TTEK earnings call analysis

NASDAQ:TTEK Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Melissa | Conference Call Operator: Good morning and thank you for joining the Tetra Tech earnings call. As a reminder, Tetra Tech is also simulcasting this presentation with slides in the investor section of its website at tetratech.com. This call is being recorded at the request of Tetra Tech and this broadcast is the copyrighted property of Tetra Tech. Any rebroadcast of this information in whole or in part without the prior written permission of Tetra Tech is prohibited. With us today from management are Dan Batrak, Chairman and Chief Executive Officer, Steve Burdick, Chief Financial Officer, and Roger Argus, President. They will provide a brief overview of the results and will then open the call for questions. I would like to direct your attention to the Safe Harbor Statement in today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from these projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in Tetra Tech's periodic reports filed with the SEC. Except as required by law, Tetra Tech undertakes no obligation to update its forward-looking statements. In addition, since management will be presenting some non-GAAP financial measures as references, The appropriate gap financial reconciliations are posted in the investor section of Tetra Tech's website. At this time, I'd like to inform you all that participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. With that, I would now like to turn the call over to Dan Batrak. Please go ahead, Mr. Batrak. Dan Batrak | Chairman & Chief Executive Officer: Thank you very much, Melissa, and good morning. Welcome for our fourth quarter and fiscal year 2025 earnings conference call. And I'd like to start this morning with sharing with you that I'm very glad to report that we had an excellent fourth quarter and record financial performance for all the fiscal year 2025. But before I actually get to the numbers, I'd like to take just a moment here at the beginning to discuss how we successfully navigated this extraordinary year and ended up with these record results. By staying focused on our high-end consulting and our leadership in water, we've built an enduring competitive advantage and a long-term client-based trust with our end clients that we work with. Our leading the science approach has provided us with a significant competitive advantage and highly adaptive workforce, long-standing client relationships that have ended up resulting in sustained demand for our services over decades. It is this focus that has allowed us to successfully navigate the recent changes in the U.S. federal government's priorities and emerge with financial records and financial performance for fiscal year 2025. More importantly, as I look into fiscal year 2026 and beyond, I see our high-end water services in higher demand and more critical than ever to the fastest-growing markets in the United States and internationally. Today, Steve Burdick, our Chief Financial Officer, will provide additional details of our financial performance, both in the quarter and the year. And I'd also like to welcome today with us Roger Argus, our newly appointed president here at Tetra Tech, who I personally have worked with for over 30 years here at Tetra Tech directly. Obviously, Roger goes back in the market and industry even farther than that. He brings a great understanding of our clients and our business worldwide. and he's spearheading some of our highest opportunity growth initiatives that we have in the company today. Roger will provide an update of our water-focused growth markets during his presentation this morning. And I would like to share with you an update of our financial performance and our business. We had record results for the fourth quarter and for the entirety of fiscal year 2025 with record highs across the board for net revenue, operating income, and earnings per share. The fourth quarter results provided us with strong momentum as we exit the fiscal 2025 fiscal year and enter fiscal year 2026. These results are very broad-based, demonstrating the strength across all of our business sectors and our markets globally. We finished fiscal year 2025 with a strong fourth quarter, resulting in record net revenue, record operating income, and significant operating margin expansion. We had record net revenue of $1.07 billion, which is up 10% from the prior year. We significantly expanded our margins to the highest level in more than 30 years, which results in our operating income being up 23%. more than doubled the rate of revenue growth and reaching $168 million for the first time. And finally, the growth rate for earnings per share was even higher, up 29%, reaching 44 cents for the quarter. I'd like to present our performance by our segment, or our client segments. The Government Services Group had an excellent year and delivered an extraordinary fourth quarter. In the fourth quarter, our GSG segment revenue grew by 17% rising to $396 million compared to $338 million last year. GSG segment also set a new record for margin performance at 22.9% for up 330 basis points from the prior year. This performance was driven by strong execution of our water infrastructure and our digital automation work for state and local clients. high utilization across our U.S. operations during the completion of our fire disaster response work, and the reduction in our low-margin USAID work. The Commercial International Group also delivered a strong fourth quarter and strong year. Our Commercial International Group's fourth quarter revenue was up 7% to $676 million, and the CIG, our Commercial International Group's margin, excluding Australia, was up about 60 basis points in the quarter. Now, I'd like to provide an overview of our performance by our end customers. In the fourth quarter, international work was about 45% of our overall business and growing at a 9% rate. International organic growth included increases in the United Kingdom's water business and a strong growth in our Canadian clean energy practice. In the United States, our state and local markets continue to be very strong with a 19% growth rate driven by municipal water treatment and digital water modernization, especially in the water stressed regions of Texas, Florida, and California. Without the contribution of the disaster work in the quarter, our state and local work was up 13% year over year. U.S. commercial work overall was down slightly. driven by reductions in renewable energy work, but partially offset by growth in other sectors. Our U.S. commercial work includes some sectors that have extraordinary growth rates in the quarter. For example, our high-voltage transmission work in the United States is rapidly growing due to expanding energy demand, which is often associated with data centers. And finally, our U.S. federal work is now 21% of our business compared to 31% a year ago. This quarter, our federal work was up 22% from the prior year, primarily for work with the US Army Corps of Engineers designing flood protection structures and providing disaster response services. I'd like now to discuss our backlog. We had a strong quarter of contract awards, ending the quarter with $4.14 billion in backlog during a record revenue quarter. As I've stated previously, we use a highly conservative approach to backlog reporting by including only work that is contracted, funded, and authorized. The backlog we have today is of higher quality than ever before with higher embedded margins and with a higher portion of fixed price contracts, which gives us even more opportunity for margin expansion. This quarter, we were awarded over $1.2 billion in new contracts with U.S. defense agencies that cover both U.S. domestic and international operations. We announced another great win with United Kingdom for Portsmouth Water with a $23 million contract that you can note on the webcast that we have here. And we won two new awards for high voltage transmission work in the United States and Ireland. both areas where data centers are driving investments in power generation and transmission. Our US high voltage transmission practice is now growing their backlog at 120% rate year on year here in the US. At this point, I'd like to turn the presentation over to our Chief Financial Officer, Steve Burdick, to take us through the financials for fiscal year 2025. Steve? Steve Burdick | Chief Financial Officer: Well, hey, thank you, Dan. I'd like to now provide an update of our fiscal 2025 results, working capital, cash flows, and capital allocation. But before I dive into these results, I want to point out and remind us all where we started the year. We initiated our 2025 revenue and earnings guidance in line with our longer-term 2030 goals. Now, despite having our largest single client cancel hundreds of contracts midway through 2025 and other headwinds that could have knocked out anybody else, Tetra Tech delivered all-time high revenue and earnings. And because of our high-quality clients and talented project managers across the globe, we generated a record-setting cash from operations that approached a half billion dollars. Not only am I proud of our team's ability to execute on our 2025 results, I'm even more positive on our team's ability to execute on our long-term strategy in 2026 and beyond where our market-leading services are focused either directly or as a first derivative to our clients' water investment opportunities. Now, as Dan discussed earlier on this call, our market-leading focus on the front-end consulting and design for water and environmental projects are carrying higher margins across all of our end markets. As such, even as the fiscal 2025 revenue was up a solid 7% over last year, Our operating income increased at a higher rate of 18%, and EBITDA for the year increased 13%. These results for the year further support our long-term strategic goals to increase net revenue while improving EBITDA margins by 50 basis points annually. I do want to point out that, as you can see here, our 2025 EBITDA margins and net revenue came in at a better 14.3%, which is an increase of over 80 basis points for this year as compared to last year. As a result of our ability to enhance our profit margins and further manage our working capital, we were able to increase EPS by 24% over last year to $1.56. Now, regarding our working capital, Cash flows generated from operations for fiscal 2025 were $458 million, which represents a 28% improvement over fiscal 2024. And consistent with the last 20 years, these operating cash flows have continued to exceed net income by more than 100%. Our focus on working capital and cash flows has resulted in our DSO reflecting an industry-leading standard of 55.7 days. This lower DSO metric provides significant insight into our core business as it reflects the outstanding work that our project managers lead relative to higher quality projects and highly satisfied clients in our broad portfolio across all of our end markets and geographies. Our net debt amounted to about $600 million, and our net debt on EBITDA was at a leverage of 0.9 times, which is lower than our leverage one year ago when it stood at 1.8 times. As we continue to execute on high-quality operating results with increasing margins, operating cash flows and excessive net income, and lower working capital KPIs, we will continue to provide higher returns for our shareholders. Shareholder financial returns are reflected in an improving return on capital employed, which stands at over 20%, which is among the best in the industry. For those following along in the presentation, I would like to now present a capital allocation overview. We have a very strong balance sheet, probably the strongest balance sheet in our history. with well over $1 billion in available liquidity as we have revised our capital structure in the last year to take advantage of the credit market to support our strategic growth opportunities. Now, Roger will discuss our strategic growth areas later in this presentation, but I do want to point out that we have a significant amount in liquidity available to invest in organic and inquisitive growth opportunities in order to take advantage of these key business opportunities. These opportunities include the technology and automation, which continues to provide us a dominant position in the market, and for acquisitions of technical leaders such as Sage and Karen Walsh. Regarding our dividend program, I want to announce that our board of directors approved the fourth quarter dividend, which is a 12% increase year-over-year to be paid in the first quarter. This is our 42nd consecutive quarterly dividend with annual double-digit increases in amounts paid. Based on the lower leverage, we have contributed, we have continued our stock buyback program this year. In 2025, we brought back a total of $250 million, which includes $50 million in stock buybacks in the fourth quarter. We do have about $598 million available in the stock buyback plan, approved by our board as part of our capital allocation strategy. You know, I'm really pleased to share these financial results for fiscal 25, which has enabled us to increase shareholder returns as we're paying increasing dividends, increasing our stock buybacks, engaging in accretive acquisitions, all the while leveraging our balance sheet. I want to thank you for your support. And I'll now hand the call over to Roger to discuss Tetra Tech's future opportunities in 2026 and beyond. Roger Argus | President: Thank you, Steve. I'd like to highlight today's major growth drivers that will fuel Tetra Tech's growth in FY26 and beyond. For those of you following along on the webcast, I'd like to first draw your attention to the center of the slide. Greater than 85% of Tetra Tech's business is providing water services to our clients. Our high-end water services cover the full lifecycle of water use, from sourcing and management to reuse and treatment. These services also include coastal resilience for flood protection, expansion of ports and harbors, digital automation and control systems to optimize water management and efficient use, as well as water for mining, power generation, and manufacturing. The drivers shown here represent large global investments in water-reliant infrastructure and share a few common characteristics. These drivers represent a total addressable market for Tetra Tech services measured in hundreds of billions of dollars. Tetra Tech is already performing work in each of these markets and is well-positioned to benefit from these growing investments. In fact, Tetra Tech currently holds the contracts master service agreements and frameworks with more than $30 billion in capacity to perform these services for our clients. Global investment in each of these markets supports the demand for Tetra Tech's high-end water services and is driving Tetra Tech's growth. In the next two slides, I'd like to highlight two of the fastest-growing areas and illustrate how Tetra Tech is capitalizing on these trends. First, I'd like to talk about the data center market. There are estimates as high as $1 trillion to be invested over the next 10 years to expand data center processing capacity to address the needs of AI. The water demand for these systems is enormous. A large data center, for example, consumes about 5 million gallons of water per day. This sector's growing water footprint is reshaping how and where communities invest in water-related infrastructure. This slide illustrates that the data center market is not just the building housing the chip stacks. In fact, many data center operators are using in-house template designs for these buildings. More importantly, the data center market includes resource management needs for water and power, which are geographically specific for each facility. Tetra Tech's high-end water expertise and geographic footprint allow us to address these requirements, which are unique for each data center. As we look at this figure from left to right, first, it's important to note that more than 97% of water used by major data center operators is currently purchased from municipal drinking water systems, many of which are already under strain. Let me provide you with just one example of how water demand for data centers is driving growth for Tetra Tech. Just last week, it was announced that Texas will make the largest investment in its water supply in the state's history. Voters approved a proposition authorizing $20 billion to be spent on water systems, including water supply projects to address the growing requirements of data centers. Tetra Tech currently holds more than 60 state and local contracts in Texas. We are already working with these clients, providing our full suite of water services, and we will directly benefit from this new funding. In addition, within the data center itself, Tetra Tech provides water handling, digital control system automation, and commissioning services directly to the building operations. In fact, we currently hold contracts with more than a dozen of the major data center hyperscale and co-location operators to provide these services. And ultimately, these facilities require our expertise for water reconditioning for reuse or treatment for disposal. This work will either be done through contracts with data center operators or with local municipalities to expand their wastewater management capacity. Defense budgets in each of our major geographic markets is up significantly. The U.S. is up $150 billion. The U.K. is up $4 billion, and Australia is up $4 billion on already large annual budgets. These funding increases will be used to expand defense facilities, including ports and harbors, strengthen coastal resiliency and flood protection, and address water contaminants of concern, such as PFAS. The expansion of naval facilities is included as a key focus of this funding. This will result in the growth of Tetra Tech's work in ports and harbors including evaluation, planning, and design of marine infrastructure. We currently provide these services to our defense clients in the U.S., U.K., and Australia through contracts with an aggregate available capacity of more than $10 billion of the $30 billion I referred to earlier. I'd like to provide one brief example of how Tetra Tech is benefiting from this increased funding. In fiscal year 25, the Australian Department of Defense awarded Tetra Tech a $67 million contract to support infrastructure upgrades to facilities along the northern shore of Australia. The scope of this contract includes front-end studies, analytics, and project management. to support governmental, regulatory, and community approvals for these critical upgrades, which will ensure safe, secure, and resilient operation of these defense facilities. Coastal resiliency work, which includes flood protection to strengthen the facilities and safeguard the lives of military and civilian populations will also receive additional funding. Tetra Tech has long been a leader in flood protection and, in fact, in the fourth quarter, we've been awarded about $1 billion in new contract capacity from the U.S. Army Corps of Engineers. Additionally, these increased defense budgets will provide greater funding to Tetra Tech's ongoing defense contracts to eliminate sources and clean up water contamination related to PFAS and other persistent chemicals in the environment. In the fourth quarter, we were awarded a new $240 million contract with the Navy, which is intended to focus on assessment of contamination in water at naval installations, including sea bus. In summary, we are very excited about the opportunities these growth drivers present and the resulting growth that Tetra Tech can achieve. I will now turn the presentation over to Dan. Thank you, Roger. Thank you very much. Dan Batrak | Chairman & Chief Executive Officer: And I'd like to provide an overview of our outlook for fiscal year 2026 by each of our end customers. Each of our customer sectors have growth drivers relevant to our business, as you've heard from Roger and myself. And I'll start with our international growth. International growth is forecasted to grow at a rate between 5 and 10% in fiscal year 2026, supported by the $130 billion in aid program in the United Kingdom. Programs like the $200 billion Canadian infrastructure program that's just recently been passed. And in Australia, the spending and preparation for the Olympics that are going to take place in Brisbane. Our U.S. commercial work is forecasted to grow in fiscal year 2026 at a rate between 5 and 10%, supported by water demand for data centers and advanced manufacturing and power-related services to address the U.S. energy demand that is increasing so quickly. Our U.S. state and local work is forecasted to grow at a 10% to 15% rate, which is very consistent to what we've seen over the past several years. And it's being driven by strong and sustained budgets for municipal water supplies and digital water modernization. And finally, our U.S. federal work is forecasted to grow at a 5% to 10% rate. is expected to ramp up over this range throughout the year as the procurement processes align with the new priorities of the new administration and budget increases are implemented that are associated with the one big beautiful bill act that was passed just recently. Now we'd like to present our guidance for the first quarter and for the entirety of fiscal year 2026. Our guidance is as follows. For net revenue for Q1, It's for a range of $950 million to $1 billion with an associated earnings per share of 30 cents to 33 cents. For the entirety of fiscal year 2026, our net revenue range is for 4.05 billion to 4.25 billion with an associated earnings per share of $1.40 to $1.55. Now, if you're following along with the webcast, you can see these assumptions, and I'll highlight them very briefly. It does assume within this guidance a charge for intangible amortization of $27 million. We anticipate depreciation of approximately 25 million, interest expense of 30 million, an effective tax rate quite similar to this last year of 27.5%, and does assume that we have 264 million shares of Tetra Tech stock outstanding. And as in the past, These guidance numbers, both for revenue and earnings per share, do not include any anticipated contributions for acquisitions, but they will be, we do expect them to contribute to the year, and we'll update our guidance accordingly as they join the company. In summary. We had a record fourth quarter and record fiscal year 2025, which most importantly, has positioned us for an excellent beginning to the 2026 fiscal year. Our focus on high-end consulting for water and environmental priorities is absolutely aligned with the long-term trends of supplying clean water to our communities, water supply for manufacturing, and a healthy environment for our children, all of which are enduring drivers and are not measured in years, but are measured in decades. The company has never been in a better financial position, as Steve Burdick, our CFO, just outlined. And we're in an excellent position to support our organic growth and to invest in having the best partners out in the industry actually come join us here at Tetra Tech, actually improving our growth rates, improving our margins, and making Tetra Tech even more competitive in the future. And with that, Melissa, I'd like to open up the call for questions. Melissa | Conference Call Operator: Thank you. The question and answer session will now begin. Please be aware that there will be a 30-second pause in our webcast to allow for buffering. At this time, audio participants are invited to submit their questions. Please remember to mute the audio function on your computer before you speak. If you are using a speakerphone, please pick up the handset before pressing any numbers. If you would like to ask a question, please press star 1 on your touchtone phone. Our first question comes from the line, of Tim Mulroney with William Blair. Please proceed with your question. Luke McFadden | Analyst, William Blair: Hi. This is Luke McFadden. I'm for Tim. Thanks for taking our questions this morning. So, it looks like your backlog was about flat year over year. Your guidance calls for organic growth of 8% at the midpoint for fiscal 2026. Both of these figures exclude USAID, so it feels apples to apples. So can you maybe just help us understand in a little more detail why you'd expect revenue growth to be so decoupled from backlog growth this year? Dan Batrak | Chairman & Chief Executive Officer: That's a great question. That's actually a really good question. In fact, we began the foresight and expectation of that decoupling actually in our last investor call 90 days ago. I think in a call we had on the previous quarterly results, they actually indicated that expected backlog to be flat, in fact, even down. And with it coming out flat, in a certain extent, it actually was at the upper end or surpassed our expectations. And if you take a look at the backlog, there's a couple things going on. Number one, the U.S. federal government's backlog or the funding of their tasks have become much shorter. So, instead of being funded for six months or for a full year, we're being funded for almost like a book and burn, one quarter at a time. So, we're seeing the visibility actually shrink with the U.S. federal government, but not the actual spending of revenue. We're just getting the work in smaller pieces and more frequent quarterly task orders. I will say that if we actually tracked and reported our backlog similar to most others in this industry, our backlog would be up very, very significantly. It's been an amazing federal government quarter of new orders, of new contracts that have been awarded. And so our contract capacity has gone up a lot. In fact, we've seen it grow by about 15%. And I think the comments I had earlier that we had well over a billion dollars in new contract awards with the Corps of Engineers, although the task orders coming out are much smaller, shorter duration, and a quicker burn. Now, you'd think that if that was the case and the rest of our business was static, you'd actually see the backlog go down. But we've seen our state and local work and our U.S. commercial and international backlogs actually growing fast. In fact, they've grown enough to keep our backlog flat sequentially, which is what you've seen in the results, as you've just indicated. So, that's why we're actually seeing a growth in, as I've just indicated, 5 to 10% in U.S. commercial, in international, 10 to 15% in state and local, all with growing backlog. And, in fact, that growing backlog has been enough to offset the reduction in the duration of the task force we've been getting from the federal government. So that's where you see the decoupling. I know it sounds like a lot of detail, but it's something we've seen coming since this new administration has been in. We've been watching the backlog drop, irrespective of international development with the federal government, but it doesn't mean less revenue. It just means that we're getting more smaller task orders on larger contracts that we've actually had. So I know that's a bit of detail, but I think that decoupling is going to be for a good portion of this fiscal year 2026. But I think as the U.S. federal government gets its sea legs under it with respect to more contracting officers in place, gets the cadence of task orders that actually come out a little bit longer duration, you're going to watch the federal government's task orders get larger through the year, and you'll actually watch that begin to climb not driven so much by commercial, state, local, and international, because they're already very strong, but actually returning a contract cadence with the U.S. federal government. I know it's probably a lot of detail, but There's a lot of pieces we're looking into that that actually underpin how we're seeing very strong organic growth, but it's not being seen as directly correlated to the backlog, which we've seen the case for many, many decades here. But there's no administration that's really changed that because of the U.S. federal government's task order issues. Luke McFadden | Analyst, William Blair: Thanks, Dan. That's really helpful. I appreciate it. And maybe pivoting to performance in your international business for my follow-up, which came in stronger than we were expecting for the fourth quarter and had a nice pickup from the third quarter as well. Can you walk us through some of the puts and takes on each of your three business lines in a little more detail here, where you saw strength and how you're thinking about the three main geographies as you move through fiscal 2026? Thanks. Dan Batrak | Chairman & Chief Executive Officer: Yeah, it's interesting. It's really that growth was really driven by a change in one geography, but I'll start with the strongest areas for us. The water programs, those have been the biggest underlying drivers for our United Kingdom and Europe, which is primarily Ireland and Netherlands operations. That's been growing at about a 10% rate. It's been the strongest. In fact, the water component of our UK and Europe operations have been even at a higher rate than that. So that's continued. I would say there's been little change in the previous quarters. So that's really been our top growth rate and top performer of our international geographies. Canada's been good, and I actually think it's going to get better. For those that I've spoken with at different conferences and seminars, I think on a relative basis, Canada may be the biggest, one of the biggest drivers. And I think that the short-term disruption of tariffs between the United States and Canada have caused some disruption. I am totally convinced that Canada is going to remain a major trading partner with global economies. And if it can't come down south, it's going to go east and west and, in fact, north through the Arctic trading routes that are now open. And you saw that Canada just passed its largest infrastructure and spending bills at $200 billion U.S. Canadian, of course, much larger numbers. And Canada is growing, as it has been, at about 5%, 6%. That's been very strong for us. But the item that's been – that was a change this last quarter has really been Australia. And Australia had gone from shrinking or reducing its revenue contribution by 10 to 15%. I think we've seen it kind of bottom out. And so, in a year-on-year comparison, it's getting closer to flat. We did have a couple percent contributed by the SAGE acquisition that came in in the fourth quarter. So, it really didn't add much at all for fiscal year 2025, a little bit for the fourth quarter. But Australia actually hitting the bottom with respect to reductions. That is the big change. So, if you go from a minus 10 or 15 in Australia and you move that to a zero, that largely accounted for that 9% increase. And I actually think that during the year, fiscal year 2026, it's going to start ramping up. Now, one, we're in Australia specifically, because that one, when you're at the bottom, there's not really too many directions to go from there, I hope. And two, we're seeing more funding and actually infrastructure projects moving forward at the very front end for the Olympics that are going to take place in Brisbane. who's the firm that would be engaged in it very early on, that's up front, planning, permitting, geotech, all the initial design, technology selection for all the different venues, transportation, and others. So I think that's going to be a good number for us, and as it was Australia was the change in the quarter that drove that number. Luke McFadden | Analyst, William Blair: Appreciate all the color. Great. Thank you. Melissa | Conference Call Operator: Thank you. Our next question comes from the line of Sabah Khan with RBC Capital Markets. Please proceed with your question. Sabah Khan | Analyst, RBC Capital Markets: Great. Thanks, Sandra. Good morning. I'm just kind of following on the same line of questions along the outlook, I guess. You know, just given some of the moving pieces in the backdrop, how did you sort of build out that range for the fiscal 2016? It's more thinking on the top line versus the EPS line. If you can just maybe walk through. You know, as it comes to disaster relief, some of the other moving pieces, how should we think about the low end versus the high end? Or, you know, what needs to happen for you to come somewhere in the middle of that range? If you could just share some of the puts and takes that you consider as you built out that range for the top line. Thanks. Dan Batrak | Chairman & Chief Executive Officer: Yeah, so top line or revenue growth, I'll start with, you know, what's sort of the midpoint? So, I would say that the numbers I just ran through, 5% to 10%, So, if you want to pick a midpoint of that, seven and a half, I'd say that's sort of the number we're looking at for international, U.S. commercial, and for U.S. government. And the 10 to 15 for municipal, you can pick a sort of a 12 and a half percent. If you took out disasters for this last quarter, they were at 13%, so right there. So, the midpoint is actually the midpoint of those growth. And if you take those numbers from this last year, you apply those growth rates, you'll find that we actually get to that midpoint or just over 4.1 billion for fiscal year 2026. Now, what could cause us to deviate up and down from that? It's not going to be perfectly linear. I will say that the U.S. let me use an example of the U.S. commercial. You saw this last quarter, we were at minus 2. I expect that it's going to remain very low. It's going to be below that 5 to 10% rate in the first quarter or two of fiscal year 2026. Because a year ago, we had a lot of renewable energy work. And some of the biggest projects were offshore wind. Now, these areas have been significantly impacted by policy and executive orders and other items. And so, that big headwind or the difficult year-on-year comparisons are Q1 and Q2. Now, we've got a very fast-growing transmission practice, high-voltage transmission. Other programs that we have here in the U.S. that Roger did a great job of outlining with respect to water supply for different manufacturing, which includes data centers, chip baths, and other reshoring. So, I think we'll be at the high end of that 5 to 10 at the latter quarter, so quarter three and four. So, look for that to ramp. I think the same is going to be true with the U.S. You've had some dysfunction, obviously, a six-week shutdown here with the U.S. government in Q1, which has already been included in our guidance for Q1. And some of the questions I've had are, what's the impact? of the shutdown and life got a little bit easier on that forecasting with the government opening up just last night. And so, we had a small impact that's actually embedded in our guidance both for the quarter and the year. For us, it was probably 15 to 20 million, and most of it came in the latter part of that six-week shutdown. We were really unaffected early on. So I think you'll watch federal government ramp also during the year. So we've got our 5 to 10, and I would say we're not going to start with a zero, like commercial, up to 10, but we'll start at 5, 6, and we'll end up at 10. International, you've already seen we're at the upper end, and the same is true with midpoint on state and local. What would drive us to the high end of this? I would say actually a little bit more clarity on international. I think international could move to the high end, and I'd like to see the baseline be 8, 9, 10, and actually the performance come out above that. And I think it would just be clarity with respect to tariffs and trading so that individuals can select what they're going to move forward with respect to their manufacturing. And I would say in the case of Canada, how quickly they can actually deploy what's just been authorized with their infrastructure work. I would say what also could take us to the high end, we've not included really any material dollars for the U.S. State Department. And we are still present, although I would say close to dormant in places like Ukraine specifically. But if that actually became more constructive or more funding came through it, that certainly could push it to the upper end. With respect to what could bring us to the low end, Well, they passed a continuing resolution to the end of January. And if we're right back here at the end of January and that they want to eclipse the new record they just set for the past six weeks, it's something you'd have to take a look at. Now, it's not really been much of a financial impact to us, this first six weeks of shutdown. But you have to take a look at each one of these as they come and what's impacted. So, I think unusual things like recessions and unusual things like a prolonged shutdown could drive us to the low end. Things that could drive us to the high end is a little bit more clarity on tariffs, which will help both on acceleration of U.S. commercial for reshoring here in the U.S. And honestly, a lot of activity internationally with respect to what they're going to move forward with, with respect to their own manufacturing. Is it going to come to the U.S., irrespective of the price increases on the tariffs, or are they going to have other trading partners? So a little more clarity on that. I'm not saying that high or low tariffs make a big difference, just clarity of what the number is might actually make a very positive construct for moving us to the high end. Sabah Khan | Analyst, RBC Capital Markets: Great. Thanks very much for that color. And then sort of just continuing on that discussion kind of post this continuing resolution, is it, I guess based on your past experience with such government closures, this two-part question, one, is it usually a smooth sort of turning on of all the functions that were stopped? And then second, we've been hearing some commentary about, you know, with the EPA just taking a while or just kind of shutting down on issuing permits, et cetera. Has that been a headwind, and where do we stand on that now on the EPA front? Thanks. Dan Batrak | Chairman & Chief Executive Officer: Yeah, good question. I would say that when we're in what I would call discretionary revenues from the federal government, it ramps back up slowly. But most of our revenues now have actually transitioned because of what took place in fiscal year 25 to essential services. So, we really didn't have that much of it put on hold for the federal government because a lot of our revenue is being driven by Department of Defense. So, you'd say, is it going to ramp back up? My comment would be it didn't ramp back down. So, we didn't really see that as an impact. So, I think the federal government's not going to see much of, you know, disruption from having gone down and back up. Now, with respect to permits coming out of EPA, we don't do a lot of work that is driven by federal regulation that requires EPA or national or U.S. federal either headquarters or region approval before it goes forward. There's a little bit of it where they're co-regulated. There's compliance both at the federal and state level. You need sort of two sign-offs. So that's actually affected some of the dollars. But for us, it's been pretty small. But I would say the one that's going to be seen a little bit more, interestingly enough, is actually in our state and local. And you would think that a government shutdown would not impact state and local. What have they got to do with the federal government? There's a lot of projects that have co-funding with the federal government. And I would say Department of Transportation, where you have large grants or other funding, incremental funding as part of projects that go forward, when those grants and other things are completely put on hold or you had to go back for sign-off or next milestones, you saw those projects put on pause or on hold until the government workers were actually back in place. So, I think the impact for us is going to be The federal government workers weren't there during the first half of our Q1 or the federal government's Q1 with respect to pushing out orders. And last I looked at the calendar, we're only a couple weeks away from Thanksgiving here, and then we're going into Christmas. So, it's not like you did a six-week shutdown, and then you're moving into blue skies. You're moving into holiday time. So, I think the optics of backlog or task order issuance could be impacted in Q1. And again, I think that's mostly optics, because we've got plenty of backlog to drive revenue right through this. But if you'd ask, what are you going to see from the impact of this slow comeback? I think you're going to see the optics on your backlog, and you may see some optics or short-term impact on funding through state and local for us. Permitting approvals for commercial clients and others, the minimus, the minimus. There just aren't that many programs except for Superfund that are driven by the federal government EPA approval process. So, I think it sounds like it's a big driver, not so much. Sabah Khan | Analyst, RBC Capital Markets: Thanks very much for that, Colin. Just one last quick one on sort of capital allocation and M&A. You've highlighted M&A as a focus, you know, firms call it in the medium-sized range, but can you talk about the general pipeline of those opportunities that meet your criteria? Things like the government shutdown influenced that either up or down in terms of the opportunity set or seller willingness. Thanks very much. Dan Batrak | Chairman & Chief Executive Officer: Well, I'm going to, I'll just say a few words on the, you know, from 100,000 foot sort of on the landscape, and then Steve will talk about the financial dollar set aside. But, well, this, the disruption, the volatility that's taken place in the markets because of the new administration, have, you know, have sent some shockwaves through some firms that have impacted them more than others. And I think for some, they've actually felt that through this volatility, a place that's safer is on a bigger ship. So if I'm in a small rowboat or a middle-sized boat and the waters get really choppy, maybe I want to get on a bigger vessel. So we've actually seen these small firms or even middle-sized firms actually come to market and be more transactable. So if they were not for sale before and all of a sudden you don't know what's going to happen, either on your federal government, state, or commercial, you know, maybe I'm going to go join a bigger partner who has a bigger platform as access to clients that are maybe outside the U.S. or that are more stable. And no doubt, Tetra Tech, if you're looking to join a technical leader and a market leader and you're in the fields that we're interested in, we're about as safe and as – as prosperous of a firm to join to progress where you're at and actually make your business even better and reduce your risk. So, I'd say there's more opportunity today because of this. And the other thing is that there's more available. And for those that are looking for the sale not to be their last move, but their next move to become better, Tetra Tech's the right home for them. So, I think pricing has become more moderated or valuations have come down a bit. I would say that the investment bankers are still asking for unbelievable, dizzying valuations if you're in power or if you're in data centers. But other than those two, I think valuations have gotten quite more modest. And the number of firms that are small to midsize have actually grown quite a bit. So I think our pipelines actually look bigger than we've seen before. No doubt with consolidation in the market, there are fewer large firms, the ones that Of course, the scarcity premium for these really large firms. But, you know, when those fit right for us, we'll look at those. We'll be opportunistic. If it fits right, we'll look at it. And maybe Steve can just say a word about is there anything outside our range or with respect to the ability that we could become constructive on? Steve Burdick | Chief Financial Officer: Yeah. So, I think, you know, as I talked about in my earlier comment, We've got a really strong balance sheet, and we're going to be able to use our balance sheet to make acquisitions that we think are going to have a long-term benefit. When I look at the capital markets and how we want to finance that, we have a bank credit facility that has 100% dry powder on our revolver. And it has options to increase it beyond what's in the facility now. So that's available. And outside of the bank market, you see that two years ago, we entered into a convertible debt. That capital is available at probably better terms today than two years ago. There are various capital markets and funding vehicles for us to really address anything that makes sense for Tetra Tech, either small, medium, or even larger firms in terms of who can join Tetra Tech. Sabah Khan | Analyst, RBC Capital Markets: Thanks very much. Okay. Melissa | Conference Call Operator: Thank you. Our next question comes from the line of Sangeeta Jain with KeyBain Capital Markets. Please proceed with your question. Sangeeta Jain | Analyst, KeyBanc Capital Markets: Great. Thank you. Thanks for taking my question. So one I want to ask about GSG margins. Outside of the elimination of USAID, can you tell us if there are other factors contributing to that margin expansion. Maybe it's an evolution of the mix of projects or more fixed price work that is driving that and how we should think about it for 26. Dan Batrak | Chairman & Chief Executive Officer: Yeah, well, no doubt, as you commented, we were finishing up a number of deliverables and items for the disaster response, which drove really high utilization in GSG. So that was, I would say, the single biggest driver that drove it up near 23% in a quarter. But the other two are just what you said is, one, we have more fixed-price work. One of our goals for a while has been to take our fixed-price amount of the work that we have. It has historically been, if you follow Tetra Tech or are an investor, reports that we have online and attached to our press release. Historically, we've been around 35%, a little more than a third fixed price. It's been a really focused over the past two, three years to move that to more fixed price as we've actually developed more tools that will make us more efficient. So we can give our clients a better price point with respect to performing the work and gives us higher margins. So, we did hit essentially 50% of the revenue that we had this last quarter was fixed price. That's the highest we've seen in, I don't know, I want to say ever, but certainly in many decades. So, that actually was a big contributor to it. And the other is mix. Areas that we have time and materials contracts on where there's very competitive weight structures, we do a bit of upfront design work. Actually, about 30% of it is very high-end upfront design. But when we move into what I'll call more detailed design, we end up being compared on a price point to some of these low-cost offshore design centers. And those carry lower margin. And we've been migrating out of doing that and moving our design work to earlier in the project execution cycle. And those that are already early, we're moving them into consulting or even advisory. So it is mixed shift. We are moving to where it's higher margins for the work, more differentiated work. Work is not generally competed. It's sole sourced. It's work under existing contracts and frameworks. And then the work that is closer to being commoditized, we're moving it more to the front end. So mix, number one. Number two, more fixed price. And then the third, of course, is when we do have very high utilization driving lower indirect costs. It then shows up in our margins, which was like the firework of this last quarter. So those are sort of the three big drivers. I will say we still have a lot more upside with respect to margins. One of it, I had aimed 50% for a target for fixed price work, even though we'd hit that this last quarter. I want to see us stay there for a few quarters in a row because some of that's individual project driven. But I think we're going to move our target from 50% up to 60% since that'll be our next milestone we move so we have more margin expansion there. And I think there's still a lot more margin contribution opportunity by using more of these digital tools. And, yes, that includes AI, and, yes, it includes technology. different SaaS products we have. But I think the next phase that will contribute is being much more efficient. And if we can apply more efficient execution to a fixed price contract, I think that means more margin expansion for the company and the shareholders. Sangeeta Jain | Analyst, KeyBanc Capital Markets: That's super helpful, Dan. And if I can follow up on the U.S. commercial business and the puts and takes that you talked about, renewables, kind of like be becoming a little bit softer and data centers and power transmission picking up can you compare for us if the scope of what you're losing on the renewable side is similar to what you're picking up on the power and data center side and if also the margin profiles are similar yeah so i will say of any of the uh areas that we have uh flux or change taking place Dan Batrak | Chairman & Chief Executive Officer: That's one of them that we're still, we're sort of in the middle of this transition. So the, we were doing much more full-scale permitting for siting, construction oversight for permit compliance for these renewable energy projects, and say one of the examples, of course, is offshore wind, where we'd have marine vessels and many other items. I thought Roger did a really good job of identifying that the work that we're looking to grow our data center work in particular, and I would say the high voltage engineering is much less on environmental compliance, which was being driven by, which was what we were doing for renewable energy, and much more for design for the commercialization and getting these different facilities online. So, I think that's the difference. So, on high voltage transmission, we're actually doing the high voltage engineering. We're doing the actual design of the transformer stations and the interconnects. So, we're actually doing what I would call very high end It's limited in service availability in the marketplace. There just aren't that many people that can do this. We're one of them. And so that's what I would say is different margins I think are actually a little better because of the scarcity of people doing this type of work for the grid and for high-voltage transmission. And I would say that it's just emerging now with our engagement in the data centers, which is not in the building itself. I thought Roger made a good point. The rush, the gold rush to do detailed design for the data center buildings itself, there's a lot of people rushing to that gold strike. But a lot of that work is being done internal. And a lot of it has been standardized so that all of the data centers are similar. And maybe that there's more miners than there are gold in that area. But actually those selling the products in order to go mine for that gold is how do you get 5 million gallons per data for a large data center? Where do you get that from? And as Roger commented, right now it's from the municipal municipalities. As water becomes more scarce, they're going to be looking for us to find other dedicated water supplies, groundwater, surface water, water reuse, water recycling. So, I think it's going to carry higher margins. So, where we're migrating into is higher margins and, frankly, less competition. Sangeeta Jain | Analyst, KeyBanc Capital Markets: Great. Super helpful. Thanks, Dan. Luke McFadden | Analyst, William Blair: Thanks. Thank you, Dan. Melissa | Conference Call Operator: Thank you. Our next question comes from the line of with National Bank Capital Markets. Please proceed with your question. Mike | Analyst, National Bank Capital Markets: Hi. Good morning, gentlemen. Hello, Mike. I was wondering if it's possible to get a bit of an update on your digital initiatives and maybe if you can talk about the clients where the adoption rates or the velocity is a little bit higher and why that potentially could be the case. Maybe any call that would be much appreciated. Thank you. Dan Batrak | Chairman & Chief Executive Officer: Well, the, let's see if I can just clarify and define the question. Because if it's our digital products is in our recurring revenue or SAS, Just to clarify that, Max. Yeah, it's interesting. That's been the one area that I would say we have been stymied or that has, it's the smallest area of revenue that was one of our growth areas. I will say that if you went back to May of 2024, our SAS or recurring revenue or our software products for subscription by our end clients, we'd reported was about $25 million a year. I think on an overall EBIT margin of about 50%. I regret to say that a year and a half later, it's still about $25 million and the margins are about the same. I will say what's been disruptive for us is our number one strategy was to take these software products, which were developed for our US government clients, Primarily, the government was the subscription, and I would say U.S. federal government. I would say the new administration has actually created more of a disruption there than anywhere else for us. Now, the good news is it's $25 million out of our total revenues at well over $4 billion. So, it's the smallest of small revenue numbers, but I will say our strategy to actually take it and to bring in unique products that would help the government in these areas dramatically has actually been put essentially on hold. There's been essentially a moratorium on new software packages for being purchased or leased or subscribed to at the federal government. We are retooling very quickly our go-to-market strategy to go to what we had called Phase 2, which has now become, so Plan B has now become Plan A, which is for things like Oceans Map, Instead of having it placed with the U.S. Coast Guard and the Navy and other specialty agencies within the federal government, we're going to ports and harbors and the individuals who actually have requirements to understand what's the impact of a oil spill or of a bilge discharge or anything else that may have been overboard actually in the local port and harbor environment. So, there's a lot more of them. It is a different approach for us. And I'd say that's also true where we've been placing software packages with Department of Defense for our fusion map. And I could go through FAA with respect to our belongs environmental air traffic approach lanes. So, we are moving to what I would call secondary, which were originally our phase two. but we've been taking things like the lawns for the FAA, and we're now actually having it deployed across Europe. And we're using it in places like Heathrow right now and other major cities across Europe. So, I will say that just because it looks like this road has, the federal government has slowed or not gone through right now, we've moved, we are taking, I'd say, two steps back, one over, and three or four steps forward. So I expect that to be much more productive and have some better growth rates here over the next year or two. But I would say the good news is it's only a small part of our revenue. In fact, the smallest of small. But the bad news is it has pushed us back, I would say, at least a year from what we expected to be at this point. Mike | Analyst, National Bank Capital Markets: Yeah, sure. No, that's very helpful. And maybe one quick one if I can squeeze in for Steve. In terms of, obviously, the balance sheet is extremely healthy and delivered. In terms of the desire to do anything more or off-size relative to your history, you might need to be providing some guardrails in terms of how we should be thinking about that. Thank you. Steve Burdick | Chief Financial Officer: Well, I think, you know, if you look over the Tetra Tech's history, You know, we've, our acquisitions have been kind of that medium size, you know, adds, you know, two, three, you know, 7% of revenue per year when you add them all up. But what you have noticed also over the last couple years is, you know, we have acquired other public companies that, you know, that were larger than normal, that took a bit more creative financing, regulatory approvals. And we brought them into Tetra Tech and turned them around, and, you know, they're performing at much better rates than they ever were as their own public companies. And those were on the, you know, much larger size, comparatively speaking. So I would say that our strategy and appetite is anywhere from, you know, the small to medium-sized companies to, you know, the larger companies. you know, public or private equity health companies that, and I believe that both with our current balance sheet, our current bank credit facilities, and the capital markets that are available to us, we have a lot of different choices with, at significant, bigger sizes than even RPS, which was our largest acquisition in the history of the company just, you know, three years ago. Mike | Analyst, National Bank Capital Markets: Okay, that's great. Thank you so much. Melissa | Conference Call Operator: Thank you. Our next question comes from the line of Michael Dudas with Vertical Research Partner. Please proceed with your question. Michael Dudas | Analyst, Vertical Research Partners: Good morning, gentlemen. Good morning. I guess a year and a half ago, we had your investor day in New York. How much has happened since then? And how much has happened since then? Just wanted to get maybe you can share a little reset. As you look after your 2030 targets, are more confident, less confident are you given all the disruption that you've witnessed and successfully overcome and started during fiscal year 2025? And as we think about that, Does, because of the way your balance sheet is and the opportunities, does acquisitions become a little bit more important to achieving those longer-term goals than maybe it would have been 18 months ago? Dan Batrak | Chairman & Chief Executive Officer: That's a great question. So, I can answer that question many different ways really since probably February of this year with the new administration coming in and with USAID actually being, you know, eliminated as a federal agency. And I've been even asked this directly as, do you regret having come out with those targets for 2030? And a nicer version of that is, do you want to do a reset and actually put your number, a different set of numbers up there? My comment is, well, I don't know if I should put a bigger numbers quite yet. But I will tell you that there's no doubt that it's been an interesting year. And what's the old adage, one of the Chinese proverbs, may we live in interesting times? This has been the most interesting of times. But what interesting times do get us, and I'll tell you one thing I'm so proud of the management team here at Tetra Tech and all of the employees that we've lived through in change, change represents opportunity. And for each door that's gotten closed, and one's been completely closed with aid. We didn't close the door. Someone closed it on us. I'll tell you, those same staff, have actually been able to find new opportunities or new windows that have opened. And the windows are actually larger than the doors that were closed. For instance, the margins that were there that was closed in aid has actually been opened. The windows that have been opened have new opportunities that have much higher embedded margin. In fact, double, even triple the numbers that we had. So, there was two numbers on the 2030 plan. One was the total growth. No doubt that's been impacted. I'll come back to that, which is top line. But the second was margin basis points. And Steve Burdick very eloquently presented how we were going to expand 50 basis points per year over the five years from that time of the presentation to 2030. I don't know. Someone else closing out USAID for us actually took us almost a 50 basis points jump on a baseline up. And then on top of that, we said we now look like we're going to grow more like So as far as the margin goes, I think it wasn't actually a headwind, it actually became a tailwind, and somebody gave us a boost up on that. Now, with respect to top line, no doubt, someone says if you just had $550 million subtract from you, and the rule of compounding is going to make that even more difficult on you, My comment would be that the rule of compounding only is going to hurt me if I don't actually close that gap in the next couple of years. And we only had a 4% to 5% contribution from M&A, or mergers and acquisitions. I'll focus on acquisitions, people joining us. Steve just went over, we have more , dry powder, which is access to capital. I'll comment that while you'd say if you go to market right now and you have excellent credit rating, you'll get 4%, 5%, 6% interest rates. Thanks to Steve's foresight, Tetra Tech has a 2% interest rate because the convert that we put in place a year and a half ago. So, we have the lowest cost of capital. We could actually do acquisitions at half again or double the 4% to 5% presented. in the 2030 plan that we presented in May of 2024. So we could do double that number and not actually go outside the range of one to two leverage that we've identified. So with respect to closing the gap that's just created, I don't see that as an issue. Yes, it means that we'll turn up our M&A a bit. But as my comments on an earlier question on this call is, are there actually firms available that, and as a price point, I think I answered that, I hope, in enough detail to say absolutely, and even at a better multiple. And by the way, someone who's going to join Tetra Tech isn't getting a lower multiple, they're getting a better home. And so I think that, yes, M&A will become a bigger part. And I think we can get to that number without having put any additional pressure on our organic growth targets, which is six to 10. I think you've seen even in this period of great turmoil or may live in interesting times, we're coming right out of the gate. We're right at the middle of that range organically at 8%. So, yes, M&A will have to be a bit larger, but I don't see financially or opportunity availability being an issue for that. Melissa | Conference Call Operator: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Batrak for closing comments. Dan Batrak | Chairman & Chief Executive Officer: Great. Thank you. Thank you very much, Melissa. And thank all of you for joining us on the call today. Thank you for being supporters of the company through all of fiscal year 2025. I'd like to reiterate that I could not be prouder of the performance of the Tetra Tech employees all around the world. and really how we navigated 2025. And I can't see a better demonstration of how that performance actually was other than the all-time records in nearly every field. As I just indicated, and this last question came, how's it looking with all the changes? I do think that there's more opportunities there for Tetra Tech, particularly in the market leadership positions we're in, to make 2026 just a fantastic year. And I really look forward to reporting back to all of you in roughly 90 days from now, or at the end of Q1, to report how we started out in fiscal year 2026. And with that, I hope you all have a safe and successful day today. I will likely not talk to you collectively before the holidays, so I hope you have a great holiday wherever you happen to be located. Thank you very much, and have a great week. Melissa | Conference Call Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation. jsPDF 3.0.3 D:20260606090516-00'00'

NASDAQ:TTEK Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Kate | Conference Operator: Good morning, and thank you for joining the Tetra Tech earnings call. As a reminder, Tetra Tech is also simulcasting this presentation with slides in the investor section of its website at tetratech.com. This call is being recorded at the request of Tetra Tech, and this broadcast is the copyrighted property of Tetra Tech. Any rebroadcast of this information in whole or part without the prior written permission of Tetra Tech is prohibited. With us today, from management, are Dan Batrack, Chairman and Chief Executive Officer, Steve Burdick, Chief Financial Officer, and Leslie Shoemaker, Chief Innovation Officer. They will provide a brief overview of the results and will then open up the call for questions. I would like to direct your attention to the Safe Harbor Statement in today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in Tetra Tech's periodic reports filed with the SEC. Except as required by law, Tetra Tech undertakes no obligation to update its forward-looking statements. In addition, since management will be presenting some non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted in the investor section of Tetra Tech's website. At this time, I would like to inform you that all participants are in a listen-only mode. At the request of the company, we will open up the conference for questions and answers after the presentation. With that, I would like to turn the call over to Dan Batrack. Please go ahead, Mr. Batrack. Dan Batrack | Chairman and Chief Executive Officer: Thank you very much, Kate, and good morning, and welcome to our third quarter of fiscal year 2025's earnings conference call. Overall, we had a very strong third quarter, hitting new record highs for operating income and earnings per share. In fact, they were, I'll get into these details and Steve will talk about them, but they were all-time highs, not just for a third quarter, but for any quarter in the history of the company. Our operating income and margin that were at these very, very high levels were driven by the utilization of our staff that responded to the devastating fires that took place earlier in the calendar year here in Southern California. This high utilization of our staff drove our increased revenue and income even beyond the high end of our guidance, and it really supported this year on year growth rates that we saw in the quarter. The wind down of our USAID work in the quarter continued to proceed generally as we projected. In fact, the revenue was slightly below what we had forecasted for the third quarter. However, very bright spot is that we did receive payments of essentially all of our outstanding USAID invoices, which contributed to the extraordinarily strong cash generation and day sales outstanding or DSO reduction that we saw in the quarter. And our CFO, Steve Burdick, will talk about that in more detail shortly. While we had an extraordinarily good third quarter, in fact, a record third quarter in many respects, We are still being very cautious and navigating the changes that are coming with this new administration and its near-term secondary impacts. In my prepared remarks here at the beginning of our presentation today, I will discuss some of the short-term impacts that we're seeing across our end markets. Presenting with me today is Steve Burdick, our Chief Financial Officer, who will provide additional details on our financial performance. Dr. Leslie Shoemaker, our Chief Innovation Officer, will provide an update on the outlook for our U.S. federal work and our digital automation markets. So with that, I'd like to start today's call with an update of our financial performance and our overall business. So in the third quarter, excluding our USAID and Department of State business, which is very quickly, in fact, USAID is no longer existing as a entity with the federal government. So I think the best way to look at our business is actually with those removed from our financial numbers. In the quarter, our net revenue increased to $1.6 billion, which is up 11% from the same quarter a year ago. Our operating income is $159 million for the quarter, an increase of 37% from the prior year. And we generated an earnings per share, or EPS, of 41 cents for the quarter, which is up 46% from the prior year. To look at our performance by segment, I'll start with our government services. So excluding when their USAID and Department of State work was only in our GSG segment. So excluding USAID and the Department of State for the third quarter, the government services group or the GSG segment increased its net revenue by 29% year over year to $429 million in the quarter. The GSG segment generated a 19.9% margin in the quarter, which is up Pretty impressive 230 basis points from the prior year. GSD's exceptional margin performance was driven by a combination of disaster response work and the reduction of the lower margin USAID and state work that we had in prior quarters. The very rapid wrap-up of the fire-related recovery work in California drove higher utilization from the mobilization of staff really very broadly across all of Tetra Tech and certainly across the U.S. portions of Tetra Tech that we put those individuals on the fire to respond very quickly. The Commercial International Group, or CIG segment, delivered a very strong 15.2 percent margin in the quarter, up 130 basis points from last year. Now the CIG's segments revenue was $633 million in the quarter and was up slightly from the same quarter last year. With growth in CIG within our United Kingdom, the UK, and European Union operations, and reductions in our U.S. commercial and Australian activities that I'll speak about in a bit more detail on the next slide for the webcast. I'd now like to provide an overview of our performance by our end customers, excluding USAID and Department of State for our US federal clients. Our US federal work was up 46% from the same quarter last year, and that represents about 25% of our business. In the quarter, disaster response work led by the Army Corps of Engineers contributed about $70 million of revenue again, in the quarter to our federal revenues. Our state and local revenue grew 30% year over year. Now, excluding the contribution of our episodic disaster response work, our ongoing water programs for our state and local clients was up 18% year over year. So our state and local work, excluding the episodic disaster contributions, up 18%, continuing a little bit higher than a range that we've sort of anticipated for growth in our state and local work. Our U.S. commercial net revenues were down 4% year on year, primarily driven by reductions in renewable energy work that we do, especially in offshore wind projects. Overall, our environmental restoration work, which is environmental compliance activities, was stable and continued to be equal roughly to the previous year. And that's supported by regulatory-driven requirements that are imposed at the state and local level. There's been really no impact on federal activities for that part of our commercial work. And finally, our international work, which now represents 42% of our revenues in the quarter, and it was down 1% year over year, so I'll call it essentially flat. We did see growth in our United Kingdom and Irish water programs, so UK and our EU work was up. up for single digits. But this growth was offset by continued decrease in infrastructure work in Australia. If we actually take the Australia revenues out of our international revenues, you would see the rest of Tetra Tech's collective international activities are up about 5% in the third quarter. So that gives you an idea of the impact of that reductions in Australia. I'd now like to discuss our backlog, which represents and I think this is quite important, contracted, funded, and authorized work that we've received from our clients. Excluding USAID and State Department activities, our backlog is $4.15 billion, which is up slightly from the second quarter. And I think this is actually a great attribute and deserves recognition by our staff that we've really seen excluding aid, the backlog not only be stable, but actually grow in the third quarter. And that's typically not one of our big backlog growth quarters. In the quarter, we did add, though, nearly $2 billion in new contract capacity with the U.S. federal government. We press release these, and they include contract wins with the Army Corps of Engineers in Huntsville, Europe, and in Honolulu. So geographically, very broad globally. Our recent $94 million Environmental Protection Agency, or US EPA, award is singularly focused on providing essential emergency response services. These are contracts that are activated for chemical spills, derailments of the railroad cars, and extraordinary events such as the East Palestine-Ohio train derailment that happened in 2023. So it's for that type of work that requires extraordinary response. We continue to build our state contract capacity for disaster response services, and we did have a nice award with the state of Georgia for approximately $22 million that continues to build on work we've been doing there before. In fact, earlier in the year for hurricanes, Milton and Helena. And most recently, we announced the award of a new contract for digital automation from a very large water utility just here in California. At this point, I'd like to now turn the presentation over to Steve Burdick, our Chief Financial Officer, who will provide us additional details on our financials and give us an update on our capital allocation program. So, Steve. Steve Burdick | Chief Financial Officer: Hey, thanks, Dan. So, I'd like to now provide an update on our fiscal year-to-date results, working capital, cash flows, and capital allocation. So, as Dan discussed earlier on this call, we continue to focus on the funding consulting and design for water and environmental projects which are carrying higher margins across all of our end markets. And as such, even as the 2025 revenue was up 9% over last year, our operating income and EBITDA for the year increased at higher rates of 21% and 15% respectively. These results on a year-to-date basis further support our long-term strategic goals to increase net revenue while improving EBITDA margins by 50 basis points annually. And I do want to point out that the EBITDA margins on net revenue came in better and increased by over 70 basis points through the first three quarters of this year as compared to last year at this time. As a result of our ability to enhance our profit margins and further manage our working capital, we were able to increase the adjusted EPS by 26% over last year. Now, on a GAAP basis, in the first half of the year, we did recognize a charge for litigation and non-cash charge relative to the goodwill impairment for our USAID reporting division. So, I would please refer you to the appendix of this presentation and our Reg G for any reconciliation. These strong financial and operating results have resulted in the strengthening of our balance sheet and our cash flow positions. So cash flows generated from operations for the trailing 12 months were $462 million, which represents a 23% improvement over the previous trailing 12 months. And these cash flows have continued to exceed net income by more than 100%. Our focus on working capital and cash flows has resulted in our DSO reflecting an industry-leading standard of 56 days, which is an 11-day improvement from the second quarter of this year. Much of this improvement resulted from our collections of receivables due on USAID projects. And when we include the current outstanding USAID receivables, our DSO is even lower at 54 days. This lower DSO metric provides a significant insight into our core business as it reflects the outstanding work that our project managers lead relative to higher quality projects. and highly satisfied clients in the broad portfolio across all of our end markets and all of our geographies. Our net debt amounts to about $620 million, and the net debt on EBITDA was at a leverage of 0.96 times, which is lower than our leverage one year ago when it stood at 1.15 times. As we continue to execute on high-quality operating results with increasing margins operating cash flows in excess of net income, and lower working capital KPIs, we will continue to provide higher returns for our shareholders. And those higher shareholder financial returns are reflected in an improving return on capital employed, which stands at close to about 20%, which is among the best in our industry. Now, for those following along the presentation, I would like to now present our capital allocation overview. We have a very strong balance sheet, probably the strongest balance sheet in our history, with over $1 billion in available liquidity as we revised our capital structure in the last year to take advantage of the credit market to support our strategic growth opportunities. Leslie will discuss those strategic growth areas later in the presentation, but I do want to point out that we have a significant amount in liquidity available to invest in organic and inquisitive growth priorities, and we have a well-balanced mix of both fixed and floating rate debt to mitigate any interest rate risk and take advantage of any opportunities there. Now, regarding our dividend program, I want to announce that our Board of Directors approved a 6.5-cent dividend, which is a 12% increase year-over-year to be paid in the fourth quarter. This is our 41st consecutive quarterly dividend with annual double-digit increases in the amounts paid. And based on the lower leverage that I just talked about, we did re-institute our stock buyback program this year. So far in 2025, we have bought back a total of $200 million, which includes a $25 million in stock buybacks for the third quarter. We do have $648 million available from the stock buyback plans approved by our board of directors as part of our capital allocation strategy. So in conclusion, I'm really pleased to share these financial results so far in fiscal 2025. Thank you for your support. And I will now hand the call over to Leslie to discuss Tetra Tech's future opportunities for the rest of 2025 and beyond. Leslie? Leslie Shoemaker | Chief Innovation Officer: Thank you, Steve. The U.S. federal government spending is realigned each time a new administration is put in place. In the first year of a new administration, new leadership is appointed, and often the most significant legislation is passed. It does take time for these changes to percolate through government policies and contracts. Since January, we've seen significant changes in funding priorities, changes in contracting practices, restructuring of entire agencies, and the passage of the One Big Beautiful Bill Act, or OBBBA. The new bill just signed on July 4th sets out the administration's new vision and clearly defines new funding for priority programs. The bill and subsequent executive orders do include significant actions that could adversely impact our renewable energy business. But we see clear opportunities that are in Tetra Tech's wheelhouse. I would like to highlight just three areas of particular relevance to us. The bill identifies increases in defense spending of $150 billion, likely to be further augmented by increases in the 2026 budget. The focus on the upgrade of defense facilities aligns with our differentiated services, especially in resilient design, high performance buildings, and automated inspections and asset management. A generational increase of $25 billion is also included for the Coast Guard. We can quickly ramp up to expand our current work for the Coast Guard in software solutions that they use for emergency responders and coastal monitoring today, as well as support an increase in the evaluation, planning, and design of marine infrastructure. Finally, the bill includes initial funding of $12.5 billion to upgrade our air traffic control systems. This is where Tetra Tech currently holds over $1.5 billion in Federal Aviation Administration capacity and is one of the leading experts in air traffic control, including the ongoing evaluation of new and emerging technologies. I'd now like to cover just a few recent developments in our digital automation sector. We started the Digital Water Initiative at Tetra Tech in 2021. And since then, we've added five firms with specialized expertise in the field of automation. These are firms that work in connecting the instruments, technology, and systems that are needed for the digital transformations of utilities and industry. Today, we're seeing some of the fastest growth in this sector, catalyzed by the increasingly affordable access to generative AI that's used to rapidly interpret information, optimize our client systems, and actually work in real time. Growth projections for this market, also referred to as the new industrial revolution or Industry 4.0, are for global expansion to reach over $600 billion by 2030 at a 20% CAGR. From our initial vision to focus on water utilities, which is really the majority of our work today, we've now added work for our commercial clients in oil and gas, mining, and manufacturing. Through the recent acquisition of Sage Automation, we now have significantly broader global resources We've further diversified our clients and we've added new software and intellectual property. Today, we're cross-selling digital automation to our global customers and broadening our reach in this rapidly growing market that's fueled by the adoption of AI that directly benefits our customers' bottom line. The trends we're seeing support our growth plan to reach $500 million in annual revenues for digital automation by 2030. And now I'd like to turn the presentation back over to Dan. Dan Batrack | Chairman and Chief Executive Officer: Thank you, Leslie. I would like to present our guidance for the fourth quarter and actually our updated guidance for the entirety of fiscal year 2025. So our guidance is as follows. For Q4, fourth quarter fiscal year 2025, our net revenue guidance is for a range of $1 billion to $1.1 billion, with an associated earnings per share of 38 cents to 43 cents. Our updated guidance for the entire year is for a net revenue range of $4,454,000,000 to $4,554,000,000. with an associated adjusted earnings per share of $1.49 to $1.54. We do have the assumptions for our fourth quarter items included in the webcast and on the slide, but I will make a note. We do anticipate a contribution of work from USAID and Department of State of approximately $40 to $50 million, which is actually down from what we had anticipated just a quarter ago. So this is continuing to ramp down as an overall contribution to our revenues here at Tetra Tech. In summary, this morning, after nine months of fiscal year 2025, it's about three quarters through, And six months under this new administration, which included the elimination of our largest client, USAID, our revenue is up. And we just delivered the highest income quarter in the company's history. Although there's near-term uncertainty in some of our end markets, we're well prepared to navigate these through our diversified services, through our contract capacity, and by using our balance sheet to be very opportunistic in many different strategic areas. Some of those areas include acquisitions, and as Steve has indicated during his commentary, the buildup of cash can also be used to continue stock buybacks, which is another way of returning value to our shareholders. Now, there's no doubt that the long-term demand and necessity for high-end water, environment, and sustainable infrastructure is unchanged, and the future looks very bright for us. And now, I'd like to open the call for questions. Kate? Kate | Conference Operator: Thank you. The question and answer session will begin now. Please be aware that there will be a 30-second pause in our webcast to allow for buffering. At this time, audio participants are invited to submit their questions. Please remember to mute the audio function on your computer before you speak. If you are using a speakerphone, please pick up the handset before pressing any numbers. If you'd like to ask a question, please press star 1 on your touch-tone phone. The first question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question. Tim Mulrooney | Analyst, William Blair: Yeah, Steve, Leslie, good morning. Good morning. So two questions here on the backlog. Firstly, can you just dig into the backlog a little bit more? I mean, it looks like it was essentially flat year over year, excluding USAID and the Department of State. Are there things happening here on the federal government side where the cadence is a bit different than what you'd normally see? I'm curious if we should be thinking about the slowdown in backlog growth as being indicative of slower revenue growth or if the procurement cycle has just shifted somewhat, you know, as maybe the agencies are taking a little bit longer to send out the RFPs or task orders? Dan Batrack | Chairman and Chief Executive Officer: That's a good observation and a good question, Tim. There's two aspects with respect to the work that we do for the federal government. I would say that over this last quarter, one area we've not seen a change in is the cadence and timing and issuance of contracts. And as I commented in my prepared remarks, our backlog with the federal government increased by nearly $2 billion. So the actual issuance of contracts, scope of work, Really none of that has seen any changes from what we anticipated and what we've seen earlier in the year and frankly from even prior to this administration. But what we have seen a difference in is actually the conversion of the contracts, commissions and task orders that go into our backlog. Now, I think part of this is actually an artifact of Tetra Tech itself. We do only report our Backlog if we have a contract, which we've seen those announcements, but they funded it, which they have the funding for it from from Congress with the bill. And then they've actually authorized us to go to work. And what we've initiated the activities in the field, what we have seen is, has been a lot of early retirements, people downsizing different departments within the government. And that is included. a lot of senior individuals in the contracting officer ranks. So we've seen a slowdown between contract issuance and task order delivery. Now, many of our peers and others that work for the government report their backlog differently than Tetra Tech. They actually have what they call hard backlog, which would be ours, or funded backlog, funded and authorized. And then they also include a percentage of the amount of the contract that's issued. And in fact, if we did that, you'd see our backlog actually reporting significant increases associated with the issuance of these contract vehicles. So we have always held ourselves to an unusually, in fact, uniquely high standard on these. And we've seen that slow down through the changes with this new administration. And you really do need all of the contracting officers and all of the different mechanisms in place to make that work smoothly. I think what it means, I don't think that the contract capacity is an issue. I don't think that the existing task orders we have in hand will, at least from our perspective now, have an impact on our revenue. It's just that there'll be shorter visibility with respect to how far out you see with the task orders through this new environment. So this is something that is different. We're about a month into our fourth quarter. And one thing I'll note that as long as I've been with the company, which goes back quite a while, when the federal government, the fourth quarter has always been an issuance quarter for the government. It's the end of their fiscal year. There's a bit of use it or lose it. Anything that wasn't expended earlier, they issue and push out. And I'll tell you, we're a month in and we're not seeing that a phenomenon or that annual seasonal distribution. So it does look like this is going to be more of a book and burn issuance on task orders from the federal government. So maybe we'll have a better view on that at the end of the fourth quarter. But issuance and the growth of the backlog may actually be less but not affecting the revenue that's coming out of the contracts that we have. I know that's a long explanation. but it's a big part of the business. And I want to put in context before we get to the end of the fourth quarter, what we are seeing today and what it might look like at the end of the quarter. Tim Mulrooney | Analyst, William Blair: No, that's really helpful color. And thank you for all that detail. I mean, it sounds like one of $2 billion for the federal government. This is very much still intact. It's just about the conversion and task orders, which um you know sounds more like to me a a push out rather than anything being lost here so that that that was a that was really good color I appreciate that it's my follow-up sticking with the backlog I'm sure Heidi in profile today well Dan Batrack | Chairman and Chief Executive Officer: Operator Kate, I think we may have had a bit of an interruption on this last question. Tim Mulrooney | Analyst, William Blair: Dan, can you hear me okay? Dan Batrack | Chairman and Chief Executive Officer: I've got you loud and clear, Tim. I hear you quite clearly now. Tim Mulrooney | Analyst, William Blair: Okay. Okay. I apologize about that. Just my follow-up question was just simply, How do you think about the margin profile of your backlog today relative to where it was this time last year, excluding U.S. data and Department of State? Thank you. Dan Batrack | Chairman and Chief Executive Officer: Great, great question. One plan we went into a fair amount of detail in actually on Investor Day, which was just a little bit over a year ago, so a year ago May. And we'd actually talked about a long-term goal of increasing our margins by 50 basis points per year. And that was exclusive of aid. We didn't anticipate that aid would have contributed any increase. And we're actually seeing that. In fact, we're seeing it a little bit even slightly above that level. The reasoning is two items that are driving that. Number one, we're actually looking to shift the business to higher value services that we're providing to our clients. So we're moving more to the front end. We're moving more to consulting, more to qualifications-based. And so we're moving that upfront portion of the business that we have and shifting the mix to a higher value delivery which actually carries higher margins in and of itself. And the second piece is our fixed price. So we are increasing the percentage of fixed price work we have within the company, which actually carries higher margin. And so embedded in our backlog, it actually is increasing and is supportive of that 50 basis points per year or more target of margin expansion. So it needs to be put into the bids or the types of rates that we put to our clients in the backlog before it converts to earnings and margin expansion. And that's what's happening right now. So yes, it's for those two reasons, changing contract type to fixed price and services provided, which is moving to even higher value services that we're providing to our clients. Tim Mulrooney | Analyst, William Blair: Thank you. Dan Batrack | Chairman and Chief Executive Officer: Thank you very much, Tim. Kate | Conference Operator: Thank you. Our next question comes from the line of Sangeeta Jain with KeyBank Capital Market. Please proceed with your question. Sangeeta Jain | Analyst, KeyBank Capital Markets: Thank you so much for taking my question. So, Dan, if I can ask you on the previous question about the book and burn cadence of the federal work right now. Based on your experience, how does that set you up for 2026? Do you think there's going to be like pent-up orders coming, or do you think it's going to be a continuation of this book and burn type situation? Dan Batrack | Chairman and Chief Executive Officer: That's a great question. And I, at this moment, as of this call, I would tell you it looks like it's going to be more of a book and burn. I think that the items that have to be put in place for some of these agencies don't happen in a day or a week, not even maybe even a month. And we're only talking 60 days between now and the end of our fiscal year. So as I take a look at how we would finish this quarter and likely enter 2026, it does feel like it's going to be more of a book and burn on the federal government side than we've seen before. Now, you know, many things I get to learn through continuing learning. Maybe that'll be quite different and happen differently than we anticipate. But I would say we anticipate that it'll be more of a book and burn. And we could easily see the backlog being flat too. And 2.4 is a big quarter for us. So it's even conceivable that you'd have a decline in the backlog at the end of the fourth quarter, but not impact our outlook for revenue. It just will have... a little bit less visibility on how far out you can see. Sangeeta Jain | Analyst, KeyBank Capital Markets: I really appreciate that. And then just kind of housekeeping question, how should we think about disaster recovery revenue in fiscal fourth quarter? Dan Batrack | Chairman and Chief Executive Officer: Well, for the communities, it's a really good story. We've largely completed the support work of recoveries down in the flooded and impacted areas in Florida and Georgia and the Carolinas. So we'd see that is essentially over. And I will say that the long term target or the initial target, I should say, was to have the fire clearance of all debris and materials for rebuilding to start. Original target was to have it all finished in a year. And thanks to the Army Corps of Engineers, phenomenal leaders at the Corps. And of course, the cities and the state of California and cities there. Most of that work's all been completed here by the and by the end of July, essentially now. So I expect it to be very minimal contribution in the fourth quarter for those two events. Now it's early, but we haven't included in our guidance much contribution from what we call these response activities. Now we do have plenty of design work and planning work for emergency activities that'll continue, but we would say that's relatively consistent year over year. But for this episodic, it should be quite minimal in the fourth quarter. Sangeeta Jain | Analyst, KeyBank Capital Markets: Appreciate that. Thank you, Stan. Dan Batrack | Chairman and Chief Executive Officer: Yeah. Thank you, Sangeeta. Kate | Conference Operator: Our next question comes from the mind of Sabahat Khan with RBC Capital Markets. Please proceed with your question. Sabahat Khan | Analyst, RBC Capital Markets: Great. Thanks and good morning. You provided quite a bit of color through the slides on some of the demand drivers here, but we've been getting a lot of questions, you know, within this sort of volatile backdrop. what is the water market growth relative to infrastructure? So hoping maybe to give you an opportunity to maybe just lay out some of the drivers across sort of the U.S., UK, and Australia that you're seeing just broadly across commercial and federal within the specific end markets that you're playing in and more around sort of how do the rates of growth in water demand maybe compared to underlying just infrastructure demand, any color would be great. Dan Batrack | Chairman and Chief Executive Officer: Thanks. All right. I think partly one of the best indicative end markets for us for water infrastructure is really our state and local work. And that's mostly for upgrading or new water treatment plans for delivery, wastewater treatment, and in some instances, coastal protection, that a lot of it comes to our state and local clients. We've historically indicated a range of 10 to 15%, and I don't know how many quarters in a row we've now been well north of that this last quarter, if you take out the special disaster response activities that is funded by our state and local clients, we're still just under 20%. So 18% is essentially a very similar number of the prior quarter. So many have asked me, isn't the real number closer to 20? It is on given quarters, but I would say that the water infrastructure work that we do in the water, both the chemistry and investigation assessment work, is probably that 10 to 15% rate. And if we're wrong, it's generally at the higher than that. And it's not just unique here to the United States. That's clearly, we report that out as a end client. You can see it in our slides. But what's really growing, what's driving much of our growth in Ireland and across the United Kingdom is also what we would call municipal, which is water utility work there. So the framework contracts. So I would say they're in sort of similar type numbers, sort of mid-teens. Other things are growing a little slower, so we've seen out of the UK and Ireland, as I indicated in my earlier remarks, sort of seven, eight, nine percent. But what's on the upside of that are drivers, really, the water infrastructure, water supply, water treatment. In the case of the UK and Ireland, it's a lot of water conveyance, getting water from point A to point B where they need it, and with respect to protection of surface waters like lakes and rivers for recreation and general public safety. So they call those sewer overflows. It's here in the U.S. they call them CSOs, combined sewer overflows. It's the biggest driver in the U.K., which is driving this growth rate well above 10%. That's also true in Canada. We're seeing similar items there. And there's been a lot of different areas where the budgets are actually supporting that. Now, one of the most common questions I've received here in the last six months are, are changes in priorities at the federal government going to impact your local state funding for these type of growth rates? And my comments on earlier calls has been no. I don't expect it because there's other alternative funding sources such as the rates that rate payers and the customers receive, there's bonds, and it's just healthy budgets at the state level. But I will put one caveat. I have not seen it impact our water programs yet, but we do other work for state and local clients too on the water side, which is on hydraulics and drainage and stormwater channeling, even on transportation projects. And for the first time, we saw this in the end of the third quarter, the U.S. government, the Department of Transportation matching funds canceled. And so a very large transportation project that we're participating on actually clawed back and it was already funded. And so I would say where I have no, I put essentially close to no impact on federal to our state local water, I've now seen it actually in transportation. So it's all of a sudden become a high watch list. I don't expect it to have an impact on the water programs at this time, but it's now, and I do want to say that that was a secondary impact that the federal budget changes that's got us watching on that front. Sabahat Khan | Analyst, RBC Capital Markets: Okay, great. And then maybe just following up on a comment you made earlier around doing more front-end advisory consulting work, I think you already have a pretty of average sort of mix of front-end work. If you can maybe just dig a little bit deeper into maybe what are some of the regions, types of customers, or, you know, types of work where you do see an opportunity to maybe push that front-end work penetration somewhat higher. Thanks. Dan Batrack | Chairman and Chief Executive Officer: Well, it's interesting. I would say we have energy development customers that have tax incentives at the Inflation Reduction Act. And so their investments are going into renewable energy. And the fact is that the work that we do is on the front end, consulting, advisory, technical evaluation. And so how can that work be changed to be invested in more conventional and fossil fuel? So how can you actually go to develop a power generation using alternative Maybe it's natural gas and how you could connect to the grid. And so how can they still meet their power generation goals for these energy developers? And how can it pivot from a renewable source like auction? And I'll use offshore wind as an example. Can you go from offshore wind in a marine environment and can you pivot your investments to support? William Murphy, LNG, which would also be in a marine environment offshore terminals, so the technical evaluation, including work we're doing with respect to the grid upgrades. William Murphy, So is it a place that the grid could actually and transmission projects be moved with respect to permitting think that there are more projects coming to light that we're seeing because of reduced regulatory requirements so. There may be less work per project, but there'll be a lot more projects. And so when you change your math on those, you actually end up with a bigger number, but they all need evaluation of how can that be done? What are the permitting requirements? And what's the timing? And I'll tell you, the new input is also the economics of raw materials and other construction costs on the front end is becoming more and more important. And we're involved in all of those. Sabahat Khan | Analyst, RBC Capital Markets: Great. Thanks very much. Thanks, Adam. Kate | Conference Operator: Thank you. Our next question comes from the line of Andy Whitman with Baird. Please go ahead with your question. Andy Whitman | Analyst, Baird: Great. Thank you for taking my questions. Dan, so I was looking at the CIG segment results and particularly the revenue. And your slide here shows it was up 2%, and that's the calculation. But it's interesting because the commercial industrial group, if you go by customer type, Also, the customers are down in the commercial industrial group, but the segment is up. So I just was hoping that you could explain how that happened. Dan Batrack | Chairman and Chief Executive Officer: That's a great question. How do two minus numbers equal a plus number? Because you're minus four on our U.S. commercial and you're minus on our international. by a percent and you end up plus. While our commercial international is U.S. commercial and international contract work is in our CIG, there are some entities here in the U.S. that do work for mostly I'd say state and local clients. It just so happens that in addition to working for a commercial client, there may be some work that is co-joined or done in parallel for a state and local client, and that work is actually up quite a bit. In fact, when you've seen our pure state and local, so when you go to CIG, we talk about U.S. commercial, but it's not an absolutely pure just commercial. Some of that work is actually in that CIG segment. So if you look at CIG, you would see plus two, but when you look at U.S. commercial, it's actually separated it out. So just a little bit of that state and local growth rate is actually embedded in the CIG segment, and it's enough to take those small negative number and make it small positive number. Andy Whitman | Analyst, Baird: Okay. That makes sense. Thank you for clarifying that. I guess just as I look at the two segments and think about the outlook from here, With renewable being one of the reasons it's down, and you can talk about Australia and see if you're seeing any green shoots of that coming back, but I guess the assumption here into the fourth quarter and then probably into 26 is that, at least for the next few quarters, that the government segment is probably the horse that's probably got the better growth potential over the CIG segment. Is that the correct way of thinking about it? I guess the renewables are going to be kind of a tough comp for a while, so that's going to make that segment a little harder is what I'm thinking. But I just wanted to bounce that off of you and take it from you and think about it the right way. Dan Batrack | Chairman and Chief Executive Officer: Yeah, I think that's right. I think that – I'll stick with the U.S. commercial for the moment. Our renewable energy work that we do here in the U.S. was down probably close to 30 percent year over year in the quarter, and that's a big number. But that still leaves quite a bit that's actually underway. So I think it's going to continue to see reductions over the next several quarters, and certainly a year-on-year comparison until we twilight the year-on-year comparisons. I think that that's going to be, for sure, a difficult comp on the U.S. commercial. International, well, you know, there's two ways Australia can get better. It can get more work, which is, you know, I think we're seeing it still very soft. But we do have one benefit that's hiding in plain sight. It was down a lot last year too. So the year-on-year comps in Australia are going to look better because they were a lot lower last year. So I think that's going to moderate, but it's certainly not going to contribute and drive our top line numbers. I do think that'll come out of our state and local and the federal, which is mostly coming out of defense. So I think we've got pretty good visibility, but The horse that's going to pull the top-line growth is going to be, you're right, mostly government here in the U.S. And I would say actually our international government work is pretty strong, too. But I do think we've got several quarters of challenges there on the commercial side. Andy Whitman | Analyst, Baird: Yeah. Okay, that makes sense. And just for the benefit of everybody, I think the U.S. renewables business is only like 2% or 3% of revenue, just for context. I don't know. Maybe that's worth it. verifying for everyone there, too. You said 30%. It's a big number down, obviously, but a big part of the business, but not that big. Is that right, Dan? Dan Batrack | Chairman and Chief Executive Officer: No, that's absolutely right. I think we've said we had about company-wide, the entire enterprise globally, we're about $250 million, about half of that. So the amount we're talking about, we actually put real dollars to it. We were talking before this reduction, about $125 million. So it's a pretty small overall component of the business. Andy Whitman | Analyst, Baird: And then just last one for me, Dan, just this, this might be just kind of, but you know, the posture towards the U S has posture towards Ukraine has evolved, I'd say in the last few months and, and you're seeing, you know, weapons supply coming back and other things. And I just don't, I know USAID is shut down, but are there other systems in place? Are you hearing anything about the humanitarian support for like the grid work that you're doing there potentially coming back? Are, are, Could that come back on? What are you hearing? It seems like maybe with the posture change from the administration, there might be something there. Maybe I'm grasping at straws here, but I thought I'd have you comment. Dan Batrack | Chairman and Chief Executive Officer: No, it's a great comment. And we've not, I did not intentionally, I've not included that as a driver or a potential material contributor to drive numbers up. But there's no doubt that's true. And you're right, it went for, we're not going to support, we're pulling weapons back to, we're going to go to neutral, and now they're supportive of Ukraine. The one thing that's positive, as many things are positive for us, but we're working in Ukraine today. When I said that we did slightly less work than anticipated for USAID, coming into the quarter, my comments on the last investor call was, I thought we'd do about $100 million of revenue with USAID and most of it in Ukraine. We did about 90. In fact, I'd say 91 is the number. So we were slight. When you ask how much is slightly less, we're 91 instead of 100. And I think in the fourth quarter, we originally thought we'd do about another 100. It's down to about 40 or 50, which was my comment on the guidance. But we have a contract. We have sufficient contract capacity. They could provide us by picking up the phone or sending us a task. of numbers that are 100, 200 million and a quarter. And we've seen that before. So, you know, we're not processing a task order for that right now, I'll tell you that much. But if you go back a couple of years ago on an unusual damage to the grid, we were called with about a week's notice and asked could we deploy and initiate what turned out to be close to $100 million in a couple of week periods. So, yes, it's a, I don't want to call it a lottery pick, That makes it too random, but yes, it's a possible website. No, we don't have to compete. We have a single awarded contract to Tetra Tech, and so it is possible it could be an unusual large contributor. Thank you. Excuse me. Kate | Conference Operator: Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. This will conclude the question and answer session. I will now turn the conference back over to Dan Batrack to conclude. Dan Batrack | Chairman and Chief Executive Officer: Well, thank you very much, Kate. And I want to thank all of our investors and stakeholders. And I'll tell you, most importantly, I want to thank all of the Tetra Tech employees. This has been a period of a lot of change. It's been a lot of new items coming to us, navigating both the direct and indirect impacts of the new administration, which is real here in the US, which has really had impacts globally and both keeping backlog up, supporting the collection of receivables, driving margins up, which is actually sort of delivering on our forecast or our assessment that we actually have higher margins embedded in the business as we go forward. And I think this last quarter and the third quarter was an excellent example of that. And we see more to come. And in fact, if you do the math on the guidance, a simple math, you'd actually see our margins are even higher imputed in the fourth quarter guidance that we just provided today. And I really look forward to providing you all the results for our fourth quarter, and probably most importantly, our guidance for fiscal year 2026, when I talk to you in 90 days and report our results for the fourth quarter and all fiscal year 2025. And with that, I hope you all have a safe and enjoyable rest of the week. Thank you very much. Kate | Conference Operator: Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day. All parties may disconnect now. jsPDF 3.0.3 D:20260606090517-00'00'

NASDAQ:TTEK Q2 2025 Earnings Call Transcript Generated on 6/6/2026 Paul | Investor Relations: Good morning and thank you for joining the Tetra Tech earnings call. As a reminder, Tetra Tech is also simulcasting this presentation with slides in the investor's section of its website at tetratech.com. This call is being recorded at the request of Tetra Tech and this broadcast is the copyrighted property of Tetra Tech. Any rebroadcast of this information in whole or part without the prior written permission of Tetra Tech is prohibited. With us today from management are Dan Batrack, Chairman and Chief Executive Officer, Steve Burdick, Chief Financial Officer, and Leslie Shoemaker, Chief Innovation Officer. They will provide a brief overview of the results and will then open up the call for questions. I would like to direct your attention to the Safe Harbor Statement in today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in Tetra Tech's periodic reports filed with the SEC. Except as required by law, Tetra Tech undertakes no obligation to update its forward-looking statements. In addition, since management will be presenting some non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted in the Investors section of Tetra Tech's website. At this time, I would like to inform you that all participants are in a listen-only mode. At the request of the company, we will open up the conference for questions and answers after the presentation. With that, I would now like to turn the call over to Dan Batrack. Please go ahead, Mr. Batrack. Dan Batrack | Chairman and Chief Executive Officer: Thank you very much, Paul, and good morning. And welcome to our first quarter of fiscal year 2025's earnings conference call. That's been a very eventful month of January so far. Just over three weeks ago, the Eaton fire struck right here in Pasadena within about a mile of our corporate headquarters. And an equally destructive fire occurred a little over 20 miles away from our headquarters in the Palisades here in Los Angeles County. Unfortunately, some of the Tetra Tech staff did lose their homes. And many, many that work here in our Pasadena headquarters were evacuated. And in fact, still, some still remain evacuated all the way up until today. But most importantly, all of the Tetra Tech staff are safe. And we certainly do. send our condolences to those that were unfortunate because there were fatalities in both of the fires. So it was not a great start to the month just from a personal impact to Tetra Tech staff and individuals throughout Los Angeles County. Just 10 days ago, January brought us the inauguration of President Trump and the incoming of his new administration. And they are rapidly aligning the government to their policies, their programs, adjusting contracts to areas that are in line with their mandate as they're bringing it. And much of it's been implemented through executive orders and other actions. In fact, just beginning this week, just a few days ago, our USAID or foreign development contracts for the most part have all been put on hold. for up to 90 days while the administration embarks upon a review of all of these existing contracts. Now, while these may seem like a lot of change in the industry, it's not that dissimilar from what we've seen in temporary government shutdowns. We have seen programs that have been put on hold, typically comes quite quickly when a budget hasn't been arrived at through Congress, and so we have seen this in a different form, maybe it wasn't executive actions, but we have seen the net effect be quite similar here in the marketplace and here at Tetra Tech. But no doubt Tetra Tech's strength has always been in our ability to respond and to adapt to change. Whether it's mobilizing our staff to respond to fires or other disasters or hurricanes, or aligning our staff with our clients' priorities. We can move quite quickly. Our staff are in extremely high demand. And the ability to put them on other programs during these periods is actually quite high. Our services across the board continue to be in very high demand for things such as providing clean, secure water supplies, ensuring a healthy environment, or designing and putting in place resilient infrastructure such that it will be not impacted in the future regarding disasters or any other items. Now presenting with me today, I have Steve Burdick, our Chief Financial Officer, who will be providing additional details on our financial performance and capital allocation for the company. I also have Dr. Leslie Shoemaker, who will provide remarks on some of our key growth markets. But before I get to, or before we get to our drivers and outlook for fiscal year 2025, I'd like to first share with you the results of our first quarter. we had a very strong first quarter and beginning of fiscal year 2025. For the quarter, we achieved new record results, and not just record results for what we would normally perform in the first quarter, but high points for any quarter in the entire history of the company. In fact, our net revenue, which increased to $1.2 billion in the quarter, and again, that's for net revenue, It was up 18% from the prior year to an all-time record for any quarter in the company's history. Property income was $138 million for the quarter, an increase of 24% from the prior year. And by the way, I'll make a note, a year ago, that was a record high. So by having income being up 24% from a record first quarter was really quite impressive here for the company. And of course, that's an all-time high for a first quarter for the company. The strong performance resulted in earnings per share increase of 25%. over the previous year to $0.35 for the quarter, which was above our own guidance range and, of course, above consensus that were provided in the marketplace. And through all of this, and with this very large revenue being recognized in the quarter, it was even more impressive that our backlog grew. And it grew to $5.44 billion, about 15% from the first quarter of last year. I would like to discuss and present our performance by segment. Both of our segments contributed significantly to this outstanding performance in the first quarter. For the first quarter, the Government Services Group, or GSG segment, increased its revenue by 36% year over year to $601 million. And this is the first quarter we've ever had a GSG segment over $600 million. So it was really quite an accomplishment. Now, GSG generated a margin of 13.9% margin for the quarter. The GSG's revenue growth was largely driven by significantly higher than anticipated work in Ukraine for a USAID client. While this is extremely important work, and it's been quite successful supporting the U.S. government in this critical mission, uh the contracts that we have do carry lower margins due to the cost reimbursable nature of the contracts if you took out the ukraine work that we did this last quarter you would have seen gsg's margin at about 15.4 which is extremely strong for the first quarter of the year where we have holidays such as here in the u.s thanksgiving christmas and other times up so to be in the In fact, above 15% for this first quarter, extremely strong for the company. The Commercial International Group, or CIG segment, delivered a 13% margin. Quite pleased with that. It's up 50 basis points from last year, which is right in line with our forecasted annual increase in margins. The CIG segment had net revenue of $596 million, which was up 4% year on year, and I will note This is the closest balance we've had between government services at $601 million, CIG at $596 million. We really have about half of our work in GSG and about half of our revenues in CIG. Really quite balanced for the company. I would like to provide an overview of our performance by our end customer and how we look at how we contract in the marketplace. Work for our U.S. federal clients was up 32% from the same quarter last year. Now, without contributions from our Ukraine work, our federal revenues would have been up 7% year over year, which is exactly in line with our forecast for the federal government. This growth is driven by increases in our defense infrastructure and many of our critical civilian programs that we undertake. For state and local revenues, an amazing 47% year over year. Now, this was driven primarily by extraordinary hurricane response activity that we undertook in areas of Florida, Georgia, Carolinas, and other areas in the southeast in response to hurricanes Helene and Milton. We also saw growth, though. This growth wasn't just from these hurricanes. We also saw material growth on our digital water modernization. and advanced water treatment projects. Now, if we did take out the impact of the extraordinary hurricane response activities, our state and local revenues would have been up 19% year-on-year, very strong. Our U.S. commercial net revenues were up 7% year-on-year, again, very much in line with our forecast for the quarter, driven by growth in high-performance buildings, design services, as well as our support for Fortune 500 clients. And finally, our international work work that we actually contract form perform outside of the United States represented over a third of our revenues in a quarter. For international work includes the United Kingdom and Irish water programs are differentiated high end infrastructure services all across Canada and defense infrastructure resiliency work in both the United Kingdom and in Australia. I would like to discuss and point out a few items on our backlog, which increased to an all-time high of $5.44 billion, as I'd mentioned a moment ago, up 15% from last year. We won a whole group or a whole series of Army Corps of Engineers contracts for civil works design, sustainable water infrastructure projects, environmental engineering, emergency response, and flood protection activities. all critical programs that are priorities for the incoming administration. In the Midwestern part of the United States, we won a five-year single award. That means awarded just to Tetra Tech for emergency response and preparedness work within that entire region. And I'd like to remind you that while Tetra Tech has more than $25 billion in contract capacity with the US federal government, our backlog does not include any factored numbers associated with contract capacity or anticipated awards under IDIQ contracts. So the work that we have here is contracted, funded by the client, and authorized for us to go to work. Nothing else has been adjusted or factored or added into it. We don't have that component. Now at this point I'd like to turn the presentation over to Steve Burdick who can present the details of our financials in the quarter and particularly our capital allocation programs and priorities for the company. Steve? Steve Burdick | Chief Financial Officer: Hey, thank you, Dan. I'd like to now provide an update of our GAAP financial results for the first quarter and our working capital, cash flow, and capital allocation. So as Dan discussed on this call, we continue to focus on the front-end cycle for water and infrastructure projects, which are carrying a higher margin across all of our end markets. And as such, even though revenue was up 16% over last year, our adjusted operating income and EPS for the first quarter increased at an even higher rate, with an adjusted EPS up by 25% over the last year. Now, this record financial and operating performances resulted in a strengthening balance sheet and cash flow positions, such that even though the decision by one of our subsidiaries to settle the 100-point litigation did result in a one-time charge that is material to the first quarter earnings, That decision will not materially impact our results or strategy going forward. And for those of you on the call or looking at our information, I refer you to our Reg G and to the appendix of this presentation for the gap to adjusted reconciliation. Now, cash flows generated from operations for the trailing 12 months were $363 million. These cash flows have continued to exceed income by more than 100%. And when looking back over our historical financial results, we noted that our cash flow from operations has exceeded net income every fiscal year for the last two decades. Our focus on working capital and cash flows has resulted in a DSO of about 55.9 days, much better than our industry peers who are more than 80 days. Our target is to keep the DSOs well below 60 days. We consider this a high watermark for our working capital to be sustainable over the long term as we continue to make cash flows from operations a priority. Also, our DSO provides significant insight into our core business as it reflects the outstanding work that our project managers lead relative to higher quality projects and highly satisfied clients in our broad portfolio across all of our end markets and geographies. Our net debt on EBITDA was at a leverage of 1.33 times, which is much lower than our average one year ago, which stood at 1.51 times. Now, on an adjusted basis, without this one-time charge, the net leverage was at 1.05 times. As we continue to execute on high-quality operating results with strong cash flows and a healthy working capital, We will continue to have the ability to invest in strategic initiatives which will provide higher returns to our shareholders. For those following along in the presentation, I'd like to now present our capital allocation overview. But prior to diving into these details, I'd like to point out that Tetra Tech is one of the few firms who is able to provide an increasing dividend, buy back our shares, make acquisitions, all the while lowering our net debt leverage. And with that, I would say that we have a very strong balance sheet, probably the strongest balance sheet in our history, as well as a significant amount of liquidity available to invest in organic and acquisitive priorities. And we have a well-balanced mix of fixed and floating rate debt to mitigate the interest rate risk as we look to invest in key strategic priorities. We have a strong pipeline for acquisitions, which is aligned towards technical leaders, especially in the water and environmental spaces, where we have led the market for the last 20 years. Now, regarding our dividend program, I want to announce that our Board of Directors approved a 5.8-cent dividend, which is a 12 percent increase year-over-year to be paid in the second quarter. This is our 39th consecutive quarterly dividend with an annual double-digit increase in the amounts paid, and this remains a priority for the company. As we've revised our capital structure to take advantage of the credit market to support our financing needs, I want to point out our ability to reduce our average interest rate by 57 bits to 3.44% this quarter versus last year. This, which is an environment of higher interest rates for longer. And based on reaching a lower leverage at the end of last year, We did reinstitute our stock buyback program this last quarter worth $25 million. We do have available a significant portion of the $400 million from the stock buyback plan approved by our board of directors as part of our capital allocation strategy to use for future stock buybacks. You know, I am quite pleased to share these strong results for the first quarter of 2025. I want to thank all of our shareholders and analysts for your support. And I will now hand the call back over to Leslie and Dan to discuss Tetra Tech's future global and improvement opportunities, as well as our fiscal 2025 guidance. Leslie. Leslie Shoemaker | Chief Innovation Officer: Thank you, Steve. As Dan mentioned earlier, we see continued strong demand for our services, especially for essential water services. Water is at the forefront of recovery needs post disasters. and essential to cities and growing communities across the United States and internationally. Today we're working with our clients to recharge aquifers to fight seawater intrusion in coastal regions such as our innovative water treatment design in Hampton Roads, Virginia. We're treating contaminated groundwater to create reliable new water supplies worldwide from Water treatment in Dayton, Ohio, all the way to military facilities in Australia. And we're designing the new structures that will be used to protect hurricane-prone regions along the coastlines in the United States. Here in the U.S., our inland waterways, locks, and dam systems have just begun the first significant upgrade in over 50 years, led by the Army Corps of Engineers. Tetradex designers are currently supporting the update of this inland navigation system across the U.S. which is essential to interstate commerce. And we've actually been the innovators in many of those designs with first of a kind solutions. Across our water market, we're employing our triple F or software subscription solutions and our Delta technologies to leverage AI and optimize and automate Our trained engineers, scientists, and technical professionals, our experience working on the largest U.S. disasters, and our proprietary software systems are what make Tetra Tech the leading U.S. consulting and engineering firm for response to fires, hurricanes, and tornadoes. We've worked on disaster response and recovery for many years, but it is increasingly integrated into our services both in preparing for disasters as well as in responding to post-disaster needs. We look at disaster response and recovery as three distinct phases. Phase one is focused on supporting the monitoring and response immediately post-disaster. We also maintain over 500 clients, 500 contracts with clients throughout state and local governments for high risk regions coast to coast. Now we've been working for just three months on hurricanes Milton and Helene across the southeastern United States. And are now just beginning our support for the Eaton and Palisades fires in California. After about a year, the second phase begins to perform the more detailed damage assessment and consulting services that ultimately will lay the groundwork for the longer term engineering design, which can ultimately span 10 years or more. Today, we're continuing to support Maui in recovering from the Lahaina fire, which due to its island location and severity has complex restoration needs, such as the design of entirely new landfill structures to receive the fire residues. Hurricanes have even more significant long-term needs for recovery planning and engineering that are directly in the services that Tetra Tech provides. Today we're designing flood protection structures and providing resiliency services to address the severe damage caused by Hurricane Harvey in Texas and Hurricane Maria in Puerto Rico that occurred in 2017. Today we're continuing to innovate in this space by integrating our AI solutions with our deep knowledge of recovery practices. For example, we are currently using artificial intelligence to analyze post-fire satellite imagery and provide first of a kind landslide risk assessments using this technology. With the increasing frequency and severity of disasters, this is becoming a significant driver for our business. And with that, I'd like to turn the call over to Dan to present our guidance. Dan Batrack | Chairman and Chief Executive Officer: Thank you, Leslie. And I'd like to present our guidance for the second quarter of the fiscal year and our updated guidance for all of fiscal year 2025. Our guidance is as follows. The second quarter, our net revenue guidance range is from $1 billion to $1.1 billion with an associated adjusted earnings per share of 30 cents to 33 cents. The updated guidance for the entire year for net revenue is for a range of $4.365 billion to $4.765 billion, with an associated adjusted earnings per share of $1.37 to $1.52. If you're following along on the webcast or you have access to the presentation, you can take a look at the assumptions with respect to intangible amortization, tax rate, and other items for any modeling questions that you may have. In summary, we had a really good first quarter. We achieved all-time record revenues for revenue, net revenue, backlog for any quarter in the history of the company. And we're seeing really strong demand for our differentiated leading with science services across our core business areas of water, environment, and infrastructure markets that we work in all around the world. More specifically, our disaster preparedness, response, and recovery services have never been in higher demand. Demand for our water design services continue to grow both here in the United States and the United Kingdom, and our federal IT practice, or our FIT practice, is supporting the needed modernization of government services, that with a more lean federal government workforce, this is going to be very highly aligned and in high demand with the new administration's priorities. Together, these drivers and actually the change in the mix of our business, adding in more disaster response, supported our increase in the upper end of our earnings per share guidance for all of fiscal year 2025. And with that, now I'd like to have the call open for questions. So, Paul, ready to see if any questions that we may have. Conference Operator | Operator: Thank you. The question and answer session will begin now. Please be aware that there will be a 30-second pause in our webcast to allow for buffering. At this time, audio participants are invited to submit their questions. Please remember to mute the audio function on your computer before you speak. If you're using a speakerphone, please pick up the handset before pressing any numbers. Conference Operator | Operator: If you would like to ask a question, please press 1 on your touch-tone phone. Our first question is from Tim Mulroney with William Blair. Conference Operator | Operator: Please proceed with your question. Tim Mulroney | Analyst, William Blair: Yeah, good morning. Thank you for taking my questions. Just a couple quick ones on the guide just to level set everybody. Can you walk us through what's assumed at the midpoint of your guidance range for USAID work and what, you know, what gives you confidence that some of this work will likely turn back on after that 90-day review? Dan Batrack | Chairman and Chief Executive Officer: Yeah, that's a good question. So we have assumed in the first quarter, I'll work on an annual basis because the midpoint for our annual guidance is the question, that for the midpoint, we've assumed that we would do approximately $400 million worth of USAID work for the entire year. Now in the first quarter, we did about $200 million. So we have assumed that we would do approximately another $200 at the midpoint between now and the end of the fiscal year. What we've assumed while we are on hold for 90 days, there's a number of different scenarios that can unfold during this review practice. One, the projects can be put back on continuation, and that can take place anywhere between now and this 90-day period. The delay can be put on- can be extended and they can put these dates out into the future or they can make a determination that the projects are actually terminated. So with respect to our original forecast that we had, we brought it down by about a third to a half that we're going to do that much less work for aid. So we assume that what we did in the first quarter, we would basically do the rest of that similar amount over the next three quarters. Now, if for some reason I'll take a worst case scenario, because this is what we built into the low end. And I'll tell you, you might even extend toward the midpoint. Because if you did turn all of our work off, I'll go through a theoretical assessment very quickly as if everything got turned off. If it did get turned off, that would mean we would initiate demobilization, and if the contracts were terminated, you would demobilize the projects, you would send people back home. And I believe that the demobilization cost to be incurred on these cost-reimbursable contracts would yield roughly that midpoint. Now, if you said, Worst, worst case, and what's recoverable or not, maybe you get toward the low end. But I'll tell you, even if things don't get turned back on, I believe it will take us roughly to the midpoint of our guidance that we have provided for fiscal year 2025. Now, if they get turned back on, obviously that moves us, could either be through demobilization, your incurred payments and revenues, or continued working. You can receive revenues contributing And that, if it did get turned back on and then continue through the rest of the year, that would take us to the high end. If it gets turned on after this 90 day period. So I think that we've really been very conservative. And I'll tell you in this level of, or this period of somewhat uncertainty. Now, it's not that we have lots of data and it's uncertain. We are today, Thursday morning. three days and one hour into the stop work orders. So there's very little information. Things are just getting clarified. And you saw even earlier this week, grants were put on hold, and then they were put back on in a 24-hour period. So to say that this isn't a fluid process, you know, it is a very fluid process. So we've been very conservative. We wanted to actually incorporate into our annual guidance what I guess I'd call reasonably worst case could be, and that it would support both our, certainly the lower end with, it's already been fully embedded, frankly, with respect to aid, mostly even to the midpoint. Tim Mulroney | Analyst, William Blair: Okay, that's very helpful. So it sounds like the midpoint in your guide is almost worst case scenario where you're just collecting demobilization revenue because nothing really gets turned back on. But is that really your expectation? I mean, you've been doing this for a long time, these aid projects. Some of them I know are in areas of the world that are strategically important. Is it your expectation that some of these projects likely will turn back on after the 90-day review? And if that's not a fair question, that's fine. I can skip and do another one. Dan Batrack | Chairman and Chief Executive Officer: Well, I'll share with you our perspective, because our perspective is in line with essentially every administration's priority, and I believe including this administration's priority overall with respect to foreign policy. You've heard us say this before, foreign policy is made up of three legs, three legs to foreign policy. Number one is diplomacy. That's the president meeting with other presidents and ambassadors, and certainly that's important. Second is defense. That is interceding where there's no other way other than a military option. But the third leg is development. And we've had individuals on our board such as Admiral Trulli. We are very close with our clients in the Department of Defense. And there's many, many white papers and recognition that $1 of development will save between $10 and $100 of defense. And so the return for development is somewhere between 10 to 100 times. And the projects that we work on for development are clearly part of national security and are also associated very closely with the most highly sought after foreign development and diplomacy. So, for example, I'll give you just a couple very quickly. National security is centered around places like the South China Sea. And the work that we do in the Philippines basically covers the entire eastern portion of the South China Sea. So by supporting development work in Philippines, we have access to Subic Bay, the largest naval facility in that region. We have access to Clark Airport space. These are all former U.S. defense facilities. With the work we're doing in Vietnam on the west side of the South China Sea, Work we're doing cleaning up Agent Orange from the Vietnam conflict that the U.S. was engaged in has access to Camden Bay. Work we're doing in Indonesia and Malaysia covers the entire southern portion of the South China Sea. So these areas are critical to U.S. national security. Certainly I can give you examples in other portions of the world. So the work that we're doing are highly aligned with national security and the highest priority of not only previous administrations, this administration. So for those reasons, I believe a large portion of our work will be reviewed and determined to be critical and turned back on. Albeit, just to make sure we bracket things, I've just explained how we've updated both the mid and lower point to even account for delayed portions. But as you get turned on, that will take us back to the midpoint and above, up to the high end. That's our perspective, and it's not grown from or determined what we think here looking within Tetra Tech. This is based on the priorities of previous administrations and the current administration as they've been very vocal about. Tim Mulroney | Analyst, William Blair: Yeah, okay. The point is well taken, and I think you've framed it really well for investors, so I appreciate that. I'll leave it there. Thank you very much. Conference Operator | Operator: Thank you, Tim. Conference Operator | Operator: Thank you. Our next question is from Sangeeta Jain with KeyBank Capital Markets. Please proceed with your question. Sangeeta Jain | Analyst, KeyBank Capital Markets: Good morning. Thanks for taking my question. So, Dan, if you could help us understand the disaster response, I think there's some revenue that you factored into the top end of your guidance. So if you can help us understand how much flex there is beyond what is in your guidance for this year and next year. Dan Batrack | Chairman and Chief Executive Officer: Yeah, great question, great question. So the coming into this year we we assume that we continue work in response to the hurricanes. We had great visibility that took place at the beginning of the year, but the fires of course are new. We think that here in fiscal year 2025 a new revenues that will start here in the latter part of Q2 since we're already two days from February. We'll start this work quite quickly. And by the way, just as a quick update, we think we'll have a dozen teams in the field. By the way, the last of the active fires have just been put out this last weekend. We expect that with the president having come out here to Southern California and put priority on this, we expect to have more than a dozen teams out in the field by the end of this week. And yes, that does mean tomorrow. And we expect that we'll have 100 different teams. out in the field doing the assessment to clear these sites for debris removal in the coming weeks. So this is going to go from the fire just being put out to being in the field quite quickly. So we assume that as a case sort of 40 to 50 million dollars of incremental revenue will be included and we put that into our guidance for fiscal year 2025. That was not in it before, but this temporary hold or stop work on USAID and is what we've used as an offset. So we think that from a revenue standpoint, what is not fully recognized during this 90-day hold period will be made up for the disaster. Now, the disaster work is more profitable. We have more dedicated staff. We have higher utilization. We have overtime hours, these types of things. And so that's what caused us on our upper end not to remove our revenue up because the contribution from the fires, to be specific, will offset any type of reduction we had during this short stand-down period with the federal government on foreign assistance. But since it's higher margin, that allowed us to increase the profit for the operating income and earnings per share for the year. That's why you saw the upper ends EPS actually go up. So that's the dollar amount we have. We think with respect to, you said, next year, we think this is about a 18-month process. That's sort of an average time. We spent about that amount of time on the campfire when the entire city of Paradise burned down. That was our response activity with our partners there. That was about an 18-month process. And in fact, the numbers would be larger in 2026 because we're already four months into 2025 before we get started. So we have just a little over half a year in 2025. And so you can expect that 40 to 50 to be half again, more, maybe even double in 2026. Sangeeta Jain | Analyst, KeyBank Capital Markets: That's super helpful. And maybe for Steve, so your leverage is hovering around the low end of your target range. It's been a couple years since you made a major acquisition. Can you Talk to us about your thinking on the M&A pipeline and the types of opportunities that you may be looking at. Steve Burdick | Chief Financial Officer: Yeah, I think we're very fortunate we have a huge acquisition pipeline. You know, we do, we are very prudent in terms of how we allocate our capital to make sure that acquisitions that we bring into Tetra Tech don't make Tetra Tech just bigger but better. And those acquisitions are really focused on technical leadership, so areas that Leslie had talked about as part of her presentation today, especially in the water and environmental spaces is really what we're looking at. And from a geographic presence, we have opportunities across the complete geography where we currently operate, which is Australia and Asia Pacific, North America, which includes U.S. and Canada, and the U.K. and Northern Europe. So it's really along those lines. And it's, you know, I would say, yes, it's been almost two years to the date since we closed RPS, which was our largest acquisition. But it's, like I said, it's not just, acquisitions to get bigger or large acquisitions, but really what's going to make Tetra Tech better. And that's what's in our pipeline. Conference Operator | Operator: Great. Appreciate it so much. Thank you. Conference Operator | Operator: Thank you. Our next question is from Sabah Khan with RBC Capital Markets. Please proceed with your question. Sabah Khan | Analyst, RBC Capital Markets: Great. Thanks for all the color on some of the puts and takes. I just want to follow up a little bit on some of the other buckets. And as you think about the rest of fiscal 2025, obviously there's some puts and takes on the civil and DOD side as well. Maybe you can just put a finer point on your expectations on how those two segments maybe evolve for the rest of the year. Dan Batrack | Chairman and Chief Executive Officer: Thank you. Yeah, good question. I know there's been in the last, 10 days has been an awful lot of focus on foreign assistance or foreign development, USAID specifically, and the State Department. But it is only one-third of the work we do for the federal government. So our U.S. Department of Defense work has been growing well. We've seen their budgets are in place, their funding is untouched, and their priorities have given primacy within the budget. So we expect that work is going to continue. It is growing at sort of between a 5 and 10 percent rate, as we've indicated. And we've seen no signs of really changes. And in fact, we think that some of that might even get accelerated and those growth rates may go to the upper end. Some have asked what type of work you would do there. Now if you're going to add more, there's certainly been indications of grow the size of the Navy, grow the size of the Air Force. If you're going to have another ship, you have to have a port or a pier or a location to put it. And so while they're constructing it, the work that we do is absolutely critical with respect to access. Is there sediment? Can you get the boat there? What are you going to do on the design? All of the things that would have to be done, we would do, and it's right in alignment with ourselves. So ports, harbors, stands, navigation channels, social protection. And of course, modernization, both on the civilian side and on the Department of Defense. If you're going to do it with a more lean workforce, particularly if you're going to focus on the fighting force or the readiness, the back office, so to speak, the people that support it, will need to be more efficient through modernization and use of everything from, yes, AI and other data analytics. And that's what our federal IT practice does. And that represents about 10% of all the revenues in Tetra Tech. So interestingly enough, I know it doesn't get as much headlines. I'm not Probably my fault for not speaking enough for clearly enough about it, but our federal it practice is as big as or slightly larger than our entire foreign assistance program with USA. And so the modernization program for the federal government is another area that we see growing we put generally between a five to 10% but probably at the upper end of that. And so those look very strong. Areas we have under our civilian programs. So defense we see clear. We have lots of backlog and we see it strong and growing at the upper end of our range. Civilian work is pretty varied that we have. Some of the areas that we're doing with Federal Aviation Administration is very high priority. I know that there was an accident in Washington, D.C. yesterday that highlights the need for modernization and additional communications besides just air traffic controllers. I'm moving this to space-based communications and navigation systems, even in local landings situations, such as was taking place even just last night in Washington, D.C. area. So we see that increasing in priority as part of modernization, as part of safety, as part of a reduced cost for running of these systems. So we see that saving more funding and more priority. Other areas, I know I do get questions frequently about what about Environmental Protection Agency, EPA? A lot of the work we do for the Environmental Protection Agency are in response activities. So it's not, are you looking at climate change? Are you doing research? A lot of this is response work. So when you had the train derailment, I know there was a settlement just this week between the Federal Department of Justice and the rail operator. in East Palestine, we were doing the response. And I'll tell you, the response activities and responding to these types of disasters knows no political party. And so that work we see as unaffected. So I think the non-federal foreign assistance work that I've spoken of already, and we've discussed the potential risks and opportunities there, But I think most of our civilian and the Department of Defense remains untouched. In fact, I think the growth rates are even higher there. Sabah Khan | Analyst, RBC Capital Markets: Great. And then, oh, that's a great color. And then just maybe moving over to kind of the commercial bucket, it sounds like that's been trending well, but maybe if you can just update us on a lot of executive orders flying around recently, announcements about data center build-offs, but just net-net, how are your conversations with your commercial customers trending, whether it relates to private investment and or maybe some of the broader infrastructure announcements that we're hearing. Tate Sullivan | Analyst, Maxim Group: Thanks. Dan Batrack | Chairman and Chief Executive Officer: You know, it's interesting. I get comments from investors or individuals within the company and other parts of the business saying that areas such as oil and gas for LNG exports from the U.S., the U.S. would become a bigger energy export, that this must be taking off like a SpaceX rocket. But we've actually seen it move forward. We've seen additional work with respect to permitting and feasibility studies. We've seen additional requests for technical evaluations for co-location of power generation adjacent to data centers or these chip fabs. I found it very interesting. contracted for evaluating of some LNG or natural gas fired cogeneration power plants between some of the oil majors and some of the turbine manufacturers. So you can actually put a four or five gigawatt power generation adjacent to one of these facilities so that it limits or eliminates the need for transmission and connections to interconnects. And so the work that this would be a big build out the cost would be dropped dramatically, and so we've been engaged in this. So I would say there's been an uptick in exploration of these, but as far as actually going from a standstill to we're breaking ground tomorrow, I've still seen that move through a progression process. I don't want to use the word slow, but I would say it's progressing. It's not from 0 to 100 miles in this past 10 days since the inauguration. Sabah Khan | Analyst, RBC Capital Markets: Great. And then just one last one, and then I'll pass the line. You know, I guess the estimated exposure you have to various buckets is about, you know, call it 55 plus percent water and then 30, 35 percent in sort of environmental and renewables. Just maybe if you can just talk about that other environmental and renewables bucket and just curious, you know, whether it's across public customers, private customers, just some of the kind of trends or commentary you're hearing as it relates to renewables. It seems like the new administration is just a bit honed in on wind, but just talk about the mix of work you have in that other 30 to 35% bucket, please. Thanks. Dan Batrack | Chairman and Chief Executive Officer: Yeah, I'm not familiar with that particular breakdown. I can share with you how we look at it. So we have 85%, which would be water and environment. And the environmental work we do is specifically associated with protecting watersheds, groundwater, surface water, or other water sources. So the environmental work is completely integrated and integral to protection of water. So that's why we say 85% of our revenues are water and environment. But the environment is completely linked to the driver of water programs. So that 85%, I don't really see impacted by, quote, the headline risk of environmental programs are being reduced. So that's not the case. With respect to renewables, other than hydropower, we do not include that in our 85%. So when you say clean energy or renewables, that's not part of our 85%. That's part of the other 15%. And the other 15% is roughly, I don't want to get too wonky on numbers here, but about 10% is high performance buildings, and the other 5% is renewables. Now, renewables do include on and offshore wind, which I know is not in favor, includes solar, which which is a component. But what we're doing here in the United States, that 5% of our revenue that's renewable, that is not here just in the United States. It's primarily in the U.S., Canada. Canada is, we have wind turbines there. Australia, which has a priority in offshore wind generation, is moving forward. And Europe, which is primarily U.K., which is well-advanced. of where we are. So if you take that 5% and take the renewable portion for the United States that it may not be in favor with this administration, take the big three for us for renewables, Australia, US, and UK, and it's probably about a third. So if you want to say about 1.5% of our revenue is in renewables with respect to that might not be in favor, I would say there's a component of it with respect to when, but there's also a component of that 1.5% that is other renewable energy such as carbon sequestration from natural gas, coal-fired power plants where you have complete carbon sequestration. So it's not just wind. So if you really look at it, it's a pretty small part of our overall portfolio when you break that down to the U.S. for wind. Conference Operator | Operator: Great. Thanks very much for that. Great. Thanks, Albert. Thank you. Our next question is from Tate Sullivan with Maxim Group. Please proceed with your question. Tate Sullivan | Analyst, Maxim Group: Thank you. Thank you, Dan, for your previous comments on the USAID. And to confirm, no other federal government agency has halted work for you or your competitors at this time. And I mean, are you concerned that this USAID decision or an executive order could set a precedent for other agencies? Dan Batrack | Chairman and Chief Executive Officer: Well, you know, it's interesting. I won't speak regarding our competitors. I'll let them comment on what they've been on hold, but I assume what we've received is really across anybody doing work for that agency. We have received some stop work orders for some of the, call it scientific research work. It's a small part for the Environmental Protection Agency, so EPA. We had thought that there may have been stop work orders coming because of the cessation of grant funding that took place and then was rescinded the next day. So we were speculating it might come from National Science Foundation where we do work on grants. That's been untouched, that's moving forward. But a very small amount of EPA work on the R&D research part of it while they're doing an evaluation. And so, but I would put that I don't know if I can call it the noise, but I'd call it, you know, quite small. But just to be clear, it has extended beyond just USAID to a certain extent. I will say that what came out, and it really didn't affect us, there was orders that came out during that very, a week ago, just after inauguration, that all DEI programs or anything associated with those were not only put on hold but were terminated effective immediately. And I think that may have extended to other agencies for programs where, you know, unassociated with, so HHS and things like that. Tate Sullivan | Analyst, Maxim Group: Thank you. And just to remove some sort of uncertainty for this current court, can you quantify, if you can, the amount of USAID work booked in backlog? in fiscal 1Q25 and the amount of USAID and the total backlog, if possible? Dan Batrack | Chairman and Chief Executive Officer: Yeah, we don't break out the percentage of work we have by any particular end client within our backlog, but I will say that because obviously whatever we recognize in the quarter would be in our total. So I'll just go to the total. Generally, USAID has funded us for more than a year. So this last year, USAID, because of Ukraine being a bigger part, normally it's about 10% of our revenue or a third of our federal, because Ukraine was up maybe around 13%. So total aid was maybe a year ago in 2024, Between 550 and 600. This year we thought it would be flat at about 600. So it carries more than a year's worth of backlog. So you can extrapolate from there the number in our backlog. Tate Sullivan | Analyst, Maxim Group: And last, thank you very much, is Steve or Dan, can you touch on the decision to settle or accrue for a Hunter's Point litigation? Did something change in the litigation landscape, or can you comment on that? Steve Burdick | Chief Financial Officer: Well, I think you've covered this quite a while, and this is something that's been around for, I don't know, 10, 15 years. So I think it got to a point where our subsidiary, EC, was able to come to an agreement with the government that really allows us to eliminate almost, I won't say quite eliminate fully yet, but the future litigation costs, outside lawyers, going to court for years. And so it really takes all of that off the table. And that was the purpose of us finally deciding to settle with the government. Conference Operator | Operator: Okay. Thank you. Thank you, Kate. Conference Operator | Operator: Thank you. Our next question is from Justin Hawk with Baird. Please proceed with your question. Justin Hawk | Analyst, Baird: uh great no thank you uh for all the color here that's that's been helpful on helping us understand everything um I guess I wanted to clarify one more point uh on the the USAID contribution in the quarter I think you said it was about 200 million of revenue and I was just curious how much of that was Ukraine specifically and maybe the same question for 2024 the the 550 to 600 million that you said that you did in 2024, how much of that was Ukraine specifically just to kind of help isolate that bucket versus the rest of your USAID business? Dan Batrack | Chairman and Chief Executive Officer: So in Q1, Ukraine was about 150 million for 2025, so this first quarter. And so we were just a little over $50 million for the remaining USAID work, which put us just at the $200 million number you used there. And with respect to what we had done a year ago, I guess in 2024 in Ukraine work, is that the second part of the question, Justin? Yes. Yeah. Yeah, we did. It's just a little under 300. I think it was like 280, 290 for fiscal year 2024. That's about what we did in Ukraine. Justin Hawk | Analyst, Baird: Okay. All right. Thank you. And I guess my last one just is a high-level question for you, Dan. But outside of, you know, kind of the immediate effects of the executive orders, I mean – some of the other, uh, I don't know, maybe, maybe tail risks or things of just funding priority changes, whether it's portions of the IRA rollback or, or maybe, uh, you know, the PFAS rule, I know there's the drinking water standard, but it did look like the, the effluence and discharge rule was halted. I mean, just high level thinking about, you know, risk to some of these more, um, structural programs, um, being changed and, and, you know, I don't know if that requires something outside of an executive order, but just, you know, how much risk is that some of that could be rolled back that, you know, maybe isn't captured here in kind of your initial expectations? Dan Batrack | Chairman and Chief Executive Officer: Yeah, that's a good, those are really good questions, Justin, because I think that, you know, there's a glass half full, there's a glass half empty, and then there's where I think Tetra Tech is, which is an objective measurement of where it is. and what the impacts of the programs are. I think it's highly speculative when it's that IIJE infrastructure projects would be put on hold. I think they're being put on review. And I've seen already, and you saw this between the election and inauguration, that there was critique or criticism of programs that were put in place by the previous administration to be rescinded and then immediately put back in place in an identical format with the Trump name on it. So it's had a review, and now it's been sanctioned by this current administration. And we've actually had waivers put on, and I mentioned this small, but some waivers put on that illustrate exactly that. So I know that some have said, wow, it's possible your aid work won't be put on, and it's a contagion that's going to somehow contaminate the rest of this. We've been very cautious and judicious, and I would say that In my tenure in the company, which is not insignificant, we've always been conservative and practical as to what's real. And I would just point to our backlog as a real life example of everyone else, everyone, as in, what they have in their contract, what they have in contracts and don't have awards, what they have in IDIQ, so they think they're going to get what they think they're going to get promised by some other client. And what do we do? Only what's been funded and authorized. And so the estimates that we put in here, and I'll go to PFAS as an example, you would not find another firm who's been more cautious about the PFAS ramp up in revenues and contributions to the company than Tetra Tech. You will not find another company. And so when questions are, don't you think PFAS is going to be a problem and will that impact you? We've not put much in that bucket at all. So I do find it interesting that this shadow has been introduced by some that these foreboding impacts will happen. These are shadows for areas that we've not even included in our revenue forecast. So if these do move forward, you'll actually see Tetra Tech move to outperform, even if they just remain where they are or are even pulled back, you could watch Tetra Tech move forward. And, you know, one thing I heard this morning was interesting. I heard, of course, I'm very close to our operations. It's my true love in the business. I just love our clients and projects. That's what floats my boat. So I was talking to our folks and saying, so what's the impact and what's being turned on, what's being turned off, and what's the timing? Did you know it's really interesting at Tetra Tech with USAID, because this is getting all the attention at the moment, at 10% of your revenue, he says the 90% foundational work that Tetra Tech has is unshakable. And that there are other companies that have larger percentages. And in fact, it is driving them to the point of concern. And there's even rumors from some sizable companies that will move into bankruptcy. And the comment was when this storm passes, There may be a substantially removal of competitors, and those standing with contract capacity to respond may actually be yielded much, much more work than they had before because there's less people to perform the work. And furthermore, if the new administration is focused on we want certainty of price, we want an exact number, maybe the work will move from cost plus at 6% to 8% margin to fixed price that will be higher based on contributions. And so one of our very senior executives are we could come out the other side of this with more work because there's less people to perform it and more of the work on a fixed price and margin substantially higher that could be as much as double based on our delivery of value to the government client. So, you know, I know that there's a lot of storms that come by here. Maybe when the storm blows through a lot of the chaff has been removed and those that are strong and fundamental actually will be standing in a better position than ever before. And so I do know some have written quite, you know, a quite dark interpretation of what could take place. But I think there is, the reality is, it's neither half full or half empty. It is where it is, and there's lots of opportunity to come out the other side much stronger, Justin. Justin Hawk | Analyst, Baird: I appreciate all that. Thank you for the comments. I know it's still all up in the air, but that's good perspective. Thank you. Dan Batrack | Chairman and Chief Executive Officer: Thank you, Justin. Conference Operator | Operator: Our next question is from Michael Dudas with Vertical Research Partners. Please proceed with your question. Michael Dudas | Analyst, Vertical Research Partners: Good morning, gentlemen. Conference Operator | Operator: Sorry, Michael. Michael Dudas | Analyst, Vertical Research Partners: Dan, can you remind us the targets that you put forth last May's Investor Day, what they are just generally And given all the noise, it's been extremely loud, any impact on those thoughts, whether it's a high-end, low-end, or just once we get storm passes that things can reset and you have opportunities to achieve or even exceed that over the next several years? Dan Batrack | Chairman and Chief Executive Officer: Yeah, I think that's a really good question. I'm really glad you asked that. because there's a lot of noise. It is amazing the amount of noise began to build after the election, and of course, it's reached its current percentile here in the last 10 days. But to remind the participants on this call, investors, analysts, and others, and all stakeholders, we've indicated that we expect between now and 2030, Tetra Tech would organically grow between a 6% and 10% rate. And we've said that we anticipate, as an average over that period, we'd expand our operating margin by 50 basis points. So those are the two metrics. And you can extrapolate those, and you'll get the numbers that we presented in our 2030 plan. I'd say we said a couple things that are unusual. I think that when people make, firms make those types of long-term targets, This is, again, Tetra Tech being very unlike others. They say we're going to get there, but it's all back-end loaded. And we said it's not back-end loaded. We're going to actually achieve those on a relatively linear basis. And I don't see that changing. I think that even the midpoint of our revised guidance here, even taking into account these potential challenges in the near term, it's still within that range. It's at the 6%. Now, nothing is a perfect linear with no deviation. on the line, but I don't see any thing that changes our investment thesis on those growth rates at all. In fact, the change in the mix of the work that we have, it's actually moving our margin expansion up even faster. Now, is that actually going to happen? I think the aid work's going to get turned back on, and you're going to find we'll still meet those margin expansion. goals, but I don't see anything that has changed the fundamental long-term drivers or tailwinds of coastal protection because of extreme weather events. It doesn't matter if you call it global warming or climate change or severe storm, but when you're up to your waist in water, it doesn't matter what you call it. Same is true with other disasters. Water scarcity, there is no single valve. We're looking for it, but there's no single valve to turn to redirect water from Northern California to Southern California. And even if there is, and it can be re-engineered, the fundamental drivers of water scarcity need more than a single source. If there is a drought in Northern California and the Sacramento River Delta becomes low flow, you still need something else. So work that we're doing on desalination, on water reuse, on stormwater capture, and other alternative water sources. These are drivers that are a lot longer than four years or longer than 2030. And alternative energy supply, I'll tell you, all of these are fundamental drivers that we see fully intact, which, to turn it to investors, our investment thesis is fully intact and unimpacted by this last 10 days. So no, we don't see any changes. And there's the numbers that we that we presented in our May of 2024 Investor's Day. Michael Dudas | Analyst, Vertical Research Partners: That's very helpful. My follow-up is, so given what you just put forth, given the extreme volatility in Tetra Tech share price, do you think capital allocation could lean more towards investing in Tetra Tech shares, given where your balance sheet leverage is and the opportunities you may see in front of you? Is that something investors may be able to anticipate? Dan Batrack | Chairman and Chief Executive Officer: Well, yeah, that's a great question, because the one thing that we've indicated is we're committed, number one, to our dividend. Steve talked about 12% increase this quarter, and we revisit that every year, which is coming up in this next quarterly report, you'll see. But we've also said that we would be constructive, depending on price point, with respect to being engaged in our own stock buyback. And what we indicated when we got to the low end of our leverage range, which is down about one, We hit a whole .99 and we moved in and we initiated a buyback this last quarter, as Steve presented. And you could imagine that as the stock price has seen some volatility here, you may see us become more constructive in that area. This isn't a new message from us. It's been a message we've indicated all the time. And the only thing that would mitigate that is acquisitions that are highly accretive to the company and making us, as Steve said, better. So I'd put the acquisitions ahead so we have something large and that would materially use our, you know, to adjust our leverage point. You'd watch it on either M&A, which would drive top line and drive margin, or you'll watch us take it and re-divert it toward our stock, as you just indicated. And, again, that's not a new position for us. That has been our position perennially. So thanks for that. for asking that just as a reminder of what our position is. Michael Dudas | Analyst, Vertical Research Partners: Well said, Dan. Thank you very much. Tate Sullivan | Analyst, Maxim Group: Thank you very much, Michael. Conference Operator | Operator: This will conclude the Q&A session. I will now turn the conference back over to Dan Batrack to conclude. Dan Batrack | Chairman and Chief Executive Officer: Thank you very much, Paul. And I want to thank all of you, all of our shareholders, all of the analysts that follow us, and all of the stakeholders. Equally importantly, and maybe especially at this time, more importantly, employees who Tetra Tech that are doing a phenomenal job with their clients. We do have a significant number of individuals that are engaged in foreign development for the benefit of the United States of America. And I particularly like to commend them for being focused on the mission supporting our clients. and doing just a great job. And I'll be really looking forward to speaking with all of you in 90 days as some of these items that we've tried to address with these changing environment here, again, over the last 10 days. And I think that some will find that the volatility introduced was maybe not well-founded, but we'll see when we report out in 90 days from now. So thank you all, and I look forward to talking to you then. Goodbye. jsPDF 3.0.3 D:20260606090519-00'00'