Q2 Fiscal 2014 Investor Review

Transcription

1 Q2 Fiscal 2014 Investor Review Chris Vincze Chairman & CEO T R R Tom Bennet Chief Financial Officer February 5, 2014

2 Safe Harbor Statement 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 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, 2013, 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 Second Quarter 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 second quarter Form 10-Q and 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 18. 2

3 Q2 Fiscal 2014 Highlights NSR (1) increased 21% YOY to $91.1M Revenue growth in all three segments EBITDA increased 24% YOY to $7.4M Operating income increased 18% YOY to $5.2M NSR backlog increased 4% YOY to $233.9M (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. 3

4 TRC s Diversified Business Model Q Net Service Revenue by Segment Environmental 49% $44.6M $11.4M $34.9M Infrastructure 13% Energy 38% 4

5 Environmental Segment Net Service Revenue (in millions) $44.6 $ % Segment Profit (in millions) $8.8 $ % Segment Drivers Greater permitting and power plant decommissioning activities Greenhouse gas rules Continued development of upstream, midstream and downstream oil & gas markets Re-emergence of industrials and related capital spend Segment Challenges Finding talent Ongoing uncertainties with energy policy and environmental regulations Pricing pressures Federal and overall public sector funding remains down 5

6 Energy Segment Net Service Revenue (in millions) $34.9 $ % Segment Profit (in millions) $7.3 $ % 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 pressures and aggressive terms and conditions by utilities Uncertainty related to use of utility capital Client capacity and strategy to manage projects Migration of larger competitors into market Finding talent 6

7 Infrastructure Segment Net Service Revenue (in millions) $11.4 $ % Segment Profit (in millions) $2.0 $ % Segment Drivers Healthy 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 expires in

8 NSR Backlog & New Project Wins $250 Segment NSR Backlog (in millions) +4% $225 $234 New Project Wins Environmental Pacific Gas and Electric CSX Kinder Morgan $200 $150 $122 $123 Energy Public Service of NH PPL Electric Utilities $100 $50 $0 $53 $65 $50 $46 Infrastructure City of Lancaster, CA Penn DOT Numerous Awards 8

9 Growth Strategy Invest in high-margin organic growth opportunities focused on: Utility/Power Oil & Gas Infrastructure Pursue strategic acquisitions to enhance service offerings and geographic footprint of all three segments Total & Organic NSR Growth 25% 20% Total Organic 15% 10% 5% 0% Q Q Q Q Recent Acquisitions EMCOR Energy Services, Inc. (EES) Utility Support Systems, Inc. (USS) Ocampo Esta Corp. (Covina operations) GE s Air Emissions Testing business Heschong Mahone Group, Inc. 9

10 EMCOR Energy Services, Inc. (EES) Acquired in Q3 FY 2014 Diversifies TRC s service offering to the energy efficiency markets Expands core program management and consulting capabilities with additional engineering resource services for utility clients Enhances footprint and technical capabilities in a key California growth market Approximately 25 employees Revenue for the calendar year 2013 approximately $4.4 million Based in San Francisco, CA (with additional location in Santa Ana, CA) 10

11 Markets Outlook Energy Solid short-, medium-, and long-term outlook Aging and inefficient transmission and distribution systems will require long term capital investments, estimated at $50B over next few years 1 New regulatory drivers, e.g., NERC and FERC 1000 will drive additional investments Environmental regulations surrounding air, water, effluents, etc. will provide continued uncertainty on capital spend direction Energy Efficiency markets estimated to grow > 10%/year over the next decade 2 Environmental Improving short-term and solid medium- and long-term outlook Energy and Industrial segment market conditions improving Federal and Public markets still declining Decommissioning expenditures will double over next few years as 150+ power plants are listed for closure 3 New regulations which set strict limits on carbon emissions by new US power plants will require significant investment US Non-federal environmental markets expected to grow between 4-5% per year over next few years 4 Infrastructure Improving short-term and solid medium- and long-term outlook State Infrastructure funding expected to grow 4-5% per year based on improving local economies 5 $3.6 Trillion required for state of good repair 6 Increasing use of Public Private Partnerships to support funding gaps Potential for National Infrastructure Bank Source: EIA/EPRI Spring 2013 Report 3 Navigant Research letter published Q Source: Environmental Business Journal (2013) 5 Source: National Association of State Budget Office (NASBO) (Spring 2013) 6 Source: American Society of Civil Engineers 2013 Report on Americas Infrastructure 11

12 CEO Summary Attractive markets offer opportunity for profitable near- and long-term growth Internal investments are delivering returns Balanced strategy to grow organically and through acquisitions Strong balance sheet and cash position Continuing to build backlog 12

13 Quarterly Financial Results Overview Net Service Revenue (in millions) $75.3 $91.1 EBITDA (in millions) $6.0 $ % +24% Operating Income (in millions) $5.2 $ % $0.14 $0.09 Diluted EPS $0.10 $0.10 GAAP EPS Adjusted EPS (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 18 for reconciliation. 1 13

14 Quarterly Income Statement Highlights (In millions, except per share data) Net service revenue Q $75.3 Q $91.1 Cost of Services as % of NSR $91.1 $75.3 Insurance recoverables and other income $0.9 $0.3 Cost of services (COS) $64.6 $76.4 Gross margin % General and administrative expenses 14.2% $ % $ % 83.8% Operating income $4.4 $5.2 EBITDA EBITDA as a % of NSR Federal and state income tax provision $ % $(0.2) $ % $(2.1) G&A Expenses as % of NSR $91.1 $75.3 Adjusted effective tax rate % 40.0% Net income Diluted earnings per common share $4.1 $0.14 $3.1 $ % 8.2% Adjusted diluted earnings per common share $0.09 $0.10 (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 18 for reconciliation. 14

15 YTD Financial Results Overview Net Service Revenue (in millions) EBITDA (in millions) $150.5 $172.4 $12.1 $ % +14% YTD 2013 YTD 2014 Operating Income (in millions) YTD 2013 YTD 2014 Diluted EPS $9.0 $9.4 $0.28 $0.18 $0.19 $ % YTD 2013 YTD 2014 YTD 2013 YTD 2014 GAAP EPS Adjusted EPS (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 18 for reconciliation. 1 15

16 YTD Income Statement Highlights (In millions, except per share data) 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 provision Adjusted effective tax rate 1 Net income Diluted earnings per common share Adjusted diluted earnings per common share YTD 2013 $150.5 $2.7 $ % $12.9 $9.0 $ % $(0.4) 40.9% $8.4 $0.28 $0.18 YTD 2014 $172.4 YTD 2013 YTD 2014 (1) Prior period was affected by a deferred tax asset valuation allowance which substantially reduced the effective tax rate. Adjusted EPS shows, for 16 comparative purposes, prior period results as if they were affected by TRC s current annual estimated tax rate. See page 18 for reconciliation. $12.6 $ % $16.3 $9.4 $ % $(3.8) 40.3% $5.6 $0.19 $0.19 Exit Strategy Change in Estimate in Q Net Service Revenue $ (5.1) Insurance Recoverables 12.4 Cost of Services 7.3 Operating Income $ - Cost of Services as % of NSR $ % $ % YTD 2013 YTD 2014 G&A Expenses as % of NSR $ % $ %

17 Balance Sheet and Cash Flow Highlights (In millions) Balance Sheet Highlights Cash and cash equivalents Days sales outstanding (DSO) YTD 2013 $ days YTD 2014 $ days Cash Flow Highlights Q Q Cash flow from operations $(0.7) $(6.5) $(4.5) $(5.5) Capital expenditures $(1.1) $(1.3) $(1.8) $(2.8) Free cash flow $(1.8) $(7.8) $(6.3) $(8.3) 17

18 Reconciliation of Non-GAAP Measures Earnings Before Interest, Taxes, Depreciation, Amortization In millions Q Q YTD YTD Net income applicable to TRC Companies, Inc.'s common shareholders $4.1 $3.1 $8.4 $5.6 Interest expense Federal and state income tax provision Depreciation and amortization Net loss applicable to noncontrolling interest (0.0) (0.0) (0.0) (0.0) Consolidated EBITDA $6.0 $7.4 $12.1 $13.9 Gross Margin and Gross Margin % In millions Q Q YTD YTD Net service revenue $75.3 $91.1 $150.5 $172.4 Cost of services Gross Margin $10.7 $14.7 $22.2 $17.6 Gross Margin % 14.2% 16.2% 14.8% 10.2% Adjusted EPS Q Q YTD YTD Reported diluted earnings per common share $0.14 $0.10 $0.28 $0.19 Less: Adjustment to normalize effective tax rate (eliminate tax valuation allowance) (0.05) - (0.10) - Adjusted diluted earnings per common share $0.09 $0.10 $0.18 $0.19 Weighted-average common shares outstanding 29,471 30,069 29,477 30,049 Free Cash Flow In millions Q Q YTD YTD Cash flow from operations $(0.7) $(6.5) $(4.5) $(5.5) Additions to property and equipment (1.1) (1.3) (1.8) (2.8) Free Cash Flow $(1.8) $(7.8) $(6.3) $(8.3) 18 18

19 Definitions for Non-GAAP Measures Earnings Before Interest, Taxes, Depreciation, Amortization and Goodwill & Intangible Asset Impairment The definition of Consolidated Adjusted EBITDA in the Company's revolving credit facility excludes interest expense on excluded indebtedness and adds back interest. 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. 19