Tetra Tech, Inc. (NASDAQ:TTEK) Q4 2023 Earnings Call Transcript

So we are not associated with those at all. I certainly have had a few incoming calls asking how disruptive is that to our business. And I said, not only is it not disruptive, the experts for Tetra Tech that are running other offshore winds for the same developer that are moving forward have commented to me that this is actually good. They will likely be resold to other developers, if they elect not to move forward themselves and that would actually give us a chance to move forward with them. So in a strange way, this is actually not moving forward with the existing leaseholders give us additional opportunities beyond what we even had today. So we don’t actually see it as a negative. I think I shared with you the current dollar amount that we are doing in this field now and I think the future still looks very promising in this area.

I have always said that it’s not going to be a perfectly smooth downhill road on this. There’s going to be a pothole or a speed bump along the way. I would put these in that category. But the final destination of expanding the renewable or alternative energy generation is without question, where the industry, and frankly, the world is going, and we want to be at the forefront of making that happen.

Unidentified Analyst: Great. Appreciate the answers there and congrats on the quarter.

Dan Batrack: Yeah. Thank you very much, Sam.

Operator: Thank you. Our next question comes from the line of Tate Sullivan with Maxim Group. Please proceed with your question.

Tate Sullivan: Great. Thank you, all. Yeah. Really jumped out the implied number, order amount of $1,665 billion. And Dan, you said earlier that you had new programs across Australia, Canada and U.K., were those international orders a larger portion of those — the total orders for the quarter?

Dan Batrack: They weren’t. They were really — they were stronger than we normally see from those geographies that you just mentioned, Australia, Canada, U.K. But the fourth quarter of our fiscal year aligns with the end of the U.S. Federal Government year and that’s when the final funding where some, say, the final — I don’t want to use the — final topping off of projects takes place. So typically, in the fourth quarter is our biggest order from the U.S. Federal Government and that was definitely the case. So I would say, Q1s, Q2 and Q3 are more representative of other sources. But the fourth quarter is the Federal Government’s truing everything up from what they didn’t spend during the year and that’s what really drove the biggest numbers.

Tate Sullivan: And then did you say earlier still a goal for going forward to have CIG margins move closer to GSG, particularly with the large number of commercial orders that you highlighted on the slide?

Dan Batrack: Well, yes. I think my ambitious goal is and this is to all the Tetra Tech experts and management in the CIG side. I am looking forward to CIG eclipsing GSG. So, but I guess we first got to match and it’s getting closer. I think that the performance in the commercial side has been good and — but I will say that some of the extraordinary contributions such as disasters, some of the emergency work we do regarding very high priorities, can make catching them a little bit more difficult. But notwithstanding these extraordinary revenue contributions that drives very high utilization and positively impacts margins. If you sort of set that aside, maybe in 2024, CIG will catch them. So, yes, we are looking for them to catch and really the commercial side has the potential to be higher than the government side in a robust economic environment.

Tate Sullivan: Thank you, Dan.

Dan Batrack: Thank you, Tate.

Operator: Thank you. Our next question comes from the line of Andrew Wittmann with Baird. Please proceed with your question.

Andrew Wittmann: Great. Thanks for taking my questions this morning. I guess the first couple that I want to ask or just to understand the quarter a little bit better and then talk a little bit more about on the forward look. But just, Dan, I don’t think you commented on the benefit to revenue from the activities you had in Ukraine for the quarter. Recognizing that those can be episodic. Obviously, they were back in the second quarter of 2023 than not in third quarter back here in the fourth quarter. You would probably smart to have that quantified unless I missed that. And then just maybe just because the margins in GSG in the fourth quarter we are obviously very good beyond what we were thinking. Just wondering if there was any award fees, incentive fees that hit in the quarter that are just notable, maybe not individually, but in totality, given that there sometimes are fees paid to you when you get a lot of awards, and obviously, the backlog here this quarter showing that you have a lot of awards.

So if you could just comment on those two things to start off, I think, that would be helpful.

Dan Batrack: Yeah. Those are two great points with respect to things that were sort of standouts or great contributors in our fourth quarter. I will start with Ukraine. Ukraine, we have been doing what I call a — an ongoing assistance level that we had even before the outbreak of the hostilities in Ukraine, which has probably been maybe $10 million a quarter or something like that, but we did an additional $40 million. So I think if you actually looked at Ukraine overall, we are probably just slightly above $50 million in the quarter and $40 million of that, I would call, incrementally higher than what we had anticipated coming in. That was for a lot of humanitarian work and now it is cost plus work. So it is a very low risk to the company.

We don’t carry a big margin in that work for supporting humanitarian work. We do get paid quite quickly and it’s a low risk financially, but it does carry slightly lower margins. So — what was the good thing in the quarter is it did help drive by about $40 million to beat on the top end revenue, Ukraine specifically. Above what we sort of had anticipated at the sort of maintenance level that we are doing, both in Ukraine and we have other areas around the world. But it did contribute to earnings per share, but actually, it kind of moderated the margin that we had in GSG, because that carried lower margins. So it was good. On the revenue side, it was good on EPS, but on margin. So it — there’s two sides to that coin. With respect to margins in the quarter, we did not have a true award fee or any special award from our clients to make up for the great work we have done.