Q4 2024 Tetra Tech Inc Earnings Call

Thomson Reuters StreetEvents11-15 16:19

Participants Dan Batrack; Chairman of the Board, Chief Executive Officer; Tetra Tech Inc Steven Burdick; Chief Financial Officer, Executive Vice President; Tetra Tech Inc Leslie Shoemaker; Executive ...

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Great. Thank you very much, Sherry, and good morning, and welcome to our fourth-quarter and our entire fiscal year 2024 earnings conference call. It seems like it's been a long time ago, but it's actually been a week and two days ago that we just had a major election here in the United States, not only for the executive branch with the President, but the Congress, both the Senate and the House, and it's interesting. Starting a week ago Tuesday, during the election, I think right around midnight Pacific Time, we started getting phone calls, e-mails and other inquiries as to -- what is the change in the administration mean to Tetra Tech and its business?Questions came from shareholders, came from analysts, came from different stakeholders. Now, as a company, we've been around for more than","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"TTEK":"德照科技"},"translate_title":"2024年第四季度Tetra Tech Inc收益看涨期权","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"TTEK":1},"content_text":"Participants\nDan Batrack; Chairman of the Board, Chief Executive Officer; Tetra Tech Inc\nSteven Burdick; Chief Financial Officer, Executive Vice President; Tetra Tech Inc\nLeslie Shoemaker; Executive Vice President, Chief Sustainability and Leadership Development Officer; Tetra Tech Inc\nTimothy Mulrooney; Analyst; William Blair & Company, L.L.C. (Research)\nSangita Jain; Analyst; KeyBanc Capital Markets Inc.\nRyan Connors; Analyst; Northcoast Research\nTate Sullivan; Analyst; Maxim Group\nMichael Dudas; Analyst; Vertical Research Partners\nSabahat Khan; Analyst; RBC Capital Markets (Canada)\nPresentation\nOperator\n Good morning, and thank you for joining Tetra Tech's earnings call. As a reminder, Tetra Tech is also simulcasting this presentation with slides in the Investors section of its website at tetratech.com. This call is being recorded at the request of Tetra Tech, and the broadcast is the copyrighted property of Tetra Tech. Any rebroadcast of this information in whole or in part without prior written permission of Tetra Tech is prohibited. With us on today's call from management are Dan Batrack, Chairman and Chief Executive Officer; Steve Burdick, Chief Financial Officer; and Leslie Shoemaker, Chief Innovation Officer. They will provide a brief overview of the results, and we will then open up 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 those 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 GAAP financial reconciliations are posted in the Investors section of Tetra Tech's website. (Operator Instructions) With that, I would now like to turn the call over to Dan Batrack. Please go ahead, Mr. Batrack.\nDan Batrack\n Great. Thank you very much, Sherry, and good morning, and welcome to our fourth-quarter and our entire fiscal year 2024 earnings conference call. It seems like it's been a long time ago, but it's actually been a week and two days ago that we just had a major election here in the United States, not only for the executive branch with the President, but the Congress, both the Senate and the House, and it's interesting. Starting a week ago Tuesday, during the election, I think right around midnight Pacific Time, we started getting phone calls, e-mails and other inquiries as to -- what is the change in the administration mean to Tetra Tech and its business? Questions came from shareholders, came from analysts, came from different stakeholders. Now, as a company, we've been around for more than about six decades, and we've seen a lot of different transitions of administrations. In fact, we've been here through every one of them. And looking back our position had been through experience, whether or not it has gone either Democrat or Republican, it really hasn't had an impact on Tetra Tech's business because of the critical nature of the work that we perform as a company. But some have said what has happened in the past may not be an indicator of the future, and this is a different transition one like we've maybe never seen before. So it did give us a moment pause to go back and take a look at our business and reflect on what do we see based on our best insight at this moment. Now of course, this administration hasn't actually been sworn into office and haven't taken it. But we did take a few moments to go back and take a look. And I thought I would share with you right at the beginning before I start my prepared remarks. What are some of the things that we saw in our business and how does it actually interact and how it might be affected with this administration? The first thing we look at is, well, what are we busy doing today? (inaudible) the big things that is important and that we're actually engaged in right today. And one of them is, no doubt, coastal protection here in the United States. And we see that being more important than ever. It's only been 30 days -- a little over 30 days since a pair of large hurricanes, Helene and Milton impacted Florida Coast and the Atlantic seaboard. I'll tell you whether or not you're moving to Democrat or whether a Republican, the ability to protect your costal lines, protect the citizens and address the impact of these storms no party. And we see that that is just as critical tomorrow as it is today and as it has been over the past 60 years for us. So I see no impact there. We're providing some of the most critical services for our defense clients and not just in the United States. United States, the United Kingdom, Australia, and I think the services that we provide there are more critical than ever before, whether or not it's modernizing the infrastructure, whether or not it's supporting the growth, whether or not it's ports and harbors and all of that work finds our service is absolutely necessary. So I think that the work that we're doing for our defense clients would be unaffected. And in fact, if that actually is a more higher priority with respect to investment and growth, I think that, that will be a contributor to the company. No doubt here in the United States, onshoring or rebuilding capability for high-end manufacturing is a big growth area. And whether or not high-end manufacturing, you're referring to chip fabs or whether or not you're referring to data centers, those are things that we've done. And we've, in fact, spent the last 10 years building up a high-performance building practice that is over $0.5 billion in size, and it does the most sophisticated, most cutting-edge support of the building structures that will house all of this high-end manufacturing, and we couldn't be in a better position for this. Whether or not the CHIPS Act is here or not, the amount of capital investment being done from these high-end manufacturers is going to cause us to go forward. So we think we're in an excellent position there. That's interesting. The core of the company, of course, is water. No doubt about it. We talk about 85%, and I'll tell it's headed towards 90% of all the work that we do is around water. And the modernization of the water supplies, whether or not it's protecting our water supplies from cyber-attacks, whether or not it's modernizing remote monitoring and remote automation for running them or it's treating the most unique emerging contaminants, that's what Tetra Tech does. And the higher the requirement for that, the better we're in a position that we're situated for that. And I would say, for the most part, 90% of the funding for our municipal water systems, whether it's water treatments for wastewater and sanitation or clean water delivery, that funding comes actually at the state and local level and from the actual consumers. And so I see that unaffected. One of the areas, of course, we looked at very closely is renewable energy. Renewable energy is not new. This didn't come in the last year. It didn't come in the last five years and the last single administration. We've seen this come through Republicans back to Democrats and back to Republicans now. And we actually see that the demand is very high. It's not only at the federal level, whether it's the IRA, which is really a renewable energy support -- stimulus program. But I'll take the cost actually here in the United States for renewable energy is fully competitive with any fossil fuel that exists today. So the cost per kilowatt hour for renewable energy can stand on its own in most cases. And for those that would say the subsidies don't make the US the best place to do renewable energy in the event that there is actually a change in the IRA, I'll tell you nobody is in a better spot than if this goes to places like Australia, which has huge amounts of investment going into offshore wind. We're one the largest players in offshore wind permitting and development. In fact, if not one of the largest, we're the largest. And the same is true in the UK. So I feel that there's plenty of reasons it's going to move forward here in the United States. But if it doesn't go here to the US and it goes to these other geographic locations, we're in a great spot to actually capitalize from its movement. Now of course, one of the areas that I'm most excited about, and we -- while I say we're not going to talk about it financially yet, I am going to talk about it directionally. The work that we're doing with subscription software solutions, as we call our 3S service line, software subscription services or solutions, it's gone from a concept just a couple of years ago to actually being launched and being subscribed and asked for by our clients and it's actually contributing to making a difference. And Dr. Leslie Shoemaker, who leads that program for the company, is going to speak more about that today. And I'll tell you, some have asked me over the years, what's the new frontier? Is it new water treatment? Is it moving to a new country? Is it moving to -- is it going to be to build out what we have in Australia? I'll tell you the new frontier for Tetra Tech is actually in the software solutions and the use of AI to make our business not only better internally but to be a huge technical differentiator against any competitor in the marketplace and to differentiate ourselves not only to be number one in water that we have been but to make the technical divide larger than anyone has ever seen before from what we're providing. So those are some of the things that we're looking at and the impact to as we close out the fourth quarter and we're just a little over a month into our fiscal year 2025. I hope to address many of these both in our prepared remarks and certainly looking forward to any questions you have on these accounts. So before I prepare my prepared remarks, I, of course, have Steve Burdick, our Chief Financial Officer, who will provide details of our financial performance during the year, capital allocation priorities (inaudible); Dr. Leslie Shoemaker, who will provide remarks on our key water-related growth markets and the continued expansion of our recurring revenue services for our consulting markets that we're supporting now. With that, I'll initiate my prepared remarks, as I mentioned at the beginning that we had a great fourth quarter and fiscal year 2024. And it is noteworthy that both the quarter and the year, we achieved record results for all of our key metrics of revenue, net revenue, operating income, earnings per share and backlog. And I do want to emphasize record high points with respect to all those financial metrics in the fourth quarter. I think one might quite often look at is individuals or firms say they had a great year. Well, they say they had a great year and don't focus on the fourth quarter because they were carried by their first three quarters. We left with the biggest beats of any quarter in the year, our fourth quarter, and the biggest momentum and, of course, the high point, backlog growing to the most visibility we've ever had going into the next year. For the year -- for fiscal year 2024, our revenue increased by 15% to $4.32 billion. And notably, for the first time, our annual operating income exceeded $0.5 billion for the year. If I want to be more precise, I'd say $510 million, as you can see on the slide, which is an increase of 22% from the prior year. The strong performance resulted in an earnings per share of $1.26 for the year, or if you wanted to go pre-split, that would be $6.32, an increase of 21% year over year. In the fourth quarter, we also had record performance. As I just mentioned, our revenue was $1.37 billion in the quarter, up 9% from last year. And I want to make a note that up 9% is up from an incredibly strong fourth quarter we had a year ago, which was an all-time record by a big number. So this 9% is not off of an easy comp. It's comp a very difficult comp. And of course, that would make the fourth quarter we just had the highest revenue quarter in the history of the company by a long ways. Our operating income grew even faster than our revenue though, and it was up 13%, up to $153 million in just the fourth quarter. And we ended the year, as I just alluded to, with an all-time high backlog at $5.38 billion, the highest backlog in the company's history. And to put it into real terms, we're up about $590 million from the same quarter last year or an increase of about 12%. I'd now like to present our performance by our segments. And we have two segments, our Government Services Group and our Commercial international. Both segments contributed significantly to our great performance this last quarter and frankly, for the entire year of fiscal year 2024. But in the fourth quarter, Government Services Group, or GSG, segment had its revenue increase by 12% year over year to $513 million. We also generated a really strong 16.1% margin, up 40 basis points from the prior year. The GSG, or Government Services Group's, margin expansion was a result of just excellent performance across our entire base, and I really want to commend all of our technical project managers and staff that performed this work. It was just really an excellent performance as far as high-end deliveries and high margins in the fourth quarter. The Commercial International Group, or CIG, segment was actually on a relative basis, the best we've seen from them in really a long time. They delivered a 15.6% margin, the highest that we've had out of that group in really close the last decade, and it was up an impressive 230 basis points from last year. And they also grew their revenue on a 5% rate year over year. The margin expansion within CIG was due to a combination of strong project performance in our international operations and the continued expansion of RPS' margins, which finished the year in the fourth quarter above 12% operating margin, up about 200 basis points from the prior year. As laid out in our RPS strategy, they are now fully integrated and operational on all of our enterprise systems that we have here within Tetra Tech. And we expect RPS to approach margins in the mid-teens by the end of fiscal year 2025. I'd now like to provide an overview of our performance by customer. Work for our US federal clients was up 16% from the same quarter last year. Without the contributions of Ukraine, which was actually a material contributor, our margins with the US federal government were up about 13%, with increases in our civilian and defense environmental and infrastructure programs. Our state and local revenue grew 9%, driven by the work that we do in water system modernization and advanced water treatment for cities and municipalities all across the United States. Our US commercial net revenues were up 5%, driven by growth in data center design services, high-voltage power transmission design and environmental remediation. And finally, our international revenue, which now represents almost 40% of the company, grew at a 6% rate. International work is driving growth in the United Kingdom and high-risk water programs that are large contributors and our differentiated high-end infrastructure building services that we're performing across Canada, the United Kingdom and Australia. I'd now like to discuss our backlog, which increased to an all-time high, as I had mentioned earlier, $5.38 billion, up 12% year over year. And I'd like to note that this metric is not uniformly presented by all firms that you're going to speak with. In fact, Tetra Tech only reports backlog on orders that are contracted, funded and authorized for us to go do the work. This quarter, we were awarded significant contract vehicles that expanded our contract capacity with the US government. Contract awards include capacity in sustainable water infrastructure, defense cybersecurity and system modernization. We also received a very nice state and local award, which is a single award contract, for watershed resiliency services for the Utah Army National Guard. We continue to win new water contracts in the United Kingdom that leverage synergies between Tetra Tech and the RPS water teams that we have jointly working in these markets. And in the quarter, we were awarded a new $1 billion, in fact, $1.05 billion framework contract for water services in Northern Ireland. This contract builds on our collective long-term relationships with this client, significant local presence and our global water capabilities. At this point, I'd like to turn the presentation over to our Chief Financial Officer, Steve Burdick, who will go through some of the details of our financials. So Steve?\nSteven Burdick\n Thank you, Dan. So I would like to now provide an update on the results for the fiscal year as well as our working capital and cash flow. Revenue, net revenue, both increased by 15% over fiscal 2023. Our top line revenue hit a record $5.2 billion and net revenue was an all-time high of $4.3 billion, driven by strong end markets across all of our geographies. Now coming in stronger -- even stronger was our operating income, which increased at a higher rate than our revenue. And as Dan discussed earlier in this call, we continue to focus on the front end for water and environmental projects which are carrying higher margins across all of our end markets. As such, operating income for the year was $501 million or up 40% year over year, and our operating margin was up 60 basis points over last year. And the adjusted EBITDA margin saw an improvement of 70 basis points over last year. In comparing our fiscal 2024 results to our 2030 goals that we set out at our inaugural Investor Day earlier this year, I'm glad to report that we hit the high end of our revenue growth range of 15% and exceeded our EBITDA margin forecast of an annual 50 basis points improvement. Our EPS, this increased to an all-time high of $1.23. The improvement in our core operating margins was the key contributor to this 21% increase over last year. On a pre-split basis, our adjusted EPS came in at $6.32, which exceeded the top end of our EPS guidance range that we had previously provided for fiscal '24. Now I'd like to provide an update on our working capital and cash flow for fiscal 2024. The cash flows generated from operations for the year were $359 million. These cash flows exceeded net income for the year. And when looking back over our historical financial results, we noted that our cash flow from operations has exceeded net income every year for over two decades. Our focus on working capital and cash flows has resulted in our DSO reflecting an industry-leading KPI of 54.9 days. We consider this efficient and effective management of our working capital to be sustainable over the long term as we continue to make cash flows from operations of priority. This lower DSO metric also 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. We've made significant progress in our leverage to reach our target range of 1 to 2 times. At the end of the year, our net debt on EBITDA was at a leverage of 1.0 times. If you recall, we acquired RPS a little less than two years ago. The net debt leverage ratio was more than double at 2.2 times. As we continue to execute on high-quality operating results with strong cash flows and a healthy working capital, we will continue to have the ability to invest in strategic initiatives, which will provide higher and longer-term returns for our shareholders. Now for those following along in the presentation, I would like to now present our capital allocation overview. We have the strongest balance sheet in the history of our company as well as a significant amount in liquidity available to invest in organic and acquisitive priorities. In addition, we have a well-balanced mix of fixed and floating rate debt to mitigate interest rate risk as we look to investments in key strategic priorities. We improved our capital structure to take advantage of the credit market to support our financing needs. I want to point out that we reduced our average interest rate by 143 basis points to 3.94% this year. We have a strong pipeline for acquisitions, which is aligned towards the global and technical leaders, especially in water and environmental spaces where we have led the market for over 20 years. And regarding our dividend program, I want to announce that our Board of Directors approved a $0.058 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 (inaudible) paid. Also, I want to remind our shareholders that we do have available a significant portion of the $400 million from our stock buyback plan that was approved by our Board of Directors for future consideration as part of this capital allocation strategy. As a result, I would call it, historically strong cash flows and a solid balance sheet, Tetra Tech is one of the few companies who have been able to execute on a capital allocation strategy whereby we provide high returns for our shareholders through cash dividends, stock buybacks and investments in strategic opportunities, both organically and via acquisitions. I'm really pleased to share these strong results for fiscal 2024. I want to thank you all for your support. And I will now hand the call over to Dan and Leslie to discuss just a few of Tetra Tech's future opportunities as well as our 2025 guidance. Leslie?\nLeslie Shoemaker\n Thank you, Steve. I'd now like to address the clear priorities set by our local, state and federal governments and maintaining secure water supplies and protecting their essential water resources. In the United Kingdom, we're seeing increased investment in water that continues to drive the of new contracts and accelerated implementation schedules for water treatment and the elimination of spills into their water waste. Aggressive goals set forth in this year's AMP 8 cycle, which is their five-year planning cycle, provide incentive for our clients to seek the efficiencies that are provided by our subscription software solutions. For example, we are bringing to the United Kingdom, our Csoft subscription solution that is the award-winning system for optimization of water systems. Csoft has been adopted by cities in the United States and in Europe, resulting in the savings of over $1 billion in capital costs. So this is not an untested technology. This is actually a leading-edge technology. Another priority in the UK is AMP 8 cycle is reducing system-wide water leakages. Today, an increasing number of the utilities in the United Kingdom are using our WaterNet system to help them identify and optimize their leakage programs. In the United States, water programs continue to be a priority to address both growth and consumer demand. For example, California has just passed a new $10 billion water bond measured by a wide margin. Similarly, Colorado and Minnesota also passed measures to redirect funds from and watery activities to their important water programs. And we were recently awarded a $56 million design in Virginia that really exemplifies our clients' desire to have innovative water treatment that we provide that fully integrates PFAS, emerging contaminants and system modernization without increasing their costs. I'd now like to talk just for a moment about coastal impacts due to extreme events that Dan mentioned earlier. They're increasing in frequency and severity. In the United States, 98 events, over $1 billion have occurred just since the year 2020. damage assessments for Hurricanes Helene and Milton, which occurred within the last 60 days, are for upwards of $100 billion. Today, our teams are deployed across North Carolina and Florida to help our clients recover, plan and address these recent disasters. We work with our state, local and commercial clients across the United States and especially in the hurricane prone Atlantic and Gulf coastal regions to mitigate risk, adapt their systems and respond to these extreme flooding events when they occur. Our technology is also helping our clients get ahead of these problems. This is the next frontier by mitigating risks, providing more effective early warning systems, enabling more rapid response post disaster. Our FusionMap and OceansMap subscription software solutions leverage real-time satellite imagery in data feeds, enhanced scanning capabilities and AI-enabled modeling to rapidly provide information to decision makers. We have just recently signed new enterprise agreements for commercial clients to use our software for their coastal and flood risk management programs, now covering more than 75,000 square miles of water and land. Our users are also applying OceansMap subscription software to manage in real time to specialized mitigation response needed for offshore oil spills and chemical spills and rapid mobilization of mitigation strategies. We're seeing increased interest across commercial and government users to adopt our software solutions and platform their extensive data sets to help future-proof their programs. I'm really looking forward to providing additional updates on our subscription software solutions, or 3S, program in future quarters as this new emerging market for us continues to advance. I'd now like to turn the presentation over to Dan to discuss our client outlook.\nDan Batrack\n Great. Thank you very much, Leslie. I'd now like to cover our outlook on the US federal spending in the sectors that we serve for them. But before I get to the specifics of our US federal revenues, let me just point out, and if you're following along on the presentation materials, you can see that about 40% of our revenues today are with international clients who are actually contracted for outside the US. Another 30% of our work is for US commercial and state and local markets, leaving approximately 30% of our revenues are associated with our portfolio of federal government clients, which is pretty evenly split between defense, civilian and USAID programs, each representing about 10% of our overall revenue. In recent years, including through the previous Trump administration, we've seen significant growth in our defense and civilian services, primarily through the expansion of our federal IT practice. With the combination of defense-related resiliency and modernization work, IT cybersecurity and aviation services, about two-thirds of our federal work is growing in very high priority -- with very high priority programs. Our USAID work, which includes a variety of water, energy and economic programs worldwide, typically are for multiyear commitments. Many of our ongoing programs are in strategically important regions such as the Asia Pacific region, which includes the South China Sea that are key to US global interests. While the specifics of the new administration priorities are not yet defined, we expect that USAID programs will be used in a combination with defense and diplomacy to implement new foreign policy objectives that are coming with the new administration. We've set our US federal outlook at between 5% and 10% growth range, recognizing and embedded a conservative estimate for our USAID services. So we have taken into account what we anticipate will likely be a component with the new administration coming in. In fiscal year 2025, our outlook for the growth areas for each of our four client sectors are shown on the webcast that we have, and we'll go through each of them in detail. For our federal clients, we expect to grow it, as I just indicated, at a 5% to 10% range with continued stability in our defense resiliency and water services for this client. For state and local, we expect to return to our typical double-digit growth rates, ranging between 10% to 15% with increasing demand for secure and modernized water supplies. For commercial clients here in the United States, we expect the range to be between a 5% and 10% growth, driven by advanced manufacturing and new brownfield redevelopment. And internationally, we expect our growth rates to be in a 5% to 10% range, driven by increased demand for renewable energy in the United Kingdom and Australia, growth in our water programs across the United Kingdom and Ireland, and expansion of our high-performance building services worldwide. I'd now like to present our guidance for the first quarter of fiscal year 2025 and for the entirety of fiscal year 2025. For the first quarter, our net revenue guidance range is from $1.09 billion to $1.15 billion, with an associated diluted earnings per share range of $0.32 to $0.34. I will note that this range represents -- this guidance range represents a 10% growth or double-digit growth in our net revenue and an 18% growth in our earnings per share as we are guiding for the first quarter. For the entire year, our guidance for net revenue is $4.565 billion to $4.765 billion, with an associated earnings per share of $1.40 to $1.50. We are including the assumptions for our fiscal year 2025 on the slide. It includes a detailed amortization schedule by quarter. So you can calculate into specific EBITDA margins. We do anticipate we will have $35 million for the year or $0.09 per share that is included in our guidance, effective tax rate of 27.5%, depreciation of $25 million for the year. Interest expense, which as Steve spoken to, has actually come down to a range of somewhere between $31 million to $35 million. And with the stock split that took place toward the end of this last fiscal year, we'll have a total of -- we do have a total of 272 million diluted shares outstanding. And of course, our guidance for both the quarter and the year exclude the contributions from any acquisitions that may join us either in the quarter or the year. In summary, we see a strong demand for our differentiated leading with science services across the water and environmental markets that we work in. We achieved all-time record high revenues, operating incomes and earnings per share. And with a record-high backlog, approximately $5.4 billion as we enter 2025, we've set our earnings per share guidance to grow at a midpoint of 15% year over year. And with that, Sherry, I'd like to open the call up for questions.\nQuestion and Answer Session\nOperator\n (Operator Instructions) Tim Mulrooney, William Blair.\nTimothy Mulrooney\n With the -- my first question is just on your renewables practice with the recent Trump election and really all this emphasis on (inaudible) and fossil fuels and rhetoric around unleashing US energy independents and potentially repealing the IRA. I just wanted to ask, how are you thinking about overall growth in your renewables practice over the next year or two? And also, how large is that business for you today? And how has it performed lately?\nDan Batrack\n Yes, it's a great question. I'll start with what do we have today. Our renewable energy practice is about $200 million a year. And what many people don't recognize, although we've shared it in a number of our disclosures, the biggest part of it is actually hydropower. So it represents about half of the renewable energy. It's cheap, it's clean, it's renewable and is plentiful, both here in the United States and Canada. And interestingly enough, the largest power generation in renewable energy in North America is actually hydro with respect to total output as measured in gigawatts. And we do a lot of that work across Canada also, and we're quite engaged in that work for large clients in Quebec, which is actually the province of the largest amount of hydropower generation. Most folks think about renewable energy and they immediately go to wind and solar and some of the other emerging areas. Our wind would be the next largest, and it's been growing quite quickly. It's been up in the teens -- high teens to 20%, and most of that's been driven by offshore wind, and it's not just here in the United States. We've seen that the offshore wind in places like Australia that have made very large commitments to offshore wind generation has been growing very quickly. And we've actually pressed released a number of these, and I'm sure we'll have more to come in that particular area. So overall, it's a double-digit growth for us. We do not think it's been tied to or supported uniquely by the IRA. And we actually think, as of my opening comments, it's actually the economics driving it. And I think if you do look at the United States offshore wind, it would be along the West Coast. States of Washington, Oregon, California have very high renewable portfolio requirements with respect to reducing their fossil fuel reliance. The same is true on the East Coast, from Maine all the way down through New Jersey, which is really the Atlantic. And I see that those commitments by the states are continuing to drive much of this -- the growth in these areas. So I really think this is an area that's going to be resilient through this new administration. And I think in many areas, they'll actually be supportive, not to the exclusion of fossil fuels and other clean burning power generation alternatives, but in addition to. So it's not going just renewable. I think it will be a combination of all of the above.\nTimothy Mulrooney\n Right. It doesn't have to be one or the other, and it's being driven by a lot more than just US federal, right, with the state and local and international. So that's very helpful. And a lot of it is hydro, so okay. Very clear. I just have one more for Steve really quick. It looks like your leverage ratio is now sitting at about 1 times EBITDA. With this in mind, can you just remind us what your capital allocation priorities are as we head into fiscal 2025? And the reason I ask is because if I'm not mistaken, you don't typically include future M&A or buyback into your EPS guide, correct?\nSteven Burdick\n That's correct. So when we look at our priorities, as you heard from Leslie and Dan just now, we are looking to invest first and foremost strategically in our organic growth in those operations. Second, we've had a cash dividend program that has increased double digits every year for the last nine years, 10 years almost. We're looking to invest in strategic opportunities that are going to add value to the company and our shareholders through acquisitions. And we did put a pause on our stock buyback program from the time that we acquired RPS because our net debt-to-EBITDA rate was upwards of 2.5 or 2.2 times. And so we wanted to get that back within the range or towards the lower end of the range. And so we paused our stock buyback program over the last 1.5 years. But as we're looking at acquisitions, and we have a strong pipeline, if that -- if we still have leverage available, then we will look a lot more closely at our stock buyback program to become a part of that capital allocation, I'll call it, the four pillars, so yes.\nOperator\n Sangita Jain, KeyBanc Capital Markets.\nSangita Jain\n So Dan and Steve, if you can explain to us how we should understand the ranges of growth on slide 14. What they include like -- for example, what's on your low end? And what would it take to get to the high end?\nDan Batrack\n That's a good question, Sangita. The range that we have, I would say, is partially around, let's say, at the low end would be a reduction -- a material reduction in some of our US federal government funding. And I would say, to be even more specific, I think it was really around international development. The reason we've put some caution in that side, in fact, I think we put much of that being flat over the year. We think that the beginning of the year will continue to be strong. We have programs funded for the entire year. So I think we're appropriately conservative. But at the low end would be that there would be something unexpected, and we actually saw a reduction in that portion of the business in USAID or international development. By the way, I say just for US federal is driving that. We don't expect to see any change in our other international development contributions, which are for the United Kingdom and from Australia. So it's really UK, Australia and the US. At the high end, if it actually continues to, I'd say, in the same area, that's sort of our swing variable, if you want to refer that to that, since we've not seen clarity of what the new administration will come with, we think that's still very early in this process. Strong investment in this area could actually move us to the high end. I think that we -- I think that the amount of backlog and the insight we have in other parts of the business doesn't really have a very large amount of variability. I wonder if that could help us on margins to move us to the higher end of EPS would actually be more work on high-performance buildings and some of the chip fabs and high -- and data centers that carry higher margins and are obviously in high demand right now. But those are sort of the key items that drive us to the upper end or the lower end of the ranges that we provided.\nSangita Jain\n Great. That's helpful. And if I can follow up with one. So we don't know what the direction the new administration is going to take, and we've heard all kinds of numbers about budget cuts, et cetera. Is there a way to pull forward some backlog before the new administration takes office? Or I'm just wondering the view of bureaucracy will just not move that fast?\nDan Batrack\n I think they will move that fast, Sangita. And in fact, I think we've seen a number of different areas that between now, and I would say that not just the end of the calendar year or first quarter but it could go into work that would be done even through the inauguration in late January. So it's still a little bit early. We're -- the impetus to move more quickly is about a week and two days old, so it's still in this early period. But we have heard that. We've already received a request for a number of sole-source task orders that would come to us. And I think where you're going to see it, it'd be interesting, you would actually see this step, I don't call it a step function, but the step up and backlog, you'd see that the end of our first quarter, which we'll report this is our fiscal year report a little later because of all the final closeouts we're doing. It's really not that far away. We'll report in just over 60 days how we're looking on the backlog. And it wouldn't surprise me that much to see a notable step-up when normally, in the first quarter, you see it come down because of Christmas, Thanksgiving, holiday season, and you just finished the government closeout where they do their final funding at the end of the year. So if you see an increase in our backlog in the first quarter, it's slightly attributable to what you just referenced in. I don't like to use the word hopeful because I don't like to rely on hope. But I think it's actually a very viable action that would take place.\nOperator\n Ryan Connors, Northcoast.\nRyan Connors\n I had a question for you on sort of the mix effects of the budget priority shifts. And a very nice slide on 13 kind of splitting out the defense, civilian and USAID as the three major buckets there. Can you just kind of reset us on what the different broad strokes, what the margin profiles, how they vary among those businesses and how potential shift in budget priorities could impact the mix in terms of profitability?\nDan Batrack\n Yes, that's a really good question. And certainly, we have thought about actually including the margin profile. It's -- I'll start with the lowest and also the one that's the most consistent. And that's the US International Aid or USAID. It's the lowest because the work is provided to us at a cost-plus basis. From the government standpoint, it's pretty straightforward. If the actual amount that's going to be incurred in certain areas is somewhat unpredictable, we're not able to be fully defined because working in remote developing countries can have lots of different variables. We do have the work on a cost-plus basis. So from a financial standpoint, we don't carry any risk because we're paid for our direct costs and our indirect overheads and other items. But the fees typically or the margins on it are kind of like somewhere between 6% to 8%. So it is the lowest by really in the entire corporation by quite a wide margin. The profitability in civilian and defense are somewhat similar. The work that we're doing in defense modernization and IT, I would say, is in the higher end. And I would say it moves toward mid-teens. And I would say that time and materials work we would do in civilian and other areas is probably between the 10% and 15% range. So I would say the high tech, mid-teens the T&M work we do on environmental programs that might be on the time and materials are not fixed price might be in the range of 10% to 15% and then USAID at the lower. Now the part that was implicit in this or should be understood by our investors are if -- and I've made this comment at the tail end of our Investor Day back in May, the question was, what were the implications of a significant reduction in USAID work due to Tetra Tech's business? And my immediate comment then, because I've restated again here is, the margins will go up. Our margins will go up quite a bit because if you have less low-margin work, the remaining business is higher. Now of course, we love all of our clients, including USAID. We do critical work. There's many great things about them. But it is an artifact of that margin mix for the federal government that a lower revenue from aid does result in a higher margin. In fact, it would move us to the upper end of the margin ranges that we -- that are included in our guidance for the year.\nRyan Connors\n Got it. That's a really helpful overview. And then, I guess, relatedly, can you just talk conceptually about how the flexibility of your workforce to adapt and be redeployed as those budget priorities shift? In other words, are there -- I mean no one debates Tetra Tech has many smart people. The question is how fungible other skill sets to move into different areas? Or are there areas where you'd have to sort of cut and then grow other portions organically with new hires? I'm just curious how you see that shaping out from a human resource standpoint.\nDan Batrack\n Yes, that's a really good question. I get asked that and it seems like one that's because as they work flows when you go into recession and commercial work goes down, the question is how many of them are -- how many of you work staff are fungible to move to state and local or federal or can they work on some of the locations? I think that overall, we think about 80% of our staff are fungible and that number, 80%, 85%. That remaining 10% to 15% are individuals that are highly specialized in a given field. So if we have someone who is an expert solely on water chemistry, it's probably more difficult to put them on a civil engineering project where we're doing geotech work. But with the exception of what I would call the subject matter experts that are highly disciplined and are really at the very tip of the pyramid or we call it the most high end of a subject matter experts globally, those folks are generally not as transferable. And I would say that very unique singly technology or market-focused individuals is maybe 10% to 15%. But a wastewater engineer, it makes no difference. If we're treating water for discharge requirements, if it's at a military base, if it's at a city or if it's at a commercial industrial manufacturing, those may be significantly different with respect to how we classify our revenues, but there's no difference with respect to the water chemistry. The physics that apply to it happen to be the same whether or not you're in the United Kingdom or whether or not you're sitting in Perth or right here in Los Angeles. So those are fungible. And I would say the one thing that the pandemic gave us to an extraordinary Tetra Tech. This 80% used to be somewhat geographically bound because faxes and e-mails are only so good. By moving to the ability to be a virtual company and have the ability to work real time on screen, transferable, we have the ability if we grow in Australia. If there is a reduction of work in the US federal government somewhere, we can work virtually or seamlessly in any of the geographies. So I would say that the level of and the ease of it across all of our platforms is better than and -- better and more seamless than ever before. And thanks to Steve Burdick and our Chief Information Officer, CIO, Craig Christensen and really so many people in the company, we are on one platform as a company. So it's not if you have someone working in one location versus another or if you're in a renewable energy versus municipal water, the financials, the measurement, the -- it's all real time, and we can do it seamlessly with respect to our back office because I've heard people tell me, our staff is 80%, but you can't get them from here to there. Sure, they would be if it's possible, but you have to have the systems to do that. And we have those systems.\nRyan Connors\n Yes. And then one last one, if I could just sneak it in and get your comment on the House because when I saw the stock reaction this morning, I was a little surprised with how soft the stock is. But I guess there's two pieces of news overnight. One is the earnings, but the other is Republicans officially taking the House which obviously controls the purse string. So just your thoughts on that particular piece of the election outcome as well.\nDan Batrack\n It's interesting. I think most speculation was it was going to go Executive Branch, Senate and House. So I guess you're right, overnight, it's gone from speculation to determination. It's over. It's the case. I don't really see -- I really don't see that making a difference. If it were 60-40 or 70-30, you would say it's much more polar, but you've seen actually the appointment of the -- in the Senate, Speaker for the Republicans already has moved to what I would call a moderate or this isn't a -- one person makes a decision and everybody that direction. And I think that it actually is going to do what's best for the country, what's best for moving forward on developing. Of course, the areas we're interested in coastal protection, water supply (inaudible) supporting critical infrastructure. So it going -- it's actually going interestingly enough Republican, I think in some ways, is better. And you might say, why do you think that? The one thing people have asked me is what do you lose sleep on? We keep you awake at night. And what I've said -- I've said for years, at least the last five, six, seven years, is impasse between the two sides, and that was the government shutdown. To me, it's not really an issue. And for Tetra Tech, it's not an issue if you go left or you go right, it's just go somewhere because we actually so diversified with our clients. If you just go somewhere, we're fine, we're absolutely fine. We've done this. The problem is where you're going to fight up until Friday night or Sunday night with a complete government shutdown and having clarity with respect to a party, it would seem like that's much less likely than what we've had before in all of these divided scenarios. So I don't know, in some ways, having clarity with respect to where we're going actually suits us quite well.\nOperator\n Tate Sullivan, Maxim Group.\nTate Sullivan\n Great. Looking at slide 14, and you addressed it earlier, I was a bit surprised with international targeted growth rate 5% to 10% below state and local, given the AMP 8 spending cycle in the UK doubling compared to the prior five years? Are there specific offsets to that consideration or maybe that the AMP 8 spending comes more than a year forward? Can you comment on that, please?\nDan Batrack\n Well, it's a good question, Tate. I don't see that there's any pullback from us on the AMP 8 cycle, so the water work that's going to proceed in the UK. But I would just say that it's -- we're starting from a relatively small number given the overall international revenue we have. So I think it's just straight weighted averages. So if we go from -- if we grew it at 50%, we're maybe around $100 million. So if you go from $100 million to $150 million, about 40% of our overall revenue is international. So it is growing disproportionately more. But when you actually calculate it into the overall volume that we have internationally now, it still puts us in that range of 5% to 10%.\nTate Sullivan\n Okay. And then 5% to 10% has been your usual sort of growth rate range international. I think it doesn't -- that doesn't point to a slower growth in Australia or any other countries, does it?\nDan Batrack\n No, it doesn't. And I will make a point. For those that have followed Tetra Tech now for several years, you might take a note that we had a 10% to 15% forecast for fiscal year '24. But I will point out that that was inclusive acquisitive revenue that came to us with RPS that was not in the comparison year over year with the prior. So we had the first quarter fiscal year '24 where we had RPS revenue but not the year before and actually into January also. So it was a third of the year, we had RPS contributions. So that's why we moved it up to 10% to 15%. But if you normalize it for that contribution, this is very consistent with what we've had in the past.\nTate Sullivan\n Okay. And just to sneak a couple more in there. Are the targets from the Analyst Day early this year for fiscal 2030 and the growth in EBITDA margins still intact?\nDan Batrack\n In fact, Steve has been doing a lot of work on that and Steve's comments were exactly on track for that. And the first -- I guess, the months because we did it in May that we presented as the months -- the remaining month of May, June, July, August, September, we were ahead of those metrics. So we were north of those, and Steve has done all the modeling, I think you'll find us exactly on track for that. And I think the noteworthy point that I'd like to emphasize, and people can put out five-year targets or even three-year targets. And if they're back-end loaded, I think there's inherent risk because how clear is your crystal ball out three years or five years. Ours is not back-end loaded. We said we expect to actually perform at these rates on a relatively linear, consistent basis, and we'll put our numbers on the table right now. And that's what we've done both in the time since the Investor Day back in May. And the forecast that we have for fiscal year '25 are right in line with that. And one item somebody has pointed out to me in the hallway of Tetra Tech said, I saw that 10% growth rate of organic growth looks like it's a little short of the number with respect to the Investor Day number that you put up there at 15%. And my comment was, yes, we just didn't put in the acquisitions that have ranged between 5% to 10%. And the Investor Day numbers only included at the low end of that range. So we don't want to put it to set unrealistic expectation or timing or to put pressure on ourselves to do something that's not fiscally disciplined. But if you put in the acquisitions and look back over, I'll say, the past 10 years, and frankly, I think you could go back 20 years, the contributions from acquisitions that have come every single year more than will add to the organic numbers to put us on track or ahead of the metrics that we presented at Investor Day.\nOperator\n Michael Dudas, Vertical Research Partners.\nMichael Dudas\n Following on your discussion from Tate's question on acquisitions, so maybe you can remind us -- the balance sheet is in great shape. Is the software angle something that you want to kind of accelerate? Is it take a lot of capital to do that? Or is it more internal on how you can try to drive that type of business? And given the scale and the size of Tetra Tech, I know we're disciplined on the acquisitions though, to achieve these targets, will the acquisition pipeline need to be converted a little quicker or maybe the size or the type of companies that you bring on will be helpful to contributing over the next, say, '26, '27 and beyond?\nDan Batrack\n Yes. There's a couple of questions there. Let me go to the software one first. One question I've been asked on our software -- our subscription software solutions business, or 3S, somebody had asked me or their head, it was really interesting that in a forum of the industry, some had made a comment, where Tetra Tech can't be doing that, they must be reselling someone else's software. And I want to thank for great clarity on this forum, we don't do any of that, zero. And I know it's a convenient comment to -- for those that can't follow us into this area where we've had great success. But it goes to your question with respect to is it capital intensive? No. Does it require staff that are experts in this area, both the domain expertise in water chemistry, all the different disciplines that we have? Yes. But those are resources we have. So it's not PP&E, so property, plant and equipment, no. We have it built into our $25 million a year CapEx, which is about [0.5%]. So you can see that it is the ultimate professional services low capital requirement. And most of it is paid for by our clients. And so our model has been to sell at least initially the software we're using in conjunction with our consulting services that were being funded for. So it's really a self-funded or funded that self is in Tetra Tech or this funded through our projects. So no, it's not an unusual capital draw with respect to being able to grow this. So that's -- and the second portion --\nMichael Dudas\n About acquisitions you've done, what you're -- looking at sizing, what's required in the\nDan Batrack\n We are looking at -- it is interesting, we are looking at acquiring really a couple of areas. One, technology, and I'd say technology with respect to software that will automate or use AI to provide a more valuable product to our clients. So we're looking to acquire there. We're also looking for automation, which was like convergence that we did just a few moments -- a few months ago, which was for automating the technologies that we're using in water treatment plants. And that's for modernizing them for automation, converting it to digital, cybersecurities who are looking there. And the final is we're looking for water companies that would do similar things that we do here in the United States for water utilities, in Australia. So I think we have a great presence, of course, here in the US and Canada. A great presence in that market in the United Kingdom with the AMP cycles. But I think we could definitely do well with adding more of that client relationships in the water and utility industry in Australia. So those are the areas we're looking at. And as Steve indicated, we have plenty of, as Steve called it, dry powder, but availability of our balance sheet. Now with respect to how many can we do? For Steve's model has run out 5%, 5% on $5 billion, about $250 million. So that's really -- we're not looking for a single $250 million revenue company per year. It could be two $125 millions and it could be five $50 millions. And those really fit our model best in companies between about 100 people and 1,000 people, which is sort of $10 million in revenues to $100 million in revenues is our sweet spot, and there is a very large number of those out there and available. And they don't come from brokers to us, although I should say the brokers do bring them to us. But how we source our deals is through our teaming partners, our JV partners, our key subcontractors, and in some instances, our most respected competitors that come and join forces with us. So that's how we find them. That's the size we're looking for. And it's a pretty low bar with respect to are they available? And as Steve indicated earlier, we've got a pretty full pipeline of those.\nOperator\n Sabahat Khan, RBC Capital Markets.\nSabahat Khan\n I guess similar to the kind of the earlier question around being able to pull the M&A lever a little bit. I think you talked about you've done some work on the margin side, I guess. Let's say there is maybe a bit of a moderation in the top line or demand or even during a transition. Is there some extra juice, so to speak, on the margin side that you can sort of pull on in the next kind of one to two years while the kind of the new administration settles in and the funding gets flowing again?\nDan Batrack\n Our margin model is driven by a couple of things, actually three things. Number one, we think we can increase and it's actually built into the company as we use more digital tools, we use AI to actually increase the efficiency. So we can have individuals that actually are more productive than ever before because we have more state-of-the-art tools that have more value being output per employee. And what we're going to see then is we see a higher margin per employee. So that's one item. And I would say that's internally focused, how can we actually be better, have more production? It also goes to how we can get more revenue per employee using these digital tools and it's at a higher margin. Now I commented in the past in order to make that really work, we need to do work more on a fixed price basis. So the value that's an output from an employee is both provided to the client and to us. So both way. That's one area that we have margin embedded. The second is we're currently about 65%, what I'll call consulting, which is higher margin, lower risk work. I'd like to see that over the next few years increase from 65% to 75%. I'd like to see it go up. So I'd like to see actually the other portions of the business that could be disrupted by AI or could be commoditized. And funny enough, those are lower-margin businesses. So if we -- the more we transition to the front end -- to the front-end technical consulting and consulting engineering, the higher margins we have. So that's the secondary by shaping our portfolio. And frankly, that's why you saw a little bit lower growth rates in our international because we've been doing that actively in components of the business that we have internationally, where we've been deemphasizing areas that are we see moving toward commoditization and lower margin and emphasizing what we have on the consulting side. And you saw that in the margins in the quarter, and you've actually seen it in our CIG segment going up. So that's the second is what I'll call shaping the portfolio to go more to the front end that carries higher margin. That's the second area. And the third is I've got a secret weapon here, and it's called Dr. Shoemaker, and all of our colleagues that are actually investing and growing our software subscription business, which, by the way, it's not just higher margins for us, for sure, it is that. But the best part is it's providing more value to our clients. Things are the old proverbial, better, cheaper, faster, you can get two, you can't actually do all three. Tetra Tech's 3S program actually allows us to do all three. We can do it faster. We can actually do at a lower price point for our client. And the quality of the product is actually higher given the amount of time that you are spending on a product. So I will say that, that vexing problem better, cheaper, faster, you can only get two of the three. With Dr. Shoemaker and her colleagues, we're actually solving that complexity that hasn't been solved before. So -- and that drives margin, Sabahat. So those are three different reasons that will drive margin in our business in the coming years. And yes, that's in the next '25, '26, '27. But I'll tell you the direction we're heading there, you should include '28, '29 and '30.\nSabahat Khan\n Great. And I guess just along those lines of the journey ahead, over the last several years, I think the funding in the end markets that you're involved with has gone up quite a bit. A lot of your peers have talked about their focus on the water environmental market. Can you maybe just talk about just the competitive backdrop as that funding has increased, as the focus on water has increased? And maybe how are you continuing to -- or like what are your levers to differentiate yourself? Is it track record? Is a tool? And just if you can just talk about your competitive position as what it seems like from our end, just the focus on your end markets has increased among the peer set?\nDan Batrack\n Yes. It's a great question. It's funny. We were sort of in the sleepy backwater if you go back a decade or more back in the 1960s. When we started up in '70s and '80s, it was kind of backwater in '80s and '90s, but it sounds like we're in a pretty attractive neighborhood lately, so everybody wants to come live over here. But the work that we're competing for is -- and what's the number one lever if you're breaking into a new market for the most part? I'm going to offer you a lower price. And what our clients are not buying is a low price. What they're buying is a solution. And what they want is a solution that is going to work and will actually be technically differentiated so that it ends up with lower capital cost. I think Leslie's comment on some of our programs saving our clients over $1 billion. So it is interesting. A big sledge hammer is not going to solve the problem. You actually need a better solution. And the better solution is not only less dollars upfront, it's also less dollars in its long-term operating or OpEx cost and actually it's reliability. And sometimes that's not even factored in. So we actually have multiple different solutions. Now I would say some of the work that others are pursuing is work that we're leaving behind. The work that we're saying that is, well, I'll say, commoditized and that they can actually send off to their -- I think they're doing a great job setting up their centers of excellence in places like India and places like other low-cost centers. And I think they're great to do that. They should go do that. And we've been very clear that when you move into some of these areas that have been commoditized or being awarded on low price, I don't even want to compete in those areas. We should give it to them. And in fact, I'd be happy to provide them that. So I would say they're moving into water and environmental areas, but typically into the commoditized portion of the business. And I would say -- some have said, well, they've hired one or two professors out of college X. Does that make them an expert? No, no. It means that they have taken one step toward more inefficiency by becoming an academic center. Some use fancy names for these, but you actually want -- if you actually look carefully at the performance in these differentiated segments that they report, you'll see lower margins, lower growth and fewer clients. And so I think that -- I'm not going to say we have no competitors, but I don't think the competitive landscape has materially changed even though they want to move to our neighborhood.\nSabahat Khan\n Great. And maybe one last quick one, if I can sneak it in. Just as you look at the M&A landscape, how much of a focus is? Obviously, you did RPS out in the UK, but how much of a focus is non-US M&A or just trying to expand in regions at the market over the coming years?\nDan Batrack\n I think that I have been asked that, if it's -- are you looking for some parity between US because the US is 60%, so we contract in the US versus 40% international. I've had some ask, I don't know if it's just for symmetry, are you somehow want to get to 50-50? I like the US. I think the US has the largest economy. They put the highest priority on water, environment and sustainable infrastructure, which is what we do. I'm not going to say that if we find a good firm that's located in Australia, New Zealand, Canada or UK, company to be better, not bigger, and I'll tell you, there's an awful lot here. And what I would say is the common denominator regardless of geography is intellectual property, IP, and they bring technology and a technical differentiation to widen the gap between Tetra Tech and others on a lead with science approach. That's what we will look at (inaudible) So it's not geography we're looking for, intellectual property.\nOperator\n This will conclude the question-and-answer session. I will now turn the conference back over to Dan Batrack to conclude.\nDan Batrack\n Great. Thank you very much, Sherry. I appreciate you handing it back to me. And I want to thank all of you for being such a supporter of us during our fiscal year 2024. I'm glad to report to those that are shareholders that I hope we met or exceeded your expectation for that year. We're committed to doing the same thing in fiscal year '25 and beyond. And I'm really looking forward to the next call that we have with you as we finish Q1 to report how we've started off the first quarter of fiscal year 2025. And with that, I hope you have a great rest of your Thursday and week, and I look forward to talking to you on our next quarterly call. Thank you.\nOperator\n Ladies and gentlemen, this concludes our conference for today. Thank you for all your participating, and have a nice day. 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