Overview

Tetra Tech, Inc. (NASDAQ:TTEK), a leading global provider of high-end consulting and engineering services, has reported stellar third-quarter results for fiscal year 2024, setting new records for revenue, backlog, and earnings per share. The company's strong performance and positive outlook have prompted it to raise its full-year guidance, further solidifying its position as a premier player in the water, environment, and sustainable infrastructure markets.

Financials

For the third quarter of fiscal 2024, Tetra Tech reported revenue of $1.34 billion, up 11.2% year-over-year. The company's net revenue, which excludes subcontractor costs, increased 12.4% to $1.11 billion. This impressive top-line growth was driven by strong demand across all of Tetra Tech's end markets, including the U.S. federal government, U.S. state and local government, U.S. commercial, and international clients.

The company's Government Services Group (GSG) segment saw a 20.6% year-over-year increase in revenue, reaching $640.6 million, while the Commercial/International Group (CIG) segment reported a 4.7% revenue growth to $723.6 million. The strong performance in the GSG segment was primarily driven by higher international development activity and increased environmental work for both civilian and defense agencies. The CIG segment's growth was fueled by increased renewable energy and international sustainable infrastructure projects, as well as contributions from the company's recent acquisitions.

Tetra Tech's net income for the third quarter reached $85.8 million, up 42.5% from the prior-year period. Earnings per share (EPS) also set a new record, coming in at $1.59, a 42% increase compared to the third quarter of fiscal 2023. The company's focus on high-margin consulting and engineering services, as well as its successful integration of recent acquisitions, contributed to the impressive bottom-line growth.

For the first nine months of fiscal 2024, Tetra Tech reported revenue of $3.82 billion, a 17.2% increase from the same period last year. Net income for the first nine months of the fiscal year reached $237.3 million, while EPS stood at $4.40, up from $4.10 in the prior-year period.

The company's strong cash flow generation continues to be a highlight, with operating cash flow of $253.1 million in the first nine months of fiscal 2024, compared to $246.1 million in the same period last year.

Business Overview

Tetra Tech's backlog reached a new all-time high of $5.23 billion at the end of the third quarter, up 19% year-over-year. This robust backlog, which includes $439 million in new orders related to the company's work in Ukraine, provides excellent visibility into future revenue and earnings growth.

In response to the company's strong performance, Tetra Tech has raised its full-year fiscal 2024 guidance. The company now expects revenue to be in the range of $4.27 billion to $4.32 billion, up from the previous guidance of $4.21 billion to $4.31 billion. Adjusted earnings per share are now projected to be between $6.23 and $6.28, compared to the previous range of $6.15 to $6.25.

Tetra Tech's geographic diversification has been a key strength, with international revenue now accounting for 40% of the company's total revenue. The company's operations in Canada, Australia, Europe, and the United Kingdom have been particularly strong, driven by increased demand for sustainable infrastructure, renewable energy, and water-related services.

The company's focus on high-end consulting and engineering services has been a significant driver of its margin expansion. Tetra Tech's EBITDA margin for the third quarter was 13.3%, up 120 basis points from the prior-year period. The company's strategic efforts to optimize its portfolio and shift towards higher-margin work have been instrumental in this margin improvement.

Tetra Tech's acquisition strategy has also played a crucial role in its growth and diversification. The company's recent acquisitions of LS Technologies and Convergence Controls & Engineering have strengthened its capabilities in areas such as data analytics, cybersecurity, and digital transformation, further enhancing its value proposition to clients.

Outlook

Looking ahead, Tetra Tech remains well-positioned to capitalize on the growing demand for its services. The company's strong backlog, diversified end markets, and focus on high-margin consulting work position it for continued success. Additionally, the recent passage of major infrastructure and climate-related legislation in the United States, such as the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, is expected to provide significant opportunities for Tetra Tech in the coming years.

Conclusion

In conclusion, Tetra Tech's impressive third-quarter results and raised full-year guidance demonstrate the company's ability to execute on its strategic priorities and deliver value to its shareholders. With its leading market position, strong financial performance, and promising growth prospects, Tetra Tech remains a compelling investment opportunity in the water, environment, and sustainable infrastructure sectors.