Tetra Tech, Inc. Q1 FY2026 earnings call

Key Points - Strong first quarter performance: Net revenue was $987 million, up 8% from the prior year. Operating income was $131 million, up 12% from the prior year. EPS was up 17%, with adjusted EPS at 34¢ and GAAP EPS at $0.40. - Focus on enduring markets: Water supply, water treatment, flood control, and environmental stewardship remain in high demand. - Segment performance: GSG and CIG both saw margin improvements. GSG's net revenue grew 5% despite a US government shutdown, and CIG's revenue grew 10% driven by international markets. - Backlog: Quality improved with more front-end work and higher embedded margins. Despite a US federal government shutdown, backlog held steady. - Financials: Operating income increased significantly, EBITDA on net revenue improved by 140 basis points. Working capital cash flows from operations were $72 million, an improvement of $59 million over fiscal 2025. - Dividends and stock buyback: Board approved a 12% increase in quarterly cash dividend, and continued stock buyback program with $548 million available from approved plans. - Acquisitions: Announced acquisitions of Halvik in the US and Providence in Australia to expand high-end consulting services.

The company has two segments: Government Services Group and Commercial and International Group. The Government Services Group (GSG) had net revenue of $382 million in the first quarter, up 5% from the prior year, with a margin of 18% (up 40 basis points from last year). The Commercial and International Group (CIG) had revenue of $605 million, up 10% from the prior year, with a margin of 13% (also up 40 basis points from the prior year). CIG's growth was driven by strong water programs in The United Kingdom and Ireland, and new digital automation programs in Australia.

Second Quarter - Net revenue guidance: $975 million to $1.025 billion. - Adjusted EPS guidance: $0.30 to $0.33. ### Full Year 2026 - Updated net revenue guidance: $4.15 billion to $4.3 billion. - Updated adjusted EPS guidance: $1.46 to $1.56. - Assumptions: Include intangible amortization, depreciation, interest expense, tax rate, average diluted shares outstanding, and impact of Providence acquisition (expected to close toward end of second quarter). Excludes contributions from future acquisitions.

Risks - Potential government shutdown: Could impact business, especially if it leads to partial shutdowns affecting areas the company works in. - Bipartisan support: Lack of bipartisan support could affect upper end of guidance. - Tariffs/trading volatility: Continued significant volatility in tariffs or trading could cause slowdown of decisions, impacting business. - Major disruptions: Any major disruptions affecting commercial decisions could impact the company's performance.

Q: Tim Mulrooney asked about federal business strength and areas driving performance.

A: Dan Batrack responded that federal business grew 7% due to advanced planning, working closely with clients, and large awards from the US Army Corps of Engineers.

Q: Sabahat Khan inquired about M&A focus and opportunities.

A: Dan Batrack stated he will focus on vision and direction, seeking partnerships and acquisitions to transform the industry, with $2 billion potential borrowing capacity.

Q: Andrew Wittmann asked about nuclear permitting, FAA modernization, and Shield contract.

A: Dan Batrack discussed nuclear permitting in Canada, FAA modernization as a potential 2027 opportunity, and the Shield contract involving environmental planning and stewardship work.

Q: Michael Dudas asked about business mix, M&A, and water exposure.

A: Dan Batrack stated the company is agnostic toward geographies, focused on water and environmental projects, and sees strong long-term demand for these areas.