Q2 2025 Jacobs Solutions Inc Earnings Call
Krista: Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today.
Krista: At this time, I would like to welcome everyone to the Jacobs fiscal 2nd quarter, 2025, earning its conference call All Lions have been placed on mute to prevent any background noise After the speakers remarks, there will be a question and answer session [inaudible]
Speaker Change: If you would like to ask a question during this time, simply press the star, follow by the number one on your telephone keypad. And if you'd like to withdraw your question, press the star one again. Thank you. And I would now like to turn the conference over to Bert Subin, Senior Vice President, Investor Relations, Bert, you may begin.
Bert Subin: Thank you, Krista, and good morning everyone. Our earnings announcement to Tim Q refiled this morning and we have posted a slide presentation on our website which will reference during the call.
Speaker Change: I would like to refer you to slide two of the presentation material for information about her forward-looking statements, non-GAAP financial measures that can operate measures
Speaker Change: Speaking on today's call will be Jacobs Chair and CEO Bob Pragada and CFO Venk Nathamuni.
Speaker Change: Bob will begin by providing comments on the business as well as highlights from our second quarter results in a recap of notable awards.
Venk Nathamuni: Venk will then provide a detailed review of our financial performance, including commentary and market friends, cash flows and balance sheet data. Finally, Bob will provide a closing remark and then we'll open up the call for questions. With that, I'll turn it over to our Chair and CEO , Bob Pragada.
Venk Nathamuni: Good day everyone, and thank you for joining us to discuss our second quarter 2025 business performance . . . . . . . . . .
Venk Nathamuni: I'm pleased to begin today's call by highlighting several key milestones we achieved in the separation of our former CMS and CNI businesses during March and April .
Venk Nathamuni: This includes completing the planned equity for debt exchange and finalizing the remaining post closing adjustments.
Venk Nathamuni: These actions enabled us to exit our retained stake, reduced outstanding indebtedness, and on May 30, we will make a final distribution of momentum shares to our shareholders.
Venk Nathamuni: While we will continue to provide transition services to momentum for the next few months, we view the primary aspects of the transaction as now complete. [inaudible]
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Speaker Change: We delivered strong operating performance during Q2 and I'd like to highlight a few key points. First, our adjusted EPS grew over 22% to $1.43, supported by solid year-over-year margin expansion.
Second.
Speaker Change: TA Consulting's revenue growth inflected positively, reaching mid-single digits and driving double-digit operative profit growth
Speaker Change: Overall, we are very pleased with our Q2 results. A good start to the first half paired with strong bookings momentum enables us to reaffirm our full-year guidance metrics.
Speaker Change: As noted in our earnings press release, we recorded a reserve during the quarter as a result of a legal matter involving a consolidated JV in which we have a 50% interest. [inaudible]
Speaker Change: The impact to adjusted net revenue and adjusted operating profit was meaningful
Speaker Change: The Associated Project falls within our water and environmental end market in INAF and has been ongoing since 2016 but is now over 97% complete.
Speaker Change: The fact that we were able to absorb this impact in Q2 grow adjusted EBITDA, adjusted EBITDA margin and particularly adjusted EPS by 22% year over year is a testament to our strong operating performance and capital return strategy.
© The Bulletproof Executive 2013
Speaker Change: Before I get into more details on the quarter, I'd like to briefly touch on the current geopolitical backdrop.
Speaker Change: Overall, our business remains well-positioned with infrastructure and consulting services in high demand and opportunities to capitalize on secular growth trends in front of us.
Speaker Change: The impact related to the rollout of the Department of Government Efficiency or Doge has so far been
Speaker Change: As a reminder, approximately 9% of our total revenue comes from US federal infrastructure and related services, most of which are tied to DOD engagement.
Thank you. We appreciate it. Thank you.
Speaker Change: Regarding tariffs, we remain focused on supporting our clients as they assess potential supply chain challenges.
Speaker Change: Our client-centric model, built on redefining the asset life cycle, will create opportunities to add value as our clients navigate this period of uncertainty [inaudible]
Speaker Change: Turning to slide four and focusing on our results. Adjusted in that revenue rose over 3% in Q2. Revenue growth during Q2 was adversely impacted by the JB matter I noted earlier as well as FX.
Speaker Change: On a constant currency basis alone, we would have grown 80 basis points faster, or approximately 4% year on year [inaudible]
Speaker Change: Adjusted EBITDA for Q2 was 287 million, representing an 8% year on your increase. We are seeing very good traction on adjusted EBITDA margin improvement with solid underlying business performance.
Speaker Change: Excluding the Mark-to-Mark impact from our investment in the Mentum Stock and other items, Q2 Adjusted EPS was $1.43, a robust 22% increase compared to previous year.
Speaker Change: Our Trailing 12 Month Book to Bill was 1.3 times with consolidated backlog of 20% year over year in Q2.
Speaker Change: Growth's profit and backlog increased 15% year over year, reflecting another strong quarter for bookings.
Venk Nathamuni: Our backlog growth and bookings momentum remain positive and we are currently forecasting sequential growth in our second half results which Venk will walk through in more detail shortly.
Speaker Change: Turning to slide five. I'd like to highlight a few notable INF Project Awards from Q2.
Speaker Change: Today, in going forward, we'll highlight how our awards align with our five-year strategy.
Speaker Change: In water and environmental, we continue to see strong underlying revenue growth especially in water where global demand remains high among the highest in our portfolio.
Speaker Change: Our differentiation of waters stems from our full life cycle coverage and proprietary technology suite
Speaker Change: Thank you for watching. I'm Kevin Berryman. I'll see you next time.
Speaker Change: In Q2, we secured an OT cybersecurity contract with Hampton Road Sanitation District, one of the largest in the US water sector. [inaudible]
Speaker Change: This project provides end-to-end cybersecurity for wastewater treatment operations, serving 1.9 million people in Southeast Virginia.
Speaker Change: Another key area of focus for our water clients is emerging contaminants.
Speaker Change: PFAS and other contaminants present major challenges and we are at the forefront of providing early-stage solutions for a client.
Speaker Change: In Q2, we were selected by the city of Boing Beach, Florida to design upgrades at two water treatment plants to remove PFAS from groundwater water.
Speaker Change: Beyond addressing emerging contaminants regulations, these upgrades will modernize aging infrastructure and meet the region's growing demand for clean drinking water.
Speaker Change: In Life Sciences and Advanced Manufacturing, we continue to deliver strong results. Life Sciences and Data Centers were the primary drivers of end market revenue growth, both seeing double digit increases during the quarter. [inaudible]
Speaker Change: Life Sciences Growth is being driven by broad-based investment, including a new engineering procurement and program management work for Merck's $1 billion oncology product facility in Delaware.
Speaker Change: The facility will have the capability to manufacture drugs like key trudas, and we expect to see backlogs then continue through the facility's estimated completion in 2028 . . . . . . . . . . . .
Speaker Change: Hope seeing on data centers where we offer holistic cross-sector solutions to expand advanced facilities, energy and power, water, environmental and digital.
Speaker Change: We were selected by Sy Quantum as the owner engineer for one of the world's first utility scale Quantum Computing Facilities in Brisbane Australia.
Speaker Change: Backed by our number one E&R ranking in data centers, we're proud to help bring this next generation computing capability to life, and see a great opportunity to expand our global data center footprint in the coming quarters. [inaudible]
Speaker Change: Turning to critical infrastructure, rise in global travel demand, transportation modernization, and energy security requirements are reshaping climb priorities [inaudible]
Speaker Change: We see global aviation investment as a durable growth driver for our transportation segment, and one where we can leverage our core competencies in consulting and program management. Thank you very much.
Speaker Change: Notably, in Q2, we were selected as the owner engineer for Denver International Airport's continued expansion of its transportation system.
Speaker Change: This is a prime example of Jacob's helping cities prepare for future growth with smarter, more connected infrastructure
Speaker Change: In summary, our significant awards is quarter, reinforce our alignment to high growth markets.
Speaker Change: We remain focused on delivering sustainable profitable growth by providing differentiated digitally enabled solutions to the world's most complex challenges.
Venk Nathamuni: Now I'll turn the call over to Venk to review our financial results in further detail.
Venk Nathamuni: Thank you Bob and good morning everybody. Let me begin by summarizing a few of the financial highlights on slide number six followed by additional context quarterly performance.
Venk Nathamuni: 2nd quarter growth revenue through 2% year-over-year, and adjusted next revenue, which excludes past two revenues through by 3%.
Venk Nathamuni: As Bob noted, we experienced an effects headwind in a second quarter and also absorbed the impact of the previously noted legal reserve in connection with a matter involving a consolidated 50-50 joint venture.
Venk Nathamuni: Due to the consolidation of the joint venture, the full amount of the reserve was taken against Red
Venk Nathamuni: However, the JV Partners allocable portion is included in non-controlling interest.
Venk Nathamuni: Therefore, the impact on EBITDA and EPS is half of the impact on revenue. [inaudible]
Venk Nathamuni: Due to a Justin Eberdaw, was $287 million, growing more than 8% year-over-year [inaudible]
Venk Nathamuni: Aradjusted Ibadah Margin, during Q2, came in strong at 13.4% which is an increase of 62 basis points versus the same quarter last year.
Venk Nathamuni: We were able to offset the anticipated impact in Q2 from holiday timing, as well as the impact of the JB matter through some strong performance on gross margin and discipline on DNA cost [inaudible]
Venk Nathamuni: As a result, in the second quarter, adjusted EPS close to $1.43, a 22% increase year over year.
Venk Nathamuni: Please note, Gap EPS was impacted by a $109 million free tax loss associated with the mark-to-market adjustment of an investment in a momentum.
Just had no impact on adjusted EPS.
Venk Nathamuni: Finally, consolidated that clock was up 20% year over year to a record 22.2 billion dollars. [inaudible]
A trading 12 months booked a bill of 1.3 times, they make very healthy.
Venk Nathamuni: and Gross Profit and Backlog increased 15% year-over-year during Q2, a strong indicator of our positioning over the coming quarters and years. [inaudible]
Venk Nathamuni: Now regarding our performance by N-Market, an infrastructure in advanced facilities, let's turn to slide number 7
Venk Nathamuni: Demetriou Services in the Water and Environmental End Market remains strong across all major geographies with particularly good underlying performance in water during YouTube.
Venk Nathamuni: Not only was school performance positive, but we also continue to grow our revenue in backlog and our pipeline in water is growing by double digits.
Venk Nathamuni: Total adjusted net revenue growth for water and environmental was 2% in Q2, which includes the adverse impact on the previously mentioned J.V. marriage.
Venk Nathamuni: As we shift into the second half of the year, we expect Nathamuni growth to improve to the mid to high single digit ranks [inaudible]
Venk Nathamuni: In our life sciences and advanced manufacturing and market, adjusted net revenue grew approximately 6% in Q2, facing better than a guidance that revenue growth would be similar to Q1. In our life sciences and advanced manufacturing and market, adjusted net revenue growth would be similar to Q1.
Venk Nathamuni: We continue to see favorable demand in both the life sciences and data center markets.
Venk Nathamuni: and we expect to see improvement in civic conductors in the coming quarters.
Venk Nathamuni: Overall, we anticipate life sciences and advanced manufacturing growth will remain healthy in the second half of the year.
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In critical infrastructure, Justin Nathamuni increased over 2% year-on-year [inaudible]
Venk Nathamuni: Within this end market, energy and power is our fastest-growing vertical. It's trend we expect to continue.
Venk Nathamuni: On the transportation side, we saw solid growth, aided by the Middle East.
Venk Nathamuni: Mid single-digit revenue growth collectively in these two verticals was partially offset by flat-red growth in series and places with specific timing related items.
Venk Nathamuni: Looking ahead, we like our positioning and critical infrastructure and anticipates sequential revenue growth from Q2 to Q3.
Venk Nathamuni: Moving on to Slide Number 8, I will provide a brief overview of our segment financials.
Venk Nathamuni: In Q2, intersection and advanced facilities operating profit was approximately flat in total and on a constant currency basis which is last year
Venk Nathamuni: As we noted earlier, Q2 operating traffic was impacted by the reserve taken in connection with the JV matter.
Venk Nathamuni: As we've guided PA consulting, delivered a meaningful return to revenue growth this quarter along with strong bottom line execution.
Venk Nathamuni: This resulted in operating profit increasing 12% year-over-year in total and on a constant currency basis with a strong 22% margin performance
Venk Nathamuni: PA Consulting Momentum in Energy and Utilities and Life Sciences has been augmented by improving public sector spending in the UK.
Venk Nathamuni: We continue to see favourable trends in P.H. backlog and pipeline both of which serve as positive leading indicators.
Venk Nathamuni: Moving on to slide number 9, we provide an overview of cash generation and our balance sheet.
Overall, our balance sheet remains in excellent shape, existing Q2. [inaudible]
Venk Nathamuni: We return a record amount of capital back to share holders during the second quarter with very little effect on our net leverage ratio.
Venk Nathamuni: As we look ahead to the second half of the year, we're forecasting strong free Castro generation. [inaudible]
Venk Nathamuni: Thank you for tuning in. I'm Kevin Berryman. I'll see you next time.
Venk Nathamuni: Focusing in the quarter, during Q2, pre-cash flow was negative $114 million, which was in line with
Venk Nathamuni: This reflects a few seasonal cash timing events consistent with patterns we've seen in prior years.
Speaker Change: Thank you for watching. This is a production of Western Media, LLC. © 2012 The Western Media Group, LLC. All rights reserved. Western Media, LLC.
Venk Nathamuni: During the quarter, we reaped just $351 million in shares, which is a quarterly record for Jacobs.
Venk Nathamuni: We also finalized an equity for debt transaction using a retained stake in a momentum which reduced our outstanding debt by $312 million.
Venk Nathamuni: Summing this all up, we enter the quarter right at the midpoint of our 1.0 to 1.5 times net leverage target.
Venk Nathamuni: Subsequent to Q2, we received $70 million in favorable working capital adjustments and finalized ownership and shares of a momentum that were previously held in Estonia. [inaudible]
Venk Nathamuni: We used a cash receipt from the working capital adjustment. It's further reduced our debt during Q3.
Venk Nathamuni: In addition, following recent board approval, we will distribute the momentum shares released from escrow to our shareholders on a pro-radar basis at the end of this month.
Venk Nathamuni: Based on yesterday's closing price, this represents approximately $159 million in incremental capital returns to shareholders
Venk Nathamuni: Our balance sheet supports continued investment in the business along with returns to shareholders where sharey purchases and long-term dividend growth.
Venk Nathamuni: Our commitment to return capital to shareholders is evidenced by our 32 cents per share dividend representing 10% year-over-year growth as well as our meaningful increase in share repurchase activity in the first half of the year.
Venk Nathamuni: In total, we return $628 million to share holders through repurchases and dividends over the past two quarters alone.
Venk Nathamuni: This puts us on track to potentially return more than 100% of adjusted free cash flow in fiscal year 25, excluding the distribution of momentum shares.
Venk Nathamuni: We plan to remain consistent buyers of our own shares. We also continue to evaluate increasing our investment in PA consulting.
Finally, please turn to slide number 10.
Venk Nathamuni: We are pleased to reaffirm our fiscal 25 outlook for adjusted net revenue to grow mid to high single digits year over year
Adjusted EBITDA margin to range from 13.8% to 14%
Venk Nathamuni: Reported free cash flow conversion to be more than 100% and adjusted EPS of $5.85 to $6.20 The end of the video.
Venk Nathamuni: Now resist with your modeling, let me highlight a few items related to the remainder of fiscal year 25 [inaudible]
Venk Nathamuni: We continue to anticipate revenue will rise sequentially through year end with Q3 net revenue expected to grow 5% to 7% year on year
based on our current view of global market conditions. [inaudible]
Venk Nathamuni: Notably, a significant portion of our expected revenues in the second half of the year will come from our backlog .
Venk Nathamuni: On margins, we expect to approach a 14% adjusted EBITDA margin in Q3, and we remain well positioned to meet our full-year guidance range of 13.8% to 14%
You will control discretionary spending in response to market conditions.
Overall, we feel positive about our adjusted EPS trajectory.
Venk Nathamuni: In summary, we continue to expect sequential improvement in net revenue and operating profit as we progress through the second half of the fiscal year. We're very pleased with our margin performance and strong trailing 12 month bookings.
Venk Nathamuni: Both of which set us up for profitable growth in the quarters and years ahead.
Speaker Change: With that, I'll turn the call back over to Bob. Thank you, Venk, in closing with a solid first half of FY25 behind us, we see a good set up in the second half of the year, aided by continued booking strength and margin momentum.
Speaker Change: With our sharp and portfolio aligned to critical global mega trends and our five-year strategy, driving focus and discipline, we are confident in our ability to deliver sustainable, profitable growth over the long term.
Speaker Change: Thank you for watching. I'm Kevin Berryman. I'll see you next time. Bye.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, press star one again. We also ask that you limit yourself to one question and one follow-up.
Speaker Change: Your first question comes from the line of Andy Kaplowitz with City. Please go ahead
Good morning, everyone.
Morning, Abby.
© The Bulletproof Executive 2013
Speaker Change: Papa Banks, so backlog and price of up 20% over year, but as you know, adjusting that revenue growth is up to three. Maybe you can quantify the reserve for us and revenue and I know you've longer duration projects and backwards, but are you seeing more careful spending with customers and then sort of that visibility to get to five to seven percent growth in Q3. Do you need to see an acceleration and customer spend to get there in Q3?
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Speaker Change: So, Andy, maybe I'll answer the second half of your question and then on the legal reserve I'll turn it over to Venk.
on the second half of your question. Okay, so we were...
Speaker Change: Very clear on that the second half, we actually have predominance of that in backlog today.
Speaker Change: and have a level of confidence on how that backlog is going to burn over the course of the next two quarters and beyond.
Speaker Change: Our confidence level is strong on that front. As far as customer decisions [inaudible]
with the macro backdrop right now.
I...
The procurement cycle is extending a bit.
Speaker Change: Sure, but we see, we're not seeing broad cancellations or delays in the execution. It's probably more on the front end of the procurement cycle.
Venk Nathamuni: So I think with that, maybe the legal reserve? Yeah, thank you, Andy. So, you know, clearly we have solved the impact of the legal reserve, but to kind of quantify it, you know, given that it's a legal matter, we, you know, it's an ongoing daily matter. We want to be cognizant of all the implications there, but
Venk Nathamuni: Suffice it to say that it is included as part of our non-controllable interest accounting or NCI accounting and it's a consolidated at JV will clarify that it's 50-50
Venk Nathamuni: And so as we use NCI counting, which we're fully disclosed in our Q and our put notes, it's easy for you to figure out what those numbers are [inaudible]
Venk Nathamuni: All I can say is that, you know, this is something that we feel we're, you know, property reserve for and, you know, this is something obviously it was a headwind to our current quarter but we clearly absorbed it and came out to the results that we did. [inaudible]
Thank you for watching.
Venk Nathamuni: That's helpful. And maybe you guys can talk about what you're seeing by region. You mentioned PA picked up, back like theirs actually pretty strong. So maybe just PA and then the overall UK business is it's still a little bit more choppy. Middle East is it hanging in there? What are you seeing for FX given the reason weakness of the US dollar? Yeah.
Venk Nathamuni: Sure, maybe I'll cover kind of the regions and then Venkatesh Nathamuni by FX.
Venk Nathamuni: Energy and Utilities and Health and Life Sciences in Europe , PA is really starting to see some nice tailwinds there. And PA's US business is now up nearly 15% year on year. So, continue growth in the US backlog growing at... [inaudible] We're going to see some of you guys.
Venk Nathamuni: Solid Double Digits, but one of the areas that probably from a rate of growth with PA is picking up and this kind of goes Andy to your second point with regards to the UK and I'll kind of go into the Jacobs.
Venk Nathamuni: Brotter Enterprise as well, is defense and security, so PA is one of the leaders [inaudible]
Venk Nathamuni: in defense of security, advising both M.O.D. as well as other EU countries . .
Venk Nathamuni: and that has seen a significant uptick in the quarter and with backlog. So for the balance of the year, we see a good trajectory there with PA. You know, with the Jacobs business, transportation of water continued to be strong for us in the UK, mid single digits. [inaudible]
Venk Nathamuni: A bit of a longer procurement cycle, but overall we're not seeing
Venk Nathamuni: You know, any kind of, any major headwinds in Europe and more specifically in the UK, if anything a private characterizes as a bit, a bit of a rebound. . .
Venk Nathamuni: Middle East, Strong. We continue to grow at double digits in the Middle East. Again, we were very selective on the programs that we were in the middle of. We're now involved with some time-based.
Programs that have kind of end dates to them with...
Venk Nathamuni: with world events that are happening in tourists coming into the Middle East. So,
Venk Nathamuni: Overall, we're positive on the Middle East and being very sensitive to any type of macro oscillations there. Thank you want to talk about FX? Yeah, thanks Bob. So, as we noted in the prepared remarks, FX was clearly a headwind for us in Q2.
Speaker Change: I think we said our revenue would have been 80 bits higher if it were not for the FX impact .
Speaker Change: Now, fortunately, as we look ahead into Q3, if FX rates were to remain where they are today
Speaker Change: That would be a decent tailwind, hard to quantify it, but certainly it thinks persist as they are so far, it will be a positive for us in Q3.
Ayan Banerjee
Appreciate the car, guys. [inaudible]
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Speaker Change: Here next question comes from the line of Andy Wittmann, with Baird, please go ahead.
Ayan Banerjee
Great, thanks for taking my questions.
Speaker Change: I guess I'm free cash flow, maybe for Venk. Obviously there's always, in the first half of the year there's always more flow than the second half of the year, but...
Speaker Change: I was just hoping you could kind of help us understand how you get to the 100% greater than 100% conversion this year in terms of the quarterly cadence, do you expect?
Ayan Banerjee, Robert Pragada, Bert Subin
and usually it's in a typified by payments for 401K, cash taxes. [inaudible]
and so forth.
Speaker Change: and looking ahead for Q3 and Q4, we feel pretty good about our cash flow outlook.
Speaker Change: and it's going to be a pretty substantial step up in Q3 so it's not just Q4 back and loaded so we feel pretty good about where we're going to end Q3 and that gives us a good confidence that our free cash flow for the full year will be an excess of 100 percent.
Got it
Speaker Change: And then maybe Bob for you with my follow up. I wanted to ask about your profit margins and heard the approaching 14% to Justin even die guidance here.
Speaker Change: that you talked about for the third quarter. Maybe if you just talk about the organization right now and discuss where your utilization rate stand this year as compared to last year and progress on any other initiatives that you have in the organization to improve your efficiencies. [inaudible]
and where those programs and processes stand. Thanks.
Thank you.
Sure.
Speaker Change: So maybe I'd characterize it in two parts Andy, you know just we did start off the year I'd call it in kind of early January and I think we telegraphed a little bit in the last earnings call where utilization was down a bit where we had that kind of shifting of the holiday season, spilling over into Q2. [inaudible]
Speaker Change: and I'd say it's on par from where we were in not just last year but previous years. Going into the second half, what we're seeing is if you remember back in Q3 and Q4 of last year we had some lumpy wins.
That's a good thing, in Q3 and Q4. [inaudible]
Speaker Change: Those early phases of those major programs, those are now inflecting into kind of the detailed design, the production engineering component of those jobs. So, you know, we're seeing utilization just in the early part of Q3 pickup. [inaudible]
Speaker Change: to exceed where we were in previous quarters. So that's how we're seeing the utilization profile. PA, utilization is definitely better than it was last year. And that is a testament to all the issues that the team has been working on over the course of the last.
Speaker Change: 6 plus quarters. I take from an initiative standpoint, we are seeing the really, really nice growth in our digital business. . .
Speaker Change: So if you look at just as we measured as a P&O, and then we measure our digital platforms, how they're catalyzing the balance of our business, just as an individual business, that business has grown smaller number, double digit on the bottom line from an OP standpoint. So, Eddie
Speaker Change: And if we get out to it, Andy, I'll say from a margin perspective, clearly you've seen us.
Speaker Change: Executive to the 13.4% for this quarter, we're guiding to close to 14% in Q3, that's driven by the fact that as we mentioned at the investor, there are multiple levers that we can pull in terms of margin performance, utilization obviously is one aspect of it, but clearly from the standpoint of the mixed improvements, more global delivery and so forth. So, a lot of the things are still in the early stages of implementing and we feel, and finally, with the operating leverage that we talked about.
Speaker Change: I think the combination of those things give us good line of sight to get to the close to 14% in Q3 and for the full year at 13.8% to 14% range.
Great, thank you.
Welcome.
Speaker Change: Your next question comes from the line of Steven Fisher with UBS, please go ahead.
Stephen Fisher: Thanks, good morning. Just wanted to follow up about the JV project here, and I know it's a...
Speaker Change: for sensitive topics, so not sure how much more you can say, but it sounds like it's almost complete.
Speaker Change: Just curious how this ruling is reflective or not on sort of productivity and performance of the project and just anything we should be aware of for the remaining kind of handful of percent of complete that needs to get done here.
Steve: Yeah, I can't necessarily go into that level of detail, Steve, but I would say that we were appropriately reserved.
and the remaining items on the program.
Steve: are well within reach, so we're not overly concerned there. As far as any detail on the content of what is about a can't disclose, but what we will say though is that we are working hard with our partner in order to
to close it out and end. [inaudible]
Steve: I don't have a high level of concern there. I will say this, though Steve, is that this is not indicative of any kind of shift in our risk profile. We still have a low risk profile and if you kind of track us over the course of the last.
Steve: 10 plus years, you know, these are events that are very infrequent if you count them on one finger. So that's kind of how we look at it.
Speaker Change: Okay, that's helpful. And, you know, you were talking before with Eddie Kaplowitz about, you know, some of the...
Steve: Kind of procurement delays, and we're hearing broadly about just rising costs of construction in recent weeks, and it's not surprising in light of steel and
Steve: tariffs, et cetera. I'm curious what you're hearing from your customers specifically about higher construction costs. Does that drive any?
Steve: sort of value engineering opportunity for you. Does it sort of lengthen though the planning period since you said it's sort of like you know kind of front end of the cycle just sort of wondering what the the balance of puts and takes are for Jacobs on sort of a higher construction cost landscape. Thank you.
Thank you. Thank you. Thank you.
Steve: Yeah, so maybe I'll start off by saying, you know, the projects that we're involved with that have a pretty sizable field component, you know, these are these are jobs that are
Annie
Steve: Disgressionary Base, and more based on business transformation. So, you know, if you think about the private sector like sciences, data centers, you know, these are investments that the clients are going forward in making. And then in water, you know, these water jobs are long held on the books and have to deal with clean drinking water as well as the effects of climate and other, you know, impacts and natural disasters of hats. So, these are jobs that are going forward.
Ayan Banerjee: As far as the delays that we're seeing on those, that's an opportunity for the client to step back, you appropriately said Steve, look at some value engineering opportunities, but what this is really opening up is
Supply Chain Scenario Planning. [inaudible]
Ayan Banerjee: We have been working with our clients on global supply chain networks PA has got a really nice platform there with regards to supply chain consulting [inaudible]
Ayan Banerjee: and helping our clients look for alternate avenues in the event, because remember a lot of these tariffs have not happened, in the event these tariffs occur.
Ayan Banerjee: What are some of the options that they have? And so that has created a bit of, you know, some consulting and advisory work for us to be in the middle of this.
Terrific. Thank you very much.
Sabah Khan: Your next question comes from the line of Sabahat Khan with RBC Capital Markets. Please go ahead.
Sabah Khan: Great, thanks and good morning. Just to guess, sounds like there's some, you know, headline volatility during the quarter, but net the backlog turned out well and just curious.
Sabah Khan: Was that enough of a macro shock for some of your larger government customers that you deal with?
Sabah Khan: To start to think about maybe some level of stimulus spending through the back half of this year like we maybe saw post a COVID shock or is it just too early in the sort of the timeline or the macro situation for those type of discussions. Thanks.
Speaker Change: Yeah, Sabahat, I would probably would be not in a good place to articulate the size of it, but your spot-on.
Speaker Change: Some of those early, let's hit the pause button, especially with our DOD infrastructure clients, not knowing which way the winds were going to blow. We are starting to see that come back. [inaudible]
into the second half. [inaudible]
and so...
Sabah Khan: You know, these things, as I mentioned on previous quarter, Sabahat, these were never cancelled [inaudible]
Speaker Change: They were only maybe paused or a bit delayed and in those programs that have been approved and funds been appropriated are starting to come back. You know on the state and local business, not just in the states but globally, those have not stopped. [inaudible]
The better play too.
Speaker Change: Great, and then, you know, as we kind of think back to some of the areas of focus or the end markets that you're talking about at your investor day know some of the things around. [inaudible]
Ayan Banerjee: Semiconductor, self-care things like that, just wondering if across some of these end markets you have seen some talk of reshoring related projects or initial discussions whether it's many facts during or some of the other end markets that you operate and maybe are some of those early discussions happening. Thanks.
Ayan Banerjee: They are. So maybe I'll hone in on two.
Ayan Banerjee: Two-in-market life sciences and our semi-focus. These are clients that are looking at global supply chains and have had on their capital road map projects that are in multiple locations. [inaudible]
on,
Either geography, geography,
Ayan Banerjee: Semi is the same way, so the high ban with manufacturers as well as even some of the larger players are starting to point those jobs into the US. I would say that it's early though, it's early days.
Ayan Banerjee: which actually still benefits Jacobs because, you know, we're on the early front end planning site selection of these programs. So discussions are in real time.
Ayan Banerjee: and the great thing about kind of the Jacobs platform is that...
Ayan Banerjee: We're there in any form and if it goes into one geography over the other our global delivery model allows us to continue to use that talent across multiple geographies whichever way it goes but definitely a lot of scenario planning happening in real time.
Thank you very much.
Speaker Change: Thank you. Your next question comes from the line of Michael Dudas with vertical research. Please go ahead.
Morning, Bert Bob Dink.
Money, Money Mike,
Thank you very much. Thank you.
Speaker Change: Bob Minkicharis, from further thought you called out in your preparation marks fast growing water and fast growing energy power. Any interesting dynamics around that, especially with energy power tied towards some of your larger L. Sam customers.
and many more. Thank you. Thank you.
Speaker Change: Yeah, so the grid modernization and kind of the electrification of all Mike has continued.
Speaker Change: Not just in the US tied to probably more of that data center positioning that's happening right now.
but in Europe .
Speaker Change: with regards to some energy security items that are happening. And we're seeing it in Southeast Asia as well as Australia and New Zealand. So that continues to grow. That sector, though it's a smaller component but growing at a very fast rate, continues to grow at strong double digits. Let's move on.
Speaker Change: and I think tied to the kind of the data center component, we're going to continue to see growth on that front.
Water,
Speaker Change: It is uniform across the world right now. These programs, whether it be in the UK, the ambate cycle, as well as some larger frameworks that are coming up now.
Speaker Change: We, I think publicly disclosed what's going on with Central Utah, the West Basin in Southern California, these jobs that we've been working on for nearly a decade are now coming to fruition. And so we're seeing kind of that double digit pipeline growth in multiple geographies, as well as strong P&L performance year on year. So we believe that water...
Speaker Change: is going to continue to become a larger part of our overall portfolio. Today it represents about 25%. That's going to continue to grow.
Thank you. Thank you.
Venk Nathamuni: Yeah, maybe I'll start off in the bank, you can talk about some of the machines. So when we went into the PA investment back four years ago, we had kind of the PE style approach where...
Venk Nathamuni: and Partner Invested Model as well as ourselves with a liquidity event that would occur after year four and before year five. So this is all public information as well. And so now we're looking at what...
Venk Nathamuni: This is a great opportunity to increase our investment in PA and continue to build on what
Venk Nathamuni: A lot of hard work and a lot of sweat equity has gone into the partnership and taking it to the next phase. Really great time. PA is coming off of some real strong backlog growth and reemergence in the UK as well as the Europe business. Thank you very much.
Venk Nathamuni: And together, just what you talked about, investor day, you know, that strong, consulting and advisory business driving the read defining of the asset life cycle is a great opportunity for us looking forward. So more to follow on that piece.
Venk Nathamuni: Yeah, and Michael Bhagat at what Bob said, you know, clearly from the standpoint of the partnership it's deepening, it's sent them in multitudes of ways, and we're seeing that showing up in the results and it feels pretty good about
Venk Nathamuni: The Outlook for the remainder of the year, at least for Q3 and beyond. So,
Venk Nathamuni: I'd say with that having said, we certainly have a very strong balance sheet, a lot of good cash generation ahead of us as well .
Venk Nathamuni: and we're committed to returning cash to shareholders, we're also frustrated all along that we're considering an increased stake in PA and that's something that we're actively looking into and we'll keep you posted at the right time.
Thanks, Jonathan.
Thank you. Thanks, Frank.
Speaker Change: Your next question comes from the line of Chad Dillard with Bernstein. Please go ahead.
© The Bulletproof Executive 2013
Chad Dillard: And when do we see this in flexion? Is it more of a 2025 event or is this more of an opportunity for 26? Thanks for it.
Chad Dillard: Yeah, thanks for the questions I would say, you know obviously we will continue to see good growth in our growth poverty and backlog
Chad Dillard: To the extent that we are showing revenue growth for the full year [inaudible]
Chad Dillard: We do see a lot of opportunity for us to expand on that growth in the coming quarters and years [inaudible]
Chad Dillard: From a profitability standpoint, you can tell that the profitability has been steadily up into the right and we expect that to continue in Q3 and Q4 as well, sister.
Chad Dillard: And so a lot of factors associated with it, it's just the quality of our engagement, you know we talked about at the university, our commercial models and you know, global delivery models and so forth. So, multitude of ways for us to increase the gross profit over time, and that will translate into EBITDA margin as well as free cash flow in the coming quarters.
Thank you. Thank you. Thank you.
Speaker Change: Great. And then just in terms of the second half revenue guide, Keith like walked through the moving parts within like the sub segments of INF just to get there. Thank you very much.
Thank you. Thank you. Thank you.
Yeah, why don't I kick it off Chad and then... [inaudible]
Ayan Banerjee
Speaker Change: and then Bacon can follow up. I see that I point to...
Five main drivers of the second half [inaudible]
Speaker Change: The second half revenue growth and these are like a spoke about earlier are coming off of some of these awards have been public . . .
Speaker Change: But some of them also, we can't disclose, but starting off with life sciences, some large wins, we disclose the Fuji win, talked about the Merck win, those are now coming into play as well as continued growth within GOP1.
The last few quarters. Water has been uniform.
Speaker Change: And that is now coming into the second half of the year. Amphate has been well discussed as well as
Speaker Change: Jackson, Mississippi, and this West Basin win driving those, and so these are just some reference points to highlight the growth semi, you know that high bandwidth memory work that we're doing in the international work. [inaudible]
Speaker Change: That's now coming into play so you can kind of see the theme of energy and power in data centers also adding to that giving us some some real strong, strong wins and
You know, those are more steady growth for us. [inaudible]
Speaker Change: We have been steadily kind of mid-single digits growing in transportation, not just in the US, but also in Southeast Asia, specifically A and Z, and in Europe . So those are all kind of been off the backs of aviation, but some really strong highways and rail work, too.
Speaker Change: Yeah, and just to add to what Bob said, you know, when you look at it across these different end markets that Bob highlighted and the specific wins, and we've been talking about some of these bookings wins in the last several quarters. A lot of them are coming to fruition. You started some of them happening in Q2, but you're seeing an acceleration that in Q3 and Q4. You're seeing an acceleration that in Q4. You're seeing an acceleration that in Q4. You're seeing an acceleration that in Q4.
Speaker Change: That's what gives us visibility into the five to seven percent sequential growth in Q3 and driven by the specific market opportunities as well as wins that we have demonstrated over the last several quarters. [inaudible]
Thank you. Thank you. Thank you.
Great, thanks, guys.
Thank you [inaudible]
Speaker Change: Your next question comes from the line of SNG.jane with Keybank's Capital Markets. Please go ahead.
Thank you for watching. And I'll see you next time.
Sanjita Jain: Hey, thank you for taking my question. Most of them have been answered, so I'm just going to follow up on details on a couple. One is on margins. I
Speaker Change: I understand you gave us second half outlook but I just want to make sure I understand with segment we should expect to inflect more strongly in third quarter since PA consulting seems to be going at that 22% range anyways we should we expect more of an infection in IAF
Thank you. Thank you.
Speaker Change: Yeah, you're exactly right, Sangita. I think INF is where we see the biggest margin improvement opportunity. And it's a combination of not only the mix and GID and other things that we talked about in the past, but the fact that we are also seeing some good growth in some of these businesses that span the entirety of the life cycle so to speak. INF.
Speaker Change: And we certainly also want to point out that we did absorb the full effect of the JV matter in the quarter and therefore we feel pretty good about where our margins can be in Q3 and Q4, such that it gives us a good visibility to get to the 13.8 to 14% margins.
Speaker Change: God it, thanks, that was helpful, and on the backlog, it should be, I know last couple quarters you've said that your backlog is longer duration and that's the stronger backlog growth versus Jevni Koth, it should be assumed that the case in this quarter also, and is this maybe a...
Speaker Change: When you say this quarter, Sangita, you're talking about Q2? F2Q, yeah. F2Q2. Now, you know, as far as...
A strategic decision to go after...
Speaker Change: The larger programs, that's always been a part of our pedigree.
Speaker Change: for several years. So, we're working with our clients and our clients. [inaudible]
Speaker Change: There are larger jobs at times in their capital portfolio, there's smaller jobs, so if you look at the 25,000 plus
Speaker Change: They'll be a spread to the size of the jobs. I think the key point is that we're not chasing jobs, we're in the middle of our clients' capital budgets.
Speaker Change: and those have a spread and a profile to them. [inaudible]
Speaker Change: Sangita, I'm going to add to it. I would say it's more of a portfolio approach, right? So depending on the end market, depending on how complete the asset life cycle is covered by a particular project, we kind of pick and choose. Having said that, you know, we certainly want to have a nice balance between things that are faster burning, such that, you know, it has an immediate impact and things that are longer term in nature because that has a lot of visibility as well. So that it's kind of a balanced approach. I'm going to add to it. I'm going to add to it.
Speaker Change: And on top of it, clearly from a margin expansion standpoint, we certainly want to derive value for the value that we provide to clients [inaudible]
Good, appreciate the answers, thanks you. Thank you.
You.
Speaker Change: Your next question comes from the line of Jamie Cook with truest securities. Please go ahead.
Ayan Banerjee, Robert Pragada, Bert Subin
Cheers.
Speaker Change: Sure, so Jamie, maybe on the first one, let me, the PA timing and maybe that's how we articulate the PA timing has not been pulled forward. That was always, it's kind of on schedule. We really wanted to make sure that we were at a point where. [inaudible]
Speaker Change: The Strength of the Partnership and the collaboration that we're seeing on different opportunities.
has really come to fruition. [inaudible]
Speaker Change: That's actually, I call it right on track and a lot of hard work been done by both parties to get it there. And so more to follow on that front as far as anything further.
Speaker Change: Not now. You know, this is an organic execution play. We feel really strongly, along with PA, that the portfolio is where we need it. We need to continue to focus in on our clients ourselves and the model that we have in a return of capital share orders. [inaudible]
and so that's the path that we're on right now.
Kevin Berryman: Thank you all for tuning in. I'm Kevin Berryman. I'll see you next time.
Speaker Change: Yeah, and Jamie, if I take the second part of the question, which is on the guidance [inaudible]
Speaker Change: So clearly, we've given guidance for Q3, which is based on everything that you heard Bob and I talked about in terms of our end market exposure and so forth.
Pills, we feel comfortable with the 5% percent growth rate.
Speaker Change: and then the more important part is on the margin expansion front, so feel really good about the 13.8 to 14% margin.
Speaker Change: So when you take all of that into account, you know, from the standpoint of our EPS, we feel pretty good about getting there just driven by not only the revenue growth but as well as the...
the Margin Expansion, as well as EPS.
Speaker Change: And then, obviously, we are cognizant of what's happening in the macro, so we continue to watch it, and we will take inappropriate actions. What's up, I said to say that where we stand right now with the business key metrics that we're watching, we feel comfortable with the five to seven percent sequential growth rate.
Thank you [inaudible]
Thank you. Thank you. Thank you.
You're welcome.
Speaker Change: Your next question comes from the line of Jerry Revich with Goldman Sachs. Please go ahead.
You saw a good morning everyone.
All right, good morning, Chair.
Speaker Change: Separately, US has been roughly flat as just given the projects that you folks spoke about. Can you just put a finer point on whether you expect your top line growth to accelerate it in the US as you laid out the framework over the balance of the year. [inaudible]
Speaker Change: Sure, so let me address that first part, India and Middle East. [inaudible]
Speaker Change: Jerry, we see, I don't want to go so far to say limitless, but our growth potential in Middle East and India is not constrained by resource.
and with our Global Delivery Model, where...
Speaker Change: You know, if you go to the Middle East on any of these larger programs that we have, we literally have the United Nations there . . .
Speaker Change: on Seiden as a testament to our very inclusive culture that we worked on so hard at Jacob. So, I think...
The use of people in talent from around the world.
Speaker Change: in the Middle East, continues to facilitate that growth trajectory, and India is kind of the reverse.
Speaker Change: The ability for our Indian talent to not only support now what's happening with regards to technology manufacturing in India
Speaker Change: as well as India for the rest of the world continues to grow. So I think that those two areas continue to be really strong.
Strong Areas of Growth
Thank you. Thank you. Thank you.
Speaker Change: for that geography, but also how those geography facilitate the balance of growth. [inaudible]
Speaker Change: You know, on the US, I think that you might be looking at a gross number, you know, the net service revenue that we are experiencing in the US right now across.
R, R, our verticals is in growth mode. So maybe we could talk a little bit more about that offline and kind of showing that.
Speaker Change: and that full picture, but that growth in the US continues to be a strong part of our business.
Thank you.
Speaker Change: Super, and then just to put a finer point.
Speaker Change: On the project selection part of the conversation, you know, the write-down and...
Speaker Change: Water and Environmental. Can you just talk about for you folks obviously on usual relative history? Are there any other projects that are of similar vintage or of similar risks within the portfolio or any projects where you're monitoring risk factors given the right down?
Jerry, are our project risk?
Speaker Change: Doctorant with strong governance over that remained strong across the entire portfolio hence.
Speaker Change: These are not events that happen, not even routine, but even in a decade. So I think that this project selection we've been involved with this job.
Speaker Change: Well, I said 2016, you know, the early conceptualization of these programs are even beyond that and it's something that we've worked with the client for a long time and it's one that has had a tremendous impact on the community. Thank you very much.
Speaker Change: Selection, I'm not questioning that at all, and as well as the tools and the risk mitigation that we utilize across our portfolio remains very strong. These are situations that happen and again we're appropriately reserved.
and feels strongly about the entirety of the portfolio. [inaudible]
Thank you.
Thank you. Thank you. Thank you.
Speaker Change: And that concludes our question and answer session and I will now turn the conference back over to Bob Pragada for closing comments.
Speaker Change: Thank you for watching. Please subscribe to my channel. I'm also on Twitter and Instagram.
Speaker Change: Everyone, thank you for joining Aronovitz call. We look forward to engaging with many of you over the coming days and weeks and look forward to a strong second half. Thank you everyone.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.