TETRA TECH INC - Quarter Report: 2022 July (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-19655

TETRA TECH, INC.

(Exact name of registrant as specified in its charter)


Delaware						95-4148514
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

3475 East Foothill Boulevard, Pasadena, California 91107

(Address of principal executive offices) (Zip Code)

(626) 351-4664

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

TTEK

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of July 25, 2022, 53,318,715 shares of the registrant’s common stock were outstanding.

TETRA TECH, INC.

INDEX


PART I.	FINANCIAL INFORMATION	PAGE NO.

Item 1.	Financial Statements (Unaudited)	3

	Consolidated Balance Sheets as of J uly 3, 2022 and October 3, 2021	3

	Consolidated Statements of Income for the Three and Nine Months Ended July 3, 2022 and J une 2 7 , 2021	4

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended July 3, 2022 and June 2 7 , 2021	5

	Consolidated Statements of Cash Flows for the Nine Months Ended July 3, 2022 and June 2 7 , 2021	6

	Consolidated Statements of Equity for the Three and Nine Months Ended July 3, 2022 and June 2 7 , 2021	7

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

PART II.	OTHER INFORMATION	35

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 4.	Mine Safety Disclosures	36

Item 6.	Exhibits	36

SIGNATURES		38

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Tetra Tech, Inc.

Consolidated Balance Sheets

(unaudited - in thousands, except par value)


ASSETS	July 3, 2022		October 3, 2021
Current assets:
Cash and cash equivalents	$	217,384	$	166,568
Accounts receivable, net	722,868		668,998
Contract assets	99,830		103,784
Prepaid expenses and other current assets	94,497		112,338
Income taxes receivable	10,778		14,260
Total current assets	1,145,357		1,065,948

Property and equipment, net	35,010		37,733
Right-of-use assets, operating leases	191,022		215,422
Investments in unconsolidated joint ventures	3,974		3,282
Goodwill	1,151,457		1,108,578
Intangible assets, net	33,943		37,990
Deferred tax assets	56,634		54,413
Other long-term assets	60,309		53,196
Total assets	$	2,677,706	$	2,576,562

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	138,190	$	128,767
Accrued compensation	224,611		206,322
Contract liabilities	247,013		190,403
Short-term lease liabilities, operating leases	60,101		67,452

Current portion of long-term debt and other short-term borrowings	27,081		12,504
Current contingent earn-out liabilities	32,386		19,520
Other current liabilities	216,083		223,515
Total current liabilities	945,465		848,483

Deferred tax liabilities	18,282		10,563
Long-term debt	234,375		200,000
Long-term lease liabilities, operating leases	154,499		174,285
Long-term contingent earn-out liabilities	50,900		39,777
Other long-term liabilities	69,127		69,163

Commitments and contingencies (Note 17)

Equity:
Preferred stock - authorized, 2,000 shares of $0.01 par value; no shares issued and outstanding at July 3, 2022 and October 3, 2021	—		—
Common stock - authorized, 150,000 shares of $0.01 par value; issued and outstanding, 53,319 and 53,981 shares at July 3, 2022 and October 3, 2021, respectively	533		540

Accumulated other comprehensive loss	(157,806)		(125,028)
Retained earnings	1,362,284		1,358,726
Tetra Tech stockholders’ equity	1,205,011		1,234,238
Noncontrolling interests	47		53
Total stockholders' equity	1,205,058		1,234,291
Total liabilities and stockholders' equity	$	2,677,706	$	2,576,562

See Notes to Consolidated Financial Statements.

Tetra Tech, Inc.

Consolidated Statements of Income

(unaudited – in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	July 3, 2022		June 27, 2021		July 3, 2022		June 27, 2021
Revenue	$	890,231	$	801,633	$	2,601,485	$	2,321,500
Subcontractor costs	(169,745)		(163,590)		(502,024)		(478,461)
Other costs of revenue	(575,902)		(512,347)		(1,679,937)		(1,488,549)
Gross profit	144,584		125,696		419,524		354,490
Selling, general and administrative expenses	(60,679)		(55,889)		(173,879)		(157,625)


Income from operations	83,905		69,807		245,645		196,865
Interest expense, net	(2,919)		(2,737)		(8,967)		(8,585)
Income before income tax expense	80,986		67,070		236,678		188,280
Income tax expense	(22,329)		(15,146)		(56,473)		(38,380)
Net income	58,657		51,924		180,205		149,900
Net income attributable to noncontrolling interests	(7)		(21)		(26)		(44)
Net income attributable to Tetra Tech	$	58,650	$	51,903	$	180,179	$	149,856
Earnings per share attributable to Tetra Tech:
Basic	$	1.10	$	0.96	$	3.35	$	2.77
Diluted	$	1.09	$	0.95	$	3.32	$	2.74
Weighted-average common shares outstanding:
Basic	53,507		54,117		53,777		54,095
Diluted	54,006		54,666		54,328		54,698

See Notes to Consolidated Financial Statements.

Tetra Tech, Inc.

Consolidated Statements of Comprehensive Income

(unaudited – in thousands)


	Three Months Ended				Nine Months Ended
	July 3, 2022		June 27, 2021		July 3, 2022		June 27, 2021
Net income	$	58,657	$	51,924	$	180,205	$	149,900

Other comprehensive income, net of tax
Foreign currency translation adjustment, net of tax	(44,884)		11,159		(42,763)		54,527
Gain on cash flow hedge valuations, net of tax	2,380		1,498		9,984		4,864
Other comprehensive income (loss), net of tax	(42,504)		12,657		(32,779)		59,391

Comprehensive income, net of tax	$	16,153	$	64,581	$	147,426	$	209,291
Comprehensive income attributable to noncontrolling interests, net of tax	6		23		25		50
Comprehensive income attributable to Tetra Tech, net of tax	$	16,147	$	64,558	$	147,401	$	209,241

See Notes to Consolidated Financial Statements.

Tetra Tech, Inc.

Consolidated Statements of Cash Flows

(unaudited – in thousands)


	Nine Months Ended
	July 3, 2022		June 27, 2021
Cash flows from operating activities:
Net income	$	180,205	$	149,900
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	19,545		16,811
Equity in income of unconsolidated joint ventures	(5,233)		(3,513)
Distributions of earnings from unconsolidated joint ventures	4,532		2,773
Amortization of stock-based awards	19,104		16,261

Deferred income taxes	750		123

Fair value adjustments to contingent consideration	(64)		(163)
Loss (gain) on sale of assets	93		(110)

Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable and contract assets	(54,874)		10,999
Prepaid expenses and other assets	33,254		17,243
Accounts payable	8,845		19,712
Accrued compensation	15,349		(7,332)
Contract liabilities	59,025		3,083
Other liabilities	(12,702)		1,389

Income taxes receivable/payable	8,147		(638)
Net cash provided by operating activities	275,976		226,538
Cash flows from investing activities:
Payments for business acquisitions, net of cash acquired	(33,624)		(17,154)
Capital expenditures	(8,401)		(6,234)
Proceeds from sale of assets	3,754		333

Net cash used in investing activities	(38,271)		(23,055)
Cash flows from financing activities:
Proceeds from borrowings	141,456		165,570

Repayments on long-term debt	(108,949)		(173,895)


Bank overdrafts	—		(33,770)
Repurchases of common stock	(150,000)		(45,000)
Taxes paid on vested restricted stock	(25,193)		(17,589)
Stock options exercised	1,205		10,703
Dividends paid	(33,873)		(29,241)
Payments of contingent earn-out liabilities	(4,035)		(12,374)
Principal payments on finance leases	(3,097)		(1,908)
Net cash used in financing activities	(182,486)		(137,504)

Effect of exchange rate changes on cash and cash equivalents	(4,403)		10,772
Net increase in cash and cash equivalents	50,816		76,751
Cash and cash equivalents at beginning of period	166,568		157,515
Cash and cash equivalents at end of period	$	217,384	$	234,266
Supplemental information:
Cash paid during the period for:
Interest	$	7,556	$	7,044
Income taxes, net of refunds received of $4.2 million and $2.0 million	$	49,131	$	36,664
Supplemental disclosures on non-cash investing activities:
Issuance of promissory note for business acquisition	$	14,578	$	—

See Notes to Consolidated Financial Statements.

Tetra Tech, Inc.

Consolidated Statements of Stockholders' Equity

Three Months Ended June 27, 2021 and July 03, 2022

(unaudited – in thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Tetra Tech Equity		Non-Controlling Interests		Total Equity
	Shares	Amount
BALANCE AT MARCH 28, 2021	54,158	$	542	$	—	$	(115,056)	$	1,261,661	$	1,147,147	$	81	$	1,147,228
Net income								51,903		51,903		21		51,924
Other comprehensive income						12,655				12,655		2		12,657
Distributions paid to noncontrolling interests										—		(9)		(9)
Cash dividends of $0.20 per common share								(10,831)		(10,831)				(10,831)
Stock-based compensation				5,695						5,695				5,695
Restricted & performance shares released	2	—		(101)						(101)				(101)
Stock options exercised	29	1		931						932				932

Stock repurchases	(118)	(2)		(6,525)				(8,473)		(15,000)				(15,000)
BALANCE AT JUNE 27, 2021	54,071	$	541	$	—	$	(102,401)	$	1,294,260	$	1,192,400	$	95	$	1,192,495

BALANCE AT APRIL 3, 2022	53,683	$	537	$	—	$	(115,303)	$	1,359,367	$	1,244,601	$	41	$	1,244,642
Net income								58,650		58,650		7		58,657
Other comprehensive loss						(42,503)				(42,503)		(1)		(42,504)

Cash dividends of $0.23 per common share								(12,311)		(12,311)				(12,311)
Stock-based compensation				12,747				(6,035)		6,712				6,712
Restricted & performance shares released	4	—		(6,172)				6,034		(138)				(138)


Stock repurchases	(368)	(4)		(6,575)				(43,421)		(50,000)				(50,000)
BALANCE AT JULY 3, 2022	53,319	$	533	$	—	$	(157,806)	$	1,362,284	$	1,205,011	$	47	$	1,205,058

Tetra Tech, Inc.

Consolidated Statements of Stockholders' Equity

Nine months ended June 27, 2021 and July 03, 2022

(unaudited – in thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Tetra Tech Equity		Non-Controlling Interests		Total Equity
	Shares	Amount
BALANCE AT SEPTEMBER 27, 2020	53,797	$	538	$	—	$	(161,786)	$	1,198,567	$	1,037,319	$	54	$	1,037,373
Net income								149,856		149,856		44		149,900
Other comprehensive income						59,385				59,385		6		59,391
Distributions paid to noncontrolling interests										—		(9)		(9)
Cash dividends of $0.54 per common share								(29,241)		(29,241)				(29,241)
Stock-based compensation				16,261						16,261				16,261
Restricted & performance shares released	213	2		(17,591)						(17,589)				(17,589)
Stock options exercised	304	4		10,699						10,703				10,703
Shares issued for Employee Stock Purchase Plan	124	1		10,705						10,706				10,706
Stock repurchases	(367)	(4)		(20,074)				(24,922)		(45,000)				(45,000)
BALANCE AT JUNE 27, 2021	54,071	$	541	$	—	$	(102,401)	$	1,294,260	$	1,192,400	$	95	$	1,192,495

BALANCE AT OCTOBER 3, 2021	53,981	$	540	$	—	$	(125,028)	$	1,358,726	$	1,234,238	$	53	$	1,234,291
Net income								180,179		180,179		26		180,205
Other comprehensive loss						(32,778)				(32,778)		(1)		(32,779)
Distributions paid to noncontrolling interests										—		(31)		(31)
Cash dividends of $0.63 per common share								(33,873)		(33,873)				(33,873)
Stock-based compensation				19,104				—		19,104				19,104
Restricted & performance shares released	189	2		(25,195)				—		(25,193)				(25,193)
Stock options exercised	29	—		1,205						1,205				1,205
Shares issued for Employee Stock Purchase Plan	106	1		12,128						12,129				12,129
Stock repurchases	(986)	(10)		(7,242)				(142,748)		(150,000)				(150,000)

BALANCE AT JULY 3, 2022	53,319	$	533	$	—	$	(157,806)	$	1,362,284	$	1,205,011	$	47	$	1,205,058

See Notes to Consolidated Financial Statements.

TETRA TECH, INC.

Notes to Consolidated Financial Statements

1. Basis of Presentation

The accompanying unaudited consolidated financial statements and related notes of Tetra Tech, Inc. (“we,” “us,” “our” or "Tetra Tech") have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and, therefore, should be read in conjunction with the audited consolidated financial statements and the notes contained in our Annual Report on Form 10-K for the fiscal year ended October 3, 2021.

These financial statements reflect all normal recurring adjustments that are considered necessary for a fair statement of our financial position, results of operations and cash flows for the interim periods presented. The results of operations and cash flows for any interim period are not necessarily indicative of results for the full fiscal year or for future fiscal years.

Beginning in fiscal 2022, we aligned our operations to better serve our clients and markets, and created a new High Performance Buildings ("HPB") division in our Commercial/International Services Group ("CIG") reportable segment. As a result, we transferred some related operations in our Government Services Group ("GSG") reportable segment to our CIG reportable segment. Prior year amounts for reportable segments have been reclassified to conform to the current year presentation.

2. Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to general principles in Topic 740 and amending certain existing guidance for clarity. We adopted this guidance in the first quarter of fiscal 2022, and the adoption did not have an impact on our consolidated financial statements.

In May 2020, the Securities and Exchange Commission issued guidance amending certain financial disclosures about acquired and disposed businesses. The amendments are designed to assist registrants in making more meaningful determinations of whether a subsidiary or an acquired or disposed business is significant, and to improve the related disclosure requirements. We adopted this guidance in the first quarter of fiscal 2022, and the adoption did not have an impact on our consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, which requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers" ("ASC 606"). Considerations to determine the amount of contract assets and contract liabilities to record at the acquisition date include the terms of the acquired contract, such as timing of payment, identification of each performance obligation in the contract and allocation of the contract transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception. ASU 2021-08 is effective for us beginning in the first quarter of fiscal 2023. ASU 2021-08 should be applied prospectively for acquisitions occurring on or after the effective date of the amendments. Early adoption of the proposed amendments would be permitted, including adoption in an interim period. We adopted this guidance in the first quarter of fiscal 2022, and the adoption did not have an impact on our consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires disclosures for transactions with a government authority that are accounted for by applying a grant or contribution model by analogy, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity's financial statements. ASU 2021-10 is effective for us beginning in the first quarter of fiscal 2023, with early adoption permitted. This guidance should be applied prospectively to all transactions that are reflected in the financial statements at the date of initial application and to new transactions that are entered into after that date, or retrospectively. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

3. Revenue and Contract Balances

We disaggregate revenue by client sector and contract type, as we believe it best depicts how the nature, timing, and uncertainty of revenue and cash flows are affected by economic factors. The following tables present revenue disaggregated by client sector and contract type:


	Three Months Ended				Nine Months Ended
	July 3, 2022		June 27, 2021		July 3, 2022		June 27, 2021
	(in thousands)
Client Sector:
U.S. state and local government	$	150,731	$	135,717	$	465,770	$	390,464
U.S. federal government (1)	261,434		265,999		781,503		799,560
U.S. commercial	188,255		153,100		536,901		454,607
International (2)	289,811		246,817		817,311		676,869
Total	$	890,231	$	801,633	$	2,601,485	$	2,321,500

Contract Type:
Fixed-price	$	335,014	$	294,568	$	982,565	$	841,118
Time-and-materials	417,898		379,705		1,221,598		1,082,143
Cost-plus	137,319		127,360		397,322		398,239
Total	$	890,231	$	801,633	$	2,601,485	$	2,321,500

(1) Includes revenue generated under U.S. federal government contracts performed outside the United States.

(2) Includes revenue generated from foreign operations, primarily in Canada, Australia, the United Kingdom, and revenue generated from non-U.S. clients.

Other than the U.S. federal government, no single client accounted for more than 10% of our revenue for the three and nine months ended July 3, 2022 and June 27, 2021.

Contract Assets and Contract Liabilities

We invoice customers based on the contractual terms of each contract. However, the timing of revenue recognition may differ from the timing of invoice issuance.

Contract assets represent revenue recognized in excess of the amounts for which we have the contractual right to bill our customers. Such amounts are recoverable from customers based upon various measures of performance, including achievement of certain milestones or completion of a contract. In addition, many of our time and materials arrangements are billed in arrears pursuant to contract terms that are standard within the industry, resulting in contract assets and/or unbilled receivables being recorded, as revenue is recognized in advance of billings. Contract retentions, included in contract assets, represent amounts withheld by clients until certain conditions are met or the project is completed, which may extend beyond one year.

Contract liabilities consist of billings in excess of revenue recognized. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and increase as billings in advance of revenue recognition occur. Contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. There were no substantial non-current contract assets or liabilities for the periods presented. Net contract assets/liabilities consisted of the following:


	Balance at
	July 3, 2022		October 3, 2021
	(in thousands)
Contract assets (1)	$	99,830	$	103,784
Contract liabilities	(247,013)		(190,403)
Net contract liabilities	$	(147,183)	$	(86,619)

(1) Includes $21.3 million and $12.2 million of contract retentions as of July 3, 2022 and October 3, 2021, respectively.

In the first nine months of fiscal 2022 and 2021, we recognized revenue of approximately $111 million and $108 million, respectively, from amounts included in the contract liability balances at the end of fiscal 2021 and 2020, respectively.

We recognize revenue primarily using the cost-to-cost measure of progress method to estimate progress towards completion. Changes in those estimates could result in the recognition of cumulative catch-up adjustments to the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made. As a result, we recognized net unfavorable revenue and operating income adjustments of $2.8 million and net favorable revenue and operating income adjustments of $2.2 million in the third quarter and first nine months of fiscal 2022, respectively, compared to net favorable adjustments of $1.7 million and $2.8 million in the third quarter and first nine months of fiscal 2021, respectively.

Changes in revenue and cost estimates could also result in a projected loss, determined at the contract level, which would be recorded immediately in earnings. As of July 3, 2022 and October 3, 2021, our consolidated balance sheets included liabilities for anticipated losses of $11.1 million and $12.7 million, respectively. The estimated cost to complete these related contracts as of July 3, 2022 and October 3, 2021 was approximately $84 million and $104 million, respectively.

Accounts Receivable, Net

Net accounts receivable consisted of the following:


	Balance at
	July 3, 2022		October 3, 2021
	(in thousands)
Billed	$	451,065	$	432,814
Unbilled	276,001		240,536
Total accounts receivable	727,066		673,350
Allowance for doubtful accounts	(4,198)		(4,352)
Total accounts receivable, net	$	722,868	$	668,998

Billed accounts receivable represent amounts billed to clients that have not been collected. Unbilled accounts receivable, which represent an unconditional right to payment subject only to the passage of time, include unbilled amounts typically resulting from revenue recognized but not yet billed pursuant to contract terms or billed after the period end date. Substantially all of our unbilled receivables at July 3, 2022 are expected to be billed and collected within 12 months. The allowance for doubtful accounts represents amounts that are expected to become uncollectible or unrealizable in the future. We determine an estimated allowance for uncollectible accounts based on management's consideration of trends in the actual and forecasted credit quality of our clients, including delinquency and payment history; type of client, such as a government agency or a commercial sector client; and general economic and industry conditions, including the potential impacts of the coronavirus disease 2019 ("COVID-19") pandemic, that may affect our clients' ability to pay.

Claims are amounts in excess of agreed contract prices that we seek to collect from our clients or other third parties for delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price, or other causes of unanticipated additional costs. Factors considered in determining whether revenue associated with claims (including change orders in dispute and unapproved change orders in regards to both scope and price) should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in our performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable. This can lead to a situation in which costs are recognized in one period and revenue is recognized in a subsequent period when a client agreement is obtained, or a claims resolution occurs. Total accounts receivable at October 3, 2021 included approximately $11 million related to claims, including requests for equitable adjustment, on contracts that provide for price redetermination. This amount related to a single claim in our Remediation and Construction Management ("RCM") reportable segment. In May 2022, we received a cash settlement for the claim, which resulted in an immaterial gain in the third quarter of fiscal 2022. There were no claims included in our total accounts receivable at July 3, 2022. We regularly evaluate all unsettled claim amounts and record appropriate adjustments to revenue when it is probable that the claim will result in a different contract value than the amount previously estimated. In the first nine months of fiscal 2022, we recorded no gains or losses related to claims other than the aforementioned immaterial gain on the settled RCM claim. In the first nine months of fiscal 2021 (all in the second quarter), we recognized increases to revenue and related gains of $2.8 million.

Other than the U.S. federal government, no single client accounted for more than 10% of our accounts receivable at July 3, 2022 and October 3, 2021.

Remaining Unsatisfied Performance Obligations (“RUPO”)

Our RUPO represents a measure of the total dollar value of work to be performed on contracts awarded and in progress. We had $3.5 billion of RUPO as of July 3, 2022. RUPO increases with awards from new contracts or additions on existing contracts and decreases as work is performed and revenue is recognized on existing contracts. RUPO may also decrease when projects are canceled or modified in scope. We include a contract within our RUPO when the contract is awarded and an agreement on contract terms has been reached.

We expect to satisfy our RUPO as of July 3, 2022 over the following periods:


	Amount
	(in thousands)
Within 12 months	$	2,182,597
Beyond	1,312,857
Total	$	3,495,454

Although RUPO reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. RUPO is adjusted to reflect any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals, as appropriate. Our operations and maintenance contracts can generally be terminated by the clients without a substantive financial penalty. Therefore, the remaining performance obligations on such contracts are limited to the notice period required for the termination (usually 30, 60, or 90 days).

4. Acquisitions

For the first nine months of fiscal 2022, we acquired The Integration Group of America ("TIGA"), Piteau Associates (“PAE”) and other immaterial acquisitions. TIGA is based in Spring, Texas and is an industry leader in process automation and system integration solutions, including customized software and platform (SaaS/PaaS) applications, advanced data analytics, cloud data integration, and platform virtualization. PAE is based in Vancouver, British Columbia and is a global leader in sustainable natural resource analytics including hydrologic numerical modeling and dewatering system design. PAE is part of our CIG segment, and TIGA and other immaterial acquisitions are part of our GSG segment. The total fair value of the purchase price for all of these acquisitions was $86.5 million. This amount is comprised of $44.0 million in initial cash payments made to the sellers, $4.3 million of receivables (net) related to estimated post-closing adjustments for the net assets acquired, $15.5 million payable in a promissory note issued to the sellers along with related transaction expenses of the sellers (which were subsequently paid in July 2022), and $31.3 million for the estimated fair value of contingent earn-out obligations, with a maximum of $47.0 million, based upon the achievement of specified operating income targets in each of the three to five years following the acquisitions.

In fiscal 2021, we acquired Coanda Research and Development Corporation ("CRD"), The Kaizen Company (“KZN”), IBRA-RMAC Automation Solutions (“IRM”), and Hoare Lea, LLP and Subsidiaries ("HLE"). CRD is based in Burnaby, British Columbia and provides world-class expertise in computational fluid dynamics and utilizes industry-leading capabilities to solve complex engineering science problems for commercial customers, across a broad range of industries. KZN is based in Washington, DC and provides international development advisory and management consulting services offering a suite of innovative tools that support advanced solutions in health, education, governance, peace and stability, and sustainable economic growth. IRM is based in San Diego, California, and provides digital water transformation consulting services and an innovative suite of tools to address complex water system modernization challenges. HLE is a leader in sustainable engineering design based in Bristol, United Kingdom. It was established in 1862 and is an award-winning high-end consultancy firm in the United Kingdom, with more than 900 employees, providing innovative solutions to complex engineering and design challenges for sustainable infrastructure and high performance buildings. CRD and HLE are part of our CIG segment, and KZN and IRM are part of our GSG segment. The total fair value of the purchase price for these acquisitions was $151.7 million. This amount was comprised of $101.4 million in initial cash payments made to the sellers, and $50.3 million for the estimated fair value of contingent earn-out obligations, with a maximum of $74.0 million, based upon the achievement of specified operating income targets in each of the three to four years following the acquisitions.

Goodwill additions resulting from fiscal 2022 business combinations are primarily attributable to the significant technical expertise residing in embedded workforces that are sought out by clients, long-term management experience, the industry reputations, and the synergies expected to arise after the acquisitions in the areas of data management, digitization, modeling, water, and natural resources. The fiscal 2021 goodwill additions represent the significant technical expertise residing

in embedded workforces that are sought out by clients and the long-standing reputation of HLE. In addition, these acquired capabilities, when combined with our existing global consulting and engineering business, result in opportunities that allow us to provide services under contracts that could not have been pursued individually by either us or the acquired companies. The results of these acquisitions were included in our consolidated financial statements from their respective closing dates. These acquisitions were not considered material, individually or in the aggregate, to our consolidated financial statements. As a result, no pro forma information has been provided.

Backlog and client relations intangible assets include the fair value of existing contracts and the underlying customer relationships with lives ranging from one to ten years, and trade names intangible assets have lives ranging from three to five years. For detailed information regarding our intangible assets, see Note 5, “Goodwill and Intangible Assets”.

Most of our acquisition agreements include contingent earn-out agreements, which are generally based on the achievement of future operating income thresholds. The contingent earn-out arrangements are based on our valuations of the acquired companies and reduce the risk of overpaying for acquisitions if the projected financial results are not achieved. The fair values of any earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, we estimate the fair value of contingent earn-out payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability in “Current contingent earn-out liabilities” and “Long-term contingent earn-out liabilities” on the consolidated balance sheets. We consider several factors when determining that contingent earn-out liabilities are part of the purchase price, including the following: (1) the valuation of our acquisitions is not supported solely by the initial consideration paid, and the contingent earn-out formula is a critical and material component of the valuation approach to determining the purchase price; and (2) the former owners of acquired companies that remain as key employees receive compensation other than contingent earn-out payments at a reasonable level compared with the compensation of our other key employees. 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. We use a probability-weighted discounted income approach as a valuation technique to convert future estimated cash flows to a single present value amount. The significant unobservable inputs used in the fair value measurements are operating income projections over the earn-out period (generally three to five years), and the probability outcome percentages we assign to each scenario. Significant increases or decreases to either of these inputs in isolation would result in a significantly higher or lower liability, with a higher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the contingent earn-out liability on the acquisition date is reflected as cash used in financing activities in our consolidated statements of cash flows. Any amount paid in excess of the contingent earn-out liability on the acquisition date is reflected as cash used in operating activities in our consolidated statements of cash flows.

We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from the initial estimates. Changes in the estimated fair value of our contingent earn-out liabilities related to the time component of the present value calculation are reported in interest expense. Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in operating income. For the first nine months of fiscal 2022, we evaluated our estimates for contingent consideration liabilities for the remaining earn-out periods for each individual acquisition, which included a review of their financial results to-date, the status of ongoing projects in their RUPO, and the inventory of prospective new contract awards. In addition, we considered the potential impact of the global economic disruption due to the COVID-19 pandemic on our operating income projections over the various earn-out periods. For the first nine months of fiscal 2022 and 2021, total adjustments to our contingent earn-out liabilities in operating income were immaterial.

At July 3, 2022, there was a total potential maximum of $141.1 million of outstanding contingent consideration related to acquisitions. Of this amount, $83.3 million was estimated as the fair value and accrued on our consolidated balance sheet.

5. Goodwill and Intangible Assets

The following table summarizes the changes in the carrying value of goodwill by reportable segment:


	GSG		CIG		Total
	(in thousands)
Balance at October 3, 2021	$	538,433	$	570,145	$	1,108,578
Goodwill reallocation	(51,497)		51,497		—
Acquisition activity	46,326		26,318		72,644

Translation and adjustments	(3,961)		(25,804)		(29,765)
Balance at July 3, 2022	$	529,301	$	622,156	$	1,151,457

Our goodwill balances reflect the goodwill reallocation related to the creation of our new HPB division on the first day of fiscal 2022, which included a transfer of some related operations in our GSG reportable segment to our CIG reportable segment. The foreign currency translation adjustments resulted from our foreign subsidiaries with functional currencies that are different than our reporting currency. These amounts are presented net of reductions from historical impairment adjustments. The gross amounts of goodwill for GSG were $547.0 million and $556.1 million at July 3, 2022 and October 3, 2021, respectively, excluding accumulated impairment of $17.7 million at each date. The gross amounts of goodwill for CIG were $743.7 million and $691.6 million at July 3, 2022 and October 3, 2021, respectively, excluding accumulated impairment of $121.5 million at each date.

We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our most recent annual review at June 28, 2021 (i.e. the first day of our fourth quarter in fiscal 2021) indicated that we had no impairment of goodwill, and all of our reporting units had estimated fair values that were in excess of their carrying values, including goodwill. As of June 28, 2021, and after the reallocation of goodwill on the first day of fiscal 2022, we had no reporting units that had estimated fair values that exceeded their carrying values by less than 150%.

We also regularly evaluate whether events and circumstances have occurred that may indicate a potential change in the recoverability of goodwill. We perform interim goodwill impairment reviews between our annual reviews if certain events and circumstances have occurred, such as a deterioration in general economic conditions; an increase in the competitive environment; a change in management, key personnel, strategy or customers; negative or declining cash flows; or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods. Although we believe that our estimates of fair value for these reporting units are reasonable, if financial performance for these reporting units falls significantly below our expectations or market prices for similar business decline, the goodwill for these reporting units could become impaired.

The following table presents the gross amount and accumulated amortization of our acquired identifiable intangible assets with finite useful lives included in “Intangible assets, net” on the consolidated balance sheets:


	Period Ended
	July 3, 2022							October 3, 2021
	Weighted- Average Remaining Life (in Years)	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount
	($ in thousands)
Client relations	5.7	$	44,287	$	(20,847)	$	23,440	$	69,455	$	(43,984)	$	25,471
Backlog	0.8	34,088		(29,811)		4,277		34,577		(30,670)		3,907
Trade names	3.9	13,651		(7,425)		6,226		14,939		(6,327)		8,612
Total		$	92,026	$	(58,083)	$	33,943	$	118,971	$	(80,981)	$	37,990

Amortization expense for the three and nine months ended July 3, 2022 was $3.7 million and $9.6 million, respectively, compared to $2.2 million and $7.8 million for the prior-year periods. Estimated amortization expense for the

remainder of fiscal 2022 and succeeding years is as follows:


	Amount
	(in thousands)
2022	$	3,394
2023	9,675
2024	5,592
2025	4,759
2026	3,885
Beyond	6,638
Total	$	33,943

6. Property and Equipment

Property and equipment consisted of the following:


	Balance at
	July 3, 2022		October 3, 2021
	(in thousands)
Equipment, furniture and fixtures	$	100,667	$	94,780
Leasehold improvements	35,818		36,462
Total property and equipment	136,485		131,242
Accumulated depreciation	(101,475)		(93,509)
Property and equipment, net	$	35,010	$	37,733

The depreciation expense related to property and equipment was $3.2 million and $9.9 million for the three and nine months ended July 3, 2022, compared to $3.1 million and $9.0 million for the prior-year periods.

7. Stock Repurchase and Dividends

On October 5, 2021, the Board of Directors authorized a new stock repurchase program under which we could repurchase up to $400 million of our common stock in addition to the $147.8 million remaining under the previous stock repurchase program at October 3, 2021. In the first nine months of fiscal 2022, we repurchased and settled 986,280 shares with an average price of $152.09 per share for a total cost of $150.0 million in the open market. At July 3, 2022, we had a remaining balance of $397.8 million under our stock repurchase program.

The following table presents dividends declared and paid in the first nine months of fiscal 2022 and 2021:


Declare Date	Dividend Paid Per Share		Record Date	Payment Date	Dividend Paid (in thousands)
November 15, 2021	$	0.20	December 2, 2021	December 20, 2021	$	10,793
January 31, 2022	$	0.20	February 11, 2022	February 25, 2022	10,769
May 2, 2022	$	0.23	May 13, 2022	May 27, 2022	12,311
Total dividend paid as of July 3, 2022					$	33,873

November 9, 2020	$	0.17	November 30, 2020	December 11, 2020	$	9,198
January 25, 2021	$	0.17	February 10, 2021	February 26, 2021	9,212
April 26, 2021	$	0.20	May 12, 2021	May 28, 2021	10,831
Total dividend paid as of June 27, 2021					$	29,241

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

8. Leases

Our operating leases are primarily for corporate and project office spaces. To a much lesser extent, we have operating leases for vehicles and equipment. Our operating leases have remaining lease terms of one month to twelve years, some of which may include options to extend the leases for up to five years.

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets and current and long-term operating lease liabilities in the consolidated balance sheets. Our finance leases are primarily for certain information technology equipment. The related ROU assets and lease liabilities were immaterial, and are included in "Property and equipment, net", "Other current liabilities" and "Other long-term liabilities", accordingly, in the consolidated balance sheets at July 3, 2022 and October 3, 2021.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, incremental borrowing rates are used based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset at the commencement date also includes any lease payments made to the lessor at or before the commencement date and initial direct costs less lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

The components of lease costs are as follows:


	Three Months Ended				Nine Months Ended
	July 3, 2022		June 27, 2021		July 3, 2022		June 27, 2021
	(in thousands)
Operating lease cost	$	21,004	$	22,423	$	64,015	$	67,132
Sublease cost (income)	140		(21)		(116)		(81)

Total lease cost	$	21,144	$	22,402	$	63,899	$	67,051

Supplemental cash flow information related to leases is as follows:


		Nine Months Ended
		July 3, 2022		June 27, 2021
	(in thousands)
Operating cash flows for operating leases		$	50,965	$	56,616
Right-of-use assets obtained in exchange for new operating lease liabilities		$	32,175	$	43,394

Supplemental balance sheet and other information related to leases are as follows:


	Balance at
	July 3, 2022			October 3, 2021
	(in thousands)
Operating leases:
Right-of-use assets	$	191,022		$	215,422

Lease liabilities:
Current	60,101			67,452
Long-term	154,499			174,285
Total operating lease liabilities	$	214,600		$	241,737

Weighted-average remaining lease term:
Operating leases	5 years			5 years
Weighted-average discount rate:
Operating leases	2.1		%	2.2		%

As of July 3, 2022, we do not have any material additional operating leases that have not yet commenced.

A maturity analysis of the future undiscounted cash flows associated with our operating lease liabilities at July 3, 2022 is as follows:


	Amount
	(in thousands)
2022	$	17,316
2023	60,889
2024	46,144
2025	33,756
2026	22,595
Beyond	47,096
Total lease payments	227,796
Less: imputed interest	(13,196)
Total present value of lease liabilities	$	214,600

9. Stockholders’ Equity and Stock Compensation Plans

We recognize the fair value of our stock-based awards as compensation expense on a straight-line basis over the requisite service period in which the award vests. Stock-based compensation expense for the three and first nine months ended July 3, 2022 was $6.7 million and $19.1 million, respectively, compared to $5.7 million and $16.3 million for the same periods last year. Most of these amounts were included in selling, general and administrative expenses on our consolidated statements of income. In the first nine months of fiscal 2022, we awarded 41,734 performance share units (“PSUs”) to our non-employee directors and executive officers at a fair value of $247.16 per share on the award date. All PSUs are performance-based and vest, if at all, after the conclusion of the three-year performance period. The number of PSUs that ultimately vest is based 50% on the growth in our diluted earnings per share and 50% on our relative total shareholder return over the vesting period. Additionally, we awarded 76,231 restricted stock units (“RSUs”) to our non-employee directors, executive officers and employees at a fair value of $185.35 per share on the award date. All executive officer and employee RSUs have time-based vesting over a four-year period, and the non-employee director RSUs vest after one year.

10. Earnings per Share (“EPS”)

Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding, less unvested restricted stock for the period. Diluted EPS is computed by dividing net income by

the weighted-average number of common shares outstanding and dilutive potential common shares for the period. Potential common shares include the weighted-average dilutive effects of outstanding stock options and unvested restricted stock using the treasury stock method.

The following table presents the number of weighted-average shares used to compute basic and diluted EPS:


	Three Months Ended				Nine Months Ended
	July 3, 2022		June 27, 2021		July 3, 2022		June 27, 2021
	(in thousands, except per share data)
Net income attributable to Tetra Tech	$	58,650	$	51,903	$	180,179	$	149,856

Weighted-average common shares outstanding – basic	53,507		54,117		53,777		54,095
Effect of dilutive stock options and unvested restricted stock	499		549		551		603
Weighted-average common shares outstanding – diluted	54,006		54,666		54,328		54,698

Earnings per share attributable to Tetra Tech:
Basic	$	1.10	$	0.96	$	3.35	$	2.77
Diluted	$	1.09	$	0.95	$	3.32	$	2.74

11. Income Taxes

The effective tax rates for the first nine months of fiscal 2022 and 2021 were 23.9% and 20.4%, respectively. Income tax expense was reduced by $4.9 million and $8.7 million of excess tax benefits on share-based payments in the first nine months of fiscal 2022 and 2021, respectively. Excluding the impact of the excess tax benefits on share-based payments, our effective tax rates in the first nine months of fiscal 2022 and 2021 were 25.9% and 25.0%, respectively.

As of July 3, 2022 and October 3, 2021, the liability for income taxes associated with uncertain tax positions was $11.3 million and $14.1 million, respectively. These uncertain tax positions substantially relate to ongoing examinations. It is reasonably possible that these liabilities may decrease within the next 12 months as certain examinations are resolved. These liabilities represent our current estimates of the additional tax liabilities that we may be assessed when the related audits are concluded. 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.

On December 28, 2021, the U.S. Department of the Treasury and the Internal Revenue Service released final regulations addressing aspects of the foreign tax credit regime, and represent the third and final regulations that have been issued with respect to the core provisions of the U.S. foreign tax credit regime following the 2017 Tax Cut and Jobs Act. These regulations were primarily effective on March 7, 2022, with certain provisions applicable to prior periods, and they do not materially impact our consolidated financial statements.

12. Reportable Segments

We manage our operations under two reportable segments. Our GSG reportable segment primarily includes activities with U.S. government clients (federal, state and local) and all activities with development agencies worldwide. Our CIG reportable segment primarily includes activities with U.S. commercial clients and international clients other than development agencies. Additionally, we continue to report the results of the wind-down of our non-core construction activities in the RCM reportable segment. There has been no remaining backlog for RCM since fiscal 2018 as the projects were complete.

GSG provides high-end consulting and engineering services primarily to U.S. government clients (federal, state and local) and development agencies worldwide. GSG supports U.S. government civilian and defense agencies with services in water, environment, sustainable infrastructure, information technology, and disaster management. GSG also provides engineering design services for U.S. municipal and commercial clients, especially in water infrastructure, solid waste, and high-end sustainable infrastructure designs. GSG also leads our support for development agencies worldwide, especially in the United States, United Kingdom, and Australia.

CIG primarily provides high-end consulting and engineering services to U.S. commercial clients, and international clients that include both commercial and government sectors. CIG supports commercial clients across the Fortune 500, renewable energy, industrial, high performance buildings, and aerospace markets. CIG also provides sustainable infrastructure and related environmental, engineering and project management services to commercial and local government clients across Canada, in Asia Pacific (primarily Australia and New Zealand), the United Kingdom, as well as Brazil and Chile.

At the beginning of fiscal 2022, we aligned our operations to better serve our clients and markets, and created a new HPB division in our CIG reportable segment. As a result, we transferred some related operations in our GSG reportable segment to our CIG reportable segment. Accordingly, amounts related to our segment reporting for the third quarter and first nine months of fiscal 2021 have been reclassified to conform to the current year presentation.

Management evaluates the performance of these reportable segments based upon their respective segment operating income before the effect of amortization expense related to acquisitions, and other unallocated corporate expenses. We account for inter-segment revenues and transfers as if they were to third parties; that is, by applying a negotiated fee onto the costs of the services performed. All significant intercompany balances and transactions are eliminated in consolidation.

The following tables summarize financial information regarding our reportable segments:


	Three Months Ended				Nine Months Ended
	July 3, 2022		June 27, 2021		July 3, 2022		June 27, 2021
	(in thousands)
Revenue
GSG	$	459,987	$	444,263	$	1,365,041	$	1,301,497
CIG	444,238		372,722		1,277,469		1,064,680
RCM	—		143		—		613
Elimination of inter-segment revenue	(13,994)		(15,495)		(41,025)		(45,290)
Total revenue	$	890,231	$	801,633	$	2,601,485	$	2,321,500


Income from operations
GSG	$	45,580	$	44,323	$	147,104	$	128,491
CIG	53,535		38,991		139,328		104,500

Corporate (1)	(15,210)		(13,507)		(40,787)		(36,126)
Total income from operations	$	83,905	$	69,807	$	245,645	$	196,865

(1) Includes amortization of intangibles, other costs and other income not allocable to our reportable segments.


	Balance at
	July 3, 2022		October 3, 2021
	(in thousands)
Total Assets
GSG	$	549,648	$	545,533
CIG	756,195		698,916
RCM	2		11,360
Corporate (1)	1,371,861		1,320,753
Total assets	$	2,677,706	$	2,576,562

(1) Corporate assets consist of intercompany eliminations and assets not allocated to our reportable segments including goodwill, intangible assets, deferred income taxes and certain other assets.

13. Fair Value Measurements

The fair value of long-term debt was determined using the present value of future cash flows based on the borrowing rates currently available for debt with similar terms and maturities (Level 2 measurement, as described in “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended October 3, 2021). The carrying value of our long-term debt approximated fair value at July 3, 2022 and October 3, 2021. At July 3, 2022, we had borrowings of $246.9 million outstanding under our Amended Credit Agreement, which were used to fund business acquisitions, working capital needs, stock repurchases, dividends, capital expenditures and contingent earn-outs.

14. Credit Facility

On February 18, 2022, we entered into Amendment No. 2 to Second Amended and Restated Credit Agreement (“Amended Credit Agreement”) with a total borrowing capacity of $1.05 billion that will mature in February 2027. 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. The Amended Credit Agreement provides for, among other things, (i) refinance indebtedness under our Credit Agreement dated as of July 30, 2018; (ii) finance open market repurchases of common stock, acquisitions, and cash dividends and distributions; and (iii) utilize the proceeds for working capital, capital expenditures and other general corporate purposes. The Amended Credit Agreement provides for a reduction in the interest grid for meeting certain sustainability targets related to the (i) reduction of greenhouse gas emissions through the Company’s projects and operational sustainability initiatives and (ii) improvement of peoples’ lives as a result of the Company’s projects that provide environmental, social and governance benefits. The Amended Revolving Credit Facility includes a $100 million sublimit for the issuance of standby letters of credit, a $20 million sublimit for swingline loans, and a $300 million sublimit for multicurrency borrowings and letters of credit.

The entire Amended Term Loan Facility was drawn on February 18, 2022. The Amended Term Loan Facility is subject to quarterly amortization of principal at 5% annually commencing June 30, 2022. We may borrow on the Amended Revolving Credit Facility, at our option, at either (a) a benchmark rate plus a margin that ranges from 1.000% to 1.875% per annum, or (b) a base rate for loans in U.S. dollars (the highest of the U.S. federal funds rate plus 0.50% per annum, the bank’s prime rate or the Secured Overnight Financing Rate ("SOFR") rate plus 1.00%, plus a margin that ranges from 0% to 0.875% per annum. In each case, the applicable margin is based on our Consolidated Leverage Ratio, calculated quarterly. The Amended Term Loan Facility is subject to the same interest rate provisions. The Amended Credit Agreement expires on February 18, 2027, or earlier at our discretion upon payment in full of loans and other obligations.

The Amended Credit Agreement contains certain affirmative and restrictive covenants, and customary events of default. The financial covenants provide for a maximum Consolidated Leverage Ratio of 3.25 to 1.00 (total funded debt/EBITDA, as defined in the Amended Credit Agreement) and a minimum Consolidated Interest Coverage Ratio of 3.00 to 1.00 (EBITDA/Consolidated Interest Charges, as defined in the Amended Credit Agreement). 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.

15. Derivative Financial Instruments

We often use certain interest rate derivative contracts to hedge interest rate exposures on our variable rate debt. Also, we may enter in foreign currency derivative contracts with financial institutions to reduce the risk that cash flows and earnings could adversely be affected by foreign currency exchange rate fluctuations. Our hedging program is not designated for trading or speculative purposes.

We recognize derivative instruments as either assets or liabilities on the accompanying consolidated balance sheets at fair value. We record changes in the fair value (i.e., gains or losses) of the derivatives that have been designated as cash flow hedges in our consolidated balance sheets as accumulated other comprehensive income, and in our consolidated statements of income for those derivatives designated as fair value hedges. The derivative contracts to hedge interest exposure are categorized within Level 2 of the fair value hierarchy.

In fiscal 2018, we entered into five interest rate swap agreements that we designated as cash flow hedges to fix the interest rate on the borrowings under our term loan facility. As of July 3, 2022, the notional principal of our outstanding interest swap agreements was $203.1 million ($40.6 million each.) The interest rate swaps have a fixed interest rate of 2.79% and expire

in July 2023 for all five agreements. At July 3, 2022 and October 3, 2021, the fair values of the effective portion of our interest rate swap agreements designated as cash flow hedges before tax effect was an unrealized gain of $0.6 million and an unrealized loss of $9.4 million, which were reported in "Other long-term assets" and "Other current liabilities" on our consolidated balance sheets, respectively. Additionally, the related gains of $2.4 million and $10.0 million for the three and first nine months ended July 3, 2022, compared to related gains of $1.5 million and $4.9 million for the prior-year periods, were recognized and reported on our consolidated statements of comprehensive income. We expect to reclassify a credit of $0.7 million from accumulated other comprehensive loss to interest expense within the next twelve months. There were no other derivative instruments designated as hedging instruments for the first nine months of fiscal 2022.

16. Reclassifications Out of Accumulated Other Comprehensive Income

The accumulated balances and activities for the three and nine months ended July 3, 2022 and June 27, 2021 related to reclassifications out of accumulated other comprehensive income are summarized as follows:


	Three Months Ended
	Foreign Currency Translation Adjustments		Gain (Loss) on Derivative Instruments		Accumulated Other Comprehensive Income (Loss)
	(in thousands)
Balance at March 28, 2021	$	(102,911)	$	(12,145)	$	(115,056)
Other comprehensive income before reclassifications	11,157		2,981		14,138
Amounts reclassified from accumulated other comprehensive loss
Interest rate contracts, net of tax (1)	—		(1,483)		(1,483)
Net current-period other comprehensive income	11,157		1,498		12,655


Balance at June 27, 2021	$	(91,754)	$	(10,647)	$	(102,401)

Balance at April 3, 2022	$	(113,513)	$	(1,790)	$	(115,303)
Other comprehensive income (loss) before reclassifications	(44,883)		3,413		(41,470)
Amounts reclassified from accumulated other comprehensive loss
Interest rate contracts, net of tax (1)	—		(1,033)		(1,033)
Net current-period other comprehensive income (loss)	(44,883)		2,380		(42,503)


Balance at July 3, 2022	$	(158,396)	$	590	$	(157,806)

	Nine Months Ended
	Foreign Currency Translation Adjustments		Gain (Loss) on Derivative Instruments		Accumulated Other Comprehensive Income (Loss)
	(in thousands)
Balance at September 27, 2020	$	(146,275)	$	(15,511)	$	(161,786)
Other comprehensive loss before reclassifications	54,521		9,341		63,862
Amounts reclassified from accumulated other comprehensive loss
Interest rate contracts, net of tax (1)	—		(4,477)		(4,477)
Net current-period other comprehensive income	54,521		4,864		59,385

Balance at June 27, 2021	$	(91,754)	$	(10,647)	$	(102,401)

Balance at October 3, 2021	$	(115,634)	$	(9,394)	$	(125,028)
Other comprehensive income (loss) before reclassifications	(42,762)		13,833		(28,929)
Amounts reclassified from accumulated other comprehensive loss
Interest rate contracts, net of tax (1)	—		(3,849)		(3,849)
Net current-period other comprehensive income (loss)	(42,762)		9,984		(32,778)

Balance at July 3, 2022	$	(158,396)	$	590	$	(157,806)

(1) This accumulated other comprehensive component is reclassified to “Interest expense” in our consolidated statements of income. See Note 15 “Derivative Financial Instruments”, for more information.

17. Commitments and Contingencies

We are subject to certain claims and lawsuits typically filed against the consulting and engineering profession, alleging primarily professional errors or omissions. We carry professional liability insurance, subject to certain deductibles and policy limits, against such claims. However, in some actions, parties are seeking damages that exceed our insurance coverage or for which we are not insured. While management does not believe that the resolution of these claims will have a material adverse effect, individually or in aggregate, on our financial position, results of operations or cash flows, management acknowledges the uncertainty surrounding the ultimate resolution of these matters.

On July 15, 2019, following an initial January 14, 2019 filing, the Civil Division of the United States Attorney's Office filed an amended complaint in intervention in three qui tam actions filed against our subsidiary, Tetra Tech EC, Inc. ("TtEC"), in the U.S. District Court for the Northern District of California. The complaint alleges False Claims Act violations and breach of contract related to TtEC's contracts to perform environmental remediation services at the former Hunters Point Naval Shipyard in San Francisco, California. TtEC disputes the claims and will defend this matter vigorously. We are currently unable to determine the probability of the outcome of this matter or the range of reasonably possible loss, if any.

18. Related Party Transactions

We often provide services to unconsolidated joint ventures. Our revenue related to services we provided to unconsolidated joint ventures for the three and first nine months of fiscal 2022 was approximately $24 million and $74 million, respectively, compared to $24 million and $70 million for the same periods last year. Related reimbursable costs for the three and first nine months of fiscal 2022 were approximately $23 million and $70 million. Related reimbursable costs for the three and first nine months of fiscal 2021 were approximately $23 million and $67 million. Our consolidated balance sheets also included the following amounts related to these services:


	Balance at
	July 3, 2022		October 3, 2021
	(in thousands)
Accounts receivable, net	$	17,838	$	19,082
Contract assets	3,558		5,092
Contract liabilities	3,958		3,026

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbor provisions created under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “estimates,” “seeks,” “continues,” “may,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict, including those identified below under “Part II, Item 1A. Risk Factors,” and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

GENERAL OVERVIEW

Tetra Tech, Inc. is a leading global provider of high-end consulting and engineering services that focuses on water, environment, sustainable infrastructure, renewable energy, and international development. We are a global company that is Leading with Science® to provide innovative solutions for our public and private clients. We typically begin at the earliest stage of a project by identifying technical solutions and developing execution plans tailored to our clients' needs and resources.

Our reputation for high-end consulting and engineering services and our ability to develop solutions for water and environmental management has supported our growth for more than 50 years. Today, we are proud to be making a difference in people’s lives worldwide through our high-end consulting, engineering, and technology service offerings. We work on over 70,000 projects annually, in more than 100 countries on all seven continents, with a talent force of 21,000 associates. We are Leading with Science® throughout our operations, with domain experts across multiple disciplines supported by our advanced analytics, artificial intelligence, machine learning, and digital technology solutions. Our ability to provide innovation and first-of-kind solutions is enhanced by partnerships with our forward-thinking clients. We are diverse, equitable, and inclusive, embracing the breadth of experience across our talented workforce worldwide with a culture of innovation and entrepreneurship. We are disciplined in our business, and focused on delivering value to customers and high performance for our shareholders. In supporting our clients, we seek to add value and provide long-term sustainable consulting, engineering and technology solutions.

By combining ingenuity and practical experience, we have helped to advance sustainability by managing water, protecting the environment, providing clean energy, and engineering green solutions for our cities and communities.

We derive income from fees for professional, technical, program management, and construction management services. As primarily a professional services company, we are labor-intensive rather than capital-intensive. Our revenue is driven by our ability to attract and retain qualified and productive employees, identify business opportunities, secure new and renew existing client contracts, provide outstanding services to our clients and execute projects successfully. We provide services to a diverse base of U.S. state and local government, U.S. federal government, U.S. commercial, and international clients.

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


	Three Months Ended				Nine Months Ended
	July 3, 2022		June 27, 2021		July 3, 2022		June 27, 2021
Client Sector
U.S. state and local government	16.9	%	16.9	%	17.9	%	16.8	%
U.S. federal government (1)	29.4		33.2		30.0		34.4
U.S. commercial	21.1		19.1		20.7		19.6
International (2)	32.6		30.8		31.4		29.2
Total	100.0	%	100.0	%	100.0	%	100.0	%

(1) Includes revenue generated under U.S. federal government contracts performed outside the United States.

(2) Includes revenue generated from foreign operations, primarily in Canada, Australia, the United Kingdom, and revenue generated from non-U.S. clients.

We manage our operations under two reportable segments. Our Government Services Group ("GSG") reportable segment primarily includes activities with U.S. government clients (federal, state and local) and all activities with development agencies worldwide. Our Commercial/International Services Group ("CIG") reportable segment primarily includes activities with U.S. commercial clients and international clients other than development agencies. Additionally, we continue to report the results of the wind-down of our non-core construction activities in the Remediation and Construction Management ("RCM") reportable segment. RCM's projects were complete at the end of fiscal 2018. In May 2022, we received a cash settlement for the last $11 million RCM claim receivable in dispute resolution. This settlement resulted in an immaterial gain in the third quarter of fiscal 2022. There were no significant operating activities in RCM for the three and nine months of fiscal 2022 and 2021.

Government Services Group (“GSG”). GSG provides high-end consulting and engineering services primarily to U.S. government clients (federal, state and local) and development agencies worldwide. GSG supports U.S. government civilian and defense agencies with services in water, environment, sustainable infrastructure, information technology, and disaster management. GSG also provides engineering design services for U.S. municipal and commercial clients, especially in water infrastructure, solid waste, and high-end sustainable infrastructure designs. GSG also leads our support for development agencies worldwide, especially in the United States, United Kingdom, and Australia.

Commercial/International Services Group (“CIG”). CIG primarily provides high-end consulting and engineering services to U.S. commercial clients, and international clients that include both commercial and government sectors. CIG supports commercial clients across the Fortune 500, renewable energy, industrial, high performance buildings, and aerospace markets. CIG also provides sustainable infrastructure and related environmental, engineering and project management services to commercial and local government clients across Canada, in Asia Pacific (primarily Australia and New Zealand), the United Kingdom, as well as Brazil and Chile.

At the beginning of fiscal 2022, we aligned our operations to better serve our clients and markets, and created a new High Performance Buildings division in our CIG reportable segment. As a result, we transferred some related operations in our GSG reportable segment to our CIG reportable segment. Certain prior year amounts for reportable segments have been reclassified to conform to the current year presentation.

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


	Three Months Ended				Nine Months Ended
	July 3, 2022		June 27, 2021		July 3, 2022		June 27, 2021
Reportable Segment
GSG	51.7	%	55.4	%	52.5	%	56.1	%
CIG	49.9		46.5		49.1		45.9

Inter-segment elimination	(1.6)		(1.9)		(1.6)		(2.0)
Total	100.0	%	100.0	%	100.0	%	100.0	%

Our services are performed under three principal types of contracts with our clients: fixed-price, time-and-materials, and cost-plus. The following table presents the percentage of our revenue by contract type:


	Three Months Ended				Nine Months Ended
	July 3, 2022		June 27, 2021		July 3, 2022		June 27, 2021
Contract Type
Fixed-price	37.6	%	36.7	%	37.7	%	36.2	%
Time-and-materials	47.0		47.4		47.0		46.6
Cost-plus	15.4		15.9		15.3		17.2
Total	100.0	%	100.0	%	100.0	%	100.0	%

Under fixed-price contracts, clients agree to pay a specified price for our performance of the entire contract or a specified portion of the contract. Under time-and-materials contracts, we are paid for labor at negotiated hourly billing rates and paid for other expenses. Under cost-plus contracts, some of which are subject to a contract ceiling amount, we are reimbursed for allowable costs plus fees, which may be fixed or performance-based. Profitability on these contracts is driven by billable headcount and our cost control. We recognize revenue from contracts using the cost-to-cost measure of progress method to estimate the progress towards completion to determine the amount of revenue and profit to recognize. Changes in those estimates could result in the recognition of cumulative catch-up adjustments to the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made. On a quarterly basis, we review and assess our revenue and cost estimates for each significant contract. Changes in revenue and cost estimates could also result in a projected loss that would be recorded immediately in earnings.

Other contract costs include professional compensation and related benefits, together with certain direct and indirect overhead costs such as rents, utilities, and travel. Professional compensation represents a large portion of these costs. Our "Selling, general and administrative expenses" ("SG&A") are comprised primarily of marketing and bid and proposal costs, and our corporate headquarters’ costs related to the executive offices, finance, accounting, administration, and information technology. Our SG&A expenses also include a portion of stock-based compensation and depreciation of property and equipment related to our corporate headquarters, and the amortization of identifiable intangible assets. Most of these costs are unrelated to specific clients or projects, and can vary as expenses are incurred to support company-wide activities and initiatives.

We experience seasonal trends in our business. Our revenue and operating income are typically lower in the first half of our fiscal year, primarily due to the Thanksgiving (in the U.S.), Christmas, and New Year’s holidays. Many of our clients’ employees, as well as our own employees, take vacations during these holiday periods. Further, seasonal inclement weather conditions occasionally cause some of our offices to close temporarily or may hamper our project field work in the northern hemisphere's temperate and arctic regions. These occurrences result in fewer billable hours worked on projects and, correspondingly, less revenue recognized.

ACQUISITIONS AND DIVESTITURES

Acquisitions. We continuously evaluate the marketplace for acquisition opportunities to further our strategic growth plans. Due to our reputation, size, financial resources, geographic presence and range of services, we have numerous opportunities to acquire privately and publicly held companies or selected portions of such companies. We evaluate an acquisition opportunity based on its ability to strengthen our leadership in the markets we serve, the technologies and solutions they provide, and the additional new geographies and clients they bring. Also, during our evaluation, we examine an acquisition's ability to drive organic growth, its accretive effect on long-term earnings, and its ability to generate return on investment. Generally, we proceed with an acquisition if we believe that it will strategically expand our service offerings, improve our long-term financial performance, and increase shareholder returns.

We view acquisitions as a key component in the execution of our growth strategy, and we intend to use cash, debt or equity, as we deem appropriate, to fund acquisitions. We may acquire other businesses that we believe are synergistic and will ultimately increase our revenue and net income, strengthen our ability to achieve our strategic goals, provide critical mass with existing clients, and further expand our lines of service. We typically pay a purchase price that results in the recognition of goodwill, generally representing the intangible value of a successful business with an assembled workforce specialized in our areas of interest. Acquisitions are inherently risky, and no assurance can be given that our previous or future acquisitions will be successful or will not have a material adverse effect on our financial position, results of operations, or cash flows. All acquisitions require the approval of our Board of Directors. For detailed information regarding acquisitions, see Note 4, “Acquisitions” of the “Notes to Consolidated Financial Statements”.

Divestitures. We regularly review and evaluate our existing operations to determine whether our business model should change through the divestiture of certain businesses. Accordingly, from time to time, we may divest or wind-down certain non-core businesses and reallocate our resources to businesses that better align with our long-term strategic direction.

OVERVIEW OF RESULTS AND BUSINESS TRENDS

General. As the coronavirus disease 2019 ("COVID-19") spread globally, we responded quickly to ensure the health and safety of our employees, clients and the communities we support. Our high-end consulting focus and the technologies we deployed have positioned our staff to successfully support our clients and projects in hybrid work solutions that enable seamless collaboration across remote, office and job site environments. We remain focused on providing clients with the highest level of service and our 450 global offices are operational, supporting our programs and projects. By Leading with Science®, we are responding to the current global challenges including COVID-19, with the commitment of our 21,000 associates supported by technological innovation. The actions we have taken to navigate through this worldwide pandemic, the strength of our balance sheet, and our technical leadership position us well to address the global challenges of providing clean water, environmental restoration, and the impacts of climate change.

For the first nine months of fiscal 2022, revenue increased 12.1% compared to the prior-year period. This year-over-year growth reflects increased activity in all four of our client sectors. Our revenue also includes contributions from acquisitions that did not have comparable revenue in the first nine months of fiscal 2021. In the fourth quarter of fiscal 2022, we expect our revenue to continue to grow year-over-year on a constant currency basis and after normalizing for the extra week of operations in the fourth quarter of fiscal 2021. We report results of operations based on either a 52-week or 53-week period ending on the Sunday nearest September 30. Our fiscal 2022 contains 52 weeks compared to 53 weeks in fiscal 2021 with the extra week occurring in the fourth quarter.

U.S. State and Local Government. Our U.S. state and local government revenue increased 19.3% in the first nine months of fiscal 2022 compared to the same period last year. The increase reflects continued broad-based growth in our U.S. state and local government infrastructure business, particularly with increased revenue from municipal water infrastructure work, including digital water projects, in the metropolitan areas of California, Texas and Florida. Our disaster response activities also increased compared to the first nine months of fiscal 2021. Most of our work for the U.S. state and local governments relates to critical water and environmental programs, which we expect to continue to grow in the fourth quarter of fiscal 2022.

U.S. Federal Government. Our U.S. federal government revenue decreased 2.3% in the first nine months of fiscal 2022 compared to the prior-year period. The decrease was due to reduced international development activity, especially our work in Afghanistan that ceased in the fourth quarter of last year. Excluding Afghanistan, our U.S. federal government revenue grew more than 2% in the first nine months of fiscal 2022 compared to the same period last year, primarily due to increased environmental revenue for both Department of Defense and civilian agencies. During periods of economic volatility, including the COVID-19 pandemic, our U.S. federal government business has historically been the most stable and predictable. Our revenue also includes contributions from acquisitions that did not have comparable revenue in the prior-year period. We expect our U.S. federal government revenue, excluding Afghanistan, to grow for the remainder of fiscal 2022 primarily due to increased advanced analytics activity and the current administration's focus on long-term infrastructure and climate change.

U.S. Commercial. Our U.S. commercial revenue increased 18.1% in the first nine months of fiscal 2022 compared to the same period last year. This increase was primarily due to more activity on environmental programs, including meeting net zero carbon goals and high performance buildings. We expect growth in our U.S. commercial work to continue in the fourth quarter of fiscal 2022.

International. Our international revenue increased 20.7% in the first nine months of fiscal 2022 compared to the prior-year period. Our revenue includes contributions from acquisitions that did not have comparable revenue in the year-ago period. Additionally, the revenue growth reflects government stimulus spending on infrastructure and commercial activities related to an increased focus on sustainability. We expect growth in our international work to continue for the remainder of fiscal 2022, although we expect adverse year-over-year foreign exchange rate changes reflecting a stronger U.S. dollar to slow our international growth in the fourth quarter of fiscal 2022 compared to the first nine months of the fiscal year.

RESULTS OF OPERATIONS

Consolidated Results of Operations


	Three Months Ended							Nine Months Ended
	July 3, 2022		June 27, 2021		Change			July 3, 2022		June 27, 2021		Change
					$		%					$		%
	($ in thousands, except per share data)
Revenue	$	890,231	$	801,633	$	88,598	11.1%	$	2,601,485	$	2,321,500	$	279,985	12.1%
Subcontractor costs	(169,745)		(163,590)		(6,155)		(3.8)	(502,024)		(478,461)		(23,563)		(4.9)
Revenue, net of subcontractor costs (1)	720,486		638,043		82,443		12.9	2,099,461		1,843,039		256,422		13.9
Other costs of revenue	(575,902)		(512,347)		(63,555)		(12.4)	(1,679,937)		(1,488,549)		(191,388)		(12.9)
Gross profit	144,584		125,696		18,888		15.0	419,524		354,490		65,034		18.3
Selling, general and administrative expenses	(60,679)		(55,889)		(4,790)		(8.6)	(173,879)		(157,625)		(16,254)		(10.3)


Income from operations	83,905		69,807		14,098		20.2	245,645		196,865		48,780		24.8
Interest expense	(2,919)		(2,737)		(182)		(6.6)	(8,967)		(8,585)		(382)		(4.4)
Income before income tax expense	80,986		67,070		13,916		20.7	236,678		188,280		48,398		25.7
Income tax expense	(22,329)		(15,146)		(7,183)		(47.4)	(56,473)		(38,380)		(18,093)		(47.1)
Net income	58,657		51,924		6,733		13.0	180,205		149,900		30,305		20.2
Net income attributable to noncontrolling interests	(7)		(21)		14		66.7	(26)		(44)		18		40.9
Net income attributable to Tetra Tech	$	58,650	$	51,903	$	6,747	13.0	$	180,179	$	149,856	$	30,323	20.2
Diluted earnings per share	$	1.09	$	0.95	$	0.14	14.7%	$	3.32	$	2.74	$	0.58	21.2%

(1) We believe that the presentation of “Revenue, net of subcontractor costs”, which is a non-U.S. GAAP financial measure, enhances investors’ ability to analyze our business trends and performance because it substantially measures the work performed by our employees. While providing services, we routinely subcontract various services and, under certain U.S. Agency for International Development programs, issue grants. Generally, these subcontractor costs and grants are passed through to our clients and, in accordance with U.S. GAAP and industry practice, are included in our revenue when it is our contractual responsibility to procure or manage these activities. The grants are included as part of our subcontractor costs. Because subcontractor services can vary significantly from project to project and period to period, changes in revenue may not necessarily be indicative of our business trends. Accordingly, we segregate subcontractor costs from revenue to promote a better understanding of our business by evaluating revenue exclusive of costs associated with external service providers.

In the third quarter of fiscal 2022, revenue and revenue, net of subcontractor costs, increased $88.6 million, or 11.1%, and $82.4 million, or 12.9%, respectively, compared to the year-ago quarter. Excluding the contributions from acquisitions that did not have activity in the third quarter of last year, our revenue increased approximately 5% in the third quarter of fiscal 2022 compared to the prior-year quarter. Our GSG segment's revenue and revenue, net of subcontractor costs, increased $15.7 million, or 3.5%, and $20.4 million, or 6.5%, respectively, in the third quarter of fiscal 2022 compared to last year's third quarter. Our CIG segment's revenue increased $71.5 million, or 19.2%, and revenue, net of subcontractor costs, increased $62.1 million, or 19.2% in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021.

In the first nine months of fiscal 2022, revenue and revenue, net of subcontractor costs, increased $280.0 million, or 12.1%, and $256.4 million, or 13.9%, respectively, compared to the prior-year period. Excluding the contributions from acquisitions that did not have activity in the first nine months of fiscal 2021, our revenue increased approximately 6% in the first nine months of fiscal 2022 compared to the same period last year. Our GSG segment's revenue and revenue, net of subcontractor costs, increased $63.5 million, or 4.9%, and $70.3 million, or 7.6%, respectively, in the first nine months of fiscal 2022 compared to last year's period. Our CIG segment's revenue increased $212.8 million, or 20.0%, and revenue, net of subcontractor costs, increased $186.8 million, or 20.5% in the first nine months of fiscal 2022 compared to the year-ago period. Our quarterly and year-to-date results for our GSG and CIG segments are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

The following table reconciles our reported results to non-U.S. GAAP adjusted results, which exclude a non-operating benefit of Employee Retention Credits ("ERC's") related to COVID-19 in the first nine months of fiscal 2022. The effective tax rate applied to the adjustment to earnings per share ("EPS") to arrive at adjusted EPS was 26%. We applied the relevant marginal statutory tax rate based on the nature of the adjustment and tax jurisdiction in which it occurred. Both EPS and adjusted EPS were calculated using diluted weighted-average common shares outstanding as reflected in our consolidated statements of income.


	Three Months Ended							Nine Months Ended
	July 3, 2022		June 27, 2021		Change			July 3, 2022		June 27, 2021		Change
					$		%					$		%
	($ in thousands, except per share data)
Income from operations	$	83,905	$	69,807	$	14,098	20.2%	$	245,645	$	196,865	$	48,780	24.8%


COVID-19 Credits	(1,040)		—		(1,040)		NM	(5,491)		—		(5,491)		NM
Adjusted income from operations (1)	$	82,865	$	69,807	$	13,058	18.7%	$	240,154	$	196,865	$	43,289	22.0%

EPS	$	1.09	$	0.95	$	0.14	14.7%	$	3.32	$	2.74	$	0.58	21.2%


COVID-19 Credits	(0.01)		—		(0.01)		NM	(0.07)		—		(0.07)		NM
Adjusted EPS (1)	$	1.08	$	0.95	$	0.13	13.7%	$	3.25	$	2.74	$	0.51	18.6%

NM = not meaningful

(1) Non-GAAP financial measure

Operating income increased $14.1 million, or 20.2%, in the third quarter of fiscal 2022 compared to the year-ago quarter. In the first nine months of fiscal 2022, operating income increased $48.8 million, or 24.8%, compared to the same period last year. The third quarter and first nine months of fiscal 2022 results include the benefit of ERC's totaling $1.0 million and $5.5 million, respectively, which represents reimbursement from the U.S. federal government under the Coronavirus Aid, Relief and Economic Security Act for the costs that we incurred during the second quarter of fiscal 2020 to address the COVID-19 pandemic. The amounts were recognized during the first nine months of fiscal 2022 when the funds were received due to the uncertainty related to the computation of qualifying amounts and delayed processing times for our application. These amounts were primarily reflected as a reduction to "Other Costs of Revenue" in our Consolidated Statement of Income and an increase to "Cash Provided by Operations" in our Consolidated Statement of Cash Flows for the first nine months of fiscal 2022, consistent with the presentation of the related costs in the second quarter of fiscal 2020. Excluding the ERC's, our adjusted operating income increased $13.1 million, or 18.7% for the third quarter of fiscal 2022 and increased $43.3 million, or 22.0%, for the first nine months of fiscal 2022 compared to the year-ago periods. These increases reflect improved results in both GSG and CIG segments, which are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

Net interest expense increased $0.2 million and $0.4 million in the third quarter and first nine months of fiscal 2022, respectively, compared to the same periods last year. The increased interest expense related to our contingent earn-out liabilities was substantially offset by the benefit of lower average year-over-year borrowings.

The effective tax rates for the first nine months of fiscal 2022 and 2021 were 23.9% and 20.4%, respectively. Income tax expense was reduced by $4.9 million and $8.7 million of excess tax benefits on share-based payments in the first nine months of fiscal 2022 and 2021, respectively. Excluding the impact of these tax benefits, our effective tax rates for the first nine months of fiscal 2022 and 2021 were 25.9% and 25.0%, respectively.

Our EPS was $1.09 and $3.32 for the third quarter and first nine months of fiscal 2022, compared to $0.95 and $2.74 for the same periods in fiscal 2021, respectively. On the same basis as our adjusted operating income, adjusted EPS was $1.08 and $3.25 for the third quarter and first nine months of fiscal 2022, compared to $0.95 and $2.74 for the same periods last year, respectively.

Segment Results of Operations

Government Services Group


	Three Months Ended							Nine Months Ended
	July 3, 2022		June 27, 2021		Change			July 3, 2022		June 27, 2021		Change
					$		%					$		%
	($ in thousands)
Revenue	$	459,987	$	444,263	$	15,724	3.5%	$	1,365,041	$	1,301,497	$	63,544	4.9%
Subcontractor costs	(124,487)		(129,133)		4,646		3.6	(364,970)		(371,685)		6,715		1.8
Revenue, net of subcontractor costs	$	335,500	$	315,130	$	20,370	6.5	$	1,000,071	$	929,812	$	70,259	7.6

Income from operations	$	45,580	$	44,323	$	1,257	2.8%	$	147,104	$	128,491	$	18,613	14.5%

Revenue increased $15.7 million, or 3.5%, and revenue, net of subcontractor costs, increased $20.4 million, or 6.5%, in the third quarter of fiscal 2022 compared to the year-ago quarter. For the first nine months of fiscal 2022, revenue increased $63.5 million, or 4.9%, and revenue, net of subcontractor costs, increased $70.3 million, or 7.6%, compared to the prior year periods. The increases primarily reflect higher U.S. state and local government activities related to water and environmental programs and disaster response projects.

Operating income increased $1.3 million and $18.6 million in the third quarter and first nine months of fiscal 2022, respectively, compared to the same periods in fiscal 2021. Operating income for the third quarter and first nine months fiscal 2022 included $0.7 million and $3.7 million of the aforementioned ERC's. Excluding this benefit, operating income increased 11.6% in the first nine months of fiscal 2022 compared to the same period last year. Our operating margin, based on revenue, net of subcontractor costs, improved to 14.7% for the first nine months of fiscal 2022 compared to 13.8% for fiscal 2021 period. Excluding the ERC's, our operating margin was 14.3% in the first nine months of fiscal 2022. The improved operating margin was primarily due to our increased focus on high-end consulting services and improved labor utilization.

Commercial/International Services Group


	Three Months Ended							Nine Months Ended
	July 3, 2022		June 27, 2021		Change			July 3, 2022		June 27, 2021		Change
					$		%					$		%
	($ in thousands)
Revenue	$	444,238	$	372,722	$	71,516	19.2%	$	1,277,469	$	1,064,680	$	212,789	20.0	%
Subcontractor costs	(59,252)		(49,862)		(9,390)		(18.8)	(178,079)		(152,042)		(26,037)		(17.1)
Revenue, net of subcontractor costs	$	384,986	$	322,860	$	62,126	19.2	$	1,099,390	$	912,638	$	186,752	20.5

Income from operations	$	53,535	$	38,991	$	14,544	37.3%	$	139,328	$	104,500	$	34,828	33.3	%

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

increased $212.8 million, or 20.0%, and revenue, net of subcontractor costs, increased $186.8 million, or 20.5%, compared to the same period last year. The revenue growth in the first nine months of fiscal 2022 primarily reflects more activity on commercial environmental programs, including meeting net zero carbon goals and high performance buildings. These increases were also due to the international government stimulus spending on infrastructure. Additionally, revenue in the first nine months of fiscal 2022, includes contributions from acquisitions, which did not have comparable revenue in year-ago period.

Operating income increased $14.5 million and $34.8 million, in the third quarter and first nine months of fiscal 2022, respectively, compared to the same periods last year. Operating income in the third quarter and first nine months of fiscal 2022 included $0.3 million and $1.6 million of the aforementioned ERC's, respectively. Excluding this benefit, operating income increased 31.8% in the first nine months of fiscal 2022 compared to the fiscal 2021 period. Our operating margin, based on revenue, net of subcontractor costs, improved to 12.7% for the first nine months of fiscal 2022 compared to 11.5% for the prior-year period. Excluding the ERC's, our operating margin was 12.5% for the first nine months of fiscal 2022. The improved operating margin was primarily due to our increased focus on high-end consulting services, project execution and labor utilization.

Backlog

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. Specifically, our backlog does not consider the 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 days). At July 3, 2022 and October 3, 2021, the differences between our backlog and RUPO of $3.5 billion for each period were immaterial.

Financial Condition, Liquidity and Capital Resources

Capital Requirements. As of July 3, 2022, we had $217.4 million of cash and cash equivalents and access to an additional $799.3 million of borrowings available under our credit facility. During the first nine months of fiscal 2022, we generated $276.0 million of cash from operations. To date, we have not experienced any significant deterioration in our financial condition or liquidity due to the COVID-19 pandemic and our credit facilities remain available.

Our primary sources of liquidity are cash flows from operations and borrowings under our credit facilities. Our primary uses of cash are to fund working capital, stock repurchases, cash dividends, capital expenditures and repayment of debt, as well as to fund acquisitions and earn-out obligations from prior acquisitions. We believe that our existing cash and cash equivalents, operating cash flows and borrowing capacity under our credit agreement, as described below, will be sufficient to meet our capital requirements for at least the next 12 months.

We use a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where they are needed. We currently have no need or plans to repatriate undistributed foreign earnings, other than from Canada, in the foreseeable future; however, this could change due to varied economic circumstances.

On October 5, 2021, the Board of Directors authorized a new stock repurchase program under which we could repurchase up to $400 million of our common stock in addition to the $147.8 million remaining under the previous stock repurchase program at October 3, 2021. In the nine months fiscal 2022, we repurchased and settled 986,280 shares with an average price of $152.09 per share for a total cost of $150.0 million in the open market. At July 3, 2022, we had a remaining balance of $397.8 million under our stock repurchase program.

On November 15, 2021, the Board of Directors declared a quarterly cash dividend of $0.20 per share payable on December 20, 2021 to stockholders of record as of the close of business on December 2, 2021. On January 31, 2022, the Board of Directors declared a quarterly cash dividend of $0.20 per share payable on February 25, 2022 to stockholders of record as of the close of business on February 11, 2022. On May 2, 2022 the Board of Directors declared a quarterly cash dividend of $0.23 per share payable on May 27, 2022 to stockholders of record as of the close of business on May 13, 2022.

Cash and Cash Equivalents. As of July 3, 2022, our cash and cash equivalents were $217.4 million, an increase of $50.8 million compared to the fiscal 2021 year-end. The increase was primarily due to net cash provided by operating activities partially offset by stock repurchases, dividends, as well as payments for taxes on vested restricted stock.

Operating Activities. For the first nine months of fiscal 2022, net cash provided by operating activities was $276.0 million, an increase of $49.4 million compared to the prior-year period. The increase primarily reflects an increase in earnings adjusted for non-cash items and improved working capital from faster collections of our receivables in the first nine months of fiscal 2022 compared to the fiscal 2021 period.

Investing Activities. For the first nine months of fiscal 2022, net cash used in investing activities was $38.3 million, an increase of $15.2 million compared to the prior-year period. The increase was primarily due to payments related to the acquisitions completed in the first nine months of fiscal 2022.

Financing Activities. For the first nine months of fiscal 2022, net cash used in financing activities was $182.5 million, an increase of $45.0 million compared to the same period last year. The increase was due to higher stock repurchases, partially offset by a change in bank overdrafts and a net borrowing, which was primarily used to fund acquisitions.

Debt Financing. On February 18, 2022, we entered into Amendment No. 2 to Second Amended and Restated Credit Agreement (“Amended Credit Agreement”) with a total borrowing capacity of $1.05 billion that will mature in February 2027. 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. The Amended Credit Agreement provides for, among other things, (i) refinance indebtedness under our Credit Agreement dated as of July 30, 2018; (ii) finance open market repurchases of common stock, acquisitions, and cash dividends and distributions; and (iii) utilize the proceeds for working capital, capital expenditures and other general corporate purposes. The Amended Credit Agreement provides for a reduction in the interest grid for meeting certain sustainability targets related to the (i) reduction of greenhouse gas emissions through the Company’s projects and operational sustainability initiatives and (ii) improvement of peoples’ lives as a result of the Company’s projects that provide environmental, social and governance benefits. The Amended Revolving Credit Facility includes a $100 million sublimit for the issuance of standby letters of credit, a $20 million sublimit for swingline loans, and a $300 million sublimit for multicurrency borrowings and letters of credit.

As of July 3, 2022, we had $246.9 million. in outstanding borrowings under the Amended Credit Agreement, which was comprised of $246.9 million under the Amended Term Loan Facility and no outstanding borrowings under the Amended Revolving Credit Facility. The year-to-date weighted-average interest rate of the outstanding borrowings during July 3, 2022 is 1.49%. In addition, we had $0.7 million in standby letters of credit under the Amended Credit Agreement. Our year-to-date weighted-average interest rate on borrowings outstanding under the Amended Credit Agreement, including the effects of interest rate swap agreements described in Note 15, “Derivative Financial Instruments” of the “Notes to Consolidated Financial Statements”, was 3.53%. At July 3, 2022, we had $499.3 million of available credit under the Amended Revolving Credit Facility, all of which could be borrowed without a violation of our debt covenants.

In addition to the Amended Credit Agreement, we maintain other credit facilities, which may be used for short-term cash advances and bank guarantees. At July 3, 2022, there were no outstanding borrowings under these facilities, and the

aggregate amount of standby letters of credit outstanding was $50.9 million. As of July 3, 2022, we had no bank overdrafts related to our disbursement bank accounts.

Inflation. 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.

Dividends. Our Board of Directors has authorized the following dividends in fiscal 2022:


	Dividend Per Share		Record Date	Total Maximum Payment (in thousands)		Payment Date
November 15, 2021	$	0.20	December 2, 2021	$	10,793	December 20, 2021
January 31, 2022	$	0.20	February 11, 2022	$	10,769	February 25, 2022
May 2, 2022	$	0.23	May 13, 2022	$	12,311	May 27, 2022
August 1, 2022	$	0.23	August 12, 2022	N/A		August 26, 2022

Income Taxes

We evaluate the realizability of our deferred tax assets by assessing the valuation allowance and adjust the allowance, if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The ability or failure to achieve the forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets. Based on projected future operating results in certain jurisdictions, it is unlikely that the current valuation allowance positions of those jurisdictions could be adjusted in the next 12 months.

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

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax positions may significantly decrease within the next 12 months. These liabilities represent our current estimates of the additional tax liabilities that we may be assessed when the related audits are concluded. 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.

Off-Balance Sheet Arrangements

In the ordinary course of business, we may use off-balance sheet arrangements if we believe that such arrangements would be an efficient way to lower our cost of capital or help us manage the overall risks of our business operations. We do not believe that such arrangements have had a material adverse effect on our financial position or our results of operations.

The following is a summary of our off-balance sheet arrangements:

•Letters of credit and bank guarantees are used primarily to support project performance and insurance programs. 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 the Amended Credit Agreement or additional credit facilities, our inability to issue or renew standby letters of credit and bank guarantees would impair our ability to maintain normal operations. At July 3, 2022, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $50.9 million in standby letters of credit outstanding under our additional letter of credit facilities.

•From time to time, we provide guarantees and indemnifications related to our services. If our services under a guaranteed or indemnified project are later determined to have resulted in a material defect or other material deficiency, then we may be responsible for monetary damages or other legal remedies. When sufficient information about claims on guaranteed or indemnified projects is available and monetary damages or other costs or losses are determined to be probable, we recognize such guaranteed losses.

•In the ordinary course of business, we enter into various agreements as part of certain unconsolidated subsidiaries, joint ventures, and other jointly executed contracts where we are jointly and severally liable. We enter into these agreements primarily to support the project execution commitments of these entities. The potential payment amount of an outstanding performance guarantee is typically the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts. However, we are not able to estimate other amounts that may be required to be paid in excess of estimated costs to complete contracts and, accordingly, the total potential payment amount under our outstanding performance guarantees cannot be estimated. 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. Remaining billable amounts could be greater or less than the cost to complete. In those cases where costs exceed the remaining amounts payable under the contract, we may have recourse to third parties, such as owners, co-venturers, subcontractors or vendors, for claims.

•In the ordinary course of business, our clients may request that we obtain surety bonds in connection with contract performance obligations that are not required to be recorded in our consolidated balance sheets. We are obligated to reimburse the issuer of our surety bonds for any payments made thereunder. Each of our commitments under performance bonds generally ends concurrently with the expiration of our related contractual obligation.

Critical Accounting Policies

Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the fiscal year ended October 3, 2021. To date, there have been no material changes in our critical accounting policies as reported in our 2021 Annual Report on Form 10-K.

New Accounting Pronouncements

For information regarding recent accounting pronouncements, see “Notes to Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report.

Financial Market Risks

We do not enter into derivative financial instruments for trading or speculation purposes. In the normal course of business, we have exposure to both interest rate risk and foreign currency transaction and translation risk, primarily related to the Canadian and Australian dollar, and British Pound.

We are exposed to interest rate risk under our Amended Credit Agreement. We can borrow, at our option, under both the Amended Term Loan Facility and Amended Revolving Credit Facility. We may borrow on the Amended Revolving Credit Facility, at our option, at either (a) a benchmark rate plus a margin that ranges from 1.000% to 1.875% per annum, or (b) a base rate for loans in U.S. dollars (the highest of the U.S. federal funds rate plus 0.50% per annum, the bank’s prime rate or the SOFR rate plus 1.00%) plus a margin that ranges from 0% to 0.875% per annum. In each case, the applicable margin is based on our Consolidated Leverage Ratio, calculated quarterly. 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 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. At July 3, 2022, we had $246.9 million in outstanding borrowings under the Amended Credit Agreement, which was comprised of $246.9 million under the Amended Term Loan Facility and no outstanding borrowings under the Amended Revolving Credit Facility. The year-to-date weighted-average interest rate of the outstanding borrowings during fiscal 2022 was 1.49%.

In August 2018, we entered into five interest rate swap agreements with five banks to fix the variable interest rate on $250 million of our Amended Term Loan Facility. The objective of these interest rate swaps was to eliminate the variability of our cash flows on the amount of interest expense we pay under our Credit Agreement. As of July 3, 2022, the notional principal of our outstanding interest swap agreements was $203.1 million ($40.6 million each.) Our year-to-date average effective interest rate on borrowings outstanding under the Credit Agreement, including the effects of interest rate swap agreements, at July 3, 2022, was 3.53%. For more information, see Note 15, “Derivative Financial Instruments” of the “Notes to Consolidated Financial Statements”.

Most of our transactions are in U.S. dollars; however, some of our subsidiaries conduct business in foreign currencies, primarily the Canadian and Australian dollar, and British Pound. Therefore, we are subject to currency exposure and volatility because of currency fluctuations. We attempt to minimize our exposure to these fluctuations by matching revenue and expenses in the same currency for our contracts. For the first nine months of fiscal 2021, we reported $1.8 million of foreign currency losses in “Selling, general and administrative expenses” on our consolidated statements of income. The foreign currency impact for the first nine months of fiscal 2022 was immaterial.

We have foreign currency exchange rate exposure in our results of operations and equity primarily because of the currency translation related to our foreign subsidiaries where the local currency is the functional currency. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions will result in reduced revenue, operating expenses, assets and liabilities. Similarly, our revenue, operating expenses, assets and liabilities will increase if the U.S. dollar weakens against foreign currencies. For the first nine months of fiscal 2022 and 2021, 31.4% and 29.2% of our consolidated revenue, respectively, was generated by our international business. For the first nine months of fiscal 2022, the effect of foreign exchange rate translation on the consolidated balance sheets was a decrease in our equity by $42.8 million compared to an increase in equity of $54.5 million in the first nine months of fiscal 2021. These amounts were recognized as adjustments to equity through other comprehensive income.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Please refer to the information we have included under the heading “Financial Market Risks” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 2 of this Form 10-Q which is incorporated herein by reference.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures and changes in internal control over financial reporting. As of July 3, 2022, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), were effective.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the quarter ended July 3, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding legal proceedings, see Note 17, "Commitments and Contingencies" included in the "Notes to Consolidated Financial Statements" included in Part I, Item 1 of this Form 10-Q which is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes in our risk factors disclosed in Part I, Item 1A in our 2021 Annual Report on Form 10-K. For updated disclosures related to interest and exchange rate risks, see “Financial Market Risks” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 2 of this Form 10-Q which is incorporated herein by reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On October 5, 2021, the Board of Directors authorized a new stock repurchase program under which we could repurchase up to $400 million of our common stock in addition to the $147.8 million remaining under the previous stock repurchase program at October 3, 2021. In the nine months fiscal 2022, we repurchased and settled 986,280 shares with an average price of $152.09 per share for a total cost of $150.0 million in the open market. At July 3, 2022, we had a remaining balance of $397.8 million under our stock repurchase program.

Below is a summary of the stock repurchases that were traded and settled during the first nine months of fiscal 2022:


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value that May Yet be Purchased Under the Plans or Programs (in thousands)
October 4, 2021 - October 31, 2021	97,020	$	160.47	97,020	$	532,244
November 1, 2021 - November 28, 2021	91,216	180.16		91,216	515,811
November 29, 2021 - January 2, 2022	101,960	176.52		101,960	497,813
January 3, 2022 - January 30, 2022	96,908	185.62		96,908	483,279
January 31, 2022 - February 27, 2022	110,858	162.17		110,858	467,036
February 28, 2022 - April 3, 2022	120,274	149.40		120,274	447,813
April 4, 2022 - May 1, 2022	95,121	152.79		95,121	433,279
May 2, 2022 - May 29, 2022	131,962	129.57		131,962	416,181
May 30, 2022 - July 3, 2022	140,961	130.30		140,961	397,813

Item 4. Mine Safety Disclosures

Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") requires domestic mine operators to disclose violations and orders issued under the Mine Act by Mine Safety and Health Administration. We do not act as the owner of any mines, but we may act as a mining operator as defined under the Mine Act where we may be an independent contractor performing services or construction at such mine. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K is included in Exhibit 95.

Item 6. Exhibits

The following documents are filed as Exhibits to this Report:



31.1			Chief Executive Officer Certification pursuant to Rule 13a-14(a)/15d-14(a).

31.2			Chief Financial Officer Certification pursuant to Rule 13a-14(a)/15d-14(a).

32.1			Certification of Chief Executive Officer pursuant to Section 1350.

32.2			Certification of Chief Financial Officer pursuant to Section 1350.

95			Mine Safety Disclosure.

101			The following financial information from our Company’s Quarterly Report on Form 10-Q, for the period ended July 3, 2022, formatted in Inline eXtensible Business Reporting Language: (i) Consolidated Balance Sheets (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Equity, (vi) Notes to Consolidated Financial Statements

104			Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Dated: August 5, 2022	TETRA TECH, INC.



	By:	/s/ DAN L. BATRACK
		Dan L. Batrack
		Chairman and Chief Executive Officer
		(Principal Executive Officer)


	By:	/s/ STEVEN M. BURDICK
		Steven M. Burdick
		Executive Vice President, Chief Financial Officer
		(Principal Financial Officer)


	By:	/s/ BRIAN N. CARTER
		Brian N. Carter
		Senior Vice President, Corporate Controller
		(Principal Accounting Officer)