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AECOM is a global infrastructure consulting firm, partnering with government agencies, corporations, and institutions to deliver transformative solutions across the Americas, EMEA, and Asia-Pacific regions. AECOM operates through three core segments: Americas, international, and AECOM Capital. The firm offers integrated services spanning strategic advisory, planning, design, engineering, construction, and program management, as well as investment and real estate development. AECOM has deep expertise in the transportation, water, facilities, environmental, and energy sectors. Established in 1980 and rebranded as AECOM in 2015, the company continues to focus on innovation and client impact on a global scale.

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AECOM (ACM): Company Profile, Stock Price, News, Rankings

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AECOM

aecom

Thank you for standing by. My name is JL, and I will be your conference operator today. At this time, I would like to welcome everyone to the AECOM First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press Star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, simply press Star 1 again. I would now like to turn the conference over to Will Gabrielski, Senior Vice President, Finance and Investor Relations. You may begin.

Thank you, operator. I would like to direct your attention to the safe harbor statement on page one 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 references 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. NSR growth rates are presented on a constant currency basis, unless otherwise noted. Today's remarks will focus on continuing operations. This morning, we announced the completion of the review of strategic alternatives for the construction management business. We have concluded that we will continue to own and operate the business. Both our reported results and financial guidance are inclusive of construction management. Also, as a reminder, our year-over-year growth rates were impacted by fewer workdays compared to the prior year first quarter. Accordingly, our discussion will include adjustments to improve comparability of results. On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy, and our 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 turn the call over to Troy. Troy?

Thank you, Will, and thank you all for joining us today. As our first quarter results demonstrate, we are off to an exceptional start to the year. We exceeded expectations across every key financial metric, including record first quarter NSR,  adjusted EBITDA, margins, and backlog. Backlog increased 9% to a new all-time high, fueled by a 1.5 book-to-burn ratio, even while managing through an unprecedented 43-day U.S. federal government shutdown. I should note that we expect award activity in the U.S. to pick up with the recent passage of all critical federal funding bills. As a result, our visibility is high, and we are increasing our full-year financial guidance, which I will discuss shortly. Across the business, our focus remains on extending our competitive advantages. We have a strong moat that is built on our scale, technical leadership, trusted client relationships, and domain expertise.

Our target investments in program management, advisory services, AI, and technology position us to unlock greater value for our clients and deliver on our multi-year financial targets. Underscoring our confidence in the long-term value creation opportunity, today, we also announced an increased share repurchase authorization to $1 billion. We repurchased more than $300 million in the first quarter and expect to continue to deploy our strong free cash flow to deliver greater value to our shareholders over time. Turning to financial performance. Net service revenue increased by 5% when adjusted for fewer billable days in the period. The segment-adjusted operating margin increased by 100 basis points to 16.4%. This is a new first quarter record and reflects the ongoing benefits of our strategy and high-returning investments.

These investments include key hires to drive growth in our advisory business, to build on our technology teams and capabilities, and in business development to capitalize on strong demand. Reflecting this outperformance, both Adjusted EBITDA of $287 million and Adjusted EPS of $1.29 exceed our expectations. As I mentioned earlier, we ended the quarter with a record backlog, and our book-to-burn ratio has been above one for 21 consecutive quarters. This consistent performance is a function of the value we bring to our clients. Our win rate remains strong in this quarter, especially on large pursuits. I would like to highlight two key wins that provide greater insight into how we are advantaged in the marketplace. First, we were selected as a delivery partner for the 2032 Olympic and Paralympic Games in Brisbane, Australia.

Our selection is a testament to the trust and credibility we've built with clients in delivering complex infrastructure projects on a worldwide stage. It also underscores the benefits of combining our leading technical expertise with programmatic delivery capabilities. Further, this win builds on our proud history as a critical infrastructure partner to the Olympic Games across the globe, including our ongoing role as the infrastructure delivery partner for the LA28 Games . Another great example is our selection to provide the engineering services for Scottish Water's multi-year capital investments program, which represents one of the largest capital programs in the world. This win demonstrates several key advantages. For one, we're the world's number one ranked water firm. In addition, our rapidly expanding technology roadmap was key to our selection, as we were able to demonstrate a tangible value opportunity from AI and technology over time...

Our emphasis on bringing best-in-class technology-led solutions and the overwhelmingly positive client response is a growing trend in our business, and we believe this win serves as a blueprint for the value we expect to deliver from our investments. Turning to a discussion of our end markets. In the U.S., market conditions are strong. The recent passage of all key federal funding bills for fiscal 2026 provides greater certainty for our clients and for us. Additionally, over half of the IIJA funding remains to be spent, and progress is accelerating for the multi-year Surface Transportation Authorization. Our expectation is for another sizable investment that will build on this momentum and support a growing U.S. economy. Investment in the private sector is also gaining momentum. This is evident in the booming data center market, where we benefit both directly and indirectly from the infrastructure opportunities.

This includes water, facilities, energy, and environmental services, all sectors where we lead our industry. Additionally, incentives in the One Big Beautiful Deal and ongoing reshoring initiatives are creating new opportunities with several years of visibility ahead. Turning to International. Near-term trends remain varied, but strong long-term demand for infrastructure investment is undeniable. In the U.K., we had the significant Scottish Water win, and the AMP8 water cycle is underway. In the Middle East, we are successfully navigating the reprioritization of funding with substantial wins in the first quarter that underpin our outlook for this year and beyond. This includes our new leading design role on the Dubai Metro and ongoing growth opportunities in the UAE and across Saudi Arabia. In Australia, our backlog reached a new multi-year high and included strong wins in the quarter, notably in the transportation sector.

Offsetting this in the near term are pockets of weakness resulting from geopolitical and funding uncertainties. Importantly, our efforts to reposition across I653nternational markets are paying off, as our 25% backlog growth and record pipeline demonstrate. As a result, we expect revenue trends to improve as the year progresses and into fiscal 2027. Globally, national defense budgets are meaningfully increasing. This is a key driver for our business, as defense represents approximately 10% of our NSR. The U.S. Department of War is our largest client, and spending is set to increase for the next several years. Further, our other key clients are also ramping investment, including the U.S. Coast Guard and the broader DHS. President Trump also reaffirmed the U.S. commitment to the AUKUS Trilateral Defense Pact with Australia and the U.K., and we are pursuing a substantial pipeline.

Before turning the call to Lara, I want to provide an update on two strategic initiatives. Beginning with technology and AI, we've completed the integration of our September acquisition. We have already doubled the size of our team, and engineers are deeply engaged in collaborating to extend our capabilities. The technology is now live on our projects, and the initial performance results achieved have matched our expectations. Our confidence in these investments and the potential positive benefits is getting stronger. Every day, we're uncovering fresh use cases and new opportunities. We're deploying our resources to tackle new problems, and in doing so, we are creating significantly more value for our clients. All this rests on the foundation we've built, namely, our technical leadership, the deep trust we've earned with our clients over many years, and the domain expertise we have at scale.

As it relates to the construction management business, we've completed our comprehensive review of strategic alternatives. We concluded we will continue to own and operate the business and believe it is exceptionally well positioned for the future. Backlog is strong, and the pipeline continues to reflect a robust set of opportunities. As we look ahead, our confidence is underpinned by our successes and growing backlog. We increased our Adjusted EBITDA and EPS expectations for fiscal 2026, which includes operational outperformance in the first quarter and the benefits from capital allocation. We also reaffirmed our long-term value creation algorithm, which includes expectations for annual revenue growth of 5%-8%, achieving a 20% margin exit rate by fiscal 2028, and delivering mid-teens compounded earnings and free cash flow growth per share. With that, I will turn the call over to Lara.

Thanks, Troy. Echoing your sentiments, our teams are proud of our many accomplishments to date, as well as how we are redefining the future of infrastructure delivery. Demand for infrastructure has never been greater. Rapid urbanization has pushed 45% of the world's population into cities today, with projections showing dramatic further growth. Even in advanced economies, aging and inadequate systems are under severe strain. The U.S. alone faces a $3.7 trillion investment gap over the next decade. Meanwhile, energy systems face mounting pressure from data center expansion and widespread electrification. These dynamics are intensifying, and we're deliberately positioning with clients to capitalize on this demand. This includes our ongoing investment to expand our higher-margin advisory practice, attacking what we believe to be a $50 billion addressable annual spend.

Our advantage is that we combine our deep infrastructure, domain expertise, and technical leadership with superior strategic advice to deliver greater value for our clients. This is a distinct offering and fills a large gap in the market. We have made substantial progress on our goal to double this business. The team is growing, and hiring activity is expected to continue to accelerate through the year. Importantly, our pipeline is also expanding rapidly, and several recent wins demonstrate our value to clients and how our addressable market is expanding. Let me highlight two examples.

... First, in the UK, we were selected to advise the water industry to advance business plans for the AMP9 water cycle. This is an important win and a great demonstration of how we are positioning to help shape our clients' investments. Second, through advisory, we are positioned to support the $ trillions of private capital seeking to invest in infrastructure. For these clients, we can accelerate and de-risk their investments and achieve better outcomes. This is a valuable benefit that also extends to our public clients, who are increasingly partnering with private investors. As is evident, we are expanding the value we can deliver for clients, which is driving strong performance across the business. With that, I'll turn the call over to Gaurav.

Thanks, Lara. As first quarter operational outperformance and financial guidance demonstrate, we continue to extend our track record of exceeding our expectations and creating a more valuable company. A few highlights from our performance bear repeating. First, we over-delivered on the financial expectations we provided for the first quarter, and we are raising our guidance for the full year as a result. Second, we saw strong increases in both our NSR and margins. This serves as clear evidence that we are scaling our advantages and expanding our operating leverage. Third, our backlog and pipeline are both at an all-time high. This reflects our competitive advantages, the strength of our end markets, and continued expansion of our addressable market. And finally, we continue to execute our returns-based capital allocation priorities.

After investments in high-returning organic growth and efficiency initiatives, which are expensed through our margins, we returned nearly $350 million to shareholders in the first quarter and over $3.3 billion over the last several years. We're also pleased to announce an increase in our share repurchase authorization to $1 billion. Going forward, we'll continue to deploy capital thoughtfully while maintaining a nimble balance sheet, so we can maximize the benefits of our strong operational performance for our shareholders. Turning to our segment performance. In the Americas, NSR increased by 9%. Growth was broad-based, but stronger in the eastern states and Canada, where budgets and visibility are best. The adjusted operating margin was 19.9%, up 120 basis points from the prior year.

This includes the operating leverage created by strong growth, mix shift to higher margin services, and the benefits from deploying technology to deliver efficiencies. Turning to International, NSR was essentially flat after adjusting for fewer billable days. This was materially consistent with our expectations, as we've discussed now for several quarters, the slower level of activity in areas including UK, Australia, transportation, and in Hong Kong. While International segment growth will likely remain subdued in the second quarter, consistent with the expectations we had at the start of the year, the successful repositioning of the business to growth areas resulted in a 25% backlog increase in the quarter, and we expect growth to pick up in the second half of the year as a result. Turning to details of our guidance.

We are increasing the midpoints of our adjusted EBITDA and adjusted EPS guidance ranges for the full year and now expect adjusted EPS of $5.95 at the midpoint of our range, as compared to $5.75 previously. This increase reflects the operational outperformance we delivered in the first quarter, the benefits of our capital deployment strategy, a lower expected tax rate, and the strong visibility from our record backlog. I want to share a few details on phasing to help with modeling. We expect second quarter NSR and adjusted EBITDA to approximate 24% of our full-year guidance. We also expect the second quarter tax rate to be approximately 12%-13%. With that, operator, we are ready for questions.

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Sabahat Khan of RBC Capital Markets. Your line is open.

Great. Thanks, and good morning. Just before I get into kind of the fundamental stuff, maybe you can just share some thoughts. I want to get some color on the decision made to sort of keep the CM business. Obviously, you know, you guys kind of put up strategically one on that. And then just a follow-up question, if you can just talk about sort of, you know, compared to last year, the evolution of sort of the demand environment in the US, given some of the stability, I would say, at this point, relative to last year and the priorities of the US government. So maybe just kind of the broad outlook and sort of, you know, any synergies, et cetera, there from keeping the CM business. Thanks.

Saba, thank you. And I'll, I'll take the first question with respect to construction management, and then I'll, I'll turn the second part of this question over to Gaurav. So first, just we said that we would evaluate options last quarter, including a sale, but that also always included ways that we would drive more value in the business and CM the business and the combined AECOM business in general. As we went through that process, a couple important factors that were key to our decision. One is recognizing the construction management business is high-quality business. In fact, I'd consider it a strong industry leader, and it does have great backlog and opportunities in front of it. It also has a great cash flow profile that creates the ability for us to invest. But most importantly, we see substantial opportunities-

... resulting from a closer connection between the construction management team and the rest of AECOM. That alignment and collaboration, we think, will give substantial opportunity beyond where we see those businesses operating today. And a couple of examples of that are the work that we're doing together on the LA28 Games, and now we'll begin that work on the Brisbane 2032 Games. So we see great opportunities for the business to work together, and we were pleased to get to that process quickly and get to this decision.

Hey, Saba, this is Gaurav. Thanks for the question. I'm glad you, you raised it. You know, we're seeing continued strength in our Americas market, particularly across our design business. All of our end markets, from transportation, water, facilities, continue to deliver very strong growth, including what we reported in the first quarter, which was 9% for our design business. And if you look over the last two and a half years, our organic growth has been very strong, leading the enterprise at high single digits. And when we continue to dive deeper into the markets, our pipeline continues to be very robust. It's up 20% year-over-year at end of the first quarter.

In fact, the early stage pipeline for us is up 34% over that same timeframe, while IIJA funds, as you guys are all aware, less than 50% is still unspent. You know what? Sometimes get lost in some of the numbers that we report is, in our business, we do have and have positioned ourselves in this very healthy environment, funding environment, on MSAs and IDIQs within our transportation, our water, and our environment business lines. These IDIQs, MSAs, they're not generally part of our awarded or contracted backlog because it's call off task order work and provide a lot of support, book-to-burn support, just during the quarter. You know, at any given point in time, we have between 35,000-50,000 contracts ongoing across the globe.

So given that backdrop, we have a lot of confidence as we look forward into the near term, not just FY 26, but going beyond, that the growth drivers continue to be well in place for our Americas business.

Your next question comes from the line of Andy Kaplowitz of Citigroup. Your line is open.

Troy, just regarding how to think about AI's impact on AECOM, I'm just trying to understand a little more what you're saying today. So to be clear, in your opinion, does a new value model shaped by AI not lead to shrinking revenue for AECOM? And then when you look at that EBITDA to employee calculations, it's up, as you said, I think, 50% over the last 5 years. Does that rate of improvement now shift up substantially? So, for instance, you could gain, you know, 15% or more productivity in a year from AI. Any, any thoughts on all that?

Yeah, Andy, that was a pretty broad question, and let me sort of start at the top, which is I think you sort of have to step back and look at the construct, which is our clients are always expecting more value from us, and when we can provide more value, they've always been willing to pay us for that-for more value. And so you sort of look at the underpinnings of what we talk about in our investment of AI, it's really no different than any of the other investments we've made in the business and in technology or in delivery. And so it's just simply an extension of that.

So again, you know, what we're experiencing is when we have these conversations with clients, when we can demonstrate that we can provide more value to them, you know, they're happy to ultimately reward us for providing that value. And that can be in fees, but that can also be in additional work because we can help extend their funding. And when you dig a little bit deeper on that, think about it this way, the attributes that you are required to win in this business remain unchanged. You know, I want to describe that it starts with, you know, clients that you've built a long-standing, trusted relationship with. And then secondly, you have to have great technical leadership, which we believe we have the industry's best technical leadership in what we do.

And then you need domain expertise, and that's broad and deep domain expertise. And so that remains unchanged. And then when you layer on top of that, the fact that technology has always been supporting our industry's development and evolution, AI is just another step in that technology evolution that we've invested in. So we think that that, you know, that adds to those underlying attributes and creates much better and longer term opportunity for us. And then I will say that, you know, we are seeing across the business some really great acceptance by our clients, and I think it was referred to by Gaurav in his comments about Scottish Water.

You know, in that, we had a client that we didn't have a long-standing, deep relationship with, but we built a relationship through a process, including a bid process for the work that we're going to perform for them. But we also demonstrated that we had those underlying attributes, but more importantly, we demonstrated that we brought something new, which was the ability to use AI to transform the way they think about and the way they design over the coming years and decade. And so, again, I think we're very positive on what we've done in terms of the investment, but I think about it this way: if you create more value, ultimately for your clients, you're rewarded for that.

I appreciate all the color there, Troy. Maybe just shifting gears. Can you give more color how your private-facing business is doing in the U.S.? I'm sure, as you know, one of your large peers seemed to get, you know, relatively sizable amount of, let's call it, advanced facilities work, in areas such as data centers. And you mentioned, you know, your strong positioning in data centers and, and maybe its offshoots, but can you remind us of AECOM's positioning, and do you expect to see an inflection in this private work here over the next few quarters?

Andy, I'm gonna let Lara answer that question.

Yeah, thanks, Andy. We have one of the larger global data center practices in our industry. And in fact, we grew the business 50%, in FY 2025, and we see a lot of very positive trends for this high growth to continue. As Troy said in his earlier remarks, we have a-- we're a direct beneficiary of this, the growth in this segment, through the work that we do, serving the entire digital ecosystem and the electrical engineering and the infrastructure. But also we're seeing growing opportunities in terms of the indirect work, the associated work. So that includes some of our advisory services, the work that we do around due diligence, and we're performing this work for all of the major hyperscalers around the world.

But it also includes some of the associated water and power studies, which are obviously critical to getting these projects moving. So we remain pretty positive about our continued growth in the sector.

Your next question comes from Adam Bubes of Goldman Sachs. Your line is open.

Can you update us, can you update us on integration of the acquired AI technology across your workflows? Which workflows and end markets are you targeting to scale via AI in 2026? Just trying to get a sense of what milestones we should be tracking as the investments progress.

Yeah, so Adam, I'll let Gaurav talk you through the integration.

Hey, Adam, thank you for that question. Specific to the integration question that you asked, you know, we're three months into our roadmap, and it has actually gone exceptionally well compared to our initial expectations. Integration is complete. Investments that we will make, as we laid out beginning of the year, will ramp up as we go through the year. And as a result, you know, there's a lot of great deal of momentum and excitement across the organization that we have. Because, as Troy alluded to earlier, clients are reaching out to us to better understand how we will deliver value for them through this process. As it has happened in our industry for multiple decades, anytime there has been a technological inflection, it has created a higher TAM for everybody.

Profitability has always gone up when things like that have happened in our industry, let it be when we went from, you know, going from paper to CAD designs, to BIM modeling and the like, that happened about a decade ago. So when you break that down into what business lines are we focused on, what milestones are we focused on, I think your question is correct in terms of looking at the workflows. Specifically, our focus is on the facilities market. Because again, as we had laid out back in November, our initial roadmap is focused on disciplines and asset types that our clients have already good existing commercial structures that would be advantageous to everybody.

But at the same time, as we go through and create these solutions, these workflow operating leverage efficiencies, it is impacting all of our business lines to some extent. And from a metric standpoint, I think a key metric that we have now started sharing is employee NSR and employee EBITDA profitability by headcount. These are similar to what Troy alluded to earlier in his initial response. When we step back and look at what we have accomplished over the last five years, it has been making investment and differentiating ourselves in that competitive edge platform. That is, investments in our clients, investments in our professionals, and it continues to drive better profitability, better NSR growth, and this will be no different than it.

Great. And then really strong bookings performance in International. Can you just expand which regions drove the acceleration in bookings? And how much do you attribute that performance to project timing versus, you know, this being a clear positive inflection in the demand backdrop?

Let me kind of give a little bit of background on the International markets, and then I'll have Lara answer this specific question. And I just sort of wanna, you know, take you back to the way we described what was happening in the International markets, you know, more than 18 months, about 18 months ago. And that there was a substantial amount of elections going on around the world, in particular in the International markets. And when that happens, there's always changes of agendas. There's certainly changes in governments, but even when a government remains in place, there's a change in agenda.

And so we recognized that with all that change, we needed to figure out how well we were going to reposition the business, so that we took advantage of those changes in agenda. And we've seen that over the last 18 months. Now, we're seeing the agendas being fixed, the funding come to market, but for what are the priorities, the infrastructure priorities for those, those foreign governments. And as a result of that, our repositioning, you know, we're winning and building very significant backlogs, so that we can fuel the future of the business in 2026... and, and well beyond that. And so, Laura, I'll turn it over to you.

Yeah, I think as Troy just explained, so one of the examples for the quarter was the Sydney Metro win in ANZ, which goes to Troy's point about where now last year was characterized by the end of the sort of ten-year infrastructure cycle. Wins like that highlight that we are now seeing the uptick in the next next wave of infrastructure investment. So, and that is particularly focused in Sydney and also in Brisbane. So the wins in the quarter really demonstrated that uptick. And the rest of the wins, to answer your question, were pretty balanced. The wins such as Scottish Water in Europe, the Middle East wins, such as the Dubai Metro. So there was good balance in terms of those ongoing infrastructure investments. And importantly, they were beyond transport.

They were balanced across other segments of our business as well.

Your next question comes on the line of Jamie Cook of Truist Securities. Your line is open.

Not to continue on the, continue on the AI topic, but just as you've been communicating with customers and, you know, given the analyst day that you had, are customers coming back to you and looking for opportunities to sort of renegotiate projects? Or is that more so on stuff that's up and coming, and I'm wondering if that could be an incremental positive to numbers over the longer term as both you and customers understand better how to, you know, extract value on both sides. And then my second question, Gaurav, just on the, the cash flow in the quarter. The cash flow in the quarter was a little weaker than I thought. And then, you know, just trying to understand, was there anything to that and just your confidence level in the cash flow for the year? Thank you.

So, Jamie, we certainly expected some questions on AI. When we're having these discussions with our clients, they really are focused around sort of what we bring in terms of the customer, the increase in customer value through deploying it on projects. And I wouldn't characterize this as a renegotiation. I would actually characterize this as our clients trying to seek out ways that they can employ us to actually deploy something that is more valuable. So it's not necessarily a renegotiation, it's more of a discussion about how can we find ways to do more work with you and your teams because you're bringing something that's clearly of value to us.

What we also are seeing is that in some of those discussions, you know, our clients are recognizing that we might not have a way of contracting that makes sense. And so they're bringing up in the dialogue how they would like to move to a method of contracting that recognizes that value. So, you know, moving away from something like cost plus to something that looks more like a fixed fee, because it is in their interest, and of course, it is in our interest to do that. And that really just focuses around the value discussion.

I said this a little bit earlier in the call, you know, if you bring something of value to clients, they want you, they, they want to pay you for it, and they certainly wanna do more of it, and that's what we're finding in our discussions with customers.

Hey, Jamie, this is Gaurav. So in specific to your question on cash, cash was quite consistent with our expectations. If you look at historically, especially over the last five years, that's when we've really phased our cash properly. You go prior to that, we used to have negative cash flow in the first half of the year. So if you look at the last five years, the first quarter is approximated about 10% of our outlook, and that's what this quarter was, very consistent. And I'm sorry, first quarter has been 10%, and first half is approximately 30% when we look over that timeframe, and that's very consistent with our expectations.

So there is a ramp consistent with our historical experience and our actual delivery in the second half of the year, because our first half does have some meaningful large disbursements related to compensation matters, you know, 401(k) bonuses, a lot of large vendor software payments that we go through in the first half of the year as well, but that's normal for us.

Your next question comes from line of Sangita Jain of KeyBanc Capital Markets. Your line is open.

Good morning, and thank you for taking my questions. So, maybe Troy, you now that you've decided to keep the construction management business, do you have any plans of running it maybe differently? I know it's just 8% of the NSR today, but do you think it can grow more as you synergize this with your design business more?

So, the answer is yes. We're gonna look to actually run it differently. When I say run it differently, we're gonna look to get an even closer alignment and find the opportunities we think are in front of us to collaborate across the rest of our business. If you think about our program management offering and the construction management offering, you know, those two being more closely aligned creates a very significant opportunity, and ultimately, they provide a value to customers that is much, much greater than just a traditional program management offering. So you know, we view that as actually a competitive advantage, which we think is more valuable for customers.

There are some other things, but, you know, I'll point that out as what we're thinking about is how we bring it together and we actually operate differently to drive more value for customers.

Great, and then maybe following up on the design backlog for fiscal 1Q. You guys highlighted the federal shutdown, but can you talk a little bit more about how, what you're seeing on the state and local level? Because that is kind of a much bigger portion of your NSR.

Hi, Sangita, this is Gaurav. I'll take that question. Yeah, the shutdown has, you know, shutdown impacted, as we said, our fourth quarter, because that's when we would normally see high level of awards. And then anytime there is shutdown events, usually the following quarter, you kind of see that come back up. It's always a timing issue. And what we saw this time around was because there was noise about a shutdown again in February, that timely pickup that we were expecting really didn't come through. So there was some impact related to it. And we now expect, now that there's been a resolution, second, third quarter, we should see that pickup we're expecting in the federal award activity to come through.

Now, what we are seeing on the federal side, and then I'll answer your question on the state and municipal side as well, is we expect in the spring, based on all the information we have and discussions we're having with the parties, is there's probably gonna be a new bill, federal bill, in this spring that is in discussion for national highways. And that's gonna continue to provide positive momentum for our transportation business and ancillary business lines that provide services like environment. When we look at our state and our municipal budgets, they're quite healthy, especially when you look at the larger markets in California, Florida, and Texas. The tax projections, state tax projections for FY 2025 collections are better than what they had expected six months ago, 12 months ago, for a variety of reasons.

We're seeing that level of funding, that confidence, continue through the various state departments and municipal organizations and departments as well.

Your next question comes from the line of Michael Dudas of Vertical Research. Your line is open.

Troy, you know, as we've indicated, we've talked about the strong book-to-bill and the pipelines and such. Maybe in this quarter or the last few quarters, maybe how has the mix been relative to your, you know, your historical business of design with some project management and versus advisory to a more balanced? Are we seeing tangible evidence of that? And then back to your comments on contract pricing, is there any significant in your incoming orders of, you know, fixed fee versus cost plus versus time and materials? Any meaningful change there? Is there any meaningful change we can expect maybe in the next few quarters as you book-to-bill stay hopefully relatively strong? Thanks.

So I'm gonna answer the second question first, which is, at the moment, we haven't seen any, any material changes in terms of the, the pricing or the discussion with our customers. Again, I, I think it's when you're talking about long, large, large programs that it's a little premature to be thinking about how that might change. But again, as I said, what we're bringing to customers is being very well received and being received as being more value in that equation.

And so, you know, ultimately, what that does is that's going to, you know, help our positioning, help our win rate, and then over time, as we improve our delivery through the use of technology, it will ultimately improve our margins, regardless of a change or in the profile of our actual contract makeup. And your first question?

On the design, project management, advisory, the mix of those services-

and some of the newer bookings and going forward.

Yeah. So we are very intentionally trying to drive a transition so that we have a broader base of business between advisory program management design, all rooted in the underlying knowledge and expertise we have in our people around our design work. And so that transition is taking place. We are actually seeing our program management business continue to grow at a slightly faster rate than our design business. And our advisory business, well, in its second year infancy, is also growing at a higher rate. So we are slowly seeing that shift in mix over time with the long-term objective of getting to where advisory and program management represent about 50% of our business.

Your next question comes from line of Judah Aronovich of UBS. Your line is open.

Hey, good morning. Thanks for taking my questions. Wanted to ask about International. Given some of the improving trends you talked about in Australia and the Middle East, should we expect a continued trend of book-to-bill greater than one? And then in terms of the margins embedded in those bookings, I'm just curious if we should expect a margin step up in International from some of these bookings, or should we expect kind of a similar margin profile?

Hey, Judah, this is Gaurav. I'll take that question. So in regards to International, it's a very good question. If you look at over the last six months, we've delivered a very strong book-to-burn. And one would think with that strong book-to-burn , valid question is: How does the pipeline look? Well, the great news is our pipeline is still up. And not only is it up, it's up double-digit %, again, on the early stage. So overall, the pipeline is up, early stage, pipeline is up. It all bodes well for what Lara had explained earlier, that we are seeing early signs of a good inflection point coming in our Australia and our Middle East business.

Now, at the same time, you know, just to make sure, we're consistent in, in the information we're sharing with you guys, we are expecting headwind from working days in Q4. So we expect the second half will be inflection point for International, and you just have to look out for that adjustment on the Q4 workdays. When we look at from a margin profile... We've always said we manage the business from an enterprise standpoint, and what we have signed up for in the current year is gross margin expansion of somewhere around 90-100 basis points at the enterprise level. Once you net the investments we're making on technology in the current year, expect 30 basis points of, of, margin expansion.

Our expectation is both Americas and International will continue to deliver good, strong margin expansion, net of those technology investments that we have laid out beginning of the year, because that's just, you know, the culture of continuous improvement that has percolated throughout the organization. We always try to deliver better than what we have signed up for.

Okay, thanks. And then, you know, where do you think we are in the bigger picture of Americas? Is there any acceleration potential here, or should we just expect steady growth?

AECOM (ACM) Q1 2026 Earnings Call Transcript

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