Montrose Environmental Group Q2 Earnings Call Highlights

Key Points

• Second-quarter revenue fell to $186.7 million from $234.6 million, largely because the prior-year period included $53.6 million from a major environmental emergency-response event. Cost optimization nevertheless increased adjusted EBITDA margin to 17.1% from 16.9%.
• Onterris lowered its 2026 revenue outlook to $740 million–$790 million and adjusted EBITDA outlook to $117 million–$120 million, citing weaker pass-through and emergency-response revenue plus regulatory waivers delaying air-testing work. Management still expects record adjusted EBITDA and materially stronger second-half cash flow.
• The board has begun a comprehensive strategic review that may include acquisitions, other value-creating transactions or continued standalone execution; no decision or timetable has been established.

Montrose Environmental Group NYSE: ONT, which rebranded as Onterris Inc. on April 21, reported lower second-quarter revenue amid historically low environmental emergency-response activity, while cost optimization helped lift adjusted EBITDA margins and supported a narrower reduction in its full-year earnings outlook.

Onterris reported second-quarter revenue of $186.7 million, down $47.9 million from the prior-year period. Adjusted EBITDA totaled $31.9 million, compared with $39.6 million a year earlier. However, adjusted EBITDA margin increased to 17.1% from 16.9%, which President and Chief Executive Officer Vijay Manthripragada attributed to ongoing cost optimization.

The company noted that the second quarter of 2025 included approximately $53.6 million in revenue from a single environmental emergency-response event and subsequent recovery work. Excluding that event, Manthripragada said second-quarter 2026 revenue grew.

Updated 2026 Outlook

Onterris reduced its full-year revenue outlook to a range of $740 million to $790 million. The revised forecast reflects lower expected pass-through revenue, lower emergency-response revenue and other revenue impacts, including temporary regulatory waivers affecting certain air-testing services.

Chief Financial Officer Allan Dicks said the revised revenue outlook incorporates:

• $35 million to $55 million of lower pass-through revenue;
• $35 million to $45 million of lower emergency-response revenue; and
• $15 million to $25 million of other lower revenue.

At the midpoint, the company said lower pass-through revenue is expected to reduce EBITDA by approximately $4.5 million, while reduced higher-margin emergency-response activity is expected to lower EBITDA by about $10 million. Those impacts are partly offset by a net $5.5 million benefit from cost optimization and operating efficiency.

Onterris now expects full-year adjusted EBITDA of $117 million to $120 million, a $9 million reduction at the midpoint from its prior outlook. The company said every outcome within the new range would represent a record adjusted EBITDA result. At the midpoint, the outlook implies an adjusted EBITDA margin of 15.5%, approximately 150 basis points above the prior year and 50 basis points above the company’s original 2026 guidance.

For the third quarter, Onterris expects revenue of $190 million to $210 million and an adjusted EBITDA margin of 17% to 18% at the midpoint of that revenue range. Dicks said third-quarter revenue is expected to decline year over year because the 2025 period included significant recovery revenue tied to the prior-year environmental event, while third-quarter EBITDA and margin are expected to increase.

Segment Results and Demand Trends

Consulting & Treatment revenue was $125.6 million in the second quarter, down from $171.7 million a year earlier. The decline included $37.7 million less environmental emergency-response revenue and $11.2 million less recovery-services revenue, primarily related to the prior-year event. Segment adjusted EBITDA margin nevertheless increased to 22.2% from 21.9%, supported by favorable project mix and improved operating performance.

Measurement & Analysis revenue declined to $61.1 million from $62.8 million. Lower field-services revenue was partly offset by higher laboratory-testing revenue. The segment’s adjusted EBITDA margin fell to 26.2% from 29.1%, which Dicks said reflected lower operating leverage on the reduced revenue base, though he characterized margins as remaining strong.

Management said the lower outlook does not reflect a change in underlying end-market demand or heightened competitive pressure. Manthripragada said the company has not seen major emergency events this year, calling the current level of activity a historically low point in the cycle rather than a competitive issue.

He also said temporary federal and state regulatory waivers have delayed select air-testing work. The rules remain in place, according to Manthripragada, but some clients received waivers that have postponed testing activity. The company’s outlook assumes some continuing waivers during the second half.

Onterris said it remains confident in its longer-term high-single-digit organic-growth framework, citing a predictable testing business, known Consulting & Treatment projects and larger projects that have begun work. Management said certain projects have started more favorably than expected and are longer-duration engagements with blue-chip clients.

Cash Flow, Leverage and Capital Allocation

For the first six months of 2026, Onterris used $5.5 million in operating cash flow, compared with generating $27.4 million in the prior-year period. The change reflected lower earnings before noncash items, increased working-capital usage and $27.7 million in first-quarter annual incentive payments related to 2025 performance.

The company expects operating cash flow to improve materially in the second half, forecasting $70 million to $80 million of operating cash flow and maintaining its expectation for operating cash conversion equal to roughly 60% of full-year EBITDA. Dicks said cash generation should be slightly weighted toward the fourth quarter and that days sales outstanding had declined in the first half.

At June 30, Onterris reported a leverage ratio of 3.2 times under its 2025 credit facility and total available liquidity of $160.8 million. The company expects year-end leverage of about 2.5 times, absent acquisitions. Year to date, it repurchased 1.6 million shares for $30 million and paid $10.8 million in contingent consideration.

Management said it expects to resume disciplined bolt-on acquisitions in the second half, subject to its valuation, leverage and cash-flow parameters. Manthripragada said the company is seeing opportunities in testing as well as Consulting & Treatment, and said its historical acquisition multiples have averaged in the mid- to high-single-digit range of EBITDA.

Board Begins Strategic Review

Separately, Onterris said its board is conducting a comprehensive review of the company’s business, portfolio, capital allocation, long-range strategic plan and strategic alternatives. The review, supported by outside financial and legal advisers, may consider acquisition interest in the company, other value-creating transactions, acquisition opportunities, operational initiatives and continued execution of the standalone plan.

Manthripragada said the board has not reached a decision on any particular course of action and has not established a timetable. He added that there is no assurance the review will result in a transaction or other outcome. While the review proceeds, management said it plans to continue executing its existing strategy, including cross-selling initiatives, operational improvements and long-term growth efforts.

About Montrose Environmental Group (NYSE:ONT)

Montrose Environmental Group NYSE: MEG is a global provider of environmental technical and monitoring services, delivering solutions for site assessment, remediation, compliance and long-term environmental stewardship. The company serves a broad range of industries, including energy, manufacturing, chemicals, mining and government agencies, supporting clients with risk management strategies, regulatory permitting and environmental permitting.

Montrose's core offerings encompass environmental consulting, engineering design, field sampling and laboratory analysis, plus innovative digital monitoring platforms.

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