Onterris, Inc.

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical audited and unaudited consolidated financial statements and related notes and other information included elsewhere in this filing and our other filings with the SEC, including our unaudited condensed consolidated financial statements and the accompanying notes as of and for the three and nine months ended September 30, 2025 and September 30, 2024 included in Part I, Item 1. “Financial Statements” in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the section entitled “Forward-Looking Statements”, and elsewhere in this filing and our other filings with the SEC, including in Item 1A. Risk Factors in the 2024 Form 10-K and Part II, Item 1A. Risk Factors in the Q1 2025 Form 10-Q.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical audited and unaudited consolidated financial statements and related notes and other information included elsewhere in this filing and our other filings with the SEC, including our unaudited condensed consolidated financial statements and the accompanying notes as of and for the three months ended March 31, 2026 and 2025 included in Part I, Item 1. “Financial Statements” in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the section entitled “Forward-Looking Statements”, and elsewhere in this filing and our other filings with the SEC, including in Item 1A. Risk Factors in the 2025 Form 10-K.

Previous wording

Since our inception in 2012, our mission has been to help clients and communities meet their environmental goals and needs. According to data derived from a 2024 Environmental Industry Study prepared by Environmental Business International, Inc., or EBI, which we commissioned, the global environmental industry is estimated to be approximately $1.6 trillion, with $540.0 billion concentrated in the United States.

Current wording

Since our inception in 2012, our mission has been to help clients and communities meet their environmental goals and needs. According to data derived from a 2025 Environmental Industry Study prepared by Environmental Business International, Inc., or EBI, the global environmental industry is estimated to generate approximately $1.9 trillion in revenues in 2026, with $620.0 billion concentrated in the United States.

Previous wording

Measurement and Analysis segment is one of the largest providers of environmental testing and laboratory services in North America. Our highly credentialed teams test and analyze air, water and soil to determine concentrations of contaminants, as well as the toxicological impact of contaminants on flora, fauna and human health. Our offerings include source and ambient air testing and monitoring, leak detection, and advanced multi-media laboratory services, including air, soil, stormwater, wastewater and drinking water analysis.

Current wording

The Measurement and Analysis segment provides environmental testing and laboratory services, including the analysis of air, water, and soil.

Previous wording

These operating segments have been structured and organized to align with how we view and manage the business with the full lifecycle of our clients’ targeted environmental concerns and needs in mind. Within each segment, we cover similar service offerings, regulatory frameworks, internal operating structures and client types. Corporate activities not directly related to segment performance, including general corporate expenses, interest and taxes, are reported separately.

Current wording

These segments collectively support clients across the lifecycle of their operations, from assessment and compliance to monitoring and remediation. These operating segments have been structured to align with how we view and manage the business with the full lifecycle of our clients’ targeted environmental objectives in mind. Within each segment, we cover service offerings within similar regulatory frameworks, internal operating structures and client types. Corporate activities not directly related to segment performance, including general corporate expenses, interest and taxes, are reported separately.

Previous wording

Although we have temporarily paused acquisitions, we have been, and expect to continue to be, an acquisitive company. Acquisitions have expanded our environmental service capabilities across all three segments, our access to technology, as well as our geographic reach in the United States, Canada, Europe and Australia. The table below sets forth the number of acquisitions completed, revenues generated by and the percentage of total revenues attributable to those acquisitions completed during the three and nine months ended September 30, 2025 and September 30, 2024:

Current wording

Although we did not consummate any acquisitions in the three months ended March 31, 2026, or the year ended 2025, we have been, and expect to continue to be, an acquisitive company. Acquisitions expanded our environmental service capabilities across our segments, our access to technology, as well as our geographic reach in the United States, Canada, and Australia.

Previous wording

As a result of our acquisitions, goodwill and other intangible assets represent a significant proportion of our total assets, and amortization of intangible assets has historically been a significant expense. Our historical financial statements also include other acquisition-related costs, including costs relating to external legal support, diligence and valuation services and other transaction and integration-related matters. In addition, in any year gains and losses from changes in the fair value of business acquisition contingencies such as earn-outs could be significant. The amount of each for the three and nine months ended September 30, 2025 and September 30, 2024, was:

Current wording

As a result of our acquisitions, goodwill and other intangible assets represent a significant proportion of our total assets, and amortization of intangible assets has historically been a significant expense. Our historical financial statements also include other acquisition-related costs, including costs relating to external legal support, diligence and valuation services and other transaction and integration-related matters. In addition, in any year gains and losses from changes in the fair value of business acquisition contingencies such as earn-outs could be significant. The amount of each for the three months ended March 31, 2026 and 2025, was:

Previous wording

In connection with certain of our acquisitions, we may make up to $23.4 million in aggregate earn-out payments between the years 2025 and 2027, of which up to $10.4 million may be paid only in cash, up to $2.8 million may be paid only in common stock and up to $10.2 million may be paid, at our option, in cash or common stock. See Note 7 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

Current wording

In connection with certain of our acquisitions, we may make up to $9.6 million in aggregate earn-out payments between the years 2026 and 2027, of which up to $5.1 million may be paid only in cash, up to $2.8 million may be paid only in common stock and up to $1.7 million may be paid, at our option, in cash or common stock. See Note 7 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

Previous wording

Our revenues and certain expenses, including selling, general and administrative expense, vary from period to period due primarily to changes in organic growth, the incremental contribution from recent acquisitions and strategic decisions we may make from time to time. When we refer to changes driven by organic growth, we are referring to the contribution from businesses that have been part of Montrose for more than 12 months, with certain limited exclusions as discussed in greater detail above. In a given reporting period, when we refer to revenue changes driven by acquisitions, we are referring to the revenue contribution from any acquisition from its closing date through the first 12 months of that acquisition, at which point any subsequent revenue contribution therefrom would be organic.

Current wording

Our revenues and certain expenses, including selling, general and administrative expense, vary from period to period due primarily to changes in organic growth, the incremental contribution from recent acquisitions and strategic decisions we may make from time to time. When we refer to changes driven by organic growth, we are referring to the contribution from businesses that have been part of Onterris for more than 12 months, with certain limited exclusions as discussed in greater detail above. In a given reporting period, when we refer to revenue changes driven by acquisitions, we are referring to the revenue contribution from any acquisition from its closing date through the first 12 months of that acquisition, at which point any subsequent revenue contribution therefrom would be organic.

Previous wording

Financing costs are driven by interest incurred on our outstanding borrowings under our senior secured credit facilities, as well as fees paid on the unutilized capacity of the facility and outstanding letters of credit issued under the facility. Interest is also incurred on outstanding borrowings under the Aircraft Loan and amounts outstanding under our capital lease facilities. Financing costs also include the amortization or write-offs of deferred debt issuance costs and amounts paid under our interest rate swaps. Amounts received related to our interest rate swaps are netted off of Financing Costs.

Current wording

Financing costs are driven by interest incurred on our outstanding borrowings under the 2025 Credit Facility, as well as fees paid on the unutilized capacity of the facility and outstanding letters of credit issued under the facility. Interest is also incurred on outstanding borrowings under the Aircraft Loan and amounts outstanding under our capital lease facilities. Financing costs also include the amortization or write-offs of deferred debt issuance costs and amounts paid under our interest rate swaps. Amounts received related to our interest rate swaps are netted against financing costs.

Previous wording

Interest expense, net was $5.0 million and $14.9 million in the three and nine months ended September 30, 2025, respectively, and $4.1 million and $11.4 million in the three and nine months ended September 30, 2024, respectively. We expect interest expense to remain a significant cost as we continue to leverage our 2025 Credit Facility to support our operations and future acquisitions. We also leveraged our 2025 Credit Facility to pay a portion of the redemption price for the Series A-2 preferred stock in April and July 2025.

Current wording

Interest expense, net was $5.5 million in the three months ended March 31, 2026 and $5.1 million in the three months ended March 31, 2025. We expect interest expense to remain a significant cost as we continue to leverage our 2025 Credit Facility to support our operations and future acquisitions. Our 2025 Credit Facility funded a portion of the redemption of the Series A-2 Preferred Stock in April and July 2025.

Previous wording

Because demand for environmental services is not driven by specific or predictable patterns in one or more fiscal quarters, our business is better assessed based on annual results. Additionally, due to the field-based nature of certain of our services, weather patterns generally impact our field-based teams’ ability to operate in the winter months. As a result, our operating results in our Measurement and Analysis segment and our Remediation and Reuse segment, experience some quarterly variability with generally lower revenues and lower earnings in the first and fourth quarters and typically higher overall revenues and earnings in the second and third quarters. As we continue to grow and expand into new geographies and service lines, quarterly variability in our Measurement and Analysis and Remediation and Reuse segments may deviate from historical trends.

Current wording

Due to the field-based nature of certain of our services, weather patterns generally impact our field-based teams’ ability to operate in the winter months. As a result, our operating results experience quarterly variability with generally lower revenues and lower earnings in the first and fourth quarters and higher overall revenues and earnings in the second and third quarters. As we continue to grow and expand into new geographies and service lines, quarterly variability may deviate from historical trends.

Previous wording

In addition to the impact of seasonality on earnings, our emergency response business exposes us to potentially significant revenue and earnings fluctuations tied to large environmental emergency response projects following an incident or natural disaster or more broad scale events. Total revenue from emergency response related services was $11.5 million and $12.0 million for the three months ended September 30, 2025 and 2024, respectively, and $73.9 million and $40.6 million for the nine months ended September 30, 2025 and 2024, respectively. The higher than normal emergency response and environmental services revenue in the nine months ended September 30, 2025 was primarily driven by one large emergency response project. Demand for environmental emergency response services remains difficult to predict and as a result, revenues and earnings in the current and prior years, or specific quarters or year-to-date periods within a given year, may not be indicative of future results, making those periods particularly difficult comparisons for future periods. Earnings volatility is also driven by the timing of large projects, particularly in our Remediation and Reuse segment, and the impact of acquisitions. As a result of these factors, and because demand for environmental services is not driven by specific or predictable patterns in one or more fiscal quarters, our business is better assessed based on annual results.

Current wording

In addition to the impact of seasonality on earnings, our environmental emergency response business exposes us to potentially significant revenue and earnings fluctuations tied to large environmental emergency response projects following an incident or natural disaster or more broad scale events. Total revenue from emergency response related services was $8.1 million and $13.9 million for the three months ended March 31, 2026 and 2025, respectively. Demand for environmental emergency response services remains difficult to predict and as a result, we may have experienced revenues and earnings in prior years that are not indicative of future results, making those periods particularly difficult comparisons for future periods. Earnings volatility is also driven by the timing of large projects, particularly in our Consulting and Treatment segment, and the impact of acquisitions. As a result of these factors, and because demand for environmental services is not driven by specific or predictable patterns in one or more fiscal quarters, our business is better assessed based on annual results.

Previous wording

During the three months ended September 30, 2025, we made a contingent consideration cash payment of $1.2 million for Vandrensning. During the three months ended September 30, 2024, no contingent consideration payments were made.

Current wording

The Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025

Previous wording

Cost of revenues for the three months ended September 30, 2025 compared to the three months ended September 30, 2024 increased by $30.7 million or 29.1% driven primarily by the increase in revenues. Cost of revenues as a percentage of revenue for the three months ended September 30, 2025 was 60.6%, compared to 59.1% for the three months ended September 30, 2024. This increase was driven primarily by an increase in subcontract costs as a percentage of total project costs.

Current wording

Cost of revenues for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 decreased by $6.9 million or 6.4% driven primarily by the decrease in revenues. Cost of revenues as a percentage of revenue for the three months ended March 31, 2026 was 60.2%, compared to 61.0% for the three months ended March 31, 2025. This improvement was driven primarily by costs incurred in the prior year period as part of the wind-down of our renewables business.

Previous wording

Selling, general and administrative expense for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 increased $28.4 million or 16.0% primarily due to an increase of $19.4 million in labor costs mainly driven by a $10.6 million increase in bonus accrual, and a $7.1 million increase in bad debt expense, primarily driven by the same factor described above. Selling, general and administrative expense as a percentage of revenues decreased to 32.3% from 34.9% in the comparable period.

Current wording

Selling, general and administrative expense for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 decreased $4.9 million or 7.4% primarily due to a decrease of $3.3 million in stock-based compensation expense, $2.7 million in lower labor costs, which included a decrease in bonus accrual, and a $1.0 million year-over-year change in bad debt expense due to improved collections of aged accounts receivables, partially offset by higher IT expenses. Selling, general and administrative expense as a percentage of revenues decreased to 36.4% from 37.2% in the comparable period.

Previous wording

Other income (expense), net for the three months ended September 30, 2025 was comprised of a fair value gain of $10.6 million related to the Series A-2 preferred stock conversion option, partially offset by losses of $0.2 million related to a fair value adjustment on our interest rate swaps. Other income (expense), net for the three months ended September 30, 2024 was comprised of losses of $3.5 million related to a fair value adjustment on our interest rate swaps and a $0.5 million charge related to a fair value adjustment on the Series A-2 preferred stock conversion option, partially offset by $0.8 million of other non-operating income.

Current wording

Other income (expense), net for the three months ended March 31, 2026 was comprised of fair value gains of $0.7 million on our interest rate swaps and $0.4 million on our foreign currency forward contracts. Other income (expense), net for the three months ended March 31, 2025 was comprised of losses of $0.9 million related to a fair value adjustment on our interest rate swaps and a $0.3 million charge related to a fair value adjustment on the Series A-2 Preferred Stock conversion option, partially offset by $0.4 million of other income.

Previous wording

Weighted average interest rates, after giving effect to the impact of the interest rate swaps, as of September 30, 2025 and September 30, 2024 were 5.5% and 2.8%, respectively. See “—Key Factors that Affect Our Business and Our Results—Financing Costs” and Notes 12 and 13 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

Current wording

Weighted average interest rates, after giving effect to the impact of the interest rate swaps, as of March 31, 2026 and March 31, 2025 were 5.6% and 5.5%, respectively. See “—Key Factors that Affect Our Business and Our Results—Financing Costs” and Notes 12 and 13 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

Previous wording

Measurement and Analysis Segment Adjusted EBITDA for the three and nine months ended September 30, 2025 increased compared to the three and nine months ended September 30, 2024 as a result of higher revenues driven by organic growth. Segment Adjusted EBITDA margin for the three and nine months ended September 30, 2025 increased compared to the three and nine months ended September 30, 2024 as a result of improved operating performance and operating leverage.

Current wording

Measurement and Analysis Segment Adjusted EBITDA for the three months ended March 31, 2026 decreased compared to the three months ended March 31, 2025 as a result of lower revenues primarily due to severe weather-related disruptions and project mix. Segment Adjusted EBITDA margin for the three months ended March 31, 2026 decreased to 18.4% for the three months ended March 31, 2026 from 23.3% in the prior year period, driven by project mix and temporarily lower operating leverage resulting from lower revenues in the current year.

Previous wording

Corporate and other costs for the three and nine months ended September 30, 2025 when compared to the three and nine months ended September 30, 2024 increased primarily due to higher bonus accrual of $1.7 million and $7.5 million, respectively, driven in part by an outperformance in the current year versus the prior year, as well as higher outside service costs of $1.1 million and $2.4 million, respectively, related to an IT migration, and higher marketing expenses in the current year.

Current wording

Corporate and other costs for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025 increased primarily due to investments in IT infrastructure, software and marketing.

Previous wording

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, other commitments and contractual obligations. We consider liquidity in terms of cash flows from operations and other sources, including availability under our senior secured credit facility, and their sufficiency to fund our operating and investing activities.

Current wording

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, other commitments and contractual obligations. We consider liquidity in terms of cash flows from operations and other sources, including availability under our 2025 Credit Facility, and their sufficiency to fund our operating and investing activities.

Previous wording

Our principal sources of liquidity have been borrowings under our senior secured credit facilities, other borrowing arrangements, proceeds from the issuance of common and preferred stock and cash generated by operating activities. Historically, we have financed our operations and acquisitions from a combination of cash generated from operations, periodic borrowings under senior secured credit facilities, and proceeds from the issuance of common and preferred stock. Our primary cash needs are for day to day operations, to fund working capital requirements, to fund our acquisition strategy and any related cash earn-out obligations, to pay interest and principal on our indebtedness and to make capital expenditures. Historically, our cash needs also included the payment of dividends on our Series A-2 preferred stock. Additionally, in connection with certain acquisitions, we agree to earn-out provisions and other purchase price adjustments that may require future payments. We may make up to $23.4 million in aggregate earn-out payments between the years 2025 and 2027 in connection with the acquisitions of Sensible, Epic, Spirit and Origins, of which up to $10.4 million may be paid only in cash, up to $2.8 million may be paid only in common stock and up to $10.2 million may be paid in cash or, at our option, in common stock. See Note 7 to our unaudited condensed consolidated financial statements included in Part 1, Item 1. “Financial Statements.” As of September 30, 2025, we had $191.7 million available under the 2025 Credit Facility (after giving effect to any outstanding letters of credit, and subject to borrowing base limitations), and $6.7 million of cash on hand. In April and July 2025, we redeemed the remaining $122.2 million in aggregate stated value of the outstanding Series A-2 preferred stock using cash and borrowings under our revolving line of credit.

Current wording

Our principal sources of liquidity have been cash generated by operating activities, borrowings under our senior secured credit facilities, other borrowing arrangements, and proceeds from the issuance of common stock. Historically, we have financed our operations and acquisitions from a combination of cash generated from operations, periodic borrowings under senior secured credit facilities, and proceeds from the issuance of common and preferred stock. Our primary cash needs are for day to day operations, to fund working capital requirements, to fund our acquisition strategy and any related cash earn-out obligations, to pay interest and principal on our indebtedness and to make capital expenditures. Historically, our cash needs also included the payment of dividends on our Series A-2 preferred stock. Additionally, in connection with certain acquisitions, we agree to earn-out provisions and other purchase price adjustments that may require future payments. We may make up to $9.6 million in aggregate earn-out payments between the years 2026 and 2027 in connection with certain of our acquisitions of which up to $5.1 million may be paid only in cash, up to $2.8 million may be paid only in common stock and up to $1.7 million may be paid in cash or, at our option, in common stock. See Note 7 to our unaudited condensed consolidated financial statements included in Part 1, Item 1. “Financial Statements.” As of March 31, 2026, we had $178.4 million available under the 2025 Credit Facility (after giving effect to any outstanding letters of credit, and subject to borrowing base limitations), and $10.0 million of cash on hand. In April and July 2025, we redeemed the remaining $122.2 million in aggregate stated value of the outstanding Series A-2 preferred stock using cash and borrowings under our revolving line of credit.

Previous wording

We expect to continue to fund our liquidity requirements, including any cash earn-out payments that may be required in connection with acquisitions, through cash generated from operations and borrowings under our 2025 Credit Facility. We believe these sources will be sufficient to fund our cash needs for the short- and long-term.

Current wording

We expect to continue to fund our liquidity requirements, including any cash earn-out payments that may be required in connection with acquisitions, through cash generated from operations and borrowings under our 2025 Credit Facility. We believe these sources will be sufficient to fund our cash needs in the short-term and long-term.

Previous wording

For the nine months ended September 30, 2025, net cash provided by operating activities was $55.5 million compared to net cash used in operating activities of $9.7 million for the nine months ended September 30, 2024. The period-over-period increase of $65.3 million was primarily due to an increase in cash earnings before non-cash items of $41.5 million, and improved working capital performance, reflecting a $44.4 million lower cash outflow.

Current wording

For the three months ended March 31, 2026, net cash used in operating activities was $11.6 million compared to net cash provided by operating activities of $5.5 million for the three months ended March 31, 2025. The period-over-period decrease of $17.1 million was primarily due to an increase in working capital of $16.3 million.

Previous wording

Working capital (which excludes contingent consideration payments and changes in right-of-use assets) increased by $12.8 million in the nine months ended September 30, 2025, primarily due to a seasonal increase in accounts receivable of $28.8 million, partially offset by a $12.1 million increase in accrued payroll.

Current wording

Working capital (which excludes contingent consideration payments and changes in right-of-use assets) increased by $16.3 million in the three months ended March 31, 2026, primarily due to higher payments of accrued annual bonus in the current year period versus the prior year period of $16.0 million as a result of outperformance in 2025, and a $15.7 million decrease in accounts payable and other accrued liabilities due to the timing of payments, partially offset by a decrease in accounts receivable of $32.5 million due to a decrease in revenue and improved collections.

Previous wording

For the nine months ended September 30, 2025, net cash used in investing activities was $12.6 million, driven by cash paid for the purchases of property and equipment of $10.9 million and $1.8 million in proprietary software development costs.

Current wording

For the three months ended March 31, 2025, net cash used in investing activities was $3.7 million, driven by cash paid for property and equipment and proprietary software development costs.

Previous wording

For the nine months ended September 30, 2025, net cash used in financing activities was $49.2 million. Cash used in financing activities was driven by repayments of borrowing of $495.6 million, redemption of the Series A-2 preferred stock of $122.2 million, a payment for contingent consideration of $5.5 million, repayments of finance leases of $8.9 million, dividends on the Series A-2 preferred stock of $4.2 million, and payment of financing cost of $2.0 million, partially offset by borrowing under our credit facility of $586.4 million.

Current wording

For the three months ended March 31, 2025, net cash provided by financing activities was $16.0 million. Cash provided by financing activities was driven by borrowing under our 2025 Credit Facility of $306.9 million, partially offset by repayments of borrowings of $286.7 million, a portion of which related to the refinancing of our prior credit facility, dividends on the Series A-2 Preferred Stock of $2.8 million and payment of financing cost of $2.2 million.

Previous wording

On July 1, 2025, we redeemed the remaining $62.2 million in aggregate stated value of the outstanding Series A-2 preferred stock. See Notes 15 and 22 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

Current wording

In April and July 2025, we redeemed the remaining $122.2 million aggregate stated value of the outstanding Series A-2 preferred stock.

Previous wording

On May 7, 2025, the Company announced that its Board of Directors has approved a stock repurchase program of up to $40.0 million. The repurchase program does not have a set expiration date. The Company did not make any stock repurchases in the three and nine months ended September 30, 2025.

Current wording

On May 6, 2025, the Board of Directors approved a stock repurchase program of up to $40.0 million. The repurchase program does not have a set expiration date. During the three months ended March 31, 2026 the Company repurchased 376,313 shares of its common stock for approximately $10.0 million. As of March 31, 2026, approximately $30.0 million of the authorized capacity under the repurchase program remains available for future repurchases.