What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-02 compared with 2023-08-10 · 137 added, 177 removed, 271 unchanged (54% 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.

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

In fiscal 2023, we worked on over 100,000 projects, in more than 100 countries on all seven continents, with a talent force of 27,000 associates.

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

3 unchanged sentences

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, restoring ecosystems 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 renewable energy, restoring ecosystems and creating 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

Three Months Ended

2023 January 1,

Client Sector

4 unchanged sentences

International (2)

40.8 32.6 36.2 31.4

Total 100.0 % 100.0 %

2 unchanged sentences

(2) Includes revenue generated from non-U.S.

clien ts, primarily in Canada, Australia and the United Kingdom.

clien ts, primarily in Canada, Australia, Europe and the United Kingdom.

We manage our operations under two reportable segments.

5 unchanged sentences

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

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

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

GSG supports U.S.

6 unchanged sentences

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.

CIG supports commercial clients worldwide in renewable energy, industrial, high performance buildings and aerospace markets.

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

Three Months Ended Nine Months Ended

Three Months Ended

2023 January 1,

Reportable Segment

6 unchanged sentences

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

Three Months Ended Nine Months Ended

Three Months Ended

2023 January 1,

Contract Type

7 unchanged sentences

Profitability on these contracts is driven by billable headcount and our cost control.

We recognize revenue from contracts using the cost-to-cost measure of progress method to estimate the progress towards completion to determine the amount of revenue and profit to recognize.

Revenue is recognized by measuring progress over time under Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers".

We estimate and measure progress on our contracts over time whereby we compare our total costs incurred on each contract as a percentage of the total expected contract costs.

Changes in those estimates could result in the recognition of cumulative catch-up adjustments to the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made.

27 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 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.

In the second quarter of fiscal 2023, we also acquired Amyx, Inc.

In fiscal 2023, we also 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.

Based in Reston, Virginia.

With over 500 employees, Amyx provides application modernization, cybersecurity, systems engineering, financial management and program management support on over 30 Federal Government programs.

Amyx is included in our GSG segment.

4 unchanged sentences

OVERVIEW OF RESULTS AND BUSINESS TRENDS

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.

In the first quarter of fiscal 2024, our revenue increased 37.3% compared to the prior-year quarter.

The growth includes revenue from the acquisition of RPS, which was completed in the second quarter of fiscal 2023, that did not have comparable revenue in the last year's first quarter.

Excluding RPS, our revenue increased over 13% in the first quarter of fiscal 2024 compared to the year-ago quarter.

The year-over-year growth, excluding RPS, primarily reflects increased activity in our U.S.

Federal and International client sectors.

Federal Government.

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.

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

federal government revenue increased 38.4% in the first quarter of fiscal 2024 compared to the same period last year.

The growth was primarily due to increased international development activity, primarily in Ukraine, and broad-based increases across civilian agencies.

Our international development revenue in Ukraine was approximately $65 million higher in the first quarter of fiscal 2024 compared to the same quarter last year.

We expect our U.S.

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

federal government revenue to continue to grow in fiscal 2024.

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.

Each of these programs includes 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 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.

state and local government revenue decreased 1.5% in the first quarter of fiscal 2024 compared to fiscal 2023 quarter, which includes lower disaster response activity.

Excluding disaster response, our state and local government revenue increased 23.6% in the first quarter of fiscal 2024 compared to last year's quarter.

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

1 unchanged sentence

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 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 11.4% 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.

state and local governments relates to critical water and environmental programs, which we expect to continue to grow in fiscal 2024.

commercial revenue increased 11.8% in the first quarter of fiscal 2024 compared to the year-ago quarter.

The growth was primarily due to increased activity for environmental services and clean energy permitting.

We expect growth in our U.S.

commercial work to continue in the remainder of fiscal 2023.

commercial work in fiscal 2024.

International.

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 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.

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

Our international revenue increased 77.4% in the first quarter of fiscal 2024 compared to the same quarter last year.

Excluding the contribution from RPS, our international revenue increased 9.3% compared to fiscal 2023 quarter.

The revenue growth reflects higher clean energy revenue and commercial activities related to an increased focus on sustainability.

We expect growth in our international work to continue in fiscal 2024.

RESULTS OF OPERATIONS

Consolidated Results of Operations

Three Months Ended Nine Months Ended

2022 Change July 2, 2023 July 3, 2022 Change

Three Months Ended

2023 January 1,

($ in thousands, except per share data)

6 unchanged sentences

Selling, general and administrative expenses (79,417) (56,502) (22,915) (40.6)

Acquisition and integration expenses (2,107) — (2,107) NM (25,812) — (25,812) NM

Contingent consideration - fair value adjustments — 263 (263) NM (8,477) 64 (8,541) NM

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

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

Income from operations 111,081 92,050 19,031 20.7

Interest expense (9,577) (5,372) (4,205) (78.3)

Other non-operating income — — — NM 89,402 — 89,402 NM

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

Income before income tax expense 101,504 154,673 (53,169) (34.4)

6 unchanged sentences

GAAP financial measure, enhances investors’ ability to analyze our business trends and performance because it substantially measures the work performed by our employees.

While providing services, we routinely subcontract various services and, under certain U.S.

Agency for International Development programs, issue grants.

While providing services, we routinely subcontract various services and, under certain international development programs, issue grants.

Generally, these subcontractor costs and grants are passed through to our clients and, in accordance with U.S.

GAAP and industry practice, are included in our revenue when it is our contractual responsibility to procure or manage these activities.

The grants are included as part of our subcontractor costs.

Because subcontractor services can vary significantly from project to project and period to period, changes in revenue may not necessarily be indicative of our business trends.

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

In the 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.

NM = not meaningful

In the first quarter of fiscal 2024, revenue and revenue, net of subcontractor costs, increased $333.5 million, or 37.3%, and $278.6 million, or 37.8%, respectively, compared to the fiscal 2023 quarter.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $104.0 million, or 22.1%, and $89.7 million, or 25.4%, respectively, in the first quarter of fiscal 2024 compared to the prior-year quarter.

Our CIG segment's revenue increased $229.6 million, or 52.2%, and revenue, net of subcontractor costs, increased $189.0 million, or 49.3% in the first quarter of fiscal 2024 compared to fiscal 2023 quarter.

The first quarter of fiscal 2024 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 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.

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.

Our adjusted earnings per share ("EPS") for the prior-year quarter 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 acquisition of RPS.

This gain is reported as "Other non-operating income" in our Consolidated Statement of Income for last year's quarter.

The effective tax rate applied to the adjustments to EPS to arrive at adjusted EPS average 26% for the year-ago quarter.

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 Nine Months Ended

2022 Change July 2,

Both EPS and adjusted EPS were calculated using diluted weighted-average common shares outstanding for the fiscal 2023 quarter as reflected in our consolidated statement of income.

Three Months Ended

2023 January 1,

($ in thousands, except per share data)

Income from operations $ 111,081 $ 92,050 $ 19,031 20.7%

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

Acquisition & integration expenses 2,107 — 2,107 NM 25,812 — 25,812 NM

Earn-Out adjustments — — — NM 8,477 — 8,477 NM

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

Earn-Out adjustments — 933 (933) NM

Adjusted income from operations (1)

1 unchanged sentence

EPS $ 1.40 $ 2.18 $ (0.78) (35.8)%

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

Acquisition & integration expenses 0.03 — 0.03 NM 0.55 — 0.55 NM

Earn-out adjustments — — — NM 0.13 — 0.13 NM

Foreign exchange forward contract gain — — — NM (1.23) — (1.23) 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 $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 fourth quarter of fiscal 2023.

These costs may be material to our consolidated financial results.

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 $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 $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.

Operating income increased $19.0 million, or 20.7%, in the first quarter of fiscal 2024 compared to fiscal 2023 quarter .

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.

Excluding the acquisition expenses and earn-out losses, our adjusted operating income increased $14.3 million, or 14.8% in the first quarter of fiscal 2024 compared to last year's quarter.

The increase reflects 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 $9.6 million and $5.4 million in the first quarters of fiscal 2024 and 2023, respectively, and increased from last year primarily due to the additional borrowings to fund the RPS acquisition.

Net interest expense in the prior-year quarter 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 that we entered 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 did not qualify for hedge accounting.

1 unchanged sentence

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 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 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.

The effective tax rates for the first quarters of fiscal 2024 and 2023 were 26.1% and 24.5%, respectively.

Income tax expense was reduced by $1.0 million and $1.7 million of excess tax benefits on share-based payments in the first quarters of fiscal 2024 and 2023, respectively.

Excluding the impact of the excess tax benefits on share-based payments in both quarters, our effective tax rates in the first quarters of fiscal 2024 and 2023 were 27.1% and 25.7%, respectively.

Our EPS was $1.40 in the first quarter of fiscal 2024, compared to $2.18 in the prior-year quarter.

Excluding the aforementioned non-operating and non-recurring items, our adjusted EPS was $1.34 in the fiscal 2023 quarter.

There were no non-operating or non-recurring items impacting EPS in the first quarter of fiscal 2024.

Segment Results of Operations

Government Services Group

Three Months Ended Nine Months Ended

2022 Change July 2, 2023 July 3, 2022 Change

Three Months Ended

2023 January 1,

($ in thousands)

3 unchanged sentences

Income from operations $ 63,127 $ 60,347 $ 2,780 4.6%

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.

In addition, the increases reflect higher U.S.

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 $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.

Revenue and revenue, net of subcontractor costs, increased $104.0 million, or 22.1%, and increased $89.7 million, or 25.4%, respectively, in the first quarter of fiscal 2024 compared to last year's quarter.

The revenue growth includes an increase of approximately $65 million in revenue in the first quarter of fiscal 2024 related to a distinct international development funded energy program in Ukraine, compared to fiscal 2023 quarter.

In addition, the growth reflects higher U.S.

state and local government activities related to digital water and other U.S.

federal programs, partially offset by lower disaster response revenue.

Operating income increased $2.8 million in the first quarter of fiscal 2024 compared to the prior-year quarter.

The increase in operating income was due to the revenue increase noted above.

Our operating margin, based on revenue, net of subcontractor costs, was 14.3% in the first quarter of fiscal 2024, compared to 17.1% in the year-ago quarter.

The decrease was due to a change in contract mix, specifically the aforementioned Ukraine energy program.

The decrease was also due to lower favorable operating income adjustments for several projects upon their completion in the first quarter of fiscal 2024 compared to fiscal 2023 quarter.

Commercial/International Group

Three Months Ended Nine Months Ended

2022 Change July 2, 2023 July 3, 2022 Change

Three Months Ended

2023 January 1,

($ in thousands)

3 unchanged sentences

Income from operations $ 71,401 $ 50,108 $ 21,293 42.5%

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.

Revenue and revenue, net of subcontractor costs, increased $229.6 million, or 52.2%, and increased $189.0 million, or 49.3%, respectively, in the first quarter of fiscal 2024 compared to the year-ago quarter.

The revenue from RPS was substantially all in the CIG segment.

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.

Operating income increased $21.3 million, or 42.5%, in the first quarter of fiscal 2024 compared to fiscal 2023 quarter.

Our operating margin, based on revenue, net of subcontractor costs, was 12.5% in the first quarter of fiscal 2024 compared to 13.1% in the prior-year quarter.

Excluding the RPS acquisition, which currently has a lower margin compared to the rest of the CIG segment, our operating margin was 13.4% in the first quarter of fiscal 2024 compared to 13.1% in fiscal 2023 quarter.

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

1 unchanged sentence

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

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

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

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

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

The differences between our backlog and RUPO at December 31, 2023 and October 1, 2023 were immaterial (see the table below):

2023 October 1,

($ in millions)

RUPO $ 4,707 $ 4,755

Backlog 4,737 4,790

Financial Condition, Liquidity and Capital Resources

Capital Requirements.

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.

At December 31, 2023, we had $198.7 million of cash and cash equivalents and access to an additional $734.3 million of borrowings available under our credit facility.

During the first quarter of fiscal 2024, we generated $9.2 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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We believe that our existing cash and cash equivalents, operating cash flows and borrowing capacity under our credit agreement as amended for the RPS acquisition 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.

We plan to repatriate undistributed foreign earnings as they become available to supplement our liquidity in the United States including to pay down the borrowings used to fund the RPS acquisition.

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 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.

In the first quarters of fiscal 2024 and 2023, we did not repurchase any shares of our common stock.

At December 31, 2023, we had a remaining balance of $347.8 million under our stock repurchase program.

On November 13, 2023, our Board of Directors declared a quarterly cash dividend of $0.26 per share payable on December 13, 2023 to stockholders of record as of the close of business on November 30, 2023.

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.

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.

On January 29, 2024, our Board of Directors declared a quarterly cash dividend of $0.26 per share payable on February 27, 2024 to stockholders of record as of the close of business on February 14, 2024.

Cash and Cash Equivalents.

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.

At December 31, 2023, our cash and cash equivalents were $198.7 million, an increase of $29.9 million compared to the fiscal 2023 year-end.

Operating Activities .

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.

For the first quarter of fiscal 2024, net cash provided by operating activities was $9.2 million, a decrease of $15.9 million compared to last year's quarter.

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

Investing Activities .

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.

For the first quarter of fiscal 2024, net cash used in investing activities was $3.4 million, a decrease of $1.5 million compared to the year-ago quarter due to lower capital expenditures.

Financing Activities .

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.

For the first quarter of fiscal 2024, net cash provided by financing activities was $18.4 million, compared to net cash used in financing activities of $42.3 million in fiscal 2023 quarter due to an increase in net debt borrowing.

Debt Financing.

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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”).

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”).

In addition, the Amended Credit Agreement includes a $300 million accordion feature that allows us to increase the Amended Credit Agreement to $1.05 billion subject to lender approval.

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The entire Amended Term Loan Facility was drawn on February 18, 2022.

The Amended Term Loan Facility is subject to quarterly amortization of principal at 5% annually commencing June 30, 2022.

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.

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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 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%.

On August 22, 2023, we issued $575.0 million in convertible notes that bear interest at 2.25% per annum payable semiannually in arrears on February 15 and August 15 of each year, beginning on February 15, 2024 with a maturity date of August 15, 2028 (the "Convertible Notes").

As of October 1, 2023, $560.8 million of the Convertible Notes was included in long-term debt in our consolidated balance sheets, which is net of $14.2 million of unamortized debt issuance costs.

The net proceeds from the Convertible Notes were $560.5 million, $51.8 million of which were used to purchase related capped call transactions on the issue date.

The remaining proceeds were used to prepay and terminate the $234.4 million outstanding under the Amended Term Loan Facility, to prepay $89.4 million outstanding under the New Term Loan Facility and to pay down borrowings of $185.0 million under the Amended Revolving Credit Facility.

See Note 14, "Long-term debt" of the "Notes to Consolidated Financial Statements" for further discussion.

At December 31, 2023, we had $385 million in outstanding borrowings under the Amended Credit Agreement, which was comprised of $320 million under the New Term Loan Facility and $65 million under the Amended Revolving Credit Facility.

For the first quarter of fiscal 2024, the weighted-average interest rate of the outstanding borrowings under the Amended Credit Agreement was 6.75%.

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 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.

At December 31, 2023, we had $434.3 million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of our deb t 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 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.

At December 31, 2023, we were in compliance with these covenants with a consolidated leverage ratio of 1.84x and a consolidated interest coverage ratio of 9.49x.

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 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.

At December 31, 2023, there were no borrowings under these facilities, and the aggregate amount of standby letters of credit outstanding was $57.4 million.

At December 31, 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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November 13, 2023 $ 0.26 November 30, 2023 $ 13,873 December 13, 2023

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

January 29, 2024 $ 0.26 February 14, 2024 N/A February 27, 2024

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

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

Based on 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 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.

Based on 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 December 31, 2023 and October 1, 2023, the liability for income taxes associated with uncertain tax positions was $61.7 million and $62.0 million, respectively.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax positions may not significantly decrease within the next 12 months.

These liabilities represent our current estimates of the additional tax liabilities that we may be assessed when the related audits are concluded.

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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 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.

At December 31, 2023, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $57.4 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.

enter into these agreements primarily to support the project execution commitments of these entities.

We enter into these agreements primarily to support the project execution commitments of these entities.

The potential payment amount of an outstanding performance guarantee is typically the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts.

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For cost-plus contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed under the contract.

For lump sum or fixed-price contracts, this amount is the cost to complete the contracted work less amounts remaining to be billed to the client under the contract.

For lump sum or fixed-price

contracts, this amount is the cost to complete the contracted work less amounts remaining to be billed to the client under the contract.

Remaining billable amounts could be greater or less than the cost to complete.

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We do not enter into derivative financial instruments for trading or speculation purposes.

In the normal course of business, we have exposure to both interest rate risk and foreign currency transaction and translation risk, primarily related to the Canadian and Australian dollar, and British Pound.

We are exposed to interest rate risk under our Amended Credit Agreement.

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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%.

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

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

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”.

For the first quarter of fiscal 2024, the weighted-average interest rate of the outstanding borrowings under the Amended Credit Agreement was 6.75%.

The majority of our transactions are in U.S.

however, some of our subsidiaries conduct business in foreign currencies, primarily the Canadian and Australian dollar, and British Pound.

however, some of our subsidiaries conduct business in foreign currencies, primarily the Canadian and Australian dollars, the Euro, and the British Pound.

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

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

expenses in the same currency for our contracts.

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 nine months of fiscal 2023 and 2022.

The impact of the foreign currency gains and losses was immaterial for the first quarters of fiscal 2024 and 2023.

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.

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dollar weakens against foreign currencies.

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.

For the first quarters of fiscal 2024 and 2023, 38.5% and 29.8% of our consolidated revenue, respectively, was generated by our international business.

For the first quarter of fiscal 2024, the effect of foreign exchange rate translation on our consolidated balance sheet was an increase in equity by $63.1 million compared to an increase of $33.1 million in the prior-year quarter.

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