Breaking Down Tetra Tech, Inc. (TTEK) Financial Health: Key Insights for Investors

You're looking at Tetra Tech, Inc. (TTEK) and trying to cut through the noise to see if their environmental and infrastructure consulting business is defintely a solid long-term play, and honestly, the fiscal year 2025 numbers give us a lot to work with. The firm delivered a record-setting performance, hitting an annual net revenue of $4.62 billion and driving adjusted earnings per share (EPS) to a record $1.56, a strong 24% jump year-over-year. That's real growth. But the picture isn't all green lights: while the company generated a robust $457.7 million in operating cash flow and paid out $65 million in dividends, the crucial backlog-the work already contracted-stood at $4.14 billion at the end of the fiscal year, a noticeable dip from its peak. So, while analysts are maintaining an Outperform rating with price targets going up to $48.00, we need to map the near-term risk in that shrinking backlog against the strong cash generation and see if the market is correctly pricing TTEK's pivot toward high-end water and sustainable infrastructure projects.

Revenue Analysis

You need a clear picture of where Tetra Tech, Inc. (TTEK)'s money comes from, especially with the market shifts we've seen. The direct takeaway is that TTEK delivered a record year in fiscal 2025, but the mix is changing, with government dependence still high and a major contract segment dropping off.

For the fiscal year ended September 28, 2025, Tetra Tech, Inc. reported a record annual revenue of approximately $5.44 billion. This marks a solid year-over-year (Y/Y) revenue increase of about 4.7% from the 2024 annual revenue of $5.199 billion. Honestly, that headline growth rate hides the more impressive performance in their core business, which they track as Net Revenue (service revenue, excluding subcontractor costs).

The Net Revenue figure-a better measure of organic growth for a consulting firm-showed a 10% Y/Y increase to $4.06 billion, when excluding the impact of the USAID and Department of State (DOS) work. This margin expansion is defintely a key sign of pricing power and better project selection.

Primary Revenue Sources and Segment Contribution

Tetra Tech, Inc. organizes its revenue into two primary segments, which reflect its diverse client base in high-end consulting and engineering services:

• Government Services Group (GSG): Focuses on U.S. federal, state, and local governments, plus international development agencies.
• Commercial/International Services Group (CIG): Serves U.S. commercial clients and international markets, including energy, industrial, and sustainable infrastructure.

The U.S. government remains the single largest client category, accounting for a significant 46.1% of the company's total revenue in fiscal 2025. This is a double-edged sword: it provides stability, but also exposes the company to budget volatility and political shifts. The GSG segment, for example, saw its net revenue reach $601.2 million in Q1 2025, a first time above the $600 million mark for a quarter.

Significant Revenue Stream Changes

The revenue story for 2025 is really about a strategic pivot away from certain high-volume, lower-margin contracts. The most significant change is the near-term elimination of revenue from USAID and some federal programs, which were either paused or terminated. Management expects essentially no significant USAID revenue in fiscal 2026. This is a clear risk to watch, but it also allows the company to focus on higher-margin work.

On the positive side, the growth drivers are clear and strong. The U.S. state and local markets are booming, showing a 19% growth rate in Q4 2025, driven by municipal water treatment and digital water modernization projects. Also, international work is a key growth vector, making up about 45% of the business in Q4 2025 and growing at a 9% rate. This includes strong performance in the United Kingdom's water business and Canada's clean energy practice.

To understand the players behind these numbers, you should check out Exploring Tetra Tech, Inc. (TTEK) Investor Profile: Who's Buying and Why?

Here's the quick math: losing the USAID work is a headwind, but the 19% growth in state/local and 9% in international work are powerful tailwinds that are compensating for it.

Next Step: Check the backlog. A record backlog of $5.44 billion provides strong revenue visibility for the next few years, which is crucial for a services firm navigating a changing client mix.

Profitability Metrics

You need to know if Tetra Tech, Inc. (TTEK) is just growing revenue or if it's actually getting more profitable. The short answer is: the core business is hitting multi-decade highs in profitability, but you have to look past the headline GAAP (Generally Accepted Accounting Principles) numbers to see it.

The company's strategic pivot to high-end consulting and fixed-price contracts drove significant margin expansion in fiscal year 2025. This is a deliberate, structural change, not a one-off event. It means they are capturing more profit from every dollar of work they do, which is defintely the mark of a well-run services firm.

Gross, Operating, and Net Profit Margins (FY 2025)

When analyzing TTEK, it's crucial to distinguish between total revenue and net revenue (which excludes subcontractor costs) and between GAAP and adjusted figures, as the latter strips out non-recurring charges like goodwill impairment related to the USAID/DOS contract terminations. The adjusted figures reflect the true operational health of the core business.

Here is the quick math on the full fiscal year 2025 performance, based on the officially reported numbers:

Trends and Operational Efficiency

The real story is in the trend and the operational efficiency (how well they manage costs). The GAAP operating margin of 7.50% looks modest, but that figure includes one-time charges that mask the strong underlying performance. The adjusted operating income of $563 million, on a net revenue of $4.06 billion, gives you a much more meaningful adjusted operating margin of nearly 13.87%.

This margin expansion is not accidental. Management is executing a clear strategy:

• Gross Margin Improvement: Gross Profit grew 11.0% year-over-year, outpacing the 4.7% revenue growth, showing better project execution and labor utilization.
• Record Operating Margin: Adjusted operating margin reached its highest level in over 30 years, with the adjusted operating income itself increasing 24% year-over-year.
• Fixed-Price Mix: The company is shifting its contract mix to capture more efficiency upside, with fixed-price revenue hitting approximately 50% in Q4 2025, up significantly, and they are targeting 60% long-term.

Industry Comparison and Action

TTEK is a sector leader in profitability. For example, in Q3 2025, the company's Government Services Group (GSG) segment delivered a 19.9% operating margin [cite: 2 (from previous search)], which was explicitly noted to be outperforming the broader engineering and infrastructure sector's average operating margin of around 18.96% [cite: 2 (from previous search)]. This is a consulting firm that knows how to price its value. You can read more about their core strategy here: Mission Statement, Vision, & Core Values of Tetra Tech, Inc. (TTEK).

What this estimate hides is the potential for a continued lift in the net margin as the non-recurring charges roll off. The GAAP Net Income of $247.9 million gives a Net Profit Margin of only 4.55%, but the implied net margin from the core business is much higher, suggesting significant upside if they maintain this operational discipline.

Next Step: Focus your valuation model on the $4.06 billion Net Revenue and the 13.87% Adjusted Operating Margin, as these figures best represent the sustainable profitability of the core TTEK business going into fiscal year 2026.

Debt vs. Equity Structure

You're looking at Tetra Tech, Inc. (TTEK)'s balance sheet to see how they fund their growth, and the good news is the company is leaning on equity far more than debt. As of the quarter ending June 2025, Tetra Tech's debt-to-equity (D/E) ratio stood at approximately 0.62. This is a solid, conservative figure that tells you they use about 62 cents of debt for every dollar of shareholder equity to finance their assets.

This ratio is defintely on the lower, safer end of the spectrum for the industry. For context, the broader Construction & Engineering sector's average D/E ratio is around 0.65, and a healthy range for construction firms is often cited between 0.5 and 1.5. Tetra Tech is well within that comfort zone, showing a strong reliance on internal capital and retained earnings, which is a sign of financial stability.

Here's the quick math on their debt composition from the June 2025 financial reports, showing total debt at just over $1 billion:

• Short-Term Debt & Capital Lease Obligation: $64 million
• Long-Term Debt & Capital Lease Obligation: $1,008 million
• Total Stockholders Equity: $1,742 million

The company's approach to financing is a balanced one, but they are clearly comfortable using debt to fuel strategic initiatives like acquisitions-which is common for growth in the consulting space. This balance is key to understanding their overall Mission Statement, Vision, & Core Values of Tetra Tech, Inc. (TTEK).

To be fair, they recently bolstered their financing capacity. In May 2025, Tetra Tech entered into a new credit agreement, securing access to a significant pool of capital: $250 million in term loans and a $600 million revolving credit facility. This move signals an intent to maintain operational flexibility and fund future growth, likely through mergers and acquisitions, without immediately spiking the D/E ratio. The debt is manageable, and their interest coverage ratio is strong, but you should still monitor how quickly they draw down on that revolving credit.

What this estimate hides is the market's view on their risk. As of October 2025, Weiss Ratings reiterated a Hold (C) Rating. This isn't a red flag, but it suggests a neutral outlook on their financial strength, likely due to the inherent cyclicality of the engineering and consulting business, not an immediate debt crisis. They are using debt as a tool, not a crutch. Your action item is to watch the next few quarters for any substantial drawdowns on the $600 million revolving credit line.

Liquidity and Solvency

Tetra Tech, Inc. (TTEK) shows a solid, low-risk liquidity profile, which is exactly what you want to see in a professional services firm. The key takeaway is that their current assets comfortably cover their short-term obligations, plus they generate a ton of cash from operations, allowing for significant capital return to shareholders.

For fiscal year 2025, the company's current ratio and quick ratio both stand at approximately 1.18. This is a strong signal. The current ratio (Current Assets divided by Current Liabilities) tells you if a company can pay its bills over the next year. A 1.18 ratio means Tetra Tech, Inc. has $1.18 in liquid assets for every dollar of short-term debt. Even better, the quick ratio (which excludes less liquid assets like inventory) is essentially the same at 1.18. This is typical for a consulting business-they don't hold much inventory, so nearly all their current assets are highly liquid, mostly accounts receivable and cash. That's defintely a good sign of immediate financial health.

Working capital, which is the difference between current assets and current liabilities, remains positive and manageable. The stability of the 1.18 ratio shows a consistent ability to manage short-term obligations, a crucial factor for a company reliant on timely client payments. The positive trend in working capital is directly supported by the company's exceptional cash generation.

• Current Ratio: 1.18 (Strong short-term coverage)
• Quick Ratio: 1.18 (High asset liquidity)

The cash flow statement for 2025 paints an even clearer picture of financial strength. Tetra Tech, Inc. reported a record operating cash flow (OCF) of $458 million, which is a substantial 28% increase year-over-year. This OCF is the lifeblood of the company, showing how much cash their core engineering and consulting services are truly generating. This strong operational performance translates into robust free cash flow (FCF), which came in at about $439.1 million. This FCF is the cash left over after paying for necessary capital expenditures (CapEx), and it's what management uses for strategic moves.

The trends in investing and financing cash flow show a company using its operational strength to reward shareholders and invest modestly. Capital expenditures were low, around $18.63 million, reflecting the asset-light nature of their business. On the financing side, they returned a significant amount of capital, repurchasing $250 million of common stock in fiscal 2025. They also increased their quarterly dividend by 12% year-over-year to $0.065 per share. Here's the quick math: strong OCF easily covers CapEx, leaving plenty for shareholder returns and debt management.

There are no immediate liquidity concerns. The ratios are healthy, and the cash flow generation is excellent. The company also restructured its credit facilities, giving it a total borrowing capacity of $1.5 billion, which provides a massive buffer and financial flexibility for future acquisitions or unexpected needs. For a deeper dive into the valuation, check out Breaking Down Tetra Tech, Inc. (TTEK) Financial Health: Key Insights for Investors.

Valuation Analysis

You're looking at Tetra Tech, Inc. (TTEK) and wondering if the price reflects the value, which is the right question for any seasoned investor. The short answer is that the market is currently pricing TTEK at a premium based on trailing earnings, but the forward outlook suggests that premium is starting to shrink, pointing toward a 'Moderate Buy' consensus from analysts.

The stock has been volatile, falling around 19.31% over the last 12 months as of late November 2025, with a 52-week trading range between a low of $27.27 and a high of $43.50. This price action, despite recent strong earnings in Q4 2025, suggests investors are still weighing near-term risks, like the collapse of its USAID business, against its core environmental and infrastructure strength. One big jump of 15.29% happened on November 13, 2025, right after the Q4 earnings beat. That's a clear market signal.

Here's the quick math on the key valuation multiples for TTEK, using the most recent trailing twelve months (TTM) data:

• Price-to-Earnings (P/E) Ratio: The TTM P/E sits at about 35.54. This is high for the Industrials sector, telling you the market expects significant future growth to justify the current price.
• Forward P/E Ratio: This drops to a more reasonable 22.17, based on expected 2026 earnings, showing that the growth story is still intact for next year.
• Price-to-Book (P/B) Ratio: At approximately 4.85, the market is valuing the company at nearly five times its book value, another indicator of a growth stock or one with high-quality, intangible assets like its specialized engineering expertise.
• Enterprise Value-to-EBITDA (EV/EBITDA): The TTM EV/EBITDA is around 15.47 as of November 2025. This is a crucial metric for capital-intensive consulting firms, and while it's not cheap, it's a more grounded valuation than the TTM P/E, which is heavily influenced by non-cash items.

The dividend story is simple: TTEK is not a high-yield play. The annual dividend is modest at around $0.25 per share, resulting in a low dividend yield of just 0.74%. The good news is the payout ratio is very sustainable at approximately 26.25%, meaning the company retains most of its earnings to fund growth projects and acquisitions. They defintely prioritize reinvestment over large shareholder payouts.

The consensus from Wall Street analysts is a 'Moderate Buy,' with an average price target of $42.20. This suggests an upside from the current price, with individual targets ranging from a low of $41.00 to a high of $48.00. What this estimate hides, however, is the execution risk in replacing that lost government contract revenue. For a deeper dive into who is buying and why, you should read Exploring Tetra Tech, Inc. (TTEK) Investor Profile: Who's Buying and Why?

To summarize the valuation picture, here is a breakdown of the key metrics:

Risk Factors

You're looking at Tetra Tech, Inc. (TTEK) after a strong fiscal 2025, but a seasoned investor knows that record performance doesn't eliminate risk. The company delivered a record year, with Net Revenue hitting $4.62 billion and Adjusted EPS at $1.45, but there are clear internal and external headwinds you need to map to your valuation model. Don't get complacent just because the numbers look good.

The biggest near-term risk remains the volatility of U.S. federal contracting, which makes up about 31.6% of their total revenue. The shift toward shorter funding durations affects visibility, making it harder to project revenue streams beyond the next quarter. Plus, the political environment can change fast. We saw this play out in fiscal 2025 with the U.S. Agency for International Development (USAID) contract freeze.

That USAID situation was a concrete financial hit, not just a theoretical risk. In the second quarter of fiscal 2025, the termination of nearly all USAID contracts for convenience forced TTEK to record a non-cash goodwill impairment charge of $92.4 million. That's a significant chunk of change that reminds you how quickly government priorities can change. Management initially had to pull about $400 million of revenue from their full-year guidance as a result. That's a real-world example of political risk hitting the income statement.

Operationally, TTEK is exposed to sector-specific slowdowns and the inherent risks of complex project execution. For instance, the U.S. commercial work saw a slight downturn in fiscal 2025, specifically driven by reductions in the renewable energy sector. Also, managing a global footprint means facing international operations risks like currency fluctuations and political instability, which is a factor since international clients account for 37.4% of revenue. You have to watch the global economy, not just the US market.

Here's the quick math on their contract risk profile, pulled from the fiscal 2025 filings:

Mitigation is key, and TTEK has a few strong defenses. First, their strategy is focused on essential, non-discretionary services like water management and environmental infrastructure, which have bipartisan support and enduring demand. Second, the business is asset-light-Capital Expenditure (CapEx) is well under 1% of sales-giving them the flexibility to quickly redeploy technical staff and defend their margins even if revenue growth slows. That's a powerful defense. Finally, they are actively managing their capital structure, repurchasing $250 million in common stock during fiscal 2025 and increasing the dividend by 12%.

They are defintely leaning into their high-margin digital solutions, known as Tetra Tech Delta, which use advanced analytics and AI to drive better project outcomes and expand their competitive moat. This focus on high-end consulting is why their EBITDA Margin improved to a solid 14.3% in fiscal 2025. It shows they are moving up the value chain. You should also check out Exploring Tetra Tech, Inc. (TTEK) Investor Profile: Who's Buying and Why? for a deeper dive into who is betting on this strategy.

• Watch for prolonged federal funding gaps.
• Monitor the pace of renewable energy project recovery.
• Confirm the quick redeployment of staff if a contract is lost.

Growth Opportunities

You want to know where the next wave of growth is coming from for Tetra Tech, Inc. (TTEK), and the answer is clear: it's a strategic pivot toward high-margin digital water and defense services, moving TTEK up the value chain. The company's full fiscal year 2025 (FY2025) results confirm this shift is working, with adjusted earnings per share (EPS) growing 31% year-over-year to $1.45, excluding the impact of some government contract reorganization. That's a significant margin expansion.

The core of the strategy is a move to higher-end consulting and fixed-price contracts, which allows them to capture more upside from their technical expertise. Honestly, they're trading some revenue volume for a massive upgrade in quality. This tactical shift drove the Government Services Group (GSG) operating income margin to a record 22.9% in the fourth quarter of 2025. It's a smart move in a competitive sector.

Key Growth Drivers and Market Expansion

TTEK is capitalizing on three major, non-cyclical macro trends: climate resilience, infrastructure modernization, and the AI buildout. The company's enduring competitive advantage is its leadership in water management, which is now directly tied to the insatiable demand from data centers. A large data center can consume millions of gallons of water daily, so TTEK is providing resource management, high-voltage engineering, and water reuse services to major hyperscale operators.

This is a direct proof point of the AI trend creating demand for their most specialized services:

• Digital Water Automation: TTEK's proprietary Tetra Tech Delta platform uses AI and machine learning for high-margin services like smart water treatment and leak detection.
• High-Voltage Engineering: The backlog for this service doubled in the quarter, up 120% in the U.S., driven by the need to power new data centers.
• Government Contracts: New defense contracts, including a $249 million U.S. Army Corps of Engineers award, reinforce a stable, high-margin revenue base.

The company is not just a domestic player, either. International work now makes up about 45% of their overall business, with strong growth in the U.K. water sector and clean energy projects in Canada.

Financial Projections and Strategic Actions

The forward-looking guidance for fiscal year 2026 suggests continued, albeit more modest, growth after a record 2025. The company is guiding for net revenue between $4.05 billion and $4.25 billion and adjusted EPS in the range of $1.40 to $1.55. This is based on a total FY2025 revenue of $5.44 billion and a robust backlog of approximately $5.38 billion (as of Q4 2024), which provides strong revenue visibility.

Here's the quick math on their capital deployment, which shows a commitment to shareholders and growth:

The company also expanded its digital capabilities with the acquisition of Sage Automation, adding 800 experts to its workforce. Plus, they have access to cheap capital-a 2% interest rate from an old convertible debt deal-which makes it defintely easier to do accretive deals than their competitors. You can read more about their core philosophy in the Mission Statement, Vision, & Core Values of Tetra Tech, Inc. (TTEK).

Next Step: Finance should model the impact of a $500 million share repurchase on next year's EPS by the end of the month.