Tetra Tech (NASDAQ:TTEK) reported fiscal 2026 third-quarter results that exceeded its guidance range, supported by double-digit growth in U.S. federal and international markets, higher backlog and strong operating cash flow. The company raised its full-year adjusted earnings per share outlook following the quarter.
Chief Executive Officer and President Roger Argus said net revenue reached $1.1 billion in the quarter, exceeding the high end of the company’s guidance, while adjusted earnings per share of $0.42 also came in above expectations. Operating cash flow totaled $229 million during the quarter and $467 million through the first nine months of fiscal 2026, which Argus described as a record for the first three quarters of a fiscal year.
Segment and Market Performance
The Government Services Group grew 7% year over year and posted a 17.5% margin in the third quarter. Demand was particularly solid in water, environmental and defense work for U.S. federal as well as state and local government customers, according to Argus.
The Commercial International Group increased revenue 9% from a year earlier and reported a 15.1% margin. Growth reflected a diversified set of water, power and energy, and mining assignments around the world.
- International revenue rose 12% year over year and accounted for 47% of the business, driven by water programs in the U.K., Ireland and Netherlands; infrastructure work in Canada; and mining and digital automation revenue in Australia.
- U.S. federal revenue increased 12% and represented 20% of total business, aided by infrastructure, planning and environmental work for defense and civilian customers.
- U.S. commercial revenue increased 1% and represented 20% of the business. Growth in energy, transmission, mining and minerals work was partly offset by lower renewable-energy activity and the cancellation of remaining Atlantic Coast offshore wind programs.
- U.S. state and local revenue grew 5%, with continuing demand for municipal water projects involving PFAS treatment, digital modernization, water reuse and desalination.
The company cited several new awards and contract additions that supported backlog growth. These included nearly $300 million in contract capacity with the U.S. Army Corps of Engineers’ Mobile and Norfolk districts, as well as a lead designer role for what Argus said will be the largest dedicated municipal PFAS treatment system in the U.S., located in Dayton, Ohio.
Commercial orders were led by digital automation services for data centers, power and transmission assignments, and sediment-restoration programs. During the question-and-answer session, Argus said the company’s data-center work has broadened from engineering and commissioning into feasibility studies and work related to power and water supplies for new facilities. He said data-center revenue is currently about $60 million for the year.
Margins, Cash Flow and Capital Allocation
Chief Financial Officer Steve Burdick said operating income rose significantly despite reported revenue declining from the prior year, primarily because of lower revenue from the company’s USA customer and the absence of certain one-time disaster work recorded last year. He said the company’s focus on front-end technical design and engineering work in water and environmental markets has supported higher margins.
Adjusted EBITDA margin on net revenue increased about 80 basis points through the first nine months of fiscal 2026 compared with the same period in fiscal 2025, Burdick said. On a net service revenue basis, he said EBITDA margin would be about 240 basis points higher year to date.
The company’s days sales outstanding stood at 56 days, similar to the prior year and improved from the fiscal second quarter. Tetra Tech’s net debt-to-EBITDA leverage was 0.88 times, compared with 0.96 times a year earlier, while return on capital employed exceeded 20%.
Tetra Tech reported $567 million of trailing-12-month operating cash flow and said it intends to use its balance sheet and cash generation to support organic growth and acquisitions. Year to date, it closed acquisitions of defense-focused technical firms Halvik in the U.S. and Providence in Australia.
The board approved a quarterly cash dividend that is 11% higher than the year-ago payment, marking the company’s 45th consecutive quarterly dividend with annual double-digit increases, according to Burdick. The company also increased its third-quarter share repurchase activity to $100 million, bringing nine-month buybacks to $200 million. It has $398 million remaining under its board-approved repurchase authorization.
Federal Environment and Water Demand
Argus said federal work continues to face administrative constraints following staffing reductions at U.S. government contracting offices. While Tetra Tech continues to win work and build backlog, he said the flow of task orders and awards remains constrained. He also cited uncertainty surrounding the U.S. administration and geopolitical conditions as factors causing some commercial customers to be cautious about initiating new programs.
Regarding the former U.S. Agency for International Development business, Argus said USAID “does not exist anymore,” while the Department of State will remain a client. He said the company expects Department of State work to continue at some level but remains conservative in forecasting its contribution, particularly amid uncertainty around aid-related programs and work in Ukraine.
Burdick said Ukraine-related aid work contributed about $66 million in the third quarter and is expected to be in a similar range in the fourth quarter.
In municipal water, Argus said Tetra Tech’s water treatment business remained up double digits year over year in the third quarter despite uncertainty around certain federal funding programs. He said municipalities are pursuing rate increases, bonds, commercial financing and other sources to fund needed projects. Flood protection has seen a more direct impact from reduced federal co-funding, though he said it represents a smaller part of the company’s state and local business.
Raised Fiscal 2026 Outlook
For the fiscal fourth quarter, Tetra Tech forecast net revenue of $1.12 billion to $1.17 billion and adjusted earnings per share of $0.45 to $0.48.
For fiscal 2026, the company raised its adjusted EPS outlook to $1.56 to $1.59 and projected net revenue of $4.315 billion to $4.365 billion. At the midpoint, the outlook implies 8% year-over-year net revenue growth and 70 basis points of margin expansion. The guidance excludes contributions from future acquisitions.
Argus said water-related demand remains a central driver of the company’s global growth opportunities, including in hydropower, digital automation, resilient infrastructure, mining and data centers. He said the company views artificial intelligence as an enabler for its technical professionals, helping them evaluate larger data sets and develop site-specific solutions, rather than as a replacement for its front-end applied science and engineering services.
About Tetra Tech (NASDAQ:TTEK)
Tetra Tech, Inc is a leading provider of consulting and engineering services with a focus on water, environment, infrastructure, resource management and energy sectors. Headquartered in Pasadena, California, the company delivers end-to-end solutions that encompass planning, design, engineering, program management and construction management. Tetra Tech’s multidisciplinary teams integrate science, technology and advisory services to address complex challenges in areas such as water resources, environmental remediation, sustainable infrastructure and renewable energy.
The company’s core offerings include environmental assessments and cleanup, water treatment and reuse, coastal and marine engineering, climate resilience planning, and engineering design for transportation and built environments.
