Tetra Tech Grew 8% Despite Government Shutdown

Date of Call: Jan 29, 2026

Financials Results

• Revenue: $987 million, up 8% YOY
• EPS: Adjusted EPS $0.34, up 17% YOY; GAAP EPS $0.40
• Operating Margin: EBITDA margin 14.2%, up 140 basis points YOY

Guidance:

• Q2 net revenue: $975 million to $1.025 billion; adjusted EPS: $0.30 to $0.33.
• FY 2026 net revenue: $4.15 billion to $4.3 billion; adjusted EPS: $1.46 to $1.56.
• Implies 9% revenue growth and 80 basis point EBITDA margin expansion for the year.
• Includes intangible amortization $34M, depreciation $25M, interest expense $34M, tax rate 27.5%.
• Excludes contributions from future acquisitions, but includes Providence pending closing.

Business Commentary:

Revenue and Operating Income Growth:

• Tetra Tech reported net revenue of $987 million for Q1 2026, up 8% from the prior year, and operating income of $131 million, up 12% year-on-year.
• This growth was driven by strong performance in the Government Services Group, which delivered a 5% revenue increase despite a U.S. government shutdown, and a 10% growth in the Commercial and International Group, boosted by strong water programs in the U.K., Ireland, and digital automation programs in Australia.

Backlog Stability and Quality:

• Despite a U.S. government shutdown impacting federal orders, the company's backlog remained stable, holding steady at the level of the previous year's Q1.
• The stability was attributed to strong new project awards from state and local clients, commercial clients, and international clients, which offset the slowdown in federal orders.

International Segment Performance:

• The Commercial and International Group segment saw revenue growth of 10% to $605 million, with international work comprising 48% of overall revenue, growing at a 13% rate.
• Growth was particularly strong in the U.K., Ireland, and Canada, driven by water programs and infrastructure investments, while Australia showed signs of recovery from previous declines.

U.S. Federal Work and Impact of Government Shutdown:

• U.S. federal work grew by 7%, despite the government shutdown that lasted about half of the quarter.
• The growth was sustained by advanced planning and critical programs with the U.S. Army Corps of Engineers, which were prioritized to avoid demobilization costs.

Increased Guidance and Margin Expansion:

• Tetra Tech increased its full-year guidance, expecting net revenue in the range of $4.15 billion to $4.3 billion with adjusted earnings per share of $1.46 to $1.56.
• The company expanded its margins by 140 basis points on a GAAP basis, attributed to a focus on high-margin front-end consulting and design services in water and environmental projects.

Sentiment Analysis:

Overall Tone: Positive

• "we had a very strong first quarter and beginning to our 2026 fiscal year." "even with the government shutdown, we grew our revenue 8%. We expanded our margins by 140 basis points." "I'm very pleased to share these really strong results for the start of 2026." "I'm glad to report this morning that we had a very strong first quarter."

Q&A:

• Question from Timothy Mulrooney (William Blair & Company L.L.C.): Concerns about federal business growth of 7% excluding Department of State work, given the government shutdown, and areas of strength.
  Response: Growth driven by advanced planning and client collaboration to maintain critical programs through the shutdown, primarily via U.S. Army Corps of Engineers awards.

• Question from Timothy Mulrooney (William Blair & Company L.L.C.): Detail on International business growth across U.K., Canada, and Australia.
  Response: U.K./Ireland double-digit growth driven by water programs; Canada mid-to-upper single-digit growth from infrastructure and Arctic defense projects; Australia recovering from prior declines.

• Question from Sabahat Khan (RBC Capital Markets): How guidance reflects range of potential outcomes across regions.
  Response: Midpoint assumes midpoints of client growth rates; low end considers possible partial government shutdown; high end considers bipartisan support accelerating visibility and funding.

• Question from Sabahat Khan (RBC Capital Markets): Focus on inorganic opportunities, M&A strategy, and role transition.
  Response: Focus shifts to strategic partnerships and larger acquisitions to transform the industry, leveraging strong balance sheet; small bolt-ons to continue.

• Question from Sangita Jain (KeyBanc Capital Markets Inc.): Type of M&A that would lead to higher leverage (up to 4x) and details on Halvik/Providence acquisitions.
  Response: Larger, strategic acquisitions (not small bolt-ons) could drive leverage to 4x; Halvik and Providence are recent additions fitting the typical 100-1,000 person range.

• Question from Sangita Jain (KeyBanc Capital Markets Inc.): Details on divestment and revenue/purchase price of recent acquisitions.
  Response: Sold Norway operation (noncore); Halvik and Providence acquisitions offset each other in backlog; revenue details not specified.

• Question from Andrew J. Wittmann (Robert W. Baird & Co. Incorporated): Clarification on guidance revision, impact of Halvik, and Ukraine (U.S. State Department) work.
  Response: Guidance increased due to Q1 beat and includes some impact from Halvik; disposition of Norway operation partially offset.

• Question from Andrew J. Wittmann (Robert W. Baird & Co. Incorporated): Opportunities in nuclear permitting, FAA modernization, and SHIELD contract.
  Response: Nuclear work in Canada continues; FAA integrator contract opportunity likely in 2027; SHIELD contract involves environmental planning, with Tetra Tech as one of many participants.

• Question from Michael Dudas (Vertical Research Partners): Thoughts on evolving business mix regarding international exposure and water focus.
  Response: Agnostic to geographies; water demand is enduring; likely to maintain current international mix (~45-48%).

• Question from Michael Dudas (Vertical Research Partners): No specific question, but closing remarks on legacy and future.
  Response: Expressed confidence in company's future under new leadership and its long-term resilience in water and environmental markets.

Contradiction Point 1

Nature of Federal Contracting and Backlog Dynamics

Contradiction on whether federal task order duration is normalizing or remains short-term.

What areas of strength in your federal business are driving performance? - Timothy Mulrooney (William Blair & Company L.L.C.)

2026Q1: The 7% growth in federal business (excluding DoD) was driven by advanced planning and close collaboration with clients... The primary driver was work with the U.S. Army Corps of Engineers, which has become Tetra Tech's largest client. - Dan Batrack(CEO)

Backlog remained flat year-over-year, yet guidance forecasts 8% organic growth for fiscal 2026. Why is revenue growth expected to outpace backlog growth in fiscal 2026? - Benjamin Luke McFadden (William Blair & Company L.L.C.)

2025Q4: This is a new trend under the current administration. Over time, federal task order duration is expected to normalize. - Dan Batrack(CEO)

Contradiction Point 2

Outlook for International Business in Australia

Contradiction on whether Australia is recovering or still in a downturn.

Can you discuss each of your three main international regions (UK, Canada, Australia) and highlight areas of traction and growth drivers? - Timothy Mulrooney (William Blair & Company L.L.C.)

2026Q1: Australia: Still recovering, showing a significant improvement from -15% a year ago to flat growth in Q1. The recovery is not yet a growth mode but is a positive trend. - Dan Batrack(CEO)

Could you detail the performance and outlook for the international business in Q4 and fiscal 2026, specifically for the three main geographies? - Benjamin Luke McFadden (William Blair & Company L.L.C.)

2025Q4: Australia: Previously declining (-10-15%), but bottoming out and expected to ramp up in FY26 due to the upcoming Brisbane Olympics and increased defense funding. - Dan Batrack(CEO)

Contradiction Point 3

Federal Backlog Conversion and Visibility

Contradiction on the efficiency of converting awarded contracts into funded task orders.

Which areas of your federal business are driving the performance? - Timothy Mulrooney (William Blair & Company L.L.C.)

2026Q1: The 7% growth in federal business (excluding DoD) was driven by advanced planning and close collaboration with clients like the U.S. Army Corps of Engineers to ensure continuity during the government shutdown. - Dan Batrack(CEO)

Could you explain the backlog's flat year-over-year growth excluding USAID, whether changes in federal procurement cycles indicate slower revenue growth or a shifted cycle, and how the backlog's margin profile compares to last year? - Timothy Michael Mulrooney (William Blair)

2025Q3: There has been a slowdown in task order delivery due to federal government retirements and downsizing in contracting roles. The backlog, as reported (only funded and authorized work), is stable, but visibility into future revenue is reduced. - Dan L. Batrack(CEO)

Contradiction Point 4

Outlook for U.S. Commercial Segment Revenue

Contradiction on the near-term performance and challenges faced by the U.S. commercial segment.

What M&A opportunities would justify exceeding 2x net debt/EBITDA leverage (up to 4x), and is it a single transaction or a series? - Sangita Jain (KeyBanc Capital Markets Inc.)

2026Q1: The government segment (U.S. federal and international) is expected to be the primary driver of top-line growth in the near term. - Dan L. Batrack(CEO)

CIG segment revenue increased 2% despite most customer types declining—how is this possible? Given challenges in renewables and Australia, will the government segment outperform CIG? - Andrew John Wittmann (Robert W. Baird)

2025Q3: U.S. commercial faces headwinds due to significant declines in renewable energy work (~30% in the quarter), which will make year-over-year comparisons difficult for several quarters. - Dan L. Batrack(CEO)

Contradiction Point 5

International Growth Outlook and Policy Impact

Contradiction on the stability and drivers of international growth, especially in the UK and Australia.

Can you discuss traction and growth drivers in each of your three key international regions (UK, Canada, Australia)? - Timothy Mulrooney (William Blair & Company L.L.C.)

2026Q1: The strongest performers, growing well into double digits... Visibility and backlog remain strong. - Dan Batrack(CEO)

What's the outlook for international growth (1-2% in Q2) for H2 and beyond, considering post-election UK recovery and high HPV work shifts? Is acceleration possible? - Michael Dudas (Vertical Research Partners)

2025Q2: International growth is tempered due to uncertainty around tariffs and trade policies, which are causing clients to delay new project starts. - Dan Batrack(CEO)