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Tetra Tech (TTEK) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q2 FY26)· Industrials· Apr 30, 2026

Source: earnings call transcript

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

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

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%——

Orderbook & backlog

Total backlog $4.28B Q2 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 >$650M Q2 FY26

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

Northern Ireland single-award contract GBP 18M Q2 FY26

For water and wastewater treatment services.

Deals & partnerships

Technical leaders focused on defense Acquisition of defense-focused technical leaders

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

Providence Acquisition of Providence in Australia

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

United Utilities Expanded 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 Water New single-award contract for water and wastewater treatment services GBP 18M

Supports water and wastewater treatment services.

Netherlands Water Authorities Framework 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 Angeles Master service agreement

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

Risks & headwinds

Reduction in renewable energy services Q2 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 funding H2 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 centers Ongoing

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 budget FY27

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

Backlog growth

Q3 FY26, Q4 FY26
Current $4.28B, up 8% sequentially
Target Continued 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.

Find out whether TTEK delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 6 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.