Tetra Tech Inc (TTEK) 2010 Q3 法說會逐字稿

Good morning and thank you for joining the Tetra Tech earnings call. By now, you should've received a copy of the press release. If you have not, please contact the Company's corporate office at 626-351-4664. 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 will then open up the call for questions.

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

Tetra Tech's Form 10-K and 10-Q reports to the Securities and Exchange Commission identify certain risk factors that could cause actual results to differ materially from the forward-looking statements. Tetra Tech undertakes no duty to update forward-looking statements.

In addition, since management will be presenting from non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted in the appendix of the presentation and in the investor relations 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 the conference up for questions and answers after the presentation. With that, I would now like to turn today's conference over to Dan Batrack. Please go ahead, sir.

Great, thank you very much and good morning and welcome to our fiscal year 2010 third-quarter earnings release conference call. While David King, our Chief Financial Officer, will present the specifics of our financials, I'll start with a brief overview of some of our key financial metrics for the third quarter.

Our third-quarter gross revenue and net revenue were up year-over-year and our net revenue for the third quarter was our highest of any quarter in the Company's history. Our operating income was consistent with the previous year at just about $33 million, and our diluted earnings per share was $0.33 for the quarter, exceeding the high end of our guidance and increasing year-over-year by 3%.

While our backlog was essentially flat from the previous year, it was up sequentially for the third quarter in a row this year. And I'm very encouraged by our excellent performance this quarter and mostly by the trends that we've been seeing over this year. I'll be discussing additional details associated with our performance later in this presentation.

For the third quarter, our US federal work was up by 3%, led by strong performance in front-end services provided to the EPA, the Agency for International Development, the Army Corps of Engineers, the various departments within the Department of Defense, and the Federal Aviation Administration.

Our state and local work is now about 16% of our business, which was up 19% year-over-year. The year-over-year growth is a combination of a select number of state highway projects we have, but mostly by strength in regulatory program support that we're providing to local governments with storm water, management programs and waste management programs.

Our US commercial work was down year-over-year by about 10% and is primarily due to the slow continuing orders for renewable energy construction projects.

And finally, international work, which now contributes 13% of our business, was up 25% year-over-year, this is the biggest growth area for us. Our increases in international work represent significant growth in the front-end services dominated by international mining and Canadian infrastructure projects.

We are organized into four business groups according to a project lifecycle. Three of our business groups provide front-end services, including consulting, technical support, and engineering design. We again saw our largest growth in our largest group by net revenue and total staff. So our ECS group, which provides front-end consulting and engineering services and a significant portion of our international work is also within this group. And it was this group that grew by 11% year-over-year.

Our Technical Support Services group and its revenues were stable with strong orders from the US EPA and continued support globally for its USAID programs and for the Navy environmental projects.

Our Engineering and Architectural Services group, our EAS group, hit their low point in revenues last fall and with this quarter's results have now increased their revenues and headcount for the past two quarters. This represents their successful transition from commercial development work to design services for the US federal government was something we started here about a year ago. And they're doing work in places like Europe, Afghanistan, and the Philippines for the federal government at this time.

And finally, revenue from our remediation and construction management group was down slightly year-over-year, but it was actually better than we expected. Revenues are stabilizing in this area based on recent awards in the US Gulf Coast, international remediation services in Kuwait, and military construction services in Afghanistan. Overall our net revenues were up this quarter by 4%, showing a return to organic growth and strengthening in some of our key markets.

For the quarter, we did receive $568 million of new orders and ended the quarter with $1.679 billion in backlog. This is the third consecutive increase in our backlog and for the quarter we had a book to bill of over 1, giving us more visibility into our future revenues.

As a point of clarification, and I do this on most of our calls, because we do account for this slightly different than many in our industry, our backlog only includes orders for projects where, first, we have a signed contract; second, where the funding is authorized from the client; and third, where the client has provided us notice to proceed on the project. Our backlog does not include any factoring of our contract capacity which is currently about $10 billion.

Now, some of the larger orders for the quarter include a $95 million indefinite delivery/indefinite quantity contract with the National Guard who is a new client for us, I always love to have new clients join the Company; and a new award for the Omaha Corps of Engineers. And our RCM, Remediation and Construction Management group, was awarded work for construction management projects in both Afghanistan and the Gulf Coast in the third quarter.

At this time I'd like to turn the presentation over to David King to present the details of our financial results. David?

Thank you, Dan. This is a solid quarter and I have a short report. Revenue was $562 million, an increase of 2%. Net revenue was over $370 million, an increase of 40%. Our net revenue guidance was $350 million to $370 million.

In addition to the strength in our front-end work, the increases are attributable to international mining work, as Dan mentioned, for our multi-national clients and state and local projects, particularly water-related programs and projects.

Operating income was $32.7 million with an operating margin of 8.8%. This is a strong if not a respectable margin. This is in spite of the fact that we had higher amortization cost and some acquisition-related charges which we started to expense during the quarter, during the year under the new accounting rules. EBITDA was $40.8 million. Our EBITDA margin was 11%.

SG&A cost was $39.7 million, a reduction of 5%. As you recall, we implemented a reduction effort in Q2 of this year in our RCM group to align cost, to reduce revenue. As a result, SG&A cost was reduced by about $2 million this quarter versus the same quarter last year. This also contributed to higher margin in our RCM group this quarter.

Tax expense was $11.7 million and tax rate this quarter was 36%. If I could refer you to our presentation in Q3 '09, we had a prior tax benefit of $9.7 million or $0.16 in EPS terms and an FY 2009 benefit of $2.3 million or $0.04 in EPS, totaling $0.20 in tax benefits. This quarter had a tax rate of 36%. Tax benefits yield $0.01. We have been focusing on tax efficiency in the past several years and many of these efforts are paying off.

Diluted EPS $0.33 this quarter exceeded our guidance by $0.02, [high enough] guidance was $0.31. On an operating basis, that is net of tax benefits; I will use $0.32 this quarter and compare that to $0.31 the same quarter last year. This is a 1% or a -- $0.01 or 3% improvement operationally, as Dan mentioned at the beginning.

Accounts receivable $517 million, an improvement of 7%. This is in spite of revenue increase and this is also a result of our continuing focus on DSO and collections. Accounts payable $153 million, a reduction of 10%, this is attributable to lower level of subcontracting this quarter versus the same quarter of last year. Net cash $111 million, this is the highest net cash level in Tetra Tech history.

Cash flow from operations $24.5 million versus $16.8 million in quarter last year. As you recall in Q3 2009, we received a $40 million tax refund from IRS. Without the refund, it was an improvement of 18%. Again, $24.5 million is a strong number. As we saw, we are increasing our FY 2010 forecast to $80 million to $90 million for the year.

CapEx $6.4 million, FY 2010 forecast for CapEx will stay the same at $20 million to $25 million. DSO 69.5 days versus 75 days of same quarter last year, an improvement of over five days. I expect our DSO to be in a range of 70 to 75 days in the coming quarters.

Again, net cash $111 million. Our cash balance at the end of quarter was over $120 million. We have no bank debt. We will use part of this cash to close the pending transaction in August and we plan to deploy our available resources to further our international expansion strategy in the coming quarters. Back to you, Dan.

Great. Thank you very much, David. Before I present our guidance I'd like to address some of the key aspects of our growth strategy. With over 50% of our annual revenues coming from the federal government, some people have expressed concern over the long-term funding for US federal programs and how that may affect us here at Tetra Tech. You can imagine we watch this all the time.

The services we provide to the federal government are a priority of the current administration, the Congress, and the American people. In fiscal year 2010, our federal clients at the EPA, USAID, Department of Defense, and the FAA received significant increases in their annual budgets for many of the areas that we specialize in. And we see future funding at similar levels in the coming fiscal years.

We've seen no indications of large program cancellations for these services that we provide to the federal government and we see this as being stable or even continuing to grow in these areas. And again, I want to emphasize the budget levels for the programs we're supporting in 2010 were significantly up from the previous year's funding levels that we've seen over the past decade, so these are really essentially all-time high levels for us.

For the US state and local markets, our strategy is working. We continue to focus on regulatory driven programs including watershed management, storm water programs, and solid waste management, and these programs are generally not discretionary, so it's given us a lot of stability at the state and local level.

For our US commercial clients, they're still under pressure from the economy, there's no doubt, so we are continuing to focus on supporting their regulatory-driven programs such as environmental remediation and waste management projects. But for our largest growth, we're proceeding on our plan to significantly expand the percentage of international work that we do.

We have a solid pipeline of acquisitions in our target markets of Canada and Australia and our existing Canadian operations delivered 25% growth this past quarter. And we do expect, as we included in our earnings release yesterday -- and we do expect to add a $100 million a year firm in Canada that provides front-end consulting and engineering services.

Since I expect this acquisition to be complete within the next several days, or at lease at the most the next few weeks, I'm providing this early notification of the acquisition. With this acquisition and others that we have planned, I expect our international revenues to reach 20% to 30% by the end of the year 2011.

I would like to present our guidance for the fourth quarter and for all of fiscal year 2010. Guidance for the fourth quarter is -- net revenue a range of $370 million to $390 million with an associated diluted earnings per share of $0.31 to $0.34. For the entire year we have increased, as I'll present here in a moment, both the net revenue and the earnings -- diluted earnings per share for the year. We've increased our net revenue guidance to $1.410 billion to an upper end of $1.430 billion with an associated diluted earnings per share of $1.17 to $1.20.

I would like to note under the first footnote, if you're following along on the webcast, that the revenue, the net revenue does include contributions from the pending Canadian acquisition, but excludes contributions from any other future acquisition.

We do anticipate, depending on the precise date during the month of August that we expect to close this acquisition, it should contribute approximately $10 million to net revenue and a di minimus or not material amount to the earnings per share.

Our fiscal year '10 guidance does include $0.12 of intangible amortization expense. It does include $0.10 of stock compensation expense. We have assumed a 38% annual effective tax both for the quarter and the year and it does assume 62.5 million shares of -- diluted shares that are outstanding.

In summary, we really had a very good quarter this last third quarter. All of our key metrics were up and I feel very good about the trend of the business and I've raised our guidance accordingly. And I'm really looking forward to expanding our presence in Canada and other locations to come. And with that, I'd like to open up the call to questions.

(Operator Instructions). Alex Potter, Piper Jaffray.

Good quarter. I was wondering if you could give a little bit more color on the SG&A leverage that you got in the quarter. Revenues were up 14% sequentially, but, as you noted, you had a sequential decline in SG&A. And it sounds like that came mostly from the RCM group. I was wondering if you could I guess drill down a little bit more and then also elaborate on whether or not you've still got more room to do something similar in future quarters.

I think, as I mentioned, it was quite specific to the RCM group. The rest of the business is doing well. In the meantime, we are not increasing our G&A cost structure throughout the company, so it's -- particularly if you think forward with a future acquisitions we will be able to engage those expansions without increasing our corporate structure and the G&A cost structure throughout the Company.

Okay, that's helpful. I was wondering if you could comment, too, a little bit on the commercial segment. Obviously some pressure there. I was wondering when you expect that to start turning around and showing some year-over-year growth. I know it might be somewhat difficult to comment on that exactly, but --. And then also more specifically on wind farm developments, any pick up in activity there?

I'll address wind first since it's the largest driver out of our year-over-year reduction, which is the renewable energy market and specifically wind. For us, we see it continuing to be slow. We've not seen it soften from what we've seen last quarter, but we've also not seen it pick up.

We have certainly heard from some of our clients they expect additional activity between now and the end of the year when the cash grant program will expire. So certainly that represents anticipation of the market picking up, but we haven't yet seen it.

We are beginning to expand looking at opportunities outside just the US, and so we have started looking into Canada. It appears there's a bit more certainty in some of the equivalent -- their equivalent of power purchase agreements seem to have a higher level of certainty there, so it looks like it's maybe a little bit clearer up in that geography.

That will be the primary driver for movement in our commercial market. Most of the other work we're doing, which is regulatory support work, is stable. We don't expect it to be -- have any downside, but it also won't have a material upside. It will be primarily in the renewable energy market.

Okay, appreciated. Then if we could switch gears over to the federal segment. You had touched on the substantial increases in budget that some of your key clients, federal clients have had this year. And I was wondering if you could comment on what seems to be kind of a disconnect between the increase -- I guess the growth in the federal budgets and your growth in net revenue coming from the federal segment. Do you think one catches up with the other over time?

Yes, there is a lag from the time that they put the dollars into the budget until they actually expend it, it isn't all expended at the beginning, and having it appropriated to individual projects does take some time. So I would expect it to pick up and to be much closer to the amount that they've increased their budgets by.

Okay, and then I guess just my last question here on -- another question related to margins, absent a turnaround in the commercial segment, which I know has historically been a little bit higher margin for you, do you think that gross margins staying in this 19%, 20% range is something that's reasonable?

Yes, absolutely. I'd just like to clarify one point. When I've talked about commercial, we've talked historically because of the legacy of the Company about US commercial. Much of the work that we're performing internationally, and specifically in Canada, are for commercial clients and specifically in the mining industry and other resource extraction clients. And those are growing quickly and are the largest contributor to the growth that you're seeing and what we refer to in our international category.

Okay, very good. Thanks a lot, guys.

John Quealy, Canaccord Genuity.

Good morning and congratulations on that quarter. Dan, can you give us a little characterization of the backlog still staying very resilient? Can you talk about what segments seem to be performing? Is it generally in line with the revenue and P&L trends you talked about? Could you just give us a little bit more there on the backlog?

Yes, I'd be happy to. I'm very, very happy with how our backlog has held up, not only that it has held up but where it's come from. It's come from the upfront consulting and engineering, primarily from the ECS group, although I'd say TSS has also made material contributions. I would say EAS has held its own and its book to bill has been about even, and we've actually seen weakness, continued weakness in RCM.

And so for upfront studies work, the consulting, the engineering and the front evaluation, make up for -- I hate to call it a lack of, but the soft orders in the construction and large remediation is particularly strong. It's mostly come from the federal government, certainly more than 50% of it has come from our traditional best client. And here's what it means to me and to us here.

Most of the projects that we'll do studies on will eventually move through to design. They'll go through design, permitting, and eventual construction. So as we continue to see more work in our backlog evaluating projects, moving to design, they will eventually transition to construction projects.

So we think that this front-end work for environmental permitting, clearance, evaluation, and design work portends very strong future opportunities for the backend construction work. The question is what's the lag between study and design and permitting to actually breaking ground and turning it into construction revenue? And historically, we've seen that range anywhere from six months to 18 to 24 months. So maybe two quarters out to six to eight quarters.

Great, thank you. Then just two other questions. On RCM going back to the operating margins, as that business recovers in the quarters to come now that we're at this 10% range again for the EBIT line, do you see that area -- do you see that margin holding steady? How should we think about RCM as business comes back in the out quarters?

Well, I think in the long term -- we've indicated this previously -- we expect a range of maybe 7% to 9%, so the 10 was strong. We feel really good about that. It's a combination of a few project closeouts where we had good performance that helped drive that above the 10% level, and we also saw an increase in our revenue.

As David indicated, an increase in the revenue for RCM with a lower cost basis because a reduction in the back office SG&A also helped that. I think in the long term as it recovers or as we begin to see it move back to growth, I think on a consistent basis we'd see it 7% to 9%, but there is some seasonality to it.

There's more construction work, more volume that takes place in the spring and summer, which you saw this past quarter and should see in the fourth quarter, and that's what will drive that number up.

Great. And then lastly, on the soon to be closed acquisition in Canada, can you just characterize the end markets? Is it similar to previous nukes, wind, metal mining? Can you give us a little bit there?

A lot of resource extraction. It is in a geography that's complementary to wear Tetra Tech currently is, so we see little or no overlap, so we feel very good about it. It is definitely the front-end and I will tell you that when we close it it will reside in our ECS group, that's our engineering and consulting services group, so the upfront work. And it does bring new clients, but it is in mining, mineral extraction, and general infrastructure throughout the Canadian market.

Great. Thanks, good luck.

Alan Robinson, Royal Bank of Canada.

Good morning, gentlemen. I'm interested in the segment break out or the business line break out. You've mentioned RCM, in the RCM segment you've been awarded some Gulf Coast contracts. How is your capacity now in this segment after some of the cost-cutting you've taken care of over the last couple of quarters? And does it appear that this segment seems to have bottomed now? Could you just comment a little bit there?

First of all, as far as it bottoming, we have not seen the number of solicitations or the opportunities materially increase. We had a good I would call it stable but still have some uncertainty in that group. The reason I mention that is the individuals that manage that and the executives in that group have assured me they have capacity to run a group probably double its size without any additional resources other than project staff they have available.

Because we continue to look at that and if it is soft we would look to make appropriate rightsizing of that business. But we could easily take on significantly more revenue in that group without any resource constraints at all.

Has the nature of the way that business flows into that group changed? I know you've discussed the lag between work filtering from ECS down to RCM in the past. Is there any evidence that you're seeing some contracts go directly into RCM now without first having worked for these clients on the ECS side?

There is some of that. Some of the work that we've done in Afghanistan fits the description you just provided. We didn't do the upfront work and actually some of the work in the Gulf has been implementation of design that's been completed by the Corps are some other -- some group other than just Tetra Tech.

I'd say that there has been some slowdown of the work that would transition from our ECS group on down into RCM because the nature of a number of projects being put on hold by different commercial carriers, for instance the best example is wind work where we've done upfront studies and either a power purchase agree hasn't been put in place or funding with some of these commercial developers have slowed down the process of it transitioning from a study and design into construction.

Okay, and then could you comment generally on opportunities in the Gulf perhaps stemming from the Macondo disaster, anything that looks interesting to you there that you can participate in?

Well, it is interesting, but we do not at Tetra Tech see that as a short-term catalyst for revenue generation. We do have 20 or 30 people working on the issue, on the project, but we're working for the EPA and for the state of Louisiana, so I think we're just over 30, to be precise. While we don't see it as a short-term material financial catalyst for the Company, we do see it as a long-term opportunity with restoration of the wetlands.

That's absolutely right in the core business for the Company. And an interesting part that we saw many years ago with oil discharges or the big spills in California, we actually expect that this is going to see changes in the regulatory environment that will create new opportunities across the country in the long term for us. So it will have a call it secondary effect that will be a contributor to long-term opportunities for us.

Okay, understood. And then just to round out, if you can provide any further details regarding the acquisition. I presume the $100 million revenue figure you discussed is a net revenue figure. And also how do you intend to fund the acquisition in terms of the split between cash and perhaps raising new debt?

I'll let David address the second portion on the financing. The $100 million is a gross revenue. That is total revenue. They are very similar to our other front-end businesses that have about 70% to 80% of net revenue to gross, so the net revenue on an annual basis is between $70 million and $80 million.

The difference between those two are quite often drilling services, laboratory services, and other things that we would subcontract. But the net revenue on an annual basis is closer to 70% to 80% and if you divided that out you'd see that would correspond to approximately the $10 million net revenue contribution I'd indicated that we've incorporated into our fourth-quarter guidance.

Okay.

In terms of resources for these acquisitions in the coming quarters, we have, again, $120 million in the bank. And for this pending acquisition we plan to use cash which is not taking money for us. And we plan to continue to deploy cash and, again, we have a credit line of $300 million with zero borrowing at this point. So together we can do a lot with that amount of money.

Okay, thank you.

Corey Greendale, First Analysis.

Good morning. First question, the idea that next year you would expect to get 20% to 30% of net revenue from international. Is the differential between the 20% and 30% primarily how many of the acquisitions in your pipeline you close and the size of the ones you end up closing?

That's exactly right.

Okay, and would you -- I know it's early to talk about fiscal 2011, but would you give us some sense of what you're assuming in terms of growth in the domestic business within that 20% to 30% international?

I would expect that the US domestic market will continue to grow for us. It's going to grow at a lower rates than these developing countries. That would include Canada, potentially Australia during the year, and other higher growth geographies. But I do expect the US will grow, but at probably lower single digits organically.

Okay, so in other words, if I'm hearing you right, the international -- part of this obviously is the acquisitions, but it sounds like once you acquire these businesses you think that organically those are growing faster than the domestic market as well?

Yes, absolutely. And again, I think a great example is what we saw this last quarter. And I don't want to commit to this, although for our operations on this call listening, they'll commit to this. 25% was the growth last quarter and that's organically year-over-year. I think that while that was particularly robust, it is going to be substantially higher than I expect in a slower growth economy here in the US.

Okay. And on the political front, I know you said on this -- in the past, but given your commentary about the priorities of the current administration and Congress and relative funding levels, if congressional control were to shift in the November elections, would you see that as incrementally negative from the current situation?

No, not at all. In fact, it's interesting that the party not currently in power in the House and Senate have taken an advocacy position to put some of the money back into some of the programs that we're focused on in the core and others. So, we've seen very bipartisan support for the priority programs that we're involved in.

Okay, and one more housekeeping question if I could. If you look at the details of the guidance in your slide, the share count for the full year, it implies that the share count would have to be up pretty dramatically in Q4, like 1.5 million shares or something like that. Is that just a ballpark number? Are there greater option grants baked into that or what would cause that to move up?

First, that's an average number and that calculation is based on stock price, which is a bit lower than what we'd like to see now. So that comes out with that 62.5 million shares average.

(multiple speakers) I will clarify, we do not anticipate at this point utilizing equity or share distribution for any acquisition, nor any unusual stock grants are anticipated for employees that would move that number.

Okay. That helps, thank you.

Rob Young, Wm. Smith.

Good morning. I was just curious if you could comment briefly on the change with fixed-price contracts relative to the prior quarter as well as on a year-over-year basis. Is that what you're seeing from a federal perspective kind of the client contract structure evolving into that is going forward?

There's two things that would affect that. On a year-over-year, we're seeing a little bit more movement of the federal government to fixed-price over cost-plus or T&M, so there is some contribution to that. But where it's really more noticeable is sequentially from the second quarter to the third quarter, and that's simply seasonality.

What happens is in our business in the winter months there's less construction work. With less construction, more of our overall revenue is cost-plus or time and materials. And then when you move into the spring and summer months, the third quarter for us is spring, April, May, June, more of the work starts up and that's associated with the fixed-price work. So you'll see a seasonal effect where it's slightly up on fixed-price, but that's simply associated with these field construction projects ramping up.

Okay, so -- but as you look at the fourth quarter of 2009 it looks like you had fixed-price of about 43%. Is that something that you would expect in Q4 of this year as well?

It should be pretty close to that. I think we were around 40% this last quarter, but it's 43%, 45%, somewhere in there.

So are there practices that you're implementing to just make sure that you're accounting for the cost as well as the revenue accurately? And there's procedures in place for that -- to just prepare for that?

Yes, we have started out many years ago implemented various procedures throughout the Company including fixed-price review at corporate and including our EAC every quarter, [undersubbing obviously]. And so we have various internal processes and procedures that get supervised and looked at at the highest level.

Okay, perfect.

Plus we have -- today have Oracle systems and we in Pasadena can look down at the project level in very much detail.

Okay, perfect. And then as commercial hopefully starts to kick up here in the future, would those tend to be on the fixed-price as well or what type of contract style do those typically fall into?

It really runs the gamut between really two primary -- time and materials and fixed-price. So to the extent that they are turnkey construction, typically the upfront work, permitting, design is on a time and materials basis and some of the implementation construction will be fixed-price.

Okay, and then lastly, can you just comment briefly on the backlog that you intend to draw down on the next 12 months?

Typically it's about 70% to 80%, so of the total just under $1.7 billion about 70% to 80% of that will be expended in the next 12 months. I'm glad you asked that question. Some firms or peers in our industry have contracts that have a much, much longer execution period, and so that backlog represents many years. Essentially all of that backlog would be expended within 18 months and probably really is getting close to 80% of it in the next 12 months.

Okay, and is it, what, about 50% or so or -- excuse me, 70% to 80% net income or net revenue from that backlog? Because it has the same proportion, net revenue over gross revenue that the standard financials have.

Yes, yes, the relationship of the revenue on a quarter is very similar to what's in our backlog.

And margins are relatively in line as well, I'm assuming?

Yes, that's correct.

Okay, perfect. That's all I have. Thank you very much and congratulations on the quarter.

Min Cho, FBR Capital Markets.

Thank you for taking my question. A couple quick ones. First of all, I know the last quarter you highlighted how much stimulus had impacted the quarter. So if you could give us an impact in the third quarter, just kind of the outlook for that in the next several.

And then also on your technical support services margins, I believe your guidance historically has been about 9% to 11% and it's consistently been over that 11% for the last several quarters. I was wondering what was causing that and if you expected to get back to the original level or potentially looking to raise the margin target?

Well, they've had -- let me start with the stimulus question. We've had relatively little contribution to the Corporation from stimulus since its signing in February of 2009. The total orders we've received, everything counting even the smallest task order over this past year and a half is about $80 million. Most of that was relatively frontloaded and the contribution this past quarter from stimulus was somewhere between $5 million to $7 million, somewhere in that range, so relatively small.

Future -- if the stimulus disappeared and there's no additional release of it from its original funding, it would have little or no impact on where Tetra Tech is, so it's not being funded or continuing in the future. We don't see having an impact on Tetra Tech.

As far as the test margins, they've done very, very well. A lot of it was its very rapid growth of additional task orders for USAID and even the EPA and the Navy. And so the leverage in that business' back-office costs were very favorable to us.

So we didn't increase costs at all, as David had indicated, and the capability of the Corporation of leveraging our back-office model was particularly acute there, which translated right to the bottom line and put them up at the 11%, 12% margins for a few quarters.

I am not looking to change their targets margin range at this time; although I do expect that they'll be up. Or they'll maintain about this double-digit number but probably not at the 12% level.

Okay, thank you.

Ladies and gentlemen, this will conclude the Q&A session. I will now turn the conference back over to Dan Batrack to conclude.

Well, thank you very much for your questions, excellent questions. It clearly shows you understand our business and see where we're going. I appreciate your support and look forward to talking with you next quarter and for our presenting of results for the entire year and we look forward to presenting our guidance for fiscal year 2011. Thank you very much for attending and goodbye.

This concludes our conference call for today. Thank you all for participating and have a nice day. All parties may disconnect now.