Tetra Tech, Inc.

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 investor 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 in part without the prior written permission of Tetra Tech is prohibited. With us today from management are Dan Batrak, Chairman and Chief Executive Officer, Steve Burdick, Chief Financial Officer, and Roger Argus, President. They will provide a brief overview of the results and will then open 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 these projected in today's forward-looking statements due to 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 gap financial reconciliations are posted in the investor section of Tetra Tech's website. At this time, I'd like to inform you all that participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. With that, I would now like to turn the call over to Dan Batrak. Please go ahead, Mr. Batrak.

Thank you very much, Melissa, and good morning. Welcome for our fourth quarter and fiscal year 2025 earnings conference call. And I'd like to start this morning with sharing with you that I'm very glad to report that we had an excellent fourth quarter and record financial performance for all the fiscal year 2025. But before I actually get to the numbers, I'd like to take just a moment here at the beginning to discuss how we successfully navigated this extraordinary year and ended up with these record results. By staying focused on our high-end consulting and our leadership in water, we've built an enduring competitive advantage and a long-term client-based trust with our end clients that we work with. Our leading the science approach has provided us with a significant competitive advantage and highly adaptive workforce, long-standing client relationships that have ended up resulting in sustained demand for our services over decades. It is this focus that has allowed us to successfully navigate the recent changes in the U.S. federal government's priorities and emerge with financial records and financial performance for fiscal year 2025. More importantly, as I look into fiscal year 2026 and beyond, I see our high-end water services in higher demand and more critical than ever to the fastest-growing markets in the United States and internationally. Today, Steve Burdick, our Chief Financial Officer, will provide additional details of our financial performance, both in the quarter and the year. And I'd also like to welcome today with us Roger Argus, our newly appointed president here at Tetra Tech, who I personally have worked with for over 30 years here at Tetra Tech directly. Obviously, Roger goes back in the market and industry even farther than that. He brings a great understanding of our clients and our business worldwide. and he's spearheading some of our highest opportunity growth initiatives that we have in the company today. Roger will provide an update of our water-focused growth markets during his presentation this morning. And I would like to share with you an update of our financial performance and our business. We had record results for the fourth quarter and for the entirety of fiscal year 2025 with record highs across the board for net revenue, operating income, and earnings per share. The fourth quarter results provided us with strong momentum as we exit the fiscal 2025 fiscal year and enter fiscal year 2026. These results are very broad-based, demonstrating the strength across all of our business sectors and our markets globally. We finished fiscal year 2025 with a strong fourth quarter, resulting in record net revenue, record operating income, and significant operating margin expansion. We had record net revenue of $1.07 billion, which is up 10% from the prior year. We significantly expanded our margins to the highest level in more than 30 years, which results in our operating income being up 23%. more than doubled the rate of revenue growth and reaching $168 million for the first time. And finally, the growth rate for earnings per share was even higher, up 29%, reaching 44 cents for the quarter. I'd like to present our performance by our segment, or our client segments. The Government Services Group had an excellent year and delivered an extraordinary fourth quarter. In the fourth quarter, our GSG segment revenue grew by 17% rising to $396 million compared to $338 million last year. GSG segment also set a new record for margin performance at 22.9% for up 330 basis points from the prior year. This performance was driven by strong execution of our water infrastructure and our digital automation work for state and local clients. high utilization across our U.S. operations during the completion of our fire disaster response work, and the reduction in our low-margin USAID work. The Commercial International Group also delivered a strong fourth quarter and strong year. Our Commercial International Group's fourth quarter revenue was up 7% to $676 million, and the CIG, our Commercial International Group's margin, excluding Australia, was up about 60 basis points in the quarter. Now, I'd like to provide an overview of our performance by our end customers. In the fourth quarter, international work was about 45% of our overall business and growing at a 9% rate. International organic growth included increases in the United Kingdom's water business and a strong growth in our Canadian clean energy practice. In the United States, our state and local markets continue to be very strong with a 19% growth rate driven by municipal water treatment and digital water modernization, especially in the water stressed regions of Texas, Florida, and California. Without the contribution of the disaster work in the quarter, our state and local work was up 13% year over year. U.S. commercial work overall was down slightly. driven by reductions in renewable energy work, but partially offset by growth in other sectors. Our U.S. commercial work includes some sectors that have extraordinary growth rates in the quarter. For example, our high-voltage transmission work in the United States is rapidly growing due to expanding energy demand, which is often associated with data centers. And finally, our U.S. federal work is now 21% of our business compared to 31% a year ago. This quarter, our federal work was up 22% from the prior year, primarily for work with the US Army Corps of Engineers designing flood protection structures and providing disaster response services. I'd like now to discuss our backlog. We had a strong quarter of contract awards, ending the quarter with $4.14 billion in backlog during a record revenue quarter. As I've stated previously, we use a highly conservative approach to backlog reporting by including only work that is contracted, funded, and authorized. The backlog we have today is of higher quality than ever before with higher embedded margins and with a higher portion of fixed price contracts, which gives us even more opportunity for margin expansion. This quarter, we were awarded over $1.2 billion in new contracts with U.S. defense agencies that cover both U.S. domestic and international operations. We announced another great win with United Kingdom for Portsmouth Water with a $23 million contract that you can note on the webcast that we have here. And we won two new awards for high voltage transmission work in the United States and Ireland. both areas where data centers are driving investments in power generation and transmission. Our US high voltage transmission practice is now growing their backlog at 120% rate year on year here in the US. At this point, I'd like to turn the presentation over to our Chief Financial Officer, Steve Burdick, to take us through the financials for fiscal year 2025. Steve?

Well, hey, thank you, Dan. I'd like to now provide an update of our fiscal 2025 results, working capital, cash flows, and capital allocation. But before I dive into these results, I want to point out and remind us all where we started the year. We initiated our 2025 revenue and earnings guidance in line with our longer-term 2030 goals. Now, despite having our largest single client cancel hundreds of contracts midway through 2025 and other headwinds that could have knocked out anybody else, Tetra Tech delivered all-time high revenue and earnings. And because of our high-quality clients and talented project managers across the globe, we generated a record-setting cash from operations that approached a half billion dollars. Not only am I proud of our team's ability to execute on our 2025 results, I'm even more positive on our team's ability to execute on our long-term strategy in 2026 and beyond where our market-leading services are focused either directly or as a first derivative to our clients' water investment opportunities. Now, as Dan discussed earlier on this call, our market-leading focus on the front-end consulting and design for water and environmental projects are carrying higher margins across all of our end markets. As such, even as the fiscal 2025 revenue was up a solid 7% over last year, Our operating income increased at a higher rate of 18%, and EBITDA for the year increased 13%. These results for the year further support our long-term strategic goals to increase net revenue while improving EBITDA margins by 50 basis points annually. I do want to point out that, as you can see here, our 2025 EBITDA margins and net revenue came in at a better 14.3%, which is an increase of over 80 basis points for this year as compared to last year. As a result of our ability to enhance our profit margins and further manage our working capital, we were able to increase EPS by 24% over last year to $1.56. Now, regarding our working capital, Cash flows generated from operations for fiscal 2025 were $458 million, which represents a 28% improvement over fiscal 2024. And consistent with the last 20 years, these operating cash flows have continued to exceed net income by more than 100%. Our focus on working capital and cash flows has resulted in our DSO reflecting an industry-leading standard of 55.7 days. This lower DSO metric provides significant insight into our 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 $600 million, and our net debt on EBITDA was at a leverage of 0.9 times, which is lower than our leverage one year ago when it stood at 1.8 times. As we continue to execute on high-quality operating results with increasing margins, operating cash flows and excessive net income, and lower working capital KPIs, we will continue to provide higher returns for our shareholders. Shareholder financial returns are reflected in an improving return on capital employed, which stands at over 20%, which is among the best in the industry. For those following along in the presentation, I would like to now present a capital allocation overview. We have a very strong balance sheet, probably the strongest balance sheet in our history. with well over $1 billion in 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 opportunities. Now, Roger will discuss our strategic growth areas later in this presentation, but I do want to point out that we have a significant amount in liquidity available to invest in organic and inquisitive growth opportunities in order to take advantage of these key business opportunities. These opportunities include the technology and automation, which continues to provide us a dominant position in the market, and for acquisitions of technical leaders such as Sage and Karen Walsh. Regarding our dividend program, I want to announce that our board of directors approved the fourth quarter dividend, which is a 12% increase year-over-year to be paid in the first quarter. This is our 42nd consecutive quarterly dividend with annual double-digit increases in amounts paid. Based on the lower leverage, we have contributed, we have continued our stock buyback program this year. In 2025, we brought back a total of $250 million, which includes $50 million in stock buybacks in the fourth quarter. We do have about $598 million available in the stock buyback plan, approved by our board as part of our capital allocation strategy. You know, I'm really pleased to share these financial results for fiscal 25, which has enabled us to increase shareholder returns as we're paying increasing dividends, increasing our stock buybacks, engaging in accretive acquisitions, all the while leveraging our balance sheet. I want to thank you for your support. And I'll now hand the call over to Roger to discuss Tetra Tech's future opportunities in 2026 and beyond.