Onterris, Inc. 2026 Q2 Earnings Call

Welcome to our second quarter 2026 earnings call. Joining me today are Vijay Mantripagada, our President and Chief Executive Officer, and Allan Dicks, 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. Our 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 31st, 2025, as supplemented by the quarterly report Form 10-Q for the quarter ended June 30th, 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 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, certain limitations of using these measures, and a reconciliation to their most directly comparable GAAP 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 21st, 2026, Montrose Environmental Group, Inc. rebranded to Onterris, 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 & Treatment segment. The company's Measurement & 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. Good afternoon, everyone. Thank you for joining us. Before we begin, I'd like to thank our Onterris 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, discuss our updated 2026 outlook, summarize priorities we are focusing on to strengthen Onterris 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 an annual 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. 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 the 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-$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. Third, approximately $20 million of other revenue impacts. 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-$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 Onterris.

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-$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, an 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 & Treatment projects. To be clear, this shift in 2026 outlook does not diminish the importance of environmental emergency response to Onterris. 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 & 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 Onterris 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, that's exactly where Onterris is positioned 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. With that, I will turn it over to Allan 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 million-$790 million reflects $35 million-$55 million of lower pass-through revenue, $35 million-$45 million of lower emergency response revenue, and $15 million-$20 million of other lower revenue. These revenue components have different margin profiles. That is an important consideration when evaluating today's updated outlook. At the midpoint of revised full year EBITDA guidance of $117 million-$120 million, the bridge is as follows: lower pass-through revenue, which consists of revenue on subcontractor and non-labor direct costs, are generally at far lower margins than labor-based service revenue.

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 million-$210 million of revenue and EBITDA margin of 17%-18% 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. Expected Q3 2026 revenues will be down year-over-year. Expected Q3 EBITDA will be up and EBITDA margin up significantly. With that guidance framework in mind, I'll turn to our reported results.