Q1 2021 Montrose Environmental Group Inc Earnings Call
Greetings and welcome to the Montrose Environmental group incorporated first quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being.
And we'll now turn the conference over each of your host Rodney Nausea, and Investor Relations. Thank you you may begin.
Thank you Hillary.
Welcome to our first quarter 2021 earnings call joining me on the call are VJ Mad three forgot our president and Chief Executive Officer, and Al Index, 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 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 1095.
Actual results may differ in a material way due to known and unknown risks and uncertainties that should be considered and 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 we assume no obligation to update any forward looking statements in.
In addition, we will be discussing 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 and isolation from the most directly comparable GAAP measures. Please and links to the earnings presentation or our earnings release for a discussion of why we believe these non-GAAP measures.
Are useful to investors and a 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.
Thanks, Rodney and welcome to all of you joining us today I'm going to begin by providing a few business highlights and I'll then hand, it over to Al Index, our CFO for a financial review after which will both open it up to Q&A.
For those of you following the presentation I'm going to speak generally to slides four through eight.
And I'm glad to start this update to you by saying we started 2021 on a strong footing following a fantastic 2020.
And I'm proud of our team for their continued excellence teamwork and service to our clients our revenue and adjusted EBITDA more than doubled compared to the prior year quarter.
Though Q1 reflects a continuation of a tailwind as we have seen over the past few quarters I would like to take a moment to reiterate the theme we've highlighted before that our environmental services don't map neatly to fiscal quarters. So Montrose is best assessed and managed on an annual basis.
That said given the strength of Q1, we remain very confident and continued performance through 2021, and our long term expectation for an annual revenue growth in excess of 20% is intact with adjusted EBITDA growing faster than revenue as it has historically.
In terms of the drivers behind our strong performance. So far this year, we've seen a steady reopening and the U S and we're excited to be back and for our clients and to be safely seeing each other and person.
Our teams in Canada, Australia, and Europe continue to face more COVID-19 related challenges and here in the U S. But I couldn't be more proud of all of our teams in terms of how well they are working together to get through it.
And since our last earnings call in March we have seen many developments that bode well for Montrose, both this year and beyond so let me walk you through some recent developments and some of the catalysts that we see for our business moving forward.
In terms of the political and regulatory landscape. Our performance was driven by continued client demand, which we believe has been and will be bolstered by policy tailwind.
Following president and <unk> first 100 days and office, we've seen many initiatives related to environmental regulations and compliance.
Starting at both the federal and state levels. As one example, president Biden recently announced and economy wide goal of a 50 per cent reduction and net greenhouse gas emissions from 2005 levels levels by 2030.
Such a policy would drive demand for our services given client needs to assess.
Yes test validate and potentially mitigate air emissions.
Beyond this we expect additional funding for large projects like bridges roads renewable energy and the like to drive the environmental assessment market and associated activities, such as wetlands identification and mitigation brownfield reclamation and renewable energy generation.
We are also seeing promising regulatory proposals arise and some of our key geographies such as Colorado's regulations, seven which aims to monitor emissions around new oil and natural gas drilling operations.
While these newer policy proposals have not yet impacted our financial results. We are starting to see some of our large customers begin to proactively and voluntarily accelerate emissions reductions targets.
And other environmental initiatives as one example, a major LNG clients quality supply program pays qualified methane suppliers of premium for their product if they achieve emissions reduction targets.
Montrose will participate and establishing emissions baseline data for this effort by our client.
We see initiatives like this by our customers is significant to both our mission and to our business.
It is important to note that though our business model is resilient and largely insulated from political swings. We are optimistic about the emphasis on environmental stewardship by both the capital markets.
And regulators and at a minimum these new priorities and proposed policies are creating tailwind for our industry and our business the magnitude of the upside will depend on the specifics, but these are the reasons why we continue to have conviction and our 2021 outlook and beyond.
In terms of the segment highlights, which Alan will certainly touch on more and are in a few minutes I'll point to the LTM numbers to help us keep focused on the importance of measuring our performance beyond any one quarter.
Q1, 2020 revenue on a trailing 12 months or LTM TTM basis increased 64% compared to the prior year LTM period.
Q1, 2021 adjusted EBITDA on a trailing 12 months basis grew 105 per cent compared to the prior year period, given several factors, including revenue growth favorable shifts and business mix and better operating leverage at the segment level.
Within our assessment permitting and response or what we call our advisory segment.
T. H is most of that C. T H as a 60 to 80 million run rate business revenue run rate business and this quarter saw us running well ahead, which we are happy to see of course.
In addition to the COVID-19 pandemic response results and our C. Th business were driven by responses to the Gulf severe winter storm and to a major cracks pipeline and the Western U S.
In addition to climate change related events on the aging pipeline, we are seeing and aggregate reduction and resources and operating costs within the oil and gas sector, which increases the risk of incidents and an increase and the need for response expertise like cte edges for that sector.
Besides C T H, our higher margin advisory and permitting businesses are also seeing a nice uptick driven by recent EPA announcements and example of such an announcement is the requirement for power plants, and 12 states to reduce nitrogen oxide emissions.
We're also starting to see more request questions from clients related to the recent market drive towards net zero emissions.
With our eco services business.
Within this segment, we continued to see demand for the National Environmental Policy Act, or NEPA, and California, Environmental quality Act or sequel to support infrastructure planning projects, particularly for native American tribal governments and municipalities and developers, we expect demand for NIPA and secret and continue with president and buttons and.
For structure focus and as a final example, we're seeing increased demand for air emissions inventories are mission statements and greenhouse gas consulting to support our clients carbon management needs.
We're seeing that our clients continue to have a steady need for environmental advisory and regulatory compliant services to maintain operations regardless of COVID-19.
Within our second segment the measurement and analysis segment demand remains very strong the revenue decline versus Q1 of 2020 is primarily due to the timing of project starts and completions and on an annual basis, we expect good organic growth and 2021 and that segment.
And some examples of where we see opportunity both near term and long term.
Our lab business has added instrumentation develop specialized analytical capabilities and received additional accreditations to support our expanding P fast footprint we.
We have also seen an uptick and nonregulated driven lab services, including support for lead or the leadership and in energy and environmental design indoor air quality testing programs.
Additionally, our testing business is seeing an increase and ambient air and community monitoring projects facilitated by both regulatory and non regulatory drivers and.
And the fourth and the first quarter of 2021 as an example, the EPA released a new air test method for P. S. O T. M 45, where we have some differentiated capabilities and where we expect to see continued demand.
And finally in there and our remediation and reuse segment, we are seeing nice organic growth as opportunities start to slowly open up <unk>.
Next that were put on hold or starting to move forward and in some cases, we are seeing very aggressive timelines to make up for lost time and increased pressures from regulators.
For a remediation teams we are seeing activity in Q1 led by due diligence and site investigation legacy site remedial design and remediation of industrial clients and environmental monitoring and assessment assessment assignments for large government agencies.
We also won several projects associated with what we consider to be two important growth trends cleanup support for coal combustion residuals or CCR wastes and the eastern U S and P fast investigations and groundwater at several former multiple fire training sites in the south Eastern United States.
In terms of innovation and growth acceleration drivers the tail winds across each of our business segments are validating our investments and technology and innovation related to the environment.
Just recently and independent of Montrose, Dupont issued a public comment to the EPA that Montrose is regenerative resins for P fast treatment or something the EPA should consider as a regulatory standard.
We are grateful for the acknowledgment and but we continue to emphasize that there is no single silver bullet and that it's going to take continued and sustained effort and focus on science to address these challenging environmental issues.
We believe the capital we allocated the research development innovation and commercialization is contributing to our organic growth and benefiting our customers and our shareholders.
Our business remains fundamentally anchored to our nearly 2000 experts.
Our cellar doors, who serve our clients every day and so these investments that we're making and innovation are designed to arm them with more information and better tools to continue doing so.
We think high mid to single digit organic growth organic growth plus the contribution of completed acquisitions on an annual basis is a reasonable expectation for our business going forward and consistent with what we've.
Mentioned before.
In terms of acquisitions of companies and talent.
Non trust is our people and we remain very encouraged by the caliber of talent and we've been able to add to our team over the past year, our new colleagues have brought a wealth of experience clients and importantly insights into the ways. We can continue to improve we are also very encouraged by the strong retention of our team, especially at the director level or equivalent and above.
M&A continues to remain an important part of our business strategy and last year, we more than surpassed our acquisition goal with the acquisition of Cte H and the integration of that team is going very well, we continue to see a significant benefit from the joining of the Montrose with GTH teams, including robust revenue synergy, which is really encouraging.
Most recently in January we acquired the MSC group.
Which benefits our remediation and reuse segment increases our environmental services the service offerings for select U S federal agencies and expands our geographic presence and the southeastern United States.
We are very pleased with how MSC is fitting into Montrose and we're seeing great collaboration between the teams and are thrilled to have their insight into government procurement.
The revenue synergy being identified between the Montrose and MSC teams is equally encouraging.
And in terms of the remainder of 2021, our acquisition pipeline remains very strong. So we remain confident and our ability to deliver 10 plus million dollars and acquired EBITDA at attractive multiples this year and and each year beyond that.
As we mentioned several weeks ago, we expect to announce additional acquisition targets in the coming months and given the balance sheet is strong, which allen's alan's going to talk about it and a few minutes. We can continue to execute on our plans and goals with what we already have.
So in summary, I want to and where I started by thanking our clients and a big Thank you to our colleagues around the world to whom these results belong to the Montrose and team congrats on another great quarter and to our investors. Thank you for your continued support we look forward to another milestone year and the ongoing discussion and dialog with all of you.
So with that let me hand, it over to al.
Thank you Vijay.
Exceptional performance and the first quarter reflects the continued strength and resilience of our business model we.
We are thrilled with our strong year over year and sequential quarterly performance.
Our core businesses are strong we are benefiting from accretive M&A and we are executing on our cross selling strategy.
Moving to our first quarter performance on slide nine.
We continued to drive strong growth across our business during the COVID-19 pandemic.
Our revenue increased 119%.
$133 8 million compared to the prior year quarter.
The primary driver of revenue growth and the first quarter was acquisitions, most notably our acquisition of C. T H and M. A C.
<unk>, especially has experienced favorable tailwind given quite demand for pandemic response services.
As mentioned on prior calls at the end of the first quarter of 2020, we did decided to discontinue certain service line and completed that process early in the second quarter of 2020.
And lots of revenue from these discontinued service lines, partially offset our revenue growth.
Excluding discontinued service line revenues would have increased 129% and the first quarter.
First quarter adjusted EBITDA grew 203% to $16 8 million and adjusted EBITDA margin expanded 350 basis points to 12, 6%.
This improvement was primarily driven by higher revenues and operating leverage from lower corporate expenses as a percentage of revenue.
I'll reemphasize Montrose performance needs to be assessed annually.
This is how we evaluate the business due to the stronger predictability of the business on an annual basis. This is consistent with how we highest stock.
Allocate resources and manage the company.
Turning to our business segments on slide 10.
The work we are asked to do by our clients is captured across the three segments by which we report our financials.
And our assessment permitting and response segment.
Revenue grew to $75 3 million and adjusted EBITDA improved to $15 8 million.
The significant year over year increases in both revenue and adjusted EBITDA were mainly driven by the acquisition of C. T. H in April of 2020.
Since April Th has also seen an acceleration and demand to provide pandemic response related services.
A decline and segment adjusted EBITDA margin to 21% was the result of lower margin COVID-19 work performed by Cte H.
And our measurement and analysis segment revenue decreased 8% as expected to $33 4 million, primarily attributable to discontinued service line and the timing of compliance projects and the current versus the prior year.
Adjusted EBITDA margin declined to $14 five per se.
Due to lower revenues business mix and the reinstatement of certain costs that had been temporarily suspended at the outset of the COVID-19 pandemic.
Finally, and I'll remediation and reuse segment revenue.
Revenues increased 25% year over year to $25 1 million, reflecting the acquisition of MSC and organic growth.
Partially offset by the impact from discontinued service lines.
The slight decline and remediation adjusted EBITDA margin to nine 9% or there as a result of business mix.
Adjusted EBITDA margin also reflects the impact of elevated fixed costs in anticipation of growth and geographic expansion in this segment.
Moving to our capital structure on slide 11.
Looking at the quarter cash flow used in operating activities was $13 9 million.
A decrease of $4 9 million compared to the prior year quarter.
Cash flow used in operating activities in both quarters included the impacts of seasonality and the payment of annual bonuses.
Additionally, the change in working capital and the first quarter of 2021 increased by $18 6 million when compared to the prior year quarter.
As a result of the significant increase in revenues in the current quarter versus the fourth quarter of 2020.
We expect strong cash flow from operations for the balance of the year and <unk>.
We 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 to be very focused on balancing the generation of cash and.
And investments in technology, R&D and acquisition integration.
As of March 31, 2021, we had cash of $10 6 million and total debt of $179 5 million.
Our net leverage ratio at March 31, 2020, one as reported under our credit facilities was three one times within our longer term target leverage range of between two five and three five times.
In April we entered into a new sustainability linked credit agreement, which has several benefits to mantra stakeholders.
The new facility expands our borrowing capacity to $300 million and the form of $175 million term loan and 125 million revolving credit facility.
And this new debt structure.
And our cost of borrowings from five 5% at March 31, 2021% to LIBOR plus 2%.
Furthermore, by entering into the new credit facility Montrose received up to a nominal basis point pricing adjustment based on outperformance against certain sustainability and ESG related objectives.
Optimizing our capital structure is an important part of our long term strategy and we are very pleased to do that while aligning financial incentives with sustainability goals for more choice.
As a reminder, our series a preferred stock is non maturity date, and we have the option to redeem the preferred shares at anytime for cash subject to a make whole payment and the first three years.
We view this preferred equity instrument is favorable to the value creation potential in the business given its flexible dynamic.
If you include the 182 million balance of the series, a true equity and our market cap.
Total equity capitalization stands at approximately $1 7 billion.
Moving to our full year outlook on slide 12.
It is important to note demand for environmental services is not driven by specific or predictable patents and one or more of our fiscal quarters.
Our first quarter results and a positive start to the second quarter reinforces our expectations for continued strong performance in 2021.
Accordingly.
We are increasing our annual guidance for 2020, one and currently expect adjusted EBITDA to be and a range of $63 million to $70 million, which is up from previous guidance of $61 million to $67 million.
Our updated guidance implies adjusted EBITDA growth of 16% to 28% year over year.
This outlook is based on a combination of mid to high single digit organic growth.
Excluding Cta itch, plus the contribution of completed acquisitions.
Looking at our top line, we continue to expect annual revenue growth in excess of 20% year over year for the full year 2021, consistent with our historical track record.
This growth outlook is expected to be weighted towards the first half of 2021, primarily attributable to the timing of exceptionally strong first quarter revenues and a strong start to the second quarter.
I'll also mention that our outlook does not include future acquisitions, which represent upside to our current forecast.
Although our full year margins are expected to be stable year over year margins could be impacted by the search and GTH COVID-19 related work, which is at lower margins and GTH is typical margins and the resultant mix for 2021.
Obviously excited about the higher than expected revenue growth and our businesses.
Given the very different margin profiles that each of our segments generate we will continue to articulate on margin expectations as the year progresses.
2021 outlook reflects our optimism and our business to deliver exceptional service and value to our customers through our best in class Environmental solutions we.
We see any man's addressable market and we are always open to accretive M&A opportunities that allow us to enter new geographies and bring additional services to clients we on.
We expect to continue to invest and unique technologies and processes as we build and continuously improve our portfolio and market share.
We're excited for the years ahead with our goal to becoming the leading environmental solutions brand.
We sincerely appreciate your interest and mantras and want to thank all of you for joining us today.
Operator, we are ready to open the lines to questions.
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.
Information and tone will indicate your line is and the question queue. You May press star two if he would like to remove your questions on the queue for participants using speaker equipment and it may be necessary to pick up your handset before pressing and stacking.
Please note we ask that you limit yourself to one initial question and one follow up their price and one.
One on that please Holly Paul for question.
Our first question is from Jim Ricchiuti of Needham and company. Please state your question.
Thank you good day.
Afternoon, P J and ill.
And then.
How are you guys.
So the first question I have is for you.
Alan just if I look at the SG&A line.
Scaled up a bit from Q4, but still below.
Yes.
Round those the mid year levels that we saw back in 2020, the June and September quarter. So the question I have is to what extent have you.
Really layered in some of those temporary cost savings did that hit in Q1 should we assume.
Further scaling of those temporary savings and looking at Q2, and Q3 or is the bulk of it.
It has been realized in Q1.
Jim.
And the.
Cost that you're referring to and that we indicated will put back in the first quarter were largely operational related to so those were the temporary.
Labor costs that we variable line.
Early in the second quarter of 2020, so those will put back at the beginning of the year and ore and the full quarter of Q1 and sort of largely impacted our operational margins and not so much the.
Corporate SG&A.
And we're going to pick up and travel and whatnot is still that wasn't a big factor I guess is what you're saying not Q1.
Outside of the GTH is typically a slow at travel quarter, certainly as the business picks up and we started to see that already in the second quarter, you will see an uptick and traveled to more normalized levels.
And then there are additional the balance of the costs that we took out in 2020.
And have been put back early in the second quarter sales.
You'll see the full impact when we report the second quarter results, but and the first half of the year and all of them.
Those costs will have been put back.
Okay. Thank you for that and then my follow up question is just as it relates to.
The remediation and reuse business segment, and then the measurement and analysis segment business and clearly some.
Project Titan.
And related issues and those businesses. So it doesn't sound like you're overly concerned with.
The decline and EBITDA margins that we're seeing that we've seen and those businesses, but I guess, what I'm wondering is.
To what extent are you going to be able to respond to the pick up that you are anticipating and as some of the client work picks up again are you able to.
Should move quickly and now to begin to address that stronger demand.
So let me Jim This is Vijay let me start and let me let Allen.
Jump in as well on the back half of your question are we going to be able to respond to the pick up the the answer is yes. We've talked about this before the business is not linearly linked to needing to add head count as demand picks up right. We are confident and how we built a scalable model.
And so as demand starts to accelerate our teams are well positioned to take advantage of that.
On the margin point.
I would characterize it quite a bit differently.
Think of this as kind of a.
A two pronged answer.
As we look out for 2021, we are quite optimistic about our ability to generate strong organic growth across our segments, specifically in the remediation reuse, which is where our <unk> water work, our renewable energy work and our remediation business sits and then within measurement and analysis we are testing.
Foot print and I think we shared this with you last year Jim that.
Service and line specifically around measurement and analysis was running way ahead of expectations or what we would consider normal right. So that business on a run rate basis, you should do kind of high teens.
EBITDA margins and we were in the mid Twenty's and so this normalization is is exactly what it is it's not.
It's not a point of concern candidly, we're excited as our teams get going that the business starts to look more like it did before the pandemic hit so.
The.
We will keep kind of anchoring you on don't look at it quarter on quarter you got to look at this annually, but I think it's important to really kind of hear us on the annual trends, where we have quite a bit of optimism across the segments.
And does that make sense.
And it does and maybe Jay and thanks for clarifying that and pointing it out and so I think it's useful thank you.
Our next question and thanks, Jim.
Bank of America. Please state your question.
Good afternoon.
Hey, Andrew Andrew.
Just a question on I'll touch on permitting and response and just the impact of <unk> and age.
You guys clearly have warned us that we will see.
Quarters like this but just the scope of the beef is quite impressive.
So.
You know how familiar are you now with this business what are the chances of seeing a similar beat.
Next quarter and what are the chances of us being a pure pull forward from the other quarters and I appreciate sort of the business model is.
Is very.
On certain quarter to quarter, given what happened.
But.
Based on what I'm hearing what you've described it's not necessarily pull forward of just one time events that will not necessarily repeat so sort of a pull forward versus just business normalizing and bed bug those question on one.
Hey, Andrew This is Vijay let me take that so.
In terms of our familiarity with the business, which is where you started.
We spent a lot of time at the GTH team and have a ton of respect for the leadership team there and just.
Our thrilled with.
Not only how they are operating but how they are fitting into Montrose I would characterize our familiarity is very high.
And and rapidly continuing to increase just.
And an exceptional fit into Montrose.
The reason I say that to you as I can say with full conviction that the concept of pull forward does not exist at Cte edge right. So.
It is a response business by and large and so.
The way to think about that business is a run rate $60 million to $80 million per year business that has spikes off of that and.
And just as you have spikes up youll have some spikes down as you kind of a low quarter on quarter, but over the course of the year on a normalized basis.
We think that they are the beneficiaries of long term secular drivers like climate change related events and aging infrastructure. So.
In the context of the beat in Q1 and.
The way I would characterize that as yes. It is substantial so if you kind of think about.
The 60 to 80 run rate on an annualized basis, you would think they would do 15% to $20 million per quarter, and they were kind of well in excess of three times debt level in Q1.
And the COVID-19 related response work.
And that drove that be primarily drove the beat in Q1, we expect to continue as we told you a couple of weeks ago through the first half of this year.
But we think the business short on another environmental emergency response need.
And begins to kind of look more normal in the Q3 Q4 timeframe.
Gotcha and I.
And Thats question number two I mean, you sort of went over very positive trends for your business.
I assume that others in the industry are seeing similar trends. So how does this change M&A environment and conversations that youre having.
And with potential targets and I'm wondering if you have sort of pulled back away from some conversations and maybe the targets are getting more and more optimistic so how do you price and this optimism and as we've talked to.
You know potential.
Potential acquisitions. Thank you.
So we.
In the context of larger acquisitions, we certainly are seeing what the broader market expectations are so they tend to be frothy here, but that's really not what we do Andrew as you know.
The vast vast majority candidly outside of CCH every transaction mantra is really consummated.
Is much more of a smaller business that is very strategic and more of a bolt on.
Type strategy and in that market, which is where we tend to play we have not seen multiple accretion.
And then the sellers tend to be motivated by mission.
And by a desire to grow their business and stay.
And integrate into the mantra and Jim.
And and.
And that's where we've kind of built our reputation and where we see a ton of opportunity and given how fragmented. The market is that's where we hope to continue playing we think it's right for us where we are today in terms of strategy as well so in the space, where we want to be in the 10 plus million that we've signaled to you and the street.
We don't anticipate shifting off of our our legacy discipline around acquisition multiples, but certainly for the larger deals and we've seen a fair amount of that come through.
Valuation expectations are very frothy and as a result, we probably will not play.
Terrific. Thank you so much.
Thanks, Andrew.
Next question is from Tim Mulrooney of William Blair. Please state your question.
Vijay Alan good afternoon.
Hey, Tim.
Good to talk to you guys two quick ones for you on the leak.
<unk> detection business I saw on article the other day, where the Senate voted to restore some regulations around stricter monitoring on oil and gas emissions.
Does this have any near term impact on on that business do you think or is this just another regulatory change and kind of a long line of slow evolution towards better leak detection standards.
And maybe this would be just a good opportunity to talk about how that business is fair and year to date.
Yeah, let me take that Tim So theres been a fair amount of activity around <unk>.
Methane emissions specifically.
And some of the.
Restrictions debt, both Congress and the EPS putting around <unk>.
Various flaring rules methane leaks and methane mitigation and so there's been a couple of bills I don't know exactly which one you're referring to but in aggregate. They are all very additive to our business. We've seen a lot of client engagement around this topic some of the voluntary emissions reductions.
And narrative that was in my opening remarks speaks specifically to the some of the demand driven by the types of initiatives you just cited.
And as we look at the 2019 versus 'twenty growth in that business in North America zone in the United States, and Canada and as we project forward into 2021, we remain quite bullish about what that business will do and we think that that trend will continue into the foreseeable future.
As a simple example, if you think about the recent press around the.
The European.
Cut down on American natural gas purchase.
Because of a lack of clarity around methane emissions reduction.
That type of effort, obviously resonates and the market.
Or that type of action, sorry, obviously resonates and the market and it's something our customers here in the United States pay a lot of attention to and our capabilities.
Around fence line monitoring ambient monitoring leak.
Our leak detection quantification right. This is where our integrated model really plays nicely.
So.
And if youre hearing optimism from us.
That's exactly what it is we think that this is <unk>.
Secular trends.
In that broader space are quite attractive and it's not just leak detection for us, it's kind of our broader air quality management business.
Right Gotcha, Okay. Thank you for that and then if I could pivot.
I was hoping to get a little bit more detail Vijay on your recent.
Investments in it and commercialization and I know you've talked about this before but I know, it's an important area of focus for you.
Now can you maybe walk through some of the more significant.
And of investments and although its early and if youre seeing any initial benefits or what type of benefits you would hope to see from these investments I'm kind of thinking about addressing pricing and efficiencies or cross selling for example.
Thank you.
Yeah. So let me look let me give you kind of a very tangible.
Example, Tim and <unk>.
On pricing we've said this before.
The sales force the CRM implementation will give us much more visibility and data to share with you over time, but it's going to take US a couple of quarters, given we just implemented a jan one of this year.
It's been a couple of and it's going to take a couple of quarters for the debt data to saturate and.
In a way that we can kind of quantify and reflect back to you, but one area where that investment in.
Our CRM and and our system, where our various experts can see what others are doing across our 5000 customer customers has resulted in a notable uptick and cross selling across our segments.
And so we've been really encouraged by how the teams are starting to see collaboration opportunities and cross selling opportunities and as a simple example, the recent acquisition of MSC.
By virtue of both the system and the way that business with integrated has resulted and just kind of a flurry of activity across remediation testing measurement permanent compliance so on and so forth and so it's just a simple tangible example, there's at least a half dozen cross sell opportunities that we talked about over the last couple of months.
That arose because of the way our teams were able to collaborate because of the investments, we made and the infrastructure and systems over a year ago.
Added as we said to you kind of a little over a dozen.
Business development personnel to <unk>.
Supplement kind of are.
Seller Doer model and that's also starting to pay some attractive dividends for us. It's just it's core to our thesis Tim. If you are really focused on one specific area to your point like leak detection and youre dealing with methane issues and the clients and broader concern are on upcoming regulations shift and where the Congress is focused on EPS folk.
And you have to mitigate it makes a ton of sense that our teams collaborate across our various service lines and Thats what that team is meant to do so we're seeing kind of a again a validation of our strategy and our model.
And the more and more we get visibility into where our folks are touching our clients across our business lines.
Great example of your integrated approach thank.
And thank you Vijay appreciate it.
Thanks, Tim.
Our next question is from Noelle Dilts of Stifel. Please state your question.
Hey, guys. Good afternoon, congrats on a good quarter and Noel.
And.
So my question is somewhat related to your conversation with 10, but I'm curious, how you're thinking about the market for sort of benchmarking monitoring and measuring and greenhouse gas emissions and.
You know sort of.
And I'm thinking about this from expanding outside of utilities, and heavy manufacturing and oil and gas into other industries you know given.
On public policy and how society is pushing for a greener economy any thoughts on how that overall market could develop.
Gosh, that's a great question Noelle and.
This is probably and answer that's going to warrant a much much linked to your conversation.
The.
Debt your broader question sits at the intersection of a couple of different and very related.
Demand drivers within our client base right. There is the broader ESG push.
And there is the carbon measurement mitigation.
The race to net zero and then.
The impact that renewables can have on that and these are all different ways that a business can either reduce measure or mitigate their ongoing impact from a carbon on climate perspective.
As we look at where Montrose sits today there is a host of opportunities within our advisory segment, our assessment permitting response segment.
Where we have where we are and this is where a lot of our recruiting energy has been in terms of bringing experts and expertise in house and these are folks helping boards and C suites figure out how to think about some of these issues where to set the bench eventual baseline of the benchmark rate. So what is <unk> zero.
How do I compare it to where others are and then where do I want to be given some of the commitments that have been made publicly.
And then that feeds beautifully into our testing business like some of what we talked with him about Noel.
And that can come and many different forms right.
And the historical regulatory driven differentiation between source submissions and leaks and fence line monitoring and ambient air monitoring start to blend as folks and begin to assess comprehensively across our facility our production cycle, where their carbon footprints coming from.
And then on the remediation side some of the work and the renewable energy space can serve as an offset and then theres. Various other technologies that can be used to capture for example, some of the emissions. So we are kind of sitting beautifully across all three but I want to be careful to state that we have yet to formally.
<unk> is a product that specifically helps address.
And our singular need that a client may have for example.
Need that says I want to get to net zero by 2035 can you help me do that.
So are the elements are certainly there, but we're in the process.
Over the next year or two to formalize that and a way where it can be a little bit more of a turnkey solution specifically targeting the questions coming from our customers, but we are actively involved in many many projects both that discussion stages and also fully and implementation.
Sorry, either voluntarily, saying look I have to begin to measure.
My emissions and my carbon footprint second at least set a baseline and so that the boards and C. Suites, and then begin to achieve their targets and and others, saying and help us formulate a plan to get US there. So it's kind of the the ambiguity youre sensing for my answer is a function of.
A rapidly evolving marketplace with no defined kind of Angola yet.
Right Okay.
That makes sense and so yes. It does in terms of where you sit and where you might be looking to go with that.
Great. That's yeah, that's great and my second question is a little bit simpler, but you know that.
I think we're getting starting to get a somewhat better sense of what an infrastructure bill could look like.
You know when when you look at some of the proposals within the Bill and maybe could you could you touch on where you think or that the areas that could potentially have the most impact for Montrose and.
Perhaps around P fast or.
And you have together on energy initiatives that would be great.
The.
And the two areas, where we actually are seeing the most impact does not and our remediation and reuse segment, though certainly there are.
With some of the Brown free and reclamation and some of the increase in spend around cleanup. We should we anticipate that we're starting to see that.
But most of the opportunity for us that we've seen given what's already come down the Pike is on the assessment side. So this was the comp and these are the comments I made related to the NIPA and sequel.
Assessments that our teams do and the eco services work that our teams do Noelle.
So more on the advisory what is the impact of some of these changes or if I'm building, a new rotor and bridge, how do I assess what the environmental impact is.
And we're seeing and impact within our AP and our segment and then the result and testing work that comes with that we're seeing an impact there as well.
Less at this point on the remediation side that we certainly expect that as that picks up and.
And as the spend begins to increase.
And and formally rollout and this obviously will take some time over the next couple of years, we expect to see some nice tailwind within our remediation res segment as well.
And then look it's not just the infra bell even the COVID-19 relief Bill for example.
And had some elements there around industrial hygiene.
Wastewater treatment.
Sanitation and so there were elements of that debt or again adjacent to the spaces and which Montrose plays.
And so it's very hard to predict exactly how government spend will rollout, but if there's one theme that's pretty consistent for us its that theres clearly tail winds that are going to get created as a result.
But we have yet to really fully see that that's not baked into our numbers nor is it baked into our projections just to be explicitly clear about that.
Okay perfect. Thank you.
Our next thanks Noah.
Our next question is from Stephanie <unk> of J P. Morgan. Please state your question.
Hi, good afternoon.
And.
<unk>.
And welcome to the body.
Thank you.
And <unk>.
And I just had a question on and it's a clarification question early on that remediation segment. So.
And I was wondering if you can give and IPF how much at the growth in the first quarter was due to the acquisition of <unk> and that's E and whether it's the low margins that we're seeing in the first quarter and it's really because we've been making investments upfront, Mike and some fast and with restricted travel to Europe and Australia.
And just not able to get your people out there and sell maybe the margin pick up we would expect on that segment would be more back half weighted as and that the COVID-19 situation and get more under control and you.
Europe and Australia.
Yes, let me take that Stephanie let me answer the second part of your question.
First you're exactly right.
The the inability to travel is certainly having an impact.
And we're still comparing a COVID-19 impacted quarter with a non COVID-19 impacts of quota and the remediation we use <unk>.
<unk> has been.
Impacted more so than the other two segments.
And yes, we certainly.
Have maintained.
The capacity and capability and that segment.
Just given the expertise we have in house and the very.
Strong belief, we have and in the future growth and this particular segment so.
And those margins towards the back end of this year you should start to see a tick up what we've said is on a long term basis. This particular segment should run on a low 20% to 25% margins are we won't get there this year, but and the backhaul for this year, you'll see us start to tick up.
Closer to those levels.
On your first question.
MSC contributed $4 million.
To EBITDA and that particular segment and then the rest was organic of revenue sorry revenue and the balance was organic.
Growth Okay, Okay perfect.
And then also a clarification on kind of your CRM system and.
Sales people and I know Vijay, thanks, and you've added and that.
Our sales business development people and I was wondering if you guys decide that.
Hello, there or are they.
Okay by industry or by the <unk>.
Three segments of your business day kind of promote cross selling and if you can kind of.
Comment on the structure and how on.
Yeah, just what their expertise alright, and I'm wondering to kind of further penetrate the client base.
So it's kind of it.
And two pronged strategy, Stephanie and so we're not going to be adding a ton of head count for this but the purpose of adding to that team step one was to facilitate our seller doer model right the inherent risk or weakness in the cellar door business model is that when you are busy doing it.
Harder to sell and.
So we wanted to supplement existing teams, where we saw a ton of tailwind like some of the leak detection and methane mitigation work that we were talking about.
With Tim and Noel we wanted experts in that space to further penetrate and areas, where we think some of our technology advantages that we've talked about with you before will play nicely. So these are folks kind of targeted at that specific client base.
And the broader push.
<unk> not only to supplement or support our cellar doors, but as importantly, if not more importantly collaborate across our service lines right when Europe deep technical expert and.
Dealing with are solving a technical problem for a customer.
Tend to be and advanced scientist and engineer and you tend to be less comfortable speaking about technical areas, where you may not have as much expertise and so the hope was as we added some of these folks that could help facilitate those conversations and introduce the right experts into the mix as needed for customers so that our integrated offering.
Seemed more of a turnkey solution and so that's that and longer term strategy is really what this is all about and we are just in the early early stages of putting that in place. So just to be explicit about answering your question. The vast majority of that dozen or so that we've added are right now allocated at the business line level.
But their managers have been specifically mandated to connect the dots and so to speak across our service lines one of the disadvantages of being kind of on the first movers and this fragmented market is we're playing in the fragmented market right. So for us to on fragmented we have to shift the dialogue with the customer, but we're seeing some really nice early indications of that.
And I am excited going back to the earlier questions around giving more data from the CRM and at this time next year sharing some explicit examples of that with you. We already have a few it's just too preliminary to really talk about it.
Is that does that makes sense yeah, yeah. That's super helpful. Thank you.
Our next question is from Jim Ricchiuti of Needham and company. Please state your question.
Alright, the follow up as well.
It relates to what Youre seeing from your clients in terms of how they're responding to some of the chain.
Changing regulatory actions, whether it's at the state or federal level and what I'm wondering is if if that's causing you to look at your M&A pipeline, a little differently in terms of.
Where you might be looking to put resources.
It's a great question, Jim and the short answer is yes.
On the.
It's a rapidly evolving and dynamic regulatory landscape and obviously there is always and we've said this to you before just as a shift to the downside doesn't necessarily result, and a lot of lost business. The introduction of new regulations continue we will likely get challenged litigated and modified.
But it is a signal for our clients and for us as to where the market is moving and.
So as we begin to start to see some of these rules unfold on a more tactical level right increased Nox standards are and unwind of a prior stay on a regulation and those are easy.
Those are expected and those don't really clients are already accustomed to those types of changes and that increases demand, we can respond to it but with some of these newer community monitoring mandates or voluntary reductions.
Exactly how theyre framed how they're communicated and how they are quantified is not fully fleshed out and.
And so that for example will change areas, where we may look to acquire talent or technology capabilities or software capabilities. For example, so it is absolutely impacting where jose and the strategy team are focused both on the M&A side and also on the recruiting side.
And we're pretty I would say in the immediate term two areas of focus for us is better capability on the testing side given some of the new regulations were seeing from administrative Regan and.
And his priorities and.
And bolstering our eco services capabilities. Those are we anticipate areas that we just need to continue to bolster not only our internal ability, but more broadly the offerings, we provide to our clients and so that's a little bit of a pivot from where we had historically.
Looked.
But we think again very consistent very additive with our with our with our vertically integrated strategy.
That's helpful and the last question I had is just as it relates to what you've seen with Cte H and the last couple of quarters and I realized.
Some of that business is not necessarily going to.
Lend itself to your other businesses, but I have to believe within that client base, that's been utilizing GTH more slowly there are.
Increased cross selling.
Dennis.
Some from the experience and some of these clients have had with them and the last couple of quarters.
That's right that's right. So some of the some of what we alluded to on the last earnings call Jim.
Our increased footprint and the technology media Telecom industry. For example is a function of some of the efforts and the success that our colleagues and the GTH team have had and that represents a host of new conversations that we can have.
And the collective combined team.
And those organizations I mean part of the challenge candidly is.
They are doing such a great job that they are.
And just all out right now the bandwidth and the capacity to take on new conversations and work is strained and it's limited and that team has been working really hard and clearly from the results you can see over the last couple of quarters has had exceptional success, but that comes.
And our cost to kind of employee fatigue and morale and so.
We absolutely long term see excitement and opportunity in terms of being able to cross sell we just have to take it one step at a time and hopefully give them a chance to catch their breath in the back half of this year and then we can begin to tick up the cadence on some of the dialogue.
With their leadership team and our business development team.
Okay that makes sense. Thanks, congrats on the quarter.
Thanks, Jim.
We have reached the end of the question and answer session I will now turn the call back over to Vijay and Manpack Borgata for closing remarks.
Thanks Al. Thank you again for joining US today, we really appreciate all of your support and look forward to sharing more continued progress and success over the coming quarters. Thank you for your time stay well be safe and talk soon.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great rest of your day.