Q2 2025 Montrose Environmental Group Inc Earnings Call

Speaker #3: Thank you for standing by. My name is Van, and I be your conference operator today. At this time, I would like to welcome everyone to the Montrose Environmental 2025 earnings call.

Speaker #3: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad.

Speaker #3: If ou would like to withdraw your estion, press star one again. Thank you. I would now like to turn the call over to Adrianne Griffin, Senior Vice President of Investor Relations, please go head.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: Moving to slide two, I would like to ind everyone that today's call includes forward-looking statements subject the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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 non-GAAP measures are useful to investors; certain limitations of using these measures; and a reconciliation to their most directly comparable GAAP measure.

Speaker #4: 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 four.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: We will host a question and answer session. As we have

Speaker #5: noted each quarter, I of why we believe these 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.

Speaker #5: This is how we manage our business and how we recommend viewing our performance. I would ike to start by expressing my gratitude to our 3,500 colleagues around the world.

Speaker #5: They get all the credit for these results. Montrose's ongoing outperformance and successes including the stellar results we will discuss today reflect the team's collective efforts and their commitment to our mission.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: Broad-based client demand for our services is reflected in the 3,500 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.

Speaker #5: In second quarter, we recorded $234.5 million in revenue, driven by an increase in strong organic growth across all three segments, environmental emergency response revenue, and contributions from acquisitions.

Speaker #5: 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 instrumental in our selection as the response advisor.

Speaker #5: 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.

Speaker #5: Second quarter adjusted EBITDA was $39.6 million, or a 16.9% margin, driven by higher revenue and better operating performance across all three of our segments.

Speaker #5: 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 plan.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: Transitioning to an update on our strategic priorities, in 2025, we are driving strong organic growth, generating solid cash flow, and simplifying ur balance sheet, ensuring that this year represents far more than just an acquisition pause.

Speaker #5: 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%.

Speaker #5: Our focus 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.

Speaker #5: On July 1st, we completed our balance sheet simplification by fully redeeming the remaining preferred shares and bringing leverage below three times pro forma for this redemption.

Speaker #5: We funded the redemption consistent with our commitment to use only cash flow and incremental borrowings. We achieved this goal six months ahead of schedule.

Speaker #5: 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%.

Speaker #5: 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.

Speaker #5: We also reaffirm our long-term organic revenue growth expectations of 7% 9% annually. This outlook is supported by ongoing client demand for our unique portfolio of environmental science-based solutions.

Speaker #5: 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.

Speaker #5: 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 US, which are mostly private sector companies, across industries.

Speaker #5: 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.

Speaker #5: 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 US EPA's proposed repeal of the greenhouse gas endangerment finding.

Speaker #5: Our conclusion is that though there will be a fair amount of regulatory uncertainty in 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.

Speaker #5: And second, a lot our work is for clients who transact globally and are therefore subject to various international protocols like Europe's methane monitoring requirements.

Speaker #5: Regardless of US 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.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: 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 ility to create long-term shareholder value.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: 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.

Speaker #5: With that, I will hand it over to Allan. Thank you.

Speaker #6: 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.

Speaker #6: 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.

Speaker #6: 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 three segments, and contributions from acquisitions completed in the prior year.

Speaker #6: 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.

Speaker #6: 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.

Speaker #6: Robust revenue growth and enhanced operating performance across all segments fueled these results. Notably, margins improved in all three segments. In the second quarter of 2025, we reported positive GAAP net income of $18.4 million, or $42.00 of GAAP earnings per diluted share attributable to common stockholders.

Speaker #6: Compared to a net loss of $10.2 million, or a $39.00 net loss per diluted share, attributable to common stockholders in the prior year period.

Speaker #6: This significant $28.5 million increase in net income and $81.00 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 A2 redemption.

Speaker #6: 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.

Speaker #6: 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 $15.00 net loss per diluted share, attributable to common stockholders.

Speaker #6: Compared to a net loss of $23.5 million, or a $91.00 net loss per diluted share in the same period last year. The $77.00 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 A2 redemption.

Speaker #6: 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 $73.00, respectively.

Speaker #6: Representing an improvement over the prior year period of $19.3 million, and $37.00, 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.

Speaker #6: We believe this net income hodology 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.

Speaker #6: 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.

Speaker #6: 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.

Speaker #6: The segments 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.

Speaker #6: 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.

Speaker #6: 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.

Speaker #6: 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.

Speaker #6: Moving to our cash flow and capital structure, we achieved $27.4 million, of operating cash flow in the first six months of 2025. A $48.5 million improvement versus the prior year period.

Speaker #6: 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.

Speaker #6: 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 A2 preferred dividend was $16.7 million, an increase of 63.1 million, over the prior year.

Speaker #6: We're also pleased with the strength of our balance sheet at quarter-end, reporting a leverage ratio of 2.5 times, and substantial available liquidity of $242.8 million.

Speaker #6: Subsequent to quarter-end, we redeemed the final $62.2 million of the Series A2 preferred stock in cash, funded with cash on hand and borrowings under our credit facility.

Speaker #6: Resulting in pro forma leverage of 2.99 times. 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.

Speaker #6: 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.

Speaker #6: Thank you for joining us today, and for your continued interest in Montrose. We look forward to the opportunities ahead and will update you on our progress next quarter.

Speaker #6: Operator, we are ready to open the lines to questions.

Speaker #7: At this time, would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster.

Speaker #7: Our first question comes from the line of Jean Ricciuti from Needham. Please go head.

Speaker #8: Hi. Good morning. Congratulations, first off on the, on the quarter. question about the margins. first question is just on the margins across the, the business lines.

Speaker #8: You know, and I wanted to start with, the M&A margins, which were, obviously, you know, quite strong. And, you know, what I'm wondering is, as your viewer why hasn't your view of the margins in this business line changed?

Speaker #8: because you're viously operating above your, your longer-term, expectations.

Speaker #9: thanks, Jim. I, let take that, in two pieces. On the testing side, measurement analysis segment, our long-term expectation is for that to remain that 18 to 22 percent range, as we've talked about with you and thers.

Speaker #9: Over time, we are well above that for two reasons. One, we're etting really nice operating leverage in that segment as demand cycles pick up.

Speaker #9: And that demand cycle increase is partially because of the, shift towards states, regulating various contaminants. a more robustly. and then on top of that, we also have a, project mix shift.

Speaker #9: 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 five-year outlook, Jim, we still think about that as an 18 to 22 percent margin business.

Speaker #9: 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.

Speaker #9: Which gives you a sense for the relative advantages of the business model.

Speaker #8: Okay. and maybe just to, focus on a couple of issues. Vijay, you alluded to, and sorry, Jim, let me I n't answer your second question, which is about the aggregate margin profile.

Speaker #8: 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 to kind of both variables are working very favorably from a and side perspective.

Speaker #8: And we're seeing a nice margin uptick there. and then within the remediation, reuse segment, also a nice margin uptick there given nice demand tailwinds, including within our treatment technology business.

Speaker #8: So it's kind of a it's an aggregate portfolio performance. There isn't one specific reason for it. Understood. Thanks for that additional color. you alluded to, the some the issues around greenhouse gas monitoring and measurement.

Speaker #8: What is that represent? And you may have given it, the total Montrose business, currently.

Speaker #9: Jim, it's about it's about 3%. And even within that 3%, about two-thirds of that is, state-driven in states that regulate the greenhouse gases independent.

Speaker #9: 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 two dynamics, in the context of our broader performance, it doesn't move the needle for us.

Speaker #9: 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.

Speaker #8: Got it. And finally, just, I, I wonder if you would describe just, h, give us a sense of the, the PFAS activity you saw in the quarter as it relates to treatment and, and maybe just in general the outlook that you see for this part of the business in the second half.

Speaker #8: Thank you.

Speaker #9: Yeah. It is, our outlook is the same as it's been, Jim. obviously, there's been, you know, over the last couple of quarters, regulatory developments it, it is now clearly going to be regulated.

Speaker #9: the thresholds are low. The deadlines have moved out. And so that's shifted the mix for us a little bit, but we're kind of seeing nice, continued, growth within our testing business.

Speaker #9: we're eing, a, a nice trajectory within our treatment technology business. That business, Jim, is also now our patent portfolio there has grown. It is beyond PFAS.

Speaker #9: and so we have kind of 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 of, inbounds tied to assessments, so as I kind of look at the PFAS portfolio that we don't report it that way, we're quite optimistic that our long-term opportunities there are quite attractive.

Speaker #9: it's just going to be a question of what trajectory of that looks like year in, year out as these regulations set in.

Speaker #8: Thank you.

Speaker #9: Thanks, Jim.

Speaker #7: Our next estion. Comes from the line of Sam, Castworm from William Blair. Please go head.

Speaker #10: Vijay, Allan, I ope you both are doing well.

Speaker #9: Hey, Sam.

Speaker #8: I wanted to first ask more about your emergency response business. You know, I know that oftentimes emergency work can have a multi-quarter tail to it.

Speaker #8: So I'm wondering what the likelihood is that we could see some of this work continue on to the second half of year here. And can you share if you're still performing some of this emergency work today?

Speaker #8: And if there's an ectation that additional contracts, could come onto market here.

Speaker #9: it's a great question, Sam. I, I, I would frame it, in a slightly different way, which is, you know, think of that as, kind of a, a upside opportunity off of our core engine, which continues to grow really nicely.

Speaker #9: So if you just step back and look at our annual guidance and the increase in annual guidance, right? The midpoint went from 760 to 8, 15.

Speaker #9: Sam, of that 815, about 35 of that is response-driven. And so, you know, the 760 really went to 780, and that is just a structural increase, in the core business.

Speaker #9: And that you should expect to continue growing kind of year in, year out. and so the incremental 35, it's kind of the excess above our run rate response business.

Speaker #9: And so we are quite bullish, and we're going to talk 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?

Speaker #9: 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 gravier upside off of that core engine.

Speaker #9: 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.

Speaker #9: 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 the, like the what I alluded to in Q2, it's effectively kind of a, a, a, a one-time, surge in cash and earnings which will be very transparent about.

Speaker #8: Got it. That is, that's helpful color. And I, I think we would appreciate, the breakdown in the future as you guys get bigger and do that.

Speaker #8: you know, maybe, maybe taking a, a deeper look and sticking with the APR business, you ow, even taking out the emergency response work, it, it looks like the core business grew something like 30% organically.

Speaker #8: I think you did touch it upon on your pared remarks, but I was hoping you could go into a little more detail on the drivers behind the core business strength.

Speaker #8: you know, were there any large orders impacting the quarter here? or was there any work in the core business that was, you know, ultimately tied to the emergency response work, so that they both kind of uplifted together?

Speaker #9: they, 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?

Speaker #9: There's a fair amount 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.

Speaker #9: so there, there isn't one or two reasons, for why, that broader portfolio independent of response is growing, we're pretty optimistic about what that looks like, into the foreseeable future.

Speaker #8: Got it. Appreciate the color, guys. Thanks.

Speaker #9: Thanks, Sam.

Speaker #7: Our next estion comes from the line of Wade Suki from Capital One Bank. Please go head.

Speaker #11: good morning, everyone. Appreciate y'all taking my estions. just, just wondering, you, you, you, Vijay, you always give great color on the customers and, what's going on in the business.

Speaker #11: I, I'm wondering if, if there were, a couple of areas of consternation or concern among your customers, maybe causing some kind of pause. W-we could talk about what, what, what those issues are and maybe what the offsets are as well.

Speaker #11: to the ent that you an.

Speaker #5: Hey, Wade. when you say consternation, you mean from our customers, what do you mean? Related to us or just more broadly?

Speaker #11: No, no, more broadly. Whether it's, you know, broader macro concerns, commodity price concerns, regulatory concerns, things like that.

Speaker #5: Y-yeah. I mean, look, we, we obviously spend a lot of time with them. and, you know, the vironmental industry, notwithstanding, which is our focus, they are dealing with a broader set of, factors.

Speaker #5: you know, we, we have seen, because of an increase in industrial activity, stateside, here in our home market in the United States, Wade, we've, we've been spending a fair amount of time, with our, waste and energy and industrial clients, and they are, you know, not surprisingly dealing with all the, the typical issues related to, the geopolitical fluctuations and policy related to tariffs, related to interest rates.

Speaker #5: the macroeconomic backdrop, right? The, the usual suspects that everyone's been talking , and so there's a fair degree of sensitivity around, the, the volatility of the macro and/or regulatory backdrop that they're dealing .

Speaker #5: and so most of our conversations have been really around what is likely to sustain, what are our long-term trends as, political cycles shift back?

Speaker #5: What's likely to occur? What's going to stick? and as you know, most of what we do, is tied what they've been doing for years.

Speaker #5: And in some instances, decades. And as they look forward, they're planning cycles haven't really changed, which is really encouraging for us. So they're, you ow, what they're dealing with, at a macro level is not all that dissimilar from what all of us are looking when we think about the politics and the, h, economics.

Speaker #5: but as it relates to Montrose, what that's translated into is kind a, a, a steady as she goes type mindset. There isn't lot of movement in how they're ocating, their various, capital decisions and/or, focus on regulatory drivers.

Speaker #5: And that's caused a, continuation of kind of demand from Montrose's services, if that makes sense, Wade.

Speaker #11: Yes. Great. No, that's, that's helpful. Thank you. Just switch gears a little bit here. w-we can might talk a little bit about the, the M&A trend.

Speaker #11: I know I, I, I know we're on pause. but, what have you been seeing? what, what when, when, when, if ever, does that, sort of enter, re-enter the fray, I guess, in terms of capital allocation and strategy?

Speaker #5: Yeah. 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 ur shareholders.

Speaker #5: 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.

Speaker #5: 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 areholders that the core Montrose engine is incredibly powerful.

Speaker #5: 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 ally not going to restart, until, we're able to demonstrate that clearly and consistently for you over time.

Speaker #5: but the opportunity set is robust. We're still engaged a lot of folks that are very interested in joining us. Our team is absolutely engaged in market.

Speaker #5: 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.

Speaker #5: It is not imminent at this point.

Speaker #11: Okay. Great. No, that's, that's very helpful. ell, look, I normally don't say this on calls, but congratulations. That was a great quarter. Appreciate it.

Speaker #11: Thanks so much.

Speaker #9: Thanks, Wade.

Speaker #7: Our next question comes from the line of Tim Moore from ClearStreet. Please go head.

Speaker #12: Hi. This is actually Larry Stavitzian for Tim. Tim's, attending some other, earnings calls simultaneously that were not as good as yours. Your results were not as impressive as yours.

Speaker #12: So I'm pinch heading for him today. just going back to the acquisition pipe, pipeline, hi, guys. h-have, have valuations and multiples become more attractive?

Speaker #12: I know you guys are still on the eline like you just said, but given, you know, the volatility economically and, and the policy changes, have you seen some, some of the valuations come down recently or h-how, how does that look?

Speaker #9: So I, I would it's a great question, Larry. And I, and I would think about it in kind two dynamics. As you look, look at broader market, multiples, that has certainly occurring.

Speaker #9: 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.

Speaker #9: 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 our environmental focus.

Speaker #9: And so when you look across our history of acquisitions, very few of them are, are process-oriented or banker-driven, larger transactions where they, those tend to follow kind of broader market trends.

Speaker #9: so for Montrose's perspective, because we tend to, on average buy at mid to high single-digit EBITDA multiples, that hasn't really moved when valuations in the market spike or drop.

Speaker #9: We tend to stay pretty steady in terms of what we pay. But yes, for the larger assets that are coming to market and transacting, there has been some normalization, though expectations are still very high.

Speaker #9: because of what folks paid three, four, five years ago, we are obviously not interested in overpaying for assets. And so we're keeping a close eye on lot of it.

Speaker #9: But there's a fair amount of activity, out there, Larry, and, and we're close to, to close to all of it.

Speaker #12: Gotcha. Thank you for that. And then just one more on, on PFAS. I know you guys mentioned you guys are moving beyond, PFAS into a broader water treatment business.

Speaker #12: But I guess just on a state level for PFAS, how, h-h-have you seen any changes given the EPA's, you know, the dynamics within the EPA there in terms the, Office of State Air Partnerships and the Office of Air and Radiation?

Speaker #12: has there been more concentration on, on the state level given, given the changes that to the EPA there?

Speaker #9: I think the EPA is 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 a question of what the cadence of that is going to be.

Speaker #9: So we're seeing, as we saw, once the announcements came out, an increase in our the upfront 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.

Speaker #9: But, no, nothing's really changed all that much over the last couple of quarters. And once, administrators Zeldin's, posture on PFAS became much clearer, which candidly, we became clearer in a ay that is beneficial to Montrose long-term.

Speaker #9: So, n-n-nothing really to report at this point, and no major shift in terms of state regulations impacting our business at this time.

Speaker #12: Gotcha. Thanks a lot for your time, guys. And best of luck in the second half.

Speaker #9: Thanks, Larry.

Speaker #7: Our next estion comes from the line of Tami Zakaria from JP Morgan. Please go head.

Speaker #13: Hey, good morning. excellent quarter. And thank ou for taking my questions.

Speaker #9: Hey, .

Speaker #13: Two, hi. Two follow-up questions on topics you've ready 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.

Speaker #13: I-is that sort of, the new run rate? Or was there M&A in it? I'm, I'm ically trying to understand what to expect on a like-for-like basis for that segment in 3Q and 4Q.

Speaker #9: Yeah. I could take I could take that. There is some M&A, impact from acquisitions that were done in 2024. about five and a half million dollars of that increase.

Speaker #9: yeah, year over year. and the rest of that is more about, yeah, a normal cadence. There's always some seasonality, across the year. So, you ow, Q2, Q3 tend to be larger.

Speaker #9: Revenue and higher margin, quarters, across the business, but in , AP&R, and testing. so, with, that seasonality aside, es, you would expect that to be kind run rate.

Speaker #9: Yeah. And Tami, one of the, totally agree with Allan. You know, if you kind of look at the aggregate business and you ok at our historical 8% midpoint, the 7 to 9 organic, you know, we are clearly well above that now.

Speaker #9: 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.

Speaker #9: So, we are quite optimistic about what that oks 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.

Speaker #9: So, again, this magnitude of step up, it, you know, no one quarter, the trend is one that you can extrapolate annually, but there is a nice, tailwind in that business at this time.

Speaker #13: Yeah. 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?

Speaker #9: That was always I 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.

Speaker #9: If there's dislocations or opportunities for us, it, it is not our preference at this time, to deploy capital in that vein. and so there it is not a commitment to deploy it.

Speaker #9: It is simply an option. But I'll let Allan take,

Speaker #5: Yeah. I think the, our, our stated objectives at the ning of the year, are intact. We had said we were going to prioritize redeeming the prep.

Speaker #5: We've now done that, a good six months earlier than we had anticipated. But the focus on organic growth, margin expansion, and cash flow ation, are intact.

Speaker #5: And so you will see us continue to pause acquisitions likely through at least 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.

Speaker #5: so you'll see us continue to deliver, through the balance of the year, and then we will continue to just look at the, the, the best relative returns, for investors whether that's R&D or acquisitions, or returns of capital to, to areholders.

Speaker #13: Got it. Great. Thank ou.

Speaker #7: Our next question comes from the line of Drew Ulbin from Bank of America. Please go head.

Speaker #14: Hi. This is David Ridley Lane on for Andrew Ulbin. so you this, the energy client case study in the slides, and I know I'm not going to ask you to talk about individual clients, but, general basis.

Speaker #14: You know, relative to that size, of the original emergency response, what level of recurring revenue do you typically get out of this? is there, is there sort of a rule of thumb or, or, or what ou've seen historically?

Speaker #14: Thank ou.

Speaker #5: Yeah. David, I, I i-if you kind of look at our, you know, this concept of recurrence, which is, unique to us for all the reasons we've talked about with you 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.

Speaker #5: 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.

Speaker #5: 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 team has with our clients, that are dealing with a very unfortunate set of circumstances, the opportunity for us to continue providing services, whether it's monitoring, testing, remediation, or water treatment services, is very real.

Speaker #5: 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.

Speaker #5: 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 to that, credit for goes to our teams.

Speaker #5: And so, it's very hard to pick off one project. but that project is likely look a lot like our long-term business, once the response piece of it, pulls away.

Speaker #14: Thank you. And then, you know,

Speaker #12: Montrose's business model not being dependent on, you know, federal budget and funding, certainly driving differentiated results versus some of the other publicly traded environmental firms, here in 2025.

Speaker #12: I think somebody else, another analyst has sort of danced around it, but, yeah, a publicly traded firm, announced a strategic review, of their, environmental business two days ago.

Speaker #12: know that you're in the midst of a pause, but would you be open to a larger transaction, if it was, you know, opportunistic? Thank ou.

Speaker #9: David, if you're asking me if I'm about to go buy something large, it is not, it is not imminent. We will always, 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.

Speaker #9: 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.

Speaker #9: You can e 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.

Speaker #9: But we'll do in a way that's transparent and, 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 folks as to what's going on in market.

This may be a little harder to answer, but this Step Up in organic growth. Um, do you have a sense 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, you know what, we've been all reading about ensuring and and the potential for increased the industrial activity or is this you know more of a Tailwind that you see looking out, you know, perhaps the 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 focused, which is all tied to our cross-selling efforts or our broader marketing pivots where we're articulating kind of our value proposition a little bit of a different way. That's, uh, more. Um, inclusive of the integrated nature of the of the offering that, that we provide. Um, that's really what's, uh, driving

Answers. They're both playing a role in our performance now, and we don't expect that to slow down.

Thank you.

Thank you. I will now turn the call. I will now turn the call back over to VJ for closing remarks.

We really appreciate all of your uh interest in mantros and and thank you for taking the time. Uh hope all of you are well and Allan, and I are incredibly excited uh to uh 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