What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-05-11 · 119 added, 129 removed, 329 unchanged (43% of the section changed)

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

Three Months Ended Six Months Ended

2023 April 3,

2022 April 2,

2023 April 3,

Three Months Ended Nine Months Ended

Client Sector

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

Three Months Ended Six Months Ended

2023 April 3,

2022 April 2,

2023 April 3,

Three Months Ended Nine Months Ended

Reportable Segment

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

Three Months Ended Six Months Ended

2023 April 3,

2022 April 2,

2023 April 3,

Three Months Ended Nine Months Ended

Contract Type

37 unchanged sentences

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.

In the second quarter of fiscal 2023, RPS contributed revenue of $169.5 million to our consolidated results.

RPS contributed no material operating income to our results in the second quarter of fiscal 2023, as it was offset by $7.7 million of intangible amortization.

In the third quarter and first nine months of fiscal 2023, RPS contributed revenue of $220.4 million and $389.9 million, respectively, to our consolidated results.

RPS contributed $2.5 million and $2.1 million to our consolidated operating income in the third quarter and first nine months of fiscal 2023, respectively, which reflect $10.4 million and $18.1 million of intangible amortization, respectively.

Substantially all of RPS is included in our CIG segment.

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OVERVIEW OF RESULTS AND BUSINESS TRENDS

In the first half of fiscal 2023, revenue increased 20.0% compared to the prior-year period.

This year-over-year growth reflects increased activity in all of our client sectors and the aforementioned RPS acquisition.

Excluding RPS, our revenue increased 10.1% in the first half of fiscal 2023 compared to the year-ago period.

In the first nine months of fiscal 2023, revenue increased 25.4% compared to the prior-year period.

This year-over-year growth reflects increased activity in our U.S.

Federal, U.S.

Commercial and International client sectors including the aforementioned RPS acquisition.

Excluding RPS, our revenue increased 10.4% in the first nine months of fiscal 2023 compared to the year-ago period.

Federal Government.

federal government revenue increased 26.6% in the first half of fiscal 2023 compared to the same quarter last year.

This increase was primarily due to more international development and broad-based increases in our water and environmental programs.

federal government revenue increased 27.5% in the first nine months of fiscal 2023 compared to the same period last year.

This increase was primarily due to more international development and broad-based increases across civilian agencies.

During periods of economic volatility, our U.S.

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State and Local Government.

state and local government revenue decreased 4.5% in the first half 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 incre ased 20.2% in the first half of fiscal 2023 compared to the same period last year.

state and local government revenue decreased 2.9% in the first nine months of fiscal 2023 compared to the prior-year period due to lower disaster response activity.

Excluding disaster response, our state and local government revenue increased 21.5% for the first nine months of fiscal 2023 compared to the same period last year.

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

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

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 16.9% in the first half of fiscal 2023 compared to the same quarter last year.

commercial revenue increased 18.0% in the first nine months of fiscal 2023 compared to the year-ago period.

Excluding the contribution from RPS, our U.S.

commercial revenue increased 11.0% in the first half of fiscal 2023 compared to the first half of fiscal 2022.

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

commercial revenue increased 11.4% in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022.

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

We expect growth in our U.S.

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International.

Our international revenue increased 30.1% in the first half of fiscal 2023 compared to the same quarter last year.

Excluding the contribution from RPS, our international revenue increased approximately 3% despite a stronger U.S.

Our international revenue increased 44.3% in the first nine months of fiscal 2023 compared to the same quarter last year.

Excluding the contribution from RPS, our international revenue increased 2.6% despite 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, excluding RPS, increased approximately 12% in the first half of fiscal 2023 compared to the first six month of last year.

On a constant currency basis, our international revenue, excluding RPS, increased approximately 10% for the first nine months of fiscal 2023 compared to the same period last year.

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

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Consolidated Results of Operations

Three Months Ended Six Months Ended

2023 April 3,

2022 Change April 2, 2023 April 3, 2022 Change

Three Months Ended Nine Months Ended

2022 Change July 2, 2023 July 3, 2022 Change

($ in thousands, except per share data)

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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 second quarter of fiscal 2023, revenue and revenue, net of subcontractor costs, increased $305.5 million, or 35.8%, and $269.9 million, or 38.6%, respectively, compared to the second quarter of fiscal 2022.

Excluding the contribution from RPS, our revenue increased 15.9% in the second quarter of fiscal 2023 compared to the year-ago quarter.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $114.3 million, or 25.5%, and $98.1 million, or 29.1%, respectively, in the second quarter of fiscal 2023 compared to the same quarter last year.

Our CIG segment's revenue increased $193.4 million, or 46.4%, and revenue, net of subcontractor costs, increased $171.8 million, or 47.5% in the second quarter of fiscal 2023 compared to the year-ago quarter.

Excluding the contribution from RPS, our CIG segment's revenue increased approximately 7% in the second quarter of fiscal 2023 compared to the same period in fiscal 2022 (11% on a constant currency basis).

In the first half of fiscal 2023, revenue and revenue, net of subcontractor costs, increased $341.7 million, or 20.0%, and $327.2 million, or 23.7%, respectively, compared to the same period in fiscal 2022.

Excluding the contribution from RPS, our revenue increased 10.1% in the first half of fiscal 2023 compared to the year-ago first half.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $129.3 million, or 14.3%, and $124.0 million, or 18.7%, respectively, in the first half of fiscal 2023 compared to the same period last year.

Our CIG segment's revenue increased $216.7 million, or 26.0%, and revenue, net of subcontractor costs, increased $203.1 million, or 28.4% in the first half of fiscal 2023 compared to the year-ago first half.

Excluding the contribution from RPS, our CIG segment's revenue increased approximately 6% in the first half of this fiscal year compared to the same period in fiscal 2022 (11% on a constant currency basis).

Our quarterly and first half results for our GSG and CIG segments are described below under "Government Services Group" and "Commercial/International Group", respectively.

In the third quarter of fiscal 2023, revenue and revenue, net of subcontractor costs, increased $318.8 million, or 35.8%, and $267.1 million, or 37.1%, respectively, compared to the third quarter of fiscal 2022.

Excluding the contribution from RPS, our revenue increased 11.0% in the third quarter of fiscal 2023 compared to the year-ago quarter.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $71.1 million, or 15.4%, and $54.7 million, or 16.3%, respectively, in the third quarter of fiscal 2023 compared to the same quarter last year.

Our CIG segment's revenue increased $247.1 million, or 55.6%, and revenue, net of subcontractor costs, increased $212.4 million, or 55.2% in the third quarter of fiscal 2023 compared to the year-ago quarter.

Excluding the contribution from RPS, our CIG segment's revenue increased approximately 8% in the third quarter of fiscal 2023 compared to the same period in fiscal 2022 (10% on a constant currency basis).

In the first nine months of fiscal 2023, revenue and revenue, net of subcontractor costs, increased $660.5 million, or 25.4%, and $594.2 million, or 28.3%, respectively, compared to the same period in fiscal 2022.

Excluding the contribution from RPS, our revenue increased 10.4% in the first nine months of fiscal 2023 compared to the same period in fiscal 2022.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $200.3 million, or 14.7%, and $178.7 million, or 17.9%, respectively, in the first nine months of fiscal 2023 compared to the same period last year.

Our CIG segment's revenue increased $463.8 million, or 36.3%, and revenue, net of subcontractor costs, increased $415.5 million, or 37.8% in the first nine months of fiscal 2023 compared to the same period last year.

Excluding the contribution from RPS, our CIG segment's revenue increased approximately 7% in the first nine months of this fiscal year compared to the same period last year (11% on a constant currency basis).

Our quarterly and first nine months results for our GSG and CIG segments are described below under "Government Services Group" and "Commercial/International Group", respectively.

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

GAAP adjusted results, which exclude acquisition expenses related to the RPS acquisition and losses from adjustments to contingent consideration liabilities in the second quarter and first half 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 second quarter and first half of fiscal 2023 also excludes non-operating gains on a foreign exchange contract of $21.4 million and $89.4 million, respectively.

This gain is reported as "Other non-operating income" in our consolidated statements of income.

Further, our adjusted EPS excludes acquisition costs and the write-off of previously deferred debt origination fees reflected as additional interest expense, of $21.0 million in the second quarter and $27.5 million in the first half of fiscal 2023 related to the RPS acquisition.

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

Our adjusted earnings per share ("EPS") for the first nine months of fiscal 2023 also excludes non-operating gains on a foreign exchange contract of $89.4 million (all in the first half of fiscal 2023).

The gain is reported as "Other non-operating income" in our consolidated statements of income.

Further, our adjusted EPS for the third quarter and first nine months of fiscal 2023 excludes acquisition and integration costs, and the write-off of previously deferred debt origination fees reflected as additional interest expense, of $2.1 million and $29.6 million, respectively, related to the RPS acquisition.

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

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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 Six Months Ended

2023 April 3,

2022 Change April 2,

2023 April 3,

Three Months Ended Nine Months Ended

2022 Change July 2,

($ in thousands, except per share data)

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(1) Non-GAAP financial measure

Operating income decreased $13.5 million, or 18.1%, in the second quarter of fiscal 2023 compared to the second quarter of last year.

In the first half of fiscal 2023, operating income decreased $8.7 million, or 5.4%, compared to the first half of fiscal 2022.

The second quarter and first half of fiscal 2023 results include $19.9 million and $23.7 million of acquisition and integration expenses (primarily legal and other professional fees), respectively, for the RPS acquisition.

The second quarter and first half of fiscal 2023 results also include losses of $7.5 million and $8.5 million, respectively, related to changes in the estimated fair value of contingent earn-out liabilities.

The first half of fiscal 2022 results (all in the first quarter) 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.

Operating income increased $13.8 million, or 16.4%, in the third quarter of fiscal 2023 compared to the third quarter of last year.

In the first nine months of fiscal 2023, operating income increased $5.1 million, or 2.1%, compared to the same period of fiscal 2022.

The third quarter and first nine months of fiscal 2023 results include $2.1 million and $25.8 million of acquisition and integration expenses (primarily legal and other professional fees), respectively, for the RPS acquisition.

The first nine months of fiscal 2023 results also include losses of $8.5 million (all in the first half of fiscal 2023), related to changes in the estimated fair value of contingent earn-out liabilities.

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.

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 coronavirus disease 2019 ("COVID-19") pandemic.

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.

We expect to incur additional integration expenses related to the RPS acquisition, primarily for information technology systems integration and real estate consolidation, in the second half of fiscal 2023.

These costs may be material to our consolidated financial results.

Excluding the acquisition expenses, earn-out losses and the ERC's our adjusted operating income increased $14.0 million, or 18.8% in the second quarter and $28.0 million, or 17.8%, in the first half of fiscal 2023 compared to the same periods last year.

Excluding the acquisition and integration expenses, earn-out losses and the ERC's, our adjusted operating income increased $16.9 million, or 20.4% in the third quarter and $44.9 million, or 18.7%, in the first nine months of fiscal 2023 compared to the same periods last year.

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

Our net interest expense was $13.3 million in the second quarter and $18.7 million in the first half of fiscal 2023 compared to $3.1 million and $6.0 million, respectively, in the same periods of last year.

Our net interest expense was $14.9 million in the third quarter and $33.6 million in the first nine months of fiscal 2023 compared to $2.9 million and $9.0 million, respectively, in the same periods of last year.

Net interest expense in the first quarter of fiscal 2023 included $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 that we entered to support our offer to acquire RPS, which was replaced with an amendment to our existing debt facility.

Net interest expense in the second quarter of fiscal 2023 included $1.1 million of additional expense for the write-off of previously deferred debt origination fees due to the repayment and cancellation of RPS' debt facilities.

Excluding these write-offs, our interest expense increased $9.1 million in the second quarter and $8.9 million in the first half of fiscal 2023 compared to the same periods last year primarily due to the additional borrowings to fund the RPS acquisition.

Other non-operating income of $21.4 million and $89.4 million in the second quarter and first half of fiscal 2023, respectively, reflect gains on a foreign exchange forward contract integrated with the RPS acquisition.

Excluding these write-offs, our interest expense increased $12.0 million in the third quarter and $20.8 million in the first nine months of fiscal 2023 compared to the same periods last year primarily due to the additional borrowings to fund the RPS acquisition.

Other non-operating income of $89.4 million in first nine months of fiscal 2023, reflect gains on a foreign exchange forward contract integrated with the RPS acquisition.

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

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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 halves of fiscal 2023 and 2022 were 28.7% and 21.9%, respectively.

Income tax expense was reduced by $1.8 million and $4.8 million of excess tax benefits on share-based payments in the first halves of fiscal 2023 and 2022, respectively.

In addition, income tax expense in the first half of fiscal 2023 (all in the second quarter) included non-operating income tax expenses of $6.7 million to recognize the tax liability for foreign earnings, primarily in the U.K.

The effective tax rates for the first nine months of fiscal 2023 and 2022 were 28.3% and 23.9%, respectively.

Income tax expense was reduced by $2.2 million and $4.9 million of excess tax benefits on share-based payments in the first nine months of fiscal 2023 and 2022, respectively.

In addition, income tax expense in the first nine months of fiscal 2023 included non-operating income tax expenses of $7.2 million ($6.9 million in the second quarter) to recognize the tax liability for foreign earnings, primarily in the U.K.

and Australia, that are no longer indefinitely reinvested and to increase the liability for an uncertain tax position.

Excluding the impact of the excess tax benefits on share-based payments and the non-operating tax expenses in the second quarter of fiscal 2023, our effective tax rates in the first halves of fiscal 2023 and 2022 were 26.5% and 25.0%, respectively.

Our EPS was $0.80 and $2.98 in the second quarter and first half of fiscal 2023 compared to $0.98 and $2.23 in the prior-year periods.

Excluding the aforementioned non-operating and non-recurring items, our adjusted EPS was $1.06 in the second quarter of fiscal 2023 compared to $0.98 in the year-ago quarter, an increase of 8.2%.

On the same basis, our first half adjusted EPS was $2.40 in fiscal 2023 compared to $2.17 last year, an increase of 10.6%.

We estimate that RPS was $0.03 dilutive to our adjusted EPS in the second quarter and first half of fiscal 2023 before intangible amortization, which reduced our EPS by an additional $0.11 .

Excluding RPS, our adjusted EPS was $1.20 in the second quarter and $2.54 in the first half of fiscal 2023 representing increases of 22.4% and 17.1%, respectively, compared to the same periods in fiscal 2022.

Excluding the impact of the excess tax benefits on share-based payments and the non-operating tax expenses in the second and third quarter of fiscal 2023, our effective tax rates in the first nine months of fiscal 2023 and 2022 were 26.7% and 25.9%, respectively.

Our EPS was $1.12 and $4.10 in the third quarter and first nine months of fiscal 2023 compared to $1.09 and $3.32 in the prior-year periods.

Excluding the aforementioned non-operating and non-recurring items, our adjusted EPS was $1.15 in the third quarter of fiscal 2023 compared to $1.08 in the year-ago quarter, an increase of 6.5%.

On the same basis, our adjusted EPS for the first nine months of fiscal 2023, was $3.55 compared to $3.25 for the same period last year, an increase of 9.2%.

For the third quarter, we estimated that RPS contributed $0.01 to our adjusted EPS before intangible amortization, which reduced our EPS by $0.14.

For the first nine months of fiscal 2023, we estimated that RPS reduced our adjusted EPS by $0.02 before intangible amortization, which reduced our EPS by an additional $0.24.

Excluding RPS, our adjusted EPS was $1.28 in the third quarter and $3.81 in the first nine months of fiscal 2023 representing increases of 18.5% and 17.2%, respectively, compared to the same periods in fiscal 2022.

Segment Results of Operations

Government Services Group

Three Months Ended Six Months Ended

2023 April 3,

2022 Change April 2, 2023 April 3, 2022 Change

Three Months Ended Nine Months Ended

2022 Change July 2, 2023 July 3, 2022 Change

($ in thousands)

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Income from operations $ 54,496 $ 45,580 $ 8,916 19.6% $ 167,053 $ 147,104 $ 19,949 13.6%

Revenue increased $114.3 million, or 25.5%, and revenue, net of subcontractor costs, increased $98.1 million, or 29.1%, in the second quarter of fiscal 2023 compared to the year-ago quarter.

For the first half of fiscal 2023, revenue increased $129.3 million.

or 14.3%, and revenue, net of subcontractor costs, increased $124.0 million, or 18.7%, compared to the first half of last year.

Revenue increased $71.1 million, or 15.4%, and revenue, net of subcontractor costs, increased $54.7 million, or 16.3%, in the third quarter of fiscal 2023 compared to the year-ago quarter.

For the first nine months of fiscal 2023, revenue increased $200.3 million.

or 14.7%, and revenue, net of subcontractor costs, increased $178.7 million, or 17.9%, compared to the first nine months of last year.

These increases include approximately $70 million in revenue in the second quarter of fiscal 2023 related to international development funded energy programs in Ukraine.

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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 $1.9 million and $11.0 million in the second quarter and first half of fiscal 2023, respectively, compared to the prior-year periods.

Operating income in the second quarter of fiscal 2023 from the aforementioned work in Ukraine was more than offset by lower operating income on disaster response projects.

In addition, last year's first quarter and first half results included $3.1 million of the aforementioned ERC's.

Our operating margin, based on revenue, net of subcontractor costs, declined to 14.3% in the first half of fiscal 2023 compared to 15.3% in the first half of fiscal 2022.

Excluding last year's ERC's, our operating margin was 14.9% in the first half of fiscal 2022.

The lower operating margin in fiscal 2023 was due to a higher proportion of international development revenue in the first half of fiscal 2023 compared to the same period last year.

Our international development revenue, including the activity in Ukraine this year, tends to have a lower operating margin than the rest of our revenue in the GSG segment.

Operating income increased $8.9 million and $19.9 million in the third quarter and first nine months of fiscal 2023, respectively, compared to the prior-year periods.

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

Our operating margin, based on revenue, net of subcontractor costs, declined to 14.2% in the first nine months of fiscal 2023 compared to 14.7% in the same period last year primarily due to the ERC's.

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

Commercial/International Group

Three Months Ended Six Months Ended

2023 April 3,

2022 Change April 2, 2023 April 3, 2022 Change

Three Months Ended Nine Months Ended

2022 Change July 2, 2023 July 3, 2022 Change

($ in thousands)

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Income from operations $ 69,572 $ 53,535 $ 16,037 30.0% $ 172,199 $ 139,328 $ 32,871 23.6 %

Revenue increased $193.4 million, or 46.4%, and revenue, net of subcontractor costs, increased $171.9 million, or 47.5%, in the second quarter of fiscal 2023 compared to last year's second quarter.

For the first half of fiscal 2023, revenue increased $216.7 million, or 26.0%, and revenue, net of subcontractor costs, increases $203.1 million, or 28.4%, compared to

the first half of fiscal 2022.

The RPS acquisition contributed approximately $170 million to revenue growth in the second quarter and first half of fiscal 2023.

The remaining revenue growth in both the second quarter and first half of fiscal 2023 primarily reflects increased activity on high performance buildings and renewable energy.

Operating income increased $12.0 million and $16.8 million, in the second quarter and first half of fiscal 2023, respectively, compared to the same periods last year.

The RPS acquisition contributed approximately $7 million to operating income in the second quarter and first half of fiscal 2023.

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

Our operating margin, based on revenue, net of subcontractor costs, was 11.2% in the first half of fiscal 2023 compared to 12.0% in the prior-year period.

Excluding RPS and the ERC's, our operating margin was 12.3% in the first half of fiscal 2023 compared to 11.8%% in the first half 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 increased $247.1 million, or 55.6%, and revenue, net of subcontractor costs, increased $212.4 million, or 55.2%, in the third quarter of fiscal 2023 compared to last year's second quarter.

For the first nine months of fiscal 2023, revenue increased $463.8 million, or 36.3%, and revenue, net of subcontractor costs, increased $415.5 million, or 37.8%, compared to the first nine months of fiscal 2022.

The RPS acquisition contributed approximately $370 million to revenue growth in the first nine months of fiscal 2023.

The remaining revenue growth in fiscal 2023 primarily reflects increased activity on high performance buildings, clean energy and international infrastructure.

Operating income increased $16.0 million and $32.9 million, in the third quarter and first nine months of fiscal 2023, respectively, compared to the same periods last year.

The RPS acquisition contributed approximately $18 million to operating income in the first nine months of fiscal 2023.

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.

Our operating margin, based on revenue, net of subcontractor costs, was 11.4% in the first nine months of fiscal 2023 compared to 12.7% in the prior-year period.

Excluding RPS and the ERC's, our operating margin was 12.8% in the first nine months fiscal 2023 compared to 12.5% in the same period of fiscal 2022.

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

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

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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 April 2, 2023 and October 2, 2022, the differences between our backlog and RUPO of $4.2 billion for each period were immaterial.

At July 2, 2023 and October 2, 2022, the differences between our backlog and RUPO of $4.4 billion for each period were immaterial.

Financial Condition, Liquidity and Capital Resources

Capital Requirements.

At April 2, 2023, we h ad $231.4 million of cash and cash equivalents and access to an additional $459.3 million of borrowings available under our amended credit facility described below.

During the first half of fiscal 2023, we generated $113.1 million of cash from operations.

At July 2, 2023, we h ad $176.1 million of cash and cash equivalents and access to an additional $614.3 million of borrowings available under our amended credit facility described below.

During the first nine months of fiscal 2023, we generated $246.1 million of cash from operations.

Our primary sources of liquidity are cash flows from operations and borrowings under our credit facilities.

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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 half of fiscal 2023, we did not repurchase any shares of our common stock.

At April 2, 2023, we had a remaining balance of $347.8 million under our stock repurchase program.

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

At July 2, 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.

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.

Subsequent Event.

On May 8, 2023, our Board of Directors declared a quarterly cash dividend of $0.26 per share payable on June 6, 2023 to stockholders of record as of the close of business on May 24, 2023.

Subsequent Event.

On August 7, 2023, our Board of Directors declared a quarterly cash dividend of $0.26 per share payable on September 6, 2023 to stockholders of record as of the close of business on August 23, 2023.

Cash and Cash Equivalents.

At April 2, 2023, our cash and cash equivalents were $231.4 million, an increase of $46.3 million compared to the fiscal 2022 year-end.

The increase was primarily due to cash provided by operating activities and cash obtained in the RPS acquisition.

At July 2, 2023, our cash and cash equivalents were $176.1 million, a decrease of $9.0 million compared to the fiscal 2022 year-end.

The decrease was primarily due to payments for the RPS acquisition, partially offset by net borrowings and cash provided by operating activities.

Operating Activities .

For the first half of fiscal 2023, net cash provided by operating activities was $113.1 million, a decrease of $64.4 million compared t o the prior-year period.

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

For the first nine months of fiscal 2023, net cash provided by operating activities was $246.1 million, a decrease of $29.9 million compared to the prior-year period.

The decrease was primarily due to acquisition and integration expenses of $25.8 million for the RPS acquisition paid in fiscal 2023.

Investing Activities .

For the first half of fiscal 2023, net cash used in investing activities was $755.2 million, an increase of $719.7 million compared to the year-ago period.

For the first nine months of fiscal 2023, net cash used in investing activities was $761.9 million, an increase of $723.6 million compared to the year-ago period.

The increase was primarily due to the RPS acquisition in the second quarter of fiscal 2023.

Financing Activities .

For the first half of fiscal 2023, net cash provided by financing activities was $680.5 million, compared to net cash used in financing activities of $115.8 million in the prior-year period .

The financing activities in the first half of fiscal 2023 primarily consisted of additional borrowings to fund the RPS acquisition.

For the first nine months of fiscal 2023, net cash provided by financing activities was $494.4 million, compared to net cash used in financing activities of $182.5 million in t he prior-year period .

The financing activities in the first nine months of fiscal 2023 primarily consisted of additional borrowings to fund the RPS acquisition.

Debt Financing.

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

At April 2, 2023, we had $1.08 billion in outstanding borrowings under the Amended Credit Agreement, which was comprised of $237.5 million under the Amended Term Loan Facility, $500 million under the New Term Loan Facility, and $340 million under the Amended Revolving Credit Facility.

The year-to-date weighted-average interest rate of the outstanding borrowings during April 2, 2023 is 5.46%.

At July 2, 2023, we had $919.4 million in outstanding borrowings under the Amended Credit Agreement, which was comprised of $234.4 million under the Amended Term Loan Facility, $500 million under the New Term Loan Facility, and $185 million under the Amended Revolving Credit Facility.

The weighted-average interest rate of the outstanding borrowings for the first nine months of fiscal 2023 is 5.88%.

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 5.46%.

At April 2, 2023, we had $159.3 million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of our debt covenants.

At July 2, 2023, we had $314.3 million of available cre dit 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.

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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 April 2, 2023, we were in compliance with these covenants with a consolidated leverage ratio of 2.44x and a consolidated interest coverage ratio of 14.24x.

At July 2, 2023, we were in compliance with these covenants with a consolidated leverage ratio of 2.01x and a consolidated interest coverage ratio of 10.95x.

We are currently evaluating various capital structure and interest rate hedging strategies to lower our future borrowing costs that could be executed as early as the fourth quarter of fiscal 2023.

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 April 2, 2023, there were no borrowings under these facilities, and the aggregate amount of standby letters of credit outstanding was $56.5 million.

At April 2, 2023, we had no bank overdrafts related to our disbursement bank accounts.

At July 2, 2023, there were no borrowings under these facilities, and the aggregate amount of standby letters of credit outstanding was $56.6 million.

At July 2, 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.

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January 30, 2023 $ 0.23 February 13, 2023 $ 12,242 February 24, 2023

May 8, 2023 $ 0.26 May 24, 2023 N/A June 6, 2023

May 8, 2023 $ 0.26 May 24, 2023 $ 13,840 June 6, 2023

August 7, 2023 $ 0.26 August 23, 2023 N/A September 6, 2023

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

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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.

At April 2, 2023 and October 2, 2022, the liability for income taxes associated with uncertain tax positions was $42.4 million an d $10.6 million, respectively.

At July 2, 2023 and October 2, 2022, the liability for income taxes associated with uncertain tax positions was $48.8 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.

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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 April 2, 2023, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $56.5 million i n standby letters of credit outstanding under our additional letter of credit facilities.

At July 2, 2023, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $56.6 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.

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• 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.

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

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.

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The Facility matures on February 18, 2027.

The year-to-date weighted-average interest rate of the outstanding borrowings during fiscal 2023 was 5.88%.

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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.

At April 2, 2023, the notional principal of our outstanding interest swap agreements was $193.8 million ($38.8 million each.) Our year-to-date average effective interest rate on borrowings outstanding under the Credit Agreement, including the effects of interest rate swap agreements, at April 2, 2023, was 5.03%.

At July 2, 2023, the notional principal of our outstanding interest swap agreements was $190.6 million ($38.1 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 2, 2023, was 5.46%.

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

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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.

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

expenses in the same currency for our contracts.

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 gains and losses was immaterial for the first halves of fiscal 2023 and 2022.

The impact of the foreign currency gains and losses was immaterial for the first nine months of fiscal 2023 and 2022.

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, operati ng expenses, assets and liabilities will increase if the U.S.

dollar strengthens against foreign currencies, the translation of these foreign currency denominated tran sactions 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 halves of fiscal 2023 and 2022, 33.4% and 30.8% of our consolidated revenue, respectively, was generated by our international business.

For the first half of fiscal 2023, the effect of foreign exchange rate translation on the consolidated balance sheets was an increase in our equity by $25.0 million compared to an increase in equity of $2.1 million in the first half of fiscal 2022.

For the first nine months of fiscal 2023 and 2022, 36.2% and 31.4% of our consolidated revenue, respectively, was generated by our international business.

For the first nine months of fiscal 2023, the effect of foreign exchange rate translation on the consolidated balance sheets was an increase in our equity by $69.5 million compared to a decrease in equity of $42.8 million in the first nine months of fiscal 2022.

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

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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