TETRA TECH INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended
December 29, 2024
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number
0-19655
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
(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 | ||||||||||||
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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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
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☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company |
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
No
☒
At January 20, 2025,
268,036,087
sha
res of the registrant’s common stock were outstanding.
TETRA TECH, INC.
INDEX
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2
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements
Tetra Tech, Inc.
Consolidated Balance Sheets
(unaudited - in thousands, except par value)
| As of | |||||||||||
| ASSETS |
December 29,
2024 |
September 29,
2024 |
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| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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| Accounts receivable, net |
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| Contract assets |
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| Prepaid expenses and other current assets |
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| Total current assets |
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| Property and equipment, net |
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| Right-of-use assets, operating leases |
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| Goodwill |
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| Intangible assets, net |
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| Deferred tax assets |
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| Other non-current assets |
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| Total assets | $ |
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$ |
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| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ |
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$ |
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| Accrued compensation |
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| Contract liabilities |
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| Short-term lease liabilities, operating leases |
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| Current contingent earn-out liabilities |
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| Other current liabilities |
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| Total current liabilities |
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| Deferred tax liabilities |
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| Long-term debt |
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| Long-term lease liabilities, operating leases |
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| Non-current contingent earn-out liabilities |
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| Other non-current liabilities |
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Commitments and contingencies (Note 17)
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| Equity: | |||||||||||
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Preferred stock - authorized,
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Common stock - authorized,
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| Additional paid-in capital |
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| Accumulated other comprehensive loss |
(
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(
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| Retained earnings |
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| Tetra Tech stockholders’ equity |
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| Noncontrolling interests |
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| Total stockholders' equity |
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| Total liabilities and stockholders' equity | $ |
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$ |
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See Notes to Consolidated Financial Statements.
3
Tetra Tech, Inc.
Consolidated Statements of Income
(unaudited – in thousands, except per share data)
| Three Months Ended | |||||||||||
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December 29,
2024 |
December 31,
2023 |
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| Revenue | $ |
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$ |
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| Subcontractor costs |
(
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(
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| Other costs of revenue |
(
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(
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| Gross profit |
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| Selling, general and administrative expenses |
(
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(
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| Legal contingency costs |
(
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| Income from operations |
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| Interest expense, net |
(
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(
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| Income before income tax expense |
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| Income tax expense |
(
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(
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| Net income |
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| Net income attributable to noncontrolling interests |
(
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(
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| Net income attributable to Tetra Tech | $ |
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$ |
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| Earnings per share attributable to Tetra Tech: | |||||||||||
| Basic | $ |
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$ |
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| Diluted | $ |
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$ |
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| Weighted-average common shares outstanding: | |||||||||||
| Basic |
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| Diluted |
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See Notes to Consolidated Financial Statements.
4
Tetra Tech, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(unaudited – in thousands)
| Three Months Ended | |||||||||||
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December 29,
2024 |
December 31,
2023 |
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| Net income | $ |
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$ |
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| Other comprehensive (loss) income, net of tax | |||||||||||
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Foreign currency translation adjustment,
net of tax
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(
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| Net pension adjustments |
(
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(
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| Other comprehensive (loss) income, net of tax |
(
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| Comprehensive (loss) income, net of tax |
(
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| Less: Comprehensive income attributable to noncontrolling interests, net of tax |
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| Comprehensive (loss) income attributable to Tetra Tech, net of tax | $ |
(
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$ |
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See Notes to Consolidated Financial Statements.
5
Tetra Tech, Inc.
Consolidated Statements of Cash Flows
(unaudited – in thousands)
| Three Months Ended | |||||||||||
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December 29,
2024 |
December 31,
2023 |
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| Cash flows from operating activities: | |||||||||||
| Net income | $ |
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$ |
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| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization |
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| Amortization of stock-based awards |
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| Deferred income taxes |
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(
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| Other non-cash items |
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| Changes in operating assets and liabilities, net of effects of business acquisitions: | |||||||||||
| Accounts receivable and contract assets |
(
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(
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| Prepaid expenses and other assets |
(
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(
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| Accounts payable |
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| Accrued compensation |
(
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(
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| Contract liabilities |
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| Income taxes receivable/payable |
(
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(
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| Cash settled on contingent earn-out liabilities |
(
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| Other liabilities |
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(
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| Net cash provided by operating activities |
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| Cash flows from investing activities: | |||||||||||
| Capital expenditures |
(
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(
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| Net cash used in investing activities |
(
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(
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| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings |
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| Repayments on long-term debt |
(
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(
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| Repurchases of common stock |
(
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| Shares repurchased for tax withholdings on share-based awards |
(
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(
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| Payments of contingent earn-out liabilities |
(
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(
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| Stock options exercised |
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| Dividends paid |
(
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(
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| Principal payments on finance leases |
(
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(
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| Net cash provided by financing activities |
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| Effect of exchange rate changes on cash and cash equivalents |
(
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| Net increase in cash and cash equivalents |
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| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period | $ |
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$ |
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| Supplemental information: | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest | $ |
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$ |
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Income taxes, net of refunds received of $
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$ |
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$ |
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See Notes to Consolidated Financial Statements.
6
Tetra Tech, Inc.
Consolidated Statements of Stockholders' Equity
Three Months Ended December 31, 2023 and December 29, 2024
(unaudited – in thousands)
| Common Stock |
Additional
Paid-in Capital |
Accumulated
Other Comprehensive Loss |
Retained
Earnings |
Total
Tetra Tech Equity |
Non-Controlling
Interests |
Total
Equity |
|||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT OCTOBER 1, 2023 |
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$ |
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$ |
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$ |
(
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$ |
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$ |
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$ |
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$ |
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| Net income | — | — | — | — |
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| Other comprehensive income | — | — | — |
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— |
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— |
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Cash dividends of $
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— | — | — | — |
(
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(
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— |
(
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| Stock-based compensation | — | — |
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— | — |
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— |
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| Restricted & performance shares released |
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(
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— | — |
(
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— |
(
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| Stock options exercised |
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— |
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— | — |
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— |
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| Shares issued for Employee Stock Purchase Plan |
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— | — |
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— |
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| BALANCE AT DECEMBER 31, 2023 |
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$ |
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$ |
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$ |
(
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$ |
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$ |
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$ |
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$ |
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| BALANCE AT SEPTEMBER 29, 2024 |
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$ |
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$ |
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$ |
(
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$ |
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$ |
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$ |
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$ |
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| Net income | — | — | — | — |
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| Other comprehensive loss | — | — | — |
(
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— |
(
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— |
(
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Cash dividends of $
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— | — | — | — |
(
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(
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— |
(
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| Stock-based compensation | — | — |
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— | — |
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— |
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| Restricted & performance shares released |
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(
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— | — |
(
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— |
(
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| Stock options exercised |
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— |
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— | — |
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— |
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| Shares issued for Employee Stock Purchase Plan |
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— | — |
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— |
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| Stock repurchase |
(
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(
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(
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— | — |
(
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— |
(
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| BALANCE AT DECEMBER 29, 2024 |
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$ |
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$ |
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$ |
(
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$ |
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$ |
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$ |
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$ |
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See Notes to Consolidated Financial Statements.
7
TETRA TECH, INC.
Notes to Consolidated Financial Statements
1.
Basis of Presentation
The accompanying unaudited consolidated financial statements and related notes of Tetra Tech, Inc. (“we,” “us,” “our” or "Tetra Tech") have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and, therefore, should be read in conjunction with the audited consolidated financial statements and the notes contained in our Annual Report on Form 10-K for the fiscal year ended September 29, 2024.
These financial statements reflect all normal recurring adjustments that are considered necessary for a fair statement of our financial position, results of operations and cash flows for the interim periods presented. The results of operations and cash flows for any interim period are not necessarily indicative of results for the full fiscal year or for future fiscal yea
r
s. Certain prior year amounts have been reclassified to conform to the current year presentation in the accompanying notes.
On July 29, 2024, our Board of Directors approved a
five
-for-one stock split of our common stock. The stock split had a record date of September 5, 2024 and an effective date of September 6, 2024. The par value per share of our common stock remains unchanged at $
0.01
per share after the stock split. All prior-period share or per share amounts presented herein have been retroactively adjusted to reflect the stock split.
2.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
, which requires that an entity report segment information in accordance with Topic 280, Segment Reporting. The amendments in the ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU are effective for fiscal years beginning after December 15,
2023 (fiscal 2025 year-end for us), and interim
periods within fiscal years beginning after December 15, 2024 (first quarter of fiscal 2026 for us). Early adoption is permitted. The adoption of this ASU will not have a material impact on our consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09,
Income Taxes (Topic 740): Improvements to Income Tax Disclosures
, which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendments in the ASU are intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in this ASU are effective for annual periods beginning after December 15, 2024 (fiscal 2026 for us). Early adoption is permitted. The adoption of this ASU will not have a material impact on our consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-03,
Income Statement (Topic 220): Reporting Comprehensive Income.
ASU 2024-03 does not change or remove current expense presentation requirements within the consolidated statements of income. However, the amendments require disclosure, on an annual and interim basis, of disaggregated information about certain income statement expense line items within the notes to the consolidated financial statements. The amendments in this update are effective for annual reporting periods beginning after December 15, 2026 (fiscal 2028 for us), and interim reporting periods beginning after December 15, 2027 (first quarter of fiscal 2029 for us). Early adoption is permitted. The adoption of t
his ASU will not have a material impact on our consolidated financial statements.
In November 2024, the FASB issued ASU No. 2024-04,
Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments,
which clarifies the requirements related to accounting for the settlement of a debt instrument as an induced conversion. The amendments in this update are effective for annual reporting periods beginning after December 15, 2025, including interim periods within those fiscal years (first quarter of fiscal 2027 for us). Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements; however, we do not plan to adopt this ASU before fiscal 2027.
3.
Revenue and Contract Balances
We disaggregate revenue by client sector and contract type, as we believe it best depicts how the nature, timing and uncertainty of our revenue and cash flows are affected by economic factors.
The following tables present our revenue disaggregated by client sector and contract type (in thousands):
8
| Three Months Ended | |||||||||||
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December 29,
2024 |
December 31,
2023 |
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| Client Sector: | |||||||||||
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U.S. federal government
(1)
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$ |
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$ |
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| U.S. state and local government |
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| U.S. commercial |
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International
(2)
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| Total | $ |
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$ |
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| Contract Type: | |||||||||||
| Fixed-price | $ |
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$ |
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| Time-and-materials |
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| Cost-plus |
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| Total | $ |
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$ |
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(1)
Includes revenue generated under U.S. federal government contracts performed outside the United States.
(2)
Includes revenue generated from non-U.S. clien
ts, primarily in United Kingdom, Australia and Canada
Other than the U.S. federal government, no single client accounted for more than 10% of our revenue for the first quarters of fiscal 2025 and 2024.
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.
| As of | |||||||||||
|
December 29,
2024 |
September 29, 2024 | ||||||||||
|
Contract assets
(1)
|
$ |
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$ |
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Contract liabilities -
current
|
(
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(
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Contract liabilities -
non-current
(2)
|
(
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| Net contract liabilities | $ |
(
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$ |
(
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(1)
Includes $
8.4
million and $
7.9
million of contract retentions at December 29, 2024 and September 29, 2024, respectively.
(2)
Reported under "Other non-current liabilities" on our consolidated balance sheet as of December 29,2024.
Our contract assets decreased, and contract liabilities increased in the first quarter of fiscal 2025 compared to fiscal 2024 year-end, due to the timing of our milestone billings on fixed-price contracts which were different from the timing of revenue recognition on those contracts. For the first three months of fiscal 2025 and 2024, we recognized revenue of approximately $
116
million and $
130
million, respect
ively, from the amounts included in the contract liability balances at the end of fiscal 2024 and 2023, respectively.
Revenue is recognized by measuring progress over time under Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers". We estimate and measure progress on our contracts over time whereby we compare
9
our total costs incurred on each contract as a percentage of the total expected contract costs. Changes in those estimates could result in the recognition of cumulative catch-up adjustments to the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made. As a result, in the first quarters of fiscal 2025 and 2024, we recognized net favorable revenue and operating income adjustments of $
2.7
million and $
5.7
million, respectively.
C
hanges in revenue and
cos
t estimates could also result in a projected loss, determined at the contract level, which would be recorded immediately in earnings. At December 29, 2024 and September 29, 2024, our consolidated balance sheets included liabilities for anticipated losses of $
13.2
million and $
15.1
million, respectively. The estimated cost to complete these related contracts was approximately $
96
million and $
101
million at December 29, 2024
and September 29, 2024, respectively.
Accounts Receivable, Net
Net accounts receivable consisted of the following (in thousands):
| As of | |||||||||||
|
December 29,
2024 |
September 29,
2024 |
||||||||||
| Billed | $ |
|
$ |
|
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| Unbilled |
|
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| Total accounts receivable |
|
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| Allowance for doubtful accounts |
(
|
(
|
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| Total accounts receivable, net | $ |
|
$ |
|
|||||||
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 December 29, 2024 are expected to be billed and collecte
d 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 commerci
al 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 December 29, 2024 and September 29, 2024.
Remaining Unsatisfied Performance Obligation (“RUPO”)
Our RUPO represents a measure of the total dollar value of work to be performed on contracts awarded and in progress. We had
$
5.4
billion of RUPO at December 29, 2024
. Our RUPO increases with awards from new contracts or additions on existing contracts, and decreases as work is performed and revenue is recognized on existing contracts. Our RUPO may also decrease when projects are canceled or modified in scope. We include a contract within our RUPO when the contract is awarded and an agreement on contract terms has been reached.
We expect to satisfy our RUPO at December 29, 2024 over the following periods (in thousands):
| Amount | |||||
| Within 12 months | $ |
|
|||
| Beyond |
|
||||
| Total | $ |
|
|||
Although RUPO reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. Our RUPO is adjusted to reflect any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals, as appropriate. Our operations and maintenance contracts can generally be terminated by the clients without a substantive financial penalty; therefore, the remaining performance obligations on such contracts are limited to the notice period required for the termination (usually
30
,
60
, or
90
days).
4.
Acquisitions
In the second quarter of fiscal 2024, we acquired LS Technologies ("LST"), an innovative U.S. federal enterprise technology services and management consulting firm based in Fairfax, Virginia. LST provides high-end consulting and engineering services including advanced data analytics, cybersecurity and digital transformation solutions to U.S. government
10
clients. In the third quarter of fiscal 2024, we also acquired Convergence Controls & Engineering ("CCE"), an industry leader in process automation and systems integration solutions. CCE’s expertise includes customized digital controls and software solutions, advanced data analytics, cloud data integration, and cybersecurity applications. Both LST and CCE are included in our Government Services Group ("GSG") segment. The aggregate fair value of the purchase price of these two acquisitions was $
120
million. This amount consisted of $
93
million in initial cash payments, $
4
million of cash holdback related to a tax reserve, and $
23
million for the estimated fair value of contingent earn-out obligations, with a maximum of $
60
million, based upon the achievement of specified operating income targets in each of the three years following the acquisition dates. The $
120
million purchase price was allocated $
12
million to net tangible assets, $
23
million to identifiable intangible assets, and $
85
million to goodwill
. The purchase price allocation is preliminary and subject to adjustment as the estimates, assumptions, valuations and other analyses have not yet been finalized in order to make a definitive allocation.
The results of LST and CCE have been included in our consolidated financial statements since the beginning of their respective closing dates.
These acquisitions were not considered material, individually or in aggregate, to our consolidated financial statements. As a result, no pro forma information has been provided.
Our fiscal 2024 goodwill additions from the LST and CCE acquisitions reflect the extensive technical knowledge of the acquired workforces, the anticipated synergies in data analytics, cybersecurity and digital transformation services, and collective reputations of these acquisitions in providing mission critical solutions to both commercial and government customers. These goodwill additions are deductible for tax purposes.
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 on a straight-line basis over the useful lives of the underlying assets, ranging from
to
12
years. These consist of client relations, backlog and trade names. For detailed information regarding our intangible assets, see Note 5, “Goodwill and Intangible Assets”.
Most of our acquisition agreements include contingent earn-out agreements, which are generally based on the achievement of future operating income thresholds. The contingent earn-out arrangements are based on our valuations of the acquired companies and reduce the risk of overpaying for acquisitions if the projected financial results are not achieved. The fair values of any earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, we estimate the fair value of contingent earn-out payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability in “Current contingent earn-out liabilities” and “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 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
to
five years
) and the probability outcome percentages we assign to each scenario. Significant increases or decreases to either of these inputs in isolation would result in a significantly higher or lower liability, with a higher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the contingent earn-out liability on the acquisition date is reflected as cash used in financing activities in our consolidated statements of cash flows. Any amount paid in excess of the contingent earn-out liability on the acquisition date is reflected as cash used in operating activities in our consolidated statements of cash flows.
We review and 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 expen
se. Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in operating income. In the first quarter of fis
cal 2025,
we evaluated our estimates for contingent consideration liabilities for the remaining earn-out periods for each individual acquisition, which included a review of their financial results to-date, the status of ongoing projects in their RUPO and the inventory of prospective new contract awards.
In the first quarters of fiscal 2025 and 2024, we recorded
immaterial
adjustments, individually and in aggregate, to our contingent earn-out liabilities and included the corresponding amount in our operating income.
11
The following table summarizes the changes in the fair value of estimated contingent consideration (in thousands):
| Three Months Ended | |||||||||||
|
December 29,
2024 |
December 31,
2023 |
||||||||||
| Beginning balance | $ |
|
$ |
|
|||||||
| Payments of contingent consideration |
(
|
(
|
|||||||||
| Adjustments to fair value recorded in earnings |
(
|
(
|
|||||||||
| Interest accretion expense |
|
|
|||||||||
| Effect of foreign currency exchange rate changes |
|
|
|||||||||
| Ending balance | $ |
|
$ |
|
|||||||
| Maximum potential payout at end of period | $ |
|
$ |
|
|||||||
5.
Goodwill and Intangible Assets
The following table summarizes the changes in the carrying value of goodwill by reportable segment (in thousands):
| GSG | CIG | Total | ||||||||||||||||||
| Balance at September 29, 2024 | $ |
|
$ |
|
$ |
|
||||||||||||||
| Translation adjustments |
(
|
(
|
(
|
|||||||||||||||||
| Balance at December 29, 2024 | $ |
|
$ |
|
$ |
|
||||||||||||||
Translation adjustments resulted from our goodwill amounts in foreign subsidiaries with functional currencies that are different than our reporting currency. Th
e goodwill amoun
ts presented in the table above are net of reductions from historical impairment adjustments. The gross amounts for GSG were $
764.4
million and $
768.5
million at December 29, 2024 and September 29, 2024, respectively, excluding accumulated impairment of $
17.7
million at each date. The gross amounts of goodwill for Commercial/International Services Group ("CIG") were $
1,343.5
million and $
1,417.3
million at December 29, 2024 and September 29, 2024, respectively, excluding accumulated impairment of $
121.5
million at each period end.
We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our most recent annual review at July 1, 2024 (i.e. the first day of our fourth quarter in fiscal 2024) 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. At July 1, 2024, we had no reporting units that had estimated fair values that exceeded their carrying val
ues by less than
72
%.
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.
12
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):
| As of | |||||||||||||||||||||||||||||||||||||||||
| December 29, 2024 | September 29, 2024 | ||||||||||||||||||||||||||||||||||||||||
|
Weighted-
Average Remaining Life (in Years) |
Gross
Amount |
Accumulated
Amortization |
Net Amount |
Gross
Amount |
Accumulated
Amortization |
Net Amount | |||||||||||||||||||||||||||||||||||
| Client relations |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||||||||
| Backlog |
|
|
(
|
|
|
(
|
|
||||||||||||||||||||||||||||||||||
| Trade names |
|
|
(
|
|
|
(
|
|
||||||||||||||||||||||||||||||||||
| Total | $ |
|
$ |
(
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||||||||||||||
Amortization expense
for the identifiable intangible assets
for the first quarter of fiscal
2025
w
as
$
10.7
million, compared to $
12.5
million for the prior-year quarter.
Estimated amortization expense for the remainder of fiscal 2025 and succeeding years is as follows (in thousands):
| Amount | |||||
| 2025 (remaining) | $ |
|
|||
| 2026 |
|
||||
| 2027 |
|
||||
| 2028 |
|
||||
| 2029 |
|
||||
| Beyond |
|
||||
| Total | $ |
|
|||
6.
Property and Equipment
Property and equipment consisted of the following (in thousands):
| As of | |||||||||||
|
December 29,
2024 |
September 29,
2024 |
||||||||||
| Equipment, furniture and fixtures | $ |
|
$ |
|
|||||||
| Leasehold improvements |
|
|
|||||||||
| Total property and equipment |
|
|
|||||||||
| Accumulated depreciation |
(
|
(
|
|||||||||
| Property and equipment, net | $ |
|
$ |
|
|||||||
For
the first quart
ers of fiscal 2025 and 2024, o
ur depreciation expense related to property and equipment was $
5.4
million and $
7.0
million, respectively.
7.
Stock Repurchase and Dividends
On October 5, 2021, our Board of Directors authorized a stock repurchase program under which we could repurchase up to $
400
million of our common
stock.
In the first quarter of fiscal 2025, we repurchased and settled
600,007
shares with an average price of $
41.67
per share for a total cost of $
25.0
million in the open market. We did not repurchase any shares of our common stock in the first quarter of fiscal 2024. At December 29, 2024, we had a remaining balance of $
322.8
million under our stock repurchase program.
13
The following table presents dividends declared and paid in
the first quarters of fisc
al 2025 and
2024
:
| Declare Date | Dividend Paid Per Share | Record Date | Payment Date |
Dividend Paid
(in thousands) |
||||||||||||||||||||||
| November 11, 2024 | $ |
|
November 27, 2024 | December 13, 2024 | $ |
|
||||||||||||||||||||
| November 13, 2023 | $ |
|
November 30, 2023 | December 13, 2023 | $ |
|
||||||||||||||||||||
Subsequent Event.
O
n January 27, 2025, our Board of Directors declared a quarterly cash dividend of $
0.058
per share payable on February 26, 2025 to stockholders of record as of the close of business on February 12, 2025.
8.
Leases
Our operating leases are primarily for corporate and project office spaces.
To a much lesser extent, we have operating leases for vehicles and equipment. Our operating leases have remaining lease terms of
one month
to
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 and
are immaterial.
Right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, incremental borrowing rates are used based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset at the commencement date also includes any lease payments made to the lessor at or before the commencement date and initial direct costs less lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
The components of lease costs are as follows (in thousands):
| Three Months Ended | |||||||||||
|
December 29,
2024 |
December 31,
2023 |
||||||||||
| Operating lease cost | $ |
|
$ |
|
|||||||
| Sublease income |
(
|
(
|
|||||||||
| Total lease cost | $ |
|
$ |
|
|||||||
Supplemental cash flow information related to leases is as follows (in thousands):
| Three Months Ended | ||||||||||||||
|
December 29,
2024 |
December 31,
2023 |
|||||||||||||
| Operating cash flows for operating leases | $ |
|
$ |
|
||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
||||||||||||
14
Supplemental balance sheet and other information related to leases are as follows ($ in thousands):
| As of | |||||||||||
|
December 29,
2024 |
September 29, 2024 | ||||||||||
| 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 |
|
% |
|
% | |||||||
At December 29, 2024, we had $
12.7
million of operating leases that have not yet commenced.
A maturity analysis of the future undiscounted cash flows associated with our lease liabilities at December 29, 2024 is as follows (in thousands):
|
Operating
Leases |
|||||
| 2025 (remaining) | $ |
|
|||
| 2026 |
|
||||
| 2027 |
|
||||
| 2028 |
|
||||
| 2029 |
|
||||
| Beyond |
|
||||
| Total lease payments |
|
||||
| Less: imputed interest |
(
|
||||
| Total present value of lease liabilities | $ |
|
|||
9.
Employee Benefits
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
million total received was initially recorded in "Other long-term liabilities" until all potential ame
ndments to the qualification criteria, including some that were proposed with retroactive application, were finalized in fiscal 2022. I
n the first quarter of fiscal 2024, we distributed approximately $
10
million to our Canadian employees. The remainder was distributed in the first quarter of fiscal 2025. We have no outstanding applications for further government assistance.
10.
Stockholders’ Equity and Stock Compensation Plans
We recogniz
e the fair value of our stock-based awards as compensation expense on a straight-line basis over the requisite service period in which the award vests. Stock-based compensation expense wa
s $
8.1
million and $
7.6
million
for the first quarters of fiscal 2025 and 2024, respectively. Most of these amounts were included in our selling, general and administrative expenses on our consolidated statements of income. In the first quarter of fiscal 2025, we awa
rded
236,928
performance share units (“PSUs”) to our non-employee directors and executive officers at an estimated fair value of $
49.85
per share on the award date. All PSUs are performance-based and vest, if at all, after the conclusion of the
three-year
performance period. The number of PSUs that ultimately vest is based
50
% on growth in our diluted earnings per share and
50
% on our relative total shareholder return over the vesting period. Additionally, we awarded
481,247
restricted stock units (“RSUs”) to our non-employee directors, executive officers and employees at a fair value of $
40.29
per share on the award da
te. All
15
executive officer and employee RSUs have time-based vesting over a
four-year
period, and the non-employee director RSUs vest after
one year
.
11.
Earnings per Share (“EPS”)
Basic EPS is computed by dividing net income available to common stockholders by the weighted-average common shares outstanding for the period. Diluted EPS is computed by dividing net income by the weighted-average number of common shares outstanding and dilutive potential common shares for the period. Potential common shares include the weighted-average dilutive effects
of stock-based awards and shares underlying our Convertible Senior Notes (the "Convertible Notes").
For the first quarter of fiscal 2025, our Convertible Notes, described in Note 15, "Long-Term Debt", had a dilution impact on the dilutive potential common shares, which was calculated using the if-converted method. The dilution impact was due to the price of our common stock exceeding the conversion price. For the first quarter of fiscal 2024, the Convertible Notes had no impact on the calculation of dilutive potential common shares, as the price of our common stock did not exceed the conversion price. The related capped call transactions (the "Capped Call Transactions") for both periods were excluded from the calculation of dilutive potential common shares as their effect is anti-dilutive. For the first quarters of fiscal 2025 and 2024, no options were excluded from the calculation of dilutive potential common shares.
The following table presents the number of weighted-average shares used to compute basic and diluted EPS (in thousands, except per share data):
| Three Months Ended | |||||||||||
|
December 29,
2024 |
December 31,
2023 |
||||||||||
| Net income attributable to Tetra Tech | $ |
|
$ |
|
|||||||
| Weighted-average common shares outstanding – basic |
|
|
|||||||||
| Effect of dilutive stock options and unvested restricted stock |
|
|
|||||||||
| Shares issuable assuming conversion of convertible notes |
|
|
|||||||||
| Weighted-average common shares outstanding – diluted |
|
|
|||||||||
| Earnings per share attributable to Tetra Tech: | |||||||||||
| Basic | $ |
|
$ |
|
|||||||
| Diluted | $ |
|
$ |
|
|||||||
12.
Income Taxes
The effective
tax rates for the first quarters of fiscal 2025 and 2024 were
94.9
% and
26.1
%, respectively. In the first quarter of fiscal 2025, we recognized a $
115
million non-recurring charge related to legal contingencies as described in Note 17, "
Commitments and Contingencies
". We also determined that $
31.3
million of this charge is not tax deductible, which increased our effective tax rate this quarter. Excluding the impact of the legal contingency charge, our effective tax rate was
27.2
% in the first quarter of fiscal 2025.
At
December 29, 2024 and September 29, 2024, the liability for income taxes associated with uncertain tax positions was $
51.1
million and $
50.1
million, respectively. I
t 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.
13.
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.
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
16
solid waste. GSG also leads our support for development agencies worldwide, especially in the United States, United Kingdom and Australia.
CIG primarily provides high-end consulting and engineering services to U.S. commercial clients, and international clients 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 and South America (primarily Brazil).
Management evaluates th
e 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.
Our Corporate Segment's operating income in the first quarter of fiscal 2025, includes a non-recurring charge of $
115.0
million related to legal contingencies as described in Note 17, "
Commitments and Contingencies
". This charge is reported separately as "Legal contingency costs" in our consolidated statement of income for the first quarter of fiscal 2025. We expect to pay this amount within the next 12 months with our cash on hand and by drawing on our credit facility.
The following tables summarize financial information regarding our reportable segments (in thousands):
| Three Months Ended | |||||||||||
|
December 29,
2024 |
December 31,
2023 |
||||||||||
| Revenue | |||||||||||
| GSG | $ |
|
$ |
|
|||||||
| CIG |
|
|
|||||||||
| Elimination of inter-segment revenue |
(
|
(
|
|||||||||
| Total revenue | $ |
|
$ |
|
|||||||
| Income from operations | |||||||||||
| GSG | $ |
|
$ |
|
|||||||
| CIG |
|
|
|||||||||
|
Corporate
(1)
|
(
|
(
|
|||||||||
| Total income from operations | $ |
|
$ |
|
|||||||
(1)
Includes amortization of intangibles, acquisition and integration expenses, certain legal contingency costs as well as other costs and other income not allocable to our reportable segments.
| As of | |||||||||||
|
December 29,
2024 |
September 29,
2024 |
||||||||||
| Total Assets | |||||||||||
| GSG | $ |
|
$ |
|
|||||||
| CIG |
|
|
|||||||||
|
Corporate
(1)
|
|
|
|||||||||
| Total assets | $ |
|
$ |
|
|||||||
(1)
Corporate assets consist of intercompany eliminations and assets not allocated to our reportable segments including goo
dwill,
intangible assets, deferred income taxes and certain other assets.
14.
Fair Value Measurements
We classified our assets and liabilities that were carried at fair value in one of the following categories:
•
Level 1: Quoted market prices in active markets for identical assets or liabilities.
•
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
•
Level 3: Unobservable inputs that are not corroborated by market data.
17
Contingent Consideration.
We measure our contingent earn-out liabilities at fair value on a recurring basis usin
g significant unobservable inputs classified within Level 3 of the fair value hierarchy (see Note
4
, "
Acquisitions
" for further information).
The estimated fair value of our $
575
million Convertible Notes, which were used to fund our business acquisitions, working capital needs, dividends, capital expenditures and contingent earn-outs, was determined based on the trading price of the Convertible Notes as of the last trading day of our first quarter of fiscal 2025. We consider the fair
value of the Convertible Notes to be a Level 2 measurement as they are not actively traded in markets. The carrying amounts and estimated fair values of the Convertible Notes were approximate
ly $
564
million and $
673
million,
respectively, at December 29, 2024, and $
564
million and $
743
million, respectively, at September 29, 2024 (see Note
15
, "
Long-Term Debt
" for further information).
15.
Long-Term Debt
Long-term debt consisted of the following (in thousands):
| As of | |||||||||||
|
December 29,
2024 |
September 29,
2024 |
||||||||||
| Credit facilities | $ |
|
$ |
|
|||||||
| Convertible notes |
|
|
|||||||||
| Debt issuance costs and discount |
(
|
(
|
|||||||||
| Long-term debt | $ |
|
$ |
|
|||||||
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. 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 was 25.4275 shares (5.0855 pre-stock split) of our common stock per $1,000 principal amount of the Convertible Notes, which was equivalent to an initial price of approximately $
39.33
per share ($
196.64
pre-stock split) of our common stock. The conversion rate is subject to adjustment for certain events, including stock splits and issuance of certain stock dividends on our common stock. At December 29, 2024, the applicable conversion rate was 25.4345 shares of common stock per $1,000 principal amount of the Convertible Notes (equivalent to an adjusted conversion price of approximately $
39.32
per share of common stock)
. Upon conversion, we will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or de
liver, 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
18
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 consolidated balance sheets 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 are amortized to interest expense using the effective interest method over the terms of the Convertible Notes resulting in an effective annual interest rate of
2.79
%.
The net carrying amount of the Convertible Notes was as follows
(in thousands)
:
| As of | |||||||||||
|
December 29,
2024 |
September 29,
2024 |
||||||||||
| Principal | $ |
|
$ |
|
|||||||
| Unamortized discount and issuance costs |
(
|
(
|
|||||||||
| Net carrying amount | $ |
|
$ |
|
|||||||
The following table sets forth the interest expense recognized related to the Convertible Notes
(in thousands)
:
| Three Months Ended | |||||||||||
|
December 29,
2024 |
December 31,
2023 |
||||||||||
| Interest expense | $ |
|
$ |
|
|||||||
| Amortization of discount and issuance costs |
|
|
|||||||||
| Total interest expense | $ |
|
$ |
|
|||||||
Concurrent with the offering of the Convertible Notes, in August 2023, we entered into the Capped Call Transactions. The Capped Call Transactions are expected generally to reduce the potential dilution of 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 was initially $
51.91
per share ($
259.56
pre-stock split), which represented a premium of
65
% over the last reported sale price of our common stock of $
31.46
per share ($
157.31
pre-stock split) on the NASDAQ Global Select Market on August 17, 2023. The cap price is subject to adjustment for certain events, including stock splits and issuance of certain stock dividends on our common stock. At December 29, 2024, the adjusted cap price was approximately $
51.90
per share. 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. 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 in January 2026.
On February 18, 2022, we entered into Amendment No. 2 to Second Amended and Restated Credit Agreement (“Amended Credit Agreement”) with a total borrowing capacity of $
1.05
billion that will mature in February 2027. The Amended Credit Agreement is a $
750
million senior secured,
five-year
facility that provides for a $
250
million term loan facility (the “Amended Term Loan Facility”) and a $
500
million revolving credit facility (the “Amended Revolving Credit Facility”). In addition, the Amended Credit Agreement includes a $
300
million accordion feature that allows us to increase the Amended Credit Agreement to $
1.05
billion subject to lender approval. The Amended Credit Agreement provides for, among other things, (i) refinance indebtedness under our Credit Agreement dated at 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
19
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.
In fiscal 2023, we repaid the Amended Term Loan Facility in full from the Convertible Notes proceeds.
At
December 29, 2024
,
we h
a
d $
325
million in outstanding borrowings under the Amended Credit Agreement, which was consisted of $
250
million under the New Term Loan Facility and $
75
million under the Amended Revolving Credit Facility. During the three months ended December 29, 2024, the weighted-average interest rate of the outstanding borrowings under the Amended Credit Agreement was
5.98
%. In addition, we had $
0.7
million in standby letters of credit under the Amended Credit Agreement. At December 29, 2024, we had $
424.3
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 December 29, 2024, we were in compliance with these covenants with a consolidated leverage ratio of
1.77
x
and a consolidated interest coverage ratio of
12.33
x.
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 December 29, 2024, there were
no
outstanding borrowings under these facilities and the aggregate amount of standby letters of credit outstanding was $
40.2
million. As of December 29, 2024, we had
no
bank overdrafts related to our disbursement bank accounts.
16.
Reclassifications Out of Accumulated Other Comprehensive Income
The accumulated balances and activities for the three months ended December 29, 2024 and
December 31, 2023
related to reclassifications out of accumulated other comprehensive income are summarized as follows (in thousands):
| Three Months Ended | |||||||||||||||||
|
Foreign
Currency Translation Adjustments |
Net Pension Adjustments | Accumulated Other Comprehensive (Loss) Income | |||||||||||||||
| Balance at October 1, 2023 | $ |
(
|
$ |
|
$ |
(
|
|||||||||||
| Other comprehensive income (loss) before reclassifications |
|
(
|
|
||||||||||||||
| Net current-period other comprehensive income (loss) |
|
(
|
|
||||||||||||||
| Balance at December 31, 2023 | $ |
(
|
$ |
|
$ |
(
|
|||||||||||
| Balance at September 29, 2024 | $ |
(
|
$ |
|
$ |
(
|
|||||||||||
| Other comprehensive loss before reclassifications |
(
|
(
|
(
|
||||||||||||||
| Net current-period other comprehensive loss |
(
|
(
|
(
|
||||||||||||||
| Balance at December 29, 2024 | $ |
(
|
$ |
|
$ |
(
|
|||||||||||
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
20
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 of the United States Department of Justice ("the USAO") filed an amended complaint in the intervention of
three
qui tam actions filed against our wholly-owned subsidiary, Tetra Tech EC, Inc. ("TtEC"), in the U.S. District Court for the Northern District of California ("the Court"). The complaint alleges False Claims Act ("FCA") 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 (the "Covered Conduct"). On March 5, 2024, the Court granted the USAO's motion to amend the filing to include additional claims against TtEC under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") and common law.
As we previously disclosed, to explore whether a negotiated resolution was possible, TtEC began engaging in discussions with the USAO during the first quarter of fiscal 2025 regarding a potential resolution of all claims. On January 17, 2025, TtEC entered into a settlement agreement with the United States of America, acting through the USAO and on behalf of the Department of the Navy (collectively, the "United States") an
d also fil
ed a proposed consent decree with the Court, to resolve this litigation.
Under the terms of the settlement agreement and consent decree, TtEC has agreed to pay the United States $
57
million and $
40
million for FCA claims and CERCLA claims, respectively (the "Settlement Amounts"), which we expect to pay with cash on hand and by drawing on our credit facility. Upon entry of the consent decree by the Court and the United States' receipt of the Settlement Amounts, the United States will release TtEC from any, and all civil or administrative monetary claims for the Covered Conduct under the civil FCA, the CERCLA, and other specified civil statutes and common law theories of liability.
The consent decree is subject to a number of contingencies that could prevent it from being finalized with its current terms. In particular, and without limitation, (i) the consent decree is required to be lodged with the Court for a period of 30 days for public notice and comment, and the United States has reserved the right to withdraw or withhold its consent if the comments regarding the consent decree disclose facts or considerations that indicate the consent decree is inappropriate, improper or inadequate; and (ii) the Court might determine not to enter the consent decree as currently written or as approved by the United States. There can be no assurance that the contingencies will not preclude entry of the consent decree.
TtEC entered into the settlement agreement and consent decree to avoid delay, uncertainty and expense of protracted litigation. The settlement agreement and consent decree contain no admission of liability by TtEC.
TtEC has initiated litigation with the insurance carrier with which TtEC maintained liability policies regarding the reasonably possible payment or reimbursement of a significant portion of the Settlement Amounts. TtEC can give no assurances as to what portion, if any, of the Settlement Amounts will be recovered from the insurance carrier.
As also previously disclosed, several ancillary claims brought by third-party private plaintiffs arising from the same services provided by TtEC at Hunters Point are also ongoing. The settlement agreement and consent decree do not resolve these ancillary claims.
As a result of the settlement agreement and consent decree with the United States and in connection with discussions regarding the ancillary claims, we recorded a $
115.0
million charge to operating income ($
97.0
million for the settlement and $
18.0
million estimated for the ancillary claims, respectively) in the first quarter of fiscal 2025.
21
18.
Related Party Transactions
We often provide services to unconsolidated joint ventures. The table below presents revenue and reimbursable costs related t
o services we provided to our unconsolidated joint ventures (in thousands):
| Three Months Ended | |||||||||||
|
December 29,
2024 |
December 31,
2023 |
||||||||||
| Revenue | $ |
|
$ |
|
|||||||
| Related reimbursable costs |
|
|
|||||||||
Our consolidated balance sheets also included the following amounts related to these services (in thousands):
| As of | |||||||||||
|
December 29,
2024 |
September 29, 2024 | ||||||||||
| Accounts receivable, net | $ |
|
$ |
|
|||||||
| Contract assets |
|
|
|||||||||
| Contract liabilities |
(
|
(
|
|||||||||
22
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbor provisions created under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “estimates,” “seeks,” “continues,” “may,” variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict, including those identified below under “Part II, Item 1A. Risk Factors,” and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
GENERAL OVERVIEW
Tetra Tech, Inc.
is a leading global provider of high-end consulting and engineering services that focuses on water, environment and sustainable infrastructure. We are a global company that is
Leading with Science
®
to provide innovative solutions for our public and private clients. We typically begin at the earliest stage of a project by identifying technical solutions and developing execution plans tailored to our clients' needs and resources.
Our reputation for high-end consulting and engineering services and our ability to develop solutions for water and environmental management has supported our growth for more than 50 years. Today, we are proud to be making a difference in people’s lives worldwide through our high-end consulting, engineering and technology service offerings. We are working on over 100,000 projects, in more than 100 countries on all seven continents, with a talent force of 30,000 associates. We are
Leading with Science
®
throughout our operations, with domain experts across multiple disciplines supported by our advanced analytics, artificial intelligence, machine learning and digital technology solutions. Our ability to provide innovative and first-of-kind solutions is enhanced by partnerships with our forward-thinking clients. We embrace 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.
We derive income from fees for professional, technical, program management and construction management services. As primarily a professional services company, we are labor-intensive rather than capital-intensive. Our revenue is driven by our ability to attract and retain qualified and productive employees, identify business opportunities, secure new and renew existing client contracts, provide outstanding services to our clients and execute projects successfully. We provide services to a diverse base of U.S. federal government, U.S. state and local government, U.S. commercial and international clients.
23
The following table presents the percentage of our revenue by client sector:
| Three Months Ended | |||||||||||
|
December 29,
2024 |
December 31,
2023 |
||||||||||
| Client Sector | |||||||||||
|
U.S. federal government
(1)
|
35.3 | % | 31.1 | % | |||||||
| U.S. state and local government | 14.3 | 12.3 | |||||||||
| U.S. commercial | 16.5 | 18.1 | |||||||||
|
International
(2)
|
33.9 | 38.5 | |||||||||
| Total | 100.0 | % | 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. clien
ts, primarily in United Kingdom, Australia and Canada.
We manage our operations under two reportable segments. Our Government Services Group 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 reportable segment primarily includes activities with U.S. commercial clients and international clients other than development agencies.
Government Services Group (
“
GSG
”
).
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, United Kingdom and Australia.
Commercial/International Services Group (
“
CIG
”
).
CIG primarily provides high-end consulting and engineering services to U.S. commercial clients, and international clients 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 and South America (primarily Brazil).
The following table presents the percentage of our revenue by reportable segment:
| Three Months Ended | |||||||||||
|
December 29,
2024 |
December 31,
2023 |
||||||||||
| Reportable Segment | |||||||||||
| GSG | 52.9 | % | 46.8 | % | |||||||
| CIG | 48.4 | 54.5 | |||||||||
| Inter-segment elimination | (1.3) | (1.3) | |||||||||
| Total | 100.0 | % | 100.0 | % | |||||||
Our services are performed under three principal types of contracts with our clients: fixed-price, time-and-materials and cost-plus. The following table presents the percentage of our revenue by contract type:
| Three Months Ended | |||||||||||
|
December 29,
2024 |
December 31,
2023 |
||||||||||
| Contract Type | |||||||||||
| Fixed-price | 36.6 | % | 38.4 | % | |||||||
| Time-and-materials | 42.2 | 44.7 | |||||||||
| Cost-plus | 21.2 | 16.9 | |||||||||
| Total | 100.0 | % | 100.0 | % | |||||||
24
Under fixed-price contracts, clients agree to pay a specified price for our performance of the entire contract or a specified portion of the contract. Under time-and-materials contracts, we are paid for labor at negotiated hourly billing rates and paid for other expenses. Under cost-plus contracts, some of which are subject to a contract ceiling amount, we are reimbursed for allowable cost
s plus fees,
which may be fixed or performance-based. Profitability on these contracts is
driven by billable headcount and our cost control.
Revenue is recognized by measuring progress over time under Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers". We estimate and measure progress on our contracts over time whereby we compare our total costs incurred on each contract as a percentage of the total expected contract costs. Changes in those estimates could result in the recognition of cumulative catch-up adjustments to the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made. On a quarterly basis, we review and assess our revenue and cost estimates for each significant contract. Changes in revenue and cost estimates could also result in a projected loss that would be recorded immediately in earnings.
Other contract costs include professional compensation and related benefits, together with certain direct and indirect overhead costs such as rents, utilities and travel. Professional compensation represents a large portion of these costs. Our "Selling, general and administrative expenses" ("SG&A") are comprised primarily of marketing and bid and proposal costs, and our corporate headquarters’ costs related to the executive offices, finance, accounting, administration and information technology. Our SG&A expenses also include a portion of stock-based compensation and depreciation of property and equipment related to our corporate headquarters, and the amortization of identifiable intangible assets. Most of these costs are unrelated to specific clients or projects, and can vary as expenses are incurred to support company-wide activities and initiatives.
We experience seasonal trends in our business. Our revenue and operating income are typically lower in the first half of our fiscal year, primarily due to the Thanksgiving (in the U.S. 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.
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.
In the second quarter of fiscal 2024, we acquired LS Technologies ("LST"), an innovative U.S. federal enterprise technology services and management consulting firm based in Fairfax, Virginia. LST provides high-end consulting and engineering services including advanced data analytics, cybersecurity and digital transformation solutions to U.S. government clients. In the third quarter of fiscal 2024, we also acquired Convergence Controls & Engineering ("CCE"), an industry leader in process automation and systems integration solutions. CCE’s expertise includes customized digital controls and software solutions, advanced data analytics, cloud data integration and cybersecurity applications. Both LST and CCE are included in our GSG segment.
For detailed information regarding acquisitions, see Note 4, “Acquisitions” of the “Notes to Consolidated Financial Statements”.
Divestitures.
We regularly review and evaluate our existing operations to determine whether our business model should change through the divestiture of certain businesses. Accordingly, from time to time, we may divest or wind-down certain non-core businesses and reallocate our resources to businesses that better align with our long-term strategic direction. In the first quarter of fiscal 2025, we divested a financially immaterial subsidiary in South America and a line of business in Australia.
25
OVERVIEW OF RESULTS AND BUSINESS TRENDS
General.
In the first quarter of fiscal 2025, our revenue
increased 15.7% com
pared to the prior-year quarter reflecting increased activity across all of our client sectors, particularly the U.S. federal and state and local government client sectors. This revenue growth includes $31 million from our recent acquisitions, that did not have comparable revenue for the year-ago quarter. Excluding the impact of these acquisitions, our revenue increased 13.1% compared to the first quarter of fiscal 2024.
The table below presents our revenue by client sector (amounts in thousands):
| Three Months Ended | |||||||||||||||||||||||
| December 29, 2024 | December 31, 2023 | Change | |||||||||||||||||||||
| $ | % | ||||||||||||||||||||||
| Client Sector | |||||||||||||||||||||||
|
U.S. federal government
(1)
|
$ | 501,848 | $ | 382,076 | $ | 119,772 | 31.3% | ||||||||||||||||
| U.S. state and local government | 202,987 | 150,925 | 52,062 | 34.5 | |||||||||||||||||||
| U.S. commercial | 233,591 | 222,430 | 11,161 | 5.0 | |||||||||||||||||||
|
International
(2)
|
482,135 | 472,836 | 9,299 | 2.0 | |||||||||||||||||||
| Total | $ | 1,420,561 | $ | 1,228,267 | $ | 192,294 | 15.7% | ||||||||||||||||
(1)
Includes revenue generated under U.S. federal government contracts performed outside the United States.
(2)
Includes revenue generated from non-U.S. clien
ts, primarily in United Kingdom, Australia and Canada.
U.S. Federal Government.
| Three Months Ended | |||||||||||||||||||||||
| December 29, 2024 | December 31, 2023 | Change | |||||||||||||||||||||
| $ | % | ||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Revenue | $ | 501,848 | $ | 382,076 | $ | 119,772 | 31.3% | ||||||||||||||||
The 31.3% growth in U.S. federal revenue primarily reflects increased international development and federal information technology system modernization activity. The growth in our international development activity primarily relates to activity in Ukraine to support energy security and other humanitarian need
s. Our international development revenue increased approximately $95 million in the first quarter of fiscal 2025 compared to the same period last year.
The overall revenue growth also includes approximately $29 million of revenue from a recent acquisition that did not have comparable revenue for the prior-year quarter. O
ur U.S. federal government revenue for the remainder of fiscal 2025 is dependent upon the ultimate direction of the new U.S. administration.
U.S. State and Local Government.
| Three Months Ended | |||||||||||||||||||||||
| December 29, 2024 | December 31, 2023 | Change | |||||||||||||||||||||
| $ | % | ||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Revenue | $ | 202,987 | $ | 150,925 | $ | 52,062 | 34.5% | ||||||||||||||||
Our U.S. state and local government revenue grew 34.5% compared to the fiscal 2024 quarter largely due to increased disaster response activity primarily related to Hurricanes Helene and Milton. Excluding our disaster response work for the hurricanes, our U.S. state and local government revenue increased 10.8% in the first quarter of fiscal 2025 compared to last year's first quarter. Excluding the hurricane response activity, the growth was due to continued investment by our clients in clean drinking water. 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 for the remainder of fiscal 2025.
26
U.S. Commercial.
| Three Months Ended | |||||||||||||||||||||||
| December 29, 2024 | December 31, 2023 | Change | |||||||||||||||||||||
| $ | % | ||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Revenue | $ | 233,591 | $ | 222,430 | $ | 11,161 | 5.0% | ||||||||||||||||
Our U.S. commercial revenue growth of 5.0% in the first quarter of fiscal 2025 was primarily due to increased activity for environmental services and high performance buildings. We expect our revenue growth to continue in our U.S. commercial business for the remainder of fiscal 2025.
International.
| Three Months Ended | |||||||||||||||||||||||
| December 29, 2024 | December 31, 2023 | Change | |||||||||||||||||||||
| $ | % | ||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Revenue | $ | 482,135 | $ | 472,836 | $ | 9,299 | 2.0% | ||||||||||||||||
Our international revenue increased 2.0% compared to last year's first quarter primarily due to increased water consulting in the United Kingdom, partially offset by lower infrastructure work in Australia. We expect the growth in our international work to continue for the remainder of fiscal 2025, on a constant currency basis.
27
RESULTS OF OPERATIONS
Consolidated Results of Operations
| Three Months Ended | |||||||||||||||||||||||
|
December 29,
2024 |
December 31,
2023 |
Change | |||||||||||||||||||||
| $ | % | ||||||||||||||||||||||
| ($ in thousands, except per share data) | |||||||||||||||||||||||
| Revenue | $ | 1,420,561 | $ | 1,228,267 | $ | 192,294 | 15.7% | ||||||||||||||||
| Subcontractor costs | (223,231) | (213,098) | (10,133) | (4.8) | |||||||||||||||||||
|
Revenue, net of subcontractor costs
(1)
|
1,197,330 | 1,015,169 | 182,161 | 17.9 | |||||||||||||||||||
| Other costs of revenue | (975,853) | (824,671) | (151,182) | (18.3) | |||||||||||||||||||
| Gross profit | 221,477 | 190,498 | 30,979 | 16.3 | |||||||||||||||||||
| Selling, general and administrative expenses | (83,951) | (79,417) | (4,534) | (5.7) | |||||||||||||||||||
| Legal contingency costs | (115,000) | — | (115,000) | NM | |||||||||||||||||||
| Income from operations | 22,526 | 111,081 | (88,555) | (79.7) | |||||||||||||||||||
| Interest expense | (7,218) | (9,577) | 2,359 | 24.6 | |||||||||||||||||||
| Income before income tax expense | 15,308 | 101,504 | (86,196) | (84.9) | |||||||||||||||||||
| Income tax expense | (14,530) | (26,524) | 11,994 | 45.2 | |||||||||||||||||||
| Net income | 778 | 74,980 | (74,202) | (99.0) | |||||||||||||||||||
| Net income attributable to noncontrolling interests | (31) | (8) | (23) | (287.5) | |||||||||||||||||||
| Net income attributable to Tetra Tech | $ | 747 | $ | 74,972 | $ | (74,225) | (99.0) | ||||||||||||||||
| Diluted earnings per share | $ | — | $ | 0.28 | $ | (0.28) | (100.0)% | ||||||||||||||||
(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 generally accepted accounting principles in the United States of America ("U.S. GAAP") and industry practice, are included in our revenue when it is our contractual responsibility to procure or manage these activities. 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
Our 15.7% revenue growth reflects increases in both of our reportable segments. Our GSG segment's revenue and revenue, net of subcontractor costs, increased $176.7 million, or 30.7%, and $158.5 million, or 35.8%, respectively, in the first quarter of fiscal 2025 compared to the same quarter in fiscal 2024. Our CIG segment's revenue increased $19.1 million, or 2.9%, and revenue, net of subcontractor costs, increased $23.7 million, or 4.1% in the first quarter of fiscal 2025 compared to the year-ago quarter. The results for GSG and CIG segments are described below under "Government Services Group" and "Commercial/International Group", respectively.
The following table reconciles our reported results to non-U.S. GAAP adjusted results. For the first quarter of fiscal 2025, our adjusted results exclude
a non-recurring charge of $115.0 million related to legal contingencies as described in Note 17, "
Commitments and Contingencies
" of the “Notes to Consolidated Financial Statements”.
We determined that there is no tax benefit for $31.3 million of the legal contingency charge. The effective tax rate applied to the remaining $83.7 million adjustment to arrive at the adjusted EPS w
as 25.0%. We
applied the relevant marginal statutory tax rate based on the nature of the adjustment and the tax jurisdiction in which it occurred. Both EPS and adjusted EPS were calculated using the diluted weighted-average common shares outstanding for the respective periods as reflected in our consolidated statements of income.
28
| Three Months Ended | |||||||||||||||||||||||
|
December 29,
2024 |
December 31,
2023 |
Change | |||||||||||||||||||||
| $ | % | ||||||||||||||||||||||
| ($ in thousands, except per share data) | |||||||||||||||||||||||
| Income from operations | $ | 22,526 | $ | 111,081 | $ | (88,555) | (79.7)% | ||||||||||||||||
| Legal contingency costs | 115,000 | — | 115,000 | NM | |||||||||||||||||||
|
Adjusted income from operations
(1)
|
$ | 137,526 | $ | 111,081 | $ | 26,445 | 23.8% | ||||||||||||||||
| EPS | $ | — | $ | 0.28 | $ | (0.28) | (100.0)% | ||||||||||||||||
| Legal contingency costs | 0.35 | — | 0.35 | NM | |||||||||||||||||||
|
Adjusted EPS
(1)
|
$ | 0.35 | $ | 0.28 | $ | 0.07 | 25.0% | ||||||||||||||||
(1)
Non-GAAP financial measure
Our operating income for the first quarter of fiscal 2025 includes
a non-recurring charge of $115.0 million related to legal contingencies
. Excluding this non-recurring charge
, our adjusted operating income increased $26.4 million, or 23.8% in the first quarter of fiscal 2025 compared to the prior-year quarter. The increase reflects improved results in both of our reportable segments, which are described below under "Government Services Group" and "Commercial/International Group", respectively.
| Three Months Ended | |||||||||||||||||||||||
|
December 29,
2024 |
December 31,
2023 |
Change | |||||||||||||||||||||
| $ | % | ||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Net interest expense | $ | 7,218 | $ | 9,577 | $ | (2,359) | (24.6)% | ||||||||||||||||
Net interest expense decreased due to lower
average borrowings and
interest
rates
compared to the first quarter of fiscal 2024.
| Three Months Ended | |||||||||||||||||||||||
|
December 29,
2024 |
December 31,
2023 |
Change | |||||||||||||||||||||
| $ | % | ||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Income tax expense | $ | 14,530 | $ | 26,524 | $ | (11,994) | (45.2)% | ||||||||||||||||
The effective
tax rates for the first quarters of fiscal 2025 and 2024 were 94.9% and 26.1%, respectively. In the first quarter of fiscal 2025, we recognized a $115 million non-recurring charge related to legal contingencies as described in Note 17, "Commitments and Contingencies" of the “Notes to Consolidated Financial Statements”. We also determined that $31.3 million of this charge is not tax deductible, which increased our effective tax rate this quarter. Excluding the impact of the legal contingency charge, our effective tax rate was 27.2% for the first quarter of fiscal 2025.
In December 2021, the Organisation for Economic Cooperation and Development ("OECD") released Pillar Two Model Rules (also referred to as the global minimum tax or Global Anti-Base Erosion "GloBE" rules), which were designed to ensure large multinational enterprises pay a minimum 15 percent level of tax on the income arising in each jurisdiction in which they operate. Several jurisdictions in which we operate have enacted these rules, which are effective for the first quarter of fiscal 2025. We are continually monitoring developments and evaluating the potential impacts. At this time, we do not anticipate a material tax charge as a result of implementation of these rules.
29
Segment Results of Operations
Government Services Group
| Three Months Ended | |||||||||||||||||||||||
|
December 29,
2024 |
December 31,
2023 |
Change | |||||||||||||||||||||
| $ | % | ||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Revenue | $ | 751,782 | $ | 575,041 | $ | 176,741 | 30.7% | ||||||||||||||||
| Subcontractor costs | (150,605) | (132,341) | (18,264) | (13.8) | |||||||||||||||||||
|
Revenue, net of subcontractor costs
(1)
|
$ | 601,177 | $ | 442,700 | $ | 158,477 | 35.8% | ||||||||||||||||
| Income from operations | $ | 83,282 | $ | 63,127 | $ | 20,155 | 31.9% | ||||||||||||||||
(1)
Non-GAAP financial measure
The revenue growth of 30.7% primarily reflects higher U.S. federal government activities related to international development and U.S. state and local government activities related to disaster response. The revenue growth in the first quarter of fiscal 2025 includes $87 million and $37 million increases in revenue from the aforementioned international development activities in Ukraine and hurricane disaster response activities, respectively, compared to the first quarter of fiscal 2024.
Operating income increased 31.9% primarily due to the aforementioned revenue growth. Our operating margin, based on revenue, net of subcontractor costs, for the first quarter of fiscal 2025 was 13.9% compared to 14.3% for the same quarter last year. The lower operating margin reflects the mix of revenue as this fiscal year's first quarter included a higher amount of international development activity, which operates at a lower margin compared to the other activities in the GSG segment.
Commercial/International Group
| Three Months Ended | |||||||||||||||||||||||
|
December 29,
2024 |
December 31,
2023 |
Change | |||||||||||||||||||||
| $ | % | ||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Revenue | $ | 688,235 | $ | 669,107 | $ | 19,128 | 2.9% | ||||||||||||||||
| Subcontractor costs | (92,082) | (96,638) | 4,556 | 4.7 | |||||||||||||||||||
|
Revenue, net of subcontractor costs
(1)
|
$ | 596,153 | $ | 572,469 | $ | 23,684 | 4.1% | ||||||||||||||||
| Income from operations | $ | 77,677 | $ | 71,401 | $ | 6,276 | 8.8% | ||||||||||||||||
(1)
Non-GAAP financial measure
The revenue growth of 2.9% primarily reflects increased activities for water consulting services in the United Kingdom and for high performance buildings. These revenue increases were partially offset by a revenue decrease due to completion of a large infrastructure project for an international government client.
Our operating income increased due to the aforementioned revenue growth.
Our operating margin, based on revenue, net of subcontractor costs, for the first quarter of fiscal 2025 was 13.0% compared to 12.5% for the fiscal 2024 q
uarter. The improved operating margin was primarily due to our continued focus on high-end consulting services and improved project execution.
Backlog
Backlog generally represents the dollar amount of revenues we expect to realize in the future when we perform the work. The difference between our remaining unsatisfied performance obligation
("
RUPO") and backlog relates to contract terms. Specifically, our backlog does not consider the potential impact of termination for convenience clauses within the contracts. The contract term and thus remaining performance obligation on certain of our operations and maintenance contracts,
30
are limited to the notice period required for contract termination (usually 30, 60, or 90 day
s). The differences between our backlog and RUPO at December 29, 2024 and September 29, 2024 were immaterial (see the table below):
| As of | |||||||||||
|
December 29,
2024 |
September 29,
2024 |
||||||||||
| ($ in millions) | |||||||||||
| RUPO | $ | 5,391 | $ | 5,331 | |||||||
| Backlog | 5,435 | 5,376 | |||||||||
Financial Condition, Liquidity and Capital Resources
Capital Requirements.
At December 29, 2024, we h
ad $248.1 million of cash and cash equivalents and access to an additional $724.3 million of borrowings available under our credit facility. During the first quarter of fiscal 2025, we generated $13.1 million of cash from operations. 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, share repurchases, capital expenditures and repayment of debt, as well as to fund acquisitions and earn-out obligations from prior acquisitions. We believe that our existing cash and cash equivalents, operating cash flows and borrowing capacity under our credit agreement, as described below, will be sufficient to meet our capital requirements for at least the next 12 months.
Cash and Cash Equivalents.
The following tables summarize information regarding our cash and cash equivalents (amounts in thousands):
| As of | |||||||||||||||||||||||
|
December 29,
2024 |
September 29,
2024 |
Change | |||||||||||||||||||||
| $ | % | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 248,104 | $ | 232,689 | $ | 15,415 | 6.6 | % | |||||||||||||||
| Three Months Ended | |||||||||||||||||||||||
|
December 29,
2024 |
December 31,
2023 |
Change | |||||||||||||||||||||
| $ | % | ||||||||||||||||||||||
| Net cash provided by (used in): | |||||||||||||||||||||||
| Operating activities | $ | 13,063 | $ | 9,246 | $ | 3,817 | 41.3 | % | |||||||||||||||
| Investing activities | (3,433) | (3,434) | 1 | — | |||||||||||||||||||
| Financing activities | 19,394 | 18,391 | 1,003 | 5.5 | |||||||||||||||||||
| Effect of exchange rate changes | (13,609) | 5,655 | (19,264) | (340.7) | |||||||||||||||||||
| Net increase in cash and cash equivalents | $ | 15,415 | $ | 29,858 | $ | (14,443) | (48.4) | % | |||||||||||||||
Operating Activities
.
Our cash from operations increased $3.8 million compared to the prior-year quarter primarily due to higher earnings, excluding the aforementioned legal contingency charge that was accrued (non-cash) in the current quarter.
Investing Activities
.
Our cash flows from investing activities for the first quarters of fiscal year 2025 and 2024 reflect capital expenditures of $3.4 million for each period.
Financing Activities
.
Net cash provided by financing activities of approximately $19 million in the first quarter of fiscal 2025 was substantially the same as the prior-year first quarter. However, our net borrowings increased $10 million in this year's first quarter to partially fund the $25 million share repurchases as our share repurchase program was reactivated this quarter. Our financing activities in the fiscal 2024 first quarter included contingent earn-out payments of $18.9 million compared to essentially none this quarter.
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
in January 2026
.
31
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
. In fiscal 2023, we repaid the Amended Term Loan Facility in full from the Convertible Notes proceeds.
On August 22, 2023, we issued $575.0 million in the 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 net proceeds from the Convertible Notes were $560.5 million, $51.8 million of which were used to purchase related capped call transactions on the issue date. The remaining proceeds were used to prepay and terminate the $234.4 million outstanding under the Amended Term Loan Facility, to prepay $89.4 million outstanding under the New Term Loan Facility and to pay down borrowings of $185.0 million under the Amended Revolving Credit Facility. See Note
15
, "
Long-Term Debt
" of the "Notes to Consolidated Financial Statements" for further discussion.
At December 29, 2024, we had
$325 million in outstanding borrowings under the Amended Credit Agreement, which consisted of $250 million under the New Term Loan Facility and $75 million under the Amended Revolving Credit Facility. For the first quarter of fiscal 2025, the weighted-average interest rate of the outstanding borrowings under the Amended Credit Agreement was 5.98%. In addition, we had $0.7 million in standby letters of credit under the Amended Credit Agreement. At December 29, 2024, we had $424.3 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 t
hose 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 December 29, 2024, we were in compliance with these covenants with a consolidated leverage ratio of
1.77x
and a consolidated interest coverage ratio of
12.33x.
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 December 29, 2024, there were no borrowings un
der these facilities, and the aggregate amount of standby letters of credit outstandin
g was $40.2 million. At December 29, 2024, 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.
Stock repurchases.
On October 5, 2021, our Board of Directors authorized a stock repurchase program under which we could repurchase up to $400 million
of our common stock. In the first quarter of fiscal 2025, we repurchased and settled 600,007 shares with an average price of $41.67 per share for a total cost of $25.0 million in the open market. We did not repurchase any shares of our common stock in the first quarter of fiscal 2024. At
December 29, 2024, we had a remaining balance of $322.8 million under our stock repurchase program.
32
Dividends.
Our Board of Directors has authorized the following dividends in fiscal 2025:
|
Dividend
Per Share |
Record Date |
Total Maximum
Payment (in thousands) |
Payment Date | ||||||||||||||||||||
| November 11, 2024 | $ | 0.058 | November 27, 2024 | $ | 15,549 | December 13, 2024 | |||||||||||||||||
| January 27, 2025 | 0.058 | February 12, 2025 | NA | February 26, 2025 | |||||||||||||||||||
Subsequent E
vents.
On January 27, 2025, our Board of Directors declared a quarterly cash dividend of $0.058 per share payable on February 26, 2025 to stockholders of record as of the close of business on February 12, 2
025.
Income Taxes
We evaluate the realizability of our deferred tax assets by assessing the valuation allowance and adjust the allowance, if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The ability or failure to achieve the forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets. Based on future oper
ating 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 December 29, 2024 and September 29, 2024, the liability for income taxes associated with uncertain tax positions w
as $51.1 million and $50.1 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.
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 issu
ance of our standby letters of credit and bank guarantees and are critical for our normal operations. If we default on the A
mended 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 December 29, 2024, we had $0.7 million in standby letters of credit outstanding under our Amended Credit Agreement and $40.2 million in standby lett
ers 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
33
cases where costs exceed the remaining amounts payable under the contract, we may have recourse to third parties, such as owners, co-venturers, subcontractors or vendors, for claims.
•
In the ordinary course of business, our clients may request that we obtain surety bonds in connection with contract performance obligations that are not required to be recorded in our consolidated balance sheets. We are obligated to reimburse the issuer of our surety bonds for any payments made thereunder. Each of our commitments under performance bonds generally ends concurrently with the expiration of our related contractual obligation.
Critical Accounting Policies
Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the fiscal year ended September 29, 2024. To date, there have been no material changes in our critical accounting policies as reported in our fiscal
2024
Annual Report on Form 10-K.
New Accounting Pronouncements
For information regarding recent accounting pronouncements, see “Notes to Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report.
Financial Market Risks
We do not enter into derivative financial instruments for trading or speculation purposes. In the normal course of business, we have exposure to both interest rate risk and foreign currency transaction and translation risk, primarily related to the Canadian and Australian dollars, the Euro, and the British Pound.
We are
exposed to interest rate risk under our Amended Credit Agreement. We can borrow, at our option, under both the Amended Term Loan Facility and Amended Revolving Credit Facility. We may borrow on the Amended Revolving Credit Facility, at our option, at either (a) a 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 design
ated 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 le
ss 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 December 29, 2024, we had $325 million in outstanding borrowings under the Amended Credit Agreement, which was consisted of $250 million under the New Term Loan Facility and $75 million under the Amended Revolving Credit Facility. For the first quarter of fiscal 2025, the weighted-average interest rate of the outstanding borrowings under the Amended Credit Agreement was 5.98%.
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 report our foreign currency gains and losses in “Selling, general and administrative expenses” on our consolidated statements of income. The impact of the foreign currency gains and losses was immaterial for the first quarters of fiscal 2025 and 2024.
We have foreign currency exchange rate exposure in our results of operation
s and equity primarily because of the currency translation related to our foreign subsidiaries where the local currency is the functional curre
ncy. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions will result in reduced revenue, operating expenses, assets and liabilities. Similarly, our revenue, operating expenses, assets and liabilities will increase if the U.S. dollar weakens against foreign currencies. For the first quarters of fiscal 2025 and
2024, 33.9% and 38.5% of our consolidated revenue, respectively, was generated by our international business. For the first quarter of fiscal 2025, the effect of foreign exchange rate translation on our consolidated balance sheet was a decrease in equity of $108.8 million compared to an increase of $63.1 million in the prior-year period. These amounts were recognized as adjustments to equity through other comprehensive income.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Please refer to the information we have included under the heading “Financial Market Risks” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 2 of this Form 10-Q which is incorporated herein by reference.
34
Item 4.
Controls and Procedures
Evaluation of disclosure controls and procedures and changes in internal control over financial reporting.
At December 29, 2024, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), were effective.
Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 29, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II.
OTHER INFORMATION
Item 1.
Legal Proceedings
For information regarding legal proceedings
, see Note
17
, "
Commitments and Contingencies"
included in the "Notes to Consolidated Financial Statements" included in Part I, Item 1 of this Form 10-Q which is incorporated herein by reference.
35
Item 1A.
Risk Factors
There have been no material changes in our risk factors disclosed in Part I, Item 1A in our 2024 Annual Report on Form 10-K. For updated disclosures related to interest and exchange rate risks, see
“Financial Market Risks” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in
Part I,
Item 2 of this Form 10-Q which is incorporated herein by reference.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
On October 5, 2021, our Board of Directors authorized a stock repurchase program under which we could repurchase up to $400 million
of our common stock. In the first quarter of fiscal 2025, we repurchased and settled 600,007 shares with an average price of $41.67 per share for a total cost of $25.0 million in the open market. We did not repurchase any shares of our common stock in the first quarter of fiscal 2024. At December 29, 2024
, we had a remaining balance of $322.8 million under our stock repurchase program.
Below is a summary of the stock repurchases that were traded and settled during the first quarter of fiscal 2025:
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value that May Yet be Purchased Under the Plans or Programs (in thousands) | |||||||||||||||||||
| September 30, 2024 - October 27, 2024 | — | $ | — | — | $ | 347,813 | |||||||||||||||||
| October 28, 2024 - November 24, 2024 | 80,973 | 40.75 | 80,973 | 344,513 | |||||||||||||||||||
| November 25, 2024 - December 29, 2024 | 519,034 | 41.81 | 519,034 | 322,813 | |||||||||||||||||||
Item 4.
Mine Safety Disclosures
Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") requires domestic mine operators to disclose violations and orders issued under the Mine Act by Mine Safety and Health Administration. We do not act as the owner of any mines, but we may act as a mining operator as defined under the Mine Act where we may be an independent contractor performing services or construction at such mine. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K is included in Exhibit 95.
Item 5.
Other Information
Rule 10b5-1 Trading Plans
During the first quarter of fiscal 2025, no
ne of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act)
adopted
, modified or
terminated
any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any "non-Rule 10b5-1 trading arrangement" as defined in Item 408(c) of Regulation S-K.
Item 6.
Exhibits
The following documents are filed as Exhibits to this Report:
36
| 101 | The following financial information from our Company’s Quarterly Report on Form 10-Q, for the period ended December 29, 2024, formatted in Inline eXtensible Business Reporting Language: (i) Consolidated Balance Sheets (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Equity, (vi) Notes to Consolidated Financial Statements. | ||||
| 104 | Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101). | ||||
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dated: January 31, 2025 | TETRA TECH, INC. | ||||||||||
| By: | /s/ DAN L. BATRACK | ||||||||||
| Dan L. Batrack | |||||||||||
| Chairman, Chief Executive Officer and President | |||||||||||
| (Principal Executive Officer) | |||||||||||
| By: | /s/ STEVEN M. BURDICK | ||||||||||
| Steven M. Burdick | |||||||||||
| Executive Vice President, Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
| By: | /s/ BRIAN N. CARTER | ||||||||||
| Brian N. Carter | |||||||||||
| Senior Vice President, Corporate Controller | |||||||||||
| (Principal Accounting Officer) | |||||||||||
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TABLE OF CONTENTS
Part I,Item 2 Of This Form 10-q Which Is Incorporated Herein By ReferenceItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits