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 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.

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 and six months ended June 30, 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 and the Q1 2026 Form 10-Q.

Previous 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.

Current wording

Although we did not consummate any acquisitions in the three and six months ended June 30, 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 months ended March 31, 2026 and 2025, 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 and six months ended June 30, 2026 and 2025, was:

Previous wording

During the three months ended March 31, 2026, we made a contingent consideration cash payment of $8.0 million for Origins Laboratory, Inc. During the three months ended March 31, 2025, we made contingent consideration payments of $6.6 million in the Company's common stock, of which $4.8 million related to deferred consideration payments for the acquisition of Epic Environmental Pty Ltd (Epic), and $1.8 million related to earn-out payments for SensibleIoT, LLC.

Current wording

During the six months ended June 30, 2026, we made contingent consideration cash payments of $8.0 million and $2.8 million for Origins Laboratory, Inc and Epic, respectively. During the six months ended June 30, 2025, we made contingent consideration payments of $10.6 million, of which $4.0 million was paid in cash to Epic, and the remaining $6.6 million was paid in the Company's common stock, of which $4.8 million related to deferred consideration payments for the acquisition of Epic, and $1.8 million related to earn-out payments for SensibleIoT, LLC.

Previous 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.”

Current wording

In connection with certain of our acquisitions, we may make up to $7.0 million in aggregate earn-out payments between the years 2026 and 2027, of which up to $3.8 million may be paid only in cash, up to $2.8 million may be paid only in common stock and up to $0.4 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

Total debt, net of deferred debt issuance costs, at March 31, 2026 was $321.4 million, which was an increase of $33.1 million compared to December 31, 2025. The increase was primarily driven by an increase of $35.8 million outstanding under our revolving line of credit.

Current wording

Total debt, net of deferred debt issuance costs, at June 30, 2026 was $349.0 million, which was an increase of $60.8 million compared to December 31, 2025. The increase was primarily driven by an increase of $66.1 million outstanding under our revolving line of credit.

Previous 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.

Current wording

Interest expense, net was $5.5 million and $10.9 million in the three and six months ended June 30, 2026, respectively, and $4.8 million and $9.8 million in the three and six months ended June 30, 2025, respectively. We expect interest expense to remain a significant cost as we continue to leverage our 2025 Credit Facility to support our operations, share repurchase activity, 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

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.

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 $10.8 million and $48.5 million for the three months ended June 30, 2026 and 2025, respectively, and $18.9 million and $62.4 million for the six months ended June 30, 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

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.

Current wording

Cost of revenues for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 decreased by $28.4 million or 21.4% driven primarily by the decrease in revenues. Cost of revenues as a percentage of revenue for the three months ended June 30, 2026 was 55.9%, compared to 56.6% for the three months ended June 30, 2025. This improvement was driven primarily by lower non-labor project costs as a percentage of revenues, partially offset by higher project labor costs as a percentage of revenue, both due to project mix.

Previous 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.

Current wording

Selling, general and administrative expense for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 decreased $10.7 million or 14.6% primarily due to $5.7 million in lower labor costs, which included lower bonus accruals, a $5.9 million year-over-year change in bad debt expense primarily driven by aged receivables from the City of Tustin in the prior year period, and lower stock-based compensation expense of $1.2 million, partially offset by higher IT expenses. Selling, general and administrative expense as a percentage of revenues increased to 33.7% from 31.4% in the comparable period primarily as a result of lower revenue.

Previous wording

Depreciation and Amortization for the three months ended March 31, 2026 remained relatively consistent with the three months ended March 31, 2025 primarily due to the absence of significant changes in the underlying property and equipment and intangible asset base.

Current wording

Depreciation and Amortization for the three and six months ended June 30, 2026 remained relatively consistent with the three and six months ended June 30, 2025 primarily due to the absence of significant changes in the underlying property and equipment and intangible asset base.

Previous 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.

Current wording

Other income, net for the three months ended June 30, 2026 was comprised of fair value gains of $0.5 million on our interest rate swaps and $0.1 million on our foreign currency forward contracts. Other income, net for the three months ended June 30, 2025 was comprised of a fair value gain of $10.0 million related to the Series A-2 preferred stock conversion option, partially offset by losses of $0.7 million related to a fair value adjustment on our interest rate swaps.

Previous wording

Interest expense, net for the three months ended March 31, 2026 increased compared to the three months ended March 31, 2025 primarily due to higher debt balances during the quarter, partially offset by lower interest rates.

Current wording

Interest expense, net for the three and six months ended June 30, 2026 increased compared to the three and six months ended June 30, 2025 primarily due to higher debt balances during the current year periods.

Previous 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.”

Current wording

Weighted average interest rates, after giving effect to the impact of the interest rate swaps, as of June 30, 2026 and June 30, 2025 were 5.5% and 5.4%, 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

Revenue for the three months ended March 31, 2026 decreased $9.3 million or 5.2% as compared to the three months ended March 31, 2025. The decrease was primarily driven by a decrease in environmental emergency response revenues of $5.8 million and a contraction of organic growth of $2.6 million as a result of lower revenues in the Measurement and Analysis segment, partially offset by organic growth in the Consulting and Treatment segment, and a $1.0 million decrease in revenues from exited European operations, which were exited in the fourth quarter of 2025. Environmental emergency response revenues were $8.1 million in the three months ended March 31, 2026, compared to $13.9 million in the three months ended March 31, 2025.

Current wording

Consulting and Treatment segment revenues for the three months ended June 30, 2026 decreased compared to the three months ended June 30, 2025 primarily as a result of lower environmental emergency response revenues of $37.7 million, lower recovery services revenue tied to environmental events of $11.2 million, a $1.0 million decrease in revenues from exited European operations, which were exited in the fourth quarter of 2025, and lower renewables revenues of $0.9 million, which was wound down by the end of 2025. These decreases were partially offset by higher core consulting revenues of $3.5 million driven by growth in our United States and Australian markets. Environmental emergency response revenues were $10.8 million in the three months ended June 30, 2026, compared to $48.5 million in the three months ended June 30, 2025.

Previous wording

Consulting and Treatment Segment Adjusted EBITDA for the three months ended March 31, 2026 increased compared to the three months ended March 31, 2025 primarily as a result of favorable project mix, improved operational cost management in the current year, and losses in the prior year period related to our renewables business, that did not recur in the current year period, partially offset by lower revenues. Segment Adjusted EBITDA margin increased to 17.6% for the three months ended March 31, 2026 from 13.9% in the prior year period due to project mix and improved operational efficiency in the current year, and losses in the prior year period related to our renewables business.

Current wording

Consulting and Treatment Segment Adjusted EBITDA for the three and six months ended June 30, 2026 decreased compared to the three and six months ended June 30, 2025 primarily as a result of lower revenues, partially offset by improved Segment Adjusted EBITDA margin. Segment Adjusted EBITDA margin for the three and six months ended June 30, 2026 increased to 22.2% and 20.0%, respectively, from 21.9% and 18.6% in the prior year periods due to significantly higher margins in our consulting and water treatment businesses driven by project mix and improved operational efficiency in the current year periods, and losses in the prior year periods related to our renewables business, partially offset by decreases in high margin emergency response revenues in the current year.

Previous 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.

Current wording

Measurement and Analysis Segment Adjusted EBITDA for the three and six months ended June 30, 2026 decreased compared to the three and six months ended June 30, 2025 as a result of lower revenues and lower Segment Adjusted EBITDA margin. Segment Adjusted EBITDA margin for the three and six months ended June 30, 2026 decreased to 26.2% and 22.5%, respectively, from 29.1% and 26.3% in the prior year periods, driven by project mix and lower operating leverage resulting from lower revenues in the current year periods.

Previous 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.

Current wording

Corporate and other costs for the three and six months ended June 30, 2026 when compared to the three and six months ended June 30, 2025 decreased primarily due to lower bonus accrual in the current year, partially offset by higher IT infrastructure and marketing costs.

Previous 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.

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 and, more recently, we have begun repurchasing shares of common stock pursuant to our share repurchase program. 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 $7.0 million in aggregate earn-out payments between the years 2026 and 2027 in connection with certain of our acquisitions of which up to $3.8 million may be paid only in cash, up to $2.8 million may be paid only in common stock and up to $0.4 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 June 30, 2026, we had $148.1 million available under the 2025 Credit Facility (after giving effect to any outstanding letters of credit, and subject to borrowing base limitations), and

Previous 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.

Current wording

For the six months ended June 30, 2026, net cash used in operating activities was $5.5 million compared to net cash provided by operating activities of $27.4 million for the six months ended June 30, 2025. The period-over-period decrease of $32.9 million was primarily due to a decrease in earnings before non-cash items of $21.4 million and a higher increase in working capital of $11.6 million (comprised of an increase in working capital in the current year period of $37.8 million compared to an increase in working capital of $26.2 million in the prior year period).

Previous 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.

Current wording

Working capital (which excludes contingent consideration payments and changes in right-of-use assets) increased by $37.8 million in the six months ended June 30, 2026, primarily due to 1) a decrease in accrued payroll and benefits of $22.2 million, primarily due to the payment of accrued annual bonus in March 2026 of $27.7 million, representing a $16.0 million increase compared to the prior year bonus payment due to outperformance in 2025 2) a $17.4 million decrease in accounts payable and other accrued liabilities due to the timing of vendor payments, and 3) a $13.5 million increase in prepaid expenses and other current assets primarily due to an increase in deferred tax assets and prepaid software costs. These drivers were partially offset by a decrease in accounts receivable of $15.0 million due to a year-to-date decrease in revenue of $57.2 million compared to the prior-year period and a decrease in days sales outstanding due to improved collections.

Previous wording

For the three months ended March 31, 2026, net cash used in investing activities was $5.5 million, primarily driven by cash paid for the purchases of property and equipment of $5.7 million.

Current wording

For the six months ended June 30, 2026, net cash used in investing activities was $11.1 million, primarily driven by cash paid for the purchases of property and equipment of $11.3 million.

Previous 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.

Current wording

For the six months ended June 30, 2025, net cash used in investing activities was $7.9 million, driven by cash paid for the purchases of property and equipment of $5.1 million, and $2.8 million in proprietary software development costs.

Previous wording

For the three months ended March 31, 2026, net cash provided by financing activities was $15.9 million. Cash provided by financing activities was driven by borrowing under our 2025 Credit Facility of $140.4 million, partially offset by repayments of borrowings of $107.1 million, repurchases of common stock of $10.0 million, and a payment for contingent consideration of $8.0 million.

Current wording

For the six months ended June 30, 2026, net cash provided by financing activities was $18.3 million. Cash provided by financing activities was driven by borrowing under our 2025 Credit Facility of $258.4 million, partially offset by repayments of borrowings of $196.8 million, repurchases of common stock of $30.0 million, and payments for contingent consideration of $10.8 million.

Previous 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.

Current wording

For the six months ended June 30, 2025, net cash used in financing activities was $21.3 million. Cash used in financing activities was driven by repayments of borrowing of $364.5 million, a partial redemption of the Series A-2 preferred stock of $60.0 million, a payment for contingent consideration of $4.4 million, repayments of finance leases of $6.1 million, dividends on the Series A-2 preferred stock of $2.8 million, and payment of financing cost of $2.0 million, partially offset by borrowing under our credit facilities of $416.0 million.

Previous 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.

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 and six months ended June 30, 2026, the Company repurchased 1,251,450 and 1,627,763 shares of its common stock for approximately $20.0 million and $30.0 million, respectively, inclusive of transaction fees. As of June 30, 2026, approximately $10.0 million of the authorized capacity under the repurchase program remained available for future repurchases.