Kevin Berryman
President & Chief Financial Officer at Jacobs Solutions
Thank you, Bob.
And let me turn right to Slide 9 for a financial overview of our third-quarter results. Third-quarter gross revenue grew 9% year-over-year and adjusted net revenue grew 7.5%. Adjusted net revenue grew 8% year-over-year on a constant-currency basis. Gross margin in the quarter as a percentage of adjusted net revenue was 25%, down slightly year-over-year, primarily due to PA Consulting. I will provide additional comments regarding our segments later in my remarks.
Adjusted G&A as a percentage of adjusted net revenue was 14.7%, [Phonetic] over 100 basis points better sequentially and year-over-year, more than offset -- offsetting the lower gross margin. Costs were [Phonetic] well managed due to discipline and actions taken and we are still targeting G&A [Technical Issue] as a percentage of adjusted net revenue to stay well below 16% for the full-fiscal year 2023, improving upon the 16.2% figure realized in 2022.
GAAP operating profit was $270 million for the quarter and included $52 million of amortization from acquired intangibles, other transaction and separation-related costs on restructuring efforts of $38 million and a $1.4 million noncash charge related to decreasing our real estate footprint aligned to our future work strategy. The other transaction separation-related and restructuring costs, a $38 million included three distinct types of costs: the first represents approximately 45% of the $38 million and relates to the restructuring initiative in our PA Consulting business to rightsize the cost structure to align with the company's end-market demands. The second cost represents approximately 35% of the amount and is associated with our initial advisory and other costs associated with the separation of the CMS. Third bucket, which is approximately 20% of the $34 million, is related to the costs of noncash PA contingent equity-based agreements associated with the PA transaction structure [Phonetic] and other miscellaneous incentive costs that were considered part of the total consideration of previous transactions. Excluding these items, adjusted operating profit was $361 million, up over 10% year-over-year.
Our total discrete items for the year excluding the new CMS separation efforts will remain at the $100 million figures that we have forecasted for the year, well below the total figure of $185 million in 2022. Of this $100 million figure, the total noncash impairment costs will total approximately $45 million. Such impairments will be largely complete as we exit this fiscal year. Of course, as we go forward, our costs will now include expenses to be incurred in connection with the planned separation of CMS. I would like Claudia to provide more detail in her prepared remarks.
Our adjusted operating profit to adjusted net revenue was 10.7%, up 30 basis points year-over-year. I'll discuss the underlying dynamics during the review by reporting segment. GAAP EPS from continuing operations was $1.29 per share and included a $0.27 impact related to the amortization charge of acquired intangibles, $0.20 from transaction restructuring and other related costs, a $0.01 noncash impairment charge related to reducing our real estate footprint and a $0.05 adjustment to align to our projected annual adjusted tax rate.
Excluding these items, third-quarter adjusted EPS was $1.82, down 2% year-over-year. Importantly, while down versus the year-ago period, 2022 benefited from the $0.08 cost investment gain associated with the sale of our WatchGuard investment. In addition, in 2023, incremental interest costs of $0.07 have reduced EPS this quarter versus the year-ago figure. The net impact is a $0.15 headwind in EPS year-over-year. As we look ahead to our full-year forecast, with Bob providing an overview of our guidance range at the end of our cost -- call, we expect Q4 EPS to show healthy growth versus the year-ago period.
Q4 adjusted EBITDA was $355 million and was down 2% year-over-year, representing 10.5% of adjusted net revenue. Finally, backlog was up 3% year-over-year. The revenue book-to-bill ratio was at 1 times with our gross margin in backlog, again, improving year-over-year.
Regarding our LOB performance, let's turn to Slide 10, for Q3. People & Places Solutions continues to see solid momentum, delivering strong revenue and operating profit results. Q3 adjusted net revenue was up 9% year-over-year and up 10% in constant currency. Growth was consistently strong across almost all business units, led by Advanced Facilities. Europe continues to see some pressure but was more than offset by strength in the Middle East, Americas and Asia Pacific. Backlog was flat year-over-year, although gross margins [Technical Issue] in the [Phonetic] backlog was up 8% as we continue to focus on improving the quality of work bid and won [Phonetic].
Q3 operating profit was up 13% and 15% in constant currency, driven by strong growth leverage and solid G&A management, resulting in operating profit as a percentage of adjusted net revenue of 14.4%, up 60 basis points year-over-year. We expect year-over-year improvement and strong People & Places operating profit margin and growth to continue in Q4.
Our Advanced Facilities unit, which represents approximately one-fourth of our People & Places growth's revenue and benefits from investments in the life sciences, semiconductor and electric vehicle supply chains, posted a sixth consecutive of quarter of double-digit revenue growth. Despite macroeconomic cross currents, our Tier 1 customers continue to pursue robust spending plans underpinned by long-term demand drivers. The backlog in sales pipeline remains healthy and we continue to be encouraged about the outlook for the segment.
Our People & Places Americas unit reported Q3 operating profits with 10%-plus growth as legislation-driven backlog begins to convert at higher rates. For example, IIJA-related profit is trending nearly 20% ahead of our [Technical Issue] plan. We remain enthusiastic about our overall growth opportunities with double-digit pipeline growth led by water, Cities and Places, and Energy and Power.
Our Q3 International business revenue and operating profit were up high single-digits year-over-year as Asia Pacific and the Middle East continue to be a bright spot in the portfolio, supported by gigacities and strategic water pursuits.
Moving to Critical Mission Solutions. Q3 revenue was up 7% year-over-year and up 8% in constant currency. CMS has benefited from an over 70% win rate year-to-date, and as a result, backlog is up 12% year-over-year. The sales pipeline also remains very healthy as our CMS [Phonetic] positions for strategic growth in its core focus areas of Space, Defense, Energy and Technology Solutions. CMS operating profit and OP margins were both up sequentially and year-over-year, consistent with our previous guidance, with operating profit up 12% year-over-year. We continue to expect operating margins to approximately 8% on a full-year basis as we convert on an IDIQ pipeline of higher-margin opportunities.
Moving to Divergent Solutions. Adjusted net revenue increased 3% year-over-year as we remain focused on higher-margin contracts. This trend should be expected to continue near term before an acceleration in coming quarters as our investments in sales and technology offerings bear fruit. Operating profit margin for the quarter was 9.5%, a sequential improvement as compared to Q2's underlying normalized margin when adjusting for the benefit of a large license sale in the prior quarter. We have increasing confidence that the underlying margin momentum over the past two quarters is durable, and as a result, we continue to expect Divergent's quarterly margins [Phonetic] to approach 10% in Q4.
Turning to PA Consulting. Revenues from PA was up 3% year-over-year with a book-to-bill of 1.1 times, an indication of the company's relative performance to peers driven by their value to clients in a tough economic environment. PA's Q3 operating profit margin was 21.2%, up 270 basis points year-over-year and up over 15% year-over-year. PA Management continues to take action to improve utilization and we expect OP margins to be 20%-plus for the medium-term with potential for longer-term improvement.
Our adjusted unallocated corporate costs were $62 million in Q3, consistent with our guidance. We expect that our quarterly run rate may remain elevated at or above the recent level for a short period of time. In conjunction with the CMS separation, we have initiated a comprehensive evaluation of our cost structure under our more streamlined business model focused on Infrastructure and Advanced Facilities. Claudia will provide her perspective in her prepared remarks.
Turning to Slide 11 to discuss our cash flow and balance sheet. We posted a very strong quarter of cash flow generation, which is indicative of the quality of our earnings despite temporary restructuring and separation-related efforts. Free cash flow was $290 million, resulting in a year-to-date 127% conversion of net income into free cash flow. As a result, we are well-positioned to deliver at or above our anticipated 100% reported and adjusted cash flow conversion targets for the full year.
Regarding the deployment of our free cash flow, we remain agile and opportunistic in repurchasing shares. During Q3, we repurchased $125 million in shares at an average price of $115. We ended the quarter with cash of $1.1 billion and gross debt of $3.2 billion, resulting in just over $2.1 billion of net debt. Our Q3 net debt to 2023 [Phonetic] expected adjusted EBITDA of approximately 1.5 times remains a clear indication of the continued strength of our balance sheet. We remain committed to maintaining an investment-grade credit profile both [Phonetic] today and as a more focused business post our announced CMS separation.
As of the end of Q3, approximately 56% of our debt is tied to a floating rate debt and our weighted average interest rate was 5%. We intend to opportunistically retire floating rate debt in the coming quarters. For your benefit, in the appendix of the 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 will be paid on August 25.
Before I formally transition [Phonetic] the CFO role to Claudia on August 14, I wanted to say a few words on my last earnings call. It has been an honor working with such talented colleagues and witnessing our collective accomplishments over the past eight-and-a-half years. During my tenure, I've observed tremendous growth and transformation within our company, and I am immensely proud of the achievements we have made together. I extend my heartfelt thanks to the Board, Leadership team, and dedicated employees for their unwavering support, passion and commitment to excellence. For our investors, your trust has been instrumental in our success. While my time as CFO comes to an end, I remain confident in the company's bright future and have no doubt that the company is in good hands with Claudia in the CFO role. I also look forward to supporting Bob in my new role as his Special Advisor going forward.
I will now turn the call over to Claudia.
