Tetra Tech, Inc. (TTEK) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary presents strong financial performance, with growth in state, local, and international markets, improved cash flow, and reduced net debt. The Q&A session highlights strategic M&A plans, growth in the federal business, and international expansion, despite some vague responses on specific future opportunities. The company's optimistic guidance, strong cash flow, and strategic focus on water and infrastructure projects support a positive sentiment, suggesting a potential stock price increase of 2% to 8% over the next two weeks.
Key Financial Performance
Revenue Net revenue for the first quarter was $987 million, up 8% from the prior year. This growth was attributed to strong performance in water programs in the U.K. and Ireland, as well as digital automation programs in Australia.
Operating Income Operating income for the first quarter was $131 million, up 12% from the prior year. This increase was driven by higher margins and strong international business performance.
Earnings Per Share (EPS) Adjusted EPS for the first quarter was $0.34, up 17% from the prior year. GAAP EPS was $0.40. The increase was due to improved profit margins and growth in international business.
Government Services Group (GSG) Revenue Net revenue for the GSG segment was $382 million, up 5% from the prior year, despite the U.S. government shutdown for about 6 weeks of the quarter.
Government Services Group (GSG) Margins Margins for the GSG segment were 18%, up 40 basis points from the prior year. This improvement was achieved despite challenges from the U.S. government shutdown.
Commercial and International Group Revenue Revenue for the Commercial and International Group was $605 million, up 10% from the prior year. Growth was driven by strong water programs in the U.K. and Ireland and digital automation programs in Australia.
Commercial and International Group Margins Margins for the Commercial and International Group were 13%, up 40 basis points from the prior year. This was supported by strong performance in the U.K., Canada, and improving business in Australia.
Federal Work Revenue Federal work revenue was up 7% from the prior year, driven by projects with the U.S. Army Corps of Engineers, including flood protection structures and inland waterway navigation systems.
State and Local Markets Revenue Revenue from state and local markets in the U.S. grew 10%, driven by municipal water treatment and digital water modernization in water-stressed regions like Texas, Florida, California, and Colorado.
International Work Revenue International work accounted for 48% of overall revenue and grew 13% during the quarter. Growth was driven by water programs in the U.K. and Ireland, Canadian infrastructure programs, and improving business in Australia.
Backlog The backlog remained stable compared to the prior year, with higher quality due to an increased proportion of front-end work, which brings higher embedded margins.
Cash Flow from Operations Cash flows from operations in the first quarter were $72 million, an improvement of $59 million over fiscal 2025. This was attributed to lower DSO and improved working capital management.
Net Debt Net debt was $565 million, with a net debt-to-EBITDA leverage of 0.86x, 20% lower than the prior year. This improvement was due to strong cash flows and reduced leverage.
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Operating Highlights
Digital automation programs: New digital automation programs were introduced in Australia, contributing to the growth of the Commercial and International Group segment.
Csoft and WaterNet software: Csoft subscription software is used by water utilities to optimize water systems and protect water quality. WaterNet software is widely adopted in the U.K. to manage water systems and reduce leakage.
International growth: International revenue grew by 13%, driven by strong performance in the U.K., Ireland, and Canada, with a focus on water programs and infrastructure.
U.S. state and local markets: State and local markets grew by 10%, driven by municipal water treatment and digital water modernization in water-stressed regions like Texas, Florida, California, and Colorado.
Defense market expansion: Increased funding for defense in the U.S., U.K., and Australia, with new contracts for coastal resiliency and maritime upgrades.
Revenue growth: Revenue increased by 8% to $987 million in Q1 FY2026.
Margin expansion: Margins expanded by 140 basis points on a GAAP basis, with EBITDA margins increasing to 14.2%.
Backlog quality: Improved backlog quality with higher embedded margins and more front-end work.
Acquisitions: Acquired Halvik in the U.S. and Providence in Australia to expand consulting services in defense and advisory expertise.
Capital allocation: Increased dividends by 12% year-over-year and repurchased $50 million in stock in Q1 FY2026.
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Risk or Challenges
U.S. Government Shutdown: The longest U.S. government shutdown in history impacted operations, particularly in the Government Services Group segment, which experienced a slowdown in federal client orders and project start-ups. This disruption affected backlog stability and delayed federal budget clarity.
Renewable Energy Work Reduction: U.S. commercial work saw a decline due to reductions in renewable energy projects compared to the previous year. This was only partially offset by growth in high-voltage transmission and permitting work.
Federal Budget and Appropriations Uncertainty: The slow pace of U.S. federal orders due to delayed budget clarity and appropriations impacted the company's ability to secure new federal projects in the first quarter.
International Market Challenges: While international markets showed growth, there were prior reductions in Australian activities, which only began to stabilize in the first quarter.
Economic and Geopolitical Risks: The company operates in a rapidly changing geopolitical and economic landscape, which could pose risks to its international operations and strategic objectives.
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Guidance & Outlook
Revenue Growth: For FY 2026, Tetra Tech expects net revenue to range between $4.15 billion and $4.3 billion, representing a 9% increase at the midpoint of the guidance range. For Q2 FY 2026, net revenue is projected to range between $975 million and $1.025 billion.
Earnings Per Share (EPS): Adjusted EPS for FY 2026 is expected to range between $1.46 and $1.56, with Q2 FY 2026 adjusted EPS projected between $0.30 and $0.33.
International Growth: International revenue is forecasted to grow at a 5% to 10% rate, driven by water programs in the U.K. and Ireland, defense spending in the U.K. and Australia, and infrastructure investments in Canada.
U.S. Commercial Growth: U.S. commercial revenue is expected to grow at a 5% to 10% rate, supported by water demand for data centers, advanced manufacturing, and power-related services.
U.S. State and Local Growth: Revenue from U.S. state and local clients is forecasted to grow at a 10% to 15% rate, driven by municipal water supply expansions, upgrades, and digital water automation initiatives.
U.S. Federal Growth: U.S. federal revenue is projected to grow at a 5% to 10% rate, supported by increased spending on defense and critical water infrastructure.
Backlog and Federal Orders: The backlog is expected to improve in the second half of FY 2026 as U.S. federal orders increase with more clarity on budgets and appropriations.
Capital Allocation: Tetra Tech plans to leverage its strong balance sheet to invest in growth opportunities, including acquisitions, with a focus on technology, automation, and defense-related services.
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Shareholder Return Plan
Quarterly cash dividend: The Board of Directors approved a quarterly cash dividend, which is a 12% increase year-over-year to be paid in the second quarter. This marks the 47th consecutive quarterly dividend and aligns with the practice of annual double-digit increases in dividend amounts.
Stock buyback program: The company continued its stock buyback program, repurchasing an additional $50 million in the first quarter of 2026. There is $548 million available for stock buyback plans approved by the Board as part of the capital allocation strategy.
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Key Q&A
Q:Can you discuss the 7% growth in your federal business, excluding the Department of State work?
A:The 7% growth was driven by advanced planning and close collaboration with clients like the U.S. Army Corps of Engineers. Task orders and projects were put in place to mitigate the impact of a potential government shutdown. The U.S. Army Corps of Engineers, now the company's largest client, was the primary driver of this growth.
Q:Can you provide details on the performance of your international business across the U.K., Canada, and Australia?
A:The U.K. and Ireland showed double-digit growth, driven by large water programs like the AMP8 program. Canada experienced mid-to-upper single-digit growth, supported by infrastructure investments and Arctic defense projects. Australia is recovering from a prior decline of -15% and is now flat, with expectations of future improvement.
Q:What kind of work will you be doing in the Arctic, particularly in Canada?
A:The work involves planning winter roads, building ports and harbors, and infrastructure facilities to support navigational and defense needs across the Arctic. This includes geotechnical work for ice roads and other infrastructure projects.
Q:How have you reflected the range of potential outcomes in your full-year revenue and earnings guidance?
A:The midpoint of the guidance assumes midpoints of growth rates in key client markets. A government shutdown or significant disruptions could push results to the low end, while bipartisan support or increased funding for programs like Ukraine could push results to the high end.
Q:What is your focus on M&A, and how does it align with your strategic goals?
A:The focus is on strategic, needle-moving acquisitions that can transform the industry. The company has $2 billion in immediate capacity and aims to pursue larger, material opportunities while continuing smaller bolt-on acquisitions. Recent acquisitions like Halvik and Providence align with this strategy.
Q:What type of opportunity would justify leveraging up to 4x for M&A?
A:A larger, strategic acquisition that could transform the industry and provide significant shareholder value would justify leveraging up to 4x. The company aims to quickly deleverage after such transactions.
Q:What is the impact of the Halvik and Providence acquisitions and the sale of the Norway operation?
A:The Halvik acquisition adds 600 people, and Providence adds over 100 people. The sale of the Norway operation offsets the revenue contribution from these acquisitions, resulting in a neutral impact on overall revenue.
Q:What are the opportunities in nuclear permitting, FAA modernization, and the SHIELD contract?
A:Nuclear permitting involves engineering and permitting for new builds in Canada. FAA modernization offers potential roles in deploying communication systems, likely materializing in 2027. The SHIELD contract involves environmental planning and permitting for defense-related infrastructure, with Tetra Tech positioned as a key player.
Q:How do you view the mix of revenues between U.S. and international markets, and what is your focus on water-related areas?
A:The company is agnostic about geography and follows client priorities. International revenue is around 45%-48%, with no expectation to exceed 50%. Water-related areas remain a long-term focus due to their enduring importance.
Q:Review of Unclear Management Responses
A:Management avoided providing specific numerical details on the revenue impact of the Halvik and Providence acquisitions versus the Norway divestiture. Additionally, they did not offer precise timelines or financial projections for opportunities like FAA modernization and the SHIELD contract, using general terms like 'future opportunities' and 'potential material impact.'
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AMP
Colorado
FY
Federal
Group segment
Halvik
Kingdom Ireland
Netherlands
President CEO
Providence
Tetra Tech
Texas Coastal
UK Australia
USA Department
Water
advisory
analysis
automation
consulting
defense program
end work
flood
government shutdown
modernization
port
priority defense
program UK
program service
quality backlog
rate water
reduction
segment Commercial
sheet cash
software water
start
system water
upgrade
water investment
water system
water utility
TTEK Transcript
Tetra Tech, Inc. (TTEK) Q2 2026 Earnings Call Transcript
Positive4-30
The earnings call highlights strong financial performance with a 10% YoY revenue increase, improved operating margins, and a 20% rise in EPS. These factors, coupled with robust cash flow growth, suggest a positive market reaction. Despite the absence of strategic updates, the financial metrics alone indicate a strong positive sentiment likely to boost the stock price.
Tetra Tech, Inc. (TTEK) Q1 2026 Earnings Call Transcript
Positive1-29
The earnings call summary presents strong financial performance, with growth in state, local, and international markets, improved cash flow, and reduced net debt. The Q&A session highlights strategic M&A plans, growth in the federal business, and international expansion, despite some vague responses on specific future opportunities. The company's optimistic guidance, strong cash flow, and strategic focus on water and infrastructure projects support a positive sentiment, suggesting a potential stock price increase of 2% to 8% over the next two weeks.
Tetra Tech, Inc. (TTEK) Q4 2025 Earnings Call Transcript
Positive11-13
The earnings call summary shows strong financial performance with improved EBITDA margins, a significant increase in cash from operations, and a high ROCE. Despite some concerns about government task orders, the backlog quality and contract capacity are strong. The Q&A section highlights positive international growth and minimal impact from government shutdowns. The company's strategic focus on higher-margin work and M&A opportunities further supports a positive outlook. The stock is likely to see a positive reaction in the short term.
Tetra Tech, Inc. (TTEK) Q3 2025 Earnings Call Transcript
Positive7-31
The earnings call indicates strong financial performance with a 46% increase in U.S. Federal Work Revenue and improved cash flows. Despite some declines in international and commercial revenue, the company maintains a robust backlog and has increased margins. The Q&A reveals confidence in government work as a growth driver and highlights opportunities in water infrastructure and energy development. The cautious outlook on certain segments is balanced by strategic growth areas, suggesting a positive sentiment overall.
TTEK Slides
TTEK Report
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