Montrose Environmental(MEG)2024-11-09 16:14Financial Data and Key Metrics - Q3 2024 revenue reached a record 28.3 million, with a margin of 15.8%, a 190 basis point improvement over the prior year quarter [11][31] - Year-to-date revenue for the first nine months of 2024 was 0.41, up from 0.31 in the prior year quarter [32] Business Line Performance - Assessment, Permitting and Response (AP&R) segment revenue was 52 million in Q3 2024, down from 12.8 million reduction in high-margin environmental emergency response revenue [35][36] - Measurement and Analysis (M&A) segment revenue increased 16.1% to 68.1 million in Q3 2024, benefiting from acquisitions and solid organic growth in remediation services, offsetting declines in treatment technology revenue [38] Market Performance - Approximately 20% of the company's business in Canada, Australia, and Europe continues to perform well, with strong demand across all geographies [25][50] - The US market remains robust, with growing demand for environmental solutions driven by regulatory changes and public/private sector focus on environmental stewardship [12][13] Company Strategy and Industry Competition - The company remains committed to its long-term strategy, focusing on organic growth and cross-selling initiatives, while temporarily deemphasizing acquisitions to prioritize the redemption of Series A-2 preferred stock [14][15] - The company expects to convert over 50% of consolidated adjusted EBITDA into operating cash flow, enabling investments in business, strategy, and people [16] - The company's selection by the US Army Corps of Engineers for a major environmental contract validates its strategic approach and positions it well within the growing US federal sector [25] Management Commentary on Operating Environment and Future Outlook - Management remains confident in the company's ability to perform well regardless of political changes, citing historical growth during the Obama, Trump, and Biden administrations [24] - The company expects strong organic growth across most business lines and positive contributions from acquisitions, despite temporary delays in certain project work [18][45] - The company reiterated its full-year 2024 guidance, expecting revenue of 740 million and consolidated adjusted EBITDA of 100 million [18][43] Other Important Information - The company reported significant improvement in operating cash flow conversion to 40% of consolidated adjusted EBITDA in Q3 2024, with further improvement expected in Q4 [17] - The company's leverage ratio as of September 30, 2024, was 2.6 times, well within the preferred level of below three times [41] - The company plans to focus on balance sheet simplification, particularly the redemption of Series A-2 preferred stock, with $122 million outstanding as of September 30, 2024 [42] Q&A Session Summary Question: Impact of the Trump election win on the business - The company expects continued organic growth, with consulting and treatment services likely to perform well, similar to the previous Trump administration [48][49] - Approximately 20% of revenue is now from international markets (Canada, Europe, and Australia), which are performing exceptionally well and are expected to remain stable [50] Question: COO Joshua LeMaire's departure - Joshua LeMaire is stepping down from the COO role for personal reasons but will remain with the company to assist in the transition and onboarding of a new leader [52] Question: Performance of recent acquisitions (Origins and Spirit) - Both acquisitions are performing well, with Origins benefiting from regulatory tailwinds in Colorado and the Mountain States, and Spirit adding value to the company's consulting and testing footprint [54][55] Question: Timeline for deemphasizing acquisitions and equity issuance - The company plans to focus on organic growth and the redemption of Series A-2 preferred stock over the next few quarters, with no immediate plans for equity issuance [58][59][63] Question: Risk of lost opportunities due to the M&A pause - The company does not see any risk of losing core target opportunities and remains close to its strategic goals [67] Question: Outlook for Q4 2024 revenue growth - Most business lines are seeing double-digit organic growth, with Q4 revenue expected to increase 10% to 15%, driven by acquisitions and potential recovery in emergency response revenue [74][75][76] Question: Matrix margins and organic growth - Matrix achieved mid-teen margins in Q3 2024, with strong organic growth and operational improvements driving performance [78][79] Question: US Army Corps of Engineers contract milestones - The company expects milestones and revenue opportunities from the contract, with updates to be provided as the project progresses [70][71]