Jacobs Solutions Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Jacobs fiscal fourth quarter 2020 earnings conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, John Doros, Head of Investor Relations. Thank you. Please go ahead.

Good morning to all. Our earnings announcement was filed this morning, and we have posted a copy of the slide presentation on our website, which we'll be referring to during the call. I'd 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 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 fact are forward-looking statements. Examples of forward-looking statements include, but are not limited to, Statements we are making concerning the potential effects of the COVID-19 pandemic on our business, financial condition, and results of operations, and our expectations as to the future growth, prospects, financial outlook, and business strategy for fiscal 2021 and 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 is a variety of risks, uncertainties, and other factors that could cause actual results to be different 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 opportunities, and the reinstatement of easing of shelter-in-place, stay-at-home, social distancing, travel restrictions in similar orders, measures, or restrictions imposed by governments, health officials in response to the pandemic, the development, effectiveness, and distribution of vaccines or treatments for COVID-19, and the timing, amount, and details of any government stimulus programs enacted in response to COVID-19 and the resulting economic impact. 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, see our annual report on Form 10-K for the year ended October 2, 2020, which was filed this morning. We are not under any duty to update any of the forward-looking statements after the date of this presentation to confirm to actual results, except as required by applicable law. During this presentation, we'll be referring to non-GAAP financial measures. Please refer to 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. See slide two for more information on a calculation of these pro forma metrics. For pro forma comparisons, current and prior periods include the results of Wood's nuclear business, which closed on March 2020. We have provided historical pro forma results in the appendix of the investor presentation. We believe this information helps provide additional insight into the underlying trends of our business when comparing current performance against prior periods. Turn 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 Jacobs Focus 2023 initiative. then provide an overview of our leading sustainable solutions, and then recap our financial results and 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 additional detail on Focus 2023 and our integration updates, as well as review our balance sheet and cash flow. Finally, Steve will provide detail on our financial outlook, along with some closing remarks, and then we'll open up the call for your questions. With that, I'll now pass it over to Steve Dimitriou, Chair and CEO of Thank you, John.

Thanks, everyone, for joining us today to discuss our fourth quarter and fiscal year 2020 business performance and strategy update. We hope everyone is staying safe and healthy as the pandemic continues to impact all facets of our daily lives and our loved ones. As we work with our pharma supply chain to support the development and distribution of a vaccine, we must not lose sight of the severity of the situation globally. Here at Jacobs, aligned with our core value of we do things right, we will continue to prioritize the health of our employees in our communities. During this pandemic, we have prudently adjusted our cost structure while continuing key strategic investments to position Jacobs to accelerate growth as the economy recovers. We have continued to take deliberate strategic actions to drive inclusivity and diversity of thought across Jacobs, as well as making targeted investments to accelerate our digital capabilities. We strongly believe these investments position Jacobs to capture a compelling growth opportunity to emerge as a uniquely positioned strategic consultant and delivery partner across a diverse set of sectors where we have deep domain expertise. We believe having a strategic approach to delivering these next generation technology enabled solutions will be the key differentiator. To capture this opportunity, we are embarking on the next phase of our strategic transformation. which we're calling Focus 2023. Through our Focus 2023, we are accelerating the adoption of digital technology across all facets of our operations, led by a game-changing future of work initiative for our employees. Focus 2023 will include a reduction in our physical real estate footprint by more than 30% as we significantly shift to a more flexible and virtual workforce. Our physical office space will be modernized into collaborative learning and customer briefing centers while providing our employees flexible workspaces. We expect that by 2023, this transformative initiative will result in more than $200 million of annual benefits as compared to 2020, which gives us flexibility to materially invest in our business to drive growth through technology-enabled solutions. We look forward to updating you on FOCUS 2023 in coming quarters. Now turning to our business performance on slide five. We delivered a strong fourth quarter and a solid total fiscal year 2020 in the face of headwinds from the global pandemic. Total fiscal 2020 revenue increased 5% year over year, and our backlog ended the fiscal year up 6%. Fiscal 2020 adjusted EBITDA grew 7% year-over-year, and we generated $689 million in free cash flow, representing 96% free cash flow conversion to adjusted net income when excluding non-recurring items. This demonstrates the strong cash generation capability of our business portfolio, a key tenet of our investment thesis. As we look forward to the full fiscal year 2021, we continue to expect net revenue and adjusted EBITDA growth. While our 2021 adjusted EPS guidance does not include the benefit from any material future share repurchases, our expectation is that we will lean forward in 2021 with additional capital deployment. We expect progress toward our longer-term leverage target. And as we do that, we'll maintain a prudent approach to execute acquisitions and share repurchases that are aligned to our long-term strategic vision and that will drive the most value for our shareholders. Since beginning our transformation in 2015, our organic growth performance combined with capital deployment actions, such as acquiring CH2M to accelerate global leadership in high-value sectors such as water and environmental, Acquiring TW to strengthen our position in mission IT, cyber and space intelligence, and the timely divestiture of our oil and gas business have all collectively created significant value for our shareholders. And as the next step in our thoughtful capital deployment strategy, this morning we announced the acquisition of cyber and intelligence leader, the Buffalo Group, to further accelerate our offerings in the high priority area of national security spending. I'd like to take this moment to welcome the nearly 900 talented colleagues that joined Jacobs today. While we have a robust pipeline of additional strategic acquisition targets, any decision to deploy capital toward an acquisition will be based on the transaction providing a higher risk adjusted return than repurchasing of our shares. Turning to slide six, I'd like to highlight the major role that Jacobs plays in delivering global sustainable solutions. We're honored to now be included in the Dow Jones Sustainable North America Index, which is an important milestone in our ESG journey. As I outlined, investing in high-value innovative sustainable solutions is a key pillar of our strategy. We continue to believe the global water and environmental sectors, along with many other sustainable markets, have decades of strong secular growth ahead. Our strategy is to combine a differentiated technology-driven approach with years of proven delivery at all scales to solve the most complex global challenges and opportunities. The importance of these sectors and our Jacobs capabilities will likely increase under a Biden administration. given the President-elect's commitment to rejoin the Paris Climate Accord, as well as the prioritization of key areas such as clean energy, including solar, wind, hydrogen, and geothermal. The U.S. and other countries are also expected to quickly move to set regulations on emerging contaminants like PFAS and ensuring access to clean drinking water. Not only do these solutions benefit the communities in which we live and thrive, but from a financial standpoint, the margins from these type of solutions tend to be higher than our corporate average, providing a tailwind to our margin expansion targets. With that, I'll turn the call over to Bob Pregatta to provide more detail by line of business.

Thank you, Steve. And now moving on to slide seven to review our critical mission solutions performance. During the fourth quarter, our CMS business performed well. demonstrating CMS's resiliency and alignment to the diverse set of high-value sectors we serve, such as national security, space exploration, intelligence, nuclear lifecycle solutions, and the deployment of 5G infrastructure. Total CMS backlog is at $9.1 billion, representing a 3% year-over-year growth on a pro forma basis and does not include our previously awarded Kings Bay Intelligent Asset Management win, which we fully expect to clear protests in early April. Importantly, approximately half of our bookings during the fourth quarter were from new business. We expect the underlying demand for our solutions to remain strong under President-elect Biden's administration. Our strategy in CMS continues to be focused on high-priority areas, such as winning new, complex system sustainment opportunities, deploying our intelligent asset management technology, and providing next-generation IT modernization and cybersecurity solutions. Today's acquisition of the Buffalo Group advances our cyber and intelligence business with additional high-priority cyber analytics, all-source intelligence, and artificial intelligence capabilities. It also provides us immediate access to full and open cyber and intelligent contract vehicles, such as the Solution for Intelligence Analysis III contract that will provide revenue synergy opportunities. In fact, CMS's cyber business, since acquiring KW and now the Buffalo Group, has more than tripled the number of deep relationships within the intelligence community, now standing at 11 of the 17 total agencies. The Buffalo Group not only brings prime contract support for the DIA, National Geospatial Intelligence Agency, Department of State, and Department of Treasury within the intelligence community, but also prime support for SpaceCom and CENTCOM, significantly increasing Jacobs' combatant command relationships to seven of the 11 total. I'd like to now review our sectors with updates on fourth quarter results, some notable wins, and the outlook for 2021. Our U.S. federal civilian business made up 37% of CMS' FY20 pro forma revenue, with the majority of the revenue coming from our NASA and DOE clients. Jacobs provides broad support to NASA relating to its accelerated work to return to the moon and then eventually extend mankind's reach to Mars. NASA continues to make progress towards these national goals despite the challenges of teleworking and a reduced onsite workforce. Jacobs NASA portfolio demonstrated strong growth in Q4 and we expect the performance to continue in fiscal year 2021. During the quarter, the Kennedy Space Center Test and Operations Support Contract, or TOSS, recognized increased contract activity. At Kennedy, Jacobs supports key space exploration programs such as the International Space Station, ground systems development and operations, space launch systems, Orion multipurpose crew vehicle, and launch services programs, including the Artemis I mission. Moving to our North American nuclear portfolio. We had anticipated that our DOE and Atomic Energy of Canada nuclear contracts would be impacted moderately in the second half of the fiscal year because of the Jacobs teams needed to operate under physical distancing constraints that decrease the on-site workforce. However, today, the nuclear portfolio is operating better than expected at approximately 85% of normal operating levels. Our nuclear remediation contracts are well positioned for growth as the DOE receives bipartisan support from Congress. Shifting to the U.S. Department of Defense sector, that makes up 18% of CMS's FY20 revenue. We provide a wide range of mission-critical services performed at government sites or in highly secure facilities, including troop force readiness, digital monetization, hypersonics, and critical energy technologies that are all high priorities for the dod in q3 much of our work at military test ranges was impacted moderately by physical distancing requirements and operated at roughly 80 percent of normal capacity today our defense portfolio is operating at 95 percent of normal levels and we expect it to continue at similarly high levels in q1 through q1 of 2021. During the quarter, we were also awarded a $100 million, 66-month JISA Enterprise Transport Information Technology, or GET, contract to operate and maintain intelligence collection and dissemination networks and provide digital modernization for the U.S. Army Intelligence and Security Command. Now moving to the U.S. intelligence community, which contributed 22% of CMS's FY20 revenues. Our ISR, advanced engineering, cyber, and intelligence businesses provide solutions to this highly resilient sector. Our clients in the intelligence community must continue to procure these critical services that protect against increased cyber threats and to preserve continuity of operations while at the same time responding to the need to reduce their onsite workforce. The portfolio performed in line with improved expectations at 95% of normal operating levels in Q4. Shifting now to our commercial business. This business made up 8% of CMS's fiscal year 2020 revenue. In telecom, we provide solutions for wireless and wireline networks, including the build-out of 5G, a national communications priority. This business was impacted moderately in Q3, primarily due to access limitations. We expect this business to strengthen over the coming quarters and to return to its strong long-term demand rates. We continue to work with AT&T, T-Mobile, and new customers like Dish Network, where we recently won a three-year IDIQ to provide engineering, design, and technical services in support of Dish Network's nationwide build-out of 5G services. For the automotive sector, we not only design and operate product R&D facilities, we also actively support several OEMs with product testing services. While there has been a slowing demand for new R&D facility projects, our product testing services are now back to full strength. We were recently awarded a two-year contract from a major automotive manufacturer that utilized KeyW's geospatial imagery solution for greater smart car applications. Finally, our CMS international sector made up 15% of CMS's pro forma revenue for fiscal year 2020 and includes nuclear lifecycle solutions, support for the UK Ministry of Defense on its continuous at-sea deterrent program, and air and land weapons programs in the UK and Australia. Our Q4 impact was in line with expectations with the business operating at 95% of normalized run rate, with a small portion of site workers unable to access and a portion of their costs being covered by the UK government furlough scheme. Last week, the UK MOV announced a significant spending increase as compared to previous years. with the military to receive a 10% increase over the next four years. Jacobs is well positioned in the focus areas of spend to include a new National Cyber Force, Space Command, and Artificial Intelligence Agency. Additional growth prospects are expected from the UK's 10-point plan for green recovery to achieve net zero emissions by 2050 and Australia's NATO commitment to funding 2% of its GDP to the DOD. In summary, our overall sales pipeline remains robust, with the next 18-month qualified new business pipeline in excess of $30 billion, including more than $10 billion in source selection and an increasing margin profile. We continue to see strong structural demand for our high-value solutions that align to high-priority areas of the federal government. Moving to people and places solutions on slide eight. The diversified nature of our people and places business and our ability to shift capacity across our now virtual global integrated delivery model resulted in solid performance during the fourth quarter despite impacts from the global pandemic. Net revenue is up 8% from the same quarter last year and 6.2% on a full year basis. Q4 backlog is up 4.2% to $14.7 billion, which was the best quarter in history in gross margin bookings. Our bookings have held strong during COVID and remain consistent with pre-COVID levels. We believe that our business is well positioned to benefit from state, local, and national government economic relief packages in places like the U.S., U.K., Singapore, and other focused geographies. Depending on the timing and size, we expect this to further strengthen our pipeline. Turning to our buildings and infrastructure geography, the Americas, including our federal and environmental business, continues to be our strongest performing geography. A potential U.S. federal economic relief package later in the year, whether geared towards protecting vulnerable infrastructure sectors, such as transit and aviation in the near term, or a broader jobs creation package meant to stimulate long-term growth, could provide a boost to the infrastructure sector. Not only in the traditional shovel-ready projects, but also in the shovel-worthy projects, that have long-ranging impacts, such as combating negative effects of climate change and accelerating decarbonization efforts, autonomous vehicle infrastructure, goods movement, and health and research. Furthermore, the U.S. Highway Trust Fund Gap Stop Extension passed by Congress strengthens our transportation pipeline for the first half of the year. Accelerated implementation of digital technologies is optimizing our clients' operational spend and mitigating their revenue challenges. Our business in the water sector continues to be resilient, including a recent award of a $195 million contract to deliver the regional surface water supply project for the Stanislaus Regional Water Authority in California. Additional actions being evaluated by the U.S. federal government could further accelerate investments in drinking water, wastewater, flood protection, and climate resilience. Environmental and green economy projects have been strong for us in the quarter, with two exciting awards, a significant design project to support a confidential global client in the United States with green energy transportation solutions in the manufacturing space, and a multi-year contract to deliver what is anticipated to be one of the U.S.' 's largest battery electric bus facilities in King County, Washington, providing a sustainable and socially equitable transportation solution. In Europe and the Middle East, the business remains steady, supported by key sectors such as highways and rail. We believe that future growth opportunities exist in high-speed rail, digital infrastructure, and green energy. We had a number of awards in the rail sector across Europe, including a 10-year contract for historic railways to state professional services. Our focus on digital is delivering growth, and we are increasingly supporting utility clients with their cybersecurity challenges. As an example, for national grid electricity transmission, we are leveraging expertise from our PNPS and CMS teams to achieve cybersecurity compliance across the operational technologies. We maintain thought leadership in emerging contaminants globally, including a recent award with a European regulator to determine the extent of PFAS contamination in their jurisdiction, leading the way in the environmental market as Europe grapples with these emerging contaminants. In the Middle East, key sectors such as infrastructure, water, and environmental remain steady. We expect a sustained investment to deliver on diversification away from hydrocarbon-reliant commitments, and we anticipate moderate growth from critical infrastructures, green economy, healthcare, and defense sectors. Voting on our success in the Middle East, we are contributing to the region's aspirations for a more sustainable future. The recent award of a project that will help set the environmental strategy for the Emirate of Dubai is a great example on how we are adding significant value to the country. Moving to our Asia-Pacific geography, India, Southeast Asia, Australia, and New Zealand have been resilient during the pandemic, and the prospect of government stimulus funding reinforces our pipeline of opportunities. Demonstrating this resilience is the continuation of our decade-plus relationship with the Indian Navy, and the program award to deliver a greenfield naval air station in the west of the country, the largest of its kind. I'll now discuss our core sectors globally, beginning with our advanced facilities business, which continues its growth trajectory. Life Sciences remains strong, with COVID-related project awards progressing rapidly through the first quarter of 2021, and several others on the horizon to meet demand of the next phase of COVID vaccine manufacturing facilities. Future opportunities include capacity expansion in Europe and Asia, as well as support the governments on vaccine distribution. In addition, increased cloud computing is driving the need for data centers and chip manufacturing facilities, creating a meaningful growth opportunity for us. In the transportation sector, agencies remain committed to existing projects, such as aging road infrastructure, providing an opportunity for economic recovery. Despite limited global mobility during the pandemic, our clients have been clear around continuing funding opportunities. Our rail and transit clients are pressing forward with capital investments and digitally-enabled innovations, and aviation clients are planning for future investments. Moving to the built environment sector, smart, secure, and connected infrastructure and the future of the workplace are influencing demand. The focus of our global healthcare crisis response team is gaining momentum with an increase in healthcare awards and in the pipeline across all geographies. As an example, we were recently awarded health investment and technical advisory services for a Middle East government entity and a therapeutic goods laboratory project in Asia Pacific. In the water sector, we are seeing accelerated implementation of digital technology, such as smart metering, automation, and remote management, as well as focus on cyber resiliency. While some utilities have experienced significant revenue impact during the pandemic, Pre-approved programs remain in place. We anticipate periodic pauses as they reprioritize capital budgets to focus on operational spend, budget optimization, and digital transformation. The environmental sector is seeing an uptick, with green recovery being pledged in Europe and in Australia, and a shift towards green energy investments in the U.S., which could be a growth catalyst later in 2021. Across all core sectors, our discrete solution sets are making progress, allowing us to cross-sell and leverage our global market connectivity. While economic and geopolitical indicators point to continued volatility, we remain optimistic due to our resilient and balanced portfolio across core sectors and geographies, and our agility responding to shifting market trends. Now I'll turn the call over to Kevin to discuss our financial performance in more detail.

Thank you, Bob. Let's now turn to slide nine for a more detailed summary of our financial performance for the fourth quarter. Before I begin, please note that our fiscal fourth quarter 2020 included an extra week compared with the fourth quarter fiscal 2019. While this impact was factored into our guidance, it represented approximately $100 million in a year-over-year net revenue tailwind for each of CMS and People and Places. Fourth quarter gross revenue, as a result, increased 4% year over year, with perform on net revenue up 2%. People and places, net revenue was up 8% year over year, and critical mission solutions declined 3.6% on a pro forma basis. The CMS decline was mainly attributed to the early impact from transitioning off of two lower margin contracts, as I will explain later in more detail. It is important to note CMS operating profit on a pro forma basis increased 14% year over year. Adjusted gross margin in the quarter as a percentage of net revenue was 23.5% down 135 basis points year over year. The lower gross margin was driven by a combination of factors, primarily within people and places, including overall revenue mix, the comparison versus a very strong year ago quarter, the impact of some project closeout costs, and the previously discussed flow-through effect of the reimbursable rate of a more efficient fixed cost structure in the LOB. The lower reimbursement rate for fixed costs is more than offset by the underlying lower level of G&A costs. This impact to reimbursable rates from our cost structure is also reflected in overall lower G&A as a percentage of net revenue of 100 basis points year over year to 14.4%. As it pertains to GNA, the fourth quarter continued to benefit from lower travel and employee-related medical costs. GAAP operating profit was $22 million and included $211 million of restructuring, transaction, and other charges of which the vast majority was associated with our recently announced focused 2023 initiative, and $24 million of other charges consisting of $23 million of amortization from acquired intangibles, and $1 million of costs associated with the worldly transition services agreement. Adjusting for these items, adjusted operating profit was $258 million, up 2% from the prior year figure. Our adjusted operating profit and net revenue was 9.1%, down 30 basis points year over year on a reported basis, a result of the lower people and places margins discussed earlier. This was partially offset by improved critical missions margins and flat year-over-year unallocated corporate expense. I'll discuss the underlying drives of these costs on the line of business review slide. GAAP net earnings and EPS from continuing operations were $70 million and 53 cents per share and included $1.22 per share of after-tax restructuring transaction and other charges as noted above. an amortization charge of acquired intangibles of $0.13, both of which were partially offset by a $0.34 net benefit largely driven by the mark-to-market adjustments associated with our worldly equity stake. Excluding these items, second quarter adjusted EPS was $1.63, including a $0.24 benefit from discrete tax items. Excluding discrete tax items in both the current and year-ago quarter, underlying adjusted EPS was essentially flat year-over-year. Q4 adjusted EBITDA was $277 million and was up 1% year-over-year, reaching 9.8% of net revenue. Finally, turning to our bookings during the quarter, our performer book-to-bill ratio was 1.04 for Q4, driven by solid bookings from both lines of business. As Bob noted, the over $400 million previously awarded Kings Bay Intelligent Asset Management win remains in protest and as a result is excluded from our backlog figures. We expect to be notified of a resolution in mid-fiscal year 2021. From a pipeline standpoint, we continue to be encouraged by strong new business dynamics within critical mission solutions. We believe nearly all of the opportunities we are pursuing have strong bipartisan support as they are high priority areas associated with national security. We believe that the People and Places Solutions business overall sales pipeline also supports strong long-term growth. We continue to see changes in the underlying composition and timing of opportunities driven by a more environmentally friendly U.S. administration, as well as COVID-related impacts. Turning to slide 10, let me summarize our fiscal 2020 performance. For the full year, revenue increased 7% and net revenue increased 2.5% pro forma for the wood nuclear acquisition. Gap operating profit was $536 million and adjusted operating profit was $970 million, up 9% versus the year-ago figures. Adjusted EBITDA was $1.05 billion and increased 7%, reaching 9.6% of net revenue. Our fiscal year 2020 book to bill was 1.07 times. And before leaving our consolidated annual results, I would like to make some summary comments regarding our first half and second half performance. Fiscal 2020 has been defined by a year of two very different halves. Prior to COVID, our first half performance was indicative of strong momentum with performer growth net revenue growth of over 6%. and double-digit performer operating profit growth, resulting in operating profit margins up 50 basis points year over year. As the pandemic took hold, our teams quickly adjusted plans for the second half of the year as we recognized that physical distancing and economic disruption would impact our earlier revenue momentum. Revenue ended up being relatively flat in the second half versus both the second half of 2019 and the first half of 2020. indicating the resilience of our portfolio. Importantly, our teams were able to successfully manage to a lower cost structure than our original plan, with costs reduced over $100 million during the second half versus our original plan. The agility of our teams to adjust rapidly was profound, and we are proud of them for having successfully mitigated the economic disruption to the company and the impact to our clients. So regarding our LOB performance, let's turn to slide 11. Starting with CMS, as expected, performer revenue declined 3.6% year over year during the fourth quarter. Excluding the impact from the two large lower margin contracts we are transitioning off and the benefit of the extra week of revenue, growth would have also been down low single digits year over year, driven by the impacts associated with COVID-19. Where revenue was down, CMS operating profit was $108 million, up 14% year-over-year on a pro forma basis, with operating profit margin up 140 basis points year-over-year to 8.1%. Even factoring in the extra week in the fourth quarter, operating profit would have increased high single digits year-over-year. The improvement was driven by our strategy to focus on higher margin opportunities with some additional benefit from favorable project closeouts. From a full year perspective, performer revenue was down 1% and operating profit on a pro forma basis increased 8%. Operating profit margin increased 70 basis points to 7.5% from fiscal 2019 against, again, consistent with our strategy to expand our CMS margins. Looking into fiscal 2021, we expect CMS reported net revenue to be up low single digits as we ramp new wins and benefit from newly acquired higher margin revenue. Given the strategy to capture higher value opportunities and the benefit from acquisitions, we expect reported operating profit growth to be up double digits. We do believe that the improvements will be more back half oriented given the impact from the two lower margin contracts will be more than offset with the new higher margin business later in the second half. Moving to people and places solutions. Q4 net revenue was up 8% year over year, but would have been relatively flat, excluding the benefit of the extra week during the fourth quarter. Operating profit was down 8% year over year, And as a percentage of net revenue, operating profit was 12.2% for the quarter, down over 210 basis points year over year, driven mainly by COVID-related headwinds in the quarter, some project closeout costs, and the very strong year-ago quarter, which benefited from project closeout benefits. From a full-year perspective, PPS net revenue was up 6%, with operating profit up 4%. reaching an operating profit margin of 12.4%, slightly down versus a year ago due to pressure associated with COVID-19 in the second half. Looking forward, we expect people and places revenue to be up low single digits for fiscal 2021, with relatively flat growth in the first half of the fiscal year. We expect operating profit margin as the percent of net revenue to increase modestly from fiscal 2020, given the higher margin mix in our sales pipeline and lower costs from our Focus 2023 initiative. These benefits will be largely offset in 2021 by additional costs as we transition from cost mitigation efforts executed during the second half of fiscal 2020 to a more sustainable cost structure in 2021 and beyond associated with driving profitable growth. Our non-allocated corporate costs were $33 million for the quarter, flat from the year-ago period. On an annual basis, non-allocated corporate costs were $143 million, up 9% year-over-year. Looking forward to 2021, we expect our non-allocated corporate costs to be higher driven mainly by inflation and medical costs, improved employee benefits, and an increase in employee discretionary medical procedures that were put on hold during fiscal 2020 due to COVID-19 concerns. Now turning to slide 12, I would like to update you on our focus 2023 in M&A integration. As Steve discussed, the pandemic has fundamentally changed nearly all facets of the economy, which has provided us the ability to challenge our current processes, to reinvent how we deliver solutions to our customers in the future. During Q4, we formed a dedicated internal team with assistance from an external advisor to examine the future work and other transformational opportunities. We are embarking upon a strategic initiative, Focus 2023, that we believe will lead to enhanced employee experience, improve our ability to capture emerging high-growth, high-margin opportunities, and drive a more efficient cost structure through increased automation and process alignment for improved longer-term profitability. During the quarter, we incurred a nearly $200 million charge related to our Forecast 2023 initiative, of which there was only $1 million in cash outflow during the quarter. Of the charge, approximately 80% was related to non-cash real estate lease impairments, as we plan to decrease our physical footprint by over 30%. The remainder of the costs were related to strategically leaning out the organization. In 2021, we project that we will have more than another $30 million in one-time costs associated with our Focus 2023 initiative. Our initiative has already generated approximately $75 million in quick win cost savings in fiscal 2021. This is allowing the company to offset the incremental cost noted earlier expected in fiscal 2021 as compared to our lower cost structure associated with our COVID mitigation efforts in fiscal year 2020. In addition, it's expected that the run rate of these quick wins will provide another $25 million in savings in 2022 as we realize the full annual run rate benefits into the next year. Beyond these quick win savings, we believe there are substantial additional benefits approaching another $100 million into 2022 and 2023, which we will believe support incremental investments that will accelerate our growth and drive towards a more digital, innovative company that provides unique value added solutions to our clients. We will provide additional detail of our focus 2023 initiative during our expected investor day in the first half of calendar year 2021 and provide an update on our fiscal year 21 Q1 earnings call. Now turning to our acquisition of Woods Nuclear Business, we are on track to achieve our targeted $12 million in run rate cost savings, and the business continues to perform in line with our original target, despite top line headwinds from physical distancing. And finally, the acquisition of the Buffalo Group was announced today. While terms of the transaction were not disclosed, the acquisition is expected to deliver 8 to 10 cents of adjusted EPS secretion during fiscal 2021. And the cost of the acquisition represents approximately nine times expected next 12 months adjusted EBITDA when including the tax benefits from the acquisition. And finally, when including all initiatives, including Focus 23 and all M&A efforts, we expect the total estimated estimated amount of approximately $80 million of P&L charges and $110 million in related cash outflows during fiscal 2021. Now on to cash flow generation in the balance sheet on slide 13. During the quarter, we generated $403 million in free cash flow as a result of very strong collections and lower headwinds from cash restructuring. Q4 cash flow included a positive $23 million of net one-time benefits, primarily due to a pandemic-related cash tax deferral, partly offset by headwinds from cash outflows associated with restructuring and other items. For fiscal year 2020, we generated $689 million in free cash flow above our original expectation. Our annual free cash flow included $10 million of net non-recurring outflows. When excluding this $10 million net headwind for the full year, the company delivered a 96% free cash flow conversion to our adjusted net income figure for the year, demonstrating the strong free cash flow capabilities of the business. Over the median term, we continue to target 100% conversion of recurring cash flow from adjusted net earnings. As previously stated, we expect approximately $110 million cash outflows related to Focus 2023 and other restructuring and integration during fiscal 2021. We also expect a reversal of pandemic-related UK payroll tax benefits recognized in fiscal 2020 of at least $40 million. That results in an expected total headwind of $150 million of cash outflows in the fiscal year 2021, including these one-time items. DSO performance in Q4 was the major driver to our improved key free cash flow improvement. Down almost nine days from 3Q 2020, as many of the collection process improvement initiatives implemented gained traction. We are focused on maintaining this lower DSO level, which would be a major driver to our ability to deliver a one-time free cash flow conversion target long term. And now moving to the balance sheet. Given the strong free cash flow for the quarter and year, we ended the quarter with cash of approximately $900 million and a gross debt of $1.7 billion, resulting in $800 million in net debt before attributing the benefit of the worldly equities. Treating the worldly equity as cash, our performer net debt to expected adjusted 2021 EBITDA is approximately 0.5 times, a clear indication of the strength of our balance sheet. Regarding capital deployment, during the quarter, we repurchased approximately $50 million worth of our shares. For modeling purpose, we would expect an average share count of $131 million for the first quarter of 2021 and fiscal year 2021. excluding additional material share buyback activity. Of course, as Steve noted in his opening comments, our plan is to proactively deploy our capital as we plan for the transition out of a COVID-19 environment. Regarding our effective tax rate, we continue to expect an adjusted effective tax rate of 24% for the fiscal 2021 year, in line with our longer-term normalized adjusted tax rate in the range of 23% to 25%. Finally, given our strong balance sheet and free cash flow, we remain committed to our quarterly dividend, which was increased earlier this year and declared at $0.19 per share. As you know, our current dividend level represents an increase of 12% versus a year ago. Now I'll turn it back over to Steve for our outlook and closing comments on slide 14. All right.

Thank you, Kevin. Now let me review our total company outlook for fiscal 2021. We expect adjusted EBITDA outlook to be a range of $1.055 to $1.155 billion, which represents year-over-year growth. Adjusted EPS is expected to be a range of $520 to $6. It's important to note that our guidance does not include any benefit from material future share repurchase activity. We do expect to fully utilize our balance sheet capacity over time through share repurchases or acquisitions that provide returns and excess of buybacks. Looking beyond fiscal 2021, we expect adjusted EBITDA growth to rebound to double digit adjusted EBITDA as we benefit from our focus 2023 initiative, as well as potential infrastructure related stimulus and economic recovery. Operator will now open the call for questions.

as a reminder please press star then the number one on your telephone keypad if you would like to ask a question please limit yourself to one question and then you may press star one again to rejoin the queue for further questions thank you our first question comes from jerry revich with goldman sachs your line is open yes good morning everyone good morning good morning

Can you expand on the Focus 2023 initiative? I'm sure we'll hear more at the analyst day, but just touch on what are the additional pillars beyond the cost reductions that we're talking about here? And Kevin, maybe just a clarification, how much of the $200 million savings do you expect to reinvest in? In digital, when we look at it on a run rate basis in 2023, what's going to be the net number we should keep in mind? Thanks.

Jerry, just sort of at a high level, two major pillars, really. And the first one is really growth. It's all about driving the next generation technology growth. We've obviously learned a lot over this past 10, 11 months with what happened during the pandemic, and it's really given us tremendous opportunity to accelerate our solutions set across a variety of sectors that Bob really covered in both LOBs. And the second pillar is delivering our work more efficiently, effectively. We have a huge opportunity with what we outlined with regard to the way we're going to have a much more dynamic operating model moving forward with flexible workspace, continued remote working, so a significant opportunity to reduce costs. But it goes far beyond just the real estate and travel. It's really back office efficiency procurement and a whole host of other things that should deliver significant cost savings. So those are sort of the combinations that, again, together unleashes a growth trajectory for Jacobs moving forward. Kevin, some more on the financial side.

Yeah, Jerry, so if you think about the savings associated with Focus 2023, I already quoted some of the numbers, but to note that that couple hundred million dollars, almost $200 million of one-time costs was primarily associated with lease impairment costs, non-cash charge, And if you think about what that translates into in terms of the reduction in the, let's call it the real estate costs going forward, it's roughly $35 million, of which the vast majority is associated with a reduction in lease costs. So as you think about that, there's obviously much more savings on top of that, which total to the 75 we talked about with a run rate of an additional 100. Those are related to to the initiatives about leaning out the organization and the efficiencies gained with ultimately the investments and tools and capabilities and training associated with Focus 23. It is really clear that we've learned a ton during these last nine months, and we're taking full advantage of that and being proactive and leaning forward to help take these learnings and create something even better for ourselves and our clients and our people going forward.

Our next question comes from Joseph Gennady with Stiefel. Your line is now open.

Thanks. Good morning. I guess for Kevin, Steve mentioned making progress on the margin targets. Can you remind us what those are at this point? I think at the investor day it was kind of high 8s for CMS, low 13s for PPS. I don't think the FY21 guidance implies you get there next year, so can you just kind of remind us where the targets are and what the timeline is and, I don't know, what the earnings power is from all of what you're talking about here this morning.

Yeah, look, I think as you, before COVID, actually, the people and places business was pretty much on target to deliver that kind of margin target in 2020. Now, that got disrupted a little bit given the second half of the year. Joe, but I think that at the end of the day, we're going to be right close to those kind of figures in 2021 fiscal year. On CMS, I think we're going to be right there in terms of the margin targets that we had characterized back in 2016, kind of mid-8s, hopefully maybe a little bit higher, but I think that that's what our expectations are for CMS. So I think we're right there. You have noted in our comments that the CMS margins are going to be driven by a relatively lower revenue growth because we're working off some of these other longer-term contracts, but that's going to be replaced by a more robust margin profile business over the course of 2021, leading to a really strong margin profile consistent with what the original targets were for 2021.

Our next question comes from Jamie Cook with Credit Suisse. Your line is now open.

Hi. Good morning. Just first question to follow up on the question that was just asked. You know, on the margins, you're talking about hitting the margin targets in 2021 that you laid out, I think, in 2019. But I guess Given the incremental $200 million-plus in costs that we're taking, how do we think about the longer-term margin profile? Can we get better margins than what we laid out in 2019, or do we need this to achieve that given COVID? And then my second question, any color that you can provide on the Buffalo acquisition in terms of how the organic sales growth or EBITDA or margin of that business? And I'm just trying to understand, excluding Buffalo, would you have grown your 2021 EBITDA year over year like you laid out earlier in the year? Thanks.

Yeah, just, Jamie, to start with, hand it back to Kevin for maybe some more financial backup is that Yeah, we expect the focus 2023 to give us incremental margin improvement as we get beyond 2021. It's one of the major opportunities and objectives of that initiative. And the Buffalo acquisition is accretive to CMS margins. So it's going to enhance that on top of what I just said. And so I think combination of those two as well as the backlog profile we have and looking at some of the multi-year aspects of that backlog and the higher margins in the current backlog as we move forward gives us confidence for multi-year margin improvement. Kevin?

I would echo the same thing, Steve, that you reemphasize the fact that the focus 2023 really is While we're getting some cost efficiencies here, the intention is that we're going to be able to reinvest back into some of the digital capabilities that we know are there, which facilitate our ability to win solutions with our clients or deliver solutions to our clients that ultimately are associated with a higher margin profile. So it really is about a growth, and it really is about a margin profile longer term that we would expect to see upward trajectory versus kind of the 2021 figures.

Our next question comes from . Your line is now open.

Yes. Hey, I was wondering if you could talk a little bit about Buffalo Group, if there are any small business set-asides or items like that that might be harder to retain over time. And if you could just broadly characterize the M&A pipeline from here, how it looks in terms of number of properties potential sizes that you're looking at and to the first one i missed the second part of the question um could you repeat the second part uh yes sure so if you could characterize the m a pipeline as it stands post buffalo you know what else is out there there's if that's a big part of the 2021 plan

Okay, great. Yeah, on the first one, the small business set-asides, we took a really strong look at that. And not just these recent awards, but then the trend that we see going forward with regards to the areas of the government that the Buffalo Group is involved with are full and open. So we don't really see the small business set-asides of the past. affecting how we see the real synergy that the platform is going to bring to our overall business. So we're optimistic on that front. And then Steve, you want to?

Yeah, on the overall M&A pipeline, you know, it's very consistent with what we've been talking about, essentially going back to our 2019 strategy, Investor Day. And that is, as we just did with the Buffalo Group, we'll continue to look at ways to strengthen our government services business and move up the value chain there. From an overall company standpoint, we've talked about digital consulting, strategic consulting becoming a bigger end-to-end player, especially on the front end. Geographic expansion is another area. So just very consistent, staying core to our strategy.

Our next question comes from Andy Kapowitz with Citigroup. Your line is now open.

Hey, good morning, guys. Kevin, obviously you reported a strong free cash flow quarter, 96% adjusted free cash flow. Do you think Q4 was basically the inflection point toward generating strong free cash flow conversion going forward? And then why would conversion actually go down in FY21, excluding one-timers, which is the bottom of your range, given all the work you've done with the improvement in collections and back office systems work you've done?

So thanks for that question. I would say a couple things. One, that I hope you're right, that we'll perform better than those numbers, first comment. But I think as we think about the balance of next year, you know, the back half of 2020 did have some challenges relative to our revenue being less robust than what we would have originally assumed. So as you think about the working capital dynamics associated with that number, in the back half of the year, at the end there is some tailwinds because we don't have as much of a build in the working capital numbers in 2020. As we transition to 2021 and if we get to the conversion numbers we're actually talking to, actually we're making further improvements in DSOs because you're now facing an investment back into working capital. So at the end of the day, we think it's a continuation of that journey to get to that one-time conversion number, which I've always kind of targeted the year 2022 to getting there. Thanks, guys.

Our next question comes from Chad Dillard with Bernstein. Your line is now open.

Hi. Good morning, everyone. Good morning. Good morning. So what's embedded in your upper and lower end of the guidance range? It describes the tax benefits, 2020 earnings, and the rest of that's 520, which suggests flat earnings at the low end of the 2021 guide. And so this is inclusive of, I think, $9 of benefits from Buffalo, the one group, cost savings. We just want some help with bridging earnings from this past year in 2021.

Yeah, Chad, let me take a crack at that and respond. Look, we recognize that our range here is relatively wide, but we also recognize that we continue to be in the midst of a pandemic. And while we feel really good of our ability to have done a great job in the second half of 2020 to mitigate some of the challenges associated with it, we still are in the midst of it. And so I think the low end of our range is would be something that we hope never happens, but it would be a situation where the economics are challenged around the globe and that we're having a situation of that magnitude, which, by the way, still results in our ability to be flat versus a year ago in a dire economic environment. That's how we would characterize the low end of our range. At the high end of the range, we're starting to be more optimistic as we come out of the dynamic associated with COVID and that we are developing the momentum that we actually think will happen into 2022 faster. So I think that's how we would characterize the range. I think we're being prudent by putting that range there and hopefully it gives you some constructive views to see what the potential downside is under a pretty bad scenario and what the potential upside is under a good scenario.

Our next question comes from Stephen Fisher with UBS. Your line is now open.

Thanks. Good morning. Just wondering if you can give a little more color on the cadence on the revenue and EPS guidance for fiscal 21. It sounds like perhaps Q1 revenues might be down kind of low single digits, but it's hard to tell. how back-end weighted the EPS is and, you know, how relatively light versus consensus Q1 might be, and also just trying to get a sense of sort of the revenue trajectory here. Is that something inflected more positively or just sort of like a normalizing kind of from the COVID situation? Thank you.

Yes, Stephen. This is Kevin. I'll just reinforce what I said earlier. I think the first half is more flattish relative to our net revenue figures. And back half is less flat. It starts to show some momentum. And so I think that that's how we would see the cadence. We're still in the midst of the pandemic. Certainly, we feel like we're going to be holding serve relative to our first six months. And given all the strong work that we're doing on everything else, we're going to see some actual margin improvements and profit improvements in the first half. But the revenue cadence is probably a little bit more flattish. in the first half developing additional momentum in the second half.

Our next question comes from Michael Dudas with Vertical Research. Your line is now open.

Good morning, gentlemen. Good morning.

Good morning, Michael.

Maybe this is for Bob. when you're looking out for 2021 in the PPS segment, PPNS segment, characterize the different funding flows or expectations from the private sector and public sector clients. And it seems like you got some international momentum on that business. So I'd like to get a little more details on that. And maybe for Steve, you mentioned a couple of times in the presentation about positive aspect from a Biden administration. Are your client's Is there a pent-up demand for things to get going again once some of the uncertainty with the election and COVID passes with the vaccine success, which I know you guys are involved with on the production side? Is that really going to be the kick or the inflection to see the growth in the second half of 2021 and going into 2022? Thanks.

Sure, Mike. Let me just kind of take it one at a time. Private sector, and you know this really well, these are long-term relationships that we've had with the private sector clients that we have. And so if you look at what does that mean for Jacobs, predominantly in the manufacturing space as well as a bit on the environmental side with regards to other industrial clients, we're actually starting to see a bit of an uptick as those clients really look at not only their portfolio mix, but also how they reorganize their global supply chain as a result of learning from COVID. So a bit of it's And it kind of touches the profile of services that we offer so we can help them with regards to conceptual planning and kind of looking at helping them solve those solutions with other innovations that we have on how they look at that. So on the private sector side, we're starting to see that we have visibility to where those will materialize into other downstream projects, and we're in that phase right now. Public sector, steady business, and that's a global comment, and I'll come back to kind of the nuance between international and U.S., But what we are seeing in the U.S. public sector is that the creativity that state and local governments have already exhibited for the better part of the last three to four years has continued. And with some of the extensions, whether it be a continuing resolution extension within the government or it be on the bond measures that have – 31 of the 44 bond measures passed in this last election – They're utilizing those types of measures in order to continue on the projects, whether it be in transit or in water. Stimulus would be an adder to that. We modeled ourselves over what we could see. So that's kind of what we're seeing in the U.S. and the international side. The stimulus money is already... is we're starting to see some effects of that, specifically in the U.K. with the 10-point plan, already starting to see some early planning work around that. And then in Australia, we're already starting to see some of the effects of those monies flowing through. So overall, I think we're well-positioned for whichever way the markets go.

Yeah, Michael, as part two to your question, you know, I think it's the combination of pent-up demand and accelerating demand, you know, over the course of the next 12 to 24 months. And what I mean by that is, you know, the pent-up side, obviously, are things like the fact that the life science pharma industry has been totally focused on COVID-19, but there's a whole host of opportunities there that they need to get back at around oncology and biotech, etc., You think of the whole aging infrastructure dynamics in the U.S. and the U.K. and other areas that have to be addressed, and I think those two regions specifically, the government is now set up to hopefully live up to strong stimulus and funding around infrastructure the next several years. But then you've got the whole accelerating demand that we talked about, which is really driving our Focus 2023 initiative, and that's that customers have now come to grips that they all have to get at this and accelerate their own technology platform and climate change issues and opportunities. And so that accelerating demand opportunity is going to open up and expand our total available market and create significant opportunity for Jacobs.

Our next question comes from Sean Eastman with KeyBank Capital Markets. Your line is now open.

Hi, team. Thanks for taking my question. Just as we think about Jacob's migration, sort of more upmarket, higher margin business mix over time, I'm just curious how you'd reflect on the win rate in some of those higher margin adjacencies through fiscal 20. And as you think about Focus 2023, does that program potentially drive that you know, adjacent market win rate materially higher over time?

Yeah, you know, let me at a high level again, and it's great that you asked that question because it feeds right into the whole Focus 2023 initiative. It is all about moving into more and more higher value markets that we believe have a long runway of opportunity. And so, you know, it's When we talk about connectivity and climate change, resiliency, the whole dynamic of what's going to happen with healthcare moving forward, and really all aspects of both our critical mission solutions and people in place of solutions business, it exactly fits into what the question that you asked is, that it is going to be moving into the higher market opportunities. And as I just answered the previous question, we believe that the total market that we're going to be going after over the next several years is going to be significantly expanded versus what we've been addressing over the last, say, five years because of the whole technology dynamics that have evolved over the last 12 months. Bob, do you want to kind of give some specific examples around that? Yeah, absolutely.

Just to add on to what Keith said, too, The win rates have been high, and we expect them to continue to be high. But the client challenges, if you look at five years ago versus now, the client challenges are the same. These other dynamics that Steve is mentioning are accentuating them. And so those challenges now need a different type of solution, which is where Focus 2023 comes into play. So an example, one of the big areas that we have going on right now is around the use of hydrogen as a synthetic fuel, and really addressing the decarbonization efforts that are going on both in the UK, the US, Australia, all over the world. And whether it be for power generation, for automotive, for ships, for airplanes, to power residential communities, it's across the board. And Jacobs is right in the middle of all of that. So Again, the challenge of the stray away from fossil fuels, not a new one, but now with the advent of hydrogen and other synthetic fuels and the use of technology on how that's deployed, something that we're right in the crosshairs of.

Our next question comes from Josh Sullivan with the Benchmark. Your line is now open.

Good morning.

Good morning. Just on the virtualized environment, how do you differentiate Jacob's brand and recruit employees? Just as the friction for high-value talent comes down with more virtualization kind of across the board, can you just give us your thoughts on how Jacob's wins out? Could we see pricing competition for some high-value talent in some of these green infrastructure areas or –

know go up or do you think you can access more talent globally and maybe push some of those acquisitions costs down just curious you know what jacobs is seen in this virtualized environment great question and it's uh the war on talent hasn't hasn't slowed at all during the pandemic that's for sure a couple of responses there one is is that um we we've used the word global integrated delivery global connectedness um that matters The folks that we see coming into the job force today, they care about what's going on globally and want to work on really, really neat stuff. And that's a great attraction to Jacobs where if I'm a, you know, if either I've spent half my career in the mechanical engineering field or I'm a new graduate, but yet I can use my domain expertise and now work on projects that are effectively changing the face of the world. then I don't know of another recruiting tool that we could use as that. The virtual aspect of that, I talked about the positive. The other side of that ledger is that the demands on leadership become even higher, right? Because in a virtual world, we need to make sure that we stay connected to our people and And Steve and Kevin and the entire leadership team have really put a high level of focus on making sure that our newer employees feel connected to the culture of Jacobs through everything from town halls to increased communication, et cetera. So there is a balance, and it is a new world that we're really excited about.

One thing, Josh, to augment Bob's comment, too, is our attrition rates have continued to be very, very attractive. and falling. Now, some of that could be affected and impacted by COVID, but the reality is with you, with us being able to deliver really, really good performance on lowering attrition rates, it puts less pressure on attracting new talent, which is obviously a good thing from an economic perspective and capability perspective, given our team. So it works in in a circular manner in terms of focusing on our culture and making people excited. And that ultimately translates to a really good picture going forward in terms of gaining access to talent.

Our next question comes from Andrew Whitman with Baird. Your line is now open.

Great. Thanks. Probably for Kevin, I guess I just want to understand some of the moving pieces on the corporate costs related to fiscal 21. I think I heard that there's already $75 million of kind of quick wins. I think you termed them. I think that I have to imagine the $35 million of annual lease costs are part of that. I guess my question is, is How much do you estimate that the headwind is from the low costs in 2020? I guess you kind of talked about the fact that there was some deferred healthcare things because of COVID, other things like that, that could be lower than expected SG&A in 2020. So I guess I'm just trying to understand if there's a net benefit from the actions that you've already taken here in early 2021. to deliver, I guess, EBITDA dollar growth from those cost actions. And I guess there's a similar implication or question on 2020. It sounds like there's a good deal of reinvestment planned against that. I was hoping to, I guess, ask in a separate way. Is there, as you looked at 22 and 23 as part of this three-year plan, is there a net benefit or do you expect that the majority of these savings will get reinvested?

So that was a big question, Andy. So let me kind of parse it apart. So, yes, the incremental costs that we are seeing in 2021 are a function of, as we now see the light at the end of the tunnel relative to the COVID situation, we're positioning ourselves to be reinvesting back into the business to accelerate our ability to deliver profitable growth as we exit this year and into 2022 and beyond. So that's very clearly the case. And so if you think about that, effectively what I guess I'd reemphasize what I said during the prepared remarks was effectively that $75 million is offsetting some of these kind of comeback in costs for 2021. And so as we go then into 2022 and beyond, clearly focused 2023 allows us to deliver incremental benefits. And from our perspective, the way that we're envisioning that is that gives us degrees of freedom to really significantly invest in some of this digitization, training, capability sets for us to deliver benefits. the next wave of innovative solutions that are higher margin and deliver even more special solutions to the client. So as we sit here today, we'd say, look, we're going to invest back those incremental monies. But of course, each of those incremental investments are going to have to have a return profile that makes sense from a shareholder perspective. And if they don't, maybe some of that drops to the bottom line. But our intent is tension on Focus 2023 really is about profitable, higher margin growth going forward.

Our next question comes from the line of Michael Penninger with Bank of America. Your line is now open.

Hey, guys, thanks for squeezing me in. I know we're running a little long, so I'll try to keep it short. Just first off, with the pent-up demand that you guys are talking about, have you seen anything on the public or private side with bookings just start to fall in November after the election?

Michael, when you say fall, you mean to be awarded?

Yeah, if there was any thawing or any pickup you guys saw on bookings after the election, increase of customer inquiries, did anything really change in November that gives you guys confidence on that second half?

I don't know if it was directly tied to the election, but we continue to see positive momentum in our bookings. Now, is that coincidence that they were tied to a November election or not? Probably not appropriate for us to speculate on that. Programs have been coming in and talked about the pipeline. The pipeline continues to be robust, and we continue to win a fair share of those. So, yeah, I think they're two independent events.

Our next question comes from Joseph DiNardi with Stiefel. Your line is now open.

Thanks. There's a bullet on the CMS slide that says key W geospatial technology for confidential commercial customer. That sounds kind of exciting. Can you talk about what that is? And maybe what that pretends for some of the government related pursuits that that key W was involved in with geospatial? Thank you.

Joe, I got to be really careful with this one. It is a it is confidential. It's in the automotive sector. And it really starts to rely on deep space satellite technology in order to advance all of the smart kind of capabilities that you would find in a commercial vehicle. But it's unique because it's gone to yet another domain in order to get that information and really enhances speed and accuracy of what's being fed to cars on the roads. So... Unfortunately, that's probably all I can say about it at this point.

There are no further questions in queue at this time. I'll turn the call back over for any closing remarks.

Yeah, thank you. Just to close out, since the pandemic started, the safety and well-being of our people have been our top priority. And in parallel, we've worked hard to deliver on our client commitments. We're going to continue that focus. In spite of the virus escalating around the world, hopefully you got a flavor today that we continue to play a role in support of the major pharma clients on the front line of the vaccine therapeutic production, and we're encouraged by the recent announcements on the vaccines. And as we close out this fiscal year, I'm proud of the performance we delivered in these unprecedented times. And the credit goes to the ingenuity and dedication of all of our people. As a result, we're entering fiscal year 2021 from a position of strength in our key markets and a collective determination to drive growth through innovative solutions for our clients. Thank you.

This concludes today's conference call.