Bubble or no bubble, this is the best stock for AI exposure: analyst
Introduction & Market Context
Tetra Tech Inc (NASDAQ:TTEK) delivered record financial results for its fourth quarter and fiscal year 2025, as presented in its November 13, 2025 earnings call. The water-focused engineering and consulting firm reported significant growth across all key metrics, driving a 14.27% surge in after-hours trading to $36.32, approaching its 52-week high of $44.63.
The company's strategic focus on high-end water consulting and digital initiatives continues to yield strong results, with earnings growth consistently outpacing revenue expansion, indicating successful margin improvement strategies.
As shown in the following slide highlighting Tetra Tech's key differentiators:
Quarterly Performance Highlights
Tetra Tech reported record Q4-25 results with net revenue of $1.16 billion, operating income of $171 million, and earnings per share of $0.45. Excluding contributions from USAID and DOS, the company achieved impressive year-over-year growth with net revenue up 10%, operating income increasing 23%, and EPS rising 29%.
The strong quarterly performance exceeded analyst expectations, with actual EPS of $0.44 (excluding USAID/DOS) surpassing the forecast of $0.40, representing a 10% positive surprise. Revenue similarly outperformed projections by 9.43%.
This record quarterly performance is clearly illustrated in the following slide:
Segment performance showed robust growth, particularly in the Government Services Group (GSG), which saw net revenue increase 17% and operating income margin expand by 330 basis points to 22.9%, driven by water infrastructure and digital automation initiatives. The Commercial/International Group (CIG) delivered 7% net revenue growth with margin improvement in most regions.
The following segment breakdown provides additional detail:
Detailed Financial Analysis
For the full fiscal year 2025, Tetra Tech achieved record results with net revenue of $4.62 billion (up 7% year-over-year), operating income of $604 million (up 18%), and EPS of $1.56 (up 24%). This performance demonstrates the company's ability to drive earnings growth at a faster rate than revenue expansion, reflecting successful margin enhancement strategies.
The company's financial overview is presented in this comprehensive slide:
Cash flow generation remained strong, with operating cash flow reaching $458 million, a 28% increase from FY24. The company maintained a healthy balance sheet with net debt leverage of 0.9x, below its target range of 1.0x-2.0x, providing financial flexibility for future growth investments. Days sales outstanding improved to 55.7 days (excluding USAID/DOS), and return on capital employed reached an impressive 20.7%.
These financial metrics are summarized in the following slide:
Backlog reached $4.14 billion (excluding USAID and DOS), providing strong visibility for future revenue. The company secured several significant contract wins during the quarter, including a $500 million multiple-award contract for environmental services with the USACE Baltimore District and a $240 million single-award contract for environmental assessment services for the U.S. Navy.
The backlog and recent contract wins are detailed here:
Strategic Initiatives
Tetra Tech's strategic focus on water-related services continues to drive growth, with over 85% of revenue derived from water projects. The company identified several key growth drivers in the water sector, including digital automation, data centers, mining and minerals, power generation, manufacturing, and defense.
As illustrated in this strategic overview:
The company highlighted data centers as a particularly strong growth area, with increasing water demands creating opportunities for Tetra Tech's consulting services. Water management, control system automation, and commissioning services for data centers represent significant growth potential as the digital infrastructure sector expands.
The data center opportunity is visualized in this slide:
In terms of capital allocation, Tetra Tech returned $315 million to shareholders through dividends and share repurchases during FY25, while increasing its quarterly dividend by 12% year-over-year. The company also completed strategic acquisitions of SAGE and Carron & Walsh to strengthen its technical capabilities and market position.
Forward-Looking Statements
For fiscal year 2026, Tetra Tech provided guidance for net revenue between $4.05 billion and $4.25 billion, with EPS projected in the range of $1.40 to $1.55. The company expects continued growth across all customer segments, with U.S. State & Local projected to lead with 10-15% growth, driven by water treatment plant modernization and digital water automation initiatives.
The segment outlook is presented in this forward-looking slide:
For the first quarter of fiscal 2026, the company projects net revenue between $950 million and $1.0 billion, with EPS in the range of $0.30 to $0.33. These projections exclude contributions from future acquisitions and reflect the company's confidence in continued organic growth.
The detailed guidance is provided in this slide:
CEO Dan Batrack emphasized the company's strategic focus during the earnings call, stating: "By staying focused on our high-end consulting and our leadership in water, we've built an enduring competitive advantage." CFO Steve Burdick highlighted the company's financial strength, noting: "We have a really strong balance sheet, and we're going to be able to use our balance sheet to make acquisitions."
With its strong market position in water consulting, healthy backlog, and strategic focus on high-growth areas like digital automation and data centers, Tetra Tech appears well-positioned to deliver on its FY26 guidance and continue its trajectory of profitable growth.
Full presentation:
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