Kevin Berryman
President and Chief Financial Officer at Jacobs Solutions
Thank you, Bob, and good day to everyone. Turning to Slide 10 for our financial overview of our second-quarter results. Second-quarter gross revenue grew 6% year-over-year and net revenue grew 5%. Net revenue grew 8% year-over-year on a constant-currency basis, a continuation of healthy growth against a tough 10% year-ago comparison. Adjusted gross margin in the quarter as a percentage of net revenue was 26%, sequentially in line with the first-quarter, but down year-over-year. I will provide additional comments regarding our segments later in my remarks.
Adjusted G&A as a percentage of net revenue was 16.6%, approximately flat sequentially, but down 90 basis points year-over-year, more than offsetting the lower gross margin percentage versus last year. While we felt the impact from inflationary pressure, costs were managed well overall to disciplined cost management. We are still targeting G&A as a percentage of net revenue to be stable at 16% for the full-fiscal year 2023.
GAAP operating profit was $290 million for the quarter and included $50 million of amortization from acquired intangibles, a $10 million non-cash charge related to decrease in our real estate footprint, aligned to our future of work strategy and other acquisition deal-related costs and restructuring efforts of $8 million. This deal-related costs are largely incentive compensation that was considered part of total consideration and PA non-cash contingent equity-based agreements associated with the PA transaction structure. Excluding these items, adjusted operating profit was $356 million, up 7% year-over-year. On a constant-currency basis, adjusted operating profit was up 11% year-over-year.
We remain committed to reducing our restructuring-related costs. Consistent with our previous comments, we expect approximately $15 million of restructuring charges for fiscal year 2023. We also expect a total of $50 million to $55 million in non-cash real estate impairment charges over the course of the year as we continue to further execute our work -- future of work strategy. Finally, we expect $25 million of transaction-related expenses for the full-year from deal-related integration and other costs, most of which is performance-based incentives that were factored into our total purchase price consideration for these acquisitions. It also includes the non-cash contingent based equity noted earlier associated with our PA transaction structure. These costs do not include expenses to be incurred in connection with the planned separation of CMS, given the early stage of our process.
Our adjusted operating profit and net revenue was 10.4%, up 20 basis points year-over-year. I'll discuss the underlying dynamics during the review by reporting segment. GAAP EPS from continuing operations was $1.70 per share and included a $0.20 -- $0.26 impact related to the amortization charge of acquired intangibles, a $0.06 non-cash impairment charge related to reducing our real estate footprint, $0.03 from transaction restructuring and other related costs, and a $0.25 adjustment to align to our projected annual normalized adjusted tax rate as a result of the large 1048 [Phonetic] reserve release. Excluding these items, first-quarter adjusted EPS was $1.81, up 5% year-over-year. As we look ahead to our full-year forecast, Bob will provide an overview of our narrowed guidance range later in his prepared remarks. We also note that our Q3 EPS is expected to be relatively flat sequentially to Q2. I would like to highlight that the fiscal year 2022 third-quarter adjusted results benefited from a one-time $0.10 gain on an equity investment. Q2 adjusted EBITDA was $358 million and was up 5% year-over-year, representing 10.4% of net revenue. Finally, backlog was up 4% year-over-year and 5% on a constant-currency basis. The revenue book-to-bill ratio was 1.2 times with our gross margin and backlog again improving tear-over-year.
Regarding our LOB performance, let's turn to Slide 11 for Q2. Our results in the quarter continued to demonstrate the strength of our portfolio and end-market resiliency, enabling us to deliver strong consistent OP growth. People and Places solutions continues to drive our momentum. Overall, P&PS delivered strong revenue and operating profit results, driven by an alignment to the secular growth trends and legislative drivers previously highlighted. Q2 net revenue was up 7% year-over-year and up 10% in constant currency. Growth was consistently strong across almost all business units, although Europe continues to see some pressure. Backlog grew 40% year-over-year, behind a book-to-bill of 1.1 times. Gross margin and backlog was up nearly double digits in constant currency.
Q2 operating profit was up 21% and 25% in constant currency, driven by strong growth and G&A control. Operating profit as a percentage of net revenue was 13.5%, up over 150 basis points year-over-year, again driven by solid revenue growth and continued cost discipline. We continue to expect year-over-year improvement in people and places operating profit margin, resulting in strong double-digit growth and full-year operating profit.
Our advanced facilities unit which benefits from the investments in the life sciences, semiconductor and electric vehicle supply chains posted another quarter of double-digit revenue growth. We continue to monitor the macro demand trends across sectors that impact our advanced manufacturing clients and we continue to see robust demand from our life sciences clients, which comprised approximately two thirds of this business. In semiconductors, the evolving macro backdrop has led some smaller clients to evaluate project timing, but we remain confident in the long duration opportunity ahead for Jacobs. Our backlog and sales pipeline remains robust across a diverse set of customers and as a result, we continue to expect our advanced facilities growth rate to persist against very strong year-ago comparisons.
But people and places Americas unit reported record Q2 profit, which 30% year-over-year growth as our high-quality backlog begins to convert to revenue at improving incremental margins. We remain enthusiastic about our growth opportunities as backlog and sales pipelines remain robust as we compare to a stronger year-ago comparisons. In particular, our water sales pipeline of opportunities continues to shine up double-digits. Our International business Q2 revenue and operating profit were up single digits year-over-year, Asia Pacific and the Middle East continues to grow, driven by strong pipelines and transportation, cities and places and energy transition.
Moving to critical mission solutions, CMS benefits from. highly recurring multi year contracts that requires limited overhead support. The business is aligned to space exploration, national security, nuclear remediation priorities and US 5G telecom investments. Q2 revenue was up 5% year-over-year and up 7% in constant currency. CMS book-to-bill was just over 1.4 times, benefiting from the Kennedy award that we previously disclosed. As a result, backlog is up 8% year-over-year. The sales pipeline also remained strong with $30 billion in new opportunities that we are pursuing. In addition, we are awaiting award on $10 billion in new business opportunities that are in the end game select process. CMS gross profit margins improved sequentially due to mix. CMS operating profit and OP margin were both up sequentially from Q1 consistent with our previous guidance, but down slightly versus the very strong year-ago quarter. We expect operating margins to improve in the second-half of fiscal 2023 with full-year CMS margins expected to approach 8% on a full-year basis as we convert on an IDIQ pipeline of higher margin opportunities.
Moving to divergent solutions. Net revenue declined 3% year-over-year as we focus on quality growth opportunities that will translate into higher margins. We continue to expect net revenue growth to accelerate in the second-half of our fiscal year as we start to see growth from our investments in sales, data solutions and technology offerings. Operating profit for the -- operating profit margin for the quarter was above our corporate average at 11.1%. During the quarter, we recognized a large license sale which expanded the margin by more than 300 basis points. Sales of these types of solutions are now a longer-term financial benefits of our divergent solution strategy and a core offering of the reporting units, although deals of this size should not be expected to recur every quarter. Even excluding the benefits of a license sale, the underlying margin momentum seen in Q2 continued to improve sequentially for our previous guidance. As a result, we expect divergent quarterly margins to approach 10% as we near the end of the fiscal year, the scale begins to further mitigate the impact of the continued investments for growth.
Turning to PA consulting, revenue from PA was up 1% year-over-year in US dollars, but up over 11% in local currency. PA once again reported a book-to-bill over 1 times. We continue to expect revenue growth in British pounds to remain near or above 10% during the second-half of fiscal 2023. Turning to profitability, Q2 operating profit margin for PA was 21.8%, up 370 basis points sequentially due to fixed-price milestone achievements and lower incentive costs. As PA continues to take actions to improve utilization, we expect OP margins to be around 20% in the back-half, relatively close to their year-to-date OP margin performance.
Our unallocated corporate costs were $60 million in Q2, and an increase over our previous run-rate estimate, driven by inflationary pressure and healthcare and digital investments. For the full-year, we now expect our quarterly run rate for the balance of the year and unallocated corporate costs to be in line with our Q2 level, driven by inflationary pressure in healthcare costs and incentive costs.
Turning to Slide 12 to discuss our cash flow and balance sheet. We posted another strong quarter of cash flow generation. This is indicative of the quality of earnings power and cash conversion capabilities. Free cash flow was $97 million, resulting in approximately a 100% conversion of net income into free cash flow for the first-half of fiscal year 2023. As a result, we are well-positioned to deliver our anticipated 100% reported and adjusted cash flow conversion targets for the full-year.
Regarding the deployment of our free-cash flow, we will remain agile and opportunistic in repurchasing shares. We ended the quarter with cash of $1.2 billion and a gross debt of $3.5 billion, resulting in just over $2.2 billion of net-debt. Our Q2 net-debt to 2023 expected adjusted EBITDA up approximately 1.4 times is a clear indication of the continued strength of our balance sheet. We remain committed to maintaining an investment-grade credit profile. As of the end of Q2, approximately 60% of our debt is tied to floating-rate debt and our weighted-average interest-rate was 4.8%. In February, Jacobs completed the refinancing of existing debt and Jacobs inaugural issuance issuance of a $500 million sustainability-linked bond. The bond was priced at a competitive fixed-rate and includes a KPI aligned with Jacobs commitment to increased gender diversity in leadership positions and to substantially reduce our greenhouse gas emissions
For your benefit, in the appendix of this presentation we have included additional detail related to our debt maturities, interest rate derivatives and quarterly interest expense. Finally, given our strong balance sheet and free cash flow, we remain committed to our quarterly dividend which increased 13% year-over-year, and which will be paid on June 23rd.
With that, I'll now turn the call back over to Bob.
