Market Overview

Tetra Tech Reports Third Quarter 2018 Results

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  • Record revenue of $765 million, up 12% Y/Y
  • Record net revenue of $570 million, up 14% Y/Y
  • Record operating income of $55 million, up 21% Y/Y
  • EPS $0.59; Record ongoing EPS $0.71, up 34% Y/Y

Tetra Tech, Inc. (NASDAQ:TTEK) today announced results for the third
quarter ended July 1, 2018.

Third Quarter Results

For the third quarter, Tetra Tech achieved quarterly record high results
for revenue and earnings. Revenue in the third quarter totaled $765
million, up 12% year-over-year. For ongoing1 operations,
revenue totaled $761 million, and revenue, net of subcontractor costs2
(net revenue), was $569 million, up 12% and 14%, respectively, year-over
year. Operating income for the third quarter was $55 million, and on an
ongoing basis totaled $60 million, up 26% year-over-year. EPS was $0.59
on a GAAP basis. Excluding a non-cash charge for the divestiture of
non-core assets, ongoing EPS totaled $0.71, up 34% year-over-year.
Backlog at the end of the quarter was $2.4 billion.

Nine-Month Results

Revenue for the nine-month period was $2.2 billion and net revenue was
$1.6 billion, both up 10%, compared to the same period in fiscal 2017.
Operating income for the nine-month period was $147 million and EPS was
$1.91, up 14% and 33%, respectively, from the same period in fiscal
2017. On an ongoing basis, EPS totaled $1.89, up 26% year-over-year.

Comments on Results

Tetra Tech's Chairman and CEO, Dan Batrack, commented, "Tetra Tech
generated record third quarter results, exceeding the high end of our
guidance range for both net revenue and earnings. We continue to see
momentum in our broad-based growth, led by work for U.S. state and local
clients, which has increased organically at a double-digit rate for
eight consecutive quarters, including 26% growth in the third quarter.
Our other key end-markets, including U.S. Federal, Commercial, and
International, grew 10% or more. Given the strength of our results and
outlook, we are increasing our guidance for both EPS and net revenue for
fiscal 2018."

Amended Credit Facility, Quarterly Dividend, and Share Repurchase
Program

Tetra Tech amended and restated its credit agreement on July 30, 2018.
This agreement increases the total borrowing capacity to $1 billion and
extends the maturity date to July 2023. Additionally, the agreement
improves borrowing terms and provides increased flexibility with lower
cost.

On July 30, 2018, Tetra Tech's Board of Directors declared a quarterly
dividend of $0.12 per share payable on August 31, 2018 to stockholders
of record as of August 16, 2018. Additionally, the Company has $25
million remaining under the previously approved $200 million share
repurchase program.

Elected Gary Birkenbeuel as New Board Member

The Board of Directors has elected Gary Birkenbeuel to serve as a new
director and member of the Audit and the Nominating and Corporate
Governance Committees. Mr. Birkenbeuel spent over 37 years with Ernst &
Young LLP, holding senior positions in the areas of audit and forensic
accounting. He served as the firm's Pacific Southwest Managing Partner
for its assurance practice prior to his retirement in December 2017. He
is currently a Visiting Professor at Claremont McKenna College.

"We are pleased to welcome Gary to our Board of Directors," said Tetra
Tech's Chairman and CEO, Dan Batrack. "Gary brings to our Board deep
accounting and finance acumen. We look forward to benefiting from his
leadership and industry experience."

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 ongoing EPS for the fourth quarter of fiscal 2018 to
range from $0.70 to $0.75. Net revenue for the fourth quarter is
expected to range from $550 million to $575 million. For fiscal 2018,
Tetra Tech is increasing guidance and now expects ongoing EPS to range
from $2.59 to $2.64 and net revenue to range from $2.20 billion to $2.22
billion.

Webcast

Investors will have the opportunity to access a live audio-visual
webcast and supplemental financial information concerning the third
quarter 2018 results through a link posted on the Company's website at
tetratech.com on August 2, 2018 at 8:00 a.m. (PT).

   

Reconciliation of Revenue and Operating Results

In thousands (except EPS data)
 

    Three Months Ended Nine Months Ended

July 1,

2018

    July 2,

2017

    %

Y/Y

July 1,

2018

    July 2,

2017

    %

Y/Y

 
Revenue $ 764,795 $ 685,539 12 % $ 2,224,805 $ 2,018,171 10 %
RCM segment   (3,336 )   (4,192 )     (11,622 )   (12,401 )  
Ongoing revenue $ 761,459   $ 681,347   12 % $ 2,213,183   $ 2,005,770   10 %
 
 
Revenue $ 764,795 $ 685,539 12 % $ 2,224,805 $ 2,018,171 10 %
Subcontractor costs   (194,443 )   (187,061 )     (576,813 )   (518,188 )  
Net revenue 570,352 498,478 14 % 1,647,992 1,499,983 10 %
RCM segment   (1,479 )   (902 )     (2,999 )   (1,006 )  
Ongoing net revenue $ 568,873   $ 497,576   14 % $ 1,644,993   $ 1,500,989   10 %
 
 
Operating income $ 55,496 $ 45,884 21 % $ 146,801 $ 128,695 14 %
Earn-out expense (gain) 192 2,110 (7,149 )
RCM segment 485 1,251 2,132 12,759
Non-core divestitures   3,434           3,434        
Ongoing operating income $ 59,607   $ 47,135   26 % $ 154,477   $ 134,305   15 %
 
 
EPS $ 0.59 $ 0.52 13 % $ 1.91 $ 1.44 33 %
Earn-out expense (gain) 0.03 (0.08 )
RCM segment 0.01 0.01 0.03 0.14
Non-core divestitures 0.11 0.11
Revaluation of deferred tax liabilities             (0.19 )      
Ongoing EPS $ 0.71   $ 0.53   34 % $ 1.89   $ 1.50   26 %

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 more than 17,000 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 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: 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 year ended October 1, 2017, and Tetra Tech's Quarterly Reports
on Form 10-Q for fiscal year 2018, 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.

___________________________

1 Measures presented for ongoing operations are non-GAAP
financial measures. 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. Refer to Reconciliation of
Revenue and Operating Results table for a reconciliation to GAAP.

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