Sign in

    Montrose Environmental Group Inc (MEG)

    Q3 2024 Summary

    Published Jan 22, 2025, 6:07 PM UTC
    Initial Price$44.70July 1, 2024
    Final Price$22.99October 1, 2024
    Price Change$-21.71
    % Change-48.57%

    What went well

    • Matrix acquisition achieved mid-teens margins in Q3, tripling their margins since acquisition, indicating exceptional performance driven by pricing, operational excellence, and cost savings through integration activities. Additionally, Matrix is experiencing strong organic growth, exceeding expectations despite anticipated volume attrition.
    • Montrose Environmental Group demonstrated resilience and growth during prior political cycles, having doubled in size and gone public during the previous Trump administration. The company remains optimistic about continuing its organic growth, with approximately 20% of revenue now from international markets like Canada, Europe, and Australia, where they are seeing exceptional performance.
    • Recent selection by the U.S. Army Corps of Engineers validates MEG's strategic thesis and opens substantial opportunities in the public sector, enabling the company to leverage its advisory, testing, engineering, and remediation capabilities. There are expected milestones and awards in the next year or two, which could translate into significant revenue growth.

    What went wrong

    • The company's decision to temporarily deemphasize acquisitions and focus on debt repayment could limit growth opportunities, especially since acquisitions have been a key driver of growth in the past. ,
    • The stepping down of COO Joshua Marie from the COO role for personal reasons may lead to leadership uncertainty and could impact operations during the transition period.
    • Potential regulatory changes under the new Trump administration might negatively impact certain segments of the company's business, particularly the testing side, which experienced modulation during the previous Trump administration. ,

    Q&A Summary

    1. Acquisition Pause and Equity Issuance
      Q: How long will you deemphasize acquisitions and avoid equity issuance?
      A: We will deemphasize acquisitions for the next few quarters, focusing on organic growth and repaying the Oaktree preferred stock without issuing equity. We do not intend to issue any equity to repay the pref, and our intent over the next couple of quarters is to deemphasize acquisitions. ,

    2. Impact of Trump Election
      Q: How will the Trump election win affect your business?
      A: Our business is designed to grow through political cycles. During the prior Trump administration, we doubled in size and went public. We saw increased demand in consulting and treatment, with some modulation in testing. With approximately 20% of our revenue now ex U.S., we expect continued strong performance across Canada, Europe, and Australia. We feel upbeat about our organic growth prospects, and our outlook is largely unchanged.

    3. Risk of Pausing M&A
      Q: Does pausing M&A risk losing opportunities?
      A: No, we are staying close to our core target opportunities, and at this time, there's absolutely no risk of losing anything we really want.

    4. Q4 2024 Revenue Outlook
      Q: Elaborate on Q4 revenue growth and impacts from acquisitions and emergency response.
      A: We expect revenue growth of 10% to 15% in Q4, driven by double-digit organic growth in most business lines. The emergency response business may reach the higher end of the $50 million to $70 million range, but it's tough to predict. Recent acquisitions are contributing positively to growth, and despite some temporary delays in treatment projects, we're maintaining our guidance.

    5. Matrix Margins
      Q: How did Matrix margins perform in Q3?
      A: Matrix achieved mid-teens margins in Q3, tripling margins since acquisition. The team is performing exceptionally, with pricing and operational initiatives going to plan. They are also seeing solid organic growth without expected volume attrition.

    6. Recent Acquisitions Performance
      Q: How are the Origins and Spirit acquisitions performing?
      A: Both are performing very well. Origins Lab is experiencing exceptional performance due to favorable regulations in Colorado and the Mountain States, with successful cross-selling. Spirit is enhancing our air permitting capabilities and client services. These acquisitions are accretive to our growth and margin profiles.

    7. COO Transition
      Q: Can you share details about the COO stepping down?
      A: Our COO, Joshua Marie, is stepping down from the role for personal reasons but will remain with us to help transition a new leader with deep industry experience. He continues to work closely with the team and remains a core part of Montrose.

    8. Election and M&A Decision
      Q: Does the election reinforce your decision on M&A and deleveraging?
      A: While our decision to focus on organic growth preceded the election, we don't expect much to change under the new Trump administration. We want to see how the EPA progresses but made our decision independent of that.

    9. Army Corps of Engineers Award
      Q: How should we think about the Army Corps of Engineers award?
      A: The award validates our strategic thesis in the public sector, leveraging our advisory, testing, engineering, and remediation capabilities. There will be milestones as the contract progresses, and we're optimistic about other opportunities. We'll keep you updated as awards translate into revenue.

    Related Publications