Onterris, Inc. (ONT) Earnings

Management highlights

### Core Business Performance - Q2 2026 consolidated revenue came in at $186.7 million, below management expectations, driven by historically low environmental emergency response activity. Excluding the large single emergency response event in Q2 2025, Q2 2026 revenue grew year-over-year. - Consolidated adjusted EBITDA was $31.9 million (17.1% of revenue), up from 16.9% in the prior year quarter, reflecting successful ongoing cost optimization efforts. - Cost optimization efficiencies are permanent, and will drive further profitability improvement as revenue scales. ### Strategic Update - The OnTerris board has initiated a comprehensive review of the company's business, portfolio, capital allocation, long-range strategic plan, and strategic alternatives, with assistance from external advisors. - The review will consider a broad range of options, including evaluating acquisition interest in the company, other value-creating transactions, additional acquisition opportunities, operational initiatives, and continued execution of the standalone plan. - No decisions have been made, no timetable has been set, and there is no assurance the review will result in a transaction. Management and employees remain fully focused on executing the existing standalone strategic plan while the review is conducted. ### Market Demand Context - Underlying structural demand for OnTerris' integrated environmental solutions remains strong, driven by increasingly interconnected environmental challenges that clients need specialized support to navigate. - The low emergency response activity in 2026 is a cyclical anomaly, not a structural change. Emergency response remains an important business segment and driver of long-term client relationships for cross-selling other services. - Pass-through revenue has declined as a share of total revenue, which is margin-accretive to the business overall.

Guidance

- Full-year 2026 revenue guidance was revised downward to a range of $740 million to $790 million, from the prior original guidance. The downward revision reflects an expected $35 to $55 million lower pass-through revenue, $35 to $45 million lower emergency response revenue, and $15 to $25 million of other lower revenue, including delayed air testing work due to temporary regulatory waivers. - Full-year 2026 adjusted EBITDA guidance was revised to $117 million to $120 million, representing a $9 million reduction at the midpoint. Any result within this range would set a new record EBITDA for the company. EBITDA margin at the midpoint is expected to reach 15.5%, a 150 basis point expansion year-over-year and 50 basis points above the original 2026 guidance, driven by cost optimization. - Full-year operating cash flow expectations are largely unchanged from the start of 2026, with expected conversion of approximately 60% of full-year EBITDA, and $70 million to $80 million of operating cash flow generation in the second half of 2026. - Year-end 2026 net leverage is expected to remain flat year-over-year at approximately 2.5x, despite $30 million in share repurchases, $16 million in 2025 bonus payments, and $11 million in contingent acquisition payments made in the first half of 2026. - Q3 2026 guidance calls for $190 million to $210 million in revenue, with an expected EBITDA margin of 17% to 18% at the revenue midpoint. While revenue will decline year-over-year (given the large 2025 emergency event), Q3 2026 EBITDA is expected to increase, with significantly higher margins. - Management expects to resume disciplined bolt-on acquisitions within its existing valuation and leverage parameters in the second half of 2026.

Segment performance

OnTerris operates two reportable segments following a 2026 organizational realignment: consulting and treatment, and measurement and analysis. 1. Consulting and Treatment: Q2 2026 revenue was $125.6 million, down from $171.7 million in Q2 2025. The decline was driven by $37.7 million lower emergency response revenue and $11.2 million lower recovery services, after the prior year quarter included a single large environmental event. Despite the lower revenue base, segment adjusted EBITDA margin improved to 22.2% from 21.9% year-over-year, driven by favorable project mix and improved operating performance. This segment contributed 67.3% of total Q2 2026 revenue. 2. Measurement and Analysis: Q2 2026 revenue was $61.1 million, down slightly from $62.8 million in Q2 2025. The decline reflected lower field services revenue, partially offset by higher lab testing revenue. Segment adjusted EBITDA margin was 26.2%, down from 29.1% year-over-year, an expected normalization resulting from lower operating leverage on the reduced revenue base. This segment contributed 32.7% of total Q2 2026 revenue.

Risks & headwinds

- Emergency response revenue is inherently unpredictable, as it depends on unforeseen environmental events. 2026 is seeing a historically low level of activity that has significantly reduced top-line results compared to expectations. - Temporary regulatory waivers for air permitting rules granted by some state and federal regulators have delayed required air testing work, reducing near-term revenue compared to expectations, though the work is still expected to be completed in the future. - Fluctuations in pass-through revenue and project mix can create unexpected top-line volatility, even when underlying core operating performance remains strong. - The strategic review process creates uncertainty, and there is no assurance it will result in a value-creating transaction or any outcome at all.

Analyst Q&A

• Q: An analyst notes that core revenue excluding emergency response appears down low single-digits on 2026 guidance, versus prior guidance of 6-9% growth, and asks what changed, and why EBITDA has any decline from lower pass-through revenue if pass-through is assumed to be zero margin. /

  A: The math is correct, but the decline is driven by lower pass-through revenue, not weak underlying core performance. Historically pass-through revenue was ~25% of total revenue, and it is now below 20% this year. Pass-through revenue actually carries a small average margin of ~10% (with variation by project), so lower pass-through revenue creates a small EBITDA headwind. The decline in pass-through is driven by lower emergency and recovery work (which uses more subcontractors) and a deliberate shift to higher-margin work that does not require subcontracting, which is overall positive for margins. Underlying core performance excluding pass-through remains strong.

• Q: An analyst asks if the revised emergency response revenue guidance of 10-30M (down from 50-70M initial guidance) reflects competitive losses, or just low event activity. /

  A: It is purely a function of no major environmental events occurring so far in 2026, which is a historically anomalous low point for the segment, not a result of competitive dynamics. OnTerris still has the leading team in the space, and is not losing work it would otherwise have won; there is simply no work to be won this year due to lack of events.

• Q: An analyst asks what gives management confidence in its long-term high single-digit organic growth algorithm despite slower 2026 core revenue, and for details on back half of 2026 momentum. /

  A: The long-term structural demand drivers for OnTerris' services are unchanged, so the long-term growth algorithm remains intact. For the back half, guidance is anchored by highly predictable testing revenue and locked-in known consulting and treatment projects. Larger projects that were announced earlier in 2026 have started recently, even faster than anticipated, and the sales pipeline continues to gain momentum. The limited impact of lower revenue on EBITDA and cash flow confirms underlying core strength, supporting confidence in the long-term trajectory.

• Q: An analyst asks for an update on acquisition strategy, including target areas and valuation criteria. /

  A: The acquisition strategy is unchanged: management remains focused on small, bolt-on acquisitions to consolidate the fragmented environmental services market, and expects to restart activity in the second half of 2026 within existing leverage and cash flow parameters. The most attractive current opportunities are in the testing space for geographic and portfolio expansion, and in the consulting and treatment segment, aligned with client demand. Historically, OnTerris has acquired targets at mid-to-high single-digit EBITDA multiples, and will stick to this range, weighing strategic fit, cultural fit and long-term cash generation in addition to purchase multiple.