Q4 2023 Montrose Environmental Group Inc Earnings Call

February 29, 2024

Vijay Manthripragada: We also continue to experience strong organic revenue growth. We are especially pleased with the positive performance across our lab and field services, with particular strength in our air quality testing and greenhouse gas testing services. We continue to add to our geographic footprint with new locations to facilitate faster turnaround times for our clients. In addition, our software, coupled with our sensor networks, are creating new and differentiated opportunities for our business.

[music].

Vijay Manthripragada: In total, we remain upbeat about our prospects for continued performance in measurement and analysis for 2020. Annual margins in this segment were at and remained in our long-term 18 to 22 percent expectation range. Finally, within our remediation and reuse segment, revenue growth was primarily driven by our acquisition of matrix that was offset by reduced revenues from our ECT2 water and biogas practices. Margins during the year were lower, primarily given the impact of the matrix acquisition, which was a 4.6 margin business prior to acquisition. Margins were also impacted by lower EC2 revenues, which were due to delays in PFAS projects given delays in the U.S.

Operator: Good day, and welcome to Montrose Environmental Group's fourth quarter 2023 earnings conference call. All participants will be in this and only more. Should you need assistance, please signal the conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then 1 on your touchtone phone.

Good day, and welcome to <unk> Fourthquarter, Duane twenty-three earnings conference calls.

All participants would it be and listen only mode.

Sure do you need assistance please signal.

Confidence specialist by pressing the Staticky followed by Zito.

After today's presentation, there will be an opportunity to ask questions.

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One on your Touchtone phone.

Operator: To withdraw your question, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to Rodny Nacier from Investor Relations. G-School.

Draw your question <unk> then too.

Please note that this event is being recorded.

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Please go ahead.

Rodny Nacier: Thank you, operator. Welcome to our fourth quarter and full year 23 earnings call. Joining me on the call are Vijay Manthripragada, our President and Chief Executive Officer, and Allan Dicks, our Chief Financial Officer. During our discussion today, we will be referring to our earnings presentation, which is available in the Investors section of our website. Our earnings release is also available on the website. Moving to slide two, we 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 materially 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 SEC filings, including our annual report on Form 10-K for the fiscal year ended December 31, 2023, 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.

Thank you operator, welcome to our fourth quarter and full year twenty-three earnings call.

Joining me on the call or B J man pre forgot Ah Ah President and Chief Executive Officer, and Alan Dicks, Chief Financial Officer. During our discussion today, we will be referring to our earnings presentation, which is available on the investors section of our website. Our earnings release is also available on the web site.

Vijay Manthripragada: The shifts in ECT2's biogas services and the improvements we are already making with Matrix are expected to enhance our margin profile in this segment in 2024. This segment should also be back to Steady Organic Growth in 2020. The R&R segment is our least mature segment, and we expect margins to run operationally at 20-25% over the long term. Next, I will discuss recent regulatory updates and industry trends that support our long-term growth outlook. The US EPA remains focused on PFAS and recently added nine PFAS to the list of hazardous constituents under the Resource Conservation and Recovery Act. This rule will give the EPA the authority to regulate emerging contaminants, such as PFAS, at permitted waste facilities and pursue corrective actions in a wide variety of industries, creating substantive opportunities for long-term. With regard to methane emissions, the EPA's new methane rule was finalized in September

Moving to slide too we would like to remind everyone that today's call will include forward looking statements that are subjected the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Actual results may differ in a material way to known and unknown risks and uncertainties that should be considered in evaluating our operating performance and financial outlook.

We refer you to our SEC filings, including our annual report on Form 10-K for the fiscal year ended December 31st 2023, 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.

Rodny Nacier: In addition, we will be discussing or providing certain non-GAAP financial measures today, including consolidated adjusted EBITDA, adjusted net income, and adjusted net income per share. We provide these non-GAAP results for informational purposes only, 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 measures, and the reconciliation thereof to their most directly comparable GAAP measure. With that, I will now turn the call to Vijay, beginning on slide 4. Thank you, Rodny, and welcome to all of you who are joining us today.

In addition, we will be discussing are providing certain non-GAAP financial measures today, including consolidated adjusted EBITDA.

Net income and adjusted net income per share we put by these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. Please.

Please see the appendix 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 measures and a reconciliation they're up to their most cause directly comparable gap measure with that I will now turn the call. The VJ beginning on slide four.

Vijay Manthripragada: This regulation aims to significantly reduce methane releases from flares, vents, and leaks, along with requiring increased leakage, all of which support incremental demand for our emissions measurement, monitoring, and assessment solutions. Our early investments in optical imaging technology and our early investments in software and sensor networks continue to create strong tailwinds for our business given these. Regarding demand for environmental consulting services, the EPA continues to prioritize environmental justice in its rulemaking, permitting, and enforcement activities. We anticipate this campaign will drive increased demand for our advisory services and for our testing services. In summary, before I turn it over to Allan, I would like again to acknowledge the entire Montrose team for their hard work and dedication.

Thank you Rodney and welcome to all of you joining us today.

Vijay Manthripragada: I will provide you with business highlights, and Allan will provide you with financial highlights, and we will then open it up to Q&A. I will speak generally about the updated earnings presentation shared on our website. Before I begin, I would like to take a moment to thank our over 3,100 dedicated colleagues around the world. Their efforts drove another year of record revenue, adjusted EBITDA, and cash flow by implementing best-in-class environmental solutions. I would also like to re-emphasize that our business is best assessed on an annual basis, given demand for environmental solutions is typically not driven by quarterly patterns. We manage our business on an annual basis, and that is how we recommend you view our results as well, in terms of our financial results and business highlights. 2023 was another stellar year for Montrose Env Grp. Our performance was driven by the key themes we touched on last year. First,

I will provide you with business highlights.

[noise] will provide you with financial highlights and we will then opened it up the Q&A.

I will speak generally to the updated earnings presentation chaired on our website.

Before I begin I would like to take a moment to think are over 3100 dedicated colleagues around the globe.

Their efforts drove another year record revenue.

EBITDA and cash flow of implementing best in class Environmental solutions.

I would also like to reemphasize that our business is best on an annual basis given demand for environmental solution is typically not driven by quarterly patterns.

We manage our business on an annual basis and that is how we recommend you have you are resolved as well.

In terms of our financial results in business highlight.

2023 was another stellar ear for my address.

Our performance was driven by the key themes, we touched on last year.

First.

Vijay Manthripragada: I remain incredibly grateful for the immense value they bring to our clients, which is reflected in these record 2023 results. Our upbeat outlook in terms of revenue growth and EBITDA margin expansion for 2024 is a function of the strength of our business and the differentiated nature of our business model, technologies, and services. Allan will touch on our 2024 guidance shortly, and we look forward to updating you on our progress throughout the year. With that, I will hand it over now.

Vijay Manthripragada: We were thrilled to produce record full-year revenue and consolidated adjusted EBITDA. Total revenue grew by 15%, and adjusted EBITDA grew by 19%. Adjusted EBITDA margins increased as planned, and our cash flow was also at record levels. Second, our revenue predictability and consistency continue to improve. Our 95% revenue retention rate with customers in 2023 continues from last year. We also saw a consistent increase in crossouts, with over 50% of our 2023 revenues coming from clients utilizing two or more Montrose services, which was up substantially from last year. Our integrated business model and our IP portfolio enable cross-selling, which further enhances our model. In effect, our flywheel is starting to spin really nicely.

We were thrilled to produce record full year revenue to consolidated adjusted EBITDA.

Total revenue grew about 15 per cent and it.

EBITDA group at 19 per cent.

Adjusted EBITDA margin increase discipline and our cash flow was also at record levels.

Second.

Revenue predictability and consistency continued to increase.

R 95 per cent revenue retention rates with customers in 2023 continues from last year.

We also saw a consistent increasing crossover with over 50 per cent of our 20 twenty-three revenues coming from clients utilizing two or more Montrose services, which was up substantially from last year.

Are integrated business model, and our I P portfolio enable cross selling which further enhances our motto.

In effect or flywheel is starting to spin really nicely.

Allan Michael Dicks: Thank you. Thanks, Vijay. We are pleased with our strong performance in 2023, driven by strong execution, our track record of highly additive M&A activity, and our expanding customer relationships, which drove another year of solid revenue retention and cross-selling success. Moving to our revenue performance on slide 11. We were happy to see continued strong organic growth across most of our service lines during the fourth quarter and full year 2023. Our fourth quarter revenues increased 18.8% to $165.7 million compared to the prior year quarter. Full-year revenues were up 14.7% versus the prior year to $624.2 million. The primary driver of revenue growth in both periods was the positive contributions from acquisitions, including Matrix, strong double-digit organic growth in our APNR and M&A segments, and an increase in environmental emergency response revenue. This was partially offset by our R&R segment, where we experienced delays in project timelines as clients await clarity on PFAS regulations.

Vijay Manthripragada: A large portion of the organic growth that we've seen over the last few years has been from cross-selling our services. So this level of integrated activity within our business gives us confidence to continue growing organically in 2024 and beyond. Third, we saw 24% organic revenue growth in our APNR segment and 17% organic revenue growth in our M&A segment. Our strong organic growth in these segments was primarily due to higher demand for our advisory services and positive performance in our lab and field services, particularly methane emissions and PFAS testing. Fourth, double-digit organic growth in our APNR and M&A segments was partially offset by the expected revenue decline in our R&R segment. This is due to our shift away from lower-margin work within our biogas services. Growth was also impacted by a shift in project timeline as our clients navigate proposed U.S. EPA PFAS regulations that the EPA originally proposed for Q4 2023 and now expects to finalize any day. With all that considered, for the full year, we produced a total organic growth of 2%.

A large portion of the organic growth that we've seen over the last few years has been through cross selling our services. So this level of integrated activity within our business gives us confidence to continue growing organically in 2024 and beyond.

Third.

We saw 24% organic revenue growth and our a T and our segment and 17% organic revenue growth and our M&a's thing.

Are strong organic growth in these segments was primarily due to higher demand for advisory services and the positive performance in our lab and field services, particularly methane emissions test.

Fourth double digit organic growth in our a P. N R and emanated segments was partially offset by the expected revenue decline in our our nurse thing.

This is due to our shift away for a lower margin work within our biogas services.

Growth was also impacted by a shift and project timeline as our clients navigate proposed U S. E. P. A P slots regulation that the E. P. A originally proposed for Q4 2023 and.

Now expected to finalize any day.

With all of that considered for the full year, we produced a total organic growth two per cent.

Vijay Manthripragada: I want to reiterate that our organic growth thesis has not changed despite the strategic shift in our R&R segment that caused a temporary slowdown in 2023. To put a finer point on our organic growth, we have averaged 15% organic revenue growth per year for the last three years, and our 2024 outlook assumes low double-digit organic revenue growth. Our focus on higher margin work in 2023 manifested itself in our adjusted EBITDA results. Our consolidated adjusted EBITDA margin increased 40 basis points. Despite the acquisition, Matrix had full year revenue of approximately $70 million at a 4.6% adjusted EBITDA margin prior to joining Montrose.

I want to reiterate that our organic growth pieces has not changed despite the strategic <expletive> in our on our segment.

Cause a temporary slowdown in 2023.

Allan Michael Dicks: We also executed a strategic shift in our biogas business to focus on higher margin, lower revenue services, as Vijay discussed. Excluding revenue from discontinued businesses, revenue was up 20.2% to $162.8 million in the fourth quarter and was up 17.5% to $615.4 million for the full year. Looking at our consolidated adjusted EBITDA performance on slide 12, fourth quarter consolidated adjusted EBITDA was $17.5 million, or 10.5% of revenue. This compares to consolidated adjusted EBITDA of $17.8 million, or 12.7% of revenue, in the prior year. Prior year Q4 EBITDA includes $2.2 million related to the discontinued specialty lab, which included a business interruption insurance gain following the cyber attack that impacted that lab earlier in 2022. Excluding the discontinued specialty lab, Q4 2023 consolidated adjusted EBITDA increased 12.2%, driven by higher revenue.

To put a finer point on our organic growth seasons.

We have averaged 15% organic revenue growth per year for the last three years.

And our 2024 outlook assumes low double digit organic revenue growth.

Our focus on higher margin work in 2000, twenty-three manifest itself and our adjusted EBITDA results.

Arkansas's a date is adjusted EBITDA margin increased 40 basis points, despite the acquisition of matrix.

Matrix had full year revenue of approximately 70 million at a 4.6% adjusted EBITDA margin prior to joining Montrose.

Vijay Manthripragada: We expect a continuation of adjusted EBITDA margin improvement in 2024. So we not only expect to outperform our historical 7-9% organic growth cadence this year, but we expect to do it with higher margins. Seth?

We expect a continuation of adjusted EBITDA margin improvement in 2024.

So we not only expected to outperform our historical 79% organic brocaded this year, but.

But we expect to do it with higher margins.

Fifth we.

Vijay Manthripragada: We are witnessing growing activity in our end markets driven by new and anticipated regulations as well as our clients' voluntary focus on environmental stewardship, such as New Regulations Affecting PFAS Disposal and Tightened Methane Leak Detection Protocol. Depending on rules on climate disclosures and changes in air emission standards, we are experiencing significant regulatory tailwinds across all aspects of our business. Sixth, acquisitions remain core to our

We are witnessing growing activity in our end market driven by new and anticipated regulations as well as our clients voluntary focused on environmental stewardship.

From new regulations affecting cheapest disposal and tightened methane leak detection protocols.

Depending rules on climate disclosures and changes in air emission standards, we are experiencing significant regulatory tailwinds across all aspects of our business.

Fixed acquisitions remained corridor strategy.

Vijay Manthripragada: Our investments in M&A have been very additive to our ability to service customers through new technologies and geographic expansion. In addition to strategic synergy, we're unlocking tremendous value from pricing and cross-selling opportunities. With larger deals in particular, we are now starting to see cost synergies because we run on one platform and have robust support functions, like Matrix, which had margins of 4.6%. Margin have already almost doubled in our hands on a run rate basis, and we expect continued margin accretion. Furthermore, through our larger scale and cross-selling capabilities, we believe we have grown the serviceable, addressable market for Matrix materials. We closed five acquisitions in 2023, and so far this year, we closed two.

Our investments and M&A had been very additive to our ability to service customers through new technology and geographic expansion.

In addition to the strategic synergy.

Unlocking tremendous value from pricing and cross selling opportunities.

With larger deals in particular, we are now starting to see cost synergies.

Allan Michael Dicks: Roughly half of the lower Q4 Consolidated Adjusted EBITDA margin was due to the removal of the Discontinued Specialty Lab, with the remainder primarily driven by seasonally low margins from Matrix, acquired in June 2023, as well as unfavorable mix and significantly lower incentive comp expense in the prior year. Full-year consolidated adjusted EBITDA was $78.6 million, or 12.6% of revenue, an improvement compared to consolidated adjusted EBITDA of $66.2 million, or 12.2% of revenue, in the prior year. Prior year adjusted EBITDA included $2.1 million from the discontinued specialty lab.

Because we run on one platform and have robust support functions.

With matrix, which had margins of 4.6 per cent.

Margins have already almost doubled in our hands on a run rate basis and.

And we expect continued margin accretion.

Furthermore.

Through our larger scale and cross selling capabilities. We believe we have grown that's serviceable addressable market for matrix material.

We close to five acquisition 2023.

So far this year, we closed too.

Vijay Manthripragada: And our acquisition pipeline is more robust than we've seen in a while. I would also like to highlight the success of our R&D efforts, which aim to solve major environmental challenges and create new opportunities for our visitors. We submitted nine new and unique patent applications in 2023, which we believe will continue to differentiate our services and create value. For example, we expanded our PFAS treatment solutions to include unique foam fractionation and unique bioreactors to address the needs of our clients with wastewater and landfill leachate challenges. We've also expanded our ability to more effectively remove metals from water, like selenium, at the request of our mining and industrial clients. Furthermore, we're helping many of our clients and communities with air quality monitoring and greenhouse gas measurements using next-generation sensors and proprietary software. The EPA's focus on GHG emissions and, separately, the impact of air quality on disadvantaged communities has bolstered demand for our real-time, quality-assured, and data-driven solutions.

And our acquisition pipeline is more robust than we've seen in a while.

I would also like to highlight that we are particularly proud of the success of our R&D efforts, which aimed to solve major environmental challenges and create new opportunities for our business.

We submitted nine new and unique patent applications in 2023, which we believe will continue to differentiate our services and create value.

For example, we.

We expanded our P fast treatment solutions to include unique foam fractionation and unique bioreactors to address the needs of our clients with wastewater in landfill leachate challenges.

Allan Michael Dicks: Moving to a review of diluted adjusted net income per share, on slide 13, adjusted EPS increased for the quarter and full year. For the year, we reported diluted adjusted net income per share of $1.07, an increase of 24% compared to diluted adjusted net income per share of 86 cents in 2022. The increase was mainly driven by higher revenues and stronger adjusted EBITDA dollars. Please note that diluted adjusted net income per share is calculated using adjusted net income attributable to stockholders divided by fully diluted share.

We've also expanded our ability to more effectively removes metals from water.

Plenty of them at.

At the request of our mining and industrial clients.

Furthermore, we're helping many of our clients and communities with air quality monitoring and greenhouse gas measurement using next generation sensors and proprietary software.

The E. P. A is focus on G. H G emissions and separately the impact of air quality and disadvantaged communities at bolster demand for a real time quality assured and data driven solutions.

Vijay Manthripragada: Our historical R&D investments are more than conceptual. They are already generating EBITDA and cash flow, and they are already helping us to continue to generate strong shareholder value. Finally... Our strong balance sheet and record cash flow generation for the year have enabled our investment in M&A and R&D. 2023 cash flow from operations of $56 million, which is more than double compared to the prior year, provided us ample flexibility to continue investing in attractive opportunities. Before I discuss our performance by segment, I would also like to discuss organic performance. When we purchased CTEH, it was almost exclusively a response business, making it more difficult to forecast quarter-to-quarter.

Our historical R&D investments are more than conceptual.

They are already generating EBITDA and cash flow and they are already helping us continue to generate strong shareholder about.

Finally.

Are strong balance sheet and record cash flow generation or the year has enabled our investments and M&A and R&D.

Allan Michael Dicks: We believe diluted adjusted net income per share is the most helpful net income metric to Montrose and to common equity investors. Turning to our business segments on slide 14, I'll focus my comments on the most recent quarter. In our assessment, permitting, and response segment, fourth-quarter revenue increased 10.9% year-over-year to $50.1 million.

2023 cash flow from operations of 56 million.

Which is more than double compared to the prior year.

Provided us ample flexibility to continue investing and attractive opportunities from on trust.

Before I discuss our performance by statement I would also like to discuss organic performance.

When we purchase C. T E. H it was almost exclusively of responsiveness, making it more difficult to forecast quarter to quarter.

Vijay Manthripragada: What we saw in 2023 and what we are already seeing in 2024 is a really nice collaboration between the operating leaders of CPH and the rest of Montrose, which is manifesting in the form of increased crop growth. We are also seeing a nice increase in the consultative part of the CTEH business. And this means... DTEH revenue is now proportionally less responsible and more typical of traditional environmental solutions. We exclude emergency response-related revenues from our organic calculation and have separately disclosed revenues from emergency response, as requested by many of you, our shareholders. I will now discuss our full-year performance by sex.

What we saw in 2023 and what we are already seeing in 2024 is a really nice collaboration between the operating leaders. The C. P H and the rest of Montrose, which is manifesting in the form of increased crossover.

Allan Michael Dicks: The year-over-year increase was driven primarily by organic growth, growth in revenues from environmental emergency responses, and, to a lesser extent, the positive contributions from acquisitions. AP&R segment adjusted EBITDA increased 27.3% year-over-year to $9.2 million, or 18.3% of revenue, up from 15.9% in the prior year, reflecting the benefits of organic growth, favorable revenue mix, and higher aggregate margins across our other businesses within this segment In our measurement and analysis segment, revenue for the quarter increased 15.7% to $54 million, primarily attributable to double-digit organic growth and, to a lesser extent, the benefits of acquisition, partially offset by lower revenues from the discontinued specialty lab. MNA segment adjusted EBITDA was flat year over year.

We are also seeing a nice increase in the consultative part of the C. T H business and this means.

T T E. H revenue is now proportionately less response.

And more typical of traditional environmental solutions.

We exclude the emergency response related revenues from our organic calculation.

And have separately disclose revenues from emergency response as requested by many of you are shareholders.

I will now discuss our full year performance by saying.

Vijay Manthripragada: Within our assessment, permitting, and response segment, we were pleased to see strong organic revenue growth in our advisory services for the full year. We also saw positive contributions from our acquisitions. Our environmental emergency response business continues to perform above historical run rate levels, given several high-profile response projects that continued from earlier in 2023. The increase in margins for this segment was driven by strong organic revenue growth and an increase in environmental emergency response revenue. We remain bullish on the outlook for our advisory services in 2024 and beyond, and in the long run, we expect this segment to continue to run at 20 to 25% EBITDA mark. Within our measurement and analysis segment, we also continue to experience strong organic revenue growth.

Within our assessment permitting in response segment, we were pleased to see strong organic revenue growth and our advisory services for the full year.

We also saw positive contributions from our acquisition.

Our environmental emergency response business continued to perform above historical run rate level.

Given several high profile response projects that continued from earlier in 2023.

The increase in margins for this segment were driven by strong organic revenue growth.

And the increase in environmental Emergency response Rep.

We remain bullish on the outlook for our advisory services in 2024 and beyond and in the long run. We expect this segment to continue to run at 20 to 25 per cent EBITDA margins.

Within our measurement and analysis segment.

Allan Michael Dicks: Excluding the discontinued specialty labs, however, the M&A segment adjusted even though it was $9.7 million or 18.9% of revenue in the current year, compared to $7.5 million or 17.6% in the prior year. The increase in adjusted EBITDA and adjusted EBITDA margin, excluding the discontinued specialty labs, was driven by organic revenue growth. In our remediation and reuse segment, fourth-quarter revenues increased 29.3% to $61.6 million, primarily due to the acquisition of Matrix, partially offset by the anticipated decline in revenues from certain large water treatment projects and the recent pivot in our biogas business to focus on higher margin, lower revenue projects. The decrease in R&R segment adjusted EBITDA margin was due to lower water treatment revenues and the dilutive impact of Matrix.

We also continue to experience strong organic revenue growth.

Vijay Manthripragada: We are especially pleased with the positive performance across our lab and field services, with particular strength in our air quality testing and greenhouse gas testing services. We continue to add to our geographic footprint with new locations to facilitate faster turnaround times for our clients. In addition, our software, coupled with our sensor networks, is creating new and differentiated opportunities for our business.

We are especially pleased with the positive performance across our lab and field services.

With particular strength and our air quality testing and greenhouse gas testing service.

We continue to add to our geographic footprint with new location to facilitate faster turnaround times for our clients.

In addition, our software coupled with our sensor networks are creating new and differentiated opportunities for our business.

Vijay Manthripragada: In total, we remain upbeat about our prospects for continued performance in measurement and analysis for 2024. Annual margins in this segment were at and remained in our long-term 18 to 22 percent expectation range. Finally, within our remediation and reuse segment, revenue growth was primarily driven by our acquisition of matrix that was offset by reduced revenues from our ECT2 water and biogas practices. However, margins during the year were lower, primarily given the impact of the matrix acquisition, which was a 4.6% margin business prior to acquisition.

In total we remain upbeat about our prospects for continued performance.

In measurement and analysis for 2024.

Annual margin in this segment, where at and remained in or a longterm 18 to 22 per cent expectation range.

Finally.

Within our remediation and reuse segment revenue growth was primarily driven by our acquisition of matrix that was offset a reduced revenues from R. E C T to water and biogas practices.

Margins during the year were lower primarily given the impact of the matrix acquisition, which was a 4.6 per cent margin business private acquisition.

Vijay Manthripragada: Margins were also impacted by lower EC2 revenues, which were due to delays in PFAS projects given delays in the U.S. EPA's PFAS regulations and a planned shift in our biogas business towards higher margin surplus. The shifts in ECT2's biogas services and the improvements we are already making with Matrix are expected to enhance our margin profile in this segment in 2024. This segment should also be back to steady organic growth in 2025. R&R is our least mature segment, and we expect margins to run operationally at 20-25% over the long term. Next, I will discuss recent regulatory updates and industry trends that support our long-term growth outlook. The U.S. EPA remains focused on PFAS and recently added nine PFAS chemicals to the list of hazardous constituents under the Resource Conservation and Recovery Act.

Margins were also impacted by lower do revenues, which were due to delays and <unk> projects given delays in the U S. E. P. H P plus regulations and.

They plan to shift in our biogas business towards higher margins Sir.

Allan Michael Dicks: Our margin optimization efforts are well on track at Matrix to achieve a double-digit adjusted EBITDA margin in that business by the end of 2024. Moving to a review of our cash flow and capital structure on slide 17, full year cash flow from operating activities was $56 million.

The shifts and ECT two's by that services and the improvements we are already making with matrix are expected to enhance our margin profile in this segment and 2024.

This segment should also be back to steady organic growth in 2024.

R&R segment is our least mature segment and we expect margins to run operationally at 20 to 25 per cent over the long term.

Next I will discuss recent regulatory updates and industry trends that support our longterm growth outlook.

The USEPA remains focused on P. Five and recently added 95 the.

Allan Michael Dicks: This represented a conversion of adjusted EBITDA to operating cash flow of 71% for the year. Cash flow from operations, which increased roughly $35 million over the prior year, included the payment of acquisition-related contingent consideration of $0.6 million in the current year and $19.5 million in the prior year, accounting for $18.9 million of the year-over-year increase in operating cash flow, with the remainder of the increase driven by a lower working capital build and higher earnings before non-cash items. For the year, we produced free cash flow, i.e. Operating cash flow, this cash paid for CapEx near the proceeds from asset sales of $27.4 million, representing approximately 70% of adjusted net income. In 2023, our cash capital expenditures of $29.6 million included $12.2 million to replace the plane we lost in a tragic accident earlier in the year.

The list of hazardous constituents under the resource Conservation and recovery Act.

Vijay Manthripragada: This rule will give the EPA the authority to regulate emerging contaminants, such as PFAS, at permitted waste facilities and pursue corrective actions in a wide variety of industries, creating substantive opportunities for long-term. With regard to methane emissions, the EPA's new methane rule was finalized in September of 2023. This regulation aims to significantly reduce methane releases from flares, vents, and leaks, along with requiring increased leakage, all of which support incremental demand for our emissions measurement, monitoring, and assessment solutions.

This rule will give the E P. A Z authority to regulate her burgeoning contaminants such as P. Five <unk>.

Permitted waste facilities and pursue corrective actions in a wide variety of industries.

Creating substantive opportunities for mantras.

With regards to methane emissions the E P as new methane rule, it's finalized December of 2023.

This regulation names to significantly reduce methane releases from flares, Vince and leaks, along with requiring increased leak detection.

All of which support incremental demand for emissions measurement monitoring and assessment solutions.

Vijay Manthripragada: Our early investments in optical imaging technology and our early investments in software and sensor networks continue to create strong tailwinds for our business given these. Regarding demand for our environmental consulting services, the EPA continues to prioritize environmental justice in its rulemaking, permitting, and enforcement activities. We anticipate this campaign will drive increased demand for our advisory services and for our testing services. In summary, before I turn it over to Allan, I would like again to acknowledge the entire Montrose team for their hard work and dedication.

Our early investments and optical imaging technology.

And our early investments in software and sensor networks continue to create strong tailwinds for our business given these range.

Regarding demand for our environmental consulting services. The E. P. A continues to prioritize environmental just.

And it's rulemaking permitting and enforcement activities.

We anticipate this campaign will drive increased demand for advisory and for our testing Sir.

In summary.

Before I turn it over to Alan I would like to again acknowledge the entire Montrose team for their hard work and dedication.

I remain incredibly grateful for the immense value they bring to our client which is reflected in these record 2023 results.

Are upbeat outlook in terms of revenue growth and EBITDA margin expansion for 2024 is a function of the strength of our business and the differentiated nature of our business model technologies and services.

Allan Michael Dicks: Ongoing maintenance CAPEX is expected to continue to run at around 1% of revenue. Additionally, our net leverage ratio includes the impact of acquisition-related contingent turnout obligations payable in cash. We ended the year at a healthy ratio of 1.9 times and a strong available liquidity position of approximately $150 million. In January 2024, we voluntarily redeemed $60 million of the outstanding Preferred Stock. The associated dividend savings is an estimated $5.4 million annually and represents a proactive step towards simplifying our capital structure. Following this redemption, the principal balance of the preferred stock outstanding was reduced to $122.2 million. As a reminder, our convertible and redeemable Series A2 Preferred Stock has no cash maturity date, but we have the option to redeem the preferred shares at any time for cash.

Alan will touch on our 2024 guidance shortly and we look forward to updating you on our progress throughout the year.

With that I will headed over now thank you.

Allan Michael Dicks: Thank you. Thanks, Vijay. We are pleased with our strong performance in 2023, driven by strong execution, a track record of highly additive M&A activity, and our expanding customer relationships, which drove another year of solid revenue retention and cross-selling success. Moving to our revenue performance on slide 11. We were happy to see continued strong organic growth across most of our service lines during the fourth quarter and full year 2023. Our fourth quarter revenues increased 18.8% to $165.7 million compared to the prior year quarter. Full-year revenues were up 14.7% versus the prior year to $624.2 million. The primary driver of revenue growth in both periods was the positive contributions from acquisitions, including Matrix, strong double-digit organic growth in our APNR and M&A segments, and an increase in environmental emergency response revenue. This was partially offset by our R&R segment, where we experienced delays in project timelines as clients await clarity on PFAS regulations.

Thanks D J.

We are pleased with our strong performance in 2023.

Mm bye strong execution.

Track record of highly additive M&A activity and are expanding customer relationships, which drove another year of solid revenue retention and cross selling success.

Moving to our revenue performance on slide 11.

We were happy to see continued strong organic growth across most of our service lines during the fourth quarter and full year of 2023.

Fourth quarter revenues increased 18.8% to $165 7 million compared to the prior year quota.

Four year revenues were up 14.7% versus the prior year to 624.2 million.

The primary driver of revenue growth in both periods with the positive contributions from acquisitions, including matrix strong double digit organic growth and our a P. N R and M&A segments and an increase in environmental emergency response revenues.

This was partially offset by our R&R segment, where we experienced delays and project timelines as clients awake clarity on P bus regulations.

Also executed a strategic shift and our biogas business to focus on higher margin lower revenue services as we discussed.

Allan Michael Dicks: In February, we upsized our credit facility to $400 million, adding $100 million to our available liquidity on the same terms as our pre-existing facility. $50 million of the increase was added to our term loan, and the other $50 million increased our revolver capacity to $175 million. Overall, we believe our solid balance sheet, ample liquidity position, and expectation of continued robust operating and free cash flow generation puts us in a good position to continue to drive additional value creation in our business in 2024 and beyond. Moving to our full-year outlook on slide 20. Based on the positive momentum in our business, we are introducing our outlook for full year 2024 revenues to be in the range of $675 to $725 million. We expect Consolidated Adjusted EBITDA to be in the range of $90 to $95 million.

Excluding revenue from discontinued businesses revenue was up 22% to $162.8 million in the fourth quarter and was up 17.5%.

$615.4 million for the full year.

Looking at a consolidated adjusted EBITDA performance on Slide 12.

Fourth quarter consolidated adjusted EBITDA was 17.5 million or 10.5% of revenue.

Allan Michael Dicks: This compares to consolidated adjusted EBITDA of $17.8 million, or 12.7% of revenue in the prior year. Prior year Q4 EBITDA includes $2.2 million related to the discontinued specialty lab, which included a business interruption insurance gain following the cyber attack that impacted that lab earlier in 2022. Excluding the discontinued specialty lab, Q4 2023 consolidated adjusted EBITDA increased 12.2% driven by higher revenue. Roughly half of the lower Q4 Consolidated Adjusted EBITDA margin was due to the removal of the discontinued specialty lab, with the remainder primarily driven by seasonally low margins from Matrix, acquired in June 2023, as well as unfavorable mix and significantly lower incentive comp expense in the prior year. Full-year consolidated adjusted EBITDA was $78.6 million, or 12.6% of revenue, an improvement compared to consolidated adjusted EBITDA of $66.2 million, or 12.2% of revenue, in the prior year. Prior year adjusted EBITDA included $2.1 million from the discontinued specialty lab.

This compares to consolidated adjusted EBITDA of $17.8 million or 12.7% of revenue in the prior year.

Prior year Q4, EBITDA includes 2.2 million related to the discontinued specialty lab, which included a business interruption insurance game. Following the cyber attack that impacted that lab earlier in 2022.

Excluding the discontinued specialty lab Q4, 2002 twenty-three consolidated adjusted EBITDA increased 12.2% driven by higher revenues.

Roughly half of the lowest you for consolidated adjusted EBITDA margin was due to the removal of the discontinued specialty lab with the remainder primarily driven by seasonally low margins from matrix acquired in June 2023, as well as unfavorable mix and significantly lower incentive pump expanse in the prior year.

Allan Michael Dicks: Our revenue and consolidated adjusted EBITDA outlook for the full year represents double-digit revenue growth and margin expansion over the prior year. We anticipate strong organic growth in the low double digits, given our current visibility into in-market demand and cross-selling momentum. Our outlook also includes an expectation for environmental emergency response revenues to be in the range of $50 to $70 million, compared to $91 million in 2023.

Oh Ya consolidated adjusted EBITDA was 78.6 million or 12.6% of revenue and improvement compared to consolidated adjusted EBITDA of $66 $2 million or 12.2% of revenue in the prior year.

Prior you adjusted EBITDA included $2.1 million from the discontinued specialty lab.

Allan Michael Dicks: Moving to a review of diluted adjusted net income per share on slide 13, adjusted EPS increased for the quarter and full year. For the year, we reported diluted adjusted net income per share of $1.07, an increase of 24% compared to diluted adjusted net income per share of $0.86 in 2022. The increase was mainly driven by higher revenues and stronger adjusted EBITDA dollars. Please note that diluted adjusted net income per share is calculated using adjusted net income attributable to stockholders divided by fully diluted shares.

Moving to a review of diluted adjusted net income per share on slide 13.

Adjusted EPS increase for the quarter and full year.

For the year.

We reported diluted adjusted net income per share of one dollar seven an increase of 24% compared to dilute it adjusted net income per share of 86 cents and 2022.

Allan Michael Dicks: Additionally, we anticipate the conversion of consolidated adjusted EBITDA into cash flow from operating activities will remain in excess of 50%, consistent with our long-term annual target. As we think about the distribution of revenue and adjusted EBITDA in 2024, the addition of matrix for the full year and the timing of environmental responses in the prior year will change the growth patterns of our revenue and margins as we move through the year. So we want to provide a bit more color on the topic as follows. We expect revenues to be up year over year in each quarter of 2024. We expect margins to be down in the first quarter and up in the second, third, and fourth quarters, resulting in higher margins for the full year.

The increase was mainly driven by higher revenues and stronger adjusted EBITDA dollars.

Please note a deluded adjusted net income per share is calculated using adjusted net income attributable to stockholders divided by fully diluted ships.

We believe diluted adjusted net income per share is the most helpful. Net income matrix to Montrose enter common equity investors.

Turning to our business segments on July 14th.

I'll focus my comments on the most recent quarter and Ah.

Our assessment permitting in response segment fourth quarter revenue increased 10.9% year over year to $50 1 million.

Allan Michael Dicks: The year-over-year increase was driven primarily by organic growth, growth in revenues from environmental emergency responses, and, to a lesser extent, the positive contributions from acquisitions. AP&R's segment-adjusted EBITDA increased 27.3% year-over-year to $9.2 million, or 18.3% of revenue, up from 15.9% in the prior year, reflecting the benefits of organic growth, a favorable revenue mix, and higher aggregate In our measurement and analysis segment, revenue for the quarter increased 15.7% to $54 million, primarily attributable to double-digit organic growth and, to a lesser extent, the benefits of acquisition, partially offset by lower revenues from the discontinued specialty lab. M&A segment adjusted EBITDA was flat year over year.

The year over year increase was driven primarily by organic growth.

And revenues from environmental emergency responses and to a lesser extent the positive contributions from acquisition.

A P. In our segment adjusted EBITDA increased 27.3% year over year to 9.2 million or 18.3% of revenue from.

Allan Michael Dicks: For the first quarter, we anticipate revenues to be up mid-teens compared to Q1 2023. While first quarter total revenues are up year over year, there will be a notable difference in revenue mix, mostly occurring within our AP&R and R&R segments. In our APNR segment, we had a high-margin emergency response mega project in the prior year period, which is not expected to recur in Q1 2024. In our R&R segment, the primary factor is seasonally low margins from matrix, which was not in the comparable prior year period.

From 15.9% in the prior year, reflecting the benefits of organic growth.

Favorable revenue mix and higher aggregate margins across our other businesses within the segment.

And our measurement and analysis segment revenue for the quarter increased 15.7% to 54 million, primarily attributable to double digit organic growth.

And to a lesser extent the benefits from acquisition.

Partially offset by lower revenues from the discontinued specialty lab.

M&A segment, adjusted EBITDA was flat year over year.

Allan Michael Dicks: Excluding the discontinued specialty labs, however, the M&A segment adjusted even though it was $9.7 million, or 18.9% of revenue in the current year, compared to $7.5 million, or 17.6% in the prior year. The increase in adjusted EBITDA and adjusted EBITDA margin, excluding the discontinued specialty labs, was driven by organic revenue growth. In our remediation and reuse segment, fourth-quarter revenues increased 29.3 percent to $61.6 million, primarily due to the acquisition of Matrix, partially offset by the anticipated decline in revenues from certain large water treatment projects and the recent pivot in our biogas business to focus on higher margin, lower revenue projects. The decrease in R&R segment adjusted EBITDA margin was due to lower water treatment revenues and the dilutive impact of Matrix.

Excluding the discontinued specialty lab.

[noise] about M&a's segment, adjusted EBITDA was 9.7 million or 18.9% of revenue in the current year.

Okay, it's a $7.5 million or 17.6% in the prior year.

Allan Michael Dicks: Therefore, we expect first quarter consolidated adjusted EBITDA margin to be down year-over-year, but up 50 to 100 basis points sequentially compared to Q4 2023. In terms of seasonality, we anticipate revenue in the second, third, and fourth quarters to follow similar seasonality as the prior year, along with margins up year over year in all three quarters. In summary... 2023 was another milestone year for Montrose. With the strong momentum in demand, substantive regulatory tailwinds, and strong cash flow generation, we believe we are well positioned to realize another year of record performance in revenue, adjusted EBITDA, cash flow, and diluted adjusted net income per share. Thank you all for joining us today and for your continued interest in Montrose.

The increase in adjusted EBITDA and adjusted EBITDA margin, excluding the discontinue specialty lab was driven by organic revenue growth.

And our remediation and reuse segment.

Quarter revenues increased $29, 3% to 61.6 million primed.

Primarily due to the acquisition of matrix.

Partially offset by the anticipated decline in revenues from certain large water treatment projects and the recent pivot and are buying gas business to focus on higher margin lower revenue projects.

The decrease in R&R segment, adjusted EBITDA margin was due to lower water treatment revenues and the dilutive impact of matrix.

Margin optimization efforts on well on track it matrix to achieve a double digit adjusted EBITDA margin in that business by the end of 2024.

Moving to a review about cash flow and capital structure on slide 17.

Oh, you're a cash flow from operating activities was 56 million.

Allan Michael Dicks: This represented a conversion of adjusted EBITDA to operating cash flow of 71% for the year. Cash flow from operations, which increased roughly $35 million over the prior year, included the payment of acquisition-related contingent consideration of $0.6 million in the current year and $19.5 million in the prior year, accounting for $18.9 million of the year-over-year increase in operating cash flow, with the remainder of the increase driven by a lower working capital build and higher earnings before non-cash items. For the year, we produced free cash flow, i.e. Operating cash flow that's cash paid for CapEx near the proceeds from asset sales of $27.4 million, representing approximately 70% of adjusted net income. In 2023, our cash capital expenditures of $29.6 million included $12.2 million to replace the plane we lost in a tragic accident earlier in the year.

This represented a conversion of adjusted EBITDA to operating cash flow of 71% for the year.

Cash flow from operations, which increased roughly 35 million over the prior year included the payment of acquisition related contingent consideration a point $6 million in the current year in $19.5 million in the prior year accounting for 18.9 million of the year over year increase in operating cash flow.

Operator: We look forward to the opportunities we see ahead and updating you on our progress next quarter. Operator, we are ready to open the lines to questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone.

With the remainder of the increase driven by a lower working capital build and higher earnings before non-cash items.

For the year, we produce free cash flow.

Operator: If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our host. The first question comes from Jim Ricchiuti, from Needham and Company. Please go ahead. Hi, thank you. Good morning.

E operating cash flow this cash paid for Capex now the proceeds from acid itself of.

$27.4 million, representing approximately 70% of adjusted net income.

In 2023 are cash capital expenditures of 29.6 million included 12.2 million to replace the plane, we lost in a tragic accident earlier in the year.

Allan Michael Dicks: Ongoing maintenance CAPEX is expected to continue to run at around 1% of revenue. Additionally, our net leverage ratio includes the impact of acquisition-related contingent turnout obligations payable in cash. We ended the year at a healthy ratio of 1.9 times and a strong available liquidity position of approximately $150 million. In January 2024, we voluntarily redeemed $60 million of the outstanding preferred stock. The associated dividend savings is an estimated $5.4 million annually and represents a proactive step towards simplifying our capital structure. Following this redemption, the principal balance of the preferred stock outstanding was reduced to $122.2 million. As a reminder, our convertible and redeemable Series A2 Preferred Stock has no cash maturity date, but we have the option to redeem the preferred shares at any time for cash.

Ongoing maintenance Capex is expected to continue to run at around 1% of revenues.

James Andrew Ricchiuti: I wanted to go to the cross-selling metrics that you guys are providing. And this may be a tougher question to answer, but is there any way of gauging the impact of some of the success you're having on cross selling with respect to adjusted EBITDA? And, you know, the other follow-up question, if it's related to this cross selling, is, are you seeing any early cross selling in Canada with the matrix?

Our net leverage ratio includes the impact of acquisition related contingent turnout obligations payable in cash.

He ended the year at a healthy ratio of 1.9 times and a strong available liquidity position of approximately $150 million.

In January 2024, we voluntarily redeemed 60 million of the outstanding preferred stock.

Yeah associated dividend savings or an estimated 5.4 million annually and represent a proactive step toward simplifying our capital structure.

Vijay Manthripragada: business, or is that more of a 2024 story? The short answer is it is absolutely having a material impact on our organic growth, on our EBITDA margins, and on our predictability. What's beautiful about this story for us is that, if you kind of go back to our IPO, we were under 10% of clients purchasing more than one service. And that metric, as you can see in the investor presentation, has been consistently picking up. We targeted getting to 50% over the next few years, and the teams have done an exceptional job. We've kind of hit that metric now ahead of schedule.

Following this redemption the principal balance of the preferred stock outstanding was reduced to $122.2 million.

As a reminder, a convertible and redeemable series H preferred stock is no cash maturity date, but we have the option to redeem the preferred shares at anytime for cash.

Allan Dicks: In February, we upsized our credit facility to $400 million, adding $100 million to our available liquidity on the same terms as our pre-existing facility. $50 million of the increase was added to our term loan and the other $50 million increased our revolver capacity to $175 million. Overall, we believe our solid balance sheet, ample liquidity position and expectation of continued robust operating and free cash flow generation puts us in a good position to continue to drive additional value creation in our business in 2024 and beyond. Moving to our full year outlook on slide 20. Based on the positive momentum in our business, we are introducing our outlook for full year 2024 revenues to be in the range of $675 to $725 million. We expect Consolidated Adjusted EBITDA to be in the range of $90 to $95 million.

In February we upsize that credit facility to 400 million, adding 100 million to our available liquidity on the same terms as our pre existing facility.

$50 million of the increase with added to our term loan and the other $50 million increased a revolver capacity to $175 million.

Overall, we believe a solid balance sheet ample liquidity position and expectation of continued robust operating in free cash flow generation puts us in a good position to continue to drive additional value creation in our business in 2024 and beyond.

Vijay Manthripragada: That's having kind of multiple impacts on our business. If you look at our kind of historical cadence of organic growth and how it's kind of lifted from that 7% to 9% to now the teens, that is, in large part, because of the cross-selling efforts. The margin lift that we saw last year and the margin lift we're kind of anticipating in 2024 is in large part because of these cross-selling efforts. And then the other part that we're really happy about is that the recurring nature of that revenue, which impacts our overall predictability and consistency, has now gone up materially as well. And so it's, This is kind of one of those narratives for us that we're really, really excited about.

Moving to our full your outlook on slide 20.

Based on the positive momentum in our business, we are introducing our outlook for full year of 2024 revenues to be in the range of $675 million to $725 million.

We expect consolidated adjusted EBITDA to be in the range of 90 to 95 million.

Ah revenue and consolidated adjusted EBITDA outlook for the full year represents double digit revenue growth and margin expansion over the prior year.

We anticipate strong organic growth and the low double digits, given our current visibility into and market demand and cross selling momentum.

Our outlook also includes an expectation for environmental emergency response revenues to be in the range of 50 to 70 million compared to $91 million in 2023 <unk>.

Additionally, we anticipate the conversion of consolidated adjusted EBITDA into cash flow from operating activities will remain in excess of 50 per cent.

With a longterm annual topic.

Vijay Manthripragada: And I think the other point, Jim, that's worth noting is that 51% are clients buying more than one service, and we are still a fraction of the overall environmental spend of our existing clients. And so there's still a material opportunity for us to continue penetrating the wallet share, the market share within our existing customer base. And so we think this trend will continue for us for a while. Again, let me just add: this is Allan.

As we think about the distribution of revenue and adjusted EBITDA. In 2024. The addition of matrix for the full year and the timing of environmental responses in the prior year or.

Or change the growth patterns of our revenue and margins as we move through the year.

So we want you to provide a bit more color on the topic as follows.

We expect revenues should be up year over year in each quarter of 2024.

We expect margins will be down in the first quarter and up in the second third and fourth quarters, resulting in higher margins for the full year.

For the first quarter, we anticipate revenues to be up mid teens compared to Q1 2023.

Allan Michael Dicks: It's manifesting itself primarily in our AP&R and M&A segments, where the majority of our clients are. If you look at organic growth, it's 24% in AP&R and 17% in M&A, so well above the industry growth rate. And if you look at margins, margins are up nicely in both of those segments, so it's absolutely manifesting itself. And then just with respect to Matrix, first, how's the integration going?

While first quota total revenues are up your <unk> there will be a notable difference in revenue makes mostly occurring within our a P N R and R&R segments.

And our PNR segment, we had a high margin emergency response Mega project in the prior year period, which is not expected to recur in Q1 2024.

And our our in our segment. The primary factor is seasonally lower margins from matrix, which was not in the comparable prior year period.

Therefore.

We expect first quarter consolidated adjusted EBITDA margin to be down your earlier.

Up 50 to 100 basis points sequentially compared to Q4 2023.

Vijay Manthripragada: You know, clearly, they have some plans to expand margins there. And, you know, has cross selling begun to take place there? Or is that something we should assume this year?

In terms of seasonality, we anticipate revenue in the second third and fourth quarters to follow similar seasonality is the prior year.

Along with margins up your over your and all three quarters.

In summary.

2023, with another milestone <unk> with a strong momentum in demand.

Substantive regulatory Tailwinds and strong cash flow generation. We believe we are well positioned to realize another year of record performance and revenue adjusted EBITDA cash flow and alluded adjusted net income push it.

Vijay Manthripragada: It is, the integration's going well, Jim. We, on a run rate basis, margins have almost doubled in our hands from the point of acquisition. So we are really happy with the way that it's progressing, and we are ahead of plan a little bit and certainly expect to get to our mid-teens by the end of this year. And yes, cross-selling is a big focus. That's kind of the main focus of our commercial organization, and it has already started, and we certainly expect it to manifest more fully this year in 24. And then last question, I'll jump back in the queue, just from an R&D standpoint. Are there any key milestones that we should be looking out for in 2024? We, um... We need to spend some more time with you, Jim, walking through what I would consider some incredible successes on that front.

Thank you all for joining us today and for your continued interest in mantras.

We look forward to the opportunities we see ahead and updating you on our progress next quarter.

Operator, we are ready to open the lines to question.

Thank you.

We will now begin the question and answer session.

To ask a question <unk> and then one on your Touchtone phone.

If you're using a speaker phone please.

Please pick up your handset before pressing the keys.

If I'd anytime your question has been address and you would like to withdraw your question.

Please press Star then too.

At this time.

We will pass momentarily to assemble our roster.

The first question comes from Jim.

Judy.

From Needham and company.

Please go ahead.

Hi, Thank you. Good morning wanted to go to the cross selling matrix that you guys are providing.

Vijay Manthripragada: We filed for nine unique patents in 2023, both expanding our existing footprint for the treatment of multiple contaminants like PFAS but other emerging contaminants, but also opening up some new market opportunities. Each of these is sizable and could be material, obviously, because it's moved into development and the early phase of commercialization. We're not calling for anything specific this year, but as we think about the drivers of our organic growth now, based on investments we made four or five years ago, for example, with PFAS or with methane emissions and monitoring, right, we talked about all this in the past, Jim, we believe some of these opportunities Thanks very much.

And you said you had a.

A tougher question to answer but is is there any more engaging the texans.

Some of the success, you're having a cross selling with respect to adjusted EBITDA and you know the other follow up if it's related to this cross selling is are you seeing any early cross selling in Canada with the matrix.

So what does that for the 2024 story.

If you if you see the short answer is it is absolutely.

A material impact on our organic on our EBITDA margins and on our predictability, what's what's beautiful about this story for US is that if you kind of go back to our I P O.

We were under 10 per cent, you know of clients purchasing more than one service and that metric as you can see in the investor presentation has been consistently taking up we targeted getting 250 per cent over the next few years and the teams have done an exceptional job we've kind of hit that metric now ahead of plan that's having.

James Andrew Ricchiuti: Thanks, Jim. Thank you. The next question comes from Tim Mulrooney from William Blair. Please go ahead. Vijay, Allan, good morning.

<unk> kind of multiple impacts on our business. If you look at our kind of historical cadence of organic growth and how it's gonna lifted from seven.

79% to know the teens that is in large part because of the cross selling efforts. The margin list that we saw last year and the margin lift we're kind of anticipating in 2024 is in large part because of these cross selling efforts and then the other part that we're really happy about is that the recurring nature.

Timothy Michael Mulrooney: Okay, Tim. Hey, just a clarification question to start off here. Would you say low double-digit organic growth guidance for this year? My question is, is that in spite of the headwind from the lower expected disaster response revenues? Or when you say organic, are you excluding both the impact from acquisitions and changes in disaster response revenue? It's both, Tim.

That revenue.

Which impacts our overall predictability and consistency has now gone up materially as well and so it's.

This is this is kind of one of those narratives for us that we are really really excited about it and I think the other point, Jim that's worth noting is that that 51% as clients buying more than one service and we're now we are still a fraction of the overall environmental spend of our existing clients and so there's still a material opportunity for us to continue penny.

Allan Michael Dicks: Yeah, so it's, you know, call it 10% to 12% excluding response, which is, you know, consistent with what we've always been doing, and excluding acquisitions. Got it. Thank you for that clarification. So really, organic growth, you say core, your core business, organic growth, you expect to be a double digit, understood. And so, okay, so that's still obviously looking very healthy. Could you provide a little more detail on what your expectations are specifically for that remediation reuse segment this year on an organic basis? The reason I asked Vijay is, you know, I know we have a lot of moving pieces here. We've got this biogas business, which maybe has another quarter or two of a headwind before that turns into a tailwind. You've got PFAS, which is... you know, still waiting for these regulations. You have Matrix and Epic on the inorganic side.

Trading the the <unk> share of the market share within our existing customer base and so we think this trend will continue for us for awhile.

Let me just add this is Alan it's manifesting itself, primarily an hour APR M&A segments, where the majority of our clients are if you look at no organic growth was 24% in a piano and 17% and m&a's well of.

The industry, both right and if you look at the margins margins are up nicely and both of those segments. So it's absolutely manifesting itself in the numbers.

And then just with respect to the two matrix first have the integration going.

Clearly we have some plans to expand margins here and you know it has cross selling begun to take place there or is that something we should assume this year.

It is the integration is going well Jim we.

On a run rate basis margins have almost doubled in our hands from from the point of acquisition. So we are really happy with the way that's progressing and so we are ahead of plan a little bit and certainly expect to get to our mid teens by the end of this year.

Vijay Manthripragada: So just make any other color you can give us based on what's predicated in your guide to that core organic. Yeah, it's a great question, Tim. So we do expect the remediation reuse segment to get back to kind of healthy organic growth this year. But if you kind of break down our low double-digit expectation for the core business, as Allan alluded to earlier, our APNR segment has been on fire, right? 24% of the food is organic.

And yes cross selling is a big focus that's kind of the the main focus of our commercial organization and it has been it has already started and we certainly expected to manifest more fully this year and 24.

And then last question I'll jump back in the queue just equipment R&D standpoint.

Are there any key milestones and we should be looking out for his 2024.

We [laughter].

We we need to spend some more time with your gym walking through what I would consider some incredible successes on that front, we filed for 90 unique patents in 2000 twenty-three both expanding our existing footprint.

Vijay Manthripragada: Last year, we certainly expect elevated organic growth for them. Again, this year, same with the M&A segment at 17%. Last year, we think there'll be a healthy double digits this year. And then we think the remediation reuse segment, in our estimates, we're assuming kind of mid to mid-high single digit organic. So back to a nice cadence.

For the treatment of multiple contaminants like the thoughts about other emerging contaminants, but also opening up some new market opportunities. Each of these is sizeable and could be material, obviously, because it's moved into development in the early phase of commercialization, we're not calling for anything specific this year.

But as we think about the drivers of our organic now based on investments we made four or five years ago. For example, with P farce or with methane emissions and monitoring right. We talked about all this in the past Jim.

Vijay Manthripragada: Some of that, Tim, is going to be predicated on kind of how this regulatory environment evolves. Obviously, if it comes in more favorable, there's going to be more upside opportunity and long-term upside opportunity. If it gets delayed, that could swing that a couple of points.

We believe some of these opportunities that we're starting to get success with on the R&D side will provide.

Similarly sized growth engine for Montrose three to five years.

Thanks very much.

Thanks, Jim.

Thank you.

The next question comes from.

My Rooney from William Blair.

Please go ahead.

Vijay Hello, good morning.

<unk> right.

Hey, just a clarification question to start off here would you say.

Low double digit organic growth guidance for this year.

Vijay Manthripragada: But we've baked that into our assumptions this year. Does that answer your question? Yeah, it completely answers my question. I guess, when you say kind of dependent upon regulatory, are you speaking specifically about BMCLs and CERCLA and that kind of thing? And if so, could you remind us?

My question is that in spite of the headwind from the lower expected disaster response revenues or would you say organic are you excluding.

Totally impacts from acquisitions and changes in disaster response, whoever you spoke to them yet so it's <unk>. It's you know call at 10% to 12% excluding response, which is consistent with what we've always been doing and excluding acquisitions.

Got it. Thank you for that clarification, so really organic produce at core your core business organic growth you expect to be asked double digits.

Vijay Manthripragada: Yeah, ETT2, it's a big part of it, Tim, right? So if you look at 22 versus 23, that water and biogas part of our business, coming off of obviously triple-digit organic growth in 22, was down about 20%-ish, and we think they're back to a nice, healthy organic growth cadence this year. We do expect to kind of see some of that kind of at the end of Q2, Q3, Q4, because a lot of that, especially on the PFAS side, is gonna be predicated on some regulatory clarity. Thanks so much, guys. Thanks, Jim.

Understood and so okay. So that's still obviously looking very healthy could you provide a little more detail on what your expectations are specifically for that remuneration review segment. This year.

On an organic basis.

V J as I know, we have a lot of moving pieces here, we got this biogas business, which maybe has another quarter or two.

A a headwind before that turned into a tailwind and you've got P fast which is.

You know still waiting on these regs, you got matrix and I pick on the inorganic sides just <unk> any other color you can give us on what's predicated in your guide for that core organic.

Yeah. It's a great question. So we do expect the remediation where you segment to get back to kind of a healthy organic growth of this year, if you've got a breakdown or you know low double digit expectation for the core business.

As Allen alluded to earlier R. A P. R segment has been on fire right 24 per cent organic.

Timothy Michael Mulrooney: Thank you. The next question comes from Andrew Obin from Bank of America. Please go ahead.

Last year, we certainly expect elevated organic for them again this year same with the M&A segment at 17 per cent last year, we think there'll be a healthy double digits. This year and then we think of a mediation, where you segment in our in our estimates we're assuming kind of mid mid mid to high single digit organic.

David Emerson Ridley: Sure, this is David Ridley standing in for Andrew Obin, just a follow up on the last question... Good morning. To follow up on that last question, you know, I understand clients are sort of waiting to see the final regulations on PFAS. Any color, though, on sort of the funnel or the breadth of client discussions that you're having? Yeah, David, I mean, as we are, the funnel has expanded materially. You know, I think the expectation that the treatment limits are as low as they're expected to be, and the number of molecules that are being covered is substantive. And now that the test methods and the rules on how to measure this have been promulgated, there's a lot of attention now on how best to treat it. We are, as you know, working on some of the largest, we've already built in our building some of the largest PFAS treatment facilities in the world. We're seeing that even outside of the industrial space.

So back to back to a nice cadence some of that Tim is gonna be predicated on kind of how this regulatory environment devolves, obviously, if it comes in more favorable there's gonna be more upset opportunity in longterm upset opportunity. If it gets delayed that could swing that a couple of points but.

But we baked that into our assumptions. This year does that does that answer your question.

Yeah. It completely answers my question I guess.

When you say kind of dependent upon.

<unk> are you speaking specifically about the M C L as in cercla, and and that kind of thing and if so could yeah, yeah yeah.

<unk> E C T too, it's a big part of Tim's right. So if you look at 22 versus twenty-three that water and biomass part of our business coming off of you know, obviously triple digit organic and twenty-two was down about 20 per cent fish and we think they're back to a nice healthy organic growth cadence. This year, we do expect to kind of.

Vijay Manthripragada: We're working on some of the largest PFAS treatment facilities on the waste and lentil leachate side, and that's a function of anticipatory activity by a lot of our clients related to these PFAS regulations. And so across the globe, we've seen a real uptick in activity in Europe. We've seen a real uptick in activity here, and the challenge for us is predicting exactly when the wave crests and breaks.

See some of that Ah kind of at the end of Q2 Q3 to four because a lot of that especially on the thief outside is gonna be predicated on some of the regulatory clarity.

[noise] understood. Thanks, so much guys.

<unk>.

Thank you.

The next question comes from Andrew Open from Bank of America.

Go ahead.

Sure. It's just this is David written in Atlanta on for Andrew Open just to follow David Laugh.

To follow up on that last question you know I understand clients are are sort of waiting to see the the finals rags on P. Fast any color, though instead of the funnel or a breath of client discussions that you're having.

Vijay Manthripragada: And then, can we get a little bit more color on the two acquisitions so far this year, EPIC and 2DOT, how they fit with your strategy, you know, relative scale. Yeah, so EPIC is an incredible team. They are kind of environmental experts with an incredible brand and presence within the Australian market. We love them for two reasons. One, the credibility that the team brings in terms of their overall knowledge of and access to the broader Australian market is very complementary to our treatment technology efforts. And that team's expertise also gives us a lot of visibility into how potential regulations and opportunities are evolving as we think about other ways for Montrose to offer services in Australia. So that's been, and will be, an exceptional addition to our team this year.

Yeah, David I mean is that we are the funnel has expanded materially you know I think the the the expectation that the treatment limits are as low as they are expected to be and the number of molecules that are being covered his substantive and now that the test method.

<unk> and the the rules on how to measure. This has been promulgated there's a lot of attention now on how best to treat we are as you know we're working on some of the largest we've already built in our building some of the largest beef us treatment facilities in the world, we're seeing that even outside of the industrial space. We're working on some of the largest beef us treatment.

<unk> on the waist and led to Leech a side and that's a function of anticipatory activity by a lot of our clients related to these people us regulations and so across the globe, we've seen a real uptick in activity in Europe, we've seen a real uptick in activity here. The the challenge for us is predicting.

Exactly when the the wave crests and breaks.

Vijay Manthripragada: And then 2DOT is an environmental consultancy in the Rocky Mountain region. They've got expertise in the energy and renewable energy space in the Rocky Mountain area. And that's, for us, an area we need to continue doing more in. David, as you look at kind of the Montrose footprint, that's a geography in which we are underrepresented given the market opportunity there.

And then [laughter].

We've got a little bit more color on on the the two acquisitions. So far this year epic and two dot how do they fit with your strategy no.

I guess relative scale.

Yeah. There's so ethnic is a is an incredible team they are kind of environmental experts with an incredible Brandon presence within the Australian market, We love it for two reasons one the the credibility that team brings in terms of their overall <unk>.

The job and access to the broader Australian market is very complimentary to our treatment technology efforts.

Vijay Manthripragada: So that's always been a focus. You'll see us continue to build that out. Also, an incredible and exceptional team.

And and that teams expertise also gives us a lot of visibility into how potential regulations and opportunities are evolving as we think about other ways, Vermont Trust offer services in Australia. So that's been it it's gonna be a <unk> I believe an exceptional addition to our team this year and in two dot is.

David Emerson Ridley: So we're really excited about both. Thank you. And one last quick one.

David Emerson Ridley: Since you mentioned it, you know, as you develop client relationships that are deeper and span multiple service lines, are you also starting to have kind of higher relationships at more senior levels of management? Right, that would enable you to take that on a more holistic basis and access greater wallet share for the total company.

A environmental consultancy in the Rocky Mountain region, they've got expertise and the energy and renewable energy space in the in the Rocky Mountain area and that's for US an area, we need to continue doing more in David. It's as you look at kind of the Montrose footprint, that's a geography in which we are under represented given the market.

Vijay Manthripragada: In other words, yeah, is that, you know, it's great that you're winning and winning and winning more. But are you taking that next step to, you know, perhaps have a kind of firm, wide base? Yes, yes. A large part of our effort to expand and part of our thesis around really expanding within the advisory services space, which was an area we were, if you go back, you know, to our inception or even to our IPO, a relatively underrepresented part of our business that has been growing really nicely. And our focus on that, David, is precisely this point. These top-tier, highly credentialed, and deeply experienced experts in the environmental space are advising general counsels, CEOs, CFOs, and heads of environmental. And that obviously gives us a bird's eye view as to different ways that we can help solve our clients' challenges. This is what I was kind of alluding to, David, in the flywheel concept, which is if we can have the relationship at the local level and at the executive level, then we can understand what the needs are.

The unity there. So that's always been a focus you'll see us continue to build that out and also an incredible and exceptional team. So we're really excited about both of these.

Thank you and one one last quick one since you mentioned that you know as you develop client relationships better deeper and and spanning multiple.

Service lines.

Are you also starting to have kind of.

Relationships that have a more senior levels of management.

Right that would enable you to take that more holistic basis and access greater wallet sure for the for the total company in other words yeah.

That <unk> you know, it's great that you're winning and winning and winning more but are you taking that next step to perhaps have a kind of firm wide basis.

Yes, yes, I mean look a large part of our effort to expand and part of our thesis around really expanding within the advisory services space, which was an area. We were if you go back to our inception or even to our I P. O is a relatively under represented part of our business that has been growing really nicely and our focus on that David is precisely.

At this point you know these top.

Top tier are highly credentialed and deeply experienced experts in the environmental space are advising me the general Counsel's C. E O C F O C, a and and heads of environmental and that obviously gives us a birds eye view is two different ways that we can help solve our clients challenges. This is what I was kind of alluding to David on the floor.

[noise] wheel concepts, which is if we can have a relationship at the local level and at the executive level and then we can understand what the needs are and we are uniquely positioned to address those needs because we're we're integrated across though the portfolio. So that's exactly why we are expanding and advisory side and yes. We are seeing really my success there.

Vijay Manthripragada: And we're uniquely positioned to address those needs because we're integrated across the portfolio. So that's exactly why we are expanding on the advisory side. And yes, we are seeing really nice success. Thank you very much. Thank you. Again, if you have a question, please press star then 1. The next question comes from Brian Butler from Stifel. Please go ahead. Good morning. Thank you very much for taking the time to answer my question. Hey, how are you?

Oh, Thank you very much.

Thank you.

Again.

If you have a question <unk> nine one.

The next question comes from Brian Butler from stifled.

Please go ahead.

Good morning, Thank you very much for taking my question.

Hey, how are you.

Brian Joseph Butler: Good. I guess I'll start just on the M&A path as well. Can we talk about maybe what the capacity looks like with the expanded revolver and, you know, taking out the preferred? What's left, I guess, on the capacity size and then maybe some color on the market in what areas are attractive at this point? Yeah, let me take that.

I guess I'll start just on that M&A path as well.

Can we talk about maybe what what is the capacity to look like with the expanded a revolver and you know taking out the preferred what's what's left I guess on the capacity five and then just maybe some color on the market and what areas are attractive at this point.

Yeah, let me take that so we at the end of twenty-three a revolver, which was 125 million at the time was unused so we've added [laughter].

Allan Michael Dicks: So at the end of 23, our revolver, which was 125 million at the time, was unused. So we added 50 million to that. And then the additional $50 million term loan gave us 225 million of capacity, of which 60 is going to pay down the first tranche of the preferred.

To go into that and then there there's no $50 million to him alone gave US 225 million a capacity.

Of which 60 is going to pay down the first tranche from the preferred and the rest is fully available to us.

Allan Michael Dicks: And the rest is fully available to us to continue to acquire and invest. And when you talked about, I guess, on the cash flow side and the conversion, can you just remind me where we're expecting cash flow conversion in 2024? Yeah, what we've historically said is that you should expect us to convert 50 to 60 percent of our adjusted EBITDA into operating cash flow. The last couple of years, we've been north of 70 percent, and I'm particularly proud of the team's ability to manage working capital. We don't talk a lot about this, but our DSOs dropped three days in the core business this year, and that was certainly a contributor toward that strong organic cash flow generation, and that's expected. So we think that 50 to 60 percent target is likely to be on the higher end of that range.

Get into acquiring invest.

Okay, and and when you when you talked about I guess on the cash flow side in the conversion.

Can you give could you just remind me where where we're expecting cash flow conversion in 2024.

Yeah, what what we've historically said is expect us to convert 50% to 60% of our adjusted.

EBITDA into operating cash flow the last Coupla years, we've been north of 70% and I'm, particularly proud of the team's ability to manage working capital. We don't talk a lot about this but I b S. O has dropped three days and Nicole business. This year than it was certainly a contributor towards that.

Strong.

We'll get a cash flow generation.

And that's that's expected so we think that 50% to 60% target we're likely to be on the higher end of that range. So they're very healthy conversion and certainly above where we had expected to be a few years ago.

Allan Michael Dicks: It's a very healthy conversion and certainly above where we had expected to be a few years ago. Yeah, our maintenance CapEx, as you know, always hovers around one to one and a half percent of revenues. The business is still a very capital-light business. And so our ability to continue investing, given how strong cash flow has been, is as good as it's ever been. Okay, then maybe one last one. Can you can you maybe just kind of wrap it up?

Yeah.

[noise] maintenance cutbacks as you know is you know always hovers around 1% to 1.5% of revenues. The business is still a very capitalized business and so are our ability to continue investing given how strong cashflow has been is as good as it's ever been.

Okay, and then just maybe one last one.

Can you can you maybe just kind of wrap it up I know, we've touched on a bunch of different ones, but when you think about the quarters. In 2024 are there any really tough comparisons kinda by segment that everyone should be aware of and just kind of make sure that we don't we don't Miss anything in in that you know like the headwind and R&R is there anything else that we should be focused on.

Allan Michael Dicks: I know we've touched on a bunch of different ones. But when you think about the quarters in 2024, are there any really tough comparisons kind of by segment that everyone should be aware of and just kind of make sure that we don't miss anything in the, you know, like the headwind in R&R. Is there anything else that we should be focused on? Yeah, it's a great question.

Yes, we think is a great question as we think about the profile of the year. We gave it there's no color and the prepared remarks on Q1. So revenue is going to be up of of every quarter in the year Q1 is the toughest comparable on an even obey.

Allan Michael Dicks: As we think about the profile of the year, we gave additional color in the prepared remarks on Q1. Revenue is going to be up in every quarter in the year. Q1 has the toughest comparables on a debiter basis, mainly because of the large emergency response in the prior year. The rest of the year, so Q2, 3, 4, will follow a similar seasonal pattern, although Q2 will have two more months of accumulated data that was acquired. June 1st of 23.

<unk>, mainly because of the large emergency response in the prior year.

The rest of the year. So Q2, three four will follow a similar seasonal pattern. Although Q2 will have two more months of matrix that was acquired.

June 1st of 23, but you'll see a similar across the and those quarters similar profile and then margins are typically significantly higher in Q2, and Q3 and you'll see that if you. If you look across 20 twenty-three we expect that to continue I think I got in queue for similar.

Allan Michael Dicks: But you'll see a similar profile across the year in those quarters, and then margins are typically significantly higher in Q2 and Q3. And you'll see that if you look across 2023, we expect that to continue. And again, Q4 will follow similar margin seasonality as the prior year. So in every quarter, we will be up on revenue, and margins will be up. The seasonal profile should be fairly similar year on year.

Margin seasonality as the prior year, Sir and every quarter, we will be up on revenue and margins will be up the seasonal profiles to be fairly similar you on you.

Brian Joseph Butler: Great, very helpful. Thank you very much. Congratulations on a good quarter. Thank you. This concludes our question and answer session. I would like to turn the conference back over to the CEO, Vijay Manthripragada, for any closing remarks. Thank you, and thank you to all of you for joining us this morning. We're really excited about the year, and we're looking forward to continued dialogue with you as the year unfolds. Talk soon, and take care. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect. BF-WATCH TV 2021

Alright very helpful. Thank you very much congratulations on a good corner.

Thank you. Thank you.

Thank you.

This concludes that question and answer session.

I would like to turn the conference back over to the C. E O B J my supervisor for any closing remarks.

Thank you and thank you to all of you for joining US. This morning, we're really excited about the year and we're looking forward to continue the dialogue with you as the year unfolds talk to them and take care.

Mmm.

This conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.

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