Detailed Narrative
AI Infrastructure Build-out Momentum
The direct AI build-out represented 11% of adjusted net revenue in Q3, increasing approximately 100 basis points from last quarter. Jacobs has served data center clients since the 1990s and has long-standing relationships with semiconductor manufacturers. The company is expanding its scope of services from advisory to full program delivery, leveraging capabilities across water, environmental, power, and digital. The pipeline of future AI opportunities continues to grow meaningfully, with visibility extending 2 to 3 years out, compared to the previous 6 to 9 months.
Water & Environmental Sector Recovery
Despite Q3 net revenue growth of just over 1% due to environmental sector headwinds🌐, Jacobs anticipates sequential improvement in Q4 and a return to mid- to high single-digit growth in FY27. This confidence stems from recent significant awards, including program management for the U.S. Navy's environmental restoration program and the Central Utah Water District's Strawberry High Line improvement project. The environmental business saw a book-to-bill over 1.3 in Q3, driven by both private sector industrial contracts and public sector regulatory work like PFAS remediation.
PA Consulting Performance and Synergies
PA Consulting experienced a temporary disruption in Q3 due to a change in U.K. governmental leadership, which delayed project start dates. However, a return to normal is already observed, with solid quarter-on-quarter revenue growth expected in Q4. Synergies with Jacobs are emerging, particularly in defense and security in Europe, where PA is supporting the U.K. MOD, and in U.S. transportation, leveraging PA's strong U.K. presence. PA Consulting maintains high operating margins, contributing to overall company profitability.
Operating Leverage and Margin Expansion
Jacobs demonstrated strong operating leverage in Q3, with SG&A as a percentage of sales decreasing as OpEx grew slower than revenue. This contributed to a 109 basis point year-over-year increase in adjusted EBITDA margin to 15.2%. Management highlighted 200 basis points of margin expansion over FY25 and FY26 combined, driven by operating leverage, increased utilization, and greater use of global delivery, especially in life sciences and advanced manufacturing. Further margin expansion is expected in FY27, balanced across both I&AF and PA Consulting.
Record Backlog and Strong Book-to-Bill
Consolidated backlog reached a record $29 billion, marking a 27% year-over-year increase. The trailing 12-month book-to-bill ratio stood at 1.4x on gross revenue and 1.2x on net revenue, indicating robust demand. Net revenue in backlog increased 11% year-over-year, and gross profit in backlog increased 14%. This strong awards activity, particularly in advanced manufacturing, environmental, and transportation, positions the company for continued growth and strong bookings performance in Q4.
Capital Allocation and Deleveraging
Jacobs remained aggressive in its capital return strategy, repurchasing $614 million in shares year-to-date through Q3 FY26. Combined with dividends, the company is on track to return over 100% of free cash flow to shareholders for the second consecutive year. The net leverage ratio declined to 1.8x by the end of Q3, achieving the target of below 2.0x a quarter early, with plans to further delever to approximately 1.5x by the end of FY27.