Good day. My name is Savannah , and I’ll be your conference operator for today. At this time, I’d like to welcome everyone to the Jacobs’ Fiscal Second Quarter 2022 Earnings Conference Call and Webcast. Today’s call is being recorded. All lines have been placed on mute to prevent any background noise. And after the speaker’s remark, there will be a question-and-answer session. Thank you. And I would now like to turn the conference over to Jonathan Doros. Please go ahead.

Thank you, Savannah. Good morning to all. Our earnings announcement and 10-Q were filed this morning and we have posted a copy of this slide presentation on our website, which we will reference during the call. I would like to refer you to Slide 2 of the presentation materials for information regarding forward-looking statements, non-GAAP financial measures and pro forma figures. For pro forma comparisons, the current and prior periods include the results of recent acquisitions, including StreetLight Data and BlackLynx as well as our strategic investment in PA Consulting for the full period. Turning to the agenda on Slide 3. Speaking on today’s call will be our 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 updating the progress we are making against our strategy and then discuss the launch of our Climate Action Plan; Bob will then review our performance by line of business; and Kevin will provide a more in-depth discussion of our financial metrics as well as review of our balance sheet and cash flow. Finally, Steve will provide some details on our updated outlook, along with some closing remarks, and then we’ll open the call for your questions. Throughout the presentation and in the appendix of this presentation, we provided additional ESG-related information, including examples of our leading ESG solutions. With that, I’ll now pass it over to Steve Demetriou, Chair and CEO.

Thank you, John. Thanks, everyone, for joining us today to discuss our second quarter fiscal year 2022 business performance and an update on our newly launched strategy. In March, we shared the details of our new strategy boldly moving forward, which unleashes a culture of inclusion, innovation and inspiration across Jacobs, enabling us to execute against one of the most exciting periods in our company’s history. Our excitement surrounding the new strategy is driven by multiple robust growth opportunities across all lines of business, with additional opportunities to accelerate our performance in the areas of Climate Response, Consulting & Advisory and Data Solutions. For those that are new to Jacobs, we are a professional services company that combines deep technical knowledge across a variety of scientific engineering and technology disciplines with cutting edge proprietary solutions. We serve a diverse set of sectors and global clients that are navigating the need to modernize their infrastructure and supply chains to protect national security, while embarking upon multiyear digital transformations across all facets of their operational environments. This dynamic creates a compelling opportunity for decades of growth for Jacobs. By staying true to our values and purpose, we are a company like no other, reinventing the way we solve problems and shaping the next generation of innovative solutions for our clients. During the quarter, net revenue grew 10% year-over-year with growth across each line of business. Bookings were strong across the company resulting in our revenue backlog up 9% year-over-year with an approving gross profit profile. We were awarded a record level of higher margin professional services and People & Places Solutions, including several strategic wins developing grants that will enable our clients to access funds from the U.S. Infrastructure and Jobs Act as well as an increasing number of larger opportunities entering…

Thank you, Steve. Moving on to Slide 6 to review Critical Mission Solutions. The CMS business continued to strong backlog performance in the second quarter increasing 8% on a pro forma basis to $10.6 billion. Our CMS strategy is focused on creating resilient revenue growth and margin expansion by offering technology-enabled solutions aligned to critical national priorities. This strategy is underpinned by our focus on key capabilities tied to our growth accelerators, data and cyber solutions, Climate Response, and Consulting & Advisory across our core customer market of national security, space and energy. Three market trends that we are seeing offering continued strong growth this year and beyond include all-source intelligence, energy transition, and space exploration. Beginning with all-source intelligence, the increasing intelligence threat levels require analysts to utilize and coordinate multiple sources, including human, signal, open source, geospatial, and measurement and signature to allow for better real time decision making. All-source intelligence offerings are advancing to include specialized collection management, visualization, and dissemination as a service aligned to specific threats like drug trafficking, organized crime and threat finance. Jacobs’ cyber and intelligence business has a full spectrum of all-source intelligence solution to guide our national security clients through these increasingly sophisticated digital threats. In the second quarter, Jacobs won the U.S. Army’s intelligence operations support contract to provide comprehensive 24/7 all-source intelligence analysis to the Army’s Joint Task Force, Combatant Commands, and Service Component Commands. Also, we were awarded a seat on the DoDs and Joint Artificial Intelligence Center Data Readiness for AI development, which encompasses all tasks required to prepare, manage and secure dataset in DoD AI models and assist DevSecOps. Moving on to energy transition. Nuclear energy, along with renewables are critical components of the global energy portfolio to transition economies away from fossil fuels. There is…

Thank you, Bob, and good day to all that are joining us on the call today. Like to turn to Slide 10 for a financial overview of our second quarter fiscal 2022 results. Second quarter gross revenue grew 8% year-over-year, although net revenue grew 10% and was up 3% pro forma for acquired revenue. Currency negatively impacted revenue growth by approximately 150 basis points, and given current spot FX rates, we expect FX pressure to continue for the remainder of the year. Exiting Q2, we fully lapped the impact from the lower margin CMS procurement contract and the timing difference between our 2 large environmental remediation contracts. For the second half of the fiscal year, we expect total net revenue growth in the mid- to high-single digits. Adjusted gross margin in the quarter as a percentage of net revenue was 26.6%, up 80 basis points driven by improvement in People & Places and PAs improved mix impact, partially offset by the revenue ramp from the large new environmental remediation project win in CMS. Looking past 2022, as we execute against our strategy to drive a higher technology and consulting revenue mix. We expect our gross margins to continue to expand. Adjusted G&A as a percentage of net revenue was up year-over-year to 16.5% down slightly from our first quarter. Within G&A, we are making investments to prepare for the increase in opportunities from the recently passed U.S. Infrastructure stimulus, as well as other investments to improve the efficiency of businesses, who are focused 2023 initiative. We expect our G&A as a percentage of revenue to trend lower for the remainder of the fiscal year. GAAP operating profit was $166 million and was mainly impacted by $99 million charge associated with the Legacy CH2M Matter we disclosed in April and other…

Thank you, Kevin. Our diverse portfolio has proven resilient, providing us the ability to grow under multiple economic scenarios with an asset-light business model and the ability to manage pricing during an inflationary environment. Given our increased visibility and competence for fiscal 2022, we are tightening our outlook and maintaining the midpoint guidance. We expect adjusted EBITDA to be in the range of $1.385 billion to $1.435 billion from the $1.37 billion to $1.45 billion previous guidance. And our adjusted EPS outlook is now in the range of $6.95 to $7.35 from $6.85 to $7.45, previously. Looking past fiscal 2022, our backlog performance and increasing sales pipeline provides us with the continued conviction in achieving the multi-year financial growth targets we provided during our March strategy launch. Operator, we will now open the call for questions.

Thank you. And our first question will come from Jerry Revich with Goldman Sachs.

Hi, this is Adam on for Jerry today. Good morning.

Hello, can you hear me? Hello?

Adam, you…

We’re switching over to another line in case you can’t hear us? With that line, so can you repeat the question, please?

Hi, this is Adam on for Jerry, can you hear me?

Yes, we can hear you.

Thanks for taking my question. Can you just talk about how you’re thinking about recent FX movements in context with the guidance?

Yeah, look – thanks for the question. It’s a good one. As we’ve seen actually over the last week a significant change in uncertain of the foreign exchange rates, specifically in pound sterling. But we do think that there’s some incremental challenges in the second half relative to the potential associated with that probably $0.05 plus. But it’s almost in the range of being able to offset that with other things going on in our guidance for the year. So as we think about going forward, certainly, there’s an incremental risk profile that’s developed over the last couple of days. But effectively, we’re still holding to the gains at this point in time and we’ll obviously be monitoring that on an ongoing basis.

Thanks. That’s helpful. And then in your strategy update, you laid out expectations for PA Consulting revenues to grow 12% to 15% CAGR through 2024, but with margins flat. Is the assumption for flat margins the result of changing geographic mix? And then once we get a steady mix, how should we think about margin expansion in this business?

I think that there’s a couple of things going on as it relates to the mix dynamic. As we have said, in the past, the incremental strength of that business, even over and above kind of what the plans have been, both in our deal model and for the team at PA. They’ve been running at very, very high utilization factors, which we don’t believe is sustainable longer term. So it’s really more about getting back to a utilization rate that’s probably more sustainable longer-term, which mitigates upward trends in gross margin and profitability. But that ultimately, that level of profitability is being held longer-term just because of the incremental strength of the margin profile of the new business coming in. So all-in-all, while it’s a flat margin outlook, it’s a really strong underlying because they’re actually increasing or decreasing their utilization by factors, which has been offset by underlying gross margin improvements in the business.

Great. Thanks so much.

Our next question will come from Bert Subin with Stifel. Please go ahead.

Hi, good morning.

Good morning.

Bob, in your prepared remarks, you mentioned semi and EV CapEx is rising cost the industry, I think that comes as no surprise to anyone. How are you thinking about the growth progression of advanced facilities as you sort of marched towards your $10 EPS target?

Strong. I think that right now that business, Bert, it’s anywhere from 12 to 18 months kind of look forward, sometimes 6 for the first time in a long time for us being in that space. We’re seeing visibility from a pipeline perspective well into 2023, and in certain cases into 2024. So, in this strategy cycle, it will play a play on material part.

And our next question will come from Michael Dudas with Vertical Research. Please go ahead.

Good morning, gentlemen.

Good morning.

Good morning, Mike.

Good morning.

Maybe for, I mean, have you intrigued about a couple of things. One, could you discuss maybe, Bob, the pipeline, you mentioned in the prepared remarks that $25 billion and $15 billion on CMS side. We will have more discussion on the pipeline opportunities you mentioned just now the event facilities, but other areas, I said, you indicate some more international exposure that could be supportive in addition to what’s the IIJ will provide. And Kevin, the book-to-bill on the margin of 1.12 is an interesting data point. How’s that compare? How’s that trend? And, as we think about not only better bookings, but better margins into that backlog and over the next, say, several quarters.

Hey, Bob or Kevin, who want to go first?

I’ll pick it up here. It’s Steve. So the look on – as far as moving to the other, Kevin talked about PA. But as far as P&PS goes, as Bob said, we’re going to see continued strength in advanced facilities moving through the rest of this year and into the next few years. And then on the back of that, we’re going to start to see the Americas business wrap up, we’re already seeing the pipeline significantly increase, we’ll start to see sequential growth in the second half of this year and P&PS U.S. And we expect that to really start to ramp up more significantly as we enter 2023. As far as the infrastructure stimulus, that incremental $550 billion of money that is going to flow into the U.S., about close to $100 billion has been specifically earmarked for defined programs and projects. And, we’re tracking that and obviously, in the front end of that grant process, early on a lot of that is going to be formulaic. And so that should start to flow nicely as we enter 2023. And then our federal infrastructure business and environmental, because of a lot of the dynamics going on globally should really be also something that’s going to help drive growth. On the Critical Mission Solutions, what’s really playing out nicely as the diversity of our portfolio. Right now, we’re seeing a lot of strength in telecom, obviously, the space intelligence and the fact that that classified win, cyber and intelligence is going to start to ramp up now as the continued resolution that finalized. And the ramp-up of our nuclear businesses is robust. And we have an excellent pipeline of opportunities that should start to hit as we finish up this year, and rolling to 2023. So, all-in-all, we’re pretty excited about the prospects of the second half, and especially as we move into 2023 and beyond. And as far as that gross profit, book-to-bill – the bookings in the last quarter specifically, was more significant and margin because of a higher professional services ratio. And so, what we are seeing is an increase in book-to- bill on our gross profit, as you’ve outlined, that we’re pretty excited about that going forward.

And next, we have a question from Sean Eastman with KeyBanc. Please go ahead.

Good morning, team. Thanks for taking my questions. So, Kevin, I heard a very clear top-line growth outlook for CMS in the second half, but I’m not sure I heard one for PPS. I’m just curious, is there still some variability there that that keeps you from putting some bumpers on the PPS trajectory into the second half? I guess, what I’m really trying to get at is that, all in sort of exit growth rate as we’re going into 2023? So any color or perspective you can provide around that would be very helpful.

Look, the dynamic associated with calling out of the CMS is really, because of the strong growth that we’re seeing in the second half of the year, what CMS wanted to make sure that we call that out. It’s not editorial comment on lack of growth in People & Places. We do believe sequentially, we’re going to be able to see some growth as we get into Q3, and when you compare to the year ago figures that that means an accelerating level of growth as well. So look it’s not necessarily in the double-digit figures that we were talking about in CMS, but we see sequential growth in third quarter versus second quarter, even stronger in Q4 versus Q3. So, we think, we’re getting positioned for a strong Q2 – 2023 as a result of that. So look, I think, what’s really attributed to the teams here is a great work that our program management office is doing and really highlighting and helping sort out the incremental monies that are going to be coming into play for the infrastructure bill, and helping our customers figure out when that’s going to hit where they aren’t going to be able to gain access. And I think that’s going a long way for us to start to identify that longer-term build in our infrastructure pipeline. So we’re feeling pretty good about it.

And just to – the one other point about P&PS that as we look at sequentially moving into the third, fourth quarter is the – a margin profile is going to improve with the G&A that we pre-invested that Kevin talked about that held down on margins in the second quarter. We’re going to start to see a significant change in the utilization of that G&A that’s going to give us a much better profile in the second half on a margin.

And our next question will come from Chad Dillard with Bernstein. Please go ahead.

Hi, good morning, everyone. This is Brandon on for Chad. Can you please give some more color on the volume of new inquiries on the infrastructure design side? How’s that picked up year-over-year? And when do you think this activity will peak over the next few years?

Bob, can you hear that?

Sure. Yeah, I did. So, incrementally, when you look at it from Q2 to Q2 standpoint, 2021 to 2022. But if you look at the bookings profile of what we accomplished in Q2, and how those jobs burn over the course of the next 2 to 3 quarters, it is a unique inflection point that we’re seeing in the business. And those are on the front end studies, and on some of these more lumpy jobs that were actually already in the planning mode. And now when the CR was approved, and monies were available. These were the immediate recipients of these jobs, which are going to really hone in on that design component. So we’re actually feeling good outside of the U.S., we are seeing some of the biggest rail and transit opportunities haven’t booked them yet. But we’re in the middle of them that we have in quite a bit – quite a long time, specifically in the UK and in Australia, so overall positive.

And our next question will come from Steven Fisher with UBS. Please go ahead.

Thanks. Good morning. So you narrow your range and that suggests more confidence in your outlook in general. I guess, wondering what you see as still the biggest areas of uncertainties. And more typically, with Jacobs, we would expect kind of still some upside potential on the upper end of the range. So by taking that down, I’m wondering if there are other things that that we should be considering here this sort of upside scenarios and downside scenarios,

Yeah, I think, obviously, raising the bottom was an indication of more confidence. The top side, I’d say is, what’s on our mind is the FX uncertainty that’s out there, specifically. And just the question of with all this political activity, geopolitical activity, just how projects and programs are going to get across the finish line and get awarded. We’re confident that there’s no concern about anything getting canceled, it’s really more around just the timing of how things unfold in the second half. And so that’s where we sort of decided to keep our midpoint where it is in spite of the strong second quarter.

And our next question will come from with RBC Capital Markets. Please go ahead.

Great. Thanks and good morning. Just a commentary around invest the strategic investments ahead of the infrastructure bill, can you maybe talk about where in the lifecycle of those investments you are? Is this something that’s going to continue until you sort of have full run rate contribution from the bill? And just the second part in terms of the indicator, there’s some gains coming in from the U.S. IIJ. How are those coming in relative to what you would have expected at this point in the timeline things?

Let me go first, and certainly address the strategic investments. We have investments that are supporting the focus 2023 initiatives, which are substantive this year, specifically, and will depending upon how the program goes forward will be less into the future, but more substantive this year specifically. I think the biggest number though, in terms of the investments really are people related, because we’re building up our employee headcount, specifically relative to be able to satisfy the developing pipeline that’s there. And ultimately, when that translates into our backlog and starts to burn, we need to make sure we’re ahead of the curve as it relates to being able to deliver the high quality and strategic value added solutions that we provide to our clients. So that’s the single biggest. So as we start to get that momentum build, which we talked about sequential growth in People & Places and CMS, when you have a particular part of our teams, which are occupied 50% of the time versus 85% of the time that that idle time ultimately is charged to our G&A figure. So as we start to ramp that G&A numbers are going to come, those G&A numbers come down, profitability goes up. And fundamentally, that’s the single biggest investment we’re making this in terms of the people.

And our next question will come from Andy Wittmann with Baird. Please go ahead.

Great. Thanks for taking my questions. I guess for, Kevin, I wanted to ask about the adjusted unallocated corporate expense, comments that you had here in the prepared remarks, I guess, you said, you’re going to be at the lower end of the $200 million to $250 million range. I guess, in the quarter it came in at $41 million had been running in the mid-50s. The guidance it just implies that the last 2 quarters, they are going to be around 50 each if it’s the very low end. And so that implies that something unique happened in the fiscal second quarter, and I was wondering if you could discuss what that was that made it so low in the second quarter? And if you could also talk a little bit more about the tax rate in the quarter, the $0.07 that you called out there? What was that related to? It sounds like your tax rate is going to be higher? Was this an adjustment only for this year? Or was this for a prior period outside of this year as to why that $0.07 was called out?

No. Look, let me go to the G&A first and talk about that really is a matter of timing, as to when we’re making the investments as opposed to one we’re not. And so think about it really from a timing perspective, in terms of the management of our programs, and we don’t pre-spend when we don’t need to. So ultimately think about it from a timing perspective, that’s really all it is, Andy. As it relates to the other issue on tax, but effectively, as we’ve talked about in the past, beginning last year, we took to on our adjusted tax rate, just to book to what our expected effective tax rate is going to be for the year. And then, of course, our GAAP rate fluctuates around that either plus or minus relative to that. So really, this is just an adjustment to get back to put that effective tax rate is going to be on an adjusted basis for the full year. Until which time we think that number is different, we will always book to that adjusted figure in the quarter so that really is all it is. And it’s just the difference between the GAAP and the adjusted figure that we expect for the full year. Hopefully, that’s clear.

And we have a follow-up from Bert Subin with Stifel. Please go ahead.

Thanks so much for the follow-up. I just got cut off earlier and had a quick clarification question for Bob. On the advanced facilities commentary, the visibility, you mentioned sort of being more extended, is that the result of just what we’re seeing on the semiconductor CapEx side? Or are you also starting to see a step function change on the EV and biotech side? Thanks again for the question.

Yeah, Bert is both. Semiconductor side, it’s really kind of the concentration of clients that we have and those clients being on the forefront of the chip shortage. And as well as one of those clients that we’ve talked about before also changing a bit of the business model to become more of a foundry. So that’s extending out that visibility. From an EV perspective, the biggest one is one that’s driving some of that visibility and the spend that company is going through, but these not just the classic OEMs, the Fords, the GMs. But we’re seeing kind of this next generation of EV providers come into play, which is giving us greater visibility to 2023 and beyond. So we’re getting that information from our clients not necessarily exclusively market data.

And our next question will come from Andy Kaplowitz with Citi. Please go ahead.

Good morning, everyone.

Good morning.

Maybe you could give us a little more color into the double-digit growth forecast for CMS in the second half of the year, which I think is better than some of your government services peers, obviously, we know about Idaho, ramping up and some of the recent wins. But how much is cyber helping? For instance, I think you mentioned telecom ramping up and one of your peers suggested space is a little sluggish right now, but it doesn’t seem like that for you?

Look, as I outlined in our previous remarks earlier in the call. And yes, look, I think there’s a multitude of things. There’s a little bit of incremental revenue we’ll see from the ramp on the Idaho project. That’s not the driver. That’s ultimately a small piece of it. It really is the incremental space intelligence business that’s starting to burn relative to the wind that we announced. I think it was last quarter and that’s going to be helping drive some incremental growth. And then, of course, we also are seeing good cybersecurity ramp in terms of the continuing resolution was putting pressure as it relates to that opportunity. So those are all positives, as it relates to telecom, while it’s not a huge part of our business. It is a high growth business that’s occurring, given the focus on the 5G stuff. So all of that added together, I think, exhibits the power of the diversity of the portfolio within CMS. And until we’re excited about getting back to really strong growth numbers in Q3 and Q4, and we’ve been calling out that we expected it to happen, and now it’s going to be happening.

And our next question will come from Jamie Cook with Credit Suisse. Please go ahead.

Hi, good morning. I apologize. I’m managing through 4 calls. But, we’re getting lots of questions from investors on just – which business models would be more resilient, during a potential recession, given the macro concerns out there? So can you sort of just help me understand which parts of your business would be more resilient sort of on a top line and margin side? And to what degree do some of the restructuring and cost cutting actions help you and as well how PA Consulting performed in prior downturns? And then, Kevin, my other question, just – I’m sorry, if you ask this – , then I can just go back. But to what degree, what are you thinking right now, in terms of preference for repo versus acquisition, I know you did buyback stock and acquire, but any help there? Thanks.

Let me start with resilience. Let’s turn it over to Kevin, for the capital deployment question. But look, we’ve spent a lot of time on this, Jamie, as you know, and we believe we really positioned our portfolio going forward to be even more resilient than Jacobs in the past, which had a good resilient track record. Clearly leading that is going to be the infrastructure side with the fact that as we get into potential uncertainty and economic sluggishness that governments around the world, especially in the U.S. We’re going to look to stimulate the economy and create jobs with infrastructure. And then on top of that, we’ve got the IIJA that law. And so we’re pretty positive about the momentum on that in the backlog, that pipeline that’s building, and that’s going to play out. And then, of course, we have – what’s going on with the whole geopolitical side, the increased needs around defense spending and cyber protection and critical infrastructure around the world. And so that’s going to bode well for resiliency on our critical mission solutions. And then even in the advanced facilities business, which could be historically impacted by economic slowdown with the dynamics of a chip shortage, which is going to continue even in some economic downturn, and the need to pent-up demand on life sciences, because of all the focus on the pandemic, and the energy transition that has to happen. We feel pretty good about where Jacob stands, uncertain environment going forward. Kevin, on the capital deployment?

Yeah, we – thanks, Jamie, for the question. We like the investment in the shares at this current time. But that doesn’t mean that there aren’t a list of opportunities on the M&A side that that could potentially be executed against with the recent large settlement that we will be paying out in relative to the impacts. We’re probably not doing any real large deals at this particular point in time, but certainly given the dislocation in our share price over the last few months. So we’d like that investment. So I think, certainly, repos are in the mix and probably maybe some smaller acquisitions.

And that will conclude the question-and-answer session. I would now like to turn the call back to Steve Demetriou for any closing remarks.

Thanks everyone for your attention and focus, and we look forward to talking to you next year. Thanks.

And I will conclude today’s conference. Thank you for your participation. And you may now disconnect.