Montrose Environmental(US:MEG)2021-05-13 20:17Financial Data and Key Metrics Changes - Revenue increased 119% year-over-year to $133.8 million in Q1 2021, primarily driven by acquisitions, notably CTEH and MSE [30][31] - Adjusted EBITDA grew 203% to $16.8 million, with adjusted EBITDA margin expanding 350 basis points to 12.6% [31][32] - Q1 2021 revenue on a trailing 12-month basis increased 64% compared to the prior-year period [14] Business Line Data and Key Metrics Changes - In the Assessment, Permitting, and Response segment, revenue grew to $75.3 million, with adjusted EBITDA improving to $15.8 million, mainly due to CTEH's acquisition [33] - Measurement and Analysis segment revenue decreased 8% to $33.4 million, primarily due to discontinued service lines and project timing [34] - Remediation and Reuse segment revenues increased 25% year-over-year to $25.1 million, reflecting MSE's acquisition and organic growth [35] Market Data and Key Metrics Changes - The company noted strong demand for environmental services driven by regulatory changes and increased client focus on emissions reduction [12][13] - The political and regulatory landscape is expected to bolster demand for environmental services, particularly with new initiatives from the Biden administration [11] Company Strategy and Development Direction - The company aims for annual revenue growth in excess of 20% and adjusted EBITDA growth faster than revenue [9] - M&A remains a key part of the strategy, with a strong acquisition pipeline and successful integration of recent acquisitions [24][26] - Investments in technology and innovation are expected to drive organic growth and enhance service offerings [22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued strong performance through 2021, despite challenges in certain markets due to COVID-19 [10][42] - The company anticipates strong cash flow from operations and a long-term conversion of adjusted EBITDA into operating cash flow at a rate exceeding 50% [39] - The outlook for 2021 has been raised, expecting adjusted EBITDA in the range of $63 million to $70 million, up from previous guidance [42] Other Important Information - The company has entered into a new sustainability-linked credit agreement, expanding borrowing capacity and reducing borrowing costs [40] - The Series A-2 preferred stock has no maturity date, providing flexibility in capital structure [41] Q&A Session Summary Question: Impact of SG&A scaling and temporary cost savings - Management indicated that temporary labor costs were reinstated in Q1, impacting operating margins, with full impact expected in Q2 [50][52] Question: Concerns about Remediation and Reuse segment margins - Management expressed confidence in responding to increased demand and noted that margin normalization is expected in the latter half of the year [56][58] Question: Assessment of COVID-related work and future performance - Management clarified that the strong Q1 performance was driven by pandemic response work, but they expect normalization in Q3 and Q4 [66] Question: M&A environment and pricing - Management noted that while broader market expectations are high, they remain focused on smaller, strategic acquisitions without shifting from their disciplined approach to acquisition multiples [72] Question: Leak detection business and regulatory changes - Management highlighted that recent regulatory activity around methane emissions is expected to positively impact their leak detection business [75][76] Question: Investments in IT and commercialization - Management reported that investments in CRM systems have led to increased cross-selling opportunities across segments [81][82] Question: Market for greenhouse gas emissions monitoring - Management acknowledged the growing demand for emissions measurement and mitigation services across various industries, driven by public policy [88][90] Question: Infrastructure bill impact - Management indicated that the most significant opportunities from the infrastructure bill are expected in the assessment and advisory segments [95][96]