The operator, named Audra, welcomes everyone to the Jacobs Fiscal First Quarter 2024 Earnings Conference Call and introduces Jonathan Evans, the VP of Corporate Development and Investor Relations. Jonathan refers to the forward-looking statements, non-GAAP financial measures, and operating metrics on Slide 2 of the presentation. He also mentions a new supplement that consolidates certain information and a change in the company's approach to adjusted net earnings and EPS. The CEO, Bob Pragada, and CFO, Claudia Jaramillo, will provide an overview of recent activities and a more in-depth discussion of the company's financial metrics, balance sheet, and cash flow. Bob highlights the company's priorities of simplifying their business model, optimizing their cost structure, and accelerating growth and margin expansion.

The team at Jacobs has shown resilience and dedication in the face of challenges, delivering better-than-expected results in Q1 while also working on the spin-off and merger of their Critical Mission Solutions and Cyber and Intelligence businesses. The company is also working on creating a leaner operating model to improve profitability and margins. The transaction is expected to close in the second half of fiscal year 2024, and the company plans to offer more information and introduce the combined leadership team later this spring. The cost optimization plan is also progressing well, and the company is confident in their ability to enhance long-term profitability.

In the third paragraph, the speaker discusses the decision to shift some corporate unallocated costs into the P&PS segment, which will have a temporary impact on segment operating margins but will lead to greater long-term profitability. They also mention the strong revenue and backlog growth, as well as improved gross margin. A one-time noncash inventory write-down affected adjusted operating profit, but strong cash flow and free cash flow conversion are expected to continue. The speaker emphasizes that the company's focus is on long-term growth of free cash flow per share.

Jacobs' People & Places line of business showed strong top line growth and executed its strategy of prioritizing profitable growth. The water market, which is a pacesetter for the company, is facing challenges due to water scarcity. Jacobs is a leader in developing solutions to address this issue, and has been selected for multiple projects in the U.S., including a water reclamation facility in Florida and a reclaimed water plant for a semiconductor facility in Arizona.

The company has a strong presence in transportation, with a major project for a high-speed rail and partnerships in the Middle East. In the life sciences sector, they are supporting a major pharmaceutical company and securing new engagements in the Middle East. The CMS division has shown strong performance and is preparing to become an independent company. PA Consulting has also seen growth and has secured new contracts in the U.K. for program management and regulatory services.

The Divergent Solutions operating unit had a solid quarter with 5% adjusted net revenue growth, although profits were impacted by a one-time charge of $15 million due to the merger. Underlying performance was strong and excluded this write-down, with adjusted operating margins exceeding expectations. The company remains well positioned for growth and generating strong free cash flow, allowing them to return capital to shareholders. The call was then turned over to Claudia to review the financial results, which were above expectations and demonstrate the company's ability to meet financial objectives, generate strong free cash flow, and return cash to shareholders. First quarter gross revenue and adjusted net revenue both grew, while GAAP operating profit was $204 million and adjusted operating margin was 9.8%. GAAP EPS from continuing operations was $1.37 per share, including impacts from amortization and other transaction and restructuring costs.

In the first quarter, adjusted EPS was $2.02, up 28% year-over-year excluding certain items. Adjusted EBITDA was $328 million, down 3.1% year-over-year, but would have been flat without the inventory write-down. The effective tax rate of 4.2% benefited from a discrete tax benefit, but going forward, the quarterly effective tax rate is expected to be 26%-27%. Backlog increased 5% year-over-year, with a revenue book-to-bill ratio of 1.12x. In the People & Places Solutions business, adjusted net revenue was up 8.4% and adjusted operating profit was slightly down, but would have grown 7% without cost allocation changes. The Critical Mission Solutions business also saw solid momentum in growth and profitability.

In the first quarter, the company saw a 5% increase in revenue and a 9% increase in backlog. They also improved operational efficiency, resulting in a 63 basis point increase in operating margins. The company's Divergent Solutions segment had a 4.7% increase in adjusted net revenue, with strong execution and operating profit. PA Consulting had an 8.5% increase in revenue, but the ongoing election cycle in the UK introduces potential risks. The company remains confident in their ability to navigate these factors and is targeting a 20% adjusted operating margin for the full year. The quarter was strong for all segments in terms of execution. The company's unallocated corporate costs were $59 million in Q1, but they expect this to decrease to $50 million per quarter or $200 million annually. The company generated strong cash flow of $401 million and is on track to achieve their goal of 100% free cash flow conversion to adjusted net earnings.

In the first quarter, the company repurchased $100 million of shares and plans to continue returning capital to shareholders while maintaining a strong balance sheet and investment-grade credit profile. They also announced an 11.5% increase in quarterly dividends and have seen consistent interest in their solutions. The company remains focused on execution and reiterates their outlook for fiscal 2024, which includes a 9-10% growth in adjusted EBITDA and adjusted EPS.

The company expects higher costs until separation, but anticipates growth in the second half of the year. They have focused on setting up both companies for success and streamlining their operating model. During the Q&A portion of the call, they clarified that the reallocation of SG&A costs into the segment is a mechanism for getting reimbursed for those costs from public sector customers. The total amount for the year will be $17 million, but it will decrease each quarter due to recoverability.

In response to a question about the corporate unallocated reported amount, Robert Pragada confirms that the $59 million reported for the quarter was adjusted for a $17 million increase. He also states that there were no other notable costs included in the corporate unallocated line. Pragada also mentions that the company is making progress on cost optimization and reductions that were identified last quarter. In regards to P&PS, Pragada discusses margin improvement in backlog and gaining better share on higher-margin projects, particularly in early consulting and advisory work. He anticipates that P&PS will see revenue and booking growth in various areas throughout fiscal year 2024.

The speaker discusses the company's current focus on the water market, which has seen a 30% year-on-year growth in bookings. The built environment business, driven by the Middle East, has also seen a 40% increase in bookings and is meeting margin targets. Moving forward, the speaker expects growth in the life sciences sector and mentions ongoing projects with Tier 1 clients. The chip manufacturing market is also expected to see an upswing in a new cycle.

In the manufacturing industry, there has been a focus on developing tools for higher-powered chips driven by AI, leading to early bookings and concept work. The Middle East has been a strong driver for the overall People & Places business, but there are concerns about the U.K. market. The backlog is expected to continue to rise and the company is confident in its year-on-year margin increase. The U.K. market is an area of attention, but overall, the company is performing well. In terms of Divergent Solutions, there has been an inventory write-down, but the underlying margin is good. However, the performance of Divergent Solutions has been inconsistent in recent quarters.

Jacobs' CFO, Robert Pragada, clarifies that the inventory write-down is related to the Cyber & Intelligence business and will not impact the independent Jacobs business. He also mentions that they are working on an operating model for the future and plan to integrate their successes in digitization and digital enablement across all sectors. They are on track with their cost expectations for the year and the $40 million temporary costs and $275 million restructuring costs are still accurate. The $9 million incurred in the first quarter is not the only amount and the remaining balance will be spread out over the next 3 quarters, with more in the first half than the second half.

The company is on track to meet its previously highlighted numbers, with the exception of $17 million in costs that are recoverable. The 14.6% margin for P&PS in Q1 is on the same basis as the previous quarter. It is expected to gradually increase over the next few quarters and exceed last year's margin. The company will report its progress in its financials.

The speaker answers a question about the decline in margin and higher revenues in PA Consulting, attributing it to volatility in client spending and the team's better understanding of variable costs. They also discuss the organic growth outlook, estimating mid-single-digit growth. The next question is about bookings in the People & Places segment, specifically in the semiconductor industry.

The speaker discusses the potential impact of upcoming grants in March on the semiconductor industry. He mentions that these grants will primarily be used for R&D and will benefit tool OEMs. Currently, the business is focused on domestic clients, but there is also potential for growth in India as chip manufacturing shifts from China to India.

The speaker addresses a question about cost reallocation and explains that it will take 12-24 months to fully see the benefits on the P&L. They also mention that they are reiterating their year-on-year margin improvement. The conversation then shifts to the PA business line and the use of AI and its impact on both PA and Jacobs. The speaker notes that the timing and speed of client adoption is affecting the booking cycle, and that Life Sciences is another important end market for the PA business.

PA has been successful in using AI and other knowledge to transform clinical study programs and is also looking at using AI in early-stage drug discovery. This has caused some softness in the near-term due to clients being focused on their own business. For P&PS, the company has been seeing mid- to high-single-digit growth, with a small contribution from the IIJA. The larger rail and highway projects are only about 25% outlaid, so they have not had a significant impact on growth yet.

The speaker, Bob, is discussing the positive news that the 5-year cycle is likely to be extended. The next question is from Bert Subin, who asks about the potential for growth beyond 2024. Bob mentions that their visibility is improving in both advanced facilities and other sectors, and that their growth could potentially exceed their medium-term view of 6-9%. This would likely be driven by winning larger projects in the water sector, as their pipeline growth in this area has continued.

The speaker discusses the potential growth in the water and environmental sector, citing the current focus on water scarcity and the need for both treatment and storage solutions. They also mention the expected increase in margins due to a combination of improved project mix and cost-cutting measures. The call concludes with the speaker expressing excitement for future updates.

The speaker is ending their speech and giving permission for the audience to leave.

This summary was generated with AI and may contain some inaccuracies.