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Item 7. Management’s Discussion and Analysis

2024-11-19 compared with 2023-11-22 · 237 added, 167 removed, 339 unchanged (54% of the section changed)

5 unchanged sentences

OVERVIEW OF RESULTS AND BUSINESS TRENDS

In fiscal 2023, o ur reve nue increased 29.1% compared to fiscal 2022.

This growth includes approximately $600 million from the acquisition of RPS Group plc ("RPS"), which was completed in the second quarter of fiscal 2023.

Excluding RPS, our revenue increased 12.0% in fiscal 2023 compared to last year.

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

Federal, U.S.

Commercial and International client sectors.

In fiscal 2024, our revenue increased 15.0% compared to fiscal 2023 primarily reflecting increased activity in our U.S.

federal and international client sectors.

This revenue growth includes $332 million from our recent acquisitions, that did not have comparable revenue for all of fiscal 2023.

Excluding the impact of these acquisitions, our revenue increased 7.6% compared to the prior-year period.

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

Fiscal Year Ended

September 29,

2024 October 1,

Client sector

federal government (1)

federal government revenue increased 30.3% in fiscal 2023 compared to fiscal 2022.

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.

$ 1,675,996 $ 1,387,101 $ 288,895 20.8%

state and local government 613,185 607,074 6,111 1.0

commercial 909,642 869,460 40,182 4.6

International (2)

1,999,856 1,658,915 340,941 20.6

Total $ 5,198,679 $ 4,522,550 $ 676,129 15.0%

(1) Includes revenue generated under U.S.

federal government contracts performed outside the United States.

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

clients, primarily in the United Kingdom, Australia and Canada.

Federal Government

Fiscal Year Ended

September 29,

2024 October 1,

($ in thousands)

Revenue $ 1,675,996 $ 1,387,101 $ 288,895 20.8%

Our 20.8% growth in U.S.

federal revenue in fiscal 2024 compared to fiscal 2023 primarily reflects increased international development activity and increased environmental activity for both civilian and defense agencies.

The growth in our international development activity primarily relates to activity in Ukraine to support energy security and other humanitarian needs.

In fiscal 2024, our international development revenue increased approximat ely $122 million compa red to fiscal 2023.

The overall revenue growth also includes approximately $115 million of revenue from our recent acquisitions, that did not have comparable revenue for all la st year.

We expect our U.S.

2 unchanged sentences

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 increased 0.6% in fiscal 2023 compared to fiscal 2022, which includes lower disaster response activity.

Excluding disaster response and the contribution from RPS, our state and loca l government revenue increase d 14.9% in fiscal 2023 compared to last year.

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

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

Most of our work for the U.S.

Fiscal Year Ended

September 29,

2024 October 1,

($ in thousands)

Revenue $ 613,185 $ 607,074 $ 6,111 1.0%

In fiscal 2024, our U.S.

state and local government revenue increased compared to last fiscal year due to continued investment by our clients in clean drinking water;

this growth was offset by lower disaster response revenue of approximately $46 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 12.4% in fiscal 2024 compared to fiscal 2023, primarily reflecting continued increased revenue from advanced water treatment projects.

Most of our work for U.S.

state and local governments relates to critical water and environmental programs, which we expect to continue to grow in fiscal 2025.

commercial reven ue increased 16.1% in fiscal 2023 compared to fiscal 2022.

Excluding the contribution from RPS, our U.S.

commercial revenue increased 8.2% in fiscal 2023 compared to last year.

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

We expect growth in our U.S.

commercial work to continue in fiscal 2024.

Fiscal Year Ended

September 29,

2024 October 1,

($ in thousands)

Revenue $ 909,642 $ 869,460 $ 40,182 4.6%

commercial revenue growth of 4.6% this fiscal year was primarily 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 fiscal 2025.

International

Our international revenue increased 52.5% in fiscal 2023 compared to fiscal 2022.

Excluding the contribution from RPS, our international revenue increased 10.2%, on a constant currency basis, compared to last year.

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

Fiscal Year Ended

September 29,

2024 October 1,

($ in thousands)

Revenue 1,999,856 $ 1,658,915 $ 340,941 20.6%

For fiscal 2024, our international revenue increased 20.6% compared to last year primarily due to higher renewable energy revenue and commercial activities related to an increased focus on sustainability in addition to contributions from acquisitions.

This revenue growth includes approximately $182 million of revenue from our recent acquisitions, that did not have comparable revenue for all of last year.

Excluding the impact of these acquisitions, our revenue increased 9.6% compared to fiscal 2023.

We expect growth in our international work to continue in fiscal 2025.

3 unchanged sentences

Fiscal Year Ended

September 29,

2024 October 1,

7 unchanged sentences

Selling, general and administrative expenses (356,024) (305,107) (50,917) (16.7)

Acquisition and integration expenses (33,169) — (33,169) NM

Acquisition and integration expenses (7,138) (33,169) 26,031 78.5

Right-of-use operating lease asset impairment — (16,385) 16,385 NM

Contingent consideration – fair value adjustments (12,255) (329) (11,926) NM

Contingent consideration – fair value adjustments (2,541) (12,255) 9,714 79.3

Income from operations 500,737 358,113 142,624 39.8

Interest expense – net (37,271) (46,537) 9,266 19.9

Other non-operating income 89,402 19,904 69,498 349.2

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

Income before income tax expense 463,466 400,978 62,488 15.6

7 unchanged sentences

In the course of 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.

Generally, these subcontractor costs and grants are passed through to our clients and, in accordance with generally accepted accounting principles in the United States of America ("U.S.

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

2 unchanged sentences

NM = not meaningful

In fiscal 2023, revenue and revenue, net of subcontractor costs, increased $1.02 billion, or 29.1%, and $915.5 million, or 32.3%, respectively, compared to fiscal 2022.

Excluding the contribution from RPS, our revenue increased 12.0% in fiscal 2023 compared to last year.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $338.0 million, or 18.6%, and $299.0 million, or 22.4%, respectively, in fiscal 2023 compared to the prior year.

Our revenue growth in fiscal 2024 reflects increases in both of our reportable segments.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $324.5 million, or 15.0%, and $274.5 million, or 16.8%, respectively, in fiscal 2024 compar ed to last y ear.

Our CIG segment's revenue increased $362.1 million, or 14.9%, and revenue, net of subcontractor costs, increased $296.2 million, or 14.0% in fiscal 2024 compared to fiscal 2023.

Excluding the contribution from RPS, our CIG segment's revenue increased approximately 6.7% in fiscal 2023 compared to fiscal 2022 (9.5% on a constant currency basis).

The fiscal 2023 results for GSG and CIG segments are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

The fiscal 2024 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 and integration costs related to the RPS acquisition and related lease impairment charge in fiscal 2023, adjustments to contingent consideration liabilities, and a non-operating benefit from Employee Retention Credits ("ERC's") received in fiscal 2022.

GAAP adjusted results, which exclude acquisition and integration costs and adjustments to contingent consideration liabilities in fiscal 2024.

Our fiscal 2023 adjusted results exclude acquisition and integrations costs related to the RPS acquisition and related lease impairment charge and adjustments to contingent consideration liabilities.

Our adjusted earnings per share ("EPS") for fiscal 2023 also excludes non-operating gains on a foreign exchange contract of $89.4 million and non-recurring tax expense items.

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

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

The effective tax rate applied to the adjustments to EPS to arrive at adjusted EPS was 17% and 26% for fisc al 2024 and 2023, r espectively.

The fiscal 2024 rate reflects certain integration costs/losses that were not tax deductible.

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.

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

Fiscal Year Ended

September 29,

2024 October 1,

1 unchanged sentence

Income from operations $ 500,737 $ 358,113 $ 142,624 39.8%

Employee retention credits — (6,486) 6,486 NM

Acquisition & integration expenses 33,169 — 33,169 NM

Acquisition and integration expenses 7,138 33,169 (26,031) (78.5)

Right-of-use operating lease asset impairment — 16,385 (16,385) NM

Earn-out adjustments 12,255 — 12,255 NM

Earn-out adjustments 2,541 12,255 (9,714) (79.3)

Adjusted income from operations (1)

1 unchanged sentence

EPS $ 1.23 $ 1.02 $ 0.21 20.6%

Employee retention credits — (0.08) 0.08 NM

Acquisition & integration expenses 0.56 — 0.56 NM

Acquisition and integration expenses 0.02 0.11 (0.09) (81.8)

Right-of-use operating lease asset impairment — 0.04 (0.04) NM

Earn-out adjustments 0.19 — 0.19 NM

Earn-out adjustments 0.01 0.04 (0.03) (75.0)

Foreign exchange forward contract gain — (0.25) 0.25 NM

4 unchanged sentences

GAAP financial measure

Operating income increased $17.7 million, or 5.2%, in fiscal 2023 compared to last year.

The fiscal 2023 results include $33.2 million of acquisition and integration expenses (primarily investment banking, legal and other professional fees) for the RPS acquisition and a related $16.4 million of right-of-use ("ROU") lease asset impairment expense.

The fiscal 2023 results also include losses of $12.3 million, related to changes in the estimated fair value of contingent earn-out liabilities.

The fiscal 2022 results include the benefit of ERC's totaling $6.5 million, which represents reimbursement from the U.S.

federal government under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") for the costs that we incurred during fiscal 2020 to address the 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 fiscal 2020.

Excluding the acquisition and integration expenses, ROU asset impairment, earn-out losses and the ERC's, our adjusted operating income increased $86.0 million, or 25.7% in fiscal 2023 compared to fiscal 2022.

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 $46.5 million and $11.6 million in fiscal 2023 and 2022, respectively.

Net interest expense in 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 and $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 $31.2 million in fiscal 2023 compared to last year primarily due to the additional borrowings to fund the RPS acquisition.

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

Operating income in fiscal 2024 includes $7.1 million of acquisition and integration expenses (non-cash divestiture and asset impairment charges).

The fiscal 2023 results include $33.2 million of acquisition and integration expenses (primarily investment banking, legal and other professional fees) for the RPS acquisition and a related $16.4 million lease right-of-use asset ("ROU") impairment expense.

The fiscal 2024 and 2023 results also include charges of $2.5 million and $12.3 million, respectively, related to changes in the estimated fair value of contingent earn-out liabilities.

Excluding the acquisition and integration expenses and earn-out charges, our adjusted operating income increased $90.5 million, or 21.6% in fiscal 2024 compared to fiscal 2023.

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

Fiscal Year Ended

September 29,

2024 October 1,

($ in thousands)

Interest expense – net $ 37,271 $ 46,537 $ (9,266) (19.9)%

Net interest expense decreased in fiscal 2024 compared to last fiscal year primarily due to the lower borrowing costs from our convertible notes (the "Convertible Notes") issued in the fourth quarter of fiscal 2023, which we used to refinance the existing higher-cost debt.

In fiscal 2023, 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 and $1.1 million of additional expense for the write-off of previously deferred debt origination fees due to the repayment of RPS' debt facilities.

Excluding these write-offs, our interest expense decreased $5.5 million in fiscal 2024 compared to last year.

Fiscal Year Ended

September 29,

2024 October 1,

($ in thousands)

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

Other non-operating income in 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.

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 cash gain of approximately $109 million.

Fiscal Year Ended

September 29,

2024 October 1,

($ in thousands)

Income tax expense $ 130,023 $ 127,526 $ 2,497 2.0%

The effective tax rates for fiscal 2024 and 2023 were 28.1% and 31.8%, respectively.

Income tax expense in fiscal 2023 included non-operating income tax expenses totaling $20.6 million to (i) increase the tax liability for uncertain tax positions related to certain U.S.

tax credits and an intercompany financing transaction, (ii) to recognize the tax liability for

foreign earnings, primarily in the U.K.

and Australia, that are no longer indefinitely reinvested.

In addition, income tax expense was reduced by $4.6 million and $10.3 million of excess tax benefits on share-based payments in fiscal 2023 and 2022, respectively.

Excluding the impact of the non-operating tax expenses in fiscal 2023 and the excess tax benefits on share-based payments in both years, our effective tax rates in fiscal 2023 and 2022 were 27.8% and 27.5%.

Our EPS was $5.10 in fiscal 2023, compared to $4.86 in fiscal 2022.

Excluding the aforementioned non-operating items (including the foreign exchange gain and the non-operating tax items, which are both reported outside of operating income), our adjusted EPS was $5.21 in fiscal 2023, compared to $4.50 in fiscal 2022, an increase of 15.8%.

For fiscal 2023, we estimate that RPS increased our adjusted EPS by $0.07 before intangible amortization, which reduced our EPS by $0.37.

Excluding RPS, our adjusted EPS was $5.51 in fiscal 2023 representing an increase of 22.4%, compared to fiscal 2022.

Income tax expense was reduced by $4.5 millio n and $4.6 million of excess tax benefits on share-based payments in fiscal 2024 and 2023, respectively.

In addition, income tax expense in fiscal 2024 included $4.2 million of expense for the settlement of various tax positions that were under audit for fiscal years 2011 through 2021.

Furthermore, income tax expense in fiscal 2023 included non-operating income tax expenses totaling $20.6 million to (i) increase the tax liability for uncertain tax positions related to certain U.S.

tax credits and an intercompany financing transaction, (ii) recognize the tax liability for foreign earnings, primarily in the United Kingdom and Australia, that are no longer indefinitely reinvested.

Excluding the impact of the excess tax benefits on share-based payments in both years, the settlement amount in fiscal 2024 and the non-operating tax expenses in fiscal 2023, our effective tax rates in fiscal 2024 and 2023 were 28.1% and 27.8%, respectively.

In December 2021, the Organisation for Economic Cooperation and Development ("OECD") released Pillar Two Model Rules (also referred to as the global minimum tax or Global Anti-Base Erosion "GloBE" rules), which were designed to ensure large multinational enterprises pay a minimum 15 percent level of tax on the income arising in each jurisdiction in which they operate.

Several jurisdictions in which we operate have enacted these rules, which are effective for the first quarter of fiscal 2025.

We are continually monitoring developments and evaluating the potential impacts.

At this time, we do not anticipate a material tax charge as a result of implementation of these rules.

Segment Results of Operations

1 unchanged sentence

Fiscal Year Ended

September 29,

2024 October 1,

4 unchanged sentences

Income from operations $ 281,026 $ 231,762 $ 49,264 21.3%

Revenue and revenue, net of subcontractor costs, increased $338.0 million, or 18.6%, and increased $299.0 million, or 22.4%, respectively, in fiscal 2023 compared to fiscal 2022.

This increase includes approximately $70 million in revenue in the second quarter of fiscal 2023 related to a distinct international development funded energy program in Ukraine.

In addition, the increases reflect higher U.S.

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

federal programs, partially offset by lower disaster response revenue.

Operating income increased $33.3 million in fiscal 2023 compared to fiscal 2022.

The increase in operating income is consistent with the revenue increase noted above.

The fiscal 2023 results were reduced by $6.8 million of the aforementioned lease impairment charge and the fiscal 2022 results included $4.4 million of the aforementioned ERC's.

Our operating margin, based on revenue, net of subcontractor costs, was 14.2% in fiscal 2023 compared to 14.8% last year.

Excluding the lease impairment charge in fiscal 2023 and last year's ERC's, our operating margin increased to 14.6% in fiscal 2023 from 14.5% in fiscal 2022.

For fiscal 2024, the revenue growth of 15.0% compared to fiscal 2023 primarily reflects higher U.S.

federal government activities related to international development, U.S.

state and local government activities related to advanced water treatment and contributions from our recent acquisitions.

This growth was partially offset by lower disaster response activity.

The revenue growth in fiscal 2024 include s a $122 million increase from the aforementioned international development activities in Ukraine compared to last year.

For fiscal 2024, our revenue growth also includes approximately $128 million of revenue from our recent acquisitions, that did not have comparable revenue for all of fiscal 2023.

Conversely, our revenue growth also includes decreased revenue from disaster response activities, which was approximately $46 million lower in fiscal 2024 compared to fiscal 2023.

Excluding the acquisitions, increased activity in Ukraine and the partially offsetting lower disaster response revenue, our revenue increased 6.7% in fiscal 2024 compared to last year.

Operating income increased primarily due to the aforementioned revenue growth.

Additionally, our fiscal 2023 operating income was reduced by $6.8 million of the aforementioned lease impairment charge.

Excluding last year's lease impairment charge, our operating margin, based on revenue, net of subcontractor costs, increased to 14.7% in fiscal 2024 compared to 14.6% in fiscal 2023.

Commercial/International Services Group ("CIG")

Fiscal Year Ended

September 29,

2024 October 1,

4 unchanged sentences

Income from operations $ 328,510 $ 243,750 $ 84,760 34.8%

Revenue and revenue, net of subcontractor costs, increased $686.2 million, or 39.5%, and increased $616.5 million, or 41.1%, respectively, in fiscal 2023 compared to fiscal 2022.

The RPS acquisition contributed approximately $570 million to revenue growth in fiscal 2023.

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

Operating income increased $49.6 million in fiscal 2023 compared to fiscal 2022.

The RPS acquisition contributed approximately $34 million to operating income in fiscal 2023.

Conversely, the fiscal 2023 results were reduced by $8.3 million of the aforementioned lease impairment charge.

The fiscal 2022 operating income included $1.9 million of the aforementioned ERC's.

Our operating margin, based on revenue, net of subcontractor costs, was 11.5% in fiscal 2023 compared to 13.0% in

Excluding the lease impairment and RPS in fiscal 2023 and the ERC's in fiscal 2022, our operating margin was 13.3% in fiscal 2023 compared to 12.8% in fiscal 2022.

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

For fiscal 2024, the revenue growth of 14.9% compared to fiscal 2023 primarily reflects increased activities related to renewable energy and international sustainable infrastructure in addition to contributions from acquisitions.

The revenue growth in fiscal 2024 includes approximately $205 million from the RPS acquisition that did not have comparable revenue in fiscal 2023.

Excluding the impact of the RPS acquisition, our revenue increased 6.5% in fiscal 2024 compared to last year.

For fiscal 2024, our operating income increased due to the aforementioned revenue growth.

Additionally, our operating income in fiscal 2023 was reduced by $8.3 million of the aforementioned lease impairment charge.

Our operating margin also improved in fiscal 2024 compared to last year resulting in enhanced operating income.

Excluding the lease impairment charge last year, our operating margin, based on revenue, net of subcontractor costs, improved approximately 170 basis points from 11.9% in fiscal 2023 to 13.6% in this fiscal 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.

Fiscal 2023 Compared to Fiscal 2022

10 unchanged sentences

Selling, general and administrative expenses (305,107) (234,784) (70,323) (30.0)

Contingent consideration – fair value adjustments (329) 3,273 (3,602) (110.1)

Acquisition and integration expenses (33,169) — (33,169) NM

Right-of-use operating lease asset impairment (16,385) — (16,385) NM

Contingent consideration – fair value adjustments (12,255) (329) (11,926) NM

Income from operations 358,113 340,446 17,667 5.2

Interest expense – net (46,537) (11,584) (34,953) (301.7)

Other income 19,904 — 19,904 NM

Other non-operating income 89,402 19,904 69,498 349.2

Income before income tax expense 400,978 348,766 52,212 15.0

12 unchanged sentences

NM = not meaningful

In fiscal 2022, revenue and revenue, net of subcontractor costs, increased $290.5 million, or 9.0%, and $283.4 million, or 11.1%, respectively, compared to fiscal 2021.

Excluding the contributions from acquisitions, which did not have comparable revenue in fiscal 2021, our revenue increased 4.1% in fiscal 2022 compared to fiscal 2021.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $48.0 million, or 2.7%, and $70.7 million, or 5.6%, respectively, in fiscal 2022 compared to the prior year.

Our CIG segment's revenue increased $238.4 million, or 15.9%, and revenue, net of subcontractor costs, increased $213.3 million, or 16.6% in fiscal 2022 compared to fiscal 2021.

In fiscal 2023, revenue and revenue, net of subcontractor costs, increased $1.02 billion, or 29.1%, and $915.5 million, or 32.3%, respectively, compared to fiscal 2022.

Excluding the contribution from RPS, our revenue increased 12.0% in fiscal 2023 compared to the previous year.

Our GSG segment's revenue and revenue, net of subcontractor costs, increased $338.0 million, or 18.6%, and $299.0 million, or 22.4%, respectively, in fiscal 2023 compared to fiscal 2022.

Our CIG segment's revenue increased $686.2 million, or 39.5%, and revenue, net of subcontractor costs, increased $616.5 million, or 41.1% in fiscal 2023 compared to the previous year.

Excluding the contribution from RPS, our CIG segment's revenue increased approximately 6.7% in fiscal 2023 compared to fiscal 2022 (9.5% on a constant currency basis).

The fiscal 2023 results for GSG and CIG segments are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

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

GAAP adjusted results, which exclude a non-operating benefit from ERC's received in fiscal 2022 and gains from adjustments to contingent consideration liabilities in fiscal 2021.

Our adjusted EPS for fiscal 2022 also excludes a non-operating $19.9 million unrealized gain on the aforementioned foreign exchange contract that served as an economic hedge related to our acquisition of RPS.

This gain is reported as "Other non-operating income" in our Consolidated Statement of Income for fiscal 2022.

Our adjusted EPS for fiscal 2021 also excludes non-recurring tax items.

The effective tax rates applied to the adjustments to EPS to arrive at adjusted EPS average 26% and 25% for fiscal 2022 and 2021, respectively.

GAAP adjusted results, which exclude our acquisition and integration costs related to the RPS acquisition, a related lease impairment charge and adjustments to contingent consideration liabilities in fiscal 2023, and a non-operating benefit from Employee Retention Credits ("ERC's") received in fiscal 2022.

Our adjusted EPS also excludes non-operating gains on a foreign exchange contract of $89.4 million for fiscal 2023 and $19.9 million for fiscal 2022, as well as non-recurring tax expense items for fiscal 2023.

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

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

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

4 unchanged sentences

Income from operations $ 358,113 $ 340,446 $ 17,667 5.2%

Earn-out adjustments — (3,273) 3,273 NM

Employee retention credits — (6,486) 6,486 NM

Acquisition and integration expenses 33,169 — 33,169 NM

Right-of-use operating lease asset impairment 16,385 — 16,385 NM

Earn-out adjustments 12,255 — 12,255 NM

Adjusted income from operations (1)

1 unchanged sentence

EPS $ 1.02 $ 0.97 $ 0.05 5.2%

Earn-out adjustments — (0.04) 0.04 NM

Employee retention credits — (0.02) 0.02 NM

Other income (0.28) — (0.28) NM

Non-recurring tax benefits — (0.43) 0.43 NM

Acquisition and integration expenses 0.11 — 0.11 NM

Right-of-use operating lease asset impairment 0.04 — 0.04 NM

Earn-out adjustments 0.04 — 0.04 NM

Foreign exchange forward contract gain (0.25) (0.06) (0.19) NM

Non-recurring tax items 0.08 — 0.08 NM

Adjusted EPS (1)

3 unchanged sentences

Operating income increased $17.7 million, or 5.2%, in fiscal 2023 compared to fiscal 2022.

The fiscal 2022 results included the benefit of ERC's totaling $6.5 million.

Excluding the ERC's and the contributions from acquisitions, which did not have comparable results in fiscal 2021, our adjusted operating income increased $31.5 million, or 11.5% in fiscal 2022 compared to fiscal 2021.

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

The fiscal 2023 results also include losses of $12.3 million, related to changes in the estimated fair value of contingent earn-out liabilities.

The fiscal 2022 results include the benefit of Employee Retention Credits ("ERC's") totaling $6.5 million, which represents reimbursement from the U.S.

federal government under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") for the costs that

we incurred during fiscal 2020 to address the coronavirus disease 2019 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 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 $46.5 million and $11.6 million in fiscal 2023 and 2022, respectively.

The decrease primarily reflects lower average year-over-year borrowings, partially offset by higher borrowing rates.

Excluding these write-offs, our interest expense increased $31.2 million in fiscal 2023 compared to fiscal 2022 primarily due to the additional borrowings to fund the RPS acquisition.

Other non-operating income of $89.4 million in fiscal 2023 and $19.9 million in fiscal 2022, reflect the previously described gain on a foreign exchange forward contract integrated with the RPS acquisition.

The effective tax rates for fiscal 2023 and 2022 were 31.8% and 24.5%, respectively.

The fiscal 2021 effective tax rate reflects a non-recurring net tax benefit of $21.6 million, primarily consisting of a valuation allowance in the United Kingdom that was released due to sufficient sustainable profitability being achieved in fiscal 2021.

The valuation allowance was primarily related to net operating loss carry-forwards.

In fiscal 2021, we repatriated approximately $80 million from Canada and recognized a related tax expense of $5.6 million.

Also, i ncome tax expense was reduced by $10.3 million and $12.9 million of excess tax benefits on share-based payments in fiscal 2022 and 2021, respectively.

Excluding the impact of the fiscal 2021 valuation allowance benefit, the fiscal 2021 Canadian repatriation and the excess tax benefits on share-based payments in both fiscal years, our effective tax rates for fiscal 2022 and 2021 were 27.5% and 25.7%, respectively.

Our EPS was $4.86 in fiscal 2022, compared to $4.26 in fiscal 2021.

Excluding the aforementioned non-operating and non-recurring items, our adjusted EPS was $4.50 in fiscal 2022, compared to $3.79 the prior year, an increase of 18.7%.

Income tax expense in fiscal 2023 included non-operating income tax expenses totaling $20.6 million to (i) increase the tax liability for uncertain tax positions related to certain U.S.

In addition, income tax expense was reduced by $4.6 million and $10.3 million of excess tax benefits on share-based payments in fiscal 2023 and 2022, respectively.

Segment Results of Operations

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Revenue and revenue, net of subcontractor costs, increased $338.0 million, or 18.6%, and increased $299.0 million, or 22.4%, respectively, in fiscal 2023 compared to fiscal 2022.

The increases primarily reflect higher U.S.

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

This increase includes approximately $70 million in revenue in the second quarter of fiscal 2023 related to a distinct international development funded energy program in Ukraine.

In addition, the increases reflect higher U.S.

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

federal programs, partially offset by lower disaster response revenue.

Operating income increased $33.3 million in fiscal 2023 compared to fiscal 2022.

The fiscal 2022 results included $4.4 million of the aforementioned ERC's.

Excluding this benefit, operating income increased 11.0% in fiscal 2022 compared the previous year.

Our operating margin, based on revenue, net of subcontractor costs, improved to 14.8% in fiscal 2022 compared to 13.8% in fiscal 2021.

Excluding the ERC's, our op erating margin was 14.5% in fiscal 2022.

The improved operating margin in fiscal 2022 was primarily due to our increased focus on high-end consulting services, including digital water, and improved labor utilization.

The increase in operating income is consistent with the revenue increase noted above.

The fiscal 2023 results were reduced by $6.8 million of the aforementioned lease impairment charge and the fiscal 2022 results included $4.4 million of the aforementioned ERC's.

Our operating margin, based on revenue, net of subcontractor costs, was 14.2% in fiscal 2023 compared to 14.8% the previous year.

Excluding the lease impairment charge in fiscal 2023 and the ERC's in fiscal 2022, our operating margin increased to 14.6% in fiscal 2023 from 14.5% in fiscal 2022.

Commercial/International Services Group ("CIG")

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Revenue and revenue, net of subcontractor costs, increased $686.2 million, or 39.5%, and increased $616.5 million, or 41.1%, respectively, in fiscal 2023 compared to fiscal 2022.

The revenue growth primarily reflects increased activity on commercial environmental programs, including meeting net zero carbon goals and high performance buildings.

These increases were also due to the international government stimulus spending on infrastructure.

Additionally, the fiscal 2022 revenue included contributions from acquisitions, which did not have comparable revenue in fiscal 2021.

The RPS acquisition contributed approximately $570 million to revenue growth in fiscal 2023.

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

Operating income increased $49.6 million in fiscal 2023 compared to fiscal 2022.

The RPS acquisition contributed approximately $34 million to operating income in fiscal 2023.

Conversely, the fiscal 2023 results were reduced by $8.3 million of the aforementioned lease impairment charge.

The fiscal 2022 operating income included $1.9 million of the aforementioned ERC's.

Excluding this benefit, operating income increased 26.2% in fiscal 2022 compared the prior fiscal year.

Our operating margin, based on revenue, net of subcontractor costs, improved to 13.0% in fiscal 2022 compared to 11.8% in fiscal 2021.

Excluding the ERC's, o ur operating margin was 12.8% for fiscal 2022.

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

Remediation and Construction Management ("RCM")

RCM's projects were substantially complete at the end of fiscal 2018.

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

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

There were no significant operating activities in RCM for fiscal 2022 and 2021.

Our operating margin, based on revenue, net of subcontractor costs, was 11.5% in fiscal 2023 compared to 13.0% in fiscal 2022.

Excluding the lease impairment and RPS in fiscal 2023 and the ERC's in fiscal 2022, our operating margin was 13.3% in fiscal 2023 compared to 12.8% in fiscal 2022.

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

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Capital Requirements.

As of October 1, 2023, we had $168.8 million of cash and cash equivalents and access to an additional $800 million of borrowing available under our credit facility.

We generated $368.5 million of cash from operations

in fiscal 2023.

At September 29, 2024, we had $232.7 million of cash and cash equivalents and access to an additional $800 million of borrowing available under our credit facility.

We generated $358.7 million of cash from operations in fiscal 2024.

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.

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.

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

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

At fiscal 2024 year-end, we had a remaining balance of $347.8 million under our stock repurchase program.

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Cash and Cash Equivalents.

As of October 1, 2023, cash and cash equivalents were $168.8 million, a decrease of $16.3 million compared to the fiscal 2022 year-end.

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

Fiscal Year Ended

September 29,

2024 October 1, 2023 Change

Cash and cash equivalents $ 232,689 $ 168,831 $ 63,858 37.8%

Fiscal Year Ended

September 29,

2024 October 1,

Net cash provided by (used in):

Operating activities $ 358,708 $ 368,463 $ (9,755) (2.6)%

Cash provided by operating activities increased 9.6% from $336.2 million in fiscal 2022 to $368.5 million in fiscal 2023.

The increase primarily reflects improved working capital, partially offset by approximately $37.0 million of additional payments made in fiscal 2023 for the RPS acquisition, primarily related to the acquisition and integration costs.

Investing activities (111,043) (771,199) 660,156 85.6

Net cash used in investing activities was $771.2 million in fiscal 2023, an increase of $715.5 million compared to fiscal 2022.

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

Financing activities (191,380) 382,380 (573,760) (150.0)

In fiscal 2023, net cash provided by financing activities was $382.4 million compared to net cash used in financing activities of $249.6 million in fiscal 2022.

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

Effect of exchange rate changes 7,573 4,093 3,480 85.0

Net increase (decrease) in cash and cash equivalents $ 63,858 $ (16,263) $ 80,121 492.7%

Operating Activities.

Cash from operations in fiscal 2024 decreased 2.6% compared to fiscal 2023.

Our cash flow from operations in fiscal 2023 benefited from improved management of working capital through faster collection of accounts receivable compared to previous years.

This trend was stable in fiscal 2024.

For fiscal 2024, we paid $10.5 million less in interest compared to last year, primarily due 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 incurred to fund the RPS acquisition in the second quarter of fiscal 2023.

This improvement and the benefit of higher earnings in fiscal 2024 were substantially offset by higher income tax payments.

We paid $27 million in U.S.

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

Investing Activities.

For fiscal 2024, the cash used in investing activities includes net payments of $94 million for the acquisitions completed during the year.

The fiscal 2023 period reflects $854 million of net payments for the acquisitions completed last year (primarily RPS), net of the $109 million of related foreign exchange hedge proceeds received in the second quarter of fiscal 2023.

Financing Activities.

For fiscal 2024, net cash provided by financing activities declined.

The decrease was due to a net borrowing of $544 million in fiscal 2023 versus net debt repayments of $70 million in fiscal 2024.

The fiscal 2023 borrowings were used primarily to fund our fiscal 2023 acquisitions.

To a lesser extent, the decline in our net cash provided by financing activities was due to $25 million more cash used for contingent earn-out payments in fiscal 2024 compared to last year.

Debt Financing.

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On January 23, 2023, we drew the entire amount of the New Term Loan Facility to partially finance the RPS acquisition.

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

The New Term Loan Facility is not subject to any amortization payments of principal and matures in January 2026.

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

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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.

In fiscal 2023, we repaid the Amended Term Loan Facility in full with the Convertible Notes proceeds.

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").

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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 9, "Long-Term Debt" of the "Notes to Consolidated Financial Statements" in Item 8 for further discussion.

At fiscal 2023 year-end, we had $320 million in outstanding borrowings under the Amended Credit Agreement, which was all under the New Ter m Loan Facility, and no borrowings under the Amended Revolving Credit Facility.

The weighted-average interest rate of the outstanding borrowings during fiscal 2023 was 5.71%.

At fiscal 2024 year-end, we had $250 million in outstanding borrowings under the Amended Credit Agreement, which consisted of $250 million under the New Term Loan Facility and no borrowings under the Amended Revolving Credit Facility.

The weighted-average interest rate of the outstanding borrowings under the Amended Credit Agreement during fiscal 2024 was 6.70%.

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 during fiscal 2023 under the Amended Credit Agreement, including the effects of interest rate swap agreements described in Note 14, “Derivative Financial Instruments” of the "Notes to Consolidated Financial Statements" included in Item 8, was 5.37%.

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

Commitment fees related to our revolving credit facilities were $0.6 million for fiscal year 2023 and $0.7 million each year for fiscal 2022 and 2021, respectively.

At September 29, 2024, we had $499.3 million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of our debt covenants.

Commitment fees related to our revolving credit facilities were $0.8 million, $0.6 million, and $0.7 million for fiscal year 2024, 2023 and 2022, respectively.

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 October 1, 2023, we were in compliance with these covenants with a consolidated leverage ratio of 1.79x and a consolidated interest coverage ratio of 9.84x.

At September 29, 2024, we were in compliance with these covenants with a consolidated leverage ratio of 1.38x and a consolidated interest coverage ratio of 13.94x.

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 October 1, 2023, there were no outstanding borrowings under these facilities, and the aggregate amount of standby letters of credit outstanding was $54.9 million.

As of October 1, 2023, we had no bank overdrafts related to our disbursement bank accounts.

At September 29, 2024, there were no outstanding borrowings under these facilities, and the aggregate amount of standby letters of credit outstanding was $43.3 million.

As of September 29, 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.

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January 29, 2024 $ 0.052 February 14, 2024 $ 13,908 February 27, 2024

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

August 7, 2023 $ 0.26 August 23, 2023 $ 13,845 September 6, 2023

April 29, 2024 $ 0.058 May 20, 2024 $ 15,522 May 31, 2024

July 29, 2024 $ 0.058 August 15, 2024 $ 15,525 August 30, 2024

November 11, 2024 $ 0.058 November 27, 2024 N/A December 13, 2024

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We are required to reimburse the issuers of letters of credit and bank guarantees for any payments they make under the outstanding letters of credit or bank guarantees.

Our Amended Credit Agreement and additional letter of credit facilities cover the issuance of our standby letters of credit and bank guarantees and are critical for our normal operations.

If we default on t he 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.

Our Amended Credit Agreement and additional letter of credit facilities cover the issu ance of our standby letters of credit and bank guarantees and are critical for our normal operations.

If we default on the Amended Credit Agreement or additional credit facilities, our inability to issue or renew standby letters of credit and bank guarantees would impair our ability to maintain normal operations.

At fiscal 2024 year-end, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $43.3 million in standby letters of credit outstanding under our additional letter of credit facilities.

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Revenue Recognition and Contract Costs

To determine the proper revenue recognition method for contracts under ASC 606, we evaluate whether multiple contracts should be combined and accounted for as a single contract and whether the combined or single contract should be accounted for as having more than one performance obligation.

The decision to combine a group of contracts or separate a combined or single contract into multiple performance obligations may impact the amount of revenue recorded in a given

To determine the proper revenue recognition method for contracts under Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers", we evaluate whether multiple contracts should be combined and accounted for as a single contract and whether the combined or single contract should be accounted for as having more than one performance obligation.

The decision to combine a group of contracts or separate a combined or single contract into multiple performance obligations may impact the amount of revenue recorded in a given period.

Contracts are considered to have a single performance obligation if the promises are not separately identifiable from other promises in the contracts.

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Identifiable intangible assets primarily include backlog, client relations and trade names.

The costs of these intangible assets are amortized over their contractual or economic lives, which range from one to twelve years.

The costs of these intangible assets are amortized over their contractual or economic lives, which range from one to 12 years.

We assess the recoverability of the unamortized balance of our intangible assets when indicators of impairment are present based on expected future profitability and undiscounted expected cash flows and their contribution to our overall operations.

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Such changes in assumptions could be caused by a loss of one or more significant contracts, reductions in government or commercial client spending or a decline in the demand for our services due to changing economic conditions.

In the event that we determine that our goodwill is impaired, we would be required to record a non-cash charge that could result in a material adverse effect on our results of operations or financial position.

In the event that we determine that our goodwill is impaired, we would be

required to record a non-cash charge that could result in a material adverse effect on our results of operations or financial position.

We use two methods to determine the fair value of our reporting units:

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The Income Approach utilizes the discounted cash flow method, which focuses on the expected cash flow of the reporting unit.

In applying this approach, the cash flow

available for distribution is calculated for a finite period of years.

In applying this approach, the cash flow available for distribution is calculated for a finite period of years.

Cash flow available for distribution is defined, for purposes of this analysis, as the amount of cash that could be distributed as a dividend without impairing the future profitability or operations of the reporting unit.

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The contingent earn-out payments are not affected by employment termination.

We measure our contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy (See Note 2, "Basis of Presentation and Preparation – Fair Value of Financial Instruments" of the "Notes to Consolidated Financial Statements" included in Item 8).

We measure our contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy (See Note 2, "Basis of Presentation – Fair Value of Financial Instruments" of the "Notes to Consolidated Financial Statements" included in Item 8).

We use a probability weighted discounted income approach as a valuation technique to convert future estimated cash flows to a single present value amount.

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RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting standards and the effect they could have on the consolidated financial statements, see Note 2, "Basis of Presentation and Preparation" of the "Notes to Consolidated Financial Statements" included in Item 8.

For a discussion of recent accounting standards and the effect they could have on the consolidated financial statements, see Note 2, "Basis of Presentation" of the "Notes to Consolidated Financial Statements" included in Item 8.

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-K

Item 7. Management’s Discussion and Analysis