Good morning and thank you for joining us. By now you should have received a copy of the press release. If you have not, please contact the corporate offices at 626-351-4664 and we will get one to you right away. With us today from management are Dan Batrack, CEO and COO; Sam Box, President; and David King, CFO. They will provide a brief overview of the results and will then open the call up for questions. During the course of the conference call Tetra Tech management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements concerning future events and Tetra Tech's future financial performance. The statements are only predictions and may differ materially from actual future events or results. Tetra Tech's Form 10-K and 10-Q reports of the Securities and Exchange Commission identify certain risks and factors that could cause actual results to differ materially from the forward-looking statements. Tetra Tech undertakes no duty to update forward-looking statements. 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 the conference up for questions and answers after the presentation. With that, I would now like to turn the call over to Dan Batrack. Please go ahead, Mr. Batrack.

Thank you very much. And good morning and welcome to our first quarter of 2008 earnings release conference call. While we've had excellent performance in all of our segments over the past 10 quarters, I'm really pleased to announce this past quarter was our best in over three years. While our gross revenue grew over 25% year-on-year, our net revenue grew to double-digit rate. Our backlog outpaced both of those numbers and grew at over 27% increase from Q1 of a year ago. Our increase in income, which was the largest increase on a yearly comparison of all key metrics, was largely attributed to strong performance and our firm fixed price contracts that were performed across all of our three client segments federal, state and local and commercial. Overall, our net income and earnings per share, EPS, increased about 37% for both of those metrics. I'd like to spend a few moments going over our three primary client sectors that comprise our business right now. Our largest client sector is the federal government. Its been our largest client sector historically for Tetra Tech, and represents almost half of our revenue. In fact, this last quarter it was to up to 46%. The federal market, while its always been Tetra Tech's biggest client, its really a great place for Tetra Tech to be today specially in this economy. It represents our largest contracts by far. The federal government represents our longest duration programs, least volatility and fluctuations in funding. And as these federal contracts that we believe are going to be the first to realize any benefit from any type of Federal stimulus funding that will be coming out. In addition to our long-term clients at the Department of Defense, EPA and FAA, this past quarter we added USAID, affiliate of…

Thank you, Dan. As a whole, we registered a very strong quarter if not as Dan mentioned earlier, the best in three years. Our revenue grew to $470 million at 27.4%, together with an equally strong increase, almost 26% of backlog. Our net revenue grew 13.2% to $277 million. This growth came from all markets, federal, state and local and commercial, as Dan mentioned earlier. Our income from operation increased from $21.4 million to $22.7 million, and on an as-reported basis 6.3% increase. In FY '07 we had a one-time benefit from litigation reserve reversal. Excluding this benefit, it was an improvement of over 30%, as Dan mentioned at the beginning. Also we experienced improved margin of 8.2%, strong relative to first quarters. Excluding M&A charges, related charges during the quarter, it was 8.9%. EPS grew from $0.16 to $0.22, a 37.5% increase. SG&A cost this quarter was $33.5 million, as I mentioned earlier. The same quarter last year had a $4 million benefit. And also this quarter particularly we had an increased proposal effort of about $3 million, and as I mentioned earlier, M&A charge of about $2 million mostly had to do with intangible amortizations. Normalized is meaning adjusted for legal benefit of last year and only the M&A charge for this year, last year it was by 11%, this year it was by 11.3%. This includes a 3% increase in our proposal effort this quarter, which has borne fruit as you can see our wins earlier and it will bear fruit in the coming quarters. Net interest of $700,000, a combination of a strong cash management and a lower borrowing help us to keep our interest costs in check. Tax was $9.2 million, a 31% increase due to increase in earnings. We expect our tax rate for…

Great. Thank you very much, David. I'd like to move to our guidance, both for the second quarter 2008 and review our annual guidance for the fiscal year. For the second quarter, our revenue net of subcontractors, we're providing a guidance range of $260 million to $280 million with the diluted EPS of $0.19 to $0.21. For the year, annual forecasted revenue is $1.110 billion to $1.210 billion with a guidance range of $0.87 to $0.93. Based on the strong performance this first quarter, we did narrow guidance range. We moved the bottom end up $0.01 from $0.86 to $0.87. I will note that this guidance range represents approximately a 15% top and bottomline growth in all of our metrics. One other item here I'd like to note that David touched on briefly is that intangible amortization of $0.05 or an impact of $0.05 for 2008 has been factored into our guidance. Once this intangible amortization is complete, this $0.05 is going to flow back into earnings. So I think that's something that is noteworthy. In summary, I'd like to say, we've established a strong federal practice. We're winning larger and larger programs, longer duration programs. This federal business for Tetra Tech has always been very good, but in this time of volatility, its even better. Its much better for the entire company. We're positioned well in the emerging alternative energy markets. We're currently working on over 70 wind projects in 35 states right now, and we see this market only getting stronger. So the commercial sector, we expect not only a lot of stability but larger growth and very favorable programs. And at the state and local level, certainly I've heard and I'm very sensitive to variability and volatility in those budgets, but with Tetra Tech working on the most critical water programs at the state and local level, we feel there's lot of stability there and that these programs are going to be going forward. All-in-all, strong backlog growth in all segments and we remained extremely confident going into 2008. And with that, I'd like to open up the call to questions. Allison?

(Operator Instructions) Our first question is from John Quealy with Canaccord Adams.

Hi. Good morning. This is actually Chip Moore on behalf of John. I was wondering maybe if you could delve into backlog a little bit more, maybe talk about some of the planned headcount additions, how that's going, kind of a utilization picture, how that's rising or falling, how we should be looking at that going forward?

I'll speak to backlog. We had backlog increase in all three of our sectors, both at the federal, state and local and commercial. The increase is relatively proportional to the revenue. While we don't breakout the specific apportionment of where the backlog is being added. This past quarter, it was added relatively in line with our revenue percentages. Headcount, if you take a look sequentially, we added over 800 new fulltime equivalents or FTEs. In fact, in total headcount, we are well over 1,000 this past quarter. A fair amount of that was from acquisitions, but organically are just new hires was a good portion of that number. We do have new openings, but we don't see that headcount in and of itself as any type of obstacle or deterrent to our continued growth and execution of the work that we have or our ability to pursue work. Utilization, we're in the upper 60s. We think we still have room for some improvement. But right now, we're running well within a bandwidth of what we'd expect to be our normalized run rate.

Okay. And just along those lines on the hiring, would you say that the environment has got a little bit easier perhaps?

I don't think we've really seen much of a change. I certainly heard from some of our folks, primarily in the information technology, we've seen folks moving from markets that are sort of tangential to ours that we've had few folks coming in, a few folks in the engineering from residential housing and some other areas where there is softness. But we haven't seen a material increase in staff availability. It's still tight, but it's managed.

Okay. And then looking at the international good opportunity, just kind of broadly wondering your thoughts on demand internationally versus domestic?

Our presence internationally is primarily working on a commercial sector with US multinationals that have taken us overseas, and we've gone overseas with the Department of Defense in USAID. So most of the work that we have, in fact, almost all of the work that we have overseas is through US nationals. We're following the money, we are seeing a strength, both with the state departments for USAID and with the Department of Defense. That in-country work, we're still very early, and I think any insight that we'd have is based on a very small window. So I think with respect to in-country domestic work, we're still in the exploratory phase. So I don't know that I would really have an opinion on that right now.

Fair enough. And then, just looking at the relative out performance this quarter, it look like it was mostly in the resource management side. How should we be thinking about that mix going forward. Is that a trend that's likely to continue?

We were a little bit soft in our infrastructure business. Our infrastructure business was flat. In fact, to be precise, it was down 1%. So it was flat. We believe it's primarily attributable to one program. A year ago we had a large program in the infrastructure, a NASA project that hasn't gone forward for us. If we simply factor just that one single program in, we would have had -- last year it contributed approximately $8 million -- so it would have put us at 6%, 7%, 8% increase year-over-year. So the rest of our business in infrastructure is growing at about that pace. It will make the year-on-year comps because that program did go all the way through until the fourth quarter last year. So we need to make up for that at nearly a 10% rate on net revenue in order to show an increase. So we do expect that to pick up. I think we will see our largest gains in the resource management. And the primary reason is that's where almost all of our federal work resides.

All right, great. That's helpful. I'll let someone else hop on.

Our next question is from Richard Paget with Morgan Joseph.

Well, I wanted to kind of touch upon it a little bit more maybe. If we do go into a prolong downturn, I mean where do see the most risk? And maybe you could talk about past cycles of, you know, have you had backlog, projects in backlog ever get cancelled?

I'm sorry, Richard. I think at the beginning we may have lost you. If you could repeat them. I think I might have lost the beginning of that question, I'm sorry.

I just want to get a better sense of, if we do go into an economic downturn, where really are the risks in your business? I mean you did what you do have is relatively resilient and defensible, but where should we think about signs of risk? In past downturns, have you seen backlog or projects get cancelled or scaled back?

Okay, good question. I'm not going to say its never happened, but programs to be cancelled once they've been initiated is very unusual for us because of the way that we account for our programs as being fully funded. These are programs that are typically well underway in a midpoint. They're somewhere between initiated to in progress, so it's very unusual for us to see those programs cancelled, although its not impossible. Where we've seen, and I'll point back many years before Tetra Tech. the last impact that I've seen that had a material impact on our business associated with the economic volatility was back in the '90s. And it really had to do more with a political impasse. It was 1994 where there was an impasse between the executive and legislative branches where they just wouldn't pass the budget. So any time that we see at the federal level an impasse where they would move to shutdown, the government so to speak with funding, that would have an immediate and material impact on us. I've seen it once back in the early '90s. And right now, what we're actually seeing is bipartisan, collaboration in order to actually initiate stimulus programs. And besides sending checks back for tax rebates and other approaches, one way for the federal government to do is to open up their federal programs. And we have between $6 billion and $8 billion of contract capacity. I know that others in our industry actually use that number as their backlog number, because that's what they have quote under contract. We don't use that number. But certainly the Federal government to the extent that they wanted to open up some type of stimulus program and start spending money through contracts they have, that's where we would look to see a movement.

Okay. And then do you have any updates on any contracts coming out of WRDA?

No, we're following it very close. There are programs and we're bidding on some large contracts in areas like the Gulf Coast, out in California along the levee, the Sacramento River Delta system. But those programs, as you track the funding, actually are not associated with Water Resource Development Act. We have been following that very closely. The 2008 funding appropriations have already been put in place. And so we wouldn't expect material movement on fundings directly associated with WRDA until late 2008 or early 2009.

Okay, thanks. I'll get back in queue.

Okay.

Our next question is from Alan Robinson with RBC.

Good morning. Given the issues we had last week with the monoline insurers, what kind of feedback or color are you getting from your states and local customers regarding their sort of long-term view on how easy or how difficult it will be for them to get funding? Are you hearing much there or is the lead time there so long that it's not impacting?

Well, from our experience, it's the latter that it's a long lead time, and we'd heard nothing on any of our programs, contracts or even from the contracting officers that we work with the state and local level. While we're aware of if that because we've been watching it, it certainly has not translated down into any communication to us. And we've been checking both with our clients and our project staff, and we just haven't seen that yet.

And to borrow from a previous question, do have a history or do you have any perspective from historical trends with respect to changes in state and local funding availability or is that relatively smooth?

Well, for our programs, we've seen it to be relatively smooth. The states do have to run on a balanced budget program. And so, as tax receipts and other funding availability move, certain programs will be impacted. In our experience, the programs that are the most sensitive are typically transportation, these big linear programs, rail and our road programs. These are real big programs. They generally don't have a regulatory driver, so they don't have a mandated schedule. The designs for roads, and I would want to minimize the civil engineering aspect, but it doesn't go obsolete. The grades, the concrete materials, specifications can be rolled up as drawing, put on a shelf, and when funding is available, it can be reinitiated. I had one of my engineers say once when I challenged him on this, he said, look, no engineer got -- the city staff know immediately from their constituents if the waters isn't coming through, but it's not as big a deal to hit a pothole. So it's not quite the same priority. So we think that our water programs are much higher. Tetra Tech's exposure in the transportation sector is very minimal. So we don't really see that as a material impact on any front.

Okay. That's very helpful. And then, just finally, I think I caught you mentioning that you now have 800 staff in the field internationally, did I hear right?

That's correct.

So that's about 10% of your overall staff. So what kind of proportion can we expect to see the international sector generating over the next couple of years, what kind of proportion of your overall revenue? And perhaps could you speak to the potential profitability of that revenue stream?

Well, the work that we're doing overseas, these more than 800 staff, as I mentioned, are in more than 50 different countries. The greatest majority of those staff, over 500 of those staff are working for the USAID, which is a US federal agency within the state department, and we're in a number of countries. We currently classify that as federal revenue, but we are looking to leverage that presence and local activity into in-country work. The remaining roughly 300 people we have oversea are -- we do have some in Iraq, but the rest of them have really have gone overseas with our multinational mining clients. And there is big activity in Latin America, we're seeing in Asia, and we're seeing in different area around the world. And the margins there are very good as they are with most of the mining players. So I think it's a little bit early for us to predict an exact percentage in the next few quarter. But we do believe over the next year or two, we're going to increase our in-country work what we define as international revenues from its current 1% and our goal would be to bring it up to 20% or more.

And are there any international acquisitions on the backburner at the moment, or perhaps you can speak generally to what you're looking at with regards to acquisitions generally?

Well, we felt great. And I was hoping that they'd be on the frontburner for us, but certainly there is competition overseas. We're not the only one looking there. But the change in the valuation of the US dollar to many, in fact, most international currencies has made it a little bit more difficult. So while we're still looking and there are extremely good, strategic fits with Tetra Tech. I think we're the right company for so many overseas. We're going to keep looking. But for us, it comes back to the right company, for the right strategic fit at the right price. And when they hit those two criteria, we'll bring them on. But no doubt, the international currency difference is having some impact.

Okay, thank you.

Your next question is from Jeff Beach with Stifel Nicolaus.

Good morning, Dan, and great quarter. My question is on two of your markets that appear to have high growth potential, wind energy, and regarding this, can you give us just a rough idea about how big wind energy is right now in terms of your backlog, your current revenues? And then along with that, if wind energy is going to grow at an extremely high rate, where are you going to get the trained people to work on all of these, does it present a challenge to you? And then along with it, because its in so many states, is this a business where the workforce travels or where its being done, kind of locally or regionally, out of state offices, and then the second market, little bit, just combine sewer overflows, can you give us an idea how big that is now? And then, specifically with that, there has been a lot of growth from programs already kind of mandated, is there a good backlog of business ahead of the pressures and the programs still you have to come in that business?

All right. Let me address those. Those are very good questions, Jeff. Let me address wind first. In 2007, we did somewhere between $30 million to $40 million worth of revenue flow through Tetra Tech. Most of that work was upfront planning work, a little bit was engineering. So, again $30 million to $40 million in 2007. In 2008, we're forecasting that number particularly with these new winds to be in excess of $150 million. So you can calculate nearly a fourfold increase. The new work, these larger projects that we're receiving are not made up of lots of projects. In fact, it's just a very few number that drive most of that revenue. These are EPC, engineering, procure the equipment and construct, so that they're turnkey projects. We refer to them as EPC. And so, they are much larger revenue in a handful of locations. We don't need to be present in every state, just where its windy and they're building them. And so we will have staff that will travel to these single locations. And as far as resources, most of the technical resources that are necessary for this we have in-house. One great advantage that we have as a corporation is the flexibility. If for some reason a commercial or state programs became soft because of economic pressures, we have the ability to move them to the federal market and actually help exercise and work on some of the backlog we have in that sector. And the same is true back on the wind sector. As these ramps up, we can move folks that aren't currently performing engineering activities. A lot of this work is civil engineering, grade and construction work, site preparation, geotechnical works, soils testing, right away clearance, environmental impacts, all of those work that we have in-house. So we currently don't see resources as an overall constraining matter on this. On combined sewer overflows, that's the market we've been focused on. Between CSOs and SSOs, which are single sewers and the combined sewers, there are approximately 800 cities that have this architecture or this infrastructure. Currently, there is somewhere above 50 different cities of that large number that are under regulatory orders or consent decrees to execute this. As we mentioned, we have about 16 of those that we're taking the lead on. With respect to evaluation, engineering, identification of different compliance alternatives, they are very early in the process, as you can tell by the numbers that have gone under regulatory order. And the revenues in 2007 we're about $35 million to $40 million, and so we see a very large potential upside in this market.

Thanks. That was a great answer.

Your next question is from Debra Coy with Janney Montgomery.

Thanks. Good morning, guys.

Good morning.

I wonder if we can come back a little bit more to the issue of growth revenues and overall revenue growth. The 9% organic growth in gross revenue, obviously significantly outpacing. Dan, you talked a little bit earlier about the shift in strategy, and I'm wondering how we should think about how this is going to translate into EBIT growth and EPS growth, because we now have four quarters in a row, five I think, perhaps, of 15% to now 25% backlog growth? Obviously that's a growth revenue number. With your shift in strategy, is it possible that we should see more of that slowing down through EBIT growth and bottomline growth leaving aside the net revenue portion? And as a related question, how do we think about margins? Margins certainly in the resource business were a bit better than expected this time even with the ARD acquisition, so can you just kind of talk through your thinking on that a little bit more?

Yeah, I'm really glad you brought that up, Debra. I want to reiterate which I attempted to address in my comments that regardless of whether we self-perform or whether we subcontract or use the other vendors, we'll have margin on it. Yes, gross revenue, and you've seen at these past few quarters, increase as a percentage of our overall revenue. But let me do a comparison. Our backlog has gone up roughly 25% year-on-year, but our operating income, if you exclude the one-time legal reversal we had a year ago, it was up over 30%. If you really want to take it all-in, net income was up 37%, 36.9% to be precise. And the final measure for our shareholders is diluted earnings per share, EPS, which is up over 37%. Now I want to be cautious about using number like 30%, 36%, 37% increase in earnings, EPS and net income. Our long-term goal is to take both our topline and bottomline up to 15%. As we grow, it will translate into margins that we've indicated before, and I'll just use a couple examples. Resource management from the first quarter of '07 was 7.8%, this last quarter, 9.4%. Infrastructure, which we still have more ability to go up, it was at the lower end of where we're looking to perform, about a year ago it's 7.3%, this year it's 7.9%, a large increase. And I almost don't want to comment on communications because they went from 2% to 10%. But that 10%, and I just want to say one word about that, our communication business, because it's a lot of field activity, bringing fiber-to-the-home and other field-related activities, is heavily seasonally dependent. So you'll see much higher margins and higher utilization of workforce in the fall when the weather is good and later in the summer. So that margin will be variable, but always in the block.

So, it's hard not to draw the conclusion that if your backlog growth is 20% plus and you still have room on margins, that it frankly sounds like 15% is being conservative.

Well, we like to make commitments that we're going to achieve. We have, as a management team here, for the last three years, I think have really -- and I want to make one thing stated for our collective group here, we are not setting a meager or a low bar that's easy for us to go over. I think that 15% top and bottomline growth is something that we're looking to meet or achieve. I'm very focused on that. I think the credibility of this management team and of all of the engineers and operational staff and this company are committed to these numbers. This last quarter, of course we were well above every one of those metrics. And I hope that's the case as we move forward every quarter. But as we take a look out in the forecast and the timing, this is what our internal plans are forecasting. So in short words, cautious, conservative, sandbagging, these are realistic.

And I guess coming back to Richard's earlier question, is part of your caution or conservatism related to even though your visibility now looks very good. A little bit of caution related to overall economic risk?

Yeah, absolutely, absolutely. It would be unrealistic to say that we are sitting here in a bubble having our heads buried. Everyday we are looking at the newspapers, there is softness in housing and spins-off to commercial development related to other related business, to the financial sectors that have impacts on industrial. We are being prudent and extremely cautious and we are looking out at of the edge of the horizon every moment to see what might be coming our way. And right now, things look really good, but not to be cautious and vigilant right now, would just be not appropriate.

Okay, understood. Last question, back on the international side and interesting that we are talking about that a lot more. You did mention, and as you have before that your target is to grow that to 20%. It sounds like acquisitions are a little less attractive right now, than they might have been given the exchange rates. Are there particular countries or programs where you are seeing opportunity to go and bid directly without having to acquire capacity on the ground?

Well, I think a good example where we have an opportunity of large programs that are coming up, that we are pursuing right now is Panama. Panama is an excellent example. They have very large water infrastructure programs with the expansion of the locks. We've won several millions of dollars. So roughly, one year we've gone from zero to an annual run rate of approaching $10 million. We are on a number of the teams that will be competing for the locks and other programs, I don't really want to highlight any single opportunity, but there is a country that has an example. And in the most general sense, I would say we are focusing on commonwealth countries. These are countries like, of course the UK, a number of them in Latin America, Asia, where they have regulatory or governmental institutions that put a priority on clean water, clean environment, lower contract risk. Those are really areas that we are focused on. One that also has big opportunity for us, that's India. We have about 50 individuals, I think it's actually a little more than that, in our India office and we see some great growth opportunities there also.

All right. Thanks. Appreciate it.

Thanks.

Your next question is from Richard Eastman with Robert Baird.

Hi, good morning. Could I just ask what the acquisition contribution to the backlog was in the quarter?

We don't actually break that out. Typically, if you take a look at our backlog number, at about $1.3 billion on a annual run rate of close to $1.8 billion. You'd use that percentage, it wouldn't be materially different than that from the acquisitions that we've brought in, which is primarily just the one, ARD. So if you use those types of percentages, it would approximate the number of contribution.

Okay, that would be sequentially. But if I look year-over-year, again Delaney's growth, that again I wouldn't think of that as being internal necessarily?

Well, that's interesting on Delaney. And let me say a word about Delaney. There is a lot of synergy with the Delaney Corporation. Once they were brought in, we moved them in with one of our operating units and an awful lot of the work that has been marketed, pursued with our federal clients and even our wind energy programs are been marketed utilizing the Delaney Group. So we'd actually look at it that as in fact we isolated, and put on its own. That may have materially different growth rates and factors than being part of the company. So certainly we have a lot of operating managers beneath me telling me that if it wasn't for Tetra, it wasn't for collective resources with Tetra Tech, it might be a materially different growth rate. So I don't know some of our folks here have little different perspective on that.

And then could I ask David the question on the payable side? Is the increase in payables, partially a function of the growth rate in the subcontract portion of the business? Are you contractually required to pay your subs on a certain timeline?

Yes. It is proportional to the increase in AR, which mostly came from subcontractors, we are required to pay them, and we on the timing basis, we get paid before they get paid. So that's why I mentioned earlier was a matching of contract terms

Okay. I understand. And then lastly would it be possible to give us the profit contribution at the EBIT line from the subcontract revenue amount?

We are shifting to this new thinking and models. We try to track them more carefully. Currently we do not have a clarity in terms of the contribution. But I will say in the low single digit.

And the question kind of, would be, again if I look at the operating profit as a percentage of gross revenue, it's down year-over-year by 100 basis points. And again, generally a markup on the subcontract amount, again would be low single digits, 2%, 3%. How do you get comfortable internally that that profit contribution accommodates your performance risk that you accept on that business? Because you basically, from a working capital standpoint, that shift in the business model is somewhat costly. You obviously have some performance risk as a sub on that business and again there was a time when that markup was much higher and it shrunk, given market conditions and I'm just trying to get a comfort level here that we should be looking at, margin comparisons that are based on net revenue gross margin comparisons that are based on gross revenue?

Rick, let me address a couple of those items. First of all, let me address the cash component that we, from a working capital standpoint are going to carry a much larger burden of cash. We attempt to move all of our subcontractors, as David had presented earlier, to a payable and paid. So in fact we are not taking working capital risk by funding these subcontractors either during performance or in any terms different than what we are being paid. So the goal is that we don't have working capital expense, the interest and all the rest of it. So that's number one. Now our AR may go up and the fact is our accounts receivable, both billed and unbilled, will climb as we use more subcontractors, because it's directly related to our overall revenue. But to have a fair comparison of that, you have to take a look at the liabilities also, because quite often we won't pay those subs until we get paid. They move to the same payment terms. So on working capital, we don’t really see that as a material risk item for the company. Now let me talk about the difference in margins. No doubt, self performance numbers are much higher than subcontract. And you are right, the numbers are about 2%, 3% on as an overall average on use of subs, whereas internal, we are in the upper single digits and our intent is to hit 10%. While I view this as the lower markup for a lower risk. What we self perform and we build something and it falls down, as an example is Tetra Tech, we get to go put it back up. If a subcontractor does we push the risk and we flow all the risk down to them. So we will have them bond the program, we will have them put letters of credit. We will have them otherwise guarantee the program and we flow the risk down to these subcontractors. So it's our objective that as we use subs, we are actually mitigating our risk profile materially. Now I know that we are giving up some margin, not operating income because it's all still, you have a 2% or 3% on subcontractors still contributing to our earnings. But it is at a lower rate, but it's for a different risk profile than we would have if we self-performed.

Okay. To the question I asked David, your accounts payable in this quarter then is not really representative of this business shift. Basically you decided to pay some payables before yearend, is that -- because again I'm looking at the cash flow statement, I'm seeing you used $9.3 million in cash and payables, your receivables you used $2.2 million, but on the payable side -- and again, you paid some people here certainly. Was that just a discretionary move?

I will break this in two halves. One is I would describe the growth as an acquisition receivable increase. The other half is the model shift we talked about earlier, and that same applied to receivable and payable in terms of split.

Okay. All right. Thank you.

Your next question is from Corey Greendale with First Analysis.

Hi, good morning.

Good morning.

The first question, again, on the subcontracting, is that something where you think the mix has now settled or as new contracts come up, you're going to see that mix increasingly shift, so as even greater portion of the work is going to be subcontracted?

I know we're around 40%. I think that that will not move largely, but it is possible that it may actually go up a little bit. But I wouldn't expect any very large moves. I think that the current mix represents a much more execution of these turnkey programs. So this is much larger than we historically have reported, and wouldn't look for the subcontracting portion to move back down and, in fact, it even could move up slightly.

Okay. And when you talk about the 15% growth, which topline should we be thinking about with that number?

Gross revenue, although we're going to continue to -- in a very perfect world, we'll look for gross revenue, net revenue, operating income and EPS, we'd like to run the gambit. But certainly, in the types of programs that we're pursuing right now, gross revenue would be the best tracking metric.

Okay. So the thinking is that as this changed anniversaries looking a year out from now gross revenue growth and net revenue growth would be a lot closer than this?

I think I actually think that for a time gross revenue will grow at a faster rate than net revenue.

Yes. After that anniversaries, once we lap that change, they should be closer together?

That's correct, that's correct, right.

That question was trivial, I was just getting back to whether the mix continues to shift, and still thinking about that growth as half acquired and half organic?

Yes, I think in a long run that's the healthiest for the company. We put a priority on growing organically, we want to compete with the resources we have and grow. But I do acknowledge year ago we had no acquisitions and it was all organic. But this year, we've had some acquisitive additions, and there is a bit more on the net basis acquisitive contribution. So it will slosh around a little between the two, but as a target, we're looking to have that split down the middle.

Okay. And then, I wanted to follow-up on the margin a little bit, the resource management margin as you mentioned came in, I think, toward the high end of what you were looking for, for the full year. I believe seasonally Q1 tends to be a little weaker than some of the latter quarters. Can you talk just a little bit more about what drove that strength and whether that's something sustainable, and whether we'd see that margin kind of tick up as the year goes on as we have in the past through seasonality?

When we're looking resource management and we talk about the range with these opportunities that we have with intangible amortization and with the additional cost and 123(R) that we historically hadn't seen. We are targeting to 9% to 10% for resource management. So we're in that range. You're right. First quarter typically was a bit lower historically. We had very strong performance, mostly from firm fixed price contracts that were performing very well on. So that's what really drove the first quarter. I do believe for the year our target is still 9% to 10%. Typically, as we move into the winter months, there is an impact with the addition of the Delaney and some of the other groups. It used to be Q1 was our lowest quarter, and then Q2, Q3 and Q4, each sequentially contributed more of both in margin and revenues. With the change in some of the business mix we actually see our fiscal quarter Q2; January, February, March, which are the dead winter months, to be at the lowest. So you can see margin reflect sort of a seasonal impact of Q1 fall, its okay, Q2 dead winter, low, Q3 spring, pick up, and summer the best.

Okay. That's helpful. Thank you. I'll turn it over.

Our final question is from John Rogers with DA Davidson.

Hi, thanks. I just want to follow-up on the margins for a second. As the proportion of subcontract revenue increases, your margins as a portion of net revenue, I understand, will rise, and we've seen them of late. But is there any impact in this from pricing, are you seeing any changes in pricing or revenue mix impacting margins as well?

No. We haven't seen pricing pressure interestingly enough. We really haven't. I would say that it's been very stable on the pricing pressure on a competitive environment. So, no, we haven't seen any pressures down, but we also haven't seen any of our competitors disappear. To make it a lot easier, I will say that some of the commercial work that we focused on a couple of years ago in mining, in commercial energy have helped. Those are a much higher demand areas.

And higher margin areas.

Higher margin, that's right. As far as the mix, as far as cost plus, it's still about 30%, time and materials about 40%, and the remaining is fixed price at about 30%. So we really haven't seen that materially shift either.

Okay. And then, just in terms of the revenue growth itself. Is there any revenue that you were self-performing that you're subcontracting now, or is there any work that you're self-performing and are now subcontracting?

I think it's been the new work that we've brought on. We've utilized more subcontractors which you see in the split. A year ago, today, which you and your comparisons are representative of, we had some large contracts. One is the NASA contract I had mentioned in the engineering, our infrastructure group. Another was a Department of Energy, our second line of defense overseas program that was largely self-performed, had a large self-performance component. And it is currently not under contract. We're still waiting the final contracting decision on that with the client. And so, I'd say some of these large programs that we were fully self-performing have really tailed off, and then in the case of Department of Energy, we're waiting for the decision on certain recompetes. And it's been picked up with other larger programs that are longer durations that have more of a turnkey design built component to it.

Okay. And it's those two projects then, I assume, are accounting for the negative net organic growth?

Yes. If you put those two in, our net revenue would be up. It'd be up in the upper single digits. And in fact, our gross revenue organic would be in the teens.

Okay, great. Thank you.

This will conclude the Q&A session. I will now turn the conference back over to Dan Batrack to conclude.

Great. Thank you very much. Thank you for your excellent questions. I think they were very insightful and really gave us some opportunity to explain some of the business mix that we're seeing in the marketplace. We, like you, have been watching the volatility in the housing markets, commercial development programs, financial markets, and I think back to our decision more than 10 years ago for Tetra Tech to focus on our federal clients, on its critical water programs in the state and local government, and most recently, these last couple of years to move a focus to alternative energy and specifically the wind market. And looking back, I'm very happy that this put us in an excellent position in these markets for stability and our ability to deliver financial performance to all of our investors. And with that, I look forward to this call next quarter. And thank you very much for attending. I'll talk you then.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.