Jacobs Solutions - Earnings Call - Q2 2020

Transcript

Operator (participant)

Good afternoon. My name is Jacob. I'll be your conference operator today. At this time, I would like to welcome everyone to the Jacobs Fiscal Second Quarter 2020 Earnings Conference Call. As a reminder, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During that time, we ask that you limit your questions to one per caller and then one follow-up question. If you have a question during the Q&A session, please press star one on your touch-tone telephone. Thank you. I will now turn the call over to our host, Jonathan Doros. Please go ahead, sir.

Jonathan Doros (Senior VP and Business Unit CFO)

Good evening to all. Our earnings announcement was filed this evening, and we have posted a copy of this slide presentation and prepared remarks to our website, which we will reference during the call. I'd like to refer you to our forward-looking statement disclaimer, which is summarized on slide two. Certain statements contained in this presentation constitute forward-looking statements, as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. Statements made in this presentation are not based on historical fact or forward-looking statements.

Examples of forward-looking statements include, but are not limited to, statements we make concerning potential effects of the COVID-19 pandemic on our business, financial condition, and results of operations and our expectations as to our future growth prospects, financial outlook, and business strategy for fiscal 2020 or future fiscal years. Although such statements are based on management's current estimates and expectations and currently available competitive financial and economic data, forward-looking statements are inherently uncertain, and you should not place undue reliance on such statements, as actual results may differ materially. We caution the reader that there are a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from what is contained, projected, or implied by our forward-looking statements. Such factors include the magnitude, timing, duration, and the ultimate impact of the COVID-19 pandemic on any resulting economic downturn on our results, prospects, and opportunities.

For a description of these and other risks, uncertainties, and other factors that may occur that could cause actual results to differ from our forward-looking statements, please see our annual report on Form 10-K for the year ended September 27, 2019, and our quarterly report on Form 10-Q for the quarter ended March 27, 2020, which was filed this evening. We are not under any duty to update any of the forward-looking statements after the date of this presentation to conform to actual results, except as required by applicable law. During the presentation, we'll be referring to certain non-GAAP financial measures. Please see slide two of the presentation for more information on these figures. In addition, during the presentation, we'll discuss comparisons of current results to prior periods on a pro forma basis. Please see slide two for more information on the calculation of these pro forma metrics.

We provide a historical pro forma result in the appendix of the investor presentation. Please note that due to the timing of the Wood Nuclear acquisition in March, the current and prior period impacts of Wood Nuclear business have been excluded when discussing the pro forma comparisons. We believe this information helps provide additional insight into the underlying trends of our business when comparing current performance against prior periods. Now, turning to the agenda on slide three. Speaking on today's call will be Jacobs' Chair and CEO, Steve Demetriou, President and Chief Operating Officer, Bob Pragada, and President and Chief Financial Officer, Kevin Berryman. Steve will begin by discussing our climate action commitments, then provide an update on our response to the COVID-19 pandemic, and then a recap of our financial results and updated outlook.

Bob will then review our performance by line of business, and Kevin will provide some more in-depth discussion of our financial metrics, followed by an update on our acquisitions and the ECR divestiture, as well as a review of our balance sheet and cash flow. Finally, Steve will provide details on our updated outlook along with some closing remarks. Then we'll open the call for your questions. With that, I'll now pass it over to Steve Demetriou, Chair and CEO.

Steven Demetriou (Executive Chair of the Board of Directors)

All right. Thank you for joining us today to discuss our response to the COVID-19 pandemic, as well as our fiscal year second quarter results. Before I get started, I wanted to share a recent announcement on our launch of Jacobs Climate Action Plan. Even in the face of the COVID-19 pandemic, we remain focused on delivering on our strategy and advancing our purpose of creating a more connected, sustainable world. We often say we're a people business at Jacobs, which is why we must take actions that help sustain the world within which we all live. Jacobs' first climate action plan sets us apart, capturing the shared passion, pride, and drive of our people as we work to preserve the planet for future generations. The launch of this plan is another major milestone in our cultural and company transformation.

Our collective focus on developing and delivering on our strategy, including a deliberate portfolio transformation, brings us to this important juncture. Together, we're committing to 100% renewable energy and net zero carbon by the end of 2020, with a long-term commitment to be carbon negative by 2030. Moving forward, we want to leverage our depth of expertise and leading position in the industry to work with our clients and our supply chain to drive climate resiliency into our solutions, investing together in projects that drive profitable reduction in carbon emissions. This is an exciting milestone in the company's history and a course that we can take pride in delivering on together as we reinvent our tomorrow. Now, turning to slide five. Our new brand, Challenging Today, Reinventing Tomorrow, has served as a strong galvanizing driver as we navigate through the COVID-19 environment.

Throughout the past eight weeks, we have challenged the way in which we work in the markets we face, and in the process, we're reinventing our tomorrow real-time through growth opportunities for our people and innovative offerings for our clients. From the outset of the pandemic, our focus has been the safety and well-being of our people, maintaining business continuity, and delivering on our commitments to our clients. We mobilized a global cross-functional COVID-19 critical response team led by our Chief Operating Officer, Bob Pragada, to address both internal and external COVID-19-related challenges, with regional response teams charged with rapid action on the ground.

As soon as we learned that the global travel was shown to be at the root of the continued spread of the virus and physical distancing was critical to flattening the curve, we took early, immediate, and decisive action to restrict travel and to maximize remote working. Except for mission-critical employees, all of our people have been successfully working remotely over the last two months. Proactive engaging and transparent employee communications have been critical. From the outset, I immediately started a regular cadence of communication with our employees globally. This included a daily executive leadership team meeting, a weekly global email message from me at the beginning of each week to all employees, and a live midweek virtual town hall so that my executive leadership team and I can connect real-time with our teams around the globe.

We also expanded our intranet and equipped our leaders with tools to send short personal video messages to the people. Over-communication was and remains an imperative. As we shifted from home to office, excuse me, as we shifted from office to home, we took our strong Beyond Zero safety culture with us to create and maintain a safe working environment for our teams. As part of that, positive mental health is paramount, and we increased our offerings of mental health tools and techniques and mobilized our more than 1,800 Jacobs Positive Mental Health Champions around the world. A certain portion of our business is essential and mission-critical to governments and private sector clients where our staff continue to work on-site. In these cases, we work closely with our clients and establish project-specific plans to ensure the safety of our people and the integrity of the operation.

I've been so impressed with the success we've had in accelerating our digital transformation, investing and optimizing our networks, and leveraging technology to facilitate collaboration and more flexible working scenarios for our people, while at the same time delivering on our commitments to our clients. Coming out of this pandemic, we will have validated different work approaches with less reliance on extensive travel and physical real estate, and with the potential for significantly reduced cost and carbon footprint. We are currently in the process of planning a safe return to our workplaces (how, when, and in some cases, if) while at the same time advancing our strategy of our future of work. We will share more about this in our next earnings call. Early on during this pandemic, we leveraged our capabilities to become part of the COVID-19 solution.

As our customers transitioned to remote working, we helped plan and execute those shifts, including support and assessment of cybersecurity implications. Materials and 3D printing equipment were redeployed to help the frontline care workers with PPE. Existing federal and local government framework contracts around the globe were leveraged for action planning and implementation of healthcare facilities, including contracts with the Army Corps of Engineers, FEMA, and the governments of the U.K., Australia, and New Zealand. Our life sciences teams were tapped for designing facilities that will ultimately produce COVID-19 vaccines or other therapies. And on the innovation side of the issue, we have two teams addressing different critical challenges. To better understand the spread of the coronavirus, our teams are launching a pilot program to monitor wastewater streams using digital tools to help provide actionable COVID-19 insights and data to our clients.

Our technologists are busy considering what it means for building owners when shelter-in-place orders are lifted, and buildings that sat vacant for weeks or months may cause problems of their own, such as legionella, lead contamination, and poor air quality. Our teams have developed guidance for schools, offices, and other public and private spaces to help them safely reopen and prepare for reentry. We believe that the positive impact on our culture over the past four years and our transparent and measured behaviors during this crisis has solidified loyalty with our employees, resulting in increased structural talent retention, which will unlock more investment dollars for innovation and growth. As we turn to slide six to further discuss our business resiliency, as it relates to our people, we have purposely maintained our workforce capacity to position us strongly for a recovery after physical distancing subsides.

By strategically aligning our portfolio to a diverse set of high-value sectors, such as national security, water infrastructure, environmental resiliency, healthcare and life sciences, intelligent asset management, space exploration, and the convergence of information and operational technology, we have significantly increased the durability and growth opportunities of our business under multiple economic scenarios and the expected new norm in the aftermath of COVID-19. In parallel with our portfolio transformation, we invested in digital technology to further expand our global integrated delivery model. This provides the ability to rapidly flex our deep technical expertise to accommodate any scenario around changes to global versus localized demand. Equally as important, we have created a powerful, inclusive culture, which we believe unleashes the ability to execute more effectively versus our competitors when adjusting to changing market dynamics.

From a financial standpoint, this strategy has demonstrated strong results over the last few years, and that track record of performance continued in our fiscal second quarter, with pro forma backlog up 5% and pro forma net revenue up 7.5% year over year. Second quarter adjusted EBITDA also grew year over year, and after a correction in the third quarter, we expect it to improve in our fiscal fourth quarter. Equally as important and in line with our previous outlook, we delivered positive free cash flow in the quarter and expect strong free cash flow for the remainder of the year. The physical distancing constraints from COVID-19 have resulted in some near-term headwinds impacting the current third quarter as we and our customers adjust to a new working environment. However, we view these headwinds as temporary.

As a result, we would expect the business to ramp up to run rate levels over the next six months as the structural drivers of our business are strong and our sales pipeline remains robust. We have proactively positioned our capacity to capitalize on this new normal environment by retaining talent and maintaining key investments. We believe these actions position Jacobs for Adjusted EBITDA and Free Cash Flow growth in fiscal 2021. Finally, we have strong financial flexibility with ample liquidity that can be prudently deployed toward high-return opportunities. Now, I'll turn the call over to Bob Pragada to provide more detail by line of business.

Bob Pragada (Chair and CEO)

Thank you, Steve. And now, moving to slide seven to review our Critical Mission Solutions performance. During the second quarter, our CMS business continued to perform well, with total backlog now at $9.1 billion, representing a 5% year-over-year growth on a pro forma basis. Growth was driven by sizable new business wins with the Navy to deliver intelligent asset management and with the Air Force for research and development of rocket and propulsion technology, as well as two smaller but strategic wins for cyber assessment solutions for the U.S. Patent and Trademark Office and a development operations contract with the FBI's Electronics Laboratory. Overall, Q2 performance was in line with our expectations for the business.

As a part of the overall financial scenario planning for the company, we believe the crisis will have a short-term impact on our CMS business, with 90% of the temporary decline we are currently experiencing being due to the impact of physical distancing associated with COVID-19. The underlying structural demand for our services remains strong, and as a result, we expect the business to ramp up as we approach the end of our fiscal year and expect continued growth in fiscal 2021 and beyond. Our CMS business is supported by long-term enterprise contracts. Unlike other parts of our CMS portfolio, which can be executed virtually, these contracts involve highly technical work, such as Department of Energy remediation and Department of Defense test ranges, where access to the client side is required. Some elements of these stable and resilient contracts are experiencing temporary impacts from physical distancing protocols.

Let me share with you further details on the impact by sector. Our U.S. federal civilian business makes up approximately 40% of CMS revenue, with the majority coming from our NASA and DOE clients. Jacobs provides broad support to NASA in its accelerated work to meet the current administration's mandate to return to the moon in 2024. Our client must make progress towards these national goals despite the challenges of teleworking and a reduced on-site workforce. At NASA, we expect a low overall impact in the second half of the fiscal year as most of our work transitioned to teleworking or is operating within physical distancing guidelines. However, we anticipate our DOE and Atomic Energy of Canada nuclear contracts to be impacted to a greater degree in the second half of the fiscal year as the Jacobs teams are operating under physical distancing constraints that significantly decrease the on-site workforce.

While DOE has provided us the ability to recoup the direct costs from the idle workforce, our operating profit is generated on a performance incentive milestone basis. As a result, we expect to recognize revenue from these customers at a lower profitability until we ramp back to normal operating levels, which is expected later this fiscal year. I want to note that this part of our business continues to win awards in this tough environment. In April, we were awarded a 39-month extension of DOE's West Valley Demonstration Project. West Valley is just one of five extensions we have recently been awarded in our 10-project site portfolio. In the event of a continuing economic slowdown, our nuclear remediation business will be one of the most resilient components of our portfolio given the well-funded, long-term recurring nature of the business.

Now, moving to the U.S. Intelligence Community, which contributes just over 20% of CMS revenue. Our mission IT, C5ISR, and cyber businesses provide solutions to the sector. Our clients in the Intelligence Community must continue to provide these critical services, remaining resilient in the face of increased cyber attacks and preserve continuity of operations while, at the same time, responding to sudden need to reduce our on-site workforce. Overall, we see a moderate impact from physical distancing headwinds at sites that require split shifts in secured facilities. We expect the impact to dissipate as we approach the end of the fiscal year. This is partially offset by continued strong performance in our cyber and mission IT business. Moving on, the U.S. Department of Defense makes up approximately 20% of CMS revenue, where we provide a wide range of mission-critical services performed at government sites or in highly secure facilities.

Our work at the Missile Defense Agency continues to operate at near-normal run rates. However, much of our work at the Army's test ranges has been impacted by physical distancing requirements. In line with our nuclear remediation business, these are highly resistant, well-funded, I'm sorry, highly resilient, well-funded long-term programs that perform well in economic uncertainty but require on-site execution by our employees. Similar to the Intelligence Community, our cyber work within our DOD portfolio remains strong. We expect COVID-19 to have a moderate impact on our second-half result within our defense business but normalize as we approach the end of our fiscal year. CMS International makes up about 10% of our business, which covers primarily tier-one nuclear decommissioning and operations and maintenance services in the U.K. and Europe.

Our international business also supports the U.K. Ministry of Defense on its Continuous at-sea deterrence program and various sustainment programs for air and land defense in the U.K. and Australia. We expect our international business to be moderately impacted from COVID-19 in the second half of the year, with approximately 70% of the impact coming from fieldwork interruptions and 30% from consulting delays, but returning to normalized run rates as we exit the fiscal year. Shifting to our commercial business, this makes up approximately 10% of CMS revenues. In telecom, we provide solutions for wireless and wireline networks, including the build-out of 5G. We expect the sector to remain strong over the next several years. For the automotive sector, we primarily design and operate aerodynamic wind tunnels and provide general technical services, engineering, and testing of automotive engines.

This business is being temporarily impacted by physical distancing, and we expect new awards to be delayed as our clients reevaluate their CapEx portfolio and future demand requirements. In summary, we continue to believe the COVID-19 impact on our CMS business to be temporary and not indicative of how the business would perform in a typical recession scenario. We are aligned to high-priority mission-critical areas of federal government budgets, and our overall 2021 sales pipeline remains robust at more than $37 billion. Of this figure, we currently have $17 billion in source selection, with a blended profitability above our current run rates. Moving to our people and places solutions business on slide eight. Our P&PS business continues its strong track record of performance in the second quarter, with backlog up 5.4%. Q2 net revenue, excluding pass-throughs, was up 10% year over year.

We had several wins in the quarter that further validate our strategy to align the business to a diverse set of high-priority public and private sector initiatives in resilient geographies. A recent selection as the prime consultant for a major U.S. Navy environmental contract expected to be $480 million in fee over five years underscores Jacobs' proven program management, environmental, and PFAS expertise. We also continue to drive technology-enabled solutions across all facets of the portfolio. As an example, we were awarded what will be the largest PFAS groundwater treatment pilot program in the U.S., with Orange County, California, drawing on our multidisciplinary capabilities across all markets. And in our water business, we won a 20-year O&M program for the city of Wilmington, Delaware, which will leverage predictive analytics to optimize operations.

In addition, we recently leveraged our deep domain expertise to win a software development contract for the U.K.'s National Flood Risk Assessment and also won a mandate to deploy our AquaDNA software analytics solution at one of the world's largest water utilities. As evidenced by these superior client solutions, our strategic initiatives around global market and digital connectivity are the basis for our continued double-digit profit growth trajectory over the last 18 months. Now, I'll discuss how we expect COVID-19 to impact our P&PS business from a geographic and industry sector standpoint. Before doing so, I'd like to discuss how we have not only adapted but optimized our delivery amidst COVID-19. Our distributed workforce has maintained business continuity while generating accelerated opportunities for innovation.

We continue to deliver world-class consultancy and design with a majority of staff working from home, while also utilizing video streaming, augmented reality, and other innovative techniques to perform site assessments, inspections, and assist in equipment maintenance and plant operation, linking our experts globally to provide solutions in real time. Our digitized project delivery platform has created increased efficiency and has enhanced our ability to deliver end-to-end solutions. Now, to our building and infrastructure geographies, starting with the Americas, including our federal business. This business comprises more than 50% of our P&PS net revenue. Going to the fiscal third quarter, I'm sorry, going into third fiscal quarter of FY20, the Americas is one of our best-performing regions with strong double-digit top and bottom-line growth across multiple sub-geographies and sectors.

We continue to see healthy sales bookings activity, even considering COVID-19 pressures, with some delays in new awards but minimal cancellations at this point. However, our revenue burn rate is expected to decrease modestly in the second half. We are strategically maintaining a slightly higher cost structure in retaining our talent in anticipation of a return to more normalized demand level and the potential for U.S. infrastructure stimulus. Overall, we expect the Americas to experience a minimal COVID-19-based impact year over year, but a more pronounced impact compared to our growth expectations. Forward-looking indicators imply improved conditions as we approach our fiscal year-end. Turning to Europe and the Middle East, this geography represents approximately 20% of P&PS net revenue, with the U.K. making up a majority of the business.

Prior to COVID-19, the UK was experiencing Brexit-related slowdowns as the newly elected government was in the process of formalizing their plan for increased infrastructure investment and restarting major programs which were awaiting funding. Through our diverse offering, track record of performance, and scale, we are uniquely engaged in all major infrastructure programs in the UK. In fact, we were just awarded a 10-year Highways England Smart Motorways Alliance contract. HS2 is also moving forward, along with a pipeline of smaller projects within existing framework agreements. However, we are cautious on our near-term expectations for a broader post-COVID-19 ramp-up in this geography and expect a moderately negative impact to results in fiscal Q3, improving modestly during fiscal Q4.

Long-term, we view Europe and the Middle East as strategic geographies that will not only prioritize infrastructure spending but will also serve as an innovation hub for the latest digital infrastructure solutions. Moving to Asia, which represents just under 10% of P&PS net revenue, with Australia and New Zealand comprising the majority of that business. While the pipeline of new opportunities remains robust, we are witnessing delays in some aviation-related and other projects tied to government tax revenue associated with the downturn in commodities. We expect Asia to be materially impacted in fiscal Q3 2020 and improve as we reposition our resources targeting developing opportunities in healthcare facilities and transportation, and finally, our advanced facilities business, which makes up approximately 20% of P&PS net revenue, will likely see the most pronounced COVID-19-related impacts for the business in the short term, given physical distancing constraints at some of our sites.

A key factor is our life sciences customers realigning their capital portfolio to COVID-19-related solutions and changes in supply chain strategies related to other therapies. We believe this business has the most potential for a sharp V-shaped recovery driven by multiple large-scale COVID-19-related therapies and vaccine projects in the pipeline, where we are well-positioned as the global leader in the sector. In fact, we are currently performing early conceptual designs for these life sciences and mission-critical projects. In addition, cloud computing-driven projects such as semiconductor fabs and data centers are likely to be awarded in the coming months. Our advanced facilities business is one of the areas we are most optimistic about, with developing momentum we expect to play out over the course of 2021 and beyond.

As we turn to our core sectors, while global restrictions in mobility have resulted in reduced demand across all modes of transportation, much of the market's critical infrastructure projects have sustained through recent government stimulus packages. We anticipate the future transportation-related stimulus will catalyze and drive economic recovery. Moving to the water and environmental sector, we are seeing strong long-term demand in both upgrades to water infrastructure and our utility operations and maintenance business. From an environmental standpoint, our PFAS and FEMA-related business are expected to grow, partially offset from short-term impact from physical distancing in our fieldwork and private sector environmental consulting, and in our built environment, which includes government facilities, healthcare, higher education, and smart cities, we anticipate near-term headwinds to be offset by solid demand in healthcare as clients rethink evolving resiliency requirements.

We also expect a growing demand from our higher education and sports and entertainment clients, reshaping their infrastructure preparedness for the threat of future pandemics. In summary, we have taken a proactive approach to assessing the shifting market trends into a living roadmap we call the Now to Next Initiative. This initiative, along with our proven track record of execution, reinforces global market and digital connectivity strategy. Now, I'll turn the call over to Kevin to discuss our financial performance in more detail. Kevin.

Kevin Berryman (President and CFO)

Thank you, Bob. I'm now going to discuss a more detailed summary of our financial performance for the second quarter of fiscal 2020 on slide nine. Second quarter gross revenue increased 11% year over year with pro forma net revenue, including KeyW, but excluding the sub-period from three weeks of Wood Nuclear, up 7.5%, with 10% growth coming from P&PS and 4% from CMS.

Adjusted gross margin in the quarter as a percentage of net revenue was 23%, down 160 basis points year over year. The decrease in gross margin was primarily due to the success in delivering our cost synergy targets for the CH2M acquisition, as some of that benefit has accrued to our clients via lower overhead reimbursement rates in some contracts. The lower reimbursement rate, of course, is more than offset by the absolute lower level of G&A costs. The impact remains a net positive to the company. That is exhibited by the lower G&A as a percentage of net revenue of 110 basis points year over year to 14.8%. It was also positively impacted by lower travel and employee-related costs associated with some early impacts from COVID-19 cost mitigation efforts.

In short, the improved G&A level as a % of net revenue continues to show improved growth leverage for the company. GAAP operating profit was up 63% to $168 million and included $44 million of restructuring transaction and other charges and $24 million of other charges, consisting of $22 million of amortization from acquired intangibles and $2 million of costs associated with the Worley Transition Services Agreements. Adjusting for these items, adjusted operating profit was $237 million, up 7% from the prior year. Moving on, our adjusted operating profit to net revenue was 8.5%, down 50 basis points year over year on a reported basis, driven by a decrease in CMS, flat performance in P&PS, and high unallocated corporate expense. I'll discuss the underlying drivers for the line of business and corporate costs on the next slide.

GAAP net earnings and EPS from continued operations were a negative $122 million, or $0.92 per share, and included a charge for the mark-to-market adjustments associated with our Worley equity stake and other ECR-related matters of $194 million, $0.25 per share of after-tax restructuring transaction and other charges as noted above, and amortization of acquired intangibles of $0.12. Excluding these items, second quarter adjusted EPS was $1.39, including a $0.07 benefit from discrete tax items. Excluding these discrete tax items in both the current and year-ago quarter, underlying adjusted EPS was up 11% year over year. Q2 adjusted EBITDA was $261 million, or 9.4% of net revenue, and met our expectations for the quarter. Finally, turning to our bookings during the quarter, our performance book-to-bill ratio approached 1.1 for Q2, driven by a strong CMS book-to-bill of approximately 1.2 times and a solid 1 times book-to-bill for P&PS.

As Bob noted earlier, the sales pipeline remains robust across both lines of businesses and has increased on a like-for-like basis when compared to last year and last quarter. While we have seen some delays in expected award dates, we have seen very few cancellations. We continue to be optimistic that our pipeline will convert in a manner that will set up the company well for 2021. So regarding our LOB performance, let's turn to slide 10. Starting with CMS, pro forma revenue, including KeyW, but excluding the sub-period from Wood Nuclear, grew 4% year over year during the second quarter. During the quarter, we saw continued strength in our cyberspace, including NASA, Mission IT, and 5G businesses. Operating profit was $84 million and grew 14% year over year and in the single digits on a pro forma basis.

Operating profit margin was down 20 basis points year over year to 6.8% as a result of higher benefit-related costs in the quarter. Excluding this impact, underlying adjusted OP margin was up over 20 basis points year ago. In early April, it was exciting to see the initial impacts of the ramp on the two major new business wins at Navy West Sound and Air Force Research Laboratory. However, as Bob mentioned in his remarks, we are expecting a short-term headwind from physical distancing in CMS, mainly in our nuclear remediation business, DOD range operations business, and our commercial business, where a physical presence is necessary. In fact, some of the impact from physical distancing headwinds will result in us recognizing revenue with lower associated or any associated profit.

This is due to the U.S. government reimbursing us for our idle employee-related costs but not paying us for our fees earned, which represent our profit, as there is a delay in our ability to reach milestones which allow fee benefits to be realized. It is important to note that in a more typical economic slowdown, the operating profit from these types of businesses would be highly resilient, as these on-premise and other key programs are well-funded under multi-year contracts. This dynamic will result in a more pronounced impact to operating profit than revenue in our third quarter. On a reported basis, we expect CMS operating profit to be down double-digit year over year in the third quarter, but with an improved performance in the fourth quarter, which has the potential for year-over-year growth.

Moving to P&PS, Q2 net revenue grew 10% year over year, and operating profit was up 9%. As a percent of net revenue, operating profit was 12.3% for the quarter, flat from a year ago, and a strong performance given the overhead reimbursable rate issues noted earlier, the strong project mix in the year-ago quarter, and headwinds remaining talent capacity in the U.K. in the face of the COVID-19 pandemic. The Americas business continued to post strong double-digit year-over-year revenue and profit growth. The strength was somewhat offset by softness in the U.K. and timing on major projects in advanced facilities.

While we have started strong in the first half of the year, we anticipate reported revenue and operating profit to be down year over year in the third quarter and then begin to see a less negative impact in Q4 as the business recovers to a year-over-year growth outlook in fiscal 2021. Our non-allocated corporate overhead costs were $37 million for the quarter, up slightly from the Q1 figures and up from $25 million in the year-ago period, driven by higher benefit costs. For the remainder of the year, we continue to expect non-allocated corporate costs to approximate $35 million per quarter, absent any allocation reductions to the line of business, given our overall efforts to reduce our overhead cost structure in the second half of this year. Now, turning to slide 11, I would like to update you on our initiatives relative to our recent M&A and divestiture actions.

Regarding the sale of ECR, to date, we have incurred slightly over $220 million of the approximate $230 million in related transaction separation and restructuring costs. We expect the remaining costs to be incurred over the remainder of the year. The KeyW integration is largely complete and delivered the expected cost reductions, and the team is now focused on leveraging the resources of both companies to drive further revenue synergies. Our acquisition of Wood nuclear business closed on March 6th. Our integration management office is well underway, executing against our acquisition playbook. In line with our playbook, the combined management structure was rolled out on day one, and the team is executing to deliver the expected $12 million in annual cost synergies. Of course, the overall focus on the strategic logic for the combination and the strategic growth benefits also remains a high priority.

Please note that our overall expectations regarding the P&L and cash flow impacts related to separation, restructuring, and other transaction-related expenses for the full year 2020 remain intact, with approximately $150 million in P&L costs and cash flow expected outflow over the course of this year. As we enter 2021, again, it is important to note that material differences in GAAP versus adjusted figures will be significantly reduced. Now, onto our cash flow generation and the balance sheet on slide 12. During the quarter, we generated $113 million in free cash flow. Q2 cash flow was impacted, actually, by approximately $36 million of restructuring and separation-related cash flows. $85 million has been incurred year to date.

Including these costs, we continue to expect positive free cash flow for the remainder of fiscal 2020, with a total reported free cash flow now expected to be more than $350 million for the full year, which includes a headwind of $150 million from the restructuring items noted above. Assumed in our free cash flow guidance is some expectation that the timing of some customer payments could be impacted over the course of the year, given COVID-19. DSOs were flat from Q1 2020 but up year over year. Of note, approximately $50 million of collections were received in late March, but after our quarter end of March 27th. We still see equal opportunities to lower our DSO run rate, which we believe is the major driver for us attaining a one-time free cash flow conversion target long-term. And now, moving to the balance sheet.

As part of our planned capital structure strategy, we executed a five-year $1 billion unsecured term loan facility during the quarter at an attractive rate of approximately LIBOR plus 150 basis points. In addition, we entered into multiple interest rate swaps at different tenors with an aggregate notional value of $900 million to lock in long-term effective rates, approaching nearly 50% of our total debt. The interest cost approximates an aggregate 2% yield for the fixed portion, and we are pleased that we were able to lock in longer-term rates that approximate our short-term rate levels. We ended the quarter with cash of approximately $1.7 billion and a gross debt of $3.1 billion, resulting in a $1.4 billion in net debt before attributing the benefit of the Worley equity. Treating the Worley equity as cash, our pro forma net debt to adjusted 2020 EBITDA is just over one times.

As you will note, we chose not to pay down our revolver with the proceeds of the term loan out of an abundance of caution, given the disruption seen in the financial markets in March and April due to the COVID-19 situation. We will continue to monitor and proactively pay down the revolver as markets continue to show increased levels of stability. Regarding capital deployment, we paused our share repurchases in March as a precautionary measure as the COVID-19 crisis escalated. Nonetheless, we still repurchased $286 million of shares during the March quarter and ended the quarter with a remaining $1.1 billion left of authorization. We continue to expect to fully utilize our remaining share buyback authorization over time. However, I reiterate that our immediate use of existing excess cash will be focused on paying down our revolver as market conditions warrant it.

For modeling purposes, we would expect an average share count of $132 million for the second half of fiscal year 2020, excluding additional share buybacks. We will continue to be opportunistic in our share buyback activity going forward and will provide an update on our quarterly earnings calls relative to share count expectations, and regarding our effective tax rate, we continue to expect an adjusted effective tax rate of 24% for the second half of fiscal 2020, in line with our long-term normalized adjusted tax rate in the range of 23%-25%. Finally, given our strong balance sheet and free cash flow, we remain committed to our quarterly dividend, which was previously increased and declared at $0.19 per share. As you know, our current dividend level represents an increase of 12% versus a year ago.

Steven Demetriou (Executive Chair of the Board of Directors)

Now, I'll turn it back over to Steve for our outlook and closing comments on slide 13.

Steven Fisher (Managing Director and Equity Research Analyst)

All right. Thanks, Kevin. Now, let me review our total company outlook to account for the expected impact from COVID-19 on our business over the remainder of our fiscal 2020 year. We're updating our fiscal 2020 adjusted EBITDA outlook to a range of $950 million-$1.05 billion from our previous range of $1.05 billion-$1.15 billion. We are also updating our fiscal 2020 adjusted EPS guidance to a range of $4.80-$5.30 per share from the previous $5.30-$5.80 per share range. At the midpoint of our revised EPS range, 2020 fiscal year adjusted EPS represents year-over-year growth when excluding the impact from fiscal 2020 and 2019 discrete tax items. Our revised guidance is based on an analysis of several scenarios that estimated the impact of the COVID-19 pandemic on our results.

Jonathan Doros (Senior VP and Business Unit CFO)

Specifically, physical distancing initiatives, which create temporary limitations on our clients and Jacobs' ability to perform work, primarily in the current fiscal third quarter period, is the single biggest impact on these projections. Gross impact to EPS is estimated at approximately $1.50 at the midpoint of our estimates. Included in that estimate is approximately a $100 million investment to retain talent equivalent to approximately $0.50 per share. Importantly, we have strategically decided that we will maintain this talented workforce given our belief that we expect a rebound later this year, thereby ensuring access to this talent as we return to growth. We have taken significant actions to reduce this gross impact by reducing our cost structure, effectively reducing costs in the back half of the year by $1.00 of EPS. These efforts include elimination of discretionary corporate LOB and other employee-related costs.

As a result, our net expected impact at the midpoint of our range is $0.50 per share based on our decision to maintain our existing workforce and to ensure that we have access to our talent to drive the expected return to growth. We believe it's a strategic imperative to retain our talented people across the company. We expect the majority of the earnings revision to occur in our third quarter. As we move into the fourth quarter, we anticipate the impact of the pandemic on Jacobs to subside and our business to return to run rate levels over the course of the fourth quarter. Importantly, we expect fourth quarter adjusted EBITDA to improve with potential for year-over-year growth. As previously stated, we expect strong fiscal second half reported free cash flow of at least $400 million.

And we believe that 2021 is shaping up for a strong rebound in growth. We'll provide an update as we approach the end of this fiscal year as we further evaluate how the COVID-19 pandemic unfolds. With that, I'd like to open up the call for questions. Operator will now open the call.

Steven Demetriou (Executive Chair of the Board of Directors)

Thank you. As a reminder, you may press star one on your telephone keypad to ask a phone question. First question comes from Joseph DeNardi with Stifel.

Joseph DeNardi (Managing Director)

Yeah. Hey, good evening, guys. Steve, you've obviously spent a lot of time the last few years kind of reshaping the portfolio. I'm wondering if you could just provide your thoughts on how impactful what we're going through now is on that going forward. I'm not asking you for kind of guidance on what markets you might invest into. I'm sure that's sensitive for competitive reasons. But do you see opportunities emerging from this, or are those opportunities kind of more on the margin? Just trying to get a sense for how material you think you need to adapt the business to what's happening.

Jonathan Doros (Senior VP and Business Unit CFO)

Yeah. Look, I think all the work that we did over the last several years strategically is fortuitous now as we go through this pandemic. When we did that work, we did a lot of strategic analysis on how this will make us a much more resilient company. And even though we're going through a temporary downturn, it's as a result of something that none of us ever predicted, and that would be that we would be unable to physically go to work or our clients would be able to physically go to work. All that is going through a correction. What we hear and see from our clients, based on our pipeline that's surging, projects and programs that are not getting canceled, they're just moving to the right, that this resilient portfolio will continue to play out and gives us optionality as we move into fiscal 2021.

There will be certain sectors among our portfolio, a very diverse portfolio, that should be clear winners and others that are going to be under pressure, and we're already in that transition of redeploying our workforces, upskilling quickly our workforce to be able to address and attack those sectors that you mentioned that should be big winners as we go into 2021, so we're actually pretty positive about 2021 and look forward to getting through this current quarter.

Bob Pragada (Chair and CEO)

Okay. And Kevin, just on the trimming of $100 million of EBITDA from this year, how much of that just goes away versus being able to recoup that, or is there kind of a lingering effect from some of the headwinds into next year?

Kevin Berryman (President and CFO)

Yeah. Look, I think thanks for the question, Joe. We're not going to really talk about 2021 today, although we gave very clear views as it relates to our return to a more normalized level of performance. So I won't go further than that. But I do think that the dynamic of those $100 million, some of that is temporary in nature to ultimately help support our ability to deliver the results and the guidance that we've provided. And then some of it, we'll start to get back at it and reinvesting in certain parts of the business. So I think the fundamental way to think about it is as we've got this revenue decline in the short term, which then affects ultimately the profitability pretty immediately because we're keeping our talent in place. So that drop in revenue almost falls to the bottom line.

We're being very, very diligent and aggressive in eliminating kind of almost all discretionary travel and other related costs. And the good news about this, though, is that we're learning a lot due to some of the things that are happening from working from home and some of the productivity we're seeing, which is good to see, that we're going to take that learning and be able to leverage on that to 2021 and beyond. So not all of it's going to go away, but certainly there is a big chunk that we're just doing it to make sure that we're doing the right thing for our shareholders, our employees, and our other stakeholders.

Bob Pragada (Chair and CEO)

Okay. And then in CMS, I mean, book-to-bill, they're very, very good, ranks pretty well among your peers on that side of the business. When does that actually start to translate into maybe more material organic growth within CMS? Thank you.

Jonathan Doros (Senior VP and Business Unit CFO)

Probably within the next two to four quarters. It's kind of a six to 12-month book-to-bill type of cycle. And the two big drivers that drove that book-to-bill ratio, Joe, were long-term contracts. I'd give it two to four quarters.

Bob Pragada (Chair and CEO)

Great. Thank you.

Operator (participant)

Thank you. And as a reminder, you may press star one for any audio questions. If you are on a speakerphone, please come to the phone before asking your question. Our next question comes from Michael Dudas with Vertical Research Partners.

Michael Dudas (Equity Research Analyst)

Good afternoon, gentlemen.

Jonathan Doros (Senior VP and Business Unit CFO)

Hey, Mike.

Michael Dudas (Equity Research Analyst)

Hey, Mike.

Steven Demetriou (Executive Chair of the Board of Directors)

Hello, Michael.

Michael Dudas (Equity Research Analyst)

Steve, a very, very good presentation, very detailed and thoughtful. As you are in the midst of the crisis, do you anticipate as you move through this, will Jacobs as an organization drive more business because your clients are going to pull more opportunities from you, or do you have the technology and the skill sets to push more solutions on the business where, as we look towards 2021 and 2022, there overall could be maybe a tailwind in a sense because of the changes in the new normal?

Jonathan Doros (Senior VP and Business Unit CFO)

Yeah. Well, again, as I started to address that, Michael, in the first question, I think we're well positioned in what we believe are going to be all the sort of critical missions and critical activities that are going to go on as we emerge from this COVID-19. And the life sciences business is a great example of one. We're an industry leader there. That business has been a very global business and I think is, we believe now, is going through a temporary transition to kind of reconfigure the whole supply chain and how to not only address the near-term opportunity of therapies and vaccines associated with COVID-19, but really to become more resilient in the event that this type of pandemic or something else happens, which has created supply chain issues.

And so these are initiatives that we're in the mix on and we're well positioned to capitalize on that no matter what the outcome is because of our global integrated delivery, our capabilities, and our industry-leading position. And so whether it's life sciences, healthcare, cybersecurity, and of course, the critical missions that we do across our CMS business, which have been sort of on temporary hold, are going to have to get at it. And we're positioned. You think of the whole CARES Act, that whole CARES Act that has supported our businesses to make our talent mission-ready for the essential critical work that's going to have to get done as soon as everyone gets back to work over the next several months. And so there's a tremendous opportunity unfolding for us, and we feel like we're well positioned.

Michael Dudas (Equity Research Analyst)

I do notice, Steve, my follow-up would be maybe for Bob. You highlighted the social distancing and the mitigation that you and your clients are going through in the field and your opportunities. Do you have a sense of a protocol that you're basing this towards later this year? Do you anticipate in 2021 and beyond what we're seeing now and how you're working is how it's going to be, or is there (these are difficult questions) a sense of more normalcy that comes back as our society evolves given what we've been going through?

Jonathan Doros (Senior VP and Business Unit CFO)

Yeah, Mike, I don't think we know the timeline, and so what we're doing in preparation of, instead of preparing for a world post-COVID-19, we're kind of preparing for a world with COVID-19 and using technology as our friend, and so those physical distancing requirements, let's just take a field application, and this applies to both CMS as well as P&PS. We're developing, actually, we have in-house technology around this with our ION platform where we're wearing bracelets that determine how far we are from each other as well as contact tracing throughout the entirety of different sites or bases, so clearly, it's a world that we're not anticipating, and when we look at our future projections, we're not putting a timeline on, well, things are going to go back to the way they were on February 1st on date. We're anticipating that it's going to be going longer.

Michael Dudas (Equity Research Analyst)

Understood. I appreciate your thoughts, gentlemen. Thank you.

Steven Demetriou (Executive Chair of the Board of Directors)

Thank you. Our next question comes from Steven Fisher with UBS.

Steven Fisher (Managing Director and Equity Research Analyst)

Great. Thanks. Good afternoon. You guys talked about a number of programs where you expect to ramp back up to targeted profitability levels really by the fourth quarter, it sounded like. What are all the most important things that have to happen to achieve that? And how much of that do you think is within your control?

Jonathan Doros (Senior VP and Business Unit CFO)

Yeah. Well, I think we said it in our stated remarks that we're attributing 90% of the shortfall to this whole physical distancing limitation. So clearly, a key assumption in everything that we're talking about is that that's going to start to subside. Governments are going to lift restrictions not only here in the U.S. and different cities, states, but across the globe. And that all takes place through the course of the remainder of this year. We're not assuming any accelerated basis, but that it gradually happens as we're all starting to see, but it's going to happen throughout the third and fourth quarter. So that's the major assumption. That's clearly not in our control. And so I think that's kind of the simple answer to your question as far as what's the key driver.

Because once that happens, I think that's the message we're trying to make sure that you all understand. This is a situation where the demand is sitting there, and we and our clients have to physically get back at it. This is not a situation where projects have been canceled and we're trying to rebuild the pipeline. We have a record-high pipeline. Our backlog has grown. We just got to physically get back to work enough, not the way it used to be, but to a certain level, recognizing that we probably, as a company, will continue to have remote working forever now that we've learned that in certain areas, it's a more efficient, effective basis. But where we do need the face-to-face physical interactions and engagement with our clients, that's the key assumption around what we're talking about today.

Steven Fisher (Managing Director and Equity Research Analyst)

Got it. And then your global design center concept has been a very unique element of your margin enhancement opportunities. Just curious how that usage is ramping up Q2 and really how you think this new working model will impact the use of those design centers. Is that really an opportunity as everyone learns how to work more remotely? Is that an even better opportunity to leverage these design centers?

Bob Pragada (Chair and CEO)

Yeah. Steve, it's Bob. Steven, it's Bob. We actually see it as what's happening now as a catalyst to even drive that strategy at a faster rate. What we've seen specifically in areas like Poland and India and Southeast Asia is an incredible level of efficiency as people go to remote and still operating in a design center capacity. And so I think that what's happening now is definitely going to serve as an accelerator for driving connected delivery and integrated delivery to another level. And then as we look forward to kind of the future of the workplace, we are going to have centers that require project collaboration with people in those centers. And so we're looking at layouts and workplace strategies that are unique by the different function of that operation or that office.

Jonathan Doros (Senior VP and Business Unit CFO)

And so a design center might have a different layout than, say, a hub or a client site, which might have more (I'm making this up) conference space rather than workspace cubicles that are socially distanced apart from each other. So we're right in the midst of all of that. It's part of that Now to Next kind of initiative as we look forward in new markets and new ways of doing things from this dislocation.

Steven Fisher (Managing Director and Equity Research Analyst)

What was the ramp-up this quarter on that? Was there a percentage increase in usage or anything you can give?

Jonathan Doros (Senior VP and Business Unit CFO)

I don't have an exact percentage, but I'd say it's been greater than it was in previous quarters.

Steven Fisher (Managing Director and Equity Research Analyst)

Okay. Thanks a lot.

Operator (participant)

Thank you. Our next question comes from Jamie Cook with Credit Suisse.

Jamie Cook (Managing Director of Equity Research)

Hi. Good evening. And hope everyone is well and healthy. We're glad to hear everyone's well and healthy. I guess my first question just on the guide, Kevin, when you talked about the COVID-19 impact and you talked about the EBITDA and EPS impact, but is there any way you can help us understand the impact across the two different segments, CMS and P&PS, if possible? And then also just trying to understand just the cash flow dynamics. I understand why you lowered. However, I'm just trying to understand the impact on what you assume for DSOs by the end of the year, where they can go. And then is the CMS cash flow holding better? We're hearing from other contractors that the government's actually paying their employees quicker. Thanks.

Kevin Berryman (President and CFO)

Yeah. Thanks for the question, Jamie. I'll give some general commentary to give some perspective on the two businesses. The actual kind of dynamics in CMS in Q3 specifically have a greater impact associated with some of the comments that both Steve and Bob just made as it relates to the physical distancing. You think about certainly the nuclear work and some of the other things that we talked about, commercial, where you actually have to be on-site and certainly some of the test range work as well. That ended up being a bigger impact to CMS. If you look at versus the size of the business, the majority or the larger piece, I should say in terms of costs or as a percentage basis, are more CMS-based in 2020 third quarter.

But we're expecting a challenge in both of the businesses versus a year ago. So I would say a greater percentage reduction in Q3 for CMS. And then I think ultimately, as we transition to Q4, certainly an improving dynamic in CMS and probably a little bit more elongated recovery for P&PS just because of the shifting of the portfolios, as Bob was characterizing, in terms of rejiggering of pipeline and some of the customer thinking relative to the shaping change of the opportunities. Having said all of that, I will say we're now a few weeks into Q3, and I would say we're encouraged by the views and the things that we're seeing relative to customers and how they're affecting our business relative to how we're driving that. So we're being prudent with our view of what the impact is.

We're going to see how we play out and ultimately get back at it in 2021. As it relates to cash flow, the second part of that question, I think, look, we took the cash flow guide a little bit down. Obviously, EBITDA is impacted. And so certainly part of it's there. And then the other part is associated with what we're suggesting is a potential as it relates to some disruption on the collection side. We're actually seeing pretty good performance, as you suggested, on the CMS side. So we're just thinking that it might be more about P&PS, but we'll play that out. And so far, we're actually seeing pretty good performance through the first parts of Q3.

Jamie Cook (Managing Director of Equity Research)

I'm sorry, do you want to commit to sort of where we think the ESOs can be by year-end?

Kevin Berryman (President and CFO)

No, I think we're going to hold tight and see how it plays out. But look, I think it's embedded into that new cash flow number. So to be honest, they can't fall out of bed if we're sitting there with the $350 million for the year free cash flow.

Jamie Cook (Managing Director of Equity Research)

Okay. Thank you. I appreciate the color.

Kevin Berryman (President and CFO)

No problem.

Operator (participant)

Thank you. Our next question comes from Gautam Khanna with Cowen.

Gautam Khanna (Analyst)

I was wondering if you could give us some color on the pace of bookings as we move through the rest of the calendar year. You still expect kind of the calendar Q3 budget flush at CMS. Maybe you could just characterize sort of the backlog, how the RFP pipeline's coming through and how much and where things might be stretching, if at all.

Jonathan Doros (Senior VP and Business Unit CFO)

Yeah. So Gautam, this is Bob. So it is a bit of a different story between CMS and P&PS. And so let me kind of take them both separately. CMS, we talked about it in the script. The pipeline's strong. And the pace and velocity of our proposal activity probably hasn't been stronger. And so that has been a pretty strong cadence that's only been a bit not stifled, but slowed when we have those confidential or those secure proposals that we have. We can only do the proposal in a SCIF. And though we have SCIFs within our real estate portfolio, at times we have to use our clients as well. So I'd say that's strong. And we see the award cycles not fundamentally shifting. So that pipeline remains very resilient. On P&PS, again, as Steve and Kevin have mentioned before, this isn't a matter of cancellations.

This is probably more a matter of some shifting of the pipeline. So we see that bookings target we're still confident that we can be right on where we had projected, but we're tracking that week for week for potential slippages. And most of that is coming from the fact that at our state and local business, these are our clients that are probably getting more accustomed to, they're a little slower in getting accustomed to working from home than maybe we are. And so we're assisting our clients in the evaluation of these proposals. It's not that they're going away. It's just kind of the piece by which they could be reviewed and awarded. In our private sector business, it's actually been surprisingly resilient. And in fact, we've received some just recent, can't disclose them just yet, recent awards from some of our larger private sector clients.

And from beginning to end, through evaluation to award, all of those were done remotely. And so overall, kind of a balanced approach there. We feel confident on the forecast. Yeah. One thing I want to add on top of what Bob talked about, in addition to the size of the pipeline and everything that Bob talked about as far as the pace, is the margin in the pipeline is also improving. And we've really upgraded our capability to measure and monitor this over the last 12 to 18 months. And as we look at that pipeline that Bob talked about and compare it to a year ago, the margin is a significant improvement, which bodes well for our strategic goal of not only profitably growing but increasing the margin of Jacobs.

Kevin Berryman (President and CFO)

Thanks a lot, guys.

Operator (participant)

Thank you. We have a question from Michael Feniger with Bank of America.

Michael Feniger (Managing Director of Equity Research)

Thanks, guys, for taking my questions. I appreciate all the color. To be clear, I know EBITDA is expected to grow in 2021. Is there some expectation that we could see the weakness in the second half of this year bleed into the first half, the first half of next year in that P&PS segment? Because it seems there's a lot of confidence that CMS kind of inflects in the fourth quarter. But could P&PS with the delays and maybe pressure on public budgets and the small local and state municipalities, is there an issue that that can bleed in some of these delays into the first half of next year?

Jonathan Doros (Senior VP and Business Unit CFO)

Well, let me start. And then Bob, maybe build on it. You started getting into an area that we're all watching closely is what's going to happen now on a state and local level because the government in the U.S. has done a great job to really support the defense and civil, the federal side. And now we're anxiously looking forward to seeing what they do with the next round of CARES, hopefully in the next few weeks around state and local. And there's a lot of positive news coming out that I think everyone expects that they're going to provide relief to that sector. And so that should start to provide some good foundation as we enter 2021.

And then the other piece is that there's a lot of discussion about, finally, because this has been going on for years, even pre-COVID-19, the need for a big federal infrastructure stimulus to really get people going, putting to work, back to work around addressing the crisis across the nation on highways, bridges, a whole host of areas, the need to continue to accelerate water and wastewater and the whole broadband and everything else. So we're hoping and monitoring and lobbying and very active on the Hill to hopefully see later this year Congress finally get at that big infrastructure stimulus. Whether that happens later this year or leaks into early next year, that's a real positive for Jacobs. And so I think that's going to play a piece of what kind of momentum.

If nothing happens and there's a big vacuum on supporting the state and local side, yeah, that could provide some headwinds over the next six-plus months. But Bob, what else are you thinking? Yeah. So maybe I'll also talk about where we're positioned. And we saw this in previous cycles as well. And I think it's actually even strengthened during this dislocation is the depth of intimacy we have with our clients. There was a previous question about what we can control and what we can't control. What we can control is our ability to solve our clients' deepest challenges. And right now, our clients are experiencing challenges that they've never even seen before.

Whether it be a framework agreement that we've had for decades, and that's CMS and P&PS alike, or newer clients that we're now getting into different types of solutions that we're providing, we're getting to a point where whenever it comes back, and it might be a step change in one part of our business and more of a trend in the other part of our business, I would say that we are better positioned now to capitalize on that than we ever have been ever. We have been in a good position in the past as well. We're positive about that.

Michael Feniger (Managing Director of Equity Research)

Thank you. That was helpful, and you mentioned in your prepared remarks Australia and how you saw aviation and lower tax revenue due to the lower commodities, and you think it's going to hit Q3 and then should recover in Q4. Can you just help flesh out why that is the case? I understand the physical limitations and the shortfall from COVID-19 being able to get to certain sites and the impact that's having there. But why, for example, that example you provided with Australia, why does that just be isolated into Q3 and then we have that recovery in the Q4?

Jonathan Doros (Senior VP and Business Unit CFO)

Yeah. Because I think that there were tailwinds going into COVID-19 that COVID-19 magnified. And so the commodity crisis, though, was exacerbated and effectively magnified as a result of everything that we've read about in the news, whether it be oil and gas or even in the metals commodities. COVID-19 accelerated it to where now the need for government intervention was further accentuated. And so I think the speed by which we're seeing government intervention, whether it be in Singapore and Australia or New Zealand, is faster. And it's already happening.

Michael Feniger (Managing Director of Equity Research)

Perfect. And just lastly, I mean, on the free cash flow, is there anything we should be aware of when we turn the page to 2021?

Jonathan Doros (Senior VP and Business Unit CFO)

Hello?

Steven Demetriou (Executive Chair of the Board of Directors)

Yes, sir.

Jonathan Doros (Senior VP and Business Unit CFO)

Next question.

Operator (participant)

Thank you.

Steven Fisher (Managing Director and Equity Research Analyst)

Jump back into Q and A with Tom.

Operator (participant)

You need to get in there. Our next question comes from Sean Eastman with KeyBanc Capital Markets.

Sean Eastman (Director and Senior Equity Research Analyst)

Hi, team. Thanks for taking my questions. Appreciate all the color today. My question is just, as we look at the margin being up in the bid pipeline, I'm just curious if there's sensitivity to that assessment around the macro environment. To what extent is the bid pipeline price-sensitive? And is there kind of a risk that the assessment of that margin profile on the work you're looking at could degrade?

Jonathan Doros (Senior VP and Business Unit CFO)

Well, I think the margin improvement is less about pricing and more about mix and the type of programs and projects that we're strategically going after. So look, I think everything always has a potential to be under pressure under certain situations when you talk about margin. But I think we're confident in the margin profile improvement because it's been a strategic emphasis on driving a different approach on the type of things that we're going after and prioritizing. Rather than as we started this transformation journey several years ago, it was, "Let's just sort of go after everything that we can." And it's much more of a strategic approach now as we've advanced the company culture around strategy. So we would say that it's a pretty solid profile, less around macroeconomics and more about delivering on winning those new types of businesses.

Steven Demetriou (Executive Chair of the Board of Directors)

Thank you. Our next question comes from Josh Sullivan with The Benchmark Company.

Josh Sullivan (Senior Analyst)

Good evening.

Steven Demetriou (Executive Chair of the Board of Directors)

Hi, Josh.

Josh Sullivan (Senior Analyst)

On the intelligent asset management vertical, you had the recent win at the Kitsap base in Washington. Can you give us any color or any early reads on that contract? And I'm curious if your other intelligent asset contracts at Mayport or Langley are you seeing interest to expand their scope to address the virus?

Jonathan Doros (Senior VP and Business Unit CFO)

So the short answer, Josh, is yes. We are seeing interest to expand our scope. Talk specifically on the first part of your question with regards to the West Sound contract in Washington with NAVFAC. That's a really unique case. One, the team did a fantastic job on winning that with a differentiated solution. And then keep in mind, we were awarded and had to mobilize in the midst of COVID-19. And we interviewed, selected, and mobilized folks all virtually. And it was a true testament to our team in CMS led by Steve Arnette. The team did a fantastic job at that. I think others are catching part, especially when you talk about Mayport and specifically other NAVFAC-type facilities.

And so I think that differentiator of, yes, we can provide more value from the actual Intelligent Asset Management offering, but we don't need this prolonged, very in-depth, and laborious mobilization plan in the means and methods on how we do it is going to lead to even greater growth.

Josh Sullivan (Senior Analyst)

Got it. And then just as a follow-up, as far as the bid pipeline, any way to say or quantify what percentage is in intelligent assets?

Jonathan Doros (Senior VP and Business Unit CFO)

I might have to get back to you on that one. It's kind of weaved into a lot of our offering. But as far as giving you an exact number of the percent of the pipeline, I probably need to follow up on that.

Josh Sullivan (Senior Analyst)

Got it. Thank you.

Operator (participant)

We have a question from Andrew Wittman with Baird.

Andrew Wittman (Senior Research Analyst)

Great. Thanks for taking my questions. I'm going to just do a couple of cleanup questions because I think all the big picture and other questions have been taken care of here. But I wanted to understand here if in the quarter there were any award fees, project closeouts, or the like that were reported in the results that we should know about impacting the quarter. Obviously, these come up from time to time, and didn't have a comment, so I thought I'd ask.

Jonathan Doros (Senior VP and Business Unit CFO)

Got it.

Michael Dudas (Equity Research Analyst)

We always have that, Andrew, but ultimately not material at all in the quarter.

Andrew Wittman (Senior Research Analyst)

Okay. And then just as it relates to some of the more newly acquired companies here, obviously, Wood Group closed in the quarter. I was wondering what the contribution from that was to the backlog, as well as maybe the total amount of revenues from that and KeyW that were recognized in the quarter.

Michael Dudas (Equity Research Analyst)

Yeah. The new backlog from Wood was just over $400 million, about $425 million. And then what was the second part of the question?

Kevin Berryman (President and CFO)

The acquired revenues from KeyW and Wood in the quarter?

Michael Dudas (Equity Research Analyst)

From KeyW, I don't have that handy, but the stub period for Wood was very, very small, probably about $20 million or so.

Kevin Berryman (President and CFO)

Thanks.

Operator (participant)

Yes. No additional callers in the queue, sir. Are there any closing comments or remarks?

Bob Pragada (Chair and CEO)

Yes. We're going to make some closing comments.

Jonathan Doros (Senior VP and Business Unit CFO)

All right. So thanks, everyone. Our transformation over the last four years, as we just discussed during the Q and A, has been focused on building a strong culture and a portfolio which would prove resilient under multiple economic scenarios. Clearly, COVID-19 is presenting a challenge that none of us could have predicted. But our transformation is proving to be a foundation that's going to help us see us through this successfully. We're keeping our people safe, delivering on our commitments to our clients. We're moving swiftly with good agility, shifting our work model to ensure business continuity. And we're in the process of accelerating our digital transformation plan. And most importantly, we're retaining our most important asset, our talented people.

As we define how we're going to work in the future, we expect to benefit from significant cost savings as well as positive cultural benefits and the flexibility for our people and advancements in how we serve our clients. That future starts now. Thank you.

Steven Demetriou (Executive Chair of the Board of Directors)

Thank you. That now concludes the call. You may now just.