Andy Wittmann

Andy Wittmann sought clarification on whether Tetra Tech's updated guidance was largely unchanged organically, with the Q1 beat and Halvik acquisition offset by the Norway divestiture, and the impact of Ukraine work. He then asked about opportunities in nuclear permitting (Westinghouse/Canada), the FAA integrator contract, and the SHIELD contract.

Answer

Steve Burdick, Chief Financial Officer, confirmed the revised guidance reflects the Q1 adjusted EPS beat, with Halvik contributing some increase, largely offset by the Norway disposition. Dan Batrack, Chairman and Chief Executive Officer, added that potential for more Ukraine work could drive the upper end of guidance. For nuclear permitting, Mr. Batrack described the Westinghouse/Canada MOU as a continuation of existing engineering work with incremental upside, not a significant step function for FY2026. For FAA, he expects implementation and deployment work in FY2027, not FY2026, as Tetra Tech acts as a technical advisor. On the SHIELD contract, Mr. Batrack noted Tetra Tech is one of over 2,000 contractors, focusing on upfront planning, environmental permitting, and stewardship, with potential for significant work long before any deployment.

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.

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.

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.