Companies
Tetra Tech Says It Is Collecting Lots of Cash, and Faster
Tetra Tech water treatment services provide much of the company's broad and diverse environmental engineering-related revenue.
Photo: Getty Images/DSCimage
Tetra Tech seems to have everything going for it lately: Revenue is up, the company completed a five-for-one stock split earlier this month and even the Loper Bright U.S. Supreme Court decision in June that ends Chevron deference to federal regulators, counterintuitively, could bode well for its assortment of environmental consulting services.
The company also reported two enviable financial and cash-management statistics: operating cash flow and days needed to collect invoice payments, also called days sales outstanding. Tetra Tech says it collects payments more than three weeks faster than the industry average.
In its August third-quarter earnings conference call, Tetra Tech (TTEK: NASDAQ) executives reported revenue of $3.82 billion for the first nine months of 2024, up 17% from the prior year, and operating income of $357 million, up 43%.
But the executives were especially pleased by the cash flow and speed at which Tetra Tech gets paid for its services. Steve Burdick, chief financial officer, said that over the last 12 months, cash flows exceeded net income by more than 100%. "When we look back over the last—our historical financial results, we noted that cash flow from operations has exceeded net income every fiscal year for the last two decades."
According to the website Investopedia, "although many investors gravitate toward net income, operating cash flow is often seen as a better metric of a company's financial health because [it] is harder to manipulate under ... than net income."
Net income is calculated by subtracting expenses, taxes, and costs of goods sold from total revenue. Cash flow from operating activities is calculated by subtracting operating expenses from revenues.
Tetra Tech's days sales outstanding is "an industry leading 54 days versus the industry average of about 80 days," Burdick told investment analysts. This "historical low [metric] for working capital is sustainable over the long-term."
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The quick collection, he added, "reflects the outstanding work that our project managers lead."
Tetra Tech ranks third on the ENR Top 500 Designers of 2024, behind only Jacobs Solutions and AECOM.
Chevron Doctrine Decision
The impact of the Loper Bright decision, which overturned the long-held legal Chevron case doctrine that has directed courts to defer to a federal agency’s expertise in regulation setting when legislative language is unclear or ambiguous, still is being weighed.
But Burdick told investment analysts that while there still could be ramifications for Tetra Tech, most probably would not harm the firm and could potentially increase firm business.
Much of the service Tetra Tech performs in environmental compliance is for state or local agencies and is regulated at those levels, so the decision only affects a small part of the company's business.
Because all of the Pasadena, Calif.-based firm's largest programs are for the U.S. federal government, Burdick also sees no major downside for that work.
Finally, if a company or agency is going to contest a regulator's interpretation of a law in court, attorneys will be needed but also data and science support, he added.
"So it may actually bode ... very well for Tetra Tech, with respect to who you want to bring in to support your interpretations to the courts," he noted.
