Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Montrose Environmental Group Inc (MEG, Financial) reported its highest ever revenue and adjusted EBITDA for the second quarter and first half of 2024.
- The company achieved 9% revenue growth and 10% adjusted EBITDA growth, driven by strong organic growth across most business segments.
- Successful cross-selling initiatives contributed to margin expansion in all three segments.
- Recent acquisitions, including Paragon and Spirit Environmental, are strategically additive and expected to enhance the company's footprint and service offerings.
- Montrose Environmental Group Inc (MEG) reaffirmed its full-year 2024 organic growth expectation of 10% to 12% and maintained its revenue and adjusted EBITDA guidance.
Negative Points
- Environmental emergency response revenue was down substantially in the second quarter compared to the previous year.
- The water treatment and renewable services segment experienced a decline, although it is expected to recover later in the year.
- Adjusted net income per share decreased in both the second quarter and first half of 2024 compared to the prior year periods, primarily due to increased interest and tax expenses.
- Cash flow from operating activities was negative year-to-date, driven by an increase in receivables related to the integration of Matrix and several large new projects.
- Despite improvements, the Matrix acquisition has not yet achieved the mid-teens EBITDA margin target, impacting overall consolidated adjusted EBITDA margins.
Q & A Highlights
Q: Can you provide details on the robust organic growth mentioned in the second quarter?
A: We don't break out our quarterly organic growth, but we are well on our way to achieving our annual organic guidance of 10% to 12%. We feel confident given the business cadence in the first and second quarters and our outlook for Q3 and Q4. - Vijay Manthripragada, CEO
Q: Should we expect the water treatment business to remain lower in the back half of 2024?
A: The cadence of our discussions related to treatment has picked up materially. PFAS water treatment is expected to grow in the second half of the year versus the first half. Our broader treatment technology business, including water treatment and renewables, is up nicely year-on-year. - Vijay Manthripragada, CEO
Q: Have you seen a step up in demand for PFAS testing in your labs business?
A: Yes, we have. The growth in our testing segment is all organic, and PFAS is a significant part of that. - Vijay Manthripragada, CEO
Q: Are you considering any changes in resource allocation or M&A strategy in light of the Supreme Court ruling?
A: No, we believe there will be more opportunity than risk due to Chevron. The regulations impacting Montrose are within the statutory authority of the EPA. We expect more influence to shift to state and local regulators, where we excel. - Vijay Manthripragada, CEO
Q: Can you discuss the improvement in gross margins and how we should think about them going forward?
A: Gross margins are closely tied to our operating EBITDA margin, which has increased year-over-year. This improvement is due to business mix, pricing success, operating leverage, and scalable support functions. - Allan Dicks, CFO
Q: How do the recent acquisitions of Paragon and Spirit impact your guidance?
A: These were small acquisitions and their contribution is de minimis, not enough to move our annual guidance. We feel our expectations for this year were already baked into our guidance. - Vijay Manthripragada, CEO
Q: What is left to achieve mid-teens margins for Matrix, and will we see this in Q3?
A: Matrix is trending to low double-digits and is on track to achieve mid-teens by the end of this year. The efforts to optimize pricing, staffing, and overhead costs are in place and nearly completed. - Vijay Manthripragada, CEO
Q: Can you provide an update on the renewable service business?
A: The renewable service business is progressing well, with expected growth in the second half of this year and into 2025. We are back on offense in this business, which is part of our treatment technology portfolio. - Vijay Manthripragada, CEO
Q: Will you surpass your goal of acquiring $10 million in EBITDA this year, and would you consider buying back shares?
A: Yes, we have surpassed our goal and expect continued acquisition activity. Regarding buybacks, while it’s something we've discussed, our focus remains on high-ROI acquisitions that fit our strategy. - Vijay Manthripragada, CEO and Allan Dicks, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
