Tetra Tech Reports Second Quarter 2017 Results

Tetra Tech, Inc. (NASDAQ: TTEK) today announced results for the second quarter ended April 2, 2017.

Second Quarter Results

Revenue in the second quarter totaled $664 million, up 6% year-over-year. For ongoing1 operations, revenue, net of subcontractor costs2 (net revenue), was $516 million, up 8% compared to the same period in fiscal 2016. Operating income for the second quarter was $43 million, and on an ongoing basis totaled $44 million, up 27% year-over-year. Earnings per share (EPS) were $0.46, and on an ongoing basis totaled $0.48, up 30% year-over-year. Backlog from our ongoing operations of $2.5 billion was up 18% year-over-year. Cash generated from operations was $109.1 million.

Quarterly Dividend and Share Repurchase Program

On May 1, 2017, Tetra Tech’s Board of Directors declared an 11% increase in the quarterly dividend, raising it to $0.10 per share payable on June 2, 2017 to stockholders of record as of May 18, 2017. Additionally, the Company has $180 million remaining under the previously approved $200 million share repurchase program. The Company anticipates expending $100 million in share repurchases in fiscal year 2017, of which $20 million was completed in the first six months.

Comments on Results

Tetra Tech’s Chairman and CEO, Dan Batrack commented, “Tetra Tech generated solid results for the second quarter, exceeding our quarterly guidance for both net revenue and EPS. Our performance this quarter was driven by broad-based growth across most of our end-markets, which resulted in our fifth consecutive quarter of backlog increase. Our Company continues to benefit from our technical leadership positions with our U.S. federal clients, specifically with the Department of Defense, and in U.S. state and local infrastructure markets, which contributed to our record high backlog. Given this trend and the strength of our six-month results, we are increasing our guidance for fiscal 2017.”

Six-Month Results

Revenue for the six-month period was $1.3 billion and net revenue was $1.0 billion. Operating income for the six-month period was $83 million and EPS was $0.92. On an ongoing basis, EPS totaled $0.97, up 23% year-over-year. Cash generated from operations was $50.4 million, up 67% year-over-year.

Business Outlook

The following statements are based on current expectations. These statements are forward-looking and the actual results could differ materially. These statements do not include the potential impact of transactions that may be completed or developments that become evident after the date of this release. The Business Outlook section should be read in conjunction with the information on forward-looking statements at the end of this release.

Tetra Tech expects diluted EPS for the third quarter of fiscal 2017 to range from $0.50 to $0.55. Net revenue for the third quarter is expected to range from $510 million to $540 million. For fiscal 2017, Tetra Tech is increasing guidance and now expects ongoing diluted EPS to range from $2.10 to $2.25 and net revenue to range from $2.05 billion to $2.10 billion.

Webcast

Investors will have the opportunity to access a live audio-visual webcast and supplemental financial information concerning the second quarter 2017 results through a link posted on the Company’s website at tetratech.com on May 4, 2017 at 8:00 a.m. (PT).

1 Refer to Reconciliation of Revenue and Operating Results table for a reconciliation to GAAP.
2 Tetra Tech’s revenue includes a significant amount of subcontractor costs and, therefore, the Company believes revenue, net of subcontractor costs, which is a non-GAAP financial measure, provides a valuable perspective on its business results.

 

Reconciliation of Revenue and Operating Results

 
In thousands (except EPS data)
 

Three Months Ended Six Months Ended
Apr. 2,

2017

  Mar. 27,

2016

  %

Y/Y

Apr. 2,

2017

  Mar. 27,

2016

  %

Y/Y

 
Revenue $ 663,781 $ 627,384 6 % $ 1,332,632 $ 1,188,092 12 %
Subcontractor costs   (151,827 )   (148,619 )     (331,127 )   (288,371 )  
Net revenue $ 511,954   $ 478,765   7 % $ 1,001,505   $ 899,721   11 %
 
Revenue $ 663,781 $ 627,384 6 % $ 1,332,632 $ 1,188,092 12 %
RCM   23     (10,753 )     (8,209 )   (31,579 )  
Ongoing revenue $ 663,804   $ 616,631   8 % $ 1,324,423   $ 1,156,513   15 %
 
 
Net revenue $ 511,954 $ 478,765 7 % $ 1,001,505 $ 899,721 11 %
RCM   3,704     (2,975 )     1,909     (10,165 )  
Ongoing net revenue $ 515,658   $ 475,790   8 % $ 1,003,414   $ 889,556   13 %
 
 
Operating income $ 42,956 $ 16,650 158 % $ 82,811 $ 49,581 67 %
Earn-out expense (gain) (7,149 ) 1,822 (7,149 ) 2,823
RCM 8,466 386 11,508 5,668
Acq. & integration       15,911           15,911    
Ongoing operating income $ 44,273   $ 34,769   27 % $ 87,170   $ 73,983   18 %
 
 
EPS $ 0.46 $ 0.06 667 % $ 0.92 $ 0.45 104 %
Earn-out expense (gain) (0.08 ) 0.02 (0.08 ) 0.03
RCM 0.10 0.13 0.05
Acq. & integration 0.26 0.26
Coffey debt prepayment 0.03 0.03
Retroactive R&D tax                 (0.03 )  
Ongoing EPS $ 0.48   $ 0.37   30 % $ 0.97   $ 0.79   23 %
 

About Tetra Tech

Tetra Tech is a leading, global provider of consulting and engineering services. We are differentiated by Leading with Science to provide innovative technical solutions to our clients. We support global commercial and government clients focused on water, environment, infrastructure, resource management, energy, and international development. With 16,000 associates worldwide, Tetra Tech provides clear solutions to complex problems. For more information about Tetra Tech, please visit tetratech.com, follow us on Twitter (@TetraTech), or like us on Facebook.

Forward-Looking Statements

This news release contains forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include information concerning future events and the future financial performance of Tetra Tech that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results. Readers are urged to read the documents filed by Tetra Tech with the SEC, specifically the most recent reports on Form 10-K, 10-Q, and 8-K, each as it may be amended from time to time, which identify risk factors that could cause actual results to differ materially from the forward-looking statements. Among the important factors or risks that could cause actual results or events to differ materially from those in the forward-looking statements in this release are: continuing worldwide political and economic uncertainties; the new U.S. Administration’s potential changes to fiscal and tax policies; the cyclicality in demand for our overall services; the fluctuation in demand for oil and gas, and mining services; risks related to international operations; concentration of revenues from U.S. government agencies and potential funding disruptions by these agencies; dependence on winning or renewing U.S. government contracts; the delay or unavailability of public funding on U.S. government contracts; the U.S. government’s right to modify, delay, curtail or terminate contracts at its convenience; compliance with government procurement laws and regulations; credit risks associated with certain clients in certain geographic areas or industries; acquisition strategy and integration risks; goodwill or other intangible asset impairment; the failure to comply with worldwide anti-bribery laws; the failure to comply with domestic and international export laws; the failure to properly manage projects; the loss of key personnel or the inability to attract and retain qualified personnel; the ability of our employees to obtain government granted eligibility; the use of estimates and assumptions in the preparation of financial statements; the ability to maintain adequate workforce utilization; the use of the percentage-of-completion method of accounting; the inability to accurately estimate and control contract costs; the failure to adequately recover on our claims for additional contract costs; the failure to win or renew contracts with private and public sector clients; growth strategy management; backlog cancellation and adjustments; risks relating to cyber security breaches; the failure of partners to perform on joint projects; the failure of subcontractors to satisfy their obligations; requirements to pay liquidated damages based on contract performance; the adoption of new legal requirements; changes in resource management, environmental or infrastructure industry laws, regulations or programs; changes in capital markets and the access to capital; credit agreement covenants; industry competition; liability related to legal proceedings, investigations, and disputes; the availability of third-party insurance coverage; the ability to obtain adequate bonding; employee, agent, or partner misconduct; employee risks related to international travel; safety programs; conflict of interest issues; liabilities relating to reports and opinions; liabilities relating to environmental laws and regulations; force majeure events; protection of intellectual property rights; stock price volatility; and the ability to impede a business combination based on Delaware law and charter documents. Any projections in this release are based on limited information currently available to Tetra Tech, which is subject to change. Although any such projections and the factors influencing them will likely change, Tetra Tech will not necessarily update the information, since Tetra Tech will only provide guidance at certain points during the year. Readers should not place undue reliance on forward-looking statements since such information speaks only as of the date of this release.