All right, hate to interrupt the smooth jazz, but we'll get going here. So, so my name's Adam Seiden, and I lead the U.S. Machinery and Construction effort here at Barclays. Thanks for joining us again for the Industrials Conference. So for this session here, we have the folks from Jacobs. So, we have both Bob and Venk, CEO and CFO, so really excited for these guys to be joining us. For the format of this session, like a lot of the others here at the conference, we'll be doing a fireside chat. We do invite your participation, though, through the gadgets that are on your tables there, where we'll be taking some questions for the audience. So certainly, welcome your participation. So with that, Team Jacobs, welcome back to Miami.
Thanks, Adam.
Thank you.
Thanks for having us.
Well, you got it, and always good to have you guys here. So last year in Miami, actually, you guys were here for this conference, but you were also here for some other things as well, including your Investor Day. So, back, back at the Investor Day, one of the takeaways you were talking about, like, y- redefining the asset cycle, or asset life cycle, sorry, and moving towards, you know, higher value services. So I guess here we are, one year later, you know, what progress have you made in that transition? And, you know, what tangible changes can we expect over the next couple of years here?
Yeah. So, so Adam, I'd say we've made tremendous progress along that effort. The good news is that when we said redefining the asset life cycle, we've always been in the business of driving client outcomes. But, but in certain cases and in other cases, we haven't necessarily had the ability to influence in an earlier stage of of a client's capital decision-making process in order to to deliver that outcome, right? So, so that was kind of the the origins, but it wasn't coming from scratch. We'd had we had a bit of a a runway beforehand.
Since the Investor Day, we've made great progress, I think, demonstrated by our financial results over the course of the last Q4 , and culminating last quarter and probably one of the best quarters that we've had in recent history. Going back, been with the company for 20 years, and I think that's probably one of the best quarters we've ever had. But it wasn't by chance, and it wasn't a one-off. It really was a build-up of this, what's happening in our end markets, specifically in places like life sciences and advanced manufacturing and the water sector, as well as our international business. It's kind of been a nice and a nice nugget in front of us.
Really delivering to long-term client relationships and getting involved very, very early in that decision-making phase. It's gone well.
Great. Talking a little bit about the, the portfolio and really the backlog here. The backlog is at very nice record levels there. How would you, you know, how would you characterize the duration, the margin profile, and really the risk that you guys are taking within those contracts in the backlog today versus, you know, where you'd want it to be?
Yeah. Maybe I'll have Venk talk a little bit about kind of the profile of the backlog, but maybe I'll address the risk comment. Just to be clear, we are not taking on added risk as a result of getting kind of the full program delivery for these jobs. We have a long history in full program delivery in life sciences and in the water sector. Now, with the speed that's required around very complex AI data centers, that level of delivery certainty at scale is what our data center clients are asking us for, but the risk posture is the same.
Okay.
Yeah, and then just on the backlog, you know, I'd say obviously, last quarter was a, you know, tremendous quarter in terms of our book-to-bill being 2.0. But when you look at it from a trailing twelve-month perspective, it's been rising pretty steadily, you know, from 1.2 a few quarters back now to 1.4. So we feel really good about the, the growing book of business, and it's very representative of our overall end market exposure. As you know, you know, 50% critical infrastructure, about 25% in life sciences and advanced manufacturing, and then the other 25% in water and environmental. So it's a fairly good representation of our end market exposure, and that's what we see.
If anything, we're seeing, you know, higher growth in our life sciences and advanced manufacturing, driven by not only some of the work that we're doing for the GLP manufacturers, but also what we're seeing in the data center side. So overall, we feel pretty good about the backlog and continuing to grow it, and in terms of the pipeline, visibility is pretty strong.
If I could just put a fine point on the backlog, and you talked a little bit about the 2.0, you know, in Q1 so far. So as we think about, you know, through the year, a book-to-bill of, you know, 1 or above, is that a reasonable expectation for this year?
Yeah. I think, you know, obviously, we're not gonna print 2.0 every quarter, but, suffice it to say that the trend has been up and to the right, and we have good visibility in terms of the pipeline looking ahead as well.
Great. So there's the backlog, kind of like sets the table for what's to come. Obviously, there's the burn of the backlog, and you guys were talking a bit about your revenue guidance. You did raise that a little bit. So I guess the simple question first is just essentially what determines if we land on the more mid-single-digit side versus kind of that, you know, the higher end of the revenue guidance?
Yeah. I'd say the pace of play on some of our more tech manufacturing-centric jobs. You know, we didn't want to overcommit on what that velocity was gonna be on those jobs. As well as there's a bit of a ramping that we need to do in Q2. So the H2 kind of looks better, but that was, that was... It was the Q1 . We knew that we were going to raise guidance after the Q1 , but we were just taking a, you know, pragmatic view in case when things go either way.
Got it. In Q4, there's an extra week as well that-
Sure.
Helps out too.
Yeah.
Okay. If we think about, like, the mix within the backlog, there has been within several large awards, they've carried, you know, a higher pass-through, so forth in revenue. How-- Can you just talk through a little bit of that dynamic and what that means for, you know, for Jacobs' book of business and how that will impact, you know, how that flows through to the P&L?
Sure, sure. So I talked earlier about kind of the speed required around certain of our our life sciences and now data center clients, as well as in semi. But in semi, you know, we were really a an engineer and a design consultant in that space, do a lot of it. But that's kinda where we've stuck to our knitting there. On the data center component, you know, some customers, like the hyperscalers, have sophisticated capital projects teams. Interestingly enough, most of them come from our end of the sector anyway, so our end of the food chain or supply chain.
But some of our data center clients, like neo-cloud providers, know a lot about data centers and the technology and what's going on within the, within the racks, but might not have project delivery expertise as well. That's the case, with the large award that we announced with Hut 8. They're a neo-cloud provider. Clients, you know, are, are gonna be Anthropic. FluidStack is gonna be the operator. Google is the investor. JP Morgan and Goldman Sachs are both the, the, the investor or the, the creditor. Came to us with a full program delivery, partnership, where we would procure on their behalf, equipment, subcontractors, and the like, and then have back-to-back terms with them and pass through that revenue.
Great. And, and you just brought up data centers, and, I'm sure we'll talk about it a bit, throughout the conversation and advanced facilities work. So maybe just, the level of growth that we've seen in advanced facilities, whether that's, you know, life sciences, semi data, and-
Yeah
... et cetera. How sustainable are those growth levels? And then, maybe if you could just talk to us as far as how big of an impact is data centers on the business today?
Yeah. Well, short answer on sustainability of those end markets-
Yeah
... we believe that they are sustainable. If I go back 10 years, 20 years, you know, it was a very cyclical market, where you'd have a novel therapy or a molecule, it'd get to market, and then there was a lot of consolidation happening in the biotech world. You know, today, with AI and drug discovery, these molecules are coming to market faster than before, and if you hear any of the CEOs of the large biotechs, count how many times they talk about capacity being the limiting factor with regards to manufacturing. And so I'd say that sustainability we see before we would have 6 to 9 to 12 months of visibility, we now have 24 months of pipeline-
Mm
... visibility by line item. So I'd say it's, it's, it's strong there. The second around data centers, and it's an interesting dynamic. We talk about data centers as the, the ultimate, facility, but if you look at where Jacobs plays, we're playing across the AI infrastructure. So high bandwidth memory on the chips, we design those facilities. The utility requirements that are gonna be needed for the data center, driven by what's going on with the chip, you know, we're in the middle of that with power and water. And then the actual data center itself is, is innovating in real time. What gives us confidence that there's sustainability there? We have an exclusive partnership with NVIDIA-
Yeah
... where we're doing digital twinning and simulation models on next-generation chips, in the virtual world and seeing what kind of requirements are there and how fast these things are getting to market, which kinda gives a runway on that side as well.
Then, Adam, to your question about the size of the data center business, we've called it out to be about roughly 3-3.5% of our revenues, but it's growing at a very, very fast clip, you know, almost double in the last couple of years, and we see that pipeline continuing to grow. Then, to Bob's earlier point, the level of engagement that we have in the data center, the scope of engagement has gone up quite dramatically. So to the extent that few years ago, what would have been our, you know, work in the design of the innards of the data center, now has become a much more comprehensive, soup to nut solution, all the way from site selection to the power needs, the water needs, and ultimately, you know, implementing the data center in its entirety.
The scope has increased by almost an order of magnitude for us.
Yeah, and, and I just wanna clarify.
Yeah.
3% is that last phase of the AI infrastructure chain, is the boundary limits of the data center. If you were to add on the utilities and add on what we're doing in the chip manufacturing space, that number probably goes to 10%-ish, so it's, it's, it's growing fast.
Got it. So, so maybe, thinking through from the Analyst Day, a little bit from last year, you were targeting global delivery and cross-collaboration, increasing from, you know, call it around 40% over, you know, 50%, closer to the end of the decade. So what progress did you guys make on that in FY 2025, and then what are the drivers from here?
Yeah, I'd say FY 2025 and the Q1 of 2026, we've made great progress. I think, yeah, we've made great progress on that. I don't wanna, I don't wanna jinx us just yet, but those targets that we put out might have already been surpassed.
Okay.
Yeah.
That would be pretty quick. All right. So we're talking a little bit about AI.
Yeah.
and so for-
Really, I didn't actually notice.
Are you getting any questions?
Yeah.
So, first, let's talk about some of the tools and solutions.
Yeah
... for yourself. So, you know, you've got your own sets of tools, and you're using, like, Acuity, Engage AI, and using that to deliver. How do you monetize those capabilities? Is it through margin expansion, win rates, larger projects? Just curious, like, how does that flow through for Jacobs?
Yeah, all of the above. All of the above. Really, you know, how many basis points of margin expansion using AI is delivering? It's tough to measure because it's become such an integral part of how we deliver engagements, programs, projects. We've been on this journey for nearly seven years, and it started with digital enablement. We did a lot of design automation, as well as take the data analysis phase of what we do and really programmed in a lot of efficiencies there. Now we're moving into AI in a material way, not only for ourselves, like those items you said, as well as our sales process, a lot of the corporate functions groups, but more so for our clients' business.
But if you look at the 32, 33 AI, AI-enabled platforms that we deliver for our clients, they're driving efficiencies for our clients, predominantly in the water sector, in the life sciences sector, and now we're deploying it on delivery of data centers as well. But we wouldn't be able to do those jobs had we not had those, those digital tools. Right? So, so said another way, AI and the, the digital enablement in a resource constraint, I mean, we're, we're significantly resource constraint-
Sure
is driving growth, headcount, billable hours, and revenue.
Adam, another important part of all our software and digital capabilities is the fact that it allows us to get a lot more stickiness with our customers, so we have, you know, multi-year contracts. Obviously, from a margin perspective, even though it doesn't show up in the, in the top line, it does have, you know, substantially accretive margins relative to our overall business. Over time, you know, it has a very, very positive impact on both margins and stickiness and ultimately drives, you know, additional revenue growth over time.
Got it. And-
Go, you... No, Bob.
Just because I know it's probably front of mind of a lot of people in the room right now.
Yeah, that's where we're going.
Yeah, exactly. Yeah. So why?
Yeah.
What—why not the, the Silicon Valley firm that can gather as much data as we have over the course of the last 40 years, come up with their own LLM, and, and, and basically, you know, eradicate an entire sector, right? A couple of things. One, access to that data is not as simple as possible. These are unstructured data that has been developed over hundreds of thousands of projects over 40 years, measured in... I'm not that so tech-savvy, in terabytes-
Yeah
or zettabytes or whatever. It's a lot of data.
Yeah.
We've been working to take that unstructured data into structured form, create our own LLM, called Jacobs AI-
Sure
... put, you know, cyber protections around it, following all of the standards, codes, and regulations from around the world, right? And so that, that is, you know, that, that's something that doesn't happen overnight-
Yeah
One. Two is, knowing that AI is deterministic, looking backwards or, you know, what's been done, nothing that we're designing today looks the way it did before, and we're solving for future opportunities and future challenges, right? So it's a very, very dynamic world. Now, if a firm was in the commercial real estate building business-
Yeah
and it was a static structure that continues to be the same as it's been for 50 years, could there be... and companies like Bentley and Autodesk and others who are suppliers to us-
Yes
Are already innovating there. So I think that's where, you know, the client dialogue we're having right now is not around less billable hours or why do I need Adam, Bob, and Venk when I can just do it with Venk? We're not having those conversations. Our clients are asking us, "Hey, bring everything that you've got because we need this outcome as fast as we possibly can.
Got it. And based on what you're saying, you're not worried that the client conversation transitions into that over time?
No. In fact, a lot of those 32 platforms that we're talking about, we co-created with our clients.
Yeah.
Things like AquaDNA that we've talked about in the past-
Sure
... Intelligent O&M, you know, Flood Modelle r, all of these tools we've co-created with our clients, right? So...
Yeah. So, so thinking of the portfolio a little bit in AI, so now you guys took a full ownership stake in PA. And with AI reshaping a little bit of-
Yeah
What's going on in the consulting world, so how does the PA plus Jacobs platform stack up competitively in that environment?
I think really strong. You know, you're right, consulting has now turned into a four-letter word. But really, if you look at the technical advisory component of client PA's ability to take clients on that digital journey from a science-based perspective. Remember, one of the big drivers around making the 65% investment in 2021 when Carlyle went to market with that 65% was their digital capabilities, coupled with the fact that these weren't folks coming from the financial world or the IT sector. They were science-based scientists and engineers and business-focused people that were taking digital enablement to transform businesses, understanding the science of the business, right? Which was a nice fit for Jacobs, as, you know, we could get deeper into the boardroom when decisions were being made. We learned a lot over the last five years.
We just to, for everyone's education is that we made the investment. The company, 35% was owned by the employees, the partners, and then they had separate governance and was run independently. So imagine the Venn diagram. We went to market opportunistically when our skill sets matched, and we could drive a greater client outcome, and then we operated independently.
Mm-hmm.
... So now making this 35% investment, taking the learnings, five-year head start, we know where the talent is, combining our back offices, combining our pipelines, still having the PA brand.
Mm-hmm.
And now that digital capability has grown with Jacobs and PA to now 2,000 people that are holistically centered in on digital, along with all of the other items of PA that PA brings. So we're really excited and saw some nice growth numbers coming out of PA as well.
Definitely.
And a financial model that's accretive to the Jacobs core business. So, you know, obviously, margins that are industry-leading at 22% and top line growth of 5 single digits that we feel pretty good about as well.
Great. Thank you, Venk. Maybe we'll shift to the audience response questions here. So just as a reminder for the audience, when the questions come up, once the clock starts to go, that's, that's your cue. So the first one is, do you currently own the stock? Yes, overweight, market weight, underweight, or no? All right. 80% of the room says no. Next question: What is your general bias towards the stock right now? Positive, negative, or neutral? All right. About a little over half the room is neutral. Next question: In your opinion, through cycle, EPS growth for Jacobs will be, above peers, in line with peers, and below peers? Happy we have Jacobs Solutions, not engineering. I think we've done that before. All right, about 50% in line, 40% above.
Next question: In your opinion, what should Jacobs do with excess cash? Bolt on M&A, larger M&A, repos, divvies, debt pay down, or internal investment? Right after the PA conversation. All right, about 45% of the room says share repos. And I think our last one here is valuation. So in, in your optimism, what multiple of 26 earnings should... or optimism, geez, in your opinion, on what multiple of 26 earnings?
Yeah, there you go.
Should Jacobs trade ranges from less than 10x to higher than 21x? All right, so it's about a third of the room each in the 16 to 18x and 19 to 21x camp.
Right.
So it gives you that. So maybe thinking through a little bit of the base business, right? Everything that you do very well on the transportation side and the water side, et cetera. I guess I do have to ask the obligatory question just about what your view will be on reauthorization. And really just more so than forgetting about the policy view, it's more how does Jacobs, as a business, operate in a scenario where, like today, which we have the current program, and how does that influence at all, you know, your guys' ability to win work if we're in an extension scenario?
Yeah, I think the extension scenario probably the impact would be neutral for us. We've gone through this before. Even the original IIJA-
Yeah
- was delayed by nearly two years.
Yeah.
So, you know, we're starting to see that continued trend. I think the number is 35% to 40% obligated and spent.
Yeah.
But the, the tail on that, on those dollars, continue on, so stay neutral.
Great. In the quarter, I thought there was a little bit more talk around international and some of the tick up that you've seen there. So maybe could you touch on that, expand on that? You know, what types of projects are you seeing? How broad-based across the regions and so on?
Yeah. Yeah, actually, you know, if you look at our results for Q1, we said that international grew faster than the domestic business, and that's driven by, you know, pretty broad performance across Australia and New Zealand. We've done really well in the Middle East, especially with some of the marquee projects that are being, you know, under development now, and we have a pretty strong position there, and we see some good pipeline there as well. And then the UK has been very strong.
So obviously, after a few years of political uncertainty, we've had some stability in the last, call it year, year and a half, and we're seeing that, you know, show up in our business strength, both in terms of what we do at Jacobs, but also the, the PA business has been pretty strong as well for us. So international is very strong, and we continue to see that pipeline grow quite nicely.
The add I would put on that is, you hear a lot about Australia.
Yeah.
And we've actually seen the opposite. You know, there were not a lot of huge, or was that huge, larger transportation jobs going on in the, the country. We were fortunate to win the largest, which is called, Torrens to Darlington. It's a job outside of, in Adelaide. And so that's really driven the business. But what was consistent and a continuation of what, what, Venk is saying is, is that our water business was solid across the world and drove the Australia growth as well.
Got it. Maybe just to think through on one of the questions there, we had, like, uses of cash-
Yeah
Right? I had a broader question just around the industry and consolidation and so forth. So the sector's very fragmented. We talked a little bit about the current cross currents of the industry right now. I mean, how do you expect the industry to evolve? Do you see more combinations and so forth in the future, just given the environment or not?
Yeah, maybe I, maybe I'll talk about the industry, and then, Venk, you can talk a little bit about kinda how we view on-
Sure
On Jacobs. On the industry, do I see, excuse me, sector-based consolidation happening? When I say sector-
Yeah
-by end market?
Yeah.
Likely, right? There, there are a lot of opportunities there. As far as large-scale consolidation-
Yeah
... I wouldn't speculate.
Sure
that that would be, that would be something that's a, a certainty, because we've got a lot of... I mean, you talk about our organic opportunities.
Yeah, and as it relates to Jacobs, you know, for us, we're very confident in terms of the organic growth story. You know, we've seen the guidance raised in fiscal 2026, and obviously, pipeline is pretty strong, and our book-to-bill is pretty strong. So our, you know, in terms of capital allocation, our first priority is continue to invest in the organic growth. And then, you know, as it was indicated in the polling, we've been very, very aggressive buyers of our stock. We think it's a tremendous value, and we've been returning well over 100% of our free cash flow last year, and committed to returning at least 65% this year. We're already on track to exceed that.
And then ultimately, you know, we will look at M&A, but it's probably not something in the short to medium term. You know, PA is the near-term focus, but we feel really good about our long-term organic growth, and that's gonna be the primary use of cash in addition to the share repurchases. And also on the dividend front, you know, we've grown our dividend by, you know, 10% + over the last five years, and we just raised our dividend recently to a 12.5% year-on-year increase, so very, very committed to capital returns as well.
Great.
You know, Adam, a real... I think a good example, there's a lot happening in the energy and power space right now.
Mm-hmm.
And some very deals that have some very high multiples that are related with them. Just kinda how we've been growing organically in that same space, in the energy and power space, is that the U.S. business right now is growing at clear double digits in energy and power organically, and we have been scaling with pretty significant levels of hiring that's going on in the Philippines and in India.
Mm.
Right? So this isn't outsourced engineering or, you know, you take the job to a certain point, and you put production engineering in a different location. This is scaling on an organic basis where the talent is and combining them with global talent in front of the client and creating, you know, a business. That business, three years ago in the US, barely, barely a business, right? So those are things where we've got great opportunities organically.
I appreciate you adding that color there. So maybe to button this all up, we start with the long term. We'll end with the long term a little bit. When you think about getting to that 16%+, you know, adjusted EBITDA margins by the end of the decade, I mean, what are the two or three most important, you know, structural drivers that you think will get there?
Yeah, so several things. So we said we'll get to 16%+ by fiscal 2029. We're well on our way to get there. I mean, obviously, this year, last year, we did 110 basis point increase in EBITDA margin, which is probably one of the highest in the industry, if not the highest. This year and in subsequent years, we've talked about 50 to 80 basis points. So the primary drivers of that would be, number one, operating leverage. We're making a commitment to grow the OpEx at a substantially slower pace than the revenue growth, so that's gonna continue to drive margin expansion.
And then, we've called out as specific drivers in terms of gross margin expansion, in terms of, you know, how we do more global delivery, especially as it relates to some of these life sciences and advanced manufacturing and water-related projects. That'll be a good boost to our margins. And then, in addition to that, the commercial mix of our business is also growing. So multiple aspects to our margin expansion story, and we feel really good about reaching those targets by fiscal 2029, if not sooner.
Great. Thank you, Venk, and thank you, Bob.
Sure.
Let's give them a round of applause, and thanks so much for being here.
Yeah, thanks.
Thank you.
All right. Thank you.