• Net Revenue: $1.2 billion, up 18% year-over-year, a record for any quarter in the company's history.
• Operating Income: $138 million, an increase of 24% from the prior year.
• Earnings Per Share (EPS): Increased 25% to $0.35, above guidance and consensus.
• Backlog: Grew to $5.44 billion, up 15% from the first quarter of last year.
• Government Services Group (GSG) Revenue: $601 million, up 36% year-over-year.
• GSG Margin: 13.9%, with an adjusted margin of 15.4% excluding Ukraine work.
• Commercial International Group (CIG) Revenue: $596 million, up 4% year-over-year.
• CIG Margin: 13%, up 50 basis points from last year.
• Cash Flow from Operations: $363 million for the trailing 12 months.
• Days Sales Outstanding (DSO): 55.9 days, better than industry peers.
• Net Debt to EBITDA: 1.33 times, with an adjusted leverage of 1.05 times.
• Dividend: $0.058, a 12% increase year-over-year.
• Stock Buyback: $25 million worth of shares repurchased, with a significant portion of $400 million plan available.
• Second Quarter Guidance: Net revenue of $1 billion to $1.1 billion; EPS of $0.30 to $0.33.
• Fiscal Year 2025 Guidance: Net revenue of $4.365 billion to $4.765 billion; EPS of $1.37 to $1.52.

• Warning! GuruFocus has detected 2 Warning Sign with TTEK.

Release Date: January 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Tetra Tech Inc (NASDAQ:TTEK) achieved record net revenue of $1.2 billion in the first quarter, marking an 18% increase from the previous year.
• Operating income rose by 24% to $138 million, setting an all-time high for the company.
• Earnings per share increased by 25% to $0.35, surpassing both company guidance and market consensus.
• The company's backlog reached a record $5.44 billion, up 15% from the previous year.
• Both the Government Services Group and Commercial International Group segments showed significant revenue growth, with GSG increasing by 36% year-over-year.

Negative Points

• The USAID contracts have been put on hold for up to 90 days due to a review by the new administration, potentially impacting future revenue.
• Some Tetra Tech staff were affected by recent fires in Pasadena, leading to evacuations and personal losses.
• The company faces a one-time charge due to a settlement related to the Hunters Point litigation, impacting first-quarter earnings.
• There is uncertainty regarding the continuation of USAID projects, which could affect revenue projections if not resumed.
• The environmental and renewable energy sectors face potential risks from policy changes under the new administration, which could impact future projects.

Q & A Highlights

Q: Can you walk us through what's assumed at the midpoint of your guidance range for USAID work? And what gives you confidence that some of this work will likely turn back on after that 90-day review? A: Dan Batrack, CEO: We have assumed a reduction of about one-third to half of our USAID work in our guidance. If the projects are terminated, demobilization costs would bring us to the midpoint of our guidance. However, if the projects resume, it could push us to the higher end. We believe a large portion of our work will be deemed critical and turned back on due to its alignment with national security priorities.

Q: Can you help us understand the disaster response revenue factored into your guidance and how much flex there is beyond what's included for this year and next? A: Dan Batrack, CEO: We have included $40 million to $50 million of incremental revenue from disaster response in our fiscal 2025 guidance. This work is more profitable and offsets the temporary hold on USAID work. We expect the disaster response to be an 18-month process, with larger contributions in 2026.

Q: Can you talk about your thinking around the M&A pipeline and the types of opportunities you may be looking at? A: Steven Burdick, CFO: We have a robust acquisition pipeline focused on technical leadership, particularly in water and environmental spaces. We are looking at opportunities across our operating geographies, including Australia, North America, and Europe. Our focus is on acquisitions that make Tetra Tech better, not just bigger.

Q: Can you provide more detail on your expectations for the civil and DoD segments for the rest of the year? A: Dan Batrack, CEO: Our Department of Defense work is growing well, with budgets in place and priorities intact. We expect growth rates between 5% and 10%. Civilian work varies, but areas like the Federal Aviation Administration are high priorities. We see modernization and safety as key drivers for growth.

Q: Can you quantify the amount of USAID work booked in backlog in fiscal Q1 2025 and the amount in total backlog? A: Dan Batrack, CEO: We don't break out backlog by client, but USAID typically funds us for more than a year. Last year, USAID was about 10% of our revenue, around $550 million to $600 million, with a similar expectation for this year.

Q: Can you touch on the decision to settle or accrue for the Hunters Point litigation? A: Steven Burdick, CFO: The decision to settle was made to eliminate future litigation costs and outside lawyer fees. It allows us to focus on our core business without the distraction of ongoing litigation.

Q: How are your conversations with commercial customers trending, especially regarding private investment and broader infrastructure announcements? A: Dan Batrack, CEO: We've seen an uptick in exploration for projects like LNG exports and power generation adjacent to data centers. However, these projects are progressing through feasibility and permitting stages rather than moving rapidly to construction.

Q: Given the volatility in Tetra Tech's share price, could capital allocation lean more towards investing in Tetra Tech shares? A: Dan Batrack, CEO: We are committed to our dividend and have been constructive with our stock buyback program. With recent volatility, we may become more active in buying back shares, depending on price points and acquisition opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.