Jacobs Solutions Inc. (J) Earnings

Management highlights

Adjusted EPS grew 22% to $1.75, supported by 9% organic net revenue growth, backlog grew 22% to $27 billion. Q2 results saw fifth straight quarter of double - digit growth in adjusted EPS. Jacobs was ranked number one design firm by Engineering News Record for the seventh time in eight years. Second quarter notable project awards include Southeast Wastewater Treatment Plan selection by San Francisco Public Utilities Commission, consultancy contract with OFFWAT, data center business growing over 100% year - on - year, and being selected as lead design for Dallas - Fort Worth International Airport Terminal F expansion. PA Consulting has demand tailwinds from national security and public investments in UK, centrally positioned to advise on European defense strategy and implement digital solutions.

Guidance

Inclusive of PA Consulting acquisition, FY26 organic net revenue growth range is increased to 8% - 10.5% year - on - year, adjusted EBITDA margin range to 14.6% - 14.9%, and adjusted EPS range to $7.10 - $7.35. Anticipates adjusted pre - cash flow margin to range from 7% to 8.5%. Q3 expected adjusted EBITDA margin approximately 15%, net revenue growth ~7.5%, Q4 margin ~16% with double - digit top - line growth. Reaffirms 6% - 8% organic growth range for net revenue on 5 - year compound annual growth rate basis for FY29, increases adjusted EBITDA margin target to 17% plus for FY29, and expects free cash flow margin to reach or exceed 11% by FY29.

Segment performance

In Q2, INAF operating profit increased 11% year - on - year or just over 8% on a constant currency basis. PA Consulting operating profit increased 19% as revenue grew 17%, and operating margin came in strong at 22%. On a constant currency basis, operating profit grew 12%. For life sciences and advanced manufacturing, net revenue grew 12% in Q2, the highest growth rate since reporting end markets in late 2024. In critical infrastructure, net revenue increased 9% over Q2 2025, led by growth in transportation and energy and power sectors. Net revenue growth in water and environmental end market came in at 2%, with strength in water offset by softness in environmental sector, but performance in environmental business on track to improve meaningfully in Q4.

Risks & headwinds

Wider than normal spread between GAAP and adjusted EPS in Q2 due to PA transaction, expected to be mostly Q2 phenomenon. Middle East situation may impact business, but team is resilient and global delivery model is strength. Accounting treatment of PA transaction proceeds as operating cash under U.S. GAAP guidelines impacts cash flow figures.

Analyst Q&A

• Q: Good afternoon and congrats on the quarter. I just want to ask you a high level, how much of the raise is driven operationally by a better than expected demand or operational performance versus bringing the rest of PA consulting in?

  A: It is purely based on operational performance, bulk of growth driven by INAF section with operating discipline.

• Q: Just talking about AI and digital enablement, just curious if you can give us an update on what the customer receptivity has been in the past few months to digital tools and anything AI enabled, and to what extent are you seeing sort of incrementally more margin opportunities coming from that, and when might we see some of that coming through more materially?

  A: AI is driving business, data center space growing at 100% year on year, AI ecosystem representing 10 - 11% of overall business growing over 40%, well positioned in AI infrastructure build.

• Q: One of the themes that we're discussing a lot is just the visibility to these types of projects for suppliers and vendors like yourself. Can you maybe just talk about the demand? It sounds like it's growing at a very high clip, but maybe what is the line of sight to projects? Is it six months, 12 months? Is it multiple years?

  A: AI infrastructure pipeline, data center component up 400% year on year, visibility well through 2027 into 2028, backed by relationship with NVIDIA.

• Q: On the balance sheet side, assuming between PA and the share we purchased there this quarter leverages at about 2.1, just above your sort of targeted year - end range, can you just help us think through the likelihood of buyback? Is it going to be more opportunistic and just sort of broader capital allocation, you know, given the free cash flow and the leverage for the rest of the year?

  A: Have clear plan to delever, will be below two times by end of FY26, aggressive in share repurchases, second half expected to have strong free cash flow to delever and do buybacks.

• Q: Bob, you've had five years and two months of insight into PA. Maybe you could share a little bit about what the combination now that's on board with 100% Jacobs has in store, what areas that we can look for over the next six to 12 months that might show up and help not only on the bookings or more lifecycle - driven or maybe even better on the margin front as you execute through the plan of the combined company?

  A: Segregates into capability set and end markets, built digital capability set with nearly 2,000 digital experts, applies to Europe national security, public sector and U.S. energy, utilities, transport.

• Q: The critical infrastructure showing very strong growth this quarter. It's been certainly chugging along quite well. It probably gets lost in the headlines a little bit, given all the data center and advanced facilities work. Do you continue to see very solid opportunities, certainly second half of the year into 2027? And any additional thoughts on IIJA 2.0?

  A: Critical infrastructure driven by global transportation and U.S. IIJA, minimal disruption in Middle East, strong in transportation and water, continue to see solid opportunities, modeled scenarios for IIJA.

• Q: Just wondering if you could help us parse out the new VERSAL guidance. Is there a way to frame, you know, what incremental EBITDA on the new guide is coming from the acquired stake in PA Consulting and how much of the incremental EBITDA uplift is underlying?

  A: FY26 guidance increase primarily driven by full consolidation of PA, with additional measures and initiatives, FY29 guidance not just PA consolidation but multiple initiatives.

• Q: can you just update us on how you expect your AI integrated offerings to evolve over the next 12 to 16 months? any incremental investments or opportunities on that side?

  A: AI integrated offerings evolving with market acceleration, no huge incremental investment needed, driven by end market acceleration.

• Q: Bob, can you give us an update on the Middle East and what you're seeing there in terms of activity levels and and just kind of how your folks are handling the situation?

  A: Focused on safety of people, crisis management teams in place, minimal disruption in Middle East, global delivery model supporting operations.

• Q: can you tell us what you're seeing in life sciences and advanced pharmaceuticals and if there is any appetite to reshore even further back to the U.S.?

  A: Life sciences business pipeline up 81% year on year, reshoring activity maturing, strong business in U.S. and Europe.

• Q: I guess just question, Venk, maybe this is more for you versus Bob, but I'm just looking at the EBITDA margin trajectory implied in the back half of the guidance. I think you said third quarter, you know, 15-ish, fourth quarter, 16-ish. Understanding it's PA consulting and maybe an extra couple working days, but still structurally, there still seems to be, you know, some margin improvements. And I'm just wondering, you know, given where the margins are implied in the back half of the year, what the setup is for fiscal year 2027, because it doesn't seem like, you know, the street is, you know, factoring in margins, you know, that are implied in the back half.

  A: Q3 margin about 15% with 90 basis point sequential improvement, Q4 ~16% due to ramped investments, good visibility, margin trajectory to continue with multiple drivers.

• Q: Good evening and congrats on the really strong bookings performance. Can you just talk about comfortably what level of organic growth do you think you could ramp the business up to without having significant resource constraints? Is it possible if the booking trajectory continues to get to double - digit organic growth, you know, the extra week notwithstanding in the fourth quarter. And, you know, what are the implications for margins beyond what you folks just laid out if you do ramp up to that level of capacity utilization implied by getting to double - digit growth?

  A: Have capacity to ramp to double - digit organic growth, global delivery model supports, margin will be driven by resourcing and progress.

• Q: I wanted to ask about the longer - term margin outlook that you guys talked about, the 75 basis points a year. So, you know, you guys have talked to Nauseam about the various areas, commercial models. I was just wondering if those out - year drivers are any different from the ones that you've been realizing here over these last two very strong years, and also if the benefits that you expect in those out - years are going to come just from, like, basic blocking and tackling, or do you have to launch some new initiative to achieve those things? In other words, is that going to cost you cash to implement some changes to achieve that?

  A: Margin trajectory combination of operating line benefits, global delivery model, enterprise function deployment of AI, no need for huge CapEx increase.

• Q: you guys alluded in your prepared remarks to the unusually high level of transaction costs. And I'm guessing because some of the consideration that you paid PA for was required to be recognized as operating expense rather than capital expense, that's probably most of it for the quarter bank. So I just wanted you to kind of just drill in that. Was there anything else in there? And because you mentioned that there was going to be a a fiscal third quarter cash outflow in addition to the substantial cash outflow that was recognized this quarter, does that mean that the exclusions next quarter might be relatively high as well? I know you had a comment that it was mostly contained the second quarter, but I'm just trying to get a sense of what the balance of the year looks like. And then that nirvana state, hopefully in 4Q where these kinds of exclusions won't be as apparent.

  A: Accounting treatment causes transaction cost difference, Q3 has employee benefit trust payments, exclusions mostly in Q2, 4Q will have fewer exclusions.

• Q: now that PA is 100% under J, can you frame for us any potential for sales synergies accelerating?

  A: Sales synergies accelerating as UK regulations on conflict of interest removed, joint opportunities increasing, innovation and delivery across asset lifecycle accelerating.

• Q: maybe just on the cost energy side, any low - ending through cost opportunities in the near term?

  A: Identified cost synergies in real estate, vendor rationalization, IT system optimization, targeting $20 million plus of synergies in FY2017.