Greetings, welcome to Montrose Environmental Group Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require Operator assistance during the conference . Please note this conference is being recorded. I will now turn the conference over to Rodny Nacier with Investor Relations. Thank you. You may begin.

Thank you. Welcome to our full year and Fourth Quarter 2021 earnings call. Joining me on the call are Vijay Manthripragada, our President and Chief Executive Officer, and Allan Dicks, Chief Financial Officer. During our discussion today, we will be referring to our earnings presentation, which is available on the Investor section of our website at montrose - env.com. Our earnings release is also available on the website. Moving to Slide 2, I would 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 our recent SEC filings, including our annual report on Form 10-K for the fiscal year ended December 31, 2021, 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. In addition, we will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA and adjusted EBITDA margins. 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 our earnings release for a discussion of why we believe these non-GAAP measures are useful to investors. Certain limitations of using these measures and a reconciliation thereof to the most directly comparable GAAP measure. With that, I would now like to turn the call over to Vijay, beginning on Slide 4.

Thank you, Rodny, and welcome to all of you joining us today. I will provide you with a few business highlights and hand it over to our CFO, Allan Dicks, for the financial review and we'll then open it up to Q$A. I will speak generally to pages through eight of the presentation provided to you. I am excited to discuss Montrose's strong full-year 2021 and fourth quarter results, which belong to our dedicated team members around the world for whom I am very grateful. Through their effort, we were able to produce another year of record breaking results and further our leading position in the environmental industry. Before I delve into a discussion of our performance, and as we have noted for you before, I'd like to reiterate that our business is best assessed on an annual basis given the nature of demand for environmental services not being driven by quarterly patterns. An annual basis is how we manage our business and how we recommend others view our results as well. In terms of our financial results, 2021 was another exceptionally strong year for Montrose. We achieved over a $0.5 billion in revenue, converted our earnings into over $50 million operating cash flow, and achieved the highest rate of double-digit organic growth, 37%, including CTEH, and 17% excluding CTEH since my time here at Montrose. The 17% organic growth excluding CTEH in 2021 is stronger than we expected at the start of the year given our historical average of mid-to-high single-digit organic growth and the ongoing impact of the pandemic. We also greatly exceeded our full-year 2021 objective of over 20% annual base business growth. We think of our base business as excluding excess CTEH revenue, with approximately $400 million of base business revenue growing nearly 40% year-over-year, almost…

Thank you, Vijay. We are extremely pleased with our strong fourth-quarter and full-year 2021 results. As Vijay has mentioned, our strong performance through the year reflects that the entry discussed over the past 18 months since our IPO, as well as the in-demand nature of our unique environmental solutions. Our growth from organic revenue gains steam as we progress through the year, which reflects our expanding relationships with notable customers, early success with our cross-selling initiatives, and strengthen exposure across geographies, all of which are key to our future growth. Moving to our revenue performance on Slide 10. In 2021, we drove strong growth across our business segments during both the fourth quarter and full-year. Total revenues for the fourth quarter increased 32.2% to a quarterly record of $143.8 million, which is particularly impressive, given the fourth quarter is historically one of our weaker quarters for revenues, and CTH revenue was down year-over-year as COVID related services continued to slow. Full-year 2021 revenues were up 66.5% year-over-year to a record $546.4 million. The primary driver of revenue growth in both periods was organic growth. For the full year, organic growth was 37%, including our CTEH response business. Excluding CTH, organic growth was 17%. We generally don't focus on organic growth on a quarterly basis as year-over-year quarterly comparisons can be misleading. In addition to organic growth, our full-year 2021 results benefited from a full 12 months of CTH compared to nine months of results in 2020. Our outperformance in both periods was also driven by our six strategic acquisitions completed during 2021. As we've discussed from prior calls, mainly in response to the COVID-19 outbreak, we discontinued certain service lines at the end of the first quarter in 2020. This process was completed early in the second quarter of 2020…

Thank you. Our first question is from Jim Ricchiuti with Needham & Company. Please proceed.

Hi, thanks. Good morning.

Hey, Jim.

I was wondering -- how are you? I wanted to talk to you a little bit about the investments you're making overall the infrastructure of the business just to support the growth. There is that -- I wonder if you could talk in terms of where you are, but the follow-up question really relates to the inflationary pressures, the rise in compensation costs that are impacting -- presumably that are impacting the business like every else. I'm wondering, to what extent are you able to offset some of these pressures, perhaps through even the revised pricing initiatives with your clients?

Hey Jim, this is Vijay. I do not take that and then Allan certainly jump in. On the inflationary pressures in terms of pricing, we have a fair degree of confidence that we will be able to pass the price increases on Jim. Our relationships with the customers are great. They clearly are seeing the same environment we're seeing in businesses like our advisory businesses. It's a multiple of compensation so our cost -- so as compensation goes up, those costs get passed on. In other aspects of our business, like the water treatment or bio-gas business, it's not quite as linear or direct, but we're seeing similar ability and certainly on the testing side as well. So we're -- we're not worried about our long-term margin expansion in the context of this inflationary environment. The first part of your question around investments are partially a function of those that are necessitated by being public. So we've seen a material scale up in year-on-year comparison in costs for being a public company. So the fact that we've grown and gotten bigger than we -- at a better pace that is quicker than we thought has caused us to lose our margin growth status, like compliance, faster filings, ESG reporting, additional audit fees, the list goes on and on. Some of that is necessary and certainly will stabilize in the very near future, so that's part of it. Then the other part that's more voluntary as we got $2.5 billion in revenue at a much quicker clip than we thought, Jim. We are putting in place additional compliance measures as we bolster some of our regulatory affairs capabilities, safety infrastructure, technology, business development, marketing, and the way I would characterize that spend is corporate as a percentage of revenues so we watch that very, very closely, and we took advantage of the fact that we had dramatic outperformance last year to put some of those investments in place. As we look forward to getting to a billion dollars of revenue, we have some of that infrastructure in place to get there. Does that make sense?

It does. Thank you. And my follow-up question. This may -- it may have been Allan who alluded to this. The early benefits that you're seeing, some early successful cross-selling, anything you can elaborate on in terms of talking about the progress we're making in this area?

Yeah. We're making great progress, Jim, and if nothing else, you're very consistent. You've asked that question repeatedly and I think what we promised here is that at the end of Q1 of 2022, we will have our first full-year of a quarter-on-quarter comparison, right? Given we put in place the sales force tools at the beginning of last year. So when we talk to you in May, I think we'll have some more discrete data points. But the -- with the sales and marketing efforts that have been underway now for a while, we have seen an incredible amount of collaboration between our remediation reuse and our advisory segments into our testing segments in particular. As a small illustrative example, we're winning business on both the advisory side and on the treatment side. As part and parcel with that one business, we are able to position our testing business as an additive service that is unique in the market, but also creates a compelling cross-sell opportunities. We're seeing a lot of that type of activity and we'll elaborate more in terms of both dollars and case studies when we speak to you in May.

Got it. Okay. Look forward to --

As you can see in, Jim, the one other point I would make there is the organic growth surge that you're seeing is partially also a function of that very cross-selling effort that we talked about at IPO with you where we didn't necessarily have the infrastructure to do it. Now the investments are paying off.

Thank you.

Our next question is from Tim Mulrooney with William Blair. Please proceed.

Hey guys this is Sam Flynn (ph.) for Tim. Thanks for taking our questions here, hoping you're doing well.

Hey, how're you?

Doing good. Maybe to start we'll do some current event questions here. But has the Ukraine crisis and the resulting sanctions changed how you think about the long-term domestic bio-gas opportunity? Maybe more broadly here, are there any areas your business that you were thinking about differently as a result of what's going on in Europe?

No. as everyone is, we're really dismayed at what's going on in Europe and we certainly hope that the situation results assume for all the obvious reasons. Now we really have very little exposure if at all, to any of that where we would be impacted as if the U.S. or European governments change their policy materially, both in terms of their fiscal and monetary policy or their regulatory policy. But as of this point, we haven't really seen any shift that impacts Montrose in any way. In terms of the bio gas business in particular, I think the long-term trends in terms of demand for negative carbon intensity gas. And we do think gas is going to play a more prominent role as the world transitions from one phase of energy to the next. That's continuing a pace, the organic growth, the 17% that we posted, excluding CTEH includes continued momentum in that space, and so we think that there's other trends there driving that that are more fundamental to Montrose than Ukraine and Russia. And if anything, it will be on the margin additive to that. So we're as bullish as we've ever been, we're really saddened by what's happening in Eastern Europe, but really no impact to Montrose of note.

Okay, great. That's great to hear. Maybe pivoting a bit here. Can you talk about your leak detection business and how that performed overall 2021 and maybe what your expectations are for that business heading into 2022?

Yeah --

Would you expect in this business from the new EPA proposal or anything from that nature?

Yes. I mean, I would characterize the detection more broadly as just our greenhouse gas measurement and methane measurement capability. And it is growing faster than our historical organic growth rate. That team is doing a spectacular job. Several of those folks have taken on more prominent roles, have been promoted into more prominent roles across Montrose with kind of national and global oversight. The business is still small relative to the macro Montrose, but growing at double-digits organically. And we see no reason to see that -- have that change into the foreseeable future, the regulatory environments only more favorable. Our relative market advantages are more prominent and the market is moving in our direction. We are as bullish as we've ever been and as we should be apparent. And Allan's guidance, our conviction in continued acceleration of organic. If you go back to our historical averages of 7% to 9%, we think will continue well above that and the greenhouse gas and leak detection piece of it just part of that.

One more for us then, really in more to PFAS. We've seen quite a few articles about the concern around PFAS lingering in air particles. Have any clients brought this issue up to you and do you guys have any capabilities to address this in your air emission portfolio? And just how do you see the growth opportunities relate to that piece?

Yes, and yes. Clients have come to us about it. We have some of the most advanced capabilities in that space, and we're intimately involved in helping folks solve it, test for it. On the air side as well, we happen to have our first organically developed PFAS lab right next to one of our largest environments in Latin networks in North Carolina, which also happens to be Administrator Regan's former home state, and he was involved in some of the aerosolization issues associated with incinerating PFAS back there. And so, we're well aware of what happened and how to mitigate some of that. Some of our capabilities put us on the leading edge of that. So it's -- that's inherent and implicit in our numbers already on the measurement analysis side.

Excellent. I appreciate the answers, guys. Best of luck on the next full year.

Thank you.

Thank you.

As a reminder, . Our next question is from Andrew Obin with Bank of America. Please proceed.

Hey. Good morning guys. This is Emily Shu on for Andrew Obin.

Hey, Emily.

Hey, Emily.

Hey. I'm curious with Omicron in December. How much did the COVID -related business of CTH outperformed your prior forecast? And then how are you thinking about the COVID business for CTH in the first quarter, given that Omicron cases were still high in January, if it should be running above the $100 million run rate? Thanks.

Emily, why don't I just kind of talk more, holistically and then Allan jumped in with specifics. CTEH is a broad business. They have broad-based capabilities across response toxicology. I think as you heard us talk about their software and their flexible workforce, gives them some pretty incredible advantages. We were really proud of how they've performed. The team is incredible. The reason I give you that long preamble is -- and for all the reasons we talked about with you, Emily, when we went through some of your modeling, they expected and anticipated a deceleration in their COVID response work through the course of last year. So if you think about where they were in Q1 of 2021, north of $70 million of revenue. They were actually quarter-on-quarter Q4 down about 10%, but all in a predicted and anticipated way. Some of that is due to their team performing so well that they were dealing with a significant amount of fatigue and need to catch their breath. As we think about 2022, some of that demand continues. As much about Omicron as it is, it's about just broader preparedness and mitigation measures being put in place. So as we put forth our forecast for this year, if you go back to the $75 million to $95 million of run rate that we would expect from them year-in, year-out, they're running about 25% north of that because of the COVID response work, which we think is weighted towards the first half of this year. So it's certainly modulating. They did over $200 million last year, but they continue to be very elevated, continue to perform really well and we do think some of that is going to continue through the first half of this year, which is an implicit in our guidance, both on the revenue side and margin side. Does that answer your question, Emily?

Yeah, that does. It's super helpful. And then follow-up question just on the 2022 organic growth outlook, sort of what gives you the confidence for the out performance versus the historical high single-digit Bay. And then is this double-digit organic growth rate sustainable within the next three to five years. Thanks, that will be it for me.

Yes, we're not giving guidance for the next three to five-years, Emily. I think we are going to stick to kind of our broader message that we're really on the macro opportunity. But for this year, we have conviction for a couple of reasons on the PFAS treatment and testing side, our business has performed really well. We are seeing a lot of private sector demand unlike some others that you've alluded to in conversations with us, we're not dependent on future regulations or future project cycles. It's already in our numbers today. On the renewable energy bio-gas side that I talked about on the earlier comments, we are seeing some really nice demand there. And on the greenhouse gas maintained intensity measurement side, we're seeing some really nice demand there. Those three levers are already -- are performing really well for us. They're part of the reason we were at 17% last year and so we have conviction this year on the back of those three specific business segments.

Okay, great. I'll pass it on. Good luck, guys.

Thanks, Emily.

Our next question is from Noelle Dilts with Stifel. Please proceed.

Hey, Noelle.

Hey. I appreciate the color you just gave Emily on -- CTEH revenue. I was hoping you could give us a little bit more color on how we should think about the EBITDA margin contribution as we move from the dilutive effect of the COVID work to a more normalized margin level? That's it for me. Thanks.

I will take

Yes. As we look into 2022, the first half, we anticipate we'll see some continued elevated demand and elevated demand is likely going to be at similar margins to 2021, so versus a typical run rate, and then as they return to a more normalized level of earnings and post a lot of the COVID work, we expect the margins are going to expand back to normal which is that mid-twenties range. You'll see lower back-off revenue from them but higher margin percentages in the back office at the .

More specifically, could you give us the EBITDA dollar contribution from CTH this -- in 2021 or you're not getting that specific?

They -- well, Noelle, maybe a new way to do it, and Allan let me know if this helps because it sounds you're trying to modulate. Their business ran high-teens margin in Q4, in terms of EBITDA. If you think about the impact of that margin profile on our macro segment profile which Allan in his comments talked about being in that 25% to 30% range. You can see how it's a little bit of a tragedy of riches. They did incredibly well, but because they were so big in that segment, it swung the overall margin profile. Hopefully that allows you to model it a little bit more effectively. I think just stepping back, Noelle, I suspect this is a question that's going to come up over and over again. We're really bullish on our ability to accrete margins and the issue we're having in articulating this as we go forward is really two-fold. Our revenue surged in specific areas where margins are a little lumpy. So part of that is CTEH, which we just talked about. The part of it is also our remediation reuse business. We are seeing rapid acceleration on the PFAS treatment and bio-gas side. As you can see those margins accrete from -- Allan, correct me if I'm wrong, 11% to 15%. That is still ways below what would be normal for that business, which is low-to-mid 20s. We're seeing disproportionate growth in parts of the business that are growing, but that are also margin dilutive in the temporary phase of the business. So as that matures on the radiation reuse side, as CTEH normalizes, our adjusted EBITDA excluding corporate will accrete really nicely into the mid twenties if that makes any sense. So you'll see some volatility there as different parts of the business ebb and flow that's why we keep using this nomenclature business mix. But as we look forward, over three to five saddened years, we're really bullish on being able to get to that mid twenties operating EBITDA margin. And then corporate as a percentage of revenue will come down as we get bigger.

Okay. Thank you.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Vijay for closing comments.

We really appreciate all of your time. Thank you for joining us today and stay safe out there and we look forward to catching up with you in a couple of months as we provide the Q1 2022 update. Thanks to all of you and thanks to all of the Montrose team members listening. Take care.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.