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Q2 Fiscal 2014 Investor Review
February 5, 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 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.
Q2 Fiscal 2014 Highlights
3
NSR(1) increased 21% YOY to $91.1M
EBITDA increased 24% YOY to $7.4M
Operating income increased 18% YOY to $5.2M
(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.
NSR backlog increased 4% YOY to $233.9M
Revenue growth in all three segments
TRC’s Diversified Business Model
4
$34.9M
$44.6M
$11.4M
Q2 2014 Net Service Revenue by Segment
Infrastructure 13%
Environmental 49%
Energy 38%
Envi
ronm
enta
l Seg
men
t
5
$39.5 $44.6
Q2 2013 Q2 2014
Net Service Revenue (in millions)
$7.8 $8.8
Q2 2013 Q2 2014
Segment Profit (in millions)
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
+13%
+12%
Ener
gy S
egm
ent
6
$25.9
$34.9
Q2 2013 Q2 2014
Net Service Revenue (in millions)
$5.6
$7.3
Q2 2013 Q2 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 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
+29%
+35%
Infr
astr
uctu
re S
egm
ent
7
$9.7
$11.4
Q2 2013 Q2 2014
Net Service Revenue (in millions)
$1.4
$2.0
Q2 2013 Q2 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
+18%
+49%
$50 $46
$53 $65
$122 $123
$0
$50
$100
$150
$200
$250
Q2 2013 Q2 2014
Segment NSR Backlog
NSR Backlog & New Project Wins
8
(in millions)
Energy • Public Service of NH • PPL Electric Utilities
Environmental • Pacific Gas and Electric • CSX • Kinder Morgan
Infrastructure • City of Lancaster, CA • Penn DOT – Numerous
Awards
$225 $234 +4%
New Project Wins
9
Growth Strategy
0%
5%
10%
15%
20%
25%
Q3 2013 Q4 2013 Q1 2014 Q2 2014
Total
Organic
Total & Organic NSR Growth 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.
• 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
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)
Markets Outlook
11
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
12
• 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
$75.3
$91.1
Q2 2013 Q2 2014
Net Service Revenue (in millions)
Quarterly Financial Results Overview
13
$6.0
$7.4
Q2 2013 Q2 2014
EBITDA (in millions)
$4.4
$5.2
Q2 2013 Q2 2014
Operating Income (in millions)
$0.14
$0.10 $0.09
$0.10
Q2 2013 Q2 2014
Diluted EPS
GAAP EPS Adjusted EPS
+21%
+18%
+24%
(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
Q2 2013
$75.3
$0.9
$64.6
14.2%
$5.7
$4.4
$6.0
8.0%
$(0.2)
41.0%
$4.1
$0.14
$0.09
14
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
Q2 2014
$91.1
$0.3
$76.4
16.2%
$7.5
$5.2
$7.4
8.2%
$(2.1)
40.0%
$3.1
$0.10
$0.10
(In millions, except per share data)
Quarterly Income Statement Highlights
$75.3
$91.1
85.8% 83.8%
Q2 2013 Q2 2014
Cost of Services as % of NSR
$75.3
$91.1
7.6% 8.2%
Q2 2013 Q2 2014
G&A Expenses as % of NSR
(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.
$150.5 $172.4
YTD 2013 YTD 2014
Net Service Revenue (in millions)
YTD Financial Results Overview
15
$12.1 $13.9
YTD 2013 YTD 2014
EBITDA (in millions)
$9.0 $9.4
YTD 2013 YTD 2014
Operating Income (in millions)
$0.28
$0.19 $0.18 $0.19
YTD 2013 YTD 2014
Diluted EPS
GAAP EPS Adjusted EPS
+15%
+5%
+14%
1
(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.
YTD 2013
$150.5
$2.7
$128.3
14.8%
$12.9
$9.0
$12.1
8.1%
$(0.4)
40.9%
$8.4
$0.28
$0.18
16
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
$172.4
$12.6
$154.8
10.2%
$16.3
$9.4
$13.9
8.1%
$(3.8)
40.3%
$5.6
$0.19
$0.19
(In millions, except per share data)
YTD Income Statement Highlights
$150.5
$172.4
85.2%
89.8%
YTD 2013 YTD 2014
Cost of Services as % of NSR
$150.5
$172.4
8.6%
9.4%
YTD 2013 YTD 2014
G&A Expenses as % of NSR
Exit Strategy Change in Estimate in Q1 2014
Net Service Revenue $ (5.1)
Insurance Recoverables 12.4
Cost of Services 7.3
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 18 for reconciliation.
17
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
$10.8
86 days
$(4.5)
$(1.8)
$(6.3)
YTD 2014
$8.5
86 days
$(5.5)
$(2.8)
$(8.3)
(In millions)
Balance Sheet and Cash Flow Highlights
Q2 2013
$(0.7)
$(1.1)
$(1.8)
Q2 2014
$(6.5)
$(1.3)
$(7.8)
Reconciliation of Non-GAAP Measures
18
In millions
Q2 - 2013 Q2 - 2014 YTD - 2013 YTD - 2014
Net income applicable to TRC Companies, Inc.'s common shareholders $4.1 $3.1 $8.4 $5.6
Interest expense 0.1 0.0 0.2 0.1
Federal and state income tax provision 0.2 2.1 0.4 3.8
Depreciation and amortization 1.6 2.2 3.1 4.4
Net loss applicable to noncontrolling interest (0.0) (0.0) (0.0) (0.0)
Consolidated EBITDA $6.0 $7.4 $12.1 $13.9
In millions
Q2 - 2013 Q2 - 2014 YTD - 2013 YTD - 2014
Net service revenue $75.3 $91.1 $150.5 $172.4
Cost of services 64.6 76.4 128.3 154.8
Gross Margin $10.7 $14.7 $22.2 $17.6
Gross Margin % 14.2% 16.2% 14.8% 10.2%
Q2 - 2013 Q2 - 2014 YTD - 2013 YTD - 2014
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
In millions
Q2 - 2013 Q2 - 2014 YTD - 2013 YTD - 2014
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)
Earnings Before Interest, Taxes, Depreciation, Amortization
Gross Margin and Gross Margin %
Free Cash Flow
Adjusted EPS
18
Definitions for Non-GAAP Measures
19
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.