Good morning, and thank you for joining the Tetra Tech earnings call. By now, you should have received a copy of the press release. If you have not, please contact the company's corporate office at (626) 351-4664. With us today from management are Dan Batrack, Chairman and Chief Executive Officer; and Steve Burdick, Chief Financial Officer. They will provide a brief overview of the results, and we'll then open the call 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 to the Securities and Exchange Commission identify certain risk factors that could cause actual results to differ materially from the forward-looking statements. Tetra Tech undertakes no duty to update forward-looking statements. In addition, since management will be presenting some non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted in the Investor Relations section of Tetra Tech's website. [Operator Instructions] With that, I would now like to turn the call over to Dan Batrack. Please go ahead, Mr. Batrack.

Great. Thank you very much, Mike, and good morning, and welcome to our fiscal year 2012 second quarter earnings release conference call. While Steve Burdick, our Chief Financial Officer, will present the specifics of our financials for this past quarter, I'd like to start this morning's presentation with a brief overview of some of our key financial metrics for the second quarter. We had a very strong second quarter. Our operating income was $36 million for the quarter, up 20% year-over-year. Our diluted earnings per share was $0.35 per share, up 25% year-over-year exceeding the high end of our guidance for the quarter. This was the highest second quarter earnings in the company's history. Our revenue was up to $624 million, and our net revenue was $477 million for the quarter, an increase of 11% year-over-year. It was a very good quarter for the company. But maybe the best metric of all for the quarter was that we set a new record for our backlog, exceeding $2 billion for the first time in the company's history. We feel really, really good about that. This quarter, our ECS business segment led our growth again with their focus on commercial and international markets growing at 17% year-over-year. Our ECS business segment is now 44% of the company and is a significant driver for the overall growth rate for Tetra Tech. The test group, our Technical Support Services group, grew at a double-digit rate almost as fast as our ECS group. They grew at 16% year-over-year for the quarter, driven primarily by our international development-related activities. So test group's quite healthy, growing well. Our EAS, this is where we do much of our design construction work, where share constructible design activities and it was essentially flat. They did have within that, strength in…

Thank you, Dan. I will begin with the fiscal 2012 second quarter financial overview. Overall, our second quarter results either met or exceeded our previous guidance. In particular, our revenue increased $11.7 million or 2% to $624.3 million, primarily as a result of our growth in our commercial and international markets. And secondly, we had -- we did have revenue from acquisitions that occurred in the last half of fiscal 2011. Net revenue increased 11% to $476.9 million for the same reasons I previously noted. This increase in net revenue resulted in Tetra Tech hitting close to the top end of our guidance. I do want to point out that net revenue is growing at a faster pace than our revenue because we're involved in more self performance work especially in our commercial and international operations. Income from operations increased 21% to $35.5 million. When compared to the revenue and the net revenue growth, we did experience a higher growth rate in operating income, which is consistent with the previous guidance provided. This increase was primarily driven by solid project performance across all of our operations. The EBITDA margin increased to 10.3% from 9.8% last year. The EBITDA margin has improved sequentially each of the last 6 fiscal years, and it will continue to be a financial metric that we focus on to improve in the future. SG&A was $52.4 million for the quarter. We incurred about $2 million of additional SG&A in the second quarter of 2012 to support our international growth in the areas of IT, business development and risk management. Excluding this $2 million, SG&A increased at a lower rate than our net revenue growth at a little bit less than 11%. I want to point out that we do not expect to see the same spike…

Thanks, Steve. Thank you very much. I'm very pleased to announce that we've signed a definitive agreement to acquire our first firm in Brazil. It's identified as CRA Brazil, and we did issue a press release on this yesterday afternoon. CRA Brazil is a mining engineering firm located in Belo Horizonte, Brazil. This was where many of the mining majors are actually headquartered and located in the country of Brazil. CRA Brazil will be joining our global mining practice, which is located in our ECS or situated in our ECS business. The overall margins of CRA Brazil are quite similar with our overall ECS group itself, and so it'll be an excellent contributor. They will provide us a key geographic presence in Brazil. This is a country that is quite difficult because of languages and many other items to do a pure organic growth. In other words, putting a few folks there and just growing it organically. CRA Brazil is serving some of the largest mining clients in the world. They're headquartered in Brazil, firms like Vale and Anglo American and others, and those are actually the key clients of CRA Brazil. They do bring us over 300 staff, most of which are engineering professionals focused on the mining industry. And they will actually add to our overall Latin American, South America presence, which started last summer with the acquisition in Chile, which was Metallica. While this entity, CRA, is primarily focused on mining, I do expect that they're going to give us access to many of the other very large industrial clients that are located in Brazil, which is one of the fastest-growing economies in the world. They're currently the world's sixth largest economy, quickly moving, reported to be, perhaps by the end of the calendar year, the fifth-largest…

[Operator Instructions] Your first question comes from the line of Joe Ritchie from Goldman Sachs.

This is Greg Elek in for Joe. Just had a question in relation to your future bookings. Obviously, very nice quarter. It'll be great to get kind of an update on your pipeline of work moving forward. Where are your bids outstanding? How are they trending upwards from here? And really just kind of can we see some additional RCM kind of opportunities moving forward from here?

Yes, I think you can see more opportunities for RCM. Maybe, I would say that the pipeline for the front 3 business groups looks quite consistent and steady as it has been. They’ve actually been quite strong and as I indicated in our presentation, they've actually driven our backlog for the past couple of years. So I'd say it remains consistent. We have not seen a particular pickup or drop off. So it's been quite steady and strong. But the part I'm very encouraged about is RCM, not these 2 awards and actually a whole host of others that were much smaller actually gave us a lot of confidence and insight that we expect RCM to be coming back. And I do believe that the inflection point is behind us with RCM, and I think as we win more work, I think it can actually materially drive our backlog up as we go forward.

Understood, and so within the RCM business, do you think that there could be, over the next couple of quarters, as you just start to burn through that backlog, start to see some operating leverage in the business?

What's interesting is the RCM work typically has a longer burn period. I've commented on the previous calls, our backlog has been a shorter burn, more commercial work and has been turning over. RCM work, because it's actual implementation is a bit longer. So the 2 contracts that -- the 2 large ones that were included in our presentation actually have almost a 2-year execution. So that revenue will not push through the books either through RCM or convert to revenue in 2012. A lot of the upfront work is permitting and engineering, which is the smallest portion. It's really a 2013 contribution.

Got it. And I just have one follow-up question, if I may. Just in relation to the acquisition pipeline, it'd be great to hear, kind of, now that you are potentially in that cash position, where you may be deploying that cash geographically, kind of, end market wise? And you do have a very small exposure at this point, from my understanding, to kind of the shale opportunity. How do you expect to kind of gain greater leverage there moving forward?

Well, let me start geographically, and let me move to service. Geographically, we continue to look to add additional resources in Australia. It's an extremely competitive environment where we would have already transacted more there, but it still remains one of our priorities. Brazil, we think has an excellent marketplace for the services we provide. So this move in Brazil with CRA is not our only move. It's our first move of many more to come, and I expect that our presence there will be quite significant, both in Brazil, Chile, and so really primarily through those 2. And then third geographic area, I do expect some incremental expansion in niche areas in Canada. We actually have a full plate of work in the oil sands, other areas on some of the resource support. And I think we can add some niche areas that will help us even accelerate our growth in Canada. But here in the United States, I'm looking to redeploy some of the technical staff that we have that are working in slow markets like water, waste water for municipalities. Business is quite slow, but the expertise they have in pipelines, in water conveyance, liquid conveyance is a natural move for us to oil and gas and, particularly, the shale gas to move from where we've been focused, which is the back end environmental portion, which has been quite slow because the lack of regulations, I'll speak to that just in a moment, but to the front end. And I'm going to look to actually bring a firm on that has long and deep relationships in the oil and gas industry, particularly shale, that will be focused on the midstream, which would be pipelined. I think if we can get a small entity that would come in with 100 to 200 engineers, strong relationships, preferably located in places like Wyoming, the Bakken in North Dakota, Montana and we could use those resources then to leverage them to where -- we have big resources in Pennsylvania for the Marcellus and in Texas for the Eagle Ford, I think that could be an excellent move that could drive us into a whole new market and open up a big fast growth area for us here, domestically. So that's an area we're focused on in services. So there's a quick overview on geographic and in service focus.

Your next question comes from the line of Tahira Afzal from KeyBanc Capital Markets.

This is Saagar on for Tahira. First off, looking at those RCM projects with the New Jersey Turnpike transportation and then North Carolina Department of Transportation, could you kind of walk us through a little bit of what Tetra Tech's role is with those projects over the next few years?

Yes, actually, we'll be leading those projects on a complete turnkey basis. So it's a complete, full implementation. Here in Tetra Tech, it's our focus to compete on projects where we have either a technical or a pricing advantage. And on these particular projects, we actually had both. From a technical standpoint, in the case of New Jersey, we're actually working on the project immediately adjacent to it and in many respects, this is a natural extension. And it's both for upgrading the transportation roadway, bridges. So it's a geotechnical work, civil work, and as I've mentioned before, a lot of the upfront work is all in our permitting and engineering aspect. So that's where they fit, and they're actually in excellent leverage of what we're doing now to the next phase with these clients and work in these 2 transportation areas.

Okay. Great. And then second question looking at your mining business, you guys have expanded tremendously there into Canada, Australia and South America. And based on the work you guys do on the front end, how much risk is there related to your business if mining firms start cutting down on CapEx if for whatever reason, if it's related to commodity prices or whatever the reason might be?

Yes, most of our projects, we are not as part of the -- generally, of the capital projects themselves. So the processing facilities is not what we're focused on. We're focused generally on the overall resource evaluation and what we often call the pre-feed or pre-feasibility study work. So a lot of the work we perform, first of all, is on a time and materials basis, and it's for the portfolio of the existing properties they own and evaluation of new resources that they may be looking at. So it's generally not associated with turning on or off a capital project. Those are really the ownership grounds of the big EPC contractors, and that's not what we are. We're much, much earlier in the process and are always through, good times and bad times, are looking for where is the next pool of resources whether or not it's finding a lower capital location where they can extract it for cheaper, go find me a spot. Or take a look at these where we can get our resources less expensive and when the prices are high, find me more of them, so we can get it out now. So we’re really a different phase of the project, Saagar.

Your next question comes from the line of Avi Fisher from BMO Capital Markets.

Two questions. One, hasn’t been touched on yet, or I don't think it has been, can you update us on the status of the CJPS contract?

Yes, CJPS, it's a state department contract that was awarded to ourselves and a few other individuals. We were selected, not signed last summer. That has been a matter of a protest for the small business set-asides for this. It was actually resolved here just a few weeks ago. So the State Department resolved it by awarding a few more contracts to the small business entities, and so it's been resolved and it's actually opened itself up now for becoming active. So expect that the first half quarters will come out for competition here, probably early summer and give us an opportunity to bid and hopefully convert these opportunities into work for the company. But I will note we have not included any revenue or income associated with CJPS into our guidance. So if it comes out, we've certainly watched this for some time, I'm glad we were judicious and not included it in any of our forecasts even coming into this year. So anything that would come out of this would be an incremental contribution to the company.

How come it's not a guidance?

Well, it's a new contact to us. It's a new client for us, and we don't have any history for it. So I've not included any contribution from a client or project that we haven't worked on that we don't have high confidence in.

Sounds like just being conservative.

I think so.

On pricing, from a few of the other cost reimbursable providers have reported even more diversified and larger than yours, and it seems like pricing has been an issue. I wonder if you can talk about it in the large verticals that are driving earnings.

We've not seen that. In fact, if you take a look, you'll see that our cost reimbursable work is down to maybe one of the lowest points we've seen it in some time. In fact, we do report that in our investor report, and I believe we're down at high teens. So it's the lowest level. Clients have been going to T&M a lot. It lessens the very front-end research and we've not found that front-end research work, where its technical qualifications awarded. And in most instances, it's a single award, because they don't duplicate much of the work. So we've not seen any type of pressures on our cost reimbursable work. I do think that some of the -- but again, if you take a look at our pyramid that we've used in many presentations in the past, it's for the very upfront work, I believe, that the cost reimbursable is not seeing pressure. There are cost-reimbursable contracts out there if you're looking for others in the industry, particularly if they're much larger and focused on a base operating support contract or BOS contracts. Those are being perceived as commodities, are being extremely competitive, but that is a completely different market than we're involved in.

Got you, and finally, the other people who have preceded me in the queue have asked about the RCM margins. I just wanted to talk about the margins and mix calculation relative to your sort of EBITDA target as RCM grows in 2013 and perhaps into '14 as well.

Well, I hope our RCM business leaders' on the phone listening, but I actually expect, in the short term, meaning in the next several quarters, that growth in RCM will actually increase our EBITDA margins quite nicely. The year-on-year comparisons are very favorable. If you take a look at last year's performance out of RCM, they were down at the 2%, 3%. So performing at the current range, sort of the 5% to 7%, it's a significant increase, and so it'll contribute to the overall year-on-year margining comparisons. But as we continue to get more work in the commercial sector within RCM, I actually am going to share with you all, our shareholders and investors, that I expect to move up the range coming out of that group higher than what you see here. And I actually believe that, that group, once that we move the shift a bit more to commercial, we can hit a double-digit EBITDA margin rate out of that group too. So short term, the year-on-year comparisons are going to be very, very favorably and a little bit longer as we add more commercial work, the actual margins will be very favorable.

So commercial construction work?

I call it implementation, yes, implementation, construction management, but I'll tell you areas like energy. So hydro, T&D work that we're going to do and then most of all, we have essentially no presence whatsoever in the oil and gas industry, particularly shale. And if we can go get the design work upfront for the midstream on piping and do some implementation there, you'll watch both the revenue and margins go quite nicely.

Your next question comes from the line of John Rogers from D.A. Davidson.

A couple of things. Dan, just as it relates to the CRA acquisition, at $20 million and 300 employees, I mean, with that many in place, it seems like the revenue level is low. Have they been staffing up or...

They've been staffing up. And a lot of them were very junior positions and because we're doing a full design and consulting, a lot of them are junior, and so I think the hourly rate or the compensation for individuals in that geography are substantially different than they are in Canada, Australia and the U.S.

Okay, so is the $20 million, is that the current run rate or is that a trailing...

It's actually trailing and the number is actually growing quite quickly.

Okay. I mean that's what it seemed to indicate, and did you say that it's not in your guidance?

It's not in our guidance. However, as you've seen from the details, most of the first year of an acquisition, they are -- from an earnings per share basis, are quite nominally accretive because the intangible amortization sort of offsets it. But I will -- I'm happy you've given me an opportunity to point this out. We continue to achieve EPS accretion on a full GAAP basis in the first year that a firm's joined us and, again, I talk about our backlog being the highest of standards. I believe that standard for acquisitions also is among the highest in certainly anywhere in our industry. But the revenue is not included although it will have roughly one quarter. So it'd be quite negligible.

Sure. Okay, and in terms of the -- just back to the construction side of the business for a second. The large projects that you referred to and the commercial projects that you implied might be out there in the future, how are you managing the construction risk related to those projects? And what's kind of your thoughts on that?

Well, our thought is...

I mean, the business can become more volatile on a quarter-to-quarter basis, I guess is what I'm wondering.

Well, I hope it's not going to become more volatile. That's not what I would expect. First of all, a lot of the work that we do in that group is on a T&M or even a cost-reimbursable basis. So first of all, it has this natural lack of volatility because of the type of contract we signed. Now there are contracts that certainly are fixed price, and that is inherently the domain of construction, our construction management. We're not doing full self-performance. So the risk part of the self-performance, which are both commodities and some of the big stealth performance portion, we do subcontract. We RCM largely construction management and so we do push that portion of the risk off, and so I think it will be largely the bastion of the people who take those types of risks, which are the true constructors. But since we're taking the program on an overall turnkey basis, that would be a component of us underneath.

Okay, I just wanted to confirm that was still the plan. Yes, okay. And then you talked a little bit, mentioned some of the acquisitions but relative to maybe where we were, I don't know? 6 months ago, a year ago, what is the acquisition pipeline look like? Bigger, smaller, same?

Well, a year ago -- if you go to 1 year ago, 1.5 years ago, no doubt we had 1,600 years in -- 1,600 engineers, 1,600 engineers in Eastern Quebec. We had 500, 600 in Northern Canada we had these very large $100-million, $200-million acquisitions that is what we would like to focus on. But we have really moved to a primary goal of adding resources in Australia and in Brazil and other fast-growing area. In some of these because they are smaller economies compared to either Canada or the U.S. are naturally a bit smaller. So they have been sort of the $20 million to $50 million range, which you just saw CRA here yesterday. You should look for others like that. But we do have a focus on these larger ones, and I really don't want to comment on the timing and location. But certainly, that's our goal, and I expect that, that will transpire.

Your next question comes from the line of Andy Wittmann from Robert W. Baird.

Just wanted to touch base a little bit more on the acquisition strategy and specifically around Brazil. It's been a market that, I think, many firms have wanted to get involved in. You guys have taken your first small step with more to come. I guess the question there is really how you manage risk in a country, which can be somewhat, I'd say, unfriendly maybe, to foreign engineering firms just given the local dynamics of those markets. What's your strategy to manage some of those local dynamics that often come into play in Brazil? And who are the customers that you'll be working with that maybe help you manage that risk?

You're being kind about it when you say a little unfriendly, they can be extremely unfriendly to outsiders. And that's why we need to grow by bringing resources and firms that are located, have grown there and are local. And CRA is one of those with 300. The clients that we're going to be focused on are the large industrial. So the mining I've identified Vale, I mentioned, Anglo American. On the Petro side, I think Petrobras. Obviously, some of the other very large industrial clients. I think we're a natural fit for a lot of the resource, accessing of the resources such as oil and gas. It's an offshore Marine environment, which is the actual heritage of the company of Tetra Tech. That means more ports, harbors, access, dredging, sub-bottom profiling offshore for the work that they do for the geotechnical foundations for the rigs and for the drilling. All of that work is exactly where Tetra Tech has its technical strength. So if we can get the technical resources, and I don't want to call it a storefront because it's not that. But if we can have individuals with the relationships and the heritage of being Brazilian but then provide the technical resources that reside in North America, in Australia, especially Canada I think we get the best of all worlds. We can have an upfront presence, bring in some technical experts, bring these clients in and then leverage the technical expertise that we have here in other parts of the world. So that's our plan, and those are the folks we're going after.

And then so as you look at the last few years at CRA, then you feel like those kind of multinationals that has been their client base. They have been working for local companies?

Exclusively. That's all they've worked for. Yes, that's all CRA works for. They're not working for any of the governments, any of the local infrastructures. They are a Brazil industrial majors, not even the juniors.

Got you, and then I just wanted to kind of recap a little bit about what's kind of out there in terms of wins that you've had but haven't been contacted or the task orders haven't been issued. Just a little bit for the last couple quarters to make sure that we're not missing anything. We already talk about the CJPS being out there and hopefully going into more formal discussions this summer. But we've got the USAID program in Afghanistan with the water. We have the Navy program as well and then there is the legislative USAID work as well. The last few quarters, are those kind of big contract vehicles that you guys are part of that you still really haven't seen any work out of yet or is there something I might be missing?

No, those are them. I'd say the USAID water and power, that you identified, that's one that we've not seen a task order, not for Tetra Tech. This hasn't come out of the administration or out of the contract vehicle. So that's one that still has upside potential, some mention of not incorporated any contribution from that. Navy you've mentioned. There are also a few Army vehicles that have just been put in place. We press released that's actually quite sizable, and these all have $100 million-plus contract ceilings. So they could actually be pretty material contributors, but you caught most of them there.

All right. Is there any progress, the CJPS is clearly, I think, notable at becoming more visible. Are any of these other vehicles having that same kind of progress on them, where you think that open bidding is going to be happening in the next quarter or 2?

We haven't seen a distinct event like we saw at CJPS such as resolution of the protest that had existed. We just think that it's been a slow ramp up. But let me make one, share one observation from our experience. We have worked with the U.S. Federal government for over 40 years, and we think we know them pretty well. They're an excellent client. Whether or not they go Democrat or Republican, we don't see that normally as an issue at all with respect to funding and the moving forward of priority programs. But the one thing we have seen is moving up to the several months before an election, sometimes the agencies actually get freeze up, so to speak, or actually become less proactive until they know whether or not they're going to left or they're going to go right. It doesn't really matter if they go left or right, there's a lot of work to be done. It's just deciding, with this fork in the road, what you'd do. So this moment of, I want to call it, indecision, but this moment of valuation by the folks that are actually at the front line does sometimes see a slowdown in task orders coming out. Now I won't say that it's categorically that, that’s caused the slowdown or lack of task orders on many that you've listed are coming out, but certainly that would be consistent what we've seen the past. We are seeing a bit of that now. So I put on the good news. That's been happening now for a quarter or 2. I expect that to actually clear up as we move forward through the summer and into the fall.

Your next question comes from the line of David Rose from Wedbush Securities.

Just trying to get a better idea, this is a fantastic quarter for you folks on margin side, but globally was there anything in the quarter that, maybe, let me rephrase it, did everything simply go right and nothing went wrong in the quarter or, I mean, your business is about execution. So you're always anticipating some sort of misstep. Were there some pushbacks against margins in the quarter? Was this just a perfect quarter? And then secondly, if you can go into TSS margins. What drove those margins better than, I think, what I’ve expected.

Yes. Well, first of all, we didn't have any onetime single big event like a big award fee or something that just drove our collective numbers up. On the other hand, we did have a handful of headwinds. It was not a perfect quarter by any means. We did have our normal, some areas of strength, some areas of a little bit less than optimal. So I would call it a good quarter, but I would not characterize this as good as we can do, not by any means. Now with respect to TSS, they did have a good quarter. They do have a number of contracts that continue to roll off. We are -- they do have award fees or different areas where we're able to close them out and actually recognizing an incremental upside. And I think I have mentioned before, if they run as they should, they'll be in the range I have provided before, sort of 9, 11-ish type number. But that as they close out with favorable performance then you'll see incremental upsize, which you saw this last quarter. But it's not representative of a shift in their business to higher margin work or something else that would represent -- they should be 11, 12, 13. That's not the underlying business sort of a 9, 11, 9% to 11%, with project closeout and extraordinary performance pushing it above that. And they continue to do a really good job.

So a follow-up. Do we expect additional project closeouts? I mean, is there a sort of a big group of projects that are coming through as well in the third quarter or no?

No, what happens is we have a set of task orders depending on the timing that we complete them, when they get closed out. And so it's not linear. It's not that we have x amount every single quarter. So we do have more projects, obviously, that are underway. As they closeout, you'll see margin, but there's no particular big contract or project that'll closeout in the third quarter that'll move that number materially up out of test.

Okay, and then lastly, as you move up your guidance, you are more conservative on or more comfortable raising the bottom end higher. If you look at guidance, what factors would you see as potentially disruptive to your target?

Well, as we're well in the second half of the year now, for us -- in fact, we're 5 more months after today left, I'm seeing the risk on the downside getting much, much less. That's why we moved the bottom up disproportionately more than the top, moved it up $0.05. That disruption could be something very unusual at the government that there was something that there was some type of impasse that, I mean, something that could be quite extraordinary, I don't really see that, or some type of unusual economic change that would drive economic investments across a very broad geography now. And I don't really see that. So the -- there's no really single event. The one thing, again, I shared on this call in the past, we don't have single concentration with a given project. We had 55,000 projects in 2011. By the very nature of that, 86% of our revenue, which is upfront studies, consulting, technical valuation, science and some design. They're very disaggregated, very small, and so we don't have concentration on one project that if that project is turned off. So if somebody decides to leave Iraq, we're not doing any work in Iraq. So it's not an issue for us. So we don't have -- they don't build one power plant. Well, we don't have a large revenue with one single project. We're very broad spread. So on the downside, it's actually a pretty diversified portfolio that we have.

Okay. That's helpful, and then lastly, if I may. With the CRA acquisition, will you be able to leverage the acquisition on the international platform, the ERP and the back-office platform that you've just rolled out or should we expect incremental SG&A to come out of that?

Well, I'm telling our human resources since they it translated it into French and into Spanish, why didn't they do Portuguese at the same time, and I expected it to be included. But we still have to have that debate. So there's no doubt Brazil is a little bit different. But at this moment, I don't see any material incremental increase. I don't think you're going to see out of us some number that would impact our earnings, certainly not for 2012, and I don't even see it for 2013. We have gotten better at that process.

Your next question comes from the line of Jeff Beach from Stifel, Nicolaus.

I think it may be is a long time ago, you used to talk about maybe a total potential contract backlog or something of that sort, and then bringing up some of these new vehicles where you've haven't got task orders yet. When you look more broadly at that total backlog that you can participate in and then you need the work orders, what's happening with that? Is that growing faster than your formal backlog by your definition?

Yes, it's great. I called it our contract capacity. Absolutely talk to that. That, historically, we're a 9 and we went up to 10. We currently do track that. Again, sorry, Jeff, I mean our upside. I know that others actually use that number and then do some type of factoring of it and depending on how they're quartering, they factor it differently. So it looks optimistic for them. Our number is about $11 billion. It has not -- it's moved somewhat in line with the actual backlog. And historically, it's moved disproportionately greater and here's the difference. Before, I'm going to say before 2 years ago, we were primarily being driven by new orders and contract work for the U.S. federal government and they would give very large contract capacities of which they could use some or all over a multiyear period. But the large -- the work we've been getting has more and more been biased toward the commercial and international is primarily commercial. So the commercial clients, and they don't provide these very large contract capacities, what they give you they want you to burn now, and so you will receive one quarter worth of work. It will burn off. They give you another quarter and I’ve talked about this being a much faster churning business now with the commercial or these shorter projects. But it doesn't have in and of itself the same characteristic as the government contracts, which are very large contract capacities and then small pieces that come out. The commercial and international are, they give you a small to medium piece, and you burn it now. So that's why it's been -- I've de-emphasize or not spend as much time on contract capacity because if the client mix has changed, that has changed.

Okay, the follow-up question. You had mentioned under -- in RCM that you saw some significant opportunity in the oil and gas markets, and you're not there, how easy is it to move in and establish relationships and grow a meaningful amount of revenues in an industry where you're not there now.

Well, that's a great question. You know what? I myself came from the water infrastructure side, coastal engineer, and water's a lot different than oil or natural gas. And so the individual I brought in to run our RCM group, or the Remediation and Construction Management, has 45 years -- 35 years of experience in that going back with MK joined us. He's brought in an excellent team that their entire heritage is the oil and gas industry process engineers; refinery, midstream, upstream. So I have the individuals, but individuals that are among the industry's best that now have joined Tetra Tech and have been with us coming up toward a year. And some of the instances, they joined us last summer. That doesn't give the company a resume. I need an acquisition, and I'm going to get an acquisition. I have the leadership, and then I'm going to get the clients and the work. So I've got piece 1 in place. Piece 2 is coming soon and then number 3 will be reporting it on the revenue and earnings, and I'll report the new wins as backlog here first. That'll be the next piece. But I've got step 1 done, the right leadership in place. Step 2 is going to be to bring in an acquisition, and then we'll actually report the results to you.

Our final question comes from the line of Alex Rygiel from FBR.

Most of my questions have been answered, but you've done an amazing job with transitioning the business away from the slower growth private sector towards a faster growth, kind of, commercial sector. And could you expand upon how you see your end market revenue mix in 2 years? I understand international of 40 and U.S. commercial of 25. But can you break that down to another level with regards to sort of mining and energy and so on?

It's mostly, I'll tell you, mostly, the overriding common theme across mining, oil and gas, energy production, oil sands, transmission distribution, these are all that we've talked about before, the one common theme that will thread across all of those is going to be water for or water used in energy production, meaning hydro. So hydro. You've got your watershed evaluation, your floodplain evaluation, your geotechnical foundations that it has to be. You have your transmission to the grid. You have to putting in the actual tension lines for the grid itself, all that work we can do. That's right-of-way. That's clearance. But it's water impacts across all of those. Oil sands, water used in both the extraction in the case of SAGD. In the case of actually surface mining, it's the treatment of the tailings and the waste material. In the case of mining, it's water supply. It's water treatment coming out of the process. So we don't have a fixed evaluation as to how much of it and in fact, internally, we do spend a lot of time. And you can imagine that in the case of mining, I ask that mining is going to generate all 40% of that international. And then our oil, guys from oil sands, I ask them generate all for 40% of that. So that gives us the diversified approach. I can't tell you, at this point, exactly with detail, which of these are going to represent in the case of international 40% or in the case of U.S. commercial, but I'll tell you that we don't need to hit on all cylinders or be successful in all areas to achieve these numbers that I presented to you.

And last question. How do you see your contract type shifting over the coming 2 to 3 years?

I think there's going to be less cost plus, and I think it's continued to trend down. It's largely an artifact of governments where they have forced accounting. They have cost-based accounting. I think it'll move as we move to more commercial. T&M will continue to go up. And then as RCM grows, I think they'll be fixed price. So I think the cost reimbursable will go down and the net recipient of that will be T&M, which is, as you're aware, Alex, we're very low risk but affords us a better opportunity for margin. Cost plus is the lowest risk, of course, but you have no opportunity essentially for any type of margin. You get no risk. In exchange for that, you get no margin. T&M actually gives us ability to sort of manage both, and I think that will be the net benefactor. That will be the part that's going to grow the biggest on the cost plus, time and materials are fixed-price. So T&M will grow for us. With that, I'd like to thank you all very much for your question and interest in Tetra Tech and for following us, and I look forward to a good spring, and things actually picking up especially up in the north of the border, in Canada. As we move forward to this next quarter, I look forward to speaking with all of you on our next conference call. Have a great day. Bye.

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