Executive Summary / Key Takeaways

• Jacobs Solutions has successfully transformed into a focused, higher-margin business centered on Infrastructure & Advanced Facilities and PA Consulting, following the separation of its CMS and C&I segments.
• The company is strategically aligned with robust global mega-trends in Water & Environmental, Life Sciences & Advanced Manufacturing, and Critical Infrastructure, driving record backlog growth and a strong pipeline.
• Technological differentiation, particularly in digital and AI-enabled solutions, provides a competitive edge, enhancing project efficiency and expanding service offerings across the asset lifecycle.
• Recent financial performance demonstrates solid adjusted net revenue growth and significant adjusted EBITDA margin expansion, with management guiding for continued sequential improvement and double-digit adjusted EPS growth in fiscal year 2025.
• A strong balance sheet and robust free cash flow generation support strategic capital allocation, including significant share repurchases, dividend growth, and potential M&A or increased investment in PA Consulting.

Engineering a Focused Future

Jacobs Solutions Inc. (NYSE:J) is undergoing a significant transformation, shedding legacy segments to sharpen its focus on higher-value, higher-margin consulting and project delivery services. The company, with roots tracing back through Jacobs Engineering Group Inc., has strategically evolved over the past several years, culminating in the recent spin-off of its Critical Mission Solutions (CMS) and Cyber & Intelligence (C&I) businesses into Amentum Holdings, Inc. This move, completed in September 2024, represents a deliberate strategic shift aimed at creating a simpler, more profitable portfolio better aligned with critical global investment mega-trends.

The "new" Jacobs is now primarily structured around two operating segments: Infrastructure Advanced Facilities (IAF) and its majority stake in global innovation and transformation consultancy, PA Consulting. This focused approach positions Jacobs to capitalize on burgeoning demand in areas like aging infrastructure, climate resilience, energy transition, and advanced manufacturing. The company's strategy, dubbed "Challenge Accepted," emphasizes redefining the asset lifecycle for clients and delivering resilient, digitally-enabled solutions across its core end markets: Water and Environmental, Life Sciences and Advanced Manufacturing, and Critical Infrastructure.

In the competitive landscape, Jacobs operates alongside major players such as Quanta Services (PWR), Booz Allen Hamilton (BAH), and Parsons Corporation (PSN). While PWR holds a larger market share in certain infrastructure-heavy segments and PSN demonstrates faster revenue growth, Jacobs differentiates itself through its deep technical expertise, integrated consulting approach, and a growing emphasis on digital and AI-enabled solutions. BAH, a strong competitor in government consulting and cybersecurity, highlights the importance of specialized knowledge and client relationships, areas where Jacobs also seeks to excel, particularly with its retained DVS capabilities and PA Consulting partnership. Jacobs' strategic positioning leverages its global network and end-to-end service offerings to compete effectively, aiming to capture market share through value-added services rather than solely on scale or speed in all areas.

A cornerstone of Jacobs' strategy and a key competitive differentiator is its investment in data and digital capabilities. The company is actively developing and deploying proprietary technology platforms and tools, such as its Digital OneWater Solutions, including Aqua DNA, and is exploring applications like the NVIDIA (NVDA) AI Factory Digital Twin Blueprint for optimizing data centers. These technologies are designed to help clients operate more efficiently, enhance decision-making across the entire asset lifecycle, and improve resilience and sustainability. While specific, comprehensive quantitative performance metrics comparing these technologies directly against all competitor offerings are not publicly detailed, the company emphasizes that these digital tools empower clients with data analytics, digital architecture, advisory services, software development, and cybersecurity. The strategic intent behind this technological focus is to drive greater efficiency, cost-effectiveness, and resilience for clients, thereby strengthening Jacobs' competitive moat, enabling higher-value engagements, and supporting margin expansion. Research and development initiatives in this area aim to further integrate AI and digital solutions into core service delivery, enhancing project outcomes and expanding the company's addressable market in digitally-driven consulting and project management.

Performance Reflecting Strategic Focus

The initial results from the focused portfolio demonstrate positive momentum. For the second fiscal quarter ended March 28, 2025, Jacobs reported adjusted net revenue growth of over 3% year-over-year, which would have been approximately 4% excluding adverse impacts from a consolidated joint venture legal matter and foreign currency fluctuations. Adjusted EBITDA for the quarter increased 8% year-over-year to $287 million, resulting in an adjusted EBITDA margin of 13.4%, a 62 basis point improvement from the prior year period. Adjusted EPS grew over 22% to $1.43, supported by solid margin expansion and capital allocation.

First half fiscal year 2025 results for continuing operations showed adjusted net revenue growth of 3.4% and adjusted EBITDA growth of 11.3%, leading to a 6-month adjusted EBITDA margin of 13.5%. While GAAP net income was impacted by significant pre-tax mark-to-market losses on the retained Amentum stock investment ($109.5 million in Q2, $254.7 million in H1), these did not affect adjusted results. The company also absorbed a reserve related to an unfavorable interim ruling against a consolidated joint venture in the IAF segment during Q2, which impacted revenue and operating profit but had a lesser effect on EBITDA and EPS due to non-controlling interest accounting. Restructuring costs related to the separation transaction also impacted SGA expenses but are expected to decline.

Segment performance highlights the strategic alignment. IAF experienced revenue growth driven by strong performance in Advanced Facilities and the Asia, Pacific, and Middle East regions. Within IAF, Water and Environmental, Life Sciences and Advanced Manufacturing, and Critical Infrastructure showed varying growth rates, with Water and Environmental and Life Sciences exhibiting particularly strong momentum and pipeline growth. PA Consulting delivered a positive inflection in revenue growth in Q2, reaching mid-single digits, and achieved double-digit operating profit growth with a strong 22% margin, benefiting from momentum in Energy & Utilities, Life Sciences, and improving UK public sector spending.

Jacobs' backlog reached a record $22.2 billion in Q2 2025, up 20% year-over-year, with a trailing 12-month book-to-bill of 1.3x. Gross profit in backlog also increased significantly (15% year-over-year in Q2), reflecting a favorable mix shift towards higher-value services and end markets like Water and Life Sciences. This robust backlog provides strong visibility for future revenue growth.

Financially, the company maintains a strong balance sheet. As of March 28, 2025, liquidity included $1.20 billion in cash and equivalents and $1.44 billion in available borrowing capacity under its Revolving Credit Facility. Net leverage stood at 1.1x on an LTM adjusted EBITDA basis in Q1 2025, moving to the midpoint of the 1.0x to 1.5x target range by the end of Q2 2025. Recent financing activities included entering the 2025 Term Loan Facility and completing an Equity-for-Debt transaction, exchanging Amentum shares for debt, which reduced outstanding borrowings.

Cash flow generation, while seasonally slower in the first half due to tax payments and working capital dynamics, is expected to see a substantial step-up in the second half of fiscal 2025. The company is targeting over 100% reported free cash flow conversion for the full year. Capital allocation priorities include investing in organic growth, returning capital to shareholders through dividends (recently increased to $0.32 per share) and share repurchases (a new $1.5 billion authorization was approved, with significant activity in Q1 and Q2 2025), and evaluating potential M&A or increasing its investment in PA Consulting.

Outlook and Considerations

Management reaffirmed its fiscal year 2025 outlook, projecting adjusted net revenue growth in the mid- to high single-digit range, an adjusted EBITDA margin between 13.8% and 14%, and adjusted EPS in the range of $5.85 to $6.20. This guidance implies double-digit growth at the midpoint for both adjusted EBITDA and adjusted EPS year-over-year. The outlook is supported by the strong backlog, expected sequential revenue and margin improvement through the second half of the year, and anticipated growth acceleration in key end markets like Water and Environmental and Life Sciences and Advanced Manufacturing. A higher effective tax rate of approximately 26% is expected in FY25 compared to prior years, primarily due to the absence of certain discrete tax benefits.

Key risks and challenges include potential impacts from international trade issues and tariffs, which the company is monitoring and advising clients on, and the ongoing JV legal matter, for which management believes they are appropriately reserved. While geopolitical uncertainty and potential policy changes (like the rollout of DOGE or impacts from elections) are factors, management currently sees de minimis impact from DOGE and believes their core end markets are driven by long-term secular trends less susceptible to near-term political oscillations. Restructuring costs are expected to decline significantly in FY25, contributing to a cleaner financial profile moving forward.

Conclusion

Jacobs Solutions has successfully executed a strategic transformation, emerging as a more focused, higher-margin entity aligned with compelling global growth drivers. The company's core strength lies in its deep domain expertise across critical infrastructure and advanced facilities, augmented by its strategic partnership with PA Consulting and differentiated digital and AI capabilities. Record backlog and a robust pipeline underscore strong demand and provide visibility for future revenue growth. Despite absorbing specific headwinds like the JV legal matter and navigating a dynamic macro environment, Jacobs' recent performance demonstrates solid operational execution and margin expansion. With a strong balance sheet and a clear capital allocation strategy focused on organic growth and shareholder returns, Jacobs is well-positioned to deliver on its fiscal year 2025 guidance and pursue its long-term objectives in a competitive landscape increasingly shaped by technological innovation and the need for resilient, sustainable solutions.