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Trc q2 2014 earnings slides final
1. Q2 Fiscal 2014 Investor Review
Chris Vincze
Tom Bennet
Chairman & CEO
Chief Financial Officer
TRR
February 5, 2014
2. Safe Harbor Statement
Certain statements in this presentation may be forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these statements by forward-looking words such as
"may," "expects," "plans," "anticipates," "believes," "estimates," or other words of similar import. You should consider statements that
contain these words carefully because they discuss TRC’s future expectations, contain projections of the Company’s future results of
operations or of its financial condition, or state other "forward-looking" information. TRC believes that it is important to communicate
its future expectations to its investors. However, there may be events in the future that the Company is not able to accurately predict
or control and that may cause its actual results to differ materially from the expectations described in its forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially
from those discussed as a result of various factors, including, but not limited to, the uncertainty of TRC’s operational and growth
strategies; circumstances which could create large cash outflows, such as contract losses, litigation, uncollectible receivables and
income tax assessments; regulatory uncertainty; the availability of funding for government projects; the level of demand for TRC’s
services; product acceptance; industry-wide competitive factors; the ability to continue to attract and retain highly skilled and qualified
personnel; the availability and adequacy of insurance; and general political or economic conditions. Furthermore, market trends are
subject to changes, which could adversely affect future results. See the risk factors and additional discussion in TRC’s Annual Report on
Form 10-K for the fiscal year ended June 30, 2013, Quarterly Reports on Form 10-Q, and other factors detailed from time to time in the
Company’s other filings with the Securities and Exchange Commission.
These slides are intended as a visual aid to TRC’s commentary on the Second Quarter Fiscal Year 2014 Financial Results Conference
Call. As such they should be considered in the full context of that commentary, the transcript of that conference call and TRC’s second
quarter Form 10-Q and Financial Results Press Release. Also, this presentation contains references to non-GAAP metrics such as
EBITDA, gross margin, adjusted EPS and free cash flow. A reconciliation of GAAP to non-GAAP metrics can be found on slide 18.
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3. Q2 Fiscal 2014 Highlights
NSR(1) increased 21% YOY to $91.1M
Revenue growth in all three segments
EBITDA increased 24% YOY to $7.4M
Operating income increased 18% YOY to $5.2M
NSR backlog increased 4% YOY to $233.9M
(1) TRC believes net service revenue (gross revenue less subcontractor costs and other direct reimbursable charges) best reflects the value of
services provided to its customers and is the most meaningful indicator of its revenue performance.
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4. TRC’s Diversified Business Model
Q2 2014 Net Service Revenue
by Segment
Environmental
49%
$44.6M
$11.4M
Infrastructure
13%
$34.9M
Energy
38%
4
5. Environmental Segment
Net Service Revenue (in millions)
$44.6
$39.5
+13%
Q2 2013
Q2 2014
Segment Profit (in millions)
$8.8
$7.8
+12%
Q2 2013
Q2 2014
Segment Drivers
Greater permitting and power
plant decommissioning
activities
Greenhouse gas rules
Continued development of
upstream, midstream and
downstream oil & gas markets
Re-emergence of industrials
and related capital spend
Segment Challenges
Finding talent
Ongoing uncertainties with
energy policy and
environmental regulations
Pricing pressures
Federal and overall public
sector funding remains
down
5
6. Energy Segment
Net Service Revenue (in millions)
$34.9
$25.9
+35%
Q2 2013
Q2 2014
Segment Profit (in millions)
$7.3
$5.6
+29%
Q2 2013
Q2 2014
Segment Drivers
Expanding utility capital spend
programs on aging transmission
and distribution infrastructure
Greenhouse gas rule
Dynamic revolution in domestic
fuel supplies driving shifts in use
of utility assets (e.g. Coal ↓,
Natural Gas ↑, Renewables ↑,
Efficiency ↑)
Segment Challenges
Pricing pressures and aggressive
terms and conditions by utilities
Uncertainty related to use of
utility capital
Client capacity and strategy to
manage projects
Migration of larger competitors
into market
Finding talent
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7. Infrastructure Segment
Net Service Revenue (in millions)
$11.4
$9.7
+18%
Q2 2013
Q2 2014
Segment Profit (in millions)
$2.0
Healthy State budgets
providing for more
transportation funding
State and regional policies
prioritizing transportation
across the country
Need to upgrade and repair
aging infrastructure,
especially bridges and
roadways
Expansion of transportation
services
Segment Challenges
$1.4
+49%
Q2 2013
Segment Drivers
Q2 2014
Significant competition
Lack of long-term federal
policy and funding
- MAP21 expires in 2014
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8. NSR Backlog & New Project Wins
Segment NSR Backlog
New Project Wins
(in millions)
Environmental
$250
$225
+4%
$234
• Pacific Gas and Electric
• CSX
• Kinder Morgan
$200
$123
$53
$150
$122
Energy
$65
• Public Service of NH
• PPL Electric Utilities
$100
Infrastructure
$50
$50
$46
Q2 2013
• City of Lancaster, CA
• Penn DOT – Numerous
Awards
Q2 2014
$0
8
9. Growth Strategy
• Invest in high-margin organic growth opportunities focused on:
• Utility/Power
• Oil & Gas
• Infrastructure
• Pursue strategic acquisitions to enhance service offerings and geographic footprint of
all three segments
Total & Organic NSR Growth
Recent Acquisitions
25%
20%
15%
• EMCOR Energy Services, Inc. (EES)
Total
• Utility Support Systems, Inc. (USS)
Organic
• Ocampo Esta Corp. (Covina operations)
10%
• GE’s Air Emissions Testing business
5%
0%
Q3 2013
• Heschong Mahone Group, Inc.
Q4 2013
Q1 2014
Q2 2014
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10. EMCOR Energy Services, Inc. (EES)
• Acquired in Q3 FY 2014
• Diversifies TRC’s service offering to the energy efficiency markets
• Expands core program management and consulting capabilities with
additional engineering resource services for utility clients
• Enhances footprint and technical capabilities in a key California
growth market
• Approximately 25 employees
• Revenue for the calendar year 2013 approximately $4.4 million
• Based in San Francisco, CA (with additional location in Santa Ana, CA)
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11. Markets Outlook
Energy – Solid short-, medium-, and long-term outlook
• Aging and inefficient transmission and distribution systems will require long term capital
investments, estimated at $50B over next few years 1
• New regulatory drivers, e.g., NERC and FERC 1000 will drive additional investments
• Environmental regulations surrounding air, water, effluents, etc. will provide continued
uncertainty on capital spend direction
• Energy Efficiency markets estimated to grow > 10%/year over the next decade 2
Environmental – Improving short-term and solid medium- and long-term outlook
• Energy and Industrial segment market conditions improving
• Federal and Public markets still declining
• Decommissioning expenditures will double over next few years as 150+ power plants are
listed for closure3
• New regulations which set strict limits on carbon emissions by new US power plants will
require significant investment
• US Non-federal environmental markets expected to grow between 4-5% per year over next
few years 4
Infrastructure – Improving short-term and solid medium- and long-term outlook
• State Infrastructure funding expected to grow 4-5% per year based on improving local
economies 5
• $3.6 Trillion required for state of good repair 6
• Increasing use of Public Private Partnerships to support funding gaps
• Potential for National Infrastructure Bank
1+2
3
4
5
6
Source: EIA/EPRI Spring 2013 Report
Navigant Research letter published Q3 2013
Source: Environmental Business Journal (2013)
Source: National Association of State Budget Office (NASBO) (Spring 2013)
Source: American Society of Civil Engineers 2013 Report on Americas Infrastructure
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12. CEO Summary
• Attractive markets offer opportunity for profitable
near- and long-term growth
• Internal investments are delivering returns
• Balanced strategy to grow organically and through
acquisitions
• Strong balance sheet and cash position
• Continuing to build backlog
12
13. Quarterly Financial Results Overview
EBITDA (in millions)
Net Service Revenue (in millions)
$7.4
$91.1
$75.3
$6.0
+21%
Q2 2013
+24%
Q2 2014
Q2 2013
Operating Income (in millions)
$5.2
$4.4
Q2 2014
Diluted EPS
$0.14
$0.09
$0.10 $0.10
+18%
Q2 2013
Q2 2014
Q2 2013
GAAP EPS
Q2 2014
Adjusted EPS1
(1) Prior period was affected by a deferred tax asset valuation allowance which substantially reduced the effective tax rate. Adjusted EPS shows, for
comparative purposes, prior period results as if they were affected by TRC’s current annual estimated tax rate. See page 18 for reconciliation.
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14. Quarterly Income Statement Highlights
(In millions, except per share data)
Q2 2013
Q2 2014
Net service revenue
$75.3
$91.1
Insurance recoverables and other income
$0.9
$0.3
Cost of services (COS)
$64.6
$76.4
Gross margin %
14.2%
16.2%
General and administrative expenses
$5.7
$7.5
Operating income
$4.4
$5.2
EBITDA
$6.0
$7.4
EBITDA as a % of NSR
8.0%
8.2%
Federal and state income tax provision
$(0.2)
$(2.1)
Adjusted effective tax rate1
41.0%
40.0%
Net income
$4.1
$3.1
Diluted earnings per common share
$0.14
$0.10
Adjusted diluted earnings per common share
$0.09
$0.10
Cost of Services as % of NSR
$91.1
$75.3
85.8%
Q2 2013
83.8%
Q2 2014
G&A Expenses as % of NSR
$91.1
$75.3
7.6%
Q2 2013
8.2%
Q2 2014
(1) Prior period was affected by a deferred tax asset valuation allowance which substantially reduced the effective tax rate. Adjusted EPS shows, for
comparative purposes, prior period results as if they were affected by TRC’s current annual estimated tax rate. See page 18 for reconciliation.
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15. YTD Financial Results Overview
EBITDA (in millions)
Net Service Revenue (in millions)
$172.4
$150.5
$13.9
$12.1
+15%
YTD 2013
+14%
YTD 2014
YTD 2013
Operating Income (in millions)
$9.4
$9.0
YTD 2014
Diluted EPS
$0.28
$0.18
$0.19 $0.19
+5%
YTD 2013
YTD 2014
YTD 2013
GAAP EPS
YTD 2014
Adjusted EPS 1
(1) Prior period was affected by a deferred tax asset valuation allowance which substantially reduced the effective tax rate. Adjusted EPS shows, for
comparative purposes, prior period results as if they were affected by TRC’s current annual estimated tax rate. See page 18 for reconciliation.
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16. YTD Income Statement Highlights
(In millions, except per share data)
YTD 2013
YTD 2014
$150.5
$172.4
$2.7
$12.6
Cost of services (COS)
$128.3
$154.8
Gross margin %
14.8%
10.2%
General and administrative expenses
$12.9
$16.3
Operating income
$9.0
Exit Strategy Change in
Estimate in Q1 2014
$9.4
Net service revenue
Insurance recoverables and other income
EBITDA
$12.1
$13.9
EBITDA as a % of NSR
8.1%
$(0.4)
$(3.8)
Adjusted effective tax rate1
40.9%
40.3%
Net income
$8.4
$0.28
$0.18
12.4
Cost of Services
7.3
Operating Income
$
Cost of Services as % of NSR
$172.4
$150.5
89.8%
85.2%
$0.19
Adjusted diluted earnings per common share
Insurance Recoverables
$5.6
Diluted earnings per common share
$ (5.1)
8.1%
Federal and state income tax provision
Net Service Revenue
YTD 2013
YTD 2014
G&A Expenses as % of NSR
$150.5
$172.4
9.4%
8.6%
$0.19
YTD 2013
YTD 2014
(1) Prior period was affected by a deferred tax asset valuation allowance which substantially reduced the effective tax rate. Adjusted EPS shows, for
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comparative purposes, prior period results as if they were affected by TRC’s current annual estimated tax rate. See page 18 for reconciliation.
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17. Balance Sheet and Cash Flow Highlights
(In millions)
YTD 2013
YTD 2014
$10.8
$8.5
86 days
86 days
Balance Sheet Highlights
Cash and cash equivalents
Days sales outstanding (DSO)
Q2 2013
Q2 2014
Cash flow from operations
$(0.7)
$(6.5)
$(4.5)
$(5.5)
Capital expenditures
$(1.1)
$(1.3)
$(1.8)
$(2.8)
Free cash flow
$(1.8)
$(7.8)
$(6.3)
$(8.3)
Cash Flow Highlights
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18. Reconciliation of Non-GAAP Measures
Earnings Before Interest, Taxes, Depreciation, Amortization
In millions
Q2 - 2013
$4.1
0.1
0.2
1.6
(0.0)
$6.0
Net income applicable to TRC Companies, Inc.'s common shareholders
Interest expense
Federal and state income tax provision
Depreciation and amortization
Net loss applicable to noncontrolling interest
Consolidated EBITDA
Q2 - 2014
$3.1
0.0
2.1
2.2
(0.0)
$7.4
YTD - 2013
$8.4
0.2
0.4
3.1
(0.0)
$12.1
YTD - 2014
$5.6
0.1
3.8
4.4
(0.0)
$13.9
Q2 - 2014
$91.1
76.4
$14.7
16.2%
YTD - 2013
$150.5
128.3
$22.2
14.8%
YTD - 2014
$172.4
154.8
$17.6
10.2%
Q2 - 2014
$0.10
YTD - 2014
$0.19
$0.10
30,069
YTD - 2013
$0.28
(0.10)
$0.18
29,477
Q2 - 2014
$(6.5)
(1.3)
$(7.8)
YTD - 2013
$(4.5)
(1.8)
$(6.3)
YTD - 2014
$(5.5)
(2.8)
18 $(8.3)
Gross Margin and Gross Margin %
In millions
Q2 - 2013
$75.3
64.6
$10.7
14.2%
Net service revenue
Cost of services
Gross Margin
Gross Margin %
Adjusted EPS
Reported diluted earnings per common share
Less: Adjustment to normalize effective tax rate (eliminate tax valuation allowance)
Adjusted diluted earnings per common share
Weighted-average common shares outstanding
Q2 - 2013
$0.14
(0.05)
$0.09
29,471
-
$0.19
30,049
Free Cash Flow
In millions
Cash flow from operations
Additions to property and equipment
Free Cash Flow
Q2 - 2013
$(0.7)
(1.1)
$(1.8)
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19. Definitions for Non-GAAP Measures
Earnings Before Interest, Taxes, Depreciation, Amortization and Goodwill & Intangible Asset Impairment
The definition of Consolidated Adjusted EBITDA in the Company's revolving credit facility excludes interest
expense on excluded indebtedness and adds back interest.
Gross Margin and Gross Margin %
The definition of Gross Margin is equal to Net Service revenue less Cost of Services. Gross Margin % is equal to
Gross Margin Divided by Net service revenue.
Free Cash Flow
The definition of Free Cash Flow is equal to Net cash provided by (used in) operating activities plus Additions to
property and equipment.
Adjusted Diluted Earnings Per Common Share
Adjusted Diluted Earnings Per Common Share is defined as reported earnings per common share excluding the
tax impact of the reversal of a portion of the valuation allowance. We do not believe that this excluded item is
indicative of our ongoing operating results, and it is not considered when we are forecasting our future results.
We believe Adjusted Diluted Earnings Per Common Share is of value to our current and potential investors
when comparing our results from past, present and future periods.
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