acquisition related earn outs of $6 4 million.
Excluding these nonrecurring IPO and acquisition related payments cash flow from operating activities decreased by $1 8 million compared to 2019.
This decline reflects a net increase in working capital driven by significant fourth quarter revenue growth in our assessment permitting in response segment as well as an increase in interest paid as a result of higher interest rates on a unit tranche credit facility, we expect working.
Working capital to normalize in the first half of 2020 one given the revenue Spike in December of 2020, and expect to refinance our credit facilities to lower interest rates in the second quarter of 2021.
We continue to expect a long term conversion of adjusted EBITDA into operating cash flow at a rate in excess of 50%.
Incorporates our expectation that as a growing company. We will continue to be very focused on balancing the generation of cash and investments to integrate acquisitions investments in technology and in R&D.
As of December 31, 2020, we had cash of $34 4 million and total debt of $175 9 million on <unk>.
Net leverage ratio at December 31, 2020 as reported under our credit facilities was two seven times. This includes the impact of contingent earn out consideration of $4 4 million related to estimated CCH earnings in 2021.
Excluding this contingent consideration, which may vary due to the environmental emergency response nature of CCH is work on leverage ratio was two six times and within our longer term target leverage range of between two five and three five times.
Our series H 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 payment in the first three years. We view this preferred equity instrument is favorable to the value creation potential in the business given us flexible dynamics. If you include the 182 million balance on the series day to equity in them.
Market cap, our total equity capitalization stands at approximately $1 2 billion.
Moving to our 2021 outlook on slide 16.
With our expectation for continued strong performance in 2021 today, we are introducing our full year 2021 growth outlook. We expect 2021, adjusted EBITDA to be in the range of $61 million to $67 million.
On this dollar range, we expect full year 2021, adjusted EBITDA margin to be in the range of 16% to 17% relatively consistent with 2020 on that point our increase in adjusted EBITDA margin of over 300 basis points for 2020 was well ahead of the previously communicated 100 to 150 basis points.
Average annual margin expansion that we expect to achieve over the next several years.
This is primarily due to the temporary cost mitigation measures that we've taken just wants to pandemic, which are not sustainable low part of our long term growth.
<unk> as a growth orientated company.
Our current outlook is based on a combination of mid to high single digit organic growth.
The contribution of MSC and a full year of GTH I mentioned that this upside does not include future acquisitions, which represent upside to our forecast taking that into account our outlook is aligned with our unchanged expectation for annual revenue growth in excess of 20% per year for the foreseeable future as.
We mentioned last quarter demand for our services remains resilient, though we have continued to experience uncertainty related to the COVID-19 pandemic.
Strong 2020 performance in GTH was in part attributable to evolving consumer needs in reaction to the pandemic and lockdowns this more than offset delayed projects in other parts of our business, reflecting the diverse service offerings on our platform.
Into the first quarter, we are already off to a strong start to 2021 led by C. T H.
The impact of the pandemic on our business and people remains a key focus.
As the economy rolls back and projects with zoom and other parts of our business, we expect a more balanced contribution to growth in revenue and earnings for many of our service lines that said on <unk>.
'twenty one outlook does already account for some carryover of project disruptions as well as the reversal of the cost mitigation measures put in place during 2020 as a result, we are confident in our ability to deliver on our full year growth.
I'll turn the call back to VJ for closing remarks.
Thanks, Alan and thank you all again for joining US today, we are really excited to report a record first quarter in 2020 that capped off our debut of the year as a public company and I could not be more proud of my team. We began this year 2021 on a very strong footing and we remain confident in our goal of become.
Z, leading environmental solutions brand.
We look forward to the opportunities ahead, and we sincerely appreciate all of your interest in Montrose, and so with that operator, we're ready to open the line for Q&A.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is on the question on queue. You May press star two if you'd like to remove your question from the queue.
Participants using speaker equipment, it may be necessary to pick up on the handset before pressing the star keys. Please limit yourselves to one question and one follow up one moment. Please while we poll for questions.
And our first question comes from Jim Ricchiuti with Needham <unk> Company.
Hi, good afternoon.
Hey, Jim.
Congratulations on a quarter on that.
First question I have is and I know, it's not always useful to look at the business on a quarterly.
But I'm just struck by the sequential increase in the assessment permitting and response Q3 to Q4 and I'm trying to get a sense of how much of a contributor was GTH in that increase and you talk about a strong start.
In Q1, Youre attributing it to.
In part to GTH and so I'm wondering if that is you know again more COVID-19 related or if you're also seeing have seen some activity for instance, as a result of what happened in the Gulf.
With the weather issues on the potential water.
Tamara nation in Texas.
I have a follow on.
Yes, no. This is it's a great question. Thank you for that.
And this is and you're exactly right. That's precisely why I always say you got to look at this annually.
So, let's just step back for a second are historically.
And you'll see this in our S. One commentary when we spoke with you back in July Jim.
The business tended to see a slightly heavier Q2, and Q3 and a slightly lighter Q1, and Q4 and that was a function of just weather patterns and the impact that that had on our testing business last year through COVID-19 that trend line largely dissipated.
No.
We saw the impact of Covid really hit us in March and so kind of on the back half of Q1, and Q2, which unwound in Q3 and Q4. So the sequential increase is really a function of kind of the pandemic related impacts and not a broader trend line for Montrose, Jim So does that make sense does that answer your first question.
Got it guys Vijay Thank you okay.
<unk> was a significant contributor in Q4.
And.
But their business again.
If you think about what they are.
Environmental Emergency response business and so as I've said to you before over the course of the year.
On the volume from PTH is rather predictable and we've kind of characterize that for you is kind of $60 million to $80 million per year run rate.
But if there is an incident and last year that incident was COVID-19.
Certainly see some fluctuation off of that norm and so we saw a very strong kind of back half of the year for them.
And they are still supporting many of our clients and so we expect some of that will continue into Q1 and Q2.
But you're also absolutely correct, yes, the hurricanes and floods last year drove demand for their services and.
This storm Euro this year.
Texas freeze that impacted the golf.
Certainly continues to drive demand and so this goes back to our broader thesis, Jim which is that these climate change related events. These events related to accidents due to aging infrastructure, we expect that that's going to continue to drive demand.
And so that's going to drive kind of the organic growth in that response business on an annualized basis year on year.
But this COVID-19 related.
Search that we saw on the back half on the early part of this year.
We're likely.
Obviously, we hope and pray that that doesn't continue into perpetuity.
Yes.
It does thank you and just a follow up question on it's just with.
With respect to the market share expanded market share that you alluded to in the release and presentation.
Presentation, and I'm wondering if you might be able to provide a little bit more color on that in terms of maybe how you are.
Youre measuring the share gains what areas of the business and maybe the factors that are leading to that.
Yes, so the measure.
The measurement of the share gain is really just more of a mathematical implication Jim so if the market contracted 2%. According to third party research and we grew 17% combined with GTH, 4%, excluding Cta edge and it's not really a function of price increases, which we didn't really see all that much of the implication is.
We continued to take share from our competitors and anecdotally, we saw some of that with our clients and we were able to see where we were getting wins.
From others for existing services and Thats, why we made that comment Jim.
Does that answer your question in terms of.
That sounds fairly simple.
On the specific areas maybe.
That you see the gains coming from.
So we across our segments.
We saw some great momentum so in our measurement analysis segment, we saw some really nice gains on Alan alluded to that in his commentary around our organic growth performance there.
We saw some really nice activity in our renewable energy, our AG waste to biogas business.
And then of course on our emergency response business, so kind of across our segments Jim.
We saw some nice momentum, but then of course in each of those segments. There were also pockets of the business that saw some headwinds due to COVID-19 that were mostly related to logistics and travel restrictions. So it was a little bit of a put and take but that's what we were talking about and obviously the aggregate result is quite a positive one.
Thanks, very much I'll jump back on the queue.
Thanks Chip.
And our next question is from Tim Tim Mulrooney with William Blair. Please proceed.
Good afternoon, Alan on VJ.
Hey, Tim.
A couple a couple of questions for you. The first one just on organic growth I mean, you gave.
Guidance for 2021, all of which is very helpful. And appreciate it looks like Youre expecting mid to high single digit organic revenue growth for the full year can you talk about how youre thinking about.
How that breaks down between the three different segments, which ones you would expect to be towards the higher end of that range or maybe a little below that range kind of based on where you stand today and based on the comments that you just provided between you and Jim.
Yeah.
Alright.
Let me give you some high level color, Tim we don't want to get into the specifics by by segment.
Okay got it.
Certainly.
On our assessment permitting in response segment.
Which is predominant ACTH right now.
Should continue to have strong first half of the year.
And so the way we measure organic growth remember, it's only once we've held an acquisition for 12 months. So there are really only going to count in the second quarter.
But still we're expecting.
Strong year from them again led by the first let's talk.
The rest of that business, which is our legacy.
Consulting business, if you will.
Was impacted pretty severely by Covid and so we would expect.
On that and we are already starting to see this that business will perform well.
Particularly in the back half of the year.
Our measurement and analysis group.
On the on the topline basis, we would expect.
To continue to see.
Our positive growth. They were also particularly our field based teams were also impacted.
By by Covid.
So we will likely see a re.
Revenue again towards the back half of the year accelerate.
Now from a margin perspective, it's different right, we've talked about that segment trending downwards to the 20% overtime. They ran at 26%.
For 2020.
And then finally on the remediation reuse that segment, we should see a positive organic growth in 2020 is expected to continue to see positive momentum.
As we've talked about before the segment that has the largest addressable market its way out.
T force treatment water treatment technology resides so theres a lot of opportunities there. The question again, just how quickly.
Net segment recovered from Covid. It was also impacted.
But we expect again in the back half of the year, we're going to start to see.
Great momentum out of that group.
Yes.
On to that let me.
I will tell you about the macro factors driving our excitement around the organic opportunities.
It is our expectation that certainly this is speculative on our part that the by the administration's emphasis on greenhouse gases methane emissions is going to help drive our testing business forward. So we continue to see really attractive organic opportunities there.
The focus on.
Carbon negative energy sources like the ones we create.
Youre going to continue to see momentum.
The water treatment work is going to continue to see momentum. So remediation segment, we expect to see really nice.
Growth in.
And then the on the <unk>.
Testament permitting in response segment, putting CCH aside a lot of the activity right now that is anticipated.
Around infrastructure spend.
For example, right and regulatory enforcement, which certainly administrative regions.
Agency has started to take a more proactive stance on all of that just creates incremental opportunities for us so even putting kind of the CCH opportunity to decide and you know our views on that we're bullish on them.
Do you think kind of across the segments. Those are examples of drivers of our business that not only this year candidly into the next couple of years, we think creates.
<unk> opportunities, that's offset by our <unk>.
<unk> ability to predict exactly how and when this COVID-19 overhang is going to begin to subside, we anticipate as I said earlier in the back half of this year.
But that's the reason, we're being a little cautious with not kind of materially increasing our outlook on the organic growth side. So there's certainly some really nice opportunities, but we're still navigating the back half of this COVID-19 pandemic.
Okay.
That's a ton of color. That's that's exactly what I was looking for thank you guys for <unk>.
We're digging into that for me.
I think that'll be helpful for everybody. My second question is.
On this large customer you mentioned your largest customer in 2020 was Neil and I am sure you don't want to name the client, but I'd be really curious how this relationship developed where are you targeting this customer prior to 2020 or did they come to you and and how did they come to you was it through <unk> or was it COVID-19 driven or.
Through one of your traditional businesses.
How is that relationship evolving to more than 20 different projects throughout the year.
Yes, yes, Tim we're not going to name the customer, but this was a customer that we had some early conversations with and this speaks to kind of our broader.
Cross selling efforts.
That have really been getting some nice traction.
Then we put our sales force in place and we've got a series of business development initiatives underway, which we historically have not had.
And so this customer.
Kind of blossomed through kind of a multi touch point.
<unk> ship effort at Montrose and speaks to kind of the attractiveness of having kind of on an integrated offering that meets or I should say scratches multiple issues on the environmental side. So that's how that's how it came to be.
On the fact that we.
We had a more robust offering.
Including but not limited to just Eth read more on the on the permitting assessment side more on the testing side.
More on the remediation and reuse side all of that kind of factored in and I suspect, we'll continue to really accrue to our benefit over the next couple of years and we hopefully will have more and more stories like this.
Should we begin to on are these opportunities.
As a simple example, Tim but if you are struggling with.
Measuring in mitigating greenhouse gases.
<unk> thing that you need right you almost need kind of a series of experts, helping you assess the regulatory landscape.
On the engineering optimization part of it.
Mitigation measurement part of it so.
It allows us to kind of hit that hit the same problem from multiple angles, and that's a unique offering from amtrust.
Got it okay.
Thank you for that and congrats on a nice quarter I'll hop back in queue.
Thanks, Ed.
And our next question is from Andrew <unk> with Bank of America.
Hi, Yes, good afternoon guys.
Hey, Andrew.
Hey, just a question a couple of questions. So is there anything in the recently passed.
One nine trillion of Covid really feel or even.
You know I guess, you guys highlighted the green on infrastructure Bill, but what we're discovering a lot of companies are.
Highlighting some benefits from this COVID-19 relief Bill, which we frankly did not expect.
Whether any particular benefits are that you guys have discovered after sort of talking to your customers over and how much of it is on your guidance.
None of it is really in our guidance.
Andrew we havent.
There is nothing specific in that that we think is.
Kind of changed our trajectory in one way or the other so we've largely kept it relatively consistent.
Independent of that.
Of that stimulus package.
Gotcha. So okay. So that's fine.
And then can you just give us an update through geographic expansion of Montrose through PFS pilot projects.
Have you been pulled into many other regions. Besides Europe on Australia, and what has the feedback been from your customers.
The administration do you already have the training drove the standard.
Control, how do you see that sort of playing out on 2021.
But yeah, so the new administration and change the Senate controllers.
That's a U S specific set of opportunities for us.
And that.
That we believe is likely going to accrue to our benefit of candidly to the market's benefit you've heard some of our.
And some of the other participants in the <unk> market talk to this and they're characterized it as a market in the tens of billions and some of them have said hundreds of billions.
Certainly we expect we've seen.
Increased activity around setting potential limits there has been early discussions that's unclear exactly which way.
The Feds will go around the inclusion of this into the circle of regulations.
The.
The.
The characterization of a larger number of compounds as potentially toxic all of that Andrew benefits not only on us on the remediation side, but also on as we've talked about before on.
Our advisory side and on our testing side right because you have to continue to measure.
And then validate that you would need on what you said you would do so its net accretive for US here our pilots in Europe are progressing very nicely and were encouraged by them. It is still too early.
To say anything definitive, but they are continuing the pace.
And there's more of them now.
And then in Australia, its kind of par for the course.
Covid certainly had.
A disproportionate impact.
On our Australian territories travel on logistics was very challenged there.
But we'll comment on that coming out on the back end of that.
Demand opportunities in the.
And the prospects look very promising and we've had some really nice wins of late which we're very excited about and so we expect to continue sharing more of that once it's.
Something we could talk about it finished.
Thanks, a lot it sounds like you have a lot of exciting things cooking up for 'twenty one.
On somebody else ask the question. Thanks.
Thanks, Andrew.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is on the question queue Press Star two if you like to remove your question from the queue.
Again for participants using speaker equipment, it may be necessary to pick up your headset port pressing the star keys, one moment. Please while we poll for further questions.
And our next question comes from Jim Ricchiuti with Needham and company.
Just another question on the.
The regulatory environment and the potential that it could be a nice tailwind for you, which is I think as you know.
Certainly our.
Appears to be the case, but I'm wondering as you think about your M&A pipeline, which you say is pretty active.
Are there are some of the folks that you're talking to looking at this environment and is that causing them either to potentially.
Pause a little bit to see how their business is going to be impacted by this and I guess, what I'm asking is are you seeing changes in valuation expectations.
Well, we're not Jim not not at this point, we're encouraged by that we think the rationale for joining Montrose.
Just as compelling it's we're uniquely focused on the environment and that a lot of these owners that have dedicated their careers.
To helping the environment they find that compelling.
The way we approach it in terms of cash stock mix and our issuance of stock options to retain employees is very compelling to any of these folks.
And.
I think our being public Jim candidly has provided a platform.
That they can see where they can see how theyre folks could benefit the opportunities there folks could have on how they with Montrose can potentially present, a much stronger offering into the market.
Stewart with MSC that was blocking and tackling for us. It's an exceptional team. We're really excited about them they've already been incredibly additive to us and that was right in the middle of the fairway for us in terms of our historical multiples.
And.
What we currently expect and anticipate is no different from that we continue to believe that these will be.
Accretive from a personnel perspective from a financial perspective, and strategically of course as well.
Short answer is yes.
Okay. Good day here Vijay on any.
Is there any color you can provide on areas that would be.
Business that had the most who would have the most interest for you in terms of inorganic over the over the over 21.
Jim I mean, M&A as much as we would love to control all the variables is often just is controlled by the broader dynamics on the seller. So.
Yes.
We still remain quite compelled by some of the opportunities and the testing realm.
Largely because now as enforcement starts to pick up we're seeing some really nice tailwind there for our teams and there is some nice bolt on opportunities.
And then on the assessment permitting and response on the advisory side, if you think about.
On the.
The assessments related to doing things like infrastructure investments.
Assessments related to ecological impacts.
That type of effort that type of work.
It's very strategically additive to us and it kind of puts us top of the funnel again with a lot of these customer relationships and so we're going to likely leaned pretty heavily in those two areas from an M&A perspective.
Within the remediation reuse segment, Jim on our biogas work on our water treatment work.
It's really more about our IP differentiation and our organic opportunities and so that's going to be more of an execution play for us.
We likely won't be as active vis vis the other two segments in the near term in that area.
Thank you nice good color thanks very much.
And our next question is from Noelle Dilts with Stifel.
Hi, guys and congrats on a strong end to the year on.
Hey, Noel.
So I just wanted to kind of at a lot of my questions have been asked this a little bit adjacent to some of what you've talked about in the past but.
As we've looked at at P. Fast it looks like a lot of exposure actually comes from indoor environments and I'm just curious if that's something you can.
As a kind of looked at it seems like it would be in your wheelhouse and if that kind of might be an area you might look to expand into as we as we look forward given on.
What year.
Given your strength right now with DCT too thanks.
Yeah.
The indoor environments is one we're quite familiar with no else you're right.
We've been a little bit more cautious there.
Fair degree.
Competitive dynamic there and there's also from a regulatory perspective, even more uncertainty.
Then in areas like drinking water and one in.
Water sources for example.
And so we're obviously staying very very close to it and it's an area we could move into.
And it's one that would naturally fit but it's not in our immediate term horizon, just because it feels like what we have to chew off.
With what we have today is already quite substantial and we want to make sure we execute on that well.
Okay great.
And then I think that we know the area a little bit price yes.
Okay, Great and then related to Andrew's question could you kind of just speak to how youre thinking about the P fast remediation efforts.
And in the internationally versus the U S and sort of when you look at your opportunity set how you think about the timeframe for some of those opportunities coming through.
More on Australia, or expanding more and in Europe versus the U S side of things.
It's in all of those geographies the regulations that are evolving.
Rapidly noelle and so I.
I think what you've heard and you cover the E&C space. So you know this well right others say off and anybody who can spell peppa says they're an expert.
And since they have the best answer right and we certainly chuckle, we agree with that sentiment. It's just it's a hot space right now, but if you step back and think about what we have we have a proprietary IP. Its IP that's been proven in the field and has certainly gotten a lot of market traction.
But we're not all things to all people so we're kind of playing.
As you know in areas, where there's high concentrations multiple compounds short chain long chain a desire for more environmental sustainability. So there is a certain part of the market, where we're very applicable where we get a much nicer win rate and that allows us to command higher prices and higher margins.
So the way I would answer your question on wireless to say, we continue to emphasize that we're really.
Our solution provider here, that's very complementary to.
Other either consultants engineering firms or.
Advisors.
These two these companies or governments in the EU I suspect, it's mostly going to be federally driven.
Not federally, but driven by the EU the FSA has put out.
New commentary on their belief on what humans can ingest, we believe that's going to spill over into the environmental regulation side and thats going to create.
A lot of demand, we're already seeing some of that.
So it's early stages there we think here in the U S. The regulatory regime is picking up quite materially the.
On the municipal markets always been largest not one that we particularly focus on but the federal government and the department of defense in particular is in.
An area that we're actively involved with.
The private sector here in the U S is one that we're very actively involved with in Australia, It's again, primarily driven.
By the department of defense and even their regulatory regime is evolving rapidly and so kind of across the board.
We're seeing some pretty compelling opportunities, it's hard to predict exactly when.
<unk> will be implemented and enforced but the market momentum is already candidly there.
Okay, Great that's really helpful.
And then.
I know you've.
You've touched on this end.
You've touched on this in the past, it's hard to say, but I was curious when you look at your efforts to kind of really build to your sales force and.
On kind of strength in that side of your business, where you would say you stand on that on that front today.
Yeah.
So when we went public we said we wanted to do it.
That was back in July.
We committed to all of you that we would have our CRM implemented at the end of last year, we did that.
And we're now kind of in the early phases of taking advantage of the fact that we have better visibility and a team dedicated to it.
That applies not only on the sales side on a while but also on the marketing side, where brand awareness is increasing nicely.
So it is still early innings, probably bottom of the second.
But but well on its way.
Perfect Alright, thank you.
Thank you ladies and gentlemen, we have reached the end of our question and answer session and now I'd like to turn the call back over to Vijay <unk> for closing remarks. Thank you.
Thank you all again, we really appreciate your interest in Montrose.
For the opportunity to spend time with you and we look forward to speaking with you in the near future take care everyone.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.