Dan Batrack - Chairman and CEO Steve Burdick - CFO.

Sean Eastman - KeyBanc Capital Markets Andrew Wittmann - Robert W. Baird David Rose - Wedbush Securities.

Good morning and thank you for joining the Tetra Tech's Earnings Call. By now, you should have 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 Steve Burdick, 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 security 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 some non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted 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 the call over to Dan Batrack. Please go ahead, Mr. Batrack..

Great. Thank you very much Jennifer and good morning. And welcome to our second quarter of fiscal year 2015 earnings conference call. While Steve Burdick, our Chief Financial Officer will present the specifics of our financials a bit later in this call, I will start with a brief overview of the company and some of our key financial metrics.

In the second quarter, we delivered solid performance from our ongoing operations -- the water, environment and infrastructure group, WEI group and resource management and energy group. Overall for the quarter the company generated $565 million in total revenue with $433 million in net revenue.

Both total and net revenue for the WEI and RME business groups were up organically 3% from the prior year on a constant currency basis. Operating income was $31 million, up operationally 26% from the prior year. And our earnings-per-share were $0.31 for the quarter, up operationally 45% from last year.

And most notably, our backlog was up 11% year on year for the ongoing operations of WEI and RME segments. And it was also up 5% sequentially giving us excellent visibility as we enter the third quarter of this fiscal year.

Tetra Tech’s Board of Directors did authorize a 14% increase in our quarterly dividend which is consistent with our commitment to return capital to our shareholders. Overall we feel very good about the company's performance over this past quarter and our outlook for the remainder of the year. I’d now like to present our performance by segment.

In the second quarter, the WEI business group regenerated 40% of our net revenue from ongoing operations. WEI was up 2% on total revenue for the quarter and down slightly, or 3% on net revenue. This reduction in net revenue from the prior year was primarily associated with slow orders from the United States federal government's Department of Defense.

The WEI segment otherwise had good performance in the civilian federal programs such as EPA, the FAA and civil works portions of the US Corps of Engineers. The state and local work for the second quarter in this segment was particularly strong with total revenue up 16% year on year for the WEI business segment.

WEI delivered 9% margins for the quarter which is actually in line with our expectations and reflects the lower margins that we typically generate out of our Canadian consulting and engineering operations during the winter months. The RME business group generated about 60% of our net revenues for the quarter and they were up 7% over the prior year.

RME delivered an 8% margin with strong performance in power generation and oil and gas midstream pipeline work. I’d now like to provide an overview of our performance by customer – by our end customers. Our international net revenue for both WEI and RME was up 12% year on year and it now represents about 35% of our revenue from ongoing operations.

International growth was led by our oil and gas pipeline services in Canada which had very strong revenue generation from the projects that we performed during the winter months. Work from our US commercial clients was up 6% year on year and now represents 29% of our ongoing work for the company for this past quarter.

Our commercial revenue included an increase in environmental projects really across the country, especially for complex sediment remediation work that we've done for some of our very largest clients.

And finally, our US state and local work was up 3% which is a direct result of increase that we’re doing work for cities and municipalities especially in the southern and western portions of the United States.

Now our US federal work represented 25% of our revenues – of our net revenues from our ongoing business this past quarter which is down 10% year on year primarily due to the timing of orders and slow project startups from the Department of Defense.

However I do want to mention that the other work that we do for the federal government which is non-Department of Defense-related work is actually doing quite well, and in fact, all of the civil works programs that we are working for, for Environmental Protection Agency, the Federal Aviation Administration, National Science Foundation, the civil works of US Corps of Engineers and NASA are up year to date.

And our USAID work which is really one of our large federal clients has maintained revenues at the same level as last year this past quarter.

Our federal bidding in our proposal activity does continue to increase and that includes the Department of Defense and I expect our federal contracts to begin releasing more task orders over the next few months although I will say this is a bit later than we expected as we enter this fiscal year.

We had a good second quarter of orders and contract wins. On a constant currency basis, our WEI and RME segments backlog were up 11% year on year and 5% sequentially as I mentioned a few moments ago. Our backlog growth was driven primarily by a broad base of orders across both the private and our public sector clients.

The commercial work orders included oil and gas, power and environmental remediation services.

Our public sector work and new orders included major state and local awards, like a press release that we recently issued for Washington DC program for sediment remediation contract that will support the restoration of the Anacostia River in the Washington DC area.

We also received a very large and significant number of the US federal government awards for the USAID, US Agency for International Development, the Army Corps of Engineers civil works and the US EPA. And as we previously indicated, we’re continuing to reduce the RCM backlog as we complete the remaining projects that we have in place.

At this point, I’d like to turn the presentation over to Steve to present the details of our financials.

Steve?.

Thank you, Dan. I will begin with the fiscal 2015 second-quarter financial overview and in a bit more detail. So overall our second-quarter operating results came in line with management's expectation regarding both the guidance ranges that we provided for net revenue and EPS.

First, comparing the second-quarter results this year to last year, revenue decreased by about $22 million or 4% to $565 million. Now this decrease was primarily due to our decision to exit the non-core construction markets now reported in our RCM segment.

And these year-over-year comparisons were also negatively impacted by foreign exchange rates due to the strengthening of the US dollar over the last year. Our net revenue decreased to $433 million or about 5% for the same reasons that gross revenue decreased.

Although lower than prior year, the net revenue results were within our expectations and the guidance ranges provided due to the strength of our core markets in water, environment, resource management, energy and infrastructure. Additionally our midstream oil and gas work was particularly strong in the second quarter of this year.

Our revenue and net revenue were both up 3% on a constant currency basis and excluding RCM, as Dan talked about last year when we compare this year to last year. Now this growth was organic and indicative of the trends that we see in our business. Now operating income was about $30.4 million in the second quarter.

This operating income was primarily driven by project execution and favorable results in both our WEI and RME groups.

The operating income when we compare this year to last year was impacted by significant non-operating gains on revaluing and acquisitions related to earnout liabilities of about $21 million last year compared to about $3 million this year.

Also, the earnout gains in this year's second quarter were offset by legal settlement charges of about $3 million and lower adverse results due to foreign-exchange translations of about $1 million. So excluding these, what I call, non-operational items, operating income actually increased about 26% on a year-over-year basis.

Our EBITDA was $41.1 million in the second quarter. EBITDA was driven by the same factors as our operating income and grew about 12% this year versus last year’s second quarter excluding the previously described non-operating items.

And on the same basis, our EBITDA margin was approximately 10% which is as we expected due to the winter seasonality effect. SG&A, this was about $42.5 million for the quarter, which was down about 4% from last year.

This decrease in our SG&A cost compared to last year was consistent with our planned decrease in overhead and back-office costs as a result of winding down the non-core construction market. Tax provision resulted in a net expense of about $9.6 million this quarter.

The effective tax rate was about 33.5% and we expect a 32% effective tax rate for the second half of fiscal 2015. Now as I mentioned at the beginning, our earnings-per-share of $0.31 was within our guidance and EPS was down 35% on a GAAP basis. However this last year’s results included about $0.26 from earnout gains.

Now excluding the earnouts for both periods and the other non-operating items I previously mentioned, EPS was up about 45% compared to last year. Next, I would like to highlight a few of the more significant balance sheet items.

As a result of project billing milestones and higher DSO in the RCM segment, we did experience about a 1% increase in our net accounts receivable balances. The accounts payable balances decreased to $136.3 million due to a lower payment paid subcontracting activities for the year when comparing the current year to the prior year.

These activities took place mostly in our federal and state government projects in the RCM segment. Our net debt compared to prior year increased about $101 million to $140 million. Although our net debt increased as a factor of EBITDA, we’re at about 0.8 times.

We have positive cash from operations, as I will explain in the next few slides and we’ve allocated a portion of our capital to shareholder returns through both dividends and share repurchases. So as I noted in our discussion of the balance sheet, we did have positive cash flow from operations.

Our results from the second quarter improved over the prior year period and we expect strong cash flows in the second half of the year such that our 2015 forecast indicates cash from operations to be in the range about $145 million to $160 million.

CapEx is similar to prior year and on track with our previous guidance for fiscal 2015 and we expect to continue our spending in 2015 to remain as initially forecasted in the range of about $15 million to $25 million and this amount continues to represent ratio of less than 1% of our annual revenue.

Now days sales outstanding of 92 days are higher when compared to this year or compared to last year at this point. And the actual DSO was not in line with our expectation, and our DSO is higher primarily due to the performance in our RCM segment. However on the other hand, the aggregate DSO in the front 2 segments is about 77 days.

And so our efforts for fiscal 2015 are focused on reducing our DSO to below 75 days with an ultimate goal to be closer to 70 days when we exclude the impact from RCM. I’d now like to provide an update on our capital allocation program.

Our current leverage, as I talked about before, is a little less than one times EBITDA, or our target leverage range is about 1 to 2 times EBITDA. As such we have, what I call, plenty of dry powder to invest both in growth through acquisitions and organically and to return cash to shareholders.

Although our long-term target is to return about 33% of our free cash flow through a mix of dividends and buybacks, we have taken advantage of our leverage capacity in 2015 on a year-to-date basis to provide a greater return to shareholders.

And as such we completed about $49 million in buybacks this quarter and about $4 million in cash dividends were paid out. On a year-to-date basis, we’ve repurchased about $69 million in buybacks and paid about $8 million in dividends.

Now today I’d like to announce our further commitment to providing value to our shareholders and as Dan mentioned earlier in the presentation, our Board of Directors has approved the declaration of Tetra Tech’s fifth consecutive quarterly dividend.

And this dividend has been raised to $0.08 per share or about a 14% increase from our previous dividend of $0.07 per share. This increase reflects both management’s and the board's confidence in our ability to continue to generate strong free cash flow.

And this amount, if annualized, continues to represent about 15% of our annual free cash flow and more than a 1% yield to our current stock price. This increased dividend will be paid on May 29 of this year to the shareholders of record as of May 14.

Now an important aspect to understand is that this cash dividend and stock buyback will not impact our growth strategy from either in our organic or acquisitive standpoint.

In fact, we expect to be very active in the M&A market and move our leverage to our target range and as Dan will discuss in a bit more detail, our focus continues to be on a strategy of long term growth through water, environment and energy related services both in the public infrastructure and in our commercial industry services.

So while we remain committed to a significant share buyback program over the next two years, we will update our shareholders on our capital allocation plan in each of the next quarterly conference calls. And with that, I will hand the presentation back over to Dan to discuss our outlook and our business strategy in a bit more detail..

net revenue for the third quarter is in the range of $420 million to $470 million with an associated diluted earnings per share of $0.40 to $0.44. For the entire fiscal year 2015, our net revenue range is $1.7 billion to $1.85 billion for net revenue again with an associated diluted earnings per share of $1.60 to $1.70 per share.

And I will note that our cash earnings per share for the entire year we expect to be within the range of $2.30 to $2.55 per share. Some of the assumptions if you are following along on the webcast are listed here in the slide. We do anticipate a total of $21 million of intangible amortization expense.

Non-cash expense which represents $0.23 per share that’s incorporated into the guidance, as Steve had mentioned earlier, of 32% effective tax rate for the remainder of fiscal year 2015, which should be for the third and fourth quarters, 62 million average diluted shares outstanding, and it does exclude future acquisitions.

This guidance does include that of Cornerstone but I will note that given the late date of acquisition for the fiscal year and the intangible amortization that it is negligible or no contribution to earnings-per-share in the guidance. And it does assume the current FX rates that are in place today and no material degradation of exchange rate.

In summary, we had solid performance in the second quarter with year-on-year organic growth and significant growth in our operational operating income and earnings per share during the quarter. Our backlog was up 11% year on year with strong orders from our commercial and public sector services across all of our operations.

And we have excellent growth opportunities both in new and emerging markets that are going to help us expand our business in areas where we are a market leader in water, environment and energy.

We’re very pleased to welcome the new addition of Cornerstone to our team to support our environmental and solid waste growth strategy and we do, as Steve had mentioned just a few moments ago, we do expect to have an active M&A season over the coming year.

And I will note and repeat what Steve had indicated earlier that we did raise our dividend this quarter by 14% and we expect continue to deploy our cash to add value for our shareholders and to support our growth, both internal and through acquisitions. And at this point, I’d now like to open the call up for questions.

Jennifer?.

[Operator Instructions] Our first question comes from the line of Tahira Afzal with KeyBanc Capital Markets..

Good morning, gentlemen. This is Sean on for Tahira today. I guess first, I just like to get a little bit of perspective on this future opportunity on the water infrastructure side.

In the past, water infrastructure spending at times has been a little slow to ramp up and if you could just frame that scope and the timing of a potential meaningful contribution to backlog and earnings, that would be very helpful..

Sean, water infrastructure is really quite a broad area but I will take one area that’s really quite topical and current and that’s funding and timing of water infrastructure projects out in California and other drought affected states regions.

So last fall $7.5 billion was authorized through bonds here in California to address a number of different water infrastructure and some water management programs. That number is actually half of the real number because that's a matching fund with both municipalities.

So as state puts money up to a large extent to local cities and counties, we put matching funds up.

Those would include and the largest number of that, about half of that is associated with, often referred to as storm water which is really the lowest cost of water which is capturing run-up from rain or other types of precipitation, snow, rain anything else. So that is -- the studies are taking place now.

I expect that that will be smaller dollars for investigations assessment alternative analysis. The state has and the governor has recently indicated he wants to fast-track the environmental permitting process to move these to construction.

So I’d expect probably two to four quarters of slow ramp up and then the project actually with the detailed design and then quickly follow through to construction.

So I expect that while there's a lot of headline -- headline notices in these areas, I think it's still a few quarters before it converts to direct revenue and EPS that you would see materially affect our top and bottom line..

And then my second question is, just curious about the resiliency you’re seeing in your midstream business and if you could maybe just compare what kind of activities are driving that this year and how that's different from last year, whether that be geographies, customers or different pipe sizes. So any color there will be helpful..

That’s one of the bright spots for us. We actually have several price spots but the oil and gas performance on the midstream right up there is the top for us. I’d say both in the - for us it's really two geographies as far as countries, it’s Canada and the US.

Now the US, since a lot of the work is driven by the fracking process and gas production, we are quite concerned but a lot of the pent-up production that was put in place earlier is focused on moving it to market.

At the top we would be potentially challenged in that area and it's really been flat to slightly up so the US has exceeded our expectation but the primary growth was – came out of Canada and it’s from longer-term projects we have and in fact, there are handful of the few multi-year projects we have and they were smaller diameter lines and same type of work we had before and so Canada drove the largest increase, the majority of the increase year-over-year and that's because a lot of the fieldwork and construction activities take place in the winter time when there is the freeze and you can’t actually get out to the sites.

So I believe on the midstream certainly for Canada, the biggest quarter would be Q2 or the months of January, February and March for us. So I feel quite good about the backlog and the outlook on the Canadian side. It remains a great visibility not only through the rest of this year but actually into 2016.

And the US where we’re doing not a fieldwork, it’s in construction management or oversight, the engineering work are smaller in the size. So the outlook isn't quite as long but actually has not deteriorated. It looks pretty good for us right now..

Our next question is from Andy Wittmann with Baird..

Dan, I guess I want to get your thought on guidance. There is obviously some moving pieces in the quarter with the $6 million gain offset by – I guess there was probably $6 million charge in the RCM business. There is also the 3 million put and take with the legal settlement and the reversal, the offset on that one.

I guess were those specific charges and benefits contemplated in your previous guidance? I guess really what we’re trying to get at here is how much of the guidance slight tweak higher was operational versus items that were realized in the quarter?.

Well, I will address each of those three buckets, I will just do them backward. How much of it was increase in our guidance, we’re raising the lower end of our annual guidance by $0.05, all of it was from operational, absolutely all of it.

Now to backup to contributing questions with respect to, what could be referred to as unusual items, I do -- I would agree one of those two are unusual and that there was a $3 million pickup from an earnout payment that we believe would not take place.

So we took that into income but we also had a very unusual single -- it wasn't a group of legal settlements. It was a single legal settlement that was extraordinary and certainly is quite extraordinary for us, we call those out, it was nonoperational.

It was really quite different from anything we performed on our project site and so those two offset for a net zero impact at the corporate line.

Now with respect to the $6 million gain that you referred to, I had mentioned this coming into the year, fiscal year and also last quarter that as we complete construction projects I expect them to be quite variable and until you finish them, you quite often don’t know exactly what the final tail of the tape is with respect to the cost.

However we did anticipate if we spent more to complete projects which is what happened in the second quarter, we were going to use and liquidate equipment that were on those projects.

So as part of our construction management division, we have a fair amount of equipment that we purchased over many many years and so as these projects complete, we do the final true-up of whether or not we had a gain or loss based on what we expected.

In this last quarter we had more losses than we expected to finish those jobs but as we had anticipated coming into the year, we’re going to sell that equipment and use the proceeds of that to offset the performance in that group. So if everything went quite well, maybe we would finish the projects better, sell the equipment and have a big gain.

But I will tell you our safety valve was when those projects complete, the equipment that we had associated with those was to sell it and have those in offset. And that's what took place within RCM. It was all within RCM. So I considered non-core anyway and actually turned out as offsets just about where we had anticipated.

Although I’d be much happier if we were finishing these jobs at a better economic position. But I will tell you that’s part of the reason we’re getting out of that business..

And then two more questions if I might, going back to oil and gas, it sounds like you were up on some specific projects that are giving you multi-year visibility.

Would you say – so your results – would you say the market is good? In other words, do you think that your backlog can grow in this business? Is it good enough to grow your backlog recognizing your burn rate is going to come down now as you're not in those prime productivity months? Your thoughts on that would be helpful. .

Well, I would love to tell you but I think it's a secular increase in the segment. But I don’t think I would see that. I think that with the exception of the one large project that we have in Canada that drove a much of that work, which is multi-year, the rest of it was a lot of different projects both in the US and Canada.

So that does give me some encouragement. I will say that we did burn off more backlog than we added in the second quarter in oil and gas, because of that Canadian project but I think that trend should reverse here in the third and fourth quarter because we won't have as bigger spend on the field construction activity.

So I would say there are, I will call it, even or similar opportunities that we've seen here in the first quarter but I wouldn't say that it represents a industrywide recovery in a growth market.

So we think that there's growth in that market for us but again we work quite narrowly focused environment permitting, initial design and specific construction oversight and even in some areas self performance but I do think some of it is related to the type of work we perform and not necessarily a market-wide phenomenon..

You mentioned in the RME segment that power generation, I am going to assume that when have you confirmed that, that power generation wind probably was a contributor to some of the growth that you’ve seen there.

I guess what's your forecast for year-over-year growth in ‘15 and then does that set up as a tough comp as we move into calendar ‘16 next year where maybe some of these projects that are started with the PTC might not recur again? Again I just want to understand what that setup looks like over the next year or two?.

hydropower and so areas in the far east, Hydro-Québec which is the largest hydropower production utility in Canada and actually one of the largest in the world. It’s actually grown, done well for us. Manitoba Hydro, Hydro One and even British Colombia Hydro or BC Hydro. So that’s a good portion of it.

And the other portion is the Ontario Power Generation which is the work done at the power generating facilities in Ontario, on the nuclear side. And so we’re involved on that side too which is an area of expertise. And in the US, the growth was primarily on transmission. So it’s corridor evaluation monitoring, design and clearance work.

I would say that while we still do permitting and evaluation for some win, most of the work we've done as transitioned significantly from what used to be a trust rail [ph] or land-based wind farms that you see in Oklahoma, Texas and Wyoming, the work we’re doing now and we think we’re a forefront leader in this is offshore marine location studies and this is where we have a small fleet of vessels.

We’re doing vintage work. We’re looking at marine mammals and other impacts. We’re doing geotechnical and geophysical surveys offshore with our – and we’re also performing this. So the work in the US where we do wind, has really transitioned to offshore, the work onshore is transmission and power generation, in Canada, it’s hydro and nuclear..

Our next question is from David Rose with Wedbush Securities..

I had just a couple questions, one was a follow up on the gain on the sale of assets.

Just to be clear, when you booked the loss, or you reserved the loss, did you reserve for a loss ahead of time or did you take the loss at the same time you booked the gain?.

Well, Steve talked about the very specifics from an accounting standpoint but they were disaggregated, or there were different activities.

The projects are when we either recognized that there was going to be an additional charge to complete the project or estimate to complete change, so we recognize it at that month or that time, or when we close the project out, we did the final accounting reconciliation for what happened in the field.

And the actual sale of the asset we actually went through a very formal process. We went through a third-party and essentially when we got the check in our hand but put in our pockets when we recognize it, and those two days are not exactly coincident. They are within the same quarter but they are not coincident with respect to calendar or a watch. .

So the loss and the gain are within the same quarter? That’s right.

Yes..

And going forward can we expect future gains, is that built into the guidance?.

What we have in our guidance is basically breakeven. That’s our goal. Right now all these projects that we took these different charges on, we expect it to be breakeven on a go forward basis. .

Just to be clear, so you took the charges and then you expect additional costs and gains to even out?.

Let me add about – that if we right now were booked on all of the projects based on our best estimate on how we think projects are going to go from here to the end, almost all these – I shouldn’t say almost, I believe all these projects are in a loss position and so we reserve -- we anticipate to have a loss and so we’re booking no profit on them.

Now I will tell you that if I expect to lose $100 on a project that's going to take me another six months to go. At the very end of the day it may be $101 and may be $99, we will true that up as we either have more visibility or the project concludes.

We don't have and I will state this -- the majority of the equipment or other assets that we have under PPE were liquidated this past quarter and so there is no large windfall of PPE in here, plant, property and equipment that we would liquidate that would be some large windfall.

That was elimination of that equipment with this past quarter and so I wouldn’t expect to have and I wouldn't say expect, from that category we don't have a lot more. .

So Steve, maybe from a margin perspective for this last quarter, did that equal out is the margin cosmetically better?.

No, it equalled out. .

And then as we look forward the transition from -- transition down from a lot of the fixed cost contracts and your percentage has declined, I think, six points over since 2009.

Some really good progress but does that create a headwind for you -- and I think this has been asked before but I like to hear it again -- going forward and how do you manage that given that generally your fixed costs are higher margins?.

We still have a pretty fair amount of fixed cost – sorry fixed-price projects, or FPP, fixed price projects and here is how I see the risk has changed significantly. So if we have a 30% fixed price contracts, it is a significantly different risk profile if you are doing it as a engineering project versus a construction project.

So if we have to go out and build a bridge, we can have delays because of union strikes. We can have delays because materials show up late. We can have overruns because it's snows, rains, sleets or there’s other external factors outside of our control.

If I have a fixed priced project for the same number where I'm doing the design, where I have done the same type of design, I have typicals and I am in an office with electricity and heat.

As long as I am focusing to work, and in some instance even they can't get to work, they can do it electronically, and we can send that work product to another location. The potential for an overrun is significantly less than we would control a lot of that internally.

And I think your biggest thing you’re going to see and is from a high point is subcontracts are going to go to a much smaller percentage, where we control the outcome not that we’ve use outside vendors and you have these external factors that we don't fully control.

So even if the fixed price percentage doesn’t significantly reduce the risk profile for the company is down dramatically. .

No, I appreciate that. I guess I was just trying to get an idea to how you grow the margins back from peak levels with the decline – go ahead..

Well, I think that, first of all, that you are right. There is more – there’s potentially more margin embedded in fixed-price.

Of course there is risk associated with it and I will share with you, David, that the margin embedded into a fixed-price engineering project is significantly higher than a fixed-price – than a margin embedded into a fixed-price construction project.

And so just the conversion of it going from construction to consulting and engineering has just a fundamentally better margin profile. .

And then lastly, I know you have a lot of visibility in terms of the margin profile of the backlog. As we look at the forecast for the WEI margins in the back half of this year, you’re considerably higher than the back half of last year I mean in order to get to the full year goal.

So help us – is it based on specific projects that you see? Is there something more global?.

I would say that some of the work that was being done by WEI, if you go back a full year ago, we actually had both in WEI and to a lesser extent in RME, support for some of the projects that we were doing in the RCM or the construction division.

And those – some of the revenue there had low -- much lower or no margin and so we thought -- if you take a look at it this front 2 segments had performed even better than what some of the financials would indicate, because we were doing other work internally and work that was being contracted for within RCM.

So we’ve actually replaced that with higher-margin work and as I indicated I think WEI is going to be at these higher levels for the entire year, not just the third and fourth quarter. .

Our final question comes from Alley Hemen [ph] with D.A. Davidson..

I was wondering if you guys could talk a little bit about your exposure to the oil sands up in Canada?.

That’s a good question. We consider that our upstream is about 15% of our work now – overall is upstream and probably two-thirds of that is oil sands. So I would say about 10% of the oil and gas revenues we have right now are in oil sands.

The work we’re doing there is primarily sustaining capital and what that means to us is there is requirements, permit requirements up in the oil sands that they recycle and reuse a fair amount of the water. So for any type of ongoing operations the oilsands are trying to do their work more efficiently, in other words, lower their costs.

So having a plant is more efficient, so we’re doing in-plant work, or that’s sustaining capital to help these clients reduce their cost to produce oil there.

And the second portion is we’re actually doing design and evaluation of water recycling systems, how can you take the water, use it for separation of the oil from sand and then capture it, treat it to a level that it can be reused.

In fact, in some instances the recycle number can be up to 90% or higher and so that’s the type of work we’re doing up there. It overall probably represents about 10% and perhaps just slightly under that of our overall oil and gas work and I will say that has come down quite significantly from a high point of about a year ago. .

Have you been seeing delays there or work getting pushed out?.

We did. But that’s been several quarters ago now. We started to see that late last summer and was really quite pronounced in the fall and winter. Now the work we have has already come down quite a bit and again the work we’re doing is sort of in-plant on sustaining capital.

So I think the biggest reductions I think -- I hope have already hit but I guess if you want to call it good news, the amount of exposure we have there is down to quite a small number for us right now. End of Q&A.

This will conclude the Q&A session. I will now turn the conference back over to Dan Batrack to conclude..

Well, I want to – thank you very much Jennifer. I want to thank everyone of the investors who have been following us, who have interest and certainly those that write questions today. They are interesting and do provide good insight into the company and I look forward to speaking to all of you again next quarter.

Have a good rest of the day and thank you. .

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