Q1 2024 Jacobs Solutions Inc Earnings Call
Good morning, My name is Andre and I will be your conference operator today.
Audra: Good morning, my name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Jacobs Fiscal First Quarter 2024 Earnings Conference Call and Webcast. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.
Andre: At this time I would like to welcome everyone to the Jacobs fiscal first quarter 2024 earnings Conference call and webcast today's conference is being recorded.
Andre: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.
Audra: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. At this time, I'll turn the conference over to Jonathan Evans, VP of Corporate Development and Investor Relations. Please go ahead.
Andre: He would like to withdraw your question Press Star one again.
Andre: At this time I'd like to turn the conference over to Jonathan Evans VP of corporate development and Investor Relations. Please go ahead.
Jonathan Evans: Thank you, Audra. Good morning. Our earnings announcement was filed this morning, and we have posted a slide presentation on our website, which we'll reference during the call. I would like to refer you to slide 2 of the presentation material for information about our forward-looking statements, non-GAAP financial measures, and operating metrics. We have also introduced a new supplement that consolidates certain information, including our non-GAAP financial table. Additionally, beginning with this quarter, The company will no longer apply an adjustment to adjusted net earnings from continuing operations and adjusted EPS, which previously resulted in the application of the expected annual tax rate to all quarterly payments. Prior comparable periods are also being presented on this basis.
Jonathan Evans: Thank you Andre good morning.
Jonathan Evans: Our earnings announcement was filed this morning, and we have to go through this.
Jonathan Evans: Slide presentation on our website, which we'll reference during the call I would like to refer you to slide two of the presentation material for information about our forward looking statements.
Jonathan Evans: GAAP financial measures and operating metrics we.
Jonathan Evans: We have also introduced a new supplement that consolidate certain information, including our non-GAAP financial tables.
Jonathan Evans: Additionally, beginning with this quarter the comp.
Jonathan Evans: Many will no longer apply and adjustments to adjusted net earnings from continuing operations and adjusted EPS, which previously resulted in the application of the expected annual tax rate you all quarterly Chris prior comparable periods are also being presented on this basis.
Jonathan Evans: Turning to the agenda on slide three, speaking on today's call will be Jacobs CEO Bob Pragada and CFO Claudia Jaramillo.
Jonathan Evans: Turning to the agenda on slide three speaking on today's call will be Jacobs CEO.
Jonathan Evans: <unk> and CFO here Neil.
Jonathan Evans: Bob will begin by providing an overview of recent activities and summarizing highlights from our first quarter results. Claudio will provide a more in-depth discussion of our financial metrics, as well as a review of our balance sheet and cash flow. With that, I'll turn it over to CEO Paul Pragada. Thank you, Jonathan.
Jonathan Evans: Bob will begin by providing an overview of recent activities and summarizing highlights from our first quarter results.
Jonathan Evans: Mario will provide a more in depth discussion of our financial metrics as well as a review of our balance sheet and cash flow.
Bob: I'll turn it over to CEO also got it thank.
Robert Venkat Pragada: Good day, everyone, and thank you for joining us to discuss our first quarter fiscal year 2024 business performance. We continue to prioritize simplifying our business model, optimizing our cost structure, and accelerating profitable growth and margin expansion across our lines of business. Our team continues to demonstrate great resilience and dedication as we delivered better than expected underlying results in Q1, while also working on the added task of standing up two independent companies. At the corporate level, we are diligently working to create a leaner operating model that aligns Jacobs' position as a global leader in delivering science-based, digitally-enabled solutions to our clients and allows us to benefit fully from the broad-based strengths that we see in global infrastructure and sustainability investments.
Bob: Thank you Jonathan Good day, everyone and thank you for joining us to discuss our first quarter fiscal year 2020 for business performance. We continue to prioritize simplifying our business model optimizing <unk> cost structure, and accelerating profitable growth and margin expansion across our lines of business.
CEO: Our team continues to demonstrate great resilience and dedication as we delivered better than expected underlying results.
Bob: Q1, while also working.
Bob: The added task is standing up two independent companies.
At the corporate level, we are diligently working to create a leaner operating model.
Bob: Jacobs position at a global leader in delivering science based.
Bob: Digitally enabled solutions to our clients and allowing us to benefit fully from the broad based strength that we see in global infrastructure and sustainability investment.
Robert Venkat Pragada: We are confident that the actions we are taking are providing the foundation for multi-year improvement and profitability and margin, and we look forward to sharing more detail in the quarters to come. Turning to slide four, I want to provide a brief update on a few key milestones related to the spinoff and merger of our critical mission solutions and cyber and intelligence businesses with the Memphis. We continue to progress toward closing the transaction in the second half of fiscal year 2024, consistent with our previous expectations. Together with Inventum, we are making progress on preparing our Form 10 and private letter ruling request in keeping with the established timeline for the transaction. Additionally, we are progressing antitrust filings and regulatory approval. Upon the public filing of the Form 10, we aim to offer more comprehensive information and look forward to introducing the combined leadership team to our investors and analysts later this spring.
Bob: We are confident that our actions, we're taking are providing the foundation for multi year improvement in profitability and margins.
Bob: And we look forward to sharing more detail in the quarters to come.
Bob: Turning to slide four I wanted to provide a brief update on a few key milestones related to the spinoff and merger of our critical mission solutions in cyber and intelligence businesses with momentum.
Bob: We continue to progress toward closing of the transaction in the second half of fiscal year 2024, consistent with our previous expectations.
Bob: Together with momentum, we are making progress on preparing our form 10.
The private letter ruling request in keeping with the established timeline of the transaction. Additionally.
Bob: Additionally, we are progressing antitrust filings and regulatory approvals.
Bob: Upon the public filing of the form 10, we aim to offer more comprehensive information and look forward to introducing the combined leadership team to our investors and analysts later this spring.
Robert Venkat Pragada: I would also like to briefly touch on the cost optimization plan that we outlined last quarter. Our transformation to a less volatile and higher value, higher margin portfolio is well underway. We continue to find new ways to streamline our operating model, and while it is too early to positively revise our targets, we are increasingly confident in our ability to enhance our long-term profitability. As we progress toward separation and optimize our corporate cost structure, we are now able to better align cost to the Equitable Business Unit. As a result, we have made the decision to shift some corporate unallocated costs into the current PMS segment, which will allow for greater long-term recovery of our corporate overhead. While this has the effect of temporarily weighing on our segment operating margins, this has no impact on our bottom line today.
Bob: I would also like we like to briefly touch on the cost optimization plan that we outlined last quarter.
Bob: Our transformation to invest following.
Bob: Higher <unk> higher margin portfolio is well underway with.
Bob: We continue to find new ways to streamline our operating model and while it is too early to positively revise our targets. We are increasingly confident in our ability to enhance our long term profitability.
Bob: As we progressed towards separation and optimizing our corporate cost structure, we now are able to better align cost to.
Bob: The applicable business units.
Bob: As a result, we have made the decision to shift some corporate unallocated costs into the current pms.
Bob: Cement, which we.
Bob: We will allow for greater long term recovery of our corporate overhead.
Bob: While this has the effect of temporarily weighing on our segment operating margins.
Bob: It has no impact on our bottom line to date.
Robert Venkat Pragada: Rather, this will boost corporate profitability in the long run as we gradually recover costs from public sector clients, providing upside beyond the initial 13.8% adjusted EBITDA margin target set for standalone Jacobs post-separation that we shared last quarter. This adds to our conviction that our transformation will drive multi-year value creation. Turning to slide 5 and Q1, I am pleased to report a strong first quarter revenue driven by 9.5% growth and 7.9% adjusted net revenue growth that is entirely organic. Backlog increased 5% year over year, and gross margin in backlog improved 29 basis points year over year, boosting confidence that our businesses can continue their profitable growth trend. This quarter's results include a one-time, non-cash, $15 million inventory write-down.
Rather this will boost corporate profitability in the long run as we gradually recover cost from public sector client.
Bob: Providing upside beyond the initial 13, 8% adjusted EBITDA margin target set for Standalone Jacobs post separation that we shared last quarter.
Bob: This adds to our conviction that our transformation will drive multiyear value creation.
Bob: Turning to slide five in Q1.
Bob: I am pleased to report.
Bob: The strong first quarter revenue driven by $9 five gross and $7 nine adjusted net revenue growth that is entirely organic backup.
Bob: Backlog increased 5% year over year and gross margin in backlog improved 29 basis points year over year boosting confidence that our businesses can continue their profitable growth trends.
Bob: This quarter's results include a onetime noncash 15 million inventory write down.
Robert Venkat Pragada: Excluding this item, adjusted operating profit would have increased versus the prior year. We saw a continuation of strong organic growth in PNPS with 8.4% adjusted net revenue growth. We had a Q1 operating cash flow of $418 million, up 38% year over year. Strong cash conversion is a hallmark of our asset-light business model and remains robust in Q1, with $401 million in free cash flow, and we expect to generate greater than 100% adjusted free cash flow conversion in fiscal year 2024. The ultimate measure of our ability to create value is long-term growth of free cash flow per share, and that will continue to be our North Star. Turning to slide 6.
Bob: Excluding this item adjusted operating profit would have increased versus the prior year period.
We saw a continuation of strong organic growth in <unk> with eight 4% adjusted net revenue growth we.
Bob: We had a Q1 <unk>.
Bob: Cash flow of $418 million up 38% year over year strong cash conversion is a hallmark of our asset light business model and remain robust in Q1 with Ford.
Bob: $401 million in free cash flow and we expect to generate greater than 100% adjusted free cash flow conversion in fiscal year 2024.
Bob: The ultimate measure of our ability to create value as long term growth of free cash flow per share and that will continue to be our north star.
Bob: Turning to slide six.
Robert Venkat Pragada: Our People and Places line of business generated strong top-line growth with adjusted net revenue of 8.4% year over year, marking the fifth consecutive quarter of greater than 6% organic growth. We continue to execute against our strategy of prioritizing profitable growth over absolute growth, as demonstrated by gross profit and backlog increasing 7% year over year. Our pipeline remains robust, and we continue to expect PNPS organic growth of mid to high single digits in FY24. Additionally, we anticipate full-year PNPS-adjusted operating margins to increase year-over-year, inclusive of the previously mentioned increase in allocation of overhead costs. The water market remains to be a case-setter within the company. In particular, WaterScare City can..., continues to trend across the globe, affecting millions of people. Decades of increasing population growth and agricultural demand have significantly depleted the quantity and quality of water resources. Jacobs is a leader in developing solutions to address water scarcity, including water reuse, groundwater management, and desalination. In the Americas, California and Colorado have recently adopted regulations for direct potable reuse, and Arizona is making positive strides toward adopting similar regulations.
Bob: Our people in places line of business generated strong topline growth with adjusted net revenue up eight 4% year over year, marking the fifth consecutive quarter of greater than 6% organic growth.
Bob: We continue to execute against our strategy of prioritizing profitable growth over absolute growth as demonstrated by gross profit and backlog, increasing 7% year over year.
Bob: Our pipeline remains robust and we continue to expect <unk> organic growth of mid to high single digits in FY 'twenty four.
Bob: We anticipate full year <unk> adjusted operating margins to increase year over year inclusive of the previously mentioned increase in allocation of overhead costs.
Bob: The water market remains to be a pace setter within the company in particular water scarcity.
Bob: Continue to trend across the globe affecting millions of people.
Bob: The increase in population growth and agricultural demand have significantly depleted the quantity and quality of water resources.
Bob: Jacob as a leader in developing solutions to address water scarcity, including water reuse groundwater management and desalinization in the Americas, California, and Colorado have recently adopted regulations for direct potable reuse and Arizona is making positive strides towards adopting similar regulations.
Robert Venkat Pragada: Notably, the world's largest chip maker, TSMC, is currently building a new semiconductor facility in Arizona. We've been selected for the first phase of the design and project delivery of the campus's industrial reclaimed water pipeline. In addition, multiple states in the U.S. are developing regional water supply plans to balance water availability and economic growth. As an example of such work, we were awarded a $191 million project in St. John's County, Florida, for the design and project delivery of a water reclamation facility. This facility will treat 3.25 million gallons of water daily for beneficial reuse with 13 miles of transition pipeline to deliver reclaimed water for residential irrigation. In transportation, we have a long-term relationship with Brightline West and have been awarded the design of the 218-mile high-speed rail linking Las Vegas to Southern California. Right Line West, through a partnership with Nevada, successfully secured $3 billion in grants from the Federal Railroad Administration as part of the IIJA funding.
Bob: Notably the worlds largest chipmaker TSMC is currently building a new semiconductor facility in Arizona, we have been selected for the first phase of the design and project delivery of the campus campuses industrial reclaimed water claims in.
Bob: In addition, multiple states in the U S are developing regional water supply plans to balanced water availability and economic growth.
Bob: As an example of such work we were awarded a $191 million project in St. Johns County, Florida for the design and project delivery of a water reclamation facility.
Bob: This facility will reach two 5 million gallons of water daily for beneficial reuse with 13 miles of transmission pipeline to deliver reclaimed water for residents to irrigation.
Bob: In transportation, we have a long term relationship with brightline West and have been awarded the design of the 218 mile High speed rail 19, Las Vegas to Southern California.
Bob: Brightline West through a partnership with Nevada successfully secured $3 billion in grants from the Federal Railroad administration as part of the <unk> funding.
Robert Venkat Pragada: In Life Sciences, we're supporting Lilith with the permitting and conceptual design for their injectable manufacturing facility, and Aldi Germinant to support an increased demand for their medicines, including their diabetes and obesity portfolio. We continue to secure additional large engagements in the Middle East. For example, we were appointed to provide preliminary and detailed design and supervision services for utility and road infrastructure, including major road upgrades, for Wadi Safar and Biryat Gate 2 in Saudi Arabia.
Bob: In life Sciences, we're supporting Miller with permitting and conceptual design for their injectable manufacturing facility in <unk>, Germany to support an increased demand for their medicines, including their diabetes and obesity portfolio.
Bob: We continued to secure additional large engagements in the middle East.
Bob: For example, <unk> been appointed to provide preliminary in detailed design and supervision services for utility and road infrastructure, including major road upgrades.
Bob: What is the bar in theory <unk> in Saudi Arabia.
Robert Venkat Pragada: In CMS, we performed very well in Q1, continuing the profitability trend demonstrated in FY23. CMS Q1 revenue was up 5% over the year, and operating profit increased 14% behind 63 basis points of margin expansion. Pipeline and Growth Outlook remain strong with major award prospects in FY24 and a light re-compete schedule. The CMS team is executing well and has great momentum as they prepare to be an independent. PA Consulting continues to take share, as demonstrated by an 8.5% revenue growth in what continues to be a choppy macro environment, particularly in the UK. Margins were light due to some softness in December. However, we continue to expect approximately 20% adjusted operating margins for the full year and have confidence in our ability to manage variable costs to achieve that goal.
Bob: And CMS, we performed very well in Q1, continuing the profitability trend demonstrated in FY2023.
Bob: <unk> Q1 revenue was up 5% year over year and operating profit increased 14% behind 63 basis points of margin expansion.
Bob: Its pipeline and growth outlook remains strong with major award prospects in FY, 'twenty, four and a light recompete schedule.
Bob: BMS team is executing well and has great momentum as they prepare to be an independent company.
Bob: <unk> consulting continues to take share as demonstrated by eight 5% revenue growth in what continues to be a choppy macro environment, particularly in the U K margins.
Bob: Margins were lighter due to some softness in December however, we continue to expect approximately 20%.
Bob: Yes.
Bob: Adjusted operating margins for the full year and have confidence in our ability to manage variable costs to achieve that goal.
Robert Venkat Pragada: Together with PA, we celebrated new wins with the Office of Gas and Electricity Markets in the UK for program management services and regulatory practices that will advance the safe and secure supply of hydrogen. Our Divergent Solutions Operating Unit delivered a solid quarter with 5% adjusted net revenue growth. However, profits were impacted by an approximately $15 million one-time charge in connection with the merge.
Bob: Together with Ta, we celebrated new wins with the office of gas and electricity markets in the U K.
Bob: For program management services, and regulatory practices that will advance the safe and secure supply of hydrogen.
Bob: Our divergent solutions operating unit delivered a solid quarter with 5% adjusted net revenue growth.
Profits were impacted by an approximately $15 million one time.
Bob: One time in connection with the merger.
Robert Venkat Pragada: The underlying performance in the business was strong and, excluding this write-down, adjusted operating margins would have been approximately 700 basis points higher and exceeded our expectations for the quarter. In summary, we remain well-positioned to grow while serving our clients with excellence and delivering science-based, digitally-enabled solutions for a more connected and sustainable world. And we continue generating strong free cash flow, which will enable us to return capital to shareholders as we chart our new path forward as two independent companies. Now, I'll turn the call over to Claudia to review our financial results in further detail. Thank you, Bob.
Bob: Underlying performance in the business with strong and excluded this write down adjusted operating margins would have been approximately 700 basis points higher and exceeded our expectations for the quarter.
Bob: In summary, we remained well positioned to grow while serving our clients with excellence and delivering science based digitally enabled solutions for a more connected and sustainable world.
Bob: And we continue generating strong free cash flow conversion, which will enable us to return capital to shareholders.
Bob: Chart, our new path forward as two independent companies now I'll turn the call over to Claudia to review our financial results in further detail. Thank you Bob.
Claudia: We are pleased with our Q1 results, which came in above our expectations.
Claudia Jaramillo: We are pleased with our Q1 results, which came in above our expectations. Our results illustrate our ability to deliver on our long-standing financial objectives while at the same time generating strong free cash flow and returning a significant portion of our cash to shareholders. So, let me begin by summarizing a few of the highlights for the quarter on slide seven. First quarter gross revenue grew 9.5% year over year, and adjusted net revenue grew 7%. GAAP operating profit was $204 million for the quarter and included $51 million of amortization for acquiring tangibles and $16 million of other transactions, separation related, restructuring, and other costs.
Claudia: Our results illustrate our ability to deliver on our long standing financial objectives.
Claudia: At the same time generating strong free cash flow and returning a significant portion of our cash to the shareholders.
Claudia: So let me begin by summarizing a few of the highlights for the quarter on slide 10.
Claudia: First quarter gross revenue grew nine 5% year over year and adjusted net revenue grew 7%.
Claudia: GAAP operating profit.
Claudia: Just wanted to add $4 million for the quarter and included $51 million of amortization for intangibles and $16 million of Io transaction separation with data a structuring and other costs. This includes $51 million associated with the separation of <unk>.
Claudia: Our adjusted operating margin was nine 8%.
Claudia Jaramillo: This includes $51 million associated with the separation of CMS. Our adjusted operating margin was 9.8%. I'll discuss the underlying dynamics during the reporting segment. CalPPS from continuing operations was $1.37 per share and included a $0.27 impact related to the amortization charge of acquiring tangible assets and $0.37 from transaction, restructuring, and other related costs. Excluding these items, first quarter adjusted EPS was $2.02, up 28% year-over-
Claudia: I'll discuss the underlying dynamics during the reporting segments.
Claudia: GAAP EPS from continuing operations was $1.37 per share and.
Claudia: <unk> included a 27.
Claudia: Related to the amortization charge of acquired Tangibles, and 37 cents from transaction restructuring and other related costs.
Claudia: Excluding these items first quarter, adjusted EPS was $2 and two sets up 28% year over year.
Claudia: Alright, adjusted EPS included <unk>.
Claudia: 49 cents benefits related to discrete tax items, and a 9% headwind related to the noncash inventory write down.
Claudia Jaramillo: Our adjusted EPS included a $0.49 benefit related to a discrete tax item and a $0.09 hand win related to the non-cash inventory rights. Q1 adjusted EBITDA was $328 million and was down 3.1% year-over-year, representing 10% of adjusted net revenue. Excluding the inventory write-down, adjusted EBITDA would be roughly flat year-over-year. The effective tax rates of 4.2% benefited from $61.6 million in discrete tax benefits related to the permanent reinvestment of capital gains associated with an overseas subsidiary. This tax benefit was incorporated in our annual guidance, and we continue to forecast a 22% annual effective tax rate in fiscal year 2024. We will no longer be adjusting our non-GAAP EPS to align with our full year effective tax rate expectations.
Claudia: Q1, adjusted EBITDA was $328 million and was down 1% year over year, representing 10% all question.
Claudia: Yes.
Claudia: Excluding the inventory write down adjusted EBITDA would be roughly flat year over year.
Claudia: The effective tax rate of four 2%.
Claudia: But as I say, that's from $61 $6 million in discrete tax benefits related to the permanent reinvestment of capital gains associated with an overseas subsidiary.
Claudia: This tax benefit was incorporated in our annual guidance and we continue to forecast a 22% annual effective tax rate to fiscal year 2024.
Claudia: We will no longer be adjusting our non-GAAP EPS to align with our full year effective tax rate expectations.
Claudia Jaramillo: With the entirety of the deferred tax benefits in Q1, we now expect quarterly effective tax rates to approximate 26 to 27% for each quarter of the remainder of the fiscal year. Finally, backlog was up 5% year over year. The revenue book to bill ratio was just over 1.12 times, with our gross profit and backlog increasing 6.1% year over year. Regarding the performance of our last webinar in the quarter, let's turn to slide 8. Studying with People and Places: Solutions.
Claudia: With the entirety of the deferred tax benefit in Q1.
Claudia: Now expect quarterly effective tax rate to approximate 26%, 27% for each quarter over the remainder of the fiscal year.
Claudia: Finally backlog was up 5% year over year.
Claudia: The revenue book to Bill ratio was Joseph.
Claudia: 112 times with our gross profit and backlog, increasing six 1% year over year.
Claudia: Regarding the format.
Our allowance.
Claudia: Let's turn to slide eight.
Claudia: Starting with people in places.
Claudia Jaramillo: Joanna Justin at Revenue: What's up? 8.4% year over year. However, adjusted operating profit was down slightly, resulting in adjusted operating margins of 13.7%.
Claudia: Q1, adjusted net revenue was up eight.
Claudia: Eight 4% year over year.
Claudia: Adjusted operating profit was down slightly resulting in adjusted operating margins of 13, 7%.
Claudia: However, excluding the impact of cost allocation changes previously mentioned.
Claudia Jaramillo: However, excluding the impact of cost allocation changes previously mentioned, adjusted operating profit would have resulted in approximately 7% year-over-year growth. We continue to see solid momentum in both growth and profitability in the business and anticipate four-year TDA and PAs adjusted operating margins to increase year-over-year inclusive of a previously mentioned increase in allocations of overhead. Moving to critical mission solutions
Adjusted operating profit would have resulted in approximately <unk> <unk>.
Claudia: 7% year over year growth.
Claudia: We continue to see solid momentum in both growth and profitability in the business and anticipate.
Claudia: <unk> adjusted operating margins to increase year over year inclusive of the previously mentioned increase in allocation of overhead costs.
Claudia: Moving to critical mission solutions.
Claudia Jaramillo: Our Q1 revenue increased 5% year over year, with backlog of 9% continuing a consistent trend of high single-digit growth over multiple quarters. We also continue to find avenues to operational improvement, with CMS operating margins rising by 63 basis points year-over-year. Shifting to Divergence Solutions.
Claudia: Our Q1 revenue increased 5% year over year with backlog.
Claudia: 9%.
Claudia: Continuing.
Claudia: <unk> trend of high single digit growth over multiple quarters.
Claudia: We also continue to find avenues to operational improvements with CMS operating margins right, Tim by 60 basis points year over year.
Claudia: Shifting to <unk> solutions.
Claudia Jaramillo: Thank you all. Our adjusted net revenue increased by 4.7% year over year. Underlying execution was strong. Adjusted operating profit was $8 million, including the $15 million inventory write-down.
Speaker Change: Thank you and our adjusted net revenue increased by $4.
Speaker Change: Year over year.
Speaker Change: Underlying execution was strong.
Speaker Change: Adjusted operating profit was $8 million, including the $15 million inventory write that.
Claudia Jaramillo: Excluding the one-off write-down, performance was above expected. Now, let's turn our attention to the A-Comp. Q1 saw an 8.5% year-over-year revenue increase. VA continues to deliver ongoing positive momentum in bookings and pipelines. However, the UK's ongoing election cycle introduces macro risks that we are closely monitoring.
Speaker Change: Excluding the one off write down performance was above expectations.
Speaker Change: Now, let's turn our attention to vehicle cycle.
Speaker Change: Q1 saw an eight 5% year over year revenue increase.
Speaker Change: Continuous to deliver ongoing positive momentum in bookings and pipeline.
Speaker Change: However.
Speaker Change: Face ongoing election cycle introduces macro risks that we are closely monitoring.
Claudia Jaramillo: We remain confident in our ability to navigate these factors by managing variable costs and are targeting approximately 20% adjusted operating margins for the full year. In total, the Trump Order for each of our segments from an execution standpoint, adjusted and allocated corporate costs were $59 million in Q1. This quarter's costs excluded previously mentioned costs that are now being allocated to the PMPS segment.
Speaker Change: We remain confident in our ability to navigate these factors by managing variable costs and are targeting approximately 20% adjusted operating margins for the full year.
Speaker Change: In total.
Speaker Change: Wilson.
Speaker Change: Second quarter for each of our segments from an execution standpoint.
Speaker Change: Our adjusted unallocated corporate costs were $59 million. Thank you Juan.
Speaker Change: This quarter's cost excluded the previously mentioned Costa are now being allocated to the <unk> segment.
Claudia Jaramillo: As we continue to enhance operational efficiencies and optimize our operating model, we expect this line item to trend towards $50 million per quarter or $200 million annually post-depression. Turning to slide nine to discuss our balance sheets and cash, we posted another quarter of strong cash flow generation, which is indicative of the quality of our earnings and cash conversion. As both mentioned, we generated strong quarterly free cash flow of $401 million.
Speaker Change: As we continue to enhance operational efficiencies in our operating model. We expect this line item to trend to trend towards $50 million per quarter or $200 million annually.
Speaker Change: Annually.
Speaker Change: Yes.
Speaker Change: Turning to slide nine to discuss our balance sheet and cash flow.
Speaker Change: We posted another quarter of strong cash flow generation, which has been big kudos for the quality of our earnings and cash flow question.
Speaker Change: As Bob mentioned, we generated strong quarterly free cash flow of $401 million.
Claudia Jaramillo: As a result, we are well positioned to deliver our anticipated 100% reported and adjusted pre-cash flow conversion to adjusted net earnings. Regarding capital allocation, we opportunistically repurchased $100 million of shares during the quarter, reflecting our commitment to delivering consistent returns to our shareholders. We still have $775 million remaining under last year's repurchase authorization, and as we have said, we will remain dedicated to returning capital to shareholders in aligning with our overarching goal of compounding free cash flow per share. We remain committed to maintaining an investment-grade credit profile. We entered the quarter with cash of $1.14 billion and gross debt of $2.9 billion.
Speaker Change: As a result, we are well positioned to deliver our anticipated, 100% reported and adjusted free cash flow conversion to adjusted net earnings.
Speaker Change: Regarding capital allocation.
Speaker Change: We are fortunate stickley repurchased $100 million of shares during the quarter, reflecting our commitment to delivering consistent returns to our shareholders.
Speaker Change: We still have $775 million remaining on the.
Speaker Change: Last year's repurchase authorization.
Speaker Change: And as we have said, we will remain dedicated to returning capital to shareholders and aligning with our overarching goal of compounding free cash flow per share.
Speaker Change: We remain committed to maintain.
Speaker Change: They've been great credit profile.
Speaker Change: We ended the quarter with cash of 1.14 billion and gross debt of $2 9 billion.
Claudia Jaramillo: Our Q1 net debt to adjusted EBITDA of approximately 1.2 times is a clear indication of the continuing strength of our balance sheet. As of the end of Q1, approximately 35% of our debt is tied to floating rate debt, and our weighted average interest rate was approximately 5.1%. Finally, our strong balance sheet and free cash flow will remain committed to our quarterly dividends. The board has authorized an 11.5% increase to $0.29 per quarter, and our quarterly dividend will be paid on March 22nd. With this, we have increased our dividends each year since 2018, driving a nearly 12% dividend CAGR over that period. Now, I will turn it back to Bob. Thank you, Claudia. Turning to slide 10.
Speaker Change: Our Q1 net debt to adjusted EBITDA of approximately one two times is a clear indication of the continued strength of our balance sheet.
Speaker Change: As of the end of Q1.
Speaker Change: Timothy with 75% of our debt is tied to floating rate debt and our weighted average interest rates was approximately 541%.
Speaker Change: Finally.
Speaker Change: Our strong balance sheet and free cash flow, we remain committed to our quarterly dividend.
Speaker Change: The board has authorized an 11, 5% increased to 29 cents per quarter and our quarterly dividend will be paid on March 20 seconds.
Speaker Change: With this we have increased our dividend each year since 2018, driving a nearly 12% dividend CAGR over that period.
Speaker Change: Now I will turn it back to Bob Thank you Claudia turning to slide 10.
Robert Venkat Pragada: We continue to be energized as interest in our science-based, digitally-enabled solutions remains robust as clients engage Jacobs to solve their most complex challenges. Internally, we remain focused on execution and continue to deliver against our operational and financial objectives. We reiterate our outlook for fiscal 2024 adjusted EBITDA of $1.53 billion to $1.60 billion with adjusted EPS of $7.70 to $8.20, representing 9% and 10% growth at the midpoints, respectively. This guidance incorporates Q1 adjusted EPS of $2.02 and, as Claudia shared, a 26-27% adjusted effective tax rate each quarter for the remainder of this fiscal year.
Bob: We continue to be energized as interest in our science based digitally enabled solutions remains robust as clients engage jacobs to solve their most complex challenges.
Bob: Internally, we remain focused on execution and continuing to deliver against our operational and financial objectives.
Bob: We reiterate our outlook for fiscal 2024, adjusted EBITDA of 153 billion to $1 601 billion with adjusted EPS of $7 72.
Bob: To $8 20.
Bob: Representing 9% and 10% growth in the mid points respectively.
Bob: This guidance incorporates Q1, adjusted EPS of $2 <unk> and is Claudia shared a 26% to 27% adjusted effective tax rate each quarter for the remainder of this fiscal year.
Robert Venkat Pragada: Though we expect a heavier-than-normal cost structure until separation, particularly in the first half, we anticipate accelerating EPS growth in the second half of the fiscal year. In closing, we've maintained focus on standing up both independent companies, Jacobs and CMS, for success while streamlining and optimizing our operating model and positioning both companies for long-term value creation. Operator, we will now open the call for questions. Thank you. 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.
Bob: Though we expect a heavier than normal cost structure until separation.
Bob: Recap, we anticipate accelerating EPS growth in the second half of the fiscal year.
Bob: In closing we've maintained focus on standing up both independent Jacobs and CMS for success.
Bob: Streamlining and optimizing our operating model and positioning both companies for long term value creation.
Speaker Change: Operator, we will now open the call for questions.
Speaker Change: Thank you 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. We ask that you. Please limit yourself to one question and one follow up to allow everyone an opportunity to ask a question.
Audra: We ask that you please limit yourself to one question and one follow-up to allow everyone an opportunity to ask a question. We'll go first to Andy Wittmann at Baird. Oh great, excuse me.
Speaker Change: We'll go first to Andy Wittmann at Baird.
Andrew John Wittmann: Oh, great excuse me.
Andrew John Wittmann: Thanks for taking my question. I guess for those who are unfamiliar, including myself to some extent here, with the SG&A reallocation into the segment. I think what you're saying there is, in these reimbursable public sector customers that you have, if you can show, if it's in the segment, you can get paid basically for those costs. I think that's the mechanism.
Andrew John Wittmann: Thanks for taking my question.
I guess.
Andrew John Wittmann: For those who aren't familiar including myself to some extent here.
Andrew John Wittmann: SG&A reallocation into the segment.
Andrew John Wittmann: I think what you are saying there is if any is reimbursable public sector customers that you have.
Andrew John Wittmann: If you can show or if it's in the segment you can get paid basically.
Andrew John Wittmann: Those costs I think thats the mechanism I just wanted to clarify that and maybe Claudio could you talk about what the what's the dollar amount on an annual basis is on the reallocation from the SG&A line into the segment.
Claudia Jaramillo: I just wanted to clarify that. And maybe, Claudia, could you talk about what the dollar amount on an annual basis is for the reallocation from the SG&A line into the segment? Yeah, Andy, it's a great question. It's actually a nice lead in.
Claudio: Yeah, Andy It's a great question, it's actually a nice lead in so your assessment of that Recoverability is correct and if you just kind of just moment for a moment kind of pre planning for the separation and outposts pre we had a lot of shared costs and so the direct applicability to the segment.
Claudia Jaramillo: So your assessment of that recoverability is correct, and if you just kind of just moment for a moment, take some kind of pre-planning for the separation and outpost. Prior to this, we had a lot of shared costs, and so the direct applicability to this segment was not as clear. And since we started this, we have had a great opportunity to now have direct line of sight to where these costs are being applied. We hit it right at the beginning of the audit cycle, the government audit cycle in Q1, and now have the full year of applying those costs.
Claudio: It was it was not as clear since we started this we had a great opportunity to now have direct line of sight to where these are being applied.
Claudio: Hit it right in the beginning of the audits I called the government audit cycle in Q1, and now have the full year of applying those costs. So that's that's.
Claudia Jaramillo: So that's correct. Now, for the full year amount, it would be the $17 million that we identified this year, sorry, this quarter, multiplied by four, but remember, over each quarter, that goes down because of the recoverability effect. Chad Dillard, Nathan, Yeah, yeah, I guess it does the I mean the it's so I guess with the corporate unallocated reported at 59 million dollars for the quarter. I guess what you're saying is unadjusted, that number would have been 17 million dollars higher, in other words, that's 59 benefits from the 17 that was moved, I see. So can you just talk about underlying that business thinking or Were there any other costs that were notable in terms of separation or other things through the SG&A line right now?
Claudio: That's correct now on the full year amount it would be the 17 million that we that we are.
Claudio: I identified this year I'm, sorry this quarter.
Claudio: Multiplied by four but remember over over each quarter that goes down because of the cover annuity effect.
Speaker Change: That makes sense.
Speaker Change: Yeah, I guess it does the I mean the.
Speaker Change: So I guess.
Speaker Change: In the corporate unallocated reported at $59 million for the quarter I guess, what Youre, saying is unadjusted that number would have been $17 million higher in other words that fits indirect benefits from the 17 that was moved.
Speaker Change: So can you just talk about underlying that business. Thank you.
Speaker Change: Underlying the underlying costs.
Speaker Change: For the corporate unallocated were there any other.
Speaker Change: Costs that are notable in terms of.
Speaker Change: Separation or other things through the SG&A line right now certainly theres been these efficiency initiatives that you've talked a lot about but is there anything else. We should know about that wasn't excluded from that corporate unallocated line.
Claudia Jaramillo: Certainly, there have been these efficiency initiatives, Bob, that you've talked a lot about. But is there anything else we should know about that wasn't excluded from that corporate unallocated budget? No, no, the $9 million in transition costs. I took it to $59 million, and then the $17 million that we were able to, from a positive standpoint, move into PNPS and get recoverability on it. I will say, Andy, we are making progress on kind of our overall cost optimization or reductions that we started at the beginning of the year, to where we'll be right on plan with what we identified last year. Thanks. We'll go next to Mike Dudas at Vertical Research Partners. Good morning, Claudia.
Speaker Change: No no the $9 million of transition costs.
Speaker Change: To get to 59, and then the 17 that we.
Speaker Change: But we were we were able to from a positive standpoint and move into <unk> and get Recoverability on it was was it I will say, we are making progress on kind of our overall.
Speaker Change: Cost optimization or reductions that we've we started the beginning of the year.
Speaker Change: To where we'll be we'll be right on plan of what we identified last quarter.
Speaker Change: Okay. Thanks.
Speaker Change: We will go next to Mike Ddos at vertical research partners.
Michael Feniger: Hey, good morning, the quality of that Jonathan Bock.
Michael S. Dudas: Good morning. Maybe you can share a little bit more on PP&S relative to the pipeline as it stands today. You talked a little bit in your pre-remarks about margin improvement. How's that track as we go through fiscal year 2024? Are you getting better share on higher margin projects, maybe early consulting advisory relative to design work in some of these projects? And what areas do you anticipate? Some of the better revenue.
Michael Feniger: Hey, Mike Good morning.
Michael Feniger: Maybe you can share a little bit more on Pts relative to the pipeline as it stands today, you talked a little bit in your prepared remarks about margin improvement in backlog.
Michael Feniger: Does that track as we go through fiscal year 2024.
Michael Feniger: You're getting better share in higher margin projects, maybe early consulting and advisory relative to design work and some of these projects.
Michael Feniger: What areas do you anticipate.
Michael Feniger: Some of the better revenue and bookings growth in the Pts segment as we move through 2020. Thank you.
Robert Venkat Pragada: Booking Growth Yeah, Mike, it's a great question. So the short answer is yes, we are starting to see that margin increase according to the profile in the mix. And I'd probably index more towards the water market right now in the mix. Just to give you an example, year on year growth in our bookings for water has gone up 30%. The other kind of notable one is what we call cities and places, but it's kind of our built environment business. It's been really driven by the Middle East.
Speaker Change: Yes, Mike.
Speaker Change: Question. So the short answer is yes, we are starting to see that margin increase according to the profile in the mix and I'd, probably index more towards the water market right now on the mix.
Speaker Change: Give you a statistic.
Year on year growth in our bookings and water have gone up 30%.
Speaker Change: The other kind of notable one is what we call cities in places, but it's kind of our our our built environment business. It's been really driven by the middle East that year on year has been about 40% and what's kind of positive about both of those and that never thought, but I'd say this before but from a cash standpoint, and a margin standpoint.
Robert Venkat Pragada: That year on year has been about 40%. And what's kind of positive about both of those, and I never thought that I'd say this before, but from a cash standpoint and a margin standpoint, you know, we're hitting company-wide type of margin targets in the Middle East, which is positive. And then the water sector has traditionally been our higher-margin component of our business. So, kind of two trends there, and we're about for bookings and Outlook as we move. For more information, please visit www.fema.gov or www.globalonenessproject.org Transcription by ESO.
Speaker Change: We're hitting.
Speaker Change: Company wide type of margin targets in the Middle East, which is a positive and then the water sector has traditionally been our higher margin.
Speaker Change: <unk> of our business, so kind of two trends there.
Speaker Change: Okay.
Speaker Change: Okay and what about for.
Speaker Change: Bookings in the outlook as we move through 2024 of those areas you touched furnace or other areas given.
Speaker Change: Life Science.
Speaker Change: That will work, yet you're showing etcetera.
Robert Venkat Pragada: Yeah, so moving forward, we're starting to see some pretty exciting developments happening within the life sciences world, you know, that, as we've talked about it before, it's been red hot for several years, and say, the last couple of quarters, you know, we've seen it hasn't declined, but it hasn't been, you know, accelerating the way it was in the past. Just in the last six weeks, we've had some really deep conversations with these are tier one clients we've had forever. That hopefully, we'll be reporting some really good news next quarter on those jobs. I did mention the Lilly job in Germany, you know; that portfolio, specifically around the GOP one, has continued to be strong. Novo just announced the acquisition of Catalan, those Catalan facilities are going to need to be retrofitted, and we were already in the middle of Novo's work. So that's a real positive too.
Speaker Change: Yes. So so moving forward, we are starting to see some some pretty exciting developments happening within the life Sciences World.
Speaker Change: As we've talked about it before.
Speaker Change: It's been Red Hot for for several years I'd say the last couple of quarters.
Speaker Change: We've seen it hasnt declined but it hasn't been accelerating the way it was in the past just in the last six weeks we've had.
Speaker Change: Some really.
Speaker Change: Deep conversations with these are tier one clients we've had forever.
Speaker Change: That hopefully we'll be reporting some really good news.
Speaker Change: Next quarter on those jobs I did mentioned that Lilly job in Germany that portfolio, specifically around GOP won has continued to be strong Novo just announced the.
Speaker Change: The acquisition of Cadillac those katalin facilities are going to need to be retrofitted and we were already in the middle of Novo's work. So that's a real positive too. So I've looked at life Sciences getting back and then the chip manufacturing World has been kind of at the <unk>.
Robert Venkat Pragada: So I've looked at life sciences, you know, getting back, and then, you know, the chip manufacturing world has been kind of at the, as our design work continued, from an external semi-market standpoint, you know, we're now on the upswing of a new cycle. And so we're seeing more work around the tool OEM. So a lot of the R&D work in order to support these manufacturing facilities on higher-powered chips really driven by AI has been a has been a nice early booking. So, kind of concept work that's happening there. Thank you. We'll move to our next question from Andre Kaplowitz at City. Hey, good morning, everyone. Hi, Andy. How are you?
Speaker Change: As our design work continued.
From an external semi market standpoint, we're now on the upswing of a new cycle and so we're seeing more work around.
Speaker Change: The tool OEM, so a lot of the R&D work in order to support these manufacturing facilities on higher power chips really driven by AI has been a has been.
Speaker Change: A nice early bookings so kind of concept work that's happening there.
Speaker Change: Thank you Bob.
Speaker Change: We will move to our next question from Andre Kaplowitz at Citigroup.
Andrew Kaplowitz: Hey, good morning, everyone.
Hi, Andy how are you.
Andrew Kaplowitz: So Bob just following up on Mike's question, you mentioned water overall, the middle East driving your overall people in places of business, which is great. But are there any areas that you are worried about on that side you mentioned the U K for <unk>, but not really sure when people in places and your backlog was up nicely in the quarter does it just continue to.
Andrew Kaplowitz: Good. So Bob, just following up on Mike's question, you mentioned water overall, the Middle East driving your overall people and places business, which is great, but are there any areas that you are worried about on that side? You mentioned the UK for PA, but not really for people and places.
Robert Venkat Pragada: And your backlog was up nicely in the quarter. Does it just continue to sequentially rise? Yeah, I think the answer to the last part, Andy, is yes. And from a margin, from a P&L margin perspective, you know, we feel comfortable that our year-on-year increase that I mentioned in the script is real. And so the year-on-year margin increased year-on-year. If there were areas where I'd say SOF might be too strong, but if there were areas that, you know, we've got a high level of attention on, it would be the UK. You know, we've been able to stay in a flat in the UK, which is a positive.
Andrew Kaplowitz: Sequentially rise from here.
Speaker Change: Yes, I would say.
Speaker Change: Answer to the last part Andy is yes.
And from a margin from a P&L margin perspective, we feel we feel comfortable that our year on year increase that I mentioned in the script is real and so year on year margin increase year on year.
Speaker Change: There were areas, where I'd say soft might be too strong, but if there were areas that we've got a high level of attention on it is the U K we have.
Speaker Change: Been able to stay flat and the U K, which which is which is a positive.
Robert Venkat Pragada: The National Infrastructure and Construction Report just published here, I think it was Friday, and the UK government is committing to the same level of spend, you know, 775 billion pounds over the course of the next 10 years, with some consideration for inflation. So that's an area that, you know, we're continuing to put some attention on to make sure that we continue to grow it, but overall, Bob, that's helpful.
Speaker Change: But we did have the.
Speaker Change: The national infrastructure and construction and construction report just published here.
Speaker Change: It was a Friday and the.
The UK government committing to the same level of spend.
Speaker Change: 775 billion pounds over the course of the next 10 years with some consideration for inflation. So that's an area that we are.
Speaker Change: We're continuing to put some attention on.
Speaker Change: To make sure that we continue the growth, but overall positive.
Speaker Change: That's helpful. And then maybe just on divergent solutions I know a piece of it is going to go with the RMT, but maybe a little more color on the inventory write down divergence just as you know like the underlying margins good, but it's kind of been all over the place a little bit over the last several quarters. So what is the Virgin look like as you go forward you know, let's say post.
Robert Venkat Pragada: And then, you know, maybe just on divergent solutions. I know a piece of it is going to go with the RMT, but, you know, maybe a little more color on the inventory write-down. Divergence, as you know, like, the underlying margin is good, but it's kind of been all over the place a little bit over the last several quarters. So what does divergent look like as you go forward, you know, let's say post-RMT for Jacobs? Yeah. So let me just clarify one thing, Andy.
Speaker Change: T for Jacobs.
Speaker Change: Yeah. So let me just clarify one thing Andy the inventory write down has to do with the cyber and intelligence business and that actually is in the perimeter.
Robert Venkat Pragada: The inventory write-down has to do with the cyber and intelligence business, and that actually is in the perimeter and will be going. And it's really a part of the separation of financials and inventory that we had to dispose of. So that's not in the piece that will continue with Independent Jacobs.
Speaker Change: We will be going and it's really a part of the separation financials in inventory that we had to we had a disposition. So that's not in the piece that will that will continue with independent Jacobs.
Robert Venkat Pragada: We see more of it, and we're working on this operating model right now. Transportation, water, and what we're doing in the built environment around digital enablement being a strong horizontal crosscutter through the entirety of the business. So simplifying our reporting as well as taking all those successes that we had within the transportation and water digitization and digital enablement and integrating them into what will now be Independent Jacobs. And so much more to follow on that. I appreciate the color.
Speaker Change: See more of it and we're working on this operating model right now transportation water and what we're doing in the built environment around digital enablement.
<unk> a strong horizontal across cutter through now the entirety of the business. So simplifying our reporting as well as taking all the successes that we had within the transportation and water.
Speaker Change: Digitization and digital enablement and integrating them into now what will be independent Jacobs and so much more to follow on that.
Speaker Change: I appreciate the color.
Steven Fisher: Next, we'll move to Steven Fisher at UBS. Thanks, good morning. Bob, you mentioned that you were on track with the cost expectations you identified at the beginning of the year. So does that mean the $40 million of temporary costs and $275 million of restructuring are still the numbers to keep in mind? And if so, how much of that has been incurred to date?
Speaker Change: Next we'll move to Steven Fisher at UBS.
Steven Fisher: Hi, Thanks, Good morning, Bob you mentioned that you're on track with the cost expectations you identified at the beginning of the year. So does that mean, the $40 million of temporary cost.
275 million of restructuring are still the numbers to keep in mind.
Steven Fisher: And if so how much of that has been incurred to date is that the 17, plus benign portion of $40 million be lower now that youre going to be getting reimbursed for some of that yes.
Robert Venkat Pragada: Is that the $17 million plus the $9 million? Or should the $40 million be lowered? beginning reimbursement.
Robert Venkat Pragada: Yeah, Steve, thanks for the question. That's a good clarification. So the first part of your question is yes, those 275 and the 40 are still very much in play. I'd say on the 40, that's not the, The $9 million was what was incurred in the first quarter. And so, you know, The balance would be over the course of the next three quarters, and we're indexing probably more in the first half than the second half, so hopefully that clarifies that. But yeah, we're still on track with the numbers that we highlighted in the previous. The 17 is not included in that.
Bob: Yeah, Steve Thanks for the question that's good clarification. So the first part of your question is yes.
Bob: $2 75, and the 40.
Bob: Our are still very much in place.
Bob: Hey on the 40% that's not.
Bob: The debt.
Bob: Okay.
The $9 million was what was incurred in the first quarter.
Bob: And so.
Bob: The balance.
Bob: <unk> would be over the quarters through the next three quarters, and we're indexing probably more in the first half than the second half so hopefully that clarifies that.
Bob: But yes, we're still on track with the numbers that we.
Bob: So we highlighted in the previous quarter.
Bob: 17 is not included in that 17 is our costs that are with us they're recoverable. That's why we moved them into the segment.
Robert Venkat Pragada: The 17 are costs that are with us, they're recoverable, that's why we moved them into this segment. And Steve, I'll add to the $275. We're also on track. And for that, it's the $51 million that I mentioned in my prepared remarks. Okay, that's helpful.
Speaker Change: Yes, Steve I'll add to the 275, we're also on track for that as a $51 million that I mentioned in my prepared remarks.
Speaker Change: Okay. That's helpful and then the 14, 6% margin for <unk>.
Robert Venkat Pragada: And then the 14.6% margin for PNPS. Is that on the same basis as the 13.7% in Q1? I assume it is. And if so, then how quickly do we get above that 14.6% to kind of deliver it for the four-year? Given the lighter side, yeah, Steve, the answer to their first question is yes, and I'd say within the next few quarters. Okay, so in other words, Q2, we should still be expecting it to be below that or, No, no, no, no. It'll sequentially increase over the next few quarters to where Q4 will be above where we were last year. Okay, I'm just for the year. Yeah, for this year, for this year. This year it will be higher than last year, year-on-year total. Right, this year you're guiding to 14.6 percent, right? Do I have that right? So it's better than 14.6.
Speaker Change: Is that on the same basis as the 13, 7% in Q1 I assume it is and.
Steve: And if so then how quickly can we get above that 14, 6% to kind of deliver it for the full year given the lighter side in Q1.
Speaker Change: Yes, Steve to answer the first question is yes.
Steve: And I'd say within the next few quarters.
Steve: Okay. So in other words Q2, we should still be expecting it to be.
Speaker Change: Below that or.
Speaker Change: No no no no.
Speaker Change: Sequentially increase over the next next few quarters to where Q4 will be above where we were last year.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes for this year.
Speaker Change: Okay for this year. So this year will be higher than last year year on year total.
Speaker Change: Right. So this year, you're guiding to 14, 6% right do I have that right.
Speaker Change: So better than $14 six so last year was 49, 7%.
Robert Venkat Pragada: So last year it was 14.6. Right. And then this year it will be better than 14.
Speaker Change: <unk> and then this year will be better than 14 point Sir.
Robert Venkat Pragada: Right, and if you're 13.7 for the quarter, you have to start being better than 14.6. So I guess I'm just trying to figure out how quickly we get better than four. It will be a gradual increase. Yeah, it'll increase in the second half. And, and we'll see that within our reported financials. That's why Steve, that's why I said a few quarters. Yeah. Thank you very much. We'll take our next question from Jerry Revich at Goldman Sachs. Hi, this is Adam speaking for Jerry today. Thanks so much for taking my question. Hi, how are you?
Speaker Change: And if you've already seen $7 for the quarter.
Speaker Change: Got to start being better than 14 six.
Speaker Change: I guess I'm, just trying to figure out how quickly we get better than $14 six.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: Okay.
Speaker Change: Yes, if index over the second half and.
Speaker Change: And we'll see that within our reported financials, that's why Steve That's why I said a few quarters.
Speaker Change: Okay got you. Thank you very much.
Speaker Change: We will take our next question from Jerry Revich of Goldman Sachs.
Speaker Change: Hi, This is Adam on for Gary today. Thanks, So much for taking my question.
Adam: Can you talk about hi, how are you can you talk about more about what drove the.
Operator: Can you talk about more about what drove the, you know, 280 plus margin decline in PA consulting, even with revenues higher sequentially? And then what drives visibility on the margin ramp through the balance of the year? Sure.
Adam: 280, plus margin decline MPA consulting even with revenues higher sequentially and then what drives the visibility on the margin ramp through the balance of the year.
Adam: Sure.
Claudia Jaramillo: So what drives the second part first, Adam, the pipeline, as well as the, we call it, the stock of work in PA, but it's backlog is driving the optimism there, as well as that, you know, the team really does have their arms around the variable cost structure of the entity, similar to Jacobs, it's a people business, asset light, and, you know, services oriented. The drop was probably driven a little bit by some volatility among our clients in December. And the discretionary spend of... And it was kind of more about UK business and around what was going on within the UK government, defensive security, as well as public sector work. And so that kind of... If it stops on a dime, we can't make those variable cost actions. And so we end up seeing that in the quarter. That has since kind of returned.
Adam: No.
Speaker Change: The answer to the second part first Adam.
Speaker Change: The pipeline as well as the <unk>.
Speaker Change: Call it stock of work NPA, but its backlog.
Speaker Change: Is driving the optimism there as well as the team really does have their arms around.
Speaker Change: The variable cost structure of DXP similar to Jacobs.
Speaker Change: It's a people business.
Asset light and services oriented.
Speaker Change: The drop was probably driven a little bit by some volatility with our clients in December.
Speaker Change: And the discretionary spend.
Speaker Change: It was kind of more in the U K business and around.
Speaker Change: What was going on within the UK government.
Speaker Change: Defense and security as well as the public sector work.
Speaker Change: And so that was that kind of.
Speaker Change: If it stops on a dime.
Speaker Change: Can't make those variable costs.
Speaker Change: And so we have seen that in the quarter that has since returned and and then we're managing our variable costs.
Claudia Jaramillo: And then we're managing our variable costs ahead of it, similar to what we did mid last year. And then on the top line, solid growth this quarter, you know, high single digits, but comps get a little harder from here. How are you thinking about the organic growth outlook and the balance of the year mid, you know, some of the things going on in the UK market? Yeah, I think we're doing that kind of mid single digits to mid high singles. If it isn't the three years of double-digit growth, and so we're still growing, I think we're probably kind of in that mid-single-digit growth. Great. Thank you. Next, we'll move to Chad Dillard at Bernstein. Chad, your line is open. Please go ahead. Sorry, I was on mute. Hey, good morning, guys. Hi Chad.
Speaker Change: Ahead of it similar to what we did mid last year.
Speaker Change: And then on the top line solid growth this quarter.
Speaker Change: High single digits, but the comps get a little harder from here how are you thinking about the organic growth outlook in the balance of the year.
Speaker Change: Some of the things going on in the UK market.
Speaker Change: Yeah, I think we're still in that kind of mid mid single digits.
Speaker Change: <unk>.
Speaker Change: To mid high.
Speaker Change: Singles.
Speaker Change: Great. Thank you so much.
Speaker Change: The multi year three years been double digit growth and so we are we're still growing I think we'd probably kind of in that mid single digit growth now.
Great. Thank you.
Speaker Change: And next we'll move to Chad Dillard at Bernstein.
Speaker Change: Okay.
Chad Dillard: Chad Your line is open. Please go ahead.
Chad Dillard: Sorry, I was on mute.
Chad Dillard: Hey, good morning, guys.
Chad Dillard: Hi, Chad so okay. So I wanted to spend a little more time on just like what you're seeing from a booking standpoint.
Chad Dillard: Hey, so I wanted to spend a little more time on just like what you're seeing from a booking standpoint in people and places. So, first, this is just like on the semiconductor side. So it sounds like, you know, there are a number of grants to be announced by the US in March. To what extent do you think that could potentially unlock more activity from a design standpoint? And then just like, what are you seeing from a domestic versus international perspective, just for some design? Yeah, so, let me answer the first one, Chad, just writing some notes.
Chad Dillard: People in places.
Chad Dillard: So first places just like on the semiconductor side. So it sounds like there's a number of grants to be announced by the U S. In March.
Chad Dillard: To what extent do you think that could potentially unlock with more activity from a design standpoint.
Chad Dillard: And then just like what are you seeing from a domestic versus international perspective, just pursuing design.
Speaker Change: Yeah. So.
Speaker Change: You can answer the first one.
Speaker Change: Chad just read some notes on.
Speaker Change: On the.
Robert Venkat Pragada: On the grants that are coming out, I would probably, similar to what I said to Mike Dudas, that those grants are being utilized predominantly in the R&D side, right? Because these larger facilities need to get to full production. And so the larger IDMs, or the integrated device manufacturers, are probably thinking more about the semiconductor bicycle, right? And timing their output, or the startup of those large plants.
Chad Dillard: On the grants that are coming out I would probably.
Chad Dillard: Similar to what I, what I said to Mike Dudas.
Chad Dillard: Those grants are being utilized predominantly in the R&D side right because these larger facilities need to get to full production.
Chad Dillard: So the larger IDM or the integrated device manufacturers are probably thinking more about the semiconductor by cycle right and timing there there are their output or the startup of those large plan. So those grants then go to where technology advancements are happening and that's happening at the tool Oems and so.
Robert Venkat Pragada: So those grants then go to where technological advancements are happening, and that's happening at the tool OEM. And so actually, that's kind of driving our bookings right now as well, those tool OEMs. The great thing about Jacobs is, you know, we're inside the technology of the tool and understand the facility requirements for them.
Chad Dillard: Actually those are that's kind of driving our bookings right now as well both to the Oems the great thing about Jacobs is where inside the technology of the tool and understand the facility requirements for them. So we've got a nice position there and that's what's kind of driving the bookings within the semi piece.
Robert Venkat Pragada: So we've got a nice position there, and that's what's kind of driving the bookings within the SEMI piece. You know, right now, I'd say that it's predominantly domestic. We are seeing some activity in Europe around the EU CHIPS Act, but really, the business is probably more indexed towards the domestic piece. I would say that the country that we're really watching and are in the midst of, and I was just there in December, is the growth of foreign direct investment in India. And as chip manufacturing potentially pivots from China into India, and so we're kind of on the front end of that as well, both large scale Indian clients as well as foreign companies that are non-Indian clients coming into India. Got it, that's super helpful.
Chad Dillard: Right now I would say that predominantly its domestic we are seeing some activity in Europe around the EU chips Act, but really the businesses probably more indexed towards.
Chad Dillard: Towards the domestic piece I would say that the country that we're really watching and.
Chad Dillard: In the midst was just there in December.
Chad Dillard: Is the growth of foreign direct investment in India, and as chip manufacturing potentially pivots from China.
Chad Dillard: And in India, So into India, and so we're we're kind of on the front end of a VAT as well both large scale Indian clients as well as foreign companies that are non Indian clients coming in India.
Speaker Change: Got it that's super helpful.
Chad Dillard: And then just going back to the cost reallocation from cold brown allocated to people and places, just trying to get a sense for how long it'll take before you actually get a chance to hit the P&L. Do you have to go through like a full bid cycle? In other words, do you have to fully turn over the backlog before you see those benefits? No, it's gradual.
Speaker Change: And then just going back to the cost reallocation from corporate unallocated to people in places.
Speaker Change: Just wanted to get a sense for like how long it'll take before you actually get chance to hit the P&L.
Speaker Change: Do you have to go through like a full bid cycle. So in other words, you have to like fully turned over the backlog before you see those benefits.
Speaker Change: No its gradual scribed for sort of the piece that starts.
Robert Venkat Pragada: It's gradual. So he said, "The next quarter, I'd say from a full kind of actualization of those costs that goes in, it's about a 12 to 24-month cycle, but just to reiterate, Chad, we're reiterating our year-on-year margin improvement, even with the gradual recoverability of that overhead." Thanks, guys. We'll go next to Sabahat Khan at RBC. Great. Thanks, and good morning.
Speaker Change: The next quarter I would say from a full kind of.
Speaker Change: Actualization of those costs that goes in it's about a 12 to 24 month cycle, but just to reiterate that we're reiterating our year on year margin improvement, even with the gradual recoverability of that overhead.
Got it thanks guys.
Solveig Haugland: We'll go next to solve a hot cod at RBC.
Solveig Kott: Great. Thanks, and good morning, just a follow up on the conversation earlier.
Sabahat Khan: Just to follow up on the PA conversation earlier, obviously, we see the bookings number, but I guess as you're talking to your clients in that space, are you seeing a bit of a pipeline build up there? The business is obviously a bit more macro-impacted than the PNNPS business, but just wondering where sort of the conversations are that aren't in the backlog right now for that business. Sure, I'd say that the two areas within PA that we're getting, you know, one is actually kind of ubiquitous in today's world, as well as within the PA world. And then I'll go to an end market sector, the use of AI and AI enablement in our clients' business as a driver of business transformation.
Solveig Kott: Obviously, we see the bookings number, but I guess as youre talking to our clients in that space are you seeing a bit of a pipeline buildup there the business, obviously a bit more macro.
Speaker Change: Impacted than the <unk> business, just wondering what sort of conversations are that aren't in the backlog right now for that business line.
Speaker Change: Sure I'd say that some of the two areas within <unk> that we're getting.
Speaker Change: One actually is kind of ubiquitous in today's world as well as within the <unk> World and then I'll go to an end market sector is the use of AI and AI enablement in.
Speaker Change: In our clients' business as a driver of business transformation.
Sabahat Khan: And so, to kind of toggle here, it's good for PA, it's good for Jacobs, in that the AI enablement is the start of the conversation. I think some clients, now this kind of goes to how quickly does that get into an engagement, get into backlog, we realize in P&L, that's kind of where we are right now, as far as, you know, where we are on the cycle. So AI is a big driver, but the timing and speed of how our clients are embracing it is driving some of the booking cycle. The second, from an end market standpoint, is life sciences.
Speaker Change: And so to kind of toggle here.
Speaker Change: It's good for <unk> is good for Jacobs in debit AI enablement is started the conversation I think some clients now this kind of goes to how quickly does that get into an engagement get into backlog, we realized in P&L, that's kind of where we are right now as far as where.
Speaker Change: Where we are in the cycle. So AI is a big big driver, but the timing and speed of how our clients are embracing it is driving some of the booking cycle. The second from an end market standpoint is it the life Sciences and so.
Robert Venkat Pragada: And so PA, you know, it's been able to take not just AI but other knowledge and look at the transformation of the whole clinical studies program, especially as that's kind of gotten more patient-centered with different types of therapies for each patient. PA has been right in the middle of all of that. And so that kind of has a tail on it as well. And then the last one that is really kind of starting to develop in our pipeline of PA is around the use of AI in early stage drug discovery. And it's a real, real early stage. I mean, clearly, the tier ones are way out ahead. But PA does it from more of a standpoint of how that's going to transform kind of the tier two and tier three clients. So, you know, some good stuff.
Speaker Change: It's been able to take not just AI, but other knowledge and look at the transformation of the whole clinical studies program, especially as is that's kind of gotten more patient centric with different types of therapies for each patient.
Speaker Change: We've been right in the middle of all of that and so.
Speaker Change: <unk> kind of got a payer liners as well and then the last one is really kind of started to developing our pipeline.
Speaker Change: Is around the use of AI in early stage drug discovery pizza its real real early stage I mean, clearly the tier ones or are way out ahead, but.
Speaker Change: Does it from more of a standpoint of how that's going to transform the tier two and tier three clients. So.
Speaker Change: Some good yourself.
Robert Venkat Pragada: I'd say just the timing right now of how quickly those get embraced while clients are thinking about, you know, their own business is causing some of that near-term softening. Great And then I guess on the PNNPS side, you know, there's been some discussion about when some of the larger funding packages really get going, but maybe if you could provide a little bit of color around your top line guidance for PNNPS and what assumptions are in there from kind of contribution from the IIJA or the IRA and, you know, or how much of it is from kind of just base level business and how maybe the government funding is tracking relative to Thanks.
Speaker Change: The timing right now of how quickly those get embraced well clients are thinking about their own business is causing some of that near term softness.
Speaker Change: Great and then I guess on the P&L side, there's been some discussion about when some of the larger funding packages really got going but maybe if you could provide a little bit of color around your top line guidance for Pn NPS and what assumption is in there from kind of contribution from the <unk> or the IRS.
Speaker Change: Or how much of it is from kind of just base level business and how maybe the government funding is tracking relative to initial expectations. Thanks.
Robert Venkat Pragada: Sure. Yeah, I'd say that that guidance that we've been pretty true to, and I kind of, I mentioned a statistic there that, you know, that's 69% or mid to high single-digit growth. And for the last five quarters, we've been right there, you know, on the high end of that range, is where we're seeing the IIJA component of that is, you know. We just saw some statistics that, you know, we're, from a timeline standpoint. Details on Lila Hall's new office field are being released as one of the five units in. That five-year cycle is definitely going to get expensive. Great, thanks very much.
Speaker Change: Sure Yeah, I would say that that guidance that we've been pretty true to and I kind of mentioned a statistic there that that 69% or mid to high single digit growth in for the last five quarters, we've been right there.
Speaker Change: On the high end of that range is where we're seeing the <unk> component of that is.
Speaker Change: We just saw some statistics that.
Speaker Change: From a timeline standpoint.
Speaker Change: Half way through but on some of the larger rail and highway specifically, we're 25% outlaid, 50% obligated and 25% outweighed on the actual money.
Speaker Change: So it hasnt been a big piece of the growth.
Speaker Change: The positive news is that.
Speaker Change: It looks like.
Speaker Change: That five year cycle is definitely going to get extended.
Great. Thanks very much.
Burt Subin: Our next question comes from Burt Subin at Steve... Um, Bob, just to follow up on that point, we look beyond 24. 25, https://www.kenhub.com not just in advanced facilities but in large parts of PNPS. If you think about potentially toggling, you know, above what your medium-term view is for the segment, what would drive that? Is that more a function of winning some specific, larger projects, or is it the flow of funding under some... Yeah, Bert, and are you saying independent of advanced facility, so the other kind of non-advanced facility sectors are too inclusive of? No, I think inclusive of, I guess from what, Thank you, https://www.kenhub.com, I'm just curious if that's more a function of winning some of those larger projects that are out there, or is it just that the funding needs to flow sort of on time?
Speaker Change: Our next question comes from Barry Susan at Stifel.
Barry Susan: Bob just to follow up on that point.
Barry Susan: We look beyond 'twenty, four and maybe into 'twenty $5 have been passed that it sounds like your visibility generally improving.
Barry Susan: Not just in advanced facilities, but in large parts of <unk>.
Barry Susan: If you think about potentially toggling your above whats your medium term view is for the segment what would drive that is that more a function of winning some specific larger projects or is it the flow of funding under some of these programs.
Barry Susan: Yeah.
Barry Susan: Are you, saying independent of of advanced authorities to the other kind of non advanced annuity sectors are two inclusive.
Barry Susan: No I think inclusive of I guess from what you were.
Barry Susan: We're saying Bob in your earlier comments sounds like you feel like your multiple on that up slope and youre seeing sort of the path to some of that capex will be beneficial for you, so including that and thinking about what you just mentioned about IHA and some of the other programs. It seems like your visibility is quite good.
Barry Susan: I know you were to say several years from now look at you and you were growing at 9% or faster than your 6% to 9% growth range I'm. Just curious if that's more a function of winning some of those larger projects that are out there or is that just the funding needs to flow sort of on time.
Barry Susan: I would say, it's probably more of winning those projects and the <unk> in the market that I would index towards is water.
Robert Venkat Pragada: I would say it's probably more of winning those projects in the market that I would index towards water. The pipeline growth in water, and I mentioned it last quarter, Bert, and it actually has continued this quarter. It's not as big as transportation.
Barry Susan: The pipeline growth in water and I mentioned, it last quarter Bert and it actually has continued this quarter.
Barry Susan: It's not as biggest transportation mode of transportation continues at the same kind of clip even with the IHA comment, but water continues at the rate that it's that it is right now and we're having this conversation six to eight quarters from now.
Robert Venkat Pragada: But if transportation continues at the same kind of cliff, even with the IAJ comment, but water continues at the rate that it is right now, and we're having this conversation six to eight quarters from now, water and the environment, for those two are interdependent on each other, I'd say it is the one where we're seeing not only the projects being announced, but the funding being applied. And a lot of that is being driven around water scares. And, you know, look at what's going on in California right now.
Barry Susan: Water and then water and environmental for those two are kind of interdependent on each other.
Barry Susan: I would say is the one where we're seeing not only the projects being announced with the funding be applied in a lot of that is being driven around water scarcity.
Barry Susan: And look at what's going on in California, right now, it's either we got too much and we've got to figure out where to put it or we don't have enough and we've got to figure out how to find it and treat it and so I'm oversimplifying, but that's probably what I'd say.
Robert Venkat Pragada: It's either we have too much, and we've got to figure out where to put it, or we don't have enough, and we've got to figure out how to find it and treat it. So, I'm oversimplifying, but that's probably what I'd say. Okay. That's super helpful.
Speaker Change: Got it Okay. That's super helpful. Maybe just a cost question.
Burt Subin: Maybe just a cost side question. Um, you know, if we look at that bridge... Can you just help us think through how much of that is cost-cutting related? And how much of that is just improved mix? Sounds like you're pretty bullish on the margin opportunity in PNPS. So is that a function of just you're getting better projects, or is it more cost-cutting? I'd say it's balanced.
Speaker Change: If we look at that bridge that you guys put in the deck, you know going from 10% to 13 eight.
Speaker Change: Just help us think through how much of that is cost cutting related and how much of that is just improved mix sounds like youre pretty bullish on the margin opportunity in <unk>. So is that a function of just youre getting better projects or is it more cost cutting or is it sort of anybody.
Speaker Change: I'd say, it's by its balanced probably 50 50.
Robert Venkat Pragada: There's a 50% mix, but 50% is a leaner organization with now, and we've started as a Q1, a level of recoverability and optimization of our cost structure rather than, you know, the straight variability of if you're busy, you you you spend, and if you're not, you cut right. We want to get more of in a steady state. Thank you. And There are no further questions at this time. I would like to turn the conference over to Bob Pragada for his closing remarks. Yes, thank you everyone for joining us on the call. There are a lot of exciting things happening in the business right now. And we look forward to giving you further updates in the quarters to come. And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: 50% mix, but 50% is a leaner organization.
Speaker Change: With now and we've started as of Q1.
Speaker Change: <unk> of Recoverability and optimization of our cost structure rather than the straight.
Speaker Change: Yep variability of if you're busy U.
You spend and if youre not you cut right, we want to get more of in a steady state.
Speaker Change: Thank you Bob.
Speaker Change: And there are no further questions at this time I would like to turn the conference over to Bob Pagano for closing remarks.
Bob Pagano: Yes. Thank you everyone for joining joining me on the call a lot of exciting things happening in the business right now and we look forward to giving you further updates in quarters to come.
Speaker Change: And this concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Yeah.