AECOM, the trusted global infrastructure leader, reported third quarter fiscal 2026 results.
- Included in AECOM’s third quarter results is a $337 million pre-tax charge resulting from a higher projected cost to complete a Construction Management project.
- The project was awarded in 2019 under terms and conditions that would not be acceptable after the substantial changes the Company implemented to its risk policies several years ago.
- The project is expected to achieve substantial completion during the second quarter of fiscal 2027.
- The Company is pursuing claims related to its work on the project and confidence in recovery has been validated by successes on initial matters that have been ruled upon to date; however, it will likely take several years and litigation to fully resolve all matters.
- As a result, the Company is now projecting full year free cash flow of approximately $300 million.
“We are disappointed by the loss we took this quarter on the Construction Management project,” said Troy Rudd, AECOM’s chairman and chief executive officer. “The project is nearing completion, but lower subcontractor productivity is driving a delayed completion and a higher estimated cost to complete. This project was bid in 2019 under terms and conditions that would not clear our substantially transformed risk processes today. Beyond this, the quarter included several key highlights, including record wins and an all-time high backlog, which make us very confident in the health of the business.”
“Our momentum continues to build, as we win work at a record pace and gain further share in the marketplace,” said Lara Poloni, AECOM’s president. “In fact, our backlog increased by 13% and we were successful in capturing two of the largest recompetes in our Company’s history that also include significantly expanded scope. We are well positioned to capitalize on growing demand in our markets with our strengthened value proposition for clients, which is supported by our number one rankings across our key markets, as well as our expanding addressable market through our Advisory capabilities.”
“We have a strong balance sheet and healthy underlying cash flow,” said Gaurav Kapoor, AECOM’s chief financial and operations officer. “As a result, we are able to operate with certainty while continuing to invest in organic growth initiatives that underpin the expanding value we deliver to clients. Against the current backdrop, our positive free cash flow and expectation for the full year demonstrates the resilience of our business and strength of our markets.”
Third Quarter Summary:
- Reflecting as reported GAAP performance from continuing operations, third quarter revenue of $3.6 billion reflected a 14% decrease over the prior year; the Company also reported an operating loss of $76 million, net loss of $84 million and diluted loss per share of $0.65.
- Third quarter results included a $337 million pre-tax charge on a Construction Management project, which impacted both the Company’s revenue and profitability in the quarter.
- Net service revenue1 increased by 4% in the design business and increased 5% when adjusted for a fewer working day compared to the prior year period, driven by 6% and 4% growth in the Americas and International, respectively.
- Excluding the Construction Management charge, both the segment adjusted2 operating margin3 and the adjusted2 EBITDA margin4 would have decreased by 60 basis points to 16.5% and 17.0%, respectively.
- Adjusted2 EBITDA5 and adjusted2 EPS after excluding the Construction Management charge would have increased by 5% and 11% to $329 million and $1.49, respectively.
- Total backlog6 increased by 13% to a record high, driven by a record $4.2 billion in wins that resulted in a 1.6 book-to-burn7 ratio.
- Total design wins of $4.0 billion contributed to a 1.6 book-to-burn ratio in the design business, including a 1.8 book-to-burn ratio in the Americas design business and a 1.4 book-to-burn ratio in the International segment.
- The design pipeline increased again to a new all-time high, including growth in both early-stage and late-stage pursuits, even as the Company delivered record wins in the quarter.
Cash Flow and Capital Allocation
- Cash flow excluding the impact of the Construction Management project remains strong and AECOM expects to deliver on its long-term 100%+ free cash flow conversion target once the Construction Management project headwinds subside.
- The Company remains committed to its returns-based capital allocation policy, which in the near-term will be prioritized towards its organic growth investments and its quarterly dividend program.
- The Company maintains a strong balance sheet with net leverage9 of 1.5x.
Fiscal 2026 and Long-Term Financial Guidance
- AECOM updated its fiscal 2026 earnings guidance to reflect the impacts of the Construction Management charge.
- The Company’s guidance also contemplates higher than expected margin performance excluding the Construction Management charge, offset by lower expected NSR growth primarily attributable to delayed project starts in the Construction Management business and ongoing conflict in the Middle East.
- As a result, the Company’s fiscal 2026 guidance now includes expectations for:
- Adjusted2 EPS of between $3.95 and $4.15 and adjusted2 EBITDA5 of between $935 million and $965 million.
- Total NSR1 of between $7.30 and $7.35 billion.
- Free cash flow8 of approximately $300 million.
- An average fully diluted share count of 130 million.
- An adjusted effective tax rate of approximately 19%.
- Excluding the Construction Management charge, the Company’s guidance contemplates the following:
- Total NSR of between $7.65 and $7.70 billion.
- A segment adjusted operating margin3 of 17.0% and an adjusted EBITDA margin4 of 17.4%.
- Adjusted2 EPS of between $5.90 and $6.10 and adjusted2 EBITDA5 of between $1,275 million and $1,305 million, which is consistent with the Company’s prior guidance.
- In addition, the Company reaffirmed its long-term financial targets, which includes its expectation to deliver a 20%+ margin exit rate by fiscal 2028 and to grow adjusted2 EPS at a 15%+ CAGR from fiscal 2026 to fiscal 2029, excluding the Construction Management charge.
- See the Regulation G Information tables at the end of this release for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.
Business Segments
Americas
Revenue in the third quarter was $2.6 billion, a 20% decrease from the prior year. Net service revenue1 in the third quarter was $808 million, a 29% decrease from the prior year, which included 6% growth in the Americas design business after adjusting for one fewer working day in the period compared to the prior year.
Operating loss was $139 million and on an adjusted2 basis was a loss of $130 million. Excluding the Construction Management charge, the adjusted operating margin on net service revenue decreased by 250 basis points over the prior year to 18.0%. This decline is primarily driven by record amounts of business development activity and the timing of Construction Management project starts, which was partially offset by benefits from a continued focus on driving operating efficiencies across the business.
Backlog in the Americas segment grew by 8% to a new record high, driven by a 1.8 book-to-burn ratio7. The Americas design business book-to-burn ratio was driven by strong wins across each of the Company’s transportation, water, environment and facilities markets.
International
Revenue in the third quarter was $953 million, a 6% increase from the prior year. Net service revenue1 was $800 million, a 4% increase from the prior year, driven by strong growth in the U.K and Australian markets.
Operating income increased by 21% over the prior year to $109 million and on an adjusted2 basis increased 26% to $114 million. The adjusted operating margin on net service revenue was 14.3%, an increase of 240 basis points, which included the benefits from improved growth and from restructuring actions taken within the last year.
Backlog in the International segment grew 28% over the prior year to a new record high, driven by a 1.4 book-to-burn ratio7 andstrong wins in the U.K. and Middle East markets.
Tax Rate
The effective tax rate was 24.9% in the third quarter. On an adjusted2 basis, the effective tax rate was 24.8%. The adjusted tax rate was derived by re-computing the quarterly effective tax rate on adjusted net income10. The adjusted tax expense differs from the GAAP tax expense based on the taxability or deductibility and tax rate applied to each of the adjustments.
