TTEK

Tetra Tech is a high-quality engineering and environmental-consulting firm with a leading position in water and environmental programs. The headline FY2025 numbers look soft — revenue up only 4.7% to $5.44B and net income down 25.6% to $248M (EPS $0.93, down 24.4%) — but the MD&A shows the decline was driven by clearly identifiable, largely non-recurring items: a $115M legal contingency charge and a $92.4M goodwill impairment. Excluding those, the underlying business strengthened: gross profit grew 11.0% to $961M (gross margin up to 17.7%) and operating cash flow surged 27.6% to $458M, well above $18.6M of capex. ROE remained healthy at 13.9%.

The major swing factor is U.S. foreign aid. Following Executive Order 14169 and the cancellation of 83% of USAID programs, virtually all of Tetra Tech's USAID contracts were terminated for convenience. USAID revenue was $576.4M in FY2025 (down from $677.2M), and management expects no significant USAID revenue in FY2026 — a real, sizable headwind. Offsetting this, the U.S. state-and-local sector grew 28.8% on water-infrastructure and disaster-response work (Hurricanes Helene/Milton), and management expects federal (ex-USAID), state/local water, and international revenue all to grow in FY2026.