Good morning and thank you for joining the Tetra Tech Earnings Call. As a reminder, Tetra Tech is also simulcasting this presentation with slides in the Investors section of its website at tetratech.com. This call is being recorded at the request of Tetra Tech, and this broadcast is the copyrighted property of Tetra Tech. Any rebroadcast of this information, in whole or part, without the prior written permission of Tetra Tech is prohibited. With us today from management are Dan Batrack, Chairman and Chief Executive Officer; Steve Burdick, Chief Financial Officer; Jill Hudkins, President; and Leslie Shoemaker, Chief Sustainability Officer. They will provide a brief overview of the results, and we'll then open up the call for your questions. I would like to direct your attention to the Safe Harbor statement in today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in Tetra Tech's periodic reports filed with the SEC. Except as required by law, Tetra Tech undertakes no obligation to update its forward-looking statements. In addition, since management will be presenting some non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted in the Investors section of Tetra Tech's website. At this time, I would like to inform you that all participants are in a listen-only mode. At the request of the company, we will open up the conference for questions and answers after the presentation. With that, I would now like to turn the call over to Dan Batrack. Please go ahead, Mr. Batrack.

Great. Thank you very much, Camila, and good morning and welcome to our Fiscal Year 2023 Second Quarter Earnings Conference Call. We had an excellent second quarter. Our revenue for the quarter exceeded $1 billion for the first time, as a result of our exceptional performance across Tetra Tech's operations augmented by the addition of the RPS Group that joined us at the end of January of this year. Tetra Tech Leading with Science services are at the center of our clients' priorities to address climate change, resiliency, and adaptation worldwide. Given the strength of our performance and outlook, we're increasing our guidance for both net revenue and earnings per share for fiscal year 2023, which I'll give you more details on this later in the conference call. I'll begin with an overview of our performance and our customers followed by Steve Burdick, our Chief Financial Officer, who'll provide more detail review of our financials and our capital allocation program. Dr. Leslie Shoemaker, who joined us today, our Chief Sustainability Officer, will provide an update on our recently published annual ESG report, and Jill Hudkins, our President, will provide further insight into our growth markets. I'll then address our earnings guidance for the third quarter and our increased guidance for all of fiscal year 2023. In the quarter, our net revenue increased 39% year-over-year from $700 million a year ago to $970 million this year, which is the highest net revenue for any quarter in the company's history. Our EBITDA income increased 30% from last year, reaching a second quarter record of $105 million. And finally, we delivered a $1.17 in earnings per share, which is up 19% from last year. I'd now like to show you what the underlying performance of Tetra Tech was without the contribution of RPS in the second quarter, really to give you some good insight into how the legacy business is actually operating at this time. Tetra Tech hit new all-time second quarter highs and double-digit growth rates across the board for revenue, net revenue, operating income, EBITDA, and earnings per share. Revenue without the contribution of RPS was $989 million, almost $1 billion, up 16% year-over-year, a record revenue for any quarter in the company's history without the contributions of RPS. Our net revenue increased by 18% year-over-year. Our operating income and EBITDA were both up 19%, and we generated an earnings per share of Tetra Tech without RPS of $1.20 per share or up 22% from last year. I would now like to provide an overview of our performance by our end customer. Work for our U.S. federal clients was up 59% from last year driven by broad-based growth in water and environmental programs, and during the quarter, the rapid initiation of support for Ukraine under our U.S. State Department and USA contracts. Excluding contributions from our extraordinary disaster response-related programs, our state and local revenues were up 12% from last year, driven by our digital water and our municipal infrastructure work. International work or international revenues, where the majority of the RPS operations are included, increased by 55% year-on-year. Excluding RPS, our international revenues grew on their own, though they were up 11% from their prior year, driven by strong performance in our global high-performance buildings work in Canada, Australia, and the United Kingdom. Our United States commercial net revenues were up 25% from last year. Excluding the RPS acquisition, our underlying commercial revenues were up 13% year-on-year driven by our services in sustainability, including work specifically in environmental permitting, also high-performance buildings and clean energy and renewable energy programs. I'd like to provide and present a detail of our performance by our two segments that we report on. The first segment, the Government Services Group or the GSG segment grew by 29% from last year with a significant increase in our international development work, especially for Ukraine energy programs. The extraordinary contribution for Ukraine just in the quarter provided $70 million in revenue. Disaster response was down relative to the second quarter last year. For comparison purposes, excluding the unusual impacts of Ukraine and disaster response in the quarter, our Government Services Group had a strong double-digit growth rate of 16% year-on-year. Our Commercial/International Group or CIG segment grew by 47% year-on-year, even excluding RPS, which was a material contribution to the segment. The CIG segment was up 13% driven by growth in renewable energy programs, and environmental work all across the United States and high-performance buildings work worldwide. One of the highlights for the quarter, in addition to the actual performance of revenue and profit and extraordinary work, was our backlog. Our backlog was up 18% year-on-year on strong, broad-based orders resulting in an all-time high backlog of $4.275 billion of contracted, funded, and authorized work. In the second quarter, we won new programs and task orders for commercial clients, especially for renewable energy and environmental restoration services. For U.S. federal agencies, we were awarded major water focus contract vehicles such as the $105 million U.S. Watershed Assessment Contract with the U.S. Environmental Protection Agency. Our disaster planning and recovery practice also won a $54 million contract with Puerto Rico addressing the continued long-term resiliency planning needs for this hurricane-prone region. Now, while those were an overview of our financials for the quarter and some of the growth areas, I'd now like to turn the presentation over to Steve Burdick, our Chief Financial Officer, to go over some of the details of our financials in the quarter. Steve?

Hey, thanks Dan. So as you just heard from Dan, we had an excellent quarter with results coming in better than anticipated. Those improvements also extend to our cash flows and our capital allocation related matters. So cash flows generated from operations for the second quarter totaled $108 million, up 13% over last year. Our focus on working capital and cash flows has also resulted in our DSO maintaining a leading industry standard of 59 days. This is a sustainable improvement from prior years, and the slower DSO trend continues to reflect the outstanding work that our project managers lead relative to higher-quality projects and highly satisfied clients in our broad portfolio across all our end markets and geographies. Regarding our dividend program, we've paid out $0.23 per share in dividends in the second quarter, which is a 15% increase over last year. I want to announce that our Board of Directors approved an increase in our quarterly dividend again to $0.26 per share to be paid in June. This is our 36th consecutive quarterly dividend and our ninth consecutive year of double-digit year-over-year increases in dividends paid. As Dan mentioned earlier, we did have this acquisition, RPS, and the recent closing of the RPS acquisition, which was just over 100 days ago, has been going quite well in regards to integrating Tetra Tech and RPS together. We've been making excellent progress towards improving profit margins and I would like to update you on our financial plan and current status for the integration of RPS, which is a significant opportunity for Tetra Tech. When looking out over the next several quarters, our goal is to align the RPS margins to be at or above the Tetra Tech profit margins. This will be accomplished in a similar manner as to what we had accomplished with our two previous public company acquisitions. That is by focusing on high-end differentiated services and revenues while integrating the business onto our ERP platform and corporate systems for greater cost synergies. As such, we expect to increase the EBITDA margin for RPS from under 5% in their fiscal 2022 by almost 3x to a run rate of over 13% at the end of fiscal 2024. While our operations are working together to focus on delivering high-end solutions in water and environment for our clients, we're also supporting those activities, and we expect to realize additional cost synergies through both the transition of the RPS business under our ERP system, as well as potential office consolidations. These actions may result in additional one-time integration costs, primarily in the fourth quarter of fiscal 2023, but will provide increased long-term operating and financial benefits to the ongoing business. So far today compared to our original projections, we are seeing improved margin opportunities based on our joint integration efforts with the RPS leadership team. Through improved RPS profit margins and cash flows along with Tetra Tech's strong positive cash flows from operations, we expect to continue to deleverage our balance sheet. We ended the second quarter with a net debt leverage ratio of about 1.9x EBITDA, which is within our targeted range. We expect to further deleverage the balance sheet to a factor of about 1.5x by the end of this fiscal year. By increasing the EBITDA margins while decreasing the interest expense on lower debt, we would expect to be cash accretive after fiscal 2023, adding approximately $0.50 of EPS in fiscal 2024 and approximately $0.85 of EPS in fiscal 2025. This will result in a double-digit EPS accretion probably in about the mid to upper teens by fiscal 2025, which we had previously anticipated at the time of the acquisition. I’m pleased to share these quarterly financial results for the first half of our fiscal 2023. I want to thank you for your support and I will now hand the call over to Leslie, who will discuss our ESG sustainability program.

Thank you, Steve. I would now like to provide you with an overview of our environmental social and governance program and recently released annual sustainability metrics. At Tetra Tech, we have set ambitious goals to reduce carbon emissions both through our operations and through the projects that we perform worldwide. We measure the global impact of our 27,000 staff and the projects they perform to our 1 billion people challenge. Our goal is to benefit the lives of over 1 billion people by 2030. Since the beginning of our impact evaluation in 2021, we have reached 545 million people and reduced greenhouse gas emissions by 101.2 million metric tons of carbon equivalents annually. For our global operations, we've also set goals to reduce greenhouse gas emissions as well as setting diversity, engagement, and community metrics. This year we reduced emissions by 25% per employee through innovation and flexible work policies, application of virtual technology, and cloud-based data management. Our commitment to an engaged and diverse workforce has helped us to scale the highly technical work that we do across Tetra Tech, across our entire global operations. Tetra Tech is providing sustainability at scale by developing technologies that can be brought to clients worldwide, such as our greenhouse gas calculator that is used by our high-performance buildings practice to help cities, college campuses, and companies decarbonize their fixed assets. We're also performing large-scale water management optimization for systems such as the Upper Egypt utility that provides over 1 billion gallons per day of essential water supply to the region. We also manage terabytes of coastal data in our cloud-based OceansMap platforms that facilitates the permitting and management of offshore wind facilities in the U.S., United Kingdom, Europe, and Australia. Through our work supporting the U.S. Agency for International Development, we are protecting the biodiversity of forests and aquatic ecosystems by creating supply chain tracking systems that create sustainable fisheries, forestry, and agricultural production. By Leading with Science, Tetra Tech leverages our expertise and technology to address our clients' needs at a global scale. Now, I'd like to turn the presentation over to Jill.

Thank you, Leslie. The highly scalable solutions that we deliver through more than 100,000 projects for our clients each year result in annual revenues that demonstrate our market-leading position in water and environment. I'm very excited to announce today that Tetra Tech has been ranked number one in water by Engineering News Record for the 20th year in a row. Tetra Tech is a leader in One Water strategies, providing intelligent planning, innovative design, and automation to develop, integrate, and manage reliable water supply sources for some of the largest U.S. water agencies. Tetra Tech has also ranked number one in water treatment and desalination by Engineering News Record. Tetra Tech designs innovative, high recovery, desalination facilities, primarily in water-stressed regions of Florida, Texas, and California. These states represent 30% of the entire population of the United States. These facilities diversify water supply portfolios and future-proof water infrastructure for many years to come. Tetra Tech also has decades of market leadership in providing environmental solutions that are innovative for our clients and sustainable for our future. Tetra Tech has been ranked number one in environmental management by ENR for 14 years in a row. Tetra Tech is also ranked number one in Green Government Offices in our first year of reporting in this ENR category. Tetra Tech designed sustainable and healthy buildings utilizing proprietary energy and greenhouse gas modeling software. Some great examples of the work we do in government buildings include Tetra Tech developing the city of Los Angeles building decarbonization plan to support a carbon-neutral future across the city's 1,200 municipal buildings. Tetra Tech is also developing a system-wide decarbonization framework to reduce greenhouse gas emissions across all 23 campuses of the California State University System, the largest university system in the United States. Outside of the U.S., Tetra Tech is delivering the largest closed-loop underground geothermal heating and cooling system in Australia. In the United Kingdom, Tetra Tech is advancing an innovative heat decarbonization plan to support Zero Carbon Oxford for the Oxford City Council. The U.S. government has set ambitious net-zero building emissions goals for 2050. U.S. government building decarbonization efforts have been further accelerated by incentives in the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. These funding priorities are directly aligned with what we do at Tetra Tech in sustainable government buildings today. The U.S. government owns more than 300,000 civilian and defense buildings. One of the largest opportunities for Tetra Tech is the U.S. Army's commitment to spend $7 billion over the next four years on decarbonization. The army is the largest federal building owner with more than 138,000 buildings across 130 installations. Tetra Tech is leveraging proprietary greenhouse gas digital tools and U.S. Army contract capacity to capture decarbonization programs that support the army's climate plan. Also, more than 20 states have set clean energy and net-zero emissions goals for 2050. The Inflation Reduction Act provides $32 billion of grant funding to support state and local building decarbonization efforts. Tetra Tech is leveraging its standing contracts with more than 500 municipalities to advance their decarbonization efforts. And now, I'll turn the presentation back to Dan.

Thank you, Jill. I'd now like to present our guidance for the third quarter and for all of fiscal year 2023. The guidance for this third quarter and for the year for Tetra Tech, excluding RPS, and I'll provide those numbers in just a moment. But for the Tetra Tech excluding RPS for the third quarter, Tetra Tech's guidance range is from $750 million to $800 million of net revenue with an associated earnings per share of $1.15 to $1.20. For all of fiscal year 2023, Tetra Tech excluding RPS has increased its net revenue estimates or guidance to $3.1 billion to $3.2 billion with an also increased earnings per share guidance range of $5.07 to $5.17. Now for this Tetra Tech portion of our guidance range the following assumptions are included. It does include intangible amortization of $15 million, which equates to $0.21 per share. We do estimate a 26% effective tax rate. We assume 54 million diluted shares outstanding and does exclude any future acquisitions that we would do in the second half of this year. Now for RPS, and these numbers are in addition to the Tetra Tech numbers I just provided are listed in the presentation above. The numbers for RPS for the third quarter, we do estimate a range of net revenue contribution of $150 million to $175 million, and we expect that the earnings per share will be neutral, or there would be neither a contribution nor a detraction or a loss from RPS in the third quarter. And for the year, for fiscal year 2023, in total we anticipate RPS will add, in addition to the Tetra Tech numbers listed above, a range of $450 million to $500 million for fiscal year 2023 and also neutral, and these numbers are consistent with numbers presented by Steve Burdick in the earlier slide for 2023. In summary, I'd like to share with you that we see strong demand for our differentiated Leading with Science's approach in water, environment, and sustainable infrastructure. In the second quarter, we set new records for revenue, net revenue, operating income, EBITDA, and earnings per share, and ended the quarter with an all-time high best ever visibility due to our backlog. The integration of RPS is exceeding our expectations, and it's adding new opportunities and clients to our business that we just never saw before. It's going exceptionally well and actually seeing it even looking better as we go forward. As a result of our strong year-to-date performance and our record high backlog, I'm really pleased to provide you the increased guidance for both net revenue and for the earnings per share that I just shared with you. And with that Camila, I'd like to open up the call for questions.

Thank you. The question-and-answer session will begin now. Thank you. Our first question comes from Sean Eastman with KeyBanc. Please go ahead with your question.

Hello everyone, thanks for taking my questions. I really appreciate the RPS accretion targets for fiscal 2024 and fiscal 2025. I thought that this would be a good time to perhaps supplement that view with your updated thoughts on kind of the underlying Tetra Tech earnings growth trajectory underneath that RPS accretion. Perhaps while addressing this trend where we're seeing outperformance on growth relative to the end market targets seemingly in advance of the bigger funding tailwinds that haven't really hit the model yet.

Well, it's a good question, and I was really pleased to be able to present the underlying Tetra Tech actual performance in the second quarter. As you can see from the presentation materials, all of our key metrics from top-line growth, which were in the middle to upper teens, 16% and 18% for revenue, net revenue respectively. Actually, I would say those numbers are understated. Because if you actually look at our net revenue growth adjusted for foreign exchange impact, the net revenue growth for Tetra Tech is actually 21%. It's in the 20%s. Every one of our end markets of the underlying Tetra Tech has exceeded our targets. We've had 5% to 10% target growth rates for our commercial and our international. We've had 10% to 15% for our state and local, which is well in there. And of course, we thought we'd be around 10% growth for our U.S. federal. We bracketed it with 7.5% to 12.5% to give us 1% or 2% up or down. And we've actually been in the 20%s, so we've doubled what we anticipated. The one thing I would like to note is this is without any material, well, I'll say material because there has been a little bit, but without any material kicking in or contribution of these major individual funding items that we see coming forward, which is the Infrastructure Investment and Jobs Act, IIJA, it excludes the Inflation Reduction Act, which is a big renewable energy support program, and of course, the CHIPS Act, which will help infrastructure. I think that things are looking quite well. It has been very fortunate that every one of our end markets are growing at levels higher than what we anticipated, and that's without some of these very large macro trends of funding that have been passed that we still see in our future. Now, our backlog I would like to parse out the backlog because what we did this last quarter is great, but it's of course, what are you going to do for me next? Or what have you done for me lately? And of course, the best indicator of that is how are you doing on your backlog on the underlying Tetra Tech. We saw book-to-bill in our backlog of 1.1, and we saw an increase in our backlog of Tetra Tech itself without the contribution of RPS of a 10% increase year-over-year. I'm still saying we can do better than even those numbers. We're not hitting on all cylinders. There are still things that can go better, such as the influx of funding and other programs from the federal government on these large trillion-dollar earmarked program. But I'm feeling pretty good about the underlying business. The great thing about RPS is they align very much synergistically with Tetra Tech and that we still are focused with RPS on sustainable infrastructure, renewable energy, large water programs in the United Kingdom, and of course, huge renewable energy and infrastructure programs in Australia. So all of the things that are going and are currently propelling Tetra Tech forward are actually the same things that are going to drive RPS forward with us as we go forward. I don't know. We're feeling pretty good here. And of course, it's reflected in our increased guidance and the performance we had this last quarter, Sean.

Okay. That's very helpful relative to how we can think about the top-line momentum but maybe to press you a little bit more rounding it out with underlying margin expectations on the go-forward. Perhaps Steve could chime in on how the cash conversion trend should compare to this kind of well in excess of net income type of ratio we've seen over the last several years.

Yes, I'll briefly touch on the margin, and then Steve can discuss the cash conversion. We initially forecasted a margin range of 12.5% to 13.5% for the Commercial/International group, which indicates a 50 basis point expansion from last year. We expect to meet or exceed that target. For our Government Services, we anticipated a margin between 13.5% and 14.5%, also representing a 50 basis point increase over the previous year. We believe we will achieve that and see this trend continuing into 2024 and beyond. Therefore, alongside the top-line revenue growth, we're looking at about a 50 basis point increase in those two segments, which does not include the margin expansion in the RPS portion mentioned by Steve. With revenue growth and margin expansion, there is a compound effect on our earnings and earnings per share. Now, let's have Steve discuss the cash conversion and our outlook in that area.

Yes, thanks, Dan. We continue to expect that our cash from operations will surpass our net income moving forward. To clarify, our free cash flow should be quite similar to our cash flow from operations, as our capital expenditures remain less than half a percent of our revenue. Therefore, we will keep our capital expenditures relatively low while generating cash flows that exceed our net income in the near future.

Thank you. Our next question comes from Tate Sullivan with Maxim Group. Please proceed with your question.

Hi, I thank you. Yes, a couple on RPS to start on Slide 9 indicating the targeted RPS EBITDA margin. It looks like between 13% and 14% in fiscal year 2025. Is that bringing RPS up to where Tetra Tech will be, or should we look at Tetra Tech’s combined EBITDA margin as higher than RPS' EBITDA margin? How should we look at that number, please?

You know, Tate, that that puts the number very close to that at Tetra Tech; we believe by 2025, which in some respects, I say 2025 sounds like a long way in the future. However, Tetra Tech's fiscal year we're less than six months out from going into 2024. That will start on October 1. So we're only about six quarters out from being in fiscal year 2025. Our goal is that RPS will have closed the gap completely and be performing at a level at the same as the rest of Tetra Tech. I believe that Tetra Tech, and you look at the chart, it's just under 14% on our EBITDA margin. That would be the number that would be similar to the organization.

Okay. In Ukraine, you mentioned $70 million of work during the quarter. Is that the largest amount of intra-quarter work you have ever done for U.S. aid? Can you elaborate on what that work entailed? Additionally, is there any further work in Ukraine that is not included in your guidance?

That's a good question. It was indeed the largest single short duration project we have ever undertaken for U.S. aid. To clarify, it was the biggest single funding amount that has gone through the company within one quarter, even though we had other programs that lasted longer and were larger over extended periods. This particular funding was allocated to us after our last investor call, which is why it wasn’t part of our previous guidance. It occurred during only two of the three months in the quarter, making it stand out even more. The work involved humanitarian support for the energy sector, addressing severe hardships in various areas related to infrastructure and utilities during the winter months. Our efforts in Ukraine have focused on enhancing grid resiliency, upgrading infrastructure, ensuring reliable energy supplies, and transitioning to renewable sources. Due to the damage that has occurred, we were asked to provide emergency power supplies to certain regions. This explains why the work was short-lived as it aimed to restore power and provide temporary supplies to support humanitarian relief. While the possibility for more work exists, we currently do not have any specific orders or tasks that are being directed. Therefore, we have not included any extraordinary additional activities in Ukraine or other locations in our guidance. We are prepared to assist our clients with any initiatives they wish to pursue. The response has been positive and greatly needed by the residents of Ukraine. If other opportunities arise, we will be ready to act quickly, but they are not reflected in our guidance for the third quarter or the remainder of the fiscal year.

Great example of you can rapidly deploy in your contract capacity, I imagine too whatnot. Okay. Thank you, Dan.

Great. Thanks very much, Tate.

Thank you. Our next question comes from Andy Wittmann with Baird. Please proceed with your question.

Thank you for including me. Dan, it's clear that you are quite confident about the company's performance. I'd like to take this opportunity to focus on some parts of your business that are more sensitive to interest rates or economic conditions. While a significant portion of your business is publicly funded, you also have a commercial segment. Could you explain how that commercial segment breaks down into areas that may be affected by interest rates or economic factors? The high-performance buildings practice comes to mind, but there may be other areas as well. It would be helpful if you could discuss this in more detail, as it seems to be a pressing issue we are encountering frequently.

That's a great question. We're examining this closely, especially considering the significant disruption caused by interest rates in banking and other sectors. In the U.S., commercial work makes up about 20% of our total revenue. Half of this commercial work supports clients in meeting regulatory directives for environmental programs, such as remediating legacy pollution. This aspect is relatively insulated from the cyclicality of interest rates or recessions; these projects are progressing. While it's possible to contest a regulatory directive, often revisiting it could lead to more work than originally planned, so the trend is generally forward-moving. The other half of our commercial work is not directly regulatory-driven but prioritizes renewable energy initiatives, including offshore wind, onshore wind, and solar projects aimed at meeting state renewable energy goals. This trend is also growing in the UK and Australia. Regarding discretionary work, our high-performance buildings sector accounts for about 5% to 10% of our overall work and has been somewhat affected by rising interest rates, though it remains strong. We're focusing on two main areas for our building services: the onshoring of high-end manufacturing, especially chip fabrication plants, which are attracting significant investments and incentives, and federal government building projects where our expertise in decarbonization can be applied. These areas are less sensitive to interest rate impacts. While there are some vulnerabilities related to interest rates, we are actively diversifying our efforts to focus on sectors less influenced by these fluctuations.

That's a really helpful, fulsome answer. So I appreciate that. I guess for my follow-up question, I wanted to ask a little bit more on RPS. Based on some of your numbers that you gave before, it sounds like RPS added about $375-ish million of backlog if you do the math on the 1.1x organic book-to-bill that you stated. I guess I wanted to check that, but maybe more importantly, I also wanted to ask on you guys were kiting for $100 million of net revenue contribution to the quarter that you just reported and you came in at 1.44. That’s a big discrepancy. I thought it'd be useful for you to talk about kind of what the budget was and what the 1.44 number that you posted in the quarter means for what its pro forma organic growth would have been. If that pro forma organic growth at RPS is a sustainable way of thinking about what they're up to and what their backlog supports as we head not only into the back end of this year, but even what can their organic growth be on kind of a normalized basis or looking into 2024? Thanks.

That's a great question and has multiple dimensions, all centered on the common theme of their performance before and after joining us, as well as future expectations. When they officially joined Tetra Tech in the second quarter, if we assume no growth from a year-over-year perspective, their figures would likely hover around 1.15 to 1.20. We anticipated some disruption due to the transition, similar to moving into a new home where you might initially be slower to adjust. We estimated this disruption to be around 10%. Therefore, with a $100 million figure, we expected some impact from their transition, which is typical based on past experiences. Surprisingly, they actually experienced about a 10% increase instead. They maintained their backlog, which is almost the same as what they brought with them, and did not deplete it in the second quarter. In fact, they secured enough new work to keep the backlog stable. Their backlog is lower compared to their annual revenue, as they usually handle smaller, short-term projects, unlike our larger federal contracts that are more long-term. Internally, we project growth will be around 5% to 7%, taking into account their impressive 10% growth in the first quarter, but we are being cautious, as we don’t think two months are enough to establish a trend. We did increase our expectations by $44 million for the year and added another $50 million, reflecting our confidence in continued growth from their contributions. For anyone from RPS listening, they have been a fantastic addition. Their technical and back-office teams are highly regarded, and they bring new skills and expertise that enhance our company. Overall, they will significantly improve our technical capabilities and client engagement, positively impacting our cash return on invested capital and margins as we move forward.

Thank you. Our next question is from Michael Dudas with Vertical Research. Please proceed with your question.

So Dan, you certainly appreciate and support the optimism of looking after the business over the next several quarters. As you look at your book-to-bill opportunities, I assume given what you're seeing that you can maintain a plus one level over the next few quarters, and as you look towards the government versus the CIG business, is there areas that might be growing a little bit faster, a little bit more activity over the next two to three quarters, one versus the other, which might impact as we're thinking about margins and how may have an exit rate going towards 2024?

Yes, good question, Michael. I see two components here: top-line growth and bottom-line margin. Let's start with margins. I believe CIG's margins will continue to rise. GSG has been performing well, with margins between 13.5% and 14.5%. I expect CIG to see similar increases as we focus on higher-end, high-demand services for our commercial clients. Although the Group is sensitive to recession, I remain optimistic about our CIG margins improving due to our business mix and priority projects that are time-sensitive and offer significant returns for our clients, such as building chip fab plants. Timeliness is crucial, and there is limited availability of personnel for these projects. Many of our recurring revenue streams are on the commercial side, which adds substantial value to our clients, ultimately leading to better margins for us. This situation benefits us and is even more advantageous for our clients. I anticipate that CIG will experience a faster expansion of margins compared to GSG, which I expect will continue to grow by about 50 basis points. Transitioning to top-line growth, both areas have strong drivers; however, it's tough to compare with the imminent trillion-dollar funding from the U.S. federal government across various sectors. While there's been notable dysfunction in Washington leading to some slowdown, I view this slowdown as comparable to raising a dam's water level—the funding is still there, just awaiting release. I've seen no indications that this funding will decrease, and the projects we're focusing on, like decarbonization and clean water, enjoy bipartisan support in the U.S. I believe that extraordinary short-term funding for factors like floods and disasters could significantly boost our numbers. We haven't factored these potential contributions into our guidance, but they could enhance our forecasts. The timing of federal programs may advance, and the commercial sector is positioned well with renewable energy and environmental mandates. Overall, I believe that at a federal level, the sheer dollar size of potential contributions could significantly impact our top-line growth.

Not a bad outlook for a dysfunctional unit. Thanks, Dan. I appreciate it.

Absolutely, Michael.

Thank you. This will conclude the Q&A session. I will now turn the conference back over to Dan Batrack to conclude.

Thank you very much, Camila. And thank you all for attending and being on the call today. I'm really pleased on behalf of the entire Tetra Tech organization to have the opportunity to present along with Steve and Leslie and Jill both the results financially the huge progress we're making on ESG across the company and these great growth opportunities we have. I am very excited to come back to you next quarter and share with you the progress that we've made with RPS and supporting these other programs that I've outlined today. I hope you have a great rest of Thursday and a great rest of the week, and I'll talk to you on our next Investors’ conference call. Thank you very much. Goodbye.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day. All parties may disconnect now.