How do AI-contributed wins work commercially? Does it lower man-hours/revenue, and what's the profitability versus non-AI projects?

AI-enabled projects (two recent wins totaling almost $1B) will see revenue growth and improved margins through mechanisms that share benefits from AI-driven efficiency. The primary benefit is an improved win rate and competitive advantage, allowing entry into new markets like healthcare. “It's not necessarily that we're going to see more revenue from these particular contracts. We will see improved margins on those contracts. But what we are seeing is an improved revenue opportunity as a result of the competitive -- effectively competitive advantages that we've created.”

Is the smaller profit impact from Middle East NSR headwind due to consolidated joint ventures and reduced NCI?

Yes, the analyst is "spot on." Middle East has significant NCI due to regulatory requirements for local partners, so the margin impact is not proportional to the NSR miss. The rest of the business's strong performance covered the small profit miss. “Yes, Andy, you're spot on. It's exactly what you have articulated. Middle East is the one region where we have significant NCI. Regulatorily, you're required to have local partners in Saudi Arabia, in UAE. So the margin impact isn't as equals whatever your NSR miss is.”

Claims balance has been rising; how does this impact the reaffirmed $400M FCF guidance, and are there offsets?

Management has full confidence in delivering FCF guidance. Offsets come from diverse contract drivers across 35,000-50,000 contracts. Middle East cash receipts recovered in Q3, including advanced payments. Claims are from 2019-2020 projects with creditworthy clients, and AECOM has a clear right to them, with successful resolution on 4 individual claims, though the process is slow. “Specific to the claim amounts that you raised, yes, these are projects we bid in fiscal year 2019 and 2020, 2 projects. And for 2 clients that have very strong creditworthiness. And specific to the claims, in our view, we have a clear right to these claims.”

ACM

AECOM (ACM) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q2 FY26)· Industrials· May 12, 2026

Source: earnings call transcript

Executive summary

AECOM Q2 FY26 — Record Backlog and Strong Profitability Driven by AI and Strategic Investments

AECOM delivered strong Q2 FY26 results, achieving record backlog and new second-quarter highs for NSR margins, adjusted EBITDA, and adjusted EPS, driven by robust Americas design growth and strategic investments in AI. Despite geopolitical headwinds in the Middle East and some cash flow timing issues, the company reaffirmed its full-year free cash flow guidance and raised its profit outlook, demonstrating confidence in its strategic initiatives and market positioning. The firm is leveraging AI to enhance project delivery and expand its addressable market, with significant wins attributed to its proprietary solutions.

Highlights

NSR margins, adjusted EBITDA, and adjusted EPS reached new second quarter highs.
Backlog increased 8% to a new record high.
Americas design business grew 8%, contributing to overall NSR growth.
Segment adjusted operating margin increased 50 bps to 16.5%.
Design book-to-burn ratio was 1.2x.

Concerns

Middle East conflict caused an approximate 100 bps headwind to NSR in Q2 FY26.
Delayed payment timing in the Middle East business impacted cash flow in Q2 FY26.
Longer-than-anticipated claim resolution on certain projects impacted cash flow.
Q4 FY26 growth rate will be impacted by fewer workdays than prior year.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year Adjusted EBITDA growth	7% high materiality	FY26	High
Full-year Adjusted EPS growth	14% high materiality	FY26	High
Full-year NSR growth	4% to 6% medium materiality	FY26	High
Full-year NSR growth (excluding workday impact)	6% to 8% medium materiality	FY26	High
Free Cash Flow	reaffirmed high materiality	FY26	High
Long-term Free Cash Flow conversion	100% plus high materiality	Long-term	High
Advisory business NSR	double its NSR medium materiality	within 3 years	High
Nuclear fusion NSR	9 figures of NSR medium materiality	in the coming years	Medium
AI investment spend	60 to 70 bps medium materiality	FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Americas Strong execution and capitalization on favorable market trends in the design business. Adjusted operating margin increased by 60 basis points. Operating income growth: 10%	—	8%	—	20%
International Growth in U.K. and Australia offset by declines in Middle East and Asia. Adjusted operating margin remained consistent with prior year. Pipeline of opportunities remains near an all-time high, expecting improved growth in coming quarters. NSR growth (constant currency): -3%Operating income growth: 2%Backlog growth: 25%	—	2%	—	11%

Orderbook & backlog

Total backlog record Q2 FY26

increased 8%

further enhances our visibility

Design book-to-burn 1.2x Q2 FY26

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.

International segment backlog record Q2 FY26

increased by 25%

consistent with our expectation that international growth will improve in the coming quarters.

International trailing 12 months book-to-burn 1.4x Q2 FY26

Product announcements

Product	Type	Timeline	Details
Proprietary AI solutions	update	Ongoing deployment
Nuclear Fusion capabilities	expansion	In the coming years

Deals & partnerships

Ohio (State) Sizable contract win for Phase 2 of the Brent Spence Bridge project.

Follows strong performance on Phase 1, example of positive benefit from IIJA funding.

Key hyperscaler Expanded relationship for high-tech business.

Especially in the U.S., with several similar opportunities across this market.

Type 1 Energy and TPA Ongoing work in nuclear fusion.

Part of U.S. nuclear fusion efforts.

U.K. Selection to deliver design and technical services for the U.K. STEP nuclear fusion program.

One of the most advanced fusion programs in the world, leveraging AECOM's decade-long leadership in the energy sector.

Major energy client Substantial recompete win where proprietary AI solution was a central element of the project proposal and competitive edge. almost $1B

One of two large AI-enabled wins during the year, with the aggregate value of both being almost $1B. One win came after the end of the quarter.

Scottish Water Largest water contract ever let out by the client in Europe, AECOM had virtually no prior exposure. almost $1B multiyear

Part of two large AI-enabled wins during the year, with the aggregate value of both being almost $1B. Demonstrates AI's impact on market entry and value capture.

Risks & headwinds

Middle East conflict Near-term, ongoing

approximate 100 basis point headwind to NSR in Q2 FY26

Mitigation:Strong earnings growth in other segments; significant NCI in the region reduces profit impact; strong backlog growth in Middle East provides future visibility.

Delayed payments in Middle East Q2 FY26, but recovered in Q3 FY26

Impacted Q2 FY26 underlying cash flow

Mitigation:Collections recovered in Q3, including advanced payments.

Slow claim resolution Ongoing, claims from FY19-FY20 projects

Impacted Q2 FY26 underlying cash flow

Mitigation:Clear right to claims; successful resolution on 4 individual claims; strong history of recovering balance sheet position.

Fewer workdays in Q4 FY26 Q4 FY26

Will impact Q4 FY26 growth rate

Mitigation:Accounted for in reaffirmed full-year NSR guidance (4-6% including impact, 6-8% excluding).

What to watch in Q3 FY26

Middle East growth inflection

H2 FY26

Current NSR declined in H1 FY26

Target Growth to inflect in H2 FY26

Why it matters

Recovery in the Middle East is crucial for achieving full-year NSR guidance and leveraging significant backlog growth in the region.

Specific to the growth in the Middle East, which has contracted in the first half of the year, we're expecting the second half of the year, we're going to start seeing the growth to support the guidance we have of 4% to 6%, excluding the workday impact; and including the workday impact, 6% to 8% growth.

Find out whether ACM delivers this. Inve re-checks your case every morning.

Q&A highlights

What needs to happen for organic revenue growth to pick up in H2 FY26 to meet guidance, specifically regarding Middle East recovery and Americas ramp-up?

Management expects growth to inflect in H2 FY26 due to strong backlog and book-to-burn, especially in Americas design (already 7% growth in H1). Federal client recovery post-shutdown will provide tailwind. Middle East backlog growth is significant, and recent wins provide visibility, though pace is uncertain.

“So in the Americas design, just to note, has grown in spite of the government shutdown in Q1 and it also impacted Q2, but we saw a recovery of wins and bookings in our federal clients, which were impacted by the shutdown in the second quarter.”

asked by Andrew Kaplowitz · answered by Gaurav Kapoor

2 min read 6 chapters

Detailed narrative

Strategic Investments in AI and Advisory

AECOM is actively deploying proprietary AI solutions on projects, with use cases growing rapidly. These AI capabilities are proving to be a central competitive edge in securing large contracts, including a recent recompete for a major energy client where AI was a key proposal element.

The company's advisory business is also on track to double its NSR within three years, leveraging infrastructure-led expertise to differentiate itself from traditional consulting firms.

Record Backlog and Pipeline Growth

The company achieved a new record backlog, increasing 8% year-over-year, driven by a strong design book-to-burn of 1.2x. The pipeline of opportunities has also increased by double digits for three consecutive quarters, providing significant long-term visibility and underpinning expectations for strong NSR growth in the second half of the year and beyond.

Robust End-Market Demand

AECOM benefits from strong demand and funding environments, particularly in the U.S. where over half of the IIJA funding remains unspent. Investment in U.S. National Defense is growing, with the pipeline from the Department of War increasing by 50%. The company also sees significant opportunities in high-tech (hyperscalers) and power generation (including nuclear fusion), with expectations of 9 figures of NSR from fusion in coming years.

Middle East Dynamics and Cash Flow Management

The Middle East conflict presented an approximate 100 basis point headwind to NSR in Q2 FY26, though the profit impact was smaller due to the significant non-controlling interest (NCI) in the region. Delayed payments and longer-than-anticipated claim resolutions also impacted Q2 cash flow.

However, collections in the Middle East have recovered in Q3, and the company remains confident in its full-year free cash flow guidance, citing a strong track record of managing diverse cash drivers.

Construction Management Business Outlook

The Construction Management (CM) business is currently performing agency work on new large projects, following the completion of others. A ramp-up in NSR burn is expected to begin in Q2 FY27, driven by these projects transitioning from T&M agency basis to GMP contracts, with good NSR book-to-burn anticipated in Q3 and Q4 FY26 as projects mature.

Global Market Performance

The Americas design business grew 8% with a 20% adjusted operating margin, reflecting strong execution and efficiency. International NSR increased 2% (declined 3% constant currency), with growth in the U.K. (driven by AMP8 and grid projects) and Australia (AUKUS partnership) offsetting declines in the Middle East and Asia. International backlog increased 25% to a new record, signaling improved growth in coming quarters.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.