TETRA TECH INC [TTEK] Filings

10-Q 1 ttek-20240630.htm 10-Q ttek-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2024


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

For the transition period from to

Commission File Number 0-19655

TETRA TECH, INC.

(Exact name of registrant as specified in its charter)


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

3475 East Foothill Boulevard, Pasadena, California 91107

(Address of principal executive offices) (Zip Code)

(626) 351-4664

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

TTEK

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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).

Yes ☒ No ☐

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.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

At July 22, 2024, 53,532,413 shares of the registrant’s common stock were outstanding.

TETRA TECH, INC.

INDEX


PART I.	FINANCIAL INFORMATION	PAGE NO.

Item 1.	Financial Statements (Unaudited)	3

	Consolidated Balance Sheets as of June 3 0 , 2024 and October 1, 2023	3

	Consolidated Statements of Income for the Three and Nine Months Ended June 3 0 , 2024 and July 2, 2023	4

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 3 0 , 2024 and July 2, 2023	5

	Consolidated Statements of Cash Flows for the Nine Months Ended June 3 0 , 2024 and July 2, 2023	6

	Consolidated Statements of Equity for the Three and Nine Months Ended June 3 0 , 2024 and July 2, 2023	7

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	44

PART II.	OTHER INFORMATION	44

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45
Item 6.	Exhibits	45

SIGNATURES		46

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Tetra Tech, Inc.

Consolidated Balance Sheets

(unaudited - in thousands, except par value)


ASSETS	June 30, 2024		October 1, 2023
Current assets:
Cash and cash equivalents	$	212,321	$	168,831
Accounts receivable, net	1,053,758		974,535
Contract assets	118,556		113,939
Prepaid expenses and other current assets	121,846		98,719
Total current assets	1,506,481		1,356,024

Property and equipment, net	70,694		74,832
Right-of-use assets, operating leases	167,317		175,932
Goodwill	1,992,110		1,880,244
Intangible assets, net	164,459		173,936
Deferred tax assets	89,510		89,002
Other non-current assets	94,334		70,507
Total assets	$	4,084,905	$	3,820,477

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	198,341	$	173,271
Accrued compensation	317,457		302,755
Contract liabilities	372,283		335,044
Short-term lease liabilities, operating leases	65,932		65,005
Current contingent earn-out liabilities	47,407		51,108
Other current liabilities	244,842		280,959
Total current liabilities	1,246,262		1,208,142

Deferred tax liabilities	17,254		14,256
Long-term debt	861,830		879,529
Long-term lease liabilities, operating leases	128,892		144,685
Non-current contingent earn-out liabilities	22,876		22,314
Other non-current liabilities	141,588		148,045

Commitments and contingencies (Note 18)

Equity:
Preferred stock - authorized, 2,000 shares of $0.01 par value; no shares issued and outstanding at June 30, 2024 and October 1, 2023	—		—
Common stock - authorized, 150,000 shares of $0.01 par value; issued and outstanding, 53,532 and 53,248 shares at June 30, 2024 and October 1, 2023, respectively	535		532
Additional paid-in capital	28,171		—
Accumulated other comprehensive loss	(154,689)		(195,295)
Retained earnings	1,792,121		1,598,196
Tetra Tech stockholders’ equity	1,666,138		1,403,433
Noncontrolling interests	65		73
Total stockholders' equity	1,666,203		1,403,506
Total liabilities and stockholders' equity	$	4,084,905	$	3,820,477

See Notes to Consolidated Financial Statements.

Tetra Tech, Inc.

Consolidated Statements of Income

(unaudited – in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	June 30, 2024		July 2, 2023		June 30, 2024		July 2, 2023
Revenue	$	1,344,323	$	1,208,947	$	3,824,205	$	3,261,938
Subcontractor costs	(234,742)		(221,387)		(646,828)		(568,252)
Other costs of revenue	(886,409)		(798,714)		(2,556,212)		(2,180,749)
Gross profit	223,172		188,846		621,165		512,937
Selling, general and administrative expenses	(94,042)		(89,064)		(263,293)		(227,912)
Acquisition and integration expenses	—		(2,107)		—		(25,812)
Contingent consideration – fair value adjustments	(500)		—		(477)		(8,477)
Income from operations	128,630		97,675		357,395		250,736
Interest expense, net	(9,912)		(14,869)		(29,374)		(33,563)
Other non-operating income	—		—		—		89,402
Income before income tax expense	118,718		82,806		328,021		306,575
Income tax expense	(32,894)		(22,568)		(90,758)		(86,781)
Net income	85,824		60,238		237,263		219,794
Net income attributable to noncontrolling interests	(14)		(3)		(35)		(23)
Net income attributable to Tetra Tech	$	85,810	$	60,235	$	237,228	$	219,771
Earnings per share attributable to Tetra Tech:
Basic	$	1.60	$	1.13	$	4.44	$	4.13
Diluted	$	1.59	$	1.12	$	4.40	$	4.10
Weighted-average common shares outstanding:
Basic	53,515		53,231		53,451		53,188
Diluted	54,052		53,653		53,901		53,615

See Notes to Consolidated Financial Statements.

Tetra Tech, Inc.

Consolidated Statements of Comprehensive Income

(unaudited – in thousands)


	Three Months Ended				Nine Months Ended
	June 30, 2024		July 2, 2023		June 30, 2024		July 2, 2023
Net income	$	85,824	$	60,238	$	237,263	$	219,794

Other comprehensive income, net of tax
Foreign currency translation adjustment, net of tax	1,854		44,500		40,616		69,453
Loss on cash flow hedge valuations, net of tax	—		(1,044)		—		(2,029)
Net pension adjustments	3		—		(10)		2,794
Other comprehensive income, net of tax	1,857		43,456		40,606		70,218

Comprehensive income, net of tax	$	87,681	$	103,694	$	277,869	$	290,012
Less: Comprehensive income attributable to noncontrolling interests, net of tax	14		4		35		23
Comprehensive income attributable to Tetra Tech, net of tax	$	87,667	$	103,690	$	277,834	$	289,989

See Notes to Consolidated Financial Statements.

Tetra Tech, Inc.

Consolidated Statements of Cash Flows

(unaudited – in thousands)


	Nine Months Ended
	June 30, 2024		July 2, 2023
Cash flows from operating activities:
Net income	$	237,263	$	219,794
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	56,718		43,221
Amortization of stock-based awards	23,713		21,640
Deferred income taxes	(9,736)		21,475
Fair value adjustments to foreign currency forward contract	—		(89,402)
Fair value adjustments to contingent consideration	477		8,477
Other non-cash items	3,769		(796)
Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable and contract assets	(54,286)		(41,824)
Prepaid expenses and other assets	(18,437)		1,970
Accounts payable	18,991		(3,678)
Accrued compensation	(7,982)		5,263
Contract liabilities	33,011		56,189
Income taxes receivable/payable	(16,436)		10,645
Other liabilities	(13,955)		(6,921)
Net cash provided by operating activities	253,110		246,053
Cash flows from investing activities:
Payments for business acquisitions, net of cash acquired	(93,650)		(854,319)
Settlement of foreign currency forward contract	—		109,306
Capital expenditures	(11,324)		(17,322)
Proceeds from sale of assets	666		439
Net cash used in investing activities	(104,308)		(761,896)
Cash flows from financing activities:
Proceeds from borrowings	180,000		979,859
Repayments on long-term debt	(200,000)		(411,676)
Shares repurchased for tax withholdings on share-based awards	(12,906)		(16,785)
Payments of contingent earn-out liabilities	(29,112)		(15,078)
Stock options exercised	2,690		425
Dividends paid	(43,303)		(38,268)
Principal payments on finance leases	(4,827)		(4,082)
Net cash (used in) provided by financing activities	(107,458)		494,395

Effect of exchange rate changes on cash and cash equivalents	2,146		12,410

Net increase (decrease) in cash and cash equivalents	43,490		(9,038)
Cash and cash equivalents at beginning of period	168,831		185,094
Cash and cash equivalents at end of period	$	212,321	$	176,056
Supplemental information:
Cash paid during the period for:
Interest	$	26,867	$	34,839
Income taxes, net of refunds received of $4.0 million and $1.5 million	$	115,933	$	54,967

See Notes to Consolidated Financial Statements.

Tetra Tech, Inc.

Consolidated Statements of Stockholders' Equity

Three Months Ended July 2, 2023 and June 30, 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 APRIL 2, 2023	53,228	$	532	$	10,639	$	(181,381)	$	1,525,809	$	1,355,599	$	69	$	1,355,668
Net income	—	—		—		—		60,235		60,235		3		60,238
Other comprehensive income	—	—		—		43,455		—		43,455		1		43,456
Cash dividends of $0.26 per common share	—	—		—		—		(13,840)		(13,840)		—		(13,840)
Stock-based compensation	—	—		7,038		—		—		7,038		—		7,038
Restricted & performance shares released	3	—		(105)		—		—		(105)		—		(105)
Stock options exercised	12	—		334		—		—		334		—		334
BALANCE AT JULY 2, 2023	53,243	$	532	$	17,906	$	(137,926)	$	1,572,204	$	1,452,716	$	73	$	1,452,789

BALANCE AT MARCH 31, 2024	53,497	$	535	$	18,972	$	(156,546)	$	1,721,833	$	1,584,794	$	56	$	1,584,850
Net income	—	—		—		—		85,810		85,810		14		85,824
Other comprehensive income	—	—		—		1,857		—		1,857		—		1,857
Distributions paid to noncontrolling interests	—	—		—		—		—		—		(5)		(5)
Cash dividends of $0.29 per common share	—	—		—		—		(15,522)		(15,522)		—		(15,522)
Stock-based compensation	—	—		8,096		—		—		8,096		—		8,096
Restricted & performance shares released	1	—		(125)		—		—		(125)		—		(125)
Stock options exercised	34	—		1,228		—		—		1,228		—		1,228

BALANCE AT JUNE 30, 2024	53,532	$	535	$	28,171	$	(154,689)	$	1,792,121	$	1,666,138	$	65	$	1,666,203

Tetra Tech, Inc.

Consolidated Statements of Stockholders' Equity

Nine Months Ended July 2, 2023 and June 30, 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 2, 2022	52,981	$	530	$	—	$	(208,144)	$	1,390,701	$	1,183,087	$	50	$	1,183,137
Net income	—	—		—		—		219,771		219,771		23		219,794
Other comprehensive income	—	—		—		70,218		—		70,218		—		70,218
Cash dividends of 0.72 per common share	—	—		—		—		(38,268)		(38,268)		—		(38,268)
Stock-based compensation	—	—		21,640		—		—		21,640		—		21,640
Restricted & performance shares released	149	1		(16,786)		—		—		(16,785)		—		(16,785)
Stock options exercised	15	—		425		—		—		425		—		425
Shares issued for Employee Stock Purchase Plan	98	1		12,627		—		—		12,628		—		12,628
BALANCE AT JULY 2, 2023	53,243	$	532	$	17,906	$	(137,926)	$	1,572,204	$	1,452,716	$	73	$	1,452,789

BALANCE AT OCTOBER 1, 2023	53,248	$	532	$	—	$	(195,295)	$	1,598,196	$	1,403,433	$	73	$	1,403,506
Net income	—	—		—		—		237,228		237,228		35		237,263
Other comprehensive income	—	—		—		40,606		—		40,606		—		40,606
Distributions paid to noncontrolling interests	—	—		—		—		—		—		(43)		(43)
Cash dividends of 0.81 per common share	—	—		—		—		(43,303)		(43,303)		—		(43,303)
Stock-based compensation	—	—		23,713		—		—		23,713		—		23,713
Restricted & performance shares released	108	1		(12,907)		—		—		(12,906)		—		(12,906)
Stock options exercised	72	1		2,689		—		—		2,690		—		2,690
Shares issued for Employee Stock Purchase Plan	104	1		14,676		—		—		14,677		—		14,677
BALANCE AT JUNE 30, 2024	53,532	$	535	$	28,171	$	(154,689)	$	1,792,121	$	1,666,138	$	65	$	1,666,203

See Notes to Consolidated Financial Statements.

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 October 1, 2023.

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 years. Certain prior year amounts have been reclassified to conform to the current year presentation in the accompanying notes.

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, and interim periods within fiscal years beginning after December 15, 2024 (fiscal 2025 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 Topic 280 before fiscal 2025.

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. We are currently evaluating the impact of this guidance on our consolidated financial statements; however, we do not plan to adopt Topic 740 before fiscal 2026.

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):


	Three Months Ended				Nine Months Ended
	June 30, 2024		July 2, 2023		June 30, 2024		July 2, 2023

Client Sector:
U.S. federal government (1)	$	432,242	$	338,022	$	1,221,320	$	996,471
U.S. state and local government	146,401		151,462		444,877		452,447
U.S. commercial	241,838		225,907		665,675		633,401
International (2)	523,842		493,556		1,492,333		1,179,619
Total	$	1,344,323	$	1,208,947	$	3,824,205	$	3,261,938

Contract Type:
Fixed-price	$	548,452	$	452,605	$	1,478,915	$	1,194,266
Time-and-materials	589,301		596,904		1,730,796		1,550,970
Cost-plus	206,570		159,438		614,494		516,702
Total	$	1,344,323	$	1,208,947	$	3,824,205	$	3,261,938

(1) Includes revenue generated under U.S. federal government contracts performed outside the United States.

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

Other than the U.S. federal government, no single client accounted for more than 10% of our revenue for the three and nine months ended June 30, 2024 and July 2, 2023.

Contract Assets and Contract Liabilities

We invoice customers based on the contractual terms of each contract. However, the timing of revenue recognition may differ from the timing of invoice issuance. Contract assets represent revenue recognized in excess of the amounts for which we have the contractual right to bill our customers. Such amounts are recoverable from customers based upon various measures of performance, including achievement of certain milestones or completion of a contract. In addition, many of our time-and-materials arrangements are billed in arrears pursuant to contract terms that are standard within the industry, resulting in contract assets and/or unbilled receivables being recorded, as revenue is recognized in advance of billings. Contract retentions, included in contract assets, represent amounts withheld by clients until certain conditions are met or the project is completed, which may extend beyond one year.

Contract liabilities consist of billings in excess of revenue recognized. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and increase as billings in advance of revenue recognition occur. Contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. There were no substantial non-current contract assets or liabilities for the periods presented. Net contract assets/liabilities consisted of the following (in thousands):


	Balance at
	June 30, 2024		October 1, 2023

Contract assets (1)	$	118,556	$	113,939
Contract liabilities	(372,283)		(335,044)
Net contract liabilities	$	(253,727)	$	(221,105)

(1) Includes $6.2 million and $6.8 million of contract retentions at June 30, 2024 and October 1, 2023, respectively.

Both our contract assets and contract liabilities increased in the third quarter of fiscal 2024 compared to fiscal 2023 year-end, due to the timing of our milestone billing on fixed-price contracts which were different from the timing of revenue recognition on those contracts. For the first nine months of fiscal 2024 and 2023, we recognized revenue of approximately $214 million and $143 million, respectively, from the amounts included in the contract liability balances at the end of fiscal 2023 and 2022, 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 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, for the third quarter and first nine months of fiscal 2024, we recognized net favorable revenue and operating income adjustments of $6.5 million and $16.4 million, respectively. For the first nine months of fiscal 2023, we recognized net favorable revenue and operating income adjustments of $4.0 million (substantially all in the first quarter).

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. At June 30, 2024 and October 1, 2023, our consolidated balance sheets included liabilities for anticipated losses of $15.0 million and $8.5 million, respectively. The estimated cost to complete these related contracts was approximately $95 million and $68 million at June 30, 2024 and October 1, 2023, respectively.

Accounts Receivable, Net

Net accounts receivable consisted of the following (in thousands):


	Balance at
	June 30, 2024		October 1, 2023

Billed	$	685,184	$	672,712
Unbilled	372,913		306,788
Total accounts receivable	1,058,097		979,500
Allowance for doubtful accounts	(4,339)		(4,965)
Total accounts receivable, net	$	1,053,758	$	974,535

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 June 30, 2024 are expected to be billed and collected within 12 months. The allowance for doubtful accounts represents amounts that are expected to become uncollectible or unrealizable in the future. We determine an estimated allowance for uncollectible accounts based on management's consideration of trends in the actual and forecasted credit quality of our clients, including delinquency and payment history; type of client, such as a government agency or a commercial sector client; and general economic and industry conditions, which may affect our clients' ability to pay.

Other than the U.S. federal government, no single client accounted for more than 10% of our accounts receivable at June 30, 2024 and October 1, 2023.

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 $5.2 billion of RUPO at June 30, 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 June 30, 2024 over the following periods (in thousands):


	Amount

Within 12 months	$	3,508,571
Beyond	1,683,295
Total	$	5,191,866

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 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. 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.

On September 23, 2022, we made an all cash offer to acquire all the outstanding shares of RPS Group plc ("RPS"), a publicly traded company on the London Stock Exchange for 222 pence per share, through a scheme of arrangement, which was unanimously recommended by RPS' Board of Directors. On November 3, 2022, RPS' shareholders approved the scheme of arrangement. On January 19, 2023, the court-sanctioned scheme of arrangement to purchase RPS was approved, and we completed the acquisition on January 23, 2023. RPS employs approximately 5,000 associates in the United Kingdom, Europe, Asia Pacific and North America, delivering high-end solutions, especially in energy transformation, water and program management for government and commercial clients. Substantially all of RPS is included in our Commercial/International Services Group ("CIG") segment.

The total purchase price for RPS was approximately £633 million ($784 million). In the third quarter and first nine months of fiscal 2023, we incurred $2.1 million and $25.8 million, respectively, of acquisition and integration costs primarily for professional fees, substantially all of which were paid as of the end of the third quarter of fiscal 2023. On January 23, 2023, we also settled a foreign exchange forward contract that was integral to our plan to finance the RPS acquisition. The cash gain of $109.3 million did not qualify for hedge accounting. As a result, the gain was recognized as non-operating income over the life of the contract and not included in the purchase price allocation below. However, the cash proceeds of $109.3 million economically reduced the purchase price for the shares of RPS to approximately $675 million. This forward contract is explained further in Note 16, "Derivative Financial Instruments".

The table below represents the purchase price allocation for RPS based on estimates, assumptions, valuations and other analyses as of January 23, 2023. The all cash purchase consideration, excluding the aforementioned forward contract gain, was allocated to the tangible and intangible assets, and liabilities of RPS based on their estimated fair values, with any excess purchase consideration allocated to goodwill as follows (in thousands):


	Amount

Cash and cash equivalents	$	32,093
Accounts receivable and contract assets	202,303
Prepaid expenses and other current assets	45,999
Income taxes receivables	1,999
Property and equipment	38,435
Right-of-use assets, operating leases	40,179
Intangible assets	174,094
Deferred income taxes	35,084
Other long-term assets	1,061
Total assets acquired	571,247

Accounts payable	$	(44,376)
Accrued compensation	(19,073)
Contract liabilities	(46,287)
Income tax payable	(7,083)
Short-term lease liabilities, operating leases	(13,477)
Other current liabilities	(135,474)
Current portion of long-term debt	(91,973)
Long-term lease liabilities, operating leases	(26,702)
Other long-term liabilities	(13,742)
Deferred tax liabilities	(41,613)
Total liabilities assumed	(439,800)

Fair value of net assets acquired	131,447

Goodwill	652,762
Total purchase consideration	$	784,209

The following table summarizes the estimated fair values that were assigned to intangible assets at the acquisition date:


	Fair Value		Weighted-Average Estimated Useful Life
	(in thousands)		(in years)

Backlog	$	27,880	1.6
Trade names	27,260		3.0
Client relations	118,954		11.1
Total intangible assets acquired	$	174,094	8.3

Estimated fair value measurements for the intangible assets related to the RPS acquisition were made using Level 3 inputs including discounted cash flow techniques. Fair value was estimated using a multi-period excess earnings method for backlog and client relations and a relief from royalty method for trade names. The significant assumptions used in estimating fair value of backlog and client relations include (i) the estimated life the asset will contribute to cash flows, such as remaining contractual terms, (ii) revenue growth rates and EBITDA margins, (iii) attrition rate of customers, and (iv) the estimated discount rates that reflect the level of risk associated with receiving future cash flows. The significant assumptions used in estimating fair value of trade names include the royalty rates and discount rates.

Supplemental Pro Forma Information (Unaudited)

Following are the supplemental consolidated financial results of Tetra Tech and RPS for the third quarter and first nine months of fiscal 2023 on an unaudited pro forma basis, as if the RPS acquisition had been consummated at the beginning of fiscal 2023 (in thousands):


	Three Months Ended		Nine Months Ended
	July 2, 2023		July 2, 2023

Revenue	$	1,208,947	$	3,519,792
Net income including noncontrolling interests	61,770		104,564

In fiscal 2023, we also acquired Amyx, Inc. (“Amyx”), an enterprise technology services, cybersecurity and management consulting firm based in Reston, Virginia. With over 500 employees, Amyx provides application modernization, cybersecurity, systems engineering, financial management and program management support on over 30 Federal Government programs. Amyx is included in our GSG segment. The total fair value of the purchase price of Amyx was $120.9 million, consisted of a $100.0 million payable in a promissory note issued to the sellers (paid subsequent to closing), $8.7 million of payables related to estimated post-closing adjustments, and $12.2 million for the estimated fair value of contingent earn-out obligations, with a maximum of $25.0 million, based upon the achievement of specified operating income targets in each of the three years following the acquisition date. Amyx was not considered material to our consolidated financial statements. As a result, no pro forma information has been provided.

The fiscal 2024 goodwill addition from LST and CCE are deductible for tax purposes, while the majority of the goodwill from the fiscal 2023 acquisitions is not deductible for tax purposes. The results of fiscal 2024 and 2023 acquisitions were included in our consolidated financial statements beginning on their respective closing dates.

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. The goodwill additions from fiscal 2023 business combinations are primarily attributable to the significant technical expertise residing in embedded workforces that are sought out by clients, synergies expected to arise after the acquisitions in the areas of enterprise technology services, data management, energy transformation, water, program management, and data analytics and the long-standing reputations of RPS and Amyx. These acquisitions further expand and complement our market-leading positions in water and environment; enhanced by a combined suite of differentiated data analytics and digital technologies, and expansion into existing and new geographies.

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 one 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 three 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 expense. Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in operating income. In the first nine months of fiscal 2024, 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.

During the third quarter and first nine months of fiscal 2024, we recorded immaterial adjustments, individually and in aggregate, to our contingent earn-out liabilities and included the corresponding amount in our operating income. During the first nine months of fiscal 2023, we recorded adjustments to our contingent earn-out liabilities and reported a related net loss in operating income of $8.5 million (largely in the second quarter). The net loss primarily resulted from increased valuation of the contingent consideration liabilities for our prior acquisitions of Segue Technologies, Inc., Hoare Lea, LLP and The Integration Group of Americas, Inc., reflecting financial performance that exceeded our previous expectations.

The following table summarizes the changes in the fair value of estimated contingent consideration (in thousands):


	Three Months Ended				Nine Months Ended
	June 30, 2024		July 2, 2023		June 30, 2024		July 2, 2023

Beginning balance	$	74,579	$	88,082	$	73,422	$	65,566
Estimated earn-out liabilities for acquisitions	1,138		—		23,038		12,248
Payments of contingent consideration	(7,000)		(13,078)		(29,112)		(15,078)
Adjustments to fair value recorded in earnings	500		—		477		8,477
Interest accretion expense	1,038		707		1,953		1,919
Effect of foreign currency exchange rate changes	28		888		505		3,467

Ending balance	$	70,283	$	76,599	$	70,283	$	76,599

Maximum potential payout at end of period	$	128,573	$	120,320	$	128,573	$	120,320

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 October 1, 2023	$	659,942	$	1,220,302	$	1,880,244
Acquisition activity	84,865		—		84,865

Translation and other adjustments	2,282		24,719		27,001
Balance at June 30, 2024	$	747,089	$	1,245,021	$	1,992,110

The goodwill addition in GSG resulted from the purchase price allocations for our fiscal 2024 acquisitions which are preliminary and subject to adjustment based upon the final determinations of the net assets acquired and information to perform the final valuation. Goodwill adjustments primarily related to the foreign currency translation adjustments which resulted from our foreign subsidiaries with functional currencies that are different than our reporting currency. These goodwill amounts are presented net of reductions from historical impairment adjustments. The gross amounts for GSG were $764.8 million and $677.6 million at June 30, 2024 and October 1, 2023, respectively, excluding accumulated impairment of $17.7 million at each

date. The gross amounts of goodwill for CIG were $1,366.5 million and $1,341.8 million at June 30, 2024 and October 1, 2023, respectively, excluding accumulated impairment of $121.5 million at each date.

We perform our annual goodwill impairment review at the beginning of our fiscal fourth quarter. Our most recent annual review at July 3, 2023 (i.e. the first day of our fourth quarter in fiscal 2023) indicated that we had no impairment of goodwill, and all of our reporting units had estimated fair values that were in excess of their carrying values, including goodwill. At July 3, 2023, we had no reporting units that had estimated fair values that exceeded their carrying values by less than 45%.

We also regularly evaluate whether events and circumstances have occurred that may indicate a potential change in the recoverability of goodwill. We perform interim goodwill impairment reviews between our annual reviews if certain events and circumstances have occurred, such as a deterioration in general economic conditions; an increase in the competitive environment; a change in management, key personnel, strategy or customers; negative or declining cash flows; or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods. Although we believe that our estimates of fair value for these reporting units are reasonable, if financial performance for these reporting units falls significantly below our expectations or market prices for similar business decline, the goodwill for these reporting units could become impaired.

The 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):


	Period Ended
	June 30, 2024							October 1, 2023
	Weighted- Average Remaining Life (in Years)	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount

Client relations	8.4	$	190,329	$	(50,980)	$	139,349	$	169,217	$	(36,072)	$	133,145
Backlog	0.6	72,579		(65,050)		7,529		63,825		(47,802)		16,023
Trade names	1.7	38,773		(21,192)		17,581		37,411		(12,643)		24,768
Total		$	301,681	$	(137,222)	$	164,459	$	270,453	$	(96,517)	$	173,936

Amortization expense for the third quarter and first nine months of fiscal 2024 was $13.8 million and $38.4 million, compared to $14.1 million and $29.6 million, respectively, for the prior-year periods. Estimated amortization expense for the remainder of fiscal 2024 and succeeding years is as follows (in thousands):


	Amount

2024 (remaining)	$	11,322
2025	34,712
2026	23,334
2027	16,830
2028	16,320
Beyond	61,941
Total	$	164,459

6. Property and Equipment

Property and equipment consisted of the following (in thousands):


	Balance at
	June 30, 2024		October 1, 2023

Equipment, furniture and fixtures	$	130,748	$	132,744
Leasehold improvements	46,042		44,733
Total property and equipment	176,790		177,477
Accumulated depreciation	(106,096)		(102,645)
Property and equipment, net	$	70,694	$	74,832

For the third quarter and first nine months of fiscal 2024, our depreciation expense related to property and equipment was $5.7 million and $18.3 million, respectively, compared to $5.6 million and $13.7 million for third quarter and first nine months of fiscal 2023, respectively.

7. Stock Repurchase and Dividends

On October 5, 2021, our Board of Directors authorized a new stock repurchase program under which we could repurchase up to $400 million of our common stock. We did not repurchase any shares of our common stock in the first nine months of fiscal 2024 and 2023. At June 30, 2024, we had a remaining balance of $347.8 million under our stock repurchase program.

The following table presents dividends declared and paid in the first nine months of fiscal 2024 and 2023:


Declare Date	Dividend Paid Per Share		Record Date	Payment Date	Dividend Paid (in thousands)
November 13, 2023	$	0.26	November 30, 2023	December 13, 2023	$	13,873
January 29, 2024	0.26		February 14, 2024	February 27, 2024	13,908
April 29, 2024	0.29		May 20, 2024	May 31, 2024	15,522
Total dividend paid as of June 30, 2024					$	43,303


November 7, 2022	$	0.23	November 21, 2022	December 9, 2022	$	12,186
January 30, 2023	0.23		February 13, 2023	February 24, 2023	12,242
May 8, 2023	0.26		May 24, 2023	June 6, 2023	13,840
Total dividend paid as of July 2, 2023					$	38,268

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				Nine Months Ended
	June 30, 2024		July 2, 2023		June 30, 2024		July 2, 2023

Operating lease cost	$	24,562	$	24,775	$	73,580	$	70,155
Sublease income	(184)		(46)		(347)		(125)

Total lease cost	$	24,378	$	24,729	$	73,233	$	70,030

Supplemental cash flow information related to leases is as follows (in thousands):


	Nine Months Ended
	June 30, 2024		July 2, 2023

Operating cash flows for operating leases	$	56,379	$	57,871
Right-of-use assets obtained in exchange for new operating lease liabilities	38,160		72,294

Supplemental balance sheet and other information related to leases are as follows (in thousands):


	Balance at
	June 30, 2024			October 1, 2023

Operating leases:
Right-of-use assets	$	167,317		$	175,932

Lease liabilities:
Current	65,932			65,005
Non-current	128,892			144,685
Total operating lease liabilities	$	194,824		$	209,690

Weighted-average remaining lease term:
Operating leases	4 years			5 years
Weighted-average discount rate:
Operating leases	3.4		%	3.0		%

At June 30, 2024, we had $13.9 million of operating leases that have not yet commenced.

A maturity analysis of the future undiscounted cash flows associated with our lease liabilities at June 30, 2024 is as follows (in thousands):


	Operating Leases

2024 (remaining)	$	20,124
2025	65,068
2026	44,638
2027	31,231
2028	20,176
Beyond	28,412
Total lease payments	209,649
Less: imputed interest	(14,825)
Total present value of lease liabilities	$	194,824

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 amendments to the qualification criteria, including some that were proposed with retroactive application, were finalized in fiscal 2022. In the first nine months of fiscal 2024 (all in the first quarter of fiscal 2024), we distributed approximately $10 million to our Canadian employees. The remaining $11 million, which we expect to distribute within one year, is reported in "Accrued compensation". We do not expect there will be any related impact on our operating income, and we have no outstanding applications for further government assistance.

10. Stockholders’ Equity and Stock Compensation Plans

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 and nine months ended June 30, 2024 was $8.1 million and $23.7 million, compared to $7.0 million and $21.6 million for the same periods last year. Most of these amounts were included in selling, general and administrative expenses on our consolidated statements of income. In the first nine months of fiscal 2024, we awarded 55,836 performance share units (“PSUs”) to our non-employee directors and executive officers at an estimated fair value of $203.53 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 141,880 restricted stock units (“RSUs”) to our non-employee directors, executive officers and employees at a fair value of $164.78 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.

11. Earnings per Share (“EPS”)

Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding, less unvested restricted stock 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 third quarter and first nine months of fiscal 2024, 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. The related capped call transactions (the "Capped Call Transactions") were excluded from the calculation of dilutive potential common shares as their effect is anti-dilutive. For the third quarters and first nine months of fiscal 2024 and 2023, 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				Nine Months Ended
	June 30, 2024		July 2, 2023		June 30, 2024		July 2, 2023

Net income attributable to Tetra Tech	$	85,810	$	60,235	$	237,228	$	219,771

Weighted-average common shares outstanding – basic	53,515		53,231		53,451		53,188
Effect of dilutive stock options and unvested restricted stock	433		422		415		427
Shares issuable assuming conversion of convertible notes	104		—		35		—
Weighted-average common shares outstanding – diluted	54,052		53,653		53,901		53,615

Earnings per share attributable to Tetra Tech:
Basic	$	1.60	$	1.13	$	4.44	$	4.13
Diluted	$	1.59	$	1.12	$	4.40	$	4.10

12. Income Taxes

The effective tax rates for the first nine months of fiscal 2024 and 2023 were 27.7% and 28.3%, respectively. Income tax expense was reduced by $2.9 million and $2.2 million of excess tax benefits on share-based payments in the first nine months of fiscal 2024 and 2023, respectively. In addition, income tax expense in the first nine months of fiscal 2024 included $4.3 million of expense for the settlement of various tax positions that were under audit for fiscal years 2018 through 2021. Furthermore, income tax expense in the first nine months of fiscal 2023 included non-operating income tax expenses of $7.2 million ($6.9 million in the second quarter) to recognize the tax liability for foreign earnings, primarily in the United Kingdom and Australia, that are no longer indefinitely reinvested and to increase the liability for an uncertain tax position. Excluding the impact of the excess tax benefits on share-based payments, the settlement amounts in the first nine months of fiscal 2024 and the additional $7.2 million in the first nine months of fiscal 2023, our effective tax rates in the first nine months of fiscal 2024 and 2023 were 27.2% and 26.7%, respectively.

At June 30, 2024 and October 1, 2023, the liability for income taxes associated with uncertain tax positions was $64.0 million and $62.0 million, respectively. It is reasonably possible that the liabilities with respect to certain of our unrecognized tax positions may significantly decrease in the next 12 months. These changes would be the result of ongoing examinations. 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 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 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 the performance of these reportable segments based upon their respective segment operating income before the effect of amortization expense related to acquisitions, and other unallocated corporate expenses. We account for inter-segment revenues and transfers as if they were to third parties; that is, by applying a negotiated fee onto the costs of the services performed. All significant intercompany balances and transactions are eliminated in consolidation. In the third quarter and first nine months of fiscal 2023, our Corporate segment operating losses included $2.1 million and $25.8 million of acquisition and integration expenses, respectively, as described in Note 4, “Acquisitions”.

The following tables summarize financial information regarding our reportable segments (in thousands):


	Three Months Ended				Nine Months Ended
	June 30, 2024		July 2, 2023		June 30, 2024		July 2, 2023

Revenue
GSG	$	640,553	$	531,050	$	1,812,721	$	1,565,371
CIG	723,617		691,386		2,063,879		1,741,300
Elimination of inter-segment revenue	(19,847)		(13,489)		(52,395)		(44,733)
Total revenue	$	1,344,323	$	1,208,947	$	3,824,205	$	3,261,938


Income from operations
GSG	$	71,518	$	54,496	$	198,652	$	167,053
CIG	86,465		69,572		233,821		172,199
Corporate (1)	(29,353)		(26,393)		(75,078)		(88,516)
Total income from operations	$	128,630	$	97,675	$	357,395	$	250,736

(1) Includes amortization of intangibles, acquisition and integration expenses, as well as other costs and other income not allocable to our reportable segments.


	Balance at
	June 30, 2024		October 1, 2023

Total Assets
GSG	$	632,346	$	543,066
CIG	1,066,241		994,470
Corporate (1)	2,386,318		2,282,941
Total assets	$	4,084,905	$	3,820,477

(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.

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.

Derivative Instruments. Our derivative instruments are categorized within Level 2 of the fair value hierarchy. For additional information about our derivative financial instruments (see Note 16, "Derivative Financial Instruments").

Contingent Consideration. We measure our contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. (see Note 4, "Acquisitions" for further information).

Debt. The fair value of long-term debt under our Credit Facility was determined using the present value of future cash flows based on the borrowing rates currently available for debt with similar terms and maturities (Level 2 measurement, as described in “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended October 1, 2023). The carrying value of our long-term debt under our Credit Facility approximated fair value at June 30, 2024 and October 1, 2023. At June 30, 2024, we had $300 million in outstanding borrowings under the Amended Credit Agreement, which was consisted of $300 million under the New Term Loan Facility and no borrowings under the Amended Revolving Credit Facility.

The estimated fair value of our $575 million Convertible Notes was determined based on the trading price of the Convertible Notes as of the last trading day of our third quarter of fiscal 2024. 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 approximately $563 million and $674 million, respectively, at June 30, 2024, and $561 million and $566 million, respectively, at October 1, 2023.

15. Long-Term Debt

Long-term debt consisted of the following (in thousands):


	Balance at
	June 30, 2024		October 1, 2023

Credit facilities	$	300,000	$	320,000
Convertible notes