Onterris, Inc. (ONT) Q3 2026 Earnings Call Transcript

Operator: Good morning, ladies and gentlemen, and welcome to Onterris Inc. Third Quarter Fiscal Year 2026 Financial Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Thursday, November 5th, 2026. I would now like to turn the conference over to Adrian Griffin. Please go ahead.

Adrian Griffin: Thank you, John. Welcome to our third quarter 2026 earnings call. Joining me today are Vijay Manthripragada, our president and chief executive officer, and Allan Dicks, our chief financial officer. During our prepared remarks, we will refer generally to our earnings presentation, which is available on the Investors section of our website. Our earnings release is also available on the website. Moving to slide three, I would like to remind everyone that today's call includes forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to known and unknown risks and uncertainties that should be considered when evaluating operating performance and financial outlook. We refer you to our recent SEC filings, including the annual report on Form 10-K for the fiscal year ended December 31st, 2025, as supplemented by quarterly Form 10-Q reports, which identify the principal risks and uncertainties that could affect any forward-looking statements and future performance. We assume no obligation to update any forward-looking statements. On today's call, we will discuss or provide certain Non-GAAP financial measures, such as Consolidated Adjusted EBITDA, adjusted net income, adjusted net income per share, Net Service Revenue, and free cash flow. We provide these Non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. Please see the appendix to the earnings presentation or the earnings release for a discussion of why we believe these Non-GAAP measures are useful to investors, certain limitations of using these measures, and a reconciliation to their most directly comparable GAAP measure. On April 21st, 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.

Vijay Manthripragada: Thank you, Adrian, and good morning, everyone. Thank you for joining us. I want to start by recognizing and thanking our employees around the world for their continued commitment to our clients. We were recently ranked the number five largest global environmental pure play company by ENR, a third-party industry publication. This recognition speaks to the growing capability and market presence for Onterris. I also want to welcome our new colleagues who have joined us through recent acquisitions, expanding our geographic reach and our ability to serve our clients. As we have emphasized in prior quarters, our business is best assessed on an annual basis. Quarterly variations in environmental activity and client demand do not necessarily reflect the underlying annual trajectory of our business. In terms of our update, I will speak to third quarter results, provide a quick update on the board-led strategic review, speak to guidance and our long-term outlook, then hand it over to Allan before Q&A. Our third quarter results demonstrate that we are on track to achieve the commitments we established earlier this year. We delivered strong Adjusted EBITDA, record Adjusted EBITDA margins, strong cash flow, and strong cash conversion. As a result of the strength of our cash and cash flow, we reduced leverage as expected, which further reinforces the underlying earnings power of Onterris. Third quarter revenue was $203 million, a decrease of $22 million year-over-year, primarily reflecting the normalization of recovery services revenue associated with a significant environmental event in 2025. Excluding the recovery event, we delivered 13% growth across our core consulting and water treatment business. Turning to profitability, we generated $36 million of Consolidated Adjusted EBITDA and expanded our Adjusted EBITDA margin 270 basis points to 17.7%. This marked our highest quarterly Adjusted EBITDA margin in company history. We also reduced leverage to 2.9x at quarter end, which is down from 3.2x in Q2. Our progress reflects continued operating leverage, improved project mix, and sustained operating and cost discipline. These are structural improvements in how we manage and execute the business rather than benefits in a single quarter. They reflect the operating platform we enhanced since the start of 2025 to strengthen profitability and support future growth. When we spoke with you in August, we outlined a clear set of financial priorities and expectations for the second half of the year. Our third quarter performance demonstrates execution against expectations, with results consistent with the financial outlook we communicated at that time. Looking ahead, our full year 2026 guidance remains unchanged. As we discussed in August, our annual revenue outlook primarily incorporated lower pass-through revenue and moderated environmental emergency response revenue. Despite these revenue dynamics, margins and cash flow continue to show strength. Based on the midpoint of our revenue and Adjusted EBITDA guidance ranges, we expect approximately 150 basis points of Adjusted EBITDA margin expansion compared with 2025. We also anticipate operating cash flow conversion of at least 60%, which is above our long-term 50% target. Given the strength of our cash flow, we expect year-end leverage of approximately 2.5x, which is inclusive of the recently completed acquisition investments. As we look to the future, and based on commercial and operational initiatives currently underway, we expect revenue CAGR of approximately 15% and Adjusted EBITDA CAGR of approximately 25% through 2030. These growth rates assume an average organic revenue growth of approximately 10%, which is above our historically provided 7%-9% organic growth expectation. This is given elevated water treatment growth expectations and a continuation of our margin expansion successes. Our business has remained resilient across election cycles since our IPO in 2020, supported by a predominantly private sector client base and the state and local requirements that shape many of our clients' environmental needs. The recent shift in the balance of power in Washington, D.C., does not change the strategic thesis or our conviction in the resiliency of our business. We do expect recent environmental regulatory volatility to subside, which should be a net positive. Our integrated environmental infrastructure and technology platform brings together consulting, monitoring, testing, treatment, and remediation to address increasingly complex client requirements. By connecting these capabilities, we can expand existing relationships, deliver more comprehensive solutions, and create additional opportunities for profitable growth. As a recent example, earlier this week, we published a press release highlighting the US EPA's recent proposal to reconsider key components of the Clean Air Act methane regulations. This release specifically highlights our emerging opportunities in emissions management based on our technology, our data, and our software leadership in this space. These recently proposed EPA methane regulations could expand the use of advanced optical gas imaging technologies at natural gas processing facilities, creating more opportunities for us to deploy our specialized monitoring capabilities while enabling clients to both reduce their emissions and reduce their compliance costs. We are also making tangible progress against our commitment to disciplined, targeted acquisitions. During the third quarter, we completed a transaction that further expands our presence in the U.S. mountain states, particularly in ambient air monitoring technologies and solutions, and increases our cross-selling opportunities with existing clients. Subsequent to quarter end, we completed two acquisitions. The first is EcOz Environmental Consultants, which expands our geographic presence in the high-growth Australian consulting market. The second is Permian Basin Environmental Lab in Texas, which strengthens our analytical capabilities and is highly complementary to our newly constructed Houston lab. Collectively, these three transactions represent approximately $14 million of investment. These acquisitions also reflect our disciplined approach to capital allocation, targeting geographic expansion, establishing client relationships, and creating attractive opportunities for profitable growth. Together, our continued operating improvements and disciplined acquisitions are reinforcing one another, strengthening our profitability, expanding our technical capabilities and geographic reach to drive organic growth, and building a more efficient and differentiated platform positioned for sustained growth. As previously disclosed on August 5th, 2026, Onterris announced a comprehensive board-led strategic review, which remains ongoing. To date, the company has engaged with a number of strategic and financial parties. The company has engaged Evercore and AEC Advisors as our financial advisors and Kirkland & Ellis as our legal counsel in connection with this strategic review. The board has not set a timetable for the conclusion of its review. There can be no assurance that the review will result in any transaction or other outcome, and Onterris does not intend to comment further regarding the review unless and until it determines that further disclosure is appropriate or necessary. What I find particularly encouraging is what these results and our outlook represent. We are strengthening the earnings power of Onterris, expanding our differentiated capabilities, and accelerating our growth trajectory. We remain focused on delivering long-term value for our shareholders, and we look forward to sharing further updates with you in the near future. Thank you for your interest in Onterris, and with that, I will turn it over to Allan.

Allan Dicks: Thanks, Vijay. We are very pleased with our financial results in the third quarter. Revenue was ahead of the midpoint of our previous guidance, adjusted EBITDA at the top end of guidance, and adjusted EBITDA margin reached a quarterly record, 17.7%. Cash flow generation was strong, and we ended the quarter below three times leverage. These results reflect disciplined execution and improving operating efficiency, despite a challenging prior year comparison that included a sizable response event. Our third quarter revenue decreased 9.7% compared to the same quarter last year to $203 million, down from $224.9 million. Year-to-date revenue decreased 12.4% versus the prior year, totaling $558.2 million compared to $637.3 million. The primary driver of the decline in both periods was lower environmental emergency response revenue and reduced recovery services, primarily associated with a single large environmental event in the prior year, which generated revenues of $45.4 million in the prior year quarter and $99 million in the prior year-to-date period. Excluding this event, revenue was up 13% in the quarter and 4% year-to-date. In both the quarter and year-to-date periods, the increased strength in Consulting and Treatment and growth in our water treatment business, partially offset by modest declines in our Measurement and Analysis segment. Net Service Revenue increased to $162.5 million in the third quarter of 2026 compared to $160.5 million in the prior year quarter. Turning to profitability. Third quarter Consolidated Adjusted EBITDA was $35.9 million, or 17.7% of revenue, compared to $33.7 million, or 15% of revenue in the prior year period, a $2.2 million and 270 basis point improvement despite the significant revenue decline. Year-to-date Consolidated Adjusted EBITDA was $85.6 million, or 15.3% of revenue, compared to $92.3 million, or 14.5% of revenue in the same period last year, an 80 basis point increase. The quarterly and year-to-date margin improvement reflected favorable project mix and improved operational efficiency in our Consulting and Treatment segment, the absence of prior year renewable losses, and lower corporate costs, partially offset by lower profitability in our Measurement and Analysis segment. This improvement in the third quarter also carried through to our GAAP results. Income from operations increased to $12.3 million from $9.9 million last year, while net income attributable to common stockholders rose to $9 million, or $0.24 per diluted share, compared with $8.4 million, or $0.21 per diluted share in the prior year quarter. This increase in net income was primarily attributable to higher operating income and lower income tax expense, partially offset by a lower fair value gain on financial instruments. Net income per diluted share also benefited from lower fully diluted common shares following the full redemption of the Series A-2 preferred shares in the prior year and the benefit of the 1.6 million common shares repurchased in the current year. Year-to-date, we reported a net loss of $2.3 million, or a $0.07 loss per diluted share, compared to net income of $7.4 million, or $0.08 per diluted share in the same period last year. The year-over-year change reflects slightly lower operating income, significantly lower fair value gain on financial instruments following a $20 million gain on the redemption of the preferred shares in the prior year, and higher interest expense, partially offset by lower income tax expense. Year-to-date loss per share benefited from the elimination of the Series A-2 dividend in the prior year. Adjusted net income and adjusted EPS in the third quarter were $21.3 million and $0.56 respectively, up compared to $14.2 million and $0.36 in the prior year period. Year-to-date, adjusted net income and adjusted EPS were $33.2 million and $0.86 respectively, compared to $45 million and $1.03 in the prior year period. I will now discuss our performance by segment, focusing my comments on the third quarter. In our Consulting and Treatment segment, third quarter revenue decreased to $142 million from $161.9 million in the prior year period. This segment's Adjusted EBITDA was $30.8 million, or 21.7% of segment revenue. Compared to $29.8 million or 18.4% of segment revenue in the prior year period. The revenue decline was driven by the previously mentioned $45.4 million environmental event in the prior year, partially offset by $10.2 million of higher environmental emergency response revenue outside of this event. Excluding this prior year event and excluding environmental emergency response revenues in both years, Consulting and Treatment revenue increased $15.3 million, driven by core consulting revenue growth and strength in our water treatment business. Environmental emergency response revenue was $17 million in the quarter, compared to $11.5 million in the prior year period. Higher margins reflect the benefit of operating efficiencies, project mix, and the absence of losses from our renewables and European businesses that were exited in the prior year. Turning to our Measurement and Analysis segment. Revenues decreased to $61.1 million from $63 million in the prior year period, primarily reflecting $1.9 million of lower field services revenue. Segment Adjusted EBITDA was $16 million or 26.1% of segment revenue, compared to $17.3 million or 27.5% in the prior year period, reflecting project mix and the lower revenue base. In this segment, our focus remains on improving resource utilization, disciplined project execution, and cost management while maintaining the technical capabilities and capacity to support demand for our testing, monitoring, and analytical solutions. Corporate and other costs declined $2.6 million-$10.9 million, primarily reflecting lower incentive compensation accruals, partially offset by higher IT infrastructure and marketing costs. Moving to our cash flow and capital structure. Year-to-date, net cash flow provided by operating activities was $35.4 million compared to $55.5 million in the prior year period, a $20.1 million decrease, primarily reflecting $16 million of higher bonus payments in the third quarter of 2026, which rewarded our strong 2025 performance. We remain on track to convert at least 60% of Consolidated Adjusted EBITDA to operating cash flow for the full year. Free cash flow in the third quarter was $41.5 million, bringing year-to-date free cash flow to $24.9 million, and helping to drive our leverage ratio down to 2.9x. During the third quarter, we closed on the acquisition of business assets in our air testing division, and subsequent to quarter end, have closed on two small additional acquisitions. Inclusive of these acquisitions, we continue to expect year-end leverage of approximately 2.5x. As of September 30th, 2026, we had total available liquidity of $192 million, including $20 million of cash and $172 million of revolver availability. During the third quarter, we did not repurchase any shares of our common stock. Year-to-date, we have repurchased approximately 1.6 million shares for $30 million, with approximately $10 million of authorized capacity remaining under our $40 million repurchase program, the use of which is subject to our credit agreement covenants. Turning to our full year outlook. We are reiterating our 2026 financial guidance, which at the midpoint implies a full year adjusted EBITDA margin of approximately 15.5%, representing approximately 150 basis points of expansion compared with 2025 and 290 basis points over the last three years. This consistent margin improvement reflects our continued focus on operating efficiency, project execution, business mix, and cost discipline, and reflects the early results of several additional margin improvement initiatives underway. In closing, despite tough comparisons, our underlying business continues to demonstrate improved profitability and disciplined execution, and we are thrilled with the record adjusted EBITDA margins in the third quarter, which are also expected for the full year. Cash flow generation is strong, leverage is declining, and we have resumed small accretive bolt-on acquisitions. Thank you all for joining us today and for your continued interest in Onterris. Operator, we are ready to open the lines for questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star and one on your touchtone phone and wait for your name to be announced. Once again, star and one if you wish to ask a question. Please stand by while we compile the Q&A roster. Thank you for waiting. We now have our first question, and this comes from Tim Mulrooney from William Blair. Your line is now open. Please go ahead and ask your question.

Renee Gagliardo: Hey, good morning. This is Renee Gagliardo on for Tim Mulrooney. The first question is

Allan Dicks: Hey, Renee.

Renee Gagliardo: Hey, good morning. My first question is regarding your expectation for a 25% EBITDA CAGR through 2030. If I'm doing the math right, it looks like you'd expect EBITDA margins to exceed 20% by then. Do you agree with that assessment, and how should we think about the primary drivers behind that between mix, corporate expenses, et cetera?

Allan Dicks: This is Allan. We certainly expect continued margin expansion over the next three to five years, not necessarily linear each year, but do expect we should get into the

Vijay Manthripragada: The high teens, low 20% margins, again, over a three-to-five-year period.

Renee Gagliardo: Got it. Thank you. Then switching gears a little, operating cash flow of $41 million was pretty strong in the quarter, and I saw that days sales outstanding came down. What else would you attribute to the strong cash flow generation that gives you confidence in hitting the target for the full year?

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

Renee Gagliardo: Great. Thank you.

Operator: Thank you. The next question comes from Tami Zakaria from JPMorgan. Your line is now open.

Vijay Manthripragada: Hey, Tami.

Tami Zakaria: Good morning. How are you? I have two questions. The first one is, I think I heard you say organic revenue growth should be 10% through 2030. As you look to 2027, we are two months away, is this 10% a good proxy for next year, or it will take time to realize that?

Vijay Manthripragada: Tami, that is a CAGR from now through 2030, and I would think about it as a long-term trend, not formal guidance for 2027. We do see a lot of exciting opportunities in our water treatment business in particular, which is partially why we see higher organic growth opportunities over the next three to five years, and that certainly continues into 2027. No, we are not anchoring on any one number for 2027.

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

Vijay Manthripragada: Yeah, it's a great question. It is a proposed rule, and so that process still needs to be followed, and we are in active discussions with our clients, Tami, so they are very attuned to this. The essence of our optimism around parts of the regulations, obviously the proposed rules cover and canvas a much broader landscape, but specific to emissions monitoring, we are one of North America's leaders, not only in air testing, but specifically in optical gas imaging. There are a set of regulations that enable us to use this more advanced technology, which for us is coupled with software and data capabilities, which our clients have found very additive. By deploying this technology, the imaging plus software, we believe we can help our clients both reduce their emissions and reduce costs, as that technology has demonstrated over and over again for years. What we are effectively saying is that based on our interactions with our clients, we expect the market opportunity for us in that space to expand very nicely over the coming years. On your second point, is this one-time or recurring, our testing business, as you know, is compliance-driven, and is therefore, it is required on a quarterly basis, an annual basis, biannual basis. As this manifests, this will become more structurally recurring, as we've described in the past related to our testing segment. Does that answer your question, Tami?

Tami Zakaria: It does. Thank you so much.

Operator: Thank you. The next question comes from Tim Moore from Clear Street. Your line's now open. Please go ahead.

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

Vijay Manthripragada: Yeah. Hey, Tim. Yes, as we think about our long-term outlook with our water technology and water treatment business, I think it's important to highlight two points. One, it is no longer a purely PFAS treatment set of solutions. We are seeing some incredible opportunities across broader industrial wastewater and now municipal drinking water treatment. PFAS is certainly an increased emphasis as we start to approach the deadlines that several years ago got pushed out to approximately 2030, and so our clients are much more engaged at this point, thinking forward to that incoming deadline. But in addition to that, we are seeing significant interest from our broader industrial and client base in particular, given that our technology is applicable beyond just PFAS. As a simple example, the waste industry, the pharma, the semiconductor industry, and other industries that are seeing activity pick up from onshoring, are asking us and engaging us on broader water treatment and water stewardship needs. That's really driving some of our optimism, given what we see in the market already around our long-term outlook.

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

Vijay Manthripragada: Yeah. Hey, Tim. Let me speak to the concept, because I don't think we've disclosed the numbers yet, and we will certainly provide full clarity once we kind of conclude the year. We're feeling really good about the impact of our rebrand for several reasons. It has truly integrated our commercial approach. What I mean by that is our clients are now seeing the unified whole. We're getting more requests for bundled services. Our team's ability to engage our clients with a natural extension of current services is also much easier, because the portfolio is presented as one, as opposed to a family of brands. As we think about our legacy commercial approach, which was primarily service-driven, we have now expanded that to what is very typical in the consultative arena around market sector and key client leadership, and we're seeing some really nice long-term opportunities there. Part of what Allan alluded to in his commentary is that we are starting to see bigger awards, longer-term awards, as we've issued some press releases around, and some of that is certainly a function of the fact that our clients are seeing us as a much larger integrated provider, and are also seeing kind of the benefits of that unique approach and solution set. So, the brand has kind of a host of implications, but it is certainly, as we look out to the next three to five years, it is certainly also part of why we have a lot of conviction in our acceleration in organic growth, not just related to water treatment.

Tim Moore: No, that makes sense. I remember that survey a couple years ago, a lot of folks weren't aware of some of the other bundled services you had, so it seems like it's going great. I'll turn it back over. Thank you.

Vijay Manthripragada: Thanks, Tim.

Operator: Thank you. As a reminder, for those who want to ask a question, please press star and one on your telephone keypad. Star and one for questions. The next question comes from Trey Teller from Capital One. Your line is now open. Please go ahead.

Trey Teller: Hey, guys. Trey Teller on for Wade Suki. Thanks for taking our questions. Maybe just to start off, just wondering if you can give us any quantification on the impact that you expect in 4Q and in 2027 from the recent acquisitions, and then maybe any color on what you're seeing in the current deal pipeline.

Vijay Manthripragada: Yeah, I'll speak to it in generalities based on what we've publicly disclosed. So, Trey, we have deployed approximately $14 million of capital. We've talked about they are incredibly accretive to us, both strategically and financially. Because these are very small bolt-on acquisitions, the impact to this year, given that it's occurred in October, November, is de minimis. It really doesn't change our outlook for 2026, but we do think it's very accretive to our 2027-2030 timeframe. As it relates to the pipeline, it remains very robust. We are very encouraged by the set of opportunities, and we expect over the next three to five years to certainly get back to adding incredible value, both to our clients and also to our shareholders, through a disciplined acquisition program. I want to be very measured in how I say that. These are mostly small bolt-on acquisitions that are very strategic to us, and we will certainly stay within the leverage commitments we have talked about publicly. This is kind of our We are doing what we said we would do, which is a measured reentry into getting back to what we have always done really well, and this is just a manifestation of that.

Trey Teller: Got it. Yeah, that makes a lot of sense. For our second question, I know you hit on it a bit in your prepared remarks. Just wondering if you could talk a little bit more about the potential benefits from the recent elections.

Vijay Manthripragada: Yeah. Trey, I think it's really important to reiterate what we have said since our inception. As you know, the company was started under the Obama administration. We went public in the first Trump administration. Our public life has now been in both the Biden and the now Trump administration, with obviously Congress shifting hands as well. The reason I say that is I think we've demonstrated repeatedly that we are able to grow organically and inorganically through those cycles. The business is incredibly resilient, as a function of both our unique focus on industrial clients, and the fact that the state and local regulations our clients are subject to are the underpinning that withstand some of the volatility we have seen at the federal level. As we think about what the next couple of years look like for us, our outlook has really not changed for the same reasons it didn't change when there was a shift in the executive branch a couple years ago. With all that said, I do believe, and this is certainly we're still in the process of digesting exactly what the changes mean, I do believe that the balance of power in Washington is going to reduce the regulatory volatility that we've seen, which is certainly something our clients have spent a lot of time talking to us about. That reduction in regulatory volatility is a net positive for us. We are cautiously optimistic about how this could benefit our clients' certainty, and therefore some of our trajectory. But long term and in aggregate, we are not susceptible to these cycles.

Trey Teller: Thanks for that. Yep, that's it for us. Thanks, guys.

Vijay Manthripragada: Thanks, Trey.

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