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

Good afternoon, everyone. This is Sheila Kahyaoglu with the Jefferies Aerospace & Defense Equity Research team. Thank you so much for being here for our IT Services Summit. We have the Jacobs team on next. We have Kevin Berryman, who's President and CFO; Caesar Nieves, who is Senior Vice President and General Manager of Cyber & Intelligence; and Jonathan Doros, who's SVP of Investor Relations, FP&A and Treasury. We'll have a fireside chat. But before that, Kevin and Caesar have some opening remarks for us. I'll turn it over to you guys. Thank you for being here.

Great, Sheila. Thanks for having us. Always excited to talk about Jacobs. I'll just spend a couple of moments on a couple of slides and talk a little bit about Jacobs for those that are a little less familiar with the company. Jacobs' approaching a $12 billion net revenue, $15 billion gross revenue company, 55,000 employees around the globe. And I will tell you that you can see the numbers that are put up on this chart, which is our Q2 results, and clearly, some good numbers ultimately, that were put up. I'm not going to talk about all of those numbers, but what I would like to do is talk about what's happened to allow us to get to this place. And maybe we go to the next slide, which is really about our transformation as a company. Steve, myself, Steven Demetriou, our CEO; myself, Bob Pragada, all came over the course of 2015 and started to ultimately affect a fairly significant transformation in the company. I will call that first strategy we put in place, which was actually the first strategy ever for Jacobs. A little bit about my term fix and focus, which was really getting back to some basis project management. We are a professional services organization that manages projects. So obviously, discipline and capability sets in that regard was important. But the focus part really is very important and set the stage for a lot of work that ultimately occurred in '17 through now. And that was really about making choices as to where we want it to be, i.e., which verticals did we want to go after? What did we think we were good at? What did we think we were less good at? Where do we think margin plays were in terms of opportunities for us to improve our margin profile? Where the growth was going to be, and ultimately focus there and not necessarily in other places. That led to a very substantial transformation in '17 through '20 both culturally, which is about really focusing our people to be excited about inclusion and diversity and accountability and of portfolio transformation. Whereby, we double down in what I would call ESG-related categories, infrastructure-related categories and professional services in national government priority spend areas, which we're going to talk a lot about this afternoon with Caesar, who is an important leader in that respect for our company. Cybersecurity, space exploration and Intelligence, a lot of intelligence-related work that we do, national defense related, space exploration and with the intelligence piece of it with the recent acquisition that we made with KeyW, really playing a role and very strong national defense capabilities in the national space area. So I think all of that is pretty exciting. What we now have done is put ourselves in a position where -- define how many verticals you want of our company, it's a fairly diverse company. But if you were to kind of group them together and talk about 10 verticals that we have, there isn't 1 of those 10 verticals that is in position against a secular long-term growth trend and ultimately, an ability to make higher margins. That is important because it's not as if we're waiting for 1 or 2 or 3 or 4 of those to be positioned for growth, all 10 of them are. And so what the opportunity that we are looking at is, with our recent transformation and portfolio, continuing to drive a services company that is more about providing solutions with higher margins, which ultimately then leads to greater cash flows, greater stability in our portfolio and basically moving up, I would call it, the value stake in terms of professional services organizations. We love the opportunities associated with it. We've managed through the COVID dynamic in a very impressive manner in our mind, which, while we weren't growing, it showed the resilience of our portfolio, and now we're positioned on all of those verticals that I talked about, coming out of COVID, where we expect to be seeing some strong growth that we'll be approaching in 2022 and beyond. So we're excited about the future. We're excited about being able to talk to it. And maybe I'll turn over to Caesar to talk a little bit about some of the areas that he's responsible for because it's one of the areas that we're really excited about.

Okay, great. Thanks, Kevin. And Sheila, I appreciate the opportunity to talk about our story. So as Kevin said, one of the big things that we've done over the last 5 years is make choices, and one of the major choices was really to focus on the Cyber & Intelligence business. And as you can see on this slide, we've been on a very deliberate and focused journey, really investing over $1 billion to really put us at the forefront of Cyber & Intelligence. We've looked at a number of M&As. And as you can see below, with this time line, our M&As have been focused on bringing in new capabilities; customers where we feel that there is a higher barrier of entry to get into, that 12- to 18-month endpoint; contract vehicles that we may not have to help us pursue and accelerate some growth; past performance that allows us to really get into some areas a lot faster. And even though I have people at the end of this, really, it's the people and the culture that drive our success. So as we looked at these M&As, we wanted to make sure that the people and the culture were the correct fit, right fit for the Jacobs organization that we have. When you look at some of these acquisitions we've had, you heard Kevin talk about the KeyW, most recently, at the end of last year, we did The Buffalo Group during the pandemic times, so very successful acquisition during the pandemic times. But these companies also brought a number of, what I would say, products or IP to bear. With KeyW, we got Ginkgo+, which is a learning management environment, and I'll talk a little bit about that in a couple of the other slides. KeyProtect, which is a really data at rest, dual encryption module that we have for Samsung mobile devices. And then believe it or not, The Buffalo Group brought together a Software Factory, where we're able to do rapid prototyping and looking at a number of applications and modifications going into these joint all-domain environments. And then lastly, we have a very inclusive and diverse workforce, really gives different thoughts on how we're doing business, helps with the integration and really helps accelerate our growth. We've also brought on board a number of leading edge, what I would say, relevant leaders within the industry, coming from our competitors, bringing them on board to really reset the focus for the Cyber & Intelligence business going forward. Next slide. So bringing all that together, who are we today? Our Cyber & Intelligence business unit really focuses on multi-domain and joint all-domain operations, and it's tied to the mission-critical clients that we have, right, within the federal environment, the DoD environment and the intel environment. We lead with 3 core capabilities: one of them is readiness, where we really focus on our people and processes. A lot of training, a lot of digital services and advisory and consulting fall within there. Operations, one of our key pieces here that we really do mission-oriented-tailored operations, whether that's offensive, defensive, running the SOCs or information operations. That falls within our operations standpoint. And then insights, right? The analytics arm or the IAML arm of what we have, and this is where our all-source intelligence analysis fit in as well. And so we bring all these capabilities together, really tied to the multiple domains: land, air, sea, cyber and space. And then when you put all that together, this business unit is about 3,500 strong, 90% clear, over 150 projects in over 30 locations. Next slide. So just a little bit of how we look, Jacobs looks at Cyber & Intelligence. I thought it was pretty critical, just to make sure we differentiate, a lot of people say cyber or cybersecurity. We look at it a little different. And we look at cyber as really focused on the information environment that includes networks, technology, infrastructure and data, right? So all those things tied to the cyber domain. And then if you look on the left-hand side, a number of capabilities that I mentioned earlier, but really, when we talk about cyber training, defensive operations, security operations, biometrics, digital services, all fall within our cyber bucket. If you look on the left-hand side, our intelligence piece of the business is really tied to what we say is our all-source, intelligence analysis, focused on counterterrorism, really the law enforcement component; space resiliency, which I'll talk about a little bit further; and then some of the open source and social media analysis, right? The analysis that we do, looking at O Center open-source type technologies and things of that nature. And then again, some of the areas that we've planned that I mentioned earlier, but specifically, when you look at the key missions below, we're really focused on the national security priorities, right? All the way from space and counterspace to defensive and offensive cyber operations. Insider threat, I mean, I think we're all kind of going through that, whether you're the government or you're in industry. And then counterintelligence, a big piece of what we have as well as the watchlist and threat detection. So we combine that together to make up our Cyber & Intelligence business within Jacobs. Next slide. So this is how we're broken out. Nothing probably unusual to the core federal market, but 25% of our business, right, was in the civilian agencies, 30% is within defense. Really, in defense, it's really tied a lot of COCOMs, the combatant commands, as well as primarily army and then some defense agencies. And then from an intelligence perspective, you see the logos there. From NSA to DIA, CIA, NGA and then ODNI, right? So what I would say is a nice balance of mission-focused national security priority customers. And now I'll go into some highlights to give you just more of a perspective of what we're doing within some of these agencies and organizations. So as I mentioned, 45% of our business is within the Intelligence Community. And so you see this quad here, pretty interesting stuff that we do. Again, for one of our agencies, we are the threat hunters for over 250 systems, and we provide that 24/7 continuous monitoring, really looking out for those bad actors. And these are the networks that are tied to the national security organizations, right? So just think about those as mission-critical. If you drop down what's below that, we run one of the largest networks in the world, right, for this agency. You see 800 locations. So wherever there is a, what I would say, contingency, wherever there is an operation focus, it's our team, it's Jacobs that stands up these nodes and these networks, make sure they're secure and provides that communication to those government customers. On the top right, pretty cool thing we do here. From a cyber perspective, we provide the offensive and defensive training for over 1,000 government folks annually. This is tied to our Ginkgo+ learning management environment. And we consider this and the government considers this kind of like the Navy Seal training of cyber. Facts -- a fun fact here, maybe not for the folks that are in the training, but 6% fail the first time. That's how critical it is, and that's our job to make sure we've got those frontline responders ready to go. On the bottom, a lot of -- I talked about all-source intelligence and cyber. We collectively run a 24/7 operation, really looking at a number of global and domestic terrorist and cyber components. Those daily briefings that we provide, meaning the data that we ingest and put together. We're briefing -- giving this data to the White House, to other cabinet members for them to make those decisions on a daily basis. So again, as I mentioned, mission-critical at the forefront and really tying our cyber and intelligence capabilities together. Next slide. From a DoD perspective, 30% of our business today, majority of that is really tied to the COCOMs, the combatant commands. We start-up here on the top left, the 11th COCOM, right, the SPACECOM, and we were there a couple of weeks, and they coined it SPACECOM 2.0. Because if you guys go back to the '80s, those for you who are around, that was when SPACECOM was first stood up. But we run the Joint Intelligence Operations Center for the new SPACECOM, the 11th COCOM. And really, pretty interesting things that we do is really looking at the adversarial activities around the globe. And we've got a number of data scientists and data, what I would say, chiefs in there that really look at this data and provide these AI/ML models to really determine the threat intelligence going forward. On the bottom, we run a number of watchlist activities from a cyber and an intelligence perspective. So biometrics collection and exploitation was one of the big watchlists that we run and we manage. And one of the key components there is, there's over 300,000 persons of interest. And within that, there's over 18 million unique identities that we manage and we run. So again, whether you're entering or exiting or within the U.S. compounds, confines there, we're responsible for that, working with the government. More training, cyber crime training, if you go over to the right-hand side. This is about -- it's not as intense as the training that we do for the Intelligence Community, but these are about 10 courses that we train over 2,600 government folks annually, whether that's incident response, forensic analysis, network traffic collection. Whenever there's a cyber crime within DOD, this team or the folks that we've trained are usually at the forefront of really doing that incident response component there. When you drop down to the bottom there, another joint intelligence operations center that we run. One for, what I would say, the AOR of Southwest Asia, 20 nations that we really look at from a threat intelligence imagery, even from a cyber component, looking at that, monitoring that and then making those recommendations and threat decisions for our government customer. Next slide. Our federal civilian side of the house, right, this is really a lot of our law enforcement side. So think about FBI and DHS. Again, another watchlist that we are monitoring or managing. Actually, we developed -- Jacobs developed this initial watchlist years ago to really look at, what I would say, that terrorist activity going on across the U.S. and broader areas. When you drop down to the bottom there, a pure cyber contract that we have really kind of focused on -- if you think about U.S. patents and trades, this is the team that really protects over 10 million patents and 600,000 of submittals, right, to make sure that there's no breach in those environments as well. And then the end users, right, over 12,000 in over 80 locations. So again, very broadly focused capabilities, but really focused on those mission-critical areas. The top right, pretty unique thing. I think everybody potentially has gone through some school or educational component there that ties to the Department of Education. So we protect over -- and these are the numbers, $1.5 trillion loans annually. It ties to American PII of over 150 million Americans, 13 million of those are students. And then it ties to about 6,000-plus institutions. And so think about the data and the information that's there. And think about the attack vector. So we get about 1 billion events annually, right? People are trying to get into these things and really trying to get those bad actors to penetrate some things. So it's about 500,000 a day. And it's Jacobs who protects and defends that as well as offensively ensures that those bad actors aren't roaming around there. And then finally, another 24/7 operations here. This is a great contract that we have that we really -- this gives us and brings together majority of the Intelligence agencies and, what I would say, the law enforcement community to share information across the board. I think you'll see that in the White House executive order, talk about information sharing across the board. We're at the forefront of that, and we've been doing that for a number of years. So we're excited to continue to be part of that going forward. What's not on here is one of our recent wins that I'll throw out there before we get to the last slide is, as part of our journey and acquisitions, we really focused on growing the business and being very deliberate. And a couple of weeks ago, we just won an army contract, really tied to counterintelligence, cyber and counterterrorism, about $200 million over 5 years. And it's really one of those mission-critical contracts that are in a number of locations that, again, the front lines of defense to make sure that the assets and the adversarial folks are not getting into our areas. So in closing, we talked about this, right, growth-oriented. The Cyber & Intelligence spending continues. Out of all the budgets going forward, you see that this continues to increase. And then Jacobs, we're mission-focused. So we're focused on continuing down that path. Our capabilities are differentiated in certain areas as we talked about. We're not doing cyber for everybody and everything. We're not doing intelligence for everybody and everything. We're very focused and we're bringing in the right talent and have the right talent to continue down that path. Our journey is going to continue. We're going to continue with the organic investments and the wins, like I just mentioned. And then we'll look -- continue to look at M&As that will really give us the competitive advantage, right? Maybe that's a unique product that will help us differentiate ourselves in certain markets and help our customers. But a number of things as we go forward, we'll continue to look at the M&As and continue with that journey. So I'll pause there and hand it over to you, Sheila, and the group for any Q&A for Kevin, Jon and myself.

Thanks, Caesar, for that. So maybe we'll hold off on some of the cyber questions. Kevin, I have maybe a few big picture questions, and then Caesar, I'll grill on some of your cyber slides, if that's okay. Kevin, on the last earnings call, you all talked about Jacobs potentially seeing the most active growth period for the company. And obviously, your journey has -- and the transformation for Jacobs has gotten you here today. So what are some of the drivers of growth? How do you think about your growth potential? Are we at that inflection point? Or is it a 2- to 3-year transition?

Yes. Thanks, Sheila. I think we've done a lot of work to form the portfolio that we have in place today. And we feel like we are at this inflection point where things have come together that afford us the ability to really realize several vectors of growth. Caesar talked about certainly some of the areas in national security and high-profile, high value-added services that we're providing in the government. But if you think about the work in environmental, the work in transportation, infrastructure, and you think about water investments around the globe. These are clearly recognized as long-term needs for not only this country but countries around the globe. And one of the outgrowths of the outcomes of the pandemic has really been a reorientation and focus against the needs associated with that. And so as you think about the investment that was brought to light in terms of the COVID stimulus package in December of last year and now the ongoing discussions relative to transportation bill, which certainly has, at least at a superficial level, bipartisan support. Everyone understands it. I'm not so sure it's going to be a bipartisan solution. But at the end of the day, there is a very clear view and a developing view of our clients, most importantly, that money is going to be available, pipeline is starting to build. And since we're targeted and aligned against these long term, I would say, decades-long secular growth trends, that we're expecting a pretty robust environment that comes together, not immediately, but beginning in 2022 and beyond. So we're excited about that. The high-priority spend areas of the U.S. Government, which certainly Caesar has talked a lot about, has been one -- another area. He talked about space exploration, is another area, which seems to have bipartisan support right now and actually increases in budgets at least from the perspective of the preliminary expectations that have been formed for 2022 budget. So really, there is a wide swath of the categories in which we are competing, recognized as a leader in many of them and well positioned to satisfy what we believe are going to be some pretty unique solutions that will allow us to ultimately have incremental margins associated with that. This is all coming together in this convergence of operational technology and information technology, the digitization of the world and the fact that we're playing in both places in a material way, we can leverage off of the 2 and ultimately create more unique solutions going forward for our clients. So we're pretty excited about the opportunity going forward.

Now maybe a quick one just on the infrastructure bill. And how do you think about that? At what point could we see a benefit? If it's past this year, what are the biggest incremental opportunities for Jacobs?

Yes. On the infrastructure side, look, I think, certainly, there's transportation that's going to be roads and bridges, rail has been one of the items that's had some robust dialogue on. 5G is in the mix. We are a material player in the 5G build-out of the infrastructure around the country. And certainly, some of the other areas with the administration currently having a very forward lean in terms of, what I will call, environmental ESG-related matters, clearly, with the strength and a leading position in environmental solutions that we provide, not only in the nuclear space but in other developing contaminants like PFAS and other areas, we're well positioned to go after these. So I actually have a little bit of difficulty calling out 1 or 2. I mean there really are, all across the entire portfolio, some potential opportunities. One that I did not talk about, which also is playing out interestingly enough, probably a result of some of the COVID dynamics that have played out over the last 18 months, is in the areas of semiconductors, electronics, data centers and actually pharma investments, where some of our very large commercial clients in these areas are rethinking their supply chains around the globe and how that looks. And so we're envisioning a very robust, dynamic leveraging off the very strong positions we have in the pharma and semiconductor space, where there's going to be investments happening. Whether they be supply chain oriented to reshore or whatever it might be, clearly, there's capacity needs in this regard. So across the board, there's actually good opportunities. And what we really like about that, it affords us the ability to go after the most value-added opportunities and very much aligned with our strategy of not going after growth for growth's sake, but going after growth for unique solution that we can provide to our clients, which translates into higher margins longer term.

For sure. And then maybe just transitioning into your Critical Mission Solutions business a little bit, starting off with Space, with just 2% of the DoD budget, how do you think about that growing for Jacobs specifically? And what are some of the most immediate areas of opportunity?

Well, the first one that probably a lot of people already know about is we're a major service provider to the national organization in the vast majority of their locations around the country. And we are a major player in support of the Artemis mission, SLS, Orion and exploration ground systems. So clearly, a major supporter of these key initiatives, which again, seem to have really pretty strong bipartisan support as well. We also are involved in some work that we did for the recent Perseverance rover on Mars, where we actually delivered the SHERLOC instrument that is operating the rover on Mars. And what's interestingly in place as well is we're major contributors to those areas at the Ames Research Center and Langley Research Center in intelligent asset management work that we're doing there and supporting that. What is clear is we're able to utilize these capabilities that we have learned over a long-term relationship with NASA and leveraging it into our work with the DoD and the Intelligence Community. We are actually involved in managing and flying space assets for our MDA client through our IRES contract, and we're involved currently with the NORAD Cheyenne Mountain contract through NISSC II contract, where we're also leveraging some of the capabilities. So we like this capability set that we have in the space arena, which is further leveraged by ultimately Caesar and his team and the rest of the organization in CMS.

Since we have Caesar here, I'll focus some questions with him as well. Maybe we have a few slides on Cyber. Maybe just stepping back, can we size the size of the overall Cyber business? How it is integrated or ties into some of your capacity with space and intel? Maybe just first on that, Caesar, and then I have a few more questions.

No, great. And to add to Kevin's comments on space, we kind of -- Jacobs views space as -- we're a player in the space enterprise, right? So when you think about NASA, as Kevin said, the research development, test and engineered pieces, right, really kind of focus on that. And then when you think about cyber and intelligence for space, we're at the warfighter component where we're talking about space command. And really looking at the threat intelligence and the -- what I'll say the intent to really damage certain things that we have, the geospatial components of that. And so that's a big space thing that we're doing within SPACECOM. And then when you look at the policy and government side, right, space force, we're part of that organization, too, through our component commands that we have within SPACECOM. So when you think about Space and Jacobs, think about it from the big, full enterprise that we play in today. Cyber, when you look at our business and you just look at the numbers, we started with cyber and intelligence. As you look at that chart, right? It was an intelligence buy, then it was cyber capabilities that we built out. And our cyber business, I would tell you, was very commoditized in the beginning. And what we've done is really focused on those mission-critical areas, those mission-critical customers where those budgets continue to increase and where we know that through acquisitions and the foundation that we have at Jacobs, that we can make a difference. And that people want to come to Jacobs to be part of that mission first focus. And so our cyber business today, if you look at those numbers, it's probably, I would say, 45% of the core business. But again, being in the military, our cyber analysts and our intelligence analysts always talk together. So that's the reason why we have it together in one unit, so we can be faster at response times.

Maybe what do you think about the overall growth rate for cyber? And then can you maybe parse the growth within the 3 parts you laid out, Intelligence, DoD and federal and civilian?

Yes. So I mean, I think you saw cyber with the solar wins, the Microsoft, and there's probably a number of other activities going on. We're looking at the cyber budget continuing to increase. Our focus has always been cybercrime training and information and cybersecurity operations. We do the normal day-to-day vulnerability management components, but we feel that in the areas that we're focused on from a modernization perspective, whether that's putting the threat teams in place, doing a number of, what I'll say, forensic analysis, incident response teams, we want to be those folks to help identify those problems, fix those problems and prevent those problems going forward. So I think the cyber budget continues to increase. I think it will -- probably a lot of folks you'll see kind of reprogramming or renaming their programs to get some of that cyber money, to make some of their [ MOCs ] but I think it's going to be very critical. I think the intelligence budget, the numbers are strong. Unfortunately, right, we continue to get these threats and attacks. And so we're going to continue to push in certain areas within the Jacobs realm, right? And our areas within the intelligence arena are those agencies, right, CIA, DIA, NSA, NGA. Core areas, we're not going to do all 16 or so Intel Communities, but what's interesting is they've added space force to the Intelligence Community. So again, space becomes another critical component going forward. And I think you'd mentioned the budget, 2% of that. I think if we do the numbers, it's about $12 billion plus just tied to space. DoD, our focus is the COCOMs. COCOMs and Army has been our strong focus. Air Force is another component. They've always -- as a former Air Force person, we've always led the way in transformation. And so if you look at the Air Force, specifically the 16th Air Force, they've combined, right, their cyber organization and their ISR organization, their Intel organizations become one, 16th Air Force. So again, aligned with what we're doing, kind of leading in some areas and really focused on a lot broader areas that the budgets are going to.

Yes. I think, Sheila, that's pretty exciting because of where we're targeting. Look, in many instances, the potential growth rates that we're talking about are up into the double digit numbers, if not double digit, certainly high single digits. So the areas that we're focused on are the areas that we would expect to be better supported and funded, via kind of the fallout of the mass numbers that we talk about when we talk DoD. And while that number might be flattish to slightly up, the parts where we're playing are certainly going to be higher -- more highly supportive.

And maybe, Kevin, you talked about a $30 billion CMS pipeline with $10 billion in-store selection. How is that different from your current business mix today? Is there a sea change in terms of what you're seeing on the opportunities?

Yes. Look, given the strategy that we've put in place, Sheila, the $30 billion is higher-margin business, ultimately that we're looking at. There are pieces of our portfolio, some of the business in the nuclear side which may not have as strong a margin. But ultimately, the strategy has been for the teams to be focusing on contract structures and leveraging off of enterprise contracts to the extent that we have them, and then leveraging up with incremental IDIQ offerings on top of that, which affords us incremental margins. So generally speaking, all of that margin profile is accretive to where we are right now. So we're excited about that. I think that's part of our strategy, has been over the last 6 years. It is certainly going to be part of the strategy going forward. We've started to refocus and think about the next version of our strategy, which we're working on right now. And I will tell you that I would be flabbergasted if we started to think about, well, maybe we should have lower margins. I think it's going to be a continued effort to think about how we can afford solutions to our clients, whereby our clients are willing to pay and we are able to realize a different margin performance.

Kevin, I'll get to more profitability in a second, but I want to ask 2 more on the top line, touching on people and places. You've been very busy with the PA Consulting acquisition. How do you think about the change there since the deal? What are some of the areas of revenue synergies or maybe pursuits that you wouldn't have looked at in the past?

Well, look, I would tell you, this has been a journey, a long journey of discussion with the PA team. We've been in discussions with them for a couple of years, actually. And so it was a get to know the team and then vice versa over an extended period of time. As you may know, they were owned by Carlyle, and they did -- their plan had been to -- for Carlyle to flip them, exit the investment and for PA to go into another private equity style investment. We stepped in, learned more about their business, saw the potential benefits associated with us working together and offered them actually to remain independent. So it's not an acquisition that we made, it's a partnership that we have with a separate board that is managing that. We have effective control over it because of the 65% interest that we have. But at the end of the day, this is a company that is 22% EBITDA margins, growing at greater than double digits for an extended period of time, and we're very excited about us coming together and us learning from them and vice versa. What's interesting, and we're early days here, we're 60-plus days into this. I know that there are 8 active bids out in con, about ready to be cited on. And I think at least one of them that we're going to be hearing some very positive news pretty quickly. And these are substantive bids, where either we took the lead or PA took the lead, and coming together was a stronger offering than what we would have done individually. And so we're very excited about that. Well, that's good momentum. I will tell you that the latest number I heard, and this was last week, which is up 30 from 2 weeks before that, we have 110 ideas and opportunities that are in front of us, where we have 2 growth teams working together to collaborate and work through what we consider to be the highest growth opportunities in the relationship between us and them, which certainly is in the consumer, it's in the health science, it's in public services, it's in energy. And if anything, right now, we're sitting there saying, wait a minute, 110 is too many. And what we want to do is provide some focus. So we go after the big items. And so what is very, very exciting is to see the collaboration between the 2 teams and the ability for our business partners to come together and start -- it doesn't take long for them to come up with 10 ideas, and they're all real. And now what we're going to try and do is make sure we focus on the ones that are needle movers in the first instance and make sure that we're going to see 1 plus 1 equaling 3 or 4 soon, as opposed to going after all 110 of the ideas. So pretty exciting in terms of the initial interaction between the 2 respective teams, pretty exciting.

And then maybe if you could talk about ESG. What you're seeing in terms of more broadly large green opportunities? And how do you think about the growth profile there?

Yes. We are probably -- if you think about sustainability and how that fits into our portfolio, we basically have -- and it's primarily in the People & Places business. But certainly, with nuclear remediation and some of the high-tech stuff that's going on in the CMS organization, they would fall and benefit from this as well. We have nearly $5 billion of revenue that's specifically focused on helping support the future sustainability of our globe. And that's really -- that number is actually understated because we're pulling in those experts on anything we're doing. So if we're looking at a bridge or we're looking at a rail or we're looking at infrastructure in cities or smart cities, ultimately, these experts are being pulled in to make sure it's a sustainable initiative that is fitting the needs and desires of the client. And that's probably the key watchword here is clients are paying a ton of attention to this. Certainly, the administration is leaning forward on it. You've heard about PFAS and the contaminants that are developing, which are actually a real threat to the future well-being of the globe, and we have the experts that are going to be able to rectify that situation going forward. It won't happen tomorrow, but solely long-term trends are such that we are well positioned to continue to take what is considered to be a very strong leadership position and continue to do it embedded in almost everything that we do in terms of our business. I think it will be important for our company to make sure we do that because I think the globe is kind of coming to a realization we better start doing it. Start doing it better than we have.

Sure. And then maybe turning to profitability, you have several different things going on when it comes to margins, right? You have low-margin contracts starting off in CMS. You have the partnership with PA as margin accretive, and then overall mix of your business being more intelligence and cyber. But you also have some headwinds, right? IT investment and some maybe rebound from COVID. How do you think about the runway for margins, both near term and longer term for overall structural margins?

Look, I will probably not talk a lot about magnitude of the dynamic because we're in the middle of our strategy and don't really want to give guidance on the '22 frame. But look, I think the investment profile that we're considering is important. You've heard about our effort called Focus 2023, which is about streamlining, digitizing our processes and capabilities and creating an incremental discipline in the management of that. We think that's a critical enabler for this approaching growth dynamic that we're talking about. Because at the end of the day, if we are going to be looking at this growth, which we feel very confident that this is going to be a pretty impressive growth environment we're going to be facing in '22 and beyond. Already, there's a war for talent. And to the extent that we're going to become more efficient and productive, in terms of our ability of our people and talent, to be able to do more within the existing kind of global infrastructure of talent we have, that's going to be really positive. And so we see our investments that we're making in the IT front really an opportunity to actually enhance our operating leverage versus not. So I think, certainly, the continuation of our ability to drive incremental margins is topical and on top of everyone's mind in the organization and our expectations is that's going to happen. Look at the last -- at the end of the day, when we started our journey, we kind of were at 6% margins. We're closer to 10%, and we don't believe we're done.

Just a quick follow-up on that. What drives that, enhances that margin expansion when we think about IT investments in those capabilities? Because we've heard that recurring theme a lot today. Is that higher-margin business? But what drives it? Is it less people? Is it more technology? Can you talk a little bit about that? Is the customer paying more?

I think it's a question and it's a combination of all the above things. I'm not going to say it's one or the other. But I do think technology and the digitization of capabilities of a company like Jacobs are becoming more real every single hour. I was going to say day, but I thought I'd change it to hour because it's real. And so I'm thinking about our ability to -- when we're going into a client and we're talking about smart city-related activities and how 5G fits into that, how cyber protection fits into that and how we can create a more sustainable eco-friendly city environment. All of that comes together through this combination of information, technology, digitization and the extreme level of operational technology that we've always been blessed with as a company. So I think the solutions are evolving, which become more comprehensive and ultimately, more valuable. There are some types of contracts which will prevent the margins from going higher than in other types of contracts. But I think, ultimately, the ability for us to target those areas which have those opportunities are going to be key. And we've been able to do it over the last several years, and I think that's how we're going to focus it going forward, Sheila.

Yes. Sure. And maybe one last question for you. In terms of how you think about your leverage, your 1.7x net debt to EBITDA. It's quite reasonable actually. How should we think about where you deploy that? I think you've talked about debt repayment as a priority. How do we think about the cadence of deleveraging and capital deployment priorities overall?

Yes. What we've said -- what I've said in the short term is that we have that 1.7x net debt calculated figure. But the gross debt level is a little bit higher and so, in the short term, with the generation of cash flow that we're going to be seeing over the next few quarters, the plan would be to pay down some of that bad debt. But that's going to be a short dynamic because I think it's very clear that the cash flow generative capabilities of the company are going to be strong, and we now believe that we're going to kind of reach our expectations of converting at a onetime level in '21 this year versus what we would have said originally in '22. So I think that's a short-term phenomenon. The other dynamic, I would say, while we have been an acquisitive company, we also love the portfolio that we have right now. And that, we believe, affords us great organic growth capabilities. We don't go into acquisitions thinking we've got to buy something. When we go into acquisitions, recognizing, first, what our strategy is and then what potential external growth opportunities could end up being an accelerant to our organic growth strategy that's already embedded into our strategy. And certainly, there will be those that come available. And so having said all of that, because of the portfolio we have right now, certainly, I'm not lying awake at night worrying about, oh, gosh, how do we have another acquisition? Because I'm pretty excited about what we have in front of us. And at the end of the day, any transaction we're going to have to do is going to have to have a return profile better than buying back our shares. So we will be thoughtful, disciplined and really, really focused on how these things don't necessarily add scale but add capabilities and provide greater acceleration in our forward organic growth strategy. So I think that's the way everyone should be thinking about it. It's certainly how we're thinking about that.

Well, thank you so much for that, Kevin and Caesar and Jon for being here today, and that concludes the time we have for this. Thanks, everyone, for joining.

Okay, Sheila. Thanks for the opportunity. Really appreciate it.

Thank you.