Onterris, Inc. Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Strong Start: Had a strong start to 2024 with record first quarter revenues and adjusted EBITDA, driven by organic growth, cross-selling, R&D, and regulatory tailwinds.
• M&A Activity: M&A is a key growth component. Acquired Epic, Two Dot, and ETA, enhancing geographic and service capabilities. Robust acquisition pipeline expected in 2024.
• Regulatory Tailwinds: U.S. EPA PFAS regulations create ~$200 billion addressable market. Methane emissions and hazardous air pollutants regulations also present opportunities.
• Segment-Specific: AP&R had organic growth in advisory but lower response revenue. M&A had strong organic growth in lab services. R&R saw revenue from Matrix but lower biogas due to pivot to higher-margin services.

Segment Performance

• Assessment, Permitting and Response (AP&R): First quarter revenue increased 12.2% year-over-year to $58.6 million, driven by strong organic growth. Adjusted EBITDA rose 14.1% year-over-year to $16.3 million (27.8% of revenue). Emergency response revenue was lower compared to 2023 due to no major derailment.
• Measurement and Analysis (M&A): Revenue grew 7% to $45.5 million, primarily from organic growth in lab services (PFAS and air testing). Margins were slightly lower year-over-year due to business mix, but annual outlook remains 18%-20% margins.
• Remediation and Reuse (R&R): Revenue increased 39.7% to $51.3 million, mainly from the Matrix acquisition. Lower biogas revenue due to pivot to higher-margin services. Margins were lower in the quarter due to Matrix's first-quarter impact from Canadian weather, but Matrix's margins are expected to improve to double-digit by year-end.

Guidance

• Full Year 2024: Reiterate revenues in the range of $690 million to $740 million and consolidated adjusted EBITDA in the range of $95 million to $100 million. First quarter is the low point for revenue and adjusted EBITDA, with sequential increase in Q2 and Q3. 60% of adjusted EBITDA expected in the back half of the year. Organic growth expected in the low double digits.

Risks

• Regulatory Uncertainty: Changes in environmental regulations could impact business operations and revenue.
• M&A Integration: Difficulties in integrating acquired companies could affect financial performance.
• Weather Impact: Matrix's first-quarter performance affected by Canadian weather, potentially impacting margins.

Question and Answer

• Q: Tim Mulrooney on PFAS regs timing and solutions: A: There will be a steady increase in activity, with visible momentum on testing and assessment, and treatment side picking up later. Portfolio includes testing, treatment (regenerable resins, foam fractionation), addressing various environmental media (air, water, soil).
• Q: James Ricchiuti on M&A and resources: A: Comfortable with current resources, M&A cadence higher with 3 deals closed in the first 4 months, no additional resources needed for M&A pickup.
• Q: Brian Butler on M&A service focus and PFAS revenues: A: M&A focuses on geographic expansion and service line addition. PFAS revenues grew from ~$15-20 million at IPO to ~$75-100 million, expecting further growth.
• Q: Stephanie Yee on organic growth cadence and biogas: A: Organic growth at an elevated cadence (low double digits in 2024), biogas pivot complete, focusing on higher-margin design, engineering, and installation.