AECOM Aktie

Thank you for standing by. At this time, I would like to welcome everyone to AECOM's Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Will Gabrielski, Senior Vice President of Finance and Investor Relations. You may begin.

Thank you, operator. I would like to direct your attention to the safe harbor statement on Page 1 of today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements.

We use certain non-GAAP financial measures in our presentation. The appropriate GAAP reconciliations are incorporated into our materials, which are posted to our website. Growth rates are presented on a year-over-year basis, unless otherwise noted. 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.

Today's remarks will focus on continuing operations. On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy and outlook for the business; Lara Poloni, our President, will discuss key operational successes and priorities; and Gaurav Kapoor, our Chief Financial and Operations Officer, will review our financial performance and outlook in greater detail. We will conclude with a question-and-answer session.

With that, I will now turn the call over to Troy. Troy?

Thank you, Will, and thank you all for joining us today. Our second quarter results demonstrate the strength and resilience of our teams and our focus on delivering the most iconic infrastructure projects around the world.

Before discussing our results, I want to highlight that we have once again been named the #1 firm by ENR in the transportation facilities and water markets. Our industry leadership, investments in our professionals and technical excellence, infrastructure domain expertise and strong client relationships are pivotal in our competitive advantage and the unparalleled value we deliver to our clients.

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 50 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. Through these margins, we are investing in and beginning to realize the benefits from our strategic priorities, which include our proprietary AI and growing our advisory practice.

Backlog reached a new high in the quarter, which further enhances our visibility. This was driven by a design book-to-burn of 1.2x. 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. This is especially apparent across our largest pursuits, where our advantages are greatest, and our win rates are consistently highest.

Turning to our development and deployment of proprietary AI. We are delivering on all of our key internal milestones and investments expanded in the quarter as expected. Importantly, deployment of AI onto projects and client deliverables is growing rapidly as are the number of use cases identified by our teams. The best measure of how AI is benefiting AECOM is our largest wins. We were recently selected for a substantial re-compete for a major energy client where our proprietary AI solution was a central element of the project proposal and our competitive edge. Notably, this contract includes specific mechanisms that allow us to capture value as we deploy AI to deliver greater value to our clients.

Turning to end markets. In the U.S., both of the demand and funding environments are strong. More than half of the IIJA funding remains to be spent, and that number is even greater for several of our largest clients and market sectors. An example of the positive benefit of this funding is the Brent Spence Bridge project in Ohio, where our strong performance on Phase 1 helped us win a sizable contract for Phase 2 during the second quarter.

As we highlighted last quarter, investment in U.S. National Defense is also growing rapidly. Our pipeline with the Department of War, which is our single largest client, increased by 50%. The President's $1.5 trillion budget proposal points to accelerating defense spending in the key areas that we support. This includes significant increased facilities work, where we are a leading provider to the Army and Navy.

In Canada, NSR growth continues to be strong and broad-based across all market sectors. We maintained a leading position in this market, and recent national and provincial funding pronouncements underpin our confidence that this growth will continue.

Turning to the International segment. In the U.K., growth turned positive with continued strength in water and energy, led by accelerated activity on AMP8 and Great Grid project. However, partially offsetting this strength is ongoing weakness in the transportation market. Longer term, there is an undeniable need for transportation investment.

In Australia, trends have improved and our backlog reached new multiyear high. This includes a notable set of wins to support the $3 billion AUKUS partnership and other defense investments. In addition to defense, we also have a growing pipeline of transportation work, which bodes well for 2027 and beyond.

Finishing in the Middle East. Despite the near-term uncertainty, we continue to win work at a high rate, including strong wins after the quarter ended. In addition, an estimated $40 billion to $50 billion of spending is likely to be needed to repair, fortify and expand the U.S. military infrastructure in the region, which presents another growth opportunity for us.

Turning to our outlook for the remainder of the year. We are increasing our full year profit guidance for the second time this year. This guidance increase reflects our strong year-to-date financial performance, record backlog position, strong funding across our core markets and execution of our strategic initiatives. At the same time, our guidance is capturing uncertainties related to the Middle East as the ongoing conflict continues to have an unclear resolution time line.

At the midpoints of our updated guidance ranges, we expect adjusted EBITDA and adjusted EPS to increase by 7% and 14% from the prior year. Taken together, we continue to deliver consistently strong performance, with a record backlog and pipeline, and are confident in delivering on our increased guidance for the year and our long-term strategic and financial objectives.

With that, I will turn the call over to Lara.

Thanks, Troy. Our teams continue to differentiate in the marketplace by leading with technical excellence, strong collaboration across market sectors and disciplines and focus on delivering unrivaled value to clients. These attributes are key drivers of our record performance. I'd like to highlight a few trends where this is most apparent.

First, our clients are investing record amounts in AI infrastructure. Our expertise extends from the conceptual phase of an asset through its ultimate delivery, including environment permitting, site selection and due diligence, stakeholder engagement as well as design, project and program management. Our high-tech business is one of our fastest growing, especially in the U.S. Of note, during the quarter, we expanded our relationship with a key hyperscaler that positions us for accelerating growth, and we see several similar opportunities across this market.

Second, power demand continues to increase. We work across the entire power generation stack, and we have taken a leading position in emerging areas as well. One area we'd like to highlight is nuclear fusion, where we expect to deliver 9 figures of NSR in the coming years. This includes our ongoing work in the U.S. with Type One Energy and TVA, as well as our selection during the second quarter to deliver design and technical services for the U.K. STEP nuclear fusion program. These two programs are amongst the most advanced fusion programs in the world, and our decades-long leadership across the energy sector played an essential role in our positioning.

The third trend I'd like to highlight is our incredibly high success rate on re-competes, which is a great indicator of the strength of our technical expertise and high client satisfaction. Our win rate on re-competes is in excess of 90%. And increasingly, we are securing an even greater share of the client spend on these re-competes, which aligns with our focus on expanding our addressable share of the market.

In the environment sector, two marquee re-competes for global energy companies over the past several months tell this story well. On one of these wins, our scope is substantially greater than the prior contract. This outcome not only reflects our strong performance on the last contract but also the value we are poised to deliver in the future through our strategic investments, including AI. On the other win, we stood out against the competition because of our technical expertise and scale.

Finally, our advisory business is on track to double its NSR within 3 years, consistent with our prior expectations. Importantly, by bringing infrastructure-led expertise to our clients, we are differentiated versus traditional consulting peers, and we are consistently beating these firms across the globe for our clients' most critical assignments.

As always, I am extremely proud of our professionals who are energized by our investments to enhance capabilities, better serve our clients and increase the value we can deliver to our stakeholders and communities. The result is sustained strong performance across the business and clear visibility for future growth.

With that, I'll turn the call over to Gaur.

Thanks, Lara. As demonstrated by our second quarter results and increased full year guidance, the business is outperforming our expectations contemplated in our initial guidance. There are a few trends that I would like to highlight within our performance.

First, we continue to deliver on all key metrics. I should note, this quarter included an approximate 100 basis point headwind to NSR due to the impacts from the conflict in the Middle East. And, as a reminder, revenue is disproportionately impacted given the substantial consolidated joint venture work we have in the region, but the impact to profit is much smaller as demonstrated by our strong earnings growth.

Second, strong margin outperformance remains a hallmark of our business. Building on our consistent industry-leading profitability, our segment adjusted operating margin increased by 50 basis points year-over-year. We continue to unlock capacity to invest in our strategic priorities, and we are on track with our full year margin expansion goals.

Finally, our backlog and pipeline are at a record high, including growth in both the Americas and International segments. In fact, our pipeline has increased by double digits for 3 consecutive quarters, which provides for long-term visibility. Both our backlog and our pipeline underpin our expectation for strong NSR growth in the second half of the year and beyond.

Turning to Americas. NSR in the design business increased by 8% as we continue to execute our strong backlog position and capitalize on favorable market trends. The adjusted operating margin increased by 60 basis points to 20%, contributing to 10% operating income growth, which reflects a continued focus on driving operating efficiencies across the business and the high return on investments we are making to extend our advantages.

Turning to the International segment. NSR increased by 2% and declined by 3% on a constant currency basis. Growth in the U.K. and Australia was offset by declines in the Middle East and Asia. Our adjusted operating margin remained consistent with the prior year at 11%, and our operating income increased by 2%. Our backlog in the International segment increased by 25% to a new record and our pipeline of opportunities remain near an all-time high as well. This is consistent with our expectation that International growth will improve in the coming quarters.

Turning to cash flow and capital allocation. We returned $155 million of capital to shareholders in the second quarter through repurchases and dividends. Underlying cash flow in the second quarter was consistent with our expectations, but was offset by delayed payment timing in the Middle East business as well as longer-than-anticipated claim resolution on certain projects. Importantly, collection in the Middle East have already recovered in the third quarter, and we have demonstrated track record of delivering strong free cash flow.

As a result, we are reaffirming our free cash flow guidance for this year as well as our long-term 100% plus free cash flow conversion target. We remain committed to our returns-focused capital allocation policy, which includes returning substantially all available cash flow to shareholders through repurchases and dividends.

Concluding with our raised guidance, we now expect to grow adjusted EPS and EBITDA by 14% and 7%, respectively, at the midpoint of the ranges. As a reminder, our fourth quarter growth rate will be impacted by fewer workdays than prior year, which is accounted for in our reaffirmed guidance for 4% to 6% NSR growth for the year. Excluding this impact, we continue to expect 6% to 8% NSR growth for the year.

With that, operator, we are ready for questions.

[Operator Instructions] And your first question comes from the line of Andy Kaplowitz with Citigroup.

Troy, your backlog growth has obviously been relatively strong. But I think in order to get to your organic revenue growth range for the year, you'll need a pickup in burn rates to get to your guidance. What needs to happen to see that? Are you counting on a quick ending to the Middle East? Or do you see the Americas work ramping up faster in the second half?

Yes. You know what, I'll -- Gaur will take that one, Andy.

Andy, thanks for the question. So you're right, our backlog growth has been really strong. In fact, when you look at our International trailing 12 months, it's 1.4x book-to-burn that we have delivered. But at the same time, there have been geopolitical issues that have impacted the first half as we've already discussed last quarter and on our prepared remarks here. But as we go into the second half of the year, given the strong backlog growth that we have had, the book-to-burn I just mentioned, we do expect growth to inflect. To support growth we're already seeing in our design business in the first half of the year, which has grown at over 7% in the first half.

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. So we expect that to provide good tailwind to us as we go into the second half of the year, and feel good about our guidance we had put forth.

And Andy, I'll add just a little bit to that is when we started the year, we anticipated growth ramping up in the second half of the year, and that was built into our plans. Obviously, during the second quarter, we did see growth as we expected in the U.K. business and in the Am's business, and we had expected growth to be in the Middle East business, which, obviously, for reasons that everyone is discussing, it didn't happen.

What we did see though in the quarter, again, is actually very significant, the backlog growth in the Middle East. And even post quarter, we had some very significant awards that we continue to add to that backlog in the Middle East. So we do expect the Middle East to grow quite significantly. The part that is difficult for us to forecast is sort of exactly the pace that it's going to grow in the third quarter. But nevertheless, with the backlog in that business, we do have a very good line of sight or visibility to growth in the Middle East.

Very helpful. And then, Troy, I want to double-click on the marquee wins you're talking about that you -- AI contributed to and how the mechanics are working. For instance, if you are successful in delivering for the client, what exactly does that mean? Is it like your man-hours of revenue are lower than the project -- in a similar size project without AI? And what is the potential profitability of this type of project versus a similar project without AI? I think more color would be helpful.

Okay. Sure. Well, again, I'll just -- I think I pointed out in the prepared remarks, one of our wins, but I'll actually say that we've had two wins that I'd report on, and the aggregate value of those wins is almost $1 billion, one of which came after the end of the quarter, so it's not currently in our backlog.

But what we would expect to see in the commercial model that we've agreed is that revenue will continue to grow on those projects. But as we deliver using AI, we have a mechanism where we effectively will share the benefit from doing that. And so there's a pretty large upside to that project. I'm not -- just again, because I'm talking about some client contracts and two in particular, I'm not going to share the ranges, but I will say that there is certainly an opportunity for us to share meaningfully in that upside.

And then the other thing that we're experiencing, and I think this is the most important message through this is, these are two large projects and two large wins during the year. And so what we also see is we also see an improving win rate in the conversations on these large types of programs and projects. So I would think about it this way in terms of revenue. 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 the competitive advantages that we've created.

And so I'm going to pass to Gaur for a second to give you some more color.

Yes, Andy, on -- a little bit more color on some of the contracts that Troy is talking about. Now clearly, we can't go into the details of them. But just to give you an overview, each one of these is a multiyear contract. And for -- specifically on Scottish Water that we did give you a lot of detail in Q1. Recall, we virtually had practically no exposure to this client. And now we're part of the largest contract -- water contract that has ever been let out by that client in Europe, U.K. geography for us. And in fact, in -- from what we can tell in the water discipline, it is the largest contract that was let out.

And the second one that happened subsequent to the quarter also follows a very similar pattern, where we did have exposure to the client currently, and what we have won, again on a multiyear basis, is a multiple of what we currently deliver on an NSR basis. So the question that you're specifically asking, how is it impacting man-hours revenue, that's a very good direct result of what we're seeing when you bring technology that drives efficiency. Our clients are asking for more because the demand for our services far exceed sometimes the funding that has historically been in place.

And specifically on that contract too, KPIs, where the more efficient we are in delivering, it's a pain share gain -- a pain share -- there's actually no gain share, I should say, pain share mechanism on that contract, which will allow us to share with the client that did not exist before that KPI on the gain share.

Your next question comes from the line of Andy Wittmann with Baird.

Great. Gaur, I wanted to dig into your comment about the Middle East. I think you mentioned there was 100 basis points NSR hit from the delays that you saw there. But you said that the profits weren't hit as large as the revenue. Is that because it's like a consolidated joint venture and it reduced your NCI? I noticed your NCI guidance was lowered for the year by about $5 million. Is that the delta that you would say between like the -- what would be the expected profit and the actual profit hit to you?

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. And that's why even though there was some margin impact into the business, the rest of the business, as Troy mentioned and Lara mentioned in her prepared remarks, with U.K., Australia, U.S. performing very well. The whole company operationally delivering better than we had expected. It was able to cover that small miss on the bottom line.

Okay. Great. And then I guess kind of related to that, you were talking about the impacts to your cash flow. It sounds like some of the delays you saw in the quarter from Middle East have been resolved after the quarter, and that's good. But as I looked at kind of your claims balance over the last 4 or 5 quarters, it has been kind of going up sequentially each quarter by a decent amount, and it sounds like that might continue. So I'm just wondering if you could just give some detail on that? And if you're continuing to maintain the $400 million free cash flow guidance, I'm just wondering if there's an offset somewhere else in the business because of that item specifically?

Sure. Andy, if I miss anything, please let me know, and I'll revert back to it. Specific to full year guidance, we have full confidence that we will be delivering on our guidance for the current year, similar to what we have done over the last 9 years. And I'll take the last part of your question first, which is what are the offsets? Over the last 9 years, we've looked at what the drivers are on how we deliver on our cash so consistently, and there's no consistent drivers. When you have multiple geopolitical and geographic issues that you navigate around clients, we deliver anywhere between 35,000 to 50,000 contracts during the year, it gives you a lot of different paths to deliver on your cash, and the current year will be the same.

Specific to Middle East, you're again spot on. In April and continuing into May, our Middle East business is back to the normal cadence we expect. On cash receipts, including some advanced payments, which again gives us confidence that some of the large wins that we've had are now setting up to be -- we're going to be working on these projects in the second half of the year based on these advanced payments coming through.

And last, specific to the claim amounts that you raised, yes, these are projects we bid in fiscal year 2019 and 2020, two projects. And for two clients that have very strong creditworthiness. And specific to the claims, in our view, we have a clear right to these claims. In fact, what we've seen is four of the claims have -- individual claims for these two clients have gone through the resolution process. And we've been successful on each one of them. But it's just been very slow and dragged out on the resolution process. That is what has surprised us as to how long the process has taken.

And occasionally, we come across these type of issues. And you'll see on our results that we have delivered over multiple years, we have a very good history of recovering our balance sheet position, and we feel confident on these two as well.

Your next question comes from the line of Jamie Cook with Truist Securities.

I guess just my first question, Gaurav, can you help remind us how much you're investing sort of in AI and how that's impacting margins this year? And I guess, the EBITDA conversion relative to sales is still, I don't know, mid-single digit at best. I'm just wondering whether -- when we could start to see the EBITDA or the operating leverage of the business start to accelerate more as you get past some of this investment?

And then I guess my second question is, as you are talking to your clients about your AI capabilities and what you can deliver, does it change your addressable market at all and that some customers are more willing to try AI or new technology or think about doing the business differently versus some that are still sort of legacy in an old school way? I'm just wondering if that changes your addressable market at all?

Jamie, thanks for the questions. I'll take the first one specific on AI leverage and margin EBITDA conversion. For the current -- for the first half of the year, we've delivered good strong margins, a little bit above our expectations of what we had laid out earlier in the year. If you recall, we had said 20 to 30 basis points, and we've been doing better than that. And it's a combination of a few key things.

First is our Americas business organically is very robust and driving incremental margins. Second is throughout -- our organization has a very strong operating culture of delivering -- continuing to deliver better every single quarter. But third, as you specifically asked about on AI leverage, in the first quarter, you would recall, we had only ramped up approximately $5 million of spend. Our expectation was 60 to 70 bps is what we will spend in FY '26. And in fact, in Q2, we ramped up that spend to that full scale. We spent $13 million on our AI road map, equates to about 66 bps. So the margin increase that you're seeing where we delivered 16.5% operating margin in the first half of the year versus 16.1% in last year. There is that incremental investment coming through.

As we move forward, we have a lot of confidence that, given what we're already seeing in the early results, not only from the growth standpoint that Troy has already spoken to earlier on some of the Q&A, but if you take a step back with the 66 bps of AI investment we're making in our margins in Q2, our Americas margins continue to grow over prior year and just a little bit better quarter-over-quarter as well because of some of these tools that we have already developed -- deployed -- internally developed and deployed internally are driving benefits.

And it's much more clear when you look at our International business. International business is not having same robust growth we're seeing in the Americas business, but the margins still held because they're being supported by these tools we've developed, which is being a force multiplier for our workforce and being able to deliver more efficiently. So we expect that to continue. And as you -- consistent with our guidance, as we look forward to FY '27 and beyond, halfway through the year, we're very confident as to the guidance, the margin progression and the conversion that you talked about we had put forth, we'll be delivering.

And Jamie, to answer your second question. First is our clients, when they have large complex projects, they are looking for a few things. They're looking for an improvement in the value we're delivering, and that can be in different ways, either through improving the speed at which you deliver, reducing the cost. But more importantly, providing more certainty around very complex outcomes that we deliver for our clients. And so they embrace innovation, and what we're finding in our conversations as we work through this is that they're willing to embrace the innovation that we're providing. And so those conversations are not -- they're really not that difficult.

And in addressing your second question, does this change our addressable market? The answer is it does. And what this does is it allows us to actually have a way of entering some markets that we hadn't previously participated in a meaningful way in the past. And an example of that would be health care. We haven't participated meaningfully in health care design around the world. And so we're effectively, again, building tools to support our professionals in their conversation with customers that reduce time, the uncertainty associated with the complexity and cost. And so that allows us to more easily enter new markets. And a good example of that is the health care market.

Your next question comes from the line of Adam Bubes with Goldman Sachs.

I was just wondering if you could talk about the construction management revenue growth and book-to-bill trends in the quarter? How are you thinking about the outlook for growth in that business over the next 12 months?

Adam, this is Gaur. I'll take that question. On CM, CM business is very much impacted by large projects, it's specifically timing. Just to be a little bit more detailed on what I mean by that is, generally, when we first contract into these projects, we work on a T&M agency basis for the first few months, where we help the client out with the design and other factors, procuring subcontractors on -- according to their preference. And then we enter into a GMP contract with them. Usually, it could be anywhere between 10 to 20 months after we have provided that agency work to them. When the design is practically complete, and we have a lot of certainty, all the work has been subcontracted through practically, and that's when you see good book-to-burn and NSR flow through for that CM business.

So where we are right now is we've got some large projects that have been completed, including the JPMorgan Tower in New York and the like. And we're in process of some of these new projects that have come on, including some of the sports wins and convention centers that we've discussed in the past couple of quarters, we're performing that agency work right now. And my expectations -- so that will continue for the next 6 months. And my expectation is in FY '27, especially starting in Q2 and beyond, we're really going to start seeing a good ramp-up in that revenue burn. So to drive that, my expectation is in Q3, Q4, you'll start seeing a good NSR book-to-burn being contributed by our CM business that we really haven't seen because of the nature of how these projects flow through.

Got it. And then separately, it's been 6 months -- over 6 months in from scaling your AI tools and your AI acquisition. Can you just talk about if visibility has improved on your ability to hit your margin expansion targets? And if you have any updated thoughts on the cadence of margin expansion in '27 and '28?

Yes. So we really sort of started this in earnest about, as you said, 6 months ago. And if you sort of think about this in chunks, so the first 3 months relate to integration and really ramping up a team and then taking what we had been already working and effectively moving that across our entire population of professionals. So that's started. And we have the majority of our people having access to certain kinds of AI models and tools that help them in their work. And at the same time, and we mentioned this in our prepared comments, we've been working on actually building out, what I'll call it, the model pipeline. And so that's going on in earnest as well.

What we are seeing is that we've been investing in building the team and building the AI tools that our professionals will deploy. But we're also now seeing again the benefit of those tools be deployed. And so we see that ramping up. All that being said, what we have experienced is we're experiencing an increase in our confidence in our path to ultimately improve margins over the next 3 years. And so even as we look forward to next year, I'd say that we have increased confidence in our ability to deliver on the margin expectations for next year as well.

[Operator Instructions] And your next question comes from the line of Michael Dudas with Vertical Research Partners.

Troy, you called out in your prepared remarks, pretty good potential in your U.S. federal business. Maybe you can remind us what that position is? And what areas do you think that could contribute to the pipelines up 50%? What can we maybe think about or look forward to see that execute, get converted into backlog and revenues over the next 6 to 12 months, assuming again the vagaries of government budgeting process in Washington, D.C.

Yes, certainly. Well, first, I'll just say that I think about defense in terms of our global client set. And obviously, within that global client set, the largest is the U.S. government or the Department of War here. And so in aggregate, all those defense clients represent about 10% of our portfolio, and the Department of War represents a 5% or a little bit, maybe slightly higher than that.

But what we have seen in that pipeline, certainly here in the U.S. and around the world, we've seen that pipeline increase by about 50%. So that's, for us, even as you said, putting aside that's -- kind of the vagaries of funding, there's no question that with the pipeline increasing like that, there will be funding that will certainly match some or all of that. And so I think that with what's happening in the world, it is certainly supporting a larger investment in defense. And again, through our long-term relationships with these clients in the U.S., in the U.K., in Australia and Canada, we see a lot of opportunity for our defense business growing.

I appreciate that. And maybe touch on -- you discussed about the relationship -- the new relationship with the hyperscaler, and you touched on your -- on the power opportunities. As you assess what the demand for AECOM services in the next couple of years, 6 months to a few years in this cycle, do you think you'll get more opportunities with the hyperscaler customer side? Or is it more on the power distro -- T&D power work? Or is it going to be a combination of both that's going to significantly inflect?

Again, I think, I'll tell you what we're experiencing is we're actually experiencing an opportunity in all three of those markets. And so it is certainly -- hyperscaler is an important part of that, but there's certainly just as a significant amount of spending within that supply chain to ultimately support increased compute capacity. And so it really is across our entire portfolio, but the big places we see it is obviously investment in data centers. And that's all encompassing, from the environmental process all the way through the completion of that. Energy and transmission are an important part of that as well. So we're seeing that it's a broad opportunity for us that sort of fit the broad client offering that we have, which -- within our business, there's no one piece that's dominating one or the other.

Your next question comes from the line of Lauren Sullivan with UBS.

My question is, what do you have embedded in guidance for the pace of ramp for those recent wins in the Middle East that got started a little bit slower than you were expecting?

Yes. I'll let Gaur take that question.

Lauren, I'll take that. 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.

And I can let Lara speak more to the specific opportunities that we have been successful at, and we continue to win even subsequent to the quarter.

Yes. Thanks. Lauren. I mean just a bit more color. We -- so far, year-to-date, we've won 100% of what we call our enterprise critical pursuits across our Middle East business. And in addition to those recent wins and confidence about the growing pipeline of transportation work, for example, in the UAE, I think we're well positioned in terms of the pivot that's happening in Saudi Arabia at the moment, where there's going to be continued investment in sports and entertainment. And we have an existing position with many of those clients, and there's a very substantial portfolio and pipeline of work, for example, associated with that and some of the downtown mixed-use development in Riyadh. So when we look across the whole Middle East portfolio, I think long term, we're positive about continued growth.

Got it. Makes sense. And for my follow-up, how do you see your AI investments evolving over the next few years? Like will anything change about the type or the magnitude of these investments?

I mean -- so no, the answer is sort of thinking about this financially in terms of sort of the team and what we've built out, you can think about that as sort of being relatively static over time. But what we are starting to see and we will see this will continue to grow is, obviously, an improvement in the overall profitability of the business and certainly in our margins. So if you look forward, the way you'll be able to sort of get a sense of are we performing or getting a significant return on those investments, you're just going to see a margin uplift certainly over the next year and beyond that.

There are no further questions at this time. I will now turn the call back over to Troy Rudd for closing remarks.

Great. Thank you, operator, and thank you, everyone, for joining the call today. And I want to make sure that I thank all of the AECOM professionals and employees that have done an outstanding job this quarter, delivering in, what I'll say, has been a turbulent environment. Thank you, and thank you, everyone.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Thank you for standing by. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the AECOM First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the conference over to Will Gabrielski, Senior Vice President, Finance, Investor Relations. You may begin.

Thank you, operator. I would like to direct your attention to the safe harbor statement on Page 1 of today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. We use certain non-GAAP financial measures in our presentation. The appropriate GAAP reconciliations are incorporated into our materials, which are posted to our website. Growth rates are presented on a year-over-year basis unless otherwise noted.

Any references 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.

Today's remarks will focus on continuing operations. This morning, we announced the completion of the review of strategic alternatives for the Construction Management business. We have concluded that we will continue to own and operate the business. Both our reported results and financial guidance are inclusive of construction management. Also, as a reminder, our year-over-year growth rates were impacted by fewer workdays compared to the prior year first quarter. Accordingly, our discussion will include adjustments to improve comparability of results.

On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy and our outlook for the business. Lara Poloni, our President, will discuss key operational successes and priorities; Gaurav Kapoor, our Chief Financial and Operations Officer, will review our financial performance and outlook in greater detail. We will conclude with a question-and-answer session.

With that, I will turn the call over to Troy. Troy?

Thank you, Will, and thank you all for joining us today. As our first quarter results demonstrate, we are off to an exceptional start to the year. We exceeded expectations across every key financial metric, including record first quarter NSR, adjusted EBITDA, margins and backlog. Backlog increased 9% to a new all-time high, fueled by 1.5 book-to-burn ratio, even while managing through an unprecedented 43-day U.S. federal government shutdown.

I should note that we expect award activity in the U.S. to pick up with the recent passage of all critical federal funding bills. As a result, our visibility is high, and we are increasing our full year financial guidance, which I will discuss shortly. Across the business, our focus remains on extending our competitive advantages. We have a strong moat that is built on our scale, technical leadership, trusted client relationships and domain expertise. Our target investments in program management advisory services, AI and technology position us to unlock greater value for our clients and deliver on our multiyear financial targets.

Underscoring our confidence in the long-term value creation opportunity, today, we also announced an increased share repurchase authorization to $1 billion. We repurchased more than $300 million in the first quarter and expect to continue to deploy our strong free cash flow to deliver greater value to our shareholders over time.

Turning to financial performance. Net service revenue increased by 5% when adjusted for fewer billable days in the period. The segment adjusted operating margin increased by 100 basis points to 16.4%. This is a new first quarter record and reflects the ongoing benefits of our strategy and high-returning investments. These investments include key hires to drive growth in our advisory business, to build on our technology teams and capabilities and in business development to capitalize on strong demand.

Reflecting this outperformance both adjusted EBITDA of $287 million and adjusted EPS of $1.29 exceed our expectations. As I mentioned earlier, we ended the quarter with a record backlog and our book-to-burn ratio has been above 1 for 21 consecutive quarters. This consistent performance is a function of the value we bring to our clients. Our win rate remains strong in this quarter, especially on large pursuits.

I would like to highlight two key wins that provide greater insight into how we are advantaged in the marketplace. First, we were selected as a delivery partner for the 2032 Olympic and Paralympic Games in Brisbane, Australia. Our selection is a testament to the trust and credibility we've built with clients in delivering complex infrastructure projects on a worldwide stage. It also underscores the benefits of combining our leading technical expertise with programmatic delivery capabilities.

Further, this win builds on our proud history as a critical infrastructure partner to the Olympic Games across the globe, including our ongoing role as the infrastructure delivery partner for the LA '28 games. Another great example is our selection to provide the engineering services for Scottish Water's multiyear capital investment program, which represents one of the largest capital programs in the world. This win demonstrates several key advantages. For one, we're the world's #1 ranked water firm.

In addition, our rapidly expanding technology road map was key to our selection as we were able to demonstrate a tangible value opportunity from AI and technology over time. Our emphasis on bringing best-in-class technology-led solutions and the overwhelmingly positive client response is a growing trend in our business, and we believe this win serves as a blueprint for the value we expect to deliver from our investments.

Turning to a discussion of our end markets. In the U.S., market conditions are strong. The recent passage of all key federal funding bills for fiscal '26 provides greater certainty for our clients and for us. Additionally, over half of the IIJA funding remains to be spent and progress is accelerating for the multiyear surface transportation authorization. Our expectation is for another sizable investment that will build on this momentum and support a growing U.S. economy.

Investment in the private sector is also gaining momentum. This is evident in the booming data center market where we benefit both directly and indirectly from the infrastructure opportunities. This includes water, facilities, energy and environmental services, all sectors where we lead our industry. Additionally, incentives in the one big beautiful bill and ongoing resharing initiatives are creating new opportunities with several years of visibility ahead.

Turning to international. Near-term trends remained varied, but strong long-term demand for infrastructure investment is undeniable. In the U.K., we had the significant Scottish Water win and the AMP8 water cycle is underway. In the Middle East, we are successfully navigating the reprioritization of funding with substantial wins in the first quarter that underpin our outlook for this year and beyond.

This includes our new leading design role on the Dubai Metro and ongoing growth opportunities in the UAE and across Saudi Arabia. In Australia, our backlog reached a new multiyear high and included strong wins in the quarter, notably in the transportation sector. Offsetting this in the near term are pockets of weakness resulting from geopolitical and funding uncertainties.

Importantly, our efforts to reposition across international markets are paying off as our 25% backlog growth and record pipeline demonstrate. As a result, we expect revenue trends to improve as the year progresses and into fiscal '27. Globally, national defense budgets are meaningfully increasing. This is a key driver for our business as defense represents approximately 10% of our NSR. The U.S. Department of War is our largest client and spending is set to increase for the next several years.

Further, our other key clients are also ramping investment, including the U.S. Coast Guard and the broader DHS. President Trump also reaffirmed the U.S. commitment to the AUKUS trilateral defense pact with Australia and the U.K. and we are pursuing a substantial pipeline.

Before turning the call to Lara, I want to provide an update on two strategic initiatives. Beginning with technology and AI. We've completed the integration of our September acquisition. We have already doubled the size of our team and engineers are deeply engaged and collaborating to extend our capabilities. The technology is now live on our projects and the initial performance results achieved have matched our expectations. Our confidence in these investments and the potential positive benefit of the business is getting stronger.

Every day, we're uncovering fresh use cases and new opportunities. We're deploying our resources to tackle new problems. And in doing so, we are creating significantly more value for our clients. All of this rests on the foundation we've built, namely our technical leadership, the deep trust we've earned with our clients over many years and the domain expertise we have at scale.

As it relates to the construction management business, we've completed our comprehensive review of strategic alternatives. We concluded we will continue to own and operate the business and believe it is exceptionally well positioned for the future. Backlog is strong and the pipeline continues to reflect a robust set of opportunities.

As we look ahead, our confidence is underpinned by our successes and growing backlog. We increased our adjusted EBITDA and EPS expectations for fiscal '26, which includes operational outperformance in the first quarter and the benefits from capital allocation. We also reaffirmed our long-term value creation algorithm, which includes expectations for annual revenue growth of 5% to 8%, achieving a 20% margin exit rate by fiscal '28 and delivering mid-teens compounded earnings and free cash flow growth per share.

With that, I will turn the call over to Lara.

Thanks, Troy. Echoing your sentiments, our teams are proud of our many accomplishments to date, as well as how we are redefining the future of infrastructure delivery. Demand for infrastructure has never been greater. Rapid urbanization has pushed 45% of the world's population into cities today with projections showing dramatic further growth, even in advanced economies, aging and inadequate systems are under severe strain.

The U.S. alone faces a $3.7 trillion investment gap over the next decade. Meanwhile, Energy Systems face mounting pressure from data center expansion and widespread electrification. These dynamics are intensifying, and we're deliberately positioning the clients to capitalize on this demand. This includes our ongoing investment to expand our higher-margin advisory practice attacking what we believe to be a $50 billion addressable annual spend. Our advantage is that we combine our deep infrastructure domain expertise and technical leadership with superior strategic advice to deliver greater value for our clients. This is a distinct offering and fills a large gap in the market. We have made substantial progress on our goal to double this business. The team is growing and hiring activity is expected to continue to accelerate through the year. Importantly, our pipeline is also expanding rapidly, and several recent wins demonstrate our value to clients and how our addressable market is expanding.

Let me highlight two examples. First, in the U.K., we were selected to advise the water industry to advance business plans for the AMP9 water cycle. This is an important win and a great demonstration of how we are positioning to help shape our clients' investments. Second, through advisory, we are positioned to support the trillions of dollars of private capital seeking to invest in infrastructure. For these clients, we can accelerate and derisk their investments and achieve better outcomes. This is a valuable benefit that also extends to our public clients who are increasingly partnering with private investors. As is evident, we are expanding the value we can deliver for clients, which is driving strong performance across the business.

With that, I'll turn the call over to Gaurav.

Thanks, Lara. As first quarter operational outperformance and financial guidance demonstrate, we continue to extend our track record of exceeding our expectations and creating a more valuable company. A few highlights from our performance bear repeating.

First, we overdelivered on the financial expectations we provided for the first quarter, and we are raising our guidance for the full year as a result. Second, we saw strong increases in both our NSR and margins. This serves as clear evidence that we are scaling our advantages and expanding our operating leverage. Third, our backlog and pipeline are both at an all-time high. This reflects our competitive advantages, the strength of our end markets and continued expansion of our addressable market. And finally, we continue to execute our returns-based capital allocation priorities.

After investments in high returning organic growth and efficiency initiatives which are expensed through our margins, we returned nearly $350 million to shareholders in the first quarter and over $3.3 billion over the last several years. We're also pleased to announce an increase in our share repurchase authorization to $1 billion. Going forward, we'll continue to deploy capital thoughtfully while maintaining a nimble balance sheet so we can maximize the benefits of our strong operational performance for our shareholders.

Turning to our segment performance. In the Americas, NSR increased by 9%. Growth was broad-based, but stronger in the Eastern states and Canada, where budgets and visibility are best. The adjusted operating margin was 19.9%, up 120 basis points from the prior year. This includes the operating leverage created by strong growth, mix shift to higher-margin services and the benefits from deploying technology to deliver efficiencies.

Turning to International. NSR was essentially flat after adjusting for fewer billable days. This was materially consistent with our expectations, as we've discussed now for several quarters, the slower level of activity in areas, including U.K., Australia Transportation and in Hong Kong. While International segment growth will likely remain subdued in the second quarter, consistent with the expectations we had at the start of the year, the successful repositioning of the business to growth areas resulted in a 25% backlog increase in the quarter, and we expect growth to pick up in the second half of the year as a result.

Turning to details of our guidance. We are increasing the midpoints of our adjusted EBITDA and adjusted EPS guidance ranges for the full year and now expect adjusted EPS of $5.95 at the midpoint of our range as compared to $5.75 previously. This increase reflects the operational outperformance we delivered in the first quarter. The benefits of our capital deployment strategy, a lower expected tax rate and the strong visibility from our record backlog.

I want to share a few details on phasing to help with modeling. We expect second quarter NSR and adjusted EBITDA to approximate 24% of our full year guidance. We also expect the second quarter tax rate to be approximately 12% to 13%.

With that, operator, we are ready for questions.

[Operator Instructions] Your first question comes from the line of Sabahat Khan of RBC Capital Markets.

Great. Just before I get into kind of the fundamental stuff, maybe you can just share some thoughts. I want to get some color on the decision made to sort of keep the CM business. Obviously, you guys kind of put up strategically one on that. And then just a follow-up question. If you can just talk about sort of compared to last year, the evolution of -- sort of the demand environment in the U.S. given some of the stability, I would say, at this point relative to last year and the priorities of the U.S. government. So maybe just kind of the broad outlook and sort of any synergies, et cetera, there from keeping the CM business.

Thank you. And I'll take the first question with respect to construction management, and then I'll turn the second part of this question over to Gar.

So first, just we said that we would evaluate options last quarter, including the sale, but that also always included ways that we would drive more value in the business and see in the business and the combined AECOM business in general. As we went through that process, a couple of important factors were key to our decision. One is recognizing the construction management business is a high-quality business. In fact, I'd consider a strong industry leader and it does have a great backlog on opportunities in front of it. It also has a great cash flow profile that creates the ability for us to invest.

But most importantly, we see substantial opportunities resulting from a closer connection between the construction management team and the rest of AECOM. That alignment and collaboration, we think, will give substantial opportunity beyond where we see those businesses operate in today. And a couple of examples that are the work that we're doing together on the LA '28 games, and now we'll begin that work on the Brisbane 2032 games. So we see great opportunities for the business to work together, and we were pleased to get to that process quickly and get to this decision.

Sabahat, this is Gaurav. Thanks for the question. I'm glad you raised it. We're seeing continued strength in our Americas market, particularly across our design business. All of our end markets from transportation, water facilities continue to deliver very strong growth, including what we reported in the first quarter, which was 9% for our design business. And if you look over the last 2.5 years, our organic growth has been very strong, leading to enterprise at high single digits.

And when we continue to dive deeper into the markets, our pipeline continues to be very robust. It's up 20% year-over-year at end of the first quarter. And in fact, the early stage pipeline for us is up 34% over that same time frame, while IIJA funds, as you guys are all aware, less than 50% is still unspent. And what sometimes get lost in some of the numbers that we report is, in our business, we do have and have positioned ourselves in this very healthy environment, funding environment on MSAs and IDIQs within our transportation, our water and our environment business lines.

And these IDIQs, MSAs, they're not generally part of our awarded or contracted backlog because it's call off task order work and provide a lot of support, book-to-burn support just during the quarter. At any given point in time, we have between 35,000 to 50,000 contracts ongoing across the globe. So given that backdrop, we have a lot of confidence as we look forward into the near term, not just FY '26, but going beyond that the growth drivers continue to be well in place for our Americas business.

Your next question comes from the line of Andy Kaplowitz of Citigroup.

Troy, just regarding how to think about AI's impact on AECOM, I'm just trying to understand a little more what you're saying today. So to be clear, in your opinion, does a new value model shaped by AI not lead to shrinking revenue for AECOM? And then when you look at that EBITDA to employee calculations, it's up as you said, I think, 50% over the last 5 years. Does that rate of improvement now shift up substantially. So for instance, you could gain 15% or more productivity in the year fromAI? Any thoughts on all that?

Yes, Andy, that was a pretty broad question. And let me sort of start at the top, which is I think you sort of have to step back and look at the construct, which is our clients are always expecting more value from us. And when we can provide more value they've always been willing to pay us for that -- for more value.

And so if you sort of look at the underpinnings of what we talked about in our investment of AI, it's really no -- it's no different than any of the other investments we've made in the business and -- or in technology or in delivery. And so it's just simply an extension of that. So again, what we're experiencing is, is when we have these conversations with clients, when we can demonstrate that we can provide more value to them, they're happy to ultimately reward us for providing that value and that can be in fees, but that can also be an additional work because we can help extend their funding.

And when you dig a little bit deeper on that, to think about it this way is the attributes that you are required to win in this business remain unchanged. And I want to describe that, that it starts with clients that you've built a long-standing trusted relationship with. And then secondly is you have to have great technical leadership, which we believe we have the industry's best technical leadership in what we do. And then you need domain expertise, and that's broad and deep domain expertise.

And so that remains unchanged. And then when you layer on top of that the fact that technology has always been supporting our industry's development and evolution. AI is just another step in that technology evolution that we've invested in. And so we think that, that adds to those underlying attributes and creates much better and longer-term opportunity for us. And then I will say that we are seeing across the business, some really great acceptance by our clients. And I think it was referred to by Gar in his comments about Scottish Water.

And in that, we had a client that we didn't have a long-standing deep relationship with, but we built a relationship through a process, including a bid process for the work that we're going to perform for them. But we also demonstrated that we had those underlying attributes, but more importantly, we demonstrated that we brought something new, which was the ability to use AI to transform the way they think about it and the way they design over the coming years and decades. And so again, I think we're very positive on what we've done in terms of the investment, but I think -- think about it this way, is if you create more value ultimately for your clients, you're rewarded for that.

I appreciate all the color there, Troy. Maybe just shifting gears, can you give more color how your private-facing business is doing in the U.S. I'm sure as you know, one of your large peers seem to get relatively sizable amount of, let's call it, advanced facilities work in areas such as data centers. And you mentioned your strong positioning in data centers and maybe it's offshoots. But can you remind us of AECOM's positioning, do you expect to see an inflection in this private work here over the next few quarters?

Andy, I'm going to -- I'm going to let Lara answer that question.

Yes. Thanks, Andy. We have one of the larger global data center practices in our industry. And in fact, we grew the business 50% in FY '25, and we -- we see a lot of very positive trends for this high growth to continue.

As Troy said in his earlier remarks, we have -- we're a direct beneficiary of the growth in this segment through the work that we do, serving the entire digital ecosystem and the electrical engineering and the infrastructure, but also, we're seeing growing opportunities in terms of the indirect work, the associated work. So that includes some of our advisory services, the work that we do around due diligence, and we're performing this work for all of the major hyperscalers around the world, but it also includes some of the associated water and power studies, which are obviously critical to getting these projects moving. So we remain pretty positive about our continued growth in the sector.

Your next question comes from of Adam Bubes of Goldman Sachs.

Can you update us on integration of the acquired AI technology across your workflows? Which workflows and end markets are you targeting to scale via AI in 2026? Just trying to get a sense of what milestones we should be tracking as the investments progress.

Yes. So Adam, I'll let Gar talk you through the integration.

Adam, thank you for that question. Specific to the integration question that you asked, we're 3 months into our road map and it has actually gone exceptionally well compared to our initial expectations. Integration is complete investments that we will make as we laid out beginning of the year will ramp up as we go through the year.

And as a result, there's a lot of great deal of momentum and excitement across the organization that we have because, as Troy alluded to earlier, clients are reaching out to us to better understand how we will deliver value for them through this process as it has happened in our industry for multiple decades, anytime there has been a technological inflection. It has created a higher TAM for everybody. Profitability has always gone up when things like that have happened in our industry, let it be when we went from going from paper to CAD designs to BIM modeling and like that happened about a decade ago.

And so when you break that down into what business lines are we focused on, what milestones are we focused on? I think your question is correct in terms of looking at the workflows. So specifically, our focus is on the facilities market. Because, again, as we had laid out back in November, our initial road map is focused on disciplines and asset types that our clients have already good existing commercial structures that would be advantageous to everybody.

But at the same time, as we go through and create these solutions, these workflow operating leverage efficiencies, it is impacting all of our business lines to some extent. And from a metric standpoint, I think a key metric that we have now started sharing is employee NSR and employee EBITDA profitability by headcount. These are similar to what Troy alluded to earlier in the initial response.

When we step back and look at what we have accomplished over the last 5 years, it has been making investment in differentiating ourselves in that competitive edge platform. That is investments in our clients, investments in our professionals, and it continues to drive better profitability, better NSR growth, and this will be no different than it.

Great. And then really strong bookings performance in international. Can you just expand which regions drove the acceleration in bookings? And how much you attribute that performance to project timing versus this being a clear positive inflection in the demand backdrop?

Let me sort of -- let me kind of give a little bit of background on the international markets, and then I'll have Lara answer this specific question.

And I just sort of want to take you back to the way we describe what was happening in the international markets, more than 18 months -- about 18 months ago, and that there was a substantial amount of elections going on around the world, and particularly in the international markets. And when that happens, there's always changes of agenda. There are certainly changes in governments, but even when a government remains in places a change in agenda. And so we recognize that with all that change, we needed to figure out how we were going to reposition the business, so that we took advantage of those changes in agenda.

And we've seen that over the last 18 months. Now we're seeing the agenda is being fixed. The funding come to market for what are the priorities, the infrastructure priorities for those foreign governments. And as a result of that, our repositioning, we're winning and building very significant backlog so that we can fuel the future of the business in '26 and well beyond that.

And so Lara, I'll turn it over to you.

Yes. I think as Troy just explained, one of the examples for the quarter was the Sydney Metro win in ANZ, which goes to Troy's point about we're now -- last year was characterized by the end of the sort of 10-year infrastructure cycle. Wins like that highlight that we are now seeing the uptick in the next wave of infrastructure investment.

So -- and that is particularly focused in Sydney and also in Brisbane. So the wins in the quarter really demonstrated that upturn. And the rest of the wins, to answer your question, were pretty balanced, the wins such as Scottish Water in Europe, the Middle East wins, such as the Dubai Metro -- so there was good balance in terms of those ongoing infrastructure investments. And importantly, that were beyond transport, they were balanced across other segments of our business as well.

Your next question comes from the line of Jamie Cook of Trust Securities.

Troy, not to continue on the AI topic. But just as you've been communicating with customers and given the Analyst Day that you had or customers coming back to you and looking for opportunities to sort of renegotiate projects? Or is that more so on stuff that's up and coming. And I'm wondering if that could be an incremental positive to numbers over the longer term as both you and customers understand better how to extract value on both sides?

And then my second question, Gaurav, just on the cash flow in the quarter. The cash flow in the quarter was a little weaker than I thought. And then I'm just trying to understand was there anything to that and just your confidence level in the cash flow for the year?

So Jamie, we certainly expected some questions on AI. When we're having these discussions with our clients, they really are focused around -- sort of what we bring in terms of the customer, the increase in customer value through deploying it on projects. And I wouldn't characterize this as a renegotiation. I would actually characterize this as our clients trying to seek out ways that they can employ us to actually deploy something that is more valuable.

So it's not necessarily negotiation. It's more of a discussion about how can we find ways to do more work with you and your teams because you're bringing something that is clearly a value to us. What we also are seeing is that in some of those discussions, our clients are recognizing that we might not have a contracting -- way of contracting that make sense. And so they're bringing up in the dialogue, how they would like to move to a method of contracting that recognizes that value. So moving away from something like cost plus to something that looks more like a fixed fee because it is in their interest and of course, it is in our interest to do that.

And that really just focuses around the value discussion. So I said this a little bit earlier in the call is if you bring something of value to clients, they want you -- they want to pay you for it, and they certainly want to do more of it. And that's what we're finding in our discussions with customers.

Jamie, this is Gaurav. So specific to your question on cash, cash was quite consistent with our expectations. If you look at historically, especially over the last 5 years, that's when we've really phased our cash properly. You go prior to that, we used to have negative cash flow in the first half of the year. So if you look at the last 5 years, first quarter is approximated about 10% of our outlook. And that's what this quarter was very consistent.

And I'm sorry, first quarter has been 10% and first half is approximately 30% when we look over that time frame, and that's very consistent with our expectations. So there is a ramp consistent with our historical experience and our actual delivery in the second half of the year because our first half does have some meaningful large disbursements related to compensation matters, 401(k), bonuses, a lot of large vendor software payments that we go through in the first half of the year as well, but that's normal for us.

Your next question comes from the line of Sangita Jain of KeyBanc Capital Markets.

So maybe sure, now that you've decided to keep the construction management business, do you have any plans of running it maybe differently? I know it's just 8% of the NSR today, but do you think it can grow more as you synergize this with your design business more?

So the answer is yes, we're going to look to actually, run it differently. And when I say run it differently. We're going to look to get an even closer alignment and find the opportunities we think are in front of us to collaborate across the rest of our business. If you think about our program management offering and the construction management offering, those two being more close to the line creates a very significant opportunity.

And ultimately, they provide value to customers that is much greater than just a traditional program management offering. So we view that as actually a competitive advantage, which we think is more valuable for customers. And so -- there are some other things, but I'll point that out is what we're thinking about is how we bring it together and we actually operate differently and drive more value for customers.

Great. And then maybe following up on the design backlog for fiscal 1Q. You guys highlighted the federal shutdown, but can you talk a little bit more about what you're seeing in the state and local level because that is kind of a much bigger portion of your NSR?

I'll take that question. Yes, the shutdown impacted, as we said, our fourth quarter because that's when we would normally see high level of awards. And then any time there is shutdown events, usually the following quarter, you kind of see that come back up. It's always a timing issue. And what we saw this time around was because there was noise about it shut down again in February, that timely pickup that we were expecting really didn't come through. So there was some impact related to it.

And we now expect now that there's been a resolution. Second, third quarter, we should see that pickup we're expecting in the Federal award activity to come through. Now what we are seeing on the federal side, and then I'll answer your question on the state and municipal side as well is, we expect in the spring, based on all the information we have and discussions we're having with the parties is there's probably going to be a new bill, federal bill in this spring that is in discussion for national highways. And that's going to continue to provide positive momentum for our transportation business and ancillary business lines that provide services like environment.

When we look at our state and our municipal budgets, they're quite healthy, especially when you look at the larger markets in California, Florida, and Texas, the tax projections -- state tax projections for FY '25 collections are better than what they had expected 6 months ago, 12 months ago for a variety of reasons. And we're seeing that level of funding that confidence continue through the various state departments and municipal organizations and departments as well.

Your next question comes from the line of Michael Dudas of Vertical Research.

Troy, as you've indicated, we've talked about the strong book-to-bill and the pipelines and such. Maybe in this quarter or the last few quarters, maybe -- how has the mix been relative your historical business of design with some project management and burgeoning advisory to a more balanced? Are we seeing tangible evidence of that?

And then back to your comments on contract pricing, is there any significant in your incoming orders of fixed fee versus cost plus versus timing of materials? Any meaningful change there? Is there any meaningful change we can expect maybe in the next few quarters as the book-to-bill stay, we're hopefully relatively strong.

So I'm going to answer the second question first, which is, at the moment, we haven't seen any material changes in terms of the pricing or the discussion with our customers. Again, I think it's -- when you're talking about long, large programs, it's a little premature to be thinking about how that might change.

But again, as I said, what we have been noticing is that what we're bringing to customers is being very well received and being received as being more value in that equation. And so ultimately, what it does is it's going to help our positioning, help our win rates. And then over time, as we improve our delivery through the use of technology, we will ultimately improve our margins regardless of a change in the profile of our actual contract makeup.

And your first question?

Design project management advisory, the mix of those services and some of the newer bookings and going forward.

Yes. So we are very intentionally trying to drive a transition so that we have a broader base of business between advisory program management design, all rooted in the underlying knowledge and expertise we have in our people around our design work. And so that transition is taking place.

We are actually seeing our program management business continue to grow at a slightly faster rate than our design business. And our advisory business, well in its second year infancy is also growing at a higher rate. So we are slowly seeing that shift in mix over time with a long-term objective of getting to where advisory and program management represent about 50% of our business.

Your next question comes from the line of Judah Aronovitz of UBS.

I wanted to ask about international. Given some of the improving trends you talked about in Australia and the Middle East, should we expect a continued trend of book-to-bill greater than one? And then in terms of the margins embedded in those bookings, I'm just curious if we should expect the margin step-up in international from some of these bookings? Or should we expect kind of a similar margin profile?

Judah, this is Gaurav. I'll take that question. So in regards to international, it's a very good question. If you look at over the last 6 months, we've delivered a very strong book-to-burn. And one would think, with that strong book-to-burn, valid question is, how does the pipeline look? Well, the great news is our pipeline is still up. And not only is it up it's up double-digit percentage, again, on the early stage.

So overall, the pipeline is up. Early-stage pipeline is up. It all bodes well for what Lara had explained earlier that we are seeing early signs of a good inflection point coming in our Australia and our Middle East business. Now at the same time, just to make sure we're consistent in the information we're sharing with you guys, we are expecting headwind from working days in Q4. So we expect the second half will be inflection point for international, and you just have to look out for that adjustment on the Q4 workdays.

When we look at from a margin profile, we've always said we manage the business from an enterprise standpoint. And what we have signed up for in the current year is gross margin expansion of somewhere around 90 to 100 bps at the enterprise level. Once you net the investments we're making on technology in the current year, expect 30 bps of margin expansion. And our expectation is both Americas and International will continue to deliver good strong margin expansion net of those technology investments that we have laid out beginning of the year because that's just the culture of continuous improvement that has percolated throughout the organization. We always try to deliver better than what we have signed up for.

Okay. And then where do you think we are in the bigger picture of Americas? Is there any acceleration potential here? Or should we just expect a steady growth?

Sorry, Judah, is that a question specific to margins or just organic top line organic growth?

Top line organic growth.

Yes. We're seeing -- as I mentioned before, we're seeing very good trends in our Americas business especially when you look at our backlog, it's up 3% year-over-year. Our pipeline is up 20% overall. Early-stage pipeline is up 34% IIJA funding including the matching that state governments are doing on the transportation projects to take advantage of the funds that are available at the federal level from IIJA, all these pretend really strong to drive growth. And as we've laid out, it gives us a lot of confidence that we're going to be delivering growth consistent with what we signed up for, which is on constant currency, organic delivering 6% to 8% in the current year.

Your next question comes from the line of Nandita Nayar of Bank of America.

So I was just hoping if you could -- so I was just hoping if you guys could just provide a bit more color around the 1.5x book-to-bill in the quarter, particularly the 2.3x in international. You mentioned some impressive wins there earlier in the call. But just high level, if you could break it down, how much would you say that was like the overall market? And how much would you say was secured by kind of leveraging your AI capabilities?

Yes, Nandita, this is Gaurav. I'll take that question for you. So yes, we delivered very strong backlog growth on back of what we delivered in Q4, which was also exceptionally strong in our international business.

And as Lara pointed out, Outside of our Asia business, every other region, UK&I, Australia, New Zealand and Middle East, all drove to that very healthy exceptional backlog growth and book-to-burn that you see. And the drivers of it are many, many drivers to it. Our clients, as Troy mentioned out, they were dealing with a lot of geopolitical questions. Over 60-plus election cycles that our clients were going through. So they were looking for some level of stability, which occurred.

And you always have to take a step back, and this is going to also delve into your second part of your question as to how much is technology AI driving the outcomes of this. We operate in an industry where the demand for our services far outstrip the funding that exists, right? There's -- if you look at the stats that I've shared previously, approximately 30% to 40% of the world's population lives in metropolitan cities over the next 3 decades. Estimates are, it's going to double in size where the infrastructure that we currently have in these cities need significant upgrade replacement and new construction. So once you start laying it out, it kind of build support to what we see on the ground and what our clients are telling us.

Then when you piggyback our technical expertise, our resume of delivering world-class solutions to our clients with the domain expertise, our clients are always asking us, and they're reaching out to our teams as we've laid out our technology road map, okay? How will you drive a better return on their CapEx on their investments? How will we deliver assets on a concrete firm deadline for them? How will we reduce delivery risk for them?

So when you combine all these things into a solution for the client, clients are willing to discuss how to drive symmetry in commercial terms. So all parties drive value from it. And again, I'll revert back to a great example, which is part of this exceptional book-to-burn we've delivered in our international business. It's for the Scottish Water win. This is a client that we had practically no exposure for.

In fact, as we were positioning ourselves for the RFP response, there was already an incumbent. And by the way, this is the largest contract this client has led out in their history. It's a decade-long program that only two contractors were selected for to deliver. And every single competitor of ours was pursuing this contract. Everybody brought their best game to the table.

And during that process, the client asked us, they're willing to sign an NDA to understand what we have developed and what we will be developing over the next quarter, the next few years. And clearly, we were one of the two, including the incumbent that were successful in securing this 9-figure contract over a 10-year period. And this will -- this is a very early proof point, but a clear proof point that clients are looking for that complete solution for the value, for the age-old problems that they've always had. So it gives us a lot of confidence as we continue to make these investments and arm our teams with better solutions in the marketplace to create value for their clients.

Got it. That's super helpful. And also, we've been hearing a slight change in the tone like regarding the reauthorization bill with some conversations around CR potentially entering the discussion. Just curious like what's the latest you guys have been hearing on the ground? And what would you say could be like the best case, worst-case scenario here? I'll pass it over.

Okay. I think the answer is that we now have, at least in terms of the federal government, we now have, for the most part, all of the funding put in place through the end of the year. And what we do here is that there are some key long-term authorizations that need to be put in place as you move into '26.

And those discussions are positive, and they're moving forward. Beyond that, of course, it's virtually impossible to predict the U.S. federal government legislative agenda. But in terms of the tone, I agree with what you described, it's certainly a positive tone in Washington.

With no further questions, that concludes our Q&A session. I will now pass the call over to Troy for closing remarks.

Yes. Thank you, operator. And let me just conclude with two things. First of all, thank you, everyone, for joining us today and appreciate the questions and the dialogue. And second and very importantly, I want to thank all of our professionals and our AECOM folks around the world that have done such an outstanding job this quarter and continue to do an outstanding job delivering value for their clients. It proves it shows up in our results. Thank you very much.

This concludes today's conference call. You may now disconnect.

So with me today, again, I'm Troy Rudd, the CEO of AECOM. And I have Lara Poloni, our President, and Gaurav Kapoor, our Chief Financial and Operating Officer. And so we have a lot to cover today. I'm sure before you arrived, you had the opportunity to spend a little bit of time with some of the announcements that we put out. And we have a lot of ground that we want to cover with you, and we think some really important ground. And so we're going to try and move through a little bit of the material at pace, spend some time where we think we need to, to make sure that we have ample time for Q&A.

So it's been 2 years since we were together at our last Investor Day here in New York. And we've been doing a lot of work to try and continue to build an industry leader. And we've been driven by on a really important paradigm. And that paradigm has been a paradigm of continuous improvement. We've been doing that for 6 years. We've been trying to do that constantly for the last 2 years to drive results for the organization and to make AECOM an infrastructure leader. That's what's driving our conversation today, the continued relentless pursuit of continuous improvement.

So we'll talk a little bit about how we're different than others in our industry. We've sort of gone down a different path over the last 6 years and certainly over the last 2 years, where others in the industry have continued down the path of M&A and growing the organizations through M&A. And we've taken a very different path and a very different approach. And I hope you understand for good reason as we go through the rest of the conversation.

I'm also really excited to talk about what we think is a generational opportunity in our industry. So before I do that, I did want to make just a few comments about what you would have seen in our press release this morning -- or our press releases this morning. First of all is we're very proud of the fact that we had a very strong fourth quarter. and a very strong fiscal '25. That was, I think, evidenced by the fact that we raised our guidance 3x during the year and we beat that. We also delivered more than $0.5 billion in capital to our shareholders through dividends and through stock repurchases. And we built a record backlog to carry us into fiscal '26.

The other thing in our announcement is we announced that we're undertaking a strategic process to evaluate the alternatives for our construction management business. Now we're not exiting the construction management business because it isn't a good business. We have just made the decision that we need to make sure that we're allocating the time of our executive team and our management team and the capital of the organization to the highest returning opportunities. And the highest returning opportunities we see in what has been our design and consulting business, and in building an advisory business and making sure that we actually execute on our plan on how we transform the business through artificial intelligence. And so that's where we're going to spend our time and our capital and we've reached that point in time where we think there's a better place, a better home eventually for our construction management team.

And it's a fantastic business. It's ranked #2 or #3 in the industries that it plays in here in the United States and has done a great job building up a very diverse portfolio of backlog. And 1 of the things that has come through in a few conversations this morning that I'll make sure we highlight is misnomer, the Construction Management business is a low-margin business. We've been saying this for years, is that all of our businesses have margins that are all around the same level of margin. And so construction management is a margin that has margins consistent with our Americas business. And so again, we think it's a fantastic business, and we'll go through this process and over the next 12 months. We'll see what happens.

Also, we initiated our guidance for '26, and you'll see our EBITDA and our EPS, we're expecting for the entire business to grow at 9% or 7% and 9%.

And then lastly, we've raised our long-term guidance and in particular, our long-term margin guidance to achieving a margin of over 20%. And within that, there's a really important message. And the important message is that we are changing the paradigm of operating leverage in our industry. And I'll give you some more details as we talk through the rest of the presentation. So a few key messages I'd like you to walk away with today. We're going to go through this discussion.

But again, I'd just remind you, this is what I'd like you to walk away with. First of all, is that over the last 6 years, we've always done what we said we're going to do. And so we've consistently announced targets, and we think are sometimes aggressive targets for growth and for margins and performance of the business. And we've consistently achieved those over the last 6 years. And so we stand here today to talk about what we're going to do. And we're not talking about the context of this is what we hope to do some point in the future. We're going to talk about this in the context is that we're already doing it. And we're now willing to talk about it with you. Secondly is for the last 2 years, we have been quietly investing in building an AI capability. And we've been doing that quietly through our own margins.

Next is, as you'll hear, we have a great foundation, right, of technical expertise, upon which we've expanded our influence. And what that means is we've built the program management business off the capabilities in our design business. And we started building an advisory business, and we'll talk more about our expectations as we continue to build that advisory business.

And the last point is, again, I said we're going to flip the operating leverage paradigm for industry on its head. So in our business, operating leverage has typically been determined by the fact that you have 15%, approximately 15% fixed costs. So think about these things like real estate or IT. And as you grow your business, that remains the same. So as you grow your business, it creates operating leverage or improved margins. Well, that also means then in order to grow your business, you have to add people. We've always said that we have to add professionals to the organization to ability to grow. And the cost that you add to the organization for every dollar revenue is about right, $0.75 of actually cost of people to deliver that work.

Well, how we're flipping that paradigm on its head is through the use of AI. We do not have to add head count to grow. That means that the operating leverage that we have in our business isn't 15% of our cost structure. It's 80% of our cost structure. And we think that's extraordinary. The fact is we'll be able to continue to grow the business without having to add head count and 1 of the largest constraints for growing businesses in the past, and this has been the rate at which new engineers or architects or designers or program managers can enter the industry and be trained to be successful. That has always been a limiting factor. We believe that's no longer going to be a limiting factor in the industry and for us.

So I'm going to go through a few things that I think are important, just again, to continue to lay the foundation of the vision for the company and the strategy in our place in the marketplace. So again, we are on very solid. We have an extraordinary group of engineers and scientists and architects. And frankly, we think about this as a large competitive advantage. There are only a few players in the industry that have the size and the scale and the experience and the depth to compete with us. So it's already a narrow playing field where there is a competitive advantage that already exists. And we've continued to build upon that, right? We've continued to strengthen that organization. and move to a place where we're #1 or recognized is #1. So we moved this year to be #1 in engineering and design, the overall design firm. And we still maintained our position to be #1 in transportation, water environment and facilities or what we call buildings and places. So we have a fantastic platform as an industry leader. And then that's enabled us to actually win an extraordinarily high rate. And this has had a profound impact on our margins as well. We work with our clients, our largest clients, and they trust us with their largest and most complex and iconic and important projects and programs. And when we bid on those competitively, the last 3 years, we've been winning those at an 80% rate, or said differently, when our customers say there's something incredibly important right? We're winning at 4 out of 5x. And again, so we have an extraordinarily powerful platform upon which we're building.

We also have, again, a set a track record of delivering on our performance. I don't think I'm going to spend a lot of time on this. Our history, so to speak for itself. But you can see the track greater performance. And as we stand here today, rely on that track record of performance as we move forward. We've built an incredibly strong management team that's very broad and very diverse and works together and collaborate globally to drive everything we do across the organization. We built a culture in the organization where our people also focus on bringing the best of their best experiences across the organization to the individual clients. And we've referred to it as our thinking at globally strategy, and it's been incredibly powerful. And it's the track, it's what's allowed us to build this track record of performance.

So this is our vision, and this remains unchanged. This has been our vision for the last 4 years is we want to extend our influence with our customers. So again, as I said, we have this extraordinarily great and experienced team globally that does design this engineering, does science work, this environmental design work. And so you take all of that together and you have this incredibly powerful platform. And we said, well, with those incredibly power platform and experiences, how do we expand our influence in our individual clients. We first started with program management. We said, if we look at extending that incredible body of knowledge and experience, adding some people to our team that do program management work.

So coupling that with our team, we can expand or extend our influence within our clients or our customer base. And so we started that 4 years ago. We added members to our team based on the extraordinary experience that we have in infrastructure, and we've grown a business, and we've grown a business from a few hundred million dollars in 4 years to being over a $1.3 billion business. And again, with an incredibly healthy and consistent margins.

So the next step in that journey for us was to build an advisory business. And Lara will spend a lot more time talking about it. But the advisory business is a little bit different than what you think about from other advisers and consultants. So when you think about folks like Bain or BCG or McKinsey, they come to the table with a very strong consulting offering. But what they don't come to the table with is an incredibly strong experience in infrastructure, right, and in science. And so recognizing that difference, we then are going to add more members to our team, and we started to do that over the last year to build an advisory business. And what does that mean why say extending our influence. So no longer just relying on design. But effectively through advisory, being there on day 1 to help our customers create their own vision or develop their strategy. Staying there throughout the process through design and program management and actually delivering the outcomes within infrastructure to execute on their own individual visions and strategy.

So think about this in a slightly different way. I was going to say, extending our influence, Think about that as addressing or improving or increasing our addressable market spend. And so in the past, go back to 2020, when we focused on engineering and design, we were being exposed to about 15% of our customers' addressable spend. Today, by expanding that into advisory and program management within that same client, by extending our influence, we're now exposed to 35% of our clients' addressable spend. So effectively, what that means for us is we have more bets with the same clients. So it's a way for us to actually increase our market presence and drive organic growth in a way that you don't typically think about it.

So when we talk about our vision, again, to extend ourselves in advisory program management and our underlying design and engineering. What we're really trying to say is we're increasing our addressable spend with our existing clients. And again, I won't spend a lot of time on this, but I think this is worthwhile to point out that in the long run, we play in incredibly healthy markets. There is no question that over the next few decades, there needs to be a significant continued investment in traditional infrastructure, whether it's water infrastructure or transportation infrastructure or social infrastructure. So there's no question that we play in great markets. In addition to that, there's a focus on improving the sustainability and resilience of infrastructure. And even that definition is expanding.

So in the past, we had not thought about defense as improving the sustainability and resilience of communities and of infrastructure. And it's become even more important, it's even more important and even clear now. that investment in defense is actually improving the resilience of communities and countries. And so if you sort of look forward, there's an even larger opportunity for us as that continues to grow, and there will be for decades to come. And then there's an insatiable need for energy, in particular, electricity as there's an investment -- I mean, an amazing investment is going to take place in AI and data centers and all the power and water, you need to power that to make that a reality. And so as we look at these markets, we have -- we've built an organization that's going to play in markets where in the long run, our opportunities are going to be to grow greater than the GDP of a typical economy. And then we add to that, we're increasing our addressable market spend. We add to that we've created and are going to continue to create a competitive advantage. And all 3 of those things give us confidence that long run, we will continue to grow organically at a much faster pace in economies in GDP. And so that gives us confidence about the growth in the organization.

So now let me talk about something that we spend a lot of time thinking about for the past 18 months. I will say that 18 months ago, we questioned whether AI was an existential risk for our industry. We were genuinely concerned that maybe 1 of our peers or a new entrant into the market or maybe 1 of our existing industry software providers, which is a technology that we've used for 25 years to do design. We have legitimate concern that could AI find a way to effectively put us out of business. We had a very genuine concern. And so we started -- we embarked upon a project. And this is what I said 18 months ago, we did this -- we've been doing this work, and we've been very, very concerned about it. Over the course of the last 18 months, and this takes time to do.

We've gone out and said, well, to start this journey, we actually need to find some leaders in the organization who have an understanding of AI and an understanding of our industry. So we can start to understand what is possible and find out, is there someone or is their way there someone could actually put us out of business. And so we started to add people to the organization. We hired people into the organization. We started to build it that team. so we can sort of gain that understanding. The next thing we did is we said, well, across our organization, let's take people within the business, and let's effectively retrain them, but let's go out with partners and let's experiment, right? Let's go out with technology firms. Let's actually go out and do some real experimentation. Can we actually create artificial intelligence models that we can use in engineering. Think about this simply is today, there are large language models, which I'm sure everyone in this room uses, but other math models. And so that's where we went to experiment in the world of math models and older stand how large language models can actually influence the business as well.

So we started to experiment and we started to see what was possible. We continue to build that team. We then went out and we found new entrants into the marketplace, and we started to partner with them, say, understand what they were doing, be a partner and see where they actually building a team and a capability that we should really be concerned about. Were they, in fact, going to put us out of business. So we grew through all of those experiences, we built a team. We started to experiment, we experienced with people outside the organization.

And then at a certain point in time, we actually made an acquisition. We found an organization that had built math models, and they were going to profoundly change the industry. And they were going to put us out of business. And they were very bold about that. So they were unique and now they're part of AECOM.

So again, we spent the last 18 months building a team, hiring, training, and acquiring. And so now we have a unique team.

The next thing we did is we said, well, we actually have to start to build malls, Think about this as building tools, building tools, building models or even think about this as building new teammates, right? Actually building new teammates, the way we thought about this is we have our people that do engineering and design. Well, they can have a teammate and that teammate can be what's referred to as an AI agent, right? So we we've now built this out. And we've gone through the process of actually testing this with our clients and delivering projects and also understanding when you make a comparison, right? The way we deliver a project and the outcomes we've delivered for our customers, are they different and they are dramatically different. And I'll give you some more detail and explain that. And so we've now gotten to a place where we've been investing for 18 months, we've been doing this quietly through our margins. And we've built a team that we know that doesn't exist anywhere else in our industry, and it doesn't exist at other new entrants and certainly doesn't exist that our traditional software vendors that we've relied upon. And so we view this as a generational opportunity. And through that, again, we can flip the operating leverage paradigm.

So let me give a little more detail, right? I said that we were worried someone is going to put us out of business. I think foundationally to answer this question is what should you be concerned and how could this happen? Let's look at what clients ask us to deliver for them. And what they hires to do is they hire us to deliver incredibly complex outcomes, whether that's an incredibly complex design or whether that's an incredibly complex infrastructure outcome. That's what they hire us to deliver. And that's not changing. It's what the clients are going to expect us to continue to deliver that. So to deliver that, you have to have a really experienced team, right? We're still going to need the team of globally experienced engineers and designers and architects to all be able to come together and give our clients confidence that we can deliver those outcomes for them. And they also have to be able to certify those results and then be able to stand in front of regulators and say, be comfortable with this outcome. So that doesn't change.

The next thing is you have to have a trusted client relationship. A client does not trust you with billions of dollars of infrastructure investment or even a design that takes tens of millions of dollars to deliver, right? They don't do that unless you have a trusted relationship. So you have to have the team and you have to have a trusted relationship with your clients.

Next is you have to have a balance sheet. You have to be able to stand behind those designs and you have to be able to do something as simple as procured an insurance program to support that client's project.

And then the last thing is you use technology. And so the technology that we have used has been the same for the last 25 years. It's been software and it's been evolving slowly. And so we see that as the place to insert ourselves is by building a team of AI professionals, right? And we're talking about PhDs, machine learning PhDs, data scientists, PhDs. We're talking about a group of people that have unique ability and skill that we have now tested and more importantly, got them to work with our engineers to be able to build the tools or the teammates to transform how engineering is delivered, right? We now step back and say, "Well, you have to have all of those 4 things to be successful. We're the only 1 that has that team. And we're the only 1 that has a tested team and we're the only 1 that we are or that can deliver this. And then you step back and say, "Well, should you be worried about new entrants? Not really because they might be able to develop technology, but they don't have the engineering teams where you have the confidence the result will get delivered. They don't have the trusted relationships and they don't have a balance sheet. So new entrants, you become unconcerned about. When you look at our software traditional software companies, yes, they can provide tools, but they don't have those other conditions as well. Yes, they have a balance sheet, but they don't have a team, they don't have that trusted relationship with clients. And then you look at our peers and appears of all those conditions, but they're using old tech and old tech will deliver a very different answer.

So I actually think we view this as an existential risk 18 months ago. Today, we view this as an existential opportunity and maybe we should be considered the disruptor.

So I talked about this in terms of a generational opportunity. To think about changing the outcomes that we deliver for clients and the outcomes that we change at AECOM and how we deliver. So in terms of what we've learned in delivering client outcomes, we have learned they're using AI with our teams that we can deliver things at an incredibly fast pace. So in the design process, what might take months, AI can do almost instantaneously.

Now what we would deliver would not be instantaneous because you still have to have your team be part of the process. So you have the ability to certify and give the confidence to your customers that you're going to deliver something that's different. But now you're taking some of the months and maybe you're shortening that design time frame to weeks. And for a customer, what that means is, that means it's an asset that can be put in place at a much faster pace. It also means that the really important decisions that you need to make, and those decisions are typically around the cost of the design or the cost of the infrastructure you're designing. You make those decisions much earlier in the process. So think about it as the opportunity to value engineering to get to your customers' budget much earlier in the process. We can now accelerate that. That's incredibly valuable for customers, right?

The next thing is there's -- a lot of times, there's redesign and there's rework as you go through the process. Because we're relying on AI and the pace at which it can work, we can do rework, and we can do redesign or we can adjust the models at a much faster pace than we could have in the past. Again, more acceleration in the process for a customer, which is incredibly valuable. The last thing it does is, it gives us the ability to materially reduce cost. And so as we've gone through the design process, we have found that we're able to take 10% to 20% of the materials and thus potentially the cost out of a design. That's the client outcome. That's an incredibly different value proposition that using AI deliveries to customers.

And then for us, it profoundly changed the ways that our team will work. So you think about this, as I said, we've shortened months, right, into a very short time of weeks. So it does 2 things. One is, obviously, it allows us to deliver that work with far less participants. And that's what I said is that changes the operating model, our operating leverage model in the business. Now we can grow without having to add people. The other thing it does for people and makes us more attractive to the place to be is it gives us the ability to accelerate their careers of our professionals.

So in the past, right, come up through the organization and you'd spend years, learning how to design and doing the same thing over and over and over. And so we've said in the past, well, it takes a long time, maybe a decade for similar to design that particular kind of infrastructure. Well, now because we're able to take those professionals and give them those profound experiences in a much shorter period of time, we can accelerate their careers and their career growth. We can turn, right, a 10-year season design professional, right? We can create it in a much shorter period of time. And so that's profound for us. It gives us the ability to go and attract people to have a profoundly better and different career, spend more time, being more innovative or come in with ideas for their customers. That's fantastic. And the other thing it does is, again, it changes the operating paradigm.

So as you can appreciate, I'm going to talk a little bit about how we're thinking about this and why this works. But again, for obvious reasons, we don't want to create a road map for what I'll say, our peers are perhaps used to be our peers. We don't want to create that road map. So I'm going to be a little cautious in how I talk about this. But as I said, starting with we've created a team that can work with the engineers or the designers or the architects in our business because they understand how to design and they take the technology and merge it together. So you create math models that can support or do the design.

Now we've had success building it out in segments and deployed it on projects and testing it for over a year. Now we have the confidence that we can extend this across our entire portfolio of engineering design. And so we have a road map over the next 18 months where these teams and we're building those teams, again, at a fast pace, so we can accelerate this process. But over the next 18 months, we're going to actually do this across our entire portfolio of engineering and design and transform the way we do work and bring those client outcomes, I mean those outcomes for our organization across the entire spectrum of what we do.

Now I give a little bit of insight as sort of how do you actually create AI that compares results. Well, first of all, again, you have to have the right team of people that can come together to do it. Two very diverse skill sets. They come together, and we know that they work together, and they can actually build these , again, I call them teammates or they can build these models that we can deploy. So think about taking a design and delivering a design with 20 -- 10% or 20% less materials. So why is that? Two fundamental reasons. One is the engineering and design process today is fraught with human bias. And so the way the process goes is the client gives you a specification and then you start to design it. And as you design it, you take a conservative approach. And so think about that through that conservative approach, you know it needs to sort of withstand a lot of scrutiny in the process, regulatory scrutiny, client scrutiny. And so you might design it to be a little better than maybe it needs to be. And then you take something that has all of these various designers and with various disciplines coming together, right, mechanical, civil electrical, they come together and they all just make it a little bit better than it needs to be. AI doesn't do that. It gives you the answer, right? It gives you the -- this is exactly the right answer is exactly what you need to design to.

The other thing in that process is optimization. A lot of times, you'll do a design, we'll price it out, and we'll find out, it's too expensive. So we go through a process called value engineering. Value engineering means that you have the team come together and say, what can we do to make this more effective? How can we take some costs out of this design. And so they try and optimize the design. And so it's, again, human beings under a lot of time pressure because at that point in time, you've got your customers saying, "I need the new design. I can't wait. And so you come together, and I'll call the optimization is being incremental. Well, imagine that AI, as I said, can work and do this math, the math malls can do this instantaneously. So if you start upfront in the process and you've trained AI so that it takes the human bio side of the equation, and you've trained it so that it can optimize to the absolute best answer upfront. That's how you end up with your designs having 10% to 20% less material and therefore, cost. And so the way that you go about doing that again, as you take these teams and do that, you also have to have a knowledge of design I'll call it -- you have to have knowledge of first principles that you use for design.

Then you have to have an understanding of how do you actually go through the process? What are the steps for example, designing a bridge. You have to have that knowledge. Then the next thing is you have to have some data that you can use, but not too much data. And the really important powerful part of this is then you create synthetic data upon which you train a model. And so it's a combination of those things. It's a combination of the 2 teams coming together, having the experience of design with the right AI capability, ability to build math models. And then you bring that together with a little bit of the data and you bring it together and you create synthetic data to train models and then you get the output. And so where we are today is we've been able to work through those things and have confidence that we're now going to be able to build this across the entire spectrum of what we do every day. And again, that will transform the outcomes for our clients, and they will transform our operating and our leverage model.

So as I said, this didn't come together overnight. This actually goes back years on our journey. As we were -- we did in this is constant pursuit of innovation and improvement. And we built the team, we built a culture that does this. And then we said -- again, as I said, 18 months ago, we started on kind of the digital journey 4 years ago. and we very quickly realized that the digital journey was old news, right? As I said, we recognize that there might be an existential risk with AI. And so we started. 2 years ago, experimented that 18 months ago, we really started this as our new journey. And so this is what's taken us to get here. And the reason I bring this up is because this isn't something that you can do overnight. You can just flip a switch and say, "I'm going to do AI tomorrow. You can't. If someone wants to do what we do in our industry, they have to follow this journey that has taken us 18 months to get here. This isn't something that you can catch up quickly.

And then the other big question we've had for, I'll say, maybe the last year or 18 months is, boy, you have industry-leading margins, and you set a target of 17%, and you just achieved them. I guess there's really no margin upside in your business. And we've quietly been saying, "No, there is upside in our business. We just haven't been ready to talk about it yet. And now we are. and the upside in our business, hopefully becomes self evidence in the way we're actually going to change the delivery of what we do. And so that upside now as we see our margins going beyond the 20%, and they're going to be enabled by this team, and by the AI and the way we're deploying it across the business. So you've heard a lot from me, I just thought it might be helpful for you to hear from some of the other leaders in our business to get their opinion, and hear from some of our AI leaders, just so you get a sense of how we feel about it as an organization.

So if you're on the video, please.

[Presentation]

But we'll move through the materials, and we'll get to that in a few more minutes. I just want to conclude with this. Transforming our industry and transform our business obviously has pretty broad and important financial applications. And so this is the way we think about the business in terms of our enhanced or changed financial performance. We don't see a change in the organic growth opportunity in the business. I've sort of laid out why we think that's the case. And what we haven't built into this is we haven't built into what might be a competitive advantage that gives us an even bigger opportunity for organic growth.

We also see our margins, again, growing beyond 20%. That's a fairly compelling and significant outcome. And all of that means that we expect an EPS CAGR of over 15% and this is how we're planning on getting there.

The other thing I'll point out is it doesn't change the underlying cash flow profile of the business. And so we expect to deliver -- convert earnings to cash at 100% in the long run, which means, again, that we will have ample capital to continue how our capital allocation opportunity and to enhance that 15% EPS CAGR.

And so all of this comes together sort of in financial terms, and this is the summary of what we see in our future.

I will now turn this over to Lara.

Thank you, Troy, and good morning, everyone. So we're 1 year into the creation of our next billion-dollar platform, our higher-margin platform being our advisory business. And now more than ever, we see a tremendous opportunity for this to be a key contributor to our competitive advantage. All differentiated by our tremendous technical capability. That is the key differentiator for us and our particular advisory offering. We've seen over the last few years, the management consultants try to encourage upon this infrastructure space. Everyone is excited about urbanization, infrastructure. So there has been a big move by the management consultants and the Big 4 into our space. However, they don't have the technical substance. The reason why we are #1 -- the #1 design firm, #1 across all of our key end markets is because we have the industry's best technical professionals. And our clients now more than ever need this technical expertise as they plan their next strategic plans, which projects to bring to market. So whilst the management consultants can come with incredible cache and brand, they don't show up with the technical substance. And the in-depth knowledge of our clients' portfolios and their assets like we do, and we have the long-standing relationships. We've built that client relationship mode and our advisory offering is -- will enable us to further consolidate that relationship that we have. So we typically see the management consultants show up to many of our similar clients with a different model. It's for management consultants and 1 technical expert. And often that technical expert comes is a subject matter expert from outside. Sometimes it's from a firm like AECOM, if they need real engineering and design know-how. We're flipping that model on its head. So we show up our advisory team show up with 4 technical experts who are well known over many years to our clients, they know us for that tremendous technical capability and knowledge and we also bring along 1 management consultant. We didn't grow that capability overnight, but we now 1 year in, have a team that is that complement the 4 technical experts and the management consultant. So we're really disrupting the advisory industry. And we think that there is a tremendous white space that we have moved into, which is unique to us because of that technical differentiation. So people are really noticing.

As I mentioned, 1 of the key things is because of the long-standing client relationships that we have, we can automatically open the doors at the C-suite of many of our client organizations and give them depth in the advice that we give them in terms of whatever challenges or opportunities they have.

One thing I want to be very clear on, we have not just packaged up a different team amongst our 50,000 professionals globally. This is a different team and with a different commercial aspiration. So we've taken the time within AECOM to be very clear that we have a higher margin expectation, higher rates and what we're excited about is this is an entirely different commercial proposition with our clients. It's about value-based pricing. And the same applies to the game-changing plan that we have around AI as well. It enables us to have a different -- very different commercial conversation than what our peers have and to co-create that with our clients. And to talk about what are the key success factors and how we're going to be incentivized and share in that and really craft that model.

So we really have moved to another paradigm of advice to our clients. When we joined that up with our program management capability that we've been building for the last few years, we extend our involvement across the project life cycle, and we -- it's positioned AECOM to a very different paradigm compared to our traditional peers.

So advisory is a key component of the 3 pillars of the long-term growth algorithm. And I'll just explain how we sort of break that down and make that contribution. Number one, we see tremendous opportunity to really grow our market share and extend our influence. As I said, we're moving to a different group that is occupied by the management consultants. And that and we have tremendous confidence in the -- those long-term secular trends. Infrastructure, urbanization, they are long-term trends and we have deep knowledge of those trends and we are well poised now to be able with our advisory capability to help our clients conceive, what is the best business case for their projects? How do they rapidly bring projects to market? You all know there is a lot of pent-up demand in the infrastructure world, because of the budgetary challenges, the geopolitical shocks that have happened, particularly over the last 12 months. So who better than AECOM to help our clients execute on that and bring those projects to market in the infrastructure world.

The same applies to the energy transition. The same applies to the world of resilience and sustainability, where we have market-leading credentials through the work that we've undertaken over the last couple of decades, particularly with our environmental services firm and the new advisory consultants that we've brought in.

There are other market share gains that we absolutely believe that we can take. There's market share to be taken at the municipal level. Many clients, for example, our traditional water clients have revenue leakage. They have a real need for advisory services to come and help them plan out what's next with respect to their portfolio of assets. And then there is a very exciting white space that our advisory team has already made a great impact in. And that is the world of private capital and infrastructure funds and financing. You all know that there is. There are trillions literally of dollars out there. Infrastructure is a very attractive place for sovereign wealth funds for pension funds or superannuation funds and investment firms to park their money. They see the long-term value in infrastructure. And we're excited about many of the conversations that our advisory team are having at the moment with many of the new clients in that space who really want rapid, timely advice and they want ideas about project creation. So it means that we can break free from the traditional transactionary environment than many of our peers. I mean, we'll still be a participant in that. But this is a very exciting white space for us to move into in terms of project creation, market-led proposals and unsolicited proposals as well. So that is the third element of that long-term growth algorithm that represents a new space for us.

Our clients need that support now more than ever, and our influence in the way that we grow this advisory business is going to be at global scale. Obviously, there's a key opportunity here in the U.S. but around the world, we look at the rebound that we're expecting in infrastructure over the next decade. U.K., for example, has a 10-year infrastructure blueprint, $725 billion of water, transportation, energy infrastructure. They're going -- those clients are going to need our help about how to rationalize and prioritize which projects and what is the technical advice that they need to bring those projects to market. And here in the U.S., we're only 41% spent in terms of IIJA. As I said, there's -- we know that there's significant opportunity at all levels of government to help bring these projects to market with those advisory capabilities.

So our advisory capability in a nutshell is really helping our clients to prioritize projects, how to navigate this new and ever-changing funding environment also. And as Troy explained, when coupled with our AI capability, it's going to give tremendous confidence to our clients who have many great ideas about projects but want a heightened level of technical understanding and confidence around what it's going to take to deliver in a timely and cost-efficient manner. Critical to our success so far and indeed, going forward has been the ability to attract the industry's best talent. And you'll recall a year ago, we brought Jill Hudkins to AECOM as the leader of our advisory business. We started first in water and environment only. But 1 year in, we saw a tremendous opportunity to really broaden that across all of our services, whether it's environment, water transportation, our facilities. There's been great interest for many of our clients. And most importantly, many of the people that Jill has hired from the world of the Big 4 and the management consultants are truly excited about what we've been creating at AECOM. I've had the pleasure to join Jill on many of those early interviews with some of those consultants and they said very clearly, we have the know-how, we have the playbook in terms of what makes a McKinsey or BCG successful. We know how to frame that differently to what you guys do. We know how to price that differently to realize value. But what we're excited about and why we want to come and join AECOM is because there is no other company that has the technical capability and the breadth of what you have at AECOM. And we're really excited about what you're creating with your advisory business. So it has been relatively easy to retract this fantastic talent to AECOM, and we're excited about the many more team members that are going to join.

We have great confidence in the ability to double the size of this business over 3 years. We're well advanced with that and to -- for this to be our next billion-dollar platform. And as Troy explained, the longer-term aspiration has been for our advisory business and for program management. And we view those together for that to comprise 50% of our business in time. And those 2 businesses together will be growing at a faster rate than the rest of the business.

So we've taken a very disciplined approach to the talent, the plan that we have and the aspiration for our advisory business and the investment of time and capital that we've had, but we're well on track in terms of our aspiration for this business.

Just a quick update in terms of our talent capabilities and how important that is. And what we've been building over the last few years, you frequently get an update from us in terms of talent attraction, retention, this is another great story. We've put a lot of time and attention into ensuring that we continue to attract the industry's best talent, whether it's an advisory or whether it's in all of our other key disciplines and that they stay. So the investments that we have made are about the engagement of our people, recognizing that AECOM is the best place for them to build their careers. So we invested in leadership development at all levels in sort of industry-leading learning and development programs, and we're going to continue to do that. We recognize that we now have a tremendous and even more diverse base of talented professionals and we remain very focused on continuing to expand out the AI team and our advisory team with the niche expertise that we require to successfully grow these businesses.

All of these talent acquisition and retention strategies are critical for ensuring that we continue to win at the rate that we have and have the levels of client satisfaction that we currently enjoy. And most importantly, the levels -- the record high levels of staff engagement that we've been able to achieve as well. So all of this very important talent agenda, which remains a key priority for our management team. We'll continue to ensure that we further extend our competitive advantage. It is a key factor for ensuring that we execute on our growth strategies and continue to create value for our shareholders. So thank you very much.

Over to Gaur now. Thank you, Gaur.

Thank you, Lara. Good morning, afternoon, everybody. First of all, I wanted to say thanks to our 50,000 strong professionals across the globe because of whom we have been able to create sustained value for all of our stakeholders over the last 5 years. which has been really gratifying for this management team. But as we stand here today in front of you, that value creation opportunity of what we have achieved over the last 5 years is far greater in the near, mid and long term as we move forward, leveraging what Troy and Lara have shared with you. Now the reason for my excitement and confidence is not because of the art if possible. It is because we have already achieved what Troy has discussed, specific to generative engineering design technology.

Please allow me to be a little redundant here. We're not standing here today discussing what we can do what the art of possible will be sometimes in the tomorrow. We have already achieved what we're sharing with you today. Now over the next 12 to 18 months, we will be scaling it across all of our end markets, geographies and various asset types. This management team takes a lot of pride in delivery, over delivering, in fact, to any commitments we make to our investor community. This is because when we provide a commitment, we have researched it. We have piloted it, we have tested it, we rinse and repeat that process again. And again, that is why we stand here today very confident in the financial commitments and the outcomes we will achieve over the next 36 months. And the excitement you see us from today is not solely limited to generative technology, we will scale. It is due to the expansive opportunities that provides our professionals to deliver solutions for their clients, which in turn, deliver value for our shareholders.

Now please let me allow -- give me some time to explain that a little bit more. You heard Troy state earlier, an industry age-old problem in engineering and construction. It is -- it takes always longer and it always costs more on projects. It doesn't matter which geography, what type of project it will always take longer historically, and it has always costed more than you originally anticipated. And that cycle goes on again and again and again. What we have created, we will allow our professionals to deliver solutions faster than anyone to their clients make changes for whatever reasons they may be in a matter of days and hours instead of months and weeks.

Now our professionals will create synthetic inference-based mathematical design models with support of the generative technology that will cut down total constructible cost. I want to repeat that again. It will cut down total constructible cost by anywhere between 10% to 20% based on what we have already achieved. I'll ask a question to the audience and all of those who are listening today to our Investor Day. What is the monetization opportunity when you have technology which will deliver an asset earlier for your clients use of revenue generation, maybe to its constituents at a lower cost basis, delivering a higher ROI. What is the value to our public clients across all layers of government, federal, state, local with limited funding, but significant infrastructure needs. When we, with our support, our professionals and our tools, generative tools we have created and will scale will make those dollars go farther.

Now I haven't even gotten into expanding our TAM, our total addressable market. By all accounts, every research report I've ever read somewhere between 60% to 80% of our industry is fragmented. It is served by a small firms, local proprietors because of constraint on labor. 60% to 80% that is not being addressed by companies like AECOM, we have the technical prowess. And now combined with this technology with our professionals, which expands their labor productivity that fragmented market is for ours for the taking. And not by doing expensive, risky, low ROI M&A. It is, again, by expanding labor productivity that until this point was not possible. That is the paradigm shift we're discussing.

Now one of the things that Troy has mentioned and as you see on this slide here is operating leverage. Let me explain this a little bit more. Historically, an AECOM has been part of that historical delivery. For every dollar of revenue we generate, it takes somewhere between $0.80 to $0.90 of variable cost to deliver that revenue, resulting in operating leverage of 10% to 20%. We have been at the higher end of this operating leverage, clearly, as evidenced by the strong margins we have delivered head and shoulders above our peer average.

With the technology, generative technology that we have achieved and will be scaling, it will allow us to expand that operating leverage. We have already realized some of that in FY '26 and the guidance we're putting forth. It will continue to expand in the near future in the midterm to 30%, 60%, 80%. And by the way, this is not just for incremental revenue that we drive. It is for the entire revenue base. That's the part that I love the best. Now we're not due to think that this will just happen overnight. But it is going to happen quickly because, again, the disruption has already occurred and it has occurred, we are at the forefront of it. We've already seen the progress we have made, reaction of our people and clients and the investments that we're making in fiscal 2026 to scale. Those investments are reflected in the margins. This is excluding our CM business, where we expect to deliver, even with the investments of 60 to 70 bps that we're going to be making in the business through our margins. That is included in the 16.6%, even with that 60 to 70 basis points, we will be delivering higher margins than what we achieved for FY '25. It gives you a bridge of what we expect are the building blocks to deliver 20-plus percent margin as we exit velocity for fiscal year 2028. So these investments that we are making in fiscal 2026 to scale are not just driving FY '26 benefit, but an extrapolated expansive benefit throughout the organization into the near and midterm.

Advisory business, as Lara pointed out, we'll continue to also provide tailwinds as we scale up from our base level of $200 million of NSR to $400 million as we exit 28 at higher value, higher margins. And 1 thing that you all have become accustomed to and should always hold AECOM responsible for is our focus and management of continuous improvement. We will always look for opportunities to better our margins, make our infrastructure and our cost more efficient. Let it be from our global business services, which are our support functions. Our EC centers, where we're exiting close to 7% of our direct labor hours running through those capability centers. We know there's still a lot of room for us available to continue to utilize that and driving technology, a genetic technology, generative technology in the way that we work. One key element to our success has been focus.

5.5 years ago when this team took over, we looked at the best and highest returning opportunities, best ROI opportunities and made decisions where to focus to create sustainable value, create value for all of our stakeholders. That included exiting almost 65 countries over that time period, exiting from risky businesses that did not drive the right value creation opportunities for our shareholders.

As we sit here today, Hopefully, it's becoming clear to you the opportunity in our professional services design engineering business augmented by our advisory services, but the opportunity for generative technology. The ROI opportunity is significant in front of us. It deserves our full focus and attention. And although our CM business, which has been a very good business, over the last few years, we will be undertaking strategic reviews, including potential sale. That means starting in Q1, it will be shifting to [indiscernible] operations as required by the accounting rules. One of the things I did want to share on capital allocation, expect no changes from us. We will continue to focus returns because that is what drives sustained value creation for our shareholders. That includes proceeds from our construction management business upon a sale will be used consistently with how we have used capital in the past to repurchase our stock. At the same time, I think it is very important for everybody to remember, we don't build in buybacks into our guidance. It is impossible to do so based on timing, quantum pricing, all of those things. Those proceeds we expect, based on everything we know. Once we have bought back our stock, EPS will not be dilutive for the stand-alone RemainCo company.

Quickly sharing our results for FY '25. It was another very strong year, including driving strong organic growth at the top end of our peer set from those who have reported in fourth quarter. We raised our guidance 3 times during the year. And even after raising it 3x due to the hard work of our professionals, we were able to over deliver in Q4 compared to consensus again. We've exceeded on EBITDA and EPS and margins. In fact, when you look at EBITDA and EPS, the original guidance that we made for FY '25, this point last year, we're at the top end of the range. Margin percentage be remiss if I didn't go back and remind everybody, we were supposed to achieve the 17% exit velocity next year. We achieved it 5 quarters early. Second half of the year, we've delivered 17.1% margins. And as importantly, on the right side is our backlog. Any way you slice and dice it, 20 quarters in a row, we have delivered while contributing organic growth above or at the near top every single quarter of our peer group, our backlog has been 1x or better.

In Q4 FY '25, we delivered 1.1x with strong organic growth. This was in our international markets and in our Americas market. And when we look at our pipeline, our pipeline continues to be very robust, including the early phase of our pipeline, where we see growth of almost 20% across most geographies in all end markets, which sets us up well going into FY '26. It allows us to make the investments we have been making and will continue to make in FY '26, including the 60 to 70 bps of margin investments organically in FY '26 and to scale the technology we have developed.

For FY '26 guidance, we are providing it 2 ways. One is an apples-and-apples comparison for everybody's benefit for holdco which includes construction management, 7% and 9%, respectively, on adjusted EBITDA and EPS. And as we're going through the discontinued operations calculations right now. We've also provided to you our FY '26 guidance, excluding construction management or what we call RemainCo. That is what we will be reporting on going forward. The growth is very consistent on top line, on EBITDA and EPS. And 1 thing this management team has been focused on and will always be focused on is ensuring not that just we deliver, but for every opportunity provides to us, we over deliver on the commitments we make.

For FY '26, cash will be impacted only in FY '26 based on the investments and the restructuring we will undertake to rightsize our platform with the divestment of CEM and overall adoption of the technologies that we're creating and scaling.

One thing I wanted to share with you guys on our long-term targets and emphasize as I walk through the different pieces, we don't see a change into our long-term growth algorithm for top line. Hopefully, again, it's becoming clear to you. We're expanding the ways on how we will be approaching the market and taking market share away, continue to take market share away based on the technology we have developed. We're no longer just solely reliant on the funding of our clients because we have a competitive edge in our platform more than we have ever had before something that we have not seen in the marketplace from anybody, not our peers, not software providers for the clear reasons Troy stated earlier. We're also raising what we think we will be delivering on EPS growth CAGR over the next few years. Again, this does not include our capital allocation impact of repurchases, which our capital allocation strategy continues to be unchanged.

And the last thing I want to leave you guys with as we take a step back is we think the future is bright for many reasons, as we have shared with you today. But if you have 1 takeaway, remember this, the most common question when we have spoken to our analyst community, to our investors, prospective investors over the past 5 years has been how can you grow in a labor-constrained market. how can you continue to grow when you're delivering such strong organic growth year after year and the labor market is constrained in our industry. It's a valid question even today, but not for AECOM. It is a valid question for our peers because we have changed the paradigm of the value creation opportunity. Thank you very much.

That's good. Great. Again, so I think we, at this point in time, we'll open it up to questions. I think Steve, you had your hand up first.

Thanks for that great presentation. Steve Fisher, UBS. So I just want to clarify how you get to this 50% operating leverage improvement. Is that the combination of having fewer team members on the team and using your internal resources more efficiently. But then at the same time, since your cost and alerts, you need to change the revenue model you're talking about price for value? Does it become a sort of blanket fixed price for a project and you just deliver at a lower cost? Can you just clarify that, please?

Thanks for starting with a really simple question, Steve. So I'll take that in 2 pieces. First, in terms of the operating leverage, the way we think about this is our traditional team has had a group of, let's just say, a group of engineers with different disciplines that would come together and they would spend their hours to deliver a project. So you can think about it this way is you can introduce an AI model or you can introduce elements of AI and they can act like a teammate. So now the engineer will work together with an AI model or it will work together with a new teammate. And as a result of that, that work gets done differently. So you're effectively you're extending the ability of the team of engineers.

The other thing you're doing is you're actually shrinking the time and the effort that it took because of the new teammates to do it. And so effectively, that changes the operating leverage paradigm. And so 1 of the things that we've been doing is we've been working with this on projects to actually understand what the implications are in terms of a reduction in the traditional labor right, or the traditional hours that our engineers would deploy in a project. And so we've said that we take an extraordinary amount of hours to date out of those projects. And so that -- again, I'll give you a sense of what we're talking about. We're talking about entirely different teammates that are AI models. And we're talking about a significantly less amount of time to deliver the same outcome with those people's time and that creates this operating leverage. Now you asked a question about revenue. Think about it this way is, in our industry, there's a market price for what we do. And when we compete, we all have worked with our customers. A lot of times, those prices are actually public in public procurements. And so there's a market price for what we do. Put aside, how it's actually structured, whether it's a fee, a fixed fee, a cost plus a unit price there is a value that the industry pays for getting a design outcome or getting a program management outcome. And so we look at it this way is we sort of have the opportunity to price to market. And if the margins are better and pricing to market, we decide what we want to do with it. Our objective is to keep it, but we make some different decisions. And then you sort of think about, well, okay, well, there are different means of how our customers price. And when we go through and we do this work, we're going to have an experience where we will decide this is what the market price would be and we would deliver it for that quantum of work. We can now deliver it for an entirely different quantum of work. With that experience, we'll then have the opportunity to go and have a discussion with our customers about maybe we want to change the market price. But I don't think we need to. I actually think it's the opposite. I think because we're going to be delivering designs or delivering our work, that's such a profoundly improved outcome for our customers. I don't think we need to change market price to actually capture more market share.

Great. And my follow-up is in terms of customer receptivity, and I know it's still pretty early, but based on what you've been kind of working on and the customers you've been working with already, is there any early indication as to kind of where the adoption is going to be most prevalent and quick basically, private sector, public sector, large projects, smaller projects, end markets, geography SP-3 How do you see that?

Well, I can't give a data point on everything because again, we've only sort of taken this out in sort of certain segments of our client base in our market. But what we did is we did a couple of things in the process. One is I can tell you from the work we're doing now, the client acceptance is easy. Because, again, as I said, they still require the same thing. So they still require the confidence of that team. They still require you to certify the results. That's not changing. But the result that they're getting is different and more valuable, right? They still have that trusted client relationships, so they trust you to deliver that. And so when you come in and you sort of explain the different kind of out you can get for them, they're incredibly receptive to that. And especially when you sort of go through the, I call it, the private customer and the public customer, they all face the same challenges. And the same challenges is there's a limited amount of funding, and there's an unlimited amount of infrastructure ambition. And so they're widely accepting this. We don't -- we haven't found a client yet that says, "Well, hang on a sec. I'm not willing to do that. We actually found the opposite. The other thing we did as part of this process. We went out and we actually talked to customers when we actually went out with an outside firm that wasn't us, to just to test this on our customer base and we found across our customer, public and private and almost unbridled willingness to accept this innovation.

Adam Bubes, with Goldman Sachs. It looks like you're investing through margins to invest in AI development. Do you have strong visibility on duration and magnitude of those investments? Or should we think about this as a moving target as you continue to iterate on your tools?

Yes. That's a good question, Adam. The easiest way to think about it is we're going to continue to invest. However, all of those investments are built into the targets we have set. So there's an initial investment year. That's why you see the 60 to 70 bps in FY '26 coming into play. But as the targets we put forth for FY '27, exiting FY '28, 18-plus percent, that is net of the investments that's going to take us to continue to scale, continue to develop and always be ahead of the curve as we are right now.

And then a follow-up on program management. It looks like your ambitions are to continue to grow the mix of that business. Can you just provide an update on what the trajectory there looks like today? And then curious, are customers using you for the total package today, will you be engaged for program management, advisory, engineering and design. Is there a way to frame the opportunity to sort of internalize all that within AECOM?

So I would think about program management now growing at a pace that slightly outpaces our engineering and design business. I think Lara mentioned this in her point, is we expect it to grow at a faster rate, we grew that business very quickly to get to the size and the scale and the confidence that it is today, we still see there are tremendous opportunities in program management around the world, but we see it growing at not that rate. We were growing at double-digit rates in the past. We see it outpacing the overall growth of our business.

And then the other -- so to answer your second question, the answer is yes, we do. We actually see where we're delivering kind of the whole spectrum, right, advisory and design and program management take them through the process. But it's different for every client. And so we find that there's a more willingness or more acceptance within private clients, right? They're more accustomed to doing that. Within the public sector, it depends on the clients. Some actually have some pretty strict rules about what roles you can play. If you are an adviser, you can't be a designer and you can't be a program manager. But you can even put that aside in some places because sometimes what you provide is so compelling that they're willing to make exceptions. And so I won't discuss the client projects, but we've actually found places where what we've provided is so compelling that they're willing to sort of go through a process to set that aside for you. But again, it's very mixed at this point.

Sabahat Khan, RBC. I guess just continuing the discussion you had with Steve on the pricing models, I guess, you indicated about 60% to 80% of the industry is still fragmented. Many of those folks probably can invest in this stuff. At times, it's been said pricing may be not a factor in some of the beds or many of the bids. How do those other 60% to 80% sort of compete? How do you expect the bidding processes to evolve? Are some going to show up with AI, some or not? Just trying to think through how the competitive dynamic involves as maybe some folks are able to invest in this stuff and some not and how do you price for it?

Are you familiar with Blockbuster? That's the way to think about it. And I'm being serious, right? I mean -- so I'll give you an example. If we go to do environmental work and I talked about different teammates, imagine they show up with a group of 5 teammates, right? We got 5 people that work on this project. Imagine if we show up with 1 teammate and 4 AI teammates. And we can deliver something that seems like it feels like it's almost instantaneous. I mean, that's the outcome. And so I can't speak to what's going to happen to them, but I would suspect that they're really, really capable people, and they're going to have to figure out how to use AI. Again, we've had this discussion internally with our people for a long period of time. And we say, AI is nothing to be afraid of, right? AI is not going to replace people, but people with AI are going to replace people. And so to your point, Sabahat, that if because of the nature of the smaller businesses, they're fragmented, they don't have the scale and ability to invest. Well, something's going to happen over a period of time. And so that they're going to be able to eventually compete and have a successful career because they're going to find a path to being able to use AI. And maybe that's with us. But I think that -- I think there's a pretty profound shift coming in the industry.

And then 1 of the concepts we've heard is to hold or keep some of the benefits of AI companies or firms like yourself from trying to get more fixed bid contracts. So you got to sort of keep more of that. Is that something you're trying to do? And what's been the customer reception to shifting more to a fixed bid model within this new construct?

So at this point, we haven't had those -- we haven't needed to have those discussions, right? Because where we can deploy it, we can play it on unit cost or fixed price. So as I said, so we can test it. we can understand what that difference is going to look like. That will then enable us with that information to actually go have a client conversation. And again, at the end of the day, if you can provide something that's much more compelling in terms of value, right? And you have a discussion about maybe doing it for a little bit low what they consider to be the market price or even more value and maybe a little above the market price, you will have an ability in that conversation to shift, right, the pricing model and shift from cost-plus to a fixed price, we gain more certainty around that outcome. And again, there's sort of -- there are more creative ways to have that conversation. But we view it as it will eventually happen. It's like all industries. It happens over time. It's when water runs down the hill, you can only stop it for so long.

Mike Dudas, Vertical Research. Troy, the 18-month start that you've had relative to the industry, as we look today, do you think that's going to be exponential in the leadership and how you're going to move forward while others are going to try to catch up. And within the disciplines of V&D advisory project management, where is the we're seeing the first benefits from the AI investment, helping revenue and profit growth in each of those divisions? Is it getting -- bringing more advisory work that you wouldn't have had otherwise because you can develop this? And how does that play through the rest of those divisions?

Do you want to take the [indiscernible]?

Yes. I think the 2 -- Mike, to answer the question that we're seeing great complementarity between 2 of them. So I'll give you an example. One of the advisory types of work that we do is due diligence. So say for data centers, work for the hyperscalers where they want to rapidly move through assessment of candidate sites to rapidly build out these new data centers at scale. The tools that we're creating at the moment, I mean, some of those are in the due diligence space, and they can rapidly assess a whole range of attributes of the site, the physical the legal, the environmental, the social. So you put those 2 together, and there's a lot of interest already from many of the private and public sector clients who want to buy advisory services. I would say, enhanced now with our AI tools.

And maybe as following up on the markets, maybe you could share a little bit maybe from domestic Americas to international. What -- how did '25 look, how does the next 12 to 24 months from a customer demand standpoint? And is that 5% to 8% type of target lean 1 way or the other? Are there certain markets that we should focus on that might be more helpful to achieve mid- to upper range of those targets than others?

Sure. So I won't spend a lot of time on '25, but I think '25, you can see from our results is that North American markets were healthier markets than the international markets. International markets were challenged. There were some that were there were some markets that were good. For example, the U.K. marketplace was surprisingly a healthy market in '25. But if you looked across Australia and Asia and even in the Middle East, right? Those markets were certainly not as healthy. And so you saw that in our results, right? The growth internationally was much more challenging and it was much better in North America. As we look forward, there's been a lot of work that's been done in sort of repositioning those businesses and building up the opportunities over the course of this last year. And so we sort of look at the U.K. as being a healthy market, what questionably healthy, right? And the reason is, again, they have a large announced infrastructure ambition. The question is, how does that work when it's becoming clear that they either have a large budget deficit and there are they going to have to borrow or they're going to have to raise taxes. And those create more challenging environments. So we're optimistic about the U.K., but I would sort of wait and see. We go to the Middle East and our Middle East business is positioned, repositioned very quickly. And we've had a great backlog that we've won. And so we actually see that business being I think, a good growth market over the course of this next year. Australia and Asia are still going to be a little bit challenging. But again, there's been some work that's been on. And it's in water and defense and less so in transportation because they've been coming off a large investment transportation investment cycle. And so that will be a tougher market as we look into the future. And so then you come back to North America. In North America, we see being a healthy market. Of course, again, there's speed bumps and we can't predict all of those speed bumps. We couldn't have predicted that there was going to be a government shutdown for 40 days. And I'll say the positive is, is that it really didn't have a material impact on our business. Look, it had a little bit of an impact on collections and it had an impact on awards for the future. And so we expect that those awards will come over the next couple of quarters. And we don't know whether there's going to be another shutdown on February 1. It's entirely possible. But we still see the conditions for investment and the need for investment infrastructure and the funding to be good in the North American markets, especially in the United States over the course of the next year, but it could be a little bit bumpy.

Mike Feniger, Bank of America. Troy, just back to discussion with Blockbuster, you are giving an example of someone coming to a site with 5 engineers, AECOM rolling them with 1 and 4 AI chatbots or helpful agents. I guess the question is, when you go to that customer there seems like there's an advantage, but are you able to charge and bill for 5? Or do you have to say, well, they're targeting for 5, we can do same productivity, but we can only charge you for 1.5 or 2? And I know this is a theoretical example. It's just -- I think example of the question, Troy, is basically, how much of this is a competitive edge or how much can you guys actually give back to the customer how much down to AECOM?

So in that example, I think we can get stuck in like very specific examples of the day, but I think you've given a really good example. There's a market price for what we do, right? So I'm using -- let's just use environment work. There is a market price for that. The customer action is they don't care how you deliver it to them. There's a market price and there's an expectation for what your deliverable is going to be. So if you can deliver that outcome and they're comfortable because they trust you as their adviser, they don't care how you delivered it. Now if you can deliver it faster, and then think about it this way. There's a unique problem in the world of consulting, right? It's been the challenge for consulting. And there's been billions of dollars invested in this and it's knowledge sharing, right? The whole world is how do we create a knowledge sharing system so that you can bring all the knowledge of our organization to that particular customer problem. Imagine what we've accomplished right? We have access to all information publicly, right? We're building access to all the information that AECOM has internally. Current and from our past colleagues, that can be brought to the AI agent or agents to that individual and to that customer. You're solving the most significant problem in the consulting business has existed for decades. That's value that you bring to customers. So putting aside, we have it priced. We have -- this is the market price for what you do. This is what my expectations you're going to deliver to me. I'm willing to pay that. And if you deliver something that's more valuable and you deliver in a shorter period of time, you're going to be able to keep the benefit from doing that. That's the approach that we're taking.

That's helpful. And just on CM, maybe you could talk about like the time line, what drove this decision. I think people feel like you guys are continuing to simplify the portfolio. But anything in the backlog or the underlying market conditions that might have played a part and I think you said EPS neutral once all set is done. Is there like a time line that we should be considering around that?

Yes. Mike, we're going to be starting the process within the next week. Expect, given similar type transactions we've undertaken, it could be 6 to 9 months by the time it occurs.

Now in regards to rationale, it didn't have anything to do with the political outcome that have happened in New York. This was a conversation we've had with the Board many months ago, once we understood what we had on our hands from a technology standpoint, specific to our design and engineering business. And looking back and saying, 93% of your business, you can apply this great technology where you are far ahead of anybody else on the curve. It represents 93% of our profit as well, but that 7% takes inordinate amount of time because it is a business that is a very good business, great cash flow generation business. but you have to be focused to make sure teams are within the risk swim lanes. Those of you that have been part of the AECOM journey for longer than this management team has been responsible for it, will recall when you get out of those swim lanes, what happens to those results. And that's why the decision has been -- let's focus on the highest and best ROI opportunity that we have created for almost 93% of our business because the returns are truly, truly going to be special once we fully scaled it.

Appreciate it. And I'll just try to squeeze 1 more in. Lara, just -- there were some comments in the presentation about private markets, private funding. And I'm just curious because I mean, I feel like in the U.S., at least, we really haven't seen that private public partners I think that is something that gets talked about a little bit more in the international markets. But you guys did a couple of comments on the advisory side with private markets. Just curious what are you seeing there? What has kind of changed, if anything, that offer this inflection point where this is maybe part of the discussion and where AECOM fits in on this maybe paradigm shift with private public?

Sure. It's a great question. Thanks for that. We're seeing a few things. I mean, we obviously operate around the world. There are a couple of mature markets with respect to private investment in infrastructure and the sort of frameworks to make that happen. So the most mature of those are Canada, Australia and to a lesser degree, the U.K., although they've been constrained with funds, but they have been on the receiving end, particularly in the last decade of some very significant private financing for particularly road transportation and rail projects. So that's quite mature. I think what a lot of those private investment funds are saying to us at the moment is now seems like a great time in the U.S. with particularly a deregulated environment that -- and an openness for once again for private sector participation. Yes, there were some P3 examples. They weren't necessarily the best examples across various sectors, but they're really seeing that now might be the opportune time. And so we're having some great shared conversations around particular states or environments where we think there is most interest and appetite to progress some of those proposals shall we say. So there's some great conversations, and they're really interested in our advisory capability backed by the tremendous technical expertise that we have and our very in deep knowledge of many of those assets, whether you're talking about a road network, whether you're talking about a port asset or a rail network or even a lot of interest, no surprise to all of you in the world of data centers. So we're really excited about that particular sort of group of clients and the opportunity to create a different sort of market for ourselves in co-creation with those funds.

This is Jose Solca from Citi. You guys have talked about the 20% margin exit rate by FY '28. Maybe can you talk about how we should think about the contributions from the Americas and internationals for that? Obviously, we understand there's been a structural reason for that gap historically speaking, but should we continue to expect that moving forward? Or should there be some change with the AI benefits flowing through?

Yes. You should expect a consistent uplift on margins between both our Americas and international. And you should also, at the same time, continue to expect that differentiation. And the differentiation is for the same rationale we have shared with you before, multiple countries, multiple regulations, statutory requirements and the like versus 1 geography, 1 support center for the entirety of it.

Yes. Just a quick follow-up. I guess, when you talk about -- I think you indicated in the AI buildup, it's been a bit differentiated versus your peers. As you think about investing it in the next few years, how should we think about maybe the -- I know you talked about a bit of a drag on margin that's being netted out, but is it going to be more SG&A? Is it going to be CapEx? Is it more than does 200 people go to 400 more software. If you can just maybe detail out to the extent you can, the build-out plan.

Yes. The build-out you should think about, Saba, is there's a 60 to 70 bps on of investment we're making. And like I said, in the 20-plus percent exit velocity for FY '28, we have built in the required investments to get to it. So it is net of it. From an OpEx versus CapEx, clearly, anything that's built into our margins is OpEx. Simply being put, that is more R&D. It is piloting and testing and CapEx starts once you have a minimum viable product, a model for a specific asset type, at that point, you can -- you're allowed to capitalize it. We don't expect our CapEx to shift materially based on what we're doing because a lot of that upfront cost is going through OpEx.

And then just 1 last follow-up. You said you've been testing this out for the last little while. Has there been any notable difference between public or private customer receptivity? Like how would government customers think about a bit more of an automated approach versus private sector or their end markets that have been more receptive?

Well, I think there's -- I think there are difference between the 2 customers. I don't think it really relates to the adoption of AI. The fact of the matter is that private customers move faster, right? Their decision-making processes are used a little bit faster than public organizations. But I mean we say within certain governments and certain organizations of the government, we actually see a paradigm shift as well, where those decisions will be made a lot faster than they had been in the past.

Gaur, maybe you could share on the financial profile, how you think about the balance sheet or your position today, you've done a lot of good things with the last 12, 18 months. And then when you -- on the capital allocation, you didn't make little acquisitions over the last several years. How does that look in the next 3 to 4 years? Is it something opportunistic in this AI realm or something that, that would be outside the realm of the 67 bps that you're looking at going forward? And finally, on a monetization of CM, if that possible, how does that impact on your allocation if it's scale, quantum accelerated or not? How do we think about that?

Mike, I'll answer all those different pieces, but always pivot back. There is no change in our capital allocation strategy. We want to be very reductant and consistent to that point. We're returns based. What will drive the best outcome of sustained value creation for our shareholders, we will continue to undertake it. And as we sit here today, including the CM monetization and the sale proceeds, we expect to use that for repurchases. And why I said based on everything we know right now, it's net neutral from an EPS standpoint after that sale and utilization of those proceeds for repurchases. As we look forward, including what we have done in FY '25, I think it's important for us to share. We have worked with every big 3, big 4 consulting hyperscalers interim specific in terms of generative technology, talk to them, spoken with them, tested with them. We've worked with various startups, hundreds of them. We created a partnership little over 2 years ago with a venture. And we brought them now in Q4 onto our platform to support our deployment, scaling and development on the gender standpoint. So we're always on the lookout for anything that will continue to expand our competitive advantage, but no change in capital allocation.

Again, I'll make a point in addition to that is the thing that we see as the highest return opportunities are just obviously investments in organic growth and margins are in the business. Those are the highest return opportunities, and they do go through our margin. And even when we think about expanding, I'll call it, the AI-enabling team, we're also looking at -- we've created unique ways so that we're building a talent pipeline so that, again, we'll be actually working to develop the pipeline of talent, PhDs in a way that we're actually working with them to build the novel research that will benefit our business. And so we're thinking about you can sort of think that's organic. You might think that, well, you can make an acquisition to acquire that we're not going to stop looking at all of those avenues to continue to build this ability and this capacity to match up with the tremendous ability of the -- again, the engineer and the sort of scientific community of AECOM.

This is Stephen Barker from Truist Securities. Obviously, we're early on in the process here. You spoke to about these AI models that there's a training process involves. As you scale that business, or scale the AI across your business, how should we think about some of the challenges you're facing? And then going back on the previous question, your previous answer to the question, how do we think about your ability or the competitive nature to gain the talent of people that's involved in your AI process?

Yes. I'll answer that in reverse order. At this point, I don't think we I don't think we feel like we were concerned about our ability to go and find and attract AI talent. In terms of, again, what are you concerned about? The most significant concern we have, it's how we allocate management time, right? The shortage that we have in the business, and I think everybody has this is how do you find really capable leaders in management that have the time to devote all of their time to make this a success. And that gets back to we're constantly evaluating where we spend management time and where we deploy capital in the business to those highest returning opportunities. And so we're constantly trying to, again, find the right executives to add to the organization, like adding Jill Hudkins. When she joined us, I guess what she had, 100% of her time available. The biggest challenge that we have in order to build an advisory business. And so we're finding people and adding that capacity to build business. The same thing when we look across everything we do, we have to -- again, go back to the process around construction management. It gets to how do we create bandwidth for our management team to make this happen. That also means not being distracted by things. right? And that's 1 of the reasons that we haven't focused on. There's a whole bunch of reasons we haven't focused on M&A. If we did a large acquisition, we would have no bandwidth for the next 3 years or 4 years to devote to this. And that would be our biggest problem. That's always been our largest concern is making sure that you have the leadership to actually make this happen.

Adam Bubes with Goldman Sachs again. You talked about the need for power to power data centers. You used the example of due diligence on data center projects. Just as you think about the end market mix evolution over the next 5 years, anything to call out where you're seeing backlog ahead today you spoke about from a regional perspective, but wondering if we should expect end market mix to shift around over the next couple of years?

I mean, in terms of the trends, they're quite consistent across the end markets. We continue to see our pipeline. It is up approximately 20% across all end markets. To your point, Adam, there are some -- based on what Troy spoke earlier, on certain international markets versus the U.S. markets, which are very robust, continue to be, but very healthy at a global point. One thing I will add to that is, when we look at the opportunity into the mid and long term, so let's say, 5 to 10 years out and how we will be able to leverage this technology, proprietary technology that we have created how we will be able to extract value for our clients and deliver sustained value for our shareholders. One thing clearly stood out for us, our Construction Management business. There's -- we don't see that same level of opportunity that we see here again. And that's why, to Troy's point, focusing on highest and best use greatest return on 90-plus percent of our business.

And can I just add something to that. So think about it this way is we have a really diverse portfolio of skills, right? I said so we're kind of #1 in transportation, #1 in water, #1 in environmental engineering, #1 in buildings. And so it really means that we're exposed as the trends change. So there's no question that there's are going to be a massive investment over the next 15 years, right, in generating power or electricity. And so are we exposed to that? Yes, right? And so the trends are going to vary across the world over the next decade. But the beauty of our organization is we're not exposed to 1 of those markets. we're exposed to the right markets geographically, and we're exposed to all these various end markets. And so what typically happens is those skills are a little bit transferable as you go across those end markets. right? If there's a growth in transportation, well, then people on our buildings in places or facilities business, start to participate, right? When you have lots of rail work, there's lots of stations. And so we really have a platform that sort of exposes us to participate in all of those trends, and we don't see any particular trend in the future that we don't have a meaningful way to participate in nor do we say, boy, if this doesn't work, over the next 5 years for us. We have a problem. We're not so it's like data centers. That's what's going to mean that's meaningful for us. It's meaningful for us, but because of our portfolio effect, all of this investment infrastructure is meaningful, and we have the ability to adjust.

Just wanted to ask about the guidance for fiscal '26 in terms of the organic growth rate, that's 6% to 8%. Just curious how you approached it in terms of -- it's obviously a 2% window. I think previous years, you've had 3%. Maybe that's not that big a difference. How much of this is an increased level of specification because you don't have construction management in there? Is that generally going to bigger uncertainty to factor in? Or is there something about this year that makes you a little more confident of a narrower range.

No, good question, Steve. I'll answer the last part first, which is CM is not a contributor to that more concise range of 6% to 8% versus 5% to 8%, what we have said on an organic level. What gives us the confidence is 20 quarters in a row of book-to-burn of 1x or better Four quarters in a row, including entity of FY '25 of 1.1 book-to-burn while delivering at the per lead level from an organic NSR growth standpoint. When we look at our capture rates, they continue to be elevated when we look at our pipeline collectively at the enterprise level for our design, engineering, advisory program management business. They continue to be very healthy.

And last but not least, if you look at our performance, we have delivered at that 6%. So when we looked at all of those measures, it gave us the confidence supported by especially tail end second half of 2026, where we will be rolling out a lot of these. I mean the technology is available, right? It's a matter of now just introducing it to all the other different asset types in the different end markets and geographies, what we operate in. It's going to become more and more expensive. It's going to provide a greater competitive edge to our teams across the globe where they can now take their legacy technical prowess, that's choice that #1 across all our end markets globally and now be augmented by this great competitive differentiator. So combined, all those things, it gives us a lot of confidence as we step in FY '26.

And just on 2026, Troy, you made a comment. I just want to hopefully clear the deck. I think you said with the government shutdowns, should we be expecting a little volatility in the first quarter to on awards? Is that more a timing issue? Just wanted to kind of get a sense of that. And obviously, the reauthorization is coming up next year. Just how do you see your clients start to manage this as we kind of seems like it's a little bit bumpy before we get maybe some of that visibility? So that's showing up in the conversations [indiscernible].

No, it's fair. So don't read too much, right? We don't have any insight into what's going to happen. But what we did notice is that we noticed at the end of the fourth quarter, sort of in anticipation of a shutdown that we didn't see the level of awards that we typically -- again, I'm talking U.S. Federal Government awards, nothing else. We didn't say the level of awards that we typically see in the fourth quarter. And so yes, it had a muted impact. And we expect that those awards would come over the next couple of quarters because there's -- that work is still part of the agenda that needs to be done for the U.S. radial government. If there is another shutdown in February of this year. Yes, that might have an impact. But again, we can't predict it. And so that's why, ultimately, remember this, that's why we give a range because there are things that we can anticipate to the positive and negative during the course of the year. When we build up our plan for the year, we sort of look at it and start with from the bottoms up, right, starting with the work that we're seeing, the pipe that we have, our confidence around in and we kind of build up to come up with confidence around that particular range. But that's why we give a range because there will be speed bumps throughout the year.

Name's Natalia. I'm associate on Andy Kaplowitz's team at Citi. Just curious about your advisory and AI business. I know we talked a lot about it, but could you see evolving more into, let's say, SaaS-like characteristics or offerings for your clients or digital twins or anything of that nature?

No. we're not getting into the SaaS business. It's just -- we've been through a period of experimentation years ago, and we did try and what we found is that in our industry, we're just not equipped to be successful. We might be able to build tools and we even built some tools that were powered by AI that we tried to take it to our clients. And we just uncovered that we don't have the sales force. We don't have the ability to kind of follow what support it with our clients or our customers. And so it's not something that works in the industry, and we discovered that it didn't work for us. So we've turned our attention to making sure that we build an organization that could deliver the same outcomes what our clients are asking us to do for them, but we just do it in a different way.

Well, great. It seems like we have no more questions. So again, I'd say thank you to everybody for spending your morning with us. We do appreciate the conversation and the questions. And I would imagine that we have given you a lot to digest, and we'll continue to have this conversation over the coming months as we continue to see the benefit of what we're doing across our business. So thank you all for coming.

Thank you for standing by. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the AECOM Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Will Gabrielski, Senior Vice President, Finance and Investor Relations. You may begin.

Thank you, operator. I would like to direct your attention to the safe harbor statement on Page 1 of today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC.

Except as required by law, we undertake no obligation to update our forward-looking statements. We use certain non-GAAP financial measures in our presentation. The appropriate GAAP reconciliations are incorporated into our materials, which are posted to our website.

Growth rates are presented on a year-over-year basis unless otherwise noted. 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.

Today's remarks will focus on continuing operations. On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy and our outlook for the business. Lara Poloni, our President, will discuss key operational successes and priorities; and Gaurav Kapoor, our Chief Financial and Operations Officer, will review our financial performance and outlook in greater detail. We will conclude with a question-and-answer session.

With that, I will turn the call over to Troy.

Thank you, Will, and thank you all for joining us today. Our third quarter financial results surpassed our expectations. This performance stems from the dedication of our professionals, unmatched technical expertise, high-returning organic growth investments, trusted client relationships and strong market trends.

We set new records for NSR, margins, EBITDA, EPS, backlog and pipeline. As a result, we are confident in raising our annual financial guidance for the third consecutive time this year. Turning to the details of our results. Organic NSR growth accelerated to 6%, led by 8% growth in the Americas, our highest margin segment. Growth increased in most of our large international markets as well. Importantly, we delivered a 17.1% segment adjusted operating margin, which is a new record for the organization. This performance reflects 3 key elements of our strategy. First, we have demonstrated consistently that through our returns-based capital allocation policy, investments in organic growth initiatives have the highest returns. This includes not only standing up and accelerating the growth of our program management and advisory businesses, but also the record level of business development investment we make quarter after quarter.

Second, we continue to make organic investments in our technical capabilities to drive the highest level of productivity and quality in our industry. This investment also includes the development of advanced technical solutions that drive greater client value, which allows for us to excel in the marketplace and add to our record backlog position.

Third, we build trusted client relationships and offer the broadest and deepest capability set in the industry, which gives us an advantage on our pursuits. Looking ahead, we have line of sight to several drivers of continued margin expansion as we continue to make critical investments that are consistent with our long-term margin objectives. Our third quarter adjusted EBITDA and EPS increased by 10% and 16% and on a year-to-date basis are up 9% and 20%.

Cash flow was also ahead of our expectations in the quarter and on a year-to-date basis. We convert earnings to cash flow at an industry-leading rate, and year-to-date, our free cash flow increased by 27%. We have also returned nearly $240 million to shareholders this year.

Importantly, we have an unprecedented level of visibility for continued growth. Backlog increased both sequentially and year-over-year to a new all-time high, and we delivered a 19th consecutive quarter with a book-to-burn ratio in excess of 1.

Two factors drive the strength. First, we continue to win work at an all-time high rate. This includes another quarter where we won more than 50% of the value we bid. Embedded within this result is a more than 80% success rate on our largest pursuits where our competitive advantage is greatest and where our focus on winning what matters is evident. Second, the multi-decade secular megatrends that are driving our markets are accelerating. This includes global investments in infrastructure, sustainability and resilience and energy. As the #1 ranked transportation, water, environment and facilities firm in the world by ENR, we are ideally suited to benefit. These megatrends are apparent in our pipeline, which also achieved a new all-time high for the fifth consecutive quarter.

Within the pipeline, growth remains fastest in the earliest stages, which indicates several years of continued strong market conditions as our clients plan for a future of higher spending. For example, in the U.K., the government recently released its 10-year infrastructure strategy, committing to invest GBP 725 billion, including substantial investments in transportation, water and energy.

Our leading positions on key frameworks position us to ideally benefit. In the Middle East, where we maintain a market-leading position, we have successfully navigated a reprioritization of investment dollars to emerging areas to support the World Expo and World Cup infrastructure in Saudi Arabia.

Our revenue growth also picked up this quarter, and our contracted backlog was up by double digits. We are also experiencing strong growth in the UAE, another key market in the region for us. In Australia and Asia, long-term demand drivers are firmly in place. However, near-term budgetary constraints have led us to a pause in larger transportation awards, which has weighed on the near-term revenue trends.

The water market is strong, but these projects tend to be longer in duration and therefore, less impactful to near-term revenue as compared to the large civil projects that we completed during the last cycle. Finally, in the U.S., the market environment continues to be one of the best in the world. Only 36% of IIJA funding targeted to our markets has been spent, which provides for continued growth opportunities as evident in our pipeline.

Furthermore, state and local budgets remain robust with state DOT budgets forecasted to achieve another record high in 2026. Our state and local clients continue to prioritize infrastructure spending to maximize available federal matching funds. The passage of the Big Beautiful Bill only enhances this opportunity.

The U.S. federal government is prioritizing investments in critical infrastructure to attract investment and secure a leadership position in growth industries such as AI. To that end, the bill includes tax incentives such as bonus depreciation that attract investment to onshore manufacturing, expand data center capacity and build energy infrastructure necessary to meet unprecedented demand growth. This bill also allocates $150 billion of mandatory defense spending.

The DoD is our largest single client and activity is gaining momentum. It also includes substantial funding for aviation and the Coast Guard, both markets where we have a leading presence. Across the business, we've built a track record of delivering on and exceeding our financial and strategic commitments.

As a result of our outperformance this year, we are raising our fiscal 2025 financial guidance for the third consecutive quarter. At the new midpoint, we expect full year adjusted EBITDA and EPS to increase by 10% and 16%, and we remain confident in delivering further growth and value for our shareholders long into the future.

With that, I will turn the call over to Lara.

Thanks, Troy. We're excited about the significant growth opportunities ahead, particularly in the U.S., our largest and most profitable market. Government initiatives are driving infrastructure investment with a focus on advancing U.S. leadership in key markets. This is especially true regarding AI with U.S. data center investment expected to triple by 2030, and alongside it, demand is also expected to grow substantially for electricity and supporting infrastructure. We can address this demand holistically like no other firm in our industry through our advisory, program management and design capabilities. In fact, we are ideally suited for the complexities of this growth and the new challenges facing our clients, including scarce resources like land, power and water.

Looking at data center specifically, we have supported some of the most complex projects in over 40 countries around the world, establishing us as a global leader in this market. Our scale and expertise in environmental permitting, siting, stakeholder engagement, energy and water give us a significant advantage. In fact, our global data centers practice doubled in NSR in the last 2 years, and we're confident growth will continue to accelerate. Moreover, supportive government policies are critical to sustaining this growth and recent actions in several of our largest markets demonstrate the progress being made.

In the U.S., a recent Supreme Court ruling and several executive orders are streamlining the NEPA permitting process, while Transportation Secretary Duffy's America is Building Again agenda focuses on removing investment barriers. Similarly, the U.K.'s 10-year strategy prioritizes efficient project delivery and Canada is centralizing permitting with the goal of approving projects 60% faster. These are bold steps that will deliver better outcomes for our clients and attract more capital to our markets.

Within this accelerating demand environment and global push for more efficient infrastructure delivery, 3 key areas give us a competitive edge. First, our advisory business informed by our technical expertise helps clients plan dynamically for their investments and solve complex challenges faster than ever. This business grew at a double-digit pace this quarter, and we aim to double advisory to $400 million of NSR within 3 years, positioning it as our next $1 billion growth platform.

Second, our program management business excels in delivering our clients' largest and most complex projects. We have won nearly 90% of our largest program management pursuits this year, and we remain on track with our long-term target of delivering at least 50% of revenue from program management and advisory over time.

Finally, our competitive advantage would not be possible without our inspired and engaged professionals. As Troy noted, we're continuing to invest in leadership and technical development as well as our AI capabilities, which provide our clients with the best technical solutions and generate high returns. In fact, we had record high satisfaction in our most recent employee survey and voluntary attrition remains well ahead of industry expectations.

Taken together, we stand in a very strong position through the first 3 quarters of the year and are continuing to build momentum as an organization.

With that, I'll turn the call over to Gaur.

Thanks, Lara. Our third quarter results continue to reflect strong operational performance across the company. NSR growth accelerated, margins and profitability reached new records. Our backlog and pipeline are at all-time high, and our cash flow was very strong.

Of note, our segment adjusted operating margin achieved a major milestone of 17.1%, a 90 basis point improvement over the prior year and exceeded our long-term target more than a year ahead of our prior expectation. There were no extraordinary items in our margin. Leading our industry and margins has been a hallmark of our performance over the past several years.

Our record business development expense continued to increase over the prior year and is ahead of our plan for the year, which has been the case for many quarters. These margins also continue to include record investment in organic growth initiatives, such as in our advisory business and in our technical capabilities, underpinning the high returns we earn on our investments and the continued opportunity to expand our margins over time.

Turning to our segment results. Beginning with Americas, NSR grew by 8%. The adjusted operating margin increased by 120 basis points to 20.5%, a new quarterly record that reflects growth in our largest market and the benefits from high returning organic growth investments in the business. Backlog in the Americas design business grew by 4%. We expect business development expense to increase as a share of revenue in the fourth quarter as we will continue to capitalize on our record pipeline.

Turning to the International segment. NSR grew by 3%, driven by the U.K. and the Middle East, which was partially offset by a decline in Australia. The adjusted operating margin increased by 20 basis points to 11.9% as we continue to execute across our largest and highest returning geographies. Backlog grew by 8% in the International segment and contracted backlog was even stronger at 15% growth, which underpins our expectation for growth accelerating in the fourth quarter.

Turning to our cash flow and capital allocation. We delivered $262 million of free cash flow in the quarter, contributing to a 27% increase for year-to-date period to a new all-time high. We are on track with our guidance for at least 100% free cash flow conversion for the full year, which would mark the fifth year in a row we have delivered at or better than this level. We returned nearly $240 million to shareholders year-to-date and $2.7 billion of capital since September 2020. We maintained excellent balance sheet strength with net leverage of 0.6, a low cost of debt and no maturities until 2029.

Our returns-based capital allocation policy remains unchanged. This includes our high-returning organic growth investments and capital returns to shareholders through repurchases and dividends. While the timing of cash flow within the year and within a quarter can influence the pace of returns from period to period, importantly, all capital allocation decisions are returns based to ensure we build on our industry-leading return on capital performance.

Concluding with the details of our guidance. We are raising our financial guidance for a third consecutive quarter. This is driven by our year-to-date outperformance, our record backlog and a strong end market environment. We now expect adjusted EPS and EBITDA to increase by 10% and 16%, respectively, at the midpoint of ranges.

We are also raising our full year margin guidance, including our expectation for a 16.5% segment adjusted operating margin, a 70 basis point increase over the prior year. This improvement is more than double the 20 to 30 basis point annual improvement we have in our long-term financial framework.

With that, operator, we are ready for questions.

[Operator Instructions]

Your first question comes from the line of Sabahat Khan of RBC Capital Markets.

Just wanted to get with the evolving backdrop, if you could just share some thoughts specifically on the U.S. market. I'm more curious on sort of how the private sector is evolving. And just given some of the noise during calendar Q1, did things sort of change or stabilize during calendar Q2? So just curious sort of specifics on the U.S. market across private and public, please.

Sabahat, it's Troy here. Just to clarify your question, when you say Q1 and Q2, I think you are referring to the calendar year, so I'll focus on that. Yes. So first of all, I think these comments actually apply to the U.S. market and to our large international markets, which is -- so to start with the backdrop is that there were a lot of elections that took place over the last year, and it has taken time for those governments to get into place and for their agendas and the funding of those agendas to become clear, and so we've actually seen that now in the U.S. We're seeing that in Canada. We're seeing that in the U.K., and we're starting to see that, the very beginning of that in Australia.

But with respect to the U.S. market, I think inherent in your question, you said that there was some stability, and there's no doubt there is stability in terms of the agenda of the U.S. federal -- the new U.S. administration and the U.S. federal government, and we're seeing the funding now come behind that, and it's becoming quite clear that there's a very important agenda, which is investing in infrastructure in the United States, and there's a lot of support to do that and encouragement to do that.

Encouragement through, first of all, funding coming from the Big Beautiful Bill, encouragement coming through reducing the regulation to get infrastructure into the market faster and encouragement in terms of the environment for focused investment in the U.S. in the long term. So all those things seem to be coming better together and are supporting a more stable market and a much clearer picture in terms of the long-term investment in infrastructure in the U.S.

I also said in the prepared comments that we're also seeing this at a state level, and we're seeing next year, certainly in transportation infrastructure, the expectation forming around state budgets so that there'll be more money spent in transportation by the states in aggregate next year than there has been in this current year. So overall, we're seeing clarity come together, and that clarity means what we think is continued long-term investment in infrastructure in the U.S.

Great, and then just for my follow-up, just get -- the margin is obviously trending in the right direction. Could you sort of just dig into some of the drivers there just for this year and kind of over the next little while, just across maybe operating leverage and just breaking out some of the operational initiatives that might be driving some of the margin improvement? How much more juice is left there? A bit more detail on the margin side, please?

Sure. Saba, I'm going to turn it over to Gaur.

Saba, thanks for the question. Margins, we're very pleased with our margin performance, and thanks for acknowledging the delivery this quarter, we delivered a margin target that is almost 15 months ahead of schedule, and first and foremost, the credit goes to our professionals who work hard every single day and operate not only in the marketplace where their clients, from a quality delivery and being -- having a DNA of always improving from a cost standpoint as well.

You have to do all of those things well across the board to have this kind of performance that we've had, and for us, specifically on margin and to your question, delivery in the quarter and what the trajectory opportunity looks like going forward, for us, it starts in investing in high-returning organic growth opportunities, starting with our traditional core end markets where business development expense is not only higher than prior year, but it's higher than what we had even planned year-to-date and quarter-to-date.

So we continue to make robust investments in the pipeline to make sure our book-to-burn, our backlog is very healthy. As Troy commented in the opening comments, this is now 19th quarter in a row where we've delivered our book-to-burn at 1 or greater, a testament to that business development investment, organic investment that we make.

It's also a lot of operational focus on improving our cost base. While we're still in the early stages of benefiting from some key strategic initiatives such as our infrastructure advisory business that we launched middle of last year, solutions focus drives higher margins for us, our enterprise capability centers, we're still in the mid- to high single digit in terms of total labor hours that we deliver, and as we've stated before, we will get to middle digits in this delivery of our capability centers in the short to medium term.

So there's still a lot of opportunity left, and I'm not yet going into a lot of detail, but AI is not only something in the future, but right now, it has been providing us with a good lift in all facets of how we go to market, how we operate, deliver and the opportunity to become more efficient in each one of those phases.

So for us, you'll notice 2 years ago when we had put the target forth of 17% and said we were going to deliver it in 3 years, we did it earlier, of course, but about a year ago, the confidence we were seeing internally is why we shifted that target to 17-plus percent because we're not -- we knew the opportunity. It's not just a North Star of delivering 17% and being higher than anybody else in the industry as we have been for the past few years, but the opportunity is still in front of us.

Your next question comes from the line of Adam Bubes of Goldman Sachs.

I'm wondering if you folks could just provide an update on the AI and automation initiatives. How long until these initiatives start to move the needle on utilization or margins? And just where are we in that journey?

Yes. So we are already -- we've already begun that journey to actually deploy AI. And we've talked about this, I think, for about 18 months now. So we started thinking about investing in AI and how we would do that about 18 months ago, and we've been doing that consistently.

We think about it in two ways. First of all, we think about it how we actually use AI to sort of improve how we support or run the business, and second is we think about how it will actually change the way we deliver our work for customers, and obviously, there's a lot of discussion around the impact of AI.

Without getting into the details of how we're deploying it, the answer to your first question is, yes, it is having an impact on our margins and our results, and the second most important thing is that we believe that AI will have a visible, a material, and a really favorable impact to our business over the next 3 years.

Most importantly is never lose sight of the fact that the most important thing in our business is our people and what they bring to solving our clients' problems, especially from our perspective, the really complex and highly visible and important problems that our people solve, but the investments that we're making in AI are absolutely going to extend their capabilities, and I will just leave you with this.

I'll just restate the fact that we think that AI is going to have a material impact on our business over the next 2 or 3 years, and if you think about this and sort of the question around, is there more juice left in margins? No question that there is.

Great. And then I think the EBITDA margin guidance implies margin step down slightly sequentially at the midpoint from these really strong levels in 4Q. Looking at recent years, I think margins typically step slightly up 4Q versus 3Q. Any moving pieces that should drive margins different than normal seasonality in 4Q? Is that maybe the business development expenses in Americas that were referenced?

Adam, this is Gaur. You're exactly right. In our prepared comments, one of the things we pointed out is we're very happy and pleased with how strong our pipeline is across all the end markets in all of our key regions. So one thing we're not going to shy away from is making sure we put our best foot forward to take advantage of these -- this great pipeline that we have, which means making the business development expense.

As you can see with high level of confidence, any time we've made these organic investments over the last 6 years, they've had an outsized organic return on that investment, including the margin trajectory growth. So we're just being very balanced as we look forward into Q4, saying we're going to make all these continuing great business development investments expense because we know the outsized return it drives for us in the future.

Your next question comes from the line of Andy Wittmann of Baird.

So I guess I'm going to ask a margin question a little bit different way than some of the other ones have been asked. And obviously, basically, this year, it looks like you're on track to deliver actually more than twice the annual level that was kind of the straight line effect, the 20 to 30 basis points will be 70-ish this year.

So I guess as you think about kind of the planning period, is that a pull forward of like some of next year's margins? Or does next year just build off a higher base than maybe was originally anticipated? I guess I just kind of want to be clear as to how the phasing of these margins go in. Obviously, this is a relevant question for the investment community with your initial guidance coming up next quarter.

Yes. So Andy, it is absolutely premature for us to give guidance next year. But nevertheless, I'll say that the margins this year are not a pull forward as something from the future. They represent the run rate margins that we see in our business and in our backlog, and I did try to give in -- answering the last question, a preview of our expectations, which is, we see that there is significant upside still remaining in our margins based on the investments that we have been making and the investments that we think we're -- that we know we're going to continue to make next year.

Yes. Okay. Just wanted to make sure on that. And then I guess for my follow-up question, I wanted to ask on your capital deployment and specifically your buyback in the quarter was really light compared to kind of where you've been. And in the past, it's been -- you've kind of married it up with your cash flow, fourth quarter is always a big cash flow quarter, so I understand that.

But you've done things to smooth out your timing of your cash flow, the seasonality of it, at least throughout the year, and so your buyback has correspondingly been a little bit more smoothed out. This quarter, pretty light, and I was just wondering if there's something that we should know about that affected that. Maybe it's just as simple as you're expecting a lot more cash in 4Q, but the balance sheet here is in a great spot. So maybe, Gaur, can you just kind of talk about the buyback and how important it is and maybe the performance in the quarter, what you did there and why?

Yes. Fair question, Andy. No change in our capital allocation policy. We will continue to execute that consistent with how we have acted in the past. And specific to this quarter, in this business, cash always comes in end of the quarter. And as we've stated before, our buybacks will follow as we generate that free cash flow. So as we've generated in Q3, we'll execute it during Q4. And as we generate more cash in Q4, consistent with our expectations, we'll continue on that path.

Your next question comes from the line of Andy Kaplowitz of Citi.

This is actually Jose on for Andy. The last several quarters, your book-to-bill has been at a steady greater than 1x even despite tariff uncertainty and increased volatility in international markets. Do you think you can continue to record a book-to-bill over 1 in the current environment based on your current pipeline? I know your high win rates have been helping you out, particularly in your large pursuits. So maybe you can talk about the confidence level there and how sustainable these win rate levels are.

Well, I guess, again, I'd start with saying that past is not a perfect predictor of the future, but it certainly helps having a track record of 19 quarters with a book-to-burn greater than 1. So I think that what that indicates is that we do have the underlying conditions to repeat that, and so again, going back to some of the prepared comments is, we have a very healthy pipeline, and it's in the good locations where we have great strength in the marketplace. We continue to have a very high win rate, which means that we are -- somehow have an edge in our marketplace against the competition, and I describe that edge as we focus on things where it plays to our strengths.

The strength of our team is that we have a large, very sophisticated global team with a very diverse set of experiences and qualifications, and it allows us to compete on those projects and to win at a very high rate. So I look at the business and say nothing has really changed.

Our markets are strong and healthy. We see more clarity around the funding agendas for our governments, which allows us to preposition for the longer term, and we have a strength in the business that we're taking advantage of that manifests itself in our very high win rates. So we have confidence that we'll keep it up.

And then as a follow-up, I wanted to ask about the Water and Environment advisory business you introduced in 1Q '25. Curious if you could talk about how you're seeing that business progress and any development or opportunities that have made you incrementally more excited about the growth prospects of that business.

Lara will take that.

Yes, it's Lara here. Thank you for the question. We continue to be really excited about it. During the quarter, the advisory business grew double digits, doubling the scale of this business to $400 million of NSR over the next 3 years and for it to be our next $1 billion platform.

We've had -- we continue to have such positive client feedback. We're winning great work. We're hiring great people. So we've got great momentum, and we're absolutely on track and really excited about the future growth of that business.

Your next question comes from the line of Sangita Jain of KeyBanc Capital Markets.

So one question I want to follow up on the AI discussion that we just had earlier. How does the shifting of work to the overseas technical centers intersect with the use of AI? Do you think there could be a risk of possibly overinvesting in these if AI can take over some of the tasks?

Well, first of all, I think that they work well together. I think you sort of have to look at the portfolio of skills that are required to solve the problems of our customers or to deliver those projects, and so there is always certainly a piece that you have to spend time on the ground. You have to spend time with your customers, and that goes at the beginning and throughout those projects. I don't think that part is really frankly ever going to change.

Then you have to have, again, people with really sophisticated experiences and skills, and that's a combination of people that are on the ground with customers and in our enterprise capability centers, and then what I think you'll see is that AI will certainly supplement what both of those groups do.

So we think about how AI works to support our teams, and it frankly supports our teams regardless of where they are, and we're very conscious in terms of how we're thinking about investing in the teams and investing across the business so that we take advantage of the existing strength of the business and supplement it by investing in AI.

Great. That's helpful. And just on NSR growth, I know you're heading towards the end of your fiscal year. This year, it looks like it's going to trend towards the lower side of your guidance range. I'm just wondering how that positions you for next year, probably easier comps in certain areas and maybe U.K. picks up. So any thoughts -- early thoughts there would be appreciated.

Sangita, this is Gaurav. I'll take that question. You're right. In terms of we are going to be within the range of guidance we had provided, but it is going to trend towards the lower part of it. We are expecting growth to pick up in Q4. It's historically consistent. Number of work days also impacting us gives us good strong confidence going into Q4, and we're currently in our plan process.

But again, if you look at what we have delivered in terms of backlog growth, contracted backlog growth, wins book-to-burn, it all gives us confidence that long-term algorithm we had put out of 5% to 8%, we have high level of confidence, even though we haven't completed our planning process, that continues to be a good range for us as we look into next year.

Your next question comes from the line of Michael Dudas of Vertical Research Partners.

Troy, you highlighted in your prepared remarks the earlier stage of investment from your clients and you're seeing more opportunities and I guess, more access and exposure there for your company. Does that provide the longer-term confidence in organic growth and the cycle in front of us? And is it your -- the ability to grow some of these advisory opportunities in infrastructure and water? Is that where you're finding a lot of lower-hanging fruit to drive the margin, also drive more wallet share amongst your clients?

Well, yes, I think -- so Mike, think about this in two different ways. First of all is that, as I said earlier, we've seen a lot of our clients formulating their agendas. So if you come through an election period, it takes a little while to formulate that agenda. But then when it is formed and the funding is made available through it through the legislative process, well, then that means that you typically have good line of sight for 4 or 5 years on what's going to be spent and what the focus is going to be.

And I think when you look at our earlier-stage pipeline, again, we have a very significant portfolio of government clients. I think it's a good example that when those agendas form, you start to see your early-stage pipeline growing, which indicates that there's good funding and a good pipeline that will take you through the next 4 or 5 years.

And then the second point is you think about the diversity we've created in the business, now focusing on advisory or being there earlier in the process, bringing really good technical underlying skills to provide that advice to our customers, which does differentiate from the typical adviser.

And then you have program management, which keeps us there throughout the process. So as that pipeline forms, I think you rightly pointed out, we're going to be more exposed to that pipeline. And as we said at our Investor Day almost 2 years ago, we would typically in the past, been exposed to our clients maybe to 10% to 15% of our clients' budgets.

Now through advisory program management in our design business, we're exposed to 30% to 35% or 40% of our clients' budgets. And more importantly, the margin in those budgets is higher than where it is in the other places of their infrastructure spend.

So you line those two things up and based on the investments we've been making, growing our at bats and the early-stage pipeline continuing to grow, it gives us good visibility and confidence into the next 4 or 5 years.

Your next question comes from the line of Nandita Nayar of Bank of America.

This is Nandita Nayar on for Michael Feniger. So you mentioned that advisory was up double digits. If we can kind of just pull on that thread a bit more here, how much of this would you say is the overall market? And how much is this AECOM initiatives capturing more share?

Thanks for the question, Nandita. In terms of the project life cycle, I think we're capturing an earlier segment of the project life cycle because we're advising clients much earlier. So I think that is additive if you look at it in total project life cycle terms, and then for us, obviously, there is the low-hanging fruit, which is are the existing clients where we can grow the share of wallet, so to speak, in terms of providing them additional advisory services and then with the pull-through of all of the usual technical disciplines and design work that they know us for, so they're the sort of two dimensions that I would respond with.

Great. That's helpful. And if I can just squeeze one more in. You mentioned margins hitting a big milestone. How much would you balance investing in the business and expanding margins going forward? And like how much would you say like the opportunity going forward is in the Americas versus international?

Well, so look, I think our margins have improved, not because we've been managing the costs, but we've actually been investing and generating returns from those investments. So I think, again, our belief -- and the strength of what we've been capable of doing is actually investing in growing margins in the business, and that's not going to stop. We're going to continue to invest, and as we look forward, we actually see more opportunities to invest to drive a much better result than we have in the past. So looking back, it's a great track record. But looking forward, we actually are even more optimistic to continue to improve in the future based on what we think we can invest in.

With no further questions, that concludes our Q&A session. I will now turn the conference back over to Troy for closing remarks.

Good. Thank you, everyone, for joining us today, and we thank you for your support, and most importantly, I thank all of the employees and all the people working here at AECOM for their fantastic contributions this quarter. They've continued to provide just a superior result for the work that we do for our clients. Thank you.

This concludes today's conference call. You may now disconnect.