MEG - NYSE

Hello, and welcome to the Montrose Environmental 4Q '25 Earnings Call. [Operator Instructions] Now I would like to turn the call over to Adrianne Griffin, Senior Vice President of Investor Relations and Treasury. You may begin.

Thank you, operator. Welcome to our fourth quarter 2025 earnings call. Joining me today are Vijay Manthripragada, our President and Chief Executive Officer; and Allan Dicks, our Chief Financial Officer. During our prepared remarks today, we will refer to our earnings presentation, which is available on the Investors section of our website. Our earnings release is also available on the website. Moving to Slide 2. I would like to remind everyone that today's call includes forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to known and unknown risks and uncertainties that should be considered when evaluating our operating performance and financial outlook. We refer you to our recent SEC filings, including our yet-to-be filed annual report on Form 10-K for the fiscal year ended December 31, 2025, which identifies the principal risks and uncertainties that could affect any forward-looking statements and our future performance. We assume no obligation to update any forward-looking statements. On today's call, we will discuss or provide certain non-GAAP financial measures, such as consolidated adjusted EBITDA, adjusted net income, adjusted net income per share, and free cash flow. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. Please see the appendix to the earnings presentation or our earnings release for a discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures, and a reconciliation of their most directly comparable GAAP measure. With that, I would now like to turn the call over to Vijay.

Thank you, Adrienne, and welcome to everyone joining us today. I will start with an update on our record 2025 results, provide 2026 guidance, and speak generally about the earnings presentation shared on our website. Allan will then provide the financial highlights, and following our prepared remarks, we will host the question-and-answer session. Before we get into the numbers, I want to acknowledge the extraordinary work of our approximately 3,500 colleagues around the world. 2025 was a record year across every key dimension: revenue, EBITDA, and cash flow. The reason we win quarter after quarter and year after year isn't luck or timing. It's because we bring science, field expertise, and urgency to the problems our clients need solved right now. Our results continue to demonstrate that environmental stewardship, human development, and shareholder value creation are not intention. At Montrose, we are for planet and for progress. As we have noted each quarter, our business is best assessed on an annual basis as demand for environmental science-based solutions does not follow consistent quarterly patterns. We manage our operations on an annual basis, and we recommend you similarly view our performance that way. With that context, I'm extremely pleased to report that 2025 was the strongest year in Montrose's history. We delivered full year revenue of $830.5 million and consolidated adjusted EBITDA of $116.2 million, both record highs and both well above the initial guidance we provided at the start of 2025. Let me put that record performance in context. Revenue grew 19.3% versus 2024, driven by organic growth of 12.7%, which meaningfully exceeded our long-term organic growth target of 7% to 9%. All 3 segments delivered solid organic revenue growth, thriving despite the ongoing regulatory uncertainty from the U.S. federal government. Consolidated adjusted EBITDA grew 21.3% year-over-year, and our consolidated adjusted EBITDA margin expanded for the third consecutive year, reaching 14% in 2025, representing 180 basis points of improvement since 2022. And importantly, we did not just grow the top and bottom line. We delivered record cash flow and exceeded every major strategic objective we set for ourselves in 2025, which Allan will expand upon in his remarks. Montrose has now delivered approximately 20% revenue CAGR from 2020 through 2025, outpacing the Russell 2000 constituent average, driven by roughly 13% average annual organic growth and resilient demand tailwinds across our diversified end markets. I am very proud of this team for delivering these exceptional results while maintaining their focus on our mission and on our clients. I also want to take a moment to address something directly because we continue to hear questions about it from investors. There is a persistent narrative in the market that U.S. regulatory volatility and uncertainty creates meaningful headwinds for Montrose. Let me be direct. The macro and regulatory backdrop for environmental services and solutions remains as constructive as we have seen, and the performance we delivered in 2025 is the clearest possible evidence of that. In 2025, approximately 90% of our clients operated in a diverse subset of private sector industries, including energy, utilities, transportation, industrial manufacturing, chemicals, and technology. Our work creates more efficient operations, reduces their environmental impact, and derisks their growth. We achieved this by delivering environmental consulting, measurement, and treatment through a unified service model. The real economy still needs a reliable environmental partner, and this demand doesn't stop for a new headline cycle. As industrial activity picks up in our key markets in the U.S., Australia, and Canada, we are seeing increased demand from the mining industry, pharmaceutical companies, particularly the GLP-1 manufacturers, the semiconductor industry, and technology companies building data centers. The air monitoring or water treatment needs for our clients in these sectors has picked up materially and were not part of our outlook 18 months ago. We expect these dynamics to support strong organic growth well into the foreseeable future. Despite the strong demand tailwinds across the majority of our business, 2 regulatory dynamics, in particular, have garnered a fair amount of recent attention. On methane, the market perception is that recent EPA framework changes, such as the Endangerment Finding repeal, threaten our business. The reality is there is no material impact on our services expected in the near term. Even though the essence of U.S. EPA changes haven't altered the regulations underpinning our work, more importantly, our methane services work is concentrated with large operators in states with independent stringent regulations, including states like Colorado, Texas, California, and Pennsylvania, states that have implemented their own monitoring frameworks and continue to set expectations that require credible monitoring and abatement. Meanwhile, the EU methane regulation extends the market for emissions monitoring, reporting, verification, and abatement to exporters, including U.S. LNG and oil producers. Because Montrose invested early in advanced monitoring and verification-ready technologies, our energy clients can achieve better, faster, and more cost-effective outcomes. With global deadlines phasing through 2030, demand is now more predictable. And on PFAS, while the market remains focused on headlines, PFAS is already a high-margin growth driver across our segments. U.S. EPA and White House actions continue to elevate PFAS as a priority. In Q2 2025, the U.S. EPA provided clarity on national PFAS standards, which expanded our pipeline. Ongoing state actions around maximum contaminant levels, AFFF remediation, and industrial discharge standards are also driving long-term demand for our services. States and utilities are tightening expectations around landfill leachate, for example. And as a result, pretreatment and full-scale opportunities increased for Montrose in 2025, and we expect elevated accretive organic growth in water treatment through 2026 and beyond. We are seeing similar demand increases in our Australian market. On broader regulatory uncertainty, again, our track record speaks for itself. We have delivered consistent organic growth across multiple administrations and regulatory cycles. This is not a coincidence. It is a function of our business model. Our business is predominantly private sector, with U.S. federal government exposure of less than 3% of revenue. The private sector clients that represent 90% of our work are not waiting on Washington. They have their own environmental obligations, their own sustainability commitments, and their own operational needs that drive sustained, predictable demand for our services. It is important to note that our addressable market for water treatment extends well beyond PFAS itself. Our water treatment total addressable market exceeds $250 billion. Ours is a water technology business, not just a PFAS business. Our IP and process expertise are solving challenges across contaminants and industries, from pharma and semiconductors to waste and industrial clients. PFAS is a tailwind, but the larger story is scalable, trusted water technology solutions. The short answer for Montrose is this: macro and regulatory drivers are tailwinds that endure. The backdrop is familiar, economic volatility, policy fluctuations, and evolving regulatory frameworks drive complexity that creates demand for the various services where we choose to compete and where we have built capability. Our private sector clients tell us 3 things consistently: their long-term outlook has not changed, domestic industrial activity is a net positive, and they remain committed to state regulations and international rules because compliance is a license to grow. With more than 6,000 clients, we've seen very few material changes to operating policies. That durability underpins our confidence. We expect to publish a study with the Financial Times around Q2 2026 that demonstrates how the private sector is responding to U.S. environmental policy volatility. By and large, the data shows that the private sector, Montrose's clients, are staying the course and that steadiness is manifesting in our numbers. These dynamics are a meaningful part of our confidence as we launch our 2026 guidance. Transitioning first to our priorities for 2026. Our strategic focus is clear and consistent with what you have heard from us. Let me take this in 3 pieces. First, organic revenue growth and margin expansion. Our go-to-market strategy, anchored by cross-selling our unique portfolio of services to private sector clients, coupled with regulatory and policy tailwinds across our key markets, and broad increases in industrial activity, continues to demonstrate the resilience and compounding power of our integrated platform. We have exited 2025 with strong momentum in all 3 segments, and we see broad-based demand across the private sector clients in 2026. As one data point, the percent of revenue from cross-selling increased from 53% to 62%. Our growth is not dependent on acquiring any more customers, but rather on deepening the relationship with our existing customers. Second, strong cash flow generation. We have consistently prioritized working capital discipline and operational efficiency. The 93% operating cash conversion we delivered in 2025 was extraordinary. While we do not expect to sustain that exact level, we remain confident in achieving 60% operating cash conversion in 2026, which exceeds our long-term 50%-plus operating cash flow to consolidated adjusted EBITDA target. Free cash flow is also expected to remain robust in 2026, providing the foundation for our capital allocation strategy. Third, strategic capital allocation. Now that we have completed the balance sheet simplification we committed to in 2025, we have expanded flexibility to deploy capital in ways that enhance the shareholder value, including through organic investments, M&A, and share repurchases. I will come back to each of these in a moment. Turning to our 2026 outlook. We are introducing guidance of $840 million to $900 million in revenue and $125 million to $130 million in consolidated adjusted EBITDA. At the midpoint, that represents approximately 10% EBITDA growth compared to 2025. This guidance does not assume any acquisition impact. We are targeting approximately 15% consolidated adjusted EBITDA margins in 2026, reflecting the operating leverage inherent in our model, ongoing efficiency gains, and the benefit of our higher-margin service mix. This is an important signpost for us and one I want to clearly anchor on for the investment community. Organic revenue growth of 7% to 9% remains our long-term expectation. And for 2026, we expect to be at the high end of that range. Revenue in the second half of 2026 is expected to be higher than the first half, with the second half contributing approximately 60% of full year consolidated adjusted EBITDA given the timing of current projects. Our 2026 environmental emergency response revenue assumption is in the range of $50 million to $70 million, consistent with our long-term framework. As always, our formal guidance assumes no impact from future acquisitions. I also want to highlight a milestone that is easy to overlook, but tells a powerful story about the compounding cash generation power of this business. Between 2025 and 2026, we expect to generate approximately $180 million in cumulative operating cash flow. We achieved record operating cash flow of $107 million in 2025 alone, a 93% conversion rate. We expect sustained strong conversion in 2026, supported by ongoing margin expansion and working capital discipline. This trajectory positions Montrose to continue enhancing cash flow and driving shareholder value. Before I hand the call over to Allan, I want to reaffirm the framework that underpins our capital allocation philosophy and our ability to create long-term shareholder value. On organic investments, we will continue allocating 1% to 2% of revenue annually to high-return investments in proprietary technology, software development, patents, R&D, and growth capital expenditures. These are the innovations that expand our applications and strengthen our competitive position over time. And they are a large part of why our organic growth has averaged 13% for the past 5 years. On balance sheet strength, our strong liquidity provides flexibility for strategic initiatives while we maintain a disciplined and balanced approach. On share repurchases, I am pleased to announce that we are in a strong position to begin returning capital directly to shareholders through our existing $40 million share repurchase authorization. Considering the ongoing disconnect between the company's strong financial and operating performance, our near- and long-term optimistic outlook, and our current public stock valuation, the program reflects our confidence in Montrose's business trajectory. The confidence we have in our performance, our 2026 outlook, and the macro tailwinds supporting this business makes this the right moment to begin this program in a systematic and ongoing way. On acquisitions, having delivered on every objective we set when we announced the acquisition pause in late 2024, including full balance sheet simplification, record cash flow and continued margin expansion, we are now in a strong position to return to accretive acquisitions in 2026. Acquisitions remain a key part of our long-term strategy, our growth algorithm, and our investment thesis, and our pipeline today is as robust as we've seen in recent years. As we have said before, we will remain prudent on leverage. We remain focused on highly strategic, accretive tuck-ins that enhance cross-selling opportunities, expand market presence, and optimize our service mix for continued margin enhancement. In summary, 2025 was a record year for Montrose in every meaningful sense. We delivered record revenue, record EBITDA, record cash flow, and record margins. We exceeded every key strategic objective we set for ourselves. We enter 2026 with a simplified balance sheet, strong liquidity position, and clear strategic momentum. Demand remains very strong in all of our key markets, the United States, Australia, and Canada. I am extremely proud of the Montrose team and everything they have accomplished, and I remain deeply optimistic about what lies ahead. Thank you for your continued interest in Montrose. And with that, I will hand it over to Allan.

Thanks, Vijay. Our record 2025 results demonstrate our ability to deliver for our clients, shareholders, and employees. These results included robust organic growth driven by ongoing cross-selling success, a third consecutive year of profitability improvement, driven by our focus on higher-margin services and operational efficiency, simplification of our balance sheet ahead of schedule, and lower-than-expected leverage due to record cash flow and earnings. Beginning with a discussion of our revenue performance. Fourth quarter revenue increased to $193.3 million compared to $189.1 million in the prior year period. Full year 2025 revenues increased by 19.3% versus 2024, totaling $830.5 million, well above our initial guidance. The primary drivers of full year revenue growth were strong organic growth across all 3 segments, totaling $81.8 million, or 12.7%, stronger-than-expected environmental emergency response revenue, and contributions from acquisitions closed in 2024. Turning to profitability. Fourth quarter consolidated adjusted EBITDA was $23.9 million, or 12.4% of revenue, compared to $27.2 million, or 14.4% of revenue, in the prior year quarter. Fourth quarter results benefited from improved margins in consulting and advisory services, offset by lower margins in the Measurement and Analysis and Remediation and Reuse segments, and expenses related to the wind down of our renewables business. For the full year, consolidated adjusted EBITDA increased 21.3% to $116.2 million, or 14% of revenue, resulting in our third consecutive year of margin expansion and 180 basis points of improvements since 2022. Turning to GAAP results. Net loss in the fourth quarter improved to $8.2 million, or $0.23 loss per diluted share attributable to common shareholders compared to a net loss of $28.2 million, or $0.90 net loss per diluted share in the prior year. This $20 million year-over-year improvement in net loss primarily resulted from lower stock-based compensation expense following the cancellation of stock appreciation rights in the prior year and lower income tax expense in the current year. The $0.67 comparative period improvement in loss per share was primarily due to the improved net loss and the elimination of Series A-2 dividends following the full redemption of the remaining preferred equity instrument on July 1, 2025. For the full year 2025, net loss improved to $0.8 million, or $0.14 loss per diluted share compared to a net loss of $62.3 million, or $2.22 net loss per diluted share in 2024. This $61.5 million year-over-year improvement in net loss primarily resulted from the increase in income from operations and the $20.2 million fair value gain related to the Series A-2 preferred stock redemption, partially offset by higher interest and income tax expenses. The $2.08 comparative period improvement in loss per share primarily resulted from lower net loss, lower Series A-2 dividends, and an increase in weighted average diluted common shares outstanding. On an adjusted basis, fourth quarter adjusted net income and diluted earnings per share were $13.5 million and $0.35, respectively, compared to $14.7 million and $0.29 in the prior year quarter. Adjusted net income decreased due to lower operating margins in the current period, while diluted adjusted earnings per share benefited from the elimination of the Series A-2 dividend and lower fully diluted shares outstanding. For the full year 2025, adjusted net income and diluted EPS were $60.7 million and $1.36, respectively, compared to $55.8 million and $1.08 in the prior year. The year-over-year increase in adjusted net income reflects higher revenues and improved margins, partially offset by higher interest and income tax expenses. Diluted adjusted EPS benefited from the elimination of the Series A-2 dividend following the full redemption in 2025. I will note that the increase in interest expense was partially attributable to the incremental borrowings to redeem the Series A-2 preferred. The year-over-year incremental interest expense of $3.7 million was more than offset by the reduction in Series A-2 dividends of $6.9 million. And with the Series A-2 now fully redeemed, this cash flow benefit will continue to be realized. Please note that our diluted adjusted EPS is calculated using adjusted net income attributable to stockholders divided by fully diluted shares, which we believe is currently the most helpful net income per share metric for Montrose and common equity investors. I will now discuss our performance by segment, focusing my comments on the full year. In our Assessment, Permitting and Response segment, full year revenue increased 43%, or $92.6 million, to $307.4 million. The primary drivers were organic growth of $57.8 million in nonresponse consulting and advisory services, including remediation consulting work cross-sold from the large environmental incident response in the second quarter, environmental emergency response growth of $29 million, and 2024 acquisition contributions of $5.8 million. This segment is a strong illustration of the power of our integrated platform and our ability to convert an emergency response into a long-term remediation consulting engagement and is precisely the cross-selling model we have been building. Full year segment adjusted EBITDA was $68.5 million, up from $48 million in the prior year. Adjusted EBITDA margin was 22.3% of revenue, essentially flat with the prior year. We expect margins in the segment to strengthen in 2026 due to strong expected demand, pricing discipline, and operational efficiency. Turning to our Measurement and Analysis segment. During 2025, this segment significantly outperformed the prior year, as utilization drove efficiency gains and our team enhanced operating performance. Full year revenue grew 9.6% to $245.9 million from $224.4 million in the prior year, driven by organic growth of $12 million from increased demand for air quality and laboratory services, as well as 2024 acquisition contributions of $11.6 million. The most compelling story for this segment is the margin performance. Full year segment adjusted EBITDA was $64.4 million, or 26.2% of revenue compared to $50.5 million, or 22.5% of revenue in the prior year, a 370 basis point margin expansion. This improvement reflects improved operating discipline, growth in higher-margin laboratory services, and operating leverage across air quality services. We expect segment margins to remain elevated and well ahead of our long-term guidance and as compared to 2024, although modestly lower than 2025. In our Remediation and Reuse segment, full year revenue grew 7.8% to $277.3 million from $257.2 million in the prior year. Revenue growth was driven by organic growth of $12 million, primarily in water treatment services, and 2024 acquisition contributions of $8.1 million, partially offset by $9.8 million of lower revenues from renewable services as part of the strategic wind-down and exit of that business. Full year segment adjusted EBITDA was $36.3 million, or 13.1% of revenue, compared to $38.3 million, or 14.9% of revenue in the prior year, primarily driven by the $4.4 million loss associated with the strategic wind-down of our renewable energy operations. In 2026, segment margins are expected to improve as our water treatment business continues to benefit from organic growth and operating leverage. Importantly, we did not just deliver record top and bottom line results. We also delivered record cash flow. We achieved $107 million in operating cash flow, representing an extraordinary 93% conversion of consolidated adjusted EBITDA, well above our 50%-plus long-term target. We also generated record free cash flow of $87 million, or 75% of consolidated adjusted EBITDA. Beyond these financial results, we exceeded every major strategic objective we set for ourselves in 2025. We fully redeemed the remaining $122 million of our Series A-2 preferred stock 6 months ahead of schedule, permanently simplifying our capital structure and eliminating all future Series A-2 dividends. We exited the year with a leverage ratio of 2.5x, exceeding our year-end target of below 3x and had substantial available liquidity of $225 million, which demonstrates the balance sheet strength that positions us well for the next phase of our growth strategy. In short, 2025 was a record year across every major financial metric: revenue, EBITDA, cash flow, and balance sheet strength. We enter 2026 with strong momentum, a clear strategy, and a team that has earned the right to be confident. We look forward to demonstrating continued progress throughout the year. Operator, we are ready to open the lines for questions.

[Operator Instructions] And our first question comes from the line of Tim Mulrooney with William Blair.

Congrats on capping off a strong year of execution here in 2025. I wanted to start out with a guidance question, just a simple one. You provided full year revenue and EBITDA outlook. But look, I know you're not a quarterly company, but I'm hoping you could provide just a little bit more color on how to think about your expectations for the cadence as we move through the year.

Yes. Tim, let me take that. It's a good question. You're right, this is not a quarterly business, but there are some interesting comparisons to '25 given some of the timing of the emergency response revenue. So at a high level, we expect revenues to be split roughly 50-50 front half/back half. And then within the front half, about 40% Q1, 60% Q2, okay? On EBITDA, we expect a split of -- just the first half, second half, 40% first half, 60% second half. And then within the first half, about 1/3 is Q1 and 2/3 Q2.

If I go back, Allan, and I go back and look at your EBITDA breakdown, it's actually not that different than what we've seen in some prior years. So...

That's right. Yes. Q1 is just a very seasonally slow quarter. Obviously, the timing of emergency response, which is impossible to predict, can move that around quite significantly. We always assume the midpoint of that $50 million to $70 million, and roughly apportion it with $15 million a quarter. So there could be a light quarter, there could be a heavy quarter. So that's certainly going to move those percentages around. But those numbers I just gave you assume an even distribution of that $60 million ER revenue, guidance midpoint.

You know what, another thing I wanted to ask, about switching gears completely, is this topic of AI. We saw a broad sell-off in engineering and design firms over the last couple of weeks due to concerns about disruption from AI and Montrose has occasionally comped against some of these companies. How do you think about the net impact from AI on your business, and more specifically, your engineering and design work?

Let me take that, Tim. Look, these are exceptional firms. Many of these firms you reference are our clients. And so I'll speak generically, Tim. You know the space as well as anyone, right? I think a lot of the concerns there seem to be tied to AI's ability to disrupt the more formulaic and algorithmic tasks that some of these firms do. Our work is much more bespoke, and I'm happy to expand into that further to the extent it's of interest. But as we think about a simple example is the complexity of the water treatment and how that's constantly changing or the field-based nature of our work. The gist of it is we are not an A&E firm, and Montrose is much more insulated from those dynamics than are some of the firms that you referenced, Tim. But look, we're not being Pollyannish about this. I mean, prior to my life at Montrose, I came from a technology firm. So I'm acutely sensitive to both the risks and opportunities that AI and large language models present. And I would frame it in the context of 3 frameworks that we look at. One is there is absolutely an opportunity for us to drive efficiency with the type of work that we do. And we are already in the process of doing that. And so what I mean by that is using large language model-based technologies to make ourselves more efficient, which should drive margins and create upside opportunity into the future. The second is on the revenue side as a large data aggregator. We are already in the early stages of harnessing some of this technology to work with our clients, so for example, with our sensor networks and real-time air monitoring. So there's a revenue stream opportunity that's new that we are pretty excited about. And then, independent of what we're doing internally, Tim, the technology companies that are driving a lot of this activity are Montrose's clients. And so it is early days. We have been careful not to talk about this too much until we really are ready to be very precise about exactly what we're doing. But it is already manifesting in our revenue, meaning the environmental work we're doing for technology companies, and specifically around data centers and AI, saw some really nice growth last year off of, again, a small base. And then we expect to continue to see that really nice growth into the foreseeable future. None of that is in our numbers in terms of our 7% to 9% organic growth today. We want to be careful about not overpromising. But there's clearly some really nice tailwinds and opportunity for Montrose as we look at this more broadly. Does that answer your question?

Yes, it does and makes a lot of sense, so thank you. Maybe I'll just wrap it up with one more, if you don't mind, if I squeeze one more in because I did hear you make that comment in your prepared remarks, Vijay, about some of these emerging thematics, these nascent opportunities that weren't necessarily around 18 months ago, whether it's -- I think you listed mining, pharma, semi, data center.

Yes.

And it goes to your commentary of seeing more tailwinds than headwinds. I'm just curious, as you think about these opportunities, which ones you're most excited about, I guess, as we move through 2026 and 2027.

Yes. We -- so a lot of these are already our clients, Tim. So some of them are growing opportunities as we speak, and some of the others are pipeline opportunities that have popped up. So just to explain what I mean, within the pharma space, the GLP-1 manufacturers, there are PFAS byproducts that come through the manufacturing process. And so they have been working with us to determine, given some of our unique IP and technology, to how to extract some of the short-chain PFAS that come out of that process. So that's a new set of opportunities. We haven't really addressed that before. That's in our pipeline now. I'm pretty excited about what that looks like, you call it, into the '27 onwards time frame. Contrasted with the data center work that I referenced earlier, that is already in a small way in our revenue and our revenue growth profile, and I expect that to expand further. As we think about the semiconductor industry, a lot of those have been clients of Montrose. As activity picks up and they start to build out some of these centers and manufacturing capabilities, there's a host of opportunities for us as we think about our integrated environmental platform that are opening up that didn't exist before. So we're quite excited about that. A lot of this is tied to our water technology business, Tim, which we expect to grow double digits in '26 compared to '25. And as we think about the long-term or even medium-term, this represents incremental upside to what we saw even 18 months ago. So that's what we meant in the commentary, and hopefully, that adds some more color.

And your next question comes from the line of Jim Ricchiuti with Needham & Co.

I appreciate the additional color, Allan, by the way, in response to Tim's question about thinking about the year. So thank you for that. You've touched on some of this in the question I have coming up is just where you see the biggest opportunities from an organic growth standpoint. And I think you highlighted, Vijay, some of the end markets, some of the -- but I'm curious how that might translate down to some of the business lines and where you see the biggest opportunity for organic growth.

Yes. There's a couple of areas where we're quite optimistic about what the future looks like, Jim. So one area, as I just alluded to, is our water technology business, which we expect to grow really nicely into the foreseeable future. It's going to be accretive to our growth trajectory over time. It certainly will be to our numbers in 2026. So that's a particular area of focus. We remain quite optimistic with our core business around testing and consulting as well. Despite all of the volatility, the uncertainty that's in the market right now is creating tailwinds for us. And so we're seeing ongoing demand for our testing business, both field-based and lab-based. And we're also seeing really nice demand tailwinds for our consulting business -- environmental consulting business. And there's been some really nice opportunities for us that have come up. As Tim asked about earlier, we've seen in Australia, for example, with our mining clients. In the Canadian market, we've seen a really nice uptick in activity tied to Prime Minister Carney's initiatives around Canadian infrastructure build-out. And then here at our home market in the U.S., the increased industrial activity is driving really nice demand tailwinds for us. And so as we look out into 2026, the type of business that we're seeing and the mix is a little different than we've seen in the past. But all of those areas excite me, and there's ways for us to harvest those opportunities, both organically and inorganically, which we're excited to jump on.

You guys are making some nice progress on cross-selling. Any particular areas or verticals that's been driving that improvement that we're seeing?

It's largely just execution, Jim. We alluded to this before. Our response business is a spectacular cross-sell engine. And strategically, it represents really nice opportunities post response to drive testing work and remediation work, specifically around soil and water remediation. And so a lot of the improvement you saw in 2025 was tied to ongoing execution against that original plan. So it's more of the same blocking and tackling. We've made investments in our commercial infrastructure. We've brought in some incredible talent, some very seasoned leaders that are sector leaders and well-known names in the industry. And so a lot of that has been the reason why we're seeing improvements on that metric, and we expect to see that into the foreseeable future.

One quick final question for me. You sound optimistic on the PFAS side of the business. Can you say what the PFAS revenues -- and you may have. I may have missed it -- represented in 2025 and what the growth rate was?

Yes. It remains about 10% to 15% of our business, Jim. And I think we've historically -- and this is really something we should have done a better job at -- but we've historically talked about our water technology business primarily in the context of PFAS. And what we're seeing now is that our water technology business is getting pulled into PFAS demand cycles, but it's more a family or a group of contaminants, including PFAS that we're treating. So for example, when we're dealing with landfill leachate, which has been a really nice growth market for us, the waste industry that is, we're removing all kinds of contaminants in addition to PFAS, not just PFAS. So as we look at it in aggregate, that's part of the reason why we see so much -- why we have so much optimism in what the future looks like, because it's now become embedded in the set of contaminants that folks want to remove. And so the numbers are still very similar to what we talked about before, Jim, 10% to 15% of revenue with double-digit growth expected into 2026.

[Operator Instructions] And our next question comes from the line of Tami

Congrats on the wonderful results. Question on M&A. Good to see you're planning on doing M&A. Could you elaborate on the potential size of the deals in terms of maybe revenue or EBITDA that you're looking at, which segments you're focused on, any sense of the timing, first half versus back half? Any color would be helpful.

Yes, Tami, let me start with that, and Allan, you should certainly jump in. There is nothing imminent. And so as you look out to Q1 or even the first part of Q2, it is unlikely we're going to do anything there from an acquisition perspective. We're going to be very measured. We're talking about small, bolt-on acquisitions. We are very sensitive to leverage. As you know, we've talked about that, and we think about this in the context of broader capital allocation strategies to maximize returns. So with that background and with that underpinning, we see some really nice opportunities on the testing side of our business, Tami, and we see some really nice opportunities across the Australian, Canadian, and U.S. markets on the consulting side of our business. And so we will likely start to, in a measured way, bolt on some really accretive assets, both strategically accretive and financially accretive, sometime in the back half of the year. As you know, we don't control deal timing, so that may fluctuate a little bit. But with what we see in the pipeline today, from a timing perspective, should we close transactions, and we may not close any, but we certainly expect to close some, we will likely do it in the back half of this year.

And a follow-up on the quarterly color you gave, which was very helpful. I just wanted to understand 1Q in particular. It seems like it's going to start off a little lighter before things pick up. So is it just emergency response revenues being lumpy? Or is there headwinds in some other segments as well that's making 1Q smaller and then we expect to pick up as the year progresses. So what's driving the revenue outlook for the first quarter?

Yes, I can take that. You're right. It is primarily lower emergency response. We're 2/3 of the way through Q1, and so we have visibility at least for that period of time into what emergency response has been. And then to a lesser extent, there is some project timing and tougher comparisons year-over-year in Q1 that lighten as we progress through the year.