Robert V. Pragada
Chief Executive Officer & Director at Jacobs Solutions
Thank you, Jonathan. Good day, everyone, and thank you for joining us to discuss our first quarter fiscal year 2024 business performance.
We continue to prioritize simplifying our business model, optimizing our cost structure, and accelerating profitable growth and margin expansion across our lines of business. Our team continues to demonstrate great resilience and dedication as we delivered better-than-expected underlying results in Q1, while also working to the added task of standing up two independent companies. At the corporate level, we are diligently working to create a leaner operating model that aligns Jacobs' position as a global leader in delivering science-based digitally enabled solutions to our clients and allowing us to benefit fully from the broad-based strength that we see in global infrastructure and sustainability investment. We are confident that our actions we are taking are providing the foundation for multi-year improvement in profitability and margins. And we look forward to sharing more detail in the quarters to come.
Turning to Slide 4, I want to provide a brief update on a few key milestones related to the spin-off and merger of our Critical Mission Solutions and Cyber & Intelligence businesses with momentum. We continue to progress toward the closing of the transaction in the second half of fiscal year 2024, consistent with our previous expectations. Together with momentum, we are making progress on preparing our Form 10 and private letter ruling request in keeping with the established time line of the transaction. Additionally, we are progressing antitrust filings and regulatory approvals. Upon the public filing of the Form 10, we aim to offer more comprehensive information and look forward to introducing the combined leadership team to our investors and analysts later this spring.
I would also likely -- like to briefly touch on the cost optimization plan that we outlined last quarter. Our transformation to a less volatile and higher value, higher margin portfolio is well underway. We continue to find new ways to streamline our operating model and while it is too early to positively revise our targets, we are increasingly confident in our ability to enhance our long-term profitability. As we progress towards separation and optimizing our corporate cost structure, we now are able to better align costs to the applicable business units. As a result, we have made the decision to shift some corporate unallocated costs into the current P&PS segment, which will allow for greater long-term recovery of our corporate overhead.
While this has the effect of temporarily weighing on our segment operating margins, this has no impact on our bottom line today. Rather, this will boost corporate profitability in the long run as we gradually recover cost from public sector clients, providing upside beyond the initial 13.8% adjusted EBITDA margin target set for standalone Jacobs post-separation that we shared last quarter. This adds to our conviction that our transformation will drive multi-year value creation.
Turning to Slide 4 and Q1, I'm pleased to report a strong first quarter revenue driven by 9.5% gross and 7.9% adjusted net revenue growth that is entirely organic. Backlog increased 5% year-over-year and gross margin in backlog improved 29 basis points year-over-year, boosting confidence that our businesses can continue their profitable growth trends. This quarter's results include a one-time non-cash $15 million inventory write-down. Excluding this item, adjusted operating profit would have increased versus the prior year period. We saw a continuation of strong organic growth in P&PS, with 8.4% adjusted net revenue growth. We had a Q1 operating cash flow of $418 million, up 38% year-over-year. Strong cash conversion is a hallmark of our asset-light business model and remain robust in Q1 with $401 million in free cash flow and we expect to generate greater than 100% adjusted free -- cash flow conversion in fiscal year 2024. The ultimate measure of our ability to create value is long-term growth of free cash flow per share, and that will continue to be our North Star.
Turning to Slide 6, our people in places line of business generated strong top-line growth with adjusted net revenue up 8.4% year-over-year, marking the fifth consecutive quarter of greater than 6% organic growth. We continue to execute against our strategy of prioritizing profitable growth over absolute growth as demonstrated by gross profit and backlog increasing 7% year-over-year. Our pipeline remains robust and we continue to expect P&PS organic growth of mid to high single digits in FY '24. We anticipate full-year P&PS adjusted operating margins to increase year-over-year, inclusive of the previously mentioned increase in allocation of overhead costs.
The water market remains to be a pacesetter within the company. In particular, water scarcity continues to trend across globe, affect millions of people. Decades of increasing population growth and agricultural demand have significantly depleted the quantity and quality of water resources. Jacobs is a leader in developing solutions to address water scarcity, including water reuse, groundwater management, and desalinization. In the Americas, California and Colorado have recently adopted regulations for direct potable reuse, and Arizona is making positive strides towards adopting similar regulations. Notably, the world's largest chip maker, TSMC, is currently building a new semiconductor facility in Arizona. We've been selected for the first phase of the design and project delivery of the campus -- campus' Industrial Reclaimed Water Plant.
In addition, multiple states in the US are developing regional water supply plans to balance water availability and economic growth. As an example of such work, we were awarded a $191 million project in St. Johns County, Florida for the design and project delivery of a water reclamation facility. This facility will treat 3.25 million gallons of water daily for beneficial reuse, with 13 miles of transition pipelines to deliver reclaimed water for residential irrigation. In Transportation, we have a long term relationship with Brightline West and have been awarded the design of the 218 mile high speed rail linking Las Vegas to Southern California. Brightline West, through a partnership with Nevada, successfully secured $3 billion in grants from the Federal Railroad Administration as part of the IIJA Funding.
In Life Sciences, we're supporting Lilith, with permitting and conceptual design for their injectable manufacturing facility in Alzey, Germany to support an increased demand for their medicines, including their diabetes and obesity portfolio. We continue to secure additional large engagements in the Middle East. For example, we've been appointed to provide preliminary and detail design and supervision services for utility and road infrastructure, including major road upgrades for Wadi Safar and Diriyah Gate 2 in Saudi Arabia. In CMS, we performed very well in Q1, continuing the profitability trend demonstrated in FY '23. CMS Q1 revenue was up 5% year-over-year and operating profit increased 14% behind 63 basis points of margin expansion. Its pipeline and growth outlook remain strong with major award prospects in FY '24 and a light recompete schedule.
The CMS team is executing well and has great momentum as they prepare to be an independent company. PA Consulting continues to take share as demonstrated by 8.5% revenue growth in what continues to be a choppy macro environment. Particularly in the UK, margins were light due to some softness in December. However, we continue to expect approximately 20% adjusted operating margins for the full year. And have confidence in our ability to manage variable costs to achieve that goal. Together with PA, we celebrated new wins with the Office of Gas and Electricity Markets in the UK for program management services and regulatory practices that will advance a safe and secure supply of hydrogen. Our Divergent Solutions operating unit delivered a solid quarter with 5% adjusted net revenue growth. Profits were impacted by an approximately $15 million one-time in connection with the merger. Underlying performance in the business was strong and excluded this write-down. Adjusted operating margins would have been approximately 700 basis points higher and exceeded our expectations for the quarter.
In summary, we remained well positioned to grow while serving our clients with excellence and delivering science-based digitally enabled solutions for a more connected and sustainable world. And we continue generating strong free cash flow conversion which will enable us to return capital to shareholders as we chart our new path forward as two independent companies.
Now I'll turn the call over to Claudia to review our financial results in further detail.
