Revenue and Contract Balances

9 Months Ended

Jul. 02, 2023

Revenue from Contract with Customer [Abstract]

Revenue and Contract Balances

Revenue and Contract BalancesWe disaggregate revenue by client sector and contract type, as we believe it best depicts how the nature, timing and uncertainty of revenue and cash flows are affected by economic factors. The following tables present revenue disaggregated by client sector and contract type (in thousands):

	Three Months Ended				Nine Months Ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Client Sector:
U.S. federal government (1)	$	338,022	$	261,434	$	996,471	$	781,503
U.S. state and local government	151,462		150,731		$	452,447	$	465,770
U.S. commercial	225,907		188,255		633,401		536,901
International (2)	493,556		289,811		1,179,619		817,311
Total	$	1,208,947	$	890,231	$	3,261,938	$	2,601,485
Contract Type:
Fixed-price	$	452,605	$	335,014	$	1,194,266	$	982,565
Time-and-materials	596,904		417,898		1,550,970		1,221,598
Cost-plus	159,438		137,319		516,702		397,322
Total	$	1,208,947	$	890,231	$	3,261,938	$	2,601,485

(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 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 July 2, 2023 and July 3, 2022.

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
	July 2, 2023		October 2, 2022
Contract assets (1)	$	125,360	$	92,405
Contract liabilities	351,048		241,340
Net contract liabilities	$	(225,688)	$	(148,935)

(1)    Includes $8.1 million and $23.3 million of contract retentions at July 2, 2023 and October 2, 2022, respectively.

In the first nine months of fiscal 2023 and 2022, we recognized revenue of approximately $143 million and $111 million, respectively, from the amounts included in the contract liability balances at the end of fiscal 2022 and 2021, respectively.

We recognize revenue primarily using the cost-to-cost measure of progress method to estimate progress towards completion. Changes in those estimates could result in the recognition of cumulative catch-up adjustments to the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made. As a result, in the first nine months of fiscal 2023, we recognized net favorable revenue and operating income adjustments of $4.0 million (substantially all in the first quarter). In the third quarter and first nine months of fiscal 2022, we recognized net unfavorable revenue and operating income adjustments of $2.8 million and net favorable revenue and operating income adjustments of $2.2 million, 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. At July 2, 2023 and October 2, 2022, our consolidated balance sheets included liabilities for anticipated losses of $9.7 million and $10.0 million, respectively. The estimated cost to complete these related contracts at July 2, 2023 and October 2, 2022 was approximately $69 million and $80 million, respectively.

Accounts Receivable, Net

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

	Balance at
	July 2, 2023		October 2, 2022
Billed	$	677,915	$	491,700
Unbilled	331,381		267,161
Total accounts receivable	1,009,296		758,861
Allowance for doubtful accounts	(7,209)		(3,749)
Total accounts receivable, net	$	1,002,087	$	755,112

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 July 2, 2023 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.

Other than the U.S. federal government, no single client accounted for more than 10% of our accounts receivable at July 2, 2023 and October 2, 2022.

Remaining Unsatisfied Performance Obligations (“RUPO”)

Our RUPO represents a measure of the total dollar value of work to be performed on contracts awarded and in progress. We had $4.4 billion of RUPO at July 2, 2023. 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. 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 July 2, 2023 over the following periods (in thousands):

	Amount
Within 12 months	$	2,815,736
Beyond	1,537,602
Total	$	4,353,338

Although RUPO reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. 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).