Core Insights - Tetra Tech (TTEK) reported quarterly earnings of $0.43 per share, exceeding the Zacks Consensus Estimate of $0.37 per share, and showing an increase from $0.32 per share a year ago, resulting in an earnings surprise of +16.22% [1] - The company achieved revenues of $1.15 billion for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 1.59% and up from $1.11 billion year-over-year [2] - Tetra has consistently outperformed consensus EPS and revenue estimates over the last four quarters [2] Earnings Outlook - The future performance of Tetra's stock will largely depend on management's commentary during the earnings call and the sustainability of the stock's price movement based on recent earnings and future expectations [3][4] - The current consensus EPS estimate for the upcoming quarter is $0.42 on revenues of $1.16 billion, and for the current fiscal year, it is $1.47 on revenues of $4.6 billion [7] Industry Context - Tetra Tech operates within the Zacks Pollution Control industry, which is currently ranked in the top 37% of over 250 Zacks industries, indicating a favorable industry outlook [8] - The performance of Tetra's stock may also be influenced by the overall outlook for the pollution control industry, as historical data shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [8]

[Financial Performance Summary](index=1&type=section&id=Financial%20Performance%20Summary) This section provides an overview of Tetra Tech's financial performance, including key highlights for the third quarter and year-to-date fiscal 2025, along with commentary from the CEO [Third Quarter FY2025 Financial Highlights](index=1&type=section&id=Third%20Quarter%20Highlights) Tetra Tech reported strong Q3 FY2025 results, with significant year-over-year growth in reported and adjusted key financial metrics Q3 FY2025 Key Financial Metrics (Year-over-Year) | Metric (Excluding USAID/DOS) | Q3 FY2025 | Change (Y/Y) | | :--- | :--- | :--- | | Net Revenue | $1.06 billion | +11% | | Operating Income | $159 million | +37% | | EPS | $0.41 | +46% | | **Reported Metrics** | **Q3 FY2025** | **Change (Y/Y)** | | Revenue | $1.37 billion | - | | Operating Income | $165 million | +28% | | EPS | $0.43 | +34% | | Operating Cash Flow | $350 million | +148% | - The company's backlog increased both year-over-year and sequentially to **$4.15 billion** (excluding USAID/DOS), indicating strong future revenue potential[6](index=6&type=chunk) [Year-to-Date FY2025 Financial Highlights](index=1&type=section&id=Year%20to%20Date%20Highlights) For the first nine months of FY2025, Tetra Tech demonstrated consistent growth in net revenue, adjusted operating income, and adjusted EPS YTD FY2025 Key Financial Metrics (Year-over-Year, Excluding USAID/DOS) | Metric | YTD FY2025 | Change (Y/Y) | | :--- | :--- | :--- | | Revenue | $3.56 billion | +10% | | Net Revenue | $2.99 billion | +10% | | Adjusted Operating Income | $396 million | +24% | | Adjusted EPS | $1.01 | +31% | - Reported YTD EPS of **$1.11** includes adjustments for a non-cash goodwill impairment of **$0.31 per share** in Q2 and a legal contingency of **$0.35 per share** in Q1[4](index=4&type=chunk)[12](index=12&type=chunk)[15](index=15&type=chunk) [Chairman and CEO Comments](index=2&type=section&id=Chairman%20and%20CEO%20Comments) CEO Dan Batrack attributed strong performance to high-end services and increased client funding, while navigating shifts in U.S. federal priorities - Performance was driven by high-end water, environmental, and sustainable infrastructure services[9](index=9&type=chunk) - Increased client funding for preparing and responding to natural disasters contributed to the strong results[9](index=9&type=chunk) - The company is navigating financial impacts from changing U.S. federal government priorities and related effects on its end markets[9](index=9&type=chunk) [Business Operations and Outlook](index=2&type=section&id=Business%20Operations%20and%20Outlook) This section details Tetra Tech's recent contract wins, capital allocation strategies, and financial guidance for the remainder of fiscal year 2025 [Recent Key Wins](index=2&type=section&id=Recent%20Key%20Wins) Tetra Tech secured several significant U.S. government contracts, including a $990 million engineering design award and multiple large USACE contracts - Secured a **$990 million** multiple-award contract for engineering design for NAVFAC Pacific[13](index=13&type=chunk) - Awarded a **$249 million** multiple-award contract for energy resilience for USACE Huntsville District[13](index=13&type=chunk) - Won a **$248 million** multiple-award contract for planning and engineering services for USACE Europe District[13](index=13&type=chunk) - Obtained a **$94 million** single-award contract for emergency preparedness and response services for the U.S. EPA[13](index=13&type=chunk) [Capital Allocation: Dividend and Share Repurchases](index=2&type=section&id=Quarterly%20Dividend%20and%20Share%20Repurchase%20Program) The company increased its quarterly dividend by 12% and repurchased $25 million in stock, demonstrating continued capital return to shareholders - The Board of Directors approved the **45th consecutive quarterly dividend**, increasing it by **12% year-over-year to $0.065 per share**[8](index=8&type=chunk) - Repurchased **$25 million** of common stock during the third quarter[8](index=8&type=chunk) - As of June 29, 2025, **$648 million** remained available under the approved share repurchase programs[8](index=8&type=chunk) [FY2025 Business Outlook](index=2&type=section&id=Business%20Outlook) Tetra Tech provided FY2025 guidance, projecting full-year net revenue between $4.454 billion and $4.554 billion, with adjusted EPS of $1.49 to $1.54 Fiscal 2025 Guidance | Period | Metric | Guidance Range | | :--- | :--- | :--- | | **Full Year FY2025** | Net Revenue | $4.454B - $4.554B | | | Adjusted EPS | $1.49 - $1.54 | | **Q4 FY2025** | Net Revenue | $1.0B - $1.1B | | | EPS | $0.38 - $0.43 | - The adjusted EPS guidance for FY2025 excludes a legal contingency of **$0.35** (Q1) and a goodwill impairment of **$0.31** (Q2)[12](index=12&type=chunk) [Financial Statements](index=6&type=section&id=Financial%20Statements) This section presents Tetra Tech's consolidated financial statements, including the statements of income, balance sheet, and cash flows [Consolidated Statements of Income](index=7&type=section&id=Consolidated%20Statements%20of%20Income) Q3 2025 revenue was $1.37 billion with $113.8 million net income, while YTD net income of $120.0 million was impacted by significant one-time legal and impairment costs Income Statement Highlights (in thousands) | Metric | Three Months Ended Jun 29, 2025 | Nine Months Ended Jun 29, 2025 | | :--- | :--- | :--- | | Revenue | $1,369,816 | $4,112,490 | | Gross Profit | $251,539 | $687,197 | | Income from Operations | $164,986 | $227,114 | | Net Income Attributable to Tetra Tech | $113,844 | $119,979 | | Diluted EPS | $0.43 | $0.45 | [Balance Sheet](index=6&type=section&id=Balance%20Sheet) As of June 29, 2025, total assets increased to $4.35 billion, with total liabilities at $2.61 billion and stockholders' equity at $1.74 billion Balance Sheet Summary (in thousands) | Metric | June 29, 2025 | September 29, 2024 | | :--- | :--- | :--- | | Total Current Assets | $1,619,796 | $1,527,383 | | Total Assets | $4,353,447 | $4,192,676 | | Total Current Liabilities | $1,376,121 | $1,219,527 | | Long-term Debt | $862,483 | $812,634 | | Total Liabilities | $2,611,351 | $2,362,263 | | Total Stockholders' Equity | $1,742,096 | $1,830,413 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities for the nine months ended June 29, 2025, was $356.8 million, with significant cash used in investing and financing activities Cash Flow Summary (Nine Months Ended, in thousands) | Cash Flow Activity | June 29, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $356,838 | $253,110 | | Net Cash used in Investing Activities | ($108,273) | ($104,308) | | Net Cash used in Financing Activities | ($234,987) | ($107,458) | | **Ending Cash and Cash Equivalents** | **$242,833** | **$212,321** | [Supplemental and Non-GAAP Information](index=3&type=section&id=Supplemental%20and%20Non-GAAP%20Information) This section provides additional financial details, including reconciliations of GAAP to non-GAAP measures and Regulation G information for a comprehensive view of performance [Reconciliation of GAAP and Non-GAAP Items](index=3&type=section&id=Reconciliation%20of%20GAAP%20and%20Non-GAAP%20Items) This section reconciles GAAP to non-GAAP measures, adjusting for items like legal contingencies and goodwill impairment to provide a clearer view of core performance YTD FY2025 Operating Income Reconciliation (in thousands) | Metric | Amount | | :--- | :--- | | **Operating Income (GAAP)** | **$227,114** | | Legal contingency | $115,000 | | Goodwill impairment | $92,416 | | Contingent consideration | ($2,355) | | **Adjusted Operating Income (Non-GAAP)** | **$432,175** | YTD FY2025 EPS Reconciliation | Metric | Amount | | :--- | :--- | | **EPS (GAAP)** | **$0.45** | | Legal contingency | $0.35 | | Goodwill impairment | $0.31 | | **Adjusted EPS (Non-GAAP)** | **$1.11** | [Regulation G Information](index=10&type=section&id=Regulation%20G%20Information) This section provides Regulation G non-GAAP reconciliations, including revenue breakdowns by segment and a detailed reconciliation from Net Income to Adjusted EBITDA YTD FY2025 Net Revenue by Segment (in millions) | Segment | Net Revenue | | :--- | :--- | | GSG Segment | $1,642.6 | | CIG Segment | $1,811.4 | | **Total Net Revenue** | **$3,454.0** | YTD FY2025 Net Income to Adjusted EBITDA Reconciliation (in thousands) | Metric | Amount | | :--- | :--- | | **Net Income Attributable to Tetra Tech** | **$119,979** | | Add: Income Tax, Interest, D&A | $134,621 | | Add: Goodwill Impairment | $92,416 | | Add: Legal Contingency Costs | $115,000 | | Other Adjustments | ($2,355) | | **Adjusted EBITDA** | **$475,717** |

Core Insights - Tetra Tech, Inc. (TTEK) has secured a $248 million contract from the U.S. Army Corps of Engineers (USACE) for architect-engineer services in the EUCOM region [1][9] - The five-year contract involves multidisciplinary design services across eight European countries, supporting military infrastructure [2][9] - Tetra Tech has recently won multiple contracts that are expected to drive growth, including a $249 million contract for environmental services in the U.S. [3][5] Contract Details - The contract with USACE includes services such as conceptual and detailed design, planning, 3D modeling, and various engineering services [2][9] - Tetra Tech's recent contracts also include a deal for flood management in the UK and three contracts worth $416 million for technical services in the Indo-Pacific region [4] Financial Performance - Tetra Tech's shares have increased by 24.3% over the past three months, outperforming the industry average growth of 17.7% [6] - The company is experiencing growth due to its focus on high-end consulting and engineering services, particularly in its Government Services Group [6] Challenges - Rising selling, general, and administrative expenses, particularly in marketing, may impact Tetra Tech's profit margins in the future [8] - The company's international operations expose it to foreign currency risks [8]

Core Viewpoint - Tetra Tech (NASDAQ: TTEK) has shown strong stock performance, gaining over 20% since mid-March despite concerns regarding budget cuts from USAID and the Department of State [1]. Group 1: Company Performance - Tetra Tech's stock has outperformed expectations, increasing by more than 20% since the last analysis [1]. Group 2: Analyst Background - The analyst has over 15 years of investment experience, focusing on mid-sized hedge funds with assets between $100 million and $500 million, and has a background in analyzing industrial, consumer, and technology sectors [1].

Core Insights - Tetra Tech, Inc. (TTEK) is positioned for growth due to strong performance in its end markets, strategic acquisitions, and a focus on operational excellence [1][5][10] - The company has a market capitalization of $9.5 billion and has outperformed the industry with a 22.4% gain over the past three months compared to the industry's 7.1% [3] Business Strength - TTEK is experiencing robust orders from various sectors including U.S. Federal, State & Local, Commercial, and International clients, with a 23.4% year-over-year increase in net sales from its Government Services Group in the first half of fiscal 2025 [5] - The CIG segment also saw a revenue increase of 1.8% year-over-year in the same period, aided by strong project performance in international operations and the RPS acquisition [6] Acquisition Benefits - Tetra Tech is actively acquiring businesses to enhance its customer base, geographic reach, and product offerings, including the acquisition of Convergence Controls & Engineering in May 2024, which expands its automation solutions in water and energy sectors [7] - The acquisition of LS Technologies in February 2024 strengthened its federal IT capabilities, while the RPS Group buyout in January 2023 enhanced its water practice in the UK and renewable energy focus [8] - A deal to acquire SAGE Group Holdings in May 2025 will further boost Tetra Tech's digital automation solutions across various sectors [9] Shareholder-Friendly Policies - Tetra Tech is committed to returning value to shareholders, having paid out $30.9 million in dividends in the first half of fiscal 2025, an 11.2% increase year-over-year, and a total of $58.8 million in fiscal 2024, up 12.9% [10] - The company raised its quarterly dividend rate by 12% in July 2024 [11] Bullish Guidance - Management has issued a positive revenue guidance for fiscal 2025, expecting revenues between $4.400 billion and $4.765 billion, an increase from $4.322 billion in fiscal 2024 [11]

Core Viewpoint - Tetra Tech (TTEK) shows potential as a strong investment opportunity due to significant revisions in earnings estimates, indicating an improving earnings outlook and potential for continued stock price gains [1][2]. Earnings Estimate Revisions - Analysts have become increasingly optimistic about Tetra Tech's earnings prospects, as reflected in the upward trend of estimate revisions, which typically correlate with stock price movements [2]. - The current-quarter earnings estimate is projected at $0.37 per share, representing a year-over-year increase of +15.63%. Over the past 30 days, the Zacks Consensus Estimate has risen by 8.82% with no negative revisions [6]. - For the full year, the earnings estimate stands at $1.47 per share, reflecting a +16.67% change from the previous year. The consensus estimate has increased by 7.3% during this period, with one estimate moving higher and no negative revisions [7][8]. Zacks Rank and Performance - Tetra Tech currently holds a Zacks Rank 2 (Buy), indicating strong agreement among analysts regarding the positive earnings revisions. This ranking is part of a system that has historically shown that Zacks 1 (Strong Buy) and 2 (Buy) stocks significantly outperform the S&P 500 [9]. - The Zacks Rank system has demonstrated an impressive track record, with Zacks 1 Ranked stocks generating an average annual return of +25% since 2008 [3]. Stock Performance - Tetra Tech's stock has appreciated by 15.8% over the past four weeks, driven by strong estimate revisions and positive investor sentiment, suggesting further upside potential [10].

Core Viewpoint - Tetra Tech (TTEK) has received a Zacks Rank 2 (Buy) upgrade, indicating a positive outlook on its earnings estimates, which significantly influence stock prices [1][3]. Earnings Estimates and Stock Price Impact - The Zacks rating system is based on changes in earnings estimates, which are strongly correlated with near-term stock price movements [4][6]. - Rising earnings estimates for Tetra suggest an improvement in the company's underlying business, likely leading to higher stock prices [5]. Recent Earnings Estimate Revisions - For the fiscal year ending September 2025, Tetra is expected to earn $1.47 per share, reflecting a 16.7% increase from the previous year [8]. - Over the past three months, the Zacks Consensus Estimate for Tetra has increased by 7.3% [8]. Zacks Rank System Overview - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 (Strong Buy) stocks historically generating an average annual return of +25% since 1988 [7]. - Tetra's upgrade to Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, indicating strong potential for market-beating returns in the near term [10].

Core Viewpoint - Tetra Tech, Inc. reported strong second-quarter fiscal 2025 results, with adjusted earnings per share of 33 cents, exceeding expectations and reflecting an 18% year-over-year increase driven by robust performance across all segments [1][2]. Revenue & Segmental Performance - Tetra Tech generated revenues of $1.32 billion, a 5.6% year-over-year increase, surpassing management's guidance [1][2]. - Adjusted net revenues were $1.10 billion, up 5% year over year, also exceeding the Zacks Consensus Estimate of $1.05 billion [2]. - The backlog at the end of the fiscal second quarter was $4.09 billion, an increase of $127 million year over year [2]. - Revenues from U.S. Federal customers (30% of total revenues) increased by 1%, supported by projects from the Defense and U.S. Army Corps of Engineers [3]. - U.S. Commercial sales (17% of total revenues) rose by 5%, driven by environmental remediation and high-voltage transmission sales [3]. - U.S. State and Local sales (15% of total revenues) surged by 44% year over year, bolstered by disaster response efforts [4]. - International sales (38% of total revenues) increased by 1%, supported by U.K. planning and design [4]. - Government Services Group segment revenues were $521 million, up 12% year over year, while Commercial/International Services Group segment revenues totaled $597 million, a 2% increase [4]. Margin Profile - Subcontractor costs totaled $218.4 million, a 9.8% increase from the previous year [5]. - Adjusted operating income rose by 10.5% year over year to $130.09 million, with an adjusted margin increase of 40 basis points to 9.8% [6]. Balance Sheet and Cash Flow - Cash and cash equivalents at the end of the fiscal second quarter were $179.4 million, down from $232.7 million at the end of the previous quarter [7]. - Long-term debt decreased to $764.1 million from $812.6 million [7]. - In the first six months of fiscal 2025, net cash generated from operating activities was $7.24 million, compared to $112.2 million in the prior year [8]. - Capital expenditure increased by 25.6% year over year to $9.37 million [8]. - Proceeds from borrowings amounted to $215 million, with long-term debt repayments totaling $15 million [8]. Shareholder-Friendly Policies - Tetra Tech distributed dividends totaling $30.9 million in the first six months of fiscal 2025, up from $27.8 million in the previous year [9]. - The company repurchased shares worth $175 million during the same period [9]. Fiscal 2025 Outlook - For fiscal 2025, Tetra Tech anticipates net revenues in the range of $4.400-$4.765 billion, an increase from the previous guidance [10]. - Adjusted earnings are projected to be between $1.42 and $1.52 per share, compared to earlier expectations of $1.37-$1.52 [10]. - For the fiscal third quarter, management estimates net revenues of $1.10-$1.20 billion and adjusted earnings of 35-40 cents per share [11].

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited consolidated financial statements for Q1/H1 FY2025 are presented, detailing financial position and performance, impacted by impairment and legal costs [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The balance sheet as of March 30, 2025, shows total assets of $4.18 billion, a slight decrease, with reduced cash and goodwill, and increased liabilities Consolidated Balance Sheet Highlights (in thousands) | Account | March 30, 2025 | September 29, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $179,433 | $232,689 | | Goodwill | $1,913,134 | $2,046,569 | | Total Assets | $4,184,304 | $4,192,676 | | Total Current Liabilities | $1,516,515 | $1,219,527 | | Total Stockholders' Equity | $1,573,781 | $1,830,413 | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) H1 FY2025 revenue grew 10.6% to $2.74 billion, but net income plummeted due to significant impairment and legal costs Statement of Income Summary (in thousands, except per share data) | Metric | Six Months Ended Mar 30, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Revenue | $2,742,674 | $2,479,883 | | Gross Profit | $435,659 | $397,993 | | Income from Operations | $62,129 | $228,764 | | Net Income Attributable to Tetra Tech | $6,135 | $151,418 | | Diluted EPS | $0.02 | $0.56 | - Significant charges in the six months ended March 30, 2025 include a **$115.0 million** legal contingency cost and a **$92.4 million** goodwill impairment, which severely impacted income from operations and net income[9](index=9&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly decreased to $7.2 million in H1 FY2025, impacted by a legal settlement and working capital changes Cash Flow Summary (in thousands) | Activity | Six Months Ended Mar 30, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,240 | $112,181 | | Net cash used in investing activities | ($12,768) | ($79,161) | | Net cash provided by (used in) financing activities | ($37,437) | $5,633 | | Net decrease in cash and cash equivalents | ($53,256) | $41,463 | [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) Detailed notes explain financial results, including revenue growth, goodwill impairment, a major legal settlement, and stock repurchase activities - On July 29, 2024, the Board of Directors approved a five-for-one stock split, effective September 6, 2024. All prior-period share and per-share amounts have been retroactively adjusted[24](index=24&type=chunk) Revenue by Client Sector (Six Months Ended, in thousands) | Client Sector | March 30, 2025 | March 31, 2024 | | :--- | :--- | :--- | | U.S. federal government | $915,270 | $789,078 | | U.S. state and local government | $410,425 | $298,476 | | U.S. commercial | $444,676 | $423,837 | | International | $490,168 | $495,656 | - A non-cash goodwill impairment charge of **$92.4 million** was recorded in Q2 2025, triggered by the cancellation of most USAID contracts impacting the Global Development Services (GDS) reporting unit[52](index=52&type=chunk)[53](index=53&type=chunk)[55](index=55&type=chunk) - A **$115.0 million** charge was recorded in Q1 2025 related to a settlement agreement with the U.S. government over claims at the Hunters Point Naval Shipyard, including **$97.0 million** for the settlement and an **$18.0 million** estimate for ancillary claims[102](index=102&type=chunk)[103](index=103&type=chunk)[108](index=108&type=chunk) - In H1 FY2025, the company repurchased **5.2 million** shares for **$175.0 million**. Subsequently, on May 5, 2025, the Board authorized an additional **$500 million** stock repurchase program[58](index=58&type=chunk)[59](index=59&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses 10.6% revenue growth, operating income impact from impairment and legal charges, and changes in backlog and liquidity Revenue by Client Sector (Six Months Ended, in thousands) | Client Sector | March 30, 2025 | March 31, 2024 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | U.S. federal government | $915,270 | $789,078 | $126,192 | 16.0% | | U.S. state and local government | $410,425 | $298,476 | $111,949 | 37.5% | | U.S. commercial | $444,676 | $423,837 | $20,839 | 4.9% | | International | $972,303 | $968,492 | $3,811 | 0.4% | | **Total** | **$2,742,674** | **$2,479,883** | **$262,791** | **10.6%** | - The cancellation of **83%** of USAID programs following Executive Order 14169 led to the termination of nearly all of the company's USAID contracts, which had accounted for **$409.3 million** in revenue in H1 FY2025[128](index=128&type=chunk) Reconciliation of GAAP to Non-GAAP Adjusted EPS (Six Months Ended) | Metric | March 30, 2025 | March 31, 2024 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | **GAAP Diluted EPS** | **$0.02** | **$0.56** | **($0.54)** | **(96.4)%** | | Legal contingency costs | $0.35 | - | | | | Impairment of goodwill | $0.31 | - | | | | **Adjusted EPS (Non-GAAP)** | **$0.68** | **$0.56** | **$0.12** | **21.4%** | - Backlog decreased by **$1.07 billion** (**19.9%**) from fiscal year-end 2024 to **$4.3 billion** at March 30, 2025, primarily due to the cancellation of USAID contracts[145](index=145&type=chunk) - Subsequent to the quarter end, on May 5, 2025, the company entered into a new Fourth Amended and Restated Credit Agreement, increasing total borrowing capacity to **$1.5 billion** and extending the maturity to May 2030[159](index=159&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk on variable-rate debt and foreign currency risk from international operations, with mitigation efforts in place - The company is exposed to interest rate risk on its **$450 million** in outstanding borrowings under the Third Amended Credit Agreement, which have variable rates tied to SOFR or a base rate. The weighted-average interest rate for H1 FY2025 was **5.78%**[172](index=172&type=chunk) - Foreign currency exposure exists from operations in Canadian dollars, Australian dollars, the Euro, and British Pound. In H1 FY2025, foreign exchange rate translation resulted in a **$74.3 million** decrease in equity[173](index=173&type=chunk)[174](index=174&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of March 30, 2025, with no material changes to internal controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[176](index=176&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[177](index=177&type=chunk) [PART II. OTHER INFORMATION](index=38&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) Legal proceedings information is incorporated by reference, detailing a $115.0 million charge for a settlement related to the Hunters Point Naval Shipyard - Information regarding legal proceedings is incorporated by reference from Note 17, "Commitments and Contingencies" in the financial statements[178](index=178&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors from the 2024 Annual Report on Form 10-K are reported, with updated interest and exchange rate risk disclosures - There have been no material changes in risk factors from those disclosed in the 2024 Annual Report on Form 10-K[179](index=179&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details of stock repurchase activity are provided, including 5.2 million shares repurchased for $175.0 million in H1 FY2025 Stock Repurchase Summary (H1 FY2025) | Metric | Value | | :--- | :--- | | Shares Repurchased | 5,165,715 | | Average Price Paid per Share | $33.87 | | Total Cost | $175.0 million | | Remaining Authorization (at Mar 30, 2025) | $172.8 million | [Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Information concerning mine safety violations, as required by the Dodd-Frank Act, is included in Exhibit 95 - Information concerning mine safety violations required by the Dodd-Frank Act is included in Exhibit 95[182](index=182&type=chunk) [Other Information](index=39&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the second quarter of fiscal 2025 - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the second quarter of fiscal 2025[183](index=183&type=chunk) [Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including CEO/CFO certifications, mine safety disclosures, and financial data in Inline XBRL format - Filed exhibits include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2), Mine Safety Disclosure (Exhibit 95), and financial statements formatted in Inline XBRL (Exhibits 101, 104)[184](index=184&type=chunk)[186](index=186&type=chunk)

Financial Data and Key Metrics Changes - The company achieved record results for revenue, net revenue, operating income, and earnings per share in the second quarter, with net revenue increasing to $1.1 billion, up $51 million year-over-year, and operating income rising to $130 million, an 11% increase from the prior year [9][10] - Earnings per share for the quarter was $0.33, reflecting an 18% increase from the previous year [10] Business Line Data and Key Metrics Changes - The Government Services Group (GSG) segment saw a 12% year-over-year revenue increase to $521 million, with a margin of 13.8% [10][11] - The Commercial International Group (CIG) segment's revenue was $597 million, up approximately 2%, with a margin of 13.2% [11] - U.S. Federal client work (excluding USAID) increased by 16%, representing about 20% of total revenues, driven by disaster response activities and new programs for the Army Corps of Engineers [11][12] Market Data and Key Metrics Changes - International work accounted for about 38% of revenues, with slight growth on a constant currency basis, although Australian infrastructure work saw a reduction of over 10% due to a recent election [12][13] - The company reported a backlog of $4.31 billion, which includes $220 million in ongoing work with USAID, primarily in Ukraine [13][14] Company Strategy and Development Direction - The company is focusing on high-end data centers and water and environmental projects, which are expected to carry higher margins [16][31] - The addition of the Sage Group is expected to enhance capabilities in digital systems and automation, positioning the company for growth in these areas [34][35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the funding streams from the U.S. Federal Government, particularly in defense-related services, and noted that the Department of Defense is expected to spend what they contract for [72][74] - The company anticipates continued strong demand for its services in water supply and environmental projects, driven by ongoing challenges such as drought and aging infrastructure [86] Other Important Information - The company announced a 12% increase in its quarterly dividend and reinstated its stock buyback program, with $150 million in stock repurchased in the second quarter [22][23] - A new credit facility of $1.5 billion was secured, providing more liquidity and favorable terms for future investments [20][39] Q&A Session All Questions and Answers Question: Concerns about federal expenditure reductions affecting state and local business - Management noted that they have not seen any near-term pressure on state and local projects, which are often funded through multi-year bonds [42][44] Question: Impact of proposed EPA deregulation on the company - Management indicated that most of their environmental work is driven by state and local regulations, and they do not foresee a direct impact from proposed federal regulations [49][52] Question: Core margin progression post-USAID cancellations - Management expects margins to grow slightly faster than the previously targeted 50 basis points annually, with a new higher baseline established [59][60] Question: Visibility and confidence from government partners for future projects - Management reported positive feedback from federal clients regarding funding commitments, particularly in defense and infrastructure projects [72][74] Question: Capital allocation preferences between share buybacks and M&A - Management stated that they have the ability to pursue both share buybacks and acquisitions simultaneously, with a focus on maintaining double-digit dividend increases [88][89] Question: Utilization rates of staff previously working with USAID - Management acknowledged a decrease in utilization rates for USAID staff but noted that overall staffing levels remained high due to disaster response projects [96]