Jacobs Solutions Inc.

Good morning. My name is Elaine, and I will be your conference operator today. At this time, I would like to welcome everyone to the Jacobs fiscal third quarter 2020 earnings conference call and webcast. 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 during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you, Mr. Jonathan Doros. You may begin your conference from Investor Relations.

Good morning and evening to all. Our earnings announcement was filed this morning, and we have posted a copy of this slide presentation and our prepared remarks to our website, which we will reference during the call. I would like to refer 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, it is defined in Section 27A of the Securities Act of 1933, as amended, and Section 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 that are not based on historical facts are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we made concerning the potential effects of the COVID-19 pandemic on our business, financial condition, and the results of operations and our expectations as to our future growth, prospects, financial outlook, and business strategy for fiscal 2020 or future years. Although such statements are based on management's current estimates and expectations and currently available competitive, financial, In 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 ultimate impact of the COVID-19 pandemic and any resulting economic downturn on our results, prospects, and opportunity, timeline for easing or removing shelter-in-place, stay-at-home, or social distancing, travel restrictions in similar orders, measures or restrictions imposed by governments, health officials in response to the pandemic, or if such orders, measures, or restrictions are reimposed after being lifted, eased, including travel, as a result of increases in cases of the COVID-19 in development, effectiveness, and distribution of vaccines or treatments for COVID-19. 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 statement, 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 June 26, 2020, which we filed this morning. We are not under any duty to update any of the forward-looking statements after the date of this presentation to conform to actual results, except as required by applicable law. During the presentation, we will be referring to certain non-GAAP financial measures. Please refer to slide 2 on this presentation for more information on these figures. In addition, during the presentation, we will discuss comparisons of current results to prior periods on a pro forma basis. See slide 2 for more information on the calculation of these pro forma metrics. For pro forma comparisons, current and prior periods include the results of the wood nuclear business, which closed in March of 2020. We provide historical pro forma results in the appendix of the investor presentation. We believe this information helps provide additional insight into the underlying results of our business when comparing current performance against prior periods. Turning to the agenda on slide three. Speaking on today's call will be Jacobs Chair and CEO Steve Demetria, President and Chief Operating Officer Bob Pergata, and President and Chief Financial Officer Kevin Berryman. Steve will begin by discussing our Social Justice and Equality Action Plan, then provide an update on our response to COVID-19, and then recap 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 results, followed by an update on our integration and divestiture. as well as review our balance sheet and cash flow. Finally, Steve will provide a detail on our updated outlook, along with some closing remarks. Then we will open the call for questions. With that, I'll now pass it over to Steve Dimitriot, Chair and CEO.

All right. Thank you, John. And thanks, everyone, for joining us today to discuss our third quarter business performance and strategy update. While the COVID-19 pandemic continues to occupy our time, as leaders, we must not lose sight on speaking up for what's right. Earlier today, we launched Jacob's Global Action Plan for Advancing Justice and Equality, which was developed in a direct response to recent social and racial injustices. For the last several years, I've been pleased with Jacob's industry-leading progress on building a high-performance culture, led by our focus on inclusion and diversity, which we call Together Beyond. We believe this has been a critical success factor in driving improved performance and shareholder returns. Today's launch of Jacobs Advancing Justice and Equality Action Plan is our next phase of this journey and builds on our together beyond strategy with the four primary pillars centered around culture, building, and engagement, leadership, commitment, and accountability, developing talent, and growing the business. This action plan is about achieving true equality for all our employees, current and future, with a priority now on ensuring black employees have unquestionable equal opportunities and the tools needed to advance and achieve their ultimate goals at Jacobs. I'm proud of the employee engagement in the development of this action plan, starting with a team who collaborated alongside Jacobs Board of Directors and our executive leadership team to outline transparent, specific, and measurable actions. The first commitment is amplifying a culture of belonging by expanding our existing conscious inclusion program through bystander intervention training with the commitment to training our 55,000-person global workforce by the end of fiscal year 2021. Engaging 3,000 Jacobs leaders in meaningful dialogue on anti-racism to expand their focus on justice and equality. Driving personal accountability of senior leadership for inclusion by tying individual inclusion and diversity performance plan to compensations. and adding Martin Luther King Jr. Day as a U.S. holiday, encouraging employees to engage in volunteer opportunities around equality and justice. Our second commitment is to recruit, retain, and advance black employees based on merit by increasing the representation of black employees at all levels over the next three years to proportionally reflect the overall external populations. To accomplish this, we are increasing our leadership development programs to accelerate advancement for black employees to all levels of leadership, requiring all senior leaders to sponsor and mentor at least one black employee and ensure global reach to these efforts, and further strengthening the diversity of Jacobs Board of Directors, including black representation. This has been a success area for our board over the last four years, but one that can be continually improved as board members retire and as we appoint highly talented, diverse contributors. Our third commitment is about driving structural change in the broader society. To meet this commitment, we'll donate $10 million over the next five years in support of black educational and professional development opportunities that include two specific areas. Supporting primary and secondary education programs focused on science, technology, engineering, arts, and math to prepare black students for esteemed professions. and providing financial support for scholarship, mentoring, and internship opportunities at Jacobs for black high school and college students. In addition to that investment, we're also promoting programs with organizations committed to justice and equality through, collectively, Jacobs' giving and volunteering platform, including leveraging our expertise in areas like water for at-risk urban and rural communities. and materially increasing the percent of Jacob's spend over the next five years with women and minority-owned suppliers and vendors. To drive this action plan and our global IND strategy, we have appointed Jeff Dingell as Vice President of Together Beyond. Advancing justice and equality requires strong leadership and a relentless drive to deliver on the vision, and Jeff is the right person to lead this important work and grow a culture where employees want to join, stay, and thrive. Ultimately, we must create a culture in which every person can access a future of opportunities. Contributing to a structural change at Jacobs and in the broader society is about doing our part as a global leader. The time is now for us to get this right, once and for all. Turning to slide five to discuss our continued focus on keeping our people safe during the pandemic and how we're supporting clients to solve COVID-19 challenges. As we approach five months of battling the coronavirus, we remain focused on keeping our people safe first and foremost and delivering on our commitments to our clients. As the duration of the pandemic has extended, Jacob's strong culture of caring and particularly our emphasis on employee well-being has really come to the forefront. Our teams have responded with new programs for engaging our people in supportive ways, including deep dive series on mental health resiliency. The situation continues to be fluid, and as a global company, the variability from location to location is dramatic. Our crisis management teams continue to monitor and respond to the pandemic in our local areas, and with regard to our efforts around a return to the workplace, we are demonstrating flexibility to fit the needs of our people and our clients while accelerating our future of work strategy. Our efforts in supporting our clients and communities in fighting COVID-19 include, on the treatment side, our world-leading pharmaceutical solutions team playing a major role in the retrofit of facilities to rapidly develop COVID-19 vaccines and therapeutics. Our teams are also supporting clients in public health response strategies in U.S., U.K., Australia, and New Zealand. And from a solution standpoint, we're deploying our proprietary ion technology to for contact tracing with pharmaceutical clients at large-scale facilities. We're developing scenario modeling software being used by transit clients around the globe and digital monitoring of waste streams for COVID-19 at municipal water treatment plants. Turning to slide six, our business, which at its core solves highly technical scientific-based challenges across a variety of sectors, proved its resiliency in one of the most abrupt global disruptive shocks that we have experienced. Part of our resiliency is driven by an alignment to high-value sectors of the global economy, 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. In addition to deep technical expertise, we benefit from economies of scale in both our businesses. This provides us the ability to quickly adjust to global changes in demand and manage our cost structure. More importantly, our culture fosters strong business acumen and innovative thinking to adapt rapidly to shifts in demand. While we were certainly impacted by the pandemic during our third quarter, from a financial standpoint, we showed solid performance during the quarter with pro forma backlog up 4%, adjusted operating profit was up 3% year over year as we quickly transitioned to the new virtual work environment with strong productivity while carefully managing discretionary spending. We delivered free cash flow in the quarter of $332 million and now expect reported fiscal 2020 free cash flow to approach $400 million. Overall, we witnessed better than expected performance in the third quarter given the ability to proactively work with our clients, to overcome physical distancing requirements. Considering this third quarter performance and our initial view of our fourth quarter, we're raising our fiscal 2020 outlook. COVID-19 will continue to impact us in the fourth quarter and likely provide challenges into early fiscal 2021. For the full fiscal 2021, we continue to expect adjusted EBITDA growth. with potential infrastructure stimulus providing upside relative to these expectations. Finally, we continue to maintain healthy 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.