Andy Wittmann

Andy Wittmann (Baird) questioned the significant sequential EPS ramp implied for Q4 to meet guidance, asking which segments would drive such a sharp acceleration in operating income dollars. He also sought a timeline explanation for the emergence of margin pressures and pricing negotiations, contrasting it with prior quarter's positive sentiment.

Answer

Executive VP and CFO David Orr projected a 100 basis point margin improvement in Q4, driven by moderate gains in B&I and M&D from restructuring and escalations, but primarily by a seasonally strong performance in Technical Solutions (ATS). President and CEO Scott Salmirs attributed margin pressure to a concurrent, episodic wave of client budget reviews in specific weaker geographic markets during June-August, emphasizing its unusual nature and unlikelihood of repetition.

Andy Wittmann from Baird asked for clarification on how the Commercial International Group (CIG) segment revenue was up when its main components, U.S. Commercial and International, were down. He also questioned the growth outlook for the Government versus CIG segments and inquired about the potential for Ukraine-related work to resume.

Answer

CEO Dan Batrak clarified that the CIG segment includes some state and local work, and its strong growth was enough to offset the slight declines in U.S. Commercial and International activities, resulting in a net positive for the segment. He agreed that the government segment would be the primary growth driver in the near term due to challenges in renewables and Australia. Regarding Ukraine, Batrak confirmed that while not in the guidance, Tetra Tech holds the contract and has the capacity to rapidly scale up work, making it a 'possible upside' if the U.S. posture leads to new task orders.

Asked about the underwriting assumptions for the NV5 acquisition, specifically the expected organic growth and EBITDA margins, and requested a quantification of the public company costs incurred in the first quarter.

Answer

Executives projected long-term high single-digit organic growth for the combined entity with a target of over 20% for combined EBITDA margins, driven by cross-selling and sharing cost disciplines. They quantified the Q1 public company costs at approximately $2 million, noting that the merger would create future efficiencies in this area.