Onterris Inc Stock

Good morning, ladies and gentlemen, and welcome to Onterris Inc. Third Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 5, 2026. I would now like to turn the conference over to Adrianne Griffin. Please go ahead.

Thank you, John. Welcome to our third quarter 2026 earnings call. Joining me today are Vijay Manthripragada, our President and Chief Executive Officer; and Allan Dicks, our Chief Financial Officer. During our prepared remarks, we will refer generally 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 3. I would like to remind everyone that today's call includes forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to known and unknown risks and uncertainties that should be considered when evaluating operating performance and financial outlook. We refer you to our recent SEC filings, including the annual report on Form 10-K for the fiscal year ended December 31, 2025, as supplemented by quarterly Form 10-Q reports, which identify the principal risks and uncertainties that could affect any forward-looking statements and future performance. We assume no obligation to update any forward-looking statements.

On today's call, we will discuss or provide certain non-GAAP financial measures such as consolidated adjusted EBITDA, adjusted net income, adjusted net income per share, net service revenue and free cash flow. 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 the earnings release for a discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures and a reconciliation to their most directly comparable GAAP measure.

On April 21, 2026, Montrose Environmental Group rebranded to Onterris. Beginning in the first quarter of 2026, the company realigned its reportable segments to reflect updates made to the organizational structure and operating model. As a result of the reporting segment realignment, the company's Assessment, Permitting and Response segment and Remediation and Reuse segment were aggregated into a newly created Consulting and Treatment segment. The company's Measurement and Analysis and Corporate segments were not affected by the realignment. Prior period results have been recast to conform to this new structure. With that, I would now like to turn the call over to Vijay.

Thank you, Adrianne, and good morning, everyone. Thank you for joining us. I want to start by recognizing and thanking our employees around the world for their continued commitment to our clients. We were recently ranked the #5 largest global environmental pure-play company by ENR, a third-party industry publication. This recognition speaks to the growing capability and market presence for Onterris. I also want to welcome our new colleagues who have joined us through recent acquisitions, expanding our geographic reach and our ability to serve our clients.

As we have emphasized in prior quarters, our business is best assessed on an annual basis. Quarterly variations in environmental activity and client demand do not necessarily reflect the underlying annual trajectory of our business. In terms of our update, I will speak to third quarter results, provide a quick update on the Board-led strategic review, speak to guidance and our long-term outlook, then hand it over to Allan before Q&A.

Our third quarter results demonstrate that we are on track to achieve the commitments we established earlier this year. We delivered strong adjusted EBITDA, record adjusted EBITDA margins, strong cash flow and strong cash conversion. As a result of the strength of our cash and cash flow, we reduced leverage as expected, which further reinforces the underlying earnings power of Onterris. Third quarter revenue was $203 million, a decrease of $22 million year-over-year, primarily reflecting the normalization of recovery services revenue associated with a significant environmental event in 2025. Excluding the recovery event, we delivered 13% growth across our core consulting and water treatment business.

Turning to profitability. We generated $36 million of consolidated adjusted EBITDA and expanded our adjusted EBITDA margin 270 basis points to 17.7%. This marked our highest quarterly adjusted EBITDA margin in company history. We also reduced leverage to 2.9x at quarter end, which is down from 3.2x in Q2. Our progress reflects continued operating leverage, improved project mix and sustained operating and cost discipline. These are structural improvements in how we manage and execute the business rather than benefits in a single quarter. They reflect the operating platform we enhanced since the start of 2025 to strengthen profitability and support future growth.

When we spoke with you in August, we outlined a clear set of financial priorities and expectations for the second half of the year. Our third quarter performance demonstrates execution against expectations with results consistent with the financial outlook we communicated at that time. Looking ahead, our full year 2026 guidance remains unchanged. As we discussed in August, our annual revenue outlook primarily incorporated lower pass-through revenue and moderated environmental emergency response revenue. Despite these revenue dynamics, margins and cash flow continue to show strength.

Based on the midpoint of our revenue and adjusted EBITDA guidance ranges, we expect approximately 150 basis points of adjusted EBITDA margin expansion compared with 2025. We also anticipate operating cash flow conversion of at least 60%, which is above our long-term 50% target. Given the strength of our cash flow, we expect year-end leverage of approximately 2.5x, which is inclusive of the recently completed acquisition investments.

As we look to the future and based on commercial and operational initiatives currently underway, we expect revenue CAGR of approximately 15% and adjusted EBITDA CAGR of approximately 25% through 2030. These growth rates assume an average organic revenue growth of approximately 10%, which is above our historically provided 7% to 9% organic growth expectation. This is given elevated water treatment growth expectations and a continuation of our margin expansion successes.

Our business has remained resilient across election cycles since our IPO in 2020, supported by a predominantly private sector client base and the state and local requirements that shape many of our clients' environmental needs. The recent shift in the balance of power in Washington, D.C. does not change the strategic thesis or our conviction in the resiliency of our business. However, we do expect recent environmental regulatory volatility to subside, which should be a net positive.

Our integrated environmental infrastructure and technology platform brings together consulting, monitoring, testing, treatment and remediation to address increasingly complex client requirements. By connecting these capabilities, we can expand existing relationships, deliver more comprehensive solutions and create additional opportunities for profitable growth. As a recent example, earlier this week, we published a press release highlighting the U.S. EPA's recent proposal to reconsider key components of the Clean Air Act methane regulations.

This release specifically highlights our emerging opportunities in emissions management based on our technology, our data and our software leadership in this space. These recently proposed EPA methane regulations could expand the use of advanced optical gas imaging technologies at natural gas processing facilities, creating more opportunities for us to deploy our specialized monitoring capabilities while enabling clients to both reduce their emissions and reduce their compliance costs.

We are also making tangible progress against our commitment to disciplined targeted acquisitions. During the third quarter, we completed a transaction that further expands our presence in the U.S. Mountain states, particularly in ambient air monitoring technologies and solutions and increases our cross-selling opportunities with existing clients. Subsequent to quarter end, we completed 2 acquisitions. The first is EcOz Environmental Consultants, which expands our geographic presence in the high-growth Australian consulting market. The second is Permian Basin Environmental Lab in Texas, which strengthens our analytical capabilities and is highly complementary to our newly constructed Houston lab.

Collectively, these 3 transactions represent approximately $14 million of investment. These acquisitions also reflect our disciplined approach to capital allocation, targeting geographic expansion, establishing client relationships and creating attractive opportunities for profitable growth. Together, our continued operating improvements and disciplined acquisitions are reinforcing one another, strengthening our profitability, expanding our technical capabilities and geographic reach to drive organic growth and building a more efficient and differentiated platform positioned for sustained growth.

As previously disclosed on August 5, 2026, Onterris announced a comprehensive Board-led strategic review, which remains ongoing. To date, the company has engaged with a number of strategic and financial parties. The company has engaged Evercore and AEC Advisors as our financial advisers and Kirkland & Ellis as our legal counsel in connection with the strategic review. The Board has not set a timetable for the conclusion of its review. There can be no assurance that the review will result in any transaction or other outcome, and Onterris does not intend to comment further regarding the review unless and until it determines that further disclosure is appropriate or necessary.

What I find particularly encouraging is what these results and our outlook represent. We are strengthening the earnings power of Onterris, expanding our differentiated capabilities and accelerating our growth trajectory. We remain focused on delivering long-term value for our shareholders, and we look forward to sharing further updates with you in the near future.

Thank you for your interest in Onterris. And with that, I will turn it over to Allan.

Thanks, Vijay. We're very pleased with our financial results in the third quarter. Revenue was ahead of the midpoint of our previous guidance, adjusted EBITDA at the top end of guidance and adjusted EBITDA margin reached a quarterly record 17.7%. Cash flow generation was strong, and we ended the quarter below 3x leverage. These results reflect disciplined execution and improving operating efficiency despite a challenging prior year comparison that included a sizable response event.

Our third quarter revenue decreased 9.7% compared to the same quarter last year to $203 million, down from $224.9 million. Year-to-date revenue decreased 12.4% versus the prior year, totaling $558.2 million compared to $637.3 million. The primary driver of the decline in both periods was lower environmental emergency response revenue and reduced recovery services, primarily associated with a single large environmental event in the prior year, which generated revenues of $45.4 million in the prior year quarter and $99 million in the prior year-to-date period.

Excluding this event, revenue was up 13% in the quarter and 4% year-to-date. In both the quarter and year-to-date periods, the increased strength in consulting and growth in our water treatment business, partially offset by modest declines in our Measurement and Analysis segment. Net service revenue increased to $162.5 million in the third quarter of 2026 compared to $160.5 million in the prior year quarter.

Turning to profitability. Third quarter consolidated adjusted EBITDA was $35.9 million or 17.7% of revenue compared to $33.7 million or 15% of revenue in the prior year period, a $2.2 million and 270 basis point improvement despite the significant revenue decline. Year-to-date, consolidated adjusted EBITDA was $85.6 million or 15.3% of revenue compared to $92.3 million or 14.5% of revenue in the same period last year, an 80 basis point increase.

The quarterly and year-to-date margin improvement reflected favorable project mix and improved operational efficiency in our Consulting and Treatment segment, the absence of prior year renewable losses and lower corporate costs, partially offset by lower profitability in our Measurement and Analysis segment. This improvement in the third quarter also carried through to our GAAP results. Income from operations increased to $12.3 million from $9.9 million last year, while net income attributable to common stockholders rose to $9 million or $0.24 per diluted share compared with $8.4 million or $0.21 per diluted share in the prior year quarter.

This increase in net income was primarily attributable to higher operating income and lower income tax expense, partially offset by a lower fair value gain on financial instruments. Net income per diluted share also benefited from lower fully diluted common shares following the full redemption of the Series A-2 preferred shares in the prior year and the benefit of the 1.6 million common shares repurchased in the current year.

Year-to-date, we reported a net loss of $2.3 million or a $0.07 loss per diluted share compared to net income of $7.4 million or $0.08 per diluted share in the same period last year. The year-over-year change reflects slightly lower operating income, significantly lower fair value gain on financial instruments following a $20 million gain on the redemption of the preferred shares in the prior year and higher interest expense, partially offset by lower income tax expense. Year-to-date loss per share benefited from the elimination of the Series A2 dividend in the prior year.

Adjusted net income and adjusted EPS in the third quarter were $21.3 million and $0.56, respectively, up compared to $14.2 million and $0.36 in the prior year period. Year-to-date, adjusted net income and adjusted EPS were $33.2 million and $0.86, respectively, compared to $45 million and $1.03 in the prior year period.

I will now discuss our performance by segment, focusing my comments on the third quarter. In our Consulting and Treatment segment, third quarter revenue decreased to $142 million from $161.9 million in the prior year period. This segment's adjusted EBITDA was $30.8 million or 21.7% of segment revenue compared to $29.8 million or 18.4% of segment revenue in the prior year period. The revenue decline was driven by the previously mentioned $45.4 million environmental event in the prior year, partially offset by $10.2 million of higher environmental emergency response revenue outside of this event.

Excluding this prior year event and excluding environmental emergency response revenues in both years, Consulting and Treatment revenue increased $15.3 million, driven by core consulting revenue growth and strength in our water treatment business. Environmental emergency response revenue was $17 million in the quarter compared to $11.5 million in the prior year period. Higher margins reflect the benefit of operating efficiencies, project mix and the absence of losses from our renewables and European businesses that were exited in the prior year.

Turning to our Measurement and Analysis segment. Revenues decreased to $61.1 million from $63 million in the prior year period, primarily reflecting $1.9 million of lower field services revenue. Segment adjusted EBITDA was $16 million or 26.1% of segment revenue compared to $17.3 million or 27.5% in the prior year period, reflecting project mix and the lower revenue base. In this segment, our focus remains on improving resource utilization, disciplined project execution and cost management while maintaining the technical capabilities and capacity to support demand for our testing, monitoring and analytical solutions.

Corporate and other costs declined $2.6 million to $10.9 million, primarily reflecting lower incentive compensation accruals, partially offset by higher IT infrastructure and marketing costs.

Moving to our cash flow and capital structure. Year-to-date, net cash flow provided by operating activities was $35.4 million compared to $55.5 million in the prior year period, a $20.1 million decrease, primarily reflecting $16 million of higher bonus payments in the first quarter of 2026, which rewarded our strong 2025 performance. We remain on track to convert at least 60% of consolidated adjusted EBITDA to operating cash flow for the full year.

Free cash flow in the third quarter was $41.5 million, bringing year-to-date free cash flow to $24.9 million and helping to drive our leverage ratio down to 2.9x. During the third quarter, we closed on the acquisition of business assets in our Air testing division and subsequent to quarter end, have closed on 2 small additional acquisitions. Inclusive of these acquisitions, we continue to expect year-end leverage of approximately 2.5x.

As of September 30, 2026, we had total available liquidity of $192 million, including $20 million of cash and $172 million of revolver availability. During the third quarter, we did not repurchase any shares of our common stock. Year-to-date, we have repurchased approximately 1.6 million shares for $30 million, with approximately $10 million of authorized capacity remaining under our $40 million repurchase program, the use of which is subject to our credit agreement covenants.

Turning to our full year outlook. We are reiterating our 2026 financial guidance, which at the midpoint implies a full year adjusted EBITDA margin of approximately 15.5%, representing approximately 150 basis points of expansion compared with 2025 and 290 basis points over the last 3 years. This consistent margin improvement reflects our continued focus on operating efficiency, project execution, business mix and cost discipline and reflects the early results of several additional margin improvement initiatives underway.

In closing, despite tough comparisons, our underlying business continues to demonstrate improved profitability and disciplined execution, and we are thrilled with the record adjusted EBITDA margins in the third quarter, which are also expected for the full year. Cash flow generation is strong, leverage is declining, and we have resumed small accretive bolt-on acquisitions.

Thank you all for joining us today and for your continued interest in Onterris. Operator, we are ready to open the lines for questions.

[Operator Instructions] We now have our first question, and this comes from Tim Mulrooney from William Blair.

This is Renee Gagliardo on for Tim Mulrooney. The first question is regarding your -- my first question is regarding your expectation for 25% EBITDA CAGR through 2030. If I'm doing the math right, it looks like you'd expect EBITDA margins to exceed 20% by then. Do you agree with that assessment? And how should we think about the primary drivers behind that between mix, corporate expenses, et cetera?

We -- this is Allan. We certainly expect continued margin expansion over the next 3 to 5 years, not necessarily linear each year, but do expect we should get into the high 20 -- the high teens, low 20% margins, again, over a 3- to 5-year period.

Got it. And then switching gears a little. Operating cash flow of $41 million was pretty strong in the quarter. I saw that days sales outstanding came down. What else would you attribute to the strong cash flow generation that gives you confidence in hitting the target for the full year?

Yes. Our cash flow generation is very seasonal. Q3 and Q4 are traditionally the quarters in which we generate most of our cash flow. And certainly, Q3 of this year was no exception as the revenue starts to decline into the back half of the year following what is usually a very high second quarter, you get the natural unwind of receivables. You also have our annual incentive payments, which are paid in Q1 behind us. And so all of that provides momentum. We have strong conviction in our ability to continue that level of cash flow into the fourth quarter and to achieve our full year cash conversion target.

The next question comes from Tami Zakaria from JPMorgan.

So I have 2 questions. The first one is, I think I heard you say organic growth, revenue growth should be 10% through 2030. And so as you look to 2027, we are 2 months away, is this 10% a good proxy for next year? Or it will take time to realize that?

Tami, I would -- that is a CAGR over -- from now through 2030. And so I would think about it as a long-term trend, not formal guidance for 2027. We do see a lot of exciting opportunities in our water treatment business in particular, which is partially why we see higher organic growth opportunities over the next 3 to 5 years. And that certainly continues into 2027. But no, we are not anchoring on any 1 number for 2027.

Understood. And so my second question, I think there's been a proposed methane emission regulation. I wanted to ask you about that. Could you give some examples of what products and services you have in the portfolio right now that could take advantage of this and would they be more like onetime revenue opportunities or more recurring? And when you would expect this proposed rule to be finalized? I think these would be helpful comments.

Yes, it's a great question. So it is a proposed rule. And so that process still needs to be followed, and we are in active discussions with our clients, Tami. So they are very attuned to this. The essence of our optimism around parts of the regulations, obviously, the proposed rules cover and encompass a much broader landscape. But specific to emissions monitoring, we are one of North America's leaders, not only in air testing, but specifically in optical gas imaging. And there are a set of regulations that enable us to use this more advanced technology, which for us is coupled with software and data capabilities, which our clients have found very additive.

And by deploying this technology, the imaging plus software, we believe we can help our clients both reduce their emissions and reduce costs as that technology has demonstrated over and over again for years. And what we are effectively saying is that based on our interactions with our clients, we expect the market opportunity for us in that space to expand very nicely over the coming years. On your second point, is this onetime or recurring? Our testing business, as you know, is compliance-driven and, therefore, it is required on a quarterly basis, annual basis, biannual basis. And so this -- as this manifests, this will become more structurally recurring as we've described in the past related to our testing segment. Does that answer your question, Tami?

It does. Thank you so much.

The next question comes from Tim Moore from Clear Street.

I just want to follow up on 1 thread. The 10% organic growth CAGR, I know that was slightly higher than the 7% to 9%, I think, prior commentary. Just what is kind of the water treatment driver there? I know you mentioned elevated water treatment. Are you seeing any programs in your pipeline? Or is there any other geographic pockets picking up? Is it mostly in the U.S.? I know you did a lot of PFAS work in Australia a while back. Just kind of curious if you have any more color on the driver of the 10%.

Yes. Tim, yes, so as we think about our long-term outlook with our Water Technology and water treatment business, I think it's important to highlight 2 points. 1, it is no longer a purely PFAS treatment set of solutions. We are seeing some incredible opportunities across broader industrial wastewater and now municipal drinking water treatment. And so PFAS is certainly an increased emphasis as we start to approach the deadlines that several years ago got pushed out to approximately 2030. And so our clients are much more engaged at this point thinking forward to that incoming deadline.

But in addition to that, we are seeing significant interest from our broader industrial and client base, in particular, given that our technology is applicable beyond just PFAS. And so as a simple example, the waste industry, the pharma, the semiconductor industry and other industries that are seeing activity pick up from onshoring are asking us and engaging us on broader water treatment and water stewardship needs, and that's really driving some of our optimism given what we see in the market already around our long-term outlook.

That's very helpful color, Vijay. I just want to follow up on the rebranding impact so far, you changed the name, it's more integrated approach. If memory serves me correctly, and I completely can be wrong on this, I think early last year in 2025, something like 53% of your revenues were kind of cross-sold defined as, I think, 2 or more services sold to the same customer. Have you seen cross-selling improve with the rebranding? Or do you have any kind of estimate maybe what the cross-selling revenue percentage might be this year?

Yes. Tim, let me speak to the concept because I don't think we've disclosed the numbers yet, and we will certainly provide full clarity once we kind of conclude the year. We're feeling really good about the impact of our rebrand for several reasons. It has truly integrated our commercial approach. What I mean by that is our clients are now seeing the unified whole. We're getting more requests for bundled services. Our team's ability to engage our clients naturally -- with a natural extension of current services is also much easier because the portfolio is presented as 1 as opposed to a family of brands.

And so as we think about our legacy commercial approach, which is primarily service-driven, we have now expanded that to what is very typical in the consultative arena around market sector and key client leadership, and we're seeing some really nice long-term opportunities there. Part of what Allan alluded to in his commentary is that we are starting to see bigger awards, longer-term awards as we've issued some press releases around and some of that is certainly a function of the fact that our clients are seeing us as a much larger integrated provider and are also seeing kind of the benefits of that unique approach and solution set.

So the brand has kind of a host of implications, but it is certainly -- as we look out to the next 3 to 5 years, it is certainly also part of why we have a lot of conviction in our acceleration in organic growth, not just related to water treatment.

No, no, that makes sense. I remember that survey a couple of years ago, a lot of folks weren't aware of some of the other bundled services you have. So it seems like it's going great.

[Operator Instructions] The next question comes from Trey Teller from Capital One.

This is Trey Teller on for Wade Suki. Maybe just to start off, just wondering if you can give us any quantification on the impact that you expect in 4Q and in '27 from the recent acquisitions? And then maybe any color on what you're seeing in the current deal pipeline?

Yes. Let me -- I'll speak to it in generalities based on what we publicly disclosed. So Trey, we have deployed approximately $14 million of capital. We've talked about our -- they are incredibly accretive to us, both strategically and financially. And because these are very small bolt-on acquisitions, the impact to this year, given that, right, it's occurred in October, November is de minimis. And so it really doesn't change our outlook for 2026, but we do think it's very accretive to our 2027 to 2030 time frame.

As it relates to the pipeline, it remains very robust. We are very encouraged by the set of opportunities, and we expect over the next 3 to 5 years to certainly get back to adding incredible value both to our clients and also to our shareholders through a disciplined acquisition program. I want to be very measured in how I say that. These are mostly small bolt-on acquisitions that are very strategic to us, and we will certainly stay within the leverage commitments we have talked about publicly.

So this is kind of our -- we are doing what we said we would do, which is a measured reentry into getting back to what we have always done really well, and this is just a manifestation of that.

Got it. Yes, that makes a lot of sense. And then for our second question, I know you hit on it a bit in your prepared remarks. Just wondering if you could talk a little bit more about the potential benefits for -- on from the recent elections.

Yes. We -- Trey, I think it's really important to kind of reiterate what we have said since our inception. As you know, we -- the company was started under the Obama administration. We went public in the Trump -- the first Trump administration. Our public life has now been in both the Biden and the now Trump administration with obviously Congress shifting hands as well. The reason I say that is I think we've demonstrated repeatedly that we are able to grow organically and inorganically through those cycles.

The business is incredibly resilient as a function of both our unique focus on industrial clients and the fact that the state and local regulations our clients are subject to -- are the underpinning that withstand some of the volatility we have seen at the federal level. And so as we think about what the next couple of years look like for us, our outlook has really not changed for the same reasons it didn't change when there was a shift in the executive branch a couple of years ago.

Now with all that said, I do believe, and this is certainly -- we're still in the process of digesting exactly what the changes mean. I do believe that the balance of power in Washington is going to reduce the regulatory volatility that we've seen, which is certainly something our clients have spent a lot of time talking to us about. And that reduction in regulatory volatility is a net positive for us. And so we are cautiously optimistic about how this could benefit our clients' certainty and therefore, some of our trajectory. But long term and in aggregate, this is -- we are not susceptible to these cycles.

And there are no further questions that came through at this time. This concludes our conference call for today. Thank you all for participating. You may now disconnect your lines.

Goodbye.

Thank you. Good afternoon, ladies and gentlemen, and welcome to OnTariffs Inc. Second Quarter Fiscal Year 2026 Financial Results. conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, August 6th or August 5th, 2026. I would now like to turn the conference over to Adrian Griffin.

Go ahead. Thank you, Mark. Welcome to our second quarter 2026 earnings call. Joining me today are Vijay Manthari Pregada, our President and Chief Executive Officer, and Alan Dix, our Chief Financial Officer. During our prepared remarks today, we will refer generally to our earnings presentation, which is available on the Investors section of our website. earnings release is also available on the website. Moving to slides two and three, I would like to remind everyone that today's call includes forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to known and unknown risks and uncertainties that should be considered when evaluating our operating performance and financial outlook. We refer you to our recent SEC filings, including our annual report on Form 10-K for the fiscal year ended December 31, 2025, as supplemented by the quarterly report Form 10-Q for the quarter ended June 30, 2026, which identifies the principal risks and uncertainties that could affect any forward-looking statements and our future performance. We assume no obligation to update any forward-looking statements.

On today's call, we will discuss or provide certain non-GAAP financial measures such as consolidated adjusted EBITDA, adjusted net income, adjusted net income per share, and free cash flow. We provide these non-GAAP and they should not be considered in isolation from 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, certain limitations of using these measures, and a reconciliation to their most, directly comparable gap measure. References to EBITDA herein are adjusted EBITDA, and when used outside of the context of specific segment performance, refer to consolidated EBITDA. On April 21, 2026, Montrose Environmental Group, Inc., rebranded to Onterras, Inc. Beginning the first quarter of 2026, the company realigned its reportable segments to reflect updates made to the organizational structure and operating model. As a result of the reporting segment realignment, the company's assessment, permitting, and response segment and remediation and reuse segment were aggregated into a newly created consulting and treatment segment.

The company's measurement and analysis and corporate segments were not affected by the realignment. Prior period results have been recast to conform to this new structure. With that, I would now like to turn the call over to Vijay, beginning on slide six.

Thank you, Adrienne, and good afternoon, everyone. Thank you for joining us. Before Before we begin, I'd like to thank our OnTerra employees around the world. Their dedication, technical excellence, and commitment to our clients are central to what we do. I want to thank them for all that they do. Their commitment to our clients and to one another is why we continue to succeed. This afternoon, I'll share how we're thinking about second quarter results. our updated 2026 outlook and summarize priorities we are focusing on to strengthen on-terrace and enhance value creation for all stakeholders. As we have noted each quarter, our business is best assessed on an annual basis.

Demand for environmental science-based solutions can be variable in any given quarter, particularly when environmental emergency response activity is significantly above or below historical levels. On a basis, the underlying demand profile and long-term trajectory of the business is very consistent. This is why we manage our operations on an annual basis, and we recommend you similarly view our performance. Second quarter revenue was 186.7 million below our expectations. Primarily due to historically low environmental emergency response and related recovery services. Consolidated adjusted EBITDA was 31.9 million or 17.1% of revenue. Although revenue was lower, EBITDA margins increased from 16.9% in the prior year quarter, reflecting successful ongoing cost optimization.

I would also like to remind our audience that the second quarter of 2025 included approximately $53.6 million of revenue associated with a single environmental emergency response event and the recovery work that followed. While second quarter revenue declined, without that single event, second quarter 2026 revenue grew. Based on our first half performance and current visibility, we are updating our full-year revenue guidance range to $740 million to $790 million. This revised range reflects three drivers at the midpoint. First, approximately 45 million lower pass-through revenue. Second, approximately $40 million lower emergency response revenue. And third, approximately 20 million of other revenue impacts.

And examples of other revenue impacts include temporary regulatory waivers, some of which were recently issued for federal and state air permitting rules that remain promulgated. We are also updating our full-year EBITDA guidance range to $117 million to $120 million, a change of $9 million at the midpoint. The encouraging news is despite a more significant drop in revenue, The impact on EBITDA is limited and our margins are higher. Every outcome within this updated EBITDA guidance range would represent a new record for on-terrace. That's not just a financial milestone. It is evidence that the business continues to become more profitable even in a year when revenue expectations have moved lower. EBITDA margins at the midpoint of the updated guidance have increased to 15.5%, representing approximately 150 basis points of expansion compared to last year, and 50 basis points of margin expansion compared to our original 2026 guidance.

Successful ongoing cost optimization offsets a meaningful portion of the earnings impact from the lower revenue outlook. It is also important to note that despite a lower revenue outlook, our full year operating cash flow expectations are largely unchanged from the beginning of the year due to the strong underlying performance of our core business. We continue to expect strong operating cash flow equal to approximately 60% of full-year EBITDA, including $70 million to $80 million in the second half of 2026. We also expect year-end leverage of approximately 2.5 times, which is flat year-on-year, despite 30 million of share repurchases and additional 16 million in payments for bonuses earned in 2025 and 11 million in contingent acquisition-related payments in the first half of this year. Taken together, our revised expectations reflect underlying growth in the core business, improved profitability, and strong cash generation power of the business. Our expectations are grounded in our relatively predictable testing business and known consulting and treatment projects. To be clear, this shift in 2026 outlook does not diminish the importance of environmental emergency response to on-terrace.

Response remains an important capability for our clients, an attractive business for us, and important for cross-selling. It is often the beginning of long term client relationships that extend well beyond the initial response. The updated outlook reflects the activity we see today and does not include environmental emergencies that have not yet occurred. Our focus is on the priorities within our control. serving our clients, maintaining cost discipline, executing known consulting and treatment projects, supporting continued momentum in our testing business, and converting a greater share of revenue into earnings and cash flow. That work is strengthening on terrace, and our core thesis is unchanged. Environmental challenges remain increasingly interconnected. Our clients are looking for partners who can help them navigate a series of interconnected challenges across their operations. And that's exactly where on Terrace's positions and why underlying demand remains strong.

The integrated platform we've built over the past several years is allowing us to improve profitability, even in a year where certain revenue streams are performing below our initial expectations. We also expect to resume disciplined bolt-on acquisitions within our valuation and leverage parameters. We believe all of these efforts will continue to maximize value for shareholders. And with that, I will turn it over to Alan to walk through the updated outlook and our financial results in greater detail.

Thanks Vijay. I'll begin with our updated outlook before turning to our second quarter financial performance and the drivers behind the numbers. The easiest way to think about the updated outlook is through two bridges. The first is the revenue bridge. The second is the earnings bridge. Starting with revenue, the revised full year range of $740 to $790 million reflects $35 to $55 million of lower pass-through revenue. $35 to $45 million of lower emergency response revenue, and $15 to $25 million of other lower revenue. These revenue components have different margin profiles, and that is an important consideration when evaluating today's updated outlook. At the midpoint of revised full-year EBITDA guidance of $117 to $120 million, the bridge is as follows.

Lower path-through revenue, which consists of revenue on subcontractor and non-labor direct costs, are generally at far lower margins than labor-based service revenue. such, lower pass-through revenue reduces expected EBITDA by approximately $4.5 million. whereas lower higher margin emergency response revenue impacts expected EBITDA by approximately $10 million. All other impacts are a net $5.5 million benefit comprised of the impact of lower other revenue, more than offset by the benefits from successful ongoing cost optimization and operating efficiency. We also provided third quarter expectations of 190 to 210 million of revenue, EBITDA margin of 17 to 18 percent at the midpoint of that revenue range. I'll remind you that Q3 2025 included significant recovery revenue tied to the single response event Vijay mentioned. As a result, expected Q3 2026 revenues will be down year over year. However, expected Q3 EBITDA will be up and EBITDA margin up significantly. With that guidance framework in mind, turn to our reported results.

Second quarter revenue was $186.7 million, a decrease of $47.9 million from the prior year quarter. These comparisons primarily reflect significantly lower environmental emergency response activity together with reduced recovery services associated with environmental events. Growth in the balance of the consulting and treatment segment partially offset this reduction. Second quarter consolidated adjusted EBITDA was 31.9 million, representing an EBITDA margin of 17.1%, compared to 39.6 million and an EBITDA margin of 16.9% in the prior year quarter, primarily due to cost optimization. Turning briefly to our operating segments. Within consulting and treatment, second quarter revenue was 125.6 million compared to 171.7 million in the prior year. The decline primarily reflected $37.7 million lower environmental emergency response revenue 11.2 million of lower recovery services primarily associated with the single large environmental event in the prior year.

Despite the lower revenue base, consulting and treatment segment adjusted EBITDA margin improved to 22.2% from 21.9%, reflecting favorable project mix and improved operating performance. Within measurement and analysis, revenue was $61.1 million compared to $62.8 million in the prior year. The decline primarily reflected lower field services revenue, partially offset by higher lab testing revenue. measurement and analysis segment adjusted EBITDA margin of 26.2% compared to the prior year of 29.1%. resulting primarily from lower operating leverage on the reduced revenue base. Although lower than the prior year period, this margin normalization was expected, and margins remained strong. Turning to cash flow. For the first six months, net cash used in operating activities was 5.5 million, compared to net cash provided by operating activities of 27.4 million in the prior year period. The year-over-year change primarily reflected lower earnings before non-cash items, together with higher working capital usage, including $27.7 million payments of annual incentive compensation made during the first quarter related to 2025 performance. As we look to the balance of the year, with those first quarter bonus payments behind us, we expect operating cash flow to improve significantly, driven by increased earnings and the seasonal benefit from working capital.

We expect to generate $70 to $80 million of operating cash flow during the second half of 2026, maintaining our 60% operating cash conversion expectation. Based on our operating cash flow outlook and absent acquisitions, we expect year-end leverage of approximately 2.5 times. At June 30, our leverage ratio under the 2025 credit facility was 3.2 times, and total available liquidity was $160.8 million. Year-to-date, we have repurchased 1.6 million shares for $30 million and paid $10.8 million of contingent consideration. So to conclude, while we are disappointed with the slow start to the year, due primarily to lower emergency response revenue, we are encouraged by the operating efficiency we're driving and the resulting margin benefit. These efficiencies are permanent and will be strong drivers of profitability improvement as revenue scales. In addition, I would like to thank the board for their support of this program.

A strong cash flow generation provides a solid foundation for us to continue to execute our strategy and create long-term value. I will turn it back to you for remarks. Friday opening the line for Q&A. Thank you, Alan.

Before opening the line to questions, I want to address the announcement in our earnings release earlier this afternoon that our Board is leading a comprehensive review of Ontario's business, portfolio, capital allocation, long-range strategic plan, and strategic alternatives. Our board continuously evaluates opportunities to strengthen the company and enhance stockholder value. And as part of that ongoing work, the board determined that it was appropriate to undertake a broader review with the assistance of outside financial and legal advisors. The review will consider a broad range of alternatives, including, among others, evaluating acquisition interest in the company and other value creating transactions, including acquisition opportunities, operational initiatives, and the continued execution of our standalone plan. The Board has not made any decisions regarding a particular course of action and we have not established a timetable for completing the review. The Board will take the time it needs to determine the course of action it believes is in the best interests of the company and all on-terrace stockholders. Of course, there can be no assurance that the review will result in any transaction or other outcome.

We are undertaking this review with a strong foundation. Our confidence in on terrorists prospects are independent of the outcome of the board's review. As the Board conducts its review, the OnTerra's team is fully focused on executing our strategic plan to strengthen cross-selling, accelerating long-term growth, and executing on our commitments to clients seeking the next generation of environmental solutions. We appreciate your understanding that we cannot provide additional information on the review or speculate about its outcome. As such, we ask you to please keep your questions focused on the quarter. We recognize the call today is on short notice, so we look forward to talking with those that could join. For those that can, we look forward to catching up with you in the near future.

Operator, we are now ready to open the line for Q&A. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will hear a prompt that your hand has been raised. wish to decline from the polling process please press the star followed by the two if you are using a speakerphone please lift the handset before pressing any keys one more please for your first question First question comes from Tim Mulrooney from William Blair. Please go ahead.

Yes, thank you. Vijay Allen, I have a bunch of questions about the review. I'm just kidding. going to focus on the fundamentals here. So if I take the midpoint of your revenue guide, for total revenue and emergency response. Then I'm getting to a core revenue, excluding emergency response, down in the low single digit range this year. And this is pretty different from core revenue growing, you know, 6% to 9%, which I think was your prior guide back in April. So, first of all, am I doing my math right? And secondarily, can you walk us through what changed over the last few months that caused you to lower that outlook on the core revenue? Yes.

Yes, why don't I start with that Tim and then I'll let Alan jump in there. You're right. There's 2 primary dynamics on the revenue. There's the lower emergency response. Revenue, there is also a reduction. In pass through revenue, and so let me, let me give you some color because this is not something. we've talked about a lot in the past. Historically, pass-through revenue has been approximately 25% of our total revenue, and this year it is around 20%, below 20% in fact, and as a result, Our margins are not that impacted because that revenue is margin to charity by and large. And hence all the commentary Alan and I made about healthy EBITDA margins, increasing EBITDA margins, strong cash flow. But in the map that you're doing, you're kind of taking gross revenue to gross revenue dynamics, and that's why – the number is low single digits, but if you exclude pass-through revenue and you look at kind of the core operating performance of the business, the underlying trajectory is actually quite strong.

if that makes sense. Yep, that makes sense. And I think pass through revenue is expected to be down about 45 million at the midpoint. Can you talk about the nature of that work? Like what type of work you do that the subs are supporting primarily? And why there's a $4.5 million reduction in EBITDA, why there's any reduction in EBITDA, I thought pass-through revenue is kind of by definition zero margin.

Okay, let me take that Tim. This is Alan. So to answer the second part of your question first. There is typically a small markup on POSSE revenues that can range from as little as three to 5% up to 15%. In some cases where there's an emergency response or recovery services, it can be even higher than 15%, but it averages around 10%. So there is some margin. It's not a zero margin pass-through revenue. The reduction is primarily related to Project Mix. Certainly our recovery services, there are a lot of outside subcontractors typically associated with that work.

And so that with the lower emergency response, which has also led to lower response and recovery work, we're seeing lower class fee revenue. We're also seeing changes in mix. within the rest of the consulting and treatment business. And look, as we focus increasingly on margin, As you know, we always report gross revenue, so we're focused on marginal gross revenue, which is very sensitive to very low price-through revenues. And so, where there is an opportunity to win work and not have to subcontract work, you that's the part we'll take because it optimizes the margin outlook. So it's really a mix of those factors that is causing the lower.

Yes, Tim, just adding to Alan's commentary, just stepping back for a minute. This is a relatively new concept for us because the nature of our business has evolved. So if you go back to IPO, testing was a substantively larger part of our core business. And as we've evolved over the last five years and tripled the size of the firm over the last five to six years, consulting and engineering has become a more prominent part of our business. And this type of dynamic, as you know better than we do, is very common in the consulting and engineering industry, where folks differentiate between gross and net. And so that's why, from our perspective, it's a relatively new phenomenon, but really not all that unique in the industry. And it's something we've been ancillarily talking about with you and other investors, but it's just become a much more prominent dynamic for us this year, and candidly, the the material reduction in pass-through revenue surprised us a little bit.

And it surprised us because we've been winning these larger projects and the rollout and execution of those projects is going quite well. But the nature of those projects and hence Alan's comment on project mix has certainly been a little different than we have been used to in the past.

Yes, that is true, Vijay. A lot of other companies in the space to report gross and net and kind of talk about it more in net terms. We do see that a lot in the industry. So that makes sense. Just lastly, on that change in mix within your consulting and treatment segment, does that imply that you're mixing more towards consulting and less treatment? Is that what would drive that, or what would drive that change in mix? No, I just meant in aggregate, Tim, in aggregate consulting and treatment as a whole.

our total. No, we continue to be really nice long-term opportunity on the water treatment side in particular that remains a very attractive outlook for us. But I'm speaking kind of in aggregate. Got it. Yep, that makes sense. I'll hop back into you. Thank you.

Thanks, Tim. Thank you. For your next question comes from Wade Suki from Capital One. Please go ahead.

Great, thank you. Appreciate you all taking my questions. Just to sort of dovetail on Tim's question. thinking about the revenue guy down again, hate to dwell on it, but you sort of touched on it in your prepared remarks Vijay, but the other revenue component, can you maybe elaborate a little bit more on what that piece is and then sort of along those lines, anything end market wise in the last couple of months at a quarter.

kind of surprise you, good, bad, or ugly, I guess, for lack of a better word. Yes, Wade, it's a great question. So I was speaking specifically about our air testing business. which, as you know, saw weather-related impacts in the first quarter, and we expected to see continued momentum through the rest of the year. And that momentum has certainly picked up, but it's been offset by… these temporary regulatory waivers that certain of our clients received from federal and state regulators for select air testing services. And so it's kind of a catch up to the work given the slow Q1 due to weather offset by some of those delays. And that's what I was referring to in my prepared remarks. Again, these rules are promulgated. The rules have not changed.

There has been a fair amount of uncertainty created by the federal government's posture, and three or four states over the last couple of months have granted some of these waivers. The work is still expected to be done. It's just not being done as quickly as we thought. on given the waiver nature. Does that make sense, Wade? It does, it does.

Just again, just kind of going back to maybe the second part of my question, anything else kind of surprise you in the quarter and market wise?.

No, the, um, uh, despite the optics of the pass through and lower and market demand remains quite strong for us. Um. as we go back and look at all of the drivers that we anticipated at the start of the year, all of that is continuing exactly as we would have expected.

So this really is a function of lower emergency response and lower pass-through revenue primarily, but the underlying structural demand cycles remain the same. Got it. Okay. No, appreciate that. I guess switching gears, you said no questions on the strategic review, Vijay, but you didn't say anything about the duration rights plan, so I'm going to ask. a question on that if it's okay. And I know it might be a little difficult to do, especially in a public forum, but have you all had any dialogue with the, I'm assuming the referenced investor or still sort of an unknown, any background or color there you can give us?.

You know, Wade, I'm not going to comment on specifics, as I'm sure you can understand, but look, it's not unusual for companies to hear from interest parties and potential transactions from time to time. and and I'll just leave it at that and the board is in the process of reviewing all alternatives as I said earlier and it's going to be thorough it's going to be fulsome and we'll keep you updated as appropriate.

Understood. Thank you so much. Appreciate it. Thanks, Wade.

Thank you for that. Our next question comes from William Gripen from Barclays. Please go ahead.

Thanks very much. Good evening. Hopefully you can hear me okay. My first question is on the 2026 initial guide. I think I'd assumed 50 to 70 million in ER revs, which was already sort of down year on year, understandably because of the large event in 25. I think it sounds like the new guidance implies around 10 to 30 million now of ER revenue in 2026. Is that right? And outside of just maybe being a year of lower activity, do you feel like maybe there are other competitive dynamics at play?.

Do you feel like there's work that you should be getting but you're not getting? It's a great question, Will. No, you're exactly right. It's been a, you know, 70 is down 20 to 30 right just to be to be more precise about our expectations and obviously right you know what we did in the first half of the year. So we're sitting here in August, nothing major has occurred, which is why we're kind of reducing our expectations for the full year. And no, this is not competitive dynamic. There just haven't been any major events of note. And so it is an anomaly in that it is a historically low cycle and it's not happened since we've had the emergency response services as part of our portfolio, even going back to prior years. It's been a long, long time since it's been a low point like this.

The team is still an A-plus team. It is still the best in the industry, in our opinion. We don't believe we are losing work to competitors. This is just a low point of the cycle.

Got it. And on the regulatory waivers that you talked about, could you give us a little more color on what the guide currently contemplates? Is it just what's known today, or are you baking in some assumption of ongoing waivers in the second half?.

We're making in some assumptions of ongoing waivers in the second half. And so we've kind of taken a conservative posture on what it could be, even though the waivers have not yet been granted.

Got it. And then just last one, understand if you can't answer this, but on the stockholder rights plan, at what threshold would that be triggered? And then what percentage ownership does this nondisclosed buyer have today?.

There's going to be well, there's going to be an AK filing where all of those details will be disclosed. Look, it's short term in nature, and the purpose of this is to enable the board to go through and maximize value for all shareholders by creating a level playing field. while the board does so, and you'll have all the color in a filing very shortly. That's all for me, I appreciate the time. Thank you. Thanks Will.

Thank you for that. Once again, we got Tim Mulroney from William Blair. Please go ahead.

Tim? Timothy Stenzelman- Hey, Tim. Timothy Stenzelman- Hey, yes, I didn't press star 1 again, but I do have more questions, so I'm happy to ask more questions. I know you're shocked by that. If we just step back, Vijay, just like bigger picture here, you know, if revenue growths It is slowing this year in your core business. Can you talk about what gives you confidence in that back half acceleration and the longer term growth algo of high single digit organic growth looking out beyond 2026?.

Yes, our high single digit growth out there is really unchanged, Tim, because of all the structural drivers I talked about. And our confidence in the back half of this year is really anchored on our – a predictable testing business and our existing and known consulting and treatment work. As you know, every year when we set guidance, we've got this, you know, call it 50 to 70 of emergency response revenue that we anticipate based on mathematical and going back in history, but we don't have direct visibility into And we've effectively removed that piece of uncertainty in our outlook, and so we have a lot of confidence. in achieving the back half of this year, as articulated in our guidance.

Yes, is it, I guess, are you seeing stronger project starts or larger projects in the backlog, or is it more about changes that you're seeing in client spending behavior? Anything more specific you'd be able to point to, Vijay?.

So when we talked about some of the larger project starts on the May earnings call, Tim, Realize those projects, those projects have started. Some of them have started. more favorably to us than originally anticipated. They are a longer duration in nature. in nature so we're very excited about that our pipeline and sales rhythm continues to gain momentum and our teams are building momentum into the back half of the year so those are all reasons why that's going client spending behavior hasn't really changed much other than the blip with temporary waivers this really is a the dual impact of lower emergency response and lower pass-through revenue. And I just anchor back, Tim, on our EBITDA and cash flow. Should this have been structural, we would have had to lower EBITDA more significantly and cash flow more significantly, and those are largely humming along despite the top line reduction and that's why we have so much confidence in the long-term trajectory.

Yep, good point. And on that cash flow, maybe this is for Alan, do you expect a similar cadence to what we saw last year? I think you're expecting about $80 million of operating cash flow in the back half of the year. Is that weighted more towards the fourth quarter there, Alan?.

It's slightly more towards the fourth quarter, Tim. Both Q3 and Q4 will be strong. We generated a similar amount in the prior year. So yes, a lot of confidence in the cash generation DSOs are down through the first half of the year we expect they will continue to decline through the back off. So yes, I'm feeling really good about it. We're at cash flow and leverage. Got it. Thank you very much.

Robert Hopkinsen, Jr.: Thanks, Tim.

Thank you for that. Once again, our next question still comes from Waitsuki. Capital One, please go ahead.

Hey, Wade. Hey, again. Figured what the heck. I'll ask another one. Just kind of curious if you could maybe speak to acquisitions, what you're seeing out here, and maybe revisit sort of how you all view acquisitions size criteria, that kind of thing, and areas of where you might be seeing a little more activity or opportunities maybe.

maybe for just to kind of switch it up a little bit? Yes, no, we, you know, like Wade, as we've talked about, let me step back. Strategic thesis is unchanged. Our market outlook is largely unchanged. And the opportunity set and our desire to continue to consolidate the market is unchanged. And so as we articulated earlier this year, we anticipate restarting acquisitions in the in the back half of this year. We continue to focus on that and continue to expect restarting acquisitions in the back half of the year. We are starting in a measured manner. These will be small, both on acquisitions, Obviously, we don't control exactly when and if they occur, but we are seeing a lot of opportunity in the testing space, Wade.

So in some areas, some of the areas where we're continuing to see really nice momentum, strong client demand. accretive geographic footprint to us and our portfolio. We're also seeing some very attractive opportunities on the consulting side. and consulting and treatment side, I should say, sorry. So, you know, we're going to be, we're kind of looking across our broader portfolio and really letting our clients help us understand where we can serve them better. And that's kind of the primary driver. So none of that has changed, Wayne. We do still expect to do that. Obviously within our line, leverage and cash flow parameters that we've talked about with you guys in the past.

Great, thank you. Would you remind us of sort of your, you've got multiple kind of criteria as you look at these deals, smaller, larger deals, whatever, however you want to kind of divvy that up?.

Yes, there's I mean, look, when we think about, um. Multiples right it is 1 of many considerations. Wait, right? There's the strategic merits, the cultural fit and then obviously the financial returns. Um. not just in terms of the multiple pay, but obviously in the cash that we expect to generate on a go-forward basis. All of that gets weighed in. I want to make sure we don't just anchor on one of those dynamics. But if you go back and look at our history, we have average mid to high single digit EBITDA multiples.

And as we start a restart, I should say, our bolt-on strategy, we don't really expect to deviate from that. And we will ensure that it kind of meets all of the accretion metrics, strategic and financial, that we've talked about in the past.

Okay, and I'm going to respect your request to avoid questions around the strategic review, but I'm just assuming normal course of business as a review is going on. buybacks, capital allocation, all these are very consistent kind of with how you've articulated the the plan in the past is that is that fair to say.

It is way. Yes, it is because I meant it sincerely when I said the board is undergoing a thorough and fulsome review. There are no preconceived notions or predetermined outcomes. And as a result, we are staying the course and we believe we still have a really awesome standalone plan to execute. And that's what we plan to execute. Perfect. Thank you so much. Appreciate it.

Thanks Wade. Thank you for that. There are no further questions at this time. I will now turn the call over to Vijay Mantripagada for the closing remarks. Please continue.

Thank you all for your time and for your interest in Ontario. We look forward to catching up in the very near future. Take care and have a great afternoon.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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