Tetra Tech(US:TTEK)2022-08-06 19:50Financial Data and Key Metrics Changes - Tetra Tech reported record third quarter revenue, net revenue, operating income, and earnings per share, with net revenue increasing 13% year-over-year from $638 million to $720 million [11][22] - Operating income rose 20% year-over-year to $84 million, reflecting a 70 basis point increase in operating margin [8][23] - Earnings per share reached $1.09, up 15% from $0.95 last year, marking a new all-time high for the third quarter [12][24] Business Line Data and Key Metrics Changes - The Commercial International Group (CIG) segment grew by 19% year-over-year, achieving a margin of 13.8%, up 230 basis points from the prior year [17] - The Government Services Group (GSG) segment grew by 6% with a margin of 13.4%, consistent with the expected range [19] - U.S. commercial net revenue was up 19% year-over-year, contributing to strong growth in environmental permitting and renewable energy services [15] Market Data and Key Metrics Changes - International revenue represented 35% of total revenue, increasing 18% year-over-year, and 26% on a constant currency basis [13] - State and local revenues were up 10%, marking the seventh consecutive quarter of double-digit growth [14] - Federal client work represented 27% of net revenues, up 8% year-over-year, excluding the impact of the Afghanistan wind-down [16] Company Strategy and Development Direction - Tetra Tech's strategy focuses on providing high-end services in water and environmental markets, addressing climate change and increasing resiliency [9][41] - The company is advancing its digital water growth strategy, expecting to double its digital water practice revenue from $150 million in the next three years [35][36] - Recent acquisitions are aimed at enhancing digital capabilities and expanding service offerings [28][70] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the contributions from the Bipartisan Infrastructure Investment and Jobs Act (IIJA) starting in early 2023, alongside other federal funding opportunities [46][51] - There are concerns about slower contract activity due to personnel challenges within government agencies, impacting growth [55][56] - Management anticipates continued growth in federal revenues, despite a slower ramp-up compared to historical trends [58][60] Other Important Information - The company has a strong cash position of over $200 million and a net debt to EBITDA leverage of 0.1x [26] - Tetra Tech has returned $184 million to shareholders through dividends and share buybacks year-to-date [30][29] - The company has a backlog of $3.65 billion, up 12% year-over-year on a constant currency basis [20] Q&A Session Summary Question: Insights on fiscal '23 growth rates and considerations - Management noted positive indications for growth in fiscal '23, particularly from IIJA and other federal funding programs, while acknowledging potential foreign exchange impacts [45][46][54] Question: Impact of slow new award activity on growth - Management confirmed a slight slowdown in contract activity across federal agencies, attributing it to COVID-related personnel challenges [55][56][58] Question: Convergence of GSG and CIG margins - Management indicated that CIG margins are expected to converge with GSG margins without a decline in GSG, with both segments showing strength [62][64] Question: Update on Software-as-a-Service and Platform-as-a-Service offerings - Management highlighted progress in Platform-as-a-Service offerings, with recent acquisitions supporting subscription-based revenue growth [66][70] Question: Details on the $500 million Army Corps of Engineers contract - Management clarified that the contract is new and not a renewal, with initial task orders expected to be funded in Q4 [75][79]