Tetra Tech, Inc. (TTEK) Q1 2016 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 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's 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 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 up the conference 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, Tia, and good morning, and welcome to our first quarter fiscal year 2016 earnings conference call. While Steve Burdick, our Chief Financial Officer, will present the specifics of our financials, I'll start with a brief overview of the company and some of our key financial metrics. For the first quarter, Tetra Tech generated $421 million in net revenue near the midpoint of our guidance and slightly above consensus for the first quarter. Now, for the quarter, we also generated an earnings per share of $0.39, which was at the top end of our guidance and in line with consensus. During the quarter, we did have some non-operational charges and contributions to our financials, and Steve Burdick will address these in more detail in his remarks. But I'm sure you're more interested in the financial performance of our ongoing operations, which were the results that were presented and reported from our operating segments, both the Water, Environment & Infrastructure group and the Resource Management & Energy group. So, I'll be presenting the financials on the year-on-year – with year-on-year comparisons on a constant currency basis, which I believe best reflects our current performance. So, for the first quarter, we delivered solid performance from our ongoing operations. Overall, for the quarter, the company generated from ongoing operations $540 million in revenue, $414 million in net revenue with an operating income of $39 million, which corresponds to an earnings per share of $0.42. For the first quarter, our total and net revenue were up 3% and 2%, respectively, from the prior year due to growth in the United States commercial and state and local markets with stable international revenues. Similarly, our operating income was up from the prior year due to strong margin performance by both of our reporting segments. And most notably, our backlog was up 5% year-on-year from the ongoing operations due to continued strong orders from our federal, commercial and municipal clients. Now, as of January 18, just last week, we added Coffey International, a world-class consulting and engineering firm headquartered in Sydney, Australia, and we're really glad to welcome them to our team. With the addition of Coffey, they advance us into a leadership position in international development worldwide and they also provide us a platform for future growth in the Asia-Pacific region. With Coffey, we now have a network of 400 offices and 16,000 staff on six continents around the world. Now, I'll provide some additional details on the integration of Coffey and their financial contributions later in this presentation this morning. I'd now like to present our performance by segment. The WEI segment generated 43% of our net revenue from ongoing operations for this past quarter. WEI's margin for the quarter was at 11.2% with good margin performance from our Canadian operations and the U.S. work from our commercial clients. Revenue within WEI was down slightly from last year due to slow ramp-up of our federal work primarily from work that was awarded to us as new orders in the fourth quarter of fiscal year 2015. WEI's federal backlog continues though to increase both sequentially and year-on-year, indicating our federal work and revenue should increase in the coming quarters. The RME segment is slightly larger and generated 57% of our net revenues in the first quarter. RME delivered solid 10.9% margin for the quarter with strong performance in waste management and very stable revenue contributions from our oil and gas midstream engineering and pipeline installation work, both in the United States and in Canada. I'd now like to provide an overview of our performance by customer. Work for our U.S. commercial clients was up 8% year-over-year and represented 34% of our ongoing work for the quarter. The growth included trust funded remediation work and environmental restoration activities across a broad based of our commercial customers. Our international net revenues for WEI and RME was up 2% year-over-year and represented 28% of our ongoing revenue. Revenue in Canada, where currently the majority of our international revenues are generated, was quite stable across both the provincial and commercial clients really across the entire country. Our U.S. federal revenues was 26% of our ongoing business, which was down 6% year-over-year due to the timing of project start-ups. As I've just mentioned a few moments ago, I expect our federal word to slowly trend up for the remainder of the fiscal year as we convert backlog into revenue and continue to leverage our strong federal contract capacity that we have on hand right now. I would like to note, and I'll mention this again on the next page for backlog, that our backlog for federal work is up significantly both year-over-year and sequentially especially for selected federal clients at the USAID, Agency for International Development. While the Army is up quite significantly, Air Force and even the Department of Energy is up for us. And the additional client segment, which is primarily our state and local work, it was up 4% year-over-year and it was up 2% sequentially, which is a direct result of the increase in the water and environmental work that we're doing for cities and municipalities all across United States. And this was not in any one state, it was very broad based across the entire country. We had a good first quarter for orders and contract wins in our ongoing business. On a constant currency basis, our WEI and RME segment's backlog is up 5% year-over-year. Now, the backlog growth was driven by a broad base of orders primarily across our public sector clients, especially the U.S. federal government work for international development, which was primarily associated with USAID and the Department of State. Now, we do continue to wind down our RCM segment, which is really the non-core fixed-price construction division. And at the end of the first quarter, we've reduced the remaining backlog down to $53 million, which represents the balance of the work that we have to complete and I expect to have all of that work complete by the end of the calendar year. At this point, I'd like to turn the presentation over to Steve Burdick, our Chief Financial Officer, to present the details of our financials for this past quarter. Steve? Steven M. Burdick - Chief Financial Officer, Treasurer & Executive VP: Thank you, Dan. So, the first quarter saw solid performance from our WEI and RME operations. Both net revenue and EPS fell in line with management's expectations for the quarter. But before I present the GAAP financial results for Q1, I would like to briefly review a reconciliation of our ongoing operations, which Dan just spoke about, and reconcile that to our GAAP financials. As a reminder, our ongoing operations reflect our financial results, excluding RCM results and any one-time charges or benefit. A condense reconciliation of our GAAP financials for ongoing operations is on slide seven of this investor presentation and a full reconciliation of our GAAP results to ongoing operations is included in our earnings press release for the quarter. So, for Q1 2016, revenue for ongoing operations totaled about $540 million and net revenue totaled about $440 million. Including RCM, our revenue was $561 million and our net revenue was $421 million. Operating income for ongoing operations was about $39 million. This improvement in operating income resulted in an ongoing EPS of about $0.42. So, overall, our EPS was impacted by a benefit for, one, an R&D tax credit that was passed in late December; two, an earn-out adjustment; and, three, a net loss in RCM. And so, regarding this net loss in RCM, I want to point out that the RCM losses were for non-cash charges, and these charges were offset by gains on resolution of several claims, where we collected additional moneys from our ultimate clients and this all resulted in RCM contributing about $30 million in cash collections and cash from operations in the quarter. So, now, I'd like to review our GAAP results for the quarter. Gross revenue was $560.7 million compared to about $581 million in the previous quarter. On a constant currency basis, revenue for this quarter totaled about $583 million. The year-over-year decreases in revenue was primarily due to our decision to exit the high-risk, low-margin, fixed-price construction business that Dan talked about in RCM in addition to the adverse foreign exchange rates for the quarter when we compare this year to last year. So, excluding the impact of the foreign currency translation and RCM, revenue for ongoing operations for WEI and RME segments increased about 3% year-over-year. Net revenue totaled $421 million and was $441 million on a constant currency basis. So, excluding this FX, net revenue for ongoing operations was about 2% up year-over-year. Although lower in the first quarter of 2015, our net revenue results where within expectations and guidance for the range that we previously guided to, and this was due to the strength of our U.S. commercial business where growth in solid waste and environmental work resulted in an 8% improvement in net revenue year-over-year as well as our U.S. state and local business where broad-based infrastructure improvement led to about a 4% increase in our net revenue year-over-year. Our operating income was $32.9 million for the quarter, and this compared to $36.6 million from the previous time period. And as we spoke about earlier, for our ongoing operations, operating income was about $39 million, which was about a 1% year-over-year improvement on a constant currency basis. Overall, operating margin was approximately 8.1% and on – and the operating margin for ongoing operations was about 9.4%, roughly consistent with the previous year's time period. Despite a decline in our operating income, our operating margins remain consistent due to the continued wind-down of RCM. And as we talked about, this has improved our cash flows and given us a bit more consistency and predictability in our operating results. I'd also like to briefly note that while we did record a net loss in the RCM for the quarter, we do remain on track to run off the backlog by calendar 2016. Diluted earnings per share was about $0.39 for the first quarter of 2016. And as we spoke about earlier, for our ongoing operations, diluted EPS was about $0.42 per share which was an improvement of about 2% on a year-over-year basis. I think an important aspect of Tetra Tech's solid quarterly performance remains our consistently strong balance sheet and our cash flow, which enables us to grow organically, make acquisitions like Coffey and return capital to our shareholders. So, I'd like to review a few of our key cash flow metrics for the quarter. Cash flow from operations totaled $23.6 million. And as Dan talked about earlier, excluding the cash collected on claims, this was an improvement of about 87% year-over-year. The strong increase in our cash flow resulted in a seven-day improvement in our days' sales outstanding. And as a result, for the trailing twelve months, our cash flow from operations was $181 million and this actually equates to about $3 per share. Compared to a year ago, net debt declined to about $65 million for the quarter. So, we remain fairly unlevered at about 0.4 times net debt to EBITDA, providing us with the opportunity to continue to invest in organic growth and to make certain acquisitions. And looking specifically at our free cash flow, over the last twelve months, we generated approximately $157 million of free cash flow and this was an improvement of 127% compared to the previous trailing twelve months. As such, we were able to return approximately $124 million of capital to our shareholders through both dividends and share buybacks over the past year. And as just discussed, we continue to make progress in lowering our DSO, and our DSO outstanding of 80.7 days is lower from our last year by just over seven days or one full week. So excluding RCM and the claims, our aggregate DSO for our two front-end segments is about 74 days. This has gotten better, but it's still not in line with our expectations and our ultimate goal is to be closer to 70 days for our DSO. I'd like to now take a few moments just to update you all on our capital allocation strategy. So, we continue to focus on maintaining a balanced capital allocation strategy between dividends, share repurchases and acquisitions that deliver value to our shareholders. We have a targeted leverage ratio of about one to two times net debt to EBITDA and our current leverage ratio is about 0.4 times. After the completion of our acquisition of Coffey, our leverage ratio will be about one times net debt to EBITDA. This is at the lower end of our range that we'd like to be in, leaving us significant dry powder to invest both organically in our businesses and in acquisitions, while still having capital available to deliver returns to our shareholders. In fact, we have about another $200 million to $250 million to invest and return to our shareholders and still remain comfortably within our target leverage ratio. So, let me tell you briefly about how we plan to deploy this capital beginning with organic growth. First, we will continue to invest in our ongoing business operations, both WEI and RME, which we saw had a combined 3% revenue growth in the first quarter on a year-over-year basis. And so, to achieve this growth, our CapEx will remain at approximately 1% of our revenues for the year. Next, we will invest in strategic acquisitions and look to acquire market leaders like Coffey that will expand our consulting and engineering capabilities across water, environment, infrastructure, resource management and international development markets. Currently, we have a combined $500 million in cash and credit facility available for acquisitions and let me highlight though that this $500 million is our total capital available, but this is not our total capital available. In fact, that amount is much greater and this is solely based on how much we have on our balance sheet and through our banking relationships today. And last, but certainly not least, we continue to return capital to our shareholders. In the first quarter, we paid $4.7 million in dividends and repurchased $25 million in stock. We have about $75 million in share repurchases available under our stock buyback program and I'd like to announce also that our board of directors recently approved Tetra Tech's eighth consecutive quarterly dividend, which will be paid on February 26. So, just to summarize, Tetra Tech has a solid growth strategy in place and our strong balance sheet position provides us the ability to successfully execute our capital allocation plan and we will continue to update this plan for each in the next couple of quarters. And with that said, I will hand the call back over to Dan to discuss Coffey further as well as review the 2016 outlook and our growth strategy in more detail. Dan? Dan L. Batrack - Chairman, President & Chief Executive Officer: Great. Thanks very much, Steve. We look very carefully for firms that we can add to our team that advance our strategy to be a premier worldwide provider of consulting and engineering services and Coffey International meets this standard and that objective. Coffey officially joined us here at Tetra Tech just 10 days ago, in fact, on January 18, 2016, just this month, and our integration process is already well underway. With over 3,000 staff and an annual revenue of over USD 400 million, their addition to Tetra Tech will increase our revenues by approximately 15% on an annual basis. Now, Coffey is known for two key service areas, international development and geo services or geotechnical engineering, which also includes significant capability in program management and they have an excellent and highly complementary network of offices to our own, especially in Australia and the Asia-Pacific region and even in the United Kingdom. Now, the addition of Coffey advances us into a leading position for delivery of international development services. Coffey also provides us with a network of offices to provide our engineering, and that's Tetra Tech's engineering, and consulting services to clients in the Asia-Pacific region. Coffey's geotechnical expertise is a fundamental requirement in advance of almost every infrastructure planning and design project, and we're very happy to welcome Coffey to Tetra Tech and look forward to a long prosperous future with us. Now, if you're following along on the webcast, I have summarized in the investor presentation the four key markets that we're focused on as a combined company. Our growth plans are targeted to where there are changes taking place in the marketplace such as new regulation, so our new technologies or even new investments by our clients, and these are markets where our lead with science approach differentiates us and provides us with projects that have a much higher margin and overall lower risk. Water and environment are markets where we're already well established. And together with Coffey, we can leverage our presence and position in the Asia-Pacific region to cross-sell Tetra Tech's differentiated water and environmental services. Extreme weather conditions worldwide from droughts to floods are providing additional opportunities for a much more flexible smart water management solution to these issues. And while Tetra Tech has some of the world's leading modeling, consulting and engineering experts, we're going to be looking to add big data and IT capabilities into the company to offer a more fully integrated solution to this rapidly growing market. And in oil and gas, we continue to focus on our successful midstream strategy in the United States and Canada during this period of low oil prices. We're also going to be increasing our services to support early investigation and feasibility studies for LNG terminals, and Coffey brings us additional expertise in these LNG terminals particularly with respect to their foundations and their long term relationships with clients in this market sector. Now, the international development market presents us new opportunities that combine our strengths and client relationships, and I'd like to discuss how we're going to approach this in a bit more detail now. International development is actually an excellent market for us, where we can provide our differentiated services for water, infrastructure and environment and helping communities adapt to prepare for climate change. We're in an excellent position now with three major funding agencies in international development, and that's the U.S. with the United States Agency for International Development, the United Kingdom and Australia, and this is an excellent timing for us to expand our services in this area as developing countries all around the world are challenged by extreme weather, changing economic conditions and looming concerns over climate change. So, for example, climate change is a big emerging concern especially for low-lying island communities through the Asia-Pacific region, where they're being impacted by sea level rise and concern over sustainability of their coral reef ecosystems. There are also concerns in the developing world over changing weather patterns that are impacting their fragile agricultural economies. And for us, we provide support across a complete range of services, such as infrastructure, to provide clean safe water supplies and adaptation studies to identify alternative crops. For example, we're working with United States to assess strategies for climate change adaptation in West Africa. We're currently providing support for governance such as the Jordan Rule of Law contract that's helping them develop the administrative infrastructure needed to provide reliable water and energy services. And with the addition of Coffey, we also now have even broader suite of services that for the first time for Tetra Tech will include health and education. Together with Coffey, we believe we can leverage the over $4 billion in contract capacities that we have for agencies like USAID, the contracts in the UK and Australia and win new task orders that can actually make a difference not only to our balance sheet, but difference in the lives of the communities all around the world. I'd now like to present our guidance for the second quarter and for all of fiscal year 2016. And I will note that, as I provide these updated numbers, that we moved up our guidance to recognize the addition of Coffey for the eight months that they'll be with us in fiscal year 2016. And just as a note, these increases in both net revenue for the year and for earnings per share are associated and related to Coffey. Our underlying performance at Tetra Tech remains in line with the forecast that we've provided entering this year. So, for the second quarter of fiscal year 2016, our net revenue range in U.S. dollars is $425 million to $475 million with associated diluted earnings per share of $0.33 to $0.38. For the entire year, fiscal year 2016, our guidance is a range of $1.8 billion to $2 billion with an associated diluted earnings per share of $1.75 to $1.95, and we do provide a guidance for cash earnings per share for the entire year. We don't do that per quarter because timing of cash receipts can be highly variable. But for the entire year, cash earnings per share is from $2.70 to $3 per share. I do want to spend just a moment on some of these assumptions because we have added a few new underlying assumptions to our guidance, and I want to make sure they're quite clear. The assumptions for our guidance for fiscal year 2016 does include Coffey's revenue and contribution to earnings for eight months. We do anticipate that there will be some annual synergies that we will recognize from the combination of Coffey into Tetra Tech. We do estimate those at $10 million per year on an ongoing basis, and we expect that that will be fully recognized at the beginning of 2017. And so, we've not incorporated that synergy contributions into any component of 2016. We did incur and will incur expenses both for transaction fees and integration costs, and our guidance does exclude Coffey transaction and integration expenses of approximately $15 million. That $15 million is comprised of just slightly over half of that in transaction costs that should be incurred in the second quarter. As I had mentioned in my prepared remarks, we have initiated integration process already. We expect the component of the remaining amount will be in Q2, with the rest of it in Q3 and Q4. But the total amount, both transaction and integration cost, is estimated to be $15 million, which will result in an ongoing savings of $10 million per year on a forward basis. We have updated our intangible amortization to $19 million or $0.22 per share on a full year basis and that does include the intangible amortization associated with the Coffey acquisition, so it has been increased. For the entire year, we anticipate we'll have a 32% effective tax rate. We do anticipate we'll be at about $59.5 million average diluted shares outstanding, and this has been moving around a bit, foreign exchange. But our guidance does anticipate and is based on the current exchange rate that we have with the countries that we're currently active in and most noteworthy, that will be Canada and Australia. So, in summary, our WEI and RME units, which represent our ongoing operations had solid performance in the first quarter and delivered results in line with our own management's expectation for the first quarter. We had strong cash flow and an excellent balance sheet that enabled us to return $30 million to our shareholders in buybacks and share buybacks and dividends during just this past quarter. And with the recent addition of Coffey, we've increased our fiscal year 2016 net revenue and EPS guidance. And with that, I think we're off to a very good start to 2016. And I'd like to open up the call for questions. Operator, Tia, if you could open up to questions, we'd be happy to take our callers.

The first question will come from Tahira Afzal with KeyBanc Capital Markets.

Good morning, gentlemen. Dan L. Batrack - Chairman, President & Chief Executive Officer: Good morning, Tahira.

Congrats on the good quarter. Dan L. Batrack - Chairman, President & Chief Executive Officer: Thank you.

So, the first question I had was, it seems like, thankfully, federal activity is picking up again on the backlog side. Nevertheless, the book-to-bill was 0.9 times. So, would love to get a sense, as I look at your guidance and what you've embedded in it, what you expect from backlog growth for this year. And number two, I'm seeing, if I look at what the activity levels were, clearly, the federal looks strong but something else might not have been, would love to get a sense of that. Dan L. Batrack - Chairman, President & Chief Executive Officer: Yes. The book-to-bill of slightly under 1, I believe, does not take into account foreign exchange, which is a component from Canada. So, it actually has been quite noteworthy to us that the Canadian exchange rate has come down to – in fact, touched just quite below 0.7. And so, it's about a 10% change just in this last quarter almost from it was about 0.8, just slightly under that. And so, I think when you adjust for that and actually take out the RCM amount that we burned off this last quarter, I think we're actually a bit up and in fact what we said is for 5% year-over-year up on our, what I would call, our ongoing business. Now, I will say that we have seen strength, and I mentioned this a few times in our prepared remarks, that the federal is up. The work that we're doing for the federal government are projects that are not for a specific platform or an asset that can be canceled. This is typically environmental consulting work, as cleanup of projects or sites that have regulatory mandates or something that has to proceed. So, it's possible and we have seen this moved to the right, but they can move to the right but not go away. So, I will say that we do have a relatively high confidence that this will convert from backlog to revenue, and I do think that much of that will take place this year on the federal side, so we should see the revenue on the federal side come up. Now, the one area that we've seen also strengthen that is actually reassuring has been on the commercial side and that has included oil and gas. We have seen a continued series of opportunities that have allowed us to keep our backlog relatively stable with oil and gas, which has translated into, I'll call it, stable but flat oil and gas revenues this last quarter. We're well into this year. So, I think, for 2016, notwithstanding some difficulties, the backlog we have in hand should allow us to be stable or flat for the rest of 2016 in oil and gas. I do think that the backlog should grow during the year. Now, we do have $50 million of the RCM, of the construction work, to complete. But if you take that out, I do expect that backlog will be increasing at a great – slightly in excess of the organic growth rates that we have, which is sort of in the 3% to 5% range for 2016.

Got it. That's actually very helpful, Dan. And second question, you did talk a lot about climate change. And obviously, we've just very recently had some very visible world summits that happened. There seemed to be a lot of targets that are being pushed forward to help manage it. But really, looking at it outside of the international component within the U.S., we've seen a lot of flooding, et cetera, and droughts as well. I would love to get your thoughts on, if you look at the opportunities in the U.S. from climate change, what those would be for you as well for the next couple of years. And then, outside of the climate change opportunity, we've been hearing about – I'm sure you have heard as well about the lead poisoning in pipes. Is that an opportunity for you as well, Dan? Dan L. Batrack - Chairman, President & Chief Executive Officer: Well, let me – I'll answer both of those. I'll keep them succinct. With respect to climate change opportunities in the United States, there's no doubt in the drought areas we've had great opportunities with respect to water supply. We were a participant in one of the, sort of, consortium of design firms for desalination plants out here in California. We're doing brand new pilot programs for smart water, which is anticipating flood and snow melt, so it can divert the water into different holding basins and retention reservoirs to recharge the groundwater. Those are actually very promising programs and in areas where there's enormous floods in the Midwest, the work for our levee system designs and actually flood protection is actually is up and we've run a few new programs there. So, I think those are both at sort of the municipal and state level for the most part. There has been a new directive at the Federal Department of Defense, which is to evaluate the different programs for impact to climate change. And so, we're looking very carefully at how that's going to be translated into actual project tasks and planning activities which is right up the alley for us. And we do believe we are the leader with respect to – and this is work done overseas, but contracted here in the U.S. for the State Department and the U.S. Agency for International Development and we are a leader in that, particularly in the marine environment where you have the interaction between the coast and the land, and that's everything from impacts to communities and those are funded by U.S. dollars. So, I think all of those represent incremental upsides for us; it's not replacing, we're taking market share from anyone. These are new programs that don't exist today and I think we're at the forefront of all of those markets. So it's an area we're really excited about here at the company.

Thanks, Dan. Dan L. Batrack - Chairman, President & Chief Executive Officer: Thank you very much, Tahira.

The next question will come from Andy Wittmann with Robert W. Baird. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker): Hi, guys. Good morning. I guess, I wanted to follow up a little bit on Tahira's first question on the backlog. I think in your prepared remarks, Dan, you said the backlog in the public sector is up. You talked about federal. You said the commercial – I think you called it steady overall. You said oil and gas is steady. I think commercial was generally steady. I guess, given that commercial has been the area of relative revenue strength and federal has been the area of relative revenue weakness, do you see that the growth rates in these two businesses will start converging to federal picking up and maybe if the backlog isn't growing in commercial, does that maybe slow down? I'd like to get your thoughts and the outlook for those segments. Dan L. Batrack - Chairman, President & Chief Executive Officer: Well, I think that what we've seen is that the funding, I won't call it habits, but the funding activities of our commercial clients have changed a little bit in this environment. We've actually seen the funding not be for as long a project. So, for instance, some of the larger pipeline projects, in fact, our largest pipeline project, was funded and gives visibility out for, oh, a year and a half to two years, so let's call it two years. We're actually seeing most of the projects are much shorter duration and move to studies, so engineering work, environmental work. So, a decrease in the size of them doesn't necessarily mean a decrease in the amount of work. So, there can be a discontinuity there. You'll do work shorter, quicker, book and burn and – but it'll actually move towards studies which is investigation, assessment, right of way, environmental permitting and actually design and that work typically has higher margin for us, so it is interesting. You can see a lower backlog does not necessarily translate into lower revenues, but it can actually represent higher margin, so it's something that we look at on the commercial side and certainly with all the uncertainty on oil prices, many of the capital projects which are construction, have been impacted quickly but a lot of the study projects have still gone forward, looking more carefully at ways that they can save money or look for alternatives and that's where you use your consultants, engineers and experts to find ways to make your dollars go farther. So, that's on the commercial side. I don't necessarily, at this moment, make a more flat a backlog in commercial mean slowing of either the growth or decreasing in revenues. On the federal side, though, I will say that the method – and I'll repeat for some of the listeners Tetra Tech's definition of backlog. We have to have been awarded a contract, we have to have been given the task order to complete, they have to have funded it and they authorized us to do the work. So, we don't have factored contract capacities in, so the work that we have in here is typically not canceled. In fact, it's extremely rare to have something canceled because we've already been asked to do the work and we're in the field. So, in that case, the federal work, things can slow down slightly because of permits being issued or other small items that typically can be pushed to the right, but not disappear or canceled. So, I do believe that an increase in our federal backlog will convert into an increase in the revenues. And one of the reasons I actually think we saw higher margins in the first quarter than we typically do for our first quarter is what you saw was commercial was up 8% year-over-year and it's a higher margin business work for us. International was up a couple of percent, and that's a higher margin business for us and municipal is slightly higher than federal because federal has lot of cost reimbursable, it's low risk but low margin work. And so, when you change that mix reflecting a lower federal, you'll actually see a higher margin. So, I think that it was quite favorable in the first quarter. You could possibly see where the significant increase in federal margins abate slightly, but you'll have your top line grow and it will over – it will certainly exceed it on a total income basis. So, that's sort of how we see the mix between those two. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker): That's helpful. Is it fair to say that federal and oil and gas are the biggest swing factors in your guidance, Dan? To get to the top end, is it federal that you really need to start getting not only positive, but more materially positive? Dan L. Batrack - Chairman, President & Chief Executive Officer: Yes, I think that's exactly right. So, for – to hit the middle of our guidance, we need federal to move from minus to sort of flat or very modestly up. And to move to the upper end, we need federal to move to be more materially up for the year. And certainly, I think we have the backlog to accomplish that. And then on oil and gas that you mentioned, we're not forecasting any growth, but we need it to remain stable through the rest of the year 2016. And I think we have pretty good visibility on that, but it's the one area that we're most cautious like I believe everybody is underneath (39:58) in the oil and gas sector. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker): Yeah, okay. So, then, just a couple of maybe technical questions here. The $10 million of synergies that you're looking to gather annually from the Coffey integration, just to be clear, was there any benefit that's in your 2016 guidance, or are you saying that full $10 million is excluded from 2016 and really should be seen in 2017? Steven M. Burdick - Chief Financial Officer, Treasurer & Executive VP: I think what we're seeing is that we will see the full benefit in 2017 and some of that benefit in the later part of 2016 as we go through the restructuring and some of the cutting, or the execution. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker): Great. And then – yeah, okay. And then, in terms of the buyback, Steve, it looks like, the last couple of quarters, you've been consistently $25 million and I guess there's three quarters left in the fiscal year, (40:54). Are we – is this kind of the way we should look at it, just kind of averaging in the market for 25 million per quarter? Are you going to try to be more opportunistic? I'm just trying to get a sense about how you guys are thinking about that. Steven M. Burdick - Chief Financial Officer, Treasurer & Executive VP: We don't announce when we're in the market, but we do have – what we've been doing is spending about $25 million a quarter in the last couple of quarters. And our – currently, we have about 59.5 million shares outstanding on a diluted basis for the whole year. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker): Got it. So, the guidance of 59.5 million doesn't assume any more incremental, so that would be upside to your EPS as well if you did execute the final 75 million this year? Steven M. Burdick - Chief Financial Officer, Treasurer & Executive VP: Correct. Dan L. Batrack - Chairman, President & Chief Executive Officer: Yeah. And, Andy, what we've said on buyback just real quick is that we have 200 million over eight quarters, that's your 25 million. So, if you're going to do that over a couple of years, we've – if you look back at we've reported, we've been almost exactly on 25 million. If there's a particular buying point, we can become more opportunistic or aggressive. But we can also – in the event of something that's more material of an acquisition that would tax the upper end of the credit facility, we would look to then adjust the buyback. And so, if the buyback got adjusted down materially or even turned off, you would anticipate that it'd associated with some other acquisition where the funds would be used because our goal is to get well into the range of one to two times. And as Steve indicated, even after Coffey, we've just hit the lower end and the cash generation is quickly going to move it below that again. So, look for the buyback. And if you see it slow down, look for something else that would replace that. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker): Okay. Thanks a lot guys. Dan L. Batrack - Chairman, President & Chief Executive Officer: Thanks, Andy.

The next question will come from Corey Greendale with First Analysis. Dan L. Batrack - Chairman, President & Chief Executive Officer: Hello, Corey.

Corey, your line is open.

I apologize. I had you mute. Sorry about that. So, I just have a few questions about Coffey, primarily. So, first of all, just to kind of benchmark with the new guidance, can you give us some sense of how much net revenue you're including from Coffey in the Q2 net revenue guidance? Steven M. Burdick - Chief Financial Officer, Treasurer & Executive VP: It's about – Corey, it's about $25 million.

Okay. And then, on the synergies, is that all cost? Are you anticipating any revenue synergies in that $10 million and what are the kinds of sources of upside or risk to the synergy target? Steven M. Burdick - Chief Financial Officer, Treasurer & Executive VP: That is all cost side, not revenue side. And by the way, I want to be very clear, it doesn't mean that we don't believe that there are revenue synergies that will drive opportunities. In fact, I covered some of them in the prepared remarks. I think they're quite significant, but we've not factored any of that into that $10 million. It's all on the cost side.

Okay. And sources of potential upside to the $10 million or is that kind of you're pretty confident that's going to be the number? Steven M. Burdick - Chief Financial Officer, Treasurer & Executive VP: Well, I know we're long ways into this. We just hit 10 days yesterday so...

Sure, sure. Steven M. Burdick - Chief Financial Officer, Treasurer & Executive VP: But I think there is opportunity, and I will feel much better about getting into details on the progress and the timing of it here in the next quarter. But that is – I will say that is not a plug number just to be clear, it is not a plug number. We have identified areas where we think that we can save cost and some of those are just classic public filing costs and items that Coffey was for those not familiar – as much familiar with Coffey. They were a publicly traded company, and I will say they are a publicly traded company because we still have about three or four weeks to go before that concludes and we take them off the Australian Exchange. So you do have the classic filing cost, you have some of the management reporting time, some of the other items that are just classically required as part of being a public company. And we'll take that on here, Tetra Tech. So, there is no any reduction anything other than just cost there, so that we actually have a very good number on. But some of the other items, we actually think that outsourced services that they have for IT and other things, I do think that Tetra Tech has one of the best in-house IT systems for platforms, for getting our project managers real-time status on the progress of reports, of their technical performance on their activities and the cost associated with it. So, I think that we can actually deliver more product, more information, quicker information at a much lower price point by joining the Tetra Tech platform. We would look for the Coffey to join our IT, our accounting and our other information platforms fully by the end of the year. Now, we do need to fine tune exactly what that dollar is. So, I would say, Corey, we will be able to give you more details on that $10 million on perhaps some of the components and actually an update on what that looks like here probably on the next call.

Okay. That's really helpful. Thank you. Next question, more broadly because of Coffey, can you just talk about overall exposure to APAC now and given kind of the volatility in that market. Anything we should be thinking about as potentially more at risk over the next several months? Dan L. Batrack - Chairman, President & Chief Executive Officer: Well, Asia-Pacific region, no doubt, is under a lot of stress. No doubt about it. We're cognizant of that, but I think that again for those that are not as familiar on this call with Coffey, let me – we did include it in one of the slides on Coffey. 60% of the revenues are for work for international development and much of that for work that's actually outside that region. So, their single biggest client in their corporation is actually USAID, United States Agency for International Development, and that's outside of the Asia-Pacific region. Another one of their largest clients is DFID which is the UK AID activity and that's outside of that area and then the work that is done for Australian Aid is actually a bit different, has different economic drivers than the commodity-driven component for Asia-Pacific. So, now, that brings you down to about 40% of the business that is much more centric to the Asia-Pacific and we're quickly moving and they themselves have moved to be a bit de-coupled with the commodity component, if you did follow Coffey's restructuring and actions that they've taken internally, they've looked to exit the front end commodity providing high-risk areas where it's not the clients, it's just the marketplace. We're looking those claims when it comes back but they look to shift that work over to municipalities, infrastructure and in fact many countries are actually looking for infrastructure stimulus programs that will help offset some of the decline on the commodity-based impacts that we've seen and that's where we're looking to see Coffey perform better. And in fact, we think that the synergies with Tetra Tech that we can offer the environmental water and other specialty engineering services that can strengthen them at both the competitor and the success that they have in that area. So, the actual impact of what you'd see as a classic Asia-Pacific exposure to engineering is actually much, much less than you might think at a headline level.

That's very helpful. And then, just one last quick one from me which is very clear that you are still potentially inquisitive in your – the lower end of your range on leverage, but how should we be thinking about the potential for large acquisitions (48:40) to digest Coffey and mostly look at smaller or tuck-in kinds of things. How you're thinking about that? Dan L. Batrack - Chairman, President & Chief Executive Officer: Well, I think that there's a great opportunity for tuck-ins. I think that we're going to continue to strengthen that area. I think there are some specialty areas that we're looking to invest in. I think in the previous conference call, I talked about the Internet of things and actually looking for some of the new fast growth areas where some of the water markets are evolving to. We're looking into that area. I mentioned in my prepared remarks and I'd hope it would not be overlooked that we're looking for big data. And some of those that work for large government agencies and IT, so that we can provide a full integrated solution, not just evaluating someone else's data, but actually running that information and managing the data sets for them on very large water data sets across both states, regions and even the entire country. So, those will be tuck-ins, but transformational acquisition of something larger is not off the table. And I will tell you that the work and the teams that we have down in Coffey, we've already deployed them, but we have plenty of additional resources and Steve indicated we have plenty of capital. But more importantly, we have the in-house staff and bandwidth to handle something substantially larger. And if the right opportunity came up that would be right for our customers and right for our investors, you'll see us move forward.

Very helpful. Thank you. Dan L. Batrack - Chairman, President & Chief Executive Officer: Thank you, Corey.

The next question will come from Mike Shlisky from Seaport Global.

Hi, guys. This is Ryan on for Mike. Dan L. Batrack - Chairman, President & Chief Executive Officer: Hello, Ryan.

I guess, just on that big data question, I mean the opportunities you're seeing there is that more for revenue opportunities or would be this technology that would allow you to better service clients and be more competitive? Dan L. Batrack - Chairman, President & Chief Executive Officer: Both, both. I think that we have the opportunity to bring tuck-in acquisitions that would add revenue, and we already have an established position that holds contracts and market positions. But I think there's also those that we're looking that would be market disruptive and actually something that would bring in an opportunity for us to do things differently for the clients both we're working for them now and even add new clients. So, some of things we're looking at for Internet of Things, we're running a number of pilot programs in some of the drought states that would actually on a real-time basis identify melt off or storm water run-off that would actually change valves and move water into storage facilities. That would then recharge it. It would actually take areas that was not just being recharged move it into other areas that could be treated. And so, the contaminates aren't moving into coastal waters, whether or not that's rivers or estuaries or bays. And so, that would be technology driven. A lot of that doesn't exist in the marketplace today. And so, it's something that we're looking at moving into. So, Ryan, both, we're looking for someone who comes on and brings an established market position that already exists and maybe a more mature position on data and then also something that would be disruptive to what exist today.

Okay, great. And then, if I could just go back to Coffey for a second. Could you update us on the bid environment there? What's the backlog? And as we move into February, is that trending up or down at this point? Dan L. Batrack - Chairman, President & Chief Executive Officer: Well, the bid environment is stable. We're going to spend some time with them to get a much better visibility on how that is. Again, I think things are quite, not only stable, but look strong in their international development component, which is more than half of their business. But I will say that the engineering and infrastructure business, even with municipalities and infrastructure activities in Asia-Pacific is very competitive, no doubt about it. So, I think we'll need a little bit more time to give you full detail on that.

Okay, it makes sense. And then the last one from me. Could you update us on the two ongoing segments' margin expectations in your guidance, i.e., is there a really a change from prior guidance there? Are things really progressing as planned? Dan L. Batrack - Chairman, President & Chief Executive Officer: It's still progressing as planned. In fact, I will reiterate a comment on the update of the guidance page that if Coffey had not taken place, we would have left our guidance unchanged. I do want to note that I'm aware that we outperformed our Q1. We're at the high end of our guidance. We were – and so, if you look at it in detail, we're up a few cents. But given the uncertainties just in oil and gas, we would have left our guidance unchanged and we still would have been within the range. So, the increase both from revenue and the $0.05 on top and bottom on EPS is attributable to the contribution from Coffey. And so, otherwise, I would say our business outlook remains generally unchanged from entering the year, and we feel pretty good about our business.

Great. I'll turn it back. Thanks, guys. Dan L. Batrack - Chairman, President & Chief Executive Officer: Great. Thank you, Ryan.

Our final question will come from Noelle Dilts with Stifel. Noelle Dilts - Stifel, Nicolaus & Co., Inc.: Hi. Dan and Steve, good morning. Dan L. Batrack - Chairman, President & Chief Executive Officer: Good morning, Noelle. Noelle Dilts - Stifel, Nicolaus & Co., Inc.: I know we've spoken about Coffey integration quite a bit. But I just wanted to circle back to that one more time. And I have two, I guess, slightly more detailed questions. So, if you take the $0.05 that you're guiding to this year, annualize it, you're looking about $0.08. And then, if you took the $10 million and said it was entirely incremental, you're getting to about $0.20 of accretion next year. So, first would be, if you – first question would be if you can give us just a little bit more detail on how much of that will be incremental next year. And then my second question is I think Coffey was going through as you talked about some restructuring. Have you included the cost of that restructuring in the assumed accretion this year, so some of that will be rolling off next year? If you could just extend on those two points that will be great? Dan L. Batrack - Chairman, President & Chief Executive Officer: Well, I'll take a first shot at that, and then I'll let Steve get to the detailed answers on some of the other financial components of it. But you're right, if you say $0.05 this year, you take a look at next year add another $0.10, you end up at $0.15. If you did it on annualized, you get to $0.18. So, I would say $0.18; I guess if you want to round it up to $0.20, is probably about right, that's right. So, we do think that's sort of range at which it will be contributing, although I want to be very clear, we're not providing 2017 guidance yet, but that is the right calculation. Now, with respect to contribution, we did – if you look carefully, we did increase the EPS guidance on a GAAP basis up by $0.05 on the top and bottom, but we did not increase our cash component because the cash is going to be generated, you would say it would be the $0.05 plus the intangible amortization because it's a non-cash charge. So, now, you're up to roughly $0.09 because that was a 4% incremental increase, so let's call it $0.09 or $0.10, it's $9 million or $10 million. That amount of cash we'll be getting in plus the rest of the operating income that will be contributing will offset the charges that we take on a cash basis. So, we think that, overall, on a net basis, the cash contribution will be relatively neutral because the cash generated from Coffey will offset the charges and the amount that we're going to spend as part of both the transaction cost and the integration cost that we'll be implementing. So, I hope that answers your questions with respect to the movement on contribution this year and how that translates into cash and other components. Steve, anything to add? Steven M. Burdick - Chief Financial Officer, Treasurer & Executive VP: Yeah, I think the synergies are really in a couple of different big buckets, one, like what Dan talked about earlier, public company costs, IT, back office and office co-locations, so we are going through that right now. And I think when we complete this quarter and complete a lot of that analysis and at the end of this next year, we'll be able to provide a lot more clarity as to what those specific amounts look like. Noelle Dilts - Stifel, Nicolaus & Co., Inc.: Okay, great. My second question. I was just hoping, given the strength that you talked about in waste management and environmental, if you could just update us kind of on – I know that business is relatively small now, but kind of how you're thinking about the growth potential of that business and if it can be a substantial driver as we move through the (57:38). Steven M. Burdick - Chief Financial Officer, Treasurer & Executive VP: Well, I think that the service solid waste, solid waste, I think, will be a significant driver in our overall growth, but I don't think it's going to be significant in 2016 or early 2017 because the single biggest driver in solid waste that can actually move the needle for the company is primarily in some of the large coal residual or is referred to as combustion coal residuals. That is a regulatory-driven process. It is quite a large market, and we expect it to be at around $20 million or more for initial implementation and – but the timing of the implementation is, with that large of a cost to be incurred, all of the utilities and power generators are taking their appropriate time to evaluate alternatives, do feasibility studies for the solutions that are selected and then move into design and make sure that it's done the most cost effectively. So, if it's a bell curve as to when the largest dollars will be spent, it's back-end loaded. And so, I expect, in 2016, it will be mostly consulting, evaluation, alternative analysis. You'll start doing selection of solutions in 2017 and the real dollars with respect to financial impacts will be once it hits full design and permitting and actual implementation and I think that's later in 2017. So, solid waste will be a contributor. It is a regulatory mandated. There is timelines. We know who has to do it. We know where the coal plants are, and we think we can be the utility and energy providers' lowest and best option for compliance. And actually – but I think that is out a little bit. And on the environmental side, actually, things are going quite well. The difficulty with the oil and gas, the low prices actually is good for some industries. So, you have low fuel prices, low inputs for the different products they serve. So, we are doing quite a bit of work on the environmental side, for upgrades of plants, for environmental compliance, for air, water and actually soil and that would mean double lining and different protection. And then, of course when you build something new quite often, you're closing something old down and that's actually legacy assessment cleanup and that work has been strong. So, I think there are some silver linings on this lower oil prices and a lot of it is manifesting itself in U.S. industrial clients which is commercial. And that's actually been quite good for us. So, I think that's going to continue on a more steady state and kind of on and up and solid waste will contribute meaningfully but probably a little bit later in 2017 and out. Although, it is contributing now, but it's on such a small base. Noelle Dilts - Stifel, Nicolaus & Co., Inc.: Great. Perfect. Thanks.

This will include the Q&A session. I will now turn the conference back over to Dan Batrack to conclude. Dan L. Batrack - Chairman, President & Chief Executive Officer: Great. Well – and thank very much, operator, Tia, and thank you, all, for your questions and interest in Tetra Tech. I very much appreciate your support. And again, I expect and hope some of the Coffey – new additions are listening to this call, and I want to welcome every one of them and look for a great integration with the company. And I look forward to speaking with every one of you next quarter. Have a great day and good bye.

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