Q4 2021 Montrose Environmental Group Inc Earnings Call
[music].
Greetings and welcome to Montrose environmental groups fourth quarter 2021 earnings call. At this time, all participants are in a listen only mode.
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 recorded I will now turn the conference over to Rodney Nasty a.
With Investor Relations. Thank you you may begin.
Thank you.
Welcome to our full year and fourth quarter 2021 earnings call.
Joining me on the call are B J, Matt <unk>, our president and Chief Executive Officer, and Alan <expletive> <unk>.
<unk> financial officer.
During our discussion today, we will be referring to our earnings presentation, which is available on the investors section of our website at Montrose Dash E N V Dot com.
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 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 and we refer you to our recent SEC filings, including our annual report on Form 10-K for the fiscal year ended December 31, 'twenty, 'twenty, one which identify the principal risks and uncertainties.
Could it affect any forward looking statements as well as future performance, we assume no obligation to update any forward looking statements.
And 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 in isolation from the most directly comparable GAAP measures.
Please see the appendix to the earnings presentation or our earnings release for a discussion of why we believe these non-GAAP measures are useful to investors certain limitations of using these message measures and a reconciliation thereof to the most directly comparable GAAP measure.
With that I would now like to turn the call over to B J beginning on slide four.
Thank you Rodney and welcome to all of you joining us today.
I will provide you with a few business highlights and hand, it over to our CFO Alan decks for the financial review and we will then open it up to Q&A.
I will speak generally to pages four through eight of the presentation provided to you.
I'm excited to discuss mantra the strong full year 2021 and fourth quarter results, which belongs to our dedicated team members around the world for whom I am very grateful.
Through their efforts, we were able to produce another year of record breaking results and further our leading position in the environmental industry.
Before I delve into a discussion of our performance and as we have noted for you before.
Like to reiterate that our business is best assessed on an annual basis, given the nature of demand for environmental services, not being driven by quarterly patterns and annual basis is how we manage our business and how we recommend others view our results as well.
Yes.
In terms of our financial results 2021 was another exceptionally strong year for mantras.
We achieved over a half a billion dollars in revenue converted our earnings into over $50 million in operating cash flow and achieved the highest rate of double digit organic growth.
37%, including C T H and 17% excluding C T H since my time here at Montrose.
The 17% organic growth excluding C T H in 2020 , one is stronger than we expected at the start of the year given our historical average of mid to high single digit organic growth and the ongoing impact of the pandemic.
We also greatly exceeded our full year 2021 objective of over 20% annual base business growth.
We think of our base business, that's excluding excess C T H revenue.
With approximately $400 million of base business revenue growing nearly 40% year over year, almost double our targeted growth rates.
Our business has scaled more quickly than we expected, which put a lot of pressure on our teams, but also created excitement about the future.
Our outperformance in 2021 and expectations for continued outperformance in 2022.
All relative to an industry growing 2% to 3% per year.
Are being driven by our capabilities related to greenhouse gas measurement and mitigation piece.
He fostered remediation and waste to energy services in particular.
Demand for our services are a direct result of key tailwind across our business lines, that's corporate ESG initiatives, environmental regulation and enforcement and better environmental stewardship remain at the forefront of C suite and government policy.
This is why we have confidence in our newly introduced 20 twenty-two outlook, which Alan will discuss later on.
In addition to strong organic growth.
The other key value driver, we have discussed with you before are immediately accretive acquisitions that have added great talent and service capabilities to our team.
We added several incredible creams demand trust in 2021 and started 2022 on a great but with the addition of the environmental standards team to the mantras family within our assessment permitting in response segment.
Complementary acquisitions, such as environmental standards remain one of our key growth and value creation drivers are.
Our M&A pipeline remains very robust and our thesis and strategy remain unchanged.
Our business is the environment and our mission is to help protect the air we breathe the water, we drink and the soil that feeds us.
This mission statement is increasingly resonating with our clients our team members our communities and our stakeholders.
As we've discussed over the past 18 months, we continued to see market drivers arises government policy catches up with public and market demand for better environmental stewardship.
We were pleased to see President Biden signed the one trillion dollar infrastructure bill into law with bipartisan support last November .
And we are already seeing announcements relative to our relevance to our business, resulting from the bill.
In addition, the U S D P. A announced the first in a series of actions to respond to concerns of local communities historically and disproportionately impacted by pollution.
Our leadership in air quality management uniquely positions us to support both our clients and our communities as they navigate these new regulatory priorities.
Beyond the public sector, we continue to partner with our corporate customers to help them navigate rapidly evolving priorities and investor requests regarding environmental stewardship.
Our capabilities related to water management and water treatment as one example of many allow us to serve our clients and drive value in this regard.
Our large and growing addressable market.
A business well positioned to capture tailwind and the environmental industry.
And an incredible team.
All of these are reasons. It is an exciting time for Montrose I'm grateful for the privilege to lead this incredible group.
Next I'll point to some 2021 highlights and accomplishments.
Excluding the impact of discontinued service lines in the prior year 2021 revenue increased 68%.
We maintained our strong revenue retention rate of over 90% for the year, which combined with new customer acquisitions fueled growth across our segments.
90% excludes C T H, our emergency response business, which is nonrecurring by definition.
2021 adjusted EBITDA grew 43% compared to the prior year, given our strong revenue growth.
We converted approximately 70% of that adjusted EBITDA into operating cash flow, excluding the payment of acquisition related contingent considerations.
Our continued focus on environmental innovation is evident through our R&D investments and four additional patents were awarded in 2021, along with several patents filed and oral waiting reviewed.
We see great long term opportunities to continue to allocate capital to support innovation with environmental solutions and we believe these investments will position us well for strong growth in the future.
While wage inflation and higher turnover continue to be areas of focus in the broader market our concentration on the recruitment and retention of senior level leaders with strong in 2020 , one, especially at the director level and above.
I continue to be impressed by the high caliber of our team and I'm proud of the positive corporate culture, we've built shared mantras to attract and retain such talent.
Our M&A pipeline remains strong.
We completed six strategic acquisitions in 2021 and one in January 2022 all of which were funded almost entirely by internally generated operating cash flow and have added to our evolving environmental capabilities and our exceptional talent pool.
Last year, we achieved our 2021 goal of acquiring $10 million to $15 million of annualized EBITDA in line with our previous goals and historical cadence.
Looking ahead, our immediately accretive acquisition pipeline supports our expectation for $10 million to $15 million in acquired annualized EBITDA per year, including 2022.
We were honored to receive an a rating from MSCI one of the leading ESG rating agencies, particularly given our commitment to environmental and social stewardship.
Yeah.
This is exceptional performance during our less than two years as a public company gives us confidence in our ability to continue to outperform the market and deliver solid and stable long term growth for our investors.
Next we'll look at our business by segment.
Within our assessment permitting in response segment.
Most of the revenue in this segment is driven by C. T. H, though we were pleased to see positive contributions from our acquisitions of environmental intelligence and horizon in the second half of 2021 .
The leadership team at CCH continues to do a stellar job converting dependent make responsive business continuity advice into long term strategic contracts with new and large industries the technology industry in particular.
A key differentiator for them as their data management capability.
And they're highly flexible labor pool, which have proven to be very additive to our clients and supported their capture of market share.
As it relates to C T H supporting clients through the pandemic, we've mentioned on our two previous calls the revenue surge, which began to modulate during Q3, a trend which continues which continued through Q4 and into 2022, while demand was and is still elevated compared to there.
Historical run rate, we anticipate T th will normalize through 2022 compared to 2021.
As such we expect revenue from C. T H to exceed $100 million in 2022, which is higher than their $75 million to $95 million revenue run rate, but lower than their 2021 performance of over $200 million.
Within this segment and excluding C. T. H are higher margin assessment permitting an ecological services business continued to see nice organic tilts.
Within the measurement and analysis segment, we enjoy market leadership in air quality management, and our analytical lab footprint, which is one of the largest in North America was bolstered by our acquisitions of Vista and E C. I.
We remain upbeat about continued growth in this segment given growing environmental regulations.
For example, our service and software advantages related to methane measurement and mitigation continue to see strong demand across the United States and Canada.
As another example.
Example, demand for our specialized environmental testing, specifically, the developing regulatory environment around the dressing P. Pos remains strong.
Margins remained higher than industry averages, but are closer to normal for us to anticipate a normalization. We shared with you before is panning out as expected.
And finally within our remediation and reuse segment, we are seeing a continued trajectory of strong organic growth driven by demand for our P. Foster water treatment and renewable biogas, which has negative carbon intensive energy services in particular.
Margins are creating as we noted on prior calls and as expected, but they remain below normal levels given ongoing investments as the business matures.
In summary, our fourth quarter results marked the completion of another outstanding year for mantras.
We could not be more pleased with the value we have created in our business.
Going back to our IPO in July of 'twenty 'twenty. We ended 2021 ahead of where we thought we would be.
Our revenue and earnings grew faster than we anticipated and select services scale faster than we thought.
As a result, we are catching up on establishing our corporate infrastructure. So we can capture the tail winds and profitably grow during the next chapter of mantras. This evolution.
We believe we are well positioned to continue outperforming in spite inflationary headwinds given the strong demand driving organic revenue growth a solid M&A pipeline, our low leverage and mostly fixed rate debt and our pricing power through our reoccurring work with clients.
We are arguably more optimistic than ever as we look at 2022.
Before I turn it over to Alan I would like to end by thanking and acknowledging all of our team members around the world for their tremendous efforts in serving our clients and achieving these outstanding results I remain grateful for the hard work they've put in through uncertain times and our optimism for mantras. This feature is rooted in our core.
<unk> and her colleagues.
To the Montrose team listening congratulations to all of you on a milestone 2021 .
To our investors. Thank you for your continued support and the opportunity to continue creating value.
Please stay safe and well out there and we look forward to updating you on our results as we progress through this year and into 2022 with that let me hand, it over to Alan and thank you.
Thank you P J.
We are extremely pleased with our strong fourth quarter and full year 2021 results.
As Vijay has mentioned our strong performance through the year reflects the themes we've discussed over the past 18 months since our IPO as well as the end demand nature of our unique environmental solutions.
Growth from organic revenue gains steam as we progressed through the year, which reflects our expanding relationships with notable customers.
Early success with our cross selling initiatives and strengthening exposure across geographies all of which are key to our future growth.
Moving to our revenue performance on slide 10, and.
In 2020 , one we drove strong growth across our business segments during both the fourth quarter and full year.
Total revenues for the fourth quarter increased 32, 2% to a quarterly record of $143 8 million, which is particularly impressive given the fourth quarter is historically one of our weaker quarters for revenues and C. T. H revenue was down year over year as Covid related services continue to slow.
Oh, Yeah, 2021 revenues were up 66, 5% year over year to a record $546 4 million.
The primary driver of revenue growth in both periods was organically for.
For the full year organic growth was 37%.
Moving out to T. H response business.
Excluding C T H organic growth was 17%.
We generally don't focus on organic growth on a quarterly basis as year over year quarterly comparisons can be misleading.
In addition to organic growth our full year 2021 results benefited from a full 12 months of C. T H compared to nine months of results in 2020.
Our outperformance in both periods was also driven by our six strategic acquisitions completed during 2021.
As we've discussed on prior calls mainly in response to the COVID-19 outbreak, we discontinued certain service lines at the end of the first quarter 2020.
This process was completed early in the second quarter of 2020 was partially offset a 2021 comparisons.
Excluding discontinued service line revenues would've increased 68% for the year in 2021 .
Looking at our adjusted EBITDA performance on Slide 11.
Fourth quarter, adjusted EBITDA was up slightly to $18 4 million and adjusted EBITDA margin was 12, 8%.
Oh, Yeah, 2021 adjusted EBITDA grew 42, 5%.
The $77 6 million.
And adjusted EBITDA margin was 14, 2%.
Our margins for both periods with price it mainly due to business mix, including the lower margin pandemic response services.
Provided by C T H.
The planned and expected normalization of margins in certain business lines.
I mean, the reversal of COVID-19 related initiatives.
And investments in corporate infrastructure.
Our full year margins were also impacted by full year of public company costs in the current year that existed on your portion of the pie.
Oh, we emphasize the point you made earlier.
At Montrose performance needs to be assessed.
This is how we evaluate the business since demand for environmental services is not driven by specific or predictable quarterly patents and a stronger predictability on an annual basis.
This is consistent with how we hire sock allocate.
Allocate resources and manage the company.
Turning to our business segment on slide 12.
And our assessment permitting and response segment.
Oh your revenue grew to $261 9 million from $98 5 million in the prior year.
And adjusted EBITDA improved to $57 1 million from $24 2 million in the prior year.
The significant year over year increases in both revenue and adjusted EBITDA were mainly driven by GTH. They saw sustained demand well above trend through the year to provide pandemic response related services.
P. T S contributed full year revenues of $231 5 million.
Compared to $82 4 million in the prior year.
Dth largely benefited from greater COVID-19 related response work.
In the full year 2021 .
The acquisitions of environmental intelligence and horizon in the third and fourth quarters, respectively.
So contribute it to 2021 results in this segment.
The decline in segment adjusted EBITDA margin to 21, 8%, but was largely a result of an increase in lower margin Covid response work performed by GTH in 2021.
And our measurement and analysis segment full year revenue increased one 1% to $153 2 million.
Mali attributable to the acquisitions of Vista, and environmental chemistry in the second and third quarters, respectively.
Partially offset by a decline in revenues from discontinued service line and the timing of projects.
Adjusted EBITDA margin declined to 24% due to business mix and the reinstatement of certain costs that had been temporarily suspended at the outset of the COVID-19 pandemic.
And finally in our remediation and we use segment.
Our revenues increased 68% year over year to $131 3 million.
Reflecting a significant increase in demand for cross border services.
Growth in our biogas.
And the acquisition of MSC and the first quarter.
The 320 basis point increase in remediation and we use adjusted EBITDA margin.
A 14, 7%.
It wasn't a result of higher rents.
The EBITDA margin in this segment continues to reflect the impact of the elevated fixed costs and investments in anticipation of growth and geographic expansion.
Looking at a review of our business trajectory on slide 13.
As we discussed last quarter, we believe S. E T. H business has an expected annual revenue run rate.
$75 million to $95 million.
Although C T S revenue continues to normalize.
Dth revenues was $70 6 million in Q1.
Sequentially each quarter during the year in the $41 4 million at all.
He can't revenues remain elevated as a result of heightened demand for 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 reoccur at the same level in the coming years as the impact of COVID-19 related demand.
<unk> to win.
Yeah.
When excluding the above trend revenue from C. T. H the remainder of our revenue is what we refer to as our base business.
Which includes the normalized revenues, we would expect to see from C. T H.
Our base business continues to experience a solid trajectory.
The organic tailwind as we've discussed on this call.
Moving to our capital structure on slide 14.
We weren't thrilled to see a step change in our operating cash flow generation for the full year, 2021, which increased to $37 6 million compared to $1 9 million last year.
Cash from operations and clinical payment of acquisition related contingent consideration of $15 6 million and $6 4 million in the current and prior year respectively.
Excluding these acquisition related payments.
Cash from operating activities was a record $53 2 million in 2020 one.
Compared to cash from operating activities of $8 3 million.
In 2020 and.
An increase of $44 9 million.
This increase was driven primarily by significantly higher full year earnings before contingent consideration payments and noncash items.
Are you upset by an increase in working capital of $9 8 million.
Our strong cash flow generation capabilities resulted in a nearly 70% conversion of adjusted EBITDA into operating cash flow for the year.
In line with our previously communicated expectations for our long term conversion of adjusted EBITDA and <unk>.
Operating cash flow at a rate in excess of 50%.
These strong cash flows reflect our ongoing focus on the balancing of the generation of cash.
With investments in technology, R&D and corporate infrastructure to ensure continued scalability.
Our leverage ratio as of December 31, 'twenty, 'twenty, one which.
Which includes the impact of acquisition related contingent earn out obligations was at <unk> eight times.
Unchanged compared to Q3, despite the two acquisitions, we completed in the fourth corner.
Our leverage ratio was two seven times at the end of the prior year.
In January 2022, we entered into an interest rate swap transactions fixing the variable component of our interest rate on $100 million of borrowing until January 2025.
Moves such as this and our follow on equity offering in October 2021.
Further financial flexibility to execute on our growth objectives.
As a reminder.
Series H preferred stock has no maturity date and.
And we have the option, but not the obligation to redeem the preferred shares at any time for cash subject to a make whole payment and prepaid prior to April 2023.
We view this preferred equity instrument as favorable to the value creation potential in the business given its flexible dynamics.
If you include the 182 million balance of the series H to equity and our market cap.
Total equity capitalization stands at approximately $1 5 billion.
Moving to our full year outlook on slide 15.
Based on the strong momentum in our business through 'twenty, 'twenty, one and into 2022 .
We are confident in our ability to drive base business growth in the full year 2022.
We are introducing our outlook for full year 2022 revenue to be in the range of $520 million $570 million.
And adjusted EBITDA to be in the range of $73 million to $78 million.
Our 2022 outlook is based on a combination of double digit organic growth.
Excluding C T H.
Plus the contribution of acquisitions, we've already completed.
We expect C. T H full year revenue to exceed 100 million due to some continuation of COVID-19 related services, particularly in the first half of 'twenty two.
I then it's 75 to 95 million annual revenue run rate.
But substantially lower than it is 2021 performance.
While full year 2021 margins were lower compared to full year 2022, the business makes the reversal of prior cost containment efforts.
On a full year of public company costs, our outlook remains unchanged for continued.
Holiday adjusted EBITDA margin expansion.
Over a four to five years got it.
I will provide some of the building blocks in relation to our margin expectations over that timeframe.
In our assessment the permitting in response segment, we expect normalized adjusted EBITDA margin to run between 25.
And 30%.
And our measurement and analysis segment.
We expect adjusted EBITDA margins to continue to run around 20% over the long term.
And finally in the remediation we use segment.
She is immature margins currently due to investments in infrastructure and personnel to support significant anticipated growth.
Should run in the low to mid 20% adjusted EBITDA margins at scale.
Lower corporate cost as a percentage of revenues.
Our expected as our corporate infrastructure matures.
In summary.
2021 was another milestone year for mantras.
I'm on for our differentiated environmental services remained resilient and we saw acceleration across our key business lines during the year as well.
I'll just began to normalize to pre COVID-19 levels.
Our investments in talented team members immediately accretive M&A.
M&A transactions and our IP portfolio.
Driven our exceptional results in the year.
And put us on strong footing entering 'twenty to 'twenty two.
We are increasingly optimistic in our integrated solutions to address greenhouse gases.
Pos and renewables as well as evolving rules and regulations, which gives us confidence in our ability to deliver on our growth objectives in the.
He has to come.
We look forward to the opportunities we see ahead and to updating you on our financial progress over the year as we work to create further value and capture additional market share in a fragmented industry.
Really 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 if he would like to ask a question. Please press star one on your telephone keypad a.
A confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Our first question is from Jim Ricchiuti with Needham and company. Please proceed hi.
Hi, Thanks, good morning.
So hey, Jim just wanted to.
Or are you I wanted to talk.
Talk to you a little bit about the investments you're making overall the infrastructure of the business just to support the growth there is that and I Wonder if you could talk in terms of where you are but.
The follow up question really relates to the inflationary pressures.
Rising compensation costs that are impacting presumably that are impacting the business like everyone else and I'm wondering.
What extent are you able.
Are you able to offset some of these pressures you know perhaps through just even revised pricing initiatives with your clients.
Hey, Jim This is b J why don't I take that and then Allen certainly jump in on.
On the inflationary pressures in terms of pricing, we have a fair degree of confidence that we will be able to pass the price increases on Jim.
Our relationships with the customers are great. They clearly are seeing the same environment, we're seeing in.
In businesses like our advisory businesses, it's a multiple of compensation, so or a cost so as compensation goes up those costs get passed on them and other aspects of our business like the water treatment or biogas business, its not quite as linear or direct but we're seeing similar ABA.
And certainly all the testing side as well. So we're we're not worried about our long term margin expansion in the context of this inflationary environment.
The the first part of your question around investments are partially a function of are those that are necessitated by being public. So we've seen a material scale up in year on year comparison and costs for being a public company. So you know the fact that we've grown and gotten bigger than we are.
At a at a pace.
It was quicker than we thought has caused us to lose our emerging growth status right Sox compliance faster filing ESG reporting.
Additional audit fees I mean, the list goes on and on so some of that is just necessary and certainly will stabilize in the very near future. So that's part of it and then the other part that's more voluntary as we got to have $1 billion in revenue at a much quicker clip than we thought Jim and so we are putting.
And place them additional compliance measures right as we bolster some of our regulatory affairs capabilities safety infrastructure technology.
This development marketing and and the way I would characterize that spend is corporate as a percentage of revenues, we watch that very very closely.
And we took advantage of the fact that we have dramatic outperformance last year to put some of those investments in place. So as we look forward to getting to $1 billion of revenue we have some of that infrastructure in place to get there does that makes sense.
It does thank you and then my follow up question this way.
And Allen.
Who are alluded to this the.
The early benefits that you're seeing some early success from cross selling anything you can.
Elaborate on in terms of talking about the progress we're making in this area.
Yeah, but we're making great progress, Jim and if nothing else you very consistent you've asked that question repeatedly and I think what we promised yeah is that at the end of Q1 of 2022, we will have kind of our first full year of a quarter on quarter comparison, I'd give them to be put in place the sales force.
Tools at the beginning of last year. So when we talk to you in May I think we'll have some more discrete data points, but the with the sales and marketing efforts that have been underway now for awhile.
We have seen an incredible amount of collaboration between our remediation reuse and our advisory segments into our testing segments in particular.
So as a as a small illustrative example, we're winning business.
On both of the advisory side and on the treatment side.
And that's part and parcel with that one business, we are able to position our testing business as an additive service that that is unique in the market.
But also creates kind of a compelling cross sell opportunity. So we're seeing a lot of that type of activity.
And we will elaborate more in terms of both dollars and case studies when we speak to you in May.
Got it Okay look forward to and you can see and Jim the one other the one other point I would make there is the organic growth surge that you're seeing is partially also a function of that very cross selling effort that we talked about.
At IPO with you, where we didn't necessarily have the infrastructure to do it and now the investments are paying off.
Thank you.
Our next question is from Tim Mulrooney with William Blair. Please proceed.
Hey, guys. This is sampling for Tim Thanks for taking our questions here I hope you won't be doing well.
Hey, how are you.
You only get to doing good.
Maybe to start with will be some current events questions here, but has the Ukraine crisis and the resulting sanctions changed how you think about the long term domestic biogas opportunity and maybe more broadly here are there any areas of your business that you were thinking about differently as a result of what's going on in Europe .
No.
As everyone is where we're really dismayed at what's going on in Europe , and we certainly hope.
That's the situation resolved soon for for all the obvious reasons no. We really have very little exposure if at all to any of that where we would be impacted as if the U S or European governments change their policy materially both in terms of.
Their fiscal and monetary policy.
Their regulatory policy, but as at this point, we haven't really seen any shift that impacts Montrose in any way in terms of the biogas business in particular I think the long term trends are in terms of demand for negative carbon intensity gas.
And we do think gas is going to play a more prominent role as the world transitions from one phase of energy to the next that's continuing a pace the organic growth the 17% that we posted excluding C. Th includes continued momentum in that space and so we think that there's other trends there driving that.
That are more fundamental to montrose than Ukraine, and Russia, and if anything it'll be on the margin additive to that so whereas bullish as we've ever been and we're really saddened by by what's happening in eastern Europe , but really no impact of Montreal. So no.
Okay, Great that's great to hear maybe pivoting a bit here, but can you talk about your leak detection business and how that performed over all of 2021 and maybe what your expectations are for that business heading into 2022 Hum.
And this business from the new EPA proposal or anything from that nature.
Yes, I mean, I I would characterize the protection more broadly is just our greenhouse gas measurement and methane measurement capability.
And it is growing faster than our historical organic growth rate that team is doing a spectacular job several of those folks have taken on more prominent roles in promoted into more prominent roles across mantra with kind of national and global oversight.
The the business is still small relative to the macro montrose, but growing at double digits organically and we see no reason to see that you have that change into the foreseeable future the regulatory environments only more favorable.
Relative market advantages are more prominent.
And the markets moving in our direction. So we're we're as bullish as we've ever been in.
As should be apparent in alan's guidance.
R R.
Our conviction and continued acceleration of organic if you go back to kind of our historical averages of 7% to 9%. We think will continue well above that and the greenhouse gas and leak detection piece of it is part of that.
Great to hear your thoughts.
Sure one more for us not really in more of a G fast.
We've seen quite a few articles about the concern around keep asking lingering and air particles have any clients brought this issue up to you and do you guys have any capabilities sort of addressed this in your your air emissions portfolio and just how do you see the growth opportunity as it relates to that piece.
Yes, and yes clients have come to us about it we have some.
Some of the most advanced capabilities in that space and we're intimately involved in helping folks solve it tests for it on the air side as well we happen to have our first organically developed <unk> plus lab.
Right next to one of our largest environments Aladdin networks in North Carolina, which also happens to be Administrated Regan's, former home state and he was involved in some of the aerosolization issues associated with Incinerating Paphos back there and and so we're well aware of.
What happens and how to mitigate some of that in some of our capabilities put us on the leading edge of that so it's that's inherent and implicit in our numbers already on the measurement and analysis.
Excellent.
Great dancers guys best of luck in the next word here.
Thank you Kim.
As a reminder, this star one on your telephone keypad, if he would like to ask a question. Our next question is from Andrew.
With Bank of America. Please proceed.
Hey, Good morning, guys. This is Emily hue on for Andrew Open.
Emily.
Hey, so I'm curious with omicron in December how much did the COVID-19 related business a C. T. H so to outperform your prior forecast and then how are you thinking about the Covid business for C. T H.
In the first quarter, you know given that on a crime.
You know all the kind of cases were still high in January .
It should be running you know about that $100 million run rate.
Thanks.
Yes Emily.
Why don't I, just kind of talk more holistically and then Alan jump in but with specifics C. T. H is.
He has a broad business they have a broad based capabilities across response toxicology and I think as you heard us talk about there.
Software and they're flexible workforce gives them some pretty incredible advantages and so we're really proud of kind of how they performed and the team is the team is incredible. The reason I gave you that long preamble is and for all the reasons, we talked about with you Emily when we went through some of your modeling.
They expected and anticipated a deceleration in their Covid response work through the course of last year. So if you kind of think about where they were in Q1 of 2021 north of $70 million revenue.
They were actually quarter on quarter Q4 down about 10%.
But all in that predicted and anticipated way.
And some of that is due to their team performing so well that they were dealing with a significant amount of fatigue.
And needs to kind of catch their breath.
And so as we think about 2022 some of that demand continues and it's as much about omicron as it is about just broader preparedness.
And mitigation measures being put in place.
And so as we as we put forth our forecast for this year. If you go back to the 75 to 95 million.
On a run rate that we would expect from them year in year out, they're running about 25% north of that.
Because of the Covid response work, which we think is weighted towards the first half of this year. So it's certainly modulating because they did over 200 million last year, but they continue to be a very elevated continue to perform really well and.
And we do think some of that is going to continue through the first half of this year, which is an implicit in our guidance. Both on the revenue side and margin side is that does that answer your question Emily.
Yeah that does that's super helpful.
And then follow up question just on the 2022 again it growth outlook sort of what gives you the confidence for the outperformance.
This is Dan.
Historical high single digit rate and then is this double digit organic growth rate sustainable over the next three to five years that'll.
That'll be it for me.
Yeah, we're not giving guidance for the next three to five years. Emily I think we are going to stick to kind of our broader message that we're really bullish on the macro opportunity, but for this year. We have conviction for a couple of reasons I'm on the P fast treatment and testing side our business has performed.
Really well, we are seeing a lot of private sector demand. So unlike some others that you've alluded to in conversations with us we're not dependent on future regulations of future project cycles, it's already in our numbers today on.
On the renewable energy biogas side that I talked about on the earlier comments, we're seeing some really nice demand there are and on the greenhouse gas methane intensity measurement side, we're seeing some really nice demand. There. So those three levers are already performing really well for us they're part of the reason we were at 17% last year and so we have conviction.
This year on the back of those three specific business segments.
Okay, Great I'll pass it on good luck guys.
Thanks Emily.
Our next question is from Noelle Dilts with Stifel. Please proceed.
Okay Hum.
Hey, so I appreciate that the color you just gave Emily on C. T E. C. T. H revenue am I was hoping you could give us a little bit more color on how we should think about the EBITDA margin contribution as we move from you know kind of it's still it is the fact that the COVID-19 work too.
A more normalized margin level and that's it for me. Thanks.
Alex I'm going to take another woman.
Yeah, well, so as we look into 2022 the first half we anticipate we will see some continued elevated demand and that elevated demand is likely going to be at similar margins to 'twenty to 'twenty, one so depressed versus a typical run rate and then as they return to them.
More normalized level.
Level of earnings.
Post Covid work.
We expect the margins are going to expand back to normal which is that kind of mid twenties range. So you'll see lower backhaul revenue from them, but higher margin percentages and the back office as the Carnival.
I guess I guess more specifically on could you give us the EBIT.
Dollar contribution from C T H.
This in 'twenty or 'twenty, one or are you not getting that specific.
Yeah.
They basis, well no I mean, maybe it's a way to do it and Alan Let me know if this helps because it sounds like you're trying to model. It is is kind of their their business ran at high teens margin in Q4 in terms of EBITDA and so if you kind of think about the impact of that margin profile on our Max.
Segment profile, which Alan in his comments talked about being in that 25% to 30% range you can see how it's a little bit of a tragedy at Richards, they did incredibly well, but because they were so big segment swung kind of the overall margin profile. So yeah. Hopefully that allows you to model it a little bit more effectively I think just stepping back now.
While I suspect. This is a question that's going to come up over and over again.
We're really bullish on our ability to accrete margins and the issue we're having an articulating. This as we go forward is really kind of two fold our revenue surged in specific areas, where margins are a little wonky. So part of that is C. T H, which we just talked about.
But part of it is also our remediation business. So we are seeing a rapid acceleration on the P. Foster even in biogas side and so you can see those margins creep from Alex correct me, if I'm wrong, 11% to 15%, but that is still way below what would be normal for that business, which is kind of low to mid twenty's and so we're seeing disproportionate growth.
Parts of the business that are growing but that are also are margin dilutive in that in the temporary phase of the business. So as that matures on the remediation of reuse side as Dth normalizes, our adjusted EBITDA, excluding corporate will accrete really nicely into the mid Twenty's, if that makes any sense and so you'll see some volatility there is different parts of the <unk>.
Ebb and flow and that's why we keep using this nomenclature of business mix, but as we look forward over three to five years, we're really bullish on being able to get to that mid twenties operating EBITA margin and then corporate as a percentage of revenue will come down as we get there.
Okay. Thank you.
We have reached the end.
Answer session I would like to turn the conference back over to Dave for closing comments.
We really appreciate all of your time, thank you for joining us today and stay safe out there and and we look forward to catching up with you in a couple of months as we provide the Q1 2022 update thanks to all of you and thanks to all of the Montrose team members listening take care.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
Yeah.
Yeah.
[music].
Okay.
Yeah.
Yeah.
[music].
Yeah.
[music].