Jacobs Solutions Inc.

Greetings and welcome to Jacobs Fiscal Second Quarter 2026 Earnings Conference Call and Webcast. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. I would now like to turn the conference over to Bert Subin, Senior Vice President, Investor Relations. Thank you. You may begin.

solid year-on-year margin expansion, and continued robust sales activity. I'll quickly highlight a few key takeaways. First, adjusted EPS grew 22% to $1.75, supported by 9% organic net revenue growth, outpacing the 8% growth rate in Q1, and 70 basis points of year-on-year margin expansion. Our backlog grew 22% to $27 billion, setting another new record with a trailing 12-month book to bill of 1.4 times on gross revenue and 1.2 times on net revenue. And third, we completed the acquisition of PA Consulting, which we celebrated together by ringing the closing bell at the New York Stock Exchange in March. In summary, we're exiting Q2 with significant momentum, and the strong first half of the year gives us confidence to increase our FY26 outlook for the second time in two quarters, which Venk will walk through shortly. Turning to slide four, we provide a detailed overview of the quarter. We are very pleased with Q2 results as strong operating performance paired with our lower share count drove the fifth straight quarter of double-digit growth in adjusted EPS. During Q2, We also delivered another quarterly book to bill above 1.0 times with both gross and net coming in at 1.2 times. The addition of the net revenue book to bill metric will provide a useful context for our investors and analysts and reinforces the strength in our bookings over the last 12 months. Turning to slide five, I'd like to highlight a few notable project awards from the second quarter. But before I do that, I want to recognize a major achievement. Jacobson ranked the number one design firm by engineering news record in their newly released 2026 Top 500 report, marking the seventh time in the last eight years we've held this ranking. Our strong organic growth profile helped us earn this honor, and I want to thank our 47,000 colleagues for delivering leading solutions to our clients every single day. Now, moving on to Q2 awards. In water and environmental, Jacobs was selected by the San Francisco Public Utilities Commission to deliver the Southeast Wastewater Treatment Plan, a landmark investment in environmental protection for the San Francisco Bay. The project will upgrade San Francisco's largest wastewater facility, positioning a plant as the first major discharger to proactively meet new nitrogen limits for the bed. This one highlights another significant award in one of our fastest growing sectors, and positions Jacobs for similar regulatory-driven investments emerging across Northern California, the Pacific Northwest, and the Great Lakes. Also within water and environmental, Jacobs and PA have secured a two-year economics and policy consultancy contract with OFFWAT, the UK water regulator. The engagement brings together industry-leading expertise across water regulation, as well as financial, technical, and strategic consultants. Our solution will be delivered to support pricing, performance oversight, and policy development tied to substantial investment across the AMP8 cycle and beyond. In life sciences and advanced manufacturing, we had multiple wins with hyperscalers and other data center customers spanning the full project lifecycle, from advisory, design, program management, and digital solutions to full EPCM. This includes our recently released data center digital twin developed using the NVIDIA Omniverse DSX Blueprint. Our strategic partnership with NVIDIA continues to gain momentum as we work to expedite the delivery of AI factories with compute load requirements rising substantially. Last year at our investor day, we laid out a roadmap for how we believed our data center business would evolve and the combination of our deep domain expertise Our full asset lifecycle model and the expansion of AI investment has accelerated that journey. We grew our data center business by more than 100% year-on-year in Q2, and we see very strong runway to build on that success in the second half of the year. And it's more than the data center sector. We are seeing rising demand in semiconductors, water, and energy and power as the technology and infrastructure go hand-in-hand. This is bolstering total revenue growth for their backlog and pipeline, indicating the investment cycle is still in the early stages. Moving on to critical infrastructure, Jacobs has selected a lead design at Dallas-Fort Worth International Airport as part of the Terminal F expansion. The project involves existing bridge span operations essential to allow for up to 16 additional gates and support the airport's growing demand. Combining bridge design expertise With the unique challenge of maintaining operability of the SkyLink people mover during all phases of construction, we are modernizing infrastructure while keeping passengers moving. Jacobs is ranked as engineering news records number one firm in aviation, a sector where we continue to see significant growth in demand for terminal upgrades and new builds. In summary, we continue to build on our industry leadership in sectors like wastewater, aviation, and data centers. securing key awards that position us for growth in the second half of the year and into FY27. Now I'll turn the call over to Venk to review our financials in further detail.

Thank you, Bob, and good afternoon, everyone. Please turn to slide six, where I'll walk through our results for Q2. Growth revenue increased 27% year-over-year, and adjusted net revenue, which excludes pass-through revenue, grew by 9%. These both represent the highest consolidated growth rates for the company since the separation of our government services business in 2024. Q2 adjusted EBITDA was $327 million, growing more than 14%, with our margin coming in at 14.1%, or up 70 basis points year-over-year, driven by good operating discipline. This resulted in adjusted EPS rising 22% year-over-year. Consolidated backdrop was also up 22% year-over-year to a record $27 billion with a trailing 12-month book-to-bill at 1.4 times. Book-to-bill was strong again in Q2, driven by good awards activity across our end markets. Additionally, on a year-over-year basis, net revenue and gross profit in backdrop increased 12% and 15% respectively during Q2. We are demonstrating faster organic growth in the business today, and our strong bookings position us well as we look out to fiscal year 27. As you've seen since the separation of our government services business in fiscal year 24, our earnings quality has been improving. However, as a result of the PA transaction, which we have previously communicated, there was a wider than normal spread between GAAP and adjusted EPS in Q2. We expect this to be mostly a Q2 phenomenon, and we anticipate a more normal differential between GAAP and adjusted EPS in Q3 and beyond. Regarding our performance by end market in infrastructure and advanced facilities, let's turn to slide seven. At a high level, we continue to see strong growth rates in life sciences and advanced manufacturing, as well as in critical infrastructure during Q2. Focusing on life sciences and advanced manufacturing, net revenue grew 12% in Q2, our highest growth rate since we began reporting end markets in late 2024. Combining acceleration in advanced manufacturing with continued solid performance in the life sciences sector has resulted in a double digit top line increase for the end market, and we expect revenue growth will likely exceed Q2's level in the second half of the year. Shifting to critical infrastructure, net revenue increased 9% over Q2 2025. Critical infrastructure continues to be led by strong growth in the transportation sector, where our rail, aviation, and ports businesses grew double digits, as well as in the energy and power sector on the heels of high demand for transmission and distribution services. Net revenue growth in our water and environmental end market came in at 2% as strength in water which has continued to grow in line with our target, was offset by softness in the environmental sector. Performance for our environmental business is on track to show meaningful year-over-year improvement as we reach Q4. In summary, we saw diversified strength across our end markets during Q2. Moving now to slide eight, I'll provide a brief overview of our segment financials. In Q2, INAF operating profit increased 11% year-over-year or just over 8% on a constant currency basis. PA consulting operating profit increased 19% as revenue grew 17%, and operating margin came in strong at 22%. On a constant currency basis, operating profit grew 12%. PA has seen demand tailwinds from national security and public investments in the UK, and the business is centrally positioned to help advise on European defense strategy as well as implement digital solutions across the entire region. Combined with Jacobs' proven history of delivering complex manufacturing and national security infrastructure, we see a compelling opportunity to augment growth in the sector. Focusing on the second half of the year, we believe PA will continue to grow revenue high single digits on a constant currency basis. Now, moving on to slide nine, we provide an overview of cash generation and our balance sheet. We had an adjusted free cash outflow of $272 million, partly as a function of a favorable Q1 cash timing item that reversed in Q2. This brings our first half adjusted free cash flow to $93 million, a solid increase over fiscal year 25. I just want to note we're highlighting an adjusted free cash flow figure as we have to account for a portion of the PA transaction proceeds in operating cash under U.S. GAAP reporting guidelines. These entries impacted Q2 reported free cash flow by approximately $233 million and will impact Q3 reported free cash flow by just over $100 million. But it's important to keep in mind these amounts were already included as part of the upfront consideration paid in connection with the transaction. Focusing on capital returns, we delayed aggressive repurchases of our shares during Q2 to take advantage of the value of our stock. Consequently, our total repurchases in the first half of the year were $472 million, which puts us ahead of our annual target of returning at least 60% of free cash flow back to our shareholders. Our balance sheet is in good shape following the acquisition of PA Consulting, with our net leverage at 2.1 times ending the quarter, and we plan to return to below two times by year-end. Additionally, our weighted average interest rate has declined to around 5%, following the successful refinancing of our debt stack and issuance of new bonds to fund the acquisition. Net leverage is roughly half a turn above our target range, but the increase in EBITDA from the full inclusion of PA, as well as our strong outlook for cash generation, positions us to lower our net leverage ratio back toward 1.5 times during fiscal year 27. Please turn to slide 10 for our updated fiscal year 26 outlook. inclusive of our acquisition of PA Consulting. We're increasing our forecast for adjusted net revenue growth, adjusted EBITDA margin, and adjusted EPS relative to our guidance from last quarter. We're increasing our FY26 organic net revenue growth range to 8% to 10.5% year over year, adjusted EBITDA margin range to 14.6% to 14.9%, and adjusted EPS range to $7.10 to $7.35. We continue to anticipate adjusted pre-cash flow margin will range from 7% to 8.5%. Notably, our outlook for FY26 now implies 18% year-on-year growth in adjusted EPS at the midpoint. As it pertains to Q3, we expect our adjusted EBITDA margin to be approximately 15%, with year-over-year net revenue growth of approximately 7.5%. This implies a margin of about 16% in Q4 on double-digit top-line growth, inclusive of the extra week we will have this year during that quarter. Additionally, we expect our adjusted effective tax rate will be in the 27% to 28% range in Q3 and in Q4. We have good line of sight to achieving our updated Pistolier 26 targets, and we're pleased to be trending well ahead of our initial outlook for the year. Now turn to slide number 11 for a few updates to our fiscal year 29 targets. We are reaffirming our range of 6% to 8% organic growth on a five-year compound annual growth rate basis for net revenue. Combining our fiscal year 25 results and the midpoint of our fiscal year 26 guidance, we would be ahead of the midpoint for the first two years. Adding this to our central positioning in the build-out of AI infrastructure and the potential for growing revenue synergies with PA leads us to believe we will meet or exceed a 7% compounded annual growth rate. As it pertains to adjusted EBITDA margin, we're increasing our target by 100 basis points to 17% plus for Fiscal Year 29. This is due to the implementation of gross margin and G&A initiatives that are well underway, as well as the acquisition of the remaining stake in PA Consulting where we currently see opportunity for at least $20 million in annual cost synergies. This implies at least 75 basis points of identified annual margin improvement from fiscal year 27 through fiscal year 29, in addition to the 200 basis points we're expecting to deliver over the course of fiscal year 25 and fiscal year 26. And lastly, our high margin expectation and working capital management give us confidence we can now reach or exceed an 11% free cash flow margin, also up 100 basis points from our prior target. At our forecasted growth rate, that implies $1.2 billion to $1.3 billion of annual free cash generation by fiscal year 29. We're off to a great start, just about one-third of the way through our strategy cycle. With that, I'll turn the call back over to Bob.