Q3 2021 Montrose Environmental Group Inc Earnings Call
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Okay.
Thank you for standing by this is the conference operator, welcome to the Montrose Environmental Group, Inc. Third quarter 2021 earnings call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
And the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star zero.
I would now like to turn the conference over to Rodney <unk> Investor Relations. Please go ahead.
Thank you operator, welcome to our third quarter 2021 earnings call. Joining me on the call are VJ man or forgotten, our president and Chief Executive Officer, and Alan <unk> Chief Financial Officer.
During our discussion today, we will be referring to our earnings presentation, which is available on the investors section of the Montrose environmental website.
Our earnings release is also available on the website moving.
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 1995 actual results may differ in a material way due to known and unknown risks and uncertainties that should be considered in evaluating our operating performance and financial outlook.
We refer you to our recent SEC filings, including our annual report on Form 10-K.
Fiscal year ended December 31, 2020, which identify the principal risks and uncertainties that could affect any forward looking statements as well as future performance, we assume no obligation to update any forward looking statements. In addition, we will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA and adjusted EBITDA.
Yeah.
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 of the earnings presentation.
Our earnings release for a discussion of why we believe these non-GAAP measures are useful to investors certain limitations of using these measures and a reconciliation thereof to their most directly comparable GAAP measure.
With that I would now like to turn the call over to Vijay beginning on slide four.
Thank you Rodney and welcome to all of you who are joining us today I'm going to provide you with a few business highlights and then hand it over to Alan Dick's for our financial review and then we will both open it up to Q&A I will speak generally to pages four through eight of the presentation that all of you have and that we've shared publicly.
And let me start by saying that positive momentum in our business continued with our solid third quarter results.
These results are due to the efforts of our team members, who are working tirelessly to serve our clients.
And without their efforts and unwavering support of each other we would not have been able to meet our clients growing demand for our environmental solutions and achieved another quarter of record results to all of you for Montrose listening. These results belongs to you.
Thank you very very much.
As we've discussed on previous calls I would like to highlight our perspective on quarterly results and how we view our business.
Since our environmental services don't map neatly to fiscal quarters and as we have already demonstrated during our short tenure as a public company.
Mantras this best SaaS and managed on an annual basis.
We manage our business on annual trends and annual expectations and we urge you to do the same.
Given our strong results in the first nine months of 2021, we have already exceeded our previously noted full year 2021 objective of over 20% annual base business revenue growth.
And in addition, despite substantial investments to support our continued scaling.
And the unwinding of Covid related defensiveness that we implemented in 2020 as we shared on earlier updates to you EBITDA in the first nine months of 'twenty 'twenty. One is already 10% ahead of all of 2012.
As a result, as Allan will talk about shortly we are again.
Increasing full year 2021 guidance.
Our quarterly and year to date results and increased guidance were driven by factors, we've discussed with you before.
The first factor is strong organic growth across our service lines, especially those focused on greenhouse gas measurement and mitigation P fast treatment and renewable energy specifically biogas.
And of course, our C th business continues to perform very well.
The second factor is accretive acquisitions that have been completed ahead of plan and a robust set of ongoing investment opportunities.
Since our last earnings call in August we have seen several key trends from our customers and regulators that support our organic growth trajectory and strategic rationale for our recent acquisitions.
There is growing momentum in federal and state or provincial regulatory initiatives and the continued private sector emphasis on environmental stewardship across our key markets and they are expected to drive continued demand for our services.
As an example, the U S. EPA recently announced that it is advancing new methane regulations.
These methane proposals would address the production processing storage and transmission for new and existing petroleum infrastructure, having a much broader swath of the oil and gas industry than before.
As another example, a few weeks ago. The U S. EPA unveiled its plan to address impacts stemming from her and poly fluoro alkyl or P fast compounds.
The Epa's plan further validates Montrose is P fast measurement intermediation strategy in other words, our strategy of integration of environmental services and.
And continues to position our business well as.
As a third example, we were pleased to see the bipartisan support from Congress on the infrastructure Bill.
This investment in addressing the infrastructure in the United States with an eye to building climate resilience and managing the impacts of environmental change on our communities is a very welcome update and yet another potential driver of demand for our mantra is to services.
I've said before that I've been disappointed in the politicization of environmental stewardship as I believe clean air water and soil are universally desired.
I'm grateful to our Democratic or Republican and independent leaders in Congress for coming together on this.
We are also pleased to partner with our customers who are proactive about their environmental footprint and expect that corporate responses to greenhouse gases P. Fast remediation renewable energy and environmental Emergency response will continue to drive demand.
Operations are executing proactively under environmental stewardship initiatives as boards and investors are increasingly focused on corporate and ESG strategies.
Perhaps more than regulation private sector investment in competition are creating incredible opportunities for the environmental industry to innovate and to serve.
While our business model by design is resilient and largely insulated from political swings or increased optimism is due to the emphasis on environmental stewardship, and the private sector and capital markets.
It is an exciting time for Montrose and I'm grateful for the privilege of being on this team.
A couple of key themes, we wanted to touch on the first of which is year to date growth and segment highlights.
I will point to some year to date and LTM numbers to help keep focus on the importance of measuring our performance beyond one quarter.
Excluding the impact of discontinued services and the prior year year to date 2021 revenue increased 87%.
Our C th business line continues to perform at elevated levels compared to their annual $75 million to $95 million per year in revenue.
We were also very pleased to see continued organic growth acceleration in the first nine months of 2021, excluding contributions from C. T H.
Q3, 2021 adjusted EBITDA on a year to date basis grew 64% compared to the prior year period, given our strong revenue growth.
And despite ongoing investments in the unwinding of our 'twenty 'twenty endemic related defensiveness.
This exceptional year to date performance has put us on path for another year of record results.
Within our assessment permitting and responsive segment.
Most of this segment is C. T H the leadership team at C. T. H continues to do a stellar job.
Putting the pandemic response and business continuity advice into long term strategic contracts with new and large industries, the technology and media and entertainment industries in particular.
Their business has been driven by one more crises driven by climate change aging infrastructure or recently the pandemic.
The oil spill in California was yet another crisis, where C th his experience in leading market position came through.
To their business is driven by a larger market share number of strategic Msas has increased in 2021 and three their business has been driven by more services Dth or software for example helps states administer responses in as a new source of value to our customers.
As it relates to C T H supporting clients through the pandemic, we said last quarter that the revenue surge began to modulate in Q3.
We saw elevated demand continue into Q3, but at a slower pace than in the first half of 2021.
T T H produced approximately $50 million in revenue in Q3, which is well above their run rate, but below the approximately 70 million per quarter in Q1 and Q2.
Demand for their pandemic response support is expected to continue longer than we originally anticipated.
Within the segment and excluding C. T. H are higher margin assessment permitting an ecological service businesses are seeing a nice organic growth uptick a.
Our recent acquisition of environmental intelligence in California, better positions us to capture what we believe to be growing demand for fire mitigation and ecosystem services.
Within our measurement and analysis segment. The revenue decrease versus Q3 of 2020 was due to postponement of certain projects to the fourth quarter, which is why we keep saying quarterly trends aren't that meaningful over the longer term. We remain upbeat about continued growth in this segment, which you will see in the near future for <unk>.
<unk>, our service and software advantages related to methane measurement and mitigation are seeing strong demand across North America.
As another example demand for our environmental testing and specifically our P. Fast analytical services remains very strong.
This was our reason for adding this to analytical to our portfolio and the team has been great and it's doing great.
Margins remained much higher than industry averages within this segment and.
And are closer to normal for us so the expectation of normalization, we shared with you is panning out as expected.
Within our remediation and reuse segment, we are seeing strong demand for our P first water remediation.
And it is increasingly enhanced by our R&D team and IP portfolio.
We are also seeing strong demand for our waste to energy services, particularly our AG waste to biogas business.
We find this service line compelling because it should continue to help our farmers create jobs and create negative carbon intensity natural gas for our communities.
There are a few other key points of note.
Our year to date organic growth across a broad swath of our services is validation of our strategy and our investments in our people our R&D, our software and our commercialization infrastructure all of which are core to our capital allocation strategy.
While wage inflation and higher turnover continue to be areas of focus or concern in the broader market, our recruitment and retention of experienced professionals remains solid, especially at the director level and above I'm proud of the positive corporate culture, we've built and the exceptional team of talented individuals' here at mantras.
Our M&A pipeline remains strong.
So far in 2021 we have exceeded our annual goal of acquiring 10 million of annualized EBITDA in line with our previous goals and historical cadence. The recent acquisitions of MSE Vista, EI sensible Iot and ACI are all accretive and we are already seeing cross selling success in several key.
He areas highlighting the benefits from these acquisitions to Montrose.
We were also pleased to complete the acquisition of horizon water and environment earlier. This month. It supports our environmental advisory presence on the West coast and augments, our water resource knowledge I'm very happy to have the horizon team on our squad, helping us think more proactively about our approach to the water market.
So in summary, we continue to outperform and as you our shareholders have gotten to know us over the course of the last 15 months I Hope you can see we are transparent with you and do what we say we.
We appreciate the time, you've given us as our story our strategy and our approach don't have many comps or precedence, which presents challenges in the context of public markets.
Those are also reasons why we remain so excited about our future.
This is a great time to be part of creating solutions for the world's environmental challenges.
I also wanted to reiterate my gratitude for my team.
We thank and acknowledge all of our colleagues around the world and the tremendous work they've done for mantras more than anything the caliber of our talent is the reason Alan and I have confidence in our raised outlook for 2021 and beyond.
This market remains very fluid and dynamic and there are lots of opportunities to allocate capital constructively should we appreciate your support as we continue to do so.
Please stay safe and well out there and we look forward to closing out a strong 2021 and speaking again with you as we look forward to a great 2022 with that let me hand, it over to Alan Thank you.
Thank you Vijay.
Our strong performance in the third quarter and year to date reflects the regulatory themes, we've discussed since our IPO coming to fruition as the need for environmental remediation and monitoring, particularly for P. Pos gains momentum across the globe.
A resilient core business continues to grow and we continue to execute on our M&A strategy with the recent closing of our sixth acquisition in 2021.
In addition, we further strengthened our capacity for growth through the successful completion of our follow on equity offering in October.
Moving to our revenue performance on Slide 10, we continue to drive strong growth across our business.
Third quarter revenue increased 57% to $132 6 million compared to the prior year quarter.
Year to date revenues were up 83% versus the prior year period to $402 6 million.
The primary driver of revenue growth in the quarter was organic growth in our CTO emergency response business and our remediation and reuse segment.
Partially offset by an expected decrease in revenues and our measurement and analysis segment.
Revenue growth also benefited from the acquisitions of MSC in January 2021.
Mr. In June 'twenty, 'twenty, one and environmental intelligence in July 2021.
The business drivers with similar for the year to date period and it also included the benefit of a full period of results with C. T H, which was acquired in April 2020.
As mentioned on prior calls we completed the process of discontinuing service lines early in the second quarter of 2020, which partially offset our year to date comparisons.
Excluding this continued service lines.
<unk> would have increased 87% year to date.
Also like to reiterate that we generally both focus on organic growth on a quarterly basis as year over year quarterly comparisons can be misleading.
That being said we are seeing strong organic growth in 2021, excluding contributions of C. T. H on the high end of our expected, 7% to 9% annual organic growth expectations.
Looking at our adjusted EBITDA performance on Slide 11.
Third quarter adjusted EBITDA grew 29% to 21 5 million and adjusted EBITDA margin declined 350 basis points to 16, 2% of revenue.
Year to date, adjusted EBITDA grew 64% to $59 2 million and adjusted EBITDA margin declined 180 basis points to 40.
<unk>, 7% of revenue.
The improvement in adjusted EBITDA was primarily driven by higher revenues.
The year over year change in margins for both periods was mainly due to business mix.
Planned and expected normalization of margins in certain business lines following temporary COVID-19 related cost mitigation actions taken in the prior year.
But you've been reversed.
And public company costs for the full nine months in 2021 compared to two months in the comparable period.
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I'll reemphasize that Montrose performance needs to be assessed annually. This.
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 12.
In our assessment permitting and response segment third quarter revenue grew to $63 4 million from $26 6 million in the prior year and adjusted EBITDA improved to $15 7 million from $8 2 million in the prior year.
The significant year over year increases in both revenue and adjusted EBITDA was mainly driven by C. T H, which has seen an acceleration in demand to provide endemic response related services and the contribution from the <unk> acquisition.
T T H revenues in the third quarter with $53 6 million compared to $22 6 million in the prior year.
Decline in segment adjusted EBIT margin to 24, 8% was the result of lower margin Covid work performed by C. D H.
We expect normalized adjusted EBITDA margins in this segment to run between 25 and 30%.
And our measurement and analysis segment third quarter revenue decreased two 5% year over year to $38 8 million.
It really attributable to the postponement of certain projects into the fourth quarter.
And partially offset by revenues from our Vista acquisition.
Adjusted EBITDA margin declined to 21, 4% due to business mix and the reinstatement of certain costs that had been temporarily suspended at the outset of the COVID-19 pandemic.
We expect adjusted EBITDA margins in this segment to continue to run around 20% over the long term.
And finally in our remediation and reuse segment third quarter revenues increased 66% year over year to $30 4 million, reflecting growing organic demand.
Plus remediation and waste to energy services as well as the acquisition of MSE.
700 basis point increase in remediation and we use adjusted EBITDA margin to 18% was a result of higher revenues adjusted EBITDA margin. In this segment continues to reflect the impact of elevated fixed costs and investments in anticipation of growth and geographic expansion.
At scale.
We expect this segment to run it in the mid 20% adjusted EBITDA margins.
Looking at a review of our base business trajectory on slide 13.
As mentioned in our Q2 quarterly earnings call. We now estimate that C. T. H as annual revenue run rate is $75 million to $95 million up.
From our previous estimate of $60 million to $80 million.
Although sequential quarterly C. T. H revenue continues to normalize PTH revenues was $70 6 million in Q1, $65 9 million in Q2, and $53 3 million in Q3 T. T. H revenues remain elevated as a result of heightened demand when the COVID-19 related services.
That said demand for these services and the revenue they produce is expected to be transitory in nature and is not expected to recur at the same elevated level in the coming years as the impact of COVID-19 lessens.
Excluding the above trend revenue from C. T H, the remainder of our revenue or what we refer to as our base business, which includes the revenues we would expect to see from C. T H in a given year.
<unk> experienced a solid trajectory and is increasingly benefiting from tailwind, which we believe positions us well for the growth.
Moving to our capital structure on slide 14.
I'm, particularly proud of our operating cash flow generation in the third quarter of $30 8 million, which reflects robust cash earnings and a decrease in working capital primarily driven by lower receivables.
Year to date cash flow from operating activities was $13 7 million, an increase of $17 6 million compared to the prior year period.
From operations includes the payment of acquisition related contingent consideration of $15 5 million and $6 4 million in the current and prior year respectively.
Excluding these acquisition related payments year to date cash from operating activities was $29 2 million in the current year.
Okay. It's a cash from operating activities of $2 5 million in the prior year.
An increase of $26 7 million.
This increase was driven primarily by significantly higher year to date earnings before contingent consideration payments and noncash items.
Actually offset by an increase in working capital in the current year of $17 6 million versus an increase in working capital in the prior year of $7 8 million.
The increase in working capital in the current year is as a result of an increase in accounts receivable and contract assets of $12 5 million an increase in prepaid expenses and other current assets of $1 8 million and lower accounts payable and other accrued liabilities of $3 4 million.
We continue to expect strong cash flow from operations for the balance of the year and our 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 with investments in technology, R&D and infrastructure to ensure continued scalability.
Our leverage ratio as of September 32021, which includes the impact of acquisition related contingent earn out payments that may become payable in cash was two eight times down from three one times at the end of the second quarter.
In October we completed a follow on equity offering raising net proceeds of approximately $169 8 million.
This offering we had $273 8 million of liquidity, including $148 8 million of cash on hand.
And approximately $125 million of availability on our credit facility.
We also have an additional $150 million available under the credit facility's accordion feature.
Pro forma for the equity raise our leverage ratio is <unk> eight times, well below our longer term target leverage of below three five times.
The capital raise significantly enhances our liquidity.
On thing us further flexibility to invest in additional M&A expand our business operations.
Research and development and invest in working capital.
As a reminder, our series a preferred stock has no maturity date, and we have the option, but not the obligation to redeem the preferred shares at anytime for cash.
Two a make whole payment in the first three years.
We view this preferred equity instrument as favorable to the value creation potential in the business given its flexible dynamics.
You include the 182 million balance of the series a true equity in our market cap a total equity capitalization stands at approximately $2 4 billion.
Moving to our full year outlook on slide 15.
Based on our performance during the first nine months of 'twenty 'twenty. One we are increasing our full year adjusted EBITDA estimate to a range of $75 million to $80 million, which is up from previous guidance of $70 million to $75 million.
Our updated guidance implies adjusted EBITDA growth of 38% to 47% year over year.
The increase from our prior range reflects our strong results in the third quarter and expectation of some continuation of elevated C. T. H results from COVID-19 response work in the fourth quarter.
A continued stream of project wins, and our recently closed acquisitions.
As a reminder, this outlook is based on a combination of high single digit low double digit organic growth for the year, excluding C. Th us the contribution of completed acquisitions.
As we have mentioned on previous calls our full year 2020 margins reflected a higher than usual margin increase year over year due to the temporary cost mitigation measures taken in response to the Covid pandemic.
These mitigation efforts had been fully reversed in the current year. We are now back to investing in SG&A R&D and expansion in accordance with our long term plan is a growth oriented.
We will also incur a full year of public company related costs in 2021.
While we had initially expected our full year 2021 margins to be steady year over year. In spite of this we are now seeing the surge in GTH COVID-19 related work, which is at lower margins and Cta just typical margins and the resulting change in business mix for 2020, one is likely to weaken full year margins slightly.
Versus the prior year.
That being said our outlook for continued consolidated adjusted EBITDA margin expansion over a four to five year period remains unchanged.
Overall demand for our services remains resilient and is accelerating in some of our key service lines.
We are thrilled to see continued strong organic growth, both with and without C. T. H as the trends we've discussed since our IPO last year continues to accelerate so this point of differentiating solutions to address greenhouse gases.
POS and renewables are driving strong momentum in our business and recent news of additional rules and regulations give us confidence to deliver on our objectives in 2021 and beyond.
While the timing of projects can influence quarterly performance as seen in the shift in some projects to the list during the third quarter and our measurement and analysis segment.
Growth thesis remains intact for the full year 2021 we.
We see an immense addressable market, we continue to target accretive M&A opportunities that allow us to offer more value to our customers through additional service lines and technological advancements.
We have the right strategy and the team to execute and we expect to continue operating at a high level in the coming quarters and years.
We look forward to updating you on progress we've made in our business next year.
As we continue to become the leading global environmental solutions brand.
We sincerely appreciate your interest in Montrose and thank you all for joining us today.
Operator, we are ready to open the lines to questions.
Thank you.
We'll now begin the question and answer session to join the question Kelly You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request.
A speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then channel.
We will pause for a moment as callers join the queue.
Yeah.
The first question is from Andrew <unk> from Bank of America. Please go ahead.
Hey, guys. Good morning. This is Emily <unk> on for Andrew Eldon.
Hey, Emily How're you doing.
I'm good I'm good. Thank you so yeah.
Yeah. My first question is just you know if you could provide any detail or color on C. T H.
Performance next in four Q.
And next year, you know given expected normalization of Covid related work that'd be great. So you know should see th COVID-19 related work and four to be similar to pre Covid. What do you expect a bit of a step down and then also how much of that normalized run rate do you expect to be Covid work next year. Thanks.
Yes, Emily it's this is b J, it's really and we've said this to you before it's really hard to.
Predict what the pandemic related or response related work will be.
Let me, let me reframe kind of how we think about our C th set of opportunities.
For all the reasons, we've shared with you before.
A bigger market share more incidents more services and kind of an expanded team, we think they're really well positioned to continue performing at or above kind of our $75 million to $95 million per year revenue run rate.
We currently anticipate at least through the winter that the Covid related work will continue.
We it's really hard to predict exactly when that's going to ebb and flow and part of the reason.
It's difficult to predict just because there's ongoing fluctuation in regulations you saw what the button administration.
Good with vaccines and testing Osha rules came out some of the courts stayed some of that.
So our clients, including mantras struggled a little bit with exactly how to implement all of that and the C. Th team of course with their experience and expertise is really well positioned to advise folks through that as Burton for all those reasons, it's really hard to predict exactly when it's going to start and stop but I think what I can share with you in the confidence Alan and I have.
Leading into the back half of this year to the end of this year and the first half of next is that we do anticipate they will remain elevated just magnitude of which is going to be very hard to predict at this stage.
Does that answer your question.
Yeah. That's great. Thank you and then just a follow up question on measurement and analysis I'm just curious what drove the postponement and projects in the third quarter is that just.
Customers delaying projects.
Certainty around inflation and labor availability or is there something else to it.
No there's really nothing else to it it's just the nature of the work I think I've said this to you know when you do these tests.
And you do them once a year for example, whether you do it in June or July is meaningless to the client and to Montrose, but it means a lot to folks that measure of some fiscal quarters.
So if you move from September to October or something that that pushed from Q3 to Q4, there was no material impact from our clients' perspective or from Montrose This perspective.
Which is why we keep saying quarterly does not make sense to measure mantra. So there's nothing untoward in the business, we remain very bullish on it.
Great. Thanks, I'll pass it along.
As a reminder, it is star one to ask a question.
The next question is from Tim Mulrooney from William Blair. Please go ahead.
P J Allen good morning.
Hey, Tim how are you doing.
I'm doing well thanks.
Two questions for me. The first is on your guide your full year guide implies fourth quarter adjusted EBITDA of about $18 million at the midpoint.
Which is about flat with last year.
Is that primarily because of the difficult comparison with C. T H last year or are there other factors.
That we might want to take into account as well.
There's certainly Tim this is Alan.
C th did $45 million of revenue.
In the back.
In the quarter a few.
Of 2020.
So it was certainly elevated youre right so the comparisons.
In terms of what we forecast are about flat for CTX.
And then we bought the.
The public company costs that are higher this year.
You've got young.
The unwinding of some of the.
Cost mitigation efforts that were in place for all of last year.
So yeah, that's a big part of it.
The organic growth on the revenue side.
As we mentioned in our prepared remarks are accelerating.
And so we expect.
On the revenue side.
A very favorable comparison year over year.
You don't know what Alan I forgot about the cost mitigation effort efforts in those costs coming back in so that that makes a lot of sense. Thank you.
And then I wanted to ask about C. T H revenue.
If the step up in C. T H revenue in the third quarter was primarily pandemic response related revenue or if there was there any was there any step up in disaster response related revenue from Hurricane Ida.
Don and Don Louisiana, I heard there was some petrochemical infrastructure that was.
<unk> taken out of commission for a while so I didn't know if there was other things here also adding to see teachers revenue stream or I mean, it sounds like from your prepared remarks that it's.
A lot almost all of it sounds to be.
Pandemic related.
No no it Tim sorry, and perhaps we don't do it justice the team does a fantastic job.
A pretty broad response portfolio and so theres, many many incidents and clients and projects that contribute to their aggregate performance and so yes. There is some hurricane.
Hurricane response, there will be some oil spill response.
And this goes to my earlier comments, they are because of their market leading position.
Because theres more incidents or events.
That result in environmental emergencies, because they have more market share because they have more services because they have more people.
They are able to.
Serve our clients across a broader portfolio. So all of the above applies and the reason we talk about dependent so much is because if you think about the 75 to 95 run rate they've done 190 year to date, right plus minus and so.
You know a lot of that excess in aggregate over time is due to the pandemic related services and that's why we talk about it but please don't hear us say that that's all it is there is a very robust team here across industrial hygiene health and safety toxicology emergency response disaster recovery.
We are serving our clients across kind of a broad portfolio of services.
Got it. Thank you very much thanks for taking my questions.
Thanks, Tim.
The next question is from Noelle Dilts from Stifel. Please go ahead.
Hi, guys. Good morning, congrats on the quarter NOL, Okay. So I'm sorry go ahead.
So I was hoping that you could comment on some of the more emerging markets you've talked about in the past like biogas and carbon capture and if you could sort of frame how youre thinking about those opportunities into next year and if you're seeing any.
Areas of particular, you know acceleration.
As we look out over the next few years. Thanks.
That's a great. That's a great question Noelle, we often don't spend time with you on it but it's a large part of why.
I'm I'm really optimistic so on the biomass space.
As we as we think kind of more geopolitically and macro markets.
Any transition, which is clearly the signals we're getting from the political.
Political sphere, any transition and kind of energy markets is going to necessitate some degree of transition with natural gas being a big part of it.
And that coupled with the fact that biogas is negative carbon intensity energy.
We think is driving continued demand from the client side and so our clients certainly are asking for a lot more we are seeing a lot more market opportunity and the team is.
Is doing more and as a result that is a big part of the organic growth of that.
That you see in the remediation reuse segment, it's why we're seeing organic growth acceleration you can kind of back into the fact that we're in.
Now.
Effectively projecting low double digit organic with potential for upside.
Into Q4.
For the year. So we are seeing sustained demand there and we think there's some macro factors that play on the biogas side.
Carbon capture we don't generate and don't anticipate generating any revenue in the immediate term that is an area our research and development team.
Is actively involved in they're making some nice inroads, but it's way too early.
Well to speak about the impact of that on our P&L.
That is an area that we are implicitly and explicitly involved in.
Water and water infrastructure market, and especially now with the infrastructure Bill there's increased dollars at play.
Around remediation and PFS treatment in particular, and then obviously the D. O D. Allocations also have some of that so we see a lot of demand there.
Demand there is being driven not only because of the capital allocation and the regulatory push the EPA just put out.
<unk> guidance document.
But we also are seeing a lot of activity due to ESG pressures from shareholders' capital markets by the companies themselves. The clients that we serve so we're pretty bullish there. That's also a big part of the organic growth acceleration youre seeing in that segment.
And then the other area you didn't ask about in the world that is a big part of our surge and this impacts both our Canadian and U S footprint is the greenhouse gas measurement.
And advisory services, we're seeing a real nice organic uptick there, that's Canada and the U S for us.
Our team is just searching really nicely and we're excited about that and on the water side.
Because of our expanding IP portfolio.
We're seeing more opportunities.
In the European market as well so we're pretty excited kind of in aggregate is as we think about biomass renewables.
Water water treatment and methane mitigation I would characterize those as our current III primary.
Growth markets that are going to have a near term impact on our financial trajectory.
Both at the back end of this year and also two.
2022, and 2023 and beyond.
Great.
Thanks for that.
Great Super. Thank you really quick sort somewhat related follow up question on what horizon, you mentioned that they're helping you to take a more proactive approach to the water markets I guess I've always thought that.
Monstrous had a pretty proactive approach. So could you just expand on on what you mean by that and I'm.
And just the the strategic importance there.
Yeah, they're they're they're on our advisory side Red so they they help folks think about the regulation.
The various capital dollars at play, especially something like the infrastructure, Bill, which has a fair amount of highly nuanced pockets are related to that.
William C treatment infrastructure upgrades.
And so our existing water treatment.
Technology and portfolio no one was really around <unk> remediation, primarily right. So we we are helping mostly industrial clients and Vod clients treat water contaminated with DFAST horizon is much broader in terms of how they think about ecological services and water.
And so they will give us a fantastic insights into other ways to cross sell services, but also potentially penetrate new water markets given some of the advantages that we have so that's what I meant by that.
Okay perfect. Thank you.
Yeah.
The next question is from Chris <unk> from Needham <unk> Company. Please go ahead.
Ahead.
Hi, Good morning, this is Chris on for Jim Congrats.
Congrats on the result, Hey, Chris.
Thank you.
It sounds like a theres, a theres, a pretty rich pipeline of M&A opportunities and with the capital raise should we expect a faster pace of M&A and do you expect the profile of the types of deals that you're doing to change in terms of the size and the rationale or should we expect.
A continuation of the strategy. Thank you.
Yeah, Chris This is Vijay we are not changing our strategy.
We think what we've been doing works and we hope to continue doing more of the same.
We are really well positioned to be opportunistic.
And that's what the capital raise was intended to provide yes. The pipeline remains really rich and candidly look market simply fragmented. So we've said this before theres been no dearth of assets, there's certainly more of them now that have come to market.
But the market valuation expectations also are really frothy.
We're going to remain disciplined.
Yet we're still buying at the mid to high single digit multiples, Chris and that that discipline is important because we are thinking longer term. So for all those reasons. Please don't expect us to please don't hear US say, we're changing our strategy. We think there's some really attractive opportunities for capital deployment here not just M&A.
So for organic growth and we certainly anticipate deploying it proactively you've seen us do it well so far so.
Promise you, we intend to continue doing it well going forward.
Perfect. Thank you that's very helpful and.
With with the passage of the infrastructure Bill have you seen any changes yet or anything materialize with respect to clients that might try to be getting out in front of what's coming down the pike over the next couple of years.
And do you have a sense of when you could anticipate having greater insight into our which areas of the business will be most affected by the bill. Thank you.
Yeah, I think it's a bit early look candidly I think the expectation was that this bill will pass.
Exactly which pieces were always.
In the air a little bit given some of the activities in Congress, but we certainly and I believe our clients mostly anticipated this would come through.
So there's been no real immediate change it's going to take some time for some of that flow its way through the system Chris.
The parts of our business that we expect will be most impacted by this in a positive way or.
Our assessment and permitting teams and so as you kind of build infrastructure or even decommission or downgrade or change operations, you often need environmental assessments and permits and the like and so we expect to see continued demand an increase in demand due to this within our a pea in our segment.
Testing needs often go up as a result, and an infrastructure Bill Ultra had remediation dollars in it so I expect that our soil remediation practice will benefit from some of the activity the super fun brownfield and.
And broader remediation markets are starting to pick up steam as well. So we're going to see I expect across the board benefits for Montrose.
But it's too early to call that at this point.
Great. Thanks very much.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to D. J mento for any closing remarks.
Thank you all very much for making the time, we really do appreciate it. We appreciate your continued support of Montrose.
Take care be well out there Alan and I have been the beneficiaries of.
A very gracious set of hosts here in little rock with our C th team.
And we're really excited about the prospects going into next year.
In gratitude to the CCH team, we'd just like to close by saying go hubs. Thank.
Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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