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    Jacobs Solutions Inc (J)

    Business Description

    Jacobs Solutions Inc. is a global professional services company that delivers technology-centric solutions to tackle complex challenges across various sectors . The company operates through two primary lines of business: Critical Mission Solutions (CMS) and People & Places Solutions (P&PS), offering services that range from information and cyber warfare to climate change and smart cities . Jacobs generates revenue from both cost-reimbursable and fixed-price contracts, with a significant portion coming from cost-reimbursable contracts . The company also invests in PA Consulting and operates Divergent Solutions (DVS), which integrates offerings to both CMS and P&PS . Jacobs' operations are geographically diverse, with a presence in North America, Europe, the Middle East, India, Australia, New Zealand, and Asia .

    1. Critical Mission Solutions (CMS) - Provides solutions for information and cyber warfare, digital transformation, national security, defense, space exploration, and green energy transition, serving sectors like Aerospace, Automotive, Space, Telecom, Intel, Defense, and Energy .
    2. People & Places Solutions (P&PS) - Offers end-to-end solutions for challenges related to climate change, energy transition, connected mobility, integrated water management, and smart cities, serving clients in Infrastructure, Cities & Places, Energy & Environmental, Health & Life Sciences, and Advanced Manufacturing .
    3. Divergent Solutions (DVS) - Integrates offerings to both CMS and P&PS, enhancing the company's ability to deliver comprehensive solutions across its business lines .

    Q3 2024 Summary

    Initial Price$127.74March 28, 2024
    Final Price$116.65June 28, 2024
    Price Change$-11.09
    % Change-8.68%

    What went well

    • Jacobs expects continued strong backlog growth and positive tailwinds from the Infrastructure Investment and Jobs Act (IIJA) and the CHIPS Act, which are driving backlog performance and conversion rates, with expectations of continued funding beyond 2026.
    • The company is experiencing significant growth in its water sector due to aging infrastructure and PFAS regulations, with the water pipeline up nearly 2x compared to last year and high win rates in this area.
    • Jacobs anticipates strong margins and profitability going forward, especially in its People & Places Solutions (P&PS) segment, with operating margins running close to 15% year-to-date and guidance of greater than 14.9%, reflecting optimism in their performance.

    What went wrong

    • Pending IRS Ruling May Delay Critical Transaction: The company's planned spin-off and merger of its Critical Mission Solutions and Cyber & Intelligence businesses is dependent on receiving an IRS private letter ruling confirming the transaction is tax-free to shareholders, which introduces uncertainty and could delay the transaction.
    • UK Public Sector Pause Could Impact Revenue: The UK's upcoming election has caused a pause in public sector projects, potentially affecting the company's revenue growth in that region.
    • Focus on Execution Over M&A May Limit Growth: Management indicated a focus on execution and organic growth rather than pursuing mergers and acquisitions, which could limit expansion opportunities compared to competitors.

    Q&A Summary

    1. Fiscal 2025 Revenue and Margin Outlook
      Q: Can you provide confidence about revenue growth into fiscal 2025?
      A: We are optimistic about fiscal 2025, anticipating strong backlog performance and confident revenue growth, particularly in our People & Places Solutions (P&PS) segment. Positive tailwinds in water and advanced facilities, especially life sciences, support this outlook.

    2. P&PS Segment Margin Guidance and Potential Upside
      Q: Could there be upside to the 13.8% plus FY '25 stand-alone margin target for P&PS?
      A: While we maintain the 13.8% plus margin guidance for FY '25, our solid performance and current tailwinds suggest potential for upside. P&PS margins have been higher than expected this year, driven by our shift toward higher-end science-based consulting and advisory services.

    3. Impact of Delays and Segment Weakness on EBITDA Guidance
      Q: What led you to guide towards the lower end of your annual EBITDA range?
      A: A few factors affected our EBITDA performance, including weaker-than-expected results in some segments, such as the CMS business due to the Cytec loss announced previously, and delays in backlog burning. However, we had a tax benefit that helped EPS, and significant stock buybacks reduced the share count.

    4. Growth Drivers in Water and Advanced Facilities Sectors
      Q: What is driving growth in your water and advanced facilities sectors?
      A: Growth is driven by aging infrastructure, climate-related challenges, and increased focus on PFAS regulations. Our pipeline in the water sector is up nearly 2x compared to last year, and we are winning the majority of the work we pursue. In advanced facilities, life sciences continue to be strong, with momentum in oncology and Alzheimer's drugs, and diversification in semiconductors across logic and memory customers.

    5. Impact of UK Elections and Middle East Reprioritization
      Q: How are UK elections and Middle East shifts affecting your business?
      A: In the UK, transport projects saw a slight pause due to the upcoming election, but we expect positive momentum as election clarity emerges. Similarly, in the Middle East, particularly Saudi Arabia, there was a reprioritization of projects, but we anticipate positive tailwinds as programs gain clarity moving into FY '25.

    6. Backlog Growth and Margin Mix Dynamics
      Q: Can you explain the dynamics of backlog growth and margin mix?
      A: The consolidated backlog grew by 6%, with gross profit in backlog up 5.5%. In P&PS, the top line grew around 10%, with gross profit up 9%, reflecting higher growth in this segment. While some lower-margin projects contribute to accelerated top-line growth, we continue to see incremental margins over time in P&PS due to our focus on high-value consulting work.

    7. Corporate Expense Reduction and Impact on Margins
      Q: How is corporate expense reduction progressing towards margin targets?
      A: We are targeting to reduce corporate expenses from $60 million to $50 million over time, which will help drive towards our 13.8% EBITDA margin goal. Some costs will be targeted after the separation, but we feel confident about achieving necessary cost reductions.

    8. Semiconductors and Advanced Facilities Outlook
      Q: What is the outlook for your semiconductor and advanced facilities business?
      A: Despite some capital expenditure reductions by major clients, we remain bullish on the semiconductor sector due to diversification across logic and memory customers and geographic expansion. In advanced facilities, life sciences continue to perform well, driven by strong pipelines in oncology and Alzheimer's, as well as growth in GLP-1 drugs.

    9. Actions in Preparation for the Spin-off
      Q: What actions are you taking in preparation for the spin-off?
      A: We are optimizing our corporate structure by streamlining processes and enhancing systems. This includes transitioning to global business centers and consolidating cross-cutting capabilities such as program management and digital enablement to drive efficiency post-separation.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDQ1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024
    Critical Mission Solutions1,190.81,236.434,693.51,128.61,229.21,155.8--
    People & Places Solutions2,469.72,512.119,553.92,470.42,521.92,564.7--
    Aerospace, Technology and Nuclear--------
    Buildings, Infrastructure and Advanced Facilities--------
    Divergent Solutions239.3251.94946.9254.2224.0222.8--
    PA Consulting286.9288.161,158.1306.0294.0288.3289.41,177.7
    Infrastructure & Advanced Facilities-------10,323.3
    Energy, Chemicals and Resources--------
    - Aerospace & Technology--------
    - Buildings & Infrastructure--------
    - Industrial--------
    - Petroleum & Chemicals--------
    - Project Services--------
    - Process, Scientific, and Systems Consulting--------
    - Construction--------
    - Operations and Maintenance--------
    Total Revenue4,186.74,288.7316,352.44,159.24,269.14,231.6-1,15911,500.9
    Revenue by Geography - in Millions of USDQ1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024
    United States2,816.82,915.4410,963.0722,798.12,878.8882,849.0-1,347.387,178.61
    Europe905.9906.453,598.140925.2957.651939.4-132.952,689.30
    Canada70.274.58268.46663.461.65467.269.43261.68
    Asia35.129.82135.35930.934.67332.734.39132.66
    India39.737.38164.21235.737.27437.941.72152.59
    Australia and New Zealand181.3184.5696.870173.8164.351171.040.42549.57
    South America and Mexico--------
    Middle East and Africa137.7140.72526.295132.1134.602134.3135.53536.53
    Total Revenue4,186.74,288.6816,352.4144,159.24,269.0934,231.6-1,158.9511,500.94

    Executive Team

    NamePositionStart DateShort Bio
    Robert V. PragadaChair and Chief Executive OfficerFebruary 2016Robert V. Pragada rejoined Jacobs in February 2016 after serving as President and CEO of The Brock Group. He initially joined Jacobs in 2006 and has held various leadership roles, including President and COO from 2019 to 2023. He became CEO in January 2023 and Chair of the Board in September 2024 .
    Venk NathamuniChief Financial OfficerJune 3, 2024Venk Nathamuni joined Jacobs as CFO on June 3, 2024. He was previously CFO at Cirrus Logic Inc. and held roles at Arista Networks and Maxim Integrated Products, Inc., with over 30 years of experience in finance and strategic leadership .
    Joanne E. CarusoExecutive Vice President, Chief Legal and Administrative Officer2012Joanne E. Caruso joined Jacobs in 2012. She has served as Senior Vice President, Chief Administrative Officer, and held positions in Global Human Resources and Global Litigation. Before Jacobs, she was a partner at Howrey LLP and Baker & Hostetler LLP .
    Patrick X. HillExecutive Vice President and President, Global Operations1998Patrick X. Hill joined Jacobs through the SKM acquisition in 1998. He has held senior leadership roles across various regions and sectors. In December 2023, he became Executive Vice President and President, Global Operations .
    Shannon MillerExecutive Vice President and President, Strategy, Growth and Digital1998Shannon Miller joined Jacobs in 1998. She has led cultural and digital transformations across multiple markets. In December 2023, she became Executive Vice President and President, Strategy, Growth & Digital. Previously, she was Executive Vice President and President of Divergent Solutions and Chief Growth Officer .
    William B. Allen, Jr.Chief Accounting OfficerOctober 2016William B. Allen, Jr. joined Jacobs in October 2016. Before Jacobs, he was Vice President, Finance and Principal Accounting Officer at LyondellBasell Industries, N.V., and held roles at Albemarle Corporation, including Vice President, Corporate Controller, and Chief Accounting Officer .

    Questions to Ask Management

    1. "Given the significant reliance on government stimulus programs like the IIJA and CHIPS Act to drive backlog growth, how are you preparing for potential funding delays or reductions, and what steps are you taking to diversify your revenue streams to mitigate this risk?"
    2. "With the upcoming spin-off and merger with Amentum, can you elaborate on the specific challenges you anticipate in separating the Critical Mission Solutions and Cyber & Intelligence businesses, and how you plan to address any operational disruptions or cost increases during this transition?"
    3. "You mentioned that approximately two-thirds of your water-related and life sciences business is concentrated in high-value, science-based consulting and advisory services. How sustainable is this level of high-margin work, and what are the risks of increased competition or market saturation impacting your margins in these sectors?"
    4. "Can you provide more detail on your capital allocation strategy post-spin-off, specifically regarding your appetite for M&A versus returning capital to shareholders, and how you intend to balance organic growth opportunities with potential acquisitions to drive shareholder value?"
    5. "Given the robust backlog and strong book-to-bill ratio in People & Places Solutions, what challenges do you foresee in converting this backlog into revenue, and are there any capacity constraints or supply chain issues that could impact your ability to deliver on these projects timely and maintain your margin expansion trajectory?"

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateJanuary 25, 2023
    End Date/DurationJanuary 25, 2026
    Total additional amount$1.0 billion
    Remaining authorization$472.2 million as of September 27, 2024
    DetailsThe program allows for the repurchase of up to $1.0 billion of the Company's common stock. It is not obligatory for the Company to purchase any shares, and repurchases may be executed through various means depending on market conditions and other factors.

    Past Guidance

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025
    • Guidance: The documents do not provide specific metrics for the Q4 2024 earnings call guidance. It is mentioned that guidance for all of fiscal 2025 would be provided in their November earnings call .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024 and FY 2025
    • Guidance:
      1. Consolidated Adjusted EPS: $7.85 to $8.05, representing 10% growth year-over-year at the midpoint .
      2. Fiscal 2024 Adjusted EBITDA: Near the lower end of $1.54 billion to $1.585 billion .
      3. Q3 Adjusted EPS: $1.96 .
      4. Adjusted Effective Tax Rate: Approximately 27% for the remainder of the fiscal year .
      5. EPS Growth: 13% growth in the second half of fiscal year 2024 versus the year-ago period .
      6. Free Cash Flow Conversion: Expected to exceed 100% for the full year .
      7. Quarterly Dividend: $0.29, an 11.5% year-over-year increase .
      8. People & Places Solutions (P&PS) Operating Margins: Greater than 14.9% .
      9. Fiscal Year 2025 Stand-alone Margin Guidance: Maintained at 13.8% plus .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted EBITDA: $1.54 billion to $1.585 billion .
      2. Adjusted EPS: $7.80 to $8.10, representing 9% to 10% growth year-over-year at the midpoints .
      3. Q2 Adjusted EPS: $1.91 .
      4. Adjusted Effective Tax Rate: 26% to 27% each quarter for the remainder of the fiscal year .
      5. Annual Effective Tax Rate: 22% for the full fiscal year .
      6. Free Cash Flow Conversion: 100% reported as well as adjusted free cash flow conversion for the full year .
      7. Unallocated Corporate Costs: $50 million per quarter or $200 million annually post-separation .
      8. Dividend: $0.29, an 11.5% year-over-year increase .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted EBITDA: $1.53 billion to $1.60 billion .
      2. Adjusted EPS: $7.70 to $8.20, representing 9% to 10% growth at the midpoints .
      3. Adjusted Effective Tax Rate: 26% to 27% each quarter for the remainder of the fiscal year .
      4. P&PS Adjusted Operating Margins: Expected to increase year-over-year .
      5. PA Consulting Adjusted Operating Margins: Approximately 20% for the full year .
      6. Free Cash Flow Conversion: 100% reported and adjusted free cash flow conversion to adjusted net earnings .
      7. Dividend: $0.29 per quarter, an 11.5% increase .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • AECOM
    • Tetra Tech
    • WSP
    • Arcadis
    • Bechtel
    • Arup
    • Mott MacDonald
    • Stantec
    • Parsons
    • Accenture
    • Schneider Electric
    • Mace
    • AtkinsRealis
    • Altair
    • Montrose
    • Capgemini
    • Fluor
    • IBM
    • Infosys
    • Deloitte
    • KPMG
    • PwC
    • Bain & Company
    • BCG
    • McKinsey & Company

    These companies are mentioned as competitors in the markets where Jacobs Solutions Inc. provides services, which include technology, consulting, and engineering firms .

    Latest news

    Recent developments and announcements about J.

    Financial Reporting

      Earnings Report

      ·
      Nov 19, 2024, 8:05 PM

      Jacobs Solutions Inc. (NYSE: J) has released its financial results for the fiscal fourth quarter and fiscal year ended September 27, 2024.

      Q4 2024 Financial Highlights

      • Revenue: $3.0 billion, a 4.4% increase year-over-year.
      • Net Income: $309 million, up 333.1% year-over-year.
      • Earnings Per Share (EPS): $2.38, a 277.8% increase year-over-year.
      • Backlog: $21.8 billion, up 22.5% year-over-year.

      Fiscal Year 2024 Highlights

      • Revenue: $11.5 billion, a 6.0% increase year-over-year.
      • Net Income: $613 million, up 61.6% year-over-year.
      • EPS: $4.79, a 57.0% increase year-over-year.
      • Free Cash Flow Conversion: Exceeded 100% of net income.

      Significant Trends and Strategic Moves

      • Jacobs completed the separation of its Critical Mission Solutions and Cyber & Intelligence businesses, now trading as Amentum (NYSE: AMTM).
      • The company recorded $187 million in mark-to-market gains on its investment in Amentum, boosting Q4 GAAP net income.
      • Jacobs is focusing on a simpler, higher-value, and higher-margin portfolio, with strong demand in end markets such as Water and Environmental, Critical Infrastructure, and Life Sciences and Advanced Manufacturing.

      Outlook for Fiscal Year 2025

      • Adjusted Net Revenue Growth: Expected to grow mid-to-high single digits over fiscal 2024.
      • Adjusted EBITDA Margin: Expected to range from 13.8% to 14.0%.
      • Adjusted EPS: Expected to range from $5.80 to $6.20.
      • Free Cash Flow Conversion: Expected to exceed 100% of net income.

      Jacobs' strategic shift and financial strength position it well for continued growth and shareholder returns in fiscal year 2025 and beyond .

    Financial Actions

      Strategic Assets

      ·
      Sep 30, 2024, 12:00 AM

      Jacobs Solutions Inc. Completes Major Asset Disposition

      On September 27, 2024, Jacobs Solutions Inc. successfully completed a significant transaction involving the disposition of its Critical Mission Solutions (CMS) and portions of the Divergent Solutions (DVS) business, collectively known as the SpinCo Business. This was achieved through a Reverse Morris Trust transaction, which included a series of strategic agreements and mergers .

      Transaction Details

      • Separation and Distribution: Jacobs transferred its CMS and C&I businesses to a newly formed entity, SpinCo. Subsequently, Jacobs distributed 124,084,108 shares of SpinCo common stock to its shareholders on a pro rata basis .
      • Merger: SpinCo merged with Amentum, with SpinCo surviving as an independent public company listed on the New York Stock Exchange under the symbol "AMTM" .
      • Ownership Structure: Post-transaction, Jacobs' shareholders own approximately 51% of SpinCo, Jacobs retains about 7.5%, and Amentum Equityholder holds around 37%. An additional 4.5% of SpinCo stock is held in escrow as contingent consideration, dependent on SpinCo's fiscal year 2024 performance .

      Financial Implications

      • Cash Payment: Jacobs received approximately $0.9 billion from SpinCo, which is subject to adjustments based on SpinCo's cash, debt, and working capital levels .
      • Debt Reduction: The cash received was used to fully redeem $575 million of the 2020 Term Loan Facility and partially redeem $333 million of revolving credit facility debt, resulting in a net zero impact on cash balances .
      • Pro Forma Financials: The transaction is expected to impact Jacobs' financial statements, with the CMS and C&I businesses being reflected as discontinued operations in future reports .

      Operational Impact

      • Strategic Focus: This transaction allows Jacobs to streamline its operations and focus on its core business areas, potentially enhancing operational efficiency and financial performance.
      • Future Plans: Jacobs intends to dispose of its remaining equity stake in SpinCo within 12 months, further simplifying its business structure .

      This strategic move is anticipated to provide Jacobs with greater financial flexibility and a more focused operational approach, aligning with its long-term business objectives .