Montrose Environmental Group’s M&A Strategy Shifts From Large Assets to Bolt-Ons as Revenue Cadence Signals Diverge

Date of Call: Feb 26, 2026

Financials Results

• Revenue: Full year revenue of $830.5 million, up 19.3% YOY.
• EPS: Adjusted net income per share $1.36 for full year 2025, up from $1.08 prior year.
• Operating Margin: Consolidated adjusted EBITDA margin 14% for 2025, up 180 basis points since 2022.

Guidance:

• Revenue for 2026 expected to be $840M to $900M.
• Consolidated adjusted EBITDA for 2026 expected to be $125M to $130M, representing ~10% growth at midpoint.
• Targeting ~15% consolidated adjusted EBITDA margin in 2026.
• Organic revenue growth expected at high end of 7% to 9% long-term range.
• Revenue in second half of 2026 expected to be higher than first half; second half to contribute ~60% of full-year EBITDA.
• 2026 environmental emergency response revenue assumed $50M to $70M.

Business Commentary:

Record Financial Performance:

• Montrose Environmental Group reported record revenue of $830.5 million for 2025, up 19.3% year-on-year, and record consolidated adjusted EBITDA of $116.2 million, up 21.3% year-on-year.
• The growth was driven by strong organic growth across all segments, contributions from acquisitions, and increased demand in key markets such as the U.S., Australia, and Canada.

Organic Growth and Margin Expansion:

• The company achieved organic revenue growth of 12.7%, exceeding its long-term target, and expanded its consolidated adjusted EBITDA margin to 14%, a 180 basis points improvement since 2022.
• This was attributed to ongoing cross-selling success, operational efficiency, and a strategic focus on higher-margin services.

Strong Cash Flow Generation:

• Montrose delivered record operating cash flow of $107 million, representing a 93% conversion of consolidated adjusted EBITDA, and record free cash flow of $87 million.
• The robust cash flow was a result of margin expansion, working capital discipline, and operational efficiency.

Strategic Capital Allocation and M&A Outlook:

• The company is poised to return to accretive acquisitions in 2026, focusing on strategic, bolt-on deals that enhance cross-selling opportunities and expand market presence.
• This decision follows the completion of balance sheet simplification and is supported by strong liquidity and a disciplined approach to leverage.

Emerging Market Opportunities:

• Increased demand was observed from sectors such as mining, pharmaceuticals, semiconductors, and technology, particularly in data center environmental work.
• This trend is supported by rising industrial activity and regulatory drivers, contributing to Montrose's optimistic outlook for organic growth.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed being 'extremely pleased' and 'deeply optimistic,' citing record 2025 results across revenue, EBITDA, cash flow, and margins. They noted demand remains 'very strong' and 'we expect these dynamics to support strong organic growth well into the foreseeable future.' The tone was confident regarding 2026 outlook and strategic momentum.

Q&A:

• Question from Timothy Mulrooney (William Blair): Could you provide more color on the cadence of revenue and EBITDA expectations through the year?
  Response: Revenue expected roughly 50-50 front/back half; EBITDA split 40/60 first/second half. Q1 typically seasonally slow, with emergency response timing a key variable.

• Question from Timothy Mulrooney (William Blair): How do you think about the net impact of AI on your engineering and design work?
  Response: Montrose is more insulated from AI disruption than A&E firms; sees opportunities for efficiency gains internally, new revenue streams from data aggregation, and growth in environmental work for tech clients (e.g., data centers).

• Question from Timothy Mulrooney (William Blair): Which emerging opportunities are you most excited about for 2026-2027?
  Response: Excitement around new opportunities in GLP-1 manufacturers (PFAS byproducts), semiconductor industry expansion, and data center growth; water technology business expected to grow double digits in 2026.

• Question from James Ricchiuti (Needham & Co.): Where do you see the biggest opportunities for organic growth?
  Response: Biggest opportunities in water technology business, core testing and consulting demand, and increased activity in mining, Canadian infrastructure, and U.S. industrial sectors.

• Question from James Ricchiuti (Needham & Co.): Any particular areas driving the improvement in cross-selling?
  Response: Improvement driven by execution on response business as a cross-sell engine, strategic investments in commercial infrastructure, and seasoned sector leaders.

• Question from James Ricchiuti (Needham & Co.): What did PFAS revenues represent in 2025 and what was the growth rate?
  Response: PFAS represents about 10% to 15% of revenue with double-digit growth expected into 2026; water technology business now addresses a broader range of contaminants beyond PFAS.

• Question from Tami Zakaria (JPMorgan Chase & Co.): Could you elaborate on M&A potential size, segments, and timing?
  Response: Expect small, bolt-on acquisitions focused on testing and consulting in Australia, Canada, and U.S.; no deals imminent in Q1/Q2, likely in back half of 2026 if closed.

• Question from Tami Zakaria (JPMorgan Chase & Co.): What's driving the lighter revenue outlook for Q1?
  Response: Primarily lower emergency response revenue and some project timing and tougher YOY comparisons in Q1.

Contradiction Point 1

M&A Strategy and Timing

Contradiction on the size, focus, and urgency of planned acquisitions, impacting strategic direction and investor expectations.

Tami Zakaria (JPMorgan Chase & Co) - Tami Zakaria (JPMorgan Chase & Co)

2025Q4: No deals are imminent in Q1 or early Q2. The focus is on small, bolt-on acquisitions... Timing is expected to be in the back half of 2026 if deals are closed... - Vijay Manthripragada(CFO)

What are the details of the M&A plans in terms of deal size, target segments, and expected timing? - James Ricchiuti (Needham & Company, LLC)

2025Q3: The strategic thesis for consolidation remains unchanged. The focus is on larger assets (like CTEH or Matrix) and international expansion... The evaluation considers EBITDA multiples (17–20x for larger assets...) - Vijay Manthripragada(CFO)

Contradiction Point 2

Cadence of Revenue and EBITDA Growth

Contradiction on the expected quarterly distribution of revenue and EBITDA, affecting financial forecasting and performance expectations.

Timothy Mulrooney (William Blair & Company L.L.C.) - Timothy Mulrooney (William Blair & Company L.L.C.)

2025Q4: Revenue is expected to be roughly split 50/50 between the front half and back half... For EBITDA, the split is 40% in the first half and 60% in the second half... - Allan Dicks(CFO)

What is the expected quarterly cadence for 2026 revenue and EBITDA? - Timothy Mulrooney (William Blair & Company L.L.C.)

2025Q3: AP&R segment revenue grew 75% to $91.1M in Q3... There is also a little pull-forward from Q4 into Q3 and Q2. - Allan Dicks(CFO)

Contradiction Point 3

Revenue Cadence Expectations

Contradiction on the expected quarterly distribution of revenue, influencing understanding of business seasonality and performance drivers.

Timothy Mulrooney (William Blair & Company L.L.C.) - Timothy Mulrooney (William Blair & Company L.L.C.)

2025Q4: Revenue is expected to be roughly split 50/50 between the front half and back half of the year... The timing of environmental emergency response revenue... is a key variable that can cause quarterly fluctuations. - Allan Dicks(CFO)

Could you detail the expected quarterly cadence for 2026 revenue and EBITDA? - Tami Zakaria (JPMorgan Chase & Co)

2025Q2: After removing the $35 million emergency response... the core AP&R run rate is in the high $60 million range. Seasonality also plays a role, with Q2 and Q3 typically being stronger quarters. - Vijay Manthripragada(CEO)

Contradiction Point 4

Primary Driver of Strong Financial Performance

Contradiction on whether strong results stem from broad-based demand or specific, timing-sensitive factors, affecting the perception of business sustainability.

Tami Zakaria (JPMorgan Chase & Co) - Tami Zakaria (JPMorgan Chase & Co)

2025Q4: The primary driver is lower-than-average environmental emergency response revenue in Q1. To a lesser extent, some project timing and tougher year-over-year comparisons in other segments also contribute. - Allan Dicks

What factors are contributing to the lower Q1 revenue guidance, and when is the revenue cadence expected to improve? - Chris Grenga (Analyst)

2025Q1: The strong results are supported by growing universal demand for environmental science-based solutions across geographies... The results underscore a consistent trend rather than temporary factors. - Vijay Manthripragada(CEO)

Contradiction Point 5

M&A Urgency and Restart Timing

Contradiction on the immediacy and timing for restarting M&A activity, creating uncertainty around strategic execution.

Tami Zakaria (JPMorgan Chase & Co, Research Division) - Tami Zakaria (JPMorgan Chase & Co, Research Division)

2025Q4: No deals are imminent in Q1 or early Q2. ... Timing is expected to be in the back half of 2026 if deals are closed, though timing is not fully controlled. - Vijay Manthripragada(CEO)

What are the details of the M&A plans regarding deal size, segments, and timing? - Wade Anthony Suki (Capital One Securities, Inc.)

2025Q2: Regarding M&A, the company is on a strategic pause to demonstrate the strength of its core business. ... restart is not imminent. - Vijay Manthripragada(CEO)