Executive Summary

Q2 FY25 net revenue and adjusted EPS exceeded consensus and company guidance: Net revenue $1.104B vs S&P Global consensus ~$1.042B*, and adjusted EPS $0.33 vs ~$0.31*; GAAP EPS was $0.02 due to a $92.4M non‑cash goodwill impairment tied to USAID program terminations .
TTEK raised FY25 guidance: net revenue to $4.400–$4.765B (from $4.365–$4.765B) and adjusted EPS to $1.42–$1.52 (from $1.37–$1.52). Q3 net revenue guided to $1.10–$1.20B and EPS to $0.35–$0.40 .
Resilience despite abrupt USAID/DOS impact: backlog adjusted to $4.31B total after ~$1.1B de‑obligation, with core backlog ex‑USAID/State at $4.09B and book‑to‑bill of ~1.1x (ex‑USAID/State) .
Capital allocation and liquidity strengthened: $150M buyback in Q2; new $500M authorization ($673M total available); quarterly dividend raised to $0.065; and a new $1.5B credit facility ($600M revolver; $250M 3‑yr TL; $250M 5‑yr TL) with covenants (max leverage 3.5x; min interest coverage 3.0x) .

What Went Well and What Went Wrong

What Went Well
- Broad-based demand offset USAID/DOS headwinds; state & local net revenue grew 44% YoY (about half disaster response, balance ongoing municipal water up 19% YoY); U.S. federal ex‑USAID/State up 16% YoY; GSG revenue +12% YoY to $521M with 13.8% margin despite non‑reimbursable closeout costs .
- CIG margin 13.2%; U.S. commercial up 5% YoY; UK/Irish water programs double‑digit growth; strong DoD/USACE pipeline with >$30B federal contract capacity and multiple recent wins supporting growth visibility .
- Digital systems/AI strategy advancing: signed definitive agreement to acquire SAGE Group (800 automation experts) to expand AI‑enabled digital automation; management targets a $500M digital systems practice by 2030 .
What Went Wrong
- USAID/DOS terminations triggered a $92.4M non‑cash goodwill impairment and backlog de‑obligation of ~$1.1B; GAAP EPS reduced to $0.02 in Q2 .
- International growth mixed; Australia infrastructure work down >10% (election‑driven pausing), and clients paused some international commercial decisions awaiting tariff clarity .
- USAID closeout created non‑reimbursable costs and temporary utilization pressure in the affected group; management held staff during the transition to redeploy, modestly weighing margins in the short term .

Financial Results

Metric	Q4 FY24	Q1 FY25	Q2 FY25
Revenue ($USD Millions)	$1,374.5	$1,420.6	$1,322.1
Net Revenue ($USD Millions)	$1,144.5	$1,197.3	$1,103.7
Operating Income ($USD Millions)	$143.0	$22.5	$39.6
EPS (GAAP) ($)	$0.35	$0.00	$0.02
Adjusted EPS ($)	$0.38	$0.35	$0.33

Results vs S&P Global consensus (Q2 FY25):

Metric	Consensus	Actual	Outcome
Net Revenue ($USD Millions)	$1,042.4*	$1,103.7	Beat*
Adjusted/Primary EPS ($)	$0.306*	$0.33	Beat*

Values retrieved from S&P Global.*

Segment performance (Q2 FY25):

Segment	Revenue ($USD Millions)	Segment Margin (%)	Notes
Government Services Group (GSG)	~$521	13.8%	Strong state/local water, environment, disaster response; some non‑reimbursable USAID closeout costs .
Commercial International Group (CIG)	~$597	13.2%	U.S. commercial environmental/restoration and UK water up; Australia infra down >10% .

KPIs and balance sheet:

KPI	Q2 FY25
Book‑to‑bill (ex‑USAID/State)	~1.1x
Backlog (ex‑USAID/State)	$4.09B
Total backlog (post de‑obligation)	$4.31B
DSO (at Q2 end / post‑quarter collections)	67 days / ~57 days (after ~$150M USAID receipts)
Net leverage (at Q2 end / post‑quarter collections)	~1.36x / ~1.1x
Share repurchase in Q2	$150M
Remaining buyback authorization	$673M
Quarterly dividend	$0.065/sh payable Jun 5, 2025
New credit facility	$1.5B total; $600M revolver; $250M 3‑yr TL; $250M 5‑yr TL; add‑on capacity up to $400M; key covenants: max leverage 3.5x (4.0x with certain M&A); min interest coverage 3.0x .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Revenue ($B)	FY25	$4.365–$4.765	$4.400–$4.765	Raised lower end .
Adjusted EPS ($)	FY25	$1.37–$1.52	$1.42–$1.52	Raised lower end .
Net Revenue ($B)	Q3 FY25	N/A	$1.10–$1.20	New quarterly guide .
EPS ($)	Q3 FY25	N/A	$0.35–$0.40	New quarterly guide .
Assumptions (FY25)	FY25	N/A	Intangible amort. ~$35M (≈$8M in Q3/Q4); tax 27.5%; D&A $24M; interest $34–$38M; diluted shares ~267M	Provided for modeling .
Dividend	Next payment	$0.058 (Q1 declared)	$0.065 (Q2 declared)	+12% YoY .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’24, Q1’25)	Current Period (Q2’25)	Trend
Digital systems/AI & automation	Emphasis on digital modernization of water infrastructure and recurring software ambitions; record backlog supports investment	Signed definitive agreement to acquire SAGE Group (800 experts); targeting $500M digital systems revenue by 2030	Accelerating
USAID/DOS exposure	Q1’25 guidance acknowledged federal review/pause, especially USAID	Termination for convenience; ~$1.1B de‑obligation; $92.4M goodwill impairment; ~$220M USAID backlog (mostly Ukraine) to be worked ~$100M each in Q3/Q4 (volatile)	Reset, core stronger
State & local water/disaster	Strong pipeline; emergency response wins (EPA/USACE)	State & local +44% YoY; disaster response boosted results; municipal water +19% YoY	Strengthening
DoD/USACE pipeline	Multiple large wins in late 2024 and Q1’25	>$30B federal contract capacity; multiple new awards across USACE districts	Broadening
International	UK frameworks (e.g., NI Water)	UK/Irish water double‑digit growth; Australia infra −>10% amid election; some tariff‑driven decision delays	Mixed
Regulatory/legal (PFAS, EPA)	—	EPA proposals monitored; bulk of work state/local‑driven; PFAS remediation likely led by DoD; TTEK well positioned	Constructive

Management Commentary

“Never have we seen our largest client by revenue essentially disappear within just 1 quarter… [yet] we had one of the best quarters in the company’s history” — Dan Batrack, citing record Q2 revenue/net revenue, higher segment margins, and strong seasonally slow quarter performance .
“Our USAID client has paid… over $150 million which equates to about a 10‑day DSO improvement… trailing‑12‑month CFO $311M; net leverage ~1.36x at Q2, improving to ~1.1x post‑collections” — CFO Steve Burdick .
“Without USAID… the underlying business has about a 50 bps increase [in baseline margin]… margins should grow slightly faster than the 50 bps [annual]” — Dan Batrack .
“$5B in new DoD contract capacity this fiscal year… with coverage across Middle East, Pacific, Americas and civil works” — Leslie Shoemaker .
“Data centers are a fastest growth market… tracking ~$120M in FY25 revenue (+20% YoY) with 20–25% growth expected in coming years; SAGE adds global digital automation capability” — Joseph Fong .

Q&A Highlights

State & local funding sensitivity: Management does not see near‑term pressure despite potential federal budget changes; many projects are multi‑year and backed by bonds/user fees in large states (FL/TX/CA) .
EPA deregulation risk/opportunity: Majority of environmental work is state/local; PFAS regulation and remediation (incl. DoD sites) is a positive opportunity; limited direct impact expected from proposed federal changes .
Margins post‑USAID: Baseline company margin higher without USAID; management expects margin expansion above prior 50 bps annual trajectory .
USAID burn‑down: ~$220M remaining (mostly Ukraine) expected roughly ~$100M in Q3 and ~$100M in Q4, subject to volatility; task orders already issued .
International uncertainty: Some clients delaying decisions pending tariff clarity; UK/Irish water strong; Australia infra softness during election period .

Estimates Context

Q2 FY25 beat S&P Global consensus on both net revenue (~$1.104B vs ~~$1.042B*) and Primary/adjusted EPS (~~$0.33 vs ~$0.31*). GAAP EPS was $0.02 due to the USAID‑related impairment .
Values retrieved from S&P Global.*

Where estimates may adjust:

Street likely raises FY25 net revenue/EPS lower bounds after guidance increase and Q2 beat; model assumptions updated for: intangible amortization (~$35M FY), tax (27.5%), D&A ($24M), interest ($34–$38M), and share count (~267M) .

Key Takeaways for Investors

Core demand is resilient and diversified: strong state & local, DoD/USACE, U.S. commercial, and UK/Irish water offset USAID/DOS exit; ex‑USAID backlog/bookings remain solid .
Margin trajectory improves post‑USAID: baseline uplift and continued annual expansion expected, aided by mix (water, disaster response, digital) .
Digital/AI optionality: SAGE accelerates high‑margin digital automation; management targets a sizable digital systems business by 2030 .
Capital deployment supports EPS: $150M Q2 buyback, $500M new authorization, dividend up 12% YoY, and ample $1.5B credit capacity at favorable terms .
Near‑term model sensitivities: USAID Ukraine burn‑down timing; disaster response cadence; Australia recovery; tariff clarity on international commercial projects .
Medium‑term thesis: Structural tailwinds in water security, environmental remediation (incl. PFAS), resilient infrastructure, and data center water/energy solutions underpin multi‑year growth .

Notes: All company results and guidance reflect press releases and call commentary. Estimates marked with an asterisk (*) are values retrieved from S&P Global. Citations: earnings PR [32], 8‑K and credit facility/dividend [33], Q2 call [28], prior quarter PRs [57] [60], subsequent Q3 PR [22].

TETRA TECH INC (TTEK)·Q2 2025 Earnings Summary