Key Earnings Metrics

AECOM's second quarter showed broad-based margin improvement and a second guidance raise this year, underscoring the durability of its Americas design franchise and the early returns from AI-related investments. Backlog and pipeline growth provide clear visibility into 2027, even as Middle East conflict creates near-term revenue timing headwinds.

• Segment adjusted operating margin: 16.5% — up 50 basis points year-over-year, reflecting operating efficiencies and returns on strategic investments in AI and advisory.
• Americas design adjusted operating margin: 20% — up 60 basis points, with 10% operating income growth on 8% NSR growth in the firm's most profitable business.
• Backlog: record, up 8% — design book-to-burn of 1.2x; international backlog up 25% to a new record with trailing 12-month book-to-burn of 1.4x.
• International segment margin: 11% — flat year-over-year, with operating income up 2%; U.K. growth turned positive on water and energy strength, offset by Middle East and Asia declines.
• Capital returned: $155 million — Q2 repurchases and dividends, consistent with the policy of returning substantially all available cash flow to shareholders.
• Raised full-year guidance — adjusted EBITDA growth of 7% and adjusted EPS growth of 14% at the midpoint; NSR growth reaffirmed at 4%-6%, or 6%-8% excluding the fewer-work-days impact in Q4.

Management Commentary

CEO Troy Rudd emphasized that proprietary AI deployment onto projects and client deliverables is accelerating, with growing use cases identified across teams. The most visible proof point is a major energy client recompete win where AECOM's AI solution was central to the proposal, and the contract includes specific mechanisms allowing the firm to capture value as AI is deployed to deliver client outcomes.

Two large AI-related wins totaling nearly $1 billion in aggregate value were highlighted, one secured during the quarter and one after quarter-end. Management expects improved margins on these contracts, with revenue sharing upside tied to AI-driven delivery efficiencies. The competitive advantage is also showing up in higher win rates on large pursuits.

President Lara Poloni noted that clients are investing record amounts in AI infrastructure, and AECOM expanded its relationship with a key hyperscaler during the quarter. The firm's high-tech business is among its fastest-growing segments, especially in the U.S., with several similar hyperscaler opportunities in the pipeline.

On nuclear fusion, AECOM expects nine figures of NSR in coming years, including work with Type One Energy and TVA in the U.S. and selection to deliver design and technical services for the U.K.'s STEP Nuclear Fusion program. These are among the most advanced fusion programs globally, and AECOM's decades-long energy sector leadership positioned it for the wins.

The advisory business remains on track to double its NSR within three years. Management differentiated the practice by emphasizing infrastructure-led expertise, which is consistently winning against traditional consulting peers on critical client assignments.

Recompete win rates exceed 90%, and AECOM is capturing an increasing share of client spend on these recompetes. Two marquee environment-sector recompetes for global energy companies illustrate the trend: one expanded scope substantially beyond the prior contract, and the other was won on technical expertise and scale.

CFO Gaurav Kapoor noted that the Middle East conflict created approximately a 100 basis point headwind to NSR in the quarter, given substantial consolidated joint venture work in the region. The profit impact is smaller than the revenue impact, as reflected in the earnings growth. Middle East collections have already recovered in Q3, supporting reaffirmed free cash flow guidance and the long-term 100%+ conversion target.

More than half of IIJA funding remains to be spent, with even greater amounts outstanding for several of AECOM's largest clients and market sectors. The Brent Spence Bridge project in Ohio is a concrete example, where strong phase 1 performance led to a sizable phase 2 win in Q2.

U.S. national defense is another accelerating market. The pipeline with the Department of War, AECOM's single largest client, increased 50%, and the President's $1.5 trillion budget proposal points to increased facilities work for the Army and Navy.

Strategic Implications

AECOM's AI strategy is moving from internal enablement to contracted value capture. The energy client recompete and the two large AI-related wins demonstrate that proprietary AI tools are now a competitive differentiator on major pursuits, not just a cost-saving initiative. The value-sharing contract mechanisms are notable because they create a path to improved margins without necessarily increasing revenue on those specific contracts.

The hyperscaler relationship expansion is strategically important because it positions AECOM across the full AI infrastructure lifecycle, from environmental permitting and site selection through design and program management. With several similar opportunities in the pipeline, this could become a meaningful NSR contributor given the scale of hyperscaler capital deployment.

Nuclear fusion adds a longer-dated but high-visibility growth vector. Nine figures of NSR across U.S. and U.K. programs is modest relative to AECOM's total revenue, but it establishes the firm as a design leader in an emerging category that could scale meaningfully over the next decade.

The advisory practice doubling target reflects a deliberate push upstream in the client engagement cycle. By leading with infrastructure domain expertise rather than general consulting, AECOM is differentiating from traditional consulting competitors and positioning to influence downstream design and program management work.

Record backlog and a pipeline growing double digits for three consecutive quarters give management credible visibility into 2027. The international backlog increase of 25% is particularly important because it supports the expectation that international growth will improve in coming quarters after Middle East headwinds weighed on the first half.

The 90%+ recompete win rate is a structural advantage. It reduces revenue churn risk and provides a stable base of recurring work, which supports margin consistency and funds strategic investments in AI, advisory, and high-growth end markets.

Risks remain concentrated in the Middle East. Ongoing conflict creates uncertainty around revenue recognition and payment timing, though management indicated collections have already recovered in Q3. U.K. transportation weakness is a secondary concern, partially offset by water and energy strength including AMP8 and The Great Grid project.

What to Watch Next

I would watch four things over the next two quarters:

• AI contract economics — Track whether the value-sharing mechanisms on the two large AI-related wins produce the margin improvement management expects, and whether similar commercial structures appear on new pursuits.
• Hyperscaler pipeline conversion — Monitor whether the expanded hyperscaler relationship translates into additional contracted wins, and whether new hyperscaler opportunities in the pipeline move to backlog.
• Middle East revenue recovery — Watch the pace of Middle East backlog burn in Q3 and Q4, given the strong post-quarter awards and the $40-50 billion estimated U.S. military infrastructure spending opportunity in the region.
• International growth inflection — Assess whether the 25% international backlog increase converts to NSR growth in the second half, particularly in the U.K. and Australia, where AMP8, AUKUS, and transportation pipelines are building.

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