Good morning. And thank you for joining the Tetra Tech 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. As a reminder, Tetra Tech is also simulcasting this presentation with slides in the Investors section of its website at www.tetratech.com.

This call is being recorded at the request of Tetra Tech and this broadcast is the copyrighted property of Tetra Tech. Any rebroadcast of this information in whole or part without prior written permission of Tetra Tech is prohibited.

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 we'll then open up the call for questions. I'd like to direct your attention to the Safe Harbor statement in today's presentation.

Today's discussion contains forward-looking statements about future growth 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 takes 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.

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 up the conference for question-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, Michelle, and good morning. And welcome to our fourth quarter and fiscal year 2019 earnings conference call. Fiscal year 2019 was an extraordinary year for us here at Tetra Tech.

We grew at double-digit rates across multiple metrics resulting in record highs for revenue, net revenue, earnings per share and our cash generation. We ended the year with our backlog exceeding $3 billion for the first time in Tetra Tech's history, providing us with excellent visibility and momentum as we enter fiscal year 2020.

As we enter this new decade, we see increased global demand for our differentiated water and environmental services and our high end Leading with Science approach.

I'll begin today's presentation with an overview of our quarterly and annual results and our business outlook, while Steve Burdick, our Chief Financial Officer, will provide additional details on our financial performance and our capital allocation. We had a very strong fourth quarter led by our revenue, earnings per share and backlog growth.

Our net revenue of $640 million was up 14% from the prior year. Our fourth quarter adjusted earnings per share of $0.88 was up 17% from last year. And our backlog was up 16% year-over-year finishing at just under $3.1 billion, the highest in the history of the company.

In the fourth quarter, we added the firm White Young Green or WYG providing us with a new United Kingdom platform. And I'm pleased to say that our initial integration is going extremely well. Our collaboration and operations and business develop has already yielded very positive results.

I'd now like to provide an overview of our performance by our customer. In our fourth quarter, we had growth across all of our end markets, especially for the United States, state and local and international sectors. State and local revenues were very strong this quarter with an organic net revenue growth of 31% year-over-year.

This is the fourth consecutive year of double-digit growth for our state and local business. This growth is a direct result of municipal water infrastructure work in the metropolitan areas of California, Texas and Florida, and for continuing disaster response and recovery services for past fires and floods. Work for U.S.

Federal clients was 28% of our net revenue in the quarter and was up 8% year-over-year. The increase in U.S. Federal work was driven by our consulting work for the Department of Defense, various civilian agencies and for the U.S. State Department. Our U.S. commercial net revenue was 23% of our business and up 1% year-over-year.

Our environmental permitting and renewable energy consulting and design services were up, while some of our larger environmental restoration programs were ramping down on the course.

And finally, our international net revenue was up 21% year-over-year, driven by local water and environmental work in Canada and Australia, and with the addition of WYG in the United Kingdom during the quarter. I'd now like to present our performance by our business segments.

Our GSG and our CIG segments both grew at double-digit rates in the fourth quarter. The GSG segment was up 15% with strong growth in broad-based water and environmental programs, disaster response and our longer-term recovery services. The GSG segment continued to deliver excellent margins at 14.1% for the quarter.

Our CIG segment grew by 12% year-over-year and delivered over a 10% margin up 280 basis points from the same quarter last year and 40 basis points up from the very prior quarter. For the full fiscal year of 2019, we achieved all time record highs in net revenue, operating income and earnings per share.

Tetra Tech’s full year for net revenue was $2.406 billion which is 9% up compared to last year. Our operating income was $241 million, up 11% from the prior year, and our earnings per share was over $3 for the first time in the company's history, with an earnings per share of $3.17, up 20% from the prior year.

Tetra Tech's backlog was up 16% year-on-year on strong orders in the quarter with a large increase occurring in just this fourth quarter of the year. The last quarter of the fiscal year is typically our strongest quarter. However, we were also pleased to see a number of long-term pursuits come out with favorable outcomes in the quarter.

We ended the quarter with $3.90 billion of backlog as I’ve mentioned earlier for the first time over $3 billion in the company. Strong orders in the quarter also resulted in a sequential 9.1% increase in our backlog from the quarter.

And in the fourth quarter, we won new programs and task orders for our differentiated water and environmental services across a very broad base of our clients both in the United States and internationally. We continue to expand our contract capacity for global analytic and water related services.

We were also awarded a new contract for our water program in Mongolia that will leverage our analytical, water planning and engineering expertise in providing safe water supplies.

In addition, we were awarded multiple task orders for water management, flood protection and dam restoration in the United States, continuing our long-term technical support for key federal agencies, including the U.S. Army Corps of Engineers.

Now, I would like to turn the presentation over to Steve Burdick, our Chief Financial Officer to present the details of our financials from the quarter and the year.

Steve?.

Okay. Thank you, Dan. So as Dan just highlighted, our adjusted revenue, net revenue, operating income and earnings per share for the fourth quarter of 2019 were among the best quarterly results in the history of Tetra Tech.

Now on a GAAP basis, the fiscal 2019 fourth quarter revenue $842 million increased 14% when compared to the revenue of $739 million in the fourth quarter of fiscal 2018. And likewise, the fiscal 2019 fourth quarter net revenue of $628 million increased 14% when compared to the net revenue of $553 million in the fourth quarter of fiscal 2018.

So, overall, these revenue increases resulted primarily from our U.S.-focused environmental and water engineering and consulting work, our international renewable energy and sustainable infrastructure efforts, especially those in Canada and now also in the UK, and the disaster response recovery planning activities that we have continued into the fourth quarter.

Also on a GAAP basis, our operating income in the fourth quarter 2019 was $21 million, compared to $43 million last year, and earnings per share was $0.21 compared to $0.51 last year. Now, on an adjusted basis, we generated a 5% increase in our quarterly operating income year-over-year and a 17% increase in EPS.

This increase in operating income and EPS was driven by our revenue growth and by our continued focus on front end consulting and engineering services.

And so for those of you following along on the webcast presentation, I'd like to walk you through a reconciliation of our GAAP results to our adjusted net revenue operating income and earnings per share. So first, in the fourth quarter, we made a decision to exit our Canadian turnkey pipeline business.

As we've discussed in the past, this part of our business was contributing on revenue but with little or no margin. And as we continued to grow our high end consulting business, this was no longer core to our long-term strategy.

Now, although we expect this decision to have cash flow positive impact on fiscal 2020, as a result of this disposition, we did recognize Q4 charges totaling $19 million for goodwill impairment of about $8 million and severance and asset valuation impairments of about $11 million.

Ultimately, we expect to realize longer-term improvement in our operating margins, our working capital and our cash flow, while bringing down the risk in our operations. Also during the fourth quarter, as we previously discussed on the third quarter call, we completed the acquisition of WYG.

The acquisition of WYG provides Tetra Tech a solid platform in the UK, whereby we can further grow our consulting and engineering services for both governmental and commercial clients. And as part of this acquisition, we did incur charges totaling about $10.4 million during the fourth quarter.

These before transaction costs and fees of about $3.3 million and one-time integration costs of about $7.1 million for severance, asset valuation issues and lease impairments.

And finally, subsequent to our fiscal year-end, and in fact, just last week, we received an arbitration decision in our favor for a contractual dispute on a project, which was contracted for RCM back in 2008. Although we won the legal arbitration, the amount awarded to us was less than our estimated recovery.

And as such, we reduced our revenue and that's recognized an additional non-cash charge of $13.7 million in the fourth quarter. This does resolve one of the last large historical claims. Now turning to working capital and our balance sheet. Cash flow generated from operations in fiscal 2019 totaled $209 million.

This compares favorably to the prior year cash flow of $186 million by about $23 million or an increase of about 12%. This excellent cash flow was a result of our continued focus on collections of accounts receivable and management of our working capital. And among the many benefits of this cash improvement was the management of our debt.

Our debt increased only slightly from $131 million last year at this time to $156 million, and our net debt to EBITDA settled below 1.0 factor at about 0.6 times due to our continued strong cash flows and operation. And lastly, our day sales outstanding decreased to 77.6 days as of the fourth quarter.

This was an improvement of almost eight days from last year. But we expect to do better in fiscal 2020 with a target DSO of 75 days, which currently we are a lot closer to now than we were last year.

I'd like to go through our long-term capital allocation strategy which caused for a balance of investing in the growth of our business, managing the balance sheet and returning cash to our shareholders.

Our continued strong annualized operating cash flows and especially the $209 million of operating cash flow for the year allows us to continue to do just that. We've been able to invest in strategic areas while growing the top and bottom lines. And to that end, in the fourth quarter, we closed the acquisition of WYG.

Moreover, we paid out $8.2 million in dividends in the fourth quarter. And in all of fiscal 2019, we've paid out about $29.7 million in dividends. And just last week, our Board of Directors approved our 22nd consecutive dividend, which will be paid in the month of December at a rate of $0.15 per share.

In addition to the dividend payments to our shareholders, we completed $25 million in share repurchases in the fourth quarter, and a total of $100 million in all of fiscal 2019. Going forward, we look to continuing the quarterly different program and utilizing the $125 million remaining under the approved stock buyback program.

So, I'm very pleased to share these outstanding financial results for the fourth quarter and all of fiscal 2019. Thank you for your time today. And I will now hand the call back over to Dan. .

For Q1 of fiscal year '20, our net revenue has a guidance range of $600 million to $640 million with an associated adjusted diluted earnings per share of $0.75 to $0.80. For the entire year of fiscal year 2020, our net revenue guidance range is from $2.4 billion to $2.6 billion with an associated adjusted diluted earnings per share of $3.35 to $3.55.

Now this earnings guidance does include intangible amortization or non-cash charges of $0.14 per share for the year. We do anticipate a 23% effective tax rate for fiscal year 2020.

We do anticipate an average of 55.5 million shares outstanding, and this revenue guidance does exclude the contributions of any acquisitions that would be completed during the year.

In summary, we had an excellent fourth quarter and all the fiscal year 2019 setting new records for revenue, net revenue, income and earnings per share for our shareholders. Our backlog reached an all time high for services that align with long-term growth trends and priorities, providing us excellent visibility as we enter into fiscal year 2020.

And as we begin this new decade, our differentiated water and environmental services and Leading with Science approach is well differentiated and in very high demand and making things very exciting for us and our shareholders, with new benefits to our clients as we enter fiscal year 2020.

And with that, Michelle, I'd like to open the call for questions..

Thank you. [Operator Instructions]. The first question comes from the line of Sean Eastman with KeyBanc Capital Markets. Please proceed with your question..

The first question from me is just on the state and local business. So my understanding is the FY ‘20 outlook reflects a 10% to 15% growth rate in that business when neutralizing the fact that you're not building in any episodic storm response work. The 10% to 15% just seems like a really high number for that type of end market.

So maybe you could just speak to whether market share gain elements still happening there for Tetra Tech? And maybe how your outlook compares to the underlying growth rate in that end market?.

Thank you very much for the question. And our state and local market as I had referenced in my prepared remarks has been the strongest end market for us in the last four years.

And in fact, I think in the last four years we've seen double-digit growth -- organic growth in state and local work, in each of the last four years, and I would say, even in the prior year, it was the fastest growing of our clients.

And that's not including the episodic growth rates, which have pushed us to 30%, 40% and 50% growth rates year-over-year for given quarters.

Some of it is, we are taking some market share, but I'll say we've really been focused on new emerging focuses of investment by our clients that didn't exist before and to be their first to be their best and to actually set the technology and to set the pace in those areas.

And those include over the past several years, areas of new water supply in the Southwest. So for instance, water reuse as part of capturing wastewater, treating it to a very high level, and then actually creating it as a new water supplies in California and other areas.

Actually treating contaminants and desalination, we’re the largest desalination designer in the United States, in the Southeast where there's actual water quality issues from saltwater intrusion into different wells in other areas.

And actually, desalination in other areas in Texas, which is in the East where there's too much water and actually establishing new technologies for mitigating and protecting it from floods. And then the Far West, actually new desalination for new water supplies that didn't exist before.

So we consider all of this as sort of new ground, new funding that isn't taking it from someone else or capturing market share, but actually being the first there to solve problems. So that's been part of the state and local.

And the other exclusive of responding to individual disaster events, we're actually working with our clients now to build a planning and recovery practice. And also, I would add, mitigation such that you can get ahead of the impacts of floods, fires or other events. And this has been a new area that's higher priority and new funding.

So I would say some of it is taking market share, but most of it is in moving into new emerging markets that in fact just didn't exist a few years ago..

And next one is more for Steve. I'm just curious if you could speak to the free cash flow outlook for fiscal '20 perhaps relative to the earnings guidance you've provided. It sounds like still some work to be done on the DSOs after making a lot of progress in ‘19.

But are there any other moving parts that we should think about as it relates to that net income to free cash flow conversion?.

Yes. So when we look at our -- first our net income, our goal is first to generate cash from operations that exceeds our net income, first and foremost, and we’ve been doing that. I think the other thing that is going to be helpful as you pointed out is that we are working towards and getting closer to that goal of 75 days in our DSO.

And so that will also be helpful. And then as we’ve moved to very much a high end consulting model, we have very little need for a lot of CapEx. So, our free cash flow is pretty close to our operating cash flow and I think you’ll see an improvement next year over what we did this year..

Thank you. Our next question comes from the line of Andrew Wittmann with Robert W. Baird. Please proceed with your question. .

I had a couple of questions I just want to clarify just maybe for modeling purposes and then we’ll talk about more strategically. But I guess Steve I think we estimated around $70 million of net revenue headwind from the shutting down of the pipeline business and that would be in the CIG segment.

And then I think the net revenue headwind for disaster restoration and response was about $100 million of net revenue in GSG.

Are those the right levels to be thinking about as we put our models together in terms of the headwinds that you’ll face in 2020 over 2019?.

Yes. Those are the right numbers to use in your model..

Okay. Cool, thanks. And then just as it relates to the disaster emergency response, I guess it sounds like you don’t have a lot in there for 2020. But can you just talk about -- I mean there still are disasters happening including some in your neck of the woods.

Is it -- it’s just too early to assume them because these fires just are recent or just what’s the opportunity do you think, are the discussions happening in some of your legacy projects that you’ve been on that might give you some visibility, just haven’t booked yet, so you haven’t been conformable in guiding to that.

I was just trying to get a sense on how much upside potential there could be as you see it here today Dan?.

It’s a good question Andy that as you just indicated we had a $100 million in fiscal 2019 of incremental or revenues associated with disaster response activities. I’ll tell you that, that came very quickly and in fact that allowed us to increase our revenue guidance during 2019.

So, it’s not something that we forecast in event one or two quarters in advance. There have been some fires out here and in fact they’re just putting them out now. And so it’s quite early for that. Our guidance at the midpoint did not include any contribution from disaster response activities.

If you went to the -- what would drive it to the higher end of guidance, would be some modest amount of response activities. But if anything similar to what it took place in 2019 in fact occurred, it would drive us not only to the upper end but probably well past the top end of our guidance range.

So, we are not only negotiating, we are actually growing the other portion which we think is provides multiyear visibility and predictability and we can include it -- have included in our guidance which is actually the longer-term planning and recovery activity which includes designing alternatives, mitigation, restoration and identifying which are the priority items that would then move to longer term design and implementation of the remedies that would be put in place that are in fact even longer programs.

So I think the more predictable activities are growing, they are growing broadly across the country, they're generally a little bit smaller, but have much longer tails. And in total dollars are probably equivalent to the response. But it's over multiple years, not just a single season or just several quarters. .

And I guess I just have one last one for now and it has to do with kind of some comments you made earlier this year about trying to achieve a 13% net EBITDA margin at some point in the future. And it looks like just from back of the envelope math here that somewhere around 12% is probably implicit around that midpoint of guidance for this year.

I was wondering what some of the puts and takes are as you look at that 13% to get you from 12% to 13% in the next year.

Can you talk about some of the either things that you're seeing in the market that will allow that and afford that? Or some of the actions that you will be taking or have already taken to this point will help you get to that 13% margin goal?.

Yes, that's a good question. We're very focused on that. And we have the two segments, our Government Services Group and then our Commercial and International Group. I would say that we have been at the 13% EBITDA margin. In fact, we've been a little bit higher than that in our Government Services Group.

I think for this year, we -- if you actually do the calculation, you'll see it in coming quarters where we're anticipating roughly about a 13% margin in our GSG Group this year. So we're there in that segment of the company, which then allows me to turn to the CIG, the Commercial and International.

The step we took to wind down and close out our turnkey Canadian pipeline business will actually help quite a bit. The numbers that were provided earlier by yourself just a moment ago, $70 million in Canada actually didn't produce any income at all. In fact, it was actually a loss of $4 million, $5 million for the year.

So just structurally, the things we're doing internally to shut that business will actually move the CIG margin up. I think for this year, the overall number is about 11%.

But I would say that, while we did shut this structural impediment to growing the margin within CIG, we did take on WYG, who I believe will actually move to a double-digit of run rate margin by the end of fiscal year 2020. Certainly we’re a public company and our financials are quite visible and they were a low to no margin business.

But that is changing really quite quickly. I do believe by the end of the year, they'll be contributing at a number above double-digits, above 10%. So for this year, we have an 11% margin for CIG.

If you actually then calculate $120 million UK business that does not even include growth, which I think we will actually be seeing this year, and you move it to contribute at a higher level, I would think that -- and it seems like a long way away, fiscal year 2021, but we're halfway through Q1 of fiscal year 2020 already.

So it's really not very far away. But I would expect in 2021, we will have CIG up at the GSG margins. And you'll see it progress during this year both with the structural changes we've made, with the type of business we have and the increase in the margins for some of the international activities that have joined..

Your next question comes from the line of Noelle Dilts with Stifel. Please proceed with your question..

Thanks for those comments on the CIG margin. I was hoping that you could also comment on how you're thinking about GSG. It sounds like given your expectations around CIG that your guidance assumes a bit of margin compression in GSG.

So could you talk about the factors that are playing into that as we look forward?.

Yes, absolutely, Noelle. Well, we have been very pleased with the GSG margins. They've been running at around 14%. I will say the last two, three years, we have had each and every one of these years a material amount of response work from hurricanes, from tornadoes, from fires, from ice storms.

It has turned from a once every several years or once or twice a decade into an annual event. And what's happened is it has kept our staff quite highly utilized within the GSG, which has driven our margins even in some quarterly periods up to 16% and even 17% as you all have seen.

Since these events actually are not underway for us at this time, we've actually been prudent, some might say conservative, but I would say appropriate and not including or embedding this high utilization that within yield a higher margin. I do believe a good run rate for our government services is between 13% and 14%.

We're in that range at this time for guidance. And as revenues pick up in that disaster response area that increases utilization that then translates into more margin, we would look to update our forecast for the year for GSG.

So it does -- well it doesn't look to be a compression or lowering it from its 14% to 13%, I would say it’s simply taken into account at the midpoint of our guidance the lack of inclusion at this time of any response activities for disaster activities..

And then could you just -- in the past, you've talked about your -- that you still have some capacity to support incremental revenue with your current staff.

Any thoughts on where you stand today in terms of potentially needing to invest or add folks to meet demand? And curious if you could also comment just on generally the availability of these skilled figure looking to hire?.

Yes, those are two topics that we're focused on here just on an ongoing basis. I would even say on a quarterly basis. Just on an ongoing daily basis, we take a look at as we submit proposals how much additional revenue or work could we handle with existing workforce that we have now.

And we think it's probably approaching 10% additional revenue with, in theory, no additional headcount. Now, it's not perfect that way because of the 10% increase all came in one segment or one particular market area we may be stressed and have to identify more resources.

But if you looked at it broadly, we could handle probably a 10% increase in revenue without adding additional resources, which then of course, much of that would drop right to our margin and income and then earnings for our shareholders. I would say that it is very market dependent on the availability of staff.

Some markets, there's actually quite high demand and it is -- that folks in this industry like to use the word war for talent with some of the statements they use, I would say these are in advanced analytics. These are in areas of very high end technology differentiation. For the most part we grow those internally.

We don’t go out and recruit and bring them in. Although they do join us mostly through acquisitions of collective entities and that did happen just as last year at the end high end advanced data analytics with eGlobalTech and others that have joined us.

So, how we’ve addressed the shortfall or the high demand has actually had collective entities join us. But, right now we could handle a pretty significant increase in revenues with the staffing levels we have within the company. .

Thanks. One last question. You’ve talked about this a bit in the past.

But could you just remind us of the key buckets that will drive the margin improvement at WYG, kind of higher moving from that essentially breakeven level today up to the double-digits?.

Yes, absolutely. I think one is, we have changed the -- I’ll call it the back office organization structure at Tetra Tech and all of our different divisions. We are highly focused on a seller-doer model with the senior principals in the management roles or practitioners.

And that goes all the way up from the -- I would say from my role all the way down through the organization. It does leave Tetra Tech with a very thin, extremely knowledgeable group of executives that are also practitioners that are leading by example.

I think that -- so there have been a number of acquisitions that WYG put together and had created a bit more of a administrative back office which we’re working with them.

In fact we initiated it even during due diligence discussing with them the philosophical approach where what we do when we come to work, as we’re not focused on how we manage our staff; we’re focused on how we solve the problems for our clients, from the top all the way to the bottom. And that process has already been put in place.

I believe that will fundamentally change the -- I guess you call it the SG&A, but I think it also embeds it in the overhead costs embedded in the execution of the operations and that all falls to the bottom-line.

It also happens to have the benefit of putting our best technical people closer to our clients and also makes us much more nimble, able to make decisions quickly, effectively and based on what we see at the front line and the number of layers it has to go through the organization that eliminates it to a very direct communication.

So all of that’s being in put in place. We’ve also immediately taken our best-in-class experts within Tetra Tech and actually linked them up with our colleagues. And have submitted proposals and in fact have already won some programs in the first 90 days of their joining us.

So, the ultimate proof for folks joining us is more clients, more projects, more success and growth and increased margins and that’s what I expect to see this year with WYG..

Thank you. Our next question comes from the line of Marc Riddick with Sidoti. Please proceed with your question..

I wondered if you could spend a little time talking about maybe what your views are currently as far as acquisition pipeline, given the opportunity that WYG has presented and that platform being added.

Just wondering if maybe what the platform may look like for you? And to that extent maybe how much time you’re spending looking at those types of opportunities maybe this time of year versus a year ago or two years ago?.

Well, I think that having WYG join us is actually a big move for us because it really felt important to actually set a best-in-class platform across all of the UK with a presence in Europe in order to access that collective market, and that is what WYG brought to us.

With the exception of the financial performance, I would tell you they look a lot like Tetra Tech. They are technical leaders in planning work, in environmental work, in infrastructure design work, supporting the environmental and planning activities within the nuclear industry. And a lot of work with respect to local, municipal planning support.

The one area that I didn't mention just now is actually the area that is the ultimate hallmark for Tetra Tech, which is water.

And so now with WYG present -- presence as a platform, and actually, we think it'd be best-in-class, it's our intent to both bring in our technical experts that we've initiated already bringing the Tetra Tech Delta, tools of the differentiation to the UK, and we would look to expand now in the UK our water practice, and I think that would include through acquisitions of people that are best-in-class in that sector, thought leaders and best technical engineers and consultants.

So what area are we looking in? We'd like to expand that part of our business in the UK. And we think that that's a high priority for us. And we feel more emboldened to do that now that we have a platform that we could have it enjoined.

Here in the U.S., we're very much focused on technical leaders and advanced analytics that can take their tools and expertise and actually help augment the -- we refer to it as domain but technical experts that we have within the various disciplines of water, environment, sustainability program management.

So advanced analytics here in the U.S., water in the UK will be a big contributor. And then I would say other areas that would actually help us access different clients sets that we can actually offer our water and environment and sustainable design services. .

And I wanted to talk a little bit about maybe what you're seeing with commercial customers and their level of activity, recent activity, maybe some of the conversations that you're having with them. And to get a sense of, there certainly seems to be a willingness to act.

But I was just wondering if you were getting a sense of that increasing or if there's any opportunity for maybe a little bit of a pullback concern with potential upcoming economic slowdown or that type of -- those sorts of conversations?.

Yes. It's a great question Marc, because certainly there's a lot of concern or apprehension that a economic slowdown, even as far as going to recession could be on the horizon. I will tell you, we're looking at that very closely, but it hasn't yet come visited us. So I'll give you just as an observation from the frontline, we haven't seen a pullback.

And in fact, on the commercial side, which I do agree will be the first ones that will make a move, and we'll see a change in their funding. We haven't seen that yet. The areas that are particularly strong for us are high performance green building designs. These are buildings that actually make a better workplace for the occupants.

It reduces the carbon footprint drastically. And our definition of drastically is they would actually be a net zero or a zero emitter of greenhouse gases or actual use of energy that we generate as much energy as they actually consume. And the same is true with water for a complete 100% self contained water and waste is the other component.

So that business has actually gotten very busy. It has been busy and it continues to grow at among our fastest rates and at high margin. And renewable energy has also been very busy for us, particularly on the planning side and the upfront permitting side. Offshore wind we believe is at the very beginning.

So the amount of energy produced offshore wind is miniscule right now. But the actual offtakes are in very high demand. So we see that increasing. And then our other base business which is consulting and environmental for sort of our Fortune 100 clients that we seem to be very stable at this point.

I will say a lot of the work we do on the environmental side, and the water with respect to compliance is a little less susceptible to an economic downturn because there are regulatory drivers for compliance and completion of cleaning these that are under regulatory directives.

So, while things might slow down, they still have deadlines and commitments to achieve. .

Thank you. Our next question comes from the line of Tate Sullivan with Maxim Group. .

Thank you. Just a couple of follow-ups. First, Steve on the exit of the Canadian turnkey business. Is that a similar runoff or would you call it the RCM process? Or is that a divest -- actual divestment to another company.

What is that process going to look like?.

Yes, it's a pretty quick runoff here in early 2020 with really selling the assets of the company, disposing of it through a liquidation. .

Okay, so different from -- so the projects will end faster than the RCM projects, is that right to say?.

Yes. .

Great. And then that will help your receivables as opposed to RCM and it seem to take a little bit on the projects in the arbitrage.

Did you say RCM is no more limiting arbitrage or did you say just a couple left on that?.

There's no more backlog left in RCM. All the projects are complete. .

Okay, thank you. And again, just following up, great comment on the GSG margins, and then ignoring the unpredictable actual disaster related work.

How many years does the multiyear disaster recovery work be?.

Well, I think the planning work typically will go from two to five years. And that's just the program management and coming up with the master plan for recovery, a prioritizing what the infrastructure should be replaced, how it should be replaced. And then -- and so typically, how we looked at this is, 12 to 18 months is the response activity.

They want that done quick, so that you can actually get to the planning. Planning starts right around a year and moves out for anywhere from very small events, would be a couple years of planning, larger ones might be five years or more. And then you move to the actual implementation which is the design of the infrastructure.

In the case of Katrina, Tetra Tech did several hundred millions of dollars of work, both in the late planning and the actual infrastructure design work. And that took out from five to 10 years out. So the time from an event taking place to the time the infrastructure has been designed and largely put in place is sort of a decade long window.

And much of this, we're just in the upfront activities on this. So that's sort of a timeframe. And for each of these phases, they do get larger. So the design and implementation of a large seawall or a lock and dam system is a very large both in total installed cost but also the design and the permitting activities for those structure so.

That's generally the time frames. .

And last from me is, exiting the Canadian pipeline business, are you still -- U.S. oil and gas, is that a positive margin business and is all oil and gas exposure.

Is it fair to say less than 5% now after the exit of the Canada business?.

Yes. Overall it is less than 5%. What had happened before and I have characterized this over the past five years that in the U.S. we have always been exclusively consulting and design activity.

So consulting for permitting, monitoring, environmental assessments, our biological monitoring and then the design -- the actual design for linear corridors, we continue to do that work. That is a good business for us. There is demand for that.

And in fact there is insufficient pipeline capacity to take the availability of the resource of the oil and gas to markets. It continues to be a good business for us. We do that. We do some of that type of consulting work in Canada, although we had seen in Canada that to do that work you also needed in many instances to do the full turnkey business.

So we do oil and gas work on consulting, but it’s much smaller in Canada and collectively U.S. and Canada would be less than 5% of our oil and gas exposure. .

Thank you. This concludes our question-and-answer session. I’d like to turn the conference back over to Dan Batrack to conclude. .

Great. Thank you very much, Michelle. And thank all of you for your questions, your insight and your interest in Tetra Tech. Again we here at Tetra Tech think we had a great 2019. So we feel even better about 2020. We think we are better poised. We think the markets are coming our way.

We don’t think that we have to build a company to be situated or capable of responding to these significant trends and priorities in the marketplace. We -- in a largely extent, we’ve been here solving these problems before they’ve become recently a higher priority for funding. So we’re looking for a great 2020.

A very good first quarter and I look forward to talking to you all to report the results of our first quarter of fiscal year 2020. And I hope you have a great rest of the day. Thank you. .

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