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

[Presentation] Welcome to the launch of our new Jacobs strategy moving forward. I'm Julie Chang, a career economist with a lifelong commitment to sustainable communities and now, Vice President and Executive Adviser to Jacobs' Chair and CEO, Steve Demetriou. At Jacobs, we start every meeting with a culture of caring moment. By starting with culture, we connect to our purpose, are reminded of our values and our challenged to live up to our vision of Jacobs. So whether you are joining from your home or office, if you would, please raise your right hand and stretch it as high as you can. Okay, is it as high as you can reach? Now stretch it higher. Come on, a little higher. This culture of caring moment is a reminder to us that the limits to what's possible are held in our minds. So again, welcome to the Jacobs 2025 strategy boldly moving forward.

Thank you, Julie. Our culture is a cornerstone of our success and has proven to be a competitive advantage that enables us to be agile, innovative, collaborative and transparent today and into the future. For those of you I haven't met, I'm Steve Demetriou, Chair and CEO of Jacobs. The culture of caring we have created has its roots and Jacobs' focus on safety, which is known as BeyondZero, and has evolved to embrace every facet of our culture. By being relentless, we make sure our culture supports and aligns with our aspirations and our collective goals and releases the creativity of our visionaries, thinkers and doers, uniting our people through our values and our purpose to create a connected, sustainable world. In 2015, we started our culture journey with empowerment and accountability. Incorporating inclusion, innovation and inspiration into the very fabric of the company. As part of that, I believe our emphasis on inclusion has been the single most important underpinning of our success. Over the past 5 years, we have shifted our executive leadership team from all male to a team today that is 55% female. The same is true of our Board of Directors, which is now 30% female, with overall board diversity standing at 50%. Over the past few years, we've been expanding our new college graduate program and approximately 45% of all new graduate hires are female. In addition, we've been improving year-over-year in all other diversity categories. At Jacobs, we firmly believe that if you can see it, you can be it. And we are committed to continue to advance in this area. All of our Vice Presidents and above have personal inclusion goals each year, which are measured as part of their performance and compensation. And it's not just about numbers or statistics. It's about every one of our people in the collective strength we take from their unique perspectives, ambitions and dreams. Our continued success depends on creating programs that are meaningful to them. We are building on our strong foundation and driving an agile learning culture based on unparalleled trust where employees can thrive, innovate and grow. Our culture is a living thing. The foundation for excellence and the basis of our success. You've heard me say that we are focused on becoming a company like no other. Well, it's not a destination. It's continuously evolving. The world, our people, our clients are changing all the time. So we must be agile and resilient in doing the same. And in many ways, our culture needs to anticipate the future and move forward with it. And then delivering on our purpose, our values are critical. We do things right. We aim higher. We challenge the accepted. We live inclusion. Over the last 5 years, we have also made some significant moves to reshape and transform the company, executing on a series of strategic portfolio moves, resulting in tremendous growth and value creation. We increased our exposure to higher growth and higher value sectors, delivering ahead of the market and significantly increasing adjusted operating profit margin from 6.8% in 2016 to 10.1% in 2021. We set ourselves on a path of sustained growth and anchored on innovation and emerging solutions. And building on our proud legacy, we further established ourselves as leaders by investing in attractive industry sectors, such as water, environmental and semiconductors through CH2M, cyber and space intelligence through KeyW, clean energy and defense through Wood Nuclear, outcome-driven, strategic and digital advisory through PA Consulting and now computing at the edge and data solutions and technology platforms with the Buffalo Group, BlackLynx and StreetLight Data acquisitions. At the same time, the global pandemic and the events of the past 2 years became a defining period in how we operate as a company, demonstrating not only our resiliency, but also how we put our people first and embed a sense of what it means to be a part of Jacobs. Over the last 5 years, we have achieved an average annual net revenue growth of approximately 7%, a nearly 350 basis point improvement in our adjusted operating margin, 15.7% annual growth in adjusted operating profit, all while increasing our return on invested capital. We've been rewarded for our transformation and our market cap is up more than $11 billion, up approximately 250% since 2015. This strong performance now enables us to take advantage of global trends and significant market opportunities, taking the company to new heights. We're going to move boldly forward into 2025, continuing our aggressive shift to create a fully inclusive technology-forward company, producing the critical solutions of tomorrow. We are united by our purpose and recognize that the keys to success in the future will be different from those of today. We need to remain agile, focus on where our clients need us most, address major challenges such as global constraints on labor and fully leveraged data and technology. By shaping our future, we will produce outsized results. Let me give you some insight into how we created our strategy. Starting in March of last year, we took a deep dive into global trends, capabilities and markets to understand the largest opportunities, their projected spend and their growth rates. The conclusion of this strategic review reinforced that our decades of deep domain expertise and capabilities squarely aligned with the most attractive markets. This puts us in a unique position and creates a great opportunity to further strengthen our competitive advantage across our core sectors by accelerating the development and scaling of differentiated products and solutions. To provide focus and enable success, we have boiled it down to 3 needle-moving accelerators. First, as a purpose-led company, we know we have a pivotal role to play in addressing the climate emergency. We consider this not only good business but our duty to channel our technology-enabled expertise and capabilities toward benefiting the people and the planet. The legacy we want to create for the future generations is one of betterment, and Jacobs is uniquely positioned to deliver integrated end-to-end solutions across the entire climate response value chain. Public and private capital is flowing increasingly towards responsible and socially inclusive investments that create transformational change. And as a leader in climate response, we are at the heart of delivering that change. In fiscal year 2021, we generated approximately $5.3 billion of revenue, directly related to the delivery of climate solutions around the world and across all of our markets especially in water, transportation, energy and the environment, and climate response is part of our broader ESG focus. In fact, on an overall ESG basis, we measured our fiscal year '21 ESG revenue at approximately $6.1 billion. We will continue to invest and grow these solutions, and our goal is to further our global climate leadership position through 2025. Next is consulting and advisory. In 2020, we bought the majority of London-based PA Consulting. This visionary move established our position in high-end advisory services, aligning directly with our strategy and creating a springboard to expand in high-value offerings beyond the core. Jacobs and PA are collaborating across key end markets with several significant wins already in hand. In a short period of time, PA's performance has far exceeded our expectations with 2021 year-on-year revenue growth of 33% and EBITDA growth of 59%. Critical to our investment thesis is accelerated development of the U.S. market, where the combination of Jacobs' broad and deep client relationships and PA's unique capabilities put us in a highly competitive position. And our third accelerator centers on data solutions. Our clients are going through a rapid digital transformation, looking for ways to capitalize on their data more than ever before to empower innovation and ingenuity, leveraging technology, to unlock better outcomes. As a result, our clients around the world expect data-driven solutions to replace traditional methods of analysis, which are time and labor-intensive. And in the process, improve the quality and speed of decision-making. And tied to data is cyber. The increase in digital transformation, coupled with the deepening penetration of data-driven systems and smart connected infrastructure is developing a multi-market challenge around cyber, driven by the increase in ransomware and other cyber attacks globally. This challenge translates into a huge global opportunity across Jacobs' entire public and private client base. As our clients move from labor-based solutions, we have positioned ourselves at the forefront of this growth, adding digital capabilities, products and tools to serve a growing set of customers. We have an impressive platform in place of more than 5,000 data scientists, software engineers, security experts and application developers to enhance how we serve our clients. The opportunity is now to aggressively grow in this sector. What's really important to note is that all 3 of these accelerators cut across the entire organization and open up tremendous opportunities with existing and new clients. These accelerators create our focus on where we intend to deploy capital over the next several years. Also exciting is the timing of the unprecedented infrastructure investment, including the $1.2 trillion infrastructure investment in Jobs Act in the United States. We have mobilized a program management office to capitalize on the significant client opportunities across the country. Our forward pipeline is growing, and we expect the momentum to accelerate as we finish this year and move into 2023 and beyond. To successfully deliver on our new bold and disruptive strategy, there are 2 things top of mind. The first is people, the capacity to deliver at pace and scale. We have a unique ability to flex our global integrated delivery platform to work seamlessly around the world, capitalizing on our depth and breadth of skills for increased capacity and efficiency. In addition, our proprietary automation technologies accelerate real-time collection, analysis and processing at the edge, helping us unleash critical skills. Bottom line is that this is a key advantage for us versus our competitors. Secondly, we recognize that to achieve this bold and disruptive strategy, we need to adjust certain aspects of our operating model. We took a key step with the recent announcement on both our Critical Mission Solutions leadership transition and our newly-named Divergent Solutions business unit. Regarding Critical Mission Solutions, as we were launching our previous strategy in 2019, I asked Dawne Hickton to step off the Jacobs' Board to lead and help transform this line of business. Over the last 3 years, Dawne has done just that, successfully leading a cultural transformation, while driving a significant increase in exposure to high-growth higher-value businesses. This included integrating 4 key acquisitions and building a new cyber and intelligence unit that's the catalyst for our new strategy. And most importantly, she has positioned the business for the future by developing an impressive leadership succession plan. So with the launch of our new strategy, we recently announced the promotion of Steve Arnette to lead Critical Mission Solutions. As Dawne moves on from the company, I want to thank her for her leadership. While we have initiated the launch of this new unit, Divergent Solutions will not be fully operationalized until approximately quarter 1 of fiscal year 2023. Bob and Kevin will provide more insights a bit later. Kevin will outline the specifics of our strong revenue growth and returns. However, we have developed some additional metrics to drive accountability for delivering on the bold aspects of our new strategy. From a culture standpoint, we're focused on achieving our aspiration of what we call 40:40:20 gender diversity across the entire Jacobs organization, which means 40% women, 40% men and 20% any gender enterprise-wide. In the area of climate response, we're targeting 100% of Jacobs' projects across all sectors to contribute to climate response or include ESG scope by 2025. As we look to drive this bold and disruptive shift to become a true data and technology company, we anticipate that 30% of total Jacobs' net revenue will be tied to consulting, data and technology solutions and products. And specifically, by 2025, we want to drive our consulting and advisory talent base to be 10,000 strong. In summary, with our relentless focus on mobilizing, energizing and inspiring the entire organization, we're confident in our ability to deliver on this strategy. Our vision of the future is exciting. By addressing the most pressing challenges of today, we will continue to create value for the world and all of Jacobs' stakeholders. Now I'll turn it over to Bob Pragada, President and Chief Operating Officer, to show how we're going to execute on our new strategy.

It's been an exciting journey for Jacobs, and more is yet to come. The foundation we built and the culture we fostered give us an incredibly strong platform to launch the next step in our journey. For several years, we've been making strategic portfolio decisions that strongly align with the most attractive secular growth trends, and we are now experiencing a material upswing across all our addressable markets as we embrace generational growth opportunities. And most exciting, we see this trajectory continuing through 2025 and beyond. This outlook, coupled with the breadth and depth of our expertise and our ongoing investments and technology and innovation creates a future that is highly favorable to Jacobs. Our global delivery model enables us to serve our clients with expertise from around the world, share best practices, innovate across markets and geographies and truly differentiate Jacobs. Driving additional growth within Jacobs are 3 strategy accelerators that Steve introduced earlier: climate response; consulting and advisory; and data solutions cut across all our markets. And they create connection between our global market trends, the solutions we deliver for our clients and our company purpose. Let's begin with a closer look at climate response. Independent market research indicated that approximately $3 trillion to $4 trillion of private sector capital will flow into global climate response by 2025. In the primary investment themes, decarbonization of power, low carbon mobility and new energy generation are strongly aligned with the work that Jacobs is already delivering. Public sector capital is equally responding to these trends as well as natural resource stewardship. In the United States alone, more than half of state governments have released or are developing climate action plans with over 400 cities representing 1/3 of American population having done the same. Many other countries are even further down this path. These trends continue to drive evolutionary change in the markets we serve, and we are in the sweet spot for capturing these opportunities. Our key differentiators include: our long-standing industry leadership in water, environmental, transportation as well as our evolving leadership in electric vehicle manufacturing; an expanding suite of capabilities and solutions aligned to energy and health; and our integration with the other 2 accelerators, consulting and advisory and data solutions, which we're taking to a new level with priority investments and industry partners. Jacobs is a world leader in climate response solutions today, and we are focused on continuing to grow our portfolio and leadership position into the future. We mobilized our office of global climate response and ESG. Under the leadership of Jan Walstrom to drive this accelerator across our business, fully incorporating PlanBeyond, Jacobs' global sustainable business approach, and delivering on the company's purpose to create a more connected and sustainable world. Let's hear from Jan on the size and scope of this opportunity.

Thanks for that overview, Bob. Let me put a finer point on what we're focusing on. The World Economic Forum identified the 3 most severe risks over the next decade as being led by climate action failure, extreme weather and biodiversity loss. Also in the top 10 were environmental damage and the natural resources crisis. As a global leader in infrastructure, energy and environment, cities and places, health and life sciences, advanced manufacturing, national security and space, Jacobs' Climate Response Accelerator is directed at mitigating these global risks and building long-term resilience, with a focus on delivering solutions in 4 broad areas. Beginning with energy transition, where clean zero-carbon energy will have the single biggest impact on reducing global warming. In the U.K., we're working with RWE, a leading global renewable energy company to investigate the production and supply of green hydrogen from local and grid-connected renewable energy. The current concept has the potential to lead to one of the largest hydrogen production facilities in the world. And in the U.S., we've been engaged to design enabling infrastructure for a large offshore wind development in the Northeast, ultimately in support of the global transition toward a cleaner energy future. Next, decarbonization, where the transport sector alone contributes approximately 1/4 of all annual energy-related greenhouse gas emissions. In Brisbane, Jacobs is serving as technical adviser to develop the fleet and transport network for new battery electric bi-articulated vehicles, the first of their kind in Australia. And in the U.S., we're working as part of Electreon's team to deliver for the Michigan Department of Transportation, the nation's first shared public electric road system with wireless inductive charging. A third critical area is adaptation and resilience where countries, cities, communities and businesses must accelerate efforts for adapting to the impacts of climate change today and in the future. Jacobs is the program manager on 2 critical climate response initiatives in the U.S. First, for the Port of San Francisco Waterfront Resilience Program, we're working to preserve and fortify the 100-year-old Embarcadero seawall for C-level rise adaptation, flood protection and earthquake resilience. And second, for Pacific Gas and Electric, we're leading the efforts to underground 10,000 miles of power lines located in and near high-fire threat areas in response to California's evolving climate challenges. The final area, natural resource stewardship, focuses on protecting and conserving the natural resources that we depend on for our existence. In Singapore, Jacobs has been an integral partner to the Public Utility Board's integrated water management strategy for more than 35 years. And in drought-stricken California, we're providing design services for the multi-decade Delta Conveyance program, which, when complete, will secure clean water for 27 million people and 3 million acres of agricultural lands. As outlined, our client response solutions that we co-create with our public and private sector clients are making a difference in building a healthier, safer, more sustainable and resilient future for all.

That's awesome, Jan. So much to get excited about in climate response. We are confident that the size of the climate response impact and our strong leadership in this accelerator will result in 50% of the company's overall growth by 2025. You heard from Steve earlier that we have clearly and boldly moved into consulting and advisory through our majority investment in PA Consulting. Consulting and advisory is about moving deeper into our clients' business, helping them conceptualize their future. We have the expertise to advise our clients on how to shape and realize that future. And we have the unique ability to go beyond traditional consulting firms approaches with our combined Jacobs PA team. So why is this skill set a market accelerator? Today, our clients are facing the most disruptive period ever. Their need for technical and strategic advisory services has never been more critical. However, the traditional consultancy playbook is ineffective in resolving our clients' underlying needs. Our combined expertise with PA allows us to utilize a distinctive applied technology approach that comprehensively and uniquely solves our clients' challenges. This approach encompasses the strategic application of our cutting-edge product design, large-scale capital investment advisory and the use of cloud infrastructure technology. Our investment in PA has set a disruptive new standard for how to accelerate growth and increase our total addressable market. We've experienced synergies with PA across our target sectors, particularly in health and life sciences, national security and energy, while expanding PA's global footprint. This strategic accelerator continues to unlock new and exciting growth opportunities. And as an enabler capability, allows for us to access approximately 25% more of our clients' available spend. Our next accelerator is data solutions, which is intimately tied with our company purpose as we survive to connect the world in sustainable and secure ways. All our markets are increasingly data-driven and the collection, analysis, processing and application of data is fundamental to our design and management of infrastructure and protection of our national security. Our data science expertise and training capabilities are world class. Our portfolio continues to deepen as we've seen through our recent acquisitions, which add industry-leading edge computing, cloud and data collection technologies to our suite of expertise. We have also deepened our domain expertise organically with continued investment in capabilities such as Geospatial analytics and software-enabled services. We now have over 5,000 professionals providing data and cyber-related solutions around the globe. With costly data breaches up nearly 20% in the past year, it is imperative that we drive data and cyber together into everything we do. At Jacobs, we are harnessing the power of securely managing data to help our clients make informed, reliable and timely decisions about their business and operate in a safe environment that stimulates innovation and activates controlled risk taking. Let's hear more from Caesar Nieves.

Data and the security of it are transformational forces in the world. It's embedded in every decision, interaction and process and drives all markets. As Bob said, we have world-class capabilities and have expanded that expertise across the infrastructure and private sector markets. There are 4 parts to our value proposition. First, data collection. We collect, analyze and derive solutions from data that are obtained from broad spectrums of technologies and platforms, from real-time water and environmental sensors to our earth and space observation capabilities. Second, analysis. We securely integrate and analyze data from across the life cycle of our clients' assets to deliver innovative, value-added solutions that transform the way those assets are managed and utilized. Third, security. We've matured this expertise through the development of technical solutions for global security agencies, and we are expanding those capabilities across critical infrastructure and private sector clients. And fourth, the combination of the first 3 value propositions allows our clients to make more effective and real-time decision making. Here are 2 great examples of how this all comes together. Starting with our most recent acquisition, StreetLight Data. We have used proprietary software to ingest massive, multimodal, mobility data and secured in anonymized ways. This optimizes capital deployment through actionable transport planning insights for our long-term client, the Texas Department of Transportation. We are also partnering with leading platform providers to deliver outstanding new solutions to our clients, such as the recently announced partnership with Palantir Technologies. Together with Palantir's foundry platform, we are ingesting, processing and analyzing enormous amounts of water treatment plant operating data in a secure environment. This will allow us to predict system breakdowns, reduce energy consumption, lower operating cost and make material positive contributions to our clients' ESG impacts. Our data capabilities and unique service offerings serve as a catalyst for our business growth as private and public sector's budgets continue to increase.

Thanks, Caesar. The use of data is changing the world at the fastest pace ever. We are transforming as a company to capitalize on it. Later, I will speak in more detail about our next bold move on our technology journey, the formation of Divergent Solutions. The successful track record of our 2 lines of business, Critical Mission Solutions and People & Places Solutions, sets the precedent for how we serve our markets. And now our enabling platforms of PA Consulting and Divergent Solutions, further strengthen our ability to drive value for our clients. Let's go to Steve Arnette and Patrick Hill to discuss the outlook for their business in the coming years.

Critical Mission Solutions is in the business of providing technical, engineering, scientific and program management services to some of the largest organizations in the world. And we are focused on continuing to leverage the cross-cutting impact of advanced technology and digital solutions to accelerate our business. Our growth targets are bold, and we are continuing to enhance our portfolio with higher margin opportunities and robust top and bottom line growth. Our portfolio represents a strong focus on space, energy and environment and national security, all markets with significant capital spend and robust investment. Jacobs also enjoys a leadership position with long-term client relationships and a strong track record of performance. The space domain is a foundational market for Jacobs, and one in which we see exciting growth opportunities. For decades, we have provided technical and scientific services and research and development, supporting deep space exploration for NASA, with programs such as space launch system for the Artemis missions and Perseverance on Mars. This work stimulates innovation and facilitates technology transfer across our company. An example is our intelligent asset management offering, which originated from the early use of predictive analytics at multiple NASA centers and is now being widely utilized for Department of Defense installations across the U.S. For the energy and environment market, we are leveraging our strong relationship with agencies such as the U.S. Department of Energy, and programs such as ITAR in Europe to advance fusion, hydrogen and energy waste technologies. As an example, we have advanced our modular reactor solutions for commercial energy clients, and we'll continue to invest in energy transition across Jacobs. With a strong focus on national security, we are delivering systems engineering and digital solutions to our defense and security clients, enhancing their mission effectiveness while expanding our margin profile. This allows us to form the capability bridge between commercial providers, emerging technology firms and governments through expanded strategic partnerships with an integrated solutions framework. We're excited and remain committed to our Critical Mission Solutions business and the positive impact it is having on global security, deep space exploration and our energy future. With our market-leading position, coupled with solid growth in these sectors, we are forecasting higher revenue growth potential than previous years at 6% to 9%. Now I'll turn it over to Patrick Hill.

Our People & Places Solutions line of business has industry-leading global capability in technical professional services, and our skill sets position us uniquely to capture the unprecedented public and private investment that we've seen in all of Jacobs' geographies. Our ambitions over the 3-year strategy period are focused in 5 key markets: infrastructure; energy and environment; cities and places; advanced manufacturing; and health and life sciences. The previous discussion on accelerators has covered some of these markets already, so I'd like to focus on advanced manufacturing and health and life sciences. In advanced manufacturing, where the digital and electronic future is being created and supply chain challenges are being addressed, we're building on the explosive demand in the electric vehicle sector to become one of the largest global solutions providers for EV infrastructure. We're also partnering with the largest multinational technology companies to design and deliver new manufacturing facilities to solve the global semiconductor chip shortage and to create the next generation of green and sustainable data centers. We're now a global leader in the manufacturing supply chain of semiconductors and in the EV sectors. In health and life sciences, where Jacobs supported COVID-19 vaccine production and emergency planning for overextended health care facility, we're working to redefine pharmaceutical delivery platforms and supply chains. And in the case of vaccines, propelling that technology shift from traditional manufacturing to mRNA technologies. We're also strengthening local and national health systems and facilities to withstand future public health challenges and improve patient outcomes through advisory and data-driven solutions. Our major programs cut across all of our markets. We're a world leader in running major program delivery, partnering with our clients to oversee the execution of mega projects ranging from the World Cup, FIFA World Cup being using Qatar to SuedLink, the world's longest underground power cable that's delivering wind and solar power throughout Germany. These strengths, combined with our growth accelerators, our ability to attract and retain world-leading talent, the assembly of our global teams at speed and scale and our innovative culture, allow us to capitalize on the various economic stimulus programs implemented by most countries in which we serve. These stimulus programs center on infrastructure modernization, the cornerstone of People & Places Solutions expertise. Financially, we're forecasting a strong 6% to 9% of revenue growth in the strategy period with an exit velocity in 2024 on the high end of that range. I'll now hand you over to Tom Meinhart, who leads our broken sales team in the Americas to talk about our ambitious efforts to leverage the U.S. infrastructure modernization opportunity.

The U.S. infrastructure investment in Jobs Act includes nearly $1.2 trillion in infrastructure spending with $550 billion in new funding during the next 5 years. Of that $550 billion, approximately 90% has been allocated to markets for which we hold recognized leadership. At a high level, the major categories of investment are in the transportation and water markets where Jacobs leads the industry and in all key areas catalyzed by all 3 accelerators such as energy, resilience and the expansion of broadband. We entered this generational funding increase with positive momentum in our foundation business as well as evidenced by our recent sales bookings. In several cases, our teams are already being brought in by clients to help determine how to best design and manage the delivery of resilient, sustainable and equitable infrastructure projects. Consequently, our deep installed base of current framework and master service agreements with both state Department of Transportation and water agencies will allow immediate access to programs as funding becomes available. Given the significance of this funding opportunity for our clients and for Jacobs, we have established a U.S. infrastructure program management office. The PMO is dedicated to making sure we support our clients at this critical time, specifically through grant writing, enhancement of social value, increased diversity supplier partnership and incorporating climate response considerations. Through confirmation we've already received from our PMO, we fully expect our overall pipeline of new opportunities across the country to accelerate the achievement of our growth targets.

We are really excited about the fantastic outlook for our PA Consulting business. PA's revenue and margin growth forecasts are impressive, with top line forecasted to grow 12% to 15% annually and continue to exceed the overall growth projections for the consulting market, which sit at approximately 10%, further amplifying the potential for our consulting and advisory accelerator. Let's hear more from PA's CEO, Ken Toombs.

At PA, we're bringing ingenuity to life. We're truly differentiated in the market with our focus on delivering high-value end-to-end innovation. We create value for our clients by accelerating new growth ideas from concept through design and development and into commercial success. We build new products and services and improve the customer experience. For example, we've developed a digital handheld medical device for a U.S.-based startup Bearpac Medical, that release pain for palliative care patients. And we create value by revitalizing organizations, enabling them to build a leadership culture, systems and processes to make innovation a reality. We've also transformed Philips to achieve faster and more focused innovation. And Vestas, the largest wind turbine company in the world, to drive clean energy innovation with new ways of working. We also differentiate ourselves in 2 major ways. We have an incredibly diverse team of experts with different backgrounds, experiences and ways of thinking and world-class capabilities, including digital, design and engineering, strategy and business design and economics and analytics. The coming together of our people and capabilities creates tremendous value that other firms simply can't match. We're winning new work and gaining new clients every day and expanding our geographies in real time. Underpinning this is a long-term, repeatable client base and now with an industry-leading partner and investor in Jacobs. The future is very exciting. With our capabilities and end-to-end innovation skills, we're perfectly positioned to respond to the mega trends driving unprecedented change and creating incredible opportunities. As PA and Jacobs continue to deepen our strategic partnership, our combined value proposition offers our clients solutions far beyond traditional consulting and engineering firms while expanding our addressable market. The future is indeed bright.

As you can see, we are well positioned with strong leadership in the markets we serve. Our existing portfolio, coupled with accelerators that are changing the face of the world, strongly sets up our lines of business to achieve growth at a rate of 1.5x to 2x the composite growth rate of the markets we serve. Additionally, we are setting our net revenue growth target in the high single digits for both lines of business, with adjusted operating profit growth of 10-plus percent. As we continue to deliver increased value for our clients, we expect to drive adjusted operating profit margin improvement of approximately 100 basis points for the combined lines of business. Growth expectations for PA Consulting remained strong with double-digit revenue growth and adjusted OP growth of up to 15%. Now I'd like to discuss Divergent Solutions, an exciting move we previously announced that directly aligns with our growth accelerator around data. As we finalize our strategy, we determined that creating a unit with a focused purpose of developing and delivering innovative next-generation cloud, cyber, data and digital technologies and platform solutions across the entire Jacobs enterprise would accelerate growth by creating scale in the skills and business approaches necessary to increase value for our clients' business. It also gives us the opportunity to integrate and leverage the successful transformation initiatives over the past 3 years around our innovation platform, Beyond If, as well as digital transformation and several operational efficiency initiatives driven through Focus 2023. Effective April 1, Divergent Solutions will operate as a supporting unit to our Critical Missions and People & Places lines of business for the balance of fiscal year 2022, with the expectation of achieving a fully reportable unit during Q1 of fiscal year 2023. Under the leadership of Caesar Nieves, who you met earlier, the core Divergent Solutions team have established the organizational framework for facing the market through 3 units. Let's hear from them now.

Hello, I'm Rich Price, and I'm leading cyber and intelligence solutions. Today, this is our market-leading Cyber and Intelligence business, providing data and secure solutions across multiple domains, land, air, sea, cyber and space, included in my unit is the opportunity to scale our remote certain capabilities across a broad base of our infrastructure business through technologies like state-of-the-art digital aero entry. We're excited to expand our reach beyond the federal government sector and into the state and local governments and the private sector.

I'm Heather-Wishart Smith. The advisory and innovative solutions unit is focused on advising and preparing our clients on the processes and technologies to deliver secure, compelling experiences, digital acceleration and innovation. Our focus is on growing our data solutions to critical infrastructure and private sector clients, while leveraging Jacob's established innovation platform, Beyond If. Building on our current successes, we are energized by our added depth and reach and the ability to solve our global clients' most difficult challenges.

I'm [ Ammar Batiki ], and I'm heading up our platform technologies And software solutions segments. In this part of the business, we're focused on expanding Jacobs' position as part of our client digital ecosystem through creating next-generation solutions with software platforms, technologies and platform-enabled services. An exciting part of this unit is the partner ecosystem we are expanding and integrating including our venture capital investments. While it [ lengthens ] the ability to help our clients create value from data securely to better serve their customers.

These 3 subunits will all have vertical access to client markets and horizontal partnership underpinning the lines of business. This is one of the boldest moves in our strategy and potentially in the history of the company. And I am confident in the ability of our fantastic leadership team to deliver on our growth ambitions. Divergent Solutions will be a critical enabler to the entirety of our business and drive meaningful value for our clients' business. We've mapped out what our business will look like by 2025 by propelling our portfolio to a greater proportion of high-value solutions. This shift to high-value, higher-margin solutions is already happening and with our existing client base. We are extremely excited about what the future holds for Jacobs. From our strong existing business, serving markets with robust growth to the additional growth prospects unlocked by our accelerators and catalyzed by our world-class capabilities with PA Consulting and Divergent Solutions, we are boldly moving forward. Like so much of our success at Jacobs, it really is about our culture and our people. Let's hear from Shelie Gustafson, our Chief People and Inclusion Officer, on what we're doing to drive the next step of change in culture with our new strategy.

Thank you, Bob. A bold and disruptive strategy requires a culture that fosters the mindset, talent and capabilities to drive growth and performance. To support this, we are creating a culture that attracts and retains the world's best thinkers, doers and innovators because our talent is our differentiator. Our culture today is helping us to be resilient and competitive. And our vision for the future is a culture that evolves, while continuing to foster a sense of comradery and belonging inspires our people to excel and engages them to co-create to deliver amazing client solutions. Throughout the strategy process, we challenged ourselves and our people to ask, what if? [Presentation]

We are embracing these opportunities as we set our strategy. With record-setting inflation worldwide, the race for talent heating up and pressure on new ways of working and the expectations from the workforce ever-changing, it's critical that we lead through these challenges. I've invited Shannon Miller, Head of Enterprise Risk Management and Talent Experience to join me to discuss how we will continue to nurture our culture and create a resilient, prepared and engaged workforce.

Thanks, Shelie. An engaged workforce is absolutely critical to our strategy and to our overall success. And I think it has to start with the environment we're creating here at Jacobs, a place where people can thrive, do the things that gives their career meaning and purpose and ultimately create a place where they can grow. One of our key focus areas is fostering a learning culture where our people are enabled to continuously learn new skills quickly, be curious, experiment and take smart risks, share feedback, help each other grow and celebrate those who learn, adapt and innovate. This brings the best solutions to our clients. It helps Jacobs evolve and be more resilient and it drives sustainable growth. It also attracts new talent to our teams and keeps our people connected, engaged and passionate about what they're doing. And part of loving what you do is having an interesting and fulfilling career. We've talked all about how our people can easily have multiple careers at Jacobs and never leave. This is enabled by the diversity of our work, our global footprint and our wide spectrum of clients. But navigating that is not easy. So we must look at talent as an ecosystem, and that's really what we're focused on at Jacobs. We are implementing technology, tools and resources to better match our people to opportunities. We have a connected global team and are continuing to drive ongoing improvements in how we collaborate with each other. This enables us to build and field a global resource bench for the expected pipeline of work associated with the infrastructure investment globally, as well as demand surges such as those in the semiconductor and life sciences space that both Tom and Patrick talked about earlier. We know that if we foster a learning culture and unlock career opportunities, we'll fuel long-term growth for our people and for Jacobs. Back to you, Shelie.

Thanks, Shannon. I really like thinking of talent as an engaged ecosystem, which ties to the topic on everyone's mind around talent, which is retention. We've done quite well overall in retaining talent at Jacobs. Steve talked about the change in our culture from 2015 to 2021, and a big part of our success has been to listen to our people, measure improvement and transparently share results. These positive changes have been recognized by our people and our qualities we will carry forward in our new strategy. We are working to quantify and add to the company's total employment value. The sum of all the parts of our culture, including purpose, benefits, flexible new ways of working, career opportunities, well-being, inclusion and diversity and many other components. Our culture survey results indicate our employees take pride in Jacobs. They feel they belong and are highly engaged and are aligned with our values. Steve and Bob both mentioned the importance of purpose today, and our new strategy further connects people to our purpose. That's what I'm excited about as we launch the strategy and continue to evolve our culture to support, empower and enable our people. When Steve started talking today, he spoke about accountability. We are fully committed to driving this next step change in our culture, and we will measure our progress and success through frequent pulse surveys and our people metrics. We will continue to hold leaders accountable by providing analytics to inform their decisions, and we will continue to tie compensation to their performance. Our future is bright and thinking back to those what-if opportunity statements, we will advance the employee experience to truly make Jacobs a world where you can. I'm now turning it over to Kevin Berryman, President and Chief Financial Officer, to summarize the financial growth targets.

As you have heard from our people across Jacobs, we are aligned behind a common purpose, with a comprehensive strategy to achieve robust growth, which translates into a compelling investment thesis for our shareholders. Let's take a deeper look at some of the key attributes of our business model. We have large and growing addressable markets across multiple thematic opportunities through both organic investments and a purposeful remixing of our portfolio in areas like digital consulting, data analytics, cyber and space-based ISR. We have been able to gain access to newer, higher growth markets. These actions have resulted in the expected growth rate of our addressable market, increasing from low to mid-single digits during our 2016 to 2019 strategy to 5% to 7% now, with further acceleration in 2025 and beyond. Consistent with our past actions, we plan to focus on the higher-margin opportunities within our key markets that will drive the ability to also expand operating profit margins while accelerating our revenue growth. Our deep technical expertise, well-documented past performance and vision for delivering innovative solutions, provides a distinct competitive advantage. Today, approximately 2/3 of our revenue is recurring from large, well-funded government contract vehicles or multiyear agreements with private sector customers. This recurring revenue provides a resilient base of highly consistent earnings. And over 2/3 of our expected next 12 months revenue is from revenue already in backlog. It is important to note that we typically backlog only the first 2 years of longer-term contracts over $75 million of annual value on a rolling basis. We believe this provides a better leading indicator of revenue growth as it strengthens the clarity of the medium-term growth outlook. Our business is also well diversified across the largest global economies with 70% of revenue from North America, 23% in Europe and the remainder mainly from Australia and New Zealand. Across these regions, we have strong relationships and scale with large government and private sector entities which gives us the ability to gain revenue synergies from introducing new technology and services at minimal incremental customer acquisition cost. Today, reimbursable billable hours represents 76% of our revenue, providing a hedge against inflationary increases in labor costs. More importantly, we are also applying technology-enabled solutions to solve inflationary impacts for our customers. We are creating and deploying new technology such as advanced digital twins, automated design, intelligent asset management and other software-based solutions from our StreetLight and BlackLynx portfolio. Over time, we expect that these technology solutions will result in a greater leverage of our existing talent base and drive a larger percentage of digital-oriented, high margin, recurring revenue for Jacobs. One of the exciting financial attributes of our business is that we have the flexibility to adjust our investments to a variety of macro environments, as our services are aligned to solving the ever-changing needs of the global economy. From 2018 to today, we have grown our business organically through the pandemic, with strategic acquisitions accelerating our performance. Today, we are well positioned to capitalize on strong secular growth trends with an attractive operating model that can deliver consistent and robust free cash flow going forward. Transforming the portfolio through organic investments and acquisitions is a key tenet of our strategy. We focus on a combination of the organic performance of the business and the pro forma growth, including targeted acquisitions. Our strategic acquisitions allow us to immediately gain access to new capabilities and technology to rapidly capture revenue and cost synergies. As a result, since 2018, we have been able to grow net revenue at a compound annual growth rate of 9% and 4% organically, excluding acquisitions. More importantly, we have remixed the portfolio such that the incremental growth is contributing at a higher incremental margin. Our 2021 adjusted EBITDA to net revenue margin grew to nearly 11% from just over 9% in 2018, and we grew adjusted EBITDA at a compound annual growth rate of 11% on a pro forma basis. Our disciplined approach to deploying capital has also resulted in an improved return on invested capital by nearly 250 basis points since 2018. We remain focused on acquiring value-added additions to the portfolio that deliver returns above our cost of capital, while improving absolute levels of ROIC over time. We also focus on free cash flow as a key financial metric. We track it both on a reported basis and adjusting for the impact of certain more discrete-related cash items. Our underlying free cash flow generation and conversion to adjusted earnings has continued to improve, consistent with our transformation efforts and has reached our stated target of at least 1x conversion versus adjusted net income. Let me now show you the history of our free cash flow and describe some of the nonrecurring items that impacted free cash flow as well as the impact from restructuring and integration efforts. In fiscal 2018 to 2019, we've made significant changes to our portfolio, including the $3.3 billion acquisition of CH2M and the sale of our oil and gas E&C business for $3.4 billion. These actions resulted in significant onetime costs to reshape our portfolio. At the same time, our underlying ability to drive cash flow dramatically improved, resulting in a strong balance sheet, which then supported the $2 billion investment in PA Consulting. As we look forward, we expect the discrete cash and P&L items to subside as we now established a transformed portfolio that is positioned to deliver a strong growth profile. As a result of these efforts, and the underlying cash-generative nature of our business, we continue to expect robust cash flow generation and are targeting onetime net free cash flow conversion to adjusted net income for fiscal 2022. And longer term, we see the opportunity to convert cash flow above 1x. Now let's hear from Kelly O'Connor, who is leading our growth and business process enhancement initiative, Focus 2023, to talk about how it unlocks our ability to accelerate our investments in growth and drive improved cash flow generation.

Thanks, Kevin. We've already taken several choreographed actions to transform Jacobs and to build on our culture of challenging today and reinventing tomorrow. The external environment is increasing the need to be bold around our solutions-oriented growth aspirations and to foster speed, agility and productivity. Our Focus 2023 program is designed to execute on these strategic imperatives, and it's tied directly to our differentiators of operational excellence, global delivery and digital enablement. For example, delivered actions to streamline and digitize our end-to-end project delivery and invoicing capability resulted in a 9-day reduction in DSO over a 15-month period and record free cash flow. As we look ahead, key elements of our Focus 2023 program, including enhanced cost structure through globally harmonized processes, executing automated design, such as in our advanced facilities business, to increase delivery quality and speed, decreasing our fixed costs, such as a 30% reduction in real estate footprint, which resulted in $38 million of run rate benefit and improved flexible workspaces for our people. Building capability to rapidly identify and scale solutions offerings for our clients and transforming our commercial models and revenue streams to drive higher margins. We expect these actions to result in $100 million of recurring benefit by the end of fiscal '22 and $200 million in the longer term. Our employees will experience an integrated and seamless global platform, our clients will benefit from cutting-edge advisory and technical solutions, and we will unlock value for our shareholders. Back to you, Kevin.

Wow, thanks, Kelly. As Kelly laid out, Focus 2023 helps accelerate our ability to drive further investment in our people and growth accelerators. Now let's discuss our financial performance expectations for 2022 to 2024. You have heard that our diverse portfolio is expected to provide strong financial performance under a variety of economic scenarios, with all parts of our business poised for significant value-added revenue growth. Let me highlight some underlying financial dynamics of each business. Critical Mission Solutions currently has a total new business pipeline of $30 billion, with over $10 billion in source selection. Our historical win rates on new business over the last 2 years has been 36%. With our rebid win rate, excluding contracts we decided not to pursue in the mid-80s. Within the $10 billion in source selection, we have numerous opportunities across the high priorities within federal budgets. We are specifically excited about a potential new large systems integration opportunity that would represent over $200 million of new annual revenue for the business. We expect to hear about this award around the end of the current calendar year. We also have several opportunities in excess of $50 million in annual revenue in areas such as Intelligent Asset Management. From a revenue growth trajectory, we now have materially lapped the impact of the 2 low-margin contracts and are poised for revenue growth over the balance of the year, which includes strong double-digit growth in the second half. While the impact of the continuing resolution is dampening the growth in the short term, we expect this near-term budgetary impact to be resolved in the coming weeks. The combination of our alignment to high priority, high-growth areas of the U.S. and other government budgets and a robust new business pipeline, provides us confidence to achieve double-digit adjusted operating profit growth. Moving to People & Places Solutions. And as Steve and Bob described, climate change, global infrastructure modernization and investment in supply chain improvements in semiconductors and life sciences are resulting in strong backlog growth. While the delay in the passing of the U.S. infrastructure bill, has impacted short-term revenue growth in the Americas, our largest People & Places segment, we expect a significant pickup in both conversion of new funding into sales opportunities and backlog later in 2022, with subsequent revenue growth materially beginning in fiscal 2023. As the Americas builds momentum, our advanced facilities unit, which includes our semiconductor and life sciences business, is already showing double-digit growth year-over-year and is expected to accelerate further over the balance of fiscal year 2022. In addition, our international business in People & Places has shown consistent and solid growth rates, which is expected to continue. This is the result of funding levels that have been more consistent from their respective governments. Finally, our investment in PA Consulting is well aligned to high-growth sectors of digital transformation and front-end strategic planning as customers continue to innovate their business models. As we highlighted on our first quarter 2022 conference call in detail, we believe there is upside to our evaluation as investors fully recognize the strong double-digit revenue growth and 20% operating profit margin profile of our PA Consulting investment. Turning to our 2022 to 2024 targets. From a total company standpoint, we expect a 7% to 10% CAGR in organic net revenue from fiscal 2021 to fiscal 2024, which is an acceleration from our performance from fiscal year '18 to '21. From an adjusted operating profit margin, we expect approximately 60 to 100 basis points of operating profit margin expansion. This results in strong double-digit adjusted operating profit and adjusted EBITDA growth. In addition, we expect continued improvement in ROIC of 125 to 175 basis points by the end of 2024. This robust performance positions the company to achieve our previously stated $10 adjusted EPS target in fiscal 2025. And when including the benefits of incremental investments in our climate response, data solutions, and consulting and advisory accelerators, we believe there is an upside scenario to reach over 10% net revenue growth over the period, which would include the benefits of both organic and inorganic investments. Note that we have not included any inorganic benefits in our previously noted $10 adjusted EPS target in fiscal year 2025. This strong organic growth is driven by several secular growth drivers that underpin multiple areas of our business. Let me provide a different lens that supports the ability for us to deliver the $10. We have over $7 billion of net revenue aligned against key global ESG priorities and infrastructure modernization. $2 billion of high-growth, high-margin data and consulting revenue, $1 billion of revenue associated with critical investments in supply chains, including semiconductors and pharma. And $1.5 billion of revenue related to the high priorities of national security and space exploration. Nearly every facet of our business is aligned to strong growth opportunities. So as we execute our new strategy, we expect the blended growth opportunity for those future earnings to be more robust and provide upside to what is implied in today's share price valuation. Now let me turn to discuss Divergent Solutions and its capability to support our growth through 2024 and beyond. As you have heard, we are working on operationalizing Divergent Solutions, and would expect the ability to report revenue and profit in the first quarter of fiscal 2023. Divergent Solutions will include our cyber and intelligence unit, rapid solutions space ISR business and all of our software and technology solutions, including BlackLynx, and recently acquired StreetLight Data. We also plan to transition a number of highly technical specialists from our people and places business that currently provide solutions for critical infrastructure environments such as cyber operational technology. In total, this represents over $1 billion of expected fiscal year '22 net revenue with an adjusted operating profit margin above 10%. Given the demand for these solutions, we expect these capabilities to grow net revenue strong double digits as we gain the ability to focus on this high-growth market and accelerate the adoption of the capabilities across Jacobs. I would like to provide some directional guidance on the makeup of Jacobs in 2024. In fiscal 2024, our People & Places business is expected to be close to $7 billion of net revenue with improving adjusted operating profit margin and aligned to a diverse set of growth opportunities, including infrastructure modernization, climate response and supply chain investments. As we exit fiscal 2024, our consulting advisory business and Divergent Solutions could represent over $3 billion of high-growth business with an operating profit profile approaching 20% of revenue. Critical Missions, excluding Divergent Solutions, could represent approximately $5 billion of long-term, highly recurring revenue aligned to high priority, secular growth trends of national security, space exploration and energy transition and with an improving margin profile. In addition to our ability to grow organically, our robust free cash flow through 2024 will generate significant balance sheet capacity to further deploy capital. When deploying capital, it is important to continually assess whether there is a material dislocation in our equity valuation and repurchase shares to drive shareholder value when this occurs. We have proven that we will be agile in this regard, with over $1.7 billion of share repurchases since this management team has led Jacobs with an average share price of $77. We have already highlighted our ability to deploy capital towards acquisitions and the significant impact on shareholder value. We have proven our ability to evaluate, execute and integrate partners that result in accelerated levels of organic growth, higher margins and higher ROIC. Our strategy remains to deploy capital in an agile manner that maximizes returns for our shareholders. If the future environment results in less attractive available strategic acquisitions that exceed the return profile of buying back our own shares, we plan to be more proactive, returning capital through share repurchases. Under this scenario, we would target a 2x net debt to adjusted EBITDA leverage, which translates to a potential $11 of 2025 earnings power. In the event that strategic investments aligned to our strategy become available at attractive returns greater than buying back our own shares, we would consider increasing the leverage up to 3x net debt to adjusted EBITDA and then quickly delever. Under this scenario, where more capital is deployed toward acquisitions, there is opportunity for earnings power to approach $12 per share in 2025. We are proud of what we have accomplished over the last 2 strategic planning periods. We have met the ambitious goals and targets that we set for ourselves, and are excited about the transformed company that we have become. As we look ahead, we believe our new strategy represents a culmination of the collective efforts of our teams around the globe. Now is the time to embrace this new future. It is tangible it is within our reach and aligned with our purpose. Steve, back to you.

Thank you, Kevin. I hope you all share our excitement for what's ahead for Jacobs. Our 3-year strategy is inclusive, targeted and boldly moves us forward to becoming a company like no other. We look forward to delivering on the vision we have set for our people, our clients, our communities and our shareholders, and I'm honored to work with this team to continue to challenge today and reinvent tomorrow.