Dan Batrack: Well, I would say, operationally because, we don’t –we at the legacy Tetra Tech, we don’t differentiate operations from the collective activity. So when we’ve talked about 70% target, that’s if you take the entire company’s payroll and what we built. So I would say, that in RPS those that have migrated on to Tetra Tech’s ERP system, we call it Tetra links here. But the ERP system have actually seen the utilization go up, and it’s beginning to approach Tetra Tech’s level. But we still have another one-third to go, with respect to that transition. And so they do have a lower utilization. Their systems are not as state-of-the-art as Tetra Tech. They’re not on one complete common system. So they have a lot of integration activities that take place, that bring down utilization.
So I would say, we’ve watched the RPS utilization move up to the Tetra Tech level, throughout fiscal year 2024, as we remove the rest of as we move the rest of the company onto our platforms. So, Tetra Tech remains pretty highly utilized. I would say, we’re still up about 70% of what I’d call legacy Tetra Tech, and by the way say the two-thirds of RPS has moved to our systems typically, translates to a 13% to 14% EBITDA margin, on a GAAP basis. I want to make clear a GAAP basis. I would just make a comment for international investors, if you use IFRS, and if you use NSR, it’s probably about a six percentage points or 600 basis points different. So, you can take our numbers and add 600 basis points, if you want to compare it using some international standards.
But — so I don’t think RPS will get to our full utilization, until the end of this year as we moved them over and transform them onto our ERP systems in the last 30% of their business. So, that’s sort of our timing and about the transition on the utilization Sabahat.
Q – Sabahat Khan: Okay. Great. And if I could sneak in one more here. You alluded to some of the progress, you’re making with the digital subscription model and that tracking better than expected. Can you maybe just share some thoughts on sort of your outlook or strategy for that business. How big or meaningful, could that be over the next two three years? And maybe what are you doing to support its growth? You indicated you’re not doing much marketing now, but maybe just a plan for the next few years if you can.
Dan Batrack: Well, I’ve spoken to some investors. And one thing they pointed out to us is, clearly, you’re not a software company. And I would say, boy that’s the truth. But that the very nature of the work that we’re paid for by our clients to develop these software applications I think Leslie Shoemaker spoke well to the funding on the research and development, and software applications that were funded by our clients to develop. We typically retain the IP or the patents and trademarks and the technology itself. It has picked up, it has sort of taken a growth rate on its own, call it organically growing without our pushing it. I do want to — it is growing well. We want to mature the software products a bit more, have a number of anchor clients that will become reference platforms that we use as we expand this to other clients.
In fact, it is interesting some of our anchor clients have referred to other colleagues in the industry, state and local clients. That’s what’s picked up the subscription without our having gone out and market it. So, we’re — maybe we’re playing catch-up to our own growth. As far as visibility and talking about recurring subscriptions and all of the rest of the metrics that come along with subscription services, I expect to roll out somewhere between 5% to 10% of our overall earnings or EBITDA of the company. I think that would translate to $50 million to $100 million in revenue. We see it’s about a 50% margin. And I’ve shared with others, I think selling the first 1,000 subscriptions, although I’d say in some areas we’re well over that already.
But selling the first 1,000 is in some instance more difficult than selling the next 100,000. And so we’re in that first formulated lag period. I’d like to say it’s one to two years before we would hit our financially disclosing, tracking, and sharing all of the individual metrics on this part of the business. And personally my goal would be that it’s a segment and that we have complete transparency with respect to all of the financial performance metrics or key performance indicators, the KPIs in that industry. So, I don’t think, it’s a 2024 full disclosure, but I would hope that maybe towards the end of 2025 we’ll be at that level. And if we had it earlier it’s because we’re able to play catch-up with respect to how this is growing on its own.
Sabahat Khan: Okay. Thanks very much for all the color.
Dan Batrack: Thanks very much Sabahat.
Operator: Thank you. Our next question is from Tate Sullivan with Maxim Group. Please proceed with your question.
Tate Sullivan: Great. Thanks for all comments too Dan, and actually a question for Jill on — I think do you mention a PFAS treatment facility in the US and was at the Orange County facility and can you talk a bit about the PFAS opportunity in terms of how a lot of your orders started to be funded please?
Jill Hudkins: Sure. Speaking directly to the — my comments, our prepared comments, the Orange County Water District program actually includes multiple water treatment programs — multiple water treatment facilities including the largest US facility that I mentioned. So, that really puts us at the forefront of municipal, water opportunities, and thought leadership and expertise. Relative to our PFAS revenues, historically, we have had somewhere between $50 million and $60 million in annual revenues for PFAS work. That’s predominantly been with Department of Defense and more in the characterization and remediation of water bodies. And as we contemplate or finalize federal level regulations I think we will see growing opportunities for state and local facilities much like the Orange County Water District program.
Tate Sullivan: And is that still — I think a couple of presentations ago you highlighted that just the US PFAS market or maybe of $200 billion and is that part of the watershed market — watershed management opportunity of $380 billion?
Jill Hudkins: Yes. Well, in the $380 billion refers to multiple emerging compounds. Tetra Tech is not just a leader on PFAS, but also in microplastics and pharmaceuticals and other emerging contaminants. So, the $380 billion was the combination of multiple emerging compounds and the market that we see the you’re correct the $200 billion referred to what we see as the PFAS market not just for watershed protection and enhancement but also for future treatment opportunities on the municipal side.
Tate Sullivan: Is this opportunity moving faster than you expected or sort of as you expected? Or any delays in getting PFAS work, if you could summarize it?
