Tetra Tech, Inc. (TTEK) Q4 2015 Earnings Report, Transcript and Summary

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 will then open up 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. These statements are only predictions and may differ materially from actual future events or results. Tetra Tech's Forms 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. 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. Dan L. Batrack - Chairman, President & Chief Executive Officer: Great. Thank you very much, Ginger. And good morning, and welcome to our fiscal year 2015 year-end and fourth quarter earnings conference call. While Steve Burdick, our Chief Financial Officer, will present the specifics of our financials, I'll start today's presentation with a brief overview of some of our key financial metrics. In the fourth quarter, we had solid performance and concluded the fiscal year firmly focused on our differentiated water and environmental services. In the fourth quarter, we had a profit margin of 13% from our ongoing operations of the two segments of the Water, Environment & Infrastructure Group, and the Resource Management & Energy Group, achieving our profit performance goal, and delivering the highest margin that we've had in 15 consecutive quarters. Operating income was up 29% year-over-year from our ongoing operations in WEI and RME segments and our diluted earnings per share was $0.50, which is up 44% from the prior year. Our ongoing operations generated $561 million in revenue, and $422 million in net revenue, down slightly from the prior year due to lower federal spending and headwinds in our mining and upstream oil and gas areas. Operating cash was $29 million for the quarter, up a 120% from the prior year. The ongoing operations also increased its backlog by 4% year-over-year with over $660 million in new orders for the fourth quarter. The wind down of our Remediation and Construction Management segment is proceeding well, with the RCM backlog down significantly from last year, and with now only $61 million remaining in additional work to complete as we entered this fiscal year, which began on October 1. While we had a solid fourth quarter, and a strong fiscal year 2015, we were not immune to the headwinds in the industry, especially in the mining sector. As a result of the prolonged downturn in the mining sector, in the absence of any near-term catalyst in commodity prices, we took a non-cash goodwill charge of $61 million at the end of our fiscal year, removing all of the remaining goodwill associated with our mining practice. For fiscal year 2016, we have reassigned our underutilized mining staff and resources to focus on more diversified environmental and water related services, in addition to continuing supporting our mining projects, such as regulatory driven mine closures. For our RCM segment that we're winding down, we had $17 million in revenue for the quarter and a loss of $5 million in operating income for the fourth quarter. I'd now like to present our performance by segment for this past quarter. The WEI segment had a net revenue of $179 million, which is down 5% year-over-year, with an operating margin of 17% that generated an income of $31 million for the quarter. WEI's strong margin was supported by seasonally high margins in our Canadian field operations and favorable project closeouts in our Federal and Commercial business in the United States. RME's net revenue was $243 million or down 2% from the prior year, while operating income was $25 million for the quarter, up 52% from the prior year. RME's midstream oil and gas business continued to win new work and grow throughout 2015 and our midstream oil and gas pipeline work now comprises about 85% of all the oil and gas work that we do throughout the company. Now, I will address our fourth quarter performance by customer. Revenue from our U.S. commercial clients was up a 11% and represented our largest customer segment at 33% of our business for the fiscal year. U.S. commercial is up 9% sequential as well. Revenue from our state and local clients was up 12% year-over-year in total revenue due to an increase and the use of specialty subcontractors and our management of grants for our clients. Our net revenue was also up although a more a nominal number at about 1% year-over-year. Our U.S Federal revenue was down 11% year-over-year due to slow orders primarily from the Department of Defense. The civilian federal work that we do for agencies like Environmental Protection Agency and the Federal Aviation Administration was relatively flat as these budgets were more stable and the orders came through on a more consistent basis throughout the year. Our international work was down 10% for both gross and net revenue as a result of the downturn in mining, and the upstream oil and gas markets in our Canadian operation. International work for the year represented approximately 29% of our overall business. I'd now to provide a brief recap of our performance from ongoing operations for the full fiscal year 2015. For the year, our revenue from ongoing operations was approximately $2.2 billion and net revenue was $1.7 billion essentially the same as the prior year. Our operating income, however, was $154 million, up 12% from the prior year, resulting in an earnings per share of $1.63, up 30% from the prior year, and our backlog, which is our best measure of future performance, was up 4% from last year. And finally, operating cash from ongoing operations was $134 million or up 5% year-over-year. However, we did resolve certain set an outstanding claims that contributed another $29 million to the company yielding $163 million in operating cash, which put us up 28% from the prior year. Backlog for our ongoing operations was up 4% year-over-year and up 5% sequentially on a constant currency basis. The increase was driven by strong orders from both our public and private sector clients in the fourth quarter. In the quarter, we added $600 million in contract capacity with USAID, it's the U.S. Agency for International Development, and we were rewarded over $660 million in new orders just in the fourth quarter, which included a $112 million from the U.S. Department of State in USAID orders, $231 million in new orders from our commercial clients, and $128 million new orders from the Department of Defense including our clients with the Army, Navy, and Air Force for a broad range of projects addressing water and environmental issues. Now after a challenging year in the federal markets especially with Department of Defense, here at Tetra Tech we see it very encouraging to see our Department of Defense backlog trending up as we enter fiscal year 2016. Now, I would like to turn the presentation over to Steve Burdick, our Chief Financial Officer, to review the details on our financial performance. Steve? Steven M. Burdick - Chief Financial Officer, Treasurer & Executive Vice President: Thank you, Dan. So, as Dan talked more about the full year 2015 performance, I'd like to focus a little bit more on the Q4 results. And, before I discuss the result I'd like to briefly mention one accounting adjustment for the quarter. So, as Dan had mentioned, during the fourth quarter, we took a non-cash goodwill impairment charge of approximately $60.7 million. This write down relates exclusively to our Global Mining Group, and takes the mining related goodwill to zero. So upon the completion of fiscal 2015, we decided to move portions of our mining practice into other operations to better align our environmental and infrastructure business on a go-forward basis. And as such we wrote down the goodwill associated with that mining practice. So, beginning in fiscal 2016, we will no longer maintain a standalone mining business, although we will maintain our capabilities in our operations. And so, the goodwill impairment charges I discussed is a non-cash charge and the financial figures I'll discuss today for both the fourth quarter and some of the fiscal year numbers exclude any goodwill impairment for the year-over-year comparison purposes. So, overall, in the fourth quarter, we saw solid performance from both our WEI and RME operations. Net revenue and EPS for ongoing operations fell in line with management's expectations for the quarter. In comparison to last year, gross revenue for the fourth quarter was $578 million, or down about 7% or up $44 million. This decrease was primarily related to our decision to exit the high risk low margin fixed price contract construction business. In addition, continued difficulties in mining and upstream oil and gas, as well as the adverse foreign exchange rates negatively impacted revenue for the quarter. So, excluding the impact of the currency translation and RCM, our revenue decreased about 1% on a year-over-year basis. Net revenue totaled about $427 million or down about 8% for the same reasons that gross revenue declined. On a constant currency basis, net revenue for ongoing operations was down about 4%. So, although lower than prior year, our net revenue results were within our expectations and the guidance range due to the strength of a water and environmental business, specifically our U.S. commercial business where net revenues improved about 9% over last year. Our operating income was $40.7 million for the quarter, which was up about 64% from the fourth quarter of 2014. So, overall, our operating margin was about 9.5%, but our operating margin was close to 11% for our ongoing operations. The improved operating income was primarily driven by solid project execution in both our WEI and RME groups. So, turning to EBITDA. EBITDA for the fourth quarter was about $50.4 million, which was an improvement of 37% on a year-over-year basis. The EBITDA margin for our ongoing operations was a strong 13% and with the full year of our segment realignment in place, we are now benefiting from an enhanced margin profile, which we expect to continue to be strong in 2016. So, I'd like to now review some key measures in our income statement. So, SG&A was about $44.8 million for the quarter, which is down $3.7 million or about 8% from last year. This decrease in SG&A was consistent with our planned decrease in overhead and back office costs as a result of winding down our non-core construction markets. In addition, intangible amortization costs for the quarter were lower by about $1.2 million. The tax provision for Q4 resulted in an expense of about $9.2 million, and the effective rate for ongoing operations was 32%. The tax rate was 42% in Q4 and 50% in fiscal 2015, which was impacted by the non-taxable nature of the goodwill impairment that we spoke about earlier. Diluted earnings per share was 43% or up $0.43, which was up 21% year-over-year and for the ongoing operations, diluted EPS totaled $0.50 per share, which was an improvement of 44% on a year-over-year basis. So, looking at some highlights of our working capital and balance sheet items, with continued wind down of our RCM business, we saw a 9% decrease in our accounts receivable balance. By the same token, our accounts payable balance decreased 14% to $150 million due to the lower subcontracting activities for the year compared to 2014. On a net debt basis, net debt decreased about $24 million to $57.6 million, which is down 29% from the previous year. So, we remain fairly unlevered at about 0.3 times on a net debt-to-EBITDA basis, providing us the opportunity to continue to invest in organic businesses – our organic business as well as make strategic acquisitions. So, in addition to our reduction in net debt, we saw positive cash from operations and as I'll explain in a few slides, we maintain our balanced capital allocation strategy by allocating about $180 million of capital to shareholder returns through dividends and share buybacks in fiscal 2015. In addition, we have a $100 million in approved share repurchases remaining under our current buyback program. So, turning to the cash flow statement, as noted in my discussion of the balance sheet, we had positive cash flow from operations for both the quarter and on a full year basis. For the quarter, cash flow from operations totaled $28.7 million as compared to $13.1 million in the previous Q4. On a full year basis, cash flow from operations improved 28% and cash flow from operations for the year was $163 million, which translates into $2.65 on a per share basis. CapEx for the quarter was about $4 million, which is a decrease from last year. And so for the full year CapEx spending totaled $24 million, which is in line with our initially forecasted range of $20 million to $25 million for 2015. And total CapEx spend continues to represent about 1% of our total annual revenue, which we anticipate will continue into 2016. Days sales outstanding of 85 days is lower from last year by about two days. And so excluding RCM, and some of the claims that we're continuing to manage, the aggregate DSO in our two front-end segments was about 76 days. Our overall DSO is not yet in line with our expectations and we are continuing our efforts to reduce that days sales outstanding to below 75 days, with an ultimate goal to be closer to 70 days. So before I turn the call back over to Dan, I'd like to take a few moments to revisit our capital allocation strategy and the value that we delivered in 2015. So we continue to focus on improving our capital allocation while also maintaining a balanced strategy between acquisitions that would accelerate the growth of Tetra Tech as well as paying out quarterly dividends and making share repurchases to deliver value to our stock holders. So in order to achieve this balanced strategy in 2015, we paid $18.2 million in dividends and we repurchased $100 million in share buybacks. And on November 9, our board of directors approved Tetra Tech's seventh consecutive quarterly dividend of $0.08 per share, which will be paid on December 11 to shareholders of record as of November 30. And based on our current stock price, this dividend payment represents about 1.2% yield. I'd like to again emphasize that our commitment to continue to pay quarterly dividend and repurchase shares will not in any way impact our growth strategy from either inorganic or acquisitive standpoint. Furthermore, in addition to strong cash flows that we've received out of our operations, we now have improved borrowings under the terms of our amended credit facility. And these enhanced terms will provide us either even greater flexibility to increase our borrowings at lower and more competitive rates as we need. And as Dan will discuss momentarily, our focus continues to be on investing in long-term growth markets that promote our organic growth and sustain our market leading positions in water, environment and the energy sectors both with our public infrastructure and commercial industry clients. And we'll also maintain or remain active in the M&A market. We recently announced our intention to acquire Coffey International, which is a world-class consulting and engineering firm, headquartered in Sydney, Australia. And so ultimately, when making acquisitions, we look to acquire leaders in our space and in their space, such as Coffey, will supplement and expand our consulting and engineering capabilities in the water, environment and infrastructure, and energy markets. So, with that said, I will now hand the call back over to Dan to discuss our 2016 outlook and growth strategy in a bit more detail. Dan? Dan L. Batrack - Chairman, President & Chief Executive Officer: Hey, thanks, Steve. Almost 50 years ago, Tetra Tech was founded on the delivery of science-oriented services and consulting and engineering with a commitment to fiscal discipline. And by delivering these services, we've evolved the company into a global network of 13,000 scientists, engineers, with projects in over a 100 countries and impressive track record of cash generation and financial performance, some of which Steve Burdick just presented. These are the services that have propelled Tetra Tech to its number one ranking by Engineering News-Record in water for the past 12 consecutive years, in environmental management since back in 2008, and most recently, a number one ranking in solid waste, which actually we achieved in 2012. Our approach here at Tetra Tech of leading with science differentiates us significantly in the marketplace and it provides us higher margins, less competition in the markets we serve and provides a return on investment for our shareholders both now and in the future. Now, we look very carefully for firms that we can add to our team that advance our strategy to be the premier world-wide provider of consulting and engineering services in the markets that we compete in. Now, we just recently made an announcement that we've made an offer to acquire Coffey International Limited, who I expect to be an excellent addition to our team. We're really excited about this and looking forward to it. Now, I'd like to tell you a little bit more about Coffey and our rationale for the acquisition. Coffey is a well respected based firm in Australia, founded back in 1959, with over 3,000 staff, and an annual revenue of $400 million, in fact just a bit more than that, their addition to Tetra Tech will increase our annual revenues by approximately 20% on a full annual basis. Now, technically Coffey is known for two key services in two areas. The first is international development, I'm going to speak a bit more about that in a moment. And the second is, geoservices or geotechnical engineering, where they have an excellent reputation in this area, effective market leadership in those geographies and the network of offices that are highly complementary to our own, especially in Australia, Asia-Pacific and the United Kingdom, giving us significant new reach for our services. Now, our acquisition strategy is to identify and acquire firms that provide complementary skills and resources, which Coffey does, adds new geographies and promote our number one position in the markets we serve and Coffey meets all three of these criteria. The addition of Coffey propels the combined entities of Tetra Tech and Coffey as an organization into the number one position as a provider of international development services worldwide. Now, together, Coffey and Tetra Tech will be able to pursue work across multiple international development funding agencies, like USAID, United States Agency for International Development, UKAID and Australian Aid with combined annual budget of over $90 billion from those three entities, that's what their annual spend rates are. Coffey also provides us with a platform to provide our Engineering and Consulting Services in Australia, in Asia-Pacific region. As I had mentioned earlier, since they were formed back in 1959, Coffey has worked across all these regions to provide geotechnical engineering services and today, this geotechnical expertise is a fundamental requirement that has to be complete in advance of infrastructure planning and design projects. Now, Australia itself, where Coffey is the strongest, is expected to enter into a new era of infrastructure investment, estimated at approximately $100 billion over the next decade, through a combination of federal and private investments. This is an excellent time for Tetra Tech and Coffey to join forces to provide a much broader set of services to Australia to support this infrastructure development. Now, if you're following along the webcast that's summarized here, the four key markets that we're focused on as a combined company. The growth plans targeted to where there are changes in the marketplace such as markets where there is new regulations or new technologies or just new investments by our clients. These are areas where the payoff begins now and continues into the long-term. And these are markets where our lead with science approach differentiates us and provides us with projects that have both high margin and low risk. Water and environment, now the markets where we're already well-established and together we can leverage Coffey's presence and position in geographic locations of Australia and Asia-Pacific to cross sell Tetra Tech's differentiated water and environmental services. International development combined with our strength in our respective markets and together it will allow us to provide an opportunity to leverage the billions of dollars that Tetra Tech has in existing, current contract capacity that we hold today and utilize our worldwide staff resources and experience to win new programs and increase revenues even further. And in oil and gas, we continue to focus on successful midstream strategies that we've employed here at Tetra Tech, both in the United States and Canada during this period of low oil prices. Now, while we're also increasing our services that are supporting the early investigations and feasibility studies in LNG terminals, now Coffey does bring us new additional expertise in LNG and they have long-term relationships with these clients, which will add up and open up a new market for us. Now, I'd like to discuss two of these growth areas in a bit more detail. Tetra Tech's biggest differentiator is providing support to both our public and our private clients in solving their most important and complicated water problems. Our clients have two primary issues concerning – or concerns that we support. The first is where they have too little area, too little water and that scenario is where there is primarily droughts and the second is in areas where they have way too much water and that areas where they have floods. We provide an integrated water management solution, which identifies new water supplies by treating and reusing waste water, capturing stormwater and adding water to local aquifers and even treating contaminated groundwater to provide new water supplies. We also provide flood management services, such as assessing and updating designs for flood management structures, like dams and levees and in the event of major hurricanes or storms, we assist communities both before and after those events. Now, smart water is rapidly emerging its way to address both extremes. That's where this both too little water or too much. Smart water systems can be used to monitor, manage, and control entire water systems. Smart water is where we're introducing emerging technology with our long-term experience in institutional knowledge to provide our clients with the tool they need to efficiently control their water systems on a real-time basis and this is a very fast growing area for us. In our environmental business, we help our clients address new regulatory requirements with innovative solutions built on our high-end science and decades of experience. This is where we're helping our clients address new regulation such as the coal ash waste management regulations and we're preparing for some new recently announced water treatment requirements for leachate being discharged from energy producing facilities. In our urban areas, especially in the United States, the resurgence in intercity development is restarting and creating new opportunities for us in remediation and restoration. So, for example, we're working on privatization of military facilities. This is where we're restoring land, so that it can be returned to local communities for multi-use redevelopment. We're also working on greening of our intercities and this is where we're combining addressing regulatory water programs with community redevelopment, such as the deployment of green infrastructure in Detroit, Michigan. With that, I'd now like to provide our guidance for the first quarter of fiscal year 2016 and for the entire year, fiscal year 2016. Our guidance is as follows. For the first quarter, our net revenue guidance is at a range of $400 million to $450 million of net revenue with an associated diluted earnings per share of $0.35 to $0.40. For the entire year, fiscal year 2016, our guidance is a net revenue of $1.65 billion to $1.85 billion with an associated diluted earnings per share of $1.70 to $1.90 and our cash earnings per share for the entire year a range of $2.70 to $3 per share. Now, as in past years, we do have some assumptions that our guidance are based on. We do estimate intangible amortization of $15 million for the year or $0.17 per share. Our effective tax rate of 32% for the entire year, an estimated 60 million shares, diluted shares outstanding and our guidance excludes and that includes Coffey. It does exclude any contribution of revenue or income from any acquisitions that would take place after – would take place subsequent to this phone call. It also does assume that we have no material fluctuations in our foreign exchange rates of currencies where we perform work overseas. So, in summary, we delivered solid performance in the fourth quarter and for all of fiscal year 2015, achieving a 13% EBITDA margin for this past fourth quarter. We've returned a $118 million in buybacks and dividends to our shareholders in fiscal year 2015 and our U.S. commercial end markets are improving and we've continued strength in water-related services all across North America both in Canada and the United States. In our strategic acquisition, and Coffey when complete will propel Tetra Tech to a number one market position in international development and significantly extend our geographic reach. And finally, our growth in backlog for services line to our future growth strategy are going to support our confidence in our 2016 guidance and our future prospects. And with that, Ginger, I'd like to open the call up for questions.

The question-and-answer session will begin now. The first question comes from Tahira Afzal from KeyBanc Capital Markets.

Hi, guys. This is Sean (31:01) on for Tahira today. Dan L. Batrack - Chairman, President & Chief Executive Officer: Good morning, Sean (31:03).

Good morning. So, I guess, fiscal year 2016 guidance looks pretty good, but I was hoping you guys could give us a little more color on the end market outlooks embedded in that guidance? If we could start with oil and gas in particular, what's embedded in there on the midstream side, and any granularity we can get on what you're seeing in the U.S. versus Canada would be very helpful? Dan L. Batrack - Chairman, President & Chief Executive Officer: I'll start with oil and gas. We've actually seen a bit of reduction in 2015 overall in oil and gas, but that slight reduction was almost completely attributed to the upstream reduction in upstream oil and gas in oil sands in Canada. Our midstream was actually up in 2015 as I had mentioned in the prepared remarks and we see with both the backlog we have now and the new opportunities, we expect it to continue to grow into 2016. So, our guidance was based on a slight increase in our oil and gas work. We expect that increase to be all associated with midstream, both in the Canada and U.S. with a flat to continued soft, maybe even slightly declining in the upstream. I say only slightly declining because we saw significant reduction in 2015 and we expect it to be working off at a low point. So, oil and gas should be flat to up slightly for the year. Our U.S. commercial work is actually one of the strongest areas along with our U.S. state and local, both of those will be up quite materially year-over-year. Our U.S. federal, that was really one of the big headwind areas for us in 2015. Our assumption that our guidance is based on is a flat federal business from 2016 – from 2015. I will say that I didn't speak about contract capacity in my prepared remarks, but we do feel a bit more encouraged there, so I'd like to say that our guidance is a bit conservative. Some things that could drive us to the top end of our range would be a pickup in federal. We did add almost $1 billion in federal contract capacity in 2015 (33:18), particularly late in the year. And so I think it positions us quite well and I think as I mentioned just briefly in my prepared remarks that includes the Department of Defense work for really all three branches and the Corps of Engineers, so, Army, Navy, Air Force and the Corps. So we do – our guidance is based on flat federal, but I think we have some good opportunity there.

Okay. Thanks. And I mean in terms of the next level of detail, what are you guys expecting from the California water infrastructure opportunity? Has there been any change on the timing or scope of those growth opportunities? Dan L. Batrack - Chairman, President & Chief Executive Officer: Well, it's typical of these types of projects. It has increased – revenue has increased, but it's been slow and most of it's associated with studies and permits in the upfront work. Typical work to detail design and even construction oversight or owners' engineer work typically trails by anywhere between one year to two years, so four quarters to eight quarters, but the number of projects has picked up significantly. But I will say that the upfront feasibility studies alternative work is relatively small dollars. And generally speaking, about half of the dollars have been set aside for the funding from the bond issuance or set aside for stormwater or capturing water that comes down during storm event. So, that's a lot of work, but where can you put recharge basin, how can you capture it, how can you divert it into retention base? And so there is a lot of geospatial work, which is fancy name for a lot of mapping and planning and flood plains. It's a lot of tapping work, but the big dollars become later when it moves to design work and actually implementation.

Okay. So, basically, it's a pretty modest contribution in terms of growth into 2016 on California water infrastructure? Dan L. Batrack - Chairman, President & Chief Executive Officer: Right. Yeah.

Okay. And then, last one for me and then I'll get back in queue. What would you guys anticipate Coffey would do to your guidance in this fiscal year? I mean, would it be accretive in the year or how are you thinking about that? Dan L. Batrack - Chairman, President & Chief Executive Officer: Well, we're going to provide details when we close Coffey. We expect that to happen in the early part of Q2 for us. We do expect that it will be accretive on a GAAP basis in the first year, but we'll provide specifics both on the revenue and income and EPS contributions when we close and I'd expect that will be in our next conference call.

Okay. Thanks a lot, guys. Appreciate it. Dan L. Batrack - Chairman, President & Chief Executive Officer: Thank you, Sean (36:04).

Your next question comes from Andy Wittmann from Robert W. Baird. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker): Great. I wanted to talk a little bit about the margins. Dan, can you just talk about maybe a couple different aspects of this? Can you talk, one, about the mix of business, how that's shifting in 2016? Can you talk about – where was I going with this – yeah, the mix as well as just basically the comparison that you have versus last year's margins and any opportunities you see to improve them? I guess would be the big core questions there. Dan L. Batrack - Chairman, President & Chief Executive Officer: Yeah. Let me work to answer that with your second aspect first, and then I'll address the business mix. First is the comparable to our past margins. I know that if you take a look at our business and say that we have 13% EBITDA on the fourth quarter, that's quite a higher – high mark for us. I commented that that was the highest in several years for us – in, I believe, 15 quarters consecutively, but I'll tell you that that's what we expect. Now the first part, when you take a look at the two operating business groups, you look at 17% from WEI, a one aspect you look and think that that's quite high, but in 2014, the fourth quarter, we were at 16.5%. So, essentially the same number. Now it's both excellent performance on existing work we have, but when we finish work and close our projects, we quite often will have pickups in the event that we finished the projects ahead of schedule or below budget and those would contribute typically that's done in the fourth quarter, that's where work is completed at the end of the summer or at the end of a government fiscal year. And so, that number is not unusual, and in fact I would expect that we continue in similar levels. The Resource Management & Energy margins were actually below our expectation for the fourth quarter, and honestly for fiscal year 2015. And that was because of the very acute headwinds in upstream oil and gas that really started sort of in the second quarter and continued through Q2, Q3, and Q4. And the mining work continued to be difficult for us as we continue to downsize that work based on the amount of revenue we have. I expect that RME will come up. So, the business mix I think will – we're doing more commercial work within WEI, it's not just government, we're doing environmental work for large commercial clients, which would help improve the margins we have there. And I think RME has these headwinds, very acute headwinds of upstream oil and gas in the oil sands particularly get more normalized, I expect better numbers out of RME. So, while it was a good year in 2015, some say very good year, I think we can do better, and I think it's a combination of the business mix of decreasing the amount of headwind work we're doing in oil sands and mining, and increasing that in commercial work within WEI. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker): Great. That's helpful. And then just kind of going back to the top-line a little bit, as we went around kind of your end markets, U.S. commercial, state and local, you said – it sounded like strongly up, federal flat, international is the area you didn't really touch on, but that sounds like it's flat to down with ongoing mining headwinds and some of the other resources. Is that a fair way to breakdown the end market distribution of your growth outlook? Dan L. Batrack - Chairman, President & Chief Executive Officer: It is. It is. Although, I will say that the municipal work in Canada has continued to be strong. We've actually seen some stimulus programs in Alberta that have been passed. So, we do have headwinds in mining, in upstream oil and gas in Canada. But I will say the mining work has come down for us dramatically. So the amount of impact of shrinking mining work is relatively de minimis, and will be equal or offset by the strong work at the provincial and city levels in Canada. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker): Okay. So when you boil that down versus the relative importance of those things, you got about 45% of the business that you think will be quite strong, and the rest of the business kind of roughly flattish. That probably is, what, about 3% to 5% constant currency organic growth rate that's implicit in your guidance then? Dan L. Batrack - Chairman, President & Chief Executive Officer: Yeah. It's a great calculation, Andy. If you take the midpoint of Tetra Tech's guidance for Q1 and adjust it for constant currency, and Q1 will be the most difficult foreign exchange constant currency calculation for us. For Tetra Tech, almost all of our foreign exchange is affected by Canada. That represents essentially all of it. And we've seen a 15% to 20% reduction in the evaluation of the Canadian dollar. When you normalize that, the midpoint of our guidance for Q1 would impute a 2.9%, so rounded off to 3% organic increase. And for the year, you actually see that up at just under 5% for the year. So we expect as it abates with the FX comparisons after the first quarter, the organic will actually show a little better. So your calculations are exactly on. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker): All right. Then I'll just finish up with one kind of technical question, maybe circle back later in the queue. But Steve, can you just remind us the implications that the RCM wind down and the $61 million that's left in that backlog has on your cash flow? Are you at a stage where you're kind of pay-when-paid or is that $61 million a cash drain where your cash flow will improve more materially in 2017 when those projects are largely complete? Steven M. Burdick - Chief Financial Officer, Treasurer & Executive Vice President: Yeah. I think as we see the completion of those projects, we'll be collecting the receivables that are outstanding at the end of this year. And that will offset a little bit of the additional cost growth that we saw. So it should be relatively flat for the next year coming up in order to complete those projects. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker): So these are already incurred receivable. The receivable that you have are for work that's already been done. Is the $61 million basically incremental cash burn that's out of your pocket or is it pay-when-paid type of work? Steven M. Burdick - Chief Financial Officer, Treasurer & Executive Vice President: Yeah. That $61 million of backlog represents the revenue to go as well as the cost to go. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker): Okay. Got it. Dan L. Batrack - Chairman, President & Chief Executive Officer: Andy, just a note on that. Most of this work, the $61 million is gross revenue or total revenue and most of that work is subcontracted out. So only a small part of it is self-performed. That's the part that we're going to be out of on a cash basis as we go. So during the year, it's probably only 20%, 25% of that number. The rest is paid when paid on subcontractors. So the cash impact only is equal to when we get paid by the clients. But I want to make a note that we had $163 million in cash from 2015. And you can see our number for 2016, it appears to be nominally up. We did have about $30 million, and I talked about this briefly in cash that came from settlement of claims. Now the amount that we would receive on claims in the future could actually drive that number well over $200 million depending on the timing and resolution of these claims. So, if we are successful, it will show up in cash during the year. If we're not successful and none of it happens, we've already spent that money. Those are dollars in cash that were expended back in 2013, 2014, and last year in the reduction in the backlog. So I think that with respect to cash, we're focused on this. The outcome of our forecast, while we have $60 million to go, most of that is sub, the potential of cash generation from RCM could actually be quite substantial for the company in 2016 and we've not incorporated that into our forecast. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker): Got it. Thank you.

Your next question comes from Mike Shlisky from Seaport Global.

Good morning, guys. Steven M. Burdick - Chief Financial Officer, Treasurer & Executive Vice President: Good morning, Mike.

First a quick one. In fiscal 2016 and going forward, does any overhead come out of your costs by not having a standalone mining business? Steven M. Burdick - Chief Financial Officer, Treasurer & Executive Vice President: It does, Mike, a little bit, a little bit. We actually had a – we called it GMP internally, Global Mining Practice. We consolidated the units. We tracked the goodwill, which you saw this last quarter take place. So what we did is by reassigning the resources into other operating divisions where they can actually utilize and work on backlog we have, we were able to take out the overarching management. But I will say we've been pretty aggressive on that over this past year and the costs have been – of downsizing that were incurred incrementally through the quarters. And so you probably see only about $1 million or $2 million of overhead, which is generally in our overhead, not our G&A, that was in the Global Mining Practice. So, yes, we'll see a reduction in our indirect cost reduction. But on an annual basis, it's only like $1 million or $2 million.

Okay. Great. I also want to touch on your infrastructure type business. We are coming closer to a potential highway bill that could open up some funding for some federal dollars for some roads and bridges. I was wondering if some of the road builders out there that we've talked with thinking 2017 might be when they start seeing actual work, because your fiscal 2016 might be seeing some elevated traffic study work or design work. And maybe secondarily, is there any high margin work in there when you get into things like crossing water, drainage, and stuff like that? Dan L. Batrack - Chairman, President & Chief Executive Officer: Mike, the work that we do is primarily around the environmental permitting. So it's clearance of right-of-way; in the case of transportation, an extension of highways for the interstate systems; some bridge work with respect to monitoring and evaluation of settlements through the waterways. But generally speaking, and I have had a few questions on what's the impact of the highway bill either passing or not passing, it's relatively de minimis for us. So we do not have a significant transportation practice here in the U.S. Now, we do do very early work that was relatively – I hate to use the word immune, but not affected by passing most of the big dollars on the highway bills don't cause the environmental studies to go forward or not, because they still want to get these projects in a position to go forward. They have a big impact on the detail designers and the constructors. And that's not really our marketplace. So passing or not passing the highway bill is relatively irrelevant to us. We sometimes get a bit more monitoring work for stormwater pollution prevention while they're doing excavations and field QA/QC work of our engineers. But overall, let's say, it's a very minimal impact to our business.

Okay. Great. And then I'll just throw in one quick Coffey-related question here. In the past, Dan, you've said that in the U.S., the environment politically on aid funding is generally not a huge deal, whether it's one party or the other in charge; most of these programs generally stay stable through time. Is that different? Are there major swings in the funding in either Australia or the UK, to the best of your knowledge? Is there anything we should expect as far as things being a little more volatile in that business versus the U.S.? Dan L. Batrack - Chairman, President & Chief Executive Officer: Well, actually the UK has – the UK has actually become more stable than even the U.S. So the United Kingdom has actually targeted 0.7% of the GDP. And so they had to go from a very low level, and you saw sequentially quite a few projects ramp up there as they committed – as their commitment to this funding has increased actually hit that percentage. So, I guess, you can say that number could move with respect to volatility of the overall GDP. In the case of the UK, things have actually looked quite good and things have actually been growing. And so there's been sort of this double positive impact, one, they've been moving up to 0.7%, they're getting quite close to that now. But then it's also compounded with the growth of the GDP, so you've had this multiplicative increase in the funding and opportunities. And so we feel pretty good about that. Tetra Tech itself does very little work. We're a subcontractor to some of the UK AID agency there, they call it DFID, but I'll refer to it as the UK AID. But Coffey is the top 10 player there and I think that our technical capability and international reach and with their top 10 position, we expect to move up several ranks there. With respect to Australia, it's moved up and down based on sort of the economic challenges. And with a very heavily based commodity, economy, they have seen some headwinds there, but we think that they've largely been put in place. Coffey has been either the number one provider of services for AusAID or tied for number one for many, many years. And what we've seen is multi-agency and multi-lateral funding of large projects in the Asia-Pacific, and what I mean by that is this is where USAID puts money in, UK AID puts money in, and Australia AID puts money in, sometimes matched with Asian Development Bank, JICA out of Japan and even World Bank. So it's these very large collective programs and they'll be in Tetra Tech through – I believe we will be the largest water infrastructure supplier to USA. We will with Coffey move to number one in AusAID and will be a top 10. I think there is no other firm that can say they're either number one or are in the top 10 in all three. So this should situate us very, very well for these multi-lateral programs that we expect to have funding primarily through the Asia Pacific.

Nice thanks. I will hop back in queue. I appreciate it. Dan L. Batrack - Chairman, President & Chief Executive Officer: Great. Thanks, Mike.

Your next question comes from John Rogers from D.A. Davidson. John Bergstrom Rogers - D. A. Davidson & Co.: Hi, good morning. Dan L. Batrack - Chairman, President & Chief Executive Officer: Good morning, John. John Bergstrom Rogers - D. A. Davidson & Co.: Just one follow-up on Coffey and I know you're going to give us more update when you close, but in terms of the way they report their business, the Geoservices, Project Management, is that almost or primarily what you would consider WEI work? Dan L. Batrack - Chairman, President & Chief Executive Officer: Yes and no. I would say about half. So the work that they do for transportation and for infrastructure for cities would clearly be water environment, and I – the infrastructure work. So the one thing that's – if you're in this business, I know those listening that are actually in the engineering consulting field would be insulted for me to spend a moment on this, but geo tech work or geoservices work is required on every infrastructure project, whether it's a building, a bridge, a road, a water treatment plant, none of those can be put in place without a foundation. And the more complicated the geology and the foundation, more extensive the geotechnical or geoservices work. And so, yes, it would be on the infrastructure side for cities in municipal work for roads, for water treatments, for buildings, and again, Coffey is a world leader in this. But they also do that work and where the biggest revenues have historically been is on the commodity side, which is for resources, natural resources, so Resource Management. And that is, you don't do mining work unless you know a lot about slope stability, how hard is it to dig out, what type of tunneling, what type of shoring and protection that has to take place. So historically, if you went back to the mining super cycle, the demand for their services were just off the chart. So I would say today, more of the work – and we see that the near-term opportunities are more in WEI, but I would say historically, very acute demands exist in Resource Management work, and even in energy with respect to foundations for power plants, pipeline, of that type. So, I would say both. John Bergstrom Rogers - D. A. Davidson & Co.: Okay. So, when we think about the way Coffey will flow in, I mean 75% of that is going to end up in WEI for the way you think about it? Dan L. Batrack - Chairman, President & Chief Executive Officer: Well, I think that because of their aid work – so let's take a step back. 60% of their revenue approximately is in international development. John Bergstrom Rogers - D. A. Davidson & Co.: Right. Dan L. Batrack - Chairman, President & Chief Executive Officer: And international development resides within our RME group, because a lot of the work that we've been doing for aid is on the energy side and infrastructure. So that leaves the geotech being kind of evenly split. And we're not going to split Coffey up, and I think our initial thoughts are because of the historical large support for the commercial side of the business, our Resource Management & Energy it's likely to go RME since the international development is clearly and exclusively RME. So, we'll make this final decision when we close, but right now, we're actually thinking the entire entity will go into our RME group. John Bergstrom Rogers - D. A. Davidson & Co.: Okay. Okay. Thank you. And then just in terms of how you're seeing the market play out for federal opportunities. I know in the past, Dan, you've talked about specific programs that you are going after or whatever, can you give us a quick update and especially where we are in the political cycle and what programs we should be focusing on relative to Tetra Tech? Dan L. Batrack - Chairman, President & Chief Executive Officer: Well, I think we've had a – I would – so, there's some things in 2015 I feel really good about with the company. I feel good on the progress on the revenue side with the reductions with RCM is one of the things we feel really good about, we feel really good about the margins coming out of WEI we feel really good. We feel really good about the work coming out of the midstream oil and gas, as I've talked about. We feel we've done extremely well. One of the areas that I think we've done very well but you don't see it yet, but we hope to see it in 2016 is we've done exceptionally well in winning very large contracts, and that's why I talked about the $2 billion in new contract capacity, That's like a 20% increase, just a little under that, in contract capacity, the federal government largely in international development for USAID. And actually, you've seen some announcements. And I think there more to come with respect to new large contracts being awarded for Department of Defense. So, I think that with respect to the federal government, we should see conversion of contract capacity or contract value, and all I just want to say one word because I think we're quite unique in this aspect, we win a contract but we do not put contract capacity either as factored or any other manner into our backlog. We actually have to have a task order. So, we don't just unilaterally say our backlog is up because we have a factored component of a new contract that we win. I know that's a common practice in our industry. For me, personally, I can spend and put people to work on task orders we've been delivered. So, I think both having larger contracts, and what we've seen here at Tetra Tech, I don't know if I'll say this for the industry, although maybe, is we've seen a election phenomenon when the Presidential election comes up every four years, typically the year leading up to it, we see more federal spending, not just contract, spending. And it goes back to they may be successful or unsuccessful based on their political platform, that's up to them. But they don't want to be excluded by having put people out of work or put an economic hardship on the economy. So, this is typically the old proverbial, a chicken in every pot, spend money, make people feel good, and then if we can convince them based on our political position, it will stand on its own. So, this is typically where we see better spending. So, we're hoping to actually see that starting right about now over the next year. John Bergstrom Rogers - D. A. Davidson & Co.: Okay. And then, last thing, just in the quarter, and maybe it's the way you classified some of it in your inter-segment and other, but it looks like the overhead costs were up a little bit in the quarter. Was there anything unusual there? Steven M. Burdick - Chief Financial Officer, Treasurer & Executive Vice President: No, I think overall, if you look at our overhead and G&A costs, this year compared to last year they're actually down on an overall company basis and that was as a result of us deliberately taking those costs down as we decided to come out of RCM. Dan L. Batrack - Chairman, President & Chief Executive Officer: One thing I'll say, John, if you do take a look at Q4 versus Q3, Q2 and Q1... John Bergstrom Rogers - D. A. Davidson & Co.: Yeah. Dan L. Batrack - Chairman, President & Chief Executive Officer: You'll see an incremental increase, but what we do, as a lot of these costs actually get – I don't want to use the word accumulated, but we actually true up at the end of the fiscal year. And so, I would say what continue to look at – just take a look at our fiscal year 2015 G&A expense, not just Q4 to see whether or not it's high or lower. Sometimes it's just timing of when we apply it but we true all of that up before we close for all of our rate packages and everything else. So, I did see that in Q4. I'm aware it appears to be a bit higher but I'll tell you that's just truing it up for the earlier quarters in the year. John Bergstrom Rogers - D. A. Davidson & Co.: Okay, great. Thank you. Dan L. Batrack - Chairman, President & Chief Executive Officer: Great. Thank you, John.

Our final question comes from David Rose from Wedbush Securities.

Thank you for squeezing me in. Just try to do it real quickly. The Coffey acquisition, I know you don't want to go into detail just yet until it's done, but is there a potential for it to be dilutive in fiscal 2016 given seasonality in the business or some aspect of the business? Dan L. Batrack - Chairman, President & Chief Executive Officer: Great question, great question. I don't think so. Our plan is for it to close in the second quarter and we believe that based on that would give us two and a half quarters roughly, so you would have all of Q4, all of Q3, and a good portion of Q2, and based on our evaluation of that, it should be accretive on a GAAP basis. Now if something unforeseen happened and we closed that, last week of the fiscal year, there may be different perturbations there, but that's why we will report what we anticipate at the time we close. But, no, that's not actually in our – within our forecast at this time. We don't think that's going to happen.

Okay. And then just one other aspect on Coffey. Given the deceleration in this business and we've discussed the closures and how they've been managing the downsizing their business but the revenue trajectory still is downward. How do you get comfortable that you start to turn that business around? I think you've outlined what you plan to do in terms of cross-selling, but on a standalone basis, can that business recover? Or do you think there's still another leg down in that business? Dan L. Batrack - Chairman, President & Chief Executive Officer: I'll try to give you a perspective that we have on this. I think that the reduction in the revenue is the best thing that I've seen that I could have possibly seen coming out of Coffey, and what actually made myself and Tetra Tech as a company interested in them. And let me run a quick parallel for you on this. A year ago, a year and three months ago, I met with our board, and I proposed to our board that we close down our Remediation and Construction Management Division. We were sitting at about $2.7 billion, and I said, we had a division of our RCM at about $600 million and my prospect to the board was, I'd like to close this down, I'd like to bring the Tetra Tech's revenue down by $200 million, $300 million, $400 million, and as a result of that, our income will go up, our margin will go up, our risk will go down, and so those that have looked at (60:25) I'll go back to today's presentation, if you take a look at, I'll tell you just the first page of the presentation, revenue for Tetra Tech, year-over-year down, operations down 3%, income up 30% – 29.5%, diluted earnings per share up 44%, operating cash up 120% with the declining revenue base. So let's take that analogy to Coffey. If they have done and what – I hold them with very high regard for, and I think they did exactly the right thing and in fact, I will inform the group here, I have been in talk at teaming with Coffey for some time and was looking forward to their proactive reduction of their operations where they were losing money and investing in areas of headwinds such as upstream oil and gas, mining areas on like the (61:16) exploratory portion. In this past six months, they have closed down their Canadian operations associated with mining. They've closed down their Western Australia associated with mining exploration. They've closed down Peru, Chile, cut their Brazil operation in half. All of those actions are actually what made this business attractive to us. And to put this in context, they have a $407 million annual run rate in U.S. dollars. That is after they've taken a lot of this down through the first half and 60% of that revenue is associated with aid work, which is actually growing. So, really now you're talking about 40% of $400 million. So, you are at $160 million and they've exited the most risky portion. Now, I say all of those things, I'm not naïve as to the difficulty of exiting those markets, we just are concluding that ourselves with RCM, but I'll tell you the outcome can be significantly higher margins, better cash flow, lower risk, and that's what we see Coffey has embarked upon as well down the road and that parallels ourselves quite well. So, I feel quite good about it. Never say never. We have to get through the details of this. But it's those reasons that have made Coffey attractive to us and a good fit with Tetra Tech.

Okay. That's very helpful, Dan. I appreciate it. And then if we can kind of think about the guidance again – the issues with DoD and then the first quarter guidance, which I think is wider than the consensus in ours as well. And I think we're all pretty aware of FX. But was the DoD business – the dropdown in the DoD business, the acceleration in that decline also impacting your Q1 view? Is that maybe, I guess one of the biggest headwinds that you have in Q1 aside from oil and gas, because I think we all have that pretty clear. So that's I guess part A of the question. And part B, is there any commonality in this slow release of products in DoD? Is there some read-through in what makes you feel that ultimately gets better, because you've got this great contract capacity? Dan L. Batrack - Chairman, President & Chief Executive Officer: Well, it is. We have – well, we think for the year, our federal is going to be flat. We're not overly optimistic on the Department of Defense. So, we are a bit more pessimistic on that, we're a little bit more optimistic on some of the civilian programs out there. So, on a net basis, it's flat, but I will tell you, you've got it right that we are less optimistic in the first quarter for U.S. Department of Defense. And I will say that when you convert the revenue though and I mentioned this earlier, the FX in the first quarter, if you back out the FX, the midpoint of our guidance, and I know I'm repeating myself from earlier on the prepared remarks, but our organic growth is about 3% in the first quarter. I do know it's lighter than consensus and I'll take this opportunity to share with both our shareholders and analysts on the phone that Tetra Tech is not a linear business. We do have seasonal effects, Q1 is often our lightest quarter on revenue and income, because we do have here in North America at the beginning of the winter season, it's not cold enough that we start working in the winter from a piping work and midstream in Canada. So, we don't have a big revenue there. We do have holidays of both Thanksgiving and Christmas. We do have 13 weeks that comprise a full quarter for Tetra Tech. We lose minimum of half a week during Thanksgiving and we lose about a week-and-a-half between Christmas and New Year. So, you take, add those together, you're about 2.5 out of 13 weeks. So, both revenue and income are down. I think that if you look at the first half of this year though and I'm not providing guidance for the second quarter yet. But I will generally inform you that the first half of this year, that'd be Q1 and Q2 should be up quite nicely on last year, although I do recognize Q1 on a year-over-year comparison is a bit light to last year. I think when you take a look at our first half you'll find that it's quite consistent with our annual guidance to put us on track for that.

Great. And I don't want to extend this, but I just want to get to the heart of the DoD question is, what is it about the spending, in your view, that you've got this dichotomy (65:53), you've got the awards, but you're just not getting the task orders? Why is that? Dan L. Batrack - Chairman, President & Chief Executive Officer: Well, I think it's been – I actually think it's been pretty clear to our project staff that they're informing, that the clients at the government haven't had clarity as to whether or not their budgets and funding are coming through. And so, I think 10 days ago, 10 working days ago, having the U.S. government agree for the next two years on an overall budget is the first time we've heard that for many, many years. So, that's number one. Now, on December 11, they have between now and December 11, to actually work out how they're going to divide up the pie. So, they know how big the pie is now for the first time. So, sequestration has been set aside. We have a total dollar amount, which we haven't seen in a few years now. They didn't fight as much last year, but they never actually had an agreement. Now, we actually have an agreement on the overall budget. Now, they just have to divide it up into appropriations. So, we're a few weeks out on that. So, I think that once there's certainty on your clients that you actually have a budget, you can start spending. And that hasn't existed before, so that's one reason we feel much more confident, and I hate to use the word confident, we feel less concerned than we had in the past year or two. We'll see how that plays out between now and the end of the calendar year, but it does look better from that standpoint. The clients don't want to spend money on contract capacity and convert it to task orders if they haven't actually had the appropriation that they can go spend. And this time, they should actually have that here before the end of the calendar year and then they can give it out. We would look for much more even, regular task orders throughout the year, not as fits and starts, it makes a huge difference. And a lot of the work that DoD is spending now is actually overseas. They refer to it OCONUS, so Outside the Continental United States. And, we actually have a pretty significant support infrastructure for work that they're doing outside the U.S. that includes NATO in Europe, includes Middle East and other Asia-Pacific regions where they're building up. And so, they've got the projects, they've got the contract capacity and now hopefully in the next 30 days they'll actually have the money appropriated to them. So, I think that combination is what's making us feel a little bit better going into 2016.

Okay. That's great color. I appreciate it, Dan. Thank you very much. Dan L. Batrack - Chairman, President & Chief Executive Officer: Okay. Thank you very much, David. Dan L. Batrack - Chairman, President & Chief Executive Officer: And thank you all very much for your questions and interest in Tetra Tech. I'll tell you we have exciting new opportunities in water and environment. And, I think that Tetra Tech in this area with a very concentrated focus in these areas has reinforced our reputation as a leader in these areas with our clients, not just with the numbers we're producing. And the announcement or at least our announcement of intent to acquire Coffey, we're in the marketplace buying the shares now. Again, I mention I expect that to close likely in the second quarter, continues to advance our strategy and gives us a very positive outlook to support the existing type of work we do and actually move us in the number one position. So, we feel quite good about that. And I look forward to speaking with all of you again next quarter and giving you an update on all these items, both the federal budgets in Coffey and actually how it performs in the first quarter. So, thank you very much and I'll talk to you next quarter. 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.