• Revenue: $178.7 million for Q3 2024, a 6.4% increase compared to the prior year quarter.
• Consolidated Adjusted EBITDA: $28.3 million, representing 15.8% of revenue, a 190 basis point improvement over the prior year quarter.
• EBITDA Margin: 15.8%, a 190 basis point improvement over the prior year quarter.
• Net Income Per Share: Diluted adjusted net income per share of 41 in Q3 2024, up from 31 in the prior year quarter.
• Full Year Revenue Guidance: Reaffirmed at $690 million to $740 million.
• Full Year Consolidated Adjusted EBITDA Guidance: Reaffirmed at $95 million to $100 million.
• Operating Cash Flow Conversion: Improved to 40% of consolidated adjusted EBITDA in Q3 2024.
• Leverage Ratio: 2.6 times as of September 30, 2024.
• Assessment, Permitting, and Response Segment Revenue: $52 million, impacted by a $12.8 million reduction in high-margin environmental emergency response revenue.
• Measurement and Analysis Segment Revenue: Increased 16.1% to $58.6 million.
• Remediation and Reuse Segment Revenue: Increased 12.6% to $68.1 million.

• Warning! GuruFocus has detected 3 Warning Signs with MEG.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Montrose Environmental Group Inc (NYSE:MEG) reported record quarterly revenue of $178.7 million, reflecting a 6.4% increase compared to the prior year.
• The company achieved a consolidated adjusted EBITDA of $28.3 million, marking a significant improvement in profitability with a 15.8% margin.
• Strong organic growth was observed across most business lines, particularly in the measurement and analysis segment, which saw a 16.1% revenue increase.
• Recent acquisitions, such as Matrix in Canada, have shown impressive improvements in EBITDA margins, contributing positively to overall performance.
• Montrose Environmental Group Inc (NYSE:MEG) remains confident in its ability to convert over 50% of consolidated adjusted EBITDA into operating cash flow, supporting future investments and strategic initiatives.

Negative Points

• The company experienced a reduction in high-margin environmental emergency response revenue, impacting overall segment performance.
• There were temporary delays in customer projects within the treatment technology business line, affecting revenue timing.
• Operating cash flow was negatively impacted by invoicing delays and payment issues on a large US government-funded project.
• Montrose Environmental Group Inc (NYSE:MEG) plans to temporarily de-emphasize acquisitions to focus on redeeming preferred stock, which may slow growth from new acquisitions.
• Higher interest expenses and increased average share count partially offset improvements in net income per share.

Q & A Highlights

Q: How did Montrose Environmental Group perform under the previous Trump administration, and what business lines are expected to thrive if Trump wins again? A: Vijay Manthripragada, President and CEO, explained that Montrose doubled in size and went public during the previous Trump administration. The consulting and treatment sides of the business saw significant demand, while testing experienced some modulation. The company is optimistic about continuing its organic growth, with 20% of revenue now coming from outside the U.S., which is performing well.

Q: Can you provide details on the departure of COO Joshua LeMaire and its impact on the organization? A: Vijay Manthripragada stated that Joshua LeMaire is stepping down from the COO role for personal reasons but will remain with Montrose to assist in transitioning to a new leader. The company plans to focus on finding someone with deep industry experience, and LeMaire will continue to work closely with the team.

Q: How are the recent acquisitions, Origins and Spirit, performing? A: Vijay Manthripragada reported that both acquisitions are performing well. Origins, a lab focused on Colorado and the Mountain States, is benefiting from regulatory tailwinds and successful cross-selling. Spirit, an air permitting powerhouse, has been additive to Montrose's consulting and testing footprint, contributing positively to growth and margins.

Q: What is the timeline for deemphasizing acquisitions and not issuing new equity? A: Vijay Manthripragada explained that the focus will be on organic growth and redeeming the Series A two preferred stock over the next few quarters. The company does not intend to issue equity for this redemption and will maintain a leverage target around three times, allowing for selective transactions.

Q: Is there a risk of losing acquisition opportunities due to the current M&A strategy? A: Vijay Manthripragada assured that there is no risk of losing key opportunities. The company remains close to its core targets and believes the decision to focus on organic growth and balance sheet simplification is beneficial given the current environment.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.