Tetra Tech(TTEK) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited consolidated financial statements for Q1/H1 FY2025 are presented, detailing financial position and performance, impacted by impairment and legal costs Consolidated Balance Sheets The balance sheet as of March 30, 2025, shows total assets of $4.18 billion, a slight decrease, with reduced cash and goodwill, and increased liabilities Consolidated Balance Sheet Highlights (in thousands) | Account | March 30, 2025 | September 29, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $179,433 | $232,689 | | Goodwill | $1,913,134 | $2,046,569 | | Total Assets | $4,184,304 | $4,192,676 | | Total Current Liabilities | $1,516,515 | $1,219,527 | | Total Stockholders' Equity | $1,573,781 | $1,830,413 | Consolidated Statements of Income H1 FY2025 revenue grew 10.6% to $2.74 billion, but net income plummeted due to significant impairment and legal costs Statement of Income Summary (in thousands, except per share data) | Metric | Six Months Ended Mar 30, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Revenue | $2,742,674 | $2,479,883 | | Gross Profit | $435,659 | $397,993 | | Income from Operations | $62,129 | $228,764 | | Net Income Attributable to Tetra Tech | $6,135 | $151,418 | | Diluted EPS | $0.02 | $0.56 | - Significant charges in the six months ended March 30, 2025 include a $115.0 million legal contingency cost and a $92.4 million goodwill impairment, which severely impacted income from operations and net income[9] Consolidated Statements of Cash Flows Net cash from operating activities significantly decreased to $7.2 million in H1 FY2025, impacted by a legal settlement and working capital changes Cash Flow Summary (in thousands) | Activity | Six Months Ended Mar 30, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,240 | $112,181 | | Net cash used in investing activities | ($12,768) | ($79,161) | | Net cash provided by (used in) financing activities | ($37,437) | $5,633 | | Net decrease in cash and cash equivalents | ($53,256) | $41,463 | Notes to Unaudited Consolidated Financial Statements Detailed notes explain financial results, including revenue growth, goodwill impairment, a major legal settlement, and stock repurchase activities - On July 29, 2024, the Board of Directors approved a five-for-one stock split, effective September 6, 2024. All prior-period share and per-share amounts have been retroactively adjusted[24] Revenue by Client Sector (Six Months Ended, in thousands) | Client Sector | March 30, 2025 | March 31, 2024 | | :--- | :--- | :--- | | U.S. federal government | $915,270 | $789,078 | | U.S. state and local government | $410,425 | $298,476 | | U.S. commercial | $444,676 | $423,837 | | International | $490,168 | $495,656 | - A non-cash goodwill impairment charge of $92.4 million was recorded in Q2 2025, triggered by the cancellation of most USAID contracts impacting the Global Development Services (GDS) reporting unit[52][53][55] - A $115.0 million charge was recorded in Q1 2025 related to a settlement agreement with the U.S. government over claims at the Hunters Point Naval Shipyard, including $97.0 million for the settlement and an $18.0 million estimate for ancillary claims[102][103][108] - In H1 FY2025, the company repurchased 5.2 million shares for $175.0 million. Subsequently, on May 5, 2025, the Board authorized an additional $500 million stock repurchase program[58][59] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 10.6% revenue growth, operating income impact from impairment and legal charges, and changes in backlog and liquidity Revenue by Client Sector (Six Months Ended, in thousands) | Client Sector | March 30, 2025 | March 31, 2024 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | U.S. federal government | $915,270 | $789,078 | $126,192 | 16.0% | | U.S. state and local government | $410,425 | $298,476 | $111,949 | 37.5% | | U.S. commercial | $444,676 | $423,837 | $20,839 | 4.9% | | International | $972,303 | $968,492 | $3,811 | 0.4% | | Total | $2,742,674 | $2,479,883 | $262,791 | 10.6% | - The cancellation of 83% of USAID programs following Executive Order 14169 led to the termination of nearly all of the company's USAID contracts, which had accounted for $409.3 million in revenue in H1 FY2025[128] Reconciliation of GAAP to Non-GAAP Adjusted EPS (Six Months Ended) | Metric | March 30, 2025 | March 31, 2024 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | GAAP Diluted EPS | $0.02 | $0.56 | ($0.54) | (96.4)% | | Legal contingency costs | $0.35 | - | | | | Impairment of goodwill | $0.31 | - | | | | Adjusted EPS (Non-GAAP) | $0.68 | $0.56 | $0.12 | 21.4% | - Backlog decreased by $1.07 billion (19.9%) from fiscal year-end 2024 to $4.3 billion at March 30, 2025, primarily due to the cancellation of USAID contracts[145] - Subsequent to the quarter end, on May 5, 2025, the company entered into a new Fourth Amended and Restated Credit Agreement, increasing total borrowing capacity to $1.5 billion and extending the maturity to May 2030[159] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on variable-rate debt and foreign currency risk from international operations, with mitigation efforts in place - The company is exposed to interest rate risk on its $450 million in outstanding borrowings under the Third Amended Credit Agreement, which have variable rates tied to SOFR or a base rate. The weighted-average interest rate for H1 FY2025 was 5.78%[172] - Foreign currency exposure exists from operations in Canadian dollars, Australian dollars, the Euro, and British Pound. In H1 FY2025, foreign exchange rate translation resulted in a $74.3 million decrease in equity[173][174] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 30, 2025, 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 period covered by the report[176] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[177] PART II. OTHER INFORMATION Legal Proceedings Legal proceedings information is incorporated by reference, detailing a $115.0 million charge for a settlement related to the Hunters Point Naval Shipyard - Information regarding legal proceedings is incorporated by reference from Note 17, "Commitments and Contingencies" in the financial statements[178] Risk Factors No material changes to risk factors from the 2024 Annual Report on Form 10-K are reported, with updated interest and exchange rate risk disclosures - There have been no material changes in risk factors from those disclosed in the 2024 Annual Report on Form 10-K[179] Unregistered Sales of Equity Securities and Use of Proceeds Details of stock repurchase activity are provided, including 5.2 million shares repurchased for $175.0 million in H1 FY2025 Stock Repurchase Summary (H1 FY2025) | Metric | Value | | :--- | :--- | | Shares Repurchased | 5,165,715 | | Average Price Paid per Share | $33.87 | | Total Cost | $175.0 million | | Remaining Authorization (at Mar 30, 2025) | $172.8 million | Mine Safety Disclosures Information concerning mine safety violations, as required by the Dodd-Frank Act, is included in Exhibit 95 - Information concerning mine safety violations required by the Dodd-Frank Act is included in Exhibit 95[182] Other Information No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the second quarter of fiscal 2025 - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the second quarter of fiscal 2025[183] Exhibits This section lists filed exhibits, including CEO/CFO certifications, mine safety disclosures, and financial data in Inline XBRL format - Filed exhibits include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2), Mine Safety Disclosure (Exhibit 95), and financial statements formatted in Inline XBRL (Exhibits 101, 104)[184][186]