Jacobs Engineering Group Inc. (NYSE:J) Q2 2024 Earnings Call Transcript

Jacobs Engineering Group Inc. (NYSE:J) Q2 2024 Earnings Call Transcript May 7, 2024

Jacobs Engineering Group Inc. misses on earnings expectations. Reported EPS is $ EPS, expectations were $1.84. Jacobs Engineering Group Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Jacobs Engineering Second Quarter 2024 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the conference over to Ayan Banerjee, Senior Vice President, Finance, Treasury, Investor Relations, Corporate Development. Ayan, you may begin your conference.

Ayan Banerjee: Thank you. Good morning. Our earnings announcement was filed this morning and we have posted a slide presentation on our website, which we’ll reference during the call. I would like to refer you to Slide 2 of the presentation material for information about our forward-looking statements, non-GAAP financial measures, and operating metrics. Turning to the agenda on Slide 3. Speaking on today’s call will be Jacobs’ CEO, Bob Pragada; and Interim CFO, Kevin Berryman. Bob will begin by providing an overview of recent activities, then summarizing highlights from our second quarter results. Kevin will provide a more in-depth discussion of our financial metrics as well as a review of our balance sheet and cash flow. With that, I’ll turn it over to CEO, Bob Pragada.

Robert Pragada: Thank you, Ayan. Good day everyone and thank you for joining us to discuss our second quarter fiscal year 2024 business performance. I want to welcome Kevin Berryman, previously our President and Chief Financial Officer back, following his appointment as interim CFO. Kevin brings a wealth of experience and expertise to this role, having served as our CFO for over nine years. During his tenure, he played a pivotal role in navigating significant transformations and driving growth across our organization and most recently, has demonstrated exceptional leadership in overseeing the ongoing separation of our Critical Mission Solutions and Cyber Intelligence businesses as well as its planned strategic merger with Amentum.

As we move forward, we have initiated to search for a permanent CFO with the assistance of an executive search firm. We are working towards concluding this search expeditiously and are grateful that Kevin has agreed to remain at Jacobs through the close of the separation transaction to provide overlap with our next CFO and ensure a smooth transition. Now, moving to Slide 4. I want to emphasize our solid progress on the cost optimization plan. We continue to prioritize simplifying our business model, optimizing our cost structure, expanding margins, and accelerating profitable growth across our lines of business. Our strategic shift towards a less complex, higher value, and higher margin portfolio remains on track. We are actively identifying opportunities to streamline our operating model and enhance efficiency, while continuing to deliver world-class value-added scientific-based, digitally-enabled solutions to create a more connected and sustainable world.

We have made significant progress on our Critical Mission Solutions and Cyber Intelligence separation planning. We’re pleased to report that we have now achieved a significant milestone by receiving all approvals and clearances under competition and foreign direct investment laws that are conditioned to the separation transaction. We are steadily advancing our Form 10 filing targeted for early summer. We expect to fulfill the remaining closing conditions and complete the transaction in the second half of the fourth quarter of fiscal year 2024. Turning to Slide 5 and Q2. I’m pleased to report solid second quarter consolidated revenue, driven by 5% growth and 3% adjusted net revenue growth that is entirely organic. Backlog increased 2% year-over-year and gross margin in backlog increased approximately 50 basis points year-over-year, boosting confidence that our business will continue to deliver profitable growth.

Turning to Slide 6. People & Places Solutions line of business reported another quarter of solid top line growth as we continue to execute against our strategy of prioritizing profitable growth over absolute growth. As demonstrated by P&PS, record adjusted operating margin of 15.3% and strong adjusted operating profit growth of 15.3% year-on-year. We continue to drive organic revenue growth up 7.5% and adjusted up 5.6% year-over-year. Our pipeline remains robust, and we continue to expect P&PS organic revenue growth of mid to high single-digits in FY 2024. During the quarter, we have delivered several marquee wins across multiple core market sectors. In transportation, we have been selected as Amtrak’s delivery partner for the $6 billion Frederick Douglass Tunnel program, America’s busiest passenger railroad, one of the largest national transportation and infrastructure investments and the most significant IIJA Award to-date.

The team will provide program and construction management services from contract initiation through service commissioning for two high-capacity tunnel tubes for electrified passenger trains, improving rail systems and enhancing accessibility to transform this 10-mile section of the Northeast Corridor. PA Consulting is an integral part of our program management team, demonstrating their emerging presence in transport in the U.S. and the power of our collaborative partnership. In Aviation, we continue our long-term relationship with Los Angeles World Airports to provide program management services at Los Angeles International Airport. Infrastructure improvements at LAX will enhance the city’s preparedness for upcoming sporting events, including the Los Angeles 2028 Olympics.

Water remains a critical growth catalyst with several strategic wins across our key geographies, further bolstering our position in the sector, as evidenced by our appointment by Miami-Dade County Water and Sewer Department to design upgrades for the county’s three wastewater treatment plants, benefiting nearly 2.4 million residents and hundreds of thousands of visitors each year. Jacobs will incorporate Intelligent O&M, a digital one water solution from its suite of digital products to provide our confident decision-making and to achieve greater efficiencies, reducing wastewater treatment costs, and optimizing operational labor. Additionally, we were selected by United Utilities, one of the U.K.’s largest listed water companies to its strategic solutions team supporting program optimization for major capital works through the AMP8 and AMP9 cycles, which cover the period from 2025 to 2035.

Furthermore, we were selected by Water Corporation, the largest water utility in Western Australia to design, build, operate, and maintain the Alkimos Seawater Desalinization Plant in Perth, Australia. The project, part of an alliance with Water Corporation and ACCIONA is expected to ultimately produce 26 billion gallons of drinking water. In recent weeks, significant regulatory steps have been taken in the environmental sector. The U.S. EPA set maximum contaminant levels for five PFAS compounds. The first major U.S. drinking water legislation in 20 years and classified two PFAS compounds as hazardous under the Superfund program, expanding our potential for environmental management and compliance services. Internationally, the EU has also progressed, banning certain PFAS compounds and moving forward with risk evaluations.

These developments are expected to increase demand for our consulting, engineering, and remediation services. We’ve been working with and advising our clients about how these anticipated regulations will impact them since discussions began some years ago. Now, that the regulations are finalized, we’re having robust conversations with our clients about their options to navigate this next chapter. PA Consultant is working with companies that have PFAS materials in their products and advising on how to remove them from their products and supply chains as well as assessing how to create alternative materials. With our expertise, strong market presence, and leading position as demonstrated by our ongoing work with the Department of Defense, U.K. government, and Australian Aviation authorities, Jacobs is ready to lead in this evolving space.

In Life Sciences, our overall pipeline continues to grow at double-digit rates year-over-year, driven by long-term relationships. There are significant opportunities in the pipeline and we are well-positioned for continued growth. In CMS, Q2 revenue was up 3% year-over-year and adjusted operating profit increased 10% with approximately 50 basis points of margin expansion. The CMS team is executing well, and we continue to see several positive trends for long-term growth as the team prepares for the merger with Amentum. PA Consulting delivered among an industry-leading adjusted operating margin of 20.5% with solid execution and cost discipline. We continue to expect the remaining quarters in FY 2024 to exceed 20% adjusted operating margin. Our partnership with PA continues to be a differentiator for us with some nice wins in the quarter, including the previously mentioned Frederick Douglass Tunnel and an appointment to the HM Revenue & Customs multibillion-pound framework in the U.K., intended to upgrade software systems across the government agency.

Divergent Solutions delivered a solid adjusted operating margin performance at approximately 10% and adjusted operating profit growth, which would have been approximately 13% excluding a large license sale to Palantir in the comparison period. Our suite of digital products and platforms are elevating the value we can provide to our clients globally. In summary, we remain well-positioned to capitalize on the growth opportunities across our core market sectors. Now, I’ll turn the call over to Kevin to review our financial results in further detail.

Kevin Berryman: Thank you, Bob. We are pleased with our Q2 results, leading to another strong quarter. We are steadfast in our commitment to providing high-value solutions with improved margins, supported by our continued emphasis on operational excellence and execution. So, let me begin by summarizing a few of the highlights for the quarter on Slide 7. Second quarter gross revenue grew 5% year-over-year and adjusted net revenue grew 3%. GAAP operating profit was $281 million for the quarter and included $53 million of amortization from acquired intangibles and $58 million of transaction, restructuring, and other costs, including $47 million associated with the separation transaction. We still expect our total restructuring cost to be approximately $275 million for the fiscal year, materially driven by the separation transaction.

Our adjusted operating margin was 11.3%. I’ll discuss the underlying dynamics during the reporting segment review. GAAP EPS from continuing operations was $1.29 per share and included a $0.28 impact related to the amortization charge of acquired intangibles and $0.34 from transaction, restructuring, and other related costs, all of which were materially driven by the separation transaction. Excluding these items, second quarter adjusted EPS was $1.91, marking a 7% decrease compared to the previous year. When adjusting for last year’s second quarter discrete tax benefit of $0.32, our current non-GAAP EPS represents an approximately 10% year-over-year increase. Looking forward, we anticipate maintaining an annual effective tax rate of 22% for the full fiscal year.

Q2 adjusted EBITDA was $393 million and was up 10% year-over-year, representing a strong 11.3% adjusted net revenue. Finally, backlog was up 2% year-over-year. The revenue book-to-bill ratio was 0.96 times with our gross profit and backlog increasing 4% year-over-year. Excluding a one-time change in government funding strategy with regard to Space ISR programs, which I’ll describe in more detail during my segment comments, our book-to-bill ratio for the quarter would have been approximately 1.06 times, with significant strength in pipeline growth and expected large wins in Q3 and Q4. Regarding the performance of our lines of business in the quarter, let’s turn to Slide 8. We are particularly pleased with our performance in People & Places Solutions.

Q2 adjusted net revenue was up 5.6% year-over-year. Adjusted operating profit growth was strong at 15.3%. Reflecting our commitment to higher end profitable growth, the segment saw a record adjusted operating margin of 15.3%, up approximately 130 basis points year-over-year. We continue to see solid momentum in both growth and profitability in the business. Our backlog has grown by 2% year-over-year and we’ve seen a 7% increase in the gross profit in our backlog. This improvement reflects our ongoing efforts to enhance the quality of our bids and project wins as we expect some critical large wins to occur in Q3. Moving to Critical Mission Solutions. Our Q2 revenue increased 3.2% year-over-year with backlog up 3.9%. Our adjusted operating profit was up 10.3% year-over-year, while CMS adjusted operating margin rose by approximately 50 basis points year-over-year as the business continued to find avenues of operational improvements.

While a recent program loss will put some short-term pressure on the second half, our recent successes in shorter-cycle awards is expected to help mitigate the impact. Our work remains mission-critical, allowing the business to show long-term resilience against shifts in government funding and program adjustments. Let’s now focus on Divergent Solutions. During Q2, we observed an 11% year-over-year decrease in adjusted net revenue and 24% decrease year-over-year in adjusted operating profit. Excluding a one-time Palantir license in the previous period, adjusted operating profit would have been up 13% year-over-year. While backlog was negatively impacted by a change in funding strategy with the DoD on space-based ISR programs, we are encouraged by the positive momentum in near-term sales, which we believe will contribute to our ongoing success.

Now, let’s turn our attention to PA Consulting. Q2 saw a slight decline of 2% in year-over-year revenue, driven by a continued challenging macro environment in the consulting industry and a solid year ago comparable. However, cost and execution discipline helped deliver a strong adjusted operating margin of 20.5%, a 270 basis point increase from the previous sequential quarter. As we emphasized during our last earnings call, our industry position is uniquely differentiated and our work is both purposeful and critical. As a result, PA continues to deliver ongoing positive momentum in bookings and pipeline growth. We remain confident in our ability to deliver strong adjusted operating profit margins, targeting above 20% for the second half of the year.

Our adjusted unallocated corporate costs were $59 million in Q2. We continue to make progress on simplifying and optimizing our operating model and driving costs down. We expect this line item post separation to trend towards $50 million per quarter or $200 million annually. Turning to Slide 9 to discuss our balance sheet and cash flow. After delivering a strong free cash flow in Q1, our quarterly free cash flow was negative $71 million in Q2 as working capital increased the planned levels from the exceptional performance in Q1. Despite this impact in the second quarter, our reported free cash flow conversion for the first half of the year has remained at approximately 100%. And as a result, we are well-positioned to deliver on our forecast, maintaining 100% reported as well as adjusted free cash flow conversion for the full year.

Regarding capital allocation, we opportunistically repurchased $95 million of shares during the quarter, reflecting our commitment to delivering consistent return of capital to our shareholders. We still have $679 million remaining under our current repurchase authorization. And as we have said, we will remain dedicated to returning capital to shareholders, while remaining committed to maintaining an investment-grade credit profile. We ended the quarter with cash of $1 billion and gross debt of $3 billion. Our Q2 net debt to adjusted EBITDA of approximately 1.3 times remains a clear indication of the continued strength of our balance sheet. Given the strength of the balance sheet, we feel comfortable with a portion of our debt having become current in Q2.

We have ample options: refinancing, using proceeds from our upcoming separation transaction, and/or accessing our revolver. As of the end of Q2, approximately 37% of our debt is tied to floating rate debt, and our weighted average interest rate was approximately 5.2%. Finally, given our strong balance sheet and year-to-date free cash flow, we remain committed to our quarterly dividend. The Board has authorized a quarterly dividend of $0.29, an 11.5% year-over-year increase to be paid on June 21st. Bob, back over to you.

Robert Pragada: Thank you, Kevin. Turning to Slide 10. Due to our continued momentum across our business, we feel confident in our ability to reach our previously stated objectives. As a result, we are narrowing the range for fiscal year 2024 adjusted EBITDA to $1.54 billion to $1.585 billion, and adjusted EPS to $7.80 to $8.10, representing a 9% and 10% growth year-over-year at the midpoints, respectively. This guidance incorporates Q2 adjusted EPS of $1.91 and a 26% to 27% adjusted effective tax rate each quarter for the remainder of the fiscal year. Additionally, this represents a 13% EPS growth in the second half of fiscal year 2024 versus the year ago period. In closing, we are invigorated as demand for our science-based digitally-enabled solutions remains strong, with clients continuing to select Jacobs to address their most complex challenges.

We are exceptionally well-positioned to capitalize on the momentum in the critical infrastructure market and we remain confident in our ability to grow market share and fulfill the needs of our clients across key sectors. Operator, we will now open the call for questions.

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Q&A Session

Operator: Thank you. We will begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Andy Kaplowitz with Citigroup. Please go ahead.

Andy Kaplowitz: Good morning everyone.

Robert Pragada: Hi, good morning Andy.

Kevin Berryman: Good morning Andy.

Andy Kaplowitz: Bob or Kevin, can you give us more color into what’s going on with Jacobs’ backlog and how to think about it going forward? I know that you said backlog in People & Places is up about 2% year-over-year, but can you elaborate a bit more on the larger prospects you’re talking about for Q3? Do you see a nice acceleration in backlog growth in the second half in People & Places? And then maybe just a change in the space-based ISR impacting Divergent, that business is going with CMS, the deal or correct, but could you give us some more color on what happened there?

Robert Pragada: Sure. So, maybe I’ll start off with P&PS and then Kevin can talk about kind of the entirety. So, in P&PS, Andy, a couple of things. One is timing. We’ve got — let me first off by saying that as a gross number, the P&PS backlog represents a record backlog for the segment since we formed it nearly five years ago. So, kind of point one there. As far as the growth, we’ve kind of got tied a little bit into some timing of some of the larger programs that drive the backlog. Our book-to-bill is still over 1, and in the second half with expected awards, some of which we’ve already received in the first month of the quarter, we’re going to see a real acceleration in the backlog in P&PS. Kevin, you want to talk about the overall as well as Divergent?

Kevin Berryman: Yes. Look, I think the dynamics associated with Divergent and you’re right, that part of the business is going to be part of the separation, so it’s in the parameter of the separation transaction, Andy. And look, there was a change in funding strategy, whereby the technology and associated projects that we have are still considered viable and probably the best technologies to be utilizing going forward, but because of deciding how they were going to be funding it, DoD is handing over that responsibility to the intelligence community. So, while long-term, we have a reduction — well, short-term, we have a reduction in our backlog because the DoD is handing that over, we’re starting to, right now, see immediate build back up in some of those projects being now embedded into the intelligence community.

While it represents certainly a delay in some of the burn of that project, our expectation is longer term, that DVS will start to see that same backlog come back into their kind of backlog over the course of the next year-plus, and consequently, we’ll have to build up the burn once again. And so if you think about those two dynamics, I think those are kind of short-term dynamics when you include People & Places. And when you see the outlook for the rest of the year, we’re feeling pretty good about our backlog growth and book-to-bill over the balance of the year.

Andy Kaplowitz: Very helpful. And then just People & Places margins, obviously very good performance. I know you’ve been sort of allocating corporate costs. Maybe how much did you end up allocating to the segment? And can you talk about whether you’re actually in a better trajectory than you guided when you talked about it being better than the 14.6 that you did last year in People & Places?

Robert Pragada: Yes. So, on the first part, that allocation hasn’t changed since we talked about it last quarter, so that’s remained consistent. And we’re not going to change that philosophy. Really, this quarter, the mix that we saw specifically around Water and Life Sciences, when we think about it, those are two segments, Andy, that are growing at double-digit rates. And from a pipeline standpoint, I mean, both are nearly — the pipelines are doubling on a year-on-year basis. So, that mix of higher-margin work that’s coming in is really driving that growth.

Andy Kaplowitz: Thanks guys. Kevin, welcome back even though that you really didn’t leave. Thanks.

Kevin Berryman: Thanks Andy.

Operator: Your next question comes from the line of Judah Aronovitz with UBS. Please go ahead.

Judah Aronovitz: Hi, thanks for taking the question. Calling in for Steve Fisher. First question is, what has changed in the background in the second half that drove your guidance change?

Robert Pragada: Can you say that again? I’m sorry.

Kevin Berryman: Sorry, didn’t follow the question.

Judah Aronovitz: Yes, sorry. I guess what’s changed in the background that drove your guidance change? Like anything going on in the second half that is maybe different than your prior expectations?

Kevin Berryman: No. Look, I think at the end of the day, we feel as if we’re being prudent in our guidance, and it still represents a 13% year-over-year kind of increase in EPS. So, I think at the end, we’re sitting here saying, that’s a good ending result. We’re being prudent in the establishment of that. And of course, it’s offsetting some of the things that we know are already in our numbers, the inventory write-offs that we had in the first quarter. So, I think it’s quite actually a positive.

Judah Aronovitz: Okay, that’s helpful. And my second question is about project selectivity. How is that playing out in your business and what kind of projects are you saying no to, and how often are you saying no? thank you.

Robert Pragada: Yes. Project selectivity is — we’ve always had that. And that has become kind of a primary focus for us as the opportunities have increased. Talk a little bit about Water and Life Sciences, in our Transportation business right now, our win rates have been the highest, you could say, in the highest in the market. And they’ve been the highest that we’ve experienced, and a lot of that comes from because it’s subjective evaluation from what we put our effort and our money behind on trending. Probably the biggest component of that is around long-term client relationships. We’re not out looking for work. We’ve been with our clients for decades. And if you think about 3,700 clients around the world and over the course of the last 20 years, that’s a 2% client turnover. And so when we’re with a client, we’re there for the long-term.

Operator: Your next question comes from the line of Michael Dudas with Vertical Research. Please go ahead.

Michael Dudas: Good morning Bob and Kevin, and welcome back as well.

Robert Pragada: Hi Mike.

Kevin Berryman: Thanks Mike.

Michael Dudas: Bob, you mentioned in your prepared remarks life science and an expanded pipeline. And maybe generally in Life Science, semi data centers, some of the more facilities work, the conversion timing and level relative to those businesses? I certainly haven’t a diversity help. So maybe you can share a little bit about how that plays through and maybe through the second half, which might incorporate some of those projects you’re talking about and still the momentum from the client work that you’re seeing into 2025.

Robert Pragada: Sure. So maybe I’ll start with in sciences and then talk about semi kind of the electronics world right now. I mentioned this before, Mike, within our life sciences world, you’ve heard a lot about GLP-1 and everything is going around the obesity drug. If you look at the two biggest ones that are in that space, our work that we do for them represents nearly over 50% of the capital that they put in place. So that work continues to be a big driver. But what’s also happening is two other dynamics. One is around oncology. There are quite a few advances that are happening around oncology. And so timing on those was maybe a little slower than we wanted over the course of the last few quarters. But going into the second half, those jobs are right in front of us, and we’re well positioned for those.

The last dynamic around Life Sciences is just sheer capacity. Here, the CEOs of life sciences companies and biotech companies talk about capacity as the biggest choke point. The contract manufacturing world is on the rise as well. So we’ll have some good news here in the second half and actually in Q3 around what’s going on in that contract manufacturing space. Semiconductor, a lot of stuff in the news right now about the ubiquitous world of chip manufacturing and how AI is driving not just chip manufacturing but also data centers. We’re seeing that. The chips money has now been delivered to the market, and some of the largest players have benefited from that. So we’re seeing projects that we’ve already been involved with talk about Phase 2 of those.

And so we’ll have more to say as those become public in the second half, but it’s really the entirety of the ecosystem of the chip manufacturing and semiconductor world. Starting from the R&D facility through manufacturing and now you’ll hear a lot more about test and assembly and those test and assembly facilities coming to the US. So, we’re excited about what’s going on. And then in data centers, the power usage of these are creating opportunities for us with regards to power and cooling, the water requirements on now what could be 1 gigawatt data center. So, really, really positive story there.

Michael Dudas: Thank you, Bob. And my follow-up is maybe for either one on PA. How do you see the macro in the second half of the year and certainly seems like internal opportunities are helping drive a bit more on the margin? And is there an opportunity to get some more maybe profit growth along with some net revenue growth into 2025 as you’re looking at it today?

Robert Pragada: Yes. Maybe I’ll make a couple of comments on the opportunities and on backlog, and then Kevin can talk about the margins. What gets embedded in is the PA backlog was actually up 8% year-over-year. And so we’re starting to see that momentum of those opportunities and those collaborative opportunities come through. So that’s exciting news there. And a lot around the U.K. macro has been driving the business with at least hopefully some clarity that there’ll be an election in the U.K. in the second half of the year, we’re already starting to see the pipeline grow in the sales performance in the last month of the quarter kind of drove the business. So, the momentum is there. And then given we’re talking about the margin.

Kevin Berryman: Yes. Look, I think the team has done a really good job, Mike, relative to rightsizing the organization, given some of the challenges in the overall consulting industry, which obviously is impacting PA to a certain extent. But they’re very well positioned, especially in the U.K. market. And so we’re feeling good about their ability to be delivering that 20% plus margin in the back half of the year. And so longer term, I think that, that translates into numbers going on from there as well. And look, I think as we enter the end of the calendar year, we do have the dynamic of the U.K. election. So, we’re going to have to watch that carefully to see what impacts are — but what we have right now is pretty clear visibility on our Q3 and Q4 reported numbers in terms of the health of the PA business, not substantial growth, but certainly good solid execution in the balance of the fiscal year for us.

Michael Dudas: Thank you, gentlemen.

Operator: Your next question comes from the line of Jamie Cook with Truist Securities. Please go ahead.

Jamie Cook: Hi. Good morning. A couple of questions. One on people in places, the margins implied in the back half of the year, Kevin, I think, are down relative to where we were in the second quarter. I know you spoke to mix. But with backlog — with gross margins and backlog being up, I’m just wondering what’s going on there? Or is there just some level of conservatism in your margin guidance? And then my second question, just on the large awards that you’re expecting in the back half of the year. I’m assuming that you don’t need any of these awards to make your guide for 2024. So I guess I’ll start with those. Thank you.

Kevin Berryman: Well, let me start on the first one. Look, I think 15.3% that we saw people in place is a record, is at a high level. And consequently, I don’t think we can assume that every quarter is going to be 15.3% just because of the factors associated with cost of mix and what actually hit us during a particular quarter. I will say that as we think about our margin profile, we’re feeling better about it today than we felt last quarter. So I can characterize it from that perspective. It doesn’t mean we’re going to hit 15.3% in Q3 and Q4, but I think we’re going to end the year at numbers that are going to be pretty darn attractive.

Robert Pragada: And then on the awards, Jamie, those are — when I say are they part of the guide or not part of the guide, our guide incorporates the probability waiting for the award. But we’re feeling optimistic about not just the award anticipated awards, but the pipeline. The pipeline is looking extremely robust in PPS.

Jamie Cook: Okay. Thank you.

Operator: Your next question comes from the line of Sangita Jain with KeyBanc Capital Markets. Please go ahead.

Sangita Jain: Yes. Hi. Thanks so much for taking my question. So I just wanted to ask about Saudi Arabia and the Kingdom seems to be scaling back on parts of the NEOM project. So I just wanted to hear what you guys are hearing and what your exposure there might look like?

Robert Pragada: Sure. So maybe I’ll just talk about broadly Saudi and then specifically on NEOM. Broadly, Saudi, the pipeline of work continues. And it’s — for us, it’s a diverse pipeline. We don’t index towards a specific type of offering. We’ve got value-added services that we provide to the entire life cycle of these programs. And if you look at the pipeline, the infrastructure component of it, the transportation, whether it be in aviation or in rail as well as the water opportunities that we’ve had have been pretty robust. So, we just announced a major expansion of the Riyadh, the new Riyadh airport that’s going on that’s in full force as well as the water infrastructure that we’re putting in place. Our exposure on NEOM, even with the pullback on NEOM as far as the 170 kilometers, the work that’s going on right now has not ours has not abated and continues to go on schedule for not just the personal canal that we’re dedicating towards the job, but the growth that we see in the job as well.

Sangita Jain: That’s super helpful. And if I can ask, you gave us a rundown of a lot of your key end markets. Maybe just a little bit on the power and energy market and what you may be seeing there here as well as in the U.K. on power, transmission and renewables?