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| Statement |
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| Our early investments in optical imaging technologies and our early investments in software and sensor networks continue to create strong tailwinds for our business given these regulations |
| In terms of our financial results and business highlights, 2023 was another stellar year for Montrose |
| First, we were thrilled to produce record full-year revenue and consolidated adjusted EBITDA |
| Total revenue grew by 15% and adjusted EBITDA grew by 19% |
| Adjusted EBITDA margins increased as planned, and our cash flow was also at record levels |
| And so our ability to continue investing, given how strong cash flow has been, is as good as it's ever been |
| So very healthy conversion and certainly above where we had expected to be a few years ago |
| Our integrated business model and our IP portfolio enabled cross-selling which further enhances our model |
| We don't talk a lot about this, but our DSO has dropped three days in the core business this year, and that was certainly a contributor towards that strong organic cash flow generation, and that's expected |
| The last couple of years, we've been north of 70%, and I'm particularly proud of the team's ability to manage working capital |
| And yes, we are seeing really nice success there |
| You'll see us continue to build that out also an incredible and exceptional team |
| Our strong organic growth in these segments was primarily due to higher demand for our advisory services and the positive performance in our lab and field services, particularly methane emissions and PFAS testing |
| So that's been -- it's going to be a, I believe, an exceptional addition to our team this year |
| This -- So Epic is an incredible team |
| And we think they're back to a nice, healthy organic growth cadence this year |
| Obviously, if it comes in more favorable, there's going to be more upside opportunity and long term upside opportunity |
| We expect a continuation of adjusted EBITDA margin improvement in 2024 |
| So, we not only expect to outperform our historical 7% to 9% organic growth cadence this year, but we expect to do it with higher margins |
| And if you look at margins, margins are up nicely in both of those segments |
| And then the other part that we're really happy about is that the recurring nature of that revenue, which impacts our overall predictability and consistency, has now gone up materially as well |
| In addition to the strategic synergies, we are unlocking tremendous value from pricing and cross-selling opportunities |
| We targeted getting to 50% over the next few years, and the teams have done an exceptional job |
| With Matrix, which had margins of 4.6%, margins have already almost doubled in our hands on a run rate basis, and we expect continued margin accretion |
| Furthermore, through our larger scale and cross-selling capabilities, we believe we have grown the serviceable, addressable market for Matrix materially |
| And our acquisition pipeline is more robust than we've seen in a while |
| I would also like to highlight that we are particularly proud of the success of our R&D efforts which aim to solve major environmental challenges and create new opportunities for our business |
| In summary, 2023 was another milestone year for Montrose with the strong momentum in demand, substantive regulatory tailwinds and strong cash flow generation, we believe we are well-positioned to realize another year of record performance in revenue, adjusted EBITDA, cash flow and diluted adjusted net income per share |
| We anticipate strong organic growth in the low double digits given our current visibility into end market demand and cross-selling momentum |
| Our revenue and consolidated adjusted EBITDA outlook for the full year represents double-digit revenue growth and margin expansion over the prior year |
| Statement |
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| Margins were also impacted by lower ECT2 revenues, which were due to delays in PFAS projects, given delays in the U.S |
| Roughly half of the lower Q4 consolidated adjusted EBITDA margin was due to the removal of the discontinued specialty lab, with the remainder primarily driven by seasonally low margins from Matrix acquired in June 2023, as well as unfavorable mix and significantly lower incentive comp expense in the prior year |
| Q1 has the toughest comparables on an EBITDA basis, mainly because of the large emergency response in the prior year |
| Obviously, triple digit organic in '22 was down about 20% ish |
| This was partially offset by our R&R segment where we experienced delays in project timelines as clients await clarity on PFAS regulations |
| In our R&R segment, the primary factor is seasonally low margins from Matrix which was not in the comparable prior year period |
| Margins during the year were lower, primarily given the impact of the Matrix acquisition, which was a 4.6% margin business prior to acquisition |
| When we purchased CTEH, it was almost exclusively a response business, making it more difficult to forecast quarter to quarter |
| The decrease in R&R segment adjusted EBITDA margin was due to lower water treatment revenues and the dilutive impact of Matrix |
| Therefore, we expect first quarter consolidated adjusted EBITDA margin to be down year-over-year, but up 50 to 100 basis points sequentially compared to Q4 2023 |
| I want to reiterate that our organic growth thesis has not changed despite the strategic shift in our R&R segment that caused a temporary slowdown in 2023 |
| Fifth, growth was also impacted by a shift in project timeline as our clients navigate proposed U.S |
| We got this biogas business which maybe has another quarter or two of a headwind before that turns into a tailwind |
| If it gets delayed, that could swing that a couple of points |
| That's having kind of multiple impacts on our business |
| From new regulations affecting PFAS disposal and tightened methane leak detection protocols, depending rules on climate disclosures and changes in air emission standards, we are experiencing significant regulatory tailwinds across all aspects of our business |
| This is due to our shift away from lower-margin work within our biogas services |
| What's beautiful about this story for us is that if you kind of go back to our IPO, we were under 10%, of clients purchasing more than one service and that metric, as you can see in the Investor presentation, has been consistently ticking up |
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