TETRA TECH INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbor provisions created under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “estimates,” “seeks,” “continues,” “may,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict, including those identified below under “Part II, Item 1A. Risk Factors,” and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. GENERAL OVERVIEW Tetra Tech, Inc. 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. We typically begin at the earliest stage of a project by identifying technical solutions and developing execution plans tailored to our clients' needs and resources. 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 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, 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 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. As primarily a professional services company, we are labor-intensive rather than capital-intensive. Our revenue is driven by our ability to attract and retain qualified and productive employees, identify business opportunities, secure new and renew existing client contracts, provide outstanding services to our clients and execute projects successfully. We provide services to a diverse base of U.S. state and local government, U.S. federal government, U.S. commercial, and international clients. 21 The following table presents the percentage of our revenue by client sector: Three Months Ended January 2, 2022 December 27, 2020 Client Sector U.S. state and local government 18.5 % 16.3 % U.S. federal government (1) 31.1 34.8 U.S. commercial 20.6 20.6 International (2) 29.8 28.3 Total 100.0 % 100.0 % (1) Includes revenue generated under U.S. federal government contracts performed outside the United States. (2) Includes revenue generated from foreign operations, primarily in Canada, Australia, the United Kingdom, and revenue generated from non-U.S. clients. We manage our operations under two reportable segments. Our Government Services Group ("GSG") reportable segment primarily includes activities with U.S. government clients (federal, state and local) and all activities with development agencies worldwide. Our Commercial/International Services Group ("CIG") reportable segment primarily includes activities with U.S. commercial clients and international clients other than development agencies. 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. 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 high-end consulting and engineering services primarily to U.S. government clients (federal, state and local) and development agencies worldwide. GSG supports U.S. government civilian and defense agencies with services in water, environment, sustainable infrastructure, information technology, and disaster management. GSG also provides engineering design services for U.S. municipal and commercial clients, especially in water infrastructure, solid waste, and high-end sustainable infrastructure designs. GSG also leads our support for development agencies worldwide, especially in the United States, United Kingdom, and Australia. Commercial/International Services Group ( “ CIG ” ). 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, 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 January 2, 2022 December 27, 2020 Reportable Segment GSG 53.1 % 55.5 % CIG 48.5 46.6 Inter-segment elimination (1.6) (2.1) Total 100.0 % 100.0 % Our services are performed under three principal types of contracts with our clients: fixed-price, time-and-materials, and cost-plus. The following table presents the percentage of our revenue by contract type: 22 Three Months Ended January 2, 2022 December 27, 2020 Contract Type Fixed-price 38.6 % 35.9 % Time-and-materials 46.1 46.4 Cost-plus 15.3 17.7 Total 100.0 % 100.0 % Under fixed-price contracts, clients agree to pay a specified price for our performance of the entire contract or a specified portion of the contract. Under time-and-materials contracts, we are paid for labor at negotiated hourly billing rates and paid for other expenses. Under cost-plus contracts, some of which are subject to a contract ceiling amount, we are reimbursed for allowable cost s plus fees, which may be fixed or performance-based. Profitability on these contracts is driven by billable headcount and our cost control. We recognize revenue from contracts using the cost-to-cost measure of progress method to estimate the progress towards completion to determine the amount of revenue and profit to recognize. Changes in those estimates could result in the recognition of cumulative catch-up adjustments to the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made. On a quarterly basis, we review and assess our revenue and cost estimates for each significant contract. Changes in revenue and cost estimates could also result in a projected loss that would be recorded immediately in earnings. Other contract costs include professional compensation and related benefits, together with certain direct and indirect overhead costs such as rents, utilities, and travel. Professional compensation represents a large portion of these costs. Our "Selling, general and administrative expenses" ("SG&A") are comprised primarily of marketing and bid and proposal costs, and our corporate headquarters’ costs related to the executive offices, finance, accounting, administration, and information technology. Our SG&A expenses also include a portion of stock-based compensation and depreciation of property and equipment related to our corporate headquarters, and the amortization of identifiable intangible assets. Most of these costs are unrelated to specific clients or projects, and can vary as expenses are incurred to support company-wide activities and initiatives. We experience seasonal trends in our business. Our revenue and operating income are typically lower in the first half of our fiscal year, primarily due to the Thanksgiving (in the U.S.), Christmas, and New Year’s holidays. Many of our clients’ employees, as well as our own employees, take vacations during these holiday periods. Further, seasonal inclement weather conditions occasionally cause some of our offices to close temporarily or may hamper our project field work in the northern hemisphere's temperate and arctic regions. These occurrences result in fewer billable hours worked on projects and, correspondingly, less revenue recognized. ACQUISITIONS AND DIVESTITURES Acquisitions. We continuously evaluate the marketplace for acquisition opportunities to further our strategic growth plans. Due to our reputation, size, financial resources, geographic presence and range of services, we have numerous opportunities to acquire privately and publicly held companies or selected portions of such companies. We evaluate an acquisition opportunity based on its ability to strengthen our leadership in the markets we serve, the technologies and solutions they provide, and the additional new geographies and clients they bring. Also, during our evaluation, we examine an acquisition's ability to drive organic growth, its accretive effect on long-term earnings, and its ability to generate return on investment. Generally, we proceed with an acquisition if we believe that it will strategically expand our service offerings, improve our long-term financial performance, and increase shareholder returns. We view acquisitions as a key component in the execution of our growth strategy, and we intend to use cash, debt or equity, as we deem appropriate, to fund acquisitions. We may acquire other businesses that we believe are synergistic and will ultimately increase our revenue and net income, strengthen our ability to achieve our strategic goals, provide critical mass with existing clients, and further expand our lines of service. We typically pay a purchase price that results in the recognition of goodwill, generally representing the intangible value of a successful business with an assembled workforce specialized in our areas of interest. Acquisitions are inherently risky, and no assurance can be given that our previous or future acquisitions will be successful or will not have a material adverse effect on our financial position, results of operations, or cash flows. All acquisitions require the approval of our Board of Directors. For detailed information regarding acquisitions, see Note 4, “Acquisitions” of the “Notes to Consolidated Financial Statements”. 23 Divestitures. We regularly review and evaluate our existing operations to determine whether our business model should change through the divestiture of certain businesses. Accordingly, from time to time, we may divest or wind-down certain non-core businesses and reallocate our resources to businesses that better align with our long-term strategic direction. OVERVIEW OF RESULTS AND BUSINESS TRENDS General. As the coronavirus disease 2019 ("COVID-19") spread globally, we responded quickly to ensure the health and safety of our employees, clients and the communities we support. Our high-end consulting focus and the technologies we deployed have allowed our staff to support clients and projects remotely without interruption. 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 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. Much of our commercial business has continued due to regulatory drivers, but we have seen project delays in the industrial sectors. Our diversified end-markets have allowed us to redeploy staff to areas of uninterrupted or increased demand, and we have made decisions to align our cost structures with our clients' projects. 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 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. U.S. State and Local Government. Our U.S. 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 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. U.S. Federal Government. 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 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. U.S. Commercial. Our U.S. 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 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. 24 RESULTS OF OPERATIONS Consolidated Results of Operations Three Months Ended January 2, 2022 December 27, 2020 Change $ % ($ in thousands, except per share data) Revenue $ 858,510 $ 765,104 $ 93,406 12.2% Subcontractor costs (179,177) (159,933) (19,244) (12.0) Revenue, net of subcontractor costs (1) 679,333 605,171 74,162 12.3 Other costs of revenue (539,567) (488,861) (50,706) (10.4) Gross profit 139,766 116,310 23,456 20.2 Selling, general and administrative expenses (52,546) (50,058) (2,488) (5.0) Income from operations 87,220 66,252 20,968 31.6 Interest expense (2,904) (3,026) 122 4.0 Income before income tax expense 84,316 63,226 21,090 33.4 Income tax expense (15,817) (10,778) (5,039) (46.8) Net income 68,499 52,448 16,051 30.6 Net income attributable to noncontrolling interests (10) (12) 2 16.7 Net income attributable to Tetra Tech $ 68,489 $ 52,436 $ 16,053 30.6 Diluted earnings per share $ 1.25 $ 0.96 $ 0.29 30.2% (1) We believe that the presentation of “Revenue, net of subcontractor costs”, which is a non-U.S. GAAP financial measure, enhances investors’ ability to analyze our business trends and performance because it substantially measures the work performed by our employees. While providing services, we routinely subcontract various services and, under certain U.S. Agency for International Development programs, issue grants. Generally, these subcontractor costs and grants are passed through to our clients and, in accordance with U.S. GAAP and industry practice, are included in our revenue when it is our contractual responsibility to procure or manage these activities. The grants are included as part of our subcontractor costs. Because subcontractor services can vary significantly from project to project and period to period, changes in revenue may not necessarily be indicative of our business trends. 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 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 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. 25 Three Months Ended January 2, 2022 December 27, 2020 Change $ % ($ in thousands, except per share data) Income from operations $ 87,220 $ 66,252 $ 20,968 31.6% COVID-19 Credits (4,451) — (4,451) NM Adjusted income from operations (1) $ 82,769 $ 66,252 $ 16,517 24.9% EPS $ 1.25 $ 0.96 $ 0.29 30.2% COVID-19 Credits (0.06) — (0.06) NM Adjusted EPS (1) $ 1.19 $ 0.96 $ 0.23 24.0% NM = not meaningful (1) Non-GAAP financial measure 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. 26 Segment Results of Operations Government Services Group Three Months Ended January 2, 2022 December 27, 2020 Change $ % ($ in thousands) Revenue $ 456,099 $ 424,663 $ 31,436 7.4% Subcontractor costs (129,004) (120,031) (8,973) (7.5) Revenue, net of subcontractor costs $ 327,095 $ 304,632 $ 22,463 7.4 Income from operations $ 51,179 $ 42,695 $ 8,484 19.9% 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. 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 January 2, 2022 December 27, 2020 Change $ % ($ in thousands) Revenue $ 416,286 $ 356,526 $ 59,760 16.8% Subcontractor costs (64,048) (55,987) (8,061) (14.4) Revenue, net of subcontractor costs $ 352,238 $ 300,539 $ 51,699 17.2 Income from operations $ 45,308 $ 34,563 $ 10,745 31.1% 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. 27 Backlog Backlog generally represents the dollar amount of revenues we expect to realize in the future when we perform the work. 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 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. Our primary sources of liquidity are cash flows from operations and borrowings under our credit facilities. Our primary uses of cash are to fund working capital, capital expenditures, stock repurchases, cash dividends and repayment of debt, as well as to fund acquisitions and earn-out obligations from prior acquisitions. We believe that our existing cash and cash equivalents, operating cash flows and borrowing capacity under our credit agreement, as described below, will be sufficient to meet our capital requirements for at least the next 12 months including any additional resources needed to address the COVID-19 pandemic. 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 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 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 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 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 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 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 28 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; (ii) finance certain permitted open market repurchases of our common stock, permitted acquisitions, and cash dividends and distributions; and (iii) utilize the proceeds for working capital, capital expenditures and other general corporate purposes. The Amended Revolving Credit Facility includes a $100 million sublimit for the issuance of standby letters of credit, a $20 million sublimit for swingline loans, and a $200 million sublimit for multicurrency borrowings and letters of credit. The entire Amended Term Loan Facility was drawn on July 30, 2018. The Amended Term Loan Facility is subject to quarterly amortization of principal at 5% annually beginning December 31, 2018. We may borrow on the Amended Revolving Credit Facility, at our option, at either (a) a Eurocurrency rate plus a margin that ranges from 1.00% to 1.75% per annum, or (b) a base rate for loans in U.S. dollars (the highest of the U.S. federal funds rate plus 0.50% per annum, the bank’s prime rate or the Eurocurrency rate plus 1.00%) plus a margin that ranges from 0% to 0.75% per annum. In each case, the applicable margin is based on our Consolidated Leverage Ratio, calculated quarterly. The Amended Term Loan Facility is subject to the same interest rate provisions. 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 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 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. The financial covenants provide for a maximum Consolidated Leverage Ratio of 3.00 to 1.00 (total funded debt/EBITDA, as defined in the Amended Credit Agreement) and a minimum Consolidated Interest Coverage Ratio of 3.00 to 1.00 (EBITDA/Consolidated Interest Charges, as defined in the Amended Credit Agreement). 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 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. Inflation. 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. Dividends. Our Board of Directors has authorized the following dividends in fiscal 2022: Dividend Per Share Record Date Total Maximum Payment (in thousands) Payment Date 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 Income Taxes We evaluate the realizability of our deferred tax assets by assessing the valuation allowance and adjust the allowance, if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The ability or failure to achieve the forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets. 29 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. These liabilities represent our current estimates of the additional tax liabilities that we may be assessed when the related audits are concluded. If these audits are resolved in a manner more unfavorable than our current expectations, our additional tax liabilities could be materially higher than the amounts currently recorded resulting in additional tax expense. Off-Balance Sheet Arrangements In the ordinary course of business, we may use off-balance sheet arrangements if we believe that such arrangements would be an efficient way to lower our cost of capital or help us manage the overall risks of our business operations. We do not believe that such arrangements have had a material adverse effect on our financial position or our results of operations. The following is a summary of our off-balance sheet arrangements: • Letters of credit and bank guarantees are used primarily to support project performance and insurance programs. We are required to reimburse the issuers of letters of credit and bank guarantees for any payments they make under the outstanding letters of credit or bank guarantees. Our Amended Credit Agreement and additional letter of credit facilities cover the issu ance of our standby letters of credit and bank guarantees and are critical for our normal operations. 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 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. If our services under a guaranteed or indemnified project are later determined to have resulted in a material defect or other material deficiency, then we may be responsible for monetary damages or other legal remedies. When sufficient information about claims on guaranteed or indemnified projects is available and monetary damages or other costs or losses are determined to be probable, we recognize such guaranteed losses. • In the ordinary course of business, we enter into various agreements as part of certain unconsolidated subsidiaries, joint ventures, and other jointly executed contracts where we are jointly and severally liable. We enter into these agreements primarily to support the project execution commitments of these entities. The potential payment amount of an outstanding performance guarantee is typically the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts. However, we are not able to estimate other amounts that may be required to be paid in excess of estimated costs to complete contracts and, accordingly, the total potential payment amount under our outstanding performance guarantees cannot be estimated. For cost-plus contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed under the contract. For lump sum or fixed-price contracts, this amount is the cost to complete the contracted work less amounts remaining to be billed to the client under the contract. Remaining billable amounts could be greater or less than the cost to complete. In those cases where costs exceed the remaining amounts payable under the contract, we may have recourse to third parties, such as owners, co-venturers, subcontractors or vendors, for claims. • In the ordinary course of business, our clients may request that we obtain surety bonds in connection with contract performance obligations that are not required to be recorded in our consolidated balance sheets. We are obligated to reimburse the issuer of our surety bonds for any payments made thereunder. Each of our commitments under performance bonds generally ends concurrently with the expiration of our related contractual obligation. Critical Accounting Policies 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. 30 New Accounting Pronouncements For information regarding recent accounting pronouncements, see “Notes to Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report. Financial Market Risks We do not enter into derivative financial instruments for trading or speculation purposes. In the normal course of business, we have exposure to both interest rate risk and foreign currency transaction and translation risk, primarily related to the Canadian and Australian dollar, and British Pound. We are exposed to interest rate risk under our Amended Credit Agreement. We can borrow, at our option, under both the Amended Term Loan Facility and Amended Revolving Credit Facility. We may borrow on the Amended Revolving Credit Facility, at our option, at either (a) a Eurocurrency rate plus a margin that ranges from 1.00% to 1.75% per annum, or (b) a base rate for loans in U.S. dollars (the highest of the U.S. federal funds rate plus 0.50% per annum, the bank’s prime rate or the Eurocurrency rate plus 1.00%) plus a margin that ranges from 0% to 0.75% per annum. Borrowings at the base rate have no designated term and may be repaid without penalty any time prior to the Facility’s maturity date. Borrowings at a Eurodollar rate have a term no less than 30 days and no greater than 180 days and may be prepaid without penalty. Typically, at the end of such term, such borrowings may be rolled over at our discretion into either a borrowing at the base rate or a borrowing at a Eurodollar rate with similar terms, not to exceed the maturity date of the Facility. The Facility matures on July 30, 2023. 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 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”. Most of our transactions are in U.S. dollars; however, some of our subsidiaries conduct business in foreign currencies, primarily the Canadian and Australian dollar, and British Pound. 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 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. To the extent the U.S. 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, operating expenses, assets and liabilities will increase if the U.S. dollar weakens against foreign currencies. 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk Please refer to the information we have included under the heading “Financial Market Risks” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 2 of this Form 10-Q which is incorporated herein by reference. 31