Tetra Tech, Inc.

Good morning and thank you for joining the Tetra Tech earnings call. As a reminder, Tetra Tech is also simulcasting this presentation with slides in the investor section of its website at 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, Steve Burdick, Chief Financial Officer, and Jill Hudkins, President. They will provide a brief overview of the results and then we'll open up the call for questions. I would like to direct your attention to the Safe Harbor Statement in today's presentation. Today's discussion contains forward-looking statements about future business 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 undertakes 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 would 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 Batrak. Please go ahead, Mr. Batrak.

Great, Dawn. Thank you very much, Melissa. And good morning, and welcome to our fourth quarter and fiscal year 2022 earnings conference call. I'd like to start this morning by saying that we had an excellent fourth quarter that compared completed an exceptionally strong 2022 fiscal year. Our performance was a direct result of our leading with science approach on focus with water, environment, and sustainable infrastructure. We completed the year with strong growth across all of our client sectors and generated record orders for fiscal year 2022 that resulted in an all-time high backlog of $3,740,000,000. We saw a strong demand for our services in alignment with climate change priorities across both our government and our commercial clients. I'll begin this morning with an overview of our fiscal year and fourth quarter, followed by a financial update from our chief financial officer, Steve Burdick. I'm also pleased to include today Tetra Tech's president, Jill Hutkins, who will join me in providing the market outlook. After providing our guidance, I'll also provide some initial comments on the pending RPS Group acquisition. We had an exceptional fourth quarter and a finish to our full fiscal year. If you're following on the webcast, you can see that both the fourth quarter and the entire fiscal year of 2022, the company achieved all-time record highs for the key metrics that we track. And what was a record year, we also ended the year with the strongest revenue quarter and the highest of any quarter in Tetra Tech's history, providing us with significant momentum as we enter fiscal year 2023. Most notably in the quarter, with a record revenue, we also had record new orders of $1.3 billion, which resulted in a book to bill of 1.4 for the quarter and ended with an all-time high backlog of $3.74 billion. I'd now like to present the results of our fourth quarter. We hit new all-time highs across the board. Net revenue increased to an all-time high for any quarter of $736 million, up 12% from last year. Our record Q4 operating income of $94 million generated in earnings per share of $1.26, or up 30% from last year. This represents the highest quarterly earnings per share for any quarter and the company's history. 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. Work for our U.S. federal clients was 29% of our revenue in the quarter and was up 15% from the same quarter last year. Growth was driven by an increase in priority water, environmental, and international development programs for our key government clients. We saw continued strength in our state and local revenues, which were up organically 12% from the fourth quarter of last year, excluding extraordinary contributions from our disaster response work that we performed in fiscal year 2021. Our US commercial net revenue was a quarter of our overall business, up 25% from last year. Our high-performance buildings and our renewable energy services both contributed to our significant growth in this sector. And finally, our international revenues were up 15% on a constant currency basis from last year, with an expansion in our sustainable infrastructure programs in Australia, the United Kingdom, and all across Canada. I'd now like to present our performance by our segments. In the fourth quarter, The Government Services Group, or our GSG segment, was up 8% compared to last year to a revenue of $336 million. GSG generated a strong 15.1% margin in the quarter, which was up 130 basis points from last year. Performance was driven by our high-end data analytics and design services for our federal water and environmental programs. augmented by our digital water work across the United States. The Commercial International Group, or CIG, grew by 15 percent year-over-year and delivered a 13.6 percent margin, up 80 basis points from last year. CIG's fourth quarter results were driven by growth in our international operations as well as strength in the United States-based sustainable infrastructure and renewable energy markets. For backlog, well, our backlog was up 8% from last year, and on a constant currency basis, it was up 13%, resulting in a new all-time high, as I've mentioned a few times now, up to $3.74 billion. But to be clear, that is work that we have that is contracted, funded, and authorized, and is only a small part of our overall contract capacity that we have. In the fourth quarter, we won new programs and task orders for differentiated water, environment, and renewable energy services, while adding over a billion dollars of additional contract capacity just in the fourth quarter. We want new programs for key U.S. federal agencies, including the Department of Energy, the U.S. Environmental Protection Agency, USAID, the Army Corps of Engineers, and others that advance the government's priorities, initiatives in water, environment, and resilient infrastructure, including climate change mitigation programs. In the fourth quarter, We also had strong commercial orders of over $400 million to provide renewable energy, environmental restoration, and sustainable infrastructure services. At this point, I'd like to turn the presentation over to Steve Burdick, our Chief Financial Officer, who will provide more details of our financials both in the quarter and in the year.

Steve? Thank you, Dan. So, as Dan had just reviewed the fourth quarter operating results, I would like to now review the GAAP financial results for the fiscal year ending 2022 overall we had record revenue earnings and cash flow the strong performance from our operations was marked by record fiscal year revenue of 3.5 billion dollars which was up nine percent over last year and record net revenue amounting to 2.84 billion which was up 11 percent over last year and when adjusting for our 52 53 week fiscal year revenue was up actually 11 percent and net revenue was up 13% over last year. We experienced a strong revenue growth from all of our end markets, including international, commercial, state and local, and federal government. Our operating income and earnings per share for the fiscal year were also both up to all-time highs. Our reported operating income came in at $340 million, up 22% over last year. This improvement came from both segments, About two-thirds of this increase was driven by our 28% growth in the CIG segment net revenue and the continuing improvement of CIG's operating margin, which was up 110 basis points over last year. And about a third of this increase in operating income came out of GSG, where the margins are up 70 basis points over last year. And on a consolidated basis, these improvements resulted in our EBITDA margin increasing 100 basis points over last year. GAAP EPS came in at $4.86, an increase of 14% over last year. And for those that want to take a look at the reconciliation in the appendix to this presentation, we did have a one-time employee tax credit and a significant foreign exchange hedge gain this year. And excluding these two matters, our EPS came in at an all-time record high of $4.50 for the year, which was an increase of 21% compared to the adjusted EPS last year. Now, cash flows generated from operations for fiscal 2022 totaled $336 million, an increase of 10% over last year. Our focus on working capital and cash flows has resulted in further improving our DSO to 61 days, and this is an improvement of over two days from last year. But just as important as the year-over-year improvement is our long-term focus. And over the last four years, we've improved the DSO each year and brought it down from over 80 days to an industry leading best in the low 60s. This lower DSO trend continues to reflect the outstanding work that our project managers lead relative to higher quality projects and highly satisfied clients in our broad portfolio across all of our end markets and all of our geographies. Our net debt amounts to $74 million. And this net debt on an EBITDA basis was at a leverage of 0.2 times with a total cash position of about $185 million. As we presented here today, the continued high quality operating and financial results with improved EBITDA margins, strong cash flows, and lower working capital requirements has shown that Tetra Tech continues to generate very strong returns with a calculated return on invested capital of over 20% in the fourth quarter. Now, our long-term capital allocation strategy to continue providing these strong returns calls for a balance of investing in the growth of our business, managing the balance sheet, and providing returns to our shareholders. And in fiscal 2022, as I noted before, cash from operations generated $336 million. Our strong cash flows allowed us to successfully complete four strategically important acquisitions this year in the areas of digital water, data analytics, and sustainability. And we continue to provide significant returns for our shareholders through dividends and share buybacks. Regarding our dividend program, we paid out $46 million in dividends in fiscal 2022. And I want to announce that our board of directors approved our 34th consecutive dividend 23 cents per share for this quarter, which is a 15% increase over last year. And on an annualized basis, this represents a 92 cents per share run rate. Furthermore, this year we utilized $200 million on our stock buyback program. And all told, we returned $246 million to our shareholders through these dividends and share buybacks. These continuing strategic investments Our capital allocations to shareholders and the Tetra Tech's stock price increase all resulted in the total shareholder return or TSR over the last trailing three years of 54%, which is almost three times higher than a key benchmark BS&P 1000, which had a return of 19% over the same time period. So I am very pleased to share these results of our fiscal 2022. I want to thank you for your support, and I will hand the call back over to Dan.