What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-02-04 compared with 2021-07-30 · 144 added, 191 removed, 258 unchanged (56% of the section changed)

12 unchanged sentences

Tetra Tech, Inc.

is a leading global provider of consulting and engineering services that focuses on water, environment, sustainable infrastructure, renewable energy, and international development.

is a leading global provider of high-end consulting and engineering services that focuses on water, environment, sustainable infrastructure, renewable energy, and international development.

We are a global company that is Leading with Science® to provide innovative solutions for our public and private clients.

1 unchanged sentence

Our reputation for high-end consulting and engineering services and our ability to develop solutions for water and environmental management has supported our growth for more than 50 years.

Today, we are proud to be making a difference in people’s lives worldwide through broad consulting, engineering, and technology service offerings.

We work on over 65,000 projects, in more than 100 countries on seven continents, with a talent force of 21,000 associates.

Today, we are proud to be making a difference in people’s lives worldwide through our high-end consulting, engineering, and technology service offerings.

We worked on over 70,000 projects, in more than 100 countries on seven continents, with a talent force of 21,000 associates.

We are Leading with Science® throughout our operations, with domain experts across multiple disciplines supported by our advanced analytics, artificial intelligence, machine learning, and digital technology solutions.

Our ability to provide innovation and first-of-kind solutions is enhanced by partnerships with our forward-thinking clients.

We are diverse and inclusive, embracing the breadth of experience across our talented workforce worldwide with a culture of innovation and entrepreneurship.

We are disciplined in our business delivering value to customers and high performance to our shareholders.

We are diverse, equitable, and inclusive, embracing the breadth of experience across our talented workforce worldwide with a culture of innovation and entrepreneurship.

We are disciplined in our business, and focused on delivering value to customers and high performance for our shareholders.

In supporting our clients, we seek to add value and provide long-term sustainable consulting, engineering and technology solutions.

By combining ingenuity and practical experience, we have helped to advance sustainable solutions for managing water, protecting the environment, providing energy, and engineering the infrastructure for our cities and communities.

By combining ingenuity and practical experience, we have helped to advance sustainability by managing water, protecting the environment, providing renewable energy, and engineering green solutions for our cities and communities.

We derive income from fees for professional, technical, program management, and construction management services.

6 unchanged sentences

The following table presents the percentage of our revenue by client sector:

Three Months Ended Nine Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

Three Months Ended

2022 December 27,

Client Sector

1 unchanged sentence

federal government (1)

33.2 34.3 34.4 32.7

commercial 20.6 20.6

International (2)

30.8 28.3 29.2 30.1

Total 100.0 % 100.0 %

8 unchanged sentences

Additionally, we continue to report the results of the wind-down of our non-core construction activities in the Remediation and Construction Management ("RCM") reportable segment.

Substantially, there has been no remaining backlog for RCM since fiscal 2018 as the projects were complete.

RCM's projects were complete at the end of fiscal 20 18;

however, there are a few outstanding claims currently in dispute resolution.

There were no significant operating activities in RCM in the first quarters of fiscal 2022 and 2021.

Government Services Group ( “ GSG ” ).

GSG provides consulting and engineering services primarily to U.S.

GSG provides high-end consulting and engineering services primarily to U.S.

government clients (federal, state and local) and development agencies worldwide.

5 unchanged sentences

Commercial/International Services Group ( “ CIG ” ).

CIG primarily provides consulting and engineering services to U.S.

CIG primarily provides high-end consulting and engineering services to U.S.

commercial clients, and international clients that include both commercial and government sectors.

CIG supports commercial clients across the Fortun e 500, renewable energy, industrial, manufacturing, and aerospace markets.

CIG supports commercial clients across the Fortun e 500, renewable energy, industrial, high performance buildings, and aerospace markets.

CIG also provides sustainable infrastructure and related environmental, engineering and project management services to commercial and local government clients across Canada, in Asia Pacific (primarily Australia and New Zealand), the United Kingdom, as well as Brazil and Chile.

Beginning in fiscal 2022, we aligned our operations to better serve our clients and markets, and created a new High Performance Buildings division in our CIG reportable segment.

As a result, we transferred some related operations in our GSG reportable segment to our CIG reportable segment.

Certain prior year amounts for reportable segments have been reclassified to conform to the current year presentation.

The following table presents the percentage of our revenue by reportable segment:

Three Months Ended Nine Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

Three Months Ended

2022 December 27,

Reportable Segment

6 unchanged sentences

The following table presents the percentage of our revenue by contract type:

Three Months Ended Nine Months Ended

2021 June 28,

2020 June 27,

2021 June 28,

Three Months Ended

2022 December 27,

Contract Type

41 unchanged sentences

We remain focused on providing clients with the highest level of service and our 450 global offices are operational, supporting our programs and projects.

By Leading with Science® , we are responding to the challenges of COVID-19, with the commitment of our 21,000 s taff supported by technological innovation.

By Leading with Science® , we are responding to the challenges of COVID-19, with the commitment of our 21,000 associates supported by technological innovation.

Our government business, which represents approximately 60% of our revenue, has been stable, while our commercial business experienced relatively more impact.

2 unchanged sentences

The actions we have taken to navigate through this worldwide pandemic, the strength of our balance sheet, and our technical leadership position us well to address the global challenges of providing clean water, environmental restoration, and the impacts of climate change.

In the first nine months of fiscal 2021, revenue increase d 3.6% compared to the prior-year per iod.

Our revenue includes contributions from acquisitions that did not contribute to our revenue in the first nine months of fiscal 2020.

Our year-over-year revenue comparisons were also impacted by the decision to dispose of our Canadian turn-key pipeline activities in the fourth quarter of fiscal 2019 and the subsequent wind-down of those activities in fiscal 2020, which included the disposal of related equipment.

In the first quarter of fiscal 2022, revenue increased 12.2% compared to the prior-year quarter .

This year-over-year growth primarily reflects increased activity with U.S.

state and local government clients and commercial clients, both in the U.S.

and international.

Our revenue also includes contributions from acquisitions that did not contribute to our revenue in the first quarter of fiscal 2021.

State and Local Government.

state and local government revenue increased 20.3% i n the first nine months of fiscal 2021 compared to the same period last yea r.

state and local government revenue increased 27.2% i n the first quarter of fiscal 2022 compared to the same quarter last yea r.

The increase reflects continued broad-based growth in our U.S.

state and local government project-related infrastructure business, particularly with increased revenue from municipal water infrastructure work in the metropolitan areas of California, Texas, and Florida.

Our disaster response activities also increased compared to the first nine months of fiscal 2020.

Most of our work for U.S.

state and local governments relates to critical water and environmental programs, which we expect to continue to grow for the remainder of this fiscal year.

The risk of further budgetary constraints to our clients is mitigated with the passage of the American Rescue Plan Act of 2021, signed into law on March 11, 2021, which provides financial support for state and local governments.

Our disaster response activities also increased compared to the first quarter of fiscal 2021.

Most of our work for the U.S.

state and local governments relates to critical water and environmental programs, which we expect to continue to grow for the remainder of fiscal 2022.

Federal Government.

federal government revenue increased 9.2% in the first nine months of fiscal 2021 compared to the prior-year period .

This increase includes the contributions from acquisitions, which did not have comparable revenue in the first nine months of fiscal 2020.

During periods of economic volatility, our U.S.

federal government revenue increased 0.3% in the first quarter of fiscal 2022 compared to the prior-year quarter .

These stable results reflect increased year-over-year revenue for both Department of Defense and civilian agencies, which were substantially offset by reduced international development activity in Afghanistan.

During periods of economic volatility, including during the COVID-19 pandemic, our U.S.

federal government business has historically been the most stable and predictable.

We expect our U.S.

federal government revenue to grow for the remainder of fiscal 2021 due to continued increased federal advanced analytics activity.

However, U.S.

federal spending amounts and priorities could change significantly from our current expectations, which could have a significant positive or negative impact on our fiscal 2021 revenue.

commercial revenue decreased 11.0% in the first nine months of fiscal 2021 compared to the same period last year.

The decline was primarily due to reduced industrial activity as a result of the COVID-19 pandemic.

We currently expect our U.S.

commercial revenue to grow for the remainder of fiscal 2021 with higher revenue from renewable energy and environmental programs;

however, if conditions due to the COVID-19 pandemic worsen or are prolonged, it could have a negative impact on our revenue for the remainder of the fiscal year.

federal government revenue to grow in the remainder of fiscal 2022 primarily due to increased advanced analytics activity and the current administration's focus on long-term infrastructure, climate change, and international development.

commercial revenue increased 12.1% in the first quarter of fiscal 2022 compared to the same quarter last year.

This increase was primarily due to more activity on environmental programs, including meeting net zero carbon goals and high performance buildings.

We expect these trends and the related growth in our U.S.

commercial work to continue for the remainder of fiscal 2022.

International.

Our international revenue increased 0.4% i n the first nine months of fiscal 2021 compared to the prior-year period.

Excluding the contribution from a fiscal 2021 acquisition and the impact of the aforementioned prior-year disposal of our Canadian turn-key pipeline activities, our international revenue increased 1.1% in the first nine months of fiscal 2021 compared to the same period last year.

The revenue growth primarily reflects increased infrastructure activity in Canada and fewer restrictions related to the COVID-19 pandemic in the third quarter of fiscal 2021 .

We currently expect our overall international government work to grow for the remainder of fiscal 2021.

Our international revenue increased 18.2% i n the first quarter of fiscal 2022 compared to the prior-year quarter.

The revenue growth primarily reflects government stimulus spending on infrastructure and increased commercial activity related to new regulatory requirements for sustainability .

Our revenue also includes contributions from acquisitions that did not contribute to our revenue in the first quarter of fiscal 2021.

We expect these trends and the related growth in our international work to continue for the remainder of fiscal 2022.

RESULTS OF OPERATIONS

Consolidated Results of Operations

Three Months Ended Nine Months Ended

2021 June 28,

2020 Change June 27, 2021 June 28, 2020 Change

($ in thousands)

Three Months Ended

2022 December 27,

($ in thousands, except per share data)

Revenue $ 858,510 $ 765,104 $ 93,406 12.2%

5 unchanged sentences

Selling, general and administrative expenses (52,546) (50,058) (2,488) (5.0)

Contingent consideration - fair value adjustments (30) (50) 20 40.0 163 1,521 (1,358) (89.3)

Income from operations 87,220 66,252 20,968 31.6

15 unchanged sentences

Accordingly, we segregate subcontractor costs from revenue to promote a better understanding of our business by evaluating revenue exclusive of costs associated with external service providers.

In the third quarter of fiscal 2021, revenue and revenue, net of subcontractor costs, increased $91.9 million, or 12.9%, and $77.8 million, or 13.9%, respectively, compared to the year-ago quarter.

Excluding the net contributions from the aforementioned acquisitions/disposal, our revenue grew $67.2 million, or 9.5%, respectively, compared to the third quarter of fiscal 2020.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $56.5 million, or 13.1%, and $36.7 million, or 11.5%, respectively, in the third quarter of fiscal 2021 compared to last year's third quarter.

Our CIG segment's revenue and revenue, net of subcontractor costs, increased $36.4 million, or 12.5%, and $41.0 million, or 17.0%, respectively, in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020.

In the first nine months of fiscal 2021, revenue and revenue, net of subcontractor costs, increased $80.0 million, or 3.6%, and increased $84.3 million, or 4.8%, respectively, compared to the prior-year period.

Excluding the net contributions from the aforementioned acquisitions/disposal, our revenue for the first nine months of fiscal 2021 was comparable to the prior-year period.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $104.7 million, or 7.9%, and $78.0 million, or 8.0%, respectively, in the first nine months of fiscal 2021 compared to the same period last year.

Our CIG segment's revenue decreased $19.0 million, or 2.0%, and revenue, net of subcontractor costs, increased $5.7 million, or 0.7% in the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020.

Our quarterly and year-to-date results for our GSG and CIG segments are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

In the first quarter of fiscal 2022, revenue and revenue, net of subcontractor costs, increased $93.4 million, or 12.2%, and $74.2 million, or 12.3%, respectively, compared to year-ago quarter.

Excluding the contributions from acquisitions that did not have activity in the first quarter of last year, our revenue increased approximately 7% in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $31.4 million, or 7.4%, and $22.5 million, or 7.4%, respectively, in the first quarter of fiscal 2022 compared to last year's first quarter.

Our CIG segment's revenue increased $59.8 million, or 16.8%, and revenue, net of subcontractor costs, increased $51.7 million, or 17.2% in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021.

Our first quarter of fiscal 2022 results for our GSG and CIG segments are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

The following table reconciles our reported results to non-U.S.

GAAP adjusted results, which exclude gains on non-core dispositions, earn-out adjustments, COVID-19 impact and RCM results.

The gains on non-core dispositions in the third quarter and first nine months of fiscal 2020 relate to the disposal of our Canadian turn-key pipeline activities that commenced in the fourth quarter of fiscal 2019.

The effective tax rate applied to the adjustments to earnings per share ("EPS") to arrive at adjusted EPS averaged 24.3% in the first nine months of fiscal 2020.

We applied the relevant marginal statutory tax rate based on the nature of the adjustments and tax jurisdiction in which they occur.

Both EPS and adjusted EPS were calculated using diluted weighted-average common shares outstanding for the respective periods as reflected in our consolidated statements of income.

During the second quarter of fiscal 2020, we took actions in response to the COVID-19 pandemic to ensure the health and safety of our employees, clients, and communities.

These actions included activating our Business Continuity Plan globally, which enabled 95% of our workforce to work remotely and all 450 of our global offices to remain operational supporting our programs and projects.

This required incremental costs for employee relocation, expansion of our virtual private network capabilities, enhanced security, and sanitizing of our offices.

In addition, we incurred severance costs to right-size select operations where projects were cancelled specifically due to COVID-19 concerns and the resulting macroeconomic conditions.

These incremental costs totaled $8.2 million in the second quarter of fiscal 2020.

Although the charges were recognized in the second quarter of fiscal 2020, substantially all of these costs were paid in cash in the third quarter of fiscal 2020.

Three Months Ended Nine Months Ended

2021 June 28,

2020 Change June 27,

2021 June 28,

($ in thousands)

GAAP adjusted results, which exclude a non-operating benefit of Employee Retention Credits ("ERC's") related to COVID-19.

The effective tax rate applied to the adjustment to earnings per share ("EPS") to arrive at adjusted EPS was 26% for fiscal 2022.

We applied the relevant marginal statutory tax rate based on the nature of the adjustment and tax jurisdiction in which it occurred.

Both EPS and adjusted EPS were calculated using diluted weighted-average common shares outstanding as reflected in our consolidated statements of income.

Three Months Ended

2022 December 27,

($ in thousands, except per share data)

Income from operations $ 87,220 $ 66,252 $ 20,968 31.6%

RCM — 1 (1) NM (1) — (1) NM

Non-core dispositions — (4,494) 4,494 NM — (7,478) 7,478 NM

Earn-out adjustments — 550 (550) NM — (421) 421 NM

COVID-19 — — — NM — 8,233 (8,233) NM

COVID-19 Credits (4,451) — (4,451) NM

Adjusted income from operations (1)

1 unchanged sentence

EPS $ 1.25 $ 0.96 $ 0.29 30.2%

Non-core dispositions — (0.06) 0.06 NM — (0.10) 0.10 NM

Earn-out adjustments — 0.01 (0.01) NM — (0.01) 0.01 NM

COVID-19 — — NM — 0.11 (0.11) NM

COVID-19 Credits (0.06) — (0.06) NM

Adjusted EPS (1)

2 unchanged sentences

(1) Non-GAAP financial measure

Our operating income increased $6.3 million and $22.5 million in the third quarter and first nine months of fiscal 2021, respectively, compared to fiscal 2020 periods.

Our GSG segment's operating income increased $6.2 million and $22.6 million in the third quarter and first nine months of fiscal 2021, respectively, compared to the prior-year periods.

These results are described below under "Government Services Group." Our CIG segment's operating income increased $5.2 million and $7.7 million in the third quarter and first nine months of fiscal 2021, respectively, compared to the year-ago periods.

These results are described below under "Commercial/International Services Group."

Our net interest expense decreased $0.8 million and $1.8 million in the third quarter and first nine months of fiscal 2021, respectively, compared to the prior-year periods.

The decreases primarily reflect reduced borrowings.

Our income tax expense increased $0.7 million and $3.7 million in the third quarter and first nine months of fiscal 2021, respectively, compared to the same periods last year due to increased pre-tax income.

Our effective tax rates for the first nine months of fiscal 2021 and 2020 were 20.4% and 21.2%, respectively.

Income tax expense was reduced by $8.7 million and $7.0 million of excess tax benefits on share-based payments in the nine months of fiscal 2021 and 2020, respectively.

Excluding the impact of the excess tax benefits on share-based payments, our effective tax rates in the first nine months of fiscal 2021 and 2020 were 25.0% and 25.4%, respectively.

Our EPS was $0.95 and $2.74 in the third quarter and first nine months of fiscal 2021, compared to $0.83 and $2.34 in the prior-year periods, respectively.

On the same basis as our adjusted operating income, EPS was $0.95 and $2.74 in the third quarter and first nine months of fiscal 2021, compared to $0.78 and $2.34 in fiscal 2020 periods, respectively.

Operating income increased $21.0 million, or 31.6%, in the first quarter of fiscal 2022 compared to the year-ago quarter.

In the first quarter of fiscal 2022, we recognized the benefit of ERC's totaling $4.5 million, which represent reimbursement from the U.S.

federal government under the Coronavirus Aid, Relief and Economic Security Act for the costs incurred during the second quarter of fiscal 2020 to address the COVID-19 pandemic.

These amounts were recognized in the first quarter of fiscal 2022 when the funds were received due to the uncertainty related to the computation of qualifying amounts and delayed processing times for our application.

These amounts were primarily reflected as a reduction to "Other Costs of Revenue" in our Consolidated Statement of Income and an increase to "Cash Provided by Operations" in our Consolidated Statement of Cash Flows for the first quarter of fiscal 2022, consistent with the presentation of the related costs in the second quarter of fiscal 2020.

The ERC's increased operating income in our GSG and CIG segments $3.1 million and $1.4 million, respectively.

Excluding the ERC's, our adjusted operating income increased $16.5 million, or 24.9%, in the first quarter of fiscal 2022 compared to the same quarter last year.

The increase reflects improved results in our GSG and CIG segments, which are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

Our net interest expense was $2.9 million in the first quarter of fiscal 2022 compared to $3.0 million in the prior-year quarter.

The benefit of lower average year-over-year borrowings was substantially offset by the increased interest expense related to our contingent earn-out liabilities.

The effective tax rates for the first quarters of fiscal 2022 and 2021 were 18.8% and 17.0%, respectively.

Income tax expense was reduced b y $4.5 million and $6.1 million of excess tax benefits on share-based payments in the first quarters of fiscal 2022 and 2021, respectively.

Excluding the impact of these tax benefits, our effective tax rates for the first quarters of fiscal 2022 and 2021 were 24.1% an d 26.8%, r espectively.

Our EPS was $1.25 in the first quarter of fiscal 2022, compared to $0.96 in the year-ago quarter.

On the same basis as our adjusted operating income, EPS was $1.19 in the first quarter of fiscal 2022 compared to $0.96 in the first quarter of fiscal 2021.

Segment Results of Operations

Government Services Group

Three Months Ended Nine Months Ended

2021 June 28,

2020 Change June 27, 2021 June 28, 2020 Change

Three Months Ended

2022 December 27,

($ in thousands)

3 unchanged sentences

Income from operations $ 51,179 $ 42,695 $ 8,484 19.9%

Revenue and revenue, net of subcontractor costs, increased $56.5 million, or 13.1%, and $36.7 million, or 11.5%, respectively, in the third quarter of fiscal 2021 compared to the year-ago quarter.

For the first nine months of fiscal 2021, revenue and revenue, net of subcontractor costs, increased $104.7 million, or 7.9%, and $78.0 million, or 8.0%, respectively, compared to the prior-year period.

These increases reflect higher U.S.

Revenue increased $31.4 million and revenue, net of subcontractor costs, increased $22.5 million in the first quarter of fiscal 2022 compared to the year-ago quarter;

both reflecting increases of 7.4%.

These increases primarily reflect higher U.S.

state and local government activities related to water and environmental programs, and disaster response.

Additionally, the increases also reflect contributions from the aforementioned acquisitions.

Operating income increased $6.2 million and $22.6 million in the third quarter and first nine months of fiscal 2021, respectively, compared to the prior-year periods, reflecting the higher revenue.

In addition, we incurred $1.6 million of incremental costs for actions to respond to the COVID-19 pandemic in the second quarter of fiscal 2020.

Our operating margin, based on revenue, net of subcontractor costs, improved to 13.7% in the first nine months of fiscal 2021 compared to 12.4% in the same period last year.

Excluding the COVID-19 charges, our operating margin was 12.6% in the first nine months of fiscal 2020.

The increases also reflect contributions from acquisitions, which did not have comparable revenue in the first quarter of last year.

Operating income increased $8.5 million, or 19.9%, in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021.

Operating income in the first quarter of fiscal 2022 included $3.1 million of the aforementioned ERC's.

Excluding this benefit, operating income increased 12.8% in the first quarter of fiscal 2022 compared to the same period last year.

Our operating margin, based on revenue, net of subcontractor costs, improved to 15.6% in the first quarter of fiscal 2022 compared to 14.0% in last year's first quarter.

Excluding the ERC's, our operating margin was 14.7% in the first quarter of fiscal 2022.

The improved operating margin was primarily due to our increased focus on high-end consulting services and improved labor utilization.

Commercial/International Services Group

Three Months Ended Nine Months Ended

2021 June 28,

2020 Change June 27, 2021 June 28, 2020 Change

Three Months Ended

2022 December 27,

($ in thousands)

3 unchanged sentences

Income from operations $ 45,308 $ 34,563 $ 10,745 31.1%

Revenue and revenue, net of subcontractor costs, increased $36.4 million, or 12.5%, and $41.0 million, or 17.0%, respectively, in the third quarter of fiscal 2021 compared to the prior-year quarter.

For the first nine months of fiscal 2021, revenue and revenue, net of subcontractor costs, decreased $19.0 million, or 2.0%, and increased $5.7 million, or 0.7%, respectively, compared to the year-ago period.

Excluding the impact of the disposal of our Canadian turn-key pipeline activities, revenue increased 11.8% and decreased 1.5% in the third quarter and first nine months of fiscal 2021, respectively, compared to fiscal 2020 periods.

Revenue growth in the third quarter of fiscal 2021 reflects increased infrastructure activity in Canada and fewer restrictions related to the COVID-19 pandemic in the third quarter of fiscal 2021 .

The decline in the first nine months of fiscal 2021 was primarily due to the adverse impact of the COVID-19 pandemic during the first half of fiscal 2021 compared to the first half of fiscal 2020.

Operating income increased $5.2 million and $7.7 million in the third quarter and first nine months of fiscal 2021, respectively, compared to fiscal 2020 periods.

In the second quarter of fiscal 2020, we incurred $6.6 million of incremental costs for actions to respond to the COVID-19 pandemic.

Additionally, operating income in the third quarter and first nine months of fiscal 2021 included gains of $2.0 million compared to gains in the same periods of fiscal 2020 of $4.5 million and $7.5 million, respectively, related to the disposition of our Canadian pipeline activities.

Excluding these COVID-19 charges and disposition gains, operating income increased $7.7 million and $6.6 million in the third quarter and first nine months of fiscal 2021, respectively, compared to fiscal 2020 periods.

Our operating margin, based on revenue, net of subcontractor costs, improved to 11.3% in the first nine months of fiscal 2021 compared to 10.4% in the same period last year.

Excluding the COVID-19 charges and disposition gains, our operating margin was 11.1% in the first nine months of fiscal 2021 compared to 10.3% in the same period last year.

Revenue and revenue, net of subcontractor costs, increased $59.8 million, or 16.8%, and $51.7 million, or 17.2%, respectively, in the first quarter of fiscal 2022 compared to the prior-year quarter.

The revenue growth in the first quarter of fiscal 2022 primarily reflects more activity on commercial environmental programs, including meeting net zero carbon goals and high performance buildings.

These increases were also due to international government stimulus spending on infrastructure.

Additionally, revenue in the first quarter of fiscal 2022, includes contributions from acquisitions, which did not have comparable revenue in the first quarter last year.

Operating income increased $10.7 million, or 31.1 %, in the first quarter of fiscal 2022, compared to the first quarter of fiscal 2021 primarily due to revenue growth.

Additionally, operating income in the first quarter of fiscal 2022 included $1.4 million of the aforementioned ERC's.

Excluding this benefit, operating income increased 27.2% in the first quarter of fiscal 2022 compared to the year-ago quarter.

Our operating margin, based on revenue, net of subcontractor costs, improved to 12.9% in the first quarter of fiscal 2022 compared to 11.5% in the prior-year quarter.

Excluding the ERC's, our operating margin was 12.5% in the first quarter of fiscal 2022.

The improved operating margin was primarily due to our increased focus on high-end consulting services and improved labor utilization.

Remediation and Construction Management

Three Months Ended Nine Months Ended

2021 June 28,

2020 Change June 27, 2021 June 28, 2020 Change

($ in thousands)

Revenue $ 143 $ 48 $ 95 $ 613 $ 198 $ 415

Subcontractor costs (90) (43) (47) (25) (221) 196

Revenue, net of subcontractor costs $ 53 $ 5 $ 48 $ 588 $ (23) $ 611

Income (loss) from operations $ — $ (1) $ 1 $ 1 $ — $ 1

RCM's projects were substantially complete at the end of fiscal 2018.

There were no significant operating activities in RCM for the third quarter and first nine months of fiscal 2021 and 2020.

The following table provides a reconciliation between remaining unsatisfied performance obligations ("RUPOs") and backlog:

2021 September 27, 2020

(in thousands)

RUPOs $ 3,231,133 $ 3,218,973

Items impacting comparability:

Contract term 18,775 20,312

Backlog $ 3,249,908 $3,239,285

Backlog generally represents the dollar amount of revenues we expect to realize in the future when we perform the work.

The difference between RUPOs and backlog relates to contract terms.

The difference between remaining unsatisfied performance obligations (" RUPO") and backlog relates to contract terms.

Specifically, our backlog does not consider the impact of termination for convenience clauses within the contracts.

The contract term and thus remaining performance obligation on certain of our operations and maintenance contracts, are limited to the notice period required for contract termination (usually 30, 60, or 90 days).

At January 2, 2022 and October 3, 2021, the differences between our backlog and RUPO of $3.4 billion were immaterial.

Financial Condition, Liquidity and Capital Resources

Capital Requirements.

As of June 27, 2021, we h ad $234.3 million of cash and cash equivalents and access to an additional $721 million of borrowings available under our credit facility.

During the first nine months of fiscal 2021, we generated $226.5 million of cash from operations.

As of January 2, 2022, we h ad $205.5 million of cash and cash equivalents and access to an additional $699 million of borrowings available under our credit facility.

During the first quarter of fiscal 2022, we generated $82.4 million of cash from operations.

To date, we have not experienced any significant deterioration in our financial condition or liquidity due to the COVID-19 pandemic and our credit facilities remain available.

3 unchanged sentences

We use a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where they are needed.

We have no need or plans to repatriate foreign earnings at this time.

On January 27, 2020, the Board of Directors authorized a new $200 million stock repurchase program, which was included in our remaining balance of $207.8 million as of fiscal 2020 year-end.

In the first nine months of fiscal 2021, we repurchased and settled 368,177 shares with an average price of $122.22 per share for a total cost of $45.0 million in the open market.

At June 27, 2021, we had a remaining balance of $162.8 million under our stock repurchase program.

On November 9, 2020, the Board of Directors declared a quarterly cash dividend of $0.17 per share payable on December 11, 2020 to stockholders of record as of the close of business on November 30, 2020.

On January 25, 2021, the Board of Directors declared a quarterly cash dividend of $0.17 per share payable on February 26, 2021 to stockholders of record as of the close of business on February 10, 2021.

On April 26, 2021, the Board of Directors declared a quarterly cash dividend of $0.20 pe r share payable on May 28, 2021 to stockholders of record as of the close of business on May 12, 2021.

We currently have no need or plans to repatriate undistributed foreign earnings, other than from Canada, in the foreseeable future;

however, this could change due to varied economic circumstances.

On October 5, 2021, the Board of Directors authorized a new stock repurchase program under which we could repurchase up to $400 million of our common stock in addition to the $147.8 million remaining under the previous stock repurchase program at October 3, 2021.

In the first quarter of fiscal 2022, we repurchased and settled 290,196 shares with an average price of $172.30 per share for a total cost of $50.0 million in the open market.

At January 2, 2022, we had a remaining balance of $497.8 million under our stock repurchase program.

On November 15, 2021, the Board of Directors declared a quarterly cash dividend of $0.20 per share payable on December 20, 2021 to stockholders of record as of the close of business on December 2, 2021.

Subsequent Event.

On July 26, 2021, the Board of Directors declared a quarterly cash dividend of $0.20 pe r share payable on September 3, 2021 to stockholders of record as of the close of business on August 20, 2021.

Cash Equivalents and Restricted Cash.

As of June 27, 2021, cash equivalents and restricted cash w ere $234.3 million, an increase of $76.8 million compared to the fiscal 2020 year-end.

The increase was due to net cash provided by operating activities, partially offset by net repayments of long-term debt, stock repurchases, as well as payments for business acquisitions and contingent earn-out payments.

On January 31, 2022, the Board of Directors declared a quarterly cash dividend of $0.20 pe r share payable on February 25, 2022 to stockholders of record as of the close of business on February 11, 2022.

Cash and Cash Equivalents.

As of January 2, 2022, our cash and cash equivalents w ere $205.5 million, an increase of $39.0 million compared to the fiscal 2021 year-end.

The increase was due to net cash provided by operating activities and net borrowings of long-term debt, partially offset by stock repurchases, dividends, as well as payments for taxes on vested restricted stock, business acquisitions and contingent earn-outs.

Operating Activities .

For the first nine months of fiscal 2021, ne t cash provided by operating activities was $226.5 million, an increase of $32.0 million compared to the prior-year period.

The increase primarily reflects an increase in earnings

adjusted for non-cash items of $23.8 million and improved working capital in the first nine months of fiscal 2021 compared to the same period last year.

For the first quarter of fiscal 2022, ne t cash provided by operating activities was $82.4 million, an increase of $49.2 million compared to the prior-year quarter.

The increase primarily reflects an increase in earnings adjusted for non-cash items and improved working capital from faster collections of our receivables in the first quarter of fiscal 2022 compared to the same quarter last year.

Investing Activities .

For the first nine months of fiscal 2021, net c ash used in investing activities was $23.1 million, an increase of $2.4 million compared to the year-ago period.

The increase was due to the proceeds from sales of equipment related to the disposal of our Canadian turn-key pipeline activities in the fiscal 2020 period, partially offset by lower payments for business acquisitions in the current year period compared to the prior-year period.

For the first quarter of fis cal 2022, net cash used in investing activities was $6.9 million, an increase of $5.1 million compared to the year-ago quarter.

The increase was due to a payment related to an acquisition in the first quarter of fiscal 2022, partially offset by the proceeds from sales of assets in the first quarter of fiscal 2021.

Financing Activities .

For the first nine months of fiscal 2021, net cash used in financing activities was $137.5 million, a decrease of $15.1 million compared to the fiscal 2020 period.

The decrease was due to decreased stock repurchases and payments of contingent earn-outs compared to the prior-year period.

This change was partially offset by a net increase of repayments of debt compared to the year-ago period.

For the first quarter of fiscal 2022, net cash used in financing activities was $36.4 million, an increase of $3.6 million compared to the same quarter last year.

The increase was due to higher stock repurchases, taxes paid on vested restricted stock and stock options exercised, partially offset by a net increase of borrowings of long-term debt and lower contingent earn-out payments compared to the year-ago quarter.

Debt Financing.

On July 30, 2018, we entered into a Second Amended and Restated Credit Agreement (“Amended Credit Agreement”) with a total borrowing capacity of $1 billion that will mature in July 2023.

The Amended Credit Agreement is a $700 million senior secured, five-year facility that provides for a $250 million term loan facility (the “Amended Term Loan Facility”), a $450 million revolving credit facility (the “Amended Revolving Credit Facility”), and a $300 million accordion feature that allows us to increase the Amended Credit Agreement to $1 billion subject to lender approval.

On July 30, 2018, we entered into a Second Ame nded and Restated Credit Agreement (“Amended Credit Agreement”) with a total borrowing capacity of $1 billion that will mature in July 2023.

The Amended Credit Agreement

is a $700 million senior secured, five-year facility that provides for a $250 million term loan facility (the “Amended Term Loan Facility”), a $450 million revolving credit facility (the “Amended Revolving Credit Facility”), and a $300 million accordion feature that allows us to increase the Amended Credit Agreement to $1 billion subject to lender approval.

The Amended Credit Agreement allows us to, among other things, (i) refinance indebtedness under our Credit Agreement dated as of May 7, 2013;

10 unchanged sentences

The Amended Credit Agreement expires on July 30, 2023, or earlier at our discretion upon payment in full of loans and other obligations.

As of June 27, 2021, we had $246.5 million.

in outstanding borrowings under the Amended Credit Agreement, which was comprised of $218.8 million under the Term Loan Facility and $27.7 million outstanding under the Amended Revolving Credit Facility at a year-to-date weighted-average interest rate of 1.28% per annum.

As of January 2, 2022, we had $259.4 million.

in outstanding borrowings under the Amended Credit Agreement, which was comprised of $209.4 million under the Amended Term Loan Facility and $50.0 million outstanding under the Amended Revolving Credit Facility.

The weighted-average interest rate of the outstanding borrowings during January 2, 2022 is 1.21%.

In addition, we had $0.7 million in standby letters of credit under the Amended Credit Agreement.

Our average effective weighted-average interest rate on borrowings outstanding during the nine months ended June 27, 2021 under the Amended Credit Agreement, including the effects of interest rate swap agreements described in Note 14, “Derivative Financial Instruments” of the “Notes to Consolidated Financial Statements”, was 3.28%.

At June 27, 2021, we had $421.0 million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of our debt cov enants.

Our weighted-average interest rate on borrowings outstanding during the three months ended January 2, 2022 under the Amended Credit Agreement, including the effects of interest rate swap agreements described in Note 14, “Derivative Financial Instruments” of the “Notes to Consolidated Financial Statements”, was 3.73%.

At January 2, 2022, we had $399.3 million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of our debt cov enants.

The Amended Credit Agreement contains certain affirmative and restrictive covenants, and customary events of default.

1 unchanged sentence

Our obligations under the Amended Credit Agreement are guaranteed by certain of our domestic subsidiaries and are secured by first priority liens on (i) the equity interests of certain of our subsidiaries, including those subsidiaries that are guarantors or borrowers under the Amended Credit Agreement, and (ii) the accounts receivable, general intangibles and intercompany loans, and those of our subsidiaries that are guarantors or borrowers.

At June 27, 2021, we were in compliance with these covenants with a consolidated leverage ratio of 0.98x and a consolidated interest coverage ratio of 25.08x.

In addition to the Amended Credit Agreement, we maintain other credit facilities, which may be used for bank overdrafts, short-term cash advances and bank guarantees.

At June 27, 2021, there was $2.5 million outstanding under these facilities and the aggregate amount of standby letters of credit outstanding was $55.3 million.

As of June 27, 2021, we had bank overdrafts of $3.6 million related to our U.S.

disbursement bank accounts.

This balance is reported in the "Current portion of long-term debt and other short-term borrowings" on our consolidated balance sheet as of June 27, 2021 .

The change in bank overdraft balance is classified as cash flows from financing activities on our consolidated statements of cash flows as we believe these overdrafts to be a form of short-term financing from the bank due to our ability to fund the overdraft with the overdraft protection on the bank accounts or our other credit facilities if needed.

At January 2, 2022, we were in compliance with these covenants with a consolidated leverage ratio of 1.01x and a consolidated interest coverage ratio of 27.52x.

In addition to the Amended Credit Agreement, we maintain other credit facilities, which may be used for short-term cash advances and bank guarantees.

At January 2, 2022, there were no outstanding borrowings under these facilities, and the aggregate amount of standby letters of credit outstanding was $53.1 million.

As of January 2, 2022, we had $4.2 million of bank overdrafts related to our disbursement bank accounts.

We believe our operations have not been, and, in the foreseeable future, are not expected to be, materially adversely affected by inflation or changing prices due to the average duration of our projects and our ability to negotiate prices as contracts end and new contracts begin.

2 unchanged sentences

(in thousands) Payment Date

November 9, 2020 $ 0.17 November 30, 2020 $ 9,198 December 11, 2020

January 25, 2021 $ 0.17 February 10, 2021 $ 9,212 February 26, 2021

April 26, 2021 $ 0.20 May 12, 2021 $ 10,831 May 28, 2021

July 26, 2021 $ 0.20 August 20, 2021 N/A September 3, 2021

November 15, 2021 $ 0.20 December 2, 2021 $ 10,793 December 20, 2021

January 31, 2022 $ 0.20 February 11, 2022 N/A February 25, 2022

We evaluate the realizability of our deferred tax assets by assessing the valuation allowance and adjust the allowance, if necessary.

1 unchanged sentence

The ability or failure to achieve the forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets.

Based on future operating results in certain jurisdictions, it is likely that the current valuation allowance positions of those jurisdictions could be adjusted in the next 12 months (including as soon as the fourth quarter of fiscal 2021), particularly in the United Kingdom where we have a valuation allowance of approximately $12.5 million primarily related to the realizability of net operating loss carry-forwards.

As of June 27, 2021 and September 27, 2020, the liability for income taxes associated with uncertain tax positions was $12.8 million and $9.7 million, respectively.

Based on projected future operating results in certain jurisdictions, it is unlikely that the current valuation allowance positions of those jurisdictions could be adjusted in the next 12 months.

As of January 2, 2022 and October 3, 2021, the liability for income taxes associated with uncertain tax positions was $13.4 million and $14.1 million, respectively.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax positions may significantly decrease within the next 12 months.

9 unchanged sentences

If we default on the Amended Credit Agreement or additional credit facilities, our inability to issue or renew standby letters of credit and bank guarantees would impair our ability to maintain normal operations.

At June 27, 2021, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $55.3 million in standby letters of credit outstanding under our additional letter of credit facilities.

At January 2, 2022, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $53.1 million in standby letters of credit outstanding under our additional letter of credit facilities.

• From time to time, we provide guarantees and indemnifications related to our services.

13 unchanged sentences

Critical Accounting Policies

Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the fiscal year ended September 27, 2020.

Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the fiscal year ended October 3, 2021.

To date, there have been no material changes in our critical accounting policies as reported in our 2021 Annual Report on Form 10-K.

13 unchanged sentences

The Facility matures on July 30, 2023.

At June 27, 2021, we had borrowings outstanding under the Credit Agreement of $246.5 million at a year-to-date weighted-average interest rate of 1.28% per annum.

At January 2, 2022, we had $259.4 million in outstanding borrowings under the Amended Credit Agreement, which was comprised of $209.4 million under the Amended Term Loan Facility and $50.0 million outstanding under the Amended Revolving Credit Facility.

The weighted-average interest rate of the outstanding borrowings during first quarter of fiscal 2022 was 1.21%.

In August 2018, we entered into five interest rate swap agreements with five banks to fix the variable interest rate on $250 million of our Amended Term Loan Facility.

The objective of these interest rate swaps was to eliminate the variability of our cash flows on the amount of interest expense we pay under our Credit Agreement.

As of June 27, 2021, the notional principal of our outstanding interest swap agreements was $218.8 million ($43.8 million each.) Our year-to-date average effective interest rate on borrowings outstanding under the Credit Agreement, including the effects of interest rate swap agreements, at June 27, 2021, was 3.28%.

As of January 2, 2022, the notional principal of our outstanding interest swap agreements was $209.4 million ($41.9 million each.) Our year-to-date average effective interest rate on borrowings outstanding under the Credit Agreement, including the effects of interest rate swap agreements, at January 2, 2022, was 3.73%.

For more information, see Note 14, “Derivative Financial Instruments” of the “Notes to Consolidated Financial Statements”.

2 unchanged sentences

Therefore, we are subject to currency exposure and volatility because of currency fluctuations.

We attempt to minimize our exposure to these fluctuati ons by matching revenue and expenses

in the same currency for our contracts.

For the first nine months of fiscal 2021 and 2020, we reported $1.8 million of foreign currency loss and $0.2 million of foreign currency gain, respectively, in “Selling, general and administrative expenses” on our consolidated statements of income.

We attempt to minimize our exposure to these fluctuati ons by matching revenue and expenses in the same currency for our contracts.

For the first quarter of fiscal 2021, we reported $1.3 million of foreign currency losses in “Selling, general and administrative expenses” on our consolidated statements of income.

The foreign currency impact for the first quarter of fiscal 2022 was immaterial.

We have foreign currency exchange rate exposure in our results of operations and equity primarily because of the currency translation related to our foreign subsidiaries where the local currency is the functional currency.

1 unchanged sentence

dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions will result in reduced revenue, operating expenses, assets and liabilities.

Similarly, our revenue, op erating expenses, assets and liabilities will increase if the U.S.

Similarly, our revenue, operating expenses, assets and liabilities will increase if the U.S.

dollar weakens against foreign currencies.

For the first nine months of fiscal 2021 and 2020, 29.2% and 30.1% of our consolidated revenue, respectively, was generated by our international business.

For the first nine months of fiscal 2021, the effect of foreign exchange rate translation on the consolidated balance sheets was an increase in our equity by $54.5 million compared to a decrease in equity of $11.4 million in the first nine months of fiscal 2020.

For the first quarters of fiscal 2022 and 2021, 29.8% and 28.3% of our consolidated revenue, respectively, was generated by our international business.

For the first quarter of fiscal 2022, the effect of foreign exchange rate translation on the consolidated balance sheets was a decrease in our equity by $0.7 million compared to an increase in equity of $32.4 million in the first quarter of fiscal 2021.

These amounts were recognized as adjustments to equity through other comprehensive income.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis