2023 Annual Report
3
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$
1
8
4
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0
9
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4
$
4
0
5
,
3
$
4
1
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3
$
5
9
9
,
2
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Revenue
1
6
3
$
9
9
2
$
8
6
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Adjusted
EBITDA
4
4
7
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$
0
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$
9
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3
$
Backlog
$M
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Dear Shareholders:
We began fiscal year 2023 with the most ambitious financial
and strategic goals in the Company’s history. I am pleased to
share with you that we ended the year by exceeding our goals
and delivering record highs for all key financial metrics that we
track, driven by double-digit growth across our markets. Tetra
Tech’s revenue increased 29%, net revenue increased 32%, and
adjusted EBITDA increased 33% from the prior year. In January
of 2023, RPS Group joined us, bringing 5,000 staff with highly
complementary capabilities and a significant expansion of
our European and Australian operations. In 2023 we also initiated a high-end software
subscription practice that builds on our 50 years of digital experience.
Our excellent performance in 2023 is the result of a decade of strategic focus on providing
high-end water, environment, and sustainable infrastructure services for our clients.
Today, Tetra Tech has become a global company with an industry-leading reputation,
$5 billion in annual revenue, and double-digit growth rates. Throughout this evolution,
Tetra Tech’s combination of technical expertise, digital capabilities, and disciplined
execution have given us an enduring competitive advantage.
Our strong cash generation and capital allocation strategy provides long-term
compounding benefit to our shareholders. In 2023 our days sales outstanding improved
by an additional 7 days, to a record low 54 days, which is a remarkable 30% below the
industry average. This contributed to an all-time-high cash generation from operations of
$368 million. In the past three years, we have returned $398 million to our shareholders
through dividends and buybacks and generated a 70% shareholder return over the same
time frame. The new credit structure we put in place in 2023 has also reduced future
annual interest payments by approximately $20 million per year, while enhancing our
ability to access additional capital for strategic investments.
Tetra Tech’s expertise and focus is directly aligned with our clients’ spending priorities for
climate change mitigation and adaptation, reliable and safe water supplies, environmental
restoration and biodiversity protection, and support for the clean energy transition. We
are entering 2024 with a record high backlog of $4.79 billion, up $1 billion from last year;
$25 billion in contract capacity; more than 20,000 clients; and significantly broadened
access to key addressable markets in the United States, Canada, Europe, and Australia.
During 2023 we were awarded multiple contracts by large government agencies such as
the U.S. Agency for International Development, U.S. Environmental Protection Agency,
and the U.S. Army Corps of Engineers (USACE). The scope of these contracts includes
improving water efficiency and conservation in Jordan, accelerating environmental
cleanup in the Great Lakes region, and restoring and protecting watersheds and water
bodies throughout the United States. We were selected by the USACE for a $200 million
contract under the Infrastructure Investment and Jobs Act to modernize inland navigation
and restore aquatic ecosystems. We also further enhanced our water practice in the
United Kingdom with the new award of a $76 million Scottish Water contract to develop
digital solutions and optimize water systems.
Tetra Tech is differentiated by our Leading with Science® approach combining practical
expertise, advanced analytics, and artificial intelligence to address our public and private
sector clients’ complex challenges worldwide. In 2023 Engineering News-Record ranked
Tetra Tech #1 in Water for the 20th consecutive year and #1 in Environment for the 15th
consecutive year.
Investor’s Business Daily recognized Tetra Tech as the #1 firm for Human Capital in
November 2023. Our extraordinary workforce is how we achieve the insight, analysis,
and solutions that drive our business, and what makes Tetra Tech unique in the industry.
We attract individuals who want a career at Tetra Tech, from top entry-level
university recruits to industry-leading experts, resulting in our low turnover
rate of 7% and internal staff advancement into leadership roles. We believe in
diversity in all aspects of our work and that inclusive teams are more engaged,
creative, and successful. Tetra Tech values our diverse employee-led resource
groups and our company-wide collaboration teams that reflect the spirit of
engagement, innovation, and entrepreneurship throughout the Company. We
value making a positive difference through the work we do, as evidenced by our
aspiration to improve the lives of a billion people by 2030. Through our work, we
have improved 545 million lives to date.
As we look to the future, we see strong alignment between Tetra Tech’s
services and our clients’ funding priorities for climate change, water resilience,
biodiversity and ecosystem protection, and the global clean energy transition.
Our strategy for the next decade builds on our past success by focusing on
three growth areas: continued leadership as the premier water, environment,
and sustainable infrastructure consultancy; the addition of recurring revenue
streams from our suite of data analytics solutions; and the maturing of our
clean energy transition practice.
In 2023 we launched our subscription services practice, offering software that
monetizes our intellectual property, adds to our customer base, and creates
new recurring revenue streams. For decades we have led in the development
of predictive models, often referred to as digital twins, for the management of
ecosystems, watersheds, and water facilities. Today, our subscription solutions
such as FusionMapTM and OceansMapTM can be broadly applied to optimize water
management, decarbonize buildings, assess damages from natural disasters,
and enhance coastal ecosystems.
Tetra Tech’s clean energy practice provides our clients with high-end
consulting ranging from early-stage energy transition planning for utilities and
development agencies to comprehensive environmental permitting services
for new sources of renewable energy, and the interconnection of power
transmission systems. The RPS Group acquisition significantly expanded our
energy transition capabilities and propelled Tetra Tech to a global leadership
role in offshore wind by combining our dominant position in the United States
with the market leading RPS practice in the United Kingdom and Australia.
In this next wave of technological advancement, Tetra Tech’s industry-leading
expertise in water and environment coupled with our digital acumen will
enable us to deliver higher margins fueled by operational efficiency, technical
innovation, and subscription revenues. Tetra Tech is unwavering in our focus on
shareholder return, disciplined performance, and an entrepreneurial culture.
On behalf of Tetra Tech, I thank you for your continued confidence and support.
Sincerely,
Dan Batrack, Chairman and CEO
[This page intentionally left blank]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 1, 2023
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 No.)
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
Securities registered pursuant to Section 12(g) of the Act:
None
________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 Website, 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, or a 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. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant's common stock held by non-affiliates on April 2, 2023, was $7.7 billion (based upon the closing price of
a share of registrant's common stock as reported by the Nasdaq National Market on that date).
On November 8, 2023, 53,247,668 shares of the registrant's common stock were outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Portions of registrant's Proxy Statement for its 2024 Annual Meeting of Stockholders are incorporated by reference in Part III of this report where
indicated.
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Item 15
Item 16
TABLE OF CONTENTS
PART I
Business
General
Leading with Science
Reportable Segments
Government Services Group
Commercial/International Services Group
Project Examples
Clients
Contracts
Growth Strategy
Sustainability Program
Acquisitions and Divestitures
Competition
Backlog
Regulations
Seasonality
Climate Risk Assessment
Risk Management and Insurance
Human Capital Management
Executive Officers of the Registrant
Available Information
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Exhibits, Financial Statement Schedules
Index to Exhibits
Form 10-K Summary
Signatures
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This Annual Report on Form 10-K ("Report"), 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 harbors created under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act
of 1934 (the "Exchange Act"). 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 "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.
PART I
Item 1. Business
General
Tetra Tech, Inc. ("Tetra Tech") 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.
Tetra Tech is Leading with Science® to provide sustainable and resilient solutions to our clients' most complex needs.
Engineering News-Record ("ENR"), the engineering industry's leading magazine, has ranked Tetra Tech #1 in Water for
20 years in a row. In 2023, we were also ranked #1 in environmental management, wind power, hydro plants, water
treatment/desalination and green government offices. ENR also ranked Tetra Tech in the top 10 in numerous categories,
including dams and reservoirs, marine and port facilities, power, solar power, solid waste, environmental science, chemical and
soil remediation, hazardous waste and site assessment and compliance.
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. Our market leading climate mitigation and
adaptation services are solving our clients' most complex challenges related to coastal flooding, water security, energy transition
and biodiversity protection. Today, we are proud to be making a difference in people’s lives worldwide through our high-end
consulting, engineering and technology service offerings. In fiscal 2023, we worked on over 100,000 projects, in more than 100
countries on all seven continents, with a talent force of 27,000 associates. We are Leading with Science® throughout our
operations, with domain experts across multiple disciplines supported by our advanced analytics, artificial intelligence ("AI"),
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 renewable energy, restoring ecosystems and creating green solutions for our cities and
communities. Our mission is to be the world's leading consulting and engineering firm solving global challenges in water and
the environment that make a positive difference in people's lives worldwide.
The following core principles form the underpinning of how we work together to serve our clients:
•
•
•
•
Service. We put our clients first. We listen closely to better understand our clients' needs and deliver smart, cost-
effective solutions that meet their needs.
Value. We solve our clients' problems as if they were our own. We develop and implement sustainable solutions
that are innovative, efficient and practical.
Excellence. We bring superior technical capability, disciplined project management and excellence in safety and
quality to all of our services.
Opportunity. Our people are our number one asset. Opportunity means new technical challenges that provide
advancement within our company, encourage an inclusive and diverse workforce and ensure a safe workplace.
3
We have a strong project management culture that enables us to deliver on more than 100,000 projects per fiscal year.
Our client-focused project management is supported by strong fiscal management and financial tools. We use a disciplined
approach to monitoring, managing and improving our return on investment in each of our business areas through our efforts to
negotiate appropriate contract terms, manage our contract performance to minimize schedule delays and cost overruns and
promptly bill and collect accounts receivable.
We have built a broad client and contract base by proactively understanding our clients' priorities and demonstrating a
long track record of successful performance that results in repeat business and limits competition. We believe that proximity to
our clients is also instrumental to integrating global experience and resources with an understanding of our local clients' needs.
Over the past year, we worked in more than 100 countries, helping our clients address complex water, environment, renewable
energy and related sustainable infrastructure needs.
Throughout our history, we have supported both public and private clients, many for multiple decades of continuous
contracts and repeat business. Long-term relationships provide us with institutional knowledge of our clients' programs, past
projects and internal resources. Institutional knowledge is often a significant factor in winning competitive proposals and
providing cost-effective solutions tailored to our clients' needs.
We are often at the leading edge of new challenges where we are delivering one-of-a-kind solutions. These might be a
new water treatment technology, a unique solution to addressing new regulatory requirements, a new system for automated
assessment of infrastructure assets or a digital twin for real time management of water treatment systems.
We combine interdisciplinary capabilities, technical resources and institutional knowledge to implement complex
projects that are at the leading edge of policy and technology development.
Leading with Science®
At Tetra Tech, we provide value-generating solutions by combining operational expertise, science and technology. By
Leading with Science® and leveraging our collective technology including advanced data analytics and digital technologies, we
create transformational solutions for our clients.
Tetra Tech's proprietary technologies and solutions, referred to collectively as the Tetra Tech Delta, differentiate us in
the market and provide us with a competitive advantage. We create customized solutions; from smart data collection and
advanced analytics that support decision making to AI enabled solutions for asset management. Our Tetra Tech Delta
technologies are drawn from our decades of operational experience and a reservoir of technical applications that are shared
throughout our company as well as select solutions that are sold externally as software subscriptions. Our high-end teams
connect interdisciplinary experts from across our company's 27,000 staff worldwide. Tetra Tech mobilizes teams that include
analysts, statisticians, digital engineers and industry experts who effectively implement value-generating and pragmatic
solutions for our clients.
These advanced analytical solutions enable us to provide clients with real-time reporting, automated and remote data
collection and dashboards for tracking and communicating results. Tetra Tech Delta is continually expanding and includes
cutting-edge tools on interpretive analysis, modeling of physical systems, forecasting and scenario analysis, optimization and
operations research. Subscription solutions provide our clients with extended capabilities for large scale data management,
spatial data interpretation, and ability to build and utilize digital twins for land, coastal and structural assets.
Leading with Science® also means fully leveraging the collective expertise provided by our global workforce of
27,000 associates. We actively share information, ideas and resources across our global operations through our network
structure, guided subject matter teams and project team building. We use company-wide virtual events to engage Tetra Tech
experts world-wide to solve client challenges and identify the best ideas for further development. We also proactively share
emerging technology and new ideas through our knowledge transfer system, Tetra Tech Technology Transfer ("T4"). T4
facilitates our innovation culture through webcasts, blogs, multi-media and social media across our global operations. Our Tetra
Tech Academy provides a full suite of training resources including project management, leadership development, and broad
technical skills. Academy curriculum is provided through online training, virtual workshops and in-person events.
Reportable Segments
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. These reportable segments allow us to
capitalize on our growing market opportunities and enhance the development of high-end consulting and technical solutions to
meet our growing client demand.
4
The following table presents the percentage of our revenue by reportable segment:
Reportable Segment
GSG
CIG
Inter-segment elimination
2023
47.7%
53.6
(1.3)
100.0%
Fiscal Year
2022
52.0%
49.6
(1.6)
100.0%
2021
55.2%
46.7
(1.9)
100.0%
For additional information regarding our reportable segments, see Note 18, "Reportable Segments" of the "Notes to
Consolidated Financial Statements" included in Item 8. For more information on risks related to our business, reportable
segments and geographic regions, including risks related to foreign operations, see Item 1A, “Risk Factors” of this report.
Government Services Group
GSG provides high-end consulting and engineering services primarily to U.S. government clients (federal, state and
local) and international 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. based federal and municipal clients, especially in water infrastructure, flood protection and
solid waste. GSG also leads our support for development agencies worldwide, especially in the United States, the United
Kingdom and Australia.
GSG provides consulting and engineering services for a broad range of water, environment and sustainable
infrastructure-related needs primarily for U.S. government clients. The primary GSG markets include water resources analysis
and water management, environmental monitoring, data analytics, government consulting, waste management and a broad
range of civil infrastructure master planning and resilient engineering design for facilities, transportation and local development
projects. GSG's services span from early data collection and monitoring, to data analysis and information management, to
science and engineering applied research, to engineering design, to project management and operations and maintenance.
GSG provides our clients with sustainable solutions that optimize their water management and environmental
programs to address regulatory requirements, improve operational efficiencies and manage assets. Our services advance
sustainability and resiliency through the "greening" of infrastructure, design of energy efficiency and resource conservation
programs, innovation in the capture and sequestration of carbon, development of disaster preparedness and response plans and
improvement in water and land resource management practices. We provide climate change and energy management
consulting, and greenhouse gas ("GHG") inventory assessment, certification, reduction and management services. GSG also
provides planning, architectural and sustainable engineering services for U.S. federal, state and local government facilities. We
support government agencies with related sustainable infrastructure needs, asset management for military housing and
educational, institutional and research facilities.
Many government organizations face complex problems due to increased demand and competition for water and
natural resources, newly understood threats to human health and the environment, aging infrastructure and demand for new and
more resilient infrastructure. Our integrated water management services support government agencies responsible for managing
water supplies, wastewater treatment, storm water management and flood protection. We help our clients develop more resilient
water supplies and more sustainable management of water resources, while addressing a wide range of local and national
government requirements and policies. Fluctuations in weather patterns and extreme events, such as prolonged droughts and
more frequent flooding, are increasing concerns over the reliability of water supplies, the need to protect coastal areas and flood
mitigation and adaptation in metropolitan areas. We provide smart water infrastructure solutions that integrate water modeling,
instrumentation and controls and real-time controls to create flexible water systems that respond to changing conditions,
optimize use of existing infrastructure and provide clients with the ability to monitor and manage their water infrastructure
more efficiently. We provide operational technology for secure management of water treatment and wastewater systems,
including cybersecurity assessments and digital twin solutions.
We also support government agencies in the full range of disaster response and community resilience services
including monitoring and environmental response, damage assessment and program management services and resilient
engineering design and mitigation planning. We have a full suite of Tetra Tech Delta technology and specialized procedures that
support our disaster response, planning and management support services. These tools and procedures address disaster
management and community resilience data management needs, including information technology systems, portals,
dashboards, data management, data analytics and statistical analysis.
GSG provides a wide range of consulting and engineering services for solid waste management, including landfill
design and management, and recycling facility design throughout the United States; providing design, project management and
maintenance services to manage solid and hazardous waste; as well as innovative renewable energy projects such as solar
5
energy-generating landfill caps; and providing full-service solutions for gas-to-energy facilities to efficiently use landfill
methane gas.
We provide high-end advanced analytics and information technology ("IT") consulting and support to various federal
clients including AI applications, machine learning, modernization of IT systems and cloud migration. We design solutions to
manage and analyze data for major federal agency programs including data related to health, security, environment and water
programs. We provide technical support for the Federal Aviation Administration to optimize the U.S. airspace system and
support related aviation systems integration for the U.S. and other countries' metropolitan airports. We provide specialized
modeling and data analytics for airspace acoustic analysis. Our aviation airspace services include data management, data
processing, communications and outreach and systems development; and providing systems analysis and information
management.
We support governments in implementing international development programs for developing nations to help them
address numerous challenges, including access to potable water and adapting to the threats of climate change. Our international
development services include supporting donor agencies to develop safe and reliable water supplies and sanitation services,
support the eradication of poverty, improve livelihoods, promote democracy and increase economic growth. Our programs span
planning, designing, implementing, researching and monitoring projects and leverage advanced technology to collect, manage
and provide analytics for our clients. Key areas of focus include climate change, agriculture and rural development, governance
and institutional development, natural resources and the environment, infrastructure, economic growth, energy, rule of law and
justice systems, land tenure and property rights and training and consulting for public-private partnerships. Our projects also
include building capacity and strengthening institutions in areas such as global health, energy sector reform, utility
management, education, food security and local governance.
Commercial/International Services Group
CIG primarily provides high-end consulting and engineering services to U.S. commercial clients, and international
clients inclusive of the commercial and government sectors. CIG supports commercial clients worldwide in renewable energy,
industrial, high-performance buildings and aerospace markets. CIG also provides sustainable infrastructure and related
environmental, engineering, and project management services to commercial and local government clients across Canada, in
Asia Pacific (primarily Australia and New Zealand), Europe, the United Kingdom, as well as Brazil and Chile.
CIG provides consulting and engineering services worldwide for a broad range of water, environment and sustainable
infrastructure-related needs in both developed and emerging economies. The primary markets for CIG's services include natural
resources, energy and utilities, as well as sustainable infrastructure master planning and engineering design for facilities,
transportation and local development projects. CIG's services span from early data collection and monitoring to data analysis
and information management, to feasibility studies and assessments, to science and engineering applied research, to engineering
design, to project management and operations and maintenance.
CIG's environmental services include cleanup and beneficial reuse of sites contaminated with hazardous materials,
toxic chemicals and oil and petroleum products, which cover all phases of the remedial planning process, starting with disaster
response and initial site assessment through removal actions, remedial design and implementation oversight; and supporting
both commercial and government clients in planning and implementing remedial activities at numerous sites around the world,
and providing a broad range of environmental analysis and planning services.
CIG also supports commercial clients by providing design services to renovate, upgrade and modernize industrial
water supplies, and address industrial water treatment and water reuse needs; and provides plant engineering, project execution
and program management services for industrial water treatment projects throughout the world.
CIG provides planning, architectural and sustainable engineering services for commercial and government facilities.
We provide high-end design of sustainable energy, water and GHG decarbonization solutions including civil, electrical,
mechanical, structural and hydraulic engineering for buildings, campuses and surrounding developments. We provide high-end
services in addressing indoor health and associated assessment, consulting and retrofits of buildings to address indoor air
quality and safety. We also provide engineering services for a wide range of clients with specialized needs, such as data centers,
advanced manufacturing, security systems, training and audiovisual facilities, clean rooms, laboratories, medical facilities and
disaster preparedness facilities.
CIG's international services, especially in Canada, Europe, the United Kingdom, and Asia Pacific, include high-end
analytical, engineering, architecture, geotechnical, project management and advisory services for infrastructure projects,
including early project planning, rail and roadway monitoring and asset management services, collection of condition data,
optimization of upgrades and long-term planning for expansion; multi-modal design services for commuter railway stations,
airport expansions, bridges and major highways and ports and harbors; and designing resilient solutions to repair, replace and
upgrade older transportation infrastructure.
6
CIG provides infrastructure design services in extreme and remote areas by using specialized techniques that are
adapted to local resources, while minimizing environmental impacts, and considering potential climate change impacts. These
include providing consulting, geotechnical and design services to owners of transportation, natural resources, energy and
community infrastructure in areas of permafrost or extreme climate regions.
CIG's energy services include support for electric power utilities and independent power producers worldwide, ranging
from macro-level planning and management advisory services to project-specific environmental, engineering, project
management and operational services, and advising on energy security and the design and implementation of smart grids, both
domestically and internationally, including increasing utility automation, information and operational technologies and critical
infrastructure security. For utilities and governmental regulatory agencies, our services include policy and regulatory
development, utility management, performance improvement and asset management and evaluation. For developers and owners
of renewable energy resources such as solar grid and off-grid, on-shore and off-shore wind, biogas and biomass, tidal,
hydropower, conventional power generation facilities, micro-grid and battery or alternative storage facilities, as well as
transmission and distribution assets, our services include environmental, electrical, mechanical and civil engineering,
procurement, operations and maintenance and regulatory support for all project phases.
CIG supports industrial clients globally. Our services include environmental permitting support, siting studies,
strategic planning and analyses; design of site civil works; water management; biological and cultural assessments, and site
investigations; and hazardous waste site remediation.
CIG also provides environmental remediation and reconstruction services to evaluate and restore lands to beneficial
use, remediating, and restoring contaminated facilities in the U.S. and around the world; managing large, complex sediment
remediation programs that help restore rivers and coastal waters to beneficial use; and supporting utilities in the U.S. in
implementing restoration and environmental management programs.
Project Examples
Project examples are provided on our company website located at tetratech.com, including expert interviews, in-depth
articles and project profiles that demonstrate our services across water, environment, sustainable infrastructure, renewable
energy and international development.
Clients
We provide services to a diverse base of U.S. federal government, U.S. state and local government, U.S. commercial
and international clients. The following table presents the percentage of our revenue by client sector:
Client Sector
U.S. federal government (1)
U.S. state and local government
U.S. commercial
International (2)
2023
30.7%
13.4
19.2
36.7
100.0%
Fiscal Year
2022
30.4%
17.2
21.4
31.0
100.0%
2021
33.6%
16.7
19.9
29.8
100.0%
(1) Includes revenue generated under U.S. federal government contracts performed outside the United States.
(2) Includes revenue generated from non-U.S. clients, primarily in Canada, Australia, Europe and the United Kingdom.
U.S. federal government agencies are significant clients. The U.S. Agency for International Development accounted
for 12.2%, 11.0% and 11.7% of our revenue in fiscal 2023, 2022 and 2021, respectively. The Department of Defense ("DoD")
accounted for 8.9%, 9.7% and 11.2% of our revenue in fiscal 2023, 2022 and 2021, respectively. We typically support multiple
programs within a single U.S. federal government agency, both domestically and internationally. We also assist U.S. state and
local government clients in various jurisdictions across the United States. Our international clients are primarily focused in
Canada, Australia, Europe and the United Kingdom, and consist of a relatively equal sized mix of government and commercial
clients. Our U.S. commercial clients include companies in the chemical, energy, pharmaceutical, retail, aerospace and
automotive industries. No single client, except for the U.S. federal government clients, accounted for more than 10% of our
revenue in fiscal 2023.
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Contracts
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:
Contract Type
Fixed-price
Time-and-materials
Cost-plus
2023
36.3%
48.0
15.7
100.0%
Fiscal Year
2022
37.6%
46.7
15.7
100.0%
2021
37.1%
46.4
16.5
100.0%
Under a fixed-price contract, clients agree to pay a specified price for our performance of the entire contract or a
specified portion of the contract. Some fixed-price contracts can include date-certain and/or performance obligations. Fixed-
price contracts carry certain inherent risks, including risks of losses from underestimating costs, delays in project completion,
problems with new technologies, price increases for materials and economic and other changes that may occur over the contract
period. Consequently, the profitability of fixed-price contracts may vary substantially. Under time-and-materials contracts, we
are paid for labor at negotiated hourly billing rates and paid for other expenses. Profitability on these contracts is driven by
billable headcount and cost control. Many of our time-and-materials contracts are subject to maximum contract values and,
accordingly, revenue related to these contracts is recognized as if these contracts were fixed-price contracts. Under our cost-plus
contracts, some of which are subject to a contract ceiling amount, we are reimbursed for allowable costs and fees, which may
be fixed or performance-based. If our costs exceed the contract ceiling or are not allowable, we may not be able to obtain full
reimbursement. Further, the amount of the fee received for a cost-plus award fee contract partially depends upon the client's
discretionary periodic assessment of our performance on that contract.
Some contracts with the U.S. federal government are subject to annual funding approval. U.S. federal government
agencies may impose spending restrictions that limit the continued funding of our existing contracts and may limit our ability to
obtain additional contracts. These limitations, if significant, could have a material adverse effect on us. All contracts with the
U.S. federal government may be terminated by the government at any time, with or without cause.
U.S. federal government agencies have formal policies against continuing or awarding contracts that would create
actual or potential conflicts of interest with other activities of a contractor. These policies may prevent us from bidding for or
performing government contracts resulting from or related to certain work we have performed. In addition, services performed
for a commercial or government sector client may create conflicts of interest that preclude or limit our ability to obtain work for
a private organization. We attempt to identify actual or potential conflicts of interest and to minimize the possibility that such
conflicts could affect our work under current contracts or our ability to compete for future contracts. We have, on occasion,
declined to bid on a project because of an existing or potential conflict of interest.
Some of our operating units have contracts with the U.S. federal government that are subject to audit by the
government, primarily the Defense Contract Audit Agency ("DCAA"). The DCAA generally seeks to (i) identify and evaluate
all activities that contribute to, or have an impact on, proposed or incurred costs of government contracts; (ii) evaluate a
contractor's policies, procedures, controls and performance; and (iii) prevent or avoid wasteful, careless and inefficient
production or service. To accomplish this, the DCAA examines our internal control systems, management policies and financial
capability; evaluates the accuracy, reliability and reasonableness of our cost representations and records; and assesses our
compliance with Cost Accounting Standards ("CAS") and defective-pricing clauses found within the Federal Acquisition
Regulation ("FAR"). The DCAA also performs an annual review of our overhead rates and assists in the establishment of our
final rates. This review focuses on the allowability of cost items and the applicability of CAS. The DCAA also audits cost-based
contracts, including the close-out of those contracts.
The DCAA reviews all types of U.S. federal government proposals, including those of award, administration,
modification and re-pricing. The DCAA considers our cost accounting system, estimating methods and procedures and specific
proposal requirements. Operational audits are also performed by the DCAA. A review of our operations at every major
organizational level is conducted during the proposal review period. During the course of its audit, the U.S. federal government
may disallow certain costs if it determines that we accounted for such costs in a manner inconsistent with CAS. Under a
government contract, only those costs that are reasonable, allocable and allowable are recoverable. A disallowance of costs by
the U.S. federal government could have a material adverse effect on our financial results.
In accordance with our corporate policies, we maintain controls to minimize any occurrence of fraud or other unlawful
activities that could result in severe legal remedies, including the payment of damages and/or penalties, criminal and civil
sanctions and debarment. In addition, we maintain preventative audit programs and mitigation measures to ensure that
appropriate control systems are in place.
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We provide services under contracts, purchase orders or retainer letters. Our policy requires that all contracts must be
in writing. We bill our clients in accordance with the contract terms and periodically based on costs incurred, on either an
hourly-fee basis or on a percentage-of-completion basis, as the project progresses. Most of our agreements permit our clients to
terminate the agreements without cause upon payment of fees and expenses through the date of the termination. Generally, our
contracts do not require that we provide performance bonds. If required, a performance bond, issued by a surety company,
guarantees a contractor's performance under the contract. If the contractor defaults under the contract, the surety will, at its
discretion, complete the job or pay the client the amount of the bond. If the contractor does not have a performance bond and
defaults in the performance of a contract, the contractor is responsible for all damages resulting from the breach of contract.
These damages include the cost of completion, together with possible consequential damages such as lost profits.
Growth Strategy
Our management team establishes Tetra Tech's overall business strategy. Our strategic plan defines and guides our
investment in marketing and business development to leverage our differentiators and target priority programs and growth
markets. We maintain centralized business development resources to develop our corporate branding and marketing materials,
support proposal preparation and planning, conduct market research and manage promotional and professional activities,
including appearances at trade shows, advertising and public relations.
We have established company-wide growth initiatives that reinforce internal coordination, track the development of
new programs, identify and coordinate collective resources for major bids and help us build interdisciplinary teams and provide
innovative solutions for major pursuits. Our growth initiatives provide a forum for cross-sector collaboration, access to
technical solutions and the development of interdisciplinary solutions. We continuously identify new markets that are consistent
with our strategic plan and service offerings, and we leverage our full-service capabilities and internal coordination structure to
develop and implement strategies to research, anticipate and position us for future procurements and emerging programs. Our
Tetra Tech Delta program facilitates access and exchange of technology solutions across our company, through the use of
internal training, inventories and facilitated virtual networking events.
Business development activities are implemented by our technical and professional management staff throughout Tetra
Tech with the support of company-wide resources and expertise. Our project managers and technical staff have the best
understanding of our clients' needs and the effect of client-specific issues, local laws and regulations and procurement
procedures. Our professional staff members hold frequent meetings with existing and potential clients; give presentations to
civic and professional organizations and present seminars on research and technical applications. Effective development of
business is facilitated by each staff member's access to all of our service offerings including our Tetra Tech Delta technology
resources. Our strong internal networking programs help our professional staff members to pursue new opportunities and build
multi-disciplinary teams for both existing and new clients. These networks also facilitate our ability to provide services
throughout the project life cycle from the early studies to operations and maintenance. Networking is further supported by our
enterprise-wide knowledge management systems which include skills search tools, business development tracking and
collaboration tools.
To support our growth plans, we actively attract, recruit, engage and retain key hires. Our combination of high-end
science, technology resources and consulting culture coupled with practical applications provides challenging and rewarding
opportunities for our workforce, thereby enhancing our ability to recruit and retain top quality talent. Our internal networking
programs, leadership training, entrepreneurial environment, focus on Leading with Science® and global project portfolio help
to attract and retain highly qualified individuals.
Our strategic growth plans are augmented by our selective investment in acquisitions aligned with our business.
Acquisitions advance our strategy by adding new technologies, broadening our service offerings, adding contract capacity and
expanding our geographic presence. Our long-established experience in identifying and integrating acquisitions strengthens our
ability to integrate and rapidly leverage the resources of the acquired companies post-acquisition.
Sustainability Program
Sustainability is an integral part of our global business, rooted in our internal culture and extending throughout our
projects around the world. For more than 50 years, we have leveraged cutting-edge expertise and the latest technology to
deliver more sustainable solutions to clients and continually improve the way we do business.
Through our Sustainability Program, we monitor environmental, social and governance ("ESG") metrics, including
human capital elements. We continue to enhance the sustainability of our daily practices, reduce our GHG emissions, and
provide an exceptional working environment for our employees across our global operations. As a signatory of the United
Nations ("UN") Global Compact on human rights, labor, environment and anti-corruption, we embrace the UN Global
Compact's Ten Principles as part of the strategy, culture and daily operations of our company.
We actively engage with our stakeholders, internally and externally, to encourage input on the materiality of various
ESG issues to Tetra Tech and incorporate input into our strategic planning and sustainability reporting. Our annual
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sustainability reporting and key metrics are aligned with the priorities we have set on human capital, professional development,
health & safety, and ethics. We report on human capital metrics, including gender balance, racial and ethnic diversity in our
workforce, employee engagement and professional development. We have supplier programs that integrate and emphasize
sustainability in the procurement of goods and services and subcontracting for our projects. We have reported annually on GHG
emissions for more than a decade, significantly reducing our emissions from program inception. In 2021, we expanded our
reporting and set new goals for scope 1, 2, and 3 emissions. Based on input from stakeholders and in recognition of the
importance of the project work we perform each year, in 2021 we also initiated our Billion People Challenge, with the
overarching goal to improve the lives of one billion people by 2030. The Billion People Challenge progress is calculated each
year based on our annual project impact analysis in five categories that are closely aligned with the Global Reporting Initiative
standards and the UN Sustainable Development Goals.
Our Sustainability Program is led by our Chief Sustainability Officer, who has been appointed by our Board of
Directors and is supported by corporate and operations representatives through our Sustainability Council. We continuously
review sustainability-related policies and practices, integrate input from stakeholders, and assess the results of our efforts in
order to make future improvements. Tetra Tech's Board of Directors Strategic Planning and Enterprise Risk Committee reviews
and approves the Sustainability Program and evaluates our progress in achieving the goals and objectives outlined in our plan.
As part of our membership in the UN Global Compact, we annually report on the Communication on Progress using Tetra
Tech's Sustainability Report.
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.
On January 23, 2023, we completed the acquisition of RPS Group plc ("RPS"), a publicly traded company on the
London Stock Exchange in an all-cash transaction totaling $784 million. We funded the RPS acquisition with debt, net of $109
million in proceeds from a foreign exchange forward contract that we entered into at the same time we made the formal offer to
acquire RPS on September 23, 2022.
RPS employs approximately 5,000 associates in the United Kingdom, Europe, Asia Pacific and North America,
delivering high-end solutions, especially in energy transformation, water and program management for government and
commercial clients. In fiscal 2023, RPS contributed revenue of approximately $600 million to our consolidated results. RPS
contributed $5.0 million to our consolidated operating income in fiscal 2023, which includes $26.8 million of intangible
amortization. Substantially all of RPS is included in our CIG segment.
In fiscal 2023, we also acquired Amyx, Inc. (“Amyx”), an enterprise technology services, cybersecurity and
management consulting firm based in Reston, Virginia. With over 500 employees, Amyx provides application modernization,
cybersecurity, systems engineering, financial management and program management support on over 30 Federal Government
programs. Amyx is included in our GSG segment.
For detailed information regarding acquisitions, see Note 5, "Acquisitions" of the "Notes to Consolidated Financial
Statements" included in Item 8.
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.
We did not divest of any businesses in fiscal 2023.
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Competition
The market for our services is generally competitive. We often compete with many other firms ranging from small
regional firms to large international firms.
We perform a broad spectrum of consulting, engineering and technical services across the water, environment,
sustainable infrastructure, renewable energy and international development markets. Our competition varies and is a function of
the business areas in which, and the client sectors for which, we perform our services. The number of competitors for any
procurement can vary widely, depending upon technical qualifications, the relative value of the project, geographic location, the
financial terms and risks associated with the work and any restrictions placed upon competition by the client. Historically,
clients have chosen among competing firms by weighing the quality, innovation and timeliness of the firm's service versus its
cost to determine which firm offers the best value.
Our competitors vary depending on end markets and clients, and often we may only compete with a portion of a firm.
We believe that our principal competitors include the following firms, in alphabetical order: AECOM; Arcadis NV;
AtkinsRéalis; Black & Veatch Corporation; Booz Allen Hamilton; Brown & Caldwell; CDM Smith Inc.; Chemonics
International, Inc.; Exponent, Inc.; GHD; ICF International, Inc.; Jacobs Solutions, Inc.; Leidos, Inc.; SAIC; Stantec Inc.; TRC
Companies, Inc.; Weston Solutions, Inc.; and WSP Global Inc.
Backlog
We include in our backlog only those contracts for which funding has been provided and work authorization has been
received. We estimate that approximately two-thirds of our backlog at the end of fiscal 2023 will be recognized as revenue in
fiscal 2024, as work is being performed. However, we cannot guarantee that the revenue projected in our backlog will be
realized or, if realized, will result in profits. In addition, project cancellations or scope adjustments may occur with respect to
contracts reflected in our backlog. For example, certain of our contracts with the U.S. federal government and other clients are
terminable at the discretion of the client, with or without cause. These types of backlog reductions could adversely affect our
revenue and margins. Accordingly, our backlog as of any particular date is an uncertain indicator of our future earnings.
Our backlog at fiscal 2023 year-end was $4.8 billion, an increase of $1.0 billion, or 27.9%, compared to fiscal
2022 year-end. Of this amount, GSG and CIG reported $2.7 billion and $2.1 billion of backlog, respectively, at fiscal 2023
year-end.
Regulations
We engage in various service activities that are subject to government oversight, including environmental laws and
regulations, general government procurement laws and regulations and other regulations and requirements imposed by the
specific government agencies with which we conduct business.
Environmental. A significant portion of our business involves the planning, design and program management of
pollution control facilities, as well as the assessment and management of remediation activities at hazardous waste sites, U.S.
Superfund sites and military bases. In addition, we contract with U.S. federal government entities to destroy hazardous
materials. These activities require us to manage, handle, remove, treat, transport and dispose of toxic or hazardous substances.
Some environmental laws, such as the U.S. Superfund law and similar state, provincial and local statutes, can impose
liability for the entire cost of clean-up for contaminated facilities or sites upon present and former owners and operators, as well
as generators, transporters and persons arranging for the treatment or disposal of such substances. In addition, while we strive to
handle hazardous and toxic substances with care and in accordance with safe methods, the possibility of accidents, leaks, spills
and events of force majeure always exist. Humans exposed to these materials, including workers or subcontractors engaged in
the transportation and disposal of hazardous materials and persons in affected areas, may be injured or become ill. This could
result in lawsuits that expose us to liability and substantial damage awards. Liabilities for contamination or human exposure to
hazardous or toxic materials, or a failure to comply with applicable regulations, could result in substantial costs, including
clean-up costs, fines, civil or criminal sanctions, third party claims for property damage or personal injury or the cessation of
remediation activities.
Certain of our business operations are covered by U.S. Public Law 85-804, which provides for government
indemnification against claims and damages arising out of unusually hazardous activities performed at the request of the
government. Due to changes in public policies and law, however, government indemnification may not be available in the case
of any future claims or liabilities relating to other hazardous activities that we perform.
Government Procurement. The services we provide to the U.S. federal government are subject to the FAR and other
rules and regulations applicable to government contracts. These rules and regulations:
•
require certification and disclosure of all cost and pricing data in connection with the contract negotiations under
certain contract types;
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•
•
impose accounting rules that define allowable and unallowable costs and otherwise govern our right to
reimbursement under certain cost-based government contracts; and
restrict the use and dissemination of information classified for national security purposes and the exportation of
certain products and technical data.
In addition, services provided to the DoD and U.S. federal civil agencies are monitored by the Defense Contract
Management Agency and audited by the DCAA. Our government clients can also terminate any of their contracts, and many of
our government contracts are subject to renewal or extension annually. Further, the services we provide to state and local
government clients are subject to various government rules and regulations.
Seasonality
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. and Canada), 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.
Climate Risk Assessment
We assess the impact of climate on our operations and business periodically, as part of our Board of Directors'
Strategic Planning and Enterprise Risk Committee meetings. Climate risk is a consideration in business continuity planning and
operational security in regions that may experience climate-related disruptions due to extreme weather, fires, or flooding. In
some cases, we may be working in regions that also experience socio-political impacts and security disruptions due to the
impacts of extreme weather or prolonged drought conditions. As a professional services company, our workforce is highly
mobile, able to work remotely, and can in most cases quickly adapt to changes in local conditions. We have business continuity
planning and processes in place to address any acute impact to locally affected operations and have the ability to rapidly move
to remote and flexible working arrangements while restoring or relocating affected operations. We maintain a strong
information technology infrastructure to facilitate remote working and provide virtual access to systems. Our enterprise and
project data is accessible through cloud-based systems, reducing the risk of localized disruptions of data access and computer
systems. Our offices are typically leased, so we are not at significant risk of physical building assets being impacted. Select
project activities can be impacted by climate related events; however, these are addressed through our extensive project risk
management process. Climate-related disruptions do, in many cases, result in increased opportunity for project work for Tetra
Tech. We provide post-disaster response services and may have additional demand for our expertise if there is an increase in the
frequency in climate related events. Furthermore, our business includes providing a wide range of water, environment and
sustainable infrastructure services, many of which are increased by the longer-term impacts associated with drought, water
scarcity, heat, flooding and fire risk.
Risk Management and Insurance
Our business activities could expose us to potential risk and liability under various laws and under workplace health
and safety regulations. In addition, we occasionally assume liability by contract under indemnification agreements. We cannot
predict the magnitude of such potential liabilities. Our Office of Risk Management reviews and oversees the risk profile of our
operations, and reports to our Board of Directors.
We maintain a comprehensive general liability insurance policy with an umbrella policy that covers losses beyond the
general liability limits. We also maintain professional errors and omissions liability and contractor's pollution liability insurance
policies. We believe that both policies provide adequate coverage for our business. When we perform higher-risk work, we
obtain, if available, the necessary types of insurance coverage for such activities, as is typically required by our clients.
We obtain insurance coverage through a broker that is experienced in our industry. The broker and our risk manager
regularly review the adequacy of our insurance coverage. Because there are various exclusions and retentions under our
policies, or an insurance carrier may become insolvent, there can be no assurance that all potential liabilities will be covered by
our insurance policies or paid by our carrier.
We evaluate the risk associated with insurance claims. If we determine that a loss is probable and reasonably
estimable, we establish an appropriate reserve. A reserve is not established if we determine that a claim has no merit or is not
probable or reasonably estimable. Our historic levels of insurance coverage and reserves have been adequate. However,
partially or completely uninsured claims, if successful and of significant magnitude, could have a material adverse effect on our
business.
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Human Capital Management
Employees. At fiscal 2023 year-end, we had approximately 27,000 staff worldwide. A large percentage of our
employees have technical and professional backgrounds and undergraduate and/or advanced degrees, including the employees
of recently acquired companies. Our professional staff includes archaeologists, architects, biologists, chemical engineers,
chemists, civil engineers, data scientists, computer scientists, economists, electrical engineers, environmental engineers,
environmental scientists, geologists, hydrogeologists, mechanical engineers, software engineers, oceanographers, project
managers and toxicologists. We consider the current relationships with our employees to be favorable. We are not aware of any
employment circumstances that are likely to disrupt work at any of our facilities. See Part I, Item 1A, "Risk Factors" for a
discussion of the risks related to the loss of key personnel or our inability to attract and retain qualified personnel.
Health and Safety. Tetra Tech is committed to providing and maintaining a healthy and safe work environment for our
associates. We provide training to all associates to improve their understanding of behaviors that can be perceived as
discriminatory, exclusionary and/or harassing, and provide safe avenues for associates to report such behaviors.
Diversity, Equity and Inclusion. Tetra Tech brings together engineers and technical specialists from all backgrounds to
solve our clients' most challenging problems. Our Diversity, Equity and Inclusion ("DEI") Policy guides the Board of Directors,
management, associates, subcontractors and partners in developing an inclusive culture. Our Diversity, Equity and Inclusion
Council monitors Tetra Tech's diversity, equity and inclusion practices and makes recommendations to the Board of Directors
and Chief Executive Officer for any changes or improvements to our program.
Tetra Tech values diversity, equity and inclusion and undertakes various efforts throughout its operations to promote
these initiatives. Our current efforts are focused on these primary areas:
•
•
Equal employment opportunity. Tetra Tech ensures that our practices and processes attract a diverse range of
candidates, and those candidates are recruited, hired, assigned, developed and promoted based on merit and their
alignment to our values.
Enhancing learning and development opportunities. Our Employee Resource Groups ("ERGs") co-sponsor
training, mentorship and life skills development opportunities for the entire Tetra Tech community. The DEI
program leverages and further extends the impact of our professional development and Tetra Tech Academy
Learning and Development resources. Education assistance is offered to financially support associates who seek to
expand their knowledge and skill base.
As part of Tetra Tech's commitment to a culture of inclusion, our ERG Program broadens and enhances company-wide
interaction opportunities for our employees. Tetra Tech's ERGs are open to all associates and involve activities for both
employees whose background is the focus of the ERG and those who are supportive of the group (also known as allies). These
global networks build on and coordinate with the many local networks that are already active throughout our operations and
include groups focused on the experiences of Black, Latino, Pan-Asian, Women, Veterans, Disabled and LGBTQIA+
employees and emerging professionals.
Professional Development. Tetra Tech invests in the professional development of our employees. All employees can
access training and technical exchange, and skill development through our Tetra Tech Academy Learning and Development
Program and customized Learning Management System, providing professional development opportunities throughout our
employees' careers. Technology skills development includes access to a series of live webcasts and recorded technology transfer
sessions. Company-wide networking events provide interactive skills development activities. We also offer professional
development programs through our Leadership Academy for Emerging Professionals, Project Management training, and
Fearless Entrepreneur program. Tetra Tech's Project Management Training Program is available to all employees and is focused
on professional development, techniques for managing high-end projects and how to employ enterprise systems, dashboards
and proprietary technology tools. The Project Management training provides employees with access to a full curriculum, where
attendees progress through three development tiers. Tetra Tech's Project Excellence Steering Committee sponsors the
development and implementation of our comprehensive Project Management Training Program. In addition, we provide
comprehensive Health & Safety training, specialized environmental compliance and safety training, and support employees
with required external certifications and training. Tetra Tech also provides employees with financial support in the pursuit of
academic degrees and continuous learning.
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Executive Officers of the Registrant
The following table shows the name, age and position of each of our executive officers as of November 22, 2023:
Name
Dan L. Batrack
Age
65 Chairman and Chief Executive Officer
Position
Mr. Batrack joined our predecessor in 1980 and was named Chairman in January 2008.
He has served as our Chief Executive Officer and a director since November 2005, and
as our President from October 2008 to September 2019. Mr. Batrack has served in
numerous capacities over the last 40 years, including arctic research scientist, deep
water oceanographic hydrographer, coastal hydrodynamic modeler, environmental data
analyst, project and program manager, President of the Engineering Division, and in
2004 he was appointed Chief Operating Officer. He has managed complex programs
for many small and Fortune 500 clients, both in the United States and internationally.
Mr. Batrack holds a B.A. degree in Business Administration from the University of
Washington.
Jill Hudkins
52 President
Ms. Hudkins was appointed President in October 2022. Ms. Hudkins has been with us
for over 25 years in increasingly responsible positions. She served as President of the
Resilient & Sustainable Infrastructure Division from October 2021 to October 2022,
President of the IEW Operating Unit from April 2021 to October 2022 and Vice
President and Growth Initiatives Program Leader from October 2019 to October 2022.
Prior to this, Ms. Hudkins served as Vice President and One Water Leader from May
2015 to October 2019. She is a registered Professional Engineer and is a nationally
recognized expert in high-end innovative water treatment solutions. Ms. Hudkins holds
a master's degree in Civil and Environmental Engineering from the Massachusetts
Institute of Technology, and a bachelor's degree in Civil and Environmental
Engineering from Duke University.
Steven M. Burdick
59 Executive Vice President, Chief Financial Officer
Mr. Burdick has served as our Executive Vice President, Chief Financial Officer since
April 2011. He served as our Senior Vice President, Corporate Controller and Chief
Accounting Officer from January 2004 to March 2011. Mr. Burdick joined us in April
2003 as Vice President, Management Audit. Previously, Mr. Burdick served in senior
financial and executive positions with Aura Systems, Inc., TRW Ventures, and Ernst &
Young LLP. Mr. Burdick holds a B.S. degree in Business Administration from Santa
Clara University and is a Certified Public Accountant.
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Name
Age
Position
Leslie Shoemaker
66 Executive Vice President, Chief Sustainability and Leadership Development Officer
Dr. Shoemaker was appointed Executive Vice President, Chief Sustainability and
Leadership Development Officer in October 2022 after serving as Tetra Tech's
President since September 2019. Dr. Shoemaker joined us in 1991, and has served in
various management capacities, including project and program manager, water
resources manager and business group president. From 2005 to 2015, she led our
strategic planning, business development and company-wide collaboration programs.
Her technical expertise is in the management of large-scale watershed and master
planning studies, development of modeling tools and application of optimization tools
for decision making. Since the inception of our sustainability program in 2010, she has
served as Chief Sustainability Officer leading the formation and evolution of the
program. Dr. Shoemaker has facilitated leadership development for Tetra Tech's
Leadership Academy program. Dr. Shoemaker holds a B.A. in Mathematics from
Hamilton College, a Master of Engineering from Cornell University and a Ph.D. in
Agricultural Engineering from the University of Maryland. She was inducted into the
United States' National Academy of Engineers in 2022.
Roger R. Argus
62 Senior Vice President, President of GSG and CIG
Mr. Argus is a chemical engineer with 38 years of experience, including 30 years with
us in operational leadership, program and project management and quality assurance
for projects encompassing a broad spectrum of environmental, engineering,
information technology and disaster management services. Mr. Argus has also been
responsible for managing multidisciplinary contracts and projects in support of the
U.S. federal government (i.e., U.S. Navy, the U.S. Army Corps of Engineers and the
Environmental Protection Agency), state and municipal agencies and private clients
nationwide. The scope of his technical experience includes planning and directing
environmental programs, developing data acquisition, management and analytics
solutions, fund research and development support for innovative environmental
technologies and waste treatment systems, municipal resiliency and sustainability
programs. Mr. Argus holds a B.S. in Chemical Engineering from California State
University, Long Beach.
Brian N. Carter
56 Senior Vice President, Corporate Controller and Chief Accounting Officer
Mr. Carter joined us as Vice President, Corporate Controller and Chief Accounting
Officer in June 2011 and was appointed Senior Vice President in October 2012.
Previously, Mr. Carter served in finance and auditing positions in private industry and
with Ernst & Young LLP. Mr. Carter holds a B.S. in Business Administration from
Miami University and is a Certified Public Accountant.
Preston Hopson
47 Senior Vice President, General Counsel and Secretary
Mr. Hopson was appointed Senior Vice President, General Counsel and Secretary to
the Board of Directors in January 2018. He also is responsible for the global Human
Resources function and serves as the Chief Ethics and Compliance Officer. Previously,
Mr. Hopson served as Vice President, Assistant General Counsel and Assistant
Corporate Secretary at AECOM. Prior to this, he was a corporate and securities lawyer
at O’Melveny & Myers LLP and also worked at the U.S. Court of Appeals. Mr.
Hopson holds B.A. and J.D. degrees from Yale University.
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Available Information
Our internet website address is www.tetratech.com. We made available, free electronic copies of our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports through the
“Investor Relations” portion of our website, under the heading “SEC Filings” filed under “Financial Information.” These
reports are available on our website as soon as reasonably practicable after we electronically file them with the Securities and
Exchange Commission ("SEC"). These reports, and any amendments to them, are also available at the Internet website of the
SEC, https://www.sec.gov. Also available on our website are our Corporate Governance Policies, Board Committees, Corporate
Code of Conduct and Finance Code of Professional Conduct.
Item 1A. Risk Factors
We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could
materially adversely affect our operations. Set forth below and elsewhere in this report and in other documents we file with the
SEC are descriptions of the risks and uncertainties that could cause our actual results to differ materially from the results
contemplated by the forward-looking statements contained in this report. Additional risks we do not yet know of or that we
currently think are immaterial may also affect our business operations. If any of the events or circumstances described in the
following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected.
Risks Related to Our Business and Operations
If we fail to complete a project in a timely manner, miss a required performance standard or otherwise fail to adequately
perform on a project, then we may incur a loss on that project, which may reduce or eliminate our overall profitability.
Our engagements often involve large-scale, complex projects. The quality of our performance on such projects
depends in large part upon our ability to manage the relationship with our clients and our ability to effectively manage the
project and deploy appropriate resources, including third-party contractors and our own personnel, in a timely manner. We may
commit to a client that we will complete a project by a scheduled date. We may also commit that a project, when completed,
will achieve specified performance standards. If the project is not completed by the scheduled date or fails to meet required
performance standards, we may either incur significant additional costs or be held responsible for the costs incurred by the
client to rectify damages due to late completion or failure to achieve the required performance standards. The uncertainty of the
timing of a project can present difficulties in planning the amount of personnel needed for the project. If the project is delayed
or canceled, we may bear the cost of an underutilized workforce that was dedicated to fulfilling the project. In addition,
performance of projects can be affected by a number of factors beyond our control, including unavoidable delays from
government inaction, public opposition, inability to obtain financing, weather conditions, unavailability of materials, changes in
the project scope of services requested by our clients, industrial accidents, environmental hazards and labor disruptions. To the
extent these events occur, the total costs of the project could exceed our estimates, and we could experience reduced profits or,
in some cases, incur a loss on a project, which may reduce or eliminate our overall profitability. Further, any defects or errors,
or failures to meet our clients’ expectations, could result in claims for damages against us. Failure to meet performance
standards or complete performance on a timely basis could also adversely affect our reputation and client base.
Demand for our services is cyclical and vulnerable to economic downturns. If economic growth slows, government fiscal
conditions worsen or client spending declines, then our revenue, profits and financial condition may deteriorate.
Demand for our services is cyclical, and vulnerable to economic downturns and reductions in government and private
industry spending. Such downturns or reductions may result in clients delaying, curtailing or canceling proposed and existing
projects. Our business traditionally lags the overall recovery in the economy; therefore, our business may not recover
immediately when the economy improves. If economic growth slows, government fiscal conditions worsen or client spending
declines, then our revenue, profits and overall financial condition may deteriorate. Our government clients may face budget
deficits that prohibit them from funding new or existing projects. In addition, our existing and potential clients may either
postpone entering into new contracts or request price concessions. Difficult financing and economic conditions may cause some
of our clients to demand better pricing terms or delay payments for services we perform, thereby increasing the average number
of days our receivables are outstanding and the potential of increased credit losses of uncollectible invoices. Further, these
conditions may result in the inability of some of our clients to pay us for services that we have already performed. If we are not
able to reduce our costs quickly enough to respond to the revenue decline from these clients, our operating results may be
adversely affected. Accordingly, these factors affect our ability to forecast our future revenue and earnings from business areas
that may be adversely impacted by market conditions. Any of these factors could adversely affect the demand for our services,
which could have a material adverse effect on our business, results of operations and financial condition.
Our industry is highly competitive, and we may be unable to compete effectively, which could result in reduced revenue,
profitability and market share.
We are engaged in a highly competitive business. The markets that we serve are highly fragmented and we compete
with many regional, national and international companies. Certain of these competitors have greater financial and other
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resources than we do. Others are smaller and more specialized and concentrate their resources in particular areas of expertise.
The extent of our competition varies according to certain markets and geographic area. In addition, the technical and
professional aspects of some of our services generally do not require large upfront capital expenditures and provide limited
barriers against new competitors.
The degree and type of competition that we face is also influenced by the type and scope of a particular project. Our
clients make competitive determinations based upon qualifications, experience, performance, reputation, technology, customer
relationships and ability to provide the relevant services in a timely, safe and cost-efficient manner. This competitive
environment could force us to make price concessions or otherwise reduce prices for our services. If we are unable to maintain
our competitiveness and win bids for future projects, our market share, revenue and profits will decline.
Our international operations expose us to legal, political and economic risks in different countries as well as currency
exchange rate fluctuations that could harm our business and financial results.
In fiscal 2023, we generated 36.7% of our revenue from our international operations, primarily in Canada, Australia,
Europe, the United Kingdom and from international clients for work that is performed by our domestic operations. International
business is subject to a variety of risks, including: imposition of governmental controls and changes in laws, regulations or
policies; lack of developed legal systems to enforce contractual rights; greater risk of uncollectible accounts and longer
collection cycles; currency exchange rate fluctuations, devaluations and other conversion restrictions; uncertain and changing
tax rules, regulations and rates; the potential for civil unrest, acts of terrorism, force majeure, war or other armed conflict and
greater physical security risks, which may cause us to have to leave a country quickly; logistical and communication
challenges; changes in regulatory practices, including trade policies, tariffs and taxes; changes in labor conditions; general
economic, political and financial conditions in foreign markets; and exposure to civil or criminal liability under the U.S.
Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act, the Canadian Corruption of Foreign Public Officials Act, the
Brazilian Clean Companies Act, the anti-boycott rules, trade and export control regulations as well as other international
regulations.
International risks and violations of international regulations may significantly reduce our revenue and profits, and
subject us to criminal or civil enforcement actions, including fines, suspensions or disqualification from future U.S. federal
procurement contracting. Although we have policies and procedures to monitor legal and regulatory compliance, our
employees, subcontractors and agents could take actions that violate these requirements. As a result, our international risk
exposure may be more or less than the percentage of revenue attributed to our international operations.
Continuing worldwide political, social and economic uncertainties may adversely affect our revenue and profitability.
The last several years have been periodically marked by political, social and economic concerns, including decreased
consumer confidence, the lingering effects of international conflicts, higher energy costs and inflation, and the global
coronavirus disease 2019 ("COVID-19") pandemic. Ongoing instability and current conflicts in global markets, including
Eastern Europe, the Middle East and Asia, and the potential for other conflicts and future terrorist activities and other recent
geopolitical events throughout the world, including the recent state of war between Israel and Hamas and the related risk of a
larger regional conflict, have created and may continue to create economic and political uncertainties and impacts. This
instability can make it extremely difficult for our clients, our vendors and us to accurately forecast and plan future business
activities, and could cause constrained spending on our services, delays and a lengthening of our business development efforts,
the demand for more favorable pricing or other terms and/or difficulty in collection of our accounts receivable. Our government
clients may face budget deficits that prohibit them from funding proposed and existing projects. Further, ongoing economic
instability in the global markets could limit our ability to access the capital markets at a time when we would like, or need, to
raise capital, which could have an impact on our ability to react to changing business conditions or new opportunities. If
economic conditions remain uncertain or weaken, or government spending is reduced, our revenue and profitability could be
adversely affected.
Our backlog is subject to cancellation, unexpected adjustments and changing economic conditions and is an uncertain
indicator of future operating results.
Our backlog at fiscal 2023 year-end was $4.8 billion, an increase of $1.0 billion, or 27.9%, compared to fiscal 2022
year-end. We include in backlog only those contracts for which funding has been provided and work authorizations have been
received. We cannot guarantee that the revenue projected in our backlog will be realized or, if realized, will result in profits. In
addition, project delays, suspensions, terminations, cancellations, reductions in scope, or other adjustments do occur from time
to time in our industry due to considerations beyond our control and may have a material impact on the value of reported
backlog with a corresponding adverse impact on future revenues and profitability. For example, certain of our contracts with the
U.S. federal government and other clients are terminable at the discretion of the client, with or without cause. These types of
backlog reductions could adversely affect our revenue and margins. As a result of these factors, our backlog as of any particular
date is an uncertain indicator of our future earnings.
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The loss of key personnel or our inability to attract and retain qualified personnel could impair our ability to provide
services to our clients and otherwise conduct our business effectively.
As primarily a professional and technical services company, we are labor-intensive and, therefore, our ability to attract,
retain and expand our senior management and our professional and technical staff is an important factor in determining our
future success. The market for qualified scientists and engineers is competitive and, from time to time, it may be difficult to
attract and retain qualified individuals with the required expertise within the timeframe demanded by our clients. For example,
some of our U.S. government contracts may require us to employ only individuals who have particular government security
clearance levels. In addition, if we are unable to retain executives and other key personnel, the roles and responsibilities of
those employees will need to be filled, which may require that we devote time and resources to identify, hire and integrate new
employees. The loss of the services of any of these key personnel could adversely affect our business. Our failure to attract and
retain key individuals could impair our ability to provide services to our clients and conduct our business effectively.
If our contractors and subcontractors fail to satisfy their obligations to us or other parties, or if we are unable to
maintain these relationships, our revenue, profitability and growth prospects could be adversely affected.
We depend on contractors and subcontractors in conducting our business. There is a risk that we may have disputes
with our subcontractors arising from, among other things, the quality and timeliness of work performed by the subcontractor,
client concerns about the subcontractor or our failure to extend existing task orders or issue new task orders under a
subcontract. In addition, if a subcontractor fails to deliver on a timely basis the agreed-upon supplies, fails to perform the
agreed-upon services or goes out of business, then we may be required to purchase the services or supplies from another source
at a higher price, and our ability to fulfill our obligations as a prime contractor may be jeopardized. This may reduce the profit
to be realized or result in a loss on a project for which the services or supplies are needed.
We also rely on relationships with other contractors when we act as their subcontractor or joint venture partner. The
absence of qualified subcontractors with which we have a satisfactory relationship could adversely affect the quality of our
service and our ability to perform under some of our contracts. Our future revenue and growth prospects could be adversely
affected if other contractors eliminate or reduce their subcontracts or teaming arrangement relationships with us, or if a
government agency terminates or reduces these other contractors’ programs, does not award them new contracts, or refuses to
pay under a contract.
Our failure to meet contractual schedule or performance requirements that we have guaranteed could adversely affect
our operating results.
In certain circumstances, we can incur liquidated or other damages if we do not achieve project completion by a
scheduled date. If we or an entity for which we have provided a guarantee subsequently fails to complete the project as
scheduled and the matter cannot be satisfactorily resolved with the client, we may be responsible for cost impacts to the client
resulting from any delay or the cost to complete the project. Our costs generally increase from schedule delays and/or could
exceed our projections and the anticipated revenue for a particular project. In addition, project performance can be affected by a
number of factors beyond our control, including unavoidable delays from governmental inaction, public opposition, inability to
obtain financing, weather conditions, unavailability of vendor materials, changes in the project scope of services requested by
our clients, industrial accidents, environmental hazards, labor disruptions and other factors. As a result, material performance
problems for existing and future contracts could cause actual results of operations to differ from those anticipated by us and
could cause us to suffer damage to our reputation within our industry and client base.
Our failure to implement and comply with our safety program could adversely affect our operating results or financial
condition.
Our project sites often put our employees and others in close proximity with mechanized equipment, moving vehicles,
chemical and manufacturing processes and highly regulated materials. On some project sites, we may be responsible for safety,
and, accordingly, we have an obligation to implement effective safety procedures. Our safety program is a fundamental element
of our overall approach to risk management, and the implementation of the safety program is a significant issue in our dealings
with our clients. We maintain an enterprise-wide group of health and safety professionals to help ensure that the services we
provide are delivered safely and in accordance with standard work processes. Unsafe job sites and office environments have the
potential to increase employee turnover, increase the cost of a project to our clients, expose us to types and levels of risk that
are fundamentally unacceptable and raise our operating costs. The implementation of our safety processes and procedures are
monitored by various agencies, including the U.S. Mine Safety and Health Administration (“MSHA”), and rating bureaus and
may be evaluated by certain clients in cases in which safety requirements have been established in our contracts. Our failure to
meet these requirements or our failure to properly implement and comply with our safety program could result in reduced
profitability, the loss of projects or clients or potential litigation, and could have a material adverse effect on our business,
operating results or financial condition.
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Our business activities may require our employees to travel to and work in countries where there are high security risks,
which may result in employee death or injury, repatriation costs or other unforeseen costs.
Certain of our contracts require our employees travel to and work in high-risk countries that are undergoing political,
social and economic upheavals resulting from war, civil unrest, criminal activity, acts of terrorism or public health crises. As a
result, we risk loss of or injury to our employees and may be subject to costs related to employee death or injury, repatriation or
other unforeseen circumstances. We may choose or be forced to leave a country with little or no warning due to physical
security risks.
Unavailability or cancellation of third-party insurance coverage would increase our overall risk exposure as well as
disrupt the management of our business operations.
Our services involve significant risks of professional and other liabilities, which may substantially exceed the fees that
we derive from our services. We maintain insurance coverage from third-party insurers as part of our overall risk management
strategy and because some of our contracts require us to maintain specific insurance coverage limits. From time to time, we
assume liabilities as a result of indemnification provisions contained in our service contracts. We cannot predict the magnitude
of these potential liabilities.
We are liable to pay such liabilities from our assets if and when the aggregate settlement or judgment amount exceeds
our insurance policy limits. Further, our insurance may not protect us against liability because our policies typically have
various exceptions to the claims covered and also require us to assume some costs of the claim even though a portion of the
claim may be covered. A partially or completely uninsured claim, if successful and of significant magnitude, could have a
material adverse effect on our liquidity.
If any of our third-party insurers fail, suddenly cancel our coverage, or otherwise are unable to provide us with
adequate insurance coverage, then our overall risk exposure and our operational expenses would increase and the management
of our business operations would be disrupted. In addition, if we expand into new markets, we may not be able to obtain
insurance coverage for these new activities or, if insurance is obtained, the dollar amount of any liabilities incurred could
exceed our insurance coverage. There can be no assurance that any of our existing insurance coverage will be renewable upon
the expiration of the coverage period or that future coverage will be affordable at the required limits.
Our inability to obtain adequate bonding could have a material adverse effect on our future revenue and business
prospects.
Certain clients require bid bonds, and performance and payment bonds. These bonds indemnify the client should we
fail to perform our obligations under a contract. If a bond is required for a certain project and we are unable to obtain an
appropriate bond, we cannot pursue that project. In some instances, we are required to co-venture with a small or disadvantaged
business to pursue certain government contracts. In connection with these ventures, we are sometimes required to utilize our
bonding capacity to cover all of the obligations under the contract with the client. We have a bonding facility but, as is typically
the case, the issuance of bonds under that facility is at the surety’s sole discretion. Moreover, bonding may be more difficult to
obtain or may only be available at significant additional cost. There can be no assurance that bonds will continue to be available
to us on reasonable terms. Additionally, even if we continue to access bonding capacity to sufficiently bond future work, we
may be required to post collateral to secure bonds, which would decrease the liquidity available for other purposes. Our
inability to obtain adequate bonding and, as a result, to bid on new work could have a material adverse effect on our future
revenue and business prospects.
We may be precluded from providing certain services due to conflict of interest issues.
Many of our clients are concerned about potential or actual conflicts of interest in retaining management consultants.
Many commercial and government clients have formal policies against continuing or awarding contracts that would create
actual or potential conflicts of interest with other activities of a contractor. These policies may prevent us from bidding for or
performing contracts resulting from or relating to certain work we have performed. We have, on occasion, declined to bid on
projects due to conflict of interest issues. If we fail to address actual or potential conflicts properly, or even if we simply fail to
recognize a perceived conflict, we may be in violation of our existing contracts, may otherwise incur liability, and may lose
future business for not preventing the conflict from arising, and our reputation may suffer.
Our actual business and financial results could differ from the estimates and assumptions that we use to prepare our
consolidated financial statements, which may significantly reduce or eliminate our profits.
To prepare consolidated financial statements in conformity with generally accepted accounting principles in the U.S.
("U.S. GAAP"), management is required to make estimates and assumptions as of the date of the consolidated financial
statements. These estimates and assumptions affect the reported values of assets, liabilities, revenue and expenses as well as
disclosures of contingent assets and liabilities. For example, we typically recognize revenue over the life of a contract based on
the proportion of costs incurred to date compared to the total costs estimated to be incurred for the entire project. Areas
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requiring significant estimates by our management include: the application of the percentage-of-completion method of
accounting and revenue recognition on contracts, change orders and contract claims, including related unbilled accounts
receivable; unbilled accounts receivable, including amounts related to requests for equitable adjustment to contracts that
provide for price redetermination, primarily with the U.S. federal government. These amounts are recorded only when they can
be reliably estimated and realization is probable; provisions for uncollectible receivables, client claims and recoveries of costs
from subcontractors, vendors and others; provisions for income taxes, research and development tax credits, valuation
allowances and unrecognized tax benefits; and value of goodwill and recoverability of intangible assets.
Our actual business and financial results could differ from those estimates, which may significantly reduce or
eliminate our profits.
Our profitability could suffer if we are not able to maintain adequate utilization of our workforce.
The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability. The
rate at which we utilize our workforce is affected by a number of factors, including: our ability to transition employees from
completed projects to new assignments and to hire and assimilate new employees; our ability to forecast demand for our
services and thereby maintain an appropriate headcount in each of our geographies and operating units; and our ability to
manage attrition.
If we over-utilize our workforce, our employees may become disengaged, which could impact employee attrition. If
we under-utilize our workforce, our profit margin and profitability could suffer.
Our use of the percentage-of-completion method of revenue recognition could result in a reduction or reversal of
previously recorded revenue and profits.
We account for most of our contracts on the percentage-of-completion method of revenue recognition. Generally, our
use of this method results in recognition of revenue and profit ratably over the life of the contract, based on the proportion of
costs incurred to date to total costs expected to be incurred for the entire project. The effects of revisions to estimated revenue
and costs, including the achievement of award fees and the impact of change orders and claims, are recorded when the amounts
are known and can be reasonably estimated. Such revisions could occur in any period and their effects could be material.
Although we have historically made reasonably reliable estimates of the progress towards completion of long-term contracts,
the uncertainties inherent in the estimating process make it possible for actual costs to vary materially from estimates, including
reductions or reversals of previously recorded revenue and profit.
If we are unable to accurately estimate and control our contract costs, then we may incur losses on our contracts, which
could decrease our operating margins and reduce our profits. Specifically, our fixed-price contracts could increase the
unpredictability of our earnings.
It is important for us to accurately estimate and control our contract costs so that we can maintain positive operating
margins and profitability. We generally enter into three principal types of contracts with our clients: fixed-price, time-and-
materials and cost-plus.
The U.S. federal government and certain other clients have increased the use of fixed-priced contracts. Under fixed-
price contracts, we receive a fixed price irrespective of the actual costs we incur and, consequently, we are exposed to a number
of risks. We realize a profit on fixed-price contracts only if we can control our costs and prevent cost over-runs on our contracts.
Fixed-price contracts require cost and scheduling estimates that are based on a number of assumptions, including those about
future economic conditions, costs and availability of labor, equipment and materials and other exigencies. We could experience
cost over-runs if these estimates are originally inaccurate as a result of errors or ambiguities in the contract specifications or
become inaccurate as a result of a change in circumstances following the submission of the estimate due to, among other things,
unanticipated technical or equipment problems, difficulties in obtaining permits or approvals, changes in local laws or labor
conditions, weather delays, changes in the costs of raw materials or the inability of our vendors or subcontractors to perform
their obligations. If cost overruns occur, we could experience reduced profits or, in some cases, a loss for that project. If a
project is significant, or if there are one or more common issues that impact multiple projects, costs overruns could increase the
unpredictability of our earnings, as well as have a material adverse impact on our business and earnings.
Under our time-and-materials contracts, we are paid for labor at negotiated hourly billing rates and paid for other
expenses. Profitability on these contracts is driven by billable headcount and cost control. Many of our time-and-materials
contracts are subject to maximum contract values and, accordingly, revenue relating to these contracts is recognized as if these
contracts were fixed-price contracts. Under our cost-plus contracts, some of which are subject to contract ceiling amounts, we
are reimbursed for allowable costs and fees, which may be fixed or performance-based. If our costs exceed the contract ceiling
or are not allowable under the provisions of the contract or any applicable regulations, we may not be able to obtain
reimbursement for all of the costs we incur.
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Profitability on our contracts is driven by billable headcount and our ability to manage our subcontractors, vendors and
material suppliers. If we are unable to accurately estimate and manage our costs, we may incur losses on our contracts, which
could decrease our operating margins and significantly reduce or eliminate our profits. Certain of our contracts require us to
satisfy specific design, engineering, procurement or construction milestones in order to receive payment for the work completed
or equipment or supplies procured prior to achievement of the applicable milestone. As a result, under these types of
arrangements, we may incur significant costs or perform significant amounts of services prior to receipt of payment. If a client
determines not to proceed with the completion of the project or if the client defaults on its payment obligations, we may face
difficulties in collecting payment of amounts due to us for the costs previously incurred or for the amounts previously expended
to purchase equipment or supplies.
Accounting for a contract requires judgments relative to assessing the contract’s estimated risks, revenue, costs and
other technical issues. Due to the size and nature of many of our contracts, the estimation of overall risk, revenue and cost at
completion is complicated and subject to many variables. Changes in underlying assumptions, circumstances or estimates may
also adversely affect future period financial performance. If we are unable to accurately estimate the overall revenue or costs on
a contract, then we may experience a lower profit or incur a loss on the contract.
Cyber security incidents affecting our systems and information technology could adversely impact our ability to operate
and we could experience adverse consequences resulting from such compromises, including but not limited to regulatory
investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss
of revenue or profits; and other adverse consequences.
We face the threat to our computer systems of unauthorized access, computer hackers, computer viruses, malicious
code, organized cyber-attacks and other security problems and system disruptions, including possible unauthorized access to
our and our clients' proprietary or classified information. We rely on industry-accepted security measures and technology to
securely maintain all confidential and proprietary information on our information systems. In addition, we rely on the security
of third-party service providers, vendors and cloud services providers to protect confidential data. In the ordinary course of
business, we have been targeted by malicious cyber-attacks. A user who circumvents security measures could misappropriate
confidential or proprietary information, including information regarding us, our personnel and/or our clients or cause
interruptions or malfunctions in operations. As a result, we may be required to expend significant resources to protect against
the threat of these system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches.
We also rely in part on third-party software and information technology vendors to run our critical accounting, project
management and financial information systems. Our software and information technology vendors may decide to discontinue
further development, integration or long-term software and hardware support for our information systems, in which case we
may need to abandon one or more of our current information systems and migrate some or all of our accounting, project
management and financial information to other systems, thus increasing our operational expense, as well as disrupting the
management of our business operations.
While we have implemented security measures designed to protect against security incidents, there can be no
assurance that these measures will be effective. Vulnerabilities in our systems pose material risks to our business. Applicable
data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are
costly, and the disclosure or the failure to comply with such requirements could lead to adverse consequences. Any of these
events could damage our reputation and have a material adverse effect on our business, financial condition, results of operations
and cash flows.
Risks Related to Our Clients
We derive a substantial amount of our revenue from U.S. federal, state and local government agencies, and any
disruption in government funding or in our relationship with those agencies could adversely affect our business.
In fiscal 2023, we generated 44.1% of our revenue from contracts with U.S. federal, and state and local government
agencies. A significant amount of this revenue is derived under multi-year contracts, many of which are appropriated on an
annual basis. As a result, at the beginning of a project, the related contract may be only partially funded, and additional funding
is normally committed only as appropriations are made in each subsequent year. These appropriations, and the timing of
payment of appropriated amounts, may be influenced by numerous factors as noted below. Our backlog includes only the
projects that have funding appropriated.
The demand for our U.S. government-related services is generally driven by the level of government program funding.
A significant reduction in federal government spending, the absence of a bipartisan agreement on the federal government
budget, a partial or full federal government shutdown or a change in budgetary priorities could reduce demand for our services,
cancel or delay federal projects, result in the closure of federal facilities and significant personnel reductions and have a
material and adverse impact on our business, financial condition, results of operations and cash flows.
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There are several additional factors that could materially affect our U.S. government contracting business, which could
cause U.S. government agencies to delay or cancel programs, to reduce their orders under existing contracts, to exercise their
rights to terminate contracts or not to exercise contract options for renewals or extensions. Such factors, which include the
following, could have a material adverse effect on our revenue or the timing of contract payments from U.S. government
agencies: the failure of the U.S. government to complete its budget and appropriations process before its fiscal year-end;
changes in and delays or cancellations of government programs, procurements, requirements or appropriations; budget
constraints or policy changes resulting in delay or curtailment of expenditures related to the services we provide; and re-
competes of government contracts.
Our failure to win new contracts and renew existing contracts with private and public sector clients could adversely
affect our profitability.
Our business depends on our ability to win new contracts and renew existing contracts with private and public sector
clients. Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which
is affected by a number of factors. These factors include market conditions, financing arrangements, required governmental
approvals, client relationships and our professional reputation. If we are not able to replace the revenue from expiring contracts,
either through follow-on contracts or new contracts, our business, results of operations and financial condition may be
adversely affected. If negative market conditions continue to persist, or if we fail to secure adequate financial arrangements or
the required government approval, we may not be able to pursue certain projects, which could adversely affect our profitability.
Our inability to win or renew U.S. government contracts during regulated procurement processes could harm our
operations and significantly reduce or eliminate our profits.
U.S. government contracts are awarded through a regulated procurement process. The U.S. federal government has
increasingly relied upon multi-year contracts with pre-established terms and conditions, such as indefinite delivery/indefinite
quantity (“IDIQ”) contracts, which generally require those contractors who have previously been awarded the IDIQ to engage
in an additional competitive bidding process before a task order is issued. As a result, new work awards tend to be smaller and
of shorter duration, since the orders represent individual tasks rather than large, programmatic assignments. In addition, we
believe that there has been an increase in the award of federal contracts based on a low-price, technically acceptable criteria
emphasizing price over qualitative factors, such as past performance. As a result, pricing pressure may reduce our profit
margins on future federal contracts. Moreover, even if we are qualified to work on a government contract, we may not be
awarded the contract because of existing government policies designed to protect small businesses and under-represented
minority contractors. Our inability to win or renew government contracts during regulated procurement processes could harm
our operations and significantly reduce or eliminate our profits.
Each year, client funding for some of our U.S. government contracts may rely on government appropriations or public-
supported financing. If adequate public funding is delayed or is not available, then our profits and revenue could
decline.
A substantial portion of our revenue is derived from contracts with agencies and departments of federal, state and local
governments. Each year, client funding for some of our U.S. government contracts may directly or indirectly rely on
government appropriations or public-supported financing. Legislatures may appropriate funds for a given project on a year-by-
year basis, even though the project may take more than one year to perform. In addition, public-supported financing such as
U.S. state and local municipal bonds may be only partially raised to support existing projects. Similarly, an economic downturn
may make it more difficult for governments to fund projects. In addition to the state of the economy and competing political
priorities, public funds and the timing of payment of these funds may be influenced by, among other things, curtailments in the
use of government contracting firms, increases in raw material costs, delays associated with insufficient numbers of government
staff to oversee contracts, budget constraints, the timing and amount of tax receipts and the overall level of government
expenditures. If adequate funding is not available or is delayed, then our profits and revenue could decline.
If we cannot collect our receivables or if payment is delayed, our business may be adversely affected by our inability to
generate cash flow, provide working capital, or continue our business operations.
We depend on the timely collection of our receivables to generate cash flow, provide working capital, and continue our
business operations. If the U.S. government or any other client or any prime contractor for whom we are a subcontractor fails to
pay or delays the payment of invoices for any reason, our business and financial condition may be materially and adversely
affected. Clients may delay or fail to pay invoices for a number of reasons, including lack of appropriated funds, lack of an
approved budget, lack of revised or final settled billing rates as a result of open audit years, as a result of audit findings by
government regulatory agencies or for a variety of other reasons.
Certain contracts may give clients the right to modify, delay, curtail, renegotiate or terminate existing contracts at their
convenience at any time prior to their completion, which may result in a decline in our profits and revenue.
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Certain projects in which we participate as a contractor or subcontractor may extend for several years. Generally,
government contracts include the right to modify, delay, curtail, renegotiate or terminate contracts and subcontracts at the
government’s convenience any time prior to their completion. Any decision by a client to modify, delay, curtail, renegotiate or
terminate our contracts at their convenience may result in a decline in our profits and revenue. If one of these clients terminates
their contract for convenience, we may only be able to bill the client for work completed prior to the termination, plus any
commitments and settlement expenses such client agrees to pay, but not for any work not yet performed.
Our revenue and growth prospects may be harmed if we or our employees are unable to obtain government granted
eligibility or other qualifications we and they need to perform services for our customers.
A number of government programs require contractors to have certain kinds of government granted eligibility, such as
security clearance credentials. Depending on the project, eligibility can be difficult and time-consuming to obtain. If we or our
employees are unable to obtain or retain the necessary eligibility, we may not be able to win new business, and our existing
customers could terminate their contracts with us or decide not to renew them. To the extent we cannot obtain or maintain the
required security clearances for our employees working on a particular contract, we may not derive the revenue or profit
anticipated from such contract.
Risks Related to Our Indebtedness
Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to
pay our debt.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness,
including our convertible notes, depends on our future performance, which is subject to economic, financial, competitive and
other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient
to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to
adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may
be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial
condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms,
which could result in a default on our debt obligations.
We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders,
which may impact our ability to execute on our current or future business strategies.
If we do not generate sufficient cash flow from operations or otherwise, we may need additional financing to execute
on our current or future business strategies, including developing new or enhancing existing service lines, expanding our
business geographically, enhancing our operating infrastructure, acquiring complementary businesses, or otherwise responding
to competitive pressures. We cannot assure that additional financing will be available to us on favorable terms, or at all.
Furthermore, if we raise additional funds through the issuance of convertible debt or equity securities, the percentage ownership
of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges
senior to those of existing stockholders. If adequate funds are not available or are not available on acceptable terms, if and when
needed, our ability to fund our operations, meet obligations in the normal course of business, take advantage of strategic
business opportunities, or otherwise respond to competitive pressures would be significantly limited.
Restrictive covenants in our credit agreement may restrict our ability to pursue certain business strategies.
Our credit agreement limits or restricts our ability to, among other things: incur additional indebtedness; create liens
securing debt or other encumbrances on our assets; make loans or advances; pay dividends or make distributions to our
stockholders; purchase or redeem our stock; repay indebtedness that is junior to indebtedness under our credit agreement;
acquire the assets of, or merge or consolidate with, other companies; and sell, lease or otherwise dispose of assets.
Our credit agreement also requires that we maintain certain financial ratios, which we may not be able to achieve. The
covenants may impair our ability to finance future operations or capital needs or to engage in other favorable business
activities. Failing to comply with these covenants could result in an event of default under the Credit Agreement, which could
result in us being required to repay the amounts outstanding prior to maturity. These prepayment obligations could have an
adverse effect on our business, results of operations and financial condition.
Furthermore, if we are unable to repay the amounts due and payable under the Credit Agreement, the lenders could
proceed against the collateral granted to them to secure that indebtedness. In the event the lenders accelerate the repayment of
our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.
We may not have the ability to raise the funds necessary to settle conversions of our convertible notes or to repurchase
our convertible notes upon a fundamental change, and our future debt may contain limitations on our ability to pay
cash upon conversion or repurchase of our convertible notes.
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Holders of our convertible notes have the right, subject to certain conditions and limited exceptions, to require us to
repurchase all or a portion of their convertible notes upon the occurrence of a fundamental change (as defined in the indenture
governing the convertible notes) at a fundamental change repurchase price equal to 100% of the principal amount of the
convertible notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change
repurchase date. In addition, upon any conversion of our convertible notes, we will be required to make cash payments for each
$1,000 in principal amount of our convertible notes converted of at least the lesser of $1,000 and the sum of the daily
conversion values indenture governing our convertible notes. However, we may not have enough available cash or be able to
obtain financing at the time we are required to make repurchases of our convertible notes surrendered therefor or pay cash with
respect to our convertible notes being converted. In addition, our ability to repurchase our convertible notes or to pay cash upon
conversions of our convertible notes may be limited by law, by regulatory authority or by agreements governing our future
indebtedness. Our failure to repurchase our convertible notes at a time when the repurchase is required by the indenture
governing our convertible notes or to pay any cash payable on future conversions of our convertible notes as required by the
indenture governing our convertible notes would constitute a default under the indenture governing our convertible notes. A
default under the indenture governing our convertible notes or the fundamental change itself could also lead to a default under
agreements governing our indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable
notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase our convertible notes or
make cash payments upon conversions thereof.
The conditional conversion feature of our convertible notes, if triggered, may adversely affect our financial condition
and operating results.
In the event the conditional conversion feature of our convertible notes is triggered, holders of our convertible notes
will be entitled to convert their notes at any time during specified periods at their option. If one or more holders elect to convert
their notes, we would be required to settle any converted principal amount of such notes through the payment of cash, which
could adversely affect our liquidity. In addition, even if holders do not elect to convert their notes, we could be required under
applicable accounting rules to reclassify all or a portion of the outstanding principal of our convertible notes as a current rather
than long-term liability, which would result in a material reduction of our net working capital.
Changes in the accounting method for convertible debt securities that may be settled in cash, such as our convertible
notes, could have a material effect on our reported financial results.
The accounting method for reflecting our convertible notes on our balance sheet, accruing interest expense for our
convertible notes and reflecting the underlying shares of our common stock in our reported diluted earnings per share may
adversely affect our reported earnings and financial condition.
In August 2020, the Financial Accounting Standards Board published Accounting Standards Update (“ASU”) 2020-06
(“ASU 2020-06”), which simplified certain of the accounting standards that apply to convertible notes. ASU 2020-06
eliminated the cash conversion and beneficial conversion feature modes used to separately account for embedded conversion
features as a component of equity. Instead, an entity would account for convertible debt or convertible preferred stock securities
as a single unit of account, unless the conversion feature requires bifurcation and recognition as derivatives. Additionally, the
guidance requires entities to use the “if-converted” method for all convertible instruments in the diluted earnings per share
calculation and to include the effect of potential share settlement for instruments that may be settled in cash or shares. We
adopted ASU 2020-06 in the first quarter of fiscal year 2020.
In accordance with ASU 2020-06, our convertible notes are reflected as a liability on our balance sheets, with the
initial carrying amount equal to the principal amount of the convertible notes, net of issuance costs. The issuance costs were
treated as contra debt for accounting purposes, which will be amortized into interest expense over the term of our convertible
notes. As a result of this amortization, the interest expense that we expect to recognize for our convertible notes for accounting
purposes will be greater than the cash interest payments we will pay on our convertible notes.
In addition, the shares of our common stock underlying our convertible notes will be reflected in our diluted earnings
per share using the “if converted” method, in accordance with ASU 2020-06. Under the “if converted” method, diluted earnings
per share would generally be calculated assuming that all our convertible notes were converted solely into shares of our
common stock at the beginning of the reporting period, unless the result would be anti-dilutive. However, for convertible notes
in which the principal amount must be settled in cash and the conversion spread value in shares or cash upon conversions (such
as our convertible notes), the “if converted” method requires that interest expense is not adjusted in the numerator and the
denominator only includes the net number of incremental shares that would be issued upon conversion. The application of the
if-converted method may reduce our reported diluted earnings per share, to the extent the price of our common stock exceeds
the conversion price. Accounting standards may change in the future in a manner that may adversely affect our diluted earnings
per share.
Furthermore, if any of the conditions to the convertibility of our convertible notes is satisfied, then we may be required
under applicable accounting standards to reclassify the liability carrying value of our convertible notes as a current, rather than
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a long-term, liability. This reclassification could be required even if no holders convert their notes and could materially reduce
our reported working capital.
Conversion of our convertible notes may dilute the ownership interest of our stockholders or may otherwise depress the
price of our common stock.
The conversion of some or all of our convertible notes may dilute the ownership interests of our stockholders. Upon
conversion of our convertible notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock,
or a combination of cash and shares of our common stock in respect of the remainder, if any, of our conversion obligation in
excess of the aggregate principal amount of our convertible notes being converted. If we elect to settle the remainder, if any, of
our conversion obligation in excess of the aggregate principal amount of our convertible notes being converted in shares of our
common stock or a combination of cash and shares of our common stock, any sales in the public market of our common stock
issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence
of our convertible notes may encourage short selling by market participants because the conversion of our convertible notes
could be used to satisfy short positions, or anticipated conversion of our convertible notes into shares of our common stock
could depress the price of our common stock.
The capped call transactions may affect the value of our common stock.
In connection with the pricing of our convertible notes, we entered into privately negotiated capped call transactions
with the option counterparties. The capped call transactions cover, subject to customary adjustments substantially similar to
those applicable to our convertible notes, the number of shares of our common stock initially underlying our convertible notes.
The capped call transactions are expected generally to reduce the potential dilution to our common stock upon any conversion
of our convertible notes and/or offset any cash payments we are required to make in excess of the principal amount of
converted notes (if and when we elect to settle the conversion spread value in cash), as the case may be, with such reduction
and/or offset subject to a cap.
In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or
unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other
securities of ours in secondary market transactions following the pricing of our convertible notes and prior to the maturity of
our convertible notes (and are likely to do so during any observation period related to a conversion of our convertible notes or,
to the extent we exercise the relevant election under the capped call transactions, following any repurchase or redemption of our
convertible notes). This activity could also cause or avoid an increase or a decrease in the market price of our common stock.
In addition, if any such capped call transactions fail to become effective, the option counterparties or their respective
affiliates may unwind their hedge positions with respect to our common stock, which could adversely affect the value of our
common stock.
We are subject to counterparty risk with respect to the capped call transactions.
The option counterparties are financial institutions, and we are subject to the risk that any or all of them might default
under the capped call transactions. Our exposure to the credit risk of the option counterparties is not secured by any collateral.
If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those
proceedings with a claim equal to our exposure at that time under the capped call transaction with such option counterparty. Our
exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market
price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse
tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no
assurances as to the financial stability or viability of the option counterparties.
Risks Related to Growth and Acquisitions
If we are not able to successfully manage our growth strategy, our business and results of operations may be adversely
affected.
Our expected future growth presents numerous managerial, administrative, operational and other challenges. Our
ability to manage the growth of our operations will require us to continue to improve our management information systems and
our other internal systems and controls. In addition, our growth will increase our need to attract, develop, motivate and retain
both our management and professional employees. The inability to effectively manage our growth or the inability of our
employees to achieve anticipated performance could have a material adverse effect on our business.
We have made and expect to continue to make acquisitions. Acquisitions could disrupt our operations and adversely
impact our business and operating results. Our failure to conduct due diligence effectively or our inability to successfully
integrate acquisitions could impede us from realizing all of the benefits of the acquisitions, which could weaken our
results of operations.
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A key part of our growth strategy is to acquire other companies that complement our lines of business or that broaden
our technical capabilities and geographic presence. However, our ability to make acquisitions is restricted under our credit
agreement. Acquisitions involve certain known and unknown risks that could cause our actual growth or operating results to
differ from our expectations or the expectations of securities analysts. For example: we may not be able to identify suitable
acquisition candidates or to acquire additional companies on acceptable terms; we have completed and we will continue to
pursue international acquisitions, which inherently pose more risk than domestic acquisitions; we compete with others to
acquire companies, which may result in decreased availability of, or increased price for, suitable acquisition candidates; and we
may not be able to obtain the necessary financing, on favorable terms or at all, to finance any of our potential acquisitions.
If we fail to conduct due diligence on our potential targets effectively, we may, for example, not identify problems at
target companies, or fail to recognize incompatibilities or other obstacles to successful integration. The integration process may
disrupt our business and, if implemented ineffectively, may preclude realization of the full benefits expected by us and could
harm our results of operations.
Further, acquisitions may cause us to: issue common stock that would dilute our current stockholders’ ownership
percentage; use a substantial portion of our cash resources; increase our interest expense, leverage and debt service
requirements (if we incur additional debt to fund an acquisition); or record goodwill and non-amortizable intangible assets that
are subject to impairment testing and potential impairment charges.
If our goodwill or other intangible assets become impaired, then our profits may be significantly reduced.
Because we have historically acquired a significant number of companies, goodwill and other intangible assets
represent a substantial portion of our assets. As of October 1, 2023, our goodwill was $1.9 billion and other intangible assets
were $173.9 million. We are required to perform a goodwill impairment test for potential impairment at least on an annual
basis. We also assess the recoverability of the unamortized balance of our intangible assets when indications of impairment are
present based on expected future profitability and undiscounted expected cash flows and their contribution to our overall
operations. The goodwill impairment test requires us to determine the fair value of our reporting units, which are the
components one level below our reportable segments. In determining fair value, we make significant judgments and estimates,
including assumptions about our strategic plans with regard to our operations. We also analyze current economic indicators and
market valuations to help determine fair value. To the extent economic conditions that would impact the future operations of
our reporting units change, our goodwill may be deemed to be impaired, and we would be required to record a non-cash charge
that could result in a material adverse effect on our financial position or results of operations. We had no goodwill impairment
in fiscal 2023, 2022 or 2021.
Risks Related to Our Legal and Regulatory Environment
As a U.S. government contractor, we must comply with various procurement laws and regulations and are subject to
regular government audits; a violation of any of these laws and regulations or the failure to pass a government audit
could result in sanctions, contract termination, forfeiture of profit, harm to our reputation or loss of our status as an
eligible government contractor and could reduce our profits and revenue.
We must comply with and are affected by U.S. federal, state, local and foreign laws and regulations relating to the
formation, administration and performance of government contracts. For example, we must comply with FAR, the Truth in
Negotiations Act, CAS, the American Recovery and Reinvestment Act of 2009, the Services Contract Act, the DoD security
regulations as well as many other rules and regulations. In addition, we must comply with other government regulations related
to employment practices, environmental protection, health and safety, tax, accounting, anti-fraud measures as well as many
other regulations in order to maintain our government contractor status. These laws and regulations affect how we do business
with our clients and, in some instances, impose additional costs on our business operations. Although we take precautions to
prevent and deter fraud, misconduct and non-compliance, we face the risk that our employees or outside partners may engage in
misconduct, fraud or other improper activities. U.S. government agencies, such as the DCAA, routinely audit and investigate
government contractors. These government agencies review and audit a government contractor’s performance under its
contracts and cost structure, and evaluate compliance with applicable laws, regulations and standards. In addition, during the
course of its audits, the DCAA may question our incurred project costs. If the DCAA believes we have accounted for such costs
in a manner inconsistent with the requirements for FAR or CAS, the DCAA auditor may recommend to our U.S. government
corporate administrative contracting officer that such costs be disallowed. Historically, we have not experienced significant
disallowed costs as a result of government audits. However, we can provide no assurance that the DCAA or other government
audits will not result in material disallowances for incurred costs in the future. In addition, U.S. government contracts are
subject to various other requirements relating to the formation, administration, performance and accounting for these contracts.
We may also be subject to qui tam litigation brought by private individuals on behalf of the U.S. government under the Federal
Civil False Claims Act, which could include claims for treble damages. For example, as discussed elsewhere in this report, on
January 14, 2019, the Civil Division of the United States Attorney’s Office filed complaints in intervention in three qui tam
actions filed against our subsidiary, Tetra Tech EC, Inc., in the U.S. District Court for the Northern District of California. U.S.
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government contract violations could result in the imposition of civil and criminal penalties or sanctions, contract termination,
forfeiture of profit and/or suspension of payment, any of which could make us lose our status as an eligible government
contractor. We could also suffer serious harm to our reputation. Any interruption or termination of our U.S. government
contractor status could reduce our profits and revenue significantly.
Legal proceedings, investigations and disputes could result in substantial monetary penalties and damages, especially if
such penalties and damages exceed or are excluded from existing insurance coverage.
We engage in consulting, engineering, program management and technical services that can result in substantial injury
or damages that may expose us to legal proceedings, investigations and disputes. For example, in the ordinary course of our
business, we may be involved in legal disputes regarding personal injury claims, employee or labor disputes, professional
liability claims and general commercial disputes involving project cost overruns and liquidated damages as well as other
claims. In addition, in the ordinary course of our business, we frequently make professional judgments and recommendations
about environmental and engineering conditions of project sites for our clients, and we may be deemed to be responsible for
these judgments and recommendations if they are later determined to be inaccurate. Any unfavorable legal ruling against us
could result in substantial monetary damages or even criminal violations. We maintain insurance coverage as part of our overall
legal and risk management strategy to minimize our potential liabilities; however, insurance coverage contains exclusions and
other limitations that may not cover our potential liabilities. Generally, our insurance program covers workers’ compensation
and employer’s liability, general liability, automobile liability, professional errors and omissions liability, property and
contractor’s pollution liability (in addition to other policies for specific projects). Our insurance program includes deductibles
or self-insured retentions for each covered claim that may increase over time. In addition, our insurance policies contain
exclusions that insurance providers may use to deny or restrict coverage. Excess liability and professional liability insurance
policies provide for coverage on a “claims-made” basis, covering only claims actually made and reported during the policy
period currently in effect. If we sustain liabilities that exceed or that are excluded from our insurance coverage, or for which we
are not insured, it could have a material adverse impact on our financial condition, results of operations and cash flows.
We could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws.
The FCPA and similar anti-bribery laws generally prohibit companies and their intermediaries from making direct or
indirect improper payments to foreign government officials for the purpose of obtaining or retaining business. The FCPA also
requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the
corporation and to devise and maintain an adequate system of internal accounting controls. The U.K. Bribery Act of 2010
prohibits both domestic and international bribery, as well as bribery across both private and public sectors. In addition, an
organization that “fails to prevent bribery” by anyone associated with the organization can be charged under the U.K. Bribery
Act unless the organization can establish the defense of having implemented “adequate procedures” to prevent bribery.
Improper payments are also prohibited under the Canadian Corruption of Foreign Public Officials Act and the Brazilian Clean
Companies Act. Local business practices in many countries outside the United States create a greater risk of government
corruption than that found in the United States and other more developed countries. Our policies mandate compliance with anti-
bribery laws, and we have established policies and procedures designed to monitor compliance with anti-bribery law
requirements; however, we cannot ensure that our policies and procedures will prevent potential reckless or criminal acts
committed by individual employees, agents or partners. If we are found to be liable for anti-bribery law violations, we could
suffer from criminal or civil penalties or other sanctions that could have a material adverse effect on our business.
We could be adversely impacted if we fail to comply with domestic and international export control and sanctions laws.
To the extent we export technical services, data and products outside of the United States, we are subject to U.S. and
international laws and regulations governing international trade and exports, including but not limited to the International
Traffic in Arms Regulations, the Export Administration Regulations and trade sanctions. These laws and regulations may
restrict or prohibit altogether the sale or supply of certain of our services to certain governments, persons, entities, countries,
and territories, including those that are the target of comprehensive sanctions, unless there are license exceptions that apply or
specific licenses are obtained. A failure to comply with these laws and regulations could result in civil or criminal sanctions,
including the imposition of fines, the denial of export privileges and suspension or debarment from participation in U.S.
government contracts, which could have a material adverse effect on our business.
New legal requirements could adversely affect our operating results.
Our business and results of operations could be adversely affected by the passage of climate change, defense,
environmental, infrastructure and other legislation, policies and regulations. Growing concerns about climate change may result
in the imposition of additional environmental regulations. For example, legislation, international protocols, regulation or other
restrictions on emissions could increase the costs of projects for our clients or, in some cases, prevent a project from going
forward, thereby potentially reducing the need for our services. In addition, relaxation or repeal of laws and regulations, or
changes in governmental policies regarding environmental, defense, infrastructure or other industries we serve could result in a
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decline in demand for our services, which could in turn negatively impact our revenues. We cannot predict when or whether any
of these various proposals may be enacted or what their effect will be on us or on our customers.
We may be subject to liabilities under environmental laws and regulations.
Our services are subject to numerous U.S. and international environmental protection laws and regulations that are
complex and stringent. For example, we must comply with a number of U.S. federal government laws that strictly regulate the
handling, removal, treatment, transportation and disposal of toxic and hazardous substances. Under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended (“CERCLA”), and comparable state laws, we
may be required to investigate and remediate regulated hazardous materials. CERCLA and comparable state laws typically
impose strict, joint and several liabilities without regard to whether a company knew of or caused the release of hazardous
substances. The liability for the entire cost of clean-up could be imposed upon any responsible party. Other principal U.S.
federal environmental, health and safety laws affecting us include, but are not limited to, the Resource Conservation and
Recovery Act, National Environmental Policy Act, the Clean Air Act, the Occupational Safety and Health Act, the Federal Mine
Safety and Health Act of 1977 (the “Mine Act”), the Toxic Substances Control Act and the Superfund Amendments and
Reauthorization Act. Our business operations may also be subject to similar state and international laws relating to
environmental protection. Further, past business practices at companies that we have acquired may also expose us to future
unknown environmental liabilities. Liabilities related to environmental contamination or human exposure to hazardous
substances, or a failure to comply with applicable regulations, could result in substantial costs to us, including clean-up costs,
fines, civil or criminal sanctions, and third-party claims for property damage or personal injury or cessation of remediation
activities. Our continuing work in the areas governed by these laws and regulations exposes us to the risk of substantial liability.
Uncertainties in the interpretation and application of existing, new and proposed tax laws and regulations could
materially affect our tax obligations and effective tax rate.
The tax regimes to which we are subject or under which we operate are unsettled and may be subject to significant
change. The issuance of additional guidance related to existing or future tax laws, or changes to tax laws, tax treaties or
regulations proposed or implemented by the current or a future U.S. presidential administration, Congress, or taxing authorities
in other jurisdictions, including jurisdictions outside of the United States, could materially affect our tax obligations and
effective tax rate. To the extent that such changes have a negative impact on us, including as a result of related uncertainty,
these changes may adversely impact our business, financial condition, results of operations, and cash flows.
The amount of taxes we pay in different jurisdictions depends on the application of the tax laws of various
jurisdictions, including the United States, to our international business activities, the relative amounts of income before taxes in
the various jurisdictions in which we operate, new or revised tax laws, or interpretations of tax laws and policies, the outcome
of current and future tax audits, examinations or administrative appeals, our ability to realize our deferred tax assets, and our
ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing
authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions
pursuant to our intercompany arrangements or disagree with our determinations as to the income and expenses attributable to
specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be
required to pay additional taxes, interest, and penalties, which could result in one-time tax charges, higher effective tax rates,
reduced cash flows, and lower overall profitability of our operations. Our financial statements could fail to reflect adequate
reserves to cover such a contingency. Similarly, a taxing authority could assert that we are subject to tax in a jurisdiction where
we believe we have not established a taxable connection, often referred to as a “permanent establishment” under international
tax treaties, and such an assertion, if successful, could increase our expected tax liability in one or more jurisdictions.
Employee, agent or partner misconduct, or our failure to comply with anti-bribery and other laws or regulations, could
harm our reputation, reduce our revenue and profits and subject us to criminal and civil enforcement actions.
Misconduct, fraud, non-compliance with applicable laws and regulations or other improper activities by one of our
employees, agents or partners could have a significant negative impact on our business and reputation. Such misconduct could
include the failure to comply with government procurement regulations, regulations regarding the protection of classified
information, regulations prohibiting bribery and other foreign corrupt practices, regulations regarding the pricing of labor and
other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to the internal controls
over financial reporting, environmental laws and any other applicable laws or regulations. Our policies mandate compliance
with these regulations and laws, and we take precautions to prevent and detect misconduct. However, since our internal controls
are subject to inherent limitations, including human error, it is possible that these controls could be intentionally circumvented
or become inadequate because of changed conditions. As a result, we cannot assure that our controls will protect us from
reckless or criminal acts committed by our employees, agents or partners. Our failure to comply with applicable laws or
regulations or acts of misconduct could subject us to fines and penalties, loss of security clearances and suspension or
debarment from contracting, any or all of which could harm our reputation, reduce our revenue and profits and subject us to
criminal and civil enforcement actions.
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If our reports and opinions are not in compliance with professional standards and other regulations, we could be subject
to monetary damages and penalties.
We issue reports and opinions to clients based on our professional engineering expertise, as well as our other
professional credentials. Our reports and opinions may need to comply with professional standards, licensing requirements,
securities regulations and other laws and rules governing the performance of professional services in the jurisdiction in which
the services are performed. In addition, the reports and other work product we produce for clients sometimes include
projections, forecasts and other forward-looking statements. Such information by its nature is subject to numerous risks and
uncertainties, any of which could cause the information produced by us to ultimately prove inaccurate. While we include
appropriate disclaimers in the reports that we prepare for our clients, once we produce such written work product, we do not
always have the ability to control the manner in which our clients use such information. As a result, if our clients reproduce
such information to solicit funds from investors for projects without appropriate disclaimers or the information proves to be
incorrect, or if our clients reproduce such information for potential investors in a misleading or incomplete manner, our clients
or such investors may threaten to or file suit against us for, among other things, securities law violations.
We have only a limited ability to protect our intellectual property rights, and our failure to protect our intellectual
property rights could adversely affect our competitive position.
We rely upon a combination of nondisclosure agreements and other contractual arrangements, as well as copyright,
trademark, patent and trade secret laws to protect our proprietary information. We also enter into proprietary information and
intellectual property agreements with employees, which require them to disclose any inventions created during employment, to
convey such rights to inventions to us, and to restrict any disclosure of proprietary information. Trade secrets are generally
difficult to protect. Although our employees are subject to confidentiality obligations, this protection may be inadequate to deter
or prevent misappropriation of our confidential information and/or the infringement of our patents and copyrights. Further, we
may be unable to detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce our rights.
Failure to adequately protect, maintain or enforce our intellectual property rights may adversely limit our competitive position.
Assertions by third parties of infringement, misappropriation or other violations by us of their intellectual property
rights could result in significant costs and substantially harm our business, financial condition and operating results.
In recent years, there has been significant litigation involving intellectual property rights in technology industries. We
may face from time to time, allegations that we or a supplier or customer have violated the rights of third parties, including
patent, trademark and other intellectual property rights. If, with respect to any claim against us for violation of third-party
intellectual property rights, we are unable to prevail in the litigation or retain or obtain sufficient rights or develop non-
infringing intellectual property or otherwise alter our business practices on a timely or cost-efficient basis, our business,
financial condition or results of operations may be adversely affected.
Any infringement, misappropriation or related claims, whether or not meritorious, are time consuming, divert technical
and management personnel and are costly to resolve. As a result of any such dispute, we may have to develop non-infringing
technology, pay damages, enter into royalty or licensing agreements, cease utilizing products or services or take other actions to
resolve the claims. These actions, if required, may be costly or unavailable on terms acceptable to us.
We are subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and
other obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations
could lead to regulatory investigations or actions; litigation (including class claims) and mass arbitration demands; fines
and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers or
sales; and other adverse business consequences.
We develop, install and maintain information technology systems for ourselves, as well as for customers. Client
contracts for the performance of information technology services, as well as various privacy and securities laws, require us to
manage and protect sensitive and confidential information, including federal and other government information, from
disclosure. We also need to protect our own internal trade secrets and other business confidential information, as well as
personal data of our employees and contractors, from disclosure.
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws,
including data breach notification laws, personal data privacy laws, consumer protection laws (e.g., Section 5 of the Federal
Trade Commission Act), and other similar laws. For example, the California Consumer Privacy Act of 2018, as amended by the
California Privacy Rights Act of 2020 (“CPRA”), (collectively, “CCPA”) applies to personal information of consumers,
business representatives, and employees who are California residents, and requires businesses to provide specific disclosures in
privacy notices and honor requests of such individuals to exercise certain privacy rights. The CCPA provides for administrative
fines of up to $7,500 per violation and allows private litigants affected by certain data breaches to recover significant statutory
damages. Other states, such as Virginia and Colorado, have also passed comprehensive privacy laws, and similar laws are being
considered in several other states, as well as at the federal and local levels.
29
Outside the United States, an increasing number of laws, regulations, and industry standards govern data privacy and
security. For example, the European Union's General Data Protection Regulation ("EU GDPR"), the United Kingdom’s GDPR,
and Brazil’s General Data Protection Law (Lei Geral de Proteção de Dados Pessoais, or “LGPD”) (Law No. 13,709/2018)
impose strict requirements for processing personal data. For example, the EU GDPR extends the scope of the European Union
data protection laws to all companies processing data of European Union residents, regardless of the company's location.
In the ordinary course of business, we may transfer personal data from Europe and other jurisdictions to the United
States or other countries. Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer
of personal data to other countries. In particular, the European Economic Area (“EEA”) and the United Kingdom (“UK”) have
significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it generally
believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-
border data transfer laws.
Although there are currently various mechanisms that may be used to transfer personal data from the EEA and UK to
the United States in compliance with law, such as the EEA and UK’s standard contractual clauses, the UK’s International Data
Transfer Agreement / Addendum, and the EU-U.S. Data Privacy Framework (which allows for transfers for relevant U.S.-based
organizations who self-certify compliance and participate in the Framework), these mechanisms are subject to legal challenges,
and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States.
If there is no lawful manner for us to transfer personal data from the EEA, the UK or other jurisdictions to the United
States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences,
including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing
activities to other jurisdictions (such as Europe) at significant expense, increased exposure to regulatory actions, substantial
fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against
our processing or transferring of personal data necessary to operate our business. Additionally, companies that transfer personal
data out of the EEA and UK to other jurisdictions, particularly to the United States, are subject to increased scrutiny from
regulators, individual litigants, and activist groups.
General Risk Factors
We may not be able to continue, or may elect to discontinue, paying dividends which may adversely affect our stock
price.
Current dividends may not be indicative of future dividends, and our ability to continue to pay or increase dividends to
our stockholders is subject to our board of director’s discretion and depends on: our ability to comply with covenants imposed
by our financing agreements that limit our ability to pay dividends and make certain restricted payments; difficulties in raising
additional capital; our ability to re-finance our long-term debt before it matures; principal repayments and other capital needs;
our results of operations and general business conditions; legal restrictions on the payment of dividends and other factors that
our board of directors deems relevant. In the future we may elect not to pay dividends, be unable to pay dividends or maintain
or increase our current level of dividends, which may negatively affect our stock price.
Delaware law and our organizational documents may impede or discourage a merger, takeover or other business
combination with us even if the business combination would have been in the short-term best interests of our
stockholders.
We are a Delaware corporation and the anti-takeover provisions of Delaware law impose various impediments to the
ability of a third party to acquire control of us, even if a change in control would be beneficial to our stockholders. In addition,
our Board of Directors has the power, without stockholder approval, to designate the terms of one or more series of preferred
stock and issue shares of preferred stock, which could be used defensively if a takeover is threatened. These features, as well as
provisions in our certificate of incorporation and bylaws, such as those relating to advance notice of certain stockholder
proposals and nominations, could impede a merger, takeover or other business combination involving us, or discourage a
potential acquirer from making a tender offer for our common stock, even if the business combination would have been in the
best interests of our current stockholders.
Item 1B Unresolved Staff Comments
None.
30
Item 2. Properties
At fiscal 2023 year-end, we leased approximately 550 operating facilities in domestic and foreign locations. Our
significant lease agreements expire at various dates through 2032. We believe that our current facilities are adequate for the
operation of our business, and that suitable additional space in various local markets is available to accommodate any needs that
may arise.
The following table summarizes our ten most significant leased properties by location based on annual rental expenses
(listed alphabetically, except for our corporate headquarters):
Location
Description
Corporate Headquarters
Reportable Segment
Corporate
Pasadena, CA
Arlington, VA
Boston, MA
Irvine, CA
London, United Kingdom
Melbourne, Australia
New York, NY
Orlando, FL
Pittsburgh, PA
Portland, OR
Item 3. Legal Proceedings
Office Building
Office Building
Office Building
Office Building
Office Building
Office Building
Office Building
Office Building
Office Building
GSG
GSG / CIG
GSG / CIG
GSG / CIG
CIG
GSG /CIG
GSG / CIG
GSG / CIG
GSG / CIG
For a description of our material pending legal and regulatory proceedings and settlements, see Note 17,
"Commitments and Contingencies" of the "Notes to Consolidated Financial Statements" included in Item 8.
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 MSHA. 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.
31
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock is traded on the NASDAQ Global Select Market under the symbol TTEK. There were
approximately 1,088 stockholders of record at October 1, 2023.
Stock-Based Compensation
For information regarding our stock-based compensation, see Note 11, "Stockholders' Equity and Stock Compensation
Plans" of the "Notes to Consolidated Financial Statements" included in Item 8.
Performance Graph
The following graph shows a comparison of our cumulative total returns with those of the NASDAQ Market Index
and the Standard & Poor's ("S&P") 1000 Index. At this time, we do not have a comparable peer group due to the combination of
our differentiated high-end consulting services and our end-markets. Thus, we have selected the S&P 1000 Index. The graph
assumes that the value of an investment in our common stock and in each such index was $100 on September 30, 2018, and that
all dividends have been reinvested. Dividends declared and paid in fiscal 2023 totaled $0.98 per share. We declared and paid
dividends in the first and second quarters totaling $0.46 per share ($0.23 each quarter) on our common stock and paid dividends
in the third and fourth quarters totaling $0.52 per share ($0.26 each quarter) on our common stock. We declared and paid
dividends totaling $0.86, $0.74, $0.64 and $0.54 per share in fiscal 2022, 2021, 2020 and 2019, respectively. The comparison in
the graph below is based on historical data and is not intended to forecast the possible future performance of our common stock.
ASSUMES $100 INVESTED ON SEPTEMBER 30, 2018
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDED OCTOBER 1, 2023
2018
2019
2020
2021
2022
2023
Tetra Tech, Inc.
NASDAQ Market Index
S&P 1000 Index
$ 100.00 $ 125.39 $ 135.75 $ 227.19 $ 193.42 $ 230.26
171.65
186.08
138.47
136.12
100.00
99.77
100.00
94.85
89.34
137.53
113.09
128.76
The performance graph above and related text are being furnished solely to accompany this annual report on Form 10-
K pursuant to Item 201(e) of Regulation S-K, and are not being filed for purposes of Section 18 of the Exchange Act, and are
not to be incorporated by reference into any of our filings with the SEC, whether made before or after the date hereof,
regardless of any general incorporation language in such filing.
32
Stock Repurchase Program
On October 5, 2021, our Board of Directors authorized a new stock repurchase program under which we could
repurchase up to $400 million of our common stock. In fiscal 2023, we did not repurchase any shares of our common stock. In
fiscal 2022, we repurchased and settled 1,341,679 shares with an average price of $149.07 per share for a total cost of
$200.0 million. At October 1, 2023, we had a remaining balance of $347.8 million under our stock repurchase program.
Item 6. [Reserved]
33
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following analysis of our financial condition and results of operations should be read in conjunction with Part I of
this report, as well as our consolidated financial statements and accompanying notes in Item 8. The following analysis contains
forward-looking statements about our future results of operations and expectations. Our actual results and the timing of events
could differ materially from those described herein. See Part 1, Item 1A, "Risk Factors" for a discussion of the risks,
assumptions and uncertainties affecting these statements.
OVERVIEW OF RESULTS AND BUSINESS TRENDS
General. In fiscal 2023, our revenue increased 29.1% compared to fiscal 2022. This growth includes approximately
$600 million from the acquisition of RPS Group plc ("RPS"), which was completed in the second quarter of fiscal 2023.
Excluding RPS, our revenue increased 12.0% in fiscal 2023 compared to last year. This year-over-year growth reflects
increased activity in our U.S. Federal, U.S. Commercial and International client sectors.
U.S. Federal Government. Our U.S. federal government revenue increased 30.3% in fiscal 2023 compared to fiscal
2022. This increase was primarily due to more international development and broad-based increases across civilian agencies.
During periods of economic volatility, our U.S. federal government business has historically been the most stable and
predictable. We expect our U.S. federal government revenue to continue to grow in fiscal 2024. Approximately $1 trillion in
new U.S. federal funding passed in 2021 through the Infrastructure Investment and Jobs Act, the Inflation Reduction Act and
the CHIPS and Science Act. Each of these programs include substantial planned investments in our key end markets including
water, environment and sustainable infrastructure over the next five to ten years.
U.S. State and Local Government. Our U.S. state and local government revenue increased 0.6% in fiscal 2023
compared to fiscal 2022, which includes lower disaster response activity. Excluding disaster response and the contribution from
RPS, our state and local government revenue increased 14.9% in fiscal 2023 compared to 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. Most of our work for the U.S. state and
local governments relates to critical water and environmental programs, which we expect to continue to grow in fiscal 2024.
U.S. Commercial. Our U.S. commercial revenue increased 16.1% in fiscal 2023 compared to fiscal 2022. Excluding
the contribution from RPS, our U.S. commercial revenue increased 8.2% in fiscal 2023 compared to last year. This increase was
primarily due to more activity on clean energy and environmental programs, including meeting net zero carbon goals and
designing high performance buildings. We expect growth in our U.S. commercial work to continue in fiscal 2024.
International. Our international revenue increased 52.5% in fiscal 2023 compared to fiscal 2022. Excluding the
contribution from RPS, our international revenue increased 10.2%, on a constant currency basis, compared to last year. This
revenue growth reflects government stimulus spending on infrastructure and commercial activities related to an increased focus
on sustainability. We expect growth in our international work to continue in fiscal 2024.
34
RESULTS OF OPERATIONS
Fiscal 2023 Compared to Fiscal 2022
Consolidated Results of Operations
Revenue
Subcontractor costs
Revenue, net of subcontractor costs (1)
Other costs of revenue
Gross profit
Selling, general and administrative expenses
Acquisition and integration expenses
Right-of-use operating lease asset impairment
Contingent consideration – fair value adjustments
Income from operations
Interest expense – net
Other non-operating income
Income before income tax expense
Income tax expense
Net income
Fiscal Year Ended
October 1,
2023
October 2,
2022
Change
$
%
($ in thousands, except per share data)
$
4,522,550 $
3,504,048 $ 1,018,502
(771,461)
3,751,089
(668,468)
(102,993)
2,835,580
915,509
(3,026,060)
(2,260,021)
(766,039)
725,029
(305,107)
(33,169)
(16,385)
(12,255)
358,113
(46,537)
89,402
400,978
(127,526)
273,452
(32)
575,559
(234,784)
—
—
(329)
340,446
(11,584)
19,904
348,766
(85,602)
263,164
(39)
149,470
(70,323)
(33,169)
(16,385)
(11,926)
17,667
69,498
52,212
(41,924)
10,288
7
29.1%
(15.4)
32.3
(33.9)
26.0
(30.0)
NM
NM
NM
5.2
349.2
15.0
(49.0)
3.9
17.9
3.9
(34,953)
(301.7)
Net income attributable to noncontrolling interests
Net income attributable to Tetra Tech
Diluted earnings per share
$
$
273,420 $
263,125 $
10,295
5.10 $
4.86 $
0.24
4.9%
(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. In the course of providing services, we
routinely subcontract various services and, under certain international development programs, issue grants. Generally, these subcontractor costs and grants are
passed through to our clients and, in accordance with U.S. GAAP and industry practice, are included in our revenue when it is our contractual responsibility to
procure or manage these activities. 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.
NM = not meaningful
In fiscal 2023, revenue and revenue, net of subcontractor costs, increased $1.02 billion, or 29.1%, and $915.5 million,
or 32.3%, respectively, compared to fiscal 2022. Excluding the contribution from RPS, our revenue increased 12.0% in fiscal
2023 compared to last year. Our GSG segment's revenue and revenue, net of subcontractor costs, increased $338.0 million, or
18.6%, and $299.0 million, or 22.4%, respectively, in fiscal 2023 compared to the prior year. Our CIG segment's revenue
increased $686.2 million, or 39.5%, and revenue, net of subcontractor costs, increased $616.5 million, or 41.1% in fiscal 2023
compared to fiscal 2022. Excluding the contribution from RPS, our CIG segment's revenue increased approximately 6.7% in
fiscal 2023 compared to fiscal 2022 (9.5% on a constant currency basis). The fiscal 2023 results for GSG and CIG segments
are described below under "Government Services Group" and "Commercial/International Services Group", respectively.
The following table reconciles our reported results to non-U.S. GAAP adjusted results, which exclude acquisition and
integration costs related to the RPS acquisition and related lease impairment charge in fiscal 2023, adjustments to contingent
consideration liabilities, and a non-operating benefit from Employee Retention Credits ("ERC's") received in fiscal 2022. Our
adjusted earnings per share ("EPS") for fiscal 2023 also excludes non-operating gains on a foreign exchange contract of $89.4
million and non-recurring tax expense items. The foreign exchange gain is reported as "Other non-operating income" in our
consolidated statements of income. The effective tax rates applied to the adjustments to EPS to arrive at adjusted EPS average
26% for both fiscal 2023 and 2022. We applied the relevant marginal statutory tax rate based on the nature of the adjustments
and the tax jurisdiction in which it occurred. Both EPS and adjusted EPS were calculated using diluted weighted-average
common shares outstanding for the respective periods as reflected in our consolidated statements of income.
35
Fiscal Year Ended
October 1,
2023
October 2,
2022
Change
$
%
($ in thousands, except per share data)
$
358,113 $
340,446 $
17,667
5.2%
—
33,169
16,385
12,255
(6,486)
—
—
—
6,486
33,169
16,385
12,255
NM
NM
NM
NM
419,922 $
333,960 $
85,962
25.7%
5.10 $
—
0.56
0.22
0.19
(1.24)
0.38
4.86 $
(0.08)
—
—
—
(0.28)
—
0.24
0.08
0.56
0.22
0.19
(0.96)
0.38
0.71
4.9%
NM
NM
NM
NM
NM
NM
15.8%
$
5.21 $
4.50 $
$
$
Income from operations
Employee retention credits
Acquisition & integration expenses
Right-of-use operating lease asset impairment
Earn-out adjustments
Adjusted income from operations (1)
EPS
Employee retention credits
Acquisition & integration expenses
Right-of-use operating lease asset impairment
Earn-out adjustments
Foreign exchange forward contract gain
Non-recurring tax items
Adjusted EPS (1)
NM = not meaningful
(1) Non-U.S. GAAP financial measure
Operating income increased $17.7 million, or 5.2%, in fiscal 2023 compared to last year. The fiscal 2023 results
include $33.2 million of acquisition and integration expenses (primarily investment banking, legal and other professional fees)
for the RPS acquisition and a related $16.4 million of right-of-use ("ROU") lease asset impairment expense. The fiscal 2023
results also include losses of $12.3 million, related to changes in the estimated fair value of contingent earn-out liabilities. The
fiscal 2022 results include the benefit of ERC's totaling $6.5 million, which represents reimbursement from the U.S. federal
government under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") for the costs that we incurred
during fiscal 2020 to address the COVID-19 pandemic. These amounts were recognized in fiscal 2022 when the funds were
received due to the uncertainty related to the computation of qualifying amounts and delayed processing times for our
application. These amounts were primarily reflected as a reduction to "Other costs of revenue" in our consolidated statement of
income and an increase to "Net cash provided by operating activities" in our consolidated statement of cash flows for fiscal
2022, consistent with the presentation of the related costs recognized in fiscal 2020.
Excluding the acquisition and integration expenses, ROU asset impairment, earn-out losses and the ERC's, our
adjusted operating income increased $86.0 million, or 25.7% in fiscal 2023 compared to fiscal 2022. These increases reflect
improved results in both GSG and CIG segments, which are described below under "Government Services Group" and
"Commercial/International Group", respectively.
Our net interest expense was $46.5 million and $11.6 million in fiscal 2023 and 2022, respectively. Net interest
expense in fiscal 2023 included $2.7 million of additional expense for the write-off of previously deferred debt origination fees
due to the cancellation of the bridge loan facility that we entered to support our offer to acquire RPS, which was replaced with
an amendment to our existing debt facility and $1.1 million of additional expense for the write-off of previously deferred debt
origination fees due to the repayment and cancellation of RPS' debt facilities. Excluding these write-offs, our interest expense
increased $31.2 million in fiscal 2023 compared to last year primarily due to the additional borrowings to fund the RPS
acquisition.
Other non-operating income of $89.4 million in fiscal 2023, reflect gains on a foreign exchange forward contract
integrated with the RPS acquisition. Although an effective economic hedge of our foreign exchange risk related to this
transaction, the forward contract did not qualify for hedge accounting. As a result, the forward contract was marked-to-market
with changes in fair value recognized in earnings each period. The forward contract was settled on January 23, 2023, together
with the closing of the RPS acquisition, with a cumulative cash gain of approximately $109 million.
The effective tax rates for fiscal 2023 and 2022 were 31.8% and 24.5%, respectively. Income tax expense in fiscal
2023 included non-operating income tax expenses totaling $20.6 million to (i) increase the tax liability for uncertain tax
positions related to certain U.S. tax credits and an intercompany financing transaction, (ii) to recognize the tax liability for
foreign earnings, primarily in the U.K. and Australia, that are no longer indefinitely reinvested. In addition, income tax expense
36
was reduced by $4.6 million and $10.3 million of excess tax benefits on share-based payments in fiscal 2023 and 2022,
respectively. Excluding the impact of the non-operating tax expenses in fiscal 2023 and the excess tax benefits on share-based
payments in both years, our effective tax rates in fiscal 2023 and 2022 were 27.8% and 27.5%.
Our EPS was $5.10 in fiscal 2023, compared to $4.86 in fiscal 2022. Excluding the aforementioned non-operating
items (including the foreign exchange gain and the non-operating tax items, which are both reported outside of operating
income), our adjusted EPS was $5.21 in fiscal 2023, compared to $4.50 in fiscal 2022, an increase of 15.8%. For fiscal 2023,
we estimate that RPS increased our adjusted EPS by $0.07 before intangible amortization, which reduced our EPS by $0.37.
Excluding RPS, our adjusted EPS was $5.51 in fiscal 2023 representing an increase of 22.4%, compared to fiscal 2022.
Segment Results of Operations
Government Services Group ("GSG")
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Income from operations
Fiscal Year Ended
October 1,
2023
October 2,
2022
Change
$
%
($ in thousands)
$
$
$
2,158,889 $
1,820,868 $ 338,021
18.6%
(523,449)
(484,412)
(39,037)
1,635,440 $
1,336,456 $ 298,984
(8.1)
22.4
231,762 $
198,448 $
33,314
16.8%
Revenue and revenue, net of subcontractor costs, increased $338.0 million, or 18.6%, and increased $299.0 million, or
22.4%, respectively, in fiscal 2023 compared to fiscal 2022. This increase includes approximately $70 million in revenue in the
second quarter of fiscal 2023 related to a distinct international development funded energy program in Ukraine. In addition, the
increases reflect higher U.S. state and local government activities related to digital water and U.S. federal programs, partially
offset by lower disaster response revenue.
Operating income increased $33.3 million in fiscal 2023 compared to fiscal 2022. The increase in operating income is
consistent with the revenue increase noted above. The fiscal 2023 results were reduced by $6.8 million of the aforementioned
lease impairment charge and the fiscal 2022 results included $4.4 million of the aforementioned ERC's. Our operating margin,
based on revenue, net of subcontractor costs, was 14.2% in fiscal 2023 compared to 14.8% last year. Excluding the lease
impairment charge in fiscal 2023 and last year's ERC's, our operating margin increased to 14.6% in fiscal 2023 from 14.5% in
fiscal 2022.
Commercial/International Services Group ("CIG")
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Income from operations
Fiscal Year Ended
October 1,
2023
October 2,
2022
Change
$
%
($ in thousands)
$
$
$
2,424,649 $
1,738,436 $ 686,213
(309,000)
(239,312)
(69,688)
2,115,649 $
1,499,124 $ 616,525
39.5%
(29.1)
41.1
243,750 $
194,142 $
49,608
25.6%
Revenue and revenue, net of subcontractor costs, increased $686.2 million, or 39.5%, and increased $616.5 million, or
41.1%, respectively, in fiscal 2023 compared to fiscal 2022. The RPS acquisition contributed approximately $570 million to
revenue growth in fiscal 2023. The remaining revenue growth in fiscal 2023 primarily reflects increased activity on high
performance buildings, clean energy and international infrastructure.
Operating income increased $49.6 million in fiscal 2023 compared to fiscal 2022. The RPS acquisition contributed
approximately $34 million to operating income in fiscal 2023. Conversely, the fiscal 2023 results were reduced by $8.3 million
of the aforementioned lease impairment charge. The fiscal 2022 operating income included $1.9 million of the aforementioned
ERC's. Our operating margin, based on revenue, net of subcontractor costs, was 11.5% in fiscal 2023 compared to 13.0% in
fiscal 2022. Excluding the lease impairment and RPS in fiscal 2023 and the ERC's in fiscal 2022, our operating margin was
37
13.3% in fiscal 2023 compared to 12.8% in fiscal 2022. The improved operating margin was primarily due to our increased
focus on high-end consulting services, project execution and higher labor utilization.
Fiscal 2022 Compared to Fiscal 2021
Consolidated Results of Operations
Fiscal Year Ended
October 2,
2022
October 3,
2021
Change
$
%
($ in thousands, except per share data)
Revenue
Subcontractor costs
Revenue, net of subcontractor costs (1)
Other costs of revenue
Gross profit
Selling, general and administrative expenses
Contingent consideration – fair value adjustments
Income from operations
Interest expense – net
Other income
Income before income tax expense
Income tax expense
Net income
Net income attributable to noncontrolling interests
Net income attributable to Tetra Tech
Diluted earnings per share
$
$
$
3,504,048 $
3,213,513 $ 290,535
(668,468)
2,835,580
(2,260,021)
575,559
(234,784)
(329)
340,446
(11,584)
19,904
348,766
(85,602)
(661,341)
2,552,172
(2,053,772)
498,400
(222,972)
3,273
278,701
(11,831)
—
266,870
(34,039)
263,164
(39)
263,125 $
232,831
(21)
232,810 $
(7,127)
283,408
(206,249)
77,159
(11,812)
9.0%
(1.1)
11.1
(10.0)
15.5
(5.3)
(3,602)
(110.1)
61,745
247
19,904
81,896
(51,563)
30,333
(18)
30,315
22.2
2.1
NM
30.7
(151.5)
13.0
(85.7)
13.0
4.86 $
4.26 $
0.60
14.1%
(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. In the course of providing services, we
routinely subcontract various services and, under certain international development programs, issue grants. Generally, these subcontractor costs and grants are
passed through to our clients and, in accordance with U.S. GAAP and industry practice, are included in our revenue when it is our contractual responsibility to
procure or manage these activities. 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.
NM = not meaningful
In fiscal 2022, revenue and revenue, net of subcontractor costs, increased $290.5 million, or 9.0%, and $283.4 million,
or 11.1%, respectively, compared to fiscal 2021. Excluding the contributions from acquisitions, which did not have comparable
revenue in fiscal 2021, our revenue increased 4.1% in fiscal 2022 compared to fiscal 2021. Our GSG segment's revenue and
revenue, net of subcontractor costs, increased $48.0 million, or 2.7%, and $70.7 million, or 5.6%, respectively, in fiscal 2022
compared to the prior year. Our CIG segment's revenue increased $238.4 million, or 15.9%, and revenue, net of subcontractor
costs, increased $213.3 million, or 16.6% in fiscal 2022 compared to fiscal 2021. The fiscal 2022 results for GSG and CIG
segments are described below under "Government Services Group" and "Commercial/International Services Group",
respectively.
38
The following table reconciles our reported results to non-U.S. GAAP adjusted results, which exclude a non-operating
benefit from ERC's received in fiscal 2022 and gains from adjustments to contingent consideration liabilities in fiscal 2021. Our
adjusted EPS for fiscal 2022 also excludes a non-operating $19.9 million unrealized gain on the aforementioned foreign
exchange contract that served as an economic hedge related to our acquisition of RPS. This gain is reported as "Other non-
operating income" in our Consolidated Statement of Income for fiscal 2022. Our adjusted EPS for fiscal 2021 also excludes
non-recurring tax items. The effective tax rates applied to the adjustments to EPS to arrive at adjusted EPS average 26% and
25% for fiscal 2022 and 2021, respectively. We applied the relevant marginal statutory tax rate based on the nature of the
adjustments and the tax jurisdiction in which it occurred. Both EPS and adjusted EPS were calculated using diluted weighted-
average common shares outstanding for the respective periods as reflected in our consolidated statements of income.
Fiscal Year Ended
October 2,
2022
October 3,
2021
Change
$
%
($ in thousands, except per share data)
$
340,446 $
278,701 $
61,745
22.2%
—
(6,486)
(3,273)
—
3,273
(6,486)
NM
NM
333,960 $
275,428 $
58,532
21.3%
4.86 $
—
(0.08)
(0.28)
—
4.26 $
(0.04)
—
—
(0.43)
0.60
0.04
(0.08)
(0.28)
0.43
0.71
14.1%
NM
NM
NM
NM
18.7%
$
4.50 $
3.79 $
$
$
Income from operations
Earn-out adjustments
Employee Retention Credits
Adjusted income from operations (1)
EPS
Earn-out adjustments
Employee Retention Credits
Other income
Non-recurring tax benefits
Adjusted EPS (1)
NM = not meaningful
(1) Non-U.S. GAAP financial measure
Operating income increased $61.7 million, or 22.2%, in fiscal 2022 compared to fiscal 2021. The fiscal 2022 results
included the benefit of ERC's totaling $6.5 million. Excluding the ERC's and the contributions from acquisitions, which did not
have comparable results in fiscal 2021, our adjusted operating income increased $31.5 million, or 11.5% in fiscal 2022
compared to fiscal 2021. These increases reflect improved results in both GSG and CIG segments, which are described below
under "Government Services Group" and "Commercial/International Services Group", respectively.
Our net interest expense was $11.6 million and $11.8 million in fiscal 2022 and 2021, respectively. The decrease
primarily reflects lower average year-over-year borrowings, partially offset by higher borrowing rates.
The effective tax rates for fiscal 2022 and 2021 were 24.5% and 12.8%, respectively. The fiscal 2021 effective tax rate
reflects a non-recurring net tax benefit of $21.6 million, primarily consisting of a valuation allowance in the United Kingdom
that was released due to sufficient sustainable profitability being achieved in fiscal 2021. The valuation allowance was
primarily related to net operating loss carry-forwards. In fiscal 2021, we repatriated approximately $80 million from Canada
and recognized a related tax expense of $5.6 million. Also, income tax expense was reduced by $10.3 million and $12.9 million
of excess tax benefits on share-based payments in fiscal 2022 and 2021, respectively. Excluding the impact of the fiscal 2021
valuation allowance benefit, the fiscal 2021 Canadian repatriation and the excess tax benefits on share-based payments in both
fiscal years, our effective tax rates for fiscal 2022 and 2021 were 27.5% and 25.7%, respectively.
Our EPS was $4.86 in fiscal 2022, compared to $4.26 in fiscal 2021. Excluding the aforementioned non-operating and
non-recurring items, our adjusted EPS was $4.50 in fiscal 2022, compared to $3.79 the prior year, an increase of 18.7%.
39
Segment Results of Operations
Government Services Group ("GSG")
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Income from operations
Fiscal Year Ended
October 2,
2022
October 3,
2021
Change
$
%
($ in thousands)
$
$
$
1,820,868 $
1,772,905 $
47,963
2.7%
(484,412)
(507,132)
22,720
1,336,456 $
1,265,773 $
70,683
4.5
5.6
198,448 $
174,755 $
23,693
13.6%
Revenue and revenue, net of subcontractor costs, increased $48.0 million, or 2.7%, and increased $70.7 million, or
5.6%, respectively, in fiscal 2022 compared to fiscal 2021. 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 $23.7 million in fiscal 2022 compared to fiscal 2021. The fiscal 2022 results included $4.4
million of the aforementioned ERC's. Excluding this benefit, operating income increased 11.0% in fiscal 2022 compared the
previous year. Our operating margin, based on revenue, net of subcontractor costs, improved to 14.8% in fiscal 2022 compared
to 13.8% in fiscal 2021. Excluding the ERC's, our operating margin was 14.5% in fiscal 2022. The improved operating margin
in fiscal 2022 was primarily due to our increased focus on high-end consulting services, including digital water, and improved
labor utilization.
Commercial/International Services Group ("CIG")
Revenue
Subcontractor costs
Revenue, net of subcontractor costs
Income from operations
Fiscal Year Ended
October 2,
2022
October 3,
2021
Change
$
%
($ in thousands)
$
$
$
1,738,436 $
1,500,074 $ 238,362
(239,312)
(214,263)
(25,049)
1,499,124 $
1,285,811 $ 213,313
15.9%
(11.7)
16.6
194,142 $
152,262 $
41,880
27.5%
Revenue and revenue, net of subcontractor costs, increased $238.4 million, or 15.9%, and increased $213.3 million, or
16.6%, respectively, in fiscal 2022 compared to fiscal 2021. The revenue growth primarily reflects increased activity on
commercial environmental programs, including meeting net zero carbon goals and high performance buildings. These increases
were also due to the international government stimulus spending on infrastructure. Additionally, the fiscal 2022 revenue
included contributions from acquisitions, which did not have comparable revenue in fiscal 2021.
Operating income increased $41.9 million in fiscal 2022 compared to fiscal 2021. The fiscal 2022 operating income
included $1.9 million of the aforementioned ERC's. Excluding this benefit, operating income increased 26.2% in fiscal 2022
compared the prior fiscal year. Our operating margin, based on revenue, net of subcontractor costs, improved to 13.0% in fiscal
2022 compared to 11.8% in fiscal 2021. Excluding the ERC's, our operating margin was 12.8% for fiscal 2022. The improved
operating margin was primarily due to our increased focus on high-end consulting services, project execution and labor
utilization.
Remediation and Construction Management ("RCM")
RCM's projects were substantially complete at the end of fiscal 2018. In May 2022, we received a cash settlement for
the last $11 million RCM claim. This settlement resulted in an immaterial gain in the third quarter of fiscal 2022. There were no
significant operating activities in RCM for fiscal 2022 and 2021.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Capital Requirements. As of October 1, 2023, we had $168.8 million of cash and cash equivalents and access to an
additional $800 million of borrowing available under our credit facility. We generated $368.5 million of cash from operations in
40
fiscal 2023. Our primary sources of liquidity are cash flows from operations and borrowings under our credit facilities. Our
primary uses of cash are to fund working capital, cash dividends, capital expenditures and repayment of debt, as well as to fund
acquisitions and earn-out obligations from prior acquisitions. We believe that our existing cash and cash equivalents, operating
cash flows and borrowing capacity under our credit agreement as amended for the RPS acquisition in the second quarter of
fiscal 2023, as described below, will be sufficient to meet our capital requirements for at least the next 12 months.
On October 5, 2021, our Board of Directors authorized a new stock repurchase program under which we could
repurchase up to $400 million of our common stock. In fiscal 2023, we did not repurchase any shares of our common stock. At
fiscal 2023 year-end, we had a remaining balance of $347.8 million under our stock repurchase program. We declared and paid
common stock dividends totaling $52.1 million, or $0.98 per share, in fiscal 2023 compared to $46.1 million, or $0.86 per
share, in fiscal 2022.
Subsequent Events. On November 13, 2023, our Board of Directors declared a quarterly cash dividend of $0.26 per
share payable on December 13, 2023 to stockholders of record as of the close of business on November 30, 2023.
Cash and Cash Equivalents. As of October 1, 2023, cash and cash equivalents were $168.8 million, a decrease of
$16.3 million compared to the fiscal 2022 year-end.
Operating Activities. Cash provided by operating activities increased 9.6% from $336.2 million in fiscal 2022 to
$368.5 million in fiscal 2023. The increase primarily reflects improved working capital, partially offset by approximately $37.0
million of additional payments made in fiscal 2023 for the RPS acquisition, primarily related to the acquisition and integration
costs.
Investing Activities. Net cash used in investing activities was $771.2 million in fiscal 2023, an increase of $715.5
million compared to fiscal 2022. The increase was primarily due to the RPS acquisition in the second quarter of fiscal 2023.
Financing Activities. In fiscal 2023, net cash provided by financing activities was $382.4 million compared to net cash
used in financing activities of $249.6 million in fiscal 2022. The financing activities in fiscal 2023 primarily consisted of
additional borrowings to fund the RPS acquisition.
Debt Financing. On October 26, 2022, we entered into a Third Amended and Restated Credit Agreement that provides
for an additional $500 million senior secured term loan facility (the "New Term Loan Facility") increasing our total borrowing
capacity to $1.55 billion. On January 23, 2023, we drew the entire amount of the New Term Loan Facility to partially finance
the RPS acquisition. The New Term Loan Facility is not subject to any amortization payments of principal and matures on the
third anniversary of the RPS acquisition closing date.
On February 18, 2022, we entered into Amendment No. 2 to our Second Amended and Restated Credit Agreement
(“Amended Credit Agreement”) with a total borrowing capacity of $1.05 billion that will mature in February 2027. The
Amended Credit Agreement is a $750 million senior secured, five-year facility that provides for a $250 million term loan
facility (the “Amended Term Loan Facility”) and a $500 million revolving credit facility (the “Amended Revolving Credit
Facility”). 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. 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.
On August 22, 2023, we issued $575.0 million in convertible notes that bear interest at 2.25% per annum payable
semiannually in arrears on February 15 and August 15 of each year, beginning on February 15, 2024 with a maturity date of
August 15, 2028 (the "Convertible Notes"). As of October 1, 2023, $560.8 million of the Convertible Notes was included in
long-term debt in our consolidated balance sheets, which is net of $14.2 million of unamortized debt issuance costs. The net
proceeds from the Convertible Notes were $560.5 million, $51.8 million of which were used to purchase related capped call
transactions on the issue date. The remaining proceeds were used to prepay and terminate the $234.4 million outstanding under
the Amended Term Loan Facility, to prepay $89.4 million outstanding under the New Term Loan Facility and to pay down
41
borrowings of $185.0 million under the Amended Revolving Credit Facility. See Note 9, "Long-Term Debt" of the "Notes to
Consolidated Financial Statements" in Item 8 for further discussion).
At fiscal 2023 year-end, we had $320 million in outstanding borrowings under the Amended Credit Agreement, which
was all under the New Term Loan Facility, and no borrowings under the Amended Revolving Credit Facility. The weighted-
average interest rate of the outstanding borrowings during fiscal 2023 was 5.71%. In addition, we had $0.7 million in standby
letters of credit under the Amended Credit Agreement. Our year-to-date weighted-average interest rate on borrowings
outstanding during fiscal 2023 under the Amended Credit Agreement, including the effects of interest rate swap agreements
described in Note 14, “Derivative Financial Instruments” of the "Notes to Consolidated Financial Statements" included in
Item 8, was 5.37%. At October 1, 2023, we had $499.3 million of available credit under the Amended Revolving Credit
Facility, all of which could be borrowed without a violation of our debt covenants. Commitment fees related to our revolving
credit facilities were $0.6 million for fiscal year 2023 and $0.7 million each year for fiscal 2022 and 2021, respectively.
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. At October 1, 2023, we were in compliance with these covenants with a
consolidated leverage ratio of 1.79x and a consolidated interest coverage ratio of 9.84x.
In addition to the Amended Credit Agreement, we maintain other credit facilities, which may be used for short-term
cash advances and bank guarantees. At October 1, 2023, there were no outstanding borrowings under these facilities, and the
aggregate amount of standby letters of credit outstanding was $54.9 million. As of October 1, 2023, we had no bank overdrafts
related to our disbursement bank accounts.
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:
November 7, 2022
January 30, 2023
May 8, 2023
August 7, 2023
November 13, 2023
Income Taxes
Dividend
Per Share
Record Date
Total Maximum
Payment
(in thousands)
Payment Date
$
$
$
$
$
0.23 November 21, 2022
0.23
0.26
0.26
February 13, 2023
May 24, 2023
August 23, 2023
0.26 November 30, 2023
$
$
$
$
12,186
December 9, 2022
12,242
February 24, 2023
13,840
June 6, 2023
13,845
September 6, 2023
N/A December 13, 2023
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 future operating results in certain jurisdictions, it is unlikely that the current valuation allowance positions of those
jurisdictions could be adjusted in the next 12 months.
At the end of fiscal 2023 and 2022, the liability for income taxes associated with uncertain tax positions was $62.0
million and $10.6 million, respectively.
It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax
positions may not significantly decrease within the next 12 months. These liabilities represent our current estimates of the
additional tax liabilities that we may be assessed when the related audits are concluded. 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.
42
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 fiscal 2023 year-end, we had $0.7 million in standby letters of credit outstanding under our
Amended Credit Agreement and $54.9 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 AND ESTIMATES
The preparation of our financial statements in conformity with U.S. GAAP requires us to make estimates and
assumptions in the application of certain accounting policies that affect amounts reported in our consolidated financial
statements and accompanying footnotes included in Item 8 of this report. In order to understand better the changes that may
occur to our financial condition, results of operations and cash flows, readers should be aware of the critical accounting policies
we apply and estimates we use in preparing our consolidated financial statements. Although such estimates and assumptions are
based on management's best knowledge of current events and actions we may undertake in the future, actual results could differ
materially from those estimates.
Our significant accounting policies are described in the "Notes to Consolidated Financial Statements" included in
Item 8. Highlighted below are the accounting policies that management considers most critical to investors' understanding of
our financial results and condition, and that require complex judgments by management.
Revenue Recognition and Contract Costs
To determine the proper revenue recognition method for contracts under ASC 606, we evaluate whether multiple
contracts should be combined and accounted for as a single contract and whether the combined or single contract should be
accounted for as having more than one performance obligation. The decision to combine a group of contracts or separate a
combined or single contract into multiple performance obligations may impact the amount of revenue recorded in a given
period. Contracts are considered to have a single performance obligation if the promises are not separately identifiable from
other promises in the contracts.
43
At contract inception, we assess the goods or services promised in a contract and identify, as a separate performance
obligation, each distinct promise to transfer goods or services to the customer. The identified performance obligations represent
the “units of account” for purposes of determining revenue recognition. In order to properly identify separate performance
obligations, we apply judgment in determining whether each good or service provided is: (a) capable of being distinct, whereby
the customer can benefit from the good or service either on its own or together with other resources that are readily available to
the customer, and (b) distinct within the context of the contract, whereby the transfer of the good or service to the customer is
separately identifiable from other promises in the contract.
Contracts are often modified to account for changes in contract specifications and requirements. We consider contract
modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most
of our contract modifications are for goods or services that are not distinct from existing contracts due to the significant
integration provided or significant interdependencies in the context of the contract and are accounted for as if they were part of
the original contract. The effect of a contract modification on the transaction price and our measure of progress for the
performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of
revenue) on a cumulative catch-up basis.
We account for contract modifications as a separate contract when the modification results in the promise to deliver
additional goods or services that are distinct and the increase in price of the contract is for the same amount as the stand-alone
selling price of the additional goods or services included in the modification.
The transaction price represents the amount of consideration to which we expect to be entitled in exchange for
transferring promised goods or services to our customers. The consideration promised within a contract may include fixed
amounts, variable amounts or both. The nature of our contracts gives rise to several types of variable consideration, including
claims, award fee incentives, fiscal funding clauses and liquidated damages. We recognize revenue for variable consideration
when it is probable that a significant reversal in the amount of cumulative revenue recognized for the contract will not occur.
We estimate the amount of revenue to be recognized on variable consideration using either the expected value or the most likely
amount method, whichever is expected to better predict the amount of consideration to be received. Project mobilization costs
are generally charged to project costs as incurred when they are an integrated part of the performance obligation being
transferred to the client.
For contracts with multiple performance obligations, we allocate the transaction price to each performance obligation
using a best estimate of the standalone selling price of each distinct good or service in the contract. The standalone selling price
is typically determined using the estimated cost of the contract plus a margin approach. For contracts containing variable
consideration, we allocate the variability to a specific performance obligation within the contract if such variability relates
specifically to our efforts to satisfy the performance obligation or transfer the distinct good or service, and the allocation depicts
the amount of consideration to which we expect to be entitled.
We recognize revenue over time as the related performance obligation is satisfied by transferring control of a promised
good or service to our customers. Progress toward complete satisfaction of the performance obligation is primarily measured
using a cost-to-cost measure of progress method. The cost input is based primarily on contract cost incurred to date compared to
total estimated contract cost. This measure includes forecasts based on the best information available and reflects our judgment
to faithfully depict the value of the services transferred to the customer. For certain on-call engineering or consulting and
similar contracts, we recognize revenue in the amount which we have the right to invoice the customer if that amount
corresponds directly with the value of our performance completed to date.
Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance
obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-
cost measure of progress method, changes in total estimated costs, and related progress towards complete satisfaction of the
performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are
made. When the current estimate of total costs indicates a loss, a provision for the entire estimated loss on the contract is made
in the period in which the loss becomes evident.
Contract Types
Our services are performed under three principal types of contracts: fixed-price, time-and-materials and cost-plus.
Customer payments on contracts are typically due within 60 days of billing, depending on the contract.
Fixed-Price. Under fixed-price contracts, clients pay us an agreed fixed-amount negotiated in advance for a specified
scope of work.
Time-and-Materials. Under time-and-materials contracts, we negotiate hourly billing rates and charge our clients based
on the actual time that we spend on a project. In addition, clients reimburse us for our actual out-of-pocket costs for materials
and other direct incidental expenditures that we incur in connection with our performance under the contract. Most of our time-
and-material contracts are subject to maximum contract values, and also may include annual billing rate adjustment provisions.
44
Cost-Plus. Under cost-plus contracts, we are reimbursed for allowed or otherwise defined costs incurred plus a
negotiated fee. The contracts may also include incentives for various performance criteria, including quality, timeliness,
ingenuity, safety and cost-effectiveness. In addition, our costs are generally subject to review by our clients and regulatory audit
agencies, and such reviews could result in costs being disputed as non-reimbursable under the terms of the contract.
Goodwill and Intangibles
The cost of an acquired company is assigned to the tangible and intangible assets purchased and the liabilities assumed
on the basis of their fair values at the date of acquisition. The determination of fair values of assets and liabilities acquired
requires us to make estimates and use valuation techniques when a market value is not readily available. Any excess of
purchase price over the fair value of net tangible and intangible assets acquired is allocated to goodwill. Goodwill typically
represents the value paid for the assembled workforce and enhancement of our service offerings.
Identifiable intangible assets primarily include backlog, client relations and trade names. The costs of these intangible
assets are amortized over their contractual or economic lives, which range from one to twelve years. We assess the
recoverability of the unamortized balance of our intangible assets when indicators of impairment are present based on expected
future profitability and undiscounted expected cash flows and their contribution to our overall operations. Should the review
indicate that the carrying value is not fully recoverable, the excess of the carrying value over the fair value of the intangible
assets would be recognized as an impairment loss.
Estimated fair value measurements for intangible assets are made using Level 3 inputs including discounted cash flow
techniques. Fair value is estimated using a multi-period excess earnings method for backlog and client relations and a relief
from royalty method for trade names. The significant assumptions used in estimating fair value of backlog and client relations
include (i) the estimated life the asset will contribute to cash flows, such as remaining contractual terms, (ii) revenue growth
rates and EBITDA margins, (iii) attrition rate of customers, and (iv) the estimated discount rates that reflect the level of risk
associated with receiving future cash flows. The significant assumptions used in estimating fair value of trade names include
the royalty rates and discount rates.
We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. In addition, we
regularly evaluate whether events and circumstances have occurred that may indicate a potential change in recoverability of
goodwill. We perform interim goodwill impairment reviews between our annual reviews if certain events and circumstances
have occurred, including a deterioration in general economic conditions, an increased 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 (see Note 6, "Goodwill and Intangible Assets" of
the "Notes to Consolidated Financial Statements" in Item 8 for further discussion).
We believe the methodology that we use to review impairment of goodwill, which includes a significant amount of
judgment and estimates, provides us with a reasonable basis to determine whether impairment has occurred. However, many of
the factors employed in determining whether our goodwill is impaired are outside of our control, and it is reasonably likely that
assumptions and estimates will change in future periods. These changes could result in future impairments.
The goodwill impairment review involves the determination of the fair value of our reporting units, which for us are
the components one level below our reportable segments. This process requires us to make significant judgments and estimates,
including assumptions about our strategic plans with regard to our operations as well as the interpretation of current economic
indicators and market valuations. Furthermore, the development of the present value of future cash flow projections includes
assumptions and estimates derived from a review of our expected revenue growth rates, operating profit margins, business
plans, discount rates and terminal growth rates. We also make certain assumptions about future market conditions, market
prices, interest rates and changes in business strategies. Changes in assumptions or estimates could materially affect the
determination of the fair value of a reporting unit. This could eliminate the excess of fair value over carrying value of a
reporting unit entirely and, in some cases, result in impairment. Such changes in assumptions could be caused by a loss of one
or more significant contracts, reductions in government or commercial client spending or a decline in the demand for our
services due to changing economic conditions. In the event that we determine that our goodwill is impaired, we would be
required to record a non-cash charge that could result in a material adverse effect on our results of operations or financial
position.
We use two methods to determine the fair value of our reporting units: (i) the Income Approach and (ii) the Market
Approach. While each of these approaches is initially considered in the valuation of the business enterprises, the nature and
characteristics of the reporting units indicate which approach is most applicable. The Income Approach utilizes the discounted
cash flow method, which focuses on the expected cash flow of the reporting unit. In applying this approach, the cash flow
available for distribution is calculated for a finite period of years. Cash flow available for distribution is defined, for purposes of
this analysis, as the amount of cash that could be distributed as a dividend without impairing the future profitability or
operations of the reporting unit. The cash flow available for distribution and the terminal value (the value of the reporting unit
at the end of the estimation period) are then discounted to present value to derive an indication of the value of the business
45
enterprise. The Market Approach is comprised of the guideline company method and the similar transactions method. The
guideline company method focuses on comparing the reporting unit to select reasonably similar (or "guideline") publicly traded
companies. Under this method, valuation multiples are (i) derived from the operating data of selected guideline companies;
(ii) evaluated and adjusted based on the strengths and weaknesses of the reporting units relative to the selected guideline
companies; and (iii) applied to the operating data of the reporting unit to arrive at an indication of value. In the similar
transactions method, consideration is given to prices paid in recent transactions that have occurred in the reporting unit's
industry or in related industries. For our annual impairment analysis, we weighted the Income Approach and the Market
Approach at 70% and 30%, respectively. The Income Approach was given a higher weight because it has the most direct
correlation to the specific economics of the reporting unit, as compared to the Market Approach, which is based on multiples of
broad-based (i.e., less comparable) companies. Our last review at July 3, 2023 (i.e., the first day of our fourth quarter in fiscal
2023), 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. We had no reporting units that had estimated fair values that exceeded their
carrying values by less than 45%.
Contingent Consideration
Certain of our acquisition agreements include contingent earn-out arrangements, which are generally based on the
achievement of future operating income thresholds. The contingent earn-out arrangements are based upon 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 these 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 "Estimated contingent earn-
out liabilities" and "Long-term estimated 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
shareholders 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 (See Note 2, "Basis of Presentation and Preparation – Fair Value of
Financial Instruments" of the "Notes to Consolidated Financial Statements" included in Item 8). We 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 two or three 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 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 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.
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of recent accounting standards and the effect they could have on the consolidated financial statements,
see Note 2, "Basis of Presentation and Preparation" of the "Notes to Consolidated Financial Statements" included in Item 8.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
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 dollars, the Euro, and the British Pound.
46
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 Eurocurrency 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 October 1, 2023, we had $320 million in outstanding borrowings under the Amended
Credit Agreement, which was all under the New Term Loan Facility, and no borrowings under the Amended Revolving Credit
Facility. The year-to-date weighted-average interest rate of the outstanding borrowings during fiscal 2023 was 5.71%.
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. The five swaps expired on July 31, 2023.
Our year-to-date average effective interest rate on borrowings outstanding under the Credit Agreement, including the effects of
interest rate swap agreements, at October 1, 2023, was 5.37%. For more information, see Note 14, “Derivative Financial
Instruments” of the “Notes to Consolidated Financial Statements” in Item 8.
The majority of our transactions are in U.S. dollars; however, some of our subsidiaries conduct business in foreign
currencies, primarily the Canadian and Australian dollars, the Euro, 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. We reported $0.1 million of foreign currency gains in
fiscal 2023 and $0.2 million of foreign currency losses in fiscal 2022 in “Selling, general and administrative expenses” on our
consolidated statements of income.
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 fiscal 2023 and 2022, 36.7% and 31.0% of our
consolidated revenue, respectively, was generated by our international business. For fiscal 2023, the effect of foreign exchange
rate translation on the consolidated balance sheets was an increase in equity of $12.6 million compared to a decrease in equity
of $94.9 million in fiscal 2022. These amounts were recognized as an adjustment to equity through other comprehensive
income.
In the fourth quarter of fiscal 2022, we entered into a forward contract to acquire GBP 714.0 million at a rate of 1.0852
for a total of USD 774.8 million that was integrated with our plan to acquire RPS. This contract matured on December 30,
2022. On December 28, 2022, we entered into an extension of the integrated forward contract to acquire GBP 714.0 million at a
rate of 1.086 for a total of USD 775.4 million, extending the maturity date to January 23, 2023, the closing date of the RPS
acquisition. Although an effective economic hedge of our foreign exchange risk related to this transaction, the forward contract
did not qualify for hedge accounting. As a result, the forward contract was marked-to-market with changes in fair value
recognized in earnings each period. The intrinsic value of the forward contract was immaterial at inception as the GBP/USD
spot and forward exchange rates were essentially the same. The fair value of the forward contract at October 2, 2022 was $19.9
million, and an unrealized gain of the same amount was recognized in our fourth quarter of fiscal 2022 results. On January 23,
2023, the forward contract was settled for cash proceeds of $109.3 million and we recognized additional gains of $89.4 million
in fiscal 2023. All gains related to this transaction were reported in “Other non-operating income" on our consolidated income
statements for the respective periods.
47
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at October 1, 2023 and October 2, 2022
Consolidated Statements of Income for the fiscal years ended October 1, 2023, October 2, 2022 and October 3,
2021
Consolidated Statements of Comprehensive Income for the fiscal years ended October 1, 2023, October 2, 2022 and
October 3, 2021
Consolidated Statements of Cash Flows for the fiscal years ended October 1, 2023, October 2, 2022 and October 3,
2021
Consolidated Statements of Equity for the fiscal years ended October 1, 2023, October 2, 2022 and October 3, 2021
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts and Reserves for the fiscal years ended October 1, 2023, October
2, 2022 and October 3, 2021
Page
49
52
53
54
55
56
58
91
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Tetra Tech, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Tetra Tech, Inc. and its subsidiaries (the
“Company”) as of October 1, 2023 and October 2, 2022, and the related consolidated statements of income, of comprehensive
income, of equity and of cash flows for each of the three years in the period ended October 1, 2023, including the related notes
and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial
statements”). We also have audited the Company's internal control over financial reporting as of October 1, 2023, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of October 1, 2023 and October 2, 2022, and the results of its operations and its cash
flows for each of the three years in the period ended October 1, 2023 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of October 1, 2023, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is
to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in
all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
49
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to
accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition - Determination of Total Estimated Contract Cost for Fixed-price Contracts
As described in Note 3 to the consolidated financial statements, $1.64 billion of the Company’s total revenues for the
year ended October 1, 2023 was generated from fixed-price contracts. As disclosed by management, under fixed-price
contracts, the Company's clients pay an agreed fixed-amount negotiated in advance for a specified scope of work. Revenue is
recognized over time as the related performance obligation is satisfied by transferring control of a promised good or service to
the Company's customers. Progress toward complete satisfaction of the performance obligation is primarily measured using a
cost-to-cost measure of progress method. The cost input is based primarily on contract cost incurred to date compared to total
estimated contract cost. This measure includes forecasts based on the best information available and reflects management's
judgment to faithfully depict the value of the services transferred to the customer. Due to uncertainties inherent in the
estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term.
For those performance obligations for which revenue is recognized using a cost-to-cost measure of progress method, changes in
total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a
cumulative catch-up basis in the period in which the revisions to the estimates are made. As a result, the Company recognized
net favorable revenue and operating income adjustments of $11.0 million for the year ended October 1, 2023. 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. The anticipated losses and estimated cost to complete the related contracts was $8.5 million and
approximately $68 million, respectively, as of October 1, 2023.
The principal considerations for our determination that performing procedures relating to revenue recognition -
determination of total estimated contract cost for fixed-price contracts is a critical audit matter are (i) the significant judgment
by management in developing the estimate of total contract cost for fixed-price contracts; and (ii) a high degree of auditor
judgment, subjectivity, and effort in performing procedures and in evaluating audit evidence related to management’s estimate
of total contract costs for fixed-price contracts with cumulative catch-up adjustments, anticipated losses or claims.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating
to the revenue recognition process, including controls over the total estimated contract cost for fixed-price contracts. These
procedures also included, among others, (i) evaluating and testing management’s process for developing the estimate of total
contract cost for a sample of contracts with cumulative catch-up adjustments, anticipated losses or claims, which included
evaluating the contract terms and other documents that support those estimates, and testing of underlying contract costs; (ii)
assessing management's ability to reasonably estimate total contract costs by performing a comparison of the total estimated
contract cost as compared with prior period estimates, including evaluating the timely identification of circumstances that may
warrant a modification to the total estimated contract cost; and (iii) evaluating, for certain contracts, management’s
methodologies and assessing the consistency of management’s approach over the life of the contract.
Acquisition of RPS Group plc – Valuation of Certain Client Relations and Trade Name
As described in Note 5 to the consolidated financial statements, the Company completed its acquisition of RPS Group
plc (“RPS”) on January 23, 2023 for a total purchase price of approximately $784 million. Of the total acquired intangible
assets of $174.1 million, certain client relations and a trade name represent the majority. Fair value was estimated by
management using a multi-period excess earnings method for client relations and a relief from royalty method for trade names.
Management’s significant assumptions used in estimating fair value of client relations include (i) the estimated life the asset
will contribute to cash flows, such as remaining contractual terms, (ii) revenue growth rates and EBITDA margins, (iii) attrition
rate of customers, and (iv) the estimated discount rates that reflect the level of risk associated with receiving future cash flows.
The significant assumptions used in estimating fair value of trade name include the royalty rates and discount rates.
The principal considerations for our determination that performing procedures relating to the valuation of certain client
relations and trade name in the acquisition of RPS Group plc is a critical audit matter are (i) the significant judgment by
management when developing the fair value estimate of certain client relations and trade name acquired, (ii) a high degree of
auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions
related to estimated life, revenue growth rates, customer attrition rates, EBITDA margins and discount rates for certain client
relations and a royalty rate and discount rate for a trade name, and (iii) the audit effort involved the use of professionals with
specialized skill and knowledge.
50
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating
to the acquisition accounting, including controls over management’s valuation of certain client relations and trade name
acquired. These procedures also included, among others, (i) reading the purchase agreement; (ii) testing management’s process
for developing the fair value estimate of certain client relations and trade name acquired; (iii) evaluating the appropriateness of
the multi-period excess earnings and relief from royalty methods used by management; (iv) testing the completeness and
accuracy of the underlying data used in the multi-period excess earnings and relief from royalty methods; and (v) evaluating the
reasonableness of the significant assumptions used by management related to the estimated life, revenue growth rates, customer
attrition rates, EBITDA margins and discount rates for certain client relations and the royalty rate and discount rate for a trade
name. Evaluating management’s assumptions related to the estimated life, revenue growth rates, customer attrition rates and
EBITDA margins for client relations involved considering (i) the current and past performance of RPS; (ii) the consistency with
external market and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of
the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the
multi-period excess earnings and relief from royalty methods and (ii) the reasonableness of the discount rate assumption for
certain client relations and trade name, as well as, the royalty rate for a trade name.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
November 22, 2023
We have served as the Company’s auditor since 2004.
51
Tetra Tech, Inc.
Consolidated Balance Sheets
(in thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Contract assets
Prepaid expenses and other current assets
Income taxes receivable
Total current assets
Property and equipment, net
Right-of-use assets, operating leases
Goodwill
Intangible assets, net
Deferred tax assets
Other non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued compensation
Contract liabilities
Short-term lease liabilities, operating leases
Current portion of long-term debt
Current contingent earn-out liabilities
Other current liabilities
Total current liabilities
Deferred tax liabilities
Long-term debt
Long-term lease liabilities, operating leases
Non-current contingent earn-out liabilities
Other non-current liabilities
Commitments and contingencies (Note 17)
Equity:
Preferred stock – Authorized, 2,000 shares of $0.01 par value; no shares issued and
outstanding at October 1, 2023 and October 2, 2022
Common stock – Authorized, 150,000 shares of $0.01 par value; issued and outstanding,
53,248 and 52,981 shares at October 1, 2023 and October 2, 2022, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Tetra Tech stockholders' equity
Noncontrolling interests
Total stockholders' equity
Total liabilities and stockholders' equity
October 1,
2023
October 2,
2022
$
$
$
$
168,831 $
974,535
113,939
89,096
9,623
1,356,024
74,832
175,932
1,880,244
173,936
89,002
70,507
3,820,477 $
173,271 $
302,755
335,044
65,005
—
51,108
280,959
1,208,142
14,256
879,529
144,685
22,314
148,045
185,094
755,112
92,405
115,400
10,205
1,158,216
32,316
182,319
1,110,412
29,163
47,804
62,546
2,622,776
147,436
237,669
241,340
57,865
12,504
28,797
190,406
916,017
15,161
246,250
146,285
36,769
79,157
—
532
—
(195,295)
1,598,196
1,403,433
73
1,403,506
3,820,477 $
—
530
—
(208,144)
1,390,701
1,183,087
50
1,183,137
2,622,776
See accompanying Notes to Consolidated Financial Statements.
52
Tetra Tech, Inc.
Consolidated Statements of Income
(in thousands, except per share data)
Revenue
Subcontractor costs
Other costs of revenue
Gross profit
Selling, general and administrative expenses
Acquisition and integration expenses
Right-of-use operating lease asset impairment
Contingent consideration – fair value adjustments
Income from operations
Interest income
Interest expense
Other non-operating income
Income before income tax expense
Income tax expense
Net income
Net income attributable to noncontrolling interests
Net income attributable to Tetra Tech
Earnings per share attributable to Tetra Tech:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
October 1,
2023
4,522,550 $
Fiscal Year Ended
October 2,
2022
3,504,048 $
$
October 3,
2021
3,213,513
(771,461)
(668,468)
(661,341)
(3,026,060)
(2,260,021)
(2,053,772)
725,029
(305,107)
(33,169)
(16,385)
(12,255)
358,113
5,898
(52,435)
89,402
400,978
(127,526)
273,452
(32)
575,559
(234,784)
—
—
(329)
340,446
1,780
(13,364)
19,904
348,766
(85,602)
263,164
(39)
498,400
(222,972)
—
—
3,273
278,701
917
(12,748)
—
266,870
(34,039)
232,831
(21)
$
$
$
273,420 $
263,125 $
232,810
5.14 $
5.10 $
4.91 $
4.86 $
53,203
53,637
53,620
54,163
4.31
4.26
54,078
54,675
See accompanying Notes to Consolidated Financial Statements.
53
Tetra Tech, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
Net income
Other comprehensive income, net of tax
Foreign currency translation adjustments, net of tax
(Loss) gain on cash flow hedge valuations, net of tax
Net pension adjustments
Other comprehensive income (loss), net of tax
October 1,
2023
Fiscal Year Ended
October 2,
2022
October 3,
2021
$
273,452 $
263,164 $
232,831
12,622
(2,412)
2,638
12,848
(94,933)
11,806
—
(83,127)
30,644
6,117
—
36,761
Comprehensive income, net of tax
Comprehensive income attributable to noncontrolling interests, net of tax
Comprehensive income attributable to Tetra Tech, net of tax
$
$
286,300 $
180,037 $
269,592
31
28
24
286,269 $
180,009 $
269,568
See accompanying Notes to Consolidated Financial Statements.
54
Tetra Tech, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of stock-based awards
Deferred income taxes
Fair value adjustments to contingent consideration
Right-of-use operating lease asset impairment
Fair value adjustment to foreign currency forward contract
Other non-cash items
Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable and contract assets
Prepaid expenses and other assets
Accounts payable
Accrued compensation
Contract liabilities
Income taxes receivable/payable
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Payments for business acquisitions, net of cash acquired
Settlement of foreign currency forward contract
Capital expenditures
Proceeds from sales of assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from borrowings
Repayments on long-term debt
Proceeds from issuance of convertible notes
Payments of debt issuance costs
Capped call transactions
Repurchases of common stock
Taxes paid on vested restricted stock
Payments of contingent earn-out liabilities
Stock options exercised
Bank overdrafts
Dividends paid
Principal payments on finance leases
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental information:
Cash paid during the year for:
October 1,
2023
Fiscal Year Ended
October 2,
2022
October 3,
2021
$
273,452 $
263,164 $
232,831
61,206
28,607
(21,204)
12,255
16,385
(89,402)
975
(19,783)
78,686
(19,214)
37,094
44,152
40,527
(75,273)
368,463
(854,319)
109,306
(26,901)
715
(771,199)
994,859
(1,026,051)
575,000
(14,451)
(51,750)
—
(16,833)
(21,328)
626
—
(52,113)
(5,579)
382,380
4,093
(16,263)
185,094
27,033
26,227
2,175
329
—
(19,904)
(1,245)
(89,781)
69,697
17,099
27,458
55,915
14,627
(56,606)
336,188
(49,124)
—
(10,582)
3,966
(55,740)
161,456
(117,080)
—
—
—
(200,000)
(25,223)
(20,124)
1,806
—
(46,099)
(4,344)
(249,608)
(12,314)
18,526
166,568
$
168,831 $
185,094 $
23,805
23,067
(38,494)
(3,273)
—
—
(496)
13,301
(582)
13,551
5,425
13,407
13,090
8,740
304,372
(84,911)
—
(8,573)
492
(92,992)
370,222
(414,308)
—
—
—
(60,000)
(17,630)
(20,251)
11,250
(36,627)
(40,041)
(2,714)
(210,099)
7,772
9,053
157,515
166,568
Interest
Income taxes, net of refunds received of $2.2 million, $4.8 million and $2.1 million
$
$
47,367 $
93,176 $
13,378 $
70,799 $
10,330
59,111
See accompanying Notes to Consolidated Financial Statements.
55
Tetra Tech, Inc.
Consolidated Statements of Equity
Fiscal Years Ended October 3, 2021, October 2, 2022, and October 1, 2023
(in thousands)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Tetra Tech
Equity
Non-Controlling
Interests
Total
Equity
53,797
$
538
$
—
$
(161,786) $ 1,198,567
$
1,037,319
$
54
$ 1,037,373
232,810
232,810
21
232,831
30,641
6,117
30,641
6,117
3
30,644
6,117
269,568
24
269,592
(25)
(25)
215
324
124
(479)
3
3
1
(5)
23,067
(17,633)
11,247
10,704
(27,385)
(40,041)
(40,041)
23,067
(17,630)
11,250
10,705
(60,000)
$
(32,610)
(40,041)
23,067
(17,630)
11,250
10,705
(60,000)
53,981
540
—
(125,028)
1,358,726
1,234,238
53
1,234,291
263,125
263,125
39
263,164
(94,922)
11,806
(94,922)
11,806
180,009
(46,099)
(46,099)
26,227
(25,223)
1,806
12,129
(200,000)
(185,051)
(11)
(94,933)
28
(31)
11,806
180,037
(31)
(46,099)
26,227
(25,223)
1,806
12,129
(200,000)
190
46
106
(1,342)
2
—
1
(13)
26,227
(25,225)
1,806
12,128
(14,936)
52,981
530
—
(208,144)
1,390,701
1,183,087
50
1,183,137
273,420
273,420
32
273,452
56
BALANCE AT
SEPTEMBER 27,
2020
Comprehensive income,
net of tax:
Net income
Foreign currency
translation
adjustments
Gain on cash flow
hedge valuations
Comprehensive income,
net of tax
Distributions paid to
noncontrolling interests
Cash dividends of $0.74
per common share
Stock-based
compensation
Restricted &
performance shares
released
Stock options exercised
Shares issued for
Employee Stock
Purchase Plan
Stock repurchases
BALANCE AT
OCTOBER 3, 2021
Comprehensive income,
net of tax:
Net income
Foreign currency
translation
adjustments
Gain on cash flow
hedge valuations
Comprehensive income,
net of tax
Distributions paid to
noncontrolling interests
Cash dividends of $0.86
per common share
Stock-based
compensation
Restricted &
performance shares
released
Stock options exercised
Shares issued for
Employee Stock
Purchase Plan
Stock repurchases
BALANCE AT
OCTOBER 2, 2022
Comprehensive income,
net of tax:
Net income
Foreign currency
translation
adjustments
Pension
Gain on cash flow
hedge valuations
Comprehensive income,
net of tax
Distributions paid to
noncontrolling interests
Cash dividends of $0.98
per common share
Stock-based
compensation
Restricted &
performance shares
released
Stock options exercised
Shares issued for
Employee Stock
Purchase Plan
Reclassification of
APIC
Capped call transactions
BALANCE AT
OCTOBER 1, 2023
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Tetra Tech
Equity
Non-Controlling
Interests
Total
Equity
12,623
2,638
(2,412)
12,623
2,638
(2,412)
286,269
(1)
31
(8)
149
19
99
1
—
1
28,607
(16,834)
626
12,627
26,724
(51,750)
(52,113)
(52,113)
28,607
(16,833)
626
12,628
(26,724)
—
12,912
(38,838)
12,622
2,638
(2,412)
286,300
(8)
(52,113)
28,607
(16,833)
626
12,628
—
(38,838)
53,248
$
532
$
—
$
(195,295) $ 1,598,196
$
1,403,433
$
73
$ 1,403,506
See accompanying Notes to Consolidated Financial Statements.
57
Tetra Tech, Inc.
Notes to Consolidated Financial Statements
1. Description of Business
We are 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 solutions
may span the entire life cycle of high-end consulting and engineering projects and include applied science, data analysis,
research, engineering, design, project management and operations and maintenance.
We manage our business 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.
2. Basis of Presentation and Preparation
Principles of Consolidation and Presentation. The consolidated financial statements include our accounts and those
of joint ventures of which we are the primary beneficiary. All significant intercompany balances and transactions have been
eliminated in consolidation.
Fiscal Year. We report results of operations based on 52 or 53-week periods ending on the Sunday nearest
September 30. Fiscal years 2023, 2022 and 2021 contained 52, 52 and 53 weeks, respectively.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America ("U.S. GAAP") requires us to make estimates and assumptions. These estimates and
assumptions affect the amounts reported in our consolidated financial statements and accompanying notes. Although such
estimates and assumptions are based on management's best knowledge of current events and actions we may take in the future,
actual results could differ materially from those estimates.
Cash and Cash Equivalents. Cash and cash equivalents include highly liquid investments with original maturities of
90 days or less. Occasionally, we have bank overdrafts, which occur when a bank honors disbursements in excess of funds on
deposit in our bank accounts. We classify bank overdrafts as short-term borrowings on our consolidated balance sheets, and
report the change in overdrafts as a financing activity in our consolidated statements of cash flows.
Insurance Matters, Litigation and Contingencies. In the normal course of business, we are subject to certain
contractual guarantees and litigation. In addition, we maintain insurance coverage for various aspects of our business and
operations. We record in our consolidated balance sheets amounts representing our estimated liability for these legal and
insurance obligations. Any adjustments to these liabilities are recorded in our consolidated statements of income.
Accounts Receivable – Net. Net accounts receivable consists of billed and unbilled accounts receivable, and
allowances for doubtful accounts. 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 our fiscal 2023 year-end are expected to be billed and collected
within 12 months. Unbilled accounts receivable also include amounts related to requests for equitable adjustment to contracts
that provide for price redetermination. These amounts are recorded only when they can be reliably estimated, and realization is
probable. 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 that may affect our clients'
ability to pay.
Contract Assets and Contract Liabilities. Contract assets represent revenue recognized in excess of the amounts for
which we have the contractual right to bill our customers. 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 represent the amount of cash collected from clients and billings to clients on contracts in advance of work performed
and revenue recognized. The majority of these amounts are expected be earned within 12 months and are classified as current
liabilities.
58
Prepaid and other current assets. Prepaid assets consist primarily of payments for insurance and software costs and
are amortized over the estimated period of benefit. Other current assets include primarily sales/services and use tax receivables
from our U.S and foreign operations.
Property and Equipment. Property and equipment are recorded at cost and depreciated over their estimated useful
lives using the straight-line method. When property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from our consolidated balance sheets and any resulting gain or loss is reflected in our
consolidated statements of income. Expenditures for maintenance and repairs are expensed as incurred. Generally, estimated
useful lives range from three to seven years for equipment, furniture and fixtures. Leasehold improvements are amortized on a
straight-line basis over the shorter of their estimated useful lives or the lease term. Assets held for sale are measured at the
lower of carrying amount (i.e., net book value) and fair value less cost to sell, and are reported within "Prepaid expenses and
other current assets" on our consolidated balance sheets. Once assets are classified as held for sale, they are no longer
depreciated.
Long-Lived Assets. We evaluate the recoverability of our long-lived assets when the facts and circumstances suggest
that the assets may be impaired. This assessment is performed based on the estimated undiscounted cash flows compared to the
carrying value of the assets. If the future cash flows (undiscounted and without interest charges) are less than the carrying value,
a write-down would be recorded to reduce the related asset to its estimated fair value.
Leases. 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 reported in "Other long-term assets", "Other current liabilities" and "Other long-term liabilities" on our
consolidated balance sheet.
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 the
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.
We recognize a liability for contract termination costs associated with an exit activity for costs that will continue to be
incurred under a lease for its remaining term without economic benefit to us, initially measured at its fair value at the cease-use
date. The fair value is determined based on the remaining lease rentals, adjusted for the effects of any prepaid or deferred items
recognized under the lease, and reduced by estimated sublease rentals.
Business Combinations. The cost of an acquired company is assigned to the tangible and intangible assets purchased
and the liabilities assumed based on their fair values at the date of acquisition. The determination of fair values of these assets
and liabilities requires us to make estimates and use valuation techniques when a market value is not readily available. Any
excess of purchase price over the fair value of net tangible and intangible assets acquired is allocated to goodwill. Goodwill
typically represents the value paid for the assembled workforce and enhancement of our service offerings. Transaction costs
associated with business combinations are expensed as incurred.
Goodwill and Intangible Assets. Goodwill represents the excess of the aggregate purchase price over the fair value
of the net assets acquired in a business acquisition. Following an acquisition, we perform an analysis to value the acquired
company's tangible and identifiable intangible assets and liabilities. With respect to identifiable intangible assets, we consider
backlog, non-compete agreements, client relations, trade names, patents and other assets. We amortize our intangible assets
based on the period over which the contractual or economic benefits of the intangible assets are expected to be realized. We
assess the recoverability of the unamortized balance of our intangible assets when indicators of impairment are present based on
expected future profitability and undiscounted expected cash flows and their contribution to our overall operations. Should the
review indicate that the carrying value is not fully recoverable, the excess of the carrying value over the fair value of the
intangible assets would be recognized as an impairment loss.
We test our goodwill for impairment on an annual basis, and more frequently when an event occurs, or circumstances
indicate that the carrying value of the asset may not be recoverable. We believe the methodology that we use to review
impairment of goodwill, which includes a significant amount of judgment and estimates, provides us with a reasonable basis to
determine whether impairment has occurred. However, many of the factors employed in determining whether our goodwill is
impaired are outside of our control and it is reasonably likely that assumptions and estimates will change in future periods.
These changes could result in future impairments.
59
We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our last annual
review was performed at July 3, 2023 (i.e., the first day of our fiscal fourth quarter). In addition, we regularly evaluate whether
events and circumstances have occurred that may indicate a potential change in recoverability of goodwill. We perform interim
goodwill impairment reviews between our annual reviews if certain events and circumstances have occurred, including a
deterioration in general economic conditions, an increased 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. We assess goodwill for impairment at the reporting unit level, which is
defined as an operating segment or one level below an operating segment, referred to as a component. Our operating segments
are the same as our reportable segments and our reporting units for goodwill impairment testing are the components one level
below our reportable segments. These components constitute a business for which discrete financial information is available
and where segment management regularly reviews the operating results of that component. We aggregate components within an
operating segment that have similar economic characteristics.
The impairment test for goodwill involves the comparison of the estimated fair value of each reporting unit to the
reporting unit's carrying value, including goodwill. We estimate the fair value of reporting units based on a comparison and
weighting of the income approach, specifically the discounted cash flow method and the market approach, which estimates the
fair value of our reporting units based upon comparable market prices and recent transactions and also validates the
reasonableness of the multiples from the income approach. The development of the present value of future cash flow
projections includes assumptions and estimates derived from a review of our expected revenue growth rates, operating profit
margins, discount rates and the terminal growth rate. If the fair value of a reporting unit exceeds its carrying amount, the
goodwill of that reporting unit is not considered impaired. However, if its carrying value exceeds its fair value, our goodwill is
impaired, and we are required to record a non-cash charge that could have a material adverse effect on our consolidated
financial statements. An impairment loss recognized, if any, should not exceed the total amount of goodwill allocated to the
reporting unit.
Contingent Consideration. Most of our acquisition agreements include contingent earn-out arrangements, which are
generally based on the achievement of future operating income thresholds. The contingent earn-out arrangements are based
upon 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 these 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 or 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 reassess 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.
Other current liabilities. Other current liabilities consist primarily of accrued insurance, contingent liabilities,
sales/services and use taxes due to our U.S. and foreign operations, other tax accruals and accrued professional fees.
60
Fair Value of Financial Instruments. We determine the fair values of our financial instruments, including short-
term investments, debt instruments, derivative instruments and pension plan assets based on inputs or assumptions that market
participants would use in pricing an asset or a liability. We categorize our instruments using a valuation hierarchy for disclosure
of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs
are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar
assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through
market corroboration, for substantially the full term of the financial instrument; and Level 3 inputs are unobservable inputs
based on our own assumptions used to measure assets and liabilities at fair value. The classification of a financial asset or
liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair values
based on their short-term nature. The carrying amounts of our revolving credit facility approximates fair value because the
interest rates are based upon variable reference rates. Certain other assets and liabilities, such as contingent earn-out liabilities
and amounts related to cash-flow hedges, are required to be carried in our consolidated financial statements at fair value.
Our fair value measurement methods may produce a fair value calculation that may not be indicative of net realizable
value or reflective of future fair values. Although we believe our valuation methods are appropriate and consistent with those
used by other market participants, the use of different methodologies or assumptions to determine fair value could result in a
different fair value measurement at the reporting date.
Derivative Financial Instruments. We account for our derivative instruments as either assets or liabilities and carry
them at fair value. For derivative instruments that hedge the exposure to variability in expected future cash flows that are
designated as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component
of accumulated other comprehensive income in stockholders' equity and reclassified into income in the same period or periods
during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument, if
any, is recognized in current income. To receive hedge accounting treatment, cash flow hedges must be highly effective in
offsetting changes to expected future cash flows on hedged transactions.
The net gain or loss on the effective portion of a derivative instrument that is designated as an economic hedge of the
foreign currency translation exposure generated by the re-measurement of certain assets and liabilities denominated in a non-
functional currency in a foreign operation is reported in the same manner as a foreign currency translation adjustment.
Accordingly, any gains or losses related to these derivative instruments are recognized in current income. Derivatives that do
not qualify as hedges are adjusted to fair value through current income.
Deferred Compensation. We maintain a non-qualified defined contribution supplemental retirement plan for certain
key employees and non-employee directors that is accounted for in accordance with applicable authoritative guidance on
accounting for deferred compensation arrangements where amounts earned are held in a rabbi trust and invested. Employee
deferrals are deposited into a rabbi trust, and the funds are generally invested in individual variable life insurance contracts that
we own and are specifically designed to informally fund savings plans of this nature. Our consolidated balance sheets reflect
our investment in variable life insurance contracts in "Other long-term assets." Our obligation to participating employees is
reflected in "Other long-term liabilities." The net gains and losses related to the deferred compensation plan are reported as part
of “Selling, general and administrative expenses” in our consolidated statements of income.
Pension Plan. We assumed a defined benefit pension plan from an acquisition. We calculate the market-related
value of assets, which is used to determine the return-on-assets component of annual pension expense and the cumulative net
unrecognized gain or loss subject to amortization. This calculation reflects our anticipated long-term rate of return and
amortization of the difference between the actual return (including capital, dividends, and interest) and the expected return.
Cumulative net unrecognized gains or losses that exceed 10% of the greater of the projected benefit obligation or the fair
market-related value of plan assets are subject to amortization.
Income Taxes. We file a consolidated U.S. federal income tax return. In addition, we file other returns that are
required in the states, foreign jurisdictions and other jurisdictions in which we do business. We account for certain income and
expense items differently for financial reporting and income tax purposes. Deferred tax assets and liabilities are computed for
the difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to
reverse. In determining the need for a valuation allowance, management reviews both positive and negative evidence, including
current and historical results of operations, future income projections, scheduled reversals of deferred tax amounts, availability
of carrybacks and potential tax planning strategies. Based on our assessment, we have concluded that a portion of the deferred
tax assets will not be realized.
According to the authoritative guidance on accounting for uncertainty in income taxes, we may recognize the tax
benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by
the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from
61
such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon
ultimate settlement. This guidance also addresses de-recognition, classification, interest and penalties on income taxes,
accounting in interim periods and disclosure requirements for uncertain tax positions.
Concentration of Credit Risk. Financial instruments that subject us to credit risk consist primarily of cash and cash
equivalents and net accounts receivable. In the event that we have surplus cash, we place our temporary cash investments with
lower risk financial institutions and, by policy, limit the amount of investment exposure to any one financial institution.
Approximately 22% of accounts receivable were due from various agencies of the U.S. federal government at fiscal 2023 year-
end. The remaining accounts receivable are generally diversified due to the large number of organizations comprising our client
base and their geographic dispersion. We perform ongoing credit evaluations of our clients and maintain an allowance for
potential credit losses. Approximately 31%, 13%, 19% and 37% of our fiscal 2023 revenue was generated from our U.S. federal
government, U.S. state and local government, U.S. commercial and international clients, respectively.
Foreign Currency Translation. We determine the functional currency of our foreign operating units based upon the
primary currency in which they operate. These operating units maintain their accounting records in their local currency,
primarily Canadian and Australian dollars, the Euros and British pounds. Where the functional currency is not the U.S. dollar,
translation of assets and liabilities to U.S. dollars is based on exchange rates at the balance sheet date. Translation of revenue
and expenses to U.S. dollars is based on the average rate during the period. Translation gains or losses are reported as a
component of other comprehensive income. Gains or losses from foreign currency transactions are included in income from
operations.
Reclassifications. Certain reclassifications were made to the prior fiscal years to conform to the current-year
presentation.
Recently Issued Accounting Pronouncements
In November 2021, the Financial Accounting Standards Board issued ASU 2021-10, Government Assistance (Topic
832), which requires annual 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 was effective for us beginning in the first quarter
of fiscal 2023. In fiscal 2020, the Canadian federal government implemented the Canadian Emergency Wage Subsidy
("CEWS") program in response to the negative impact of the coronavirus disease 2019 pandemic on businesses operating in
Canada. Some of our Canadian legal entities qualified for and applied for these CEWS cash benefits to partially offset the
impacts of revenue reductions and on-going staffing costs. The $21.0 million total received was initially recorded in "Other
current liabilities" until all potential amendments to the qualification criteria, including some that were proposed with
retroactive application, were finalized in fiscal 2022. As there are no further contingencies, the amounts received will be
distributed to all Canadian employees. We expect to distribute approximately $10 million in the next twelve months.
Accordingly, this amount is included in "Accrued compensation" on our consolidated balance sheet as of October 1, 2023. The
remaining $11.0 million, which we expect to distribute beyond one year, is reported in "Other long-term liabilities". We do not
expect there will be any related impact on our operating income, and we have no outstanding applications for further
government assistance.
3. Revenue and Contract Balances
We recognize revenue over time as the related performance obligation is satisfied by transferring control of a promised
good or service to our customers. Progress toward complete satisfaction of the performance obligation is primarily measured
using a cost-to-cost measure of progress method. The cost input is based primarily on contract cost incurred to date compared to
total estimated contract cost. This measure includes forecasts based on the best information available and reflects our judgement
to faithfully depict the value of the services transferred to the customer. For certain on-call engineering or consulting and
similar contracts, we recognize revenue in the amount which we have the right to invoice the customer if that amount
corresponds directly with the value of our performance completed to date.
Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance
obligation will be revised in the near term. For those performance obligations for which revenue is recognized using a cost-to-
cost measure of progress method, changes in total estimated costs, and related progress towards complete satisfaction of the
performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are
made. When the current estimate of total costs indicates a loss, a provision for the entire estimated loss on the contract is made
in the period in which the loss becomes evident.
62
Disaggregation of Revenue
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 (in thousands):
Client Sector:
U.S. federal government (1)
U.S. state and local government
U.S. commercial
International (2)
Total
Contract Type:
Fixed-price
Time-and-materials
Cost-plus
Total
October 1,
2023
Fiscal Year Ended
October 2,
2022
October 3,
2021
$
1,387,101 $
1,064,347 $
1,081,608
607,074
869,460
603,286
748,953
1,658,915
1,087,462
536,309
638,169
957,427
$
4,522,550 $
3,504,048 $
3,213,513
$
1,643,849 $
1,317,993 $
1,191,244
2,166,671
712,030
1,637,019
549,036
1,492,813
529,456
$
4,522,550 $
3,504,048 $
3,213,513
(1) Includes revenue generated under U.S. federal government contracts performed outside the United States.
(2) Includes revenue generated from non-U.S. clients, primarily in Canada, Australia, Europe and the United Kingdom.
Other than the U.S. federal government, no single client accounted for more than 10% of our revenue for fiscal 2023
and 2022.
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 (in thousands):
Contract assets (1)
Contract liabilities
Net contract liabilities
Balance at
October 1,
2023
October 2,
2022
$
$
113,939 $
335,044
92,405
241,340
(221,105) $
(148,935)
(1) Includes $6.8 million and $23.3 million of contract retentions at fiscal 2023 and 2022 year-ends, respectively.
In fiscal 2023, we recognized revenue of approximately $164 million from amounts included in the contract liability
balance at the end of fiscal 2022, compared to approximately $125 million in fiscal 2022.
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
63
inception-to-date revenue, costs and profit in the period in which such changes are made. As a result, in fiscal 2023, we
recognized net favorable revenue and operating income adjustments of $11.0 million. The corresponding net revenue and
operating income adjustments were immaterial for fiscal 2022.
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 October 1, 2023 and October 2, 2022, our consolidated balance sheets
included liabilities for anticipated losses of $8.5 million and $10.0 million, respectively. The estimated cost to complete these
related contracts at the end of fiscal 2023 and 2022 was approximately $68 million and $80 million, respectively.
Accounts Receivable, Net
Net accounts receivable consisted of the following (in thousands):
Billed
Unbilled
Total accounts receivable
Allowance for doubtful accounts
Total accounts receivable, net
Balance at
October 1,
2023
October 2,
2022
$
672,712 $
306,788
979,500
(4,965)
491,700
267,161
758,861
(3,749)
$
974,535 $
755,112
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 fiscal 2023 year-end 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, which may affect our clients' ability to
pay.
Other than the U.S. federal government, no single client accounted for more than 10% of our accounts receivable at
fiscal 2023 and 2022 year-ends.
Remaining Unsatisfied Performance Obligations (“RUPOs”)
Our RUPOs represent a measure of the total dollar value of work to be performed on contracts awarded and in
progress. We had $4.8 billion of RUPOs as of October 1, 2023. RUPOs increase with awards from new contracts or additions to
existing contracts and decrease as work is performed and revenue is recognized on existing contracts. RUPOs may also
decrease when projects are canceled or modified in scope. We include a contract within our RUPOs when the contract is
awarded and an agreement on contract terms has been reached.
We expect to satisfy our RUPOs as of fiscal 2023 year-end over the following periods (in thousands):
Within 12 months
Beyond
Total
Amount
$
$
3,103,466
1,651,611
4,755,077
Although RUPOs reflect business that is considered to be firm, cancellations, deferrals or scope adjustments may
occur. RUPOs are 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. Stock Repurchase and Dividends
On October 5, 2021, our Board of Directors authorized a new stock repurchase program under which we could
repurchase up to $400 million of our common stock. In fiscal 2023, we did not repurchase any shares of our common stock. We
repurchased and settled 1,341,679 shares with an average price of $149.07 per share for a total cost of $200.0 million in fiscal
64
2022, and 479,369 shares with an average price of $125.16 per share for a total cost of $60.0 million in fiscal 2021, in the open
market. As of October 1, 2023, we had a remaining balance of $347.8 million under our repurchase program.
The following table presents dividends declared and paid in fiscal 2023, 2022 and 2021:
Declare Date
November 7, 2022
January 30, 2023
May 8, 2023
August 7, 2023
$
$
$
$
Dividend Paid Per
Share
0.23
0.23
0.26
0.26
Total dividends paid as of October 1, 2023
Record Date
Payment Date
November 21, 2022
December 9, 2022
$
February 13, 2023
February 24, 2023
May 24, 2023
June 6, 2023
August 23, 2023
September 6, 2023
November 15, 2021
January 31, 2022
May 2, 2022
August 1, 2022
$
$
$
$
0.20
0.20
0.23
0.23
December 2, 2021
December 20, 2021
February 11, 2022
February 25, 2022
May 13, 2022
May 27, 2022
August 12, 2022
August 26, 2022
Total dividends paid as of October 2, 2022
November 9, 2020
January 25, 2021
April 26, 2021
July 26, 2021
$
$
$
$
0.17
0.17
0.20
0.20
November 30, 2020
December 11, 2020
February 10, 2021
February 26, 2021
May 12, 2021
May 28, 2021
August 20, 2021
September 3, 2021
Total dividends paid as of October 3, 2021
Dividends Paid
(in thousands)
12,186
12,242
13,840
13,845
52,113
10,793
10,769
12,311
12,226
46,099
9,198
9,212
10,831
10,800
40,041
$
$
$
$
$
Subsequent Events. On November 13, 2023, our Board of Directors declared a quarterly cash dividend of $0.26 per
share payable on December 13, 2023 to stockholders of record as of the close of business on November 30, 2023.
5. Acquisitions
On September 23, 2022, we made an all-cash offer to acquire all of the outstanding shares of RPS Group plc ("RPS"),
a publicly traded company on the London Stock Exchange for 222 pence per share, through a scheme of arrangement, which
was unanimously recommended by RPS' Board of Directors. On November 3, 2022, RPS' shareholders approved the scheme of
arrangement. On January 19, 2023, the court-sanctioned scheme of arrangement to purchase RPS was approved, and we
completed the acquisition on January 23, 2023. RPS employs approximately 5,000 associates in the United Kingdom, Europe,
Asia Pacific and North America, delivering high-end solutions, especially in energy transformation, water and program
management for government and commercial clients. Substantially all of RPS is included in our CIG segment.
The total purchase price of RPS was approximately £633 million ($784 million). In connection with the transaction,
we incurred acquisition and integration costs of $33.2 million, primarily for professional fees, substantially all of which were
paid as of fiscal 2023 year-end. On January 23, 2023, we also settled a foreign exchange forward contract that was integral to
our plan to finance the RPS acquisition. The cash gain of $109.3 million did not qualify for hedge accounting. As a result, the
gain was recognized as non-operating income over the life of the contract and not included in the purchase price allocation
below. However, the cash proceeds of $109.3 million economically reduced the purchase price for the shares of RPS to
approximately $675 million. This forward contract is explained further in Note 14, "Derivative Financial Instruments".
The table below represents the preliminary purchase price allocation for RPS based on estimates, assumptions,
valuations and other analyses as of January 23, 2023, that has not been finalized in order to make a definitive allocation. The
purchase consideration, excluding the aforementioned forward contract gain, is allocated to the tangible and intangible assets,
and liabilities of RPS based on their estimated fair values, with any excess purchase consideration allocated to goodwill as
follows (in thousands):
65
Cash and cash equivalents
Accounts receivable and contract assets
Prepaid expenses and other current assets
Income taxes receivables
Property and equipment
Right-of-use assets, operating leases
Intangible assets
Deferred income taxes
Other long-term assets
Total assets acquired
Account Payable
Accrued compensation
Contract liabilities
Income tax payable
Short-term lease liabilities, operating leases
Other current liabilities
Current portion of long-term debt
Long-term lease liabilities, operating leases
Other long-term liabilities
Deferred tax liabilities
Total liabilities assumed
Fair value of net assets acquired
Goodwill
Total purchase consideration
Amount
32,093
202,303
45,999
1,999
38,435
40,179
174,094
36,388
1,061
572,551
(44,376)
(19,073)
(46,287)
(7,083)
(13,477)
(135,474)
(91,973)
(26,702)
(18,571)
(41,613)
(444,629)
127,922
656,287
784,209
$
$
$
The following table summarizes the estimated fair values that were assigned to intangible assets at the acquisition date:
Backlog
Trade names
Client relations
Total intangible assets acquired
Weighted-
Average
Estimated
Useful Life
(in years)
1.6
3.0
11.1
8.3
Fair Value
(in thousands)
$
$
27,880
27,260
118,954
174,094
Estimated fair value measurements for the intangible assets related to the RPS acquisition were made using Level 3
inputs including discounted cash flow techniques. Fair value was estimated using a multi-period excess earnings method for
backlog and client relations and a relief from royalty method for trade names. The significant assumptions used in estimating
fair value of backlog and client relations include (i) the estimated life the asset will contribute to cash flows, such as remaining
contractual terms, (ii) revenue growth rates and EBITDA margins, (iii) attrition rate of customers, and (iv) the estimated
discount rates that reflect the level of risk associated with receiving future cash flows. The significant assumptions used in
estimating fair value of trade names include the royalty rates and discount rates.
Supplemental Pro Forma Information (Unaudited)
Following are the supplemental consolidated financial results of Tetra Tech and RPS on an unaudited pro forma basis,
as if the RPS acquisition had been consummated as of the beginning of fiscal 2022 (in thousands):
66
Revenue
Net income including noncontrolling interests
Fiscal Year Ended
October 1,
2023
October 2,
2022
$
$
4,780,404 $
4,271,580
223,857 $
152,964
Our fiscal 2023 consolidated results reflect RPS' contribution of revenue of approximately $600 million, with net
income, including interest expense, of $3.6 million, or $0.07 per share, before the related intangible amortization of
$26.8 million.
In fiscal 2023, we also acquired Amyx, Inc. (“Amyx”), an enterprise technology services, cybersecurity and
management consulting firm based in Reston, Virginia. With over 500 employees, Amyx provides application modernization,
cybersecurity, systems engineering, financial management and program management support on over 30 Federal Government
programs. Amyx is included in our Government Services Group ("GSG") segment. The total fair value of the purchase price of
Amyx was $120.9 million, comprised of a $100.0 million payable in a promissory note issued to the sellers (paid subsequent to
closing), $8.7 million of payables related to estimated post-closing adjustments, and $12.2 million for the estimated fair value
of contingent earn-out obligations, with a maximum of $25.0 million, based upon the achievement of specified operating
income targets in each of the three years following the acquisition date. Amyx was not considered significant to our
consolidated financial statements.
In fiscal 2022, we acquired The Integration Group of America ("TIGA"), Piteau Associates (“PAE”) and two other
financially 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 financially immaterial acquisitions are part of our GSG segment. The total fair value of the
purchase price for all four acquisitions was $88.3 million. This amount is comprised of $44.0 million in initial cash payments
made to the sellers, $2.5 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. These acquisitions were not considered significant, individually or in the aggregate, to our
consolidated financial statements.
The majority of the goodwill from the fiscal 2023 acquisitions is not deductible for tax purposes, while the majority of
the goodwill from the fiscal 2022 acquisitions is deductible for tax purposes. The results of fiscal 2022 and 2023 acquisitions
were included in our consolidated financial statements beginning on the respective closing dates.
Goodwill additions resulting from the fiscal 2023 business combinations are primarily attributable to the significant
technical expertise residing in embedded workforces that are sought out by clients, synergies expected to arise after the
acquisitions in the areas of enterprise technology services, data management, energy transformation, water, program
management, and data analytics and the long-standing reputations of RPS and Amyx. These acquisitions further expand and
complement our market-leading positions in water, renewable energy and sustainable infrastructure; enhanced by a combined
suite of differentiated data analytics and digital technologies, and expansion into existing and new geographies. The fiscal 2022
goodwill additions 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. 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.
Intangible assets with finite lives arise from business acquisitions and are amortized based on the period over which
the contractual or economic benefit of the intangible assets are expected to be realized or on a straight-line basis over the useful
lives of the underlying assets, ranging from one to twelve years. These consist of client relations, backlog and trade names. For
detailed information regarding our intangible assets, see Note 6, “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 “Non-current 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
67
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 or 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 reassess 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. In each quarter during fiscal 2023,
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 RUPOs and the
inventory of prospective new contract awards.
In fiscal 2023, we recorded adjustments to our contingent earn-out liabilities and reported a net loss to operating
income of $12.3 million. The net loss primarily resulted from increased valuations of the contingent consideration liabilities for
our prior acquisitions of Segue Technologies, Inc., Hoare Lea, LLP ("HLE"), TIGA and PAE, reflecting their financial
performance that exceeded our previous expectations. These increases were partially offset by a decreased valuation of the
contingent consideration for Amyx, which has the forecasted revenue becoming realized later than originally anticipated.
In fiscal 2022, total adjustments to our contingent earn-out liabilities in operating income were immaterial.
In fiscal 2021, we recorded adjustments to our contingent earn-out liabilities and reported a net gain in operating
income of $3.3 million. These adjustments resulted from the updated valuations of the contingent consideration liabilities,
which reflect updated projections of acquired companies' financial performance during their respective earn-out periods.
At October 1, 2023, there was a total potential maximum of $113.8 million of outstanding contingent consideration
related to acquisitions. Of this amount, $73.4 million was estimated as the fair value and accrued on our consolidated balance
sheet.
The following table summarizes the changes in the carrying value of estimated contingent earn-out liabilities (in
thousands):
October 1,
2023
Fiscal Year Ended
October 2,
2022
October 3,
2021
Beginning balance
$
65,566
$
59,297 $
Acquisition date fair value of contingent earn-out liabilities
Change in fair value of contingent earn-out liabilities
Re-measurement of contingent earn-out liabilities
Foreign exchange impact
Earn-out payments:
Reported as cash used in operating activities
Reported as cash used in financing activities
Ending balance
12,248
2,480
12,255
2,201
—
(21,328)
31,341
2,184
329
(7,152)
(310)
(20,123)
$
73,422
$
65,566 $
32,617
50,235
992
(3,273)
(596)
(427)
(20,251)
59,297
68
6. Goodwill and Intangible Assets
The following table summarizes the changes in the carrying value of goodwill (in thousands):
Balance at October 3, 2021
Goodwill reallocation
Acquisitions
Translation and other
Balance at October 2, 2022
Acquisitions
Translation and other
Balance at October 1, 2023
GSG
CIG
Total
$
538,433 $
570,145 $
1,108,578
(51,497)
42,365
(10,199)
519,102
138,380
2,460
51,497
26,318
(56,650)
591,310
621,496
7,496
—
68,683
(66,849)
1,110,412
759,876
9,956
$
659,942 $
1,220,302 $
1,880,244
Our goodwill balances reflect the goodwill reallocation related to the creation of our new High Performance Buildings
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. The fiscal 2023 goodwill amounts are presented net of reductions from
historical impairment adjustments and fiscal 2023 goodwill additions relate to our fiscal 2023 acquisitions. The purchase price
allocations for our fiscal 2023 acquisitions are preliminary and subject to adjustment based upon the final determinations of the
net assets acquired and information to perform the final valuations.
We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our last review at
July 3, 2023 (i.e., the first day of our fourth quarter in fiscal 2023) 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 July 3, 2023,
and after the reallocation of goodwill on the first day of fiscal 2023, we had no reporting units that had estimated fair values
that exceeded their carrying values by less than 45%.
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 gross amounts of goodwill for GSG were $677.6 million and $536.8 million at fiscal 2023 and 2022 year-ends,
respectively, excluding accumulated impairment of $17.7 million for each period. The gross amounts of goodwill for CIG were
$1,341.8 million and $712.8 million at fiscal 2023 and 2022 year-ends, respectively, excluding accumulated impairment of
$121.5 million for each period.
69
The following table presents the gross amount and accumulated amortization of our acquired identifiable intangible
assets with finite useful lives included in "Intangible assets, net" on the consolidated balance sheets ($ in thousands):
Fiscal Year Ended
October 1, 2023
October 2, 2022
Weighted-
Average
Remaining
Life
(in years)
9.4
0.9
2.4
Client relations
Backlog
Trade names
Total
Gross
Amount
Accumulated
Amortization
Net
Amount
Gross
Amount
Accumulated
Amortization
Net
Amount
$
169,217 $
(36,072) $ 133,145 $
41,676 $
(21,092) $ 20,584
63,825
37,411
(47,802)
(12,643)
16,023
24,768
33,286
12,711
(29,990)
(7,428)
3,296
5,283
$
270,453 $
(96,517) $ 173,936 $
87,673 $
(58,510) $ 29,163
Amortization expense for the identifiable intangible assets for fiscal 2023, 2022 and 2021 was $41.2 million, $13.2
million and $11.5 million, respectively. Foreign currency translation adjustments reduced net identifiable intangible assets by
$0.2 million and $5.3 million in fiscal 2023 and 2022, respectively.
Estimated amortization expense for the succeeding five fiscal years and beyond is as follows (in thousands):
2024
2025
2026
2027
2028
Beyond
Total
7. Property and Equipment
Property and equipment consisted of the following (in thousands):
Equipment, furniture and fixtures
Leasehold improvements
Total property and equipment
Accumulated depreciation
Property and equipment, net
$
Amount
42,180
28,032
19,922
13,861
13,352
56,589
$
173,936
Fiscal Year Ended
October 1,
2023
October 2,
2022
$
132,744 $
44,733
177,477
(102,645)
$
74,832 $
96,710
32,428
129,138
(96,822)
32,316
The depreciation expense related to property and equipment was $20.0 million, $13.9 million and $12.3 million for
fiscal 2023, 2022 and 2021, respectively. The increases in property and equipment from October 2, 2022 to October 1, 2023 are
primarily due to the RPS acquisition.
70
8. Income Taxes
Income before income taxes, by geographic area, was as follows (in thousands):
Income before income taxes:
United States
Foreign
Total income before income taxes
Income tax expense consisted of the following (in thousands):
Current:
Federal
State
Foreign
Total current income tax expense
Deferred:
Federal
State
Foreign
Total deferred income tax (benefit) expense
October 1,
2023
Fiscal Year Ended
October 2,
2022
October 3,
2021
$
$
287,295 $
262,428 $
211,222
113,683
86,338
55,648
400,978 $
348,766 $
266,870
October 1,
2023
Fiscal Year Ended
October 2,
2022
October 3,
2021
$
110,371 $
47,447 $
16,025
28,970
155,366
(18,062)
(4,976)
(4,802)
(27,840)
9,613
26,332
83,392
(424)
(382)
3,016
2,210
41,056
9,893
18,887
69,836
(6,034)
(2,060)
(27,703)
(35,797)
Total income tax expense
$
127,526 $
85,602 $
34,039
71
Total income tax expense was different from the amount computed by applying the U.S. federal statutory rate to pre-
tax income as follows:
Tax at federal statutory rate
State taxes, net of federal benefit
Research and Development ("R&D") credits
Tax differential on foreign earnings
Non-taxable foreign interest income
Stock compensation
Valuation allowance
Change in uncertain tax positions
Return to provision
Disallowed officer compensation
Cash repatriation
Unremitted earnings
Hedging gain
Global intangible low-taxed income
Deferred tax adjustments
Other
Total income tax expense
October 1,
2023
21.0%
Fiscal Year Ended
October 2,
2022
21.0%
October 3,
2021
21.0%
2.2
(0.5)
1.5
—
(0.4)
—
11.6
1.1
1.2
—
0.2
(5.7)
0.5
(1.0)
0.1
2.1
(1.0)
1.0
—
(2.0)
0.2
(1.1)
1.4
1.9
0.1
(0.2)
—
—
0.1
1.0
2.3
(2.6)
0.9
(1.0)
(3.3)
(9.3)
1.7
(3.7)
2.0
2.1
1.0
—
—
0.8
0.9
31.8%
24.5%
12.8%
The effective tax rates for fiscal 2023, 2022 and 2021 were 31.8%, 24.5% and 12.8%, respectively. The fiscal 2023
income tax expense included non-operating income tax expenses totaling $20.6 million to (i) increase the tax liability for
uncertain tax positions related to certain U.S. tax credits and an intercompany financing transaction, (ii) to recognize the tax
liability for foreign earnings, primarily in the U.K. and Australia, that are no longer indefinitely reinvested. The fiscal 2021
effective tax rate reflects a non-recurring net tax benefit of $21.6 million, consisting of a valuation allowance in the United
Kingdom that was released due to sufficient positive evidence being obtained in fiscal 2021. The valuation allowance was
primarily related to net operating loss carry-forwards. We evaluated the positive evidence against any negative evidence and
determined that it was more likely than not that the deferred tax assets would be realized. The primary factors used to assess the
likelihood of realization were the past performance of the related entity and our forecast of future taxable income. In fiscal
2021, we repatriated approximately $80 million from Canada and recognized a related tax expense of $5.6 million. At that time,
we also determined that our remaining undistributed earnings in Canada of approximately $20.1 million were no longer being
indefinitely reinvested and recorded an additional deferred tax liability/expense of $3.1 million. Also, income tax expense was
reduced by $4.6 million, $10.3 million and $12.9 million of excess tax benefits on share-based payments in fiscal 2023, 2022
and 2021, respectively.
Excluding the impact of increasing the tax liability for uncertain tax positions, the valuation allowance release, the
foreign earnings repatriation and the excess tax benefits on share-based payments our effective tax rates in fiscal 2023, 2022
and 2021 were 27.8%, 27.5% and 25.7% respectively.
We are currently under examination by the Internal Revenue Service for fiscal years from 2018 to 2021, and the
Canada Revenue Agency for fiscal 2011 through 2016. We are also subject to various other state audits.
Temporary differences comprising the net deferred income tax asset shown on the accompanying consolidated balance
sheets were as follows (in thousands):
72
Deferred Tax Assets:
State taxes
Reserves and contingent liabilities
Accounts receivable including the allowance for doubtful accounts
Accrued liabilities
Lease liabilities, operating leases
Stock-based compensation
Unbilled revenue
Loss and other carry-forwards
Property and equipment
Capitalized research and development
Capped call transactions
Valuation allowance
Total deferred tax assets
Deferred Tax Liabilities:
Prepaid expense
Right-of-use assets, operating leases
Intangibles
Undistributed earnings
Property and equipment
Total deferred tax liabilities
Net deferred tax assets
Fiscal Year Ended
October 1,
2023
October 2,
2022
$
2,686 $
2,849
5,323
64,155
53,437
1,900
3,090
62,777
552
17,778
12,696
1,238
5,023
4,986
35,973
49,618
2,925
4,885
41,648
—
—
—
(11,663)
215,580
(12,286)
134,010
(2,703)
(53,437)
(83,242)
(1,453)
—
(6,065)
(49,618)
(42,863)
(2,200)
(621)
(140,835)
(101,367)
$
74,745 $
32,643
Our foreign earnings are not considered indefinitely reinvested and any potential tax liability that would be incurred
upon repatriation is recognized currently with the related income.
At October 1, 2023, we had available unused federal net operating loss (“NOL”) carry forwards of $37.5 million that
has no expiration date; state net operating loss carry forwards of $26.0 million that expire at various dates from 2024 to 2037;
and available foreign NOL carry forwards of $170.8 million, of which $21.1 million expire at various dates from 2024 to 2043,
and $149.7 million have no expiration date. In addition, we had foreign capital loss carryforwards of $18.4 million, foreign
corporate interest restriction allowances of $6.2 million, and foreign research and development credits of $4.5 million that do
not have expiration dates. We have performed an assessment of positive and negative evidence regarding the realization of the
deferred tax assets. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, availability of
carrybacks, cumulative losses in recent years, estimates of projected future taxable income and tax planning strategies.
Although realization is not assured, based on our assessment, we have concluded that it is more likely than not that the assets
will be realized except for the deferred tax assets related to certain loss carry-forwards for which a valuation allowance of $11.7
million has been provided.
At October 1, 2023, we had $53.6 million of unrecognized tax benefits, all of which, if recognized, would affect our
effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of our
unrecognized tax positions may not significantly decrease in the next 12 months. These changes would be the result of ongoing
examinations. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
73
Beginning balance
Acquisition of RPS Group
Additions for current fiscal year tax positions
Additions for prior fiscal year tax positions
Reductions for prior fiscal year tax positions
Settlements
Ending balance
October 1,
2023
Fiscal Year Ended
October 2,
2022
October 3,
2021
$
8,908 $
12,899 $
6,012
27,272
14,602
(1,358)
(1,817)
—
—
—
(3,014)
(977)
9,228
—
2,171
1,500
—
—
$
53,619 $
8,908 $
12,899
We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal
2023, 2022 and 2021, we accrued additional interest and penalties of $4.6 million, $0.5 million and $0.8 million, respectively,
and recorded reductions in accrued interest and penalties of $2.0 million, $0.4 million and $0, respectively, as a result of audit
settlements and other prior-year adjustments. The amount of interest and penalties accrued at October 1, 2023, October 2, 2022
and October 3, 2021 was $8.0 million, $5.3 million and $5.2 million, respectively.
9. Long-Term Debt
Long-term debt consisted of the following (in thousands):
Credit facilities
Convertible notes
Debt issuance costs and discount
Less: Current portion of long-term debt
Long-term debt
Fiscal Year Ended
October 1,
2023
October 2,
2022
$
320,000 $
258,754
575,000
(15,471)
—
$
879,529 $
—
—
(12,504)
246,250
On August 22, 2023, we issued $575.0 million in convertible notes that bear interest at a rate of 2.25% per annum
payable in arrears on February 15 and August 15 of each year, beginning on February 15, 2024 and mature on August 15, 2028,
unless converted, redeemed or repurchased (the "Convertible Notes"). Prior to May 15, 2028, the Convertible Notes will be
convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the
Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second
scheduled trading day immediately preceding the maturity date.
The initial conversion rate applicable to the Convertible Notes is 5.0855 shares of our common stock per $1,000
principal amount of the Convertible Notes, which is equivalent to an initial price of approximately $196.64 per share of our
common stock, subject to adjustment if certain events occur. Upon conversion, we will pay cash up to the aggregate principal
amount of the Convertible Notes to be converted and pay or deliver, as the case may be, cash, shares of our common stock or a
combination of cash and shares of our common stock, at our election, in respect of the remainder, if any, of our conversion
obligation in excess of the aggregate principal amount of the Convertible Notes being converted. In addition, upon the
occurrence of a "fundamental change" as defined in the indenture governing the Convertible Notes, holders may require us to
repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the
principal amount of the Convertible Notes to be repurchased plus any accrued and unpaid interest. If certain corporate events
occur prior to the maturity date of the Convertible Notes or if we deliver a notice of redemption, we will, in certain
circumstances, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such
event or notice of redemption.
We will not be able to redeem the Convertible Notes prior to August 20, 2026. On or after August 20, 2026, we have
the option to redeem for cash all or any portion of the Convertible Notes if the last reported sale price of our common stock is
equal to or greater than 130% of the conversion price for a specified period of time at a redemption price equal to 100% of the
principal amount of the Convertible Notes to be redeemed, plus any accrued but unpaid interest. In addition, as described in the
indenture governing the Convertible Notes, certain events of default including, but not limited to, bankruptcy, insolvency or
reorganization, may result in the Convertible Notes becoming due and payable immediately.
Our net proceeds from the offering were approximately $560.5 million after deducting the initial purchasers’ discounts
and commissions and offering expenses. We used approximately $51.8 million of the net proceeds to pay the cost of the capped
74
call transactions described below. We used the remaining net proceeds to repay all $185.0 million principal amount outstanding
under our revolving credit facility, the remaining $234.4 million principal amount outstanding under our senior secured term
loan due 2027 and approximately $89.4 million principal amount outstanding under our senior secured term loan due 2026.
The Convertible Notes were recorded as a single unit within "Long-term debt" in our fiscal 2023 year-end consolidated
balance sheet as the conversion option within the Convertible Notes was not a derivative that would require bifurcation and the
Convertible Notes did not involve a substantial premium. Transaction costs to issue the Convertible Notes were recorded as
direct deductions from the related debt liabilities and amortized to interest expense using the effective interest method over the
terms of the Convertible Notes. Debt issuance costs for the Convertible Notes have been amortized to interest expense over the
terms of the Convertible Notes at an effective annual interest rate of 2.79%.
The net carrying amount of the Convertible Notes was as follows (in thousands):
Principal
Unamortized discount and issuance costs
Net carrying amount
Balance at
October 1,
2023
$
$
575,000
(14,158)
560,842
The following table sets forth the interest expense recognized related to the Convertible Notes (in thousands):
Interest expense
Amortization of discount and issuance costs
Total interest expense
Balance at
October 1,
2023
$
$
1,438
292
1,730
Concurrent with the offering of the Convertible Notes, in August 2023, we entered into capped call transactions (the
"Capped Call Transactions"). The Capped Call Transactions are expected generally to reduce the potential dilution our common
stock upon conversion of the Convertible Notes and/or offset any cash payments we elect to make in excess of the principal
amount of converted Convertible Notes, as the case may be. If, however, the market price per share of our common stock, as
measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions, there would
nevertheless be dilution and/or there would not be an offset of such cash payments, in each case, to the extent that such market
price exceeds the cap price of the Capped Call Transactions. The cap price of the Capped Call Transactions is initially $259.56
per share, which represents a premium of 65% over the last reported sale price of our common stock of $157.31 per share on
the NASDAQ Global Select Market on August 17, 2023, and is subject to certain adjustments under the terms of the Capped
Call Transactions. We recorded the Capped Call Transactions as separate transactions from the issuance of the Convertible
Notes. The cost of $51.8 million incurred to purchase the Capped Call Transactions was recorded as a reduction to additional
paid-in capital (net of $12.9 million in deferred taxes) on our consolidated balance sheet as of fiscal 2023 year-end.
On October 26, 2022, we entered into a Third Amended and Restated Credit Agreement that provides for an additional
$500 million senior secured term loan facility (the "New Term Loan Facility") increasing our total borrowing capacity to
$1.55 billion. The New Term Loan Facility will mature in January 2026. On January 23, 2023, we drew the entire amount of the
New Term Loan Facility to partially finance the RPS acquisition. The New Term Loan Facility is not subject to any
amortization payments of principal and matures on the third anniversary of the RPS acquisition closing date in January 2026.
On February 18, 2022, we entered into Amendment No. 2 to our Second Amended and Restated Credit Agreement
(“Amended Credit Agreement”) with a total borrowing capacity of $1.05 billion that will mature in February 2027. The
Amended Credit Agreement is a $750 million senior secured, five-year facility that provides for a $250 million term loan
facility (the “Amended Term Loan Facility”) and a $500 million revolving credit facility (the “Amended Revolving Credit
Facility”). 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
75
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. 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 in February 2027, or earlier at
our discretion upon payment in full of loans and other obligations.
At fiscal 2023 year-end, we had $320 million in outstanding borrowings under the Amended Credit Agreement, which
was all under the New Term Loan Facility, and no borrowings under the Amended Revolving Credit Facility. The weighted-
average interest rate of the outstanding borrowings during fiscal 2023 was 5.71%. In addition, we had $0.7 million in standby
letters of credit under the Amended Credit Agreement. Our year-to-date weighted-average interest rate on borrowings
outstanding during fiscal 2022 under the Amended Credit Agreement, including the effects of interest rate swap agreements
described in Note 14, “Derivative Financial Instruments” of the "Notes to Consolidated Financial Statements" included in
Item 8, was 5.37%. At October 1, 2023, we had $499.3 million of available credit under the Amended Revolving Credit
Facility, all of which could be borrowed without a violation of our debt covenants.
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. At fiscal 2023 year-end, we were in compliance with these covenants with a
consolidated leverage ratio of 1.79x and a consolidated interest coverage ratio of 9.84x.
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 fiscal 2023 year-end, there were no outstanding borrowings under these facilities and the
aggregate amount of standby letters of credit outstanding was $54.9 million. As of October 1, 2023 we had no bank overdrafts
related to our disbursement bank accounts.
The following table presents scheduled maturities of our long-term debt (in thousands):
2026
2028
Total
10. Leases
Amount
320,000
575,000
895,000
$
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 ten 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 "Right-of-use assets, operating
leases", "Short-term lease liabilities, operating leases" and "Long-term lease liabilities, operating leases" in the consolidated
balance sheets. Our finance leases are primarily for certain IT equipment. Our finance leases are immaterial.
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.
76
In fiscal 2023, we exited certain lease arrangements as a result of the RPS acquisition and its subsequent integration.
Accordingly, we evaluated the ongoing value of the ROU assets associated with the discontinued lease agreements. Based on
this evaluation, we determined that some long-lived assets were no longer recoverable and were in fact impaired. Fair value
was based on expected future cash flows using Level 3 inputs under Accounting Standards Codification Topic 820, Fair Value
Measurement ("ASC 820"). The cash flows are those expected to be generated by the market participants, discounted at a real
estate-based rate of interest. As a result of our evaluation, we recorded a $16.4 million non-cash charge related to the ROU
operating lease asset impairment which was reported in our fiscal 2023 statement of income, and a corresponding decrease to
our ROU assets operating leases on our consolidated balance sheet as of fiscal 2023 year-end.
The components of lease costs are as follows (in thousands):
Operating lease cost
Sublease income
Total lease cost
Supplemental cash flow information related to leases is as follows (in thousands):
Operating cash flows for operating leases
Right-of-use assets obtained in exchange for new operating lease liabilities
Fiscal Year Ended
October 1,
2023
October 2,
2022
$
$
93,674 $
86,725
(740)
(150)
92,934 $
86,575
Fiscal Year Ended
October 1,
2023
October 2,
2022
$
78,268 $
70,552
71,365
44,096
77
Supplemental balance sheet and other information related to leases are as follows (in thousands):
Operating leases:
Right-of-use assets
Lease liabilities:
Current
Non-current
Total operating lease liabilities
Weighted-average remaining lease term:
Operating leases
Weighted-average discount rate:
Operating leases
Fiscal Year Ended
October 1,
2023
October 2,
2022
$
175,932
$
182,319
65,005
144,685
57,865
146,285
$
209,690
$
204,150
5 years
5 years
3.0 %
2.2 %
As of fiscal 2023 year-end, we had $8.3 million of operating leases that have not yet commenced.
A maturity analysis of the future undiscounted cash flows associated with our operating lease liabilities as of fiscal
2023 year-end is as follows (in thousands):
2024
2025
2026
2027
2028
Beyond
Total lease payments
Less: imputed interest
Total present value of lease liabilities
11. Stockholders' Equity and Stock Compensation Plans
At fiscal 2023 year-end, we had the following stock-based compensation plans:
$
Amount
69,562
53,685
36,013
24,904
16,545
25,671
226,380
(16,690)
$
209,690
•
•
•
2015 Equity Incentive Plan ("2015 EIP"). Key employees and non-employee directors may be granted equity
awards, including stock options, performance share units ("PSUs") and RSUs. Shares issued with respect to
awards granted under the 2015 EIP other than stock options or stock appreciation rights, which are referred to as
"full value awards", are counted against the 2015 EIP's aggregate share limit as three shares for every share or unit
actually issued. No awards have been made under the 2015 Equity Incentive Plan since the adoption of the 2018
Equity Incentive Plan on March 8, 2018 as described below.
2018 Equity Incentive Plan ("2018 EIP"). Key employees and non-employee directors may be granted equity
awards, including stock options, PSUs and RSUs. Shares issued with respect to awards granted under the 2018
EIP other than stock options or stock appreciation rights, which are referred to as "full value awards", are counted
against the 2018 EIP's aggregate share limit as one share for every share or unit issued. At fiscal 2023 year-end,
there were 2.7 million shares available for future awards pursuant to the 2018 EIP.
Employee Stock Purchase Plan ("ESPP"). Purchase rights to purchase common stock are granted to our eligible
full and part-time employees, and shares of common stock are issued upon exercise of the purchase rights. An
aggregate of 282,350 shares may be issued pursuant to such exercise. The maximum amount that an employee can
contribute during a purchase right period is $5,000. The exercise price of a purchase right is the lesser of 100% of
the fair market value of a share of common stock on the first day of the purchase right period (the business day
preceding January 1) or 85% of the fair market value on the last day of the purchase right period (December 15, or
the business day preceding December 15 if December 15 is not a business day).
78
The following table presents our stock-based compensation and related income tax benefits (in thousands):
Total stock-based compensation
Income tax benefit related to stock-based compensation
Stock-based compensation, net of tax benefit
October 1,
2023
Fiscal Year Ended
October 2,
2022
October 3,
2021
$
$
28,607 $
26,227 $
(5,779)
(5,377)
22,828 $
20,850 $
23,067
(4,910)
18,157
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. Most of these amounts were included in selling, general and administrative
expenses on our consolidated statements of income.
Stock Options
The following table presents our stock option activity for fiscal 2023 year-end:
Outstanding on October 2, 2022
Exercised
Forfeited
Outstanding on October 1, 2023
Vested or expected to vest on October 1, 2023
Exercisable on October 1, 2023
Number of
Options
(in thousands)
Weighted-
Average
Exercise Price
per Share
Weighted-
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic Value
(in thousands)
168 $
(20)
—
148 $
148 $
148 $
38.62
32.30
—
39.45
39.45
39.45
3.20
3.20
3.20
$
$
$
16,708
16,708
16,708
The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between our closing
stock price on the last trading day of fiscal 2023 and the exercise price, times the number of shares) that would have been
received by the in-the-money option holders if they had exercised their options on October 1, 2023. This amount will change
based on the fair market value of our stock.
No stock options were granted in fiscal 2023, 2022 and 2021. The aggregate intrinsic value of options exercised during
fiscal 2023, 2022 and 2021 was $2.5 million, $5.7 million and $29.4 million, respectively.
Net cash proceeds from the exercise of stock options were $0.6 million, $1.8 million and $11.3 million for fiscal 2023,
2022 and 2021, respectively. Our policy is to issue shares from our authorized shares upon the exercise of stock options. The
actual income tax benefit realized from exercises of nonqualified stock options for fiscal 2023, 2022 and 2021 was $0.6 million,
$1.3 million and $6.7 million, respectively.
RSU and PSU
RSU awards are granted to our key employee and non-employee directors. The fair value of the RSU was determined
at the date of grant using the market price of the underlying common stock as of the date of grant. All of the RSUs have time-
based vesting over a four-year period, except that RSUs awarded to directors vest after one year. The total compensation cost of
the awards is then amortized over their applicable vesting period on a straight-line basis.
PSU awards are granted to our executive officers and non-employee directors. All of the 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 growth in our EPS and 50% on our relative total shareholder return over the vesting period. For these performance-
based awards, our expected performance is reviewed to estimate the percentage of shares that will vest. The total compensation
cost of the awards is then amortized over their applicable vesting period on a straight-line basis.
79
A summary of the RSU and PSU activity under our stock plans is as follows:
RSU
PSU
Number of
Shares
(in thousands)
Weighted-
Average
Grant Date
Fair Value
per Share
Number of
Shares
(in thousands)
Weighted-
Average
Grant Date
Fair Value
per Share
Nonvested balance at September 27, 2020
444 $
Granted
Vested
Adjustment (1)
Forfeited
Nonvested balance at October 3, 2021
Granted
Vested
Adjustment (1)
Forfeited
Nonvested balance at October 2, 2022
Granted
Vested
Adjustment (1)
Forfeited
118
(167)
—
(14)
381
78
(147)
—
(13)
299
105
(119)
—
(16)
Nonvested balance at October 1, 2023
269 $
63.93
122.02
59.64
—
77.74
83.30
184.61
77.47
—
109.01
111.40
156.33
104.05
—
140.01
130.58
355 $
58
(193)
99
(1)
318
42
(176)
88
—
272
56
(138)
69
(9)
250 $
64.83
153.03
57.40
57.40
74.05
82.96
247.16
80.17
80.63
—
109.23
195.50
99.85
99.85
193.69
128.21
(1) Fiscal 2021 includes a payout adjustment of 99,214 PSUs due to the actual performance level achieved for PSUs granted in fiscal 2018 that vested during
fiscal 2021. Fiscal 2022 includes a payout adjustment of 88,198 PSUs due to the actual performance level achieved for PSUs granted in fiscal 2019 that vested
during fiscal 2022. Fiscal 2023 includes a payout adjustment of 68,792 PSUs due to the actual performance level achieved for PSUs granted in fiscal 2020 that
vested during fiscal 2023.
In fiscal 2023, 2022 and 2021, we awarded 105,082, 77,844 and 117,934 shares of RSUs, respectively, to our key
employees and non-employee directors. The weighted-average grant-date fair value of RSUs granted during fiscal 2023, 2022
and 2021 was $156.33, $184.61 and $122.02, respectively. At fiscal 2023 year-end, there were 269,424 RSUs outstanding. RSU
forfeitures result from employment terminations prior to vesting. Forfeited shares return to the pool of authorized shares
available for award. We use historical data as a basis to estimate the probability of forfeitures related to RSUs and the ESPP
Plan.
In fiscal 2023, 2022 and 2021, we awarded 56,214, 41,734 and 57,542 shares of PSUs, respectively, to our executive
officers and non-employee directors. The weighted-average grant-date fair value of PSUs granted in fiscal 2023, 2022 and 2021
was $195.50, $247.16 and $153.03, respectively. At fiscal 2023 year-end, there were 249,880 PSUs outstanding.
The stock-based compensation expense related to RSUs and PSUs for fiscal 2023, 2022 and 2021 was $26.2 million,
$23.9 million and $20.9 million, respectively, and was included in total stock-based compensation expense. The actual income
tax benefit realized from RSUs and PSUs for fiscal 2023, 2022 and 2021 was $4.0 million, $9.1 million and $6.2 million,
respectively. At fiscal 2023 year-end, there was $38.8 million of unrecognized stock-based compensation costs related to
nonvested RSUs and PSUs that will be substantially recognized by fiscal 2026 year-end.
80
ESPP
The following table summarizes shares purchased, weighted-average purchase price, and cash received for shares
purchased under the ESPP (in thousands, except for purchase price):
Shares purchased
Weighted-average purchase price per share
Cash received from exercise of purchase rights
October 1,
2023
Fiscal Year Ended
October 2,
2022
October 3,
2021
98
128.29 $
12,628 $
106
114.17 $
12,129 $
124
86.16
10,705
$
$
The grant date fair value of each award granted under the ESPP was estimated using the Black-Scholes option pricing
model with the following assumptions:
Dividend yield
Expected stock price volatility
Risk-free rate of return, annual
Expected life (in years)
October 1,
2023
0.7%
38.0%
4.7%
1
Fiscal Year Ended
October 2,
2022
1.0%
32.2%
0.4%
1
October 3,
2021
1.0%
47.9%
0.1%
1
For fiscal 2023, 2022 and 2021, we based our expected stock price volatility on historical volatility behavior and
current implied volatility behavior. The risk-free rate of return was based on constant maturity rates provided by the U.S.
Treasury. The expected life was based on the ESPP terms and conditions.
Stock-based compensation expense for fiscal 2023, 2022 and 2021 included $2.4 million, $2.3 million and $2.0
million, respectively, related to the ESPP. The unrecognized stock-based compensation costs for awards granted under the ESPP
at fiscal 2023 and 2022 year-ends were $0.6 million and $0.6 million, respectively. At fiscal 2023 year-end, ESPP participants
had accumulated $12 million to purchase our common stock.
81
12. Retirement Plans
We have defined contribution plans in various countries where we have employees. This primarily includes 401(k)
plans in the United States. For fiscal 2023, 2022 and 2021, employer contributions to the U.S. plans were $31.6 million, $29.3
million and $26.9 million, respectively.
Additionally, we have established a non-qualified deferred compensation plan for certain key employees and non-
employee directors. These eligible employees and non-employee directors may elect to defer the receipt of salary, incentive
payments, restricted stock, PSU and RSU awards and non-employee director fees. The plan is accounted for in accordance with
applicable authoritative guidance on accounting for deferred compensation arrangements where amounts earned are held in a
rabbi trust and invested. Employee deferrals are deposited into a rabbi trust, and the funds are generally invested in individual
variable life insurance contracts that we own and are specifically designed to informally fund savings plans of this nature. At
fiscal 2023 and 2022 year-ends, the consolidated balance sheets reflect assets of $43.5 million and $36.7 million, respectively,
related to the deferred compensation plan in "Other long-term assets," and liabilities of $43.4 million and $36.3 million,
respectively, related to the deferred compensation plan in "Other long-term liabilities." The net gains and losses related to the
deferred compensation plan are reported as part of “Selling, general and administrative expenses” in our consolidated
statements of income. These related net gains and losses were immaterial for fiscal 2023, 2022 and 2021.
In connection with the acquisition of HLE in fiscal 2021, we assumed a defined benefit pension plan (the “Plan”),
which HLE operates for all qualifying employees. The assets of the Plan are held in a separate trustee administered fund. The
Plan was closed to new entrants in August 2003, except for current employees who had not attained the age of 24 at that date.
The Plan was closed to future accrual on December 31, 2009. Under the agreed schedule of contributions, HLE will make no
further contributions, and is to pay the expenses of administering the plan.
The change in the defined benefit obligation, the change in fair value of plan assets and the amounts recognized in the
Consolidated Statement of Income, the Consolidated Statement of Comprehensive Income and the Consolidated Statements of
Shareholders’ Equity for fiscal 2023 and fiscal 2022 were immaterial.
The Plan's funded status was as follows (in thousands):
Fair value of plan assets
Benefit obligation
Net surplus
Fiscal Year Ended
October 1,
2023
October 2,
2022
$
$
39,572 $
(35,303)
4,269 $
36,250
(33,006)
3,244
The net surplus is reflected in other long-term assets on our consolidated balance sheets as of fiscal 2023 and 2022
year-ends. The plan is closed to new participants and to future benefit accrual. The benefits paid in fiscal 2023 and 2022 were
$1.3 million and $1.0 million, respectively.
The fair values of the plan assets are substantially categorized within Level 2 of the fair value hierarchy. The fair
values of the plan assets by major asset categories were as follows (in thousands):
Equities
Mutual funds
Liability driven investment funds
Bonds
Cash/other
Fair value of plan assets
Fiscal Year Ended
October 1,
2023
October 2,
2022
$
2,213 $
20,458
13,807
2,354
740
8,390
20,886
6,484
—
490
$
39,572 $
36,250
We seek a competitive rate of return relative to an appropriate level of risk depending on the funded status and
obligations of each plan and typically employ both active and passive investment management strategies. The risk in our
practices includes diversification across asset classes and investment styles and periodic rebalancing toward asset allocation
targets. The target asset allocation selected for each plan reflects a risk/return profile that we believe is appropriate relative to
each plan’s liability structure and return goals.
82
Principal assumptions used for the benefit obligation in the valuation are as follows:
Discount rate
Rate of inflation
13. Earnings per Share
Fiscal Year Ended
October 1,
2023
October 2,
2022
5.35 %
4.75 %
2.80% to 3.35%
2.95% to 3.55%
The following table sets forth the number of weighted-average shares used to compute basic and diluted EPS (in
thousands, except per share data):
October 1,
2023
Fiscal Year Ended
October 2,
2022
October 3,
2021
Net income attributable to Tetra Tech
$
273,420 $
263,125 $
232,810
Weighted-average common shares outstanding – basic
Effect of diluted stock options and unvested restricted stock
Weighted-average common stock outstanding – diluted
53,203
434
53,637
53,620
543
54,163
54,078
597
54,675
Earnings per share attributable to Tetra Tech:
Basic
Diluted
$
$
5.14 $
5.10
$
4.91 $
4.86
$
4.31
4.26
For fiscal 2023, 2022 and 2021, no options were excluded from the calculation of dilutive potential common shares.
The Convertible Notes had no impact on the calculation of dilutive potential common shares in fiscal 2023, as the price of our
common stock did not exceed the conversion price. The Capped Call Transactions are excluded from the calculation of dilutive
potential common shares as their effect is anti-dilutive.
14. Derivative Financial Instruments
We use certain interest rate derivative contracts to hedge interest rate exposures on our variable rate debt. Also, we
may enter into 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. Our derivative contracts are categorized within Level 2 of the fair
value hierarchy.
In the fourth quarter of fiscal 2022, we entered into a forward contract to acquire GBP 714.0 million at a rate of 1.0852
for a total of USD 774.8 million that was integrated with our plan to acquire RPS. This contract matured on December 30,
2022. On December 28, 2022, we entered into an extension of the integrated forward contract to acquire GBP 714.0 million at a
rate of 1.086 for a total of USD 775.4 million, extending the maturity date to January 23, 2023, the closing date of the RPS
acquisition. Although an effective economic hedge of our foreign exchange risk related to this transaction, the forward contract
did not qualify for hedge accounting. As a result, the forward contract was marked-to-market with changes in fair value
recognized in earnings each period. The intrinsic value of the forward contract was immaterial at inception as the GBP/USD
spot and forward exchange rates were essentially the same. The fair value of the forward contract at October 2, 2022 was
$19.9 million, and an unrealized gain of the same amount was recognized in our fourth quarter of fiscal 2022 results. On
January 23, 2023, the forward contract was settled at the fair value of $109.3 million. We recognized additional gains of
$68.0 million and $21.4 million in the first and second quarters of fiscal 2023, respectively. All gains related to this transaction
were reported in “Other non-operating income" on our consolidated income statements for the respective periods.
In fiscal 2018, we entered into five interest rate swap agreements that we designated as cash flow hedges to fix the
interest rates on the borrowings under our term loan facility. The five swaps expired on July 31, 2023. At fiscal 2022 year-end,
the fair value of the effective portion of our interest rate swap agreements designated as cash flow hedges before tax effect was
an unrealized gain of $2.4 million, which was reported in "Other non-current assets" on our consolidated balance sheet.
83
Additionally, the related loss of $2.4 million, a gain of $11.8 million and a gain of $6.1 million for fiscal year ended 2023, 2022
and 2021, respectively, were recognized and reported on our consolidated statements of comprehensive income. There were no
other derivative instruments that were not designated as hedging instruments for fiscal 2023, 2022 and 2021.
15. Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
The accumulated balances and reporting period activities for fiscal 2023, 2022 and 2021 related to reclassifications out
of accumulated other comprehensive income are summarized as follows (in thousands):
Foreign
Currency
Translation
Adjustments
Gain (Loss)
on Derivative
Instruments
Net Pension
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
Balances at September 27, 2020
$
(146,275) $
(15,511) $
— $
(161,786)
Other comprehensive income before reclassifications
30,641
12,175
Amounts reclassified from accumulated other
comprehensive income
Interest rate contracts, net of tax (1)
Net current-period other comprehensive
income
—
(6,058)
30,641
6,117
—
—
—
42,816
(6,058)
36,758
Balances at October 3, 2021
$
(115,634) $
(9,394) $
— $
(125,028)
Other comprehensive income before reclassifications
(94,922)
15,937
Amounts reclassified from accumulated other
comprehensive income
Interest rate contracts, net of tax (1)
Net current-period other comprehensive (loss)
income
—
(4,131)
(94,922)
11,806
—
—
—
Balances at October 2, 2022
Other comprehensive income before reclassifications
$
(210,556) $
12,623
2,412 $
(5,192)
— $
2,638
Amounts reclassified from accumulated other
comprehensive income
Interest rate contracts, net of tax (1)
Net current-period other comprehensive
income (loss)
—
2,780
—
12,623
(2,412)
2,638
(78,985)
(4,131)
(83,116)
(208,144)
10,069
2,780
12,849
Balances at October 1, 2023
$
(197,933) $
— $
2,638 $
(195,295)
(1) This accumulated other comprehensive component is reclassified to "Interest expense" in our consolidated statements of income. See Note 14, "Derivative
Financial Instruments", for more information.
16. Fair Value Measurements
Derivative Instruments. Our derivative instruments are categorized within Level 2 of the fair value hierarchy. For
additional information about our derivative financial instruments (see Note 2, "Basis of Presentation and Preparation" and
Note 14, "Derivative Financial Instruments").
Contingent Consideration. We measure our contingent earn-out liabilities at fair value on a recurring basis using
significant unobservable inputs classified within Level 3 of the fair value hierarchy. (see Note 2, "Basis of Presentation and
Preparation" and Note 5, "Acquisitions" for further information).
Debt. 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). The carrying value of our
long-term debt approximated fair value at the end of our fiscal 2023 and 2022. At fiscal 2023 year-end, we had borrowings of
$320 million outstanding under our Amended Credit Agreement and $575 million outstanding under our Convertible Senior
Notes, which were used to fund our business acquisitions, working capital needs, dividends, capital expenditures and contingent
earn-outs (see Note 9, "Long-Term Debt").
84
Defined Benefit Pension Plan. The fair values of the plan assets are primarily categorized within Level 2 of the fair
value hierarchy. For additional information about our defined benefit pension plan (see Note 12, "Retirement Plans").
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. 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.
Our reportable segments are described as follows:
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. based federal and municipal clients, especially in water infrastructure, flood protection and
solid waste. GSG also leads our support for development agencies worldwide, especially in the United States, United Kingdom
and Australia.
CIG: CIG primarily provides high-end consulting and engineering services to U.S. commercial clients, and
international clients inclusive of the 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.
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. In fiscal 2023,
our Corporate segment operating losses included $33.2 million of acquisition and integration expenses as described in Note 5,
"Acquisitions". We also recorded a $16.4 million ($6.8 million in GSG, $8.3 million in CIG and $1.3 million in Corporate) of a
non-cash impairment charge related to our ROU operating lease assets in fiscal 2023 (see Note 10, "Leases" for more
information.)
85
The following tables present summarized financial information of our reportable segments (in thousands):
Reportable Segments
Revenue
GSG
CIG
Elimination of inter-segment revenue
Total revenue
Income from operations
GSG
CIG
Corporate (1)
Total income from operations
October 1,
2023
Fiscal Year Ended
October 2,
2022
October 3,
2021
$
2,158,889 $
1,820,868 $
1,772,905
2,424,649
1,738,436
1,500,074
(60,988)
(55,256)
(59,466)
$
4,522,550 $
3,504,048 $
3,213,513
$
231,762 $
243,750
198,448 $
194,142
(117,399)
(52,144)
$
358,113 $
340,446 $
174,755
152,262
(48,316)
278,701
(1) Includes goodwill and intangible assets impairment charges, amortization of intangibles, other costs and other income not allocable to segments. The
intangible asset amortization expense for fiscal 2023, 2022 and 2021 was $41.2 million, $13.2 million and $11.5 million, respectively. Additionally, Corporate
results included (loss) income for fair value adjustments to contingent consideration liabilities of $(12.3) million, $(0.3) million and $3.3 million for fiscal
2023, 2022 and 2021, respectively. See Note 6 - "Goodwill and Intangible Assets" for more information.
Total Assets
GSG
CIG
Corporate (1)
Total assets
Balance at
October 1,
2023
October 2,
2022
$
543,066 $
994,470
558,764
688,640
2,282,941
1,375,372
$
3,820,477 $
2,622,776
(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.
Geographic Information
Revenue:
United States
Foreign countries (1)
Total
Long-lived assets (2):
United States
Foreign countries (1)
Total
October 1,
2023
Fiscal Year Ended
October 2,
2022
October 3, 2021
$
$
2,863,635 $
2,416,586 $
2,256,086
1,658,915
1,087,462
957,427
4,522,550 $
3,504,048 $
3,213,513
Balance at
October 1,
2023
October 2,
2022
$
$
159,856 $
199,875
160,174
77,305
320,030 $
277,180
86
(1) Includes revenue and long-lived assets from our foreign operations, primarily in Canada, Australia and the United Kingdom, and revenue generated from
non-U.S. clients.
(2) Excludes goodwill, intangible assets and deferred income taxes.
19. Related Party Transactions
We often provide services to unconsolidated joint ventures. Our revenue related to services we provided to
unconsolidated joint ventures for fiscal 2023, 2022 and 2021 was $83.1 million, $96.0 million and $95.5 million, respectively.
Our related reimbursable costs for fiscal 2023, 2022 and 2021 were $78.5 million, $91.7 million and $92.4 million,
respectively. Our consolidated balance sheets also included the following amounts related to these services (in thousands):
Accounts receivable, net
Contract assets
Contract liabilities
Balance at
October 1,
2023
October 2,
2022
$
19,944 $
16,818
2,723
3,158
2,935
3,464
20. Quarterly Financial Information – Unaudited
In the opinion of management, the following unaudited quarterly data for the fiscal 2023 and 2022 reflect all
adjustments necessary for a fair statement of the results of operations (in thousands, except per share data).
In the fourth quarter of fiscal 2022 and in the first and second quarters of fiscal 2023, we recognized a $19.9 million,
$68.0 million and $21.4 million, respectively, of unrealized gain on a foreign currency forward contract related to the planned
acquisition of RPS. We also recorded a $16.4 million of a non-cash impairment charge related to our ROU operating lease
assets in the fourth quarter of fiscal 2023 (see Note 10, "Leases" for more information). Additionally, we incurred $33.2 million
of acquisition and integration expenses in fiscal 2023 (largely comprised of $19.9 million in the second quarter and $7.3 million
in fourth quarter) as described in Note 5, "Acquisitions".
87
Fiscal Year 2023
Revenue
Income from operations
Net income attributable to Tetra Tech
Earnings per share attributable to Tetra Tech:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
Fiscal Year 2022
Revenue
Income from operations
Net income attributable to Tetra Tech
Earnings per share attributable to Tetra Tech:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
894,766 $ 1,158,226 $ 1,208,947 $ 1,260,611
92,050
116,706
61,011
42,830
97,675
60,235
107,377
53,649
$
$
2.20 $
2.18 $
0.80 $
0.80 $
1.13 $
1.12 $
1.01
1.00
53,069
53,529
53,227
53,627
53,231
53,653
53,247
53,702
$
858,510 $
852,744 $
890,231 $
902,562
87,220
68,489
74,520
53,040
83,905
58,650
94,802
82,947
$
$
1.27 $
1.25 $
0.99 $
0.98 $
1.10 $
1.09 $
1.56
1.55
53,937
54,577
53,834
54,346
53,507
54,006
53,148
53,667
88
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures and changes in internal control over financial reporting
At October 1, 2023, we carried out an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures. Consistent with the guidance issued by the Securities and Exchange Commission Staff, the evaluation
excluded Amyx, which we acquired on January 3, 2023, and RPS, which we acquired on January 23, 2023. 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 Rules 13a-15(e) and 15d-15(e) under the Exchange Act), were effective.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As
defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the
supervision of, our principal executive and principal financial officer and effected by our Board of Directors, management and
other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with U.S. GAAP. Internal controls include those policies
and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with U.S. GAAP and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on
our consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable
assurance of achieving their control objectives.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we assessed the effectiveness of our internal control over financial reporting at October 1, 2023, based on the
criteria in Internal Control – Integrated Framework (2013) issued by the COSO. Based upon this assessment, management has
concluded that our internal control over financial reporting was effective at October 1, 2023.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the consolidated
financial statements included in this Form 10-K, has issued a report on our internal control over financial reporting. This report,
dated November 22, 2023, appears on pages 49-51 of this Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended
October 1, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item relating to our directors and nominees, regarding compliance with Section 16(a)
of the Exchange Act, and regarding our Audit Committee is included under the captions "Item No. 1 – Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in our Proxy Statement related to the 2024 Annual Meeting of
Stockholders and is incorporated by reference.
Pursuant to General Instruction G (3) of Form 10-K, the information required by this item relating to our executive
officers is included under the caption "Executive Officers of the Registrant" in Part I of this Report.
We have adopted a code of ethics that applies to our principal executive officer and all members of our finance
department, including our principal financial officer and principal accounting officer. This code of ethics, entitled "Finance
89
Code of Professional Conduct," is posted on our website. The Internet address for our website is www.tetratech.com, and the
code of ethics may be found through a link to the Investor Relations section of our website.
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K for any amendment to, or waiver from, a
provision of this code of ethics by posting any such information on our website, at the address and location specified above.
Item 11. Executive Compensation
The information required by this item is included under the captions "Item No. 1 – Election of Directors" and
"Executive Compensation Tables" in our Proxy Statement related to the 2024 Annual Meeting of Stockholders and is
incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item relating to security ownership of certain beneficial owners and management, and
securities authorized for issuance under equity compensation plans, is included under the caption "Security Ownership of
Management and Significant Stockholders" in our Proxy Statement related to the 2024 Annual Meeting of Stockholders and is
incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item relating to review, approval or ratification of transactions with related persons is
included under the caption "Related Person Transactions," and the information required by this item relating to director
independence is included under the caption "Item No. 1 – Election of Directors," in each case in our Proxy Statement related to
the 2024 Annual Meeting of Stockholders and is incorporated by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item is included under the caption "Item No. 4 – Ratification of Independent
Registered Public Accounting Firm" in our Proxy Statement related to the 2024 Annual Meeting of Stockholders and is
incorporated by reference.
Item 15. Exhibits, Financial Statement Schedules
(a)
Documents filed as part of this report
1 Consolidated financial statements
PART IV
Consolidated Balance Sheets at October 1, 2023 and October 2, 2022
Consolidated Statements of Income for the fiscal years ended October 1, 2023, October 2, 2022 and
October 3, 2021
Consolidated Statements of Comprehensive Income for the fiscal years ended October 1, 2023,
October 2, 2022 and October 3, 2021
Consolidated Statements of Cash Flows for the fiscal years ended October 1, 2023, October 2, 2022
and October 3, 2021
Consolidated Statements of Equity for the fiscal years ended October 1, 2023, October 2, 2022 and
October 3, 2021
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
2 Consolidated financial statement Schedule
Schedule II – Valuation and Qualifying Accounts and Reserves for the fiscal years ended October 1,
2023, October 2, 2022 and October 3, 2021
All other schedules are omitted because they are neither applicable nor required
3 Exhibits
The exhibit list in the Index to Exhibits is incorporated by reference as the list of exhibits required as
part of this Report.
Page
52
53
54
55
56
58
91
92
90
Tetra Tech, Inc.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Fiscal Years Ended
October 3, 2021, October 2, 2022 and October 1, 2023
(in thousands)
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Deductions (2) Other (3)
Balance at
End of Period
Allowance for doubtful accounts (1):
Fiscal 2021
Fiscal 2022
Fiscal 2023
Income tax valuation allowance:
Fiscal 2021
Fiscal 2022
Fiscal 2023
$
$
7,147 $
4,352
3,749
(4,130) $
(73)
813
195
(400)
(137)
1,140 $
(130)
540
24,395 $
13,040
12,286
13,698 $
—
—
(26,059) $ 1,006 $
(162)
(127)
(592)
(496)
4,352
3,749
4,965
13,040
12,286
11,663
(1) Reflects updated presentation of allowance for doubtful accounts to include expected credit losses in anticipation of our adoption of ASU 2016-13 in the
first quarter of fiscal 2021.
(2) Primarily represents write-offs of uncollectible amounts, net of recoveries for the allowance for doubtful accounts. The income tax valuation amount
represents the release of a valuation allowance in the United Kingdom in fiscal 2021.
(3) Includes losses in foreign jurisdictions, currency adjustments and valuation allowance adjustments related to net operating loss carry-forwards.
91
2.1 Rule 2.7 Announcement, dated as of September 23, 2022 (incorporated by reference to Exhibit 99.1 to the Company’s
Current Report on Form 8-K dated September 26, 2022).
INDEX TO EXHIBITS
2.2 Cooperation Agreement, dated as of September 23, 2022 (incorporated by reference to Exhibit 99.2 of the Company’s
Current Report on Form 8-K dated September 26, 2022).
3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K dated February 26, 2009).
3.2 Bylaws of the Company (amended and restated as of November 7, 2022) (incorporated by reference to Exhibit 3.1 to
the Company's Current Report on Form 8-K dated November 10, 2022).
4.1 Indenture, dated as of August 22, 2023, by and between Tetra Tech, Inc. and U.S. Bank Trust Company, National
Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated
August 22, 2023).
4.2 Form of Global Note, representing Tetra Tech, Inc.’s 2.25% Convertible Senior Notes due 2028 (incorporated by
reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated August 22, 2023).
4.3 Description of Capital Stock (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-
K dated August 22, 2023).
10.1 Bridge Credit Agreement dated as of September 23, 2022 among Tetra Tech, Inc., the lenders party thereto and BofA
Securities, Inc., as sole leader arranger and sole bookrunner (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated September 26, 2022)
10.2 Third Amended and Restated Credit Agreement dated as of October 26, 2022 among Tetra Tech, Inc., Tetra Tech
Canada Holding Corporation, Tetra Tech UK Holdings Limited, Tetra Tech Coffey Pty., Ltd., the subsidiary
guarantors and the lenders party thereto and Bank of America, N.A., as Administrative Agent (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated October 28, 2022).
10.3 Amendment No. 1 to Third Amended and Restated Credit Agreement dated as of August 4, 2023 among Tetra Tech,
Inc., Tetra Tech Canada Holding Corporation, Tetra Tech UK Holdings Limited, Tetra Tech Coffey Pty Ltd, the
subsidiary guarantors and the lenders party thereto and Bank of America, N.A., as administrative agent (incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated August 22, 2023).
10.4 Amendment No. 2 to Third Amended and Restated Credit Agreement dated as of August 17, 2023 among Tetra Tech,
Inc., Tetra Tech Canada Holding Corporation, Tetra Tech UK Holdings Limited, Tetra Tech Coffey Pty Ltd, the
subsidiary guarantors and the lenders party thereto and Bank of America, N.A., as administrative agent (incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated August 22, 2023).
10.5 Form of Confirmation for Capped Call Transactions (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K dated August 22, 2023).
10.6 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 2012).
10.7 2005 Equity Incentive Plan (as amended through November 7, 2011) (incorporated by reference to the Company's
Proxy Statement for its 2012 Annual Meeting of Stockholders held on February 28, 2012).*
10.8 First Amendment to the 2005 Equity Incentive Plan (as amended through November 7, 2011) (incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended September 29,
2013).*
10.9 2015 Equity Incentive Plan (incorporated by reference to the Company's Proxy Statement for its 2015 Annual Meeting
of Stockholders held on March 5, 2015).*
10.10 2018 Equity Incentive Plan (incorporated by reference to the Company's Proxy Statement for its 2018 Annual Meeting
of Stockholders held on March 8, 2018).*
92
10.11 Form of Indemnity Agreement entered into between the Company and each of its directors and executive officers
(incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended
October 3, 2004).*
10.12 Amended and Restated Deferred Compensation Plan (incorporated by reference to Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2020).*
10.13 Change of Control Severance Plan effective March 26, 2018 (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated March 9, 2018).*
10.14 Executive Compensation Plan (as amended and restated November 14, 2013) (incorporated by reference to
Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended September 29, 2013).*
21. Subsidiaries of the Company.+
23 Consent of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP).+
24. Power of Attorney (included on page 94 of this Annual Report on Form 10-K).
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 Disclosures.+
101 The following financial information from our Company's Annual Report on Form 10-K, for the period ended October
1, 2023, formatted in Inline eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii)
Consolidated Statements of Income, (iii) Consolidated Statement of Comprehensive Income, (iv) Consolidated
Statements of Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial
Statements.+(1)
_______________________________________________________________________________
* Indicates a management contract or compensatory arrangement.
+ Filed herewith.
(1) Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on
Form 10-K shall not be deemed to be "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to
the liability of the section, and shall not be deemed part of a registration statement, prospectus or other document filed
under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such
filings.
Item 16. Form 10-K Summary
None.
93
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: November 22, 2023
TETRA TECH, INC.
By:
/s/ DAN L. BATRACK
Dan L. Batrack
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dan L. Batrack and
Steven M. Burdick, jointly and severally, his attorney-in-fact, each with the full power of substitution, for such person, in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might do or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or his substitute, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ DAN L. BATRACK
Dan L. Batrack
Chairman and Chief Executive Officer
(Principal Executive Officer)
November 22, 2023
/s/ STEVEN M. BURDICK
Steven M. Burdick
/s/ BRIAN N. CARTER
Brian N. Carter
/s/ GARY R. BIRKENBEUEL
Gary R. Birkenbeuel
/s/ PRASHANT GANDHI
Prashant Gandhi
/s/ JOANNE M. MAGUIRE
Joanne M. Maguire
/s/ CHRISTIANA OBIAYA
Christiana Obiaya
/s/ KIMBERLY E. RITRIEVI
Kimberly E. Ritrievi
/s/ J. KENNETH THOMPSON
J. Kenneth Thompson
/s/ KIRSTEN M. VOLPI
Kirsten M. Volpi
Executive Vice President, Chief Financial Officer
November 22, 2023
(Principal Financial Officer)
Senior Vice President, Corporate Controller
November 22, 2023
(Principal Accounting Officer)
November 22, 2023
November 22, 2023
November 22, 2023
November 22, 2023
November 22, 2023
November 22, 2023
November 22, 2023
Director
Director
Director
Director
Director
Director
Director
94
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COMPANY INFORMATION
BOARD OF DIRECTORS
CORPORATE LEADERSHIP
OPERATIONAL LEADERSHIP
Dan L. Batrack
Chairman and Chief Executive Officer,
Tetra Tech, Inc.
Gary R. Birkenbeuel
Retired Regional Assurance
Managing Partner, Ernst & Young LLP
Prashant Gandhi
Chief Business Officer, Melio Payments
Joanne M. Maguire
Retired Executive Vice President,
Lockheed Martin Space
Christie Obiaya
Chief Executive Officer, Heliogen
Kimberly E. Ritrievi
President, The Ritrievi Group LLC
J. Kenneth Thompson
President and Chief Executive Officer,
Pacific Star Energy, LLC
Kirsten M. Volpi
Executive Vice President, COO,
CFO, and Treasurer, Colorado
School of Mines
CHAIRMAN EMERITUS
Li-San Hwang
Former Chairman and
Chief Executive Officer, Tetra Tech, Inc.
Dan L. Batrack
Chairman and Chief Executive Officer
Jill M. Hudkins
President
Steven M. Burdick
Executive Vice President,
Chief Financial Officer
Leslie L. Shoemaker
Executive Vice President, Chief
Sustainability and Leadership
Development Officer
William R. Brownlie
Senior Vice President,
Chief Engineer
Roger R. Argus
President, Government
Services Group and Commercial/
International Group
Stuart W. Fowler
President, High Performance
Buildings Division
Craig Hatch
President, Europe and UK Division
Olivier H. Jeannot
President, Federal Information
Technology Division
Thomas Reilly
President, Global Development
Services Division
Brian N. Carter
Senior Vice President, Corporate
Controller and Chief Accounting Officer
Lauren Springer
President, U.S. Infrastructure Division
Craig L. Christensen
Senior Vice President,
Chief Information Officer
Preston Hopson
Senior Vice President,
General Counsel and Secretary
Richard A. Lemmon
Senior Vice President,
Corporate Administration
Brendan M. O’Rourke
Senior Vice President,
Enterprise Risk Management
Meegan Sullivan
President, Asia Pacific Division
Bernard Teufele
President, Environment/Geotech
Division
Jeremy B. Travis
President, U.S. Government Division
Jonathan S. Weiss
President, Energy Engineering Division
CORPORATE HEADQUARTERS
Tetra Tech, Inc.
3475 East Foothill Boulevard
Pasadena, California 91107-6024 USA
Telephone: +1 (626) 351-4664
Fax: +1 (626) 351-5291
tetratech.com
SHAREHOLDER INQUIRIES
Telephone: +1 (626) 470-2844
Email: investor.relations@tetratech.com
TRANSFER AGENT AND
REGISTRAR
Computershare Trust Company, N.A.
P.O. Box 505000
Louisville, Kentucky 40233-5000
Telephone: +1 (800) 962-4284
STOCK LISTING
The Company’s common stock is
traded on the NASDAQ Global Select
Market (Symbol: TTEK)