Jacobs Solutions Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 8, 2022

There are 11 speakers on the call.

Operator

Good morning.

Speaker 1

My name is Rob, and I will be your conference operator today. At this time, I would like to welcome Ground Noise. After the speakers' remarks, there will be a question and answer session. Thank you. Jonathan Doros, you may begin your conference.

Speaker 2

Thank you. Good morning to all. Our earnings announcement and 10 Q were filed this morning. Everyone. We have posted a copy of this slide presentation on our website, which we will reference during the call.

Speaker 2

I would like to refer you to Slide 2 of the presentation materials everyone for information regarding forward looking statements, non GAAP financial measures and pro form a figures. Everyone. For pro form a comparisons, current and prior periods include the results of recent acquisitions, including Blacklinx, as well as our our strategic investment in PA Consulting for the full period. Turning to the agenda on Slide 3. Before turning to the agenda, I would like to share that on Friday, March X4, who will be releasing a digital deep dive of our new Jacobs strategy.

Speaker 2

We also plan to attend the Raymond James Investor Eric's conference on March 7 in Orlando and the BofA Global Industrials Conference on March 15 in London. Now to the agenda. Eric. Speaking on today's call will be our Chair and CEO, Steve Demetrio President and Chief Operating Officer, Bob Vergata everyone and President and Chief Financial Officer, Kevin Behringer. Steve will begin by updating the progress we're making against our strategy everyone and discuss our data solution strategy, excluding the acquisition of Streetlight Data.

Speaker 2

Bob will then review our performance by line of business, everyone and Kevin will provide a more in-depth discussion of our financial metrics, followed by a review of PA Consulting's financial profile, as well as a review

Operator

of our balance sheet and cash flow.

Speaker 2

Finally, Steve will provide detail on our updated outlook along with some closing remarks, and then we'll open the call for your questions. Everyone. In the appendix of the presentation, we have provided additional ESG related information, including examples of our leading ESG solutions. Everyone. With that, I will now pass it over to Steve Dimitrio, Chair and CEO.

Speaker 3

Thank you for joining us today to discuss our Q1 fiscal year 2022 business performance and our key strategic initiatives. As we've stated before, we're on the front end of a multiyear growth cycle for the company. Eric. This is driven by a combination of secular growth opportunities in our core sectors such as U. S.

Speaker 3

Infrastructure Eric. Climate response, a super cycle of supply chain investments in electronics, as well as being at the nexus our new technologies and domains of space, cyber and software analytics. We expect these opportunities to drive accelerated revenue growth for the balance of the year. Looking into 2025 and beyond, we envision Jacobs as a company like no other, a company that combines everyone. We are excited to share a more comprehensive analysis of our strategy at our March Esther.

Speaker 3

Now let's discuss the Q1 results. During the quarter in People in Place Solutions, our advanced everyone along with growth in life sciences and the electrical vehicle market. And in the Americas, we're also seeing the beginnings of projects related to the Infrastructure Bill into our pipeline. Within Critical Mission Solutions, we had a highly anticipated significant backlog addition everyone from our space based intelligence surveillance reconnaissance group called Rapid Solutions. The remainder of CMS pipeline remains strong with Evercore Triple Double with 21% revenue growth, adjusted operating profit margins of 22% and double digit pro form a year over year backlog growth.

Speaker 3

Everyone. Total Jacobs net revenue increased 6% year over year and adjusted EBITDA grew 11% during the quarter. Everyone. In the Q1, we experienced strong bookings. As a result, our overall backlog ended the quarter up 12% year over year and up 10% on a a pro form a basis.

Speaker 3

Given the strong backlog growth dynamics of our business, we're reiterating our fiscal 2022 adjusted EBITDA and adjusted EPS outlook. Everyone. Looking beyond 2022, we expect strong organic growth to result in approximately $10 per share of adjusted EPS everyone to the company's shareholders and shareholders. We will now begin the call to discuss our

Operator

financial results in fiscal year 2025, excluding any potential

Speaker 3

deployment of material capital toward M and A opportunities. At our investor event in early March, we'll provide additional detail on how capital deployment and focused new growth opportunities can provide additional upside to this expectation. Turning to Slide 5. 1 of the most attractive opportunities for Jacobs is to expand our data Ebb and Cyber Businesses across 3 focus areas of specialized consulting, operational technology solutions and data analytics platforms. With a combination of strategic acquisition and key talent additions, we have built a strong business providing data and cyber solutions F.

Speaker 3

Scaling beyond national security as attempts by bad actors to public and commercial assets and facilities continues to increase, we seek accelerating requests for our data and cyber solutions everyone from our critical infrastructure customers. We have developed and acquired a portfolio of high technology solutions such as synthetic aperture radar technology everyone and the Blacklinx Edge Computing platform, which we plan to further scale and commercialize. Jacobs also has numerous software based analytics solutions across everyone to the water, transportation and environmental verticals, which is now enhanced with the acquisition of Streetlight Data, which I'd now like to discuss in further detail. Moving to slide 6. Streetlight Data is a vertical data as a service analytics platform that helps customers Ebrahim insights into 3 high growth areas.

Speaker 3

First is understanding mobility and last mile supply chain analytics of all modes of vehicle and pedestrian movement, Eric, as well as trip patterns, both in recent and comprehensive historical data. 2nd is analyzing the impact of infrastructure investments, everyone, including how to plan the expansion of future communities and where and when to deploy electrical vehicle charging solutions and autonomous vehicles Eric to enhance sustainable solutions. And 3rd is measuring the social value impact of infrastructure investments on underserved communities and populations overall. As the U. S.

Speaker 3

Prepares to embark on one of the largest infrastructure investments in history, having access to these analytics will be crucial, everyone, which is a new multi $1,000,000,000 market for Jacobs. We view the addressable market for Streetlight in 3 buckets: expanding market share with North American transportation focused customer base leveraging into other infrastructure segments everyone, such as water, environmental and the built environment, exploiting adjacent opportunities by expanding internationally technology and edge computing capabilities from recently acquired Blacklinx to create expanded market penetration, growth opportunities and solutions for our clients. Everyone. The team at Streetlight has built the industry's leading solution, which is deployed throughout several U. S.

Speaker 3

And Canadian transportation authorities and municipalities. Everyone. Specifically, Streetlight is multiple software development cycles ahead of the competition, driven by its unique multimodal data analytics mode, every operator to provide a brief overview of our strategy. We expect revenue to grow at over a 30% CAGR F. A key part of our strategy is investing, aligning and integrating our data and digital capabilities to truly advance our scale everyone to the company and gain the financial economics of a high margin recurring revenue opportunity that further supports high value client solutions.

Speaker 3

Everyone. This Streetlight acquisition is an important step in this direction. With that, I'll turn the call over to Bob Pergotta to provide more detail by line of business.

Operator

Everyone. Thank you, Steve. Moving on to Slide 7 to review Critical Mission Solutions. During the Q1, our CMS business continued its strong performance with total Equilog increasing 11% on a pro form a basis to $10,800,000,000 driven by strategic new wins in space, everyone to Cyber and Intelligence. Our CMS strategy is focused on creating resilient revenue growth and margin expansion by offering technology enabled solutions aligned to critical everyone.

Operator

Three market trends that we see offering continued strong growth this year include stateborne ISR, Edge Analytics everyone in Intelligent Asset Management. Beginning with Space ISR, our military leaders contend that future conflicts will be won by those with an information advantage, everyone. Enabling the ability to outpace, outthink and outmaneuver our near peer adversaries across multiple domains land, sea, air, FCC's Cyber and Increasing Lease Space. Low orbiting surveillance satellites can collect data much more quickly than airborne ISR, everyone. Covering 35 fold the number of miles per hour.

Operator

These smallsats with radio frequency synthetic aperture radar everyone to provide time critical intelligence in support of commercial and military missions. Jacobs continues to develop its advanced payload production and integration capabilities, everyone. With our recent successes, along with the integration of BlackLink's innovative software platforms, everyone. We have unlocked the opportunity to create a potential $500,000,000 annual recurring space ISR business longer term. Also during the quarter, Jacobs won a 36 month contract to provide state of the art digital aerial imagery data that will be used to enhance precision agricultural Ericsson in the Midwestern United States.

Operator

The services will be provided using KeyW technology called GeoPod, which is a scalable, a highly agile airborne imagery system. Moving on to edge analytics, data is often utilized in challenging and unlikely places everyone, like the International Space Station, a military satellite, ships at sea, factory floors, water purification plants, traffic lights and neighborhood pharmacies. Everyone. Data might traditionally reside in a data center or cloud, but many important decisions need to happen on the edge. Our Q2 and full year 2018 financial results.

Operator

Everyone. Now in the area of intelligent asset management, we're continuing to build on the solutions we developed with NASA Centers everyone and have now deployed at multiple U. S. Navy installations. Typically, these programs range from $250,000,000 to $300,000,000 over 6 to 8 years.

Operator

Everyone. We see a growing pipeline of opportunities that span across DoD, the intelligence community and commercial clients. The value for our clients is increased uptime and availability of the facilities at lower total lifecycle costs achieved through targeted use of predictive analytics, while simultaneously upscaling the workforce at the mission critical complex installation. Everyone. In summary, we see solid demand for our solutions in 2022 despite the headwinds of the continuing resolution, everyone, which will likely get extended through March.

Operator

Although we are seeing some funding push outs impacting our cyber intelligence and defense clients, everyone. There are pockets of new funding across our diverse U. S. Government customer base as well as in commercial sectors like telecom where 5 gs continues to advance. Every CMS sales pipeline remains robust with the next 18 month qualified new business pipeline remaining at $30,000,000,000 everyone, including $10,000,000,000 in source selection with an expanding margin profile.

Operator

Now on Slide 8, everyone. I'll discuss our people in place solutions business. We started the fiscal year with strong financial performance resulting in 10% year over year backlog growth. Everyone. I will discuss our results across 4 areas, including climate response, supply chain diversification, everyone to the operator to discuss our financial results.

Operator

Starting with climate response, everyone. Opportunities continue to increase related to energy transition and this has resulted in growth across our end markets and client sectors, everyone, notably for grid resiliency, green hydrogen and renewable energy generation. Most recently, Jacobs was selected as a program management our partner to Pacific Gas and Electric on their multiyear electric undergrounding program, the largest of its kind in the U. S. Everyone.

Operator

The ambitious program will bring 10,000 miles of power lines underground to mitigate wildfires in and near everyone to the next stage. Jacobs will provide a global interdisciplinary team as well as advanced technology approaches that draw on more than 30 years of experience with PG and E and other large complex undergrounding programs like SudLinks in Germany. This important win also leveraged our subject matter experts in PA for yet another EptSynergistic Win together. With our recent award at the Pembroke Power Station in the UK, we are building on our portfolio of industry leadership in the area of hydrogen based power. And we've been successful with multiple awards related to solar and wind renewable generation projects Eric in Wyoming and Australia.

Operator

Moving to supply chain diversification. As a result of the global supply chain challenge, everyone. All sectors in our Advanced Facilities business are in growth mode with semiconductors, life sciences and electric vehicles leading the field. Everyone. And across these sectors, our ability to leverage our global integrated delivery platform and data centric execution on these complex facilities everyone who is a clear market differentiator.

Operator

Our solutions include significant wins with an Asia chip manufacturer, expanding capacity in North America, our continued support of Intel with additional facilities, including new builds in the U. S. And Jacobs was awarded the delivery of the first F. C. D.

Operator

Data center building for a major colocation client in the Southwestern United States. In Health and Life Sciences, everyone. We recently won a project with Spark Therapeutics, a Roche Pharmaceuticals company to build a gene therapy innovation center in downtown Philadelphia everyone to research, develop and manufacture state of the art products. Jacobs continues to deliver sustainable facilities across life sciences everyone. Like Fujifilm Diosynth Biotechnology's new large scale cell culture facility in North Carolina, the largest of its kind in North America everyone with the goal of 100 percent clean energy utilization and cutting edge waste disposal and recycling system.

Operator

Everyone. This is a great example of projects that enable us to deliver on our purpose of creating a more connected sustainable world. Critical healthcare for thriving communities is central to our purpose and our teams are working with clients to advance outcomes, everyone, including design of a mental health facility serving communities in Western Sydney, recent completion of a state of the art surgical center in Central Florida everyone to the next stage of the year. Moving to infrastructure data solutions, our clients with technology enabled solutions through enhanced analytics and insights. We are also ideally positioned to deliver unparalleled value to the transportation everyone's call.

Operator

We will now begin the call to questions. Thank you, operator. Thank you, operator. Everyone. In the U.

Operator

K, we are expanding our support of climate risk mitigation and multi community resiliency for the Environment Agency through continued innovation of our proven our proprietary digital technology flood model. Additionally, as part of the first water breakthrough challenge, everyone. We provided technical support to Anglian Water and United Utilities, which resulted in innovation awards in the area of artificial intelligence for system operation everyone and Climate Resilient Solutions. Touching on infrastructure modernization, NEOC in the Kingdom of Saudi Arabia is a unique every Greenfield opportunity where Jacobs is delivering strategic planning and consultancy services to build towards a net zero future. Everyone.

Operator

In the U. S, we are supporting clients on major programs and projects to align with capital funding and investment plans. We were selected for these awards based on our industry leading implementation and long term delivery success. Specifically, Jacobs was awarded the next phase of a major water treatment facility in North Texas, the new Tollway Ship Channel Bridge in Houston, Denver International's airport 7th runway expansion and a critical win with our long time customer, the New York Metropolitan Transportation Authority. In summary, our global capability and innovative solutions have continued to differentiate Jacobs everyone and provide confidence in the strength of our business based on early positioning with our clients and longer term global infrastructure stimulus.

Operator

Everyone. Turning to Slide 9, let's review our PA Consulting business. As Steve mentioned, PA continues to significantly outperform. Everyone. Their unique combination of outcome driven strategic and digital consulting means that they are able to capitalize on the world's our current megatrends of agile working, climate change, human health and safety and digital transformation.

Operator

Everyone. As an example, their clients' focus on hybrid working is creating new opportunities for PA everyone to the company's leadership and resilience offering in a range of sectors, including financial services and life sciences. Everyone. Digital Consulting remains PA's broadest technical capability supported by increases in the last year in data science, analytics and AI. Everyone.

Operator

Aligned with this, PA continues to add to its technology portfolio with offerings such as OakDoor, a data diode, which provides a new level of security for highly sensitive data even for the most sophisticated segmented networks. Everyone. PA has partnered with U. S.-based medical device startup, BearPack Medical, to create the PASIO pump drainage system, everyone to the U. K.

Operator

And the U. K. Government E. A. And has secured 2 new contracts for smart metering and electronic monitoring services.

Operator

In the private sector, FDA successfully completed 2 projects with U. S.-based commercial partners. The first with Rhea LLC is to develop a new air distribution platform to Efraim, material shortages and system installation challenges facing the homebuilding industry and the second with Peak Origin, a food startup everyone to validate and launch an innovative business model to expand market opportunity. PA continues to be an exciting part of Jacobs portfolio everyone into the crucial part of our new strategy as we continue to grow in the consulting and advisory space. Over to you, Kevin.

Speaker 4

Everyone. Thanks, Bob. Now turning to Slide 10 for a financial overview of Q1 fiscal 2022 results. Everyone. Gross revenue was flat year over year, driven by a decrease in pass through revenue, with net revenue up 6% everyone and down 3% pro form a for acquired revenue.

Speaker 4

Pro form a net revenue growth was impacted by the timing of large CMS wins everyone and PMPS Americas customers evaluating investments from the recently passed U. S. Infrastructure bill. I'll explain these dynamics a Eric further during the review of the lines of business performance. Adjusted gross margin in the quarter as a percentage of net revenue was 27.4%, everyone to the company's Q4, up 430 basis points.

Speaker 4

Consistent with the last few quarters, the year over year increase in gross margin was driven by a favorable revenue mix Eric in both PMPS, CMS as well as the benefit from PA Consulting, which has a strong accretive gross margin to the total Jacobs portfolio. We expect gross margin as a percentage of net revenue to remain in the 26% to 27% range everyone for the remainder of fiscal 2022. As we execute against our strategy to drive a higher technology and consulting revenue mix, everyone to discuss our financial results. Longer term, our gross margins will expand. Adjusted G and A as a percentage of net revenue was up year over year to 17%.

Speaker 4

Everyone. Within G and A, we saw an increase in medical costs higher than our expectations, indicating some pent up demand for medical care near the end of the annual plan period, which Eric Gens on December 31. GAAP operating profit was $177,000,000 and was mainly impacted by $72,000,000 largely non cash charge associated with a strategic reduction in our real estate footprint, everyone, as well as $47,000,000 of amortization from acquired intangibles. The real estate downsize is a result of our ability to our efforts to further leverage technology as we adapt to our new strategic ways of working. We are finding that our teams enjoy this flexibility everyone and we continue to see productivity increases in this regard.

Speaker 4

Adjusted operating profit was $308,000,000 up 19%, everyone, driven by PA posting strong double digit growth in operating profit during the quarter versus their year ago figure. Our adjusted operating profit and net revenue was nearly 11%, up 110 basis points year over year on a reported basis. GAAP EPS from continuing operations rounded to $1.03 per share and included a $0.41 charge Eric. Related to the previously mentioned downsizing of our real estate footprint, a $0.23 charge related to our amortization of acquired intangibles, every $0.05 of transaction and other restructuring costs, which continue to trend significantly lower everyone and a positive $0.16 tax benefit in the quarter, effectively lowering our expected adjusted tax rate for the year to approximately 22%. Evercore.

Speaker 4

PA's continued strong performance contributed $0.23 of accretion, net of incremental interest. Everyone. Jacob's consolidated Q1 adjusted EBITDA was $310,000,000 and was up 11% year over year everyone and represented 11% of net revenue. Finally, turning to our bookings during the quarter, we posted a robust book to bill ratio of 1.4 times Efraim for Q1, driven by strength in both lines of business. The strong booking performance positions us well for the developing growth momentum we expect everyone over the remainder of fiscal year 2022.

Speaker 4

Regarding our LOB performance, let's turn to Slide 11. Everyone. Starting with CMS, Q1 2022 revenue was down 10% year over year and 12% on a pro form a basis. Every quarter. CMS revenue growth continued to be impacted by the contract run off of the large low margin procurement contract and timing related to our transition on another large our DOE contract.

Speaker 4

The combined year over year impact of the two contracts was approximately $220,000,000 Eric. When excluding the contract runoff, pro form a CMS revenue growth was up 5%, indicating a strong underlying positive growth profile. Everyone. As a result, we expect CMS Q2 revenue to show solid growth with second half twenty twenty two revenue growth accelerating further everyone as recent new wins in backlog begin to burn. For the full fiscal year, we expect reported revenue growth to be above 5%, everyone.

Speaker 4

While portions of our CMS portfolio are seeing some headwinds associated with unresolved continuing resolution in Washington, Eric. The diversity and strength of our balanced portfolio will more than offset that and drive solid organic everyone. CMS Q1 operating profit was $111,000,000 up 1%. Eric. Operating profit margin was up 110 basis points year over year to 9.6%.

Speaker 4

The improvement for the everyone. Our quarter and operating margin was driven by our strategy to focus on higher margin opportunities across the business everyone, as well as the timing related to transition of our large DOE contracts. We expect operating profit margin to remain in the 8% to 9% range everyone to the balance of fiscal 2022, but improve longer term as our revenue mix from higher margin wins improves. Eric. Moving to PMPS, Q1 net revenue was up 1% year over year.

Speaker 4

Our Advanced Facilities business net revenue growth was up double digits year over year, Eric, driven by the investments in the semiconductor supply chain. We expect advanced facilities to further EFS accelerate its growth throughout fiscal 2022. Our international business also had strong double digit year over year growth, everyone, driven by more steady government funding and a favorable Q1 of fiscal 2021 year over year compare. Everyone. For the remainder of fiscal 2022, we expect solid mid single digit net revenue growth for our international business.

Speaker 4

Everyone. Moving to PMPS Americas, current revenues remain soft due to the delayed approval of the infrastructure bill. Everyone. However, we are beginning to see some projects related to the infrastructure bill enter into our pipeline. Everyone.

Speaker 4

Our first quarter bookings and rising backlog provide us confidence that the Americas business will show sequential growth as we work through the balance of our fiscal year everyone to the Q1. PMPS Q1 operating profit was down 2% year over year with a 13.2% operating profit margin, everyone, driven by increased G and A expenses as we remain committed to strategic investments that position us for the projected acceleration everyone in our business longer term. In terms of PA's performance, PA contributed $290,000,000 in revenue and $63,000,000 everyone to the operator. Q1 revenue grew 21% year over year in both U. S.

Speaker 4

Dollars and pound sterling. Everyone. Q1 adjusted operating profit margin was 22%. On the next slide, I will provide an additional overview of PA's financial profile. Everyone.

Speaker 4

Our non allocated corporate costs were $58,000,000 up year over year and slightly higher than our expectations, everyone. Driven primarily by the increases in medical costs. We still expect non allocated corporate costs to be in the range of $200,000,000 to 2 $50,000,000 for fiscal 2022. Moving to Slide 12, we are approaching the year since we closed this every 25% investment in PA Consulting and their performance has exceeded our expectations. PA Consulting provides a unique combination everyone of high value strategic and digital consulting services to a diverse group of public and private clients.

Speaker 4

The exposure to these high growth sectors is reflected in the our company's ability to compound high double digit revenue growth, while maintaining operating profit margins well above 20%. Interestingly, U. S. Publicly traded consultancies that have this type of financial profile are valued at more than 20 times adjusted EBITDA, Eric, indicating that PA's performance profile offers upside to Jacobs' current valuation. At our upcoming investor event, we will provide further insight everyone into PA's growth strategy.

Speaker 4

Turning to Slide 13 to discuss our cash flow and balance Erika's strong improvement, down 8 days year over year. And the quarter's cash flow included a $55,000,000 cash payment Efrain for COVID related deferred FICA tax payments. Next quarter, we expect free cash flow to be impacted by PA's cash everyone's comments associated with their year end performance, higher cash taxes and an uptick in our DSO figures given some discrete items that favorably impacted our Q1 results. Given a strong Q1 free cash flow performance and structural improvements in our collection processes through our focused every 2020 3 initiatives. We see increased conviction of achieving our one time free cash flow conversion target.

Speaker 4

Everyone. As a result of the strong cash flow, we ended the quarter with cash of $1,200,000,000 and a gross debt of $3,100,000,000 resulting everyone to the company's financial results and $1,900,000,000 of net debt. Our pro form a net debt to expected adjusted 2022 EBITDA is approximately 1.3 times, everyone to the operator to discuss our financial results. Finally, given our strong balance sheet and free cash flow, everyone. We remain committed to our quarterly dividend and we recently announced an increase of 10% to $0.23 per share.

Speaker 4

Everyone. Now I'll turn it back over to Steve.

Speaker 3

Thank you, Kevin. Our purpose to create a more connected sustainable world has never been more relevant than now everyone to the operator for the call. As advances in data analytics and edge computing power are unlocking our ability to deploy innovative technologies related to climate change, infrastructure and national F. J. J.

Speaker 3

Our proactive portfolio management to align ourselves to these long term secular growth opportunities has provided us the ability to grow under multiple economic scenarios and even during the pandemic. We are now entering a stage where we are experiencing growth across all of Jacobs everyone to the operator for the

Operator

Q1 of 2019. We expect accelerating top line growth

Speaker 3

throughout the rest of this fiscal year. We are maintaining our fiscal 2022 outlook for adjusted EBITDA to Epti in the range of $1,370,000,000 to $1,450,000,000 and our adjusted EPS outlook of $6.85 to 7.45 everyone. Beyond the current fiscal year, our sales pipeline and robust end markets indicate continued strong performance. As I stated earlier, we anticipate approximately $10 EBITDA of fiscal 2025 with the potential for upside driven by deploying additional investment in our growth accelerators of climate response, everyone to the operator for questions. Operator, we'll now open the call for questions.

Speaker 4

Everyone.

Speaker 1

And your first question comes from the line of Jamie Cook from Credit Suisse. Your line is open. Everyone.

Speaker 5

Hi, good morning. I guess one question, understanding well, congrats on the win on CMS in terms of the award, the Space Award. But everyone. And at what point I know you said margins this year sort of in the 8% to 9%. At what point do you think CMS margins can everyone.

Speaker 5

When can you start to narrow the gap between CMS and PTS margins? And then I guess my second just follow-up question. Obviously, there's been a lot of news about semi CapEx from some major customers. Intel announced some pretty sizable numbers a couple of weeks ago. If you could just sort of frame the opportunity for Jacobs as it relates to that and when we could start to see that in numbers?

Speaker 5

Thanks.

Speaker 4

So, let me take the first part for sure, Jamie. This is Kevin. Everyone. On the CMS margin profile, what we're going to be seeing in the last three quarters of this year is the ramp up of our large Idaho Air Liquide, which is, as you know, has a slightly lower margin profile than the balance of the business. So that's what's Eric.

Speaker 4

Creating the 8% to 9% kind of figures that we talked about for the balance of the year. As we go into 'twenty three and beyond though, we really do believe that Eric. The ramp up of the satellite work and various other items that are in backlog and or in the pipeline, which we expect some success on, everyone. We'll result in us being able to start to build that margin profile up again, hopefully beyond 9% in 2023.

Operator

Jamie, on the semiconductor side, clearly, it's a growing part of our overall portfolio. We've everyone. We've been in the space for over 20 years and the customer that we've kind of been on the forefront of is in fact Intel and Evan. I'm proud that we could even announce that for years that we couldn't previously. So, you will start to see it in the numbers as it becomes even a bigger part of our portfolio.

Operator

Herb. But I think the good news is that as Intel diversifies not only in the U. S. But outside the U. S, we're right there with them everyone as their critical technical and engineering partner.

Operator

So that's going to be a big piece of our business.

Speaker 1

Everyone. Your next question comes from the line of Jerry Revich from Goldman Sachs. Your line is open.

Speaker 3

Everyone. On Slide 16, you folks laid out a $5,000,000,000 ESG Solutions everyone's revenue business. I'm wondering if you wouldn't mind just fleshing out the major components. I know water is about $2,000,000,000 or so. What are Adam.

Speaker 3

What's the growth cadence that you're looking for in those lines of business Eric. 2020 timeframe. In other words, how back end loaded is that growth outlook that you lay out on that slide? Thanks. So, we're going to this is going to be a big topic for us coming up in Investor Day, after our investor event, Jerry.

Speaker 3

So not to deflect the detailed side of your question, but I think we're going to lay all that out It's going to be pretty exciting. It's unfolding now every quarter. I mean, the wins that everyone. We talked about Bant mentioned this first ever Jacobs' opportunity to do the first ever inductive charging our system on a public road in the Midwest is a great example. What we're now doing in the U.

Speaker 3

S. And Europe everyone to address resiliency and renewable energy logistics with underground cables, The PNG one being the specific opportunity, green hydrogen, we've got a huge wind program, several big huge wind programs across the globe. These are all unfolding now and we'll be ramping up that number that you quoted every quarter as we proceed. So we're going to get into that detail, but it's everything from decarbonization, energy transition, resilience, mitigation, Eric. It's and we'll be spelling out some specific growth targets during the Investor Week.

Speaker 1

Everyone. Your next question comes from the line of Josh Sullivan from The Benchmark Company. Your line is open.

Speaker 2

Him. Hey, good morning. Thanks for taking the question. Within the Rapid Solutions and the space assets you're building out, Eric. Can you just help us break down those verticals and what you're thinking about codable adjustable market here?

Speaker 2

And then relatedly, that aerial imagery every data contract, I think you said on the GeoPod. Can you just expand on that opportunity and the customer set there as well?

Operator

Sure. So Josh, the first part of the question is that if you look at kind of the cyber spectrum Eric and then how it pertains to the overall ISR approach. I'd kind of break it down into 4 main areas Eric. On readiness operations, insights and then new product development on creating platforms in order to even everyone to provide more security or more readiness or more insights is kind of how we look at it. And over the years, the acquisitions that we've done Eric.

Operator

So I think that that is something everyone that is going to continue to grow and put this in multiple parts of that value chain in the ISR field. Eric. On the second part around GeoPod and what we're doing on the geospatial side, that really is an agricultural there's clearly all kinds of applications as it pertains to infrastructure. Edward. The wind that I was referencing is the commercial client that looks at the whole kind of every agricultural profile of right now the U.

Operator

S, but we have these applications elsewhere too and really helps on weather patterns and how the whole agricultural industry can be more efficient as The effects of almost the previous question, climate change come into play. So it's a nice kind of coordinated

Speaker 1

everyone. Your next question comes from the line of Chad Dillard from Bernstein. Your line is open.

Speaker 6

Hi, guys. Good morning. I everyone. If you can talk about a little bit more about straight line, discuss cross selling opportunities, how we should think about the sales cycle about this product him. How long is it and you are doing the project life cycle to do discussions kickoff?

Speaker 3

Yes. So let me start, everyone. I think what's important about Streetlight is we've been doing business with them for the last 6 years. So we have a lot of experience with them and have proven our success. They are a validated capability, trusted, especially in the DOTs, Department of Transportation here in the U.

Speaker 3

S. Eric. Although they've been focused on a handful or so of these the property of transportations directly and now what we bring is the everybody to unleash that because we're one of the leading players of transportation, not only in the U. S. But globally.

Speaker 3

The whole opportunity Efreet. Streetlight is it's a multimodal capability, which is unique in the industry. So they're accessing data from everyone. Mobile devices, connected vehicles, geospatial, IoT sensors, and then they have a very unique process technology and everyone. With very strong algorithms and being able to create data and visible insights that will lead to climate change solutions and being able to move infrastructure to underserved communities and a whole host of infrastructure needs in the transportation sector.

Speaker 3

Eric. And then specifically from a Jacobs standpoint, the big opportunity is that we see the opportunity to work this technology into other infrastructure sectors where we're industry leading like water, environmental, building environment. Eric. We are able to co develop new products with them, bring this internationally, especially in areas like U. K, where we're a major player everyone.

Speaker 3

And so we see a tremendous opportunity as the reason why Eric. We expect greater than 30% revenue growth in this business over the next several years per year.

Speaker 1

Everyone. Your next question comes from the line of Andy Kaplowitz from Citigroup. Your line is open.

Speaker 7

Hey, good morning, guys.

Speaker 1

Good morning. Everyone. Good morning. Can you give

Speaker 7

us a little more color on how you expect CMS to trend over the year? I know, Kevin, you said everyone. No, still up over 5% for the year. I think that's just a little bit below your guide from last quarter. Is it possible to Eric.

Speaker 7

Quantify the impact of the Sierra's uncertainty on your Q1 revenue? And have you seen any incremental interruption in Q2 Eric from Omicron or supply chain. And do you need to display relatively significant acceleration revenue to make your guidance, so you could just talk about your confidence in that? Eric.

Speaker 4

Yes, Andy, we feel pretty darn confident actually. There's a couple of things that are going on. FX having fallen off the year ago comparables to a large extent. So by default, that underlying growth that we're showing everyone. Actually in Q1 of 5% is going to do nothing but get better as it relates to the numbers.

Speaker 4

So while the Eric. Kind of the headline number was the fall off in revenue. The underlying health of the business is at that number we talked about 5%. Eric. So you got the ramp up of the Idaho project, which is going to be a substantive build in Q2 and then 3 and 4 as well.

Speaker 4

Eric. And look, I think the continuing resolution is impacting the piece of the portfolio that you would everybody. We expect it primarily in the areas of, let's call it, cyber intelligence communities, but that while that's an important part of our our portfolio. It's not the biggest part. And so, we're seeing some slowdown there, but we also see backlog and wins everyone just waiting to be executed against and we see all of that being able to happen, little less in Q2, but certainly Q3 and Q4.

Speaker 4

So the AMP is certainly robust in the remainder of the year and especially in Q3 and Q4.

Speaker 1

Everyone. Your next question comes from the line of Steven Fisher from UBS.

Speaker 2

Eric. Great. Thanks. Good morning.

Speaker 8

I guess related to the P and PS segment, I know there Eric. Typically some seasonal headwinds in Q1 relative to Q4 of the prior year. Everyone. I guess the organic growth seemed to be relatively steady. I'm wondering is there how did that compare to your expectations in the quarter?

Speaker 8

And everyone. Is there any evidence you can give us today that the Americas design business growth rate is actually accelerating now on a sequential basis or is it

Operator

Yes. So Steve, everyone. I'd say 2 things. Yes, the second part of your question first, we do see a growing pipeline in our Americas infrastructure business Eric. And that's coming through in the bookings.

Operator

And so talk about the backlog growth for the entirety of the yellow everyone. Our design business in the U. S. Specifically around infrastructure probably led the way on that backlog growth that we saw. Everyone.

Operator

So clearly on the vape business, without even the infrastructure bill, we're seeing the growth there. And then as the infrastructure bill, we're starting to see some tailwinds coming in at least on a project basis from that too. So, we're positive on that front. From a a seasonality standpoint. I'd say that it goes back to what Kevin said earlier.

Operator

We saw growth. We also saw some costs come in Eric with regards to medical costs and otherwise, as well as preparation for people everyone that we know are going to be full utilization as we progress the year. So we like what we say.

Speaker 4

Everyone. Just to maybe add a little bit there is that you talked about sequential numbers and we would expect that Eric. Q1 of the year is going to be the low point for the Americas business and we will start to see sequential growth going off of those numbers through the balance of the year.

Speaker 1

Everyone. Your next question comes from the line of Sean Eastman from KeyBanc Capital Markets. Your line is open.

Speaker 2

Everyone. I just wanted to come

Speaker 9

back to the satellite payload technology award in the quarter. Eric. I believe this is one that you guys had highlighted as sizable prospects, but Eric. Maybe the more important element around it was that it was a platform for margin accretive growth in CMS. Eric.

Speaker 9

Could you maybe refresh us on that dynamic? Obviously, if you could put numbers on it, that would be great. But Eric. I just wanted to check back in there and make sure we understand the significance of that win.

Operator

Thank you.

Speaker 3

Yes. Look, I think This is the sort of anticipated win and we're very limited in what we can talk about because of the classified nature. Eric. It's got a phasing approach to it, but this was the critical phase to win. And so now the momentum is going to start to build.

Speaker 3

Eric. And again, we're going to provide some more information during Investor Week. But what we see is that the way this thing FERC and Phase over the next several years. And what it's got us into now is an opportunity to create a $500,000,000 Eric's Rapid Solutions business. And we'll provide some more details of how we see that sort of unfolding when we get to Investor Week.

Speaker 4

And that starts to happen primarily in 'twenty three, the build on the project. So the ramp will He likely mostly in 23.

Operator

To his other client.

Speaker 1

Your next question comes from the line of Andy Wittmann from Baird. Your line is open.

Speaker 8

Great. Thanks guys for taking my question. I guess I just everyone. I want to touch base with you and get your thoughts on the labor market and your ability to find and keep talent today. Certainly, this is many people's minds and I wanted to understand how you're dealing with that today, what you're seeing in that marketplace And if there's any net effect on the margin performance this year that you can discern from the rapidly changing inflationary labor market.

Operator

Yes, Andy, it is a tough market and but we've I think the culture priorities that we've been Eric. Over the 5 plus years is really starting to well, it has been paying dividends, but it's continuing to be on the forefront. So, Yes, there are challenges. Our attrition levels are remaining actually pretty steady. Everyone.

Operator

And we're confident that we'll continue to be able to grow despite those labor challenges. The other part I would say is that This is where the globality of our business really, really makes a difference because we are able to source talent everyone and expertise from our global platforms to deliver solutions locally. And that has everyone. We've really been accentuated and magnified during this period of some labor dynamics. So we feel like we're really well positioned for

Speaker 1

everyone. Your next question comes from the line of Michael Dudas from Vertical Research. Your line is open.

Speaker 8

So for Steve, you announced Streetlight this quarter, Blacklinx Eric's last quarter. I'm sure you'll in library more on Investor Day, but maybe the thought on how what type of again, where you're looking, the size that we've been seeing in the last couple of acquisitions, that's something that investors may look F. C. Going forward unless something sizable occurs and relative to the balance Archie that you have now and certainly adjusting from your current acquisitions, the comfort level you have to leverage, I don't think that's all required.

Speaker 3

Everyone. Look, just to put a perspective on that question because it really is important of what you brought up is that we've We've been involved as a company over the last 5 to 10 years in the NASA intelligence arena on big data and digital transformation intelligent Ipsen. And so now taking that platform and with the acquisitions of PW, Buffalo Group, Blacklinx and Streetlight everyone over the last 3 years or so and then add on top of that our new venture capital strategy of seed investments and partnerships with the likes of everybody. Hawkeye 360 and Microgrid Labs and then a big data partnership ecosystem that we've developed. And everyone.

Speaker 3

Putting that all together, we are now poised and positioned with a large scale capability for transformative data solutions Eric across all of our Jacobs domains. And that is a strategy we're going to continue to build on. In addition to climate, which Ash. We've talked about earlier in this call, this whole data solutions is going to be a big part of what we're going to talk about in the Investor Week and touch on the rest of your Eric.

Speaker 1

Your next question comes from the line of Louie DiPalma from William Blair. Your line is open.

Speaker 10

Steve, Kevin and Bob, good morning.

Speaker 2

Good morning. Good

Operator

morning. Good morning.

Speaker 10

You are How does cyber everyone to the operator. And for context, in December, U. S. Cyber Command created a cross a functional group dedicated to defending U. S.

Speaker 10

Critical infrastructure from cyber attacks. And you obviously have elite everyone

Operator

to the

Speaker 10

Cyber Talent in your Critical Infrastructure division from your acquisitions of EPW and Buffalo Group. So can you discuss I know you'll probably discuss more at the Analyst Day, but how you can everyone to LayerIn Cyber Solutions into your People and Places Solutions division services portfolio.

Operator

Yes. Lou, you must have some superhuman powers on looking at what our deck looks like for the Investor Day, but the answer is yes. Eric. And it really gets exciting when you look at these are algorithms that either index, everyone to the operator to filter or identify areas of risk in any type of data and data sets. And so the application of what we have to the infrastructure world is a natural transition.

Operator

And we've already been starting we've already been working on that now. Everyone. That coupled with partnerships that we have in the marketplace, there's not an infrastructure project right now with major agencies both in the U. S. And the U.

Operator

K, across the world in Australia, where we don't have a cyber component that's with it. Everyone. So we are in process doing that right now for our clients and that's going to become a bigger part of our business as we continue to go forward. As you everything appropriately said. It's a great skill set as cyber threats become as big as any threat that we have.

Speaker 1

Everyone. Your next question comes from the line of Michael Feniger from Bank of America. Your line is open. Everyone. Hey, guys.

Speaker 1

Yes, thanks for taking my question. I recognize you guys are touching and playing in many every verticals right now and moving up the tech curve. The comment that peers are trading at 20 times EBITDA or at least the PA consulting ones, everyone. When I think of capital allocation here for you guys, is it favoring M and A to build out that capability, so So you guys are more in that bucket and that basket? Or do you feel you are already in that basket right now, Eric.

Speaker 1

Your multiples at a discount and maybe buying back shares to close that discount is more appealing. I guess just trying to evaluate if there's going to be more

Operator

Eric. Thank you.

Speaker 3

Well, I think we believe it's a combination, because I do think what you comment on what we've acquired and built both organically and with previous M and A. We feel like we are a large scale player now. And so therefore, our when we wake up every day, our priority is organic growth off of that platform. Secondly, any acquisition we do going forward is going to be everyone to the operator to the alternative of buyback stock. And we've done that in the past.

Speaker 3

We'll continue to do it. Eric. What may have looked like a pretty bold price on some previous acquisitions are now looking amazingly attractive everyone in short periods of time. And PA is a great example. If you just in less than a year, the whole multiple profile everyone.

Speaker 3

Our acquisition is amazingly attractive. I'll just leave it like that. So I think it's going to be a combination of everyone. Going forward that we will continue to invest in Jacobs and look at our stock buybacks. But from time to time, everyone.

Speaker 3

We're going to continue to build out this capability that we're really excited about. And but it has to be a situation where we believe over the course of the first few everyone. We'll all look back and say it was a very attractive price and not overpaying for something just because we got to get bigger. And that's I think we've proven that in the past and we'll

Speaker 1

everyone. And there are no further questions at this time. Mr. Steve Demetrio, I turn the call back over to you for some closing remarks.

Speaker 3

Everyone. Thank you, everyone. We look forward to hopefully having a good engagement during Investor Week with many of you. Take care.

Speaker 1

Eric. This concludes today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Jacobs Solutions Q1 2022
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