Chief Executive Officer at Jacobs Solutions
Thanks, Jonathan. Good day, everyone, thank you for joining us to discuss our fourth quarter and fiscal 2023 business performance and 2024 outlook. Our team has shown remarkable strength, adaptability and dedication and continuing to deliver outstanding results to our clients. I'm proud of our people for continuing to drive our culture of carrying to new heights.
Over the past couple of quarters, we have shared our intention to simplify our business model, optimize our cost structure and accelerate profitable growth and margin expansion. Today marks a key turning point as we boldly move forward. I want to provide an update on our previously-announced intent to separate the CMS business on slide four, before I move on to our fourth quarter results.
As we communicated following a robust evaluation of all opportunities, we are excited to announce the creation of a new leading government services player. Jacobs will be separating our industry-leading government services businesses, Critical Mission Solutions and the Cyber & Intelligence unit of Divergent Solutions by the way of a spin-off to Jacobs shareholders. And then combining those assets with Amentum, through a merger which has been structured as Reverse Morris Trust. This combination is intended to be largely tax-free for Jacobs shareholders.
Turning to slide five. The combination creates a combined government technology services leader within approximately $13 billion in revenue and approximately $1.1 billion of combined adjusted EBITDA including $50 million to $70 million of net synergies, expected to be realized by year two. Jacobs shareholders will own 51% and Jacobs will retain a stake equal to between 7.5% to 12% of the combined company, based on achievement of operating profit targets prior to close. Jacobs will also receive a $1 billion cash dividend subject to customary adjustments, as well as an additional value through the disposition of our retained stake within 12 months of click.
As part of our continued separation efforts, we concluded it was the best, it was best to include the majority of our Divergent Solutions business, including the Cyber & Intelligence unit in the separation perimeter, owing to the strategic synergies, shared cost and operational overlap with CMS. We will retain the infrastructure-related software assets of Divergent Solutions given their strong strategic fit with our critical infrastructure, Advanced Facilities and PA Consulting businesses.
We believe this combination of two premium industry leaders, who share strong operating platforms, high-performance culture and a breadth of expertise offer shareholders the best opportunity to realize the long-term value. The combined business has the ability to drive significant innovation and growth with meaningful cost synergies, added scale and diverse end-market exposure and supported by secular growth trends.
After a comprehensive review of all inbound inquiries, we believe the transaction is in the best interest of the company and our stakeholders. The transaction has been unanimously approved by the Jacobs' Board, as well as the financial sponsors of Amentum and is not subject to any other shareholder approvals. The transaction is expected to close in the second half of fiscal year 2024, subject to customary closing conditions and regulatory approval. For more details regarding the structure of the deal, I invite you to review the materials we published earlier.
Moving to slide six, which shows our multi-year transformation. As part of this strategic separation, which results in a more focused Jacobs, we are concurrently announcing a cost optimization plan to be executed over the next 24 months, during which time we will target over 300 basis points of margin expansion as compared to our as reported fiscal year 2023 results, driving expect -- driving an expected adjusted EBITDA margin of at least 13.8% in fiscal year 2025 for pro-forma Jacobs. Claudia will share more details in her prepared remarks.
Post-transaction, Jacobs will be a well-capitalized, pure-play critical infrastructure and sustainability leader, with a strong balance sheet and significant growth potential. Fiscal 2023 mark records for revenue and free-cash flow generation for Jacobs and we look-forward to 2024 as we began to chart our path forward as two leading independent companies.
Turning to slide seven and Q4. I'm pleased to report another record quarter as measured by both revenue and operating profit. I would like to once again reiterate that this growth is entirely organic. Strong cash conversion remains a hallmark of our business model and remain robust in Q4, allowing us to drive record fiscal year 2023 free cash flow in order to return capital to shareholders, while investing behind our growth accelerators, Climate Response, Data Solutions and Consulting & Advisory.
We recorded a 104% underlying free-cash flow conversion to adjusted net income in FY 2023 on a record year of $837 million in free cash flow generation. We expect to generate greater than 100% underlying free cash flow conversion again in FY 2024, before the impact of restructuring transaction separation cost. Our underlying business and outlook remains very healthy and we continue to be excited about robust growth opportunities in all our end-markets.
Turning to slide eight. Our people and place of line of business delivered accelerating top line growth, with adjusted net revenue up 11% year-over-year and adjusted operating profit up 12% year-over-year. Claudia will provide further details on the significant growth we are experiencing in our global business units. We continue to see widespread positive indicators, with a gross profit and backlog growth of 8% year-over-year. Once again, our pipeline continues to grow faster than our top line, which provides visibility and confidence in our expectation that growth can persist mid to high single-digit organically in FY 2024.
Looking back at FY 2023, I want to highlight the significant achievements of our P&PS business with double-digit organic OP growth in every quarter. Water continues to be a pillar of our business. Now the top 30 wins in the quarter, nine were in the water sector, of those wins, we wanted to highlight two that showcase our digital and data capabilities. Firstly, at the City of Farmington New Mexico wastewater and surface water treatment plant, our data enabled product Aqua DNA is a key part of the solution to provide resiliency efforts and improve energy efficiency.
Secondly, for Boston Water & Sewer commission, we are leveraging our AI model that annualizes assets that are most likely to fail, helping our client create data-driven maintenance and replacement plants. In the energy transition space, Jacobs has been selected as the program manager for the season crop $2.85 effort to decarbonize its steel mill in Duisburg, Germany, with a new green hydrogen power plant. The site is Europe's largest steel mill and the EPRA represents one of the largest industrial decarbonization projects worldwide.
It is also a testament to the diversity of our expertise. In transportation, our largest market, we continue to see broad-based momentum from IIJA related funding. Overall, IIJA related pipeline has increased approximately 20% year-over-year. In Q4, we were selected to lead and manage the ten-year renovation of the Seattle-Tacoma International Airport, international terminal, emphasizing upgrades, enhanced mobility and energy efficiency to position Seattle as a global tourism and business hub.
Internationally, we continue to see high levels of activity in the Middle-East. For example, in climate response, we are providing program management services to the Saudi Arabia National Center for Environmental Compliance. The work forms part of their ongoing environmental remediation program to repair damage to terrestrial and coastal environment. Our environmental expertise is truly global and we continue to see a robust opportunity set related to our clients climate-related challenge.
In CMS we performed very well in Q4 to cap off a great year. CMS Q4 revenue was 7% higher year-over-year and operating profit increased 26% behind 128 bps of margin expansion. It's pipeline and growth outlook remain robust with major award prospects in FY 2024 and minimal forecasted re-compete pursuits. CMS was awarded a new project management resources framework contract with EDF Nuclear Generation, licensee of eight nuclear power stations, which account for approximately 16% of the UK's electricity output.
PA Consulting continues to post strong results with 13% revenue growth and nearly 21% operating profit margin, despite a very challenging macro environment. While we remain cognizant of the weakness that some consulting peers are seeing, we continue to be pleased with strong operational performance delivered by the PA team. Utilization has improved and during Q4, PA announced the appointment of Christian Norris as its new CEO. Christian formerly led PA's life sciences unit is a respected leader, both internally and externally and has creative idea to take the Jacobs partnership with PA to new heights.
For example, the power of our relationship is driving further opportunities as evidenced in our recent award to the Copenhagen Metro framework. Together with PA, we are bringing our enterprise digital tools AI solutions and deep knowledge of the rail sector to support the Copenhagen Metro, as it continues to deliver modern, future-ready infrastructure to meet the city's fast-growing population and urban travel demand.
Our Divergent Solutions operating unit delivered a strong quarter with 3% adjusted net revenue growth and 58% year-over-year growth in operating profit. In the virgin, we are a leader in space, innovation, with the introduction of Mango Two, a revolutionary radio-frequency signal detection system that utilizes cutting-edge AI and machine-learning analytics emphasizing affordability. An example of the leading IP portfolio that reinforces independent CMS as a formidable player in the space arena.
Turning to slide nine. In summary, we are extremely well-positioned for growth across all the sectors we serve, building off our established leadership position and proven track-record of operational excellence. We are excited to turn the page on this next chapter in Jacobs history where we will be creating two leading independent companies.
Looking to slide 10, Independent Jacobs, a leader in the majority of sector in which we operate and a global leader in the overall industry. With today's announcement, we are enthusiastic about the opportunity to further simplify our business structure, optimize our cost base and accelerate growth and margin improvement in the quarters and years ahead.
Now, I turn the call over to Claudia, to review our financial results in further detail.