Q1 2024 Montrose Environmental Group Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to demand <unk> Environmental Group, Inc. First quarter 2024 earnings call.
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The presentation, we will conduct a question and answer session.
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This call is being recorded on Wednesday may eight 2024.
Investor Relations: I would now like to turn the conference or would you rather todays Investor Relations. Please go ahead.
Investor Relations: Thank you operator, welcome to our first quarter 'twenty four earnings call. Joining me on the call are B J Mad three forgot are our president and Chief Executive Officer, and Allan Dicks, Chief Financial Officer.
Speaker Change: Our discussion today, we will be referring to our earnings presentation, which is available on the investors section of the website. Our earnings release is also available on the website moving to slide two.
Speaker Change: I'd like to remind everyone that today's call will include forward looking statements that are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 actual results may differ in a material way due to known and unknown risks and uncertainties that should be considered in evaluating our operating performance and financial outlook. We refer you to.
Speaker Change: To our recent 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.
Speaker Change: 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, and they should not be considered in isolation from the most directly comparable GAAP measures. Please see the appendix to the earnings presentation or.
Speaker Change: Our earnings release for a discussion of why we believe these non-GAAP measures are useful to investors certain limitations of these measures and reconciliations thereof to their most directly comparable GAAP measure.
Speaker Change: With that I would now like to turn the call over to Vijay beginning on slide four.
Vijay: Thank you Rodney and welcome to all of you joining us today I will provide you with business highlights Allan will provide you with the financial highlights. We'll then open it up to Q&A.
Vijay: And I will speak generally to the updated earnings presentation as shared on our website.
Vijay: We have had and continue to have a strong start to 2024.
Vijay: Our results are the byproduct of that momentum and I wanted to start by acknowledging the exceptional efforts of our colleagues around the world.
Vijay: I would also like to remind our listeners that while we discuss quarterly results. Our business is best assessed on an annual basis.
Vijay: Demand for environmental solutions does not consistently followed quarterly patterns and we manage our operations on an annual basis.
Speaker Change: With that let me start by highlighting a few key themes related to our first quarter 2024 results.
Speaker Change: First we are seeing secular tailwind and strong performance across our segments and service lines, resulting in record first quarter revenues and consolidated adjusted EBITDA.
Vijay: Second our solid performance during the quarter is primarily attributable to strong organic growth.
Vijay: Our organic growth continues to be driven by cross selling success in R&D successes.
Vijay: There were also a number of key regulatory updates from the USEPA that presents significant opportunities for our business and.
Vijay: And those updates have increased our confidence about our future.
Vijay: I'll provide additional details on that shortly.
Vijay: Third.
Vijay: M&A remains a key component of our growth strategy and the cadence of opportunities has increased this year relative to our recent past.
Vijay: We are thrilled to welcome the teams for epic to Dot and ETE.
Vijay: The addition of these teams brings stellar talent.
Vijay: <unk>.
Vijay: They also increase our geographic and service capabilities.
Vijay: We have a robust acquisition pipeline and we expect continued M&A momentum in 2024.
Vijay: Our strong track record of successfully acquiring and integrating complementary businesses remains a bright spot for mantras.
Vijay: Allan and I have committed to providing more details about matrix, which are in our public presentations.
Vijay: Their margins have already improved significantly and the return on capital has been much stronger than we expected as the margin increases have occurred without revenue degradation.
Vijay: <unk> is just one example of many in terms of the value creation, we're able to offer to our shareholders.
Vijay: I will next discuss our first quarter performance by segment.
Vijay: Within our assessment permitting in response segment.
Vijay: This segment contains both our advisory business and our Cte H environmental response business.
Vijay: Excluding our response business during the first quarter, we were pleased to see solid organic revenue growth in our advisory services supported by continued cross selling success across multiple service lines.
Vijay: The increase in margins for this segment were primarily driven by strong organic growth.
Vijay: For the response side of this segment.
Vijay: Our emergency response revenue last year was $23 2 million and this year is $15 7 million given the major derailment from 2023.
Vijay: This created a tough quarter on quarter com.
Vijay: And the strength of our overall segment performance is particularly encouraging given given this dynamic.
Vijay: Within the measurement and analysis segment, we continued to experience strong organic revenue growth, particularly in our lab services driven by <unk> and are testing services for example around greenhouse gas measurement mitigation and increased regulations around hazardous air pollutants.
Vijay: Margins during the quarter were slightly lower year over year, primarily due to business mix, but our annual outlook is unchanged.
Vijay: We reiterate our expectation for annual margins in this segment to be around 18% to 20%.
Vijay: Within our remediation and reuse segment revenue.
Vijay: Revenue growth for the quarter was primarily driven by our acquisition of matrix.
Vijay: This was partially offset by lower revenue from our biogas business given our pivot from Q3 of last year to higher margin services.
Vijay: The biogas pivot is complete and our outlook for this year is the same. So this is more about quarter on quarter variance to this time last year.
Vijay: Margins in this segment during the quarter were lower also mainly due to the impact of the matrix acquisition.
Vijay: Matrix typically breaks even or loses money in the first quarter getting given Canadian weather.
Vijay: But that said I would like to reiterate that we are pleased to see the excellent progress made by the team on increasing matrix's margins for the full year and our outlook is unchanged.
Vijay: Given recent regulatory updates as well as the improvements in matrix margins, we expect organic growth and margin expansion in this segment for full year 2024.
Vijay: Next I will discuss recent key regulatory developments and industry trends that support our optimistic long term growth outlook.
Vijay: The U S. EPA finalized its first ever national drinking water standards for P fast pollutants in April.
Vijay: The U S. EPA also designated <unk> MP Foss as hazardous substances under cercla.
Vijay: These long awaited regulatory actions said legally enforceable maximum contaminant levels for several <unk> chemicals, and commit $1 billion of investment to address P fast and drinking water.
Vijay: The rules also require the reporting of any spills and increase the likelihood that new or legacy Superfund sites will need to be investigated and remediated.
Vijay: We expect both of these regulatory updates to open up an approximately $200 billion addressable market for mantras based on third party research.
Vijay: P fast remediation remains a significant opportunity for growth and value creation across all of our segments and we anticipate demand will ramp up steadily over the coming quarters.
Vijay: With regards to methane emissions in March the EPA published landmark rules under the clean Air Act to regulate methane emissions from the oil and gas industry.
Vijay: These rules are set standards for new or modified sources and provide emissions guidelines for states to implement similar standards for existing sources.
Vijay: While the new regulations only apply to new facilities built after December 2022 at this time.
Vijay: This rule is expected to expand and cover existing sources within the next few years.
Vijay: This regulatory framework presents long term tailwind for our emissions measuring monitoring and assessment solutions as clients evaluate their environmental impact.
Vijay: In terms of regulations tracking and.
Vijay: In targeting other air pollutants, the EPA finalized their national emission standards for hazardous air pollutants in April.
Vijay: This new rule requires approximately 200 facilities to reduce air toxics emissions to help protect people living near chemical plants.
Vijay: Mantras remains uniquely positioned given our differentiated ability to measure and communicate quality data, particularly via our software capabilities to industrial partners and local communities.
Vijay: While the compliance deadline was extended since this rules initial proposal. We expect this action will provide long term tailwind to our business as companies review the impact of their facilities.
Vijay: Work to meet emission standards.
Vijay: In summary.
Vijay: We remain upbeat given our organic growth.
Vijay: Our patent development and commercialization.
Vijay: Our strategic acquisitions.
Vijay: And the broader regulatory tailwind for mantras in the quarters and years to come.
Vijay: In early March of this year, we increased our guidance.
Vijay: And we remain confident in our ability to achieve those numbers and goals for 2024.
Speaker Change: These results and are optimistic outlook belong to our approximately 3500 colleagues around the world and I would like to once again, thank them for the tremendous work that they've done.
Speaker Change: I would also like to thank our shareholders for their support and I would like to welcome our newly added shareholders from April's capital raise.
Speaker Change: Allan and I look forward to updating you on our progress next quarter and in the quarters to come.
Vijay: As we collectively re imagine ways to simultaneously support human development and protect our shared environment.
Vijay: With that I will hand, it over to Alan Thank you.
Alan: Thanks Vijay.
Alan: Strong results in the first quarter reflect the strength of our business strong organic growth through our cross selling strategy as well as the contribution of strategic acquisitions.
Alan: In addition, we further strengthened our capacity for accretive growth through the successful completion of our follow on equity offering in April.
Alan: Moving to our revenue performance on slide nine.
Alan: We were happy to see continued strong organic growth across most of our service lines during the first quarter.
Alan: First quarter revenues increased 18, 2% to $155 3 million compared to the prior year quarter.
Alan: Primarily driven by strong organic revenue growth in our <unk> and the M&A segments and the contributions of acquisitions.
Alan: The offset by lower environmental Emergency response service revenues.
Alan: The exiting of a discontinued specialty lab in December 2023, and the shift away from lower margin revenue in our <unk> business in the latter part of last year.
Alan: Looking at our consolidated adjusted EBITDA performance on Slide 10.
Alan: First quarter consolidated adjusted EBITDA was $16 9 million or 10, 9% of revenue.
Alan: This compares to consolidated adjusted EBITDA of $16 6 billion or 12, 6% of revenue in the prior year quarter.
Alan: The increase in consolidated adjusted EBITDA was driven by higher revenues.
Alan: Lower consolidated adjusted EBITDA as a percentage of revenues was primarily driven by seasonally low margins for matrix, which we acquired in June 2023, and therefore was not included in the comparable prior year period.
Alan: And to a lesser extent, a large higher margin environmental emergency response project in the prior year period, which did not recur in the first quarter this year.
Alan: Moving to a review of diluted adjusted net income per share.
Alan: On slide 11.
Alan: Adjusted net income per share was <unk> 16 for the first quarter compared to 17 cents in the prior quarter.
Alan: The decrease was mainly driven by higher interest and higher depreciation in the current period versus the prior year, partially offset by higher EBITDA lower income tax expense and lower dividends paid to our series H preferred shares.
Alan: Please note our diluted adjusted net income per share is calculated using adjusted net income attributable to stockholders divided by fully diluted shares.
Alan: We believe diluted adjusted net income per share is the most helpful. Net income metric to mantras and to common equity investors.
Alan: As an update we made a change to our tax methodology for adjusted net income as reflected in the adjusted net income reconciliation table in the appendix for the current and prior periods.
Alan: Turning to our business segments on slide 12.
Alan: And our assessment permitting in response segment first quarter revenue increased to 12, 2% year over year to $58 6 million driven by strong organic growth.
Alan: The year over year increase was partially offset by.
Alan: By an expected decline in revenues from emergency response services. Following a significant event in the first quarter of 2023 that did not recur in the current year.
Alan: <unk> segment, adjusted EBITDA increased 14, 1% year over year to $16 3 million or 27, 8% of revenue up from 27, 3% in the prior year quarter.
Alan: Reflecting the benefits of organic growth and business mix.
Alan: And our measurement and analysis segment revenue for the quarter increased 7% to $45 5 million, primarily attributable to organic growth.
Alan: First quarter M&A segment, adjusted EBITDA was flat year over year and as a result, adjusted EBITDA margins were down slightly to 14, 3% compared to 15% in the prior year quarter, primarily due to business mix.
Alan: Outlook for annual margins in this segment remained unchanged at 18% to 20%.
Alan: And our remediation and reuse segment first quarter revenues increased 39, 7% to $51 3 million, primarily due to the acquisition of matrix.
Alan: Partially offset by the shift in our <unk> business to focus on higher margin revenue projects.
Alan: The decrease in R&R segment, adjusted EBITDA margin was due to the dilutive impact of metrics, which has historically generated no or negative earnings in the first quarter of every year given seasonality in that Canadian business.
Alan: Our margin optimization efforts are well underway and we remain pleased with matrix as increased profitability, which is on track to achieve a double digit adjusted EBITDA margin by the end of 2024.
Alan: Moving to a review of our cash flow and capital structure on slide 15.
Alan: First quarter cash flow used in operating activities was $22 million compared to cash generated of $3 million in the prior year.
Alan: The year over year change in cash flow used in operations was primarily due to a temporary higher investment in working capital, which was driven primarily by an increase in receivables at matrix and CCH given recently awarded cross divisional projects as well as lower accrued payroll as a result of the payment of the larger bonus.
Alan: In the current year versus the prior year.
Alan: For the balance of the year working capital should moderate and as a result, we expect to produce cash flows from operations in line with that long term conversion of adjusted EBITDA into operating cash flow at a rate in excess of 50%.
Alan: We voluntarily redeem $60 million of principal on the outstanding preferred stock in January yes.
Alan: Associated dividend savings are an estimated $5 4 million annually and represent a proactive step towards simplifying our capital structure.
Alan: Flowing this redemption the principal balance of the preferred stock outstanding was reduced to $122 2 million.
Alan: As a reminder, our convertible and redeemable series H preferred stock has no cash maturity date.
Alan: And no cash redemption obligation, but we have the option to redeem the preferred shares at any time for cash.
Alan: As we highlighted last quarter in February we upsized, our credit facility to $400 million, adding a $100 million through our available liquidity on the same terms as our preexisting facility 50.
Alan: $50 million of the increase was added to our term loan and the other $50 million increased our revolver capacity to $175 million.
Alan: In April we completed a follow on equity offering raising net proceeds of approximately $122 4 million.
Alan: Following this offering we have.
Alan: $218 $8 million of liquidity.
Alan: <unk> $43 $8 million of cash on hand, and approximately $175 million of availability on our credit facility.
Alan: Pro forma for the equity raise our leverage ratio is two one times well below our longer term target leverage of below three five times.
Alan: The capital raise significantly enhances our liquidity crossing us further flexibility to continue to invest in additional M&A, which we expect to be the primary use of proceeds.
Alan: Moving to our reiterated full year outlook on slide 17.
Alan: Based on our strong start to 2024 and the tailwind we see in our business.
Alan: We reiterate our recently increased outlook for full year 2020 for revenues to be in the range of $690 million to $740 million and consolidated adjusted EBITDA to be in the range of <unk> $95 million to $100 million.
Alan: 2024 outlook remains anchored on the expectation for low double digit organic revenue growth and margin expansion over the prior year and includes an unchanged expectation for full year emergency response revenues to be in the $50 million to $70 million range.
Alan: We expect the first quarter to be our low point for revenue and adjusted EBITDA for the year with both metrics increasing sequentially into the second and third quarters of 2024.
Alan: Based on the timing of business activity. This year, we expect to generate roughly 60% of our full year 2024, adjusted EBITDA in the back half up year.
Alan: More heavily weighted back half compared to 2023 is primarily due to significantly improved profitability at matrix and a substantive emergency response in the first half of last year.
Alan: In conclusion, we had a strong start to 2024 with record results in our key operating metrics as we look to the remainder of 2024 and beyond we are incredibly optimistic given the demand momentum for our integrated environmental solutions and the material regulatory tailwind.
Alan: With the success of our cross selling strategy and integration of newly acquired businesses. We are confident in our ability to achieve our full year goals.
Speaker Change: 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.
Speaker Change: Operator, we are ready to open the lines to questions.
Alan: Okay.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session and you have a question.
Speaker Change: Tomorrow, followed by the one other touchtone phone.
Speaker Change: We'll hear three telecom technology think northwest questions will be taken in the order received could.
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Speaker Change: We are using a speaker phone. Please lift begin citicorp question gentlemen.
Speaker Change: Once again that is star one should you wish to ask a question.
Speaker Change: Your first question is from Tim Lugo from William Blair, Sir Please ask your question.
Tim Lugo: Vijay Allan and good morning.
Tim Lugo: Hey, Tim how are you.
Tim Lugo: Doing well thanks for all the color.
Tim Lugo: With the recent Finalization of the Epa's regs for NCL and circle.
Tim Lugo: We appreciate all the color on the market sizing, but I wanted to ask about timing how do you think about the near term one to two year impact of these rulings as you think of across all three of your separate business lines.
Speaker Change: Yes, it's a good question Tim So if you step back the regs.
Tim Lugo: Our structured in a way where the.
Speaker Change: The implication for testing as a three year window.
Speaker Change: Location for treatment has a five year window.
Speaker Change: So those are kind of the formal regulatory mandated timeframes, but what we're seeing a fair amount of activity that's picking up given our earlier conversations with you and others.
Speaker Change: In anticipation of these regs and in anticipation of needing to do some of the testing and remediation knowing what existing.
Speaker Change: P plus levels are in various water matrices that a lot of our clients have been working on and so the way I would think about it in near term for Montrose is it'll be a steady increase.
Speaker Change: We are seeing increased activity already on the testing and assessment side.
Speaker Change: The cadence of inbounds on the treatment side has really picked up as well and so we anticipate through.
Speaker Change: Through the back half of this year and certainly next year, we will start to see that.
Speaker Change: Visible momentum, meaning financially visible momentum on the treatment side, but we're already seeing the momentum on the assessment on the testing side and we expect that to continue and some of that.
Speaker Change: It is partially why we were forward leaning on our view for what the rest of this year looked like earlier this year with you guys.
Speaker Change: Okay.
Speaker Change: That's very clear thank you.
Speaker Change: I guess as my follow up.
Speaker Change: Staying on this topic, but I was hoping you might be able to offer a bit of insight.
Speaker Change: On the <unk>.
Speaker Change: I guess into your portfolio of P. Foster mediation solutions that you have on hand, because I know I know your general resin technology gets a lot of attention, but I also know you have an entire suite of solutions.
Speaker Change: So I'm curious.
Speaker Change: How much do you expect to play on the drinking water side versus those higher contaminated industrial DLD sites airports et cetera.
Speaker Change: Yes, so I mean, if you go back to our our portfolio of services we have.
Speaker Change: Experts regulatory experts Phds toxicologist, helping a lot of our clients thinking about think about how to model. This have to think about the risk kind of think about exposure and liability.
Speaker Change: And how to treat we have dedicated <unk> labs.
Speaker Change: That are really well equipped to address Tim not only the drinking water.
Speaker Change: The testing and the testing of other water matrices, but also on the air side as you think about what happens after <unk> removed right. If youre going incinerated. For example, you need to validate that youre actually destroying these molecules and so our testing footprint is really starting to see some momentum not just with water, but across various environmental media air water and soil.
Speaker Change: Youre exactly right on the treatment side, because we're now looking at.
Speaker Change: Parts per trillion thresholds across six molecules some of.
Speaker Change: Which are more challenging to remove <unk>.
Speaker Change: Certainly our anchor Regeneron resins are seeing a lot more activity, including now a little bit on the drinking water side that that remains not an area of focus for us.
Speaker Change: Our phone fractionation is seeing a lot of uptick on the landfill leachate side, which we're really encouraged to see.
Speaker Change: And then our teams are seeing some really nice inbounds, given our technology for the replacement of a triple that phones, which impacts a whole different constituency and the reason I bring that to your attention.
Speaker Change: Obviously, the drinking water limits are there.
Speaker Change: The municipal drinking water treatment needs to begin and we will begin but all of the sources of upstream contamination are now right in everyone's cross hairs.
Speaker Change: Because they are partially the reason some of these levels are elevated within the drinking water and so it's all interconnected it's really hard to look at this in isolation, but our suite of services is upstream of a lot of these and we're getting pulled downstream into the drinking water market because of some of the lifecycle cost advantages that our technology offers.
Speaker Change: Does that answer your question Tim.
Tim Lugo: It does yes. So it sounds like you do have technologies that can address the drinking water systems. So thats not your main focus, but regardless these mcl theyre going to have adjacent impacts our upstream impacts that go beyond direct water systems and that is going to affect your business in a material way is that a good summary, yes.
Speaker Change: It already is and Thats exactly right yes.
Speaker Change: Okay, very clear I'll jump back in queue. Thank you very much.
Speaker Change: Thanks, Nick Thanks, Tim.
Speaker Change: Alright.
Speaker Change: Your next question is from.
Speaker Change: Jim Ricchiuti from Needham <unk> Company. Please ask your question.
James Andrew Ricchiuti: Hi, good morning, guys.
James Andrew Ricchiuti: Hey, Jim.
James Andrew Ricchiuti: Guys I apologize, if there's going to be some background noise, but I wanted to.
James Andrew Ricchiuti: Two questions first.
James Andrew Ricchiuti: Have a chance to really talk a whole lot about the.
James Andrew Ricchiuti: Revisions to the guidance.
James Andrew Ricchiuti: The raise to your full year guidance earlier.
James Andrew Ricchiuti: Maybe.
James Andrew Ricchiuti: If you just.
James Andrew Ricchiuti: Yes.
James Andrew Ricchiuti: Spend a moment or two on what really drove that I mean, it sounds like <unk>.
James Andrew Ricchiuti: Better performance from matrix, but I'm not sure.
James Andrew Ricchiuti: That is really having as much impact as it is.
James Andrew Ricchiuti: Other parts of the business.
Speaker Change: Yeah, let me take that Jim just philosophically.
Speaker Change: We have learned.
Speaker Change: Since our IPO in 2020 that we're best served being as transparent as we can with you and the broader investment community. So that theres, no surprises quarter in quarter out and <unk>.
James Andrew Ricchiuti: And the reason we were more forthcoming not just when we increased guidance, but if you go back to our February.
James Andrew Ricchiuti: Annual 2023 readout in the first time, we provided guidance for 'twenty four we gave a lot more color on what the quarters look like and the reason for that is there's a few dynamics in the business that are not only topical but very relevant to the financial outcome. The first is.
James Andrew Ricchiuti: The regulatory landscape has shifted materially through the course of Q1 and even even now in the early part of Q2, Jim and as a result, the implications for us and what the back half of the year it looks like and what the organic trajectory looks like Israel that's material.
James Andrew Ricchiuti: And that has changed kind of our optimism not just for this year, but as we look out through the course of the next few years and so that's one variable that that moved from when we initially provided guidance and certainly has moved since we talked with you through the end of last year and early part of this year. The other dynamic that we are weighing and it's certainly going to continue to be a theme we have <unk>.
James Andrew Ricchiuti: <unk> as we think about quarterly performance not annual is the impact of matrix to.
James Andrew Ricchiuti: So you're exactly right that's a business that.
James Andrew Ricchiuti: Is very different in terms of its revenue and EBITDA weighting first half of the year versus the second half of the year and as a result, we wanted to give you guys more color on that and then the third dynamic is the impact both of recent acquisitions and the transition away from the large train derailment emergency response last year. So that's because there were so many confounding variables. We wanted to make sure we were very.
James Andrew Ricchiuti: Open about what's driving the business.
James Andrew Ricchiuti: But fundamentally the increase in guidance was because the structural underpinnings of the business look really solid for us and we're really optimistic about what the next couple of quarters next couple of years looks like does that makes sense.
James Andrew Ricchiuti: It guys Vijay. Thank you that's helpful and just a final follow up question for maintenance.
Speaker Change: You're talking about growing final M&A obviously.
Speaker Change: Additional capital that you've added back in April.
Speaker Change: Maybe if you could two things.
Speaker Change: Historically, you guys have done.
Speaker Change: More smaller deals and a few bigger ones, but I'm just wondering.
Speaker Change: How we should think about M&A activity.
Speaker Change: You guys have to add some additional resources or if you feel you have the infrastructure in place to accommodate a pickup in M&A. Thanks.
Speaker Change: We.
Speaker Change: We are comfortable with our resources that we have in place now Jim.
Speaker Change: Accomplish what we set up for this year and you're exactly right. If you go back if you think about our historical cadence of around $10 million ish of EBITDA and our target of businesses that are a couple of million dollars of EBITDA each that we're purchasing at very attractive multiples.
Speaker Change: That would suggest right just round numbers call. It a handful five ish deals a year and if you look over the last couple of years, we've done more sizable ones like a matrix, but the cadence has been a little smaller.
Speaker Change: Lighter because we've been a little bit more cautious with capital allocation.
Speaker Change: What we're finding now is that the pipeline never went away and the backlog is quite robust in terms of the opportunity set for us.
Speaker Change: Call. It the first four months, we've already closed three transactions and there is more on the comments as a result, the cadence is higher so we wanted to make sure not only has the balance sheet going to be able to absorb that because these are very strategic and very attractive transactions for our long term growth plans.
Speaker Change: But that our team is able to do it too. So there is nothing large that's imminent theres no changes to our strategy. There is no additional resources needed. This is more of the same except that the cadence is higher than it's been in the past.
Speaker Change: Got it thanks very much.
Speaker Change: Thanks Chip.
Speaker Change: All right.
Speaker Change: Thank you.
Speaker Change: Next question is from Brian Butler from Stifel. Please ask your question.
Speaker Change: Yes.
Brian Joseph Butler: Good morning, Thanks for taking my question.
Brian Joseph Butler: Hey, Brian Hey, Brian.
Brian Joseph Butler: Just you kind of touched on this on the M&A question at the last M&A question, but maybe maybe you're a little bit more color on what youre looking for service wise across the segments.
Speaker Change: Just kind of help understand.
Speaker Change: Those opportunities might lie.
Speaker Change: Yes, Brian.
Speaker Change: If you step back and think about where our transaction.
Brian Joseph Butler: As of our leads come from these or word of mouth, either from our clients or from our teams and so it's largely either geographic expansion or the or the addition of specific service lines that are teams believe will be complementary to what they are already offering to our clients.
Speaker Change: And so using the three from this year epic was a continuation of what we already do a fantastic team just an expansion geographically.
Speaker Change: <unk> was exactly the same as the geographic expansion of our current service line.
Speaker Change: And then <unk> is a small transaction it was a partner of mantras.
Speaker Change: Serving existing clients and so that we just brought that in house and so this is that is the geographic expansion I would say is by and large the primary driver existing services shifting strategy, just bolstering our ability to serve our clients in different places.
Speaker Change: The second thing, we look for and I look table Stakes is cultural fit and financial.
Speaker Change: <unk>, so let's put that to the side. The other variable that we look at though to a lesser extent is an expansion of our technical capability or the or.
Speaker Change: Or the acquisition of selected technologies that has not really been.
Speaker Change: The cost for any of the recent transactions, but that is another area, we tend to be focused.
Speaker Change: Okay. That's helpful. And then maybe we could just talk on <unk> SaaS revenues, where we are right now.
Speaker Change: The outlook with the $200 million 200 billion.
Speaker Change: Total addressable market is huge.
Speaker Change: Where are we starting and again you kind of talked about the ramp already but just a little color on the starting point.
Speaker Change: Yes, so <unk>.
Speaker Change: It ebbs and flows a little bit Brian based on kind of the projects but.
Speaker Change: Put it in context, it was call it 15% to $28 million of revenue.
Speaker Change: We approached our IPO and IV at IP around IPO, and it's called 75 to 100.
Speaker Change: Today, and so we've seen really nice growth trajectory.
Speaker Change: Over the last couple of years, and we think that that will be multiples of its size that it is now over the next several years.
Speaker Change: Okay and that would be just one last one coming back on the earlier, sorry, Brian going back to the earlier point that we were making with Tim. This is not just a treatment.
Speaker Change: The consideration for us it impacts all parts of our business in all three segments.
Speaker Change: Okay, Great and then just one last one I was just going to ask on the R&R business X matrix do you have a comparison.
Speaker Change: On the EBITDA margin I mean was that margin up if you took matrix out of the out of the mix or was there still some headwinds from the biogas.
Speaker Change: Mark.
Mark: <unk> would have been down just slightly Brian and you're exactly right, it's the pivot and biogas.
Speaker Change: You'll see that start to ramp really nicely, particularly in the back half of the year margins in that segment will be up.
Speaker Change: Really nicely for the full year.
Speaker Change: Largely driven by the backlog yes.
Speaker Change: Yes, Brian just stepping back and this is why we keep we keep really anchoring in the <unk>.
Speaker Change: Quarters, not being as meaningful as the full year comparison, just to put all this in perspective.
Speaker Change: If you look at the midpoint of guidance.
Speaker Change: It assumes an approximately 100 basis, 0.1% increase in aggregate EBITDA margins.
Speaker Change: Obviously, our advisory business, we think margins will be steady in the mid twenties on the testing side right. That's a mature business, 8% to 20% there'll be steady and so really that margin accretion youre going to see coming from both increased operating leverage and a really nice margin accretion on the remediation reuse segment.
Speaker Change: So we've got to watch this over time right. The individual quarters will be will swing based on acquisitions and other variables.
Speaker Change: Great. Thank you very much for taking my questions nice quarter.
Speaker Change: Thanks, Brian.
Speaker Change: Once you're once again should you wish to ask a question.
Speaker Change: Thus far one on your telephone keypad.
Speaker Change: Your next question is from Stephanie <unk> from Jpmorgan. Please ask your question.
Stephanie: Hi, good morning.
Stephanie: Definitely.
Stephanie: Yes.
Stephanie: I was wondering if you can talk about what you think your normal cadence or I know it's hard to.
Stephanie: Just a sense of what organic revenue growth cadence should be for the next few years I know historically, you've talked about something like mid single digits high single T. J.
Stephanie: People can expect in any particular year I'm wondering with kind of congratulations, especially on the <unk> side, whether we should be thinking about high single digits to low double digits theme to normal near normal for mantra going forward.
Speaker Change: Yeah, why don't I take that and then Allan you should certainly jump in Stephanie.
Speaker Change: Just to just to remind everyone. The way we define organic growth as we exclude the impact of acquisitions entirely and we also exclude the.
Speaker Change: The impact of our emergency response business. So you've got to look at kind of the core performance to really understand what the organic growth trajectory of the business looks like when we went public youre exactly right, Stephanie we talked about being at approximately 7% to 9%.
Stephanie: Organic growth cadence.
Stephanie: And if we look obviously theres been some intra year variability, but as we look past.
Stephanie: Today looking back to IPO, we've been growing closer to 15% a year on average organically.
Stephanie: And if you look at our guidance for this year.
Stephanie: Implying a 10% to 12% organic growth for 2024, and so obviously if you just take those numbers and contrast that with a seven to nine or signal for the near future is that we are at an elevated organic cadence relative to our recent past.
Stephanie: As the business grows as we.
Stephanie: Obviously as revenue continues to accrete at 30 plus percent a year as it has been.
Stephanie: We.
Stephanie: Maintaining those levels on a dollar basis is more challenging and so we're not changing our outlook, but we do believe that we're going to be this year at an elevated organic cadence and certainly the tailwind and the secular tailwind in the industry are real and they're going to continue to impact us positively we believe into the foreseeable future.
Speaker Change: Okay that makes sense that's super helpful.
Speaker Change: And I was wondering if you can talk more about what youre doing youre about biogas business now by.
Speaker Change: We anniversary Ed and.
Speaker Change: Yes.
Speaker Change: What kind of projects are you working on now.
Speaker Change: I think you mentioned that you do expect to see growth in the back half of the year, but just any additional color on what's going on with that business.
Speaker Change: Yes, the pivot is complete and so the quarter on quarter noise will certainly be there because the pivot was really finished through in Q3 of last year. So it's all done it's behind US as we look 23 versus 24, youre going to see really nice revenue and margin growth in that business, we believe and that will manifest itself as part of the <unk>.
Speaker Change: <unk> ECT too footprint, which is a combination obviously, primarily a biogas and R. P plus water treatment business.
Speaker Change: The biogas, it's not so much different projects Stephanie it's the components of the projects that we're servicing that is different rights of focusing on the higher margin design engineering installation as opposed to.
Speaker Change: Some of the herbicide or construction equipment.
Speaker Change: Equipment procurement.
Speaker Change: Okay sounds good thank you.
Speaker Change: Thanks, Stephanie.
Speaker Change: There are no.
Speaker Change: Further questions at this time I will now turn the call back to BP once you're part of order for the closing remarks.
Bp: Thank you very much again for all of you for sharing your time with US. This morning, we're really excited about what the prospects look like for us and we look forward to our Q2 update in the near future take care everyone.
Bp: Thank you ladies and gentlemen, the conference has now ended.
Speaker Change: Thank you all for joining you may all disconnect.