What Management Said
Read the full Q2 2026 transcript ↗Any reference to segment margins or segment adjusted operating margins will reflect the performance for the Americas and International segments. When discussing revenue and revenue growth, we will refer to net service revenue or NSR, which is defined as revenue excluding pass-through revenue. NSR growth rates are presented on a constant currency basis unless otherwise noted. On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy, and outlook for the business.
Gaurav Kapoor, our Chief Financial and Operations Officer, will review our financial performance and outlook in greater detail. Turning to our results, NSR margins, adjusted EBITDA, and adjusted EPS reached new second quarter highs despite a dynamic market environment, and backlog increased 8% to a new record. The increase in NSR was driven by 8% growth in our Americas design business, which is our most profitable. The segment adjusted operating margin increased by fifty basis points to 16.5%, which is reflective of the high value we deliver to our clients, our focus on efficiency, and the benefits of our strategy.
Backlog reached a new high in the quarter, which further enhances our visibility. This performance reflects the combination of strong secular growth demand and robust funding in many of our markets, as well as continued strong win rates. Notably, this contract includes specific mechanisms that allow us to capture value as we deploy AI to deliver greater value to our clients. In the U.S., both of the demand and funding environments are strong.
What went well
- NSR margins, adjusted EBITDA, and adjusted EPS all reached new second quarter highs despite a dynamic market environment, and backlog increased 8% to a new record.
- Segment adjusted operating margin increased 50 basis points year-over-year to 16.5%, reflecting the high value delivered to clients, a focus on efficiency, and the benefits of the strategy.
- The Americas design business grew NSR 8% with its adjusted operating margin up 60 basis points to 20%, driving 10% operating income growth; design book-to-burn was a strong 1.2x.
- AECOM was again named the number one firm by ENR in the transportation, facilities, and water markets, and won its second AI-differentiated marquee recompete of the year (two wins totaling nearly $1 billion, including Scottish Water, the largest water contract ever let out in the U.K./Europe).
- Management raised full-year profit guidance for the second time this year, now expecting adjusted EBITDA and adjusted EPS to grow 7% and 14% at the midpoints from the prior year.
- International backlog rose 25% to a new record and total pipeline grew double digits for a third consecutive quarter, underpinning expected NSR acceleration in the second half.
What went wrong
- The conflict in the Middle East created an approximate 100 basis point headwind to NSR in the quarter, and Middle East NSR contracted in the first half as expected growth in the region failed to materialize.
- International NSR grew only 2% and actually declined 3% on a constant-currency basis, as U.K. and Australia strength was offset by declines in the Middle East and Asia; international adjusted operating margin was flat at 11%.
- Underlying cash flow was offset by delayed payment timing in the Middle East and longer-than-anticipated claim resolution on certain projects (claims tied to fiscal 2019/2020 contracts), with the claims balance rising sequentially over several quarters.
- Citigroup's Andy Kaplowitz pressed on the gap between strong backlog growth and the burn rate needed to hit the full-year organic revenue range, questioning whether the required second-half inflection depends on a quick Middle East recovery or faster Americas ramp.
- Ongoing weakness persisted in the U.K. transportation market, and the U.S. government shutdown weighed on federal wins and bookings in Q1 and continued to impact the Americas in Q2 before recovering.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Adjusted EPS growth (FY2026) | FY2026 | +14% at the midpoint of the raised range (guidance raised for the second time this year) |
| Adjusted EBITDA growth (FY2026) | FY2026 | +7% at the midpoint of the raised range |
| Organic NSR growth (FY2026) | FY2026 | Reaffirmed 4%-6% including the fourth-quarter fewer-work-days impact; 6%-8% excluding that impact |
| Free cash flow / conversion | FY2026 / long-term | Reaffirmed full-year free cash flow guidance and the long-term 100%+ free cash flow conversion target |
| Segment margin expansion | FY2026 | On track with full-year margin expansion goals; running ahead of the earlier 20-30 bps expectation (16.5% first-half segment operating margin vs. 16.1% prior year) |
| Proprietary AI investment | FY2026 | Ramped to full scale at $13M in Q2 (~66 bps); expected ~60-70 bps of margin investment for the full year |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Total NSR | New second-quarter high | Growth led by 8% Americas design NSR growth, AECOM's most profitable business, partially offset by an ~100 bps Middle East conflict headwind. |
| Americas NSR (design) | +8% | Continued execution of a strong backlog and favorable market trends; adjusted operating margin up 60 bps to 20% and operating income up 10%. |
| International NSR | +2% (-3% constant currency) | U.K. and Australia growth offset by declines in the Middle East and Asia; adjusted operating margin flat at 11% and operating income up 2%. |
| Adjusted EBITDA | New second-quarter high | Strong margin outperformance and efficiency gains across the business more than covered the small Middle East bottom-line miss. |
| Segment adjusted operating margin | +50 bps to 16.5% | High-value delivery, operating efficiencies, and strategy benefits, absorbing ~66 bps of AI investment while still expanding margin. |
| Backlog | +8% to a record (International +25% to a record) | Strong secular demand, robust funding across markets, and consistently high win rates on the largest pursuits. |
| Book-to-burn | 1.2x design (1.4x international trailing 12 months) | Strong win rates and bookings, especially on largest pursuits; supports expected second-half NSR inflection. |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Proprietary AI deployment and monetization | ~$5M ramp beginning in Q1; AI tools in early integration | Investment scaled to full run-rate ($13M/~66 bps in Q2); AI now central to marquee wins with value-capture (pain-share/gain-share) mechanisms; deployment onto client deliverables growing rapidly and expanding the addressable market (e.g., healthcare design). | — |
| Advisory practice growth | Targeting to double NSR within three years | On track to double advisory NSR within three years; infrastructure-led expertise consistently beating traditional consulting peers on clients' most critical assignments. | — |
| U.S. federal / defense spending exposure | Growing defense investment flagged last quarter | Department of War pipeline up 50%; defense clients ~10% of portfolio (DoW ~5%+); President's $1.5T budget proposal points to accelerating defense and facilities spending where AECOM leads for the Army and Navy. | — |
| End-market demand (AI infrastructure / power) | Emerging data-center and power opportunities | Clients investing record amounts in AI infrastructure; high-tech among fastest-growing businesses; expanded relationship with a key hyperscaler; nuclear fusion expected to deliver nine figures of NSR (Type One Energy/TVA, U.K. STEP program); power/transmission demand rising across the stack. | — |
| International strength and Middle East uncertainty | Middle East growth expected; U.K. transportation soft | U.K. growth turned positive (AMP8, Great Grid); Australia backlog at a multi-year high ($3B AUKUS wins); Middle East backlog growing significantly despite near-term revenue softness, with ~$40-50B of U.S. military infrastructure spend identified as an opportunity. | — |
| Capital returns | Returns-focused capital allocation policy | Returned $155M to shareholders via repurchases and dividends in Q2; committed to returning substantially all available cash flow through repurchases and dividends. | — |
| IIJA / infrastructure funding runway | IIJA funding ramping | More than half of IIJA funding remains to be spent (even more for several of AECOM's largest clients/sectors); Brent Spence Bridge phase 2 win in Q2 illustrates the follow-on opportunity. | — |
Q&A Summary
Andy Kaplowitz (Citigroup) asked what needs to happen for burn rates to pick up to hit the organic revenue range — a quick Middle East resolution or a faster Americas second-half ramp.
Kapoor said international is running a 1.4x trailing-12-month book-to-burn and growth is expected to inflect in the second half, building on Americas design growth of over 7% in the first half despite the government shutdown, with a recovery in federal wins in Q2. Rudd added that U.K. and Americas growth came as expected while Middle East did not, but significant in-quarter and post-quarter Middle East backlog awards give good visibility to growth, even if the exact pace in Q3 is hard to forecast.
Andy Kaplowitz (Citigroup) followed up on the mechanics of the AI-driven marquee wins — how AI affects man-hours, revenue, and project profitability.
Rudd said the two wins total almost $1 billion (one closed after quarter-end and not yet in backlog); the commercial model lets AECOM share meaningfully in the upside as it delivers with AI, driving improved margins rather than more revenue on those contracts, plus an improved win rate and revenue opportunity from the competitive advantage. Kapoor cited Scottish Water — previously near-zero exposure, now part of the largest water contract ever let in the U.K./Europe — as a multi-year contract at a multiple of current NSR, with a pain-share KPI mechanism where greater efficiency is shared with the client.
Andy Wittmann (Baird) asked whether the smaller profit impact versus the 100 bps NSR hit in the Middle East was due to consolidated joint ventures reducing non-controlling interest.
Kapoor confirmed that is exactly right — the Middle East is the one region with significant NCI because regulations require local partners in Saudi Arabia and the UAE, so the margin impact is far smaller than the NSR miss, which the rest of the business (U.K., Australia, U.S.) more than covered.
Andy Wittmann (Baird) asked about the rising claims balance and whether the reaffirmed ~$400M free cash flow guidance requires an offset elsewhere.
Kapoor expressed full confidence in delivering guidance as in each of the last nine years, noting 35,000-50,000 contracts a year provide many paths to cash with no single consistent driver; Middle East collections returned to normal cadence in April/May including advance payments, and the claims relate to two strongly creditworthy clients on fiscal 2019/2020 projects where AECOM has a clear right and has already won four individual claim resolutions, just slowly.
Jamie Cook (Truist Securities) asked how much AECOM is investing in AI and its margin impact, when operating leverage accelerates, and whether AI capabilities change the addressable market.
Kapoor said Q2 AI spend ramped to a full-scale $13M (~66 bps) from ~$5M in Q1, within a 60-70 bps full-year expectation, yet segment operating margin still rose to 16.5% (from 16.1%) with Americas margins growing and international margins held up by the force-multiplier tools. Rudd said the addressable market does expand — AI lets AECOM enter markets it hadn't meaningfully participated in, such as healthcare design, by reducing time, cost, and complexity/uncertainty for clients who embrace the innovation.
Adam Bubes (Goldman Sachs) asked about construction management revenue growth, book-to-bill trends, and the 12-month outlook.
Rudd said CM is driven by large-project timing — initial T&M agency work runs 10-20 months before a GMP contract, after which NSR burn and book-to-burn flow through. With projects like the JPMorgan Tower completed and new sports/convention-center wins currently in the agency phase, he expects a good CM ramp starting in fiscal 2027 (especially Q2 onward), with NSR book-to-burn contribution building in Q3 and Q4.
Adam Bubes (Goldman Sachs) asked whether visibility on margin-expansion targets has improved after six-plus months of scaling AI tools, and about 2027/2028 cadence.
Rudd said the first few months were integration and team ramp, with the majority of professionals now having access to AI models and tools while the model pipeline is built out; the benefits are beginning to deploy, increasing confidence in the path to improved margins over the next three years and specifically raising confidence in delivering next year's margin expectations.
Michael Dudas (Vertical Research Partners) asked about AECOM's U.S. federal position and how the 50% pipeline increase converts to backlog and revenue.
Rudd said defense clients globally are about 10% of the portfolio with the Department of War (the single largest client) at roughly 5%-plus; the pipeline has grown about 50% in the U.S. and worldwide, and given world events supporting larger defense investment, funding will match some or all of that, with growth opportunity across long-term U.S., U.K., Australia, and Canada defense relationships.
Michael Dudas (Vertical Research Partners) asked whether growth would come more from hyperscaler work or power T&D, or both.
Rudd said AECOM is seeing opportunity across all three — hyperscaler relationships, data centers (from environmental process through completion), and energy/transmission — fitting its broad client offering, with no single piece dominating.
Lauren Sullivan (UBS) asked what pace of ramp for the slower-starting Middle East wins is embedded in guidance.
Kapoor said Middle East growth, which contracted in the first half, is expected to begin in the second half and support the 4%-6% (ex-work-days) and 6%-8% growth guidance. Poloni added AECOM has won 100% of its enterprise critical pursuits in the Middle East year to date and is well positioned for continued UAE transportation and Saudi sports/entertainment and Riyadh mixed-use development spending.
Lauren Sullivan (UBS) asked how AI investments will evolve in type and magnitude over the next few years.
Rudd said the team and build-out can be thought of as relatively static financially over time; the visible return will be an improvement in overall profitability and margin uplift over the next year and beyond, rather than a rising investment level.
More on Aecom
Reported 2026-05-12 · figures from the Aecom Q2 2026 earnings call.
See how Top Bucket AI works for your firm
Request DemoTop Bucket AI Research
Stay ahead of private markets
Research and market intelligence for private-markets professionals.
✓
You're subscribed.
Thanks for signing up.