Jacobs Solutions Inc (J) — Q1 2020 Earnings Call Transcript

Good morning and afternoon to all. Our earnings announcement was filed this morning. We have posted a copy of this slide presentation to our website, which we will reference in our prepared remarks. I'd like to refer you to our forward-looking statement disclaimer, which is summarized on Slide 3. Certain statements contained in this presentation constitute forward-looking statements, as defined in Section 27A of the Securities Act of 1933, as amended; and Section 21E of the Securities and Exchange Act of 1934, as amended. Such statements are intended to be covered by the safe harbor provided by the same. Statements made in this presentation, as well as updates on historical facts, are forward-looking statements. Although such statements are based on management's current estimates and expectations and currently available competitive, financial, and economic data, forward-looking statements are inherently uncertain. You should not place undue reliance on such statements as actual results may differ materially. We caution the reader that there are a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from what is contained, projected, or implied by our forward-looking statements. For a description of these and other risks, uncertainties, and factors that may occur that could cause actual results to differ from our forward-looking statements, see our Annual Report on Form 10-K for the year ended September 27, 2019, and our quarterly report on Form 10-Q for the quarter ended December 27, 2019, just filed this morning. We are not under any duty to update any of the forward-looking statements after the date of this presentation to conform to actual results unless required by applicable law. During this presentation, we'll be referring to certain non-GAAP financial measures. Please refer to Slide 2 of the presentation for more information on these statements. In addition, during the presentation, we'll discuss comparisons of current results to prior periods on a pro forma basis. See Slide 2 for more information on the calculation of these pro forma metrics. We have provided historical pro forma results in the appendix of the investor presentation. We believe this information helps provide additional insight into the underlying trends of our business when comparing current period performance against prior periods. Turning to the agenda. Speaking on today's call will be Jacobs' Chair and CEO, Steve Demetriou; President and Chief Operating Officer, Bob Pragada; and President and Chief Financial Officer, Kevin Berryman. Steve will begin by providing a recap of our financial results and discuss key elements of our strategy. Bob will then review our performance by line of business, and Kevin will provide some in-depth discussion of our financial metrics, followed by an update on our acquisition and ECR divestiture, as well as review our balance sheet and cash flow. Finally, Steve will provide an updated outlook along with some closing remarks, and then we'll open the call up to your questions. With that, I'll now pass it over to Steve Demetriou, Chair, and CEO.

Thanks, Jon. Turning to Slide 4. Thank you for joining us today to discuss our first quarter 2020 financial results and the progress we're making executing against our strategy. I continue to reinforce to our key stakeholders that we're on a journey to create a company like no other. Since 2015, we have been transforming our business into a technology-focused solutions company that leverages our global scale, deep technical expertise, and now an enhanced brand. At the same time, we've revolutionized our company culture to align our people around one purpose, which is to challenge the accepted and reinvent our thinking to deliver innovative solutions for our customers. The growth opportunities within our core markets are more attractive today than at any time in the company's history. We're benefiting from multiple multi-decade growth trends in the areas of water infrastructure, environmental resiliency, urbanization, space exploration, national security, and 5G. These are all sectors where we have a distinct competitive advantage. Furthermore, I believe the changes we have made to our culture in the areas of diversity of thought and creating an inclusive environment are in the early phases of being a competitive advantage for Jacobs. From a financial standpoint, we posted a strong start to fiscal 2020. Our backlog grew 6% year-over-year on a pro forma basis. First-quarter adjusted EBITDA pro forma for the KeyW acquisition was up 25%, and adjusted EPS, when excluding the impact of a $0.06 per share discrete tax charge, grew 35%. First-quarter free cash flow is in line with our expectations. And we expect strong free cash flow generation for the remainder of fiscal 2020 and beyond as we approach the end of our restructuring efforts related to the strategic actions to transform our business. Discipline around optimizing working capital is a significant focus of our team. From a flexibility standpoint, we maintain a healthy balance sheet that provides options on how we further deploy capital towards high-return investments. We're announcing today an increase to our share repurchase authorization by an additional $1 billion, which is incremental to the remaining $400 million under our prior buyback authorization. Moving to Slide 5. As we continue to transform our business, sustainability is a key ingredient in our vision to become a company like no other. And it aligns squarely with our value of, we do things right, planning beyond our Jacob sustainability strategy, which was launched a year ago and provides us a great platform to explore the possibilities of reinventing tomorrow, whether it's through how we operate, how we serve our clients, or at home with our families and in the communities where we live and serve. Over the last 12 months, we demonstrated significant progress on that strategy. I want to highlight a couple of actions here. We signed the UN's Global Compact, which commits us to a principle-based approach to doing business in the areas of human rights, labor, environment, and anti-corruption, all things that are already part of Jacobs' DNA and value system. We also published our first integrated annual report, reflecting the integral nature of our financials and our sustainability focus and our commitment to robustness and transparency of non-financial data. We're developing a Jacobs climate action plan, which includes a commitment to achieving a net-zero carbon, focusing on reducing the emissions associated with our business travel and from the facilities we own or operate. As part of our commitment, we are increasing our engagement and thought leadership, ranging from hosting global sustainability calls with other leaders from government and industry to participating in this year's World Economic Forum's annual meeting at Davos, where I became co-chair of the Infrastructure and Urban Development Committee. This focuses on how technology adoption and digital investment in the infrastructure sector can improve productivity and help achieve net-zero carbon emissions to tackle the global climate emergency. Our teams are providing sustainable solutions for our clients around the globe, with projects like the SuedLink wind and solar power transmission system in Germany, various high-speed rail projects that help decarbonize transport systems. On the waterfront, in places like Miami Beach, we are leading the Rising Above climate change resiliency program to combat the impact of catastrophic flooding on infrastructure and business. We're also leveraging our proprietary technology, like our flood cloud service for on-demand scenario modeling across all infrastructure types. Climate change is one of the most significant challenges our world is experiencing, and we at Jacobs are committed to working towards solutions through our everyday actions, both as individuals and with our clients and communities. Now I'll turn the call over to our President and Chief Operating Officer, Bob Pragada, to discuss the performance of our two lines of business.

Thank you, Steve. Now moving on to Slide 6 to review our Critical Mission Solutions performance. Our Critical Mission Solutions pro forma backlog was up 4% from last year to $8.5 billion, and when accounting for the burn-off of the Hanford Central Plateau Remediation Contract, our CMS backlog increased by high single digits over prior year. The Department of Energy has not yet announced the winner of the Hanford Tank Closure Contract, which is a 10-year $13 billion opportunity. We had a strong first quarter of wins with our international portfolio, where we were awarded several notable contracts in support of our nuclear, defense, and commercial clients. We expect the momentum we are seeing in the U.K. will carry over to our Wood Group nuclear acquisition that is expected to close before the end of Q2. Moving to our U.S. government sectors, we are aligned to high-priority areas such as mission IT and modernization, space exploration and intelligence, cybersecurity, and nuclear remediation, with the spending outlook within our targeted U.S. Federal DoD and related budget growing in these areas. On the domestic front, in addition to a solid first quarter, we've had a strong start to the second quarter with two large wins in the Department of Defense. One of these was an eight-year $225 million research and development contract for the Air Force; and the other is an eight-year $420 million win, which we'll formally announce in the next coming weeks. From a strategic standpoint, we believe our unique delivery model, which combines strong technical expertise, localized delivery, and an efficient cost structure, affords us the ability to take share within targeted sectors while improving profitability to reach the targets we shared at last year's Investor Day. An example of our highly technical capabilities is that we were awarded a Mission Critical win at the Navy's conventional prompt strike test facility to design and develop next-generation testing equipment for air launch and underwater testing of hypersonic weapons systems. This type of strong technical expertise, combined with our track record of executing large enterprise contracts, such as those for the Missile Defense Agency and NASA, presents us with the opportunity to capture incremental, large multiyear awards slated for decision over the next 18 months. Moving on to KeyW's space intelligence opportunity, we were recently awarded a new multimillion-dollar satellite payload, risk reduction, and technical maturation program. Due to the highly classified nature of the work, we cannot provide details on specific awards and timing of full-rate production. We remain extremely positive on the pipeline of opportunities from multiple customers and expect it to translate into meaningful revenue over the next 12 months. In summary, we're pleased with Critical Mission Solutions' performance. As we look forward, our total pipeline is robust and now stands at a record high, representing a significant year-on-year increase. Now moving on to Slide 7. Our People & Places Solutions business continued to execute on our strategic plan and posted strong first-quarter results, with backlog growing 8% year-over-year to $14.2 billion. Our People & Places Solutions business benefits from its alignment to a diversified set of industry sectors that are all seeing structural growth, such as water infrastructure, resiliency, and autonomous and AI-driven mobility solutions. We are also seeing strong demand in advanced facilities that are creating the next generation of semiconductors, biotechnology, and cloud computing software. We continue to execute against our market, digital, and global connectivity strategy, which allows us to capture higher-value opportunities by leveraging our deep domain expertise with our global integrated delivery centers, serving as a focal point for excellence and innovation at a global scale. As the digital economy matures, clients across our targeted sectors are seeking companies that can help them transform their business, automate operations, and enhance operational capacity. Digital capabilities are becoming ingrained in our delivery model, allowing us to leverage those capabilities with domain expertise to sustain our position as an industry leader. For example, Jacobs has partnered with key clients in the Middle East to develop their smart port expansion master plan, envisioned to expand the port and enhance conventional operations by migrating to automated operations through artificial intelligence and autonomous mobility. Another key part of our digital connectivity strategy is planning for where the market will be a decade from now, whereby advances in neuro network technology or machine intelligence will likely unlock exponential opportunities for us to productize our domain knowledge through software applications. Longer term, we envision a higher percentage of our revenue from technology-enabled solutions, which command higher recurring profitability. Today, we are incubating the first generation of these AI infrastructure solutions. Last quarter, we discussed a cloud-based AI algorithm to auto-score water infrastructure. Within our innovation incubator, we launched Pay V, a software-as-a-service-based asset management solution that optimizes airfield maintenance while unlocking significant CapEx savings and embedding carbon fit. I'm also excited to talk about a project that combines our expertise in PFAS and digital solutions. We have recently been awarded projects by an agency in the U.K. to develop a digital risk screening tool to prioritize PFAS investigation of sources across England. These types of solutions can be applied across multiple infrastructure assets and are enhanced by our domain knowledge accumulated from decades of experience. In summary, we are excited about the near-term and long-term opportunities within our People & Places business, which has a robust sales pipeline up more than 30% year-over-year. Now I'll turn the call over to Kevin to discuss our financial results in more detail.

Thank you, Bob, and good morning, good afternoon, everyone. I'm going to switch to Slide 8, where I'll discuss a more detailed summary of our financial performance for the first quarter of fiscal 2020. First-quarter gross revenue increased 9% year-over-year, with pro forma net revenue, including KeyW, up 5%, with 7% growth coming from People & Places and 3% growth from Critical Missions. Adjusted gross margin in the quarter as a percentage of net revenue was 24%, up 50 basis points year-over-year, primarily due to lower benefit-related costs. Lower benefit-related costs also reduced unallocated corporate expenses, which I will discuss later. Our adjusted G&A as a percentage of net revenue fell by 70 basis points year-over-year and 90 basis points on a pro forma basis, including KeyW to 15.3%. Again, indicating continued strong cost control and the realization of cost synergies from CH2M and KeyW. GAAP operating profit was up 34% to $151 million and included $51 million of restructuring, transaction, and other charges, and $35 million of other charges, consisting of $22 million of amortization from acquired intangibles and $13 million of costs associated with the Worley transition services agreements, of which $12 million of those costs were reimbursed and reported in other income. Adjusting for these items, adjusted operating profit was $237 million, up 28% from the prior year. Moving on to our adjusted operating profit to net revenue, it was 8.9%, up 120 basis points year-over-year, reported with margin expansion from both lines of business. Q1 adjusted EBITDA was $260 million, reaching nearly 10% of net revenue, up 150 basis points year-over-year. GAAP net earnings and EPS from continuing operations were up substantially to $179 million and $1.33 per share, including $0.30 per share of after-tax restructuring, transaction, and other charges, as noted above; and a net positive $0.43 per share of other adjustments, consisting mainly of favorable mark-to-market adjustments associated with our Worley equity stake and other ECR-related matters of $0.56, partially offset by intangible amortization of $0.12. Excluding these items, first-quarter adjusted EPS was $1.20, including a $0.06 expense from discrete tax items. Excluding discrete tax items in both the current and year-ago quarter, underlying adjusted EPS was up 35% year-over-year. Finally, turning to our bookings during the quarter. We are pleased that our pro forma book-to-bill ratio was above 1x for Q1 despite the Hanford plateau contract coming to end of life. We expect that strong bookings trajectory for the remainder of the year. Regarding our LOB performance, let's turn to Slide 9, starting with Critical Missions. Pro forma revenue, including KeyW, grew 3% year-over-year during the first quarter. The quarter was impacted by lower procurement revenue, which also supported incremental margin improvement. Operating profit was $90 million and grew 25% year-over-year and in the mid-teens on a pro forma basis. Operating profit margin was up 60 basis points year-over-year to 7.6%, supported by some project closeout pickups on a nuclear remediation project, and improved margin associated with the lower headwinds from procurement-related revenue noted earlier. In the second half of fiscal 2020, we expect operating profit margin to benefit on a year-over-year basis from our shift to higher-margin, fixed-price services contracts and a higher contribution from the recently acquired KeyW. Perhaps I can make a few comments regarding KeyW. The strategic logic for the acquisition and associated revenue synergies are continuing to indicate an accelerating growth profile later in 2020 and longer-term. As we previously announced in October, we won the $40 million a year DC3 cyber contract. In addition, the KeyW mission IT business won a strategic $55 million year contract renewal. As Bob mentioned earlier, the rapid solutions team won a multimillion-dollar satellite payload contract. As such, we expect a ramp in revenue and EBITDA growth for the remainder of fiscal 2020. Moving to People & Places Solutions. Q1 net revenue grew 7% year-over-year, and operating profit was up 12%. As a percentage of net revenue, operating profit was 12.1% for the quarter, up 50 basis points from a year ago. The business is benefiting from its alignment to multiple secular growth trends, global scale, and a track record of strong project execution and lower risk verticals. Our non-allocated corporate overhead costs were $32 million for the quarter, down 30% year-over-year, supported by lower benefits-related costs, which I previously mentioned were a factor in our gross margin expansion. We remain focused on cost discipline. But as we have previously stated, we will proactively evaluate incremental investments that will support our digital and innovation journey. For the remainder of the year, we expect non-allocated corporate costs to be near the high end of the previous $25 million to $35 million per quarter guidepost. Finally, we started the year strong in adjusted EBITDA performance, reaching a level of $260 million for the quarter, up 31% year-over-year, reaching nearly 10% of revenue for the quarter, up 150 basis points versus a year ago. So now turning to Slide 10, I would like to update our initiatives relative to our recent M&A and divestiture actions. Before discussing our most recent efforts, we are pleased that the integration of the highly successful CH2M acquisition is largely complete, although some miscellaneous ongoing charges remain for the balance of the year. Cost synergies exceeded our expectations, and revenue synergies continue to deliver higher growth and serve as a catalyst for our business transformation. Regarding the sale of ECR, to date, we have incurred $206 million of the approximate $230 million in related transaction, separation and restructuring costs. We expect the majority of the remaining costs to be incurred by the end of the first half of our fiscal 2020. Regarding KeyW, as of the end of Q1, we effectively achieved the run rate of $15 million in cost synergies, which resulted in our spending $22 million of our estimated $25 million of costs to achieve. To date, we have incurred $13 million of transaction fees and other one-time acquisition-related costs. Finally, our acquisition of Wood's nuclear business remains on track to close in our fiscal Q2. We continue to expect $12 million in annual cost synergies and expect approximately $30 million of transaction costs and costs to achieve synergies. Now on to cash flow generation and the balance sheet on Slide 11. During the quarter, free cash flow remained impacted by restructuring-related activities. Reported cash flow was negative $159 million, but improved $86 million versus the year-ago quarter. One should note that our cash flow is normally lighter in Q1 due to seasonality, and it continued to be impacted by approximately $50 million of restructuring and separation-related cash outflows, offset partially by insurance proceeds related to the newly filed settlement and an ECR working capital adjustment. DSOs did increase from Q4 2019 and are up slightly year-over-year. We expect to significantly improve collections over the course of 2020 and still see ample opportunities below our DSO run rate over the next two years. As a result, for the full year 2020, we expect free cash flow to be $450 million plus, including the impact from cash outflows related to restructuring and separation costs, which we believe will approximate $150 million. Our cash flow will strengthen considerably over the balance of the year. We ended the quarter with cash of approximately $600 million and a gross debt level of $1.6 billion, resulting in $1 billion of net debt before attributing the benefit of the Worley equity. Treating the Worley equity as cash, our pro forma net debt-to-adjusted-EBITDA was well less than 1x. Regarding capital deployment, we announced today that we have increased our share repurchase authorization by $1 billion to a total of $1.4 billion, which represents approximately 10% of our market capitalization. We continue to believe that our shares are trading at a discount to their intrinsic value, and we expect to fully utilize our remaining share buyback authorization over time. For modeling purposes, we would expect an average share count of approximately $134 million for fiscal year 2020, excluding additional share buybacks. We will continue to be opportunistic in our share buyback activity going forward, and we'll provide an update on our quarterly earnings call relative to share count expectations in the future. Including the discrete charge in Q1, we now expect an effective tax rate of 25% for fiscal 2020, although we continue to believe our normalized tax rate is approximately 24%. Given our strong balance sheet and free cash flow, we remain committed to our quarterly dividend, which was previously declared at $0.19 per share. As you know, our current dividend level represents an increase of 12% versus a year ago. Now I'll turn it back over to Steve for some closing thoughts on Slide 12.

Thank you, Kevin. I'm excited about the continued traction of our business transformation. We're seeing a strong inclusive culture developing across Jacobs. Our pipeline is increasing year-over-year with larger, higher-margin opportunities. We're strategically leveraging our balance sheet, investing in ourselves through timely share repurchases, as well as disciplined and targeted M&A activities in strong growth sectors. We're maintaining our fiscal 2020 adjusted EBITDA outlook in the range of $1.05 billion to $1.15 billion, which includes the net impact from other income and non-controlling interest. We are also maintaining our fiscal 2020 adjusted EPS guidance to a range of $5.30 to $5.80 per share, which at the midpoint represents 17% year-over-year growth when excluding the impact from fiscal 2019 discrete tax items. Additionally, our guidance also factors in approximately a six-month benefit from the Wood acquisition, which we expect to close by the end of March. As Kevin outlined, the majority of our restructuring charges are coming to an end, and we are highly focused and confident on delivering strong free cash flow for the remaining three quarters of this fiscal year. In summary, we're continuing our discipline, intensity, and focus around delivering on our profitable growth strategy, and we look forward to 2020 and beyond. Operator, we'll now open the call for questions.

Bob, you talked about the KeyW contract success you've had late. I'm wondering if you could just step back. I think prior to the acquisition, they had talked about around 14 opportunities, greater than $100 million in value, that they had expected to be awarded sometime in 2019. Can you just level set us on how many of those have been awarded? How many have maybe slipped? How many have you won? How many have you lost?

Yes, Joe, thanks for the question. Net-net, we've actually seen an increase in the number of opportunities. So that 14 number that was disclosed last year has actually grown to over 20. In terms of the ins and outs, I'll just put it this way: we're winning more than we are losing, but we're also in an area where we have to consider time as well. The duration of these procurements can be pretty long.

Okay. That's helpful. And then you talked about the sensor opportunity. I appreciate you can't talk about certain aspects of it. But just high level, can you talk about whether, at this point, the risk is more technical or budget in nature? Do you feel pretty good that this capability is going to work and perform the mission, it just needs to be funded? Or is there still a fair degree of technical risk ahead of you?

Now this is Steve, Joe. The rapid solutions aspect of the business has unfolded as we anticipated. There are several opportunities. Bob informed us today that we achieved a significant success in one of them related to space intelligence. These projects go through various phases for the government, and they are currently focused on ensuring that they meet the qualifications. We have successfully passed a significant qualification challenge and are aligned with our expectations regarding our entry into the space intelligence ISR sector with the KeyW acquisition.

Can you just give us some color on the backlog here? If you think about margins, you've had some higher value content start to come through. But if you think about margin growth going forward, is it going to be more driven by the type of work that's been won and is in backlog? Or do you see margin growth more from some of these restructuring activities, some operational improvements internally?

I believe it's a mix of both factors. We are clearly becoming a more efficient company. Our general and administrative expenses as a percentage of revenue are positively impacting our operating profit margin, which we're observing across both segments. Additionally, the transformation of our portfolio and the success we are experiencing in our two lines of business are contributing to this. Our pipeline holds more profitable opportunities. In the Critical Mission Solutions segment, we are not only focusing on intelligent asset management and ongoing government projects, but also increasing the proportion of IDIQ contracts, which will enhance margins. The acquisition of KeyW is also expected to improve margins. Similarly, when we compare the Wood acquisition with our existing nuclear business, we see margin enhancement there too. In Critical Mission Solutions, we have a cohesive improvement. The same situation applies to the People & Places segment, where we are pursuing and winning a more advantageous mix of projects and programs, particularly emphasized by the record pipeline that Bob mentioned.

Great. And then just the expectation for DSOs to improve pretty substantially throughout the year. Can you talk about what's driving that? What actions you guys are taking?

Could you repeat the question, Josh?

Sorry, just the expectation for DSOs to improve pretty substantially throughout the year. Can you talk about what's driving that? Or how that dynamic's going to work out throughout the remainder of the year?

Yes, a couple of comments. First one is, Q1 tends to be a more challenged quarter on the metric regardless. But notwithstanding that, we're still not satisfied that we're at the levels that we need to be. Similar to last year when we initiated a pretty strong level of actions to improve our collections over the last three quarters of the year, we're doing exactly the same thing this year. So we're focusing with our project teams relative to executing against that. We feel comfortable that those teams have clarity and sight going forward regarding how to deliver some incremental improvements. It will be important for us to deliver the cash flow dynamics that we've outlined for the full year. So we're confident that the team is on top of it. We have a task force team in place focusing on those specific areas that we know we can make some positive and strong progress on. Our expectation is we'll start to see that over the course of the next few quarters.

Kevin, I guess, just one follow-up on the cash flow question. I think before, like the Analyst Day last year, you said a big DSO opportunity, I think, was on the CH2M health side. So I'm just wondering, is it acquisition or the legacy Jacobs? And then how do we think about the cadence of free cash flow for the year? Should we assume it's more back-end loaded versus should we start to see the improvement in the March quarter? Are there any sort of one-time items embedded in that north of $450 million to get us to the free cash flow number? And then second question, obviously, you guys announced this morning that you increased your authorization on your share repurchase, which I think the market liked. Is that a message sort of signaling with KeyW and with Wood, that maybe M&A is on the back burner right now, and we focus more on sort of integrating those acquisitions and buying back stock?

So, Jamie, there are several questions to address. Regarding our cash flow, we anticipate seeing benefits beginning in Q2 and extending into Q3 and Q4. Our expectations align with previous years, suggesting we will see improvements, though it might not be focused solely on the latter half of the year. Out of the $450 million we mentioned, around $150 million consists of specific restructuring-related items. If we exclude that, we would be closer to a $600 million figure, which answers your query about one-time items. Additionally, we need to fund the Wood acquisition in the next couple of months, which will be a one-time expense separate from free cash flow but still a significant cash use this year. Regarding the $1.4 billion authorization and its implications for potential acquisitions, our acquisition pipeline remains strong, and we are not stepping back from that market. The new $1.4 billion authorization presents us with the chance to create value through additional actions, and while we don't rule out other transactions, we are being careful and disciplined in our approach to share buybacks. Our focus will be on being opportunistic to enhance shareholder value.

You had a nice uptick in CMS margin in the quarter. You said it might have been mostly lower procurement. But is KeyW beginning to have more of an impact on margin? Are these margins in CMS now sustainable? And then is KeyW still supposed to be about $75 million in EBITDA for the year?

First thing on the margin profile, our expectation is that we will be able to see year-over-year margin improvement on the CMS business. That is the expectation we've set for ourselves for the balance of the year in CMS. Our team is working hard. Steve alluded to a lot of things that are already happening relative to going after different contract types, which afford us an ability to have some incremental margin. We do believe there is an ability to continue to show improvements in that margin versus the year-ago figures. So yes, on that. I would say on the KeyW, we never really talked about a $75 million number per se. We did talk about the ability for us to ramp up over the course of 2020. I won't make a specific comment on what the number is, but I can tell you the developing pipeline and the new wins that are coming to the forefront, specifically on some of the opportunities that we're really excited about for KeyW, I think we're going to see some momentum in the back half of the year as those things come into the portfolio and we start to burn some of the revenue against that. Perhaps a little bit back-end more back-ended, but we're excited nonetheless.

Kevin, can I follow up on the $600 million in cash flow in 2020 regarding the mid-80% conversion on adjusted EPS? Looking ahead to 2021, although it's a long way off, do you think the one-time items are mostly behind you, allowing for conversion closer to the 100% average that Jacobs has achieved over the years?

I think that as we've characterized to all of you, we believe that there is an opportunity for Jacobs to deliver a higher level of conversion on cash flow than we did in 2019. But we all know that there was a lot going on in that particular year. The $150 million we've talked about in terms of restructuring and one-time efforts, which are kind of tail-end of the substantive transformation we've been executing against, will be reduced to a significant level by the end of this year and also into the first half of next year. So look, we're not necessarily done per se, if we are going to be talking about acquisitions, and we think there's a strategic opportunity; there will obviously be some one-time costs. But I think we're talking in a more measured level versus what we've seen historically because the transformation of the integration of CH and the exit of the ECR business were fundamentally large transformative issues that we had to work through over the last couple of years all at the same time. So our view is that as we go forward, it's going to be a little clearer, a little bit more focused. Consequently, the one-off restructuring or opportunities associated with our growth initiatives will be more focused and less robust than what they have been in the past, in terms of restructuring-related costs.

This is Jeff Molinari on for Gautam. So I got a couple of questions on CMS. How big is the current bid pipeline? And what is the dollar value for bids submitted that are waiting decision?

Yes. So our dollar pipeline is in excess of $35 billion right now, and about a quarter of those have been submitted. Probably the better news is that this is up almost fourfold from this time last year.

Okay. And then what do you anticipate for the book-to-bill to be in the March Q? Do you think you can continue your streak above 1x?

It's tough to forecast an exact book-to-bill. Given the pipeline that's been talked about, our expectation is our book-to-bill improves over the balance of the year with some of these very large opportunities. We feel very good about coming to fruition. So we won't quote a specific number, but we certainly expect that it'll be improving versus our Q1 numbers.

Okay. And what percent of 2020 sales are up for recompete? Are there any chunky contracts worth calling out?

Besides the one we've talked about quite a bit on the Hanford Tank Closure Contract, I think that's probably the one that we're obviously very focused on.

We have a new bid for the Hanford tank and we historically had the Central Plateau remediation contract, which is a rebid that's in the process of being protested.

I have a question about People & Places Solutions. Your company has experienced consistent growth despite some instability in the end markets over the last couple of years. Can you discuss your current win rates compared to historical data? Are you seeing greater success with your bids due to a broader service offering? What do you think has led to your continued strong performance in terms of win rates and project selection?

Yes, it's kind of all of the above, Jerry. Our win rate has dramatically gone up over the course of, I'd call it, 24 months, and is north of 50% right now. Two ways of looking at it: One is that maybe we're not bidding enough work. That's not the case. But we're bidding in an area where our technical consulting and technical solutions area, our solution is differentiated. We attribute that increased win rate to what we are seeing. On your other question regarding the opportunities, we're seeing it's a pretty opportunity-rich environment right now across the globe. So there's no shortage of activity from a bidding as well as a win rate, and I think you're seeing it in the lagging indicators regarding the financials.

Okay. And then a question on the balance sheet, Kevin. So unbilled receivables plus contract assets were up $70 million sequentially in the first quarter. They were up $200 million last year. Is that just working through contracts from businesses that were acquired? Or can you give us some more context? Because clearly, based on the guidance, you're going to convert that into cash over the balance of the year. I'm wondering if you can just build our comfort level on how concentrated that is and what's it related to.

Yes, there are a couple of larger contracts where it can be a little bit lumpy as it relates to how those things come to fruition. We are confident that given that lumpiness, some of that lumpiness will reverse over the course of the next couple of quarters specifically. So we're feeling pretty good about it. That’s one of the reasons we’re pretty excited about the balance of the year cash flow. At the end of the day, we’re on it. We’re focused. The team is confident they will execute against it.

And Kevin, what are the milestones? And are the projects on time so far? Any additional color that you can share?

Sorry, Jerry, milestones with regards to those potentially what we got, is that what you're referring to?

Yes. So in other words, when can we change unbilled receivables or contract assets into billed receivables and eventually collect cash? So what are the milestone dates that we have to complete on those contracts to be able to issue the invoice, if you will?

Yes, and so it's right in line with what Kevin said; it's within the next couple of quarters. The improvement that we're seeing over Q2, Q3, and the balance of the year, those milestones fit right within that timeframe.

Steve, in your prepared remarks, you discussed climate change extensively. I've noticed recently, more visibility and concern, with many companies addressing it. Can you clarify if this is primarily from a government perspective? Are your private client customers involved in these solutions? In the PPS segment, when can we expect to see significant wins or announcements that will likely enhance margins and performance in that area?

Yes. Just use the World Economic Forum at Davos just in the last couple of weeks as a barometer. It was clear that it was across all sectors, government sectors, politicians that were there, commercial CEOs, on a global basis. It felt like coming out of this at Davos, there was a huge shift, and this is something we’ve got to look at over the next several years seriously as a crisis that everybody's on top of and committed to. I think it’s transitioned now to be a major issue and opportunity for us at Jacobs. We're developing our own plan to be at net-zero carbon neutral at some point in the future. More importantly, we're already winning business, and we're already in the mix of being a solutions player on a global basis. We announced over the last year, 1.5 years, projects like the Miami Beach sea-level rise, what we're doing in London around the Thames River, and you name it, in any major city, whether it’s San Francisco or all the way to Singapore. The type of things we are doing to address climate changes is we're viewed as a solutions provider by our clients. Clearly, higher-margin opportunities, and it's across the board. We're not only going in with traditional solutions, but we're going in with innovative solutions, using artificial intelligence and digital capabilities to address these issues in a much more efficient and innovative way. As a result, we got a high win rate as we pursue these opportunities across the globe.

And I assume that's for a lot of the internal investment, at least, that you talked about relative to 2020 and beyond, adding the talent and scope and solutions on that front?

Yes, Mike. The human capital aspect is crucial. Our current age demographics have decreased by 10 years over the past decade. We're making significant investments in simulation tools, ranging from those focused on flood plains and flood control to water resiliency and coastal protection. Recently, we were awarded the coastal restoration project for the Gulf Coast, starting in Galveston and extending through the Gulf of Mexico. The technology we are employing to develop these solutions is truly impressive. More updates will come.

If I could just circle back on your comments before, that you will still be in the M&A market. I mean, can you flesh that out a little more? You mentioned how your stock and the intrinsic value there. How are you seeing multiples moving in the pipeline, when we look at the defense and the people segment over the last few quarters?

From an M&A standpoint, I think Kevin said it best. Our first priority is our own stock. That's why we just announced the $1 billion stock buyback. We still see Jacobs as being one of the best, if not the best use of our capital over the near term, based on what we see our organic runway and the path forward for the company. We're staying core to our strategic plan that we announced a year ago regarding things like strengthening our capability in digital consulting, or selective geographic expansion, gaining more bolt-on capabilities around innovation and technology. Acquisitions like KeyW and Wood were more in the form of bolt-on strategic enhancements to our ability to have upsized organic growth. That’s what you'll see us continue to focus on over the near term. We have the luxury of being highly selective because of our ability to redeploy our capital against Jacobs. Any acquisition we make over the next few years will be benchmarked against the alternative of buying our stock back, so it has to be of superior value.

Fair enough. And when we think of defense, in the private market, we've seen a lot of activity there to really drive scale. If we look at the design and consulting side for the environment, water, transportation, how important is scale there in the industry? Obviously, CH2M has been a success. I'm just hoping you could talk about scale and how that benefits in that fragmented industry right there.

Scale definitely helps, and scale matters. But I would probably characterize it as one of a few key criteria. It's not just scale; it's scale coupled with technical expertise and technology-enabled solutions. We see all of that as a driver, not just scale for scale’s sake.

I want to build on that because I think that's been a key ingredient to our success at Jacobs with our acquisition strategy. A lot of companies make acquisitions that double the size of an industry, but there's a lot of overlap. As a result, there are challenges that get created, and we've seen those around the industry for the last decade. CH2M was a perfect example of a complementary acquisition. Yes, it did give us scale, but more importantly, it filled in the hole that we didn't have. It was water, strengthening our environmental, our Tier 1 nuclear, and a whole host of other things. It provided our clients with a one-stop shop at Jacobs that I would say is more about value and diversity rather than scale for scale's sake.

Just to continue on the last discussion topic around scale. Of course, there is a lot of chatter recently around consolidation in the design and engineering space. I'd just be curious to get your sense on, from a competitive perspective, what the emergence of another kind of mega-player through a combination would mean competitively for Jacobs? Would there be potential threats there? Or on the flip side, potential opportunities emerging?

Yes, it really depends on what that combination leads to. If it's a combination where two companies or two entities get together and there is a lot of overlap, that will be a positive for us. There'll be talent opportunities. There'll be disruption. There'll be culture challenges that impact those acquisitions. Consolidation is positive from a standpoint that as industries become less competitive, although stronger, that has its positives. We're not saying that there's no threat of those combinations if they occur. At the end of the day, our view is that it is not about scale; it’s about value, differentiation, matching that up with a culture of execution and innovation and accountability, all the things we’ve been demonstrating over the last four years. We'll stay close to what happens in the industry, but it really depends on what that looks like.

I'm going to yield the floor. All of my questions have been asked and answered.

All right. Thank you. The most exciting part of where we are as a company is the momentum that we've generated by our people's belief and commitment to what we're doing and where we're headed. At the end of the day, we are a people business. To be the employer of choice in a highly competitive marketplace, genuine engagement and buy-in from our people is critical. Our focus on global challenges that are important to us as human beings, as well as important to each and every one of our clients is a key part of that engagement and commitment. The return is visible every day through the innovative solutions we're delivering for our clients. Our people genuinely are reinvesting for tomorrow. Thank you very much.