Montrose Environmental Group Inc (MEG) 2020 Q4 法說會逐字稿

Greetings, and welcome to Montrose Environmental Group, Inc. Fourth Quarter and Full Year 2020 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Rodny Nacier, Investor Relations.

Thank you, Omar. Welcome to our fourth quarter and full year 2020 earnings call. Joining me on the call are: Vijay Manthripragada, our President and Chief Executive Officer; and Allan Dicks, Chief Financial Officer. During our discussion today, we will be referring 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 2. I would like to remind everyone that today's call will include forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ in a material way due to known and unknown risks and uncertainties that should be considered in evaluating our operating performance and financial outlook. We refer you to our recent SEC filings, including our final prospectus filed with the SEC on July 23, 2020, which identify the principal risks and uncertainties that could affect any forward-looking statements as well as future performance. We assume no obligation to update any forward-looking statements.

In addition, we will be discussing on or providing certain non-GAAP financial measures today, including adjusted EBITDA and adjusted EBITDA margins. 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 presentations or our earnings release for a discussion of why we believe these non-GAAP measures are useful to investors and a reconciliation thereof to their most directly comparable GAAP measure.

With that, I would now like to turn the call over to Vijay, beginning on Slide #4.

Thank you, Rodny, and welcome to all of you joining us today. For those of you that have the presentation, I will speak generally to Pages 4 through 11 to highlight key themes, which effectively show that since our Q3 earnings call in November, Montrose continues to do really well and that we ended 2020 on a high note.

But before I speak to the presentation, I want to take this opportunity to acknowledge and thank our Montrose colleagues around the world to whom these results belong. 2020 presented some incredible challenges and equally compelling opportunities. And the collaboration I saw amongst our teams, the dedication they showed to our clients and the support we were able to provide to our communities are foundational to these terrific results and the continued creation of shareholder value. So to all of you from Montrose listening today, on behalf of all of us, thank you.

So in terms of the presentation, I'm going to focus my comments on a few themes: first, the exceptional position of our business within the broader environmental industry; second, the strength of our performance in 2020; third, the exciting catalysts and operational investments that drove and continue to drive results for our business; and lastly, our outlook for continued success in 2021. Following that, I'll hand the call over to Allan Dicks, our CFO, for our financial review and we'll both then open it up for Q&A.

On the first theme, on the unique position of our business, and for those of you newer to the Montrose story, our business is the environment. And as our mission is to help protect the air we breathe, the water we drink and the soil that feeds us, what that means to us is that our earnings and our revenue come from helping our clients help the environment.

So as examples of the work that we do, we measure and help improve air quality and measure and help reduce greenhouse gas emissions. We treat contaminated water or soil for our communities and clients. We convert waste to negative carbon-intensity energy, which we believe is part of helping our communities get to net zero. We help our clients navigate changes to environmental regulations. We help them comply with those regulations. And we help them respond to environmental emergencies created, for example, by climate change.

Each of the services and service examples I mentioned is both mission forward and represents a great opportunity to create value, given the global push for better environmental stewardship. But Montrose is uniquely positioned because of how we have and how we continue to put these services together and integrate them, which is why, even through the pandemic, our footprint continues to grow and expand and we expect quality growth to continue into the foreseeable future. As you can see on Page 4, we now have over 2,000 employees in the U.S., Canada, Australia and, as of the past few months, employees in the EU. We're finding that the need for environmental solutions and innovation is global.

On the second theme, as it relates to the strength of our performance, what we saw in 2020 was that our revenue remains sticky and resilient through economic cycles as it has in the past. Our work is mostly nondiscretionary and certainly helped the strong organic growth and repeat revenue in 2020, which we've highlighted for you on Slide 8.

And we're benefiting from private sector focus on improved environmental stewardship. In addition, in 2020, in each of our geographies, we saw and continue to see increased levels of environmental regulations, which we believe will drive our industry and our business. Here in the U.S., we expect that many of the priorities of the Biden administration will support Montrose's growth into the foreseeable future.

And the other key reason for our strong performance in 2020 is because our business has been purposefully curated and diversified to increase resiliency across various political and economic cycles in what, as I've mentioned to you before, remains a very large, growing and highly fragmented environmental industry. As an illustration of that, in 2020, our top customer was new and from a new industry, the technology, media and telecom industry. And consistent with our past, no single industry represented more than 17% of revenue and no customer accounted for more than 7% of revenue in 2020. We serve that largest customer through 20 separate projects, which further diversifies our risk across our portfolio.

So with that framework, on Slides 5 and 6, in terms of financial results, 2020 was another very strong year for Montrose. Excluding services we discontinued at the start of 2020, year-on-year revenue grew 51%, adjusted EBITDA grew 74% and that was driven by growth, mix and margin expansion. Including CTEH, our environmental response team, we delivered 17% combined organic growth. And excluding CTEH, organic growth was 4%. And this is despite the industry having contracted by 2% according to third-party research. We're also particularly pleased that over 90% of our revenue from clients in '19 returned in 2020.

There were several 2020 dynamics impacting these results that either converged with or diverged from our historical trends, many of which, not surprisingly, were due to COVID-19. Our colleagues in our CTEH business, who specialize in helping companies respond to environmental emergencies caused by, for example, climate change and aging infrastructure, saw an increase in COVID-related support for our clients.

And although pandemic response is not core to our offering and wasn't part of our expectations for 2020 in Q1, given our response capabilities, our clients requested our services and we were able to meet their request and demand. Coupled with climate change-driven events like floods and hurricanes last year, demand for our CTEH response team has been higher than expected and contributed to our strong performance in 2020.

On the other hand, our remediation and water practices saw projects delayed in 2020 due to COVID travel restrictions, closures and other factors, for example. We've seen a nice uptick starting early this year, and we continue to be very optimistic about the long-term outlook for those services. And we continue to invest in them. And finally, though COVID didn't really impact demand for our testing services, and by that, I mean, our business saw sustained demand and performed really well, margins were higher than what we would consider a run rate given our defensive posture with variable labor and SG&A at the start of the pandemic.

So as I talk through those factors, it's the net effect of these puts and takes that is important as we think about the business post COVID. But in the aggregate, they contributed positively to Montrose's strong performance in 2020, which speaks again to our unique and diversified environmental portfolio. In addition to those exogenous factors at play that impacted our business and our clients in 2020, there were operational factors worth highlighting as well. I mention these because it is important to note that we're still early in the evolution of Montrose, and we continue to invest in our team and our technology because ultimately our work is rooted in applied science.

In that vein, the first highlight is that [main] innovation remains a focus for us. And in 2020, we launched our R&D department and they made great progress. Montrose was awarded another patent in February related to concentrated waste like PFAS in a way that facilitates destruction. And we have a few more patents that have been filed and are under review. We see great long-term opportunities to continue to allocate capital in additive ways, and we believe these investments will position us well for strong growth in the future.

Another key operational highlight was around recruitment and retention of top talent. Both were strong in 2020. And of all the factors at play, I continue to be most excited about the caliber of our team, which I believe is a differentiator for us.

And lastly, our progress on the ESG front continued nicely. ESG is a function of our business and culture and it is inherent in what we do and how we do it. We will be publishing our second report in the coming months. And we have continued to make good progress, especially in the areas of social and governance excellence as articulated on Slide 11.

Given the importance of ESG for us and for many of our investors, I will note that our Nominating and Governance Committee of the Board works closely with me and formally oversees our ESG efforts and disclosures. Our Board members are already from diverse backgrounds and ages, and you'll see that in our proxy that will be filed shortly. And our Board is focused on continuing to increase diversity by, for example, focusing on recruiting more women in the future.

We created a diversity, fairness and inclusion task force, working directly with me to ensure we always consider how our policies, words and actions are perceived by all within our team. And of our 5 named executive officers, 3 are from diverse racial and ethnic backgrounds. We launched our WeLEAD program to promote female leadership, and we established internal audit processes to ensure full pay parity between men and women.

And last but definitely not least, we continued with safety excellence, which became even more critical during the pandemic. Employee safety remains a key focus for us. And we are grateful to be recognized by -- for our efforts and awarded by the U.S. National Safety Council in 2020. And we certainly look forward to updating all of you as we continue to make progress on each of these initiatives in the coming quarters and years.

And then finally, the last theme, in terms of our outlook for 2021, we remain very optimistic and excited about the opportunities ahead. And we are introducing 2021 guidance, which Allan will expand upon shortly. Just to give you a little color in terms of what informed our outlook and guidance, organically we expect the business to grow in the mid- to high single digits in 2021. We expect the impact of COVID to subside in the back half of this year. But even with COVID, customer demand remains strong, and 2021 is already off to a very strong start.

As we look forward, we believe that, in addition to the private sector demand increasing, the regulatory landscape is evolving in ways that will benefit Montrose over the long term and certainly this year. Whether it is an increased emphasis on greenhouse gases and methane, heavier regulations around PFAS, the forever chemicals, better preparedness in response to climate change, an increased emphasis on reduced carbon intensity and net zero or simply infrastructure investment and consistent enforcement of existing regulations without needing anything new, across our various geographies, each of these factors is expected to benefit Montrose, especially with organic growth this year and over the long run. And we've put some of that forth on Slide 10.

The second key consideration regarding our outlook is that our M&A pipeline remains strong. We acquired MSE in Q1, and we expect to announce or execute additional deals in Q2 and the coming quarters. We expect 2021 to be similar to our historical cadence of over $10 million in acquired annualized EBITDA per year.

And finally, as I've said before, and this is an important point that is just as applicable to 2021, Montrose's performance needs to be assessed annually because of the nature of the environmental industry and the services that we provide. It's just consistent with how our team hires, staffs and allocates resources and runs the company. And so just as we did in 2020, we will be clear with you with how we're tracking with our annual plan as the quarters unfold.

So in summary, 2020 was a milestone year for us, and I want to end where I started by thanking and acknowledging all of our colleagues around the world who continue to overcome incredible obstacles to help each other and serve our clients. The caliber of our team and our spirit of teamwork drives success more than anything. And again, to the Montrose team listening, congrats to all of you on a terrific year.

To our investors, thank you for your trust in us and your continued support. It's a unique privilege to be part of a successful business that both creates value and jobs and uses science to help our environment. Montrose delivered great shareholder value in 2020, and we couldn't be more excited about our prospects for 2021.

So with that, let me hand it over to Allan. Thank you all.

Thanks, Vijay. We are extremely pleased to have delivered solid fourth quarter and full year 2020 results as we completed our inaugural year as a public company. Our strong performance reflects the resiliency of our entire team, the focused execution of our growth strategy and the in-demand nature of our environmental solutions. We produced record 2020 revenue and adjusted EBITDA while expanding our margins in both the fourth quarter and full year.

Moving to our fourth quarter performance on Slide 13. We continue to drive strong growth across our business during the COVID-19 pandemic. Our fourth quarter revenue increased 60% to $108.7 million compared to the prior year quarter. Revenue growth was primarily driven by organic growth in our Measurement and Analysis segment and the acquisition of CTEH in April 2020, which has experienced favorable tailwinds, given client demand for toxicology and pandemic response services. The ramp in certain work due to COVID has largely offset the impact of delayed projects in other areas of our business, particularly in the second half of the year.

As we mentioned on prior calls, at the end of the first quarter 2020, primarily in response to the COVID-19 outbreak, we then decided to discontinue certain service lines. We completed that process early in the second quarter. The loss of revenues from these discontinued service lines partly offset our revenue growth. Excluding revenue from discontinued service lines, revenue increased 67% in the fourth quarter. Fourth quarter adjusted EBITDA grew 74% to $18.3 million. And adjusted EBITDA margin expanded by 130 basis points to 16.8%. This improvement was primarily driven by higher revenues and favorable business mix.

Now turning to our full year 2020 performance on Slide 14. Full year 2020 revenues were up 40% to $328.2 million versus $233.9 million in 2019. Excluding revenue from discontinued service lines, revenues increased 51% in 2020. The primary driver of this increase was acquisitions, most notably our acquisition of CTEH, as well as organic growth. Organic growth was achieved despite a patchwork of COVID-related project delays due to the shelter-in-place orders and travel restrictions throughout 2020.

Full year 2020 adjusted EBITDA increased 74% compared to the prior year to $54.5 million with adjusted EBITDA margin up 320 basis points to 16.6%. Adjusted EBITDA and adjusted EBITDA margin in 2020 benefited from higher revenue, favorable business mix, the exit of discontinued service lines and temporary cost containment measures taken in response to COVID-19.

Looking at our 3 business segments. Each of these segments are synergistic and together represent our vertically integrated approach to delivering solutions to clients. During 2020, we grew revenues in all 3 segments when compared to 2019. In our Assessment, Permitting and Response segment, we experienced a more than fourfold increase in revenue, and we more than tripled segment adjusted EBITDA. Revenue grew to $98.5 million and adjusted EBITDA improved to $24.2 million. These increases were driven by organic growth as well as the acquisition of CTEH in April of 2020. Since April, CTEH has also seen an acceleration in demand to provide pandemic response-related services.

In our Measurement and Analysis segment, 2020 revenue increased 12% to $151.6 million, primarily attributable to organic growth and acquisitions. The significant adjusted EBITDA margin improvement to 26% was attributable to higher revenues and favorable shifts in business mix as well as the temporary cost mitigation initiatives taken in response to COVID-19.

Finally, in our Remediation and Reuse segment, revenues increased year-over-year to $78.2 million, reflecting organic improvement and the contribution of acquisitions. The benefit of acquisitions in this segment was more than offset by the impact from discontinued service lines. The decline in Remediation and Reuse adjusted EBITDA margin primarily reflects investments to support significant anticipated growth and geographic expansion within this segment.

Moving to our capital structure on Slide 15. Cash from operating activities was $1.9 million for the full year 2020. As a reminder, cash flow naturally has a number of moving pieces related to our initial public offering in July, our secondary offering in November and our first year as a public company. Cash flow from operating activities included non-capitalizable IPO and secondary offering-related payments totaling $7.7 million.

In addition, as a result of the strong overall performance of our prior acquisition, 2020 operating cash flow includes the payment of acquisition-related earn-outs of $6.4 million. Excluding these nonrecurring IPO and acquisition-related payments, cash flow from operating activities decreased by $1.8 million compared to 2019. This decline reflects a net increase in working capital, driven by significant fourth quarter revenue growth in our Assessment, Permitting and Response segment as well as an increase in interest paid as a result of higher interest rates on a unitranche credit facility.

We expect working capital to normalize in the first half of 2021, given the revenue spike in December of 2020 and expect to refinance our credit facility to lower interest rates in the second quarter of 2021. We continue to expect a long-term conversion of adjusted EBITDA into operating cash flow at a rate in excess of 50%. This incorporates our expectation that, as a growing company, we will continue to be very focused on balancing the generation of cash and investments to integrate acquisitions, investments in technology and in R&D.

As of December 31, 2020, we had cash of $34.4 million and total debt of $175.9 million. Our net leverage ratio at December 31, 2020, as reported under our credit facilities, was 2.7x. This includes the impact of contingent earn-out consideration of $4.4 million related to estimated CTEH earnings in 2021. Excluding this contingent consideration, which may vary due to the environmental emergency response nature of CTEH's work, our leverage ratio was 2.6x and within our longer-term target leverage range of between 2.5 and 3.5x.

Our Series A-2 preferred stock has no maturity date. And we have the option to redeem the preferred shares at any time for cash, subject to a make-whole payment in the first 3 years. We view this preferred equity instrument as favorable to the value creation potential in the business, given its flexible dynamics. If you include the $182 million balance on the Series A-2 equity and our market cap, our total equity capitalization stands at approximately $1.2 billion.

Moving to our 2021 outlook on Slide 16. With our expectation for continued strong performance in 2021, today, we are introducing our full year 2021 growth outlook. We expect 2021 adjusted EBITDA to be in the range of $61 million to $67 million. On this dollar range, we expect full year 2021 adjusted EBITDA margin to be in the range of 16% to 17%, relatively consistent with 2020. On that point, our increase in adjusted EBITDA margin of over 300 basis points for 2020 was well ahead of the previously communicated 100 to 150 basis point average annual margin expansion that we expect to achieve over the next several years.

This is primarily due to the temporary cost mitigation measures that we have taken in response to the pandemic, which are not sustainable nor part of our long-term growth plan as a growth-orientated company. Our current outlook is based on a combination of mid- to high single-digit organic growth plus the contribution of MSE and the full year of CTEH. I'll mention that this upside does not include future acquisitions, which represent upside to our forecast. Taking that into account, our outlook is aligned with our unchanged expectation for annual revenue growth in excess of 20% per year for the foreseeable future.

As we mentioned last quarter, demand for our services remains resilient, though we have continued to experience uncertainty related to the COVID-19 pandemic. Strong 2020 performance in CTEH was in part attributable to evolving consumer needs in reaction to the pandemic and lockdowns. This more than offset delayed projects in other parts of our business, reflecting the diverse service offerings of our platform. Into the first quarter, we are already off to a strong start to 2021, led by CTEH.

The impact of the pandemic on our business and people remains a key focus. As the economy rolls back and projects resume in other parts of our business, we expect a more balanced contribution to growth in revenue and earnings from many of our service lines. That said, our 2021 outlook does already account for some carryover of project disruptions as well as the reversal of the cost mitigation measures put in place during 2020. As a result, we are confident in our ability to deliver on our full year goals.

I'll turn the call back to Vijay for closing remarks.

Thanks, Allan, and thank you all again for joining us today. We are really excited to report a record fourth quarter in 2020 that capped off our debut year as a public company, and I could not be more proud of my team. We begin this year 2021 on a very strong footing, and we remain confident in our goal of becoming the leading environmental solutions brand. We look forward to the opportunities ahead, and we sincerely appreciate all of your interest in Montrose.

And so with that, operator, we're ready to open the line for Q&A.

(Operator Instructions) And our first question comes from Jim Ricchiuti with Needham & Company.

Congratulations on the quarter. The first question I have is -- and I know it's not always useful to look at the business on a quarterly basis, but I'm just struck by the sequential increase in the Assessment, Permitting and Response Q3 to Q4. And I'm trying to get a sense is how much of a contributor was CTEH in that increase?

And you talk about a strong start in Q1. You're attributing it to -- in part to CTEH. And so I'm wondering if that is again more COVID-related or if you're also seeing -- have seen some activity, for instance, as a result of what happened in the Gulf with the weather issues and the potential water contamination in Texas. And I have a follow-up.

Yes. No, this is -- it's a great question. Thank you for that. And this is -- and you're exactly right. That's precisely why I always say you've got to look at this annually. Let's just step back for a second. Our -- historically, and you'll see this in our S-1 commentary, when we spoke with you back in July, Jim, the business tended to see a slightly heavier Q2 and Q3 and a slightly lighter Q1 and Q4. And that was a function of just weather patterns and the impact that it had on our testing business.

Last year through COVID, that trend line largely dissipated. So we saw the impact of COVID really hit us in March, and so kind of in the back half of Q1 and Q2, which unwound in Q3 and Q4. So the sequential increase is really a function of kind of the pandemic-related impacts and not a broader trend line for Montrose, Jim. So does that make sense? Does that answer your first question?

It does, Vijay.

Okay. CTEH was a significant contributor in Q4 and -- but their business, again if you think about what they are, it's an environmental emergency response business. And so as I've said to you before, over the course of the year, the volume from CTEH is rather predictable. And we've kind of characterized that for you as kind of $60 million to $80 million per year run rate. But if there's an incident, and last year, that incident was COVID-19, you can certainly see some fluctuation off of that more. And so we saw a very strong kind of back half of the year for them, and they're still supporting many of our clients. And so we expect some of that will continue into Q1 and Q2.

But you're also absolutely correct. Yes, the hurricanes and floods last year drove demand for their services. And this storm, Uri, this year, the Texas freeze that impacted the Gulf, certainly continued to drive demand. And so this goes back to our broader thesis, Jim, which is that these climate change-related events, these events related to accidents due to aging infrastructure, we expect that, that's going to continue to drive demand. And so that's going to drive kind of the organic growth in that response business on an annualized basis year-on-year. But this COVID-related surge that we saw in the back half and the early part of this year were likely -- obviously, we hope and pray that, that doesn't continue into perpetuity. Does that answer your question?

It does. And just the follow-up question is just with respect to the market share, expanded market share that you alluded to in the release and presentation. And I'm wondering if you might be able to provide a little bit more color on that in terms of maybe how you're measuring the share gains, what areas of the business and maybe the factors that are leading to that.

Yes. So the measurement of the share gain is really just more of a mathematical implication, Jim. So if the market contracted 2% according to third-party research and we grew 17% combined with CTEH, 4% excluding CTEH, and it's not really a function of price increases, which we didn't really see all that much of, right, the implication is that we continue to take share from our competitors. And anecdotally, we saw some of that with our clients, and we were able to see where we were getting wins from others for existing services. And that's why we made that comment, Jim. Does that answer your question in terms of why...

It does. That sounds fairly simple. And then specific areas maybe that you see the gains coming from?

So we -- across our segments, we saw some great momentum. So in our Measurement and Analysis segment, we saw some really nice gains. And Allan alluded to that in his commentary around our organic growth performance there. We saw some really nice activity in our renewable energy, our ag waste to biogas business and then, of course, on our emergency response business.

So kind of across our segments, Jim, we saw some nice momentum. But then of course, in each of those segments, there were also pockets of business that saw some headwinds due to COVID that were mostly related to logistics and travel restrictions. It was a little bit of a put and take, but that's what we were talking about. And obviously, the aggregate result is quite a positive one.

And our next question is from Tim Mulrooney with William Blair.

A couple of questions for you. The first one, just on organic growth. I mean, you gave some guidance for 2021, all of which is very helpful and appreciated. It looks like you're expecting mid- to high single-digit organic revenue growth for the full year. Can you talk about how you're thinking about how that breaks down between the 3 different segments, which ones you'd expect to be towards the higher end of that range or maybe a little below that range kind of based on where you stand today and based on the comments that you just provided between you and Jim?

Yes. We -- let me give you some high-level color, Tim. We don't want to get into the specifics by segment.

Okay. Got it.

As Vijay said, certainly our Assessment, Permitting and Response segment, which is predominantly CTEH right now, should continue to have strong first half of the year. And so the way we measure organic growth, remember, is it's only once we've held an acquisition for 12 months. So they're really only going to count in the second quarter. But still, we're expecting a strong year from them, again led by the first half. The rest of that business, which is our legacy consulting business, if you will, was impacted pretty severely by COVID. And so we would expect that -- and we're already starting to see this, that, that business will perform well, particularly in the back half of the year.

Our Measurement and Analysis group, on a top line basis, we would expect to continue to see positive growth. They were also -- particularly our field-based teams were also impacted by COVID. So we will likely see revenue again towards the back half of the year accelerate. Now from a margin perspective, it's different, right? We've talked about that segment trending downwards to 20% over time. They're around at 26% for 2020.

And then finally, on the Remediation and Reuse, that segment, which did see positive organic growth in 2020, is expected to continue to see positive momentum that, as we've talked about before, the segment that has the largest addressable market. That's where our PFAS treatment, water treatment technology resides, so there's a lot of opportunities there. The question again is how quickly that segment recovers from COVID. It was also impacted. But we expect again in the back half of the year, we're going to start to see great momentum out of that group.

Yes. I mean, to add on to that, let me -- I'll tell you about the macro factors driving our excitement around the organic opportunities. So it is our expectation that, certainly this is speculative on our part, that the Biden administration's emphasis on greenhouse gases, methane emissions is going to help drive our testing business forward. So we continue to see really attractive organic opportunities there. The focus on carbon-negative energy sources, like the ones we create, we think, are going to continue to see momentum. We think the water treatment work is going to continue to see momentum. So Remediation and Reuse segment, we expect to see really nice growth in.

And then on the Assessment, Permitting and Response segment, putting CTEH aside, a lot of the activity right now that is anticipated around infrastructure spend, for example, right, and regulatory enforcement, which certainly Administrator Regan's agency has started to take a more proactive stance on, all of that just creates incremental opportunities for us. So even putting kind of the CTEH opportunities aside, and you know our views on that, we're bullish on them, we think kind of across the segments, those are examples of drivers of our business that, not only this year, candidly into the next couple of years, we think, creates some unique opportunities.

That's offset by our inability to predict exactly how and when this COVID overhang is going to begin to subside. We anticipate, as I said earlier, in the back half of this year. But that's the reason we're being a little cautious with not kind of materially increasing our outlook on the organic growth side. So there's certainly some really nice opportunities, but we're still navigating the back half of this COVID pandemic.

Okay. I mean, that's a ton of color. That's exactly what I was looking for. So thank you, guys, for digging into that for me. I think that will be helpful for everybody. My second question is on this large customer, you mentioned your largest customer in 2020 was new. And I'm sure you don't want to name the client. But I'd be really curious how this relationship developed.

Were you targeting this customer prior to 2020? Or did they come to you? And how did they come to you? Was it through CTEH? Or was it COVID-driven? Or was it through one of your traditional businesses and how that relationship evolved into more than 20 different projects throughout the year?

Yes. So yes, Tim, we're not going to name the customer. But this was a customer that we had some early conversations with. And this speaks to kind of our broader cross-selling efforts that have really been getting some nice traction. As you know, Tim, we put kind of sales force in place, and we've got a series of business development initiatives underway, which we historically have not had.

And so this customer kind of blossomed through kind of a multi-touch point relationship effort at Montrose and speaks to kind of the attractiveness of having kind of an integrated offering that meets -- or I should say, scratches multiple itches on the environmental side. So that's how it came to be.

And the fact that we had a more robust offering, including, but not limited to just CTEH, right, more on the permitting, assessment side, more on the testing side, more on the Remediation and Reuse side, all of that kind of factored in. And I suspect we'll continue to really accrue to our benefit over the next couple of years. And we hopefully, we'll have more and more stories like this as we begin to unearth these opportunities.

As a simple example, Tim, if you're struggling with measuring and mitigating greenhouse gases, it's not a singular thing that you need, right? You almost need kind of a series of experts helping you assess the regulatory landscape, the engineering optimization part of it, the mitigation and measurement part of it. So it allows us to kind of hit the same problem from multiple angles. And that's a unique offering from Montrose.

And our next question is from Andrew Obin with Bank of America.

Just a question -- a couple of questions. So is there anything in the recently passed $1.9 trillion COVID relief bill or even let's -- I guess, you guys highlighted the green infrastructure bill. But we're discovering that a lot of companies are highlighting some benefits from this COVID relief bill, which we frankly did not expect. Were there any particular benefits that you guys have discovered after sort of talking to your customers over? And how much of it is in your guidance?

None of it is really in our guidance, Andrew. We haven't -- there's nothing specific in that, that we think is going to change our trajectory in one way or the other. So we've largely kept it relatively consistent, independent of that stimulus package.

Got you. So -- okay, so that's fine. And then can you just give us an update to the geographic expansion of Montrose through PFAS pilot projects? Have you been pulled into any other regions beside Europe and Australia? And what has the feedback been from your customers? You have new administration. You have the change of the Senate control. How do you see that sort of playing out in 2021?

Well, so the new administration and change of Senate control, that's a U.S.-specific set of opportunities for us.

Right, of course.

And that, we believe, is likely going to accrue to our benefit or can lead to the market's benefit. You've heard some of our -- some of the other participants in the PFAS market talked to this. And they've characterized it as a market in the tens of millions and some of them have said hundreds of millions. Certainly, we expect -- we've seen increased activity around setting potential limits. There's been early discussions, though it's unclear exactly which way the Feds will go around the inclusion of this into the circular regulations.

The characterization of a larger number of compounds as potentially toxic, all of that, Andrew, benefits not only on us on the remediation side but also on, as we've talked about before, on our advisory side and on our testing side, right, because you have to continue to measure and then validate that you've indeed done what you said you would do. So it's net accretive for us here. Our pilots in Europe are progressing very nicely and we're encouraged by them. It is still too early to say anything definitive. But they are continuing the pace, and there's more of them now.

And then in Australia, it's kind of par for the course. COVID certainly had a disproportionate impact on our Australian territories. Travel and logistics was very challenged there. But we're coming out on the back end of that and demand opportunities and the prospect looked very promising. And we've had some really nice wins of late, which we're very excited about. And so we expect to continue sharing more of that once it's something we can talk about and finished.

It sounds like you have a lot of exciting things cooking up for '21.

(Operator Instructions) And our next question comes from Jim Ricchiuti with Needham & Company.

Yes. Just another question on the regulatory environment and the potential that it could be a nice tailwind for you, which is, I think, is certainly appears to be the case. But I'm wondering, as you think about your M&A pipeline, which you say is pretty active, are some of the folks that you're talking to looking at this environment? And is that causing them either to potentially pause a little bit to see how their business is going to be impacted by this? And I guess what I'm asking is, are you seeing changes in the valuation expectations?

Well, we're not, Jim, not at this point. We're encouraged by that. We think the rationale for joining Montrose is just as compelling. It's -- we're uniquely focused on the environment and that -- a lot of these owners that have dedicated their careers to helping the environment, they find that compelling. The way we approach it in terms of cash-stock mix and our issuance of stock options to retain employees is very compelling to many of these folks. And I think our being public, Jim, candidly has provided a platform that they can see, right? They can see how their folks could benefit, of the opportunities their folks could have and how they, with Montrose, can potentially present a much stronger offering into the market.

You saw us do it with MSE, that was blocking and tackling for us. It's an exceptional team. We're really excited about them. They've already been incredibly additive to us. And that was right in the middle of the fairway for us in terms of our historical multiples. And what we currently expect and anticipate is no different from that. We continue to believe that these will be accretive from a personnel perspective, from a financial perspective and strategically, of course, as well. Short answer is no.

Okay. Good to hear, Vijay. Any -- is there any color you can provide on areas that would -- of the business that have the most -- would have the most interest for you in terms of inorganic over the -- over '21?

Jim, I mean, M&A, as much as we would love to control all the variables, is often just as controlled by the broader dynamics of the seller. So we still remain quite compelled by some of the opportunities in the testing realm, largely because now as enforcement starts to pick up, we're seeing some really nice tailwinds there for our teams and there's some nice bolt-on opportunities.

And then on the Assessment, Permitting and Response on the advisory side, if you think about the assessments related to doing things, like infrastructure investments, the assessments related to ecological impacts, that type of effort, that type of work is very strategically additive to us and it kind of puts us top of the funnel again with a lot of these customer relationships. And so we're going to likely lean pretty heavily in those 2 areas from an M&A perspective.

Within the Remediation and Reuse segment, Jim, on our biogas work and on our water treatment work, that's really more about our IP differentiation and our organic opportunities. And so that's going to be more of an execution play for us. We likely won't be as active vis-à-vis the other 2 segments in the near term in that area.

And our next question is from Noelle Dilts with Stifel.

Congrats on a strong end to the year. So I just wanted to just kind of -- a lot of my questions have asked. This is a little bit adjacent to some of what you've talked about in the past. But as we've looked at PFAS, it looks like a lot of exposure actually comes from indoor environments. And I'm just curious if that's something you guys have kind of looked at. It seems like it would be in your wheelhouse. And if that kind of might be an area you might look to expand into as we look forward, given what you're -- given your strength right now with ECT2.

Yes. The indoor environments is one we're quite familiar with, Noelle, so you're right. We've been a little bit more cautious there. There's a fair degree of competitive dynamic there. And there's also, from a regulatory perspective, even more uncertainty than in areas like drinking water and water sources, for example. And so we're obviously staying very, very close to it, and it's an area we could move into and it's one that would naturally fit. But it's not in our immediate-term horizon just because it feels like what we have to chew off with what we have today is already quite substantial, and we want to make sure we execute on that well.

Okay. Great. And then I think that this is a little bit...

But we know the area quite well. Yes.

Yes. Okay. Great. And then related to Andrew's question, could you kind of just speak to how you're thinking about the PFAS remediation efforts in the -- internationally versus the U.S. and sort of when you look at your opportunity set, how you think about the time frame for some of those opportunities coming through, say, more in Australia worth spending more in Europe versus the U.S. side of things?

It's -- in all of those geographies, the regulations are evolving rapidly, Noelle. And so I think what's -- and you've heard -- and you covered the E&C space that you know this well, right? Others say, often anybody who can spell PFAS says they're an expert and says they have the best answer, right? And we certainly chuckle. We agree with that sentiment. It's just that it's a hot space right now.

But if you step back and think about what we have, we have a proprietary IP. It's IP that's been proven in the field and has certainly gotten a lot of market traction. But we're not all things to all people. So we're kind of playing, as you know, in areas where there's high concentrations, multiple compounds, short chain, long chain, a desire for more environmental sustainability.

So there's a certain part of the market where we're very applicable, where we get a much nicer win rate. And that allows us to command higher prices and higher margins. So the way I would answer your question, Noelle, is to say we continue to emphasize that we're really a solution provider here that's very complementary to other either consultants, engineering firms or advisers to these companies or governments.

In the EU, I suspect it's mostly going to be federally driven -- or not federally but driven by the EU. The EFSA has put out a new commentary on their belief on what humans can ingest. We believe that's going to spill over into the environmental regulation side. And that's going to create a lot of demand. We're already seeing some of that. And so it's early stages there.

We think here in the U.S., the regulatory regime is picking up quite materially. The municipal market has always been large. It's not one that we particularly focus on. But the federal government and the Department of Defense, in particular, is an area that we're actively involved with. The private sector here in the U.S. is one that we're very actively involved with.

And then in Australia, it's again primarily driven by the Department of Defense. And even their regulatory regime is evolving rapidly. And so kind of across the board, we're seeing some pretty compelling opportunities. It's hard to predict exactly when regulations will be implemented and enforced. But the market momentum is already candidly there.

Okay. Great. That's really helpful. And then I know you've touched on this, and you've touched on this in the past as well as today. But I was curious when you look at your efforts to kind of really build your sales force and kind of strengthen that side of your business, where you would say you'd stand on that front today?

So when we went public, we said we wanted to do it. And that was back in July. We committed to all of you that we would have our CRM implemented at the end of last year. We did that. And we're now kind of in the early phases of taking advantage of the fact that we have better visibility and a team dedicated to it. And that applies not only on the sales side, Noelle, but also on the marketing side, where brand awareness is increasing nicely. So it's still early innings, probably bottom of the second but well on its way.

Thank you, ladies and gentlemen. We have reached the end of the question-and-answer session. And now I'd like to turn the call back over to Vijay Manthripragada for closing remarks. Thank you.

Thank you all again. We really appreciate your interest in Montrose. Thank you for the opportunity to spend time with you, and we look forward to speaking with you in the near future. Take care, everyone.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.