Tetra Tech Q4 Earnings Call Highlights

Key Points

• Fourth-quarter results improved: Net revenue rose 5% to $1.15 billion and EPS increased 9% to $0.49. Funded backlog grew 13% to $4.67 billion, with more than $1.6 billion in quarterly orders and a third straight book-to-bill ratio above 1.1.
• Fiscal 2027 guidance points to continued growth: Tetra Tech expects net revenue of $4.425 billion to $4.625 billion and EPS of $1.65 to $1.80, led by U.S. commercial demand for water and digital automation services. State and local revenue is expected to be roughly flat, while lower Ukraine-related work is a federal growth headwind.
• Margins and cash generation strengthened: Adjusted EBITDA margin expanded 90 basis points to 15.2%, and operating cash flow rose 14% to $523 million. The company repurchased $300 million of stock for the year and raised its quarterly dividend 11%.

Tetra Tech NASDAQ: TTEK reported higher fourth-quarter revenue and earnings and ended fiscal 2026 with funded backlog up 13%, as demand for water, infrastructure and digital automation services supported growth across its markets.

Fourth-quarter net revenue rose 5% from a year earlier to $1.15 billion, while earnings per share increased 9% to $0.49. EBITDA reached $194 million, and the EBITDA margin expanded by 90 basis points, Chief Executive Officer and President Roger Argus said on the company’s earnings call.

Funded backlog stood at $4.67 billion at year-end. The company received more than $1.6 billion in new orders during the quarter and recorded its third consecutive quarter with a book-to-bill ratio above 1.1, Argus said.

Growth Across Government and Commercial Markets

Revenue in Tetra Tech’s Government Services Group rose 8% to $513 million, with a margin of 18.8%. Argus attributed the increase to municipal water programs and federal infrastructure work for the U.S. Army Corps of Engineers and Navy.

Commercial/International Group revenue increased 3% to $640 million. Its margin rose 140 basis points to 16.2%, supported by water programs in the United Kingdom and Ireland, digital automation and defense work in Australia, and Canadian infrastructure programs.

By customer market, U.S. federal revenue grew 9% and represented 26% of fourth-quarter revenue. State and local and U.S. commercial work each grew 6%. International revenue, which accounted for 43% of the total, increased 3%; excluding the earlier divestiture of the company’s Norway operation, growth was approximately 5% to 6%, Argus said.

Argus said the company also expanded its federal contract capacity, including through a $1.4 billion NASA technical support contract, $145 million in Navy capacity and more than $220 million in Environmental Protection Agency capacity. Contract capacity is distinct from funded backlog, which he described as contracted and authorized work that staff can begin.

Fiscal 2027 Outlook

For fiscal 2027, Tetra Tech projected net revenue of $4.425 billion to $4.625 billion and earnings per share of $1.65 to $1.80. Its first-quarter forecast calls for net revenue of $1.04 billion to $1.08 billion and earnings per share of $0.36 to $0.38. The guidance excludes contributions from future acquisitions.

Management expects approximately 10% growth in U.S. commercial revenue, 5% growth in U.S. federal revenue and approximately 5% growth internationally. State and local revenue is expected to be relatively flat.

Argus said the commercial outlook reflects demand for advanced water and digital automation services from water-intensive manufacturing, data centers and mining. Federal growth is expected to be supported by defense modernization and resilient military infrastructure.

In response to an analyst’s question, Argus said the forecast assumes lower revenue from Ukraine-related Department of State work than in fiscal 2026, creating a headwind to federal growth. The company is no longer reporting that work separately. Chief Financial Officer Steve Burdick said the Department of State backlog reflects what the company expects to realize as revenue in fiscal 2027.

Argus said municipal water work continues to grow at double-digit rates, but lower disaster planning and preparedness work is tempering the state and local outlook. He attributed the latter to limited disaster-related funding and a year-over-year decline in federal grants for disaster work.

Backlog, Margins and Cash Flow

Asked why the revenue outlook did not more closely match backlog growth, Argus said some work awarded in the second half of fiscal 2026 spans multiple years. New projects also typically require planning and scoping before reaching their most revenue-intensive stages, he said.

For the full fiscal year, reported revenue declined primarily because of reduced USAID and episodic disaster-response revenue, Burdick said. Nevertheless, adjusted EBITDA margin on net revenue improved by 90 basis points to 15.2%, reflecting a greater focus on higher-margin technical design and engineering work.

Operating cash flow rose 14% to $523 million, exceeding net income for the 21st consecutive year, Burdick said. Days sales outstanding were 60, and return on capital employed was above 20%.

The company repurchased $100 million of stock in the fourth quarter and $300 million for the year, with approximately $798 million remaining under its board-approved buyback program. Burdick said the board approved a quarterly cash dividend to be paid in December, an 11% increase from a year earlier.

Federal Transition and International Opportunities

Argus said the company’s backlog should help carry it through a period of transition following the U.S. midterm elections. He described the election outcome as potentially favorable for Tetra Tech over the long term, while noting uncertainty about the timing and allocation of new programs.

He said he did not see a near-term resurgence of the international development work previously associated with USAID. The Department of State remains an active client, and Tetra Tech is prepared to support additional projects if opportunities arise, he said.

Internationally, Argus highlighted U.K. and Irish water programs, increased Canadian infrastructure investment and mining and defense opportunities in Asia-Pacific. He also said cybersecurity concerns are helping prompt clients to modernize industrial and water systems, although the company does not separately break out cybersecurity revenue.

About Tetra Tech (NASDAQ:TTEK)

Tetra Tech, Inc. is a consulting and engineering services company founded in 1966. It works with government and commercial clients on projects involving water, the environment, infrastructure, energy, and resource management. The company provides services across the project lifecycle, including planning, consulting, engineering, design, and program and construction management. Its work includes water supply and wastewater systems, environmental assessment and remediation, infrastructure development, and climate resilience.

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