Tetra Tech(US:TTEK)2025-11-13 17:00Financial Data and Key Metrics Changes - Tetra Tech reported record net revenue of $1.07 billion for Q4 2025, a 10% increase from the previous year [6] - Operating income reached $168 million, up 23%, with significant operating margin expansion, marking the highest level in over 30 years [6][15] - Earnings per share grew by 29% to $0.44 for the quarter [6] Performance by Business Lines - Government Services Group (GSG) revenue grew by 17% to $396 million in Q4, with a record margin performance of 22.9%, up 330 basis points from the prior year [8] - Commercial International Group (CIG) revenue increased by 7% to $676 million, with margins excluding Australia up about 60 basis points [8] - The overall performance across all business sectors demonstrated strong momentum, contributing to record financial results [6][8] Market Data and Key Metrics Changes - International work accounted for approximately 45% of overall business, growing at a 9% rate, with notable increases in the UK water business and Canadian clean energy [9] - U.S. state and local markets experienced a 19% growth rate, driven by municipal water treatment and digital water modernization [9] - U.S. federal work increased by 22%, now representing 21% of the business, primarily due to contracts with the U.S. Army Corps of Engineers [10] Company Strategy and Development Direction - The company focuses on high-end consulting and leadership in water services, which are expected to be in higher demand in the fastest-growing markets [4][20] - Tetra Tech is well-positioned to capitalize on global investments in water-reliant infrastructure, with a total addressable market in the hundreds of billions [20][21] - The company aims to enhance its fixed-price work, which has increased to nearly 50% of revenue, contributing to higher margins [72] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate changes in U.S. federal government priorities and maintain strong financial performance [4][6] - The outlook for fiscal year 2026 includes expected growth rates of 5-10% for international and U.S. commercial work, and 10-15% for state and local work [30][31] - The company anticipates a strong start to fiscal year 2026, supported by ongoing demand for high-end water services [33] Other Important Information - Tetra Tech's backlog reached $4.14 billion, with a strong quarter of contract awards, including over $1.2 billion in new contracts with U.S. defense agencies [10][11] - The company announced a 12% increase in its quarterly dividend, marking the 42nd consecutive quarterly dividend with annual double-digit increases [18] - Tetra Tech's net debt was approximately $600 million, with a leverage ratio of 0.9 times EBITDA, indicating a strong balance sheet [16] Q&A Session Summary Question: Why is revenue growth expected to decouple from backlog growth this year? - Management explained that the U.S. federal government's funding has become shorter in duration, leading to more frequent but smaller task orders, while state and local work continues to grow, keeping the backlog flat [36][40] Question: Can you provide insights on the performance of international business lines? - The strongest growth was seen in water programs in the UK and Europe, with Canada expected to improve due to recent infrastructure spending, while Australia has stabilized after previous declines [42][44] Question: How did you build out the revenue guidance for fiscal 2026? - The guidance reflects expected growth rates across various sectors, with considerations for potential impacts from government shutdowns and international trade clarity [50][56]