Ladies and gentlemen, thank you for standing by. My name is Brent. I will be your conference operator today. At this time, I would like to welcome everyone to the Jacobs Fiscal Fourth Quarter and Full Year 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.
If you would like to ask a question at that time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, again, press star zero. Thank you. It is now my pleasure to turn today's call over to Mr. Jonathan Doros, Investor Relations. Sir, please go ahead.
Thank you. Good morning to all. Earnings announcement and 10-K were filed this morning. We have posted a copy of the slide presentation on our website. We'll do a reference during the call. I'd like to refer you to slide two of the presentation materials for information about forward-looking statements and Non-GAAP financial measures.
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, President and Chief Financial Officer, Kevin Berryman. Steve will begin by reviewing our fourth quarter results then provide an overview of our software and technology platforms. Bob will review our performance by line of business, Kevin will provide a more in-depth discussion of our financial metrics, as well as a review of our balance sheet and cash flow.
Bob will provide details on our updated outlook, along with some closing remarks, and then we'll open up the call for your questions. In the appendix of this presentation, we provide additional ESG related information, including examples of our leading ESG solutions. I'll now pass it over to Steve Demetriou, Chair and CEO.
Thank you for joining us today to discuss our fourth quarter and fiscal year 2022 business performance and 2023 outlook. As I transition to Jacobs Executive Chair, I'm excited and confident about the next phase of our strategy boldly moving forward. This strategy continues to unlock and elevate our transformed high-performance culture to capture significant growth opportunities we've identified across climate response, consulting, and advisory, and data solutions, while benefiting from the recurring nature and diversity of our core businesses.
From a financial standpoint, we believe the rigorous execution of this strategy will result in enhanced long-term revenue growth and expansion in our profit margin profile. During our last two strategies, we maintained a focus on continuing to reshape our business through organic investments, acquisitions, and divestitures.
By doing so, we were able to deliver value for all of our stakeholders, including our shareholders. Since we started our journey together in 2016, we intentionally transformed our culture and our brand through revenue and expanded profit margins, leading to a total shareholder return of approximately 250%, almost twice the return of the S&P 500. We believe the next phase will be equally as transformative as we maintain our brand promise of challenging today and reinventing tomorrow. Let's now discuss our fourth quarter results.
We're seeing strong demand with robust opportunities in our sales pipelines and a number of marquee recent wins, which underscores our strategy. During the quarter, net revenue grew 6% year-over-year and grew 11% on a constant currency basis, with another quarter of constant currency growth across each line of business.
Backlog was up 5% from the prior year's quarter and 8% on a constant currency basis. Within People & Places Solutions, our advanced facilities business again posted double-digit year-over-year top line and operating profit growth in the fourth quarter. The remaining P&PS units in constant currency also experienced year-over-year growth. During the current quarter, Critical Mission Solutions is beginning to see previously delayed opportunities enter the final stages with a major cyber win last week and with another win close to clearing the protest period.
PA Consulting and constant currency continue to show strong Q4 growth with revenue up 9% and backlog up 8% year-over-year. PA successfully won a large multi-year contract with the Ministry of Defence to secure the next generation soldier in what's proving to be a digitally-enabled battlefield.
From a full year standpoint, we finished the year within our original guidance range, even when recognizing the translation impact from the strengthening U.S. dollar, with double-digit net revenue and operating profit growth on a constant currency basis. Turning to slide five, let me discuss an element of our data solutions accelerator that's housed within the Divergent Solutions business unit, which we will formally break out starting in our fiscal first quarter of 2023.
We have consolidated the majority of our software and data solutions into a single unit to gain benefits from consistent product management, marketing, and research and development. Our data solutions are aligned to three high-growth verticals of transportation, water, and national security. A competitive differentiation of our vertical software platforms is access and integration of unique datasets and the ability to turn that data into actionable outcomes for our customers.
For example, our StreetLight Data platform is a SaaS solution that ingests a variety of mobility data sources into proprietary algorithms that provide data analytics for both traditional transportation clients and giga projects within the broader infrastructure market. Our GeoPod technology creates mapping data for multiple confidential customers as they plan for autonomous driving, precision agriculture, and other aerial surveillance requirements.
In water, we continue to leverage smart algorithms developed by our domain experts to optimize our clients' operations and maintenance. Both Aqua DNA and our Intelligent O&M solution can save 10%-30% in energy used for wastewater treatment. We continue to expand our water solutions across our clients' assets lifecycle. From a national security standpoint, our Extreme Search solution has proprietary algorithms and compute ability that can rapidly search large volumes of real-time or logged data.
One critical use case is quickly finding indicators of compromise to prevent cyber breaches. Given the significant amount of data that will be created and utilized in IT and OT environments, we believe the applications of these type of solutions are in the early stages of decades of robust growth. Before I turn the call over to Bob, first I'd like to thank the amazing people at Jacobs for living our values and progressing our culture over the last several years.
Every single day, Jacobs is providing critical solutions globally. For example, most recently supporting NASA for the Artemis launch to the moon, or consulting on green hydrogen solutions for sovereign nations, delivering world-scale biotechnology manufacturing solutions, remediating harmful PFAS chemicals from our water, or planning autonomous transportation for the city of the future. It is truly our people that make Jacobs a company like no other.
Now, I'd like to congratulate Bob on his appointment to CEO and say that I'm excited we have an experienced and dynamic leader who brings decades of industry domain knowledge and a proven track record to lead our boldly moving forward strategy into the future. Bob?
Thank you, Steve. I'm honored to take on the role of CEO early next year and advance the exciting work underway to further diversify our capabilities and offerings, increasing opportunities and value for our people, our clients, and our shareholders alike. I want to thank Steve for his partnership and guidance over the past seven years. He is an incredible leader who inspires all around him and leaves a tremendous legacy at Jacobs.
I'll begin on slide six, discussing our People and Places Solutions business, where we achieved strong top and bottom line results with backlog up 8% year-over-year and 12% in constant currency. With critical infrastructure priorities on the rise over the past year, our quarter results show that we've been successful in converting opportunities into accessible backlog. This success is underpinned by our global workforce, which expanded 12% this year.
For example, in FY 22, our advanced facilities unit operating profit grew by well over 25% on a constant currency basis due to our scalable multi-geography delivery teams. Overall, we see our quarter results as Jacobs' strategy in action. It's proof that Jacobs' deep domain expertise can transform client outcomes, replacing conventional infrastructure delivery with modern data-enabled solutions. I'll discuss results under the themes of supply chain diversification, infrastructure modernization, and climate response.
Across these themes, I'll highlight how our technology and data solutions enable our success. First, supply chain diversification has led to expanded delivery for clients with long-term investment profiles that continue through changing economic conditions. In life sciences, our clients are in the middle of a generational expansion of therapeutics and vaccines, as well as advanced healthcare impacting people on a global scale.
Our confidential clients can accelerate production capacity for life-saving medicines for the most widespread chronic diseases by leveraging Jacobs' expertise in digital design to optimize delivery across multiple large-scale biotech campuses. We are also advising and delivering predictive analytics for point-of-care treatment, resulting in improved outcomes for a growing and aging population with clients such as New South Wales Health Infrastructure in Australia, Children's Hospital of Philadelphia, and the Centers for Disease Control in the U.S.
Jacobs remains uniquely positioned across the entire electric vehicle ecosystem to address all aspects of this rapidly expanding market, from manufacturing capacity to EV charging infrastructure to advanced mobility implementation. With favorable tailwinds, an expanding list of automobile and EV manufacturing clients are seeking Jacobs' leading support to develop sustainable production capacity. Moving to climate response.
Global demand for affordable green energy led to an increase of over 33% in bookings with wins across multiple geographies, including the U.K.'s National Grid, U.S. Department of Energy, Yul-ho Energy in Korea, where we're developing a new green hydrogen production and import facility. In the U.S., IIJA-supported pipeline is building momentum and projects are moving through the sales cycle into delivery.
For example, there's a broad focus on transportation decarbonization with support for the National Electric Vehicle Infrastructure Program, NEVI, across multiple DOTs, charging infrastructure for the Navy, and in multiple states under the low or no emission vehicle grant programs. For the Environment Agency in the U.K., we're delivering a digital proof of concept, leveraging spatial predictive analytics to avoid extensive damage and human casualties due to flooding and other climate-driven disasters.
At the same time, National Highways chose us to streamline their complex data landscape thanks to our cyber and digital capabilities, partnered with PA Consulting. With StreetLight Data's Multimodal Transportation Insights platform, we've expanded opportunities for both traditional public sector transportation clients and new private sector clients to prioritize marketing and real estate investments.
Water sector clients are investing in our new technologies such as Aqua DNA, Dragonfly, and Intelligent O&M. These integrated AI and ML cloud-based technologies enable clients to provide reliable clean water access for all communities, leading to expanded services this quarter from Winston, Puerto Rico, Florida, Louisiana, the UK, Singapore, and Australia. These innovative platforms are driving a new standard for asset management. In Hawaii, we are delivering a 20-year installation development plan to address climate adaptation for the joint base Pearl Harbor-Hickam.
Under infrastructure modernization, mega program delivery trends continue as clients look for more efficient ways to deliver sustainable, livable places. In Scandinavia, we're designing the Nordhavn Tunnel to cross the harbor in Copenhagen, Denmark, and in Toronto, Metrolinx recently awarded Jacobs a multi-year extension to support their $85 billion regional transit expansion.
In summary, People & Places Solutions is positioned for long-term growth, as evidenced by strong performance across all geographies and client segments. Clients are continuing to partner with Jacobs to deliver transformative infrastructure, advanced manufacturing expansion, and energy security projects with sustainable, lasting outcomes.
Moving to slide seven to review Critical Mission Solutions line of business. CMS delivered solid performance in the fourth quarter, with backlog remaining strong at $10.6 billion, flat year-over-year, but gross profit in backlog was up 10% year-over-year and 12% in constant currency.
Our CMS strategy is focused on creating resilient revenue growth and margin expansion by offering technology-enabled solutions aligned to critical national priorities. CMS's service and solutions offerings are delivered across our core customer markets: space, cyber, intelligence, defense, and energy, and we continue to see strong demand for our solutions across all of them.
In space, Jacobs is a critical prime contractor to NASA's Artemis program, including being the key integrator of the successful uncrewed launch last week of the Space Launch System rocket in preparation to send U.S. astronauts back to the moon by 2025. The Artemis one launch is historic, and we are proud of Jacobs' role in the mission. We were awarded contracts by the Scottish rocket manufacturer and small sat launch service provider, Orbex. We help them build and operate a vertical launch site for satellites in the U.K.
Several trends in other Jacobs key markets that we are seeing contributing to our continued growth include Zero-Trust Architecture, hypersonics, and modular reactors. Beginning with Zero-Trust Architecture or ZTA. White House Executive Order 14028 mandates adoption of ZTA cybersecurity models across the federal government. Importantly, ZTA requires continuous verification of identity as users move laterally through network systems.
Jacobs' cyber intelligence team, which is now part of our new Divergent Solutions operating unit, is the program manager for one of the intelligence community's largest directorates, responsible for Identity, Credential, and Access Management, ICAM. ICAM is a critical architectural component of effective Zero-Trust models, and Jacobs' technical leadership in this area positions us to help clients across the federal government meet the White House Executive Order. Our cyber intelligence business unit has a significant pipeline of opportunities requiring ZTA adoption.
In Q4, our cyber and intelligence team also won several new non-ZTA contracts, including an agile software development and sustainment contract for a classified contract and one assisting the Navy to advance their radar sensing capability at the Naval Research Laboratory. We also recently cleared the protest period for a $470 million six-year IDIQ, providing identity intelligence support to the DOD, which is not yet reflected in backlog.
Moving on to hypersonics. With advances in hypersonic missile technology by China and Russia, the U.S. Department of Defense is developing missile defenses to defend against hypersonic weapons and other emerging missile threats. Because hypersonic weapons fly at speeds of at least Mach five, roughly one mile per second, and can maneuver en route to their target, they are more difficult to defend against.
Jacobs has decades of experience supporting the US Air Force and NASA and has positioned itself as a leader in hypersonic solutions. In last quarter, Jacobs was awarded a five-year, $100 million IDIQ to help the US Navy design and operate an underwater launch test system for the Naval Surface Warfare Center.
The contract also covers modernization, design, fabrication, and operation support for an in-air launch testing platform at the Naval Air Weapons Station China Lake in California. Finally, demand for modular reactors. Nuclear power is coming into favor as a clean energy alternative to fossil fuels. For countries to achieve their net zero carbon emission goals and ensure energy independence and security, leaders are realizing they need to include the always-on emission-free generation.
Small modular reactors, or SMRs, are reactors with electric generating capacity of 300 megawatts versus traditional large reactors with generating capacity of one gigawatt or more. SMRs have numerous benefits, including lower initial capital investment, greater scalability through factory manufacturing processes, greater siting flexibility on smaller grids and isolated areas, and greater energy efficiency. In the U.K., we are delivering engineering and technical services to the Rolls-Royce SMR program and licensing advice to GE Hitachi Nuclear Energy as they look to enter the U.K. market.
There's also increased interest in new advanced modular reactors or AMRs, that can be designed to provide specific benefits, such as producing high heat for green hydrogen production. We are supporting multiple AMR vendors in the U.S. and U.K. Jacobs is a leader in global nuclear solutions, building on our long legacy of organic capabilities and acquisitions of CH2M and Wood Nuclear.
In summary, we continue to see solid revenue visibility for our solutions in FY 2023, with approximately 85% of CMS's portfolio consisting of large enterprise contracts with durations greater than 4 years, and 88% from federal level government funding. We're also pleased with the Government Accountability Office's recent guidance to have the US Air Force reevaluate proposals for its large integrated support contract, ISC 2.0, in support of a new source selection decision.
Therefore, this remains in our pipeline as a potential multi-billion dollar opportunity. The CMS sales pipeline remains robust with the next 24-month qualified new business at approximately $30 billion, including $10 billion in source selection with an expanding margin profile. Moving on to PA Consulting on slide 8. PA continues to deliver its strategy and is securing exciting and enduring work.
PA's deep client insight, lasting relationships, and ability to assist clients through economic cycles is also generating consistent demand for its expertise. This quarter, PA was awarded marquee wins across its key markets. As Steve mentioned, in the U.K. public sector, where it's a major player, PA was selected as the lead systems integrator for Kraniak, a multi-year contract providing next generation solutions to counter threats posed by radio-controlled improvised explosive devices, IEDs.
The contract leverages PA's extensive experience in major program delivery as they lead the delivery consortium, Team Protect. PA was also appointed to oversee the delivery of a once in a generation program for social care reform in the U.K., further cementing its position in government and public sector.
Transport continues to be a major focus, with additional awards won at Schiphol Airport in the Netherlands, where the joint capabilities of Jacobs and PA continue to create further opportunities to include boardroom advisory and digitalization of airside operations. The Jacobs PA partnership is strongly positioned to continue to capitalize on substantial market opportunities.
Jacobs' global footprint and broad-based domain expertise, together with PA's high-end digital consulting, creates a compelling value proposition in distinct areas of opportunity. Now I turn the call over to Kevin to review our financial results in further detail.
Thank you, Bob. Turning to slide nine for a financial overview of our fourth quarter results. Fourth quarter gross revenue grew 8% year-over-year, and net revenue 6%, and up 11% year-over-year on a constant currency basis. All lines of businesses grew fourth quarter revenue over 9% versus year ago in constant currency.
Adjusted gross margin in the quarter as a percentage of net revenue was 26% and improved slightly from the third quarter, but was approximately down 130 basis points year-over-year, primarily driven by one, our CMS line of business due to the newly ramped remediation contract, and 2, investments in incremental employees in PA in advance of the large wins such as the UK MoD award that will ramp over the coming months.
We expect gross margins to modestly improve from Q4 levels during fiscal 2023, driven by recent wins in cyber, favorable revenue mix, the recent wins in PA Consulting, and continued strong performance in our People & Places Solutions business. Adjusted G&A as a percentage of net revenue was 15.2%, down 40 basis points from Q3, and down 200 basis points year-over-year. During the quarter, we benefited from lower labor expenses as we managed our cost structure. We are targeting G&A as a percentage of net revenue to stay below 16% for the full fiscal year 2023.
GAAP operating profit was $309 million and was mainly impacted by $52 million of amortization from acquired intangibles and other acquisition deal related costs and restructuring efforts of $14 million, with over half associated with integration costs of acquisitions, and finally, a positive benefit from third-party recoveries of $27 million pre-tax, which we excluded from our adjusted roll results.
Adjusted operating profit was therefore $347 million, up 15% year-over-year, and on a constant currency basis, it was up 19% year-over-year. Our adjusted operating profit to net revenue was 10.7%, up 80 basis points year-over-year. I'll discuss the moving parts later when reviewing the line of business performance.
GAAP EPS from continuing operations was $1.75 per share and included a $0.16 benefit from the third-party recovery receivable, a $0.12 benefit to align to our effective adjusted tax rate, offset by a $0.27 impact related to the amortization charge of acquired intangibles, and $0.06 from transaction restructuring and other related costs.
Excluding these items, third quarter adjusted EPS was $1.80, up 14% year-over-year, and up 18% in constant currency. Jacobs' consolidated Q4 adjusted EBITDA was $350 million and was up 13% year-over-year, representing 10.8% of net revenue. On a constant currency basis, adjusted EBITDA was up 17% year-over-year. Finally, backlog was up 5% year-over-year and 8% on a constant currency basis.
Sequentially, backlog was impacted by the strengthening U.S. dollar at year-end compared to the end of the third quarter. As an example, the dollar strengthened 8% versus the pound sterling from the end of Q3 to the end of Q4. As a result, on a constant currency basis, backlog was flat sequentially. The revenue book-to-bill ratio was 0.94 times with our gross margin book-to-bill at 1.05 times, given the higher margin profile within backlog on both a year-over-year and sequential basis.
Our book-to-bill ratios continue to be impacted by the burn of the approaching Kennedy NASA rebid as backlog continues to fall until which time the rebid is awarded. Now moving to slide 10 for a brief recap of our full year 2022 performance.
Final year gross revenue grew 6% year-over-year, and net revenue grew 10% in constant currency. On a reported basis, we expect fiscal 2023 revenue growth in the mid-single digits and high single digits on a constant currency basis. GAAP operating profit was $918 million, up significantly year-over-year, driven by a material decrease in one-time items related to transaction and restructuring, as well as solid underlying constant currency growth in the business.
GAAP EPS was $4.98, and adjusted EPS was $6.93, up 10% year-over-year and up 13% on a constant currency basis. Adjusted operating profit grew 10.6% and was up 13% on a constant currency basis. Operating profit margins expanded nearly 30 basis points to 10.4%, driven by revenue mix benefits and lower support costs.
Adjusted EBITDA was $1.36 billion, up 10% and up 12% in constant currency. As a percentage of net revenue, adjusted EBITDA was 10.8%, up 20 basis points from fiscal 2021. We expect modest adjusted operating profit margin expansion in fiscal 2023, driven by a combination of a higher margin revenue mix and lower employee-related costs.
However, adjusted EBITDA margins are expected to be flat year-over-year as other income will be burdened primarily by unfavorable pension costs driven by the higher interest rate environment. On a trailing 12-month basis, book-to-bill was 0.97 times, and gross margin book-to-bill was over 1 at 1.05. Regarding our LLB performance, let's turn to slide 11 for Q4 performance and slide 12 for full-year performance. Starting with CMS.
Q4 revenue was up 10% year-over-year and up 12% in constant currency. BlackLynx contributed approximately $22 million to the fourth quarter revenue. Fiscal 2020 revenue on a reported and constant currency basis grew 3% as the first part of the year did not benefit from the ramp of the Idaho Nuclear Remediation win.
BlackLynx contributed $50 million in revenue for fiscal year 2022. For fiscal year 2023, we expect revenue growth in the mid-single digits for the CMS business and higher double-digit growth in our Divergent Solutions unit. Q4 CMS operating profit was $95 million, down 17% year-over-year and down 14% on a constant currency basis. Operating profit margins as a result were down 220 basis points year-over-year to 6.9%.
Consistent with our previous outlook, Q4 operating profit and operating margin % were impacted by a rate true-up in our cyber and intelligence business. The rate true-up was related to higher G&A costs over the course of the year, given the slower ramp in the business during the continuing resolution. We have successfully been awarded a large new classified cyber win that was previously delayed during the continuing resolution, indicating developing momentum.
We expect approximately 75 basis points of sequential operating margin expansion in Q1, driven by immediate rebound from the one-time rate true-up in Q4. We're also targeting further margin expansion through fiscal 2023 as we win and ramp new higher-margin awards. People & Places Solutions. Overall, PMPS delivered strong revenue and operating profit results.
Q4 net revenue was up 6% year-over-year and up 10% in constant currency. On a constant currency basis, each PMPS region demonstrated net revenue growth, and for the full year, PMPS grew 4% on a reported basis and 7% in constant currency. Looking deeper into our business units, our Advanced Facilities unit, which benefits from investments in the life sciences, semiconductor, and EV supply chains, posted another stellar quarter of double-digit revenue and operating profit growth.
For the fiscal year, the business grew operating profit well north of 25%. We expect our Advanced Facilities growth rate to continue to remain robust during the fiscal year 2023 at approximately 10% despite the strong year-over-year comparisons.
The PMPS international business Q4 revenue and operating profit was essentially flat year-over-year on a reported basis, but grew double digits in constant currency. For the full year, international operating profit was up 10% year-over-year in constant currency. Our international business will continue to be materially impacted by FX during fiscal 2023, resulting in flattest reported revenue growth, but is poised for full-year growth on a constant currency basis.
Total PMPS Q4 gross profit and margins were up year-over-year, with Q4 operating profit up 31%. Operating profit as a percentage of net revenue up 275 basis points, driven by revenue growth and mix as well as lower labor costs during the quarter.
Full year People & Places Solutions operating profit was up 5.5% on a reported basis and up 10% in constant currency, with operating margins of 13.2%, up 20 basis points versus year ago. In terms of PA's performance, PA Q4 revenue declined 7.7% year-over-year in USD, but grew 9% in GBP. Q4 adjusted operating profit margin was 19.4% during the quarter due to continued lower utilization and investments in pipeline pursuits.
As Bob mentioned, PA Consulting has been successful winning the large credit award with the MOD, for which we expect to show benefit later in 2023. We continue to target double-digit revenue growth on a constant currency basis, with operating margins returning to above 20% throughout 2023, driven by improved utilization.
Our non-allocated corporate costs were $28 million, down year-over-year as we benefited from lower incentive costs and to a lesser extent from a positive currency impact on our supported costs and other benefits. We now expect non-allocated costs, corporate costs, to be $190 million-$210 million for fiscal 2023, which is slightly higher than fiscal year 2022, as we expect higher incentive costs on a year-over-year basis.
Turning to slide 13 to discuss our cash flow and balance sheet. Cash flow generation continued to be strong. Free cash flow was $230 million in Q4 and included $12 million related to transaction costs and other items.
On a full year basis, reported cash flow was $347 million, but included the net $475 million of cash outflows related to the previously announced Inpex settlement, the first $55 million repayment of a CARES Act payroll tax deferral, and a net $4 million cash benefit related to other items. Excluding these items, free cash flow conversion to adjusted net income was 97% for the year.
For fiscal 2023, we expect two items to impact cash flow, and approximately net $15 million of further cash outflows from restructuring transaction and other related costs, and a final repayment of $60 million of CARES Act payroll tax deferral benefits. Excluding these items, we anticipate again to achieve 100% free cash flow to adjusted net earnings in fiscal 2023.
We are also continuing to evaluate further real estate opportunities, giving our developing insight as to our longer-term needs, given the hybrid work environment. We will update on our Q1 earnings call with further developments in this regard. During the quarter, we repurchased approximately $31 million of shares, and for the full year, we repurchased $282 million.
After September, we have continued to be actively purchasing shares, with approximately $135 million repurchased as of last week. As we have said before, we will remain agile and opportunistic in repurchasing shares as we see disruption in the market. We ended the quarter with cash of $1.1 billion and gross debt of $3.4 billion, resulting in $2.3 billion of net debt.
Our Q4 net debt to 2023 expected adjusted EBITDA of approximately 1.6 times is a clear indication of the continued strength of our balance sheet. As of the end of Q4, approximately 60% of our debt is tied to floating rate debt, and as a result, we are expecting incremental inter-interest costs going forward, which we have incorporated into our outlook. As of the end of the fourth quarter, our weighted average interest rate was approximately 3.6%. Early in the fourth quarter, we entered into a notional $500 million interest rate lock at a rate of 2.7%, as related to a planned future fixed rate issuance.
The mark-to-market benefit from the in-the-money interest rate lock is currently recognized in other comprehensive income, but will offset interest expense of our future expected fixed income issuance. In early October, we redeemed $481 million of private notes at par.
In the appendix on slide 16 of this presentation, we included additional detail related to our debt maturities, interest rate derivatives, and quarterly interest expense. Given our strong balance sheet and free cash flow, we remain committed to our quarterly dividend, which we announced at the end of the fourth quarter of fiscal 2022 and paid on October 28th. I will now turn the call back over to Bob.
Thank you, Kevin. Turning to slide 14. As we discussed throughout our remarks, through proactive portfolio management, we have aligned our business to sectors that can demonstrate robust growth through multiple economic scenarios. We continue to enhance our overall growth rate with our climate response consulting and advisory and data solution strategic accelerators. Given the volatility of FX rates, we are providing our outlook under two FX scenarios.
One, an outlook based on constant currency, which provides greater insight of underlying business performance. Two, an outlook based on more recent FX rates. Although we transact in multiple currencies, one example for reference is the pound sterling. The fiscal year 2022 average conversion rate for the pound sterling was $1.28, compared to $1.15 in early November 2022.
As footnoted in our earnings release and investor presentation, based on fiscal 2022 average rates, our outlook for fiscal 2023 adjusted EBITDA is $1.465 billion-$1.545 billion. An adjusted EPS of $7.60-$7.90, up 10% and 12% respectively at the midpoint. Based on rates in early November, our outlook for fiscal 2023 adjusted EBITDA is $1.4 billion-$1.48 billion, and adjusted EPS of $7.20-$7.50, both up 6% at the midpoints.
On a net revenue basis, the difference between these two scenarios is approximately $430 million. Looking beyond fiscal 2023, we remain confident in achieving double-digit constant currency adjusted EBITDA growth consistent with our strategic plan. Operator, we will now open the call for questions.
At this time, I would like to remind everyone, in order to ask a question, press star followed by the 1 on your telephone keypad. In the interest of time, please limit yourself to 1 question, and should you have further questions, you may re-queue. Your first question comes from the line of Bert Subin with Stifel. Your line is open.
hey, good morning and, congratulations both Bob and Steve.
Thank you. Thanks, Bert.
Bob, maybe start out with you. You ended there talking about, you know, feeling pretty confident and sort of double-digit growth. You guys had previously provided, you know, your fiscal 2024 targets by segment on both a margin and a sales basis. If we exclude the impact of FX, do you still remain confident in those bands across each segment?
We do, Bert. You know, from the tailwinds that we see in the markets that we're serving, we stand by those commitments that we made in the 24 strategic plan.
Okay. Just a quick follow-up in terms of thinking about PMTS. It, you know, performed really well during the quarter, and you made some pretty positive comments on what you're seeing on the advanced facility side. Should we expect any sort of incremental softness just as your semiconductor clients, you know, slow their CapEx spend? In terms of the infrastructure side of things in the segment, are you starting to see, you know, a material uptick from IIJA, or is that just the plan as you progress through 2023?
Sure. Let me, let me answer the first question. On the semiconductor spend, yeah, the industry as a whole from a demand standpoint is in a bit of soft period. You know, the client base and the geography that we're working in, we have not seen that.
The front-end work, the design work, the momentum that we've seen over the course of the last 6 to 8 quarters, that has not slowed at all. We're, you know, we're feeling comfortable about where we sit in that ecosystem of consultants to that industry, specifically with our client base. We're positive on that front.
You know, on IIJA, we actually are seeing those projects that we had been tracking through the development of both grants as well as the formula funding coming to fruition. Probably the bigger element to that is that the release of those monies is actually unlocking the base funding that the states previously, specifically during COVID, had locked up, not knowing kind of what the future looks like. Overall, you know, the pipeline is up. Just on the U.S. basis and infrastructure, our pipeline is up 4%-5%. I'm sorry. Yeah, 5% without IIJA. It's 18% with IIJA from a pipeline standpoint. We are seeing that.
Your next question is from the line of Louis DiPalma with William Blair. Your line is open.
Good morning, Steve, Bob, Kevin, and Kenan. I would like to echo congrats to Steve and Bob on your new roles.
Thank you. Thanks, Louis.
For Steve and Bob, you referenced several cyber intel awards associated with your KeyW and Buffalo Group acquisitions. Are these awards margin accretive? Should the Critical Missions operating profit in 2023 be back to the 2021 level?
Both questions, Louie, the answer is yes. The two awards that Steve and I specifically spoke about are coming in through those two the portals or through those relationships that we had in the acquisitions that we made during that period. We are seeing that. They are margin accretive. The flip side of this is that these are awards that we had expected in previous quarters. You know, we talked about it a lot in previous earnings calls that the knock on effect of the CR has now had an effect on kind of when those things start. We do see margins going up, and these are serving as catalysts for that too.
The other thing, Louie, though, 2021 was the high point. I would say that the underlying business is returning. We had some other events in 2021 that accelerated the margin a little bit higher. We had some one-off closeouts, which were pretty strong. I think in 2023, the underlying is getting back up well into the 8%, I would say. Maybe not all the way back up to the, I think we are at 9% in 2021, but we're gonna get the underlying to be quite consistent with 2021.
Your next question comes from Michael Dudas with Vertical Research. Your line is open.
Good morning, gentlemen.
Good morning.
Hi, Mike.
Maybe for Bob or Kevin, you call out in your CMS the improved in, you know, the book-to-bill, but also the gross margin book-to-bill. Maybe you can talk a little bit about PP&S and PAC in a similar light if you wanna give out the actual numbers? How much is, as you look into timing of awards and ramp up and some of the utilization issues that you were fighting through in 2022, is that more of mid to later 2023 to show some much better, you know, say for FX, better growth as we move towards the end of 2023?
I'm sorry, Mike, you were breaking up. I was having trouble understanding you. I apologize.
That's what my wife says all the time. First, Kevin, now I'm just talking about like your book-to-bill. You talk about the CMS gross margin book-to-bill. Maybe you could highlight in PP&S and PAC similar, just observations relative to what's in backlog, what do you anticipate in new orders, and maybe the timing of those orders relative to your outlook for 2023.
Yeah. Okay. Got that. All right. Thanks, thanks, Mike. Look, People and Places continue to show good margin profile and backlog as well. I think that's obviously a very critical part of our strategy when we think about delivering more value-added solutions. The margin is, it's gotta come with it. The backlog margin profile is better in People and Places, and also it's better in PA as well. The dynamic of PA relative to the Q4 number really was effectively the continued utilization. We had expected to get up to around 20%.
We fell a little bit short of that, but it's continuing to improve, and we would expect that we'll get back up to those more normalized levels that we saw over the course of 2022, early 2022 relative to the margin profile there.
Your next question is from the line of Jamie Cook with Credit Suisse. Your line is open.
Hi. Good morning, congrats, Bob, and congrats, Steve. I guess, first question, you know, over the long term, can you just talk to, on CMS, can you talk to the strategic importance of CMS to the portfolio? If, you know, margins continue to sort of underperform, you know, would you consider sort of, you know, other options, or do you see a path over time to get to, I think, the, you know, margin improvement targets that you laid out in the 2024 targets? Like, how long before, you know, we get there?
My second question, Kevin, the cash flow generation that you're implying for 2023, you know, is quite strong, and your balance sheet is in good shape. Just trying to understand, how you're looking at, you know, you know, how you're thinking about the M&A profile versus a share repurchase? Thanks.
You guys want to first go?
Well, yeah. It's Steve here, Jamie. I can speak for both the board and management around that question is, you know, we first of all, you know, the whole strategy around Divergent Solutions was to break out the elements of CMS that are, you know, highly consistent, especially with the data solution side of our three accelerators. you know, obviously, you know, we're off and running on that.
We're excited about that, and that's where we're really gonna see accelerated margin growth, especially with these recent cyber wins that we've talked about, but also across the entire platform. Then when you get into the, you know, the remaining CMS business, you know, just as an example, you know, nuclear most recently has been surging with regard to becoming a clean energy transition solution. As you know, we're a major player in nuclear, not just in the remediation side, but the new build side, especially in the new technology of advanced Small Modular Reactors.
you know, we're excited about the future of those and we'll continue to, you know, monitor the entire company as far as fit, et cetera, long term as we've done in the past. I mentioned in my remarks, you know, we're very optimistic about the CMS business as we move into 2023.
Jamie, about the cash flow. Yeah, we feel continued strength in our cash flow is expected over the course of 2023. That provides us degrees of freedom, to your point, about how we will deploy that additional capital that's available. Look, I think we continue to monitor the M&A front. I think we were very clear during our strategy as to where we would probably be focusing those ideas and thoughts relative to the three accelerators that we outlined in strategy.
We're continuing to monitor those opportunities. There are things out there that are being evaluated. Obviously got to result in bid equaling ask, where we feel like we can add an ROIC and a return profile to our shareholders that are appropriate.
We'll see how that plays out. Of course, we also talked about, during the prepared remarks, the proactive stance that we've been taking on the share repurchases. We feel like we're well positioned to be able to act when appropriate relative to a potential strategic opportunity and/or do share buybacks when there's market dislocation.
Your next question is from the line of Jerry Revich with Goldman Sachs. Your line is open.
Yes. Hi, good morning, everyone. And Steve and Bob, congratulations.
Thanks, Jerry.
Thanks, Jerry.
Bob, I wonder if you could just talk about your strategic priorities over the next, 3 to 5 years, just from a high-level standpoint. Anything that we should be keeping in mind?
Yeah, Jerry. Obviously something that I've been thinking about a lot. Maybe a couple precursor comments and then directly to the question. You know, the precursor comment was, and I tried to infer it, but say it almost explicitly, the way Steve has run the executive team and the company has been really very inclusive.
When you look at our strategy, not only just the one that we released last March, but even in 16 and 19, you know, that's a strategy that was developed by all of us as a team. It's not me coming in with a new strategy. Feel very bought in and tied to with the strategy that we have. The first big area around our clients.
You know, the accelerators that we have or the national and global priorities that are driving the world. That's going to continue to drive our business as we come up with more technology-enabled and client-driven type solutions. The second is around investments in our people. You know, our people have delivered time and time again over decades.
If you look at the profile of our people, though our business is weighted towards the U.S., you know, we have about a 55, 45 U.S. versus outside of the U.S. profile of our people, really driven around that global delivery that we've touted for so long. You know, those investments and continued driving around inclusion and diversity and sourcing talent from all over the world is going to be really, really important.
The last piece I'd say is around resilience. you know, resilience in our business with regards to our systems and how we run the company, but also simplicity of our business. We, you know, we've diversified the business, and we've, you know, we've tried to have direct access to our clients. to making that, you know, to having simplicity in the forefront is really key as well. kind of segregated in those three main areas.
Your next question is on from the line of Steven Fisher with UBS. Your line is open.
Thanks. Good morning. We have about a month left on the current Continuing Resolution. I'm curious what you've baked into the guidance for Continuing Resolution across your segments. I guess there's clearly a lot of crosscurrents in the global economy at the moment. What do you see as any other big risks to your guidance? Maybe what contingency plans do you have in process to address those risks? Thank you.
Maybe I'll, maybe I'll make some comments first and then have my partners here add any additional commentary they think appropriate. Look, I think we feel pretty good about the continuing resolution given the makeup of the Senate and the House and how that's going to be coming together. We just had a really deep dive review from our government relations team, feeling pretty good about how things are going to play out over the course of this quarter.
So we don't believe that there is going to be a continuing resolution that extends well into 2023. We're hoping that that will become resolved near the end of the calendar year. I think that we're already starting to see regardless of that continuing re-resolution, some momentum building relative to what Bob alluded to is, and I made some comments on in terms of the cyber and intelligence business starting to get unlocked relative to bids being awarded and whatnot. We think that the combination of those two things are embedded into our guidance. We feel pretty good about it, actually.
Your next question is from the line of Andy Kaplowitz with Citigroup. Your line is open.
Morning, everyone. Steve and Bob, congratulations.
Thanks, Andy.
You mentioned you're still targeting double-digit constant currency revenue growth for PA Consulting, but I think constant currency growth in Q4 was in the high single digits. Does the recent large contract win you mentioned give you the visibility you need to be confident around constant currency double-digit growth for FY 2023 despite UK economic concerns? Does margin normalize higher quite significantly if PA's revenue ramps up toward that 23% goal that you've given us before? Should we think about a gradual margin ramp up from here in PA?
If you look at the ramp up of the year, certainly that large win is part of the equation. It ends up kind of building over the course of 2023. It's less of a direct impact in 2023. What we do believe, and our view on the UK is that we've, I guess I would characterize us as being underwhelmed by the level of activity, productive activity in the government, which has, actually put some pressure in the short term relative to the UK. With the recent budget that was announced and some of the activity of our clients is starting to look much better.
So we're feeling like, longer term into 2023, that we're gonna start to see some incremental momentum, versus kind of what we've been seeing over the last, I'm gonna call it six months. We're feeling that things will start to improve. The other thing is that the backlog and the pipeline of PA, we're seeing no challenges associated with that.
Seeing a little bit of the burn profile as mentioned, just earlier relative to the, I'm gonna call it the unknown relative to the U.K. government. We're starting to see that instance and that issue going away as we speak.
Just to quantify Kevin's last comment, you know, the pipeline growth in PA alone this quarter was 52% year-on-year. The pipeline continues to grow. The way we evaluate pipeline within the PA world, since it's a, you know, a pure play consultancy, are our projects, programs, engagements where we already actually have started a bit of them too. Those are promising, as well as the programs that were announced in the budget that Kevin referenced. Those are programs that PA and Jacobs are actually partnered on right now. That's hence the, you know, bit of positivity there, along with, you know, some realism of the last couple of months on what's gone down.
Your next question is from Sean Eastman with KeyBanc Capital Markets. Your line is open.
Hi, guys. Thanks for taking my questions. I just wanted to confirm whether we should still anticipate Divergent Solutions to be broken out as a new segment starting in the first quarter. Perhaps in advance of that, just, you know, try to get a rough expectation as to what that business line is contributing to this initial fiscal 2023 outlook, maybe from an EBIT perspective.
The business is effectively operational right now, and we will be executing against the promise that we made relative to reporting that as a separate segment on the financials. Sean, we're on track to do that. I think that we're gonna provide additional color commentary because we're still working through all of the accounting mechanisms to make sure that our systems are reporting accurately and the controls are in place because it's pretty large change.
I will tell you that it will be one of the highest growth areas that we're expecting in the company for 2023. Effectively it'll be a margin profile that will be growing substantially over time. Little bit lower in 2023 than what we expect at the exit rate. At the end of the day, we'll provide a lot of details in Q1 relative to that.
Your next question comes from Chad Dillard with Bernstein. Your line is open.
Hi, good morning, guys.
Morning, Chad.
Morning. I was hoping you guys could expand on just, like, the opportunities for increased wallet share on infrastructure work. maybe you can weave in some of, you know, the recent acquisitions and, you know, some of the expanded digital capabilities, and just talk about, you know, what sort of, you know, margin we should be kind of thinking about for these unique projects.
Sorry, Chad, you were a little broken up there. Can you repeat the question?
Yeah. Can you just expand on, like, what sort of, you know, incremental wallet share opportunities you have in your infrastructure business? Maybe weave into it, you know, some of the recent acquisitions that you've had, and some of your expanded digital capabilities.
Okay. In infrastructure. Did I catch that part?
Correct.
Yeah, got it. Okay. Yeah. In infrastructure, the opportunities continue to grow. I'd say, you know, broadly driven mostly in the U.S., but we're seeing this in Steve talked about the international. I'm sorry, Kevin talked about the international business.
Heavily geared towards transportation and water with a growing profile around energy transition. So those are kind of the three main areas. Environmental continues to be robust. You know, we see those. I mean, the pipeline growth I talked about before has been really, really strong.
On the acquisitions, you know, that's a business where StreetLight Data probably was the last one that we did. It was a smaller acquisition. We are immediately seeing the fit that we had anticipated in the deal kind of thesis around StreetLight Data, all around that data-enabled, you know, use of data in driving a different type of solution for our clients.
They had clients before, predominantly the state DOTs in the US, but that's been expanded with our relationships. We're seeing private sector utilization too, as private sector, you know, firms have looked at the use of data in order to cite different investments that they're making from a capital project perspective. Very, very positive news on that front.
Your next question is from Michael Feniger with Bank of America. Your line is open.
Hey, guys. Thanks for squeezing me in. I believe you're guiding 2023 growth mid-single digit or high single digit on a constant currency basis. You're citing some really robust sectors: EVs, life sciences, reshoring, hydrogen, autonomous.
What isn't growing that fast in the portfolio? Does it just take longer? Is there momentum? Do the project dollars get going? Does organic growth profile actually re-accelerate further in 2024? In 2024, you get just better operating leverage off that type of growth with higher utilization? How should we kind of think about that as we move forward into 2024?
If you think about the high single digits in terms of constant currency growth, I think that's pretty strong, actually. I think that the bottom line is, for example, Bob just quoted the pipeline growth in the United States of near 20% kind of growth in the pipeline. It just takes a while for that to be won, and then start to build the burn associated with it.
You're relying on your clients as much as you are anything else to be able to execute against that, and they're sometimes not as quick as we are ready to execute. Look, I think it's a growing momentum, and I think we're being prudent assuming how that's going to build over the course of 2023.
If I could add, Kevin. While we're adding on those end markets that do have a quicker burn profile, you know, all three of us today talked about the growth in advanced facilities, where that has been a catalyst for growth. Though the top line might be in those numbers that were quoted, you know, We did say on a constant currency basis, our bottom line growth would be double digits. I think that there's some real optimism in the portfolio.
Your next question is from the line of Gautam Khanna with Cowen. Your line is open.
Hey, congrats, Steve and Bob.
Thanks, Gautam.
You know, just following up on some of the recent questions. Can you frame re-compete exposure in fiscal 23 and maybe even opine on 24 at CMS and wherever you think it's noteworthy? You know, % of sales up for rebid or if there are any lumpy, you know, individual contracts that are up and maybe the timing of those.
Sure. I'd say that the recompete exposure in 2023 is moderate to low. You know, it's predominantly in our CMS business, and we've already gotten some real positive indications of some of those larger ones. Okay. There's only a couple. I would not characterize that as a big exposure in 2023.
Okay.
Your next question.
The only one that we've called out the one at Kennedy.
Yeah. That's the one I was referring to.
you know, that's a big one, but we feel good about our position there. Next question operator.
Your next question is from the line of Andy Wittmann with Baird. Your line is open.
Great. Good morning. Bob, congratulations on your promotion. Steve, yours as well. Kevin, I just thought maybe a question for you. I wanted to understand the fourth quarter results here a little bit clearer. I guess your corporate unallocated expense was $28 million. I think you were kind of suggesting it was gonna be higher than that for the quarter, as well as your guidance for 23 is implying a run rate of about $50 million per quarter.
I was wondering, I guess you called out incentive comp. You also mentioned an FX impact, keeping that number down this quarter. Could you comment on the size of the FX impact, and was that what the nature of that was? Is that like a non-cash accounting, thing for some hedge that you had on FX, or was there something else in there that was driving, that benefit to the quarter?
No. Look, the dynamic, I don't have the FX dynamic specifically outlined, but certainly can follow up with you, Andy, on that. If you think about it. Our corporate related costs that support costs are embedded around the world. Effectively, if you have U.K., for example, corporate related costs, they're getting translated into a lower rate effectively. The value of those costs go down. That effectively had some benefits associated with this because it's all. It's effectively corporate costs and not corporate revenue. If you get the difference between the two.
Look, we have known that the constant currency dynamic was still robust, but we knew that the reported currency continued to be a challenge, and we were very proactive in terms of taking steps to ensure that we reach the commitment levels that we had established for the company. You know, we pay attention to this and very proactive in terms of the management of our cost structure during Q4.
Your final question comes from the line of Sabahat Khan with RBC Capital Markets. Your line is open.
Great. Thanks, and good morning. Just I guess the earlier commentary around how much the pipeline is building up, including the IIJA, kind of if we think about that bill and the other ones starting to flow through, maybe some offset with pricing, maybe moderating. Like, how do you expect, I guess, backlog just to trend over the course of next 12 to 18 months? I guess, is it fair to assume with that extra government funding, it could continue to grow? Just wanna understand what you have embedded in the guidance that you've provided today.
Well, I will tell you that, as you may know, backlog is one of our incentive metrics. I can assure you that our incentives are based on backlog continuing to show very strong growth year-over-year.
If I could add one more thing, just on what drives backlog, which is sales. Sabahat, you know, we've been a sales-driven company since inception. I think Dr. Jacobs probably started that mantra. Our sales-driven growth and the investments we've made, naming now our new chief growth officer as well, has been very, very specific as our portfolio has developed over this most recent period of time. We're, you know, we're putting the full force effort on our sales effort as the pipeline continues to grow, so timing is good.
If there are no further questions, I will now turn the call back to Mr. Bob Pragada.
Yes, thank you. Thank you everyone for joining our earnings call. I'm looking forward to providing further updates on our progress and upcoming events and calls. For those of you in the U.S., have a wonderful Thanksgiving. Thank you.
Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.