Montrose Environmental Group, Inc.

everyone to the Montrose Environmental 2025 earnings call. 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. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Adrienne 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 Mandrew-Pragada, our President and Chief Executive Officer, and Alan Dix, our Chief Financial Officer. During our prepared remarks today, we will refer to our earnings presentation, which is available on the investor section of our website. Our earnings release is also available on the website. Moving to slide two, 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 identified the principal risks and uncertainties that could affect any forward-looking statements in 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 gap measure. And a reconciliation to their most directly comparable gap measure. With that, I would now like to turn the call over to Vijay, beginning on slide 4.

Thank you, Adrienne, 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. Alan 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 cashflow, 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 three 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 advisor. 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 three 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. Alan 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 wallets. 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 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 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. 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. 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 US, 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 Alan, 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 Alan. 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 three 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 three segments. In the second quarter of 2025, we reported positive gap net income of 18.4 million or 42 cents of gap earnings per diluted share attributable to common stockholders compared to a net loss of 10.2 million or a 39 cent net loss per diluted share attributable to common stockholders in the prior year period. This significant 28.5 million increase in net income an 81-cent 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, 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 77 cents 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, 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 cents respectively. representing an improvement over the prior year period of 19.3 million and 37 cents 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 six 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 A2 preferred dividend, was $16.7 million, an increase of $63.1 million over the prior year. We were 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. 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, 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. 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.

At this time, I 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. Our first question comes from the line of Jim Ricciuti from Needham. Please go ahead.

Hi. Good morning. Congratulations, first off, on the quarter. 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, as 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 two pieces. On the testing side, the measurement 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 two 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 five-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 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 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 demand side perspective, 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. So it's kind of an aggregate portfolio performance. There isn't one specific reason for it.

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

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. 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. 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. Thank you.

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 is now clearly going to be regulated. 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. 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. Thank you. Thanks, Shane.

Our next question comes from the line of Sam Casper from William Blair. Please go ahead.

Vijay, Alan, hope you both are doing well. Hey, Sam. I wanted to first ask a bit more about your emergency response business. You know, I know that oftentimes emergency work can have a multi-quarter tail to it. So, I'm wondering what the likelihood is that you see some of this work continue on through 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 into the market here?

It's a great question, Sam. I would frame it in a slightly different way, which is, you know, 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 to 815, 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. And that you should expect to continue growing kind of year in, year out. And so the incremental 35 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 79% 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 one-time surge in cash and earnings. which we'll be very transparent about.

Got it. That's helpful, Colin. And I think we would appreciate the breakdown in the future as you guys get bigger and do that. You know, maybe taking a deeper look and sticking with the APR business, you know, 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 you could go into a little more detail on the drivers behind the core business strengths. 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?

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 one or two reasons for why that broader portfolio independent response is growing. We're pretty optimistic about what that looks like into the foreseeable future. Got it. Appreciate the call, guys. Thanks. Thanks, Sam.

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

Good morning, everyone. Appreciate you all taking my questions. Just Just wondering, D.J., 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. We could talk about what those issues are and maybe what the assets are as well, to the extent that you can.

Hey, Wade. When you say consternation, even from our customers, what do you mean? Related to us or just more broadly?

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

Yeah, I mean, look, we obviously spend a lot of time with them and, you know, the environmental industry notwithstanding, which is our focus, they are dealing with a broader set of factors. You know, we have seen, because of an increase in industrial activity stateside 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 in policy related to tariffs, related to interest rates. the macroeconomic backdrop, right, the usual suspects that everyone's 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, you know, 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.

Great. That's helpful. Thank you. Just switch gears a little bit here. Would you mind talking 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 reenter the fray, I guess, in terms of capital allocation and strategy?

Yeah, 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 today. When given a chance to shine, and you're seeing the benefits of that now. So that's what we're really attuned to 1 of the commitments we made is that really not going to restart until we're 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 really don't say this on call, but congratulations on the great quarter. Appreciate it. Thanks so much. Thanks, Wade.

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

Hi, this is actually Larry Stavitsian for Tim. Tim's attending some other earnings call simultaneously that were not as good as yours. The results were not as impressive as yours. So I'm pinch hitting for him today. Um, just going back to the acquisition pipe pipeline. Hi guys. Um, have, have valuations and multiples become more attractive. I know you guys are still on the sideline, like you just said, but given, you know, the volatility economically and the policy changes, have you seen some, uh, some of the valuations come down recently or how does that look?

So I would, it's a great question larry and i and i would think about it in kind of two dynamics as you look at broader market uh multiples uh that is certainly occurring um 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 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 at 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 three, four, five 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.

Gotcha. Thank you for that. 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 the state level for PFAS, have you seen any changes given the EPA's, you know, 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 upfront type of our pipeline activity. And those will take some time to kind of flesh out and convert into hard projects that we can then talk about more actively. But again, No, nothing's really changed all that much over the last couple of quarters. Once Administrator Zeldin's posture on PFAS became much clearer, which candidly became clearer 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.

Gotcha. Thanks a lot for your time, guys, and best of luck in the second half. Thanks, Larry.

Our next question comes from the line of Pammy Zakaria from J.B. Morgan. Please go ahead.

Hey, good morning. Excellent quarter, and thank you for taking my questions.

Hi.

Two follow-up questions on topics we'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 even 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.

Yeah, 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, APNR and testing. So with that seasonality aside, yes, you would expect that to be kind of run right.

Yeah, and Tammy, one of the, I totally agree with Alan. You know, if you kind of look at the aggregate business and you look at our historical 8% midpoint, the 7 to 9 organic, Um, you know, we are clearly well above that now, um, 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 and our segments. 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, you know, no one quarter trend is one that you can extrapolate annually, but there is a nice tailwind in that business at this time.

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?

That was always, I let Alan take that. Tammy, 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 is simply an option.

But I'll let Alan take... Yeah, I think our stated objectives at the beginning of the year are intact. We had said we were going to prioritize redeeming the prep. 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 generation are intact. 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. So you'll see us continue to de-lever 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.

Got it. Great. Thank you.

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

Hi, this is David Ridley Lane on for Andrew Obin. So you have 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? Thank you.

Yeah, David, if you kind of look at 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've 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. 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.

Thank you. And then, you know, 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 yeah, a publicly traded firm announced a strategic review of their environmental business two days ago. Know that you're in the midst of a pause, but would you be open to a larger transaction if it was opportunistic?

Thank you. David, if you're asking me 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.

Thank you. 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, you know, it is very tough because, you know, 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, I'm 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.

Thank you very much.

Thanks, David.

Our last question comes from the line of Jim Riccioli from EDEM. Please go ahead.

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 you know, what we've been all reading about onshoring and the potential for increased 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 focus, 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 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. 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 clients, uh 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 thank you thanks 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 interest in Montrose, and thank you for taking the time. Hope all of you are well, and Alan 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.