Onterris, Inc. Q1 FY2025 earnings call

• Strong first quarter results: achieved revenue of $177.8 million, consolidated adjusted EBITDA of $19 million and operating cash flow of $5.5 million.
• Increased full-year 2025 EBITDA guidance to $103 million to $110 million (up from $101 million to $108 million), reaffirmed revenue range $735 million to $785 million, and organic growth expectation of 7% to 9%.
• Tailwinds include private sector industrial activity supported by the Trump administration, state government influence, and thriving international operations.
• Balance sheet optimization: redeemed $60 million of Series A-2 Preferred, plans to redeem remaining $62 million, and announced up to $40 million stock repurchase program.
• Margin enhancement strategies: leveraging back-office infrastructure, process optimization, automation, and aligning segment margins with long-term targets, with most benefit from the Remediation and Reuse segment.

Assessment, Permitting and Response (AP&R): First quarter 2025 revenue was $53.1 million, compared to $58.6 million in the prior year period. AP&R segment adjusted EBITDA was $10.6 million or 19.9% of revenue, compared to 27.8% in the prior year period. Prior year results included larger high margin projects that didn't repeat and lower emergency response revenue, partially offset by an acquisition contribution. Measurement and Analysis: Revenue for the quarter increased 29.8% to $59 million. Adjusted EBITDA increased to $13.7 million or 23.3% of revenue, a 900-basis-point margin improvement over the prior year period due to operating leverage. Remediation and Reuse (R&R): First quarter revenue increased 28.2% to $65.7 million. Adjusted EBITDA increased to $5.9 million, though adjusted EBITDA margin declined 80 basis points to 9%, primarily driven by business line mix.

• Increased full-year 2025 consolidated adjusted EBITDA guidance to $103 million to $110 million from $101 million to $108 million.
• Reaffirmed full-year revenue range of $735 million to $785 million.
• Maintained organic growth expectation of 7% to 9%.

• Potential impacts of U.S. EPA regulations, tariff policy, macroeconomic and geopolitical factors.
• Exposure to currency and interest rate fluctuations, though significantly hedged.
• Minimal impact of political dynamics on international client relationships due to strong local presence and domestic workforce with unique technical capabilities.

Q: Broader conversation on deregulation, specifically Lee Zeldin’s EPA proposals.

A: Vijay discusses regulatory uncertainty, clients staying course due to long planning cycles and importance of state regulations.

Q: Measurement and Analysis segment strength, unusual Q1 performance.

A: Vijay attributes to unwind of post-election pause and sustained demand across multiple lines.

Q: Tariff impact on client interface.

A: Vijay says tariffs expected to have minimal impact on the business, clients are constructive and open to potential pricing adjustments.

Q: Remediation and Reuse segment macro uncertainty.

A: Vijay states no project delays, expects solid growth and margin improvement in the segment.

Q: EPA workforce reduction and budget cuts impact.

A: Vijay says low exposure to U.S. federal government spend, and changes to regulations go slower due to reduced EPA workforce.

Q: Leverage ratio post preferred stock redemption.

A: Allan expects leverage ratio to be under 3 by end of year, target below 3.25 with acquisitions while continuing to generate strong cash flow.