Q3 2025 Tetra Tech Inc Earnings Call
Good morning, and thank you for joining the Tetra Tech earnings call.
As a reminder Tetra Tech is also simal casting this presentation with slides in the investor section of its website at tetra tech.com.
This call is being recorded at the request of Tetra Tech, and this broadcast is the copyrighted property of Tetra Tech.
Any rebroadcast of this information, in whole or in part, without the prior written permission of Tetra Tech is prohibited.
Today, from management, we have Dan Batrack, Chairman and Chief Executive Officer.
Steve berdick Chief Financial Officer and Leslie. Shoemaker Chief Innovation officer.
They will provide a brief overview of the results and will then open up the call for questions.
I would like to direct your attention to the safe harbor statement in today's presentation.
To today's discussion contains forward-looking statements about future business and financial expectations.
Actual results May differ significantly from those projected. In today's forward-looking statements due to various risks and uncertainties including the risks described in Tetra Tech's. Periodic reports filed with the SEC.
Except is required by law Tetra Tech undertakes. No obligation to update, its forward-looking statements.
In addition, since management will be presenting some non-gaap Financial measures as references, the appropriate Gap, Financial reconciliations are posted in the investor section of tetra Tech's website.
At this time, I would like to inform you. That all participants are in a listen-only mode.
At the request of the company, we will open up the conference for questions and answers after the presentation.
With that, I would like to turn the call over to Dan Batrack. Please go ahead, Mr. Batrack.
Thank you very much, Kate and uh, good morning and Welcome to our third quarter of fiscal year, 2025 earnings conference call.
Overall we had a very strong third quarter hitting new record highs for operating income and earnings per share. In fact, they were a good in these details and Steve will talk about them, but they were all-time highs not just for a third quarter, but for any quarter in the history of the company,
Our operating income and margin that were at these very, very high levels were driven by the utilization of our staff that responded to the devastating fires that took place earlier in the calendar year here in Southern California.
Uh this High utilization of our staff drove, our increased revenue and income be even beyond the high end of our guidance and it really supported this year on your growth rates that we saw on the quarter.
The wind down of our us Aid work in the quarter continue to proceed generally as we projected. Uh, in fact, the revenue was slightly below what we had uh at forecasted for the third quarter. However, 1 very bright spot is that we did receive payments of essentially, all of our outstanding us Aid invoices, which contributed to the extraordinarily strong cash, generation and Day sales outstanding. Our DSO reduction uh that we saw on the quarter and our CFO. Steve berdick will talk about that in more detail uh shortly.
What we had is extraordinarily good third quarter, in fact, uh record third quarter uh in many respects uh we are still being very cautious and navigating the changes that are coming with this new Administration and its near-term. Secondary impacts uh in my prepared group Marks here at the beginning of our presentation today, I will discuss some of these short-term impacts that we're seeing across our in markets.
Our presenting with me today, uh, is Steve berdick. Our Chief Financial Officer who will provide additional details on our financial performance.
Dr. Leslie Shoemaker, our chief Innovation officer will provide an update on the outlook for our US federal work and our digital automation markets.
So, with that, I'd like to start today's call with an update of our financial performance and our overall business.
So in the third quarter, excluding our usaid and Department of State business, which is um, very quickly. In fact, USA, it is no longer existing as a entity with the federal government. So if the best way to look at our business is actually with those removed from our financial numbers. Uh, in the quarter, our net revenue increase to, uh, 1 billion, 60 million or 1.06 billion, uh, which is up 11% from the same quarter a year ago. Our operating income is 159 million for the quarter in increase of 37%.
From the prior year.
and we generated an earnings per share or EPS of 41 cents for the quarter, which is a 46%
from the prior year.
Which is up pretty impressive, 230 basis points from the prior year.
At gst's exceptional margin performance. Was driven by a combination of Disaster Response work and the reduction of the lower margin, USA and state work that we had in Prior quarters.
The very rapid ramp up of the fire related recovery work in California, drove, higher utilization from the mobilization of Staff. Really. Very broadly across all of Texas and certainly across the US portions of tetratech that we put those individuals on the fire to respond very quickly.
The Commercial International Group, or CIG segment, delivered a very strong 15.2% margin in the quarter, up 130 basis points from last year.
Now, the C's segments Revenue was 633 million and the quarter. It was up slightly from the same quarter last year with, uh, growth, uh, in cig within our United Kingdom, the UK, and European Union operations.
Um and reductions in our us commercial and Australian activities, uh that I'll speak about uh in a bit more detail on the next slide for the webcast.
I'd now like to provide, you know, overview of our performance by our by our end customers.
Including excluding USA and Department of State for our US Federal clients. Our US federal work was up 46% from same quarter last year and now represents about 25% of our business.
In the quarter, disaster response work led by the Army Corps of Engineers contributed about $70 million in revenue. Again in the quarter, this contributed to our federal revenues.
For state level state and local uh Revenue grew 30% year-over-year.
Now, excluding the contribution of our episodic Disaster Response work. Our ongoing water programs for our state and local clients uh, was up 18% year-over-year. So, our state and local work, excluding the episodic disaster contributions up 18%, continuing a little bit higher than a range that we've sort of anticipated for growth in our state and local work.
Are you at the commercial? Net revenues were down.
Uh, 4% year-on-year, primarily driven by reductions in renewable energy work that we do, especially in offshore wind projects.
Overall, our environmental restoration work, which is environmental compliance activities was stable and continued to, um, uh, be equal roughly to the previous year. Uh, and that's supported by regulatory-driven, requirements that are imposed at the state. And local level has been really no impact on federal activities for that part of our commercial work.
Finally, our International work which now represents 42% of our revenues, uh, in the quarter, and it was down 1% year-over-year. So I'll call it essentially flat. Uh, we did see growth in our United Kingdom and, uh, Irish Water programs. So UK, and our EU work, uh, was up. I'm saying that same upper single digits.
Uh, but this growth was offset by continued. Decrease in infrastructure work in Australia.
Uh, if we actually take the Australia revenues out of our International revenues, you would see the rest of tetrax collective International activities. Uh, are up about 5% in the third quarter. So that gives you an idea of the impact of
that reductions in Australia.
I'd now like to discuss our backlog, which represents, and I think this is quite important, a contracted funded, and authorized work that we've received from our clients.
Excluding USA's and state department activities, our backlog is 4.15 billion dollars which is up slightly, uh, from the second quarter. And I think this is actually, uh, a great, uh, attribute and, uh, deserves a recognition by our staff that we've really seen excluding Aid at the backlog, probably be stable, but actually grow and the third quarter. And that's typically not 1 of our big backlog, Road quarters.
And the quarter, we did add nearly $2 billion in new contract capacity with the U.S. federal government. We press released these, and they include contract wins with the Army Corps of Engineers and Huntsville Europe, and in Honolulu. So, geographically, very broad, globally.
Uh our recent 94 million Environmental Protection Agency or US EPA, award is singularly focused on providing essential emergency response services.
Derailments of uh the railroad cars and extraordinary events such as the East, Palestine Ohio, Train Day environment, that happened in 2023. It's so it's for that type of work that requires extraordinary response.
We continue to build our state contract capacity for Disaster Response services. And uh, we did have a nice Award with the state of Georgia for approximately 22 million dollars on that continues to build on work. We've been doing there before, in fact, earlier in the year for hurricanes Hilton, Mel, Milton and Helena.
And most recently, we announced the award of a new contract for digital automation from a very large water utility, uh, just here in California.
And at this point, I'd like to now turn the presentation over to Steve berdick. Our Chief Financial Officer who will provide us additional details on our financials and give us an update on our Capital allocation program. So Steve well hey thanks Dan. So I'd like to now provide an update on our fiscal year to date results. Uh, working capital cash flows and capital allocation.
So as Dan discussed earlier on this call, we continue to focus on the front and Consulting and design for water and environmental projects which are carrying higher margins across all of our in markets. Um and as such even as the 2025 Revenue was up 9% over last year, our operating income and Evita for the year increased at higher rate.
21% and 15% respectively.
These results on a year-to-date basis, uh, further support, our long-term strategic goals to increase net revenue, while improving iBot margins by 50 basis points annually. And I do want to point out that the ibida margins on net revenue came in better and increased by over 70 points or 70 basis. Points through the first 3 quarters of this year as compared to last year at this time.
as a result of our ability to enhance our profit margins and further manage our working capital, we were able to increase the adjusted e but that our EPS by 26% over last year,
Now, on a gap basis in the first half of the year, we did recognize the charge for litigation and non-cash charge relative to the Goodwill impairment for our us a reporting division. So I would, uh, please refer you to the appendix of this presentation and our reg G for any reconciliation.
These.
Strong financial and operating results have resulted in the strengthening of our balance sheet and our cash flow position.
Cash flow generated from operations for the trailing 12 months was $462 million, which represents a 23% improvement over the previous trailing 12 months.
In these cash flows. Have continued to exceed net income by more than 100%
Our focus on working capital and cash flows has resulted in our DSO, reflecting in industry-leading standard of 56 days which is an 11-day improvement from the second quarter of the year.
Much of that improve, uh, much of this Improvement resulted from our collections of receivables, due on USA projects.
And when we include the current outstanding USA receivables, our DSO is even lower at 54 days.
As lower DSO, metrics provides a significant insight into our Core Business. As it reflects the outstanding work that our project managers lead relative to higher quality projects and highly satisfied. Clients in the broad portfolio across all of our end markets and all of our geographies,
our net debt amounts to about 620 million dollars. In the net debt on Eva was at a leverage of 0.96 times, which is lower than our leverage 1 year ago when it stood at 1.15 times.
Because we continue to execute on high-quality operating results with increasing margins.
Operating cash flows in excess of net income and a lower and lower working capital. Kpis, we will continue to provide higher returns for our shareholders.
And those higher shareholder financial returns reflected in an improving return on capital employed.
Um, which stands that close to about 20%, Which is among the best in our industry.
Now, for those following along the presentation, I would like to now present our Capital, allocation overview.
We have a very strong balance sheet. Probably the strongest balance sheet in our history with over 1 billion dollars in available liquidity as we revised our capital structure in the last year to take advantage of the credit Market to support our strategic growth opportunities.
We'll discuss those strategic growth areas later in the presentation, but I do want to point out that we have a significant amount in liquidity available to invest in organic and inquisitive growth priorities.
And we have a well-balanced mix of both fixed and floating rate debt to mitigate any interest rate risk and take, um, take advantage of any opportunities there.
Now, regarding our dividend program, I want to announce that our board of directors approved a 6 and a half cent dividend, which is a 12% increase year-over-year to be paid in the fourth quarter. This is our 41st consecutive quarterly dividend with annual double digit increases in the amounts, paid
And based on the lower leverage, that I just talked about. We did reinstitute, our stock buyback program this year,
So far in 2025, we have bought back a total of $200 million, which includes a 25 million 25 million in stock BuyBacks, for the third quarter.
We do have 648 million available from the stock buyback, plans approved by our board of directors as part of our Capital allocation strategy.
So, um, in conclusion, I'm I'm really pleased to share these Financial results so far. Uh, in fiscal 2025, thank you for your support. And I will now hand the call over to Lesley to discuss.
Tetrax future opportunities for the rest of 2025 and Beyond Lesley.
Thank you, Steve.
The US federal government spent.
Time in New.
Administration has put in place in the first year of a new Administration. New leadership is appointed and often the most significant legislation has passed.
It does take time for these changes to percolate through government policies and contracts.
Since January, we've seen significant changes in funding priorities, changes in contracting practices, restructuring of entire agencies, and the passage of the One Big Beautiful Bill Act, or OVA.
The new bill just signed on July 4th sets out the administration's New Vision and clearly defines new funding for priority programs.
the bill and subsequent executive orders, do include significant actions, that could adversely impact our renewable energy business
But we see.
Clear opportunities that are in tetrax wheelhouse.
I would like to highlight just 3 areas of particular relevance to us.
The bill identifies increases in defense spending of 150 billion dollars likely to be further, augmented by increases in the 2026 budget.
The focus on the upgrade of Defense facilities. Aligns with our differentiated Services, especially in resilient design, high performance, buildings and automated inspections, and asset management.
A generational increase of 25 billion dollars is also included for the Coast Guard.
We can quickly ramp up to expand our current work for the Coast Guard in software solutions that they use for emergency responders and Coastal monitoring today.
As well as support an increase in the evaluation, planning, and design of marine infrastructure.
Finally, the bill includes initial funding of 12 and a half billion dollars to upgrade our aircraft and control systems.
This is where Tetris Tech currently holds over 1 and a half billion dollars in Federal Aviation Administration capacity and is 1 of the leading experts in air traffic control, including the ongoing evaluation of new and emerging Technologies.
I'd now like to cover just a few recent developments in our digital automation sector.
We started the digital water initiative at Tetra Tech in 2021.
And since then we've added 5 firms with specialized expertise in the field of automation.
These are firms that work in, connecting the instruments technology and systems that are needed for the digital transformations of utilities and then industry.
Today, we're seeing some of the fastest growth in this sector catalyzed by the increasingly affordable access to generative AI. That's used to rapidly interpret information, optimize our client systems and actually work in real time.
Referred to as the new Industrial Revolution or industry 4.0 are for Global expansion to reach over 600 billion dollars by 2030 at a 20% Kerr.
From our initial Vision, to focus on water utilities, which is really the majority of our work today.
We've now added work for our commercial clients in oil and gas, Mining and Manufacturing.
Through the recent acquisition of stage automation, we now have significantly broader global resources. We further Diversified our clients and we've added new software and intellectual property.
Today, we're cross-selling digital automation to our Global customers and broadening our reach in this rapidly growing Model Market. That's fueled by the adoption of AI. That's directly benefits. Our customers bottom line.
The trends. We're seeing support our growth plan to reach 500 million in annual revenues for digital automation by 2030.
And now I'd like to turn the presentation back over to Dan
Thank you, listening. I uh, would I would like to present our guidance for the fourth quarter. And next year, updated guidance for the entirety of fiscal year 2025,
So our guidance is as follows for Q4, fourth quarter this year. 2025, our net revenue guidance is for a range of 1 billion to 1.1 billion.
With an Associated earnings per share of 38 cents to 43 cents.
Our updated guidance for the entire year is for a net revenue, range of
4 billion, 4454 million to 4 billion, 5554 million dollars. Uh, with a uh, an Associated adjusted earnings per share of a $1.49.
To a dollar 54.
Uh, we do have the assumptions for our fourth quarter.
Uh items included in the uh webcast and on the slide but I will make a note. We do anticipate a contribution of work from us Aid in Department of State have approximately 40 to 50 million dollars uh which is actually down from what we had anticipated. Uh just a quarter ago. So this is continuing to ramp down as an overall contribution to our revenues.
Here at Tetra Tech.
In summary this morning after 9 months, the fiscal year 2025 is about 3 quarters through uh and 6 months under this new Administration, uh which included the elimination of our largest client, USA, our revenues up and we just delivered the highest income quarter in the company's history.
Although there's near-term uncertainty and some of our end markets were well-prepared to navigate these through our Diversified Services, through our contract capacity. And by using our balance sheet, to be very opportunistic in many different strategic areas, some of those areas include Acquisitions and as Steve has indicated during his, uh, his commentary. The buildup of cash can also be used to continue stock, BuyBacks, which is another way of returning value to our shareholders.
Now, there's no doubt that the long-term demand and the capacity for high-end water environment and sustainable infrastructure is unchanged. And the future looks very bright for us.
And now I'd like to open the call for questions, uh, Kate.
Thank you.
The question and answer session will begin. Now please be aware that there will be a 30-second pause in our webcast to allow for buffering. At this time audio participants are invited to submit their questions. Please remember to mute the audio function on your computer before you speak. If you are using a speaker-phone please pick up the handset before pressing any numbers, if you'd like to ask a question please press star 1 on your touchtone phone.
The first question comes from the line of Tim Maloney with William Blair please proceed with your question.
Yes, Steve Leslie. Good morning.
Good morning.
Um so uh 2 questions here on the backlog. Uh firstly can you can you just dig into the backlog a little bit more? I mean, it looks like it was essentially flat year-over-year. Excluding
Side with a Cadence is a bit different than what you'd normally. See, I'm curious if we should be thinking about the slowdown in backlog growth.
as being indicative of slower Revenue growth or
Or maybe the procurement cycle has just shifted somewhat.
Um, and you know, as maybe the agencies are taking a little bit longer to send out the rfps or task orders.
That's a, that's a good. Uh, good option. A good question, Tim. Uh,
There's 2 aspects with respect to the work that we do for the federal government. I would say that over this last quarter 1 area, we've not seen a change in is the Cadence and timing and issuance and subcontracts.
And as I as I commented in my prepared, remarks, our backlog with the federal government increased by nearly 2 billion dollars. So the actual issue is the contracts uh, scope of work. Really. None of that has seen any changes from what we anticipated and what we've seen earlier in the year. And frankly from even uh, prior to this Administration. But what we have seen a, a difference in is actually the conversion of the contracts to issuance of task orders that go into our backlog. Now, I think part of this is actually an artifact of tetratech itself. We do only report our backlog, if we have a contract, which we've seen those announcements, but they funded it, which they have the funding for it.
from uh, from Congress with the bill and then they've actually authorized us to go to work and what we've, uh, so that's uh
Initiated the, uh, the activities in the field. What we have seen is has been a lot of uh, early retirements people downsizing. Uh different departments within the government and that is included, uh, a lot of senior individuals in the Contracting officer ranks. So we've seen a Slowdown between contract issuance and task order delivery. Now many in, uh, in of our peers and in others, that work for the government report, their backlog differently than tetratech. They actually have what they call hard backlog which would be ours. Our funded backlog funded and authorized and then they also include a percentage of the amount of the contract that's issued. And in fact, if we, uh, if we did that you'd see our backlog actually reporting significant increases associated with the issuance of these contract Vehicles. So, we have always held ourselves to an unusually. In fact, uniquely high standard on these. And we've seen that slow down through
the changes with this new Administration and you really do need all of the Contracting officers and all of the different mechanisms in place to make that work smoothly.
Uh, I think what it means. I don't think that um, the contract capacity is an issue. I don't think that the existing task orders we have in hand, uh, will at least and from our perspective, now have an impact on our Revenue. It's just that they'll be short of visibility with respect to how far out you see with the task orders, um, through this new environment. So this is something that, uh, that is different. Uh, we're about a month into our fourth quarter. And 1 thing, I'll note that
As long as I've been with, uh, the company which goes back quite a while when the federal government, the fourth quarter has always been a, uh, an issuance quarter for the government. It's the end of their fiscal year, there's a bit of use it or lose it. And anything that was an expenditure they issue and push out and I'll tell you we're a month in and we're not seeing that a phenomenon or that annual um, seasonal distribution. So it does look like this is going to be more of a book and burn issue in some task orders from the federal government. So maybe it will have a better view on that at the end of the fourth quarter but uh issuance and the growth of the backlog may actually be less but not affecting the revenue that's coming out of the contracts that we have.
No, that's a long explanation, but it's a big part of the business, and I want to put it in context before we get to the end of the fourth quarter. What we are seeing today and what it might look like at the end of the quarter.
No that's really helpful color. Dan thank thank you for all that detail. I mean it sounds like more than 2 billion dollars for the federal government business is very much still intact. It's just about the the conversion and the task orders.
um, which uh
you know, sounds more like
Speaking with the backlog in profile.
Today. Well,
uh,
Uh, operator Cape. Um, I think we may have had a bit of
A bit of a uh, uh, Interruption on this last question.
Dan, can you hear me, okay?
Uh, I've got you loud and clear. Tim, I I hear you quite clearly now.
Okay, okay, I apologize about that. Um just my follow-up question was just simply how you think about the margin profile of your backlog today?
Relative to where it was this time last year, excluding us data and Department of State. Thank you.
Uh great. Great question. I, you know 1 1 client. We went into a fair amount of detail in uh actually our investor day which is just a little bit over a year ago. So a year ago May and we had actually talked about a long-term goal of increasing our um, margins by 50 basis points, uh, per year and that was exclusive of a vape. We didn't anticipate that Aid would have contributed, any increase, and we're actually seeing that. In fact we're seeing it a little
But you know, even a slightly above that level, uh, the reasoning is 2 items that are driving that number 1. We're actually looking to shift the business to higher value services, that we're providing to our clients, so we're moving more to the front end for moving more to, uh, Consulting more to, um, qualifications based. And so we're moving that upfront portion of the business that we have and Shifting The Mix to a higher value.
Delivery, which actually carries higher margins in and of itself. And the second piece is our fixed price. So, we are increasing the percentage of fixed price work. We have within the company, which actually carries higher margin and so embedded in our backlog, it actually is, uh, increasing and is supportive of that 50 basis points per year or more Target of margin expansion. So, um, it needs to be put into the bids or the types of rates that we put to our clients in the backlog before it converts to, uh, you know, earning some margin expansion. And and that's what's happening right now. So yes, it's for the 2 Reasons, changing contract type to fix price and and the services provided, which is moving to even higher value services, that we're providing to our clients.
Thank you.
Thank you very much, Pam.
Thank you. Our next question, comes from the line of Sangeeta Jain with keybanc Capital Market, please, proceed with your question.
Thank you so much for taking my questions. Um, so Dan, if I can ask you on the previous question about the book and burn Cadence of the federal work right now based on your experience, how does that set you up for 2026? Do you think there's going to be like pent up orders coming or do you think it's going to be a continuation of this book and burn type situation?
That's a great question. And, um, at this moment, as of this call, I would tell you it looks like it's going to be more of a book and burn. I think that the items that have to be put in place for some of these agencies don't happen in a day or a week. Not even maybe even a month, and we're only talking 60 days between now and the end of our fiscal year. So, as I take a look at how we would finish this quarter and likely enter 2026, it does feel like it's going to be more of a book and burn on the federal government.
Side. Then we've seen before, uh, now
Uh, you know, many things, uh, I get to learn through, um, you know, continuing learning, maybe that'll be quite different and happen, uh, differently than we anticipate, but I would say as we anticipate that it'll be more of a book and burn.
And we could easily see the backlog being flat to, uh, in Q4 2024 is a big quarter for us. So it's, you know, it's even conceivable that you'd have a decline in the backlog at the end of Q4, but not impact our outlook for revenue. It just will pass a little bit less visibility on how far out you can see.
I really appreciate that. And then just, um, um, kind of a housekeeping question. How should we think about Disaster Recovery revenue in fiscal fourth quarter?
For the communities. Uh, it's a really good story. We've uh, largely completed the support work of recoveries down in the flooded and and I impacted areas in, um, Florida and Georgia, and the Carolinas. So we'd see that as essentially over and I will say that the long-term Target, uh, or the initial Target I should say was to have the fire, uh, clearance of all debris and materials for rebuilding to start. Original Target was to have it all finished in a year and thanks to the Army Corps of engineer, phenomenal leaders at the core. And of course, the cities in the state of California and the cities, uh, their most of that works. All been completed here by the by the end of July essentially now. So I expect it to be very minimal contribution in the fourth quarter for those 2 events. Now it's it's early but we haven't included in our guidance much contribution from what we'd call these response activities. Now we do have
Plenty of design work and planning work for emergency activities will continue, but we would say that's relatively consistent year-over-year. However, for this episodic work, it will be quite minimal in the fourth quarter.
Appreciate that. Thanks Dan.
Yeah, thank you. Thank you.
Our next question comes from the line of sibaja Khan with RBC Capital markets. Please proceed with your question.
Great, thanks and good morning. Um, you provided a quite a bit of color through the slides on, you know, some of the demand drivers here, but we've been getting a lot of questions, you know, within this sort of volatile backdrop um and what is the water market? Growth relative to infrastructure. So hoping maybe to give you an opportunity to maybe just lay out some of the drivers across sort of the US, you can Australia that you're seeing just broadly across commercial and federal within the specific and markets that you're playing in and more around sort of how do the the rates of growth in water, demand maybe compared to underlying just infrastructure. Demand, any color, would be great. Thanks.
Our our our, I think partly 1 of the best indicative, uh, and markets for us for water infrastructure. Uh, is really our state local work and that's mostly for upgrading or new water treatment plants for delivery, our wastewater treatment, uh, and in some instances, um, Coastal protection that a lot of it comes from our state and local clients. Uh, we historically indicated, a range of 10 to 15%. And so I don't know how many quarters in a row. We've now been, well, north of that, this last quarter, if you take out the special, uh, Disaster Response activities, that is funded by our state and local clients. We are still just
Just under 20%. So 18% is essentially a very similar number of the prior quarter. So I uh, know many have asked me, isn't the real number closer to 20? Um, it is on giving quarters but I would say that the water infrastructure work that we do, uh, and the water uh, both the chemistry and investigation assessment work is probably that 10 to 15% rate. And if we're wrong, it's generally at the high higher than that.
And it's not just unique here to the United States. That's clearly we report that out as a end client
You can see it in our slides but what's really growing? What's driving much of our, uh, growth and Ireland. And across United Kingdom, is also what we would call Municipal, which is water utility work there. So the framework contracts. So I would say there is sort of similar type numbers sort of mid teens, um, other things are growing a little slower. So, we've seen out of the UK and Ireland. And so, I'd indicated, uh, in my earlier, remarks sort of 789 percent. But what's on the upside of that or driver is really the, the water infrastructure water supply water treatment in the case of the UK and Ireland. It's a lot of water conveyance getting water from point A to point B where they need it and workflows with respect to protection of surface waters like lakes and rivers or Recreation and general public um, uh, safety. So they call those uh, sewer overflows its here in the US they come up called cso's combined sewer overflows,
The biggest driver in the UK, which is driving this growth rates? Well above 10%.
Um, that's also true in Canada.
uh, we're seeing similar, uh,
There's bonds and there's just healthy budgets that the safe state level but I will put 1 cave. Uh, I have not seen it uh impact our water programs yet but we do other work for State local clients too on the water side which is on Hydraulics and drainage and and and uh storm water channeling. Uh even on Transportation projects and for the first time we saw this uh this in the end of the third quarter, uh, the US government the Department of Transportation matching funds canceled inside, very large transportation. That project that we're participating on actually clawed back and it was already funded. And so, I would say where I have no, I could essentially closed to no impact on federal to our state local water. Uh, I've now seen it actually on Transportation. So it's all of a sudden become a high watch list. I don't expect it to have uh, have an impact on the water programs at this time, but it's now,
I do want to, um, say that that's with the secondary impact of the federal budget changes, and it's got us watching on that front.
Great. And then, um, maybe just following up on a comment, you made earlier around doing more front-end advisory consulting. Or, you know, I think you already have a pretty of average sort of mix of front-end work. If you can, maybe just dig a little bit deeper into. They what are some of the reasons types of customers or you know, types of work to where you do, see an opportunity?
Maybe push that front and work penetration, some higher things.
Well, it's interesting. I would say, uh, we have energy development customers that have.
Tax incentives, had the uh, inflation reduction act and so their Investments were going into renewable energy. And the fact is that the work that we do is on, uh, on the front end, uh, Consulting advisory, technical evaluation. And so, how can that work? Be changed to, uh, to be invested in more conventional and possible fuel. So how can you actually go to develop an power generation using alternative? Uh, supplies. So maybe it's a natural gas and how you could connect to the grid and so how can they still meet their power generation goals?
for these energy developers and how can a pivot from
A renewable source like auction and how we use offshore wind as an example. Can you go from offshore wind in a marine environment and can you pee pivot your Investments to support?
Um, you know, LNG, which could also be in a marine environment offshore terminals. So I think the technical evaluation, including work we're doing with respect to the grid upgrades.
So, is there a place where the grid could actually, and the transmission projects be moved with respect to permitting? I think that there are more projects coming to light that we're seeing because of reduced regulatory requirements. So, there may be less work per project, but there’ll be a lot more projects. When you change your math on those, you actually end up with a bigger number, but they all need evaluation of how can that be done. What are the permitting requirements? And what's the timing? And I'll tell you the new, uh, new input is also the, uh, the economics of raw materials and other construction costs on the front end is becoming more and more important, and we're involved in all of those.
Great. Thanks very much.
Thanks.
Thank you. Our next question comes from the line of Andy Whitman with beard. Please go ahead with your question.
Great. Thank you for taking my questions. Um, and so I was
I was looking at the cig segment results and particularly the revenue.
And um your slides here shows that it's up to 2% and that's the calculation but it's interesting because the commercial industrial group, if you look at the if you go by customer type also the customers are down in the commercial industrial group but the segment is up so I just hoping that you could explain um how that happens.
Uh, pure state and local. Uh, so when you go to cig uh talk about us commercial that it's not a absolutely pure uh just commercial uh some of that work is actually in that cig segment. So if you look at cig,
You would uh C plus 2 but when you look at um us commercial it's actually separated it out. So a little just a little bit of that state and local growth rate is actually embedded in the cig segment and it's enough to take those
Small negative number and make it small positive number.
Okay, that makes sense. Thank you for clarifying that I guess, just as I look at the 2 segments and think about the Outlook from here, um, you know, with with Renewables being 1 of the reasons. It's that's down and I, you can talk on Australia and see if you're seeing any green shoots of that coming back. But I guess the Assumption here, into the fourth quarter and then probably into 26, is that at least for the next few quarters that the, that the, that the government segment is probably the, the the horse that's probably got the better uh, growth potential, uh, over the the cig. So I'm going to is that the correct way of thinking about like
I guess the renewables are going to be kind of a tough comp for a while, so that's going to make that signal a little harder. Is what I'm thinking. But I kind of just want to bounce that off of you and think if I'm thinking about it the right way.
Yeah, I think that's right. I think that, um,
I'll stick with the US commercial for the moment. You know, our renewable energy work that we do here in the US was down probably close to 30% year-over-year in the quarter. And, uh, you know, that's a big number, but that still leaves quite a bit that's actually underway. So I think it's going to continue to see, uh, reductions over the next several quarters. And certainly a year-over-year comparison to, we will have tough year-on-year comparisons. I think that that's going to be, uh, for sure a difficult comp on, uh, the US commercial. Uh, international, well, you know, there are two ways to look at Australia: you can get better, or it can get more work.
Uh, which is, uh, you know, I think we're seeing it still, um, still very soft but we do have 1. Uh, 1 benefit that's hiding in plain sight. Uh, it was down a lot last year, too. So the year-on-year comps in Australia are going to look better because they were a lot lower last year. So I think that's been a moderate, but it's certainly not going to contribute and drive our Topline numbers, I do think that'll come out of our state and local and the Federal, which is mostly coming out of Defense. So I think we've got pretty good visibility. But the horse that's going to pull the top line. Growth is going to be your right both.
Mostly mostly government uh, here in the US and I would say actually our international government work is uh pretty strong too.
Um, but I do think we've got several quarters of um challenges there in the commercial side.
Yeah. Okay, that makes sense. You just for the benefit of everybody, I think the US Renewables business is only like 2 or 3% of Revenue just for context and then maybe that's worth verifying for everyone there too. You said 30%. It's a big number down obviously but not big part of the business but not that big. Is that right? Dan.
And then just the last 1 for me. Dan, just
this, this might be just kind of
but, you know, the posture towards the US is posture towards Ukraine as evolved. I'd say in the last few months and and and you're seeing, you know, weapon Supply coming back and other things and I I just don't. I know. USA is is shut down but are there are the systems in place? Are you hearing anything about the humanitarian support for like the grid work that you're doing there? Potentially coming back are, could could that come back on? What are you hearing? It seems like maybe with the posture change from the administration there there might be something there, I
Maybe I'm grasping at straws here, but I thought I'd have you comment.
No. It's a it's a great, it's a great comment and we've not I did not intentionally, I've not included that as a a driver or a uh a potential material uh contributor to drive numbers up, but there's no doubt, that's true and you're right. It went for um we're not going to support. We're pulling weapons back to. We're going to go to neutral and now they're supportive of Ukraine. Uh, the 1 thing that's
positive. I mean, there's many things that are positive for us, but we're working in Ukraine today.
My comments on the last investor call was I thought we'd do about $100 million of revenue with US8, and most of it in Ukraine. We did about $90 million. In fact, I'd say $91 million is the number. So when you asked how much is slightly less, we're at $91 million instead of $100 million.
And I think in the fourth quarter we originally thought we'd do about another hundred, it's down to about 40 or 50 which was my comment on the uh the guidance.
But we have a contract, we have sufficient contract capacity, they could provide us.
By picking up the phone or sending us a task of numbers that are $100 million to $200 million in a quarter. And we've seen that before.
so, you know, we're
We're we don't, we're not processing a task order for that, right now, I'll tell you that much. But uh, if you go back a couple years ago on an unusual damage to the grid, we were called with about a week's notice and asked, could we deploy and initiate? What turned out to be close to a hundred million dollars in a couple week period? So yes, it's, uh, I don't want to call it a lottery pick that makes it too random, but yes, it's a possible website. No, we don't have to compete. We have the single awarded contract with Tetra Tech and so it is possible. It could be a unusual large contributor.
Thank you.
Excuse me.
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This will conclude the question and answer session. I will now turn the conference back over to Dan Batrack to conclude.
Well, thank you very much, Kate. And I want to thank uh uh all of our investors and stakeholders and I'll tell you uh, most importantly, I want to thank all of the Tetra Tech employees. This has been a period of a lot of uh change. Uh, it's been a lot of uh
Uh, new items coming to us, navigating both the direct and indirect impacts of the new administration, which is really here in the U.S., which has really had impacts globally. And, uh, both uh,
Keeping backlog up.
a supporting the collection of receivables uh driving margins up, which is actually um you know sort of delivering on our
Uh forecast or our our assessment that we actually have higher margins embedded in the business as we go forward and I think this last quarter and the third quarter was an excellent example of that and we see more to come. And in fact if you do the uh the math on the guidance, a simple math. You'd actually see our margins are even higher.
Computed in the fourth quarter guidance, that we just provided today.
And I really look forward to providing you all the results for our fourth quarter and, probably most importantly, our guidance for fiscal year 2026. When I talk to you in 90 days and report our results for the fourth quarter and all of fiscal year 2025, with that, I hope you all have a.
Safe and uh enjoyable rest of the week. Thank you very much.
Bye.
Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day. All parties, May disconnect. Now