Tetra Tech Inc (TTEK) 2009 Q1 法說會逐字稿

Good morning and thank you for joining us. By now you should have received a copy of the press release. If you have not the please contact the corporate offices at of 626-351-4664 and we will get one to you today. With us today from management are Dan Batrack Chairman and Chief Executive Officer and David King Chief Financial Officer. They will provide a brief overview of the results and then we will open up the call for questions.

During the course of the conference call Tetra Tech may may forward-looking statements within the meaning of the Private Securities Reform Act of 1995. These include statements concerning future events and Tetra Tech's future financial performance. They are only predictions and may differ from actual future events and results.

Tetra Tech's form 10-K and 10-Q reports to the Securities and Exchange Commission identify certain risk factors that could actual results to differ materially from these forward looking statements. Tetra Tech undertakes no duty to undertake forward-looking statements. (Operator Instructions) At the request of the Company we will open up the conference for questions and answers after the presentation.

I would like to turn the call over to Dan Batrack. Please go ahead.

Good morning and welcome to our fiscal year 2009 first quarter earnings release conference call.

I am very happy to present our financial results for what was perhaps or strongest first quarter ever certainly on a financial metric bases. While David King our Chief Financial Officer will present some specifics I will start with a brief overview of the some of the key financial metrics of the first quarter. For the first quarter our total revenue was up about 36% or $168 million over the first quarter of 2008. Our net revenue was up 19% which represents an addition of more than 250 full time staff than we had here at Tetra Tech a year ago in Q1. Most of our net revenue is driven by our labor.

Our operating income up more than 25%. Not only was the operating income up 25% but the margin was up about 0.5 basis point over last year. The margin has increased with the resulting operating margin of 8.7% for the quarter. On a percentage basis our backlog grew at the fastest pace of all. With it growing at slightly above 36% from the same quarter last year in up sequentially about $120 million higher than what we have had at the end of the previous quarter.

In the first quarter we substantially grew both the federal and commercial projects and revenue. The federal work grew with an extraordinary strength from the two primary areas. First was the Army Corps of Engineers that was base realignment and closure projects and second was the United States Agency for International Development we saw particular strength there. Those weren't the only major contributors from our federal clients. We also saw strength with all of the federal clients that we work work that include the environmental programs with the Environmental Protection Agency. At the Department of Defense we saw strength in the Air Force, Navy, Army and Missile Defense Agency. And support work for the Department of Energy and the Federal Aviation Administration was also stronger in the quarter.

The biggest growth on a percentage basis was in the commercial sector. This rapid growth was driven by work in the core services areas of water, energy and environmental remediation work. Now this past quarter we not only completed the installation of more than 200 wind turbines that we took them to mechanical completion and turned over to the clients. But we also began field work on the largest sediment remediation program in the United States. The Fox River program that we announced here this past quarter. It is located in Green Bay, Wisconsin. It is a very large water remediation program.

While we saw strength in the federal and commercial areas, at the State and local level we see overall weakness. While we continue to work on essential water programs at the States and cities and that looked very strong we did see further slowdown in the local schools and transportation projects. If you are following along on our webcast if you look at the chart on page four you will see the Federal Government continues to be the largest part of our revenues, currently representing 43% of our revenues. We expect this to grow in the future quarters. For the past 10 years we have been reporting our financials in three segments. Resource management, infrastructure and communications.

As our communication segment has shrunk to less than 5% of our revenues for the past several quarters, for practical purposes we were only reporting two segments resource management and infrastructure. Starting this quarter we will report four segments that reflect how we manage our business. These four segments represent the entire project life structure starting with the front end studies and research work that Tetra Tech had begun with at it's very origins ending with the larger remediation projects in construction management work. It is this project execution which is now reflected in the segmentation that is a differentiator for Tetra Tech. We start with science and we can stay with the client and the project all the way through completion. This is how we've run our business and it is going to provide much more visibility into the performance of each of the four segments.

As I mentioned at the outset of the call the backlog was up significantly. Direct result of our booking more than $750 million in orders for the quarter. This was the largest quarter of new orders we have ever had in the history of the Company. Left me point out if you are following on the webcast that 10 of our top 12 largest contract awards for the quarter were with long-term federal customer base. These awards not only increased our funded and authorized work, this reflected in the backlog, but also significantly increased the contract capacity with our federal clients.

The largest contract for the quarter was with the United States Air Force. It is a worldwide environmental remediation contract. It is a very large vehicle that allows us to provide full support services worldwide for the Air Force. This allows us to provide all of the services that we offer in Tetra Tech through all of the business segments.

The second largest contract award we had during the quarter was the Army Corps of Engineers, a long time client. This is a new contract for us and gives us new geographic access, its the Trans-Atlantic command contract. It allows us to do architectural and engineering work. It is new contract for us. This will allow us to do work for the Corps of Engineers in locations like, Europe and Africa and the Middle East and in fact we have been awarded our very first first task order within the last few weeks. We think it is a great new growth order and we are very excited about it.

We continue to grow our backlog now for the last eight quarters, for two years consecutively. On these calls we have made it clear that we don't expect every single quarter consecutively for this to go up. The consecutive run of eight quarters has taken the backlog to an all-time high of $1.769 billion, just impressive.

Our backlog comes from all of the different clients. They all fund at different times during the year. Their funding cycles can cause incremental jumps or variances. What I look for in the backlog is an overall upward trend like what you see in the graph on our webcast that has been trending up for the past several years. I will note that we are not looking at any one quarter. We could have a quarter where it is flat or declining because of timing of an individual project. I will repeat long-term trends is what we are looking at.

I will also note that and I think this is important and we watch this very carefully, we added backlog in each of the four business segments. We mare sure that they are all contributing. We are seeing strength across the entire operation.

With that I would like to turn it over to David King to talk and present the details of some of our financials.

Thank you, Dan.

Before I get into quarterly financials let me spend a minute on new segmentation, why and how we did it. Tetra Tech started to to report three segments; resource management, infrastructure and communications in the late '90s when the Company was about $0.5 billion in revenue. Today we are a $2 billion plus Company with a very different business profile and management structure.

First as Dan indicated, communication has become a significant part of our portfolio. In fact, it has been less than 5% of our revenue for the past five years. Second, resource management has grown and exceeded 60% of what we have done in the past five years ending 2008 at 69% of the revenue. As we continue to grow the composition of the business continues to change. So has the management and organizational structure.

At the beginning of fiscal 2009 we started to report the four business segments as Dan indicated earlier. We started our plan, we also indicated in our last year's Form 10-K and more recently early this week we posted all of the changes and details on our website and comparing and cross walking the old segments to the new segments. Bottom line we will no longer report communication as segment it is part of the RCM, remediation and construction management. We also moved two operating units out of infrastructure to better reflect our infrastructure design business. Given the large percentage of resource management we broke it into three segments to provide you with better visibility.

Frankly, this change of segmentation has taken us about two years of thinking and planning. We belief the new segments reflect how we manage our operations, how we serve our clients and how we execute our projects. At the end of the day we believe the new segmentation provide you all with better disclosure and more transparency.

Now to the quarterly financials. Q1 as Dan reported is a outstanding quarter for all financial matrix. Revenue 36% to $639.7 million. Net revenue grew 19% to $330 million. All growth came from organic.

In addition as Dan indicated we experienced the growth from all new segments. Net revenue $330 million was at the high end of our guidance. Income from operations grew 26% to $28.6 million at 8.7% operating margin. This is a relatively high margin for the first quarters performance for a long, long time. EBITDA grew 26% to $34.1 million. EBITDA margin at 10.3%. SG&A grew 6.5% to $35.7 million. We are a simply a bigger Company today.

As I mentioned in the prior quarters we continue to invest heavily in our efforts. In the meantime our G&A cost structures is reaping the benefit of scale and continued to increase at a much lower rate than the top line. Net interest grew 39% to $900,000, due to the lower yield on cash and higher following to fund growth and acquisition. Tax grew 24.5% to $11.4 million of higher earnings. Our annual effective tax rate about 41.1% for fiscal 2009.

I want to point out our tax rate has been moving toward about 41% from about 42% a couple years ago as we continue to streamline and integrate our operating structure. Diluted EPS grew 24% to $0.27. Our guidance was $0.25 to $0.27. Our balance sheets, accounts receivable and accounts payable grew about 37% respectively. They are in line with our revenue growth. Net debt ended the quarter roughly $44 million as a result of business growth and a small acquisition.

I want to note in the 2008 quarter it was a large acquisition, ARD was in the number of $60 million. Cash flow from operations at about $28 million used cash. As you know we typically use cash in our first quarters and as I mention we are a bigger Company and we funded higher bonus and 401k plans -- contribution in Q1.

I have expected our cash flow from operations to be $60 million to $70 million for the fiscal 2009 with contribution and our Q2 I expect that to be $15 million to $20 million. CapEx is $3.2 million is low for the quarter do to timing of purchase. With Wardrop acquisition I expect the CapEx to be $22 million to $25 million. DSO improved over two days as a result of a strong collection. We also benefited, almost half our clients are federal clients.

As I mentioned last quarter I expected DSO even with that profile to be a little bit a couple days higher for the year given the current market conditions. We ended Q1, as I mentioned at the $43.8 million with debt and equity ratio of 13.8%. With Wardrop acquisition I expect Q2 to be about $110 million to $120 million in net debt and debt equity ratio to be roughly 30%. At the end of the year I have expect the number to be about $50 million to $60 million. We will be debt free in late fiscal 2010. We will pay them off.

With that I now turn to Dan to address our first major international acquisition Wardrop Engineering.

I would like to present, as David indicated, our newest acquisition. While we are always looking for the right acquisition in our core market areas like water, energy or infrastructure, over the past year we have been particularly focused on identifying an international acquisition. We have been looking in three countries. We have been looking in Australia, United Kingdom or Canada. Those are areas we believing in spending a lot of time. We believe these locations provide the greatest opportunities to expand or services to growth markets while minimizing the cultural, language and integration risks. We are looking for high growth with low risk to the Company as we took this next step.

I am pleased to announce as of yesterday our Wardrop Engineering has joined Tetra Tech. We are happy to have them on board. I would like to say a few words about them. It is a Canadian based consulting and engineering Company, they have been in existence for over 50 years. They have approximately 1200 staff and generate $120 million in revenue in fiscal year 2008. Their fiscal year matches up with Tetra Tech. We are synced up with respect to how they manage the financials. Their Company was founded on water resources very similar to Tetra Tech. They expanded by its original founder Len Wardrop. It focused on water resources.

It is one of the Canada leading engineering firms focused now on natural resource management, energy and infrastructure. That sounds like Tetra Tech and we have spent the last several months with them and they are just like Tetra Tech. I have would like to say one more think about this having an opportunity to spend several months going through this process and I like their management team. Their culture -- and this was very important to Tetra Tech. To find a Company whose culture is similar to ours. And the Tetra Tech and Wardrop culture match up very well. We are looking forward to moving out aggressively on new opportunity together.

While It has only been one day we are off and running with opportunities introducing the best technical resources and folks we have to our clients right out of the gate. This is a great addition to Tetra Tech and fulfilled one of our strategic steps that we have been focusing on for the past couple of years.

I would like to share with you our perspectives of the markets and what we see for the rest of the year at Tetra Tech. First and foremost, even in today's economic environment we see the revenues in the federal market growing at a rate of slightly greater than 5%. If you are to following along on the webcast, these numbers as target revenue and the growth rates indicate what we expect to see for the remainder of the year. So for second, third and fourth quarters. First quarter this is looking at the remainder of the year. So our Federal Government revenues we expect to see grow at slightly above 5%.

We see two primary drivers, the first base realignment and closure primarily through the Army Corps of Engineers where we have the largest contract capacity. We expect this work will continue to be driven by preparation of returning soldiers and the cleaning of old bases and we see this with a lot of clarity as we go into the next year.

Second federal area that we see strength and we see it continuing and even growing, is with the United States Agency for International Development, we call it US AID. It is the US Agency for International Development, it is a department within the State Department. We see the United States continued emphasis and growth with the new administration of development as a key part of the foreign policy. So as that receives more and more attention we expect to see this become larger and larger for ourselves. With the work in backlog we see the commercial sector work growing, at a rate of 5% to 10% between here and the end of the year.

This would be driven by large wind projects, sediment remediation projects and I talked about Fox River. We have other small ones we are working on. These are prefunded project for Brownsfield Soil and Ground water remediation programs. These are going to make up the significant portion of the work we need to drive the growth for the remainder of the year. Most of this is already in backlog already. These growth numbers are pretty well-set with the funding we have between now and the end of the fiscal year.

We see softness in the State and local work. It is not the water programs it is the school and transportation projects we have underway. We expect to see a likely reduction in State and local work of maybe 5% to 10% from the current level we are at today. Let me walk through this to make sure I am clear on this point. Today about 15% of our revenues come from the State and local clients. If you took the upper end of that reduction if, in fact, we legalize that at 10%, that is 10% of the 15% revenue of the Company. So, 10% of 15% would be 1.5%. If we recognized a 10% reduction the revenues would go down in representation from 15% to 13.5%. It is about 1% impact.

I want to walk through that with a bit more detail is, it is a very small part of our business. Not only is it a small part of the overall revenues, it also has been the lowest margin over the past year or two. In fact, with the impact on our earnings it is even less than the representation on a revenue basis. International growth will more than double for the remainder of the fiscal year and that is attributable almost exclusively to the addition of Wardrop to Tetra Tech this quarter. These are inclusive of Wardrop within Tetra Tech.

With that insight and perspective into the economy and where we expect our revenue and income drivers to be I would like to present our update guidance for the second quarter and all of fiscal year 2009. This guidance I am going over includes the contributions from Wardrop the new acquisition, but it does not include any special funding from a stimulus package if in fact that comes to pass. It does not include any contributions from future acquisitions we haven't already closed, Wardrop being an example.

The guidance for the second quarter for net revenue is $315 million to $335 million as a range. Typically the range was $20 million. The diluted earnings per share $0.24 to $0.26. For the year for the entire fiscal year of 2009 our guidance for revenue, net of subcontractor cost is $1.35 billion to $1.45 billion. Let me note that compared to the previous guidance this is an increase in revenues by $75 million both on the bottom and top side. We lifted up that number.

For earnings per share for the entire year we have narrowed it and raised the lower end of our guidance from $1.10 to $1.12 with a range of $1.12 to $1.18 for the year. That includes contributions from Wardrop. It will not be an entire fiscal year. They have joined yesterday so we will have two quarters and two third of the second quarter.

This earnings per share include $0.09 of intangible amortization. When you looking at the earning generated by the corporation the EPS reported out includes $0.09 of intangible amortization. That is a non-cash charge that we incur as part of the accounting for some of these expenses. David has already covered the effective tax rate of 41.1% and David, congratulations, it is moving down. We are moving in the right direction.

With that I would like to move on to another topic here that is really a head liner. The number one news item on the front page of every news paper is the economy and the stimulus package. Now, as of yesterday the House version has passed. But we don't know what the final funding will be until passed by both Houses and signed by the President. What we do know, is that both the house and the Senate versions proposes funding in areas with the services we provide and the contracts we hold. That we do know.

We have identified four major areas in both versions of the stimulus package for the proposed funding that are directly associated with the work we do. The first area is water programs. No doubt Tetra Tech is a water Company. That is the largest strength that we have. We have identified water programs, second is EPA and the United States Department of Energy programs for support for them.

Third is alternative energy and grid upgrading our energy practice. It fits very well there.

The fourth area is other, but it matches the Department of Defense environmental cleanup and building energy efficiency upgrade programs, those four are areas that we can provide. From our perspective the firms that will be most successful capturing this work and executing initially are the ones with contracts in place today to provide these services. It is the only way we can see that the Federal Government will be able to move this funding into the economy fast. If you are not a contract holder it is possible to become one but that is lengthy process.

Tetra Tech has, if your following along in our webcast, we will list some of the contracts. We have more than $8 billion in contract capacity that we are already awarded competitively to us from our key customers, that is mostly federal. They are the clients and customers responsible for getting this work done in the stimulus packages. We have the project managers out in the field right now actively identifying project with our counterparts and the Federal Government and other client to start working immediately and put people to work. There is no doubt the underlying focus is economic stimulus package to put people to work. We have people ready, we have additional capacity, we can ramp up substantially if they want to fill that up we are here and ready for it.

In summary, this past quarter, it's interesting, some folks would say the economy is slowing. Maybe it's going to be a slow time. We have not seen that. This is one of the busiest we have ever had. We grew the Company at 36% from the prior year. We completed the first major international acquisition and increased the staff to more than 10,000 for the first time the ever. I will tell you these are all contributing members of Tetra Tech. We feel great about that.

We have organized the reporting segments to provide more transparency. More than just that, this structuring has allowed us to be prepared for further growth. This is how we run the business and how we are going to manage it. It will help facilitate future growth. With our current outlook on the markets, we are able to raise our revenue guidance and narrow our earnings per share guidance, raising the lower end, and finally if a stimulus package comes to fruition we are well positioned and ready to move quickly on it.

With that, I would like to open up the call to questions. Dennis?

(Operator Instructions) And our first question comes from the line of John Quealy with Canaccord Adams.

Good morning, John.

Just a couple things on the deal. Did you disclose price on that or price metrics? Was it in range with standard E and C multiples?

John we did not disclose the terms of the acquisition. For competitive purposes we would elect not to do that. I would indicate that it is in line with the multiples that we have paid for other acquisitions.

In terms of backlog, what should we look for in Q2? What is the relative contribution in this business?

About 3 to 5 months.

So in dollars? 3 to 5 months of business would be in backlog at any one given time?

Let me back up. Our backlog is -- let me back up. The backlog that we have is funded and authorized.

The $1.7 billion plus, It would about 75% to 80% of that amount would be expended over the next 12 months. The remaining 20% to 25% would be expended over roughly the next six months. So most all of the backlog would be expended or is slated for completion of the work in the next 18 months. Does that answer the question?

I should have been clearer. I was asking about the acquisition how much backlog would that add upon consolidation.

Wardrop's backlog because of the consulting and engineering aspect of the business they are mostly commercial. It is a much shorter amount of contract duration, so typically three to four months of their annual revenues are in backlog. Compared to Tetra Tech it is a much smaller percentage.

Just two more housekeeping questions on the acquisition. Was it primarily geography or business line that was attractive here?

Both. Absolutely both. We looked at a lot of companies and this is the one that hit it right. Of all of the locations in the world we were anxious to get locked in it was Canada. There were simple reasons like language, culture, time zone.

Two. Great end markets and great clients. They do pay lot of work in the nuclear industry for energy which is a major component of their work. They do a lot of water resources work and that brings us new mining client, so its clients, technical service and geography and it hit all the areas we hoped to add to the Company.

Last two questions. On the cash flow. Did you mention cash flow from operation expectations for fiscal 09.

Yes.

I will go back and look at that. My last question and maybe for you if this stimulus does come to fruition, do you think the margin profile of this work changes at all on the water and wastewater side or the stuff you have folks would be targeting or do you think you will get the 8.5 to 9 EBITDA margins across-the-board?

We receive that question frequently. We've think the March begins will remain similar to what we had before. This $8 billion that I referred to and in our slide presentations we presented the detail of it. These are contracts where the fee or unit rates have already been negotiated. These contract terms, scope of work and rates have already been established on these for the most part. I would expect the margins to be similar to what you have seen before from us.

Thank you very much,

Thank you very much, guys.

Next question from Debra Coy with Janney.

Just to step back and looking at the growth outlook, it has been hard to judge things given cross cutting currents in the economy and the other new stuff you are doing. I am having a hard time reconciling this kind of backlog growth and then you ran through your rough growth expectations for the segments. If we add those together it comes up to something like 6% to 7% growth. How do we reconcile that with 35% backlog growth?

I don't want to say it simply from the newspapers. It is difficult to get up in the morning and listen to the national pundan'ts and newspapers and it seems that the negative sentiments out there from forecasters are 5 to 1 from anybody with a rosey outlook. Our backlog is up. We feel good. We have great visibility driven by our Federal side. I don't want to say that we are being cautious. Unless we have specific authorization to complete the work in a very short period of time we are being juditious.

We have had good success in work that goes out. It is not booked and executed in one or two quarters. Some of it does go to the end of the fiscal year and to the fiscal year 2010. A lot of the backlog is disproportionately weighted to our Federal work, and in fact the composition of our backlog is about 60% from our Federal clients. Now it represents min 40's in revenue but all the way up at just over 60, the Federal work is a bit lower margin. For those reasons we have been judicious with respect to the guidance.

Certainly I think everybody is cautious on the State and local and the industrial economy. It is the Federal piece that isn't making the sense given the bookings that you have done that you are still looking for only 5% growth in that segment and I guess what you are saving is that a fair amount of the backlog is fairly back end loaded on the Federal side? Or cut out over the full six quarters?

There is some that is a bit more back loaded. I have wouldn't say particularly. I will mention one large moving piece on the Federal side. We've had a fair amount of work in all of 2008 fiscal year 2008 and even in the first quarter for work we were doing for the Department of Defence in Iraq. That is going to not only ramp down but complete in totality.

I will give you an example. Our unexploited ordinance program where we were supporting the Army Corps of Engineers, in fact, has completed on December 31st. Both the work and the prospect for work under the current vehicles have all completed. Now it has been a contributor of about $25 million per quarter on the total revenue basis, and even with that going from $25 million to zero we are still forecasting a growth in our Federal business. When you take it in context of the two moving pieces the underlying Federal work is strong. We have one counter moving piece tempering the overall growth.

That is true. Then just on the ongoing mix you said you do expect the Federal government piece as a percentage of the total to continue to grow but you also said Wardrop is primarily commercial. How should we think about I guess that means they the fit into the 5% to 10% growth profile that you outlined for commercial or does the entire bulk of that $100 million in net revenues go to the commercial side or is there a mix there.

Where we are classifying it for these quarterly investors calls is under International so the drivers for commercial are mostly US domestics. This would be the Fox River Project, the remaining wind project in backlog and other large property remediation projects so you will see the international work going from the past quarters at 1% or 2% up to more than 5%. Within that international work their clients are primarily commercial within Canada and other multinationals.

What growth rate are they seeing or expecting to see over the next year?

About 10%.

Okay. Last question. We have been looking for and expecting a sizable International acquisition for for a while. I am curious to your thought on the aquisition outlook now. Is this it? Is this the big one you have been working on? Is there more stuff in the pipeline? How are you thinking about the acquisition strategy for the rest of the year?

I will start with the word more.

Mike is not going to get a break?

No, in fact, we told him that the negotiating part was the easy part because he got to stay home and work long long hours. He is going to get more airplane hours. First of all, this is a large acquisition for us. At over a thousand technical staff, It is big but not the only one.

We were looking for a firm that would serve as what we referred to as a platform acquisition that has has the systems, the history, the maturity in the management team that would allow us to do additional tuck-ins and expansion and append to that organization. We believe that firms in Canada and in particular Wardrop has if in other over seas locations.

They have an office in the UK, in India, they have start up locations in many different locations around the world including China so we are looking at all of these locations that would be either from a tuck-in acquisition to even another platform acquisition in another area of the world. We are not done but it has to be the right deal at the right time at the right price. So if we find a firm that meets all those opportunities we will take action again. There are opportunities out there.

Thank you.

Next question is from Michael Cox with Piper Jaffray.

Congratulations on a nice quarter, gentlemen. My first question is on the projections you outlined for the in market customers. The State and local for the year is a little bit less than you have seen for the last couple of quarters. Could you say the factors that are leading to a better outlook on that side?

Yes, I have don't necessarily call this the silver lining. A lot of the project with schools and transportation have been put on hold. That is one reason so they are the low hanging fruit from the client standpoint that have been taken off the table there is less to be taken down.

We had two project on a year-on-year comparison. A project that communications project that we had a year ago was called Utopia. It was a fiber communication project for a number of municipalities in the State of Utah. It is gone.

We also have some city work in the State of New York, in fact in the city that we have seen reduction in that program while there is still some of it, the material portion has been recognized. We see the areas that are soft are getting close to hitting bedrock. The other programs that are water driven are much less volatile with respect to funding to get the work done.

The wind component of your business. Entering the fiscal year you said $200 million in the backlog. Where does that stand today?

We expended about half of that in the first quarter so about $100 million was expended. That was really the single largest driver of that commercial growth in the first quarter. We have about $100 million left to expend over the remaining 3/4, Q2, Q3 and Q4. All though I will note that the winter months of January, February and March is a lot less field work. That wind work will be a a bit more back loaded into Q3 and four than the second quarter.

On the cash flow statement it looks like the provision for losses on contracts popped up a bit. Anything to read into there?

Nothing abnormal we increase our discipline and receivables and take some prudent actions.

Thank you very much.

Next question will come from Corey Greendale with First Analysis.

Good morning.

Good morning. Could you give us some sense of how accretive you expect the Wardrop acquisition to be in fiscal 2010?

Well, we think on a full year basis for 2010 we expect it to be approximately 4 to $0.05 after amortization and interest. We expect it to be nominal for 2009. Normally we see reduced profitability in the first few months as people join the Company and certainly we had expenses associated with the acquisition. Many of those are capitalized. They are expenses of our staff and others supporting the acquisition that represent expenses that we otherwise wouldn't have had.

Those expenses are included in the 2-10's for this year?

That's correct.

How are you looking at the stimulus bill? Are you looking at this as incremental to what you have gotten otherwise or is it more re-enforcing your ability to take advantage of contracts you were thinking you had a good chance of getting it out of.

Incremental. Many project that would would not move forward because of funding or prioritization will be mobilized by the clients. We see them as in addition to what we would otherwise compete for in our forecast.

With that in mind and given the strong backlog growth do you think that your guidance of 7% to 8% that that is conservative and it should be above that now?

Well last summer had had had some competitors saying the stimulus package would be in place in August then some said that it would be before the end of the election, then they said Bush would mobilize it prior to the inauguration and transfer, now we are hearing President's day mid February. Until it happens I want to stay away from speculation on the stimulus package. I'll go back to what I said earlier until it is passed by the House, Senate and the President, it is not clear to us exactly what contribution on incremental or any other basis it will be. I am not trying to dodge the question, any time I would save it should be a higher number I think is very speculative. We are trying to stay away from that.

If I could just follow up on some questions that Debra was asking before. I understand conservative based on the general economic outlook. As I calculate it, it looks like it calls for a slowing in organic growth. At the high end maybe 7% organic growth. I understand Iraq also but that was already gone this quarter so that shouldn't be change. Is there anything specific you would point to that is going away or is it over all conservitism given the economic state of affairs.

We don't use the word conservative here, we think we are judicious, let me give you an example of two of the bigger pieces. Number one, we touched on this on an earlier question, wind. We have a $200 million forecast for the year. We've still believe that is achievable. Half of that was in the first quarter.

As I indicated the remaining $100 million would be more heavily weighted to Q3 and four. That is one reason you will see a reduction in organic growth. Wind is a big one. Iraq I gave examples of reconstruction work that is slowing. It is going to move to zero here we believe in the latter quarters, Q2 will be a major rededuction. Those are two programs that are reducing in the 10s of millions of dollars. That will count for the organic growth moving down to 7% or 8%. Those are two very specific examples.

Thank you very much.

Next is Allen Robinson with Royal Bank of Canada.

Good morning. It looks like and correct me if I am wrong, it doesn't appear that you have gained any new Wind project orders this quarter. Is that correct? Could you discuss the current landscape in terms of interest in new wind project given the lower cost of oil and gas?

Well, let me answer the first question. Wind projects if you look on our presentation on page 6, we did book approximately $20 million worth of new wind project during the quarter.

Now, I will acknowledge that is not as large as in previous quarters but we still did see new work come in. We are however seeing a substantial number of project being pushed out. We have been told by the clients they are not cancelled but they are delayed.

So new projects we are seeing -- a number of opportunities declined materially. We have been contacted by our clients and we are following closely the production tax credits. Certainly if that passes and is put in place we expect that to have a material impact on the number of opportunities coming out. Certainly the number of opportunities for clients are down but we are still booking work.

Regarding the acquisition, it looks like the $75 million increase in net revenue guidance you suggested in the release, does that represent low double digits growth? Am I looking at it correctly year on year?

Yes, that's correct.

Then if you have looking at the subcontractor costs at Wardrop they are lower than yourself given the mix of business. Is this likely to change post acquisition? I guess what I am getting at do you have opportunities for cross selling some of the business that you do which has higher subcontractor cost?

That is a good question. That was one of the key synergies that Wardrop and Tetra Tech looked at. They have excellent relationships with their clients they are anxious to offer them full turn key services. We'll say it is yes.

If the synergies are successful we will receive the subcontractor component go up with Wardrop but that would only be directly associated with substantial increases in their revenue and a much higher growth rate than the 10% we've indicated. When I said we are up and out the door within 24 hours, a lot is going to the clients to these capability to large scale remediation and construction management and self performance model that we can take these 100% within the Tetra Tech organization.

Interesting. Last question. Regarding the guidance. Am I reading this correctly that you expect $0.11 of accretion on the cash bases after netting out $0.09 of amortization costs that is $0.02 on the GAAP basis for the rest of the year, is that right?

We expect $0.09 to $0.10 not $0.11 so amortization would be $0.03 in interest costs and everything.

Where does the $0.09 come from that you have on the slides there?

Cash.

Okay. Then in terms of the second quarter of $0.24 to $0.26 are there one time costs included in the that?

There are internal opportunity costs lost that those people are chargeable otherwise and couldn't be charging as part of the due diligence will be in factoring in the guidance.

There are no specific one time GAAP charges in the $0.24 to $0.26 guidance?

No there is not.

Next is Richard Paget with Morgan Joseph.

You have mentioned on the wind projects that you saw clients delaying a little bit. Have you seen that in other projects in other of your end markets which might explain the disconnect between some of your backlog growth and expectations for growth? Are some people sitting on their hands waiting to see what the stimulus package will mean for them and in a holding pattern for the work to be done?

State and local we have, in our state and local numbers that we would expect for us we have seen it mostly in the schools work in the northeast, in transportation projects broadly across the entire organization. We have seen those slowdown. With respect to task orders or work under existing vehicles. That accounts for our forecast with our state and local business. That is one location.

We have seen some of our industrial commercial clients slowdown certain expansion projects they have, and we have seen, for instance, automobile industry in the larger mining Companies with capital expenditure budgets slowdown projects. We have seen a counter effect. Some of these firms have reduced internal staffing and outsource that work to us. So we have seen things moving in an opposite direction.

Capital projects slowing down but staffing requests going up. There are a lot of moving pieces in the commercial side. We have not seen any projects at the the Federal level cancelled or slowed down. State and local we haven't seen any cancelled. Commercial is mixed some up and some down. We talked about wind already.

With the new subsegments could you give us an example per a different segments to help us better understand exactly? The pyramid helps. If you would give us project examples to help.

Absolutely. This is to us internally this is just so logical. This is how we follow the projects.

Let's start with science. Our ECS, Environmental Consulting Services up front research. Work we would do for the United States Environmental Protection Agency for watershed management, evaluation for contaminants across the United States would be a contract in hand that would be in that group. Work we did for Fox River for evaluation of sediment, volume calculations the science would be in that group. Typically higher margins, we would have 10 to 12% margins, higher barrier to entry and very few competitors. That is the origins of Tetra Tech.

That is where it all started for us, upfront science. The second group and we would prefer that to be the entry point to a client. We want to start at the beginning before the solution is identified. The second group, TSS Technical Support Services. US aid would like us to mobilize hundreds of staff to work in places like Afghanistan, Columbia, Nepal and other countries. This would be technical support where we have staff in the government location for example, Missile Defense Agency. If we are working along with them on a support staff basis. That would be in this group.

EPA emergency response work, where we need to mobilize a large number of support staff on a large dedicated program. It would be here. So it is sort of the next part down a project execution. Slightly lower margins and higher utilization and larger number of staff, 9% to 11%. Once we have studied and responded we want to design it. That is the first area.

Engineering and Architectural Services, EAS. A lot of the work are for municipalities. That is why we have so much State and local work. Lower margins with state and local. Over half of the State and local is with this group, 6% to 8% margin.

After we have studied it we want to build it. We want to implement it and see it to completion. That is the remediation and construction management. It would represent is largest disparity between gross and net revenue. Those margins, because we are not competitively bidding this work we are hoping that it is best value and it is coming through the pipeline starting with science the margin may be 7% to 9%. That is how we execute the project and that is somehow we are organized.

Thank you. That is helpful. I think the supplemental info you gave out for the transition was very helpful. Good job on that.

Thank you.

Next question from Jeff Beach with Stifel Nicholas.

Good morning. Wardrop, just a little bit more description of the company. Offices in Canada, UK, India, can you give us an idea of the business in these various locations, a little bit of the longer term revenue growth such as over the last five years and just a general comment about the relative profitability of the Company, and finally it sound like you are looking for growth this year, but you are serving International markets such as the UK where they don't have our stimulus package. Are you looking out tougher times to fund project ahead what is in your backlog?

That is a lot of area. I will start at the beginning. 1200 staff, they have have about 15 offices, 13 in Canada. Largest concentration of offices and staff are in the greater Toronto area. They have staff in Toronto through the oil producing areas of Calgary, and out to a large office out in Vancouver.

Across Canada they have excellent coverage. That does represent the locations of about 95% of their staff. They do have locations in both India, and in the UK. Those offices in the UK about 25 to give you an idea. It is not a single startup, eventually some significant presence, similar are in India. The work that they do and I had indicated that their clients are largely commercial. The categories of their work are about 50% is in resource management in mining and other natural resources in Canada.

They work for many of the large multinational firms, Cameco is the worlds largest uranium mining firm, and certainly the market for uranium continues to be strong. It takes them both in Canada and around the world on projects. That is 50% in the resource management category. 40% of the work is in energy, they do a lot of work on the nuclear side of energy. A lot of it is for Ontario Power. Hydro One also in Canada or hydroelectric power, very long-term clients. These nuclear power plants in sport didn't come yesterday and isn't going away tomorrow. They have an an excellent reputation.

Bridges and transportation is a components of it and while this is one of the areas they are quite excited about Tetra Tech's resources and with over 2,000 infrastructure engineers they are excited about the additional resources. The numbers I provided during the presentation earlier are only for the United States stimulus packages. There are large stimulus packages proposed around the world and Canada is one of them. They are excited about it, and we are about the opportunity to use our collective resources to be a large benefactor of anything that happens in Canada and it will be far larger than it would have been without Tetra Tech having been on board.

Finally, the water has become a very small part of what wardrobe is today. One of our goals is to move Tetra Tech up there and wardrobe to be the dominant engineering firm in Canada it has the world's largest water resources. We should be there and now we are.

Can you give us a sense of the longer term revenue growth over many years?

They are grown very, very fast in excess of 10% in the past few years. We have identified 10% as a number that we would expect even through the economic volatile period. If we can leverage this full-service capability on these projects the number will be materially higher. I don't want to forecast how large those numbers are. Some of our people are positively euphoric. I will share that with you when it materializes. The profitability is in line with the growth. It is about 10%.

The second thing on wind energy prospects. If the current House bill would move ahead. I haven't seen any changes yet to add investment tax credits. If what you are seeing now moves ahead is there sufficient stimulus in the current plan to really jump start and boost wind energy and bring back more of a relative profitability compared to other energy sources? Is this plan is it as proposed right now going to do the job?

Well, we certainly are watching this very closely. We are looking for those types of responses from our clients. They are the ones who will openly make that determination. We have had early indications the answer is yes.

We want to be the cautious about speculating that being converted from a bill as it exists today in the House. We haven't seen this multi-year production tax credit in that version. We understand there are different aspects of it in the Senate so it may be changed materially. I would put it all under speculation at this the time. There is no doubt that everyone from utilities to developers are very hopeful they can get back in the game quickly.

Final question comes from John Rogers with D.A. Davidson.

Good morning. I know you haven't given the terms of the Wardrop acquisition, can you give us what the combination does to the balance sheet in terms of leverage levels.

I briefly mentioned that in the net debt slide. Here, we will be borrowing against our credit line to fund part of the acquisition costs. At the peak at the end of Q2, I expect about 30% debt equity ratio.

That is when you are referring to, you expect your current rate to have that paid off over two years is that what you said?

About 12 to 18 months.

Thank you. The second, in terms of acquisition opportunities in the market, has pricing come down substantially? I am thinking more on the private side?

Where we have seen pricing coming down is near term, we have seen it on construction and commodities. Project that we had that were in place we have seen that come down but we have not seen pricing pressure with respect to the rates that are being bid.

Dan, I was wondering about potential acquisitions.

We have seen it come down. I will say while there are opportunities it appears that the private Companies are taking a bit longer to recognize what the street delivers to us every day, adjustment in our value. Many of them have been on the sidelines. We are seeing less overall opportunities. There is still a good number of them.

The ones out there have tempered their expectations materially. We consider it to be an attractive. I hate to use the word attractive. It is a fair market for acquisitions. Before it was unfair. Now, I have think it is fair. There are opportunities here.

I can't think the of a better example than the one we just completed. There is a $100 million a year thousand person organization that is the highest quality that exists anywhere in the market out here looking for the right partner. It exists and there is the proof.

By the way, was this an auction situation or negotiation. Did you have many competitors for wardrobe?

Negotiation. They certainly, I will say had -- they did have their choices and they did have their alternative. It wasn't just Tetra Tech. I feel very good about this, also, that we are not the only multi billion dollars consulting and engineering firm out there. They did have choices. Out of all of those available it was Tetra Tech that they chose.

Thank you.

Operate operate this concludes the Q and A. I will turn it over to Dan Batrack to conclude.

Thank you all for your questions. There are a lot of different aspects in the market today. To cover the earnings growth and stimulus package and acquisitions and outlook. They were all excellent questions. With that I look forward to talking to you next quarter. Thank you very much and we will talk to you then.

This concludes the conference for today.