Jacobs Engineering Group Inc

NYSE:J

Earnings Call Analysis

Strong Financial Performance Signals Growth Potential

Jacobs Solutions reported a positive fourth-quarter performance for fiscal year 2024, with total gross revenue increasing by 4% year-over-year and adjusted net revenue rising by the same margin. This upward trend is marked by fourth-quarter adjusted Earnings Per Share (EPS) from continuing operations at $1.37, a notable 28% increase compared to the previous year. Cumulatively, fiscal 2024 saw a total gross revenue increase of 6% and an adjusted net revenue rise of 5%, reinforcing the company's solid financial footing.

Operational Metrics Show Robust Efficiency

In the fourth quarter, Jacobs achieved an adjusted EBITDA of $289 million, reflecting a 12% growth from fiscal year 2023, with the adjusted EBITDA margin climbing to 13.6%, up approximately 100 basis points. Over the entire fiscal year, the adjusted EBITDA increased by 9%, showcasing ongoing operational efficiency improvements and margin expansion as critical to future profitability.

Transition to Continued Focus on Core Markets

The company recently completed a strategic separation of its Critical Mission Solutions and Cyber Intelligence businesses, focusing on three key markets: Water and Environmental, Life Sciences, and Advanced Manufacturing, along with Critical Infrastructure. This simplification strategy appears to position Jacobs well in sectors experiencing strong demand growth, with a 23% year-over-year increase in consolidated backlog, totaling $21.8 billion. The company reported an exceptional trailing 12-month book-to-bill ratio of 1.35x for its overall operations that rose to an impressive 1.67x in the fourth quarter.

Segment Performance Highlights Strong Demand

Jacobs demonstrated strong revenue growth in its Water and Environmental segment during Q4, with adjusted net revenue rising by 13%. Notable projects included a significant contract with Los Angeles for advanced water management services. In the Life Sciences and Advanced Manufacturing sectors, revenue grew 3%, and continued investment in this area is expected to drive growth moving into fiscal 2025. Conversely, the Critical Infrastructure segment showed only 1% growth, but improving demand is expected in fiscal 2025 as transportation projects ramp up.

Promising Outlook and Future Guidance

Looking ahead to fiscal year 2025, Jacobs anticipates adjusted net revenue growth in the mid to high single digits, driven by robust activity in key markets. The company is projecting an adjusted EBITDA margin range of 13.8% to 14%, and adjusted EPS is expected to be between $5.80 and $6.20, indicating a projected growth of about 14% year-over-year. Additionally, despite an anticipated rise in the tax rate to roughly 26%, Jacobs remains confident in meeting its growth targets amid restructuring costs, which will be in the range of $75 million to $95 million and are expected to decrease over time.

Capital Deployment Strategy Underlines Shareholder Value

Jacobs has emphasized a commitment to shareholder returns, with plans to continue repurchasing shares and increasing dividends, as demonstrated by a 12% year-over-year dividend increase to $0.29 per share. In fiscal 2024, the company returned nearly 60% of its free cash flow, totaling $718 million, allowing for a mixture of debt reduction and capital investment. This balanced approach enhances the company's capacity for growth and financial stability as it moves forward.

Investor Confidence and Market Positioning

The strategic focus on high-value, high-margin markets has appeared to instill confidence in Jacobs’ stakeholders and the broader market. The success of the business has been supported by strong relationship management and the company’s ability to adapt to changing market demands, further solidifying its competitive advantage in core sectors expected to thrive in the coming fiscal years.

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to Jacobs Solutions Fourth Quarter and Full Year 2024 Earnings Conference Call. [Operator Instructions]

And I would now like to turn the conference over to Bert Subin, Senior Vice President of Investor Relations. Bert, you may begin.

[Bert Subin, executive]

Thank you, Krista, and good morning, everyone. Our earnings announcement was filed earlier this morning, and we have posted a slide presentation on our website, which we'll reference start this call. Please note, our 10-K will be filed by no later than our due date of November 26. I would like to refer you to Slide 2 of the presentation material for information about our forward-looking statements, non-GAAP financial measures and operating metrics.

Turning to the agenda on Slide 3. Speaking on today's call will be Jacobs' Chair and CEO, Bob Pragada; and CFO, Venk Nathamuni. Bob will begin by providing an overview of recent activities and highlights from our fourth quarter and fiscal year results. Venk will then provide a detailed review of our financial performance, including commentary on end market trends, cash flows, balance sheet data and our FY '25 outlook.

Finally, Bob will provide closing remarks, and then we'll open up the call for questions.

With that, I'll turn it over to our Chair and CEO, Bob Pragada.

[Robert Pragada, executive]

Thank you, Bert, and I'm delighted to welcome you to Jacobs at such an exciting time. Good day, everyone, and thank you for joining us to discuss our fourth quarter and fiscal year 2024 business performance. Now moving to Slide 4. We reached a critical milestone on our strategic shift toward a simpler, higher value and higher-margin portfolio during the quarter as we closed the separation transaction involving our Critical Mission Solutions and Cyber Intelligence businesses on September 27, 2024, culminating with momentum successfully listing on the NYSE under the ticker AMTM. This strategic shift has been well received by the market, highlighting confidence in our focused direction and reinforcing our commitment to delivering sustained value and growth for our shareholders.

Upon closing the transaction, we received $911 million, which was concurrently used to repay existing debt. Additionally, as a part of the transaction, we received a 7.5% equity ownership in Amentum, which could rise to 8%. At the same time, Jacob shareholders became 51% owners in shares of Amentum and their ownership stake could increase up to 55%. I want to take a moment to emphasize how important this transaction is for Jacobs. As a more sharply focused company operating in robust end markets with strong secular growth tailwinds, we believe Jacobs is in an excellent position to create substantial shareholder value.

Our simplified structure, global delivery model and ongoing operating efficiencies positions us nicely to build on a strong end to FY '24. This is a testament to the dedication and relentless efforts of our employees, whose hard work is paving the way forward for 2 exceptional companies. I'd like to extend my deepest gratitude and congratulations to each of them for their role in this pivotal transformation. Turning to Slide 5. We provide an overview of our financial performance for the fourth quarter and fiscal year 2024 with CMS and C&I under discontinued operations. So please note the results we highlight are related only to continuing operations.

Focusing in on the quarter. Total gross revenue increased 4% in Q4 with adjusted net revenue rising 4%. GAAP EPS from continuing operations was $2.38 and includes a positive $120 impact from the mark-to-market of our investment in Amentum netted against the amortization of intangibles as well as a $0.19 impact from transaction restructuring and other related costs. Excluding these items, fourth quarter adjusted EPS was $1.37, marking a 28% increase compared to the previous year.

Adjusted EBITDA for Q4 came in at $289 million, which represented a 12% growth versus FY '23. Overall, we are pleased to close out the year with such a positive performance. Looking at the full year. Total gross revenue increased 6% with adjusted net revenue rising 5%. GAAP EPS from continuing operations was $4.79 and and included a positive $0.50 impact related primarily to the net effect of amortization of acquired intangibles and the mark-to-market of our investment in Amentum and a negative impact of $1.07 from transaction, restructuring and other related costs, which again were materially driven by the separation transaction.

Excluding these items, adjusted EPS from continuing operations was $5.28, marking a 16% increase compared to the previous year. Adjusted EBITDA for FY '24 was $1.06 billion, representing a 9% increase versus FY '23. Our trailing 12-month book-to-bill was 1.35x as our consolidated backlog increased 23% year-on-year in Q4. These are metrics will be watched closely, and we are encouraged by the trajectory we're delivering on with an extremely strong 1.67x book-to-bill for the fourth quarter. When we analyze our backlog, we are seeing this trend across gross revenue and backlog as well as gross profit in backlog, which is a good indicator as we think about our growth for FY '25 and beyond.

Turning to Slide 6 and building on my backlog and book-to-bill commentary. I'm excited to report that during the quarter, we continued to deliver substantial wins across the business and across geographies, a testament to our market positioning, deep domain expertise and long-term trusted client relationships. As we move forward as a simpler and more focused company, we will be providing commentary on revenue across 3 key end markets, water and environmental, life sciences and advanced manufacturing and critical infrastructure. These end markets roll up to infrastructure and advanced facilities, which is comprised of our historic P&PS business and the retained portion of divergent solutions.

PA Consulting remains in its own segment and is unchanged. On Slide 14 in the appendix we provide a graphic that depicts our new structure and end market focus. Moving on to how our end markets are performing. Water Environmental is demonstrating impressive growth. Water conveyance, water infrastructure, wastewater, potable reuse and efficient asset management are just some of the key drivers of our client spend. And we have been successful in servicing demand across these categories with double-digit growth in Q4. Notably, during Q4, we delivered several key wins, including our appointment by Los Angeles sanitation environment to provide progressive design-build services for the Donald [indiscernible] advanced water equalization basins, a critical part of LA's long-term plans to increase recycled water production by 2035.

Significantly, this is one of the single largest bookings in the water and environmental end market in our company's history. In life sciences and advanced manufacturing, we continue to see robust demand from life sciences clients boosted by GLP-1 investment, and we expect this trend to continue in FY '25. In semiconductors, we are diversifying our customer base and expanding our global reach. One example is our recent design design win for a new test and assembly facility with CG Semi in India. The facility will manufacture advanced and legacy packages for industries such as automotive, consumer, industrial and 5G communications and facilitate our strategic positioning in India where electronics manufacturing spend is expected to grow meaningfully.

Global investment spending across life sciences, semis and data centers is creating a robust backdrop for Jacobs in FY '25 and beyond. Moving on to critical infrastructure. During the quarter, we secured a technical project manager role with the Department of Energy Security and Net Zero in the U.K. A great example of how we are leveraging our differentiated offering in energy security and transition that demonstrates the power of our partnership and greater collaboration with PA Consultant. We will provide project management and advisory services, along with associated strategic support to the hydrogen and industrial carbon capture program that includes consulting, end-to-end innovation, design and analytics.

We're also seeing continued traction in the Middle East as Saudi Vision 2030 significantly increases the number of opportunities across critical infrastructure. Notably, during Q4, we announced a new award to lead advisory, design and engineering for the King Salman International Airport in Riyadh, Saudi Arabia. Our outlook for near and long-term expansion in the region remains intact. And we are seeing signals of strong demand for infrastructure projects across the globe in the early days of FY '25.

In summary, we remain confident in our ability to grow the business and deliver superior execution to meet our clients' expectations. We're excited for the future as a more focused company and look forward to presenting our strategic vision for growth over the coming years at our Investor Day in Miami on February 18.

Now, I'll turn the call over to Venk to review our financial results in further detail.

[Venkatesh Nathamuni, executive]

Thank you, Bob, and good day, everyone. We are pleased with our Q4 performance, which contributed to a strong year. Let me now begin by summarizing a few of the financial highlights on Slides 7 and 8. Starting on Slide 7, we show quarterly results and I'll provide additional context and detail around our performance from continuing operations. As Bob noted, CMS and C&I have been excluded from our results as those businesses are listed under discontinued operations.

We provide a reconciliation on Page 24 in the appendix that will allow you to compare results for the enterprise, including the businesses that were separated in the fourth quarter. Notably, I want to highlight that in total, we did outpace the $7.95 adjusted EPS midpoint for fiscal '24 that we guided to with Q3 results. However, from here forth, we will only be discussing continuing operations. Fourth quarter gross revenue grew 4% year-over-year and adjusted net revenue, which excludes the impact of pass-through revenue also grew 4%.

Q4 adjusted EBITDA was $289 million, growing 12% year-over-year to an adjusted EBITDA margin of 13.6%, which is an increase of approximately 100 basis points from last year. Fourth quarter adjusted EPS from continuing operations was $1.37, marking a 28% increase compared to the previous year. Please note that during the quarter, GAAP EPS benefited from a $187 million pretax gain associated with the mark-to-market adjustment of our investment in Amentum with no benefit to adjusted EPS.

Additionally, PA Consulting contributed $0.10 of EPS dilution to GAAP EPS from periodic fair value change impacts on our redeemable noncontrolling interest balances, and this impact was added back to adjusted EPS in Q4. We provide a walk-through of our adjusted EPS calculation for continuing operations on Slide 23. Finally, consolidated backlog was up almost 23% year-over-year to $21.8 billion. The trailing 12-month revenue book-to-bill ratio was 1.35x with our gross profit and backlog increasing 12% year-over-year.

As Bob noted earlier, this is an encouraging data point as we look ahead to fiscal '25. The Q4 book-to-bill of 1.67x, though partly a function of higher pass-through revenue is still very positive and helped us end the year on a high note. Moving on to Slide 8, I'll recap fiscal '24 results. Fiscal '24 total gross revenue increased 6% year-over-year, with adjusted net revenue rising 5%. Adjusted EBITDA increased 9% as a function of higher revenue and just over 40 basis points of margin expansion.

Adjusted EPS from continuing operations increased 16% year-on-year. We are pleased to end fiscal '24 in a strong position with solid organic revenue growth, double-digit EPS growth and a backlog that sets us up for continued growth in fiscal '25 and beyond. Regarding the performance of our end markets in the quarter, let's now turn to Slide 9. As Bob noted earlier, we're reporting our business as infrastructure and advanced facilities and PA Consulting, and we will discuss revenue trends in our 3 key end markets.

This should provide helpful context to supplement our overall results. We focus on adjusted net revenue in our discussion as we believe this is a better indicator of business trends as it excludes pass-through revenues. However, we do list gross revenue growth across each end market for your reference. In Water & Environmental, growth was solid, with adjusted net revenue increasing 13% versus the same quarter last year.

Water environmental demand has been strong, and we expect that to continue in fiscal '25 based on our current backlog and pipeline. Encouragingly, demand is being driven by multiple geographies with North America, U.K., Ireland, Australia and New Zealand, all growing double digits in the quarter. Our life sciences and advanced manufacturing end market revenue grew 3% in Q4 with strength partially offset by an unfavorable revenue adjustment related to an EV battery manufacturer customer bankruptcy in Europe. Our outlook for this end market is for Life Sciences to be the primary driver of revenue growth in fiscal '25 as capital investment from our life sciences customers remains robust.

We're also seeing our customer base broaden in semis and the AI data center opportunity is expanding. As we look into fiscal '25 and beyond, we anticipate top line growth in this end market not only from rising industry investment, but also differentiation through our cross-cutting water and energy capabilities. In Critical Infrastructure, adjusted net revenue increased 1% with North America showing steady growth while certain international markets have lagged. We expect to see improvement across critical infrastructure in fiscal '25 with our backlog and pipeline underpinning a strong recovery as transportation project demand is rising.

Putting this all together, we have line of sight to maintaining strong revenue growth in Water and Environmental and increasing our growth rates in life sciences and advanced manufacturing as well as critical infrastructure end markets in the coming year relative to Q4. Now moving on to Slide 10. I will provide a quick overview of our segment financials. We saw strong trends in Q4 for Infrastructure and Advanced Facilities operating profit, which increased 12% year-over-year in total and 12% on a constant currency basis.

In fiscal '24, operating profit increased 9% year-over-year and 9% on a constant currency basis. Infrastructure and Advanced Facilities results were aided by both revenue growth and margin expansion. Moving on to PA Consulting results reflect modest top line growth, but good execution on the bottom line. Q4 operating profit increased 4% year-over-year and fiscal '24 operating profit increased 1%. Growth was slightly negative on a constant currency basis. However, we are encouraged by recent bookings and anticipate that growth will trend higher in fiscal '25.

Moving on to Slide 11, we provide an overview of cash generation and balance sheet data. For fiscal '24, free cash flow from continuing operations was strong at $718 million and enabled us to repurchase $403 million in shares and pay $143 million in cash dividends. We also paid down debt and ended the year with roughly $1.1 billion in net debt, which represented a net leverage ratio of 1.0x on LTM adjusted EBITDA. This is at the low end of our 1.0 to 1.5x target. Our balance sheet strength will enable continued investment in the business as well as returns to shareholders through share repurchases and long-term dividend growth. We currently have $472 million in remaining authorization under our repurchase program and recently declared a dividend of $0.29, a 12% increase year-over-year.

And finally, please turn to Slide 12 for our fiscal '25 outlook. We expect adjusted net revenue to increase mid- to high single digits year-over-year, adjusted EBITDA margin to range from 13.8% to 14%, adjusted EPS to range from $5.80 to $6.20 and reported free cash flow conversion to be more than 100% -- we will have cash outflows related to restructuring of $75 million to $95 million in fiscal '25 with that impact declining through fiscal '25. The midpoint of our guidance range for adjusted EPS would indicate about 14% growth year-over-year and the midpoint of our guidance range for adjusted EBITDA would indicate approximately 15% growth year-over-year, highlighting our strong outlook for business performance this year. We provide relevant assumptions on the right side of the page to help you with your modeling. One item to be mindful of is our projected tax rate of approximately 26%. Our fiscal '25 tax rate is expected to be several points higher than in fiscal '24 and fiscal '23 and is a function of multiple discrete tax benefits in those historical periods that are not expected to recur.

Despite the higher tax rate, we still anticipate strong adjusted EPS growth in fiscal '25. I'd note from a trend perspective, we expect to start fiscal '25 with Q1 revenue, adjusted EBITDA margin and earnings below Q4 of fiscal '24, reflecting typical seasonality. However, as we progress through fiscal '25, we expect to see sequential growth in our financial results through Q4. Overall, we're excited about the future of Jacobs and are entering fiscal '25 in a strong position financially with positive underlying momentum in the business.

With that, I'll turn the call back over to Bob.

[Robert Pragada, executive]

Thank you, Venk. In closing, as a more focused enterprise, we are exceptionally well positioned to capitalize on the momentum in the water and environmental, life sciences and advanced manufacturing and critical infrastructure end markets, and we remain confident in our ability to grow market share and to build the needs of our clients across our business over time.

Operator, we will now open the call for questions.

[Operator]

[Operator Instructions] Your first question comes from Michael Dudas with Vertical Research.

[Michael Dudas, analyst]

Congrats on a very active and successful spin and recap.

[Robert Pragada, executive]

Thank you, Mike.

[Venkatesh Nathamuni, executive]

Thank you, Mike.

[Michael Dudas, analyst]

So impressive stand-alone backlog growth and heading into 2025. Maybe you can talk about the pipeline you see maybe amongst the 3 major end markets growth in pipeline year-over-year? And how much of your 2025 net revenues and EBITDA do you currently have kind of in backlog or insight and what's required to achieve your midpoint year targets? .

[Robert Pragada, executive]

Sure. So Michael, on the first question, pipeline growth has been really, really strong. If you look at the kind of the big verticals, water and environmental up double digits on a pipeline basis. Advanced facilities really driven by Life Sciences. We're seeing double-digit growth in that pipeline. And in critical infrastructure, which is really driven by transportation, we're seeing a nice comeback on the pipeline, specifically in our European to include the U.K. and Australia and New Zealand end markets. Middle East continues to grow too. So if you kind of aggregate those the pipeline looks really, really strong.

On the second, I don't want to go too far on the actual number. But I'd say, historically, we would see a certain percentage of our next fiscal year revenue in backlog. That percentage is a higher percentage this year. Now on a 1.7x book-to-bill. That's not all in 1 year. That's a multiyear booking. But -- the kind of contracted component for FY '25 is a very strong number.

[Michael Dudas, analyst]

That's helpful. My follow-up is, Bob, maybe you can share views from your client base and how Jacob is positioning relative to the election and some of the machinations we're hearing out of the federal government, how that could translate to your [indiscernible] business in the U.S.

[Robert Pragada, executive]

Sure. So maybe 2 parts to that question. We kind of see it overall as a net neutral. If you look at those end markets that we're now as the new Jacobs honed in on, these are jobs that were either tied to some level of state and local element, which are continuing, kind of think water and environmental. And the transportation jobs that we're in the middle of at a national level in the U.S. have got long tails on them, and we still see the pipeline really strong. So infrastructure-wise, we're feeling it's a net neutral. Just as a note, lately been seeing some softness within the federal market. In now our portfolio, about 10% of our business is in that federal market. However, it's -- of that 10%, a majority of that is in DoD and DoD infrastructure, specifically which we see that pipeline continuing on.

Advanced Facilities continued strong, that industrial reshoring, onshoring as well as what's happening in the world of science and technology specifically in the U.S., we're feeling confident about it.

[Operator]

Your next question comes from the line of Steven Fisher with UBS.

[Steven Fisher, analyst]

I'll add my congratulations on the completion of the deals. And thanks for all the color on the growth rates within the segment. It's a pretty wide range of growth rates between water versus the life sciences versus the critical infrastructure, 1,000 basis points or more. It seems like -- and I know you said you expect the slower ones to accelerate. Can you just maybe frame for us kind of how big a gap you're expecting or how much you can close that gap between them? I'm just curious was there that big a gap or a drag from that EV cancellation in the quarter? And was there any sort of weather impact as one of your peers cited.

[Robert Pragada, executive]

Yes. So let me answer the last part, Steve, first, and just kind of breaking down those 3 main areas. And your next question -- your first question, -- it was a gap that EV cancellation. So on the AF or the advanced facilities component, we do see closing that gap, it would have been closed already, but the future looks very bright there and represented by our backlog. Wire environmental, we see continued growth. And on transportation, specifically critical infrastructure, what we're seeing in our pipeline as well as Q1. So to be reported wins in transportation, specifically outside the U.S. is really that gap was outside the U.S. That's already -- we've already seen that in real time. certainty in the budget in the U.K. is giving us confidence there as well as some really strong wins that we've had in Australia and New Zealand coming out. So -- we don't really see that gap being a big one.

[Steven Fisher, analyst]

Okay. That's helpful. And then just a follow-up. How should we think about the progress now on some of the corporate costs that you have embedded in the segment reporting in '25 versus '24. And relative to the restructuring costs, it sounds like that will kind of continue on through the year. Do you think fourth quarter will still have some of that in there or will be done by the time fourth quarter starts.

[Venkatesh Nathamuni, executive]

Yes. Thank you, Steve. So a couple of questions. So 1 on the overall cost structure. As you can tell, we made a pretty significant progress in fiscal '24 in terms of our operating margin and EBITDA margin expansion. And I would say there's still room there in terms of improving the margins over time. And that's why we guided to a 100 basis point increase year-on-year for fiscal '25. And if you look at the various parts of it, clearly, from the standpoint of operational efficiency, we still have room there. We've had a -- we'll have a full year of what you call annualization of operating efficiencies because lot of it happened towards the second half of fiscal '24. You'll see a lot of that manifest in this entirety in fiscal '25. And then overall cost control is something that we are focused on.

And last but not least, we are continuing to improve our mix of our business as well as how we implement these projects from a global connectivity standpoint. So multiple facets to this margin story over time. And then your second question about restructuring. So as you pointed out, we did have restructuring in fiscal '24. Clearly, as you know, we have a commitment to Amentum to continue to do transition services that will last maybe another 2, 3 quarters. So we should see a pretty dramatic decline in our restructuring going from fiscal '24 to fiscal '25, and we quantified it in the range of $75 million to $95 million. Obviously, we'll try to do our best to make sure that, that marks the end of our restructuring in a meaningful way.

Yes. And then the other part of the restructuring is obviously having some ownership of liability with the PA Consulting business as well.

[Operator]

Your next question comes from the line of Andrew Wittmann with Baird.

[Andrew J. Wittmann, analyst]

Great. I guess I wanted to build on an earlier question again and just kind of talk about the backlog as it relates to the outlook. I mean, your backlog is up 22.5% year-over-year, which is great. But your revenue guidance is up mid- to high single digits. That seems like a really wide gap. And so I heard some of the comments about some longer projects. But is there stuff in the backlog that's not moving is some of the backlog, these bigger chunkier bookings like you're doing for maybe advanced technology and life sciences were doing construction management scope. Is that kind of -- does that flow through as lower margin? There's a lot going on there, but I think the discrepancy between the backlog growth and the revenue guidance is worth digging into a little bit deeper. So if you could comment on that, I think, would be helpful.

[Robert Pragada, executive]

Thanks, Andy. So a couple of things. Yes, it is the most significant book-to-bill that we've had probably in the history of the company and really, really proud of that. The life sciences and the water bookings that we've had are large and they're multiyear. And so they're not any -- they're not degradating to margins. These are at and in certain cases, above our kind of corporate margins that we've demonstrated here in the last few quarters. So it's the multiyear component of that, that is driving the revenue guidance and we also gave room on the mid- to high single digits to kind of compensate for the bell shaped curve on a project life cycle, too.

So we're feeling really good. These are some of the largest bookings that we've had, and I think I mentioned in the script in the history of the company, which kind of goes to the testament of our market positioning right now.

[Andrew J. Wittmann, analyst]

Got it. It's kind of a question I want to ask also, I mean, the restructuring, obviously, this was kind of expected. You've got -- you've got the Amentum transition services and all the first year things that go with the spin-off, but Bob, as you look at '26, do you feel like '26 is the year that we get pretty clean results. It sounds like even at the end of this year, it's pretty clean. But I thought maybe I'd have you comment on kind of -- I think it's a part of the question.

[Robert Pragada, executive]

It's a very important question, and thanks for asking it. I'd say second half, you're going to see a significant decay. In '26, short answer yes. Yes, being [indiscernible].

[Operator]

Your next question comes from the line of Sabahat Khan with RBC Capital Markets.

[Sabahat Khan, analyst]

Okay. Great. Just Bob, to your earlier comment around some of the buffer that you've built into the 5% or sort of call the mid- to high single-digit organic growth rate to allow for some of these longer life projects. This seems to be in line with the guidance you provided pre-election. I guess, would you say that range also build in some buffer for maybe administration change or just kind of seeing how things evolve in early part of the year. Just trying to understand how you're thinking about the low end versus the high end given some of the moving pieces, particularly on the U.S. side.

[Robert Pragada, executive]

Yes. Saba, my answer was really was based on our clients' activity. And going back to any type of potential delays that happen as a result of the election those would -- we don't feel like those would pertain to these jobs that are going forward at the state and local level supporting some pretty large events that are happening in Los Angeles and other venues around the world, specifically on the water and transportation side.

And then on the advanced facility side, these are commitments that our clients have made to the end market on some pretty critical therapies that the world needs. So these are tied to global trends that are probably a little segregated from what might happen with regards to churn in the Beltway. So those are 2 separate.

[Venkatesh Nathamuni, executive]

And Saba, if I could add. The range that we provided from our guidance perspective, we try to guide for what we think is the most likely outcome. And obviously, as Bob alluded to, it depends on the profile of the customer burn and so forth. And so that's what's imputed in our guidance, and that's why we provided the range in the mid- to high single digits for revenue growth.

[Sabahat Khan, analyst]

All right. Good. That's helpful. And then maybe just on the market outside of the U.S. as we look at maybe the U.K., the Middle East. It looks like some changing priority in the Middle East, but it sounds like from your commentary, that's going well. Can you maybe just talk about kind of the -- kind of your focus on those regions, what drives you kind of to continue to be exposed there? It looks like there's a lot of dollars there, particularly in Middle East, but a bit of an evolution in how they're going about their development for the next few years? And also if you can just comment on post the recent election in the U.K., how you see the spending priorities reflected in the recent infrastructure or so the recent budget and how they align with what you're doing in that market? I just want to get a bit more perspective on those 2 larger regions for you outside of the U.S.

[Robert Pragada, executive]

Sure, sure. So let me kind of break down the question here. On the 2 geographies, and actually, this comment is going to apply to every single one of our geographies. We are in the locales that we're in to service those local clients. And so just on that element with regard to the U.K. and the Middle East, those are strong markets. And yes, there's -- there are economic ebbs and flows in those markets. But our client base, especially now with our kind of our focused portfolio, these are long-term kind of trends. So any kind of near-term oscillations, if you look at it on the long term, they're solid. And in the U.K., in the Middle East, we're seeing some some nice tailwinds that they're coming about might not be as strong as 10 years ago or before. But compared to recent times, we're seeing some of that come through. .

How do we gauge that? We gave that through our pipeline, and we're seeing our pipeline grow. And so those kind of on that. Water in the U.K. never slowed down. So really, the upside that we're talking about is more honed in on transportation as well as some of our advanced facilities [indiscernible]. But the key is that us staying in those geographies is really more about our talent and that talent ends up addressing both the local market, but also there's some really, really key talent that we have in U.K., Europe, India, Australia and New Zealand that are being deployed around the world. So that talent piece is really, really key in how we think about our global model.

On the elections, we -- again, we don't think that, that is going to to affect what we're talking about as far as the strength in the end market. And so we stand behind the numbers that we put up.

[Operator]

Your next question comes from the line of Andy Kaplowitz with Citi.

[Unknown Analyst]

This is Natalia [indiscernible] on behalf of Andy Kaplowitz. First question that I'd like to ask, in PA Consulting, exit margins reflect continued improvement. As we think about fiscal year '25, do you expect that trend to continue? And then can you provide more color on your visibility towards revenue growth expectations for the segment? You have relatively easier comps and backlog seems to be picking up? Any detail would be helpful.

[Robert Pragada, executive]

Sure. Why don't I answer the first one, and then Venk will address kind of the the confidence in revenue growth coming into the year. As far as the margins go, we continue to see during -- even during the run-up to the election in the U.K. as well as other areas that PA has a presence the margins have stayed true, and the team has done a really good job at continuing to focus in on higher value as well as strength of the offering that they have for their clients.

So -- we don't -- we see that margin profile continuing. Moving forward, Venk, you want to talk about the revenue growth?

[Venkatesh Nathamuni, executive]

Yes, absolutely. So in terms of just revenue growth for the PA Consulting business, we -- we've had good insight into their pipeline, especially over the last several quarters. And we're feeling pretty good about the inflection point in PS business in terms of the growth really coming together in fiscal '25. Now when we provided the high-level guidance for our overall revenue growth to mid- to high single digits, that certainly infuses PA Consulting also providing that the growth acceleration from the prior year. So all of that is taken into account as we give our overall guidance for all of PA Consulting plus Jacobs. And we feel that there is certainly an inflection point in fiscal '25 with regards to the growth from PA Consulting.

[Robert Pragada, executive]

And the and the backlog grew at the same rate as ours did.

[Venkatesh Nathamuni, executive]

That's right.

[Unknown Analyst]

Got it. Helpful. And maybe just one more follow-up question for me. It appears the near-term focus with respect to capital deployment seems to be towards debt paydown and share repurchases. But as you now sit with your new portfolio, are there any areas in your portfolio where potential M&A could sold the gap?

[Venkatesh Nathamuni, executive]

Yes. No, great question. So first of all, and I'd like to reiterate that, as I mentioned in the script, we are committed to returning cash to shareholders in form of buybacks and dividends, and we returned almost 60% of free cash flow in fiscal '24. So we're continuing to commit to a significant portion of our free cash flow being returned to shareholders. On top of it, as you pointed out, we have been paying down debt. We did get about $911 million in amendment and proceeds on day 1 of the transaction, which we then used to pay down debt. And we do still have a 7.5% to 8% retained stake that we hope to monetize in the first half of calendar '25.

And then beyond that, as I look at the capital allocation priorities for us, -- there's a lot of excitement about organic growth opportunities in the business. So #1 priority will continue to be investing in the organic growth of the business. Number two, as I said before, is turning cash to shareholders in form of both dividends and buybacks, and we're committed to that. And then finally, from an M&A perspective, certainly, that is an accelerant for us in the long term. We'll talk a lot more about it during Investor Day, but suffice it to say that we have lots of optionality with the balance sheet position that we have, the significant free cash flow that we generate and our ability to return that to shareholders as well.

[Operator]

Your next question comes from the line of Sangita Jain with KeyBanc.

[Sangita Jain, analyst]

So if I could just take the growth outlook to a higher level. Can you help us understand if you're thinking higher growth internationally versus domestic given the elections? I know we've discussed elections a few times already on this call.

[Robert Pragada, executive]

No, Sangita that's the way it came across that wasn't the case. We had some flattening growth outside the U.S. in our infrastructure end markets. We were talking about that inflecting forward. Within the U.S., those numbers have been positive for the last fiscal year.

[Sangita Jain, analyst]

And how about your outlook for the upcoming year? Do you think the U.S. will still grow faster? Or how do you see it.

[Robert Pragada, executive]

We do. We do. And we're seeing that in our pipeline right now growing as well as as well as our book-to-bill and the double-digit growth that we've had in backlog.

[Sangita Jain, analyst]

Okay. Then if I can follow up on your talent pool. Let's just say -- we don't really know the policy priorities of the new administration yet, et cetera. But let's just say public spending in the U.S. does slow down. How fungible is your talent pool should you have to reallocate resources?

[Robert Pragada, executive]

Yes. I don't know if I would use the word fungible, but they're very deployable and work on work all over the world, both in the U.S., outside the U.S. and from outside the U.S. in it's really important to understand the mix of our people in the U.S. and outside the U.S. does not map to our U.S. versus non-U.S. revenue stream. And so that is a very balanced look on how we utilize our people around the world. .

[Operator]

Your next question comes from the line of Chad Dillard with Bernstein. .

[Charles Albert Dillard, analyst]

So my question is on the algorithm for adjusted operating margins for the Infrastructure and Defense Facilities business. So I guess, like maybe you can break it out in 2 ways. So first of all, I'm just trying to figure out the 3 subsegments, like it sounds like the water business is going fast through life sciences business is growing faster. To an extent is that accretive to margins? And then, I guess, on the second part, you guys talked about cost savings. Like how do you think about like the year-on-year boosting margins from that? .

[Robert Pragada, executive]

Yes, Chad, thanks for those questions. So I'd say the first on the end markets, the way we model our business is to obviously go after the best opportunities that we have across these different end markets and continue to focus on top line growth, but also in a way that optimizes margin so that it meets our corporate average, right? So in any given quarter, any given in the first half or second half of the year, we can certainly have ups and downs with regards to the margin profile. But what we try to optimize for is the good balance between continued revenue growth as well as gross margins and operating margins improving over time. And that's what we have quantified in terms of our expectation for fiscal '25.

So I wouldn't say one business is any different from another from the standpoint of the optimization. But certainly, we want to continue to focus on profitable revenue growth, such that both our revenue as well as margins expand over time. So that's the move on. And then going to your second question about cost savings. As I alluded to in response to a previous question, we have made significant strides in terms of improving the operating efficiency but you had just 6 months of that take effect in fiscal '24. So we'll have the annualization of operating efficiencies, take full effect in fiscal '25, and that's part of the margin expansion story for us. but it's not just that.

In addition to it, as I mentioned before, we are optimizing our go-to-market. We're optimizing our global connectivity and so forth. So we do see a multiyear trend in terms of focusing on improving our profitability over time, not just on the cost side, but certainly from a business mix standpoint as well as from an efficiency standpoint.

[Charles Albert Dillard, analyst]

Great. That's helpful. And then the second question has to do with your revenue guidance for the full year, that mid- to to high single digits. So I guess, to get to that higher end of that range, like what needs to go right, either from like a geographic standpoint or from a macro standpoint? Like what do you need to see there?

[Robert Pragada, executive]

It would be if the -- if we see an acceleration in the jobs we're on, that heavy, heavy focus now from the backlog growth coming from our water as well as life sciences sector. is those could be accelerated and we could find ourselves on the higher end of that range. So we're watching that very closely. .

[Operator]

Your final question comes from the line of Jerry Revich with Goldman Sachs.

[Jerry Revich, analyst]

Congratulations. Can I ask for the legacy people and places business? You folks have delivered steady margin expansion. You're now running scope margins in the low teens as you think about the margin upside that you discussed over the course of this call, what do you think is a reasonable target or bogey where you can drive that business over time? Are we talking about tens of basis points improvement? Or are the initiatives that you spoke about earlier, can we see a more significant margin upside in that line of business?

[Robert Pragada, executive]

Yes, Jerry, thank you for the question. And yes, certainly, we feel good about the margin expansion for fiscal '25 that I alluded to both in the prepared remarks as well as in response to a couple of questions. And as we look ahead beyond fiscal '25, certainly, we'll provide you a lot more clarity when it comes to Investor Day, not just in terms of our revenue growth and end market mix as well, but also in terms of capital allocation and margin expansion story. So suffice it to say that we do feel good about our margin expansion in fiscal '25. And beyond that, we'll cover in more detail.

[Jerry Revich, analyst]

Okay. And let me ask you -- I know it's early -- very early post momentum, but obviously, the business leaders have been focused on the new Jacobs for quite some time now over a year. Can you just talk about at the operating level, what kind of difference in performance that you're seeing or any developments that are notable as a result of the change in focus or the more narrow change in focus so far?

[Robert Pragada, executive]

Yes. Jerry, it's a great question. I'd say that -- the operating model is in focal effect. Right now, you're right. We got out ahead of that during the course of the year. I think the biggest change has been getting back to where we came from, where we were externally focused on our clients' business. And that has really come to the core of how we think about the world and instead of being internally focused on some of the transactions that we were doing, whether they'd be over the course of the last couple of years or leading up to this quarter. So that's been the real change understanding our clients' business, and we're seeing it in our sales performance in Q3 and Q4 of last year.

So we're excited because those actions and those behaviors are turning into a 22% backlog growth and a 1.67 book-to-bill. And that's kind of -- that's -- the proof is in the numbers. So we're excited.

[Operator]

And I will now turn the conference back over to Bob Pragada for closing remarks.

[Robert Pragada, executive]

Well, thank you, everyone, for joining our call. I look forward to providing further updates and visiting with investors and analysts in the coming weeks and months. Thank you very much.

[Operator]

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.