Jacobs Engineering Group Inc. Fiscal 2021 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended October 1, 2021. The company, now identified in the request metadata as Jacobs Solutions Inc., filed under the legal name Jacobs Engineering Group Inc. Jacobs provides technology-enabled consulting, engineering, scientific, project delivery, operations and maintenance services through three reportable segments: Critical Mission Solutions, People & Places Solutions, and PA Consulting. Its workforce was approximately 55,000 employees worldwide.
Fiscal 2021 included the March 2021 acquisition of a 65% interest in PA Consulting and the November 2020 acquisition of Buffalo Group. Fiscal 2020 included an extra week of activity, limiting direct comparability.
Key financial metrics
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Revenue | $14.09 billion | $13.57 billion | Up 3.9% |
| Gross profit | $3.04 billion | $2.59 billion | Up 17.7% |
| Gross margin | 21.6% | 19.1% | Up 250 basis points |
| Operating profit | $688.1 million | $536.0 million | Up 28.4% |
| Net earnings attributable to Jacobs | $477.0 million | $491.8 million | Down 3.0% |
| Continuing-operations diluted EPS | $3.12 | $2.67 | Up 16.9% |
| Total diluted EPS | $3.20 | $3.71 | Down 13.7% |
| Cash flow from operations | $726.3 million | $806.8 million | Down $80.6 million |
Continuing-operations earnings attributable to Jacobs increased 32.0% to $467.0 million. The consolidated effective tax rate rose to 39.5% from 12.5%, principally due to nondeductible PA-related compensation, U.K. tax law changes and valuation allowance changes.
- CMS revenue was $5.09 billion, up 2.4%; segment operating profit was $447.2 million, up 20.2%.
- P&PS revenue was $8.38 billion, down 2.6%; segment operating profit was $780.4 million, up 5.4%.
- PA Consulting contributed $627.4 million of revenue and $151.1 million of segment operating profit after closing on March 2, 2021.
- Backlog increased to $26.6 billion from $23.8 billion. Approximately $8.5 billion, or 31.9%, was expected to convert to revenue within the following fiscal year.
- Remaining performance obligations were approximately $14.9 billion, with 52% expected to be recognized within twelve months.
Cash flow, debt and liquidity
- Cash and cash equivalents were $1.01 billion at October 1, 2021, compared with $862.4 million at October 2, 2020.
- Investing cash outflow was $1.38 billion, primarily reflecting the PA Consulting investment and Buffalo Group acquisition.
- Financing cash inflow was $799.0 million, primarily from net borrowings of approximately $1.22 billion, partly offset by $274.9 million of share repurchases and $156.0 million of dividends to shareholders and noncontrolling interests.
- Total debt obligations in the contractual-obligations schedule were approximately $2.90 billion, with $2.84 billion classified as long-term debt on the balance sheet and $53.5 million of current maturities.
- Available borrowing capacity under the $2.25 billion revolving credit facility was approximately $1.92 billion. Letters of credit outstanding totaled $263.8 million, and surety bonds totaled approximately $2.1 billion.
- Management stated that liquidity and capital resources were adequate for projected requirements over the next twelve months and that all debt covenants were satisfied at year-end.
Material changes versus the prior comparable period
- Revenue and operating profit benefited from the PA Consulting, Buffalo Group and John Wood Group nuclear acquisitions, favorable foreign-currency translation and improved legacy-business performance.
- P&PS revenue declined because of softer advanced-facilities conditions, contract wind-downs and the absence of the extra fiscal week in 2021, although segment profit improved through lower travel, discretionary and real-estate costs.
- Reported results included a one-time $261.4 million PA-related post-completion compensation expense tied to continuing employment requirements. Related PA transaction and restructuring costs totaled approximately $297.8 million in segment reconciliation disclosures.
- Miscellaneous income included a $49.6 million realized gain on C3 shares and gains related to the Worley investment and ECR-sale foreign-currency items, partly offset by a $38.6 million impairment of the AWE investment.
- Discontinued-operations earnings fell to $10.0 million from $138.0 million. Fiscal 2021 included a $15.6 million gain from the final ECR working-capital settlement; fiscal 2020 included several larger ECR-related settlements and gains.
- Goodwill increased to $7.20 billion from $5.64 billion, primarily because of acquisitions. Management concluded that no goodwill impairment was required.
Guidance, outlook, risks and unusual items
Management did not provide a specific numerical fiscal 2022 revenue or earnings forecast in the filing. It reported strong prospects and sales activity across many markets and expected COVID-19 effects to continue into fiscal 2022, but at a lower level than in fiscal 2020 and 2021. The Infrastructure Investment and Jobs Act was identified as a potential source of demand, although the timing and amount of project awards remained uncertain.
- COVID-19 could reduce demand, delay or cancel projects, impair collections, disrupt supply chains and workforce availability, and increase costs. Vaccination requirements could also contribute to employee attrition and labor shortages.
- Approximately 33% of revenue was earned directly or indirectly from U.S. federal government agencies, and approximately 40.5% of backlog related to U.S. federal government work. Funding, audits, contract termination, compliance and debarment risks are significant.
- Approximately 76% of revenue was cost-reimbursable and 24% fixed-price. Fixed-price work exposes the company to inflation, labor, material, subcontractor, schedule and cost-overrun risks.
- Customer cancellation or suspension rights mean backlog is not assured revenue or profit and may not indicate future margins.
- The company faces risks from acquisitions and integration, cybersecurity and privacy events, professional liability, litigation, environmental and nuclear obligations, international operations, foreign exchange, inflation, interest rates, climate change and talent retention.
- Subsequent to year-end, Jacobs completed the acquisition of BlackLynx on November 19, 2021 for up to $257.5 million, including a potential $7.5 million earn-out. The company also expected up to $70 million of fiscal 2022 impairment charges from planned leased-space abandonment or subleasing.
- A major inherited Australian power-project arbitration involves approximately $530 million of claims by the consortium and more than $1.7 billion of claims by JKC. Proceedings were expected to continue through 2022, with no decision expected before late 2022 or 2023. Management did not expect a material adverse effect beyond existing reserves.
- The SEC continued requesting information concerning a former Morocco joint venture and possible corrupt practices. The company stated that it was cooperating and did not expect a material adverse effect.
Important facts for investors to verify
- Reconcile continuing-operations performance with total earnings, particularly the decline in total EPS caused by lower discontinued-operations earnings and PA redeemable noncontrolling-interest adjustments.
- Assess the sustainability of the 21.6% gross margin after acquisition-related benefits, contract wind-downs, pass-through revenue variability and fixed-price cost pressures.
- Review PA Consulting’s post-acquisition performance, the 35% redeemable noncontrolling interest, its 12% cumulative preferred dividend and potential future redemption obligations.
- Evaluate leverage, variable-rate debt exposure, covenant headroom and the effect of higher interest rates; approximately $1.5 billion of principal remained subject to variable-rate risk after hedging.
- Test backlog quality and conversion, including the proportion dependent on annual government appropriations, customer options, unfunded awards and potentially cancellable contracts.
- Monitor the Australian arbitration, SEC inquiry, other litigation, government audits and insurance coverage for outcomes exceeding accrued reserves.
- Consider the concentration of goodwill and intangible assets: goodwill represented approximately 49.2% of total assets at year-end, increasing sensitivity to operating underperformance or valuation changes.
- Note that management and the auditor concluded internal controls were effective, but the assessment excluded PA Consulting, which represented approximately 19% of total assets and 4% of fiscal 2021 revenue.