Q3 2021 Jacobs Engineering Group Inc Earnings Call
Yeah.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Jacobs fiscal third quarter 2021 earnings conference call and webcast. At this time all participant lines are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during this session you will need to press star 1 on your telephone keypad.
Be advised today's conference is being recorded.
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I'll now like to hand, the conference over to Jonathan doors. Thank you Pease go ahead.
Thank you good morning to all our earnings announcement was filed this morning, and we have posted a copy of the slide presentation on our website, which we'll reference during the call.
During this presentation, we will be making forward looking statements, including with respect to the continuing effects of the COVID-19 pandemic and.
So on government stimulus programs.
<unk> benefits of our strategic investments and consulting.
Our financial outlook amongst others.
I would like to refer you to our forward looking statement disclaimer, which is included on slide 2 regarding the other forward looking statements.
During this presentation, we will be referring to certain non-GAAP financial measures. Please refer to slide 2 of the presentation and more information on these figures and <unk>.
And during the presentation, we will discuss comparisons of current results to prior periods on a pro forma basis see slide 2 for more information on the calculation of these pro forma metrics.
Pro forma comparisons of current and prior periods include the results of the Buffalo Group, which closed in November of 2020, and the PAA consulting investment which closed in March 2021.
Turning to the agenda on slide 3.
Speaking on today's call will be Jacobs chair and CEO, Steve Dmitry price.
Evidence and Chief operating Officer, Bob <unk>, and President and Chief Financial Officer, Kevin Berryman.
Steve will begin by updating the progress we are making against our strategy and the future ESG Jacobs Bob will then review our performance by line of business and Kevin will provide a more in depth discussion of our financial metrics, followed by a review of our balance sheet and cash flow.
Finally, Steve will provide a detailed updated outlook along with some of our closing remarks, and then we'll provide we'll open the call for your questions.
And the appendix and this presentation can provide further.
<unk> related information, including additional examples of our leading ESG solutions.
I'll now pass it over to Steve to meet share chair and CEO alright. Thank you for joining us today to discuss our third quarter fiscal year 2021 business performance and key initiatives turning to slide 4.
Before reviewing our third quarter results I'd like to reiterate our commitment to our current strategy, which includes aligning our portfolio toward large secular growth opportunities, where we can deliver sustained double digit profit growth.
As I mentioned last quarter, we are developing our new corporate strategy and just completed a midpoint review of our business and competitive landscape.
We look forward to sharing our new strategy, along with updated multi year financial targets at our Investor Day later this year.
Turning to our financial results I am pleased with our strong third quarter performance with net revenues, increasing 11% year over year and adjusted EBITDA growth of 26%.
Backlog ended the third quarter up 7% year over year and up 3% on a pro forma basis and.
And our backlog excludes our significant Idaho National labs remediation with now.
Now that the award is cleared protest when including Idaho total Jacobs reported third quarter backlog would be up 11%.
And on a pro forma basis for Idaho up 6%.
Total PAA consulting continued to post exceptional performance with 36% revenue growth.
More importantly, PAA delivered this growth, while maintaining adjusted EBITDA margins up 23%, making it 1 of the fastest growing and most profitable consultancy firms.
And given the strong year to date performance across all of Jacobs, including.
We are again, increasing our full fiscal year 2021, adjusted EBITDA and adjusted EPS outlook.
Looking beyond fiscal 2021, we believe we are entering and attractive growth period for Jacobs, driven by strong global trends and infrastructure modernization energy transition national security and a potential super cycle and global supply chain investments, most notably and our semiconductor and life Sciences.
We are anticipating and increasing and robust sales pipeline for both fiscal year 2022, and 2023, we are aligning our strong culture deep domain knowledge and investments and technology enabled solutions to help solve our clients' challenges and to convert this pipeline into meaningful growth opportunities for our shareholders.
Turning to slide 5.
At Jacobs, our company's purpose is delivering solutions for a more connected sustainable world and our values are we do things right. We challenge the accepted we aim higher and we live inclusion.
And this is critical for our people to work for a company that believes sustainability is fundamental to what we stand for as an organization.
Building on our plan beyond 2 point strategy, which we released externally last week, we have now launched and ESG focused digital thought leadership publication and re imagine perspectives to share with the world. What our talented teams are thinking relative to high priority challenges like climate change and how they're creating and delivering innovative.
Solutions and response.
Living up to our brand promise begins with thought leadership by stimulating discussion asking the hard questions and seeking new ways to meet challenges.
The first publication is focused on resilience from a number of perspectives and throughout today's presentation, you'll see examples of our people and our solutions and actions. We encourage you to follow us on social media or visit our website to learn more.
Turning to slide 6.
We are seeing an acceleration across our global customer base and communities to provide solutions for their net zero carbon commitments.
For example, at 1 of the largest U S. Consumer goods companies, we are providing consulting services to help them drive carbon neutral facilities as part of their journey to net zero emissions and effort that May result, and rethinking their entire global supply chain and.
And for a transportation customer and the U S. We're helping them leverage renewable energy sources for their rail operations to enhance electric grid reliability during critical times.
And in the UK, we're researching.
And how airports of the future will accommodate hydrogen aircraft and in Germany were supporting sales goal of becoming a net zero emissions company by planning for their new sustainable campus.
And moving further east we're supporting the development of a new solar photovoltaic power plant in Malaysia, and Australia, we have been awarded another wind energy project with a confidential customer.
Altogether sustainable solutions are a high growth business for Jacobs today, comprising nearly $5 billion or on a revenue, which makes Jacobs 1 of the largest ESG solutions providers.
And now with VA consulting Jacobs is uniquely positioned across the entire end to end ESG opportunity.
With that I'll turn the call over to Bob Borgata to provide more detail by line of business.
Moving on to slide 7 and to review the quarterly performance for critical mission solutions during the third quarter. Our CMS business continued its solid performance Protos and <unk> backlog is at 9.6 billion, representing 6% year over year growth backlog and the quarter was impacted by protests, but we expect these to clear and Q4, resulting in strong.
Backlog growth.
And our CMS strategy is focused on creating resilient revenue growth and margin expansion by operating technology enabled solutions aligned to critical national priorities that drive innovative outcomes.
As discussed in prior quarters, we are pursuing sectors with strong profit growth trends, including global energy transition space based ISR intelligence analytics, and <unk> networks I would like to discuss several of those trends and recent related wins and greater detail beginning with energy transition.
And with record leaders across the world are driving initiatives to cut off <unk> mission through investment and clean energy solutions and Jacobs has recently realigned its north American and European nuclear practices to better deliver our global lifecycle nuclear capabilities.
This includes advanced modular reactors or <unk> that can be used for electricity generation and for that.
And with the global community to bring fusion power to commercial viability.
During the quarter Jacobs was awarded the Idaho cleanup project at Idaho National Laboratory, and the majority partner and the Idaho Environmental coalition.
The contract value is estimated at $3.9 billion over a 10 year period and recently cleared protest.
Approximately $780 million will be included in Q4 backlog.
Together with the Boe.
We will use Jacobs technology, driven solutions to reduce the environmental legacy of the Cold war, while delivering social value by supporting high quality jobs, and the region and protecting the Snake River aquifer, a critical element of Idaho's agricultural industry.
Moving on to <unk> the.
The U S military predict that future complex will be won by those with an information advantage and enabling the ability to outpace our pink and outmaneuver bursaries across the multiple domains land sea and air cyber and increasingly space.
Low orbit and surveillance satellites can collect and process data much quicker than air ISR.
And advanced satellite centers on a critical component and the effectiveness of these military small sats.
Jacobs, 1 or 2 year contract from a classified client to perform demonstration of its active electronically scanned array or ASIC technology similar to the technology utilizing our mango satellite launch.
A key differentiator for Jacobs in this area is the use of our commercial <unk> technology, and reducing the cost of space radar by up to 5 times less and legacy space radar systems.
This further advances Jacobs is and aerospace and defense prime delivering value added commercial space based basis.
Now turning to our related and excellent security trend intelligence analytics.
Intelligence data often collected from multiple sources are analyzed with support from AI technologies and transformed into information that generates a pitcher and.
<unk>.
Activity.
Ultimately informing and driving our commanders decision, making Jacobs.
Jacobs Reef and Buffalo Group acquisition and went to attractive awards during the quarter and support of the Army's intelligence and security command income the 902nd military group Ci Human intelligence and analytical services contract is a 234 million 5 year award to provide advanced cyber and intelligence solutions for income.
Counterintelligence and counterterrorism operations. This award is expected to clear protest and added to our backlog and Q4.
Jacobs also won and annual extension of the U S Army's biometric and identity intelligence analytical support services contract.
A final trend and is the growth and <unk> networks.
Our telecom business had a strong quarter and part from the accelerating rollout of <unk> investment from clients like AT&T, Directv and T mobile as well as health systems and the U S Department of defense.
Increased demand is is the result of clients seeking the benefits of <unk> higher bandwidth to operating and advanced environment for commercial and consumer applications, including telemedicine and augmented reality and next generation gaming.
And the Dod is also heavily and <unk> technology and support of virtual and mission planning and training.
We're excited about the continued increase and opportunities fueling growth and our telecom business.
In summary, we continue to see strong demand for our solutions for the remainder of fiscal year 2021, and beyond the CMS sales pipeline remains robust with an 18 month qualified new business remaining above 30 billion income.
<unk> 10 billion and source collection, and importantly, with and increasing margin profile.
Now on slide 8.
I'll discuss our people in place and solutions business.
We continue to demonstrate strong performance driven by our strategy to focus on high value sectors and key geographic regions, leveraging our strong global integrated delivery platform third quarter backlog was up 6%, resulting in greater than a 1 times book to bill for both revenue and gross margin.
The global trends and climate change infrastructure modernization and digitalization as well as accelerated supply chain demands and areas driven by the pandemic are catalyzing, our clients mid and long term investments and.
As demonstrated by our results, we remain well positioned to grow.
These multiyear trend line strongly with our purpose to make the world more connected and sustainable.
I would now like to provide more insight into the effect. These global trends are having on our business.
Starting with climate change is a recognized leader and forward, meaning solutions, including specific ESG actions aligned to de carbonization and energy transition, we are very well positioned to convert our growing pipeline and intangible results.
On the environmental front, we continue to win strategic work with our key clients as demonstrated by our recent win to support the U S Air Force and their mission to protect human health and local communities with a focus on combating emerging contaminants, including P fast.
In addition to new wins, we were recently named by environment analyst as the number 1 leader and water quality and resources and our work on the Tyndall Air Force base Coco Resilient study and Florida was recognized as the global winner at the UK environment Agency 2021 slug and Coast Awards.
Moving to infrastructure modernization as part of our rapid uptick and our transit and rail portfolio. We are winning major projects around the globe such as the East West Real program partner and the U K a major U S Transit authorities Metro rail platform reconstruction and the Kiwi rail modernization program and New Zealand these important win.
Leverage our capability and digitally enabled solutions.
We are also developing digital solutions that applied to a wide cross section and clients and sectors around the world and.
Wowing us to use our global platform and client base to deploy solutions and creating new recurring revenue streams.
1 such product is kaleidoscope launched today Kaleidoscope has a predictive analytics application, which supports clients and capital planning and matched the true risks cost and vulnerabilities of interconnected infrastructure systems are.
Our cross sector domain knowledge gives us a distinct competitive advantage and developing innovative solutions and create stronger growth opportunities as.
As an example for the health care sector, we are creating 1 of the world's first digital twins to support operational decision, making based on predictive analytics and scenario forecasting.
We are integrating artificial intelligence and machine learning to analyze historical health and location based services data alongside real time meteorological traffic and large public event data to optimize patient demand and capacity scenarios.
And as a Fantastic example of how Jacobs and partnering with our clients to reinvent health care of Tomorrow.
Shifting to our advanced facilities Becker.
Believe we are entering and unprecedented multiyear growth cycle.
And our electronic sector, we are seeing a sharp rise in semiconductors and response to the global chip shortage, given long term demand and cloud and edge computing data storage and smart infrastructure such as electric grids.
Multiple government initiatives have been launched with the goal of supporting semiconductor manufacturing in their respective countries and.
As a global leader in this space, we are well positioned for strong growth with our clients and the U S Europe and Asia and.
Additionally, biopharmaceutical companies are increasingly utilizing contract manufacturing capacity as a means to supplement their own production. We have secured several large programs, including the recently announced Fuji diodes, and <unk> Biotechnologies, New Greenfield campus and research Triangle Park North Carolina.
We have also secured a major contract with Natureworks to design and manufacturing facility in Thailand dedicated to producing biopolymers from sugar, resulting and products that are biodegradable and produce from sustainable resources.
And the design will be executed through our global delivery model, including talent from India and the Philippines.
Finally, as it relates to pandemic driven solutions, we have and exciting win that once again combined our world leading domain expertise and water with our digital AI capabilities for a breakthrough project and the Middle East. We're performing program management services for the AVO Dhabi Department of energy to deliver a wastewater laboratory.
And that will screen and detect COVID-19 virus and other infectious diseases.
Turning to consulting on slide 9.
As Steve mentioned PAA continues to outperform expectations. New wins include recent revenue recently large revenue synergy and the U K that is build excitement across our teams.
Working together <unk> and <unk>.
<unk> when the new U K Department of food and Rural Affairs management consultancy contract, a large scale and strategic advisory program for business transformation and deliberate.
Joint research continue to be across other regions and geographies and I look forward to sharing additional details on the coming quarters.
As we look at specific growth areas continues to support the UK government U K government's Covid response.
With their efforts now focused on vaccine deployment and test and trace activities on a related note.
And also seeing growth projects, both on the consumer and life Sciences sectors.
And as disruption from the pandemic changes business for good we're seeing increased interest and digital and online product experience and service models exam.
Examples include a major retailer that is revolutionizing their online offer to create new customer experiences by moving from face to face to a subscription model and and health and life Sciences, Virtualized and the clinical trials process for patients through telemedicine.
On the digital solutions front and.
And Unilever teamed up to create a world leading predictive tool.
COVID-19 awareness and situational intelligence or cash, which redefines how data can be harnessed to unlock predictive insight the team.
Combined their expertise and consumer goods business intelligence data analytics, AI and machine learning operationally resilient and global supply chain to create a live dashboard that monitors and <unk>.
And <unk> real time, and predictive intelligence from a worldwide perspective.
<unk> product innovations for T core origin and guide beauty were recognized by this year's prestigious design awards with that I'll now turn it over to Kevin to discuss our financial results.
Thank you Bob turning to slide 10, and Alpha Financial Inc. Third.
And third quarter and pulse revenue increased 10% year over year and net revenue was up 11% in line with last quarter acquisitions, and FX benefits contributing growth by more than offset and the previously disclosed thrown off up to lower margin contracts and CMS.
Including the pro forma income from all acquisitions net revenue was up low single digits.
For the fourth quarter, we expect total reported net revenue growth to be up near double digits year over year and up slightly on a pro forma basis.
This represents strong underlying growth considering our fiscal fourth quarter of 2020, and 14 weeks compared to a normal 13 week quarters.
Which will impact our 2021 fiscal fourth quarter reported growth rate by approximately 8 percentage points on a year over year basis.
Adjusted gross margin and the quarter and as a percentage of net revenue was 27, 6%.
400 basis points year over year, the higher gross margin on a year over year basis was driven by a few factors and stay.
Variable revenue mix and both people and places on CMS as well as the benefit from Ta consulting depends on strong accretive gross margin profile.
Adjusted G&A as a percentage of net revenue was up year over year in line with our expectations to 17%.
GAAP operating profit was 264 million and was mainly impacted by $50 million on amortization.
Acquired intangibles.
Adjusted operating profit was $315 million up 32% with both CMS and people in places showing strong organic profit growth and addition, ta posted strong growth and operating profit during the quarter versus their growth.
Our adjusted operating profit and net revenue was 10, 6% up 170 basis points year over year on a reported basis.
GAAP EPS from continuing operations rounded to <unk> 82 per share and primarily included 44 cents related to and updated non cash valuation allocation between ta and consulting preferred and common shares with no impact to date.
And we'll consideration.
34 related to the UK statutory tax rate changes and an updated estimate of our annual adjusted effective tax rate.
For the amortization of acquired intangibles, all of which were partly offset by 23.
Related to the positive mark to market investment morally and.
Impact on monetizing the remaining portion of our <unk> investment.
Excluding all items third quarter, adjusted EPS was $1.64 up 30% year over year.
Included in the tax item noted earlier third quarter adjusted EPS is impacted by 20% by a 20% effective tax rate to reflect the change and our estimated adjusted annual effective tax rate from 22, 5%.
23, 8% this change and estimated tax rate resulted in an <unk> per share tax benefit and on adjusted results during the third quarter.
During the quarter contributed <unk> 15 of accretion net of incremental interest. We now expect 35% to 37.2021 Ta accretion up from 32 to 34 from our case this quarter.
A reminder, from modeling purposes, we fully consolidate the impact of the PAA and Bachmann and our.
Operating salt results, 35% minority interest backed out and Noncontrolling interest.
Q3, adjusted EBITDA was $321 million and was up 26% year on year, representing 10, 8% and net revenue on.
Adjusted EBITDA calculation also includes the burden that the 35% minority interest impact from <unk>.
Excluding ta adjusted EBITDA growth was up 9% year over year.
Finally, turning to our bookings during the quarter, our pro forma book to Bill ratio was 1 times for Q3 with actually a little bit higher book to Bill of 1.1 on a gross margin.
Level.
Regarding our LLB performance, let's turn to slide 11.
Starting with CMS revenue was up 1% year over year on a reported basis and down 2% pro forma when the acquisition on the top Buffalo group is considered.
As previously communicated we are transitioning off to lower margin contracts, which represented $190 million year over year revenue impact during the quarter.
And excluding the contract runoff and <unk>.
<unk> benefits pro forma CNS revenue was up double digits year over year.
We expect approximately $200 million quarter of year on year impact from these 2 contract roll offs and the balance of this year and our first.
And our first quarter of fiscal 2020 day.
Tms operating profit was $108 million.
Up 21% and <unk>.
19% year over year on a pro forma basis.
Operating margin was up 150 basis points year on year to 8.9%.
And the improvement was driven by our strategy to focus on higher margin opportunities for.
For the fourth quarter, and we expect relatively flat CMS reported revenue effectively offsetting the impact of the extra week of revenue last year and we.
We expect mid single digit operating profit growth as the timing of recent wins are now expected to ramp and fiscal year 2022.
Moving to people and places solutions Q.
Q3, net revenue was up 1.4% year over year, driven by a rebound and our international regions as well as benefits from the FX, while the Americas business saw near term delay and some larger projects the positive developments regarding FERC infrastructure stimulus over the last week is expected to.
And customers beginning to leverage existing framework agreement as we enter 2022.
We anticipate seeing awards associated with the stimulus beginning on our second half of next fiscal year.
Developing momentum when combined with the strength of our advanced facilities business noted earlier by Bob positions us well into 2022.
Total PMT and its operating profit was up 8% year over year, including the benefit from FX.
Operating profit as a percentage of net revenue was 13, 8% for the quarter up 80 basis points year over year, driven mainly by a gross margin benefit from a more profitable revenue mix.
In terms of Ta's performance, PAA contributed $256 million and revenue and $57 million and operating profit.
Q3 revenue grew 36% and 20% year over year on local currency.
Q3 operating profit margin was 22% in line with our expectations.
Finally, our non allocated corporate costs were $65 million for the quarter and up year over year and in line with our expectations. The increase was driven primarily by the expected increases and medical cost investments and other expenses.
And we expect non allocated corporate costs and also a true on slightly higher in Q4, given continued increase increases and the medical cost and other investments as we begin to position the company for the growth momentum that is expected in fiscal 2022 and beyond.
As we turn to slide 12, I would like to comment that our restructuring and other charges has significantly decreased.
And as a result, we are not and taking a specific slide on this subject and this presentation to comment quickly during the quarter, we incurred only $2 million of total net charges for focus 2023, as well as other restructuring and integration activities.
As a result, both P&L and related cash outflows for these items remain in line with our outlook and we are focused on significantly decrease and needs adjustments going forward.
During the third quarter, we generated $853 million and reported free cash flow as DSO again showed strong improvement.
It is important to note. This cash flow included the $261 million purchase price contingent consideration for PAA treated have post closing compensation that we discussed last quarter and a net $19 million associated with focused 2023 restructuring and other <unk>.
Items cash flow considering these items underlying free cash flow was over $430 million, putting us on track for greater than 1 times adjusted cash conversion for the fiscal year.
During the quarter, we also monetize our investment and key 3 AI from $39 million, which is reflected in cash flow from investing.
Activities.
As a result, we ended the quarter with cash of $966 million and gross debt of $3.1 billion, resulting and $2.2 billion and net debt before attributing the benefit of our warley ownership.
Trading the warranty position as cash on a pro forma net debt to expect that adjusted 2021 EBITDA is approximately 1.4 times a clear indication of the strength of our balance sheet and finally, given the strength of our balance sheet and free cash flow.
<unk> committed to our quarterly dividend, which was increased 11% this year to <unk> 21 per share and.
Now, let me turn it back over to slide <unk> for slide 13. Thank.
Thank you Kevin now, let me review, our total company outlook for fiscal 2021, given our strong year to date performance excellent results from our peer consulting investment and the benefit from the lower tax rate, we're raising our full year guidance.
We now expect adjusted EBITDA outlook to be a range of $1, 2.1 billion to $1.75 billion versus our previous outlook of 1.2 to $1 billion to $7 billion.
We expect adjusted EPS to now be on the range of $6.15, $6.35 per share versus our previous outlook of $6 to 6.3.
Looking beyond fiscal 2021, and the likelihood of a U S infrastructure stimulus package and substantially increased over the last week, which had become a significant benefit to our Jacobs P&L and the second half of our fiscal year 2022 and beyond.
The strategic repositioning of our portfolio, we are aligned to strong secular growth trends, including global infrastructure modernization climate change National security and digital transformation and global supply chain and buffers.
As a result, we expect this to drive double digit adjusted EBITDA growth and <unk>.
Fiscal 2022 and beyond.
Operator, we'll now open the call for questions.
Thank you at this time I would like to remind everyone and I'll just ask a question. Please press star 1.
Okay.
<unk> please.
To withdraw your question press the Patzke.
Please be advised that the Q&A session is limited to 1 question and answer.
Follow up question, if you can answer the queue again.
And that will compile the Q&A roster.
Your first question comes from the line of Joseph de Nardi from Stifel. Your line is now open.
Thanks, Good morning.
Bob can you just talk about the space and Intel contract a little bit I think that was a competitive process correct me if I'm wrong and then can you remind us what the additional opportunities are going forward with that capability and then Kevin can you just debt level set kind of what the outflows our debt are being excluded from the free cash flow <unk>.
Thank you.
Yes, Joe good morning.
On the space and intelligence.
And it really has to do with our.
Some of the unique the unique technologies around.
Around the right technology and were not disclosed the decline, but this is a multi phase type project and so we're on the front end of the development of that project and so we see continued growth there just to add on to that what we're also seeing with our with our star technology or the synthetic aperture.
Radar is the air based component of what's coming out of a rapid solutions business a couple of really nice wins confidential.
There again early phases.
And the team investment on that front.
Joe just real quickly on that on the adjusted free cash flow that we talked about those 2 items effectively the most material line as the 260 million $61 million.
The compensation and treated.
Numbers associated with Ta and that was ultimately originally part of our consideration, but because of GAAP, we had to run it through the P&L and Thats 261, and we have another 19 <unk>.
<unk> and related matters.
And which address.
And timing relative to the P&L, but you also heard me talk about which was $2 million.
And those 2 added together.
Reported free cash flow and take a 430 plus million for the quarter.
Really strong and we're very pleased.
Please go ahead.
Yeah.
Your next question comes from the line of Andy Kaplowitz from Citigroup. Your line is now open.
Good afternoon, guys sort and good morning, guys.
Good morning.
Steve and Bob I know, you mentioned on potential Super cycle and supply chain related build out which is most bullish commentary yet regarding events facilities.
As you mentioned I think Bob you mentioned and shoved uptake and semiconductor activity, but as your dense facilities business actually contributing meaningfully to <unk> growth yet I know Bob last quarter, you talked about ramping up over the longer compared when do you think and start to meaningfully contribute to quarterly revenue and earnings growth as it admin and debt at this point or is it more FY 'twenty 2.
Yes, and it would be FY 'twenty 2 right.
Right now.
And those programs and projects go we start off with early concept and and we called cases of design activity higher margin Consultative type type work, but to really see it flow through the P&L would be and subsequent phases of the project, which these are these are fast projects. So we're measuring and in quarters not years with regards to <unk>.
How those would burn through the P&L.
Thank you. Our next question comes from the line of Michael Dudas from vertical research. Your line is now open.
Hi, good morning, gentlemen.
Good morning, Good morning Bill.
Steve you indicated about the optimism, which I guess is fair relative to the U S infrastructure opportunities.
And maybe you can delve a little bit more deeply and.
From your framework agreements with the customer base and some of the myriad of where their energy transition grid climate change and it was a lot of numbers, there and him but.
How what kind of leverage and potential opportunities could we see from your U S business on the <unk> side.
Given what.
And what could be coming down the pike over next several years.
And Michael Thanks for that so look this.
We are building optimism obviously based on the news, we're all reading and and we're very highly engaged and I do want to start with that are on our U S. Government relations team have done an outstanding job to help influence this outcome, which.
Of course, it's important for Jacobs, but is highly important for going on.
I would state so.
What we got here is a 5 year authorization thats going to provide our state and local clients significant certainty and thats huge and its.
And also significant for Jacobs because.
We've evaluated debt over 95%.
Of this trillion dollar $550 billion of new money.
<unk> is totally aligned to our Jacobs offerings and.
When you go through that obviously highways bridges.
The rapid transit is going to be a significant growth, but when you look at some of the other components like Amtrak and freight rail, which is going to quadruple and funding drinking water and wastewater which is going to be up 2.5 times the airports more than doubling ports.
Ports and waterways where were industry leader.
Same thing and then you tack onto that thing.
Like Superfund and Army Corps Civil works, which are.
<unk> up where we are.
The leader and the industry across debt growing significantly and thats pretty fast starting opportunities the way the money will flow and.
And then of course, what you talked about Michael energy transition resilience and all.
A host of other things $8 billion and hydrogen hubs, which we're right in the center of providing solutions. So.
Just a great great opportunity for Jacobs moving forward.
Your next question comes from the line of Sean Eastman from Keybanc capital markets. Your line is now open.
Hi, Dan Thanks for taking my questions.
I just wanted to touch on focus 2023.
Maybe at the risk of stealing the Thunder from the planned analyst day, but I think the initial perception around focus 2003.
Was it was.
Our real estate.
Cost save.
Type of strategy talking to you guys through the quarter. It seems like it's much more than that.
Could you just talk about how.
Focused 'twenty 3 as reflected in the double digit EBITDA growth outlook for fiscal 'twenty, 2 and beyond maybe kind of clear on how we should think about how it hit the model.
Yes, thanks for the question Sean.
Glad you asked that because the focus 2023.
And is a far reaching effort that's being executed across the entire company about transforming the way we work.
So yes real estate is certainly part of that because we're changing the way, we're utilizing our real estate footprint and changing the way we work relative to that we've talked about how we would want to ensure that our footprint becomes more about collaboration team building training and less about a place where you go.
And Andrew heads down work, so clearly, it's part of that but it's much more than that and effectively what we're doing is M.
Is aligning creating more discipline in terms of the management of our processing, which is going to facilitate our ability to automate.
<unk> and <unk>.
Great and process designs, which will facilitate people to spend less and less time, and what I would call the administering of our projects and Thats a huge effort when we talk about our project teams around the world. So we think this unlocks talent and the time of that talent to really drive future innovation now.
Relative to the double digit numbers, what we said and certainly and 22. Our plan is is that the bulk of the savings, which we're working on finalizing right now and 2022.
It will be reinvested back into the business by the next wave of potential opportunities that will allow us to deliver even incremental benefits and 2023 and beyond so wallets and it's a piece of the 2022 guide, but at least preliminary double digit number that we talked about.
It's not a substantial piece of that because we are planning on reinvesting back in the business we think.
And our ability to continue to drive a company that is doing different type of work, becoming more digital and its ability to deliver work all of that translates into and need to invest and so consequently, a vast majority of the savings will be reinvested back into the business over the course of 2022.
And.
Okay.
Your next question comes from Ryan share you granted from Goldman Sachs. Your line is now open.
Hi, This is Adam for Gary today.
Wondering and.
Consulting if you could you guys help us think about the incoming <unk> engagements there on the next several quarters.
Okay.
Yes, Adam.
And engagements are on the rise pipeline is growing.
I think Jack and Kevin talked about the backlog growth.
We're seeing.
When we talk about.
Concentrate on the private sector for a moment.
And this investment and supply chain resiliency as well as business transformation Ta is playing on both sides and so.
We are seeing those engagements definitely on the rise and it's forming itself are showing itself from pipeline growth as well as booking growth.
We see the debt debt Teo, having a nice thumb.
Nice outlook on it.
Thank you. Your next question comes from the line of Chad Dillard from Alliance Bernstein. Your line is now open.
Hi, This is Scott and Nina on behalf of Chad.
Good morning, and you talked about mining and you think about double digit growth upfront and medium term. Thank you Arthur <unk> the contribution from Jacobs, <unk> and ground and secondary margin expansion.
And we've talked about.
The robust opportunity moving into 'twenty, 2 and beyond and we're really talking about all 3 legs of the business.
And consulting CMS and <unk>.
Almost from a standpoint of them directly contributing to the double digit growth.
CMS specifically.
And we've talked about this 30 plus billion.
New business pipeline.
And we're excited about that.
The wide range.
The Department of Defense for example.
And is shifting to a major focus on.
Upgrading modernizing and making all of their systems more intelligent and we play.
Set a role there.
Because of the capabilities that we bring and some of the proven.
Abilities and most recent projects.
Bob talked about the space side, both the deep space exploration as well as space intelligence.
And then we move over to even things like <unk> <unk> networks.
That is growing significantly as we've talked about during our remarks.
The cyber and intelligence business the pipeline there is.
Is rising and when you looked at the capability that we created going back 2 and over the last 7 or 8 years with starting with Fnf's acquisition debt.
And with canopy, and most recently <unk> and Buffalo group and the leadership, there and critical mission solutions and are now really put that together to expand our offerings and and B.
Directly and the center of all of the cyber and.
Michigan Intelligence. The fact that now we're up to 12 of the 18 intelligence agencies that we're working force so.
We're excited and opportunity that CMS is going to contribute buildings.
<unk> PPS.
Eric.
Thank you as a reminder to ask a question. Please press star 1 youre.
Your next question comes from the line of Andy Wittmann from Baird. Your line is now open.
Okay. Good morning, Thanks for taking my question and I just had.
Just 3 clarifications offer Kevin and to make sure that.
Understanding the financial statements correctly.
First 1 has to do and excuse me the.
$267 million from last quarter that you had to expense.
For GAAP rules on the purchase consideration it looks like net of some people retiring or quoting or whatever happened.
The net number here was $2.61, like you called out in your press release and theirs.
$6 million difference there.
And I was wondering if that benefit.
It showed up in which segment does that and the <unk> segment was at and SG&A.
And then was that excluded or benefit to adjusted EPS as a gain on the quarter and then secondarily I was.
Excuse me and noticing that there was a $158 million of.
Accounts receivable, which as far as I can tell is the best quarter, you've ever had and taking down accounts receivable. So I was just wondering Kevin if you could talk about whether that's just timing related or do you think there is a structural element to what you did in the quarter on the very good accounts receivable performance.
Yes, So let me go the first 1 quick quickly.
On the accounting and the complexity associated with Ta because of not only on the equity pieces that we've been talking about but also the backing out and noncontrolling interest and all of that kind of stuff all of that we did not take that benefit to our P&L of that $6 million that youre alluding to but maybe.
And can follow up and John can provide you.
A little bit more detail on that.
Second thing is as it relates to.
Front and blank.
Accounts receivable sorry.
No.
Look I think that while certainly a number of $430 million on free cash flow on a particular quarter is indicative of something that is not necessarily sustainable every single quarter.
And so there could be what I would say some timing associated with that dynamic. It has nothing to do other than the good work that the teams are doing around the globe debt, we've been talking about for the last 2 or 3 years and we really started to see that come to fruition over the 2020 and 2021 years so very.
And proud of the teams are doing a good job. This is ultimately having something to do with some of the focus 2023 work, we're doing on where we're fine tuning and aligning our processes, where people are being able to to get invoices out faster and.
And ultimately more accurate and voices, which is facilitating our ability to collect sooner. So while there certainly is some timing associated with it and still fashion just doing good work collecting sooner and ultimately don't necessarily assume that that happens every single quarter to the next to the extended debt, but we think these.
And the numbers will be sustainable going forward and while there will be blips up and down while we're continuing to work hard to improve on our efficiencies and total working capital.
Your next question comes from the line of proceeding and the Cook.
Credit Suisse and your line is now open hi.
Good morning.
Q2 questions first Kevin on the margins and PPE and Asps were pretty good at 13, 8% I just wanted to get out there with anything.
And that number to help boost the margins or is that just core performance and then share.
And on that on CMS.
Now, what's there and we're thinking about 2022, what's the opportunity here at some point to get those margins more and.
And the double digit range and then my last question on understanding right now youre focusing on deleveraging, but the cash flow is pretty good and.
The net leverage is looking pretty good as we look at 2022.
What point would you feel comfortable doing.
Doing deals again or do you think you have too much on your plate.
And.
How should we be thinking about more opportunities to do deals that would like more debt consulting type acquisitions.
Okay.
Bob talked about at $30 billion is typically higher margin profile and as that plays out.
We'll see given the mix of that what the driver is to margin. Our objective longer term is that our margin profile continues to grow across all of our businesses, including CMS.
Probably getting into a strategic commentary that we're going to wait and hold on relative to our discussion at the end of the year and our Investor day, but ultimately our expectation is that our margins will be able to go up and and all of our businesses and certainly CMS would be included and in.
And that so I think that thats.
1 thing the second 1 so and let me just add the P&C US question, Jamie that you started with US and there is nothing special.
Driven by strong.
Value add strat.
Strategy that we've been talking about.
So nothing to point out there from a <unk> 4 and other than great performance.
On the M&A side that you've talked about clearly, we're very pleased with our cash flow.
And it may prove.
<unk> balance sheet or.
And we're obviously very excited about how fast the start we're off to on the peer consulting and it's proving out what we've talked about as far as high margin high growth business and the significant synergies with our total Jacobs platform.
And so we're going to we're going to finalize our strategic approach as part of this new strategy, we are developing and we will get clarity towards the end of the year.
But clearly the strategic consulting side is going to be 1 of the key components going forward.
Thank you.
And next question comes from the line of Andy Kaplowitz from Citigroup.
Hey, good morning, again, I just want to follow up on the Ta consulting, it's obviously still early and your ownership, but maybe you could talk about how successful so far you've been and bring <unk> into markets, where it has lower penetration such as the U S and how successful and January had been so far and capturing more front end consulting work, because obviously the push towards more front and where it.
And could be a big deal for you guys.
Yes, Andy on the on the on the first part of the question.
I would say we exceeded expectations in the first 3 months of the investment on bringing <unk> into the U S and I'd, probably point more to the private sector.
Net piece.
Traditionally and let's just be even more specific VA traditionally had.
Relationships at.
And the kind of tier 2 tier 3 life sciences clients.
And whether it be med tech and kind of product technology or looking at the digitization of a component of their business such as clinical trials or other types of health information and items honed in on a few.
A few tier 2 or tier 3.
Immediately been able to bring them into the tier 1 ranks and.
And those same offerings at larger scale.
And we're getting penetration on so that's been good.
Big Big piece, secondly, and.
And we're seeing it and the numbers with regards to kind of the percentage of their bookings.
And where those are coming from leading to P&L growth in the out quarters second Big piece and this is this was publicly announced and that we're headed in the script. So.
On the Fuji job.
As we look at how we can continue to deliver next generation type services.
To go faster and quite frankly.
He is working with us on Fuji.
2 to automate our entire.
Our design approach.
It is a it's a great example of the digital skills of being brought into our core domain expertise and.
And moving us up the value chain, so really really strong.
Your next question comes from the line of Steven Fisher from UBS. Your line is now open.
Great. Thanks, and good morning, I apologize I got on the call little late so if you've covered this.
And we can take it offline, but just curious about organic growth and the pace of growth there.
And I think Kevin and.
On the comments.
And the press release, you talked about being set up from maybe Steve.
And for nice structural growth from a number of initiatives over the next several years just curious about the timing of the acceleration that we can see here and your core CMS and <unk> segments.
Do you think we're sort of at that inflection point right. Now is it still and these are fairly longer cycle businesses is it still going to be something that.
It takes place more in 2022, and then you're talking about doubled and EBITDA growth how much of that and.
And of of accelerating revenue growth is still a little color there. Thank you.
So.
Look let me mention a few things we haven't talked about yet with regard to the Q&A as we've talked a lot about what's going on and the U S, but outside of the U S.
Our organic growth.
Activity is clearly ramping up we have a strong pipeline and the UK.
Similar drivers there with infrastructure stimulus and focus on modernization, especially on these.
The rail side of de Carbonization, and we're expanding into Europe with some some new programs on the airport sector and.
And then when we move over to the Middle East.
We're seeing a really good pipeline and organic opportunity and places like Saudi and and.
Across the region and high school.
Rail and.
And also on the defense side as well.
And I'm, assuming the things going on and parts of APAC.
And Australia New Zealand.
Solid pipeline and in Australia, and New Zealand.
Across transportation also the power sector there.
And the whole sustainable solutions so.
Wanted to kind of start with debt when you take a step back and look at Jacobs opportunity to grow organically.
What we see is things are in different phases, clearly, what Bob talked about around electronics and life Sciences, that's going to that's going to be a more rapid.
Ramp up as we get into.
Over the next several quarters because of whats, especially what's going on around semiconductors. When we've talked about this U S infrastructure opportunity.
A bulk of it is going to be programmatic funding and.
And so therefore formulaic funding I should have said and so therefore some of our framework.
The funding will flow will happen with more and sort of ramping up and some of it EBIT and the early parts of 'twenty, 2 but as we get into some of the newer initiatives that the government is focusing on around resilience on energy transition and some of the other digital opportunities some of that will take a few.
Extra quarters.
And that funding will flow to the various agencies and on the critical mission solutions side.
If you look back to our the way Jacobs has unfolded over the last several years it tends to come in.
And certain peaks and.
We are building up this great pipeline, we're very optimistic around the things that we've talked about and then the only question is does it hit next quarter or does it hit a couple of quarters later, but.
And when it comes it's going to have a meaningful impact to R 22, and moving on to 'twenty 3 and beyond.
So overall, we just continue to be very bullish on our ability to grow organically.
Before we even think about deploying capital to on the M&A side.
Okay.
Good question Syndicate discontinued.
Thank you. Okay. Thanks, everyone I appreciate the questions and stay safe and look forward to stay and close with all of you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
And then.
Okay.
And.
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