What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-03 compared with 2024-02-02 · 227 added, 132 removed, 276 unchanged (57% 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 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 working on over 100,000 projects, in more than 100 countries on all seven continents, with a talent force of 28,000 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.

12 unchanged sentences

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

Three Months Ended

2023 January 1,

Three Months Ended Six Months Ended

2024 April 2,

2023 March 31,

2024 April 2,

Client Sector

4 unchanged sentences

International (2)

39.6 36.2 39.1 33.4

Total 100.0 % 100.0 % 100.0 % 100.0 %

4 unchanged sentences

We manage our operations under two reportable segments.

Our Government Services Group ("GSG") reportable segment primarily includes activities with U.S.

Our Government Services Group reportable segment primarily includes activities with U.S.

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

Our Commercial/International Group ("CIG") reportable segment primarily includes activities with U.S.

Our Commercial/International Group reportable segment primarily includes activities with U.S.

commercial clients and international clients other than development agencies.

11 unchanged sentences

CIG supports commercial clients worldwide in 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), Europe, the United Kingdom and South America (primarily Brazil and Chile).

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

Three Months Ended

2023 January 1,

Three Months Ended Six Months Ended

2024 April 2,

2023 March 31,

2024 April 2,

Reportable Segment

6 unchanged sentences

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

Three Months Ended

2023 January 1,

Three Months Ended Six Months Ended

2024 April 2,

2023 March 31,

2024 April 2,

Contract Type

35 unchanged sentences

All acquisitions require the approval of our Board of Directors.

On January 23, 2023, we completed the acquisition of RPS Group plc ("RPS"), a publicly traded company on the London Stock Exchange in an all cash transaction totaling $784 million.

In the second quarter of fiscal 2024, we acquired LS Technologies ("LST"), an innovative U.S.

federal enterprise technology services and management consulting firm based in Fairfax, Virginia.

LST provides high-end consulting and engineering services including advanced data analytics, cybersecurity and digital transformation solutions to U.S.

government clients.

LST is included in our GSG segment.

In the second quarter of fiscal 2023, we completed the acquisition of RPS Group plc ("RPS"), a publicly traded company on the London Stock Exchange in an all cash transaction totaling $784 million.

We funded the RPS acquisition with debt, net of $109 million in proceeds from a foreign exchange forward contract that we entered into at the same time we made the formal offer to acquire RPS on September 23, 2022.

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 fiscal 2023, we also acquired Amyx, Inc.

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

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.

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

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

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

federal government programs.

Amyx is included in our GSG segment.

4 unchanged sentences

OVERVIEW OF RESULTS AND BUSINESS TRENDS

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.

Our revenue increased 20.8% in the first half of fiscal 2024 compared to the same period last year primarily reflecting increased activity in our U.S.

federal and international client sectors.

Our revenue in the first half of fiscal 2024 includes $266 million from our recent acquisitions, that did not have comparable revenue for the same period last year.

Excluding the impact of these acquisitions, our revenue increased 7.9% compared to the first half of fiscal 2023.

The table below presents our revenue by client sector (amounts in thousands):

Six Months Ended

March 31, 2024 April 2, 2023 Change

Client Sector

federal government (1)

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.

$ 789,078 $ 658,449 $ 130,629 19.8%

state and local government 298,476 300,985 (2,509) (0.8)%

commercial 423,837 407,494 16,343 4.0%

International (2)

968,492 686,063 282,429 41.2%

Total $ 2,479,883 $ 2,052,991 $ 426,892 20.8%

(1) Includes revenue generated under U.S.

federal government contracts performed outside the United States.

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

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

Federal Government.

Six Months Ended

March 31, 2024 April 2, 2023 Change

($ in thousands)

$ 789,078 $ 658,449 $ 130,629 19.8%

(1) Includes revenue generated under U.S.

federal government contracts performed outside the United States.

Our 19.8% growth in U.S.

federal revenue in the first half of fiscal 2024 compared to the first half of last year primarily reflects increased international development activity and broad-based growth across civilian agencies.

For the first half of fiscal 2024, the growth in our international development activity primarily relates to activity in Ukraine to support energy security and other humanitarian needs.

This international development revenue was approximately $56 million higher in the first half of fiscal 2024 compared to the prior-year period.

Our growth in the first half of fiscal 2024 also includes approximately $51 million of revenue from our recent acquisitions, that did not have comparable revenue for the same period in fiscal 2023.

We expect our U.S.

federal government revenue to continue to grow in fiscal 2024.

federal government revenue to continue to grow in the second half of fiscal 2024.

Approximately $1 trillion in new U.S.

2 unchanged sentences

State and Local Government.

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.

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

Six Months Ended

March 31, 2024 April 2, 2023 Change

($ in thousands)

Revenue $ 298,476 $ 300,985 $ (2,509) (0.8)%

For the first half of fiscal 2024, our U.S.

state and local government revenue declined year-over-year due to lower disaster response revenue of approximately $41 million primarily due to the wind-down of hurricane related projects in the southeastern U.S.

Excluding our disaster response activities, our U.S.

state and local government revenue increased 19.9% in the first half of fiscal 2024 compared to the year-ago period primarily reflecting continued increased revenue from advanced water treatment 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 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 in fiscal 2024.

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

Six Months Ended

March 31, 2024 April 2, 2023 Change

($ in thousands)

Revenue $ 423,837 $ 407,494 $ 16,343 4.0%

For the first half of fiscal 2024, our U.S.

commercial revenue growth was due to increased planning and permitting projects related to renewable energy generation and transmission.

We expect revenue growth to continue in our U.S.

commercial business in the second half of fiscal 2024.

International.

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.

Six Months Ended

March 31, 2024 April 2, 2023 Change

($ in thousands)

$ 968,492 $ 686,063 $ 282,429 41.2%

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

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

Our international revenue growth of 41.2% in the first half of fiscal 2024 compared to the first half of last year primarily reflects higher renewable energy revenue and commercial activities related to an increased focus on sustainability in addition to contributions from acquisitions.

For the first half of fiscal 2024, our international revenue growth includes approximately $182 million of revenue from our recent acquisitions, that did not have comparable revenue for the same period last year.

Excluding the impact of these acquisitions, our revenue increased 14.7% compared to the fiscal 2023 period.

We expect growth in our international work to continue in the second half of fiscal 2024.

RESULTS OF OPERATIONS

Consolidated Results of Operations

Three Months Ended

2023 January 1,

Three Months Ended Six Months Ended

2024 April 2,

2023 Change March 31, 2024 April 2, 2023 Change

($ in thousands, except per share data)

6 unchanged sentences

Selling, general and administrative expenses (89,812) (82,347) (7,465) (9.1) (169,229) (138,848) (30,381) (21.9)

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

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

Acquisition and integration expenses — (19,944) 19,944 NM — (23,705) 23,705 NM

Contingent consideration - fair value adjustments — (7,544) 7,544 NM — (8,477) 8,477 NM

Income from operations 117,683 61,011 56,672 92.9 228,764 153,061 75,703 49.5

Interest expense (9,883) (13,323) 3,440 25.8 (19,461) (18,695) (766) (4.1)

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

Other non-operating income — 21,407 (21,407) NM — 89,402 (89,402) NM

Income before income tax expense 107,800 69,095 38,705 56.0 209,303 223,768 (14,465) (6.5)

12 unchanged sentences

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.

Our revenue growth in the second quarter and first half of fiscal 2024 reflects increases in both of our reportable segments.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $33.9 million, or 6.0%, and $30.9 million, or 7.1%, respectively, in the second quarter of fiscal 2024 compared to the prior-year quarter.

Our CIG segment's revenue increased $60.8 million, or 10.0%, and revenue, net of subcontractor costs, increased $52.1 million, or 9.8% in the second quarter of fiscal 2024 compared to the prior-year quarter.

In the first half of fiscal 2024, our GSG segment's revenue and revenue, net of subcontractor costs, increased $137.8 million, or 13.3%, and $120.6 million, or 15.3%, respectively, compared to the same period last year.

Our CIG segment's revenue increased $290.3 million, or 27.7%, and revenue, net of subcontractor costs, increased $241.1 million, or 26.3% in the first half of fiscal 2024 compared to fiscal 2023 period.

The second quarter and first half results for 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 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.

GAAP adjusted results, which exclude acquisition expenses related to the RPS acquisition and adjustments to contingent consideration liabilities in the second quarter and first half of fiscal 2023.

Our adjusted earnings per share ("EPS") for these periods also excludes non-operating gains on a foreign exchange contract of $21.4 million and $89.4 million, respectively.

The gains are reported as "Other non-operating income" in our consolidated statements of inco me.

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.

The effective tax rate applied to the adjustments to EPS to arrive at adjusted EPS averaged 26% for the first half of fiscal 2023.

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 fiscal 2023 quarter as reflected in our consolidated statement of income.

Three Months Ended

2023 January 1,

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

Three Months Ended Six Months Ended

2024 April 2,

2023 Change March 31,

2024 April 2,

($ in thousands, except per share data)

Income from operations $ 117,683 $ 61,011 $ 56,672 92.9% $ 228,764 $ 153,061 $ 75,703 49.5%

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

Earn-Out adjustments — 933 (933) NM

Acquisition & integration expenses — 19,944 (19,944) NM — 23,705 (23,705) NM

Earn-Out adjustments — 7,544 (7,544) NM — 8,477 (8,477) NM

Adjusted income from operations (1)

1 unchanged sentence

EPS $ 1.42 $ 0.80 $ 0.62 77.5% $ 2.81 $ 2.98 $ (0.17) (5.7)%

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

Acquisition & integration expenses — 0.43 (0.43) NM — 0.52 (0.52) NM

Earn-out adjustments — 0.12 (0.12) NM — 0.13 (0.13) NM

Foreign exchange forward contract gain — (0.29) 0.29 NM — (1.23) 1.23 NM

Adjusted EPS (1)

2 unchanged sentences

(1) Non-GAAP financial measure

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.

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

Operating income for these periods also included a net loss of $7.5 million and $8.5 million, respectively, 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 $29.2 million, or 33.0% in the second quarter and $43.5 million, or 23.5%, in the first half of fiscal 2024 compared to the same periods last year.

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

Three Months Ended Six Months Ended

2024 April 2,

2023 Change March 31,

2024 April 2,

($ in thousands)

Net interest expense $ 9,883 $ 13,323 $ (3,440) (25.8)% $ 19,461 $ 18,695 $ 766 4.1%

For the first half of fiscal 2023 (all in the first quarter), net interest expense 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.

For the second quarter and first half of fiscal 2023, net interest expense 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 decreased $2.4 million in the second quarter of fiscal 2024 compared to fiscal 2023 quarter.

The decrease primarily reflects the lower borrowing costs from our convertible notes issued in the fourth quarter of fiscal 2023, which we used to refinance the existing higher-cost debt.

Also excluding the write-offs, our interest expense increased $4.6 million in the first half of fiscal 2024 compared to the same period last year primarily due to the lower average borrowings in the first half of fiscal 2023 as the first quarter of fiscal 2023 did not include any borrowings for the RPS acquisition.

Three Months Ended Six Months Ended

2024 April 2,

2023 Change March 31,

2024 April 2,

($ in thousands)

Other non-operating income $ — $ 21,407 $ (21,407) NM $ — $ 89,402 $ (89,402) NM

Other non-operating income for the second quarter and first half of fiscal 2023 reflects gains 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.

As a result, the forward contract was marked to market with changes in fair value recognized in earnings each period.

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

The effective tax rates for the first quarters of fiscal 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.

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

Three Months Ended Six Months Ended

2024 April 2,

2023 Change March 31,

2024 April 2,

($ in thousands)

Income tax expense $ 31,341 $ 26,254 $ 5,087 19.4% $ 57,864 $ 64,212 $ (6,348) (9.9)%

The effective tax rates for the first halves of fiscal 2024 and 2023 were 27.6% and 28.7%, respectively.

Income tax expense was reduced by $1.9 million and $1.8 million of excess tax benefits on share-based payments in the first halves of fiscal 2024 and 2023, respectively.

In addition, income tax expense in the first half of fiscal 2024 (all in the second quarter) included $2.8 million of expense for the settlement of various tax positions that were under audit for fiscal years 2018 through 2021.

Furthermore, 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.

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, the settlement amounts in the first half of fiscal 2024 and the additional $6.7 million in the first half of fiscal 2023, our effective tax rates in the first halves of fiscal 2024 and 2023 were 27.1% and 26.5%, respectively.

Segment Results of Operations

Government Services Group

Three Months Ended

2023 January 1,

Three Months Ended Six Months Ended

2024 April 2,

2023 Change March 31, 2024 April 2, 2023 Change

($ in thousands)

2 unchanged sentences

Revenue, net of subcontractor costs (1)

$ 466,497 $ 435,550 $ 30,947 7.1 $ 909,197 $ 788,597 $ 120,600 15.3

Income from operations $ 64,007 $ 52,210 $ 11,797 22.6% $ 127,134 $ 112,557 $ 14,577 13.0%

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.

(1) Non-GAAP financial measure

The revenue growth in the second quarter and first half of fiscal 2024 of 6.0% and 13.3%, respectively, compared to the same periods last year primarily reflects higher U.S.

state and local government activities related to advanced water treatment, U.S.

federal government activities related to international development and contributions from acquisitions.

This growth was partially offset by lower disaster response activity.

The revenue growth in the first half of fiscal 2024 includes a $56 million increase from the aforementioned international development activities in Ukraine compared to the same period last year.

Our revenue growth in the second quarter and first half of fiscal 2024 also includes approximately $24 million and $50 million, respectively, of revenue from our recent acquisitions, that did not have comparable revenu e for the same periods in fiscal 2023.

Conversely, our revenue growth also includes decreased revenue from disaster response activities, which was approximately $12 million and $39 million lower in the second quarter and first half of fiscal 2024, respectively, compared to the same periods in fiscal 2023.

Excluding the acquisitions, increased activity in Ukraine and the partially offsetting lower disaster response revenue, our revenue increased 7.4% and 8.7% in the second quarter and first half of fiscal 2024, respectively, compared to the same periods last year.

Operating income increased primarily due to the aforementioned revenue growth.

Our operating margin, based on revenue, net of subcontractor costs, was 14.0% in the first half of fiscal 2024, compared to 14.3% in the first half of fiscal 2023.

The decrease was due to a change in contract mix, specifically the aforementioned increase in the Ukraine energy program, which has a lower margin compared to other GSG activities.

Commercial/International Group

Three Months Ended

2023 January 1,

Three Months Ended Six Months Ended

2024 April 2,

2023 Change March 31, 2024 April 2, 2023 Change

($ in thousands)

2 unchanged sentences

Revenue, net of subcontractor costs (1)

$ 586,130 $ 534,015 $ 52,115 9.8 $ 1,158,599 $ 917,529 $ 241,070 26.3

Income from operations $ 75,955 $ 52,518 $ 23,437 44.6% $ 147,356 $ 102,626 $ 44,730 43.6 %

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 $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) Non-GAAP financial measure

The revenue growth in the second quarter and first half of fiscal 2024 of 10.0% and 27.7%, respectively, compared to the same periods last year primarily reflects increased activities related to renewable energy and international infrastructure in addition to contributions from acquisitions.

The revenue growth in the first half of fiscal 2024 includes approximately $216 million from the RPS acquisition that did not have comparable revenue in the same period last year.

Excluding the impact of the RPS acquisition, our revenue increased 7.1% in the first half of fiscal 2024 compared to the same period last year.

For the second quarter and first half of fiscal 2024, our operating income increased due to the aforementioned revenue growth for both periods.

In addition, our operating margin improved in the first half of fiscal 2024 compared to the same period last year.

Our operating margin, based on revenue, net of subcontractor costs, improved approximately 150 basis points from 11.2% in the first half of fiscal 2023 to 12.7% in the first half of this year.

The improved operating margin was primarily due to our increased focus on high-end consulting services, and improved project execution, particularly in the RPS operations.

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

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

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

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).

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

The differences between our backlog and RUPO at March 31, 2024 and October 1, 2023 were immaterial (see the table below):

2024 October 1,

4 unchanged sentences

Capital Requirements.

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.

At March 31, 2024, we had $210.3 million of cash and cash equivalents and access to an additional $729.3 million of borrowings available under our credit facility.

During the first half of fiscal 2024, we generated $112.2 million of cash from operations.

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

Our primary uses of cash are to fund working capital, cash dividends, capital expenditures and repayment of debt, as well as to fund acquisitions and earn-out obligations from prior acquisitions.

We believe that our existing cash and cash equivalents, operating cash flows and borrowing capacity under our credit agreement as 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.

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 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.

Subsequent Event.

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.

We believe that our existing cash and cash equivalents, operating cash flows and borrowing capacity under our credit agreement, as described below, will be sufficient to meet our capital requirements for at least the next 12 months.

Cash and Cash Equivalents.

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.

The following tables summarize information regarding our cash and cash equivalents (amounts in thousands):

2024 October 1,

Cash and cash equivalents $ 210,294 $ 168,831 $ 41,463 24.6 %

Six Months Ended

2024 April 2,

Net cash provided by (used in):

Operating activities $ 112,181 $ 113,123 $ (942) (0.8) %

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 (79,161) (755,219) 676,058 89.5

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 5,633 680,491 (674,858) (99.2)

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.

Effect of exchange rate changes 2,810 7,899 (5,089) (64.4)

Net increase in cash and cash equivalents $ 41,463 $ 46,294 $ (4,831) (10.4) %

Operating Activities .

Cash from operations in the first half of fiscal 2023 included $27 million of payments related to the RPS acquisition, primarily the acquisition and integration costs.

Excluding these costs, our cash from operations decreased approximately 20% in the first half of fiscal 2024 compared to the same period last year.

This decrease primarily relates to $27 million in U.S.

federal income tax payments made in the first quarter of fiscal 2024 that typically would have been made in fiscal 2023, but for the IRS permitted 2023 federal tax payment deferrals for disaster zones that we elected.

In addition, we paid $5 million more in interest in the first half of fiscal 2024 than in the first half of last year primarily due to the additional debt incurred to fund the RPS acquisition.

Investing Activities .

For the first half of fiscal 2024, the cash used in investing activities includes net payments of $72 million for the LST acquisition completed in the second quarter of fiscal 2024.

The fiscal 2023 period reflects $854 million of net payments for RPS and Amyx acquisitions completed in the second quarter of fiscal 2023, net of the $109 million of related foreign exchange hedge proceeds in the second quarter of fiscal 2023.

Financing Activities .

For the first half of fiscal 2024, net cash provided by financing activities declined due to $656 million higher in net borrowings in the prior-year period, which was used to primarily fund our fiscal 2023 acquisitions of RPS and Amyx.

To a lesser extent, the decline in our net cash provided by financing activities was due to $20 million more cash used for contingent earn-out payments in the current year's period compared to the same period last year.

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.

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”).

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”).

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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See Note 15, "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%.

At March 31, 2024, we had $390 million in outstanding borrowings under the Amended Credit Agreement, which was comprised of $320 million under the New Term Loan Facility and $70 million under the Amended Revolving Credit Facility.

For the first half 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.

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.

At March 31, 2024, we had $429.3 million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of our debt covenants.

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

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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 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.

At March 31, 2024, we were in compliance with these covenants with a consolidated leverage ratio of 1.73x and a consolidated interest coverage ratio of 10.98x.

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 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.

At March 31, 2024, there were no borrowings under these facilities, and the aggregate amount of standby letters of credit outstanding was $55.1 million.

At March 31, 2024, 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.

Stock repurchases.

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

At March 31, 2024, we had a remaining balance of $347.8 million under our stock repurchase program.

Our Board of Directors has authorized the following dividends in fiscal 2024:

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

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

January 29, 2024 0.26 February 14, 2024 13,908 February 27, 2024

Subsequent Event.

On April 29, 2024, our Board of Directors declared a quarterly cash dividend of $0.29 per share payable on May 31, 2024 to stockholders of record as of the close of business on May 20, 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 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.

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

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.

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If these audits are resolved in a manner more unfavorable than our current expectations, our additional tax liabilities could be materially higher than the amounts currently recorded resulting in additional tax expense.

At March 31, 2024 and October 1, 2023, the liability for income taxes associated with uncertain tax positions was $62.3 million and $62.0 million, respectively.

Off-Balance Sheet Arrangements

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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 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.

At March 31, 2024, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $55.1 million in standby letters of credit outstanding under our additional letter of credit facilities.

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

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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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The Amended Term Loan Facility is subject to the same interest rate provisions.

Borrowings at the base rate have no designated term and may be repaid without penalty any time prior to the Facility’s maturity date.

Borrowings at a SOFR rate have a term no l ess than 30 days and no greater than 180 days and may be prepaid without penalty.

Borrowings at the base rate have no design ated term and may be repaid without penalty any time prior to the Facility’s maturity date.

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

Typically, at the end of such term, such borrowings may be rolled over at our discretion into either a borrowing at the base rate or a borrowing at a SOFR rate with similar terms, not to exceed the maturity date of the Facility.

The Facility matures on February 18, 2027.

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

For the first half 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.

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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 fluctuations 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 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.

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

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

To the extent 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.

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

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

dollar weakens against foreign currencies.

For the first quarters of fiscal 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.

For the first halves of fiscal 2024 and 2023, 39.1% and 33.4% of our consolidated revenue, respectively, was generated by our international business.

For the first half of fiscal 2024, the effect of foreign exchange rate translation on our consolidated balance sheet was an increase in equity by $38.8 million compared to an increase of $25.0 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