Montrose Environmental(MEG) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported total revenues of $139.5 million for Q4 2022, a decrease from $143.8 million in the prior year quarter, primarily due to significantly lower CTEH revenue, partially offset by organic growth in other segments [25] - Full year consolidated adjusted EBITDA was $66.2 million, or 12.2% of revenue, compared to $73.2 million, or 13.4% of revenue in the prior year, driven by a decline in CTEH earnings and higher variable costs [26] - The company achieved record organic revenue growth of 26% in its core business for 2022, with average organic growth over the past three years at approximately 18% [14][15] Business Line Data and Key Metrics Changes - In the Remediation and Reuse segment, revenues increased year-over-year to $184.8 million, driven by strong demand for PFAS water treatment technology and biogas services [47] - The Measurement & Analysis segment saw revenue increase by 12.5% to $172.4 million, attributed to strong organic growth and acquisitions, although adjusted EBITDA as a percentage of revenue decreased to 18.3% due to business mix and a cyber attack impact [38] - The Assessment, Permitting and Response segment experienced a decrease in full year revenue and adjusted EBITDA to $187.2 million and $37.5 million, respectively, primarily due to the decline in CTEH COVID-19 revenues [37] Market Data and Key Metrics Changes - The U.S. EPA's focus on PFAS and methane emissions is expected to drive demand for the company's consulting and testing services, with new regulations anticipated to increase market opportunities [29][30][32] - The company is well-positioned to capitalize on government policy initiatives aimed at improving environmental stewardship, which are expected to create tailwinds for its services [29][33] Company Strategy and Development Direction - The company plans to continue its focus on organic growth, with expectations for double-digit organic revenue growth in 2023, while also resuming a regular cadence of M&A activity [28][52] - The long-term strategy remains unchanged, emphasizing the ability to create shareholder value through innovation and strong demand for environmental solutions [28][60] - The company aims to deepen existing customer relationships rather than focusing solely on customer acquisition, with cross-selling revenues nearly doubling to 35% of total revenues [17][66] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's ability to achieve substantial value creation in 2023, driven by strong demand for environmental solutions and a robust pipeline of prospective acquisitions [60][111] - The company acknowledged challenges in predicting the timing of project starts and the impact of recent acquisitions on short-term margins, but remains confident in long-term margin targets [70][77] - Management highlighted the importance of regulatory momentum and market drivers in shaping future growth opportunities [29][32] Other Important Information - The company reported a strong balance sheet with cash on hand of $89.8 million and an additional $125 million available on its revolving credit facility, providing flexibility for future investments [49][50] - The company has filed for 14 patents and is actively working on innovations related to PFAS destruction and carbon dioxide capture, indicating a commitment to long-term environmental opportunities [56] Q&A Session Summary Question: Insights on greenhouse gas monitoring and renewables for 2023 - Management noted a material uptick in demand for greenhouse gas measurement services, which is expected to contribute to organic growth in the Measurement and Analysis segment [64] Question: Potential for increasing cross-selling revenues - Management indicated that there is significant potential for cross-selling to exceed 50% of revenues as the focus remains on deepening customer relationships [67] Question: Factors affecting EBITDA margin guidance for 2023 - Management explained that while long-term margin targets remain unchanged, short-term challenges include the impact of acquisitions and R&D investments on margins [70][77] Question: Factors driving revenue guidance for 2023 excluding CTEH - Management highlighted the importance of the greenhouse gas measurement practice and regulatory developments in determining revenue performance [89] Question: Synergies between Montrose and CTEH outside of COVID-related work - Management emphasized the synergistic relationship between Montrose and CTEH, particularly in responding to environmental incidents and providing downstream services [99]