- Consolidated Adjusted EBITDA: $392 million, up 11% year over year, representing an 11.5% adjusted EBITDA margin.
- Operating Cash Flow: $483 million.
- Free Cash Flow: $445 million.
- Adjusted Operating Margin: 11.3%.
- GAAP Operating Profit: $260 million.
- Adjusted EPS: $1.96, up 11% year over year.
- GAAP EPS from Continuing Operations: $1.17 per share.
- Consolidated Backlog: Up 6% year over year.
- Revenue Book-to-Bill Ratio: 1.29 times.
- People & Places Solutions Adjusted Net Revenue: Up 5% year over year.
- People & Places Solutions Adjusted Operating Margin: 15.3%, up 95 basis points year over year.
- Critical Mission Solutions Revenue: Decreased 3% year over year.
- Critical Mission Solutions Adjusted Operating Margin: 8.7%, up 35 basis points year over year.
- Divergent Solutions Adjusted Net Revenue: Down 11% year over year.
- Divergent Solutions Adjusted Operating Profit: Down 40% year over year.
- PA Consulting Adjusted Operating Margin: 21.8%, up 60 basis points year over year.
- Share Repurchase: $151 million during the quarter.
- Cash: $1.2 billion.
- Gross Debt: $2.9 billion.
- Net Debt to Adjusted EBITDA: Approximately 1.1 times.
- Quarterly Dividend: $0.29, an 11.5% year-over-year increase.
- Full Year Adjusted EPS Guidance: $7.85 to $8.05.
- Full Year Adjusted EBITDA Guidance: Near the lower end of $1.54 billion to $1.585 billion range.
Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong backlog growth with a 6% year-over-year increase, indicating robust future business.
- Consolidated adjusted EBITDA increased by approximately 11% year-over-year, showcasing improved profitability.
- Significant progress on the planned spinoff of Critical Mission Solutions and Cyber Intelligence businesses, expected to complete in the second half of September 2024.
- Strong performance in the People & Places Solutions (P&PS) line of business, with a 12% year-over-year increase in adjusted operating profit.
- Robust free cash flow generation, with $445 million in Q3 and an expectation of exceeding 100% free cash flow conversion for fiscal year 2024.
Negative Points
- Critical Mission Solutions (CMS) revenue decreased by 3% year-over-year, indicating challenges in this segment.
- Divergent Solutions saw an 11% year-over-year dip in adjusted net revenue and a 40% decrease in adjusted operating profit due to government rate adjustments and program delays.
- Total restructuring costs are expected to be approximately $300 million for the fiscal year, driven by higher separation transaction costs.
- Guidance for fiscal 2024 adjusted EBITDA is near the lower end of the $1.54 billion to $1.585 billion range, reflecting some operational challenges.
- Uncertainty around the timing of the IRS ruling for the tax-free status of the spinoff, which is critical for the planned separation transaction.
Q & A Highlights
Q: Can you discuss the improvement in gross margins in the P&PS backlog and the industries contributing to this? How confident are you in showing backlog and revenue organic growth moving into 2025?
A: The gross profit and backlog improvement is driven by a mix shift towards higher-margin, science-based consulting and advisory services, particularly in water and advanced facilities. We are confident in our revenue growth for FY25, supported by a strong Q4 backlog performance.
Q: Can you provide more color on the guidance towards the lower end of your annual EBITDA range?
A: The EBITDA performance was impacted by the CMS Cytec loss and delays in the divergent solutions segment. However, the EPS performance benefited from a tax benefit and significant stock buybacks. We remain confident in the P&PS backlog and margin profile.
Q: How do you view the 13.8%-plus FY25 stand-alone margin guidance given the strong P&PS margins this year?
A: We are optimistic about FY25 margins, supported by strong performance and positive tailwinds in water and advanced facilities. We will provide more clarity in the next phase and during our Investor Day in February.
Q: Can you discuss the flow of projects in the US and UK, particularly in light of elections and other global factors?
A: In the US, bid activity and pipeline remain strong, especially in water and advanced facilities. In the UK, water projects continue to progress despite election-related pauses in transport. We expect positive momentum in Saudi Arabia and other regions as well.
Q: What is driving the demand in the water sector, and how is your win rate in this space?
A: Aging infrastructure, climate-related issues, and PFAS regulations are driving demand in the water sector. Our pipeline in water is nearly 2x compared to last year, and we are winning the majority of the work we pursue.
Q: Can you clarify the gross profit and backlog dynamics, particularly the mix in different segments?
A: The P&PS segment shows strong growth with a 10% increase in top-line and 9% in gross profit. The overall backlog includes some lower-margin projects, but we expect incremental margin improvements over time.
Q: What actions are you taking in preparation for the spin-off, and how have you changed your business model?
A: We are streamlining processes, enhancing systems, and optimizing cross-cutting capabilities like program management and digital enablement. The geographic client-facing entities with cross-cutting capabilities are already in place.
Q: Can you provide an update on the advanced facilities segment, particularly in life sciences and semiconductors?
A: In semiconductors, we are diversified across memory and logic customers, with positive momentum in geographic expansion. In life sciences, we see robust growth driven by oncology and Alzheimer's drugs, in addition to GLP-1 sector projects.
Q: What are some dynamics to be aware of as the spin-off closes in September?
A: Post-spin-off, Q4 results will reflect independent Jacobs, with assets held for sale for the separated businesses. We will provide detailed guidance for fiscal '25 in our November earnings call and more long-term insights during our Investor Day in February.
Q: What is your forecast for infrastructure stimulus in the US associated with the IIJA and CHIPS Act?
A: IIJA funds are driving backlog performance, with 60% appropriated and 30% spent. CHIPS Act projects are progressing, with ongoing work and new opportunities in the pipeline. We expect continued positive impact from these initiatives.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
