Pasadena-based engineering and consulting firm Tetra Tech Inc. took a major hit in the first quarter with the shutdown of its largest client, the U.S. Agency for International Development. But the company still managed to post one of its strongest quarterly earnings results as it found new business elsewhere.
In its May 8 quarterly earnings call, Dan Batrack, Tetra Tech’s chief executive, said the USAID shutdown cost the company about $1.1 billion worth of contract awards that had been part of the company’s project backlog. The shutdown also forced the company to take a $92 million impairment charge.
Yet Tetra Tech still managed to post one of its better quarters for earnings, with the third-highest earnings per share and operating revenue marks in the company’s history, a feat all the more remarkable considering January through March is typically the slowest time of the year for the company.
“We just had one of the most interesting quarters in the history of the company,” Batrack told analysts at the outset of the earnings conference call. The company’s history dates back to 1966.
“Never have we seen our largest client by revenue essentially disappear within just one quarter,” he added.
“If you’d asked me 20 years ago what would have been the impact for quarterly results of this happening, I’m not sure I could have told you, but it certainly wouldn’t have been good,” Batrack continued. “But today, in this quarter, through the incredible diversity of our clients, diversity of the services we provide and the geographies that we operate in, we had one of the best quarters in the company’s history.”
Indeed, net revenue (not including contract dollars passed through to subcontractors) rose 5% during the quarter to $1.1 billion compared with the same quarter last year, while operating income rose 11% to $130 million – despite the loss of USAID work.
Investors reacted favorably, sending Tetra Tech shares up 13% on May 8, the trading session after the earnings release and conference call. The stock has not moved significantly since then.
USAID shutdown
Tetra Tech’s challenges began the day President Donald Trump took office for his second term. One of the first executive orders he signed froze all foreign aid and called for a review of aid policy.
Batrack said Trump’s executive order resulted in immediate “stop-work” orders for most of its USAID contracts. Its employees working on those contracts were effectively in limbo, though they were still employed by the company.
Then, the Elon Musk-led Department of Government Efficiency, or DOGE, went through USAID operations, and in early February cancelled more than 100 contracts, including more than 20 contracts with Tetra Tech. The canceled contracts ranged in size from $10.2 million to $95.5 million.
And then on Feb. 27, Secretary of State Marco Rubio announced that approximately 5,200 of USAID’s 6,200 programs were being eliminated, with the rest transferred to the Rubio-led State Department. USAID was effectively shuttered.
Batrack said that was the day the status of the Tetra Tech workers on those eliminated contracts went to “termination for convenience.” He noted that the company incurred costs for that five-week period between the Jan. 20 date the stop-work orders went out and the Feb. 27 date when the contracts were terminated. He did not disclose what happened to the workers on those contracts.
Tetra Tech took those contracts out of its project backlog, which consists of work that the company has contracts for but not yet begun. And for the first time since the USAID episode began, Batrack put a number on the value of those contracts.
“Tetra Tech’s updated backlog is now…$4.31 billion,” he said. “This $4.3 billion captures the de-obligation of approximately $1.1 billion in USAID and Department of State projects.”
The company also took a non-cash, goodwill impairment charge of $92.4 million during the quarter. No specifics were offered.
Not all of Tetra Tech’s USAID work was eliminated. About $220 million remains, most of that for work in Ukraine that is part of a massive $450 million multi-year contract.
New contracts elsewhere offset loss of USAID work
USAID had been Tetra Tech’s largest single client, representing nearly 10% of all net revenue and about one-third of all the company’s work for the federal government.
Yet for the first three months of this year, net revenue from federal government work still grew 1% compared to the same period last year as work for other federal agencies grew 16%. Tetra Tech’s biggest victory in this sector came in March when the company announced it had won a slice of work on three contracts for environmental engineering services with the U.S. Army Corps of Engineers Honolulu District worth as much as $416 million. Each of these contracts involve multiple companies that are on call for individual projects as they come up.
Tetra Tech also announced and added to its backlog four other contracts with the Army Corps of Engineers during the quarter, including one with the Corps’ Los Angeles district. Most of this work is for ongoing environmental and engineering services.
The Army Corps of Engineers is now Tetra Tech’s largest single client.
Staff Reporter Mark Madler contributed to this article.
