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.