Good day and thank you for standing by. Welcome to the Jacobs’ Fiscal Fourth Quarter 2021 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Jonathan Doros of Investor Relations. Thank you. Please go ahead.

Thank you. Good morning to all. Our earnings announcement and 10-K were filed this morning. And we have posted a copy of the slide presentation on our website, which we will reference during the call. During the presentation, we will be making forward-looking statements, including the anticipated timing of the impact of the recently signed U.S. Infrastructure Bill, benefits of our strategic investments in PA Consulting and our financial outlook, among others. I would like to refer you to our forward-looking statements disclaimer, which is included on slide two regarding these and other forward-looking statements. During this presentation, we will be referring to certain non-GAAP financial measures. Please refer to slide two of the presentation for more information on these figures. In addition, during the presentation, we will discuss comparisons of current results to prior periods on a pro forma basis. See slide two for more information on the calculation of these pro forma measures. For pro forma comparisons current and prior periods include the results of recent acquisition and the PA Consulting investment. We are also providing pro forma net revenue comparisons, which also exclude the impact of the extra week in Q4 fiscal 2020. Turning to the agenda on slide three. Speaking on today’s call will be Jacobs’ Chair and CEO, Steve Demetriou; President and Chief Operating Officer, Bob Pragada; and President and Chief Financial Officer, Kevin Berryman. Steve will begin by updating the progress we are making against our strategy and the future of ESG at Jacobs. Bob will then review our performance by line of business. Kevin will provide a more in-depth discussion of our financial results, followed by an update on our Focus 2023 and M&A initiatives, as well as a review of our balance sheet and cash flow. Finally, Steve will provide the detail on our updated outlook along with some closing remarks and then we will open the call up for your questions. In the appendix of this presentation, we provided additional ESG-related information including examples of our leading ESG solutions. With that, I will now pass it over to Steve Demetriou, Chair and CEO.

Thank you for joining us today to discuss our fourth quarter and fiscal year 2021 business performance and key initiatives. Turning to slide four, before I review our results, I’d like to share that we are in the final stages of completing our new strategy. We will be hosting an investor event the week of March 7th for a deep dive of the next phase of our Jacobs’ transformation. Three key initiatives have emerged. First, we are putting in place a purpose-driven roadmap rooted in our values and strong culture to maximize our next stage of growth. Secondly, we identified and have aligned investment resources to capture three multi-decade growth opportunities, global infrastructure modernization, climate response and the digitization of industry. And third, we are taking a transformational approach to executing against these opportunities as we are unlocking the innovation engine at Jacobs, expanding our technology ecosystem, while accelerating our trajectory of profitable growth and durable cash flow generation. We look forward to illuminating the strategy at our upcoming investor event. Now turning to our financial results, I am pleased with our strong fourth quarter and fiscal year performance, with net revenue increasing 7% year-over-year. Adjusted EBITDA grew 12% during the quarter and 18% for the full year. Backlog ended the fourth quarter up 12% year-over-year and up 7% on a pro forma basis. PA Consulting continued to post exceptional performance with 41% revenue growth. More importantly, PA delivered this growth, while maintaining adjusted operating profit margins up 24%. For the full year, PA revenue surpassed $1 billion, far exceeding our deal investment model. As we look at overall Jacobs growth going forward, we now have certainty surrounding the unprecedented U.S. infrastructure funding with the passage of the $1.2 trillion Infrastructure and Jobs Act last week. And more broadly, global…

Thank you, Steve. Moving on to slide seven, to review Critical Mission Solutions. During the fourth quarter, our CMS business continued its strong performance. Total CMS backlog increased 16% year-over-year, 7% on a pro forma basis to $10.6 billion, driven by our strategic new wins in cyber and intel, and nuclear and remediation. Our CMS strategy is focused on creating recurring revenue growth and margin expansion by offering technology-enabled solutions aligned to critical national priorities. Three market trends that we see offering continued strong growth include cyber, commercial space and 5G technology for national security. Beginning with cyber and intelligence, we are seeing several major emerging threats to national security. First, cyber attacks on mission-critical infrastructure, which are even more stealth and as destructive as a traditional attack. Second, the speed and complexity of near-peer threats, which requires real-time coordination between space and other domains as the severity of nation state sponsored attacks continues to increase. And third, the adoption of a data intensive AI-based applications are dramatically increasing the need for real-time data security and integrity. The funding for addressing these threats are partially reflected in the unclassified federal government spending on cyber in FY 2022, which is expected to be over $20 billion, up 10% from prior year. Additionally, we expect the spending within classified budgets to be up higher. During the quarter, we were awarded a $300 million seven-year contract with the National Geospatial Intelligence Agency to modernize the NGA’s ability to rapidly gain and share insights from cross-domain imagery, including top secret data classification. And within the classified budget, we are awarded $170 million five-year new contract to develop highly secure and hardened software applications that are leveraging the latest advances in AI and machine learning. We recently closed the BlackLynx acquisition, which provides software-enabled solutions…

Thank you, Bob, and good day to all listening on this call today. Turning to slide 10 for a financial overview of fourth quarter results followed by our fiscal year review. As we have previously communicated, our fiscal fourth quarter 2020 had 14 weeks compared to our normal 13-week quarters, which impacted our quarter year-over-year growth rate by 7% and our full year growth rate by 2%. Fourth quarter gross revenue increased 2% year-over-year and net revenue was up 7%, including the pro forma impact from all acquisitions and adjusting for the year ago extra week, net revenue was up 6% for the quarter. Adjusted gross margin in the quarter as a percentage of net revenue was 27.2%, up 370 basis points year-over-year. Consistent with last year, the year-over-year increase in gross margin was driven by a favorable revenue mix in both People & Places, CMS, as well as the benefit from PA Consulting, which has a strong accretive gross margin profile of nearly 50%. We will continue to focus on increasing gross margins as we bring to market higher value solutions for our clients. Adjusted G&A as a percentage of net revenue was up year-over-year to 17%. Within G&A, during the quarter, we incurred an approximate $20 million or $0.12 per share charge to a legal settlement cost, which burned both GAAP and our adjusted results. This charge was related to a CH2M legacy matter surrounding a previously completed product advisory arrangement. GAAP operating profit was $252 million and was mainly impacted by $46 million of amortization from acquired intangibles. Adjusted operating profit was $303 million, up 17%. Our adjusted operating profit to net revenue was 10%, up 85 basis points year-over-year on a reported basis. GAAP EPS from continuing operations rounded to $0.34 per share and included $0.45…

Thanks, Kevin. We are introducing our fiscal 2022 outlook for adjusted EBITDA to be in a range of $1.37 billion to $1.45 billion, which at the midpoint represents double-digit growth. Our adjusted earnings per share outlook for fiscal 2022 is in the range of $6.85 to $7.45. We expect a multiyear benefit from the U.S. Infrastructure Investment and Jobs Act to support our growth in the second half of fiscal 2022. As we look beyond this year, we see substantial opportunities for sustained organic growth driven by infrastructure modernization, climate response and digital transformation. We anticipate approximately $10 of adjusted EPS in fiscal 2025. At our in-person investor event in March we will further expound on our long-term strategy and financial model. Operator, we will now open the call for questions.

And your first question comes from the line of Jerry Revich of Goldman Sachs.

Yes. Hi. Good morning, everyone.

Good morning, Jerry.

Steve, as you built the portfolio, it’s clearly been a focus to bring together green businesses and because of the idiosyncratic ESG scoring unfortunately, you folks aren’t getting much credit for that, ESG funds are 80% underweight Jacobs. How does that impact the way you folks view the CMS portfolio or portions of the CMS portfolio going forward?

Well, look, there are some investors that are holding back because of some of our work which is really a very small portion, probably, less than 2% of our overall revenue that is really focused around what I would call critical national security for the U.S. Government and we are reaching out to those investors to try to explain that we are not involved in things like the manufacturing of nuclear weapons or whatever is holding them back. But I really think that as people understand sort of the fact that we are probably the largest public company delivering ESG climate change solutions out there that, as they see that ramping up and get more clarity, I think, we are going to attract a lot more investors that want to be part of the ESG story.

Just a clarification, is divestiture of that 2% on the table at all? How are you thinking about that within the portfolio context?

Look again, it’s so small that we haven’t really thought about that. But like anything else, Jerry, over the next few years, you will hear a little more about the stern strategy. We are going to continue to look at our portfolio and make sure we are aligned with all the right growth dynamics and I think we have proven that up to now we will continue to transform our portfolio in the right direction.

Okay. Thanks.

Your next question comes from the line of Josh Sullivan of The Benchmark Company.

Hey. Good morning.

Good morning.

I was curious if you could just give us some perspective just on global CapEx expectations into 2022. You guys have such a large global portfolio and touched so many different markets. From your view, what our customers generally planning for CapEx heading into 2022 as they look to move out of the pandemic?

So, look, I think, there’s a couple of things that we need to point out, specifically, the customers that Bob highlighted in the -- in his comments really about our advanced facilities, clearly very, very, very strong now. And the semiconductor shortage is acute and we have many of our clients that are looking to build significant capacities over the next several years. I do think our private clients ultimately are now all thinking more robustly about spend as it relates to environmental solutions and thinking about how they can transform their footprints in a way that are facilitating our ability to become a more sustainable global economy and I think that that’s clear. And then I would augment that is with our government services side exactly the same comment. So I think that CapEx is very strong in that regard. The last piece I would call out is our environmental business and energy transition business is touching the oil and gas space as well, where we are working with them to ultimately provide incremental capability sets that that will help them and then becoming a more viable, sustainable contributor to the global climate actions being taken around the globe. So I think you are right. There were wide -- we are focused across a wide swath and actually a lot of them, given the work we do are very, very strongly focused on these areas, which we think will encourage incremental CapEx longer term.

Your next question comes from the line of Jamie Cook of Credit Suisse.

Hi. Good morning. I guess first question the EPS target that you put out there for 2025, the $10, a support, obviously, good growth there. Kevin, can you just talk about, one, are there costs to achieve the $10 in terms of restructuring or investment? And then on the $10, can you provide some parameters sort of topline margins, do we need to utilize the balance sheet in terms of M&A or share repurchase to help achieve the $10? So, I guess, that’s my first question. I will start there.

Yeah. Jamie, thanks. Thanks for that. The $10 is really an organic number that we are alluding to and really doesn’t involve capital deployment in any material fashion. And so, I think, clearly, there could be potential upside to those numbers, but we are working through all of that with our strategy, which we will talk more about in March, as Steve outlined. So, some of your questions are a little premature as we are finalizing all that work for margins and whatnot. Rest assured, I think, you can pretty much assume that the margin is not going down as it relates to what we are trying to get accomplished from an overall perspective. As it relates to cost to get there, look, we think that most of the things that we are going to be able to do are going to be embedded in our normal course operational expenditures. We did -- I did highlight the fact that we are working on a further optimization of our real estate footprint.

Yeah.

We are expecting…

Okay.

… a potential impairment of 60 to 70, maybe up to 70 in the first half, maybe even in the first quarter. And then if I think about other things, there’s not going to be significant moneys on top of that, maybe 25 to 50 in 2022, and then 2023 and beyond, TBD, I would say. And so we are really thinking that we like the portfolio and other than things that would occur relative to integration of acquisitions and deal costs and those kind of things probably somewhat de minimis in terms of restructuring costs outside of those.

And your next question comes from the line of Steven Fisher of UBS.

Great. Thanks. Good morning. One of the things I think the business and the stock really needs is kind of a breakout to the upside on the P&PS organic revenue growth and it seems like we started to see that this quarter. But, I think, Kevin, you said maybe 8% NSR growth, which is, I think, up from about 1.4% for the last couple of quarters. So maybe just more qualitatively to what extent are you really seeing a breakout on that P&PS growth now? So what’s the organic assumption you have for the rest of fiscal 2022, because you give us some color on Q1 and what have you factored in there exactly for stimulus as part of that growth? Thank you.

So let me take it, and then, Bob, you can add any commentary…

Sure.

… if you would like to.

Sure.

Look, we are in this period of time in our Q1 and Q2 primarily where the numbers aren’t really going to be impacted yet by the stimulus. We believe that’s more a Q3 event. Maybe we get a little bit in Q2 but likely not and that is more Q3 and an acceleration into Q4 that we would expect the benefits associated with the stimulus and so we are excited about that. Having said all of that, I do believe our incremental growth going forward in Q1 and Q2 is going to be more solid than what we have been seeing over the last few quarters. And so we are starting to see some of that benefit of the advanced facilities, certainly not as much in Q1 but in Q2 and so I do think we will see some good solid growth in Q1 and Q2 on People & Places and then it will accelerate again, hopefully, into the Q3 and Q4 numbers. So we feel good about the developing momentum. I did make the comment that we are investing in front of that growth, too. So we are not going to see a lot of incremental margin associated with that because we are investing heavily.

Yeah. What I’d add to that, Kevin, is that. Steve that the -- what’s giving us optimism around there is our bookings. If we look at just what the way we started out the year from a bookings perspective, it’s been solid. What the other part of that is that we have to think about the project life cycle. So these bookings are starting off with consultative services that are on the front end of some of these programs and projects and then they go through the subsequent phases where our services will escalate. So, overall, very good leading indicators that support what Kevin is saying.

And your next question comes from the line of Andy Kaplowitz of Citigroup.

Hey. Good morning, guys.

Good morning.

Good morning.

Hi.

Can you give us a little more color into what’s going on in CMS? I think, Kevin you said that CMS margin would stay in the mid-8% range in FY 2022, but the margin had already risen to over 9% in the last quarter, despite still significant contribution from the lower margin contract work that’s flowing through. Is there something else now impacting your margin in FY 2022? And then on the revenue side, your CMS backlog up double digits seems to suggest that you can deliver the mid-to-high single-digit guidance that you have, but you need to see an acceleration of awards and/or revenue burn, what you have been -- versus what you have been recording in Q4 to get there?

So, CMS specifically, as you may recall, two years, three years, four years ago, when we did have these lower margin large contracts, we were in the 5% to 6% operating profit margin and we have now built over time that to the mid-8% number, which is great and it’s consistent with our strategy. As we look about 2022 specifically, we will have ramp on some other lower margin business associated with Idaho and other nuclear remediation work. But that’s not going to dampen our margin. It’s just going to hold it flat for 2022, and then in 2023 and beyond, we started to see incremental margin above that as well. So it’s a continuation of a long term margin play. It’s just ebbs and flows when the big contracts come in, the margins associated with them. So 2022 is a little limited in terms of incremental margin and then we start to build again in 2023 and beyond.

So just for the, Operator, there’s some background noise. I don’t know if it’s your side that you are opening it up for questions. So could you double check that?

Yes, sir. And your next question comes from the line of Chad Dillard of Bernstein.

Hi. Good morning, guys. So just wanted to dig into PPS, I think you got so many opportunities ahead, the climate change, semiconductor, infrastructure, digitization. How are you guys sizing the effects? Can you just like talk about the relative rank of the size of the opportunity and then just thinking through just where you guys stack up in terms of competitive dynamics in those specific segments?

Chad, can you repeat the front end -- the front part of that question again, it’s a little broken.

Yeah. Sure. So, I was just saying, in PPS, it seems again just so many different opportunities ahead from climate change, the semis, infrastructure, digitalization and I just want to understand just how you guys are sizing the effects across all those opportunities, if you can talk about the relative rank in terms of the size of opportunity and your relative competitive positioning in those?

Sure. So as far as prioritization goes, I would say that, kind of, if you were to segregate into two buckets, one around climate change and the second round all those things that are creating the supply chain disruption. Those are the ones that are coming to priority right now. I’d say on the climate change piece and this is where the portfolio optimization is really helping us. We are honing in on those areas that we have a sound market leadership and long-term client relationships, and where we can deliver immediate value. And those are squarely around transportation, water resiliency and in all of the environmental impacts that are affiliated with climate change. And so those client relationships that we have had have been pretty robust for several years and are supporting those opportunities. Around advanced facilities, this is a multi-decade type of leadership approach that we have had specifically in semis, but also in life sciences that, that’s been a legacy business of ours forever. And so we are seeing those opportunities again not searching for them, these are long-term client relationships that we have had and we are kind of in the capital planning for those clients. And so it’s really gaining share with long-term clients that’s setting the priorities.

And your next question comes from the line of Sean Eastman of KeyBanc Capital Markets.

Hi, gentlemen. So I am just looking at the 2025 target. I think that implies around 12% earnings growth CAGR over the next couple of years. Seems like at the midpoint of the fiscal 2022 guidance, you are going to outpace that? And I just wanted to reconcile that considering the way you described the cadence of fiscal 2022 earnings, it seems like the exit velocity is going to be quite strong and that we should actually see accelerating earnings growth out of fiscal 2022? So I hope that question makes sense, just wanted to talk through the mechanics there, maybe there’s some conservatism, ay commentary there would be helpful?

Look, I think, what we do when we put forth our indications of what we expect our business to do, we think those are numbers that are obviously going to be able to be executed against. And so, yeah, there’s a lot of moving pieces, and you are right, we will hopefully exit this year with a greater velocity than what we entered clearly and so we will see how that plays out. But I think, ultimately, what’s clear is that we have got to, whether it’s 12% or 11% or 13% or 14%, whatever it ends up being, we are going to have a long haul of good solid margin enhancing growth in front of us.

Okay.

And your next question comes from the line of Michael Dudas of Vertical Research.

Good morning, everybody. Maybe, Bob, you can share a little bit of your thoughts on your recent acquisitions and other opportunities in the pipeline from CMS, certainly increasing your cyber/intel higher margin business. But also on the PPS side, I know you put things out into your long-term guide on acquisitions. But how do you see that and is the company set to achieve these targets with the employees and professionals that you have and is there going to be some interesting opportunities to leverage some of that PA work as you get more collaborative to drive even further growth to serve the client base?

Hi, Michael. Let me unpack that here a bit. First, on the acquisition piece, we are excited. If you look at the last two that we did within CMS about a year ago with the Buffalo Group and most recently with BlackLynx, these are right down the -- right in the bull’s eye of where we are going in cyber and intelligence. Where we are bringing in, whether it be client diversification with the Buffalo Group and higher end advisory services and that has played out extremely well. If you look at some of the, we have code names for them, but some of the wins that we have had over the course of the last nine months, that has played out perfectly. And then BlackLynx is getting us into those software solutions coupled with advisory services on automation and collection of data with processing engines that are working at the edge all around security. And so we are excited about both of those and coupled with long-term advisory platforms that we have had and the agencies that we are already in, that’s going to serve us extremely well. With regard to prospects in the P&PS world, I targeted more towards it’s not too dissimilar than our cyber and intelligence prospects around technology. We have got a strong position with our domain knowledge for several decades within those end markets that we are talking about, coupled with now technology-enabled solutions is really what our acquisition strategy has been as accelerants to our strategy. So we are looking at the pipeline right now. It looks really good and more to follow on that front, as Steve mentioned, at the Investor Day. The employee base is something that we are acutely focused in on right now. This is where our globality really,…

And your next question comes from the line of Gautam Khanna of Cowen.

Hey. Good morning, guys. I wanted to follow up on the outstanding bids. I think you said $10 billion in source selection and just get a sense for, how -- what is sort of the phasing in terms of adjudication timeline, are you expecting a strong December quarter in terms of bookings? And just how does your -- how did the -- if you could talk to us about the continuing resolution and how that might change kind of the range of outcomes at CMS and relatedly recompete concentration over the next fiscal year, how much of the business basis up for rebid? Thank you.

Yeah. The -- look, we are pretty positive, confident that this whole continuing resolution, defense budgets, all that will play out over the next several months and get concluded. And we are expecting increase in the DoD budget and we are pretty positive about space and cyber and in the growth rates, especially in the classified work where we are significantly aligned too and hypersonic and telecom and we feel very well-positioned at places like NASA and how the budgets played out there. So really it is comes down to the whole timing question that you asked there. There has been some delay, very modest delay as the government clients are waiting just to see the outcome of this budget. And so as soon as that gets finalized, we see a few of these near-term prospects that we intended to unleash, whether that happens in December or the second quarter, I think, we are talking about sort of that kind of timing. So we are -- that’s why we are very optimistic about the upward trend in CMS revenue growth as we move through 2022.

Just a follow-up on your question on rebids. There is at the end of the year a couple larger rebids that we are going to have to be thinking through. But there’s really no rebid risk embedded into the 2022 year assumptions.

And your next question comes from the line of Michael Feniger of Bank of America.

Hey, guys. Thanks for taking my question. Kevin, just so we are not missing anything here, to follow up on Sean’s question, you guys just did the high end of your EPS range in 2021 and the midpoint is 14% growth. So just conceptually, with infrastructure ramping up, the CMS incrementals really taking off in 2023. Is there anything we should be aware of big picture of why earnings growth would not accelerate, why it would step down to 2025? Is there -- as you were kind of alluding to, is it recompete risk? Is it just higher level of SG&A or where the margins are? Just kind of help us understand, I know you will flesh out more at the Investor Day. Just when we see that $10 of EPS and the earnings growth you guys are getting this year, which is backend loaded, just the bridge there, just what are the things that would hold back that earnings growth?

Well, look, we are talking 2025 here. That’s four years from now. We are still in the midst of a pandemic and I think it’s prudent to put some variability about what the world looks like four years from now. So I think the most powerful message about the $10 is we are putting that number out there even if economic situation is in not a good place in 2025. So, look, I think, it’s prudent. Prudent to put out numbers that are appropriate and we feel like we can get after, and by the way, that’s four years from now. So a lot can happen in four years.

Thank you.

Your final question comes from the line of Andy Kaplowitz of Citigroup.

Hey, guys. Good morning, again. I just want to follow up on PA Consulting, because you recorded almost $0.50 of accretion in 2021. I think that’s essentially double your original guide when you announced the deal. I know you probably don’t want to tell us what’s embedded exactly in FY 2022. We know what your original guy was there, but maybe you can give us color? And what has at PA exceeded your expectations by such a wide amount and what does that mean for Jacobs moving forward?

So that’s a couple of things and maybe I will turn it over to Bob for any additional color. I think, Andy, the first thing is that, the acceleration in their growth, which is really the driver to what’s been happening in 2022, a lot of it, a chunk of it is in related to that specific work Bob was alluding to on pandemic related and the work that they have been doing for the U.K. Government, really, really strong performance. Now they are -- as we look into 2022, they are going to be growing, but it’s not going to be at that same rate that we have been talking about. They have got to figure out a way to recover and get new business to replace some of this business that’s going to go away. So it’s not a slam dunk as it relates to what’s going to be happening in 2022 by any stretch. So having said all of that, what they have done in 2022 or 2021 has been extraordinarily strong, good margins and they have been executing well. And actually, the exciting thing is the collaboration between PA and People & Places and CMS is very strong and we are seeing that develop into longer term growth opportunities for maybe PA, but certainly Jacobs as well.

Maybe two areas that we knew about, we probably didn’t fully give credit to the depth of the two things I am about to mention. One is the applied technology ability that they have. You see consulting firms that have kind of a roadmap or a recipe or a methodology that they utilize for different challenges and then proposing solutions. PA is applied, applied technology to solve a unique issue. And so that has really paid some dividends, especially with the new work. Kevin and I talked about the U.K. work, but this is now what we are seeing in the U.S. And then the second is around the depth of relationship. The depth of relationships that PA has and where to connect in the client organization and really hone that relationship through performance has been extremely impressive and is, again, we knew about it, it’s exceeded our expectation.

And there are no further questions.

Okay. Thank you very much. Look forward to talking to you again next quarter.

And this concludes today’s conference call. Thank you for participating. You may now disconnect.