Jacobs Solutions Inc.

Good afternoon. My name is Jake and I'll be your conference operator today. At this time, I would like to welcome everyone to the Jacobs Fiscal Second Quarter 2020 Earnings Conference Call. As a reminder, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During that time, we ask that you limit your questions to one per caller and then one follow-up question. If you have a question during the Q&A session, please press star 1 on your touchtone telephone. Thank you. I will now turn the call over to our host, Jonathan Doros. Please go ahead, sir.

Good evening to all. Our earnings announcement was filed this evening, and we have posted a copy of this slide presentation and prepared remarks to our website, which we will reference during the call. I'd like to refer to you to our forward-looking statement disclaimer, which is summarized on slide two. Certain statements contained in this presentation constitute forward-looking statements, as such term is defined in Section 27A of the Securities Act, of 1933 as amended, and 21E of the Securities and Exchange Act of 1934 as amended. And such statements are intended to be covered by the safe harbor provided by the same. Statements made in this presentation are not based on historical fact or forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we made concerning potential effects of the COVID-19 pandemic on our business, financial condition, and results of operations and our expectations as to our future growth prospects, financial outlook, and business strategy for fiscal 2020 or future fiscal years. Although such statements are based on management's current estimates and expectations and currently available competitive financial and economic data, forward-looking statements are inherently uncertain, and you should not place undue reliance on such statements, as actual results may differ materially. We caution the reader that there are a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from what is contained projected or implied by our forward-looking statements. Such factors include the magnitude, timing, duration, and the ultimate impact of the COVID-19 pandemic on any resulting economic downturn on our results, prospects, and opportunities. For a description of these and other risks, uncertainties, and other factors that may occur that could cause actual results to differ from our forward-looking statements, please see our annual report on Form 10-K for the year ended September 27, 2019. and our quarterly report on Form 10-Q for the quarter ended March 27, 2020, which is filed this evening. We're not under any duty to update any of the forward-looking statements after the date of this presentation to confirm actual results, except as required by applicable law. During the presentation, we'll be referring to certain non-GAAP financial measures. Please see slide two of the presentation for more information on these figures. In addition, during the presentation, we'll discuss comparisons of current results to prior periods on a pro forma basis. Please see slide two for more information on the calculation of these pro forma metrics. We provided historical pro forma results in the appendix of the investor presentation. Please note that due to the timing of the wood nuclear acquisition in March, the current and prior period impacts of wood nuclear business have been excluded when discussing the pro forma comparisons. We believe this information helps provide additional insight into the underlying trends of our business when comparing current performance against prior periods. Now turning to the agenda on slide three. Speaking on today's call will be Jacobs Chair and CEO Steve Dimitrio, President and Chief Operating Officer Bob Pergata, and President and Chief Financial Officer Kevin Berryman. Steve will begin by discussing our climate action commitments, then provide an update on our response to the COVID-19 pandemic, and then a recap of our financial results and updated outlook. Bob will then review our performance by line of business, and Kevin will provide some more in-depth discussion of our financial metrics, followed by an update on our acquisitions and the ECR divestiture, as well as a review of our balance sheet and cash flow. Finally, Steve will provide a detail on our updated outlook, along with some closing remarks. Then we'll open the call for your questions. With that, I'll now pass it over to Steve Dimitriou, Chair and CEO.

All right, thank you for joining us today to discuss our response to the COVID-19 pandemic, as well as our fiscal year second quarter results. Before I get started, I wanted to share our recent announcement on our launch of Jacobs Climate Action Plan. Even in the face of the COVID-19 pandemic, we remain focused on delivering on our strategy and advancing our purpose of creating a more connected, sustainable world. We often say we're a people business at Jacobs. which is why we must take actions that help sustain the world within which we all live. Jacob's first climate action plan sets us apart, capturing the shared passion, pride, and drive of our people as we work to preserve the planet for future generations. The launch of this plan is another major milestone in our cultural and company transformation. Our collective focus on developing and delivering on our strategy, including a deliberate portfolio transformation, brings us to this important juncture, Together, we're committing to 100% renewable energy and net zero carbon by the end of 2020, with a long-term commitment to be carbon negative by 2030. Moving forward, we want to leverage our depth of expertise and leading position in the industry to work with our clients and our supply chain to drive climate resiliency into our solutions, investing together in projects that drive profitable reduction in carbon emissions. This is an exciting milestone in the company's history, and a course that we can take pride in delivering on together as we reinvent our tomorrow. Now turning to slide five. Our new brand, Challenging Today, Reinventing Tomorrow, has served as a strong galvanizing driver as we navigate through the COVID-19 environment. Throughout the past eight weeks, we have challenged the way in which we work and the markets we face. And in the process, we're reinventing our tomorrow real time through growth opportunities for our people and innovative offerings for our clients. From the outset of the pandemic, our focus has been the safety and well-being of our people, maintaining business continuity and delivering on our commitments to our clients. We mobilized a global cross-functional COVID-19 critical response team led by our Chief Operating Officer, Bob Fregata, to address both internal and external COVID-19 related challenges, with regional response teams charged with rapid action on the ground. As soon as we learned that the global travel was shown to be at the root of the continued spread of the virus and physical distancing was critical to flattening the curve, we took early, immediate, and decisive action to restrict travel and to maximize remote working. Except for mission critical employees, all of our people have been successfully working remotely over the last two months. Proactive, engaging, and transparent employee communications has been critical. From the outset, I immediately started a regular cadence of communication with our employees globally. This included a daily executive leadership team meeting, a weekly global email message from me at the beginning of each week to all employees, and a live midweek virtual town hall so that my executive leadership team and I can connect real time with our teams around the globe. We also expanded our intranet and equipped our leaders with tools to send short personal video messages to the people. Overcommunication was and remains an imperative. As we shifted from home to office, excuse me, as we shifted from office to home, we took our strong beyond zero safety culture with us to create and maintain a safe working environment for our teams. As part of that, positive mental health is paramount, and we increased our offerings of mental health tools and techniques and mobilized our more than 1,800 Jacobs Positive Mental Health Champions around the world. A certain portion of our business is essential and mission critical to governments and private sector clients where our staff continue to work on site. In these cases, we work closely with our clients and establish project specific plans to ensure the safety of our people and the integrity of the operation. I've been so impressed with the success we've had in accelerating our digital transformation. investing in optimizing our networks and leveraging technology to facilitate collaboration and more flexible working scenarios for our people, while at the same time delivering on our commitments to our clients. Coming out of this pandemic, we will have validated different work approaches with less reliance on extensive travel and physical real estate and with the potential for significantly reduced cost and carbon footprint. We are currently in the process of planning a safe return to our workplaces how, when, and in some cases if, while at the same time advancing our strategy of our future of work. We will share more about this in our next earnings call. Early on during this pandemic, we leveraged our capabilities to become part of the COVID-19 solution. As our customers transitioned to remote working, we helped plan and execute those shifts, including support and assessment of cybersecurity implications. Materials and 3D printing equipment were redeployed to help the frontline care workers with PPE. Existing federal and local government framework contracts around the globe were leveraged for action planning and implementation of healthcare facilities, including contracts with the Army Corps of Engineers, FEMA, and the governments of UK, Australia, and New Zealand. Our life sciences teams were tapped for designing facilities that will ultimately produce COVID-19 vaccines or other therapies. And on the innovation side of the issue, we have two teams addressing different critical challenges. To better understand the spread of the coronavirus, our teams are launching a pilot program to monitor wastewater streams using digital tools to help provide actionable COVID-19 insights and data to our clients. Our technologists are busy considering what it means for building owners when shelter-in-place orders are lifted. and buildings that sat vacant for weeks or months may cause problems of their own such as legionella, lead contamination, and poor air quality. Our teams have developed guidance for schools, offices, and other public and private spaces to help them safely reopen and prepare for reentry. We believe that the positive impact on our culture over the past four years in our transparent and measured behaviors during this crisis has solidified loyalty with our employees resulting in increased structural talent retention, which will unlock more investment dollars for innovation and growth. As we turn to slide six to further discuss our business resiliency as it relates to our people, we have purposely maintained our workforce capacity to position us strongly for a recovery after physical distancing subsides. By strategically aligning our portfolio to a diverse set of high-value sectors, such as national security, water infrastructure, environmental resiliency, healthcare and life sciences, intelligent asset management, space exploration, and the convergence of information and operational technology, we have significantly increased the durability and growth opportunities of our business under multiple economic scenarios and the expected new norm in the aftermath of COVID-19. In parallel with our portfolio transformation, we invested in digital technology to further expand our global integrated delivery model. This provides the ability to rapidly flex our deep technical expertise to accommodate any scenario around changes to global versus localized demand. Equally as important, we have created a powerful inclusive culture, which we believe unleashes the ability to execute more effectively versus our competitors when adjusting to changing market dynamics. From a financial standpoint, this strategy has demonstrated strong results over the last few years, and that track record of performance continued in our fiscal second quarter, with pro forma backlog up 5% and pro forma net revenue up 7.5% year over year. Second quarter adjusted EBITDA also grew year over year, and after a correction in the third quarter, we expect it to improve in our fiscal fourth quarter. Equally as important and in line with our previous outlook, we delivered positive free cash flow in the quarter and expect strong free cash flow for the remainder of the year. The physical distancing constraints from COVID-19 have resulted in some near-term headwinds impacting the current third quarter as we and our customers adjust to a new working environment. However, we view these headwinds as temporary. As a result, we would expect the business to ramp up to run rate levels over the next six months as the structural drivers of our business are strong and our sales pipeline remains robust. We have proactively positioned our capacity to capitalize on this new normal environment by retaining talent and maintaining key investments. We believe these actions position Jacobs for adjusted EBITDA and free cash flow growth in fiscal 2021. Finally, we have strong financial flexibility with ample liquidity that can be prudently deployed toward high return opportunities. Now I'll turn the call over to Bob Pergata to provide more detail by line of business.