Tetra Tech : Reports Record Fourth Quarter and Fiscal 2021 Results - Form 8-K

Tetra Tech Reports Record Fourth Quarter and Fiscal 2021 Results

·	Record quarterly results

o	Fourth quarter revenue $892 million, up 18% Y/Y

o	Fourth quarter net revenue $709 million, up 20% Y/Y

o	Fourth quarter EPS $1.52, up 85% Y/Y and Adjusted EPS $1.05, up 15% Y/Y

·	Record backlog of $3.48 billion

Pasadena, California. Tetra Tech, Inc. (NASDAQ: TTEK), a leading provider of high-end consulting and engineering services, today announced results for the fourth quarter and fiscal year ended October 3, 2021.

Fourth Quarter Results

Tetra Tech achieved record quarterly results with all-time highs for revenue, net revenue, earnings and backlog. Revenue in the fourth quarter totaled $892 million and revenue, net of subcontractor costs (net revenue)¹, was $709 million, up 18% and 20% year-over-year, respectively. Earnings per share ("EPS") was $1.52 on a GAAP basis and adjusted EPS¹ was $1.05, up 85% and 15% year-over-year, respectively. Cash generated from operations was $78 million, up 15% year-over-year. Backlog at the end of the quarter was a record $3.48 billion, up 7% year-over-year and sequentially.

Quarterly Dividend and Share Repurchase Program

On November 15, 2021, Tetra Tech's Board of Directors declared a $0.20 per share dividend, an 18% increase over the prior year, payable on December 20, 2021, to stockholders of record as of December 2, 2021. In the fourth quarter, Tetra Tech repurchased $15 million of common stock. On October 7, 2021, the Company announced an additional $400 million share repurchase program. Together with the $148 million remaining under the previously approved program at the end of the fourth quarter of fiscal 2021, the Company had $548 million available for share repurchases.

Fiscal Year Results

Tetra Tech also achieved record annual results with all-time highs for revenue, net revenue, earnings and cash flow. Revenue for fiscal 2021 totaled $3.21 billion and net revenue was $2.55 billion. EPS was $4.26 and adjusted EPS was $3.79. Cash generated from operations of $304 million was up 16% compared to the previous year. The strong cash flow enabled the Company to return $100 million to shareholders in fiscal 2021 through a combination of share repurchases and dividends, while continuing to invest in strategic acquisitions and de-leveraging to a net debt ratio of 0.2x ².

¹ Non-GAAP financial measures which the Company believes provide valuable perspectives on its business results. Refer to Reconciliation of GAAP and non-GAAP Items.

² The net debt leverage ratio is defined as total debt less cash and cash equivalents divided by 12-month adjusted EBITDA. Refer to Regulation G Information and Reconciliation of GAAP and non-GAAP Items.

Chairman and CEO Comments

Tetra Tech's Chairman and CEO, Dan Batrack, commented, "Tetra Tech finished a record fiscal year 2021 with fourth quarter net revenue growth of 20% while generating significantly higher operating income and cash flow compared to last year. We continue to see increasing demand for our differentiated high-end critical water and environmental consulting services augmented by technology and advanced data analytics, which drove increases in net revenue across all four of our client sectors. In 2021, we further advanced our Leading with Science® growth strategy with the acquisition of industry-leading consulting and technology firms that enhance our global technical capabilities. Increased orders across our end-markets drove our backlog to an all-time high, providing a solid foundation for even better performance in 2022."

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 EPS for the first quarter of fiscal 2022 to range from $0.98 to $1.03 and net revenue to range from $630 million to $680 million. For fiscal 2022, Tetra Tech expects EPS to range from $4.00 to $4.20, and net revenue to range from $2.60 billion to $2.80 billion. ³

Webcast

Investors will have the opportunity to access a live audio-visual webcast and supplemental financial information concerning the fourth quarter and fiscal 2021 results through a link posted on the Company's website at tetratech.com on November 18, 2021, at 8:00 a.m. (PT).

³ Reconciliation of the net revenue guidance to the most directly comparable GAAP measure is not available without unreasonable efforts because the Company cannot predict the magnitude and timing of all the components required to provide such reconciliation with sufficient precision.

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Reconciliation of GAAP and Non-GAAP Items

In thousands (except EPS data)

		Three Months Ended			Fiscal Year Ended
		Oct. 3, 2021			Sep. 27, 2020			% Y/Y			Oct. 3, 2021			Sep. 27, 2020			% Y/Y
Revenue		$	892,012			$	753,364				18	%		$	3,213,513			$	2,994,891				7	%
Subcontractor costs			(182,879	)			(163,550	)							(661,341	)			(646,319	)
Net revenue		$	709,133			$	589,814				20	%		$	2,552,172			$	2,348,572				9	%
EPS		$	1.52			$	0.82				85	%		$	4.26			$	3.16				35	%
Earn-out adjustments			(0.04	)			0.11								(0.04	)			0.11
Non-recurring tax items			(0.43	)			-								(0.43	)			-
Non-core dispositions			-				(0.02	)							-				(0.12	)
COVID-19			-				-								-				0.11
Adjusted EPS		$	1.05			$	0.91				15	%		$	3.79			$	3.26				16	%

		Oct. 3, 2021
Current portion of long-term debt		$	12,504
Long-term debt			200,000
Less: Cash and cash equivalents			(166,658	)
Net debt		$	45,846
Trailing 12-month EBITDA		$	299,212
Net debt leverage ratio			0.2	x

About Tetra Tech

Tetra Tech is a leading provider of high-end consulting and engineering services for projects worldwide. With 21,000 associates working together, Tetra Tech provides clear solutions to complex problems in water, environment, sustainable infrastructure, renewable energy, and international development. We are Leading with Science^® to provide sustainable and resilient solutions for our clients. For more information about Tetra Tech, please visit tetratech.com, follow us on Twitter (@TetraTech), or like us on Facebook.

CONTACTS:
Jim Wu, Investor Relations
Charlie MacPherson, Media & Public Relations
[phone]

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Forward-Looking Statements

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words such as "anticipate," "expect," "could," "may," "intend," "plan" and "believe," among others, generally identify forward-looking statements. These forward-looking statements are based on currently available operating, financial, economic and other information, and are subject to a number of risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results. A variety of factors, many of which are beyond our control, could cause actual future results or events to differ materially from those projected in the forward-looking statements in this release, including but not limited to: the impact of the COVID-19 pandemic; continuing worldwide political and economic uncertainties; the U.S. Administration's potential changes to fiscal 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; the ability to impede a business combination based on Delaware law and charter documents; and other risks and uncertainties as may be described in Tetra Tech's periodic filings with the Securities and Exchange Commission, including those described in the "Risk Factors" section of Tetra Tech's Annual Report on Form 10-K for the fiscal year ended September 27, 2020, and Tetra Tech's Quarterly Reports on Form 10-Q for fiscal year 2021, as well as in Tetra Tech's other filings with the SEC. Readers should not place undue reliance on forward-looking statements since such information speaks only as of the date of this release. Tetra Tech does not intend to update forward-looking statements and expressly disclaims any obligation to do so.

Non-GAAP Financial Measures

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 this release.

4

Tetra Tech, Inc.

Consolidated Balance Sheets

(unaudited - in thousands, except par value)

		October 3, 2021			September 27, 2020
Assets
Current assets:
Cash and cash equivalents		$	166,568			$	157,515
Accounts receivable, net			668,998				649,035
Contract assets			103,784				92,632
Prepaid expenses and other current assets			112,338				81,094
Income taxes receivable			14,260				19,509
Total current assets			1,065,948				999,785
Property and equipment, net			37,733				35,507
Right-of-use assets, operating leases			215,422				239,396
Investments in unconsolidated joint ventures			3,282				7,332
Goodwill			1,108,578				993,498
Intangible assets, net			37,990				13,943
Deferred tax assets			54,413				32,052
Other long-term assets			53,196				57,045
Total assets		$	2,576,562			$	2,378,558
Liabilities and Equity
Current liabilities:
Accounts payable		$	128,767			$	111,804
Accrued compensation			206,322				199,801
Contract liabilities			190,403				171,905
Short-term lease liabilities, operating leases			67,452				69,650
Current portion of long-term debt and other short-term borrowings			12,504				49,264
Current contingent earn-out liabilities			19,520				16,142
Other current liabilities			223,515				174,890
Total current liabilities			848,483				793,456
Deferred tax liabilities			10,563				16,316
Long-term debt			200,000				242,395
Long-term lease liabilities, operating leases			174,285				191,955
Long-term contingent earn-out liabilities			39,777				16,475
Other long-term liabilities			69,163				80,588
Equity:
Preferred stock - Authorized, 2,000 shares of $0.01 par value; no shares issued and outstanding at October 3, 2021 and September 27, 2020			-				-
Common stock - Authorized, 150,000 shares of $0.01 par value; issued and outstanding, 53,981 and 53,797 shares at October 3, 2021 and September 27, 2020, respectively			540				538
Accumulated other comprehensive loss			(125,028	)			(161,786	)
Retained earnings			1,358,726				1,198,567
Tetra Tech stockholders' equity			1,234,238				1,037,319
Noncontrolling interests			53				54
Total stockholders' equity			1,234,291				1,037,373
Total liabilities and stockholders' equity		$	2,576,562			$	2,378,558

5

Tetra Tech, Inc.

Consolidated Statements of Income

(unaudited - in thousands, except per share data)

		Three Months Ended			Fiscal Year Ended
		October 3,			September 27,			October 3,			September 27,
		2021			2020			2021			2020
Revenue		$	892,012			$	753,364			$	3,213,513			$	2,994,891
Subcontractor costs			(182,879	)			(163,550	)			(661,341	)			(646,319	)
Other costs of revenue			(565,224	)			(464,412	)			(2,053,772	)			(1,902,037	)
Gross profit			143,909				125,402				498,400				446,535
Selling, general and administrative expenses			(65,184	)			(56,317	)			(222,972	)			(204,615	)
Contingent consideration - fair value adjustments			3,111				13,450				3,273				14,971
Impairment of goodwill			-				(15,800	)			-				(15,800	)
Income from operations			81,836				66,735				278,701				241,091
Interest income			254				293				917				1,375
Interest expense			(3,499	)			(2,981	)			(12,748	)			(14,475	)
Income before income tax expense			78,591				64,047				266,870				227,991
Income tax benefit (expense)			4,340				(19,391	)			(34,039	)			(54,101	)
Net income			82,931				44,656				232,831				173,890
Net loss (income) attributable to noncontrolling interests			23				(2	)			(21	)			(31	)
Net income attributable to Tetra Tech		$	82,954			$	44,654				232,810			$	173,859
Earnings per share attributable to Tetra Tech:
Basic		$	1.54			$	0.83			$	4.31			$	3.21
Diluted		$	1.52			$	0.82			$	4.26			$	3.16
Weighted-average common shares outstanding:
Basic			54,019				53,841				54,078				54,235
Diluted			54,597				54,603				54,675				55,022

6

Tetra Tech, Inc.

Consolidated Statements of Cash Flows

(unaudited - in thousands)

		Fiscal Year Ended
		October 3,			September 27,
		2021			2020
Cash flows from operating activities:
Net income		$	232,831			$	173,890
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			23,805				24,611
Equity in income of unconsolidated joint ventures			(4,990	)			(6,605	)
Distributions of earnings from unconsolidated joint ventures			4,604				6,310
Amortization of stock-based awards			23,067				19,424
Deferred income taxes			(38,494	)			565
Provision for losses on accounts receivables			(4,130	)			1,267
Fair value adjustments to contingent consideration			(3,273	)			(14,971	)
Impairment of goodwill and other intangible assets			-				15,800
Gain on sale of property and equipment			(110	)			(11,066	)
Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable and contract assets			17,431				154,748
Prepaid expenses and other assets			(582	)			(11,321	)
Accounts payable			13,551				(102,162	)
Accrued compensation			5,425				(8,173	)
Contract liabilities			13,407				5,894
Other liabilities			8,740				19,460
Income taxes receivable/payable			13,090				(5,192	)
Net cash provided by operating activities			304,372				262,479
Cash flows from investing activities:
Payments for business acquisitions, net of cash acquired			(84,911	)			(68,488	)
Capital expenditures			(8,573	)			(12,245	)
Proceeds from sale of property and equipment			492				17,710
Net cash used in investing activities			(92,992	)			(63,023	)
Cash flows from financing activities:
Proceeds from borrowings			370,222				308,364
Repayments on long-term debt			(414,308	)			(331,066	)
Repurchases of common stock			(60,000	)			(117,188	)
Taxes paid on vested restricted stock			(17,630	)			(11,166	)
Payments of contingent earn-out liabilities			(20,251	)			(22,900	)
Stock options exercised			11,250				10,334
Net change in overdrafts			(36,627	)			36,627
Dividends paid			(40,041	)			(34,743	)
Principal payments on finance leases			(2,714	)			(1,311	)
Net cash used in financing activities			(210,099	)			(163,049	)
Effect of exchange rate changes on cash, cash equivalents			7,772				207
Net increase in cash and cash equivalents			9,053				36,614
Cash and cash equivalents at beginning of year			157,515				120,901
Cash and cash equivalents at end of year		$	166,568			$	157,515
Supplemental information:
Cash paid during the year for:
Interest		$	10,330			$	13,256
Income taxes, net of refunds received of $2.1 million and $1.4 million		$	59,111			$	55,039

7

Tetra Tech, Inc.

Regulation G Information

October 3, 2021

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

(in millions)

								2020			2021
		2018			2019			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)		2,964.1			3,107.3			797.6			734.1			1,531.7			709.8			2,241.5			753.4			2,994.9				765.1			754.8			1,519.9			801.6			2,321.5			892.0			3,213.5
RCM / Non-Cash Claims		(3.6	)		15.2			(0.1	)		-			(0.1	)		(0.1	)		(0.2	)		-			(0.2	)			-			(0.5	)		(0.5	)		(0.1	)		(0.6	)		-			(0.6	)
Adjusted Revenue		2,960.5			3,122.5			797.5			734.1			1,531.6			709.7			2,241.3			753.4			2,994.7				765.1			754.3			1,519.4			801.5			2,320.9			892.0			3,212.9
Adjusted Subcontractor Costs		(751.8	)		(716.4	)		(183.5	)		(149.6	)		(333.1	)		(149.4	)		(482.7	)		(163.6	)		(646.1	)			(159.9	)		(155.0	)		(314.9	)		(163.5	)		(478.4	)		(182.9	)		(661.3	)
Adjusted Net Revenue		2,208.7			2,406.1			614.0			584.5			1,198.5			560.3			1,758.6			589.8			2,348.6				605.2			599.3			1,204.5			638.0			1,842.5			709.1			2,551.6
GSG Segment
Revenue		1,694.9			1,820.7			457.4			436.9			894.3			432.2			1,326.5			452.4			1,778.9				468.7			473.8			942.5			488.7			1,431.2			511.8			1,943.0
Subcontractor Costs		(482.6	)		(491.4	)		(127.7	)		(115.9	)		(243.6	)		(112.9	)		(356.5	)		(122.3	)		(478.8	)			(123.8	)		(126.7	)		(250.5	)		(132.8	)		(383.2	)		(139.4	)		(522.6	)
Adjusted Net Revenue		1,212.3			1,329.3			329.7			321.0			650.7			319.3			970.0			330.1			1,300.1				344.9			347.1			692.0			355.9			1,048.0			372.4			1,420.4
CIG Segment
Revenue		1,323.1			1,342.5			351.2			308.4			659.6			291.0			950.6			315.5			1,266.1				311.1			293.1			604.2			327.4			931.6			394.1			1,325.7
Non-Cash Claims		10.6			13.7			-			-			-			-			-			-			-				-			-			-			-			-			-			-
Adjusted Revenue		1,333.7			1,356.2			351.2			308.4			659.6			291.0			950.6			315.5			1,266.1				311.1			293.1			604.2			327.4			931.6			394.1			1,325.7
Subcontractor Costs		(337.4	)		(279.5	)		(66.9	)		(44.9	)		(111.8	)		(50.0	)		(161.8	)		(55.7	)		(217.5	)			(50.8	)		(40.9	)		(91.7	)		(45.4	)		(137.1	)		(57.4	)		(194.5	)
Adjusted Net Revenue		996.3			1,076.7			284.3			263.5			547.8			241.0			788.8			259.8			1,048.6				260.3			252.2			512.5			282.0			794.5			336.7			1,131.2
RCM Segment
Revenue		14.2			(1.5	)		0.1			-			0.1			0.1			0.2			-			0.2				-			0.5			0.5			0.1			0.6			-			0.6
Subcontractor Costs		(11.6	)		(1.3	)		(0.1	)		-			(0.1	)		(0.1	)		(0.2	)		-			(0.2	)			-			0.1			0.1			(0.1	)		-			-			-
Net Revenue		2.6			(2.8	)		-			-			-			-			-			-			-				-			0.6			0.6			-			0.6			-			0.6

Reconciliation of Net Income Attributable to Tetra Tech to EBITDA

(in thousands)

								2020			2021
		2018			2019			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		136,883			158,668			47,310			36,398			83,708			45,497			129,205			44,654			173,859			52,436		45,517			97,953			51,903			149,856			82,954			232,810
Interest Expense1		15,524			13,626			3,348			3,500			6,848			3,564			10,412			2,688			13,100			3,026		2,823			5,849			2,737			8,586			3,245			11,831
Depreciation2		19,592			17,285			3,293			3,133			6,426			3,686			10,112			2,905			13,017			2,882		3,073			5,955			3,070			9,026			3,311			12,337
Amortization2		18,249			11,559			2,942			3,442			6,384			2,570			8,954			2,640			11,594			3,356		2,213			5,569			2,216			7,785			3,683			11,468
Contingent Consideration		5,753			3,085			-			(971	)		(971	)		550			(421	)		(12,950	)		(13,371	)		37		(230	)		(193	)		31			(162	)		(3,111	)		(3,273	)
Goodwill Impairment		-			7,755			-			-			-			-			-			15,800			15,800			-		-			-			-			-			-			-
Income Tax Expense (Benefit)		37,605			16,375			12,637			7,615			20,252			14,458			34,710			19,391			54,101			10,778		12,456			23,234			15,146			38,379			(4,340	)		34,039
EBITDA		233,606			228,353			69,530			53,117			122,647			70,325			192,972			75,128			268,100			72,515		65,852			138,367			75,103			213,470			85,742			299,212
Acquisition & Integration Expenses		-			10,351			-			-			-			-			-			-			-			-		-			-			-			-			-			-
Non-Core Dispositions		3,434			10,945			(800	)		(2,184	)		(2,984	)		(4,493	)		(7,477	)		(1,047	)		(8,524	)		-		-			-			-			-			-			-
RCM / Non-Cash Claims		16,836			19,526			-			-			-			-			-			-			-			-		-			-			-			-			-			-
COVID-19		-			-			-			8,233			8,233			-			8,233						8,233			-		-			-			-			-						-
Adjusted EBITDA		253,876			269,175			68,730			59,166			127,896			65,832			193,728			74,081			267,809			72,515		65,852			138,367			75,103			213,470			85,742			299,212
Adjusted EBITDA Margin - Reported		11.5	%		11.2	%		11.2	%		10.1	%		10.7	%		11.8	%		11.0	%		12.6	%		11.4	%		12.0	%	11.0	%		11.5	%		11.8	%		11.6	%		12.1	%		11.7	%
For Internal Reporting Purposes
Stock Based Compensation		19,582			17,618			4,482			4,955			9,437			4,057			13,494			5,930			19,424			4,898		5,669			10,566			5,695			16,261			6,806			23,067
Adjusted EBITDA3		273,458			286,793			73,212			64,121			137,333			69,889			207,222			80,011			287,233			77,413		71,521			148,933			80,798			229,731			92,548			322,279
Adjusted EBITDA Margin, % of NR3		12.4	%		11.9	%		11.9	%		11.0	%		11.5	%		12.5	%		11.8	%		13.6	%		12.2	%		12.8	%	11.9	%		12.4	%		12.7	%		12.5	%		13.1	%		12.6	%

1 Includes amortization of deferred financing fee

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

3 Adjusted EBITDA excludes stock based compensation

8