Q3 2022 Jacobs Engineering Group Inc Earnings Call
Again by reviewing our third quarter results and then discuss our Jacobs and <unk> are accelerating positive social impact.
Rob will then review our performance by line of business, Ken will provide an update on consulting and Kevin will provide a more in depth discussion of our financial metrics as well as a review of our balance sheet and cash flow.
Finally, Steve will provide details on our updated outlook along with some closing remarks, and then we'll open the call for your questions and.
In the appendix of this presentation, we will provide additional ESG related information, including examples of our leading ESG solutions with that I will now pass it over to Steve Demetriou Chair and CEO .
Alright, Thank you for joining us today to discuss our third quarter fiscal year 2020 to business performance and our near term outlook. We're excited to be conducting today's call from Ta consulting offices in London, and I'll provide more color in just a moment on our strong early on success of our investment in <unk>.
But first turning to slide four and.
At Jacobs the combination of our proactive approach to strategic portfolio management and driving a high performance culture has created a top quality business with substantial recurring revenue that's resilient during a variety of macroeconomic conditions.
This is complemented by our focus on secular growth in the areas of climate response consulting and advisory and data solutions.
Our competitive advantage is based on strength staying true to our values, we harness our deep technical expertise to reinvent the way, we solve problems and shape. The next generation of innovative solutions for our clients.
As I shift to the quarterly results were clearly seeing strong underlying trends and accelerated growth of Jacobs.
From the velocity of our sales pipeline.
Major wins that we'll talk about today and next quarter to increasing trends in utilization we're.
We're positioned for strong profitable growth going forward.
During the quarter net revenue grew 8% year over year and double digit on a constant currency basis with growth across each line of business more importantly bookings were strong across the company, resulting in revenue backlog up 10% year over year and actually up 13%.
In constant currency, we saw continued strong performance in our advanced facilities business as demonstrated by our 25% year over year topline growth and an acceleration in <unk> bookings during the quarter within our Americas business driven by awards related to the U S infrastructure modernization.
Within critical mission solutions, we were awarded a strategic three 9 billion NASA Johnson 10 year rebid significantly larger than our existing contract and which will be added to our backlog in the fourth quarter.
This is one of many long term recurring contracts that provide revenue visibility for the business.
On a constant currency basis Ta consulting continued to show strong growth with revenue up 22% and backlog up 19% year over year.
The strong visibility of our diverse business with upside from secular growth trends combined with robust cash flow generation affords us the ability to generate returns for our shareholders through times of economic uncertainty.
Now turning to slide five.
At this time two years ago in the height of the pandemic, we were zeroing in on the PAA consulting transaction.
Ta is significantly exceeding our financial expectations and revenue synergies are accelerating.
Results were strong across all key performance indicators.
And culture and talent the number of partners has increased more than 20% since the transaction closed.
With additional key hires across operations research technology and sales.
Further strengthening <unk> capabilities and client solutions.
And very exciting as they are women in leadership program with the current leadership team now at 50% female.
Financial performance continued strong with a weighted pipeline up more than 40% compared to the prior year fiscal year to date revenues are up 20% in constant currency with an operating margin of 21%, which is an indicator of <unk> high quality business.
On the operations and strategy front PAA is seeing success following the launch of its IP monetization and they are gaining momentum in the U S with new leadership in an expanding portfolio.
And in the area of revenue synergies, we have posted 18 joint wins since the beginning of the partnership and are seeing significant collaborative opportunities in multiple markets, including health and life Sciences energy and utilities and consumer products. Our partnership with Ta has been one of the most successful and value creating investments.
And our consulting and advisory accelerated is a clear priority for future capital deployment.
Turning to slide six.
A key to our successful partnership has been the close alignment of our purpose around creating solutions that have positive social impact.
Whether it's working together to improve health care for families through leading edge cell and gene therapy addressing patient safety and emergency departments across the U S.
<unk> issues of connectivity and de Carbonization for global rail market delivering resilient solutions in the areas of deforestation and fire prevention and the U K and the underground a 10000 miles of cable for PGN <unk> to mitigate forest fires in California, and on the clean energy front collaborating on analyzing it.
Vestments for private equity and green hydrogen.
Once again looking ahead, we believe our partnership with Ta is critical to delivering our new Jacobs strategy.
Now I will turn it over to <unk> to discuss our line of businesses.
Moving on to slide seven to review critical mission solutions.
<unk> business continued its strong performance in the third quarter with total backlog, increasing 7% on a reported basis and reported and pro forma basis to $10 2 billion.
Our <unk> strategy is focused on creating resilient recurring revenue growth and margin expansion by offering technology enabled solutions aligned to critical national priorities are servicing solution offering.
<unk> delivered across our core customers market space National security, cyber and intelligence and energy environment.
And we are leveraging our growth accelerators of data solutions.
Bonds and consulting advisory to capitalize the business.
We have substantial revenue visibility is approximately 85% of Cms's portfolio consists of large enterprise contracts with durations greater than four years and 88% from federal level government funding.
So economic and geopolitical uncertainties continue our strong Q3, ending backlog gives us confidence in our next 12 months forecast revenue.
Three market trends that we see contributing to our continued growth include space.
Space debris management, robotics, and <unk> network Buildout.
Beginning with phase III management decades of space travel has resulted in large amounts of space debris damage today's satellites and future launches.
Adding to the cost of operating satellite and other space platforms like the international space station or ISS.
Debris destroyed the satellite it can take months and cost hundreds of millions of dollars to restore the service.
We support the orbital debris tracking program at NASA and provide plume analysis and communication systems stimulation for vehicles visiting the ISS.
In addition, we provide media tracking data for multiple government agencies space.
Basically reach acne is one of many services Jacobs provides on the recently awarded Johnson Engineering Technology and science are Gen two contracts.
<unk> builds on Jacobs more than 17 years of continuous support at Johnson Space Center.
Under this contract we will provide multi disciplinary technical services to.
To support the future of human space exploration as well as help naphtha incubate the emerging commercial space economy.
This 10 year $3 9 billion.
When we will book in Q4 and represents a one 8 billion increase to our existing contract.
This serves to illustrate the continuing strong naphtha Jacobs partnership.
Moving on to robotics, we are increasingly delivering valued solutions to our clients by utilizing robots that reduce cost and increase accuracy and safety and otherwise manual human property.
And we're excited to announce the last quarter, we integrated the resolve robotics team in the U K into CMS, who brings software expertise and IP to help accelerate our growth.
Our existing CMS robotics team already delivered groundbreaking innovation developing and deploying robotic systems in challenging environments, such as the robotic tool to retrieve stand like debris from inside of damage nuclear reactor at Fukushima in Japan.
Autonomous systems to map river beds for the British Army and designing robotic systems for either the world's largest fusion power experiment.
Finally.
<unk> telecommunications, our Telecom group provides full solutions for the deployment of next generation wireless and wireline networks for leading telecommunication companies like AT&T, Verizon and T mobile as well as Fortune 1000 health care and commercial companies looking to build their own <unk> networks.
We also support the infrastructure market, providing <unk> integration network optimization and technical services alongside our <unk> teams to accelerate growth.
While rollout of <unk> infrastructure deployment is still in its early ramp phase we continue to see increased demand for both integrated <unk> and <unk> solutions from our commercial telco infrastructure healthcare and government clients.
During the quarter, our Telecom group added several new awards totaling more than $150 million to.
A liver project advancing <unk> nationwide.
We're excited for the team's recent successes and are well positioned for growth as adoption of <unk> use cases and penetration growth.
In summary, we continue to see solid demand for our CMS solutions.
Week, we were notified that we were awarded a $470 million six year, cyber and intelligence related task order, which we expect to benefit beginning.
Begin ramping at the end of this current quarter.
The sales pipeline remains robust with the next 24 months qualified new business pipeline at approximately $25 billion.
Including $10 billion in source selection with an expanding margin profile.
Turning to slide eight.
During the quarter people in creative solutions delivered record setting quarterly bookings the top prepaid emmick levels. We also enjoyed year over year bookings growth of 11% and backlog growth of 13% delivering a high mark for operating profit in the quarter.
Despite macroeconomic concerns we performed well due to the balance of public and private sector clients with a multinational focus resulting in continued high percentage of revenue already booked in backlog.
As I talk about the quarter I'll address our four ongoing themes of supply chain diversification infrastructure modernization climate response and data solutions.
Starting with supply chain diversification.
Continued breakthroughs in biotechnology strong customer demand and robust operating cash flow life sciences clients are investing in manufacturing expansion and contract operations capacity globally as.
As a leader in the market tier one clients have confidence in <unk> ability to deliver highly complex greenfield and expansion projects at speed. It provides time to market for our clients and maximizes their competitive advantage in new therapeutics.
The growing health service needs are leading to innovative approaches to care.
We are optimizing facilities for clients such as the University of Iowa hospitals, and clinics, where we serve as their project delivery partner.
We are improving the sustainability access and energy efficiency for NHS, Scotland, as well as increasing much needed access to critical mental health care in Australia.
We continue to see robust demand for semiconductor chips data center capacity expansion and growth in electric in the electric vehicle market and have secured recent confidential wins in all three categories.
On top of strong secular demand for semiconductors, we are pleased to see the passing of the 53 billion.
<unk> chips, Bill, which will incentivize investment in U S semiconductor manufacturing and specialized tool.
Infrastructure modernization.
Increased client investments in Mega and Giga scale infrastructure continues and with our number one ranking in program management.
Our delivery reputation has been a key differentiator and staying ahead of our clients' needs in a dynamic global environment.
We recently have been awarded several strategic full lifecycle programs for new transformative scale cities in the middle East that will address social economic and climate priority and will have flexible and long term contracts in vehicles with a renewed interest in equitable sustainable transportation.
Variances, a significant investment in the transit and rail sector with wins across the globe.
Irish rail British Brew British railways multiple clients in Australia, and resilient transit planning for Sacramento area accounts with governments here in the U S.
The infrastructure investment and jobs Act is resulting in a steady increase in new project awards to modernize and increase the resiliency of U S infrastructure for example.
We went to a major water supply resilience program for eastern New Mexico water utility authority.
Five year storm water implementation program for the city of Baton Rouge, and a funding strategy with Oklahoma.
Additionally, our <unk>.
Advisory team is positioning our clients to win funding opportunities with over 50 differentiated grant applications across transportation water and energy.
We anticipate additional awards in the coming quarters as the opportunities in our sales pipeline.
Moving to the next phase of procurement.
Moving to climate response.
We see our clients continuing to invest in clean energy across all sectors with primary spend related to grid modernization cost effective renewable energy generation and EV charging infrastructure or <unk>.
Our progress in these areas as demonstrated globally in Asia through advisory and policy consulting for the Asian Development Bank in Canada with a pipeline utility program.
In Australia through transmission and distribution design projects with augment services.
And in the U S via new consulting and advisory framework to advanced energy transition with a leading provider.
Transportation electrification and hence charging infrastructure plans have topped our clients' agenda across all regions for aviation for highways and rail and transit.
This includes projects for Heathrow Airport, and the U K to implement land site <unk>, Ohio State.
Statewide EV infrastructure program and a major U S transportation authority transitioning operations to zero emissions for one of the world's largest bus fleets by 2040 <unk>.
Collectively this is a very exciting space for us and align strongly with our climate response accelerator.
Moving to data solutions, we are using advanced data analytics to optimize our clients' decision, making as well as their ability to de risk long term investments for example in collaboration with the California Air Resources Board. Our Street light data team is using advanced analytics to better measure and manage transportation emissions.
We are also continuing our technology consulting support for a U S D USD.
With integrated quarter management connected automated transportation systems, and other advanced mobility solutions to maximize the use of their existing transportation infrastructure.
In the water market, we were awarded a contract with the water Research Foundation to develop a FERC. The first full scale deployment of machine learning predictive control for wastewater systems, a new technology to advance the global water industry.
Our cyber and digital services teams were awarded projects in support of the operational technology Resiliency plan for a major UK utility network operator.
And in Australia, we have secured the digital and data advisory services scope to support advancement.
Across Brisbane City Council his entire lifecycle entire asset lifecycle.
In summary, our strong sales pipeline supported by well funded government budgets to modernize their infrastructure and commercial clients that are addressing secular growth opportunities.
The agility of our global workforce combined with elevated spend on transformative complex infrastructure.
<unk> positions us to deliver differentiated value to our clients.
These dynamics and the visibility of our revenue in backlog, we're excited in the growth trajectory for our people and places business, both now and into the future.
As Steve mentioned, we are impressed with <unk> strong results, which underscores the strategic logic for our investment we're excited to be joined by <unk> CEO of <unk>, who will provide a quarterly update Ken over to you.
Thanks, Bob moving to slide nine th current quarter continued to see strong sales bookings up 25% backlog was up 19% in constant currency.
What I see driving that with unique value proposition that starts with our purpose, bringing engineering you'd like to build a positive in the future.
This enables us to deliver both banana.
Our purpose is critical in our ability to attract and retain top talent.
Our differentiation extends to our strategy, which is focused on helping clients address some of the biggest forces shaping society with our unique end to end innovation offerings.
Need having technologists scientists engineers and designers working together creates a unique set of proposition.
Let me shift gears and talk a bit about our partnership with Jacobs.
Steve mentioned, our partnership supports key aspects of our strategy.
We have numerous key accounts in common.
Those accounts are ones that we can leverage <unk> relationship with the C suite to bring <unk> into the mix early and create a differentiated solution.
In some cases it could be the advantage of scale that Jacobs has or a specialized expertise that.
It can also work the opposite way, where Jacobs has accumulated ship and brakes Ta and the complex deals.
A great example is <unk> in California, where Jacobs has a strong existing relationship with <unk>.
Orientation on this project with a combination of Jacobs program management expertise with Ta strategic consultancy and deep domain expertise.
And more than a year into the partnership these types of opportunities are growing.
Another area of our strategy and expansion in the United States, where the outlook is very promising with strong double digit revenue growth over the last six months.
And the synergies with Jacobs, we see a big demand for our end to end services.
We're focused on three sectors in particular energy and utilities health and life Sciences, and consumer and manufacturing.
Each of these areas, we're winning and delivering exciting purpose driven work.
For example, innovating cell and gene therapy manufacturing with already by creating a growth.
<unk> strategy for Greenbaum startup, which is develop a sustainable level.
Then reduce and cleaned up oil spills over time, we've made several U S acquisitions, which have provided a platform for further organic growth.
Additionally, the significant hiring of great new talent at the partner level is another way we are stimulating growth.
Since the beginning of 2020, we've grown the number of U S partners by 60%.
Now I'd like to spend a minute on resiliency of our business.
We enjoy a loyal client base with approximately 90% of revenue coming from repeat clients over the last five years and our expertise continues to be in high demand.
We also enjoy resiliency, given our balanced in private and public sector work.
For example, during the pandemic, we transformed entire corporate business models to account for new customer behaviors on.
While the public sector, we work with some of the biggest government agencies that provide critical services that are largely unaffected by short term budget decisions like the U K National Health service and Ministry of Justice.
This helps to mitigate risk of future macroeconomic trends.
So to summarize we're running a purpose driven business with a clear strategy to address our clients' biggest challenges and an end to end manner that separates us from the competition.
And structurally we're set up to be able to pivot and respond to external factors, ensuring we're well positioned for the future.
Kevin I'll hand, it over to you.
Thank you Ken I'm going to turn to slide 10 for a financial overview of third quarter of fiscal 2022 results.
First quarter gross revenue grew 7% year over year and net revenues grew 8%.
Format for acquired revenue net revenue also grew 7% year over year, which is an acceleration in growth from the second quarter.
Currency negatively impacted revenue growth by nearly 400 basis points and given current foreign exchange spot rates, we expect FX to impact our Q4 revenue by nearly 450 basis points on a year over year basis.
On a reported basis for the fourth quarter, we expect revenue growth in the mid to high single digits, which translates into double digit growth on a constant currency basis.
Adjusted gross margin in the quarter as a percentage of net revenue was 25, 8% down 180 basis points from year ago, primarily driven by our CMS lines business related to newly ramping remediation contracts and the timing of the ramp on higher margin federal contracts and the investment.
And incremental resources NPA in advance of expected growth.
We expect gross margins to marginally improve in the fourth quarter and expand further during fiscal 2023, driven by our higher margin backlog and sales pipeline.
Favorable revenue mix within CMS.
And acceleration in PPP NPS revenue and continued strong <unk> performance.
Adjusted G&A as a percentage of net revenue was 15, 6% down nearly 100 basis points from Q2, and down 130 basis points year over year.
We expect our G&A as a percentage of revenue to remain at this level in Q4, as we balanced our investments to support growth in fiscal 2023 and beyond.
GAAP operating profit was $266 million and was mainly impacted by $52 million of.
Of amortization from acquired intangibles and other acquisition deal related costs and restructuring efforts of $10 million with over half of that associated with integration costs associated with acquisitions.
Adjusted operating profit was $327 million up 4% year over year.
On both a reported and pro forma basis on a constant currency basis, adjusted operating profit was up 8% year over year.
Our adjusted operating profit and net revenue was 10, 3% and we expect a similar level in Q4 I will discuss the moving parts later when reviewing the line of business performance.
GAAP EPS from continuing operations was $1 52, and included a 27 impact related to our amortization charge of acquired intangibles <unk> from transaction related costs, only <unk> of other restructuring costs and a <unk> <unk> benefit adjustment to align to our effective tax rate.
Excluding these items third quarter, adjusted EPS was $1 86 up 13% year over year.
On a year over year basis, FX impacted our EPS negatively by <unk> <unk>.
Within the other income line on the P&L important to note, we realized cash pre tax gain of approximately $14 million or <unk> and after tax EPS from the sale of our ownership in commercial cyber security provider Watchguard technologies that came as part of the <unk> acquisition.
Benefit was captured within our other income line in adjusted EBITDA, but not reflected in operating profit results.
All of this strategic investment was driven by contract terms associated with our interest which would have limited future monetization of our investment.
We remain excited about our continued partnership with Watchguard.
Jacobs called consolidated Q3, adjusted EBITDA was $363 million and was up nearly 13% year over year, representing 11, 4% of net revenue on a constant currency basis, adjusted EBITDA was up 16% year over year.
Finally, turning to our bookings during the quarter. The revenue book to Bill ratio was one one times and did not include the estimated $560 million backlog value of the 10 year $3 $9 billion for NASA, Johnson win which will recognize in backlog and our fourth quarter.
As Bob mentioned earlier the contract ceilings at this rebid win is significantly higher than our existing contract and as an agency wide contract not limited the Johnson space Center.
We plan to backlog the first two years of the approximate current revenue run rate, but expect on contract growth to the ceiling value over the life of the contract.
Regarding our elevate performance, let's turn to slide 11.
Starting with CMS Q3 revenue was up 8% year over year and up 7% on a pro forma basis FX negatively impacted growth by over 200 basis points.
For the fourth quarter, we expect revenue growth to approach double digits and after adjusting for an estimated FX impact of 250 basis points deliver constant currency double digit growth.
Q3, CMS operating profit was $104 million down three 5% year over year, but flat on a constant currency basis.
Operating profit margin was down over 90 basis points year over year to seven 9%.
Q3 operating profit margin percentage continued to be impacted by the delay of the higher margin shorter cycle awards that were pushed to the right to the continuing resolution as well as related timing of our investments ahead of new cyber and intelligence contract wins.
Due to these investments and the timing of both new and anticipated awards, we expect CMS operating profit margin to remain under 8% for the fourth quarter, but improving in 2023 and beyond.
Moving to people in place.
Q3, net revenue accelerated to 7% year over year growth, including a negative effect of 350 basis points from FX on a constant currency basis, Pmt's overall grew double digits year over year.
Also on a constant currency basis each people in places segment demonstrated net revenue growth was strong year over year growth acceleration in our Americas business as impact from U S infrastructure spending begins to materialize.
Our advanced facilities business continues to demonstrate robust double digit net revenue growth with strong performance in both semiconductor.
And life Sciences, we expect this performance to continue given our strong backline backlog and sales pipeline.
Our international business growth on a constant currency basis also remains strong as those governments continue to prioritize infrastructure modernization and investments related to our ESG solutions.
Total <unk> Q3 gross profit grew year over year and gross margins were consistent with Q3 2021.
With Q3 operating profit up 2% year over year and up 8% when eliminating the impact from FX translation.
In terms of <unk> performance.
Revenue grew 8% year over year in U S dollars, an impressive 22% in local currency.
Three adjusted operating profit margin was 18, 5% due to lower utilization, but still up 2% when factoring the impact of currency.
For the lower utilization during Q3 was driven by a proactive effort to add resources for additional growth expected in 2022 and 2023 for the <unk>.
Finally, we expect <unk> operating profit margin to return to greater than 20% next quarter and continue to strengthen further in 2023. We also expect continued.
Double digit revenue growth on a constant currency basis.
Our non allocated corporate costs were $38 million down year over year as we benefited from continuing moderation in medical costs and to a lesser extent from a positive currency impact on our support costs and other benefits.
Now expect.
Non allocated corporate costs to be in the range of $170 million to $190 million versus our previously communicated range of $200 million to $250 million for fiscal 2022.
Turning to slide 12 to discuss our cash flow and balance sheet.
We had another quarter of solid underlying cash flow generation.
On a reported basis free cash flow was a negative $281 million.
That included a $480 million cash outflow related to the previously discussed impact legal settlement as well as $10 million related to transaction costs and other items. Excluding these outflows free cash flow was strong and conversion was in line with our expectations.
Dsos were relatively flat year over year.
We expect solid free cash flow in the fourth quarter again in line with our previous conversion expectations for the full year.
During the quarter, we repurchased approximately $200 million of our shares as we've said before we will remain agile and opportunistic in repurchasing shares as we see dislocation in the market.
As a result of the strong underlying cash flow, we ended the quarter with cash of $1 1 billion.
And our gross debt of $3 6 billion, resulting in $2 5 billion of net debt.
Our net debt to adjusted 2022 expected EBITDA of approximately one eight times is a clear indication of the continued strength of our balance sheet.
As of the end of Q3, approximately 60% of our debt is tied to floating rate pre payable debt and as a result, we are expecting incremental interest costs going forward, which we have incorporated into our outlet.
Finally, given our strong balance sheet and free cash flow, we remain committed to our quarterly dividend, which we recently announced.
Before I turn it back to Steve I'd like to talk about the resiliency of our portfolio.
The portfolio is strong and resilient aligned around high priority federal government spend areas and state and local institution supported by government stimulus programs.
Pivot sector business is centered on high margin markets like semiconductors in life Sciences, which are currently focused on incremental investment in capacity to resolve supply chain constraints and support novel therapies.
As a result, while we may not be totally immune to the global economic uncertainties. We are confident that we are positioned to deliver the level of growth identified in our strategy.
Over to you Steve Alright, Thank you Kevin.
As Kevin described we have a diverse portfolio with significant reimbursable recurring revenue provides us the ability to grow under multiple economic scenarios and manage the impacts of inflationary pressures on our business.
With this diversity comes from exposure to foreign currency translation as we have approximately 34% of our revenue outside of the U S with 21% of that revenue in UK pound Sterling.
As a result of the latest foreign exchange dynamics, we're providing updated guidance for the fourth quarter of adjusted EBITDA in the range of $340 million to $360 million and an.
Just the EPS of $1 75 to 185 with the mid points tied to the current FX rates.
We feel very confident in our underlying business trends in the fourth quarter and have provided the lower end of the range to reflect the possibility of any FX erosion.
It is important to note that relative to our fiscal 2022 forecast back in November .
Foreign currency translation has impacted our full year expected fiscal 2022 net revenue outlook by approximately $320 million adjusted EBITDA by approximately $40 million and adjusted EPS by nearly <unk>.
So in short our change in annual guidance on EPS is effectively driven by currency volatility versus our original expectations.
In closing we are excited about the momentum across all of our business as demonstrated by our accelerating revenue growth, our strong bookings and backlog and a robust sales pipeline globally. Operator, we will now open the call for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Please limit yourself to one question. If you wish to ask a follow up question. Please press star one to reenter the queue.
Our first question comes from the line of Jamie Cook from Credit Suisse. Your line is open.
Hi, Good morning, I guess two questions.
First Kevin you talked about the resilience of your business model in a macro downturn in understanding the guide lower was largely FX. One can you sort of speak to.
<unk>.
Are you seeing any signs of macro weakness when you talk to your customers and which parts of your portfolio would be most impacted assuming we are going into a recession or are in a recession and then the second question is just a clarification again I think it was from Watchguard that is included in the <unk>.
<unk> number that you guys laid out the ones for TTM and 186.
Okay.
First point relative to client look we're really not sensing any significant commentary from clients, which are indicating concerns on the on the impact to their business associated with our investment profile.
And if you look at the.
I'm going to call it the private parts of the portfolio, specifically the life Sciences and semiconductor.
Those clients are really continuing to be quite robust in their outlook.
Now I'll go on to your second question and CFO My colleagues want to add any color on that but your second question about the launch card. Yes. It was included in the 186 EPS that we have for the quarter.
Portland to note that we had about nine.
FX challenges in the quarter associated with.
Kind of the.
Weakening.
Our strength in excuse me in the U S dollar, but in addition to that we took the opportunity to crew. Some additional expenditures in support of employee related costs in the quarter offsetting some of the benefit of that Watchguard, Inc.
Our next year.
Ed.
Yeah.
Go ahead operator.
Your next question comes from the line of <unk> from Stifel. Your line is open.
Hey, good morning.
Good morning, good morning Kornberg.
Bob you mentioned that shifts bill in your prepared remarks, how much of a tailwind if any should we expect that to be for your fab design business.
And then just.
And just a quick follow up to what you were talking about on the resilient side.
Is it fair to think that.
P. A consulting would be sort of the most volatile piece of your business as we think about.
Going through a potential economic recession.
Okay.
Yes, Bert on the on the <unk>.
First part on the chips built I think the way that we're thinking about it is that that was already such a robust business for us based on the.
The client held the rehab business drivers were for them with the typical <unk> is put even more.
Credibility as well as substantiation of continued growth for those clients that are extra changing their business model. So I think it's putting more confidence that the cycle that we used to talk about being traditional.
18% to 36 month cycles going.
Going even further with now a support from the federal government. So we're excited about that with.
With regards to the volatility and.
Business.
He is very unique model is structured where.
The traditional management consulting relying on discretionary spend of their clients.
For business transformation activities is not really where P 56, and product innovation and using that product innovation to transform businesses.
These are really at the core of the clients that they serve so we're not really we're not seeing that as evidenced by the bookings trends that we saw with this quarter being the highest highest that they've been.
Essentially ever.
Which is really pleasing credibility in the backlog moving forward.
Your next question comes from the line of Jerry Revich from Goldman Sachs. Your line is open.
Yes, hi, good morning, everyone.
I'm wondering if you could just expand Kevin.
Right.
Kevin If you will.
Mind, just expanding on the margin comments in your prepared remarks for critical mission solutions and people in places.
Sitting in the fourth fiscal quarter. It sounds like you've got some idiosyncratic moving pieces that might impact normal seasonality as we head into the December quarter can you just tease that out a bit based on contract cadence.
Et cetera that you alluded to and for full fiscal year 'twenty three.
Yes, Jerry a couple a couple of points first is on the wind profile associated with our CMS business. We've been ramping some of these big environmental contracts the nuclear remediation contracts, which are embedded into into our forecast, which as you know it is lower margin than we've previously.
Discussed at the balance of the year, we'll start to see an uptick in margins because.
All of the shorter cycle, and cyber and intelligence wins, which are coming and actually Bob announced that one was we just heard about.
Just this week actually and so or last week and so look at the end of the day all of those are happening, they're just not happening and won't ramp in Q4, which was our original expectation. So if you look at that dynamic that puts a little bit of pressure on the Q4 margins that we have in addition, we continue to have the investor.
<unk> profile and we're not backing off of that in Q4 because of the anticipation of the growth in 2023 and beyond so it's a double double impact on Q4, but ultimately then translates into 2023 starting to come.
Come back into.
And to the margin profile that we've seen in the past now it's going to take a while to get there, but ultimately we're confident that the margin profile will start to kick back up in 'twenty three.
Your next question comes from the line of Steven Fisher from UBS. Your line is open.
Thanks. Good morning, just wanted to follow up on that discussion about the cyber contracts and you mentioned that $500 million. One I guess, that's the one from last week.
I'd call that a mid sized award compared to the NASA type opportunities can you just talk a little bit more about how much more of that you have in the pipeline.
The timing of those and then how relatively important they are to see that 2023 flat.
Yes, so Steve here.
The good news is we actually had two wins in the last 30 days and the cyber intelligence business, there was a $500 million one.
Did get booked in the late in the third quarter and then we have one just in the last week that Kevin just talked about.
That's just under $500.
And those are two good sized cyber intelligence awards.
Better margins than some of our longer term enterprise.
Contracts that we haven't CMS, so theyre going to be margin accretive and we're really going to see those playing out as earlier.
As far as the P&L in the first.
First quarter 2023.
So and then on top of that we have.
About one 1 billion and a half.
But things that could hit sometime in the fourth quarter as far as pursuits out there.
If you look at our normal win rate, that's going to add on top of that and then on the back of that there is a series of other pursued opportunities that will play out sometime in the first half was 23. So we are yes.
We are excited about cyber intelligence, a little frustrated that it's taken a few quarters longer than we had expected.
And then I just wanted to add on the back of that.
Outside of cyber and intelligence, which also gives us.
Some some optimism that the Americas.
<unk> initiatives, we are clearly seeing momentum now and that the pipelines building you've got some some earlier on wins.
We've got about 50 grants out there.
We are highly confident of winning a large share of and thats going to translate into business and we see that starting to accelerate in 2023, and so it really hasn't been a material impact on our business to date.
And we all know that that's coming because of the commitment of the U S government around <unk>. So.
So those are reasons for optimism as we get into.
Both both topline and margin improvement as we enter 2023.
Your next question comes from the line of Chad Dillard from Bernstein. Your line is open.
Hi, good morning, guys.
Hi, Chad.
So on.
On the back of the announcement of the 2022 inflation reduction Bill.
Particularly the climate change portion.
Can you give a little bit of color on that and just like how much.
Would be addressable to Jacobs.
Yes.
It's very similar to the <unk> when you look at the climate change porch portion which is.
In the high $300 million of $1 billion I think it's somewhere in the 300 <unk>.
$1 billion.
We see somewhere in the 85 plus percent coverage by Jacobs.
When you breakdown build down to what we're able to see so far and we haven't been able to get 100% of it but based on some of the specifics on what we're hearing.
It's going to be a majority of it thats going to be an opportunity for Jacobs.
Your next question comes from the line of Andy Wittmann from Baird. Your line is open.
Okay, great. Thanks for taking my question guys I guess, just a clarification I think Kevin in your remarks, you made a comment there.
And FX benefit in your corporate unallocated is that the.
Is that the $8 million and was that like did you sell a swap our currency hedged there to realize that I'm, just curious if those cash or noncash as well.
Now this is Trent this is basically translation related efforts.
Impacts I should say.
Andy So effectively if you think about the revenue and the gross margin all of that is negatively impacted by the dollar strength as a foreign currencies get translated into lower revenue and gross margin, that's partially offset by the fact that our costs are also reduced in terms of our international operations. So it is really driven more by.
That effect.
Effect of kind of trend transaction was it related to that.
Your next.
Question comes from the line of Louie Dipalma from William Blair. Your line is open.
Thank you.
Good afternoon.
<unk> final Korlym.
Yes.
Hello.
With the announcement of this earnings call from Ta can talk things headquarters in London.
Do you have any plan to acquire the remaining 40% of PAA consulting that you don't already own.
So we've talked about this in the past.
Continue to have the same view that.
We really love the model.
But we've set up for that.
The investment I think.
Not only is unique but it's one of the reasons why we were able to get that.
To get this investment across the finish line.
There could be a scenario, where we incrementally grow our ownership.
Right now over the long term, we think topping.
Ta partners and employees.
Have ownership in.
The collaborative opportunities that that gives us is really part of it is really a key reason why we're up to after such a strong start in the first year plus.
And so we see that kind of model continuing going forward.
Your next question comes from the line of Michael Feniger from Bank of America. Your line is open.
Yes. Thanks for taking my question I realize you added in some areas investing in people, adding resources for the stronger growth outlook, you're talking about CMS and how some of these cyber contracts, which are higher margin pick up next year.
Based on what you are saying in the expected pickup in funding should we be seeing outside level of margin expansion in 2023 as utilization levels are likely to pick up.
Hey, Michael This is Kevin as your comment about CMS specifically.
Our overall <unk>.
Overall, the mix of the business.
Well look if we look at our margin profile adjusted in Q3 and Q4, we do believe there's going to be an ability to increase margins as we come out of this of this dynamic that we're facing in Q3, Q4, where growth hasn't kicked in as much as Lee while our continuing diverse so we do.
Believes that there is margin upside in 2023 versus current level, but I wouldn't say extraordinary because we're going to ultimately continue to.
<unk> investments and support our business <unk>.
<unk> ability to grow longer term and at higher gross margins.
Your next question comes from the line of Josh Sullivan from the Benchmark Company. Your line is open.
Hey, good morning or afternoon.
As far as the Rushmore in Ukraine, right intentions. Taiwanese Strait can you just talk about if you've seen any specific uptick in demand for Jacobs capabilities space Cyber does it have you seen.
National demand and mostly domestic and then I guess a related question on the commercial side what is the flow of European energy projects look like at this point.
Yes.
Yes, Josh I'd say too.
Short answer is yes, we have seen an uptick in.
And the client conversations in the.
And just the dialogue around potential opportunities I break it down into two main parts and then to address your energy comment in Europe .
For cyber services. Yes. These are some of the USB framework agreements that we have embraced and we've seen efforts around those agreements to be applied to sovereign and code activity specifically surrounding whats going on in the Ukraine and then the second part is been around defense infrastructure. So you mentioned, what's happening in the <unk>.
These traits.
Probably say that our posture and I say the western the western hemisphere as posture around defense infrastructure in Asia has been going on for the better part of a decade.
But now in addition to that we're seeing more requests in fact, we've been awarded their confidential a few jobs already in eastern Europe .
Around similar types of Meda on platform.
Defense infrastructure in Eastern Europe , and eastern Europe as a whole.
On the second part around energy in Europe .
The answer again is yes.
Energy transition and.
That effort not just in continental Europe , but in the U K.
And in Europe , and in Ireland, as well as probably at an all time high with regards to the activity.
And that continues to be a strong catalyst for growth for us in our European business.
Your next question comes from the line of Tim Connor from Cowen Your line is open.
Yes.
Yeah. Thanks, guys I had a couple of quick questions first on the CMS segment.
You talked about the $10 billion of source selection.
Thats out there does that is that net of the $4 billion NASA contract in.
And in General what are you looking at for the September quarter, we looking for some fairly sizable bookings and.
And if you could also refresh us on the Recompete dine.
Dynamic over the next 12 months, how much of the CMS business is up for rebid.
Let me just start them.
We can pick up.
No.
The <unk>.
<unk> selection around the $10 billion.
So.
I just wanted to be clear the.
The Johnson.
The Johnson.
<unk> is not in our backlog in the third quarter and will be added to the backlog in the fourth quarter.
But what we're talking about now.
Moving into the fourth quarter with our bid processes and I've already covered several billion dollars of that being around the cyber and intelligence business and also some <unk>.
Some opportunities specifically on our Aero segment.
Working with the U S government and so we are we're talking about that around net around OLED.
Bob.
No and then probably the biggest recompete as NASA Kennedy.
That is coming up later in the year. We're currently under an extension there so.
We like our we like our.
Sure.
We're confident about our opportunities in both Q4 and Q1, let me just clarify the $10 billion as new business not Rebid Awards granted New awards in source selection and it's net of naphtha, yes, yes.
Your next question comes from the line of Sean Eastman from Keybanc capital markets. Your line is open.
Hi, James Thanks for taking my questions.
Just wanted to come back to the investments being made this year I think thats been clear all through this year that this is somewhat of a major investment year for Jacobs.
It sounded like that actually ramped up in the third quarter with sort of incremental investments offsetting that.
Jane on sale.
Just wondering how much of that ramp.
Jacobs really getting more aggressive in and really bolstering that personnel to support growth versus.
And then ending up costing more than you thought at the start of the year to build up that personnel to support growth I hope.
That's a fair question.
Okay.
Well, let me, let me characterize our investment profile certainly we entered the year with.
As we've talked about.
Of course of the fiscal year, some pretty strong investment profile associated with the expected growth, we've actually reduced that attached in Q3 and Q4 as we've seen a delay in some of the revenue buildup that we have.
Envision happening faster and sooner than in the second half of 2022 now this one particular investment partially offset the watchguard.
Watchguard benefit, but I think we've continued to be very proactive and sorts supporting people I know that pega has invested in terms of salary improvements and has increased the pricing associated with efforts in that regard. So effectively I think it's been broad based that we can.
<unk> to be investing against our people and supporting our people, but actually probably faster and in the first half versus the second half other than this incremental investment we just made because of the watchguard.
Right.
Your next question comes from the line of Andy Kaplowitz from Citigroup. Your line is open.
Good morning, everyone.
Okay.
And can you give a little more.
Can you give a little more color into consulting margin I know you talked about it being pressured by FX and incremental investments can you quantify those investments possibly.
You mentioned margin should return to over 20% in the short term, but do you still have confidence in your longer term margin expectations for pag.
23% flattish.
Over the next several years.
Yes, I'll take a crack at it and then Ken.
Ken here with Us alternative Dan.
To see if he has any additional color, but the <unk> has been very aggressive in getting new talent into the organization both at an executive level and at a partner level, which ultimately helps drive and support incremental growth going long term. They were very successful, especially in Q3 and bringing on board.
A bevy of talent, which is going to be positioning them for a really strong growth going forward in 2000, 2023 that all came together and fundamentally when they brought those folks on board. Obviously originally available from day, one and so that would put some pressure on the gross margin now it's just about.
Adjusting our hiring going forward to determining how much they need and they will start to see an improvement back up to the operating profit margin that we've discussed in the prepared remarks over 20% in an.
In our fourth quarter, and ultimately beyond into 2023 and beyond and we feel confident on that Ken Yes, I think I think you hit it Kevin two things one was a significant amount of senior executive hiring which came together all at the same time. So we actually had five senior executive joined in the same quarter, which add significant cost.
And then the second part was given the large deals that we havent pipeline than we historically have not had we'd start to ramp up hiring in advance of that to make sure. We can actually service. Those typically wouldn't what are more of them. So we're very confident about the profile, but importantly, obviously.
Our recruiting effort.
The pipeline remains very active and strong.
Yes.
Your next question comes from the line of Saba Khan from RBC capital markets. Your line is open.
Okay, great. Thanks, and good morning, just first question is the 50 <unk> I think Steve called out earlier related to the Iga any way you could quantify the dollar amount or how much of that money sort of come through already and then just the second question is.
Can be a bit more philosophical but.
As I mentioned earlier seeing not really any meaningful slowdown in the outlook, but.
And then the past downturns governments really stepped up with spending across some of your end markets and regions.
The conversations youre, having and how much those governments have spent over the last couple of years. What do you think the propensity is there to step up if there is any meaningful slowdown as you look over the next 123 years. Thanks.
Yes, let me start Steve here, let me start with it.
Turn it over to Bob but first of all congratulations.
I understand.
New baby and wish you a successful on that.
Turning to your family.
So one on the grant side I mentioned 50, there is.
We really right now just some small fees associated with that but the big opportunity is that.
We see.
For the first 12 coming to fruition as far as ago go decision over the next few weeks and then those will start to ramp up.
And Theres other grants on the back of that so we have yet to see the benefit of those and we're pretty excited about what those will lead to.
Chairman cycle progresses on those.
I'll, let you handle the risk maybe just.
To add onto that.
Which would then lead into those growth trajectories that we highlighted in our strategy, which we are.
Gaining more confidence around that specifically in our infrastructure business.
There are three major markets.
Actually for Jeff in Middle East, but in the U S UK and Australia.
On the government historical reaction to recessionary time period, and then how does that compare to what's happening right now we actually see that step up is being positive again.
We're seeing governments pretty bullish on infrastructure spend and then in areas, where there might be a little bit in debate.
Political candidates that.
Seem to have some some traction in the marketplace are making very vocal comments about putting more money into major programs in those geographies. So.
In all we're feeling we're feeling very positive about.
It looks like an infrastructure.
You also asked about the percent of money that's out there I think it's over 30% now on the at GAA.
No exactly what the number is right now, but it's over 30%.
And there are no further questions at this time, Mr. Steve Dimitrios I turn the call back over to you for some closing comments.
I just want to thank everyone for calling in and we look forward to updating you next quarter.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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