AECOM : Q2 2026 Earnings Conference Call Transcript

Published: 2026-05-14 00:17:05 ET ACM

Published on 05/14/2026 at 12:17 am EDT

LSEG STREETEVENTS

EDITED TRANSCRIPT

ACM.N - Q2 2026 AECOM Earnings Call

EVENT DATE/TIME: MAY 12, 2026 / 12:00PM GMT

OVERVIEW:

Company Summary

‌Thank you for standing by. At this time, I would like to welcome everyone to AECOM's second quarter 2026 earnings conference call. (Operator Instructions) I would now like to turn the call over to Will Gabrielski, Senior Vice President of Finance and Investor Relations. You may begin.

Thank you, operator. I would like to direct your attention to the safe harbor statement on page 1 of today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements.

We use certain non-GAAP financial measures in our presentation. The appropriate GAAP reconciliations are incorporated into our materials, which are posted to our website. Growth rates are presented on a year-over-year basis, unless otherwise noted. Any reference to segment margins or segment adjusted operating margins will reflect the performance for the Americas and International segments.

When discussing revenue and revenue growth, we will refer to net service revenue or NSR, which is defined as revenue excluding pass-through revenue. And as our growth rates are presented on a constant currency basis, unless otherwise noted.

Today's remarks will focus on continuing operations. On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy and outlook for the business. Lara Poloni, our President, will discuss key operational successes and priorities; and Gaurav Kapoor, our Chief Financial and Operations Officer, will review our financial performance and outlook in greater detail. We will conclude with a question-and-answer session.

With that, I will now turn the call over to Troy. Troy?

Thank you, Will, and thank you all for joining us today. Our second quarter results demonstrate the strength and resilience of our teams and our focus on delivering the most iconic infrastructure projects around the world.

Before discussing our results, I want to highlight that we have once again been named the number one firm by ENR in the transportation, facilities and water markets. Our industry leadership, investments in our professionals and technical excellence, infrastructure domain expertise and strong client relationships are pivotal and our competitive advantage and the unparalleled value we deliver to our clients.

Turning to our results. NSR, margins, adjusted EBITDA and adjusted EPS reached new second quarter highs despite a dynamic market environment, and backlog increased 8% to a new record. The increase in NSR was driven by 8% growth in our Americas design business, which is our most profitable. The segment adjusted operating margin increased by 50 basis points to 16.5%, which is reflective of the high value we deliver to our clients, our focus on efficiency and the benefits of our strategy. Through these margins, we are investing in and beginning to realize the benefits from our strategic priorities, which include our proprietary AI and growing our advisory practice.

Backlog reached a new high in the quarter, which further enhances our visibility. This was driven by a design book-to-burn of 1.2 times. This performance reflects the combination of strong secular growth demand and robust funding in many of our markets as well as continued strong win rates. This is especially apparent across our largest pursuits, where our advantages are greatest, and our win rates are consistently highest.

Turning to our development and deployment of proprietary AI. We are delivering on all of our key internal milestones and investments expanded in the quarter as expected. Importantly, deployment of AI onto projects and client deliverables is growing rapidly as are the number of use cases identified by our teams.

The best measure of how AI is benefiting AECOM is our largest wins. We were recently selected for a substantial recompete for a major energy client where our proprietary AI solution was a central element of the project proposal and our competitive edge. Notably, these contracts include specific mechanisms that allow us to capture value and deploy AI to deliver greater value to our clients.

Turning to end markets. In the US, both of the demand and funding environments are strong. More than half of the IIJA funding remains to be spent, and that number is even greater for several of our largest clients and market sectors. An example of the positive benefit of this funding is the Brent Spence Bridge project in Ohio, where our strong performance on Phase 1 helped us win a sizable contract for Phase 2 during the second quarter.

As we highlighted last quarter, investment in US national defense is also growing rapidly. Our pipeline with the Department of War, which is our single largest client, increased by 50%. The President's $1.5 trillion budget proposal points to accelerating defense spending in the key areas that we support. This includes significant increased facilities work, where we are a leading provider to the Army and Navy.

In Canada, NSR growth continues to be strong and broad-based across all market sectors. We maintained a leading position in this market, and recent national and provincial funding pronouncements underpin our confidence that this growth will continue.

Turning to the International segment. In the UK, growth turned positive with continued strength in water and energy, led by accelerated activity on AMP8 and Great Grid project. However, partially offsetting this strength is ongoing weakness in the transportation market. Longer term, there is an undeniable need for transportation investment.

In Australia, trends have improved and our backlog reached a new multiyear high. This includes a notable set of wins to support the $3 billion AUKUS partnership and other defense investments. In addition to defense, we also have a growing pipeline of transportation work, which bodes well for 2027 and beyond.

Finishing in the Middle East. Despite the near-term uncertainty, we continue to win work at a higher rate, including strong wins after the quarter ended. In addition, an estimated $40 billion to $50 billion of spending is likely to be needed to repair, fortify and expand the US military infrastructure in the region, which presents another growth opportunity for us.

Turning to our outlook for the remainder of the year. We are increasing our full year profit guidance for the second time this year. This guidance increase reflects our strong year-to-date financial performance, record backlog position, strong funding across our core markets and execution of our strategic initiatives. At the same time, our guidance is capturing uncertainties related to the Middle East as the ongoing conflict continues to have an unclear resolution timeline.

At the midpoints of our updated guidance ranges, we expect adjusted EBITDA and adjusted EPS to increase by 7% and 14% from the prior year. Taken together, we continue to deliver consistently strong performance, with a record backlog and pipeline, and are confident in delivering on our increased guidance for the year and our long-term strategic and financial objectives.

‌With that, I will turn the call over to Lara.

Thanks, Troy. Our teams continue to differentiate in the marketplace by leading with technical excellence, strong collaboration across market sectors and disciplines and focus on delivering unrivaled value to clients. These attributes are key drivers of our record performance. I'd like to highlight a few trends where this is most apparent.

First, our clients are investing record amounts in AI infrastructure. Our expertise extends from the conceptual phase of an asset through its ultimate delivery, including environment permitting, site selection and due diligence, stakeholder engagement as well as design, project and program management. Our high-tech business is one of our fastest growing, especially in the US. Of note, during the quarter, we expanded our relationship with a key hyperscaler that positions us for accelerating growth, and we see several similar opportunities across this market.

Second, power demand continues to increase. We work across the entire power generation stack, and we have taken a leading position in emerging areas as well. One area we'd like to highlight is nuclear fusion, where we expect to deliver nine figures of NSR in the coming years. This includes our ongoing work in the US with Type One Energy and TPA as well as our selection during the second quarter to deliver design and technical services for the UK Step nuclear fusion program.

These two programs are amongst the most advanced fusion programs in the world, and our decades-long leadership across the energy sector played an essential role in our positioning.

The third trend I'd like to highlight is our incredibly high success rate on recompetes, which is a great indicator of the strength of our technical expertise and high client satisfaction. Our win rate on recompetes is in excess of 90%. And increasingly, we are securing an even greater share of the client spend on these recompetes, which aligns with our focus on expanding our addressable share of the market.

In the environment sector, two marquee recompetes for global energy companies over the past several months told this story well. On one of these wins, our scope is substantially greater than the prior contract. This outcome not only reflects our strong performance on the last contract, but also the value we are poised to deliver in the future through our strategic investments, including AI. On the other win, we stood out against the competition because of our technical expertise and scale.

Finally, our Advisory business is on track to double its NSR within three years, consistent with our prior expectations. Importantly, by bringing infrastructure-led expertise to our clients, we are differentiated versus traditional consulting peers, and we are consistently beating these firms across the globe for our clients' most critical assignments.

As always, I am extremely proud of our professionals who are energized by our investments to enhance capabilities, better serve our clients and increase the value we can deliver to our stakeholders and communities. The result is sustained strong performance across the business and clear visibility for future growth.

With that, I'll turn the call over to Gaur.

Thanks, Lara. As demonstrated by our second quarter results and increased full year guidance, the business is outperforming our expectations contemplated in our initial guidance. There are a few trends that I would like to highlight within our performance.

First, we continue to deliver on all key metrics. I should note, this quarter included an approximate 100 basis points headwind to NSR due to the impacts from the conflict in the Middle East. And as a reminder, revenue is disproportionately impacted given the substantial consolidated joint venture work we have in the region, but the impact to profit is much smaller as demonstrated by our strong earnings growth.

Second, strong margin outperformance remains a hallmark of our business. Building on our consistent industry-leading profitability, our segment adjusted operating margin increased by 50 basis points year-over-year. We continue to unlock capacity to invest in our strategic priorities, and we are on track with our full year margin expansion goals.

Finally, our backlog and pipeline are at a record high, including growth in both the Americas and International segments. In fact, our pipeline has increased by double digits for three consecutive quarters, which provides for long-term visibility. Both our backlog and our pipeline underpin our expectation for strong NSR growth in the second half of the year and beyond.

Turning to Americas. NSR in the design business increased by 8% as we continue to execute our strong backlog position and capitalize on favorable market trends. The adjusted operating margin increased by 60 basis points to 20%, contributing to 10% operating income growth, which reflects a continued focus on driving operating efficiencies across the business and the high return on investments we are making to extend our advantages.

Turning to the International segment. NSR increased by 2% and declined by 3% on a constant currency basis. Growth in the UK and Australia was offset by declines in the Middle East and Asia. Our adjusted operating margin remained consistent with the prior year at 11%, and our operating income increased by 2%.

Our backlog in the International segment increased by 25% to a new record and our pipeline of opportunities remain near an all-time high as well. This is consistent with our expectation that international growth will improve in the coming quarters.

Turning to cash flow and capital allocation. We returned $155 million of capital to shareholders in the second quarter through repurchases and dividends. Underlying cash flow in the second quarter was consistent with our expectations, but was offset by delayed payment timing in the Middle East business as well as longer-than-anticipated claim resolution on certain projects. Importantly, collection in the Middle East has already recovered in the third quarter, and we have demonstrated track record of delivering strong free cash flow.

As a result, we are reaffirming our free cash flow guidance for this year as well as our long-term 100% plus free cash flow conversion target. We remain committed to our returns-focused capital allocation policy, which includes returning substantially all available cash flow to shareholders through repurchases and dividends.

Concluding with our raised guidance, we now expect to grow adjusted EPS and EBITDA by 14% and 7%, respectively, at the midpoint of the ranges. As a reminder, our fourth quarter growth rate will be impacted by fewer workdays than prior year, which is accounted for in our reaffirmed guidance for 4% to 6% NSR growth for the year. Excluding this impact, we continue to expect 6% to 8% NSR growth for the year.

With that, operator, we are ready for questions.

Disclaimer

AECOM published this content on May 14, 2026, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 14, 2026 at 04:16 UTC.