Jacobs Solutions at Bernstein Conference: Strategic Shift and Growth Plans

On Wednesday, 28 May 2025, Jacobs Solutions (NYSE:J) presented its strategic direction and financial performance at the Bernstein 41st Annual Strategic Decisions Conference 2025. CEO Bob Pragada highlighted the company’s transformation from its chemical process roots to a focus on high-growth sectors like water, environmental, and advanced manufacturing. While the company faces challenges in the federal sector, its diverse portfolio and strategic shifts promise resilience and growth.

Key Takeaways

- Jacobs Solutions is transforming by divesting from energy and chemicals to focus on higher-margin areas.

- The company aims for a 300 basis point margin expansion in the next four years.

- Jacobs reaffirmed a 5% to 7% revenue growth target for Q3.

- AI deployment is enhancing efficiency and design processes internally.

- The company plans to return a significant portion of free cash flow to shareholders.

Financial Results

- Jacobs has grown margins by nearly 400 basis points since 2018.

- The company targets a 14% margin profile, with a 16%+ margin goal by 2029.

- Gross profit and backlog have grown at a rate of 15% in the last quarter.

- Revenue growth for Q3 is reaffirmed at 5% to 7%.

Operational Updates

- 60% of Jacobs’ work involves U.S. clients, with 55% of its workforce based internationally.

- The acquisition of PA Consulting enhances Jacobs’ business advisory services.

- AI is used internally to improve design and enterprise functions.

- The global delivery model, currently at 10%, is expected to double in the next three to five years.

- Jacobs maintains a diverse contract portfolio with 29,000 ongoing engagements.

Future Outlook

- Jacobs is focused on organic growth, particularly in tech platforms, with no near-term M&A plans.

- The company aims to enhance its tech platforms through organic investments.

- A significant portion of free cash flow will be returned to shareholders.

Q&A Highlights

- The water business is growing consistently, driven by climate effects, with the U.S. as the largest market.

- AI advancements in drug discovery are boosting demand in the pharma sector.

- About 25% of Jacobs’ business is in advanced facilities and manufacturing.

- The company aims to balance its contract mix to 50% fixed price and 50% cost reimbursable.

For more detailed insights, readers are encouraged to refer to the full transcript.

Full transcript - Bernstein 41st Annual Strategic Decisions Conference 2025:

Chad Dillard, Lead Analyst, Bernstein: Hi. Good afternoon, everyone. My name is Chad Dillard. I’m the lead analyst here, for Bernstein covering machinery sector as well as electrical infrastructure. And today I’m really pleased to have, Jacob Solutions on the stage and joining us is the CEO, Bob Pragada.

Thank you for having us. Thanks for having me. Alright. So, to begin, we’re gonna have a fireside chat. And if you have any questions out there in the audience, there should be a pigeonhole link that you can click on, into your question, and I’ll make sure and have get that answered.

So without any further ado, me turn it over to Bob to give a quick intro and then we’ll dive into Q and A.

Bob Pragada, CEO, Jacobs Solutions: Sure. Thanks Chad. So for those of you who might not know Jacobs, long standing company founded back in the 40s right here in Brooklyn by Doctor. Joe Jacobs who was a former Merck (NSE:PROR) employee and worked in the chemical process industry. So kind of the first almost fifty years of Jacobs history.

It grew up as an engineer in the chemical process industry, mostly in the hydrocarbons as well as the pharmaceutical space. And then after going public in ’eighty nine, ended up diversifying both geographically, other end markets, as well as in services, staying true to that engineering know how of the client’s business. Mostly in manufacturing as well as now in infrastructure. We also in the nineties acquired a company called Sverdrup that got us into the aerospace and defense world. So this company kind of grew from 1990 all the way through to nearly the recession on a 15% compounded EPS growth and was a leader in the spaces that we were in.

Coming out of the recession, probably heard this a couple other times, we had made some significant investments both in acquisition as well as in ourselves. But coming out of the recession not growing quite like we wanted to or needed to. And so you kind of probably heard this story before. 2016, we actually did our first strategy. And that strategy was pretty simple.

I think we paid McKinsey a lot of money to come up with this, which was you do great things in certain markets, certain geographies and with certain services. You don’t in other markets, geographies and services get out of those and double down in those industries that you’re a market leader and you do great work for your clients. So we did. One of the areas and the reason why I wanted to kind of walk it up to that point, one of the areas that we saw back in 2016 that we felt very under indexed in was the water sector. We had a decent presence outside The US but in The US it was nonexistent.

And so if there was an investment to be made, we were going to look into that sector but everything else was going fairly well. And we executed on our strategy. One year after we did our strategy, we had the opportunity to make a transformational acquisition of a company called CH2M. And they were an industry and market leader in the water sector as well as in advanced facilities, specifically chip manufacturing plants. And so we it’s probably one of the largest acquisitions in the engineering space.

I did that in ’seventeen. Took all the learnings of not how to integrate properly, played those forward, and really transformed the company in a huge way. Little did we know that one year after that, 2018, we were approached by a company in Australia called Worley Parsons interested in acquiring our energy and chemicals business. Great business, but it was in volatile markets, the hydrocarbon space. And ironically enough, the price was exactly the same price as we paid for CH2M a year before.

So we ended up selling our energy and chemicals business and continued to grow as an infrastructure advanced facilities play and a market leading position the government services world, specifically in aerospace and defense services. And made it almost through the pandemic where an interesting dynamic started to form where our infrastructure and advanced facility space was growing at a decent clip. Margins were expanding at a decent clip. But we were not growing in our government services space. And a lot of that, and we’re just talking about some of the trials and tribulations of current government services players, is that the dependency on a few large enterprise contracts, you lose one.

If you don’t buy a company, you could be in a little bit of trouble. And so about 2122, we started to look at, okay, we have this capital prioritization. Are we gonna put it in the business that’s higher growth, higher margin, and strong secular tailwinds? Or in our government services base, lower growth, lower margins, but with a cadence of M and A that’s needed? And that’s when we made the decision back in ’22 through our board to separate with our government services business.

Made that announcement in early twenty three. Ended up getting approached by a private company called Omentum who was interested in doing a RMT merger. And so that then proceeded for anybody in the crowd that ever has been through an RMT. It’s probably one of the most difficult things to do, but we did it in about nine months. And in September of twenty four, it’s going a little longer than expected, Chad.

In ’24, you can tell we’ve gone through a lot of transformation along the way. We ended up merging that business with Momentum. It took a retained stake, got a billion dollars in proceeds and ended up paying down debt as a result of the loss of about $300,000,000 of EBITDA. And have been running with now the new Jacobs, infrastructure and advanced facilities over the course of the last few months. In markets right now in the water environmental sector, advanced facilities and advanced manufacturing sector as well as what we call critical infrastructure, energy and power and transportation, that for the first time probably in my career have all got really strong secular tailwinds.

And so we just had our Investor Day in in in February and really excited about the future.

Chad Dillard, Lead Analyst, Bernstein: Alright. Bottom line, lots changed. Yeah. So you Bob, you’ve you’ve talked about the redefining of the asset life cycle. And I was hoping you could take some time to break that down and perhaps contrast this new approach versus, you know, what Jacobs has been doing historically.

And then maybe talk also about how this makes Jacobs differentiated when you’re going up against, you know, some of the top competitors you regularly come into contact with in a market.

Bob Pragada, CEO, Jacobs Solutions: Sure. So and actually now I’m glad that I did walk through the history because it kinda sets up this piece. So over that that that I just recapped seventy years. Over that same seventy years, we really got deep into our clients’ business. So if you look at kind of how the procurement model has also morphed over to both private sector and public sector, we kind of entered as an engineer back in the day, and back in the day is only ten years ago, where client had an opportunity or a challenge.

Right? The effects of climate or a new therapy that they want to get to the market in life sciences. Client determined the capital that was required in order to transact and build that capital asset. And then went out into the engineering community and had what they had schematically designed in their mind and priced to a variety of players that could then design it, then they build it. What was going on during that whole process though is that the only way to then optimize capital was either reduce scope, because sometimes you got it wrong, or it ends up being more expensive than what you anticipated.

And so that early phase of, okay, you have an opportunity, you have a challenge, but there’s a business advisory component to that asset life cycle that if you can get involved because you know the domain, you know the science of your client’s business, if you can get involved there and help the client shape what outcome, what solution they’re trying to build for, could really optimize capital along the way. So that redefining of the asset life cycle is going higher and earlier into the client’s business and working with the client all the way through. Now how do we do that? Do we just show up at the doorstep? No.

These are clients that we’ve had for decades. So that trust that we’ve built over the course of several decades has allowed us to really engage early on and then be with the client along the process all the way up to commissioning and operating and maintain that asset. We probably do it more in the water space and in the life sciences space, but it’s now becoming a bigger part of our business.

Chad Dillard, Lead Analyst, Bernstein: Got it. So what sort of change in management do you need to deploy, just to get the customer, like, on board and and comfortable with sort of this sort of approach?

Bob Pragada, CEO, Jacobs Solutions: I think the biggest piece is there’s a joke that we have and it’s actually not a joke, is some of the best projects that we’ve ever advised on never got built. And what I mean by that is that I think when you have a relationship with a customer that you are going to be the best stewards for their capital. And there’s sometimes that maybe you don’t need to build the job. Maybe you can retrofit. Maybe you can design another transportation network that reduces the need for another subway line or another rail line.

That’s going into building that trust to where they’re gonna have that level of faith that you’re gonna be making the best decision on their behalf. Gotcha.

Chad Dillard, Lead Analyst, Bernstein: So I guess, how how does that redefining of the asset life cycle, like, show up in, like, the financials in terms of, like, p and l returns? What share of your business is under this approach right now? And where do you think that can go over the next three to five years?

Bob Pragada, CEO, Jacobs Solutions: Yeah. Well, part of that transformation and the divestitures and acquisitions that we’ve made over the years, that same period of time we’ve been able to grow margins by almost 400 basis points from 2018 to now. Where it’s now showing up of us doing higher margin, higher end type of work is we’re on track right now to increase our margin profile in the next four years by another 300 basis points because of that type of work that we’re doing, part one. Second is the globality of our business. Right?

In order to be in that deeply entrenched in your client’s business, you have to have the best talent in the world. Historically in the engineering space, you were hiring locally for projects that were done locally. What we’re doing now is that we, you know, right now 60% of our work is in The US or with US clients doing work outside The US, Forty Percent out. Our head count is actually flipped. We actually have 55% of our people outside The US, Forty Forty Five Percent in The US because we’re accessing the talent wherever the talent is.

And and that’s really enhancing the model too, as well as there is a cost cost benefit there too, is it’s adding to our margin profile. Last thing I’d say is that these challenges for our client’s business are becoming more and more complex. And so we’ve really dedicated some time, effort, investment into developing digital platforms in order to enhance AI enabled software platforms that are helping us get to a solution faster than we ever did before. I’d kind of point to those three. Gotcha.

Chad Dillard, Lead Analyst, Bernstein: So how does PA Consulting play into all this?

Bob Pragada, CEO, Jacobs Solutions: In a big way. So I’ve skipped over that one. In ’21, PA Consulting is a science based strategic consultant, kind of competes with the likes of Accenture, PwC, McKinsey and others, more so in The UK. But they drive business transformation through either digital enablement or optimizing capital deployment. PA is in the same end markets that we’re in.

And so when Carlyle was coming to market in ’21 to sell their stake, we actually competed against other private equity firms and acquired their stake. The the partners of PA rolled over their investment. And and now we have a partnership with PA as the majority shareholder as well. And so in that early business advisory planning and conceptual phase of the asset life cycle, we’re going to market with PA to to help us do that. They’re taking it more from the business lens.

We’re taking it more from the science based lens.

Chad Dillard, Lead Analyst, Bernstein: Gotcha. Okay. So a couple of questions for, you know, more of like the the near term perspective. So when it comes to large capital projects, Jacob sits more or less at the tip of the spear, right? So just given that there’s a lot going on between tariffs and higher rates and general uncertainty, maybe you can shed some light on just where your customers heads are at in terms of how they’re thinking about starting projects, the confidence of allocating capital in this sort of environment.

And maybe you can break this down into kind three main customer bases. Right? So the, you know, private side, you know, state and local, and then federal.

Bob Pragada, CEO, Jacobs Solutions: Yeah. So in federal, I’ll go kind of state and local and federal. Take a global snapshot of

Chad Dillard, Lead Analyst, Bernstein: that

Bob Pragada, CEO, Jacobs Solutions: That is great. Private sector for us, these are really durable markets that we’re in. Life sciences, chip manufacturing, data centers. There’s complexity around these facilities that our clients are making five, six, seven year capital decisions on going forward with the facility. The tariffs actually have not actually transacted yet and nobody knows what they’re going to be.

They oscillate back and forth. So where our clients have been is they’re moving forward. The private sector continues to move forward. The reshoring concept actually in those sectors had already started well before this administration. So they’re moving forward.

What they are doing though is we’re engaged with them in developing alternative supply chain strategies to where, okay, if I can’t get tanks and vessels or if tanks and vessels end up being 145% more because I’ve got to bring it in from another country, where can I go? Right? Now all of those, we’ve done the scenario planning for our major clients and are there, but they’re still pressing forward. These are, when I say life sciences, what kind of therapies are coming out of these facilities? GLP-one therapies, oncology products.

Now we’re getting into the phase of neurodegenerative and Alzheimer’s type products. So these are products that are transforming their business. They’re moving forward. State and local governments right now never really stopped. Right?

And so funds had been appropriated. The cost of the jobs play back. We’re going through those same kind of supply chain mode. So there’s a little bit of a nuance there. Jobs are going a little longer but not pausing.

They’re continuing on. The federal sector, which represents about 9% of our business, and of that, 80% of it is in the DOD infrastructure world. So this is transportation, water, environmental work on military bases. That continued, especially in the Indo Pacific and in parts of Europe. But in The US, we did see some pausing, not cancellations, we did see some pausing, waiting to see how the dust kind of settles from Doge and everything else.

Now we’re starting to see those come back. They never got taken off the table. So I’d say overall, a bit tenuous, but hasn’t been a big impact.

Chad Dillard, Lead Analyst, Bernstein: Gotcha. Okay. Maybe just over to the house version of the tax bill. Just curious about, like, what your customers are seeing, what you’re seeing, just given there’s a cross current of change in renewable tax credits, but also you have the element of bonus depreciation. I’d be curious to hear what you’re hearing.

Bob Pragada, CEO, Jacobs Solutions: On the renewable tax credits and mostly kind of the IRA components, we didn’t really have that much exposure, just a couple of jobs. So that really didn’t have an effect on where we sat. Most of the IAJA money was going towards transportation work anyways. And water was almost exclusively funded from municipalities and states. But what we are seeing is that on the potential for the bonus depreciation is and remember this is also tried in ’seventeen.

We didn’t really see that much of an effect. Life sciences, semiconductor, I think the chip manufacturing world might accelerate that reshoring that was already in progress. So it would be a net positive. But industrial manufacturing. So this is aircraft manufacturing and those types of industrial manufacturing that there’s not a lot here.

I think we could see a net benefit there. Now the indirect component, the infrastructure in order to support that type of manufacturing base, I think that would end up being a net positive for us as

Chad Dillard, Lead Analyst, Bernstein: well. Interesting. Okay. So I guess, like, like, what share of your business, would benefit directly from reassuring? Maybe you can talk about, like, what’s differentiated about Jacobs in, like, pharma, semiconductors, data centers, industrial manufacturing.

What makes you win there?

Bob Pragada, CEO, Jacobs Solutions: So the first part of your question, I’d say that it’s tough to quantify right About 25% of our business is in the advanced facilities, advanced manufacturing, that’s life sciences, semi and other. And there was already movement to say, so what’s the incremental component? We do feel strongly that there would be an indirect benefit in that right now if you look at the power infrastructure, the water infrastructure, it’s already even without a higher demand on those utilities is in need of enhancement. So I think we’ll see a benefit there. What makes us special in those private sectors, specifically in the kind of the higher end manufacturing space, is the science.

So if you think about these facilities I’m always talking with my hands but if you think about these facilities, the facility is determined by the manufacturing process. So you start with, in the case of life sciences, you start with the molecule and what is the process trained, process manufacturing, to enhance the molecule. And then you build utility systems, bricks and sticks, to support that manufacturing training. Same thing in chip manufacturing, it starts inside the tool. So what’s the layout of the tool, What’s the technology and the requirements of the tool?

And then you build outwards. Interestingly enough, in the chip manufacturing space, the smaller the line width and the bigger the wafer, the bigger the facility and the bigger the tools. So these things are getting to be gigantic. Knowledge of the science, of the process science, is really what’s been a big differentiator for us. In fact, we, in both of those spaces, don’t really have a public comp.

Interesting. Yeah. They’re mostly private sector players that

Chad Dillard, Lead Analyst, Bernstein: we compete. Billy, what’s what’s the difference in win rate in, let’s say, like, your advanced facilities versus your more traditional infrastructure? Any way you kinda frame that?

Bob Pragada, CEO, Jacobs Solutions: Yeah. Well, I’m I’m always sensitive to throwing out win rate numbers. Chad, you’ve asked me before as well. But you can manipulate the denominator any way you want. I can win all the jobs that I want if I drop out midway.

But I’d say that the advanced facilities business, we have anywhere from 10 to 20 basis points higher win rate than our infrastructure business. But even in our infrastructure business, that’s a pretty high win rate.

Chad Dillard, Lead Analyst, Bernstein: So there’s this this growing convergence of of water with industrial infrastructure. Can you talk about what’s happening there and how this is impacting, you know, Jacobs from, like, the share of wallet of a project? I guess I won’t say win rates. And and then just go gross margins and backlog.

Bob Pragada, CEO, Jacobs Solutions: Yeah. Well, the gross margin and backlog, it’s it’s growing at the I think we said 15% last quarter, of gross profit and backlog. Our net revenues are growing right about at the same rate. Right? So as far as, you know, that’s trending in the right way.

The industrial water space, it’s kind of at an inflection point right now. And I kind of point to two examples. One is that in any kind of reclaim scenario on any manufacturing, especially clean manufacturing plant, there are treatment systems that need to be put in place. And those treatment systems in existing sites, existing manufacturing sites, are already strained. But either there’s a water scarcity issue, there’s flood issues, there’s other issues.

So that’s got some real, real headway to grow. The other, though, and one that we’re in the middle of a lot of studies right now is as the data center world goes from kind of the 100 to 200 megawatt type of AI data center into the eight fifty and even gigawatt range, the water for cooling is becoming as big an issue as the power requirement. And so that presents you know, now if you think about we’re number one in data centers, but that was because we had a really unique design approach to the white space or the server rooms. Now with the power needs, the water needs, and the integration of all of those, it’s playing right into the sweet spot of of what our skill sets are.

Chad Dillard, Lead Analyst, Bernstein: Okay. So how much of your revenue today is generated under the global delivery model? And how do we think about that figure over the next, let’s call it like three to five years? And like is there a ceiling to that?

Bob Pragada, CEO, Jacobs Solutions: So we don’t believe that there’s a ceiling to it. Right now it’s 10% of our overall delivery. It’s 10% of our overall delivery. But if you look at what really can we do, we’ve got a lot of work that we do that’s on-site. Right?

That we’re program managers on-site. We’re doing work in operations and maintenance on the site. You take that out and look at kind of what is the real consulting engineering design component, that 10% goes up by a bit. I would see in three to five years that potentially doubling. Gotcha.

Okay.

Chad Dillard, Lead Analyst, Bernstein: And so just from like a change management standpoint, what would you need to do to get customers more comfortable with the global delivery model? Yeah.

Bob Pragada, CEO, Jacobs Solutions: It’s interesting, in the private sector, and I’d point to life sciences and semi first, that paradigm shift happened about fifteen years ago. So that’s a mature model that’s off and running. In some of our infrastructure space, I think it’s the paradigm shift of we’re driving an outcome. How we get to the outcome, that’s on us. You’ve been with us for seventy years.

There’s a level of trust and project certainty at the Jacob Springs. And so I think that is happening at a nice pace right now too. But it really is a paradigm shift. From a talent, from a delivery, from skill sets, there is no difference.

Chad Dillard, Lead Analyst, Bernstein: And so I guess in terms of contribution to your overall margin growth, could you just dimension that for us?

Bob Pragada, CEO, Jacobs Solutions: Yeah, so there’s multiple drivers of our margin growth. Global delivery, our commercial mix, as well as the continued cost optimizations and self help work that we’re doing. We haven’t handicapped it, but it’s the biggest piece. But we’ve got multiple levers for that 300 bps of margin expansion over the course of the next three or four years.

Chad Dillard, Lead Analyst, Bernstein: Gotcha. Okay. Actually moving on to the other part of the margin expansion. So I think, you know, if you look at Jacobs, it under indexes if you look at, you know, fixed price versus, you know, cost reimbursable. Right.

So I guess, like, what’s what’s the right mix for your business profile? And then assuming, you know, you’re you’re gonna be moved more towards, that fixed price, you know, side of the the ledger, talk to me about how you’re dealing with, you know, risk mitigation when you are taking on more risk to generate potentially higher margin.

Bob Pragada, CEO, Jacobs Solutions: So right now, the mix is about 70% of our work is cost reimbursable, cost plus, and 30% is fixed price. Just to contextualize it for a moment, that asset life cycle, you know, when we’re getting involved in business advisory or planning and and and conceptualization of a job, we actually don’t wanna take that that work fixed price because there is no scope. Right? So you’re you’re you’re taking subject matter experts going to your with your client and you’re cocreating solutioneering with your client. So you want that to be on a reimbursable basis.

Once there’s a scope and and now you’ve got a you’ve got a scope, you’ve got a start, you’ve got an end, Taking that fixed price with our own people in a domain that we have a high level of expertise in, we want that. Right? Because then we can use digital tools, we can use global delivery, we can use these productivity enhancers. And those productivity gains are margin accretive to us. Right?

If it was continued to be cost reimbursable, we’d be passing it back to back to the client. And and quite frankly, client wants it to be fixed because it gives them price certainty as well. So I’d say, you know, is thirtyseventy the right mix? Probably not. We would like that to be fiftyfifty.

That’d be great. However, that also is that cost reimbursable work that we do on the front end, that is higher margin work today. Right? And we don’t want that to go because one feeds the other. Mhmm.

So I think it’s it’s a balance. Gotcha. Okay.

Chad Dillard, Lead Analyst, Bernstein: Can can you also spend a little bit of time on how you’re deploying AI internally?

Bob Pragada, CEO, Jacobs Solutions: So we’re using

Chad Dillard, Lead Analyst, Bernstein: internally. Internally. Yeah. Yeah.

Bob Pragada, CEO, Jacobs Solutions: Internally, really, it’s it’s it’s around our well, twofold. One, it is helping us get to a lot of the the the the I’ll talk about our our design or our engineering service first. There is a lot of data that is required for us to be designing solutions for clients’ assets. Over the years, in multiple end markets around the world, because nobody has the same standard and codes, We’ve collected a lot of that data. So to have our own LLM where we’re using that data in order to get to solutions faster is helping us get more efficient in our design process.

That’s going on in real time, and that goes to that fixed price nature too. Because if you’re doing that faster and it’s reimbursable, you lose the benefit. So that’s actually helping us get even more efficient in our fixed price and risk mitigating as well. So I’d say that’s a big piece. The other is that our enterprise functions today, we’ve done a good job and thank Nathamuni here, who’s our CFO, done a really good job at consolidating and standardizing our processes around those enterprise functions.

And now we’re in the phase of enabling AI in order to get even more human efficiency with it all being in a single location before we had them distributed all over. Right? And so standardization, you need to standardize before you can have any type of benefit from digital enablement. We’re in that second phase now. Okay.

Chad Dillard, Lead Analyst, Bernstein: Hop over to a couple of questions from the field. So looking into the water business, can you give us some insight on what you’re seeing on a regional level?

Bob Pragada, CEO, Jacobs Solutions: Yeah. Water is an interesting market in that while and probably less tied to global macros. So while we were seeing post pandemic recession in Europe or specifically in The UK, some softening pre election in Australia, as well as how we were in The US responding, water was the consistent growth avenue. And a lot of it has to do with the effects of climate. Right?

So globally I’d say water was the consistent theme that the pipeline, the backlog, and the P and L growth, specifically over the last three years, has all been up and to the right. So hopefully that answers that. As far as, you know, kind of the size of the market, The US still is the largest. But, you know, our our our the work that we do in The UK, especially around these asset management programs, the AMP cycles, they call them, Very formulaic, and you know every five to seven years, a programmatic deployment of capital in order to maintain and enhance water systems. And so in The States, we have probably more of a state and municipality kind of method there.

But we’ve got a we’ve got a great market presence in in both locations as well as in Australia. Got it.

Chad Dillard, Lead Analyst, Bernstein: Okay. So what steps are required to make Jacobs’ consolidated margins look like PA margins? What’s going to be the key end markets to help you reach that goal?

Bob Pragada, CEO, Jacobs Solutions: Yeah. Well, margin profile by our end markets, I talked about Jacobs, because whoever asked that question is a great question, because that’s exactly where we’re going. Not necessarily in this strategic cycle, but we said 16 plus in 2029. And we feel strongly that we’ll continue to rise above that too. Don’t know if as much about the end market as it is our ability to drive all the things that we’ve talked about, global delivery, digital enablement, cost optimization and operating leverage, that we see that trajectory continuing to go up.

So it’s not like we need to do more work in the water sector, do more work in the life science sector. I think that the end markets, if you look at the margin profile today, they’re all kind of rising at the same rate. Gotcha. Okay.

Chad Dillard, Lead Analyst, Bernstein: And then maybe just zeroing in on the pharma side of the portfolio. Can you just talk about the pipeline you see ahead of you and what sort of opportunities Jacobs has to capitalize on that?

Bob Pragada, CEO, Jacobs Solutions: Yeah. Pipeline’s strong. And it’s interesting. Then the next question would likely be, well, why is it strong? And there goes the AI word again.

What AI is doing in the pharma sector around drug discovery, and I think the CEO of Lilly says it best, it’s allowing for the R and D function to fail faster. So in molecular development, you’re testing formulations, failing, learn from your failures, play it forward. Now with AI and drug discovery, that’s all getting compressed. And you’re able to get to solutions or therapies or cures faster. Think new molecule, new therapy, new facility.

And so that’s what’s kind of driving that pipeline right now. GLP-one still is a big deal now that now more than two players globally now have those molecules. So So you’re going to see that continue to expand with other players. Oncology drugs, world is solving for various cancers that wasn’t a cure in the past. That’s accelerating.

But the next generation that we’re starting to see the early days of is in our pipeline is around neurodegenerative. And that this is not just the slowing of Alzheimer’s, but potentially the reversing. And now it’s a couple of years out, but I think that’s something that gets really, really exciting. So you see all that. The other dynamic that’s happening, and this is back to your earlier question, Chad, about whether it be reshoring or incentives to manufacture here.

Eastern, and I mean Japanese, Korean, contract manufacturers. So these are large pharmaceutical contract manufacturers that are establishing operations in The US. And so you’ve AI and drug discovery, molecules getting to market faster. You want your own facility, but if I can go to the contract manufacturer and get there as well, I’m gonna utilize that. So we’re seeing growth.

We announced Fuji We announced the second phase, I think last summer. You know, that that could continue.

Chad Dillard, Lead Analyst, Bernstein: Interesting. Okay. So it sounds like you’re stacking up a lot of different opportunities. So how are you thinking about the inflection point? Are we there yet, or is it still ahead in terms of pharma?

Bob Pragada, CEO, Jacobs Solutions: I I don’t think if we’re kind of the peak The inflection. Yeah. Well, the inflection as far as inflecting positive Yeah. We’re there. Yeah.

We’re on the front end of that curve. But we don’t actually see the curve as being bell shaped. You know, I don’t think that there’s a peak and then it drops off. What’s happening is it’s kind of a steady growth. Okay.

Chad Dillard, Lead Analyst, Bernstein: So just a question for you for 2025. So I guess like looking at the second half of the guidance, implies like a healthy step up in revenue and margin. And just curious, like, just like what’s giving you the confidence on the guide? And how should we think about that exit rate as we’re thinking about 2026?

Bob Pragada, CEO, Jacobs Solutions: So we’ll kind of hold on the 2026 question. I don’t want to give too much forward guidance. But on the second half, couple of things I’d say. One, we are reaffirming that our 5% to 7% revenue growth in Q3, similar to what we said on the earnings call, reaffirming that. And then if you look at the margin profile, we said approximately 14%.

Even though we did 13.4% in Q2, there was the legal reserve. And for other reasons, I can’t speak too much about that, but you figured it out. You go back and you kind of take that one time. The step up is actually not that great. So when you kind of look at it from that perspective, we’ve got line of sight to making it happen.

Okay.

Chad Dillard, Lead Analyst, Bernstein: And then just maybe another question for just comparing and contrasting the new Jacobs versus the old. Just a question about cyclicality. If there were to be like a downturn, guess, like, walk us through, like, how you would expect the Jacob’s model to flex, you know, just given that there are a number of different secular tailwinds ahead today that, you know, weren’t there in previous downturns.

Bob Pragada, CEO, Jacobs Solutions: Yeah, I think it goes to a couple of data points that I referred to. One is that at any one time, we were talking about the government services world where you lose a contract, there’s some trouble. In the new Jacobs world, we have at any one time 29,000 engagements, projects, programs going on. The average size of our engagement is about 500,000 US. And that ranges from on the highest end, a couple of billion.

On the lowest end, 2 people for a week at $10,000. You know, those types of that’s a huge, huge range. With only 2% exposure to any one client. Right? So if you look at just the diversity in the business, there’s some resiliency there that all ships can’t go down at once.

And so in a recession, we’ve got a little bit of that buffer. Now we don’t see that right now. We’re seeing some really nice tailwinds. But being good stewards of shareholder capital, we did do some scenario planning where Venk, our CFO, for our board kind of walked through with some assumptions what would be the trough to the peak or peak to the trough potential effect. And then did some look back in history at the global financial recession, the pandemic, a few other things.

And, you know, we on the assumed model, it not material. Right? Probably 5% kind of in that range.

Chad Dillard, Lead Analyst, Bernstein: So if you had an additional $100,000,000 to deploy organically, where would you put it today?

Bob Pragada, CEO, Jacobs Solutions: You mean after returning back to shareholders? Yes. Right. No. Organically in the company, I I would we would really continue to enhance our tech platforms.

Okay. Right? We we’re we’re we’re the software development we do, our our systems, our backbone, we’re on a nice trend right now. And I think continued investment in that area is going to do nothing but make us more efficient as a company as well as continue to help us develop even more unique solutions for our clients’ businesses.

Chad Dillard, Lead Analyst, Bernstein: So I think it was this last quarter you talked about potentially increasing your stake in PA Consulting. Can you just give a little bit more color on your thought process behind that?

Bob Pragada, CEO, Jacobs Solutions: Yeah, first we’re going to make sure that the investment that we make in PA, that we see as kind of an investment in ourselves, it’s a long standing relationship. We had a nice partnership that we formed and grew over the course of the last four years. And so we’re gonna make sure that the returns on that investment continue to profile to the returns that we have an expectation for the entirety of the enterprise. Meaning those ROIC calcs that we’re looking at are gonna be in line with being greater than our WACC. So that’s kind of how we’re looking at that investment.

From a strategic standpoint, we feel really confident that the model works and the model in that redefining the asset life cycle is a really unique differentiated place in the marketplace. So we’re going to do what’s right for our shareholders and at the same time for the long term growth of the company. And

Chad Dillard, Lead Analyst, Bernstein: then maybe my final question for you. So maybe talk about the claims on your free cash flow over the next twelve months. Like how would you balance it between M and A versus buybacks versus dividends? Any appetite to even, like, pay back debt? Just walk me through how you’re thinking about that.

Bob Pragada, CEO, Jacobs Solutions: Yeah. So as far as M and A in the near term, we’re not thinking about M and A. So kind of if we take that off the table. If you think about what we did in Q1 and Q2 from return to shareholders of $630,000,000, We’re on track for the for the full year to be at a % of our free cash flow return to shareholders. So we’re gonna continue on on that path as well as reinvesting in ourselves.

And and I might add, you know, asset light compounding free cash flow margin. You know, we talked about it at Investor Day. You know, we’ve got a nice it’s and it’s kind of the ultimate equalizer of our, you know, our our our competitors and us. When you look at EBITDA margins, there’s a lot of questions that come up on, well, why is company x that and you’re that? Can’t there’s there’s no creative accounting in free cash flow margin.

Mhmm. And, you know, we’re we’re we’re right there with others with a great opportunity to go to 10%.

Chad Dillard, Lead Analyst, Bernstein: Excellent. Okay.

Bob Pragada, CEO, Jacobs Solutions: We’ll leave it there. Okay. Thanks, Bob. Alright. Thank you.

Alright. Thanks, everyone.

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