Good morning, everybody. My name is Tim Mulroney, and I'm the research analyst here at William Blair that covers Ontaris. I'm required to inform you, for a complete list of research disclosures and conflicts of interest, please visit our website at williamblair.com. That is the last time I have to say that. I'm very excited to have Vijay and Alan with us this morning. You know, Montrose is a really interesting... Ontaris.
Oh, my God.
Montrose right off the bat. On Terrace, and I want to talk about the reasons behind the name change, but On Terrace is a really interesting story. I've followed it for a long time. They've been hitting these high single-digit organic growth numbers for a long time in the core business. There's a lot to be excited about the story, but I don't want to waste any time because we have a lot to get through. So I'm just going to pass it along to CEO Vijay Mantra-Pagata and CFO Alan Dix. They're going to walk through some stuff, some slides for a little while, and then we're going to have Fireside.
Thanks, Tim. It's wonderful to see all of you, and thank you for your interest in Ontaris. You got it right. I see a lot of familiar faces, but there's also some new ones. And so we have some materials I'll walk through for maybe 10, 15 minutes. Alan and I will kind of just jump in, and then we'll open it up to Q&A. Tim's got some pointed questions he wants to go through, which is going to be a lot of fun. we are in the in the simplest way of saying it we are an environmental science and technology company and what that means for those of you that don't know us is that our revenue and our earnings come from primarily assessing and mitigating air pollution assessing and treating water and getting it back to communities or to industry given surging water demand and then assessing and treating contaminated soil so those are kind of the three essential building blocks of what drives our business. We have reached meaningful scale, but we are in the early innings of our growth journey. And the reason I say it that way is when we kind of look at our baseline metrics, we have about 6,000 clients that are very sticky, which we're incredibly proud of. About 3,500 people primarily across the United States, Canada, and Australia. And then we've been, since IPO, we've been growing about 24% a year, about half of which is organic, so about 12% a year organically, against a guidance range of 7% to 9% organic, which is effectively two to two and a half times the industry's growth rate in terms of what we signal, the seven to nine being. And the reason we say we're in the early innings is we look at kind of our relationships. We have very sticky customers, right? A lot of customer recurrence. Unless there's a quality or safety lapse, our customers tend not to leave us. And almost all of our organic growth has come from those customers and cross-selling into them. And we'll spend some more talking about that, but there's a series of metrics that we provide. And so this is not about acquiring new customers for us. We can grow at this cadence organically into the foreseeable future simply by harvesting our existing customer base. And there's a lot of questions around this that we got last year, I suspect to a lesser extent this year, is the market large and is it growing, especially given what's happening with the Trump administration's policies. Yes, it's large, and yes, it's growing. We could spend some more time talking about that. And so for these reasons, in the next three to four years, we expect to achieve a billion dollars of revenue, and that assumes 7% to 9% organic growth. We expect to increase EBITDA margins by 300 basis points or more. We'll speak a little bit about why. So EBITDA growing much faster than revenue. And we expect to be GAAP EPS positive in the very near future. And we expect GAAP EPS to grow much faster than EBITDA. EBITDA margin expansion is occurring for two primary reasons. It's occurring because we are getting operating leverage in the business. And we are seeing accelerated growth in our higher margin subservices like water treatment. And our EPS is expected to grow much faster because of revenue and margin accretion, but also because our stock comp expense normalizes at the end of this year. It's a little bit of an accounting phenomenon from a 2021 grant that washes out at the end of 2026. Anything else you'd add there, Alan, in terms of our outlook? And then in terms of our growth, the industry, as I said earlier, is growing 3% to 4%. But given our private sector focus, we expect to grow at a multiple or several multiples of that. And the reason is really twofold. There are several secular trends that are working in our favor. Domestic energy production has been creating tailwinds for us. We'll talk about that in a second. I know it's something Tim has highlighted in his commentary to all of you. And then the on-shoring and increase in industrial activity has created substantive tailwinds for us, many of which we didn't fully anticipate even 12, 18 months ago. semiconductors, pharma, mining, and then increasingly data centers. And then water treatment and reuse is still a very hot spot for us. Most of our commentary historically was really around PFAS. That is still a really nice long-term opportunity, but most of the growth we're seeing now is actually not PFAS-related, but we still are seeing double-digit growth in that space. On top of those secular tailwinds, the complexity of the operating environment for our private sector clients has increased because the feds have pulled back. The states have stepped in. Now you have a potpourri of local and state regulations folks have to manage. That increased complexity drives demand for our consulting and other services. So for those reasons, the reason we kind of use the word early innings is even at our 20 to 25 percent annual growth that we've done historically, and we certainly expect to continue to accelerate beyond our signal cadence, we are still a tiny fraction if we achieve these goals of the $500 billion serviceable market. And I think that is often lost in the way we even talk internally, let alone externally, which is we're looking at a very, very large opportunity and there's a ton of white space. And the reason we feel confident we can capture more and more of this white space is because our model is unique, which we'll talk about. We provide a combination of consulting, testing, and treatment. That integration of services is unique in the market. As I mentioned earlier, we have a very sticky customer base. We have strong IP. This is an area that's not fully understood within our portfolio that's created a lot of demand for our services from our clients, particularly around water treatment. And we have some unique software that's increasingly playing a bigger role in some of the growth that we're seeing on the testing side in particular. On top of that, which are all organic, it is still a massively fragmented market, and so we believe that the consolidation opportunity is very real once we really get back into that in earnest. And so these are the reasons. I'm not going to go through this in detail. We had a spectacular record 2025 and why we still feel really good about 2026. Adrian, anything else you want me to touch on before? I know, Tim, we wanted to kind of keep this to 15 minutes. Do you want to talk about integration or do you want to get into IP? Into IP? So why don't we, if we flip to section three, or section four, on intellectual property, one of the questions we often get is, you know, why this much of a focus on innovation, and how much are you putting into R&D? And we're spending around two to three million dollars a year on research and development, and this has been something we've kind of emphasized from the early years, and I think the strategic and financial benefits of what this is generating for us has not been fully articulated, and that's on us, and we certainly will endeavor to do that more. Ontaris today has 31 patents, most of which have been developed in-house over the last four to five years, and the reason this matters is it allows us to provide unique solutions to our clients, and it also strengthens our moat. Because we're smaller and we're kind of a newer player in the space, we oftentimes go up against much bigger incumbents. Our capabilities on the R&D and technology side and the patent technologies we're now able to offer and commercialize have been a big part of why we've been able to kind of leapfrog and capture some of the wallet share and market share that we have. A lot of the technology on the next slide is around our water treatment. And so as you think about water contamination issues that communities struggle with, not just PFAS, but more broadly, as you think about the need for water from an industrial perspective, either, for example, for energy production, dealing with it on the tail end, on the production side, or needing it in order to produce and refine, or data centers now becoming increasingly prominent in the inbounds that we're getting, the demand is significant and the reason we're able to take advantage of that demand is in large part because of our R&D capabilities and the intellectual property that the business has. And so as a result of that R&D our water treatment business has been growing double digits. It grew double digits last year. We expect it to grow double digits this year and it's as I mentioned earlier very accretive to our margin profile but it's also very accretive to our long-term growth story. And as we look into the future, these are the dynamics we're seeing. And these are areas that weren't as impactful in the not-too-distant future, 12, 18 months ago, and are becoming quite a bit more prominent for us as we look forward in terms of where demand cycles are coming from. And a lot of this, we're able to take advantage of it because of our intellectual property and our patents. It's also feeding into other parts of our business. But just to quickly run through these. On the pharma side, GLP-1 manufacturing, the emissions related to that process on the water treatment side in particular have select contaminants, including PFAS contaminants, that we're uniquely positioned to remove. So we're seeing a lot more demand from that sector relative to what we've seen in the past. The waste industry has become a lot more prominent for us because of landfill leachate. So this is effectively decades and decades. You can imagine of these landfills being filled with waste. There's a lot of subsurface chemistry that's going on, on top of the fact that when it rains or water, tables get impacted, and that leachate that comes out of it starts to affect the surrounding aquifers, and in some instances, municipal water streams. So that's become a much more prominent opportunity set for us. Energy exports, energy clients have become very active for us of late. semiconductors have shown up as a pretty big pipeline of opportunities. Again, as you can imagine, the chemistry around chip manufacturing, A, requires a lot of water, but also feeds really nicely into our portfolio of capabilities. You've seen us issue some press releases around mining. That's become a much more prominent opportunity. And then data centers, which hopefully in the next couple of months will be much more specific about how that's creating tailwinds for us and we're seeing a lot of inbounds both on the permitting testing side but increasingly on the water and water management side. So that in essence is kind of where the IP portfolio sits. We have, and I can spend a little bit of time to the extent it's of interest talking about our software capabilities and how we're deploying some of those in the field. The reason I say it that way is because of the federal regulatory pullback, states like Texas have enabled the use of innovative technologies to achieve the same outcome, and that has been really additive to our portfolio because we've kind of been technology forward. Historically, we were limited in terms of how quickly we could go because the regulations had to define it in order to use it. Now that that limitation's been removed, we've been able to kind of jump forward on that front a little bit. So that's on Terrace in a nutshell. Anything else that I missed or that I should have? No, I think you covered it. All right, cool. Well, thank you.
That was a great overview. I appreciate that. You touched on a number of areas that I'd like to maybe dig deeper in, though maybe you aren't going to be able to in every case. But maybe we can just take a step back because it's been an interesting dynamic where in 2024, you know, you had the Trump election and, you know, there were concerns over this and that and the other. But then actually 2025, you dialed back the M&A, you showed really good organic growth, really solid free cash flow improvement. And, you know, everything was moving in a really, really good direction. And then we turn the corner to this year. And I think you're, you know, to some extent, unfairly bucketed with some of these engineering and design firms that have just really gotten hammered this year because of AI concerns. And, you know, there's there's like noise there. Maybe you have a different view on on why the, you know, the stock has pulled back. But I just think, you know, there's everyone's being bucketed into this one area and it's causing a little bit of disruption. but everything seems to be going pretty well, but markets don't like change. So then you reported a good first quarter, or yeah, no, yeah, you hit the numbers on the first quarter, but you announced this name change and consolidated segments. There was just some change there that takes a while for the market to digest, and I'd like to walk through the rationale behind some of these things so that folks can maybe understand it just a little bit better. Can you talk about what drove the decision for the name change and the rebrand, consolidating those five legacy brands into one, why you felt that was necessary? Because I know it isn't an easy thing to do. Yeah, yeah. Well, lots of questions in there,
Tim. Lots of thoughts. To answer your first, before I talk about brand, I think, and this has been a challenge for us ever since we were in the public markets, we are not a quarterly business. I try to say that ad nauseum. And that intra-quarter volatility, driven in some part by our emergency response business, is really tough in the public markets. So I think part of the reason for the pullback was because the way the numbers panned out this year it's back half loaded and the markets hate back half loaded right there's it increases the risk that the numbers get missed and we do our best to try to explain that the business really needs to be assessed on an annual basis but we recognize that that intra-quarter volatility is a real issue and it's candidly it's a big challenge for us as much as we say we're optimistic right you need proof that it's not because there's structural softness in the business. So, yes, there's change that we introduced to Tim, but I think it's important to acknowledge that. On the brand, you know, what Tim was referring to in 2024, we had in 2024, I mean, Alan and I remember it to the minute, we had just taken up guidance and raised capital. And then in June of 2024, two things happened within 24 hours of each other. There was the Trump-Biden debate when the markets effectively at that time, I think, probabilistically assumed it would be a Trump victory, and the Chevron doctrine was overturned. And we lost 70% of our market cap in a matter of 30 days on the back of no business news, which then precipitated into a short attack, which has since been debunked by third parties, and we've just been on the back foot since. And so, you know, what we did is we, and we were sitting here in the conference this time last year, and one of the questions we got is, right, it's in the doldrums, why do you have conviction that the business will perform? And really, because we see what's happening with clients, and right, and you guys saw how 2025 panned out. It was a record year for us, as I mentioned earlier. Those same dynamics is why we have conviction now. But we took the opportunity, while we were on our back foot and also trying to demonstrate that the organic engine was quite powerful, we took the opportunity to say, how can we dial in the integration of the business culturally and from a brand perspective? So we are fully integrated on the back office side, right? One bank account, one set of policies. We've talked about that. Everyone's on one ERP. But on the front end, in terms of how clients perceived us, they still perceived us as pieces. And what I mean by that is, like, I would go on a client site, right? I went to one of our major clients last year, and there were five different trucks from our business with five different logos all working with the client, and they didn't know that we were part of the same business. In fact, they asked one of our teams, they said, we love those guys over there. Would you mind working with them? And the team chuckled and said, it's actually part of the same family, which they loved, and then we got more business as a result of it. And what that told me, as nice as that was, was that we were not doing a good job really making it easy for our clients to understand who we were. If a core part of our thesis is cross-selling more effectively, how can I get some acceleration behind that? So it was a tough, because we have been so acquisitive in the past, it was culturally challenging to get everyone kind of to say, hey, these legacy brands, they may be worth a lot now, but it'll be worth a lot more if we do this properly in four, five, ten years. So the reason one was simplicity for our clients, make it easier to understand who we are, access us better. And the reason two is internal, it's cultural. I want all of our people to feel like they're part of one company. You have the same experience when you come, right? All the colors look the same. Sounds silly, but the way people speak is the same. And so we've done that, and it's been awesome. And look, there's inherent challenges, but it's been a really spectacular experience. A lot of excitement. We were able to speak about the mission. We went live on Earth Day, so we'd been planning this for a while. And it's been really well received internally, which is a big constituency for me. Not as much in this audience.
No, I mean, that's what matters the most. Does it invigorate the team? Is it all going in the right direction? The problem with investors is we shoot first and we ask questions later. You change anything. You change one thing about your business. We're like, why did they do that? You look at it with a skeptical eye. We want to know why you did it. what could possibly be the real reason? I mean, that's what we're doing all the time. I'm guilty of it too. And it goes to the second thing I wanted to ask about, which is the resegmentation. You went from three segments to two. You reduced visibility into the business. Yeah. Let's pass this one off to Alan. So anytime that there's a consolidation and segmentation, investors are like, what are they trying to hide? That's the natural, and I do it too, right? When And whenever a company does something like that, but sometimes there are good reasons for why you would do that. And when we spoke about it, it made perfect sense to me why you went into this direction. But I'd like to talk about it for just a minute, if you don't mind.
Yeah, that's a great question. The legacy three segments were a vestige of what the business looked like at the time of IPO. So in particular, the remediation component of our remediation and reuse segment had a lot of attributes that were consultative in nature and looked very similar to our consulting assessment, permitting and response segment is what we called it. Um, and as we acquired, uh, into that, uh, into those business lines in the subsequent years, it became really messy, right? So let's take Matrix for an example, right? A large acquisition in Canada. Um, they did bits of both. They have consulting elements and then they deal with groundwater remediation. Um, but they didn't look at their business that way and there was no way to break it down that way. So we had to pick a segment to put them in. You do that five, six, seven times over a number of acquisitions, the lines started to really blur. And as we increasingly went to market cross-selling, those teams started to compete with each other or started to have to subcontract, and then you got into arguments around how much margin each team should get. And so in light of the rebrand, And going to market in a more cohesive way, it made sense to consolidate the P&Ls and to consolidate those skill sets under a single leader. So there was certainly some cost benefit, right, having a single leader, a single sales team selling all of those services. And so we restructured organizationally. And there are a number of operational initiatives that are now being driven by the ability to cross utilize, for example, because, again, a lot of the skill sets are similar. And so when we did that, the accounting rules then require you to report your segments the way that internally you look at the business, which makes sense. The water treatment business is a little different. There's certainly a consultative element of that as well, but it's relatively small. And to pull that out as a separate segment didn't make a ton of sense. So that's part of the new consulting segment, consulting and treatment. We are going to disclose our water treatment revenues at the end of the year. That will be a new set of disclosures. That is a high-growth business, as Vijay mentioned. Really nice margin profile, so you get more visibility into that. So arguably, all we've done is just add two segments together, so there's no... It was a mischaracterization to think you were getting more information by having the three versus two. You're really not. It was very confusing to explain what those businesses were doing because they were so similar.
Yeah, it sounds like that there was a lot of similar work being done in R&R that was being done in AP&R. Now it's all, and it's how you run the business. So now you're reporting how you run the business. And you're going to give us more detail on the water treatment, which I didn't even have before. So we're actually going to get some more detail. Maybe when water treatment gets big enough, you pull it out and do it. Exactly right. All right. Now fun that stuff. Let's talk about the numbers that are back-end loaded. You mentioned that. I want to touch on that real quick because I also want to touch on the targets that you put up there. I want to talk about data center. I want to talk about other stuff. But the back-end loaded numbers, what gives you confidence in being able to hit those numbers? I know you're not a quarterly business, but unfortunately, being a public company, you're going to – that's just one of the things. trading like so um can you help because i also know you got a pretty tough comp in the third quarter you guys had a heck of a third quarter last year and your second quarter third was the yeah but the second quarter i feel like is people understand because that's coming up and so we know that there's a tough comp there and that's why the numbers feel back and loaded but you also got a tough comp on the third quarter so what gives you confidence to be able to drive that uh knowing that these things are ahead of you?
So let's look at the two segments. On the testing side, we talked about weather-related delays in the first quarter, predominantly January, February. From a seasonal perspective, that business is always the heaviest in the second quarter. This is when the field-based teams are out. A lot of our lab work is then tied to other companies that have field-based teams that then send their samples through our labs. there is real capacity constraints in that business the work has to be done annually it doesn't have to be done in the second quarter so while some of it gets caught up in Q2 there is a piece that gets moved into the back off of the year for that segment on the consulting and treatment side those tend to be larger contract driven, increasingly larger contract driven particularly as we are now Now, going to market by segment and by customer versus by business line, it's given us the ability to sell larger contracts, cross-functional contracts that are longer in duration. So that's exciting for us. But they take a little longer to close because they're complex. And so as we look at pipeline and recently closed wins, we have visibility into when those are going to start. And a lot of them are in the back half of the year.
Okay, yeah. So there's just things that you know that we don't. Are these longer-duration cross-functional contracts, are these with your current customer, like your customers now? You're just doing more with the current customer? It's both new and current. It's very exciting.
Yeah, it's very exciting for us here. I think the other dynamic, Tim, that, you know, and Alan's exactly right. That's why, and we talked about this on the earnings call, that's why we feel good about, right, the shift just in terms of quarterly timing. The one dynamic for us that's always hard is our response business. Right. And so part of the reason it was so hot in Q2 and Q3 last year was because we had a substantive response that our team was involved in. And again, we call it all out. We disclose it. But, you know, understandably, unless you're living in our shoes, right, you pop up in Q2 or Q3. And you're like, wait, why is it off? Right. Yeah. And so that part of the business is structurally hard to predict. You can't predict natural disaster. And so it's just, you know, if you kind of look over time within one standard deviation, we have good confidence as to when things occur. That business historically, though, that has not been the pattern they followed since 20, whether it was COVID or the Norfolk Southern derailment or the major release by an energy company. It's always occurred kind of in a weird time. But more traditionally, if we look back 20 years, that response business is most active in Q3, Q4. as temperatures are soaring, the risks of industrial events occurring, floods, hurricanes, so on and so forth, fires. And so for those reasons, we also have had a slow response first half of the year relative to the past. But given what we see in terms of activity, that's the other dynamic. We can't predict that the way we can predict the testing or the engineering business, the consulting engineering. But even that dynamic exists,
which we're kind of trying to manage through. Understood. And maybe in our final minutes, did you guys give financial targets I haven't seen before in an early slide?
I think we have now put it out there because we've always kind of hinted at it. Can I see that slide? Do you have the clicker? Adrian does.
I just wanted to make sure that I... But it's all stuff we've said before.
Oh, okay. The revenue side is just mathematical, frankly. So getting...
Oh, targeting a billion dollars in revenue. in three years, and that's just math based on your integral.
What is new, that 300 basis point improvement. We've talked about improvement over time, getting into the high teens. We're now putting a time frame and a specific basis point. We have, Vijay mentioned a couple of the drivers, right? Business line mix, maturity of the businesses, right? Scale. But there are also underlying initiatives that we now have lined aside to that the pause in acquisitions has given us a chance to really focus on. A new COO has come in. He's got a lot of big company experience. He's tracked KPIs, and there are gaps, right, where we should be versus kind of peer groups. And so we have a long list of initiatives that build up to at least 300 basis points. So we feel really good about achieving the basis point improvement. And so mathematically, again, adjusted EBITDA is growing faster than revenue. And then what's also new is we do expect to be GAAP EPS positive this year, historically because of amortization of intangibles from all the acquisitions we've done and the elevated stock-based comp that Vijay mentioned, we have run at a GAAP loss, not cash, but at a GAAP EPS loss. And that changes this year, and then the acceleration in EPS growth should be way north of adjusted EBITDA growth, not only because stock-based comp, as Vijay mentioned, normalizes, but we're being very disciplined with equity issuance and equity buybacks, share buybacks. So I have a lot of confidence that we're going to be able to trade more traditionally, which again gets back to the maturing of the company.
Got it. Okay. That's very helpful. Thank you for outlining that. I wanted to talk about all the exciting growth opportunities that you're seeing in mining right now that you're seeing with data centers and with your oil and gas customers, which is a big part of your constituency and is an exciting market right now but unfortunately we're out of time so maybe we can explore these things in the breakout thank god all right thank you yeah thanks guys thank you thank you guys