TTEK Q1 FY2027 earnings call transcript, November 12, 2026

Good morning, and welcome to TETRATEK's fourth quarter in fiscal year 2026 earnings conference call. We finished a strong four- fourth quarter with backlog of 13% from last year, giving us a solid foundation for fiscal 2027. Throughout the year, our leading with science approach and focus on water, environment, and sustainable infrastructure- allowed us to grow up- grow by rapidly adapting quickly to changes in client priorities. For government clients, we're helping our clients create new water supplies, automate their water facilities, and manage- extreme weather risks. For our commercial clients, we're addressing increasingly complex industrial water needs, including water reuse and high-end treatment, and providing digital automation solutions for industrial facilities. Our breadth of high-end services contributed to strong performance across both commercial and government markets in the U.S. and internationally. Looking ahead, the U.S. midterms introduce a new period of transition. Our broad-based client experience and contract capacity provide us with the ability to address current federal priorities and rapidly respond to new funding and programs at the U.S. state and local level. I'll review our quarter and four-year results as well as our outlook and guidance. Steve Burdick, our Chief Financial Officer, will also provide additional insight into our financial performance.

We finished fiscal 2026 with record operating income and earnings per share. Fourth quarter net revenue was $1.15 billion, up 5% from the year ago. For the fourth quarter, EBITDA reached $194 million, with our margin expanding 90 basis points year over year. To put that in context, our margins have expanded 240 basis points over the last three years. Fourth quarter earnings per share were $0.49, up 9% from last year. And perhaps most importantly, we ended the year with $4.7 billion in funded backlog, up 13. 15% from last year. I'll turn now to our fourth quarter performance by segment. The government services group, or GSG segment, revenue increased to $500. $513 million from $475 million last year, up 8% and delivered an exceptionally strong 18.8% margin. Growth was driven by strength in our municipal water programs and the federal infrastructure. programs that we performed for the U.S. Army Corps of Engineers and U.S. Navy. The Commercial International Group, or CIG, segment revenue was $640 million, up 3%. from a year ago. The CIG margin increased by 140 basis points, resulting in a 16.2% margin. CIG growth was primarily driven by the U.K. and Irish Water. programs, digital automation and defense work in Australia, and broad-based infrastructure programs in Canada. Looking at the quarter by end customers, growth was broad-based across our markets. U.S. federal work represented 26 percent of revenue in the quarter and grew 9 percent, led by U.S. Navy and U.S. Army Corps work in flood control, coastal resilience and defense.

facility modernization. U.S. state and local work grew by 6 percent, driven by municipal water treatment and digital automation work. Growth was primarily in states affected by water scarcity concerns, including Texas, Florida, California, and Colorado, as well as continued advancement of PFAS treatment in the central U.S. U.S. commercial also grew 6 percent, supported by feasibility and digital automation services for high-end industrial data centers. and power facilities, and engineering work for high-voltage power transmission programs. International work represented 43 percent of revenue and grew 3 percent. However, if you take into account the divestiture of our— When we started a quarry operation earlier in the year, we were up around 5 to 6 percent. Growth was led by UK and Irish water programs and our Canadian infrastructure programs. We ended the quarter with four— $3.67 billion in funded backlog, up 13 percent from last year, and the third sequential quarter with a greater than 1.1 times book-to-bill rate. We received— over $1.6 billion in new orders in the quarter, including $600 million in commercial orders globally. Orders were very broad-based across our geographies and clients. In the quarter, we also— significantly expanded our contract capacity, especially with large new awards from the U.S. federal government. In the quarter, we were awarded a new $1.4 billion NASA enterprise-wide technical support contract.

Expanding our scope of services with this long-term strategic client. We were also awarded a $145 million new contract capacity with the U.S. Navy to support upgrading critical infrastructure. Worldwide. We further expanded our capacity with the U.S. Army Corps of Engineers in Europe by $85 million, facilitating our expansion of the long-term support we have provided to the U.S. government through this area. We were awarded a $49 million contract for NOAA, where we provide high-end geospatial and coastal analytical services and software. And further expanding our more than 40 years of support to the U.S. EPA, we added a total... ...of over $220 million in new contract capacity. Collectively, these awards further strengthen TETRATEK's competitive position with key U.S. federal markets we serve and enhance our ability... ...to address the government's priorities both now and into the future. ...I would now like to turn the presentation over to Steve to provide you with additional insight into our financial performance. ...Well, hey, thank you.

So, I would like to now provide an update on our reported fiscal 2026 results, working capital, cash flows, and capital allocation. So, as Roger just discussed in this call... Our market leading focus on the front-end technical design and engineering for water and environmental projects are carrying higher margins across all of our end markets. As such, even as the reported revenue was down from last year due primarily to the decrease in revenue... from USAID and episodic disaster response, our operating income increased significantly and adjusted EBITDA on net revenue for the year had increased by 90 basis points to 15.2% for fiscal 2026. These results further support our long-term strategic goals to improving EBITDA margins by an average of 50 basis points annually. You know, more often over the last year or so, I've been asked by shareholders and analysts what our margins look like on a net service revenue basis or NSR, which would be similar to how others in our industry report their margins. I've looked at that question and can tell you that our EBITDA margin would be higher. by about 250 basis points for this year just on an NSR basis. As a result of our ability to enhance our profit margins and further manage our working capital, we were able to increase EPS. We come in above our previous guidance range for both the fourth quarter and the fiscal year. Now, regarding our working capital, cash flows generated from operations for the year came in at 523.

which represents a significant 14% improvement over fiscal 2025. And consistent with each of the last consecutive 21 years, our operating cash flows have exceeded net income. Our focus on working capital and cash flows has resulted in our DSO reflecting an industry-leading standard of 60 days. And the lower DSO metric provides significant insight into our core business as it reflects the outstanding work. There are project managers to lead relative to higher quality projects and highly satisfied clients in our broad portfolio across all of our in-markets and geographies. And so as we continue on high-quality... Operating results with increasing margins, operating cash flows and excessive net income, and lower working capital KPIs, we will continue to provide higher returns for our shareholders. And those higher shareholder financial returns are reflected in... improving return on capital employed, which stands at over 20%. With that perspective, I would like to now present our capital allocation strategy and overview. We have a very... A very strong balance sheet and our operating cash flow was $523 million for 2026. Roger will discuss our strategic global areas in this presentation, but I do want to point out that our balance sheet... Cash flows provide us with the capital available to invest in organic and acquisitive growth priorities in order to take advantage of these key business opportunities, such as technology and automation, which continues to provide us the...

...acquisition in the market. Year-to-date, and for the year, we have closed acquisitions of technical leaders focused on defense, such as Halvik in the U.S. and Providence in Australia. Now... Regarding our dividend program, I'm pleased to announce that our Board of Directors approved the quarterly cash dividend, which is an 11% increase year-over-year, to be paid in December. This is our 46th consecutive quarterly... ...with annual double-digit increases in the amounts paid. Our net debt target is about one to two times, and our actual net debt on EBITDA was at a leverage of one times at the end of this year, which is slightly higher than our leverage ratio... a year ago when it stood at about 0.9 times. Based on the lower end of our leverage target, we've continued our stock buyback program this year, and in the fourth quarter, we increased our buyback to $100 million, and for 2020... ...we have bought back a total of $300 million in our stock buyback program. We do have about $798 million available in our stock buyback program that has been approved by our board as part of our capital allocation strategy. I'm quite pleased to share these really strong results for Fiscal 26, which has enabled us to increase shareholder value as we can pay increasing dividends, increase our stock buybacks, engage in a creative value... ...acquisitions, all the while leveraging our balance sheet to enhance shareholder value. I want to thank you for your support and I will now hand the call back over to Roger to discuss Tetra Tech's global opportunities for 2027 and beyond.

For our international business, I'll highlight our three principal regions, the United Kingdom and Europe, Canada, and Asia Pacific. In the United Kingdom, Ireland, and the Netherlands, we are working... for the major water utilities on rapidly expanding water programs. In the UK, strong funding continues with the AMPAIT commitment of 105 billion pounds. Building on the UK's initial focus on sewer outflows and water supply leakage... We are now seeing the focus expand to areas of strength for us, including flood protection, digital water, and providing advanced water supply treatment, such as desalination. We also see continued expansion... ...of Ireland's 13.6 billion euro water and wastewater program through 2029 and new initiatives for flood protection modernization in the Netherlands. We've long served Canada's industrial water and infrastructure market. But now we are seeing unprecedented increases in investment. Infrastructure funding is projected to rise rapidly from 37 billion Canadian dollars in FY26 to... 73.7 billion Canadian dollars in FY28, a 97% increase. For us, this creates opportunities along both coasts and across the far north where our coastal engineering... ...permafrost expertise and experience providing remote communities with water supplies and infrastructure set us apart. And in Asia-Pacific, mining activity is picking up, providing us new opportunities in mine water management and geotechnical stability analysis.

...and digital automation services. Defense investment continues to be an important long-term driver with additional defense funding plan to slowly rise from about 63 billion Australian dollars to... ...$80 billion Australian dollars by FY 2030. Australia Defense is one of our largest Australian clients where we provide infrastructure advisory, program management and digital automation services.

I'd now like to highlight three U.S. commercial markets which we expect to drive our growth. Water is essential to mining operations from the earliest development through operations and closure. In the U.S., there is renewed investment in domestic rare earths and critical minerals, including funding of the $7.5 billion of incentives from the one big beautiful bill. Our Sustainable Mining Service is to expand feasibility, water sourcing and permitting through operations, tailing stability, mine closure, and cleanup. We help our clients reduce their water use, expand recycling, and manage long-term environmental risks. We expect to see continued growth in the U.S. power transmission market. We have supported more than 15,000 miles, representing more than 15 gigawatts of capacity from early-stage visibility through high-voltage engineering solutions. Our in-demand, high-voltage engineering services help utilities improve reliability and reduce transmission losses and congestion. We are supporting industrial facilities across the U.S. to modernize digital services. systems to support future AI-enabled automation and greater operational efficiency. Emerging cybersecurity concerns about interconnected systems are further driving this investment. We provide specialized expertise to commercial clients and data centers. Power generation, oil and gas, and mining. Helping to modernize systems and secure infrastructure assets. I'd now like to present our guidance for the first quarter and-

fiscal year 2027. Our guidance is as follows. For the first quarter, net revenue guidance is from $1.04 to $1.08 billion. Earnings per share guidance is from $0.36 to $0.38. And for fiscal year 2027, our net revenue guidance is from $4.425 to $4.625 billion. And earnings per share guidance is from $1.65 to $1.08. You can read the FY27 assumptions on our slide, but I'll highlight a few. Intangible amortization of $24 million. Depreciation of $25 million. Interest expense. $30 to $35 million and an effective tax rate of 27.5%. Please note this guidance does not include contributions from future acquisitions.

In summary, we had a strong finish to the 2026 year and ended the year with 30% growth in funded backlog. Demand for reliable water, a cleaner environment, and resilient infrastructure continues to expand. From communities securing water supplies to manufacturers and utilities, improving efficiency, our technical depth, longstanding client relationships and existing contract vehicles allow us to respond. As priorities change, that combination supports our growth and margin objectives for fiscal 27 and beyond.

I would now like to open the call for questions. Sachin?

The first question.

is from Tim Mulroney from William Blair. Please go ahead.

Sabahat Khan from RBC capital markets. Please go ahead.

Please go ahead.