Tetra Tech(TTEK) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue increased by 36% year-over-year, from $890 million to$ 1.21 billion [6] - EBITDA income rose by 33% year-over-year, reaching a record high of $119 million [6] - Backlog increased to a new high of$ 4.39 billion, up 25% from last year [6][9] - Legacy Tetra Tech's revenue without RPS was $989 million, up 11% year-over-year [6] - Earnings per share increased by 19% from the prior year [6] Business Line Data and Key Metrics Changes - Government Services Group (GSG) segment grew by 16% year-over-year, with margins increasing to 14% [8] - Commercial/International Group (CIG) segment grew by 55% year-over-year, primarily due to the addition of RPS [8] - U.S. federal client work increased by 30%, driven by growth in water and environmental programs [6] - State and local revenues were up 16% year-over-year, excluding extraordinary disaster response programs [7] - U.S. commercial net revenues increased by 22% year-over-year, driven by renewable energy and environmental assessments [7] Market Data and Key Metrics Changes - International revenue, primarily driven by RPS, increased by 68% year-over-year [7] - Significant new contract capacity awarded in the U.S. and the U.K. for water programs [9][10] Company Strategy and Development Direction - The company is focused on leveraging revenue synergies from the RPS Group and increasing funding from U.S. federal stimulus programs [3][15] - Tetra Tech Delta technologies are being utilized to enhance profit margins without increasing headcount [4][5] - The company aims to increase EBITDA margins from RPS from under 5% in fiscal 2022 to over 13% by fiscal 2025 [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing strong demand for services in water, environment, and sustainable infrastructure [22] - The integration of RPS is exceeding expectations, contributing to a robust pipeline of opportunities [22][23] - The company anticipates continued growth driven by federal funding and climate change commitments [23] Other Important Information - Cash flows from operations totaled$ 133 million, up 35% year-over-year [10] - The company paid out $14 million in dividends, marking the 37th consecutive quarterly dividend [11] - The net leverage multiple was approximately 1.6, with expectations to reduce it to about 1.4 by year-end [14] Q&A Session Summary Question: What is driving the momentum in the quarter? - Management noted broad-based performance across all end markets, with no single unusual contributor driving the results [24][26] Question: Can the current pace of growth be sustained? - Management indicated strong backlog growth and mid-teens organic growth, suggesting sustainability in growth [30][31] Question: What is driving better-than-expected results from RPS? - The strong workforce and cultural alignment between RPS and Tetra Tech were highlighted as key factors [32][33] Question: Can you elaborate on Tetra Tech Delta? - Tetra Tech Delta encompasses various tools that enhance project efficiency and margins, with significant growth potential [38][40] Question: Are margins in the backlog improving? - Management confirmed that embedded operating margins in the backlog are tending higher due to pricing power and a shift to higher-end work [46][47]