Jacobs Solutions Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to Jacobs Solutions Fourth Quarter -- Fourth Quarter and Full Year 2024 Earnings Conference Call. [Operator Instructions] Thank you.

And I would now like to turn the conference over to Bert Subin, Senior Vice President of Investor Relations. Bert, you may begin.

[Bert Subin, Senior Vice President of Investor Relations at Jacobs Solutions]

Thank you, Krista, and good morning, everyone. Our earnings announcement was filed earlier this morning, and we have posted a slide presentation on our website, which we'll reference during this call. Please note, our 10-K will be filed by no later than our due date of November 26. I would like you to -- I would like to refer you to Slide 2 of the presentation material for information about our forward-looking statements, non-GAAP financial measures and operating metrics.

Turning to the agenda on Slide 3. Speaking on today's call will be Jacob's Chair and CEO, Bob Pragada; and CFO, Venk Nathamuni. Bob will begin by providing an overview of recent activities and highlights from our fourth quarter and fiscal year results. Venk will then provide a detailed review of our financial performance, including commentary on end market trends, cash flows, balance sheet data and our FY '25 outlook. Finally, Bob will provide closing remarks, and then we'll open up the call for questions.

With that, I'll turn it over to our Chair and CEO, Bob Pragada.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Thank you, Bert, and I'm delighted to welcome you to Jacobs at such an exciting time. Good day, everyone, and thank you for joining us to discuss our fourth quarter and fiscal year 2024 business performance. Now moving to Slide 4. We reached a critical milestone on our strategic shift toward a simpler, higher-value and higher-margin portfolio during the quarter as we closed the separation transaction involving our Critical Mission Solutions and Cyber Intelligence businesses, on September 27, 2024, culminating with Amentum successfully listing on the NYSE under the ticker, AMTM.

This strategic shift has been well received by the market, highlighting confidence in our focused direction and reinforcing our commitment to delivering sustained value and growth for our shareholders. Upon closing the transaction, we received $911 million, which was concurrently used to repay existing debt. Additionally, as a part of the transaction, we received a 7.5% equity ownership in Amentum, which could rise to 8%. At the same time, Jacobs shareholders became 51% owners in shares of Amentum and their ownership stake could increase up to 55%.

I want to take a moment to emphasize how important this transaction is for Jacobs. As a more sharply focused company operating in robust end markets with -- strong secular growth tailwinds, we believe Jacobs is in an excellent position to create substantial shareholder value. Our simplified structure, global delivery model and ongoing operating efficiencies, positions us nicely to build on a strong end to FY '24. This is a testament to the dedication and relentless efforts of our employees, whose hard work is paving the way forward for two exceptional companies. I'd like to extend my deepest gratitude and congratulations to each of them for their role in this pivotal transformation.

Turning to Slide 5. We provide an overview of our financial performance for the fourth quarter and fiscal year 2024, with CMS and C&I under discontinued operations. So please note, the results we highlight are related only to continuing operations. Focusing in on the quarter. Total gross revenue increased 4% in Q4, with adjusted net revenue rising 4%. GAAP EPS from continuing operations was $2.38, and includes a positive $1.20 impact from the mark-to-market of our investment in Amentum, netted against amortization of intangibles, as well as a $0.19 impact from transaction, restructuring and other related costs.

Excluding these items, fourth-quarter adjusted EPS was $1.37, marking a 28% increase compared to the previous year. Adjusted EBITDA for Q4 came in at $289 million, which represented a 12% growth versus FY '23. Overall, we are pleased to close out the year with such a positive performance. Looking at the full year, total gross revenue increased 6% with adjusted net revenue rising 5%.

GAAP EPS from continuing operations was $4.79 and included a positive $0.50 impact, related primarily to the net effect of amortization of acquired intangibles and the mark-to-market of our investment in Amentum, and a negative impact of $1.07 from transaction, restructuring and other related costs, which again, were materially driven by the separation transaction. Excluding these items, adjusted EPS from continuing operations was $5.28, marking a 16% increase compared to the previous year.

Adjusted EBITDA for the -- for FY '24 was $1.06 billion, representing a 9% increase versus FY '23. Our trailing 12-month book-to-bill was 1.35 times as our consolidated backlog increased 23% year-on-year in Q4. These are metrics which we [Phonetic] watch closely and we are encouraged by the trajectory we're delivering on, with an extremely strong 1.67 times book-to-bill for the fourth quarter.

When we analyze our backlog, we are seeing this trend across gross revenue and backlog as well as gross profit and backlog, which is a good indicator as we think about our growth for FY '25 and beyond. Turning to Slide 6, and building on my backlog and book-to-bill commentary. I'm excited to report that during the quarter, we continued to deliver substantial wins across the business and across geographies, a testament to our market positioning, deep domain expertise, and long-term trusted client relationships.

As we move forward as a simpler and more focused company, we will be providing commentary on revenue across three key end markets, water and environmental, life sciences and advanced manufacturing and critical infrastructure. These end markets roll up to infrastructure and advanced facilities, which is comprised of our historic P&PS business and the retained portion of Divergent Solutions. PA Consulting remains in its own segment and is unchanged.

On Slide 14, in the appendix, we provide a graphic that depicts our new structure and end-market focus. Moving on to how our end markets are performing. Water and Environmental is demonstrating impressive growth. Water conveyance, water infrastructure, wastewater, potable reuse and efficient asset management are just some of the key drivers of our client spend. And we have been successful servicing demand across these categories with double-digit growth in Q4.

Notably, during Q4, we delivered several key wins, including our appointment by the Los Angeles Sanitation and Environment to provide progressive design build services for the Donald C. Tillman Advanced Water Equalization basins, a critical part of the LA -- of LA's long-term plans to increase recycled water production by 2035. Significantly, this is one of the single largest bookings in the Water and Environmental end market in our company's history. In Life sciences and Advanced Manufacturing, we continue to see robust demand from Life Sciences clients, boosted by GLP-1 investment, and we expect this trend to continue in FY '25.

In Semiconductors, we are diversifying our customer base and expanding our global reach. One example is our recent design -- design win for a new -- test and assembly facility with CG Semi in India. The facility will manufacture advanced and legacy packages for industries such as automotive, consumer, industrial and 5G communications, and facilitate our strategic positioning in India where electronics manufacturing spend is expected to grow meaningfully.

Global investment spending across Life Sciences, Semis and Data Centers is creating a robust backdrop for Jacobs in FY '25 and beyond. Moving on to Critical Infrastructure. During the quarter, we secured a technical project manager role with the Department of Energy Security & Net Zero in the UK. A great example of how we are leveraging our differentiated offering in energy security and transition that demonstrates the power of our partnership and greater collaboration with PA Consulting.

We will provide project management and advisory services along with associated strategic support to the Hydrogen and Industrial Carbon Capture program that includes consulting, end-to-end innovation, design and analytics. We are also seeing continued traction in the Middle East as Saudi Vision 2030 significantly increases the number of opportunities across critical infrastructure.

Notably, during Q4, we announced a new award to lead advisory, design and engineering for the King Salman International Airport, in Riyadh, Saudi -- Saudi Arabia. Our outlook for near- and long-term expansion in the region remains intact and we are seeing signals of strong demand for infrastructure projects across the globe in the early days of FY '25.

In summary, we remain confident in our ability to grow the business and deliver superior execution to meet our clients' expectations. We're excited for the future as a more focused company and look forward to presenting our strategic vision for growth over the coming years at our Investor Day, in Miami, on February 18.

Now, I'll turn the call over to Venk to review our financial results in further detail.

[Venk Nathamuni, Chief Financial Officer at Jacobs Solutions]

Thank you, Bob, and good day, everyone. We are pleased with our Q4 performance, which contributed to a strong year. Let me now begin by summarizing a few of the financial highlights on Slides 7 and 8. Starting on Slide 7, we show quarterly results, and I'll provide additional context and detail around our performance from continuing operations.

As Bob noted, CMS and C&I have been excluded from our results as those businesses are listed under discontinued operations. We provide a reconciliation on Page 24 in the Appendix, that will allow you to compare results for the Enterprise, including the businesses that were separated in the fourth quarter. Notably, I want to highlight, that in total, we did outpace the $7.95 adjusted EPS midpoint for fiscal '24 that we guided to with Q3 results. However, from herefore [Phonetic], we will only be discussing continuing operations.

Fourth quarter gross revenue grew 4% year-over-year and adjusted net revenue, which excludes the impact of passthrough revenue, also grew 4%. Q4 adjusted EBITDA was $289 million, growing 12% year-over-year to an adjusted EBITDA margin of 13.6%, which is an increase of approximately 100 basis points from last year. Fourth quarter adjusted EPS from continuing operations was $1.37, marking a 28% increase compared to the previous year. Please note that during the quarter, GAAP EPS benefited from a $187 million pre-tax gain associated with the mark-to-market adjustment of our investment in Amentum with no benefit to adjusted EPS.

Additionally, PA Consulting contributed $0.10 of EPS dilution to GAAP EPS from periodic fair value change impacts on our re -- redeemable non-controlling interest balances, and this impact was added back to adjusted EPS in Q4. We provide a walkthrough of our adjusted EPS calculation for continuing operations on Slide 23. Finally, consolidated backlog was up almost 23% year-over-year to $21.8 billion. The trailing 12-month revenue book-to-bill ratio was 1.35 times, with our gross profit and backlog increasing 12% year-over-year.

As Bob noted earlier, this is an encouraging data point as we look ahead to fiscal '25. The Q4 book-to-bill of 1.67 times, though partly a function of higher passthrough revenue, is still very positive and helped us end the year on a high note. Moving on to Slide 8, I'll recap fiscal '24 results. Fiscal '24 total gross revenue increased 6% year-over-year, with adjusted net revenue rising 5%. Adjusted EBITDA increased 9% as a function of higher revenue and just over 40 basis points of margin expansion. Adjusted EPS from continuing operations increased 16% year-on-year. We're pleased to end fiscal '24 in a strong position with solid organic revenue growth, double-digit EPS growth and a backlog that sets us up for continued growth in fiscal '25 and beyond.

Regarding the performance of our end markets in the quarter, let's now turn to Slide 9. As Bob noted earlier, we're reporting our business as Infrastructure and Advanced Facilities, and PA Consulting, and we will discuss revenue trends in our three key end markets. This should provide helpful context to supplement our overall results. We'll focus on adjusted net revenue in our discussion as we believe this is a better indicator of business trends as it excludes passthrough revenues. However, we do list gross revenue growth across each end market for your reference.

In Water and Environmental, growth was solid, with adjusted net revenue increasing 13% versus the same quarter last year. Water and Environmental demand has been strong and we expect that to continue in fiscal '25 based on our current backlog and pipeline. Encouragingly, demand is being driven by multiple geographies, with North America, UK, Ireland, Australia and New Zealand, all growing double digits in the quarter. Our Life Sciences and Advanced Manufacturing end market revenue grew 3% in Q4, with strength partially offset by an unfavorable revenue adjustment related to an EV battery manufacturer customer bankruptcy in Europe. Our outlook for this end market is for Life Sciences to be the primary driver of revenue growth in fiscal '25 as capital investment from our Life Sciences customers remains robust. We're also seeing our customer base broaden in Semis and the AI data center opportunity is expanding.

As we look into fiscal '25 and beyond, we anticipate top-line growth in this end market, not only from rising industry investment, but also differentiation through our cross-cutting Water and Energy capabilities. In Critical Infrastructure, adjusted net revenue increased 1%, with North America showing steady growth, while certain international markets have lagged. We expect to see improvement across critical infrastructure in fiscal '25, with our backlog and pipeline underpinning a strong recovery as transportation project demand is rising.

Putting this all together, we have line of sight to maintaining strong revenue growth in Water and Environmental and increasing our growth rates in Life Sciences and Advanced Manufacturing, as well as Critical Infrastructure end markets in the coming year relative to Q4.

Now moving on to Slide 10, I will provide a quick overview of our segment financials. We saw strong trends in Q4 for Infrastructure and Advanced facilities operating profit, which increased 12% year-over-year in total and 12% on a constant currency basis. In fiscal '24, operating profit increased 9% year-over-year and 9% on a constant currency basis. Infrastructure and Advanced facilities results were aided by both revenue growth and margin expansion.

Moving on to PA Consulting, results reflect modest top-line growth, but good execution on the bottom-line. Q4 operating profit increased 4% year-over-year and fiscal '24 operating profit increased 1%. Both were slightly negative on a constant currency basis. However, we are encouraged by recent bookings and anticipate that growth will trend higher in fiscal '25. Moving on to Slide 11, we provide an overview of cash generation and balance sheet data. For fiscal '24, free cash flow from continuing operations was strong at $718 million and enabled us to repurchase $403 million in shares and pay $143 million in cash dividends.

We also paid down debt and ended the year with roughly $1.1 billion in net debt, which represented a net leverage ratio of 1.0 times on LTM adjusted EBITDA. This is at the low end of our 1.0 times to 1.5 times target. Our balance sheet strength will enable continued investment in the business as well as returns to shareholders through share repurchases and long-term dividend growth. We currently have $472 million in remaining authorization under our repurchase program, and recently declared a dividend of $0.29, a 12% increase year-over-year.

And finally, please turn to Slide 12 for our fiscal '25 outlook. We expect adjusted net revenue to increase mid-to-high single-digits year-over-year, adjusted EBITDA margin to range from 13.8% to 14%, adjusted EPS to range from $5.80 to $6.20, and reported free cash flow conversion to be more than 100%. We will have cash outflows related to restructuring of $75 million to $95 million in fiscal 2025, with that impact declining for fiscal '25.

The midpoint of our guidance range for adjusted EPS would indicate about 14% growth year-over-year, and the midpoint of our guidance range for adjusted EBITDA would indicate approximately 15% growth year-over-year, highlighting our strong outlook for business performance this year. We provide relevant assumptions on the right side of the page to help you with your modeling. One item to be mindful of is our projected tax rate of approximately 26%. Our fiscal '25 tax rate is expected to be several points higher than in fiscal '24 and fiscal '23, and is a function of multiple discrete tax benefits in those historical periods that are not expected to recur.

Despite the higher tax rate, we will still anticipate strong adjusted EPS growth in fiscal '25. I'd note, from a trend perspective, we expect to start fiscal '25 with Q1 revenue adjusted EBITDA margin and earnings below Q4 of fiscal '24, reflecting typical seasonality. However, as we progress through fiscal '25, we expect to see sequential growth in our financial results through Q4.

Overall, we're excited about the future of Jacobs and are entering fiscal '25 in a strong position financially, with positive underlying momentum in the business. With that, I'll turn the call back over to Bob.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Thank you, Venk. In closing, as a more focused Enterprise, we are exceptionally well positioned to capitalize on the momentum, in the Water and Environmental, Life Sciences and Advanced Manufacturing, and Critical Infrastructure end markets. And we remain confident in our ability to grow market share and fulfill the needs of our clients across our business, over time.

Operator, we will now open the call for questions.

Questions and Answers

[Operator]

Thank you. And we will now begin the question-and-answer session. [Operator Instructions]

Your first question comes from Michael Dudas with Vertical Research. Please go ahead.

[Michael Dudas, Analyst at Vertical Research]

Good morning, gentlemen, and congrats on a very active and successful spin in the recap.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Thanks, Mike.

[Venk Nathamuni, Chief Financial Officer at Jacobs Solutions]

Thank you, Mike.

[Michael Dudas, Analyst at Vertical Research]

So impressive, you -- you know, standalone backlog growth, and -- and heading into 2025. Maybe you can talk about the pipeline you see maybe amongst the three major end markets, you know, growth in pipeline year-over-year, and how much of your 2025 net revenues and EBITDA do you currently have kind of in backlog or in sight, and what's required to achieve your -- your midpoint and your targets?

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Sure. So Michael, on the first -- on the first question, pipeline growth has been really, really strong. If you look at the -- the kind of the big verticals, Water and Environmental up double digits on a pipeline basis. Advanced Facilities really driven by Life Sciences, we're seeing double digit growth in that pipeline. And -- and in Critical Infrastructure, which is really driven by transportation.

You know, we're seeing a nice comeback on the pipeline, specifically in our European to include the UK and Australia and New Zealand end markets. Middle East continues to grow too. So if you kind of aggregate those, the pipeline looks really, really strong. On the second, don't want to, you know, go too far on the actual number, but I'd say, historically, you know, we would see a certain percentage of -- of our -- our next fiscal year revenue in backlog. That percentage is a higher percentage this year.

Now, on a 1.67 times book-to-bill, that's not all in one year, that's multiyear booking, but the -- the kind of contracted component for FY '25 is a very strong [Technical Issues] number.

[Michael Dudas, Analyst at Vertical Research]

That's helpful. My -- my follow-up is, Bob, maybe you can share views from your client base and how Jacobs positioning relative to the election and some of the machinations we're hearing out of the federal government, how that could translate to your [Indecipherable] business in -- in the US?

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Sure. So -- so, maybe two parts to that question. We kind of see it overall as a net neutral. You know, if we -- if you look at those end markets that were -- now as -- as the new Jacobs honed in on, you know, these are jobs that -- that were either tied to some level of state and local element, which -- which are continuing, kind of think Water and Environmental. And -- and the transportation jobs that -- that we're in the middle of, at a national level in the US, have got long tails on them, and -- and we still see the pipeline really strong.

So infrastructure wise, we're -- we're feeling it's a -- it's a net neutral. Just as a -- as a note, lately been seeing some softness within the federal market. In -- in now our portfolio, about 10% of our business is in that federal market. However, it's -- of that 10%, a majority of that is in DoD and DoD infrastructure, specifically, which we see that pipeline continuing on.

Advanced Facilities, continued strong. You know, that industrial reshoring, on -- onshoring, as well as, you know, what's happening in the world of science and technology, you know, specifically in the US, you know, we -- we're -- we're feeling -- we're feeling confident about it.

[Michael Dudas, Analyst at Vertical Research]

Thank you, Bob.

[Operator]

Your next question comes from the line of Steven Fisher with UBS. Please go ahead.

[Steven Fisher, Analyst at UBS Group]

Thanks. Good morning, and I'll add my congratulations on the completion of the -- the deals. And thanks for all the -- the color on the growth rates within the -- the segments. It's a pretty wide range of -- of growth rates between Water versus the Life Sciences versus the Critical Infrastructure, you know, 1,000 basis points or more, it seems like. And I know you said you expect the slower ones to accelerate.

Can you just maybe frame for us, you know, kind of how big a -- a gap you're expecting or how -- how close -- how much you can close that gap between them? And just, kind of curious, was there that big a -- a gap or a drag from that EV cancellation in the quarter? And was there any sort of weather impact as -- as one of your peers cited? Thanks.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Yeah. So let me answer the last part, Steve, first, and -- and just kind of breaking down those three main areas. And -- and your -- your next question -- your first question. It was a gap, that EV cancellation. So on -- on the -- on the AF or the Advanced Facilities component, you know, we do see closing that gap. It would have been closed already, but the -- the future looks very bright there, and -- and represented by our -- our backlog.

Water and Environmental, we see continued growth. And on transportation, specifically Critical Infrastructure, You know, what we're seeing in our pipeline as well as Q1, so to be reported wins in transportation specifically, outside the US, is really that gap was -- was outside the US. That's already -- you know, we've already seen that in real time. Certainty in the budget in the UK is giving us confidence there as well as some -- some really strong wins that we've had in Australia and New Zealand coming out.

So we don't really see that gap being -- being a big one.

[Steven Fisher, Analyst at UBS Group]

Okay. That's helpful. And then just a follow-up. How should we think about the -- the progress now on some of the -- the corporate costs that you have embedded in the -- the segment reporting in -- in '25 versus '24? And relative to the restructuring costs, it sounds like, you know, that will kind of continue on through the year. You know, do you think fourth quarter will still have some of that in there, or it will be done by the -- by the time fourth quarter starts? Thank you.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Go, Venk. [Phonetic]

[Venk Nathamuni, Chief Financial Officer at Jacobs Solutions]

Yeah. Thank you, Steve. So -- so a couple of questions. So one on the, you know, the overall cost structure. As you can tell, you know, we made a pretty significant progress in fiscal '24 in terms of our operating margin and EBITDA margin expansion. And I would say there's still room there in terms of improving the margins over time, and that's why we guided to 100 basis point increase year-on-year for fiscal '25.

And if you look at the various parts of it, you know, clearly, from the standpoint of operational efficiency, we still have room -- room there. We've had a -- you know, we'll have a full year of what you call annualization of operating efficiencies, because lot of it happened, you know, towards the second half of fiscal '24. You'll see a lot of that manifest in its entirety in fiscal '25. And then, you know, overall, cost controls is something that we are focused on. And last but not least, we are continuing to improve our mix of our business as well as how we implement these projects from a global connectivity standpoint.

So, multiple facets to this margin story over -- over time. And then your second question about restructuring. So as you pointed out, you know, we did have restructuring in fiscal '24. Clearly, as you know, we have a commitment to Amentum to continue to do our transition services, that will last maybe another two, three quarters. So, we should see a pretty dramatic decline in our restructuring, going from fiscal '24 to fiscal '25, and we've quantified it in the range of $75 million to $95 million. Obviously, you know, we'll try to do our best to make sure that -- that marks the end of our restructuring in a meaningful way.

Yeah. And then -- and then, the other part of the restructuring is obviously having, you know, some ownership of liability with the PA Consulting business as well.

[Steven Fisher, Analyst at UBS Group]

Okay.

[Operator]

Your next question comes from the line of Andrew Wittmann with Baird. Please go ahead.

[Andrew Wittmann, Analyst at Robert W. Baird]

Great. Thanks for taking my questions, guys. I guess I wanted to build on an earlier question, again, and just kind of talk about the backlog as it relates to the outlook. I mean, your backlog is up 22.5% year-over-year, which is -- which is great. But -- but your -- your revenue guidance is up, you know, mid-to-high single-digits. That seems like a really wide gap. And so I -- I heard some of the comments about, you know, some longer projects.

But is there stuff in the backlog that's not moving? Is -- is some of the backlog, these bigger chunkier -- chunkier bookings like you're doing for maybe Advanced Technology and Life Sciences, you're doing construction management scope, is that kind of -- does that flow through as lower margin? I -- there's -- there's a lot going on there, but I think the discrepancy between the backlog growth and the revenue guidance is -- is worth digging into a little bit deeper. So if you could comment on that, I think would be helpful. Thank you.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Sure. And thanks, Andy. So a couple -- couple of things. Yeah, it -- it is the most significant book-to-bill that we've had, probably in the history of the company, and really, really proud of that. The Life Sciences and the Water bookings that we've had are large, and they're multiyear. And so, they're not any -- and they're not -- they're not degrading [Phonetic] to margins. These are at -- at and -- and in certain cases above our kind of corporate margins that -- that we've demonstrated here in the last few quarters. So it's the multi-year component of that, that is driving the -- the revenue guidance. And we also gave, you know, room on the mid-to-high single-digits to -- to kind of compensate for the bell shape curve on our project lifecycle too.

So, like we -- we're feeling -- we're feeling really good. These are some of the largest bookings that we've had, and I think I mentioned in the script, in the history of the company, which kind of goes through the testament of our market positioning right now.

[Andrew Wittmann, Analyst at Robert W. Baird]

Got it. It's kind of a question I want to ask. Also, I mean, the restructuring, obviously, this was kind of expected, you've got -- you've got the Amentum transition services and all the first year things that go with the spin off. But Bob, as you -- as you look at '26, do you feel like '26 [Speech Overlap] is the year that we get pretty clean results? It sounds like even at the end of this year, it's pretty clean. So I -- but I thought maybe I'd have you comment on '26 as -- kind of similar. [Speech Overlap]

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

No, absolutely. [Speech Overlap]

[Andrew Wittmann, Analyst at Robert W. Baird]

I think it's a important question.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

It's a very important question, and -- and thanks for asking it. I'd say second half, you're going to see a significant decay. And '26, short answer, yes. Yes, being clean, yeah.

[Andrew Wittmann, Analyst at Robert W. Baird]

Yeah. Got it. Thanks, guys. That's all I have for today.

[Venk Nathamuni, Chief Financial Officer at Jacobs Solutions]

Thank you.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Thanks, Andy.

[Operator]

Your [Speech Overlap] your next question comes from the line of Sabahat Khan with RBC Capital Markets. Please go ahead.

[Sabahat Khan, Analyst at RBC Capital Markets]

Hey. Great. Thanks, and good morning. You know, just about to your earlier comment around some of the buffer that you've built into the 5%, or sorry, call it, the mid-to-high single-digit organic growth rate to allow for some of these longer life projects. You know, this seems to be in line with the guidance you provided pre-election. I guess, would you say that range also builds in some buffer for maybe administration change or just kind of seeing how things evolve in early part of the year? Just trying to understand how you're thinking about the low end versus the high end given some of the moving pieces, particularly on the US side? Thanks.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Yeah, Saba, my -- my answer was really -- was -- was based on our clients activity. And -- and going back to, you know, any type of potential delays that happened as a result of the election, those would -- we don't feel like those would pertain to these jobs that are going forward at the state and local level, supporting some pretty large events that are happening in Los Angeles and in other venues around the world, specifically on the Water and Transportation side.

And then, on the Advanced Facility side, you know, these are commitments that our clients have made to the end markets on some -- some pretty, you know, pretty critical therapies that -- that the world needs. So these are tied to global trends that are probably a little segregated from what might -- might happen with regards to churn in -- in the Beltway. So those -- those were -- those were two, separate.

[Venk Nathamuni, Chief Financial Officer at Jacobs Solutions]

And -- and Saba, if I could add, you know, the -- the range that we've provided, you know, from -- from our guidance perspective, we try to guide for what we think is the most likely outcome. And obviously, as Bob alluded to, it depends on the profile of the customer burn and so forth. And so that's what's included in our guidance. And that's why we provided the range to -- in the mid-to-high single-digits for revenue growth.

[Sabahat Khan, Analyst at RBC Capital Markets]

All right. Great. That's helpful. And then maybe just on the -- the markets outside of the US, as we look at maybe the UK, the Middle East. You know, it looks like some changing priority in the Middle East, but it sounds like from your commentary that's going well. Can you maybe just talk about kind of the -- kind of your focus on those regions? What drives you kind of to continue to be exposed there? It looks like there's a lot of dollars there, particularly in the Middle East, but you know, a bit of an evolution in how they're going about their development for the next few years?

And also if you can just comment on, you know, post the recent election in the UK, how you see the spending priorities reflected in the recent infrastructure or sort of the recent budget, and how they align with what you're doing in that market? Just want to get a bit more perspective on those two larger regions for you outside of the US. Thanks.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Sure, sure. So, let me kind of breakdown the question here. On -- on the two geographies, is -- and actually -- look this -- this comment is going to apply to every single one of our geographies. We -- we are in the locales that we're in to service those -- those local -- those local clients. And so, just on that -- on that element, with regards to the UK and the Middle East, you know, those are strong markets. And yes, there's -- there's -- there are economic ebbs and flows in -- in those markets.

But our client base, especially now with our kind of our -- our focus portfolio, these are long-term kind of trends. So any kind of near-term oscillations, if you look at it on the long-term, they're solid. And in the UK, in the Middle East, we're seeing some -- some nice tailwinds that they're coming back and might -- might not be as strong as -- as 10 years ago or -- or before. But compared to recent times, you know, we're -- we're seeing some of that come through.

How do we gauge that? We gauge that through our pipeline, and we're seeing our pipeline grow. And so, those -- kind of on -- on that. Water in -- in the UK never [Technical Issues] slowed down. So really the upside that we're talking about is more honed in on -- on transportation as well as some of our Advanced Facilities world. But the -- the key is -- is that us staying in those geographies is really more about our talent, and that talent ends up addressing both the local market, but also there's some really, really key talent that we have in UK, Europe, India, Australia, New Zealand, that are being deployed around the world. So that talent piece is -- is really, really key in how we think about our global model.

On the elections, you know, we -- again, we -- we don't think that that is going to -- to affect, you know, what we're -- what we're talking about as far as the strength in the end markets. And -- and so, we -- we 23stand behind the numbers we put out.

[Sabahat Khan, Analyst at RBC Capital Markets]

Great. Thanks very much for the color.

[Operator]

Your next question comes from the line of Andy Kaplowitz with Citi. Please go ahead.

[Natalia Bach, Analyst at Smith Barney Citigroup]

Hi. Good morning. This is Natalia Bach on behalf of Andy Kaplowitz.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Hi. Good morning.

[Natalia Bach, Analyst at Smith Barney Citigroup]

Good morning. First question I'd like to ask, in PA Consulting, exit margins reflect continued improvement. As we think about fiscal year '25, do you expect that trend to continue? And then can you provide more color on your visibility towards revenue growth expectations for the segment? You have relatively easier comps and backlog seems to be ticking up. Any detail would be helpful.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Sure. Why don't I answer the first one and then Venk will -- will address kind of the -- the confidence in -- in revenue growth coming in the year. As far as the -- the margins go, we continue to see -- during -- even during, you know, the -- the run-up to the election in the UK as well as other -- other areas that PA has -- has a presence, the margins have stayed true and the team has done a really good job at continuing to focus in on higher value as well as strength of the -- of the offering that they have for their clients.

So we don't -- we -- we see that -- that margin profile continuing, moving forward. Venk, you want to talk about the revenue growth?

[Venk Nathamuni, Chief Financial Officer at Jacobs Solutions]

Yeah, absolutely. You know, so in terms of just revenue growth for -- for the PA Consulting business, you know, we -- we've had good insight into their pipeline, especially over the last several quarters. And we're feeling pretty good about the inflection point in PA's business in terms of the growth really coming together in fiscal '25. Now, when we provided the -- the high-level guidance for our overall revenue growth of mid-to-high single-digits, that certainly imputes PA Consulting also, you know, providing that -- that growth acceleration from the prior year. So, all of that is taken into account as we give our overall guidance for -- for all of, you know, PA Consulting plus Jacobs, and we feel that there is certainly an inflection point in fiscal '25 with regards to the growth from PA Consulting.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

And -- and their PA -- then their -- and their backlog grew at the same rate as ours did.

[Venk Nathamuni, Chief Financial Officer at Jacobs Solutions]

That's right. Yeah.

[Natalia Bach, Analyst at Smith Barney Citigroup]

Got it. Helpful. And then, just one more follow-up question for me. It appears the near-term -- focus with respect to capital deployment seems to be toward debt paydown and share repurchases. But as you now sit with your new portfolio, are there any areas in your portfolio where potential M&A could fill the gap?

[Venk Nathamuni, Chief Financial Officer at Jacobs Solutions]

Yeah. No, great question. So first of all, and I'd like to reiterate that, as I mentioned in the script, we are committed to returning cash to shareholders in form of buybacks and dividends, and we return almost 60% of free cash flow in fiscal '24. So, we're continuing to commit to a significant portion of our free cash flow being returned to shareholders.

On top of it, you know, as you pointed out, we have been paying down debt. You know, we did get about $911 million in Amentum proceeds on day one of the transaction, which we then used to pay down debt. And we do still have a 7.5% to 8% retained stake that we -- we hope to monetize in the first half of calendar '25.

And then beyond that, you know, as I look at the capital allocation priorities for us, we -- there's a lot of excitement about organic growth opportunities in the business, so number one priority will continue to be investing in the organic growth of the business. Number two, as I said before, is returning, you know, cash to shareholders in form of both dividends and buybacks, and we're committed to that. And then, you know, finally, from an M&A perspective, certainly, that is an accelerant for us in the long term. We'll talk a lot more about it during Investor Day, but suffice it to say that we have lots of optionality with the balance sheet position that we have, the significant free cash flow that we generate, and our ability to -- to return that to shareholders as well.

[Operator]

Your next question comes from the line of Sangita Jain with KeyBanc. Please go ahead.

[Sangita Jain, Analyst at KeyBanc Capital Markets]

Great. Thanks so much for taking my questions. So if I could just take the -- the growth outlook to a higher level, can you help us understand if you're -- if you're thinking higher growth, internationally versus domestic, given the elections? I know we've discussed elections a few times already on this call.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

No, Sangita. That's the way it came across if that wasn't the case. You know, we -- we had some flattening growth outside the US in our infrastructure [Technical Issues] end markets. We're -- we were talking about that inflecting forward. Within the US, those numbers have been positive -- for the last fiscal year.

[Sangita Jain, Analyst at KeyBanc Capital Markets]

And how about your outlook for the upcoming year? Do you think the US will still grow faster or how do you see it?

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

We do, we do. And we're seeing that in our pipeline right now growing as well as well as -- as well as our -- our book-to-bill and the double-digit growth that we've had in backlog.

[Sangita Jain, Analyst at KeyBanc Capital Markets]

Okay. Then if I can follow-up on your talent pool, let's just say, you know, we don't really know the policy priorities of the new administration yet, etc., but let's just say public spending in the US does slow down, how fungible is your talent pool should you have to reallocate resources?

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Yeah. I -- I don't know if I would use the word fungible, but they're very deployable, and -- and work on -- work all over the world, both in the US, outside the US, and from outside the US, in. It's really important to -- to understand, you know, the mix of our people in the US and outside the US does not map to our US versus non-US revenue stream. And so that -- that is a very balanced look on how we -- how we -- how we utilize our people around the world.

[Sangita Jain, Analyst at KeyBanc Capital Markets]

Got it. Appreciate that. Thank you.

[Venk Nathamuni, Chief Financial Officer at Jacobs Solutions]

Thank you.

[Operator]

Your next --

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Thank you.

[Operator]

-- your -- your next question comes from the line of Chad Dillard with Bernstein. Please go ahead.

[Chad Dillard, Analyst at Sanford C. Bernstein]

Hey. Good morning, guys.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Yeah, good morning, Chad. [Speech Overlap]

[Chad Dillard, Analyst at Sanford C. Bernstein]

So my question is on the -- the algorithm for adjusted operating margins for the Infrastructure and Advanced Facilities business. So, I guess, like maybe if you could break it out in two ways. So first of all, I'm just trying to figure out, you know, the three sub segments, like your -- it sounds like the Water business is growing faster, Life Sciences business is growing faster. To what extent is that accretive to margins?

And then I guess, on the second part, you guys talked about, you know, cost savings, like how do we think about like the year-on-year boost in margins from -- from that?

[Venk Nathamuni, Chief Financial Officer at Jacobs Solutions]

Yeah, Chad, thanks for those questions. So, I'd say the, look, first on the end markets, the way we model our business is to obviously go after the -- the best opportunities that we have across those different end markets and continue to focus on top-line growth, but also in this way that -- that optimizes margin so that it meets our corporate average, right? So, in any given quarter, any given, you know, first half or second half of the year, we can certainly have ups and downs with regards to the -- the margin profiles. But what we try to optimize for is the good balance between, you know, continued revenue growth as well as -- gross margins and operating margins improving over time. And that's what we've quantified in terms of our expectation for fiscal '25.

So, I wouldn't say one -- one business is any different from -- from another from the standpoint of the optimization. But certainly, we want to continue to focus on profitable revenue growth such that both our revenue as well as the margins expand over time. So that's more work. [Phonetic]

And then going to your second question about cost savings, as I alluded to in response to a previous question, we have made significant strides in terms of improving the operating efficiency, but you had just six months of that take effect in fiscal '24. So we'll have the annualization of operating efficiencies take full effect in fiscal '25, and that's part of the -- the margin expansion story for us. But it's not just -- just that. I mean, in addition to it, as I mentioned before, we are optimizing our go-to-market, we're optimizing, you know, our global connectivity, and so forth.

So we do see a multi-year trend in terms of, you know, focusing on improving our profitability over time, not just on the cost side, but certainly from a business mix standpoint as well as from an efficiency standpoint.

[Chad Dillard, Analyst at Sanford C. Bernstein]

Great. That's helpful. And then the -- the second question has to do with your -- your revenue guidance for the full year, that -- that mid-to-high single-digits. So, I guess to -- to get to that higher end of -- of that range, you know, like what needs to go right, either from like a geographic standpoint or from like in macro [Phonetic] standpoint, like what -- what would you need to see there?

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

It would be -- it would be if the -- if we see an acceleration in the -- in the jobs we're on. You know that -- that heavy, heavy focus now from the -- from the backlog growth coming from our -- our Water as well as Life Sciences sector is, you know, those could be accelerated and -- and we could find ourselves, you know, on the higher end of that range. So, we're watching that very closely.

[Chad Dillard, Analyst at Sanford C. Bernstein]

Great. Thanks all.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Thank you.

[Operator]

Your final question comes from the line of Jerry Revich with Goldman Sachs. Please go ahead.

[Jerry Revich, Analyst at The Goldman Sachs Group]

Hi, yes. Hi. Good morning, everyone, and -- and congratulations. Can I ask for the legacy People and Places business? You know, you folks have delivered steady margin expansion, you're now running scope margins in the low-teens. As -- as you think about the margin upside that you discussed over the course of this call, what do you think is a reasonable target or a bogey where you can drive that business over time? Are we talking about tens of basis points improvements? Or are the initiatives that you spoke about earlier, can -- can we see a more significant margin upside in that line of business?

[Venk Nathamuni, Chief Financial Officer at Jacobs Solutions]

Yeah, Jerry, thank you for the question. And yes, certainly, you know, we feel good about the margin expansion for fiscal '25 that I alluded to both in the prepared remarks as well as in response to a couple of questions. And as we look-ahead beyond fiscal '25, you know, certainly, we'll provide you a lot more clarity when -- when it comes to Investor Day, not just in terms of our revenue growth and, you know, end market mix as well, but also in terms of capital allocation and margin expansion story.

So, suffice it to say that we do feel good about our margin expansion in fiscal '25, and beyond that, we'll -- we'll cover in more detail.

[Jerry Revich, Analyst at The Goldman Sachs Group]

Okay. And let me ask you, you know, I -- I know it's early -- very early post Amentum, but obviously, the business leaders have been focused on -- on the new Jacobs for, you know, quite some time now, over a year. Can you just talk about, at the operating level, what kind of difference in performance that you're seeing or any developments that are notable as a result of the change in focus or the more narrowed change in focus, so far?

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Yeah. Jerry, it's -- it's aa great question. I'd say that the operating model is -- is in full effect right now. You're -- you're right, we got out ahead of that during the course of the year. I -- I think the biggest change has been getting back to where, you know, where we came from where we were externally focused on our clients' business. And that has really come to the core of -- of how we think about the world. And instead of being internally focused on, you know, some of the transactions that we were doing, whether they'd be over the course of the last couple of years or leading up to -- to this quarter.

So -- so that's been the real -- the real change, understanding our clients' business and we're seeing it in -- in our sales performance in Q3 and Q4 of last year. So -- so, we're excited because those actions and those behaviors are turning into a 22% backlog growth at a 1.67 times book-to-bill. And -- and that's -- that's kind of -- that's -- the proof is in -- in the numbers. So, we're -- we're excited.

[Jerry Revich, Analyst at The Goldman Sachs Group]

Thank you.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Thank you.

[Venk Nathamuni, Chief Financial Officer at Jacobs Solutions]

Thank you.

[Operator]

And I will now turn the conference back over to Bob Pragada for closing remarks.

[Bob Pragada, Chair and Chief Executive Officer at Jacobs Solutions]

Well, thank you, everyone, for joining our call. Look forward to providing further updates and visiting with investors and analysts in the coming weeks and months. Thank you very much.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Bert Subin, Senior Vice President of Investor Relations
• Bob Pragada, Chair and Chief Executive Officer
• Venk Nathamuni, Chief Financial Officer

Analysts

• Michael Dudas, Vertical Research
• Steven Fisher, UBS Group AG
• Andrew Wittmann, Robert W. Baird
• Sabahat Khan, RBC Capital Markets
• Natalia Bach, Smith Barney Citigroup
• Sangita Jain, KeyBanc Capital Markets
• Chad Dillard, Sanford C. Bernstein
• Jerry Revich, The Goldman Sachs Group, Inc.