AECOM (ACM Q1 FY2026 earnings call

• Exceeded expectations across key financial metrics in Q1, with record NSR, adjusted EBITDA, margins, and backlog. Backlog increased 9% to a new all-time high.
• Focus on extending competitive advantages through scale, technical leadership, client relationships, and domain expertise. Target investments in program management advisory services, AI, and technology.
• Key wins include being a delivery partner for the 2032 Olympic and Paralympic Games in Brisbane and providing engineering services for Scottish Water's multiyear capital investment program. Integration of AI acquisition is complete with initial performance matching expectations.
• Completed review of strategic alternatives for Construction Management business, decided to continue owning and operating it, seeing opportunities for alignment and collaboration with other AECOM units.
• Strong U.S. market with federal funding certainty and private sector investment growth; international markets have varied trends but long-term infrastructure demand is strong, with repositioning efforts paying off.

In the Americas, net service revenue (NSR) increased by 9%. The adjusted operating margin was 19.9%, up 120 basis points from the prior year, driven by strong growth, mix shift to higher-margin services, and technology efficiencies. In International, NSR was essentially flat after adjusting for fewer billable days, but backlog increased 25% in the quarter due to successful repositioning efforts. However, there are near-term pockets of weakness in international markets from geopolitical and funding uncertainties.

• Increased full-year financial guidance. Adjusted EPS midpoint raised to $5.95 from $5.75, reflecting operational outperformance in Q1, capital deployment strategy, lower expected tax rate, and strong visibility from record backlog.
• Second quarter NSR and adjusted EBITDA expected to approximate 24% of full-year guidance. Second quarter tax rate expected to be 12%-13%.

• Near-term pockets of weakness in international markets due to geopolitical and funding uncertainties.
• Unpredictability of U.S. federal government legislative agenda, which could impact business operations and funding.

Q: 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.

A: Thank you. And I'll take the first question with respect to construction management, and then I'll turn the second part of this question over to Gar. So first, just we said that we would evaluate options last quarter, including the sale, but that also always included ways that we would drive more value in the business and see in the business and the combined AECOM business in general. As we went through that process, a couple of important factors were key to our decision. One is recognizing the construction management business is a high-quality business. In fact, I'd consider a strong industry leader and it does have a great backlog on 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 operate in today. And a couple of examples that are the work that we're doing together on the LA '28 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.

Q: 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 15% or more productivity in the year fromAI? Any thoughts on all that?

A: Yes, 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 if you sort of look at the underpinnings of what we talked about in our investment of AI, it's really no -- it's no different than any of the other investments we've made in the business and -- or in technology or in delivery. And so it's just simply an extension of that. So again, what we're experiencing is, is when we have these conversations with clients, when we can demonstrate that we can provide more value to them, they're happy to ultimately reward us for providing that value and that can be in fees, but that can also be an additional work because we can help extend their funding. And when you dig a little bit deeper on that, to think about it this way is the attributes that you are required to win in this business remain unchanged. And I want to describe that, that it starts with clients that you've built a long-standing trusted relationship with. And then secondly is 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. And so we think that, that adds to those underlying attributes and creates much better and longer-term opportunity for us. And then I will say that we are seeing across the business, some really great acceptance by our clients. And I think it was referred to by Gar in his comments about Scottish Water. And 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 it and the way they design over the coming years and decades. And so again, I think we're very positive on what we've done in terms of the investment, but I think -- think about it this way, is if you create more value ultimately for your clients, you're rewarded for that.