Executive Summary

Q4 2025 was a clean beat on adjusted EPS and net revenue, driven by margin expansion from higher fixed-price mix, strong U.S. state/local water work, and reduced low‑margin USAID exposure. Adjusted EPS was $0.45 vs. consensus $0.40*, and net revenue was $1.163B vs. $1.064B*, while GAAP EPS was $0.48 .
Operating leverage was significant: operating income rose 26% Y/Y to a record $181M; adjusted operating income rose 12% Y/Y to $171M, while net revenue grew ~2% vs. Q3 and 1.6% vs. Q4 2024 .
FY26 guidance: net revenue $4.05–$4.25B and EPS $1.40–$1.55; Q1 FY26 net revenue $950M–$1.0B and EPS $0.30–$0.33, with assumptions for amortization ($27M), depreciation ($25M), interest ($30M), and tax rate (27.5%) .
Catalysts: continued backlog quality (more fixed-price, higher embedded margins), defense awards (>+$1.2B capacity in Q4), high-voltage engineering backlog doubling, dividend increase to $0.065, and buybacks ($50M in Q4; $598M remaining authorization) .

What Went Well and What Went Wrong

What Went Well

Record net revenue ($1.163B), operating income ($181M), and GAAP EPS ($0.48) in Q4; adjusted EPS $0.45, up 18% vs. Q3 and 18% vs. Q4 2024 .
Mix/price: fixed-price revenue reached ~50% in Q4—highest in decades—supporting margin expansion; management targets 60% longer-term. “We did hit essentially 50%... we'll move our target from 50% up to 60%” .
Demand drivers: strong U.S. state/local water programs (19% growth in U.S. state/local, ex‑disaster 13% YoY), and defense wins (>$1.2B U.S. Army Corps awards; $240M Navy environmental assessment) .

Key quote: “Record net revenue… record operating income, and significant operating margin expansion… driven by resilient water management and digital water automation” .

What Went Wrong

Renewables softness: U.S. commercial renewables (especially offshore wind) down ~30% YoY; CIG margins ex‑Australia only modestly up; U.S. commercial overall down slightly .
Digital SaaS stall: recurring software revenue held at ~$25M for ~18 months due to U.S. federal moratorium on new software subscriptions; pivoting go‑to‑market to ports/harbors and Europe .
Backlog optics: reported backlog flat YoY due to shorter federal task orders (“book and burn”), despite ~15% growth in contract capacity; decoupling can pressure visibility near‑term .

Financial Results

Core P&L vs. Prior Periods and Estimates

Metric	Q4 2024	Q3 2025	Q4 2025
Revenue ($USD Millions)	$1,374.5	$1,369.8	$1,330.1
Net Revenue ($USD Millions)	$1,144.5	$1,153.0	$1,163.3
Operating Income ($USD Millions)	$143.3	N/A	$181.3
Adjusted Operating Income ($USD Millions)	$152.5	N/A	$171.4
GAAP Diluted EPS ($)	$0.35	N/A	$0.48
Adjusted EPS ($)	$0.38	$0.41	$0.45
Net Revenue Consensus ($USD Millions)	N/A	N/A	$1,064.0*
Adjusted EPS Consensus ($)	N/A	N/A	$0.403*

Notes: Consensus values marked with * are from S&P Global; Values retrieved from S&P Global.

Segment Net Revenue and Margins

Segment Metric	Q4 2024	Q3 2025	Q4 2025
GSG Net Revenue ($USD Millions)	$512.5	$520.4	$487.2
GSG Margin (%)	19.6% approx (context)	19.9%	22.9%
CIG Net Revenue ($USD Millions)	$632.0	$632.6	$676.2
CIG Margin (%)	14.9% approx (context)	15.2%	+60 bps ex‑Australia (no exact %)

KPIs

KPI	Q3 2025	Q4 2025
Backlog ($USD Billions)	~$4.15 (ex‑USAID flat)	$4.14
DSO (Days)	56 (TTM); 54 incl. USAID collections	55.7
Operating Cash Flow ($USD Millions)	$462 TTM	$458 FY25
Net Debt ($USD Millions)	~$620	~ $600
Net Debt/EBITDA (x)	0.96	0.9
ROCE (%)	~20	>20

Non‑GAAP Reconciliation Highlights (FY25 and Q4)

FY25: Adjusted EPS $1.56 vs. GAAP $0.93; items include legal contingency ($0.35), goodwill impairment ($0.31), contingent consideration (−$0.03) .
Q4 2025: Adjusted operating income $171.4M vs. GAAP $181.3M (contingent consideration benefit −$9.9M) .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Revenue ($USD Billions)	FY25	$4.454–$4.554	Actual $4.617	Beat vs guidance
Adjusted EPS ($)	FY25	$1.49–$1.54	Actual $1.56	Beat vs guidance
Net Revenue ($USD Billions)	FY26	N/A	$4.05–$4.25	New
EPS ($)	FY26	N/A	$1.40–$1.55	New
Net Revenue ($USD Millions)	Q1 FY26	N/A	$950–$1,000	New
EPS ($)	Q1 FY26	N/A	$0.30–$0.33	New
Assumptions	FY26	N/A	Amortization $27M; Depreciation $25M; Interest $30M; Tax 27.5%; Shares 264M	Specified
Dividend ($/share)	Q4 FY25	$0.058 prior-year	$0.065; 12% Y/Y increase; payable Dec 12, 2025	Raised
Buybacks ($USD Millions)	Q4 FY25	N/A	$50 in Q4; $250 FY25; $598 remaining auth	Ongoing

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 & Q3 FY25)	Current Period (Q4 FY25)	Trend
AI/Data centers & water/power nexus	Targeting $120M in data center/advanced mfg revenue in FY25 (+20% YoY); Sage acquisition broadens digital automation; grid upgrades a growth area	“High‑voltage engineering backlog doubling”; data center water demand (~5M gal/day) reshaping infrastructure; >12 hyperscale/co‑lo contracts	Accelerating demand; backlog growth positive
Federal “book & burn” cadence	Backlog conversion slowing; shorter task orders; contract capacity up; backlog flat ex‑USAID	Backlog flat; capacity +15%; shorter funding cycles; expect cadence to normalize through FY26	Near‑term visibility lower; improving later
State/local water	+19% ex‑disaster; double‑digit growth sustained across U.S.	19% growth; ex‑disaster +13%; strong in TX/FL/CA; voter‑approved TX $20B water funding	Durable double‑digit growth
International regions	UK/IE water programs double‑digit; Australia −10%	International ~45% of business; UK water strong (~10%); Canada strong; Australia bottomed, poised to ramp	Improving (Australia stabilization)
Renewables	Headwinds from policy/executive orders; Australia election pause	U.S. renewables −~30% YoY; pivot to HV transmission; higher margins, lower competition	Ongoing softness; strategic pivot
Digital automation (SaaS)	Building digital systems practice; target $500M by 2030	SaaS ~$25M unchanged; federal procurement pause; pivot to ports/Europe deployments (e.g., Heathrow)	Near-term stalled; channel shift
Defense/PFAS	+$5B DoD capacity YTD; EPA emergency response priority	>$1.2B USACE capacity added in Q4; $240M Navy PFAS assessment; global defense budgets rising	Strengthening funding tailwinds
Tariffs/macro	International clients awaiting clarity; tempered growth	Clarity on tariffs could push to high end of guide; Canada infrastructure $200B	Clarity would help international/commercial

Management Commentary

Strategy: Focused on high‑end consulting in water and environmental services with increased fixed‑price mix and front‑end advisory to lift margins. “We did hit essentially 50%... moving target to 60%” .
Market drivers: Data centers as major water/power consumers; TX $20B water funding; defense budgets up across U.S., UK, Australia with coastal resiliency/PFAS remediation .
Backlog quality: Higher embedded margins; more fixed‑price; conservative reporting (funded/authorized only), causing decoupling from growth optics .
Capital allocation: Strong balance sheet, >$1B liquidity; $250M FY25 buybacks; $598M remaining; dividend raised; appetite for small‑to‑large M&A supported by low-cost capital (convert) .

Notable quotes:

“Our high‑voltage engineering practice has benefited... backlog doubling in the fourth quarter” .
“International... growing at a 9% rate... UK water... Canadian clean energy... Australia bottoming” .
“We have a very strong balance sheet... well over $1 billion in available liquidity” .

Q&A Highlights

Backlog vs. growth decoupling: Shorter federal task orders reduce reported backlog visibility, but contract capacity and state/local/international backlog growth offset; expect cadence improvement in FY26 .
Guidance construction: Midpoints reflect International/U.S. Commercial growth 5–10%, State/local 10–15%; shutdown impact modest (~$15–$20M), embedded in Q1 guide; clarity on tariffs could push to high end .
Segment margins: GSG margin boost from high utilization (disaster response), more fixed‑price work (50%), and mix shift to earlier‑cycle consulting/advisory; target 60% fixed‑price .
Renewables vs. HV/data centers: Renewable environmental compliance work down; pivot to high‑voltage engineering and data center water systems with better margins and less competition .
Digital SaaS: Federal moratorium stalled ~$25M run‑rate; shifting to ports/harbors and Europe (e.g., Heathrow) for adoption .
M&A appetite: Pipeline expanding; valuations moderating outside power/data centers; balance sheet supports larger transactions if strategically aligned .

Estimates Context

Q4 2025 adjusted EPS: $0.45 vs. consensus $0.403*; GAAP EPS was $0.48 .
Q4 2025 net revenue (net of subcontractor costs): $1.163B vs. consensus $1.064B* .
of estimates: 6 for EPS and 6 for net revenue*.

Values retrieved from S&P Global.

Key Takeaways for Investors

Mix and margin story is intact: fixed‑price penetration and front‑end advisory are expanding margins; GSG posted 22.9% in Q4, with management targeting more fixed‑price and digital efficiency gains .
Water infrastructure remains the core growth engine: sustained double‑digit state/local growth; UK AMP8 and Canada infrastructure bills underpin international demand .
Near‑term optics on backlog may understate momentum: shorter federal task orders decouple backlog from growth; watch contract capacity, awards cadence, and segment margins for true signal .
Strategic pivot from renewables to grid/data centers should improve margin quality: HV transmission and data center water/power services have scarcity value and better pricing .
Digital SaaS is a call option: current stall due to federal procurement pause; European/port channels could reignite growth; not material to near‑term P&L .
Capital allocation is supportive: dividend raised to $0.065; $598M buyback authorization; liquidity >$1B for opportunistic M&A .
FY26 guide is prudent with upside: clarity on tariffs and federal cadence normalization could push to top of ranges; watch Q1 execution against $950–$1,000M net revenue and $0.30–$0.33 EPS .

TETRA TECH INC (TTEK)·Q4 2025 Earnings Summary