Q1 2021 Tetra Tech Inc Earnings Call
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Yes.
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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 626351 for six six for Azure.
As a reminder, tetra Tech is also simultaneously with the presentation with slides in the investors section of its website at Www Dot Tetra Tech Dot com.
This call is being recorded at the request of Tetra Tech and this broadcast is 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 <unk>, Chairman, and Chief Executive 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.
Day'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 Tetra Tech takes 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'd 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.
For the presentation with that I would like to turn the call over to Dan <unk>. Please go ahead Mr. <unk>.
Thank you very much Laura.
And good morning, and welcome to our fiscal year 2021 first quarter earnings Conference call.
We had a strong first quarter delivering results ahead of our guidance for both revenue and earnings.
Our performance was attributable to our focus on high end consulting services, which resulted in increased margins for both of our operating segments.
For a leading with science approach is fundamental to our success.
Increasingly leveraging our suite of proprietary technologies and tools, the we call the Tetra Tech Delta.
With new to visit with a new administration, leaving the United States and their appointees being put in place throughout the federal agencies, we're anticipating an increased focus on water environment.
And the related climate change priorities.
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.
Of our customer outlook and earnings guidance for fiscal year, 2021, and for our second quarter.
We had a strong first quarter led by our record earnings per share performance.
In the first quarter of our operations generated in earnings per share of <unk>, 96, which was up 13% from last year.
Our net revenue was $605 million of sequentially for the second quarter in a row as were recovering from the impacts of the pandemic.
Our backlog ended the quarter at $3 billion of $190 million up 1%.
From the prior year.
I would now like to provide an overview of our performance by customer.
Our U S federal Interstate local revenues were both up year on year.
State and local revenues were up organically, a 11% year on year with continued growth the municipal water per programs led by our digital water services.
Work for our U S. Federal clients was 31% of our collective net revenues in the quarter and was up 8% year on year.
This growth was led by double digit increases in our work for the use of civilian agencies and the U S Department of defense. However, as we've seen in the past several quarters, we continue to see some delays in our USA projects due to travel restrictions associated with the COVID-19 pandemic.
While our international net revenue was down 8% from last year revenue did grow sequentially by 4% and this and this.
The business area from our fourth quarter.
We did see continued strength in our Canadian government and renewable energy services work.
However, this growth was offset by reductions in.
The discretionary work for commercial clients, especially in the Asia Pacific operations and also in the United Kingdom, Our UK practice.
Impacted negatively by project delays associated with renewed COVID-19 restrictions that were put in place in the region.
Our U S. Commercial net revenue was 22% of our business from the quarter down 7% from the prior year.
All our regulatory driven programs in renewable energy revenues continue to grow we saw a reduction in discretionary work for some of our industrial services and our commercial real estate clients.
I'd now like to present, our performance by our segments of our business groups.
For the first quarter both of our segments contributed to an expansion of our operating margin for the entire corporation.
The government services group for the GSP segment was up 100 basis points year on year, delivering a 13, 8% margin in the first quarter of fiscal year 2021.
Their merchant increase was driven by high end high value data analytics and design services as well as strong utilization across the entire GST operation.
The commercial international group or our <unk> segment margin was up 60 basis points year on year and as per our plan and as we've signaled in the past it is increasing and moving much closer to Gst's margin.
Each segment delivered an 11, 4% margin in the quarter.
<unk> first quarter performance was the result of growth in high end services that resulted in a much more favorable business mix for us in that sector of the company.
Our backlog our backlog was up 1% year on year ending the quarter at just under $3 2 billion, which I will note is the second highest ending the quarter number that we've ever had in the history of the company.
Now the first quarter of the fiscal year is typically lighter for us in orders.
In the United States. The first quarter also happened to coincide this year with our U S selections et.
The federal budget negotiations and the lead up to the presidential leadership transition that took place in January.
This was all together combined with a typical holiday season that starts from November through new years, which does make orders a bit later.
But in spite of these seasonal impacts we saw strong orders from our key federal agencies, including the Department of Defense Department of energy in the U S Environmental Protection Agency.
Now at the same time, we also continue to add new contract capacity with the agencies that are going to be at the forefront of the new administration's priorities such as our recently awarded contract with FEMA and.
In contracts that will support of the USA is renewable energy programs around the world.
Now I'd like to turn the presentation over to Steve Burdick, Our Chief financial Officer to present, the details of our financials for this past quarter Steve.
Thank you Dan.
Like to now.
The review the GAAP financial results for the first quarter of fiscal 2021, as well as our financial condition as of the end of the first quarter.
So overall, our revenue and net revenue came in better than expected when compared to our first quarter guidance.
2021 first quarter revenue.
The $605 million.
And with an excess of the top end of our guidance range, which was $570 million to $600 million.
Our net revenue was up about 3% of over the last quarter and Furthermore, our first quarter net revenue is up when compared to each of our most recent Q2 Q3 in Q4 results.
When compared to the first quarter of last year, our revenue and net revenue was impacted by the economic conditions, resulting from the COVID-19 global pandemic as well as our decision last year to dispose of our Canadian turnkey pipeline business.
Similarly, our operating margin and earnings per share improved.
Our earnings per share of <unk> 96 came in better than the top end of our Q1 guidance range, which was <unk> 78 to 83.
And better than the first quarter of last year.
This higher EPS was due to the two reasons.
The first.
Earnings per share improved to the improvement in operating income, which came in at $66 million this quarter.
Our improved operating income was driven by an increase in our margins over the last year by 70 basis points.
This operating income was the result of improvements in both our <unk> segment, which realized the higher margin of 11, 4% and GST, which revised from even better margin of 13, 8%.
Second our tax rate benefited from a discrete tax matter of primarily due to stock compensation.
I do want to point out that if we applied a normalized 25% tax free to both our first quarters.
For both years in our first quarter, our EPS would've come in at about 87 this quarter.
Which is still much stronger than the prior year of 81.
At that same constant tax rate.
While net revenue operating income and earnings per share of improved. We've also remained focused on generating positive cash flow in excess of our net income.
Net cash flows generated from our operations for the first quarter totaled $33 million.
For those investors and others, who followed us for a while you will note that we typically have negative cash flow in the first quarter. However, as we continue to improve our working capital management, we realized the $51 million improvement over last year.
This working capital improvement also benefited from a decrease in our day sales outstanding or DSO.
Our focus on working capital and cash flow, resulting in the DSO decreasing to 67 days as of the first quarter.
This is an improvement of six days from last year and the sequential improvement from last quarter.
Now our net debt of $139 million amounts to about 38% decrease from last year.
This is an improvement of $85 million compared to last year, even as we use cash for strategic acquisitions.
The stock buybacks for the last 12 months amounted to about $111 million.
And dividends over the last 12 months of $36 million.
So our long term capital allocation strategy calls for balance of investing in the growth of our business managing the balance sheet and providing returns to our shareholders.
So over the last trailing 12 months cash from operations generated $314 million, which equates to about $5 75 per share.
During the first quarter, we continued to benefit from the cash cash position by providing significant returns for our shareholders through both dividends and share buybacks.
Regarding our dividend program during the first quarter, we paid out $9 $2 million from dividend and I don't want to announce that our board of directors approved our 27th consecutive dividend, which will be paid in the month of February at the rate of <unk> 17 per share which is the.
Furthermore, we utilized $15 million from the first quarter on our stock buyback program, we do have about $193 million remaining under our previously approved stock buyback program.
Just as importantly successfully implementing our capital allocation strategy is ensuring we have a strong balance sheet and ample liquidity.
We have both in terms of our balance sheet at the end of Q1 with the current leverage of five times to EBITDA.
And available liquidity of over $800 million in the form of cash on hand, and funds available under our credit agreements.
And the result, Tetra Tech has been the financial position such that we will continue to provide cig.
Thanks, Kent returns for our shareholders, while investing in technical capabilities and strategic growth areas, both organically and through acquisitions.
So I'm very.
Very pleased to share these financial results for the first quarter with you all and I want to thank you for your support and I will now hand, the call back over to Dan.
Great. Thank you very much Steve.
With the United States re engaged in the Paris climate accord and debating the administration's focus on climate change taking hold we expect climate change opportunities to increase.
Across our business.
For Tetra Tech climate change driven services include for major markets.
Water the.
Environment.
Sustainable infrastructure and renewable energy.
And we here at Tetra Tech, our leading with science and addressing our clients' client changed climate change needs with the combination of our experience World class scientists and engineers and technical innovation.
So in water, we're working with local governments to provide sustainable water supplies in regions affected by droughts are saltwater intrusion from rising sea levels and.
An environment.
We're working with a fortune 500 clients to address new air and water quality concerns and the increased emphasis on meeting sustainability goals.
And sustainable infrastructure, we're designing solutions for coastal protection and providing innovative resilient high efficiency building designs and.
And of the renewable energy for at the forefront of new offshore wind programs that are helping states meet the ambitious for.
<unk> energy targets here in the United States.
The renewed emphasis by the U S administration of climate change and associated water environment and renewable energy programs will begin with the allocation of work under the one four trillion dollars fiscal year 2021 budget that was just put in place.
On December 27th.
For the year 2020.
Our federal work is across three primary sectors first civilian agencies.
Second the department of Defense and third International development and collectively across these sectors for the federal government, we can leverage our over $20 billion in contract capacity to support our federal clients programs.
For the Department of Defense, we expect to see an increased focus on addressing <unk> and other emerging contaminants as well as climate adaptation planning for military facilities that are at risk to the sea level rise.
Presumably the agencies such as the environmental Protection Agency, where we of the supported programs with them for over 30 years, we expect a renewed focus on watershed management regional programs and science based analysis of emerging contaminants.
And for International development. The bite administration has announced that USAID will be elevated to sit on the white house's National Security Council in full parity with diplomacy in defense for the first time.
And as one of the largest units a consultants, we're very well situated to address priorities and climate change and renewable energy with this agency.
ESG environmental social and governance again also known as ESG is increasingly a focus of companies both for Tetra Tech and for our clients.
For us ESG as both what we do internally as the company as well as what we do for our clients and the 65000 projects that we perform each year.
We have excelled in reducing our company's GST emissions of greenhouse gas emissions and achieving our sustainability goals, but it's actually the work that we do on our projects that provides the benefit at a scale that are well beyond the 20000 staff of Tetra Tech.
Our environmental work was reducing the discharge of contaminants, helping manage large scale watersheds, such as the Chesapeake Bay and cleaning up the impaired rivers, such as the Fox River and the state of Wisconsin.
Our work in renewable energy and southeast Asia is providing a societal benefit to over 70 million people and programs like the core of triangle initiatives that we're working on is benefiting a 6 million square kilometer ecosystem that supports over 300 million people.
And governance.
The work for over a decade on programs that support gender diversity economic development and the rule of law and today in the country of Columbia, one of our current programs, we secured land tenure rates for over 20000 people.
These services consistent with Tetra Tech focus on water environment sustainable infrastructure and renewable energy bring a new dimension to the scale and significance of the work that Tetra Tech is doing today.
I would now like to present, our guidance for the second quarter of fiscal year 2021 and for the entire year.
Our guidance is as follows for the second quarter Tetra Tech's net revenue guidance ranges from $565 million to $595 million with an associated diluted earnings per share of a range of <unk> 73 per share to <unk> 78 per share.
For the entire year.
I'm very glad to increase both of our net revenue guidance and our earnings per share our updated net revenue guidance for the entire year is $2 billion to $4 billion to $2 $5 5 billion for the net revenue with.
With an associated diluted earnings per share range of $3 45 per share to $3 60 per share for.
Some of the assumptions included in these updated guidance.
Inclusive of an expected intangible amortization for the year of $9 million of approximately <unk> 12 per share.
We do expect a 25% effective tax rate for the remainder of the year that would be for Qs two three and for the fiscal year 2021, we have approximately $54 5 million.
Shares of diluted shares outstanding and as in the past our practices not to include or in other words of this excludes any contribution of future acquisitions that would take place during the fiscal year.
Yes.
In summary, we had a very solid first quarter and start to our fiscal year 2021, setting New records for earnings per share for our shareholders.
As we enter fiscal year 2021, our high end water environment sustainable infrastructure and of renewable energy services, and our leading with science approach is more in demand than ever before.
And our market leading high end services are directly in line with today's priorities for climate change water and environment, providing us with extraordinary opportunities as we enter this year and particularly with the new administration here in the United States.
And with that Laura I'd like to open up the call for questions.
A question and answer session of won't begin now.
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Ah moment Ali poll for questions.
Our first question comes from the line of Noel.
Paul You May proceed with your question.
Hi, Good morning, Dan and Steve and congrats on another nice quarter.
Thank you Noah.
Okay.
Just a couple of quick.
Quick question for very high level.
Maybe you could just how you are sort of thinking about the.
Annual growth outlook for GST versus CIC as well as of the margin profile.
Just given some of the momentum you're seeing in total advanced analytics as.
As of lots of them of the expected pockets of softness you're seeing on the commercial side of the business.
Yes, I think really are.
Of things have started off well.
Also we start with the margin and then I'll get to the growth rates with our government clients.
In the past we've in past years, we've indicated that our margin is.
On an EBIT would be at the between a 12% 13% operating income we do see that with an increase in our advanced analytics that has increased.
Our target was 12, 5% of 13% for this year and no doubt the first quarter.
I was particularly strong so I would say for the year and for this coming quarter and I will make a note that we do have a bit of a seasonal impact to our business. Our Q2 is a quieter time less travel less outside of the field work. It does snow in the northern portions and sometimes even here in the southern portions of the U S.
So the seasonally we will see a bit lower margin in Q2, but for the year, we should be between $12 five from 13 in the half and with the performance recently I would say at the upper end of that range.
The growth rates have actually been very strong and I would say without any special contributions from the federal government in other words, not including stimulus or not including recovery Act funding, we've seen our federal grow between 5% and 10%.
That's what we indicated last quarter, we came in right in that that range. The upper end of that range here in the first quarter and we expect our state of the local work driven by municipal water programs to grow between 10%, 15% and we were in that range, albeit a little bit of at the lower end of that range of 11%. So that's what we're seeing.
On the government side, and I think with just a little bit of.
The fund funding or implementation of.
New priorities for the New administration that we can push the upper end of the those levels for the federal government and perhaps even higher.
Perfect that's really helpful.
And then you mentioned <unk>.
The mitigation.
Sort of of longer term opportunity, which I think Dan yes.
In the area of focus for a lot of investors.
Could you speak to where you think we are today and the New act around some of some of those initiatives.
And one of the things we've been looking for answering the EPA, the kind of come out and establish NPL levels and.
And that may sort of start to drive some of the activity can you talk about how youre thinking about the playing out over the next few years, and where you see tetra tech as best position to participate.
Okay.
Yeah, absolutely I think that the <unk> for those unfamiliar with the P funds from <unk> are two acronyms that referred to.
Chemical additives to fire suppression film and sprays and other materials that are used that.
Any place that the fire training done and Thats the Air force bases in military as the as the largest use of these chemicals.
It is of persistent chemical that impacts the drinking water and groundwater primarily although it can also be in lakes and other surface waters and it's.
There are not a regulatory directed levels that have been established at the federal level and there are for the most part only guidance even at the state levels.
I do think EMS sales, which of the drinking water standard definition, if it's passed at the federal level will create an immediate fee. It will take a little bit of time to be put in place I do think that not only our federal clients, but our commercial clients. We are seeing have added this to the chemicals for screening analysis and actually.
Preliminary remediation.
Of this material in order to get ahead of it so I do see of growing just because of the new administration I think the debt.
The trend of the die is cast that theres likely to be a regulatory standard put in place or at least the preliminary remediation goals <unk>.
During this administration and so I do see it ramping up I think it will it was going to go up regardless of administration because of concerns at the local municipal level, but I do see of growing much quicker with this administration being put in place and priorities for protection of the environment and human health.
Administered through the EPA so.
I think it will grow quickly Tetra Tech is one of the leaders in this area. Although I will say it is the land rush, everybody, who can actually spelled P. Foster people are saying that they are a leader in this.
We're doing a lot of the work for the department of defense branches, and we're actually doing a fair amount of this work for our Fortune 500 clients right now mostly on the assessment and for the federal government from what I would call pilot test store.
Feasibility studies and so it's very much in its infancy.
To develop technologies that will be more cost efficient.
And effective than using granular activated carbon or sort of the.
The best demonstrate the technology so.
It could very easily get into.
Technical discussion of that I'm sure Ben you wouldn't have that much interest in but I think I'd say, it's a tens of billions of dollar market is going to be ramping up and it will affect essentially all of drinking water supplies or a great majority of them across the U S, particularly in proximity of military facilities, where other firefighting was used.
The proximity to airports, so I think as the big opportunity for our environmental side, it's a great Nexus with our water expertise and I think tetra tech if not the leader I will certainly be one of the top leaders in this market as it develops.
Thank you very much.
Thinking of our next question comes from the line of Keith Sullivan with Maxim Group. You May proceed with your question.
Hi, Thank you, Hi, Hi, Dan Hi, Steve.
I thought I'd start with debt your offshore wind work and you mentioned in your comments.
A lot of emerging U S projects on that front, but can you remind us of your international.
Sure of wind energy exposure or does it not in the largest your existing U S become yet another large the the work that we're doing for offshore wind is probably 90% of the work with respect to projects and revenue generation for offshore wind is here in the United States.
We have just a very very small amount of offshore wind that we support.
Some of the initial evaluations of potential suitable sites.
Done off of cash.
Canada, although the Kinect Canada's biggest generation of renewable energy of course is hydro followed by onshore wind and just the very very little in the U K, but I would say the 90, 95% of all of our revenues are here in the United States and the great majority of that is the.
Eastern Seaboard, although I will say, we are just beginning to do some initial offshore marine.
Assessment work, including citing debt sub bottom profiling environmental assessment of the West coast of the United States, where it's a much deeper Cheryl steeper share line so much deeper.
Water, so it's actually tethered off of cables, rather than actually set on the bottom on the east coast So that.
That's the mix that we do and what Tetra Tech does is we do have a very advanced and we believe the the market leader in doing the initial studies the valuation research work that will support the permits to be issued for Offsite siting and construction.
We will do the marine mammal studies will do to the offshore benthic studies with respect to shellfish.
Marine mammals of the rest of it will actually do the setting up of floating systems to track the radar of Flyways for AVN, So birds and if it's near shore bats.
So that's the work that we'll do in the most complicated part of actually putting in offshore wind generation.
Generation.
The system together is obtaining the permit and then monitoring for compliance of the environmental permits and Thats. The work that we do and obviously as you would intuitively recognize that's the work that comes in the first the construct of later and then of course, the ongoing monitoring would takes on.
Essentially in perpetuity so.
That's sort of where our work is in what we do.
Thank you and shifting to project demand from commercial customers and you mentioned some of your Fortune 500 doing more evaluation work some of the key facet of water contaminant fronts, but.
What really drives the demand from your commercial customers you mentioned, a new focus to meet sustainability goals, but can you give an example of where that translate into a project does that is that most of the year sustainable building design business or can you give an example of the project there.
Yes, yes, absolutely can for a while I think sustainable buildings, and we referred to it as our high performance of buildings practice I think is an excellent example of the where discretionary.
Sort of being spent to meet sustainability goals of the sustainability goals for existing buildings are how retrofits of renovations can be put in place to reduce energy consumption to actually reduce or complete a full recycling capture recycling of water. So it can be self sufficient and then of course enhancing their recycling.
For on the waste side.
And so theres a lot of that work taking place now for our existing fortune 500 clients for their headquarters in their key facilities in order to meet their overall sustainability goals within their company and then of course, new construction is being driven not only by voluntary decision to create a more sustainable or.
Healthy buildings, often defined by a wellness criteria.
But there are more and more regulatory requirements coming in regarding energy efficiency requirements before permits will be issued for new construction. So it's a combination both of the election to make this the priority, which we've seen a significant increase and regulatory requirements certainly on the energy side and some have moved it to be the broader day.
<unk> energy water and waste, which is what we're focused on with our high performance building design group.
Thank you very much Dan.
Thank you David.
Our next question comes from the line of Sean Eastman with Keybanc Capital markets. You May proceed with your question.
Hi, Jamie nice quarter, Thanks for taking my questions.
Sean.
The start on.
Yes.
Clearly the Tetra Tech is well aligned with this new administrations policy platform and I know, it's early days, but I'm. Just wondering how quickly you think we might see funding start to get funneled into Tetra tech programs that support this very hard stance on climate and environment are resilient and just curious how you see that plan.
And how quickly we might start to see that.
It's the good really good question, Sean and our perspective has actually evolved here even over the past 30 days and in fact with the new administration coming in and of lack of clarity 30 days ago as to who would control of Congress, we felt that.
A slow progression with respect to.
Affirming our ratifying a number of the point.
<unk> for the New administration.
Some difficulty through Congress the house and Senate.
That would actually create a slow ramp of these but with the elections, taking place in Georgia, and the Senate and of course of the house.
Being on the Democratic side with the administration, we actually think it will speed things up so rather than this being a ramp up with a momentum really picking up in 2022 and three of no doubt those will be the bigger years, but I think that this year towards the end of fiscal year of 2021, so between now and fall actually expect this.
The convert from policy and priorities to funding and implementation and I would say probably late third quarter and the fourth quarter now I know that those not as familiar with the federal government may sound of that sounds like a long way away.
We're already of third the way through the second quarter, So it's really not that far away.
And I think the one thing that the government will do first the administration will do first is if you want to get moving the one traction and you want to make an impact you use the capacity of the vehicles that you have in place and with Tetra Tech having.
Well over $20 billion with just U S. Federal contract capacity, we're in a great position as these are not capacities for the scope of services that are of something.
Diversion from the priority of these are 20 billion set dead center with respect of the priorities of this administration has identified so I think that.
The funding will come out sooner than originally anticipated because of the consensus that it's been put in place.
True Congress and the executive branch.
And the ability to actually access entities that have these contracts so for us I think it could come Tetra Tech's way and.
In the second half and probably later in the second half of <unk>.
Of this fiscal year. So it's not a exclusively of 2022 of 23 of our out I do think it will continue to build and the best are yet to come in the future, but I think of it will begin here in the next next few quarters.
Okay really helpful. On the excellent for me is just the GST margins up 100 basis points year over year, and certainly noteworthy around the quarter it'd just be helpful. If maybe we can get a bridge between the utilization benefit and that mix benefit and <unk>.
Along those lines, if you could just give us a little bit more color on the digital water opportunity.
How that's unfolding that that would be helpful.
Sure with respect to the increase in the margin within PSG. It was driven by two factors I think of trying to we're trying to be clear about this one was an increase in the margins from higher value work that we have on data analytics and federal practice. So it does carry a bit better margin I would say that of the 100 basis point.
The increase year over year, probably half of it was associated to what I'd call structural.
The higher value.
Execution of work or the work that we're performing and the other half was really.
Because of utilization as you saw.
We saw continued growth and in fact.
Between the state and local and federal where revenues were up.
Utilization was up and that drove probably the other half of the increase so if you were wondering where did where did it specifically come from it was split pretty evenly between.
Higher margins for the work, we're performing and the other half of the shift to increased utilization so thats what drove.
Drove that increase.
Yes.
The second was.
Just curious around the digital water opportunity Dan.
Given that we had huge margin lift in part from higher margin work and just wanted to get a little bit more color on on that higher margin work opportunity and just understand kind of of the growth outlook.
What's driving demand around some of those solutions and digital water sounded particularly interesting.
For the digital water Ive spoken about it we've referred to it in a number of different.
Context is for digital waters, where were taken sprint primarily.
Associated with our state and local work at surrounding municipal work, where there was actually of regulatory mandate to evaluate the vulnerabilities of local water systems, the cyber security attacks.
You've seen that's only been in the past month or two you'd seen some cyber attacks at the federal level.
Certainly there is a read there is actually a regulatory requirement for evaluation. So that is a digital evaluation of access through.
Through.
The internet or through other web access to the systems, putting in protection shall type of security and whats come along with that is actually the digital water upgrades and evaluation of Youre in the business that you referred to the state of systems, but it's basically the electronic brains of the control water systems and all of the data that comes in from wells.
And everything else and we've done more of that work to actually.
Date from analog system, the digital systems, and actually move to remote telemetry for monitoring and even operation.
We've also been able to add digital water.
Analysis, and Iot into plants, where we can actually create a digital twin and do the.
Our scenario planning.
The simulation of what would a new treatment train for a different technology effect.
The removal of Paphos in people and ex problem and one for dioxin and all of these emerging contaminants without shutting the plant down we're actually setting up a physical treatment plan for a pilot study. So we can do that electronically as part of a digital water process. It states an unbelievable amount of money that can be done faster it actually reduces labor.
Costs for our clients all by moving to a digital water.
Focus for our municipal and state clients, So thats and I would say, it's very very early out of the thousands of water districts across the United States only a very few of them have moved to a complete digital water platform. Many of those were doing the work for and we think we have some of the most cutting edge technologies that we've developed.
Over the years and they are included in the Tetra Delta.
The technologies that we have available.
And that's been one of the big growth areas, and we think it's going to do nothing but become bigger for us.
Very helpful as usual thanks, so much.
Great. Thank you Shawn.
Our next question comes from the line of Sam, England with Vanguard Popple of markets. You May proceed with the question.
Hi, guys, it's Alex Mees from Sam.
Our first question is around.
Could you discuss to what extent bottoms plan for $50 billion in state and local support just the concerns around the opposite.
In the budgets.
That's the good question, it's certainly the administration has come out already.
I think for most of you would've heard on the initial proposed one nine trillion dollar of additional recovery support.
And in fact this includes $350 billion that is earmarked directly for state and local governments in order to shore up our financial shortfalls from the pandemic from tax receipts and other economic pressures that are put on the new.
No doubt the 350 billion of the headlines is that's the provide payroll support that's to provide returning to school and additional pandemic testing, but no doubt that a portion of this will also support and the earmarked for the programs that we're focused on which is the regular which is of water systems.
The wastewater treatment of sustainability and so the.
Proposal at $3 50, as an initial start is and expect it to really fill the shortfall at the state and local.
Budgets.
For this year, so less of the number we've looked at and that does not include that is exclusive of any discussion.
Or earmark of dollars set aside for infrastructure stimulus or some of the others that have also been floated already.
All the way of running from the Department of Transportation all of the way through state revolving funds and water infrastructure funding from the EPA and others. So those are the areas they've actually called out specific dollar.