Q4 2020 Tetra Tech Inc Earnings Call
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Good morning, and thank you for joining the Tetra Tech earnings call by now you should have received a copy of the press release. If you have not please contact the company's corporate office at six to 63514664.
As a reminder, Tetra Tech is also simulcasting this presentation with slides in the Investor section of its website at.
W. W. W thought petrotec dot com this.
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 Backtrack, Chairman and Chief exact.
I could have officer, and Steve Burdick, Chief Financial Officer.
They will provide a brief overview of the results and we'll open up the call for questions.
I'd like to direct your attention to the Safe Harbor statement in today's presentation.
Today's discussion contains forward looking statements about future growth 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 Petrotec takes no obligation to update its forward looking statements. In addition, since management will be presenting some non-GAAP financial.
All 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 like to turn the call over to Dan Backtrack. Please go ahead mr.
Mr. Batrack.
Great. Thank you very much Laura and good morning.
Welcome to our fourth quarter and fiscal year 2020 earnings conference call.
Before I begin my presentation today I'd like to begin with an update on the potential implications to our business from the election here in the United States. It took place just 90 days.
Okay.
Well first it's very early in the transition process it hasn't even started yet but.
But we do know some things and let me share with you what we've observed to date.
Hi, Joe Biden has identified climate change as a top priority of his administration.
This.
Priority is directly in line with our expertise in more than 50 year history in addressing the complicated aspects of water environment and energy associated with climate change for the federal government.
We weren't for agencies, such as the United States Environmental Protection Agency give US agency for International development. The Army Corps of engineers in FY.
FEMA, who we believe will be among the frontline entities, leading the government's climate change initiatives.
The binding administrations also emphasize investing in infrastructure is a key to revitalizing the United States economy.
Even in the likely divided Congress government sponsored infrastructure stimulus funding has.
Potential for bipartisan support.
Clearly we would also benefit from increased infrastructure spending however, the timing of the new infrastructure stimulus package is uncertain at this time.
As we see the new administration's programs develop we will give you additional updates on our quarterly calls.
I will now begin with an overview of our performance and customers followed by Steve Burdick, Our Chief Financial Officer, who will provide a more detailed review of our financials and capital allocation.
I will then address our customer outlook in our earnings guidance for fiscal year 2021.
Okay.
We had a strong fourth quarter.
Led by a record EPS and backlog performance.
Our revenue of $753 million was up 6% from the prior quarter.
Our net revenue also increased on a sequential quarterly basis by 5% to $590 million, which was at the high end of our forecast.
Okay.
Our Q4 EBITDA of $74 million generated in adjusted earnings per share of 91 cents, which was ahead of our expectations on strong performance across all of our operating divisions and it was also up 17% from the prior quarter. This represents the highest quarterly earnings per share in the company's history.
And our backlog, which is our best forward indicator was up 5% year over year, and 6% sequentially growing to over $3.2 billion also the highest in the history of the company.
I'd now like to provide an overview of our performance by our end customer.
In the fourth.
Fourth quarter revenue for all of our customers increased sequentially.
We saw continued strength in our state and local revenues, which were up organically year over year, 14% and up sequentially 9%.
Excluding the extraordinary contributions of our disaster response work. This is the fifth consecutive year.
Our double digit growth in our state and local business.
Work for US federal clients was 30% of our net revenue in the quarter and was up 4% sequentially.
Our us further work grew to five grew 5% year over year for civilian agencies and 10% for the US Department of defense.
However, this growth was offset by delays and work for us aid due to travel restrictions associated with the COVID-19 virus.
Our us commercial net revenue was 24% of our business and up 3% from the prior quarter.
Our environmental permitting.
Our regulatory driven programs.
In renewable energy services continued to be stable.
We did see some reductions in consulting for non regulatory services, especially for new buildings in the commercial property sector.
And finally, our international net revenue was up 7% from the prior quarter.
We saw continued growth in our local government services and.
In commercial energy work in Canada.
However, discretionary work for commercial clients was impacted by project delays and cancellations in our Asia Pacific region.
I'd now like to present, our performance by segment.
This quarter I would like to provide more insight.
Into our margin performance by segment, a key metric that weve been very focused on for the past several years.
In the fourth quarter, both of our segments showed significant margin expansion on both a year over year basis, and a quarter over quarter basis.
The government services group or the GSP segment was up 50 basis points year.
Year over year, delivering 14.6% margin in Q4 of fiscal year 2000.
Strong margin performance was driven by our high end data analytics and design services for a broad based of our clients in the water and environmental and for both our local and federal clients.
Commercial International group or CMG segment margins were up 150 basis points year over year as per our plan and it's now closer to the Gsvs margin.
CNG delivered a 11.9% margin up 180 basis points from the prior quarter demonstrating a country.
Menu expansion of the margin in spite of the impacts of Coca 19.
Jeez fourth quarter results were the result of the change to a more favorable business mix and that discipline project delivery that our management team over soft during the quarter.
For the full.
Full fiscal year of 2020, we achieved all time record highs for EPS cash from operations and backlog.
Tetra Tech's full year revenue was $3 billion.
Notably we generated a record earnings per share up $3.16 on a GAAP basis and a record.
Third adjusted earnings per share of 326 for the year.
We also generated record cash from operations of 300, and sorry of $262 million for the year and I'm quite complete with the performance of our team in this area, especially during the unusual circumstances and disruption caused.
Global pandemic.
Finally, rounding out the year, our key leading indicator backlog was also a record high of just over $3.2 billion.
Backlog was up 5% on a year on year basis, and up 6% sequentially and strong broad based.
By orders, resulting in a new all time high of just over $3.2 billion.
Last quarter of the fiscal year is typically our strongest quarter for orders from the federal government and this quarter delivered fully up to our expectations.
In the fourth quarter, we won new programs and task orders for differentiated water environmental.
Ill and renewable energy services across a broad base of our clients both in the United States in India and internationally.
We expanded our contract capacity by $277 million silver a quarter of a $1 billion with the United States Environmental Protection Agency in the US Army Corps of engineers for environmental rest.
Restoration and hazardous waste management services.
And just in the fourth quarter, we won $69 million in contracts for renewable energy and power consulting services, continuing our differentiated leadership in this market.
Now I would like to turn the presentation over to Steve Burdick to present, the details of our financials.
Sales for the quarter and year, Steve. Thank you Dan so.
I would like to now review the GAAP financial results for the fourth quarter fiscal 2020, as well as our financial position as of the end of fiscal 2020 overall.
Overall, our revenue net revenue came in about as expected fiscal 2024th quarter revenue was 700.
$3 million and net revenue amounted to $590 million, which was in line with the higher end of our guidance range of $560 million to $600 million.
Our fourth quarter revenue and net revenue growth rate was impacted by the completion of large disaster response projects in 2019.
Fit as well as our decision last year to dispose of our Canadian turnkey pipeline business.
Excluding these two impacts our revenues would have been in line with the prior year.
Our operating margin and earnings per share increased compared to the prior year.
This improvement in margins has resulted from both our project performance and our business mix.
As we continue to shape our portfolio.
Our adjusted earnings per share of 91 cents came in better than the top end of our guidance for Q4, which was a range of 78 cents to 83 cents.
This improvement in our EPS was driven by continued improvement in our operating margin, which showed an increase of 100.
50 basis points over last year on a GAAP basis.
In the.
In the current year, both our GAAP EPS of 82 cents and adjusted EPS of 91 cents were improvements over the fourth quarter of last year.
The reconciliation details between our GAAP and adjusted Reserve.
Are included in the appendix of this presentation.
Excluded from our adjusted earnings this quarter were two matters first we realized additional cash positive gains on the fourth quarter non core equipment sales of our Canadian pipeline business.
These equipment sales now are complete and the total game for fiscal 2020.
Was just shy of $90 million so.
Secondly, we recorded noncash adjustments relative to purchase accounting in the fourth quarter.
One for two of our earn out liabilities and to the goodwill charge for our Asia Pacific Division.
Petrotec continues to be physically.
Disciplined and focused on generating positive cash flows in excessive or net income.
And proactively we're strengthening the balance sheet to ensure a healthy level of liquidity.
As such our cash flows generated from operations for the year totaled $262 million, including $68 million in the fourth quarter.
So the cash flow from operations amounts to about $4.80 of cash per share for the year.
And on an annual basis, the cash flow generated as about 26% higher.
Over our fiscal 2019.
Our focus on working capital and cash flows has also resulted in their days.
Sales outstanding or DSO decreased to 68 days as of the fourth quarter. This.
This is an improvement of 10 days from last year and the sequential improvement of two days from last quarter.
Our net debt amounted to $134 million, which is a 14% decrease from last year.
While still our net debt to EBITDA came in at about <unk> 0.5 tons.
Our our long term capital allocation strategy calls for a balance of investing in growth for business, managing the balance sheet and providing shareholder returns.
Over the last fiscal year.
We have generated $262 million in cash from operations.
And during the fourth quarter, we continued to benefit from this cash cash position by providing significant returns for our shareholders through both dividends and share buybacks.
Regarding our dividend program during the past quarter, we paid out $9.2 million in dividends and.
For the year, we paid up $35 million.
I want to announce that our board of directors approved our 26th consecutive dividend, which will be paid in the month of December at a rate of 17 cents per share, which is a 13% increase over last year.
Furthermore, we utilize $15 million.
The fourth quarter and $117 million for the year on our stock buyback program.
On a combined basis, we have $208 million remaining under both of our previously approved stock buyback programs.
And just as important to successfully implementing our capital allocation strategy to provide returns to our shareholders.
Is to ensure that we have a strong balance sheet and ample liquidity.
We have both in terms of our balance sheet at the end of Q4 and available liquidity of over $800 million in the form of cash on hand, and funds available under our credit agreements.
As a result.
Protect is in a financial position such that we will continue to provide.
By significant returns for our shareholders, while investing in strategic growth areas, both organically and through key strategic acquisitions, such as Segway technologies, which we closed in February and Bluewater Federal which we closed in September.
I am very pleased.
Are these results with you for the fourth quarter I want to thank you all for your support and I will now hand, the call back over to Dan.
Great.
Thank you Steve.
As we enter fiscal years 2021, we continue to be very focused on delivering.
Differentiated high end services to.
To our clients.
At Tetra Tech, we lead with science by combining our experience.
World Class scientists and engineers and technical innovation and delivering over 65000 projects a year for our clients.
We call our differentiated technologies, the Tetra Tech Delta the.
The Tetra Tech Delta and.
To assist the full spectrum of the solutions that we have developed for our local federal and commercial clients worldwide.
If you follow all the webcast illustrated on this slide are just a few of the technical solutions that we're bringing to our clients today.
Some of the examples our award winning see soft real time control system that optimize.
Nice us water management.
Our rail artificial intelligence, our rail AI solution that reduces data collection time by over 80%.
Our first real reality solutions at an label enabled three d. analysis of rugged and inaccessible train to be fully display digitally.
And our vision solution.
That trains AI box to rapidly recognized infrastructure features out in the field and through electronic media.
By building on the foundation of Tetra Tech's fundamental expertise in water environment energy and infrastructure. The Tetra Tech Delta makes technical innovation meaningful practical and implement.
Implementable for our clients and snacks just stay on the shelf cons.
Concept is actually deployed in the real field.
I will now highlight our differentiated services across our four client sectors and what we're focused on for fiscal year 2021.
Our us federal work for us is distributed across civilian.
Exceeds the department of Defense and International development.
For these agencies, we are they are high and consultants applying data analytics to help advance their most critical programs.
We currently have about $20 billion in contract capacity with us Federal government.
We use that capacity.
Nature to support over 100 different federal agencies and departments with their highest priority programs.
We support the department of defense, and analyzing and mitigating the impacts of emerging contaminants such as PFS.
We worked with United States Environmental Protection Agency coast to coast on National water quality assessments watershed.
Programs, such as the Chesapeake Bay.
And some of the fundamental Superfund site evaluations all across the country.
And for the United States Agency for International Development, we work on some of their highest profile programs such as the sustainable Fisheries program, which uses digital tracing to establish sustainable practice.
As shippers.
In fiscal year 2021.
We expect our us federal work to be almost a third of our business and grow at about a 5% rate for the year.
Thanks.
Tetra Tech works with more than 500 cities and municipalities across the United States.
We provide our state local clients with our number one ranked services in water.
Water supply and desalination design.
We address regulatory requirements by using advanced data analytics solutions to optimize water management.
And we provide high end water supply solutions by designing first that the kind water reuse.
In brackish water treatment facilities.
We expect our us state and local work to continue to be a growth market for us with our municipal water and planning services and longer term disaster recovery work growing at approximately a 10% rate continuing our industry leading performance in this market.
Our us commercial work is primarily focused on differentiated environmental consulting and renewable energy services.
We leverage our national reputation and number one rankings in environmental science and solid waste in wind power and providing support to our clients that include the fortune 500 commercial clients.
Top energy developers and waste management companies.
Our work overall is distributed evenly across regulatory driven programs, such as environmental restoration of contaminated lands and discretionary programs for healthy buildings and renewable energy development.
Our us commercial work is expected to be.
About a quarter of our overall business and grow at about a 3% rate for the year driven primarily by increases in revenues for renewable energy.
Thanks.
International work is expected to be about 30% of our business about evenly split between work we do for government clients.
In commercial clients outside the United States.
Our international work includes high end services in water systems, such as our intelligent real time control program in Toronto, Canada.
Our international programs also include high end consulting for geotechnical investigations, such as set seismic sensor systems.
Arctic key transportation corridors in coastal zone management.
Infrastructure stimulus programs expected to be deployed or implemented in Tetra Tech geography centers, such as the United Kingdom in Canada could provide additional catalyst for growth in latter portion of the year.
In fiscal year 2021, we expect Tetra Tech's international revenue to grow at a rate of about 2%.
Our international growth will be driven by water and environmental planning consulting engineering work, primarily in Canada. However.
The early part of the year is expected to be impacted negatively by.
Renewed lockdowns and slow economic recovery in the United Kingdom and in Australia.
I'd now like to present, our guidance for the first quarter of fiscal year 2021, and for the entire year of fiscal year 2021, our guidance is as follows.
For the first quarter.
We anticipate a net revenue of approximately $570 million to 600 million with an associated diluted earnings per share of a range of 78 cents to 83 cents.
For the entire year end fiscal year 2021, we anticipate our collective net revenue to be in a range of two.
0.3, $5 billion to $2.55 billion with an associated diluted earnings per share of $3.30 to $3.50.
You're following along on the webcast you can see the basis of some of the assumptions for this guidance for 2021 in the first quarter, we do anticipate based.
To fund acquisitions previously concluded that we will have approximately $8 million of amortization, which represents 12 cents per share thats incorporated into the guidance, we expect to 25% effective tax rate.
We expect approximately 54 and a half million shares outstanding outstanding for the company and.
First I will note as in past practices with our annual guidance. This guidance does exclude the contributions of any future acquisitions that may take place during the year.
So.
In summary, we had an excellent fourth quarter and fiscal year 2020, setting New records for earnings cash generation and EPS.
For our shareholders.
As we enter fiscal year 2021, our high end water environment, and renewable energy services and our approach of leading with science is more in demand than ever before.
Our all time high backlog of over two point at over $3.2 billion.
First provides us with both excellent visibility and momentum as we move into our new fiscal year.
And with that I'd now like to open up the call for questions Laura.
Laura.
The question and answer session will be done.
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Our first question comes from the line of Scott.
Capital markets you May proceed with your question.
Again, nice nice strong finish to the year. Thanks for taking my questions I.
I just like to start with the customary.
Swing factors around the fiscal.
21 guidance, you know just the real needle moving.
Dynamics that could get you to the upper or lower end.
And looking.
Looking longer term.
As we think about this election outcome.
What would.
What drives sort of an accelerated.
Good topline growth trajectory into fiscal 2002 under this administration.
Good question, Sean the swing factors the growth rates that I had shared during my prepared remarks do represent and wood.
Model out to the midpoint of our guidance certainly.
Certainly have the ability to go to the.
At the end and I think some of the items that.
Could drive us to the high end some of them are very short term.
Its transactional items such as increased revenues from the storm events that would include the fires out of West coast that would include the storms that have taken place.
But those would be.
The one time certainly they would have a short term impact.
Positive both in the early quarters and the year, probably on a longer term basis still a more structural contribution would be the new priorities that the new Federal administration. If the Biden administration fully gets this implemented and this would be is.
In my prepared remarks focus on climate change clean environment.
Focus on renewable energy all of these are absolutely fundamental core areas of expertise for the company and I think that we have we would have high confidence that in fact, they would be put in place and even without increases in funding or budget funding.
We would also expect that they could actually prioritize the existing dollars that are spent by the government to areas that would be focused to be a focus of tetra tech.
Got you Okay. That's helpful.
On the advanced analytic side it seems like the fourth quarter was another.
Hello.
Leg, a momentum on that side and I'm. Just curious how you guys are tracking against that 300 million target for fiscal 20 long sort of advanced analytics revenue that you outlined last quarter and is it fair to say that as.
We look over the next year or two.
Growth in.
A lot of advanced analytics business is really the kind of key margin expansion driver.
Over that timeframe.
Yes, with the federal government I think the the continued growth in advanced analytics is going to expand our our margin we're on track for $300 million.
Continues to grow at about a 50.
The 20% organic rate for the federal government and it is slightly higher margin.
We do think that the growth of that business over the year will increase our overall targets for our GSP or a government services group from what had been 12% to 13%. We think it'll added probably 50 basis points for fiscal year two.
2021, so probably the 12 and a half to 13 and a half so it is making an impact even right now.
Hey, guys I'm going to sneak one last last one then I mean, clearly you guys are well positioned within the framework of what the fluid administration, which has outlined here.
But maybe on the flip side of that Dan.
And are there any pockets of maybe risk.
Whether it be within the depots volts or otherwise that.
But you guys are watchful eye on the downside.
Well I think the biggest issue would be enough. The administration's priorities I think with respect to defense.
We have no engagement or participation in weapons panel platforms or logistics or these other items. Our work has on the environmental restoration side, so even a reduced spending in the defense sector typically we've seen with the base realignment and closure back a decade ago actually had increased costs for environmental investigation.
In assessment, probably the biggest issue is a divided Congress that would end up in a lack of progress with respect to coming up with budgets, but even a continuing resolution, which means a freeze of the budget from the prior year.
Is actually fine for us because the executive administration or the President's administration would actually.
We get the priority of where those funds are spent largely within each of the departments, which should be very favorable for us.
Excellent really helpful I'll pass it over thanks, so much.
Thank you John.
Our next question comes from the line of Noel well lets you felt you May proceed with your question.
Okay.
Hey, guys and again congrats on the quarter.
Thanks for that.
Sure. Thanks for the clarity on the PSC margins I was hoping you could also give us a sense of how you're thinking about Cie margins as you look out to fiscal 2001, and what some of the key factors higher.
Capital on top how those are trending.
Well.
Well, we think that is a range for C.G.. We think it's increased over 100 basis points from the previous year. So we pick 11% to 12% range would be well, we'd anticipate for the year. So its closing in on TSG. Some swing factors I think we've taken care of a number of them that.
Needed to be addressed coming into the year, which is business mix, including close.
Come down our turn key Canadian pipeline work Thats been helpful and probably the next most material area that we need for improvement is actually in our United Kingdom or the UK acquisition of WG, We think that that just just moving it into.
Double digit performance, which we think can happen this year.
That in and.
So self would account for probably half of that increase that we need to obtain this and I would say the the swing factors with respect to what might be a headwind obviously the on the commercial.
Side and some of the international accounts with respect to the pandemic could represent a bit of unknown factors at this moment so.
Both the.
Slowdown or lockdown associated with the economic impacts that are associated with that or items that were watching closely but we've we've had those this last this last six months eight months and I think we have a pretty effectively.
Developed structures in business approaches to address this.
So blocked out so far.
Okay, great and.
On the on the topic of the UK could you give us an update on how you're thinking about the M&A opportunity. There I know you had it about looking at UK water acquisition to complement probably likely.
Just curious kind of what the.
Progress has been there and high.
About the opportunity.
Well, we have had meetings with a number of firms. So there are opportunities out there. So I would say is the on the classic pipeline is as full or at least it's sufficiently full that we have.
Alternatives, we are looking for just the right from and I think some of the characteristics would be.
Strong technical revenue.
Action existing contracts with the utilities as they exist and preferably they would add a new sense of capability and expertise in the water sector that might not be as strong some of it might be on the economics portion.
That we're not necessarily strong economist, but thats certainly is part of some of.
Katy Ams cycle seven priorities for doing that analysis.
So Dennis.
That is something that we would look to make progress on fiscal year 2021.
Great. Thank you.
Thank you all.
Our next question comes from the line of Dan Obrien.
Ben.
With your question.
Hi, guys. Thanks for taking the questions on the phone I had could you just talk about how the integration of recent acquisitions.
Guidance and.
But those acquisitions and the enhanced proposition you half has led to any contract wins that you might not otherwise have one if we did.
Okay.
Well the soup business we've had.
Here are just a little over 30 days ago is probably about a month and a half go we announced the acquisition of Blue water federal.
So only a little over 30 days and we've already seen a number of new contract wins, but maybe more importantly, its with new contract with new.
Departments and agencies within the federal government that we hadn't worked before so thats extremely valuable for us It gives us new opportunity not only for the acquisition in this case blue water to bringing in their expertise that we can offer to our clients, which we've already initiated but it also opens up.
Offerings of the rest of Tetra Tech's.
New services to these clients that we haven't had access to in the past so thats gone quite well if I go back just over a year ago at WH year White young green in the UK I am proud to announce that we have them fully integrated into our ERP systems. So it took us about a year, but weve.
Migrated those couple of thousand people over to our ERP systems, we've had a significant number of wins across multiple clients thats in the UK that we would not have had before including working for some of the water utilities that they have not worked before by getting sole source work in the UK and we've had additional wins with.
Weve industry of defense and.
And a number of other areas there so thats worked out quite well and by putting them on our platforms. This allowed us to.
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Free up a number of their back office staff to do more meaningful contributions to the operation folks, which has increased margins and while we're not we're not.
Hum anywhere close to where we want to be in the UK, yet were probably halfway there even even in light of the pandemic taking place so moving onto these more efficient systems, we have in integrating and cross selling for revenue synergies has worked very well there.
Okay, Great and then the next one you mentioned that you can say.
Turning to the trend towards larger volume Thats for last contract wins in key for what's behind that trend and do you think it will continue into 2021.
Well I think it will so let me characterize what we're seeing in fact in the in the fourth quarter.
It was our second highest.
Number of orders that we received in the in the company.
So it wasn't a single order it wasn't just the department of Defense task order or project or program that drove it there wasn't a single project or country mobilization for eight or anything else. It was really a very very large number of projects and task orders and many of those.
As the programs that we're starting up so instead of a single big blocks coming in with large orders and I think you can actually see it in our backlog presentation slide if you look down the orders that we booked is there typically were bundled into a number of categories. So I think that the couple of things that.
It reflects it reflects our clients, making smaller bets as they go forward. So instead of providing 10 million for six months. They are providing us the million every three weeks to get to the same levels. It does give them more flexibility it allows them to be a bit more nimble and.
And it allows them also did perhaps spread out those single dollars to other projects.
We look forward also so we see it as a favorable trend and.
And I expect that it's going to continue for a little while until some of the uncertainty associated with this pandemic and other economic items.
Get a little bit clear for them.
Great. Thanks, very much guys I'll leave it at that.
Great. Thank you Sam.
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Our next question comes from the line of Marc Riddick with Gabelli and company. Please proceed with your question.
Hi, good morning.
Good morning, Mark.
I wondered if you could spend a little time talking about potential.
Opportunities around.
And this is more I guess.
More global focus I suppose.
But as far as the opportunity as far as your rejoining the Paris climate accord and as well as what the federal election I was wondering if you know with as much focus that we've had on the federal X. I was wondering if there was some some state and local mandates or funding that.
But.
We're sort of top of mind or or areas that we need to submit that presents opportunities for the company as well. Thank you.
But it's a good it's a good question and I do believe that.
The rest joining the rejoining the Paris climate accord.
Well that is one.
Act.
I understand will be put in place and there has been a commitment or an indication from the by the administration that will be the case, but what we actually see and Weve seen.
Publications as some of the policies of doctrines that will be with the us federal government with the executive branch is actually a whole.
Government approach, which actually indicates that what they're going to do is identify individual champions in individual focuses that will address climate change as it impacts each and every department in each and individual agency.
And so this I think is going to broaden out the the access.
And the priority for the types of services, we have and a lot of that is both here in the us and of course the impact that it has globally through us State Department through international development through a bilateral accords through.
Through all of these so I do believe this focus on a whole of governments will ripple globally through all of the investments.
Priorities that that exist and I, just can't think of a individual end market our focus that we'd be more closely aligned with Tetra Tech does and the expertise we have at the very front, leading edge of this type of research and practical implementation of the Tetra Tech Delta or the technologies, we have developed over the last 50 years.
And so I think that alignment.
Portends very very well for the company.
That's great and then I guess, maybe a quick follow up on a different note just wondering with the opportunities that you do see for for the year as far as the budgeting for.
For that was embedded with the guidance I was wondering if.
You could spend a little time talking about talent acquisition, barts and sort of maybe what we might see throughout the year and that there's a timing component to that to take advantage of the opportunities that you see before you think.
Well I do think the one the one item that Tetra Tech does have great.
Sorry bench strength a great.
Non Cray have a world class experts in a number of areas and some would say that our staff is quite fungible with respect to being able to move from supporting commercial clients at front end kept cutting edge treatment technologies to federal government so as the.
These.
As these opportunities increase I think we'll be able to mobilize our staff quite quickly to address them and to be not only respond to precisely what theyre asking but also to be able to introduce additional scenarios or alternatives that perhaps haven't been fully vetted yet. So I think we can be both on the front implementable, which I believe in my.
Comments are its not only being developed but it's actually being mobilized. So I think that with respect to talent acquisition. We certainly are bringing some of the best and brightest through acquisitions. We do have a number of strategic hires that join us from academic institutions and other leading entities globally, but we do have the ability to take.
Take the best and brightest across our entire enterprise.
And apply it to the clients.
Problems, where they need solutions on almost a real time, so there should be no lag as these opportunities present themselves during 2021.
Very encouraging thank you very much for the color.
Great. Thank you Mark.
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Our next question comes from the line of Ryan Connors.
That is correct.
Next question.
Great. Thanks for taking my questions and congratulations on a tremendous run for the for the stock.
Thank you very much Ryan.
So my question is more big picture.
In nature I, just said this topic you've talked a lot about.
This potential for federal infrastructure, and environmental spending under by the administration, but if the stock does appear to be priced some of that in but how worried are you that he will be inheriting a massive federal budget deficit, especially given that the politics Steve.
Seem to be such that maybe additional stimulus spending for covert economic really it seems like the first priority so definitely getting a bigger before they even get around to any of that so.
How much how realistic is it to expect a big ramp there.
When you look back at the history generally.
Coming off a recession.
I'm trying to get the deficit under control at Tetra Tech actually tends to underperform, because the covenants try to reduce the deficit. So what what are you what's your view there.
Yes seem to have seen that note first of all.
There's some things I agree with with respect to what what the.
The natural progression of.
Stimulus is so when the initial stimulus comes out.
There is more work more projects.
More.
Demand for the services that we provide and we think that because these will be more aligned with renewable energy environment.
Element to climate change that they actually different than just traditional HD services. So we think that we would fare better but I do think if you just look at it from a macro view and sort of set aside the services. They do spend a lot at the beginning Theres big spending and then of course, what happened under the prolonged administration during.
The last major global financial crisis is that it does then go through eventually at least historically through as sequestration, which was their words for spending less to get the budgets in place.
What we have seen.
Is that as the federal budget begins to decrease it spending to recover.
From these very large deficits and by the way I want to emphasize the very large spending for the deficits for infrastructure and others, which also happened under.
Obama have not yet happened so that is still in front of us, which is a big Big Hill to climb with respect to work that needs to be done so that should be a norm as tailwind.
But if you do want to take it to its logical next step is at some point you need to now pay for the amount that you've spent.
What happens is and this is what Weve observed that then typically is followed by a recovery in the general economy with commercial clients that even state and local spin.
Spending.
Tax receipts, a property values and other items.
That are the output of the stimulus. So yes, we have seen during sequestration, where there was a 10% year over year reduction in spending at the federal government, we did see that come down a bit but we saw offsetting increases in commercial and state local so and with respect to Tetra Tech's performance during.
Previous.
Recessions or stimulus spending we have gone back and looked at that and they were actually other factors with respect to sub markets that we had that actually account for that and it was not associated with the actual work or the positions we had with the federal government. So I do think that it well.
On the surface it could be attributed.
With a lack of knowledge of what the actual impacts were if you look a little deeper you could see that it was actually other drivers that had had impacts in those particular years.
Okay.
Now what about the fact that if we if we peel back the on the on the politics, obviously the presidential politics is highest pro.
File, but it sounds like based on what you are saying if it's the big driver is the federal spend the environmental spending green new deal infrastructure et cetera.
It sounds like the the Senate is really the key issue so.
How how different is your outlook a couple of months from now.
If the Republicans hold the Senate and this is very difficult to get some of this through versus if its even or if Democrats take control of the Senate and then spend a lot of this could really just just really deficit could expand for a few years I mean, how critical is that side in your view.
Well the one thing I mean look we feel very.
Free optimistic about for the type of work that we provide in the areas that we're focused on is that let's pick a let's pick a complete stalemate nobody will do anything.
How it goes one way sent it goes the other way and that they just will agree on nothing so what they end up with him unless going to shut the government down is you end up with a continuing resolution which is.
Very briefly to disagree and we're just going to not found anything in there will be no increase so under that scenario.
The the executive branch to the precedent that sets the priority within his point these as to where the dollars are spent that have been provided through the continuing resolution and that should be very favorable to us.
As we and that's why we believe that even without any increase or increased definite spin in deficit spending whatsoever, we could still be a very large beneficiary of the priorities with respect to the government to actually implement their priorities for climate change the new green deals. The items you just outlined so we don't need increase.
Stimulus spending we don't increase federal deficits in.
In order to fare very well through this this next period.
Got it Okay and then one last one from me just you kind of dance around this little bit, but if you could just kind of look at your buckets of business specifically the types of projects you see.
Coming down the Pike.
Not everything carry the same type of margin so in terms of the mix of business.
What are the what are the margin profiles of the things that you see.
The areas that you see growing relative to the areas of potential contraction.
Growing well the areas that we think.
We will grow we think in the federal government. Our advanced data analytics is going to help expand our margin. It's an area that's growing 50.
15% to 20% organically in 2020, we saw 20% organic growth, we think that numbers.
Same neighborhood coming into 2021.
We did add bluewater federal here on essentially in the fall.
First day of this fiscal year that gives us additional.
Contributions and area of a bit higher margin. So this is an area that we think is growing it's growing well for us and has higher margins our renewable energy in the commercial sector to move over to CNG work that we're doing in offshore wind Tetra Tech has more has done more permitting work.
Monitoring evaluation and and and during construction monitoring and environmental impairment in the marine environment net sedimentation impact to our marine mammals, I shellfish fisheries Flyways, we've done more work on offshore leases that all others combined.
And so we're not just the majority that we don't.
Have the most of any given share we were actually quite dominant there and it has a priority we will see additional focus on that as part of the new green deal and others, but it also makes economic sense to our larger terminals turbans you have less impact with respect to.
Local land use since as far offshore and we think this is another.
As a growth area for us and we are in an excellent position for that and that also carries higher margin for us. So those are a couple of years that we see growing both on the government and commercial side that are coming down the pike that will actually carry margins and help that margin expansion both on the government and commercial international sectors for us.
Got it well that's great.
Thanks, Thanks, so much for your time.
Great. Thank you very much room.
This will conclude thank you. Another question I would now turn the conference back over to Mr., Dan Backtrack to conclude.
Thank you very much Laura and thank all of you for your insights questions and interest in Tetra Tech.
We're really glad to finish.
This fiscal year 2020.
And with such a strong fourth quarter and in the 50 years and I haven't been here at Tetra Tech for all 50, plus years of its history, but I've been here for an awful lot of those and no doubt fiscal year 2020 was the most complicated the most varied with dependent.
Demick with oil prices going to negative with the largest single unemployment drops followed by a quick recoveries in many ways. It was the one of the most complicated or the most complicated year, but I just want to commend the staff at Tetra Tech the.
The leadership team that I work with everyday our board of directors, because I believe that we could.
Not have navigated this better I was glad to see that revenues held up unbelievably well, we saw growth through the second half all time high earnings per share all time high backlog, all time cash generation and thanks to our phenomenal.
Finance team I was glad were able to finish the year.
With completing stock buybacks with.
With completing dividend executions, completing multiple acquisitions in decreasing the leverage of the company and I think there are a few or no firms that can say that irrespective of the very bright and markets that we have looking forward to us in 2021, but with that said I look forward to talking with all.
All of you on the next quarterly call and be safe and healthy until then thank you.
Ladies and gentlemen that does conclude.
Our conference for today. Thank you all for stable and have a nice. Thanks, all parties may disconnect now.
Okay.
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