Hi, good afternoon, everyone. My name is Chad Dillard. I'm the lead analyst here for Bernstein covering the machinery sector as well as electrical infrastructure. Today I'm really pleased to have Jacobs Solutions on the stage. Joining us is the CEO, Bob Pragada. Thank you for having us.
Thanks for having me.
All right. To begin, we're going to have a fireside chat. If you have any questions out there in the audience, there should be a pigeonhole link that you can click on into your question, and I'll make sure and have get that answered. Without any further ado, let me turn it over to Bob to give a quick intro, and then we'll dive into Q&A.
Sure. Thanks, Chad. For those of you who might not know, Jacobs is a long-standing company founded back in the 1940s right here in Brooklyn by Dr. Joe Jacobs, who was a former Merck employee and worked in the chemical process industry. Kind of the first almost 50 years of Jacobs' history, it grew up as an engineer in the chemical process industry, mostly in the hydrocarbons as well as the pharmaceutical space. After going public in 1989, ended up diversifying both geographically, other end markets, as well as in services, staying true to that engineering know-how of the client's business, and mostly in manufacturing as well as now in infrastructure. We also, in the 1990s, acquired a company called Sverdrup that got us into the aerospace and defense world.
This company kind of grew from 1990 all the way through to nearly the recession on a 15% compounded EPS growth and was a leader in the spaces that we were in. Coming out of the recession, probably heard this a couple of other times, we had made some significant investments both in acquisition as well as in ourselves. Coming out of the recession, not growing quite like we wanted to or needed to. You kind of probably heard this story before. In 2016, we actually did our first strategy. That strategy was pretty simple. I think we paid McKinsey a lot of money to come up with this, which was, you do great things in certain markets, certain geographies, and with certain services.
You do not, in other markets, geographies, and services, get out of those and double down in those industries that you are a market leader and you do great work for your clients. So we did. One of the areas, and the reason why I wanted to kind of walk it up to that point, one of the areas that we saw back in 2016 that we felt very underindexed in was the water sector. We had a decent presence outside the U.S., but in the U.S., it was nonexistent. If there was an investment to be made, we were going to look into that sector. Everything else was going fairly well. We executed on our strategy. One year after we did our strategy, we had the opportunity to make a transformational acquisition of a company called CH2M.
They were an industry and market leader in the water sector as well as in advanced facilities, specifically chip manufacturing plants. It was probably one of the largest acquisitions in the engineering space. I did that in 2017, took all the learnings of not how to integrate properly, played those forward, and really transformed the company in a huge way. Little did we know that one year after that, 2018, we were approached by a company in Australia called Worley Parsons interested in acquiring our energy and chemicals business. Great business, but it was in volatile markets, the hydrocarbon space. Ironically enough, the price was exactly the same price as we paid for CH2M a year before.
We ended up selling our energy and chemicals business and continued to grow as an infrastructure advanced facilities play and a market-leading position in the government services world, specifically in aerospace and defense services. Made it almost through the pandemic where an interesting dynamic started to form where our infrastructure and advanced facility space was growing at a decent clip. Margins were expanding at a decent clip. We were not growing in our government services space. A lot of that, and we were just talking about some of the trials and tribulations of current government services players, is that the dependency on a few large enterprise contracts. You lose one. If you do not buy a company, you could be in a little bit of trouble. About 2021, 2022, we started to look at, okay, we have this capital prioritization.
Are we going to put it in the business that's higher growth, higher margin, and strong secular tailwinds, or in our government services base, lower growth, lower margins, but with a cadence of M&A that's needed? That is when we made the decision back in 2022 through our board to separate with our government services business. Made that announcement in early 2023. Ended up getting approached by a private company called Amentum, who was interested in doing an RMT merger. That then proceeded. For anybody in the crowd that ever has been through an RMT, it's probably one of the most difficult things to do. We did it in about nine months and in September of 2024. Sorry, this is going a little longer than expected, Chad. In 2024, you can tell we've gone through a lot of transformation along the way.
We ended up merging that business with Amentum. Took a retained stake, got a billion dollars in proceeds, and ended up paying down debt as a result of the loss of about $300 million of EBITDA. Have been running with now the new Jacobs Infrastructure and Advanced Facilities over the course of the last few months. In markets right now in the water environmental sector, advanced facilities and advanced manufacturing sector, as well as what we call critical infrastructure, energy and power and transportation, that for the first time probably in my career have all got really strong secular tailwinds. We just had our investor day in February and are really excited about the future.
All right. Bottom line, lots changed.
Yeah.
Bob, you've talked about the redefining of the asset lifecycle. I was hoping you could take some time to break that down and perhaps contrast this new approach versus what Jacobs has been doing historically. Maybe talk also about how this makes Jacobs differentiated when you're going up against some of the top competitors you regularly come into contact with in the market.
Sure. Actually, now I'm glad that I did walk through the history because it kind of sets up this piece. Over that, I just recapped 70 years. Over that same 70 years, we really got deep into our client's business. If you look at kind of how the procurement model has also morphed over both private sector and public sector, we kind of entered as an engineer back in the day, and back in the day is only 10 years ago, where client had an opportunity or a challenge, right? The effects of climate or a new therapy that they want to get to the market in life sciences.
Client determined the capital that was required in order to transact and build that capital asset, and then went out into the engineering community and had what they had schematically designed in their mind and priced to a variety of players that could then design it, then they built it. What was going on during that whole process, though, is that the only way to then optimize capital was either reduce scope because sometimes you got it wrong, or it ends up being more expensive than what you anticipated.
That early phase of, okay, you have an opportunity, you have a challenge, but there's a business advisory component to that asset lifecycle that if you can get involved because you know the domain, you know the science of your client's business, if you can get involved there and help the client shape what outcome, what solution they're trying to build for, you could really optimize capital along the way. That redefining of the asset lifecycle is going higher and earlier into the client's business and working with the client all the way through. Now, how do we do that? Do we just show up at the doorstep? No, these are clients that we've had for decades.
That trust that we've built over the course of several decades has allowed us to really engage early on and then be with the client along the process all the way up to commissioning and operating and maintaining that asset. We probably do it more in the water space and in the life sciences space, but it's now becoming a bigger part of our business.
Got it. What sort of change management do you need to deploy just to get the customer on board and comfortable with sort of this sort of approach?
I think the biggest piece is there's a joke that we have, and it's actually not a joke, is some of the best projects that we've ever advised on never got built. What I mean by that is that I think when you have a relationship with a customer that you are going to be the best stewards for their capital. There's sometimes that maybe you don't need to build the job. Maybe you can retrofit. Maybe you can design another transportation network that reduces the need for another subway line or another rail line. That is going into building that trust to where they're going to have that level of faith that you're going to be making the best decision on their behalf.
Gotcha. I guess how does that redefining of the asset lifecycle show up in the financials in terms of P&L returns? What share of your business is under this approach right now, and where do you think that can go over the next three to five years?
Yeah. Part of that transformation and the divestitures and acquisitions that we've made over the years, that same period of time, we've been able to grow margins by almost 400 basis points from 2018 to now. Where it's now showing up of us doing higher margin, higher-end type of work is we're on track right now to increase our margin profile in the next four years by another 300 basis points because of that type of work that we're doing, part one. Second is the globality of our business, right? In order to be that deeply entrenched in your client's business, you have to have the best talent in the world. Historically, in the engineering space, you were hiring locally for projects that were done locally.
What we're doing now is that right now, 60% of our work is in the U.S. or with U.S. clients doing work outside the U.S., 40% out. Our headcount is actually flipped. We actually have 55% of our people outside the U.S., 45% in the U.S. because we're accessing the talent wherever the talent is. And that's really enhancing the model too, as well as there is a cost benefit there too, is it's adding to our margin profile. The last thing I'd say is that these challenges for our client's business are becoming more and more complex. And so we've really dedicated some time, effort, investment into developing digital platforms in order to enhance, I mean, AI-enabled software platforms that are helping us get to a solution faster than we ever did before. So I'd kind of point to those three.
Gotcha. So how does PA Consulting play into all this?
In a big way. I've skipped over that one. In 2021, PA Consulting is a strategic consulting, science-based strategic consultant, kind of competes with the likes of Accenture, PwC, McKinsey, and others, more so in the U.K. They take it from they drive business transformation through either digital enablement or optimizing capital deployment. PA is in the same end markets that we're in. When Carlyle was going to market in 2021 to sell their stake, we actually competed against other private equity firms and acquired their stake. The partners of PA rolled over their investment. Now we have a partnership with PA as the majority shareholder as well. In that early business advisory planning and conceptual phase of the asset lifecycle, we're going to market with PA to help us do that. They're taking it more from the business lens.
We're taking it more from the science-based lens.
Gotcha. Okay. A couple of questions for more of the near-term perspective. When it comes to large capital projects, Jacobs sits more or less at the tip of the spear, right? Just given that there's a lot going on between tariffs and higher rates and general uncertainty, maybe you can shed some light on just where your customers' heads are at in terms of how they're thinking about starting projects, the confidence of allocating capital in this sort of environment. Maybe you can break this down into kind of three main customer bases, right? The private side, state and local, and then federal.
Yeah. In federal, I'll go kind of state and local and federal. I'll take a global snapshot of that too because it is affecting globally. The private sector for us, these are really durable markets that we're in: life sciences, chip manufacturing, data centers. There's a complexity around these facilities that our clients are making five, six, seven-year capital decisions on going forward with the facility. The tariffs actually have not actually transacted yet, and nobody knows what they're going to be. They oscillate back and forth. Where our clients have been is they're moving forward. The private sector continues to move forward. The reshoring concept actually in those sectors had already started well before this administration. They're moving forward.
What they are doing, though, is we're engaged with them in developing alternative supply chain strategies to where, okay, if I can't get tanks and vessels, or if tanks and vessels end up being 145% more because I've got to bring it in from another country, where can I go, right? Now, all of those, we've done the scenario planning for our major clients and are there, but they're still pressing forward. I mean, these are when I say life sciences, what kind of therapies are coming out of these facilities? GLP-1 therapies, oncology products. Now we're getting into the phase of neurodegenerative and Alzheimer's type products. These are products that are transforming their business. They're moving forward. State and local governments right now never really stopped, right? Those funds had been appropriated. The cost of the jobs play back.
We're going through those same kind of supply chain modes. So there's a little bit of a nuance there. Jobs are going a little longer, but not pausing. They're continuing on. The federal sector, which represents about 9% of our business, and of that, 80% of it is in the DoD infrastructure world. So this is transportation, water, environmental work on military bases. That's continued, especially in the Indo-Pacific and in parts of Europe. In the U.S., we did see some pausing, not cancellations. We did see some pausing, waiting to see how the dust kind of settles from DoD and everything else. Now we're starting to see those come back. They never got taken off the table. I'd say overall, a bit tenuous, but it hasn't been a big impact.
Gotcha. Okay. Maybe just over to the House version of the tax bill. Just curious about what your customers are seeing. What your customers are saying, what you're seeing, just given there's a cross-current of change in renewable tax credits, but also you have the element of bonus depreciation. Be curious to hear what you're hearing.
Yeah. On the renewable tax credits and mostly kind of the IRA components, we did not really have that much exposure, just a couple of jobs. That really did not have an effect on where we sat. Most of the IIJA money was going towards transportation work anyways, and water was almost exclusively funded from municipalities and states. What we are seeing is that on the potential for the bonus depreciation is, and remember, this was also tried in 2017, we did not really see that much of an effect. Life sciences, semiconductor, I think the chip manufacturing world might accelerate that reshoring that was already in progress. It would be a net positive. Industrial manufacturing, this is aircraft manufacturing and those types of industrial manufacturing, there is not a lot here. I think we could see a net benefit there.
Interesting.
Now, the indirect component, the infrastructure in order to support that type of manufacturing base, I think that would end up being a net positive for us as well.
Interesting. Okay. I guess roughly, what share of your business would benefit directly from reshoring? Maybe you can talk about what's differentiated about Jacobs in pharma, semiconductors, data centers, industrial manufacturing. What makes you win there?
Yeah. The first part of your question, I'd say that it's tough to quantify right now. About 25% of our business is in the advanced facilities, advanced manufacturing sets, life sciences, semi, and other. There was already movement to say, what's the incremental component? Not sure. We do feel strongly that there would be an indirect benefit in that right now, if you look at the power infrastructure, the water infrastructure, it's already, even without a higher demand on those utilities, in need of enhancement. I think we'll see a benefit there. What makes it special in those private sectors, specifically in the higher-end manufacturing space, is the science. If you think about these facilities, I'm always talking with my hands, but if you think about these facilities, the facility is determined by the manufacturing process.
You start with, in the case of life sciences, you start with the molecule and what is the process train, process manufacturing to enhance the molecule. Then you build utility systems, bricks and sticks to support that manufacturing train. Same thing in the chip manufacturing. It starts inside the tool. What is it? What's the layout of the tool? What's the technology and the requirements of the tool? Then you build outward. Interestingly enough, in the chip manufacturing space, the smaller the line width and the bigger the wafer, the bigger the facility and the bigger the tools, right? These things are getting to be gigantic, right? That knowledge of the science, of the process science, is really what's been a big differentiator for us. In fact, we in both of those spaces do not really have a public comp.
Interesting.
Yeah. They're mostly private sector players that we compete.
What's the difference in win rate in, let's say, your advanced facilities versus your more traditional infrastructure anyway? You kind of frame that?
Yeah. I'm always sensitive to throwing out win rate numbers. Chad, you've asked me before as well, but you can manipulate the denominator any way you want. I can win all the jobs that I want if I drop out midway. I'd say that the advanced facilities business, we have anywhere from 10-20 basis points higher win rate than our infrastructure business. Even in our infrastructure business, that's a pretty high win rate.
There is this growing convergence of water with industrial infrastructure. Can you talk about what is happening there and how this is impacting Jacobs from the share of wallet of a project? I guess I will not say win rates and just gross margins and backlog.
Yeah. The gross margin and backlog, it's growing at the, I think we said 15% last quarter of gross profit and backlog. Our net revenues are growing right about at the same rate, right? As far as that's trending in the right way. The industrial water space, it's kind of at an inflection point right now. I kind of point to two examples. One is that in any kind of reclaim scenario on any manufacturing, especially clean manufacturing point, there are treatment systems that need to be put in place. Those treatment systems in existing sites, existing manufacturing sites are already strained, but either there's a water scarcity issue, there's flood issues, there's other issues. That's got some real headway to grow.
The other, though, and one that we're in the middle of a lot of studies right now is, as the data center world goes from kind of the 100-200 MW type of AI data center into the 850 and even GW range, the water for cooling is becoming as big an issue as the power requirement. That presents, now if you think about we're number one in data centers, but that was because we had a really unique design approach to the white space or the server rooms. Now, with the power needs, the water needs, and the integration of all of those, it's playing right into the sweet spot of what our skill sets are.
Okay. So how much of your revenue today is generated under the global delivery model? And how do we think about that figure over the next, let's call it like three to five years? And is there a ceiling to that?
We do not believe that there is a ceiling to it. I would say right now it is 10% of our overall delivery. It is 10% of our overall delivery. If you look at what really can we do, we have a lot of work that we do that is on sites, right? We are program managers on site. We are doing work in operations and maintenance on the site. If we take that out and look at what is the real consulting, engineering, design component, that 10% goes up by a bit. I would see in three to five years that potentially doubling.
Gotcha. Okay. And so just from a change management standpoint, what would you need to do to get customers more comfortable with the global delivery model?
Yeah. It's interesting. In the private sector, and I'd point to life sciences and semi-first, that paradigm shift happened about 15 years ago. So that's a mature model that's off and running. In some of our infrastructure space, I think it's the paradigm shift of we're driving an outcome. How we get to the outcome, that's on us. You've been with us for 70 years. There's a level of trust and project certainty that Jacobs brings. I think that is happening at a nice pace right now too. It really is a paradigm shift from a talent, from a delivery, from skill sets. There is no difference.
I guess in terms of contribution to your overall margin growth, could you just mention that for us?
Yeah. There are multiple drivers of our margin growth: global delivery, our commercial mix, as well as the continued cost optimizations and self-help work that we are doing. We have not handicapped it, but it is the biggest piece, right? We have multiple levers for that 300 basis points of margin expansion over the course of the next three or four years.
Gotcha. Okay. Actually, moving on to the other part of the margin expansion. I think if you look at Jacobs, it underindexes. If you look at fixed price versus cost reimbursable. I guess what's the right mix for your business profile? Assuming you're going to move more towards that fixed price side of the ledger, talk to me about how you're dealing with risk mitigation when you are taking on more risk to generate potentially higher margin.
Right now, the mix is about 70% of our work is cost reimbursable, cost plus, and 30% is fixed price. Just to contextualize it for a moment, that asset life cycle, when we're getting involved in business advisory or planning and conceptualization of a job, we actually don't want to take that work fixed price because there is no scope, right? You're taking subject matter experts going with your client and you're co-creating solutionering with your client. You want that to be on a reimbursable basis. Once there's a scope, and now you've got a scope, you've got a start, you've got an end, taking that fixed price with our own people in a domain that we have a high level of expertise in, we want that, right?
Because then we can use digital tools, we can use global delivery, we can use these productivity enhancers, and those productivity gains are margin accretive to us, right? If it was continued to be cost reimbursable, we'd be passing it back to the client. Quite frankly, the client wants it to be fixed, but it gives them price certainty as well. I'd say, is 30/70 the right mix? Probably not. Would we like that to be 50/50? That'd be great. However, that also is that cost reimbursable work that we do on the front end, that is higher margin work today, right? We don't want that to go because one feeds the other. I think it's a balance.
Gotcha. Okay. Can you also spend a little bit of time on how you're deploying AI internally?
We're using internally.
Internally.
Yeah.
Yeah.
Internally, really, it's around our, well, twofold. One, it is helping us get to a lot of the, I'll talk about our design or our engineering service first. There is a lot of data that is required for us to be designing solutions for clients' assets. Over the years, in multiple end markets around the world, because nobody has the same standard and codes, we've collected a lot of that data. To have our own LLM where we're using that data in order to get to solutions faster is helping us get more efficient in our design process. That's going on in real time. That goes to that fixed price nature too. If you're doing that faster and it's reimbursable, you lose the benefit. That's actually helping us get even more efficient in our fixed price and risk mitigating as well, right?
I'd say that's a big piece. The other is that our enterprise functions today, we've done a good job and Venk Nathamuni here, who's our CFO, has done a really good job at consolidating and standardizing our processes around those enterprise functions. Now we're in the phase of enabling AI in order to get even more human efficiency with it all being in a single location. Before, we had them distributed all over, right? Standardization, you need to standardize before you can have any type of benefit from digital enablement. We're in that second phase now.
Interesting. Okay. I'm going to hop over to a couple of questions from the field. Looking to the water business, can you give us some insight on what you're seeing on a regional level?
Yeah. Water is an interesting market in that, while and probably less tied to global macros. While we were seeing post-pandemic recession in Europe, or specifically in the U.K., some softening pre-election in Australia, as well as how we were in the U.S. responding, water was the consistent growth avenue. A lot of it has to do with the effects of climate, right? Globally, I'd say water was the consistent theme that the pipeline, the backlog, and the P&L growth, specifically over the last three years, has all been up and to the right. Hopefully that answers that. As far as kind of the size of the market, the U.S. still is the largest, but the work that we do in the U.K., especially around these asset management programs, the AMP cycles, they call them, very formulaic.
Every five to seven years, a programmatic deployment of capital in order to maintain and enhance water systems. In the U.S., we have probably more of a state and municipality kind of method there, but we've got a great market presence in both locations as well as in Australia.
Got it. Okay. So what steps are required to make Jacobs' consolidated margins look like PA margins? What's going to be the key in markets to help you reach that goal?
Yeah. The margin profile by our end markets, I talk about Jacobs because whoever asked that question is a great question because that's exactly where we're going, not necessarily in this strategic cycle, but we said 16% plus in 2029. We feel strongly that we'll continue to rise above that too. I don't know if it's as much about the end market as it is our ability to drive all the things that we've talked about: global delivery, digital enablement, cost optimization, and operating leverage, that we see that trajectory continuing to go up. It's not like we need to do more work in the water sector or do more work in the life sciences sector. I think that the end markets, if you look at the margin profile today, they're all kind of rising at the same rate.
Gotcha. Okay. Maybe just zeroing in on the pharma side of the portfolio, can you just talk about the pipeline you see ahead of you and what sort of opportunities Jacobs has to capitalize on that?
Yeah. Pipeline's strong. It's interesting because the next question would likely be, why is it strong? There goes the AI word again, is what AI is doing in the pharma sector around drug discovery, and I think the CEO of Lilly says it the best, it's allowing for the R&D function to fail faster. In molecular development, you're testing formulations, failing, learn from your failures, play it forward. Now with AI and drug discovery, that's all getting compressed, and you're able to get to solutions or therapies or cures faster. Think new molecule, new therapy, new facility. That's what's kind of driving that pipeline right now. GLP-1 still is a big deal now that more than two players globally now have those molecules. You're going to see that continue to expand with other players.
Oncology drugs, we're solving; the world is solving for various cancers that there wasn't a cure in the past. That's accelerating. The next generation that we're starting to see the early days of is in our pipeline, is around neurodegenerative. This is not just the slowing of Alzheimer's, but potentially the reversing. It is a couple of years out, but I think that's something that gets really, really exciting. You see all that. The other dynamic that's happening, and this is back to your earlier question, Chad, about whether it be reshoring or incentives to manufacture here, Eastern, and I mean Japanese, Korean contract manufacturers. These are large pharmaceutical contract manufacturers that are establishing operations in the U.S. You got AI and drug discovery, molecules getting to market faster.
You want your own facility, but if I can go to the contract manufacturer and get there as well, I'm going to utilize that. We are seeing growth. We announced Fuji a couple of years ago. We announced the second phase, I think last summer. That could continue.
Interesting. Okay. It sounds like you're stacking up a lot of different opportunities. How are you thinking about the inflection point? Are we there yet, or is it still ahead in terms of pharma?
Oh, I don't think if we're staying kind of the peak.
The inflection.
Yeah. The inflection, as far as inflecting positive, we're there. We're on the front end of that curve, but we don't actually see the curve as being bell-shaped. I don't think that there's a peak and then it drops off. What's happening is it's kind of a steady growth.
Got it. Okay. Just a question for you for 2025. I guess looking at the second half of the guidance, it implies a healthy step up in revenue and margin. Just curious, what's giving you the confidence on the guide? How should we think about that exit rate as we're thinking about 2026?
We'll kind of hold on the 2026 question because I do not want to give too much forward guidance. On the second half, a couple of things I would say. One, we are reaffirming that our 5%-7% revenue growth in Q3, similar to what we said on the earnings call, reaffirming that. If you look at the margin profile, we said approximately 14%. Even though we did 13.4% in Q2, there was the legal reserve. For other reasons, I cannot speak too much about that, but Chad, you figured it out. You go back and you kind of take that one time, the step up is actually not that great. When you kind of look at it from that perspective, we have got line of sight to making it happen.
Okay. Just maybe another question for just comparing and contrasting the new Jacobs versus the old. Just a question about cyclicality, if there were to be a downturn. I guess walk us through how you would expect the Jacobs model to flex, just given that there are a number of different secular tailwinds ahead today that were not there in previous downturns.
Yeah. I think it goes to a couple of data points that I'd refer to. One is that at any one time, we were talking about the government services world where you lose a contract, there's some trouble. In the new Jacobs world, we have at any one time 29,000 engagements, projects, programs going on. The average size of our engagement is about $500,000, and that ranges from on the highest end, a couple of billion, on the lowest end, two people for a week at $10,000. Those types of, that's a huge, huge range with only 2% exposure to any one client, right? If you look at just the diversity in the business, there's some resiliency there that all ships can't go down at once. In a recession, we've got a little bit of that buffer. Now, we don't see that right now.
We're seeing some really nice tailwinds. Being good stewards of shareholder capital, we did do some scenario planning where Venk, our CFO, for our board, kind of walked through with some assumptions, what would be the trough to the peak or peak to the trough potential effect. He did some look back in history at the global financial recession, the pandemic, a few other things. On the assumed model, it was not material, right? Probably 5% kind of in that range.
Okay. If you had an additional $100 million to deploy organically, where would you put it today?
You mean after returning it back to shareholders?
Yes.
Right. No, organically in the company, we would really continue to enhance our tech platforms, right? The software development we do, our systems, our backbone, we're on a nice trend right now. I think continued investment in that area is going to do nothing but make us more efficient as a company, as well as continue to help us develop even more unique solutions for our clients' businesses.
Yep. I think it was this last quarter you talked about potentially increasing your stake in PA Consulting. Can you just give a little bit more color on your thought process behind that?
Yeah. First, we're going to make sure that the investment that we make in PA, that we see as kind of an investment in ourselves. It's a long-standing relationship. We had a nice partnership that we formed and grew over the course of the last four years. We're going to make sure that the returns on that investment continue to profile to the returns that we have an expectation for the entirety of the enterprise. Meaning those ROIC calcs that we're looking at are going to be in line with being greater than our WAC. That's kind of how we're looking at that investment. From a strategic standpoint, we feel really confident that the model works, and the model in that redefining the asset lifecycle is a really unique, differentiated place in the marketplace.
We're going to do what's right for our shareholders and at the same time for the long-term growth of the company.
Yep. Maybe my final question for you. Maybe talk about the claims on your free cash flow over the next 12 months. How would you balance it between M&A versus buybacks versus dividends? Any appetite to even pay back debt? Just walk me through how you're thinking about that.
Yeah. As far as M&A in the near term, we're not thinking about M&A. If we take that off the table, if you think about what we did in Q1 and Q2 from return to shareholders of $630 million, we're on track for the full year to be at 100% of our free cash flow return to shareholders. We're going to continue on that path as well as reinvesting in ourselves.
Got it. Okay.
I might add asset light, compounding free cash flow margin. We talked about it in investor day. We have got a nice and it is kind of the ultimate equalizer of our competitors and us. When you look at EBITDA margins, there are a lot of questions that come up on, well, why is company X that and you are that? There is no creative accounting in free cash flow margin. We are right there with others with a great opportunity to go to 10%.
Excellent. Okay. We'll leave it there.
Okay.
Thanks, Bob.
All right. Thank you.
Thanks.
All right. Thanks, everyone.