Q4 2025 Tetra Tech Inc Earnings Call

Speaker #1: Good morning, and thank you for joining the Tetra Tech earnings call. As a reminder, Tetra Tech is also a simulcasting this presentation with slides in the investor section of its website at tetra-tech.com.

Speaker #1: 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.

Speaker #1: With us today from management are Dan Batrack, chairman and chief executive officer; Steve Burdick, chief financial officer; and Roger Argus, president. They will provide a brief overview of the results and will then open the call for questions.

Speaker #1: I would like to direct your attention to the safe harbor statement in today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations.

Speaker #1: Actual results ults may differ significantly from these projected in today's forward-looking statements due to various risks and uncertainties. Including the risks described in Tetra Tech's periodic reports filed with the SEC.

Speaker #1: Except as required by law, Tetra Tech undertakes no obligation to update its forward-looking statements. In addition, since management will be presenting some non-gap financial measures as references, the appropriate gap financial reconciliations are posted in the investor section of Tetra Tech's website.

Speaker #1: At this time, I'd like to inform you all that participants are in a listen-only mode. At the request of the company, we will open the conference up for questions, and answers after the presentation.

Speaker #1: With that, I would now like to turn the call over to Dan Batrack. Please go ahead, Mr.

Speaker #1: Batrack. Thank you very

Speaker #2: much. Melissa and good morning. Welcome for our fourth quarter in fiscal year 2025 earnings conference call. And I'd like to start this morning with sharing with you that I'm very glad to report that we had an excellent fourth quarter and record financial performance for all of fiscal year 2025.

Speaker #2: But before I actually get to the numbers, I’d like to take just a moment here at the beginning to discuss how we successfully navigated this extraordinary year and ended up with these record results.

Speaker #2: By staying focused on our high-end consulting and our leadership in water, we've built an enduring competitive advantage and a long-term client base of trust with our end clients that we work with.

Speaker #2: Our leading science approach has provided us with a significant competitive advantage and highly adaptive workforce, long-standing client relationships that have ended up resulting in sustained demand for our services over decades.

Speaker #2: It is this focus that has allowed us to successfully navigate the recent changes in the US federal government's priorities and emerge with financial records.

Speaker #2: And financial performance for fiscal year 2025. More importantly, as I look into fiscal year 2026 and beyond, I see our high-end water services in higher demand and more critical than ever for the fastest growing markets in the United States and internationally.

Speaker #2: Today, Steve Burdick, our Chief Financial Officer, will provide additional details of our year. I'd also like to welcome Roger Argus, our newly appointed President here at Tetra Tech, to discuss finance performance, both in the quarter and the year.

Speaker #2: A white personally had worked with for over 30 years here at Tetra Tech directly, obviously Roger goes back in the market and industry even farther than that.

Speaker #2: He brings a great understanding of our clients and our business worldwide, and he's spearheading some of our highest opportunity growth initiatives that we have in the company today.

Speaker #2: Roger will provide an update of our water-focused growth markets during this presentation this morning. And I would like to share with you an update of our financial performance and our business.

Speaker #2: We had record results for the fourth quarter and for the entirety of fiscal year 2025, with record highs across the board for net revenue, operating income, and earnings per share.

Speaker #2: The fourth quarter results provided us with strong momentum as we exit the fiscal 2025 fiscal year and enter fiscal year 2026. These results are very broad-based, demonstrating the strength across all of our business sectors and our markets globally.

Speaker #2: We finished fiscal year 2025 with a strong fourth quarter, resulting in record net revenue, record operating income, and significant operating margin expansion. We had record net revenue of $1.07 billion, which is up 10% from the prior year.

Speaker #2: We significantly expanded our margins to the highest level in more than 30 years, which result in our operating income being up 23%, more than double the rate of revenue growth, and reaching $168 million for the first time.

Speaker #2: And finally, the growth rate for earnings per share was even higher, up 29%, reaching $0.44 for the quarter. I'd like to present our performance by our segment.

Speaker #2: We're a client segment. The government services group had an excellent year and delivered an extraordinary fourth quarter. In the fourth quarter, our GSG segment, revenue grew by 17%, rising to $396 million compared to $338 million last year.

Speaker #2: new record for margin performance at GSG segment also set a 22.9%, or up 330 basis points from the prior year. This performance was driven by strong execution of our water infrastructure, and our digital automation work for state and local clients, high utilization across our US operations during the completion of our fire disaster response work, and the reduction in our low-margin USAID work.

Speaker #2: The commercial international group also delivered a strong fourth quarter and strong year. Our commercial international group's fourth quarter revenue was up 7% to $676 million, and the CIG, our commercial international group's margin excluding Australia, was up about 60 basis points in the quarter.

Speaker #2: Now I'd like to provide an overview of our performance by our end customers. In the fourth quarter, international work was about 45% of our overall business and growing at a 9% rate.

Speaker #2: International organic growth included increases in the United Kingdom's water business and a strong growth in our Canadian clean energy practice. In the United States, our state and local markets continue to be very strong with a 19% growth rate driven by municipal water treatment and digital water modernization.

Speaker #2: of Texas, Florida, Especially in the water stressed regions and California. Without the contribution of the disaster work in the quarter, our state and local work was up 13% year over year.

Speaker #2: The US commercial work overall was down slightly, driven by reductions in renewable energy growth in other sectors. Our work, but partially offset by US commercial work includes some sectors that had extraordinary growth rates in the quarter.

Speaker #2: For example, our high-voltage transmission work in the United States is rapidly growing due to expanding energy demand, which is often associated with data centers.

Speaker #2: And finally, our US federal work is now 21% of our business compared to 31% a year ago. This quarter, our federal work was up 22% from the prior year, primarily for work with the US Army Corps of Engineers designing flood protection structures and providing disaster response services.

Speaker #2: I'd like now to discuss our backlog. We had a strong quarter of contract awards ending the quarter with $4.14 billion in backlog during a record revenue quarter.

Speaker #2: As I've stated previously, we use a highly conservative approach to backlog reporting, by including only work that is contracted funded and authorized. The backlog we have today is of higher quality than ever before, with higher embedded margins and with a higher portion of fixed price contracts, which gives us even more opportunity for margin expansion.

Speaker #2: This quarter, we rewarded over $1.2 billion in new contracts with US defense agencies that cover both US domestic and international operations. We announced another great win with the United Kingdom for Portsmouth Water with a $23 million contract that you can note on the webcast that we have here.

Speaker #2: And we won two new awards for high-voltage transmission work in the United States and Ireland, both areas where data centers are driving investments in power generation and transmission.

Speaker #2: Our US high-voltage transmission practice is now growing their backlog at 120% rate, year on year, here in the US. At this point, I'd like to turn the presentation over to our chief financial officer, Steve Burdick, to take us through the financials for fiscal year 2025.

Speaker #2: Steve. Well, hey, thank you, Dan. I'd like to now provide an update of our fiscal 2025 results. Working capital cash flows and capital allocation.

Speaker #2: But before I dive into these results, I want to point out and remind us all where we started the year. We initiated our 2025 revenue and earnings guidance in line with our longer-term 2030 goals.

Speaker #2: Now, despite having our largest single client cancel hundreds of contracts midway through 2025 and other headwinds that could have knocked out anybody else, Tetra Tech delivered all-time high revenue and earnings.

Speaker #2: And because of our high-quality clients and talented project managers across the globe, we generated a record-setting cash from operations that approached a half billion dollars.

Speaker #2: Not only am I proud of our team's ability to execute on our 2025 results, I'm even more positive on our team's ability to execute on our long-term strategy in 2026 and beyond, where our market-leading services are focused either directly or as a first derivative to our clients' water, investment opportunities.

Speaker #2: Now, as Dan discussed earlier on this call, our market-leading focus on the front-end consulting and design for water and environmental projects is carrying higher margins across all of our end markets.

Speaker #2: As such, even as the fiscal 2025 revenue was up a solid 7% over last year, our operating income increased at a higher rate of 18%, and EBITDA for the year increased 13%.

Speaker #2: These results for the year further support our long-term strategic goals to increase net revenue while improving EBITDA margins by 50 basis points annually. I do want to point out that, as you can see here, our 2025 EBITDA margins on net revenue came in at a better 14.3%, which is an increase of over 80 basis points for this year as compared to last year.

Speaker #2: As a result of our ability to enhance our profit margins and further manage our working capital, we were able to increase EPS by 24% over last year to $1.56.

Speaker #2: Now, regarding our working capital, cash flows generated from operations for fiscal 2025 were $458 million, which represents a 28% improvement over fiscal 2024. Consistent with the last 20 years, these operating cash flows have continued to exceed net income by more than 100%.

Speaker #2: Our focus on working capital and cash flows has resulted in our Days Sales Outstanding (DSO) reflecting an industry-leading standard of 55.7 days. This lower DSO metric provides significant insight into our core business, as it reflects the outstanding work that our project managers lead relative to higher quality projects and highly satisfied clients in our broad portfolio across all of our end markets and geographies.

Speaker #2: Our net debt amounted to about $600 million, and our net debt on EBITDA was at a leverage of 0.9 times, which is lower than our leverage one year ago when it stood at 1.0 times.

Speaker #2: As we continue to execute on high-quality operating results, with increasing margins, operating cash flows, and excessive net income, and lower working capital KPIs, we will continue to provide higher returns for our shareholders.

Speaker #2: Those higher shareholder financial returns are reflected in an improving return on capital employed, which stands at over 20%, among the best in the industry.

Speaker #2: Those following along in 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.

Speaker #2: With well over $1 billion in available liquidity, as we have revised our capital structure in the last year, to take advantage of the credit market to support our strategic growth opportunities.

Speaker #2: Now, Roger will discuss our strategic growth areas later in this presentation, but I do want to point out that we have a significant amount of liquidity available to invest in organic and acquisitive growth opportunities in order to take advantage of these key business opportunities.

Speaker #2: These opportunities include the technology and automation which continues to provide us a dominant position in the market, and for acquisitions of technical leaders such as Sage and Karen and Walsh.

Speaker #2: Regarding our dividend program, I want to announce that our board of directors approved the fourth quarter dividend, which is a 12% increase year over year to be paid in the first quarter.

Speaker #2: This is our 42nd consecutive quarterly dividend with annual double-digit increases in the amounts paid. Based on the lower leverage, we have contributed—we have continued our stock buyback program this year.

Speaker #2: In 2025, we bought back a total of 250 million dollars, which includes 50 million dollars in stock buybacks in the fourth quarter. We do have about 598 million dollars available in the stock buyback plans, approved by our board as part of our capital allocation strategy.

Speaker #2: You know, I'm really pleased to share these financial results for fiscal 25, which is an enabled us to increase shareholder returns. As we pay—we're paying increasing dividends, increasing our stock buybacks, engaging in a creative acquisitions, all the while deleveraging our balance sheet.

Speaker #2: I want to thank you for your support, and I'll now hand the call over to Roger to discuss Tetra Tech's future opportunities in 2026 and beyond.

Speaker #1: Thank In FY 26 and beyond . For those of you following along on the webcast , I'd like to first draw attention to your the center of the slide .

Speaker #1: Greater than 85% of Tetra Tech's business is providing water services to our clients. Our high-end water services cover the full life of water use, from sourcing and management to reuse and recycling.

Speaker #1: Greater than 85% of Tetra Tech business is providing water services to our clients . Our high end water services cover the full life of water use , from sourcing and management to reuse and . treatment These services also include coastal resilience for flood protection , expansion of ports and harbours , digital automation and control systems to optimize water management and efficient use , as well as water for mining .

Speaker #1: Our generation and manufacturing . The driver shown here represent large global investments in water reliant infrastructure and share a few common characteristics . These drivers represent a total addressable market for Tetra Tech measured hundreds services of billions in dollars .

Speaker #1: Our generation and manufacturing . The driver shown here represent large global investments in water reliant infrastructure and share a few common characteristics . These drivers represent a total addressable market for Tetra Tech measured hundreds services of billions in dollars of Tetra Tech has already performing work in each of these markets and is well positioned to benefit from these growing investments .

Speaker #1: In fact , Ultratech currently holds the contracts Master Service agreements and frameworks with more than $30 billion in to capacity perform these services for our clients .

Speaker #1: investment in each Global of these markets supports the demand for Tetra Tech high end water services , is and driving Tetra Tech growth in the next few slides , I'd like highlight to two of the fastest growing areas and illustrate how Tetra Tech is capitalizing these trends .

Speaker #1: on First , I'd like to talk about the data center market . Their estimates as high as $1 trillion to be invested over the next to ten years center processing capacity to address the expand data needs AI of , the demand for these water systems is .

Speaker #1: enormous A large data center , for example , consumes about 5 million gallons of water per day . sector's This water growing footprint is reshaping how and where communities invest in water related infrastructure .

Speaker #1: This slide illustrates that the data center market is not just the building housing the chip stacks . In many fact , data center operators are using in-house template designs for these buildings .

Speaker #1: More importantly , the data center market includes resource management needs for water and power , which are geographically specific for each facility . Tetra Tech high end water expertise in geographic allow footprint us to address these requirements , which are unique for each data center .

Speaker #1: As we this figure look at from left to right , first , it's important to note that more than 97% of water used by major data center operators is currently purchased from municipal drinking water systems .

Speaker #1: Many of which are already under strain . Let me provide you with just one example of how water demand for data centers is growth driving for Tetra Tech .

Speaker #1: Just last week , it was announced that Texas will make the largest investment in its water supply in the state's history . Voters approved a proposition authorizing $20 billion to be spent on water systems , including water supply projects , to address the growing requirements of data centers .

Speaker #1: Tetra Tech currently holds more than 60 state and local contracts in Texas . We are already working with these clients , providing our full suite of water services , and we will directly benefit from this new funding .

Speaker #1: In addition , within the data center itself , Tetra Tech provides water handling , digital control , system automation and commissioning services directly to the building operations .

Speaker #1: In fact , we currently hold contracts with more than a dozen of the major data center hyperscale and co-location operators to provide these services and ultimately these facilities require our expertise for water reconditioning , for reuse or treatment , for disposal .

Speaker #1: This work will either be done through contracts with data center operators or with local municipalities to expand their wastewater management capacity . Defense budgets in each of our major geographic markets is up significantly .

Speaker #1: The US is up $150 billion . The UK is up for billion and Australia is up 4 billion on already large annual budgets .

Speaker #1: These funding increases will be used to expand defense facilities , including ports and harbors , strengthen coastal resiliency and flood protection , and address water contaminants of concern such as PFAS .

Speaker #1: The expansion of naval facilities is included as a key focus of this funding . This result in will the growth of work Tetra Tech in ports and harbors , including evaluation , planning and design of marine infrastructure .

Speaker #1: We currently provide these services to our defense clients in the US , UK and Australia through contracts with an aggregate available capacity of more than $10 billion .

Speaker #1: Of the 30 billion I referred to earlier . I'd like to provide one brief example of how Tetra Tech is benefiting from this increased funding .

Speaker #1: In fiscal year 25 , the Australian Department of Defence awarded Tetra Tech a $67 million contract to support infrastructure upgrades to facilities along the northern shore of Australia .

Speaker #1: The scope of this contract includes front end studies , analytics and project management to support governmental , regulatory and community approvals for these critical upgrades , which will ensure safe , secure and resilient operation of these defence facilities .

Speaker #1: Coastal resiliency work , which includes flood protection to strengthen the facilities and safeguard the lives of military and civilian populations , while also receive additional funding .

Speaker #1: Tetra Tech has long been a leader in flood protection and in fact , in the fourth quarter , we've been awarded about $1 billion in new contract capacity from the US Army Corps of Engineers .

Speaker #1: Additionally , these increased defense budgets will provide greater funding to Tetra Tech ongoing defense contracts to eliminate sources and clean up water contamination related to PFAS and other persistent chemicals in the environment .

Speaker #1: In the fourth quarter , we were awarded a new $240 million contract with the Navy , which is intended to focus on assessment of contamination in water at naval installations , including PFAS In summary , we .

Speaker #1: are very excited about the opportunities these growth drivers present and the resulting growth that Tetra Tech can achieve . I will now turn the presentation over to Dan .

Speaker #1: Thank you . Roger . Thank you very much . And I'd like to provide an overview of our outlook for fiscal . year 2026 by each of .

Speaker #1: Thank you . Roger . Thank you very much . And I'd like to provide an overview of our outlook for fiscal . year 2026 by each of .

Speaker #2: Our end customers . Each of our customer sectors have growth drivers relevant to our business . As you've heard from Roger and myself .

Speaker #2: And I'll start with our international growth . International growth is forecasted to grow at a rate between 5 and 10% in fiscal year 2026 , supported by the $130 billion eight program in the United Kingdom .

Speaker #2: Programs like the $200 billion Canadian Infrastructure Program that's just recently been passed , and in Australia , the spending in preparation for the Olympics that are going to take place in Brisbane , our U.S.

Speaker #2: commercial work is forecasted to grow in fiscal year 2026 at a rate between 5 and 10% , supported by water demand for data centers and advanced manufacturing and power related services .

Speaker #2: To US energy address the demand that is increasing so quickly . Our U.S. state and local work is forecasted to grow at a 10 to 15% rate , which is very consistent to what we've seen over the past several years .

Speaker #2: And it's being driven by strong and sustained budgets for municipal water supplies and digital water modernization . And finally , our US federal work is forecasted to grow at a 5 to 10% rate and is expected to ramp up over this range throughout the year .

Speaker #2: As the procurement processes align with the new priorities of the new administration and budget increases are implemented , that are associated with the one big beautiful Bill act that was passed just recently .

Speaker #2: we'd like to Now , present our guidance for the first quarter and for the entirety of fiscal year 2026 . Our guidance is as follows .

Speaker #2: For net revenue for Q1 , it's for a range of $950 million to $1 billion , with an associated earnings per share of $0.30 to $0.33 .

Speaker #2: For the entirety of fiscal year 2026 . Our net range is for 4.5 billion to 4.25 billion , with an associated earnings per share of $1.40 to $1.55 .

Speaker #2: Now , if you're following along on webcast , you the can see these assumptions . I'll highlight them very briefly . does It within this assume guidance a charge for intangible amortization of $27 million .

Speaker #2: anticipate We depreciation of approximately 25 million . Interest expense of 30 million . And effective tax rate quite similar to this last year of 27.5% .

Speaker #2: And does assume that we have 264 million shares of Tetra Tech stock outstanding . And this is in the past , these guidance numbers , both for revenue and earnings per share , do not include any anticipated contributions for acquisitions , but they will be .

Speaker #2: We do expect them to contribute to the year and we'll update our guidance accordingly as they join the company . In summary , we had a record fourth quarter and record fiscal year 2025 , which most importantly , has positioned us for an excellent beginning to the 2026 fiscal year .

Speaker #2: Our focus on high end consulting for water and environmental priorities is absolutely aligned with the long term trends of supplying clean water to our communities , water supply for manufacturing and a healthy environment for our children , all of which are enduring drivers and are not measured in years , but are measured in decades .

Speaker #2: company has never been in a better financial position . As Steven Burdick , our CFO , just outlined , and we're in an excellent position to support our organic growth and to invest in having the best partners out in the industry actually come join us here at Tetra Tech .

Speaker #2: Actually improving our growth rates , improving our margins , and making Tetra Tech even more competitive in the future . And with that , Melissa , I'd like to open up the call for questions .

Speaker #3: Thank you . The question and answer session will now begin . Please be aware that there will be a 32nd pause in our webcast to allow for buffering at this time .

Speaker #3: Audio participants are invited to submit their questions . Please remember to to mute the audio your computer before you speak . If you are using a speakerphone , please pick up the handset before pressing any numbers .

Speaker #3: If you would like to ask a question , please press star one on your touch tone phone . Our first question comes from the line of Tim Mulrooney with William Blair .

Speaker #3: Please proceed with your question .

Speaker #4: Hi , this is Luke McFadden on for ten . Thanks for taking our questions this morning . So it looks like your backlog was about flat year over year , but your guidance calls for organic growth of 8% at the midpoint for fiscal 2026 , both of these figures exclude USAID .

Speaker #4: So it feels apples to apples . So can you maybe just help us understand a little more detail , why you'd expect revenue growth to be so decoupled from backlog growth this year ?

Speaker #2: That's a great question . That's actually a really good question . In fact , we began the the foresight and expectation of that decoupling .

Speaker #2: Actually , in our last investor call , 90 days ago , I in the call we had on the think previous quarterly results , we actually indicated that I expected backlog to be flat .

Speaker #2: In fact , even down . And with it coming out flat in a certain extent , it actually was at the upper end surpassed our or expectations .

Speaker #2: And if you take a look at the backlog , there's a couple of things going on . Number one , the US federal government's backlog or the funding of their tasks have become much shorter .

Speaker #2: So instead of being funded for a quarter or I'm sorry , for six months or for a full year , we're being funded for almost like a book and burn one quarter at a time .

Speaker #2: So we're seeing the visibility actually shrink with the US federal government , but not the actual spending of revenue . We're just getting the work and smaller pieces and more frequent quarterly task I will say that orders .

Speaker #2: if we actually tracked and reported our backlog , similar to most others in the industry , our backlog would be up very , very .

Speaker #2: It's been an amazing federal government quarter of new orders and new contracts that have been awarded. As a result, our contract capacity has significantly increased.

Speaker #2: In fact , we've seen it grow by about 15% . And I think comments I had earlier that we had well over $1 billion in New contract awards the Corps of with Engineers , although the task order is coming out , are much smaller , shorter duration and a quicker burn .

Speaker #2: Now , you would think that if that was the case and the rest of our business was static , you'd actually see the backlog go down .

Speaker #2: But we've seen our state and local work and our US commercial and international backlogs actually growing fast . In fact , they've grown enough to keep our backlog flat sequentially , which is what you've seen in the results as you've just indicated .

Speaker #2: So that's why we're actually seeing a growth in as I've just indicated , 5 to 10% in US commercial in international , 10 to 15% in state and local , all with growing backlog .

Speaker #2: And in fact , that growing backlog has been enough to offset the in the reduction in the duration of the task orders we've been getting from the federal So that's where government .

Speaker #2: you see the decoupling . And it sounds like a lot of detail , but it's something we've seen coming since this new administration has been in .

Speaker #2: We've been watching the backlog drop irrespective of international development , with the federal government . But it doesn't mean less revenue . It just means that we're getting more task smaller orders on larger contracts that we've actually had .

Speaker #2: So I know that's a bit of detail , but I think that decoupling is going to be for a good portion of this fiscal year 2026 .

Speaker #2: But I think as the US federal government gets its sea legs under it with to or contracting officers in place , gets the cadence of task orders that come out a actually little bit longer duration .

Speaker #2: You're going to watch the federal government's task orders get larger through the year , and you'll actually watch that begin to climb . Not driven so much by commercial , state and local and , because they're already international very strong , actually but returning a contract cadence with the federal government US .

Speaker #2: And those are probably a lot of detail . But there's a lot of pieces we're looking into that that actually underpin how seeing very strong we're organic growth .

Speaker #2: But it's not seen as being directly correlated to the backlog , which we've seen the case for many , many decades here . But this new administration has really changed that because of the US federal government's task order issuance .

Speaker #4: Thanks , Dan . That's really helpful . Color . Appreciate it . And maybe pivoting to performance in your international business for my which follow up , came in stronger than we were expecting for the fourth quarter .

Speaker #4: And had a nice pickup from the third quarter as well . Can you walk us through some of the puts and takes on each of your three business little more lines in a here , where you saw strength and how you're thinking about the three main as you geographies move through fiscal 2026 ?

Speaker #4: Thanks

Speaker #4: .

Speaker #2: interesting . Yeah . It's really that It's that growth was really driven by a change in one geography . But I'll start with the strongest areas for us , the the water programs .

Speaker #2: Those have been the biggest underlying drivers for our United Kingdom operations in Europe, which are primarily in Ireland and the Netherlands. That's been growing at about a 10% rate.

Speaker #2: It's been the In fact , strongest . the water component of our UK and Europe operations have been even at a higher rate than that .

Speaker #2: So that's continued . I would say there's been little change in the previous quarters . really been So that's our top growth rate and top performer of our international geographies .

Speaker #2: Canada has been good , and I actually think it's going to get better . And for those that have spoken with that , different conferences and seminars , I think on a relative basis , Canada may be the biggest one of the biggest drivers .

Speaker #2: And I think that the short term disruption of tariffs between the United States and Canada has some caused disruption . I am totally convinced that Canada is going remain a to major trading partner with global economies .

Speaker #2: And if you can't come down south , going to go it's east and west . And in fact , north through the Arctic trading routes that are now open .

Speaker #2: And you saw that Canada just passed its largest infrastructure and spending bills at 200 billion US , Canadian , of course , much larger numbers .

Speaker #2: And Canada growing as it has been at about five 6% . That's been very is strong for us . But the item that's been that was a change this last quarter has really been Australia and Australia had gone from shrinking or reducing its revenue contribution by 10 to 15% .

Speaker #2: I think we've seen the kind of bottom out and so on , a year on year comparison , it's getting closer to flat .

Speaker #2: We did have a couple percent contributed by the sage acquisition that came in in the fourth quarter . So it really didn't add much at all for fiscal year 2025 .

Speaker #2: A little bit for the fourth quarter. But Australia is actually hitting the bottom with respect to reductions; that is the big change.

Speaker #2: So if you go from a -10 or 15 in Australia and you move that to a zero , that largely accounted for that 9% increase , and I actually think that during the year , because the year 2026 is going to start ramping up now , one for in Australia specifically , because that one , when you're at the bottom , there's not really too many directions to go from there .

Speaker #2: I hope . And two , we're seeing more and funding infrastructure projects moving forward at the very front end for the Olympics that are going to take place in Brisbane .

Speaker #2: And so who's the firm that would engaged be in it ? Very early on ? That's us up planning , permitting , Geotech all the initial design technology selection for all the different venues , transportation and others .

Speaker #2: So I think being a good that's going to number for us. And it was Australia that was the change in the quarter that drove that number.

Speaker #4: Appreciate all the color

Speaker #2: Great . Thank you

Speaker #2: .

Speaker #3: you . Our next . question comes from Thank the line of Saba Khan RBC with Capital Markets . Please proceed with your question .

Speaker #5: Great . Thanks and good morning . I just kind of following the same line of questions along the outlook . I guess , just given the some of the moving pieces in the backdrop , how you did sort of build out that range for the fiscal 26 guidance ?

Speaker #5: More thinking on the top line versus EPs line . If you can walk through , you just maybe know , as it relates to disaster relief , some of the other moving how should we think about the low end versus the high end or what happen for you needs to to come somewhere in the middle of that range ?

Speaker #5: If you can just share some of the puts and takes that consider as you you that range build out top line , thanks .

Speaker #2: Yeah . So top line revenue growth , I'll start with what sort of the midpoint would . So I say that the numbers I just through ran 5% , 5 to 10% .

Speaker #2: So if you wanted to pick a midpoint of that seven and a half , I'd say that's number we're looking at sort of the for international US commercial and for US government .

Speaker #2: And the 10 to 15 for municipal . You can pick a sort of a 12.5% . If you took out disasters for this last quarter , they were at 13% .

Speaker #2: So right there , so so the midpoint is actually the midpoint of those growth . you take those numbers from this last And if year , you apply those growth rates .

Speaker #2: You'll find that we actually get to that midpoint or just over 4.1 billion for year 2026 . fiscal Now , what could cause us to deviate up and down from ?

Speaker #2: It's not going to be perfectly linear . I will say that the US let me let me use an example of the US commercial .

Speaker #2: You saw this last quarter . We were minus two . at expect I that it's going to remain very low . It's going to be below that 5 to 10% rate in the first quarter or two of fiscal year 2026 , because a year ago , we had a lot renewable of energy work and some of the biggest projects were offshore wind .

Speaker #2: Now , these areas have been significantly impacted by policy and executive orders and other items . And so that big headwind or the difficult year on year comparisons are Q1 and Q2 .

Speaker #2: Now , we've got a very fast growing transmission practice , high voltage transmission . Other programs that we have here US in the that I thought Roger did a great of outlining with respect to water supply for different manufacturing , which includes data centers , chip fabs other and reshoring .

Speaker #2: So I think we'll be at the high end of that $5 to $10 million in the latter quarter, so Q3 and Q4.

Speaker #2: So look for that to ramp. I think the same is going to be true with the U.S. You've had some dysfunction.

Speaker #2: Obviously a six week shutdown here with the US government in Q1 , which has already been included in our guidance for Q1 . And some of the questions I've had are , what's the impact of the shutdown ?

Speaker #2: And I've got a little bit easier on that forecasting with the government opening up just last night . And so we had a small impact that's actually embedded in our guidance , both for the quarter and the year , for us , it was probably 15 to 20 million , and most of it came in the latter part of that six week shutdown .

Speaker #2: were really We unaffected early on . So I think you'll watch federal ramp government also during the year . So we've got our 5 to 10 .

Speaker #2: And I would say we're not going to start with a zero like commercial up to ten. But we'll start at 5 or 6, and we'll end up at 10.

Speaker #2: International . You've already seen we're at the upper end and things true with the midpoint on state and local , what would drive us to the high end of this ?

Speaker #2: would say I actually a little bit more clarity on international . I think international could move to the high end , and I'd like to see the baseline be eight , nine , ten , and actually the performance come above out that .

Speaker #2: And I think it would just be clarity with respect to tariffs and trading so that individuals can they're going select what to move with respect to their forward manufacturing .

Speaker #2: And I would say in case of Canada , how quickly they can actually deploy what's just been authorized with their infrastructure work , I would say , what would also take us to the high end , we've not included really any material dollars for the US state Department , and still we are present , although I would say .

Speaker #2: Close to dormant in places like Ukraine specifically. But if that actually became more constructive or more funding came through it, that certainly could push it to the upper end.

Speaker #2: With respect to what could bring us low to the end . Well , the passed a continuing resolution to the end of January , and if we're right back here in the end of January , and if they want to eclipse the new record they just set for the past six weeks , it's something we'd have to take a look at now .

Speaker #2: It's not really been much of a financial impact to us . This first six weeks shutdown , but you have to take a look at each one of these as they as they come .

Speaker #2: what's impacted . So I think unusual things like recessions And , unusual things like a prolonged shutdown could drive the low us to end , things that could drive us to the high end is more a little bit clarity on tariffs , which will help both on acceleration of us commercial for reshoring here in the US .

Speaker #2: And honestly , a lot of a lot of activity internationally with respect to what they're going to move forward with , with respect to their own manufacturing .

Speaker #2: Is it going to come to the U.S. irrespective of the price increases on the tariffs, or are they going to have other trading partners?

Speaker #2: So a little more clarity on that . I'm not saying that high or low tariffs make a big difference , just clarity of what the number is , what actually make a very positive construct for moving us to the high end .

Speaker #5: Great . Thanks very much for that color . And then sort of just continuing on that discussion , kind of post continuing this resolution , is it I guess based on your past experience with such government closures , just two part question .

Speaker #5: One , is it usually a smooth sort of turning on of all the functions that were stopped ? And then secondly , we've been hearing some commentary about , you know , with the EPA taking a while or just kind of shutting just on issuing down permits , etc.

Speaker #5: , has that been a headwind and where do we stand on that now ? On the front ? Thanks .

Speaker #2: Yeah, good question. I would say that when we're in what I would call discretionary revenues from the federal government ramps back, it ramps back slowly.

Speaker #2: But most of our revenues have actually transitioned because of what took place in fiscal year 2025 to essential services. So we really didn't have that much of it put on hold for the federal government, because a lot of our revenue is being driven by the Department of Defense.

Speaker #2: So you'd say, is it going to ramp back up? My comment would be it didn't ramp back down. So we didn't really see that as an impact.

Speaker #2: So I think the federal government's not going to see much of much of , you know , disruption from gone down having and back up now with respect to permits coming out of EPA , we don't do a lot of driven work that is by federal regulation that requires EPA or national or US federal , either headquarters or region approval before it goes forward .

Speaker #2: There's a little bit of it where there co-regulated or there's compliance , both at the federal and state level . And you need sort of two sign offs .

Speaker #2: So that's actually affected some of the dollars . But for us it's been pretty small . But I would say the one that's been it's going to be seen a little bit more interestingly enough , is actually in our state and local .

Speaker #2: And you would think that a government shutdown would not impact state and local . What have they got to do with the federal government ?

Speaker #2: lot of There's a projects that have co-funding with the federal And I would government . Department of say where you Transportation , grants have large or other funding , incremental funding as part of projects that go forward when those grants and other things are completely put on hold or you had to go back for sign off for next milestones , you saw those projects on put pause or on hold until the government workers were actually back in place .

Speaker #2: So I think the impact for us is going to be the government federal workers . Weren't there during the first half of our Q1 or the federal government's Q1 .

Speaker #2: With pushing out orders, and last I looked at the calendar, we're only a couple of weeks away from Thanksgiving here, and then we're going into Christmas.

Speaker #2: So, it's not like you did a six-week shutdown and then you're moving into blue skies. You're moving into holiday time. So, I think the optics of backlog or task order issuance could be impacted in Q1.

Speaker #2: And again , I think that's mostly optics because we've got plenty backlog to drive revenue right of through this . But if you'd ask what are you going to see from the impact of this slow comeback ?

Speaker #2: I think you're going to see the optics on your backlog and you may see some some optics or short term impact on funding through state and local .

Speaker #2: For us permitting approvals for commercial clients and others . De minimis the minimis . There just aren't that programs except for are driven Superfund that by the federal government .

Speaker #2: EPA approval process. So I think it sounds like it's a big driver. Not much so.

Speaker #5: Thanks very much for that color . And just one last quick one on sort of allocation capital and M&A . You've highlighted M&A as a focus .

Speaker #5: You know, firms call it in the medium size range. But can you talk about the general pipeline of those opportunities that meet your criteria?

Speaker #5: And then does things like the government shutdown influence that either up or down in terms of the opportunity set or seller willingness ? Thanks very much .

Speaker #2: Well , I'll just say a few words on the the from 100,000 foot , sort of on the landscape . And then Steve , talk about the financial dollar set aside .

Speaker #2: But no , this the disruption of the volatility . That's taking place in the markets because of the new administration have , you know , have sent some shock waves through some firms that have impacted them more than others .

Speaker #2: And I think for some they've actually through this felt that volatility , a place that's safer is on a bigger ship . So if I'm in a small rowboat or a middle sized boat and the waters get really choppy , maybe I want to get on a bigger vessel .

Speaker #2: So we've actually seen these small or firms even middle sized firms actually come to market and transactable . So if they were not selling for sale before sudden you and all of a what's going don't know to either on your happen federal government , state or commercial .

Speaker #2: You know , maybe I'm going to go join a bigger partner who has a bigger platform as access to clients that are maybe outside the US or that are more stable and no doubt Tetra Tech .

Speaker #2: looking to join a technical leader and a market leader and you're in the fields that we're interested in , we're about as safe and as as prosperous as a firm to join to progress where you're at and actually make your business even better and reduce your risk .

Speaker #2: So I'd say there's more opportunity today because of this . And the other thing is , if there's more available and for those that are looking for the sale not to be their last move , but their next move to become better , Tetra Tech is the right home for them .

Speaker #2: So I think pricing has become more moderated or valuations have come down a bit. I would say that the investment bankers are still asking for unbelievable, dizzying valuations.

Speaker #2: If you're in power or if you're in data centers . But other than those two , I think . Valuations have gotten quite more modest and the number of firms that are small to midsize have have actually grown quite a bit .

Speaker #2: So I pipeline is bigger than we've seen before . No doubt with consolidation in the market , there are fewer large firms . The ones that of course , the scarcity premium for these really large firms .

Speaker #2: you But know , when those fit right for us , we'll look at those . We'll be opportunistic if it fits right , we'll look at it .

Speaker #2: And maybe Steve can just say a word about anything outside our range of respect or with regard to the ability that we could become constructive on?

Speaker #2: Yeah, I think, you know, as I talked about in my.

Speaker #1: Earlier comment , you know ,

Speaker #2: We've got .

Speaker #1: Really strong .

Speaker #2: Balance sheet that and we're .

Speaker #2: able .

Speaker #1: To use balance sheet our to make acquisitions that we think are going to have a long term benefit . When I look .

Speaker #2: At .

Speaker #1: The capital markets and how we want to finance.

Speaker #2: That .

Speaker #1: We have a .

Speaker #2: Bank credit facility that . has 100% dry .

Speaker #1: Powder on our revolver , and it has options to increase it beyond what's in the in the facility now . So that's available .

Speaker #1: And outside bank of the market , you see that we two years ago , we entered a convertible debt into that . that capital .

Speaker #2: Is available at probably better terms today than two years ago .

Speaker #1: And so .

Speaker #2: There are various .

Speaker #1: Capital markets and funding vehicles for us.

Speaker #2: To really .

Speaker #1: Address anything .

Speaker #2: That that makes sense for Tetra Tech, either.

Speaker #1: Small , medium or even larger firms in terms of who can join Tetra Tech .

Speaker #5: Thanks very much .

Speaker #6: Okay .

Speaker #3: Thank next you . Our question comes from the line of Sanjay . Sangita Jain with KeyBanc Capital Markets . Please proceed with your question .

Speaker #7: Thank Great . you . Thanks for taking my questions . So one I want to ask about GST margins outside of the elimination of USAID .

Speaker #7: Can you tell us if there are other factors contributing to that margin expansion ? Maybe it's an evolution of the mix projects of or more fixed price work that is driving that , and how we should think about it for 26 .

Speaker #2: Yeah , it's well , no doubt , as you commented , we were finishing up a number of deliverables and items for the disaster response , which drove really high utilization in GST .

Speaker #2: So that was , I would say , the single biggest driver that drove it up near 23% in the quarter . But the other two are just what you said is one , we have more fixed price work .

Speaker #2: One of our goals for a while has been to take our fixed price amount of the work that we have . historically been , It has if you follow Tetra Tech or our investor reports that we have online and attached to our press release , hey , historically we've been around 35% , a little more than a third fixed price .

Speaker #2: It's been a really focused effort over the past 2 or 3 years to move that to more fixed price, as we've actually developed more tools that will make us more efficient.

Speaker #2: So we can give our clients a better price point with respect to performing the work and gives us higher margins . So we did hit essentially 50% of the revenue that we had this last quarter was fixed price .

Speaker #2: That's the highest we've seen in I don't know , I want to say ever , but certainly in many decades . So that actually was a big contributor to it .

Speaker #2: the other And mix is that we have time and materials contracts on where there's competitive rate a very structures . We do we do a bit of upfront design work , actually , about 30% of it is very high end upfront design .

Speaker #2: But when we move into what I'll call more detailed design , we end up being a price point compared on to some of low cost these offshore design centers .

Speaker #2: And those carry lower margin . And we've been migrating out of doing that and moving our design work to earlier in the the project execution cycle .

Speaker #2: And those that are already early, we're moving them into consulting or even advisory. So, it is a mix shift. We are moving to where it's higher margins for the work, more differentiated work that is generally not competed at sole sourced.

Speaker #2: It's work . We're under existing contracts and frameworks . And then the the work that is closer to being commoditized , we're moving it more to the front end .

Speaker #2: So, mix number one. Number two, more fixed price. And then the third, of course, is when we do have utilization driving very high, lower indirect cost.

Speaker #2: It's then shows up in our margins , which was like the firework of this last those are quarter . So sort of the three big drivers .

Speaker #2: I will say we still have a lot more upside with respect to margins. One of the targets I had aimed for is 50% for fixed-price work.

Speaker #2: Even though we'd hit that this last quarter, I want to see us stay there for a few quarters in a row, because some of that’s individual project driven.

Speaker #2: But I think we're going to move our target from 50 up to 60% , since that'll be our next milestone . We'll move so that we have more margin expansion And I there .

Speaker #2: there's still a think lot more contribution opportunity by using more of these digital tools . And yes , that includes AI . And yes , it includes different SaaS products .

Speaker #2: We have. But I think the next phase that will contribute is being much more efficient. And if we can apply more efficient execution to a fixed-price contract, I think that means more margin expansion for the company and the shareholders.

Speaker #2: . Okay ,

Speaker #7: That's super helpful, Jan. If I can follow up on the U.S. commercial business and the puts and takes that you talked about, renewables seem to be becoming a little bit softer, while data centers and power transmission are picking up.

Speaker #7: Can you compare for us if the scope of what you're losing on the renewable side is similar to what you're picking up on the power and data center side, and if also the margin profiles are similar?

Speaker #2: Yeah , that's a I will say of any of the areas that we have flux or change taking place . That's one of them that we're still we're sort of in the middle of this transition .

Speaker #2: So the we were doing much more full scale permitting for siting construction oversight for permit compliance for these renewable energy projects . And I'd say one of the examples , of course , is offshore wind , have where we'd marine vessels and many other items .

Speaker #2: I thought Roger did a really good job of identifying that the work that we're looking to grow our data center work , in particular , and I would , I would say the high voltage engineering is much less on environmental compliance , which was being driven by which was what we were doing for renewable energy and much more for design for the commercialization and getting these different facilities online .

Speaker #2: So I think that's that's the difference . So on High voltage transmission , we're actually doing the high voltage engineering . We're doing the actual design of the transformer stations and the the interconnects .

Speaker #2: So we're actually doing what I would call very high end . It's limited in the service availability in the marketplace . There just aren't that many people that can do this .

Speaker #2: We're one of them. And so, that's what I would say is different; margins, I think, are actually a little better because of the scarcity of people doing this type of work for the grid and for high voltage transmission.

Speaker #2: And I would say that it's just emerging now with our engagement in the data centers, which is not in the building itself, that Roger made a good point.

Speaker #2: The rush , the gold rush to do detailed design for the data center buildings itself . There's a lot of people rushing to that gold strike , but a lot of that work is being done internally , and a lot of it is been is standardized so that all of the data centers are similar .

Speaker #2: And maybe that there's more miners than there are gold in that area . But actually those selling the products in order to go mine for that gold is how do you get 5 million gallons per day for large data center ?

Speaker #2: Where do you get that from ? And as Roger commented , right now it's from the municipal municipalities . As water becomes more scarce , they're going to be looking for us to find other water sources , dedicated water supplies , groundwater , surface water , water reuse , water recycling .

Speaker #2: So I think it's going to carry a higher margins . So where we're migrating into is higher margins . And frankly , less competition .

Speaker #7: Great. Super helpful. Thanks, Dan.

Speaker #2: Thanks , Sangeeta .

Speaker #3: Thank you. Our next question comes from the line of Maxim with National Bank Capital Markets. Please proceed with your question.

Speaker #8: Hi. Good morning, gentlemen.

Speaker #2: Hello , Mike .

Speaker #8: I was wondering if it's possible to get a bit of an update on your digital initiatives. And maybe if you can talk about the clients where the adoption rates or the velocity is a little bit higher and why that potential could be the case. Any color that would be much appreciated.

Speaker #8: Thank you .

Speaker #2: Well , the let me see if I can just clarify and define the question , because if it's our digital products is in our recurring revenue or SaaS , if just to clarify .

Speaker #8: Yes , please .

Speaker #2: That yeah , it's interesting . That's been the one area that I would say we have been stymied for that has it's the smallest area of revenue .

Speaker #2: was one of our growth That areas . I will say that if you went back to May of 2020 for hour SaaS or revenue or our software products for subscription by year end clients , we had reported was about $25 million a year at on an , I think , overall Ebit margin of about 50% .

Speaker #2: I regret to say that a year and a half later, we're still at about $25 million, and our margins are about the same.

Speaker #2: will say , I what's been disruptive for us is our number one strategy was to take these software products , which were developed for our US government clients , primarily the government was the subscription .

Speaker #2: And I would say the U.S. federal government. I would say the new administration has actually created more disruption there than anywhere else for us.

Speaker #2: Now, the good news is it's $25 million out of our total revenues of well over $4 billion. So, it's the smallest of small revenue numbers.

Speaker #2: But I will say our strategy to actually take it and to bring in unique products that would help the government in these areas dramatically has actually been put on hold.

Speaker #2: There's been a essentially moratorium on new software for being packages purchased or leased or subscribed to at the federal government . We are retooling very quickly our our go to market strategy to go to what we had called phase two , which is now become .

Speaker #2: So plan B is now become plan A , which is for things like oceans map instead of having it placed with the US Coast Guard and the Navy other specialty and agencies within the federal government , we're going to ports and harbours and the individuals who actually have requirements to understand what's the impact of a oil spill or of a bilge discharge or anything else .

Speaker #2: That man overboard , actually , in the local port and harbor environment . So there's a lot more of them . It is a different approach for us .

Speaker #2: And I'd say that's also true where we've been placing software packages with the Department of Defense for our fusion map. I could also go through the FAA with respect to our pylons and air traffic approach lanes.

Speaker #2: So we are we are moving to what I would call secondary , which were originally our phase two . But we've been taking things like the lanes for the FAA .

Speaker #2: And we're now actually having it deployed across Europe. We're using it in places like Heathrow right now and other major cities across Europe.

Speaker #2: So I will say that just because the like there's has this road the federal government has slowed or not gone through now right .

Speaker #2: We've moved . We are taking , I'd say , back , two steps one over and 3 or 4 steps forward . I So expect that to be much more productive and have some better growth rates here over the next year or two .

Speaker #2: But I would say the good news is it's only a small part of our revenue . In fact , the smallest of small .

Speaker #2: But the bad news is it has pushed us back, I would say at least a year from what we expected it to be at this point.

Speaker #8: No , that's very helpful . And one maybe quick one if I can squeeze in for Steve in terms of obviously the balance sheet is extremely healthy and delivered in terms of the desire to do anything more or .

Speaker #8: Off-size, relative to your history, mind maybe do you provide some guardrails in terms of how we should be thinking about that?

Speaker #8: Thank you .

Speaker #2: Well .

Speaker #1: think I .

Speaker #6: , you know , if you look over the Tetra Tech history , you know , we've our our acquisitions have been kind of that that medium size , you know , ads , you know , two , three , you know , 7% of revenue per year when you add them all up what you .

Speaker #6: over the noticed last couple of years acquired we have other But companies other , that were , you know , that than . The larger normal bit more creative took a financing , regulatory approvals , and we we brought them into Tetra Tech and turned them around and performing at they're much , much better rates than they ever were .

Speaker #6: As , own public as their companies . And those were on the much larger size , comparatively speaking . So say that I would our , our strategy and appetite is anywhere from , the you know , small to medium size companies to , you know , the larger , you know , public or public or private equity health companies that and I believe that both with our , our , our current balance sheet , our current bank credit facilities and the capital markets that are available to us , we have we have a lot of different choices with at significant .

Speaker #6: Bigger sizes than , than , which even was our our largest acquisition in the history of the company . Just three years ago .

Speaker #8: Okay . That's great . Thank you so much .

Speaker #3: Thank you . Our next question comes from the line of Michael Dudas with Research Vertical Partner . with your Please proceed question .

Speaker #9: Good morning gentlemen .

Speaker #2: Morning .

Speaker #9: Deanna . Time flies , I year and guess is a a half ago , we had your Investor Day in New York . And has happened since then .

Speaker #9: And so much has happened since then . I just wanted to . Maybe you a little can share reset as you look out through 2030 targets .

Speaker #9: How more confident or less confident are you given all the disruption that you've witnessed in successfully overcoming fiscal challenges during the year 2025? And as we think about that, does your balance sheet and the opportunities that exist, as well as potential acquisitions, become a little bit more important to achieving those longer-term goals than maybe it would have been 18 months ago?

Speaker #2: That's a great that's a great question . So been asked I've that question many different ways really , since February of this year with the new probably administration coming in and with USAID , actually being a eliminated as a federal agency .

Speaker #2: And I've been even asked as directly as you regret having come out with those targets for 2030 and , and a version of that is , do you nicer want to do a reset ?

Speaker #2: And actually put your number a different set of numbers up there ? And my comment , well , I don't know if I should put a bigger numbers quite yet , but but I will tell you that no it's been an interesting doubt that year .

Speaker #2: And what's the old adage , one of the Chinese proverb , May we live in interesting times ? This has been interesting of the most times , but what interesting times do get us ?

Speaker #2: And I'll tell you one thing I so proud of the management team here at Tetra Tech and all of the employees that we've lived through in change , change represents opportunity .

Speaker #2: And for each door that's gotten once closed, and completely been closed with aid, and we didn't close the door, someone closed it on us.

Speaker #2: I'll tell you, those same staff have actually been able to find new opportunities or new windows that have opened, and the windows are actually larger than the doors that were closed.

Speaker #2: For instance , the margins that were that were closed and aid is actually been opened . The windows that have been opened to new opportunities that have much higher embedded margin .

Speaker #2: In fact , double , even triple the number that we had . So there was a there was two numbers on the the 2030 plan .

Speaker #2: One was the total growth . And no doubt that's been impacted . And I'll come back to that , which is top line .

Speaker #2: But the second was basis margin points . And Steven Burdick very eloquently presented how we were going to expand 50 basis points per year over the five years from the from that time of the presentation to 2030 .

Speaker #2: I don't know , someone else closing out USAID for us actually took us almost a 50 basis points jump on a baseline up , and then on top of that , we said , we're now look like we're going to grow more like 60 , 70 , 80 basis points .

Speaker #2: So as far as it goes, I think it wasn't actually a headwind; it actually became a tailwind. And somebody gave us a boost up on that.

Speaker #2: With respect to top line , no doubt someone says if you just had $550 million , subtract from you and the rule of compounding is going to make that even more difficult on you .

Speaker #2: My comment would be , is that the rule of compounding only is going to hurt me if I don't actually close that gap in the next couple of years , and we only had a 4 to 5% contribution from M&A .

Speaker #2: Or mergers and acquisitions , and I'll focus on acquisitions . People joining us , Steve just went over , we have more his vernacular dry powder , which is access to capital .

Speaker #2: I'll comment that while you'd say if you go to market right now and you have excellent credit rating , you'll get 4 or 5 6% interest rates thanks to Steve's foresight , Tetra Tech had a 2% interest rate because the convert that we put in place year and a half ago .

Speaker #2: have the So we lowest cost of capital . We have . We could actually do acquisitions at half again or double the 4 to 5% presented in the 2030 plan that we presented in May of 2024 .

Speaker #2: So, we could do double that number and not go actually outside the range of 1 to 2, leveraging that we've identified.

Speaker #2: So with respect to the closing gap , that's just created , I don't see that as an issue . Yes . It means that we'll turn up our M&A a bit .

Speaker #2: But as my comments on an earlier question on this , this call is , are there actually firms available that and as a price point , I think I answered that .

Speaker #2: I hope in enough detail to say absolutely. And even at a better multiple. And by the way, someone who's going to join Tetra Tech isn't getting a lower multiple.

Speaker #2: They're getting a better home . And so I think that , yes , M&A will become a bigger part . And I think we can get to that number without having put any additional pressure on our organic growth targets , which is 6 to 10 .

Speaker #2: I think you've seen even in this period of great turmoil or live in interesting times , we're coming right out of the gate .

Speaker #2: We're right at the middle of that range organically at 8%. So yes, M&A will have to be a bit larger, but I don't see financially or opportunity availability being an issue for that.

Speaker #3: Thank you . Ladies and gentlemen . That concludes our question and answer session . I'll turn the floor back to Mr. for Dan Batrack closing comments .

Speaker #2: Great . you . Thank you very much , Melissa . And thank all of you for joining us on the call today . Thank you for being supporters of the company through all the fiscal year 2025 .

Speaker #2: I would like to reiterate that I could not be prouder of the performance of the Tetra Tech employees all around the world and, really, how we navigated 2025.

Speaker #2: And I can't see a better demonstration of how that performance actually was , other than the all time records in nearly every field , as I just indicated in this last question came , how's it looking with all the changes ?

Speaker #2: I do think that there's more opportunities there for Tetra Tech a particularly in the market leadership positions . We're in to make 2026 just a fantastic year .

Speaker #2: And I really look forward to reporting back to all of you in roughly 90 days from now, or at the end of Q1, to report how we started out in fiscal year 2026.

Speaker #2: And with that , I hope you all have a safe and and successful day to day . I will likely not talk to you collectively before the holidays .

Speaker #2: So I hope you have a great holiday wherever you happen to be located . Thank you very much and have a great week .