Good morning. My name is Rob, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Jacobs’ Fiscal Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. Thank you. Jonathan Doros, you may begin your conference.

Thank you. Good morning to all. Our earnings announcement and 10-Q were filed this morning and we have posted a copy of the slide presentation on our website, which we will reference during the call. I’d like to refer you to Slide 2 of the presentation materials for information about our forward-looking statements, non-GAAP financial measures, and pro forma figures. For pro forma comparisons the current and prior periods include the results of recent acquisitions, including StreetLight Data and BlackLynx, as well as our strategic investment in PA Consulting for the full fiscal period.

Steve will begin by reviewing our third quarter results, and then discuss our Jacobs and PA accelerating social impact. Bob will then review our performance by line of business, Ken will provide an update on PA Consulting, and Kevin will provide a more in-depth discussion about financial metrics as well as review of our balance sheet and cash flow. Finally, Steve will provide details on our updated outlook along with some closing remarks and then we’ll open the call for your questions. In the appendix of this presentation, we have provided additional ESG-related information, including examples of our leading ESG solutions. With that, I’ll now pass it over to Steve Demetriou, Chair and CEO.

All right, thank you for joining us today to discuss our third quarter fiscal year 2022 business performance and our near term outlook. We’re excited to be conducting today’s call on PA Consulting offices in London and I’ll provide more color in just a moment on our strong early on success of our investment in PA. But first turning to Slide 4, at Jacobs the combination of a proactive approach to strategic portfolio management and driving a high performance culture has created a touch quality business with substantial recurring revenue that’s resilient during a variety of macroeconomic conditions. This is complemented by our focus on secular growth in the areas of Climate Response, Consulting & Advisory and Data Solutions. Our competitive advantage is based on strength staying true to our values. We harness a deep technical expertise to reinvent the way we solve problems and chase the next generation of innovative solutions for our clients. As I shift to the quarterly results, we’re clearly seeing strong underlying trends in accelerated growth at Jacobs. From the velocity of our sales pipeline, our recent major wins that we’ll talk about today and next quarter, to increasing trends in utilization, we’re positioned for strong profitable growth going forward. During the quarter net revenue grew 8% year-over-year and double digits on a constant currency basis, with growth across each line of business. More importantly, bookings were strong across the company, resulting in revenue backlog up 10% year-over-year and actually up 13% in constant currency. We saw continued strong performance in our Advanced Facilities business as demonstrated by our 25% year-over-year top line growth and an acceleration in P&PS bookings during the quarter within our Americas business, driven by awards related to the U.S. infrastructure modernization. Within Critical Mission Solutions, we were awarded a strategic…

Thank you, Steve. Moving on to Slide 7 to review Critical Mission Solutions. The CMS business continued its strong performance in the third quarter with total backlog increasing 7% on a reported basis and reported on a pro forma basis to $10.2 billion. Our CMS strategy is focused on creating resilient, recurring revenue growth and market expansion by offering technology enabled solutions aligned to critical national priorities. Our service and solution offering are delivered across our core customers markets, space, national security, cyber intelligence, and energy environment and we are leveraging our growth accelerators of data solutions, climate response in Consulting and Advisory to catalyze the business. We have substantial revenue visibility as approximately 85% of CMS’ portfolio consists of large enterprise contracts with durations greater than four years and 88% from federal level government funding. Although economic and geopolitical uncertainties continue, our strong Q3 ending backlog gives us confidence in our next 12 months forecast of revenue. Three market trends that we see contributing to our continued growth include space debris management, robotics, and 5G network build out. Beginning with space debris management, decades of space travelers resulted in large amounts of space debris damage to the satellites and future launches, adding to the cost of operating satellites and other space platforms like the International Space Station or ISS. If debris destroys a satellite, it can take months and cost hundreds of millions of dollars to restore its service. We support the orbital debris tracking program at NASA and provide plume analysis and communication systems, simulation for vehicles visiting the ISS. In addition, we provide media tracking data for multiple government agencies. Space debris tracking is one of many services Jacobs provides on the recently awarded Johnson Engineering, Technology and Science or JETS II contract with builds on Jacobs…

Thanks Bob. Moving to Slide 9, PA's current quarter continued to see strong sales bookings up 25% and backlog was up 19% in constant currency. Here's what I see driving that. We've unique value proposition that starts with our purpose, bringing ingenuity to life to build a positive human future. This enables us to deliver both , but our purpose is critical in our ability to attract and retain top talent. Our differentiation extends to our strategy, which is focused on helping clients address some of the biggest forces shaping society with our unique end-to-end innovation offering. Indeed having technologists, scientists, engineers, and designers working together creates a unique set of propositions. Let me shift gears and talk a bit about our partnership with Jacobs. As Steve mentioned, our partnership supports key aspects of our strategy. We have numerous key accounts in common. Those accounts are ones where we can leverage PA's relationships at the C-suite to bring Jacobs into the mix early and create a differentiated solution. In some cases it could be the advantage of scale that Jacobs has or a specialized expertise. It can also work the opposite way where Jacobs has a key relationship and brings PA into complex deals. A great example is PG&E in California, where Jacobs has a strong existing relationship. The differentiation on this project was a combination of Jacob's program management expertise with PA’s strategic consultancy advice and deep domain expertise. And more than a year into the partnership, these types of opportunities are growing. Another area of our strategy is expansion in the United States, where the outlook is very promising with strong double digit revenue growth over the last six months. Beyond the synergies with Jacobs, we see a big demand for our end-to-end services. We're focused on three…

Thank you, Ken. I'm going to Slide 10 for a financial overview of third quarter fiscal 2022 results. Third quarter gross revenue grew 7% year-over-year and net revenue grew 8%. Pro forma for acquired revenue, net revenue also grew 7% year-over-year, which is an acceleration in growth from the second quarter. Currency negatively impacted revenue growth by nearly 400 basis points. And given current foreign exchange spot rates, we expect FX to impact our Q4 revenue by nearly 450 basis points on a year-over-year basis. On a reported basis for the fourth quarter, we expect revenue growth in the mid-to-high single digits, which translates into double digit growth on a constant currency basis. Adjusted gross margin in the quarter as a percentage of net revenue was 25.8%, down 180 basis points from a year ago, primarily driven by our CMS line of business related to newly ramping remediation contracts and the timing of the ramp on higher margin federal contracts, and the investment in incremental resources in PA in advance of expected growth. P&PS: GAAP operating profit was $266 million and was mainly impacted by $52 million of amortization from acquired intangibles and other acquisition deal related costs and restructuring efforts of $10 million with over half of that associated with integration costs associated with acquisitions. Adjusted operating profit was $327 million, up 4% year-over-year on both a reported and pro forma basis. On a constant currency basis adjusted operating profit was up 8% year-over-year. Our adjusted operating profit and net revenue was 10.3% and we expect a similar level in Q4. I'll discuss the moving parts later when reviewing the line of business performance. GAAP EPS from continuing operations was $1.52 and included a $0.27 impact related to our amortization, charge of acquired intangibles, $0.04 from transaction related costs,…

All right, thank you, Kevin. As Kevin described we have a diverse portfolio with significant reimbursable recurring revenue, and it provides us the ability to grow under multiple economic scenarios, and manage the impacts of inflationary pressures on our business. With this diversity comes some exposure to foreign currency translation as we have approximately 34% of our revenue outside of the U.S. with 21% of that revenue in UK Pound Sterling. As a result of the latest foreign exchange dynamics, we're providing updated guidance for the fourth quarter of adjusted EBITDA in the range of $340 million to $360 million and an adjusted EPS of $1.75 to $1.85 with the midpoints tied to the current FX rates. We feel very confident in our underlying business trends in the fourth quarter, and it provided the lower end of the range to reflect the possibility of any FX erosion. It is important to note that relative to our fiscal 2022 forecast back in November, foreign currency translation has impacted our full year expected fiscal 2022 net revenue outlook by approximately $320 million, adjusted EBITDA by approximately $40 million and adjusted EPS by nearly $0.20 to ensure our change in annual guidance and EPS is effectively driven by currency volatility versus our original expectations. In closing, we are excited about the momentum across all of our business as demonstrated by our accelerating revenue growth, our strong bookings and backlog, and a robust sales pipeline globally. Operator, we’ll now open the call for questions.

Your first question comes from a line of Jamie Cook from Credit Suisse. Your line is open.

First point relative to client, look we're really not sensing any significant commentary from clients which are indicating concerns on the impact to their business associated with their investment profile. And look, if you look at the, I'm going to call it the private parts of the portfolio, specifically the life sciences and semiconductors, those clients are really continuing to be quite robust in their outlook.

Your next question…

The only thing I’d add…Go ahead operator.

Your next question comes from the line of Bert Subin from Stifel. Your line is open.

Hi, hey, good morning.

Good morning.

Good morning, Bert.

Bob, you mentioned the CHIPS Bill in your prepared marks. How much of a tailwind, if any, should we expect that to be for your fab design business? And then just to a, just a quick follow up to what you were talking about on the resilient side, is it fair to think that the PA consulting would be sort of the most volatile piece of your business as we think about sort of going through a potential economic recession? Thanks.

Yes. Bert on the first part on the CHIPS Bill, I think the way that we're thinking about it is, is that, that was already such a robust business for us based on the clientele that we have and what the business drivers were for them. But the CHIPS Bill did go as quick, even more credibility as well as substantiation of continued growth for those clients that are actually changing their business model. So I think it's putting more confidence that the cycle that we used to talk about being traditional 18 to 36 months cycles going even further with now support from the Federal Government, so we're, we're excited about that. With regards to the volatility in PA's business, you know, its – PA is very unique model. It's structured where the traditional management consultant relying on discretionary spend of their clients for business transformation activities is not really where PA sits. PA sits in product innovation and in using that product innovation to transform businesses and so these are really at the core of the clients that they serve. So we're not really seeing -- we're not seeing that as evidenced by the bookings trends that we saw with PA this quarter being at the highest that they've been eventually ever which is really putting some credibility in the backlog moving forward.

Your next question comes from the line of Jerry Revich from Goldman Sachs. Your line is open.

Yes. Hi, good morning, everyone. I'm wondering if you just expand Kevin on the, hi. Kevin if you wouldn't mind just expanding on the margin comments in your prepared remarks for Critical Mission Solutions and People & Places exiting the fourth fiscal quarter. You know, it sounds like you've got some idiosyncratic moving pieces that might impact normal seasonality as we head into the December quarter. Can you just tease that out a bit based on contract cadence, et cetera, that you alluded to for full fiscal year 2023? Thanks.

Yes, Jerry couple of points. First is on the win profile associated with our CMS business, we’ve been ramping some of the big environmental contracts, the nuclear remediation contracts, which are embedded into our forecast, which as you know, is lower margin. And we've previously discussed that the balance of the year would start to see an uptick in margins because of all of the shorter cycle and cyber and intelligence wins, which are coming. And actually Bob announced that one was, we just heard about this this week actually, and so, or last week and so look at the end of the day, all of those are happening. They're just not happening and won't ramp in Q4 which was our original expectation. So if you look at that dynamic, that puts a little bit of pressure on the Q4 margin that we have in addition to continue to have the investment profile and we're not backing off of that in Q4 because of the anticipation of the growth in 2023 and beyond. So it's a double kind of double impact on Q4, but ultimately then translates into 2023 starting to rebound and come back into the margin profile that we've seen in the past. Now it's going to take a while to get there, but ultimately we're confident that the margin profile will start to kick back up in 2023.

Your next question comes from the line of Steven Fisher from UBS. Your line is open.

Thanks, good morning. I just wanted to follow up on that discussion about the cyber contracts and you mentioned that $500 million one, I guess that's the one from last week, and I guess I'd call that a mid-sized award compared to the NASA type opportunities. Can you just talk a little bit more about how much more of that you have in the pipeline and the timing of those and then how relatively important they are to that 2023 plan?

Yes, so Steve here. Yes, the good news is we actually had two wins in the last 30 days in the cyber intelligence business. There was a $500 million one that did get booked late in the third quarter, and then we've had one just in the last week that Kevin just talked about that’s just under $500 million. And those are two good sized cyber intelligence awards with better margins than some of our longer term enterprise contracts that we have in CMS. So they're going be margin are creative and we're really going to see those playing out as early as, you know, as far as the P&L in the first quarter of 2023. So, and then on top of that, we have about $1.5 billion of things that could hit sometime in the fourth quarter, as far as pursuits out there, and if you look at our normal win rate, that’s going to add on top of that. And then on the back of that, there's a series of other pursuit opportunities that will play out sometime in the first half of 2023. So we're, you know, we are excited about cyber intelligence, a little frustrated that it's taken a few quarters longer than we had expected. And then I just want to add on the back of that outside of cyber intelligence, which also gives us some optimism is that the Americas IIJA initiatives, we are clearly seeing momentum now in that. The pipeline is building. We've had some early on wins. We've got about 50 grants out there that we are highly confident of winning a large share of, and that's going to translate into business. And we see that, that’s starting to accelerate in 2023. And so it really hasn't been a material impact on our business to date and we all know that that's coming because of the commitment of the U.S. Government around that IIJA. So, those are reasons for optimism as we get into both top line and margin improvement as we enter 2023.

Your next question comes from the line of Chad Dillard from Bernstein. Your line is open.

Hi, good morning guys.

Hi Chad.

So, on the back of the announcement the 2022 Inflation Reduction Bill, particularly the climate change portion, can you give a little bit of color on that and just like how much would be addressable to Jacobs?

Yes, it's the, very similar to the IIJA when you look at the climate change portion, which is in the high $300 billion, I think it's somewhere in the $370 billion $380 billion. We see somewhere in the 85% plus coverage by Jacobs of when you break that bill down to what we're able to see so far. And we haven't been able to get a 100% of it, but based on some of the specifics and what we're hearing, it's going to be a majority of it that’s going to be an opportunity for Jacobs.

Your next question comes from the line of Andrew Whitman from Baird. Your line is open.

Yes, great. Thanks for taking my questions guys. I guess just a clarification. I think Kevin, in your remarks, you made a comment, there was an FX benefit in your corporate unallocated. Is that the $8 million? And was that like, did you sell a swap or a currency hedge there to realize that? I'm just curious if that was cash or noncash as well?

No this is basically translation related efforts or impacts, I should say Andy. So effectively, if you think about the revenue and the gross margin, all of that is negatively impacted by the dollar strength as the foreign currencies get translated into lower revenue and gross margin. That's partially offset by the fact that our costs are also reduced in terms of our international operations. So it's really driven more by that. No effective kind of trend transaction was related to that.

Good afternoon, Steve, Bob, Kevin and Ken.

Hey Louie.

With the announcement of this earnings call from PA Consulting from headquarters in London, do you have any plans to acquire the remaining 40% of PA Consulting that you don't already own?

Yes, we've talked about this in the past and continue to have the same view that we really love the model that we've set up for the investment in PA and think it not only is unique, but it's one of the reasons why we were able to get that and to get this investment across the finish line. And, yes, there could be a scenario where we incrementally grow our ownership, but right now over the long-term we think having the PA partners and employees have ownership and the collaborative opportunities that that gives us is really part of, is really a key reason why we're off to such a strong start in the first year plus. And so we see that kind of model continuing going forward.

Yes. Thanks for taking my question. I realize you added in some areas investing in people, adding resources for the stronger growth outlook. You're talking about CMS, how some of these cyber contracts, which are higher margin are going to pick up next year. Just based on what you're saying and the expected pickup in funding, should we be seeing an outsized level of margin expansion in 2023 as utilization levels are likely to pick up?

Hey, Michael, is this Kevin. Is your comment about CMS specifically?

It's about overall the mix of the business?

Well look, if we look at our margin profile just in Q3 and Q4, we do believe there's going to be an ability to increase margins as we come out of this dynamic that we're facing in Q3, Q4, where growth hasn't kicked in as much as we want or continuing to invest. So we do believe that there's margin upside in 2023 versus current level. But I wouldn't say extraordinary because we're going to ultimately continue to drive investments and support our business ability to grow longer term and at higher gross margins.

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

Hey, good morning or good afternoon. You know, as far as the Russian war with Ukraine and rising tensions in the Taiwanese Strait, could you just talk about, if you've seen any specific uptick in demand for Jacobs capabilities, space, cyber, is it -- you've seen international demand or mostly domestic? And then I guess a related question to the commercial side, what does the flow of European energy projects look like at this point?

Yes, Josh, I I'd say two. Yes, the short answer is yes. We have seen an uptick in the client conversations and the -- and just the dialogue around potential opportunities. I'd break it down into two main parts and then to address your energy comment in Europe. For cyber services, yes these are predominantly U.S. based framework agreements that we have in place. And we've seen efforts around those agreements be applied to cyber intelligence activities, specifically surrounding what's going on in the Ukraine. And then the second part has been around defense infrastructure. And so you mentioned what's happening in the Taiwanese Straits, you probably say that our posture, well, when I say the Western hemisphere’s posture around defense infrastructure in Asia has been going on for the better part of a decade. But now, in addition to that, we're seeing more requests. In fact, we've been awarded, they're confidential, a few jobs already in Eastern Europe around similar types of lay down platforms and defense infrastructure in Eastern Europe as a whole. On the second part around energy in Europe, the answer again is yes. Energy transition and in that effort, not just in continental Europe, but in the UK and in Europe and in Ireland as well is probably at an all-time high with regards to the activities and that continues to be a strong catalyst for growth for us in our European business.

Your next question comes from the line of Gautam Khanna from Cowen. Your line is open.

Yes, thanks guys. I had a couple of quick questions. First on the CMS segment, you talked about the $10 billion of source selection bids out there, does that, is that net of the $4 billion NASA contract? And in general, what are you looking at for the September quarter? Were you looking for some fairly sizeable bookings? And if you could also refresh us on the recompete dynamic over the next 12 months, how much of the CMS business is up for rebid?

Let me just start and Bob, you can pick up. So the insource election around the $10 billion is net. So the -- I just want to be clear that the Johnson win is not in our backlog in the third quarter and will be added to the backlog in the fourth quarter. But what we're talking about now moving into the fourth quarter with our bid process is, I already covered several billion of that, being around the cyber and intelligence business, and also some opportunities specifically in our segment working with the U.S. government. And so we're talking about net around all that. Bob, anything to add?

No, and may be probably the biggest recompete is NASA Kennedy that is coming up later in the year. We're currently under an extension there. So we like our -- we're confident about our opportunities in both Q4 and Q1.

Let me just clarify that. The $10 billion is new business, not rebid so it’s new awards.

New awards insource collection and it's net of NASA, yes.

Hi team. Thanks for taking my questions. I just wanted to come back to the investments being made this year. You know, I think it's been clear all through this year that this is somewhat of a major investment year for Jacobs, and it sounded like actually ramped up in the third quarter with sort of incremental investments offsetting that that gain on sale. I just wondered how much of that ramp is Jacobs really getting more aggressive and really bolstering that personnel to support growth versus it ending up costing more than you thought at the start of the year to build up that personnel to support growth? I hope that’s a fair question.

Let me characterize our investment profile. Certainly we entered the year with, as we've talked about over the course of the fiscal year, some pretty strong investment profiles associated with the expected growth. We've actually reduced that a tad in Q3 and Q4 as we've seen a delay in some of the revenue build that we had envisioned happening faster and sooner in the second half of 2022. Now this one particular investment partially offset the WatchGuard benefit. But I think we've continued to be very proactive in sort of supporting people. I know that PA has invested in terms of salary improvements and have increased the pricing associated with efforts in that regard. So effectively, I think it's been broad based that we've continued to be investing against our people and supporting our people, but actually probably faster and in the first half versus the second half, other than this incremental investment we just made because of the WatchGuard benefit.

Your next question comes from the line of Andy Kaplowitz from Citigroup. Your line is open.

Good morning, everyone.

Hey Andy.

Can you give a little more color into the PA Consulting margin? I know you talked about it being pressured by FX and the incremental investments. Can you quantify those investments possibly? And I know you mentioned margins, you returned over 20% in the short term, but you still have confidence in your longer term margin expectations for PA, that sort of 23% flattish as you go ahead over the next several years?

Yes, I’ll take a crack at it and then we have Ken here with us and I’ll turn it to him to see if he has any additional color. But the PA team has been very aggressive in getting new talent into the organization, both at an executive level and at a partner level, which ultimately helps drive and support incremental growth going long-term. They were very successful, especially in Q3 in bringing on board a bevy of talent, which is going to be positioning them for really strong growth going forward in 2023. That all came together, and fundamentally when they brought those folks on board, they're not obviously originally billable from day one and so that will put some pressure on their gross margin. Now it's just about adjusting their hiring going forward, determining how much they need and they'll start to see an improvement back up to the operating profit margin that we discussed in prepared remarks over 20% in the fourth quarter and ultimately beyond into 2023 and beyond and we feel confident on that. Ken?

Yes, I think you hit it, Kevin. Two things, one was significant amount of senior executive hiring, which came together all at the same time. So we actually had five senior executives join in the same quarter, which had significant cost with it. And then the second part was given the large deals that we have in the pipeline that we historically have not had, we started to ramp up hiring in advance to ensure we can actually service those should we win one or more of them. So we're very confident about the profile going forward and we've obviously watched our recruiting go forward that the pipeline remains very active and strong and we're confident.

Great. Thanks and good morning. Just kind of the first question is the 50 grants that I think Steve called out earlier related to the IIJA. Anyway you could quantify sort of the dollar amount or how much of that money has sort of come through already? And then just the second question is, maybe a bit more philosophical, but as you mentioned earlier, you are seeing not really any meaningful slowdown in the outlook, but -- and in the past downturns, government's really stepped up with spending across some of your end markets and regions. In the conversations you're having and how much those governments have spent over the last couple of years, what do you think the propensity is there to step up if there is any meaningful slowdown as you look over the next one, two, three years? Thanks.

Yes, let me start, Steve here, let me start with it and then I'll turn it over to Bob, but first of all, congratulations. We understand you just had a new baby and wish you success on that big opportunity with your family. So on the grant side, I mentioned 50, there's -- we really, right now we, just some small fees associated with that, but the big opportunity is that we see the first 12 coming to fruition as far as a go decision over the next few weeks, and then those will start to ramp up and there's other grants on the back of that. So we have yet to see the benefit of those, and we're pretty excited about what those will lead to as the procurement cycle progresses on those. Bob why don’t you handle this?

Yes. And may be just a add on to that, which would then lead into those growth trajectories that we highlighted in our strategy, which we're gaining more confidence around that specifically in our infrastructure business, in our three major markets which actually four if you count the Middle East, but in the U.S., UK and Australia. On the government's historical reaction to recessionary type periods and then how does that compare to what's happening right now? We actually see that step up as being positive again. We're seeing governments pretty bullish on infrastructure spin, and then in areas where that might be a little bit in debate, those political candidates that seem to have some traction in the marketplace are making very vocal comments about putting more money into major programs in those geographies. So, all-in-all we're feeling very positive about what the future looks like in infrastructure.

You also asked about the percent of money that's out there. I think it's over 30% now on the IIJA. I don’t know exactly what the number is right now, but it's over 30%.

And there are no further questions at this time. Mr. Steve Demetriou, I turn the call back over to you for some closing comments.

I just want to thank everyone for calling in and we look forward to updating you next quarter.

This concludes today’s conference call. Thank you for your participation. You may now disconnect.