Tetra Tech Q1 Earnings Call Highlights

Tetra Tech (NASDAQ:TTEK) executives highlighted what they described as a strong start to fiscal 2026, citing revenue growth, margin expansion, improved cash generation, and steady backlog despite a lengthy U.S. government shutdown during the quarter.

First-quarter results: revenue up 8% with margin expansion

Chairman and CEO Dan Batrack said the company generated net revenue of $987 million in the fiscal 2026 first quarter, up 8% from the prior year. Operating income rose 12% to $131 million, while adjusted earnings per share increased 17% to $0.34. Batrack noted reported GAAP EPS was $0.40 for the quarter, with CFO Steve Burdick pointing to one-time items such as divestiture and earn-out gains referenced in company reconciliations.

Burdick said the company expanded EBITDA as a percentage of net revenue by 140 basis points to 14.2%. He added that revenue was down from last year in certain areas due to lower activity with USAID and “virtually no revenues from hurricane disasters this year compared to last year,” but operating income increased as higher-margin front-end consulting and design work carried through the portfolio. Excluding USAID and Department of State activities in both periods, Burdick said margins were up about 80 basis points.

Segment performance: growth in both Government Services and Commercial/International

Tetra Tech reported growth and margin improvement across both operating segments.

• Government Services Group (GSG): Net revenue grew 5% to $382 million, with a segment margin of 18%, up 40 basis points year over year. Batrack emphasized these results came in a quarter when the U.S. government was shut down for roughly six weeks.
• Commercial and International Group (CIG): Net revenue rose 10% to $605 million, driven by growth in the United Kingdom and Ireland and new digital automation programs in Australia. The segment margin was 13%, also up 40 basis points, with management citing strong performance in the U.K. and Canada and improving trends in Australia.

Customer and geographic trends: federal strength, international growth, and renewables normalization

By customer type, Batrack said U.S. federal work rose about 7% year over year, primarily from U.S. Army Corps of Engineers projects involving flood protection structures, lock and dam upgrades, and inland waterway navigation systems. Federal work represented about 18% of total first-quarter business. During Q&A, Batrack said the company worked closely with clients—particularly the Army Corps—to plan task orders ahead of the shutdown, helping sustain activity through much of the quarter.

State and local markets in the U.S. grew 10%, led by municipal water treatment and digital water modernization, with management calling out water-stressed states including Texas, Florida, California, and Colorado. U.S. commercial work declined slightly, which Batrack said was expected due to a year-over-year reduction in renewable energy work compared with a strong prior-year quarter, partially offset by growth in high-voltage transmission permitting and engineering.

International work accounted for 48% of the quarter’s net revenue and increased 13%. In Q&A, Batrack said the U.K. and Ireland remained the strongest international contributors, with double-digit growth supported by large water programs, including the AMP8 cycle in the U.K. He said Canada has been performing in the “middle- to upper-single digits” and pointed to infrastructure investment themes, including ports and harbors and potential Arctic-related development. Australia improved from declines seen a year earlier, with Batrack describing conditions as moving from roughly -15% to flat.

Backlog and operational execution amid the shutdown

Batrack said backlog was stable overall, though the company saw slower U.S. federal client orders due to the shutdown and a slower-than-typical restart as the government reopened near the holiday season. He said stable backlog was supported by strong awards and startups from state and local, commercial, and international clients. Management also said the “quality” of backlog improved, with a greater proportion of front-end work and higher embedded margins in newly awarded projects.

Looking ahead, management said it expects the pace of U.S. federal orders to increase beginning late in the second quarter and into the second half of the fiscal year as budget and appropriations clarity improves.

Cash flow, capital allocation, acquisitions, and updated guidance

Burdick reported operating cash flow of $72 million in the quarter, an improvement of $59 million from fiscal 2025’s first quarter. He said days sales outstanding (DSO) was 51 days, the lowest in more than 10 years. Net debt was about $565 million, and net leverage was 0.86x EBITDA, which Burdick said was about 20% lower than a year ago.

On capital allocation, Burdick said the board approved a quarterly cash dividend representing a 12% increase year over year, marking the company’s 47th consecutive quarterly dividend. He also said Tetra Tech repurchased $50 million of stock during the quarter and had $548 million remaining under approved buyback plans.

Management also discussed M&A capacity and recent deals. Burdick said the company’s balance sheet could support significant additional debt capacity, and Batrack said he expects continued “bolt-on” acquisitions while also spending more of his time pursuing larger strategic combinations as he transitions from CEO to executive chairman. President and CEO Designate Roger Argus highlighted the post-quarter addition of Halvik to expand high-end consulting services to U.S. defense programs, including data analytics and AI capabilities, and said the company signed a definitive agreement to acquire Providence, an advisory firm focused on Australian defense programs.

During Q&A, management confirmed that Tetra Tech divested its Norway operation—acquired with RPS—calling it non-core. Batrack said the removal of Norway and the addition of Halvik roughly offset each other in annual revenue terms, and noted backlog comparisons were affected by the Norway divestiture.

For guidance, Batrack said the company increased its fiscal 2026 outlook. Second-quarter guidance calls for net revenue of $975 million to $1.025 billion and adjusted EPS of $0.30 to $0.33. Full-year guidance was raised to net revenue of $4.15 billion to $4.3 billion and adjusted EPS of $1.46 to $1.56. Assumptions include $34 million of intangible amortization, $25 million of depreciation, $34 million of interest expense, a 27.5% tax rate, and 263 million average diluted shares. Batrack said the outlook excludes contributions from future acquisitions and includes Providence, which the company expects to close toward the end of the second quarter.

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.