What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-02-03 compared with 2022-08-05 · 160 added, 166 removed, 263 unchanged (55% of the section changed)

17 unchanged sentences

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

In fiscal 2022, we worked on over 80,000 projects in more than 100 countries on all seven continents.

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.

Our ability to provide innovative 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.

1 unchanged sentence

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 clean energy, and engineering green solutions for our cities and communities.

By combining ingenuity and practical experience, we have helped to advance sustainability by managing water, protecting the environment, providing clean energy, restoring ecosystems 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

2022 June 27,

Three Months Ended

2023 January 2,

Client Sector

1 unchanged sentence

federal government (1)

29.4 33.2 30.0 34.4

commercial 22.2 20.6

International (2)

32.6 30.8 31.4 29.2

Total 100.0 % 100.0 %

7 unchanged sentences

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.

In May 2022, we received a cash settlement for the last $11 million RCM claim receivable in dispute resolution.

This settlement resulted in an immaterial gain in the third quarter of fiscal 2022.

There were no significant operating activities in RCM for the three and nine m onths of fiscal 2022 and 2021.

Government Services Group ( “ GSG ” ).

4 unchanged sentences

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.

based federal and municipal clients, especially in water infrastructure, flood protection and solid waste.

GSG also leads our support for development agencies worldwide, especially in the United States, United Kingdom, and Australia.

1 unchanged sentence

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

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

commercial clients, and international clients inclusive of the 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.

At the beginning of 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

2022 June 27,

Three Months Ended

2023 January 2,

Reportable Segment

6 unchanged sentences

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

Three Months Ended Nine Months Ended

2022 June 27,

Three Months Ended

2023 January 2,

Contract Type

17 unchanged sentences

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.

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.

and Canada), Christmas, and New Year’s holidays.

Many of our clients’ employees, as well as our own employees, take vacations during these holiday periods.

12 unchanged sentences

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.

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”.

3 unchanged sentences

OVERVIEW OF RESULTS AND BUSINESS TRENDS

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 positioned our staff to successfully support our clients and projects in hybrid work solutions that enable seamless collaboration across remote, office and job site environments.

We remain foc used 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 current global challenges including COVID-19, with the commitment of our 21,000 associates supported by technological innovation.

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.

For the first nine months of fiscal 2022, revenue increased 12.1% compared to the prior-year period.

This year-over-year growth reflects increased activity in all four of our client sectors.

Our revenue also includes contributions from acquisitions that did not have comparable revenue in the first nine months of fiscal 2021.

In the fourth quarter of fiscal 2022, we expect our revenue to continue to grow year-over-year on a constant currency basis and after normalizing for the extra week of operations in the fourth quarter of fiscal 2021.

We report results of operations based on either a 52-week or 53-week period ending on the Sunday nearest September 30.

Our fiscal 2022 contains 52 weeks compared to 53 weeks in fiscal 2021 with the extra week occurring in the fourth quarter.

State and Local Government.

state and local government revenue increased 19.3% in the first nine months of fiscal 2022 compared to the same period last year.

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

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

Our disaster response activities also increased compared to the first nine months 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 in the fourth quarter of fiscal 2022.

In the first quarter of fiscal 2023, revenue increased 4.2% compared to the prior-year quarter.

This year-over-year growth reflects increased activity in all of our client sectors.

Federal Government.

federal government revenue decreased 2.3% in the first nine months of fiscal 2022 compared to the prior-year period.

The decrease was due to reduced international development activity, especially our work in Afghanistan that ceased in the fourth quarter of last year.

Excluding Afghanistan, our U.S.

federal government revenue grew more than 2% in the first nine months of fiscal 2022 compared to the same period last year, primarily due to increased environmental revenue for both Department of Defense and civilian agencies.

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

federal government revenue increased 3.5% in the first quarter of fiscal 2023 compared to the same quarter last year.

This increase was primarily due to more international development and environmental activities.

During periods of economic volatility, our U.S.

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

Our revenue also includes contributions from acquisitions that did not have comparable revenue in the prior-year period.

We expect our U.S.

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

commercial revenue increased 18.1% in the first nine months of fiscal 2022 compared to the same period last year.

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

federal government revenue to continue to grow in the remainder of fiscal 2023.

Approximately $1 trillion in new U.S.

federal funding passed in 2021 through the Infrastructure Investment and Jobs Act, the Inflation Reduction Act and the CHIPS and Science Act.

Each of these programs include substantial planned investments in our key end markets including water, environment and sustainable infrastructure over the next five to ten years.

State and Local Government.

state and local government revenue decreased 3.7% in the first quarter of fiscal 2023 compared to the same quarter last year due to lower disaster response activity.

Excluding disaster response, our state and local government revenue increased approximately 10% in the first quarter of fiscal 2023 compared to last year's first quarter.

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

state and local government infrastructure business, particularly with increased revenue from municipal water infrastructure work, including digital water projects.

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 in the remainder of fiscal 2023.

commercial revenue increased 12.5% in the first quarter of fiscal 2023 compared to the same quarter last year.

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

We expect growth in our U.S.

commercial work to continue in the fourth quarter of fiscal 2022.

commercial work to continue in the remainder of fiscal 2023.

International.

Our international revenue increased 20.7% in the first nine months of fiscal 2022 compared to the prior-year period.

Our revenue includes contributions from acquisitions that did not have comparable revenue in the year-ago period.

Additionally, the revenue growth reflects government stimulus spending on infrastructure and commercial activities related to an increased focus on sustainability .

We expect growth in our international work to continue for the remainder of fiscal 2022, although we expect adverse year-over-year foreign exchange rate changes reflecting a stronger U.S.

dollar to slow our international growth in the fourth quarter of fiscal 2022 compared to the first nine months of the fiscal year.

Our international revenue increased 4.2% in the first quarter of fiscal 2023 compared to the same quarter last year despite the adverse impact of a stronger U.S.

dollar and the adverse impact on our foreign currency translation year-over-year.

On a constant currency basis, our international revenue increased approximately 14% in the first quarter of fiscal 2023 compared to the first quarter of 2022.

This revenue growth reflec ts government stimulus spending on infrastructure and commercial activities related to an increased focus on sustainability.

We expect growth in our international work to continue in the remainder of fiscal 2023.

Subsequent Events.

O n January 3, 2023, we acquired Amyx, Inc.

(“Amyx”), an enterprise technology services, cybersecurity and management consulting firm.

Based in Reston, Virginia, Amyx, with over 500 employees, provides application modernization, cybersecurity, systems engineering, financial management, and program management support on over 30 Federal Government programs.

Amyx will be included in our GSG segment.

On September 23, 2022, we made an all cash offer to acquire all the outstanding shares of RPS Group plc ("RPS"), a publicly traded company on the London Stock Exchange for 222 pence per share, through a scheme of arrangement, which was unanimously recommended by RPS's Board of Directors.

On November 3, 2022, RPS's shareholders approved the scheme of arrangement.

On January 19, 2023, the court sanctioned scheme of arrangement to purchase RPS was approved, and we completed the acquisition on January 23, 202 3.

The total purchase price including assumed debt and transactions costs was approximately GBP 714 million.

RPS employs approximately 5,000 associates in the United Kingdom, Europe, Asia Pacific and North America, delivering high-end solutions, especially in energy transformation, water and program management for government and commercial clients.

Substantially all of RPS will be included in our CIG segment.

RESULTS OF OPERATIONS

Consolidated Results of Operations

Three Months Ended Nine Months Ended

2022 June 27,

2021 Change July 3, 2022 June 27, 2021 Change

Three Months Ended

2023 January 2,

($ in thousands, except per share data)

6 unchanged sentences

Selling, general and administrative expenses (56,502) (52,546) (3,956) (7.5)

Acquisition and integration expenses (3,761) — (3,761) NM

Contingent consideration - fair value adjustments (933) — (933) NM

Income from operations 92,050 87,220 4,830 5.5

Interest expense (5,372) (2,904) (2,468) (85.0)

Other non-operating income 67,995 — 67,995 NM

Income before income tax expense 154,673 84,316 70,357 83.4

13 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 2022, revenue and revenue, net of subcontractor costs, increased $88.6 million, or 11.1%, and $82.4 million, or 12.9%, respectively, compared to the year-ago quarter.

Excluding the contributions from acquisitions that did not have activity in the third quarter of last year, our revenue increased approximately 5% in the third quarter of fiscal 2022 compared to the prior-year quarter.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $15.7 million, or 3.5%, and $20.4 million, or 6.5%, respectively, in the third quarter of fiscal 2022 compared to last year's third quarter.

Our CIG segment's revenue increased $71.5 million, or 19.2%, and revenue, net of subcontractor costs, increased $62.1 million, or 19.2% in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021.

In the first nine months of fiscal 2022, revenue and revenue, net of subcontractor costs, increased $280.0 million, or 12.1%, and $256.4 million, or 13.9%, respectively, compared to the prior-year period.

Excluding the contributions from acquisitions that did not have activity in the first nine months of fiscal 2021, our revenue increased approximately 6% in the first nine months of fiscal 2022 compared to the same period last year.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $63.5 million, or 4.9%, and $70.3 million, or 7.6%, respectively, in the first nine months of fiscal 2022 compared to last year's period.

Our CIG segment's revenue increased $212.8 million, or 20.0%, and revenue, net of subcontractor costs, increased $186.8 million, or 20.5% in the first nine months of fiscal 2022 compared to the year-ago period.

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

In the first quarter of fiscal 2023, revenue and revenue, net of subcontractor costs, increased $36.3 million, or 4.2%, and $57.2 million, or 8.4%, respectively, compared to the same period in fiscal 2022.

On a constant currency basis, our revenue, and revenue, net of subcontractor costs, increased approximately 7% and 12%, respectively, in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022.

The aforementioned adverse year-over-year foreign exchange rates primarily impacted our CIG segment.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $15.0 million, or 3.3%, and $26.0 million, or 7.9%, respectively, in the first quarter of fiscal 2023 compared to last year's first quarter.

Our CIG segment's revenue increased $23.3 million, or 5.6%, and revenue, net of subcontractor costs, increased $31.3 million, or 8.9% in the first quarter of fiscal 2023 compared to the year-ago quarter.

The first quarter fiscal 2023 results for 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 in the first nine months of fiscal 2022.

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

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 Nine Months Ended

2022 June 27,

2021 Change July 3,

2022 June 27,

GAAP adjusted results, which exclude acquisition expenses related to the RPS acquisition and losses from adjustments to contingent consideration liabilities in the first quarter of fiscal 2023 and a non-operating benefit from Employee Retention Credits ("ERC's") received in the first quarter of fiscal 2022.

Our adjusted earnings per share ("EPS") for the first quarter fiscal 2023 also excludes a non-operating $68.0 million unrealized gain on a foreign exchange contract and the write-off of previously deferred debt origination fees both related to our planned acquisition of RPS.

This gain is reported as "Other non-operating income" in our Consolidated Statement of Income for the first quarter of fiscal 2023.

The effective tax rates applied to the adjustments to EPS to arrive at adjusted EPS average 26% for both fiscal 2023 and 2022.

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

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.

Three Months Ended

2023 January 2,

($ in thousands, except per share data)

Income from operations $ 92,050 $ 87,220 $ 4,830 5.5%

COVID-19 Credits (1,040) — (1,040) NM (5,491) — (5,491) NM

COVID-19 Credits — (4,451) 4,451 NM

Acquisition & integration expenses 3,761 — 3,761 NM

Earn-Out adjustments 933 — 933 NM

Adjusted income from operations (1)

1 unchanged sentence

EPS $ 2.18 $ 1.25 $ 0.93 74.4%

COVID-19 Credits (0.01) — (0.01) NM (0.07) — (0.07) NM

COVID-19 Credits — (0.06) 0.06 NM

Acquisition & integration expenses 0.05 — 0.05 NM

Earn-out adjustments 0.01 — 0.01 NM

Debt origination cost 0.04 — 0.04 NM

Foreign exchange forward contract gain (0.94) — (0.94) NM

Adjusted EPS (1)

2 unchanged sentences

(1) Non-GAAP financial measure

Operating income increased $14.1 million, or 20.2%, in the third quarter of fiscal 2022 compared to the year-ago quarter.

In the first nine months of fiscal 2022, operating income increased $48.8 million, or 24.8%, compared to the same period last year.

The third quarter and first nine months of fiscal 2022 results include the benefit of ERC's totaling $1.0 million and $5.5 million, respectively, which represents reimbursement from the U.S.

Operating income increased $4.8 million, or 5.5%, in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022.

The first quarter fiscal 2023 results include $3.8 million of acquisition expenses (primarily legal-related) for the RPS acquisition and losses of $0.9 million related to changes in the estimated fair value of contingent earn-out liabilities.

The first quarter fiscal 2022 results included the benefit of ERC's totaling $4.5 million, which represents reimbursement from the U.S.

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

The amounts were recognized during the first nine months 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 nine months of fiscal 2022, consistent with the presentation of the related costs in the second quarter of fiscal 2020.

Excluding the ERC's, our adjusted operating income increased $13.1 million, or 18.7% for the third quarter of fiscal 2022 and increased $43.3 million, or 22.0%, for the first nine months of fiscal 2022 compared to the year-ago periods.

These amounts were recognized in 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 "Net cash provided by operating activities" in our Consolidated Statement of Cash Flows for fiscal 2022, consistent with the presentation of the related costs recognized in the second quarter of fiscal 2020.

Excluding the acquisition expenses, earn-out losses and the ERC's our adjusted operating income increased $14.0 million, or 16.9% in the first quarter of fiscal 2023 compared to the same quarter last year.

These increases reflect improved results in both GSG and CIG segments, which are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

Net interest expense increased $0.2 million and $0.4 million in the third quarter and first nine months of fiscal 2022, respectively, compared to the same periods last year.

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

The effective tax rates for the first nine months of fiscal 2022 and 2021 w ere 23.9% and 20.4%, respectively.

Income tax expense was reduced by $4.9 million and $8.7 million of excess tax benefits on share-based payments in the first nine months of fiscal 2022 and 2021, respectively.

Excluding the impact of these tax benefits, our effective tax rates for the first nine months of fiscal 2022 and 2021 were 25.9% and 25.0%, respectively.

Our EPS was $1.09 and $3.32 for the third quarter and first nine months of fiscal 2022, compared to $0.95 and $2.74 for the same periods in fiscal 2021, respectively.

On the same basis as our adjusted operating income, adjusted EPS was $1.08 and $3.25 for the third quarter and first nine months of fiscal 2022, compared to $0.95 and $2.74 for the same periods last year, respectively.

Our net interest expense was $5.4 million in the first quarter of fiscal 2023 compared to $2.9 million in the prior-year quarter.

Net interest expense in the first quarter of fiscal 2023 includes $2.7 million of additional expense for the write-off of previously deferred debt origination fees due to the cancellation of the bridge loan facility we entered into to support our offer to acquire RPS, which was replaced with an amendment to our existing debt facility.

Other non-operating income of $68.0 million in the first quarter of fiscal 2023 reflects an unrealized gain on a foreign exchange forward contract integrated with the acquisition of RPS.

Although an effective economic hedge of our foreign exchange risk related to this transaction, the forward contract does not qualify for hedge accounting.

As a result, the forward contract is marked-to-market with changes in fair value recogni zed in earnings each period.

The forward contract was settled on January 23, 2023, together with the closing of the RPS acquisition, with a cumulative gain of approximately $109 million.

The effective tax rates for the first quarters of fiscal 2023 and 2022 were 24.5% and 18.8%, respectively.

Income tax expense was reduced by $1.7 million and $4.5 million of excess tax benefits on share-based payments in the first quarters of fiscal 2023 and 2022, respectively.

Excluding the impact of the excess tax benefits on share-based payments, our effective tax rates in the first quarters of fiscal 2023 and 2022 were 25.7 % an d 24.1%, respectively .

Our EPS was $2.18 in the first quarter of fiscal 2023 compared to $1.25 in the first quarter of fiscal 2022.

Excluding the aforementioned non-operating and non-recurring items, our adjusted EPS was $1.34 in the first quarter of fiscal 2023 compared to $1.19 in the year-ago quarter, an increase of 12.6%.

Segment Results of Operations

Government Services Group

Three Months Ended Nine Months Ended

2022 June 27,

2021 Change July 3, 2022 June 27, 2021 Change

Three Months Ended

2023 January 2,

($ in thousands)

3 unchanged sentences

Income from operations $ 60,347 $ 51,179 $ 9,168 17.9%

Revenue increased $15.7 million, or 3.5%, and revenue, net of subcontractor costs, increased $20.4 million, or 6.5%, in the third quarter of fiscal 2022 compared to the year-ago quarter.

For the first nine months of fiscal 2022, revenue increased $63.5 million, or 4.9%, and revenue, net of subcontractor costs, increased $70.3 million, or 7.6%, compared to the prior year periods.

Revenue and revenue, net of subcontractor costs, increased $15.0 million, or 3.3%, and increased $26.0 million, or 7.9%, respectively, in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022.

The increases primarily reflect higher U.S.

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

Operating income increased $1.3 million and $18.6 million in the third quarter and first nine months of fiscal 2022, respectively, compared to the same periods in fiscal 2021.

Operating income for the third quarter and first nine months fiscal 2022 included $0.7 million and $3.7 million of the aforementioned ERC's.

Excluding this benefit, operating income increased 11.6% in the first nine months of fiscal 2022 compared to the same period last year.

Our operating margin, based on revenue, net of subcontractor costs, improved to 14.7% for the first nine months of fiscal 2022 compared to 13.8% for fiscal 2021 period.

Excluding the ERC's, our operating margin was 14.3% in the first nine months of fiscal 2022.

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

state and local government activities related to digital water and federal programs for civilian agencies, partially offset by lower disaster response revenue.

Operating income increased $9.2 million, or 17.9%, in the first quarter of fiscal 2023 compared to last year's first quarter.

The fiscal 2023 results included favorable operating income adjustments for several projects upon their completion.

Last year's first quarter results included $3.1 million of the aforementioned ERC's.

Our operating margin, based on revenue, net of subcontractor costs, improved to 17.1% in the first quarter of fiscal 2023 compared to 15.6% in the first quarter of fiscal 2022.

Excluding the favorable project adjustments in the first quarter of this year and last year's ERC's, our operating margin was 15.0% in the first quarter of fiscal 2023 compared to 14.7% in the same period last year.

The improved operating margin in fiscal 2023 was primarily due to our increased focus on high-end consulting services, including digital water.

Commercial/International Services Group

Three Months Ended Nine Months Ended

2022 June 27,

2021 Change July 3, 2022 June 27, 2021 Change

Three Months Ended

2023 January 2,

($ in thousands)

3 unchanged sentences

Income from operations $ 50,108 $ 45,308 $ 4,800 10.6%

Revenue increased $71.5 million, or 19.2%, and revenue, net of subcontractor costs, increased $62.1 million, or 19.2%, in the third quarter of fiscal 2022 compared to last year's third quarter.

For the first nine months of fiscal 2022, revenue

increased $212.8 million, or 20.0%, and revenue, net of subcontractor costs, increased $186.8 million, or 20.5%, compared to the same period last year.

The revenue growth in the first nine months 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 the international government stimulus spending on infrastructure.

Additionally, revenue in the first nine months of fiscal 2022, includes contributions from acquisitions, which did not have comparable revenue in year-ago period.

Operating income increased $14.5 million and $34.8 million, in the third quarter and first nine months of fiscal 2022, respectively, compared to the same periods last year.

Operating income in the third quarter and first nine months of fiscal 2022 included $0.3 million and $1.6 million of the aforementioned ERC's, respectively.

Excluding this benefit, operating income increased 31.8% in the first nine months of fiscal 2022 compared to the fiscal 2021 period.

Our operating margin, based on revenue, net of subcontractor costs, improved to 12.7% for the first nine months of fiscal 2022 compared to 11.5% for the prior-year period.

Excluding the ERC's, our operating margin was 12.5% for the first nine months of fiscal 2022.

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

Revenue and revenue, net of subcontractor costs, increased $23.3 million, or 5.6%, and increased $31.3 million, or 8.9%, respectively, in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022.

On a constant currency basis, revenue and revenue, net of subcontractor costs, increased 10.9% and 14.8%, respectively, in the first quarter of fiscal 2023 compared to the same period last year.

The revenue growth primarily reflects increased activity on high performance buildings and renewable energy.

Operating income increased $4.8 million, or 10.6%, in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022.

The fiscal 2022 operating income included $1.4 million of the aforementioned ERC's.

Excluding this benefit, operating income increased 14.0% in the first quarter of fiscal 2023 compared to last year's first quarter.

Our operating margin, based on revenue, net of subcontractor costs, improved to 13.1% in the first quarter of fiscal 2023 compared to 12.9% in the first quarter of fiscal 2022.

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

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

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

2 unchanged sentences

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 day s).

At July 3, 2022 and October 3, 2021, the differences between our backlog and RUPO of $3.5 billion for each period were immaterial.

At January 1, 2023 and October 2, 2022, the differences between our backlog and RUPO of $3.8 billion for each period were immaterial.

Financial Condition, Liquidity and Capital Resources

Capital Requirements.

As of July 3, 2022, we h ad $217.4 million of cash and cash equivalents and access to an additional $799.3 million of borrowings available under our credit facility.

During the first nine months of fiscal 2022, we generated $276.0 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.

At January 1, 2023, we h ad $164.4 million of cash and cash equivalents and access to an additional $1.30 billion of borrowings available under our amended credit facility described below.

D uring the first three months of fiscal 2023, we generated $25.2 million of cash from operations.

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, stock repurchases, cash dividends, capital expenditures 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.

We believe that our existing cash and cash equivalents, operating cash flows and borrowing capacity under our credit agreement as amended in the anticipation of our planned acquisition of RPS in the second quarter of fiscal 2023, as described below, will be sufficient to meet our capital requirements for at least the next 12 months.

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

1 unchanged sentence

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 nine months fiscal 2022, we repurchased and settled 986,280 shares with an average price of $152.09 per share for a total cost of $150.0 million in the open market.

At July 3, 2022, we had a remaining balance of $397.8 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.

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

On May 2, 2022 the Board of Directors declared a quarterly cash dividend of $0.23 per share payable on May 27, 2022 to stockholders of record as of the close of business on May 13, 2022.

On October 5, 2021, our Board of Directors authorized a new stock repurchase program under which we could repurchase up to $400 million of our common stock.

In the first quarter of fiscal 2023, we did not repurchase any shares of our common stock.

At January 1, 2023, we had a remaining balance of $347.8 million under our stock repurchase program.

On November 7, 2022, our Board of Directors declared a quarterly cash dividend of $0.23 per share payable on December 9, 2022 to stockholders of record as of the close of business on November 21, 2022.

Subsequent Event.

On August 1, 2022, the Board of Directors declared a quarterly cash dividend of $0.23 per share payable on August 26, 2022 to stockholders of record as of the close of business on August 12, 2022.

Cash and Cash Equivalents.

As of July 3, 2022, our cash and cash equivalents w ere $217.4 million, an increase of $50.8 million compared to the fiscal 2021 year-end.

The increase was primarily due to net cash provided by operating activities partially offset by stock repurchases, dividends, as well as payments for taxes on vested restricted stock.

On January 30, 2023, our Board of Directors declared a quarterly cash dividend of $0.23 per share payable on February 24, 2023 to stockholders of record as of the close of business on February 13, 2023.

Cash Equivalents and Restricted Cash.

At January 1, 2023, our cash equivalents and restricted cash w ere $172.2 million, a decrease of $13.3 million compared to the fiscal 2022 year-end.

The decrease was primarily due to payments on dividends and taxes on vested restricted stock, partially offset by cash provided by operating activities.

Operating Activities .

For the first nine months of fiscal 2022, net cash provided by operating activities was $276.0 million, an increase of $49.4 million compared to the prior-year period.

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 nine months of fiscal 2022 compared to the fiscal 2021 period.

For the first quarter of fiscal 2023, net cash provided by operating activities was $25.2 million, a decrease of $57.2 million compared to the prior-year period.

The decrease was primarily due to the timing of payments to our vendors and employees.

Investing Activities .

For the first nine months of fiscal 2022, net cash used in investing activities was $38.3 million, an increase of $15.2 million compared to the prior-year period.

The increase was primarily due to payments related to the acquisitions completed in the first nine months of fiscal 2022.

For the first quarter of fiscal 2023, net cash used in investing activities was $4.9 million, a decrease of $1.9 million compared to the prior-year period.

The decrease was due to a payment related to an acquisition in the first quarter of fiscal 2022.

Financing Activities .

For the first nine months of fiscal 2022, net cash used in financing activities was $182.5 million, an increase of $45.0 million compared to the same period last year.

The increase was due to higher stock repurchases, partially offset by a change in bank overdrafts and a net borrowing, which was primarily used to fund acquisitions.

For the first quarter of fiscal 2023, net cash used in financing activities was $42.3 million, an increase of $5.9 million compared to fiscal 2022 quarter.

The financing activities in the first quarter of fiscal 2023 primarily consisted of payments on dividends and taxes on vested restricted stock, and a net repayment of debt.

Debt Financing.

On October 26, 2022, we entered into a Third Amended and Restated Credit Agreement that provides for an additional $500 million senior secured term loan facility (the "New Term Loan Facility") increasing our total borrowing capacity to $1.55 billion.

Subsequent Event.

We drew the entire amount of the New Term Loan Facility to partially finance the acquisition of RPS in January 2023.

The remaining cash payments for the initial purchase price for RPS, including transaction fees and the retirement of RPS's existing debt, and Amyx, which totaled approximately $380 million, was financed with borrowings under

the existing Amended Revolving Credit Facility.

The New Term Loan Facility is not subject to any amortization payments of principal and matures on the third anniversary of the RPS acquisition closing date.

On February 18, 2022, we entered into Amendment No.

2 to Second Amended and Restated Credit Agreement (“Amended Credit Agreement”) with a total borrowing capacity of $1.05 billion that will mature in February 2027.

2 to our Second Amended and Restated Credit Agreement (“Amended Credit Agreement”) with a total borrowing capacity of $1.05 billion that will mature in February 2027.

The Amended Credit Agreement is a $750 million senior secured, five-year facility that provides for a $250 million term loan facility (the “Amended Term Loan Facility”) and a $500 million revolving credit facility (the “Amended Revolving Credit Facility”).

13 unchanged sentences

The Amended Credit Agreement expires on February 18, 2027, or earlier at our discretion upon payment in full of loans and other obligations.

As of July 3, 2022, we had $246.9 million.

in outstanding borrowings under the Amended Credit Agreement, which was comprised of $246.9 million under the Amended Term Loan Facility and no outstanding borrowings under the Amended Revolving Credit Facility.

The year-to-date weighted-average interest rate of the outstanding borrowings during July 3, 2022 is 1.49%.

At January 1, 2023, we had $240.6 million.

in outstanding borrowings under the Amended Credit Agreement, which was comprised of $240.6 million under the Amended Term Loan Facility and no borrowings under the Amended Revolving Credit Facility.

The year-to-date weighted-average interest rate of the outstanding borrowings during January 1, 2023 is 4.87%.

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

Our year-to-date weighted-average interest rate on borrowings outstanding under the Amended Credit Agreement, including the effects of interest rate swap agreements described in Note 15, “Derivative Financial Instruments” of the “Notes to Consolidated Financial Statements”, was 4.19%.

At July 3, 2022, we had $499.3 million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of our debt covenants.

At January 1, 2023, we had $499.3 million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of our debt covenants.

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 July 3, 2022, we were in compliance with these covenants with a consolidated leverage ratio of 0.85x and a consolidated interest coverage ratio of 28.19x.

At January 1, 2023, we were in compliance with these covenants with a consolidated leverage ratio of 0.71x and a consolidated interest coverage ratio of 24.57x.

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 July 3, 2022, there were no outstanding borrowings under these facilities, and the

aggregate amount of standby letters of credit outstanding was $50.9 million.

As of July 3, 2022, we had no bank overdrafts related to our disbursement bank accounts.

At January 1, 2023, there were $5.9 million under these facilities, and the aggregate amount of standby letters of credit outstanding was $45.8 million.

At January 1, 2023, we had no 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 15, 2021 $ 0.20 December 2, 2021 $ 10,793 December 20, 2021

January 31, 2022 $ 0.20 February 11, 2022 $ 10,769 February 25, 2022

May 2, 2022 $ 0.23 May 13, 2022 $ 12,311 May 27, 2022

August 1, 2022 $ 0.23 August 12, 2022 N/A August 26, 2022

November 7, 2022 $ 0.23 November 21, 2022 $ 12,186 December 9, 2022

January 30, 2023 $ 0.23 February 13, 2023 N/A February 24, 2023

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

2 unchanged sentences

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 July 3, 2022 and October 3, 2021, the liability for income taxes associated with uncertain tax positions was $11.3 million and $14.1 million, respectively.

At January 1, 2023 and October 2, 2022, the liability for income taxes associated with uncertain tax positions was $10.8 million and $10.6 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 July 3, 2022, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $50.9 million in standby letters of credit outstanding under our additional letter of credit facilities.

At January 1, 2023, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $45.8 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.

8 unchanged sentences

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.

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.

11 unchanged sentences

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 benchmark rate plus a margin that ranges from 1.000% to 1.875% per annum, or (b) a base rate for loans in U.S.

We may borrow on the Amended Revolving Credit Facility, at our option, at either (a) a Eurocurrency rate plus a margin that ranges from 1.000% to 1.875% per annum, or (b) a base rate for loans in U.S.

dollars (the highest of the U.S.

3 unchanged sentences

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 SOFR rate have a term no less than 30 days and no greater than 180 days and may be prepaid without penalty.

Borrowings at a SOFR rate have a term no l ess 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 SOFR rate with similar terms, not to exceed the maturity date of the Facility.

The Facility matures on February 18, 2027.

At July 3, 2022, we had $246.9 million in outstanding borrowings under the Amended Credit Agreement, which was comprised of $246.9 million under the Amended Term Loan Facility and no outstanding borrowings under the Amended Revolving Credit Facility.

At January 1, 2023, we had $240.6 million in outstanding borrowings under the Amended Credit Agreement, which was comprised of $240.6 million under the Amended Term Loan Facility and no borrowings under the Amended Revolving Credit Facility.

The year-to-date weighted-average interest rate of the outstanding borrowings during fiscal 2023 was 4.87%.

1 unchanged sentence

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 July 3, 2022, the notional principal of our outstanding interest swap agreements was $203.1 million ($40.6 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 July 3, 2022, was 3.53%.

At January 1, 2023, the notional principal of our outstanding interest swap agreements was $196.9 million ($39.4 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 1, 2023, was 4.19%.

For more information, see Note 15, “Derivative Financial Instruments” of the “Notes to Consolidated Financial Statements”.

3 unchanged sentences

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, we reported $1.8 million of foreign currency losses in “Selling, general and administrative expenses” on our consolidated statements of income.

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

We report our foreign currency gains and losses in “Selling, general and administrative expenses” on our consolidated statements of income.

The impact of the foreign currency was immaterial for the first quarters of fiscal 2023 and 2022.

W e 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.

3 unchanged sentences

dollar weakens against foreign currencies.

For the first nine months of fiscal 2022 and 2021, 31.4% and 29.2% of our consolidated revenue, respectively, was generated by our international business.

For the first nine months of fiscal 2022, the effect of foreign exchange rate translation on the consolidated balance sheets was a decrease in our equity by $42.8 million compared to an increase in equity of $54.5 million in the first nine months of fiscal 2021.

For the first quarters of fiscal 2023 and 2022, 29.8% and

29.8% of our consolidated revenue, respectively, was generated by our international business.

For the first quarter of fiscal 2023, the effect of foreign exchange rate translation on the consolidated balance sheets was an increase in our equity by $33.1 million compared to a decrease in equity of $0.7 million in the first quarter of fiscal 2022.

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