Tetra Tech: Waiting for ARRA!

Tetra Tech, Inc. (TTEK) had predicted that Q2-09 EPS would be in the range of 24¢ to 26¢; the precise, actual number was 31.6¢, which included 5.5¢ from the impact of an IRS tax settlement, which, if excluded from the results, brings the remainder down to 26.1¢.

Such accuracy is indeed commendable -- and especially noteworthy -- for a hi-tech company the ilk of TTEK. However, on a slightly less-accurate basis, 26¢ is but 13.0% higher than the 23¢ reported in Q2-08. In Q1-09, EPS were up 22.7%. Consequently, a bit of slowing can be detected in these numbers, part of which can be attributed to the recent Wardrop acquisition. However, if we drill down further into the results, we find that there are other similar indicators.

Specifically, Q2-09 Revenues of $522.3 million were up by 13.2%, while Revenues in Q1-09 rose by 35.8%. If we look at Internal Revenues – that is, Total Revenues less Subcontractor Costs – they were up by 15.6% in Q2-09 to $332.2 million; in Q1-09, they were up by 19.1%. There definitely is some slowing in Revenue growth so far this year.

But fear not -- ARRA is coming to the rescue!

You remember ARRA: the American Recovery and Reinvestment Act of 2009 -- which I have dubbed the "Obama 787 Rescue Package" -- that is intended to stimulate the U.S. economy. It’s on its way! In fact, I think I can hear the William Tell Overture playing in the background as I type.

According to TTEK, $34.1 billion of ARRA’s $787 billion is aimed directly at the Company’s talents as follows: Water & USACE (aka, the U.S. Army Corps of Engineers) = $13.2 billion; EPA & DOE = $6.9 b billion; Alternative Energy & Grid Improvement = $4.4 billion; and Other Federal (BRAC, Federal Buildings, DOD Retrofits) = $9.6 billion. It is anticipated that these efforts will be awarded to companies that already have similar contracts in process…of which TTEK is one. TTEK, in turn, estimates that it would be capable of handling some $8 billion-worth of the ARRA effort.

Since its Backlog is currently $1.657 billion (which, incidentally, is down 6.3% from the first quarter of ’09), an addition of that amount to the Backlog would be greatly appreciated and quite noticeable to investors. Incidentally, in case you didn’t already know, BRAC is an acronym for the DoD’s Base Closure & Realignment Commission, which takes USACE-type activities to a higher level.
     
There were some other tidbits of information revealed during the Q2-09 conference call yesterday. The distribution of Internal Revenue was U.S. Federal (USAID & DOE) = 47%, U.S. Commercial (Wind Energy, Water & Environmental) = 30%, U.S. State & Local = 15% and International (the Wardrop acquisition) = 8%; the Internal Revenue change of these categories was up 18%, down 3% (financing problems), up 5% and up 726% (aren’t acquisitions wonderful?) respectfully (as we already know, the total was up by 15.6%, which rounds to 16%). TTEK’s Q2-09 Portfolio of Services was balanced as follows: Study = 32%, Advise = 23%, Design = 19% and Build = 26%.

We’ll have more detailed information in our upcoming TTEK report. However, here are a few Balance Sheet and Cash Flow items. The Days in Accounts Receivable rose from 93 in Q2-08 to 98 in Q2-09, the relationship of Goodwill + Intangibles to Equity climbed from 48.5% to 58.8% (that acquisition again) and Long-Term Obligations Net of Cash to Equity  went from 8.1% to 10.4%. Cash Flow in the quarter this year was $13.1 million compared to $9.9 million last year.

The Company intends to be net debt free by that the end of F/Y ’09.

Management’s guidance: Q3-09 = Internal Revenue of $330 million to $350 million; EPS of 29¢ to 31¢; F/Y 2009 = Internal Revenue of $1.35 billion to $1.40 billion; EPS of $1.17 to $1.23. The preceding included nothing from ARRA; that’s for 2010.  The Tax Rate for the rest of the year = 41.1%.

Paraphrasing page 14 of the Q2-09 handout: TTEK is well-positioned to be “stimulated”! 

Read the full analyst report on TTEK