Tetra Tech(TTEK) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Tetra Tech reported record quarterly revenue of $1.11 billion, a 12% increase year-over-year [6] - EBITDA increased by 32% to$ 129 million, resulting in a 13.3% EBITDA margin, up 120 basis points from the previous year [6] - Earnings per share reached an all-time high of $1.59, up 42% from the prior year [6][11] - Year-to-date net revenues increased by 18% to over$ 3 billion, with EBITDA up 41% to $414 million [12][13] - The company raised its full-year guidance for fiscal year 2024, projecting revenue between$ 4.27 billion and $4.32 billion [25] Performance by Business Segments - Government Services Group (GSG) revenue increased by 25% to$ 488 million, with a margin of 14.6%, up 60 basis points [6][11] - Commercial International Group (CIG) grew net revenue by 4% year-over-year, achieving a margin of 13.9%, up 230 basis points [7][11] - RPS activities within CIG reached an 11% margin, up 400 basis points from the previous year [7] - Excluding disaster response work, state and local revenues grew by 8%, driven by advanced water treatment projects [9] Market Data and Key Metrics Changes - U.S. federal client work increased by 34%, with underlying growth at 18% excluding extraordinary work in Ukraine [8][9] - International revenue represented about 40% of total company revenue, growing at a rate of 5% during the quarter [9] - The backlog reached an all-time high of $5.23 billion, up 19% year-over-year, with a book-to-bill ratio of 1.4 [11] Company Strategy and Industry Competition - The company focuses on high-end consulting and sustainable infrastructure, particularly in water and environmental sectors [4] - Tetra Tech aims to enhance margins through front-end advisory and consulting work [4][5] - The company is actively pursuing acquisitions in technology innovations, especially in water and environmental spaces [17][44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong demand for differentiated services across water and environmental markets [27] - The company anticipates continued organic growth rates of 6% to 10% over the next several years [40] - Management noted that the recent Supreme Court ruling on Chevron deference may create new opportunities for Tetra Tech [34] Other Important Information - Tetra Tech announced a 5-for-1 stock split to increase liquidity and lower trading costs for investors [19] - The company approved a quarterly dividend of$ 0.29, marking a 12% increase year-over-year [17] Q&A Session Summary Question: How should investors interpret the healthy backlog in terms of visibility for hitting annual organic growth targets? - Management cautioned that backlog growth may not directly translate into net revenue growth, noting that extraordinary contributions from Ukraine were included in the backlog [30] Question: Are there areas of the business exposed to changes in regulation due to the Chevron ruling? - Management indicated that most environmental compliance work is regulated at the state and local level, minimizing the impact of federal regulatory changes [31][32] Question: What is the revenue contribution from high-performance buildings and data centers? - The company is tracking towards a $100 million revenue target for advanced manufacturing and data centers, expecting a 20% CAGR for that market [35] Question: How does the company view M&A opportunities in light of rising uncertainty in U.S. policy? - Management emphasized that the U.S. remains the largest market for environmental stewardship and clean water, and they will continue to focus on technology acquisitions [36][44] Question: What is the visibility on the Ukraine contribution to revenue? - Management confirmed that they have significant contract capacity in Ukraine, with$ 160 million booked in the quarter and expectations for continued work [47] Question: How long will the transition away from lower-margin work in RPS take? - Management indicated that the transition is expected to complete within one to two quarters, after which higher-margin contributions from RPS will be realized [49]