trc q4 2014 earnings slides final
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Trc q4 2014 earnings slides finalTRANSCRIPT
Q4 Fiscal 2014 Investor Review
September 10, 2014
T R R
Chris Vincze Tom Bennet Chairman & CEO Chief Financial Officer
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.
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
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
Envi
ronm
enta
l Seg
men
t
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
Ener
gy S
egm
ent
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
Infr
astr
uctu
re S
egm
ent
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
$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
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
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
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
$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
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
$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
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
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
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
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.