Montrose Environmental Group, Inc. (NYSE:MEG) Q2 2025 Earnings Call Transcript

Montrose Environmental Group, Inc. (NYSE:MEG) Q2 2025 Earnings Call Transcript August 8, 2025

Operator: Thank you for standing by. My name is Van, and I will be your conference operator today. At this time, I would like to welcome everyone to the Montrose Environmental 2025 earnings call. [Operator Instructions] I would now like to turn the call over to Adrianne Griffin, Senior Vice President of Investor Relations. Please go ahead.

Adrianne D. Griffin: Thank you, operator. Welcome to our second quarter 2025 earnings call. Joining me today are Vijay Manthripragada, our President and Chief Executive Officer; and Allan Dicks, our Chief Financial Officer. During our prepared remarks today, we will refer to our earnings presentation, which is available on the Investors section of our website. Our earnings release is also available on the website. Moving to Slide 2. I would like to remind everyone that today’s call includes forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to known and unknown risks and uncertainties that should be considered when evaluating our operating performance and financial outlook.

We refer you to our recent SEC filings, including our annual report on Form 10-K for the fiscal year ended December 31, 2024, which identify the principal risks and uncertainties that could affect any forward-looking statements and our future performance. We assume no obligation to update any forward-looking statements. On today’s call, we will discuss or provide certain non-GAAP financial measures such as consolidated adjusted EBITDA, adjusted net income and adjusted net income per share. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. Please see the appendix to the earnings presentation or our earnings release for a discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures, and a reconciliation to their most directly comparable GAAP measure and a reconciliation to their most directly comparable GAAP measure.

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

Vijay Manthripragada: Thank you, Adrianne, and welcome to everyone joining us today. I will provide an update on the strength of our second quarter and first half results, discuss our outlook and increased guidance, and speak generally about the second quarter presentation shared on our website. Allan will provide the financial highlights and following our prepared remarks, we will host a question-and-answer session. As we have noted each quarter, I would like to emphasize that our business is best assessed on an annual basis, given that demand for environmental science-based solutions doesn’t follow consistent quarterly patterns. This is how we manage our business and how we recommend viewing our performance. I would like to start by expressing my gratitude to our 3,500 colleagues around the world.

They get all the credit for these results. Montrose’s ongoing outperformance and successes, including the stellar results we will discuss today, reflects the team’s collective efforts and their commitment to our mission for planet and for progress. We remain fully committed to delivering best-in-class service for all of our clients on every project. We have delivered on everything we said we would do from driving organic growth, increasing margins, enhancing cash flow, simplifying the balance sheet and strengthening governance. And we are also having a record 2025. Once again, our results prove that our unique integrated business model with a diversified client base and durable recurring revenue and our focus on environmental science and patented technology enables us to thrive through economic and political cycles.

We continue to demonstrate that we can protect our environment while simultaneously driving economic value for our clients and long- term value for our shareholders. Turning to our financial results. We achieved another quarter of record performance. Broad-based client demand for our services is reflected in the 35% revenue growth and 70% consolidated adjusted EBITDA growth year-over-year. Our EBITDA growth was due to both revenue growth and a 340 basis point improvement in margins. In the second quarter, we recorded $234.5 million in revenue, driven by an increase in strong organic growth across all 3 segments, environmental emergency response revenue and contributions from acquisitions. During the second quarter, we responded to an environmental incident for a large energy client that increased Q2 response revenue by $35 million.

Our long-standing relationship with this client was instrumental in our selection as the response adviser. Importantly, our involvement in the response also helped us secure the air monitoring, testing and long-term remediation associated with the event, which started in the third quarter. Second quarter adjusted EBITDA was $39.6 million or a 16.9% margin, driven by higher revenue and better operating performance across all 3 of our segments. Additionally, I want to highlight that we reported positive net income and positive GAAP EPS in the second quarter. Our cash flow generation is strong and also ahead of plan, and our cash outlook remains strong for the year. Allan will elaborate on each of these shortly. To put these results into context, it is our best performing quarter by virtually any financial or operating metric used to assess the business, and it marks the third straight quarter of record results.

These results further demonstrate the resilience inherent in the services we provide and the effectiveness of our organic growth initiatives focused on client retention and increased share of wallet. Transitioning to an update on our strategic priorities. In 2025, we are driving strong organic growth, generating solid cash flow and simplifying our balance sheet, ensuring that this year represents far more than just an acquisition pause. In the first half of 2025, we achieved strong organic growth. And for the full year, we expect to be at or above the high end of our long-term target range of 7% to 9%. Our focus on cash flow generation has resulted in a $48.5 million increase in operating free cash flow over the first half of 2024, and we expect to continue generating significant cash flow, including free cash flow in the second half of the year.

On July 1, we completed our balance sheet simplification by fully redeeming the remaining preferred shares and bringing leverage below 3x pro forma for this redemption. We funded the redemption consistent with our commitment to use only cash flow and incremental borrowings. We achieved this goal 6 months ahead of schedule. In line with these outstanding results, we are raising guidance for the second consecutive quarter. 2025 revenue is now expected to surpass 2024 by 17%, with 2025 full year adjusted EBITDA projected to grow 19% over the previous year. This increased guidance indicates year-over-year margin expansion, aligning with our goal of driving scalable profitability. We also reaffirm our long-term organic revenue growth expectations of 7% to 9% annually.

This outlook is supported by ongoing client demand for our unique portfolio of environmental science-based solutions. Managing environmental risks remains important for sustained long-term profitability for our clients. And these risks cut across industries, borders and beliefs, which explains why resilience has become a cornerstone of corporate strategy. Shifting to our client and geographic diversification. We continue to see strong demand for our services across geographies and 80% of our 2024 revenue generated by clients in the U.S., which are mostly private sector companies across industries. These clients favor long-term planning, seek to mitigate the impact of political swings and aim to comply with the complex patchwork of state and local regulations.

At the same time, we are seeing increased regulatory influence from local and state governments in the United States. In fact, just last week, we began responding to inquiries for our perspective on recent news regarding the U.S. EPA’s proposed repeal of the greenhouse gas endangerment finding. Our conclusion is that though there will be a fair amount of regulatory uncertainty in the near term, the impact on Montrose will be minimal. It will be minimal because, first, most of our work is for clients who operate in states that actively regulate greenhouse gases. And second, a lot of our work is for clients who transact globally and are therefore, subject to various international protocols like Europe’s methane monitoring requirements. Regardless of U.S. federal changes, local, state and international requirements as well as institutional commitments and expectations will continue driving corporate focus on greenhouse gas identification, measurement and mitigation.

For all these reasons, our clients are not indicating any shift in their operating or compliance posture, and therefore, we have not seen and do not expect much impact on our business. In aggregate, greenhouse gas measurement and mitigation remains a growing service for us. Importantly, given Montrose’s broad and growing environmental capabilities, greenhouse gases are a small part of our environmental work with industrial and government clients. We remain very upbeat about our current and future business prospects. Before I hand the call over to Allan, I want to reaffirm the framework that underpins our ability to create long-term shareholder value. First, we will continue allocating capital to the highest return opportunities, including investing in organic growth and our portfolio of differentiated research and development, patents and technology.

We will also continue to evaluate strategic and accretive acquisitions and retain the flexibility to opportunistically repurchase shares to maximize returns. Optimizing our capital structure and managing leverage remain core to our strategy. Second, we will emphasize scalable profitability by expanding our market position through continued investments in sales and marketing, optimizing our operating structure and achieving operating leverage, ultimately driving margin expansion. Third, as an integrator of environmental consulting, testing and treatment solutions with unique technologies, we will continue delivering compelling organic growth of 7% to 9% annually and EBITDA growth faster than revenue growth. And fourth, we will continue increasing operating and free cash flow generation.

This framework contributed to our outstanding first half 2025 results and will support us through the remainder of 2025 and beyond. With that, I will hand it over to Allan. Thank you.

Allan Michael Dicks: Thanks, Vijay. Our second quarter performance highlights our commitment to achieving our stated objectives. The temporary pause in acquisitions has not only provided a valuable window to refine our operational processes and cost framework, but has also allowed us to clearly showcase progress in our key performance metrics, namely organic growth, margin expansion and improved cash flow generation. Our second quarter revenue grew by 35.3% compared to the same quarter last year, reaching $234.5 million. Year-to-date revenues increased by 25.5% versus the previous year, totaling $412.4 million. The main drivers of revenue growth in both periods were additional environmental emergency response revenues, organic growth across all 3 segments and contributions from acquisitions completed in the prior year.

Second quarter consolidated adjusted EBITDA rose by nearly 70% to $39.6 million or 16.9% of revenue, showing a 340 basis point improvement over the prior year period. Similarly, year-to-date consolidated adjusted EBITDA increased 46% to $58.6 million or 14.2% of revenue, a 200 basis point improvement over the same period last year. Robust revenue growth and enhanced operating performance across all segments fueled these results. Notably, margins improved in all 3 segments. In the second quarter of 2025, we reported positive GAAP net income of $18.4 million or $0.42 of GAAP earnings per diluted share attributable to common stockholders compared to a net loss of $10.2 million or a $0.39 net loss per diluted share attributable to common stockholders in the prior year period.

This significant $28.5 million increase in net income and $0.81 increase in GAAP earnings per share was attributable to revenue growth, including organic growth, margin expansion and a $10 million fair value gain related to the Series A-2 redemption, partially offset by an increase in weighted average diluted common shares outstanding. We are extremely pleased with reporting positive GAAP operating income, net income and GAAP EPS even without the benefit of the fair value gain. Continued growth and margin expansion will make this a more sustainable feature and key performance metric. Year-to-date, net loss was $1 million or $0.15 net loss per diluted share attributable to common stockholders compared to a net loss of $23.5 million or a $0.91 net loss per diluted share in the same period last year.

The $0.77 improvement in loss per share compared to the same period last year primarily resulted from revenue growth, margin expansion and dividend relief following the Series A-2 redemption, partially offset by an increase in weighted average diluted common shares outstanding. Year-to-date adjusted net income and adjusted EPS were $32.7 million and $0.73 respectively, representing an improvement over the prior year period of $19.3 million and $0.37 respectively. Please note that our adjusted net income per diluted share attributable to common stockholders is calculated using adjusted net income attributable to stockholders divided by fully diluted shares. We believe this net income methodology is currently the most helpful net income metric for Montrose and common equity investors.

I will now discuss our performance by segment and will focus my comments on the second quarter. In our Assessment Permitting and Response segment, second quarter revenue nearly doubled to $103.9 million from $53.4 million in the prior year period. AP&R segment adjusted EBITDA was $27.6 million or 26.5% of revenue, a 290 basis point improvement over the previous year. The year-over-year growth was mainly driven by an increase in environmental emergency response revenues, organic growth and additional contributions from acquisitions. Our team provided exceptional service during the quarter, including responding to several major incidents. The segment’s margin improvement was fueled by higher-margin environmental response services and organic growth.

Turning to our Measurement and Analysis segment. Revenue for the quarter increased nearly 15% to $62.8 million. We continue to see strong organic growth across lab and field services, along with contributions from an acquisition in 2024. Segment adjusted EBITDA rose to $18.3 million or 29.1% of revenue, which is a 660 basis point margin improvement over the prior year period, primarily due to operating leverage and disciplined cost management. In our Remediation and Reuse segment, second quarter revenue increased to $67.8 million from $65.1 million in the same quarter last year. This segment’s adjusted EBITDA grew to $10 million and adjusted EBITDA margin rose by 110 basis points to 14.8%, which includes strengthening fundamentals in our treatment technology business.

Moving to our cash flow and capital structure. We achieved $27.4 million of operating cash flow in the first 6 months of 2025, a $48.5 million improvement versus the prior year period. The significant increase is related to an increase in cash earnings and improvements in working capital. I am pleased to report that we are on track to significantly outperform 2024 and expect to achieve cash flow from operations greater than 50% of consolidated adjusted EBITDA in 2025. Free cash flow, which we define as cash flow from operations, less purchases of property and equipment, less software development expenditure and excluding the Series A-2 preferred dividend, was $16.7 million, an increase of $63.1 million over the prior year. We are also pleased with the strength of our balance sheet at quarter end, reporting a leverage ratio of 2.5x and substantial available liquidity of $242.8 million.

Subsequent to quarter end, we redeemed the final $62.2 million of the Series A-2 preferred stock in cash, funded with cash on hand and borrowings under our credit facility, resulting in pro forma leverage of 2.99x. In conclusion, we’ve had a strong start to 2025 with record results, momentum across our business and emphasis on serving clients across our diversified service offerings. Our increased guidance for the year reflects the confidence in our ability to continue driving value in our business and the many tailwinds we see. Thank you all for joining us today and for your continued interest in Montrose. We look forward to the opportunities ahead, and we’ll update you on our progress next quarter. Operator, we are ready to open the lines to questions.

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

Q&A Session

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

Vijay Manthripragada: Thanks, Jim. Let me take that in 2 pieces. On the testing side, the Measurement and Analysis segment, our long-term expectation is for that to be in that 18% to 22% range. As we’ve talked about with you and others over time, we are well above that for 2 reasons. One, we’re getting really nice operating leverage in that segment as demand cycles pick up. And that demand cycle increase is partially because of the shift towards states regulating various contaminants more robustly. And then on top of that, we also have a project mix shift. So we are quite optimistic and proud of how well that team has done for the rest of this year. But long term, as we kind of think about a 5-year outlook, Jim, we still think about that as an 18% to 22% margin business.

And the reason I say that is even though we’re much smaller than many of the testing peers out there in the market, we are operating at or above their margin profile, which gives you a sense for the relative advantages of the business model.

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

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

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

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

James Andrew Ricchiuti: 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.

Vijay Manthripragada: Yes. It is — our outlook is the same as it’s been, Jim. Obviously, there’s been over the last couple of quarters, regulatory developments. It is now clearly going to be regulated. The thresholds are low. The deadlines have moved out. And so that shifted the mix for us a little bit, but we’re kind of seeing nice continued growth within our testing business. We’re seeing a nice trajectory within our treatment technology business. That business, Jim, is also now — our patent portfolio there has grown. It is beyond PFAS. And so we have kind of a broader industrial water treatment and broader water treatment technology portfolio, which we’re really excited about. And even within our consulting business, we’re seeing a lot of inbounds tied to assessments.

So as I kind of look at the PFAS portfolio, though we don’t report it that way, we’re quite optimistic that our long-term opportunities there are quite attractive. It’s just going to be a question of what the trajectory of that looks like year in, year out as these regulations set in.

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

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

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

Organic revenue growth in that 7% to 9% range and EBITDA faster than that. And then as events occur, like what we referenced, I would think of it as gravy or upside off of that core engine. On top of that, we’re actually really proud of how well the teams are working together. Those responses have resulted in downstream awards tied to air monitoring, to testing, to remediation, which are sustained and long term and much more akin to kind of the core consultancy or remediation part of the business. And so it is serving as a fantastic funnel of opportunities for the aggregate enterprise. It’s enabling organic growth across the aggregate enterprise. And then when incidents like this occur, like what I alluded to in Q2, it’s effectively kind of a onetime surge in cash and earnings, which we’ll be very transparent about.

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

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

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

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

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

Wade Anthony Suki: No, more broadly, whether it’s broader macro concerns, commodity price concerns, regulatory concerns, things like that.

Vijay Manthripragada: Yes. I mean, look, we obviously spend a lot of time with them. And the environmental industry, notwithstanding, which is our focus, they are dealing with a broader set of factors. We have seen — because of an increase in industrial activity state side here in our home market in the United States, Wade, we’ve been spending a fair amount of time with our waste and energy and industrial clients. And they are not surprisingly dealing with all the typical issues related to the geopolitical fluctuations and policy related to tariffs, related to interest rates. The macroeconomic backdrop, right, the usual suspects that everyone has been talking about. And so there’s a fair degree of sensitivity around the volatility of the macro and/or regulatory backdrop that they’re dealing with.

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

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

Vijay Manthripragada: Yes. We — there is still a really nice opportunity, Wade, for us to continue consolidating in this market in a way that’s really accretive for our shareholders. But part of what we really want to demonstrate by pausing is the power of our inherent engine when we’re not buying, and that’s really what you are witnessing. Obviously, as we pivot back to acquiring and integrating, that muddies the visibility into what the core engine will do. And so this is really more about demonstrating to all of you and to our shareholders that the core Montrose engine is incredibly powerful when given a chance to shine and you’re seeing the benefits of that now. So that’s what we’re really attuned to. One of the commitments we made is that we’re really not going to restart until we are able to demonstrate that clearly and consistently for you over time.

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

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

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

Unidentified Analyst: This is actually Larry Stavitski on for Tim. Tim is attending some other earnings calls simultaneously that were not as good as yours. The results were not as impressive as yours. So I’m pinch-hitting for him today. Just going back to the acquisition pipeline, have valuations and multiples become more attractive? I know you guys are still on the sideline like you just said. But given the volatility economically and the policy changes, have you seen some of the valuations come down recently? Or how does that look?

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

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

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

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

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

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

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

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

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

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

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

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

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

Vijay Manthripragada: Yes, David, if you kind of look at our — this concept of recurrence, which is unique to us for all the reasons we’ve talked about with you and Andrew, if you look at our — the stickiness of our client base, we have been running kind of at 96% or north of that for several years now. And obviously, projects ebb and flow. And as we look at our core clients, call it, our top 250, 300 clients, the percentages are even higher. And so our client retention is incredibly strong. What we find really compelling about these response projects is that because of the strength of that team and the credibility of that team and the relationship that that team has with clients that are dealing with a very unfortunate set of circumstances, the opportunity for us to continue providing services, whether it’s monitoring or testing or remediation or water treatment services, is very real, and it becomes a very nice cross-sell opportunity across the Montrose portfolio.

And so then once those start, the recurrence of that looks a lot like the core business, right, at 96% plus client retention. And so long term, it is effectively a continued opportunity to sell multiple services and then have that ongoing recurrence, which we’re really proud of and credit for that goes to our teams. And so it’s very hard to pick off one project, but that project is likely to look a lot like our long-term business once the response piece of it pulls away.

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

Vijay Manthripragada: David, if you’re asking me if I’m about to go buy something large, it is not imminent. We will always make sure we do what’s in the best interest of our shareholders and maximize value. And we will always be opportunistic as you’ve seen us be in the past. I don’t want to comment on what other firms are or aren’t doing or struggling with. I would just continue to reiterate that we have a very optimistic outlook, and you can see that in our results. You can see it in our guidance. And if there’s opportunities for us to partner with folks to further our relative market advantages, we will absolutely do so. But we’ll do it in a way that’s transparent and accretive to our shareholders. So — there is nothing imminent at this point, but we are well aware of and actively engaged with a lot of folks as to what’s going on in the market.

And what you say is a fair point. But at this time, I think there’s really a lot more value to be derived from showing that we can continue to drive double-digit top line and even faster bottom line and cash flow growth. And then we can add to it if and when we feel like we’re ready to do so.

David Emerson Ridley-Lane: 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?

Vijay Manthripragada: Yes and yes. So when you kind of think about, it is very tough because water is deeply interconnected with soil, obviously, and water matrices can be very complex. And so when you think of what’s downstream of drinking — sorry, upstream of drinking water, David, there’s industrial, there’s the wastewater, wastewater treatment, right, landfills. The list is quite broad. And so we are actively engaged with all of those constituencies. And part of what’s exciting for us is our patent portfolio and credit really to our R&D team has expanded very nicely and has now enabled us to really provide differentiated services to all of those end markets. And part of what I was alluding to earlier about our treatment technologies being beyond just PFAS is, as our patent and our patent portfolio has grown, we’ve seen the ability to kind of extract other contaminants from water, which a lot of our clients have found really compelling.

And so yes, our kind of serviceable addressable market has grown as a result of our technology advantages. We are seeing the benefits of that already. That’s manifesting in the numbers. And yes, we do expect that to continue growing accretively for us into the foreseeable future. And it’s kind of — it’s increased the pool within which we can play.

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

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

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

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

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

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

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