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 The Supreme Court’s decision ending Chevron’s deference could, counterintuitively, bode well for its array 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 known as days sales outstanding (DSO). 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 for the first nine months of 2024 of $3.82 billion, up 17% from a year earlier, and operating income of $357 million, up 43%.
But the company executive was particularly pleased with the cash flow and the speed with which the company is being paid for its services.
Steve Burdick, chief financial officer, said that over the past 12 months, cash flows exceeded net income by more than 100%.
“When we look back at recent historical financial results, we noted that cash flow from operations has exceeded net income every fiscal year for the past two decades.”
Also according to the website Investopedia, “Although many investors gravitate toward net income, operating cash flow is often considered a better metric of a company’s financial health because cash flow is more difficult to manipulate under … than net income.”
Net income is calculated by subtracting expenses, taxes and cost of goods sold from total income. Cash flow from operating activities is calculated by subtracting operating expenses from revenue.
Tetra Tech’s DSO, Burdick added, is “an industry leading 54 days versus the industry average of about 80 days.”
This “historically low DSO for working capital is sustainable over the long term,” Burdick told investment analysts.
The rapid collections, he added, “reflect the excellent work our project managers are doing on higher quality projects and highly satisfied clients across our broad portfolio across all our end markets and geographies.”
Chevron Doctrine Decision
The impact of the US Supreme Court on June 28 Loper Bright July decision, which annulled the old law Chevron The doctrine that has directed courts to defer to the expertise of a federal agency in establishing regulations when the statutory language is unclear or ambiguous is still being weighed.
But Burdick told investment analysts that while there could be ramifications for Tetra Tech, most would not hurt and the company’s business could be boosted.
Most of Tetra Tech’s environmental compliance service is for state or local agencies and is regulated at the state and local level. Therefore, the decision affects only a small part of the company’s business.
And since all of Tetra Tech’s biggest programs are for the US federal government, it doesn’t see any effect for that work either.
Finally, if a company or agency is going to challenge a regulator’s interpretation and go to court, lawyers will be needed but so will data and science.
“And so it may bode … very well for Tetra Tech in terms of who you want to bring in to support your interpretations in court.”
