Q4 2024 Jacobs Solutions Inc Earnings Call
Ayan Banerjee, Kevin Berryman, Robert Pragada, Venkatesh Nathamuni, Kevin Berryman.
Speaker Change: Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to Jacobs Solutions fourth quarter
Speaker Change: Fourth Quarter and Full Year 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And 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 star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one. Thank you. And I would now like to turn the conference over to Bert Zubin, Senior Vice President of Investor Relations. Bert, you may begin.
Bert Zubin: Thank you, Krista, and good morning, everyone. Our earnings announcement was filed earlier this morning, and we have posted a slide presentation on our website, which will reference during this call.
Bert Zubin: Please note, our 10-K will be filed by no later than our due date of November 26. I would like to refer you to slide two of the presentation material for information about our forward-looking statements, non-GAAP financial measures, and operating metrics.
Turning to the agenda on slide 3.
Bert Zubin: Speaking on today's call will be Jacobs Chair and CEO Bob Pragada and CFO Venk Nathamuni. Bob will begin by providing an overview of recent activities and highlights for our fourth quarter and fiscal year results.
Venk Nathamuni: Venk will then provide a detailed review of our financial performance, including commentary on end market trends, cash flows, balance sheet data, and our FY25 outlook. Finally, Bob will provide closing remarks, and then we'll open up the call for questions.
Speaker Change: With that, I'll turn it over to our Chair and CEO, Bob Pragada.
Bob Pragada: Thank you, Bert. And I'm delighted to welcome you to Jacobs at such an exciting time. Good day, everyone, and thank you for joining us to discuss our fourth quarter and fiscal year 2024 business performance.
Now moving to slide four.
Bob Pragada: We reached a critical milestone on our strategic shift toward a simpler, higher-value, and higher-margin portfolio during the quarter as we closed the separation transaction involving our critical mission solutions and cyber intelligence businesses on September 27, 2024.
Bob Pragada: culminating with a momentum successfully lifting on the NYSE under the ticker AMTM.
Bob Pragada: This strategic shift has been well received by the market, highlighting confidence in our focused direction and reinforcing our commitment to delivering sustained value and growth for our shareholders.
Bob Pragada: Upon closing the transaction, we received $911 million, which was concurrently used to repay existing debt. Additionally, as a part of the transaction, we received a 7.5% equity ownership in amentum, which could rise to 8%.
Speaker Change: At the same time, Jacobs shareholders became 51% owners in shares of Momentum and their ownership stake could increase up to 55%.
Speaker Change: I want to take a moment to emphasize how important this transaction is for Jacobs.
Speaker Change: As a more sharply focused company operating in robust end markets with strong secular growth tailwinds, we believe Jacobs is in an excellent position to create substantial shareholder value.
Speaker Change: Our simplified structure, global delivery model, and ongoing operating efficiencies positions us nicely to build on a strong end to FY24.
Speaker Change: This is a testament to the dedication and relentless efforts of our employees, whose hard work is paving the way forward for two exceptional companies.
Speaker Change: I'd like to extend my deepest gratitude and congratulations to each of them for their role in this pivotal transformation.
Speaker Change: Turning to slide five, we provide an overview of our financial performance for the fourth quarter and fiscal year 2024 with CMS and C&I under discontinued operations. So please note, the results we highlight are related only to continuing operations.
Speaker Change: Focusing in on the quarter, total gross revenue increased 4% in Q4 with adjusted net revenue rising 4%.
Speaker Change: Gap EPS from continuing operations was $2.38 and includes a positive $1.20 impact from the mark-to-market of our investment in a momentum netted against amortization of intangibles.
Speaker Change: as well as a 19 cent impact from transaction, restructuring, and other related costs.
Speaker Change: Excluding these items, fourth quarter adjusted EPS was $1.37, marking a 28% increase compared to the previous year.
Speaker Change: Adjusted EBITDA for Q4 came in at $289 million, which represented a 12% growth versus FY23. Overall, we are pleased to close out the year with such a positive performance.
Speaker Change: Looking at the full year, total gross revenue increased 6% with adjusted net revenue rising 5%.
Speaker Change: Gap EPS from continuing operations was $4.79 and included a positive 50-cent impact related primarily to the net effect of amortization of acquired intangibles and the mark-to-market of our investment in momentum.
Speaker Change: and a negative impact of $1.07 from transaction restructuring and other related costs, which again were materially driven by the separation transaction.
Speaker Change: Excluding these items, Adjusted EPS from Continuing Operations was $5.28, marking a 16% increase compared to the previous year.
Speaker Change: Adjusted EBITDA for FY24 was $1.06 billion, representing a 9% increase versus FY23.
Speaker Change: Our trailing 12-month book-to-bill was 1.35 times as our consolidated backlog increased 23% year-on-year in Q4.
Speaker Change: These are metrics we watch closely and we are encouraged by the trajectory we're delivering on with an extremely strong 1.67 times book-to-bill for the fourth quarter.
Speaker Change: When we analyze our backlog, we are seeing this trend across gross revenue and backlog as well as gross profit and backlog, which is a good indicator as we think about our growth for FY25 and beyond.
Turning to slide six.
Speaker Change: and building on my backlog and book-to-bill commentary. I'm excited to report that during the quarter, we continue to deliver substantial wins across the business and across geographies.
Speaker Change: A testament to our market positioning, deep domain expertise, and long-term trusted client relationships.
Speaker Change: As we move forward as a simpler and more focused company, we will be providing commentary on revenue across three EN markets.
Speaker Change: Water and Environmental, Life Sciences and Advanced Manufacturing, and Critical Infrastructure.
Speaker Change: These end markets roll up to infrastructure and advanced facilities, which is comprised of our historic PMPS business and the retained portion of Divergent Solutions.
Speaker Change: On slide 14 in the appendix, we provide a graphic that depicts our new structure and end-market focus.
Moving on to how our end markets are performing.
Speaker Change: Water and environmental is demonstrating impressive growth. Water conveyance, water infrastructure, wastewater, potable reuse, and efficient asset management are just some of the key drivers of our client spend. And we have been successful servicing demand across these categories with double-digit growth in Q4.
Speaker Change: Notably, during Q4, we delivered several key wins, including our appointment by the Los Angeles Sanitation and Environment to provide progressive design-build services for the Donald C. Tillman Advanced Water Equalization Basin.
Speaker Change: A critical part of LA's long-term plans to increase recycled water production by 2035.
Speaker Change: In Life Sciences and Advanced Manufacturing, we continue to see robust demand from Life Sciences clients, boosted by GOP-1 investment, and we expect this trend to continue in FY25.
Speaker Change: In Semi Connectors, we are diversifying our customer base and expanding our global reach. One example is our recent design win for a new test and assembly facility with CG Semi in India.
Speaker Change: The facility will manufacture advanced and legacy packages for industries such as automotive, consumer, industrial, and 5G communications, and facilitates our strategic positioning in India, where electronics manufacturing spend is expected to grow meaningfully.
Speaker Change: Global investment spending across life sciences, semis, and data centers is creating a robust backdrop for Jacobs and FY25 and beyond.
Speaker Change: Moving on to critical infrastructure. During the quarter, we secured a technical project manager role with the Department of Energy Security and Net Zero in the UK. A great example of how we are leveraging our differentiated offering in energy security and transition that demonstrates the power of our partnership and greater collaboration with PA consultants.
Speaker Change: We will provide project management and advisory services along with associated strategic support to the Hydrogen and Industrial Carbon Capture Program that includes consulting, end-to-end innovation, design, and analytics.
Speaker Change: We're also seeing continued traction in the Middle East as Saudi Vision 2030 significantly increases the number of opportunities across critical infrastructure.
Speaker Change: Notably, during Q4, we announced a new award to lead advisory, design, and engineering for the King Solomon International Airport in Riyadh, Saudi Arabia.
Speaker Change: Our outlook for near and long-term expansion in the region remains intact.
Speaker Change: And we are seeing signals of strong demand for infrastructure projects across the globe in the early days of FY25.
Speaker Change: In summary, we remain confident in our ability to grow the business and deliver superior execution to meet our clients' expectations. We're excited for the future as a more focused company and look forward to presenting our strategic vision for growth over the coming years at our Investor Day in Miami on February 18th.
Venk Nathamuni: Now, I'll turn the call over to Venk to review our financial results in further detail.
Thank you, Bob, and good day, everyone.
Venk Nathamuni: We are pleased with our Q4 performance, which contributed to a strong year.
Venk Nathamuni: Let me now begin by summarizing a few of the financial highlights on slides 7 and 8.
Venk Nathamuni: Starting on slide seven, we show quarterly results and I'll provide additional context and detail around our performance from continuing operations.
Speaker Change: As Bob noted, CMS and CNI have been excluded from our results as those businesses are listed under discontinued operations.
Speaker Change: We provide a reconciliation on page 24 in the appendix that will allow you to compare results for the enterprise including the businesses that were separated in the fourth quarter.
Speaker Change: Notably, I want to highlight that in total, we did outpace the $7.95 adjusted EPS midpoint for fiscal 24 that we guided to with Q3 results.
Speaker Change: However, from here forth, we will only be discussing continuing operations.
Speaker Change: Four quarter gross revenue grew 4% year over year, and adjusted net revenue, which excludes the impact of past true revenue, also grew 4%.
Speaker Change: Q4 adjusted EBITDA was $289 million, growing 12% year-over-year to an adjusted EBITDA margin of 13.6%, which is an increase of approximately 100 basis points from last year.
Speaker Change: Q4 adjusted EPS from continuing operations was $1.37, marking a 28% increase compared to the previous year.
Speaker Change: Please note that during the quarter, GAAP EPS benefited from a $187 million pre-tax gain associated with the mark-to-market adjustment of our investment in momentum, with no benefit to adjusted EPS.
Speaker Change: We provide a walkthrough of our adjusted EPS calculation for continuing operations on slide 23.
Speaker Change: Finally, Consolidated Backlog was up almost 23% year-over-year to $21.8 billion.
Speaker Change: The trailing 12-month revenue book-to-bill ratio was 1.35 times, with our gross profit and backlog increasing 12% year-over-year.
Speaker Change: As Bob noted earlier, this is an encouraging data point as we look ahead to Fiscal 25.
Speaker Change: The Q4 booked a bill of 1.67 times, though partly a function of higher pass-through revenue, is still very positive and helped us end the year on a high note.
Moving on to slide eight, I'll recap fiscal 24 results.
Speaker Change: Fiscal 24 total gross revenue increased 6% year-over-year, with adjusted net revenue rising 5%.
Speaker Change: Adjusted EBITDA increased 9% as a function of higher revenue and just over 40 basis points of margin expansion.
Adjusted EPS from continuing operations increased 16% year-on-year.
Speaker Change: We're pleased to end Fiscal 24 in a strong position with solid organic revenue growth, double-digit EPS growth, and a backlog that sets us up for continued growth in Fiscal 25 and beyond.
Speaker Change: Regarding the performance of our end markets in the quarter, let's now turn to slide 9.
Speaker Change: As Bob noted earlier, we're reporting our business as infrastructure and advanced facilities.
and PA Consulting.
Speaker Change: And we will discuss revenue trends in our three key end markets.
This should provide helpful context to supplement our overall results.
Speaker Change: We will focus on adjusted net revenue in our discussion as we believe this is a better indicator of business trends as it excludes pass-through revenues.
Speaker Change: However, we do list gross revenue growth across each end market for your reference.
Speaker Change: In water and environmental, growth was solid, with adjusted net revenue increasing 13% versus the same quarter last year.
Speaker Change: Water and environmental demand has been strong and we expect that to continue in fiscal 25 based on our current backlog and pipeline.
Speaker Change: Encouragingly, demand is being driven by multiple geographies, with North America, UK, Ireland, Australia and New Zealand all growing double digits in the quarter.
Speaker Change: Our life sciences and advanced manufacturing and market revenue grew 3% in Q4, with strength partially offset by an unfavorable revenue adjustment related to an EV battery manufacturer customer bankruptcy in Europe.
Speaker Change: Our outlook for this end market is for life sciences to be the primary driver of revenue growth in fiscal 25 as capital investment from our life sciences customers remains robust.
We're also seeing our customer base broaden in semis.
and the AI Data Center opportunity is expanding.
Speaker Change: As we look into fiscal 25 and beyond, we anticipate top line growth in this end market, not only from rising industry investment, but also differentiation through our cross-cutting water and energy capabilities.
Speaker Change: In critical infrastructure, adjusted net revenue increased 1% with North America showing steady growth while certain international markets have lagged.
Speaker Change: We expect to see improvement across critical infrastructure in Fiscal 25, with our backlog and pipeline underpinning a strong recovery as transportation project demand is rising.
Speaker Change: Putting this all together, we have line of sight to maintaining strong revenue growth in water and environmental, and increasing our growth rates in life sciences and advanced manufacturing, as well as critical infrastructure and markets in the coming year relative to Q4.
Speaker Change: Now moving on to slide 10, I will provide a quick overview of our segment financials.
Speaker Change: We saw strong trends in Q4 for infrastructure and advanced facilities operating profit, which increased 12% year over year in total, and 12% on a constant currency basis.
Speaker Change: In Fiscal 24, Operating Profit increased 9% year-over-year and 9% on a constant currency basis.
Speaker Change: Infrastructure and advanced facilities results were aided by both revenue growth and margin expansion.
Moving on to PA Consulting.
Speaker Change: results reflect modest top-line growth but good execution on the bottom line.
Speaker Change: Q4 Operating Profit increased 4% year-over-year and Fiscal 24 Operating Profit increased 1%.
Speaker Change: Both were slightly negative on a constant currency basis. However, we are encouraged by recent bookings and anticipate that growth will trend higher in Fiscal 25.
Speaker Change: Moving on to slide 11, we provide an overview of cash generation and balance sheet data.
Speaker Change: For Fiscal 24, free cash flow from continuing operations was strong at $718 million and enabled us to repurchase $403 million in shares.
and pay $143 million in cash dividends.
Speaker Change: We also paid down debt and ended the year with roughly $1.1 billion in net debt, which represented a net leverage ratio of 1.0 times on LTM adjusted EBITDA.
Speaker Change: This is at the low end of our 1.0 to 1.5x target.
Speaker Change: Our balance sheet strength will enable continued investment in the business, as well as returns to shareholders through shared repurchases and long-term dividend growth.
Speaker Change: We currently have $472 million in remaining authorization under our repurchase program and recently declared a dividend of $0.29, a 12% increase year over year.
Speaker Change: And finally, please turn to slide 12 for our Fiscal 25 Outlook.
Speaker Change: We expect adjusted net revenue to increase mid to high single digits year over year. Adjusted EBITDA margin to range from 13.8 to 14 percent.
Adjusted EPS to range from $5.80 to $6.20.
Speaker Change: and reported free cash flow conversion to be more than 100 percent.
Speaker Change: We will have cash outflows related to restructuring of $75 million to $95 million in Fiscal 25, with that impact declining through Fiscal 25.
Speaker Change: The midpoint of our guidance range for adjusted EPS would indicate about 14% growth year-over-year, and the midpoint of our guidance range for adjusted EBITDA would indicate approximately 15% growth year-over-year.
highlighting our strong outlook for business performance this year.
Speaker Change: We provide relevant assumptions on the right side of the page to help you with your modeling.
Speaker Change: One item to be mindful of is our projected tax rate of approximately 26%.
Speaker Change: Our Fiscal 25 tax rate is expected to be several points higher than in Fiscal 24 and Fiscal 23, and is a function of multiple discrete tax benefits in those historical periods that are not expected to recur.
Speaker Change: Despite the higher tax rate, we still anticipate strong adjusted EPS growth in FY25.
Speaker Change: I'd note, from a trend perspective, we expect to start Fiscal 25 with Q1 revenue, adjusted EBITDA margin, and earnings below Q4 of Fiscal 24, reflecting typical seasonality.
Speaker Change: However, as we progress through Fiscal 25, we expect to see sequential growth in our financial results through Q4.
Speaker Change: Overall we're excited about the future of Jacobs and are entering fiscal 25 in a strong position financially with positive underlying momentum in the business.
Speaker Change: With that, I'll turn the call back over to Bob. Thank you, Venk. In closing, as a more focused enterprise, we are exceptionally well positioned to capitalize on the momentum in the water and environmental, life sciences and advanced manufacturing, and critical infrastructure and markets. And we remain confident in our ability to grow market share and fulfill the needs of our clients across our business over time.
Operator, we will now open the call for questions.
Speaker Change: Thank you. And we will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Speaker Change: And if you'd like to throw that question, again, press star one. We also ask that you limit yourself to one question and one follow up. Your first question comes from Michael Dudas with vertical research. Please go ahead.
Michael Dudes: Good morning, gentlemen, and congrats on a very active and successful spin and recap.
Thanks, Mike. Thank you, Mike.
Speaker Change: So impressive standalone backlog growth and heading into 2025. Then we can talk about the pipeline you see maybe amongst the three major end markets, you know, growth and pipeline year over year, and how much of your 2025 net revenues and EBITDA do you currently have kind of in backlog or in sight and what's required to achieve your mid-20 year targets?
Sure.
Speaker Change: So, Michael, on the first question, pipeline growth has been really, really strong. If you look at the kind of the big verticals, water and environmental, up double digits on a pipeline basis,
Ayan Banerjee, Claudia Jaramillo, Robert Pragada, Venkatesh Nathamuni, Kevin Berryman
Ayan Banerjee, Claudia Jaramillo, Robert Pragada, Venkatesh Nathamuni, Kevin Berryman
our next fiscal year revenue in backlog.
Speaker Change: That percentage is a higher percentage this year. Now, on a 1.67 times book-to-bill, that's not all in one year, that's multi-year booking. But the kind of contracted component for FY25 is a very strong number.
Speaker Change: That's helpful. My follow-up is, Bob, maybe you can share views from your client base and how Jacob's positioning relative to the election and some of the machinations we're hearing out of the federal government, how that could translate to your, I guess, business in the U.S.
Sure.
Bob Pragada: So maybe two parts to that question. We kind of see it overall as a net neutral.
Bob Pragada: You know, if you look at those end markets that we're now, as the New Jacobs.
honed in on
Bob Pragada: You know, these are jobs that were either tied to some level of
Bob Pragada: State and local element, which are continuing, kind of think water and environmental.
Bob Pragada: and the transportation jobs that we're in the middle of at a national level in the U.S.
Ayan Banerjee, Claudia Jaramillo, Robert Pragada, Venkatesh Nathamuni, Kevin Berryman
Bob Pragada: continued strong, you know, that industrial reshoring, onshoring, as well as, you know, what's happening in the world of science and technology, you know, specifically in the U.S., you know, we're feeling confident about it.
Thank you, Bob.
Speaker Change: Your next question comes from the line of Stephen Fisher with UBS. Please go ahead.
Stephen Fisher: Thanks, good morning and I'll add my congratulations on the completion of the the deals and thanks for all the the color on the growth rates within the the segment.
Stephen Fisher: It's a pretty wide range of growth rates between water versus the life sciences versus the critical infrastructure, you know, a thousand basis points or more, it seems like.
Speaker Change: And I know you said you expect the slower ones to accelerate.
Speaker Change: Can you just maybe frame for us, you know, kind of...
Speaker Change: How big a gap you're expecting or how much you can close that gap between them? I'm just curious, was there that big a gap or a drag from that UV cancellation in the quarter? And was there any sort of weather impact as
one of your peers cited. Thanks.
Stephen Fisher: Yeah, so let me answer the last part, Steve, first, and just kind of breaking down those three main areas. And your next question, your first question.
Stephen Fisher: It was a gap, that EV cancellation, so on the AF, or the Advanced Facilities Component, we do see closing that gap. It would have been closed.
Ayan Banerjee, Claudia Jaramillo, Robert Pragada, Venkatesh Nathamuni, Kevin Berryman
Stephen Fisher: in transportation specifically outside the U.S. because really that gap was outside the U.S. That's already, you know, we've already seen that in real time.
Stephen Fisher: certainty in the budget in the UK is giving us confidence there, as well as some really strong wins that we've had in Australia and New Zealand coming out. So we don't really see that gap being a big one.
Speaker Change: Okay, that's helpful. And then just to follow up, how should we think about the progress now on some of the corporate costs that you have embedded in the segment reporting in 25 versus 24, and relative to the restructuring costs?
Speaker Change: It sounds like, you know, that'll kind of continue on through the year. You know, do you think fourth quarter will still have some of that in there or will it be done by the time fourth quarter starts? Thank you.
Speaker Change: Thank you, Steve. A couple of questions. One on the overall cost structure. As you can tell, we made pretty significant progress in fiscal 24 in terms of our operating margin and EBITDA margin expansion.
Speaker Change: And I would say there's still room there in terms of improving the margins over time. And that's why we got it to 100 basis point increase year on year for fiscal 25.
Speaker Change: And if you look at the various parts of it, you know, clearly from the standpoint of operational efficiency, we still have room there.
Speaker Change: We'll have a full year of what you call annualization of operating efficiencies, because a lot of it happened towards the second half of fiscal 24. You'll see a lot of that manifest in its entirety in fiscal 25. And then overall, cost controls is something that we are focused on. And last but not least,
Speaker Change: We are continuing to improve our mix of our business as well as how we implement these projects from a global connectivity standpoint.
So, multiple facets to this margin story over time.
Speaker Change: And then your second question about restructuring, so as you pointed out, you know, we did have restructuring in Fiscal 24.
Speaker Change: Clearly, as you know, we have a commitment to Amentum to continue to do transition services.
Ayan Banerjee, Claudia Jaramillo, Robert Pragada, Venkatesh Nathamuni, Kevin Berryman
Speaker Change: Yeah, and then the other part of the restructuring is obviously having, you know, some ownership of liability with the PA consulting business as well.
Okay.
Speaker Change: Your next question comes from the line of Andrew Whitman with Baird. Please go ahead.
Speaker Change: Great. Thanks for taking my questions, guys. I guess I wanted to build on an earlier question again and just kind of talk about the backlog as it relates to the outlook. I mean, your backlog is up 22.5% year-over-year, which is...
which is great.
Speaker Change: but your revenue guidance is up, you know, mid to high single digits. That seems like a really wide gap. And so I heard some of the comments.
Speaker Change: about, you know, some longer projects, but is there stuff in the backlog that's not moving?
Speaker Change: Is some of the backlog, these bigger, chunkier bookings, like you're doing for maybe advanced technology and life sciences, we're doing construction management scope, does that flow through as lower margin? There's a lot going on there, but I think the discrepancy between the backlog growth and the revenue guidance is worth digging into a little bit deeper. So if you could comment on that, I think it would be helpful. Thank you.
Thank you.
Speaker Change: Thanks, Andy. So, a couple things. Yeah, it is the most significant book to build that we've had probably in the history of the company and really, really proud of that. The life sciences and the water bookings that we've had are large and they're multi-year.
Speaker Change: And so they're not any, and they're not, they're not degrading to margins. These are at, at, and in certain cases above.
Speaker Change: are kind of corporate margins that we've demonstrated here in the last few quarters.
Speaker Change: We're feeling really good. These are some of the largest bookings that we've had, and I think I mentioned in the script, in the history of the company, which kind of goes to the testament of our market positioning right now.
Speaker Change: Got it. It's kind of a question I want to ask also, I mean the restructuring obviously this was kind of expected you've got
Thank you.
Speaker Change: You've got the momentum transition services and all the first-year things that go with the spinoff
Speaker Change: But Bob, as you look at 26, do you feel like 26 is the year that we get pretty clean results? It sounds like even at the end of this year, it's pretty clean. But I thought maybe I'd have you comment on 26. No, absolutely. I think it's an important question.
Speaker Change: It's a very important question and thanks for asking it. I'd say second half, you're going to see a significant decay and 26, short answer, yes.
Yes, being clean, yeah.
Got it. Thanks, guys. That's all I have for today.
Speaker Change: Your next question comes from the line of Asabahat Khan with RBC Capital Markets. Please go ahead.
Ayan Banerjee, Claudia Jaramillo, Robert Pragada, Venkatesh Nathamuni, Kevin Berryman
Speaker Change: Okay, great. Thanks and good morning. I'm just about your earlier comment around some of the buffer that you've built into the 5% or sort of called the mid to
Speaker Change: high single digit organic growth rate to allow for some of these longer life projects. You know, this seems to be in line with the guidance you provided pre-election. I guess, would you say that range also builds in some buffer for maybe administration change or just kind of seeing how things evolve in early part of the year? Just trying to understand how you're thinking about the low end versus a high end, given some of the moving pieces, particularly on the US side. Thanks.
Speaker Change: Yes, Saba, my answer was really, was based on our client's activity.
and going back to, you know, any type of...
Ayan Banerjee, Claudia Jaramillo, Robert Pragada, Venkatesh Nathamuni, Kevin Berryman
Speaker Change: We don't feel like those would pertain to these jobs that are going forward at the state and local level, supporting some pretty large events that are happening in
Los Angeles and other venues around the world.
specifically on the water and transportation side.
Speaker Change: And then on the advanced facility side, you know, these are commitments that our clients have made.
Speaker Change: to the end market on some some pretty, you know, pretty critical therapies that that the world needs. So these are tied to global trends that are probably a little segregated from
Speaker Change: what might happen with regards to churn in the beltway. So those were two separate.
Speaker Change: And Sabah, if I could add, you know, the range that we provided, you know, from our guidance perspective, we tried to guide for what we think is the most likely outcome, and obviously, as Bob alluded to, it depends on the profile of the customer burn and so forth, and so that's what's imputed in our guidance.
Speaker Change: And that's why we provided the range in the mid to high single digits for revenue growth.
Thank you. Thank you. Thank you.
Speaker Change: All right, great. That's helpful. And then maybe just on the markets outside of the U.S., as we look at maybe the U.K., the Middle East,
Speaker Change: It looks like some changing priorities in the Middle East, but it sounds like from your commentary that's going well. Can you maybe just talk about...
Speaker Change: Kind of the your focus on those region what drives you kind of to continue to be exposed there It looks like there's a lot of dollars there
Ayan Banerjee, Claudia Jaramillo, Robert Pragada, Venkatesh Nathamuni, Kevin Berryman
Speaker Change: Sure, sure. So let me kind of break down the question here.
Speaker Change: On the two geographies, and actually this comment is going to apply to every single one of our geographies.
Speaker Change: We are in the locales that we're in to service those local clients. And so just on that element.
with regard to the UK in the Middle East.
Speaker Change: You know, those are strong markets and yes, there's, there's, there, there are.
Economic Ebbs and Flows.
in those markets.
Speaker Change: but our client base, especially now with our kind of our focus portfolio.
Speaker Change: These are long-term kind of trends. So any kind of near-term oscillations, if you look at it on the long-term...
Speaker Change: They're solid. And in the UK, in the Middle East, we're seeing some nice tailwinds that are coming back. Might not be as strong as...
Speaker Change: 10 years ago or before, but compared to recent times, you know, we're seeing some of that come through.
Speaker Change: How do we gauge that? We gauge that through our pipeline. And we're seeing our pipeline grow. And so those kind of on that water in the UK never slowed down. So really, the upside that we're talking about is more honed in on on transportation, as well as some of our advanced facilities world. But the key is, is that
Speaker Change: Us staying in those geographies is really more about our talent.
Speaker Change: And that talent ends up addressing both the local market, but also there's some really, really key talent that we have in UK, Europe, India.
Speaker Change: Australia, New Zealand, that are being deployed around the world. So that talent piece is really, really key in how we think about our global model.
Speaker Change: On the elections, you know, we again, we don't think that that is going to
Speaker Change: to affect, you know, what we're talking about as far as the strength in the end market. And so we stand behind the numbers we put out.
Great, thanks very much for the call.
Ayan Banerjee
Speaker Change: Your next question comes from the line of Andy Kaplowitz with Citi. Please go ahead.
Speaker Change: Hi, good morning. This is Natalia Bach on behalf of Andy Kaplowitz.
Speaker Change: Hi, good morning. Good morning. First question that I'd like to ask, in PA consulting, exit margins reflect continued improvement. As we think about fiscal year 25, do you expect that trend to continue? And then can you provide more color on your visibility towards revenue growth expectations for the segment? You have relatively easier columns and backlog seems to be picking up. Any detail would be helpful.
Speaker Change: Sure, why don't I answer the first one and then Venk will address kind of the...
Speaker Change: the confidence in revenue growth coming into the year. As far as the margins go, we continue to see, even during the run-up to the election in the UK, as well as other areas that PA has
has a presence.
Speaker Change: The margins have stayed true, and the team has done a really good job at continuing to focus in on higher value as well as strength of the offering that they have for their clients.
Venk Nathamuni: We see that margin profile continuing moving forward. Venk, you want to talk about the revenue growth? Yeah, absolutely. So in terms of just revenue growth for the PA consulting business, we've had good insight into their pipeline, especially over the last several quarters.
Venk Nathamuni: and we're feeling pretty good about the inflection point in PA's business in terms of the growth really coming together in fiscal 25. Now when we provided the high-level guidance for our overall revenue growth, the mid to high single digits
that certainly imputes PA consulting, also providing that growth.
Ayan Banerjee, Claudia Jaramillo, Robert Pragada, Venkatesh Nathamuni, Kevin Berryman
Venk Nathamuni: And their backlog grew at the same rate as ours did. That's right.
Speaker Change: That's helpful. And just one more follow-up question for me. It appears the near-term focus with respect to capital deployment seems to be towards debt pay-down and share repurchases. But as you now sit with your new portfolio, are there any areas in your portfolio where potential M&A could fill the gap?
Speaker Change: Yeah, no, great question. So first of all, and I'd like to reiterate that, as I mentioned in the script.
Speaker Change: We are committed to returning cash to shareholders in the form of buybacks and dividends, and we return almost 60% of free cash flow in fiscal 24.
Speaker Change: So, we're continuing to commit to a significant portion of our pre-cash flow being returned to shareholders.
Speaker Change: On top of it, as you pointed out, we have been paying down debt. We did get about $911 million in amendment and proceeds.
Speaker Change: on day one of the transaction, which we then used to pay down debt.
Speaker Change: And we do still have a 7.5% to 8% retained stake that we hope to monetize.
in the first half of calendar 25.
Speaker Change: And then beyond that, you know, as I look at the capital allocation priorities for us,
Speaker Change: There's a lot of excitement about organic growth opportunities in the business, so number one priority will continue to be investing in the organic growth of the business.
Number two, as I said before, is returning...
Speaker Change: cash-to-shareholders in form of both dividends and buybacks, and we're committed to that. And then finally, from an M&A perspective, certainly that is an accelerant for us in the long term. We'll talk a lot more about it during Investor Day, but suffice it to say that we have lots of optionality with the balance sheet position that we have, the significant free cash flow that we generate, and our ability to return that to shareholders as well.
Speaker Change: Your next question comes from the line of Asenjita Jain with KeyBank. Please go ahead.
Ayan Banerjee
Speaker Change: Great, thanks so much for taking my questions. So, if I could just take the growth outlook to a higher level. Can you help us understand if you're thinking higher growth internationally versus domestic, given the elections? I know we've discussed elections a few times already on this call.
Speaker Change: No, Sangeetha, if that's the way it came across, that wasn't the case. You know, we had some...
Speaker Change: flattening growth outside the U.S. in our infrastructure and markets. We were talking about that inflecting forward. Within the U.S., those numbers have been positive.
for the last fiscal year.
Speaker Change: And how about your outlook for the upcoming year? Do you think the U.S. will still grow faster, or how do you see it?
Speaker Change: We do, we do, and we're seeing that in our pipeline right now, growing as well as our book-to-bill and the double-digit growth that we've had in backlog.
Speaker Change: Yeah, I don't know if I would use the word fungible, but they're very deployable.
Speaker Change: and work on work all over the world, both in the U.S., outside the U.S., and from outside the U.S. in. I think it's really important to understand, you know, the mix of our people.
Speaker Change: in the U.S. and outside the U.S. does not map to our U.S. versus non-U.S. revenue stream.
And so that is a very balanced look.
Speaker Change: on how we how we how we utilize our people around the world.
Got it. Appreciate that. Thank you.
Speaker Change: Your next question comes from the line of Chad Dillard with Bernstein. Please go ahead.
Hey, good morning, guys.
Good morning.
Speaker Change: So my question is on the algorithm for adjusted operating margins for the infrastructure and advanced facilities business.
Speaker Change: So, I guess like maybe we could break it out in two ways. So, first of all, I'm just trying to figure out, you know, the three sub-segments. Like, it sounds like the water business is growing faster, life sciences business is growing faster. To what extent is that accretive to margins?
Speaker Change: and then I guess on the second part you guys talked about you know cost savings like how do we think about like the year-on-year boosts and margins from from that?
Speaker Change: Yeah, Chad, thanks for those questions. So, I'd say the first on the end markets.
Speaker Change: The way we model our business is to obviously go after the best opportunities that we have across the different end markets.
Speaker Change: and continue to focus on top line growth, but also in this way that optimizes margins so that it meets our corporate average, right? So in any given quarter, any given in the first half or second half of the year, we can certainly have ups and downs with regards to the margin profiles, but what we try to optimize for is the good balance between
Speaker Change: continued revenue growth, as well as growth margins and operating margins improving over time. And that's what we've quantified in terms of our expectation for fiscal 25. So I wouldn't say one business is any different from another from the standpoint of the optimization, but certainly we want to continue to focus on
Speaker Change: profitable revenue growth such that both our revenue as well as the margins expand over time. So let's move on.
And then going to your second question about cost savings.
As I alluded to in response to a previous question,
Speaker Change: We have made significant strides in terms of improving the operating efficiency, but we had just six months of that take effect in fiscal 24, so we'll have the annualization of operating efficiencies take full effect in fiscal 25, and that's part of the margin expansion story for us, but it's not just that. In addition to it, as I mentioned before, we are optimizing our go-to-market, we're optimizing our global connectivity and so forth, so we do see a multi-year trend in terms of focusing on improving our profitability over time.
Speaker Change: not just on the cost side, but certainly from a business mix standpoint, as well as from an efficiency standpoint.
Speaker Change: Right, that's helpful. And then the second question has to do with your your revenue guidance for the full year, that mid to high single digits. So I guess to get to that higher end of that range, like what needs to go right, either from like a geographic standpoint, or from an in macro standpoint, like what we need to see there.
Speaker Change: I think it would be if we see an acceleration in the jobs we're on.
You know, that, that...
Heavy, heavy focus now.
Speaker Change: from the backlog growth coming from our water as well as life sciences sector is, you know, those could be accelerated and we could find ourselves, you know, on the higher end of that range. So we're watching that very closely.
Great. Thanks, all.
Thank you.
Speaker Change: Your final question comes from the line of Jerry Rivitch with Goldman Sachs. Please go ahead.
Speaker Change: Yes, hi, good morning everyone and congratulations. Can I ask for the legacy people and places business, you know, you folks have delivered steady
Speaker Change: Yeah, Jerry, thank you for the question. And yeah, certainly, you know, we feel good about the margin expansion for fiscal 25 that I alluded to both in the prepared remarks as well as
Speaker Change: in response to a couple of questions. And as we look ahead beyond fiscal 25, certainly we'll provide you a lot more clarity when it comes to invest today, not just in terms of our revenue growth and in market mix as well, but also in terms of capital allocation and margin expansion story. So suffice it to say that we do feel good about our margin expansion in fiscal 25 and beyond that we'll cover in more detail.
Speaker Change: Okay, and let me ask you, you know, I know it's early, very early post momentum, but obviously the business leaders have been focused on the new Jacobs for, you know, quite some time now, over a year, can you just talk about at the operating level, what kind of difference in performance that you're seeing or any developments?
Yeah, Jerry, it's a great question. I'd say that...
Speaker Change: The operating model is in full effect right now, you're right. We got out ahead of that during the course of the year.
Speaker Change: I think the biggest change has been getting back to where you know where we came from where we were externally focused on our clients business.
Speaker Change: And that has really come to the core of how we think about the world, and instead of being internally focused on some of the transactions that we were doing, whether they be over the course of the last couple of years or leading up to this quarter. So that's been the real change.
Speaker Change: understanding our clients business and we're seeing it in our sales performance in Q3 and Q4 of last year.
Speaker Change: So we're excited because those actions and those behaviors are turning into a 22% backlog growth and a 1.67 book to bill, and the proof is in the numbers, so we're excited.
Thank you.
Thank you. Thank you.
Speaker Change: And I will now turn the conference back over to Bob Pragada for closing remarks.
Bob Pragada: Well, thank you, everyone, for joining our call. Look forward to providing further updates and visiting with investors and analysts in the coming weeks and months. Thank you very much.
Speaker Change: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.