Trc q4 2014 earnings slides final
- 1. Q4 Fiscal 2014 Investor Review September 10, 2014 TRR Chris Vincze Tom Bennet Chairman & CEO Chief Financial Officer
- 2. Safe Harbor Statement 2 Certain statements in this presentation may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these statements by forward-looking words such as "may," "expects," "plans," "anticipates," "believes," "estimates," or other words of similar import. You should consider statements that contain these words carefully because they discuss TRC’s future expectations, contain projections of the Company’s future results of operations or of its financial condition, or state other "forward-looking" information. TRC believes that it is important to communicate its future expectations to its investors. However, there may be events in the future that the Company is not able to accurately predict or control and that may cause its actual results to differ materially from the expectations described in its forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including, but not limited to, the uncertainty of TRC’s operational and growth strategies; circumstances which could create large cash outflows, such as contract losses, litigation, uncollectible receivables and income tax assessments; regulatory uncertainty; the availability of funding for government projects; the level of demand for TRC’s services; product acceptance; industry-wide competitive factors; the ability to continue to attract and retain highly skilled and qualified personnel; the availability and adequacy of insurance; and general political or economic conditions. Furthermore, market trends are subject to changes, which could adversely affect future results. See the risk factors and additional discussion in TRC’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014, Quarterly Reports on Form 10-Q, and other factors detailed from time to time in the Company’s other filings with the Securities and Exchange Commission. These slides are intended as a visual aid to TRC’s commentary on the Fourth Quarter and Fiscal Year 2014 Financial Results Conference Call. As such they should be considered in the full context of that commentary, the transcript of that conference call and TRC’s Annual Report on Form 10-K and fourth quarter Financial Results Press Release. Also, this presentation contains references to non-GAAP metrics such as EBITDA, gross margin, adjusted EPS and free cash flow. A reconciliation of GAAP to non-GAAP metrics can be found on slide 17.
- 3. Q4 and Full Year Fiscal 2014 Overview 3 Q4 2014 NSR1 increased 9% YOY to $94.5M (1) TRC believes net service revenue (gross revenue less subcontractor costs and other direct reimbursable charges) best reflects the value of services provided to its customers and is the most meaningful indicator of its revenue performance. Q4 2014 operating income increased 45% YOY to $9.0M & EBITDA increased 38% YOY to $11.2M NSR backlog increased 4% YOY to $257M FY 2014 NSR1 increased 11% YOY to $355.0M FY 2014 operating income increased 13% YOY to $20.9M & EBITDA increased 17% YOY to $29.7M
- 4. TRC’s Diversified Business Model 4 $34.5M 37% $45.6M 49% $12.5M 14% Net Service Revenue by Segment Environmental Energy Infrastructure $170.5M 49% $132.8M 38% $47.0M 13% Q4 Fiscal 2014 Fiscal Year 2014 Total NSR: $94.5M Total NSR: $355.0M
- 5. Environmental Segment 5 $44.9 $45.6 $163.2 $170.5 Q4 2013 Q4 2014 FY 2013 FY 2014 Net Service Revenue (in millions) $8.8 $9.4 $30.8 $35.3 Q4 2013 Q4 2014 FY 2013 FY 2014 Segment Profit (in millions) Segment Drivers Continued development of upstream, midstream and downstream oil & gas markets Increased permitting and power plant decommissioning activities Proposed EPA rule: Carbon Pollution Emission Guidelines Re-emergence of industrial, real estate and construction markets Segment Challenges Finding talent Ongoing uncertainties with energy policy and environmental regulations Pricing pressures Federal and overall public sector funding remains down Q4 Fiscal 2014 Results NSR +2% YOY Increased demand for remediation and pipeline permitting services Strong performance on fixed-price projects Segment profit +7% YOY
- 6. Energy Segment 6 $29.2 $34.5 $109.8 $132.8 Q4 2013 Q4 2014 FY 2013 FY 2014 Net Service Revenue (in millions) $6.4 $7.2 $23.3 $26.5 Q4 2013 Q4 2014 FY 2013 FY 2014 Segment Profit (in millions) Segment Drivers Expanding utility capital spend programs on aging transmission and distribution infrastructure Greenhouse gas rule Dynamic revolution in domestic fuel supplies driving shifts in use of utility assets (e.g. Coal ↓, Natural Gas ↑, Renewables ↑, Efficiency ↑) Segment Challenges Pricing pressure and aggressive terms and conditions by utilities, especially foreign owned Uncertainty related to use of utility capital Clients’ technical capacity and strategy to manage projects Larger competitors entering space Finding talent Q4 Fiscal 2014 Results NSR +18% YOY Increased demand for testing and commissioning services Geographic expansion of our suite of segment service offerings Segment profit +11% YOY
- 7. Infrastructure Segment 7 $11.7 $12.5 $44.2 $47.0 Q4 2013 Q4 2014 FY 2013 FY 2014 Net Service Revenue (in millions) $2.5 $2.5 $8.7 $8.8 Q4 2013 Q4 2014 FY 2013 FY 2014 Segment Profit (in millions) Segment Drivers Healthier State budgets providing for more transportation funding State and regional policies prioritizing transportation across the country Need to upgrade and repair aging infrastructure, especially bridges and roadways Expansion of transportation services Segment Challenges Significant competition Lack of long-term federal policy and funding -MAP21 expiration on September 30, 2014 -Highway trust fund Q4 Fiscal 2014 Results NSR +8% YOY Segment profit +2% YOY State government transportation-related projects Strategic hires to accommodate additional project work for several large construction engineering projects
- 8. $54 $45 $47 $58 $74 $83 $135 $126 $127 Q4 2013 Q3 2014 Q4 2014 Segment NSR Backlog NSR Backlog & New Project Wins 8 (in millions) Energy •NYSERDA •First Energy Corp. Environmental •Hoffman LaRoche Inc. •Confidential industrial client Infrastructure •OCTA •LADOT $247 $257 $245 +4%
- 9. 9 Growth Strategy 0% 5% 10% 15% 20% 25% Q1 2014 Q2 2014 Q3 2014 Q4 2014 Total Organic Total & Organic NSR Growth Recent Acquisitions Covino Environmental Associates (July 2014) EMCOR Energy Services, Inc. (January 2014) Utility Support Systems, Inc. (July 2013) •Investing in high-margin organic growth opportunities •Pursuing strategic acquisitions to enhance service offerings and geographic footprint
- 10. 10 Covino Environmental Associates, Inc. •Acquired in Q1 FY 2015 •Strengthens TRC’s position in building sciences and industrial hygiene services •Provides additional resources and skills to better serve the growing decommissioning and real estate markets •Enhances footprint in the Northeast •Solid reputation in education and healthcare markets •Approximately 40 employees •Based in Woburn, MA
- 11. Summary and Key Initiatives 11 •Invest in high-margin organic growth opportunities across all three segments •Increase focus on strategic markets: •Oil & Gas – Expansive market opportunities •Utility/Power – Aging and inefficient transmission and distribution systems require long-term capital investments •Transportation – Modernizing national transportation and energy delivery systems continues to be a focus of both the public and the private sectors •Continue to pursue strategic acquisitions that provide geographic expansion opportunities and enhanced technical capabilities •Consistent and improving financial performance for past three years
- 12. $86.9 $94.5 Q4 2013 Q4 2014 Net Service Revenue (in millions) Quarterly Financial Results Overview 12 $8.1 $11.2 Q4 2013 Q4 2014 EBITDA (in millions) $6.2 $9.0 Q4 2013 Q4 2014 Operating Income (in millions) +9% +45% +38% (1) Prior period was affected by a deferred tax asset valuation allowance which substantially reduced the effective tax rate. Adjusted EPS shows, for comparative purposes, prior period results as if they were affected by TRC’s current annual estimated tax rate. See page 17 for reconciliation. $0.83 $0.12 $0.17 Q4 2013 GAAP Q4 2013 Q4 2014 GAAP Diluted GAAP & Adjusted EPS +$0.05 Adjusted non-GAAP1
- 13. Q4 2013 $86.9 $0.8 $69.8 19.6% $9.8 $6.2 $8.1 9.3% $18.7 42.0% $24.8 $0.83 $0.12 13 Net service revenue Insurance recoverables and other income Cost of services (COS) Gross margin % General and administrative expenses Operating income EBITDA EBITDA as a % of NSR Federal and state income tax benefit (provision) Adjusted effective tax rate1 Net income Diluted earnings per common share Adjusted diluted earnings per common share Q4 2014 $94.5 $0.3 $77.2 18.3% $6.4 $9.0 $11.2 11.8% $(3.9) 43.7% $5.0 $0.17 $0.17 (In millions, except per share data) Quarterly Income Statement Highlights (1) Prior period was affected by a deferred tax asset valuation allowance which substantially reduced the effective tax rate. Adjusted EPS shows, for comparative purposes, prior period results as if they were affected by TRC’s current annual estimated tax rate. See page 17 for reconciliation. $86.9 $94.5 80.4% 81.7% Q4 2013 Q4 2014 Cost of Services as % of NSR $86.9 $94.5 11.2% 6.8% Q4 2013 Q4 2014 G&A Expenses as % of NSR
- 14. $1.23 $0.36 $0.40 FY 2013 GAAP FY 2013 FY 2014 GAAP Diluted GAAP & Adjusted EPS Adjusted non-GAAP1 $320.4 $355.0 FY 2013 FY 2014 Net Service Revenue (in millions) Full Year Financial Results Overview 14 $25.5 $29.7 FY 2013 FY 2014 EBITDA (in millions) $18.6 $20.9 FY 2013 FY 2014 Operating Income (in millions) +13% +17% +11% (1) Prior period was affected by a deferred tax asset valuation allowance which substantially reduced the effective tax rate. Adjusted EPS shows, for comparative purposes, prior period results as if they were affected by TRC’s current annual estimated tax rate. See page 17 for reconciliation. +$0.04
- 15. FY 2013 $320.4 $4.5 $268.5 16.2% $30.7 $18.6 $25.5 7.9% $18.0 41.9% $36.3 $1.23 $0.36 15 Net service revenue Insurance recoverables and other income Cost of services (COS) Gross margin % General and administrative expenses Operating income EBITDA EBITDA as a % of NSR Federal and state income tax benefit (provision) Adjusted effective tax rate1 Net income Diluted earnings per common share Adjusted diluted earnings per common share FY 2014 $355.0 $17.9 $312.1 12.1% $31.1 $20.9 $29.7 8.4% $(8.7) 42.0% $12.1 $0.40 $0.40 (In millions, except per share data) Full Year Income Statement Highlights $320.4 $355.0 83.8% 87.9% FY 2013 FY 2014 Cost of Services as % of NSR $320.4 $355.0 9.6% 8.7% FY 2013 FY 2014 G&A Expenses as % of NSR Exit Strategy Change in Estimate Net Service Revenue $ (6.9) Insurance Recoverables 17.3 Cost of Services 10.4 Operating Income $ - (1) Prior period was affected by a deferred tax asset valuation allowance which substantially reduced the effective tax rate. Adjusted EPS shows, for comparative purposes, prior period results as if they were affected by TRC’s current annual estimated tax rate. See page 17 for reconciliation.
- 16. 16 Balance Sheet Highlights Cash and cash equivalents Days sales outstanding (DSO) Cash Flow Highlights Cash flow from operations Capital expenditures Free cash flow FY 2013 $18.1 83 days $14.4 $(3.9) $10.5 FY 2014 $27.6 84 days $21.4 $(5.1) $16.3 (In millions) Balance Sheet and Cash Flow Highlights Q4 2013 $11.0 $(1.2) $9.8 Q4 2014 $18.2 $(1.3) $16.9
- 17. Reconciliation of Non-GAAP Measures 17 In millions Q4 - 2013 Q4 - 2014 FY - 2013 FY - 2014 Net income applicable to TRC Companies, Inc.'s common shareholders $24.8 $5.0 $36.3 $12.1 Interest expense 0.1 0.1 0.3 0.2 Federal and state income tax (benefit) provision (18.7) 3.9 (18.0) 8.7 Depreciation and amortization 1.9 2.2 6.9 8.8 Net loss applicable to noncontrolling interest (0.0) (0.0) 0.0 (0.1) Consolidated EBITDA $8.1 $11.2 $25.5 $29.7 In millions Q4 - 2013 Q4 - 2014 FY - 2013 FY - 2014 Net service revenue $86.9 $94.5 $320.4 $355.0 Cost of services 69.8 77.2 268.5 312.1 Gross Margin $17.1 $17.3 $51.9 $42.9 Gross Margin % 19.6% 18.3% 16.2% 12.1% Q4 - 2013 Q4 - 2014 FY - 2013 FY - 2014 Reported diluted earnings per common share $0.83 $0.17 $1.23 $0.40 Less: Adjustment to normalize effective tax rate (eliminate tax valuation allowance) (0.71) - (0.87) - Adjusted diluted earnings per common share $0.12 $0.17 $0.36 $0.40 Weighted-average common shares outstanding 29,766 30,290 29,601 30,140 In millions Q4 - 2013 Q4 - 2014 FY - 2013 FY - 2014 Cash flow from operations $11.0 $18.2 $14.4 $21.4 Additions to property and equipment (1.2) (1.3) (3.9) (5.1) Free Cash Flow $9.8 $16.9 $10.5 $16.3 Earnings Before Interest, Taxes, Depreciation, Amortization Gross Margin and Gross Margin % Free Cash Flow Adjusted EPS 17
- 18. Definitions for Non-GAAP Measures 18 Earnings Before Interest, Taxes, Depreciation, Amortization (EBITDA) As used in the presentation, EBITDA is operating income plus depreciation and amortization. Note that a separate, modified non-GAAP term “Consolidated Adjusted EBITDA” is specified in the Company’s revolving credit agreement. Gross Margin and Gross Margin % The definition of Gross Margin is equal to Net Service Revenue less Cost of Services. Gross Margin % is equal to Gross Margin Divided by Net Service Revenue. Free Cash Flow The definition of Free Cash Flow is equal to net cash provided by (used in) operating activities plus additions to property and equipment. Adjusted Diluted Earnings Per Common Share Adjusted Diluted Earnings Per Common Share is defined as reported earnings per common share excluding the tax impact of the reversal of a portion of the valuation allowance. We do not believe that this excluded item is indicative of our ongoing operating results, and it is not considered when we are forecasting our future results. We believe Adjusted Diluted Earnings Per Common Share is of value to our current and potential investors when comparing our results from past, present and future periods.