The paragraph is an introduction to Jacobs' Fiscal Second Quarter 2025 Earnings Conference Call, led by conference operator Krista, and featuring presentations by Bert Subin, Senior Vice President of Investor Relations, along with Bob Pragada, Chair and CEO, and CFO Venk Nathamuni. The call discusses the company's earnings report, projections, and financial details, including highlights of the second quarter results. Bob Pragada mentions significant milestones in separating from their former CMS and C&I businesses, completing equity-debt exchanges and adjustments, reducing debt, and planning a final distribution of Amentum shares to shareholders.

In the second quarter, the company delivered strong performance, with adjusted EPS growing by over 22% and a 20% increase in backlog to over $22 billion. PA Consulting showed positive revenue growth, leading to double-digit operating profit increases. Despite recording a reserve due to a legal matter involving a JV in the water and environmental sector, the company still managed to absorb the impact and achieve significant year-over-year growth in adjusted EBITDA and EPS. The company is optimistic about future growth prospects due to strong demand for infrastructure and consulting services and expects opportunities with the US Department of Defense. The impact from the Department of Government Efficiency has been minimal.

The paragraph discusses the company's financial performance and strategy. Approximately 9% of their total revenue is tied to US federal infrastructure, particularly with the Department of Defense. Adjusted net revenue grew by over 3% in Q2, but was affected by foreign exchange issues and a joint venture matter. Q2 adjusted EBITDA increased by 8%, showing improvement in EBITDA margins. Their adjusted EPS rose by 22% to $1.43. Backlog increased by 20% year-over-year, signaling strong bookings momentum. The company forecasts continued growth in the second half. Their strategy focuses on redefining the asset life cycle and has seen strong growth particularly in Water and Environmental sectors.

In the Water sector, the company emphasizes its full life cycle coverage and proprietary technology. In Q2, it secured a significant cybersecurity contract with Hampton Roads Sanitation District and was chosen by Boynton Beach, Florida, to upgrade water treatment plants to remove PFAS contaminants. These projects aim to modernize infrastructure and address emerging contaminants. In Life Sciences and Advanced Manufacturing, strong growth was driven by significant investments, including a major project with Merck. The company also secured a role as owner engineer for PsiQuantum's quantum computing facility in Australia.

The article paragraph discusses the company's strategic initiatives and financial performance. Jacobs is enhancing its data center capabilities, benefiting from increased global travel and transportation modernization, and focusing on energy security, especially in its transportation segment. They highlight their selection as the owner engineer for the expansion of Denver International Airport as an example of their infrastructure contributions. Financially, their second-quarter gross revenue grew by 2% year-over-year with a 3% growth in adjusted net revenue. They faced foreign exchange headwinds and legal reserve impacts related to a consolidated joint venture, which affected operating profit, though the joint venture partner's share is accounted for in non-controlling interest.

In the second quarter, the company reported an 8% year-over-year increase in adjusted EBITDA to $287 million, with a strong EBITDA margin of 13.4%. Adjusted EPS rose by 22% to $1.43, despite a $109 million pre-tax loss affecting GAAP EPS due to a mark-to-market adjustment in their investment in Amentum. The consolidated backlog reached a record $22.2 billion, up 20% year-over-year, and gross profit in the backlog increased by 15%. The Water and Environmental end market saw 2% net revenue growth in Q2, with a strong pipeline expected to drive mid- to high single-digit growth in the second half of the year. Life Sciences and Advanced Manufacturing adjusted net revenue grew 6% in Q2, exceeding expectations.

The paragraph discusses the company's recent performance and future outlook in various markets. There is favorable demand in Life Sciences and data centers, with expected improvement in semiconductors. Life Sciences and Advanced Manufacturing are anticipated to grow in the year's second half. Critical Infrastructure saw a 2% year-on-year revenue increase, driven by growth in the energy and power sector. Transportation also experienced solid growth, particularly in the Middle East, while growth in CDs and places stagnated due to timing issues. The company is optimistic about future revenue growth in Critical Infrastructure. In Q2, Infrastructure and Advanced Facilities had flat operating profit, affected by a joint venture matter. PA Consulting returned to revenue growth with a 12% increase in operating profit and a 22% margin, driven by strong performance in Energy & Utilities and Life Sciences, and improved public sector spending in the UK. The company notes favorable trends in PA Consulting's backlog and pipeline. The balance sheet remains strong following Q2.

During the second quarter, Jacobs returned a record amount of capital to shareholders without significantly affecting its net leverage ratio. The company reported a negative free cash flow of $114 million for Q2 due to seasonal cash timing events. They repurchased $351 million in shares and completed an equity-for-debt transaction using their stake in Amentum, reducing debt by $312 million. Jacobs ended the quarter at the midpoint of their net leverage target. They received $70 million in favorable working capital adjustments after Q2, which was used to further reduce debt. The company plans to distribute shares of Amentum to shareholders, adding $159 million in capital returns. Jacobs remains committed to returning capital to shareholders through dividends and share repurchases, with $628 million returned in the past two quarters. Their financial strategy supports ongoing business investment and shareholder returns.

The company is on track to potentially return over 100% of adjusted free cash flow in fiscal year 2025, excluding Amentum shares. They plan to continue buying back their own shares and may increase investment in PA Consulting. They reaffirm their fiscal 2025 outlook, projecting mid-to-high single-digit net revenue growth, an adjusted EBITDA margin of 13.8% to 14%, free cash flow conversion over 100%, and adjusted EPS between $5.85 and $6.20. They expect Q3 net revenue to grow 5% to 7% year-on-year, with a significant portion from backlog, and aim for a 14% adjusted EBITDA margin in Q3. The company is managing discretionary spending and is optimistic about its EPS trajectory and profitable growth due to strong bookings and margin performance. Overall, they are positive about the second half of the fiscal year.

The paragraph is an excerpt from an earnings call, where Andy Kaplowitz from Citi inquires about the company's backlog and revenue growth. Bob Pragada expresses confidence in the company's backlog and its potential to deliver growth, mentioning that the macroeconomic environment has led to a longer procurement cycle, but there are no widespread cancellations or execution delays. Venk Nathamuni addresses a legal reserve but refrains from providing details due to its ongoing nature and implications in a joint venture matter.

The paragraph discusses the financial performance and regional operations of a company, highlighting its Non-Controllable Interest (NCI) accounting in a 50-50 joint venture and how it has affected their quarterly results. The speaker notes strong growth in specific regions, particularly in Pennsylvania and the U.S., where their business has seen a nearly 15% year-on-year increase, with solid double-digit growth in backlog. In the U.K., the defense and security sector, particularly with the Ministry of Defence (MOD) and other EU countries, has experienced significant growth, positively affecting the company's prospects for the rest of the year. Additionally, the Transportation and Water sectors in the U.K. are performing well, growing at a mid-single-digit rate. The Middle East is briefly mentioned, and the potential impact of foreign exchange (FX) rates due to the U.S. dollar's recent weakness is noted as a consideration.

The paragraph discusses the financial outlook and operational performance of a company across different regions. In Europe and the UK, the company is not facing significant challenges and may be experiencing a rebound. Growth is strong in the Middle East with strategic program involvement, driven by world events and tourism. FX (foreign exchange) was a negative factor in Q2 but is expected to become a positive or tailwind in Q3 if rates remain stable. Regarding free cash flow, the company usually experiences slower cash flow in the first half of the year, with an expectation of more activity in the latter half to achieve a conversion rate of greater than 100%. Andy Wittmann asks if this will balance out in Q3 or be more loaded in Q4, and Venk Nathamuni confirms the typical seasonal financial pattern.

In the paragraph, it is discussed that Q2 is typically a slow period for cash collections due to payments like 401(k) and taxes. However, there is a positive outlook for cash flow in Q3 and Q4, with expectations of significant improvement, particularly in Q3. This confidence leads to an expectation of free cash flow exceeding 100% for the year. Andy Wittmann inquires about profit margins and the anticipated adjusted EBITDA of about 14% for Q3. Bob Pragada responds by discussing the organization's utilization rates, which were initially down at the start of the year but have since improved to be on par with previous years. Major projects that had early-phase wins in the past are now in more advanced stages, leading to increased utilization rates at the beginning of Q3.

The paragraph discusses improvements in PA utilization and digital business growth attributed to various team initiatives over the past six quarters. The digital business has experienced double-digit growth in its bottom line. Venk Nathamuni highlights their execution success, noting a 13.4% margin for the current quarter and targeting close to 14% for the next quarter, driven by multiple strategic levers like utilization and mix improvements. They are confident in reaching a full-year margin range of 13.8% to 14% due to early-stage implementations and operating leverage. The paragraph concludes with a transition to a question by Steven Fisher regarding a JV project's productivity and performance.

The paragraph discusses a conversation between Steven Fisher and Bob Pragada regarding concerns about the completion of a program. Pragada assures that while he can't disclose specifics, they are well-prepared to address the remaining issues and maintain a low-risk profile. Despite broad concerns about rising construction costs due to factors like steel tariffs, Pragada notes that Jacobs' projects, particularly in sectors like life sciences and data centers, are crucial for clients' business transformation and are less impacted by discretionary spending changes. This context provides potential opportunities for value engineering amid increased costs without indicating a shift in their risk profile.

The paragraph discusses the challenges and opportunities in the water sector, particularly related to clean drinking water and the impact of climate change and natural disasters. It notes delays in projects as an opportunity for clients to explore value engineering and supply chain planning, with PA providing consulting support. Despite some volatility in the quarter, the backlog remained strong. The conversation touches on whether macroeconomic shocks might lead to stimulus spending by government clients, like after the COVID-19 pandemic. Bob Pragada suggests that while it's too early to determine the size of any potential spending, some paused projects, especially with Department of Defense infrastructure clients, are resuming in the second half of the year.

The paragraph discusses the current status of various business programs and projects, particularly in state and local markets, emphasizing that none were canceled but only paused or delayed, and are now resuming, especially in federal infrastructure areas such as DoD. Sabahat Khan asks about reshoring projects in semiconductor and healthcare markets. Bob Pragada confirms early discussions in these markets, notably in life sciences and semiconductors. Clients are considering global supply chains, with projects mainly in the US and Europe, and are now leaning towards the US. Jacobs is involved in the early planning and site selection stages of these projects, which aligns with their expertise and presence.

The paragraph discusses the growth and dynamics in the fast-growing sectors of water and energy power. Bob Pragada highlights the global expansion, driven by trends like grid modernization and electrification, particularly in the US, Europe, Southeast Asia, Australia, and New Zealand. Although currently a smaller component, the energy power sector is experiencing strong double-digit growth, linked to data center developments. The water sector is also reportedly growing uniformly worldwide, with significant projects in the UK, Central Utah, and Southern California contributing to a double-digit growth pipeline. Currently comprising 25% of their portfolio, the water sector is expected to expand further.

In this conversation, Michael Dudas asks Bob Pragada and Venk Nathamuni about their increasing investment in PA. Bob explains that their initial investment was made four years ago using a private equity-style approach with a planned liquidity event between the fourth and fifth year. Now, they see an opportunity to increase their investment due to PA's strong growth, particularly in the U.K. and Europe. This aligns with their goal of redefining the asset life cycle and capitalizing on PA's consulting and advisory strengths. Venk adds that the partnership is strengthening, they have a strong balance sheet, and they are considering increasing their stake in PA, with plans to update stakeholders in the future.

In the paragraph, Chad Dillard from Bernstein asks about the breakdown of drivers for gross profit and backlog growth, specifically whether these improvements are due to self-help measures or product mix, and when the company expects an inflection point. Venk Nathamuni responds, noting that the company anticipates continued growth in gross profit and backlog, with profitability steadily increasing, evidenced by an expected 13.9% EBITDA margin for the year. He mentions multiple strategies, such as enhancing commercial models and global delivery models, to sustain this growth. Bob Pragada adds that the second-half revenue growth is driven by five main factors, particularly highlighting large wins in the Life Sciences segment, including deals with Fuji and Merck, and continued growth in GLP-1.

The paragraph discusses the company's growth and recent successes across various sectors and projects. It highlights specific achievements, such as AMP 8, Jackson, Mississippi, and a win in the West Basin, which contribute to the company's growth. There's a focus on high-bandwidth memory work and international projects, with energy, power, and data centers also contributing to strong results. The company has seen steady growth in transportation globally, including in Southeast Asia, ANZ, and Europe, driven by aviation, highways, and rail work. Venk Nathamuni adds that the recent bookings and wins are leading to 5% to 7% sequential growth in Q3, with Chad Dillard and Sangita Jain discussing further details.

In the conversation, Venk Nathamuni indicates that the biggest margin improvement opportunity for the third quarter is expected in the I&AF segment due to a combination of factors, including growth across the entire lifecycle of certain businesses. They believe absorbing the full effect of the joint venture matter positions them well for anticipated margins in the range of 13.8% to 14% in the third and fourth quarters. Sangita Jain inquires about the backlog, and Bob Pragada confirms that pursuing larger, longer-duration projects is a strategic decision and reflects their longstanding approach to working with clients' capital portfolios, which include both large and small jobs. They maintain a mixed portfolio and emphasize that they are not merely chasing after jobs.

The paragraph discusses a conversation in which Venk Nathamuni and Sangita Jain talk about a balanced, portfolio-like approach to managing clients' capital budgets, emphasizing both immediate and longer-term projects. Jamie Cook then asks questions about PA Consulting and the company's strategy for mergers and acquisitions, as well as guidance on earnings. Bob Pragada clarifies that the timing for PA Consulting remains on schedule, contrary to any earlier impressions of it being accelerated.

The paragraph discusses the strong partnership and collaboration between the parties involved, which is seen as being on track after much effort. It emphasizes the focus on organic execution, client engagement, and shareholder returns. The conversation shifts to financial guidance for Q3, highlighting a comfortable 5% to 7% growth rate and significant margin expansion of 13.8% to 14%. There is also confidence in achieving earnings per share (EPS) targets thanks to revenue growth and margin improvement, despite being mindful of macroeconomic conditions. The dialogue then transitions to a question from Jerry Revich of Goldman Sachs.

The paragraph discusses Jacobs' strong growth in the Middle East and India, which accounted for nearly half of their dollar growth in the quarter. Bob Pragada highlights that the growth potential in these regions is significant and not limited by resources. Jacobs utilizes a global delivery model in the Middle East with a diverse, international team, contributing to this growth. In India, the local talent supports both domestic technology manufacturing and global needs, further driving growth. In the U.S., while some metrics appear flat, the net service revenue is actually growing across various sectors. Lastly, Jerry Revich seeks clarification on project selection, particularly regarding a write-down in water and environmental projects.

In the paragraph, Bob Pragada addresses a question from Jerry Revich about the company’s project risk management. Pragada emphasizes that their project risk doctrine and governance are strong and that issues like write-downs are rare, occurring less than once a decade. He explains that the company has been involved in the project since early conceptualization, working closely with the client and having a positive impact on the community. Pragada expresses confidence in the project selection process and risk mitigation strategies, stating that the portfolio is robustly managed. The call then transitions to closing remarks, with Pragada thanking participants and expressing optimism for the future.

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