Sangita Jain: Great. That’s very helpful. Thank you. If I can ask one more. Dan, thank you for the breakdown on the elections and the possible outcomes. But if I can ask a more shorter term question. It looks like we’ve avoided a shutdown, but there is still not that much clarity on passing a full budget. So does this continuation of a short-term CR situation hurt your line of sight into funding opportunities? Like at what point do we start to worry over the next several months if we don’t get a full budget? Thank you.
Dan Batrack: That’s a really good question. And I’ve spoken to this unfortunately quite a few times over the past few years because of the bit of dysfunction in this funding process. I personally, we hear at Tetra Tech, I think an ongoing continuing resolution is a pretty good outcome. In fact, a really good outcome. So continuing resolution means that we agreed to disagree and that we’ll fund at the same level that existed a year before. And the year before 2023 was at record highs. And in fact, it allows the administration in this case the Biden administration or the Democrats to further the priorities that they have with the appointees that they have in the different areas for executing strategies. Those do include priorities for a clean environment, for clean water, for mitigation of climate change or extreme flooding events, in areas that are very much tailwinds as many of described it for us.
So a continuing resolution. I would just assume they do one continuing resolution between now and the end of the fiscal year or September 30, and that we don’t have these various milestones where they do a continuing resolution. But I don’t see that a CR actually has any negative impact for us. In fact, it’s pretty favorable in a lot of different respects. We’ll see how each one of these go that has — they all have their own drama to the 11th hour, before they approve them. But I don’t see it as an issue. The one thing I will comment on this when I go back many years the first time there was a shutdown. We were quite disappointed and surprised that really you would really do this, but this goes all the way back to Gangridge and a number of years ago.
But if you take a look at the more frequent threats and dysfunction that’s taken place, we’ve become much more adept at working with our clients to have funding put in place so that we’re well prepared for funding that’s been already authorized, where we can work remotely outside of government facilities that might have temporary restrictions. And so we do think that the impact or short-term impact may be measured in a month or so would be very de minimis with respect to impact to our ongoing activities in the event that they actually do go through another one of these uncomfortable and unfortunate short-term shutdown. So I hate to say, bring it on, I want to never go that far, but we’re not uninformed or unaware about the different implications of what we can do as a company.
Sangita Jain: Great. Thanks so much. I’m going to turn it back over to others to ask questions.
Dan Batrack: Great. Thank you very much, Sangita.
Operator: Thank you. Our next question is from Sabahat Khan with RBC Capital Markets. Please proceed with your question.
Sabahat Khan: Great. Thanks, and good morning. I guess you provided a bit of color earlier and as well as in the materials around the RPS integration so far and the margin uplift you’ve seen. Can you maybe talk about — maybe some of the bigger contributors to that 600 basis point of margin improvement? And then maybe what are some of the bigger buckets that are still to go which can maybe add to that margin profile over the next one, two years? And maybe on the tail end of that just like, what are the longer-term things because I think the comment in the past has been an RPS can do maybe even higher margins than legacy aspect. I just want to maybe lay out kind of the margin story on the acquired platform for us so kind of the near to medium and long term please?
Dan Batrack: Yeah. I’ll kind of — I’ll go near mid and long term and I’ll call it our Phase 1, 2 and 3. And Phase 1 which was really this last one year, so it was the first year there with us. We’re mostly focused on having them move their cost structure, I’ll call it cost synergies, which was mostly back office moving to more efficient ERP systems, moving on to Tetra Tech. So the 600 basis points, I would say, was mostly associated with cost synergies, and that moved them from somewhere between 2% to 4% margin up to the 10% that we entered this year. So those were pretty discrete finite. We took about two-thirds of their entire operation, which is really U.K. in the U.S., very small U.S. portion and move them onto our ERP system.
So we are quite busy doing that. So, I’d say, we’re two-thirds finished with that process on the cost side, and I’d call that most of what’s Phase 1. So take the cost takes us from — that’s the 600 basis points. Phase 2 is actually having them run on our systems, and it actually will yield from running their programs more similarly to Tetra Tech, changing the portfolio of contracts. I think one comment I’ve made before is, we have addition through subtraction. And because the work that they’ve had in the past that is revenue that may not carry margins or carries unusual risk with respect to the type of contracting mechanism, we would look to have that exited from the business, and not continue with that work. And that’s why I would say that RPS on a revenue basis has been relatively flat from when we first acquired them.
And in fact some areas actually down, but the actual dollars contributed on an EBITDA basis and margin have gone up quite dramatically, and that’s what you’ve seen. I think we’re going to continue the portfolio shaping by having them focus on high-end differentiated services that will carry higher margins. And I believe that process along with revenue synergies is what Phase 2 is. And I think you saw — we’ve seen it not in the revenue yet, but we’ve seen it in contract wins, which I’ve spoken to that helped drive our increase in our guidance for both top and bottom line. So I think this year, we’ll watch them, operationally not from a cost synergies, but operationally execute moving to higher end and move another 20% higher so from 10% to 12% at the end of this year.
And I think we’re off to a really good start on that here in the first quarter. Then I’ll call Phase 3. Phase 3 is where we’ll actually be executing work together with RPS seamlessly as one single company. We’re going to move collectively to the high end, and I do believe that RPS, I do recognize that RPS does not have what I would call inherently lower margin work that we have that is cost plus with the federal government, which actually dampened some of the margins that we have. They have more consulting. And I think as we grow this front-end consulting and advisory business they have, particularly the advisory business in Australia as an example led by our division leader Meegan Sullivan, who’s just phenomenal and one of the leaders in the entire industry in that region that I expect that will carry margins that are far higher than what we have at Tetra Tech.
I’d say well over 15% that’s going to help I think in this Phase 3 of Tetra Tech’s overall margins up and that’s not even including the technologies that Tetra Tech is bringing with respect to the Delta technologies and subscription services. So the fundamental consulting revenues on the margins associated with that out of RPS, I think in the Phase 3 that I think will be at 2025, if you want to move to it you would call it a longer-term I think it’s going to be very big contributions to the company.
Sabahat Khan : Great. Thanks for that. And then maybe sort of related to the kind of the improved utilization or improved margin side, can you maybe give some perspective on how the utilization for the combined business is trending? Were there opportunities to maybe improve the utilization at RPS? Just an understanding of how that’s kind of going for the combined platform? And are you on track to maybe — what your initial plan might have been for the combined business?
