Montrose Environmental Group, Inc. (MEG) Q3 2020 Earnings Call Transcript

Montrose Environmental Group, Inc. (MEG 0.22%)
Q3 2020 Earnings Call
Nov 12, 2020, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings and welcome to Montrose Environmental Group third-quarter 2020 earnings call. [Operator instructions] As a reminder this conference is being recorded. I would now like to turn the conference over to your host Rodney Nacier, investor relations. Please go ahead.

Rodney Nacier -- Investor Relations

Thank you, operator, and welcome to our third-quarter 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 investor 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 23rd, 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 or providing certain non-GAAP financial measures today, including adjusted EBITDA, 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 presentation 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.

Vijay Manthripragada -- President and Chief Executive Officer

Thank you, Rodney, and welcome to all of you joining us today. This is Vijay. I'm going to provide a few business highlights and then I'll hand it over to Allan for our financial review and then we'll both then open it up for Q&A. The presentation Rodney referenced is online along with our press release.

I won't be going page by page. I'll speak generally to Pages 4 through 10 of the presentation and I also hope to share a few important perspectives with you. So since our last call in August, we've had another strong quarter and our activity with new and existing clients continues to improve. Our revenue growth which has been driven by both organic and inorganic growth is progressing nicely and is trending in excess of our historical average of 20% to 25% per year.

Our adjusted EBITDA continues to grow faster than revenue as it has historically and our EBITDA margin is on track to expand by over several hundred basis points this year in 2020. As I've talked about with many of you in the past, I believe this strong performance is partially because of our unique focus on the attractive and growing environmental industry. We provide environmental solutions to our clients and communities, and we believe those clients and communities are increasingly focused on the environment. It is not part of what we do, the environment is what we do.

And as examples of the types of services that we provide, we measure air quality and greenhouse gas emissions. We treat contaminated water and contaminated soil. We convert agricultural waste to renewable and sustainable energy, and we help our clients navigate changes to environmental regulations, help them comply with environmental regulations, and respond to environmental emergencies. So in essence, the environment is our focus.

With regards to the political and regulatory landscape, which is top of mind for many of us. Given the recent U.S. election, many of you have asked me about the impact on Montrose. It's a bit too early to discuss specifics until policies are put in place.

But I want to make sure I reiterate one of the key themes about our business that we've talked about before. Our business model by design is resilient and it's largely insulated from the political swings at the federal level. In the U.S., Montrose has done well through Democratic and Republican administrations, and in Australia and Canada, we've done well through conservative and liberal administrations. So regardless of the outcome, Montrose is well-positioned.

That said, assuming it is President-elect Biden and assuming he continues with his current emphasis on the environment, there is the possibility for some upside over the next four years. And just to make sure there's no ambiguity with what I'm saying, we are already delivering on and expect to continue delivering on the strong outlook we've shared with you in the past. Any new initiatives from a Biden administration are likely to represent incremental growth opportunities for us. As for COVID-19 and the economic backdrop which is also top of mind for many of you and for us.

In terms of economic resilience, the strength of Montrose, this past performance through various economic cycles speaks for itself and our strong results this year, despite the impacts of the pandemic are another example of the business resilience. It's -- I think it's important to clarify that with COVID, parts of our business have been impacted by the outbreaks, quarantines, and travel restrictions across many of our geographies. But other parts of our business like the planning and incident recovery arm of CTEH have benefited because of clients needs related to COVID. So in aggregate, because of the diversified nature of our business and that diversification is by design, our business continues to perform well, and we are increasing our expectations for full-year 2020.

And I'll summarize our financial results and talk to that more in a few and Allan will certainly delve more into our financials shortly. But LTM revenue and this is in the presentation, is up 28% compared to 2019. That growth was driven by solid organic and inorganic growth. And excluding discontinued operations, LTM revenue is up more, it's up 30% compared to 2019.

LTM EBITDA is up 66% compared to last year. Our EBITDA is being driven by strong revenue growth and continued leverage, operating leverage, and our EBITDA margins remain very strong. And as Allan and I talked about before, our margins are higher than they otherwise would be because of the temporary and defensive nature of our operating approach since the start of the pandemic. As for our segments, this year revenues increased in all three segments.

Our assessment permitting and response or advisory segments are doing very well, given the strength of the CTEH franchise. CTEH saw demand from the busy hurricane season and despite the fact that some of their traditional services were slowed by COVID-19, they are also helping many clients plan for and respond to the pandemic. So they're doing great. Our measurement and analysis or testing segment is seeing really nice organic growth and margin expansion.

Our Canadian business in particular, though small is doing very well even though -- even through their winter months, given Canada's focus on greenhouse gas measurement and reduction. Our third segment, our remediation reuse segment has had some really nice project wins. They've also seen many of the project delays we formally referenced. But Allan and I remain bullish on this business and we're investing in that team and infrastructure because our solutions and our IP in particular, is pulling us organically into new geographies like Europe and Australia.

That business and that segment is evolving rapidly and continues to grow organically and we expect growth to accelerate on the other side of the pandemic. And we're particularly bullish about what the long-term outlook for this group looks like. On organic growth, we continue to track to mid single-digits, excluding CTEH in high single-digits including CTEH. As a reminder, we recalculate organic growth by excluding any impact from acquisitions in the prior 12 months.

We would normally exclude CTEH until Q2 of next year, but I include them in my summary because of their size and relative impact on Montrose. We've often been asked by many of you, why our organic growth is progressing as nicely as it is. And there's two examples that I'll share about our cross-selling initiatives, which I think highlight our commercialization strategy and efforts in a constructive way. The first example and this is similar to other examples we've shared with you in the past is, that one of our major industrial clients engaged us to help with PFAS water treatment at two of their locations here in the U.S.

And as they better understood, our capacity -- our capabilities and got to know our team, their needs are now global. This example illustrates cross-selling one of our services across multiple locations for a client. As another example, our account management program, which is a key part of our new commercialization strategy has allowed us to transition a client that generated under $50,000 in revenue in 2018 to more than $1 million this year in 2020, and what looks like the opportunity for over $2 million in 2021. And this example is slightly different in that and this is an illustration of us providing many of our services to one client.

And so slightly different approaches, but the same general theme. And given our base of around 5,000 clients, this type of organic penetration of our existing client base is a key focus for us and our commercialization team. In addition to that, our content-driven marketing program and I believe content is key given the highly technical and rapidly evolving nature of the environmental industry. Those content programs have really helped us engage our clients and increase awareness of our brand and capabilities, and I encourage you all to look on our website and you'll find a lot of what our team is talking about in terms of their capabilities there.

And of course, as part of that commercialization effort and given we've talked about this in the past, the team is making great progress with the implementation of our CRM. As that gets implemented, we expect to further accelerate our commercialization efforts and our growth. So all those are the reasons why we continue to grow organically. And I would say that our consistent organic growth, especially in this COVID environment, speaks to the efficacy of our commercialization strategy.

And though it's early days, I'm really pleased with how that team has come along since they started at around the middle of last year. On acquisitions. We more than surpassed our goal for 2020 with the acquisition of CTEH. The integration of that team is going very well.

That's an exceptional group of folks. Looking forward, our M&A pipeline remains very strong and continues to build. We are confident as we have been in our ability to continue delivering $10-plus million in prior EBITDA per year at attractive multiples just as we've done every year since we've been at Montrose. On the cash flow and balance sheet side.

We had another great quarter. We believe we have ample liquidity and flexibility to execute on our plans. And Allan, we'll talk more about all of these topics, so that's just a quick summary of our financial performance today. And of course, I'm very pleased with our Q3 and year-to-date results.

But I need to continue emphasizing this one critical point, which is that Montrose's performance needs to continue being assessed annually not quarterly. Allan and I evaluate the business annually due to the stronger predictability of the business on an annual basis. It's also consistent with how we hire, how we staff, and how we allocate resources and run the business. Moving on to the operational side.

There are a few updates worth noting and I'm really proud of some of these recent accomplishments of my team. First, with employee safety. Our team's focus this year and as part of that, the support of the CTEH team and helping us respond to the COVID-19 pandemic has been stellar. Second, we successfully launched our new ERP.

And though it is early days, all the intense planning and preparation of that team has been really worthwhile. Third, we launched our new R&D department and they've already had some really nice wins and I look forward to sharing more with you on that in the near future. Fourth, our European operations continue to expand, despite our not being able to send our U.S. team across the Atlantic.

I'm really happy with our local European leadership and their efforts in helping us launch our pilots, and we're excited to share more about that with you in the near future. Fifth, our talent acquisition program, both with operations and business development has helped us recruit some stellar team members into the Montrose family, and this is one of the benefits of improved brand awareness especially now that we're public. And I'm really excited about our new recruits because I believe they're going to be very additive to our strategy and to our continued execution. And last but definitely not least, we published our first ESG framework which is now available on our website and this is something we will continue to expand.

In addition to our leadership on the E in ESG, we've made some great progress on the S and G side as well. And so as two examples are WeLEAD, Women's Leadership Program and our DFNI or our diversity, fairness, and inclusion initiatives have made some great progress, and some of their recommendations have been and continue to be implemented. So that's a quick update on the business. And I want to end by saying, I am so proud of my team because they've done all this while many of our colleagues and teammates have had to work remotely and deal with a very real juggle of family demands, at-home schooling for parents, and the challenges with work and life during a pandemic.

We recognize how hard it's been for so many of our people and I want to thank and acknowledge all of our colleagues around the world who continue to overcome incredible obstacles to help each other and to continue serving our clients. We wouldn't be here without them and we remain confident in the outlook for Montrose because of the caliber of our team. So to our Montrose colleagues listening today or via recording, congratulations to all of you on another great quarter. And to all of our investors, who we'll be talking to or are listening on this call, thank you for your continued support.

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

Allan Dicks -- Chief Financial Officer

Thanks, Vijay. Our strong performance in the quarter and year to date, reflect many of the positive elements that support our high growth, resilient environmental solutions business model. We have produced record revenue and adjusted EBITDA while expanding our margins in the third quarter and first nine months of the year. In addition, we further strengthened our capacity for growth through the execution of our IPO in July and the repricing of our term loan in October.

Moving to our revenue performance on Slide 12 of the deck. We continued to drive strong growth across our business during the COVID-19 pandemic. Our third-quarter revenue increased 47% to $84.7 million, compared to the prior-year quarter. Year-to-date revenues were up 32% versus the prior-year period.

The primary driver of revenue in both periods was acquisitions, most notably our recent acquisition of CTEH, which has experienced favorable tailwinds given client demand for toxicology and pandemic response services. Despite a patchwork of COVID-related project delays due to shelter in place orders and travel restrictions, year-to-date our business has generated positive organic growth roughly in line with average levels achieved in recent years. The ramp in certain work due to COVID has largely offset the impact of delayed projects in other areas of our business. As mentioned on our prior call, at the end of the first quarter, we did decide to discontinue certain service lines and completed that process early in the second quarter of 2020.

The loss of revenues from these discontinued service lines partially offset our revenue growth. Excluding discontinued service lines, revenue would have increased 60% in the third quarter and 43% in the nine months year over year. Looking at our adjusted EBITDA performance on slide 13. Our third-quarter adjusted EBITDA more than doubled year over year to $16.7 million and adjusted EBITDA margin expanded 570 basis points to 19.7%.

Year-to-date adjusted EBITDA increased 75%, compared to the prior-year period to $36.2 million with adjusted EBITDA margin, up 400 basis points to 16.5%. Adjusted EBITDA and adjusted EBITDA margin for both periods benefited from higher revenue, favorable business mix, the exit of discontinued service lines, and temporary cost containment measures in response to COVID. All of these factors helped drive significant margin improvement especially since mid-year. Turning to our business segments on Slide 14.

The work we do is organized around the questions that our clients ask us, which in turn constitute the three segments by which we report our financials. Each of these segments are synergistic and together, represent a vertically integrated approach to delivering solutions to clients. During the third quarter, we grew revenues in all three segments when compared to the prior-year quarter. In our assessment, permitting, and response segment.

We experienced a more than threefold increase in revenue and adjusted EBITDA. Revenue grew to $26.6 million and adjusted EBITDA improved to $8.2 million. These increases were driven by the acquisition of CTEH in April of this year. This acquisition has significantly expanded our product portfolio and our scientific and technical advisory services footprint.

Since April, CTEH has seen an acceleration in demand to provide pandemic response related services. In our measurement and analysis segment. Third-quarter revenue increased 12% to $39.8 million, primarily driven by organic growth. This was partially offset by the decline in discontinued service lines.

Significant adjusted EBITDA margin improved to 28.2% and was attributable to higher revenues and favorable shifts in business mix, as well as, the temporary cost mitigation measures taken in response to COVID-19. In our remediation and reuse segment. Revenues increased 11% year over year to $8.3 million. This growth reflected organic improvement, despite some temporary delays in project starts.

The benefit of acquisitions in this segment was offset by the impact from discontinued service lines. The decline in remediation adjusted EBITDA margin primarily reflected investment to support significant anticipated growth and geographic expansion within the segment. Moving to our capital structure on Slide 15. Cash from operations from operating activities with the use of cash of $3.9 million for the first nine months of 2020.

Cash flow naturally had a number of moving pieces related to our initial public offering in July and our first quarter as a public company. Cash flow used in operating activities included non-capitalizable IPO-related payments totaling $6.8 million mainly in the third quarter. In addition, as a result of the strong overall performance of our prior acquisitions, year-to-date, the payment of acquisition-related earnouts has been in excess of original expectations. This represented the cash use of $6.4 million.

Excluding this nonrecurring IPO and acquisition-related payments, cash flow from operating activities was $9.3 million, compared to $12.5 million in the prior year. This decline reflects a net increase in working capital primarily from higher receivables driven by a 15% increase in revenues from the second to third quarters. Operating cash flows also reflect an increase in cash investments in start-up activities and system upgrades, as well as, higher acquisition-related costs. 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 investment in mergers and acquisitions, technology, and R&D. As of September 30th, 2020, we had cash of $38.4 million and total debt of $180.8 million. Our net leverage ratio at September 30th, 2020, as reported under our credit facilities was 2.9 times. This includes the impact of contingent earnout consideration of $9.6 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 2.7 times and within our longer-term target leverage range of 2.5 times to 3.5 times. As a reminder, our Series 2 preferred stock has no maturity date and we have the option to redeem the preferred shares at any time for cash, subject to make whole provision in the first three years. We view this preferred equity instrument as favorable to the value creation potential in the business given its flexible dynamic. If you include $182 million balance of the Series A2 equity and our market cap, our total equity capitalization stands at approximately $960 million.

Moving to our full-year outlook on Slide 16. Based on our performance during the first nine months, we are increasing the full-year adjusted EBITDA estimate to a range of $50 million to $55 million, which implies adjusted EBITDA growth of 60% to 76% year over year. The increase from the bottom end of our prior range of $47 million to $55 million, reflects our strong Q3 results and a continued stream of project wins, particularly in our assessment permitting and response segment. Given as improved EBITDA dollar range, we now anticipate full-year adjusted EBITDA margin to be in the range of 16.5% to 17.5%, representing 300 to 400 basis points of improvement on our continued expectation for annual revenue growth in excess of 20% year over year.

Demand for our services remains resilient, though we do continue to experience uncertainty related to the COVID-19 pandemic. The impact of winter and the recent surge in COVID-19 cases in the U.S. remains a risk that could result in further temporary projects to start late. This could push some expected revenue and earnings into next year.

However, we believe our updated full-year range accounts for reasonable project disruptions and as a result, we are confident in our ability to deliver on 2020 objectives. As a consideration for 2021, our increase in adjusted EBITDA margin for the current year is well ahead of the 100 to 150 basis point average annual margin expansion that we believe to achieve over the next several years. This is mainly 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-run plan as a growth-oriented company. As a result, the general adjusted EBITDA margin level that we anticipate for 2020 is likely to serve as a reasonable run rate for 2021.

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

Vijay Manthripragada -- President and Chief Executive Officer

Thanks, Allan. We're again happy to deliver strong results for our second public quarter year-to-date 2020 and over the past 12 months. Montrose has done really well in 2020. Our outlook is strong and we're creating value.

We believe we have a unique environmental business that is seeing secular long-term tailwinds and is proving to be resilient across political and economic cycles. And that resilience is particularly relevant at this time with COVID-19 and the electoral uncertainty in the U.S. I am grateful for our team and our diverse base of approximately 5,000 customers. We have invested in and plan to continue building our portfolio of unique technologies and processes.

And these are allowing us to create differentiation in the market and to continue capturing organic market share. Our environmental industry remains highly fragmented which is creating attractive investment consolidation opportunities for us. And as we've demonstrated in the past, we will continue to successfully identify, execute, and integrate acquisitions. Our goal and the reason we started Montrose is to become the leading environmental brand and solutions provider in this very large growing and increasingly visible environmental industry.

We, Allan and I, and the rest of the Montrose team sincerely appreciate all of your interest in Montrose and in your partnership and helping us achieve that goal. Operator, we're ready to open the line for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question today comes from Jim Ricchiuti with Needham & Company.

Jim Ricchiuti -- Needham and Company -- Analyst

Hi, thank you. Hello, Vijay and Allan.

Vijay Manthripragada -- President and Chief Executive Officer

Hey, Jim.

Jim Ricchiuti -- Needham and Company -- Analyst

A couple of questions. Vijay, I wanted to go back to that case study that you offered that that highlights, I guess, just how impactful these changes to your go-to-market strategy have been. So this client that went from, I guess, about $50,000 to $1 million. Can you give us some sense as to the type of client that was and maybe walk us through.

Is this a case where you have one client manager or account manager that's then bringing in the full complement of folks that can offer their expertise?

Vijay Manthripragada -- President and Chief Executive Officer

Yeah. Jim, let me take that. So we -- it's a great question and it's a -- there's -- it's a multifaceted set of answers and so let me -- let me try to touch on some of the key themes. I think -- let me start and you know this Jim, but just to reiterate, our acquisition strategy is about revenue synergy, right? We've talked about this before.

We think by virtue of how fragmented this industry is, the value is in putting the pieces together so that the answers are simpler and more accessible for our clients. And so Montrose has and will continue to be a revenue synergy play. And so this specific case study is yet another example of this, right, on the roadshow as part of the IPO. Jim, we talked about other examples just like this.

And as I said earlier, more and more of these incidents are now going to start popping up as we formalize our approach, right? Our historical growth didn't really have formal sales and marketing and now we have that. And so this is a -- you know this is an example of a client that came with an acquisition that we made back in 2018. It's an industrial, large industrial client, and the client lead for this client who now got trained in our way of doing account management had a broader portfolio. So this is an individual that was providing one service to this client and that obviously continues.

But as he became part of the Montrose family, he learned about our other capabilities and offered those potential solutions to this client and the clients said, gosh, I need a lot of these. And so, whether it's help with air permitting, whether it's help with compliance and regulatory review, whether it's help with water treatment or remediation, they said, look, we need this to be coordinated and we'd like to have more of it. And so that's exactly right, right? This was somebody that hadn't done this before, had the relationship and then pulled the broader Montrose portfolio to meet the needs of the client, and we're going to hopefully, see more and more of that as we begin to formalize our commercial, excuse me, our commercialization efforts. Does that answer your question, Jim?

Jim Ricchiuti -- Needham and Company -- Analyst

It does. I mean it's compelling. The other question I had is just with respect -- since we're getting the question. Just with the potential with the Biden administration apparently coming in.

Can you talk a little bit about where you might see some incremental opportunities, which areas of the business?

Vijay Manthripragada -- President and Chief Executive Officer

I knew you'd ask me, Jim, which is why I tried to say it's going to be really hard to talk about specifics, but you cornered me nonetheless. No, look, I -- you know it's interesting. We -- you know President-elect Biden has kind of laid out, at least from what we've seen through our advisors for priorities. And interestingly, for the first time for a presidential candidate, climate change and environmental issues made it onto the top four list, right.

So addressing the COVID pandemic, job creation, racial justice and equality, and climate change were kind of the four that we've seen listed out. And so as we think about what that means, and again, the devil is going to be in the details. It seems to us that it's reasonable to expect that if environmental priorities are that high on the agenda, that those exact types of priorities and opportunities will create tailwinds for Montrose. And so we don't know what those are going to be, so this is pure speculation.

But as we think about an emphasis on greenhouse gas measurement and mitigation for example, right? That's an area where we're strong and we expect to continue to benefit, right? As we think about the continued push as a policy priority and this is really -- and these are bipartisan efforts which is important from our perspective, the shift to renewable energies, right? We've talked about parts of that before with you Jim, that benefits us. As we think about access to clean water across many of the communities, especially the disadvantaged communities, we think that creates some potential tailwinds and that could benefit us. And so it's very hard to know exactly which pieces will fall and how they'll fall, particularly because you know, the Senate is going to play a big part of that. And it's candidly why, right, we're largely insulated in either direction depending on what happens at the federal level.

But should there be bipartisan consensus around some of these topics, then we think that that's going to create some incremental tailwinds for Montrose. Does that -- does that make sense?

Jim Ricchiuti -- Needham and Company -- Analyst

It does. Thank you. I'll jump back in the queue. Thank you.

Operator

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

Tim Mulrooney -- William Blair and Company -- Analyst

Good afternoon.

Vijay Manthripragada -- President and Chief Executive Officer

Hey, Tim.

Tim Mulrooney -- William Blair and Company -- Analyst

Hey, just a couple of questions from me. Actually, Jim, took a couple of mine. So on the remediation and reuse, Vijay, I think last quarter it seemed like maybe there were some delays in the bidding cycle as a result of COVID-19. How is the bidding cycle look right now? And have there been any further delays as a result of recent case surge?

Vijay Manthripragada -- President and Chief Executive Officer

It's -- our team's optimism continues to increase, Tim, so we -- you know the -- no further or major delays relative to our prior conversation with you. Part of what we have to manage through and this is more impactful for that segment more than others is because we have more international operations there, as COVID outbreaks continue in the Northern hemisphere that impacts kind of our ability to move assets and resources around. And so that's why you hear some reticence on our part in terms of being able to talk about exactly when that's going to accelerate. But as we talked to our teams and our leadership in that area, there's nothing else has really gotten pushed.

But they're cautious about when the the floodgates open, but they remain very bullish about what the long-term prospects look like. And so as we think about when we really would see some of that pressure easing, and my guess would be, once we get through the winter months and the COVID outbreaks, call it, you know, end of Q1 early Q2 of next year. But nothing has -- nothing major is really shifted compared to our conversation last quarter, Tim.

Tim Mulrooney -- William Blair and Company -- Analyst

OK. That's helpful. That was kind of our expectation going into it, but I appreciate the update nonetheless. Shifting gears to M&A.

Vijay, you mentioned before that the pipeline remains robust and really the main limiting factor was caution around capital allocation heading into what proved to be a very intense couple of COVID-19 months here. Can you update us on what your thoughts are around M&A right now? And just maybe more broadly your capital allocation priorities in general.

Vijay Manthripragada -- President and Chief Executive Officer

Yeah. So, look, our -- generally speaking and again, this is -- I'm speaking in generalities, so forgive me, Tim. But our primary focus is on organic growth and so the the commentary I had earlier around commercialization, cross-selling, working with our existing embedded client base of over 5,000 customers, those you know, the R&D that we continue to invest in, we think has some real exciting potential. Those are all examples of investments on the organic growth side, Tim.

I think that's important for many reasons. It shows our clients that we're worried about the same things they are and we're creating differentiated solutions for them and it allows us candidly to provide answers that others cannot. So that's going to continue and so we'll talk more about that on our end-of-year update and we'll talk about what some of those investments mean and could mean and what they look like. And so that that has been a priority and that will continue to be one of our top priorities.

On the M&a side, I think our commitment to you guys was to do $10-plus million of acquired EBITDA next year. And so you know, we normally would have started those engines a little earlier. But because of the COVID pandemic, we've been more cautious and I'll just kind of restate what you mentioned, Tim. You should expect us to really begin to hit stride in Q1 of next year, right? The commitment we made to you guys is that we expect -- you should expect to see us do something around Q1 and then we'll kind of continue a modest tempo thereafter.

And the reason for that is, you know, we don't want to take any large bets, so you'll see us kind of with some small incremental tuck on, tuck ins, and bolt-ons. So if we're going to do $10 million, that $1 million to $3 million of EBITDA each that gives you a sense for what kind of pace we'll want to pursue over four quarters next year.

Tim Mulrooney -- William Blair and Company -- Analyst

Yup. It makes sense. Thank you for the update. Take care.

Vijay Manthripragada -- President and Chief Executive Officer

Thanks, Tim.

Operator

Our next question comes from Andrew Obin with Bank of America.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Ah, yes, good afternoon.

Vijay Manthripragada -- President and Chief Executive Officer

Hey, Andrew.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Well, great quarter guys. Just a couple of questions for me. So I just want to make sure you guys did say that the organic growth in the quarter was sort of in line with historical averages. So we should assume that no sort of pull forwards or anything for the quarter that gets that amount next quarter, right?

Allan Dicks -- Chief Financial Officer

Yeah. Yeah, that's right. What we said was year-to-date organic is roughly in line with historic performance, Andrew. And we expect Q4 for the full year at least, will be kind of on track for the same results.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

And I know sort of the thing on COVID, but, look, how is project activity for remediation and reuse in the quarter? Specifically, were European pilot projects still on hold due to travel restrictions? And just to go with the theme, you did say that everything is on plan, but are you starting to see an impact to these projects with the second Europe COVID wave? So I think sort of, remediation and reuse came a little lighter than we expected. So just want to get a better sense of what's happening here. Thanks so much.

Vijay Manthripragada -- President and Chief Executive Officer

Yeah. Andrew it's a great question. So we certainly saw Europe come out of the gate a little slower because of what happened early this year. We are still not able to get our folks there, but our teams there are getting those projects up and running, right.

And so things are just going slower than they would otherwise. Well, we haven't seen a stoppage if that -- if that makes sense. So for -- as an example, you know the -- we were dealing with some water issues there, the data's coming in well. We have to kind of wait to see where it all shakes out.

But normally when the circumstances on the ground changed, we would've been able to send some of our experts from the U.S. that have seen some of these issues before to support our team in the U.S. We couldn't do that and so, obviously, we're trying to do as much as we can electronically, but our team there is operating on the ground on their own. And so that's the really the -- the rate limiting factor.

But, no, we have not lost anything and we haven't seen any slowdowns that are more than what we've already seen today.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Thanks so much.

Operator

[Operator instructions] Our next question is a follow up from Jim Ricchiuti with Needham & Company.

Jim Ricchiuti -- Needham and Company -- Analyst

Yes. So I was wondering if there's any way for you to maybe characterize the the the emergency response business in the quarter from CTEH. And I -- this may be a question we just keep asking, just because that business can be so variable.

Vijay Manthripragada -- President and Chief Executive Officer

Yeah. So they did -- so, Jim, if you just kind of step back and Allan's certainly jump into this, right. We've talked about that business being kind of a $60 million to $70 million business a year run rate. So right, call it, $15 million to $18 million of revenue a quarter and when you look at Q2 and Q3, they did that around $37 million, so they're at the high end of that range, Jim.

So that gives you a sense for how the rest of business did and part of the reason candidly that we provide you with the LTM numbers is because the quarter-on-quarter variance can be so hard. If you look at it kind of on a sequential basis over a similar period, you get to see kind of what the core business ex CTEH is doing and so does that -- does that give you a sense for --

Jim Ricchiuti -- Needham and Company -- Analyst

Yeah. It does, Vijay. No, that's helpful. Allan a question for you.

I'm wondering if there's any color you can give us on how we should be thinking about expense going forward. Just give, you know, advancements that you're making, what you're seeing in the business.

Allan Dicks -- Chief Financial Officer

Yeah. Look, we're going to be cautious, Jim, right. I mentioned in my prepared remarks, as we go into winter and there's been a huge surge in cases provides a lot of uncertainty. So we're not going to change in the fourth quarter any of the significant cost mitigation efforts we put in place.

We do need to reverse those. So that's something top of mind as we go into to 2021 as to what the right timing is, but we're going to be very measured in adding to the kind of fixed cost base. And as a commitment to you guys is, as a percentage of revenue, that corporate cost over time will continue to come down and you've certainly seen that. You saw that in Q3 and over time, you'll see that continue.

Jim Ricchiuti -- Needham and Company -- Analyst

So a way to think about in '21 is, maybe some of these temporary measures being layered on gradually in the early part of the year? Is that the way to think about it?

Allan Dicks -- Chief Financial Officer

Right. Yeah. Yeah. That the -- what we need to try to do is time putting those costs back in with the reversal of some of the project delays because COVID resides.

So that that's what we will try to balance out, so that overall margins again are kind of similar with where they are this year.

Jim Ricchiuti -- Needham and Company -- Analyst

Very good. Thank you. Congratulations on the quarter.

Allan Dicks -- Chief Financial Officer

Thank you, Jim.

Operator

Our next question comes from Noelle Dilts with Stifel.

Vijay Manthripragada -- President and Chief Executive Officer

Hey, Noelle.

Noelle Dilts -- Stifel Financial Corp. -- Analyst

Hey, guys. And again, congrats on a good quarter. A couple of questions for me, I'm sure. A couple of questions from me.

First, just on, Allan, I appreciate your high-level guidance on how to think about margins into 2021. Any chance you could give us a sense of how you're thinking this segment will trend directionally? Because I think, in some cases, you're seeing a little bit -- a bit of a benefit from COVID, in other cases, somewhat of a -- somewhat of a drag.

Allan Dicks -- Chief Financial Officer

Yeah. It's a great question and one that's topped on to it. It really depends on how quickly a vaccine is widely available and distributed, what that uptake is. So you know, if that takes through the end of the second quarter, we're going to see a very similar front half of the year as the back half of this year from a COVID impact, both positive and negative.

Then the back half of the year, we do expect our remediation and reuse, we'll start to see some acceleration there. But some of the growth that we've seen in measurement and analysis segment has been pretty -- pretty incredible this year. We'll start to see that moderate somewhat but no major change in overall growth rates across the different segments. You'll see as we've said, the measurement and analysis segment as a percentage of revenue will start to come down.

It was similar to 50% in the third quarter. That should trend down to 40%, and over time, to be about a third of the portfolio, and the other two segments will be the other third and the third. So you'll see that that might take a couple of years to fully achieve and that trend, we think in the back half of next year will begin.

Noelle Dilts -- Stifel Financial Corp. -- Analyst

Perfect. That's helpful. And then second, you know, I recognize that the U.S. is definitely in nascent market as it relates to [Inaudible] remediation and the opportunity for [Inaudible] too.

But any thoughts on how a Biden presidency might change how you're thinking about the potential for federal MCL levels and what that might mean for the opportunity?

Vijay Manthripragada -- President and Chief Executive Officer

Hey, Noelle, this is Vijay. I'll, um, we think the odds of a federal standard are probably higher now than there were perhaps a year ago. But again, we're speculating, right, so we could be wrong on that. But should federal standards come into place, we certainly think that will help accelerate the opportunity set in the market.

But you know, I think on our prior call, we told you we would expect in an either administration to have seen more activity and a pick up in the U.S. market in kind of late '21 early '22. I still think that's the case and I would characterize a Biden administration as creating some incremental tailwinds to that momentum, right? So we think the opportunity set may be clearer and bigger because once this federal standards kind of focus on and start to work toward them. But you know, we've seen activity continue at the state level, right? So Massachusetts for example, just put in place MCLs.

We talked about New Jersey last time, right? We talked to Michigan. We're seeing more activity in other states like North Carolina. So we still think there's a fair amount of state level activity and the federal government is certainly continuing to do a fair amount of testing and exploration. But what we think once this federal MCLs, the momentum will certainly pick up quite materially, and we think the odds of that are higher now than they were before.

Noelle Dilts -- Stifel Financial Corp. -- Analyst

Perfect. Thanks. Very helpful.

Operator

Ladies and gentlemen we have reached the end of the question-and-answer session. And I would like to turn the call back to Vijay Manthripragada for closing remarks.

Vijay Manthripragada -- President and Chief Executive Officer

Great. Thank you all. We really appreciate the time. Stay safe, be well, and we look forward to talking to all of you soon.

Take care.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Rodney Nacier -- Investor Relations

Vijay Manthripragada -- President and Chief Executive Officer

Allan Dicks -- Chief Financial Officer

Jim Ricchiuti -- Needham and Company -- Analyst

Tim Mulrooney -- William Blair and Company -- Analyst

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Noelle Dilts -- Stifel Financial Corp. -- Analyst

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