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.

Dan Batrack Great. Thank you very much, Hillary, and good morning, and welcome to our fiscal year 2021 third quarter earnings conference call. We had an excellent third quarter with record results for net revenue, operating income, and earnings per share. And at the very end of this quarter, we had an all-time high backlog. Just after the close of the third quarter, we also welcomed Horley to Tetra Tech, adding a stellar team of over 900 staff in the United Kingdom that significantly advances our strategy to build a global $500 million per year high-performance buildings practice. Across our markets we're seeing increasing demand for our leading with science approach focused on water environment sustainable infrastructure and renewable energy. Overall, I see tetra tech is extraordinarily well aligned to today's highest priority programs that address climate change secure water supplies and facilitate digital transformation and cyber security. I'll now begin with an overview of our performance and customers, followed by Steve Burdick, our Chief Financial Officer, who will provide more detailed review of our financials and capital allocation. I'll then address our customer outlook and earnings guidance for the fourth quarter and for all of fiscal year 2021. We had a very strong third quarter with record results for net revenue, operating income, and earnings per share. Our net revenue was an all-time high for any quarter at Tetra Tech at $638 million, up 14% from last year. Our operations generated a third quarter earnings per share of 95 cents, which was up 22% from the prior year. And our backlog set a new all-time record for the company, ending the quarter at approximately $3,250,000, up almost $200 million from the prior year. I'd now like to provide an overview of our performance by our end customer. State and local revenues for us were up organically 31% year over year, driven by continued growth across our municipal water and our disaster response programs. When adjusted for episodic disaster response work that we had in the quarter, we still had a very strong 19% year over year growth rate for our municipal infrastructure work. Work for our U.S. federal clients was 29% of our net revenues in the quarter. It was up 7% year over year. This broad-based growth included an increase in all of our major sectors, including international development work, civilian agencies, and the Department of Defense. Our international net revenue was 34% of our business in the quarter, up 26% from last year. We saw strengthening revenue in Canada, the United Kingdom, and in our Australian operations driven by broad base orders for water, environment, and sustainable infrastructure services. Our U.S. commercial net revenue was 21% of our business in the quarter, and it was down slightly, about 2% from the prior year. While our regulatory-driven programs and our renewable energy revenues continue to grow, we have a somewhat slower recovery in our discretionary environmental work for our industrial clients. I'd now like to present our performance by segment, our two business segments. In the third quarter, both of our segments grew revenue by double digits while also expanding their operation margins. The government services group, or the GSG segments, revenue was up 12% and margins increased by 30 basis points year over year, resulting in a 13.8% margin for the quarter. Their strong margin was driven by high-end, high-value data analytics and design services and significant municipal growth that drove higher utilization across the GSG operations. The Commercial International Group, or the CIG, segment's revenue was $282 million, up 17% from the prior year. Their margin increased by a much higher number at 130 basis points year over year, resulting in an 11.4% margin for the quarter, which was right in line with our plan for the segment. Revenue growth and margin performance were driven by a resurgence of work across multiple international end markets that had been impacted by the pandemic and the associated economic downturn that we saw in fiscal year 2020. One of the best metrics that we had in the quarter was our backlog. Our backlog reached $3.25 billion at the end of the quarter, which is a new all-time high for the company. In the quarter, we booked new orders across our federal, commercial, state and local, and international markets, demonstrating the broad-based strength of our book of business. Orders for the quarter included significant international development programs, that advance ESG priorities globally in the areas of women empowerment, climate change, and sustainable fisheries management. Even in this record quarter, we had a book to bill a record revenue quarter. We had a book to bill of 1.12, giving us excellent visibility into the remainder of the year. We also added over $1 billion in new contract capacity to support the US government's priorities in sustainable infrastructure and environmental programs with the U.S. Army Corps of Engineers. Now I'd like to turn the presentation over to Steve Burdick, our Chief Financial Officer, to present the details of our financials in the quarter.

Steve? Well, hey, thank you, Dan. I'd like to now review the GAAP financial results for the third quarter of fiscal 2021, as well as our financial conditions as of the first nine months of the year. Overall, our revenue and net revenue came in much better when compared to our third quarter from last year. The fiscal 2021 third quarter revenue was $802 million. The net revenue amounted to $638 million and was towards the upper end of our guidance range of $600 million to $650 million. Our revenue was up 13% over last year and net revenue was up 14% over last year. And when compared to last year, our revenue and net revenue was positively impacted by our strong demand for water and environmental services, advanced analytics for our U.S. federal clients, disaster response for our state and local clients, and improved economic conditions for international operations resulting from the loosening restrictions due to the COVID global pandemic. Similarly, our operating profit margin and earnings per share improved. Our earnings per share of $0.95 came in better than the top end of our Q3 guidance range of $0.85 to $0.90 and better than the third quarter of last year by 14% and by 22% when we compared the prior year's adjusted results. The higher EPS was due to the improvement in our operating income, which came in at $70 million this quarter, which was up 10% from last year and up 17% when compared to the prior year's adjusted results. Our improved operating income was driven by an increase in our segment margins over the last year, as Dan described, as we continue to focus on providing higher-end consulting and technical engineering services to our clients. So as Dan talked about before, the CIG segment realized a higher margin of 11.4%, which was up 130 basis points. and GSG realized an even better margin of 13.8%, which was up 30 basis points. In the quarter, we also remained focused on generating positive cash flows in excess of our net income. Cash flows generated from operations for the third quarter totaled $69 million. We continued to improve our working capital management and also benefited from a decrease in our day sales outstanding, or DSO, Year to date for fiscal 21, we've generated $227 million in cash flow from operations, which is ahead of last year by 16%. Our focus on working capital and cash flows has resulted in our DSO decreasing to 65 days as of the third quarter. And this was an improvement of five days from last year at this time. Our net debt amounts to $16 million. This is an improvement of $120 million compared to last year, even as we used our cash for strategic acquisitions, as well as stock buybacks and dividends in the last 12 months, which amounted to over $100 million. Our long-term capital allocation strategy calls for balance of investing in the growth of our business, managing the balance sheet, and providing returns for shareholders. Over the trailing 12 months, cash generated from operations was $294 million, or over $5 per share. During the third quarter, we continued to benefit from this cash position by providing significant returns for our shareholders through dividends and share buybacks. Regarding our dividend program, during the past quarter, we paid out $10.8 million in dividends, and I want to announce that our Board of Directors approved our 29th consecutive dividend which will be paid in the month of August at a rate of 20 cents per share, which is an 18% increase over last year. Furthermore, we utilized $15 million in the third quarter for our stock buyback program, and we have $163 million remaining under our previously approved stock buyback program. So all told, year to date, we've returned $74 million to our shareholders through both our dividends and our share buybacks. But just as important as implementing our capital allocation strategy is ensuring that we have a strong balance sheet and ample liquidity. We have both in terms of our balance sheet at the end of Q3, which has a current leverage of 0.1 times and available liquidity of over $800 million in the form of cash on hand and funds available under our current credit agreements. As a result, Tetra Tech is in a financial position such that we continue to invest in technical capabilities and strategic growth areas, both organically and through acquisitions with top-tier firms this quarter, such as Eber Armac and Kaizen. And most recently, and in fact, just this week, we added Ora Lee, a leader in sustainable engineering design, which Dan will discuss later in this presentation. I'm pleased to share these financial results for the third quarter. I want to thank you for your support, and I'll hand the presentation back over to Dan.