Good day, and welcome to the Montrose Environmental Group's 4Q '24 Earnings Call. All participants will be in listen only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Adrianne Griffin, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Thank you and welcome to our fourth quarter and full year 2024 earnings call. Joining me on the call are Vijay Manthripragada, our President and Chief Executive Officer; and Allan Dicks, our Chief Financial Officer. During our prepared remarks today, we will refer to our earnings presentation, which is available on the investors section of our website. 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 subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to known and unknown risks and uncertainties that should be considered when 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, 2024, which identify the principal risks and uncertainties that could affect any forward-looking statements and our future performance. We assume no obligation to update any forward-looking statements. On today's call, we will discuss or provide certain non-GAAP financial measures such as consolidated adjusted EBITDA, adjusted net income, and adjusted net income per share. 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 the 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 to their most directly comparable GAAP measure. With that, I would now like to turn the call over to Vijay.

Thank you, Adrianne, and welcome to everyone joining us today. I will start with an update on our business, provide 2025 guidance, and then speak generally about the fourth quarter and full year earnings presentation shared on our website. Allan will provide the financial highlights and following our prepared remarks we will host a question-and-answer session. Before I begin, I'd like to acknowledge the exceptional work of our approximately 3,500 colleagues around the world who delivered another year of record performance. Their dedication to leading environmental science and technology has furthered our mission of helping to protect the air we breathe, the water we drink, and the soil that feeds us. Montrose continues to demonstrate that we can promote environmental stewardship, promote human development, and create shareholder value. As we discuss our results today, I want to remind everyone that our business is best evaluated on an annual basis, since demand for environmental solutions does not follow consistent quarterly patterns. This is how we manage our operations and how we recommend viewing our performance. So with that, I'm extremely pleased to report that 2024 was another exceptional year for Montrose. We delivered 2024 revenue of $696.4 million and consolidated adjusted EBITDA of $95.8 million both record highs, demonstrating the strength of our integrated environmental platform. Our revenue has grown at a 24% CAGR since 2019, significantly outperforming the industry's growth during this period. Consolidated adjusted EBITDA margin increased as planned, achieving a robust expansion of 120 basis points to 13.8% for the year, driven by improved operating leverage across all of our segments. We were also pleased by the continued progress of Matrix in Canada. As you may recall, Matrix joined us in June 2023 at low single-digit EBITDA margins, and 18 months later they exited the fourth quarter at…

Thanks, Vijay. We delivered exceptional performance in both the fourth quarter and full year 2024, as we continue to execute on our growth strategy. Our strong results in 2024 were driven by robust organic growth from cross-selling momentum and expanding customer relationships, along with the positive contributions from a highly additive acquisition activity. Our strategic focus on higher margin services and operational efficiency continues to benefit our business, resulting in the strong year-over-year improvement in our overall profitability. Moving to our revenue performance, our fourth quarter revenue increased to a record $189.1 million, a 14.1% increase compared to the prior year quarter. Full year 2024 revenues increased to $696.4 million, up 11.6% versus 2023. The primary drivers of growth in the fourth quarter were strong organic growth in our assessment permitting and response, and measurement and analysis segments, plus contributions from acquisitions, partially offset by lower environmental emergency response and treatment technology revenues. We were pleased to generate organic growth of 8.3% for the full year in line with our expectations for 7% to 9% average organic growth over the long-term. Our consolidated adjusted EBITDA in the fourth quarter reached $27.2 million or 14.4% of revenue. This compares favorably to consolidated adjusted EBITDA of $17.5 million or 10.5% of revenue in the prior year quarter. Full year 2024 consolidated adjusted EBITDA was $95.8 million or 13.8% of revenue compared to consolidated adjusted EBITDA of $78.6 million or 12.6% of revenue in 2023. The significant increase in profitability for both periods was driven by organic growth, the impact of acquisitions, and improved operating leverage on higher revenues, partially offset by a decrease in high margin environmental emergency response revenues. Diluted adjusted net income per share of $0.29 in the fourth quarter of 2024 increased from $0.27 in the prior year quarter.…

Yes, thank you. [Operator Instructions] And today’s first question comes from Tim Mulrooney with William Blair.

Allan, Vijay, good morning.

Hey, Tim. How are you?

Great. Doing well. Thank you. Just a couple for me, so it looks like you ended the year strong with 8% core organic growth for the full year and you're looking for another year of growth in that range right in line with your long-term targets, but we noticed that the midpoint of your EBITDA margin, guidance range, it looks to me, and please correct me if I am wrong, but it looks to me as if you're forecasting essentially flat EBITDA margins year-over-year from '24 to '25. So, I'm just curious, with that good operating leverage you should see on the top line, why you wouldn't expect to see more margin expansion here in 2025.

Yes, Tim, why don't I start with that and I'll let Allan take it. We do see continued opportunities for operating leverage and margin expansion. Tim, we -- and where you're -- we're likely going to see that is going to be continued margin accretion on our Remediation and Reuse segment, which has been showing really nice trends, but remains subscale and then continued operating leverage off of corporate costs. But you're correct at the midpoint we have guided to a what we would consider a middle of the fairway outlook, which is, steady organic growth and given the strong margin performance last year, steady EBITDA margins. Our focus is also heavily on cash generation, which we are also quite optimistic about. But the short answer to your question is yes, we do believe there's going to be a really nice, continued margin accretion opportunity.

Got it. Okay, so maybe it's just more of a point in time thing, but generally speaking you see further margin, trajectory upwards, if you step back and look at it from a multi-year perspective, I guess.

That's right.

Building -- okay, thank you. And then building on your comment on cash, it looks like cash flows were really strong in the fourth quarter. It was great to see. But I think, and again, correct me if I am wrong, operating cash flow conversion was still a little lower than your target for the year of 50%. I am just curious what changed there relative to your prior expectations and what gives you confidence that that you're more likely to hit that 50% target in 2025.

Yes, let me take that, Tim. The -- so, yes, we had expected to be slightly better than we ended up for '24. Part of that was an expectation that some of the city of Tustin, open invoices would be settled before year-end. There were payments that came in subsequent to year-end. So there was some timing there. And then the fourth quarter revenue improvement year-over-year was stronger than we had expected. And so that's a big drain, that's a big working capital drain when you look at the Q4 to Q4 growth, the 14% growth, that' I'll turn around in Q1 as we collect those receivables. So, it's purely a timing issue. If you look back over a 3-year period, we've averaged around 51% conversion, and that's with what we would consider a subpar 2024 cash flow generative year. And we expect that to fully rebound in '25. So that purely a temporary issue. Even with the city of Tustin, we remain very confident in the full collectability of those outstanding amounts.

Yes, so Allan, it sounds like both of those are pretty much timing issues and you've gotten some payments, subsequent to year-end and would expect to collect on some of that strong growth you saw in the fourth quarter. So both of those timing issues you'd expect to begin to improve here already in the first quarter. Correct?

Absolutely. That's correct, yes.

Okay, great. Well, thank you guys for taking my questions. Have a good day.

Thanks, Tim.

Thank you. And the next question is from Jim Ricchiuti with Needham & Company.

Hi, good morning.

Hi, Jim.

Are you seeing any change in project timelines from clients whether government or commercial in the early days, of the new administration, and Vijay you alluded to the tailwinds that you anticipate. Are you seeing signs yet of those tailwinds just based on conversations that you're having with clients?

Yes, we are, Jim, and it's not just, conversations right? I think our solid performance in Q4 following the election also demonstrated to us that our client activity continues apace, which has been really encouraging for us. We are the federal government side of our business, Jim, is less than 3% of revenue, and so the private sector activity, which is kind of the lion's share of our business now that some of that uncertainty related to the political climate has started to subside, activity is certainly picking back up and we are really encouraged across the board with what we are seeing on the consulting, testing and treatment side. Obviously, there's still a lot of questions that are being answered, but our client sentiment is largely normal course and continued progress on the projects.

And then just with respect to as some of the clients sort out things that they’re hearing, is there -- has there been any change in anticipated project timelines?

No, not at this point. No changes.

Great. And I was hoping to and maybe get a little bit more color on what you're seeing on the cross-selling initiatives which seem to continue to go, the right direction, but yes, I am wondering, can you talk about that as to where you're getting the most traction? whether it's from the types of clients or business lines and I assume that much of this is also on the cross-selling side is tied to the overall organic growth in the business but correct me if I'm wrong.

No, that's right, Jim. So, there's a couple of ways to slice the data obviously we talked about the total revenue driven by cross-selling and it's encouraging for us that more than half of our revenue is now a function of the fact that our current clients are buying more of our services. Where we are actually seeing a lot of traction, Jim, is in the metrics that we don't talk about as much, which is folks buying kind of more than two services, meaning we are deepening the relationships with existing clients. That doesn't show up in these public metrics as robustly, but I have been really pleased and a lot of credit to our operating teams and our commercial teams with our clients buying two services or three services or four services, we've have multiple engagements now that are broad geographical projects that where the client has engaged us on several different service lines in a given year and over time, and I alluded to this a little bit in my prepared comments with one of the large U.S energy clients, but there's many examples of that, and we look forward to sharing that. And so, we see and the reason we have a lot of conviction in our organic growth outlook, we see that trend continuing. We don't really have to acquire any new customers to continue that trajectory over the next couple of years, and then we are obviously really pleased that we continue to also acquire new customers. And so kind of across the board, that is absolutely the anchor for our continued organic growth, and our organic growth outlook. Does that answer your question, Jim?

It does, Vijay. Thanks. I’ll jump back in the queue. Thank you.

Thanks, Jim.

Thank you. [Operator Instructions] And the next question comes from Brian Butler with Stifel.

Hey, good morning. This is Brian.

Hey, Brian.

Good morning.

So has ER work started strong this year? And then if so, to what extent has that been driven by above average weather disruption?

Our ER work is steady. Brian, it was around $50 million last year and our outlook for this year is similar. We don't really see at this point any outsized ER projects. Obviously, if any of those starts to come to fruition, we disclose that revenue every quarter and we'll certainly highlight that but at this point, no, nothing abnormal that's worth noting on the call. And as it relates to the fires and weather and other events like that is kind of implicitly in the number that we provide, which is that 50 to 70 range. And so, I would just continue to stick to that with what we see at this point, there's no reason to deviate from that outlook.

Got it, Okay. And then how much potential do you see for international revenue to grow as a percentage of total and then what would drive that expansion?

We've seen really nice growth in each of our markets, so Canada, Australia, and Europe. The demand there in Australia and Europe is heavily influenced by our water treatment technology. The recent acquisition of Epic in Australia, which is our consulting practice, has gone really well. That is an exceptional team that continues to see really nice tailwinds in that market. So, it's just traditional steady organic growth opportunities in each of those markets at this point, Brian. As it relates to the growth as a percentage of total mix, we don't see too much change to that. We will remain kind of a predominantly US-based North America-based business at this point in time. Our focus this year, as is a temporary pause or slowdown in acquisition activity. And so, everything we're talking about at this point is purely a function of organic growth and the organic growth opportunities, and we don't see much deviation. From our mix in aggregate international versus domestic at this point.

Awesome, thank you. I'll turn it over

Thanks, Brian.

Thank you. And this concludes our question-and-answer session. I would like to turn the forward back over to Vijay Manthripragada for any closing comments.

Well, thank you all very much for your interest in Montrose and for joining us this morning. Allan and I and the team are really excited about what the next couple of quarters are going to bring, and we look forward to sharing the updates with you in the very near future. Thank you and be well. Take care.

Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may disconnect your lines.