Montrose Environmental(MEG) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Q2 2024 revenue increased by 8.9% to a record $173.3 million, with H1 2024 revenue reaching $328.7 million, up 13.1% YoY [23] - Q2 2024 consolidated adjusted EBITDA was $23.3 million, or 13.5% of revenue, compared to $21.2 million, or 13.3% of revenue in Q2 2023 [24] - Diluted adjusted net income per share was $0.20 in Q2 2024, down from $0.29 in Q2 2023, primarily due to increased interest and tax expenses [25] - Full-year 2024 revenue guidance reiterated at $690 million to $740 million, with consolidated adjusted EBITDA guidance of $95 million to $100 million [30][31] Business Segment Performance - Assessment, Permitting and Response (AP&R): Q2 revenue was $53.4 million, down from $61.4 million YoY due to a $14.7 million decline in environmental emergency response revenues [27] - Measurement and Analysis (M&A): Q2 revenue increased 9.5% to $54.8 million, with adjusted EBITDA up 14.6% to $12.4 million, or 22.5% of revenue [27] - Remediation and Reuse: Q2 revenue increased 36.6% to $65.1 million, driven by the acquisition of Matrix and strong organic growth in soil and groundwater remediation [28] Market and Regulatory Developments - The U.S. Supreme Court rulings may limit federal agency authority, increasing regulatory complexity and driving demand for advisory and consulting services [13][14] - PFAS regulations, including CERCLA designations, are expected to enhance access to a $200 billion addressable market [16][17] - Methane emissions funding of $850 million from the EPA presents long-term tailwinds for emissions monitoring and assessment solutions [18] Strategic Direction and Industry Competition - The company completed strategic acquisitions of Paragon and Spirit Environmental, expanding its footprint in Canada and the U.S. Mountain and Gulf states [7][8] - The M&A pipeline remains robust, with numerous opportunities expected in the next 12 to 18 months [8] - The company's business model is designed to be resilient to political changes, with limited exposure to any single end market [19] Management Commentary on Operating Environment and Future Outlook - Management remains confident in the company's ability to capitalize on regulatory complexity and growing environmental concerns [9][20] - The company expects strong organic growth in the back half of 2024, with full-year organic growth guidance of 10% to 12% [6][31] - Client sentiment remains positive, with no immediate changes expected in demand for the company's services [15] Other Important Information - The company raised $121.8 million in a follow-on equity offering, deploying $27 million for acquisitions [29] - Leverage ratio as of June 30, 2024, was 2.4x, well within the long-term target of below 3.5x [30] - Matrix is on track to achieve mid-teen adjusted EBITDA margins by the end of 2024 [28][47] Q&A Session Summary Question: Organic growth in Q2 - The company does not break out quarterly organic growth but is on track to achieve annual organic growth guidance of 10% to 12% [33] Question: Water treatment business outlook - PFAS water treatment is expected to grow in H2 2024, with long-term secular tailwinds in the broader treatment technology business [34][35] Question: Impact of Supreme Court rulings on M&A and resource allocation - The company does not anticipate significant changes due to the Supreme Court rulings, as most regulations impacting the company are within the EPA's statutory authority [39][40] Question: Gross margin improvement - Gross margins improved due to business mix, pricing success, and operating leverage, with further improvements expected [42][43] Question: Contribution of recent acquisitions to guidance - Recent acquisitions (Paragon and Spirit) are small and contribute minimally to the full-year guidance [45][46] Question: Matrix margin improvement - Matrix is on track to achieve mid-teen adjusted EBITDA margins by the end of 2024, driven by pricing, staffing optimization, and overhead cost reductions [47][48] Question: Renewable service business progress - The renewable service business is progressing well, with expected growth in H2 2024 and beyond [50][51] Question: Capital allocation and share buybacks - The company has surpassed its annual acquisition goal of $10 million in EBITDA and does not currently plan to buy back shares, focusing instead on high-growth acquisitions [52][53][54]