Three Months Ended

March 31,

(in thousands, except per share amounts)

2023

2022

Revenue

$

483,282

$

413,468

Direct costs

312,565

258,158

Operating costs and expenses:

Indirect and selling expenses

123,733

117,452

Depreciation and amortization

6,309

4,838

Amortization of intangible assets

9,224

5,317

Total operating costs and expenses

139,266

127,607

Operating income

31,451

27,703

Interest, net

(9,457

)

(2,627

)

Other expense

(558

)

(439

)

Income before income taxes

21,436

24,637

Provision for income taxes

5,038

6,775

Net income

$

16,398

$

17,862

Earnings per Share:

Basic

$

0.87

$

0.95

Diluted

$

0.87

$

0.94

Weighted-average Shares:

Basic

18,779

18,795

Diluted

18,949

19,012

Cash dividends declared per common share

$

0.14

$

0.14

Other comprehensive (loss) income, net of tax

(1,334

)

2,659

Comprehensive income, net of tax

$

15,064

$

20,521

Three Months Ended

March 31,

(in thousands, except per share amounts)

2023

2022

Reconciliation of Service Revenue

Revenue

$

483,282

$

413,468

Subcontractor and other direct costs

(131,978

)

(108,898

)

Service revenue (3)

$

351,304

$

304,570

Reconciliation of EBITDA and Adjusted EBITDA

Net income

$

16,398

$

17,862

Interest, net

9,457

2,627

Provision for income taxes

5,038

6,775

Depreciation and amortization

15,533

10,155

EBITDA (4)

$

46,426

$

37,419

Impairment of long-lived assets (5)

894

—

Acquisition-related expenditures (6)

803

1,319

Severance and other costs related to staff realignment (7)

2,495

1,226

Facilities consolidations and office closures (8)

359

—

Expenses related to the transfer to our new corporate headquarters (9)

—

1,882

Total Adjustments

4,551

4,427

Adjusted EBITDA

$

50,977

$

41,846

Net Income Margin Percent on Revenue (10)

3.4

%

4.3

%

EBITDA Margin Percent on Revenue (11)

9.6

%

9.1

%

EBITDA Margin Percent on Service Revenue (11)

13.2

%

12.3

%

Adjusted EBITDA Margin Percent on Revenue (11)

10.5

%

10.1

%

Adjusted EBITDA Margin Percent on Service Revenue (11)

14.5

%

13.7

%

Reconciliation of Non-GAAP Diluted EPS

U.S. GAAP Diluted EPS

$

0.87

$

0.94

Impairment of long-lived assets

0.04

—

Acquisition-related expenditures

0.04

0.07

Severance and other costs related to staff realignment

0.13

0.06

Facilities consolidations and office closures

0.02

—

Expenses related to the transfer to our new corporate headquarters

—

0.10

Amortization of intangibles

0.49

0.28

Income tax effects (12)

(0.17

)

(0.14

)

Non-GAAP Diluted EPS

$

1.42

$

1.31

(2) These tables provide reconciliations of non-GAAP financial measures to the most applicable GAAP numbers. While we believe that these non-GAAP financial measures may be useful in evaluating our financial information, they should be considered supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Other companies may define similarly titled non-GAAP measures differently and, accordingly, care should be exercised in understanding how we define these measures.

(3) We compute Service Revenue as U.S. GAAP revenue less subcontractor and other direct costs (which include third-party materials and travel expenses, excluding any associated margins), which we believe represents the service we provide to our customer for directly contracting with and managing the activities of subcontractors. We believe Service Revenue is a useful measure to investors that best represents services that we provide to clients through our own employees.

(4) The calculation of EBITDA for the three months ended March 31, 2022 has been revised to conform to the current period calculation of EBITDA. Specifically, interest income of $0.1 million was reclassified from “Other expense” to “Interest, net” on the consolidated statements of comprehensive income.

(5) We recognized impairment expense of $0.9 million in the first quarter of 2023 related to impairment of an intangible asset related to a prior acquisition.

(6) These costs consist primarily of consultants and other outside third-party costs and integration costs associated with our acquisitions and/or potential acquisitions.

(7) These costs are mainly due to involuntary employee termination benefits for our officers, and/or groups of employees who have been notified that they will be terminated as part of a consolidation or reorganization.

(8) These costs are exit costs associated with terminated leases or full office closures. The exit costs include charges incurred under a contractual obligation that existed as of the date of the accrual and for which we will (i) continue to pay until the contractual obligation is satisfied but with no economic benefit to us or (ii) we contractually terminated the obligation and ceased utilizing the facilities.

(9) These costs represent incremental non-cash lease expense associated with a straight-line rent accrual during the “free rent” period in the lease for our new corporate headquarters in Reston, Virginia. We took possession of the new facility during the fourth quarter of 2021, while also maintaining and incurring lease costs for the former headquarters in Fairfax, Virginia. The transition to the new corporate headquarters was completed in the fourth quarter of 2022.

(10) Net Income Margin Percent on Revenue was calculated by dividing net income by revenue.

(11) EBITDA Margin Percent and Adjusted EBITDA Margin Percent were calculated by dividing the non-GAAP measure by the corresponding revenue.

(12) Income tax effects were calculated using the effective tax rate of 23.5% and 27.5% for the three months ended March 31, 2023 and 2022, respectively.

(in thousands, except share and per share amounts)

March 31, 2023

December 31, 2022

ASSETS

Current Assets:

 Cash and cash equivalents

$

5,364

$

11,257

 Restricted cash

3,572

1,711

 Contract receivables, net

221,066

232,337

 Contract assets

188,093

169,088

 Prepaid expenses and other assets

28,341

40,709

 Income tax receivable

8,420

11,616

Total Current Assets

454,856

466,718

Property and Equipment, net

85,445

85,402

Other Assets:

 Goodwill

1,213,908

1,212,898

 Other intangible assets, net

116,430

126,537

 Operating lease - right-of-use assets

150,511

149,066

 Other assets

51,280

51,637

Total Assets

$

2,072,430

$

2,092,258

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

 Current portion of long-term debt

$

26,000

$

23,250

 Accounts payable

109,854

135,778

 Contract liabilities

25,771

25,773

 Operating lease liabilities - current

16,124

19,305

 Finance lease liabilities - current

2,400

2,381

 Accrued salaries and benefits

61,428

85,991

 Accrued subcontractors and other direct costs

43,109

45,478

 Accrued expenses and other current liabilities

67,089

78,036

Total Current Liabilities

351,775

415,992

Long-term Liabilities:

 Long-term debt

571,979

533,084

 Operating lease liabilities - non-current

189,331

182,251

 Finance lease liabilities - non-current

15,508

16,116

 Deferred income taxes

69,343

68,038

 Other long-term liabilities

27,805

23,566

Total Liabilities

1,225,741

1,239,047

Commitments and Contingencies

Stockholders’ Equity:

 Preferred stock, par value $.001; 5,000,000 shares authorized; none issued

—

—

Common stock, par value $.001; 70,000,000 shares authorized; 23,919,338 and 23,771,596 shares issued at March 31, 2023 and December 31, 2022, respectively; 18,788,082 and 18,883,050 shares outstanding at March 31, 2023 and December 31, 2022, respectively

24

23

 Additional paid-in capital

405,818

401,957

 Retained earnings

716,795

703,030

 Treasury stock, 5,131,256 and 4,906,209 shares at March 31, 2023 and December 31, 2022 respectively

(266,481

)

(243,666

)

 Accumulated other comprehensive loss

(9,467

)

(8,133

)

Total Stockholders’ Equity

846,689

853,211

Total Liabilities and Stockholders’ Equity

$

2,072,430

$

2,092,258

Three Months Ended

March 31,

(in thousands)

2023

2022

Cash Flows from Operating Activities

Net income

$

16,398

$

17,862

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for (recovery of) credit losses

567

(170

)

Deferred income taxes

2,187

4,505

Non-cash equity compensation

3,750

3,563

Depreciation and amortization

15,533

10,154

Facilities consolidation reserve

—

(78

)

Amortization of debt issuance costs

326

154

Impairment of long-lived assets

894

—

Other adjustments, net

(827

)

353

Changes in operating assets and liabilities, net of the effects of acquisitions:

Net contract assets and liabilities

(18,716

)

(59,689

)

Contract receivables

10,929

31,473

Prepaid expenses and other assets

15,353

(11,708

)

Operating lease assets and liabilities, net

1,016

(532

)

Accounts payable

(26,083

)

(9,815

)

Accrued salaries and benefits

(24,678

)

9,513

Accrued subcontractors and other direct costs

(2,613

)

1,078

Accrued expenses and other current liabilities

(14,688

)

(6,883

)

Income tax receivable and payable

3,192

2,621

Other liabilities

629

544

Net Cash Used in Operating Activities

(16,831

)

(7,055

)

Cash Flows from Investing Activities

Capital expenditures for property and equipment and capitalized software

(6,441

)

(6,454

)

Payments for business acquisitions, net of cash acquired

(459

)

—

Net Cash Used in Investing Activities

(6,900

)

(6,454

)

Cash Flows from Financing Activities

Advances from working capital facilities

334,995

329,690

Payments on working capital facilities

(293,640

)

(291,662

)

Other short-term borrowings

2,483

—

Receipt of restricted contract funds

2,916

4,301

Payment of restricted contract funds

(1,131

)

(14,714

)

Payments of principal portion of finance leases

(590

)

—

Debt issue costs

—

—

Proceeds from exercise of options

111

92

Dividends paid

(2,641

)

(2,644

)

Net payments for stock issuances and buybacks

(22,815

)

(22,268

)

Payments on business acquisition liabilities

—

(121

)

Net Cash Provided by Financing Activities

19,688

2,674

Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash

11

(525

)

Decrease in Cash, Cash Equivalents, and Restricted Cash

(4,032

)

(11,360

)

Cash, Cash Equivalents, and Restricted Cash, Beginning of Period

12,968

20,433

Cash, Cash Equivalents, and Restricted Cash, End of Period

$

8,936

$

9,073

Supplemental Disclosure of Cash Flow Information

Cash paid during the period for:

Interest

$

5,924

$

2,760

Income taxes

$

914

$

949

Non-cash investing and financing transactions:

Tenant improvements funded by lessor

$

—

$

10,843

Three Months Ended

March 31,

Client Markets:

2023

2022

Energy, environment, infrastructure, and disaster recovery

39%

41%

Health and social programs

42%

38%

Security and other civilian & commercial

19%

21%

Total

100%

100%

Three Months Ended

March 31,

Client Type:

2023

2022

U.S. federal government

55%

53%

U.S. state and local government

16%

16%

International government

4%

7%

Total Government

75%

76%

Commercial

25%

24%

Total

100%

100%

Three Months Ended

March 31,

Contract Mix:

2023

2022

Time-and-materials

42%

40%

Fixed price

45%

44%

Cost-based

13%

16%

Total

100%

100%

(13) As is shown in the supplemental schedule, we track revenue by key metrics that provide useful information about the nature of our operations. Client markets provide insight into the breadth of our expertise. Client type is an indicator of the diversity of our client base. Revenue by contract mix provides insight in terms of the degree of performance risk that we have assumed.

(14) During the first quarter of 2023, we re-aligned our client markets from four to three and reclassified the 2022 percentages to conform to the current presentation. Certain immaterial revenue percentages in the prior year have also been reclassified due to minor adjustments and reclassification.