Earnings call transcript: Montrose Environmental Q4 2024 beats EPS expectations

Montrose Environmental Group reported its fourth-quarter 2024 earnings, surpassing expectations with an earnings per share (EPS) of $0.29, significantly higher than the forecasted -$0.08. The company’s revenue for the quarter reached $189.1 million, slightly above the anticipated $187.56 million. Following the announcement, Montrose’s stock rose 3.21% in premarket trading, reflecting investor optimism. According to InvestingPro data, analysts maintain a bullish outlook with price targets ranging from $29 to $40, suggesting significant upside potential from current levels.

Key Takeaways

• Montrose Environmental exceeded EPS forecasts by a substantial margin.
• Fourth-quarter revenue increased by 14.1% year-over-year.
• The stock gained over 3% in premarket trading following the earnings release.
• The company reported a 24% compound annual growth rate in revenue since 2019.
• Strong focus on integrated environmental solutions and cross-selling.

Company Performance

Montrose Environmental Group demonstrated robust performance in the fourth quarter of 2024, with revenue increasing by 14.1% compared to the same period last year. The company has maintained a strong growth trajectory, achieving a 24% compound annual growth rate in revenue since 2019. This performance is supported by an 8.3% organic revenue growth rate in 2024 and a 96% revenue retention rate, highlighting the company’s ability to retain and expand its client base.

Financial Highlights

• Revenue: $189.1 million for Q4 2024, up 14.1% year-over-year.
• Earnings per share: $0.29, surpassing the forecasted -$0.08.
• Full-year 2024 revenue: $696.4 million, an 11.6% increase from 2023.
• Full-year 2024 consolidated adjusted EBITDA: $95.8 million, representing 13.8% of revenue.

Earnings vs. Forecast

Montrose Environmental’s EPS of $0.29 significantly exceeded the forecast of -$0.08, marking a positive surprise for investors. This beat is substantial compared to previous quarters, indicating improved operational efficiency and cost management.

Market Reaction

Following the earnings release, Montrose’s stock experienced a 3.21% increase in premarket trading, reaching a price of $18. This movement reflects positive investor sentiment, driven by the company’s strong earnings performance and growth prospects. The stock’s current price remains below its 52-week high of $49.97, suggesting potential for further appreciation. InvestingPro data shows the stock has faced significant headwinds, with a -46.65% return over the past six months, though analysts expect net income growth this year. The company’s current market capitalization stands at approximately $597 million.

Outlook & Guidance

For 2025, Montrose Environmental has set revenue guidance between $735 million and $785 million, with an expected consolidated adjusted EBITDA of $101 million to $108 million. The company anticipates organic growth of 7% to 9% and aims for over 50% cash flow conversion. Environmental emergency response revenues are projected to be between $50 million and $70 million.

Executive Commentary

CEO Vijay Mansuragaddha emphasized the company’s resilience to political changes, stating, "Our business model is designed to be largely insulated from political swings at the federal level." He also highlighted opportunities for margin expansion and operating leverage, noting, "We do see continued opportunities for operating leverage and margin expansion."

Risks and Challenges

• Potential regulatory changes in environmental policies could impact operations.
• Economic downturns may affect client budgets and project funding.
• Competition from other environmental service providers remains a challenge.
• Dependence on state-level regulations for revenue could pose risks if policies shift.
• Supply chain issues may affect the timely delivery of services and products.

Q&A

During the earnings call, analysts inquired about the impact of the new administration on project timelines. Management assured that there were no significant changes expected. Questions also focused on cross-selling momentum and the company’s focus on organic growth and cash generation, both of which remain strong.

Full transcript - Montrose Environmental Grp (NYSE:MEG) Q4 2024:

Conference Operator: Good day, and welcome to

Conference Host: the Montrose Environmental Group’s 4Q twenty twenty four Earnings Call. All participants will be in listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.

Conference Operator: I would now like to turn the

Conference Host: conference over to Adrienne Griffin, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Adrienne Griffin, Senior Vice President, Investor Relations and Treasury, Montrose Environmental Group: Thank you, and welcome to our fourth quarter and full year twenty twenty four earnings call. Joining me on the call are Vijay Mansuragaddha, our President and Chief Executive Officer and Alan Dix, 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 two, 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 12/31/2024, 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.

Vijay Mansuragaddha, President and Chief Executive Officer, Montrose Environmental Group: Thank you, Adrienne, 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. Alan 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 $696,400,000 and consolidated adjusted EBITDA of $95,800,000 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 eighteen months later, they exited the fourth quarter at an annualized run rate in the mid to high teen EBITDA margins. This impressive result is one example of many of our acquisition and integration successes.

Our strong 2024 performance was driven by robust organic revenue growth of 8.3%. Our organic growth performance hinges on our continued customer retention and cross selling successes, which highlight the power of our integrated strategy and our focus on innovation. Cross selling improved to 53% of our 2024 revenue, up from 51% in the prior year. We also recorded our third consecutive year with a 96% revenue retention rate demonstrating the stability of our customer base. This strong organic performance occurred despite significant macro level changes in our industry, mainly in The United States, further demonstrating the resilience of our business model and the benefit of a diversified private sector client base.

In addition, approximately 20% of our revenue originated from Canada, Australia and Europe, which continue to perform very well in aggregate and in each geography. This marks a significant increase from only 4% international revenue in 2021. We expect continued positive momentum, particularly in Canada under a potential Poliyev administration. Our treatment technology services are growing nicely in The EU and demand for our treatment technology services in continue to perform over the next four years and beyond. As we’ve demonstrated with our historical track record, we’ve been able to significantly expand and grow our business during each of the Obama, Trump and Biden administrations.

Our business model is designed to be largely insulated from political swings at the federal level. We expect this trend to hold going forward and we believe the new Trump administration will create more tailwinds than headwinds. The administration’s focus on cost efficiency, U. S. Manufacturing and domestic energy production fit nicely with our current business mix and business strategy.

Independent (LON:IOG) of that, our strong private sector focus, our limited exposure to any one end market and the higher relative influence of state regulations on our customer activity enable us to thrive despite federal political changes. For example, 28 states have developed and enforced PFAS regulations independent of federal oversight, which continues to drive demand for our treatment technologies in The U. S. As a second example, methane emission monitoring services accounted for approximately 3% of our 2024 revenue with about two thirds of these activities originating from nine states that have established their own methane emissions regulations independent of federal rules. Specifically, states like Texas, Vermont, Pennsylvania, Ohio, North Dakota, Montana, Utah, Colorado and California have all implemented state level methane monitoring requirements independent of federal policy changes.

These state level regulatory frameworks provide stability and predictability for our clients and therefore our business. I would note that our acquisition activity also aligns with states that take an independent and proactive approach to environmental stewardship for all. While PFOS and greenhouse gases are getting most of the attention from Wall Street, I want to highlight that approximately 85% of our business is anchored on other contaminants that have a longer regulated history and continued bipartisan support. We believe and we’re seeing this in the marketplace that our vertically integrated business model enhanced by our portfolio of 24 patents and proprietary technologies will continue to differentiate Montrose. We recently helped a major U.

S. Energy client address their environmental challenges by leveraging multiple service lines starting with our advisory services for initial assessments, then utilizing our laboratories for testing and ultimately implementing our treatment solutions to deliver a solution that would otherwise have required multiple vendors. Our ability to provide this type of integrated environmental solution positions us to help our clients navigate an increasingly complex regulatory landscape. In addition to revenue and EBITDA performance, we were also pleased with the strength of our balance sheet at year end. Our leverage ratio reduced to 2.1 times and we have more than ample liquidity to execute on our plans for this year, which Alan will expand upon shortly.

As noted last year, our goal in 2025 is to simplify our balance sheet through the redemption of our preferred stock with $60,000,000 planned for redemption this April and the remaining $62,000,000 expected before the end of twenty twenty five. As we’ve highlighted previously, this redemption will be funded through a combination of cash and borrowings under our new credit facility, which Alan will expand upon shortly. While we are temporarily deemphasizing M and A to prioritize balance sheet optimization, acquisitions remain a key part of our long term strategy, our growth algorithm and our investment thesis. We will continue prudently managing leverage while deploying capital and driving shareholder value. I would now like to highlight recent shareholder focused actions that underscore our commitment to shareholder engagement and feedback.

In the near term, we are focused on simplifying our financials to better demonstrate the organic growth and earnings power of our underlying business. As part of this effort, the executive team voluntarily canceled all executive stock appreciation rights or SARs with no commensurate replacement compensation. This eliminates approximately $10,000,000 in non cash expenses from our P and L annually in 2025 and 2026. For 2025, we also modified our executive compensation structure removing M and A incentives from my, Alan’s and our General Counsel’s short term incentive program and tying executive compensation more closely to progress against key strategic efforts in addition to EBITDA targets. We also continue to add talent to our Board of Directors and recently added Vin Coleman as an independent Director and member of our Audit Committee.

We welcome Vin to Montrose and I am confident his expertise will be invaluable to our future. We are also considering additional industry experts for future Board positions. Finally, following the events of last year, our Audit Committee engaged an independent legal and an independent accounting firm in connection with its review of the assertions made in a short report regarding Montrose. We are pleased to announce that the independent third party reports provided to the audit committee did not identify any material issues, including with respect to intentional manipulation, misconduct or management’s integrity as alleged. Based on this review, the company determined that no amendment or restatement of historical SEC filings and previously issued financial statements was needed, nor is there any basis to make substantive changes to our disclosures or financial reporting.

In summary, regarding 2024, I’m extremely proud of our team and all that they have accomplished. And I’m proud Montrose delivered another year of record results in 2024. Our integrated business model and our technology capabilities continue to differentiate us and our ability to provide high quality environmental science and technology continues to resonate with our clients across our markets. As it relates to 2025, the outlook for our business is strong. We are introducing guidance of $735,000,000 to $785,000,000 in revenue and $101,000,000 to $108,000,000 in consolidated adjusted EBITDA.

This guidance assumes no impact from future acquisitions and it reflects our confidence in driving organic revenue growth and concurrently improving margins as we have been doing, which Alan will expand upon shortly. The near term simplification of our capital structure and temporary pause in acquisitions will allow the organic growth and cash generation power of the business to shine. We reiterate 7% to 9% expected annual organic growth and 50% plus cash flow conversion. The powerful combination of our proven growth algorithm of strong organic growth driven by cross selling success and strong customer retention, plus our successful integration of recent acquisitions, in addition to our increased margins and operating efficiency, our balance sheet and cash flow strength, and our innovation success developing patented technologies all continue to validate the strategic advantages of our business model and position us well to continue creating value for our stakeholders and shareholders as we advance our mission. Thank you for your continued interest in Montrose.

And with that, I will hand it over to Alan. Thank you very much.

Alan Dix, Chief Financial Officer, Montrose Environmental Group: 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 $189,100,000 dollars a 14.1% increase compared to the prior year quarter. Full year 2024 revenues increased to $696,400,000 up 11.6% versus 2023. The primary drivers of growth in the fourth quarter was 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 $27,200,000 or 14.4% of revenue.

This compares favorably to consolidated adjusted EBITDA of $17,500,000 or 10.5% of revenue in the prior year quarter. Full year 2024 consolidated adjusted EBITDA was $95,800,000 or 13.8 percent of revenue compared to consolidated adjusted EBITDA of $78,600,000 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 twenty twenty four increased from $0.27 in the prior year quarter. This was primarily due to lower dividends on our Series A2, partially offset by higher weighted average diluted share count in the quarter.

For the full year 2024, diluted adjusted net income per share of $1.08 increased modestly from $1.07 in the prior year as the benefit from higher EBITDA and lower dividends on our Series A2 was mostly offset by higher interest and tax expenses and a higher weighted average diluted share count. Please note that our adjusted net income per diluted share attributable to common shareholders is calculated using adjusted net income attributable to stockholders divided by fully diluted shares. We believe this net income methodology is the most helpful net income metric for Montrose and common equity investors. I will now discuss our fourth quarter performance by segment. In our Assessment, Permitting and Response segment, fourth quarter revenue was $50,800,000 compared to $50,100,000 in the prior year’s quarter.

AP and R segment adjusted EBITDA was $7,900,000 or 15.6% of revenue compared to 18.3% in the prior year quarter. Results during the fourth quarter reflect organic growth in consulting and advisory services and the positive impact of acquisitions, partially offset by an $8,400,000 decline in environmental emergency response revenues. Given this segment includes our environmental emergency response business, associated revenue does not follow a regular quarterly or seasonal pattern. In our measurements and analysis segment, revenues for the quarter increased 21.3% to $65,500,000 We continue to experience strong organic growth across laboratory and field services. M and A segment adjusted EBITDA increased 88.7% to $18,300,000 or 27.9% of revenue, a 1,000 basis point margin improvement over the prior year quarter due to organic revenue growth, contributions from acquisitions and operating leverage.

In our remediation and reuse segment, fourth quarter revenue increased 18.2% to $72,800,000 benefiting from acquisition contributions of $10,100,000 and partially offset by a decrease in treatment technology revenue. This segment’s adjusted EBITDA increased 53% to $12,700,000 and adjusted EBITDA margin expanded 400 basis points to 17.5%. The increase in segment adjusted EBITDA dollars as a percent of revenue primarily reflects strong operational improvement in Matrix and contributions from acquired companies. Moving to our cash flow and capital structure. I’d like to first note that the invoicing delays associated with the integration of Matrix as discussed last quarter have been fully resolved and invoicing and collections have returned to a normal cadence.

Full year cash flow from operating activities was $22,200,000 compared to $56,000,000 in the prior year. Lower cash flow from operations was primarily driven by an increase in working capital of $40,400,000 dollars versus $3,300,000 in the prior year period, as well as higher interest payments of $6,700,000 and higher tax payments of $3,200,000 An increase in accounts receivable of $42,000,000 drove the change in working capital with approximately $23,300,000 related to fourth quarter revenue growth as compared to the prior year period and the remainder mostly associated with the previously disclosed receivable from a large U. S. Government project. The large project was for the city of Tustin in California and related to a fire at a U.

S. Navy owned facility where we provided environmental monitoring and remediation services. We were contracted directly by Tustin and the U. S. Navy has committed to reimburse Tustin for its total costs associated with the fire.

Tustin is continuing to work with the U. S. Navy on reviewing and processing invoices and payments, which have been delayed due to the complexity of the incident. Tustin has not disputed any of the company’s invoices and has continued making payments in good faith while waiting for additional U. S.

Navy funding. To date, Tustin has paid 40% of all Montrose invoices. As of this call, the remaining amount Tustin owes Montrose is approximately $13,500,000 We are working collaboratively with Tustin and we remain confident in the full collectability of the outstanding balance. Yesterday, we finalized a new credit agreement, which has several benefits to Montrose stakeholders. The new facility expands our borrowing capacity to $500,000,000 in the form of a $200,000,000 term loan and $300,000,000 revolving credit facility.

Furthermore, the new credit facility includes slightly lower interest rates, a mechanism for share losses, larger baskets for ongoing operations and acquisitions and extends maturity five years. Optimizing our capital structure is an integral part of our long term strategy and we are very pleased to do that while enhancing our financial flexibility. Pro form a for the 2025 credit facility, as of 12/31/2024, we had approximately $300,000,000 of liquidity, including $12,900,000 of cash on hand and $283,800,000 of availability on our credit facility. Our leverage ratio as of 12/31/2024 was 2.1 times. Also as of 12/31/2024, we had $122,000,000 of Series A2 outstanding with repayments in cash at our election And we anticipate a full redemption of this outstanding amount in cash by year end.

Moving to our full year outlook, based on the positive momentum in our business, we are introducing our outlook for full year 2025 revenues to be in the range of $735,000,000 to $785,000,000 We expect consolidated adjusted EBITDA to be in the range of $101,000,000 to $108,000,000 representing an expectation of further margin enhancement this year. We continue to anticipate strong organic growth and reiterate our 2025 and expected long term average of 7% to 9% given our current visibility into end market demand and cross selling momentum. Our outlook also includes an expectation for environmental emergency response revenues to be in the range of $50,000,000 to $70,000,000 similar to the $48,000,000 generated in 2024. Additionally, we anticipate the conversion of consolidated adjusted EBITDA into operating cash flow to be over 50% consistent with our long term annual target and the average achieved from 2022 to 2024. As we think about the opportunities and risks that would drive us to either end of our guidance range, we wanted to provide a bit more color on the topic.

We see several factors that may impact 2025 performance, including increased demand for our water treatment solutions and demand from higher energy and industrial production, unexpected macroeconomic impacts, fluctuations in environmental emergency responses, impacts from deregulation and changes in project timing. We believe our guidance appropriately balances these factors based on our current visibility into 2025. Looking at the cadence of revenue and margins in 2025, we expect first half and second half revenue as percentages of our full year 2025 outlook to follow 2024 trends. Quarterly revenue as a percentage of first half twenty twenty five revenue is also expected to follow first half twenty twenty four quarterly trends and first half twenty twenty five consolidated adjusted EBITDA as a percentage of revenue is expected to be comparable to first half twenty twenty four with first quarter twenty twenty five consolidated adjusted EBITDA representing approximately one third of first half twenty twenty five consolidated adjusted EBITDA. This expected quarterly profile has been incorporated into our full year guidance range.

In the near term, we will continue to prioritize balance sheet simplification through the redemption of our Series A2 preferred stock and subsequent deleveraging. Optimizing our capital structure and cash flow are integral parts of our strategy to drive even stronger returns from future M and A, which remains a core part of our long term growth story. Thank you all for joining us today and for your continued interest in Montrose. We look forward to the opportunities we see ahead and updating you on our progress next quarter. Operator, we are ready to open the lines to questions.

Conference Host: Yes. Thank you. We will now begin the question and answer session. And today’s first question comes from Tim Maroney with William Blair.

Tim Maroney, Analyst, William Blair: Alan, Vijay, good morning.

Vijay Mansuragaddha, President and Chief Executive Officer, Montrose Environmental Group: Hey, Tim. How are you? Doing

Tim Maroney, Analyst, William Blair: well. Thank you. Just a couple from 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’m wrong, but it looks to me as if you’re forecasting essentially flat EBITDA margins year over year from 2024 to 2025.

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?

Vijay Mansuragaddha, President and Chief Executive Officer, Montrose Environmental Group: Yes, Tim, why don’t I start with that and I’ll let Alan 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 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’re 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.

Tim Maroney, Analyst, William Blair: 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.

Conference Operator: That’s right.

Tim Maroney, Analyst, William Blair: Building okay, thank you. And then building on your comments 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’m wrong, operating cash flow conversion was still a little lower than your target for the year of 50%. I’m just curious what changed there relative to your prior expectations and what gives you confidence that you’re more likely to hit that 50% target in 2025?

Alan Dix, Chief Financial Officer, Montrose Environmental Group: Yes. Let me take that, Tim. So yes, we had expected to be slightly better than we ended up for 2024. 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, that 14% growth. That’ll turn around in Q1 as we collect those receivables.

So it’s purely a timing issue. If you look back over a three 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 2025. So purely a temporary issue. Even with the City of Towson, we remain very confident in the full collectability of those outstanding amounts.

Tim Maroney, Analyst, William Blair: Yes. Alan, 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?

Alan Dix, Chief Financial Officer, Montrose Environmental Group: Absolutely. That’s correct, Tim.

Jim Ricchiuti, Analyst, Needham and Company: Yes.

Tim Maroney, Analyst, William Blair: Okay, great. Well, thank you guys for taking my questions. Have a good day.

Vijay Mansuragaddha, President and Chief Executive Officer, Montrose Environmental Group: Thanks, Tim.

Conference Operator: Thank you. And the next question comes

Conference Host: from Jim Ricchiuti with Needham and Company.

Jim Ricchiuti, Analyst, Needham and Company: Hi, good morning. Guys, are you seeing any change in project timelines from clients, whether government or commercial in the early days of the new administration? And BJ, 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?

Vijay Mansuragaddha, President and Chief Executive Officer, Montrose Environmental Group: 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 at a pace, 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’re really encouraged across the board with what we’re 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.

Jim Ricchiuti, Analyst, Needham and Company: 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?

Vijay Mansuragaddha, President and Chief Executive Officer, Montrose Environmental Group: No, not at this point. No changes.

Jim Ricchiuti, Analyst, Needham and Company: Great. And I was hoping to maybe get a little bit more color on what you’re seeing on the cross selling initiatives, which seem to continue to go in the right direction. But I’m wondering, can you talk about that as to where you’re getting the most traction? Is it 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.

Vijay Mansuragaddha, President and Chief Executive Officer, Montrose Environmental Group: No, that’s right, Jim. So there’s a couple of ways to slice the data. Obviously, we you 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’re 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’re 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 had 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’re 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.

Conference Operator: Does

Jim Ricchiuti, Analyst, Needham and Company: It does, BJ. Thanks. I’ll jump back in the queue. Thank you.

Alan Dix, Chief Financial Officer, Montrose Environmental Group: Thanks Jim.

Conference Host: Thank you. And the next question comes from Ryan Gilbert with Stifel.

Conference Operator: Hey, good morning. This is Ryan on for Brian Butler.

Vijay Mansuragaddha, President and Chief Executive Officer, Montrose Environmental Group: Hey, Ryan. Good morning.

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

Vijay Mansuragaddha, President and Chief Executive Officer, Montrose Environmental Group: Our ER work is steady, Ryan. It was around $50,000,000 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, that is kind of in 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 is no reason to deviate from that outlook.

Conference Operator: Got you. 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?

Vijay Mansuragaddha, President and Chief Executive Officer, Montrose Environmental Group: 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, Ryan.

As it relates to growth as a percentage of total mix, we don’t see too much change to that. We will remain kind of a predominantly U. S. Based, North America based business. At this point in time, our focus this year, as you know, 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.

Conference Operator: Awesome. Thank you. I’ll turn it over.

Vijay Mansuragaddha, President and Chief Executive Officer, Montrose Environmental Group: Thanks, Rod.

Conference Operator: Thank you. And this concludes our

Conference Host: question and answer session. I would like to turn the floor back over to Vijay Mantevragada for any closing comments.

Vijay Mansuragaddha, President and Chief Executive Officer, Montrose Environmental Group: Well, thank you all very much for your interest in Montrose and for joining us this morning. Alan 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 updates with you in the very near future. Thank you and be well. Take care.

Conference Host: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.

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