Tetra Tech : January 2020 Investor Presentation

Investor Presentation

January 2020

Forward Looking Statements &

Non-GAAP Financial Measures

Certain statements contained in this presentation are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties, such as those related to fluctuations in the Company's quarterly operating results and stock price, and the other risks detailed from time to time in the Company's SEC reports.

To supplement the financial results presented in accordance with generally accepted accounting principles in the United States ("GAAP"), we present certain non-GAAP financial measures within the meaning of Regulation G under the Securities Exchange Act of 1934, as amended. We provide these non-GAAP financial measures because we believe they provide a valuable perspective on our financial results. However, non-GAAP measures have limitations as analytical tools and should not be considered in isolation and are not in accordance with, or a substitute for, GAAP measures. In addition, other companies may define non-GAAP measures differently which limits the ability of investors to compare non-GAAP measures of Tetra Tech to those used by our peer companies. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in the Appendix to this presentation.

2

Our Business

$3.1B Revenue

Leading with Science®

450 OFFICES WORLDWIDE

20,000

ASSOCIATES

PREMIER GLOBAL CONSULTING AND ENGINEERING FIRM

3

#1 Market Leading Positions

#1

ENR

Engineering News-Record

Water

16 Years in a row

Environmental Management

11 Years in a row

Solid Waste

7 Years in a row

Treatment/Desalination

6 Years in a row

4

Tetra Tech: A company built on:

Leading with Science®

				Added		#1 EPA
					Consultant
				Environmental
		U.S. Federal		Restoration
					• First pc-based
U.S. Water		Expanded				water models
			• First surveys		to asses water
Founded				of arctic		quality
		• First		using remote
			telemetry
		underwater
		robots &
• First
physical		sensors
water
models

Expanded

Disaster Mgmt.

Added Australia

& UK

Expanded Int.

Dev. Mkt.

Added Canada

• Cloud- based disaster recovery services

• Largest ever sediment restoration project

Leverage

Technology and

Advanced

Analytics

Addressing world needs in water, environment & sustainability

ENR 2019 Rankings

#1	Water
#1	Environmental
Management
#1	Solid Waste
#1	Wind Power
#1	Treatment/
Desalination
#1	Hydro Plants
#1	Dams &
Reservoirs

Global Associates

20,000

U.S. 11,000

Canada 4,000

Australia 3,000

UK2,000

5

Tetra Tech 2020 & Beyond

Leveraging our Technology Throughout our Business

Tt

•

Advanced Analytical Tools

•

Proprietary Models

Tetra Tech Delta

•

Patents

•

Software Solutions

WATER

ENVIRONMENT

Intelligent

Sector

Real Time

Asset

Road and

Acoustic

Disaster

Monitoring &

Augmented

Watershed

Coastal

Master

Control

Management

Rail

Modeling

Recovery

Evaluation

Design

Planning

Tt

Lightbox™

GoalSet

Csoft®

Tt Innovation Hubs		Intellectual Property		Tt Technology
	Inventors' Program		Transfer

6

Growth Opportunities

7

Fiscal 2020 Outlook

U.S. Federal

	Drivers:
	▪ Increase in U.S. Federal
5% to 10%
budget

	U.S. Commercial
Drivers:
▪	Environmental services
3% to 8%
▪	Green buildings design

					Leading
					with
	U.S. State and Local		Science®
	Drivers:					International
	▪	Municipal water
10% to 15%*		infrastructure					Drivers:
	▪	Disaster recovery						▪ Infrastructure and
						7% to 12%
								environmental programs
	* Excludes disaster response

8

Water

Market Drivers

• $7B+ new water funding in growth states of CA, FL and TX
• $400B+ shoreline projection cost estimate for U.S. coastal communities

ENR #1 in Water 16 years in a row

Flood Management	Water Supply	Water Quality
	Treatment Plant	Reclamation Facility

Community Resiliency - Hurricane Sandy

1st direct potable reuse - Daytona Beach

$1B in capital savings - Csoft®

9

Environment

Market Drivers

• New FEMA pre-disaster mitigation funding: $1.5B next 5 years
• Green tech & sustainability market growing to $29B by 2024 (CAGR: 27%)

Disaster Response & Recovery

Built Environment

ENR #1 in Environmental

Management -

10 years in a row

International Development

400 contracts with U.S. municipalities

Green Buildings

First global marine debris program

10

Sustainability Program

Tetra Tech supports sustainability through our

San Antonio

Water System

55,000 acre-feet of water treated per year

Wet weather systems optimization, (Csoft®):

>$1B capital saved

CLIENT PROJECTS

2018 U.S. hurricanes:

10 million yd3 of debris recycled

Afghanistan

Women's

Leadership

Development:

22,000 women trained

INTERNAL OPERATIONS

20,474	99%
Students reached	of corporate
through STEM Program	marketing materials use
since inception	recycled-content paper
78%	100%
of corporate	Paperless onboarding
marketing materials	documentation
delivered electronically
36%	55%
Reduction in tons
Improvement in	CO2e per associate
volunteer hours	since program
per employee	inception

www.tetratech.com/sustainability-report-card

11

Backlog

Significant Awards (Q4-19)

Contract

Funded

Record High

Ceiling

Value

3200

$3.09B

Various Commercial

―

$326M

3100

Int'l Dev Task Orders

―

$214M

3000

USAID Global Energy Services

$500M

―

Contract

2900

EPA Superfund Regions 4 & 5

$132M

$7M

Contracts

2800

DFID Sustainable Economic

$85M

$85M

Growth Contract

$M

2700

USAID Global Analytics

$70M

―

Services Contract

2600

$2.54B

U.S. Army Task Orders

―

$52M

2500

USAID Global Marine Pollution

$48M

$5M

Prevention Contract

2400

USACE Albuquerque District

Funded and

$40M

―

Authorized Work

Civil Works Contract

2300

MCC Mongolia Water Compact

$30M

―

2200

Contract

Q4-17

Q1-18

Q2-18

Q3-18

Q4-18

Q1-19

Q2-19

Q3-19

Q4-19

12

Financial Update

13

Strong Financial Performance

Net Revenue ($ in millions)	$2.4B	EPS
$2,500

$3.17

$3.00

$2,250

$2.50

$2,000		$2.00

$1.50

$1,750

$1,500

$1.00

$0.50

FY15

FY16

FY17

FY18

FY19

FY15

FY16

FY17

FY18

FY19

• Strong growth across diverse portfolio of end-clients
• High-enddifferentiated services drive higher margins
• Consistently growing bottom line faster than top line

14

Balanced Capital Allocation

FY-19

Cash Flow

$209M

Acquisitions	• WYG - UK expansion
•	eGlobalTech - Advanced analytics

FY-19 Return to	•	$100M in Shares Repurchased
Shareholders	•	$30M in Dividends

Current	•	Net Debt/EBITDA: 0.6x
Leverage

15

Guidance

(as of November 13, 2019)

	Net Revenue	Adjusted Diluted EPS
Q1-20	$600M	- $640M	$0.75 - $0.80
FY-20	$2.4B	- $2.6B	$3.35 - $3.55

Assumptions FY-20

• Includes intangible amortization of $10 million or $0.14 per share
• 23% effective FY-20 tax rate
• 55.5 million average diluted shares
• Excludes contributions from future acquisitions

16

Summary

• Strong finish to a record fiscal 2019
• Technically differentiated - Leading with Science®
• Broad-baseddemand for high-end consulting and engineering services
• All-timehigh backlog and contract capacity provide strong position for long term growth

17

APPENDIX

18

Unaudited Investors Report		2016		2017								2018														2019
($ in Thousands, Except Per Share Data)		Total		Total		1st Qtr		2nd Qtr		6 mos		3rd Qtr		9 mos		4th Qtr		Total		1st Qtr		2nd Qtr		6 mos		3rd Qtr		9 mos		4th Qtr		Total
REVENUE - ADJUSTED (1)		2,531,319		2,735,153		752,942		698,782		1,451,724		761,459		2,213,183		747,342		2,960,525		715,978		727,266		1,443,244		825,464		2,268,708		853,882		3,122,590
REVENUE, NET OF SUBCONTRACTOR COSTS ["Net Revenue" (2)]
Government Services Group (GSG)		951,030		1,067,158		309,966		290,565		600,531		301,019		901,550		310,784		1,212,334		303,281		316,041		619,322		352,563		971,885		357,496		1,329,381
Commercial / International Services Group (CIG) - Adjusted		960,908		966,938		233,729		241,860		475,589		267,854		743,443		252,885		996,328		249,506		274,084		523,590		270,471		794,061		282,680		1,076,741
NET REVENUE - ADJUSTED (1)		1,911,938		2,034,096		543,695		532,425		1,076,120		568,873		1,644,993		563,669		2,208,662		552,787		590,125		1,142,912		623,034		1,765,946		640,176		2,406,122
Remediation and Construction Management (RCM) / Claims		17,267		(86)		1,152		368		1,520		1,479		2,999		(10,927)		(7,928)		577		(4,741)		(4,165)		162		(4,002)		(12,483)		(16,485)
OTHER COSTS OF REVENUE - ADJUSTED (1) (3)		1,570,625		1,665,852		448,408		440,521		888,930		458,812		1,347,742		459,471		1,807,213		454,119		487,725		941,846		505,056		1,446,901		520,495		1,967,396
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - ADJUSTED (1) (3)		171,253		177,113		45,540		46,781		92,320		50,454		142,774		42,372		185,146		42,961		47,889		90,848		52,640		143,489		54,706		198,195
ACQUISITION AND INTEGRATION EXPENSES		19,548		-		-		-		-		-		-		-		-		-		-		-		-		-		10,351		10,351
PURCHASE ACCOUNTING / NON-CORE DISPOSITIONS (GAINS)		2,823		(6,923)		-		1,918		1,918		3,626		5,544		3,643		9,187		-		1,028		1,028		500		1,528		20,257		21,785
INCOME FROM OPERATIONS, AS REPORTED		135,855		183,342		48,589		42,716		91,305		55,496		146,801		43,285		190,086		55,711		47,545		103,256		64,841		168,097		20,664		188,762
INCOME FROM OPERATIONS - ADJUSTED (1) (2) (3)		170,060		191,131		49,747		45,123		94,870		59,607		154,477		61,826		216,303		55,707		54,511		110,218		65,338		175,556		64,975		240,531
GSG		101,595		138,199		39,125		34,177		73,302		44,372		117,674		50,537		168,211		37,413		44,803		82,217		52,487		134,703		50,560		185,263
CIG		106,603		90,817		21,294		18,399		39,693		27,892		67,585		19,323		86,908		27,099		20,869		47,968		27,025		74,993		29,285		104,278
Corporate (4)		(38,138)		(37,885)		(10,672)		(7,453)		(18,125)		(12,657)		(30,782)		(8,034)		(38,816)		(8,805)		(11,161)		(19,967)		(14,174)		(34,140)		(14,870)		(49,010)
RCM / Claims		(11,834)		(14,712)		(1,158)		(489)		(1,647)		(485)		(2,132)		(14,898)		(17,030)		4		(5,938)		(5,934)		3		(5,931)		(13,702)		(19,633)
OPERATING MARGIN - ADJUSTED [% of Net Revenue] (1) (2) (3)		8.9%		9.4%		9.1%		8.5%		8.8%		10.5%		9.4%		11.0%		9.8%		10.1%		9.2%		9.6%		10.5%		9.9%		10.1%		10.0%
GSG		10.7%		13.0%		12.6%		11.8%		12.2%		14.7%		13.1%		16.3%		13.9%		12.3%		14.2%		13.3%		14.9%		13.9%		14.1%		13.9%
CIG		11.1%		9.4%		9.1%		7.6%		8.3%		10.4%		9.1%		7.6%		8.7%		10.9%		7.6%		9.2%		10.0%		9.4%		10.4%		9.7%
Interest Expense
	11,389		11,581		3,160		4,092		7,252		4,345		11,597		3,927		15,524		2,897		3,164		6,061		3,546		9,607		4,019		13,626
INCOME BEFORE INCOME TAX EXPENSE (BENEFIT)		124,466		171,761		45,429		38,624		84,053		51,150		135,203		39,358		174,562		52,814		44,381		97,195		61,295		158,491		16,645		175,136
Income Tax Expense (Benefit)		40,613		53,844		(623)		9,877		9,254		17,806		27,060		10,545		37,605		10,782		(11,563)		(781)		12,044		11,263		5,112		16,375
NET INCOME ATTRIBUTABLE TO TETRA TECH		83,783		117,874		46,034		28,725		74,760		33,323		108,082		28,802		136,883		41,997		55,911		97,907		49,233		147,141		11,526		158,668
DILUTED AVERAGE SHARES		58,966		57,913		56,875		56,673		56,825		56,390		56,681		56,349		56,598		56,366		55,985		56,161		55,768		56,034		55,618		55,936
DILUTED EPS ATTRIBUTABLE TO TETRA TECH, AS REPORTED	$	1.42	$	2.04	$	0.81	$	0.51	$	1.32	$	0.59	$	1.91	$	0.51	$	2.42	$	0.75	$	1.00	$	1.74	$	0.88	$	2.63	$	0.21	$	2.84
ADJUSTED DILUTED EPS (1) (2) (3) (5)	$	1.88	$	2.13	$	0.65	$	0.54	$	1.18	$	0.71	$	1.89	$	0.75	$	2.64	$	0.70	$	0.70	$	1.40	$	0.89	$	2.28	$	0.88	$	3.17
ADJUSTED EBITDA (1) (2) (3)		214,088		235,019		59,450		55,190		114,640		69,634		184,274		69,602		253,876		63,922		60,909		124,831		71,854		196,686		72,489		269,175
ADJUSTED EBITDA MARGIN [% of Net Revenue]		11.2%		11.6%		10.9%		10.4%		10.7%		12.2%		11.2%		12.3%		11.5%		11.6%		10.3%		10.9%		11.5%		11.1%		11.3%		11.2%
DAYS IN SALES OUTSTANDING		84.2		83.1		85.4		92.4		92.4		81.3		81.3		85.4		85.4		83.3		78.2		78.2		80.1		80.1		77.6		77.6
CASH FLOW FROM OPERATIONS		146,258		144,982		(57,682)		81,274		23,593	.	52,679		76,272		109,461		185,733		(15,302)		114,550		99,248		14,136		113,384		95,129		208,513
CAPITAL EXPENDITURES		11,945		9,741		2,143		2,422		4,565		1,781		6,346		3,379		9,726		3,853		3,325		7,178		2,822		9,999		6,199		16,198
Y/Y ADJUSTED NET REVENUE GROWTH % (1) (2)		12.8%		6.4%		11.5%		3.3%		7.2%		14.3%		9.6%		5.7%		8.6%		1.7%		10.8%		6.2%		9.5%		7.4%		13.6%		8.9%
GSG		24.6%		12.2%		20.5%		11.2%		15.8%		13.1%		14.9%		10.0%		13.6%		(2.2%)		8.8%		3.1%		17.1%		7.8%		15.0%		9.7%
CIG		3.1%		0.6%		1.4%		(4.9%)		(1.9%)		15.7%		3.8%		0.9%		3.0%		6.8%		13.3%		10.1%		1.0%		6.8%		11.8%		8.1%
NET REVENUE % BY CLIENT TYPE - ADJUSTED
International		32%		30%		25%		28%		27%		29%		27%		29%		28%		30%		31%		31%		29%		30%		32%		30%
U.S. Commercial		30%		27%		28%		28%		28%		28%		28%		26%		27%		25%		24%		24%		24%		24%		23%		24%
U.S. Federal Government		27%		30%		29%		30%		29%		29%		30%		30%		30%		28%		27%		28%		28%		28%		28%		28%
U.S. State & Local Government		11%		13%		18%		14%		16%		14%		15%		15%		15%		17%		18%		17%		19%		18%		17%		18%
NET REVENUE % BY CONTRACT TYPE - ADJUSTED
Fixed-Price		27%		32%		31%		34%		32%		35%		33%		34%		33%		34%		35%		34%		33%		34%		35%		34%
Time-and-Materials		56%		49%		50%		50%		50%		48%		50%		49%		50%		49%		49%		49%		52%		50%		49%		50%
Cost-Plus		17%		19%		19%		16%		18%		17%		17%		17%		17%		17%		16%		17%		15%		16%		16%		16%
BACKLOG		2,378,894		2,541,105		2,428,698		2,510,037		2,510,037		2,435,461		2,435,461		2,663,814		2,663,814		2,793,108		2,814,077		2,814,077		2,833,990		2,833,990		3,091,857		3,091,857

1. Excludes Remediation and Construction Management, non-cash claims
2. Non-GAAPfinancial measure. For a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures, please visit tetratech.com/investor-presentations.html
3. Excludes purchase accounting and non-core dispositions, and acquisition and integration expenses
4. Corporate costs not allocable to the segments (e.g., acquisition costs, amortization expense, stock option expense, etc.)
5. Excludes non-recurring tax benefits

Excel file available on tetratech.com/investor-relations	19

Reconciliation of Revenue to Revenue, Net of Subcontractor Costs ("Net Revenue")(in millions)

						2018							2019
	2016	2017	1st Qtr	2nd Qtr	6 mos	3rd Qtr	9 mos	4th Qtr	Total	1st Qtr	2nd Qtr	6 mos	3rd Qtr	9 mos	4th Qtr	Total
Consolidated
Revenue (As Reported)	2,583.5	2,753.4	759.7	700.3	1,460.0	764.8	2,224.8	739.3	2,964.1	717.4	722.6	1,440.0	825.8	2,265.8	841.5	3,107.3
RCM / Non-Cash Claims	(52.2)	(18.2)	(6.8)	(1.5)	(8.3)	(3.3)	(11.6)	8.0	(3.6)	(1.4)	4.6	3.2	(0.3)	2.8	12.4	15.2
Adjusted Revenue	2,531.3	2,735.2	752.9	698.8	1,451.7	761.5	2,213.2	747.3	2,960.5	716.0	727.2	1,443.2	825.5	2,268.6	853.9	3,122.5
Subcontractor Costs, Less RCM	(619.4)	(701.0)	(209.2)	(166.5)	(375.6)	(192.5)	(568.2)	(183.7)	(751.8)	(163.2)	(137.1)	(300.3)	(202.5)	(502.7)	(213.7)	(716.4)
Adjusted Net Revenue	1,911.9	2,034.2	543.7	532.3	1,076.1	569.0	1,645.0	563.6	2,208.7	552.8	590.1	1,142.9	623.0	1,765.9	640.2	2,406.1
GSG Segment
Revenue	1,289.5	1,487.6	442.8	406.0	848.8	423.9	1,272.7	422.2	1,694.9	412.0	417.5	829.5	492.0	1,321.5	499.2	1,820.7
Subcontractor Costs	(338.5)	(420.4)	(132.8)	(115.5)	(248.3)	(122.9)	(371.2)	(111.4)	(482.6)	(108.7)	(101.5)	(210.2)	(139.4)	(349.6)	(141.7)	(491.3)
Net Revenue	951.0	1,067.2	310.0	290.5	600.5	301.0	901.5	310.8	1,212.3	303.3	316.0	619.3	352.6	971.9	357.5	1,329.4
CIG Segment
Revenue	1,297.2	1,326.0	331.5	309.7	641.2	352.6	993.8	329.3	1,323.1	317.8	322.5	640.3	347.8	988.0	354.5	1,342.5
Non-Cash Claims	-	-	-	-	-	-	-	10.6	10.6	-	-	-	-	-	13.7	13.7
Adjusted Revenue	1,297.2	1,326.0	331.5	309.7	641.2	352.6	993.8	339.9	1,333.7	317.8	322.5	640.3	347.8	988.0	368.2	1,356.2
Subcontractor Costs	(336.3)	(359.1)	(97.8)	(67.8)	(165.6)	(84.8)	(250.4)	(87.0)	(337.4)	(68.3)	(48.4)	(116.7)	(77.3)	(194.0)	(85.5)	(279.5)
Adjusted Net Revenue	960.9	966.9	233.7	241.9	475.6	267.8	743.4	252.9	996.3	249.5	274.1	523.6	270.5	794.0	282.7	1,076.7
RCM Segment
Revenue	52.2	18.2	6.8	1.5	8.3	3.3	11.6	2.6	14.2	1.4	(4.6)	(3.2)	0.3	(2.8)	1.3	(1.5)
Subcontractor Costs	(34.9)	(18.3)	(5.7)	(1.0)	(6.8)	(1.9)	(8.6)	(2.9)	(11.6)	(0.9)	(0.1)	(1.0)	(0.1)	(1.2)	(0.1)	(1.3)
Net Revenue	17.3	(0.1)	1.1	0.5	1.5	1.4	3.0	(0.3)	2.6	0.5	(4.7)	(4.2)	0.2	(4.0)	1.2	(2.8)
Reconciliation of Net Income Attributable to Tetra Tech to EBITDA
(in thousands)
						2018							2019
	2016	2017	1st Qtr	2nd Qtr	6 mos	3rd Qtr	9 mos	4th Qtr	Total	1st Qtr	2nd Qtr	6 mos	3rd Qtr	9 mos	4th Qtr	Total
Net Income Attributable to Tetra Tech	83,783	117,874	46,034	28,725	74,760	33,323	108,082	28,802	136,883	41,997	55,911	97,907	49,233	147,141	11,526	158,668
Interest Expense1	11,389	11,581	3,160	4,092	7,252	4,345	11,597	3,927	15,524	2,897	3,164	6,061	3,546	9,607	4,019	13,626
Depreciation2	22,756	22,207	5,169	5,101	10,270	4,863	15,134	4,458	19,592	4,297	4,212	8,510	4,166	12,675	4,611	17,285
Amortization2	22,078	22,786	4,625	5,038	9,662	5,226	14,888	3,360	18,249	3,977	2,244	6,221	2,396	8,618	2,941	11,559
Contingent Consideration	2,823	(6,923)	-	1,918	1,918	192	2,110	3,643	5,753	-	1,028	1,028	500	1,528	1,557	3,085
Goodwill Impairment	-	-	-	-	-	-	-	-	-	-	-	-	-	-	7,755	7,755
Income Tax Expense (Benefit)	40,613	53,844	(623)	9,877	9,254	17,806	27,060	10,545	37,605	10,782	(11,563)	(781)	12,044	11,263	5,112	16,375
EBITDA	183,442	221,369	58,365	54,751	113,116	65,755	178,871	54,735	233,606	63,950	54,996	118,946	71,885	190,832	37,521	228,353
Acquisition & Integration Expenses	19,548	-	-	-	-	-	-	-	-	-	-	-	-	-	10,351	10,351
Non-core dispositions	-	-	-	-	-	3,434	3,434	-	3,434	-	-	-	-	-	10,945	10,945
RCM / Non-Cash Claims	11,098	13,650	1,085	439	1,524	445	1,969	14,867	16,836	(28)	5,913	5,885	(31)	5,854	13,672	19,526
Adjusted EBITDA	214,088	235,019	59,450	55,190	114,640	69,634	184,274	69,602	253,876	63,922	60,909	124,831	71,854	196,686	72,489	269,175

1. Includes amortization of deferred financing fee
2. Varies slightly from the Statements of Cash Flows, which includes amortization of deferred financing fee

Excel file available on tetratech.com/investor-relations	20

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