JACOBS SOLUTIONS INC. Q4 FY2024 earnings call

• Strategic Shift: Closed the separation of Critical Mission Solutions and Cyber & Intelligence businesses on September 27, 2024, with Amentum listing on NYSE. Received $911 million and a 7.5% equity ownership in Amentum.
• Financial Performance: Q4 total gross revenue up 4%, adjusted net revenue up 4%; GAAP EPS from continuing operations $2.38. FY '24 total gross revenue up 6%, adjusted net revenue up 5%; GAAP EPS from continuing operations $4.79. Adjusted EBITDA for Q4 $289 million (12% growth YOY), FY '24 adjusted EBITDA $1.06 billion (9% growth YOY). Consolidated backlog up almost 23% YOY to $21.8 billion.
• End Market Highlights: Water and Environmental with double-digit growth in Q4, driven by multiple geographies; Life Sciences and Advanced Manufacturing with robust demand, including GLP-1 investment and semiconductor diversification; Critical Infrastructure securing projects like with the UK Department of Energy and King Salman International Airport in Saudi Arabia; PA Consulting showing margin improvement and growth in pipeline.

Infrastructure and Advanced Facilities: Q4 operating profit increased 12% year-over-year, and fiscal '24 operating profit rose 9% year-over-year on a constant currency basis. Water and Environmental: Adjusted net revenue increased 13% in Q4, with demand strong across multiple geographies like North America, UK, Ireland, Australia, and New Zealand. Life Sciences and Advanced Manufacturing: Revenue grew 3% in Q4, with Life Sciences expected to be the primary driver of growth in fiscal '25, and customer base broadening in Semiconductors. Critical Infrastructure: Adjusted net revenue increased 1% in Q4, with improvement expected in fiscal '25 as transportation project demand rises. PA Consulting: Modest top-line growth but good bottom-line execution, with backlog growing at the same rate as Jacobs' overall backlog.

• Fiscal '25 adjusted net revenue expected to increase mid to high-single digits YOY. Adjusted EBITDA margin range 13.8%-14%. Adjusted EPS range $5.80-$6.20. Reported free cash flow conversion more than 100%.
• Restructuring costs in fiscal 2025 expected to be $75 million to $95 million, declining through the year.
• Fiscal '25 tax rate expected to be ~26%, several points higher than prior years due to non-recurring discrete tax benefits. Anticipate strong adjusted EPS growth despite higher tax rate. Seasonality expected to cause Q1 financial results to be below Q4 '24, but sequential growth expected through Q4 '25.

• Potential softness in the federal market (though majority of federal business is DoD infrastructure).
• Near-term seasonality impact on Q1 financial results.
• Higher tax rate in fiscal '25 compared to prior years due to non-recurring discrete tax benefits in historical periods not expected to recur.

Q: Michael Dudas asks about pipeline growth and how much of 2025 net revenues and EBITDA are in backlog.

A: Bob Pragada states pipeline growth is strong in Water and Environmental, Advanced Facilities, and Critical Infrastructure. Historically, a higher percentage of next fiscal year revenue is in backlog, and the contracted component for FY '25 is strong with a 1.67 times book-to-bill in Q4.

Q: Steven Fisher inquires about the gap in growth rates between end markets and progress on corporate costs.

A: Bob Pragada says the gap in growth rates is narrowing, with wins in transportation outside the US and certainty in the UK budget helping. Venk Nathamuni mentions ongoing margin improvement with room for further expansion, annualization of operating efficiencies, and cost controls contributing to margin story.

Q: Andrew Wittmann asks about progress on corporate costs and '26 results.

A: Bob Pragada says restructuring costs will decline significantly, with '26 expected to have clean results as the transition services to Amentum will be mostly complete by then.

Q: Sabahat Khan asks about focus on markets outside the US and impact of elections.

A: Bob Pragada states Jacobs is in locales to service local clients, with strong markets in UK and Middle East despite economic ebbs, and client base trends being long-term. Elections are seen as net neutral for end markets.

Q: Natalia Bach asks about PA Consulting's margin trend and revenue growth expectations.

A: Bob Pragada says PA Consulting's margin profile will continue, and Venk Nathamuni mentions PA's pipeline and inflection point in growth in fiscal '25, contributing to overall revenue growth guidance.

Q: Sangita Jain asks about growth outlook between US and international.

A: Bob Pragada says the US has positive growth in pipeline and book-to-bill, with double-digit backlog growth, and talent pool is deployable globally.

Q: Chad Dillard asks about factors to reach higher end of revenue guidance and margin upside in Infrastructure and Advanced Facilities.

A: Bob Pragada says acceleration in jobs in Water and Life Sciences sectors could drive higher end of revenue guidance. Venk Nathamuni mentions margin expansion through operating efficiency, business mix optimization, and global connectivity.

Q: Jerry Revich asks about margin target for legacy People and Places business and impact of focus change.

A: Venk Nathamuni says margin expansion is expected in fiscal '25, with more detail to be provided at Investor Day. Bob Pragada notes the real change is focusing on clients' business, seen in sales performance and backlog growth.