Q2 2022 Jacobs Engineering Group Inc Earnings Call
Chair and CEO , Steve Dmitry, our President and Chief operating Officer, Bob forgot and President and Chief Financial Officer, Kevin Berryman.
People began by updating the progress we're making against our strategy and then discuss the launch of our climate action plan.
Bob will then review our performance by line of business and Kevin will provide more in depth discussion of our financial metrics as well as a review of our balance sheet.
Cash flow.
Finally, Steve will provide some details on our updated outlook along with some closing remarks, and then we'll open the call for your questions.
Throughout the presentation and in the appendix of this presentation, we provided additional ESG related information.
Sample of our leading ESG solutions with that I'll now pass it over to Steve Dimitrios Chair and CEO . Thank you John and thanks, everyone for joining us today to discuss our second quarter fiscal year 2020 to business performance and an update on our newly launched strategy.
Yeah.
In March we shared the details of our new strategy boldly moving forward, which unleashes a culture of inclusion innovation and inspiration across Jacobs, enabling us to execute against one of the most exciting periods in our company's history.
Our excitement surrounding the new strategy is driven by multiple robust growth opportunities across all lines of business with additional opportunities to accelerate our performance in the areas of climate response consulting and advisory and data solutions.
For those that are new to Jacobs, we are a professional services company that combines deep technical knowledge across a variety of scientific engineering and technology disciplines with cutting edge proprietary solutions.
We serve a diverse set of sectors and global clients that are navigating the need to modernize their infrastructure and supply chain.
<unk> National Securities, while embarking upon multi year digital transformation across all facets of their operational environments.
This dynamic creates a compelling opportunity for decades of growth for Jacobs by staying true to our values and purpose. We are a company like no. Other reinventing the way, we solve problems and shaping the next generation of innovative solutions for our clients.
During the quarter net revenue grew 10% year over year with growth across each line of business.
Bookings were strong across the company, resulting in a revenue backlog up 9% year over year with an improving gross profit profile.
We were awarded a record level of higher margin professional services and people and places solutions, including several strategic wins developing grants that will enable our clients to access funds from the U S infrastructure and jobs Act as well as an increasing number of larger opportunities entering our sales pipeline.
Critical mission solutions benefited from the large space intelligence, when we disclosed last quarter NPA consulting had another outstanding quarter with 15% reported year over year revenue growth and 19% growth in constant currency, while delivering adjusted operating profit margin of 23%.
Our advanced facilities business continues to achieve record year over year growth rates driven by wins in the semiconductor and life Sciences and electric vehicle sector.
Given our increased visibility and confidence for the remainder of the year. We are tightening our fiscal 2022, adjusted EBITDA and adjusted EPS outlook with no change to the midpoint.
Looking beyond 2022, we continue to expect strong organic growth with healthy cash flow conversion that affords us the ability to deploy capital for enhanced value creation.
Turning to slide five.
As we outlined during our new strategy launch we are a purpose led company with deep domain knowledge and a track record of delivering solutions to combat the global <unk>.
Climate crisis.
With this sense of urgency top of mind, we have made significant achievements, both internally and externally.
With approximately $6 billion in revenue driven from ESG and climate related solutions.
We're playing a pivotal role in mitigating one of our generation's greatest threats.
Working with our clients, we are co creating solutions in energy transition de carbonization adaptation resilience natural resource stewardship, and ESG business transformation.
Similarly, we have delivered on our corporate commitments through our significant emissions reductions in carbon neutrality status.
And in April we took another major step and launched our updated climate action plan to align our net zero commitments with the new recognized international standards.
Our ambitious commitments include ensuring every client project, we undertake becomes a client response opportunity achieve.
Achieving net zero emissions across our value chain by 2040, and maintaining carbon neutrality with a 100% low carbon electricity for our operations.
I'm also proud to share that we are one of the world's first companies in the first consultancy organization to have validated net zero targets approved by our science based targets submission.
With that I'll turn it over to Bob <unk> provide more detail by line of business.
Thank you Steve moving on to slide six to review critical mission solutions. The CMS business continued its strong backlog performance in the second quarter, increasing 8% on a pro forma basis to $10 6 billion.
Our <unk> strategy is focused on creating resilient revenue growth and margin expansion by offering technology enabled solutions aligned to critical national priorities. This.
This strategy is underpinned by our focus on key capabilities tied to our growth accelerators.
<unk> cyber solutions climate response, and consulting and advisory across our core customer market of National security space and energy.
Three market trends that we are seeing offerings continued strong growth. This year and beyond include all source intelligence energy transition and space exploration.
Beginning with all sorts of intelligence.
The increasing intelligence threat levels required analytic to utilize and coordinate multiple sources.
Including human signal open source, geospatial and measurement and signature to allow for better real time decision, making.
All source intelligence offerings are advancing to include specialized collection management visualization and elimination as a service aligned to specific threats like drug trafficking organized crime and threat financed.
Jacob Cyber and intelligence business has a full spectrum of all source intelligence solution to guide our national security clients through these increasingly sophisticated digital correct.
In the second quarter Jacobs won the U S Army intelligence operations support contract to provide comprehensive 24 by seven all source intelligence analysis to the Army's joint Task Force.
Baton command and service component commands.
Also we were awarded a seat on the Dod joint artificial intelligence center data and readiness for AI development, which encompasses all tasks required to prepare manage and secure datasets and Vod AI models and assist that SEC ops.
Moving on to energy transition.
Nuclear energy along with renewables are critical components of the global energy portfolio to transition economies away from fossil fuel.
There is now a growing recognition that to achieve net zero. We must include the always on emission free generation that only nuclear power can provide ever.
Every year nuclear power of Virtu gigaton of carbon dioxide emissions equivalent to the annual emissions of more than 217 million cars.
Power generated from nuclear provides stability and resilience to electrical grid due to its unique ability to ensure 24 by seven energy supply regardless of weather conditions.
And Jacobs is well positioned as a leader in delivering global nuclear solutions.
We were recently awarded a contract by EDF energy operator of the size will be nuclear Pan located in Suffolk UK to support the extension of the stations operating life by 20 years to $2 65.
Another aspect of our nuclear science expertise is our strong remediation capabilities. Our environmental team has successfully faced and the Idaho cleanup project at the Idaho National Laboratory.
And one of the Oak Ridge reservation contract to perform environmental remediation work for the department of energy in Eastern Tennessee.
Finally demand for space exploration.
In bond Bacon supported NASA in rolling out the fully integrated space launch system for the Artemis One mission with.
With launch to occur this summer.
Artemis one will be the first on crude flight mission and Nasa's deep space Human exploration program. The Artemis program aims to return humans to the Moon by 2025, including the first woman and first person of color.
Also for NASA, we were recently awarded the NASA Ames test operations and maintenance contract the fifth consecutive victory for Jacobs on this contract, which we originally one in 1998.
This five year $220 million win we'll book in Q3, but highlights the continuing and strong massive Jacobs partnership.
This quarter Jacobs, who was also awarded a contract from Australia Department of defense space demand to support the implementation of new space capabilities and deep space advanced radar ground based electro optical deep.
Deep space surveillance and space control.
In summary, we continued to see solid demand for our solutions in the second half of 2022 and beyond the CMS sales pipeline remains robust with the next 18 months qualified new business at more than 25 billion, including $15 billion in source selection with an expanding margin profile.
Now onto slide eight ill discuss our people in place and solutions business.
Our strategy has been actualized in real time with strong quarter backlog performance at 9% growth, while building sales momentum across multiple markets and geographies specifically in our advanced manufacturing health and life Sciences and U S infrastructure markets I will discuss the <unk> results under the themes of supply chain.
Diversification.
<unk> response data solutions and infrastructure modernization start.
Starting with supply chain diversification.
We continue to respond to increasing demand and supply chain realignment that secured supply for health and life Sciences and semiconductor manufacturing.
For example, we're seeing an expansion of both organic and contract manufacturing for life Sciences capacity in the U S Ireland and Denmark.
And in Singapore, we are bringing a world class team of clinical specialists and facility experts to re <unk> re imagined sustainable patient centered care models for expanded facility at Alexandra Hospital.
To address the global semiconductor shortage Jacobsen, leveraging global resources expertise and design automation to deliver critical capacity expansion for multiple semiconductor manufacturing clients in the U S and Europe .
In a related industry Jacobs is working with clients in all phases of the electric vehicle ecosystem implementing state of the art facilities that co locate lithium ion battery and electrical electric vehicle production to improve system delays and resilience.
Across geographies alternative fuel planning continues to drive investment for transportation agencies with recent awards for Michigan, and Nevada to unlock U S infrastructure Act funding.
Moving to climate response.
Jacobs remains on the forefront of advising our clients on true carbon impact in areas ranging from biodegradable materials with an award from nature works too.
<unk> embodied carbon calculations with a recent study for a major data center clients.
We are seeing material pipeline growth in our climate response, and energy transition portfolio as evidenced by wins with national grid in the U K to deliver innovative clean energy transmission.
Wind farm in Australia.
Large coastal resiliency programs in Louisiana and in offshore wind projects in the northeastern United States to convert convert an underutilized port to support one of the largest most advanced offshore wind facilities in the country.
In addition, our innovation investments and <unk> solutions have resulted in an award for its first of its kind program to study nature based remediation options at more than 35 airports across Australia.
Moving to data solutions.
Our deep domain expertise combined with our digital platforms bring world class technology enabled solutions to our clients.
Our recent acquisition Streetlight is working with Siemens and New York State to forecast impacts of renewables and EV charging infrastructure the planned strategic investment upgrades.
In the U K Jacobs NPA consulting are transporting Hampshire with multi sector digitally enabled solutions to support economic growth social equity and environmental protection.
Additionally, we've had an exciting new wins for smart connected and secure infrastructure with national highways and confidential manufacturing clients.
Now discussing infrastructure modernization.
Faced with aging infrastructure and financial and social equity challenges Jacobs is helping our clients re imagine infrastructure in.
In Melbourne, our delivery excellence resulted in a renewed contract with Yarra valley water, representing up to 18 years of partnership.
In Los Angeles, we are expanding our legacy of being a trusted advisor to the department of water and power by delivering a $17 billion Master plan development for water reuse facilities.
And for the Port of Alaska, We were recently awarded a contract extension to create a safer more efficient and resilient port with coastal protection.
This quarter, we saw significant growth in rail and transit with two clients are awarding Jacobs third largest expansion ever.
This includes an underground rail line in Singapore, and New York Metropolitan Transit Transportation Authority leveraging of the U S infrastructure Act to strengthen the regional rail system and equity bridge community.
We also expanded our portfolio in Continental Europe , and partnership with neurologists with two eight year framework agreements for the Copenhagen Metro and the greater Copenhagen light rail overall.
Overall, we are seeing double digit pipeline growth that is strengthening due to global infrastructure stimulus across transportation water energy and environment as well as advanced manufacturing.
Turning to consulting on slide eight as Steve mentioned <unk> had another impressive quarter.
They are unique digital consultancy services enables clients to accelerate new growth ideas from concept through to commercial success.
This allows us to capitalize quickly and efficiently on global trends and growth markets, such as climate response, and health and life Sciences.
Specifically in the health market continues to use its skills as a force for good and is currently advising the American college of emergency physicians on how to build and operate a first of its kind national registry.
This next generation digital platform will transform health care for the nations infants children adolescence and young adults.
Focusing on climate response, there are two examples which demonstrate the breadth of <unk> capabilities to.
First is for the UK government, where PAA provided consultancy services for a launch of a new infrastructure fund to drive the rollout of electric vehicle charging infrastructure across the country.
Secondly, ta and the Swedish R&D and IP company pull pack continue to accelerate the exclusive global development partnership for the Revolutionary patented technology.
<unk> uses renewable pulp and cellulose to produce fiber based packaging and single use products as an alternative to plastics, creating up to 80% lower Cotwo sprint.
The partnership recorded three strategic confidential wins this quarter and have developed a solid go to market plan through the United States.
It is evident from all of these examples the PAA continues to be a crucial part of our strategy with their alignment to Jacobs three growth accelerators.
Had the privilege of joining the one year consulting and Jacobs celebratory Roadshow last month attending sessions at six different offices in four different countries.
So <unk> and I met over 1300 employees with extremely positive feedback we continue to build on collective success. During our first year and I look forward to continued collaborative successes for our clients and the world.
Now I'll turn it over to Kevin to discuss our financial results.
Okay.
Thank you Bob and good day to all that are joining us on the call today I'd like to turn to slide 10 for a financial overview of our second quarter fiscal 2022 results.
Second quarter gross revenue grew 8% year over year, although net revenue grew 10% and was up 3% pro forma for acquired revenue.
Currency negatively impacted revenue growth by approximately 150 basis points and given current spot FX rates, we expect FX pressure to continue for the remainder of the year.
Exiting Q2, we fully lap the impact from the lower margin CMS procurement contract and the timing difference between our two large environmental remediation contracts for.
For the second half of the fiscal year, we expect total net revenue growth in the mid to high single digits.
Adjusted gross margin in the quarter as a percentage of net revenue was 26, 6% up 80 basis points driven by improvement in people and places <unk> improved mix impact parse.
Partially offset by the revenue ramp from the large new environmental remediation project, Glenn and CMS looking.
Looking past 2022, as we execute against our strategy to drive a higher technology and consulting revenue mix, we expect our gross margins to continue to expand.
Adjusted G&A as a percentage of net revenue was up year over year to 16, 5% down slightly from our first quarter.
Within G&A, we are making investments to prepare for the increase and opportunities from the recently passed U S infrastructure stimulus as well as other investments to improve the efficiency of dentists, who are focused 2023 initiatives.
We expect our G&A as a percentage of revenue to trend lower for the remainder of the fiscal year.
GAAP operating profit was $166 million and was mainly impacted by a $99 million charge associated with the legacy <unk> matter, we disclosed in April and other related legal costs.
Also included in GAAP operating profit was $48 million of amortization costs from acquired intangibles.
Other acquisition deal costs, and restructuring efforts were $18 million with around half related to acquisition related costs.
Adjusted operating profit was $332 million up 7% year over year and down slightly on a pro forma basis.
Our adjusted operating profit to net revenue was 10, 1%.
GAAP EPS from continuing operations was 68 per share and included.
63, <unk> charge related to the settlement of the previously mentioned legacy <unk> matter and related legal costs.
<unk> 25 impact related to our amortization charge of acquired intangibles.
<unk> <unk> of transaction and other restructuring costs, which continue to trend significantly lower.
And a 7% impact from a higher tax rate in the quarter versus our expected rate for the full year <unk>.
Excluding these items second quarter adjusted EPS was $1 72.
Jacobs consolidated Q2, adjusted EBITDA was $340 million and was up nearly 3% year over year and represented 10, 4% of net revenue.
Finally, turning to our bookings during the quarter. The revenue book to Bill ratio was just under one at <unk> 94 times, but was 112 on a gross profit basis as we saw a continued increase in profitability and our backlog.
Yeah.
Regarding our <unk> performance, let's turn to slide 11.
Starting with CMS Q2 revenue was up 4% year over year and up 3% on a pro forma basis.
<unk> negatively impacted growth by nearly 100 basis points.
During the quarter CMS revenue growth lapped the impact from the contract run offs of a low lower margin large procurement contract and benefited from the timing of our large environmental remediation win at Idaho.
As a result, we expect CMS revenue to show double digit second half 2022 revenue growth driven by strong performance in space and intelligence from our recent large New award.
Continued increase from the large environmental contracts to its expected full run rate.
Accelerating performance in our telecom business, driven by our strategic relationships with <unk> providers.
And cyber and Intel awards delayed during the continuing resolution beginning to ramp.
Q2, CMS operating profit was $113 million down 1%.
Operating.
Operating profit margin was down approximately 40 basis points year over year to eight 3% as.
As expected operating margins were impacted by the ramp up of our large environmental remediation win and the delay of the higher margin shorter cycle awards that were pushed to the right to the continuing resolution.
We expect operating profit margin to trend slightly above Q2 levels for the remainder of fiscal 2022.
Moving to people in places Q2 net.
Revenue was up two 8% year over year and was negatively impacted by 150 basis points from foreign exchange.
Our advanced facilities business <unk> net revenue growth again was up double digits year over year, driven by investments in the semi conductor and pharma supply chains. We expect continued robust growth from advanced facilities throughout fiscal 2022.
Our international business also had strong Q2 year over year growth. Despite the impact from currency determined by more steady government funding for the second half of fiscal 2022, we expect net revenue growth from our national business to moderate with pressure from the unfavorable impact of FX.
Moving to people in places Americas net revenue growth in Q2 improved from Q1, driven by front end work related to the infrastructure stimulus, we're seeing the benefit from the budget resolution a meaningful build in our 12 to 18 month pipeline from the infrastructure stimulus projects.
Our second quarter gross margin bookings and pipeline provides us confidence in sequential gross profit growth in the second half of fiscal 2022 versus the first half.
Total PMT, yes, Q2 gross profit gross profit grew year over year, but Q2 operating profit was down year over year, driven by increased G&A expenses as we continued to spend against strategic investments that position us for the projected acceleration in our business longer.
Term.
In terms of <unk> performance.
Contributed $297 million in revenue and $68 million in operating profit for the quarter Q2 revenue grew 15% year over year in U S dollars and 19% in constant currency.
Q2, adjusted operating profit margin was 23%.
As a quick reminder, PAA grew revenue in constant currency, 24% year over year for fiscal <unk>.
Fiscal year, 2021, and delivered a 23% operating profit margin, thus, making year to date revenue and margin performance even more impressive.
Our non allocated corporate expenses were $41 million.
Up year over year and within our expectations as medical costs moderated we now expect our non allocated corporate costs to be at the lower end of our premium previously communicated range of $200 million to $250 million for fiscal 2022.
Let's turn now to slide 13 to discuss our cash flow and balance sheet.
We had another quarter of solid cash flow generation with $96 million in reported free cash flow.
This was in line with our expectations given the timing of <unk> employee tax related costs associated with our annual bonus payments and the networking capital impact of discrete items, which effectively offset each other.
<unk> ticked up modestly year over year, driven by the timing of new CMS wins and the ramp of the large environment, Idaho wind in our CMS line of business.
<unk> cash flow included a net $40 million cash benefit related to monetizing and Australian dollar FX had related to the <unk>.
<unk> legal matter settlement, partially offset by cash restructuring.
To date since March we have repurchased approximately $135 million of our shares as we have said before we will remain agile and opportunistically repurchase our shares.
Next quarter, we expect free cash flow to be affected by the gross cash settlement of the CH two unrelated legal matter of $480 million with nearly $100 million in cash cash tax benefits, partially offsetting that amount over the next few quarters.
Adjusting for the impact of the legal settlement other restructuring items, we remain on track toward achieving our one times free cash flow conversion to adjusted net income target and expect similar or better free cash flow conversion going forward.
As a result of the strong cash flow, we ended the quarter with cash of $1 $2 billion and a gross debt of $3 2 billion.
Resulting in $2 billion of net debt.
Pro forma for the legal settlement and including our estimated second half cash flow. We expect Q4 net debt to adjusted 2022 EBITDA of approximately one five times a clear indication of the continued strength of our balance sheet and our cash flow.
Finally, given our strong balance sheet and free cash flow, we remain committed to our quarterly dividend, which we recently announced now I'll turn it back over to Steve for Slide 14, Thank you Kevin.
Our diverse portfolio has proven resilient, providing us the ability to grow under multiple economic scenarios with an asset light business model and the ability to manage pricing during an inflationary environment.
Given our increased visibility and confidence for fiscal 2022, we are tightening our outlook and maintaining the midpoint guidance, we expect adjusted EBITDA to be in the range of $1 385 to $1 435 billion.
From the $1 37 to $1 45 billion previous guidance.
And our adjusted EPS outlook is now in the range of $6 95 to 735 from 685 to sub 45 previously.
Looking past fiscal 2022, our backlog performance and increasing sales pipeline provides us with the continued conviction in achieving the multi year financial growth targets. We provided during our March strategy launch.
Operator, we will now open the call for questions.
Thank you and as a reminder, that is star one to ask a question I'll I'll pause for a moment to compile listen winning roster.
Okay.
And our first question will come from Jerry Revich with Goldman Sachs.
Hi. This is hi, this is Adam on for Jerry Good morning on your own.
Hello can you hear me.
Sure.
Yes.
Yes.
Okay.
Hello.
Yes.
Switching over to another line in case you comparison.
Yes.
Okay.
That line. So can you repeat the question please.
Hi, This is Adam on for Joe can you hear me.
We can hear you.
Thanks for taking my question can you just talk about how youre thinking about recent FX movements in context of the guidance.
Yes.
Thanks for the question, it's a good one as we've seen actually over the last week.
It can change and in certain of the foreign exchange rates specifically in pound Sterling.
Do think that there is some incremental <unk>.
<unk> in the second half relative to the.
Potential associated with that probably five plus but it's almost in the range of being able to offset that with other things going on in our <unk>.
Our guidance for the year.
So as we think about going forward certainly there is an incremental risk profile thats developed over the last couple of days.
But effectively we're still holding to the guidance at this point in time, and we'll obviously be monitoring that on an ongoing basis.
Thanks, that's helpful. And then in your strategy update you laid out expectations for PAA consulting revenues to grow 12% to 15% CAGR through 2024, but with margins flat as it is.
Assumption for flat margins, the result of changing geographic mix and then.
And once we get a steady mix how should we think about margin expansion in this business.
I think that.
That there is a couple of things going on as it relates to the mix dynamic.
As we have said in the past the incremental strength of that business, even over and above kind of what the plans have been both in our deal model and for the team at <unk>.
<unk> been running at very very high utilization factors, which we don't believe is sustainable longer term. So.
So it's really more about getting back to a utilization rate, that's probably more sustainable longer term, which mitigates upward trends in gross gross margin and profitability.
That ultimately that level of profitability is being held longer term just because of the incremental costs.
Strength of the margin profile of the new business coming in so.
All in all while it's a flat margin outlook, it's a really strong underlying because they are actually increasing or decreasing their utilization factors, which has been offset by underlying gross margin improvements in the business.
Great. Thanks, so much.
Our next question will come from Bert <unk> with Stifel.
Please go ahead.
Okay.
Good morning.
Bob in your prepared remarks, you mentioned semi and <unk> Capex is rising cost the industry I think that comes as no surprise to anyone.
Or are you thinking about the growth progression of advanced facilities as you sort of March towards your $10 EPS target.
Strong I think that.
Right now you know that business.
Anywhere from a 12 to 18 months kind of look forward, sometimes six for the first time in a long time for us being in that space, we're seeing visibility from a pipeline perspective, well into 'twenty three and in certain cases in the 'twenty four so in this in this strategy cycle.
It will play.
They deploy a material part.
Yeah.
And our next question will come from Michael Dudas with vertical research.
Please go ahead.
Good morning, gentlemen.
Good morning.
Good morning.
Maybe for Randy <unk>.
Intrigued about couple of things one could you discuss maybe Bob the pipeline.
You mentioned in the prepared remarks, a $25 billion 15 billion on the CMS side, maybe a little more.
Discussion on the pipeline opportunities you mentioned, just now against facilities, but other areas and is it.
Kate some more international exposure that could be supportive in addition to what <unk> will provide and Kevin.
Book to Bill on the margin of 112 is an interesting data point, how does that compare and how is that trend and as we think about bookings, but better margins into that backlog to over the next several quarters.
Hey, Bob Kevin you want go first.
I'll pick it up there it's Steve so.
Look as far as the.
Moving to the other.
Kevin talked about as far as <unk> goes.
As Bob said, we're going to see continued strengthen defense facilities moving through the rest of this year and in total the next few years.
And then on the backs of that.
To start to see the Americas business ramp up we're already seeing the pipeline significantly increase.
We'll start to see sequential growth in the second half of this year.
U S.
We expect that to really start to ramp up more significantly as we enter 2023.
As far as the infrastructure stimulus that incremental $550 billion a month.
That is going to flow into the U S.
About close to 100 billion, though has been specifically earmarked for defined programs and projects, we're tracking that and obviously you have the front end of it.
Process early on a lot of that is going to be formulaic.
So that should.
Start to flow nicely as we enter 2023.
And then our federal infrastructure business and environmental.
Because of a lot of the dynamics going on globally.
It really be also.
As something Thats going to help drive growth.
On the critical mission solutions, what's what's really playing out nicely as the diversity of our portfolio right now we're seeing a lot of strength of telecom, obviously the space intelligence on the backs of that classified win.
Cyber and intelligence is going to start to ramp up now as the continuing resolution.
Finalized.
And.
And the ramp up of our nuclear business is robust.
We have excellent pipeline of opportunities that should start to hit that.
Finish up this year and roll into 2023 so.
We're pretty excited about.
The prospects of the second half and especially as we move into 'twenty, three and beyond as far as that gross profit.
Book to Bill R. R.
So the bookings in the last quarter specifically.
More significant in margin because of a higher professional services ratio and so what we are seeing is.
Increasing book to Bill.
On our gross profit as you outlined.
But we're pretty excited about that going forward.
And next we have a question from Sean Eastman with Keybanc.
Please go ahead.
Good morning team thanks for taking my questions.
So Kevin I heard a very clear topline growth outlook for CMS in the second half, but I am not sure I heard one for PPS I'm. Just curious is there still some variability there.
Keeps you from putting some bumpers on the bps trajectory into the second half I guess, what im really trying to get at is that.
All in sort of exit growth rate as we're going into 2023, so any any color or perspective, you can provide around that would be very helpful.
I must say that the dynamic associated with calling out the CMS is really because of the strong growth that.
That we're seeing in the second half of the year with CMS wanted to make sure that we called that out it's not our editorial comment on lack of growth and people in place. We do believe sequentially, we're going to be able to see some growth as we get into into Q3, and when you compare to the year ago figure that means an accelerated level of growth as as.
Well, so look it's not necessarily at the double digit figures that we were talking about <unk> and CMS.
We see sequential growth and in third quarter versus second quarter, even stronger in Q4 versus Q3. So we think we're getting positioned for a strong Q2 excuse me 2023 as a result of that so look I think what's really attribute to the to the teams here is that great work that our program management office is.
Filling in and really highlighting and helping to sort out.
The incremental monies that are going to be coming into play for the <unk>.
Infrastructure Bill.
And helping our customers figure out when that's going to hit and where they are going to be able to gain access and I think that's going a long way for us to start to identify that longer term builds on our in our infrastructure pipeline. So we're feeling pretty good about it.
And just one other point about PPS.
As we look at sequentially moving into the third and fourth quarter is that a margin profile is going to improve.
The G&A that we pre invested that Kevin talked about that held down our margins in the second quarter.
We're going to start to see a significant change in the utilization of that G&A, that's going to give us.
A much better profile in the second half on our margin.
And our next question will come from Chad Dillard with bank loan.
Go ahead.
Hi, Good morning, everyone. This is Brandon on for Chad can you. Please give some more color on the volume of new inquiries on the infrastructure design side, how has that picked up year over year and when do you think this activity will peak over the next few years.
Bobby.
Sure, Yes, I did so incrementally.
Incrementally when you look at it from a Q2 to Q2 standpoint, 'twenty one to 'twenty two.
But if you look at the bookings profile of what we accomplished in Q2.
And how those jobs burn over the course of the next two to three quarters. It is a unique inflection point that we're seeing in the business and those are on the front end studies and on some of these.
More more lumpy jobs that were actually.
Already in the planning mode and now when the PR was approved and.
Monies were available these were the immediate recipients of these jobs, which are going to.
Really hone in on that on the design components. So we're actually feeling good outside of the U S.
We are seeing some of the biggest rail and transit opportunities haven't booked them yet, but we are in the middle of them that we have in quite a bit quite a quite a long time, specifically in the UK and in Australia. So overall positive.
And our next question will come from Steven Fisher with UBS. Please go ahead.
Thanks, Good morning.
You narrow your range and that suggests more confidence in your outlook in general.
I guess I'm wondering what you see as still the biggest areas of uncertainties.
And more typically with Jacobs, we would expect kind of still some upside potential.
On the upper end of the range, so by taking that down I'm wondering if.
There are other things that that we should be considering here.
Just sort of upside scenarios and.
In downside scenarios.
Yes.
Obviously.
We are raising the bottom was the indication.
The more confidence the top side I would say is.
Is what's on our mind is the.
The FX <unk>.
That's out there specifically.
And just.
A question of when.
All of this.
That'll political activity geopolitical activity.
Our projects and programs are going to get across the finish line.
And get awarded.
Sure.
We're confident that.
There is no concern about anything getting canceled its really more around just the timing of how things unfold in the second half and so that's where we sort of.
Decided to keep our mid point, where it is in spite of a strong second quarter.
Okay.
And our next question will come from Fahad, <unk> with RBC capital markets.
Please go ahead.
Great. Thanks, and good morning, just a commentary around the strategic investments ahead of the infrastructure Bill can you maybe talk about.
Where in the lifecycle of those investments you or is this something that's going to continue until you sort of a full run rate contribution from the bill and just the second part in terms of the indicated there is some gains coming in from the U S. J how are those coming in relative to what you would've expected at this point and the timeline.
Let me go first and certainly address the strategic.
<unk> investments.
We have <unk>.
<unk> support and focus 2023 initiatives, which are substantive this year specifically in law, depending upon how the.
The program going forward will be less into the future.
More substantive this year specifically.
I think the biggest number though in terms of the investments really are people related.
Because we're building up our employee head count.
Specifically relative to be able to satisfy the developing pipeline. That's that's fair and ultimately when that translates into our backlog and starts to burn the need to make sure. We're ahead of the current events.
It relates to being a fee.
Being able to deliver the high quality and strategic value added solutions that we provide to our clients. So that's the single biggest so as we start to get that momentum build we have Chad we've talked about sequential growth in people in places and CMS.
When you have.
A particular part of our teams, which are occupied 50% of the time versus 85% of the time that that idle time ultimately is charged to our G&A figure. So as we start to ramp that G&A numbers are going to come those G&A numbers come down profitability goes up and fundamentally that's the single biggest investment.
We're making this in terms of the people.
And our next question will come from Andy Wittmann with Baird. Please.
Please go ahead.
Great. Thanks for taking my questions I guess for Kevin.
Want to ask about the adjusted unallocated corporate expense.
Comments that you had here in the prepared remarks, I guess, you said you're going to be at the lower end of the $200 million to $250 million range.
I guess in the quarter came in at $41 million had been running in the mid Fifty's. The guidance you decided it implies that the last two quarters of the year I'm going to be around 50, each if it's the very low end and so that implies that something unique happened in the in this fiscal second quarter. I was wondering if you could discuss what that was that made it so low and the SEC.
Quarter.
If you could also talk a little bit more.
Excuse me about the.
The tax rate in the quarter.
<unk> you.
Called out there, but what was that related to it sounded like.
Your tax rates can be higher as it was this an adjustment only for this year or was this for prior period outside of this year as to why that sort of incentives called out.
Now let.
Let me go to the G&A first and talk about that really is a matter of timing as to when we're making the investments as opposed to one where not.
So think about it really from a timing perspective.
In terms of the management of our programs and we don't pre spend when we don't need to so to ultimately think about it from a timing.
Perspective, that's really all it is Andy as it relates to the the other issue on tax but effectively as we've talked about in the past beginning last year. We took two on our adjusted tax rate just to book to what our expected effective tax rate has been the beef of the year and then.
Of course, our GAAP rate fluctuates around that either plus or minus relative to that so really this is just an adjustment to get them back to split that effective tax rate is going to be on an adjusted basis for the full for the full year until which time, we think that number is different we will always book to that adjusted figure.
In the quarter. So that really is all it is and it's just the difference between.
The GAAP and the adjusted.
Figure that we expect for the full year hopefully that's clear.
And we have a follow up from Brian .
Paul.
Yes, no. Thanks. Thanks, so much for the follow up I, just got cut off earlier I had a quick clarification question for Bob.
On the advanced facilities commentary.
Visibility you mentioned sort of being more extended is that the result of just what we're seeing on the semiconductor capex side or are you also starting to starting to see a step function change on the <unk> and biotech side. Thanks again for the question.
Yes, Bert it's both.
Semiconductor side.
It's really it's kind of the concentration of clients that we have and those clients being on the forefront of the chip shortage.
And as well as one of those clients that we've talked about before also changing a bit of a business model.
To become more of a foundry so that's that's extending out that visibility.
From an EV perspective, the biggest one is one that's driving some of that visibility and the spend that that company is going through but these metrics the classic Oems affords the gms, but we're seeing kind of this next generation of EV providers.
Come into play, which is giving us greater visibility to.
'twenty three and beyond so we're getting that information from our clients.
Not necessarily exclusively market data.
Okay.
And our next question will come from Andy Kaplowitz with Citi.
Please go ahead.
Everyone.
Good morning.
I think all but Kevin maybe you could give us a little more color into the double digit growth forecast for CMS in the second half of the year, which I think is better than it sounds of your government services peers, obviously, we know about Idaho ramping up and some of the recent wins and how much of cyber helping for instance, I think you mentioned telecom ramping up in one of your peers suggested spaces, a little sluggish right now, but it doesn't.
Seemed like that for you.
Well look as I outlined in our in our previous remarks earlier in the call and yes look I think there is a.
Welcome to the things is a little bit of incremental revenue, we will see from the ramp on that on the Idaho project. That's not the driver. That's that's ultimately a small piece of it.
Really is.
The incremental space Intel.
Intelligence business, that's starting to burn relative to the win that we announced I think it was last quarter.
And that's going to be helping drive some incremental growth.
And then of course.
We also are seeing good cyber security ramp in terms of the <unk>.
Continuing resolution was was putting pressure as it relates to that that opportunity. So those are all positives as it relates to that and telecom, while it's not a huge part of our business.
It is a high growth business, that's occurring given that.
Focus on the <unk>. So so all of that added together I think.
Exhibits the power of the diversity of the portfolio within CMS and.
And so we're excited about getting back to some really strong growth numbers in Q3, and Q4 and and.
We've been calling calling out that we expected it to happen and now it is going to be happening.
And our next question will come from Jamie Cook with credit Suisse.
Please go ahead hi.
Hi, Good morning, Amin apologize I'm managing to a short call, but we're getting lots of questions from investors on just which which business models would be more resilient during a potential recession given the macro concerns out there. So can you just help me understand which parts of your business would be more resilient sort of on the top.
And the margin side and to what degree do you know some of the restructuring and cost cutting actions help you.
And it's.
<unk> consulting outperformed.
In prior downturns and then Kevin My other question just.
I'm sorry, if you ask.
If someone ask that she then I can just go back.
To what degree.
What are you thinking right now in terms of preference for.
Repo versus acquisition I know you did buy back stock in the corner, but any help there. Thanks.
So let me start with the resilience, let's turn it over to Kevin.
Capital deployment question, but.
Look we we've spent a lot of time on this Jamie as you know and we believe we've really positioned our portfolio going forward to be even more resilient Jacobs in the past, which had a good resilient track record.
Clearly leading that is going to be the infrastructure side.
With the fact that as we get into potential uncertainty economic.
Sluggishness that governments around the world, especially in the U S. We're going to look to stimulate the economy and create jobs with infrastructure.
On top of that we've got the <unk>.
And so we're pretty positive about the momentum on that in the backlog the pipeline that's building and Thats going to play out and then of course, we have.
What's going on with the whole geopolitical side.
Increased needs around defense spending.
Cyber protection of critical infrastructure.
Around the world and so that's going to bode well for resiliency on our critical mission solutions and uneven and the advanced facilities business, which.
Could be historically impacted by economic slowdown with the dynamics of.
Hey, chip shortage, which is going to continue even in some economic.
We have a downturn and the need to pent up demand on life Sciences because of all the focus on the pandemic.
And the energy transition that has to happen we feel we feel pretty good about where Jacobs stands.
Uncertain environment going forward that one on the capital deployment.
Yes.
Thanks, Jamie for the question.
We like the investment in the shares at this at this current time.
But that doesn't mean that there arent.
A list of opportunities on the M&A side that could potentially be executed against.
The recent large settlement that we will be paying out in relative to the impacts will probably not doing any large.
Large deals at this particular point in time, but certainly given the dislocation in our share price over the last few months. So we like that investment so I think <unk>.
Certainly repos or are in the mix and probably.
Maybe some smaller acquisitions.
And that will conclude the question and answer session I would now like to turn the call back to Steve Cohen CEO for any closing remarks.
Thanks, everyone for your attention and focus and we look forward to talking to you next quarter. Thank you.
And that will conclude today's conference. Thank you for your participation and you may now disconnect.
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