Q2 2025 Tetra Tech Inc Earnings Call
Broadcasting this presentation with slides in the investors section of its website at 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 Backtrack, Chairman and Chief Executive Officer.
Speaker Change: Steve Burdick, Chief Financial Officer.
Speaker Change: Lee Shoemaker, Chief Innovation Officer, and Joseph on high performance buildings lead.
Speaker Change: They will provide a brief overview of the results and we will then open up the call for questions.
Speaker Change: I would like to direct your attention to the Safe Harbor statement in today's presentation.
Speaker Change: Today's discussion contains forward looking statements about future business and financial expectations.
Speaker Change: 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 character Tech's periodic reports filed with the SEC.
Speaker Change: Except as required by law Tetra Tech undertakes no obligation to update its forward looking statements.
Speaker Change: In addition, since management will be representing we'll 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.
Speaker Change: At this time I would like to inform you that all participants are in a listen only mode.
Speaker Change: At the request of the company, we will open the conference for questions and answers after the presentation.
Speaker Change: With that I would like to turn the call over to Dan Backtrack. Please go ahead Mr background.
Dan Backtrack: Thank you very much Christine and good morning, and welcome to our second quarter fiscal year 2025 earnings Conference call.
Dan Backtrack: We just had one of the most interesting quarters in the history of the company.
Dan Backtrack: Never have we seen our largest client by revenue essentially disappear within just one quarter.
Dan Backtrack: If you'd asked me 20 years ago, but would have been the impact to our quarterly results of this happening I'm not sure I could have told you, but certainly wouldn't have been good.
Dan Backtrack: But today.
Dan Backtrack: In this quarter.
Dan Backtrack: Through the incredible diversity of our clients.
Dan Backtrack: Diversity of the services, we provide in the geographies that we operate in we had one of the best quarters in the company's history.
Dan Backtrack: Our second quarter was one of the highest quarters.
Dan Backtrack: Revenue that we've ever had in the company's history.
Dan Backtrack: The third highest earnings per share and operating income we've had in the history of the company and we increased margins in both of the segments.
Dan Backtrack: And we did all of this during the months of January February and March which are typically our slowest quarter of the year because of the winter months here in the United States and in Canada, and in Northern Europe, and a lot of holidays that actually take place in those months in Australia. So it was particularly.
Dan Backtrack: A very strong quarter for the company.
Dan Backtrack: I know I personally and a man.
Speaker Change: Management presenting with me today are looking forward to presenting our second quarter results and outlook and addressing your questions.
Dan Backtrack: At the conclusion of the presentation.
Dan Backtrack: Presenting with me today will be Steve Burdick, our Chief Financial Officer, who will provide additional details on our financial performance and our new credit facility.
Speaker Change: Dr. Leslie Shoemaker, our executive Vice President and Chief Information Innovation Officer, who will provide an update on water and environmental markets, primarily in the government sector and Joseph <unk>, a global leader in our high performance buildings practice will provide remarks on some of our key data center and digital assistant growth markets.
Dan Backtrack: Before we begin discussing the drivers and the outlook for 2025 I'd like to first share with you the results for our second quarter.
Dan Backtrack: Yes.
Dan Backtrack: We really had an excellent second quarter, we achieved new quarterly record results for revenue net revenue operating income and earnings per share.
Dan Backtrack: Our net revenue increased to $1 $1 billion in the quarter up $51 million more than the same quarter last year.
Dan Backtrack: Our operating income was $130 million for the <unk>.
Dan Backtrack: Quarter.
Dan Backtrack: Which was an increase of 11% from the prior year and we generated an earnings per share of <unk> 33 for the quarter, which is up 18% from the prior year.
Dan Backtrack: We'd like to go over our performance in each of our two segments.
Dan Backtrack: For the second quarter, our government services group or the GSP segment increased its revenue by 12% year over year to $521 million.
Dan Backtrack: <unk> generated a 13, 8% margin in the quarter and that.
Dan Backtrack: March and it is actually inclusive of several several million dollars of non project.
Dan Backtrack: On project Reimbursable costs that we incurred during the quarter closing out the majority of the USAID work, if we hadn't incurred those additional non reimbursable costs that margin would have been up with additional somewhere between 30 to 50 additional basis points from this already increased level from the prior year.
Dan Backtrack: <unk> revenue growth was driven by work primarily in our state and local government.
Areas doing work in the water environment and disaster response areas.
Dan Backtrack: The commercial International group for the <unk> segment delivered a 13, 2% margin for the quarter.
Dan Backtrack: Revenue of $597 million was up just about 2% with actually strong growth in our U S commercial environmental restoration projects and our U K water programs, but was offset and bringing us down to being essentially flat year over year with about a 10% reduction in our Australia.
Dan Backtrack: <unk> works.
Dan Backtrack: Okay.
Dan Backtrack: For our performance by our end customer.
Dan Backtrack: Work for our U S federal clients without USAID and the department of State was up 16% from the same quarter last year and now represents about 20% of our revenues in the business.
Dan Backtrack: About half of the growth of this 16% growth came from our disaster response activities, while the remaining other half or about 8% came from work that we did primarily from the department of defense and very large new programs for the Army Corps of engineers.
Dan Backtrack: Our state and local revenues grew 44% year over year.
Dan Backtrack: So of that 44% just a little over half of that growth came from episodic disaster response activities that we performed during the quarter, while the other four.
Dan Backtrack: The growth or just under half of that number.
Dan Backtrack: Was really growth from our ongoing municipal water programs, which were up 19% year over year.
Dan Backtrack: Our U S. Commercial net revenues were up 5% year over year, driven by growth in our environmental energy and transmission related work.
Dan Backtrack: And finally, our international work represented about 38% of our revenues in the quarter.
Dan Backtrack: It was up slightly on a constant currency basis.
Dan Backtrack: I will note, we did see double digit growth in our United Kingdom, and Irish water programs and in the United Kingdom Defense services businesses, but this growth was offset by more than a 10% reduction in our Australian infrastructure work.
Dan Backtrack: I will say that the slowness in our Australia and revenues have been attributed to a major election that took place just.
Dan Backtrack: Just less than a week ago on May 3rd there was a new national election.
Dan Backtrack: That had many funding programs put on hold leading up to the election that has now been completed and put behind them.
Dan Backtrack: I would like to discuss our backlog to briefly which represents work, which we have that is contracted with our clients is funded and it's authorized for us to begin to work directly by our clients.
Dan Backtrack: Tetra Tech's updated backlog.
Dan Backtrack: Now $4.310 billion or $4 three 1 billion.
Dan Backtrack: This $4 3 billion a captures that Dr application of approximately $1 1 billion in.
Dan Backtrack: And USA, India Department, the state projects that took place in the quarter.
Dan Backtrack: And within this 431 billion backlog, we still have about $220 million in place with USAID, mostly for ongoing work in Ukraine in the energy sector, and we expect that $220 million to be spent in the second half of this fiscal year.
Dan Backtrack: Without USAID and the department of state our backlog if you're following along on the webcast, you'll see as highlighted there at $4.09 billion.
Dan Backtrack: Which represents a solid book to bill of one.
Dan Backtrack: One one for the quarter driven by orders all across our global operations.
Dan Backtrack: I will also note there's been a lot of questions on how does our book of business and our outlook in the U S. Federal government look on a prospective basis or both contract capacity in backlog and pleased to announce that we now hold over $30 billion in contract capacity across the U S Federal government Prime.
Dan Backtrack: For defense and civilian agencies for services that we provide that are highly aligned with the administration's priorities.
Dan Backtrack: In the United Kingdom, We also continue to see expansion of our framework contracts with the leading water utilities and we added another $100 million in capacity in.
Dan Backtrack: In the U K water utilities to perform high end water modeling and data analytic work.
Dan Backtrack: So at this point I would like to turn the presentation over to our Chief Financial Officer, Steve verdict to provide additional details on our financials.
Steve Verdict: Year to date, and importantly, an update on our capital allocation.
Speaker Change: Strategy, so let's see.
Speaker Change: Thanks, Dan So I'd like to now provide an update for the first half of the fiscal year relative to our record results working capital cash flows and capital allocation.
Speaker Change: As Leslie will review later in this call we continue to focus on our growing core <unk>.
Speaker Change: <unk> cycle for water and environmental projects, which are carrying higher margins across all of our end markets.
Speaker Change: And it just in addition.
Speaker Change: Joseph will present, our strategic focus on high end data centers, along with the mix of both water and power transmission, where we also expect higher growth and margins.
Speaker Change: And as we look back at our.
Speaker Change: Year to date results, even as revenue was up double digits about 11% over last year, our operating income and EBITDA for the first half of the year increased at higher rates of 17% and 12% respectively.
Speaker Change: As a result of the double digit topline growth along with our ability to effectively manage and allocate our capital we were able to increase EPS by 21% over last year, which is just about two times our topline growth.
Speaker Change: Now in the first half of the year. Our GAAP results include one time nonrecurring charges. So I. Please.
Speaker Change: Please refer to the appendix of this presentation and our Reg G for a reconciliation to the adjusted results.
Speaker Change: This strong financial and operating performance has resulted in the continued ability for the company to exceed and beat EPS consensus every quarter for the last eight years and to improve our annual EBITDA margins by an average of 50 basis points each year over that same eight year.
Speaker Change: Period.
Speaker Change: No.
As you all probably know about one month into the quarter, we saw our largest U S. Federal clients put a pause on paying their invoices.
Speaker Change: Which had a very negative effect on our working capital for the second quarter.
Speaker Change: I am happy to provide a real time update to let you all know that since the end of the second quarter. Our USAID client is paid on most of our past due invoices and we have so far collected over $150 million, which equates to about a 10 day DSO improvement.
Speaker Change: Now cash flows generated from operations for the trailing 12 months were $311 million in these cash flows with continued to exceed our fiscal net income by more than 100%.
Speaker Change: Including the U S aid related receivables, our consolidated DSO stood at 67 days.
Speaker Change: And as I noted that since the end of the second quarter. The payments received of $150 million from USAID has resulted in a consolidated DSO improving to about 57 days.
Speaker Change: This lower DSO metrics provide significant insight into our core business as it reflects the outstanding work that our project managers lead relative to higher quality projects.
Speaker Change: And highly satisfied clients and a broad portfolio across all of our end markets and geographies.
Speaker Change: The net debt on EBITDA was at a leverage of 136 times, which is slightly lower than our average one year ago. When it stood at 138 times.
Speaker Change: Since the end of the second quarter with the receipt of these additional payments.
Speaker Change: Our net leverage has lowered to about one one times.
Speaker Change: And as we continue to execute on high quality operating results with strong cash flows and a healthy working capital we've been able to.
Speaker Change: Payout higher dividends.
Speaker Change: Increase the stock buybacks.
Speaker Change: And invest in strategic acquisitions to provide higher returns for all of our shareholders.
Speaker Change: All while delevering our balance sheet.
Yes.
Speaker Change: So for those of you following along on the presentation.
Speaker Change: I would like to now present, our capital allocation overview.
Speaker Change: Okay.
Speaker Change: We have a very strong balance sheet and we further improved the balance sheet as we closed and funded on a new credit facility with our very supportive bank group such that over the next five years through 2030 with that we have access to more liquidity about $1 5 billion.
Speaker Change: At more favorable terms and conditions.
Speaker Change: And as we've revised our capital structure over the last two years to take advantage of the credit market and to support our financing needs I want to point out our ability to reduce our average interest rate from the second quarter of fiscal 2024 by 50 bps to 363%.
Speaker Change: And this in an environment of heightened uncertainty.
Speaker Change: So as I said earlier is Leslie Joseph who will discuss our strategic growth areas. Later in this presentation I do want to point out that we have significant amount of liquidity available to invest in both organic and acquisitive priorities.
Speaker Change: We have a well balanced mix of fixed and floating rate debt to mitigate interest rate risk as we look to grow these higher margin priorities.
Speaker Change: Regarding our dividend program I want to announce that our board approved.
Speaker Change: Approved a quarterly dividend, which is a 12% increase.
Speaker Change: To be paid in the third quarter.
Speaker Change: This is our 14th consecutive quarterly dividend with annual double digit increases in the amount paid.
Speaker Change: And based on the lower leverage.
Speaker Change: Which we did fall below one times at the end of 2024, we did reinstitute, our stock buyback program and.
Speaker Change: And in the second quarter, we bought back $150 million in stock.
Speaker Change: We do have available a portion of the stock buyback plan approved by our board of directors back in 2022.
Speaker Change: Furthermore, I am happy to announce that our board of directors approved an additional $500 million.
Speaker Change: For a total of $673 million for Houston future stock buybacks as part of our capital allocation strategy.
Speaker Change:
Speaker Change: Im quite pleased.
Dan Backtrack: As you heard Dan I'm also quite pleased to share. These really strong results for the first half of fiscal 2025.
Speaker Change: I want to thank you for all your support.
Speaker Change: I will now hand, the call over to Leslie and Joseph to discuss Tetra Tech's future opportunities.
Speaker Change: Thank you Steve.
Speaker Change: <unk>.
Speaker Change: For over 50 years, we've supported the U S federal government in addressing the nation's highest priority needs today.
Speaker Change: Today I'd like to focus on our work with the U S Department of defense worldwide.
Highlighted on the slide is the $5 billion in new contract capacity. We have been awarded just this fiscal year with you as defense agencies. The majority of them announced just within the last 100 days since the inauguration.
Speaker Change: Today, our largest client at Tetra Tech is the U S Army Corps of engineers.
Speaker Change: The core has a dual mission to support both the nation's defense programs worldwide and our nation's infrastructure through their civil works programs across the United States.
Speaker Change: For National Security, we provide engineering design of resilient infrastructure.
Speaker Change: All over the world, including wastewater supplies and water supplies.
Speaker Change: To support military facilities.
Speaker Change: Our recent awards include coverage of areas like the critical Middle East region.
Speaker Change: The specific regions served by the Honolulu District, Central and South America served by the mobile District, and global Defense systems supported by the Huntsville District.
Speaker Change: For the civil works programs in the United States. We also support the corps of engineers and their partners at the state and local level with the high end engineering analysis and design for essential flood control structures, including dams and levies.
Speaker Change: We also work on designing and managing the dams and reservoirs used for water supplies.
Speaker Change: And we work for the corps to upgrade our inland waterway systems, the engineering of the locks and dams that support the U S Internet internal trade and shipping routes.
Speaker Change: With the proposed increases in defense spending.
Speaker Change: And the renewed interest in the U S business investments, we see strong future growth opportunities across the defense related services that we provide.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: I would now like to talk about our locally driven work for water supply.
Speaker Change: This continues to be a high priority in the United States, the United Kingdom, and Ireland directly in line with our long term view on this market.
Speaker Change: Across these markets were seeing continued double digit growth in revenue through both new clients and new programs to address critical water needs.
Speaker Change: In the U S high end water treatment that demand continues to add and secure new water supplies for our customers.
Speaker Change: Our project in Cape Coral for brackish water treatment adds a new source in a rapidly growing high value region.
Speaker Change: We see continued demand expanding for potable reuse with the design of a first of a kind plant.
Speaker Change: In Oklahoma for indirect potable reuse to augment their water supply.
Speaker Change: And in areas at risk for coastal flooding with aging infrastructure, such as Gloucester, Massachusetts, we see renewed demand for the modernization of wastewater treatment facilities.
Speaker Change: With our new contract capacity in the United Kingdom were actually encouraged to see increased demand for our high end science based solutions to address water quality protection as a part of the challenge to materially reduce contamination across the country.
Speaker Change: And in Ireland, we are supporting the water utility in their program to fully reengineer their water supplies to meet Dublin's expanding needs for drinking water.
Speaker Change: Yeah.
Speaker Change: To support these clients in their large investments in Ireland and the United Kingdom. We're pleased to have recently announced the addition of Karen and Walsh a leader in program management services for utilities and government agencies and.
Speaker Change: Welcoming them aboard will really extend our ability to provide more project management services.
Joseph: And with that I'd now like to turn the presentation over to Joseph.
Joseph: Thank you Leslie.
Joseph: Petrochemical market, leading water and energy expertise.
Joseph: A key competitive advantage and driving our high performance buildings.
Joseph: Fastest growth market, Hi Tech data centers.
Joseph: With over $500 billion in future investment forecasted and new computing infrastructure and current global energy consumption by data Center is expected to double not only are we seeing the increased demand for data center building design.
Joseph: We're seeing increased demand for our differentiated services water and energy.
Joseph: Our strategy to focus on unlocking the bottleneck for our data center clients are experiencing with water and power availability issues.
Joseph: Provided petrofac the opportunity to leverage our water and energy has started to engage earlier in the development of data Center project.
Joseph: To meet the increased water demand and quality needs our data on our clients, we are bringing our expertise to source.
Joseph: Treat procure and transport critical water supply to support innovative liquid cooling strategy.
Joseph: On energy the higher power loads needed to support AI data centers is driving increased demand for power, which is resulting in significant interest from our data and our clients and land developers for our transmission services to bring the power source to our prospective data center site.
Joseph: This needed work outside of the data Center building has created additional opportunities for Tetra Tech to support our global data Center center clients and positions us to win the downstream buildings work.
Joseph: With our Hyperscale client raising and spending forecast for data centers and related infrastructure. We anticipate continued growth in the end market power water energy and high performance building services.
Joseph: So the first half of the year, our data center and advanced manufacturing business is tracking towards a $120 million this year, a 20% year on year growth.
Joseph: Having added several new contract vehicles this fiscal year to support our Hyperscale and Colocation data center clients in the U S. You had.
Joseph: The Kingdom and Australia, we are anticipating 20% to 25% growth in the coming years.
Joseph: Just last week, we announced that the phage group a global leader in digital system and automation will be joining tetra tech.
Joseph: Sage will bring to Tetra tech over 800, digital automation expert and new software and proprietary technology from their base of operations in Australia.
Joseph: Page significantly broadened our expertise to address the needs of clients across water manufacturing and defense.
Joseph: Beige join Tetra Tech digital systems practice, where we today support water utilities across the United States.
Joseph: And provide the high end systems integration that is essential to optimizing utility operation and facilitating secure remote access and automation.
Joseph: Our team working together will continue to advance the science of digital automation transforming operations to work more efficiently.
Joseph: Update on more securely.
Joseph: <unk> integrates instrumentation that is rapidly expanding.
Joseph: Yes.
Joseph: The addition of Phage group further advanced as a strategy that we initiated in 2019 expands in the area of digital systems and automation.
Joseph: Since that time, the evolution of instrumentation technology and more recently the advent of generator of AI.
Joseph: Digital system, even more integral for the operation the wide range of water manufacturing industrial and defense clients.
Joseph: Today estimate of the future spending and digital automation and smart infrastructure exceed two trillion worldwide.
Joseph: Over the past four years through a combination of organic growth and the acquisition of four companies we have.
Joseph: Establishing a high end digital systems practice, but it's working with the largest water utilities and major cities in the United States.
Joseph: With the addition of phage Petrofac digital systems practice will broaden to additional clients and now serve our clients globally.
Joseph: This collective group.
Joseph: This collective group significantly extended expertise.
Speaker Change: Sure proprietary technologies and significant partnerships with the top instrumentation vendors globally.
Speaker Change: We project growth to result in a $500 million annual revenue business for <unk>.
Speaker Change: RSA josephine's practice by 2030.
Speaker Change: Given our significant home field advantage with clients in the areas of water and high performance building <unk> is uniquely positioned to deliver value from data centers and digital transformation investments.
Speaker Change: Our key geographies in the U S.
Speaker Change: Kingdom, Canada and Australia.
Dan Backtrack: With that I will turn the presentation back to Dan.
Dan Backtrack: Great. Thank you. Thank you very much.
Dan Backtrack: I would now like to present, our guidance for the third quarter of fiscal year 2025, and updated guidance for the entire year.
Dan Backtrack: For the third quarter of fiscal year 2025, our net revenue guidance ranges from $1 1 billion to $1 2 billion of net revenue.
Dan Backtrack: With an associated.
Dan Backtrack: Adjusted EPS of a range of 35%.
Dan Backtrack: To 40.
Dan Backtrack: Our updated guidance in fact.
Dan Backtrack: It raised the lower end quite significantly based on this last quarter is now a range of $4 4 billion to $4 $765 billion with an associated.
Dan Backtrack: <unk> adjusted earnings per share of $1 42 to $1 52.
Dan Backtrack: These are the mid points of this annual.
Dan Backtrack: Guidance.
Dan Backtrack: It shows a 6% of net revenue growth with an adjusted earnings per share up 17% and this is all inclusive of.
Dan Backtrack: USA.
Dan Backtrack: Have been adjusted downward during the year.
Dan Backtrack: Some of the assumptions if youre following along the webcast.
Dan Backtrack: Do include about $35 million intangible amortization.
Dan Backtrack: Costs during the year, which would actually be included and that includes an $8 million in both Q3 and Q4.
Dan Backtrack: Effective tax rate at 27, 5%.
Dan Backtrack: Depreciation of $24 million.
Dan Backtrack: Interest expense of $34 million to $38 million and $267 million.
Dan Backtrack: Diluted shares outstanding and it does not this guidance does not include the contribution of stage, which we expect to close later in the year or any other acquisitions that we've made transact after this phone call.
Dan Backtrack: In summary.
Dan Backtrack: We just had a great second quarter and really excellent first half of the year with record performance both in the first and second quarters.
Dan Backtrack: We continue to see strong demand for our differentiated leading with science services in the areas of water environmental and infrastructure markets that we work in.
Dan Backtrack: Our digital systems and automation growth strategy is actually working quite well and is advancing with the announcement of the Sage group that will be joining tetra tech balances that give us more resources bring us new clients, but it is a big new geography.
Dan Backtrack: Our us with their presence in Australia.
Dan Backtrack: Steve covered at that quite well and it's been really a highlight of the quarter for us.
Dan Backtrack: Putting in place a new $1 5 billion credit facility, which is going to support all of our capital allocation strategies and I will say, Steve and our financial team just did a great job in coming up with better terms than we even had in our previous credit facilities and all of this together just puts us in a great position to continue to grow our business and.
Dan Backtrack: Support our clients worldwide.
Speaker Change: And with that Christine I'd like to open the call up for.
Speaker Change: More questions.
Speaker Change: The question and answer session will begin now please be aware that there will be a 32nd pause in our webcast to allow for buffering.
Speaker Change: At this time audio participants are invited to submit their questions.
Speaker Change: Please remember to mute the audio function on your computer before you speak.
Speaker Change: If you are using a speakerphone, please pick up the handset before pressing any numbers.
Speaker Change: He would like to ask a question press star one on your Touchtone phone.
Speaker Change: Thank you. Our first question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.
Tim Mulrooney: Good morning, everybody.
Tim Mulrooney: You had a really strong quarter in state and local even excluding the disaster response.
Tim Mulrooney: So one question we've been getting a lot is if the Trump administration's efforts to reduce federal expenditures are going to.
Tim Mulrooney: Leak into the state general funds, which in turn could negatively affect your state and local business.
Tim Mulrooney: Some of this business is backed by Muni bonds and user fees for the parts that arent can you talk about whether or not you're seeing any pressure there or expect to see any pressure.
Tim Mulrooney: Thanks for that question, Tim It's a really good question and I actually received the.
Tim Mulrooney: The flip side of that same question about three or four years ago. When the <unk> was put in place and when some of the funding was put in place for <unk>.
Tim Mulrooney: Additional funding at the state and local level and at that time the questions I was receiving where with us very large amount of funding coming from the federal government. Those state do you see your growth rates, which at that time state and local where maybe 15 between 15 and 20% do you see those growing substantially and my comment was I see those are going to be overflow to other areas.
Tim Mulrooney: But not see a material increase.
Tim Mulrooney: And.
Tim Mulrooney: And then you said I also expect that on the tail end of the funding of those programs when the federal government.
Tim Mulrooney: Grants and other items and loans actually declined I expect not to see.
Tim Mulrooney: A decline at that time and in fact that we're at the back end and we're not seeing any reduction I know that there have been with the current administration in there.
Tim Mulrooney: Just this week proposed budget has talked about reductions in things like the state revolving fund out of EPA, but if you read a bit farther down into.
Tim Mulrooney: Those documents that actually says that it's somewhat duplicative of the large funding coming out with you for EPA, which is water infrastructure funding mechanism.
Tim Mulrooney: So.
Tim Mulrooney: We have not seen that.
Tim Mulrooney: Any signs of any type of reduction or pressure at this time.
Tim Mulrooney: And I will say areas that we're focused here are the very large population states in the southern part of the U S like Florida, and Texas, which both have very large surplus budgets.
Tim Mulrooney: And in places like California that were very large where there are deficits in the general fund we've seen very large of bonds passed that will carry with us through a multi year period. So I don't know at this point.
Tim Mulrooney: I don't see any.
Tim Mulrooney: Near term pressure on our state and local projects that we have and a lot of these are multiyear projects. So that we get funded either semiannually or annually. So while it may not be in our backlog. We expect the next phase is to move forward because these are multiple year programs and.
Tim Mulrooney: One quarter of.
Tim Mulrooney: Water supply system or one quarter of a wastewater treatment plant isn't very valuable so.
Tim Mulrooney: Even if there was an impact.
Tim Mulrooney: These are typically very late cycle.
Tim Mulrooney: Indicators with respect to our state and local so.
Tim Mulrooney: No impact now I don't really see it.
Tim Mulrooney: Coming in the near future and if for some reason things change that I expect it would be.
Tim Mulrooney: A few year delay before we'd see it in our funding.
Speaker Change: Okay. That's really helpful. Thanks, Dan and we can also see it in the numbers. It seems like it's performing at a really high level. So that's helpful color. Thanks, one more from me.
Tim Mulrooney: I recently.
Tim Mulrooney: Sorry.
Lease Eldon list of top priorities for.
Tim Mulrooney: Environmental deregulation at the EPA, which was released in March curious, if you've had a chance to review those 31 proposed actions as well and.
Tim Mulrooney: The company is doing internally to prepare for those potential changes and I'm thinking about this both from a risk standpoint, but also an opportunity standpoint. Thank you.
Tim Mulrooney: Yes, Seldon the EPA administrator with this administration has come out just recently with a number of proposed changes to the Epa's regulatory regimes.
Tim Mulrooney: I'd say those are proposals for watching them very carefully to see how they progressed and how they finally end up but what is interesting.
Tim Mulrooney: Most of the work we do an.
Tim Mulrooney: Approximated at something like 90% of the work we do on the environmental side is actually driven by state and local regulations and work that we do to meet those compliance requirements, let's say the other 10% that we do that is actually driven by federal government regulations are mostly on superfund sites that I would say are outside the <unk>.
Tim Mulrooney: Posed regulations that are have been.
Tim Mulrooney: Proposed by.
Tim Mulrooney: The administrators Eldon.
Tim Mulrooney: One thing I have found interesting is there are emerging contaminants that are.
Tim Mulrooney: I've received a lot of attention of course P. Foster forever chemicals is probably one of the more.
Tim Mulrooney: One of the more covered topics.
Tim Mulrooney: Administrative Zelda and was on the commissions and the groups that actually reviewed putting these.
Tim Mulrooney: Regulatory actions in place and he spoke at a number of different forums here over the past month about its important to regulate these it's important to remove them from the drinking water supply and protect the human health.
Tim Mulrooney: Of the country and it's going to be moving.
Tim Mulrooney: Moving forward with the regulations that have been put in place, but is looking for not the water delivery or the utilities to pay the bills for this to remove but actually to have the responsible parties who.
Tim Mulrooney: Actually impacted the water supplies and he actually called out even the federal government as being one of the largest contributors to <unk> in the environment, which then works with the drinking water supply.
Tim Mulrooney: We've worked for the federal government since our very founding getting close to 60 years ago now.
Speaker Change: And the Department of Defense is the location, where it comes from it's from firefighting us from other chemical uses discharges and we have an enormous amount of contract capacity and I expect some of these things that will go forward with EPA as enforcement investigations will be led by department of defense and I think we're really well positioned there.
Speaker Change: I don't know there is a lot of federal regulations that are being proposed and discussed we don't see them, having a direct impact on the contract of work we have other than some positive outcomes with respect to investigation and cleaning up some of these persistent chemicals that have become priorities. These days so.
Speaker Change: Good questions, we're watching it very closely to see how they how they change but as it relates directly to the work we're contracted for.
Speaker Change: Not see much of.
Speaker Change: Much of an impact.
Speaker Change: Thank you Tim.
Speaker Change: Our next question comes from the line of Sangeeta Jain with Keybanc. Please proceed with your question.
Sangeeta Jain: Yes. Good morning. Thank you for taking my question, but if I can just start.
Speaker Change: On the core margin progression.
Speaker Change: How you think that works out Boston dust settles on the USAID cancellations and productivity normalizes I know you've given US a 50 basis point annual target at the analyst day, but just wondering how you think about it now.
Speaker Change: Yes, that's a good question that's a really good question.
Speaker Change: I think you will have questions at the end of Investor's day was.
Speaker Change: What do you think about your business of all your USAID work with Scott instead of I don't know if that was a perfect or not but my comment. My initial comment was for our margins are going up. So let me address that because I had indicated in investor day, along with Steve Burdick and our other presenters that we would increase on an annual basis our margins.
Speaker Change: About 50 basis points and that's with it.
Speaker Change: No.
Speaker Change: I think that the baseline of our overall margin profile without aid is now higher so I would say that the.
Speaker Change: We were starting at a 13, 5%, 2014% just with the removal of <unk>.
Speaker Change: The underlying business has about a 50 basis point increase might even be slightly more than that.
Speaker Change: On the overall margin of the company and I think that we didn't expect that the margins were going to increase with respect to USAID work.
Speaker Change: The investor.
Speaker Change: Meaning that we have that called out our 2030, so without U S aid in there I think that the margins should grow slightly faster than the 50 basis points. So I think we have a new higher baseline and I think we have a faster growth rate with respect to margin growth over the five years that we called out on Investor day. So.
Speaker Change: Your question with respect to has our profile on margins been impacted by a going away.
Speaker Change: Go back to the comment I made a year ago on may 14th.
Speaker Change: Yes.
Speaker Change: And to be better and we're going to be higher and that's what we still see at this point.
Speaker Change: Great. Thank you, Dan and if I can.
Speaker Change: Follow up on the 200 at the end of Q with a backlog that you still have if you can comment on how you're seeing that net burn thus far this quarter. So we can get a sense off.
Speaker Change: But has left the barn.
Speaker Change: Yeah. It's interesting so we have about $2 20 in total.
Speaker Change: Most of that is for work in Ukraine.
Speaker Change: We currently expect based on tests that we have that wheel will perform.
Speaker Change: Form that work in Q3 and Q4.
Speaker Change: We think about 200 of the $2 20 with can be complete this year and relatively even.
Speaker Change: Revenue, so roughly 100 in each quarter.
Speaker Change: <unk>.
Speaker Change: Can you Crane is if you follow any of the news headlines as.
Speaker Change: Highly variable.
Speaker Change: And that certainly could go down or it could go up depending on political will and commitments and other items, but we expect that to.
Speaker Change: To be incurred.
Speaker Change: Incurred are spent by the government and authorized to us on relatively even amount between Q3 and Q4.
Speaker Change: Say, a small amount of that though is associated with our demobilization of all of the rest of the USAID contracts, where we have received termination for convenience services, which is we're just not continuing these.
Speaker Change: Those costs are reimbursable at the project level for project costs that are incurred and so a small part of that.
Speaker Change: We will be demobilizing here through the rest of this year and that's everything from repatriating staff to the U S and <unk>.
Speaker Change: Hosing down field offices, and transferring a government owned property back to.
Speaker Change: The appropriate owners so.
Speaker Change: That's how we see that.
Speaker Change: Progressing between now and the end of the year.
Speaker Change: I appreciate that thank you Dan.
Speaker Change: Thank you. Thank you.
Speaker Change: Our next question comes from the line of Silver Hot Kahn with RBC. Please proceed with your question.
Speaker Change: Okay.
Speaker Change: Okay, great Thanks, and good afternoon.
Speaker Change: Two accounts early at the beginning during the preamble around this as being sort of a dynamic and sort of the evolution.
Speaker Change: So quite interesting relative to what we may have thought a year ago, maybe if you can just talk about.
Speaker Change: There are discussions with some of your larger government partners public sector partners on their visibility as you think about the back half of this year and into 2006 the level of confidence just visibility how things sort of stabilized.
Speaker Change: <unk> seemed to stabilize as well just curious what your customers are seeing on the ground level as it relates to the projects ahead and the funding that they have.
Speaker Change: We'll start with the federal government since that's where most of the.
Speaker Change: Variability, maybe you can call it volatility.
Speaker Change: <unk> has been centered around.
Speaker Change: I would say there was a lot of uncertainty even to today, but what we tend to look at is not what they say, but what they do that's one of our items here is don't listen to what they say watch what they do.
Speaker Change: Watching what the U S administration has done to support the U S military readiness.
Speaker Change: Leslie Shoemakers comment that we've added about $5 billion of new contract capacity with defense U S Department of defense and most of that has actually been since the inauguration and certainly it's been since the election.
Speaker Change: So we actually take a look at the contracts that have been put in place the geographies.
Speaker Change: Which happen to be.
Speaker Change: Coincidental with the priorities of the administration globally.
Speaker Change: I would say that in many respects, we feel better about the funding streams and the clarity within Dod.
Speaker Change: In the U S and even the corps of engineers and I think the slide presented materials gets a good example, and.
Speaker Change: Sometimes the government announces successes and wins, we have even before we do.
Speaker Change: We wait until we finish signing it but don't be surprised if you see quite a bit more coming out with the new awards to the company and so.
Speaker Change: What we're hearing from our clients or they're going to commit to funding, it's not going to be how will vehicles I would say historically, we often saw department of defense had a very large contract capacities, but they only use a portion of it with respect to actually task orders.
Speaker Change: Being told that they're going to spend with a contract for.
Speaker Change: Which.
Speaker Change: This provides additional confidence.
Speaker Change: It feels pretty good.
Speaker Change: Our largest interestingly enough our largest civilian agency clients as the federal Aviation administration or FAA.
Speaker Change: And Secretary Duffy ahead of ahead of.
Speaker Change: Okay.
Speaker Change: Has said that.
Speaker Change: Modernizing.
Speaker Change: In a safe way.
Speaker Change: Air traffic control system is the top priority period.
Speaker Change: I'll tell you. There is few that are better situated than us in that area.
Speaker Change: And I'll tell you, it's not just because we've been a longtime incumbent and we've been there which is true, but we have been working on the cutting edge, including.
Speaker Change: Rolling out some of the new space space communication systems I know.
Speaker Change: Some of you might recognize had a starlink, but we've already been doing that and I know, many say that theyre talking to the administration and they're talking to Secretary Duffy.
Speaker Change: We're actually working for them and there's a big difference between wanting to get in and being in <unk>.
Speaker Change: So we feel pretty positive there im wondering if thats been pleasantly surprising.
Speaker Change: As the U S. EPA I think early on you talked about 65% reduction I think most recently they talk about 50% reduction, but the work that we have and the contracts have been essentially unaffected, which has been a pretty pleasant surprise I believe thats because we are the contract holder of many or most of the start contracts with <unk>.
Speaker Change: Our emergency response activities, which includes things like responding piece Palestine train derailment.
Speaker Change: No.
Speaker Change: That has been put us one priority they want to make sure that the response capability at the federal level is there to protect the citizens of the country in the event that these unique events. So maybe we're in the right spot not to be impacted and to be in the right part of the 50% that's going to remain so.
Speaker Change: Covered a few areas since you'd asked about the public sector or the government and that's what we're seeing at the federal level and I kind of covered on the earlier question, what we're seeing at the state and local things look very strong our folk are three big focuses.
Speaker Change: Florida, Texas, California.
Speaker Change: Large funds and Leslie did a good job in our presentation of some of the new cutting edge programs that we're putting in place like.
Speaker Change: Potable reuse so take water thats from the wastewater treatment plants recover it and use that as a new drinking water supply, which is we are doing the great majority of it were the largest desalination designer in the United States, which is the technology that is primarily used for water reuse.
Speaker Change: <unk>.
Speaker Change: I'll tell you it looks very looks very positive in those areas.
Speaker Change: Great and then just.
Speaker Change: On the sort of the.
Speaker Change: That's kind of fiscal 'twenty three targets, obviously, a bit of a surprise USAID announcement kind of this year.
Speaker Change: You kind of look ahead to sort of the.
Speaker Change: Next kind of three four or five years.
Speaker Change: Hanging in your commentary about the margins a bit early how do you sort of feeling just about the medium term outlook.
Speaker Change: You feel like Youre sort of USA sides still on track for the kind of a medium term targets that you laid out thank you.
Speaker Change: Yes, I think we are I think we are the one area that I feel really good about is also some of our geographic.
Speaker Change: Diversification if you the last two acquisitions have brought in an entity in Ireland Karen Walsh.
Speaker Change: <unk>, bringing in Sage, which is located in Australia.
Speaker Change: But both of those have fungible expertise, particularly stage so the expertise with respect to automation and the programming the Iot use of Iot the use of.
Speaker Change: Robotics.
Speaker Change: It is not it's not confined to a geography as easily transportable to work that we're doing all across Canada, the U S and Europe. So.
Speaker Change: I think in the middle term growing our commercial work, which carries even higher margins.
Speaker Change: Adding additional geographic reach in places like Ireland have very large infrastructure that are multi year if not.
Speaker Change: Multi decade programs.
Speaker Change: For sure looks favorable for us through the middle term and of course, the one comment.
Speaker Change: I've made around.
Speaker Change: The office here some have asked.
Speaker Change: Clear. This next week, how clear is two weeks from now and that's allowing us to see pretty clear in a week or two but in some respects I can see you've been clear.
Speaker Change: Five years from now.
Speaker Change: Some of the short term variability in some of the short term volatility goes up and down but the.
Speaker Change: The primary tailwind instead of driving Tetra tech are not changing.
Speaker Change: Coastal flooding coastal protection.
Speaker Change: Water supplies, where they don't exist because of drought conditions.
Speaker Change: Brackish water because of Overdrafting Rover pumping water supplies in places like Florida, and low lying areas. None of these are actually going away, if anything theyre being exacerbated and where are they going to be next week next month or the next midterm.
Speaker Change: There is some variability, but if you actually look out a bit longer.
Speaker Change: The tailwind from the drivers of our business are changing at all if anything they are just becoming even more important.
Speaker Change: Great. Thanks for that just maybe one last one maybe more for Steve, but you laid out a little bit of.
Speaker Change: Capital allocation philosophy and sounds like it's been.
Speaker Change: A little bit of all of the above on return of capital on M&A. Maybe you can just talk about is there a sort of a rank order that you prefer at this point between share buybacks versus M&A or is there enough capital to sort of pursue M&A, while doing some elevated return of capital.
Speaker Change: Yes, I think.
Speaker Change: I think we have the ability to do all of the above as we've been able to show I know.
Speaker Change: Yeah.
Speaker Change: For the last when we after we acquired Rps, we put our stock buyback program on hold until we got our.
Speaker Change: Our net leverage down below one and we did that.
Speaker Change: On time.
Speaker Change: As we as we forecasted so.
Speaker Change: I think we are.
Speaker Change: Our goals are to continue our.
Speaker Change: Double digit increase in our <unk>.
Speaker Change: Cash dividends to shareholders.
Speaker Change: We want to grow and invest in organic growth in the areas that especially what.
Speaker Change: Joseph and Leslie and Dan have talked about today.
Speaker Change: Wanted to.
Speaker Change: Complement that organic growth with acquisitions that are important to us.
Speaker Change: <unk>.
Speaker Change: And I think.
Speaker Change: With.
Speaker Change: With the liquidity we have available.
Speaker Change: We have the ability to.
Speaker Change: You are.
Speaker Change: A stock buyback program.
Speaker Change: And as our net leverage.
Speaker Change: Goes back below one.
Speaker Change: We will have even more liquidity.
Speaker Change: To ramp that that buyback program.
Speaker Change: Alright, thanks very much.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Our next question.
Speaker Change: Ryan Connors with Northcoast Research. Please proceed with your question.
Ryan Connors: Good morning.
Good morning Ray.
Ryan Connors: So.
Speaker Change: Congratulations on proving out that you still got a very attractive business. Despite all the doom and gloom.
Speaker Change: I wanted to explore the Usaid's thing from the standpoint of.
Speaker Change: Capabilities and assets and so in terms of utilization.
Speaker Change: Metrics you can share around utilization, presumably there were some folks working heavily with USA I do D who are now maybe underutilized yes.
Speaker Change: That doesn't appear to be showing up in the.
Speaker Change: Margins.
Speaker Change: At least not in the second quarter. So anything you can share for us about kind of the utilization rates of those people.
Speaker Change: Yes.
Speaker Change: That's very insightful.
Speaker Change: Elevation has has gone down and that group.
Speaker Change: But I will say that in the quarter you wouldn't have seen it on an aggregate basis, because we staffed up a lot of people for the fires out here in la responding to the disasters. So yes, we had a reduction in what I would call the aid.
Speaker Change: Staff, while we look to find.
Speaker Change: As a project going to be a lot of this was put on hold so the progression when we we're working full tilt until the inauguration.
Speaker Change: Very quickly we receive stop work orders where we.
Speaker Change: Minimized cost, but we kept pretty much everybody onboard because we expected things to be turned back on and then it went to <unk>.
Speaker Change: Termination for convenience.
Speaker Change: Yes, their utilization did drop you wouldnt seen on an aggregate basis because of the offsets of a very high 100% frankly people working.
Speaker Change: 100 hours a week, so that offset it.
Speaker Change: We did incur costs, we did hold folks until they went to termination for convenience and we ourselves.
Speaker Change: Help people longer while we did a search and evaluation could we place them at other locations and those are areas, where it's not reimbursable by the client where we made the decision to.
Speaker Change: Hold on to people for longer periods, while we were looking while we determine that if other projects, we're going to get put back on.
Speaker Change: And so that really refers to my comment probably my.
Speaker Change: In articulate comment that March is actually could have and I expect to be better if we had moved quicker but.
Speaker Change: This was kind of a.
Speaker Change: Certainly hope a black Swan event, where you have something that's quite a bit.
Speaker Change: <unk> to turn off so.
Speaker Change: But I expect that as we move through these termination for convenience utilization will go back up.
Speaker Change: Across the board so even as the fires come off with these very large high utilizations, you'll see the rest of the business utilization up so to look like we kind of sailed right through this without any change, but just under the surface aid went down fires went up and youll see that flip back over here in the coming quarters.
Speaker Change: Got it okay. That's all that really helps explain it thank you.
Speaker Change: And then my second question was just around the backlog.
Speaker Change: Given the nature of the business. The backlog is obviously something that investors tend to focus on is kind of gives a trap.
Speaker Change: Your line of sight to things.
Speaker Change: Obviously, there is a hole there.
Speaker Change: From USAA.
Speaker Change: A portion of it to its size.
Speaker Change: But yet you've won some really nice wins as well how long do you think it would take we talking quarters.
Speaker Change: There are more a couple of years to get back to kind of pre pre doge backlog so to speak.
Speaker Change: Yes.
Speaker Change: It's really interesting we spent some time looking.
Speaker Change: Looking at that here.
Speaker Change: R R.
Speaker Change: Our visibility with respect to.
Speaker Change: The book of business, we have ex USA department of state.
Speaker Change: Actually about the same or slightly up so if you take a look at what if you take.
Speaker Change: Assay out you saw that our backlog is about.
Speaker Change: Read about $4 1 billion and $4 nine.
Speaker Change: But if you take a look at the mid point of our revenue.
Speaker Change: Net revenue without USAID, it's about $4 billion.
Speaker Change: So we have about a year's worth of <unk>.
Speaker Change: Visibility or contracted authorized work with.
Speaker Change: With our overall contract capacity going up I think we're going to I would hope to see that our visibility will begin to stretch out more than a year. When it has been more than a year, which it has been on an aggregate basis because of the multi year funding that we had within USA. So if you look at it and say.
Speaker Change: You had more visibility than a year before and now you're down to a year.
Speaker Change: I would observe that actually if you took USAID out we.
Speaker Change: We're about 11 months 11 five months. So we are actually up so they're.
Speaker Change: There may be a an appearance.
Speaker Change: Because the backlog that came down was disproportionate to the revenue, but that's because it was multiyear funding if you actually take that out and look at the underlying business. There is actually not a hole and we have funding.
Speaker Change: At a similar level or even slightly up from where it had been before.
Speaker Change: With respect to converting the contracts that we've won I think those are going to take place if.
Speaker Change: If what we're hearing from our clients as I shared earlier when the question was what are you actually hearing on the frontline with your public clients.
Speaker Change: To start funding. These we could actually see that backlog grow much quicker and being see that.
Speaker Change: I would call it uncharted territory, but favorable territory with respect to more visibility.
Speaker Change: With respect to backlog as a percentage of revenue.
Speaker Change: Got it okay. That's very helpful. Dan Thanks for your time.
Speaker Change: Okay. Thank you Ryan.
Speaker Change: Our.
Speaker Change: Next question comes from the line of Andrew Wittmann with Baird. Please proceed with your question.
Speaker Change: Great. Thanks for taking my questions. This morning, guys.
Andrew Wittmann: I guess I just wanted to.
Andrew Wittmann: Confirm some of the moving parts here and then let's talk a little bit about kind of the outlook here so far.
Andrew Wittmann: On my calculations in the second quarter is about $180 million on USAID.
Andrew Wittmann: $50 million of net revenue on disaster and then you said you have got $2 20 for USAID and the back half of the year spread between the two quarters.
Andrew Wittmann: So I guess.
Andrew Wittmann: Inside of this it sounds like a lot of the USAID work that's been continuing here if not all of it is Ukraine.
Andrew Wittmann: And.
Andrew Wittmann: That is still an ongoing situation.
Andrew Wittmann: And we know what you've got in your backlog as you only put whats funded in your backlog.
Speaker Change: But does this contract like expire is it out of option years are task orders.
Speaker Change: I guess I'm asking because I.
Speaker Change: I think I believe your guidance says.
Speaker Change: These numbers that I just articulated here are what's in the guidance and there is nothing else in the guidance.
Speaker Change: But the Ukraine is ongoing this is obviously a USAID contract that's gotten special dispensation to keep getting funded.
Speaker Change: So I was just wondering like if there's like a new contract that needs to be awarded until it's out to competitive bid, which would mean, it's less likely for you.
Dan Backtrack: I think Dan you can see where I'm going with this but I was just hoping you could comment on that.
Dan Backtrack: Yes, yes, absolutely.
Dan Backtrack: I'm quite familiar with all those moving pieces.
Speaker Change: I will help clarify a couple of items in the quarter. It was about $130 million of USA Department of state work about one eight so about 130 okay.
Speaker Change: Million is almost right on for the faster and Thats.
Speaker Change: Really kind of split between the other work, we're doing still supporting Hurricane Milton in Halloween.
The South East and then the fires.
And...
Speaker Change: Halene in the South East and then the fires in the west. So you've got that exactly right. Now the 200 million or technically 220 we have in backlog is contracted for. So it's not only contracted, these are only the small part of the contract sealings we have in place.
Speaker Change: In fact, we made an announcement back in the fall of when that the 200 million is under. It's called the Spark Contract for USA and it's for the continuation of what we had done the previous few years supporting the energy infrastructure in Ukraine.
Speaker Change: Also set a stroke of a pen and email and put it the other way and say you're done that then we would go through demobilization. It still wouldn't go to zero or are you still have to then.
Speaker Change: Repatriate and overall the equipment out of the rest of the items. So so the amount that we have in our guidance for second half of the year with respect to aid has already been contracted and the task orders already issued.
Speaker Change: Normally I would say.
Speaker Change: In fact, I will say, it's very difficult to undo a task order that's already been given when <unk> got equipment. That's in the air heading there, but these are unprecedented times anything can happen seeing airplanes being requested to do a U turn right in the middle of the Atlantic.
Speaker Change: I'm not I don't want to take something that's unusual and say that's not possible anything's possible. When you just look through losing a billion plus in one quarter I won't take anything off the table.
Speaker Change: But the one thing I'll say is when you take which was 10% of our total revenue of the company and Ukraine drove that up to 15% of the entire revenue for the company and it goes essentially to zero and forget a quarter.
Speaker Change: The.
Speaker Change: Your ratio wasn't until the end of January so in 60 days and still perform these.
Speaker Change: Type of.
Speaker Change: Quarter.
Speaker Change: I'm not saying.
Speaker Change: But all comers come, but we're well prepared and flexible to move quickly with us and go back to your question again.
Speaker Change: No we don't need to win a new contract no. We don't have any new task orders issued to US, yes, thats authorized but with a caveat these things can change because of.
Speaker Change: The location.
Speaker Change: And the different variability things happening in Ukraine.
Speaker Change: Yes, so youre basically your guidance approach Hasnt really changed last quarter you laid out.
Speaker Change: Like this is kind of what we thought.
Speaker Change: The downside could be and you're still just modeling exactly what you have and not assuming anything else in your guide and we know the backlog is always what's contracted and funded but regarding sometimes can take a little bit different approach here you only have whats contracted so I. Appreciate the way you are approaching this volatile area I guess and then just my follow up and final question. Then is just on.
Speaker Change: On the backlog and not.
Speaker Change: Department of state, which you've quantified very well through all of these things.
Speaker Change: But on the federal civilian side.
Speaker Change: Was any of the $1 one.
Speaker Change: That was was that came out attributed to other areas of federal civilian.
Speaker Change: Or was that all USA state Department stuff.
Speaker Change: To be to be precise it was there was some others, but it was measured I think in aggregate everything else we track this pretty close.
Speaker Change: But we track really closely.
Speaker Change: Less than $10 million and I think we had like $1 million or two out of EPA, we had $1 million that we had a $2 million I think had a FEMA.
Speaker Change: Think we had.
Speaker Change: We had like a couple of hundred thousand out of National Science Foundation.
Speaker Change: Well I don't know I Shouldnt say tenant.
Speaker Change: Im probably five.
Speaker Change: So yes, there were a few other really small pieces, but.
Speaker Change: It was 99, 9% USA sales department.
Speaker Change: Okay. That's helpful perspective, Thank you for clarifying that I appreciate it have a good day.
Andy: Great. Thank you very much Andy.
Speaker Change: Our next question comes from the line of Michael Dudas with vertical Research partners. Please proceed with your question.
Speaker Change: Good morning, everybody and thanks for joining us.
In here.
Speaker Change: Yes of course.
Speaker Change: So maybe.
Speaker Change: Maybe just shift to your international work.
Speaker Change: Can you give a sense you've talked you've called out.
Speaker Change: Slow growth in Australia, It seems like UK is recovering.
Speaker Change: Election oriented I guess, you think about the right kinds of such maybe.
Speaker Change: How would you look at just the one or 2% growth you had this quarter, how that looks second half of the year and as you look at a little bit further.
Speaker Change: Given some of the shifts in what Youre doing in the U K and maybe some of the highest HPV work is there opportunity for acceleration of international exposure and some.
Speaker Change: Growth out of that over the next few quarters.
Speaker Change: That's another really good question. The one thing I will say we've seen is.
Speaker Change: The uncertainty.
Speaker Change: I've talked on this call a fair amount about variability and change of some funding and priorities within the U S federal governments.
Speaker Change: Budgets that we work for.
Speaker Change: <unk>.
Speaker Change: I guess I'll have to join the club and use a word tariffs.
Speaker Change: Or international.
Speaker Change: Clarity.
Speaker Change: There is both work there is impact.
Speaker Change: Mostly on our international commercial which falls within our CIP and our international revenues, where I think some of our clients are the work that we have has been continuing which you can see is sort of flat.
Speaker Change: But as far as initiation of new activities.
Speaker Change: With respect to some instances buildings, but certainly other items, such as siting and permitting and other items has been.
Speaker Change: Slow down.
Speaker Change: Just looking for clarity are they are they going to have a tariff change are they going to go forward and what I've heard from our clients are.
Speaker Change: This is interesting.
Speaker Change: And they're not going to say that the tariffs are the expenses in and of themselves aren't material of course, they are but all they want is clarity. If the number is 30% to 30% number is 10% is 10% of the numbers I don't know about 150%. If the number is 150% was 150% and we will then proceed.
Speaker Change: Accordingly with those.
Speaker Change: <unk>.
Speaker Change: And with those ground rules and then that's not a problem we will move forward and.
Speaker Change: That's fine for us too because what we've said and I've said this before in periods of recessionary environment. Some of our businesses actually do quite a bit better.
Speaker Change: Instead of generating 500 gigawatts of power across a big area, maybe im going to decrease May wind farm and generate 30, Gigawatts. So go back and redesign it and then things have changed and input prices are higher so.
Speaker Change: No.
Speaker Change: I would say that the growth rates on international.
Speaker Change: Probably one of the areas that we have some questions on and I think it's partially dependent on clarity, what's what's happening on international trade and items associated with that.
Speaker Change: No. It hasnt caused our revenues to go down.
Speaker Change: The more long term programs that we have in Australia, Canada, and the UK Ministry of Defense and Department of Defense in Australia unaffected. So those areas are growing through nice growth long term programs long visibility, but things that are that move quick and I think we're going to see it in the U S commercial and international commercial because those are the key.
Speaker Change: They can turn the switch the quickest most of the ones that this isn't working for me.
Speaker Change: Going to proceed or this is working for me, let's go right now so that's where we probably have.
Speaker Change: The greatest variability and I think that's why we're seeing a more tempered growth rate.
Speaker Change: The international right now.
Speaker Change: I'm sorry, you had to use the keyword in this call.
Speaker Change: <unk> call, but thanks for your thoughts there.
Speaker Change: Yeah. Thanks, Michael.
Speaker Change: I would say for the most part Tetra tech is unrelated to that word, but some of our clients might have a little play on that thank you very much Michael.
Speaker Change: This will conclude the Q&A session I will now turn the conference back over to Dan bedrock to conclude.
Dan Backtrack: Thank you very much Christine and thank you all for joining the call today.
Speaker Change: Very much appreciate your support.
Speaker Change: Through these periods.
Speaker Change: I hope we were able to answer some of your questions regarding the impacts of USAID State Department and other areas in the federal government.
Speaker Change: There is no doubt.
Speaker Change: And very cognizant of the questions that people had in what's the impact going to be.
Speaker Change: I Hope I hope, we were able to be really clear on the impact to our underlying business is growth rates. Its margin separation of backlog, we really did try as a management team to be extra candid and transparent on that front and if for some reason there is some.
Speaker Change: Specific item that you would like more clarity on please call over here.
Speaker Change: Our IR and the bring Steven I or anyone else and it's appropriate because we really want to be as transparent.
Speaker Change: As possible because we have a great business.
Speaker Change: And I think the biggest issue that impacted us this past quarter is a misunderstanding of what the impact to Tetra Tech is from some of these changes.
Speaker Change: And I'm looking forward to presenting our results in the third quarter I will talk to you in 90 days and I hope you're all safe.
Speaker Change: Safe and prosperous between now and our next conversation. Thank you very much.
Speaker Change: Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day.
Speaker Change: All parties may disconnect now.