Infrastructure Engineering BUY
Transcript of Infrastructure Engineering BUY
USF Student Managed Investment Fund
Tetra Technologies Inc. Infrastructure Engineering
Investment Thesis
With the US government neglecting infrastructure investment for at least three decades, TTEK is poised to be a large benefactor of the necessary US spending in the next five years. Catalysts:
• Tetra Tech’s book to bill ratio has grown to a record 4.9,
indicating unusually heavy demand for their services.
• Increased demand is also seen through record backlog
numbers, 8.8% YoY increase.
• With key American infrastructure reaching or exceeding
the end of its replacement cycle, we’ve reached the
ideal time to invest before government spending figures
are finalized.
Investment Risks
• Risks to Tetra Technology’s share price include budget
cuts to foreign aid (USAID Department) or other
important U.S. government agencies that account for a
sizable percentage of TTEKs revenues.
• Significant appreciation of the U.S. dollar would also be
a headwind. A steep decline in demand for oil, gas, and
mining would pressure revenues. Another notable risk
includes a higher daily volatility than the broader
market.
Company Description Tetra Technologies is an industry leader in engineering, structural design, and project consulting services. Founded in 1966, Tetra now operates globally and counts several federal governments and many international corporations as loyal clients. Tetra Tech is a leader in water and environmental consulting, with 16,000 employees spread across 400 offices worldwide.
SMIF Analysts:
Daniel Chapman Denys Klimyentyev Gabriel Rodriguez Garrett Walker
BUY
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
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Company Profile Tetra Technologies (TTEK) provides engineering and consulting services across multiple sectors, with emphasis in water and environmental infrastructure (WEI segment) as well as a focus on global energy need (RME segment). Focusing more on upstream work such as environmental studies, evaluations and design, and de-emphasis on lower margin, commoditized downstream functions such as construction has assisted TTEK in its margin expansion and efficiencies. TTEK has been consistently ranked among the top firms in its target sectors by leading industry publishers, including #1 water services company for the last 14 years by ENR (Engineering News- Record). Industry recognition paired with a track record of skilful execution on high profile projects has led TTEK to a market leader position and will continue to drive market share growth. The firm operates on a global scale with approximately 75% of revenue coming from the U.S, 25% form international operations. TTEK has exceptional scientific and technical knowledge in its target segments as well as its strong track record of delivering value added solutions to clients across the board. The knowledge and analysis performed by TTEK is primary in nature which makes the company adaptable and gives them the ability to focus on different sectors as demand switches. This adds to our thesis, that Tetra Tech is perfectly positioned in its business philosophy and operations to benefit from both increased market size and continuing to increase their market share within said segments.
U.S. Federal…
U.S. State and …
U.S. Commercial
28%
International …
Customer Breakdown
U.S. Federal U.S. State and Local
U.S. Commercial International
RME55%
WEI45%
Revenue Segment
RME WEI
U.S.
Federal…
U.S. State and …
U.S. Commercial
28%
International …
Customer Breakdown
U.S. Federal U.S. State and Local
U.S. Commercial International
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Upcoming Necessary Infrastructure Spending Firstly, we would like to differentiate from the Trump infrastructure plan and the necessary infrastructure spending we have outlined below. Although it’s not going to be enough to restore America’s water infrastructure to a world-class standard, US municipal Water and utilities spending is expected to exceed $1 trillion by 2025 based on data sourced from the American Society of Civil Engineers. This represents an almost doubling of the capex spent on water improvements in the last ten years and implies significant project opportunities for Tetra’s Water infrastructure business. An additional estimated $298 Billion of expenditures will be required in the next twenty years to prevent the collapse of the US’s storm water and waste systems, a figure that has yet to be mentioned by coverage analysts. Failure to refresh America’s infrastructure would have disastrous consequences. We believe that coverage analysts, while bullish on Tetra’s prospects, are heavily underestimating the future projected need for Tetra Tech’s expertise. Although exact spending figures remain uncertain while discussions are held in congress, project work in this sector will most likely be allocated to larger companies capable of fulfilling orders, i.e. Tetra. While the industry reports we’ve had access to raise the issue of failing infrastructure, they have largely underestimated the scope of the problem, and haven’t quantified Tetra’s potential earnings from contracts. With more than an estimated 1 million miles of sewage and water pipeline requiring replacement, Tetra Tech will likely have no shortage of consulting work in the next five years. Stable Growth in High Demand Segments After divesting from their construction segment, a low margin business inhibiting revenue growth, Tetra’s revenue initially took a hit but returned to positive revenue growth in 2016. Tetra’s profit margin has consistently increased since 2015 to 5.8% from a low of -0.01%, reflecting the recent success of Tetra’s tighter cost management initiatives. Tetra’s EBITDA margin has remained high at ~ 11% of turnover. Tetra’s stable growth can be further explained through their increasing book to bill ratio, reaching all-time highs which is said to be sustainable by management thanks to expansion in their contract capacity, with conversion from capacity to realized revenue also increasing. Tetra has also scaled up its service operations to meet increased demand, with the largest segment revenue growth coming from Tetra’s government business. A variety of infrastructure engineering projects in US southern states contributed to 30% YoY local and state government sector growth. Recent projects Tetra oversaw included California’s Groundwater Reliability Improvement project, Daytona’s Direct Potable Reuse Program, and work with San Antonio’s water desalination plant. With seven consecutive quarters of double digit revenue growth in this segment, Tetra’s management reiterated its confidence in their business by raising revenue guidance, with Q4 net income of $534 million exceeding management guidance upper bound of $520 million. Tetra also saw its highest operating income in its history in 2017 Q4, with $54 million in operating profits.
Investment Thesis & Catalysts
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
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Meanwhile, Tetra’s management is positioning itself toward higher margin businesses by eliminating certain low margin construction segments. Given its greater focus on consulting over more resource intensive work, we see Tetra achieving its DSO target of 75 days soon. In Q4 2017, Tetra Tech won more than $600 million in work, via six negotiated contracts. Further, Tetra has accumulated a backlog of 2.1 billion dollars—80% of which will be converted to revenue by the end of fiscal 2018. Case for Undervaluation Although Tetra’s stock price has seen robust performance, the company is trading at deceptively cheap multiples of earnings. The company’s trailing twelve months EV/EBITDA multiple rests at 13.2x, well below its historical, four-year average 16x EV/EBITDA ratio. The company’s EV/EBIT (16.3x TTM) and EV/Net Revenue (1.4x TTM) figures are closer to their four-year averages. With Tetra Tech trading at below several of its historical and below peer/market multiples of earnings, there is
enough evidence to comfortably assume undervaluation, even in current record bull market conditions. We expect that Tetra’s limited (only eight analysts cover Tetra), but bullish coverage
and the underperformance of Tetra’s overseas businesses have stifled expectations and prevented the full potential of Tetra’s earnings growth from being priced into the stock. Lower leverage and cyclicality than the competition Relative to Tetra’s immediate peers in the engineering consulting, it has a relatively low level of debt to equity at 47.3%. At 32.11%, Tetra Tech has a below average level of total debt to capital, which implies that Tetra is a more stable business than its competition, with debt levels below or in line with its closest peers.
Investment Thesis and Catalysts
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
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WEI – Domestic Operations Using historical U.S. GDP and the % of total public spending on water infrastructure as a percentage of GDP we were able to back into the total dollar amount of US infrastructure spending over the last five years. Knowing TTEKs historical revenue for their WEI segment we calculated what we have described as “market share” for the trailing five years. Projecting out future U.S. GDP with economic expert’s expectations while increasing the total dollar value of U.S water infrastructure spending by the value of necessary spending outlined by the ASCE 2017 American Infrastructure report card. We assumed that TTEKs ‘market share’ will continue to grow as it has done over the last five years gradually given their win rates, increased backlog, book to bi ll and their status as the number one water infrastructure companies for the last 14 years. Through this method we can accurately predict TTEK future revenues in this segment.
RME – Domestic operations For this revenue segment we used very similar methodology to the water, environment and infrastructure segment. Using the exact same methodology, with the exception of backing into the investment as a % of GDP for the previous five years we were able to calculate ‘market share’ for TTEK in their RME segment. Taking the necessary investment as report by the ASCE in their 2017 report for the U.S energy infrastructure, as well as gradually increasing ‘market share’ for continued wins and growth in backlog we were able to accurately predict future revenues for the firm in RME.
International Operations We took a different approach to the projection of the international segment, using guidance as a gauge for future growth with the company being so diverse in the countries the operate in making it impossible to use the methods used for domestic operations. With management projecting 2%-5% growth for the next few years we made a conservative assumption of 2% growth per year for international revenue.
Revenue Build Methodology
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Discounted Cash Flows
In our analysis of the company, we
decided to conduct a Discounted
Cash Flow analysis to find the
intrinsic value of the company. We
used the CAPM formula to calculate
a cost of equity of 10.38% using the
10-year US treasury yield of 2.87% for the risk-free rate, as well as a market risk premium of 7.50% and a
calculated 5-year beta against the S&P 500 of 1.00. We calculated a 2.7% cost of debt and a 26% tax rate which
falls in line with the company’s guidance going forward on cost of taking on new debt. With an a fter-tax cost of
debt of 2.00 % and a cost of equity of 10.38% we calculated a WACC of 6.44% assuming a capital structure of
47% for debt and 53% for equity. For our terminal year growth rate, we assumed a rate of 2.5% based off of
total US GDP growth.
Risk Free Rate 2.87%
Tax Rate 26.0%
Cost of Debt 2.7%
AT Cost of Debt 2.0%
Risk Free Rate 2.87%
MRP 7.5%
Beta 1.00
Cost of Equity 10.38%
Debt Ratio 47.00%
Equity Ratio 53.00%
WACC 6.44%
CalculationPV of Visible Period 852,015
PV of Terminal Value 2,443,684
Implied Firm Value (EV) 3,295,699
Debt 341,583
Implied Equity Value 3,637,282
Shares Outstanding 56,626
Implied Share Price 64.23$
Future Growth 2.5%
Terminal Value Calculations 4,286,454
Discount Factor 0.76
Terminal Value Calculation 3,236,470
PV of TV 2,443,684
Terminal Year Projections and PV
Risk-Free Rate 2.87%
Beta 1.00
Market Premium 7.50%
CAPM 10.38%
Cost of Equity
Valuation
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After our analysis we concluded that the security
TTEK, is in fact undervalued by about 31% due to
the necessary investments needed in water
infrastructure. Due to the poor US infrastructure
quality rating of D+, the increase in revenue for
the company will undoubtedly occur. It is only a
matter of when as opposed to how much. We conducted a Bull, Bear and Base case scenario analysis where the
timing of the spending was changed. Our Base case assumes the spending will take place by the end of the year
while our bull case assumed the spending has already begun and the bear case assumes the spending will be
conducted next year in fiscal year 2019. For our respective scenarios, we see 27% upside to our Bear case, a 31%
upside to our Base case, and a 34% upside to our Bull case.
We conducted two sensitivity analysis that tests the sensitivities of our WACC to our terminal year growth rate,
and our terminal year growth rate to the debt ratio we calculated to see the effect on how a changing capital
structure may help or harm TTEK.
EV to EBITDA
To calculate our terminal years stock price, we decided to do an EV to EBITDA model which was used to calculate
the target price for TTEK. We also provided a Bull, Bear and Base case scenario for 2018 and 2019, which
incorporates a 2-year holding period policy. We looked at 10 comparable companies to determine a range of EV
to EBITDA multiples. Currently, TTEK has an EV to EBITDA multiple of 13.9 which falls below the average of 15.6.
Assuming the market realizes the value in TTEK and the multiple raises to 15.6 we can expect a share price of
Bear Base Bull
TTEK Intrinsic Value 62.29$ 64.23$ 65.86$
Discount to Market 26.60% 30.55% 33.87%
Current Price 49.20$
Valuation Summary
5.2% 5.4% 5.6% 5.8% 5.9% 6.0% 6.1% 6.2% 6.4% 6.6% 6.8% 7.0% 7.2% 7.4% 7.6%
1.7% 78.05 73.57 69.58 66.00 64.34 62.77 61.57 59.86 57.21 54.80 52.59 50.57 48.71 47.00 45.41
1.9% 81.60 76.66 72.28 68.38 66.59 64.88 63.59 61.74 58.89 56.31 53.95 51.80 49.82 48.00 46.33
2.1% 85.60 80.12 75.29 71.02 69.06 67.21 65.80 63.80 60.73 57.95 55.42 53.12 51.02 49.09 47.31
2.5% 95.38 88.47 82.49 77.27 74.90 72.67 70.98 68.59 64.96 61.71 58.78 56.12 53.72 51.52 49.51
2.7% 101.44 93.58 86.83 80.99 78.36 75.89 74.03 71.40 67.42 63.88 60.70 57.84 55.25 52.89 50.75
2.9% 108.56 99.50 91.82 85.23 82.28 79.53 77.46 74.55 70.17 66.28 62.82 59.71 56.92 54.39 52.09
3.0% 112.60 102.83 94.60 87.58 84.45 81.53 79.34 76.27 71.66 67.58 63.96 60.72 57.81 55.18 52.80
3.2% 121.91 110.40 100.85 92.82 89.26 85.97 83.50 80.06 74.92 70.42 66.44 62.90 59.74 56.89 54.33
3.5% 139.96 124.74 112.47 102.38 97.98 93.94 90.95 86.79 80.66 75.36 70.72 66.63 63.02 59.79 56.90
WACC
TTEK DCF Sensitivity Analysis
Terminal
Growth
35.0% 38.0% 41.0% 44.0% 47.0% 50.0% 53.0% 56.0% 59.0% 62.0% 65.0% 68.0% 71.0% 74.0% 77.0%
1.7% 46.59 48.73 51.10 53.73 56.67 59.98 63.71 67.95 72.81 78.41 84.95 92.65 101.84 112.97 126.72
1.9% 47.58 49.84 52.36 55.17 58.31 61.87 65.90 70.51 75.82 81.99 89.25 97.90 108.33 121.16 137.28
2.1% 48.64 51.04 53.72 56.72 60.11 63.94 68.32 73.35 79.19 86.04 94.17 103.96 115.94 130.92 150.15
2.5% 51.01 53.74 56.81 60.28 64.23 68.76 73.99 80.10 87.31 95.94 106.43 119.42 135.89 157.43 186.71
2.7% 52.34 55.27 58.58 62.33 66.63 71.58 77.36 84.16 92.27 102.09 114.20 129.48 149.33 176.06 213.93
2.9% 53.80 56.95 60.52 64.60 69.29 74.75 81.17 88.79 98.00 109.31 123.50 141.81 166.27 200.52 251.75
3.0% 54.58 57.84 61.56 65.82 70.74 76.48 83.26 91.37 101.22 113.41 128.88 149.08 176.52 215.86 276.79
3.2% 56.24 59.77 63.81 68.48 73.91 80.30 87.92 97.15 108.52 122.87 141.48 166.55 202.03 255.96 347.51
3.5% 59.05 63.05 67.68 73.09 79.46 87.08 96.33 107.79 122.30 141.26 166.99 203.84 260.84 360.41 577.84
TTEK DCF Sensitivity Analysis
Debt Ratio
Terminal
Growth
Valuation
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
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$61.92 or a realized return of 25.86% and a share price for 2019 of $71.39 which nets us a realized return of
45.11% or 20.46% annualized. Our different scenarios calculate the value of the upper and lower 20th percentile
of the different EV to EBITDA’s in our comps. So, in the chance TTEK’s multiple falls to 12.9 or rises to 17.6, due
to the timing of the spending we have appropriate multiples that would reflect the timing of the infrastructure
spending. For 2018 our Bear case gets us a negative return of 7.83% and the Bull case gets us a return of 45.43%.
For 2019 our Bear case gets us a return of 8.56% or an annualized return of 4.19% and the Bull case gets us a
return of 69.91% or 30.35% annualized.
We also conducted sensitivities for the EV to EBITDA analysis that tests a changing EV to EBITDA multiple to a
changing EBITDA or the timing of the economic spending on infrastructure for both years 2018 and 2019.
TTEK EV to EBITDA Analysis
2017
Actual Bear Base Bull Bear Base Bull
Revenue 2,753,360 2,787,649 2,989,537 3,048,666 3,157,976 3,296,502 3,418,623
Revenue Growth 1.25% 8.58% 10.73% 13.28% 10.27% 12.14%
EBIT 171,761 179,448 192,793 196,701 216,331 225,952 234,433
Operating Margin 6.24% 6.44% 6.45% 6.45% 6.85% 6.85% 6.86%
Add: Depreciation and Amortization 45,756 41,831 41,831 41,831 38,159 38,523 38,630
EBITDA 217,517 221,279 234,624 238,532 254,490 264,475 273,063
EV/EBITDA Multiple 13.9 12.1 15.6 17.6 12.1 15.6 17.6
Enterprise Value 3,016,216 2,677,476 3,660,131 4,198,166 3,079,325 4,125,807 4,805,909
less: debt 356,871 341,583 341,583 341,583 325,402 325,402 325,402
plus: cash 189,975 263,831 249,557 245,376 292,771 292,860 288,092
Market Cap 2,849,320 2,599,724 3,568,105 4,101,960 3,046,695 4,093,265 4,768,599
Shares Outstanding 57,913 57,623 57,623 57,623 57,335 57,335 57,335
Equity Value/Share 49.20$ 45.12$ 61.92$ 71.19$ 53.14$ 71.39$ 83.17$
Expected Return -7.83% 25.86% 45.43% 8.56% 45.11% 69.91%
Annualized Return -7.83% 25.86% 45.43% 4.19% 20.46% 30.35%
2018E 2019E
Valuation
197,279 209,279 221,279 234,624 238,532 250,532 262,532
10.1 32.98 35.08 37.19 39.53 40.21 42.32 44.42
12.1 39.83 42.35 44.87 47.67 48.49 51.01 53.53
13.9 45.99 48.89 51.78 55.00 55.94 58.84 61.73
15.6 51.81 55.06 58.31 61.92 62.98 66.23 69.48
16.5 54.89 58.33 61.76 65.59 66.70 70.14 73.58
17.6 58.66 62.32 65.99 70.06 71.26 74.92 78.59
18.6 62.08 65.96 69.83 74.14 75.40 79.27 83.14
TTEK EV/EBITDA 2018 Sensitivity Analysis
EBITDA (Thousands USD)
EV/EBITDA
MULTIPLE
230,490 242,490 254,490 264,475 273,063 285,063 297,063
10.1 40.03 42.15 44.26 46.02 47.53 49.65 51.76
12.1 48.07 50.61 53.14 55.25 57.06 59.59 62.12
13.9 55.31 58.22 61.13 63.55 65.63 68.54 71.45
15.6 62.14 65.41 68.67 71.39 73.73 76.99 80.26
16.5 65.76 69.22 72.67 75.54 78.01 81.47 84.92
17.6 70.18 73.87 77.55 80.62 83.25 86.94 90.62
18.6 74.20 78.10 81.99 85.23 88.02 91.91 95.80
EBITDA (Thousands USD)
EV/EBITDA
MULTIPLE
TTEK EV/EBITDA 2019 Sensitivity Analysis
197,279 209,279 221,279 234,624 238,532 250,532 262,532
10.1 32.98 35.08 37.19 39.53 40.21 42.32 44.42
12.1 39.83 42.35 44.87 47.67 48.49 51.01 53.53
13.9 45.99 48.89 51.78 55.00 55.94 58.84 61.73
15.6 51.81 55.06 58.31 61.92 62.98 66.23 69.48
16.5 54.89 58.33 61.76 65.59 66.70 70.14 73.58
17.6 58.66 62.32 65.99 70.06 71.26 74.92 78.59
18.6 62.08 65.96 69.83 74.14 75.40 79.27 83.14
TTEK EV/EBITDA 2018 Sensitivity Analysis
EBITDA (Thousands USD)
EV/EBITDA
MULTIPLE
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
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Discounted Dividend Analysis
For our final model, we decided to conduct a
dividend discount model that calculates the
price of the company based on the future
expected dividends. TTEK is one of the few
companies within its industry that pays out a
dividend. The company has increased its
dividends by $0.04 every year for the past 3
years except for its initial offering year of 2015.
The company only paid out a dividend on Q3
and Q4 in fiscal year 2014 of $0.07 so an
increase of $0.16 occurred for fiscal year 2015.
Going forward we decided to keep the same
pattern of $0.04 increases every year until 2025.
From 2025 on, the dividend would be
large enough to take on a constant
growth rate of 5.75%. Assuming the
same WACC from our DCF calculations
we reach a separate intrinsic value of
$66.65 or an expected return of 35.47%
which falls close to the intrinsic value of
our DCF’s calculations. We have also
provided a sensitivity analysis for the
DDM that tests the perpetuity growth
with the WACC.
230,490 242,490 254,490 264,475 273,063 285,063 297,063
10.1 40.03 42.15 44.26 46.02 47.53 49.65 51.76
12.1 48.07 50.61 53.14 55.25 57.06 59.59 62.12
13.9 55.31 58.22 61.13 63.55 65.63 68.54 71.45
15.6 62.14 65.41 68.67 71.39 73.73 76.99 80.26
16.5 65.76 69.22 72.67 75.54 78.01 81.47 84.92
17.6 70.18 73.87 77.55 80.62 83.25 86.94 90.62
18.6 74.20 78.10 81.99 85.23 88.02 91.91 95.80
EBITDA (Thousands USD)
EV/EBITDA
MULTIPLE
TTEK EV/EBITDA 2019 Sensitivity Analysis
Valuation
TTEK Discounted Dividend Analysis
Year Dividend Growth Present Value
2017 0.38 0.38
2018 0.42 10.53% 0.41
2019 0.46 9.52% 0.42
2020 0.50 8.70% 0.43
2021 0.54 8.00% 0.43
2022 0.58 7.41% 0.44
2023 0.62 6.90% 0.44
2024 0.66 6.45% 0.44
2025 0.70 6.06% 0.44
Perpetuity Value 106.82 62.83
Perpetuity Growth 5.75%
WACC 6.44%
Intrinsic Value 66.65$
Return 35.47%
6.20% 6.40% 6.60% 6.80% 7.00% 7.20% 7.40% 7.60%
5.00% 40.59 34.81 30.49 27.12 24.43 22.23 20.39 18.84
5.10% 43.97 37.23 32.29 28.52 25.54 23.13 21.14 19.47
5.20% 48.02 40.05 34.36 30.09 26.77 24.12 21.95 20.14
5.30% 52.97 43.38 36.74 31.87 28.15 25.21 22.83 20.87
5.40% 59.16 47.37 39.52 33.90 29.70 26.43 23.81 21.67
5.50% 67.13 52.26 42.80 36.25 31.45 27.78 24.89 22.54
5.70% 92.60 66.21 51.56 42.23 35.78 31.04 27.43 24.57
5.75% 102.51 71.04 54.39 44.08 37.07 32.00 28.16 25.15
5.80% 114.89 76.68 57.58 46.11 38.48 33.02 28.93 25.75
5.90% 152.04 91.33 65.31 50.86 41.67 35.31 30.64 27.07
TTEK DDM Sensitivity Analysis
WACC
Perpetuity
Growth
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
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Further Infrastructure Neglect Tetra Tech may fall victim to circumstance if political gridlock prevents the allocation of resources towards infrastructure improvement. It is unlikely that revenues would at any point fall, as local and municipality spending will remain strong. However, growth rates may stagnate which could perpetuate a bearish market view on Tetra Tech’s share price. Volatility in Commodity Prices Given that Tetra’s Oil and Gas business indirectly relies on the stability of oil and gas prices, the demand will fluctuate in tandem with activity in the Oil and Gas sector. We have seen Tetra’s O&G and mining operations take a hit, which points to Tetra reducing activities in high-volatility sectors in the future to limit risk exposure. Ability to Compete for Contracts/Government Budget reductions Tetra relies on its reputation of impeccable cost management and the timely completion of projects to win mandates. Significant talent drains or delays in consulting projects would certainly hurt Tetra’s bottom line. Key to Tetra’s success is their government sector work, which is equally dependent on budget expenditures in key critical infrastructure areas. Pricing Power Erosion A key competitive advantage is Tetra’s positioning in high growth, high need segments of infrastructure engineering. If a considerable number of other firms choose to copy this strategy and enter this already competitive and fragmented market, Tetra may find their margins squeezed if they’re unable to compete for contracts at the same level as historically. Variable Profitability of Contracts With a substantial portion of Tetra’s contracts being fixed-cost and cost-plus, profitability varies significantly based on conditions which may not be in Tetra’s control. Though Tetra’s management is usually adept at estimating costs, timelines, and the scope of projects, other factors may affect this on a macroeconomic level. Discussion of TTEK’s Impairment of Goodwill Charges Astute analysts may notice large non-cash impairment items in 2013 and 2015 of around $60 million dollars. Though it may raise concerns of substantial recurring expenses, our team found out that incurring this periodic expense is largely at the discretion of management. When Tetra Technologies acquires service companies, they acquire most of their assets in the form of intangibles, which must be evaluated for implied value and carrying value. The value and potential impairment costs of the intangible assets acquired must be tested and reported at least once a year by the company and is a frequent byproduct of major mergers and acquisitions.
• Per PwC analysis, impairment of goodwill is calculated in a two-step accounting process as the difference between the carrying value of a reportable unit and the implied value of the unit.
• For 2015, the charge was attributable to TTEK’s mining engineering operations. • This methodology of testing for impairment must be adopted by public companies by 2020.
• Due to the uncertainty of future management acquisitions, we’ve assumed that this charge will not be recurring during our holding period or will be negligible/non-material.
Risks to Investment Thesis
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
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Infrastructure Outlook
Necessary Infrastructure Spending
The infrastructure sector is in dire need of investment from the US government. The American Society of Civil Engineers completes an infrastructure report card every four years with the latest coming in 2017, grading the overall US infrastructure at D+. They have since estimated that a $3.6 trillion investment is necessary by 2020 to increase the nation’s support system to acceptable levels, TTEK stands to be a large benefactor from this necessary increase in spending in coming years mainly in the water and energy sectors which we have o utlined below.
For the energy sector, most of electric lines were constructed in the 1950s and 60s with 50-year useful life spans. This has resulted in not only old electrical lines, but over 640,000 miles of lines in 48 states being at full capacity, leading to over 3500 power outages per year in the US. With the growing need for electricity in the nation’s cities and rural areas due to growing demand and population this $177 billion investment gap will need to be filled soon. Without this investment, with aging equipment increased demand as well as increased storm and climate impacts Americans will experience longer, more frequent power interruptions.
Investing in water infrastructure is crucial, especially with growing population and the natural need fo r the substance. There can be said to be three main parts to this sector: drinking water, waste water and Dams. Drinking water is delivered via 1 million water pipes across the country, many of which were laid in the mid -20th century, with a useful life of 75 years. The aging water pipelines have resulted in over 240,000 water main breaks across the nation wasting over 2 trillion gallons of treated drinking water, 6 billion per day which may not seem a lot until you know that 42 billion of gallons are used daily meaning that 14% of what the U.S uses on a daily basis is lost. Not only is the maintenance and operation of these pipelines crucial but expansion and replacement. Currently investing $45 billion into drinking water infrastructure it is estimated that $1 trillion will be necessary over the next twenty-five years to maintain and expand the service.
The 14,748 waste water plans in the US are critical infrastructure systems for public health and the environment. It is expected that 56 million new users will be connected to the central treatment systems over the next 20 years. This 23% increase in demand could lead to severe structural failure, backlogs and public overflows should necessary investment not be made. The American Society of Civil Engineers have estimated that an additional $256 billion will need to be invested in the next two decades.
Dams provide a crucial service and protection to communities and the economy including drinking water, irrigation, hydro power, flood control and more. However, the average age of dam in the US is 56 years. As the population continues to grow and development continues the number of ‘high hazard potential’ dams is increasing, climbing to 15,000 (16.5%) in 2016. With lack of investment the Association of State Dam Safety Officials has estimated the cost to rehabilitate these days is more than $64 billion. The public views damns as the marvel of the Hoover Dam and not the small structure that ruined multiple neighborhoods or planned communities, it needs to be remembered that no matter how big or small these structures are powerful and are not to be only acted upon after tragedy.
Industry Trends
The engineering consulting industry is characterized by its fragmentation nationwide. Although companies such as Tetra Tech have carved out unique specializations, there are no across-the-board dominant players with majority of engineering consulting market share.
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Water & Sewer Line Construction Trends The growth in America’s population and increased need for sewer/similar infrastructure replacement acts as a significant long-term driver to companies active in this segment. Total water products and services Industry consulting revenue is at an estimated $49 Billion, which is expected by analysts to remain at pre-recession growth levels, when it dipped in 2008 due to state and local governments tightening their infrastructure budgets. Of this, 34% is related to water main construction, 25% is for sewer construction, 20.2% is related to sewage and water treatment plant engineering, and the rest is for unrelated construction projects. Despite the economic upturn and return to growth in 2013, the segment has not recovered its pre -recession revenue level. As such, we expect record spending in the next five years to ameliorate public structural concerns. Additionally, short term drivers of revenue include regulation changes, failures in critical water systems, and potential natural disasters. While Water and Sewer Construction, an important business for Tetra’s engineering services, is a relatively mature industry, the industry IVA (Industry Value Added for US Economy) is expected to grow annually at a rate of 3.7%, well above the country’s GDP growth rate without assuming any increased future stimulus spending. Traditionally, government spending on water infrastructure improvement has equaled 2.5%, which may increase substantially depending on final stimulus terms set by congress. With 96% of investment in the water and sewage industry coming from the public sector, there is heavy demand for private capital investment into the industry. Investors are sensitive to industry returns, so substantial government investing may also attract an influx of private investment, which is sorely needed to fund proj ects. Water Scarcity to Drive Conservation Consulting Revenues By 2025, UNESCO estimates that 1.8 Billion people living globally will be affected by “absolute water scarcity”. Given these grim estimates, Tetra consultants will be able to leverage their operational size and water conservation expertise to assist clients in this vital area. Environmental Consulting Trends The environmental consulting industry is best characterized by low barriers to entry, low overhead costs and a steadily increasing level of globalization. It is only slightly higher than traditional professional services when comparing capital intensity, although the measure remains relatively low across the board. The industry is still in its growth stage and is expected to help Tetra with organic top-line revenue growth in the public and commercial sectors. Meanwhile, demand internationally in emerging economies for high quality environmental infrastructure and compliance consulting is expected to climb in the next five years. With government budgets dedicated to sustainability expected to rebound given increasing public focus on infrastructure, Tetra’s business is likely to benefit in the near term and long term.
Infrastructure Outlook
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Geographic Reach Tetra technology has a very wide base of end-consumers and consequently operates within numerous geographic regions. Within the United States alone, there are nearly 300 offices that are thoroughly spread out across the country. Internationally, Tetra Tech maintains a physical presence throughout almost 30 countries; bringing the office total to over 400. Of their international operations, Canada, Australia, and New Zealand make up the largest drivers of their revenue. Globally, Tetra Tech engages in both traditional consulting services as
well as large project management—making them key stakeholders within the markets of operation. In doing so, this provides competitive advantage based on consistent client relationship management. With this said, Tetra Tech remotely services over 100 countries—capitalizing on numerous short-term incremental revenue opportunities.
Sustainability Measures As Tetra Tech services such an extensive array of end-consumers, it has made consistent effort to provide technically, socially, and economically resilient. An invaluable aspect of these high-end services is the emphasis on sustainability. Based on the Global Reporting Initiative framework, Tetra Tech implements state of the art measures and practices that promote long-term economic, social, and environmental sustainability on a global scale by producing high-end design of energy efficient/net zero infrastructure. Many of these projects revolve around the conservation of energy as well as the efficient reuse and preservation of usable water. Doing so not only promotes environmental efficiency but allows Tetra Tech to operate as a high-end consultant that derives stakeholder value rather than merely a cost savings. This helps insulate margins from cost focused competitors. More importantly, Tetra Tech often services their contracts through the lifetime of the project, meaning that the development of sustainable infrastructure and resource management will provide perpetual organic revenues through the foreseeable future. This particular area of focus currently provides 100 million dollars in annualized revenue and is forecasted to increase by 150% to 250 million dollars by calendar year, 2020.
Business Overview
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Water, Environment and Infrastructure (WEI) Per Tetra Tech’s 10k, the water, environment, and infrastructure segment provide a range of services that apply to water, environment, and infrastructure-related needs in both developed and emerging economies. WEI supports both public and private clients including federal, state/provincial and local governments, and commercial clients. The primary WEI markets include water resources analysis and water management, environmental monitoring, data analytics, government consulting, and a broad range of civil infrastructure master planning and engineering design for facilities, transportation, and local development projects. WEI's services span from early data collection and monitoring, to data analysis and information technology, to science and engineering applied research, to engineering design, to construction management, and operations and maintenance. WEI makes up 45% of Tetra Tech’s top line revenue. Even as a smaller percentage of revenue, this segment represents more of TTEKs identity and core business ideals in their eyes and the eyes of the industry and clients and is the main source of future growth. Through their WEI segment TTEK provides clients with the development of water supplies, management of existing supplies and resources, safety checks and regulatory compliance, remediation, and repair. The demand for services in all these areas has been increasing both internationally and domestically. We believe international and emerging markets will continue to have stable growth with US domestic growth accelerating at a great pace due to known necessary infrastructure spending in TTEKs main operating segment of Water infrastructure, Approx. $1.3 trillion in the next 25 years. TTEK stands out as one of the major design and consulting firms for providing high quality, trusted solutions which customers are desperate to get. Resource Management and Energy (RME) The resource management and energy services span from early data collection and monitoring, to data analysis and information technology, to feasibility studies and assessments, to science and engineering applied research, to engineering design, to construction management, and operations and maintenance. RME also supports engineering, procurement and construction management ("EPCM") for full service implementation of commercial projects. RME supports the clients in addressing emerging policies, resource limitations and concern about climate change, including the design of energy conservation measures, retrofits to existing structures, upgrades to energy transmission infrastructure, and the development of renewable energy resources. We also support governments in deploying international development programs for developing nations TTEKs RME segment provides customers with consulting and engineering services on a wide range of markets and projects, including waste management, natural resources, utilities, remediation and repair. Similarly, to their WEI segment, TTEK positions itself upstream in high value operations which brings with it better margins and profitability. While the company remains top in water and environmental sectors It is also highly regarded in other segments, ranked 16th in power, 7th in solid waste and 13th in resources according to ENR. Given this segment large exposure to resource related markets it is more cyclical than their WEI segment, however, lowering their focus and exposure in this sector has reduced the overall cyclicality of the stock. Commodity prices declines played a large part in decreasing revenue in this segment especially in their 2015 fiscal year. This segment also carries lower margins than WEI, further explaining TTEKs goal of enhancing their WEI segment.
Business Overview
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Reportable Consumer Segmentation Though its revenues are broken into two streams, RME and WEI based on services offered, Tetra Tech also recognizes the segmentation of end-consumers. These are traditionally reported separately on their annual 10k reports as well as their investor relations presentation. These can be separated in one of two ways: as the separation between the Government Services Group and the Commercial/International Services Group or a more specific segmentation that measure US State and Local, US Federal, US Commercial, and Inte rnational consumers. For the purposes of this report, the ladder was used in order to evaluate specific growth drivers. US State and Local Consumers Tetra Tech serves a large quantity of local and municipality clients. These relationships are largely built on consistent consultancy services regarding waste management, water reclamation, and high-end infrastructure development projects. By nature, many of these projects are ongoing servicing and supervision. This segment also includes emergency service relief. This segment saw robust Y/Y growth through the first quarter of Tetra Tech’s fiscal year. The gross change was an increase in revenue by 86% which was complemented by a 56% jump in net revenue as well. This growth was largely driven by a 17% increase i n broad-based infrastructure as well as a massive increase in emergency response involvement due to heavy hurricane and natural disaster activity within the United States in 2017. Looking Forward, company guidance expects this segment to experience growth between 10% and 15% which is driven by the upgrade of municipal water infrastructure. US Federal Tetra Tech provides consulting and engineering services to U.S. Federal clients and agencies. Tetra Tech supports U.S. government civilian and defense agencies with services in resource management and infrastructure, information technology, and project management. This segment witnessed noticeable gains in both its gross and net revenue. These revenue measurements were recorded has gaining 7% and 10% respectiv ely. The US Federal segment experienced this growth because of Tetra Tech’s maturing client relationship with the US Department of Defense. As Tetra Tech continues to earn contracts through this pipeline, revenues are expected to be driven by about 10% alone in 2018. This neglects the potentiality of a federal infrastructure stimulus plan that could inject revenues with a strong boost in Tetra Tech’s top-line growth. US Commercial Tetra Tech supports commercial clients across the Fortune 500, oil and gas, energy utilities, and mining markets. Provides infrastructure and related environmental and geotechnical services, testing, engineering and project management services across the private market place—focusing on high-end sustainable development. Tetra Tech’s US Commercial segment also recognized growth within both its gross and net revenues. Year over year, gross revenue grew by 9%. Because Tetra Tech has increased focus on generating higher margin projects, the year over year net revenue gain was marked by 13% growth. Generally, industrial based firms that operate primarily in the production and allocation of environmental resources were more active in 2017, in -turn driving Tetra Tech’s revenues. This increased activity is expected to remain growing through 2018 which will further drive gross revenues by approximately 8%. International The international revenue segment is a composition of the aforementioned products and services but specifically applied to clients whom operate abroad. Incremental opportunities are frequently available in this segment, though long-term client relationships are becoming increasingly more common especially in the geographic regions of Canada and Asian-Pacific territories.
Business Overview
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Contrary to the robust growth of the domestic based segments, the international revenue segment witnessed year over year single-digit declines in both gross and net revenues, (-4% and -7%). However, this decline in revenue was catalyzed by a reduction in Canadian oil & gas activities due to the volatility of oil prices and demand. When excluding oil and gas operations, the international segment’s net revenue is up 8%. When looking forward into the rest of fiscal 2018, the international segment, (excluding oil and gas) is expected to grow between 2% and 5% while oil and gas operations are expected to witness a continued decline. Project Examples Below are project descriptions for each of our revenue segments. This section is first broken down into the WEI and RME service segments. Within each of those respective revenue stream, project examples from each of the consumer segments are listed as well.
US State and Local
Providing program management for the City of Detroit, Michigan for the broad implementation of community-based
stormwater management and green infrastructure, effectively combining city revitalization initiatives and reduction of
overflows.
Providing master planning services to Miami-Dade County, Florida in smart, energy efficient and resilient water infrastructure
solutions for the most populous county in Florida.
US Federal
Providing the U.S. Environmental Protection Agency ("EPA") Superfund Technical Assessment and Response Team program
support with emergency preparedness, environmental response, removal action, site assessment, community involvement,
and other Superfund technical services in 23 states.
Providing sustainable project development and asset management services for the U.S. military, including the Army, Navy and
Air Force.
US Commercial
At the Carpenter-Snow Creek Mining District Superfund site, providing services including investigation, risk assessment,
engineering study, design, cleanup oversight, and long-term monitoring services
Office of Water and Office of Science and Technology, providing analysis of waterways in the U.S. and technical analysis of
emerging monitoring and analytical techniques.
International
Providing smart water solutions using real time control systems to reduce overflows, maximize use of retention in the system,
and improve operational efficiency in cities in the U.S., Canada, and France.
Providing transportation planning, data collection and design services for the Province of Alberta, Canada, with specialized
expertise in arctic region infrastructure.
US State and Local
Providing turn-key design, construction, dredging, and treatment services on the Lower Fox River in Wisconsin
Designing the Puente Hills Intermodel Facility for the Los Angeles County Sanitation District.
US Federal
Preparing a third party environmental impact statement for Clean Line Energy and the U. S. Department of Energy ("DOE") for a
720-mile overhead 600 kilovolt high voltage direct current electric transmission line across Oklahoma, Arkansas, and
Tennessee.
For USAID, designing and implementing resiliency programs, including mitigation of changes in agriculture and fisheries, and
strengthening of community resilience to withstand extreme weather events
US Commercial
For DONG Energy, providing constraints analyses, siting studies, marine geophysical surveys, submarine cable routing analyses,
specialty marine impact studies, permitting services, biological and cultural resource surveys, construction compliance, and
support for U.S. east coast offshore energy projects.
For multiple oil & gas clients, providing engineering, detailed design, and construction monitoring for midstream pipeline
companies; performing in-plant engineering and sustaining capital project work at downstream refineries
International
For the U.K. Department for International Development, designing and implementing projects in Africa, Asia, and the Middle
East.
For the Australian Department of Foreign Affairs and Trade, implementing a range of development projects in the Asia Pacific
region.
Water, Environment, and Infrastructure
Resource Management and Energy
Business Overview
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Competitive Analysis
SWOT Strengths
Operating Performance Geographical Presence Wide Range of End-User Markets
Weakness Narrow Economic Moat Susceptible to Oil Price Volatility
Opportunity New Contract Wins Increasing Global Demand for Energy Aging Water Infrastructure in the US
Threats Stringent Regulations Rising Labor Costs
Strengths Tetra Tech has differentiated itself as one of the most prominent resource engineering and infrastructure consultancy firms despite operating within a highly competitive market place. This is largely attributed to their operating performance. By consistently completing large and complex projects to a high standard, Tetra tech has built an industry reputation of efficiency and thoroughness. This has been reflected within their financial performance in 2017, during which it recorded strong revenue growth of 5.4% and a growth in profit of 40%. Unlike many of its competitors, Tetra Tech is not limited geographically to any domestic region. Meaning, if there is a slowdown in a specific area within the United States, Tetra Tech’s revenues are relatively insulated. With this considered, Tetra Tech has an incredibly wide range of consumers to which it can deliver its servicers. No single customer makes up more than ten percent of Tetra Tech’s sales with the exception of the US Federal Government—of which no single agency makes up more than 15%. Weaknesses As mentioned before, Tetra Tech operates within a highly competitive market. Outside of its brand reputation which is built upon quality results, there is a very narrow economic moat. The resource -consulting industry as a whole has very low-barriers to entry—slimming margins and fragmenting market share. Additionally, as illustrated by the international segment’s revenue stagnation, Tetra Tech’s revenue can be affected by the fluctuation of oil prices as many of this segment’s projects revolve around the corporate demand of oil and gas, especially within the Canadian Market. Opportunities Tetra Tech’s share price is largely dependent on the ability to grow over the course of the selected holding period. This growth can be achieved through one of two manners: organically growing its own market share through the acceptance of new contracts or the macro growth of the industry itself. As Tetra Tech continues to diversify its revenue streams, there is strong potential to grow its top-line revenues through the former method. By securing a broadened number of contracts that remain within their core competency, Tetra Tech will continue to grow its total market share. Similarly, Tetra Tech will experience top-line revenue growth under the circumstance that the entire market grows. This exists very much within the realm of possibility, as it is expected that the demand for energy will drive Tetra Tech’s RME segment just as the redevelopment of the United States’ water infrastructure will perpetuate Tetra Tech’s WEI growth. Threats Of course, being that Tetra Tech operates within such a critical industry, there are stringent government regulations that they must comply with. If ever their products, services, or labor force fail to live to these standards, Tetra Tech may face increased difficulty in winning new contracts. As a service -based company that is driven by man-power, an increase in labor costs could significantly cut into Tetra Tech’s margins.
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Competitive Analysis Tetra Tech has positioned itself as a high-end solutions provider that prioritizes scientific veracity and client relationships. Their solutions are intended to be differentiated by their long-term, sustainable nature. Tetra Tech has identified the following five principles as the foundation of its competitive advantage- Technical Differentiation. Tetra Tech has prided itself on providing innovative consultancy plans and engineering project solutions that meld technological development and pragmaticism. The adoption of emerging science and technology as essential variables in providing high-grade results is the crux of Tetra Tech’s Leading with Science® initiative. Relationships and Trust. Tetra Tech has achieved its broad client and contract pool by placing an effort on understanding its consumers and broader stakeholders. By successfully delivering satisfactory results time and time again, Tetra Tech has built a reputation that limits competitive threat. By working locally within the communities in which projects are occurring, Tetra Tech has the opportunity to further relationships through sheer proximity—perpetuating the chance to renew existing contracts. Institutional Knowledge. Since its inception in 1966, Tetra Tech has been involved with array of projects within different markets. The generational experience in both the public and private sector truly sets Tetra Tech apart from many of its competitors. Compounded with the long-term relationships and repeat business that have been built, Tetra Tech has an understanding of client needs, resources, history, and future growth prospects . One-of-a-Kind Solutions. Tetra Tech is often at the forefront of technological change and the arrival of new challenges. This often requires unique, one-of-a-kind solutions tailored to each client. Tetra Tech is constantly adapting and growing its collection of intellectual property. By bringing forward such forward-looking solutions to critical issues facing its consumers, Tetra Tech further differentiates itself—catalyzing its own growth and development financially. Smart Solutions and Innovation. Tetra Tech’s emphasis on smart solutions epitomizes the thoroughness and consideration it maintains when providing any service. Rather than working under the premise of brute force completion, Tetra Tech works smarter—identifying unique efficiencies that make projects and solutions more dynamic. In doing so, Tetra tech provides a broader range of services that are based within matters of complexity and inter-disciplinary means. By leveraging these five differentiators, Tetra Tech is positioned to drive growth in our water, environment, infrastructure, resource management, energy, and international development markets. Tetra Tech is focused on expanding its market leadership within these fields of need while acquiring share of relevant emerging opportunities. By maintaining differentiated identifiers, Tetra Tech has secured a competitive positioning that could potentially lead to secured growth. As a service-based firm, its employees are considerably valuable to Tetra Tech’s success. In order to continue cultivating growth opportunities, Tetra Tech actively recruits, develops, and internally promotes its hires. By providing a healthy and happy culture for its employees, Tetra Tech is more likely to retain talented and qualified personnel—further bolstering its competitive advantage. Tetra Tech’s strategic growth plans are augmented both organic reinvestment and the selective acquisition of firms aligned with its business operations. Both methods broaden the scope and capabilities that can be achieved under Tetra Tech’s current position.
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Tetra Tech faces consistently frequent competition in all of the markets in which they operate. However, many of the companies are very small, local firm that do not serve much threat. With that said, competition varies, and operational functions are dependent on geographic location, client availability, and local resources. The number of competitors for any procurement can range widely depending upon the aforementioned factors. Historically, clients have chosen among competing firms by weighing the quality, innovation and timeliness of the firm's service versus its cost to determine which firm offers the best value. When less work becomes available in certain markets, price could become an increasingly crucial factor. Though Tetra Tech operates within numerous markets which makes the selection of set competitors difficult, it has self-identified a list of notable competitors as seen below, (listed in alphabetical order)- AECOM Technology Corporation Arcadis NV Black & Veatch Corporation Brown & Caldwell CDM Smith Inc. CH2M HILL Companies, Ltd. Chemonics International, Inc. Exponent, Inc.
ICF International, Inc. Jacobs Engineering Group Inc. Leidos, Inc. SNC-Lavalin Group Inc. Stantec Inc. TRC Companies, Inc. Weston Solutions, Inc. WSP Global Inc.
Of these companies, those who are bolded are publicly traded firms. Based on separate, third party research provided by IBIS world, the two most notable firms listed above are AECOM Technology and Jacobs Engineering Group, (who has recently acquired CH2M Hill). AECOM is an American multinational engineering firm that provides design, consulting, construction, and management services to a wide range of clients. However, AECOM operates with a wider range of competencies, allowing Tetra Tech to better penetrate the fundamental water and environmental consulting market. Previously, the Jacobs Engineering Group focused primarily on building and general public infrastructure, but its acquisition of CH2M Hill has merged their markets. See visualization of the US environmental consulting market share is provided along with a service segmentation chart.
5.50% 7.00% 7.40% 80.10%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%
US Environmental Consulting Market Share
CH2M Hill Companies Ltd. AECOM Tetra Tech Inc. Other
Infrastructure Outlook
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Capital Allocation Tetra Tech’s management has given quarterly performance guidance and has traditionally communicated their strategy going forward. Their strategy from Q1 2018 is focused on expansion into underserved areas, with a substantial portion of organic growth funded by climbing revenue. With its healthy balance sheet, Tetra can utilize its strong cash flow generation to fund that growth.
They have given a target of maintaining a 1x-2x Net Debt/EBITDA multiple, which we expect will be extremely achievable under current market conditions. Tetra’s current Debt/EBITDA multiple as of Q1 2018 is 1.1x. However, Tetra may reissue debt in the future to meet surging demand as the highest quality consultant in their service niches.
As a showcase to the quality and consistency of their cash flows, Tetra issues a dividend, payable quarterly of 0.10 cents per share. This dividend has seen robust growth since its first issue in 2014, up from a meager $0.07 a share, amounting to 85% growth in the span of just three years.
What’s unique about this is that Tetra Tech is one of the few companies which issue any dividends in the construction engineering space. In Q2 2017, Tetra raised its quarterly dividend to $0.10 per share, with an annual dividend projected to reach $0.43 per share for 2018. Tetra Tech continued to reward shareholders by announcing a $200 million share buyback program, $75 million of which is still outstanding. Management has committed to repurchase $25 million in shares in the first quarter of 2018.
Acquisitions and Divestitures As part of the broader industry trend of consolidation, Tetra Tech made important accretive acquisitions in the last two decades. As their business expanded in the 90s, Tetra made stepped up acquisitions, a trend which continued to today. They maintain a regular expansion schedule, with each acquisition paid for with any combination of debt, equity and cash. The common theme behind their most recent acquisitions of companies such as BridgeNet, Coffey (in 2015) and Glumac includes breaking into new international markets, building on new segments, or adding expertise to existing segments.
Acquisitions have played an important part in facilitating Tetra Tech’s service and domestic growth. The contributions by newly acquired businesses have been positive, with Coffey’s Australian international business bringing in $144.9 million, net of costs. To acquire businesses, Tetra evaluates potential acquisitions using discounted cash flows and negotiates them on an earn-out basis, meaning that sellers have to earn back part of the purchase price. This is done to avoid disagreements regarding future profitability and future managem ent. As of 2015, the company has not made any divestitures from core businesses. No divestiture plans have been released by the company.
In January 2018, the company announced plans to acquire Norman Disney & Young, an Australia-based provider of sustainable infrastructure engineering services. The acquisition adds 700 engineering professionals to their already deep ranks and adds to Tetra's global footprint extra engineers in APAC, the UK and Canada. This acquisition highlights Tetra Tech management's emphasis on the growth in sustainable infrastructure demand worldwide.
Tetra Tech regularly reviews and evaluates operations to determine whether strategic changes should be made through the divestiture of certain businesses. Tetra may divest or wind-down certain non-core businesses and reallocate our resources to businesses that better align with our long-term strategic direction. We did not have any divestitures in fiscal 2017, 2016, or 2015.
Corporate Management Strategy
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Appendix and Supplemental Materials
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The analyst team believed it necessary to perform a local case study to demonstrate the seriousness of the
status of our water infrastructure. Included in this case study are two project overviews occurring in the state of
Florida, locations of Tetra offices within the State of Florida and Hillsborough County, news reports of closures
and public maintenance in Tampa Bay, and the overall quality of local water infrastructure.
Local Infrastructure Grades and Facts
Infrastructure is the backbone of the Florida economy and the deterioration of its infrastructure costs tax payers
millions of dollars. This combined with the lost opportunity costs of efficient systems makes public infrastructure
of immense importance—especially that of water. The overall infrastructure grade, as assigned by the American
Society of Civil Engineers, is a C. This mark implies that Florida is composed of “mediocre” infrastructure.
However, upon further inspection of water related infrastructure, some troubling facts appear which has led to
some troubling grades. See below for select grades-
Coastal Areas- D+: Unfortunately, nearly 61% of Florida’s sandy beaches (503.8 miles) are eroding. These
beaches are critical in protecting Floridian communities from damage. Developing and applying local and
regional beach management strategies has proven essential to decreasing the risk exposure in coastal
areas and providing storm damage reduction benefits. However, over the last 10 years, the average
difference between requested and state appropriated funds exceeded $40 million per year.
Drinking Water- C: High population growth, aging infrastructure, and sensitive ecological environments
such as Florida’s Everglades are increasing the need and urgency to invest in Florida’s water
infrastructure.
Storm Water- D: Utility fees to upkeep the systems have declined since 2011 while needs will double over
the decade. More than half of Florida’s storm water entities revealed an inability to address all capital
improvement needs, and only 1 in 4 storm water utilities stated that today’s operation and maintenance
capabilities were adequate only to meet the most urgent needs.
Wastewater- C: Florida’s wastewater system is increasing in age and the condition of installed treatment
and conveyance systems is declining. There are also over 1,900 impaired water body segments
throughout the state that will require higher standards to be met.
Moreover, same study provided more in-depth facts about water infrastructure—further illustrating the
pressing nature of this matter-
• There are 79 high hazard dams in the state of Florida
• $16.5 billion in drinking water infrastructure needs over the next 20 years
• $18.4 billion in wastewater infrastructure needs over the next 20 years
• Florida’s capital improvement needs for storm water management are estimated to be $1.1 billion
In another study published by the NRDC, Florida ranked second in the number of people impacted by violations
under the Safe Drinking Water Act. Altogether, 7.5 million Floridians received water from utilities that violated
standards. Among the state's top violations was failing to provide its citizens with a required annual water
quality report.
Local Case Study
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Closures and Public Maintenance in Tampa Bay
Based on collected news reports and official announcements, the state of the Tampa’s water infrastructure is in
dire need of repair. Below are reports from various sources indicating these occurrences by date -
January 6, 2018 - Several Tampa roads, intersections closed due to water main breaks: News Channel 8
January 17, 2018 - Water main break closes stretch of Howard Ave. in S. Tampa: News Channel 8
January 23, 2018 - Lane Closure on West Azeele Street Between South Dale Mabry Highway and South
Sterling Avenue: City of Tampa
February 7, 2018 - Water main break creates large hole in Citrus Park neighborhood: Fox 13 News
February 27, 2018 - Lane to Close Tomorrow Morning on Azeele Street Between South Habana Avenue
and South Bungalow Park Avenue: City of Tampa
These are based on a few select instances. Many water main breaks are not repaired quickly or thoroughly
enough to fix the problem—as Azeele Street in South Tampa experienced three consecutive water main breaks
over the course of two weeks in late February. Based on an article published by News Channel 8, City Workers
informed reporters that there were at least a dozen water main breaks during the first week of January. They
attributed this rash of ruptures to be the effect of a brief cold snap. This is indicative of the disarray that much of
our local infrastructure exists in.
Tetra Tech is contracted as a consultant for both the city of Tampa and Hillsborough County. Our analyst team
reached out for comment from the local representatives and were told that Tampa, though not the worst in
Florida, was still in need of a major infrastructure overhaul.
Tetra Tech Locations
Between Pinellas and Hillsborough County, there are four locations. Statewide there are 15 locations.
Local Case Study
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Tetra Project Overviews (Overviews Collected from Tetra Tech’s Website)
Groundwater Aquifer Replenishment: Clearwater, Florida
The City of Clearwater, Florida, is investigating the feasibility of
replenishing the brackish water interval of the Floridan aquifer
system with purified water, creating an indirect potable reuse
system. The City selected Tetra Tech to provide professional
engineering services to assist in determining the technical and
financial viability of using the multi-barrier, full advanced
treatment processes for purification of reclaimed water at a
capacity of three million gallons per day. The anticipated
benefits include increased sustainability of existing water
resources through protecting them from saltwater intrusion from the Gulf of Mexico and Tampa Bay.
The purification treatment process included ultrafiltration, reverse osmosis, and advanced oxidation. This
process was followed by groundwater conditioning steps consisting of membrane contactors and post-
treatment stabilization. Tetra Tech added dissolved oxygen removal to the multi -barrier processes to minimize
any potential to dissolve naturally-occurring arsenic minerals in the receiving aquifer. With Tetra Tech’s
assistance, the City of Clearwater was the first in Florida to demonstrate post-treatment stabilization for potable
reuse. Effective post-treatment processing to condition the purified water for injection to the groundwater
aquifer is critical for keeping purified water pure and to successful implementing indirect potable reuse in
Florida.
Tetra Tech assisted the City of Clearwater with the operation of a full advanced treatment process pilot system
to purify the reclaimed water. The initial year-long phase of pilot testing, which concluded in June 2014, is the
longest pilot demonstration of this purification process by a Florida utility. Tetra Tech and the City obtained
valuable operating experience and insights into the design and operation of purification and post-treatment
processes. Tetra Tech’s services included data collection; review of system operations; troubleshooting;
recommendations for operational adjustments and membrane cleanings; water quality sampling and
monitoring; emerging constituent challenge testing; and support of the City’s public education and information
program.
The City of Clearwater maintains continual coordination with regulatory agencies on policies and rule
compliance. The data collected from the pilot operations has demonstrated that a combination of power
treatment technologies and cutting-edge solutions in post-treatment can provide sustainable water supplies for
the city’s future.
Local Case Study
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
USF Student Managed Investment Fund 25
Among seven recent Florida potable reuse pi lot studies, the City of Clearwater’s program was the most
comprehensive water quality sampling program and
most extensive microconstituent challenge study. It is the
only potable reuse pilot-scale chemical post-treatment
project and the only pilot to demonstrate membrane
contactors, essential for removing dissolved oxygen and
halting arsenic release.
Fort Myers Beach Water Infrastructure Rehabilitation
Tetra Tech is helping Fort Myers Beach, Florida, bring its
water infrastructure into compliance to support its
residents and tourist economy. Fort Myers Beach is located on a barrier island in Lee County in southwest
Florida, approximately 13 miles south of Fort Myers. It is situated on Estero Island in the Gulf of Mexico and has
a total area of 6.2 square miles—2.9 square miles of land and 3.3 square miles of water. Since its incorporation
in 1995, Fort Myers Beach has developed into an island community consisting of full - and part-time residents
and is recognized as a popular tourist destination.
Due to its age and size, the town’s existing water infrastructure was found to be noncompliant with standards
and required upgrades to the facilities to be deemed adequate. Tetra Tech was selected to provide design and
construction services to replace more than 90,000 linear feet of water main piping and 30,000 linear feet of
storm water piping and infrastructure, and to redesign the town’s Times Square tourist hub on an accelerated
schedule.
The town’s existing water infrastructure is a mixture of different materials from different time periods dating
back to the 1950s. The old potable water mains are reaching the end of their life expectancy and are unable to
provide the required fire flows to the south end of the island, resulting in multiple water main breaks every
week. In addition, the town has no way of repairing the existing lines without shutting down a large part of the
island.
The new, interconnected water system will be more reliable, with appropriate valving, thick wall PVC pipe, and
the capacity to handle existing and future demand while maintaining acceptable pressure. In the design, Tetra
Tech also addressed the town’s concern of being able to supply enough water pressure to ensure the safety of
all residents.
Due to the tight and overcrowded right-of-way on the island, Tetra Tech designed a parallel transmission and
distribution water main system, using a series of interconnects and innovative solutions to install the new water
main services. This innovative solution-maintained service to the town during construction and worked around
Lee County’s ongoing roadway project. That project includes adding sidewalks on both sides of the road, trolley
stops, drainage improvements on and connection to town drainage projects, and relocation of existing utilities
including power poles, telephone and cable lines, and sewer force mains.
Tetra Tech completed design and construction services of the first 11,000 linear feet of water main in 13
months; the entire project is scheduled for completion by the end of 2020.
Local Case Study
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
USF Student Managed Investment Fund 26
Conclusion
The purpose of this case study was to provide insight into the urgency of our local water infrastructure and the
role that Tetra Tech plays in resolving these issues. It should be noted that these problems are not unique to
Florida or even the Southeast United States. This is a global issue that every human being must face. And Tetra
Tech is at the forefront of providing long-term stability. Based on this case study, our analyst team asserts that
an investment in Tetra Tech is not only a wise financial decision, but a fundamental investment in making our
planet a better place, safer place to live.
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
USF Student Managed Investment Fund 27
T
TE
K - IN
CO
ME
ST
AT
EM
EN
TIn
Th
ou
san
ds U
SD
exce
pt fo
r pe
r sha
re d
ata
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
Re
v gro
wth
N/A
16
.9%
5.4
%-3
.6%
-5.0
%-7
.4%
12
.4%
6.6
%8
.6%
10
.3%
3.2
%3
.1%
3.0
%
Re
ven
ue
2,2
01
,23
2
2,5
73
,14
4
2,7
11
,07
5
2,6
13
,75
5
2,4
83
,81
4
2,2
99
,32
1
2,5
83
,46
9
2,7
53
,36
0
2,9
89
,53
7
3,2
96
,50
2
3,4
01
,85
4
3,5
07
,48
6
3,6
13
,40
4
Sub
con
tractor C
osts
(74
1,0
02
)
(78
0,8
17
)
(68
9,0
05
)
(58
8,9
23
)
(62
3,8
96
)
(58
0,6
06
)
(65
4,2
64
)
(71
9,3
50
)
(76
9,2
16
)
(82
6,4
68
)
(85
1,2
12
)
(89
0,1
21
)
(91
8,3
39
)
Ne
t Re
ven
ue
1,4
60
,23
0
1,7
92
,32
7
2,0
22
,07
0
2,0
24
,83
2
1,8
59
,91
8
1,7
18
,71
5
1,9
29
,20
5
2,0
34
,01
0
2,2
20
,32
1
2,4
70
,03
4
2,5
50
,64
2
2,6
17
,36
5
2,6
95
,06
5
Oth
er Co
sts of R
evenu
e(1
,17
2,5
42
)
(1,4
54
,37
4)
(1
,66
3,0
65
)
(1,7
57
,84
2)
(1
,57
7,4
81
)
(1,4
02
,92
5)
(1
,59
8,9
94
)
(1,6
80
,37
2)
(1
,83
3,9
85
)
(2,0
36
,07
2)
(2
,10
0,4
54
)
(2,1
55
,13
8)
(2
,21
6,4
21
)
Gro
ss Pro
fit2
87
,68
8
33
7,9
53
3
59
,00
5
26
6,9
90
2
82
,43
7
31
5,7
90
3
30
,21
1
35
3,6
38
3
86
,33
6
43
3,9
62
4
50
,18
8
46
2,2
27
4
78
,64
4
Op
eratin
g exp
en
ses
Selling, gen
eral and
adm
inistrative exp
enses
(16
3,4
79
)
(19
3,2
86
)
(21
0,9
70
)
(19
9,7
32
)
(18
7,2
98
)
(17
0,4
56
)
(17
1,9
85
)
(17
7,2
19
)
(18
8,7
27
)
(20
5,0
13
)
(21
6,9
13
)
(22
0,7
68
)
(22
6,7
36
)
Acq
uisitio
n an
d in
tegration
expen
ses-
-
-
-
-
-
(1
9,5
48
)
-
-
-
-
-
-
Co
ntin
gent co
nsid
eration
– fair value ad
justm
ents
26
5
1,7
55
1
9,2
46
9
,56
0
58
,69
4
3,1
13
(2
,82
3)
6
,92
3
3,1
32
4
,51
6
7,7
48
4
,59
6
3,8
86
Imp
airmen
t of go
od
will an
d o
ther in
tangib
le assets-
-
(9
14
)
(56
,60
0)
-
(6
0,7
63
)
-
-
-
-
-
-
-
Total o
pe
rating e
xpe
nse
s(1
63
,21
4)
(1
91
,53
1)
(1
92
,63
8)
(2
46
,77
2)
(1
28
,60
4)
(2
28
,10
6)
(1
94
,35
6)
(1
70
,29
6)
(1
85
,59
5)
(2
00
,49
7)
(2
09
,16
5)
(2
16
,17
3)
(2
22
,85
0)
Op
eratin
g inco
me
12
4,4
74
1
46
,42
2
16
6,3
67
2
0,2
18
1
53
,83
3
87
,68
4
13
5,8
55
1
83
,34
2
20
0,7
41
2
33
,46
5
24
1,0
23
2
46
,05
4
25
5,7
94
Interest In
com
e8
01
8
79
8
73
1
,00
3
80
4
68
0
99
6
72
9
84
6
85
1
84
8
84
5
82
5
Interest Exp
ense
(2,1
88
)
(6,8
09
)
(6,4
44
)
(8,6
89
)
(10
,29
4)
(8
,04
3)
(1
2,3
85
)
(12
,31
0)
(8
,79
4)
(8
,36
5)
(7
,94
4)
(7
,52
1)
(7
,09
8)
Inco
me
be
fore
taxes
12
3,0
87
1
40
,49
2
16
0,7
96
1
2,5
32
1
44
,34
3
80
,32
1
12
4,4
66
1
71
,76
1
19
2,7
93
2
25
,95
2
23
3,9
27
2
39
,37
7
24
9,5
21
Inco
me Tax Exp
ense
(46
,26
8)
(4
7,5
10
)
(56
,06
4)
(1
4,0
38
)
(35
,66
8)
(4
1,0
93
)
(40
,61
3)
(5
3,8
44
)
(52
,70
3.8
1)
(5
8,7
47
.40
)
(60
,82
1.1
1)
(6
2,2
38
.08
)
(64
,87
5.4
0)
Net In
com
e inclu
din
g no
n co
ntro
lling in
terests7
6,8
19
9
2,9
82
1
04
,73
2
(1,5
06
)
10
8,6
75
3
9,2
28
8
3,8
53
1
17
,91
7
14
0,0
89
1
67
,20
4
17
3,1
06
1
77
,13
9
18
4,6
45
Net In
com
e from
no
n co
ntro
lling in
terests-
(2
,94
3)
(3
52
)
(63
5)
(4
09
)
(15
4)
(7
0)
(4
3)
(4
3)
(4
3)
(4
3)
(4
3)
(4
3)
Net In
com
e attribu
table to
TTEK7
6,8
19
9
0,0
39
1
04
,38
0
(2,1
41
)
10
8,2
66
3
9,0
74
8
3,7
83
1
17
,87
4
14
0,0
46
1
67
,16
1
17
3,0
63
1
77
,09
6
18
4,6
02
Ne
t inco
me
76
,81
9
90
,03
9
10
4,3
80
(2
,14
1)
1
08
,26
6
39
,07
4
83
,78
3
11
7,8
74
1
40
,04
6
16
7,1
61
1
73
,06
3
17
7,0
96
1
84
,60
2
Earnin
gs pe
r share
Basic
1.2
5
1.4
5
1.6
5
(0.0
3)
1
.68
0
.64
1
.44
2
.07
2
.47
2
.97
3
.09
3
.17
3
.33
Dilu
ted1
.24
1
.43
1
.63
(0
.03
)
1.6
6
0.6
4
1.4
2
2.0
4
2.4
3
2.9
2
3.0
3
3.1
2
3.2
7
We
ighte
d ave
rage sh
ares o
utstan
din
g
Basic
61
,43
0
62
,05
3
63
,21
7
64
,54
4
64
,37
9
60
,91
3
58
,18
6
56
,91
1
56
,62
6
56
,34
3
56
,06
2
55
,78
1
55
,50
2
Dilu
ted6
2,0
87
6
2,7
75
6
3,9
34
6
4,5
44
6
5,1
46
6
1,5
32
5
8,9
66
5
7,9
13
5
7,6
23
5
7,3
35
5
7,0
49
5
6,7
63
5
6,4
80
Divid
en
ds p
er Sh
are
Total D
istribu
tion
-$
-
$
-$
-
$
0.1
4$
0
.30
$
0.3
4$
0
.38
$
0.4
2$
0
.46
$
0.5
0$
0
.54
$
0.5
8$
Divid
en
d P
ayo
ut R
atio
0%
0%
0%
0%
8%
47
%2
4%
19
%1
7%
16
%1
6%
17
%1
8%
Re
ven
ue
Gro
wth
N/A
16
.9%
5.4
%-3
.6%
-5.0
%-7
.4%
12
.4%
6.6
%8
.6%
10
.3%
3.2
%3
.1%
3.0
%
Su
bco
nta
ctor co
sts as %
of re
ven
ue
-33
.7%
-30
.3%
-25
.4%
-22
.5%
-25
.1%
-25
.3%
-25
.3%
-26
.1%
-25
.7%
-25
.1%
-25
.0%
-25
.4%
-25
.4%
CO
GS
as %
of R
ev
-80
.3%
-81
.1%
-82
.2%
-86
.8%
-84
.8%
-81
.6%
-82
.9%
-82
.6%
-82
.6%
-82
.4%
-82
.4%
-82
.3%
-82
.2%
Op
era
ting
Ma
rgin
8.5
%8
.2%
8.2
%1
.0%
8.3
%5
.1%
7.0
%9
.0%
9.0
%9
.5%
9.4
%9
.4%
9.5
%
EB
ITD
A M
arg
in1
0.8
%1
1.3
%1
1.0
%4
.1%
11
.2%
7.7
%9
.4%
11
.3%
10
.9%
11
.0%
10
.9%
10
.8%
10
.9%
Pro
fit Ma
rgin
5.3
%5
.0%
5.2
%-0
.1%
5.8
%2
.3%
4.3
%5
.8%
6.3
%6
.8%
6.8
%6
.8%
6.8
%
Ea
rnin
gs G
row
thN
/A1
5.9
%1
3.8
%-1
02
.0%
49
10
.1%
-61
.8%
12
3.8
%4
3.2
%1
9.4
%2
0.0
%4
.1%
2.8
%4
.8%
Divid
en
d G
row
thN
/AN
/AN
/AN
/AN
/A1
14
%1
3%
12
%1
1%
10
%9
%8
%7
%
SG
A a
s % o
f Re
ven
ue
-11
.2%
-10
.8%
-10
.4%
-9.9
%-1
0.1
%-9
.9%
-8.9
%-8
.7%
-8.5
%-8
.3%
-8.5
%-8
.4%
-8.4
%
Ta
x Ra
te-3
7.6
%-3
3.8
%-3
4.9
%-1
12
.0%
-24
.7%
-51
.2%
-32
.6%
-31
.3%
-27
.3%
-26
.0%
-26
.0%
-26
.0%
-26
.0%
Inte
rest R
ate
-1.8
%-4
.7%
-8.0
%-4
.3%
-5.3
%-4
.4%
-3.7
%-3
.6%
-2.7
%-2
.7%
-2.7
%-2
.7%
-2.7
%
Financials
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
USF Student Managed Investment Fund 28
Financials
TTEK- B
ALA
NCE SH
EET
In T
hou
san
ds US
D exce
pt for p
er sha
re d
ata
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
Asse
ts
Total cash
22
0,9
33
9
0,4
94
1
04
,84
8
12
9,3
05
1
22
,37
9
13
5,3
26
1
60
,45
9
18
9,9
75
2
49
,55
7
29
2,8
60
3
75
,16
6
43
9,4
01
5
11
,07
8
Excess Cash
From
Previo
us Years
-
-
-
-
-
-
-
-
-
41
,92
1
12
0,2
75
1
96
,51
2
27
0,8
96
Excess Cash
-
-
-
-
-
-
-
-
41
,92
1
78
,35
4
76
,23
8
74
,38
4
78
,62
4
Receivab
les5
66
,64
2
65
7,1
79
7
00
,48
0
66
0,8
47
7
01
,89
2
63
6,0
30
7
14
,33
6
78
8,7
67
7
94
,48
0
85
0,7
68
8
51
,86
1
85
1,4
06
8
49
,39
7
Prep
aid exp
enses
49
,88
9
84
,61
2
48
,16
8
61
,44
6
52
,25
6
42
,12
5
46
,26
2
49
,96
9
54
,06
9
60
,02
1
62
,25
1
63
,74
0
65
,63
2
Inco
me Taxes R
ecievables
7,2
49
6
,81
7
5,8
17
2
0,0
44
2
2,0
76
1
0,2
94
1
4,3
71
1
3,3
12
1
4,7
90
1
7,0
06
1
7,0
81
1
7,6
61
1
8,2
63
Total cu
rren
t assets
84
4,7
13
8
39
,10
2
85
9,3
13
8
71
,64
2
89
8,6
03
8
23
,77
5
93
5,4
28
1
,04
2,0
23
1
,15
4,8
17
1
,34
0,9
30
1
,50
2,8
72
1
,64
3,1
05
1
,79
3,8
92
Net p
rop
erty, plan
t and
equ
ipm
ent
79
,38
3
77
,53
6
74
,30
9
88
,02
6
73
,86
4
64
,90
6
67
,82
7
56
,83
5
51
,30
2
49
,27
7
48
,45
0
48
,13
7
48
,73
7
Investm
ents in
join
t ventu
res1
40
3
,45
4
3,2
79
2
,19
8
2,1
40
1
,88
6
2,0
64
2
,70
0
2,7
00
2
,70
0
2,7
00
2
,70
0
2,7
00
Go
od
will
39
4,4
22
5
69
,41
4
63
5,9
58
7
22
,79
2
71
4,1
90
6
01
,37
9
71
7,9
88
7
40
,88
6
74
0,8
86
7
40
,88
6
74
0,8
86
7
40
,88
6
74
0,8
86
Intan
gible assets
45
,99
5
81
,05
3
74
,23
1
86
,92
9
63
,09
5
40
,33
2
48
,96
2
26
,68
8
26
,68
8
26
,68
8
26
,68
8
26
,68
8
26
,68
8
Deferred
inco
me taxes
-
-
-
-
-
-
63
0
1,7
63
-
-
-
-
-
Oth
er lon
g-term assets
17
,03
6
23
,42
9
23
,94
0
27
,50
5
24
,51
2
26
,96
4
27
,88
0
31
,85
0
33
,89
6
37
,36
1
39
,15
3
39
,90
8
41
,07
5
Total n
on
-curre
nt asse
ts5
36
,97
6
75
4,8
86
8
11
,71
7
92
7,4
50
8
77
,80
1
73
5,4
67
8
65
,35
1
86
0,7
22
8
55
,47
2
85
6,9
12
8
57
,87
7
85
8,3
19
8
60
,08
6
Total asse
ts1
,38
1,6
89
1
,59
3,9
88
1
,67
1,0
30
1
,79
9,0
92
1
,77
6,4
04
1
,55
9,2
42
1
,80
0,7
79
1
,90
2,7
45
2
,01
0,2
89
2
,19
7,8
42
2
,36
0,7
49
2
,50
1,4
24
2
,65
3,9
78
Liabilitie
s
Acco
un
ts Payab
le1
66
,45
0
16
4,8
19
1
54
,00
3
14
2,8
13
1
75
,95
2
15
0,2
84
1
58
,77
3
17
7,6
38
1
87
,57
3
20
7,8
28
2
17
,12
9
22
5,8
50
2
29
,56
8
Accru
ed C
om
pen
sation
93
,24
3
11
0,9
37
1
28
,08
6
11
4,8
10
1
10
,18
6
10
3,8
66
1
29
,18
4
14
3,4
08
1
46
,74
8
16
6,1
17
1
71
,86
6
17
5,3
75
1
81
,77
0
Billin
gs in excess o
f costs o
n u
nco
mp
leted co
ntracts
79
,40
1
84
,75
4
90
,90
9
79
,50
7
10
3,3
43
9
3,9
89
8
8,2
23
1
17
,49
9
11
7,2
90
1
27
,52
8
13
6,7
48
1
38
,09
8
14
2,4
36
Defered
inco
me taxes
21
,85
1
22
,87
0
20
,80
9
18
,17
0
20
,38
7
20
,78
7
-
-
-
-
-
-
-
Cu
rrent p
ortio
n o
f lon
g-term d
ebt
5,0
02
2
,55
6
2,0
31
4
,31
1
10
,98
9
11
,90
4
15
,51
0
15
,58
8
15
,88
8
15
,59
5
15
,64
5
15
,67
9
15
,70
2
Cu
rrent co
ntin
gent earn
-ou
t liabilities
10
,51
3
64
,11
9
35
,40
7
23
,28
1
3,5
68
6
09
4
,29
6
2,0
24
3
,05
0
3,0
57
3
,71
9
3,3
14
3
,59
5
Oth
er curren
t liabilities
90
,74
7
81
,65
4
72
,54
9
10
0,2
41
7
9,4
36
6
9,0
03
8
5,1
00
8
1,5
11
8
7,5
93
9
4,9
39
1
02
,60
4
10
3,3
53
1
06
,34
9
Total cu
rren
t liabilitie
s4
67
,20
7
53
1,7
09
5
03
,79
4
48
3,1
33
5
03
,86
1
45
0,4
42
4
81
,08
6
53
7,6
68
5
58
,14
2
61
5,0
64
6
47
,71
2
66
1,6
68
6
79
,42
0
Deferred
inco
me taxes
12
,50
6
25
,39
4
24
,26
8
30
,52
5
28
,78
6
34
,75
9
60
,34
8
43
,78
1
41
,15
6
47
,32
6
51
,47
8
54
,73
5
58
,45
2
Lon
g-term d
ebt
12
2,5
10
1
44
,86
8
81
,04
7
20
3,4
38
1
92
,84
2
18
0,9
72
3
31
,50
1
34
1,2
83
3
25
,69
5
30
9,8
07
2
94
,21
2
27
8,5
67
2
62
,88
8
Lon
g-term co
ntin
gent earn
-ou
t liabilities
-
-
-
58
,50
8
3,4
62
3
,56
0
4,4
61
4
14
-
-
-
-
-
Oth
er lon
g-term liab
ilities3
1,3
33
3
6,7
67
4
2,0
54
2
4,6
85
3
4,3
97
3
2,7
11
5
3,9
80
5
0,9
75
5
0,2
72
5
8,4
88
6
3,3
60
6
2,9
63
6
4,1
54
EFN-
-
-
-
-
-
-
-
-
-
-
-
-
Total lo
ng-te
rm liab
ilities
16
6,3
49
2
07
,02
9
14
7,3
69
3
17
,15
6
25
9,4
87
2
52
,00
2
45
0,2
90
4
36
,45
3
41
7,1
23
4
15
,62
1
40
9,0
50
3
96
,26
4
38
5,4
94
Total liab
ilities
63
3,5
56
7
38
,73
8
65
1,1
63
8
00
,28
9
76
3,3
48
7
02
,44
4
93
1,3
76
9
74
,12
1
97
5,2
66
1
,03
0,6
85
1
,05
6,7
62
1
,05
7,9
33
1
,06
4,9
14
Equ
ity
Co
mm
on
Stock
61
8
62
5
63
8
64
1
62
6
59
4
57
0
55
9
55
6
55
3
55
1
54
8
54
5
Ad
ditio
nal p
aid-in
capital
36
8,8
65
3
99
,42
0
43
3,0
09
4
43
,09
9
40
2,5
16
3
26
,59
3
26
0,3
40
1
93
,83
5
17
4,4
52
1
57
,00
6
14
1,3
06
1
27
,17
5
11
4,4
58
Accu
mu
lated o
ther co
mp
rehen
sive loss
18
,76
3
4,7
54
3
1,0
17
1
,85
8
(42
,53
8)
(1
43
,17
1)
(1
28
,00
8)
(9
8,5
00
)
(88
,65
0)
(7
9,7
85
)
(71
,80
7)
(6
4,6
26
)
(58
,16
3)
Retain
ed earn
ings
35
9,8
87
4
49
,92
6
55
4,3
06
5
52
,16
5
65
1,4
75
6
72
,30
9
73
6,3
57
8
32
,55
9
94
8,4
03
1
,08
9,1
90
1
,23
3,7
29
1
,38
0,1
73
1
,53
2,0
17
Tetra Te
ch e
qu
ity7
48
,13
3
85
4,7
25
1
,01
8,9
70
9
97
,76
3
1,0
12
,07
9
85
6,3
25
8
69
,25
9
92
8,4
53
1
,03
4,7
61
1
,16
6,9
65
1
,30
3,7
79
1
,44
3,2
70
1
,58
8,8
56
No
nco
ntro
lling in
terests-
5
25
8
97
1
,04
0
97
7
47
3
14
4
17
1
26
3
19
3
20
9
22
1
20
8
Total e
qu
ity7
48
,13
3
85
5,2
50
1
,01
9,8
67
9
98
,80
3
1,0
13
,05
6
85
6,7
98
8
69
,40
3
92
8,6
24
1
,03
5,0
23
1
,16
7,1
57
1
,30
3,9
87
1
,44
3,4
91
1
,58
9,0
64
Total liab
ilities an
d e
qu
ity1
,38
1,6
89
1
,59
3,9
88
1
,67
1,0
30
1
,79
9,0
92
1
,77
6,4
04
1
,55
9,2
42
1
,80
0,7
79
1
,90
2,7
45
2
,01
0,2
89
2
,19
7,8
42
2
,36
0,7
49
2
,50
1,4
24
2
,65
3,9
78
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
USF Student Managed Investment Fund 29
Financials TTEK
- Statement of C
AS
H F
LOW
In T
hou
san
ds US
D exce
pt for p
er sha
re d
ata
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
30
-Sep
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
Op
eratin
g Activitie
s
Net in
com
e7
6,8
19
9
0,0
39
1
04
,38
0
(2,1
41
)
10
8,2
66
3
9,0
74
8
3,7
83
1
17
,87
4
14
0,0
46
1
67
,16
1
17
3,0
63
1
77
,09
6
18
4,6
02
Ad
justm
ents to
recon
cile net in
com
e to n
et cash
from
op
eratin
g a
ctivities:
Dep
reciation
and
amo
rtization
33
,49
1
55
,68
4
56
,90
2
62
,60
5
54
,54
0
44
,20
1
45
,58
8
45
,75
6
41
,83
1
38
,52
3
37
,85
3
37
,86
6
37
,48
4
Loss o
n settlem
ent o
f foreign
curren
cy forw
ard co
ntract
28
2
93
2
86
2
70
-
-
-
-
-
-
-
-
-
Equ
ity in in
com
e of u
nco
nso
lidated
join
t ventu
res(1
,18
4)
(4
,87
7)
(2
,91
6)
(3
,46
1)
(2
,80
4)
(5
,13
1)
(1
,65
2)
(4
,69
9)
(3
,64
9)
(3
,47
3)
(3
,55
3)
(3
,56
6)
(3
,67
5)
Distrib
utio
ns o
f earnin
gs from
un
con
solid
ated jo
int ven
tures
1,6
89
4
,80
2
3,1
94
4
,45
8
2,7
24
5
,25
2
2,7
96
4
,05
2
3,7
06
3
,95
2
3,6
26
3
,83
4
3,7
79
Stock-b
ased co
mp
ensatio
n1
0,1
78
1
0,5
82
1
0,8
39
8
,77
5
10
,37
4
10
,92
6
12
,96
4
13
,45
0
11
,29
8
11
,80
2
12
,08
8
12
,32
0
12
,19
2
Excess tax ben
efits from
stock-b
ased co
mp
ensatio
n(7
54
)
(10
4)
(6
24
)
(88
6)
(9
04
)
(17
2)
(9
18
)
-
-
-
-
-
-
Deferred
inco
me taxes
11
,64
1
1,7
20
(5
,51
2)
(1
1,4
68
)
(14
5)
8
,41
2
6,0
51
(9
,95
7)
(1
1,8
30
)
(14
,12
0)
(1
4,6
19
)
(14
,96
0)
(1
5,5
94
)
Pro
vision
(recovery) fo
r do
ub
tful acco
un
ts7
,17
9
3,7
33
4
,76
8
13
,81
8
1,4
67
(1
,03
4)
8
,08
2
2,8
47
5
,03
6
3,2
80
3
,64
2
4,5
77
3
,87
6
Imp
airmen
t of go
od
will an
d o
ther in
tangib
le assets-
-
9
14
5
6,6
00
-
6
0,7
63
-
-
-
-
-
-
-
Fair value ad
justm
ents to
con
tingen
t con
sideratio
n(2
65
)
(1,7
55
)
(19
,24
6)
(9
,56
0)
(5
8,6
94
)
(3,1
13
)
2,8
23
(6
,92
3)
Fair value ad
justm
ent to
assets held
for sale
-
-
3,4
37
-
-
-
-
-
-
-
-
-
-
Foreign
exchan
ge (gain) lo
ss(2
05
)
1,2
88
(1
39
)
75
4
-
-
-
-
-
-
-
-
-
Lease termin
ation
costs an
d related
asset imp
airmen
t-
1
,28
1
1,2
61
7
,18
8
2,4
16
3
42
2
,94
6
-
-
-
-
-
-
Loss (gain
) on
disp
osal o
f pro
perty an
d eq
uip
men
t(1
,48
0)
(2
31
)
19
1
(28
7)
5
8
(6,0
14
)
(53
7)
(1
03
)
-
-
-
-
-
Ch
an
ges in
op
eratin
g a
ssets an
d lia
bilities, n
et of effects o
f bu
siness a
cqu
isition
s:
Acco
un
ts receivable
(23
,16
1)
2
,04
6
(39
,96
0)
8
7,3
67
(3
2,0
20
)
40
,34
5
9,0
62
(6
4,7
81
)
(5,7
13
)
(56
,28
9)
(1
,09
3)
4
55
2
,00
9
Prep
aid exp
enses an
d o
ther assets
5,7
70
(2
8,3
24
)
26
,28
4
(11
,78
2)
(4
,48
1)
1
2,9
70
3
,72
0
(8,3
17
)
(4,1
00
)
(5,9
51
)
(2,2
31
)
(1,4
88
)
(1,8
93
)
Acco
un
ts payab
le(1
0,0
02
)
(34
,01
3)
(1
4,5
29
)
(34
,19
1)
3
1,7
72
(2
6,9
01
)
(3,0
02
)
18
,59
7
9,9
35
2
0,2
55
9
,30
1
8,7
20
3
,71
8
Accru
ed co
mp
ensatio
n4
,58
2
11
,15
7
15
,67
8
(16
,38
5)
(4
,72
8)
(7
,67
6)
8
,43
4
13
,41
3
3,3
40
1
9,3
70
5
,74
9
3,5
09
6
,39
6
Billin
gs in excess o
f costs o
n u
nco
mp
leted co
ntracts
(19
,95
7)
(1
,66
9)
2
,42
5
(16
,83
0)
2
3,8
33
(1
0,3
19
)
(13
,87
4)
2
8,2
98
(2
09
)
10
,23
8
9,2
20
1
,35
1
4,3
38
Oth
er liabilities
9,8
55
6
,47
5
7,3
71
2
1,4
89
(9
,41
9)
(7
,14
3)
(1
9,3
21
)
2,1
67
6
,08
2
7,3
46
7
,66
4
74
9
2,9
96
Inco
me taxes receivab
le/payab
le2
,61
8
10
,55
3
2,6
65
(1
9,2
18
)
4,7
12
7
,91
1
(4,9
95
)
(13
,72
5)
(3
38
)
(8,2
60
)
(2,1
49
)
(1,9
97
)
(3,2
39
)
Ne
t cash p
rovid
ed
by o
pe
rating activitie
s1
06
,84
2
12
8,6
80
1
57
,66
9
13
7,1
15
1
26
,96
7
16
2,6
93
1
41
,95
0
13
7,9
49
1
95
,43
6
19
3,8
32
2
38
,56
3
22
8,4
67
2
36
,99
0
Cash
flow
s from
inve
sting activitie
s:
Cap
ital expen
ditu
res(2
1,5
84
)
(18
,90
1)
(2
5,1
06
)
(27
,54
5)
(1
9,4
04
)
(24
,29
6)
(1
1,9
45
)
(9,7
41
)
(14
,94
8)
(1
6,4
83
)
(17
,00
9)
(1
7,5
37
)
(18
,06
7)
Paym
ents fo
r bu
siness acq
uisitio
ns, n
et of cash
acqu
ired(7
8,9
05
)
(26
9,9
96
)
(55
,01
4)
(1
71
,32
9)
(3
0,2
51
)
(11
,68
0)
(8
1,2
59
)
(8,0
39
)
-
-
-
-
-
Pro
ceeds fro
m sale o
f pro
perty an
d eq
uip
men
t and
oth
er3
,10
0
(4,9
44
)
32
1
2,2
69
8
,49
4
14
,95
6
(81
1)
8
20
-
-
-
-
-
Ne
t cash u
sed
for in
vestin
g activities
(97
,38
9)
(2
93
,84
1)
(7
9,7
99
)
(19
6,6
05
)
(41
,16
1)
(2
1,0
20
)
(94
,01
5)
(1
6,9
60
)
(14
,94
8)
(1
6,4
83
)
(17
,00
9)
(1
7,5
37
)
(18
,06
7)
Cash
flow
s from
finan
cing activitie
s:
Net p
roceed
s from
deb
t1
17
,32
7
24
,57
1
(68
,12
0)
1
24
,98
9
(4,3
79
)
(10
,66
5)
8
0,5
64
9
,68
8
(15
,58
8)
(1
5,8
88
)
(15
,59
5)
(1
5,6
45
)
(15
,67
9)
Paym
ents o
f con
tingen
t earn-o
ut liab
ilities and
oth
er-
-
(1
8,0
55
)
(33
,67
2)
(1
8,6
63
)
(3,1
99
)
(3,2
51
)
(1,3
19
)
(1,1
17
)
8,2
16
4
,87
2
(39
7)
1
,19
2
Deb
t pre-p
aymen
t costs
-
-
-
(2,1
36
)
-
(1,4
57
)
(1,9
35
)
-
-
-
-
-
-
Distrib
utio
ns p
aid to
no
nco
ntro
lling in
terests-
(1
,70
2)
(9
)
(44
5)
(4
17
)
(51
5)
(4
02
)
(24
)
-
-
-
-
-
Excess tax ben
efits from
stock-b
ased co
mp
ensatio
n7
54
1
04
6
24
8
86
9
04
1
72
9
18
-
-
-
-
-
-
Rep
urch
ases of co
mm
on
stock
-
-
-
(20
,00
0)
(8
0,0
00
)
(10
0,5
00
)
(99
,50
0)
(1
00
,00
0)
(8
0,0
00
)
(10
0,0
00
)
(10
0,0
00
)
(10
0,0
00
)
(10
0,0
00
)
Net p
roceed
s from
issuan
ce of co
mm
on
stock
3,3
53
8
,37
8
18
,16
6
15
,99
3
23
,83
4
10
,82
5
17
,95
3
18
,55
5
-
-
-
-
-
Divid
end
s paid
-
-
-
-
(8,9
56
)
(18
,24
0)
(1
9,7
35
)
(21
,67
2)
(2
4,2
02
)
(26
,37
4)
(2
8,5
24
)
(30
,65
2)
(3
2,7
58
)
Ne
t cash u
sed
for fin
ancin
g activities
12
1,4
34
3
1,3
51
(6
7,3
94
)
85
,61
5
(87
,67
7)
(1
23
,57
9)
(2
5,3
88
)
(94
,77
2)
(1
20
,90
6)
(1
34
,04
7)
(1
39
,24
8)
(1
46
,69
5)
(1
47
,24
6)
Effect of fo
reign exch
ange rate ch
anges o
n cash
86
1
42
8
3,5
26
(2
,30
3)
(5
,46
4)
(5
,30
1)
2
,51
6
3,2
56
Ne
t Incre
ase (d
ecre
ase) in
cash an
d cash
eq
uivale
nts
13
1,7
48
(1
33
,38
2)
1
4,0
02
2
3,8
22
(7
,33
5)
1
2,7
93
2
5,0
63
2
9,4
73
5
9,5
82
4
3,3
03
8
2,3
06
6
4,2
36
7
1,6
77
Cash
at be
ginn
ing o
f pe
riod
89
,18
5
22
0,9
33
9
0,4
94
1
04
,84
8
12
9,3
05
1
22
,37
9
13
5,3
26
1
60
,45
9
18
9,9
75
2
49
,55
7
29
2,8
60
3
75
,16
6
43
9,4
01
Cash
at en
d o
f pe
riod
22
0,9
33
8
7,5
51
1
04
,49
6
12
8,6
70
1
21
,97
0
13
5,1
72
1
60
,38
9
18
9,9
32
2
49
,55
7
29
2,8
60
3
75
,16
6
43
9,4
01
5
11
,07
8
Free
Cash
Flow
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
Op
eratin
g ca
sh flo
w1
06
,84
2
12
8,6
80
1
57
,66
9
13
7,1
15
1
26
,96
7
16
2,6
93
1
41
,95
0
13
7,9
49
1
95
,43
6
19
3,8
32
2
38
,56
3
22
8,4
67
2
36
,99
0
Ca
pita
l expen
ditu
re(2
1,5
84
)
(18
,90
1)
(2
5,1
06
)
(27
,54
5)
(1
9,4
04
)
(24
,29
6)
(1
1,9
45
)
(9,7
41
)
(14
,94
8)
(1
6,4
83
)
(17
,00
9)
(1
7,5
37
)
(18
,06
7)
Free cash
flow
85
,25
8
10
9,7
79
1
32
,56
3
10
9,5
70
1
07
,56
3
13
8,3
97
1
30
,00
5
12
8,2
08
1
80
,48
8
17
7,3
50
2
21
,55
3
21
0,9
30
2
18
,92
3
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
USF Student Managed Investment Fund 30
Financials
Profitability 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Gross Margin 19.70% 18.86% 17.75% 13.19% 15.19% 18.37% 17.12% 17.39% 17.40% 17.57%
SG&A to Sales 11.20% 10.78% 10.43% 9.86% 10.07% 9.92% 8.91% 8.71% 8.50% 8.30%
Operating Margin 8.52% 8.17% 8.23% 1.00% 8.27% 5.10% 7.04% 9.01% 9.04% 9.45%
Pretax Margin 8.43% 7.84% 7.95% 0.62% 7.76% 4.67% 6.45% 8.44% 8.68% 9.15%
Net Margin 5.26% 5.02% 5.16% -0.11% 5.82% 2.27% 4.34% 5.80% 6.31% 6.77%
Free Cash Flow Margin 4.00% 5.36% 6.75% 2.17% 8.25% 3.98% 5.05% 6.37% 7.93% 7.12%
Return on Assets 6.05% 6.39% -0.12% 6.06% 2.34% 4.99% 6.37% 7.16% 7.94%
Return on Equity 11.23% 11.14% -0.21% 10.77% 4.18% 9.71% 13.11% 14.27% 15.18%
Valuation 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Price/Sales 0.86 0.73 0.79 0.80 0.91 0.93 1.16 1.40 1.61 1.66
Price/Earnings 16.33 14.58 15.24 (755.78) 15.56 41.01 26.71 24.10 25.48 24.49
Price/Cash Flow 11.74 10.20 10.09 11.80 13.27 9.85 15.76 20.59 18.26 21.12
Price/Free Cash Flow 14.71 11.96 12.00 14.77 15.66 11.58 17.21 22.16 19.77 23.08
Dividend Yield (%) 0.00% 0.00% 0.00% 0.00% 0.54% 1.15% 0.90% 0.77% 0.68% 0.64%
Enterprise Value/EBIT 9.33 9.35 9.43 83.91 11.48 18.93 17.84 16.40 18.23 17.67
Enterprise Value/EBITDA 7.41 6.98 7.21 22.58 8.88 13.33 14.26 13.83 15.60 15.60
Enterprise Value/Sales 0.79 0.76 0.78 0.84 0.95 0.97 1.26 1.48 1.65 1.67
Total Debt/Enterprise Value 0.11 0.11 0.05 0.12 0.12 0.12 0.14 0.12 0.09 0.08
Per Share 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sales per Share 23.52 28.55 31.63 31.37 28.55 27.93 32.72 35.12 38.53 43.08
EBIT (Operating Income) per Share 1.98 2.24 2.52 0.19 2.22 1.31 2.11 2.97 3.35 3.94
EPS (recurring) 1.25 1.45 1.65 (0.03) 1.68 0.64 1.44 2.07 2.47 2.97
EPS (diluted) 1.24 1.43 1.63 (0.03) 1.66 0.64 1.42 2.04 2.43 2.92
Dividends per Share - - - - 0.14 0.30 0.34 0.38 0.42 0.46
Dividend Payout Ratio (%) 0.00% 0.00% 0.00% 0.00% 8.42% 47.24% 23.93% 18.67% 17.28% 15.78%
Cash Flow per Share 1.72 2.05 2.47 2.12 1.95 2.64 2.41 2.38 3.39 3.38
Free Cash Flow per Share 1.37 1.75 2.07 1.70 1.65 2.25 2.20 2.21 3.13 3.09
Diluted Shares Outstanding 62,087 62,775 63,934 64,544 65,146 61,532 58,966 57,913 57,623 57,335
Basic Shares Outstanding 61,430 62,053 63,217 64,544 64,379 60,913 58,186 56,911 56,626 56,343
Asset Turnover Analysis 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Cash & ST Investments 220,933 90,494 104,848 129,305 122,379 135,326 160,459 189,975 249,557 292,860
Receivables 566,642 657,179 700,480 660,847 701,892 636,030 714,336 788,767 794,480 850,768
Current Assets 844,713 839,102 859,313 871,642 898,603 823,775 935,428 1,042,023 1,154,817 1,340,930
Fixed Assets 79,383 77,536 74,309 88,026 73,864 64,906 67,827 56,835 51,302 49,277
Total Assets 1,381,689 1,593,988 1,671,030 1,799,092 1,776,404 1,559,242 1,800,779 1,902,745 2,010,289 2,197,842
DuPont Analysis 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Asset Turnover (x) 1.20 1.24 1.17 1.04 1.03 1.15 1.10 1.13 1.17
x Pretax Margin (%) 8.43% 7.84% 7.95% 0.62% 7.76% 4.67% 6.45% 8.44% 8.68% 9.15%
= Pretax Return on Assets (%) 9.44% 9.85% 0.72% 8.07% 4.82% 7.41% 9.28% 9.85% 10.74%
x Tax Rate Complement (1-Tax Rate) 0.66 0.65 (0.12) 0.75 0.49 0.67 0.69 0.73 0.74
= Return on Assets (%) 6.25% 6.42% -0.09% 6.08% 2.35% 4.99% 6.37% 7.16% 7.95%
x Equity Multiplier (Assets/Equity) 1.85 1.86 1.64 1.80 1.76 1.82 2.07 2.05 1.94 1.88
= Return on Equity (%) 11.65% 10.52% -0.16% 10.67% 4.28% 10.34% 13.05% 13.91% 14.97%
x Earnings Retention (1-Payout) 100.00% 100.00% 100.00% 91.58% 52.76% 76.07% 81.33% 82.72% 84.22%
= Reinvestment Rate (%) 11.65% 10.52% -0.16% 9.77% 2.26% 7.87% 10.61% 11.51% 12.61%
Note: EBIT Return on Assets (%) 9.01% 9.19% 9.96% 1.12% 8.66% 5.62% 7.54% 9.64% 9.99% 10.62%
Note: Interest as % Assets 0.16% 0.43% 0.39% 0.48% 0.58% 0.52% 0.69% 0.65% 0.44% 0.38%
Operating Efficiency 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Revenue/Employee (actual) 91.26 112.02 126.38 126.55 116.24 107.42 120.58 127.13 138.77 154.38
Net Income/Employee (actual) 4.80 5.63 6.52 (0.13) 6.77 2.44 5.24 7.37 8.75 10.45
Assets/Employee (actual) 86.36 99.62 104.44 112.44 111.03 97.45 112.55 118.92 125.64 137.37
Receivables Turnover (x) 2.39 2.64 2.97 2.97 2.78 2.55 2.57 2.57 2.70
Payables Turnover (x) 4.71 4.32 3.97 3.91 3.56 4.23 4.28 4.21 4.18
Asset Turnover (x) 1.20 1.24 1.17 1.04 1.03 1.15 1.10 1.13 1.17
Operating Cycle (Days) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Days of Sales Outstanding 152.95 138.24 122.87 122.82 131.28 143.39 142.19 142.06 135.23
= Operating Cycle 152.95 138.24 122.87 122.82 131.28 143.39 142.19 142.06 135.23
- Days of Payables Outstanding 77.43 84.45 91.98 93.24 102.54 86.21 85.35 86.65 87.31
= Net Operating Cycle 75.53 53.79 30.89 29.58 28.74 57.18 56.84 55.41 47.92
Liquidity 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Current Ratio 1.81 1.58 1.71 1.80 1.78 1.83 1.94 1.94 2.07 2.18
Quick Ratio 1.81 1.58 1.71 1.80 1.78 1.83 1.94 1.94 2.07 2.18
Cash Ratio 0.47 0.17 0.21 0.27 0.24 0.30 0.33 0.35 0.45 0.48
Cash & ST Inv/Current Assets (%) 26.15% 10.78% 12.20% 14.83% 13.62% 16.43% 17.15% 18.23% 21.61% 21.84%
CFO/Current Liabilities (%) 22.87% 24.20% 31.30% 28.38% 25.20% 36.12% 29.51% 25.66% 35.02% 31.51%
Coverage 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Net Debt/EBITDA (0.60) 0.29 (0.10) 1.04 0.41 0.46 1.10 0.77 0.39 0.12
Net Debt/(EBITDA-Capex) (0.69) 0.32 (0.11) 1.65 0.45 0.57 1.18 0.80 0.42 0.13
Total Debt/EBITDA 0.81 0.75 0.38 2.76 1.02 1.55 2.04 1.64 1.46 1.23
EBIT/Interest Expense (Int. Coverage) 56.26 20.63 24.95 1.44 14.02 9.99 10.05 13.95 21.92 27.01
EBITDA/Interest Expense 71.56 28.81 33.78 8.65 19.32 15.48 13.73 17.67 26.68 31.62
CFO/Interest Expense 48.83 18.90 24.47 15.78 12.33 20.23 11.46 11.21 22.22 23.17
LT Debt/EBITDA 0.78 0.74 0.37 2.71 0.97 1.45 1.95 1.57 1.39 1.17
FCF/Total Debt 0.67 0.74 1.60 0.53 0.53 0.72 0.37 0.36 0.53 0.55
CFO/Total Debt 0.84 0.87 1.90 0.66 0.62 0.84 0.41 0.39 0.57 0.60
Leverage 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
LT Debt/Total Equity 16.38% 16.95% 7.95% 20.39% 19.05% 21.13% 38.14% 36.76% 31.48% 26.55%
LT Debt/Total Assets 8.87% 9.09% 4.85% 11.31% 10.86% 11.61% 18.41% 17.94% 16.20% 14.10%
Total Debt/Total Assets 9.23% 9.25% 4.97% 11.55% 11.47% 12.37% 19.27% 18.76% 16.99% 14.81%
Net Debt/Total Equity -12.49% 6.66% -2.14% 7.86% 8.05% 6.72% 21.46% 17.98% 8.89% 2.79%
Total Debt/Equity 17.04% 17.25% 8.15% 20.82% 20.14% 22.52% 39.92% 38.44% 33.01% 27.88%
Tetra Technologies Inc. | NYSE: TTEK | Stock Report | February 2018
USF Student Managed Investment Fund 31
Miscellaneous Charts and Figures
TTEK Client Sector 2017 2016 2015
U.S. state and local government 12.80% 12.00% 12.50%
U.S. federal government 32.70% 30.40% 30.90%
U.S. commercial 27.80% 29.50% 32.00%
International 26.70% 28.10% 24.60%
Total 100.00% 100.00% 100.00%
TTEK Contract Type 2017 2016 2015
Fixed-price 33.00% 30.00% 35.40%
Time-and-materials 45.90% 50.90% 45.80%
Cost-plus 21.10% 19.10% 18.80%
Total 100.00% 100.00% 100.00%