Jacobs Solutions Inc. (J) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to today's Jacobs Water Solutions conference call. I will now turn the call over to Jamie Cook. Please go ahead.

Thank you, operator, and thank you all for joining us on this call this afternoon with Crédit Suisse and Jacobs. My name is Jamie Cook, and I'm the U.S. Machinery and Engineering And Construction analyst at Crédit Suisse. I would also like to thank Jacobs for being with us today. I'm very pleased to introduce Jacobs' management team, including Bob Pragada, President and Chief Operating Officer; Tom Price, Senior Vice President of Solutions and Technology for People & Places Solutions; Peter Nicol, Global Vice President of Water Practice; as well as Jon Doros, Vice President of Investor Relations. As most of you appreciate, as a company, Jacobs has embarked on an incredible transformation over the past several years. The goal of today's call is to do a deeper dive into Jacobs Water Solutions business which, in our view, a critical driver of Jacobs' continued transformation, which is why we think today's call is important. Just in terms of format, Jacobs' management team has been kind enough to prepare a slide deck focused on the Water Solutions business specifically. This should be in your inbox. And if it's not, it's also posted on Jacobs' website. Jacobs will walk us through the slides with some prepared remarks, after which the operator will hand it back over to me, and I will lead the Q&A discussion. And just a reminder, if anyone has a question, please email me, and I will do my best to get the question answered for you. With that, let's get started. Bob, I will virtually hand the mic over to you to kick it off, and thanks again for being with us today.

All right. Thank you, Jamie, and thank you, everyone, for dialing in. I'll just dive in with a couple of overall comments with regard to our entire company, and then break it down to the line of business where our water practice resides. Overall, Jacobs, as Jamie said, we've been on a transformational journey here for 4-plus years. And today, we've got a business centered around delivering technical solutions which effectively run the world. Headline figures, you can see them on the page, strong global presence with a public-private mix of about 73%, 27%. And in a commercial risk profile that's relatively low. Of that global presence, you see it's heavily weighted towards the Western hemisphere and more specifically in the U.S. From a trailing 12-month standpoint, about $11 billion in net revenue with a really strong backlog as we go into the forward quarters. Today, our conversation is really going to be focused around what you see on the bottom left-hand corner of Slide 3, and it's our real focus on our portfolio mix as well as what we call technology-enabled delivery. We're organized into 2 lines of businesses. Our People & Places Solutions business and our Critical Mission Solutions business. Our People & Places business, which I'll talk a little bit more on the next slide, is really geared towards the infrastructure and the built environment. And then our other part of our business, our Critical Mission Solutions business, is heavily centered in mission operations focused in on the aerospace and the defense world. So turning to Slide 4, a little bit more focused on our People & Places Solutions business. And we really feel like we've got a unique ability to have a competitive advantage as well as have sustained long-term growth in the way we've organized our portfolio, as well as our real focus on solutions. If you look at our strategy that we released actually 4 years ago and kind of fine-tuned it 2 years ago, that focus is around the connected components of our platform, focused in on our market sectors that we've got a high level of confidence are in growth mode. The balance is right there on the net revenues by sector. You see a kind of a balanced portfolio by transportation, both environment, water, advanced facilities and environmental. And then if you see kind of where we see those markets going here, especially in today's environment, with COVID and post-COVID, we're feeling pretty optimistic that these are markets that are going to be, not only near-term recipients, but also long-term growth opportunities as well. So to get into what's unique about Jacobs. It really is our ability to drive solutions and technology through all of our services and uniquely differentiate ourselves to support the infrastructure in the built environment world around water. So with that -- water transportation in all of our end markets. So with that, I'll turn it over to Tom Price, who'll kind of talk about how that solutions and technology effort is organized. Tom?

Great. Thanks, Bob. So I am on Slide 5, S&T, Stewards Our Technical Experts; Provides Global Connectivity & Delivery Excellence Across All Markets. So really S&T is a key competitive advantage for us at Jacobs. We've got a global structure that's built around our key technical expertise and People & Places Solutions that drives our strategy, our strategic pillars around global markets and digital connectivity. And what that connectivity gives us is it leads to the development of creative and innovative solutions for our clients because we share best practices around the globe and can deploy our technical talent anywhere. What's really unique about S&T also is it provides a formal technical career path for our staff, all the way from a new college grad level to a senior VP level, which we find as a key to attracting and retaining the best technical talent in the industry. As you can see on the slide, our structure is built around the end markets that align to our P&PS strategy along with solutions across all markets. And it's important to note that while digital isn't a true end market in and of itself, we've elected to set it up at the same level as our true end markets to ensure it gets the highest level of focus, attention, [indiscernible] digital acceleration and connectivity are keys to our strategy. In the white text there below, the graphics, you can see our solutions areas, which you could also consider as our practice areas that are most important to our clients around the globe. And then we have technologies, which, in that context, the word technologies here is really a sub practice below each solutions area. I'll show you what that looks like for water here in a minute. This structure has leaders that have a global [ agreement ] and others that have a local [ agreement ]. And that allows us to connect globally and look at global trends while really getting close to our clients in local markets. There isn't another professional services company with this level of deep expertise across multiple markets and then also has such a strong digital expertise. This Jacobs' S&T model was developed based on CH2M's practices model, which started in our water business and really took decades to develop and mature. And this long-tenured practices base model of how we attack the water market is what makes us #1 in the industry. It's really so important to what we do at Jacobs that when Peter Nicol and I joined Jacobs, Peter having been the Water Business Group President and me, who had been the Americas operations director, we were asked by Bob to take on global leadership roles to create S&T, and we were really excited to do that because we know the power of how it differentiates us. So let's move to Slide 6. We'll take a little bit deeper dive into what S&T looks like for the water market. So this is the water market leadership team that's under Peter's leadership as the Global Market Director. And you can see the solutions that are now at the next level of detail, which is the technologies, are getting the sub practices. And they work together under Peter's leadership to collaborate, understand, adapt to evolving industry trends, both global and -- globally and locally to develop solutions, address clients' challenges and really leverage our technical capabilities across our global platform. And then having to focus also at this lower level of the specific technical areas allows the teams to develop deep technical expertise in their area and provide thought leadership internally and externally. And then at the bottom of the table there, you see communities of practice. And what that is, think of it as another level of expertise, maybe more narrow, but much deeper in our technical expertise. And those communities of practice are global and we connect folks wherever they sit. And it's not just the practitioners, it's folks from other markets, could be folks from sales, any part of the business who joined those communities of practice to learn more about those areas of technical expertise. Next slide, Slide 7, Other Solutions and Technology Services Delivered to Jacobs Water Clients. So as I said earlier, our customers' challenges require deep expertise from multiple technical. And it's a trend we see accelerating, whereby more of our large projects involve multiple end markets. And as a result of all that, our S&T team collaborates across markets and solutions regularly to develop those innovative solutions for our clients. And in many instances, we see our competition struggling to solve these cross-market solutions, but at Jacobs, it's really just what we do. And here on the slide, you can see a few examples of the kinds of regular collaboration we're talking about within the water team. First, you can see environmental listed. So our water market team partners with environmental and really the other markets too, in many areas to address PFAS issues. And we've been doing that for over a decade. A great example of that is our current work for Orange County Water District, where we're helping the district explore long-term solutions to meet some really stringent requirements in California and PFAS. Our strategic consulting group, which is one of those cross-market solutions, it works with all the markets, works with water on things like asset management, commissioning and energy efficiency, also with a heavy focus on our operations and maintenance business, where we're actually out running facilities. Our tunneling and ground engineering team is a key contributor to our water solutions and really operates as an extension of this team as well as our transportation team. Digital is what we do, it's key to our strategy. We have -- now the next strategy that we started when the pandemic hit and it really looks at how COVID resulted in a need for reimagining solutions, both today and in a post-COVID world. And digital acceleration is jumping out as an even more important element of our strategy. And our digital team works regularly with our water team in many areas, some of which -- some of the Digital Twins that Peter is going to talk more about, all things Geospatial and Digital Delivery, which includes BIM modeling, automated design, AR, VR, et cetera. The last example here with built environment really talks about how our water and built environment team have been partnering and coming out of our now-to-next strategy, which really highlighted the need for evaluation of buildings that have been shut down for some time, looking at water and air supplies to make sure they're safe as these buildings start to reopen. So we've got built environment and water experts working together and partnering with our clients to provide evaluations and solutions in those areas. So that's just a few of the examples. So with that, that's a quick overview of S&T, and I'll turn it over to Peter for a deeper dive into the water market. Peter?

Thanks, Tom. Moving on to Slide 8. The left side of Slide 8 is the global water market. So if you look at it, the world overall, water consumption by use, about 70% agricultural, about 19% industrial and about 11% municipal. But developed countries, which is really where the majority of our business is focused, is a little different mix. And it's about 40% industrial, about 19% -- 15% municipal, sorry and then the rest industrial. And then if you look at utility spend, it's -- how does a utility spend their monies. It's a mix between their capital program and their operating program, the equipment that they do and then the chemical, which is typically a flow through. The right-hand slide is how we sort of slice and dice the world from an addressable market perspective. We look at the global water market as between $600 billion and $700 billion a year. Of that, it works out to be about $250 billion to $300 billion of that's capital. So that's what we're focused on from some of our design, consulting efforts and that kind of thing. And then O&M. On the operations and maintenance side, about $350 billion to $400 billion a year. And then we have countries that we're better positioned in, we have services that probably better meet with what their needs are. And so we have target countries. So the slice for us for the -- of the addressable market of that $700 billion a year, we look at it at between $80 billion and $90 billion a year that we're sort of focused on from a capital perspective. As Bob talked about earlier, the water business is similar to the other businesses within Jacobs. We have a sort of heavy Americas focus with large U.S. platform. And then outside the U.S. is something that continues to grow, and we're continuing to focus on that growth. So we'll move on to Slide 9. Some of the market drivers. Certainly, we have all the traditional drivers, water scarcity, population growth, urbanization, aging infrastructure, aging workforce and the succession of workers, trying to attract new workers into the water and wastewater market. Certain recent and emerging regulations, those are changing all the time across the world. The water energy and food nexus, certainly water is a big part of energy production, and we can't have food without water. And then one of the things we certainly have is that our water practice covers the complete water cycle. When we look at water, it's water, it's wastewater, it's water resources, it's resiliency, it's reuse. We're really looking at all of the elements of the water cycle with respect to that. Now there are a number of accelerators. Certainly, we continue to see climate change and the impact of induced extreme weather events. A number of our clients have been dealing with droughts, other have been dealing with floods. And what we typically see is you either have too much or too little or not in the right place. And so how do we work with them to try to overcome that and solve the challenges that they're facing. And then at the same time, through COVID-19, how do we support them, today virtually, but in the future as they deal with the impact of COVID-19. Some of them have taken revenue hits. How are we going to help them replan and reprioritize their businesses, business continuity. And then some of them will be looking at possibly green solutions or other ways to manage their programs going forward. So how do we do this? Moving on to Slide 10. Certainly, we've got a great team of over 6,000 staff that focus on the water business in all our geographies around the world. But we also have a number of proprietary IT activities, innovations that we've developed over the years, and we continue to invest in and develop under Jacobs as we move forward. Our Replica platform, this is really -- we talked about Digital Twins earlier in the presentation, Replica is our Digital Twins platform. It's really a digital replica of the physical assets, processes and systems that we can really use as a predictive tool, we can use as a training tool, we can really work with clients for them to understand what might happen in their system in what event. And this is something that we've continued to work with our clients. We've packaged a number of other pieces to that. We have a whole plant simulator for performing complete wastewater treatment plant simulations, both process selection and design. We have a parametric design element in that, that allows us to continue to update detailed construction life cycle cost estimates, environmental impact estimates, design criteria, and then we can also do 3D renderings. So just to better illustrate to the stakeholders and the general public, what we're trying to convey. And then we also have decision support tool embedded in that, that simulates the dynamic behavior of, say, water resources. You have a flood event or something. What's going to happen with respect to that. We also have AquaDNA, which is something that we're in the development stages of. We haven't really released it widely yet. We're positioned with a couple of clients, and we're working on that, but it's a system that we've put in place to anybody that's been following, certainly through the COVID side of things. Flushable wipes really [ aren't ] flushable. And there's been a lot of pluggages in pump stations and conveyance systems and stuff like that. This is something that actually works with the pumps in a way that we can sense what's going on from an electrical drop perspective and then work to sort of work through that and hopefully, clear those so that we don't have a breakdown, and we don't have to go in and do a big cleanup or something like that. Our AI confidential solution is something that we call [ AI Score ]. And it's something that we're developing with another third-party vendor that we're working on. And it's really focused on automated sewer condition assessments. Right now, there is closed circuit television inspections that are done on piping systems around the world today, to sort of get a feel for what's the condition of the piping that's out there. We're trying to develop an algorithm, and we're working along with that to make it smarter every day so that we can replace the -- and enhance the human engagement, so that we can do it quicker and more efficiently and the other thing is more accurately than maybe the human eye can as we evaluate that. And then one we didn't highlight here today, which I'd like to just bring to the forefront is flood modeler, something that we began development and released early in 1975. We've got clients in 150 countries that use Flood Modeller. We have about 25,000 registered users of the Flood Modeller program and all the other pieces to it. We have Flood Modeller and Flood Modeller Pro. We have Flood Modeller Standard so that -- different people have different abilities to pay into the program and we can work with, certainly, education establishments and that kind of thing to help them as they're doing flood modeling and a variety of other things. So it's just another one that we've got out there that we've continued to work on, and we have about 50-plus developers and support specialists that they're spread across our organization today that continually support the development of that program as we work with our clients. One of the other things, one of the highlights today, let's move on to Slide 11. Certainly, there's been a lot of talk about COVID-19 and is it -- can it be sensed, is there any kind of early warning? And can you find it in wastewater treatment? And so is it in the wastewater that's coming to the plants? We decided that we wanted to really look at that also. And so to better understand it, we got together with a number of our solutions and technology teams, our digital solutions, our water and operations management team, and we launched a program to monitor wastewater streams at a number of locations where we operate plants. And we operate about 250 water and wastewater plants. So about a 100 of those are wastewater. And so at about 70 locations in the U.S. We're actually doing sampling on a weekly basis, and we're partnered with Arizona State University, where we're doing testing, PCR testing, to determine the RNA, DNA fragments of COVID that may be present. But the magic, I think, will be as we take our understanding of their systems, and go up in the systems and look for locations that might give an early warning or an advanced indication that there could be a problem in a community and working with health officials and all of the various health bodies in a variety of these communities, give them maybe more of an early warning system, should there be a second repeat wave of COVID in the future, or in turn, some other viral impact as we go forward. So I wanted to highlight a couple of facilities and recent things that we've done, just to give a breadth of what our operations, certainly, our operations and management. We recently secured a 20-year agreement with the city of Wilmington, and it's something that we're quite proud of. This is one that we actually won during the COVID shutdown, and we were able to do the transition in leadership. And it really was seamless working with the existing supplier that was in place, and then certainly looking to implement our team and put our leadership in place and we continue to move forward with that. One of the others on the operations and management side of things is a wastewater utility for the city of Vancouver, Washington. Certainly, our history of engineering services with the city of Vancouver helped us unseat an incumbent that had been there for 37 years, and we secured a 10-year partnership and did that about a year ago. We're working with the city and their 2 wastewater treatment plants and 8 pump stations. In addition to that, we're also providing advanced asset management, predictive maintenance and upgrading the city's SCADA system. Moving on to Slide 14, the Northeast Water Purification Plant. Very proud of this job. It's one of the largest progressive design builds of its kind in North America, 320 mgd. But progressive design-build is where we actually work with the client and our contracting partners and our design partners to actually develop the early stages of the design with the client and price it and then work with the client on whether or not they want us to continue on with the construction phase of that. And so we've moved forward into the construction phase of this program. A number of treatment challenges that we faced here included variable well water quality, small facility footprint to minimize cost and construction time. We also had procurement and subcontracting approach to achieve lower construction costs. We certainly had informed bid packages and everything was transparent and competitive bid process is really sort of open book as we worked with the client on this. It is a phased design-build approach, and it allows the project to be implemented in all phases. And it could be adapted as you price various things to meet the funding and budget requirements that the client faces at any time. Tuas Water Reclamation Plant is a facility that we have under instruction in Singapore. We've been working on it for the last number of years. It's the largest membrane bioreactor facility in the world. This is Slide 15. Total average treatment shown here is 800,000 cubic meters per day, that's about 220 million gallons per day in U.S. units. The footprint is about 30% smaller than might be considered for a conventional plant. We had a very small plant site. And so we had to come up with some innovative ways to lay it out and deliver that. One of the unique things here is we have separate industrial and domestic used water streams. So we have 2 different feed lines into the facility, separate industrial feed into it, separate domestic feed and then they're lifted 300 feet to the treatment plant. So they come through a deep tunnel system. And then it's lifted up and then it flows through the plant. The outcome from this plant -- the output, is the fact that we're going to manufacture industrial water, but we're also going to manufacture NEWater, which is Singapore's brand name for their reuse water. And so it's -- certainly, as Singapore looks at what they call their 4 taps, this continues to support their reuse tap, which is one of their feeds for domestic water in the island of Singapore. The treatment processes were certainly selected to minimize energy consumption and sludge production and maximize biogas production so that we could generate electricity. And the other interesting thing on this plant site is it's co-located with an integrated waste management facility, which they wanted to put together this Tuas Nexus so they could share energy back and forth and see how could they improve their overall footprint with respect to this. So I'll turn this back over to Bob for a summary and wrap up, and then we'll get to questions. Bob?

All right. Peter, thank you. And so as you can tell, we've got a lot of pride in our business. And that comes from over 7 decades of holding a leadership position in the world as we solve the world's most critical water needs. And so how do we do that? What's different about us? Hopefully, you got to some of those major themes that have come across in this. But if I were to summarize them into a single theme, it really revolves around, we do have a full-service offering with a great depth of talent. However, how we utilize that talent is really not a laundry list of services. The strength and the differentiator comes from having global solutions, which we use our connected enterprise to deliver strong, strong local solutions with our local teams. And that's really the kind of the secret sauce of Jacobs and what we've spent quite a bit of time really fine-tuning and honing in on over the course of the last couple of years. Talent continues to be a challenge, but also a great opportunity because when you've got a market leadership position and you're delivering really unique technology-enabled solutions to our clients, it serves as a great recruiting tool, too. So we're proud of our business. Thank you again for calling in. Looking forward to the questions. So I'll hand it over -- back over to Jamie.

That was very helpful. And I guess just because you sort of ended with how you differentiate. And I think in your prepared remarks, you said something like your competitors struggle with sort of cross-market solutions. So if you could just help us understand who your -- who do you think your closest competitor is in the water business? How you sort of differentiate relative to your competitors? And then, I guess, 2, it sounds like technology and digital is pretty important with regards to your water business. I'm just wondering for that reason, should we think about this as a more profitable or higher growth business sort of relative to the other markets that Jacobs serves?

So Tom, why don't you take that one?

Yes. Okay. So Jamie, there was a lot to that. Specifically, where we look at competitors, there's -- most of the big consulting firms in the U.S. have some level of services they'll provide in water. We think when you look at what we do, it's not as comprehensive as us, but you've got folks like Brown and Caldwell, Black & Veatch, Carollo, HDR, Hazen and Sawyer that do parts of the consulting piece in water. Arcadis plays in that space, a little bit in the U.S., more outside the U.S. But then you get, for us, because we do the consulting, the design, the construction, the operations, you get a different set of competitors in each of those phases because we're really the only company that can do that all -- to all of those phases of services for a project. So what you really find is that's also a differentiator of ours is that while clients, owners may need to look at different companies for different parts of their projects, where they may get some big teams forming for some of the projects that might combine a design element, a construction element and an operations element. They can come to Jacobs and know that we understand all of that and can do all of that work in-house. So we think that's also a competitive advantage for us. So sorry, give me part 2 of that question?

I was just trying to understand the -- how you think about for the water business, the growth in this market relative to the other parts of the business? And then because you're using a lot of technology and digital solutions, or it sounds like the trend is going more so in that direction, should we think about the water business is a more profitable business relative to some of the other markets that you serve?

Got it. Thanks. It's been an interesting [Audio Gap] going through this pandemic, I always said that the water business is very steady relative to some of the other markets. Oftentimes projects take time to plan and implement, which results in a pretty predictable market size and then how you differentiate and that drives it above and beyond growth. But during COVID, what's been really interesting with sort of proof of how resilient the water market is and our water portfolio is, we've actually been able to grow, I know it's relatively short term, but we've seen some increase in contract size, potential opportunities in the pipeline and backlog during COVID because while, say, the transportation industry may get some restrictions with shelter in place, people still need to be able to go turn on the tap and get water and flush it. So you got to have operations, you got to have projects, you got to fix issues with each infrastructure and all of those things. So it's really, really resilient, and we're seeing a lot of -- what digital is doing for us is -- where pre-COVID, a lot of our clients were finding challenges. Like Bob talked about with getting talent to deliver projects, to operate facilities, et cetera. So by bringing in digital technology and automation to look at some of those needs, those tasks, especially those that are repetitive, we're finding a new way to help our clients with their challenges rather than just staff up. So there's that. And then as Peter talked about, the AI solution. Looking at some very time consuming, repetitive tasks that maybe have some level of potential human error in them and automating those tasks using artificial intelligence, we're not only able to get our clients' challenges addressed more quickly but also, frankly, in a higher quality way. And all of that, to the final part of that question, allows us to value price those services and generate higher margins while we're delivering those to our clients.

Okay. And just building on that, as we're talking about some of these digital solutions and proprietary technologies. Can you talk about across each technology, sort of where we are in the adoption rate with your customers? And then when you think about some of these technologies that you talked about, do your competitors have similar technologies and they're just sort of branded differently? Or are these truly unique technologies that your peers can't replicate for your customers?

Yes. Peter, do you want to take that one on?

Sure, Bob. And thanks for that one, Jamie. Certainly, when we look at the proprietary technologies and some of the things that we've developed, a lot of it is the time invested in the years of development that we put into that. And then the client connections that have worked with us to refine those going forward. And a lot of the equipment vendors have pieces of a variety of those things and very good pieces in a lot of cases. And when it makes sense, we'll use their technologies and when they just don't fill the overall need for us, and we need a little different solution as part of the package, we would put in something that is something that we've generated or that we've partnered with them to deliver. A number of our competitors, certainly in the consulting space, are developing and implementing things like Digital Twins. And -- but they don't necessarily have the same depth of services that we've built into the suite that we're doing, and they may not do it across the same breadth of the water market. So they'll pick niches that they're very good at, and they're certainly strong competitors to us in that area. But at the same time, we think that ours provides value to the clients. We think that we continue to invest and develop those products. And so they're only getting better. And it continues to stay ahead with respect to that. But all of this requires a continuous investment, which Jacobs continues to support. And I think by doing that, we continue to stay at the forefront. We were recently recognized as digital water company of the year. And that's on the advancements that we continue to build, and we continue to invest in, in trying to make that service integrated with everything else that we're doing. What we've seen is that the market is definitely going digital. All of the technologies are becoming more digitally enabled. And as a solutions integrator, I mean, we're trying to bring the best to meet our clients' needs, and it's a mix of proprietary technologies from others, open source technologies from some. And then some of the services where we think we've got a better solution, we'll plug-and-play our stuff.

And just to dig deeper on that, is there any way to quantify? Or is it too difficult to help us understand like where we are in adoption with digital for this business? And like where it could potentially be sort of 5 years from now? And I just want to make sure I'm not -- I heard you correctly, it almost sounds like COVID-19 is sort of accelerating the push to digital, is that the right way to think about it?

That is absolutely the right way to think about it. I would suggest that we were in the early stages of digital adoption globally and clients that had moved down that path on the transition to remote monitoring and remote working, dealing COVID much easier. And they've certainly acknowledged that as they've had to deal with the last 3 months. And the impact that it's had on their businesses and on their staff and on the clients and stakeholders that they deal with. What we have seen is a lot of interest in how do they become more digitally enabled going forward. And so I think the next 5 years is going to be very busy for the marketplace. And we believe that we're well positioned to certainly take our fair share or more of that as we work with clients to implement some of the solutions that they'll be looking for to better be able to understand their systems, be able to operate them from our remote locations and help particularly in the near-term with social distancing so that they don't necessarily have to have a lot of bodies in the room to do things that they can do a lot of it through data management, computerization and remote support and monitoring of their systems.

Okay. Great. And now the idea of questions sort of on end market drivers, but just one more in terms of like digital adoption. I understand you're more U.S.-centric, but your business is a global business. Are there certain parts of the world that are more advanced in terms of digital adoption, different geographies, more so than not?

Peter, go ahead.

Okay. There's -- everybody watches and leapfrogs each other, I would suggest. Certainly, there are parts of the U.S. that are very advanced with respect to it. There are parts of the U.K. that -- continuing to do that, a number of the U.K. water companies, a company like Anglian Water, United Utilities, Thames Water. I mean, they all have digital advancements that they're doing. There's a number of Australian water companies that have a number of digital advancements. Certainly, Singapore PV is looking at a number of digital advancements. But then when we look at a number of our U.S. clients, it's the same thing. Certainly, clients in the West U.S. are quite active, in the Southeast U.S., in Texas. And I guess a lot of it is really driven by extreme events that they may have experienced. So if there's been large flooding events or there's been large drought events or there's been other challenges that they've had to deal with and it's truly impacted their systems. They found the need to figure out how do they deploy their staff differently, how do they leverage the technologies that are out there, how do they partner with the various digital suppliers, companies like the [ Avocet ], the Xylem, that kind of thing that are all out there and key parts of what we do. How do they bring their technologies to the foray and try to help them do their jobs easier.

Okay. And then I guess, just ending on sort of Jacobs' portfolio, I mean, are there any holes in your portfolio today? Or are there any opportunities, inorganic opportunities, I guess, that could fill those potential holes? Or will most of the investment be organic?

Yes. So Jamie, I think when we look at our portfolio overall, we're pretty content with it. I would say, inorganically, maybe 2 areas is to look a bit on certain geographies where our platform might be a little light, and we see opportunities for growth. Probably the bigger inorganic focus would be, and this isn't in the near-term here, but would be around increasing that consultancy and the technology piece. Consultative services around technology that we could apply to our end markets. But overall, these would be tuck-ins and more niche rather than broader.

Okay, great. And just another question. We get this question a lot, just given concerns on sort of state and local budgets, what risk, as they come under pressure, what risk do you think that creates to Jacobs' water business over time? And are there any -- can you talk about sort of the funding source that how these projects are being funded? And are there any sort of new alternative or creative funding sources for water infrastructure going forward?

Yes, why don't I -- I'll start off and then I'll hand it over to Peter. So when we look at the U.S. state and local budgets -- I'm assuming, Jamie, that the question was more centered around the U.S. or was that broader?

Yes. It was more centered around the U.S. and concerns is their budgets are under pressure, so will the likelihood of water projects moving forward that would deteriorate as well.

Sure, sure. I'll hang on a comment that Tom made earlier. What we have seen is a bit of resiliency in the sustaining element of those budgets, just -- but at the same time, without big spikes. So if there was a huge stimulus, or there was some resurgence that was injected into the economy for jobs as well as all the other drivers, it would probably be a little bit more dampened. But at the same time, it's dampened on the softening as well. So call it more steady state, with opportunities for growth coming from technology enhancements and gaining greater efficiencies. As far as funding sources, Peter, do you want to address that one?

Sure. And just before I do, I'm going to just do a quick around the world tour because as we come out of COVID, most of the stimulus packages outside the U.S. have a large water component to it because they, obviously, water is an essential service, there has been a revenue hit, just because of the fact that there's been a bunch of businesses that haven't been operating for the last 3 months that are large water users. But as those water users come back online, we certainly think that, that's going to kick back in gear. But to stimulate it, certainly, the U.K., Canada, Australia, Middle East, Singapore, New Zealand, all of them have water as a component of their stimulus and actively being spoken about in the U.S., but then there's a number of other programs such as WIFIA, the Water Infrastructure Finance and Innovation Act that continues to fund a number of things. So we think in the U.S. context, yes, there is a short-term impact, which creates both opportunity and challenges. So the opportunity is that as clients step back and they sort of look at business continuity and a reprioritization and a variety of other things. I mean, we've got some deep client relations where we think that those are resources that we can really partner with them to help them refocus and recast what their future might be. And so we don't see the jobs going away. We would see them maybe as some of them might be at a little different pace, and because they still need to be done. There's still a shortage of investment in U.S. infrastructure on the water side that we need to continue to have to move forward. The organization, such as NACWA and AWWA and the -- all the various water agencies are all actively illustrating -- writing reports around where we need to invest and ideas on how to invest. We think clients might also look at partnering differently, where they may not have considered alternative contracting relationships in the past. They might look to outsourcing or partnering for operational assistance and support. They might look to design build, design [ the lot ], progressive design builds as different ways of delivering their services just to make sure they keep things going and that they can leverage their staff in a way that allows them to meet their own staffing challenges with respect to that. So it's a blend of all of the above. Certainly, much more extreme than maybe what we saw in 2008, just because everything has shut down for 3 months as opposed to sort of a reset when we had the financial impacts. We just see that there's continued interest from the clients. There's continued draw on the services that they're looking to the water community to support. And we think that with -- how they've managed their own revenues and their own affairs going forward that they might dip into some of their accounts where they had reserve funds and a variety of other things, but they'll continue to look at water as something that helps restimulate the economy coming out of this and that we will see an investment that will allow water to maybe take a bit of a short-term dip, but we certainly don't think it's something that's going to be sustained for any period of time.

Okay. And then is there any important relevant regulation coming up that we should be aware of that's being -- that's new that we should be aware of and look out for that could be a potential catalyst. And then I think this business is within your environmental group, based on what you said earlier, but could you sort of speak to, obviously, the PFAS opportunity for Jacobs? What's your sort of -- how do you define your addressable market here? And what the opportunity is for Jacobs over the longer term?

Yes, why don't I -- I'll address that one. Look, we think that the PFAS opportunity clearly is -- we've got it segregated into our environmental solution, but it's a solution, as Tom talked about, that cross cuts across water. And in fact, it's heavily dominated by water as well. So we do think that that's a real opportunity. And of the regulations that could have the most prominent effect on the portfolio, it would be that. The regulation is already there. It's just funding sources and the opportunity to get super fund funding. I'd say right now until that happened, and those compounds being line item identified, it's more -- it's going to probably be more in a consultative type support weighed with incremental growth opportunities. Once those types of funding vehicles are opened up, then the opportunity gets a lot larger. Timing-wise, Jamie, I think that's still -- we'd probably be premature in trying to highlight what expectations are around timing.

Okay. And then just -- I'm trying to be sensitive to your time, but I think as I think about your customer base, Jacobs' customer base relative to the market, it's more focused on the municipal customer versus other areas. So -- as you defined water consumption. So why concentrate in municipal? And is there an effort to -- or opportunity to diversify away from the municipal market and go more towards private? Or do you like your...

We like our customer mix. I don't know if we would diversify away from municipal. Those long-standing relationships we've had with state and municipal clients is long, long term. And it's not the standard offering. What we wanted to convey is that our solutions-based business and the use of technology has diversified our offerings to where we're kind of in the client's business rather than being a low bid on a bid list that's got 7 or 8 local bidders. And so those are -- that long-term nature of those relationships will keep us in that market. But what you are identifying is a real opportunity. Our private sector clients, and this is kind of the -- one of the big synergies of coming together with CH and Jacobs coming together is that CH already had a strong business within the private sector. Jacobs business was predominantly not necessarily water, but the relationships were heavily on the private side. And that has been in the last 2.5 years, a great opportunity. And we think going forward, as Peter identified before, the usage of water with market recoveries is going to go up. So we see that as a great upside.

Okay. And then understanding, things are uncertain sort of right now, but can you just talk to over the longer term, like what the organic growth rate of the water business was, like, over a longer period of time, understanding it's more resilient, but any help there?

So Tom, I'll let you go ahead and answer that. I just -- what we had broadcast in the strategy documents, Jamie, I believe was high single digits. And that we would grow at 1.5x that growth rate. So that was what was stated as far as kind of a sanity check on where that is today. Tom, do you want to address that?

Yes, Bob, thanks. I'd agree with what we already showed, but I'd also say that, that still holds maybe with as I thought of a bit of a dip with COVID, although we're already seeing clients talking about post-COVID world and getting back on track to where they thought they were as much as they can. But what's been significant for us is that we are beating those estimates. And what's been exciting is we're growing our consulting and our design work, but we're really seeing a lot of increase in a couple of areas. One is taking market share in our O&M space, which are typically long-term contracts with a lot of predictability and a lot of opportunity that increase the value to our clients and to Jacobs over time. We are seeing many more design-build opportunities than the past few years and those projects, just by their sheer magnitude and the opportunity to innovate, have allowed significant growth in that part of the water portfolio. And then lastly, I'd say, and we talked about it a lot on this call, is the amount of services that are really dominated by a digital component have been increasing for all the reasons we've talked about and the fact that Jacobs has a global digital team with a lot of expertise that's absolutely integrated with our water team. It's really giving us a chance to grow above and beyond just what the market's doing itself. So a lot of opportunity. I think what Bob said, still holds on the growth rates for the market. But for what Jacobs is doing, there's a lot of upside.

Okay. Great. And I think we are coming up on the hour, I guess, just as a last question, just to summarize things. Bob, maybe it's best for you to answer this, but over the next 5 years, is there any way you could help us handicap how big you think your water business is? Or how it's different 5 years from now in terms of potentially being more digital, potentially being more global versus North American centric. Maybe I answered my own question, but if you could frame that for us. And then I think we'll wrap it up.

Sure. So I think as far as the overall macro growth rates, I'd still stay true that as Tom said, the profile changes, and we'll continue to grow at 50% or more of that growth rate of the marketplace as a result of those changes. As far as the percentage of the overall portfolio, we'd like to keep that balanced portfolio but grow the pie. I think the real upside is going to be in the margins because as we continue to go up that value chain, we're already seeing the margin benefit to that in real-time in our portfolio. And we think that with the pandemic and other dislocations that have happened here in the last 4 or 5 months, that's going to accelerate it. So we're excited.

Okay. Just because you brought it up, I guess you probably won't want to handicap how big the margin upside is in this business. I'll try to ask the question, but I'll see if you'll answer it.

I think I'll hold back on that one, Jamie, just because it's so robust.

Okay. Okay. Well, with that, we're up on the hour. I think we'll wrap it up here. Again, Jacobs management team, thank you so much for this call. I think it was extremely helpful and will help Jacobs, along the transformational journey that you've been on, should the water business should help accelerate that. So with that, thank you very much. If anyone has any questions in terms of clients, I'm available in the office. But thank you, unless you guys from your end and guess if you wanted to say anything to conclude the call?

No. Thanks for the opportunity, Jamie. Really appreciate it.

Okay. Thanks. And everyone, be well.

Thanks a lot.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect your line.