Financial Data and Key Metrics Changes - The company achieved record results for revenue, net revenue, operating income, and earnings per share in Q2 2025, with net revenue increasing to $1.1 billion, up $51 million year-over-year, and operating income rising to $130 million, an 11% increase from the prior year [7][8] - Earnings per share for the quarter was $0.33, reflecting an 18% increase from the previous year [8] Business Segment Performance - The Government Services Group (GSG) segment saw a 12% year-over-year revenue increase to $521 million, with a margin of 13.8% [9] - The Commercial International Group (CIG) segment's revenue was $597 million, up approximately 2%, with a margin of 13.2% [10] Market Data and Key Metrics Changes - U.S. Federal client work (excluding USAID) increased by 16% year-over-year, now representing about 20% of total revenues [11] - State and local revenues grew by 44% year-over-year, driven by disaster response activities and ongoing municipal water programs [11][12] - International work represented about 38% of revenues, with slight growth on a constant currency basis, although Australian infrastructure work saw a reduction of over 10% [12] Company Strategy and Industry Competition - The company is focusing on high-end water and environmental projects, which are expected to carry higher margins across all end markets [17] - The addition of the Sage Group enhances the company's capabilities in digital systems and automation, positioning it to capitalize on the growing demand for data centers and smart infrastructure [34][35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the funding streams from the U.S. Department of Defense and noted that the clarity within the DoD has improved, with commitments to spend contracted amounts [70] - The company anticipates continued growth in defense-related services and high-end water treatment projects, driven by increasing demand for infrastructure improvements [27][28] Other Important Information - The updated backlog stands at $4.31 billion, reflecting a solid book-to-bill ratio of 1.1 for the quarter [13] - The company has a new credit facility of $1.5 billion, providing more liquidity and favorable terms for future investments [22] Q&A Session Summary Question: Concerns about federal expenditure reductions affecting state and local business - Management indicated no current signs of pressure on state and local projects, citing strong funding in populous states like Florida and Texas [41][44] Question: Impact of proposed EPA deregulation on the company - Management noted that most of their environmental work is driven by state and local regulations, with minimal direct impact expected from federal regulatory changes [48][52] Question: Core margin progression post-USAID cancellations - Management expects margins to grow slightly faster than the previously targeted 50 basis points annually, indicating a new higher baseline for margins without USAID work [54][56] Question: Visibility and confidence from government partners for future projects - Management reported improved visibility and confidence from federal clients, particularly in defense and FAA projects, with a commitment to funding [66][70] Question: Capital allocation preferences between share buybacks and M&A - Management stated that there is sufficient capital to pursue both share buybacks and strategic acquisitions simultaneously [83]