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(Mark One)

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

OR

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

For the transition period from                      to                     

(Exact name of registrant as specified in its charter)

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

TTEK

The NASDAQ Stock Market LLC

Yes  ☒   No  ☐

Yes  ☒   No  ☐

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

Yes ☐   No  ☒

As of January 24, 2022, 53,999,410 shares of the registrant’s common stock were outstanding.

 

PART I.			FINANCIAL INFORMATION			PAGE NO.
Item 1.			Financial Statements (Unaudited)			3
			Consolidated Balance Sheets as of January 2, 2022 and October 3, 2021			3
			Consolidated Statements of Income for the Three Months Ended January 2, 2022 and December 27, 2020			4
			Consolidated Statements of Comprehensive Income for the Three Months Ended January 2, 2022 and December 27, 2020			5
			Consolidated Statements of Cash Flows for the Three Months Ended January 2, 2022 and December 27, 2020			6
			Consolidated Statements of Equity for the Three Months Ended January 2, 2022 and December 27, 2020			7
			Notes to Unaudited Consolidated Financial Statements			8
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			31
Item 4.			Controls and Procedures			32
PART II.			OTHER INFORMATION			32
Item 1.			Legal Proceedings			32
Item 1A.			Risk Factors			33
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			33
Item 4.			Mine Safety Disclosures			33
Item 6.			Exhibits			33
SIGNATURES						34

PART I.                                                  FINANCIAL INFORMATION

    Item 1.                                 Financial Statements

ASSETS			January 2, 2022						October 3, 2021
Current assets:
Cash and cash equivalents			$	205,542					$	166,568
Accounts receivable, net			696,586						668,998
Contract assets			98,439						103,784
Prepaid expenses and other current assets			103,266						112,338
Income taxes receivable			9,567						14,260
Total current assets			1,113,400						1,065,948
Property and equipment, net			35,428						37,733
Right-of-use assets, operating leases			212,018						215,422
Investments in unconsolidated joint ventures			3,893						3,282
Goodwill			1,123,060						1,108,578
Intangible assets, net			36,535						37,990
Deferred tax assets			58,876						54,413
Other long-term assets			57,246						53,196
Total assets			$	2,640,456					$	2,576,562
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable			$	142,847					$	128,767
Accrued compensation			166,002						206,322
Contract liabilities			219,519						190,403
Short-term lease liabilities, operating leases			65,185						67,452
Current portion of long-term debt and other short-term borrowings			16,728						12,504
Current contingent earn-out liabilities			21,931						19,520
Other current liabilities			217,056						223,515
Total current liabilities			849,268						848,483
Deferred tax liabilities			13,916						10,563
Long-term debt			246,875						200,000
Long-term lease liabilities, operating leases			172,795						174,285
Long-term contingent earn-out liabilities			43,839						39,777
Other long-term liabilities			75,818						69,163
Commitments and contingencies (Note 16)
Equity:
Preferred stock - authorized, 2,000 shares of $0.01 par value; no shares issued and outstanding at January 2, 2022 and October 3, 2021			—						—
Common stock - authorized, 150,000 shares of $0.01 par value; issued and outstanding, 53,999 and 53,981 shares at January 2, 2022 and October 3, 2021, respectively			540						540
Accumulated other comprehensive loss			(123,048)						(125,028)
Retained earnings			1,360,390						1,358,726
Tetra Tech stockholders’ equity			1,237,882						1,234,238
Noncontrolling interests			63						53
Total stockholders' equity			1,237,945						1,234,291
Total liabilities and stockholders' equity			$	2,640,456					$	2,576,562

 

			Three Months Ended
			January 2, 2022						December 27, 2020
Revenue			$	858,510					$	765,104
Subcontractor costs			(179,177)						(159,933)
Other costs of revenue			(539,567)						(488,861)
Gross profit			139,766						116,310
Selling, general and administrative expenses			(52,546)						(50,058)
Income from operations			87,220						66,252
Interest expense, net			(2,904)						(3,026)
Income before income tax expense			84,316						63,226
Income tax expense			(15,817)						(10,778)
Net income			68,499						52,448
Net income attributable to noncontrolling interests			(10)						(12)
Net income attributable to Tetra Tech			$	68,489					$	52,436
Earnings per share attributable to Tetra Tech:
Basic			$	1.27					$	0.97
Diluted			$	1.25					$	0.96
Weighted-average common shares outstanding:
Basic			53,937						53,927
Diluted			54,577						54,637

 

			Three Months Ended
			January 2, 2022						December 27, 2020
Net income			$	68,499					$	52,448
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment, net of tax			(686)						32,393
Gain on cash flow hedge valuations, net of tax			2,666						1,476
Other comprehensive income, net of tax			1,980						33,869
Comprehensive income, net of tax			$	70,479					$	86,317
Comprehensive income attributable to noncontrolling interests, net of tax			10						14
Comprehensive income attributable to Tetra Tech, net of tax			$	70,469					$	86,303

(unaudited – in thousands)

			Three Months Ended
			January 2, 2022						December 27, 2020
Cash flows from operating activities:
Net income			$	68,499					$	52,448
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			6,111						6,238
Equity in income of unconsolidated joint ventures			(1,440)						(1,107)
Distributions of earnings from unconsolidated joint ventures			842						931
Amortization of stock-based awards			5,828						4,898
Deferred income taxes			(878)						954
(Gain) loss on sale of property and equipment			239						(7)
Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable and contract assets			(21,560)						(11,400)
Prepaid expenses and other assets			5,364						11,813
Accounts payable			14,056						23,631
Accrued compensation			(40,321)						(61,690)
Contract liabilities			29,227						27,392
Other liabilities			11,615						(23,373)
Income taxes receivable/payable			4,837						2,452
Net cash provided by operating activities			82,419						33,180
Cash flows from investing activities:
Payments for business acquisitions, net of cash acquired			(8,858)						—
Capital expenditures			(1,518)						(1,795)
Proceeds from sales of assets			3,514						9
Net cash used in investing activities			(6,862)						(1,786)
Cash flows from financing activities:
Proceeds from borrowings			50,831						123,533
Repayments on long-term debt			(3,956)						(114,752)
Bank overdrafts			4,158						—
Repurchases of common stock			(50,000)						(15,000)
Taxes paid on vested restricted stock			(24,949)						(17,330)
Stock options exercised			960						7,495
Dividends paid			(10,793)						(9,198)
Payments of contingent earn-out liabilities			(1,720)						(7,037)
Principal payments on finance leases			(945)						(538)
Net cash used in financing activities			(36,414)						(32,827)
Effect of exchange rate changes on cash and cash equivalents			(169)						7,356
Net increase in cash and cash equivalents			38,974						5,923
Cash and cash equivalents at beginning of period			166,568						157,515
Cash and cash equivalents at end of period			$	205,542					$	163,438
Supplemental information:
Cash paid during the period for:
Interest			$	2,456					$	1,968
Income taxes, net of refunds received of $2.3 million and $1.1 million			$	11,535					$	5,696

See Notes to Consolidated Financial Statements.

			Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive Loss						Retained Earnings						Total Tetra Tech Equity						Non-Controlling Interests						Total Equity
			Shares						Amount
BALANCE AT SEPTEMBER 27, 2020			53,797						$	538					$	—					$	(161,786)					$	1,198,567					$	1,037,319					$	54					$	1,037,373
Net income																											52,436						52,436						12						52,448
Other comprehensive income																					33,867												33,867						2						33,869
Cash dividends of $0.17 per common share																											(9,198)						(9,198)												(9,198)
Stock-based compensation															4,898																		4,898												4,898
Restricted & performance shares released			209						2						(17,332)																		(17,330)												(17,330)
Stock options exercised			198						2						7,493																		7,495												7,495
Shares issued for Employee Stock Purchase Plan			124						1						10,698																		10,699												10,699
Stock repurchases			(135)						(1)						(5,757)												$	(9,242)					(15,000)												(15,000)
BALANCE AT DECEMBER 27, 2020			54,193						$	542					$	—					$	(127,919)					$	1,232,563					$	1,105,186					$	68					$	1,105,254
BALANCE AT OCTOBER 3, 2021			53,981						$	540					$	—					$	(125,028)					$	1,358,726					$	1,234,238					53						$	1,234,291
Net income																											68,489						68,489						10						68,499
Other comprehensive income																					1,980												1,980												1,980
Cash dividends of $0.20 per common share																											(10,793)						(10,793)												(10,793)
Stock-based compensation															5,828																		5,828												5,828
Restricted & performance shares released			182						2						(18,916)												(6,035)						(24,949)												(24,949)
Stock options exercised			20						—						960																		960												960
Shares issued for Employee Stock Purchase Plan			106						1						12,128																		12,129												12,129
Stock repurchases			(290)						(3)						—												(49,997)						(50,000)												(50,000)
BALANCE AT JANUARY 2, 2022			53,999						$	540					$	—					$	(123,048)					$	1,360,390					$	1,237,882					$	63					$	1,237,945

1.                                      Basis of Presentation

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

2.                                   Recent Accounting Pronouncements

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

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

3.                                   Revenue and Contract Balances

			Three Months Ended
			January 2, 2022						December 27, 2020
			(in thousands)
Client Sector:
U.S. state and local government			$	159,008					$	125,008
U.S. federal government (1)			266,797						265,873
U.S. commercial			176,904						157,787
International (2)			255,801						216,436
Total			$	858,510					$	765,104
Contract Type:
Fixed-price			$	331,248					$	274,406
Time-and-materials			395,648						355,270
Cost-plus			131,614						135,428
Total			$	858,510					$	765,104

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

			Balance at
			January 2, 2022						October 3, 2021
			(in thousands)
Contract assets (1)			$	98,439					$	103,784
Contract liabilities			(219,519)						(190,403)
Net contract liabilities			$	(121,080)					$	(86,619)

(1)     Includes $13.5 million and $12.2 million of contract retentions as of January 2, 2022 and October 3, 2021, respectively.

In the first quarters of fiscal 2022 and 2021, we recognized revenue of approximately $63 million and $60 million, respectively, from amounts included in the contract liability balances at the end of fiscal 2021 and 2020, respectively.

Changes in revenue and cost estimates could also result in a projected loss, determined at the contract level, which would be recorded immediately in earnings. As of January 2, 2022 and October 3, 2021, our consolidated balance sheets included liabilities for anticipated losses of $14.2 million and $12.7 million, respectively. The estimated cost to complete these related contracts as of January 2, 2022 and October 3, 2021 was approximately $116 million and $104 million, respectively.

			Balance at
			January 2, 2022						October 3, 2021
			(in thousands)
Billed			$	441,652					$	432,814
Unbilled			259,918						240,536
Total accounts receivable			701,570						673,350
Allowance for doubtful accounts			(4,984)						(4,352)
Total accounts receivable, net			$	696,586					$	668,998

Billed accounts receivable represent amounts billed to clients that have not been collected. Unbilled accounts receivable, which represent an unconditional right to payment subject only to the passage of time, include unbilled amounts typically resulting from revenue recognized but not yet billed pursuant to contract terms or billed after the period end date. Substantially all of our unbilled receivables at January 2, 2022 are expected to be billed and collected within 12 months. The allowance for doubtful accounts represents amounts that are expected to become uncollectible or unrealizable in the future. We determine an estimated allowance for uncollectible accounts based on management's consideration of trends in the actual and forecasted credit quality of our clients, including delinquency and payment history; type of client, such as a government agency or a commercial sector client; and general economic and industry conditions, including the potential impacts of the coronavirus disease 2019 ("COVID-19") pandemic, that may affect our clients' ability to pay.

We regularly evaluate all unsettled claim amounts and record appropriate adjustments to revenue when it is probable that the claim will result in a different contract value than the amount previously estimated. In the first quarters of fiscal 2022 and fiscal 2021, we recorded no gains or losses related to claims.

			Amount
			(in thousands)
Within 12 months			$	2,042,908
Beyond			1,392,475
Total			$	3,435,383

Goodwill additions resulting from the above business combinations are primarily attributable to the existing workforce of the acquired companies and the synergies expected to arise after the acquisitions. The fiscal 2021 goodwill additions represent the significant technical expertise residing in embedded workforces that are sought out by clients and the long-standing reputation of HLE. In addition, these acquired capabilities, when combined with our existing global consulting and engineering business, result in opportunities that allow us to provide services under contracts that could not have been pursued individually by either us or the acquired companies. The results of these acquisitions were included in our consolidated financial statements from their respective closing dates. These acquisitions were not considered material, individually or in the aggregate, to our consolidated financial statements. As a result, no pro forma information has been provided.

						GSG						CIG						Total
						(in thousands)
Balance at October 3, 2021						$	538,433					$	570,145					$	1,108,578
Goodwill reallocation						(51,497)						51,497						—
Acquisition activity						14,671						—						14,671
Translation and adjustments						44						(233)						(189)
Balance at January 2, 2022						$	501,651					$	621,409					$	1,123,060

Our goodwill balances reflect the goodwill reallocation related to the creation of our new HPB division on the first day of fiscal 2022, which included a transfer of some related operations in our GSG reportable segment to our CIG reportable segment. The foreign currency translation adjustments resulted from our foreign subsidiaries with functional currencies that are different than our reporting currency. These amounts are presented net of reductions from historical impairment adjustments. The gross amounts of goodwill for GSG were $519.4 million and $556.1 million at January 2, 2022 and October 3, 2021, respectively, excluding accumulated impairment of $17.7 million for each period. The gross amounts of goodwill for CIG were $742.9 million and $691.6 million at January 2, 2022 and October 3, 2021, respectively, excluding accumulated impairment of $121.5 million for each period.

			Period Ended
			January 2, 2022																								October 3, 2021
			Weighted- Average Remaining Life (in Years)						Gross Amount						Accumulated Amortization						Net Amount						Gross Amount						Accumulated Amortization						Net Amount
			($ in thousands)
Client relations			6.4						$	43,646					$	(18,723)					$	24,923					$	69,455					$	(43,984)					$	25,471
Backlog			1.2						32,113						(28,573)						3,540						34,577						(30,670)						3,907
Technology and trade names			4.3						14,936						(6,864)						8,072						14,939						(6,327)						8,612
Total									$	90,695					$	(54,160)					$	36,535					$	118,971					$	(80,981)					$	37,990

Amortization expense for the three months ended January 2, 2022 was $2.7 million, compared to $3.4 million for the prior-year periods. Estimated amortization expense for the remainder of fiscal 2022 and succeeding years is as follows:

			Amount
			(in thousands)
2022			$	7,733
2023			7,859
2024			5,193
2025			4,359
2026			3,963
Beyond			7,428
Total			$	36,535

			Balance at
			January 2, 2022						October 3, 2021
			(in thousands)
Equipment, furniture and fixtures			$	95,228					$	94,780
Leasehold improvements			36,472						36,462
Total property and equipment			131,700						131,242
Accumulated depreciation			(96,272)						(93,509)
Property and equipment, net			$	35,428					$	37,733

The depreciation expense related to property and equipment was $3.4 million for the three months ended January 2, 2022, compared to $2.9 million for the prior-year period.

On October 5, 2021, the Board of Directors authorized a new stock repurchase program under which we could repurchase up to $400 million of our common stock in addition to the $147.8 million remaining under the previous stock repurchase program at October 3, 2021. In the first quarter of fiscal 2022, we repurchased and settled 290,196 shares with an average price of $172.30 per share for a total cost of $50.0 million in the open market. At January 2, 2022, we had a remaining balance of $497.8 million under our stock repurchase program.

Declare Date						Dividend Paid Per Share						Record Date						Payment Date						Dividend Paid (in thousands)
November 15, 2021						$	0.20					December 2, 2021						December 20, 2021						$	10,793
November 9, 2020						$	0.17					November 30, 2020						December 11, 2020						$	9,198

Subsequent Event.  On January 31, 2022, the Board of Directors declared a quarterly cash dividend of $0.20 per share payable on February 25, 2022 to stockholders of record as of the close of business on February 11, 2022.

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

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets and current and long-term operating lease liabilities in the consolidated balance sheets. Our finance leases are primarily for certain information technology equipment. The related ROU assets and lease liabilities were immaterial, and are included in "Property and equipment, net", "Other current liabilities" and "Other long-term liabilities", accordingly, in the consolidated balance sheets at January 2, 2022 and October 3, 2021.

			Three Months Ended
			January 2, 2022						December 27, 2020
			(in thousands)
Operating lease cost			$	21,751					$	22,069
Sublease income			(125)						(29)
Total lease cost			$	21,626					$	22,040

			Three Months Ended
			January 2, 2022						December 27, 2020
			(in thousands)
Operating cash flows for operating leases			$	17,519					$	18,800
Right-of-use assets obtained in exchange for new operating lease liabilities			$	12,347					$	10,293

			Balance at
			January 2, 2022						October 3, 2021
			(in thousands)
Operating leases:
Right-of-use assets			$	212,018					$	215,422
Lease liabilities:
Current			65,185						67,452
Long-term			172,795						174,285
Total operating lease liabilities			$	237,980					$	241,737
Weighted-average remaining lease term:
Operating leases			5 years						5 years
Weighted-average discount rate:
Operating leases			2.1		%				2.2		%

			Amount
			(in thousands)
2022			$	53,596
2023			57,830
2024			42,775
2025			31,876
2026			21,407
Beyond			45,581
Total lease payments			253,065
Less: imputed interest			(15,085)
Total present value of lease liabilities			$	237,980

We recognize the fair value of our stock-based awards as compensation expense on a straight-line basis over the requisite service period in which the award vests. Stock-based compensation expense for the three months ended January 2, 2022 was $5.8 million, compared to $4.9 million for the same period last year. Most of these amounts were included in selling,

general and administrative expenses on our consolidated statements of income. In the first quarter of fiscal 2022, we awarded 41,199 performance share units (“PSUs”) to our non-employee directors and executive officers at an estimate fair value of $227.94 per share on the award date. All PSUs are performance-based and vest, if at all, after the conclusion of the three-year performance period. The number of PSUs that ultimately vest is based 50% on the growth in our diluted earnings per share and 50% on our relative total shareholder return over the vesting period. Additionally, we awarded 70,976 restricted stock units (“RSUs”) to our non-employee directors, executive officers and employees at a fair value of $188.32 per share on the award date. All executive officer and employee RSUs have time-based vesting over a four-year period, and the non-employee director RSUs vest after one year.

			Three Months Ended
			January 2, 2022						December 27, 2020
			(in thousands, except per share data)
Net income attributable to Tetra Tech			$	68,489					$	52,436
Weighted-average common shares outstanding – basic			53,937						53,927
Effect of dilutive stock options and unvested restricted stock			640						710
Weighted-average common shares outstanding – diluted			54,577						54,637
Earnings per share attributable to Tetra Tech:
Basic			$	1.27					$	0.97
Diluted			$	1.25					$	0.96

The effective tax rates for the first three months of fiscal 2022 and 2021 were 18.8% and 17.0%, respectively. Income tax expense was reduced by $4.5 million and $6.1 million of excess tax benefits on share-based payments in the first three months of fiscal 2022 and 2021, respectively. Excluding the impact of the excess tax benefits on share-based payments, our effective tax rates in the first three months fiscal 2022 and 2021 were 24.1% and 26.8%, respectively.

As of January 2, 2022 and October 3, 2021, the liability for income taxes associated with uncertain tax positions was $13.4 million and $14.1 million, respectively. These uncertain tax positions substantially relate to ongoing examinations. It is reasonably possible that these examinations will be resolved 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.

12.                               Reportable Segments

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

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

			Three Months Ended
			January 2, 2022						December 27, 2020
			(in thousands)
Revenue
GSG			$	456,099					$	424,663
CIG			416,286						356,526
Elimination of inter-segment revenue			(13,875)						(16,085)
Total revenue			$	858,510					$	765,104
Income from operations
GSG			$	51,179					$	42,695
CIG			45,308						34,563
Corporate (1)			(9,267)						(11,006)
Total income from operations			$	87,220					$	66,252

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

			Balance at
			January 2, 2022						October 3, 2021
			(in thousands)
Total Assets
GSG			$	575,206					$	545,533
CIG			703,777						698,916
RCM			11,316						11,360
Corporate (1)			1,350,157						1,320,753
Total assets			$	2,640,456					$	2,576,562

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

13.                               Fair Value Measurements

14.                               Derivative Financial Instruments

In fiscal 2018, we entered into five interest rate swap agreements that we designated as cash flow hedges to fix the interest rate on the borrowings under our term loan facility. As of January 2, 2022, the notional principal of our outstanding interest swap agreements was $209.4 million ($41.9 million each.) The interest rate swaps have a fixed interest rate of 2.79% and expire in July 2023 for all five agreements. At January 2, 2022 and October 3, 2021, the fair value of the effective portion of our interest rate swap agreements designated as cash flow hedges before tax effect was $(6.7) million and $(9.4) million, which were reported in "Other current liabilities" on our consolidated balance sheets. Additionally, the related gains of $2.7 million for the three months ended January 2, 2022, compared to related gains of $1.5 million for the prior-year period, were recognized and reported on our consolidated statements of comprehensive income. We expect to reclassify $4.6 million from accumulated other comprehensive loss to interest expense within the next twelve months. There were no other derivative instruments designated as hedging instruments for the first three months of fiscal 2022.

15.                               Reclassifications Out of Accumulated Other Comprehensive Income

The accumulated balances and activities for the three months ended January 2, 2022 and December 27, 2020 related to reclassifications out of accumulated other comprehensive income are summarized as follows:

			Three Months Ended
			Foreign Currency Translation Adjustments						Gain (Loss) on Derivative Instruments						Accumulated Other Comprehensive Income (Loss)
			(in thousands)
Balance at September 27, 2020			$	(146,275)					$	(15,511)					$	(161,786)
Other comprehensive income before reclassifications			32,391						2,978						35,369
Amounts reclassified from accumulated other comprehensive loss
Interest rate contracts, net of tax (1)			—						(1,502)						(1,502)
Net current-period other comprehensive income			32,391						1,476						33,867
Balance at December 27, 2020			$	(113,884)					$	(14,035)					$	(127,919)
Balance at October 3, 2021			$	(115,634)					$	(9,394)					$	(125,028)
Other comprehensive income (loss) before reclassifications			(686)						4,032						3,346
Amounts reclassified from accumulated other comprehensive loss
Interest rate contracts, net of tax (1)			—						(1,366)						(1,366)
Net current-period other comprehensive income (loss)			(686)						2,666						1,980
Balance at January 2, 2022			$	(116,320)					$	(6,728)					$	(123,048)
(1) This accumulated other comprehensive component is reclassified to “Interest expense” in our consolidated statements of income. See Note 14, “Derivative Financial Instruments”, for more information.

16.                               Commitments and Contingencies

17.                               Related Party Transactions

We often provide services to unconsolidated joint ventures. Our revenue related to services we provided to unconsolidated joint ventures for the first quarter of fiscal 2022 and 2021 was approximately $26 million and $22 million, respectively. Related reimbursable costs for the first quarter of fiscal 2022 and 2021 were $25 million and $21 million, respectively. Our consolidated balance sheets also included the following amounts related to these services:

			Balance at
			January 2, 2022						October 3, 2021
			(in thousands)
Accounts receivable, net			$	16,323					$	19,082
Contract assets			4,126						5,092
Contract liabilities			3,978						3,026

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

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

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

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

			Three Months Ended
			January 2, 2022						December 27, 2020
Client Sector
U.S. state and local government			18.5		%				16.3		%
U.S. federal government (1)			31.1						34.8
U.S. commercial			20.6						20.6
International (2)			29.8						28.3
Total			100.0		%				100.0		%

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

			Three Months Ended
			January 2, 2022						December 27, 2020
Reportable Segment
GSG			53.1		%				55.5		%
CIG			48.5						46.6
Inter-segment elimination			(1.6)						(2.1)
Total			100.0		%				100.0		%

			Three Months Ended
			January 2, 2022						December 27, 2020
Contract Type
Fixed-price			38.6		%				35.9		%
Time-and-materials			46.1						46.4
Cost-plus			15.3						17.7
Total			100.0		%				100.0		%

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

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.

General. As the coronavirus disease 2019 ("COVID-19") spread globally, we responded quickly to ensure the health and safety of our employees, clients and the communities we support. Our high-end consulting focus and the technologies we deployed have allowed our staff to support clients and projects remotely without interruption. We remain focused on providing clients with the highest level of service and our 450 global offices are operational, supporting our programs and projects. By Leading with Science®, we are responding to the challenges of COVID-19, with the commitment of our 21,000 associates supported by technological innovation. Our government business, which represents approximately 60% of our revenue, has been stable, while our commercial business experienced relatively more impact. Much of our commercial business has continued due to regulatory drivers, but we have seen project delays in the industrial sectors. Our diversified end-markets have allowed us to redeploy staff to areas of uninterrupted or increased demand, and we have made decisions to align our cost structures with our clients' projects. The actions we have taken to navigate through this worldwide pandemic, the strength of our balance sheet, and our technical leadership position us well to address the global challenges of providing clean water, environmental restoration, and the impacts of climate change.

In the first quarter of fiscal 2022, revenue increased 12.2% compared to the prior-year quarter. This year-over-year growth primarily reflects increased activity with U.S. state and local government clients and commercial clients, both in the U.S. and international. Our revenue also includes contributions from acquisitions that did not contribute to our revenue in the first quarter of fiscal 2021.

U.S. State and Local Government.  Our U.S. state and local government revenue increased 27.2% in the first quarter of fiscal 2022 compared to the same quarter last year. The increase reflects continued broad-based growth in our U.S. state and local government project-related infrastructure business, particularly with increased revenue from municipal water infrastructure work in the metropolitan areas of California, Texas, and Florida. Our disaster response activities also increased compared to the first quarter of fiscal 2021. Most of our work for the U.S. state and local governments relates to critical water and environmental programs, which we expect to continue to grow for the remainder of fiscal 2022.

U.S. Federal Government.  Our U.S. federal government revenue increased 0.3% in the first quarter of fiscal 2022 compared to the prior-year quarter. These stable results reflect increased year-over-year revenue for both Department of Defense and civilian agencies, which were substantially offset by reduced international development activity in Afghanistan. During periods of economic volatility, including during the COVID-19 pandemic, our U.S. federal government business has historically been the most stable and predictable. We expect our U.S. federal government revenue to grow in the remainder of fiscal 2022 primarily due to increased advanced analytics activity and the current administration's focus on long-term infrastructure, climate change, and international development.

U.S. Commercial.  Our U.S. commercial revenue increased 12.1% in the first quarter of fiscal 2022 compared to the same quarter last year. This increase was primarily due to more activity on environmental programs, including meeting net zero carbon goals and high performance buildings. We expect these trends and the related growth in our U.S. commercial work to continue for the remainder of fiscal 2022.

International.  Our international revenue increased 18.2% in the first quarter of fiscal 2022 compared to the prior-year quarter. The revenue growth primarily reflects government stimulus spending on infrastructure and increased commercial activity related to new regulatory requirements for sustainability. Our revenue also includes contributions from acquisitions that did not contribute to our revenue in the first quarter of fiscal 2021. We expect these trends and the related growth in our international work to continue for the remainder of fiscal 2022.

			Three Months Ended
			January 2, 2022						December 27, 2020						Change
															$						%
			($ in thousands, except per share data)
Revenue			$	858,510					$	765,104					$	93,406					12.2%
Subcontractor costs			(179,177)						(159,933)						(19,244)						(12.0)
Revenue, net of subcontractor costs (1)			679,333						605,171						74,162						12.3
Other costs of revenue			(539,567)						(488,861)						(50,706)						(10.4)
Gross profit			139,766						116,310						23,456						20.2
Selling, general and administrative expenses			(52,546)						(50,058)						(2,488)						(5.0)
Income from operations			87,220						66,252						20,968						31.6
Interest expense			(2,904)						(3,026)						122						4.0
Income before income tax expense			84,316						63,226						21,090						33.4
Income tax expense			(15,817)						(10,778)						(5,039)						(46.8)
Net income			68,499						52,448						16,051						30.6
Net income attributable to noncontrolling interests			(10)						(12)						2						16.7
Net income attributable to Tetra Tech			$	68,489					$	52,436					$	16,053					30.6
Diluted earnings per share			$	1.25					$	0.96					$	0.29					30.2%
(1)    We believe that the presentation of “Revenue, net of subcontractor costs”, which is a non-U.S. GAAP financial measure, enhances investors’ ability to analyze our business trends and performance because it substantially measures the work performed by our employees. While providing services, we routinely subcontract various services and, under certain U.S. Agency for International Development programs, issue grants. Generally, these subcontractor costs and grants are passed through to our clients and, in accordance with U.S. GAAP and industry practice, are included in our revenue when it is our contractual responsibility to procure or manage these activities. The grants are included as part of our subcontractor costs. Because subcontractor services can vary significantly from project to project and period to period, changes in revenue may not necessarily be indicative of our business trends. Accordingly, we segregate subcontractor costs from revenue to promote a better understanding of our business by evaluating revenue exclusive of costs associated with external service providers.

In the first quarter of fiscal 2022, revenue and revenue, net of subcontractor costs, increased $93.4 million, or 12.2%, and $74.2 million, or 12.3%, respectively, compared to year-ago quarter. Excluding the contributions from acquisitions that did not have activity in the first quarter of last year, our revenue increased approximately 7% in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021. Our GSG segment's revenue and revenue, net of subcontractor costs, increased $31.4 million, or 7.4%, and $22.5 million, or 7.4%, respectively, in the first quarter of fiscal 2022 compared to last year's first quarter. Our CIG segment's revenue increased $59.8 million, or 16.8%, and revenue, net of subcontractor costs, increased $51.7 million, or 17.2% in the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021. Our first quarter of fiscal 2022 results for our GSG and CIG segments are described below under "Government Services Group" and "Commercial/International Services Group", respectively.

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

			Three Months Ended
			January 2, 2022						December 27, 2020						Change
															$						%
			($ in thousands, except per share data)
Income from operations			$	87,220					$	66,252					$	20,968					31.6%
COVID-19 Credits			(4,451)						—						(4,451)						NM
Adjusted income from operations (1)			$	82,769					$	66,252					$	16,517					24.9%
EPS			$	1.25					$	0.96					$	0.29					30.2%
COVID-19 Credits			(0.06)						—						(0.06)						NM
Adjusted EPS (1)			$	1.19					$	0.96					$	0.23					24.0%