All right, great. Well, thanks so much for joining us, everybody. My name is Adam Seiden, I'm the U.S. Machinery and Construction Lead at Barclays. Welcome to the fortieth edition of the Industrials Select Conference. For this session, we're really pleased to have with us, the team from Jacobs. Joining us, first is the incoming CFO, Claudia Jaramillo. We have Matt Schiller from the Government Relations side, as well as Jonathan Doros from Investor Relations. The format of this event here is a fireside chat, a conversation with myself and the team. We'll open up the floor for questions at the end if you did have any. I'll also let you know that there are some gadgets on each one of your tables there. That is for our audience response system. If you wouldn't mind, as we go through those questions, through the session, we would love if you can participate. And we'll talk about those questions as well. With that, Jacobs team, thanks so much for being here. Thank you. Thank you. Cool. Well, you know, I'm really excited here 'cause I feel like I may have the honor of being your first presentation since your nod. You are. maybe to start off there, right? I, you know, I know your tenure at Jacobs is relatively young, but your experience in the overall in broader business industry is quite strong and long. I'm curious if, you know, as you think about your transition into the CFO role, you know, what things you're looking to bring from your prior experiences, whether it be at Jacobs or from your prior position at SLB and so forth. Thank you, Adam. I'll start with, you know, giving a little bit of context about Jacobs, which ties a lot into the reasons why I joined Jacobs. First, my career is mainly in energy, a long career in energy. I joined Jacobs largely driven by the future and the great hub platform that we have in multiple sectors. It's, it's very exciting when I look at Jacobs and the very proactive portfolio transformation, how the company is positioned in growth sectors where there are macro trends. In some cases, the growth can be, you know, multiple years, and in some cases, we think it can go even multiple decades. Those are across all our sectors. We have four core sectors, and those are critical infrastructure. As you know, it's Energy and Environment. We have National Security and Cyber and National Security. Already the core portfolio transformation is doing a lot for us. At the same time, we have a lot of good opportunities. I joined Jacobs, you know, and if everything is done, then you know what opportunities you have. I see the opportunity, and the strategy was rolled out last year. The strategy is based on three accelerators, and those accelerators are really to enhance growth and margins. The accelerators are Climate Response being one of the big things that we see in the world, very challenging problems or, you know, things that both governments and companies are dealing with that require a lot of domain expertise, which is one of the big strengths that Jacobs has. Climate Response being the first accelerator, the second one being data solutions, and the third one consulting and advice. You combine the two, and we have the opportunity to further enhance our revenue growth and margins. Then what's next? How do we improve it? It is what's next in the strategy is execution. Execution is really, you know, how do we do it is focusing, instilling operational discipline, and then effectively deploying our capital, focusing on our shareholders. That leads me to how do I bring my experience. My experience, I'm an electrical engineer by trade. Now, I did an MBA at Wharton, switched to finance. Been a lot longer in finance than in engineering. In my career, especially, my energy career, I've worked in different parts of the world. You know, a long time in the U.S. managing, you know, businesses that are global. SLB, which is, you know, my last role before I joined Jacobs. I was the group treasurer for SLB in operations in over 100 countries, I had the opportunity to deal with emerging markets as well as, you know, OECD markets. In energy, you deal with a lot of cycles and very difficult cycles. You need to have the operational discipline. You cannot wait to adjust your costs. You need to have a lot of focus on working capital, you know, all the cash deployment of capital, aligning your operations with the shareholders to make sure. In energy, many times it's about, it's as basic as if you don't do it, you don't survive. SLB is a very successful company. That exposure to those P&L positions, one of them, you know, one of them, I was the head of finance for the North America business. It was, at that time, a $16 billion business. It was in the longest downturn of the energy industry. That gives you a lot of resiliency, a lot of transformation that you need to drive, both to manage the capital and also to manage the cost and bring the organization to the point where, you know, when you make decisions, what are the KPIs that you use to make those decisions to anticipate what is needed. I'll finish with that piece, the KPIs, which I believe is very important for us with the strategy. The strategy, when you communicate these things to the organization and externally, how do you make it simple? That's the other opportunity that we have, and we are currently working on clarifying our message, making it simpler internally and externally on our strategy, and really focusing on the KPIs that are going to show the progress that we're making on the execution of our strategy. Got it. That's really helpful. When you talked a little bit about the past and also a little bit about the present and the future here at Jacobs. You know, one thing if I think about the last couple of years, there's been, certainly there's been a strategic change. The business has become higher quality, less volatile. In order to do that, also the business has, you know, made several transactions to get there. You know, in your current role at Jacobs, you're certainly you've been exposed to a little bit of that process. I'm curious, you know, as you step into the, you know, the CFO seat, you know, what type of, you know, how acquisitive do you think Jacobs needs to be? What type of risk parameters do you tend to put up when you're looking at deals and how you look at your diligence when you're thinking about growth in the future? Great question, especially because one of my roles right now, you know, before I started the transition into CFO was, you know, strategy combined with corporate development. I've been dealing with a lot of these positions. I can tell you, because of our, you know, expertise and all the different parts of infrastructure we have, you know, opportunities presented to us. Every week we have several opportunities. It gives us solid foundation to make a decision, yes or no. The strategy is not only the growth accelerators, the strategy also has a very clear component of revenue growth and margin improvement. If we apply the lenses of how does this fit into the growth accelerators, is it aligned? The second is, does it align, is it aligned with the growth and margin profile? Those are the first, the first lenses that we apply to those opportunities. That's more of evaluating specific opportunities. If I step back on, you know, what I talked about effective capital deployment. I like to look at the capital deployment through the shareholders' lens. At the end of the day, this is our shareholders' capital. We deploy it thinking of the shareholders' capital. That's my own philosophy. When we do that, we have two options that are not mutually exclusive. One is we return excess capital to our shareholders, through dividends or share repurchases, or we do M&A transactions. M&A transactions, the bar needs to be high. Why high? M&A is always risky. Even with extensive diligence, you still have the integration. Integration, that's something that, you know, we've been putting at first in the conversation. From the moment that we started evaluating some of these deals, since I joined the company, and, you know, and John, you know, as part of some of those conversations, I always ask the team, "How are we going to integrate this company?" This transaction is not about how we do the due diligence, how we close the deal, how we negotiate it. It's how are we going to monetize the synergies, if it is growth, if it is cost, all these different things. How are we going to work through the integration? I'm just illustrating that because that's where the risk comes into play. Besides the things that you don't see when evaluating the company. The high bar is, you know, acknowledging that M&A is risky and needs to be on a risk-adjusted basis, you know, higher than the cost of capital. You know, well above the cost of capital. All those combined, if I think about the last few months and how good our portfolio is, the likelihood of something in, you know, taking place tends to be low because the bar is high already through the lenses of the strategy, the margins, and the risk-adjusted basis, above the cost of capital. Got it. Maybe to transition to the business, you know, we were talking about, you know, less volatile, higher quality. One of those legs that the company has brought in is PA Consulting. Now if you think about the business on margins have progressed a little bit here. Given that the street has a little bit less history with that asset, I'm curious, you know, as you've gotten up to speed as well, you know, if you could tell us a little bit about, you know, what we're seeing here. Is that, you know, more of a regression to the mean as to where the margins should be in that business? You know, what type of business could this be in the next, you know, three years, five years and so forth? Yes. That's, that's a very topical question. First I want to refresh the concept of why we did the transaction. PA has very much the same drivers as the rest of Jacobs, and it is a lot of sustainability. Many of these things that PA does in sustainability, and many of the customers we work for and with are, you know, the same interests in the government and in the energy transition space. A lot of energy transition, decarbonization, many of the same markets. With that, the difference and one of the big drivers of the transaction is they start much earlier than us. Their conversation starts in the boardroom. What happens is we can go together to a customer, or they go first and then we follow. We can be their implementation arm, or we can bring them with us to start to plan it, earlier planning. When we look at PA, they've been growing. They have had, you know, double-digit growth, very healthy. They're also ahead of the business model that we have. They are accretive, all very positive. Now, when we focus on the, on the last couple of quarters, what happens is their backlog and pipeline has been growing. Most recently, it was over 24% on a constant currency basis. The underlying growth is there. What has changed is the burn rate. Our objective is to grow double digits operating profits and long term. We're managing the business to deliver that double-digit and long-term growth. With that in mind, this is still a business that is exposed to macro drivers. In the last couple of quarters in particular, it was impacted by some of the UK government challenges. How we saw that: backlog is still good, pipeline is still good. We saw it in the burn rate. The way it works is we sign the framework agreements, let's say with the NHS in the UK. It's not a framework agreement, but the burn rate is not the same. Because we're managing focus on the long-term and targeting double-digit operating profits, we're being careful not to destroy the knowledge. We have taken measures to, you know, they hired way ahead of the burn because they had it in the backlog and the pipeline. What we have done is, we have applied measures just to let the burn align with the resources that we have. Again, we are reiterating our commitment to the double-digit operating profits and, you know, ramp it to 20%. Got it. Got it. There's a clear path or there's a path to improve the business and improve the operating profit within the business. From an ownership perspective, how attractive of an opportunity is it to, you know, become a full owner of the asset today? Maybe start there. Yeah. I would say that it's, you know, it was attractive from day one. Like anything in M&A, you know, you go with an idea, and then it really comes down to who is around the table, you know, the seller and the buyer. The rest is it goes back to my prior comment, which is integration. The moment you acquire the company, you're making commitments to your different stakeholders and what is the deal model. You know, how much you're going to grow. What you want to do is you want to incentivize the organization to do it. What are the KPIs? In this case, you know, very focused on operating profits growth. It's a company that is... It's partners. We wanted to incentivize the partners to keep that healthy growth and the healthy margin. At that moment, the right is the right structure, and it still has the components of that. They were also looking, you know, there's a symmetry of information. There is this large company that is going to come in and probably paint everything a different color, change all our policies and all that. There's a symmetry of information that happens in most acquisitions. In our case, we wanted to protect this entrepreneurship, you know, and all that. That's where the model does not acquire the 100% and I know quite honestly is what you can achieve at that moment. The way the deal is structured is there is a mechanism for us to reach the 100%. We have seen and we have you know, as I said, we are ahead of the business case, so it's working very well. They're incentivized to deliver the right margins. They're incentivized to deliver the growth. We're really now that the trust is developed, that they see we're not going to change everyone, that we're going to change all the policies, is more for us to say, you know, when is the right time? Now we have a very close collaboration. You know, over time, we're going to be looking at opportunities to increase our stake. That's helpful. Maybe shifting to Divergent Solutions a little bit. The company broke that out for the street this past quarter. Can you remind us, you know, what are the major profit drivers of the Divergent Solutions pool today? You know, how does that mix change over the next, you know, couple of years here? Yeah. This is probably one of my favorite topics and I'll tell you why one of my favorite topics. Again, my background, a lot of you know, the energy industry. The energy industry uses lots of data. The power of data, and it's not only the energy industry, I think our daily lives, you know, the power of data, how you can extract so much value, how you can be more efficient and get better insights, both types of insights. Divergent, the rationale is really we with all the domain expertise that we have, is it an infrastructure? Is it an Advanced Facilities? You name it, energy transitional that generates a lot of data. We also use a lot of data. Divergent Solutions is really that. It's, you know, leveraging the data that we produce and the data that our customers have, then data that is publicly available. At the creation of Divergent Solutions, the largest share of Divergent Solutions is our cyber intelligence, but it's mainly federal agencies and so on. Long history, strong domain expertise. You have some of the best experts in the world, so that is shown in the margins that we have today. There is, let's call it, a quarter of the business, roughly, that is more linked to infrastructure. That one has a few portfolio pieces that are more of a startup, so they're early stage. I'll give you an example. One is water. Water is one of them. We recently signed a partnership with Palantir. That is water. How do you use that? We have our wastewater treatment facilities. We have our domain experts, our data scientists, and the computing power of Palantir. With that, we have shown that we can reduce power consumption by around 30%. With that, you reduce power consumption, you reduce carbon emissions, and so on. That is more into more our traditional P&PS customers. We go with data. This is all data. We also have StreetLight Data, which was an acquisition that we made about a year ago. This is more in the transportation space. That one is to optimize designs, planning of, you know, it could be infrastructure. Is it roads? Is it to, you know, EV charging infrastructure to modernize the infrastructure as well? More in the transportation. That is the other piece that is less visible because today is roughly a quarter. That's more the early stage. What you see in the margins of that piece is more that investment phase where we pull different developments that we had in parts of P&PS and CMS, our People & Places Solutions and our Critical Mission Solutions. We pulled those together, and now it's part of one organization. The reason we're doing that is, again, you know, getting the operational discipline. Say, okay, we're going to develop this, and we're going to make it scalable as opposed to just we spoke and only want a couple of customers. That's helpful. I want to transition to P&PS and Matt on some of the government things. Before I do that, just last thing on Divergent Solutions. I know the business that the company is challenging the business to get to 10% margins by year-end. You know, how realistic is that? What's the pathway to achieve that? I think What we see now is the second half of the year with this part that I described at the end that is tied into infrastructure. We see that as, you know, very visible. We're focusing on that. I would say besides what you're seeing within Divergent is the margin enhancement piece that Divergent has or effect that Divergent has on P&PS. It's the partnership between Divergent and P&PS when they go to market together, because those are the same customers. I think, you know, you were saying, Matt has excellent examples of some of the Divergent elements. For example, StreetLight Data and IIJA and all of that. I think you'll have a good opportunity to hear Matt's point. Excellent call. With that, Matt, maybe if we, you know, start thinking about, you know, IIJA, you know, how has the funding rollout been on IIJA broadly? You know, is the industry happy with the pace and the speed and ultimately bringing it back to Jacobs, you know, has it met Jacobs' expectations? That's a great question. Thank you for having me. I would say that I think most folks were generally, and certainly internally, there's a certain amount of frustration. You see $550 billion come out, historic numbers across a wide variety of fields. We care about well north of 90% of the money that was in the IIJA. The agencies certainly had a lot of staffing up to do within places like U.S. Department of Transportation and EPA and others. They're adding over 1,000 people each just to these competitive grant discretionary departments. It's a lot of work to get that started, and we appreciate that. I think we wanted it to roll out a little bit quicker. It did get there. Certainly, there were also some brand new programs. There had never been a dedicated bridge program like that. The PROTECT Program for transportation and communities, that's brand new. Certainly, the NEVI Program for electric vehicles, also brand new. Each one of those 3 had a formula program as well as a discretionary program, and they just weren't able to put all of it up in year 1. I understand that. I think we wanted to see it, but, you know, towards the end of that first fiscal year, the money started flowing. We feel much better about where we are right now. We track this on a micro level. We've got some of our best folks that are really dedicated to doing nothing but following this money and figuring out how to take full advantage of it for our clients. To that point, we're seeing the same grants. We had an expectation of when certain grants were going to be coming out this year. The pace of play is picking up by 1-3 months, a lot of these. They're really coming out a lot faster. We're also going to see those new programs that I referenced. Those will be up at their full speed this year. We feel really good about it. I think the money in most of these accounts will be picking up year-over-year. We've had the big increase on the transportation funding side. A number of other programs are going to ramp up. I think that the, you know, the bill lasts through fiscal year 2026, which is great. That's really where a lot of the money caps out on paper. There's a longer tail on a lot of this money. The life of the bill and will, for what it means to us and our clients and our ability to do work off of this bill, will extend far beyond. We're really excited about the long-term potential there. Got it. One of the things that's been very topical is, of course, inflation for the broader economy. Right. That affects also construction projects. Curious, you know, as you see when you're talking with your customers and state and local municipalities, you know, has higher construction costs as a whole, has that impacted that rollout that you were just talking about? Now that we're seeing a little bit of a leveling off here, it's also coincidentally when you're starting to see the pace of funding increase. Could be coincidental, but just curious how you factor that in. That's a great question. I think it's never helpful to have that level of inflation, but at the same time, this is by far the largest increase that we've ever seen historically across the traditional modes of infrastructure. The last several Surface Transportation Reauthorization bills, so basically the vehicle for funding highways and bridges, you know, that had been level plus inflation for better than a decade. You get your jump from FY21 to FY22 of about 21%-22% nationwide. Huge growth. I can appreciate the concern that you're going to have inflation can eat into that. Our internal analysis, as well as some things I've read from folks that I trust, you know, you'd have to have high sustained 8%, 9% growth for the entirety, the entire life of the bill to really eat away at the whole thing, which I don't think is likely. Even in addition to that's just the formula side. You have huge discretionary pots that we've been talking about across every mode of transportation that wasn't there before. This is something else that all of our clients across all of these modes can lean on. We're helping them with that money. It's something that wasn't there. Then in addition to all of that, you've got just opening up new markets, money that wasn't there before. Things like hydrogen hubs. We talked about the EV charging system that really you're injecting billions of dollars into that market. We're going to see a whole bunch of market creation. The other thing I would add very briefly is on the Inflation Reduction Act, which we haven't gotten to yet. Sure. That money's coming, that money's coming very soon. Really important to note that that's front-loaded. It was built in a different way, where the federal government's going to spend enormous chunks in year 1, and that's coming in the next six to nine months. There's a solar program coming out through EPA for local governments and communities. It's a $7 billion program. If that was IIJA, that would be spread year over year for 5 years. They're going to spend all $7 billion in year 1. Those types of things are gonna be a shadow. I don't think anyone is better positioned than we are. We've really skated to where the puck is going to be. We're already there. We're prepared. You look at the things that we've done. I know that StreetLight was mentioned. Those types of investments, we've stepped up on a very robust grants team in advance of IIJA passing. I think we're just, we're there in position for the opportunity. That's great. Another topical point hitting the government right now is the conversation around the debt ceiling. Just curious, you know, if you could talk about how much of the IIJA funding or whether it's IRA or CHIPS, you know, based on your own calculations or folks that you talk to... Right. How much of that could get caught up if we, you know, if we hit Budget Control Act two-point-zero here? It's early in the morning for me to try to put everyone to sleep with this. With budgetary talks, but I'll try. The really interesting thing is the structure of how these bills were put together, which is to say, normally in a Surface Transportation bill, you'd have an authorized number, and then the appropriators, a separate committee, are gonna come in and they're gonna hit those numbers every year. They're gonna cut the check for it. What's different is that this was front-loaded. It was paid for in both bills. Actually all three, for IIJA, Inflation Reduction, and CHIPS. The science portion of CHIPS was just authorized, but the semiconductor piece was paid for. Other than that, everything was front-loaded. The money is guaranteed. It's already there, and it's just sitting in the Treasury, and it basically dumps down into each year. That money is good to go. Should we see a broader agreement on some sort of deficit reduction bill, the annual appropriations piece will continue. Congress continues every year to dump money into those infrastructure accounts. Could you see, you know, a low single-digit reduction in some of those for the money that would sit on top of each of those bills? You, you could, and that's certainly a concern. The wide bulk of the money is there, and it's guaranteed, and it's locked in. Got it. Just also actually extending to CMS as well. I didn't know if you had any comments on that from a debt ceiling standpoint, if there could be any impacts on that side of the business. I mean, we do rely on the federal government. I think any of these conversations are a concern. The starting point for this negotiation is not in a good place, that's not where it's going to end up. I mean, going back to FY22 levels without touching defense and veterans affairs would have very large cuts. This isn't The House of Representatives is not making this decision in and of themselves. Even within the House, there are very broad ranges of opinion. The Senate doesn't agree to that. The administration doesn't agree with that. There's gonna be a long negotiation that will get resolved. On the sooner end, well in advance of the end of this fiscal year. We'll see where it ends up. It's not unusual to have a federal budget discussion tied to the debt ceiling. People come to some sort of agreement. I think we'll have some stability at that point. Got it. Just in our last minute here, can I just go to the audience response questions here? Claudia, this is your first go around here. We've got a blank screen. This is my time where I could be a game show host. If the questions come up. All right, perfect. There's a clicker on your table here. Do you currently own this stock? You guys can see the answers there. Yes, with a couple of different ways and 4 would be no. Guys, have we started the response from the back? Perfect. All right. 75% say no. Next question. What is your general bias towards the stock right now? 1, positive, 2, negative, 3, neutral. You're tasked to be kind of the timer here, so you know when the responses go through, but we're lack of the timing here. In the back, you could just flip up the results there. 65% say neutral. Next question. In your opinion, through cycle EPS growth for Jacobs Solutions will be 1, above peers, 2, behind peers, or 3, below peers. Hey, timer's here. Ah. All right. Above peers with the preponderance of the responses. Next question. In your opinion, what should Jacobs Solutions do with excess cash? Hold on M&A, larger M&A, share repos, divies, debt paid down, and internal investment. This is a CFO's favorite question. We could see. Good to know that. Yeah, there you go. Well, share repos seems to win. Next question. In your opinion, on what multiple 2023 earnings should Jacobs Solutions trade? There's different multiple there. I'll let the audience read those. Start the timer. All right. 16-18, I believe is the majority answer. Next question, please. I think we're towards the end here. What do you see as the most significant share price headwind facing Jacobs Solutions, core growth, margin performance, capital deployment, and execution? Execution. Next one should be the last. Okay. Does ESG play an active role in your investment decision-making, decision relating, sorry, to the company? Start the timer. All right. No, is the most popular answer here. That's an interesting one to end on. With that, Claudia, Matt, John, thanks so much for being here, and I appreciate you. Thank you.