Earnings Recap — Q3 FY2026
CY Q3 2026 · Reported July 29, 2026 · Beat 6 of last 7 quarters
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Tetra Tech's expanding data center work—from feasibility studies to power and water supply—signals growing demand for front-end engineering services tied to AI infrastructure. The company's backlog growth and raised guidance suggest sustained investment in water and power infrastructure to support data center development, which could benefit the broader AI infrastructure buildout.
Tetra Tech delivered a strong Q3 with net revenue of $1.1B and adjusted EPS of $0.42, both above guidance. Growth was driven by double-digit increases in U.S. federal and international markets, while U.S. commercial grew only 1% due to renewable energy declines. Backlog increased $208M sequentially to ~$4.5B, supported by Army Corps of Engineers contracts, a major PFAS treatment project, and commercial data center and sediment restoration orders. Operating cash flow reached a record $467M YTD, and the company raised FY2026 guidance.
Management raised full-year FY2026 guidance: net revenue now $4.315B–$4.365B (up 8% y/y at midpoint) and adjusted EPS $1.56–$1.59. Q4 guidance: net revenue $1.12B–$1.17B, adjusted EPS $0.45–$0.48. They expect continued margin expansion (70 bps y/y at midpoint) and have a long-term strategic goal of improving EBITDA margins by 50 basis points annually. Backlog growth provides visibility into Q4 and the new fiscal year, though management declined to comment on FY2027. They highlighted strong demand in water, hydropower, digital automation, data centers, and mining, while noting continued federal contracting bottlenecks and caution around potential cuts to federal co-funding for state and municipal water programs.
“We had a strong third quarter with growth primarily driven by our U.S. federal and international end markets, both of which increased at double-digit rates.”
on Quarterly performance
“For us, AI is an enabler for our technical experts. You'll notice and I described what we do, we are not the downstream commodity design company that has an offshore center of excellence that does routine type design work that is repetitive and potentially displaced by AI.”
on AI impact
“We see the scope of work that we provide for data centers is expanding -- we started with more of the engineering commissioning type work, expanded into feasibility studies... and now doing... work related to power and water supply associated with the development of new data centers.”
on Data center opportunities
We saw the backlog was up year-over-year for the first time in several quarters and up sequentially now for 2 quarters in a row. Can you talk about the primary drivers behind that backlog growth?
Roger highlighted continued backlog growth across all end markets, citing recent wins like the PFAS treatment system in Dayton, digital automation in Los Angeles, and a $27M FAA award. He noted commercial orders for data centers and sediment restoration, with initial funding for longer-term multiyear programs.
Can you talk through the operating backdrop for U.S. government and private sector customers, and how it compares to this time last year?
Roger noted the federal government is still constrained by contracting office staffing bottlenecks and uncertainty around the administration, though the budget is in place. Commercial clients are cautious due to regulatory uncertainty, but Tetra Tech has seen strong commercial awards despite headwinds.
How should we think about margin expansion potential for FY2027, given the 70 bps improvement this year?
Steve said the company remains on track for ~50 bps annual EBITDA margin improvement, though some years may be higher or lower. He noted historical improvements of 70-80 bps in recent years and expects FY2027 to be around 50 bps, with more clarity when guidance is provided.