Tetra Tech(TTEK) - 2025 Q1 - Quarterly Report

Part I Financial Information Financial Statements (Unaudited) 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][74] 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] Notes to Consolidated Financial Statements 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][99][104] 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][37] - 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][54] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 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] 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] - 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] Segment Results 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] - 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] Liquidity and Capital Resources 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] - 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] - The company repurchased $25.0 million of its common stock during the quarter and had $322.8 million remaining under its repurchase authorization[155] - 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] Quantitative and Qualitative Disclosures About Market Risk 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] - 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] Controls and Procedures 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] - 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] Part II Other Information Legal Proceedings 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][98] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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]