Tetra Tech’s Earnings Call: Record Growth Amid Challenges

Tetra Tech ((TTEK)) has held its Q2 earnings call. Read on for the main highlights of the call.

Despite the significant loss of its largest client, Tetra Tech reported record revenue and earnings, driven by strong performance across other segments and geographic diversification. The acquisition of SAGE and Carron + Walsh positions the company for future growth. However, challenges remain in the Australian market and with cash flow management due to USAID-related issues.

Record Revenue and Earnings

Tetra Tech reported one of the highest quarterly revenues in its history, with net revenue increasing to $1.1 billion, up by $51 million compared to the same quarter last year. Operating income was $130 million, up 11% from the previous year, and earnings per share increased by 18% to $0.33.

Strong Performance in Government Services Group

The Government Services Group (GSG) segment saw a 12% year-over-year revenue increase to $521 million, with a margin of 13.8%. This segment’s robust performance was a key driver in the company’s overall success this quarter.

U.S. Federal and State & Local Growth

Revenue from U.S. federal clients increased by 16%, with notable contributions from disaster response activities and Department of Defense projects. State and local revenues grew by 44% year-over-year, showcasing Tetra Tech’s strong foothold in government-related services.

International Expansion and Acquisitions

Tetra Tech expanded its international footprint with the acquisition of Carron + Walsh in Ireland and SAGE Group in Australia, enhancing its capabilities in program management and digital systems. These strategic acquisitions are expected to bolster the company’s growth prospects.

Increased Dividend and Stock Buyback Program

The Board approved a 12% increase in the quarterly dividend and announced an additional $500 million for stock buybacks, reflecting confidence in the company’s financial health and commitment to returning value to shareholders.

Loss of Largest Client

Tetra Tech’s largest client by revenue, USAID and the Department of State, essentially disappeared within one quarter, resulting in a de-obligation of approximately $1.1 billion in projects. This unexpected loss posed a significant challenge for the company.

Challenges in Australian Market

Revenue in Australia experienced a 10% reduction due to slowed infrastructure work, attributed to a national election that delayed many funding programs. This market remains a challenging area for Tetra Tech.

Cash Flow and Working Capital Impact

The pause in payments from USAID negatively affected working capital, although subsequent payments helped improve the situation. Managing cash flow remains a critical focus for the company.

Forward-Looking Guidance

In the Tetra Tech earnings call for the second quarter of fiscal year 2025, CEO Dan Batrack highlighted the company’s robust performance despite the unexpected loss of their largest client by revenue. Looking ahead, Tetra Tech provided guidance for the third quarter, projecting net revenue of $1.1 to $1.2 billion and an adjusted EPS of $0.35 to $0.40, while raising the lower end of its annual revenue guidance to $4.4 to $4.765 billion with an EPS of $1.42 to $1.52.

In summary, Tetra Tech’s earnings call presented a mixed sentiment with record revenues and strategic acquisitions positioning the company for future growth, despite facing significant challenges such as the loss of its largest client and issues in the Australian market. The company’s forward-looking guidance remains optimistic, with expectations of continued revenue growth and improved earnings per share.