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, Jill Hutkins, President, and Leslie Shoemaker, Chief Sustainability Officer. They will provide a brief overview of the results and will then open up the call for your 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 now like to turn the call over to Dan Batrack. Please go ahead, Mr. Batrack.

Great. Thank you very much, Camila. And good morning, and welcome to our fiscal year 2023 second quarter earnings conference call. We had an excellent second quarter. Our revenue for the quarter exceeded a billion dollars for the first time. As a result of our exceptional performance across Tetra Tech's operations, augmented by the addition of the RPS group that joined us at the end of January of this year. Tetra Tech's leading with science services are at the center of our clients' priorities to address climate change, resiliency, and adaptation worldwide. Given the strength of our performance and outlook, we're increasing our guidance for both net revenue and earnings per share for fiscal year 2023, which I'll give you more details on this later in the conference call. I'll begin with an overview of our performance and our customers, followed by Steve Burdick, our Chief Financial Officer, who will provide more detailed review of our financials and our capital allocation program. Dr. Leslie Shoemaker, who's joined us today, who's our Chief Sustainability Officer, will provide an update on our recently published annual ESG report. And Jill Hedkins, our President, will provide further insight into our growth markets. I'll then address our earnings guidance for the third quarter and our increased guidance for all of fiscal year 2023. In the quarter, our net revenue increased 39% year over year from $700 million a year ago to $970 million this year, which is the highest net revenue for any quarter in the company's history. Our EBITDA income increased 30% from last year, reaching a second quarter record of $105 million. And finally, we delivered $1.17 in earnings per share, which is up 19% from last year. I'd now like to show you what the underlying performance of Tetra Tech was without the contribution of RPS in the second quarter, really to give you some good insight into how the legacy business is actually operating at this time. Tetra Tech hit new all-time second quarter highs in double-digit growth rates across the board for revenue, net revenue, operating income, EBITDA, and earnings per share. Revenue without the contribution of RPS was $989 million, almost a billion dollars, up 16% year over year, a record revenue for any quarter in the company's history without the contributions of RPS. Our net revenue increased by 18% year over year. Our operating income and EBITDA were both up 19%, and we generated an earnings per share of Tetra Tech without RPS of $1.20 per share, or up 22% from last year. I would now like to provide an overview of our performance by our end customer. Work for our U.S. federal clients was up 59% from last year, driven by broad-based growth in water and environmental programs, and during the quarter, the rapid initiation of support for Ukraine under our U.S. State Department and USAID contracts. Excluding contributions from our extraordinary disaster response related programs, our state and local revenues were up 12% from last year, driven by our digital water and our municipal infrastructure work. International work or international revenues, where a majority of the RPS operations are included, increased by 55% year on year. Excluding RPS, our international revenues grew on their own, though. They were up 11% from the prior year, driven by strong performance in our global high-performance buildings work in Canada, Australia, and the United Kingdom. Our United States commercial net revenues were up 25% from last year. Excluding the RPS acquisition, our underlying commercial revenues were up 13% year-on-year driven by our services and sustainability, including work specifically in environmental permitting, also high-performance buildings, and clean energy and renewable energy programs. I'd like to provide and present a detail of our performance by our two segments that we report on. The first segment, the Government Services Group, or the GSG segment, grew by 29% from last year, with a significant increase in our international development work, especially for Ukraine energy programs. The extraordinary contribution for Ukraine just in the quarter provided $70 million in revenue. Disaster response was down relative to the second quarter last year. For comparison purposes, excluding the unusual impact response in the quarter, our government services group had a strong double digit growth rate of 16% year on year. Our commercial international group or CIG segment grew by 47% year on year. Even excluding RPS, which was a material contribution to the segment, the CIG segment was up 13% driven by growth and renewable energy programs, environmental work all across the United States and high performance buildings work worldwide. You know, one of the highlights for the quarter, in addition to the actual performance of revenue and profit and extraordinary work, was our backlog. Our backlog was up 18% year on year on strong, broad-based orders, resulting in an all-time high backlog of $4,275,000,000 of contracted, funded, and authorized work. In the second quarter, we won new programs and task orders for commercial clients, especially for renewable energy and environmental restoration services. For U.S. federal agencies, we were awarded major water focus contract vehicles, such as the $105 million U.S. Watershed Assessment Contract with the U.S. Environmental Protection Agency. Our disaster planning and recovering practice also won a $54 million contract with Puerto Rico, addressing the continued long-term resiliency planning needs for this hurricane-prone region. Now, while those were an overview of our financials for the quarter and some of the growth areas, I'd now like to turn the presentation over to Steve Burdick, our Chief Financial Officer, to go over some of the details of our financials in the quarter.

Steve? Oh, hey. Thanks, Dan. So as you just heard from Dan, we had an excellent quarter with results coming in better than anticipated. Those improvements also extend to our cash flows and our capital allocation related matters. So cash flows generated from operations for the second quarter totaled $108 million, up 13% over last year. Our focus on working capital and cash flows has also resulted in our DSO maintaining a leading industry standard of 59 days, This is a sustainable improvement from prior years and the slower 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 geographies. And regarding our dividend program, we paid out 23 cents per share in dividends in the second quarter, which is a 15% increase over last year and I want to announce that our Board of Directors approved an increase in our quarterly dividend again to 26 cents per share to be paid in June. This is our 36th consecutive quarterly dividend and our ninth consecutive year of double-digit year-over-year increases in dividends paid. You know, as Dan mentioned earlier, you know, we did have this acquisition RPS. And the recent closing of the RPS acquisition, which was just over 100 days ago, has been going quite well in regards to integrating Tetra Tech and RPS together. We've been making excellent progress towards improving profit margins, and I would like to update you on our financial plan and current status for the integration of RPS, which is a significant opportunity for Tetra Tech. When looking out over the next several quarters, our goal is to align the RPS margins to be at or above the Tetra Tech profit margins. And this will be accomplished in a similar manner as to what we had accomplished with our two previous public company acquisitions, and that is by focusing on high-end differentiated services and revenues while integrating the business onto our ERP platform and corporate systems for greater cost synergies. As such, we expect to increase the EBITDA margin for RPS from under 5% in their fiscal 2022 by almost three times to a run rate of over 13% at the end of fiscal 2024. Now, while our operations are working together to focus on delivering high-end solutions in water and environment for our clients, we're also supporting those activities And we expect to realize additional cost synergies through both the transition of the RPS business under our ERP system, as well as potential office consolidations. These actions may result in additional one-time integration costs primarily in the fourth quarter of fiscal 2023, but will provide increased long-term operating and financial benefits to the ongoing business. And so far today, compared to our original projections, we are seeing improved margin opportunities based on our joint integration efforts with the RPS leadership team. And so through improved RPS profit margins and cash flows, along with Tetra Tech's strong positive cash flows from operations, we expect to continue to delever our balance sheet. We ended the second quarter with a net debt leverage ratio of about 1.9 times EBITDA. which is within our targeted range, we expect this further deliver the balance sheet to a factor of about 1.5 times by the end of this fiscal year. And so by increasing the EBITDA margins while decreasing the interest expense on a lower debt, we would expect to be cash accretive after fiscal 2023, adding approximately 50 cents of EPS in fiscal 2024 and approximately 85 cents of EPS in fiscal 2025. And this will result in a double-digit EPS accretion in probably in about the mid to upper teens by fiscal 2025, which we had previously anticipated at the time of the acquisition. I'm pleased to share these quarterly financial results for the first half of our fiscal 23. I want to thank you for your support, and I will now hand the call over to Leslie, who will discuss our ESG sustainability program.