Tetra Tech(TTEK) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents Tetra Tech's unaudited consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (Unaudited) This section presents Tetra Tech's unaudited consolidated financial statements and related notes for the specified periods Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity at specific dates | ASSETS (in thousands) | July 2, 2023 | October 2, 2022 | | :---------------------- | :----------- | :-------------- | | Cash and cash equivalents | $176,056 | $185,094 | | Accounts receivable, net | $1,002,087 | $755,112 | | Contract assets | $125,360 | $92,405 | | Total current assets | $1,417,943 | $1,158,216 | | Property and equipment, net | $81,321 | $32,316 | | Goodwill | $1,886,854 | $1,110,412 | | Intangible assets, net | $225,032 | $29,163 | | Total assets | $3,973,578 | $2,622,776 | | LIABILITIES AND EQUITY | | | | Accounts payable | $188,807 | $147,436 | | Accrued compensation | $270,924 | $237,669 | | Contract liabilities | $351,048 | $241,340 | | Total current liabilities | $1,212,159 | $916,017 | | Long-term debt | $906,875 | $246,250 | | Total liabilities and stockholders' equity | $3,973,578 | $2,622,776 | - Total assets increased significantly from $2,622,776 thousand at October 2, 2022, to $3,973,578 thousand at July 2, 2023, primarily driven by increases in goodwill and intangible assets due to acquisitions[7] - Long-term debt saw a substantial increase from $246,250 thousand to $906,875 thousand, reflecting financing activities for acquisitions[7] Consolidated Statements of Income This section presents the company's financial performance over specific periods, detailing revenues, expenses, and net income | (in thousands, except per share data) | Three Months Ended July 2, 2023 | Three Months Ended July 3, 2022 | Nine Months Ended July 2, 2023 | Nine Months Ended July 3, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $1,208,947 | $890,231 | $3,261,938 | $2,601,485 | | Gross profit | $188,846 | $144,584 | $512,937 | $419,524 | | Income from operations | $97,675 | $83,905 | $250,736 | $245,645 | | Net income attributable to Tetra Tech | $60,235 | $58,650 | $219,771 | $180,179 | | Diluted EPS | $1.12 | $1.09 | $4.10 | $3.32 | - Revenue for the nine months ended July 2, 2023, increased by 25.4% to $3,261,938 thousand from $2,601,485 thousand in the prior-year period[9] - Diluted EPS for the nine months ended July 2, 2023, rose to $4.10, up from $3.32 in the same period last year, representing a 23.5% increase[9] Consolidated Statements of Comprehensive Income This section presents the company's comprehensive income, including net income and other comprehensive income items | (in thousands) | Three Months Ended July 2, 2023 | Three Months Ended July 3, 2022 | Nine Months Ended July 2, 2023 | Nine Months Ended July 3, 2022 | | :------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $60,238 | $58,657 | $219,794 | $180,205 | | Foreign currency translation adjustment, net of tax | $44,500 | $(44,884) | $69,453 | $(42,763) | | Comprehensive income attributable to Tetra Tech, net of tax | $103,690 | $16,147 | $289,989 | $147,401 | - Comprehensive income attributable to Tetra Tech significantly increased for the nine months ended July 2, 2023, reaching $289,989 thousand, compared to $147,401 thousand in the prior-year period, largely due to a positive foreign currency translation adjustment[12] Consolidated Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities | (in thousands) | Nine Months Ended July 2, 2023 | Nine Months Ended July 3, 2022 | | :------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $246,053 | $275,976 | | Net cash used in investing activities | $(761,896) | $(38,271) | | Net cash provided by (used in) financing activities | $494,395 | $(182,486) | | Net (decrease) increase in cash and cash equivalents | $(9,038) | $50,816 | | Cash and cash equivalents at end of period | $176,056 | $217,384 | - Net cash used in investing activities dramatically increased to $761,896 thousand for the nine months ended July 2, 2023, from $38,271 thousand in the prior-year period, primarily due to business acquisitions[15] - Net cash provided by financing activities shifted from a use of $182,486 thousand in the prior year to a provision of $494,395 thousand, driven by proceeds from borrowings to fund acquisitions[15] Consolidated Statements of Equity This section outlines changes in stockholders' equity, including common stock, retained earnings, and comprehensive loss | (in thousands) | Balance at October 2, 2022 | Balance at July 2, 2023 | | :------------- | :------------------------- | :---------------------- | | Common Stock | $530 | $532 | | Additional Paid-in Capital | $0 | $17,906 |\n| Accumulated Other Comprehensive Loss | $(208,144) | $(137,926) | | Retained Earnings | $1,390,701 | $1,572,204 | | Total Tetra Tech Stockholders' Equity | $1,183,087 | $1,452,716 | - Total Tetra Tech stockholders' equity increased from $1,183,087 thousand at October 2, 2022, to $1,452,716 thousand at July 2, 2023, primarily due to net income and a reduction in accumulated other comprehensive loss[19] - Accumulated other comprehensive loss improved from $(208,144) thousand to $(137,926) thousand, reflecting positive foreign currency translation adjustments[19] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and breakdowns for various financial accounts and activities presented in the statements 1. Basis of Presentation This note describes the basis for preparing the unaudited interim consolidated financial statements in accordance with GAAP - The unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, and should be read with the Annual Report on Form 10-K for the fiscal year ended October 2, 2022[21] 2. Recent Accounting Pronouncements This note discusses the impact and adoption of recent accounting standards updates on the company's financial reporting - ASU 2021-10, Government Assistance (Topic 832), became effective in fiscal 2023, requiring annual disclosures for government assistance transactions[23] - The $26.0 million Canadian Emergency Wage Subsidy (CEWS) received in fiscal 2020 was reclassified from 'Other current liabilities' to 'Accrued compensation' ($9 million) and 'Other non-current liabilities' ($17 million) in fiscal 2023, with no expected impact on operating income[24] 3. Revenue and Contract Balances This note provides a breakdown of revenue by client sector and contract type, along with details on contract assets and liabilities | Client Sector (in thousands) | Three Months Ended July 2, 2023 | Three Months Ended July 3, 2022 | Nine Months Ended July 2, 2023 | Nine Months Ended July 3, 2022 | | :--------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | U.S. federal government | $338,022 | $261,434 | $996,471 | $781,503 | | International | $493,556 | $289,811 | $1,179,619 | $817,311 | | Total Revenue | $1,208,947 | $890,231 | $3,261,938 | $2,601,485 | | Contract Type (in thousands) | | | | | | Fixed-price | $452,605 | $335,014 | $1,194,266 | $982,565 | | Time-and-materials | $596,904 | $417,898 | $1,550,970 | $1,221,598 | | Cost-plus | $159,438 | $137,319 | $516,702 | $397,322 | - International client sector revenue significantly increased by 70.3% for the three months ended July 2, 2023, and by 44.3% for the nine months ended July 2, 2023, compared to the prior-year periods[26] | Net Contract Balances (in thousands) | July 2, 2023 | October 2, 2022 | | :----------------------------------- | :----------- | :-------------- | | Contract assets | $125,360 | $92,405 | | Contract liabilities | $351,048 | $241,340 |\n| Net contract liabilities | $(225,688) | $(148,935) | - Remaining Unsatisfied Performance Obligations (RUPO) totaled $4.4 billion at July 2, 2023, with $2.8 billion expected to be satisfied within 12 months[34][35] 4. Acquisitions This note details significant business acquisitions, including purchase prices, financing, and their impact on financial results - Tetra Tech completed the acquisition of RPS Group plc on January 23, 2023, for approximately £633 million ($784 million), primarily financed by debt and a foreign exchange forward contract gain of $109.3 million[37][38] - RPS contributed $220.4 million in revenue and $0.7 million in net income (before intangible amortization) for the third quarter of fiscal 2023[42] - The company also acquired Amyx, Inc. in the second quarter of fiscal 2023 for $120.9 million, enhancing its Government Services Group (GSG) segment with enterprise technology and cybersecurity services[43] - Goodwill from fiscal 2023 acquisitions, primarily RPS and Amyx, is attributed to technical expertise, expected synergies in energy transformation, water, program management, and data analytics, and expanded market positions[46] - Contingent earn-out liabilities totaled $76.6 million (estimated fair value) at July 2, 2023, with a maximum potential of $120.3 million, and adjustments resulted in an $8.5 million net charge to operating income in the first nine months of fiscal 2023[52][53] 5. Goodwill and Intangible Assets This note provides a breakdown of goodwill and intangible assets by segment, including changes due to acquisitions and amortization | Goodwill (in thousands) | GSG | CIG | Total | | :---------------------- | :--------- | :----------- | :----------- | | Balance at October 2, 2022 | $519,102 | $591,310 | $1,110,412 | | Acquisition activity | $104,100 | $619,832 | $723,932 | | Translation adjustments | $5,459 | $47,051 | $52,510 | | Balance at July 2, 2023 | $628,661 | $1,258,193 | $1,886,854 | - Goodwill increased by $776.4 million from October 2, 2022, to July 2, 2023, primarily due to acquisition activity, with the Commercial/International Services Group (CIG) segment seeing the largest increase[54] | Intangible Assets, Net (in thousands) | July 2, 2023 Net Amount | October 2, 2022 Net Amount | | :------------------------------------ | :---------------------- | :------------------------- | | Client relations | $189,072 | $20,584 | | Backlog | $15,726 | $3,296 | | Trade names | $20,234 | $5,283 | | Total | $225,032 | $29,163 | - Amortization expense for intangible assets increased to $29.6 million for the nine months ended July 2, 2023, from $9.6 million in the prior-year period, reflecting recent acquisitions[57] 6. Property and Equipment This note details the company's property and equipment, net of accumulated depreciation, and changes over the period | Property and Equipment, Net (in thousands) | July 2, 2023 | October 2, 2022 | | :--------------------------------------- | :----------- | :-------------- | | Equipment, furniture and fixtures | $141,619 | $96,710 | | Leasehold improvements | $47,949 | $32,428 | | Total property and equipment | $189,568 | $129,138 | | Accumulated depreciation | $(108,247) | $(96,822) | | Property and equipment, net | $81,321 | $32,316 | - Net property and equipment increased by $49.0 million from October 2, 2022, to July 2, 2023, primarily due to the RPS acquisition[59] 7. Stock Repurchase and Dividends This note outlines the company's stock repurchase activities and declared cash dividends per share - Tetra Tech did not repurchase any common stock in the first nine months of fiscal 2023, leaving $347.8 million remaining under its $400 million stock repurchase program[60] | Dividend Paid Per Share | Total Dividend Paid (in thousands) | | :---------------------- | :--------------------------------- | | FY23 Q1: $0.23 | $12,186 | | FY23 Q2: $0.23 | $12,242 | | FY23 Q3: $0.26 | $13,840 | | Total FY23 YTD | $38,268 | | FY22 YTD Total | $33,873 | - The Board of Directors declared a quarterly cash dividend of $0.26 per share payable on September 6, 2023[61] 8. Leases This note provides information on operating lease costs, right-of-use assets, and lease liabilities | Lease Costs (in thousands) | Three Months Ended July 2, 2023 | Three Months Ended July 3, 2022 | Nine Months Ended July 2, 2023 | Nine Months Ended July 3, 2022 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating lease cost | $24,775 | $21,004 | $70,155 | $64,015 | | Total lease cost | $24,729 | $21,144 | $70,030 | $63,899 | | Operating Lease Balances (in thousands) | July 2, 2023 | October 2, 2022 | | :-------------------------------------- | :----------- | :-------------- | | Right-of-use assets | $207,218 | $182,319 | | Total operating lease liabilities | $232,474 | $204,150 | | Weighted-average remaining lease term | 5 years | 5 years | | Weighted-average discount rate | 3.0 % | 2.2 % | - Operating lease costs for the nine months ended July 2, 2023, increased to $70,155 thousand from $64,015 thousand in the prior-year period[65] 9. Stockholders' Equity and Stock Compensation Plans This note details stock-based compensation expense and the issuance of performance share units and restricted stock units - Stock-based compensation expense for the nine months ended July 2, 2023, was $21.6 million, up from $19.1 million in the prior-year period[68] - In the first nine months of fiscal 2023, Tetra Tech awarded 56,214 performance share units (PSUs) and 103,016 restricted stock units (RSUs) to directors, executive officers, and employees[68] 10. Earnings per Share ("EPS") This note presents the calculation of basic and diluted earnings per share, including weighted-average shares outstanding | (in thousands, except per share data) | Three Months Ended July 2, 2023 | Three Months Ended July 3, 2022 | Nine Months Ended July 2, 2023 | Nine Months Ended July 3, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income attributable to Tetra Tech | $60,235 | $58,650 | $219,771 | $180,179 | | Weighted-average common shares outstanding – diluted | 53,653 | 54,006 | 53,615 | 54,328 | | Diluted EPS | $1.12 | $1.09 | $4.10 | $3.32 | - Diluted EPS increased to $4.10 for the nine months ended July 2, 2023, from $3.32 in the prior-year period, reflecting higher net income attributable to Tetra Tech[71] 11. Income Taxes This note details the effective tax rate and changes in the liability for uncertain tax positions - The effective tax rate for the first nine months of fiscal 2023 was 28.3%, up from 23.9% in the prior-year period[72] - Excluding excess tax benefits on share-based payments and non-operating tax expenses, the effective tax rate for the first nine months of fiscal 2023 was 26.7%, compared to 25.9% in fiscal 2022[72] - The liability for income taxes associated with uncertain tax positions increased significantly to $48.8 million at July 2, 2023, from $10.6 million at October 2, 2022[73] 12. Reportable Segments This note provides financial information for the company's Government Services Group (GSG) and Commercial/International Group (CIG) segments - Tetra Tech operates under two reportable segments: Government Services Group (GSG) and Commercial/International Group (CIG)[74] | Segment Financials (in thousands) | Three Months Ended July 2, 2023 | Three Months Ended July 3, 2022 | Nine Months Ended July 2, 2023 | Nine Months Ended July 3, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | GSG Revenue | $531,050 | $459,987 | $1,565,371 | $1,365,041 | | CIG Revenue | $691,386 | $444,238 | $1,741,300 | $1,277,469 | | GSG Income from operations | $54,496 | $45,580 | $167,053 | $147,104 | | CIG Income from operations | $69,572 | $53,535 | $172,199 | $139,328 | - CIG revenue for the nine months ended July 2, 2023, increased by 36.3% to $1,741,300 thousand, significantly outpacing GSG's 14.7% growth, largely due to the RPS acquisition[78] 13. Fair Value Measurements This note discusses the fair value of financial instruments, including long-term debt and borrowings under the credit facility - The fair value of long-term debt approximated its carrying value at July 2, 2023, and October 2, 2022, determined using Level 2 measurements[79] - Borrowings of $919.4 million were outstanding under the Amended Credit Agreement at July 2, 2023, primarily funding business acquisitions and working capital[79] 14. Credit Facility This note details the company's credit agreement, borrowing capacity, and compliance with financial covenants - Tetra Tech entered into a Third Amended and Restated Credit Agreement on October 26, 2022, adding a $500 million New Term Loan Facility, increasing total borrowing capacity to $1.55 billion[80] - The New Term Loan Facility was fully drawn on January 23, 2023, to partially finance the RPS acquisition[81] - The Amended Credit Agreement includes financial covenants for a maximum Consolidated Leverage Ratio of 3.25 to 1.00 and a minimum Consolidated Interest Coverage Ratio of 3.00 to 1.00[84] 15. Derivative Financial Instruments This note describes the company's use of foreign currency forward contracts and interest rate swap agreements for hedging - A foreign currency forward contract, integral to the RPS acquisition financing, resulted in a cumulative gain of approximately $109 million, recognized as non-operating income, as it did not qualify for hedge accounting[87][88] - Tetra Tech uses interest rate swap agreements to hedge variable rate debt, with $190.6 million notional principal outstanding at July 2, 2023, at a fixed rate of 2.79%[89] 16. Reclassifications Out of Accumulated Other Comprehensive Income This note details reclassifications from accumulated other comprehensive income, primarily foreign currency translation adjustments | (in thousands) | Balance at October 2, 2022 | Balance at July 2, 2023 | | :------------- | :------------------------- | :---------------------- | | Foreign Currency Translation Adjustments | $(210,556) | $(141,103) | | Gain (Loss) on Derivative Instruments | $2,412 | $383 | | Net Pension Adjustments | $0 | $2,794 | | Accumulated Other Comprehensive Income (Loss) | $(208,144) | $(137,926) | - Accumulated other comprehensive loss improved by $70.2 million for the nine months ended July 2, 2023, primarily due to positive foreign currency translation adjustments[91] 17. Commitments and Contingencies This note outlines the company's legal proceedings, professional claims, and other commitments and contingencies - Tetra Tech is subject to professional errors or omissions claims, carrying professional liability insurance, but some actions seek damages exceeding coverage[92] - A False Claims Act lawsuit against subsidiary Tetra Tech EC, Inc. (TtEC) related to environmental remediation services at Hunters Point Naval Shipyard is ongoing, with the outcome and potential loss currently undeterminable[93] 18. Related Party Transactions This note describes transactions and balances with unconsolidated joint ventures and other related parties - Revenue from services provided to unconsolidated joint ventures was $65 million for the first nine months of fiscal 2023, down from $74 million in the prior-year period[94] | Related Party Balances (in thousands) | July 2, 2023 | October 2, 2022 | | :------------------------------------ | :----------- | :-------------- | | Accounts receivable, net | $22,234 | $16,818 | | Contract assets | $1,800 | $2,935 | | Contract liabilities | $2,768 | $3,464 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Tetra Tech's financial condition, results of operations, and strategic direction FORWARD-LOOKING STATEMENTS This section cautions that the report contains forward-looking statements subject to risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially from predictions[95] GENERAL OVERVIEW This section provides an overview of Tetra Tech's global consulting and engineering services and key revenue drivers - Tetra Tech is a global provider of high-end consulting and engineering services focused on water, environment, sustainable infrastructure, renewable energy, and international development, operating in over 100 countries[96] - Revenue is driven by attracting and retaining qualified employees, identifying business opportunities, securing contracts, and successful project execution[97] | Client Sector Revenue Percentage | Three Months Ended July 2, 2023 | Three Months Ended July 3, 2022 | Nine Months Ended July 2, 2023 | Nine Months Ended July 3, 2022 | | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | U.S. federal government | 28.0 % | 29.4 % | 30.5 % | 30.0 % | | U.S. state and local government | 12.5 % | 16.9 % | 13.9 % | 17.9 % | | U.S. commercial | 18.7 % | 21.1 % | 19.4 % | 20.7 % | | International | 40.8 % | 32.6 % | 36.2 % | 31.4 % | | Reportable Segment Revenue Percentage | Three Months Ended July 2, 2023 | Three Months Ended July 3, 2022 | Nine Months Ended July 2, 2023 | Nine Months Ended July 3, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | GSG | 43.9 % | 51.7 % | 48.0 % | 52.5 % | | CIG | 57.2 % | 49.9 % | 53.4 % | 49.1 % | - The company experiences seasonal trends, with lower revenue and operating income in the first half of the fiscal year due to holidays and inclement weather[105] ACQUISITIONS AND DIVESTITURES This section discusses Tetra Tech's growth strategy through acquisitions, detailing recent significant transactions - Acquisitions are a key component of Tetra Tech's growth strategy, funded by cash, debt, or equity, aiming to strengthen market leadership, expand service offerings, and improve financial performance[106][107] - The acquisition of RPS Group plc for $784 million on January 23, 2023, significantly expanded the CIG segment, contributing $389.9 million in revenue for the first nine months of fiscal 2023[108][109] - Amyx, Inc. was acquired in the second quarter of fiscal 2023, adding enterprise technology services, cybersecurity, and management consulting to the GSG segment[110] OVERVIEW OF RESULTS AND BUSINESS TRENDS This section highlights overall financial performance, revenue growth by client sector, and key business trends - Total revenue increased by 25.4% in the first nine months of fiscal 2023 compared to the prior-year period, with a 10.4% increase excluding the RPS acquisition[112] - U.S. federal government revenue grew 27.5% in the first nine months of fiscal 2023, driven by international development and civilian agency activities, with continued growth expected from federal funding programs[113] - U.S. state and local government revenue decreased 2.9% due to lower disaster response, but increased 21.5% excluding disaster response, reflecting growth in municipal water infrastructure and digital water projects[114] - U.S. commercial revenue increased 18.0% (11.4% excluding RPS) in the first nine months of fiscal 2023, primarily from clean energy and environmental programs[115] - International revenue surged 44.3% (10% on a constant currency basis, excluding RPS) in the first nine months of fiscal 2023, supported by government stimulus and sustainability-focused commercial activities[116] RESULTS OF OPERATIONS This section analyzes the company's consolidated and segment-specific financial performance, including revenue and income from operations Consolidated Results of Operations This section provides a detailed analysis of Tetra Tech's overall financial performance, including revenue, gross profit, and net income | (in thousands, except per share data) | Three Months Ended July 2, 2023 | Three Months Ended July 3, 2022 | Nine Months Ended July 2, 2023 | Nine Months Ended July 3, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $1,208,947 | $890,231 | $3,261,938 | $2,601,485 | | Revenue, net of subcontractor costs | $987,560 | $720,486 | $2,693,686 | $2,099,461 | | Gross profit | $188,846 | $144,584 | $512,937 | $419,524 | | Income from operations | $97,675 | $83,905 | $250,736 | $245,645 | | Net income attributable to Tetra Tech | $60,235 | $58,650 | $219,771 | $180,179 | | Diluted earnings per share | $1.12 | $1.09 | $4.10 | $3.32 | - Revenue, net of subcontractor costs, increased by 37.1% in Q3 FY23 and 28.3% in the first nine months of FY23, reflecting strong organic growth and the RPS acquisition[117][118] - Adjusted operating income increased by 20.4% in Q3 FY23 and 18.7% in the first nine months of FY23, excluding acquisition/integration costs, earn-out adjustments, and COVID-19 credits[123] - Net interest expense significantly increased to $33.6 million for the first nine months of fiscal 2023, up from $9.0 million in the prior-year period, primarily due to additional borrowings for the RPS acquisition[124] - Other non-operating income of $89.4 million in the first nine months of fiscal 2023 resulted from gains on a foreign exchange forward contract related to the RPS acquisition[125] - Adjusted EPS for the first nine months of fiscal 2023 was $3.55, an increase of 9.2% year-over-year, and $3.81 excluding RPS, representing a 17.2% increase[127] Segment Results of Operations This section analyzes the financial performance of the Government Services Group (GSG) and Commercial/International Group (CIG) segments | GSG (in thousands) | Three Months Ended July 2, 2023 | Three Months Ended July 3, 2022 | Nine Months Ended July 2, 2023 | Nine Months Ended July 3, 2022 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $531,050 | $459,987 | $1,565,371 | $1,365,041 | | Income from operations | $54,496 | $45,580 | $167,053 | $147,104 | - GSG revenue, net of subcontractor costs, increased by 16.3% in Q3 FY23 and 17.9% in the first nine months of FY23, including $70 million from international development energy programs in Ukraine[129] | CIG (in thousands) | Three Months Ended July 2, 2023 | Three Months Ended July 3, 2022 | Nine Months Ended July 2, 2023 | Nine Months Ended July 3, 2022 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $691,386 | $444,238 | $1,741,300 | $1,277,469 | | Income from operations | $69,572 | $53,535 | $172,199 | $139,328 | - CIG revenue, net of subcontractor costs, increased by 55.2% in Q3 FY23 and 37.8% in the first nine months of FY23, with RPS acquisition contributing approximately $370 million to revenue growth[131] - CIG's operating margin (excluding RPS and ERCs) improved to 12.8% in the first nine months of fiscal 2023, up from 12.5% in the prior-year period, due to focus on high-end consulting, project execution, and higher labor utilization[132] Backlog This section reports on the company's backlog, representing the total dollar value of work yet to be performed - Backlog, representing the total dollar value of work to be performed, was $4.4 billion at July 2, 2023, consistent with Remaining Unsatisfied Performance Obligations (RUPO)[133] Financial Condition, Liquidity and Capital Resources This section assesses Tetra Tech's financial health, cash position, credit facility, and cash flow activities - At July 2, 2023, Tetra Tech had $176.1 million in cash and cash equivalents and $614.3 million available under its credit facility, deemed sufficient for capital requirements for the next 12 months[134] - Net cash provided by operating activities decreased by $29.9 million to $246.1 million for the first nine months of fiscal 2023, primarily due to $25.8 million in acquisition and integration expenses[140] - Net cash used in investing activities increased significantly by $723.6 million to $761.9 million, mainly due to the RPS acquisition[141] - Net cash provided by financing activities was $494.4 million, a substantial increase from a net use of $182.5 million in the prior-year period, driven by borrowings for the RPS acquisition[142] - At July 2, 2023, outstanding borrowings under the Amended Credit Agreement totaled $919.4 million, with a weighted-average interest rate of 5.88% for the first nine months of fiscal 2023[146] - Tetra Tech was in compliance with debt covenants at July 2, 2023, with a consolidated leverage ratio of 2.01x and an interest coverage ratio of 10.95x[147] Inflation This section discusses the perceived impact of inflation on Tetra Tech's operations and pricing strategies - Tetra Tech believes its operations have not been materially affected by inflation due to project duration and ability to negotiate prices[150] Dividends This section provides details on the company's declared quarterly cash dividends, including amounts and payment dates | Dividend Declaration Date | Dividend Per Share | Payment Date | | :------------------------ | :----------------- | :--------------- | | November 7, 2022 | $0.23 | December 9, 2022 |\n| January 30, 2023 | $0.23 | February 24, 2023|\n| May 8, 2023 | $0.26 | June 6, 2023 |\n| August 7, 2023 | $0.26 | September 6, 2023| Income Taxes This section discusses the company's effective tax rate and the liability for uncertain tax positions - The liability for income taxes associated with uncertain tax positions increased to $48.8 million at July 2, 2023, from $10.6 million at October 2, 2022[153] Off-Balance Sheet Arrangements This section describes the company's off-balance sheet arrangements, such as letters of credit and guarantees - Off-balance sheet arrangements, including letters of credit and bank guarantees ($57.3 million outstanding at July 2, 2023), are used to support project performance and insurance programs[156] - The company provides guarantees and indemnifications related to services and is jointly and severally liable in certain unconsolidated subsidiaries and joint ventures[156][157] Critical Accounting Policies This section confirms no material changes to the company's critical accounting policies from the prior annual report - There have been no material changes to critical accounting policies as reported in the 2022 Annual Report on Form 10-K[158] New Accounting Pronouncements This section refers to the notes to financial statements for information on recent accounting pronouncements - Information regarding recent accounting pronouncements is provided in the 'Notes to Consolidated Financial Statements' (Part I, Item 1)[159] Financial Market Risks This section details Tetra Tech's exposure to interest rate risk and foreign currency transaction and translation risks - Tetra Tech is exposed to interest rate risk on its variable rate debt under the Amended Credit Agreement, with $919.4 million outstanding at July 2, 2023, and a weighted-average interest rate of 5.88% for fiscal 2023[161] - The company uses interest rate swap agreements to hedge $190.6 million of its term loan facility, resulting in a year-to-date average effective interest rate of 5.46% on borrowings[162] - Foreign currency transaction and translation risks exist due to operations in Canadian and Australian dollars and British Pounds, with 36.2% of consolidated revenue from international business in the first nine months of fiscal 2023[163][165] - Foreign exchange rate translation positively impacted equity by $69.5 million in the first nine months of fiscal 2023, compared to a $42.8 million decrease in the prior-year period[165] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the 'Financial Market Risks' discussion in Item 2 for detailed market risk disclosures - Disclosures regarding market risk are incorporated by reference from the 'Financial Market Risks' section in Item 2 of this Form 10-Q[166] Item 4. Controls and Procedures This section evaluates disclosure controls and procedures, confirming effectiveness and reporting no material changes to internal controls - Management concluded that disclosure controls and procedures were effective as of July 2, 2023, excluding the recently acquired Amyx and RPS[167] - There were no material changes in internal control over financial reporting during the quarter ended July 2, 2023[168] PART II. OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, mine safety disclosures, and other relevant information Item 1. Legal Proceedings This section refers to Note 17, 'Commitments and Contingencies,' for information on legal proceedings - Information on legal proceedings is incorporated by reference from Note 17, 'Commitments and Contingencies,' in the financial statements[169] Item 1A. Risk Factors This section reports no material changes to risk factors from the 2022 Annual Report, with updated disclosures in Item 2 - No material changes to risk factors from the 2022 Annual Report on Form 10-K[171] - Updated disclosures for interest and exchange rate risks are provided in the 'Financial Market Risks' section of Item 2[171] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no common stock repurchases in the first nine months of fiscal 2023 and the remaining repurchase program balance - Tetra Tech did not repurchase any common stock in the first nine months of fiscal 2023[172] - A balance of $347.8 million remained under the $400 million stock repurchase program as of July 2, 2023[172] Item 4. Mine Safety Disclosures This section addresses Dodd-Frank Act disclosures for mine safety violations, referencing Exhibit 95 for detailed information - Tetra Tech may act as a mining operator (independent contractor) under the Mine Act, requiring disclosures under Section 1503 of the Dodd-Frank Act[173] - Information concerning mine safety violations is included in Exhibit 95[173] Item 5. Other Information This section confirms no directors or officers adopted, modified, or terminated Rule 10b5-1 trading plans in Q3 FY23 - No directors or officers adopted, modified, or terminated Rule 10b5-1 trading plans during the third quarter of fiscal 2023[174] Item 6. Exhibits This section lists documents filed as exhibits to the Form 10-Q, including certifications, mine safety, and XBRL financial data - Exhibits include Chief Executive Officer and Chief Financial Officer Certifications (31.2, 32.1, 32.2), Mine Safety Disclosure (95), and financial information in Inline XBRL format (101, 104)[176] SIGNATURES This section contains the official signatures of Tetra Tech, Inc.'s authorized officers, certifying the filing of the Form 10-Q SIGNATURES This section contains the official signatures of Tetra Tech, Inc.'s authorized officers, certifying the filing of the Form 10-Q - The report is duly signed by Dan L. Batrack (Chairman and CEO), Steven M. Burdick (EVP, CFO), and Brian N. Carter (SVP, Corporate Controller) on August 10, 2023[179][180]