Q4 2020 Jacobs Engineering Group Inc Earnings and Acquisition of The Buffalo Group Call
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Ladies and.
And welcome to the Jacobs.
School fourth quarter 2020 earnings conference call and webcast.
At this time all participants are in the listen only mode. After the speakers.
The presentation and will be a question and answer the question.
To ask the question during the session will need to press star one on your telephone.
The people acquire and other assistance please pass over to your speaker today calendar of head of Investor Relations.
Thank you. Please go ahead.
Good morning to all or.
The website, which we'll be referring through during the fall.
I like to refer you to our forward looking statement disclaimer, which is summarized on slide two.
Certain statements contained in this presentation constitute forward looking statements and such is defined and section 27, and the Securities Act of 1933 as amended and section 20 Onee of the Securities Exchange Act of 1934 as amended and such statements are intended to be covered by the safe Harbor provided by the same statements made and.
This presentation that are not based on historical fact are forward looking statements. Examples of forward looking statements include but are not limited to statement through making concerning the potential effects of the cove, and 19 and damage kind of business financial condition and results of operations and our expectations and so the future growth prospects financial outlook and business.
Strategy for fiscal 2021 and future of fiscal years, although such statements are based on management's current estimates and expectations and currently available competitive financial and economic data forward looking statements are inherently uncertain and you should not place undue reliance of such statements are the actual results may differ materially.
The cost of the read out there, it's a variety of risks uncertainties and other factors that could cause actual results to be different materially from what is contained projected or implied by our forward looking statements.
Factors include the magnitude of timing duration and ultimate impact of the COVID-19, pandemic and any resulting economic downturn and on our results prospects and opportunities and the reinstatement of using the of shelter and place stay at home sold the same travel restrictions and the symbol of orders and measures or restrictions imposed by government health officials and response.
Of the pandemic.
The development effectiveness and distribution of vaccines are treatments for Cove, and 19, and the timing of model and details of any government stimulus programs and acted in response to Coke and 19, and the resulting economic impact.
For a description of these and other risks uncertainties and other factors that may occur that could cause actual results to differ from our forward looking statements share annual report on form 10-K for the year ended October of second 2020, which was filed this morning.
We're not under any duty to update any of the forward looking statements. After the date of this presentation to confirm to actual results, except as required by applicable law.
During this presentation and we'll be referring to non-GAAP financial measures. Please refer to slide two of the presentation for more information and these figures. In addition during the presentation. We will discuss comparisons of current results. The prior periods on a pro forma basis.
See slide two for more information on the calculation of these pro forma metrics for pro forma comparisons current and prior periods include the results of the wood would the nuclear business, which closed on March 20 Twond.
We have provided historical pro forma results in the appendix of the Investor presentation. We believe this information helps provide additional insight into the underlying trends of our business when comparing current performance against prior periods turning.
Turning to the agenda on slide three.
Speaking on today's call will be Jacobs chair and CEO, Steve Demetriou, President and Chief operating Officer, Bob Pragada.
And President and Chief Financial Officer, Kevin Berry, Steve will begin by discussing our Jacobs focus 2023 initiatives and provide an overview of our leading sustainable solutions and then recap our financial results and outlook. Bob will then review our performance by line of business and Kevin will provide some more in debt discussion of our financial metrics followed by additional detail.
Bill and focus 2023, and our integration updates as well as the review our balance sheet and cash flow finally, Steve will provide detail on our financial outlook along with some closing remarks, and then we'll open up the call for your questions with that and I'll pass it over to Steve Dimitrios Chair and CEO.
Thank you John.
Thanks, everyone for joining us today to discuss our fourth quarter and fiscal year 2020 business performance and strategy update.
We hope everyone is staying safe and healthy because of the pandemic continues to impact all facets of our daily lives and our loved ones.
As we work with our pharma supply chain to support the development of distribution of the vaccine, we must not lose sight of the severity of the situation globally.
Here at Jacobs aligned with our core value of we do things right we.
We will continue to prioritize the health of our employees and our communities.
During those pandemic, we of prudently adjusted our cost structure, while continuing to strategic investments the position Jacobs to accelerate growth as the economy recovers.
We have continued to take deliberate strategic actions to drive inclusivity and diversity of thought across Jacobs as well as making targeted investments to accelerate our digital capabilities.
We strongly believe these investments position Jacobs to capture a compelling growth opportunity to emerge as a uniquely positioned strategic consultant and the liberty partner across a diverse set of sectors, where we have deep domain expertise.
We believe having a strategic approach to delivering these next generation technology enabled solutions will be the key differentiator.
To capture this opportunity we are embarking on the next phase of our strategic transformation, which we're calling focus 2023.
Through our focused 2023, we are accelerating the adoption of digital technology across all facets of our operations led by a game changing future of work initiative for our employees.
Focused 2023 will include a reduction and our physical real estate footprint by more than 30% as we significantly ship through a more flexible and virtual workforce.
Our physical office space will be modernized and to collaborative learning and customer briefing centers, while providing our employees flexible work spaces.
We expect that by 2023 of this transformative initiative will result in more than $200 million of annual benefits as compared to 2020.
Which gives us flexibility to materially invest in our business to drive growth through technology enabled solutions. We look forward to updating you on focused 2023 in coming quarters.
Now turning to our business performance on slide five.
We delivered a strong fourth quarter and a solid total fiscal year 2020 in the face of headwinds from the global pandemic.
Total fiscal 2020 revenue increased 5% year over year, and our backlog ended the fiscal year up 6%.
Fiscal 2020, adjusted EBITDA grew 7% year over year, and we generated $689 million and free cash flow, representing 96% free cash flow of conversion to adjusted net income when excluding nonrecurring items.
This demonstrates the strong cash generation capability of our business portfolio. The key tenet of our investment thesis.
As we look forward to the full fiscal year 2021, we continue to expect net revenue and adjusted EBITDA growth.
While our 2021, the adjusted EPS guidance does not include the benefit from any material future share repurchases. Our expectation is that we will lean forward and 2021 with additional capital deployment.
We expect progress toward our longer term leverage target.
And as we do that we'll maintain a prudent approach to execute acquisitions and share repurchases that are aligned to our long term strategic vision and that will drive the most of value for our shareholders.
Since the beginning our transformation and 2015.
Our organic growth performance combined with the capital deployment actions such as acquiring C. H two of them to accelerate global leadership and the high value of sectors, such as water and environmental and.
Acquiring T W to strengthen our position and mission I T cyber and space intelligence.
And the timely divestiture of our oil and gas business have all collectively created significant value for our shareholders.
And as the next step and our thoughtful capital deployment strategy.
This morning, we announced the acquisition of cyber and intelligence leader, the Buffalo group to further accelerate our offerings and the high priority area of National security spending.
I'd like to take this moment to welcome the nearly 900 and talented colleagues the join Jacobs today.
Well, we have a robust pipeline of additional strategic acquisition targets any decision to deploy capital toward and acquisitions will be based on the transaction, providing a higher risk adjusted return and repurchasing of our shares.
Turning to slide six I'd like to highlight the major role the Jacobs plays and deliberate and global sustainable solutions.
We are honored to now be included in the Dow Jones sustainable what the America Index.
Which is an important milestone in our EPS to journey.
As I outlined outlined and investing in high value innovative sustainable solutions is the keep pillar of our strategy.
We continue to believe the global water and environmental sectors, along with many other sustainable markets have decades of strong secular growth ahead.
Our strategy is to combine a differentiated technology driven approach with years of proven delivery at all scales to solve the most complex global challenges and opportunities.
The importance of these sectors and our Jacobs capabilities will likely increase under advisement administration, given the president of flex commitment to rejoin the Paris climate of cord as well as the prioritization of key areas, such as clean energy, including solar wind and hydrogen and geothermal.
The U.S. and other countries are also expected to quickly move to set regulations on emerging contaminants like PFS and ensuring access the clean drinking water not.
Not only do the solutions benefit the communities and which we live and fried but from a financial standpoint, the margins from these type of solutions tend to be higher than our corporate average providing a tailwind through our margin expansion targets with that I will turn the call over to Bob Pragada to provide more detail by line of business.
Thank you, Steve and now moving on to slide seven to review our critical mission solutions performance.
During the fourth quarter, our CMS business performed well demonstrating CMS is resiliency and alignment to the diverse set of high value sectors, we serve such as national security space exploration intelligent nuclear lifecycle solutions and the deployment of Fiveg infrastructure total CMS backlog is at $9.1 billion representing.
And 3% year over year growth on a pro forma basis and does not include our previously awarded key day intelligent asset management win which we fully expect the clear protest in early April important.
Importantly, approximately half of our bookings during the fourth quarter were from new business.
We expect the underlying demand for our solutions to remain strong under president elect Bidens administration, our strategy and CMS continues to be focused on high priority areas, such as winning new complex systems Sustainment opportunity deploying our intelligent asset management technology, and providing next generation IP monetization and cyber secured.
The solutions.
Today's acquisition of the Buffalo group advances, our cyber and intelligence business with additional high priority cyber analytics.
All sorts of intelligence and artificial intelligence capabilities.
It also provides us the immediate access to full and open cyber and intelligent cards contract vehicles, such as the solution for intelligence analysis.
The re contract that will provide revenue synergy opportunities and fac CMS the cyber business since acquiring key W. And now the Buffalo group has more than tripled the number of deep relationships within the intelligence community now standing at 11 of the 17 total agency.
The Buffalo group not only brief prime contract support for the D.A. National Geospatial Intelligence Agency Department of State and Department of Treasury within the intelligence community, but also prime support for space Com and Centcom significantly increasing Jacobs combatant command relationships to seven of the.
The 11 total.
I'd like to now review our sectors with updates on fourth quarter results. Some notable wins and the outlook for 2021.
Are you at the federal civilian business made up 37% of CMS is F Y 20 pro forma revenue with the majority of the revenue coming from our NASA and deal we clients Jacobs.
Jacobs to provide the broad support the NASA relating to with the accelerated work to return to the Moon and then eventually extend mankind's of reach to Mars.
NASA continues to make progress towards the national goals, despite the challenges of teleworking and a reduced onsite workforce.
Jacobs and asset portfolio demonstrated strong growth in Q4, and we expect the performance to continue in fiscal year 2021.
During the quarter, the Kennedy Space Center test and operation support contract or costs recognized increased contract activity.
At Kennedy Jacobs support the key space exploration programs, such as the international Space station ground systems development and operations stage launch systems Orion multi purpose crew vehicle and launched services programs, including the arguments one mission.
Moving to our North American nuclear portfolio.
We had anticipated that our deal we and at comic energy of Canada, and nuclear contracts would be impacted moderately in the second half of the fiscal year because of the Jacobs teams needed to be the operate under physical distancing constraints. The decrease the onsite work force. However, today the nuclear portfolio is operating better than expected at the.
Correct me, 85% of normal operating levels.
Our nuclear remediation contracts are well positioned for growth as the deal we received the bipartisan support from Congress.
Shifting to the U.S. Department of defense sector that makes up 18% of CMS is F Y 20 revenue.
We provide a wide range of mission critical services performed and government sites or and highly secure facilities, including troop force ready mix.
Digital monetization Hypersonics and critical energy technology that are all high priority for the deal with the.
In Q3 much of our work and military catch ranges was impacted moderately by physical distancing requirement and operated at roughly 80% of normal capacity.
Today, our defense portfolio is operating and 95% of normal levels and we expect it to continue at similarly high levels in Q1 through Q1 of the 2021 day.
During the quarter. We were also awarded a 100 million dollar 66 month, just the enterprise transport information technology or get contract the operate and maintain intelligence collection and dissemination networks and provide digital monetization for the US Army intelligence and security command.
Now moving to the U.S. intelligence community, which contributed 22% of CMS is EPS by 20 revenue.
Our eyes are advanced engineering, cyber and intelligence business and provided the provide solutions to this highly resilient tech.
Our clients and the intelligence community must continue to procure these critical services that protect against increased cyber threats and to preserve continuity of operations. While at the same time responding to the need to reduce their onsite work force.
The portfolio performed in line with improved expectations and 95% of normal operating levels in Q4.
Shifting now to our commercial business.
This business made up 8% of CMS and fiscal year 2020 revenue.
And telecom, we provide solutions for wireless and wireline networks.
Including the build out of Fiveg and National Communications priority.
The business was impacted moderately and Q3, primarily due to access the limitations.
We expect this business to strengthen over the coming quarters and to return to its strong long term demand rates.
We continue to work with 18 T T mobile and new customers like dish network, where we recently won a three year idea of Q to provide engineering design and technical services and support addition network nationwide Buildout of Fiveg services.
For the automotive sector sector.
The not only design and operate product R&D facilities. We also actively support several Oems with product testing services.
While there has been a slowing demand for new R&D facility projects, our product testing services are now back to full strength.
We were recently awarded a two year contract from a major automotive manufacturer that utilized the tw geospatial imagery solution for greater smart car applications.
Finally, our CMS international sector made up 15% of CMS is pro forma revenue for fiscal year 2020, and includes nuclear lifecycle solutions support for the UK Ministry of defense and it's continuous at sea deterrent program and other.
The and land weapons programs in the UK and Australia.
Our Q4 impact was in line with debt the expectations with the business operating and 95% of normalized run rate with a small portion of site workers unable to access and a portion of their cost being covered by the UK government Furloughs scheme.
Last week, the UK and would be announced a significant spending increase as compared to previous years with the military to receive Ken first a 10% increase over the next four years Jake.
Jacobs is well positioned in the focus areas of spend to include a new national Cyber Force space Command and artificial intelligence agency.
The additional growth prospects are expected from the UK 10 point plan for Green recovery through achieved net zero emissions by 2050, and Australia's NATO commitment to funding 2% of its GDP to the day.
In summary, our overall sales pipeline remains robust with the next 18 month qualified new business pipeline in excess of $30 billion, including more than $10 billion and source selection and an increasing margin profile the.
The continued the strong structural demand for our high value solutions that align the high priority areas of the federal government.
Moving to people and places solutions on slide eight.
The diversified nature of our people and places business and our ability to shift capacity across our now virtual global integrated delivery model resulted in solid performance during the fourth quarter despite impact from the global pandemic net.
Net revenue was up 8% from the same quarter last year and 6.2% on a full year basis.
Q4 backlog is up 4.2% to $14.7 billion.
This was the best quarter and history and growth margin bookings.
Our bookings have held strong during coated and remain consistent with pre coated levels.
We believe that our business is well positioned to benefit from state local and national government economic relief packages and places like the us UK, Singapore and other focused geography, depending.
Depending on the timing and size, we expect this to further strengthen our pipeline.
Turning to our buildings and infrastructure geography.
The Americas, including our federal and environmental business continues to be our strongest performing geography.
A potential U.S. federal economic repackage later in the year with are geared towards protecting vulnerable infrastructure sectors, such as transit and aviation in the near term or a broader jobs creation package meant to simulate long term growth could provide a boost to the infrastructure sector not only in the traditional shovel ready project.
But also in the shovel worthy projects that of half of that have long range in impacts of to combating negative effects of climate change and accelerating de carbonization efforts.
Autonomy of people infrastructure goods movement, and health and research further.
Furthermore, the U.S. Highway Trust fund GAAP stop extension passed by Congress strength is our transportation pipeline for the first half of the year Excel.
Accelerated implementation of digital technology is optimizing our client's operational spend and mitigating the revenue challenges.
Our business and the water sector continues to be resilient, including a recent award of a 195 million dollar contract to deliver the regional surface water supply project for the standard Klaus regional water authority in California.
Additional actions being evaluated by the us federal government could further accelerate investments and drinking water waste water flood protection and climate resilience.
Environmental and Green economy projects have been strong for us and the quarter with two exciting awards a significant design project to support a confidential global client in the United States with Green Energy Transportation Transportation solutions and manufacturing space.
And a multi year contract and deliver what is anticipated to be the one of the of the US is the largest battery electric bus facilities, and King County, Washington, providing a sustainable and socially equitable transportation solutions.
In Europe, and the Middle East the business remained steady supported by key sectors, such as highways and rail.
We believe the future growth opportunities exist and high speed rail digital infrastructure and Green energy.
We had we had a number of awards and the real factor across Europe, including a 10 year contract for historic Railways the state professional service.
Our focus on digital is delivering growth and we're increasing the supporting utility clients with their cyber security challenges.
As an example for national grid electricity transmission, we are leveraging expertise from our PMPM and CMS teams to achieve cyber security compliance across the operational technology.
We maintain thought leadership and emerging contaminants globally, including a recent award with a European regulator to determine the extent of people have contamination in the jurisdiction leading.
Leading the way and the environmental market as Europe grapples with these emerging dependence and.
And the middle East key sectors, such as infrastructure water and environmental remained steady we expect the sustained investment to deliver on diversification away from hydrocarbon rely and commitment and we anticipate and moderate growth.
From critical infrastructure is green economy, healthcare and defense sectors building on our success and the Middle East we are contributing to the region's aspiration for a more sustainable future. The recent award of a project that will help set the environmental strategy for the Emmerich of Dubai is a great example, and how we are adding significant value to the country.
Moving to our Asia Pacific Geography, India, Southeast Asia, Australia, and New Zealand had been resilient during the pandemic and the prospect of government stimulus funding reinforces our pipeline of opportunities.
Demonstrating the resilience is the continuation of our decade plus relationship with the Indian Navy and the and the program award to deliver a Greenfield Naval Air station and the west of the country the largest of its kind of.
I'll now discuss our core sectors globally, beginning with our advanced facilities the.
Which continues its growth trajectory life Sciences remains of remained strong with cold and related project award progressing rapidly through the first quarter of 2021 and several others on the horizon to meet demand of the next phase of Coke and vaccine manufacturing facilities.
Future opportunities include capacity expansion in Europe, and Asia as well as support the government on vaccine distribution.
In addition increased cloud computing is driving the need for data centers and chip manufacturing facilities, creating a meaningful growth opportunity for us.
And the transportation sector agencies remain committed to existing projects such as aging road infrastructure, providing an opportunity for economic recovery.
Despite limited global mobility during the pandemic, our clients have been clear around continuing funding opportunities.
Our rail and training the clients are pressing forward with capital investments and digitally enabled the innovations and aviation clients are planning for future investment.
Moving to the growth environment sector, smart secure and connected infrastructure and the future of the workplace are influencing demand the focus of our global health care crisis response team is gaining momentum with an increase in health care awards and and the pipeline across all geography. As an example, we were recently awarded health investment and Tech.
Total advisory services for a middle East of government entity and a therapeutic goods Laboratory project in Asia Pacific.
In the water sector, we are seeing accelerated and the implementation of digital technology, such as smart metering automation and remote management.
As well as focus on cyber resilience and.
While some utilities have experienced significant revenue impact during the pandemic pre approved programs remain in place.
We anticipate periodic pauses as the Reprioritized capital budgets to focus focused on operational spend budget optimization and digital transformation.
The environmental sector of seeing an uptick with green recovery being pledged in Europe, and in Australia, and a shift towards green energy investments in the us which could be a growth catalyst later in 2021.
Across all core sectors are discrete solutions assets are making progress, allowing us to cross sell and leverage our global market connectivity.
Our economic and geopolitical indicators point to continued volatility we remain optimistic due to our resilient and balanced portfolio across core sectors, and geography, and our agility responding to shifting market trends.
Now I'll turn the call over to Kevin to discuss our financial performance in more detail.
Thank you Bob let's.
Let's now turn to slide nine for a more detailed summary of our financial performance for the fourth quarter.
Before I begin please note that our fiscal fourth quarter 2020 included an extra week compared with the fourth quarter fiscal 2019 of this impact was factored into our guidance and represented approximately $100 million and a year over year net revenue tailwind for each of the CMS and people and places.
Fourth quarter gross revenue as the result increased 4% year over year, the pro forma net revenue up 2%.
People and places net revenue was up 8% year over year and critical mission solutions declined 3.6% on a pro forma basis.
The CMS decline was mainly attributed to the early impact from transitioning off of two lower margin contracts.
As I will explain later in more detail. It is important to note CMS operating profit on a pro forma basis increased 14% year over year.
Adjusted gross margin in the quarter as the percentage of net revenue was 23.5% down the 135 basis points year over year.
The lower gross margin was driven by a combination of factors primarily within people and places, including overall revenue mix the comparison versus the very strong year ago quarter and.
Impact of some project close out costs and the previously discussed flow through the effect of the reimbursable rate of the more efficient fixed cost structure and the yellow day.
The lower reimbursement rate for fixed costs and more than offset by the underlying lower level of DNA costs. This impact of reimbursable rates from our cost structure is also reflected and overall lower DNA into the percentage of net revenue of 100 basis points year over year to 14.4%.
As it pertains to Canada, and the fourth quarter continued to benefit from lower travel and employee related medical costs.
GAAP operating profit was $22 million and included 211 million of the restructuring transaction and other charges of which the mass vast majority was associated with our recently announced focused 2023 initiatives.
And $24 million of other charges, consisting of $23 million of amortization from the acquired intangibles and $1 million of costs associated with the world transition services agreement.
Adjusting for these items adjusted operating profit was $258 million of 2% from the prior year figure.
Our adjusted operating profit the net revenue was 9.1% down 30 basis points year over year on the reported basis and result of the lower people and places margins discussed earlier. This was partially offset by improved critical missions margins and flat year over year unallocated corporate expense of this.
Yes, the underlying drivers of these costs on the line of business for the slide.
GAAP net earnings and EPS from continuing operations were 70 million and 53 cents per share and included $1.22 per share of after tax restructuring transaction and other charges as noted above and.
Amortization charge of acquired intangibles of 13 cents.
Both of which were partially offset by a 34 cents net benefit largely driven by the mark to market adjustments associated with our orally equity stake.
Excluding these items the second quarter adjusted EPS was $1.63 income.
Including a 24 cents benefit from discrete tax items.
Excluding discrete tax items and both the prior and year ago quarter underlying adjusted EPS was essentially flat year over year.
Q4, adjusted EBITDA was $277 million and was up 1% year over year, reaching 9.8% of net revenue.
Finally, turning turning to our bookings during the quarter of pro forma of book to Bill ratio was 1.04 for Q4, driven by solid bookings from both lines of business.
As Bob noted the over $400 million previously aboard and Kings day, intelligent asset management, when remains and protest and as a result of excluded from our backlog figures, we expect to be notified of of resolution and mid fiscal year 2021.
From a pipeline standpoint, we'll continue to be encouraged by strong new business dynamics with and critical mission solutions.
We believe nearly all of the opportunities we are pursuing have strong bipartisan support and sale high priority areas areas associated with National security.
We believe that the people and places solutions business overall sales pipeline also support strong long term growth and.
We continue to see changes and the underlying composition and timing of opportunities driven by and more environmentally friendly U.S. administration, as well as cold and related impacts.
Turning to slide 10, let me summarize our fiscal 2020 performance.
For the full year revenue increased 7% and net revenue increased 2.5% pro forma for the award nuclear acquisition growth.
GAAP operating profit was 536 million and adjusted operating profit was $970 million of 9% versus a year ago figures.
Adjusted EBITDA was 1.05 billion and increased 7%, reaching 9.6% of net revenue of.
Fiscal year 2020 book to Bill was 1.07 times and.
And before leaving our consolidated annual results I would like to makes and summary comments regarding our first half and second half performance.
Fiscal 2020 has been defined by year of two very different halves.
Prior to coated of first half performance was indicative of strong momentum the pro forma growth net revenue growth of over 6% and double digit pro forma operating profit growth, resulting in operating profit margins up 50 basis points year over year.
As a pandemic to pull the teams quickly adjusted plans for the second half the year as we recognized the physical debt sensing and economic disruption would impact our earlier revenue and then momentum.
Revenue ended up being relatively flat and the second half versus both the second half of 2019 and the first half of 2020, indicating the resilience of our portfolio.
The importantly, our teams were able to successfully manage to a lower cost the sure and our original plan with cost reduced over $100 million during the second half versus our original plan.
The agility of our teens to adjust rapidly was profound and we are proud of them for having successfully mitigated the economic disruption to the company and the impact to our plants.
So regarding our alley the performance, let's turn to slide 11.
Starting with CMS as expected pro forma revenue declined 3.6% year over year during the fourth quarter and.
Excluding the impact from the two large lower margin contracts, we are transitioning off and the benefit of the extra week of revenue growth would have also been down low single digits year over year through.
Driven by.
By the impacts associated with people that 19, well revenue was down Tms operating profit was $108 million up 14% year over year on a pro forma basis with operating profit margin up a 140 basis points year over year to 8.1%.
Even factoring in the extra week and the fall in the fourth quarter operating profit would have increased high single digits year over year the.
The improvement was driven by our strategy to focus on the higher margin opportunities. The some additional benefit from favorable project Closeouts.
From a full year perspective pro forma revenue was down 1% and operating profit on a pro forma basis increased 8%.
Operating profit margin increased 70 basis points to 7.5% from fiscal 2019 against again consistent with our extra our strategy to expand our CMS margins.
Looking into fiscal 2021, we expect CMS reported net revenue to be up low single digits, as we ramp new wins and benefit of newly acquired higher margin revenue.
Given the strategy the catch a higher value opportunities and the benefit from acquisitions, we expect reported operating profit growth to be up double digits.
We do believe that the improvements will be more back half oriented given the impact from the to the lower margin contracts will be more than offset with the new higher margin business later in the second half.
Moving to people and places solutions Q4, net revenue was up 8% year over year, but would have been relatively flat excluding the benefit of the extra week during the fourth quarter operating profit was down 8% year over year.
And as a percentage of net revenue operating profit was 12.2% for the quarter down over 210 basis points year over year, driven mainly by co of it.
The related headwinds in the quarter and project Closeouts pass and the strong very strong year ago quarter, which benefited from project closeout benefits.
From a full year perspective, PPS net revenue was up 6% with operating profit up 4%, reaching and operating profit margin of 12.4% slightly down versus a year ago due to pressure associated with COVID-19, and the second half the.
Looking forward, we expect people and places revenue to be up low single digits for fiscal 2021 with relatively flat growth and the first half of the fiscal year.
We expect operating profit margin and the percent of net revenue to increase modestly from fiscal 2020, given the higher margin mix and our sales pipeline and lower costs from our focus 2023 initiatives.
These benefits will be largely offset in 2021 by additional costs as we transition from cost mitigation efforts executed during the second half of fiscal 2022, and more sustainable conch cost structure, and 2021 and beyond the associated with driving profitable growth.
Our non allocated corporate costs were $33 million for the quarter flat from the year ago period on an annual basis non allocated corporate costs were $143 million up 9% year over year.
Looking forward. The 2021, we expect our non allocated corporate costs, the higher driven mainly by inflation and medical costs improved employee benefits and.
And an increase and employee discretionary medical procedures that were put on hold during fiscal 2022, the COVID-19 concerns.
Now turning to slide 12, I would like to update you on our focus 2023, and M&A integration and.
Steve discuss the pad dynamic has fundamentally changed nearly all facets of the economy, which has provided us the ability the challenge our current processes to reinvent, how we deliver solutions to our customers and the future.
During Q4, we formed a dedicated internal team with the assistance from an external advisor for them and the future work and other transformational opportunities.
We are embarking upon a strategic initiatives focused 2023 that we believe will lead to enhance the employee experience and prove our ability to capture emerging high growth high margin opportunities and drive a more efficient cost structure through increased automation and process of Len alignment for improved the longer.
Okay and profitability.
During the quarter, we incurred and nearly $200 million charge related to our focus 2023 initiative.
Of which the there was only $1 million and cash outflow during the quarter.
Of the charge approximately 80% was related to non cash real estate lease and payments as we plan to decrease our physical physical footprint by over 30%.
The remainder of the costs related to strategically leaning out the organization.
In 2021, we project that we will have more than another $30 million and onetime costs, let's hope associated with our focus 2023 initiatives.
Our mission of has already generated approximately $75 million and quickly and cost savings in fiscal 2021. This is allowing the company to offset the incremental costs noted earlier expected in fiscal 2021 as compared to our lower cost structure associated with our total that litigation.
For its and fiscal year 2020.
In addition is expected debt the run rate of these quick wins will provide another $25 million and savings in 2022, as we realize the full annual run rate benefits into the next year.
Beyond these quickly and savings we believe there are substantial additional plant benefits approaching and other $100 million into 2022, and 2023, which we will believe.
Support incremental investments that will accelerate our growth and drive towards the more digital innovative company that provides unique value added solutions to our clients.
We will provide additional day detail of our focus 2023 initiative during our expected Investor day, and the first half of calendar year 2021, and provide an update on our fiscal year 21 Q1 earnings call.
Now turning to our acquisition of Woods nuclear business, we are on track to achieve our targeted $12 million and run rate cost savings and the business continues to perform in line with our original target Despite top line headwinds from.
Headwinds from physical syncing.
And finally, the acts of acquisition of the bump of Buffalo Group was announced today, while terms of the transaction were not disclosed the actual the acquisition is expected to deliver eight to 10 cents of adjusted EPS accretion during fiscal 2021.
And the cost of acquisition represents approximately nine times expected next 12 months, the adjusted EBITDA rate when including the tax benefits from the acquisition.
And finally, when including all the initiatives, including focused 23, and all M&A efforts. We expect the total estimated net estimated amount of approximately $80 million of TNL charges and $110 million and related cash outflows during fiscal 2021.
Now on the cash flow generation the balance sheet on slide 13 during the quarter, we generated 403 million and free cash flow as the result of very strong collections and lower headwinds from cash restructuring Q.
Q4 cash flow included a positive $23 million of net onetime benefits, primarily due to the pandemic related cash tax deferral, partly offset by headwinds from cash outflows associated with restructuring and other items. So.
For fiscal year, 2020, we generated $689 million and free cash flow above our original expectation our annual free cash flow included $10 million of net non recurring outflows.
When excluding the $10 million net headwind for the full year, the company delivered and 96% free cash flow conversion to our adjusted net income figure for the year, demonstrating the strong free cash flow capabilities of the business.
Over the medium term, we continue to target of 100% conversion of recurring cash flow from adjusted net earnings as previously stated we expect approximately $110 million cash of outflows related to focus 2023, and other restructuring and integration during fiscal 2021, we also.
So expect the reversal of pandemic related UK, Pat payroll tax benefits recognized net recognized and fiscal 2020 of.
Of at least $40 million.
The results and as expected total hand headwind of $150 million of cash cash outflows in the fiscal year 2021, including these onetime items.
DSL performance and Q4 was the major driver to our improved key key free cash flow improvement down almost 99 day scares me from three to 2020 as many of the collection process improvement initiatives implemented gain traction.
We are focused on maintaining the slower DSL level, which fee a major driver to our ability to deliver a one times free cash flow conversion and target long term.
And now moving through the balance sheet.
Given the strong free cash flow for the quarter and year, we ended the quarter with cash of approximately $900 million and of gross debt of $1.7 billion, resulting and $800 million and net debt before attributing the benefit of the world the equity.
Trading the Worley equity as cash our pro forma net debt to expected adjusted 2021, EBITDA is approximately 0.5 times, a clear indication of the strength of our balance sheet.
Regarding capital deployment during the quarter, we repurchased approximately $50 million worth of our shares.
For modeling purpose, we would expect and average share count of $131 million for the first quarter 2021, and fiscal year 2021, excluding additional material share buyback activity of course as Steve noted in his opening comments our plan is to proactively deploy our capital is the plan for the true.
In addition out of a total that 19 environment and.
Regarding our effective tax rate and continue the expected adjusted effective tax rate of 24% for the fiscal 2021 year in line with our longer term normalized adjusted tax rate in the range of 20 through the 25% finally, given our strong balance sheet and free cash flow and remain committed to our quarterly dividend, which.
It was increased earlier this year and the player that 19 cents per share and.
As you know our current dividend level represents an increase of 12% versus a year ago.
Now I'll turn it back over to Steve for our outlook and closing comments on slide 14.
Right. Thank you Kevin.
Now, let me review, our total company outlook for fiscal 2021.
We expect adjusted EBITDA outlook to be a range of 1.055 to 1.155 billion, which represents year over year growth.
Adjusted EPS is expected to be a range of 520 of the $6. It's important to note that our guidance does not include any benefit from material future share repurchase activity we.
We do expect to fully utilize our balance sheet capacity over time through share repurchases or acquisitions that provide returns in excess of buybacks.
Looking beyond fiscal 2021, we expect adjusted EBITDA growth to rebound to double digit adjusted EBITDA as we benefit from our focus 2023 initiatives as well as potential infrastructure related stimulus and economic recovery.
Operator, we'll now open the call for questions.
At the moment.
Please press Star then the number one on your telephone keypad. If you would like to ask the question. Please limit yourself to one question and then you know the press star one again to rejoin the queue for further questions. Thank you.
Our next question comes from Jerry Revich with Goldman Sachs. Your line is open.
Yes, hi, good morning, everyone.
One of Germany, and good morning.
And can you expand on the focus the 2023 initiatives the true we'll hear more at the analyst day of but just touch on.
What are the additional pillars beyond the cost reductions the.
We're talking about here and Kevin maybe just a clarification.
How much of the $200 million savings do you expect the we invested in digital and when you look at other on the run rate basis in 2023 was going to be the the net number we should keep in mind. Thanks.
The Jerry just.
Sort of at a high level the.
Two major pillars really and and.
The first one is really growth, it's all about driving the next generation technology growth. We've obviously learned a lot and over the past the 10 11 months with what what happened during the pen domestic and it's really given us tremendous opportunity to accelerate growth.
Our solutions set.
The across a variety of sectors, the Bob really covered and both both of these.
And and the second pillar is the.
Delivering our work more efficiently effectively we have a huge opportunity with what we outlined with regard to.
The the way, we're going to have a much more dynamic.
Operating model moving forward with flexible workspace.
The continued remote working so a significant opportunity to reduce costs, but the goes far beyond just the real estate and travel.
It's it's really back off the sufficiency of procurement and a whole host of other things the should deliver significant cost savings. So those of sort of the combination the again.
Together unleashes the growth trajectory for Jacobs moving forward, Kevin on the more on the financial side.
Yes.
So if you think about.
The the the savings associated with the focus 2023, I already quoted some of the numbers, but to to to note that debt couple of hundred million dollars almost $200 million of one time costs was primarily associated with lease impairment costs non cash charge and if you think about what that translates into in terms of of.
Reduction and the let's call it the real estate costs going forward, it's roughly $35 million of which the vast majority is associated with the reduction in the lease costs. So so as you think about that there is obviously much more savings on top of that which total to the 75, we talked about with the run rate of energy.
And 100.
Those are related to to the the initiatives about leaning out the organization and the efficiencies gained the with with ultimately the investments and tools and capabilities and training.
Associated with the focus 23.
It is really clear that we've learned a ton during these last nine months and we're taking full advantage of that and being proactive and leaning forward to the help take these learnings and create something even better for our sales and our clients and our people going forward.
Our next question comes from Joseph Denardi with Stifel. Your line is now open.
Thanks, and good morning.
I guess for Kevin and Steve mentioned, making progress on the margin target can you remind us what those are at this point I think at the Investor day kind of high Eightys for CMS lows Thirteens for the Tcs and and I don't think the slide 21 guidance implies and get through next year. So can you just kind of remind us where the targets are.
And with the time line is and I don't know maybe kind of what the earnings power is from from all of which you are talking about here. This morning.
Yes look I think.
As you before call of it actually the people and places business was was pretty much on target to deliver that that kind of margin target in 2020, now they've got disrupt a little bit given the second half of of the the year.
Joe, but that I think that at the end of the day of we're going to be right close to those kind of figures and 2000 2021 fiscal year on CMS.
I think we're going to the right. There in terms of the margin targets that we had characterized back in 2016 kind of mid eights.
Hopefully and may be a little bit higher, but I think the thats, what our expectations are.
For for CMS, I think were right there.
You you have noted and our comments that the CMS.
Margins are going to be driven by a relatively low or revenue growth because we're working off some of these other longer term contracts and the task the replaced by a more robust margin profile business over the course of 2021, leading to a really strong margin profile consistent with what the original targets where.
For 2021.
And next question comes from the can you talk with the penalty.
The line is now all of that.
Hi, Good morning, just his first question to follow up on that and the question net must just pass.
And on the margin through you're talking about the hitting the margin targets and 2021 that you laid out and I think in 2019, but I guess, given the incremental and 200 million plus in and and costs that were taking how do we think about the longer term margin profile can we get better margins and then what we laid out of nine.
Teen or or do we need to see the cheap debt given kind of the.
And then my second question.
Any color that you can provide on and the possible acquisition in terms of how that does the the organic sales growth and EBITDA margin of that business and I'm just trying to understand the excluding pass allow would you have grown year or 2021 EBITDA year over year like you laid out earlier in the year. Thanks.
Yes.
Jamie the Starwood and of back to cover and for moving some more financial pass out there is the.
Yes, we expect the.
Of the focused 2023 to give us incremental margin improvement as we get beyond 2021, it's one of the major opportunities and objectives of of that initiative and.
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The the Buffalo acquisition is the accretive to CMS margins. So.
As you know, it's going to enhance the on top of what I, just said and.
So.
I think the combination of those two as well as kind of the backlog profile we have.
And looking at the sales some of the multiyear aspects of the backlog and the higher margins and the and the current backlog as we move forward gives us confidence for the multi year margin improvement of Kevin.
I would ask of the same thing.
The the issue reemphasize the fact that the focus 2023 really is.
While we're getting some cost efficiencies here. The the intention is that we're going to be able to reinvest back into some of the digital capabilities that we know a day or which facilitate our ability to win solutions with our clients or deliver solutions to our clients that ultimately are associated.
Associated with the higher margin profile. So it really is about a growth and it really is about the margin profile longer term that we would we would expect to see upward trajectory versus kind of the.
The 2021 figures.
Our next question comes from Cotton Conor with Cowen. Your line is now open.
Yes, Hey, I was wondering if you could talk a little bit about Buffalo group if there any.
Small business set asides or items like that that might be.
Part of the retain overtime and and.
And I think it is broadly characterize the M&A pipeline from here how it looks.
Of the number of properties and.
Potential sizes that you're looking at.
The income you.
Through the first one I missed the second part of the question.
Could you repeat the second part.
Yes, sure so if the.
Characterize the M&A pipeline and post Buffalo.
What else is out there.
That's a big part of the 2021 plan.
Yes.
Further M&A, Okay group.
The on the per on the first one the the the small business set asides, we took the really strong look at that and the.
These matches. These recent awards, but then the trend that we see going forward with regards to the areas of the government that the Buffalo group is involved with.
Our full and open so we don't really see that the small business set asides of the past IFRS.
Acting how we see the the real synergy with the the the platform is going to bring to our overall business. The we're optimistic on that front and then Steve you want to.
On the overall M&A pipeline, it's very consistent with what we've been talking about.
Essentially going back to our 2019 strategy of Investor day and that is.
As we just did with the Buffalo group growth will continue to look at ways to strengthen our government services business and and move up the value chain there.
From an overall company standpoint, we talked about digital consulting strategic consulting, becoming a bigger and the Evans.
Player, especially on the front end.
Geographic expansion.
There is another area of so just very consist of staying core to our strategy.
And next question comes from Sandy Catherine and with Citigroup. Your line is now open.
And good morning, guys.
Lawn and garden.
And Kevin Obviously, you reported a strong free cash flow quarter, and 96% adjusted free cash flow do you think Q4 was basically the inflection point towards generating strong free cash flow conversion going forward and then why would conversion actually go down and fly 20 line. Excluding the one timers, which is the line of your range given all of the.
The work you've done with the improvement and collections and back office systems work you've done.
So thanks, Thanks for that question I would say a couple of things one.
That that I hope you're right the world performed better than those numbers first comment that but I think as we think about the balance of next year.
The back half of 2020 did have some challenges relative to our revenue being less robust than what we would have originally assumed so as you think about the the working capital of dynamics associated with that number.
In the back half of the year at the end of it there is some tailwinds because we don't have as much of the bills and the working capital numbers and 2000 2020 as we transition.
And the 2021 and if we get to the conversion numbers were actually talking to actually we're making further improvements in dsos, because you're now facing and investment back into working capital. So so at the end of the day, we think it's a continuation of.
Of that journey to get to that one time conversion number, which and I have always kind of targeted the year 2022 as to getting them.
And fast.
Our next question comes from Chad Dillard with Bernstein. Your line is now open.
Hi, good morning, everyone.
Darren and good morning.
And what's embedded in your and your upper and lower end of the guidance range.
And the tax benefit 20, Twond and those and the reform of 20, which the non-GAAP earnings of the low end of the control and guide.
Inputs and inclusive of the people non dollar bookings from Buffalo The one group.
Cost savings to the funnel the difference and hopefully the booking earnings from from the past year end points and one.
Yes, Chad let me, let me take a crack at that and and respond look we recognize that our our range. Here is the is relatively wide, but we also recognize that we continue to be in the midst of the pandemic and and while we feel really good of our ability to have done a great job and the second half of.
2020 to mitigate some of the challenges associated with debt. We still are in the midst of that and so I think the low end of our range would be something that we hope never happens, but it would be.
A situation, where the economics of challenged and around the globe and that we're having a situation of that of that magnitude, which by the way still results and our ability to be flat versus year ago, and a dire economic environment Thats, how we would characterize the low end of our range at the high end of the range.
We're starting to be more optimistic as we come out of the.
The dynamic associated with Covance and that we are developing the momentum that we actually think will happen into 2022 faster. So I think that's how we would characterize the range I think of being prudent by putting that range, there and hopefully make is to use and constructive use to see what the potential downside.
And are pretty bad scenario and what the potential upside is on the big scenario.
Our next question comes from Steven Fisher with you. The ask your line is now open.
Thanks. Good morning, just wondering if you can give a little more color on the the cadence on the revenue and EPS guidance for fiscal 21, the it sounds like perhaps Q1 revenues might be down kind of low single digits, but.
It's hard to tell how.
How backend weighted the EPS is and how relatively light the versus consensus Q1 might the and also just trying to get a sense of.
Sort of the revenue trajectory here is that something and like the more positively or the sort of like that and normalizing.
And kind of some of the Covance situation. Thank you.
Yes, and on this Kevin I'll, just reinforce what I said earlier I think the first half is more flattish.
Relative to our net revenue figures and back half is less flat.
And it starts to show some momentum and and so I think the Thats, how we would see the cadence we're still in the midst of the pandemic.
Certainly the feel like we're going to be holding serve relative to the first six months and given all of the strong work that we're doing and everything else, we're going to see some actual margin improvements and profit improvements and the first half, but the revenue cadence is probably a little bit more flattish in the first half developing additional momentum and the and the second half.
Our next question comes from the company that critical research. Your line is now open.
Good morning, gentlemen.
Good morning, Good morning, Mike.
Maybe this for Bob.
When you're looking out for 2021, and the PPS segment DCNS segment.
Net characterized the deferring of.
Funding flowserve expectations from the private sector and public sector clients and seems like you got some international momentum on on that business I'd like to give the legal and more details on that and maybe for Steve.
You mentioned, a couple of times and through the presentation about positive aspect from a by the ministration.
Are your clients.
That is is there of pent up demand.
Demand for things to get going again, once the and some of the uncertainty with the elections and Koby pass is with the vaccine success of which I know you guys sort of involved with them and the.
And side.
There is and Thats really going to be the the kick through the inflection to see the the growth and 21 second half of 21, and let the loan and 22. Thanks.
Sure Mike Let me just kind of take it one of the time private sector and immuno through well below the long term long term relationships that we have with the private sector clients that we are the we have and so if you look at.
Does that mean for Jacobs.
The dominant in the manufacturing space as well as.
It's a bit of the environmental side with regards to other industrial clients.
We're actually starting to see a bit of an uptick as the.
As those clients really look at not only the portfolio mix, but also.
How the reorganize their global supply chain as the result of the learnings from Covance, so a bit of into the day, it's it's and it kind of touches the profile of services that we offer. So we can help them with regards the conceptual planning and kind of looking at helping them solve those solutions with other innovations that we.
We have on on how they look at that so on the private sector side, we're starting to see through we have visibility to where those will materialize into other downstream projects and we're in that phase right now.
The sector steady business and that the global comment and I'll come back to kind of the nuance between international and Us though.
So we are seeing in the EU ex public sector is debt.
The creativity EBIT state and local governments have already exhibited for the better part of the last three to four years has continued and with some of the extensions would it be a continuing resolution extension within within the government or a b on the bond measures that of through.
And one of the 44 bond measures path and this last election the.
The utilizing those types of measures in order to continue one of the projects, whether it be and try and good or in water stimuli.
Stimulus would be an adder the data, we motored ourselves over what we could see.
That's that's kind of what we're seeing in the U.S. and the international side of the stimulus money is already is we're starting to see some effects of that specifically in the UK with the 10 point plan already starting to see some early planning work around debt and then and Australia, we're already starting to see some of the effects of the of those of those moneys going through so overall people well.
Positioned for whichever way.
Whichever way the markets go.
Yes, Michael as part of your question and I think it's the combination of pent up demand and and accelerating demand.
Over the course of the next 12 to 24 months and what I mean by that is.
The pent up side of obviously are things like the fact that the life science pharma industry has been totally focused on coal the 19, but there's a whole host of opportunities there that the need to get back out around oncology and biotech et cetera.
The effect of the whole aging infrastructure dynamics in the us that Ben and the UK and other areas that have to be addressed them and I think those two regions. Specifically the government is now set up to hopefully live up to the strong.
Strong stimulus and funding around infrastructure of the next next several years.
But then you've got the whole accelerating demand that we talked about which is really driving our true our focus 2023 initiative and thats the.
Customers are now come to grips that they all have to get after this and and accelerate their own technology platform and climate change of.
Issues and opportunities and so Beth accelerating demand opportunities kind of open up and expand our total available market and the and create significant opportunity for Jacobs.
The next question comes from Shawnee mission with Keybanc capital markets.
Your line is now often.
Hi team Thanks for taking my question.
And as we think about.
Jacobs migration sort of more of market higher margin business mix overtime, and just curious how you would reflect on the win rate and some of those are higher margin and Jason seized through fiscal 20 and.
And as you think about focused 2023.
Net program potentially drive debt Jason.
Adjacent market win rate materially higher over time.
Yes, let me start at a high level again, the and it's good it's great that you asked the question because of feeds right into the whole focus 2023 initiative. It is all about.
Moving into more and more higher value.
Markets that we believe have a long runway of of opportunity and and so.
When we talk about kind of activity.
Climate change the resiliency, what's going to the whole dynamic of what's going to happen with health care and moving forward.
And and.
Really all aspects of both our critical mission solutions and people and places solutions business if it's.
It's exactly fits into one of the question that you asked is the fit it is going to be moving into the higher higher market opportunities and as I just answered the previous question we believe the.
The total market that we're going to be going after all.
Over the next several years is going to be significantly expanded versus what we've been addressing over the last say five years of.
Because of of the whole technology dynamics the have evolved over the last 12 months.
Bob you want to kind of give some specific examples around the the absolutely.
The just to add on of the worked with fees that through.
The the win rates have been high and we expect them to be continued to be high but the client challenges. If you look at five years ago versus now.
The current challenges are the same these other dynamics that Steve is mentioning or accentuating and and so those challenges now need a different type of solution, which is we're focused 2023 comes into play through an example is one of the big areas that we have going on right now is around.
The use of hydrogen power and sorry of hydrogen as of synthetic fuel and really addressing the de carbonization efforts that are going on both in the UK. The US Australia, all over the world and and whether it be for power generation.
Our automotive for ships for airplanes.
To the power of residential communities.
It's across the board and in Jacobs is right in the middle of of all of that so again the challenge of of the stray away from fossil fuels, not a new and but now with the advent of of hydrogen and other synthetic fuels.
In the use of technology and how that's deployed something that we're right in the cross sales though.
And next question comes from Josh Sullivan Group the benchmark Cowen Your line is now open.
So you want to.
More of them.
Just on the the Virtualized environment, how do you differentiate Jacobs brand and recruit employees just as the friction for high value of talent the of.
Comes down with more of virtualization kind of across the board can you just give us your thoughts on how Jacobs wins out could we see pricing competition for some high value talent and in some of these growing infrastructure areas or.
Go up or do you think you can access more talent globally, and maybe push and those acquisitions costs down just curious what Jacobs is seen in this virtualized environment.
Good question and it's the war on talent has and hasn't slowed at all during the day memory Thats for sure.
A couple of responses there one is is that.
We've used the word global integrated delivery global connectedness.
That matters.
The the folks that we see coming into the job force today or the care about what's going on globally and one of work on really really neat stuff and that's that's a great attraction the Jacobs, where if I may if I could either of spent half my career and the mechanical engineering field or the new graduate, but yet I can use my.
Domain expertise and now.
And now of work on on projects that are effectively changing the face of the World then I don't know of another another recruiting tool that we could use as debt the virtual aspect of that I talked about the positive. The other the other side of bad debt and measure is that the demand on leadership.
Become even higher price because in a virtual world, we need to make sure. The we stay connected to our people and and Steve and Kevin and the entire leadership team have really put a high level of focus on making sure that our newer employees feel connected to the culture of Jacobs through.
Everything from Count Hall of two increased communication et cetera. So the there is the balance and it is the it is the new world that we're really excited about.
One thing Josh to augment bobs comment too is the our attrition rates have continued to be very very attractive and falling now some of that could be of affected and impacted by by co the but the.
The the reality is with you with us being able to deliver really really good performance on lowering interest rates it.
The puts less pressure on attracting new talent, which is obviously a good thing from an economic perspective and capability perspective, given our team. So it works and in a circular and manner in terms of focusing on our culture and making people excited and net ultimately translates to a really good picture.
Going forward in terms of gaining access to talent.
And next question comes from and is that number of Baird. Your line is now open.
The great taste.
Some of this is Kevin I guess I just want to understand the some moving pieces on the corporate costs related to fiscal 21, I think I heard the theres already $75 million of kind of quick wins at the term them and I think the estimates and the $35 million of annual lease costs are part of that I guess my question is how much do you estimate the.
The the headwind is from the from the low cost and 2020, I guess, you touched and talks about the fact that this and deferred health care of things because of kind of and other things like that that can be lower than expected us to day 2020. So.
I guess I'm just trying to understand if there is the net benefit from the actions that you've already taken here and early 2021 to deliver against EBITDA dollar growth from some of those cost actions and I guess, there's a similar implication or question on 2020.
It sounds like there's a good deal of reinvestment plan against that and is hoping to I guess asked of the separate ways. The is there as you looked at 22 and 23 as part of the three year plan is there and net benefit of you expect that the majority of the savings that we'll get reinvested.
And so that was the.
That was the big question and.
And and so let me, let me kind of.
Parse that apart so yes, the incremental cost of debt that we are seeing and 2021 are a function of as we now see delighted the at the end of the tunnel relative to the co bid situation, we're positioning ourselves to be reinvesting back into the business to accelerate our ability to deliver profitable.
The growth as we exit this year and into 2022 and beyond so that that's a very clearly the case and so if you think about that effectively what what day I guess I'd reemphasize, what I said during the prepared remarks was is effectively that $75 million is.
He is offsetting some of these kind of come back and costs for 2021, and and so as we go down into 2022 and beyond sales focus 2023 allows us to the deliver incremental benefits and and from our perspective the way that we're envisioning that is it that gives us degrees.
The freight and to really significantly invest and some of the debt Digitization training capability sets for us to deliver the next wave of the innovative solutions that that are higher margin and deliver even special more special solutions to the client. So so as we sit here today, we say look we're going to invest.
Back to those incremental monies.
But of course, each of those incremental investments and have to have the return profile that makes sense from a from a shareholder perspective, and if they don't maybe some of that drops to the bottom line, but our intent tension on focus 2023 really is about profitable higher margin growth going forward.
Our next question comes from the line of Michael Feniger with Bank of America. Your line is now open.
Hey, guys. Thanks for squeezing me in and then we're running a little long so ill try to keep it short on the.
The first off with the pent up demand and you guys are talking about have you seen anything on the public and private side with bookings just start to fall in November after the election.
Michael when you say fall, what we need to be awarded.
Yes, yes, and yes, if there is any thoughts of any pickup you guys. The bond bookings after the election.
Increase of customer.
Customer inquiries the did anything really change in November the.
And as you guys confidence on that on that second half.
I don't know through is directly affected the I don't know through directly tied to the to the election and what we we continue to see positive momentum in our bookings.
Now is that coincident and they were tied to and November election, or not at the property not probably not appropriate for us the speculate on that price.
Programs have been coming in and talked about the pipeline the pipeline continues to be.
Robust and and.
And we continue to win a fair share of those so debt.
I think the two independent events.
Our next question comes from Joseph Denardi with Stifel. Your line is now open.
Thanks.
On the business of bullet on the CMS.
CMS slides of Tw Geo spatial technology for confidential commercial customer kind of.
That sounds kind of exciting can you talk about what that is and maybe what the pretends for.
Some of the the government related pursuits that that kind of you is involved and looks to the station and thank you.
Yes, Joe I got to be really careful with this when it is a it is confidential in the automotive sector and it really starts to rely on.
Deep space satellite technology in order to the.
Advanced all of the smart kind of the capable.
Capabilities that you would find in a in the commercial vehicle.
But it but its unique the guys it's gone to yet another domain and already get that information.
And really enhances speed and accuracy of what's being fed to the cars on our on the growth. So.
Unfortunately, too it's probably all I can say about it at this point.
There are no further questions in queue at this time I'll turn the call back on line for any closing remarks.
Yes. Thank you just to close out the of the since the pandemic started the safety and well being of our people and our top priority and and in parallel we've worked hard to deliver on our client commitments. We're.
We're going to continue that focus and.
In spite of the virus, which the mix.
Escalating around the world hoped.
Hopefully you got a flavor today that we continue to play a role and support of the major pharma clients and the front line of the vaccine therapeutic production and where car encouraged by the recent announcements on the vaccines.
And as we close out this fiscal year I'm proud of the performance, we delivered and these unprecedented times and the credit goes through the ingenuity and dedication of all of our people and.
As a result, we're entering fiscal year 2021 from a position of strength and our key markets and the collective determination to drive growth through innovative solutions for our clients. Thank you.
This concludes today's conference call you may now disconnect.
And.
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