Trc q3 2014 earnings slides final
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Transcript of Trc q3 2014 earnings slides final
Q3 Fiscal 2014 Investor Review
May 7, 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, 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 Third 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 third 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 17.
Q3 Fiscal 2014 Overview
3
NSR1 increased 6% YOY to $88.1M Energy +19%, Environmental +1%, Infrastructure -10%
(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.
Operating income decreased 26% YOY to $2.5M & EBITDA decreased 10% YOY to $4.7M Increased medical insurance expenses, impact of severe weather on Infrastructure and Environmental segments, adjustment to fixed-price Infrastructure project
NSR backlog increased 5% sequentially to $245.1M Energy +13%, Environmental +3%, Infrastructure -1%
TRC’s Diversified Business Model
4
$34.6M 40%
$41.9M 48%
$10.4M 12%
Net Service Revenue by Segment
Environmental
Energy
Infrastructure
$124.9M 49%
$98.3M 38%
$34.4M 13%
Q3 Fiscal 2014 YTD Fiscal 2014
Total NSR: $88.1M Total NSR: $260.5M
Envi
ronm
enta
l Seg
men
t
5
$41.4 $41.9
$118.3 $124.9
Q3 2013 Q3 2014 YTD 2013 YTD 2014
Net Service Revenue (in millions)
$7.3 $7.8
$22.0
$25.9
Q3 2013 Q3 2014 YTD 2013 YTD 2014
Segment Profit (in millions)
Segment Drivers Increased 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
Q3 Fiscal 2014 Results NSR +1% YOY Increased demand for remediation and
pipeline permitting services Reduced by impact of severe winter
weather conditions Segment profit +7% YOY
Ener
gy S
egm
ent
6
$29.1 $34.6
$80.7
$98.3
Q3 2013 Q3 2014 YTD 2013 YTD 2014
Net Service Revenue (in millions)
$5.2
$7.9
$16.8
$19.3
Q3 2013 Q3 2014 YTD 2013 YTD 2014
Segment Profit (in millions)
Segment Drivers 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 Uncertainty related to use of utility capital Client capacity and strategy to manage
projects Larger competitors Finding talent
Q3 Fiscal 2014 Results NSR +19% YOY Expanding utility capital spend programs on
aging transmission and distribution infrastructure
Increased demand for testing and commissioning services
Severe weather resulted in additional revenue from storm recovery support services
Segment profit +53% YOY
Infr
astr
uctu
re S
egm
ent
7
$11.6 $10.4
$32.5 $34.4
Q3 2013 Q3 2014 YTD 2013 YTD 2014
Net Service Revenue (in millions)
$2.8
$1.4
$6.2 $6.2
Q3 2013 Q3 2014 YTD 2013 YTD 2014
Segment Profit (in millions)
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 2014
Q3 Fiscal 2014 Results NSR down 10% YOY Segment profit down 49% YOY Cost overrun for large fixed-price project Severe weather limited field work and
productivity on certain projects Higher level of subcontracted services
$53 $46 $45
$55 $65 $74
$137 $123 $126
Q3 2013 Q2 2014 Q3 2014
Segment NSR Backlog
NSR Backlog & New Project Wins
8
(in millions)
Energy • Public Service Electric • NJ Public Utilities • Northeast Utilities
Environmental • ExxonMobil • Pacific Service Electric
Infrastructure • Canadian National • PennDOT • Monterey County RMA
$245 $245 $234
+5%
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Growth Strategy
0%
5%
10%
15%
20%
25%
Q4 2013 Q1 2014 Q2 2014 Q3 2014
Total
Organic
Total & Organic NSR Growth Recent Acquisitions
• EMCOR Energy Services, Inc. (EES)
• Utility Support Systems, Inc. (USS)
• GE’s Air Emissions Testing business
• Heschong Mahone Group, Inc.
• 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
Markets Outlook
10
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 closure3
• 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
1 + 2 Source: EIA/EPRI Spring 2013 Report 3 Navigant Research letter published Q3 2013 4 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
CEO Summary
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• Attractive markets offer opportunity for profitable near- and long-term growth
• Continuing to build backlog
• Strong balance sheet
• Balanced strategy to grow organically and through
acquisitions
• Investments are delivering returns
$83.0 $88.1
Q3 2013 Q3 2014
Net Service Revenue (in millions)
Quarterly Financial Results Overview
12
$5.2 $4.7
Q3 2013 Q3 2014
EBITDA (in millions)
$3.4
$2.5
Q3 2013 Q3 2014
Operating Income (in millions)
+6%
-26%
-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 17 for reconciliation.
$0.10
$0.05 $0.06
$0.05
Q3 2013 Q3 2014
Diluted EPS
GAAP EPS Adjusted EPS 1
Q3 2013
$83.0
$1.1
$70.4
15.2%
$8.1
$3.4
$5.2
6.3%
$(0.2)
44.8%
$3.1
$0.10
$0.06
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 provision
Adjusted effective tax rate1
Net income
Diluted earnings per common share
Adjusted diluted earnings per common share
Q3 2014
$88.1
$5.0
$80.1
9.0%
$8.4
$2.5
$4.7
5.3%
$(1.1)
42.6%
$1.4
$0.05
$0.05
(In millions, except per share data)
Quarterly Income Statement Highlights
$83.0
$88.1
84.8%
91.0%
Q3 2013 Q3 2014
Cost of Services as % of NSR
$83.0
$88.1
9.7% 9.5%
Q3 2013 Q3 2014
G&A Expenses as % of NSR
Exit Strategy Change in Estimate
Net Service Revenue $ (1.9)
Insurance Recoverables 4.9
Cost of Services 3.0
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.
$233.5 $260.5
YTD 2013 YTD 2014
Net Service Revenue (in millions)
YTD Financial Results Overview
14
$17.4 $18.5
YTD 2013 YTD 2014
EBITDA (in millions)
$12.4 $12.0
YTD 2013 YTD 2014
Operating Income (in millions)
-4%
+7% +12%
(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.
$0.39
$0.23 $0.24 $0.23
YTD 2013 YTD 2014
Diluted EPS
GAAP EPS Adjusted EPS 1
YTD 2013
$233.5
$3.7
$198.7
14.9%
$21.0
$12.4
$17.4
7.4%
$(0.7)
42.0%
$11.5
$0.39
$0.24
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 provision
Adjusted effective tax rate1
Net income
Diluted earnings per common share
Adjusted diluted earnings per common share
YTD 2014
$260.5
$17.6
$234.9
9.8%
$24.6
$12.0
$18.5
7.1%
$(4.8)
40.8%
$7.0
$0.23
$0.23
(In millions, except per share data)
YTD Income Statement Highlights
$233.5
$260.5
85.1%
90.2%
YTD 2013 YTD 2014
Cost of Services as % of NSR
$233.5
$260.5
9.0% 9.5%
YTD 2013 YTD 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
YTD 2013
$10.0
88 days
$3.4
$(2.7)
$0.7
YTD 2014
$11.4
92 days
$3.2
$(3.8)
$(0.6)
(In millions)
Balance Sheet and Cash Flow Highlights
Q3 2013
$8.0
$(1.0)
$7.0
Q3 2014
$8.6
$(0.9)
$7.7
Reconciliation of Non-GAAP Measures
17
In millions
Q3 - 2013 Q3 - 2014 YTD - 2013 YTD - 2014
Net income applicable to TRC Companies, Inc.'s common shareholders $3.1 $1.4 $11.5 $7.0
Interest expense 0.1 0.0 0.3 0.1
Federal and state income tax provision 0.2 1.1 0.7 4.8
Depreciation and amortization 1.8 2.2 4.9 6.6
Net loss applicable to noncontrolling interest (0.0) (0.0) (0.0) (0.0)
Consolidated EBITDA $5.2 $4.7 $17.4 $18.5
In millions
Q3 - 2013 Q3 - 2014 YTD - 2013 YTD - 2014
Net service revenue $83.0 $88.1 $233.5 $260.5
Cost of services 70.4 80.1 198.7 234.9
Gross Margin $12.6 $8.0 $34.8 $25.6
Gross Margin % 15.2% 9.0% 14.9% 9.8%
Q3 - 2013 Q3 - 2014 YTD - 2013 YTD - 2014
Reported diluted earnings per common share $0.10 $0.05 $0.39 $0.23
Less: Adjustment to normalize effective tax rate (eliminate tax valuation allowance) (0.04) - (0.15) -
Adjusted diluted earnings per common share $0.06 $0.05 $0.24 $0.23
Weighted-average common shares outstanding 29,654 30,166 29,547 30,088
In millions
Q3 - 2013 Q3 - 2014 YTD - 2013 YTD - 2014
Cash flow from operations $8.0 $8.6 $3.4 $3.2
Additions to property and equipment (1.0) (0.9) (2.7) (3.8)
Free Cash Flow $7.0 $7.7 $0.7 $(0.6)
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 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.