Tetra Tech Q1 FY2026 Earnings Call - 9% FY26 Revenue Midpoint, 80bps Margin Expansion, and M&A Firepower

Diego, Moderator/Operator: Good morning, and thank you for joining the Tetra Tech earnings call. As a reminder, Tetra Tech is also simulcasting this presentation with slides in the Investors section of its website at tetratech.com. This call is being recorded at the request of Tetra Tech, and this broadcast is the copyrighted property of Tetra Tech. Any rebroadcast of this information, in whole or part, without the prior written permission of Tetra Tech, is prohibited. With us today from management are Dan Batrack, Chairman and Chief Executive Officer, Steve Burdick, Chief Financial Officer, and Roger Argus, President and CEO Designate. They will provide a brief overview of the results and will then open up the call for questions. I would like to direct your attention to the Safe Harbor statement in today’s presentation. Today’s discussion contains forward-looking statements about future business and financial expectations.

Actual results may differ significantly from those projected in today’s forward-looking statements due to the various risks and uncertainties, including the risks described in Tetra Tech’s periodic reports filed with the SEC. Except as required by law, Tetra Tech undertakes no obligation to update its 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 Investors 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 like now to turn the call over to Dan Batrack. Please go ahead, Mr. Batrack.

Dan Batrack, Chairman and CEO, Tetra Tech: Thank you very much, Diego, and good morning, and welcome to our fiscal year 2026 first quarter’s earnings conference call. I’m glad to report this morning that we had a very strong first quarter and beginning to our 2026 fiscal year. Now, during this past year, we had many different points to navigate, and this last quarter, we now had a new one, the longest U.S. government shutdown in history. But during all of these challenges, both during this last year and during the first quarter of this year, we’ve remained very focused on the enduring markets of water supply, water treatment, flood control, and environmental stewardship, all of which remain in very high demand. And yes, water is not going out of style. Now, as you’re gonna hear this morning, even with the government shutdown, we grew our revenue 8%.

We expanded our margins by 140 basis points on a GAAP basis. Steve Burdick will talk more about this in a bit. And we improved the quality of our backlog by winning more front-end work and increasing the embedded margins that we have in the new projects that we’ve been awarded just this last quarter. Now, today, Steve Burdick, our Chief Financial Officer, will provide additional details on our financial performance on a full GAAP basis. Roger Argus, Tetra Tech’s President and CEO Designate, will provide an update on our growth markets and market outlook. And with that, I’d now like to share with you an update on our financial performance and business as we both performed in the first quarter and as we see ourselves moving forward into the rest of 2026.

I’ll start with, again, we began 2026 with a strong first quarter, as I just indicated. We had a net revenue of $987 million in the quarter, which is up 8% from the prior year. In the quarter, we generated $131 million in operating income, which is up 12% from the prior year. And finally, our earnings per share was up even more, up 17% from the first quarter of last year, resulted in an adjusted earnings per share of $0.34 for the quarter. And that’s an adjustment down from our GAAP number. Our actual GAAP earnings per share was $0.40 in the quarter, and Steve Burdick will go through a bit more of that in the Chief Financial Officer’s presentation in just a few moments. I would like to present our performance by our segment.

We do have two segments, a Government Services segment and a Commercial and International Group segment. The Government Services Group segment delivered a strong quarter, with margins of 18%, up 40 basis points from last year. In the first quarter, our Government Services group’s net revenue was $382 million, which grew 5% from last year, and that was during a quarter where the U.S. government was shut down for about 6 weeks of that period, or about half of the entire quarter. Our Commercial and International Group segment also delivered a strong first quarter. The Commercial International Group’s revenue was up 10% to $605 million, driven by growth in the United Kingdom and in Ireland, with strong water programs in both geographies and with new digital automation programs in Australia.

Our Commercial International Group’s margin for the first quarter was 13%, which was also up, similar to GSG, up 40 basis points from the prior year. Our Commercial International Groups benefited from strong performance in the United Kingdom, in Canada, and an improving business in our Australian activities. I’d now like to provide an overview of our performance by our end customers.... This quarter, our federal work was up about 7% from the prior year, primarily for work with the U.S. Army Corps of Engineers, designing flood protection structures, upgrades to locks and dams, and design of new inland waterway navigation systems. Overall, our U.S. federal work was about 18% of our overall business in the first quarter.

In the United States, our state and local markets continue to be very strong, with a 10% growth rate driven by municipal water treatment and digital water modernization, especially in the water-stressed regions of Texas, Florida, California, and Colorado, which Roger Argus will speak more to here in just a few moments. Our U.S. commercial work was actually down slightly, but this is pretty much as we expected. It was driven by reductions in renewable energy work this first quarter of 2026, compared to a very strong renewable energy practice that we had a year ago. This reduction in our renewable energy work was partially offset by growth and high voltage transmission in permitting and engineering work that we’re doing here in the U.S.

Our international work was 48% of our overall business or our overall revenues or net revenues, and it grew at a 13% rate during the quarter. International growth included strong increases in the United Kingdom and Ireland, as I’ve mentioned earlier, primarily around the water businesses. We also saw growth in our Canadian infrastructure, our Canadian infrastructure programs, which we see strengthening really all across Canada, and has been one of the strong lights for us, and actually an improving business in our Australia activities, where we’ve actually saw the reductions abate during the first quarter. I’d now like to discuss our backlog, which held steady during a strong revenue quarter that included, as I’ve mentioned a few times, a U.S. federal government shutdown.

Overall, we see the quality of our backlog much higher than before, as measured by the proportion of front-end work that we have embedded in our backlog, which also brings higher embedded margins. As you can imagine, we did see a slowdown in our U.S. federal client orders in the first quarter due to the government shutdown that began on October first and continued for the first six weeks of the fiscal year. Even with the federal government reopening on November twelfth, the startup for the government was still pretty slow because it started up in November, right before Thanksgiving, and continued through the holiday season. So we never saw it fully return to a level that we would have either expected or hoped for.

While new project orders from the U.S. government were slow in the first quarter, new contract awards, task orders, and project startups were very strong from our U.S. state and local clients, commercial clients, international clients, collectively resulting in an overall stable but pretty flat backlog from what we saw from the first quarter of last year. As we look forward, we expect that with more clarity on U.S. federal budgets and appropriations, the pace of U.S. federal orders will increase beginning late in the second quarter and continuing through the second half of our fiscal year. Now, I’d like to turn the presentation over to Steve Burdick, our Chief Financial Officer, to present more details on our financials for the first quarter. Steve?

Steve Burdick, Chief Financial Officer, Tetra Tech: Hey, thank you, Dan. I’d like to now discuss an update of our reported first quarter fiscal 2026 results, working capital, cash flows, and capital allocation. So as Dan just provided in our management analysis, our market-leading focus on front-end consulting and design for water environmental projects are carrying higher margins across all of our end markets. As such, even as the first quarter revenue was down from last year due to the decrease in revenue from our USAID customer and virtually no revenues from hurricane disasters this year compared to last year, our operating income increased significantly and EBITDA on net revenue for the quarter increased by 140 basis points to 14.2% in the first quarter of fiscal 2026.

Now, excluding our USAID and Department of State activities in both periods, then our margin was up about 80 basis points. As a result of our ability to enhance our profit margins, we were able to increase EPS over last year, as the $0.40 reported and the $0.35 as adjusted, came in better due to the outperformance and the growth of our international business. You can find a reconciliation of, with the divestiture and earn-out gains in the appendix of this presentation and in our Reg G reconciliations. Now, regarding our working capital, cash flows generated from operations in the first quarter were $72 million, which represents an improvement of $59 million over fiscal 2025.

Excluding the impacts of USAID and Department of State business, our focus on working capital and cash flows has resulted in our DSO reflecting an industry-leading standard of 51 days, which is the lowest this key metric has been in over 10 years. Now, this lower DSO metric provides significant insight into the core business as it reflects the outstanding work that our project managers lead relative to higher quality projects and highly satisfied clients in our broad portfolio across all of our end markets and geographies. Our net debt amounted to about $565 million, and the net debt on EBITDA was at a leverage of 0.86 times, which is 20% lower as compared to our leverage one year ago.

Now, as we continue to execute on high-quality operating results with increasing margins, operating cash flows, and excessive net income and lower working capital, we will continue to provide higher returns for our shareholders and improve our industry-leading return on capital employed. So for those following along in the presentation, I wanted to share a bit of our recent historical results relative to our net leverage and our current borrowing capacity. As I just reviewed, our strong balance sheet and healthy cash flows, we’ve continued to bring down our leverage from a high point when our net debt stood at over 2x back in the second quarter of 2023 when we acquired RPS.

As of the first quarter of fiscal 2026, our net debt is less than the low end of our target range, and this provides significant room to use our balance sheet for investing in growth and providing for higher returns to shareholders. For example, we could lever up to take on an additional $2 billion in debt capacity for larger acquisitions. With that perspective in mind, I’d like to now present our capital allocation strategy and overview. We have a very strong and healthy balance sheet, and our operating cash flow was over $500 million for the trailing twelve-month period. Our balance sheet and cash flows provide us with significant available liquidity, as we have revised our capital structure in the last year to take advantage of the credit market to support our strategic growth priorities.

Roger will discuss our strategic growth areas later in this presentation, but I do want to point out that we have a significant amount of liquidity available to invest in organic and acquisitive growth priorities in order to take advantage of these key business opportunities. These opportunities include technology and automation, which continue to provide us a dominant position in the market, and for acquisitions of technical leaders focused on defense, such as Halvik in the U.S. and Providence in Australia. Now, regarding our dividend program, I’m pleased to announce that our board of directors approved the quarterly cash dividend, which is a 12% increase year-over-year, to be paid in the second quarter. This is our 47th consecutive quarterly dividend, and the increased dividend is in line with our practice of annual double-digit increases in the amounts paid.

Based on the lower net leverage, we’ve continued our stock buyback program this year, and in the first quarter of 2026, we bought back an additional $50 million. We do have $548 million available from stock buyback plans that have been approved by our board as part of our capital allocation strategy. You know, overall, I’m very pleased to share these really strong results for the start of 2026, which has enabled us to increase shareholder returns. And since the second quarter of fiscal 2023, when we completed the acquisition of RPS, we have increased our annual dividends every quarter and distributed a total of $180 million. We increased our stock buybacks and repurchased a total of $300 million, and we completed several accretive acquisitions, investing a total of $400 million.

We did this all while deleveraging our balance sheet and moving our net debt on EBITDA from more than 2x to less than 1x. I want to thank you all for your support, and I will now hand the call over to Roger to discuss Tetra Tech’s future opportunities for 2026 and beyond.

Roger Argus, President and CEO Designate, Tetra Tech: Thank you, Steve. 85% of Tetra Tech’s business is to provide water and environmental-related services to our government and commercial clients. Today, I’d like to highlight some of the key market drivers for our municipal water and defense business globally. In the U.S., our clients continue to invest in water infrastructure to meet long-term demand and to protect from droughts and contamination. Just last week, New York State announced a $3.75 billion investment in statewide water infrastructure programs. Today, Tetra Tech is providing front-end water services in support of more than $22 billion in water and wastewater capital expenditure programs. Our services begin at the earliest stages of the program with planning, alternatives analysis, digital automation assessment, and progress to first-of-a-kind designs to optimize water supply and wastewater treatment systems.

One of the new emerging growth areas in municipal water is Colorado, where they are facing widespread concerns over water supplies. We are working with our clients in the region to investigate high-end alternatives to transform formerly unusable source water into long-term supplies. Digital automation provides another avenue for increasing efficiency in water delivery. In Texas, we are working with the Coastal Water Authority to optimize water systems that today deliver water to more than 2 million residents in the region. In the U.K., we are seeing a continued ramp-up in water investments and contracts supporting the AMP8 cycle, as well as increased investments in Ireland and the Netherlands. In fact, Irish Water has recently doubled their projected investments to EUR 11.8 billion. The front-end services we provide throughout the region include modernizing water supply systems and protecting water quality....

As noted on the slide, we’ve added new contracts with four U.K. water utilities to provide these services. In the Netherlands, we were awarded a contract to support the Netherlands Rijkswaterstaat framework cooperative agreements in modernizing their critical water management infrastructure. We also provide our clients with software to advance their programs. In the U.S. and internationally, our SeaSoft subscription software is used by water utilities to optimize water systems to protect water quality, and in the U.K., our WaterNet software is widely adopted to manage water systems and reduce leakage, a high priority for water utilities under AMP8. During our last earnings call, I highlighted the increased funding levels for defense in the U.S., U.K., and Australia. These funding increases will be used to expand and modernize defense facilities, including strengthening coastal resiliency and flood protection, as well as expanding port facilities and infrastructure modernization.

We continue to expand our contract capacity for coastal resiliency for programs in the U.S., U.K., and Australia. We were recently selected for a $48 million single award contract as part of the Texas Coastal Protection Program, to help develop what will be one of the largest surge barriers in the world. Other recent awards in the U.S. include contracts with the Army Corps, Baltimore, and Portland Districts, which will be used to support critical coastal infrastructure design, inland waterway upgrades, and port expansions. Just after the quarter, we announced the addition of Halvik, further expanding our high-end consulting services to U.S. defense programs. Their data analytics and AI capabilities will expand our resources to support the optimization of infrastructure facilities and resource management systems. In the U.K., we are seeing increased budgets and expanding programs to address coastal protection and maritime facilities.

Most recently, the UK announced a new GBP 4 billion program to fund the modernization of ports. In Australia, our defense practice has been awarded two new programs. Both of these awards support extensive maritime upgrades and coastal zone management in Western Australia. After the first quarter, we also announced the definitive agreement to acquire Providence, a high-end advisory firm specializing in supporting Australian defense programs. Their advisory services complement our existing advisory and program management expertise and bring us new contract capacity and new clients. In summary, we are very excited about the opportunities these major market drivers and recent acquisitions present. I would now like to provide an overview of our outlook for FY 2026 by customer. Each of our customer sectors have growth drivers directly aligned to Tetra Tech’s strengths. International growth is forecasted to have a 5%-10% rate.

This growth is supported by the water programs in the U.K. and Ireland, as well as high-priority defense spending in the U.K. and Australia. We are also seeing expanding investment in Canadian infrastructure and some improvement in Australian markets, fueled by mining and infrastructure. U.S. commercial is forecasted to grow at a 5%-10% rate, supported by water demand for data centers and advanced manufacturing, and growth in the U.S. power-related advisory, consulting, and engineering services. U.S. state and local is forecasted to grow at 10%-15%, supported by increasing investments by municipalities in water supplies, expansion and upgrades, and new initiatives for digital water automation. U.S. Federal is forecasted to grow at a 5%-10% rate, driven by higher spending and priorities focused on defense and critical water infrastructure.

I would now like to turn the presentation back to Dan to present our increased guidance for the second quarter and FY 2026.

Dan Batrack, Chairman and CEO, Tetra Tech: Thank you very much, Roger. As Roger said, indicated, I’d like to present our guidance for the second quarter and our updated guidance for the entirety of fiscal year 2026. Our guidance is as follows: For the second quarter, our guidance for net revenue is for a range of $975 million-$1.025 billion, with an associated adjusted earnings per share of $0.30-$0.33. For the entire year, our updated and increased guidance for net revenue is for a range of $4.15 billion-$4.3 billion, with an associated adjusted earnings per share of $1.46-$1.56.

I will note, if you’re following along on the webcast, you’ll note on the right portion of the page, this does impute or calculate to the midpoint of the guidance range of a 9% increase in net revenue for the entirety of fiscal year 2026, and an 80 basis point expansion of EBITDA margins for the entirety of the year. Some of the assumptions included in this guidance, both for the quarter, second quarter, and for the entirety of the year, is that it does include intangible amortization of $34 million. It does include depreciation of $25 million for the year. It does include interest expense of $34 million, a tax rate of 27.5%. We do estimate at this time a 263 million average diluted shares outstanding.... As in the past, it does exclude.

This guidance for the second quarter and the year does exclude contributions from future acquisitions, and it does include Providence, that was just mentioned by Roger. We have signed a definitive agreement, and we do anticipate it will close toward the end of the second quarter, and we’ll update our guidance as we move forward. I will note, and you’ll see it in the reconciliation tables referenced by our Chief Financial Officer, that this guidance does include the impact from the current disposition, and less any gain on the sale. With that, I’d like to move to close our prepared remarks with stating in summary, we had a really good first quarter and an excellent beginning to our 2026 fiscal year.

Tetra Tech’s high-end consulting for water and environmental services continues to have strong demand and resilience through this rapidly changing geopolitical and economic landscape that we have today. Our leading with science approach to addressing water and environment priorities is well aligned with the long-term demand here in the United States and really all around the globe and internationally. With our strong balance sheet, which I think Steve did a great job of presenting today, Tetra Tech is in an excellent financial position to invest in acquisitions to further advance our strategies and to move us, and to continue moving our leadership in the industries that we’re competing. With that, Diego, I’d like to open the call up for questions.

Diego, Moderator/Operator: Thank you. The question and answer session will begin now. Please be aware that there will be a 30-second pause in our webcast to allow for buffering. At this time, audio participants are invited to submit their questions. Please remember to mute the audio function on your computer before you speak. If you are using a speakerphone, please pick up the handset before pressing any numbers. If you would like to ask a question, press star one on your touch-tone phone. The first question comes from Tim Mulrooney with William Blair. Please state your question.

Tim Mulrooney, Analyst, William Blair: Dan, Roger, and Steve, good morning.

Dan Batrack, Chairman and CEO, Tetra Tech: Good morning.

Tim Mulrooney, Analyst, William Blair: I wanted to ask about your federal business first. You know, it looks like it grew 7%, excluding the Department of State work. Pretty good, I think, considering the government shutdown and, kind of, right in line with what you’re targeting for the year. So I was curious if you could just talk a little, little bit more detail about some of the areas where you are seeing strength, that that’s helping drive that performance.

Dan Batrack, Chairman and CEO, Tetra Tech: That’s a good question. I would say that was an area that we were extremely focused on coming into our first quarter. Maybe as I to describe the first quarter, maybe I’ll just reflect just a little bit. Notice that in, you may have noticed in fiscal year 2025, we had an entire series of very large wins with the U.S. Army Corps of Engineers. In fact, I think we had something in the order of 1-2 dozen very large awards that actually saw task orders come out late in 2025, so the months of August and September, and they really continued through our first quarter, which was October, November, and even December. We did see the shutdown or the likelihood of it coming into the quarter with the U.S. federal government.

It was somewhat telegraphed or indicated that that was a possibility. So we worked very closely with our clients, particularly with the Department of Defense, the US Army Corps of Engineers, to have task orders and projects put in place that would carry us through the first quarter. And we felt that was successful for, I would say, a little over 30 days. We were really unimpacted through really most of our programs, but I’d say most notably, we did a good job with our clients, anticipating authorizations that would carry us through the first quarter. So what sustained that 70% growth was, one, advanced planning.

We have seen a shutdown a time or two in the past, and too, working very closely with our clients to have critical programs that really would save the government a lot of expense without having to go through a demobilization and restart-ups. So it was actually financially in the best interest of our clients and actually supported that 7% growth through the first quarter. But the primary driver was through the U.S. Army Corps of Engineers, which has now become the company’s largest client. And of course, that shows up in U.S. Federal, and that was really the underpinning for the 7% growth in the quarter.

Tim Mulrooney, Analyst, William Blair: That’s good extra color. Thank you, Dan. I assume many of those programs will be ongoing throughout fiscal 2026. But I do actually just want to pivot to your international business, which continues to accelerate. It’s obviously very strong this quarter. I know you touched on it in your prepared remarks, but I was hoping you could walk through each of your three main geographies. And just talk about where you’re seeing traction. I mean, how much of that growth is being driven by strength in the UK versus maybe getting more traction in Canada or seeing more of a stronger recovery in Australia? Just any detail there. Thank you.

Dan Batrack, Chairman and CEO, Tetra Tech: Well, I’m going to ask for the three of the three primary international markets for us, because that is how we look at it here at Tetra Tech. The area that has been the strongest, going back for more than the last year and a half, has been the United Kingdom, and we traditionally have said the European Union, but really it’s been primarily Ireland. So I’ll call it the UK and Ireland. Those programs have been very strong for us. Growth has been well into double digits. It’s what’s driven the numbers in the past. In fact, I have made comments when you’ve seen our international growth at 5, 6, 7%.

My comments have been, the UK and Ireland are being underrepresented or unrecognized to the public with respect to their contributions, because they’ve been well into the double digits, and they continue to be. And of course, you’ve heard in my prepared remarks, I think, I hope I didn’t say it too many times, I’ve driven by large water programs. Roger spoke of them, I’ve spoke of them, and it’s certainly been a common theme now for many quarters. So, those two are double-digit. We have great visibility, good backlog, and they’re really, in many instances, first-of-a-kind programs for the priority and the asset management program or the AMP 8 program in the UK and similar programs in Ireland.

So I would say if you, that’s the, let me just say, that’s the hot, or that’s the, the biggest up driving it. But Canada has actually done quite well for us. There was a little bit of a, and I don’t want to call it a stumble, but a little bit of a pause during the roughly a year ago, during the initial tariff discussions between the U.S. and Canada that caused, I would say, a fair amount of disruption. In Canada, we saw those growth rates come down to sort of middle to just slightly below that growth. Still growing, still quite profitable, but I’m very impressed with what Canada’s done with respect to responding for alternative trading, continuing negotiating with the U.S., and investing a very large committed amount for infrastructure to commit to ports, harbors.

I’ve seen recently, there’s a significant investment, coming out of the, Canadian, government, both for their defense and civil agencies across the Arctic. Of course, Greenland being in the topic, you know, over the past few months, has taken much more discussion with respect to national security of North America, and much of it’s being, going to be directed toward that area, which is the entire Arctic, interface on the coastal area, where we have a very large presence, and we’ve actually seen some early, planning work coming out of that. So that’s been, I would say, contributing well. It’s sort of in the middle to upper, single digits, not quite where, the UK and Ireland are, but I would say, very strong in the upper end of the range that we’ve established.

Australia, you’ve heard words we’re using like recovery, strengthening. I will say that it’s been difficult, and not just for Tetra Tech. I’ve looked at other consulting and engineering firms, and it’s been, you know, their own challenges across the Australian and New Zealand activities. I would say a year ago, we were looking at sort of a -15% type numbers. So it was really offsetting a lot of the strength in the UK, Ireland, and even a bit of Canada. We’ve seen that, as predicted, it actually come back. Now, I wouldn’t say we’re in a growth mode there yet, but going from -15 to zero, being flat feels pretty good. Now, we may not be in the sunshine yet, but we’re headed there.

But when you go from -15 to 0, one, I like the trend, it’s headed the right way, and two, it’s now actually not a headwind. And so if you take those altogether, that’s what, where we put for the quarter. I think we’re going to see a similar and improving performance out of Australia. I expect Canada is going to stay where it’s at and maybe improve a bit more. And we don’t have an expectation that we’re gonna be running, I’m not gonna call it red-hot, but at really high levels out of the UK and Ireland, because these much higher performance numbers will annualize, and you’ll still see nice growth.

But, it should put us in a good position for performing well within that 5-10 growth rates that we forecasted, that Roger presented just a few moments ago for international. I hope that’s not too much detail, Tim.

Tim Mulrooney, Analyst, William Blair: No, Dan, I could talk to you all day about this. I want more detail. I want to learn more about what’s happening in Canada. That sounds like a lot of exciting opportunities. I mean, I guess in the Arctic, is that - what kind of work would you be doing there? Is that, like, work around the ports and harbors and export terminals, or what kind of... Sorry, I know this is the third question. I’m only supposed to ask two, but I’m just very curious.

Dan Batrack, Chairman and CEO, Tetra Tech: Yeah, I’ll just make a comment. I’ve said this before. I have to go back a few years in my career. My first year working with Tetra Tech, I worked in the Arctic. That was my first two years as an employee of Tetra Tech. I was-

Tim Mulrooney, Analyst, William Blair: Right.

Dan Batrack, Chairman and CEO, Tetra Tech: Mostly on the Alaska Arctic, but it went over to the Canadian, as far as Tuktoyaktuk. But there are no ports and harbors for navigable waterways, for refueling or anything across the Arctic, anywhere. Now, you can go ashore a little bit in a skiff or something, but this will actually be planning winter roads that will go up to the north coast. By the way, the Ice Road Truckers, a television series, which highlights Tetra Tech’s ice road clearance work. That’s the work we do on geotech work. So if you see very closely some of those sleds, you’ll see Tetra Tech or our field divisions logos there.

So this will be providing access roads up to the north and then building out ports and harbors and infrastructure facilities to allow navigational support across the Canadian and Alaskan Arctic. That’s the type of work we’ll be doing. It’s not just for civil, of course, it’s for trading routes, but it’s also become, if you listen to the news recently, concerns regarding threats in the Arctic regarding naval facilities. So all of a sudden, even in the last 30 days, we’ve seen Canadians put more priority on defense facilities across the Arctic. Other than the defense early warning systems, the early DEW line sites, there’s nothing up there, and that was all airlift in. So all of this build-out, I think, is dead center for Tetra Tech and has left me pretty bullish on Canada.

Tim Mulrooney, Analyst, William Blair: Sounds like some very interesting opportunities. Thank you for all the detail.

Dan Batrack, Chairman and CEO, Tetra Tech: Yeah. Okay, thanks, Tim.

Diego, Moderator/Operator: Thank you, and your next question comes from Sabahat Khan with RBC Capital Markets. Please state your question.

Sabahat Khan, Analyst, RBC Capital Markets: Great. Thanks, and good morning. Maybe just taking that commentary you just shared on the setup across the various regions, and, you know, how have you re-reflected the range of potential outcomes within your guidance? It sounds like, you know, at the very least, some of the markets are stabilizing, others might be accelerating. But just, you know, if you think about the range you’ve provided for full-year revenue and earnings, you know, what have you reflected in the, those assumptions across the range? Maybe just to bring all that together. Thanks.

Dan Batrack, Chairman and CEO, Tetra Tech: Well, I would say midpoint, which I’m pleased to say is at the 9% that you saw on the revenue growth, would assume roughly the midpoints of the growth rates that Roger presented in each of our key core clients and markets. So, and I think that’s about what we see. Now, what would take us to the low end? ’Cause obviously, our guidance isn’t a single point, it’s a range. But we’ve not in-- what we, it would be embedded in the low point. What could cause it to be at the low end of that? Well, I regret to say that it’s still possible we’ll have a shutdown here within the next few days, we still don’t have a bill passed.

Although I will say, our guidance has contemplated it. It’s certainly less than our range in Q2, as I speak to you today, that if there’s a shutdown, it would take us to the lower end. I think the shutdown, if it does happen, will only be a partial shutdown. I’m pleased to say in the past few weeks, we’ve actually had appropriation signed off on a number of areas. So even though it’s been impacted materially, EPA has been funded on out through the year. A number of others have been funded out through the year. The ones that have not been funded are defense and a few others, and we think that if there’s a shutdown, it would only be partial.

Much of the partial is not even for areas that we work in, so Homeland Security and others are really not affected by our client set. The areas we do do for work for defense are often considered essential services, and so even if they do shut down, we’ll still remain at our posts and at work. But nevertheless, I would say, and things that would take us to the low end could be a shutdown or any other major disruption from this administration, whether it’s a shutdown or I’d say continued significant volatility in things like tariffs or trading, or things that actually are causing slowdown to decisions, even on the commercial.

We see little impact on our state and local with respect to these federal activities and little on international, but still, that represents the low end. On the high end, it would be if we could have some bipartisan support. Now, I know that may seem like a, like a trip to Mars tomorrow, but, but, hey, it’s, it is what we’re hoping for, it is what we’re expecting. And any type of bipartisan support on any of these large clients would put us, I think, toward the, toward the upper end. I think that would help accelerate our commercial work with respect to reshoring. I think it would help certainly with visibility that we expect coming in the year for a federal government. State and local, I expect to continue.

And by the way, state and local has actually been funded from the federal government at a relatively full level. I know it’s been an area of speculation and discussion that federal funding to state and local would be minimized or otherwise reduced. We’ve not seen that. In fact, it’s really come out at a full level. And so, and that includes state revolving funding, includes WIFIA, the water infrastructure funding avenue. So, any of those pickups, I think, would take us to the high end. And while we’re not counting on it, we do have... I don’t want to use it to call it a wild card, but we do have a card in our hand that continues to see funding.

It was one of the items that drove us well over the top end of our own guidance, which is funding on U.S. State Department work, and that specifically means Ukraine. It is possible that that could actually see more work on the power engineering side, which is what we do there, and that could actually take it and drive it to the upper end or even higher.

Sabahat Khan, Analyst, RBC Capital Markets: Great. Thanks very much for that color. And then there was a bit of discussion on this call and your slide deck about the balance sheet capacity, the focus on M&A. If you can maybe just talk about whether there’s maybe a bit more of a enhanced focus on the inorganic opportunities. Is your sort of new role that you’re transitioning to, maybe a bit focused on that? Maybe just talk us through the, the views on M&A type and size of assets you might be interested in, you know, your potential involvement on sort of the strategic stuff, and the role that you’re transitioning to. Thanks so much.

Dan Batrack, Chairman and CEO, Tetra Tech: Yeah, that’s a good question, Sabahat. So, Steve has generated a bank account for me, the checkbook. And, I will say, this will be the last call that I’ll be presenting as the Chief Executive Officer, CEO, responsible for day-to-day operations of the company and strategy and vision and direction. I personally want to make just a brief comment on this, through my journey starting here as a field technician and field engineer to my role today, I’ve never felt that as a chore or an obligation to work on the details of the project. Frankly, that’s my first love.

If I can go out on a project site or meet with a client, I still call and talk to individuals on a daily basis, and will continue to do that up until February 19th, our shareholders meeting. But I will say that that level of extreme detail in the day-to-day operations of the company, I am transitioning to Roger. And Roger has been doing much of that for a while now, and what I’m hoping to do then is through my tenure in this role, which is now in its 21st year, I actually do have a lot of colleagues and friends in the industry, from teaming partners and competitors, and even individuals that grew up in similar positions as I did, that are now CEOs and chairmen of other key companies.

I hold many of them in the highest regard, and I actually would like to spend more of my time on what I would consider needle-moving. I’m trying not to use the word big game hunting, because it’s not a predatory move, but how we can actually partner with some of our biggest peers out in the market to change the market by them joining Tetra Tech. And finding combinations that are good under strategy, that will help transform this industry, that will make Tetra Tech and our partners better than ever, and actually set a new high bar that nobody’s envisioned yet. And that’s what I’m gonna focus my time on. And Steve’s establishment of. By the way, the $2 billion is what we can go essentially get tomorrow with just within our revolver.

The actual ceiling is substantially higher if you begin considering access to equity and other financing means that are available to Tetra Tech. And so, I wanna spend my time actually more on vision and direction and combinations with other partners out there that will help transform this industry. And, that’s where I’m excited about it. I haven’t had as much time to spend in that area as I think I could or should have. Nobody does everything perfect all the time, and I would think that acquisitions that have made a difference for Tetra Tech, like Coffey and White, Young, Green, WYG and RPS, I would hope would only be the beginning of what we can see in our future.

Sabahat Khan, Analyst, RBC Capital Markets: Great. Thanks very much for that, and best of luck.

Dan Batrack, Chairman and CEO, Tetra Tech: Hey, thanks, Alfred.

Diego, Moderator/Operator: Your next question comes from Sangita Jain with KeyBanc Capital Markets. Please state your question.

Sangita Jain, Analyst, KeyBanc Capital Markets: Hi, good morning. Thank you for taking my question. So Dan, I have to follow up on that M&A discussion that you just had. As Steve pointed out, you’ve rarely ever gone above, like, two turns, even with RPS, so four seems very high. I just wanna understand what type of opportunity would make you feel comfortable going that high, and are we thinking a single opportunity that’s $2 billion or a sequence of such transactions that takes you up to four times?

Dan Batrack, Chairman and CEO, Tetra Tech: Well, I think it could be either, although I would say generally speaking, I anticipate something that would take us up to the 4, a leverage of 4, would be for something that is larger and actually required more of a, you know, more capital available. I will say that if you begin thinking about 2, you know, it is interesting, most of the opportunities that we’ve identified are sourced through our Tetra Tech teaming partners, subcontractors, JV partners, and, I think that we have well within the 1-2, the ability to continue, with the bolt-ons that we’ve been doing.

So we’ve targeted, Steve, specifically targeted in our investor day of May of 2024, a 4%-5% revenue contribution, which we can do that through M&A and really stay at a 1% or even below. I think we’ve talked about because of the USAID removal from our portfolio, again, not because of anything we’ve done, but we could take that number and move it up to essentially double that, up to 6, 7, even 8%. And, and still be within the 1-2. What I’m talking about, what we’re talking about is something that would be strategic and actually help change the direction and frankly, valuation for our shareholders.

I would expect it to be accretive, and anytime we would get anywhere toward the upper end of four, I think you would see it very similar to Steve’s chart during the prepared remarks, that we’d deleverage quite quickly. So it’s not a new location that we would reside for very long, but it is something we could do very easily with almost no time expended in that. Whereas if you’re talking about a lower leverage, now you’re talking about, which seems to be pretty common in the industry, but not with Tetra Tech. We haven’t diluted our shareholders at all. We’ve done many, many different acquisitions, including those ones up toward $1 billion in annual revenue, and not issued any equity or diluted our shareholders, and we’ve brought the leverage down.

So, I would expect, the scenario that Steve had outlined in his presentation is simply how we would use cash, which is the lowest cost of capital for our shareholders, particularly at the interest rates that exist today. So, no, it’s not turning up a lot more small ones. I think the small ones will continue as you’ve seen. And I’m glad to, I’m glad to report that since our last investor call, which was. Well, I don’t know, just a little over 60 days ago, because the last call was the end of our fiscal year, so it wasn’t really that long ago. We’ve announced two acquisitions, and I think some have asked: "Well, do you actually have anything in play?" And we said, "Well, we’ll announce them when they’re there." But I’m glad to announce Halvik has 600 people.

We’ve got Providence at just over 100 people. And so those fit right in our numbers that we’ve talked about, between 100 and 1,000 people, and expect that type of cadence to continue. But that is not what’s gonna drive us up to the 4. It would be something more material. And I, I don’t wanna go so far as to say transformational, but I’ll use the word something more material.

Sangita Jain, Analyst, KeyBanc Capital Markets: Got it. Helpful. And then on the Halvik and Providence acquisitions, on your cash flow statement, I see that you also divested some assets. So I just kinda wanna understand what you sold, and if there was any revenue associated with that sale, and what’s the purchase price for those two transactions? Okay, thank you.

Steve Burdick, Chief Financial Officer, Tetra Tech: Yeah. So in the first quarter, as we announced back in, you know, in the fourth quarter, we held for sale or we had for sale our Norway operation that came to us with the RPS acquisition. And we determined that it was non-core and really didn’t fit with the rest of Tetra Tech in any meaningful way. So we sold our Norway operation in, you know, early December, and that’s what you see in terms of what’s sitting on the cash flow statement.

Dan Batrack, Chairman and CEO, Tetra Tech: Yeah, just make one comment on that, Sangita. As we see it, that was closed right before Christmas.

Sangita Jain, Analyst, KeyBanc Capital Markets: Uh-huh.

Dan Batrack, Chairman and CEO, Tetra Tech: I’ll also make a note that our backlog that you saw was down 1.8% year-over-year, also included our taking out the backlog that was included in the Norway operation. So, it’s not all apples and apples. That reduction wasn’t, if you actually added that in for a fair comparison from a year ago, because our Norway operation was included in it last year. So but the... If you take a look at what Halvik, which came in in January, mid to late January, and you take a look at the Norwegian operations with respect to, did it contribute revenue? Yes, and in fact, the annual numbers are pretty close. So we see that the withdrawal of our Norwegian operation and the put of Halvik roughly offset each other.

Don’t add too much into our consensus number for Halvik, because we do have the offset for Norway.

Sangita Jain, Analyst, KeyBanc Capital Markets: Got it. Thank you. Thank you, Dan.

Dan Batrack, Chairman and CEO, Tetra Tech: You’re welcome, Sangita. Thanks.

Diego, Moderator/Operator: Your next question comes from Andrew Wittmann with Baird. Please state your question.

Andrew Wittmann, Analyst, Baird: Okay, great. Thanks. Roger, congratulations on the promotion, and Dan, excuse me, it’s been a pleasure. I know you’re not going far, but since we won’t have you on this call, you will be missed. So, my question, I guess, is a clarification, just kind of building off the last question. My first impression here was that your guidance on an organic basis was largely unchanged. My thought was that, you know, and you know, you beat the quarter, you beat the revenue guidance, you beat the EPS guidance, and it kind of felt like you passed that through to the year. But the balance of the year kind of felt unchanged. That was my original assessment.

I don’t know if that’s right or wrong, so I was hoping you could address that. I thought, you know, the Halvik acquisition was explained most of the revenue delta beyond the beats in the quarter. But maybe, Steve, you want to address that one, and if I’m wrong here, please do clarify. Any other contributors to the or the significance of the contributor of Ukraine would also be interesting to know, at least its impact on the quarter and how you’re thinking about that in your consideration for guidance.

Steve Burdick, Chief Financial Officer, Tetra Tech: Yeah, you got that about right, Andy. It’s... Our revised guidance for the year, which, you know, increased in terms of net revenue and EPS, did take into account our Q1 beat, and that’s the adjusted EPS, not the $0.40 with the, you know, the one-time gains from the sale and other stuff. So, the, you know, the net revenue does reflect our Q1 beat, and as Dan talked about, some of that came from, you know, more USAID work, but also from, you know, more from our international business.

And then on a go-forward basis, we did account for a little bit of that increase from Halvik a little bit, but as Dan also discussed, you know, we, we had a disposition that, that took our net revenue down a little bit from the sale of our Norway operation. So, so, you know, I, I think what you see in terms of our guidance for net revenue and EPS is higher than what we originally came out with. And but within that range, pretty much encompasses a lot of the things that Dan was talking about earlier, and, and in this Q&A with some of the different puts and takes that we’re, we still need to consider for the rest of this year.

Andrew Wittmann, Analyst, Baird: Okay, great. Then just for my follow-up, I wanted to ask about the opportunities in really three submarkets, so one question, three parts. But these are all topical areas that I think the investment community is thinking a lot about today. So the things that I was hoping you could address, Dan, would be nuclear permitting. We saw that there was a press release that you announced that came out for helping permit nukes with along with Westinghouse, and kind of a terms of agreement there. Just wondering kind of time frame, opportunity set there. Been lots of talk.

You guys have been a very good provider for the FAA over the years, and obviously, with the modernization that’s going out there, I was just wondering if you think that Tetra Tech has a credible chance at a role as a subcontractor now that the prime has been announced there? And then also, I think people are wondering about the Shield contract that went out there and what kind of scope and role are our contract, please?

Dan Batrack, Chairman and CEO, Tetra Tech: Well, fortunately, Andy, I’m quite familiar with all three of those contracts. So yeah, the first one, let me just clarify. That was a press release sent not out by us, but by Westinghouse. So that was not a Tetra Tech press release at all. Now, we were very flattered that they included us prominently in this. This is work for Canada. It’s a memorandum of understanding, an MOU between us and Westinghouse. I think there’s a couple other parties also a part of this, and this is for really a continuation, including new build, for nuclear power generation as part of clean energy in Canada. And it’s in Ontario. We’ve had a great relationship with the actual power generation owners like the Bruce and OPG and others up there.

And I think this is gonna continue what we’ve been doing because we do do the engineering, not just the permitting, but we actually do the engineering portions for some of the cooling systems and other items with respect to water handling, pumps, valves, and other, other items associated with the water movement systems up there. And so this is new activities with respect to new build, and I think it will just continue what we’ve been doing up there with an incremental upside. So that’s what that is. So I would say yes, don’t take a look for-- don’t look for a huge step function. No, we’re not gonna go from, it’s not gonna materially change our outlook in 2026, but it’s gonna continue to support our outlook in 2026, and we’ll see how it grows even more in 2027.

FAA, the integrator contract, we were never a prime. We do a lot of work on the communication system. We’re very close in the meetings with the integrator, and of course, where we sit as a technical advisor to the FAA on this type of work. They have committed funds for radar and other hardware, and systems that have now been deployed or put in place by the FAA through the integrator contract. It does take time to produce those. We would be a great choice to actually assist in the implementation and deployment of those.

I know we won’t be driving the trucks that haul them out to the locations, but we will actually be helping with respect to how are they gonna be integrated, how are they gonna be plugged in, so to speak? How are they gonna have power to them? How are you gonna have security access to all these facilities? Because we’re at all these locations. And in fact, we did some of the rollout of some of the space-based telecommunication systems in Alaska going back about a year ago, that were put out as sort of a first trial. So that’s an example where FAA came directly to us. So it seems to us we’re a great choice, we’re there, but I think you’re not gonna do that until such time as the hardware is available for deployment.

And, while we’re not familiar with the exact time schedule of that, we think that’s not a 2026, at least our fiscal year 2026 item, but we do think it’s a good opportunity for 2027. I have been asked, "Don’t you get started today in 2026, and do all of the front-end work so it can be ready to go when it shows up in 2027?" We’ve had those discussions and, if you’re not gonna do it the way FAA does it, if it’s going to be a new day with the reintegrator contract, with somebody who’s new to the process, a lot of it becomes just-in-time planning, so that you can be very efficient with respect to your spending.

So it’s not, "Let’s start now 9 months in advance or a year in advance." Let’s do it as it gets closer to delivery. So I expect that opportunity to be more material for us and potentially material in numbers too, dollars, but I think it’s a 2027 fiscal year item. And finally, the Shield contract. You know, we issued a press release a few weeks ago on the Shield contract. It’s a $151 billion dollar, I’ll call it down payment on what might be a golden dome. There are... Let me put this in context. The U.S. government has issued these contracts to individuals and companies that could possibly support this activity in any and all areas. And the number of contracts that people hold, the number ranges in excess of 2,000.

So first of all, is the Tetra Tech one of 1? No. Are we one of 10? No. We’re one of 2,000, and I think it’s close to 2,100 or 2,200. Now, the work we would do, and we’ve done this for the, the Department of Defense and the government in the past, we frankly are the upfront planners, and the environmental permitters, and I would call it, overall, the environmental stewards of any plan that might be put in place. Whether or not something’s deployed or not, time will tell. But the first thing that would have to be done is if you’re going to have remote sensing or remote monitoring or remote locations, it starts with a planning document and where would it be, and is it gonna go across a wetland?

Is it gonna go across national park? Does it even have access to it? How would you get there? All of those have environmental impacts, both to local communities, state and federal, and frankly, in some instances with this, even international implications, because of these stretch of covering much of North America. There’s issues that you would need to have big presence in places like Canada and the North. Sounds like you’re talking about Tetra Tech. So we would do a lot of work, and in fact, I was commenting to somebody here at Tetra Tech. Our chief engineer here at Tetra Tech, you can see him on our website, Dr. Bill Brownlee, Ph.D., Caltech, world-famous civil engineer, was our program manager back in the 1980s when he led that program. He’s still here.

I actually did some work on it on a mobile rail garrison program, was Tetra Tech’s biggest contract by far. And it’s where we did the environmental assessment, monitoring, potential environmental impacts. Nothing ever got deployed, but it was an enormous contract, and there’s a lot of aspects of this program that could be similar long before it ever gets deployed. So I think it is something that has to get out of contemplation. But if it moves forward, I think Tetra Tech could be, from an environmental stewardship perspective, one of the first to participate in the program.

Sangita Jain, Analyst, KeyBanc Capital Markets: Thank you very much.

Dan Batrack, Chairman and CEO, Tetra Tech: Offline, if you—I can give a lot more detail on all three. I don’t think I probably went too long on those three already, so. But thank you, Andy.

Diego, Moderator/Operator: Thank you, and your next question comes from Michael Dudas with Vertical Research Partners. Please state your question.

Michael Dudas, Analyst, Vertical Research Partners: Good morning, gentlemen. And, Dan, what a historic run you have put forth. Congratulations!

Dan Batrack, Chairman and CEO, Tetra Tech: Well, thank you very much, Michael. Thank you.

Michael Dudas, Analyst, Vertical Research Partners: Plus, this is your last call, Dan. You can pretty much talk for as much as you’d like. I mean, who’s gonna tell you what to do, right?

Dan Batrack, Chairman and CEO, Tetra Tech: Our CFO is gonna pull the plug on me.

Michael Dudas, Analyst, Vertical Research Partners: Oh, he’s that kind of guy right now. Thank you. Yeah, just quickly, Mike, just to follow up on your discussion on M&A and capital allocation moving forward. You know, talking about all this capacity and all the opportunities, the pipeline seems pretty full, and there’s a lot of chances. As you think about your business mix of revenues with 45% international and the mix you have in the other three customer bases, and also in your exposure in the water and water-related areas, as you evolve in the next few years, are those gonna change dramatically? Do you feel like you need less or more international exposure? Does it? Are you agnostic towards it?

And also on your exposure with the growing global TAM of water, are there other areas you want to be more and less involved in? Just want to get a sense of that as we monitor your actions over the next several quarters.

Dan Batrack, Chairman and CEO, Tetra Tech: Yeah, that’s a, that’s a great question. I will first of all start with the word agnostic. I am not overly partial to U.S. over the U.K., over Canada, over Australia, over Ireland or New Zealand. We really want to follow our clients where their priorities are and where we can make a difference, and we can provide them solutions that nobody else can. And for some have asked me legitimately, there’s been so much volatility with the U.S. federal government. Why don’t you just go international and get away from the volatility and the uncertainty that seems to have been present, including a government shutdown this last quarter? And my comment is, it’s still the largest client in the world, by far. Not, not by a little bit, by far.

So I don’t expect, and we’ve been a support. We are agnostic with respect to, geographies and frankly, political parties. We’re here to solve the problems for our clients, where we’re an expert. And our job is to actually further their, successes in areas associated with clean water, flood control, clean environment, sustainable infrastructure, and I would add the word resilient so that it doesn’t get knocked down the next, fire, flood, tornado, ice storm, that it’s unimpacted. And much of the work, and I would tell you, our resume, when we go there, it’s not just our price.

Our resume is the Inner Harbor Navigational Channel that we designed, the largest sea barrier, flood barrier, the United States has ever constructed, and in fact, one of the largest in the world, has now withstood 12 storms, including those approaching or equal to the size of Katrina and protected New Orleans. Our resume is our work product, and that supports everyone in any of those locations. So if they have it a priority as a government, we want to work for them. The 45%, I know we were 48% this last quarter, international. That seems to feel about right.

I don’t necessarily seeing it going over 50%, but if in fact, more funds are put toward that type of work in places like, I will call it at this time, the very large English-speaking Commonwealth countries, so Australia, Canada, the UK, Ireland, I know, EU, we’ll be there to support them and frankly, for better outcomes for them, including the United States. So extremely agnostic. We want to follow our clients who put this as a priority for them and have funding that, will have better outcomes for their communities and their countries. I do think we’re gonna stay, water. My comment on water is not going out of style. I really believe that. I really, really believe that.

You’ve heard me going back to our Investor Day, 2024 in May, and I talked about these being trends or macro trends that are measured in decades, not years. And so any volatility that we would see here, we’re going to navigate as we have this last year. And, but I’ll tell you, in the long term, I believe the supply of water, the protection of our coastlines, and the environmental landscape, both for our current citizens and for the children, are gonna be of higher demand than ever before. And for those that would say, "I see this administration, or I see this given geopolitical decision as de-emphasizing it," my comment is: That just means there’s more to clean up and more to provide for tomorrow.

So I’ve had this item on coastal protection all the way back in Katrina, when I was in this role, was, "You can pay me now, or you can pay me later." And I prefer that we do the work now to protect our citizens and our communities. But if you don’t wanna do it, I’ll tell you what, it’s still gonna have to be done later. And I’ll tell you, well, I, I don’t see a substitute for that at all. So I think we’re in the right spot, it builds on a legacy of 60 years now. And one thing for sure about, and I am talking too long, but the people you’re gonna talk to after me are better, brighter, smarter, more energetic, and more forward-looking than I. So the best years of Tetra Tech, for sure, are to come.

Steve Burdick, Chief Financial Officer, Tetra Tech: Well said, Dan. Thank you very much.

Dan Batrack, Chairman and CEO, Tetra Tech: Thank you, Michael.

Diego, Moderator/Operator: Thank you. This will conclude the Q&A session. I will now turn the conference back over to Dan Batrack to conclude.

Dan Batrack, Chairman and CEO, Tetra Tech: Well, thank you very much, Diego, and thank you all for attending the call today, both those that asked questions and that just attended to listen in. Thank you very much for each of the questions from our analysts. You know, they’re great questions, and thank you for allowing me to answer them for you today. While I won’t be leading this call, you may hear me back on this call in the future, but I am not going anywhere. I’m staying here at Tetra Tech as executive chairman and doing my absolute best to contribute to the success of the future of the company.

And I’ll tell you, it could not be in better hands on the day-to-day operations with the exceptional talents that we have in the company, including Roger Argus, and so frankly, and 25,000 others that are just the best in the industry. And with that, I know we all here at Tetra Tech look forward to talking to you again next quarter. And, thank you very much. Bye.

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