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 copyrighted 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.

Thank you very much, Laura, and good morning. And welcome to our fourth quarter and fiscal year 2021 earnings conference call. We had an excellent fourth quarter, completing an exceptionally strong 2021 fiscal year. And as we enter fiscal year 2022, we've never been in better alignment with our clients' priorities than we are today. Globally, and here in the United States, the priorities of water, environment, sustainable infrastructure, and renewable energy are creating new projects and additional funding commitments from our clients. Climate change is driving our communities to invest in resiliency and governments to make longer-term commitments for the reduction of carbon emissions. In areas impacted by climate change, we're seeing increased emphasis on adaptation, while we also are supporting those affected by unprecedented disasters. These global and local trends are directly aligned with our leading with science approach and have resulted in strong growth across all of our client sectors and generated new orders that resulted in an all-time high backlog for us. As shown on our webcast, if you're following along, are the results of our fourth quarter in fiscal year 2021. We hit all-time highs across the board with full-year revenue of $3.21 billion and operating income of $275 million, up 13% from last year. We delivered a $3.79 in adjusted EPS, up 16% from last year, and $4.26 of earnings per share on a gap basis, which is up 35% from last year. And we also generated $304 million in cash, or more than $5.50 of cash per share in fiscal year 2021. The strong performance of our company across our global operations is a demonstration of the strength of our business and the capability of our 21,000 associates, who are technically differentiated, highly client-focused, and fiscally disciplined. 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 our earnings guidance for fiscal year 2022. We had a strong fourth quarter, ending the year with record net revenue, operating income, and earnings per share. Our net revenue increased 20% year over year to $709 million for the quarter. Our fourth quarter operating income of $79 million generated an earnings per share of $1.05, up 15% from last year. This represents the highest quarterly EPS in the company's history, and the first time we've exceeded a dollar EPS in any quarter in the company's history. And our backlog, our best forward-looking indicator, was also the highest in the history of the company, growing to $3.48 billion, up 7% both year-on-year and sequentially. I'd now like to provide an overview of our performance by our end customer. In the fourth quarter, revenue for all of our client sectors increased compared to last year. We saw continued strength in our state and local revenues, which were up organically 30% from the fourth quarter of last year. Even excluding the extraordinary contributions of our disaster response work, this is the sixth consecutive year of double-digit growth for our state and local business. Work for our U.S. federal clients was 28% of our revenue in the quarter and was up 11% from the same quarter last year. This growth was driven by an increase in climate change-related services and advanced analytics for our clients. Our U.S. commercial revenue was 22% of our business, up 8% from last year. Our environmental permitting, regulatory driven programs, and renewable energy services all contributed to our growth in this sector. And finally, our fastest growing client sector was international, where our revenue was up 35% from last year. Our international revenues did benefit from the addition of our new high performance buildings group in the United Kingdom, Hoor Lee, who joined us in the fourth quarter of fiscal year 2021. The rest of our international work grew at a strong 24% year-on-year pace with the expansion of broad-based sustainable infrastructure programs in Canada, Australia, and the United Kingdom. And I'd like to present our performance by segment. In the fourth quarter, both of our segments grew at double-digit rates year over year. The Government Services Group, or GSG segment, was up 13% compared to last year to $372 million, while maintaining a strong 14% margin on operating income. This performance was driven by our high-end data analytics and design services for water and environmental programs augmented by our disaster response and recovery work all across the country. The Commercial International Group, or CIG, grew by 30% year-over-year and delivered a 12.4% margin, up 50 basis points from last year. CIG's fourth quarter results were driven by growth in our international operations and a strengthening commercial market here in the United States. Our backlog was up 7%. both year-on-year and sequentially, on strong broad-based orders, resulting in a new all-time high of $3,480,000,000 of contracted, funded, and authorized work from our clients. In the fourth quarter, we won new programs and task orders for differentiated water, environmental, and renewable energy services, building momentum for us in fiscal year 22, both in the U.S. and the international markets. We also expanded our contract capacity by over $8 billion for key USAID, US Army Corps of Engineers, and NOAA programs that provide the contract vehicles for us to support the US government's climate change priorities. We won task orders with both the United States and international government agencies for water, environment, and climate change adaptation programs. In the fourth quarter, we had strong commercial orders of over $400 million. to provide renewable energy, environmental restoration, and sustainable infrastructure services. This was an extraordinarily well-balanced quarter for orders from both our government and from our commercial clients. And at this point, I'd now like to turn the presentation over to Steve Burdick to present the details of our financials from the quarter and where we finished the year. So, Steve?

Well, hey. Thank you, Dan. So, now I'd like to now review the GAAP financial results for the fourth quarter as well as our financial condition for fiscal year 2021. You know, overall, as Dan noted earlier, we had record results in Q4 and record fiscal year results, revenue, operating income, EPS, and backlog. The fiscal 2021 fourth quarter revenue was $892 million. The net revenue amounted to $709 million, which exceeded the upper end of our guidance range of $650 million to $750 million. Our revenue was up 18% over last year and net revenue was up 20% over last year, with double-digit growth across international, federal, and state and local end markets. Similarly, our operating profit and earnings per share improved. GAAP EPS came in at $1.52 in the fourth quarter, which was an increase of 85% over last year. In addition, Adjusted earnings per share of $1.05 came in better than the top end of our Q4 guidance range of $0.95 to $1.00. This is an improvement over the fourth quarter of last year by 15%. The higher EPS was due to an improvement in operating income, which came in at $82 million for the quarter, up 23% over last year. And adjusted income was $79 million, up 15% over last year. As Dan noted earlier, the improved operating margin in the fourth quarter was really driven by a 30% growth in CIG, and the resulting CIG margin of 12.4% was an improvement of 50 basis points over the last year. The difference between our GAAP EPS of $1.52 and adjusted EPS of $1.05 was primarily due to a non-recurring tax benefit. A reconciliation is available in this release, but to point out, the tax benefit results from the release of the tax net operating loss reserve from our WYG acquisition in the fourth quarter of 2019. And because we turned the company around from perennial losses with tax losses to double-digit profitability, there's no longer an accounting requirement to not recognize that future tax benefit. And that future tax benefit, as such, will provide future positive cash flows for the company. We also remain focused on generating positive operating cash flows in excess of our net income. Cash flows generated from operations for the fourth quarter totaled $78 million. For fiscal 2021, we have generated $304 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 63 days as of the fourth quarter. This is an improvement of five days from last year at this time. Our net debt amounts to $46 million, and our net debt on EBITDA was at a leverage of 0.2 times. This is with a cash position of more than $167 million and thus an improvement in net debt of $88 million compared to last year. Our long-term capital allocation strategy calls for a balance of investing in the growth of our business, managing the balance sheet, and providing returns to our shareholders. For the year, cash from operations generated $304 million, which is equal to about $5.57 per share. This has allowed us to invest in five acquisitions over that time to advance our long-term strategy. And during the fourth quarter, we continue to provide significant returns for our shareholders through dividends and share buybacks. So 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 30th consecutive dividend, which will be paid in the month of December at a rate of 20 cents per share which is an 18% increase over last year. Furthermore, we utilized $15 million in the fourth quarter on our stock buyback program. With the addition of the recently announced $400 million program, we had a total of $548 million remaining in our approved stock buyback programs. All told, for fiscal 2021, we returned more than $100 million to our shareholders through dividends and share buybacks. And in fiscal 2021, our strong cash flow allowed us to successfully complete these strategic acquisitions, continue to return capital to our shareholders, while still deleveraging to 0.2 times. And our strong balance sheet and available liquidity of over $900 million positions us to continue to invest in these technical capabilities and strategic growth areas, both organically and through acquisitions. I'm really pleased to share these financial results for the fourth quarter and the fiscal year with you all. Thank you for your support, and I'll turn the call back over to Dan.