Tetra Tech's Q2 2025 Earnings Call: Unpacking Contradictions on USAID Contracts and Regulatory Impacts

USAID contract volumes and expectations, environmental regulations and business impact, USAID contract and backlog stability, impact of federal expenditure reductions on state and local projects, USAID contract and backlog impact are the key contradictions discussed in Tetra Tech's latest 2025Q2 earnings call.



Record Revenue and Profits:
- Tetra Tech reported net revenue of $1.1 billion for the second quarter, up $51 million from the same quarter last year, with an earnings per share of $0.33, increasing 18% year-on-year.
- The growth was driven by strong performance in water-related projects and disaster response activities, particularly in state and local government contracts.

Segment Performance and Margins:
- The Government Services Group (GSG) segment increased revenue by 12% to $521 million, with a margin of 13.8%, while the Commercial/International Group (CIG) segment's revenue was $597 million, up about 2%.
- Revenue growth in GSG was driven by state and local government water and disaster response projects, while CIG's growth was offset by a 10% reduction in Australian infrastructure work due to election-related funding pauses.

Impact of USAID Cancellation and Backlog:
- Tetra Tech's updated backlog is now $4.31 billion, after accounting for $1.1 billion in USAID and Department of State de-obligations.
- The cancellation of these projects led to a reduction in backlog, but the company's solid book-to-bill ratio of 1.1x reflects new contract wins across global operations.

Investment in Digital Systems and Automation:
- Tetra Tech plans to grow its digital systems practice to a $500 million annual revenue business by 2030, supported by the acquisition of SAGE Group.
- The strategy focuses on leveraging automation and digital systems to enhance water and energy efficiency, particularly in data centers and high-performance buildings.