Core Insights - Tetra Tech Inc. (TTEK) has demonstrated a robust financial position with a strong balance sheet and resilient revenue base, achieving double-digit revenue growth over the past decade [1] - The company's growth has been primarily driven by strategic acquisitions, which have also facilitated margin expansion while maintaining cost control [1] Financial Performance - Tetra Tech has consistently delivered double-digit revenue growth over the last ten years [1] - The company has successfully expanded its profit margins alongside revenue growth [1]

Core Viewpoint - Tetra Tech Inc. (TTEK) faces financial challenges due to rising operating costs, high debt levels, and foreign currency risks, which may impact its profitability and overall performance [1][4][5][7]. Group 1: Financial Performance - Tetra Tech's total cost of sales increased by 15.5% in the first quarter of fiscal 2025, attributed to rising input costs [4]. - Selling, general, and administrative expenses rose by 5.7% year over year in the same quarter due to increased marketing costs [4]. - The company's long-term debt increased by 29.7% (CAGR) over the last five years, reaching $889 million at the end of the first quarter of fiscal 2025 [5]. Group 2: Market Position - Tetra Tech is headquartered in Pasadena, CA, and is a leading provider of consulting, construction management, engineering, program management, and technical services, focusing on water, environmental, and alternative energy solutions [2]. - The company currently holds a Zacks Rank of 4 (Sell), with its stock losing 15% over the past year, compared to a 2.7% decline in the industry [3]. Group 3: Risks and Challenges - A significant portion of Tetra Tech's revenue comes from U.S. federal, state, and local contracts, which are subject to changes that could negatively impact the business [6]. - The company is exposed to foreign currency risks due to its international operations, with a stronger U.S. dollar likely to depress overseas business results [7].

Core Viewpoint - Tetra Tech's recent earnings report shows strong performance with adjusted earnings and revenues exceeding estimates, but the stock has underperformed the S&P 500, raising questions about future performance leading up to the next earnings release [1][2]. Financial Performance - Tetra Tech reported adjusted earnings of 35 cents per share for Q1 fiscal 2025, surpassing the Zacks Consensus Estimate of 34 cents and management's guidance of 32-34 cents, marking a 25% year-over-year increase [2]. - The company generated revenues of $1.42 billion, reflecting a 16% year-over-year increase, with adjusted net revenues of $1.2 billion, up 18% year-over-year, exceeding management's guidance of $1.09-$1.15 billion [3]. - The backlog at the end of Q1 was $5.44 billion, up 15% year-over-year [3]. Segment Performance - Revenues from U.S. Federal customers, accounting for 34% of total revenues, increased by 32% year-over-year, driven by a strong project pipeline from USAID [4]. - U.S. State and Local sales rose by 47% year-over-year, supported by advanced water treatment and disaster response services [5]. - International sales increased by 4% year-over-year, bolstered by the U.K. water consulting sector [5]. Cost and Margin Analysis - Subcontractor costs totaled $223.3 million, up 4.8% year-over-year, while other adjusted costs of revenues were $975.9 million, up 18.3% [6]. - Adjusted operating income increased by 23.9% year-over-year to $137.5 million, with an adjusted margin of 11.5%, up 60 basis points [7]. Balance Sheet and Cash Flow - At the end of Q1, Tetra Tech had cash and cash equivalents of $248.1 million, an increase from $232.7 million at the end of Q4 fiscal 2024, while long-term debt rose to $888.4 million from $812.6 million [8]. - The company generated net cash of $13.1 million from operating activities, compared to $9.2 million in the prior year [9]. Shareholder Returns - Tetra Tech distributed dividends totaling $15.5 million in Q1 fiscal 2025, up from $13.9 million in the previous year, and repurchased shares worth $25 million [10]. Fiscal 2025 Outlook - For fiscal 2025, Tetra Tech anticipates net revenues in the range of $4.365-$4.765 billion, compared to $4.322 billion reported in fiscal 2024, with adjusted earnings projected at $1.37-$1.52 per share [11]. - For Q2 fiscal 2025, management estimates net revenues of $1.0-$1.1 billion and adjusted earnings of 30-33 cents per share [12]. Estimate Revisions - Estimates for Tetra Tech have trended downward, with a consensus estimate shift of -9.09% over the past month [13]. VGM Scores - Tetra Tech has a Growth Score of B but a Momentum Score of D, with an overall VGM Score of C, indicating a middle-tier position in investment strategy [14].

Part I [Financial Information](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements) Q1 FY2025 revenue grew **15.7%** to **$1.42 billion**, but net income plummeted to **$0.7 million** due to a **$115 million** legal charge Key Financial Metrics | Financial Metric | Q1 FY2025 (ended Dec 29, 2024) | Q1 FY2024 (ended Dec 31, 2023) | Change | | :--- | :--- | :--- | :--- | | **Revenue** | $1,420.6M | $1,228.3M | +15.7% | | **Gross Profit** | $221.5M | $190.5M | +16.3% | | **Income from Operations** | $22.5M | $111.1M | -79.7% | | **Net Income** | $0.8M | $75.0M | -99.0% | | **Diluted EPS** | $0.00 | $0.28 | -100.0% | - A significant **$115 million** charge for legal contingency costs was recorded in the first quarter of fiscal 2025, which was the primary driver for the sharp decline in operating and net income[9](index=9&type=chunk)[74](index=74&type=chunk) Balance Sheet Summary | Balance Sheet Item | Dec 29, 2024 | Sep 29, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $1,631.8M | $1,527.4M | | **Goodwill** | $1,968.7M | $2,046.6M | | **Total Assets** | $4,179.2M | $4,192.7M | | **Total Current Liabilities** | $1,267.3M | $1,219.5M | | **Long-Term Debt** | $888.5M | $812.6M | | **Total Stockholders' Equity** | $1,692.0M | $1,830.4M | - The company executed a five-for-one stock split effective September 6, 2024. All prior-period share and per-share amounts have been retroactively adjusted[22](index=22&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail a **$115 million** legal charge, **$5.4 billion** RUPO, and strong **GSG** revenue growth of **30.7%** - The company recorded a **$115.0 million** charge related to a settlement agreement with the U.S. Department of Justice regarding the Hunters Point Naval Shipyard project. This includes **$97.0 million** for the settlement and an **$18.0 million** estimate for ancillary claims[98](index=98&type=chunk)[99](index=99&type=chunk)[104](index=104&type=chunk) Revenue by Client Sector | Revenue by Client Sector | Q1 FY2025 | Q1 FY2024 | | :--- | :--- | :--- | | U.S. federal government | $501.8M | $382.1M | | U.S. state and local government | $203.0M | $150.9M | | U.S. commercial | $233.6M | $222.4M | | International | $482.1M | $472.8M | | **Total** | **$1,420.6M** | **$1,228.3M** | - Remaining Unsatisfied Performance Obligation (**RUPO**) was **$5.4 billion** as of December 29, 2024, with approximately **$3.7 billion** expected to be recognized as revenue within the next 12 months[36](index=36&type=chunk)[37](index=37&type=chunk) - In Q1 FY2025, the company repurchased **600,007 shares** for **$25.0 million**. A quarterly cash dividend of **$0.058 per share** was declared[53](index=53&type=chunk)[54](index=54&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Q1 FY2025 revenue rose **15.7%** driven by government sectors; adjusted operating income increased **23.8%** - Total revenue increased **15.7%** YoY, with organic revenue growth (excluding recent acquisitions) at **13.1%**[123](index=123&type=chunk) Revenue Growth by Client Sector | Revenue Growth by Client Sector | Q1 FY2025 vs Q1 FY2024 | Key Drivers | | :--- | :--- | :--- | | U.S. Federal Government | +31.3% | Increased international development (e.g., Ukraine energy security) and IT modernization. | | U.S. State and Local Government | +34.5% | Disaster response for Hurricanes Helene and Milton; investment in clean water. | | U.S. Commercial | +5.0% | Increased activity for environmental services and high-performance buildings. | | International | +2.0% | Increased water consulting in the UK. | - Excluding the **$115 million** legal contingency cost, adjusted income from operations was **$137.5 million**, a **23.8%** increase YoY. Adjusted EPS was **$0.35**, up **25.0%** from **$0.28** in the prior-year quarter[133](index=133&type=chunk) - Backlog was **$5.4 billion** at the end of the quarter, slightly up from **$5.3 billion** at the end of the previous quarter[142](index=142&type=chunk) [Segment Results](index=30&type=section&id=Segment%20Results%20of%20Operations) **GSG** revenue grew **30.7%** to **$751.8M**, while **CIG** revenue increased **2.9%** with improved margins Segment Performance Overview | Segment Performance | Revenue (Q1 FY25) | Revenue Growth (YoY) | Operating Income (Q1 FY25) | Operating Income Growth (YoY) | | :--- | :--- | :--- | :--- | :--- | | **GSG** | $751.8M | +30.7% | $83.3M | +31.9% | | **CIG** | $688.2M | +2.9% | $77.7M | +8.8% | - **GSG**'s growth was primarily from a **$87 million** increase in international development activities in Ukraine and a **$37 million** increase from hurricane disaster response[137](index=137&type=chunk) - **CIG**'s operating margin (based on revenue net of subcontractor costs) improved from **12.5%** to **13.0%** YoY, attributed to a focus on high-end consulting and better project execution[140](index=140&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) Strong liquidity with **$248.1 million** cash and **$424.3 million** credit; **$13.1 million** cash from operations - Primary sources of liquidity are cash from operations and borrowings under credit facilities. The company believes existing resources are sufficient to meet capital requirements for at least the next 12 months[143](index=143&type=chunk) - Net cash provided by operating activities was **$13.1 million** for the quarter, an increase from **$9.2 million** in the prior-year quarter[144](index=144&type=chunk) - The company repurchased **$25.0 million** of its common stock during the quarter and had **$322.8 million** remaining under its repurchase authorization[155](index=155&type=chunk) - As of December 29, 2024, the company was in compliance with its financial covenants, with a consolidated leverage ratio of **1.77x** (max **3.25x**) and an interest coverage ratio of **12.33x** (min **3.00x**)[152](index=152&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk on variable-rate debt and foreign currency risk from international operations - The company is exposed to interest rate risk on its **$325 million** in borrowings under the Amended Credit Agreement, which have variable rates tied to benchmarks like **SOFR**[166](index=166&type=chunk) - Foreign currency translation risk exists as **33.9%** of Q1 FY2025 revenue was generated internationally. A strengthening U.S. dollar negatively impacts reported results from foreign subsidiaries[168](index=168&type=chunk) [Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of December 29, 2024, with no material changes to internal controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[170](index=170&type=chunk) - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[171](index=171&type=chunk) Part II [Other Information](index=35&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) Legal proceedings information is incorporated from Note 17, detailing the Hunters Point Naval Shipyard settlement - The report refers to Note 17, "Commitments and Contingencies," for details on legal proceedings, which prominently features the **$115 million** charge for the Hunters Point litigation settlement[172](index=172&type=chunk)[98](index=98&type=chunk) [Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported since the 2024 Annual Report on Form 10-K - No material changes in risk factors were reported since the company's 2024 Annual Report on Form 10-K[174](index=174&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **600,007 shares** for **$25.0M** in Q1 FY2025, with **$322.8M** remaining Stock Repurchase Details | Repurchase Period | Shares Purchased | Average Price Paid | Total Cost | | :--- | :--- | :--- | :--- | | Q1 FY2025 | 600,007 | $41.67 | $25.0M | - At the end of the quarter, the remaining authorized amount for stock repurchases was **$322.8 million**[175](index=175&type=chunk)

Financial Data and Key Metrics Changes - Tetra Tech achieved record net revenue of $1.2 billion for Q1 2025, an 18% increase from the prior year, marking the highest revenue for any quarter in the company's history [14] - Operating income rose to $138 million, a 24% increase year-over-year, also setting a record for the first quarter [14] - Earnings per share increased by 25% to $0.35, exceeding both internal guidance and market consensus [15] - The backlog grew to $5.44 billion, up 15% from the previous year [16] Business Segment Performance - The Government Services Group (GSG) segment reported revenue of $601 million, a 36% year-over-year increase, with a margin of 13.9% [17] - The Commercial International Group (CIG) segment had net revenue of $596 million, a 4% increase year-over-year, with a margin of 13% [20] - U.S. federal client work increased by 32%, while state and local revenues surged by 47%, driven by hurricane response activities [22][23] Market Data and Key Metrics Changes - International work accounted for over a third of revenues, including projects in the UK, Canada, and Australia [25] - The company won several contracts with the Army Corps of Engineers, focusing on civil works and sustainable water infrastructure [26] Company Strategy and Industry Competition - Tetra Tech is focusing on high-demand areas such as water services, disaster response, and infrastructure modernization, aligning with government priorities [38][49] - The company plans to continue investing in strategic initiatives, including acquisitions in the water and environmental sectors [34][85] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of USAID contracts post-review, emphasizing the importance of development work for national security [66][71] - The company anticipates strong demand for disaster response services, particularly in light of recent hurricanes and wildfires [42][49] Other Important Information - Tetra Tech's Board approved a 12% increase in dividends, marking the 39th consecutive quarterly dividend [35] - The company has a strong balance sheet, with net debt to EBITDA at 1.33 times, allowing for continued investment in growth [33] Q&A Session Summary Question: Can you walk us through what's assumed at the midpoint of your guidance range for USAID work? - Management assumed approximately $400 million worth of USAID work for the entire year, with $200 million already completed in Q1 [54][56] Question: How much incremental revenue do you expect from disaster response? - Management expects $40 million to $50 million of incremental revenue from disaster response activities, which will offset any reductions from the USAID hold [78][80] Question: Can you discuss your M&A pipeline and acquisition strategy? - The company has a robust acquisition pipeline focused on technical leadership in water and environmental sectors, aiming to enhance capabilities rather than just increase size [85] Question: What are your expectations for the civil and DoD segments for the rest of the year? - Management expects continued growth in the DoD segment at a rate of 5% to 10%, with strong backlog and funding in place [90][92] Question: Can you quantify the amount of USAID work booked in backlog? - Management indicated that USAID work typically represents about 10% of revenue, with approximately $600 million expected for the current year [120]

Core Viewpoint - Tetra Tech, Inc. reported strong financial performance for the first quarter of fiscal 2025, with adjusted earnings and revenues exceeding expectations, driven by robust growth across all segments [1][2]. Financial Performance - Adjusted earnings per share for the first quarter were 35 cents, surpassing the Zacks Consensus Estimate of 34 cents and management's guidance of 32-34 cents, marking a 25% year-over-year increase [1]. - Total revenues reached $1.42 billion, reflecting a 16% year-over-year increase, and adjusted net revenues were $1.2 billion, up 18% year over year, exceeding management's guidance of $1.09-$1.15 billion [2]. Backlog and Segment Performance - The backlog at the end of the fiscal first quarter was $5.44 billion, representing a 15% year-over-year increase [3]. - Revenues from U.S. Federal customers, which accounted for 34% of total revenues, increased by 32% year over year, while U.S. Commercial sales rose by 7% [4]. - U.S. State and Local sales surged by 47% year over year, and international sales grew by 4% [5]. Margin and Cost Analysis - Subcontractor costs totaled $223.3 million, up 4.8% year over year, while other adjusted costs of revenues were $975.9 million, an 18.3% increase [6]. - Adjusted operating income increased by 23.9% year over year to $137.5 million, with an adjusted margin of 11.5%, up 60 basis points [7]. Balance Sheet and Cash Flow - At the end of the fiscal first quarter, cash and cash equivalents were $248.1 million, up from $232.7 million at the end of the previous quarter, while long-term debt increased to $888.4 million from $812.6 million [8]. - The company generated net cash of $13.1 million from operating activities, compared to $9.2 million in the prior year, with capital expenditure remaining stable at $3.4 million [9]. Shareholder Returns - Tetra Tech distributed dividends totaling $15.5 million in the first three months of fiscal 2025, an increase from $13.9 million in the previous year, and repurchased shares worth $25 million [10]. Fiscal 2025 Outlook - For fiscal 2025, Tetra Tech anticipates net revenues in the range of $4.365-$4.765 billion, with adjusted earnings projected at $1.37-$1.52 per share [11]. - For the fiscal second quarter, management estimates net revenues of $1.0-$1.1 billion and adjusted earnings of 30-33 cents per share [12].

Financial Performance - Tetra Tech reported quarterly earnings of $0.35 per share, exceeding the Zacks Consensus Estimate of $0.34 per share, and up from $0.28 per share a year ago, representing an earnings surprise of 2.94% [1] - The company posted revenues of $1.2 billion for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 8.85%, compared to $1.02 billion in the same quarter last year [2] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.33 on revenues of $1.15 billion, and for the current fiscal year, it is $1.45 on revenues of $4.66 billion [7] - The estimate revisions trend for Tetra is mixed, resulting in a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6] Industry Context - Tetra Tech operates within the Zacks Pollution Control industry, which is currently ranked in the bottom 40% of over 250 Zacks industries, suggesting potential challenges for stock performance [8] - The performance of Tetra's stock may be influenced by the overall outlook for the Pollution Control industry, as empirical research indicates that top-ranked industries outperform lower-ranked ones significantly [8]

Revenue and Growth - Record revenue of $1.42 billion, up 16% year-over-year[1] - Record net revenue of $1.20 billion, up 18% year-over-year[1] - Total revenue for 2024 was $5,198.7 million, up from $4,522.6 million in 2023, representing a growth of approximately 15%[25] - Net revenue for the GSG segment reached $1,910.0 million in 2024, compared to $1,635.5 million in 2023, indicating a growth of about 16.8%[25] - Adjusted EBITDA for the year 2024 was $584,032 thousand, an increase from $481,096 thousand in 2023, reflecting a growth of approximately 21.4%[26] Financial Performance - Adjusted operating income increased 24% year-over-year to $138 million[5] - Net income for the three months ended December 29, 2024, was $778 thousand, a significant decrease from $74,980 thousand in the same period of 2023[24] - Net cash provided by operating activities increased to $13,063 thousand from $9,246 thousand year-over-year[24] Backlog and Contracts - Record backlog of $5.44 billion, up 15% year-over-year[1] - Added over $1 billion of new contract capacity in the first quarter[6] Guidance and Expectations - Full year guidance for net revenue expected to range from $4.365 billion to $4.765 billion[10] - Adjusted EPS guidance for fiscal 2025 expected to range from $1.37 to $1.52[10] Shareholder Returns - Quarterly dividend increased by 12% year-over-year to $0.058 per share[7] - Repurchased $25 million of common stock in the first quarter[7] - The company repurchased $25,000 thousand of common stock during the period, indicating a commitment to returning value to shareholders[24] Cash and Capital Management - Cash and cash equivalents at the end of the period increased to $248,104 thousand from $198,689 thousand, marking a rise of about 24.9%[24] - Proceeds from borrowings amounted to $90,000 thousand, down from $125,000 thousand in the previous year[24] - Capital expenditures remained stable at $3,433 thousand, consistent with the previous year[24] - The company paid $14,489 thousand in income taxes during the period, a decrease from $43,297 thousand in the same quarter of the previous year[24] Operational Efficiency - Industry-leading Days Sales Outstanding (DSO) of 55.9 days[5]

Core Insights - Tetra Tech, Inc. (TTEK) is experiencing strong order growth across various sectors, particularly benefiting from its Government Services Group segment, which saw a 12% year-over-year increase in net sales in Q4 of fiscal 2024 [1] - The company anticipates revenues between $1.09 billion and $1.15 billion for Q1 of fiscal 2025, reflecting a 10% year-over-year increase at the midpoint [2] - Tetra Tech is actively pursuing acquisitions to expand its customer base and service offerings, including the recent acquisition of Convergence Controls & Engineering [3][4] - The company is committed to returning value to shareholders, having increased its dividend payouts by 12.9% year-over-year in fiscal 2024 [5] Financial Performance - The Government Services Group segment's net sales increased by 12% year-over-year in Q4 of fiscal 2024 [1] - The Commercial/International Services Group segment's revenues rose by 5% year-over-year in the same quarter [2] - Tetra Tech paid out $58.8 million in dividends in fiscal 2024, up from $52.1 million in fiscal 2023 [5] Acquisitions and Growth Strategy - The acquisition of Convergence Controls & Engineering enhances Tetra Tech's capabilities in integrated automation solutions for water and energy sectors [3] - The acquisition of LS Technologies in February 2024 expanded the federal IT practice within the Government Services Group [4] - The RPS Group buyout in January 2023 strengthened Tetra Tech's position in the UK water practice and renewable energy sectors [4] Cost and Expense Challenges - Total cost of sales increased by 13.2% in Q4 of fiscal 2024 due to rising input costs [8] - Selling, general, and administrative expenses rose by 20% year-over-year in the same quarter, primarily due to increased marketing costs [8] Market Performance - Tetra Tech's shares have gained 29% over the past year, outperforming the industry growth of 27.7% [7]

Company Overview - Tetra Tech, Inc. is a company founded in 1966 and headquartered in California, specializing in water treatment and environmental consulting [3] - The company has a strong institutional backing, with over 90% of its float being institutionally owned [3] Investment Position - The analyst has a beneficial long position in Tetra Tech shares, indicating confidence in the company's future performance [3] - The article expresses the analyst's personal opinions and is not influenced by external compensation [3]