TRC Q2 2017 Earnings Slides

TRC Q2 2017 Earnings Slides

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  www.trcsolutions.com Q2 Fiscal 2017Investor Review February 2, 2017 Chris Vincze Tom Bennet Chairman & CEO Chief Financial Officer TRR
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  Safe Harbor Statement 2 Certainstatements 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, 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; capital availability and project investment by our clients; 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, 2016, 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 2017 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 2017 Form 10-Q and Financial Results Press Release. Also, this presentation contains references to non-GAAP metrics such as EBITDA, gross margin, free cash flow and various adjusted metrics. A reconciliation of GAAP to non-GAAP metrics can be found on slides 17-21.
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  Q2 Fiscal 2017Overview 3 NSR1 increased 14% YOY to $127.4M Power +1%, Environmental -2%, Infrastructure +7%, Oil & Gas NSR of $21.3M NSR backlog increased 2% YOY to $350M Power +16%, Environmental -3%, Infrastructure -16%, Oil & Gas backlog of $43M (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 cash flow of $21.4M DSO performance provides strong cash position Net income increased 2% YOY to $4.0M Strong Infrastructure performance aided earnings, offset by $1.5M amortization expense increase EBITDA increased 20% YOY to $11.4M Adjusted EBITDA increased 6% YOY
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  EnvironmentalSegment $9.5 $9.2 $19.5 $18.2 Q2 2016Q2 2017 YTD 2016 YTD 2017 Segment Profit (in millions) -7% -4% $51.4 $50.3 $103.0 $99.2 Q2 2016 Q2 2017 YTD 2016 YTD 2017 Net Service Revenue (in millions) -2% -4% 4  NSR -2% YOY; primarily due to lower volume of direct services for oil & gas clients  Segment profit -4% YOY  NSR backlog -3% YOY  Transition to new projects resulted in severance costs and lower utilization of employee labor  Construction and power markets gaining momentum; offset by stable but lower levels of activity in oil & gas markets Q2 Fiscal 2017 Results
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  PowerSegment 5  NSR +1%YOY  Segment profit unchanged YOY  NSR backlog +16% YOY on program management project increase  Increasing demand for energy efficiency, testing / commissioning, and distribution engineering services $39.8 $40.3 $74.1 $77.4 Q2 2016 Q2 2017 YTD 2016 YTD 2017 Net Service Revenue (in millions) +4% $9.5 $9.5 $16.8 $17.5 Q2 2016 Q2 2017 YTD 2016 YTD 2017 Segment Profit (in millions) +4% Unchanged+1% Q2 Fiscal 2017 Results
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  InfrastructureSegment 6 Q2 Fiscal 2017Results  NSR +7% YOY, driven by large, ongoing PPP projects  Segment profit +37% YOY  NSR backlog -16% YOY; delay in timing of several large contract awards  Benefitting from increased scale and project size  Private investment and state-level legislation expanding PPP programs $13.7 $14.6 $27.3 $31.2 Q2 2016 Q2 2017 YTD 2016 YTD 2017 Net Service Revenue(in millions) +15% $2.5 $3.5 $5.4 $7.8 Q2 2016 Q2 2017 YTD 2016 YTD 2017 Segment Profit (in millions) +37% +43% +7%
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  Oil&GasSegment 7  NSR $21.3million  Segment profit of $1.5 million, improved by cost reduction initiatives  NSR backlog $43 million  Increasing stability in oil & gas market  Consistent segment performance led by pipeline integrity-related services $21.5 $20.8 $21.3 $21.3 $42.7 Q3 2016 Q4 2016 Q1 2017 Q2 2017 YTD 2017 Net Service Revenue(in millions) Q2 Fiscal 2017 Results $(3.1) $(3.2) $1.4 $1.5 $2.8 Q32016 Q42016 Q12017 Q22017 YTD2017 Segment Profit (in millions)
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  $30 $35 $43 $100$88 $84 $88 $96 $102 $125 $133 $121 Q2 2016 Q1 2017 Q2 2017 Segment NSR Backlog $350 NSR Backlog & New Project Wins 8 (in millions) $343 $352 Power • PG&E - $4.5M Vaca-Dixon substation 230kV civil regrade • California Energy Commission - $2.5M emerging energy efficient technology demonstration project Environmental • National Grid - $6M environmental licensing and permitting MSA • Maryland DOT’s State Highway Administration – $2M for archaeological and historic architectural services Infrastructure • West Virginia Division of Highways – $8~10M as I-64 quality assurance manager • TDI New England – $1M for New England clean power link Oil & Gas • Confidential Client - $7M pipeline project (Okla.) • PSNC Energy - $1.8M for Cliffside Lateral project Recent Project Awards
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  9 Applied Energy Group(N.J. Office) Acquisition  TRC pursuing strategic acquisitions to expand our platform in key North American markets  Acquired New Brunswick, N.J. office of Applied Energy Group (AEG) from Ameresco in January 2017  Administrator of New Jersey Clean Energy Program  Broadening capabilities to support diverse portfolio of energy sources  Enhances TRC’s leadership position as growing, national leader in the energy efficiency services market
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  Key Strategies andInitiatives 10  Invest in organic growth opportunities; new five-year profitable growth strategy  Increase focus on strategic markets:  Power / Utility – Continued investment to modernize gas & electric systems; significant renewable generation investment and focus on energy efficiency  Public policy promoting strong investment in distributed generation and microgrids; expected to expand to other utilities across the nation  Infrastructure – Bipartisan and Administration support for significant infrastructure investment, focusing on transportation  Oil & Gas – Changing midstream and LDC market dynamics resulting in focus on repair / maintenance, upgrade and monitoring of existing assets using technology based solutions  Increased permitting / planning and capital project commitments expected with new Administration support for pipeline projects  Path to new PHMSA rules expected to continue due to enhanced safety benefits  Pursue acquisitions that provide geographic expansion and enhanced technical capabilities or new adjacent services  Continue focus on improving margin and operating cash flow
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  $9.5 $11.4 Q2 2016 Q22017 EBITDA(in millions) Quarterly Financial Results Overview 11 $111.4 $127.4 Q2 2016 Q2 2017 Net Service Revenue (in millions) +14% $10.7 $11.4 Q2 2016 Q2 2017 Adjusted EBITDA*(in millions) +6% *Q2 2016 excludes $1.2 million of acquisition and integration expenses. +20% $3.9 $4.0 Q2 2016 Q2 2017 Net Income (in millions) +2%
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  Q2 2016 $111.4 $1.1 $93.7 15.9% $8.0 7.2% $1.2 $6.7 $7.9 $9.5 8.5% $10.7 9.6% $3.9 $4.7 $0.13 $0.15 Q2 2017 $127.4 $0.7 $105.6 17.1% $11.0 8.7% -- $7.0 $7.0 $11.4 9.0% $11.4 9.0% $4.0 $4.0 $0.13 $0.13 12 (Inmillions, except per share data) Quarterly Income Statement Highlights 84.1% 82.9% Q2 2016 Q2 2017 Cost of Services as % of NSR 7.2% 8.7% Q2 2016 Q2 2017 G&A Expenses as % of NSR Net service revenue Insurance recoverables and other income Cost of services (COS) Gross margin % General and administrative expenses G&A as % of NSR Acquisition and integration expenses Operating income Adjusted operating income1 EBITDA EBITDA as a % of NSR Adjusted EBITDA1 Adjusted EBITDA as a % of NSR Net income Adjusted net income1, 2 Diluted earnings per common share Adjusted diluted earnings per common share1, 2 1 Q2 2016 excludes $1.2 million of acquisition and integration expenses. 2 Excludes acquisition and integration-related expense in note 1, net of an income tax benefit of $0.5 million.
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  $19.4 $21.9 YTD 2016 YTD2017 EBITDA(in millions) YTD 2017 Financial Results Overview 13 $211.5 $251.7 YTD 2016 YTD 2017 Net Service Revenue (in millions) +19% $21.5 $21.9 YTD 2016 YTD 2017 Adjusted EBITDA*(in millions) +2%+13% $8.4 $7.6 YTD 2016 YTD 2017 Net Income (in millions) -9% *YTD 2016 excludes $2.1 million of acquisition and integration expenses.
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  YTD 2016 $211.5 $1.8 $176.7 16.5% $15.2 7.2% $2.1 $14.4 $16.5 $19.4 9.2% $21.5 10.2% $8.4 $9.7 $0.27 $0.31 YTD 2015 $192.5 $5.5 $163.8 14.9% $16.4 $12.9 $17.8 9.2% $7.5 $0.25 14 (Inmillions, except per share data) YTD 2017 Income Statement Highlights 83.5% 83.2% YTD 2016 YTD 2017 Cost of Services as % of NSR 7.2% 8.7% YTD 2016 YTD 2017 G&A Expenses as % of NSR 1 Excludes $2.1 million of acquisition and integration expenses. 2 Excludes acquisition and integration-related expense in note 1, net of an income tax benefit of $0.8 million. Net service revenue Insurance recoverables and other income Cost of services (COS) Gross margin % General and administrative expenses G&A as % of NSR Acquisition and integration expense Operating income Adjusted operating income1 EBITDA EBITDA as a % of NSR Adjusted EBITDA1 Adjusted EBITDA as a % of NSR Net income Adjusted net income1, 2 Diluted earnings per common share Adjusted diluted earnings per common share1, 2 YTD 2017 $251.7 $1.4 $209.3 16.8% $21.9 8.7% -- $13.0 $13.0 $21.9 8.7% $21.9 8.7% $7.6 $7.6 $0.24 $0.24
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  Credit Facility Update 15 $73 $180$27 $70 $75 $27 $6 Previous Facility Debt RepaidNov. 2015-Dec. 2016 New Facility Term Loan Payment Revolver Payment Term Loan Drawn Revolving Credit Facility Draw Unused Amount Previous $175M Facility New $250M facility2 Used for Willbros acquisition  New $250 million facility1  Five-year tenor, all revolver format  Borrowing capacity linked to trailing 12 month Consolidated EBITDA  Citizens Bank led eight-member bank group  Term loan component eliminated  All-revolver structure aids tactical management of cash flow and borrowings  Flexibility for future interest rate hedging  Existing borrowing spreads maintained  Borrowing rates tied to one- to six-month LIBOR plus 1.5% to 2.75%, depending on current leverage ratio  2Q leverage ratio of 1.4x, results in borrowing rate of LIBOR plus 1.5%  $15 million of balance sheet cash applied at closing, reducing leverage to 1.11x  Key element of growth strategy  Supports working capital, organic growth and acquisition initiatives 1 Subject to leverage limit of 3x trailing 12-month Consolidated EBITDA 2 Prior to additional debt repayment conducted as part of the closing process for the new facility
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  16 Balance Sheet Highlights Cashand cash equivalents Days sales outstanding (DSO) Acquisition-related debt repayment Acquisition-related debt balance Cash Flow Highlights Cash flow from operations Capital expenditures Free cash flow Q2 2016 -- -- $(1.0) $(2.0) $(3.0) Q2 2017 $(1.4) $68.4 $21.4 $(1.0) $20.4 (In millions) Balance Sheet and Cash Flow Highlights YTD 2016 $9.5 78 days $13.4 $(4.0) $9.4 YTD 2017 $26.7 79 days $(2.8) $68.4 $18.2 $(2.6) $15.6
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  17 Reconciliation of Non-GAAPMeasures Item Q2 - 2017 Q2 - 2016 Net income applicable to TRC Companies, Inc.'s common shareholders 3,998$ 3,937$ Interest expense 841 461 Interest income (286) (137) Provision for income taxes 2,473 2,439 Depreciation and amortization 4,371 2,780 Net loss applicable to noncontrolling interest 10 (2) EBITDA 11,407 9,478 Less: Acquisition and integration expenses - 1,240 Adjusted EBITDA 11,407 10,718 Less: Stock-based compensation expense 2,286 1,511 Less: Other Adjustments 450 (18) Consolidated Adjusted EBITDA Under the Citizens Credit Agreement 14,143$ 12,211$ Item Q2 - 2017 Q2 - 2016 Net service revenue 127,356$ 111,382$ Cost of services 105,613 93,676 Gross Margin 21,743$ 17,706$ Gross Margin % 17.1% 15.9% Earnings Before Interest, Taxes, Depreciation, Amortization and Acquisition & Integration Expenses Gross Margin and Gross Margin %
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  18 Reconciliation of Non-GAAPMeasures Item YTD - 2017 YTD - 2016 Net income applicable to TRC Companies, Inc.'s common shareholders 7,637$ 8,429$ Interest expense 1,686 489 Interest income (564) (137) Provision for income taxes 4,204 5,596 Depreciation and amortization 8,875 5,044 Net loss applicable to noncontrolling interest 30 (6) EBITDA 21,868 19,415 Less: Acquisition and integration expenses - 2,118 Adjusted EBITDA 21,868 21,533 Less: Stock-based compensation expense 3,743 2,780 Less: Other Adjustments (23) (44) Consolidated Adjusted EBITDA Under the Citizens Credit Agreement 25,588$ 24,269$ Item YTD - 2017 YTD - 2016 Net service revenue 251,661$ 211,545$ Cost of services 209,289 176,660 Gross Margin 42,372$ 34,885$ Gross Margin % 16.8% 16.5% Earnings Before Interest, Taxes, Depreciation, Amortization and Acquisition & Integration Expenses Gross Margin and Gross Margin %
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  19 Reconciliation of Non-GAAPMeasures Item Q2 - 2017 Q2 - 2016 Net cash provided by operating activities 21,403$ (952)$ Additions to property and equipment (1,037) (1,974) Free Cash Flow 20,366$ (2,926)$ Free Cash Flow Item YTD - 2017 YTD - 2016 Net cash provided by operating activities 18,217$ 13,436$ Additions to property and equipment (2,662) (4,013) Free Cash Flow 15,555$ 9,423$ Free Cash Flow
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  20 Reconciliation of Non-GAAPMeasures Item Q2 - 2017 Q2 - 2016 Operating income 7,036$ 6,698$ Acquisition and integration expenses - 1,240 Adjusted Operating Income 7,036$ 7,938$ Item Q2 - 2017 Q2 - 2016 Net income applicable to TRC Companies, Inc.'s common shareholders 3,998$ 3,937$ Acquisition and integration expenses - 1,240 Tax effect of acquisition and integration expenses - (475) Adjusted Net Income Applicable to TRC Companies, Inc's Common Shareholders 3,998$ 4,702$ Item Q2 - 2017 Q2 - 2016 Net income applicable to TRC Companies, Inc.'s common shareholders 3,998$ 3,937$ Acquisition and integration expenses - 1,240 Tax effect of acquisition and integration expenses - (475) Adjusted Net Income Applicable to TRC Companies, Inc's Common Shareholders 3,998$ 4,702$ Diluted shares outstanding (as disclosed) 31,966 31,369 Add back for dilutive shares - - Adjusted diluted shares outstanding 31,966 31,369 Adjusted Diluted Earnings per Common Share 0.13$ 0.15$ Adjusted Diluted Earnings per Common Share Adjusted Net Income Applicable to TRC Companies, Inc.'s Common Shareholders Adjusted Operating Income
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  21 Reconciliation of Non-GAAPMeasures Item YTD - 2017 YTD - 2016 Operating income 12,993$ 14,371$ Acquisition and integration expenses - 2,118 Adjusted Operating Income 12,993$ 16,489$ Item YTD - 2017 YTD - 2016 Net income applicable to TRC Companies, Inc.'s common shareholders 7,637$ 8,429$ Acquisition and integration expenses - 2,118 Tax effect of acquisition and integration expenses - (845) Adjusted Net Income Applicable to TRC Companies, Inc's Common Shareholders 7,637$ 9,702$ Item YTD - 2017 YTD - 2016 Net income applicable to TRC Companies, Inc.'s common shareholders 7,637$ 8,429$ Acquisition and integration expenses - 2,118 Tax effect of acquisition and integration expenses - (845) Adjusted Net Income Applicable to TRC Companies, Inc's Common Shareholders 7,637$ 9,702$ Diluted shares outstanding (as disclosed) 31,783 31,347 Add back for dilutive shares - - Adjusted diluted shares outstanding 31,783 31,347 Adjusted Diluted Earnings per Common Share 0.24$ 0.31$ Adjusted Operating Income Adjusted Net Income Applicable to TRC Companies, Inc.'s Common Shareholders Adjusted Diluted Earnings per Common Share
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  22 Earnings Before Interest,Taxes, Depreciation, Amortization (EBITDA) The Company presents EBITDA because it believes that it is a useful tool for the Company, its lenders and its investors to measure the Company’s ability to meet debt service, capital expenditure and working capital requirements. As used in the presentation, EBITDA is operating income plus depreciation and amortization. Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization (Adjusted EBITDA) As used in the presentation, Adjusted EBITDA is defined as EBITDA plus acquisition and integration expenses. Consolidated Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization (Consolidated Adjusted EBITDA Under the Citizens Credit Agreement) As used in the Citizens Credit Agreement, Consolidated Adjusted EBITDA is defined as EBITDA plus acquisition and integration expenses, stock based compensation expense, and interest and penalties on federal and state income taxes, less interest expense on excluded indebtedness. Gross Margin and Gross Margin % The Company presents Gross Margin and Gross Margin % to allow investors to better evaluate short- term and long-term profitability trends. 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. Definitions for Non-GAAP Measures
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  23 Free Cash Flow TheCompany presents free cash flow, and ratios based on it, to conduct and evaluate its business because, although it is similar to cash flow from operations, the Company believes it is a useful measure of cash flows since purchases of fixed assets are a necessary component of ongoing operations. The definition of Free Cash Flow is equal to net cash provided by (used in) operating activities plus additions to property and equipment. Adjusted Operating Income The Company presents Adjusted Operating Income because it believes that it is a useful tool for the Company, its lenders and its investors to measure the Company’s underlying operating performance. As used in the presentation, Adjusted Operating Income is defined as operating income plus acquisition and integration expenses and the amount of the goodwill impairment. Adjusted Net Income The Company presents Adjusted Net Income because it believes that it is a useful tool for the Company, its lenders and its investors to measure the Company’s financial performance. As used in the presentation, Adjusted Net Income is defined as net income applicable to TRC Companies, Inc. plus the tax effected acquisition and integration expenses and the amount of the goodwill impairment. The Company utilizes its effective tax rate for the period in calculating the tax effect. Adjusted Diluted Earnings Per Share (Adjusted Diluted EPS) The Company presents Adjusted Diluted EPS because it believes that it is a useful tool for the Company, its lenders and its investors to measure the Company’s financial performance. As used in the presentation, Adjusted Diluted EPS is defined as Adjusted Net Income divided by diluted weighted average shares outstanding. Definitions for Non-GAAP Measures