Jacobs Solutions - Q4 2024

Executive Summary

• Q4 2024 continuing-ops revenue rose 4.4% to $2.96B, adjusted net revenue up 4.3%; adjusted EBITDA increased 12.5% to $289M with adjusted EBITDA margin at 13.6% (+~100 bps YoY). Adjusted EPS was $1.37 (+28% YoY); GAAP EPS was $2.38 (benefited by $187M mark-to-market gain on AMTM).
• Backlog climbed 22.5% YoY to $21.85B; Q4 book-to-bill was 1.67x (TTM 1.35x), underpinning FY25 organic growth in Water & Environmental, Life Sciences/Advanced Manufacturing and Critical Infrastructure.
• FY25 guidance: adjusted net revenue mid-to-high single-digit growth, adjusted EBITDA margin 13.8–14.0%, adjusted EPS $5.80–$6.20, reported FCF conversion >100%; tax rate ~26% (higher vs FY24/FY23 due to prior discrete tax benefits).
• Strategic separation completed Sept. 27; $911M proceeds used to repay debt; Jacobs retains 7.5–8% AMTM stake and shareholders own ~51% (potentially up to 55%); management expects monetization of the AMTM stake in 1H CY’25, supporting capital returns and optionality.

What Went Well and What Went Wrong

What Went Well

• Double-digit growth in Water & Environmental adjusted net revenue; broad-based strength across North America, UK/Ireland, Australia/New Zealand with major awards (e.g., LA progressive design-build for recycled water) and record-scale bookings in company history.
• Backlog momentum: total backlog +22.5% YoY to $21.85B; Q4 book-to-bill 1.67x and TTM 1.35x; management: “these are some of the largest bookings that we’ve had… proof is in the numbers”.
• Margin expansion and cash generation: adjusted EBITDA margin of 13.6% in Q4; FY24 FCF from continuing ops $718M; net leverage ~1.0x; ongoing share repurchases ($472M authorization remaining) and dividend growth ($0.29, +12% YoY).

What Went Wrong

• Life Sciences/Advanced Manufacturing growth moderated by an unfavorable revenue adjustment tied to an EV battery customer bankruptcy in Europe; management expects acceleration in FY25, led by Life Sciences and diversification in semis.
• Critical Infrastructure growth lagged in certain international markets; management cites UK budget certainty and wins in Australia/NZ supporting recovery in FY25.
• FY25 tax rate headwind (~26%) vs prior years due to nonrecurring discrete tax benefits; restructuring outflows of $75–$95M in FY25 (declining through FY25).

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 Jacobs Solutions' fourth quarter and full year 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one. Thank you. And I would now like to turn the conference over to Bert Subin, Senior Vice President of Investor Relations. Bert, you may begin.

Bert Subin (SVP of Investor Relations)

Thank you, Krista, and good morning, everyone. Our earnings announcement was filed earlier this morning, and we have posted a slide presentation on our website, which will reference during this call. Please note our 10-K will be filed by no later than our due date of November 26th. 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 for our fourth quarter and fiscal year results. Venk Nathamuni will then provide a detailed review of our financial performance, including commentary on end market trends, cash flows, balance sheet data, and our FY25 outlook.

Finally, Bob will provide closing remarks, and then we'll open up the call for questions. With that, I'll turn it over to our Chair and CEO, Bob Pragada.

Bob Pragada (CEO)

Thank you, Bert, and I'm delighted to welcome you to Jacobs at such an exciting time. Good day, everyone, and thank you for joining us to discuss our fourth quarter and fiscal year 2024 business performance. Now moving to slide four, we reached a critical milestone on our strategic shift toward a simpler, higher value, and higher margin portfolio during the quarter as we closed the separation transaction involving our Critical Mission Solutions and Cyber & Intelligence businesses on September 27th, 2024, culminating with Amentum successfully listing on the NYSE under the ticker AMTM. This strategic shift has been well received by the market, highlighting confidence in our focused direction and reinforcing our commitment to delivering sustained value and growth for our shareholders. Upon closing the transaction, we received $911 million, which was concurrently used to repay existing debt.

Additionally, as a part of the transaction, we received a 7.5% equity ownership in Amentum, which could rise to 8%. At the same time, Jacobs shareholders became 51% owners of shares of Amentum, and their ownership stake could increase up to 55%. I want to take a moment to emphasize how important this transaction is for Jacobs. As a more sharply focused company operating in robust end markets with strong secular growth tailwinds, we believe Jacobs is in an excellent position to create substantial shareholder value. Our simplified structure, global delivery model, and ongoing operating efficiencies position us nicely to build on a strong end to FY24. This is a testament to the dedication and relentless efforts of our employees, whose hard work is paving the way forward for two exceptional companies.

I'd like to extend my deepest gratitude and congratulations to each of them for their role in this pivotal transformation. Turning to slide five, we provide an overview of our financial performance for the fourth quarter and fiscal year 2024 with CMS and CNI under discontinued operations. So please note the results we highlight are related only to continuing operations.

Focusing in on the quarter, total gross revenue increased 4% in Q4, with adjusted net revenue rising 4%. GAAP EPS from continuing operations was $2.38 and includes a positive $1.20 impact from the mark-to-market of our investment in Amentum netted against amortization of intangibles, as well as a $0.19 impact from transaction, restructuring, and other related costs. Excluding these items, fourth quarter adjusted EPS was $1.37, marking a 28% increase compared to the previous year.

Adjusted EBITDA for Q4 came in at $289 million, which represented a 12% growth versus FY23. Overall, we are pleased to close out the year with such a positive performance. Looking at the full year, total gross revenue increased 6%, with adjusted net revenue rising 5%. GAAP EPS from continuing operations was $4.79 and included a positive $0.50 impact related primarily to the net effect of amortization of acquired intangibles and the mark-to-market of our investment in Amentum, and a negative impact of $1.07 from transaction, restructuring, and other related costs, which again were materially driven by the separation transaction. Excluding these items, adjusted EPS from continuing operations was $5.28, marking a 16% increase compared to the previous year.

Adjusted EBITDA for FY24 was $1.06 billion, representing a 9% increase versus FY23. Our trailing 12-month book-to-bill was 1.35 times, as our consolidated backlog increased 23% year-on-year in Q4.

These are metrics we watch closely, and we are encouraged by the trajectory we're delivering on, with an extremely strong 1.67 times book-to-bill for the fourth quarter. When we analyze our backlog, we are seeing this trend across gross revenue and backlog, as well as gross profit and backlog, which is a good indicator as we think about our growth for FY25 and beyond. Turning to slide six and building on my backlog and book-to-bill commentary, 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. As we move forward as a simpler and more focused company, we will be providing commentary on revenue across three key end markets: water and environmental, life sciences and advanced manufacturing, and critical infrastructure.

These end markets roll up to Infrastructure and Advanced Facilities, which is comprised of our historic P&PS business and the retained portion of Divergent Solutions. PA Consulting remains in its own segment and is unchanged. On slide 14 in the appendix, we provide a graphic that depicts our new structure and end market focus. Moving on to how our end markets are performing, water and environmental is demonstrating impressive growth.

Water conveyance, water infrastructure, wastewater, potable reuse, and efficient asset management are just some of the key drivers of our client spend. And we have been successful servicing demand across these categories with double-digit growth in Q4. Notably, during Q4, we delivered several key wins, including our appointment by Los Angeles Sanitation and Environment to provide progressive design-build services for the Donald C.

Tillman Advanced Water Equalization Basins, a critical part of LA's long-term plans to increase recycled water production by 2035. Significantly, this is one of the single largest bookings in the water and environmental end market in our company's history. In life sciences and advanced manufacturing, we continue to see robust demand from life sciences clients, boosted by GLP-1 investment, and we expect this trend to continue in FY25. In semiconductors, we are diversifying our customer base and expanding our global reach.

One example is our recent design win for a new test and assembly facility with CG Semi in India. The facility will manufacture advanced and legacy packages for industries such as automotive, consumer, industrial, and 5G communications, and facilitates our strategic positioning in India, where electronics manufacturing spend is expected to grow meaningfully.

Global investment spending across life sciences, semis, and data centers is creating a robust backdrop for Jacobs in FY25 and beyond. Moving on to critical infrastructure. During the quarter, we secured a technical project manager role with the Department of Energy Security and Net Zero in the U.K., a great example of how we are leveraging our differentiated offering in energy security and transition that demonstrates the power of our partnership and greater collaboration with PA Consulting.

We will provide project management and advisory services, along with associated strategic support to the hydrogen and industrial carbon capture program that includes consulting, end-to-end innovation, design, and analytics. We're also seeing continued traction in the Middle East as Saudi Vision 2030 significantly increases the number of opportunities across critical infrastructure.

Notably, during Q4, we announced a new award to lead advisory, design, and engineering for the King Salman International Airport in Riyadh, Saudi Arabia. Our outlook for near and long-term expansion in the region remains intact, and we are seeing signals of strong demand for infrastructure projects across the globe in the early days of FY25. In summary, we remain confident in our ability to grow the business and deliver superior execution to meet our clients' expectations. We're excited for the future as a more focused company and look forward to presenting our strategic vision for growth over the coming years at our investor day in Miami on February 18th. Now I'll turn the call over to Venk to review our financial results in further detail.

Venk Nathamuni (CFO)

Thank you, Bob, and good day, everyone. We are pleased with our Q4 performance, which contributed to a strong year. Let me now begin by summarizing a few of the financial highlights on slides seven and eight. Starting on slide seven, we show quarterly results, and I'll provide additional context and detail around our performance from continuing operations.

As Bob noted, CMS and CNI have been excluded from our results as those businesses are listed under discontinued operations. We provide a reconciliation on page 24 in the appendix that will allow you to compare results for the enterprise, including the businesses that were separated in the fourth quarter. Notably, I want to highlight that in total, we did outpace the $7.95 adjusted EPS midpoint for fiscal 2024 that we guided to with Q3 results. However, from here forth, we will only be discussing continuing operations.

Fourth quarter gross revenue grew 4% year-over-year, and adjusted net revenue, which excludes the impact of pass-through revenue, also grew 4%. Q4 adjusted EBITDA was $289 million, growing 12% year-over-year to an adjusted EBITDA margin of 13.6%, which is an increase of approximately 100 basis points from last year. Fourth quarter adjusted EPS from continuing operations was $1.37, marking a 28% increase compared to the previous year.

Please note that during the quarter, GAAP EPS benefited from a $187 million pre-tax gain associated with the mark-to-market adjustment of our investment in Amentum, with no benefit to adjusted EPS. Additionally, PA Consulting contributed $0.10 of EPS dilution to GAAP EPS from periodic fair value change impacts on our redeemable non-controlling interest balances, and this impact was added back to adjusted EPS in Q4. We provide a walkthrough of our adjusted EPS calculation for continuing operations on slide 23.

Finally, consolidated backlog was up almost 23% year-over-year to $21.8 billion. The trailing 12-month revenue book-to-bill ratio was 1.35 times, with our gross profit and backlog increasing 12% year-over-year. As Bob noted earlier, this is an encouraging data point as we look ahead to fiscal 25. The Q4 book-to-bill of 1.67 times, though partly a function of higher pass-through revenue, is still very positive and helped us end the year on a high note. Moving on to slide eight, I'll recap fiscal 24 results. Fiscal 24 total gross revenue increased 6% year-over-year, with adjusted net revenue rising 5%. Adjusted EBITDA increased 9% as a function of higher revenue and just over 40 basis points of margin expansion. Adjusted EPS from continuing operations increased 16% year-over-year.

We're pleased to end fiscal 24 in a strong position with solid organic revenue growth, double-digit EPS growth, and a backlog that sets us up for continued growth in fiscal 25 and beyond. Regarding the performance of our end markets in the quarter, let's now turn to slide nine. As Bob noted earlier, we're reporting our business as Infrastructure and Advanced Facilities and PA Consulting, and we will discuss revenue trends in our three key end markets. This should provide helpful context to supplement our overall results. We'll focus on adjusted net revenue in our discussion as we believe this is a better indicator of business trends as it excludes pass-through revenues. However, we do list gross revenue growth across each end market for your reference. In water and environmental, growth was solid, with adjusted net revenue increasing 13% versus the same quarter last year.

Water and environmental demand has been strong, and we expect that to continue in fiscal 2025 based on our current backlog and pipeline. Encouragingly, demand is being driven by multiple geographies, with North America, U.K., Ireland, Australia, and New Zealand all growing double digits in the quarter. Our life sciences and advanced manufacturing end market revenue grew 3% in Q4, with strength partially offset by an unfavorable revenue adjustment related to an EV battery manufacturer customer bankruptcy in Europe. Our outlook for this end market is for life sciences to be the primary driver of revenue growth in fiscal 2025, as capital investment from our life sciences customers remains robust. We're also seeing our customer base broaden in semis, and the AI data center opportunity is expanding.

As we look into fiscal 25 and beyond, we anticipate top-line growth in this end market, not only from rising industry investment, but also differentiation through our cross-cutting water and energy capabilities. In critical infrastructure, adjusted net revenue increased 1%, with North America showing steady growth, while certain international markets have lagged. We expect to see improvement across critical infrastructure in fiscal 25, with our backlog and pipeline underpinning a strong recovery as transportation project demand is rising. Putting this all together, we have line of sight to maintaining strong revenue growth in water and environmental and increasing our growth rates in life sciences and advanced manufacturing, as well as critical infrastructure end markets in the coming year relative to Q4. Now, moving on to slide 10, I will provide a quick overview of our segment financials.

We saw strong trends in Q4 for Infrastructure and Advanced Facilities operating profit, which increased 12% year-over-year in total and 12% on a constant currency basis. In fiscal 2024, operating profit increased 9% year-over-year and 9% on a constant currency basis. Infrastructure and Advanced Facilities results were aided by both revenue growth and margin expansion. Moving on to PA Consulting. Results reflect modest top-line growth, but good execution on the bottom line. Q4 operating profit increased 4% year-over-year, and fiscal 2024 operating profit increased 1%. Both were slightly negative on a constant currency basis. However, we are encouraged by recent bookings and anticipate that growth will trend higher in fiscal 2025. Moving on to Slide 11, we provide an overview of cash generation and balance sheet data.

For fiscal 2024, free cash flow from continuing operations was strong at $718 million and enabled us to repurchase $403 million in shares and pay $143 million in cash dividends. We also paid down debt and ended the year with roughly $1.1 billion in net debt, which represented a net leverage ratio of 1.0 times on LTM adjusted EBITDA. This is at the low end of our 1.0-1.5x target. Our balance sheet strength will enable continued investment in the business, as well as returns to shareholders through share repurchases and long-term dividend growth. We currently have $472 million in remaining authorization under our repurchase program and recently declared a dividend of $0.29, a 12% increase year-over-year. And finally, please turn to slide 12 for our fiscal 2025 outlook.

We expect adjusted net revenue to increase mid to high single digits year-over-year, adjusted EBITDA margin to range from 13.8%-14%, adjusted EPS to range from $5.80-$6.20, and reported free cash flow conversion to be more than 100%. We will have cash outflows related to restructuring of $75-$95 million in fiscal 2025, with that impact declining through fiscal 2025. The midpoint of our guidance range for adjusted EPS would indicate about 14% growth year-over-year, and the midpoint of our guidance range for adjusted EBITDA would indicate approximately 15% growth year-over-year, highlighting our strong outlook for business performance this year. We provide relevant assumptions on the right side of the page to help you with your modeling. One item to be mindful of is our projected tax rate of approximately 26%.

Our fiscal 25 tax rate is expected to be several points higher than in fiscal 24 and fiscal 23, and is a function of multiple discrete tax benefits in those historical periods that are not expected to recur. Despite the higher tax rate, we still anticipate strong adjusted EPS growth in fiscal 25. I'd note from a trend perspective, we expect to start fiscal 25 with Q1 revenue, adjusted EBITDA margin, and earnings below Q4 of fiscal 24, reflecting typical seasonality. However, as we progress through fiscal 25, we expect to see sequential growth in our financial results through Q4. Overall, we're excited about the future of Jacobs and are entering fiscal 25 in a strong position financially with positive underlying momentum in the business. With that, I'll turn the call back over to Bob.

Bob Pragada (CEO)

Thank you, Venk. In closing, as a more focused enterprise, we are exceptionally well positioned to capitalize on the momentum in the water and environmental, life sciences and advanced manufacturing, and critical infrastructure end markets, and we remain confident in our ability to grow market share and fulfill the needs of our clients across our business over time. Operator, we will now open the call for questions.

Operator (participant)

Thank you. And we will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again, press star one. We also ask that you limit yourself to one question and one follow-up. Your first question comes from Michael Dudas with Vertical Research. Please go ahead.

Good morning, gentlemen, and congrats on a very active and successful spin and a recap.

Bob Pragada (CEO)

Thanks, Mike. Thank you, Mike.

So, impressive standalone backlog growth and heading into 2025. Maybe you can talk about the pipeline you see, maybe amongst the three major end markets, growth and pipeline year-over-year, and how much of your 2025 net revenues and EBITDA do you currently have kind of in backlog or in sight, and what's required to achieve your midpoint of your targets?

Sure. So, Michael, on the first question, pipeline growth has been really, really strong. If you look at the kind of the big verticals, water and environmental up double digits on a pipeline basis, advanced facilities really driven by life sciences, we're seeing double-digit growth in that pipeline. And in critical infrastructure, which is really driven by transportation, we're seeing a nice comeback on the pipeline, specifically in our European, to include the U.K. and Australia, New Zealand end markets. Middle East continues to grow too. So if you kind of aggregate those, the pipeline looks really, really strong. On the second, don't want to go too far on the actual number, but I'd say historically, we would see a certain percentage of our next fiscal year revenue in backlog. That percentage is a higher percentage this year. Now, on a 1.67 times book-to-bill, that's not all in one year.

That's multi-year booking. But the kind of contracted component for FY25 is a very strong number.

That's helpful. My follow-up is, Bob, maybe you can share views from your client base and how Jacobs is positioning relative to the election and some of the machinations we're hearing out of the federal government, how that could translate to your, I guess, business in the U.S.?

Sure. So maybe two parts of that question. We kind of see it overall as a net neutral. If you look at those end markets that we're now, as the new Jacobs honed in on, these are jobs that were either tied to some level of state and local element, which are continuing, kind of think water and environmental. And the transportation jobs that we're in the middle of at a national level in the U.S. have got long tails on them, and we still see the pipeline really strong. So infrastructure-wise, we're feeling it's a net neutral. Just as a note, lately been seeing some softness within the federal market. In now our portfolio, about 10% of our business is in that federal market. However, of that 10%, a majority of that is in DOD and DOD infrastructure specifically, which we see that pipeline continuing on.

Advanced Facilities continued strong. That industrial reshoring, onshoring, as well as what's happening in the world of science and technology, specifically in the U.S., we're feeling confident about it.

Thank you, Bob.

Operator (participant)

Your next question comes from the line of Steven Fisher with UBS. Please go ahead.

Thanks. Good morning, and I'll add my congratulations on the completion of the deals, and thanks for all the color on the growth rates within the segment. It's a pretty wide range of growth rates between water versus the life sciences versus the critical infrastructure, 1,000 basis points or more, it seems like, and I know you said you expect the slower ones to accelerate. Can you just maybe frame for us kind of how big a gap you're expecting or how much you can close that gap between them? Just curious, was there that big a gap or a drag from that EV cancellation in the quarter, and was there any sort of weather impact, as one of your peers cited? Thanks.

Bob Pragada (CEO)

Yeah. So let me answer the last part, Steve, first, and just kind of breaking down those three main areas. And your next question, your first question, it was a gap, that EV cancellation. So on the AF or the advanced facilities component, we do see closing that gap. It would have been closed already, but the future looks very bright there and represented by our backlog. Water and environmental, we see continued growth. And on transportation, specifically critical infrastructure, what we're seeing in our pipeline as well as Q1, so to be reported wins in transportation specifically outside the U.S., because really that gap was outside the U.S., that's already we've already seen that in real time. Certainty in the budget in the U.K. is giving us confidence there, as well as some really strong wins that we've had in Australia and New Zealand coming out.

So we don't really see that gap being a big one.

Okay. That's helpful. And then just a follow-up, how should we think about the progress now on some of the corporate costs that you have embedded in the segment reporting in 2025 versus 2024? And relative to the restructuring costs, it sounds like that'll kind of continue on through the year. Do you think fourth quarter will still have some of that in there, or will it be done by the time fourth quarter starts? Thank you.

Right, Mike. Yeah, thank you, Steve. So a couple of questions. So one on the overall cost structure. As you can tell, we made pretty significant progress in fiscal 2024 in terms of our operating margin and EBITDA margin expansion. And I would say there's still room there in terms of improving the margins over time, and that's why we guided to a 100 basis point increase year-on-year for fiscal 2025. And if you look at the various parts of it, clearly from the standpoint of operational efficiency, we still have room there. We'll have a full year of what you call annualization of operating efficiencies because a lot of it happened towards the second half of fiscal 2024. You'll see a lot of that manifest in its entirety in fiscal 2025. And then overall cost controls is something that we are focused on.

And last but not least, we are continuing to improve our mix of our business as well as how we implement these projects from a global connectivity standpoint. So multiple facets to this margin story over time. And then your second question about restructuring, so as you pointed out, we did have restructuring in fiscal 2024. Clearly, as you know, we have a commitment to Amentum to continue to do transition services that will last maybe another two, three quarters. So we should see a pretty dramatic decline in our restructuring going from fiscal 2024 to fiscal 2025. And we've quantified it in the range of $75-$95 million. Obviously, we'll try to do our best to make sure that that marks the end of our restructuring in a meaningful way. Yeah.

The other part of the restructuring is obviously having some ownership of liability with the PA Consulting business as well.

Okay.

Operator (participant)

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

Great. Thanks for taking my questions, guys. I guess I wanted to build on an earlier question again and just kind of talk about the backlog as it relates to the outlook. I mean, your backlog is up 22.5% year-over-year, which is great. But your revenue guidance is up mid- to high-single digits. That seems like a really wide gap, and so I heard some of the comments about some longer projects, but is there stuff in the backlog that's not moving? Is some of the backlog, these bigger, chunkier bookings like you're doing for maybe advanced technology and life sciences, we're doing construction management SOP, does that flow through as lower margin? There's a lot going on there, but I think the discrepancy between the backlog growth and the revenue guidance is worth digging into a little bit deeper.

So if you could comment on that, I think it would be helpful. Thank you.

Bob Pragada (CEO)

Sure. Thanks, Andy. So a couple of things. Yeah, it is the most significant book-to-bill that we've had probably in the history of the company. And really, we're proud of that. The life sciences and the water bookings that we've had are large, and they're multi-year. And so they're not any and they're not degrading to margins. These are at, and in certain cases, above our kind of corporate margins that we've demonstrated here in the last few quarters. So it's the multi-year component of that that is driving the revenue guidance. And we also gave room on the mid to high single digits to kind of compensate for the bell-shaped curve on a project lifecycle too. So we're feeling really good.

These are some of the largest bookings that we've had, and I think I mentioned in the script, in the history of the company, which kind of goes to the testament of our market positioning right now.

Got it. This is kind of a question I want to ask also. I mean, the restructuring, obviously, this was kind of expected. You've got the Amentum and transition services and all the first-year things that go with the spinoff. But, Bob, as you look at 2026, do you feel like 2026 is the year that we get pretty clean results? It sounds like even at the end of this year, it's pretty clean. But I thought maybe I'd have you comment on 2026.

No, absolutely. Yeah.

I think it's an important question.

It's a very important question. And thanks for asking it.

I'd say second half, you're going to see a significant decay, and 2026, short answer, yes. Yes, being clean. Yeah.

Yeah. Got it. Thanks, guys. That's all I have for today.

Thank you. Thanks, Andy.

Operator (participant)

Your next question comes from the line of Sabahat Khan with RBC Capital Markets. Please go ahead.

Okay. Great. Thanks and good morning. Just Bob, to your earlier comment around some of the buffer that you've built into the 5%, or sort of called the mid to high single-digit organic growth rate to allow for some of these longer life projects. This seems to be in line with the guidance you provided pre-election. I guess, would you say that range also builds in some buffer for maybe administration change or just kind of seeing how things evolve in the early part of the year? Just trying to understand how you're thinking about the low end versus the high end, given some of the moving pieces, particularly on the U.S. side. Thanks.

Bob Pragada (CEO)

Yeah. Saba, my answer was really based on our client's activity and going back to any type of potential delays that happen as a result of the election, we don't feel like those would pertain to these jobs that are going forward at the state and local level, supporting some pretty large events that are happening in Los Angeles and other venues around the world, specifically on the water and transportation side and then on the advanced facility side, these are commitments that our clients have made to the end market on some pretty critical therapies that the world needs, so these are tied to global trends that are probably a little segregated from what might happen with regards to churn in the Beltway, so those were two separate.

Venk Nathamuni (CFO)

Saba, if I could add, the range that we provided from our guidance perspective, we try to guide for what we think is the most likely outcome. Obviously, as Bob alluded to, it depends on the profile of the customer burn and so forth. So that's what's imputed in our guidance. That's why we provided the range in the mid- to high-single digits for revenue growth.

All right. Great. That's helpful, and then maybe just on the markets outside of the U.S., as we look at maybe the U.K., the Middle East, it looks like some changing priority in the Middle East, but it sounds like from your commentary, that's going well. Can you maybe just talk about kind of your focus on those regions, what drives you kind of to continue to be exposed there? It looks like there's a lot of dollars there, particularly in the Middle East, but a bit of an evolution in how they're going about their development for the next few years, and also, if you can just comment on post the recent election in the U.K., how you see the spending priorities reflected in the recent infrastructure or sort of the recent budget and how they align with what you're doing in that market.

Just want to get a bit more perspective on those two larger regions for you outside of the U.S. Thanks.

Bob Pragada (CEO)

Sure, sure. So let me kind of break down the question here. On the two geographies, and actually, this comment is going to apply to every single one of our geographies. We are in the locales that we're in to service those local clients. And so just on that element, with regards to the UK in the Middle East, those are strong markets. And yes, there are economic ebbs and flows in those markets. But our client base, especially now with kind of our focus portfolio, these are long-term kind of trends. So any kind of near-term oscillations, if you look at it on the long term, they're solid. And in the UK, in the Middle East, we're seeing some nice tailwinds that are coming back. It might not be as strong as 10 years ago or before, but compared to recent times, we're seeing some of that come through.

How do we gauge that? We gauge that through our pipeline. And we're seeing our pipeline grow. And so those kind of on that. Water in the U.K. never slowed down. So really, the upside that we're talking about is more honed in on transportation as well as some of our advanced facilities world. But the key is that us staying in those geographies is really more about our talent. And that talent ends up addressing both the local market, but also there's some really, really key talent that we have in the U.K., Europe, India, Australia, New Zealand that are being deployed around the world. So that talent piece is really, really key in how we think about our global model. On the elections, again, we don't think that that is going to affect what we're talking about as far as the strength in the end market.

We stand behind the numbers we put out.

Great. Thanks very much for the call.

Operator (participant)

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

Hi, good morning. This is Natalia Bock on behalf of Andy Kaplowitz.

Bob Pragada (CEO)

Hi, good morning.

Good morning. First question that I'd like to ask, in PA Consulting, exit margins reflect continued improvement. As we think about fiscal year 2025, do you expect that trend to continue? And then can you provide more color on your visibility towards revenue growth expectations for the segment? You have relatively easier comps, and backlog seems to be ticking up. Any detail would be helpful.

Sure. Why don't I answer the first one, and then Venk will address kind of the confidence in revenue growth coming into the year. As far as the margins go, we continue to see even during the run-up to the election in the U.K., as well as other areas that PA has a presence, the margins have stayed true, and the team has done a really good job at continuing to focus in on higher value as well as strength of the offering that they have for their clients. So we see that margin profile continuing. Moving forward, Venk, you want to talk about the revenue growth?

Venk Nathamuni (CFO)

Yeah, absolutely. So in terms of just revenue growth for the PA Consulting business, we've had good insight into their pipeline, especially over the last several quarters, and we're feeling pretty good about the inflection point in PA Consulting's business in terms of the growth really coming together in fiscal 2025. Now, when we provided the high-level guidance for our overall revenue growth, the mid to high single digits, that certainly imputes PA Consulting also providing that growth acceleration from the prior year, so all of that is taken into account as we give our overall guidance for all of PA Consulting plus Jacobs, and we feel that there is certainly an inflection point in fiscal 2025 with regards to the growth from PA Consulting.

Bob Pragada (CEO)

Their backlog grew at the same rate as ours did.

Venk Nathamuni (CFO)

That's right.

Got it. Helpful. And just one more follow-up question for me. It appears the near-term focus with respect to capital deployment seems to be toward debt paydown and share repurchases. But as you now sit with your new portfolio, are there any areas in your portfolio where potential M&A could fill the gap?

Yeah. No, great question. So first of all, and I'd like to reiterate that, as I mentioned in the script, we are committed to returning cash to shareholders in the form of buybacks and dividends. And we return almost 60% of free cash flow in fiscal 2024. So we're continuing to commit to a significant portion of our free cash flow being returned to shareholders. On top of it, as you pointed out, we have been paying down debt. We did get about $911 million in Amentum proceeds on day one of the transaction, which we then used to pay down debt. And we do still have a 7.5%-8% retained stake that we hope to monetize in the first half of calendar 2025.

And then beyond that, as I look at the capital allocation priorities for us, there's a lot of excitement about organic growth opportunities in the business. So number one priority will continue to be investing in the organic growth of the business. Number two, as I said before, is returning cash to shareholders in the form of both dividends and buybacks. And we're committed to that. And then finally, from an M&A perspective, certainly that is an excellent for us in the long term. We'll talk a lot more about it during Investor Day, but suffice it to say that we have lots of optionality with the balance sheet position that we have, the significant Free Cash Flow that we generate, and our ability to return that to shareholders as well.

Operator (participant)

Your next question comes from the line of Sangita Jain. With KeyBank, please go ahead.

Great. Thanks so much for taking my questions. So if I could just take the growth outlook to a higher level, can you help us understand if you're thinking higher growth internationally versus domestic, given the elections? I know we've discussed elections a few times already on this call.

Bob Pragada (CEO)

No, Sangita, if that's the way it came across, that wasn't the case. We had some flattening growth outside the U.S. in our infrastructure and markets. We were talking about that inflecting forward. Within the U.S., those numbers have been positive for the last fiscal year.

And how about your outlook for the upcoming year? Do you think the U.S. will still grow faster, or how do you see it?

We do. We do. We do. And we're seeing that in our pipeline right now, growing as well as our book-to-bill and the double-digit growth that we've had in backlog.

Okay. Then if I can follow up on your talent pool, let's just say we don't really know the policy priorities of the new administration yet, etc., but let's just say public spending in the U.S. does slow down. How fungible is your talent pool should you have to reallocate resources?

Yeah. I don't know if I would use the word fungible, but they're very deployable and work on work all over the world, both in the U.S., outside the U.S., and from outside the U.S. in. I think it's really important to understand the mix of our people in the U.S. and outside the U.S. does not map to our U.S. versus non-U.S. revenue stream. And so that is a very balanced look on how we utilize our people around the world.

Got it. Appreciate that. Thank you.

Thank you.

Operator (participant)

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

Hey, good morning, guys.

Bob Pragada (CEO)

Chad, good morning.

So, my question is on the algorithm for adjusted operating margins for the Infrastructure and Advanced Facilities business. So, I guess maybe we could break it out in two ways. So, first of all, I'm just trying to figure out the three subsegments. It sounds like the water business is growing faster, life sciences business is growing faster. To what extent is that the driver to margins? And then, I guess, on the second part, you guys talked about cost savings. How do we think about the year-over-year boost in margins from that?

Venk Nathamuni (CFO)

Yeah, Chad, thanks for those questions. So I'd say the first on the end markets, the way we model our business is to obviously go after the best opportunities that we have across the different end markets and continue to focus on top-line growth, but also in a way that optimizes margins so that it meets our corporate average, right? So in any given quarter, any given first half or second half of the year, we can certainly have ups and downs with regards to the margin profiles. But what we try to optimize for is the good balance between continued revenue growth as well as gross margins and operating margins improving over time. And that's what we quantified in terms of our expectation for fiscal 2025.

So I wouldn't say one business is any different from another from the standpoint of the optimization, but certainly we want to continue to focus on profitable revenue growth such that both our revenue as well as margins expand over time. So that's number one. And then going to a second question about cost savings, as I alluded to in response to a previous question, we have made significant strides in terms of improving the operating efficiency, but we had just six months of that take effect in fiscal 2024. So we'll have the annualization of operating efficiencies take full effect in fiscal 2025. And that's part of the margin expansion story for us. But it's not just that. In addition to it, as I mentioned before, we are optimizing our go-to-market. We're optimizing our global connectivity and so forth.

So we do see a multi-year trend in terms of focusing on improving our profitability over time, not just on the cost side, but certainly from a business mix standpoint as well as from an efficiency standpoint.

Great. That's helpful. And then the second question has to do with your revenue guidance for the full year, that mid- to high-single-digits. So I guess to get to that higher end of that range, what needs to go right, either from a geographic standpoint or from an in-market standpoint? What would you need to see there?

Bob Pragada (CEO)

It would be if we see an acceleration in the jobs we're on. That heavy focus now from the backlog growth coming from our water as well as life sciences sector, those could be accelerated, and we could find ourselves on the higher end of that range. So we're watching that very closely.

Great. Thanks, all.

Cheers.

Operator (participant)

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

Yes, hi. Good morning, everyone. And congratulations. Can I ask for the legacy People and Places business? You folks have delivered steady margin expansion. You're now running scope margins in the low teens. As you think about the margin upside that you discussed over the course of this call, what do you think is a reasonable target or bogey where you can drive that business over time? Are we talking about tens of basis points improvements, or are the initiatives that you spoke about earlier? Can we see more significant margin upside in that line of business?

Venk Nathamuni (CFO)

Yeah, Jerry, thank you for the question. And yeah, certainly we feel good about the margin expansion for fiscal 2025 that I alluded to both in the prepared remarks as well as in response to a couple of questions. And as we look ahead beyond fiscal 2025, certainly we'll provide you a lot more clarity when it comes to investor day, not just in terms of our revenue growth and end market mix as well, but also in terms of capital allocation and margin expansion story. So suffice it to say that we do feel good about our margin expansion in fiscal 2025. And beyond that, we'll cover in more detail.

Okay, and let me ask you, I know it's very early post-Amentum, but obviously the business leaders have been focused on the new Jacobs for quite some time now, over a year. Can you just talk about at the operating level, what kind of difference in performance that you're seeing or any developments that are notable as a result of the change in focus or the more narrow change in focus so far?

Bob Pragada (CEO)

Yeah, Jerry, it's a great question. I'd say that the operating model is in full effect right now. You're right. We got out ahead of that during the course of the year. I think the biggest change has been getting back to where we came from, where we were externally focused on our client's business. And that has really come to the core of how we think about the world. And instead of being internally focused on some of the transactions that we were doing, whether they be over the course of the last couple of years or leading up to this quarter. So that's been the real change, understanding our client's business. And we're seeing it in our sales performance in Q3 and Q4 of last year. So we're excited because those actions and those behaviors are turning into a 22% backlog growth and a 1.67 book-to-bill.

And that's kind of the proof is in the numbers. So we're excited.

Thank you.

Thank you.

Venk Nathamuni (CFO)

Thank you.

Operator (participant)

I will now turn the conference back over to Bob Pragada for closing remarks.

Bob Pragada (CEO)

Thank you, everyone, for joining our call. Look forward to providing further updates and visiting with investors and analysts in the coming weeks and months. Thank you very much.

Operator (participant)

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