Jacobs Solutions - Earnings Call - Q1 2025

Executive Summary

• Solid start to FY25: revenue growth and significant margin expansion on an adjusted basis; GAAP EPS was negative due to a $145M unrealized mark-to-market loss on Jacobs’ Amentum (AMTM) stake; adjusted EPS was $1.33 and adjusted EBITDA rose 24% YoY, with adjusted EBITDA margin at 13.5%.
• Backlog climbed 18.9% YoY to $21.8B; TTM book-to-bill at 1.3x. Note: the press release cites Q1 book-to-bill of 1.0x, while management on the call cited 1.4x; both refer to strong TTM momentum and should be cross-checked against methodology.
• FY25 guidance: adjusted EPS raised to $5.85–$6.20 (from $5.80–$6.20); adjusted net revenue growth mid-to-high single digits, adjusted EBITDA margin 13.8–14.0%, reported FCF conversion >100% reiterated.
• Capital returns accelerated: $202M repurchased in Q1; Board approved a new $1.5B authorization (largest in company history) and increased the quarterly dividend to $0.32/share (+10% YoY), supportive of share count and EPS leverage going forward.

What Went Well and What Went Wrong

• What Went Well

  • Adjusted profitability improved materially: adjusted EBITDA up 24% YoY to $282M; adjusted EBITDA margin reached 13.5%, ~200 bps higher YoY, driven by mix, cost controls, and operating leverage.
  • Robust demand in Water and Life Sciences drove growth; management highlighted double‑digit pipeline growth and strong bookings underpinning backlog and visibility.
  • Capital allocation stepped up: $202M of buybacks in Q1; new $1.5B repurchase authorization; dividend lifted to $0.32/share (+10% YoY).

• What Went Wrong

  • GAAP results impacted by non-cash items: a $145M mark-to-market loss on Amentum reduced GAAP EPS to ($0.10); tax rate volatility (GAAP 107.5%) also pressured reported earnings.
  • Advanced Manufacturing softness offset Life Sciences strength; management expects Advanced Manufacturing to improve in 2H as projects ramp, but near-term remains mixed.
  • FX and seasonality headwinds: Q2 adjusted EBITDA margin expected below Q1 due to holiday timing; FX (GBP) remains a monitoring item for translation risk.

Transcript

Operator (participant)

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 the Jacobs Solutions fiscal first quarter 2025 earnings conference call and webcast. All lines have been placed on mute to prevent any background noise. 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 your question, again, press star one. 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 (SVP of Investor Relations)

Thank you, Krista, and good morning, everyone. Our earnings announcement and 10-Q were filed this morning, and we have posted a slide presentation on our website, which we'll reference during the call. I would like to refer you to slide 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 three, 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 from our first quarter results. Venk will then provide a detailed review of our financial performance, including commentary on end market trends, cash flows, and balance sheet data. Finally, Bob will provide closing remarks, and then we'll open up the call for questions. With that, I'll turn it over to our Chair and CEO, Bob Pragada.

Bob Pragada (Chair and CEO)

Good day, everyone, and thank you for joining us to discuss our first quarter 2025 business performance. Starting on slide four, I want to highlight that we are excited to be hosting our 2025 Investor Day on February 18th in Miami. Our simplified structure, global delivery model, and end-to-end expertise position us extremely well to build on a great start to FY 2025. We see a bright future ahead as we are creating value for our shareholders over the long term, and at our Investor Day, we plan to lay out our vision for Jacobs' next exciting chapter. We look forward to providing you with more detail in just two weeks. Turning to slide five, total gross revenue increased over 4% in Q1, with adjusted net revenue rising over 5%. GAAP EPS was -$0.10 and includes a -$1.16 impact from the mark-to-market loss in our investment in Amentum.

Excluding this and other items, Q1 adjusted EPS was $1.33, an 8% decrease compared to the previous year. The year-on-year decline in adjusted EPS was the result of a favorable tax item last year that resulted in a $0.49 per share benefit in Q1 2024. Adjusted EBITDA for Q1 was $282 million, which represented a 24% year-on-year increase. We're pleased with the strong underlying business performance, and we are seeing very good traction on adjusted EBITDA margin improvement. Our trailing 12-month book-to-bill was 1.3x, as our consolidated backlog increased 19% year-over-year in Q1. We are encouraged by the trajectory we're delivering on, following two extremely strong quarters for new awards in the second half of 2024. Gross profit and backlog increased 12% year-over-year in the first quarter, reflecting back-to-back quarters of double-digit growth.

Turning to slide six, I'm excited to report that during the quarter, we continued to deliver substantial wins across the business and across geographies, a testament to our market positioning, deep domain expertise, and long-term trusted client relationships. We saw solid revenue growth year-over-year, mainly in our Infrastructure and Advanced Facilities segment. We are demonstrating impressive revenue growth globally in Water and Environmental, with all major geographies showing strength in Q1. Notably, during Q1, we were selected to operate, maintain, and provide capital projects program support for the water treatment system managed by JXN Water. This 10-year contract will continue to improve water service and water equity and has already provided 180,000 residents in and around Jackson, Mississippi, with more reliable drinking water. In Life Sciences and Advanced Manufacturing, we continue to deliver strong results in Life Sciences with double-digit net revenue growth in Q1.

Our backlog in Life Sciences has been rising over the last 12 months, giving us good line of sight over the coming quarters. Further, market activity remains very robust, with our involvement spanning key areas such as GLP-1s, monoclonal antibodies, antibody-drug conjugates, and cutting-edge R&D programs for leading biopharmaceutical companies. Turning to Critical Infrastructure, during the quarter, we achieved significant milestones on two transformative projects. First, we were selected as part of the preferred alliance for the landmark River Torrens to Darlington project in South Australia. This $15.4 billion initiative by the South Australian government will deliver a 10.5 km nonstop motorway, completing the 78 km north-south corridor. The T2D project is poised to drive economic growth and development across Adelaide and South Australia. Additionally, we have been chosen by Ireland's National Transport Authority to deliver the BusConnects Dublin program.

This ambitious 10-year initiative will enhance public transit by developing 230 km of bus priority corridors and 200 km of cycling and pedestrian paths. The project not only promotes sustainable growth and climate resilience, but also strengthens connectivity in and around Dublin. We're encouraged by the increased demand for large-scale international projects and Critical Infrastructure to complement the momentum we've been seeing in the U.S. In summary, we are pleased with our continued progress this quarter as we execute on our strategic priorities to deliver sustainable and profitable growth. We're excited for the future and look forward to presenting our strategic vision for Jacobs over the coming years at our upcoming Investor Day. Now I'll turn the call over to Venk to review our financial results in further detail.

Venk Nathamuni (CFO)

Thank you, Bob. Let me begin by summarizing a few of the financial highlights on slide seven, and I'll then provide additional context and detail around our strong quarterly performance. First quarter gross revenue grew 4% year-over-year, and adjusted net revenue, which excludes the impact of past due revenue, grew by 5% year-over-year. Q1 adjusted EBITDA was $282 million, growing 24% year-over-year. Our adjusted EBITDA margin during Q1 came in strong at 13.5%, which is an increase of approximately 200 basis points year-over-year. First quarter adjusted EPS was $1.33, an 8% decrease versus the previous year, primarily due to an unfavorable tax comparison. As Bob mentioned in his prepared remarks, last year we benefited from a discrete tax item that did not recur in 2025.

Please also note GAAP EPS was impacted by a $145 million unrealized pre-tax loss associated with the mark-to-market adjustment of our investment in Amentum, which had no impact on adjusted EPS. Finally, consolidated backlog was up approximately 19% year-over-year and remains near record levels at $21.8 billion. Q1 book-to-bill of 1.0x was solid. Our trailing 12-month revenue book-to-bill ratio was 1.3x, with gross profit and backlog increasing 12% year-over-year during Q1, highlighting our strong trailing 12-month sales performance. Going forward, we will focus our attention on trailing 12-month performance in our book-to-bill ratios, as we believe this is a better indicator of future growth. Regarding our performance by end market in Infrastructure and Advanced Facilities, let's turn to slide number eight. Demand for our Water and Environmental services remains strong across all major geographies, with adjusted net revenue increasing 11% compared to the same quarter last year.

This momentum is expected to continue beyond fiscal 2025 and is supported by our robust backlog and pipeline. We grew adjusted net revenue in our Life Sciences and Advanced Manufacturing end market by over 1% in Q1, as Life Sciences strength was largely offset by softness in Advanced Manufacturing. We expect Life Sciences growth to remain robust for the foreseeable future as we continue to ramp on new projects. Additionally, we've seen a significant uptick in our Life Sciences pipeline. On the Advanced Manufacturing side, we expect growth to improve in the second half of the year as new projects start to ramp. This combination leads us to forecast similar growth in Q2 relative to Q1, followed by a pickup in the second half of the year. In Critical Infrastructure, adjusted net revenue increased 5% year-over-year, with North America outpacing total growth for the end market.

We're pleased with the sequential improvements in Critical Infrastructure growth and our backlog and pipeline, particularly in Transportation, underpin an encouraging outlook. Moving on to slide number nine, I will provide a quick overview of our segment financials. In Q1, Infrastructure and Advanced Facilities operating profit increased by 26% in total and 25% on a constant currency basis versus last year. PA Consulting results reflect roughly flat revenue performance year-on-year, but very good execution on the bottom line. Q1 operating profit increased 22.6% year-over-year and 19.6% on a constant currency basis. We remain encouraged by recent bookings and anticipate revenue growth for PA Consulting will improve in fiscal 2025 as the year progresses. Moving on to slide number 10, we provide an overview of cash generation and balance sheet data.

For Q1, free cash flow was healthy at $97 million, and we repurchased $202 million in shares, a sequential increase of $145 million. This combination resulted in our net leverage ratio remaining relatively flat at 1.1x on an LTM adjusted EBITDA basis as of Q1. I'd note this remains below the midpoint of our 1.0x-1.5x net leverage target. As we look ahead, we expect free cash flow for the full year to be similar to our previous expectation, but with a more back-half-weighted cadence. This is a function of higher cash tax payments in Q1 and Q2, which we expect to step down in Q3. Our balance sheet strength will enable continued investment in the business, as well as returns to shareholders via share repurchases and long-term dividend growth. At the end of Q1, we had $271 million in remaining authorization.

Notably, we're pleased that our Board of Directors just approved a new $1.5 billion share repurchase authorization, which is the largest in company history. Our commitment to return capital to shareholders is evidenced by our $0.32 per share dividend, representing 10% year-over-year growth, as well as our meaningful increase in share repurchase activity in the first quarter. We plan to continue repurchasing our shares at what we consider to be an aggressive pace in Q2. Additionally, in line with my comments from last quarter, we continue to expect to disposition our stake in Amentum in the first half of calendar 2025, further aiding our financial position. Finally, please turn to slide 11.

We reiterate our fiscal 2025 outlook for adjusted net revenue to grow mid to high single digits year-over-year, adjusted EBITDA margin to range from 13.8%-14%, and reported free cash flow conversion to be more than 100%. We are raising our adjusted EPS guidance range from $5.80-$6.20 to a new range of $5.85-$6.20 to reflect good first quarter performance, as well as our lower share count expectations. The midpoint of our guidance range for adjusted EPS would indicate over 14% growth year-over-year, and the midpoint of our guidance range for adjusted EBITDA indicates approximately 15% growth year-over-year, highlighting our continued positive outlook for the business this year. To assist with your modeling, I will quickly highlight a few items related to fiscal 2025. We anticipate revenue will rise sequentially through year-end, with a more pronounced step-up between Q2 and Q3.

Regarding margins, we ended up seeing a greater-than-expected benefit from the Christmas holiday timing that shifted some profitability forward. As a result, we now anticipate Q2's Adjusted EBITDA margin to be below that of Q1. However, we continue to have good line of sight to reaching our 13.8%-14% margin guidance for the full year and expect to see a nice step-up in margins as we head into the second half of the year. Lastly, we're monitoring FX movement, particularly conversion rates for the British pound. We took a somewhat conservative view toward FX in our original forecast, and as a result, we aren't seeing a significant incremental headwind today. However, should the dollar strengthen from here, that would have an adverse translation effect on revenue and operating income.

In summary, we continue to be excited about the future of Jacobs and expect fiscal 2025 to be a strong foundation on which we can build. With that, I'll turn the call back over to Bob.

Bob Pragada (Chair and CEO)

Thank you, Venk. In closing, with a positive start to FY 2025, we are strategically positioned to leverage revenue growth momentum across the business. We returned capital to shareholders at a historically elevated pace in the first quarter and plan to keep doing so in the second quarter, demonstrating the combined power of our strong financial position and highly cash-generative business model. With our sharpened focus and capabilities, we are confident in our ability to expand market share and meet the evolving needs of our clients across all facets of our business. We look forward to engaging with you further at Investor Day, February 18th. Operator will now open the call for questions.

Operator (participant)

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. If you would like to withdraw that question, again, press star one. And we ask that you limit yourself to one question and one follow-up. Your first question comes from the line of Sabahat Khan with RBC Capital Markets. Please go ahead.

Sabahat Khan (Managing Director of Global Research)

Great. Thanks and good morning. Maybe just to kick it off with a broad question that we've been getting on the whole space. The numbers look obviously in line. Guidance is reiterated, but maybe if you can just talk about what you're hearing from your customers, what's reflected in your backlog in terms of the sentiment, and that's particularly focused on sort of the U.S. both government as well as commercial customers. Just trying to get an understanding of what the customers are saying to you amidst all these headlines. Thanks.

Bob Pragada (Chair and CEO)

Sure. So Saba, it's something that we stay very, very close to. Right now, the sentiment of our customers continues to be positive. The political narrative obviously is pretty robust right now. And so it's not that we are ignoring it. We're considering it, but we're staying close to what our customers are saying. And we're seeing that, and we made a couple of comments around it, in the continued focus on the pipeline. I mean, we're seeing double-digit pipeline growth across our end market sectors, and the cadence of our awards as demonstrated in our backlog growth continues to be there. So we're actually not seeing dramatic shifts in our customer behavior as a result of the political narrative.

Sabahat Khan (Managing Director of Global Research)

Okay. Great. And then maybe we could just talk about, in terms of your margin guidance for this year, what are some of the initiatives that you've been able to execute on thus far from the time of the spin closing till now? And what are some of the initiatives that's maybe more focused on in the back half? Just trying to understand what's contributing to the margin improvement this year within the context of some of the initiatives you outlined at the time of the spin. Thank you.

Bob Pragada (Chair and CEO)

Sure. Thanks. Go ahead.

Venk Nathamuni (CFO)

Yeah. Saba, thanks for the question. Yeah. In terms of just the margin performance, as you pointed out, we came out with solid performance in Q1 with our EBITDA margin at 30.5%. I'd say what contributed to it was primarily three or four major items. Number one is the ongoing continuation of our cost controls and cost leverage that we've talked about in prior quarters. And then as the revenue picks up, we certainly see some operating leverage in the model. And then a couple of other things where we're focused on internal execution is the mix. As we go through the asset lifecycle and engage earlier in the lifecycle with our customers, that gives us a better margin profile. And then finally, we're also working on our global delivery model such that we can execute the functions across the globe.

And so it's a combination of all those things that help us to get to where we are today. Just from a Q1 to Q2 timing standpoint, I highlighted the holiday timing, which will result in a slightly lower, I'll call it low 13s EBITDA margin for Q2, but we feel we have a good line of sight to getting to the 13.8%-14% for the full year.

Sabahat Khan (Managing Director of Global Research)

Great. Thanks very much.

Venk Nathamuni (CFO)

Thank you.

Operator (participant)

Your next question comes from the line of Andy Kaplowitz with Citigroup. Please go ahead.

Andy Kaplowitz (Managing Director)

Hey, good morning, everyone.

Bob Pragada (Chair and CEO)

Good morning, Andy.

Andy Kaplowitz (Managing Director)

So what are Environmental growing double digits? I think you said you have visibility even into 2026 in those end markets. Obviously, it's early in the new U.S. administration's tenure, but they have a big deregulation focus. So I would surmise you don't think that is going to impact that business at all, but maybe you could elaborate on what you're seeing in the confidence level in that continued growth in that segment.

Bob Pragada (Chair and CEO)

Sure. Yeah. So we don't. So, short answer, Andy, is we don't see a slowdown just because of the needs, whether it be urbanization or aged infrastructure, especially as well as the effects of climate. So we're not seeing that. And again, it's a global growth story that we have seen within the water sector across all geographies. I will say this: some of the deregulation is actually serving as a catalyst to accelerate some of these jobs that we have had either in our backlog or that are in the pipeline. So far, whether it be regulations that you would think that would stop jobs, we have not seen that.

Andy Kaplowitz (Managing Director)

It's helpful, Bob.

Venk Nathamuni (CFO)

Andy, if I could just, sorry.

Andy Kaplowitz (Managing Director)

Go ahead.

Venk Nathamuni (CFO)

Andy, if I could just add to that, one of the things we talked about in the last couple of quarters is, as you look at some of the large projects that we've executed, that actually gives us a lot of visibility into the outer years as well. So that's what gives us confidence in our Water and Environmental position.

Andy Kaplowitz (Managing Director)

Great. And then maybe in the Advanced Manufacturing area, kind of weak right now. I think you said you see some projects maybe ramping up in the second half of the year. So maybe talk about visibility around that because Life Sciences is quite strong right now. Advanced Manufacturing must be quite weak. So where do you get the incremental growth from and visibility toward the bookings starting to ramp up in that segment?

Bob Pragada (Chair and CEO)

Yeah. Let me kind of break it down, Andy. If you break down that whole sector, Life Sciences we talked about, and in Advanced Manufacturing, we are kind of seeing a flattish performance right now in our semi business, which is actually not bad as jobs have kind of restarted in our portfolio, has diversified both from a client standpoint and a geography standpoint. So the pipeline continues to be good there. Data centers continue to be a real positive for us. I mean, we're at double-digit growth in our data center business, and it's now to the size where you could actually see it. It's still 40-50 basis points, but it's actually contributing to the overall growth of the company.

The area that we'd say has been soft, and we see in the pipeline it growing, and that's why we have confidence in the second half, is in kind of the industrial manufacturing depth. You saw that in the ISM data, and it's now kind of spiking back up. So we're starting to see those jobs, and especially the reshoring effort that would be coming back to the U.S., we would be a beneficiary for that. So we're being a bit cautious on how that flows through the pipeline into our backlog, but we see some green shoots there.

Andy Kaplowitz (Managing Director)

Appreciate the color.

Operator (participant)

Your next question comes from the line of Andy Whitman with Baird. Please go ahead.

Andy Wittmann (Senior Research Analyst)

Oh, great. Thanks for taking my questions. I guess I just wanted a clarification to help understand the quarter a little bit better. So probably this one's for Venk. I was looking through some of your bridges, and it looks like you're taking out $3.6 million of revenue from the Transition Services Agreement, and you're adding back $7.9 million of costs. So I guess kind of a two-part question in this one. Is that right? Right now, are you losing on a GAAP basis $4 million on the TSA? And then I guess maybe the more important question is, once the TSA is over, how confident are you that you're going to be able to address that $8 million of costs in the quarter that it's not an adjusted margin headwind in a year from now?

Venk Nathamuni (CFO)

Yeah, Andy, thanks for the question. Yeah, great question. So as it relates to the TSA, clearly we get the TSA income that's offset by the TSA expenses that we incur, and it's still a profitable engagement for us. But as we look ahead to the end of the year, clearly we do see opportunity for us to optimize those costs, and we'll provide more color in it, but suffice it to say that that is an opportunity for us to improve our profitability once the TSA period ends.

Bob Pragada (Chair and CEO)

Not a headwind.

Venk Nathamuni (CFO)

Not a headwind.

Bob Pragada (Chair and CEO)

Right.

Venk Nathamuni (CFO)

That's it.

Andy Wittmann (Senior Research Analyst)

Okay. Great. I guess for my follow-up question, I wanted to ask on the backlog. I think I heard that you said that on a go-forward basis, you're going to refer more often to the trailing 12-month backlog as you said it's a better reflection of what's going. I think that's probably fair and true. But can you also just talk about what you're seeing in the pipeline? I mean, you said a lot of positive things about the health of your end markets, but is the focus on TTM a reflection of the next couple of quarters of awards that maybe are a little bit softer, even though maybe for the year it's strong? Maybe I'm parsing this too closely, but I wanted to understand the change.

Bob Pragada (Chair and CEO)

No, Andy, it's a fair question. So it's not a reflection of things weakening. We had some larger wins, and some of the larger wins, especially in Life Sciences and Water, tend to blip those up. You remember we had a 1.7x book-to-bill in one quarter, another 1.6x in another quarter, and those are those big hitters that come through, which tend to smooth out when you look at the profile of the types of jobs that we're winning. So that's why we felt like the trailing 12 months was more reflective. What we wanted to demonstrate from a strength standpoint is the actual growth year to year in the backlog. And hence, the 19% number is the number, and it's been double-digit for several quarters in a row.

That's probably more reflective of the profile of our work from consulting and advisory, program management, design, and some of our larger alternate delivery jobs.

Andy Wittmann (Senior Research Analyst)

Okay. Got it. Thanks a lot.

Operator (participant)

Your next question comes from the line of Sangita Jain with KeyBanc. Please go ahead.

Sangita Jain (Senior Equity Research Analyst)

Hey, thank you so much for taking my questions. So if I can ask on PA Consulting, obviously the margins have held up really strong, but the revenue ramp is still lacking. So maybe you can talk about how you're seeing revenue growth build through the year and where that may be coming from?

Bob Pragada (Chair and CEO)

Yeah. So let me answer the second part first. The revenue ramp, we can definitely see it, and we're seeing that in our pipeline, and we're seeing it in the backlog. Some of the slowness in getting the top line back to growth mode has been the speed by which the U.K. government has come back on some of the procurements, mostly in the public sector. We've won a few larger jobs for major U.K. public entities that we're just waiting for the actual finalization and starting. And then once those start, we'll see that pop back in the top line. In other parts of the business, for example, the U.S., we're seeing strong double-digit top line growth. It's a smaller part of the business. So overall, some real positives in how the business is coming back. We're back in a hiring mode right now too.

I think the real positive here is that while that's going on, utilization has gone up, margins have continued to expand, and the business has got a nice healthy balance to it moving forward. So we're positive about the future with PA.

Sangita Jain (Senior Equity Research Analyst)

Got it. And as a follow-up, can I ask about capital allocation? So you initiated a new share buyback. You're planning to sell Amentum shares in the first calendar first half. So just wondering if you're seeing any dislocations in the U.S. market from the macro and policy headwinds that would encourage you to maybe look at M&A?

Venk Nathamuni (CFO)

Yeah, so again, a great question. As you rightly pointed out, we did increase our authorization for the share buybacks, and in the last quarter, we did $202 million of purchases, and we expect to continue to be repurchasing our shares at what we consider to be an aggressive pace. Now, having said that, our priorities for capital allocation is number one in organic growth. That continues to be what we focus on from the standpoint of executing on what we think are clearly lots of secular megatrends. We will continue to return cash, and M&A is certainly an option. It's not an immediate focus for us. It doesn't mean that we don't do something, but we will characterize our entire strategy as we lay it out at Investor Day in a couple of weeks.

But suffice it to say, organic growth is top priority, continue to return cash in the form of buybacks and dividends, and then M&A is certainly an accelerant for us.

Sangita Jain (Senior Equity Research Analyst)

Great. Appreciate the response. Thank you.

Venk Nathamuni (CFO)

Thank you.

Operator (participant)

Your next question comes from the line of Chad Dillard with Bernstein. Please go ahead.

Hi, good morning. This is Federico joining for Chad. I would like to focus on how much U.S. federal government exposure does Jacobs have post-Spin, and is there any risk to contractor payment from DOGE? How do you face that risk?

Bob Pragada (Chair and CEO)

Yeah. So we don't have. I think the question. I'm sorry, you're a little broken up there. I think the question was around our exposure to potential federal spending and the DOGE efforts that are going on right now. We don't have exposure to DOGE in its fullest form. Less than 10% of our business is tied to a federal agency, and probably 80% of that is in the defense infrastructure world, where these would be buildings, infrastructure, work that we do for the U.S. DoD and others. And those have continued during some of the political narrative. So we have not seen those effects, and we're staying very close to our customers, as I mentioned before, moving forward. So hopefully that helps.

Thank you very much.

Operator (participant)

Your next question comes from the line of Michael Dudas with Vertical Research. Please go ahead.

Michael Dudas (Equity Research Analyst)

Good morning, gentlemen.

Bob Pragada (Chair and CEO)

Morning, Mike.

Venk Nathamuni (CFO)

Morning.

Michael Dudas (Equity Research Analyst)

Bob, you seem to have some positive trends out of U.K. Maybe you can talk a little bit more about your European business. What's going on in the Middle East? There should be some pretty good green shoots going on over there, and the Australian project is pretty broad. I assume there's more growth coming from that region as well?

Bob Pragada (Chair and CEO)

That's fair. Maybe I'll take them in kind of a flipped order there, Mike, when you're talking about Europe, Middle East, Australia. Maybe I'll start with the Middle East. In fact, it was just there a few weeks ago, and really strong pipeline of work that we continue to see.

We've been very selective in the work that we've been going after, but especially in Saudi, that aspirational narrative and vision, I can see it on the ground happening in real time, and we're in the middle of all of it, so hopefully some exciting additional wins on the radar here there, so feeling good about that, predominantly in the Water and the Infrastructure space, as well as in some of the Cities and Places work that kind of brings all of our skills and capabilities together.

In Europe, I'd say that our energy and power business really supporting the transition, everything from the interconnect work that we continue to do, as well as the grid modernization work and tying to renewables, that continues, as well as Advanced Facilities, specifically around Life Sciences and semi work that we're starting to see the latter parts of the EU Chips money that was going through. So overall, and in Scandinavia, Transportation. We had a couple of nice awards that were going on there. So as the economies have been in a bit of a balance, we've continued to see nice incremental growth in continental Europe outside of the U.K. Australia, nice turn.

In fact, it was one of our, from a geographic standpoint, growth areas for the quarter, driven obviously by Transportation, but we're continuing to see nice continued growth in the Water sector in addition to the big desal plant we announced a couple of quarters ago, continued Water growth in Australia. So overall, a positive narrative.

Michael Dudas (Equity Research Analyst)

Appreciate that. And Venk, maybe as we look through 2025 on operating cash flow, some of the puts and takes, working capital changes, etc., the comfort level of ramping as we move through the year to achieve the conversion targets that you're putting forth?

Venk Nathamuni (CFO)

Yeah, thanks, Mike. I'd say just from the standpoint of our capital allocation, as I mentioned before, the organic growth is the primary objective here. With that in mind, in terms of just the margin profile, as we said, after a very strong start to the year with 13.5% EBITDA margin, we see a little bit of a dip in Q2 just because of timing reasons on the holiday that I mentioned on the prepared remarks. Then we should see a nice pickup in Q3 and Q4. As it relates to free cash flow and conversion, we're still on target to get to the 100%+ free cash flow conversion. A couple of one-time items to think about in Q1 and Q2. In Q1, we had some one-off cash tax payment associated with the divestiture of the CMS business.

In Q2, it is when we do a traditional estimated tax payment. When you take that into account, the first couple of quarters, we'll see a little bit below, but overall for the full year, still pretty comfortable with 100%+ free cash flow conversion.

Michael Dudas (Equity Research Analyst)

Thanks, guys. See you in Miami.

Operator (participant)

Your next question comes from the line of Judah Aronovitz with UBS. Please go ahead.

Judah Aronovitz (Equity Research Associate Director)

Hey, good morning. This is Judah Aronovitz on for Steven Fisher. Thanks for taking my question. Last quarter, I think you talked about a second-half reacceleration in international infrastructure markets. So it sounds like there's some good momentum there. And if that's still kind of the expectation, what's giving you the confidence in that reacceleration? Yeah. Is that work in backlog already, or are you expecting some more bookings? Thanks.

Bob Pragada (Chair and CEO)

Yeah. I think when we made that comment, Judah, we talked about kind of the consistent growth in the Water market across geographies, and that was in our international markets as well. So yes, that has continued in driving that growth in the second half. I think the other piece is in what we call our Cities and Places work, which is around some of the giga-city and larger programs that we see. Middle East gets highlighted quite a bit, and it should be, but we're starting to see that effort in the U.K. as well as in Australia and Southeast Asia as well. So overall, I'd say it's a pretty much diversified blend of our end markets showing promise in the international space.

Judah Aronovitz (Equity Research Associate Director)

Thanks. That's it for me.

Operator (participant)

Your next question comes from the line of Jerry Revich with Goldman Sachs. Please go ahead.

Adam Bubes (VP of Equity Research)

Hi, good morning. This is Adam on for Jerry. In program management, that's a service line that Engineering News-Record shows you having a really strong market position, and it's a service line where the industry is benefiting from a rising mix of large projects. How big is that business for you today? What's the growth trajectory look like, and is there an opportunity to expand further there going forward?

Bob Pragada (Chair and CEO)

Yeah. I'd say, Adam, it's a strong capability. We don't see that as a vertical. We see it as a cross-cutting capability across our end markets as well as our geographies. So it's a great, great skill set that we have. And from a growth standpoint, it's in line and higher. It's driving that growth trajectory for the company. And it's something that if you think about any one of our end markets, that program management capability allows us to play across the entirety of the asset lifecycle from business advisory all the way through to delivery of the program, driving business transformation for our clients.

Adam Bubes (VP of Equity Research)

And then can you just put into context the benefit from your initiatives to engage with clients at the early phases of the project in terms of that benefit to margins? How much do margins on those more advisory consulting lines differ from the portfolio average?

Venk Nathamuni (CFO)

Yeah. Thanks for the question. I'd say at a high level, what it allows us to initially is to be involved with the customer at an earlier stage of the process. So it gives us a lot of visibility into their long-term thinking and help shape their long-term thinking. That's one of the big benefits. So it gives us additional scope across the entire project lifetime, if you will. And then the added benefit is obviously as we move up the value chain, we're able to get higher margins than corporate average. But clearly, it varies from engagement to engagement, so it's hard to quantify exactly what that is. It will depend on the nature of the project and the nature of the end market and so forth. But suffice it to say, on average, it's higher than the corporate gross margins.

Adam Bubes (VP of Equity Research)

Great. Thanks so much.

Bob Pragada (Chair and CEO)

You're welcome.

Operator (participant)

Your next question comes from the line of Kevin Wilson with Truist Securities. Please go ahead.

Kevin Wilson (Equity Research Senior Associate)

Hey, good morning. Calling on behalf of Jamie Cook. Thanks for the time. My question is on tariffs. Of course, the state of play sort of changes every day there. I think you have relatively small exposure to the markets that are initially the target, Canada, Mexico, China, just in terms of where your projects are actually happening. But I'm curious, the bigger picture as a U.S.-based firm, to what extent are you thinking about the risk to projects in the pipeline or your win rates or your competitive positioning in international broadly, just in light of more aggressive U.S. foreign policy in the form of tariffs or otherwise? Thanks.

Bob Pragada (Chair and CEO)

Yeah. Yeah. Thanks for the question, Kevin. We're not going to speculate on what it could mean because right now what we do is we're staying close to our clients on what it means for their business. And let's take the Canadian one for example. As the narrative is getting way out ahead, what this does represent for us is an opportunity to be a key and trusted advisor for our clients in how that might have an effect on their supply chains. And actually, our clients have been coming to us asking for that type of advice. So we're not seeing it as a huge threat. Rather, we see it as an opportunity to assist our clients while that political narrative continues to oscillate in different directions.

Kevin Wilson (Equity Research Senior Associate)

Okay. Thanks. That's helpful. And then my follow-up is just on restructuring costs. Perhaps I missed it, but I'm wondering if you could provide an update on your expectations for the year. I think last quarter, you guided to $75 million-$95 million there. Just the Q1 number is a lower run rate than that. So just updated expectations on level and cadence for restructuring for the rest of the year. Thanks.

Venk Nathamuni (CFO)

Yeah, Kevin. Yeah, great question. As you rightly pointed out, last time we guided for $75 million-$95 million, we're still sticking with that guidance and on track to be in line with that. I'd just say from a timing standpoint, obviously, it depends on invoicing and such, but suffice it to say, we don't see a major spike in any given quarter. It should be fairly steady through the rest of the fiscal year for us and well within that range.

Kevin Wilson (Equity Research Senior Associate)

Understood. Thank you.

Bob Pragada (Chair and CEO)

Thank you.

Operator (participant)

Ladies and gentlemen, that does conclude our question and answer session. I will now turn the conference back over to Bob Pragada for closing comments.

Bob Pragada (Chair and CEO)

Thank you, everyone, for joining our earnings call. We look forward to sharing our long-term strategy and speaking with all of our investors and analysts during our upcoming Investor Day. Thank you very much.

Operator (participant)

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.