TRC Announces Fourth-Quarter Fiscal 2016 Financial Results

LOWELL, MA–(Marketwired – Aug 31, 2016) – TRC Companies, Inc.  (NYSE: TRR), a recognized leader in engineering, environmental consulting and construction-management services to the energy, environmental, infrastructure and oil and gas markets, today announced financial results for the fiscal fourth quarter and year ended June 30, 2016.
“Fiscal 2016 was a transformative and challenging year for TRC. In November we acquired the Willbros Professional Services (WPS) business and fully integrated it under very difficult market conditions. This transaction launched TRC as a leader of end-to-end project solutions in the midstream oil and gas markets. At the same time, we generated $48 million in positive cash flow for the year, paying down debt by $30 million and ending with $19 million of cash on the balance sheet,” said Chris Vincze, Chairman and Chief Executive Officer.
“From an earnings perspective, TRC’s fourth quarter trended in a positive direction, despite slowly improving conditions in the oil and gas markets. We had expenses related to the WPS acquisition of $2.8 million in the fourth quarter and $6.6 million for the full fiscal year. We also took a net $22.0 million, non-cash goodwill impairment charge for the full fiscal year,” Vincze continued. “In the fourth quarter of fiscal 2016, NSR increased 16% compared with the same period of fiscal 2015. Operating income for the fourth quarter of fiscal 2016 was down 4% compared to the prior period, but when adjusted for acquisition-related expenses was down 1%. For the full fiscal year, NSR was up 14% and operating income declined 96%. However, adjusted for acquisition-related expenses and the goodwill charge, operating income was down only 3%.”

		Three Months Ended										Twelve Months Ended
(In millions, except per share data)		June 30, 2016				June 30, 2015			% Change			June 30, 2016				June 30, 2015			% Change
GAAP Results
Net service revenue(1)		$	132.3			$	114.6		16	%		$	465.1			$	408.0		14	%
Acquisition and integration expense		$	2.8			$	–		N/A			$	6.6			$	–		N/A
Depreciation		$	1.8			$	1.3		37	%		$	6.9			$	5.8		19	%
Amortization		$	2.8			$	0.9		217	%		$	7.8			$	3.5		124	%
Goodwill impairment		$	(2.5	)		$	–		N/A			$	22.0			$	–		N/A
Operating income		$	10.3			$	10.7		-4	%		$	1.3			$	30.7		-96	%
Net income applicable to TRC Companies, Inc.		$	5.9			$	6.8		-13	%		$	0.0			$	19.4		-100	%
Diluted earnings per common share		$	0.19			$	0.22		-14	%		$	0.00			$	0.63		-100	%
Non-GAAP Results
EBITDA		$	14.8			$	12.9		15	%		$	16.1			$	40.0		-60	%
Tax effect of acqusition and integration expenses		$	(1.1	)		$	–		N/A			$	(2.4	)		$	–		N/A
Tax effect of goodwill impairment		$	1.0			$	–		N/A			$	(8.5	)		$	–		N/A
Adjusted operating income(2)		$	10.6			$	10.7		-1	%		$	29.9			$	30.7		-3	%
Adjusted EBITDA(2)		$	15.2			$	12.9		18	%		$	44.6			$	40.0		11	%
Adjusted net income(2) (3)		$	6.1			$	6.8		-10	%		$	17.7			$	19.4		-9	%
Adjusted diluted earnings per common share(2) (3)		$	0.20			$	0.22		-9	%		$	0.56			$	0.63		-11	%

(1)		TRC believes net service revenue (NSR) best reflects the value of services provided and is the most meaningful indicator of revenue performance.
(2)		Excludes acquisition and integration expenses of $2.8 million and $6.6 million and goodwill impairment charges of $(2.5) million and $22.0 million for the three and twelve months ended June 30, 2016, respectively.
(3)		Excludes goodwill impairment and acquisition related expense in note 2, net of an income tax benefit of $0.1 million and $10.9 million for the three and twelve months ended June 30, 2016, respectively.

Comments on Segment Results
“Our Energy segment experienced a 4% increase in NSR and 7% decline in segment profit compared to the fourth quarter of fiscal 2015,” Vincze added. “The increase in NSR was primarily the result of increased demand for electric transmission and distribution services, and the decline in segment profit was related to delays in the award of project tasks under a significant program management project in California. In our Infrastructure segment, transportation-related spending by our clients led to a 24% increase in segment NSR and a 32% increase in segment profit. The continued slowdown from certain oil and gas clients led to a 9% decline in NSR in our Environmental segment, while profit increased 3%, primarily due to project efficiencies and cost savings from staff reductions.
“The downturn in oil and gas markets continued to weigh on our Pipeline Services segment. NSR for the quarter was $20.8 million, and the segment experienced a loss of $3.2 million, including $2.1 million of amortization expenses and $2.3 million of acquisition integration expenses, primarily lease abandonment charges,” Vincze said. “We have made significant staff reductions and other cost improvements in this segment, normalizing our platform to the current revenue streams. These cost reductions led to fourth quarter segment profit of $1.2 million, before amortization and acquisition integration expenses.”
Business Outlook
“The long-term prospects are favorable for all of our segments,” Vincze said. “In our Energy segment, demand from our utility clients, along with increased energy efficiency, testing and commissioning, and transmission project activity, will support growth. Increased state and federal government transportation spending continues to spur backlog growth in our Infrastructure segment. Our Environmental segment will continue to be affected by the slowdown from our oil and gas clients, but demand for services related to environmental remediation, construction, transaction support, the retirement of coal plants, and renewable energy should contribute to growth. Long-term fundamentals support future growth in our Pipeline Services segment, especially with regard to our integrity services, despite current headwinds. With the improvements we have made to our cost structure and balance sheet, we are ready to capitalize on expansion opportunities in all of our strategic markets.”
Conference Call Information / Reconciliation of Non-GAAP Metrics
TRC will webcast its financial results conference call today, Aug. 31, 2016 at 9 a.m. ET. To listen to the live webcast and access the accompanying presentation slides, visit the “Investor Center” section of TRC’s website at www.TRCsolutions.com. Those slides also contain a reconciliation of non-GAAP metrics utilized in this press release to GAAP metrics. The call also may be accessed by dialing (877) 407-5790 or (201) 689-8328. A webcast replay will be available on the Company’s website for approximately one year.
About TRC
A pioneer in groundbreaking scientific and engineering developments since the 1960s, TRC is a national engineering, environmental consulting and construction management firm that provides integrated services to the energy, environmental, infrastructure and pipeline markets. TRC serves a broad range of commercial, industrial and government clients, implementing complex projects from initial concept to delivery and operation. TRC delivers results that enable clients to achieve success in a complex and changing world. For more information and updates from the Company, visit TRC’s website at www.TRCsolutions.com and follow TRC on Twitter and StockTwits at @TRC_Companies and on LinkedIn.
Forward-Looking Statements
Certain statements in this press release may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these statements by forward-looking words such as “may,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” or other words of similar import. You should consider statements that contain these words carefully because they discuss TRC’s future expectations, contain projections of the Company’s future results of operations or of its financial condition, or state other “forward-looking” information. TRC believes that it is important to communicate its future expectations to its investors. However, there may be events in the future that the Company is not able to accurately predict or control and that may cause its actual results to differ materially from the expectations described in its forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including, but not limited to, circumstances which could create large cash outflows, such as contract losses, litigation, uncollectible receivables and income tax assessments; regulatory uncertainty; the availability of funding for government projects; the level of demand for TRC’s services; product acceptance; industry-wide competitive factors; the ability to continue to attract and retain highly skilled and qualified personnel; the availability and adequacy of insurance; capital availability and project investment by TRC’s clients; and general political or economic conditions. Furthermore, market trends are subject to changes, which could adversely affect future results. See the risk factors and additional discussion in TRC’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016, and other factors included from time to time in the Company’s other filings with the Securities and Exchange Commission.

TRC Companies, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
			Three Months Ended								Year Ended
			June 30, 2016				June 30, 2015				June 30, 2016				June 30, 2015
Gross revenue			$	169,532			$	149,087			$	620,864			$	546,117
	Less subcontractor costs and other direct reimbursable charges			37,201				34,520				155,735				138,099
Net service revenue				132,331				114,567				465,129				408,018
Interest income from contractual arrangements				53				30				122				97
Insurance recoverables and other income				14,129				295				16,048				6,533
Operating costs and expenses:
	Cost of services (exclusive of costs shown separately below)			121,627				90,016				402,317				337,291
	General and administrative expenses			9,685				11,971				34,375				37,331
	Acquisition and integration expenses			2,847				–				6,571				–
	Depreciation			1,820				1,333				6,890				5,814
	Amortization			2,757				869				7,835				3,502
	Goodwill impairment			(2,484	)			–				21,981				–
Total operating costs and expenses				136,252				104,189				479,969				383,938
Operating income				10,261				10,703				1,330				30,710
Interest income				514				–				840				–
Interest expense				(1,145	)			(9	)			(2,707	)			(134	)
Income from operations before taxes				9,630				10,694				(537	)			30,576
Income tax provision				(3,688	)			(3,936	)			670				(11,180	)
Net income				5,942				6,758				133				19,396
Net loss applicable to noncontrolling interest				(33	)			5				(92	)			19
Net income applicable to TRC Companies, Inc.			$	5,909			$	6,763			$	41			$	19,415
Basic earnings per common share			$	0.19			$	0.22			$	0.00			$	0.64
Diluted earnings per common share			$	0.19			$	0.22			$	0.00			$	0.63
Weighted-average common shares outstanding:
	Basic			31,074				30,457				30,936				30,291
	Diluted			31,424				31,232				31,359				30,724

TRC Companies, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(Unaudited)
				June 30, 2016				June 30, 2015
ASSETS
Current assets:
	Cash and cash equivalents			$	18,804			$	37,296
	Restricted cash				71				122
	Accounts receivable, less allowance for doubtful accounts				149,280				138,346
	Insurance recoverable – environmental remediation				49,934				40,927
	Restricted investments				5,959				6,701
	Income taxes refundable				75				412
	Prepaid expenses and other current assets				24,122				10,499
		Total current assets			248,245				234,303
Property and equipment					74,053				64,594
	Less accumulated depreciation and amortization				(51,593	)			(50,885	)
		Property and equipment, net			22,460				13,709
Goodwill					75,337				37,024
Intangible assets, net					45,969				9,304
Deferred income tax assets					26,239				18,924
Long-term restricted investments					18,420				18,385
Long-term prepaid insurance					23,425				25,929
Other assets					18,383				5,303
		Total assets		$	478,478			$	362,881
LIABILITIES AND EQUITY
Current liabilities:
	Current portion of long-term debt			$	18,339			$	50
	Current portion of capital lease obligations				–				166
	Accounts payable				29,311				31,999
	Accrued compensation and benefits				48,485				47,233
	Deferred revenue				15,363				10,612
	Environmental remediation liabilities				8,654				8,695
	Income taxes payable				265				3,271
	Other accrued liabilities				58,026				42,170
		Total current liabilities			178,443				144,196
Non-current liabilities:
	Long-term debt, net of current portion				79,243				55
	Long-term income taxes payable				2,204				1,647
	Deferred revenue				65,340				68,579
	Environmental remediation liabilities				433				489
		Total liabilities			325,663				214,966
Commitments and contingencies
Equity:
	Common stock, $.10 par value; 40,000,000 shares authorized, 31,087,084 and 31,083,602 shares issued and outstanding, respectively, at June 30, 2016, and 30,485,510 and 30,482,028 shares issued and outstanding, respectively, at June 30, 2015				3,109				3,049
	Additional paid-in capital				195,156				191,321
	Accumulated deficit				(45,898	)			(45,939	)
	Accumulated other comprehensive loss				(71	)			(88	)
	Treasury stock, at cost				(33	)			(33	)
		Total shareholders’ equity applicable to TRC Companies, Inc.			152,263				148,310
	Noncontrolling interest				552				(395	)
		Total equity			152,815				147,915
		Total liabilities and equity		$	478,478			$	362,881