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TETRA TECH INC (TTEK)·Q1 2025 Earnings Summary

Executive Summary

  • Record revenue ($1.42B, +16% Y/Y), record net revenue ($1.20B, +18% Y/Y), and record backlog ($5.44B, +15% Y/Y). GAAP EPS was $0.00 due to a $115M legal contingency; adjusted EPS was $0.35 (+25% Y/Y) and management stated it was above guidance and consensus .
  • Guidance updated: FY25 net revenue range lowered at the low end ($4.365B–$4.765B) and FY25 adjusted EPS range set at $1.37–$1.52; Q2 FY25 net revenue guided to $1.0B–$1.1B and EPS $0.30–$0.33 .
  • Government Services Group (GSG) net revenue grew sharply to $601M; margin was 13.9% (15.4% ex-Ukraine). Commercial International Group (CIG) margin reached ~13%; DSO remained best-in-class at 55.9 days .
  • Stock reaction catalysts: USAID work pause and program reviews, offset by accelerating state/local disaster response and resilient water infrastructure demand; dividend increased and buybacks resumed ($25M in Q1) .

What Went Well and What Went Wrong

What Went Well

  • “Record high quarterly revenue and backlog, and record high first quarter adjusted operating income and EPS” with adjusted EPS $0.35 (+25% Y/Y) .
  • Strong segment execution: GSG net revenue reached $601M (first time above $600M) with margin 13.9% (15.4% excluding Ukraine), and CIG margin increased ~50 bps to ~13%, reflecting mix shift and pricing discipline .
  • Operational quality and cash discipline: DSO at 55.9 days; backlog expanded to $5.44B on multiple large USACE awards, underpinning visibility into water, environment, and sustainable infrastructure pipelines .

What Went Wrong

  • Legal settlement charge ($115M) depressed GAAP operating income to $22.5M and GAAP EPS to $0.00; adjusted operating income was $137.5M and adjusted EPS $0.35 .
  • USAID and certain federal programs paused for review by the new U.S. administration, causing FY25 net revenue guidance low end to be reduced and introducing near-term uncertainty .
  • GSG margin mix headwind from cost-reimbursable Ukraine work (13.9% reported vs ~15.4% excluding Ukraine) .

Financial Results

Quarterly progression and comparisons

MetricQ4 2024Q1 2024 (prior-year)Q1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$1.374 $1.228 $1.421 $1.322 $1.370
Net Revenue ($USD Billions)$1.144 $1.015 $1.197 $1.104 $1.153
Operating Income ($USD Millions)$143.3 $111.1 $22.5 $39.6 $165.0
Adjusted Operating Income ($USD Millions)$143.3 (no adj in Q4) $111.0 $137.5 $130.1 $164.9
EPS (GAAP, $)$0.35 $0.28 $0.00 $0.02 $0.43
Adjusted EPS ($)$0.38 $0.28 $0.35 $0.33 $0.43
Backlog ($USD Billions)$5.38 N/A$5.44 $4.09 (ex-USAID/DOS) $4.277; $4.149 ex-USAID/DOS

Notes: Q2–Q3 FY25 include adjustments/exclusions as disclosed; see source tables for details .

Segment breakdown (Q1 2025)

SegmentNet Revenue ($USD Millions)MarginPrior-year Net Revenue ($USD Millions)
Government Services Group (GSG)$601.2 13.9% reported; ~15.4% excl. Ukraine $442.7
Commercial International Group (CIG)$596.1 ~13.0% (up ~50 bps Y/Y) $572.5

KPIs and cash metrics

KPIQ1 2025Q4 2024
DSO (days)55.9 55.0
Cash from Operations ($USD Millions)$13.1 $358.7 (FY)
Net Debt / EBITDA (leverage)1.33x reported; 1.05x adjusted 1.0x (FY)
Share Repurchases ($USD Millions)$25 $348 remaining authorization
Dividend per share ($)$0.058 (declared) $0.058 (declared Q4)

Estimates vs. Actual (Q1 2025)

MetricS&P Global ConsensusActual
Revenue ($USD Billions)Unavailable – SPGI request limit exceeded$1.421
EPS ($)Unavailable – SPGI request limit exceeded$0.00 GAAP; $0.35 Adjusted

Values retrieved from S&P Global were unavailable due to request limit; management stated adjusted EPS was above consensus .

Guidance Changes

MetricPeriodPrevious Guidance (Q4 2024)Current Guidance (Q1 2025)Change
Net Revenue ($USD Billions)FY25$4.565–$4.765 $4.365–$4.765 Lowered low end; maintained high end
Adjusted EPS ($)FY25$1.40–$1.50 $1.37–$1.52 Midpoint reaffirmed; high end raised
Net Revenue ($USD Billions)Q2 FY25N/A$1.0–$1.1 New
EPS ($)Q2 FY25N/A$0.30–$0.33 New
Dividend per share ($)Q1 FY25 payment$0.058 (declared Nov) $0.058 (declared Jan) Maintained level; +12% Y/Y noted

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Current Period (Q1 2025)Trend
USAID/Federal reviewInitiated FY25 guide; strong federal pipeline and backlog Pause/stop-work orders for USAID; midpoint FY25 assumes ~$400M USAID for year with ~$200M already in Q1; uncertainty bracketed in guidance Near-term headwind; conservative underpinning, potential re-acceleration post-review
Disaster responseElevated demand across water/coastal resiliency Hurricanes Helene/Milton drove +47% Y/Y state/local; fire response in CA ramping; ~$40–$50M incremental FY25 revenue assumed Increasing contribution; higher-margin mix supports EPS high-end raise
Segment marginsMargin expansion agenda; strong profitability GSG 13.9% (15.4% ex-Ukraine); CIG ~13% (+50 bps Y/Y) Mix effect from Ukraine temp headwind; structural margin expansion intact
Backlog/awardsRecord $5.38B; large USACE/DLA/NI Water awards Record $5.44B; multiple USACE awards across regions Sustained order momentum; diversified across geographies
Digital/AI initiatives2030 plan includes recurring software growth Deploying software subscription solutions and Delta tech; AI-driven post-disaster analytics Expanding digital and automation footprint in water/disaster response

Management Commentary

  • “Record high quarterly revenue and backlog, and record high first quarter adjusted operating income and EPS” highlighting momentum in water, environment, and sustainable infrastructure .
  • “Operating income was $138M… adjusted EPS $0.35… above our own guidance range and… above consensus… backlog grew to $5.44B, up 15% Y/Y” .
  • “Net revenue in GSG increased to $601M… driven by higher-than-anticipated work in Ukraine… GSG margin 13.9% (15.4% excluding Ukraine)… CIG delivered a 13% margin” .
  • “DSO of about 55.9 days… net debt leverage 1.33x; 1.05x adjusted… reinstituted $25M buyback… average interest rate reduced to 3.44%” .

Q&A Highlights

  • USAID exposure and guidance mechanics: Midpoint assumes ~$400M USAID FY25 with ~$200M in Q1; demobilization scenarios bracketed; expectation many projects resume given national security alignment (e.g., Philippines, Vietnam, Indonesia) .
  • Disaster response ramp: Expect ~$40–$50M incremental FY25 revenue from California fires; higher-margin work offsets USAID pause impact on EPS .
  • Federal mix outlook: DoD budgets/funding intact; federal IT modernization (~10% of revenue) positioned to grow; limited impact beyond USAID, minor EPA research pauses .
  • Litigation: Hunters Point settlement decision intended to eliminate prolonged legal costs; $115M charge recognized in Q1 .
  • Capital allocation/M&A: Strong pipeline focused on technical leaders in water/environment across APAC/NA/UK/EU; opportunistic buybacks given leverage near low end .

Estimates Context

  • S&P Global consensus for Q1 FY25 revenue and EPS was unavailable due to API request limits; management indicated adjusted EPS ($0.35) exceeded internal guidance and market consensus .
  • Given stronger state/local and international demand, and higher-margin disaster response, estimate revisions may bias upward for FY25 adjusted EPS high end while net revenue remains conservatively bracketed due to USAID pause .

Key Takeaways for Investors

  • Underlying demand remains robust; record net revenue and backlog underpin visibility across water, environment, and resilient infrastructure despite USAID review headwinds .
  • Mix shift toward higher-margin disaster response and disciplined execution drove adjusted EPS above guidance; management raised FY25 EPS high end to $1.52 .
  • Segment performance resilient: GSG growth strong with temporary margin headwind from Ukraine; CIG margins expanding per plan .
  • Cash discipline intact: DSO ~56 days and leverage near low end provide flexibility for increased buybacks and targeted M&A .
  • Near-term trading: Expect volatility around USAID developments; watch state/local disaster response cadence and USACE awards as positive offsets .
  • Medium-term thesis: Structural tailwinds (coastal protection, water scarcity, digital modernization) and record backlog support 6–10% organic growth and margin expansion targets articulated at investor day .
  • Monitor disclosures: Q2/Q3 updates on USAID resumption/termination and disaster response contribution; continued clarity on non-GAAP adjustments (legal contingency, any impairments) .