Montrose (MEG) Q3 2025 Earnings Call Transcript

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DATE

Wednesday, Nov. 5, 2025, at 8:30 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Vijay Manthripragada
• Chief Financial Officer — Allan Michael Dicks

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TAKEAWAYS

• Revenue -- $224.9 million in the quarter, a 25.9% increase, driven primarily by organic growth across all three segments and moderate acquisition contributions.
• Adjusted EBITDA -- $33.7 million (15% adjusted EBITDA margin), reflecting a 19% year-over-year increase and improved operating performance.
• Net Income -- Positive $8.4 million net income for 2025, reversing a $10.6 million net loss in the prior year period.
• GAAP EPS -- $0.21 earnings per diluted share versus a $0.39 net loss per diluted share compared to the prior year period, with the $0.60 improvement in earnings per share for 2025 is attributed to higher revenues, margin expansion, and a $10.6 million Series A-2 redemption gain, offset by increased interest and taxes.
• Operating Cash Flow -- $55.5 million operating cash flow for the first nine months of 2025, up $65.3 million year-over-year, reflecting a 60.2% conversion of consolidated adjusted EBITDA.
• Free Cash Flow -- $38.8 million free cash flow (non-GAAP) year-to-date, an increase of $77.4 million over the prior year, equating to 42% conversion of adjusted EBITDA year-to-date.
• Leverage Ratio -- Ended the quarter at 2.7 times, with liquidity of $198.5 million.
• Guidance Raised -- 2025 revenue guidance increased to $810 million-$830 million and adjusted EBITDA to $112 million-$118 million, representing 18% revenue and 20% EBITDA growth at the midpoint over 2024.
• Segment Performance: Assessment, Permitting, and Response -- Revenue grew 75% to $91.1 million, with adjusted EBITDA of $20.4 million (22.4% margin), a 90 basis point improvement in adjusted EBITDA margin for the Assessment, Permitting, and Response segment over the previous year.
• Segment Performance: Measurement and Analysis -- Revenue increased 7.5% to $63 million; adjusted EBITDA of $17.3 million (27.5% margin), a 460 basis point margin improvement for the Measurement and Analysis segment over the prior year period.
• Segment Performance: Remediation and Reuse -- Revenue increased to $70.8 million; adjusted EBITDA declined to $9.4 million, with margin down 380 basis points to 13.3%, primarily due to losses from the renewables business wind-down.
• Series A Preferred Stock Redemption -- Final $62.6 million redeemed July 1, 2025, completing balance sheet simplification ahead of schedule.
• Water Treatment Business -- Delivered "really healthy organic growth" and margin accretion compared to 2024, with ongoing regulatory clarity around PFAS contributing to a growing multi-industry pipeline.
• Renewables Business Wind-Down -- Business being fully exited by year-end due to policy-driven demand decline, with de minimis revenue according to Allan Michael Dicks and losses impacting Remediation and Reuse segment margins.
• Acquisition Strategy -- Acquisition pause in 2025 to highlight organic performance; plan to restart M&A activity in 2026, targeting both capability and geographic expansion, and evaluating larger asset opportunities.
• Organic Growth Rate Outlook -- Management anticipates sustaining 7%-9% annual organic revenue growth, with EBITDA growth outpacing revenue.
• 2026 Early Outlook -- Management offered guidance for at least $125 million in EBITDA and margin improvement in 2026.
• Exposure to U.S. Federal Government -- Less than 5% of revenue, with no material impact from recent U.S. government shutdown; state and local government activity has created incremental growth opportunities.
• Cross-Selling Effect -- Emergency response assignments are generating substantial downstream consulting, testing, and remediation revenue, increasingly forming a recurring revenue base.

SUMMARY

Montrose Environmental (NYSE:MEG) delivered record results for Q3 2025 in revenue, adjusted EBITDA, net income, and free cash flow, with broad-based organic growth reinforced by cross-selling and ongoing margin expansion year-to-date. Management raised full-year 2025 guidance for revenue and adjusted EBITDA while providing an "at least $125 million" EBITDA outlook for 2026, reflecting confidence in the business's momentum and visibility. Segment level data show outperformance in the Assessment, Permitting, and Response segment, record Measurement and Analysis margins, and material margin drag in Remediation and Reuse from renewables exit losses embedded in current and projected results. The balance sheet was strengthened via a completed $62.6 million Series A preferred redemption and leverage reduction to 2.7 times, with ample available liquidity to fund future investment and restart M&A. The company is benefiting from state-level environmental regulations and international market forces, notably the EU methane rules, which have counteracted U.S. federal policy headwinds and provided additional growth opportunities. Strategic clarity was provided on business line exits, near-term reinvestment priorities, and the planned resumption of acquisitions in 2026 targeting both scale and capability.

• CEO Manthripragada said, "we observed that state and local governments have and continue to step in to address gaps and uncertainties left by the U.S. Federal government, creating additional opportunities for growth that we did not anticipate at the start of this year."
• Water treatment is expanding beyond PFAS-driven demand into pharma, semiconductors, and waste, supported by proprietary technology and broad regulatory trends.
• Cross-segment commercial and technical team investments are included in raised guidance, aiming to drive share-of-wallet expansion and enhanced retention across a predominantly industrial client base.
• Allan Michael Dicks stated, "The Assessment, Permitting, and Response segment's adjusted EBITDA was $20.4 million or 22.4% of revenue, a 90 basis point improvement over the previous year due to favorable revenue mix."

INDUSTRY GLOSSARY

• PFAS: Per- and polyfluoroalkyl substances, a class of persistent environmental contaminants regulated under evolving water quality standards.
• Cross-Selling: Generating revenue by selling additional or complementary services to existing clients, often after an initial major engagement.

Full Conference Call Transcript

Vijay Manthripragada: Thank you, Adrienne, and welcome to everyone joining us today. I will provide an update on the strength of our third quarter and year-to-date results, discuss our increased 2025 guidance and the reasons for our more optimistic 2026 outlook, and speak generally about the third 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, our business is best assessed on an annual basis given the demand for environmental science-based solutions does not follow consistent quarterly patterns. This is how we manage our business and how we recommend viewing our performance.

I want to take a moment to express my sincere appreciation for our approximately 3,500 colleagues around the world. Their exceptional contributions, commitment to exemplary client service, and passion for environmental stewardship and innovation are the cornerstones of Montrose's success. Together, we pursue our mission of For Planet and For Progress. For Planet and For Progress, this means Montrose aims to simultaneously address our universally shared desire for clean water, clean air, and clean soil while creating jobs and increasing shareholder value. We are partnering primarily with our industrial clients across end markets to help them operate more efficiently and reduce their impact on their environment.

This is why our revenue and earnings are hitting record levels despite all the political rhetoric. Whether it is working with our energy-producing clients to reduce air emissions and costs, whether it is working with our waste industry clients to address water contamination concerns and risks, or whether it is working with technology and semiconductor companies on permitting or water access concerns, our financial results speak to how environmental stewardship can work in concert with development and value creation. This is why our record 2025 continues. From a financial perspective, we achieved our third consecutive quarter of record performance, including free cash flow generation that exceeded expectations.

Broad-based client demand for our services is reflected in the 26% revenue growth and 19% consolidated adjusted EBITDA growth in Q3 year over year. As we look at the more meaningful and longer-term financial result trends of year-to-date 2025 results, revenue has increased 26% with very strong double-digit organic revenue growth. And adjusted EBITDA has increased even faster than revenue at 30%, reflecting continued margin accretion of an additional 1% of revenue year over year. This margin accretion is due to both strong organic growth and operating leverage in our consulting, testing, and water treatment businesses in particular.

Operating and free cash flow have increased meaningfully by $65 million and $77 million year over year, which has allowed us to delever the balance sheet faster than expected and has increased our flexibility to further invest in our people and our business. In addition, given our strategic acquisition pause at the start of 2025, which we initiated to clearly demonstrate the underlying power of our business and business model, we believe that power and strength is apparent from these results. For the second consecutive quarter and year-to-date periods, we reported positive net income and positive GAAP EPS, which Allan will expand upon in his prepared remarks.

I am very proud of my team for delivering these exceptional results while maintaining their focus on our mission and our clients. As we look forward to the rest of 2025 and to 2026, our optimism remains, and we are thrilled that our financial results continue to clearly show why we are and remain upbeat about our business's prospects. Regarding updates to our guidance, due to our strong year-to-date performance and based on consistent client feedback about the importance of our services to their operations, we are raising 2025 guidance for the third consecutive quarter.

We now expect 2025 revenue to be in the range of $810 million to $830 million and 2025 consolidated adjusted EBITDA to be in the range of $112 million to $118 million, which represents an approximately 18% revenue increase and 20% full-year adjusted EBITDA increase at the midpoint over 2024. Given recent questions about the topic, we want to remind you that our exposure to the U.S. Federal government remains very modest, well less than approximately 5% of revenue, and that we have not been significantly impacted by the recent U.S. Government shutdown. Notably, we observed that state and local governments have and continue to step in to address gaps and uncertainties left by the U.S.

Federal government, creating additional opportunities for growth that we did not anticipate at the start of this year. We continuously monitor these developments to strategically position ourselves to capitalize on these new opportunities. We do acknowledge that external factors such as economic volatility, policy fluctuations, and evolving regulatory frameworks are influencing our industry. However, Montrose's unique business model and our competitive positioning have allowed us to capture tailwinds from these external factors, and our positioning has also allowed us to stay largely insulated from the broader volatility. I will now highlight a few of the tailwinds benefiting us this year.

As a reminder, we have repeatedly heard from our clients that one, their long-term outlook has not changed, that two, they see increasing domestic industrial activity as a net positive, and that three, they remain committed to complying with state and international regulations that impact their ability to drive their financial results. All acknowledged challenges from the current volatility in U.S. Federal regulations, but by and large, we have only seen a few of our approximately 6,000 clients make any changes to their operating policies or decisions. This is why our business remains resilient. For example, and regarding greenhouse gases, which are among the most politicized air contaminants, changes to U.S.

Federal policy seem to have been more than offset by the impact of state regulations, including states in which we have many employees and clients, and which are across the political spectrum. For example, in Texas, in Colorado, and in California. In addition, market forces such as the recent EU methane regulations expand the global market for emissions monitoring and compliance. As these requirements affect global exporters, including U.S. LNG and oil producers who are among our key clients. Montrose's historical investments in advanced monitoring technologies enable us to work with our energy clients to provide better, faster, and more cost-effective results. Coupled with our clients continuing to take practical long-term views, demand for our services continues apace.

And because these regulations are multiyear in scope, with phased deadlines and increasing stringency through 2030, demand is often longer-term and more predictable. These state regulations and market forces are a large part of why our Measurement and Analysis segment's organic revenue growth and margins are at record levels in 2025. As another example, the clarification of the U.S. EPA's perspectives on PFAS regulation in Q2 2025 and the agency's continued focus on water quality has resulted in a steady increase in the number of opportunities for our water treatment business.

Not only does our pipeline of water treatment opportunities continue to expand meaningfully, but our year-on-year organic growth for this service is expected to remain elevated and accretive to our 2025, 2026, and long-term organic growth outlook. As a third example, increased mining activity in our Canadian and Australian markets has resulted in attractive and new growth opportunities for Montrose in both of those geographies. The recent Rare Earths partnership across governments adds more momentum to an already attractive industrial end market for Montrose. The environmental consulting, permitting, testing, and water treatment needs for our mining sector clients are likely to create nice tailwinds for our business over the foreseeable future.

As a fourth example, increased industrial activity, aging infrastructure, and more severe weather-related events continue to drive outsized demand for our environmental emergency response business in the United States. What is critical to convey is that though the response-related earnings are meaningful and unpredictable, they are an increasingly smaller part of the whole, and this is critical. They are very additive to our long-term organic growth and cross-selling algorithm. As a simple analogy that hopefully sheds light into the strategic and financial value of having a response business as part of our service portfolio, because of our focus on being an environmental science pure play, our response business is like the emergency room in our environmental hospital, so to speak.

Once a patient comes into the ER of a traditional hospital, they are likely to need testing services and inpatient services. This is similar to our dynamic at Montrose, where our environmental testing and our environmental consulting and treatment services often follow our environmental emergency response. What we are increasingly finding as a team works more closely together is that post-response, there are substantial downstream and often recurring long-term opportunities for Montrose. Said otherwise, our environmental emergency response is not just episodic; it has also provided structurally recurring opportunities for us and supported long-term organic growth opportunities.

As a specific example, earlier this year, we responded to an accidental environmental release for one of our energy clients, and our involvement in this response helped us secure long-term remediation and testing related to the event, which not only benefited third-quarter results but will also likely result in multiyear opportunities for Montrose. We expect our environmental advisory and air monitoring services will continue with this client for many years to come. We hope these examples help provide more context around why demand for our services continues to increase and remains visible and predictable for our teams. 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, research and development, and technology. We regularly review our service lines and operations to ensure achievement of our internal return hurdles and resource optimization. Through this internal evaluation and given changes to U.S. Policy, and the results of impact on the U.S. Market for renewable energy, we determined that it is prudent to exit our renewable service line within our remediation and reuse segment. We expect to have this materially wound down by the end of this year. The impact of this decision has already been embedded in our results and outlook for 2025.

Second, we will emphasize scalable profitability by expanding our market through continued investments in sales and marketing. These investments are already embedded in our current outlook. Given most of our organic growth has come from increasing our share of wallet with our existing customers, given we remain a small fraction of our clients' overall spend on environmental solutions, and given we have very strong customer retention, in 2025, we continued investing in building a best-in-class commercial team. This team is selling technical services to clients, is also enhancing our brand visibility, and has started increasing our focus on sectors that enable us to address broader trends faced by our clients and their peers as a group.

We have had the fortune of adding some incredible talent to our technical and commercial teams in 2025, which is why we have so much conviction in our ability to continue driving market-leading organic growth and the resultant margin accretion into the foreseeable future. Third, we will continue to evaluate strategic and accretive acquisitions and retain the flexibility to opportunistically repurchase shares to maximize returns. Our acquisition strategy is not just about scale. It is about capability and geographic reach. We evaluate each opportunity for strategic fit and for the potential to drive outsized financial returns.

Optimizing our capital structure and managing leverage, along with our continued focus on increasing operating and free cash flow generation, remain core to our acquisition and to our operating decision models. Due to the highly fragmented nature of our industry, and client feedback, on the value of scale and capability and reach, and given our strong performance with cash generation in 2025, we expect to restart acquisitions sometime in 2026. Long-term, we will continue delivering compelling organic growth of 7% to 9% annually with EBITDA growth expected to outpace revenue growth. Coupled with acquisitions which will be additive to these growth rates, we remain confident in our ability to create outsized returns for our shareholders.

These frameworks and industry dynamics contributed to our outstanding year-to-date 2025 results, our increased 2025 guidance, and the 2026 outlook we are sharing today. In 2026, we expect to achieve at least $125 million in EBITDA. We also anticipate further improvement in EBITDA margin in 2026 compared to 2025. Our resilient business model, execution in 2025, and exceptional team give us the confidence to provide an early outlook for another excellent year in 2026. We will continue to navigate the complexities of this evolving market landscape. But regardless of the complexities, we are committed to surpassing our goals as we have been doing and to generating significant value for all of our shareholders.

With that, I will hand it over to Allan.

Allan Michael Dicks: Thank you, Vijay. In 2025, we have sharpened our focus on driving best practices and on delivering for our clients, shareholders, and employees, with our record third quarter and year-to-date financial performance highlighting the results of some of these efforts. Our third-quarter revenue grew by 25.9% compared to the same quarter last year, reaching $224.9 million. Year-to-date revenues increased by 25.6% versus the previous year, totaling $637.3 million. The primary drivers of revenue growth in both periods were organic growth across all three segments and modest contributions from acquisitions completed in the previous year, with additional environmental emergency response revenues also adding to year-to-date revenue growth.

Robust revenue growth and enhanced operating performance fueled the third-quarter consolidated adjusted EBITDA increase of nearly 19% to $33.7 million or 15% of revenue. Similarly, year-to-date consolidated adjusted EBITDA increased 35% to $92.3 million or 14.5% of revenue, a 100 basis point improvement over the same period last year. This year, we are investing in marketing to boost our brand equity, rewarding employees for their contributions, and refining our go-to-market strategy, assessing future organizational needs. These efforts are shaping our future success, and we look forward to discussing more with you as we progress.

In 2025, we reported positive GAAP net income of $8.4 million or $0.21 of GAAP earnings per diluted share attributable to common stockholders, compared to a net loss of $10.6 million or a $0.39 net loss per diluted share attributable to common stockholders in the prior year period. This notable $18.9 million increase in net income and $0.60 increase in GAAP earnings per share was attributable to strong revenue growth, margin expansion, and a $10.6 million fair value gain related to the Series A-2 redemption, partially offset by higher interest and tax expenses and an increase in weighted average diluted common shares outstanding.

This marks our second consecutive quarter and the first year-to-date period of reporting positive GAAP operating income, net income, and GAAP EPS. Continued growth and margin expansion driven by brand and go-to-market investments, as well as continued cross-selling success, will help make these key performance metrics more sustainable. Year-to-date, net income was $7.4 million or $0.08 in GAAP earnings per share, compared to a net loss of $34.1 million or $1.30 net loss per diluted share in the same period last year. The year-over-year $1.38 improvement in earnings per share primarily resulted from higher net income and dividend relief following the Series A-2 redemption, partially offset by an increase in weighted average diluted common shares outstanding.

I will remind our audience that on July 1, 2025, we redeemed the final $62.6 million of the Series A preferred stock in cash, funded with cash on hand and borrowings under our credit facility, achieving our balance sheet simplification goal six months ahead of schedule. Year-to-date, adjusted EPS were $45 million and $1.03 respectively, reflecting an improvement over the prior year period of $38.6 million and $0.80. 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 per share metric for Montrose and common equity investors.

I will now discuss our performance by segment, focusing my comments on the third quarter. In our Assessment, Permitting, and Response segment, third-quarter revenue grew 75% to $91.1 million from $52 million in the same period last year, driven by increases in non-response consulting and advisory services, which included the benefit of remediation consulting services cross-sold following the large environmental incident response in the second quarter of this year. The Assessment, Permitting, and Response segment's adjusted EBITDA was $20.4 million or 22.4% of revenue, a 90 basis point improvement over the previous year due to favorable revenue mix.

Turning to our Measurement and Analysis segment, revenue for the quarter increased 7.5% to $63 million, driven by organic growth across lab and field services and modest contributions from an acquisition in 2024. Segment adjusted EBITDA rose to $17.3 million or 27.5% of revenue, representing a 460 basis point margin improvement over the prior year period. In 2025, Measurement and Analysis segment margins have significantly outperformed the prior year, as utilization drove efficiency gains and our team's enhanced operating performance. We expect segment margins to remain elevated in the next few years, likely greater than 20%. In our Remediation and Reuse segment, third-quarter revenue increased to $70.8 million from $68.1 million in the same quarter last year.

This segment's adjusted EBITDA declined to $9.4 million, and adjusted EBITDA margin fell by 380 basis points to 13.3%, primarily driven by losses incurred in the wind-down of our renewables business. Our water treatment business continues to gain momentum, and we are pleased with the organic growth and margin progress in that service line. Moving to our cash flow and capital structure, we achieved $55.5 million of operating cash flow in the first nine months of 2025, a $65.3 million improvement compared to the prior year period. Year-to-date operating cash flow, which was driven by higher cash earnings and improvements in working capital, represented a 60.2% conversion of consolidated adjusted EBITDA, significantly exceeding our greater than 50% target.

Free cash flow, defined as cash flow from operations less cash paid for property and equipment and capitalized software development expenditures, and excluding the Series A-2 preferred dividends, was $38.8 million, an increase of $77.4 million over the prior year. Of note, $38.8 million of free cash flow generation equates to 42% conversion of consolidated adjusted EBITDA. We are also pleased with the strength of our balance sheet at quarter-end, reporting a leverage ratio of 2.7 times and substantial available liquidity of $198.5 million. At the beginning of this year, we established expectations to simplify our balance sheet, report year-end leverage below three times, focus on organic growth, and increase operating cash flow generation.

With three quarters behind us and our increased full-year 2025 guidance, we are confidently on track to surpass these goals. Thank you all 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. Operator, we are ready to open the lines to questions.

Operator: Your first question comes from the line of Tim Mulrooney from William Blair. Your line is open.

Tim Mulrooney: Vijay, Allan, good morning. Jason, how are you?

Vijay Manthripragada: Yeah. Doing well. Thanks. So, I wanted to ask

Tim Mulrooney: to start off on that AP and R business. You know, it showed really strong growth this quarter, much higher than we were expecting. Allan, you touched on it in the prepared remarks, but can you go into a little more detail about what drove that growth? How much of that is structural versus perhaps some larger one-time sales maybe related to that disaster business? Is there any pull forward from the fourth quarter as well? Because in order to hit the mid of your guide for the full year, it looks like we need to assume that maybe that business decelerates on a sequential basis. Sequential basis.

So just want to have a broader conversation about AP and R specifically. Thanks.

Vijay Manthripragada: Hey, Sam. Why do not I start, and Allan can certainly jump in. So a lot of the outperformance is tied to the excellent cross-selling following the emergency response that we alluded to earlier this year. So, as you think about strategic pieces around the benefits of having an incredible, arguably, best-in-class response business, the cross-selling benefits of that are kind of manifesting in our numbers across our segments as we think about our practice. Is what you are asking about, but even testing, remediation, all of them are benefiting from those efforts. And so to answer your question specifically, it is both structural and some of it is one-time.

And we certainly expect that from those cross-selling benefits, as we alluded to in Allan's comments and mine, will be some really attractive downstream testing and remediation business. That will continue for a while. And then as it relates to the second part of your question, around the timing, yes, there is a little bit of a pull forward from what we originally anticipated in Q4 into Q3 and Q2. And so that is where some of that shift is coming from. And you are exactly right.

Tim Mulrooney: Okay. That is really helpful. Thanks for connecting the dots there, Vijay, for between what is happening and the guidance. That all makes sense to me now. Wanna switch gears really quickly and just ask about your comments on your water treatment business. It sounds I mean, the tone sounds pretty positive, maybe even a little more positive. This quarter than what I have heard in the past. Maybe I am making that up in my head or maybe that was by design. But it sounds like you are, you know, incrementally positive on that on that business, at least to me. I wonder you know, what is driving that.

You know, I recent you know, we saw that the EPA reaffirmed the Bidenera designation for PFOA and PFOS as hazardous substances under the surplus super fund. We were not really sure which way that was gonna go. I have to think that is good for your business long term. So curious how you are thinking about that and if that is related to the positivity that you are seeing in that water treatment business or if it was other factors? Thank you. Thanks, Tim.

Vijay Manthripragada: So the short answer is yes. But let me let me just step back. And talk a little bit about, our water treatment business. It is seeing really healthy organic growth. And margin accretion this year compared to '24. So it is it is a good part and a solid part of the outperformance we have had this year. So some of the optimism we are expressing is because we are really proud of the success that team has had in 2025. And we certainly expect over the next couple of years for that success to continue.

The way, the reason we talk about, water treatment now is that this is kind of a team that has intellectual property and technology. That is applicable across multiple contaminants. Not just PFAS. And so, yes, the PFAS, clarity around PFAS regulations are contributing to our growing pipeline. They are contributing to this year. They are expected to continue contributing over the next couple of years. But because of our advanced water treatment capabilities, we are seeing kind of opportunities more broadly where PFAS is a contaminant of concern, but not the only one. I think that is a that is an important distinction there, Ted. We are seeing opportunities across new industries, for example, like pharma and semiconductors.

That are popping up or the or the land to leachate in the waste industry. Our technology is applicable across a broader swath of contaminants including PFAS. And so it is really a water technology business. And as that technology becomes more visible in the market, we are starting to see some really nice momentum pick up. So, yes, our optimism is higher. Yes. Our optimism related to the future, is much stronger, but those are the reasons why this is not a PFAS play, but that is certainly a driver of the

Tim Mulrooney: Thanks, Vijay. Congrats on a nice quarter.

Vijay Manthripragada: Thanks, Tim.

Operator: Your next question comes from the line of James Andrew Ricchiuti from Needham and Company. Your line is open.

James Andrew Ricchiuti: Hi, thank you. Good morning. Wanted to just touch on hello, everyone. Wanted to touch on the announcement that you talked about on the renewables service side of the business. You give us and this may have been in some of the information you provided. I apologize. If it was, but the revenues associated with renewable services. And maybe, Allan, if you can, can you help us with the impact on margins from the wind down of this part of the business?

Vijay Manthripragada: Yeah. Maybe Jim, why do not I explain why we are doing it? And then Allan can give you kind of color on the financials. We look at as we look at the current administration's policies around biogas in particular and some of the uncertainties related to it, we have seen a pullback from some of those clients on kind of the demand cycle and the opportunity for us given our specific capabilities to scale that business. So in this current environment, it does not make sense for us to allocate capital and time to that business and generate the type of IRRs, that we would want internally.

Given some of the other opportunities we are seeing that we talked about. So that is the reason for the wind down if I exclude the wind down impact, which is in all the numbers, it is included in all of our guidance, the segment margins would be up. Year to date. Nicely. And so, it is despite that, right, the business is obviously performing incredibly well. But it makes sense for us to step away from that business now given what the environment looks like from our into the foreseeable future, given the current administration's policy.

Allan Michael Dicks: Yeah. And on the revenue side, Jim, we have got a couple of projects we are winding down, and so we are not generating any new projects. So it is it is de minimis revenue this year. A very significant percentage decrease year over year. And we just write it here to exclude that margin from that segment. Would be up. We do expect to fully be out of that business by the end of the year.

James Andrew Ricchiuti: Okay. On the decision to look at restarting M&A at some point in 2026. Vijay, maybe you can touch a little bit on whether your acquisition priorities might be different than what you pursued in the past. And just given the current dynamics of the market, maybe you could give us a little color. I know it is still perhaps a ways out, but just talk to us about how your M&A strategy might be evolving.

Vijay Manthripragada: Sure, Jim. Just from a in terms of our capacity, right, the strategic thesis our desire to continue consolidating this market is unchanged. As we think about the incredible success Allan and team have had with cash flow generation, we expect to have an incredible year both obviously as you saw in Q3, but also, through the rest of this year, which further delevers the balance sheet and the power of that balance sheet gives us a lot more flexibility to continue investing in the business both organically and inorganically. So the short answer is I do expect to certainly restart acquisitions, very soon, certainly in 2026.

And the nature of those transactions you know, we are kind of evaluating size, and our ability to digest larger assets. We have had a lot of success, as you know, with the recent acquisitions of size like CTEH or Matrix. So those types of assets continue to be very attractive for us. We have seen some really nice opportunities internationally. As we continue to scale in geographies like Canada and Australia. Again, staying true to our core business and business capabilities, it is just expanding kind of our reach at the request of our clients.

And we believe that there is gonna be continued margin accretion opportunities tied to our ability to extract efficiencies as we have demonstrated, with some of the larger transactions. And so our shift there is a little different, Jim. As we think about the large assets trading in the private sector, those assets are trading in the 17 to 20 times multiple. EBITDA multiple, and then the smaller assets continue to trade in kind of that mid to high single digits. And so that, that balance obviously weighs pretty heavily as we think about future opportunities for us. To expand. It is still a massive addressable market, even with our current trajectory and rapid growth.

We are still a small piece of it. And so it is a core part of the thesis, and I certainly am excited to get that going again in the in the near future. Does that answer your question, Jim?

James Andrew Ricchiuti: Yeah. It does. It is helpful, Vijay. Thank you. And congrats. By the way, on the quarter.

Vijay Manthripragada: Thanks, Jim.

Operator: Your next question comes from the line of Tim Moore from Clear Street. Your line is open.

Tim Moore: Thanks. Nice execution on organic sales growth and free cash flow conversion. It is quite the improved company compared to before 2024. So really great operational execution and strategy. Just switching gears to I want to start maybe with remediation reuse. How should we think about the potential for margin expansion cadence there on the step up to maybe a higher teens adjusted EBITDA margin, that business might be a subscale now. But I was just kind of curious, I mean, there a trigger point like $80 million revenue quarterly? Or do you think that would be more of a priority to kind of do bolt-on acquisitions to get the utilization and the scale up there for more margin expansion?

Allan Michael Dicks: Let me take that. It is less about M&A adding to that segment to get margins up. It is fundamentally the water treatment business that is gonna drive most of that margin expansion. That treatment technology business, which included the renewables business, has run kind of low teens on a combined basis. With when you pull those two businesses apart, that water treatment business has been running kinda high teens in biogas or renewables in the single digits. So what we are seeing is as we wind down renewables, you are gonna get that margin to the business out of the way.

And we are seeing nice accretion on the water treatment side that will be in the 20% margin range on its own. And so as that business continues to expand as a percentage of the segment's revenues, you are gonna see a natural lift in the overall market. There is margin increase in opportunity in the rest of that segment, but obviously, not to the extent of the water treatment.

Tim Moore: That is great color. No, thanks for breaking that out. I think that really helps investors and explains the catalyst that I will just be self-help. So Vijay's prepared remarks mentioned mining in Canada and Australia. We have seen a lot of the rare earths EU emission rules come out for LNG exports. Are there any other areas you can talk to about besides the non-PFAS water treatment and semiconductors? I mean, had that really good announcement. Late August for Western Canada for the restoration in water restoration and decommission facilities. Are you seeing more of that kind of pop up?

And else you can talk about maybe that you have not mentioned that is that is kind of heating up?

Vijay Manthripragada: Yeah. Tim, I mean, it is we are seeing, as you think about kind of our strategic focus on industrial clients, as we think about, the shifts geopolitically, increased domestic production, take The United States for a second. Right? And, obviously, all of those industries are now tailwinds for us. But even in Canada with Prime Minister Carney's, Canada first approach and the material investments in infrastructure and industrial production, energy production, as you think about Australia, and the administration's focus there on, on mining, and energy production we think, obviously, about The United States, all of those are structural tailwinds for our business. And the reason is those are that is our client base that is picking up activity.

And so as we think about the pharmaceutical industry, for example, and the GLP one business that is obviously booming for all reasons you guys know. The water implications of that are substantive, and so we are seeing some real increase in activity there that we did not anticipate. As we think about increased semiconductor production or energy production. Tied to all of the macro trends we have seen nationally. Seeing really nice pickups there. We think about the mining industry, independent of the recent rare earths announcement, we saw some really nice pickup in activity, some of which we announced earlier.

Obviously, our leadership there and the needs of that industry as, deals between The US and Australia, for example, pick up creates incremental tailwinds there. And so as I kind of look across the board, we are seeing just a structural pickup due to that increased industrial activity for our business. Which we expect will sustain us into the foreseeable future. There is no one specific spot that is disproportionately driving it. We are seeing some elevated activity in the waste industry.

Both from an air emissions monitoring from a from a testing perspective, and also from a water treatment perspective that we did not anticipate and, obviously, the energy industry, given the increase production demands across our geographies, is a big contributor to us this year. We expect it will be one of our biggest if not the biggest client base in 2025. So I am pretty excited as I as I kind of look forward and look at where we strategically placed our bets. Some of that is kind of coming our way, and it is creating tailwinds, I expect that to continue.

Tim Moore: That is terrific, Vijay. I just want to sneak in one last small question here. On cross-selling for more share wallet and to create better awareness of you being the rare fully integrated one-stop shop solutions provider, I know there was a survey not long ago, independent survey, just a lot of customers did not even know that you can handle multiple services. You been investing in a dedicated team to kind of get the word out there about your national reach with local expertise to really fulfill all their needs of services? For new customers.

Vijay Manthripragada: We have, Tim. We have. And, and let me let me just make this abundantly clear. Those investments are in all the numbers. We are giving you. There is nothing incremental. It is in the guidance. And it is already embedded. But, yes, we have been investing in our marketing, which we think is a powerful way and we are excited about some of the brand efforts that are underway to get the word out so that our clients continue to understand all the things we can do. And we have also been investing in bringing in some incredible talent. On the commercial side to really help us think about sectors and some of our key logos.

As we think about making sure they understand that this is, the portfolio of solutions we provide are meaningful and broad and not specific necessarily to the one, two, three service they use us for. Specific geographies as that has been a major focus in '25 and continue to be a major focus in '26. That talent is already in house, which is partially why we have conviction as to what next year is gonna look like.

Tim Moore: Great. That is it for my questions. Thanks.

Vijay Manthripragada: Thanks.

Operator: And your next question comes from the line of Andrew Obin from Bank of America. Your line is open.

Devin Leonard: Hi, this is Devin Leonard on for Andrew Obin.

Vijay Manthripragada: Hey, Devin.

Devin Leonard: K. So with the great with the great showing in APNR and the outperformance somewhat tied to the cross-selling from earlier emergency responses, what level of cross-selling are recurring revenue is typically associated with these emergency response projects? Any you could call out from historic?

Vijay Manthripragada: It really varies, Devin. And, look, and I would just point out that, yes, that segment had exceptional performance. But as we as we look kind of year to date, our testing segment has also had an incredible year. So the momentum of the business beyond the PNR really is broad-based. And Allan already alluded to the outperformance on the water treatment side as well. But specific to, APNR and to the typical cross-selling rhythm, it really depends on the nature of the incident.

And so as a simple example, with the trend derailment in Ohio, and the results and challenges associated with that, a lot of the work that our team did, the future cross-selling was really tied to air monitoring. And toxicology service. For example. As we think about the, energy-related release in the mountain states this time, a lot of that is tied to remediation and testing. For example. So there is no simple mechanism or algorithm by which we can say, this amount of response translates to this amount of cross-selling. What we are incredibly encouraged by is that performance that you see is a function of that.

But there is certainly some ongoing testing and remediation work that is gonna come out of that, but teams have done an incredible job capturing. And that will benefit us for years to come. So it is not a there is no mathematical answer I can give you, Devin. It is just that our thesis is playing out. The market in real time.

Devin Leonard: Absolutely. And then switching gears a little bit, just could you talked about the EU methane regulations earlier in the prepared remarks. Can you go into some more details about the potential market opportunity related to that?

Vijay Manthripragada: Yes. As we think about the large U.S. manufacturers, producers of energy, the European markets are a big part of what they focus on. Right? And as a result, they are subject not only to US state but also to market factors. Like what their clients specifically EU governments want them to report on. And so what we are seeing is that for the large players and the large exporters, as activity picks up for them, for our services continues to increase. So the reason I brought that up, Devin, was because we received a lot of questions saying with the current administration's deemphasis and desire to pull back on regulations related to greenhouse gases, are we seeing headwinds?

And what we are seeing is, in fact, we are not. We are seeing activity continue apace, and we are seeing new pockets of activity pop up tied to market forces and state regulations instead of the federal. So we are as we look forward, right, that is a very accretive business for us, and we have not seen a pullback there. As many anticipated at the start of this year. Does that make sense?

Devin Leonard: Absolutely. Thank you so much.

Vijay Manthripragada: Yeah. Thanks, Devin.

Operator: There are no further questions at this time. So I would like to hand back management for closing comments.

Allan Michael Dicks: Thank you all, and thank you to the Montrose team. We look forward to catching up with you as the rest of this year wraps up. And we are excited to continue sharing our narrative and our story as we progress through '25 and into early 2026. Thank you very much for your interest, and have a great day.

Operator: That does conclude our conference for today. Thank you for participating. You may now all disconnect.

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