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    TTEK
    Earnings call· Mar 2026(Q2 FY26)

    TETRA TECH Q2 FY26 earnings call TTEK

    Apr 30, 2026 Source

    Executive summary

    Tetra Tech Q2 FY26 — Record EBITDA and Backlog Growth Drive Raised Full-Year Guidance

    Tetra Tech delivered a strong Q2 FY26, driven by robust demand for its high-end consulting services in water, environment, and sustainable infrastructure. The company achieved record EBITDA and adjusted EPS, alongside significant sequential backlog growth, leading to an increase in full-year guidance. Management emphasized a strategic focus on fixed-price contracts and advanced analytics to enhance profitability and shareholder returns, while navigating market-specific headwinds in renewable energy and federal funding uncertainty.

    Highlights

    5

    • Net revenue increased by 8% year-over-year, supported by demand for high-end consulting services.

    • EBITDA reached $146 million, a record for a second quarter, with margin expansion of 90 basis points year-over-year.

    • Adjusted earnings per share of $0.34 exceeded the high end of guidance and was the highest for any second quarter.

    • Backlog increased by 8% sequentially to $4.28 billion, indicating strong future performance visibility.

    • Operating cash flows for the first half of FY26 were a historical record at $238 million.

    Concerns

    2

    • U.S. commercial business was down 2% year-over-year, primarily due to the wind down of large offshore wind programs.

    • The outlook for U.S. state and local work growth rate was lowered to 5-10% from 10-15% due to client caution regarding potential reductions in supplemental federal grant funding.

    Guidance & targets

    14
    CategoryTargetConfidence
    Net Revenue
    $1.05B to $1.1B
    high materiality
    High
    Adjusted EPS
    $0.38 to $0.41
    high materiality
    High
    Net Revenue
    $4.25B to $4.4B
    high materiality
    High
    Adjusted EPS
    $1.50 to $1.58
    high materiality
    High
    Net Revenue Growth
    9% YoY
    medium materiality
    High
    Margin Expansion
    70 bps YoY
    medium materiality
    High
    Intangible Amortization
    $33M
    low materiality
    High
    Depreciation
    $24M
    low materiality
    High
    Interest Expense
    $33M
    low materiality
    High
    Effective Tax Rate
    27.5%
    low materiality
    High
    U.S. Federal & U.S. Commercial Growth Rates
    8% to 12%
    medium materiality
    High
    International Work Growth Rate
    5% to 10%
    medium materiality
    High
    State and Local Work Growth Rate
    5% to 10%
    medium materiality
    High
    Ukraine Work Revenue
    $20M per quarter
    low materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Government Services Group (GSG)
    Revenue grew 5% year-over-year, with margin up 220 basis points from last year. Demand remains solid for water, environment, defense, and resilient infrastructure services.
    		—5%—16.3%
    Commercial International Group (CIG)
    Revenue grew 10% from the prior year. Diversified client mix across water, environmental, power, and energy markets worldwide drove growth across key geographies.
    		—10%—12.2%
    U.S. Federal
    Growth driven by work with U.S. Army Corps of Engineers for resilient infrastructure, defense facility systems modernization, and major planning/permitting programs for defense.
    % of business: 20%
    		—11%——
    U.S. State and Local
    Growth driven by municipal water projects, primarily in Florida, Texas, California, and Virginia.
    % of business: 14%
    		—9%——
    U.S. Commercial
    Growth in energy and transmission services was offset by a reduction in renewable energy services, especially from the wind down of large offshore wind programs.
    % of business: 19%
    		—-2%——
    International
    Driven by revenue growth in Water Services in the U.K., Ireland, and the Netherlands, increased infrastructure services in Canada, and growth in digital automation revenues in Australia.
    		—12%——

    Operational metrics

    17
    EBITDA
    $146M
    Q2 FY26

    All-time record for a second quarter.

    Adjusted EPS
    $0.34
    Q2 FY26

    Exceeded the high end of guidance and was the highest for any second quarter. GAAP EPS was $0.36, including $0.02 from Norwegian operations divestiture.

    Days Sales Outstanding (DSO)
    58 days9-day improvement YoY
    Q2 FY26

    Industry-leading standard, reflecting outstanding work and high-quality projects.

    Net Debt
    $657M
    Q2 FY26

    Amount of net debt.

    Net Debt to EBITDA Leverage
    1.0xdown from 1.36x YoY
    Q2 FY26

    Leverage ratio, 25% lower than a year ago.

    Return on Capital Employed (ROCE)
    >20%
    Q2 FY26

    Reflects higher shareholder financial returns.

    Quarterly Cash Dividend Increase
    11%YoY
    Q3 FY26

    Approved by Board of Directors, 44th consecutive quarterly dividend with annual double-digit increases.

    Stock Buyback Executed
    $100M
    H1 FY26

    Amount bought back in the first half of the fiscal year.

    Stock Buyback Authorization Remaining
    $498M
    Q2 FY26

    Available from the stock buyback plan approved by the Board.

    Fixed-price contracts as % of net revenue
    48%up from 37% in FY23
    YTD FY26

    Represents the proportion of total net revenue from fixed-price contracts.

    Fixed-price contracts as % of GSG net revenue
    42%up from 29% last year
    Q2 FY26

    Proportion of net revenue from fixed-price contracts within the GSG segment.

    Ukraine work revenue
    $61M
    Q2 FY26

    Primarily related to increased activity in Ukraine, reported as USA work in the appendix.

    U.S. Federal contract capacity
    $30B
    Q2 FY26

    Coverage across defense agencies and locations domestically and globally.

    U.S. municipal water capital spending (early stages)
    >$30B
    Q2 FY26

    Projects in early stages with over 500 municipalities.

    Data center active feasibility assessments
    >20
    Q2 FY26

    For developers and providers at the earliest stage of their projects.

    Energy-related permitting studies
    >6,000
    Q2 FY26

    Historical experience in supporting energy-related permitting.

    Transmission projects experience
    >10,000 miles
    Q2 FY26

    Experience in transmission corridors and upgrades.

    Industry KPIs

    1
    MetricValueDetails
    EBITDA margin14%%

    Orderbook & backlog

    3
    Total backlog$4.28BQ2 FY26

    up 8% sequentially

    Includes only work that is contracted, funded, and authorized, providing high-quality visibility into future performance.

    U.S. defense contract capacity added>$650MQ2 FY26

    Added from U.S. defense clients for water and resilient infrastructure services, supporting critical infrastructure needs.

    Northern Ireland single-award contractGBP 18MQ2 FY26

    For water and wastewater treatment services.

    Deals & partnerships

    6
    Technical leaders focused on defenseAcquisition of defense-focused technical leaders

    Closed during Q2 and Q3 to date, focused on defense fences halve in the U.S.

    ProvidenceAcquisition of Providence in Australia

    Closed during Q2 and Q3 to date, focused on digital automation.

    United UtilitiesExpanded high-end solutions with Water net software

    Provides a comprehensive platform for managing priority water leakage detection and water delivery modernization needs in the U.K.

    Northern Ireland WaterNew single-award contract for water and wastewater treatment servicesGBP 18M

    Supports water and wastewater treatment services.

    Netherlands Water AuthoritiesFramework contract for flood protection and infrastructure modernization

    Significantly expands capacity in key regions with planned investments to address essential flood protection and infrastructure modernization needs.

    Port of Los AngelesMaster service agreement

    Supports one of the most important trade and logistics gateways in the United States.

    Risks & headwinds

    4
    Reduction in renewable energy servicesQ2 FY26

    U.S. commercial business down 2% YoY

    Mitigation: Offset by significant increase in revenues for energy and transmission related services.

    Potential reductions in supplemental federal grant fundingH2 FY26

    U.S. state and local growth rate lowered to 5-10% from 10-15%

    Mitigation: Clients are looking at alternative methods to keep projects moving forward, including increasing rates, issuing bonds, and restructuring funding. States like California, Texas, and Florida are stepping up new funding.

    Community resistance and restrictions on data centersOngoing

    Over 15 states are considering restrictions to data centers

    Mitigation: Tetra Tech's front-end feasibility expertise is increasingly valuable for data center developers to address water availability, power sourcing, environmental constraints, and permitting risks.

    Uncertainty around FY27 federal budgetFY27

    Subject to a lot of debate and compromise in Congress

    Mitigation: Historically, work for EPA (Superfund program) has been immune to budget cuts due to legal responsibilities. The company sees strong resilience in its federal end markets.

    What to watch in Q3 FY26

    5

    Backlog growth

    Q3 FY26, Q4 FY26
    Current$4.28B, up 8% sequentially
    TargetContinued growth

    Why it matters

    Backlog is a key indicator of future revenue and confidence in the project pipeline.

    I believe that Q2 represents an inflection point for Tetra Tech in terms of our backlog, and we do expect to see continued growth based on new orders through the rest of the fiscal year.

    Q&A highlights

    8

    Inquired about expectations for continued backlog growth and the margin profile of the current backlog.

    Management expects continued backlog growth through the fiscal year, noting Q2 was an inflection point due to increased U.S. federal orders after budget resolution. The backlog is consistent with forecast growth rates and supports continued margin expansion in line with recent years.

    “I believe that Q2 represents an inflection point for Tetra Tech in terms of our backlog, and we do expect to see continued growth based on new orders through the rest of the fiscal year.”

    asked by Timothy Mulrooney · answered by Roger R. Argus

    2 min read6 chapters

    Detailed Narrative

    01

    Leadership Transition and Strategic Continuity

    Roger Argus assumed the role of CEO, acknowledging the foundational leadership of Dan Batrack, now Executive Chairman. The company's strategy remains consistent, focusing on high-end solutions for complex global challenges🌐 in clean water, environmental quality, and resilient infrastructure. This continuity is underpinned by the expertise of Tetra Tech's 25,000 employees worldwide, who are central to its 'leading with science' approach.

    02

    Market Dynamics and Growth Drivers

    Tetra Tech's growth is fueled by strong demand across its key markets. U.S. federal work saw an 11% increase, driven by resilient infrastructure and defense modernization. U.S. state and local business grew 9%, primarily from municipal water projects in high-priority regions. International work was up 12%, with significant contributions from water services in the U.K., Ireland, and Netherlands, and infrastructure services in Canada and digital automation in Australia.

    03

    Data Center Expertise and Demand

    The company is leveraging its front-end feasibility expertise for data center developers, addressing critical concerns like water availability, power sourcing, environmental constraints, and permitting risks. With over 20 active feasibility assessments, Tetra Tech is positioned to support the earliest stages of data center projects, particularly as community resistance and regulatory restrictions increase across multiple states.

    04

    Fixed-Price Contract Strategy and Margin Expansion

    Tetra Tech is strategically shifting its contract mix towards fixed-price work, which now represents 48% of total net revenue year-to-date, up from 37% in FY23. This shift is a key driver for margin expansion, as fixed-price contracts typically carry higher margins and lower working capital requirements. The GSG segment, in particular, saw its fixed-price work increase to 42% of net revenue, contributing to a 220 basis point margin improvement.

    05

    Capital Allocation and Shareholder Returns

    With a strong balance sheet and record operating cash flow of $688 million for the trailing 12 months, Tetra Tech is actively returning capital to shareholders. The Board approved an 11% year-over-year increase in the quarterly cash dividend, marking the 44th consecutive quarterly dividend with double-digit increases. The company also repurchased $100 million in stock during H1 FY26, with $498 million remaining under authorization, while deleveraging its balance sheet to a net debt to EBITDA ratio of 1.0x.

    06

    Backlog Strength and Future Visibility

    The company's backlog increased 8% sequentially to $4.28 billion, reflecting strong new orders, particularly from U.S. federal clients following the resolution of the federal budget. This backlog, which includes over $650 million in new defense contract capacity, provides high-quality visibility into future performance and supports confidence in achieving the raised full-year guidance.

    AI-generated summary of the company’s earnings call. Not investment advice.