Jacobs Solutions Inc. (NYSE:J) Q4 2022 Earnings Call Transcript

Jacobs Solutions Inc. (NYSE:J) Q4 2022 Earnings Call Transcript November 21, 2022

Jacobs Solutions Inc. beats earnings expectations. Reported EPS is $1.8, expectations were $1.77.

Operator: Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Jacobs Fiscal Fourth Quarter and Full Year 2022 Earnings Conference Call. Thank you. It is now my pleasure to turn today’s call over to Mr. Jonathan Doros, Investor Relations. Sir, please go ahead.

Jonathan Doros: Thank you. Good morning to all. Our earnings announcement and 10-K were filed this morning and we have posted a copy of the slide presentation on our website which we’ll reference during the call. I would like to refer you to Slide 2 of the presentation materials for information about forward-looking statements and non-GAAP financial measures. Now turning to the agenda on Slide 3. Speaking on today’s call will be Jacobs’ Chair and CEO, Steve Demetriou; President and Chief Operating Officer, Bob Pragada; President and Chief Financial Officer, Kevin Berryman. Steve will begin by reviewing our fourth quarter results and then provide an overview of our software and technology platforms. Bob will then review our performance by line of business and Kevin will provide a more in-depth discussion of our financial metrics as well as a review of our balance sheet and cash flows.

Finally, Bob will provide details on our updated outlook along with some closing remarks and then we’ll open up the call for your questions. In the appendix of this presentation, we provide additional ESG-related information, including examples of our leading ESG solutions. With that, I’ll now pass it over to Steve Demetriou, Chair and CEO.

Photo by Sebastian Herrmann on Unsplash

Steve Demetriou: Thank you for joining us today to discuss our fourth quarter and fiscal year 2022 business performance and 2023 outlook. As I transition to Jacobs’ Executive Chair, I’m excited and confident about the next phase of our strategy boldly moving forward. This strategy continues to unlock and elevate our transformed high-performance culture to capture significant growth opportunities we’ve identified across climate response, consulting advisory and data solutions, while benefiting from the recurring nature and diversity of our core businesses. From a financial standpoint, we believe the rigorous execution of this strategy will result in enhanced long-term revenue growth and expansion in our profit margin profile.

During our last 2 strategies, we maintained a focus on continuing to reshape our business through organic investments, acquisitions and divestitures. And by doing so, we were able to deliver value for all of our stakeholders, including our shareholders. Since we started our journey together in 2016, we intentionally transformed our culture and our brand, grew revenue and expanded profit margins, leading to a total shareholder return of approximately 250%, almost twice the return of the S&P 500. We believe the next phase will be equally as transformative as we maintain our brand promise of challenging today and reinventing tomorrow. Let’s now discuss our fourth quarter results. We’re seeing strong demand with robust opportunities in our sales pipelines in a number of marquee recent wins which underscores our strategy.

During the quarter, net revenue grew 6% year-over-year and grew 11% on a constant currency basis with another quarter of constant currency growth across each line of business. Backlog was up 5% from the prior year’s quarter and 8% on a constant currency basis. Within People & Places Solutions, our advanced facilities business again posted double-digit year-over-year top line and operating profit growth in the fourth quarter. And the remaining P&PS units in constant currency also experienced year-over-year growth. During the current quarter, Critical Mission Solutions is beginning to see previously delayed opportunities into the final stages with a major cyber win last week and with another win close to clearing the protest period. PA Consultancy and — PA Consulting in constant currency continued to show strong Q4 growth with revenue up 9% and backlog up 8% year-over-year.

PA successfully won a large multiyear contract with the Ministry of Defense to secure the next-generation soldier in what’s proving to be a digitally enabled battlefield. From a full year standpoint, we finished the year within our original guidance range, even when recognizing the translation impact from the strengthening U.S. dollar with double-digit net revenue and operating profit growth on a constant currency basis. Turning to Slide 5. Let me discuss an element of our data solutions accelerator that’s housed within the Divergent Solutions business unit which we will formally break out starting in our fiscal first quarter of 2023. We have consolidated the majority of our software and data solutions into a single unit to gain benefits from consistent product management, marketing and research and development.

Our data solutions are aligned to 3 high-growth verticals of transportation, water and national security. A competitive differentiation of our vertical software platforms is access and integration of unique data sets and the ability to turn that data into actionable outcomes for our customers. For example, our StreetLight Data platform is a SaaS solution that ingests a variety of mobility data sources into proprietary algorithms that provide data analytics for both traditional transportation clients and giga projects within the broader infrastructure market. Our GeoPod technology creates mapping data for multiple confidential customers as they plan for autonomous driving, precision agriculture and other aerial surveillance requirements. In water, we continue to leverage smart algorithms developed by our domain experts to optimize our clients’ operations and maintenance, both AquaDNA and our intelligent and our intelligent O&M solution can save 10% to 30% in energy use for wastewater treatment.

We continue to expand our water solutions across our clients’ assets life cycle. From a national security standpoint, our extreme search solution has proprietary algorithms and compute ability that can rapidly search large volumes of real-time or log data. One critical use case is quickly finding indicators of compromise to prevent cyber breaches. Given the significant amount of data that will be created and utilized in IT and OT environments, we believe the applications of these types of solutions are in the early stages of decades of robust growth. Before I turn the call over to Bob, first, I’d like to thank the amazing people at Jacobs for living our values and progressing our culture over the last several years. Every single day, Jacobs is providing critical solutions globally.

For example, most recently, supporting NASA for the Artemis launch to the move or consulting on green hydrogen solutions for sovereign nations, delivering world-scale biotechnology manufacturing solutions, remediating harmful PaaS chemicals from our water or planning autonomous transportation for the city of the future. It is truly our people that make Jacobs a company like no other. Now, I’d like to congratulate Bob on his appointment to CEO and say that I’m excited to have experienced a dynamic leader who brings decades of industry domain knowledge and a proven track record to lead our boldly moving forward strategy into the future. Bob?

Bob Pragada: Thank you, Steve. I’m honored to take on the role of CEO early next year and advance the exciting work underway to further diversify our capabilities and offerings, increasing opportunities and value for our people, our clients and our shareholders alike. I want to thank Steve for his partnership and guidance over the past 7 years. He is an incredible leader who inspires all around and will leave a tremendous legacy at Jacobs. I’ll begin on Slide 6, discussing our People & Places Solutions business where we achieved strong top and bottom line results with backlog up 8% year-over-year and 12% in constant currency. With critical infrastructure priorities on the rise over the past year, our quarter results show that we’ve been successful in converting opportunity into accessible backlog.

This success is underpinned by our global workforce which expanded 12% this year. For example, in FY ’22, our advanced facilities operating — advanced facilities unit operating profit grew by well over 25% and on a constant currency basis due to our scalable multi-geography delivery teams. Overall, we see our quarter results as Jacobs strategy in action. It’s proof that Jacobs deep domain expertise can transform client outcomes, replacing conventional infrastructure delivery with modern data-enabled solutions. I’ll discuss results under the themes of supply chain diversification, infrastructure modernization and climate response. Across these themes, I’ll highlight how our technology and data solutions enable our success. First, supply chain diversification has led to expanded delivery for clients with long-term investment profiles that continue through changing economic conditions.

In life sciences, our clients are in the middle of a generational expansion of therapeutics and vaccines as well as advanced health care and on a global scale. Our confidential clients can accelerate production capacity for life-saving medicines for the most widespread chronic diseases by leveraging Jacobs’ expertise in digital design to optimize delivery across multiple large-scale biotech campuses. We are also advising and delivering predictive analytics for point-of-care treatment resulting in improved outcomes for a growing and aging population with clients such as New South Wales Health Infrastructure in Australia, Children’s Hospital of Philadelphia and the Centers for Disease Control in the U.S. Jacobs remains uniquely positioned across the entire electric vehicle ecosystem to address all aspects of this rapidly expanding market from manufacturing capacity to EV charging infrastructure to advanced mobility implementation.

With favorable tailwinds and expanding list of automobile and EV manufacturing clients are seeking Jacobs’ leading support to develop sustainable production capacity. Moving to climate response. Global demand for affordable green energy led to an increase of over 33% in bookings with wins across multiple geographies, including the U.K.’s National Grid, U.S. Department of Energy, of Energy in Korea where we’re developing a new green hydrogen production and import facility. In the U.S., IIJA supported pipeline is building momentum and projects are moving through the sales cycle into delivery. For example, there is a broad focus on transportation decarbonization with support for the National Electric Vehicle Infrastructure program, NEVI, across multiple DOTs. Charging infrastructure for the navy and in multiple states under the low or no emission vehicle brand programs.

For the environment agency in the U.K., we are living a digital proof of concept, leveraging spatial, predictive analytics to avoid extensive damage in human casualties due to flooding and other climate-driven disasters. At the same time, national highways chose us to streamline their complex data landscape, thanks to our cyber and digital capabilities, partnered with PA Consulting. With StreetLight Data’s multimodal transportation insights platform, we’ve expanded opportunities for both traditional public sector transportation clients and new private sector clients to prioritize marketing and real estate investments. Water sector clients are investing in our new technologies, such as AquaDNA, Dragonfly and intelligent operations maintenance.

These integrated AI and ML cloud-based technologies enable clients to provide reliable clean water access for all communities, leading to expanded services this quarter from wins in Puerto Rico, Florida, Louisiana, the U.K., Singapore and Australia. These innovative platforms are driving the new standard for asset management. In Hawaii, we are delivering a 20-year installation development plan to address climate adaptation for the joint base Pearl Harbor hiccup. Under infrastructure modernization, mega program delivery trends continue as clients look for more efficient ways to deliver sustainable, liveable places. In Scandinavia, we are designing the Nord Aven tunnel to across the harbor in Copenhagen, Denmark. And in Toronto, MetroLinx recently awarded Jacobs a multiyear extension to support their $85 billion regional transit expansion.

In summary, People & Places Solutions is positioned for long-term growth as evidenced by strong performance across all geographies and client segments. Clients are continuing to partner with Jacobs to deliver transformative infrastructure, advanced manufacturing expansion and energy security projects with sustainable lasting outcomes. Moving to Slide 7 to review Critical Mission Solutions line of business. CMS delivered solid performance in the fourth quarter with backlog remaining strong at $10.6 billion, flat year-over-year, with gross profit in backlog was up 10% year-over-year and 12% in constant currency. Our CMS strategy is focused on creating diligent revenue growth and margin expansion by offering technology-enabled solutions aligned to critical national priorities.

CMS’s service and solutions offerings are delivered across our core customer markets: space, cyber, intelligence, defense and energy. And we continue to see strong demand for our solutions across all of them. In space, Jacobs is a critical prime contractor to NASA’s Artemis program, including being the key integrator of the successful uncrewed launch last week of the space launch system rocket in preparation to spend U.S. astronauts back to the moon by 2025. The Artemis 1 launch is historic and we are proud of Jacob’s role in the mission. Also, we were awarded contracts by the Scottish rocket manufacturer and small sat launch service provider, Urbex, to help them build and operate a vertical launch site for satellites in the U.K. Several trends in other Jacobs key markets that we are seeing contributing to our continued growth include Zero Trust Architecture , hypersonics and modular reactors.

Beginning with Zero Trust Architecture or ZTA. White House Executive Order, 1028, mandates, adoption of ZTA cybersecurity models across the federal government. Importantly, ZTA requires continuous verification of identity as movers as users move laterally through network systems. Jacobs’ cyber intelligence team which is now part of our new Divergent Solution operating unit is the program manager for one of the intelligence communities largest , responsible for identity, credential and access management, ICAM. ICAM is a critical architectural component of effective Zero Trust models and Jacobs’ technical leadership in this area positions us to help clients across the federal government, meet the White House executive order. Our cyber and intelligence business unit has a significant pipeline of opportunities requiring ZTA adoption.

In Q4, our cyber intelligence team also won several new non-ZTA contracts, including an agile software development and sustainment contract or a classified contract and one assisting the Navy to advance their radar sensing capability at the Naval Research Laboratory. We also recently cleared the protest period for a $470 million 6-year IDIQ, providing identity intelligence support to the DoD which is not yet reflected in backlog. Moving on to hypersonics. With advances in hypersonic missile technology by China and Russia, the U.S. Department of Defense is developing missile defenses to defend against hypersonic weapons and other emergent threats. Because hypersonic weapons fly at speeds of at least MAC 5, roughly 1 mile per second and can maneuver in route to their target, they are more difficult to defend against.

Jacobs has decades of experience supporting the U.S. Air Force and NASA and has positioned itself as a leader in hypersonic solutions. In last quarter, Jacobs was awarded a 5-year $100 million IDIQ to help the U.S. Navy design and operate an underwater launch test system with the Naval Surface Warfare . The contract also covers modernization, design, fabrication and operation support for an in-air launch testing platform at the Naval Air Weapons Station, China Lake in California. Finally, demand for modular reactors. Nuclear power is coming into favor as a clean energy alternative to fossil fuels. For countries to achieve their next zero carbon emission goals and ensure energy independence and security, leaders are realizing they need to include the always-on emission-free generation.

Small modular reactors or SMRs are reactors with electric generating capacity of 300 megawatts versus traditional large reactors with generating capacity of 1 gigawatt or more. SMRs have numerous benefits, including lower initial capital investment, greater scalability through factory manufacturing processes, greater siding flexibility on smaller grid and isolated areas and greater energy efficiency. In the U.K., we are delivering engineering and technical services to the Rolls-Royce SMR program and licensing advice to GE Hitachi Nuclear Energy as they look to enter the U.K. market. There’s also increased interest in new advanced modular reactors or AMRs, that can be designed to provide specific benefits such as producing high heat for green hydrogen.

We are supporting multiple AMR vendors in the U.S. and U.K. Jacobs is a leader in global nuclear solutions, building on our long legacy of organic capabilities and acquisitions of CH2M and Wood Nuclear. In summary, we continue to see solid revenue visibility for our solutions in FY ’23 and with approximately 85% of CMS’s portfolio, consisting of large enterprise contracts with durations greater than 4 years and 88% from federal level government funding. We are also pleased with the Government Accountability Office’s recent guidance to have the U.S. Air Force re-evaluate proposals for its large Integrated Support Contract, ISC 2.0, in support of a new source selection decision. And therefore, this remains in our pipeline as a potential multibillion-dollar opportunity.

The CMS sales pipeline remains robust with the next 24-month qualified new business at approximately $30 billion, including $10 billion in source selection with an expanding margin profile. Moving on to PA Consulting on Slide 8. PA continues to deliver its strategy and is securing exciting and enduring work. PA’s deep insight lasting relationships and ability to assist clients through economic cycles is also generating consistent demand for its expertise. This quarter, PA was awarded marquee wins across the key markets. As Steve mentioned, in the U.K. public sector, where it’s a major player, PA was selected as the lead systems integrator for a multiyear contract providing next-generation solutions to counter threats posed by radio-controlled improvised explosive devices, IED.

The contract leverages PA’s extensive experience in major program delivery as they lead the delivery consortium, Team Protect. PA was also appointed to oversee the delivery of a once-in-a-generation program for social care reform in the U.K., further cementing its position in government and public sector. Transport continues to be a major focus with additional awards won at Schipol Airport in the Netherlands, where the joint capabilities of Jacobs and PA continue to create further opportunities to include boardroom advisory and digitalization of airside operations. The Jacobs PA partnership is strongly positioned to continue to capitalize on substantial market opportunities. Jacobs’ global footprint and broad-based domain expertise together with PA’s high-end digital consulting, creates a compelling value proposition in distinct areas of opportunity.

Now, I’ll turn the call over to Kevin to review our financial results in further detail.

Kevin Berryman: Thank you, Bob. And turning to Slide 9 for a financial overview of our fourth quarter results. Fourth quarter gross revenue grew 8% year-over-year and net revenue was 6% and up 11% year-over-year on a constant currency basis. All lines of businesses grew fourth quarter revenue over 9% versus a year ago in constant currency. Adjusted gross margin in the quarter as a percentage of net revenue was 26% and improved slightly from the third quarter but was approximately down 130 basis points year-over-year, primarily driven by: one, our CMS line of business due to the newly ramped remediation contract; and two, investments in incremental employees in TA in advance of the large wins such as the U.K. MOD award that will ramp over the coming months.

We expect gross margins to modestly improve from Q4 levels during fiscal 2023, driven by recent wins in cyber, favorable revenue mix, recent wins in PA Consulting and continued strong performance in our People & Places Solutions business. Adjusted G&A as a percentage of net revenue was 15.2%, down 40 basis points from Q3 and down 200 basis points year-over-year. During the quarter, we benefited from lower labor expenses as we managed our cost structure. We are targeting G&A as a percentage of net revenue to stay below 16% for the full fiscal year 2023. GAAP operating profit was $309 million and was mainly impacted by $52 million of amortization from acquired intangibles and other acquisition deal-related costs and restructuring efforts of $14 million with over half associated with integration costs of acquisitions.

And finally, a positive benefit from third-party recoveries of $27 million pretax which we excluded from our adjusted results. Adjusted operating profit was therefore $347 million, up 15% year-over-year. On a constant currency basis, it was up 19% year-over-year. Our adjusted operating profit to net revenue was 10.7%, up 80 basis points year-over-year. I’ll discuss the moving parts later when reviewing the line of business performance. GAAP EPS from continuing operations was $1.75 per share and included a $0.16 benefit from the third-party recovery receivable, a $0.12 benefit to align to our effective adjusted tax rate, offset by a $0.27 impact related to the amortization charge of acquired intangibles and $0.06 from transaction, restructuring and other related costs.

Excluding these items, third quarter adjusted EPS was $1.80, up 14% year-over-year and up 18% in constant currency. Jacobs’ consolidated Q4 adjusted EBITDA was $350 million and was up 13% year-over-year, representing 10.8% of net revenue. On a constant currency basis, adjusted EBITDA was up 17% year-over-year. Finally, backlog was up 5% year-over-year and 8% on a constant currency basis. Sequentially, backlog was impacted by the strengthening U.S. dollar at year-end compared to the end of the third quarter. As an example, the dollar strengthened 8% versus the pound sterling from the end of Q3 to the end of Q4. As a result, on a constant currency basis, backlog was flat sequentially. The revenue book-to-bill ratio was 0.94x with our gross margin book-to-bill at 1.05x given a higher margin profile within backlog on both a year-over-year and sequential basis.

Our book-to-bill ratios continue to be impacted by the burn of the approaching Kennedy NASA rebid as backlog continues to fall until which time the rebid is awarded. Now moving to Slide 10 for a brief recap of our full year 2022 performance. Fiscal year gross revenue grew 6% year-over-year and net revenue grew 10% in constant currency. On a reported basis, we expect fiscal 2023 revenue growth in the mid-single digits and high single digits on a constant currency basis. GAAP operating profit was $918 million, up significantly year-over-year, driven by a material decrease in onetime items related to transaction and restructuring as well as solid underlying constant currency growth in the business. GAAP EPS was $4.98 and adjusted EPS was $6.93, up 10% year-over-year and up 13% on a constant currency basis.

Adjusted operating profit grew 10.6% and was up 13% on a constant currency basis. Operating profit margins expanded nearly 30 basis points to 10.4%, driven by revenue mix benefits and lower support costs. Adjusted EBITDA was $1.36 billion, up 10% and up 12% in constant currency. As a percentage of net revenue, adjusted EBITDA was 10.8%, up 20 basis points from fiscal 2021. We expect modest adjusted operating profit margin expansion in fiscal 2023, driven by a combination of a higher margin revenue mix and lower employee-related costs. However, adjusted EBITDA margins are expected to be flat year-over-year as other income will be burdened primarily by unfavorable pension costs driven by the higher interest rate environment. On a trailing 12-month basis, book-to-bill was 0.97x and gross margin book-to-bill was over 1 at 1.05.

Regarding our LOB performance, let’s turn to Slide 11 for Q4 performance and Slide 12 for full year performance. Starting with CMS; Q4 revenue was up 10% year-over-year and up 12% in constant currency, contributed approximately $22 million to the fourth quarter revenue. Fiscal 2020 revenue on a reported and constant currency basis grew 3% as the part of the year — as the first part of the year did not benefit from the ramp of the Idaho nuclear remediation win. Black Links contributed $50 million in revenue for fiscal year 2022. For fiscal year 2023, we expect revenue growth in the mid-single digits for the CMS business and higher double-digit growth in our Divergent Solutions unit. Q4 CMS operating profit was $95 million, down 17% year-over-year and down 14% on a constant currency basis.

Operating profit margins as a result, were down 220 basis points year-over-year to 6.9%. Consistent with our previous outlook, Q4 operating margin percentage were impacted by a rate true-up in our cyber and intelligence business. The rate true-up was related to higher G&A over the course of the year given the slower ramp in the business during the continuing resolution. Looking forward, we have successfully been awarded a large new classified cyber win that was previously delayed during the continuing resolution, indicating developing momentum. Looking into fiscal 2023, we expect approximately 75 basis points of sequential operating margin expansion in Q1 and driven by immediate rebound from the onetime rate true-up in Q4. We’re also targeting further margin expansion through fiscal 2023 as we win and ramp new higher-margin awards.

Moving to People & Places Solutions. Overall, P&PS delivered strong revenue and operating profit results. Q4 net revenue was up 6% year-over-year and up 10% in constant currency. On a constant currency basis, each P&PS region demonstrated net revenue growth. And for the full year, P&PS grew 4% on a reported basis and 7% in constant currency. Looking deeper into our business units, our advanced facilities unit which benefits from investments in the life sciences, semiconductor and EV supply chains, posted another stellar quarter of double-digit revenue operating profit growth. For the fiscal year, the business grew operating profit well north of 25%. We expect our advanced facilities growth rate to continue to remain robust during the fiscal year 2023 at approximately 10% despite the strong year-over-year comparisons.

The P&PS International business, Q4 revenue and operating profit was essentially flat year-over-year on a reported basis but grew double digits in constant currency. For the full year, international operating profit was up 10% year-over-year in constant currency. Our international business will continue to be materially impacted by FX during fiscal 2023, resulting in flattish reported revenue growth but is poised for full year growth on a constant currency basis. Total P&PS Q4 gross profit and margins were up year-over-year with Q4 operating profit up 31% and operating profit as a percentage of net revenue up 275 basis points, driven by revenue growth and mix as well as lower labor costs during the quarter. Full year People & Places operating profit was up 5.5% on a reported basis and up 10% in constant currency, with operating margins of 13.2%, up 20 basis points versus a year ago.

In terms of PA’s performance, PA Q4 revenue declined 7.7% year-over-year in U.S. dollars but it grew 9% in pound sterling. Q4 adjusted operating profit margin was 19.4% during the quarter due to continued lower utilization and investments in pipeline pursuits. As Bob mentioned, PA Consulting has been successful winning the large award with the MOD for which we expect to show benefit later in 2023. We continue to target double-digit revenue growth on a constant currency basis with operating margins returning to above 20% throughout 2023, driven by improved utilization. Our non-allocated corporate costs were $28 million, down year-over-year as we benefited from lower incentive costs and to a lesser extent, from a positive currency impact on our supported costs and other benefits.

We now expect non-allocated costs — corporate costs to be $190 million to $210 million for fiscal 2023 which is slightly higher than fiscal year 2022 as we expect higher incentive costs on a year-over-year basis. Now turning to Slide 13 to discuss our cash flow and balance sheet. Cash flow generation continued to be strong. Free cash flow was $230 million in Q4 and included $12 million related to transaction costs and other items. On a full year basis, reported cash flow was $347 million but included the net $475 million of cash outflows related to the previously announced Inpex settlement, the first $55 million repayment of Cares Act payroll tax deferral and a net $4 million cash benefit related to other items. Excluding these items, free cash flow conversion to adjusted net income was 97% for the year.

For fiscal 2023, we expect 2 items to impact cash flow an approximately net $15 million of further cash outflows from restructuring, transaction and other related costs. And a final repayment of $60 million of Cares Act payroll tax deferral benefits. Excluding these items, we anticipate again to achieve 100% free cash flow to adjusted net earnings in fiscal 2023. We are also continuing to evaluate further real estate opportunities given our developing insight as to our longer-term needs given the hybrid work environment and we will update on our Q1 earnings call with further developments in this regard. During the quarter, we repurchased approximately $31 million of shares. And for the full year, we repurchased $282 million. After September, we have continued to be actively purchasing shares with approximately $135 million repurchased as of last week.

As we have said before, we will remain agile and opportunistic and repurchasing shares as we see disruption in the market. We ended the quarter with cash of $1.1 billion and gross debt of $3.4 billion, resulting in a $2.3 billion of net debt. Our Q4 net debt to 2023 expected adjusted EBITDA of approximately 1.6x is a clear indication of the continued strength of our balance sheet. As of the end of Q4, approximately 60% of our debt is like the floating rate debt. And as a result, we are expecting incremental interest costs going forward which we have incorporated into our outlook. As of the end of the fourth quarter, our weighted average interest rate was approximately 3.6%. Early in the fourth quarter, we entered into a notional $500 million interest rate lock at a rate of 2.7% as related to a planned future fixed rate issuance.

The mark-to-market benefit from the in the money interest rate lock is currently recognized in other comprehensive income but will offset interest expense of our future expected fixed income issuance. Also, in early October, we redeemed $481 million of private notes at par. In the appendix on Slide 16 of the presentation, we included additional detail related to our debt maturities and interest rate derivatives and quarterly interest expense. Finally, given our strong balance sheet and free cash flow, we remain committed to our quarterly dividend which we announced at the end of the fourth quarter of fiscal 2022 and paid on October 28. I will now turn the call back over to Bob.

Bob Pragada: Thank you, Kevin. Turning to Slide 14. As we discussed throughout our remarks, through proactive portfolio management, we have aligned our business to sectors that continue to demonstrate robust growth through multiple economic scenarios. We continue to enhance our overall growth rate with our climate response consulting and advisory and data solutions strategic accelerators. Given the volatility of FX rates, we are providing our outlook under 2 FX scenarios: one, an outlook based on constant currency which provides greater insight of underlying business performance; and two, an outlook based on more recent FX rates. Although we transact in multiple currencies, one example for reference is the pound sterling. The full year 2022 average conversion rate for the pound sterling was $1.28 compared to $1.15 early November 2022.

As footnote in our earnings release and investor presentation, based on fiscal 2022 average rate, our outlook for fiscal 2023 adjusted EBITDA is $1.465 billion to $1.545 billion and adjusted EPS of $7.60 to $7.90, up 10% and 12%, respectively, at the midpoint. Based on rates in early November, our outlook for fiscal 2023 adjusted EBITDA is $1.4 billion to $1.48 billion and adjusted EPS of $7.20 to $7.50, both up 6% at the midpoint. On a net revenue basis, the difference between these 2 scenarios is approximately $430 million. Looking beyond fiscal 2023, we remain confident achieving double-digit constant currency adjusted EBITDA growth, consistent with our strategic plan. Operator, we will now open the call for questions.

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