AECOM (ACM) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance with a 20% pipeline growth and a 34% increase in early-stage pipeline. AI integration is complete and expected to enhance productivity and profitability. Strong international bookings and a positive outlook in the U.S. market support growth. Despite some vague responses on AI's impact on contracts, the overall sentiment is positive, with robust growth opportunities and strategic positioning in data centers and infrastructure projects.
Key Financial Performance
Net Service Revenue (NSR) Increased by 5% when adjusted for fewer billable days in the period. This growth reflects strong demand and strategic investments in key areas.
Segment Adjusted Operating Margin Increased by 100 basis points to 16.4%, a new first quarter record. This improvement is attributed to ongoing benefits of the company's strategy and high-returning investments.
Adjusted EBITDA Achieved $287 million, exceeding expectations. This reflects operational outperformance and strategic investments.
Adjusted EPS Reported at $1.29, surpassing expectations. This is due to operational efficiency and strong financial performance.
Backlog Increased by 9% to a new all-time high, supported by a 1.5 book-to-burn ratio. This growth is driven by strong client demand and successful project wins.
Americas NSR Increased by 9%, with growth being broad-based but stronger in the Eastern states and Canada. This is due to better budgets and visibility in these regions.
International NSR Essentially flat after adjusting for fewer billable days. This aligns with expectations due to slower activity in areas like the U.K., Australia Transportation, and Hong Kong.
International Backlog Increased by 25%, reflecting successful repositioning to growth areas. This is expected to drive improved revenue trends in the second half of the year.
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Operating Highlights
AI and technology investments: Targeted investments in AI and technology to unlock greater value for clients and deliver on multiyear financial targets. Integration of a recent acquisition has doubled the team size, and the technology is now live on projects.
Advisory services expansion: Key hires to drive growth in advisory business, aiming to double the business. Recent wins include advising the U.K. water industry for AMP9 water cycle and supporting private capital investments in infrastructure.
U.S. market conditions: Strong market conditions with the passage of key federal funding bills and ongoing IIJA funding. Booming data center market creating opportunities in water, facilities, energy, and environmental services.
International market trends: Varied near-term trends but strong long-term demand for infrastructure investment. Significant wins include Scottish Water's capital investment program and Dubai Metro design role. Backlog growth of 25% in international markets.
Financial performance: Record first quarter NSR, adjusted EBITDA, and backlog. NSR increased by 5% adjusted for fewer billable days. Adjusted EBITDA of $287 million and adjusted EPS of $1.29 exceeded expectations.
Segment performance: Americas NSR increased by 9%, with a 19.9% adjusted operating margin. International NSR was flat, but backlog increased by 25%, with growth expected in the second half of the year.
Construction management business: Completed review of strategic alternatives and decided to continue owning and operating the business. Backlog and pipeline remain strong.
Share repurchase authorization: Increased share repurchase authorization to $1 billion, with $300 million repurchased in the first quarter.
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Risk or Challenges
U.S. Federal Government Shutdown: The company managed through an unprecedented 43-day U.S. federal government shutdown, which could have posed significant operational and financial challenges.
Geopolitical and Funding Uncertainties: Pockets of weakness in international markets, particularly in Australia, are attributed to geopolitical and funding uncertainties, which could impact near-term revenue trends.
Slower Activity in International Markets: The company noted slower levels of activity in areas such as U.K., Australia Transportation, and Hong Kong, which may affect growth in the international segment.
Reprioritization of Funding in the Middle East: The company is navigating funding reprioritization in the Middle East, which could impact project timelines and revenue.
Aging and Inadequate Infrastructure Systems: The U.S. faces a $3.7 trillion investment gap over the next decade, highlighting risks related to aging and inadequate infrastructure systems.
Pressure on Energy Systems: Energy systems are under mounting pressure from data center expansion and widespread electrification, which could strain resources and operational capabilities.
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Guidance & Outlook
Full Year Financial Guidance: The company has increased its full-year financial guidance due to high visibility and strong performance. Adjusted EBITDA and adjusted EPS expectations for fiscal '26 have been raised, with adjusted EPS now expected to be $5.95 at the midpoint of the range, up from $5.75 previously.
Revenue Growth: Annual revenue growth is expected to be 5% to 8%, with revenue trends improving as the year progresses and into fiscal '27.
Margin Projections: The company aims to achieve a 20% margin exit rate by fiscal '28.
Market Trends and Investments: In the U.S., market conditions are strong, with federal funding bills providing greater certainty. Over half of the IIJA funding remains to be spent, and private sector investment is gaining momentum, particularly in the booming data center market. Internationally, long-term demand for infrastructure investment is strong, with significant wins in the U.K., Middle East, and Australia. National defense budgets are increasing globally, driving growth opportunities.
Backlog and Pipeline: Backlog increased by 9% to a record high, with a 1.5 book-to-burn ratio. The pipeline is also at an all-time high, reflecting strong end markets and competitive advantages.
Capital Allocation: The company announced an increased share repurchase authorization to $1 billion and plans to continue deploying strong free cash flow to deliver shareholder value.
Advisory Practice Expansion: The company is investing in its higher-margin advisory practice, targeting a $50 billion addressable annual spend. The team is growing, and hiring activity is expected to accelerate through the year.
Technology and AI: The integration of a recent acquisition has been completed, and the technology is live on projects. The company is uncovering new use cases and opportunities, creating more value for clients.
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Shareholder Return Plan
Share Repurchase Authorization: Increased to $1 billion.
Share Repurchase Activity: Repurchased more than $300 million in the first quarter.
Capital Allocation: Returned nearly $350 million to shareholders in the first quarter and over $3.3 billion over the last several years.
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Key Q&A
Q:Can you share thoughts on the decision to keep the CM business and the evolution of the demand environment in the U.S.?
A:The decision to keep the CM business was based on its high quality, strong backlog, and cash flow profile. Management sees substantial opportunities from closer collaboration between the CM team and the rest of AECOM, citing examples like the LA '28 and Brisbane 2032 games. The U.S. demand environment remains strong, with robust growth in transportation, water, and facilities markets. The pipeline is up 20% year-over-year, and early-stage pipeline is up 34%.
Q:How does AI impact AECOM's value model and productivity?
A:Management believes AI will not shrink revenue but will enhance value for clients, leading to more work and better fees. AI is seen as an extension of past investments in technology. The company has seen a 50% improvement in EBITDA per employee over five years and expects further productivity gains. AI is being integrated into workflows, with clients showing strong acceptance.
Q:What is AECOM's positioning in the private-facing U.S. business, particularly in data centers?
A:AECOM has a large global data center practice, growing 50% in FY '25. The company is well-positioned in the digital ecosystem, electrical engineering, and infrastructure, with additional opportunities in advisory services and water and power studies. Growth in this sector is expected to continue.
Q:What is the progress on integrating acquired AI technology and its impact on workflows?
A:Integration of AI technology is complete, with investments ramping up. The focus is on facilities markets and creating workflow efficiencies. Metrics like employee NSR and EBITDA profitability are being tracked. AI is expected to drive better profitability and NSR growth.
Q:What regions drove the strong international bookings performance, and is it due to project timing or demand inflection?
A:Regions like Sydney, Brisbane, Europe, and the Middle East drove strong bookings. Wins include Sydney Metro and Scottish Water. The performance reflects a demand inflection rather than just project timing, with balanced growth across segments.
Q:Are customers renegotiating projects due to AI, and what is the outlook for cash flow?
A:Customers are not renegotiating but are exploring ways to leverage AI for more value. Discussions include moving to fixed-fee contracts. Cash flow was consistent with expectations, with a ramp-up expected in the second half of the year.
Q:Will the construction management business be run differently, and can it grow more?
A:Yes, the CM business will be run with closer alignment to the design business, creating opportunities for collaboration and value for customers. Growth is expected through synergies with program management offerings.
Q:What is the outlook for state and local demand in the U.S.?
A:State and local budgets are healthy, with strong tax projections in key markets like California, Florida, and Texas. This supports continued funding and confidence in state and municipal projects.
Q:How is the mix of design, project management, and advisory services evolving?
A:AECOM is transitioning to a broader mix, with program management and advisory services growing faster than design. The long-term goal is for these services to represent 50% of the business.
Q:What is the outlook for international markets and margins?
A:International markets show strong pipeline growth, with an inflection point expected in the second half of the year. Margins are expected to expand at the enterprise level, with continuous improvement across regions.
Q:What is the outlook for Americas' top-line growth?
A:Americas' backlog is up 3% year-over-year, with a 20% increase in pipeline and 34% growth in early-stage pipeline. IIJA funding and state matching support strong growth, with 6%-8% organic growth expected.
Q:What drove the 1.5x book-to-bill ratio and 2.3x in international?
A:Strong international bookings were driven by wins in regions like UK&I, Australia, and the Middle East. Factors include geopolitical stability, client demand for value, and leveraging AI capabilities, as seen in the Scottish Water win.
Q:What is the latest on the reauthorization bill and its impact?
A:Federal funding is in place through the end of the year, with discussions on long-term authorizations for 2026 ongoing. The tone in Washington is positive, supporting infrastructure priorities.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the potential for renegotiation of existing projects due to AI, instead focusing on general discussions about value creation and contracting methods. Additionally, while they highlighted strong cash flow expectations, they did not provide detailed explanations for the weaker-than-expected cash flow in the quarter.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI integration
AI technology
AMP water
AUKUS defense
Arabia Australia
Backlog
Finance Investor
Games
activity
authorization
book burn
burn ratio
client investment
conference
construction
delivery partner
domain expertise
economy
funding bill
gap
infrastructure delivery
investment program
momentum
outperformance
partner Olympic
passage funding
progress
review alternative
role
selection
term value
trust
value client
value creation
water cycle
world
ACM Transcript
AECOM (ACM) Q1 2026 Earnings Call Transcript
Positive2-10
The earnings call highlights strong financial performance with a 20% pipeline growth and a 34% increase in early-stage pipeline. AI integration is complete and expected to enhance productivity and profitability. Strong international bookings and a positive outlook in the U.S. market support growth. Despite some vague responses on AI's impact on contracts, the overall sentiment is positive, with robust growth opportunities and strategic positioning in data centers and infrastructure projects.
AECOM (ACM) Q3 2025 Earnings Call Transcript
Positive8-5
The earnings call reveals strong financial performance, with increased guidance for EBITDA and EPS, record backlog growth, and significant free cash flow. The Q&A section highlights positive market conditions, margin improvements, and AI's favorable impact. Despite some unclear responses, the overall sentiment is positive due to strong shareholder returns and strategic investments in growth areas like AI and advisory services.
AECOM (ACM) Q2 2025 Earnings Call Transcript
Positive5-6
The earnings call indicates strong financial performance with record NSR and EPS, increased margins, and high free cash flow. Shareholder returns are substantial, with $900 million remaining for repurchases. Despite some delays, the backlog and pipeline are strong, supporting future growth. The Q&A highlights confidence in continued growth and margin improvement, though some uncertainties remain. Overall, the positive financial results and strategic outlook suggest a positive stock price movement in the near term.
AECOM (ACM) Q4 2024 Earnings Call Transcript
Positive11-19
The earnings call summary reflects strong financial performance with record NSR and adjusted EBITDA margin improvements. The company has increased its share repurchase authorization and announced a dividend hike, both positive indicators. The Q&A reveals optimism in market opportunities and sustainable cash flow conversion. Despite some uncertainties about federal funding, the overall sentiment is positive, supported by strong guidance and growth expectations, particularly in the Americas. The lack of restructuring costs and clear margin improvement plans further bolster the outlook, suggesting a likely positive stock price movement.
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