• Fiscal Year 2024 Revenue: $4.32 billion, a 15% increase year over year.
• Annual Operating Income: $510 million, a 22% increase from the prior year.
• Earnings Per Share (EPS) for Fiscal Year 2024: $1.26, a 21% increase year over year.
• Fourth Quarter Revenue: $1.37 billion, up 9% from the previous year.
• Fourth Quarter Operating Income: $153 million, a 13% increase from last year.
• Backlog: $5.38 billion, the highest in company history, up 12% year over year.
• Government Services Group Revenue: $513 million, a 12% increase year over year with a 16.1% margin.
• Commercial International Group Margin: 15.6%, up 230 basis points from last year.
• US Federal Clients Revenue Growth: 16% increase from the same quarter last year.
• Cash Flow from Operations for Fiscal Year 2024: $359 million.
• Net Debt Leverage Ratio: 1.0 times at the end of the year.
• Dividend Increase: 12% year over year, with a $0.058 dividend approved.

• Warning! GuruFocus has detected 7 Warning Sign with TTEK.

Release Date: November 14, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Tetra Tech Inc (NASDAQ:TTEK) achieved record results for revenue, net revenue, operating income, earnings per share, and backlog in both the fourth quarter and fiscal year 2024.
• The company's revenue increased by 15% to $4.32 billion for fiscal year 2024, with operating income exceeding $0.5 billion for the first time.
• Tetra Tech Inc (NASDAQ:TTEK) reported an all-time high backlog of $5.38 billion, up 12% year over year, providing strong visibility into future growth.
• The Government Services Group segment saw a 12% revenue increase year over year, with a strong margin expansion to 16.1%.
• The company is well-positioned in high-growth areas such as water modernization, renewable energy, and high-performance building services, with significant investments in AI and software solutions to enhance competitive advantage.

Negative Points

• There is uncertainty regarding the impact of the new US administration on Tetra Tech Inc (NASDAQ:TTEK)'s business, particularly concerning federal funding and international development programs.
• The company's USAID work, which has lower margins, faces potential reductions, impacting overall revenue growth.
• Despite strong performance, the Commercial International Group segment's growth was relatively modest at 5%, indicating potential challenges in international markets.
• The renewable energy sector, while growing, faces potential risks from changes in federal policies, such as the potential repeal of the IRA.
• Tetra Tech Inc (NASDAQ:TTEK) faces increased competition in the water and environmental markets, which could pressure margins and market share.

Q & A Highlights

Q: How is Tetra Tech's renewables practice expected to grow, especially with potential changes in US energy policy? A: Dan Batrack, CEO, explained that Tetra Tech's renewable energy practice is about $200 million annually, with hydropower being the largest component. The practice is expected to grow in double digits, driven by offshore wind projects in the US and internationally. The growth is not solely dependent on the IRA, as state and local commitments also drive demand.

Q: What are Tetra Tech's capital allocation priorities for fiscal 2025, given the current leverage ratio? A: Steven Burdick, CFO, stated that the priorities include investing in strategic organic growth, maintaining a cash dividend program, pursuing strategic acquisitions, and potentially resuming the stock buyback program, which was paused after the RPS acquisition.

Q: Can you explain the growth ranges for different segments and what factors could influence reaching the high or low end of these ranges? A: Dan Batrack, CEO, noted that the low end could be influenced by reductions in US federal government funding, particularly in international development. The high end could be achieved with strong investment in these areas and increased work in high-performance buildings and data centers.

Q: How does Tetra Tech plan to manage potential shifts in budget priorities among defense, civilian, and USAID sectors? A: Dan Batrack, CEO, explained that USAID work is the lowest margin due to its cost-plus basis, while defense and civilian work have higher margins. A reduction in USAID work could increase overall margins, as the remaining business is higher margin.

Q: How flexible is Tetra Tech's workforce in adapting to shifts in budget priorities? A: Dan Batrack, CEO, stated that about 80-85% of the workforce is fungible and can be redeployed across different sectors. The company has improved its ability to work virtually, allowing for seamless transitions across geographies and sectors.

Q: What is Tetra Tech's approach to acquisitions, and how does it align with their growth strategy? A: Dan Batrack, CEO, mentioned that Tetra Tech is looking to acquire companies with technology and intellectual property that enhance their technical differentiation. The focus is on companies that can contribute to their water and environmental services, particularly in Australia.

Q: How does Tetra Tech plan to maintain its competitive edge in the water and environmental markets? A: Dan Batrack, CEO, emphasized that Tetra Tech's competitive advantage lies in providing technically differentiated solutions that offer better value to clients. The company focuses on high-margin consulting work and uses digital tools and AI to enhance productivity and margins.

Q: What is the outlook for Tetra Tech's international growth, particularly in light of the AMP 8 cycle in the UK? A: Dan Batrack, CEO, stated that while the AMP 8 cycle will drive growth, the overall international growth rate is projected at 5-10% due to the relatively small starting base of the AMP 8 projects compared to Tetra Tech's total international revenue.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.