TETRA TECH INC (TTEK)·Q3 2025 Earnings Summary

Executive Summary

• Q3 FY25 delivered strong top-line and earnings: Net revenue $1.153B (+3.9% q/q), diluted EPS $0.43; excluding USAID/DOS, net revenue $1.062B (+11% y/y) and EPS $0.41 (+46% y/y), driven by disaster response and higher-margin front-end consulting work .
• EPS and net revenue beat S&P Global consensus; FY25 guidance raised to net revenue $4.454–$4.554B and adjusted EPS $1.49–$1.54; Q4 guidance set at net revenue $1.0–$1.1B and EPS $0.38–$0.43 .
• Segment margins expanded: GSG at 19.9% (benefit from disaster work and USAID wind-down) and CIG at 15.2%; backlog $4.277B (ex-USAID $4.149B); DSO improved to 54 days on USAID collections .
• Stock-reaction catalysts: raised FY EPS guidance, record operating income, nearly $2B of new federal contract capacity; near-term watch items include slower task order conversion (“book and burn” cadence) and minimal disaster revenue expected in Q4 .

What Went Well and What Went Wrong

• What Went Well

  • “Record operating income” and margin expansion versus last year, with high utilization from California fire recovery work and increased funding for disaster preparedness/response .
  • Ex-USAID/DOS net revenue +11% y/y to $1.062B; EPS +46% y/y to $0.41; operating income +37% y/y to $159M .
  • Backlog up y/y and sequentially to $4.277B (ex-USAID $4.149B); DSO improved to 54 days on USAID invoice collections, supporting robust cash generation .

• What Went Wrong

  • Slower federal task order conversion (“book and burn”) reduces backlog visibility despite strong contract issuance; backlog growth may be flat or down in Q4 without impacting near-term revenue .
  • U.S. renewables activity (especially offshore wind) down ~30% y/y; management sees multi-quarter headwinds, though renewables remain a small mix .
  • Disaster revenue likely minimal in Q4 as major California and Southeast events enter later-stage design/planning phases; reduces episodic tailwind sequentially .

Financial Results

Q3 FY25 reported vs excluding USAID/DOS:

Segment breakdown:

Segment margins:

Operating KPIs:

Guidance Changes

Management assumptions also highlight minimal USAID/DOS contribution in Q4 ($40–$50M) as the wind-down continues .

Earnings Call Themes & Trends

Management Commentary

• “Tetra Tech delivered another strong quarter with increasing revenue, record operating income, and significant operating margin expansion… driven by our high-end water, environmental and sustainable infrastructure services… increased funding for [disasters].” — Dan Batrack, CEO .
• “We did add nearly $2,000,000,000 in new contract capacity with the US federal government… Huntsville, Europe, and Honolulu… EPA award for emergency response.” — CEO .
• “Our net revenue increased to $1,060,000,000… operating income was $159,000,000… EPS $0.41… excluding USAID/DOS.” — CEO .
• “DSO… improved to fifty four days… net debt on EBITDA… leverage of 0.96x… strongest balance sheet in our history… $648M buyback availability.” — CFO .
• “Growth… catalyzed by increasingly affordable access to generative AI… projections… Industry 4.0… target to reach $500,000,000 in annual revenues for digital automation by 2030.” — Chief Innovation Officer .

Q&A Highlights

• Backlog cadence: Contract issuance strong, but task order conversion slower due to federal staffing changes; expect “book and burn” pattern with potentially flat/down backlog in Q4 without revenue impact .
• Segment margins: GSG margin uplift from disaster work and reduced USAID/State exposure; long-term plan to expand company margins ~50 bps/year via higher-value front-end services and fixed-price mix .
• Disaster revenue outlook: Minimal episodic contribution in Q4 as Florida/Georgia/Carolinas flood and California fire clean-up largely complete; design/planning work continues .
• Renewables exposure: U.S. renewables down ~30% y/y near-term; overall renewables small share (~5% enterprise; ~1.5% U.S. wind) reduces impact .
• Ukraine optionality: SPARK single-award USAID energy contract with ~$450M ceiling; historical ability to rapidly ramp task orders; Q3 USAID ~$91M; Q4 guide $40–$50M .
• Capital allocation: ~$1B liquidity; dividend up 12% y/y to $0.065; buybacks ($25M in Q3; $200M YTD); net leverage <1x .

Estimates Context

Actuals vs S&P Global consensus (company reports measure net revenue):

Notes:

• Q3 FY25 delivered EPS and net revenue beats vs consensus; EBITDA also above consensus. Bold indicates beats in quarter commentary above.
• Values retrieved from S&P Global.*

Key Takeaways for Investors

• EPS and net revenue beats plus raised FY25 EPS guidance suggest estimate revisions upward; margin trajectory supported by higher-value service mix and fixed-price contracts .
• Near-term watch: slower federal task order conversion may dampen backlog optics; management expects limited revenue impact given “book and burn” cadence .
• Disaster response tailwind fades in Q4; focus shifts to long-cycle design and planning work; expect lower episodic contributions sequentially .
• USAID/DOS wind-down reduces lower-margin mix; ex-USAID growth and defense/civil programs underpin margin resilience; optional upside remains via Ukraine SPARK contract .
• Strong cash generation (TTM CFO $462M), improved DSO (54 days), and net leverage <1x enable continued buybacks/dividends and selective M&A (digital automation/AI, water) .
• Renewables headwinds (U.S. wind) are manageable given small exposure (~1.5% of revenue in U.S. wind within ~5% enterprise renewables); data center, FAA modernization, and UK/Ireland water programs provide offsetting demand .
• Trading implication: raised guidance and margin expansion narrative are positive; headline backlog volatility likely transient—focus on contract capacity wins and execution KPIs.

All facts, figures, and statements above are supported by company documents and transcripts with citations. Where consensus estimates are shown, values are retrieved from S&P Global.*