Tetra Tech Management Discusses Q3 2012 Results - Earnings Call Transcript

Tetra Tech (TTEK)

Q3 2012 Earnings Call

August 02, 2012 10:00 am ET


Dan L. Batrack - Chairman, Chief Executive Officer and President

Steven M. Burdick - Chief Financial Officer, Executive Vice President and Treasurer


Justin P. Hauke - Robert W. Baird & Co. Incorporated, Research Division

Michael Frederick Legg - Roth Capital Partners, LLC, Research Division

Aleena Khan - KeyBanc Capital Markets Inc., Research Division

Corey Greendale - First Analysis Securities Corporation, Research Division

John Rogers - D.A. Davidson & Co., Research Division

Alexander J. Rygiel - FBR Capital Markets & Co., Research Division



Good morning, and thank you for joining the Tetra Tech Earnings Call. By now, you should have received a copy of the press release. If you have not, please contact the company's corporate office at (626) 351-4664. With us today from management are Dan Batrack, Chairman and Chief Executive Officer; and Steve Burdick, Chief Financial Officer. They will provide a brief overview of the results, and we'll then open up the call for questions.

During the course of the conference call, Tetra Tech's management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements concerning future events and Tetra Tech's future financial performance. These statements are only predictions and may differ materially from actual future events or results.

Tetra Tech's Form 10-K and 10-Q reports to the Securities and Exchange Commission identify certain risk factors that could cause actual results to differ materially from the forward-looking statements. Tetra Tech undertakes no duty to update 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 Relations section of Tetra Tech's website. [Operator Instructions] With that, I would now like to turn the call over to Dan Batrack. Please go ahead, Mr. Batrack.

Dan L. Batrack

Great. Thank you very much, Kimberly, and good morning, and welcome to our 2012 third quarter earnings release conference call. While Steve Burdick, our Chief Financial Officer, will be presenting the specifics of our financials, I'd like to start this morning off with a brief overview of some of our key financial metrics for this past third quarter.

We had a very solid third quarter of fiscal year 2012. Our diluted earnings per share was $0.45, up 18% year-over-year at the high end of our guidance for the quarter, and this was the highest quarterly earnings in the company's history of any quarter of our history. Operating income was $46 million, up 17% year-over-year. Our revenue also hit a new record all-time high as well, with our revenue at $685 million for the quarter and net revenue of $517 million for the quarter, which was an increase of 8% year-over-year. And maybe most importantly and certainly of big importance here in the company, our visibility into the future also went up with a new record high for our backlog, which ended the quarter at $2,064,000,000, up 10% year-over-year.

Now as has been the case in many of the past quarters, our ECS and our TSS front-end segments grew this quarter at 5% and 20%, respectively. These are the segments that are focused on the earlier studies at the beginning of our projects and deliver our highest profits, though the segments that are largely leading are international and commercial growth markets. Our third upfront and smallest front-end segment, EAS, shrinked slightly this past quarter due to continued softness in the federal and the municipal building design markets. And I'm going to be looking in the future quarters to more closely align some of the design capabilities in our EAS segment with our ECS and TSS segments, where their front-end markets in the mining, oil and gas and international water-related services, I expect to drive more growth into the design groups that we have within the company. So look for that in the coming quarters.

Our RCM, our Remediation and Construction Management group, grew slightly with an uptick in our U.S. commercial projects that actually offseted some of the completion of the federal coastal protection projects we had in New Orleans. Our RCM segment continues to steadily increase their revenue and improve their performance. In fact, this past quarter, the operating margin within RCM more than doubled from the same quarter last year. And I'm very pleased with their performance, and that was all done organically. No acquisitions, nothing that was infused from the outside.

Overall, we did have a positive organic growth for the quarter. It was just at about 2%, driven primarily by our front-end services for the U.S. commercial and international projects. However, if we take out an account for the completion of our federal coastal protection projects that were done for the Army Corps of Engineers, our federal client in the New Orleans area, if you actually took those out, we did know it was going to be a difficult year-on-year comparison. Our core organic growth would have really been in the 6% to 7% range. So if you adjust for that one change from a year ago, it puts us up right in the target of what we would be expecting.

Our performance by our customers. In the United States, our commercial revenue continues to grow with our commercial work up 16% year-over-year, driven by workload from just a really broad base of our commercial clients. Some of those clients included the industrial and manufacturing sector, energy, commercial and commercial utilities. Our oil and gas saw nice uptick for us, and mining continued to be strong, so it was really very broad based for us. The U.S. commercial revenues were up year-on-year in all 4 of our reporting segments, so it wasn't concentrated in one -- any one given area.

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