Montrose Environmental Group Aktie

Good morning, ladies and gentlemen, and welcome to Onterris First Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 7, 2026.

I would now like to turn the conference over to Adrianne Griffin, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Thank you, operator. Welcome to our First 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 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 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 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 March 31, 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.

On April 17, 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, beginning on Slide 5.

Thank you, Adrianne, and welcome to everyone joining us today. I will begin with our first quarter performance, provide perspective on the launch of our new brand, Onterris, which is part of the evolution of our environmental science platform and then discuss our outlook for the balance of the year. Allan will provide the financial highlights and following our prepared remarks, we will host a question-and-answer session.

Before we get into the numbers, I want to acknowledge the extraordinary work of our approximately 3,500 colleagues around the world. Our results belong to them. We continue to demonstrate that environmental stewardship, human and economic development and shareholder value creation are not intention. At Onterris, we are for planet and progress.

Regarding our financials, as we have noted each quarter, our business is best assessed on an annual basis. Demand for environmental science-based solutions such as seasonality of field-based projects and the episodic contribution from environmental emergency responses can be variable in any given quarter and are not reflective of the annual trend. However, on an annual basis, the underlying demand profile and long-term trajectory of our business is very consistent. This is why we manage our operations on an annual basis, and we recommend you similarly view our performance.

Before we speak to our financial performance, I want to note that on Earth Day 2026, we rebranded to Onterris. This was an effort that has been underway for approximately 1.5 years and is part of our continued evolution into a more integrated environmental science platform designed to help clients navigate environmental complexity, strengthen performance and enable responsible progress.

Our new brand further integrates our existing capabilities across consulting, measurement, analysis and treatment into a cohesive model that supports clients across the full life cycle of their environmental and operational needs. We believe this rebrand is both timely and important. The environment in which our clients operate continues to evolve, driven by regulatory complexity, environmental stewardship priorities and an increasing focus on operational risk, and our platform has evolved alongside those needs. We recently published a study alongside the Financial Times that speaks to these trends from our clients' perspectives.

Importantly, we are already seeing clients respond to this more integrated approach. Engagement is increasingly on broader coordinated solutions rather than discrete services. We believe this positions us to deepen client relationships and capture greater share of wallet, which we expect will manifest in better organic growth and stakeholder value creation over time. We also believe this brand shift will allow us to deliver more comprehensive solutions, improve outcomes for our clients and create a more durable and scalable growth platform.

I want to take a moment to recognize our team because this brand reflects 1.5 years of focused effort, and I want to thank our Onterris colleagues for their continued commitment to our clients and for the work they have done to bring this new brand forward.

With that context, let me turn to first quarter 2026 results. Revenue for the quarter was $168.5 million, a $9 million decrease from the prior year quarter. Excluding environmental emergency response variability, revenue was in line with our expectations. The primary driver of the year-over-year change was timing and lower emergency response revenues, not underlying demand.

First quarter adjusted EBITDA of $17.8 million or 10.6% of revenue were both above our expectations, reflecting continued progress in driving operating efficiency with scale across the business. The first quarter of this year was impacted by unseasonably severe winter weather in North America that limited field activity in certain regions and delayed transportation of samples to our labs in our Measurement and Analysis segment. These impacts were most pronounced in January and February, where weather conditions constrained access to client sites and disrupted sample flows.

In addition, environmental emergency response revenue in our Consulting and Testing segment declined to approximately $8 million from approximately $14 million in the prior year period, reflecting the inherently episodic nature of that work. We view both of these dynamics as transitory with underlying demand remaining strong and continuing to grow across our core services. This is why our annual guidance for 2026 is unchanged.

It is also important to contextualize the year-over-year comparison. The first quarter of 2025 represented an elevated baseline relative to historical patterns, driven in part by higher emergency response activity. And in contrast, the current quarter reflects a more normalized seasonal profile, which we expected and was factored into our first quarter '26 outlook provided on this year's February call.

I would like to take a moment on environmental emergency response, which remains a strategically important part of our business. These engagements are often mission-critical for our clients and position us at the center of complex environmental challenges requiring rapid mobilization and coordinated technical execution. Importantly, these responses frequently serve as an entry point for broader engagement and multiphase relationships, which we colloquially refer to as cross-selling. They enable us to deploy additional capabilities across our Consulting, Measurement and Treatment services, often extending into longer duration remediation compliance and monitoring work.

In that sense, while the emergency response revenue itself is episodic across quarters, the strategic value is durable, supporting cross-selling, deeper client integration and longer-term revenue visibility. That durability is also reflected in our outlook for 2026. As a reminder, we expect environmental emergency response to contribute approximately $50 million to $70 million annually with variability across quarters.

As it relates to timing versus demand, more broadly, the impacts we saw in the first quarter were driven by timing, not demand. These timing shifts were concentrated in specific services such as air and emissions testing and project-based consulting, where execution is closely tied to scheduling windows and field conditions.

While the first quarter included delayed project starts primarily due to weather, our project awards, sales pipeline and field work are progressing very nicely, just on a shifted time line over the course of 2026. This work has not been lost. It remains active, and it is in the process of being executed, which is why our annual outlook and guidance is unchanged. We expect significant growth in the second quarter of this year compared to the first quarter and continued acceleration in the third and fourth quarters.

Turning to profitability. We continue to see strong results based on increased efficiency in the business. In our Consulting and Treatment segment, margins expanded by approximately 370 basis points year-over-year to 17.6%, driven by improved project mix, disciplined pricing and stronger operating execution. This was offset by margin compression in Measurement and Analysis, where margins declined to 18.4% from 23.3% in the prior year, primarily due to lower revenue from weather-related disruption.

At a consolidated level, margins remained stable despite lower revenue, underscoring the earnings and cash resilience of our model and the benefits of our integrated platform. More broadly, these dynamics are consistent with what we are seeing across the segments, where integrated service delivery, improved mix and operating discipline are contributing to sustained margin expansion over time.

Stepping back, underlying demand remains strong across our core services. I'll remind everyone that approximately 90% of our 2025 revenue was generated by a private sector client base, consistent with prior year trends. We are benefiting from a shift as environmental performance is no longer viewed as a discrete compliance requirement, but increasingly as a driver of operational efficiency, competitiveness and access to capital. This demand for our services is supported by sustained investment in each of our key geographies in infrastructure and industrial activity and increasing regulatory complexity.

We also continue to see strong demand in water and multi-contaminant water solutions where regulatory requirements and long-term infrastructure investment are driving green shoots of durable growth. The breadth of our platform and the diversity of our client base continue to position us well to perform across a range of operating conditions.

Turning to the 2026 outlook. Our confidence in the full year remains unchanged. We are reiterating our guidance for revenue of $840 million to $900 million and adjusted EBITDA of $125 million to $130 million. Pipeline visibility, backlog conversion and client engagement remain consistent with our expectations and support our long-term organic revenue growth framework of approximately 7% to 9%. The midpoint of the adjusted EBITDA range represents approximately 10% growth over 2025, and we remain committed to achieving 15% adjusted EBITDA margins for the full year 2026.

As of this week, we are also introducing the Onterris Outlook, which was developed in partnership with the Financial Times. We expect to publish the Onterris Outlook annually and provide clients with valuable and actionable insights into the intersection of environmental performance and business performance. This inaugural report reinforces a fundamental shift we're seeing across our markets.

It provides compelling evidence that environmental performance has crossed a critical threshold. What was once treated as a compliance requirement is now also a core driver of how companies operate, allocate capital and compete. Organizations embedding environmental performance into strategy are seeing tangible results, including stronger margins, improved access to capital and greater resilience.

What's particularly compelling is the clear performance gap that's emerging. Companies with more advanced environmental programs are significantly more likely to outperform, demonstrating that execution, data quality and integrated solutions are now true differentiators. At the same time, rising investor scrutiny and regulatory pressure are increasing the need for credible, high-quality environmental data and systems, which plays directly to our strengths. This is exactly where Onterris is positioned to lead as clients increasingly seek integrated science-based solutions that deliver measurable outcomes, we are positioned to capture long-term growth opportunities.

In summary, our first quarter margins and EBITDA were consistent with expectations despite revenue being impacted temporarily by weather and lower emergency response activity. Importantly, the underlying demand and long-term drivers of our business remain intact. Our outlook is unchanged, and we expect strong sequential revenue and EBITDA growth in the second quarter, as Allan will further describe shortly.

With that, I will turn the call over to Allan. Thank you.

Thanks, Vijay. I'll walk through our first quarter results in more detail, including revenue, segment performance, profitability, cost structure and cash flow.

Revenue for the quarter was $168.5 million compared to $177.8 million in the prior year period, a decrease of $9.3 million or 5.2%. The decrease was primarily driven by lower environmental emergency response revenue of $5.8 million and a $5.1 million decline primarily due to weather in our Measurement and Analysis segment, partially offset by organic growth in our Consulting and Treatment segment. As Vijay discussed, our first quarter results reflect timing-related variability within an otherwise stable operating environment rather than any change in underlying demand.

Turning now to our segment performance. Let me start by addressing the resegmentation of our Assessment, Planning and Response and Remediation and Reuse segments into a combined Consulting and Treatment segment effective in the first quarter. This realignment reflects changes made to our organizational and operating structure to further enhance cross-selling collaboration and to drive operational efficiencies, such as improved cross utilization of our team members.

In our Consulting and Treatment segment, first quarter revenue was $114.6 million compared to $118.8 million in the prior year period. The decrease reflects the $5.8 million reduction in emergency response revenues and the prior year European operations contribution, which you may recall was sold at the end of 2025, partially offset by growth in our core consulting and advisory services.

Segment adjusted EBITDA was $20.1 million with a margin of 17.6%, a 370 basis point improvement over the prior year period. This segment adjusted EBITDA improvement reflects stronger operating performance, improved project mix, disciplined pricing and the absence of losses associated with our renewables business in the prior year period.

In our Measurement and Analysis segment, revenue was $53.9 million compared to $59 million in the prior year period. The decrease was primarily driven by severe weather conditions in January and February 2026, which limited field activity and delayed deliveries of sample volumes to our labs. Segment adjusted EBITDA was $9.9 million or 18.4% of revenue compared to $13.8 million or 23.3% of revenue in the prior year period. The decline in margin was primarily due to lower revenue given the fixed cost nature of much of this segment in the short term.

Importantly, we view this margin pressure as temporary and driven by utilization rather than any change in the underlying economics of the business. As volumes normalize over the course of the year, we expect margin performance in this segment to recover accordingly. At the consolidated level, adjusted EBITDA was $17.8 million compared to $19 million in the prior year period.

Adjusted EBITDA margin was 10.6% compared to 10.7% in the prior year. The decrease in adjusted EBITDA was primarily driven by lower revenue and margin in the Measurement and Analysis segment as well as investments in marketing, business development and IT, which have an exaggerated impact on margin in Q1 given revenue seasonality, partially offset by improved performance in Consulting and Treatment.

From a consolidated perspective, higher overall operating segment margin and the maintenance of consolidated margin at prior year levels despite lower revenues, reflects the benefit of improved mix and continued cost discipline and operating efficiency across the business. As we move through the year, we expect improved utilization and project timing to drive both margin expansion and strong cash flow conversion.

Turning to costs. Cost of revenue for the quarter was approximately 60.2% of revenue compared to 61% in the prior year period. The margin improvement reflects better operating efficiency, improved project mix and the absence of prior year costs associated with the wind down of our renewables business.

Selling, general and administrative expenses decreased by approximately $4.9 million or 7.4% compared to the prior year period. This decrease was primarily driven by a $3.3 million reduction in stock-based compensation, lower labor and bonus-related costs and lower bad debt expense resulting from improved collections. These reductions were partially offset by continued investments in IT systems, data infrastructure and marketing and business development capabilities. Overall, these cost trends reflect the continued execution of our operating discipline initiatives and provide a solid foundation for margin expansion as volumes normalize.

Other income was favorable in the quarter, driven by gains on interest rate swaps and foreign currency hedging instruments compared to losses in the prior year period. Interest expense was approximately $5.5 million compared to $5.1 million in the prior year period. This slight interest expense increase is primarily the result of the full redemption of the Series A2 preferred last year, which was funded via our credit facility. Of important note, the Series A2 dividend was also eliminated and the net result of higher interest and no dividends is cash positive.

In the first quarter of 2026, diluted net loss per share attributable to common stockholders was $0.35 compared to a diluted net loss per share of $0.64 in the prior year period, a $0.29 improvement year-over-year. The improvement was primarily due to lower net loss and the absence of preferred dividends following the full redemption of our Series A2 preferred stock in 2025 and an increase in weighted average common shares outstanding.

Diluted adjusted net income per share was $0.12 in the first quarter of 2026 compared to $0.07 in the prior year period or an increase of $0.05. This improvement in adjusted EPS was attributable to the elimination of the Series A2 dividend and lower fully diluted common shares outstanding. As a reminder, our adjusted net income per diluted share attributable to common stockholders is calculated using adjusted net income attributable to stockholders divided by fully diluted shares, and we believe this methodology remains the most helpful net income metric for Onterris and common equity investors.

Operating cash flow for the quarter was negative $11.6 million compared to positive $5.5 million in the prior year period. Free cash flow was negative $17.2 million for the quarter. These decreases were primarily driven by $16.3 million of higher bonus payments tied to strong 2025 performance as well as normal seasonal working capital dynamics. As we look forward, we expect a meaningful improvement in cash flow conversion over the balance of the year, consistent with the seasonal cadence of the business and the normalization of working capital. We remain committed to converting at least 60% of adjusted EBITDA into operating cash flow for the full year.

We were also pleased with the strength of our balance sheet at quarter end. We ended the quarter with $10 million of cash and $178 million of availability under our revolving credit facility for a total liquidity of $188 million. Our leverage ratio was 2.8x as of March 31, 2026. This provides us with substantial flexibility to support our capital allocation priorities, including organic investment, selective acquisitions and share repurchases.

With respect to capital allocation, we continue to take a disciplined and balanced approach to capital allocation. During the quarter, we repurchased 376,313 shares of common stock for approximately $10 million under our Board-authorized program, leaving $30 million of repurchase capacity. These repurchases reflect our view that the current valuation does not fully capture the intrinsic value and long-term earnings power of the business. Over the past year, we have focused on driving operating efficiency and margin expansion, and we are delivering on those commitments.

As we move forward, we see significant opportunities to drive incremental value through revenue growth, including expanding share of wallet with existing clients, scaling our water and technology capabilities and selectively pursuing accretive acquisitions. Against that backdrop, we believe our shares represent an attractive opportunity to deploy capital in a way that compounds long-term shareholder value.

Turning to our outlook. Vijay discussed that our full year revenue and adjusted EBITDA outlook remain unchanged. For the second quarter, we expect revenue to be between $190 million and $210 million with an expectation of adjusted EBITDA margin of 16% to 18% at the midpoint of that revenue range. Our focus on significantly larger multiservice line opportunities, which by their nature, take longer to close, is pushing more of our revenue into the back half of the year.

We are excited about the momentum building around these opportunities, which tend to be multiyear in nature and therefore, will translate into increasingly formal backlog. Overall, we are pleased with our start to 2026 and the continued resilience of our core business. We remain focused on executing against our full year 2026 outlook, driving continued margin expansion and converting a meaningfully higher proportion of adjusted EBITDA into operating cash flow as the year progresses. Our full year guidance remains unchanged and the qualitative factors Vijay discussed reinforce our confidence in the trajectory of the business.

Thank you all for joining us today and for your continued interest in Onterris. We look forward to the opportunities ahead and to updating you on our progress next quarter.

Operator, we are ready to open the lines to questions.

[Operator Instructions] Your first question comes from Timothy Mulrooney with William Blair.

So I want to start off about growth. I mean it looks like first quarter revenue came in a little light on weather and emergency response and second quarter is coming down relative to prior expectations, but you're holding that full year guide intact. Can you just help us bridge that gap a little bit more? I know you addressed it a little bit in your prepared remarks, but just stepping back, what gives you confidence to maintain the guide given the factors that I just listed?

Yes. Tim, this is Vijay. That's a great question. Let me take it. And Tim, if I may, let me just put some context behind it. So not to sound repetitive, but I say this on every call, this is not a quarterly business. The quarters fluctuate, but demand is consistent over the year. And so on the back of that, the reason we're reiterating guidance for the year and where our conviction is coming from is because of projects we've already won, the deployment of our field teams, which is in process and looking very healthy and because of the rapid strengthening of our pipeline.

And the other dynamic, I think, that's important to note here is that we're holding or actually slightly increasing our EBITDA for the first half of the year despite the revenue shifting, and I'll get back to that word in a second, given your question, Tim. And that's a function of our increased profitability and efficiency, which is coming through in the numbers.

On the revenue side, you're right, emergency response was slower and January and February were slow due to the severe winter. And effectively, what that meant, Tim, is that our field teams couldn't go out, samples couldn't come into our labs. But it's important to note that the work wasn't lost. It just got delayed. And so it was a slow start. And so let me give you kind of a more explicit bridge if you kind of -- if you map the numbers we provided at the start of the year versus what we're saying now.

So there's about $10 million of testing revenue that kind of shifted from the first half to the second half. There's about $25 million of Consulting and Treatment revenue that shifted from the first half to the second half. And there's about $15 million of emergency response that's kind of shifted from the first half to the second half. And the reason for our conviction is on the Testing side, these are compliance requirements. It's not something you get to choose to do. It's something you have to do, and we're seeing that as a result, pick up nicely. So again, work not lost just shift in timing. on the consulting and treatment side that those projects are already underway.

And then on emergency response, this is always tough to predict. As you know, Tim, it's not absolute. But when we look over the last 10 to 20 years, it's around Q3 is when the busy season is from a response perspective, and that's not really been the case over the last couple of years. But that's why we don't really have many concerns around the timing shift there either. So for all those reasons, right, the compliance drivers, projects being underway, strong demand continuing, clients not really changing course and what our historical patterns look like, we're holding our annual revenue guidance and earnings for the first half are staying steady despite the shift because of increased profitability.

Does that make sense?

Yes, that does make sense, Vijay. And -- maybe for my follow-up question, I'll shift gears a little bit. This one might be for Allan. But we saw that negative free cash flow in the first quarter. And I could see that the accrued payroll came down, which I guess accounts for the bonuses that you highlighted in your release, but I also see larger cash outflow from account payables and a larger cash inflow from receivables. I was just hoping you could walk us through those dynamics in a little more detail.

Yes. Yes, happy to, Tim. Recall that Q1 is typically a net outflow quarter. That was not the case in 2025 because we had a catch-up from some of the delayed invoicing in '24. So that was atypical. Q1 this year is a much more typical quarter. So there was around $28 million of bonus payments in the quarter that was up $16 million year-over-year, which accounts for almost all of the change year-over-year despite, again, Q1 last year being higher than a typical quarter.

We were very happy with invoiced AR coming down over $30 million from the end of the year. So on the collection side, we feel really good about our progress towards reducing days sales outstanding. And then payables is just a normal -- it's just a typical Q1 outflow. So our -- what we had said before, Tim, is we expect to convert at least 60% of our adjusted EBITDA into operating cash for the year. That contemplated these higher bonus payments. So Q1 is right in line with what we expected and that 60% plus conversion is still intact for the year.

Okay. It sounds like it was all contemplated in guide and expected.

Your next question comes from Tim Moore with Clear Street.

Are you hiring more -- based on the rebranding, which is great, are you hiring more customer relationship members for this collaborative integrated effort? And then I was just curious as a second part to that question is what end markets, Vijay, do you think make the most cross-selling penetration uptick sense? I mean you're already doing a great job in oil and gas, cross-selling there as the poster child. But can you maybe just relay any end markets you think have the most penetration potential to cross-sell?

Sure. Yes, Tim, just on the hiring concept, let me step back and just explain why we rebranded, right? The goal is to make it easier for our clients to understand the breadth of what we offer.

One of the data points we received and reflected on was the fact that clients wanted what we were offering, but we're not fully aware of what we could offer. And so this makes it much easier for them. It also allows us to increase brand awareness more effectively. In essence, our return on investment on our marketing dollars spent is much higher with this approach. And so no, there's not really an incremental hiring process per se. Everything that we've decided to do is already baked into guidance. There's no change from that perspective. The brand really is more about client awareness, increased ROI on marketing spend.

The other variable with our brand is it deepens our cultural integration, Tim. It's something we don't talk a lot about in this context, but having one voice and having a consistent employee value proposition is just a continuation of our journey that we started last year when we paused M&A. We've been working on this for over a year.

And so as I then reflect on the second part of your question, Tim, which is which other sectors other than energy would be -- would we consider attractive. We're seeing a lot of really nice activity on the technology side. So more broadly, technology, semiconductors, pharma, these are areas where given some of the onshoring that's occurring, we're seeing really nice demand upticks in addition to energy, which is both oil and gas, we're also seeing some really nice opportunities within the transportation sector, within the waste industry, within the chemical sector.

And we continue to see really nice demand tailwinds on our water business and kind of the contaminants side of it as well as the broader air business. So when we kind of look across where the growth drivers would come from, those would be the primary areas we're seeing demand cycles uptick now.

You now have a question from Tami Zakaria with JPMorgan Chase.

I appreciate all the numbers that you gave about revenue shifting in the back half. I -- just wanted to clarify in terms of modeling, are you expecting bulk of those revenues to hit 3Q or 4Q or evenly split?

It should be evenly split as we look at how this should roll out, Tami.

Understood. So that $25 million, $15 million, $10 million, all of it, we should evenly split between the last 2 quarters of the year?

Yes. Look, ER is really hard to predict. But for modeling purposes, yes, just split that.

Understood. That's very helpful. And my second question, your EBITDA margin guide for 2Q, if I have to go to the -- your full year guide, it seems like it would be a step down in 3Q and 4Q from the 2Q levels. Given the sequential acceleration, I would have thought margin would be better in the back half. So could you elaborate on that?

Yes. That's -- Tami, that's mostly just project mix. It fluctuates, right? Q1 revenue was slightly weaker and yet margins held with prior year as an example. We are certainly seeing the benefits of a lot of the operational efficiencies that we were able to put in place with the M&A pause in the prior year and that are still underway. So we're very happy with the progress we're making on the operational efficiency side. And you're going to see that -- some of that manifest in Q2.

And then, the back half is just -- is project mix is why we're not going for a much higher margin. There's nothing in the business itself other than mix that would cause back half margins to be slightly lower than the original guide, but still up year-over-year, fairly nicely in the back half of the year and for the full year.

We now have a question from Timothy Mulrooney with William Blair.

I just wanted to follow up on a couple of things. Just the revenue pushout, Vijay, that you were highlighting to me earlier. In the Testing business, can you just help me understand conceptually why that works? Why would a test that you couldn't take in January or February because it took hold, why would that get pushed out into the second half of the year? Or is it all just kind of like dominoes or yes, help me understand.

Yes. Yes, think of it as dominoes, Tim. So typically, you -- let's say, you had -- I'm using very simplistic examples, right, 12 months to do work and now you lost, call it, 2 to 3 of those months because of weather, you still have to get that work done. Now it has to occur over the course of 9 months. And so it's a balance between the cadence at which the clients are going to get that reactivated and our ability to get deployed to address it. So it's just a shift in timing as opposed to the work going away because the compliance requirement is still there.

As a simple example, and I've used this with you in the past, if you scheduled a test in June and instead you now do it in July, that shifts from Q2 to Q3. But in reality, from our perspective and the client's perspective, it's kind of a meaningless shift.

Okay. Yes. That was going to bother me if I didn't get on here and ask. The other thing I wanted to ask about was the resegmentation. Like, I understand that in your R&R segment, look, you acquired a lot of companies over the last 5 years. A lot of those had consulting revenue streams, but they were tucked into R&R, probably belonged better in AP&R. It's like I get the concept of why you bring those together.

What I don't get as much is that water treatment business. That does seem more separate and distinct relative to the typical types of work that you're doing in AP&R. Do you agree with that statement? Would you ever consider breaking that out separately for investors to see and understand? And how is that performing?

Yes. Right now, our consulting and engineering business is deeply integrated with and tied into our water business, Tim, by virtue of our consultants understanding where there may be water treatment pressures and bringing our water experts in. As a simple example, we've seen -- and I alluded to this with the question around where we're seeing sectors with demand increase, for example, the waste industry, our consultants and our experts are intimately involved with some of the largest waste companies helping deal with subterranean water-related issues and the water technology team is coming in alongside them to help treat. So they are deeply integrated teams.

But yes, over time, as that business grows, Tim, we would certainly consider separating it. We expect double-digit growth, very attractive growth in that business this year, and that outlook has not changed. We're pretty excited about the prospects for that business independent of PFAS. But certainly, as that continues to come in, not only this year, but in the medium to long term, the outlook there is looking very encouraging.

There are no further questions at this time. I will now turn the call over to Vijay for closing remarks. Please continue.

Thank you. I just want to reiterate that as we look ahead, our confidence in the trajectory of the business continues to build. We're seeing strong underlying demand, increasing client need for integrated solutions and clear progress in improving the efficiency and scalability of our platform, as you saw in the numbers.

Importantly, we're reaching a point where the breadth of our capabilities, the depth of our client relationships and the scale of opportunities in front of us is beginning to reinforce each other in a much more meaningful way. And so taken together, these dynamics position us to continue driving sustained growth and higher margins while operating the business at a materially larger scale over the next few years.

So with that, thank you again for your time and for your continued interest in Onterris.

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

Hello, and welcome to the Montrose Environmental 4Q '25 Earnings Call. [Operator Instructions]

Now I would like to turn the call over to Adrianne Griffin, Senior Vice President of Investor Relations and Treasury. You may begin.

Thank you, operator. Welcome to our fourth quarter 2025 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 today, we will refer to our earnings presentation, which is available on the Investors section of our website. Our earnings release is also available on the website.

Moving to Slide 2. I would like to remind everyone that today's call 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 yet-to-be filed annual report on Form 10-K for the fiscal year ended December 31, 2025, 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 of their most directly comparable GAAP measure.

With that, I would now like to turn the call over to Vijay.

Thank you, Adrienne, and welcome to everyone joining us today. I will start with an update on our record 2025 results, provide 2026 guidance, and speak generally about the earnings presentation shared on our website. Allan will then provide the financial highlights, and following our prepared remarks, we will host the question-and-answer session.

Before we get into the numbers, I want to acknowledge the extraordinary work of our approximately 3,500 colleagues around the world. 2025 was a record year across every key dimension: revenue, EBITDA, and cash flow. The reason we win quarter after quarter and year after year isn't luck or timing. It's because we bring science, field expertise, and urgency to the problems our clients need solved right now. Our results continue to demonstrate that environmental stewardship, human development, and shareholder value creation are not intention. At Montrose, we are for planet and for progress.

As we have noted each quarter, our business is best assessed on an annual basis as demand for environmental science-based solutions does not follow consistent quarterly patterns. We manage our operations on an annual basis, and we recommend you similarly view our performance that way. With that context, I'm extremely pleased to report that 2025 was the strongest year in Montrose's history. We delivered full year revenue of $830.5 million and consolidated adjusted EBITDA of $116.2 million, both record highs and both well above the initial guidance we provided at the start of 2025.

Let me put that record performance in context. Revenue grew 19.3% versus 2024, driven by organic growth of 12.7%, which meaningfully exceeded our long-term organic growth target of 7% to 9%. All 3 segments delivered solid organic revenue growth, thriving despite the ongoing regulatory uncertainty from the U.S. federal government.

Consolidated adjusted EBITDA grew 21.3% year-over-year, and our consolidated adjusted EBITDA margin expanded for the third consecutive year, reaching 14% in 2025, representing 180 basis points of improvement since 2022. And importantly, we did not just grow the top and bottom line. We delivered record cash flow and exceeded every major strategic objective we set for ourselves in 2025, which Allan will expand upon in his remarks.

Montrose has now delivered approximately 20% revenue CAGR from 2020 through 2025, outpacing the Russell 2000 constituent average, driven by roughly 13% average annual organic growth and resilient demand tailwinds across our diversified end markets. I am very proud of this team for delivering these exceptional results while maintaining their focus on our mission and on our clients.

I also want to take a moment to address something directly because we continue to hear questions about it from investors. There is a persistent narrative in the market that U.S. regulatory volatility and uncertainty creates meaningful headwinds for Montrose. Let me be direct. The macro and regulatory backdrop for environmental services and solutions remains as constructive as we have seen, and the performance we delivered in 2025 is the clearest possible evidence of that.

In 2025, approximately 90% of our clients operated in a diverse subset of private sector industries, including energy, utilities, transportation, industrial manufacturing, chemicals, and technology. Our work creates more efficient operations, reduces their environmental impact, and derisks their growth. We achieved this by delivering environmental consulting, measurement, and treatment through a unified service model. The real economy still needs a reliable environmental partner, and this demand doesn't stop for a new headline cycle.

As industrial activity picks up in our key markets in the U.S., Australia, and Canada, we are seeing increased demand from the mining industry, pharmaceutical companies, particularly the GLP-1 manufacturers, the semiconductor industry, and technology companies building data centers. The air monitoring or water treatment needs for our clients in these sectors has picked up materially and were not part of our outlook 18 months ago. We expect these dynamics to support strong organic growth well into the foreseeable future.

Despite the strong demand tailwinds across the majority of our business, 2 regulatory dynamics, in particular, have garnered a fair amount of recent attention. On methane, the market perception is that recent EPA framework changes, such as the Endangerment Finding repeal, threaten our business. The reality is there is no material impact on our services expected in the near term.

Even though the essence of U.S. EPA changes haven't altered the regulations underpinning our work, more importantly, our methane services work is concentrated with large operators in states with independent stringent regulations, including states like Colorado, Texas, California, and Pennsylvania, states that have implemented their own monitoring frameworks and continue to set expectations that require credible monitoring and abatement.

Meanwhile, the EU methane regulation extends the market for emissions monitoring, reporting, verification, and abatement to exporters, including U.S. LNG and oil producers. Because Montrose invested early in advanced monitoring and verification-ready technologies, our energy clients can achieve better, faster, and more cost-effective outcomes. With global deadlines phasing through 2030, demand is now more predictable.

And on PFAS, while the market remains focused on headlines, PFAS is already a high-margin growth driver across our segments. U.S. EPA and White House actions continue to elevate PFAS as a priority. In Q2 2025, the U.S. EPA provided clarity on national PFAS standards, which expanded our pipeline. Ongoing state actions around maximum contaminant levels, AFFF remediation, and industrial discharge standards are also driving long-term demand for our services. States and utilities are tightening expectations around landfill leachate, for example. And as a result, pretreatment and full-scale opportunities increased for Montrose in 2025, and we expect elevated accretive organic growth in water treatment through 2026 and beyond. We are seeing similar demand increases in our Australian market.

On broader regulatory uncertainty, again, our track record speaks for itself. We have delivered consistent organic growth across multiple administrations and regulatory cycles. This is not a coincidence. It is a function of our business model. Our business is predominantly private sector, with U.S. federal government exposure of less than 3% of revenue. The private sector clients that represent 90% of our work are not waiting on Washington. They have their own environmental obligations, their own sustainability commitments, and their own operational needs that drive sustained, predictable demand for our services.

It is important to note that our addressable market for water treatment extends well beyond PFAS itself. Our water treatment total addressable market exceeds $250 billion. Ours is a water technology business, not just a PFAS business. Our IP and process expertise are solving challenges across contaminants and industries, from pharma and semiconductors to waste and industrial clients. PFAS is a tailwind, but the larger story is scalable, trusted water technology solutions. The short answer for Montrose is this: macro and regulatory drivers are tailwinds that endure. The backdrop is familiar, economic volatility, policy fluctuations, and evolving regulatory frameworks drive complexity that creates demand for the various services where we choose to compete and where we have built capability.

Our private sector clients tell us 3 things consistently: their long-term outlook has not changed, domestic industrial activity is a net positive, and they remain committed to state regulations and international rules because compliance is a license to grow. With more than 6,000 clients, we've seen very few material changes to operating policies. That durability underpins our confidence.

We expect to publish a study with the Financial Times around Q2 2026 that demonstrates how the private sector is responding to U.S. environmental policy volatility. By and large, the data shows that the private sector, Montrose's clients, are staying the course and that steadiness is manifesting in our numbers. These dynamics are a meaningful part of our confidence as we launch our 2026 guidance.

Transitioning first to our priorities for 2026. Our strategic focus is clear and consistent with what you have heard from us. Let me take this in 3 pieces. First, organic revenue growth and margin expansion. Our go-to-market strategy, anchored by cross-selling our unique portfolio of services to private sector clients, coupled with regulatory and policy tailwinds across our key markets, and broad increases in industrial activity, continues to demonstrate the resilience and compounding power of our integrated platform. We have exited 2025 with strong momentum in all 3 segments, and we see broad-based demand across the private sector clients in 2026. As one data point, the percent of revenue from cross-selling increased from 53% to 62%. Our growth is not dependent on acquiring any more customers, but rather on deepening the relationship with our existing customers.

Second, strong cash flow generation. We have consistently prioritized working capital discipline and operational efficiency. The 93% operating cash conversion we delivered in 2025 was extraordinary. While we do not expect to sustain that exact level, we remain confident in achieving 60% operating cash conversion in 2026, which exceeds our long-term 50%-plus operating cash flow to consolidated adjusted EBITDA target. Free cash flow is also expected to remain robust in 2026, providing the foundation for our capital allocation strategy.

Third, strategic capital allocation. Now that we have completed the balance sheet simplification we committed to in 2025, we have expanded flexibility to deploy capital in ways that enhance the shareholder value, including through organic investments, M&A, and share repurchases. I will come back to each of these in a moment.

Turning to our 2026 outlook. We are introducing guidance of $840 million to $900 million in revenue and $125 million to $130 million in consolidated adjusted EBITDA. At the midpoint, that represents approximately 10% EBITDA growth compared to 2025. This guidance does not assume any acquisition impact. We are targeting approximately 15% consolidated adjusted EBITDA margins in 2026, reflecting the operating leverage inherent in our model, ongoing efficiency gains, and the benefit of our higher-margin service mix. This is an important signpost for us and one I want to clearly anchor on for the investment community.

Organic revenue growth of 7% to 9% remains our long-term expectation. And for 2026, we expect to be at the high end of that range. Revenue in the second half of 2026 is expected to be higher than the first half, with the second half contributing approximately 60% of full year consolidated adjusted EBITDA given the timing of current projects. Our 2026 environmental emergency response revenue assumption is in the range of $50 million to $70 million, consistent with our long-term framework. As always, our formal guidance assumes no impact from future acquisitions.

I also want to highlight a milestone that is easy to overlook, but tells a powerful story about the compounding cash generation power of this business. Between 2025 and 2026, we expect to generate approximately $180 million in cumulative operating cash flow. We achieved record operating cash flow of $107 million in 2025 alone, a 93% conversion rate. We expect sustained strong conversion in 2026, supported by ongoing margin expansion and working capital discipline. This trajectory positions Montrose to continue enhancing cash flow and driving shareholder value.

Before I hand the call over to Allan, I want to reaffirm the framework that underpins our capital allocation philosophy and our ability to create long-term shareholder value. On organic investments, we will continue allocating 1% to 2% of revenue annually to high-return investments in proprietary technology, software development, patents, R&D, and growth capital expenditures. These are the innovations that expand our applications and strengthen our competitive position over time. And they are a large part of why our organic growth has averaged 13% for the past 5 years.

On balance sheet strength, our strong liquidity provides flexibility for strategic initiatives while we maintain a disciplined and balanced approach. On share repurchases, I am pleased to announce that we are in a strong position to begin returning capital directly to shareholders through our existing $40 million share repurchase authorization. Considering the ongoing disconnect between the company's strong financial and operating performance, our near- and long-term optimistic outlook, and our current public stock valuation, the program reflects our confidence in Montrose's business trajectory. The confidence we have in our performance, our 2026 outlook, and the macro tailwinds supporting this business makes this the right moment to begin this program in a systematic and ongoing way.

On acquisitions, having delivered on every objective we set when we announced the acquisition pause in late 2024, including full balance sheet simplification, record cash flow and continued margin expansion, we are now in a strong position to return to accretive acquisitions in 2026. Acquisitions remain a key part of our long-term strategy, our growth algorithm, and our investment thesis, and our pipeline today is as robust as we've seen in recent years. As we have said before, we will remain prudent on leverage. We remain focused on highly strategic, accretive tuck-ins that enhance cross-selling opportunities, expand market presence, and optimize our service mix for continued margin enhancement.

In summary, 2025 was a record year for Montrose in every meaningful sense. We delivered record revenue, record EBITDA, record cash flow, and record margins. We exceeded every key strategic objective we set for ourselves. We enter 2026 with a simplified balance sheet, strong liquidity position, and clear strategic momentum. Demand remains very strong in all of our key markets, the United States, Australia, and Canada. I am extremely proud of the Montrose team and everything they have accomplished, and I remain deeply optimistic about what lies ahead.

Thank you for your continued interest in Montrose. And with that, I will hand it over to Allan.

Thanks, Vijay. Our record 2025 results demonstrate our ability to deliver for our clients, shareholders, and employees. These results included robust organic growth driven by ongoing cross-selling success, a third consecutive year of profitability improvement, driven by our focus on higher-margin services and operational efficiency, simplification of our balance sheet ahead of schedule, and lower-than-expected leverage due to record cash flow and earnings.

Beginning with a discussion of our revenue performance. Fourth quarter revenue increased to $193.3 million compared to $189.1 million in the prior year period. Full year 2025 revenues increased by 19.3% versus 2024, totaling $830.5 million, well above our initial guidance. The primary drivers of full year revenue growth were strong organic growth across all 3 segments, totaling $81.8 million, or 12.7%, stronger-than-expected environmental emergency response revenue, and contributions from acquisitions closed in 2024.

Turning to profitability. Fourth quarter consolidated adjusted EBITDA was $23.9 million, or 12.4% of revenue, compared to $27.2 million, or 14.4% of revenue, in the prior year quarter. Fourth quarter results benefited from improved margins in consulting and advisory services, offset by lower margins in the Measurement and Analysis and Remediation and Reuse segments, and expenses related to the wind down of our renewables business. For the full year, consolidated adjusted EBITDA increased 21.3% to $116.2 million, or 14% of revenue, resulting in our third consecutive year of margin expansion and 180 basis points of improvements since 2022.

Turning to GAAP results. Net loss in the fourth quarter improved to $8.2 million, or $0.23 loss per diluted share attributable to common shareholders compared to a net loss of $28.2 million, or $0.90 net loss per diluted share in the prior year. This $20 million year-over-year improvement in net loss primarily resulted from lower stock-based compensation expense following the cancellation of stock appreciation rights in the prior year and lower income tax expense in the current year.

The $0.67 comparative period improvement in loss per share was primarily due to the improved net loss and the elimination of Series A-2 dividends following the full redemption of the remaining preferred equity instrument on July 1, 2025. For the full year 2025, net loss improved to $0.8 million, or $0.14 loss per diluted share compared to a net loss of $62.3 million, or $2.22 net loss per diluted share in 2024. This $61.5 million year-over-year improvement in net loss primarily resulted from the increase in income from operations and the $20.2 million fair value gain related to the Series A-2 preferred stock redemption, partially offset by higher interest and income tax expenses. The $2.08 comparative period improvement in loss per share primarily resulted from lower net loss, lower Series A-2 dividends, and an increase in weighted average diluted common shares outstanding.

On an adjusted basis, fourth quarter adjusted net income and diluted earnings per share were $13.5 million and $0.35, respectively, compared to $14.7 million and $0.29 in the prior year quarter. Adjusted net income decreased due to lower operating margins in the current period, while diluted adjusted earnings per share benefited from the elimination of the Series A-2 dividend and lower fully diluted shares outstanding.

For the full year 2025, adjusted net income and diluted EPS were $60.7 million and $1.36, respectively, compared to $55.8 million and $1.08 in the prior year. The year-over-year increase in adjusted net income reflects higher revenues and improved margins, partially offset by higher interest and income tax expenses. Diluted adjusted EPS benefited from the elimination of the Series A-2 dividend following the full redemption in 2025. I will note that the increase in interest expense was partially attributable to the incremental borrowings to redeem the Series A-2 preferred. The year-over-year incremental interest expense of $3.7 million was more than offset by the reduction in Series A-2 dividends of $6.9 million. And with the Series A-2 now fully redeemed, this cash flow benefit will continue to be realized. Please note that our diluted adjusted EPS is calculated using adjusted net income attributable to stockholders divided by fully diluted shares, which we believe is currently the most helpful net income per share metric for Montrose and common equity investors.

I will now discuss our performance by segment, focusing my comments on the full year. In our Assessment, Permitting and Response segment, full year revenue increased 43%, or $92.6 million, to $307.4 million. The primary drivers were organic growth of $57.8 million in nonresponse consulting and advisory services, including remediation consulting work cross-sold from the large environmental incident response in the second quarter, environmental emergency response growth of $29 million, and 2024 acquisition contributions of $5.8 million.

This segment is a strong illustration of the power of our integrated platform and our ability to convert an emergency response into a long-term remediation consulting engagement and is precisely the cross-selling model we have been building. Full year segment adjusted EBITDA was $68.5 million, up from $48 million in the prior year. Adjusted EBITDA margin was 22.3% of revenue, essentially flat with the prior year. We expect margins in the segment to strengthen in 2026 due to strong expected demand, pricing discipline, and operational efficiency.

Turning to our Measurement and Analysis segment. During 2025, this segment significantly outperformed the prior year, as utilization drove efficiency gains and our team enhanced operating performance. Full year revenue grew 9.6% to $245.9 million from $224.4 million in the prior year, driven by organic growth of $12 million from increased demand for air quality and laboratory services, as well as 2024 acquisition contributions of $11.6 million.

The most compelling story for this segment is the margin performance. Full year segment adjusted EBITDA was $64.4 million, or 26.2% of revenue compared to $50.5 million, or 22.5% of revenue in the prior year, a 370 basis point margin expansion. This improvement reflects improved operating discipline, growth in higher-margin laboratory services, and operating leverage across air quality services. We expect segment margins to remain elevated and well ahead of our long-term guidance and as compared to 2024, although modestly lower than 2025.

In our Remediation and Reuse segment, full year revenue grew 7.8% to $277.3 million from $257.2 million in the prior year. Revenue growth was driven by organic growth of $12 million, primarily in water treatment services, and 2024 acquisition contributions of $8.1 million, partially offset by $9.8 million of lower revenues from renewable services as part of the strategic wind-down and exit of that business.

Full year segment adjusted EBITDA was $36.3 million, or 13.1% of revenue, compared to $38.3 million, or 14.9% of revenue in the prior year, primarily driven by the $4.4 million loss associated with the strategic wind-down of our renewable energy operations. In 2026, segment margins are expected to improve as our water treatment business continues to benefit from organic growth and operating leverage.

Importantly, we did not just deliver record top and bottom line results. We also delivered record cash flow. We achieved $107 million in operating cash flow, representing an extraordinary 93% conversion of consolidated adjusted EBITDA, well above our 50%-plus long-term target. We also generated record free cash flow of $87 million, or 75% of consolidated adjusted EBITDA.

Beyond these financial results, we exceeded every major strategic objective we set for ourselves in 2025. We fully redeemed the remaining $122 million of our Series A-2 preferred stock 6 months ahead of schedule, permanently simplifying our capital structure and eliminating all future Series A-2 dividends. We exited the year with a leverage ratio of 2.5x, exceeding our year-end target of below 3x and had substantial available liquidity of $225 million, which demonstrates the balance sheet strength that positions us well for the next phase of our growth strategy.

In short, 2025 was a record year across every major financial metric: revenue, EBITDA, cash flow, and balance sheet strength. We enter 2026 with strong momentum, a clear strategy, and a team that has earned the right to be confident. We look forward to demonstrating continued progress throughout the year.

Operator, we are ready to open the lines for questions.

[Operator Instructions] And our first question comes from the line of Tim Mulrooney with William Blair.

Congrats on capping off a strong year of execution here in 2025. I wanted to start out with a guidance question, just a simple one. You provided full year revenue and EBITDA outlook. But look, I know you're not a quarterly company, but I'm hoping you could provide just a little bit more color on how to think about your expectations for the cadence as we move through the year.

Yes. Tim, let me take that. It's a good question. You're right, this is not a quarterly business, but there are some interesting comparisons to '25 given some of the timing of the emergency response revenue. So at a high level, we expect revenues to be split roughly 50-50 front half/back half. And then within the front half, about 40% Q1, 60% Q2, okay? On EBITDA, we expect a split of -- just the first half, second half, 40% first half, 60% second half. And then within the first half, about 1/3 is Q1 and 2/3 Q2.

If I go back, Allan, and I go back and look at your EBITDA breakdown, it's actually not that different than what we've seen in some prior years. So...

That's right. Yes. Q1 is just a very seasonally slow quarter. Obviously, the timing of emergency response, which is impossible to predict, can move that around quite significantly. We always assume the midpoint of that $50 million to $70 million, and roughly apportion it with $15 million a quarter. So there could be a light quarter, there could be a heavy quarter. So that's certainly going to move those percentages around. But those numbers I just gave you assume an even distribution of that $60 million ER revenue, guidance midpoint.

You know what, another thing I wanted to ask, about switching gears completely, is this topic of AI. We saw a broad sell-off in engineering and design firms over the last couple of weeks due to concerns about disruption from AI and Montrose has occasionally comped against some of these companies. How do you think about the net impact from AI on your business, and more specifically, your engineering and design work?

Let me take that, Tim. Look, these are exceptional firms. Many of these firms you reference are our clients. And so I'll speak generically, Tim. You know the space as well as anyone, right? I think a lot of the concerns there seem to be tied to AI's ability to disrupt the more formulaic and algorithmic tasks that some of these firms do. Our work is much more bespoke, and I'm happy to expand into that further to the extent it's of interest.

But as we think about a simple example is the complexity of the water treatment and how that's constantly changing or the field-based nature of our work. The gist of it is we are not an A&E firm, and Montrose is much more insulated from those dynamics than are some of the firms that you referenced, Tim. But look, we're not being Pollyannish about this. I mean, prior to my life at Montrose, I came from a technology firm. So I'm acutely sensitive to both the risks and opportunities that AI and large language models present. And I would frame it in the context of 3 frameworks that we look at.

One is there is absolutely an opportunity for us to drive efficiency with the type of work that we do. And we are already in the process of doing that. And so what I mean by that is using large language model-based technologies to make ourselves more efficient, which should drive margins and create upside opportunity into the future.

The second is on the revenue side as a large data aggregator. We are already in the early stages of harnessing some of this technology to work with our clients, so for example, with our sensor networks and real-time air monitoring. So there's a revenue stream opportunity that's new that we are pretty excited about. And then, independent of what we're doing internally, Tim, the technology companies that are driving a lot of this activity are Montrose's clients. And so it is early days. We have been careful not to talk about this too much until we really are ready to be very precise about exactly what we're doing.

But it is already manifesting in our revenue, meaning the environmental work we're doing for technology companies, and specifically around data centers and AI, saw some really nice growth last year off of, again, a small base. And then we expect to continue to see that really nice growth into the foreseeable future. None of that is in our numbers in terms of our 7% to 9% organic growth today. We want to be careful about not overpromising. But there's clearly some really nice tailwinds and opportunity for Montrose as we look at this more broadly. Does that answer your question?

Yes, it does and makes a lot of sense, so thank you. Maybe I'll just wrap it up with one more, if you don't mind, if I squeeze one more in because I did hear you make that comment in your prepared remarks, Vijay, about some of these emerging thematics, these nascent opportunities that weren't necessarily around 18 months ago, whether it's -- I think you listed mining, pharma, semi, data center.

Yes.

And it goes to your commentary of seeing more tailwinds than headwinds. I'm just curious, as you think about these opportunities, which ones you're most excited about, I guess, as we move through 2026 and 2027.

Yes. We -- so a lot of these are already our clients, Tim. So some of them are growing opportunities as we speak, and some of the others are pipeline opportunities that have popped up. So just to explain what I mean, within the pharma space, the GLP-1 manufacturers, there are PFAS byproducts that come through the manufacturing process. And so they have been working with us to determine, given some of our unique IP and technology, to how to extract some of the short-chain PFAS that come out of that process. So that's a new set of opportunities. We haven't really addressed that before. That's in our pipeline now. I'm pretty excited about what that looks like, you call it, into the '27 onwards time frame.

Contrasted with the data center work that I referenced earlier, that is already in a small way in our revenue and our revenue growth profile, and I expect that to expand further. As we think about the semiconductor industry, a lot of those have been clients of Montrose. As activity picks up and they start to build out some of these centers and manufacturing capabilities, there's a host of opportunities for us as we think about our integrated environmental platform that are opening up that didn't exist before. So we're quite excited about that.

A lot of this is tied to our water technology business, Tim, which we expect to grow double digits in '26 compared to '25. And as we think about the long-term or even medium-term, this represents incremental upside to what we saw even 18 months ago. So that's what we meant in the commentary, and hopefully, that adds some more color.

And your next question comes from the line of Jim Ricchiuti with Needham & Co.

I appreciate the additional color, Allan, by the way, in response to Tim's question about thinking about the year. So thank you for that. You've touched on some of this in the question I have coming up is just where you see the biggest opportunities from an organic growth standpoint. And I think you highlighted, Vijay, some of the end markets, some of the -- but I'm curious how that might translate down to some of the business lines and where you see the biggest opportunity for organic growth.

Yes. There's a couple of areas where we're quite optimistic about what the future looks like, Jim. So one area, as I just alluded to, is our water technology business, which we expect to grow really nicely into the foreseeable future. It's going to be accretive to our growth trajectory over time. It certainly will be to our numbers in 2026. So that's a particular area of focus. We remain quite optimistic with our core business around testing and consulting as well. Despite all of the volatility, the uncertainty that's in the market right now is creating tailwinds for us. And so we're seeing ongoing demand for our testing business, both field-based and lab-based. And we're also seeing really nice demand tailwinds for our consulting business -- environmental consulting business.

And there's been some really nice opportunities for us that have come up. As Tim asked about earlier, we've seen in Australia, for example, with our mining clients. In the Canadian market, we've seen a really nice uptick in activity tied to Prime Minister Carney's initiatives around Canadian infrastructure build-out. And then here at our home market in the U.S., the increased industrial activity is driving really nice demand tailwinds for us. And so as we look out into 2026, the type of business that we're seeing and the mix is a little different than we've seen in the past. But all of those areas excite me, and there's ways for us to harvest those opportunities, both organically and inorganically, which we're excited to jump on.

You guys are making some nice progress on cross-selling. Any particular areas or verticals that's been driving that improvement that we're seeing?

It's largely just execution, Jim. We alluded to this before. Our response business is a spectacular cross-sell engine. And strategically, it represents really nice opportunities post response to drive testing work and remediation work, specifically around soil and water remediation. And so a lot of the improvement you saw in 2025 was tied to ongoing execution against that original plan. So it's more of the same blocking and tackling. We've made investments in our commercial infrastructure. We've brought in some incredible talent, some very seasoned leaders that are sector leaders and well-known names in the industry. And so a lot of that has been the reason why we're seeing improvements on that metric, and we expect to see that into the foreseeable future.

One quick final question for me. You sound optimistic on the PFAS side of the business. Can you say what the PFAS revenues -- and you may have. I may have missed it -- represented in 2025 and what the growth rate was?

Yes. It remains about 10% to 15% of our business, Jim. And I think we've historically -- and this is really something we should have done a better job at -- but we've historically talked about our water technology business primarily in the context of PFAS. And what we're seeing now is that our water technology business is getting pulled into PFAS demand cycles, but it's more a family or a group of contaminants, including PFAS that we're treating.

So for example, when we're dealing with landfill leachate, which has been a really nice growth market for us, the waste industry that is, we're removing all kinds of contaminants in addition to PFAS, not just PFAS. So as we look at it in aggregate, that's part of the reason why we see so much -- why we have so much optimism in what the future looks like, because it's now become embedded in the set of contaminants that folks want to remove. And so the numbers are still very similar to what we talked about before, Jim, 10% to 15% of revenue with double-digit growth expected into 2026.

[Operator Instructions] And our next question comes from the line of Tami Zakaria with J.P. Morgan.

Congrats on the wonderful results. Question on M&A. Good to see you're planning on doing M&A. Could you elaborate on the potential size of the deals in terms of maybe revenue or EBITDA that you're looking at, which segments you're focused on, any sense of the timing, first half versus back half? Any color would be helpful.

Yes, Tami, let me start with that, and Allan, you should certainly jump in. There is nothing imminent. And so as you look out to Q1 or even the first part of Q2, it is unlikely we're going to do anything there from an acquisition perspective. We're going to be very measured.

We're talking about small, bolt-on acquisitions. We are very sensitive to leverage. As you know, we've talked about that, and we think about this in the context of broader capital allocation strategies to maximize returns. So with that background and with that underpinning, we see some really nice opportunities on the testing side of our business, Tami, and we see some really nice opportunities across the Australian, Canadian, and U.S. markets on the consulting side of our business. And so we will likely start to, in a measured way, bolt on some really accretive assets, both strategically accretive and financially accretive, sometime in the back half of the year. As you know, we don't control deal timing, so that may fluctuate a little bit. But with what we see in the pipeline today, from a timing perspective, should we close transactions, and we may not close any, but we certainly expect to close some, we will likely do it in the back half of this year.

And a follow-up on the quarterly color you gave, which was very helpful. I just wanted to understand 1Q in particular. It seems like it's going to start off a little lighter before things pick up. So is it just emergency response revenues being lumpy? Or is there headwinds in some other segments as well that's making 1Q smaller and then we expect to pick up as the year progresses. So what's driving the revenue outlook for the first quarter?

Yes, I can take that. You're right. It is primarily lower emergency response. We're 2/3 of the way through Q1, and so we have visibility at least for that period of time into what emergency response has been. And then to a lesser extent, there is some project timing and tougher comparisons year-over-year in Q1 that lighten as we progress through the year.

There's no further questions at this time, and that concludes today's call. Thank you all for joining. You may now disconnect.

Thank you, operator. Welcome to our third quarter 2025 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 today, we will refer to our earnings presentation, which is available on the Investors section of our website. Our earnings release is also available on the website.

Moving to Slide 2. I would like to remind everyone that today's call 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 included in our annual report on Form 10-K for the fiscal year ended December 31, 2024, as supplemented by our quarterly reports on Form 10-Q, which identify 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.

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

Thank you, Adrianne, and welcome to everyone joining us today. I will provide an update on the strength of our third quarter and year-to-date results, discuss our increased 2025 guidance and the reasons for our more optimistic 2026 outlook and speak generally about the third quarter presentation shared on our website. Allan will provide the financial highlights and following our prepared remarks, we will host a question-and-answer session.

As we have noted each quarter, our business is best assessed on an annual basis given the demand for environmental science-based solutions doesn't follow consistent quarterly patterns. This is how we manage our business and how we recommend viewing our performance. I want to take a moment to express my sincere appreciation for our approximately 3,500 colleagues around the world. Their exceptional contributions, commitment to exemplary client service and passion for environmental stewardship and innovation are the cornerstones of Montrose's success.

Together, we pursue our mission of for planet and for progress. For planet and for progress. This means Montrose aims to simultaneously address our universally shared desire for clean water, clean air and clean soil while creating jobs and increasing shareholder value. We are partnering primarily with our industrial clients across end markets to help them operate more efficiently and reduce their impact on their environment. This is why our revenue and earnings are hitting record levels despite all the political rhetoric.

Whether it is working with our energy-producing clients to reduce air emissions and costs, whether it is working with our waste industry clients to address water contamination concerns and risks or whether it is working with technology and semiconductor companies on permitting or water access concerns. Our financial results speak to how environmental stewardship can work in concert with development and value creation. This is why our record 2025 continues.

From a financial perspective, we achieved our third consecutive quarter of record performance, including free cash flow generation that exceeded expectations. Broad-based client demand for our services is reflected in the 26% revenue growth and 19% consolidated adjusted EBITDA growth in Q3 year-over-year. As we look at the more meaningful and longer-term financial result trends of year-to-date 2025 results, revenue has increased 26% with very strong double-digit organic revenue growth and adjusted EBITDA has increased even faster than revenue at 30%, reflecting continued margin accretion of an additional 1% of revenue year-over-year. This margin accretion is due to both strong organic growth and operating leverage in our consulting, testing and water treatment businesses in particular.

Operating and free cash flow have increased meaningfully by $65 million and $77 million year-over-year, which has allowed us to delever the balance sheet faster than expected and has increased our flexibility to further invest in our people and our business. In addition, given our strategic acquisition pause at the start of 2025, which we initiated to clearly demonstrate the underlying power of our business and business model, and we believe that power and strength is apparent from these results. For the second consecutive quarter and year-to-date periods, we reported positive net income and positive GAAP EPS, which Allan will expand upon in his prepared remarks.

I'm very proud of my team for delivering these exceptional results while maintaining their focus on our mission and our clients. As we look forward to the rest of 2025 and to 2026, our optimism remains, and we are thrilled that our financial results continue to clearly show why we are and remain upbeat about our business' prospects.

Regarding updates to our guidance, due to our strong year-to-date performance and based on consistent client feedback about the importance of our services to their operations, we are raising 2025 guidance for the third consecutive quarter. We now expect 2025 revenue to be in the range of $810 million to $830 million and 2025 consolidated adjusted EBITDA to be in the range of $112 million to $118 million. which represents an approximately 18% revenue increase and 20% full year adjusted EBITDA increase at the midpoint over 2024.

Given recent questions about the topic, we want to remind you that our exposure to the U.S. federal government remains very modest, well less than approximately 5% of revenue and that we have not been significantly impacted by the recent U.S. government shutdown. Notably, we observed that state and local governments have and continue to step in to address gaps and uncertainties left by the U.S. federal government, creating additional opportunities for growth that we did not anticipate at the start of this year.

We continuously monitor these developments to strategically position ourselves to capitalize on these new opportunities. We do acknowledge that external factors such as economic volatility, policy fluctuations and evolving regulatory frameworks are influencing our industry. However, Montrose's unique business model and our competitive positioning has allowed us to capture tailwinds from these external factors. And our positioning has also allowed us to stay largely insulated from the broader volatility.

I will now highlight a few of the tailwinds benefiting us this year. As a reminder, we have repeatedly heard from our clients that, one, their long-term outlook has not changed; that two, they see increasing domestic industrial activity as a net positive; and that three, they remain committed to complying with state and international regulations that impact their ability to drive their financial results. All acknowledge challenges from the current volatility in U.S. federal regulations, but by and large, we've only seen a few of our approximately 6,000 clients make any changes to their operating policies or decisions. This is why our business remains resilient.

For example, and regarding greenhouse gases, which are among the most politicized air contaminants, changes to U.S. federal policy seem to have been more than offset by the impact of state regulations, including states in which we have many employees and clients and which are across the political spectrum, for example, in Texas, in Colorado and in California. In addition, market forces such as the recent EU methane regulations expand the global market for emissions monitoring and compliance as these requirements affect global exporters, including U.S. LNG and oil producers who are among our key clients.

Montrose's historical investments in advanced monitoring technologies enable us to work with our energy clients to provide better, faster and more cost-effective results. Coupled with our clients continuing to take practical long-term views, demand for our services continues at pace. And because these regulations are multiyear in scope, with phased deadlines and increasing stringency through 2030, demand is often longer term and more predictable. These state regulations and market forces are a large part of why our Measurement and Analysis segment's organic revenue growth and margins are at record levels in 2025.

As another example, the clarification of the U.S. EPA's perspectives on PFAS regulations in Q2 2025 and the agency's continued focus on water quality has resulted in a steady increase in the number of opportunities for our water treatment business. Not only does our pipeline of water treatment opportunities continue to expand meaningfully, but our year-on-year organic growth for this service is expected to remain elevated and accretive to our 2025, 2026 and long-term organic growth outlook.

As a third example, increased mining activity in our Canadian and Australian markets has resulted in attractive and new growth opportunities for Montrose in both of those geographies. The recent rare earth partnership across governments adds more momentum to an already attractive industrial end market for Montrose. The environmental consulting, permitting, testing and water treatment needs for our mining sector clients are likely to create nice tailwinds for our business over the foreseeable future.

As a fourth example, increased industrial activity, aging infrastructure and more severe weather-related events continue to drive outsized demand for our environmental emergency response business in the United States. What is critical to convey is that though the response-related earnings are meaningful and unpredictable, they are an increasingly smaller part of the whole, and this is critical, they are very additive to our long-term organic growth and cross-selling algorithm.

As a simple analogy that hopefully sheds light into the strategic and financial value of having a response business as part of our service portfolio, because of our focus on being an environmental science pure play, our response business is like the emergency room in our environmental hospital, so to speak. Once a patient comes into the ER of a traditional hospital, they are likely to need testing services and inpatient services. This is similar to our dynamic at Montrose, where our environmental testing and our environmental consulting and treatment services often follow our environmental emergency response.

What we are increasingly finding as the team works more closely together is that post response, there are substantial downstream and often recurring long-term opportunities for Montrose. Said otherwise, our environmental emergency response is not just episodic, it has also provided structurally recurring opportunities for us and supported long-term organic growth opportunities.

As a specific example, earlier this year, we responded to an accidental environmental release for one of our energy clients, and our involvement in this response helped us secure long-term remediation and testing related to the event, which not only benefited third quarter results, but will also likely result in multiyear opportunities for Montrose. We expect our environmental advisory and air monitoring services will continue with this client for many years to come. We hope these examples help provide more context around why the demand for our services continues to increase and remains visible and predictable for our teams.

Before I hand the call over to Allan, I want to reaffirm the framework that underpins our ability to create long-term shareholder value. First, we will continue allocating capital to the highest return opportunities, including investing in organic growth, research and development and technology. We regularly review our service lines and operations to ensure achievement of our internal return hurdles and resource optimization.

Through this internal evaluation and given changes to U.S. policy and the resultant impact on the U.S. market for renewable energy, we determined that it is prudent to exit our renewable service line within our Remediation and Reuse segment. We expect to have this materially wound down by the end of this year, and the impact of this decision has already been embedded in our results and outlook for 2025.

Second, we will emphasize scalable profitability by expanding our market position through continued investments in sales and marketing. These investments are already embedded in our current outlook. Given most of our organic growth has come from increasing our share of wallet with our existing customers, given we remain a small fraction of our clients' overall spend on environmental solutions and given we have very strong customer retention, in 2025, we continued investing in building a best-in-class commercial team.

This team is selling technical services to clients, is also enhancing our brand visibility and has started increasing our focus on sectors that enable us to address broader trends faced by our clients and their peers as a group. We have had the fortune of adding some incredible talent to our technical and commercial teams in 2025, which is why we have so much conviction in our ability to continue driving market-leading organic growth and the resultant margin accretion into the foreseeable future.

Third, we will continue to evaluate strategic and accretive acquisitions and retain the flexibility to opportunistically repurchase shares to maximize returns. Our acquisition strategy isn't just about scale. It's about capability and geographic reach. We evaluate each opportunity for strategic fit and for the potential to drive outsized financial returns. Optimizing our capital structure and managing leverage, along with our continued focus on increasing operating and free cash flow generation remain core to our acquisition and to our operating decision models.

Due to the highly fragmented nature of our industry and client feedback on the value of scale and capability and reach and given our strong performance with cash generation in 2025, we expect to restart acquisitions sometime in 2026. Long term, we will continue delivering compelling organic growth of 7% to 9% annually with EBITDA growth expected to outpace revenue growth. Coupled with acquisitions, which will be additive to these growth rates, we remain confident in our ability to create outsized returns for our shareholders. These frameworks and industry dynamics contributed to our outstanding year-to-date 2025 results, our increased 2025 guidance and the 2026 outlook we are sharing today.

In 2026, we expect to achieve at least $125 million in EBITDA. We also anticipate further improvement in EBITDA margin in 2026 compared to 2025. Our resilient business model, execution in 2025 and exceptional team give us the confidence to provide an early outlook for another excellent year in 2026. We will continue to navigate the complexities of this evolving market landscape. But regardless of the complexities, we are committed to surpassing our goals as we have been doing and to generating significant value for all of our shareholders.

With that, I will hand it over to Allan. Thank you.

Thanks, Vijay. In 2025, we have sharpened our focus on driving best practices and on delivering for our clients, shareholders and employees with our record third quarter and year-to-date financial performance, highlighting the results of some of these efforts.

Our third quarter revenue grew by 25.9% compared to the same quarter last year, reaching $224.9 million. Year-to-date revenues increased by 25.6% versus the previous year, totaling $637.3 million. The primary drivers of revenue growth in both periods were organic growth across all 3 segments and modest contributions from acquisitions completed in the previous year, with additional environmental emergency response revenues also adding to year-to-date revenue growth.

Robust revenue growth and enhanced operating performance fueled the third quarter consolidated adjusted EBITDA increase of nearly 19% to $33.7 million or 15% of revenue. Similarly, year-to-date consolidated adjusted EBITDA increased 35% to $92.3 million or 14.5% of revenue, a 100 basis point improvement over the same period last year. This year, we are investing in marketing to boost our brand equity, rewarding employees for their contributions, refining our go-to-market strategy and assessing future organizational needs. These efforts are shaping our future success, and we look forward to discussing more with you as we progress.

In the third quarter of 2025, we reported positive GAAP net income of $8.4 million or $0.21 of GAAP earnings per diluted share attributable to common stockholders compared to a net loss of $10.6 million or a $0.39 net loss per diluted share attributable to common stockholders in the prior year period. This notable $18.9 million increase in net income and $0.60 increase in GAAP earnings per share was attributable to strong revenue growth, margin expansion and a $10.6 million fair value gain related to the Series A redemption, partially offset by higher interest and tax expenses and an increase in weighted average diluted common shares outstanding.

This marks our second consecutive quarter and the first year-to-date period of reporting positive GAAP operating income, net income and GAAP EPS. Continued growth and margin expansion driven by brand and go-to-market investments as well as continued cross-selling success will help make these key performance metrics more sustainable. Year-to-date, net income was $7.4 million or $0.08 in GAAP earnings per share compared to a net loss of $34.1 million or $1.30 net loss per diluted share in the same period last year.

The year-over-year $1.38 improvement in earnings per share primarily resulted from higher net income and dividend relief following the Series A2 redemption, partially offset by an increase in weighted average diluted common shares outstanding. I'll remind our audience that on July 1, 2025, we redeemed the final $62.6 million of the Series A preferred stock in cash, funded with cash on hand and borrowings under our credit facility, achieving our balance sheet simplification goal 6 months ahead of schedule.

Year-to-date, adjusted EPS were $45 million and $1.03, respectively, reflecting an improvement over the prior year period of $38.6 million and $0.80. Please note that our adjusted net income per diluted share attributable to common stockholders is calculated using adjusted net income attributable to stockholders divided by fully diluted shares. We believe this net income methodology is currently the most helpful net income per share metric for Montrose and common equity investors.

I will now discuss our performance by segment, focusing my comments on the third quarter. In our Assessment, Permitting and Response segment, third quarter revenue grew 75% to $91.1 million from $52 million in the same period last year, driven by increases in nonresponse consulting and advisory services, which included the benefit of remediation consulting services cross-sold following the large environmental incident response in the second quarter of this year. The Assessment Permitting and Response segment's adjusted EBITDA was $20.4 million or 22.4% of revenue, a 90 basis point improvement over the previous year due to favorable revenue mix.

Turning to our Measurement and Analysis segment. Revenue for the quarter increased 7.5% to $63 million, driven by organic growth across lab and field services and modest contributions from an acquisition in 2024. Segment adjusted EBITDA rose to $17.3 million or 27.5% of revenue, representing a 460 basis point margin improvement over the prior year period. In 2025, Measurement and Analysis segment margins have significantly outperformed the prior year as utilization drove efficiency gains and our team's enhanced operating performance. We expect segment margins to remain elevated in the next few years, likely greater than 20%.

In our Remediation and Reuse segment, third quarter revenue increased to $70.8 million from $68.1 million in the same quarter last year. This segment's adjusted EBITDA declined to $9.4 million, and adjusted EBITDA margin fell by 380 basis points to 13.3%, primarily driven by losses incurred in the wind down of our renewables business. Our water treatment business continues to gain momentum, and we are pleased with the organic growth and margin progress in that service line.

Moving to our cash flow and capital structure. We achieved $55.5 million of operating cash flow in the first 9 months of 2025, a $65.3 million improvement compared to the prior year period. Year-to-date operating cash flow, which was driven by higher cash earnings and improvements in working capital represented a 60.2% conversion of consolidated adjusted EBITDA, significantly exceeding a greater than 50% target.

Free cash flow, defined as cash flow from operations less cash paid for purchases of property and equipment and capitalized software development expenditures and excluding the Series A-2 preferred dividends was $38.8 million, an increase of $77.4 million over the prior year. Of note, $38.8 million of free cash flow generation equates to 42% conversion of consolidated adjusted EBITDA.

We are also pleased with the strength of our balance sheet at quarter end, reporting a leverage ratio of 2.7x and substantial available liquidity of $198.5 million. At the beginning of this year, we established expectations to simplify our balance sheet, report year-end leverage below 3x, focus on organic growth and increase operating cash flow generation. With 3 quarters behind us and our increased full year 2025 guidance, we are confidently on track to surpass these goals. Thank you all for joining us today and for your continued interest in Montrose. We look forward to the opportunities ahead, and we'll update you on our progress next quarter.

Operator, we are ready to open the lines to questions.[ id="-1" name="Operator" /> [Operator Instructions] And your first question comes from the line of Tim Mulrooney from William Blair.

So I wanted to ask to start off on that AP&R business. It showed really strong growth this quarter, much higher than we were expecting. Allan, you touched on it in the prepared remarks, but can you go into a little more detail about what drove that growth? How much of that is structural versus perhaps some larger onetime sales maybe related to that disaster business? Is there any pull forward from the fourth quarter as well? Because in order to hit the midpoint of your guide for the full year, it looks like we need to assume that maybe that business decelerates on a sequential basis. So I just want to have a broader conversation about AP&R specifically.

Tim, why don't I start and Allan can certainly jump in. So a lot of the outperformance is tied to the excellent cross-selling following the emergency response that we alluded to earlier this year. So as you think about the strategic thesis around the benefits of having an incredible arguably best-in-class response business, the cross-selling benefits of that are kind of manifesting in our numbers across our segments as we think about our consulting practice, which is what you're asking about, but even testing and remediation, all of them are benefiting from that -- from those efforts.

And so to answer your question specifically, it is both structural and some of it is onetime. And we certainly expect that from those cross-selling benefits, as we alluded to in Allan's comments in mine, there will be some really attractive downstream testing and remediation business that will continue for a while.

And then as it relates to the second part of your question around the timing, yes, there is a little bit of a pull forward from what we originally anticipated in Q4 into Q3 and Q2. And so that's where some of that shift is coming from, and you're exactly right.

Okay. That's really helpful. Thanks for connecting the dots there, Vijay, for -- between what's happening and the guidance. That all makes sense to me now. I want to switch gears really quickly and just ask about your comments on your water treatment business. It sounds -- I mean, the tone sounds pretty positive, maybe even a little more positive this quarter than what I've heard in the past. Maybe I'm making that up in my head or maybe that was by design. But it sounds like you're incrementally positive on that business, at least to me. I wonder what's driving that? I recent -- we saw that the EPA reaffirmed the Biden era designation for PFOA and PFAS as hazardous substances under the Circus Super Fund. We weren't really sure which way that was going to go. I have to think that's good for your business long term. So curious how you're thinking about that and if that is related to the positivity that you're seeing in that water treatment business or if it was other factors?

Thanks, Tim. So the short answer is yes. But let me just step back and talk a little bit about our water treatment business. It is seeing really healthy organic growth and margin accretion this year compared to '24. So it is a good part and a solid part of the outperformance we've had this year. And so some of the optimism we're expressing is because we're really proud of the success that team has had in 2025. And we certainly expect over the next couple of years for that success to continue.

The way -- the reason we talk about water treatment now is that this is kind of a team that has intellectual property and technology that is applicable across multiple contaminants, not just PFAS. And so yes, the PFAS -- clarity around the PFAS regulations are contributing to our growing pipeline. They are contributing to year. They're expected to continue contributing over the next couple of years. But because of our advanced water treatment capabilities, we're seeing kind of opportunities more broadly where PFAS is a contaminant of concern, but not the only one. And I think that's an important distinction there, Tim.

We're seeing opportunities across new industries, for example, like pharma and semiconductors that are popping up or the landfill leachate in the waste industry, where our technology is applicable across a broader swath of contaminants, including PFAS. And so it's really a water technology business. And as that technology becomes more visible in the marketplace, we're starting to see some really nice momentum pick up. So yes, our optimism is higher. Yes, our optimism related to the future is much stronger, but those are the reasons why this is not just a PFAS play, but that is certainly a driver of the business.

[ id="-1" name="Operator" /> Your next question comes from the line of Jim Ricchiuti from Needham & Company.

I wanted to touch on the announcement that you talked about on the renewables, renewable service side of the business. Can you give us -- and this may have been in some of the information you provided. I apologize if it was, but the revenues associated with renewable services. And maybe, Allan, if you can, can you help us with the impact on margins from the wind down of this part of the business?

Maybe Jim, why don't I explain why we're doing it and then Allan can give you kind of color on the financials. As we look at the current administration's policies around biogas in particular, and some of the uncertainties related to it, we've seen a pullback from some of those clients on kind of the demand cycle and the opportunity for us given our specific capabilities to scale that business. So in this current environment, it does not make sense for us to allocate capital at time to that business and generate the type of IRRs that we would want internally, given some of the other opportunities we're seeing that we talked about. So that's the reason for the wind down.

If I exclude the wind-down impact, which is in all the numbers, it's included in all of our guidance, the segment margins would be up year-to-date nicely. And so it is -- despite that, right, the business is obviously performing incredibly well, but it makes sense for us to step away from that business now given what the environment looks like from our perspective into the foreseeable future given the current administration's policies.

Yes. And on the revenue side, Jim, we've got a couple of projects we're winding down, and so we're not generating any new projects. So it's de minimis revenue this year, a very significant percentage decrease year-over-year. And be just right, if you have to exclude that, margins in that segment would be up. We do expect to fully be out of that business by the end of the year.

Okay. On the decision to look at restarting M&A at some point in 2026. Vijay, maybe you could touch a little bit on whether your acquisition priorities might be different than what you pursued in the past. And just given the current dynamics of the market, maybe you could give us a little color. I know it's still perhaps a ways out, but just talk to us about how your M&A strategy might be evolving.

Sure, Jim. Just from a -- in terms of our capacity, right, the strategic thesis around our desire to continue consolidating this market is unchanged. As we think about the incredible success Allan and team have had with cash flow generation, we expect to have an incredible year, both obviously, as you saw in Q3, but also through the rest of this year, which further delevers the balance sheet and the power of that balance sheet gives us a lot more flexibility to continue investing in the business, both organically and inorganically.

And so the short answer is I do expect to certainly restart acquisitions very soon, certainly in 2026. And the nature of those transactions, we're kind of evaluating size and our ability to digest larger assets. We've had a lot of success, as you know, with the recent acquisitions of size like CTEH or Matrix. And so those types of assets continue to be very attractive for us. We've seen some really nice opportunities internationally as we continue to scale in geographies like Canada and Australia, again, staying true to our core business and business capabilities, but just expanding kind of our reach at the request of our clients.

And we believe that there's going to be continued margin accretion opportunities tied to our ability to extract efficiencies as we've demonstrated with some of the larger transactions. And so our shift there is a little different, Jim. As we think about the large assets trading in the private sector, those assets are trading in the 17 to 20x multiple, EBITDA multiple. And then the smaller assets continue to trade in kind of that mid- to high single digits. And so that balance obviously weighs pretty heavily as we think about future opportunities for us to expand. It is still a massive addressable market. Even with our current trajectory and rapid growth, we're still a small piece of it. And so it is a core part of the thesis, and I certainly am excited to get that going again in the near future. Does that answer your question, Jim?

Yes, it does. It's helpful, Vijay. And congrats, by the way, on the quarter.

[ id="-1" name="Operator" /> Your next question comes from the line of Tim Moore from Clear Street.

Nice execution on organic sales growth and free cash flow conversion. It's quite the improved company compared to before 2024. So really great operational execution and strategy. But just switching gears to -- I want to start maybe with remediation reuse. How should we think about the potential for margin expansion cadence there on the step-up to maybe a higher teens adjusted EBITDA margin. That business might be a little subscale now. But I was just kind of curious, I mean, is there a trigger point like $80 million revenue quarterly? Or do you think that would be more of a priority to kind of do bolt-on acquisitions to get the utilization and scale up there for more margin expansion?

Yes. Let me take that. It's less about M&A adding to that segment to get margins up it's fundamentally the water treatment business that is going to drive most of that margin expansion. That treatment technology business, which included the renewables business has run kind of low teens on a combined basis. When you pull the 2 businesses apart, that water treatment business has been running kind of high teens and biogas or renewables in the single digits. So what we're seeing is as we wind down renewables, you're going to get that margin deteriorative business out of the way. And we're seeing nice accretion on the water treatment side that will be in the 20% margin range on its own.

And so as that business continues to expand as a percentage of the segment's revenues, you're going to see a natural lift in the overall margins. There is margin accretion in the rest of that segment, but obviously not to the extent of the water treatment plant.

That's great color. No, thanks for breaking that out. I think that really helps investors and explains the catalyst that will just be self-help. So Vijay's prepared remarks mentioned mining in Canada and Australia. We've seen a lot of the rare earths in EU emission rules come out for LNG exports. Are there any other areas you can talk to about besides the non-PFAS water treatment and semiconductors? I mean you had that really good announcement late August for Western Canada for the restoration and -- water restoration and decommissioning facilities. Are you seeing more of that kind of pop up? And anything else you can talk about maybe that you haven't mentioned that's kind of heating up?

Yes, Tim, I mean, it's -- we're seeing -- as you think about kind of our strategic focus on industrial clients, as we think about the shifts geopolitically with increased domestic production, take the United States for a second, right? And obviously, all of those industries are now tailwinds for us. But even in Canada, with Prime Minister Karney's Canada first approach and the material investments in infrastructure and industrial production, energy production, as you think about Australia and the administration's focus there on mining and energy production.

And as we think, obviously, about the United States, all of those are structural tailwinds for our business. And the reason is those are -- that's our client base. that is picking up activity. And so as we think about the pharmaceutical industry, for example, and the GLP-1 business that is obviously booming for all reasons you guys know, the water implications of that are substantive. So we're seeing some real increase in activity there that we did not anticipate. As we think about increased semiconductor production or energy production tied to all of the macro trends we've seen nationally, we're seeing really nice pickups there.

As we think about the mining industry, independent of the recent rare earths announcement, we saw some really nice pickup in activity, some of which we announced earlier. Obviously, our leadership there and the needs of that industry as deals between the U.S. and Australia, for example, pick up, creates incremental tailwinds there. And so as I kind of look across the board, we're seeing just a structural pickup due to that increased industrial activity for our business, which we expect will sustain us into the foreseeable future.

There is no one specific spot that is disproportionately driving it. We are seeing some elevated activity in the waste industry, both from an air emissions monitoring, from a testing perspective and also from a water treatment perspective that we did not anticipate. And obviously, the energy industry, given the increased production demand across our geographies is a big contributor to us this year, and we expect it will be one of our biggest, if not the biggest client base in 2025. So I'm pretty excited as I kind of look forward and look at where we strategically placed our bets. Some of that is kind of coming our way and it's creating tailwinds, and I expect that to continue.

That's terrific, Vijay. I just want to sneak in one last small question here. On cross-selling for more share of wallet and to create better awareness of you being the rare fully integrated one-stop shop solutions provider. I know there was a survey not long ago, independent survey, just a lot of customers didn't even know that you could handle multiple services. Have you been investing in a dedicated team to kind of get the word out there about your national reach with local expertise to really fulfill all their needs of services for new customers?

We have, Tim, we have. And let me just make this abundantly clear. Those investments are in all the numbers we're giving you. So there's nothing incremental. It's in the guidance, and it's already embedded. But yes, we have been investing in our marketing, which we think is a powerful way, and we're excited about some of the brand efforts that are underway to get the word out so that our clients continue to understand all the things we can do.

And we have also been investing in bringing in some incredible talent on the commercial side to really help us think about sectors and some of our key logos as we think about making sure that they understand that this is -- the portfolio of solutions we provide are meaningful and broad and not specific necessarily to the 1, 2, 3 services they use us for in specific geographies. That's been a major focus in '25. It will continue to be a major focus in '26. That talent is already in-house, which is partially why we have conviction as to what next year is going to look like.

[ id="-1" name="Operator" /> [Operator Instructions] And your next question comes from the line of Andrew Obin from Bank of America.

This is Devin Leonard on for Andrew Obin. So with the great showing in AP&R and the outperformance somewhat tied to the cross-selling from earlier emergency responses, what level of cross-selling or recurring revenue is typically associated with these emergency response projects? Anything you could call out from historic?

It really varies, Devin. And look, I would just point out that, yes, that segment had exceptional performance. But as we look kind of year-to-date, our testing segment has also had an incredible year. So the momentum of the business is beyond AP&R really is broad-based. And Allan already alluded to the outperformance on the water treatment side as well. But specific to AP&R and specific to the typical cross-selling rhythm, it really depends on the nature of the incident.

And so as a simple example, with the train derailment in Ohio and the results and challenges associated with that, a lot of the work that our team did, the future cross-selling was really tied to air monitoring and toxicology services, for example. As we think about the energy-related release in the mountain states this time, a lot of that is tied to remediation and testing, for example. So there is no simple mechanism or algorithm by which we can say this amount of response translates to this amount of cross-selling.

What we are incredibly encouraged by is that, that performance that you see is a function of that. But there's certainly some ongoing testing and remediation work that's going to come out of that, but the teams have done an incredible job capturing and that will benefit us for years to come. So it's not a -- there's no mathematical answer I can give you, Devin. It's just our thesis is playing out in the market in real time.

Absolutely. And then switching gears a little bit. Just could you -- you talked about the EU methane regulations earlier in the prepared remarks. Can you go into some more details about the potential market opportunity related to that?

Yes. As we think about the large U.S. manufacturers, producers of energy, the European markets are a big part of what they focus on, right? And as a result, they are subject not only to U.S. state regulations, but also to market factors like what their clients, specifically EU governments want them to report on. And so what we are seeing is that for the large players and the large exporters, as activity picks up for them, demand for our services continues to increase.

So the reason I brought that up, Devin, was because we received a lot of questions saying, with the current administration's deemphasis and desire to pull back on regulations related to greenhouse gases, are we seeing headwinds and what we're seeing is, in fact, we're not. We're seeing activity continue at pace, and we're seeing new pockets of activity pop up tied to market forces and state regulations instead of the federal regulation. So we're -- as we look forward, right, that's a very accretive business for us, and we have not seen a pullback there as many anticipated at the start of this year. Does that make sense?

[ id="-1" name="Operator" /> There are no further questions at this time. So I'd like to hand back to management for closing comments.

Thank you all, and thank you to the Montrose team. We look forward to catching up with you as the rest of this year wraps up, and we're excited to continue sharing our narrative and our story as we progress through '25 and into early 2026. Thank you very much for your interest, and have a great day.

[ id="-1" name="Operator" /> That does conclude our conference for today. Thank you for participating. You may now all disconnect.

Thank you for standing by. My name is Van, and I will be your conference operator today. At this time, I would like to welcome everyone to the Montrose Environmental 2025 earnings call. [Operator Instructions]

I would now like to turn the call over to Adrianne Griffin, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator. Welcome to our second quarter 2025 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 today, we will refer to our earnings presentation, which is available on the Investors section of our website. Our earnings release is also available on the website.

Moving to Slide 2. I would like to remind everyone that today's call 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, 2024, which identify 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 and adjusted net income per share. 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 and a reconciliation to their most directly comparable GAAP measure.

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

Thank you, Adrianne, and welcome to everyone joining us today. I will provide an update on the strength of our second quarter and first half results, discuss our outlook and increased guidance, and speak generally about the second quarter presentation shared on our website. Allan will provide the financial highlights and following our prepared remarks, we will host a question-and-answer session.

As we have noted each quarter, I would like to emphasize that our business is best assessed on an annual basis, given that demand for environmental science-based solutions doesn't follow consistent quarterly patterns. This is how we manage our business and how we recommend viewing our performance.

I would like to start by expressing my gratitude to our 3,500 colleagues around the world. They get all the credit for these results. Montrose's ongoing outperformance and successes, including the stellar results we will discuss today, reflects the team's collective efforts and their commitment to our mission for planet and for progress. We remain fully committed to delivering best-in-class service for all of our clients on every project.

We have delivered on everything we said we would do from driving organic growth, increasing margins, enhancing cash flow, simplifying the balance sheet and strengthening governance. And we are also having a record 2025.

Once again, our results prove that our unique integrated business model with a diversified client base and durable recurring revenue and our focus on environmental science and patented technology enables us to thrive through economic and political cycles. We continue to demonstrate that we can protect our environment while simultaneously driving economic value for our clients and long-term value for our shareholders.

Turning to our financial results. We achieved another quarter of record performance. Broad-based client demand for our services is reflected in the 35% revenue growth and 70% consolidated adjusted EBITDA growth year-over-year. Our EBITDA growth was due to both revenue growth and a 340 basis point improvement in margins.

In the second quarter, we recorded $234.5 million in revenue, driven by an increase in strong organic growth across all 3 segments, environmental emergency response revenue and contributions from acquisitions. During the second quarter, we responded to an environmental incident for a large energy client that increased Q2 response revenue by $35 million.

Our long-standing relationship with this client was instrumental in our selection as the response adviser. Importantly, our involvement in the response also helped us secure the air monitoring, testing and long-term remediation associated with the event, which started in the third quarter.

Second quarter adjusted EBITDA was $39.6 million or a 16.9% margin, driven by higher revenue and better operating performance across all 3 of our segments. Additionally, I want to highlight that we reported positive net income and positive GAAP EPS in the second quarter. Our cash flow generation is strong and also ahead of plan, and our cash outlook remains strong for the year. Allan will elaborate on each of these shortly.

To put these results into context, it is our best performing quarter by virtually any financial or operating metric used to assess the business, and it marks the third straight quarter of record results. These results further demonstrate the resilience inherent in the services we provide and the effectiveness of our organic growth initiatives focused on client retention and increased share of wallet.

Transitioning to an update on our strategic priorities. In 2025, we are driving strong organic growth, generating solid cash flow and simplifying our balance sheet, ensuring that this year represents far more than just an acquisition pause. In the first half of 2025, we achieved strong organic growth. And for the full year, we expect to be at or above the high end of our long-term target range of 7% to 9%.

Our focus on cash flow generation has resulted in a $48.5 million increase in operating free cash flow over the first half of 2024, and we expect to continue generating significant cash flow, including free cash flow in the second half of the year.

On July 1, we completed our balance sheet simplification by fully redeeming the remaining preferred shares and bringing leverage below 3x pro forma for this redemption. We funded the redemption consistent with our commitment to use only cash flow and incremental borrowings. We achieved this goal 6 months ahead of schedule.

In line with these outstanding results, we are raising guidance for the second consecutive quarter. 2025 revenue is now expected to surpass 2024 by 17%, with 2025 full year adjusted EBITDA projected to grow 19% over the previous year. This increased guidance indicates year-over-year margin expansion, aligning with our goal of driving scalable profitability.

We also reaffirm our long-term organic revenue growth expectations of 7% to 9% annually. This outlook is supported by ongoing client demand for our unique portfolio of environmental science-based solutions. Managing environmental risks remains important for sustained long-term profitability for our clients. And these risks cut across industries, borders and beliefs, which explains why resilience has become a cornerstone of corporate strategy.

Shifting to our client and geographic diversification. We continue to see strong demand for our services across geographies and 80% of our 2024 revenue generated by clients in the U.S., which are mostly private sector companies across industries. These clients favor long-term planning, seek to mitigate the impact of political swings and aim to comply with the complex patchwork of state and local regulations.

At the same time, we are seeing increased regulatory influence from local and state governments in the United States. In fact, just last week, we began responding to inquiries for our perspective on recent news regarding the U.S. EPA's proposed repeal of the greenhouse gas endangerment finding.

Our conclusion is that though there will be a fair amount of regulatory uncertainty in the near term, the impact on Montrose will be minimal. It will be minimal because, first, most of our work is for clients who operate in states that actively regulate greenhouse gases. And second, a lot of our work is for clients who transact globally and are therefore, subject to various international protocols like Europe's methane monitoring requirements.

Regardless of U.S. federal changes, local, state and international requirements as well as institutional commitments and expectations will continue driving corporate focus on greenhouse gas identification, measurement and mitigation. For all these reasons, our clients are not indicating any shift in their operating or compliance posture, and therefore, we have not seen and do not expect much impact on our business.

In aggregate, greenhouse gas measurement and mitigation remains a growing service for us. Importantly, given Montrose's broad and growing environmental capabilities, greenhouse gases are a small part of our environmental work with industrial and government clients. We remain very upbeat about our current and future business prospects.

Before I hand the call over to Allan, I want to reaffirm the framework that underpins our ability to create long-term shareholder value. First, we will continue allocating capital to the highest return opportunities, including investing in organic growth and our portfolio of differentiated research and development, patents and technology. We will also continue to evaluate strategic and accretive acquisitions and retain the flexibility to opportunistically repurchase shares to maximize returns. Optimizing our capital structure and managing leverage remain core to our strategy.

Second, we will emphasize scalable profitability by expanding our market position through continued investments in sales and marketing, optimizing our operating structure and achieving operating leverage, ultimately driving margin expansion.

Third, as an integrator of environmental consulting, testing and treatment solutions with unique technologies, we will continue delivering compelling organic growth of 7% to 9% annually and EBITDA growth faster than revenue growth.

And fourth, we will continue increasing operating and free cash flow generation. This framework contributed to our outstanding first half 2025 results and will support us through the remainder of 2025 and beyond.

With that, I will hand it over to Allan. Thank you.

Thanks, Vijay. Our second quarter performance highlights our commitment to achieving our stated objectives. The temporary pause in acquisitions has not only provided a valuable window to refine our operational processes and cost framework, but has also allowed us to clearly showcase progress in our key performance metrics, namely organic growth, margin expansion and improved cash flow generation.

Our second quarter revenue grew by 35.3% compared to the same quarter last year, reaching $234.5 million. Year-to-date revenues increased by 25.5% versus the previous year, totaling $412.4 million. The main drivers of revenue growth in both periods were additional environmental emergency response revenues, organic growth across all 3 segments and contributions from acquisitions completed in the prior year.

Second quarter consolidated adjusted EBITDA rose by nearly 70% to $39.6 million or 16.9% of revenue, showing a 340 basis point improvement over the prior year period. Similarly, year-to-date consolidated adjusted EBITDA increased 46% to $58.6 million or 14.2% of revenue, a 200 basis point improvement over the same period last year. Robust revenue growth and enhanced operating performance across all segments fueled these results. Notably, margins improved in all 3 segments.

In the second quarter of 2025, we reported positive GAAP net income of $18.4 million or $0.42 of GAAP earnings per diluted share attributable to common stockholders compared to a net loss of $10.2 million or a $0.39 net loss per diluted share attributable to common stockholders in the prior year period. This significant $28.5 million increase in net income and $0.81 increase in GAAP earnings per share was attributable to revenue growth, including organic growth, margin expansion and a $10 million fair value gain related to the Series A-2 redemption, partially offset by an increase in weighted average diluted common shares outstanding.

We are extremely pleased with reporting positive GAAP operating income, net income and GAAP EPS even without the benefit of the fair value gain. Continued growth and margin expansion will make this a more sustainable feature and key performance metric.

Year-to-date, net loss was $1 million or $0.15 net loss per diluted share attributable to common stockholders compared to a net loss of $23.5 million or a $0.91 net loss per diluted share in the same period last year. The $0.77 improvement in loss per share compared to the same period last year primarily resulted from revenue growth, margin expansion and dividend relief following the Series A-2 redemption, partially offset by an increase in weighted average diluted common shares outstanding.

Year-to-date adjusted net income and adjusted EPS were $32.7 million and $0.73 respectively, representing an improvement over the prior year period of $19.3 million and $0.37 respectively. Please note that our adjusted net income per diluted share attributable to common stockholders is calculated using adjusted net income attributable to stockholders divided by fully diluted shares. We believe this net income methodology is currently the most helpful net income metric for Montrose and common equity investors.

I will now discuss our performance by segment and will focus my comments on the second quarter. In our Assessment Permitting and Response segment, second quarter revenue nearly doubled to $103.9 million from $53.4 million in the prior year period. AP&R segment adjusted EBITDA was $27.6 million or 26.5% of revenue, a 290 basis point improvement over the previous year.

The year-over-year growth was mainly driven by an increase in environmental emergency response revenues, organic growth and additional contributions from acquisitions. Our team provided exceptional service during the quarter, including responding to several major incidents. The segment's margin improvement was fueled by higher-margin environmental response services and organic growth.

Turning to our Measurement and Analysis segment. Revenue for the quarter increased nearly 15% to $62.8 million. We continue to see strong organic growth across lab and field services, along with contributions from an acquisition in 2024. Segment adjusted EBITDA rose to $18.3 million or 29.1% of revenue, which is a 660 basis point margin improvement over the prior year period, primarily due to operating leverage and disciplined cost management.

In our Remediation and Reuse segment, second quarter revenue increased to $67.8 million from $65.1 million in the same quarter last year. This segment's adjusted EBITDA grew to $10 million and adjusted EBITDA margin rose by 110 basis points to 14.8%, which includes strengthening fundamentals in our treatment technology business.

Moving to our cash flow and capital structure. We achieved $27.4 million of operating cash flow in the first 6 months of 2025, a $48.5 million improvement versus the prior year period. The significant increase is related to an increase in cash earnings and improvements in working capital. I am pleased to report that we are on track to significantly outperform 2024 and expect to achieve cash flow from operations greater than 50% of consolidated adjusted EBITDA in 2025. Free cash flow, which we define as cash flow from operations, less purchases of property and equipment, less software development expenditure and excluding the Series A-2 preferred dividend, was $16.7 million, an increase of $63.1 million over the prior year.

We are also pleased with the strength of our balance sheet at quarter end, reporting a leverage ratio of 2.5x and substantial available liquidity of $242.8 million. Subsequent to quarter end, we redeemed the final $62.2 million of the Series A-2 preferred stock in cash, funded with cash on hand and borrowings under our credit facility, resulting in pro forma leverage of 2.99x.

In conclusion, we've had a strong start to 2025 with record results, momentum across our business and emphasis on serving clients across our diversified service offerings. Our increased guidance for the year reflects the confidence in our ability to continue driving value in our business and the many tailwinds we see.

Thank you all for joining us today and for your continued interest in Montrose. We look forward to the opportunities ahead, and we'll update you on our progress next quarter.

Operator, we are ready to open the lines to questions.

[Operator Instructions] Our first question comes from the line of Jim Ricchiuti from Needham.

Congratulations, first off, on the quarter. A question about the margins. First question is just on the margins across the business lines. And I wanted to start with the M&A margins, which were obviously quite strong. What I'm wondering is, has your view or why hasn't your view of the margins in this business line changed because you're obviously operating above your longer-term expectations?

Thanks, Jim. Let me take that in 2 pieces. On the testing side, the Measurement and Analysis segment, our long-term expectation is for that to be in that 18% to 22% range. As we've talked about with you and others over time, we are well above that for 2 reasons. One, we're getting really nice operating leverage in that segment as demand cycles pick up. And that demand cycle increase is partially because of the shift towards states regulating various contaminants more robustly. And then on top of that, we also have a project mix shift. So we are quite optimistic and proud of how well that team has done for the rest of this year. But long term, as we kind of think about a 5-year outlook, Jim, we still think about that as an 18% to 22% margin business. And the reason I say that is even though we're much smaller than many of the testing peers out there in the market, we are operating at or above their margin profile, which gives you a sense for the relative advantages of the business model.

Okay. And maybe just to focus on a couple of issues. Vijay, you alluded to…

And sorry, Jim, let me -- I didn't answer your second question, which is about the aggregate margin profile. Within our consulting business, margins there are increasing because of increased -- effectively increased staff utilization, right? As demand picks up, we're seeing quite a nice demand tailwind in that business independent of our response, but also inclusive of our response. So kind of both variables are working very favorably from a demand side perspective, and we're seeing a nice margin uptick there. And then within the Remediation and Reuse segment, also a nice margin uptick there, given nice demand tailwinds, including within our treatment technology business. So it's kind of a -- it's an aggregate portfolio of performance. There isn't one specific reason for it.

Understood. Thanks for the additional color. You alluded to some of the issues around greenhouse gas monitoring and measurement. What does that represent, and you may have given it, of the total Montrose business currently?

Jim, it's about 3%. And even within that 3%, about 2/3 of that is state-driven in states that regulate the greenhouse gases independent of the federal government. And so the reason we say there's a de minimis impact from our perspective is because if you kind of take those 2 dynamics in the context of our broader performance, it doesn't move the needle for us. It is important to note that that business continues to grow for us in a very attractive way, both organic revenue growth and margin profile perspective.

And finally, just I wonder if you would describe, just give us a sense of the PFAS activity you saw in the quarter as it relates to treatment. And maybe just in general, the outlook that you see for this part of the business in the second half.

Yes. It is -- our outlook is the same as it's been, Jim. Obviously, there's been over the last couple of quarters, regulatory developments. It is now clearly going to be regulated. The thresholds are low. The deadlines have moved out. And so that shifted the mix for us a little bit, but we're kind of seeing nice continued growth within our testing business. We're seeing a nice trajectory within our treatment technology business.

That business, Jim, is also now -- our patent portfolio there has grown. It is beyond PFAS. And so we have kind of a broader industrial water treatment and broader water treatment technology portfolio, which we're really excited about. And even within our consulting business, we're seeing a lot of inbounds tied to assessments. So as I kind of look at the PFAS portfolio, though we don't report it that way, we're quite optimistic that our long-term opportunities there are quite attractive. It's just going to be a question of what the trajectory of that looks like year in, year out as these regulations set in.

Our next question comes from the line of Sam Kusswurm from William Blair.

I wanted to first ask a bit more about your emergency response business. I know that oftentimes emergency work can have a multi-quarter tail to it. So I'm wondering what the likelihood is that some of this work continue on to the second half of the year here. And can you share if you're still performing some of this emergency work today and if there's an expectation that additional contracts could come on to the market here?

It's a great question, Sam. I would frame it in a slightly different way, which is think of that as kind of an upside opportunity off of our core engine, which continues to grow really nicely. So if you just step back and look at our annual guidance and the increase in annual guidance, right, the midpoint went from $760 million to $815 million, Sam. Of that $815 million, about $35 million of that is response-driven. And so the $760 million really went to $780 million, and that is just a structural increase in the core business. And that you should expect to continue growing kind of year in, year out. And so the incremental $35 million is kind of the excess above our run rate response business. And so we are quite -- and we're going to start talking about it more in this context because as we get bigger, Sam, it's going to be a run rate business that's growing really nicely, right? Organic revenue growth in that 7% to 9% range and EBITDA faster than that.

And then as events occur, like what we referenced, I would think of it as gravy or upside off of that core engine. On top of that, we're actually really proud of how well the teams are working together. Those responses have resulted in downstream awards tied to air monitoring, to testing, to remediation, which are sustained and long term and much more akin to kind of the core consultancy or remediation part of the business. And so it is serving as a fantastic funnel of opportunities for the aggregate enterprise. It's enabling organic growth across the aggregate enterprise. And then when incidents like this occur, like what I alluded to in Q2, it's effectively kind of a onetime surge in cash and earnings, which we'll be very transparent about.

Got it. That's helpful color. And I think we would appreciate the breakdown in the future as you guys get bigger and do that. Maybe taking a deeper look and sticking with the AP&R business, even taking out the emergency response work, it looks like the core business grew something like 30% organically. I think you did touch on it in your prepared remarks, but I was hoping if you could go into a little more detail on the drivers behind the core business strength. Were there any large orders impacting the quarter here? Or was there any work in the core business that was ultimately tied to the emergency response work so that they both kind of uplifted together?

They did uplift together. They are increasingly working hand-in-hand. The demand tailwinds within our consulting business, independent of response, continue for all the reasons we've talked about, Sam, right? There's a fair amount of regulatory shifts occurring given our private sector focus. Our clients are engaging us more, and we are seeing the benefits of that kind of across the business. So there isn't 1 or 2 reasons for why that broader portfolio independent of response is growing. We're pretty optimistic about what that looks like into the foreseeable future.

Our next question comes from the line of Wade Suki from Capital One Bank.

Just wondering, Vijay, you always give great color on the customers and what's going on in the business. I'm wondering if there were a couple of areas of consternation or concern among your customers maybe causing some kind of pause, would you talk about what those issues are and maybe what the offsets are as well to the extent that you can?

Wade, when you say consternation even from our customers, what do you mean related to us or just more broadly?

No, more broadly, whether it's broader macro concerns, commodity price concerns, regulatory concerns, things like that.

Yes. I mean, look, we obviously spend a lot of time with them. And the environmental industry, notwithstanding, which is our focus, they are dealing with a broader set of factors. We have seen -- because of an increase in industrial activity state side here in our home market in the United States, Wade, we've been spending a fair amount of time with our waste and energy and industrial clients. And they are not surprisingly dealing with all the typical issues related to the geopolitical fluctuations and policy related to tariffs, related to interest rates. The macroeconomic backdrop, right, the usual suspects that everyone has been talking about. And so there's a fair degree of sensitivity around the volatility of the macro and/or regulatory backdrop that they're dealing with. And so most of our conversations have been really around what is likely to sustain, what are long-term trends as political cycles shift back, what's likely to occur, what's going to stick.

And as you know, most of what we do is tied to what they've been doing for years and in some instances, decades. And as they look forward, their planning cycles haven't really changed, which is really encouraging for us. So they're -- what they're dealing with at a macro level is not all that dissimilar from what all of us are looking at when we think about the politics and the economics. But as it relates to Montrose, what that's translated into is kind of a steady-as-she-goes-type mindset. There isn't a lot of movement in how they're allocating their various capital decisions and/or focus on regulatory drivers, and that's caused a continuation of kind of demand for Montrose's services, if that makes sense, Wade.

That's helpful. Just switch gears a little bit here. Would you mind talk a little bit about the M&A side? I know we're on pause, but what have you been seeing? When, if ever, does that sort of enter -- reenter the fray, I guess, in terms of capital allocation and strategy?

Yes. We -- there is still a really nice opportunity, Wade, for us to continue consolidating in this market in a way that's really accretive for our shareholders. But part of what we really want to demonstrate by pausing is the power of our inherent engine when we're not buying, and that's really what you are witnessing. Obviously, as we pivot back to acquiring and integrating, that muddies the visibility into what the core engine will do.

And so this is really more about demonstrating to all of you and to our shareholders that the core Montrose engine is incredibly powerful when given a chance to shine and you're seeing the benefits of that now. So that's what we're really attuned to. One of the commitments we made is that we're really not going to restart until we are able to demonstrate that clearly and consistently for you over time.

But the opportunity set is robust. We're still engaged with a lot of folks that are very interested in joining us. Our team is absolutely engaged in the market, and it is core to our strategy. So we do expect to restart that, but we'll be very transparent about when we're going to do that. It is not imminent at this point.

Okay. Great. No, that's very helpful. Look, I normally don't say this on the call, but congratulations on the great quarter. I appreciate it.

Our next question comes from the line of Tim Moore from Clear Street.

This is actually Larry Stavitski on for Tim. Tim is attending some other earnings calls simultaneously that were not as good as yours. The results were not as impressive as yours. So I'm pinch-hitting for him today.

Just going back to the acquisition pipeline, have valuations and multiples become more attractive? I know you guys are still on the sideline like you just said. But given the volatility economically and the policy changes, have you seen some of the valuations come down recently? Or how does that look?

So I would -- it's a great question, Larry, and I would think about it in kind of 2 dynamics. As you look at broader market multiples, that is certainly occurring. We are not typically subject to the market trends. And the reason for that is most of our acquisitions are word-of-mouth driven and relationship-driven. And these tend to be smaller businesses that join us. And they're attracted to -- in addition to, obviously, valuation, they're really attracted to the opportunity to grow and they're attracted to our kind of our environmental focus. And so when you look across our history of acquisitions, very few of them are process-oriented or banker-driven larger transactions where those tend to follow kind of broader market trends.

And so from Montrose's perspective, because we tend to, on average, buy in mid- to high single-digit EBITDA multiples, that hasn't really moved when valuations in the market spike or drop. We tend to stay pretty steady in terms of what we pay. But yes, for the larger assets that are coming to market that are transacting, there has been some normalization, though expectations are still very high because of what folks paid 3, 4, 5 years ago. We are obviously not interested in overpaying for assets. And so we're keeping a close eye on a lot of it. But there's a fair amount of activity out there, Larry, and we're close to all of it.

Got you. And then just one more on PFAS. I know you guys mentioned that you guys are moving beyond PFAS into a broader water treatment business. But I guess just on a state level for PFAS, have you seen any changes given the EPAs, the dynamics within the EPA there in terms of the Office of State Air partnerships and the Office of Air and Radiation? Has there been more concentration on the state level given the changes to the EPA there?

I think the EPA's clarity on their position has enabled folks to start moving these projects along. And I think it's just now, Larry, at this point, going to be a question of what the cadence of that is going to be. So we're seeing as we saw once the announcements came out, an increase in the up-front pipe of our pipeline activity. And those will take some time to kind of flush out and convert into hard projects that we can then talk about more actively. But no, nothing's really changed all that much over the last couple of quarters. And once administrator Zeldin's posture around PFAS became much clearer, which candidly became clear in a way that is beneficial to Montrose long term. So -- nothing really to report at this point and no major shift in terms of state regulations impacting our business at this time.

Our next question comes from the line of Tami Zakaria from JPMorgan.

Excellent quarter. Two follow-up questions on topics you've already covered, but I just wanted a little more clarity if you could provide. The Assessment Permitting and Response business, if we take out the $35 million emergency response, the core seems to have stepped up quite nicely, excluding that event, probably in the high $60 million range. Is that sort of the new run rate? Or was there M&A in it? I'm basically trying to understand what to expect on a like-for-like basis for that segment in 3Q and 4Q?

Yes, I can take that. There is some M&A impact from acquisitions that were done in 2024, about $5.5 million of that increase year-over-year. And the rest of that is more of a normal cadence. There's always some seasonality across the year. So Q2, Q3 tend to be larger revenue and higher margin quarters across the business, but in particular AP&R and testing. So with that seasonality aside, yes, you would expect that to be kind of run rate.

Yes. And Tammy, one of the -- I totally agree with Allan. If you kind of look at the aggregate business and you look at our historical 8% midpoint, the 7% to 9% organic, we are clearly well above that now in the low double-digit territory. And a lot of that is because of these tailwinds we're seeing kind of across our segments, inclusive of the consulting, the AP&R segment. So we are quite optimistic about what that looks like through the rest of this year. And it's partially why we are also talking about kind of a continued and steady growth trajectory into next and into the foreseeable future. So again, this magnitude of step-up, no one quarter, the trend is one that you can extrapolate annually, but there is a nice tailwind in that business at this time.

Yes. No, for sure. Very impressive. And then quickly on buybacks, any thoughts on the cadence for the rest of the year, what you plan to do?

That was always -- I'll let Allan take that, Tami. That was always an option. It is not a commitment. And so it is just our way of having various options to maximize shareholder value if there's dislocations or opportunities for us. It is not our preference at this time to deploy capital in that vein. And so it is not a commitment to deploy it. It is simply an option. But I'll let Allan take.

Yes. I think the -- our stated objectives at the beginning of the year are intact. We had said we were going to prioritize redeeming the pref. We've now done that a good 6 months earlier than we had anticipated, but the focus on organic growth, margin expansion and cash flow generation are intact. And so you will see us continue to pause acquisitions likely through at least at the end of the year. We're seeing real benefits in being able to optimize a lot of our processes and organization structure and cost structure. So you'll see us continue to delever through the balance of the year. And then we will continue to look at the best relative returns for investors, whether that's R&D or acquisitions or returns of capital to shareholders.

Our next question comes from the line of Drew Obin from Bank of America.

This is David Ridley-Lane on for Andrew Obin. So you have this -- the energy client case study in the slides, and I'm not going to ask you to talk about individual clients on a general basis. Relative to that size of the original emergency response, what level of recurring revenue do you typically get out of this? Is there sort of a rule of thumb or what you've seen historically?

Yes, David, if you kind of look at our -- this concept of recurrence, which is unique to us for all the reasons we've talked about with you and Andrew, if you look at our -- the stickiness of our client base, we have been running kind of at 96% or north of that for several years now. And obviously, projects ebb and flow. And as we look at our core clients, call it, our top 250, 300 clients, the percentages are even higher. And so our client retention is incredibly strong.

What we find really compelling about these response projects is that because of the strength of that team and the credibility of that team and the relationship that that team has with clients that are dealing with a very unfortunate set of circumstances, the opportunity for us to continue providing services, whether it's monitoring or testing or remediation or water treatment services, is very real, and it becomes a very nice cross-sell opportunity across the Montrose portfolio. And so then once those start, the recurrence of that looks a lot like the core business, right, at 96% plus client retention.

And so long term, it is effectively a continued opportunity to sell multiple services and then have that ongoing recurrence, which we're really proud of and credit for that goes to our teams. And so it's very hard to pick off one project, but that project is likely to look a lot like our long-term business once the response piece of it pulls away.

And then Montrose's business model not being dependent on federal budget and funding, certainly driving differentiated results versus some of the other publicly traded environmental firms here in 2025. I think somebody else, another analyst, sort of danced around it. But yes, a publicly traded firm announced a strategic review of their environmental business 2 days ago. I know that you're in the midst of a pause, but would you be open to a larger transaction if it was opportunistic?

David, if you're asking me if I'm about to go buy something large, it is not imminent. We will always make sure we do what's in the best interest of our shareholders and maximize value. And we will always be opportunistic as you've seen us be in the past. I don't want to comment on what other firms are or aren't doing or struggling with. I would just continue to reiterate that we have a very optimistic outlook, and you can see that in our results. You can see it in our guidance.

And if there's opportunities for us to partner with folks to further our relative market advantages, we will absolutely do so. But we'll do it in a way that's transparent and accretive to our shareholders. So -- there is nothing imminent at this point, but we are well aware of and actively engaged with a lot of folks as to what's going on in the market. And what you say is a fair point. But at this time, I think there's really a lot more value to be derived from showing that we can continue to drive double-digit top line and even faster bottom line and cash flow growth. And then we can add to it if and when we feel like we're ready to do so.

And then just a quick one. During the quarter, you guys were at a waste conference talking about PFAS treatment for landfill sites. Normally, we think about the PFAS opportunity maybe because we cover a lot of industrial and manufacturing companies, but we think of it tied more to the manufacturing sites. Have you won contracts with landfills? Is this part of the total PFAS opportunity, which is obviously much, much larger? Is this part moving forward faster now?

Yes and yes. So when you kind of think about, it is very tough because water is deeply interconnected with soil, obviously, and water matrices can be very complex. And so when you think of what's downstream of drinking -- sorry, upstream of drinking water, David, there's industrial, there's the wastewater, wastewater treatment, right, landfills. The list is quite broad. And so we are actively engaged with all of those constituencies.

And part of what's exciting for us is our patent portfolio and credit really to our R&D team has expanded very nicely and has now enabled us to really provide differentiated services to all of those end markets. And part of what I was alluding to earlier about our treatment technologies being beyond just PFAS is, as our patent and our patent portfolio has grown, we've seen the ability to kind of extract other contaminants from water, which a lot of our clients have found really compelling. And so yes, our kind of serviceable addressable market has grown as a result of our technology advantages. We are seeing the benefits of that already. That's manifesting in the numbers. And yes, we do expect that to continue growing accretively for us into the foreseeable future. And it's kind of -- it's increased the pool within which we can play.

Our last question comes from the line of Jim Ricchiuti from Needham.

This may be a little harder to answer, but the step-up in organic growth, do you have a sense as to whether you're seeing the benefits of what you've talked about in the past, the cross-selling? And I'm also wondering, are there any early benefits from what we've been all reading about onshoring and the potential for increased industrial activity? Or is this more of a tailwind that you see looking out perhaps to next year?

It is largely because of our continued commercial focus, Jim, where we've really invested in, whether we think about our sector-based focus, our key client focus, which is all tied to our cross-selling efforts or our broader marketing pivots where we're articulating kind of our value proposition in a little bit of a different way that's more inclusive of the integrated nature of the offering that we provide. That's really what's driving a lot of our growth. All of the opportunities we've been talking about, the case studies that we've profiled are just various examples, and there's many more of how that engine is working really nicely.

So our growth is really driven by deepening our relationships with existing clients. It is not a function of us getting new clients, and that's what's so encouraging for us. And yes, as we think about what the current policy profile or posture is going to result in as industrial activity steps up in the United States, given that we are predominantly industrial activity focused, we should see -- or sorry, private sector focused. we do expect to see some incremental tailwinds from that. So it's kind of a -- it's a duality. They're not mutually exclusive answers. They're both playing a role in our performance now, and we don't expect that to slow down.

I will now turn the call back over to Vijay for closing remarks.

We really appreciate all of your interest in Montrose, and thank you for taking the time. I hope all of you are well. And Allan and I are incredibly excited to share more of our progress as the quarters progress. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.