Tetra Tech Fiscal 2026 Q4 Earnings Call - Record Backlog of $4.7 Billion Sets Stage for Fiscal 2027 Growth

Moderator: Good morning, and thank you for joining the Tetra Tech earnings call. As a reminder, Tetra Tech is also simulcasting this presentation with slides in the Investors section of its website at tetratech.com. This call is being recorded at the request of Tetra Tech, and this broadcast is the copyrighted property of Tetra Tech. Any rebroadcast of this information in whole or part without the prior written permission of Tetra Tech is prohibited. With us today from management are Roger Argus, Chief Executive Officer and President, and Steve Burdick, Chief Financial Officer. They will provide a brief overview of the results and will then open up the call for questions. I would like to direct your attention to the safe harbor statement in today’s presentation. Today’s discussion contains forward-looking statements about future business and financial expectations.

Actual results may differ significantly from those projected in today’s forward-looking statements due to various risks and uncertainties, including the risks described in Tetra Tech’s periodic reports filed with the SEC. Except as required by law, Tetra Tech undertakes no obligation to update its forward-looking statements. In addition, since management will be presenting some non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted in the Investors section of Tetra Tech’s website. At this time, I would like to inform you that all participants are in a listen-only mode. At the request of the company, we will open up the conference for questions and answers after the presentation. With that, I would now like to turn the call over to Roger Argus. Please go ahead, Mr. Argus.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Thank you, Satya. Good morning, and welcome to Tetra Tech’s fourth quarter and fiscal year 2026 earnings conference call. We finished a strong fourth quarter with backlog up 13% from last year, giving us a solid foundation for fiscal 2027. Throughout the year, our Leading with Science® approach and focus on water, environment, and sustainable infrastructure allowed us to grow by rapidly adapting quickly to changes in client priorities. For government clients, we’re helping our clients create new water supplies, automate their water facilities, and manage extreme weather risks. For our commercial clients, we’re addressing increasingly complex industrial water needs, including water reuse and high-end treatment, and providing digital automation solutions for industrial facilities. Our breadth of high-end services contributed to strong performance across both commercial and government markets in the U.S. and internationally. Looking ahead, the U.S. midterms introduce a new period of transition.

Our broad-based client experience and contract capacity provide us with the ability to address current federal priorities and rapidly respond to new funding and programs at the U.S. federal, state, and local level. I’ll review our quarter and full-year results, as well as our outlook and guidance. Steve Burdick, our Chief Financial Officer, will also provide additional insight into our financial performance. We finished fiscal 2026 with record operating income and earnings per share. Fourth-quarter net revenue was $1.15 billion, up 5% from a year ago. For the fourth quarter, EBITDA reached $194 million, with our margin expanding 90 basis points year over year. To put that in context, our margins have expanded 240 basis points over the last three years. Fourth-quarter earnings per share were $0.49, up 9% from last year.

And perhaps most importantly, we ended the year with $4.7 billion in funded backlog, up 13% from last year. I will turn now to our fourth-quarter performance by segment. The Government Services Group, or GSG segment, revenue increased to $513 million from $475 million last year, up 8%, and delivered an exceptionally strong 18.8% margin. Growth was driven by strength in our municipal water programs and the federal infrastructure programs that we perform for the US Army Corps of Engineers and US Navy. The Commercial/International Group, or CIG segment, revenue was $640 million, up 3% from a year ago. The CIG margin increased by 140 basis points, resulting in a 16.2% margin. CIG growth was primarily driven by the U.K. and Irish water programs, digital automation and defense work in Australia, and broad-based infrastructure programs in Canada.

Looking at the quarter by end customer, growth was broad-based across our markets. U.S. federal work represented 26% of revenue in the quarter and grew 9%, led by US Navy and US Army Corps work in flood control, coastal resilience, and defense facility modernization. U.S. state and local work grew by 6%, driven by municipal water treatment and digital automation work. Growth was primarily in states affected by water scarcity concerns, including Texas, Florida, California, and Colorado, as well as continued advancement of PFAS treatment in the central U.S. U.S. commercial also grew 6%, supported by feasibility and digital automation services for high-end industrial data center and power facilities, and engineering work for high-voltage power transmission programs. International work represented 43% of revenue and grew 3%. However, if you take into account the divestiture of our Norway operation earlier in the year, we were up around 5% to 6%.

Growth was led by U.K. and Irish water programs and our Canadian infrastructure programs. We ended the quarter with $4.67 billion in funded backlog, up 13% from last year, and the third sequential quarter with a greater than 1.1 times book-to-bill rate. We received over $1.6 billion in new orders in the quarter, including $600 million in commercial orders globally. Orders were very broad-based across our geographies and clients. In the quarter, we also significantly expanded our contract capacity, especially with large new awards from the U.S. federal government. In the quarter, we were awarded a new $1.4 billion NASA enterprise-wide technical support contract, expanding our scope of services with this long-term strategic client. We were also awarded $145 million in new contract capacity with the US Navy to support upgrading critical infrastructure worldwide.

We further expanded our capacity with the US Army Corps of Engineers in Europe by $85 million, facilitating our expansion of the long-term support we have provided to the U.S. government through this area. We were awarded a $49 million contract for NOAA, where we provide high-end geospatial and coastal analytical services and software. And further expanding our more than 40 years of support to the US EPA, we added a total of over $220 million in new contract capacity. Collectively, these awards further strengthen Tetra Tech’s competitive position with key U.S. federal markets we serve and enhance our ability to address the government’s priorities both now and into the future. I would now like to turn the presentation over to Steve to provide you with additional insight into our financial performance.

Steve Burdick, Chief Financial Officer, Tetra Tech: Well, thank you, Roger. I would like to now provide an update on our reported fiscal 2026 results, working capital, cash flows, and capital allocation. As Roger just discussed in this call, our market-leading focus on the front-end technical design and engineering for water and environmental projects are carrying higher margins across all of our end markets. As such, even as the reported revenue was down from last year due primarily to the decrease in revenue from USAID and episodic disaster response, our operating income increased significantly, and adjusted EBITDA on net revenue for the year had increased by 90 basis points to 15.2% for fiscal 2026. These results further support our long-term strategic goals to improving EBITDA margins by an average of 50 basis points annually.

More often over the last year or so, I have been asked by shareholders and analysts what our margins look like on a net service revenue basis, or NSR, which would be similar to how others in our industry report their margins. I have looked at that question and can tell you that our EBITDA margin would be higher by about 250 basis points for this year just on an NSR basis. As a result of our ability to enhance our profit margins and further manage our working capital, we were able to increase EPS and come in above our previous guidance range for both the fourth quarter and the fiscal year. Regarding our working capital, cash flows generated from operations for the year came in at $523 million, which represents a significant 14% improvement over fiscal 2025.

Consistent with each of the last consecutive 21 years, our operating cash flows have exceeded net income. Our focus on working capital and cash flows has resulted in our DSO reflecting an industry-leading standard of 60 days, and the lower DSO metric provides significant insight into our core business, as it reflects the outstanding work that our project managers lead relative to higher-quality projects and highly satisfied clients in our broad portfolio across all of our end markets and geographies. As we continue on high-quality operating results with increasing margins, operating cash flows in excess of net income, and lower working capital KPIs, we will continue to provide higher returns for our shareholders. Those higher shareholder financial returns are reflected in an improving return on capital employed, which stands at over 20%.

With that perspective, I would like to now present our capital allocation strategy and overview. We have a very strong balance sheet, and our operating cash flow was $523 million for 2026. Roger will discuss our strategic global areas in this presentation, but I do want to point out that our balance sheet and cash flows provide us with the capital available to invest in organic and acquisitive growth priorities in order to take advantage of these key business opportunities, such as technology and automation, which continues to provide us a dominant position in the market. Year to date, and for the year, we have closed acquisitions of technical leaders focused on defense, such as Halvik in the U.S. and Providence in Australia.

Now, regarding our dividend program, I am pleased to announce that our board of directors approved a quarterly cash dividend, which is an 11% increase year-over-year to be paid in December. This is our 46th consecutive quarterly dividend with annual double-digit increases in the amounts paid. Our net debt target is about one to two times, and our actual net debt on EBITDA was at a leverage of one times at the end of this year, which is slightly higher than our leverage ratio one year ago when it stood at about 0.9 times. Based on the lower end of our leverage target, we have continued our stock buyback program this year, and in the fourth quarter, we increased our buyback to $100 million. For 2026, we have bought back a total of $300 million in our stock buyback program.

We do have about $798 million available in our stock buyback program that has been approved by our board as part of our capital allocation strategy. I am quite pleased to share these really strong results for fiscal 2026, which has enabled us to increase shareholder value as we can pay increasing dividends, increase our stock buybacks, engage in accretive acquisitions, all the while leveraging our balance sheet to enhance shareholder value. I want to thank you for your support. I will now hand the call back over to Roger to discuss Tetra Tech’s global opportunities for 2027 and beyond.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Thank you, Steve. I will now review our fiscal 2027 outlook by end market. For U.S. commercial, we expect to see approximately 10% growth, driven by increased demand for our advanced water and associated digital automation solutions that address the needs for water-intensive advanced manufacturing, data centers, and mining. For U.S. federal work, we expect to see 5% growth in the fiscal year 2027, primarily supported by current priorities in defense modernization and the design of resilient military infrastructure. As funding priorities transition, we can leverage our federal contract capacity to add water, environment, and infrastructure programs as they develop. For our international revenues, we expect to see approximately 5% growth. We expect continued strength in U.K. water programs for digital automation and especially strong broad-based growth in Canada across both government and commercial clients. For our U.S. state and local work, we expect our revenue to be relatively flat.

We expect to see continued growth in our municipal water and digital automation programs for our more than 500 state and local clients, especially in the large Florida, Texas, and California markets. However, we are anticipating a reduction in state and local disaster planning and preparedness work, which typically relies on federal grant funding. For our international business, I will highlight our three principal regions: the United Kingdom and Europe, Canada, and Asia-Pacific. In the United Kingdom, Ireland, and the Netherlands, we are working for the major water utilities on rapidly expanding water programs. In the U.K., strong funding continues with the AMP8 commitment of GBP 105 billion. Building on the U.K.’s initial focus on sewer outflows and water supply leakage, we are now seeing the focus expand to areas of strength for us, including flood protection, digital water, and providing advanced water supply treatment such as desalination.

We also see continued expansion of Ireland’s EUR 13.6 billion water and wastewater program through 2029, and new initiatives for flood protection modernization in the Netherlands. We’ve long served Canada’s industrial water and infrastructure markets, but now we are seeing unprecedented increases in investment. Infrastructure funding is projected to rise rapidly from CAD 37 billion in FY CAD 2026 billion to CAD 73.7 billion in FY 2028, a 97% increase. For us, this creates opportunities along both coasts and across the far north, where our coastal engineering, permafrost expertise, and experience providing remote communities with water supplies and infrastructure set us apart. In Asia-Pacific, mining activity is picking up, providing us new opportunities in mine water management and geotechnical stability analysis and digital automation services.

Defense investment continues to be an important long-term driver, with additional defense funding planned to slowly rise from about AUD 63 billion to AUD 80 billion by FY 2030. Australia Defense is one of our largest Australian clients, where we provide infrastructure advisory, program management, and digital automation services. I’d now like to highlight three U.S. commercial markets which we expect to drive our growth. Water is essential to mining operations from the earliest development through operations and closure. In the U.S., there is renewed investment in domestic rare earths and critical minerals, including funding of the $7.5 billion of incentives from the One Big Beautiful Bill. Our sustainable mining services span feasibility, water sourcing, and permitting through operations, tailing stability, mine closure, and cleanup. We help our clients reduce their water use, expand recycling, and manage long-term environmental risks.

We expect to see continued growth in the U.S. power transmission market, where we’ve supported more than 15,000 miles, representing more than 15 GW of capacity, from early-stage feasibility through high-voltage engineering solutions. Our in-demand high-voltage engineering services help utilities improve reliability and reduce transmission losses and congestion. We are supporting industrial facilities across the U.S. to modernize digital systems to support future AI-enabled automation and greater operational efficiency. Emerging cybersecurity concerns about interconnected systems are further driving this investment. We provide specialized expertise to commercial clients and data centers, power generation, oil and gas, and mining, helping them modernize systems and secure infrastructure assets. I’d now like to present our guidance for the first quarter and fiscal year 2027. Our guidance is as follows. For the first quarter, net revenue guidance is from $1.04 billion to $1.08 billion. Earnings per share guidance is from $0.36 to $0.38.

For fiscal year 2027, our net revenue guidance is from $4.425 billion to $4.625 billion, and earnings per share guidance is from $1.65 to $1.80. You can read the FY 2027 assumptions on our slide, but I’ll highlight a few. Intangible amortization of $24 million, depreciation of $25 million, interest expense of $30 million-$35 million, and an effective tax rate of 27.5%. Please note, this guidance does not include contributions from future acquisitions. In summary, we had a strong finish to the 2026 year and ended the year with 13% growth in funded backlog. Demand for reliable water, a cleaner environment, and resilient infrastructure continues to expand, from communities securing water supplies to manufacturers and utilities improving efficiency. Our technical depth, longstanding client relationships, and existing contract vehicles allow us to respond as priorities change.

That combination supports our growth and margin objectives for fiscal 2027 and beyond. I would now like to open the call for questions. Sachin?

Moderator: Thank you. The question and answer session will begin now. Please be aware that there will be a 30-second pause in our webcast to allow for buffering. At this time, audio participants are invited to submit their questions. Please remember to mute the audio function on your computer before you speak. If you are using a speakerphone, please pick up the handset before pressing any numbers. If you would like to ask a question, press star one on your touch-tone phone. The first question is from Tim Mulrooney from William Blair. Please go ahead.

Tim Mulrooney, Analyst, William Blair: Roger, Steve, good morning.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Morning.

Steve Burdick, Chief Financial Officer, Tetra Tech: Hi.

Tim Mulrooney, Analyst, William Blair: I wanted to ask about the I have two questions. First one’s on the backlog, which up 13% year-over-year, book-to-bill above one again. The backlog growth, nice pickup compared to the last couple of quarters. Can you talk about what’s driving the strength there? I know you addressed it a little bit in your prepared remarks, but would love to get a little bit more detail on the types of orders that are coming in and what you are seeing.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Thanks, Tim. It is a great question. One of the things I am most excited about in terms of starting FY 2027 is the continued growth in our backlog. Beyond a number, to me, that represents the projects that our staff are winning with our clients. It represents the confidence our clients have in our capabilities and our technical differentiation to continue to grow our business. The backlog growth really was broad-based across all of our end markets. Just as a reminder, our backlog is reported as contracted funding, funded and authorized projects. These are projects that our staff can begin working on now. So it is a very strong metric for us to see three quarters of sequential growth puts us on a trajectory for growth into FY 2027.

What was driving that were, as I said, broad-based awards across all of our end markets, including U.S. federal awards for resilient infrastructure, continued growth around municipal water work, commercial energy, and environmental work. You will note from the slides in my prepared remarks, we had $614 million in commercial task orders. Tetra Tech does over 100,000 projects a year, so this type of growth is important because it represents broad support for growth across all of our end markets.

Tim Mulrooney, Analyst, William Blair: Yeah. Got it. Understood. Appreciate the broad-based nature of it, not overly concentrated in any given area. The other question that I had is, switching gears a little bit, it is just a technical guidance question around the U.S. federal business. It looks like it is expected to grow 5% year-over-year, and that includes Ukraine Department of State revenue. I know you are not breaking out Ukraine anymore specifically, but I wanted to make sure that your guidance assumes less Ukraine revenue right now versus 2026. I guess in essence, that Ukraine is assumed to be a headwind in your guide and not additive to revenue growth in your guidance assumption. So that we can understand how the rest of the U.S. federal business is expected to perform.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Great. Thanks. Another great question. FY 2026 was a transition year for us. We came off FY 2025 where USAID was shuttered, and through FY 2027, our base business grew in the U.S. federal space quite nicely. However, through the year, and we reported that on a pro forma basis. Moving into FY 2027 now, we want to report all in, and that is what you see in these forecasted growth rates, is our all-in performance, not pro forming out any specific programs or projects. Department of State is an ongoing client for Tetra Tech. That is where the work that you refer to, the Ukraine work lies. It is with Department of State. You are right, if you look at, because we did break out last year what we did for Ukraine, it is in the package. While we are now reporting all in, we are not breaking it out any longer.

I think we do expect less this year, so it is a bit of a headwind, which to me means our underlying business in federal is actually growing at a greater rate than 5%. We do have a bit of a headwind, but we are committed to reporting and delivering on an all-in basis this year.

Tim Mulrooney, Analyst, William Blair: Okay. That is really helpful, Roger. Thank you. We do not need the exact number, but it is helpful to know whether or not that is a headwind or additive to growth. It helps us kind of hone in on how the underlying business is doing. Thank you for taking my questions and good luck next quarter.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Thank you.

Moderator: The next question is from Sabahat Khan from RBC Capital Markets. Please go ahead.

Sabahat Khan, Analyst, RBC Capital Markets: Great. Thanks and good morning. Given some of the evolution in the backdrop, with the elections and stuff, can you just, based on past experience, talk about how long it takes for the new administration, new Congress to start to make changes? How are you thinking about that as it is reflected in your guidance? Just curious the timeline usually with these administration changes, people changing in seats, and the kind of impact that could have on the next quarter or few quarters. Thanks.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Yeah. Great question, Sabahat. Thank you. Good morning. Yeah, I have been with Tetra Tech for 35 years now. Came up through operations and have lived through, and I would say grown through, multiple, many administration changes. To your point, the key, I think, for us is our strong backlog, because that will carry us and carry our growth through a transition period. The federal government and state and local governments with federal co-funding will continue to award work during the period. We do expect a transition. The timing is unique with each transition, I think. For us, the results of the midterm elections seem favorable. If you look at the platform on which many of the candidates ran, it included affordability. This is water and energy affordability, and included environmental issues as well.

We see it as a net long-term positive for the growth of Tetra Tech, so we are excited about that. We are cognizant that we are in a transition. There is a dynamic between the congressional arm of our government and the executive arm of our government, so we are cognizant of that, which could affect the transition and the allocation of new programs from this new Congress. There is a lot of complexity to what is going on. In my experience, having been here for as long as I have, I have not seen such a dramatic shift or such a dramatic dynamic between the internal parties in the U.S. government. However, net positive, very exciting for Tetra Tech and the services that we provide over the long term.

Perhaps in the second half of the year, we might start to see some impact from this transition in terms of additional growth to our business.

Sabahat Khan, Analyst, RBC Capital Markets: Great. Thanks. Over the, I think, kind of related to that, over the last while, there’s been some commentary about the federal government maybe not stepping up on the funding front for state and local entities, water utilities being a part of that mix. At this point, how much of maybe the missing funding or lack of funding have they been able to offset, and where do they stand on just the ability to fund some of these programs, and how’s that sort of reflected in your next year’s guidance? Is the outlook there maybe perhaps tied to the elections as that could maybe improve? Just an update on sort of the state and local, what is water utilities are just broadly that customer group. Thanks.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Sure. Well, our municipal water practice continues to grow at double digits. We haven’t seen any change in the growth trajectory there. It continues to be very, very strong. There is a proposed budget that would affect co-funding of federal dollars to the U.S., the state municipal programs, but that’s not in effect yet. That’s just been proposed. I’ll say that last year, the federal government made the same proposal, and that was with an all-Republican Congress, yet the State Revolving Fund was funded at the same level as the prior year. This year, we’ll have a Congress that might be more favorable to funding those programs, those grant programs. We don’t have the final budget yet, and who knows when we’ll get it, I guess.

Meanwhile, our clients have shifted towards state and local sources of funding, and it’s resulted in us continuing to see double-digit growth in our municipal water program. That part of it is very big. Now, if you keep in mind that the U.S. state and local components, 12% of our business, is the smallest part of our business, it’s a bit sensitive to fluctuations. Where we are seeing impact from the federal grant programs is in the disaster preparedness and planning work that we’ve seen, and that’s resulted in the muted growth rate that we’ve offered for the coming year for U.S. state and local. Water programs remains robust, very strong double-digit growth. Some of these grant programs for disaster planning and preparedness are causing us to be a little bit more prudent in our growth forecast for that being our smallest area of the company.

Sabahat Khan, Analyst, RBC Capital Markets: All right. Maybe just one quick clarification one. As we think about some of the Department of State work, like we reflected in the outlook here, the guidance commentary, is that built into the backlog? Is that more of just like a book and burn on a short-term basis? Understanding it’s in the backlog to some extent or in the guidance outlook to some extent, how does it flow through the backlog numbers? Thanks, and I’ll pass it along.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Yes. The answer is we are reporting all in moving forward, and so that Department of State work is in our backlog. I do not know if, Steve, you wanted to offer a little more detail around that, because we are, I guess, conservative about the amount of backlog that we have put in for that Department of State work, just given the political uncertainties around the geopolitical relationships in the countries involved.

Steve Burdick, Chief Financial Officer, Tetra Tech: Yeah. I think our backlog for the Department of State reflects what we think is going to be realized as revenue over the next fiscal 2027. So, there is something in there, but we have a great amount of capacity, but the amount of backlog does support the guidance in our revenue.

Sabahat Khan, Analyst, RBC Capital Markets: Thanks very much.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Thanks, Alan.

Moderator: The next question is from Sangita Jain from KeyBanc Capital Markets. Please go ahead.

Sangita Jain, Analyst, KeyBanc Capital Markets: Great. Thank you for taking my questions. First, can I ask on reconciling the growth outlook for 2027 versus the 13% increase in backlog? Why should we not expect a stronger growth rate since your backlog, like you said, Roger, is all funded and ready to start work on?

Roger Argus, Chief Executive Officer and President, Tetra Tech: Right. It is a great question, Sangita, and good morning. The reason for that is that some of the work that we were awarded in Q4 in particular, and in the second half of FY 2026, is multi-year work. These are longer duration projects that will extend over more than one year. That is one component of it. The other is for work that was awarded in particular in the second half of the year, Q4. There is a ramp rate to some of the projects that we have. We do not start necessarily at the full burn rate, but typically you start a project with work plan preparation, scoping discussions with the client before you start into the more revenue-intensive parts of the project. It is those two components that cause the phenomenon that you see.

One is longer duration projects that are multi-year, and the other is the ramp associated with new project startup.

Sangita Jain, Analyst, KeyBanc Capital Markets: Got it. That is helpful. Just to follow up on the segment growth rates that were included in the presentation, especially the state and local, where you expect flat. I understand that the growth has been decelerating, but is there anything in particular on the federal funding that has a specific cliff heading into 2027? Since you said municipal is at double digits, I am trying to figure out what in particular is driving this conservative flat outlook for 2027.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Right. As I said, what is muted that growth rate for us is the disaster preparedness work. That work, just to provide a little detail, is when there are The U.S. government has a peculiar way of funding disaster planning and preparedness. They fund it through disaster response funding after a disaster happens. What we see is when there are disasters, there is 6% or 7% of the federal disaster funding that comes that is earmarked to state and local agencies for disaster planning, preparedness, and mitigation work, right? When you do not have disasters, that funding does not come. Part of what we have seen is that in September, I think, of calendar year 2027, there were no named major hurricanes, for example. This was the first time in about 114 years where there were no named hurricanes. So it was a very sparse disaster season in the last year.

What that resulted in is minimal federal funding for disaster recovery because there were none, which meant there was none of this funding for planning and mitigation work to the states. So that is one component of it. The other is just the administration’s policies on issuing grant funding through FEMA for disaster work, which has been down year-over-year. So that is causing the year-over-year comp issue and the associated flat U.S. state and local rate that we put forward in our materials here. I will reiterate that our municipal water program continues to grow in a robust fashion at double-digit rates. It is very strong for us.

Sangita Jain, Analyst, KeyBanc Capital Markets: Got it. Thank you so much.

Moderator: The next question is from Ryan Connors from Northcoast Research. Please go ahead.

Ryan Connors, Analyst, Northcoast Research: Great. Thanks for taking my question, and congratulations on the great numbers in the backlog especially. Really validates a lot of what you’ve been talking about the last year or so. I wanted to follow up on an earlier question there regarding the midterm impacts, and specifically talk about USAID. Roger, you talked about this divergence between the parties you’ve never seen. Certainly, USAID is an example of that. We’re already hearing about there’s going to be an investigation of Musk over how DOGE handled USAID, although there’s no talk yet about actual reinstating the agency, but there’s some talk about bringing back some of that funding. Anything you’re hearing on that besides some of the broader news flow that’s been out there in the last 48 hours on that specific item?

Roger Argus, Chief Executive Officer and President, Tetra Tech: That’s a really good question. Yeah, we see the news flows on that. It’s a logical presumption perhaps that the Democratic Congress would be interested in that. For us, honestly, there’s nobody at USAID to talk to about it. They’re not there anymore. The agency doesn’t exist. It may have a website, but there’s nobody there. Our client is the Department of State. The Department of State is still funding projects for us, and we’ve mentioned a few on this call, and is an active client where we have contract capacity. So we stand ready to support the Department of State should projects, opportunities become available.

I think that there is a long path between congressional sentiment, allocation of funds, and approval of task orders through the federal government, which is, I would just say, I don’t know if you use the word controlled or strongly influenced in terms of what contracts get issued by the administration, right? I don’t see anything in the near term that would suggest that there’ll be a resurgence of the development work that we’ve seen in the past.

Ryan Connors, Analyst, Northcoast Research: Got it. Okay, that is helpful. My other one, I wanted to ask about cybersecurity. Obviously, a hot topic here with AI driving all these hacks, and now we have espionage sort of tied up and intermingled with that whole industry. I know SAGE, when you acquired them, had significant cybersecurity exposure. Can you talk about what percentage of your total net revenue today comes from cybersecurity-related consulting, and what your capacity is there, and how big that could get, and sort of any metrics you can put around that and talk about the growth rates and the sizing? That would be helpful.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Cybersecurity is a driver for the technical work that we provide for our clients. Concerns around cybersecurity, every time there is a new hack into a water system or a refrigerator or whatever, our water clients in particular, all of the industrial facilities, tend to get outreach, get interest, because the type of work that we do in digital automations and systems integration has to do with upgrading facilities in terms of their operational technology, SCADA systems, programmable logic controllers, and control dashboards. Many of these systems are older, so the modernization of these systems includes a component of cybersecurity. It is embedded in the work that we do for our clients and addresses both our water clients, industrial clients, and even environmental systems, and whatever, and all sort of data collection systems that we support, there is an element in it.

We do not break it out as what part is cybersecurity. It is embedded into everything that we do with our clients when it comes to electronic systems.

Ryan Connors, Analyst, Northcoast Research: Got it. Okay. Just in terms of as a growth driver, I mean, is it something that is contributive, like look at the backlog growth or whatever we are looking at? I mean, is that something that is meaningful in terms of an incremental boost to the rate of growth?

Roger Argus, Chief Executive Officer and President, Tetra Tech: Yes, I would absolutely agree with that. The concerns over cybersecurity are another prompt among many for our industrial clients, including the water clients, to upgrade their systems. The initial and one of the primary drivers there is efficiency. It is about efficiency in terms of whether it is water production or treatment, efficiency and cost savings. In the industrial space, it has to do with efficiency of water use and energy efficiency, right? That is a primary driver. A co-driver with that is the cybersecurity component of making sure that the systems that they are using are safe and secure.

Ryan Connors, Analyst, Northcoast Research: Very clear. Thank you for your time.

Moderator: The next question is from Michael Dudas from Vertical Research Partners. Please go ahead.

Michael Dudas, Analyst, Vertical Research Partners: Yes. Good morning, gentlemen.

Steve Burdick, Chief Financial Officer, Tetra Tech: Hi there.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Good morning, Michael.

Michael Dudas, Analyst, Vertical Research Partners: Roger, maybe you can, we’ve been going around your business here. Maybe you can share a few more observations on your international opportunities, your puts and takes. It seems like the government programs in your important countries are doing really well. Is commercial still, maybe could be better kind of situation? What could be potential upside to your 5% revenue growth target in the international business and where that could come from and how that could maybe impact margin performance in your fiscal year 2027?

Roger Argus, Chief Executive Officer and President, Tetra Tech: That’s a great question, Michael. We see growth in all of the geographic end markets. I’ve mentioned some of it. I can kind of walk through a bit. In the U.K., E.U., the primary growth driver remains the U.K. and E.U. water programs that I mentioned earlier that continue to grow at a strong rate. The commercial opportunities, I’ve mentioned the $614 million in new awards in Q4. That’s global commercial work that’s come in. So we see commercial opportunities as well in all of the end markets in the U.K. and E.U. Commercial has been growing for us. Water’s the primary driver. In Canada, as I’ve mentioned, we’re seeing dramatic increases in infrastructure funding becoming available, and that has to do with coastal resiliency and coastal development, energy infrastructure, and water-related work on the northern borders of Canada as well.

Then in Asia-Pacific, mining, which is predominantly commercial, is a growth area, as well as digital automation. I will just make a comment. The digital automation work that we are doing is across all of our geographies now, and it is actually across all of our client bases as well. The digital automation, we do work for federal governments, we do work for municipalities and commercial clients alike in the automation of their systems, having to do with optimization as well as the cybersecurity element that we just spoke about. In the different end markets, those are the areas where we see growth.

Michael Dudas, Analyst, Vertical Research Partners: Excellent. Thank you, Roger.

Moderator: The next question is from Sangita Jain from KeyBanc Capital Markets. Please go ahead.

Sangita Jain, Analyst, KeyBanc Capital Markets: Yeah. Hi. Thank you. I just had one follow-up. I feel like we have covered all the segments, and in commercial, where you are seeing the highest growth rate into 2027, you talk about water automation and high voltage power. Just wondering what you are seeing on the renewables front, and if there is a reemergence of demand for your services there that you have seen maybe.

Roger Argus, Chief Executive Officer and President, Tetra Tech: We continue to do work in the renewables space for sure. A renewed demand or growth for renewables, I don’t think we’re there yet. Again, we continue to do work. We have the technical capacity and capability. We’re still doing work for clients that are forging ahead on projects that are underway, so that continues. I think that for renewable, for example, offshore wind, there are still roadblocks in place by the federal government that are muting potential growth opportunities in that space.

Sangita Jain, Analyst, KeyBanc Capital Markets: Got it. Thanks so much.

Moderator: This will conclude the Q&A session. I will now turn the conference back over to Roger Argus to conclude.

Roger Argus, Chief Executive Officer and President, Tetra Tech: Thank you, and thank everybody for your questions and continued interest in Tetra Tech. We’re looking forward to a very good FY 2027, and I look forward to speaking with you again next quarter. Thank you.