Tetra Tech, Inc.

Good morning, and thank you for joining the Tetra Tech earnings call. By now, you should have received a copy of the press release. If you have not, please contact the company's corporate office at 626-351-4664. As a reminder, Tetra Tech is also simulcasting this presentation with slides in the investor section of its website at www.tetratech.com. This call is being recorded at the request of Tetra Tech, and this broadcast is the copyright property of Tetra Tech. Any rebroadcast of this information in whole or part without the prior written permission of Tetra Tech is prohibited. With us today from management are Dan Batrack, Chairman and Chief Executive Officer, and Steve Burdick, Chief Financial Officer. They will provide a brief overview of the results and will open up the call for questions. I'd like to direct your attention to the safe harbor statement in today's presentation. Today's discussion contains forward-looking statements about future growth and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in Tetra Tech's periodic reports filed with the SEC. Except as required by law, Tetra Tech takes no obligation to update its forward-looking statements. In addition, since management will be presenting some non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted in the investor section of Tetra Tech's website. At this time, I'd like to inform you that all participants are in a listen-only mode. At the request of the company, we will open up the conference for questions and answers after the presentation. With that, I would like to turn the call over to Dan Batrack. Please go ahead, Mr. Batrack.

Great. Thank you very much, Laura, and good morning. And welcome to our fourth quarter and fiscal year 2020 earnings conference call. Before I begin my presentation today, I'd like to begin with an update on the potential implications to our business from the election here in the United States that took place just nine days ago. Well, first it's very early and the transition process hasn't even started yet, but we do know some things and let me share with you what we've observed to date. Joe Biden has identified climate change as a top priority of his administration. This priority is directly in line with our expertise in more than 50-year history in addressing the complicated aspects of water, environment, and energy associated with climate change for the federal government. We work for agencies such as the United States Environmental Protection Agency, U.S. Agency for International Development, the Army Corps of Engineers, and FEMA, who we believe will be among the frontline entities leading the government's climate change initiatives. The Biden administration has also emphasized investing in infrastructure is a key to revitalizing the United States economy. Even in a likely divided Congress, government-sponsored infrastructure stimulus funding has the potential for bipartisan support. Clearly, we would also benefit from increased infrastructure spending. However, the timing of a new infrastructure stimulus package is uncertain at this time. As we see the new administration's programs develop, we'll give you additional updates on our quarterly calls. I will now begin with an overview of our performance and customers, followed by Steve Burdick, our Chief Financial Officer, who will provide a more detailed review of our financials and capital allocation. I'll then address our customer outlook and our earnings guidance for fiscal year 2021. We had a strong fourth quarter. led by our record EPS and backlog performance. Our revenue of $753 million was up 6% from the prior quarter. Our net revenue also increased on a sequential quarterly basis by 5% to $590 million, which was at the high end of our forecast. Our Q4 EBITDA of $74 million generated an adjusted earnings per share of 91 cents, which was ahead of our expectations on strong performance across all of our operating divisions. And it was also up 17% from the prior quarter. This represents the highest quarterly earnings per share in the company's history. And our backlog, which is our best forward indicator, was up 5% year-over-year and 6% sequentially, growing to over $3.2 billion, also the highest in the history of the company. I'd now like to provide an overview of our performance by our end customer. In the fourth quarter, revenue for all of our customers increased sequentially. we saw continued strength in our state and local revenues, which were up organically year-over-year 14% and up sequentially 9%. Excluding the extraordinary contributions of our disaster response work, this is the fifth consecutive year of double-digit growth in our state and local business. Work for our U.S. federal clients was 30% of our net revenue in the quarter and was up 4% sequentially. Our U.S. federal work grew 5% year-over-year for civilian agencies and 10% for the U.S. Department of Defense. However, this growth was offset by delays in work for U.S. aid due to travel restrictions associated with the COVID-19 virus. Our U.S. commercial net revenue was 24% of our business and up 3% from the prior quarter. Our environmental permitting Our regulatory-driven programs and renewable energy services continue to be stable. We did see some reductions in consulting for non-regulatory services, especially for new buildings in the commercial property sector. And finally, our international net revenue was up 7% from the prior quarter. We saw continued growth in our local government services and commercial energy work in Canada, However, discretionary work for commercial clients was impacted by project delays and cancellations in our Asia-Pacific region. I'd now like to present our performance by segment. This quarter, I'd like to provide more insight into our margin performance by segment, a key metric that we've been very focused on for the past several years. In the fourth quarter, both of our segments showed significant margin expansion on both a year-over-year basis and a quarter-over-quarter basis. The Government Services Group, or the GSG segment, was up 50 basis points year-over-year, delivering 14.6% margin in Q4 of fiscal year 20. Strong margin performance was driven by our high-end data analytics and design services for a broad base of our clients in the water and environmental sectors. and for both our local and federal clients. The Commercial International Group, or CIG segment, its margins were up 150 basis points year over year, as per our plan, and is now closer to the GSG's margin. CIG delivered a 11.9 percent margin, up 180 basis points from the prior quarter, demonstrating a continued expansion of their margin in spite of the impacts of COVID-19. CIG's fourth quarter results were the result of the change to a more favorable business mix and a disciplined project delivery that our management team oversaw during the quarter. For the full fiscal year of 2020, we achieved all-time record highs for EPS, cash from operations, and backlog. Tetra Tech's full year revenue was $3 billion, Notably, we generated a record earnings per share of $3.16 on a GAAP basis and a record adjusted earnings per share of $3.26 for the year. We also generated record cash from operations of $262 million for the year, and I'm quite pleased with the performance of our team in this area, especially during the unusual circumstances and disruption caused by the global pandemic. Finally, rounding out the year, our key leading indicator, backlog, was also a record high of just over $3.2 billion. Backlog was up 5% on a year-on-year basis and up 6% sequentially on strong broad-based orders, resulting in a new all-time high of just over $3.2 billion. The last quarter of the fiscal year is typically our strongest quarter for orders from the federal government, and this quarter delivered fully up to our expectations. In the fourth quarter, we won new programs and task orders for differentiated water, environmental, and renewable energy services across a broad base of our clients, both in the United States and internationally. We expanded our contract capacity by $277 million, which is over a quarter of a billion dollars, with the United States Environmental Protection Agency and the US Army Corps of Engineers for environmental restoration and hazardous waste management services. And just in the fourth quarter, we won $69 million in contracts for renewable energy and power consulting services, continuing our differentiated leadership in this market. Now I'd like to turn the presentation over to Steve Burdick, to present the details of our financials for the quarter and year.

Steve? Okay, thank you, Dan. So I'd like to now review the GAAP financial results for the fourth quarter of fiscal 2020, as well as our financial position as of the end of fiscal 2020. Overall, our revenue and net revenue came in about as expected. The fiscal 2020 fourth quarter revenue was $753 million, and the Net revenue amounted to $590 million, which was in line with the higher end of our guidance range of $560 million to $600 million. Our fourth quarter revenue and net revenue growth rate was impacted by the completion of large disaster response projects in 2019, as well as our decision last year to dispose of our Canadian turnkey pipeline business. Excluding these two impacts, our revenues would have been in line with the prior year. Our operating margin and earnings per share increased compared to the prior year. This improvement of margins has resulted from both our project performance and our business mix as we continue to shape our portfolio. Our adjusted earnings per share of 91 cents came in better than the top end of our guidance for Q4, which was a range of 78 cents to 83 cents. This improvement in our EPS was driven by the continued improvement in our operating margin, which saw an increase of 150 basis points over last year on a GAAP basis. In the current year, both our GAAP EPS of 82 cents and adjusted EPS of 91 cents were improvements over the fourth quarter of last year. The reconciliation details between our GAAP and adjusted results are included in the appendix of this presentation. Excluded from our adjusted earnings this quarter were two matters. First, we realized additional cash positive gains on the fourth quarter non-core equipment sales of our Canadian pipeline business. These equipment sales now are complete, and the total gain for fiscal 2020 was just shy of $9 million. Secondly, we recorded non-cash adjustments relative to purchase accounting in the fourth quarter. One, for two of our earn-out liabilities and two, a goodwill charge for our Asia-Pacific division. Tetra Tech continues to be fiscally disciplined and focused on generating positive cash flows in excess of our net income. And proactively, we're strengthening the balance sheet to ensure a healthy level of liquidity. As such, our cash flows generated from operations for the year total $262 million including $68 million in the fourth quarter. This cash flow from operations amounts to about $4.80 of cash per share for the year. And on an annual basis, the cash flow generated is about 26% higher over our fiscal 2019. Our focus on working capital and cash flows has also resulted in our day sales outstanding, or DSO, decreasing to 68 days as of the fourth quarter. This is an improvement of 10 days from last year and a sequential improvement of two days from last quarter. Our net debt amounts to $134 million, which is a 14% decrease from last year, while still our net debt to EBITDA came in at about 0.5 times. Our long-term capital allocation strategy calls for a balance of investing and growth of our business. managing the balance sheet, and providing shareholder returns. Over the last fiscal year, we have generated $262 million in cash from operations. And during the fourth quarter, we continued to benefit from this cash position by providing significant returns for our shareholders through both dividends and share buybacks. Regarding our dividend program, during the past quarter, we paid out $9.2 million in dividends, and for the year, we paid out $35 million. I want to announce that our Board of Directors approved our 26th consecutive dividend, which will be paid in the month of December at a rate of 17 cents per share, which is a 13% increase over last year. Furthermore, we utilized $15 million in the fourth quarter and $117 million for the year on our stock buyback program. On a combined basis, we have $208 million remaining under both of our previously approved stock buyback programs. And just as important as successfully implementing our capital allocation strategy to provide returns for our shareholders is to ensure that we have a strong balance sheet and ample liquidity. We have both in terms of our balance sheet at the end of Q4 and available liquidity of over $800 million in the form of cash on hand and funds available under our credit agreements. As a result, Tetra Tech is in a financial position such that we will continue to provide significant returns to our shareholders while investing in strategic growth areas, both organically and through key strategic acquisitions such as Segway Technologies, which we closed in February, and Blue Water Federal, which we closed in September. I am very pleased to share these results with you for the fourth quarter. I want to thank you all for your support, and I will now hand the call back over to Dan.