Q3 2025 Jacobs Solutions Inc Earnings Call

Krista: Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the JACOBS Fiscal Third Quarter 2025 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Bert Subin, Head of Investor Relations. Bert, you may begin.

Thank you for standing by. My name is Krista and I will be your conference operator. Today at this time, I would like to welcome everyone to the Jacobs fiscal third quarter 2025 earnings conference call and webcast.

All lions have been placed on you to prevent any background noise.

After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Bert Subin, Head of Investor Relations. You may begin.

Bert Subin: Thank you, Krista, and good morning, everyone. Our earnings announcement and 10-Q were filed this morning, and we have posted a slide presentation on our website, which we'll reference during the call. I would like to refer you to slide two of the presentation for information about a forward-looking statement, non-GAAP financial measures, and operating measures. Now let's turn to the agenda on slide three. Speaking on today's call will be JACOBS Chair and CEO Bob Pragada and CFO Venk Nathamuni. Bob will begin by providing comments on the business as well as highlights from our third quarter results and a recap of notable awards. Venk will then provide a detailed review of our financial performance, including commentary on end market trends, cash flows, and balance sheet data. Finally, Bob will provide closing remarks, and then we'll open up the call for questions.

Thank you, Chris. Uh, and good morning everyone.

Our earnings announcement in 10q were filed this morning and we have posted a slide presentation on our website, which will reference during the call.

I would like to refer you to slide 2 of the presentation for information about our full looking statements, non-gaap Financial measures and operating measures.

Speaking on today's call will be Jacobs chair and CEO, Bob parata and CFO Bank. Anthony Bob will Begin by providing comments on the business as well as highlights from our third quarter results, and a recap of notable Awards bank will then provide a detailed review of our financial performance, including commentary on end market trends dashboard.

And balance sheet data.

Bert Subin: With that, I'll turn it over to our Chair and CEO Bob Pragada.

Bob Pragada: Thanks, Bert. Good day, everyone, and thank you for joining us to discuss our third quarter 2025 business performance. We delivered very strong results for Q3, meeting or exceeding our expectations across all key metrics. First, adjusted EPS grew 25% to $1.62, supported by 7% net revenue growth and meaningful year-over-year margin expansion. Second, PA Consulting capitalized on strong demand, delivering double-digit revenue and operating profit growth. And third, backlog grew 14% to nearly $23 billion, setting a new record. Overall, we are very pleased with our third quarter results, which enabled us to raise our FY25 adjusted EPS guidance for the second time this year. We continue to monitor macro conditions, and right now, we feel good about our operating environment.

Finally, I will provide closing remarks and then we'll open up the call for questions with that. I'll turn it over to our chair and CEO Barra.

Thanks, Bert. Good day, everyone. And thank you for joining us to discuss our third quarter 2025 business performance.

We delivered very strong results for Q3, meeting or exceeding our expectations across all key metrics. First, adjusted EPS grew 25% to $1.62, supported by 7% net revenue growth and meaningful year-over-year margin expansion.

Second PA Consulting capitalized on strong demand, delivering, double-digit revenue and operating profit growth and third backlog grew 14% to nearly 23 billion dollars, setting a new record.

overall we are very pleased with our third quarter results, which enabled us to raise our FY 255 adjusted EPS guidance for the second time this year

Bob Pragada: We are seeing secular growth drivers in life sciences, semiconductor, data center, energy and power, and water sectors that have resulted in continued upward trends in spending across our business. We continue to manage well through an uncertain economic backdrop and expect to build on our strong Q3 performance in Q4. Turning to slide four and focusing on our results. Adjusted net revenue growth of 7% in Q3, combined with strong year-over-year margin expansion, helped drive a more than 13% increase in adjusted EBITDA to $314 million. Excluding the mark-to-mark impact from our investment in Momentum stock, which we now have fully exited, and other items, Q3 adjusted EPS was $1.62, a robust 25% increase compared to the previous year. The small difference between this and our GAAP EPS of $1.56 underscores what we view as improving earnings quality.

We continue to monitor macro conditions. And right now, we feel good about our operating environment.

We are seeing secular growth drivers and Life Sciences, semiconductor data, center energy, and power and water sectors that have resulted in continued upward Trends in spending across our business.

Backdrop and expect to build on our strong Q3 performance in Q4.

Turning to slide 4 and focusing on our results.

Adjusted, net revenue, growth of 7% in Q3 combined, with strong year-over-year, margin expansion, helped drive, a more than 13%, increase in adjusted. EBA to 314 million.

Excluding the mark-to-market impact from our investment in momentum stock, which we have now fully exited, our Q3 adjusted EPS was $1.62.

A robust, 25% increase, compared to the previous year.

Bob Pragada: Turning to bookings, our trailing 12-month book-to-boat was 1.2 times, with gross revenue and backlog up 14% year-over-year in Q3. Gross profit and backlog was also up 14% year-over-year, reflecting another strong quarter of sales. Our backlog growth and bookings momentum remain positive, positioning us well in the fourth quarter and into fiscal 2026. Turning to slide five, I'd like to highlight a few notable infrastructure and advanced facilities project awards from Q3. These wins highlight the power of our strategy to redefine the asset lifecycle as we prioritize expanding our addressable markets with core clients. We continue to see strong global demand in water environmental, particularly in the water sector, which remains one of the most resilient and high-growth areas of our portfolio. Our full lifecycle delivery model and deep domain expertise are helping our clients address aging infrastructure, water scarcity, and regulatory challenges worldwide.

the small difference between this and our gaap EPS of a $1.56 underscores, what we view as improving earnings quality

Turning to bookings.

Our trailing 12-month book-to-bill was 1.2 times, with gross revenue in backlog showing a 14% year-over-year increase in Q3.

Gross profit and backlog were also up 14% year-over-year, reflecting another strong quarter of sales.

Our backlog growth in bookings momentum remained positive, positioning us well in the fourth quarter and into fiscal 2026.

Turning to slide 5.

I'd like to highlight a few notable infrastructure and advanced facilities project awards from Q3.

These winds highlight the power of our strategy to redefine the asset life cycle as we prioritize expanding our addressable markets with core clients.

We continue to see strong Global demand in water environmental, particularly in the water sector, which remains 1 of the most resilient and high growth areas of our portfolio.

Bob Pragada: This quarter in the water sector, we secured additional scope for the Little Miami Wastewater Treatment Facility with the Metropolitan Sewer District of Greater Cincinnati. This critical modernization effort will support region-wide biosolids reuse for three wastewater treatment plants, providing a renewable energy source to operate the 70-year-old facility. Construction for the program is expected to be completed in late 2028. We continue to deliver solid growth in life sciences and advanced manufacturing end market, with data centers becoming the fastest growing submarket. At JACOBS, we have leveraged digital twin technologies for more than a decade to transform how critical infrastructure is designed, built, and operated, most notably in the water and transportation markets. Today, we're applying that expertise to AI data centers, expanding beyond traditional design into intelligent integrated solutions.

Our full life cycle, delivery model and deep domain expertise are helping our clients. Address, aging infrastructure water, scarcity and Regulatory challenges worldwide.

This quarter in the water sector. We secured additional scope for the little Miami wastewater treatment facility with the metropolitan sewer district of Greater Cincinnati.

This critical modernization effort, will support region, wide bio, solids reused for 3, waste water, treatment plants, providing a renewable energy source to operate the 70 year old facility.

Construction for the program is expected to be completed in late 2028.

We continue to deliver solid growth in life, sciences, and advanced manufacturing markets, with data centers becoming the fastest-growing submarket.

At Jacobs, we have leveraged digital twin Technologies for more than a decade to transform how critical infrastructure is designed built and operated most notably in the water and transportation markets.

Bob Pragada: In a new partnership with NVIDIA, we're advancing the Omniverse blueprint to create digital twins of AI factories, enabling high-fidelity simulations that optimize power, cooling, and network systems. Accordingly, we see the potential for this digital twin to serve as the reference framework for NVIDIA customers globally. In addition to our key win with NVIDIA, we're also engaged by a confidential client during Q3 to provide engineering, procurement, and construction management services for the transformation of a legacy manufacturing facility in the southeastern United States into a cutting-edge high-performance data center. We captured meaningful scope on this program by leveraging our cross-sector capabilities, and we are seeing more and more opportunities like this in the market. We are also seeing solid demand across the critical infrastructure end market, with all verticals performing well in Q3.

Today, we're applying that expertise to AI data centers, expanding Beyond traditional design, into intelligent Integrated Solutions.

In a new partnership with Nvidia. We're advancing the Omniverse, blueprint to create digital twins of AI factories and enabling high-fidelity simulations that optimize Power Cooling and network systems.

Accordingly, we see the potential for this digital twin to serve to serve as the reference framework for NVIDIA customers globally.

In addition to our key win with Nvidia, we're also engaged by a confidential client during Q3 to provide engineering procurement and construction management services for the transformation of a legacy manufacturing facility in the Southeastern of the United States into a Cutting Edge high-performance Data Center.

We captured meaningful scope on this program by leveraging our cross-sector capabilities, and we are seeing more and more opportunities like this in the market.

Bob Pragada: Clients are prioritizing modernization, resilience, and smart technologies as they advance the next generation of transportation systems, airports, building, and energy infrastructure. We're helping them achieve these goals through integrated solutions that prioritize efficient capital investment. In Q3, we secured a landmark digital transformation engagement with our long-term client, Dallas-Fort Worth International Airport, in partnership with PA Consulting. Leveraging our expertise in both artificial intelligence and airport infrastructure, we are helping DFW accelerate innovation and enhance operational efficiency. Our number one ENR ranking in airport design, paired with our leading digital portfolio position, does well for global demand as air travel increases and airport investment needs rise. Additionally, our energy and power team secured one of the company's largest wins in Australia year to date as the integrated delivery partner for the Mariners Link project.

We are also seeing solid demand across the critical infrastructure and Market with all verticals performing well in Q3.

Clients are prioritizing modernization resilience and Smart Technologies as they Advance the next generation of Transportation Systems airports building in energy infrastructure. We're helping them achieve these goals through Integrated Solutions that prioritize efficient Capital Investments.

In Q3 we secured a landmark digital transformation engagement with our long-term client Dallas Fort Worth International Airport in partnership with paid Consultants.

Leveraging. Our expertise in both artificial intelligence and Airport. Infrastructure. We are helping DFW accelerate Innovation and enhance operational efficiency.

Our number 1, enr ranking in airport, design paired with our leading digital portfolio position us. Well for Global demand across are as air air travel increases and Airport investment needs rise.

Additionally, our energy and power team secured, 1 of the company's largest wins in Australia year to date as the integrated delivery partner for the marinus link project.

Bob Pragada: This 345-kilometer electricity and data interconnector between Tasmania and Victoria will provide 1,500 megawatts of capacity, enough to power 1.5 million homes, playing a critical role in strengthening the reliability of Australia's East Coast electricity grid. This win highlights how we leverage global expertise in capital project execution and utility infrastructure to help clients meet their energy and sustainability goals. In summary, these awards reflect our focus to execution in high-growth markets and our ability to deliver leading digitally enabled solutions to our clients. Now I'll turn the call over to Venk to review our financial results in further detail.

For you will provide 1500 megawatts of capacity enough to power 1.5 million homes planning. A critical role in strengthening the reliability of Australia's East Coast electricity grid.

This wind highlights how we leverage Global expertise in capital project execution, and utility infrastructure to help clients meet their energy and sustainability goals.

In summary these Awards, reflect our Focus to execution and high growth markets and our ability to deliver leading digitally enabled solutions to our clients.

Now, I'll turn the call over to the bank to review our financial results and further details.

Venk Nathamuni: Thank you, Bob, and good day, everyone. Let me begin by summarizing a few of the financial highlights on slide number six, followed by additional context on our quarterly performance. In the third quarter, gross revenue increased 5% year-over-year, and adjusted net revenue, which excludes pass-through revenue, grew by 7%. Q3 adjusted EBITDA was $314 million, growing more than 13% year-over-year. Our adjusted EBITDA margin during Q3 came in strong at 14.1%, which is an increase of 80 basis points versus the same quarter last year. As a result, adjusted EPS rose to $1.62, a 25% increase year-over-year. Our disciplined cost management contributed to a new record for margins and were well-positioned to build on this momentum in Q4 and in fiscal year '26. Also, as Bob touched on, consolidated backlog was up 14% year-over-year to a record $22.7 billion, putting our trailing 12-month book-to-boat at 1.2x.

Thank you, Bob, and good day, everyone.

Let me begin by summarizing a few of the financial highlights on slide number 6, followed by additional context on our quarterly performance.

In the third quarter growth, 7u increased 5% year-over-year and adjusted net revenue, which excludes pass through Revenue, grew by 7%.

Q3 adjusted e with Doc was 314 million growing more than 13% year-over-year.

I just ate the margin during Q3 came in strong at 14.1%.

Which is an increase of 80 basis points versus the same quarter last year.

As a result, adjusted EPS close to $162 a 25% increase year-over-year.

To a new record for margins.

And we're well positioned to build on this momentum in Q4 and in fiscal year 26.

Venk Nathamuni: Gross profit and backlog also increased 14% year-over-year during Q3, a strong indicator of our positioning as we head into next year. Regarding our performance by end market in infrastructure and advanced facilities, let's now turn to slide number seven. Demand for services in the water and environmental end market remains favorable across all major geographies, with very strong top-line performance in the water sector during Q3. Total adjusted net revenue growth for water and environmental rose more than 5% in Q3, and we expect growth to remain in a similar range in Q4, aided by continued demand strength in water. In our life sciences and advanced manufacturing end market, adjusted net revenue also grew approximately 5% in Q3. We've seen notable growth in the data center submarket that has complemented continued strong performance in the life sciences sector.

Also as Bob touched on Consolidated, backlog, was up 14% year-over-year to a record 22.7 billion, putting our trailing 12-month book to bill at 1.2 x.

Gross profit and backlog increased 14% year-over-year during Q3, a strong indicator of our positioning as we head into next year.

Regarding our performance by End Market in infrastructure and advanced facilities.

Let's now turn to slide number 7.

Demand for services in the water and environmental and markets remains favorable across all major geographies with very strong. Topline performance in the water sector during Q3

Total adjusted net revenue growth for Water and Environmental grew more than 5% in Q3.

And we expect growth to remain in a similar range in Q4 aided by continued demand. Strength in water

In our life sciences and advanced manufacturing and Market adjusted, net revenue. Also grew approximately 5% in Q3

Venk Nathamuni: As we move into Q4, we expect growth to increase relative to our Q3 results. In critical infrastructure, adjusted net revenue increased over 6% year-on-year. Within this end market, energy and power remain our fastest growing sector, but improvement in transportation sector growth, particularly in Europe, helped drive better year-on-year performance versus Q2. Encouragingly, growth in the cities and places vertical is also moving in the right direction on the back of Middle East strength. Looking ahead, we expect critical infrastructure growth to moderate slightly in Q4 but remain healthy. Now, moving on to slide number eight, I will provide a brief overview of our segment financials. In Q3, infrastructure and advanced facilities operating profit increased over 13% year-on-year, with a modest tailwind from FX. PA Consulting built on strong second quarter improvement and delivered a notable uptick in revenue growth to 15% during the third quarter.

We've seen notable growth in the data center submarket that has complimented continued strong performance in the Life Sciences sector.

As we move into Q4, we expect growth to increase relative to our Q3 results.

In critical infrastructure, adjusted. Net revenue increased over 6% year on year.

Within this end market energy and power remained, our fastest growing sector.

But Improvement in transportation sector growth particularly in Europe, Health drive, better year-on-year, performance versus Q2.

Encouragingly growth in the cities and places. Vertical is also moving in the right direction, on the back of Middle East, right?

Looking ahead. We expect critical infrastructure growth to moderate slightly in Q4 but remained healthy.

So moving on to slide number 8, I will provide a brief overview of our segments financials.

In Q3 infrastructure and advanced facilities, operating profit increased over 13% year on year with a modest Tailwind from FX.

Venk Nathamuni: This resulted in operating profit increasing 15% year-over-year in total and 9% in constant currency on a 22% operating margin. PA Consulting's momentum in the US and across the private sector was augmented by improving public sector spending in the UK. We continue to see favorable trends in PA's backlog and pipeline, which have both increased double digits year-on-year. We believe growth in these metrics is a positive leading indicator of future results. Now, moving on to slide number nine, we provide an overview of cash generation and our balance sheet. Overall, our balance sheet remains in excellent shape exiting Q3, inclusive of record capital returns for the first three quarters of fiscal year '25.

PA Consulting built on strong second, quarter Improvement, and delivered, a notable update in Revenue growth to 15% during the third quarter.

This resulted in operating profit, increasing 15% year over year in total and 9% in constant currency.

On a 22% operating margin.

PA Consulting momentum in the US and across the private sector, was augmented by improving public sector spending in the UK.

We continue to see favorable Trends in PS, backlog and pipeline, which are both increased double digits year on year.

We Believe growth in these metrics is a positive leading indicator of future results.

An overview of cash generation and our balance sheet.

Overall, our balance sheet remains, an excellent shape, exiting Q3

Inclusive of record Capital returns to the first 3 quarters of fiscal year 25.

Venk Nathamuni: Focusing on the quarter, Q3 free cash flow was $271 million, which was in line with our expectation for free cash generation to inflate in the second half of the year as earnings increased and working capital improved. During the quarter, we repurchased $101 million in shares, bringing our fiscal year-to-date repurchases to a record $653 million. Additionally, early in Q3, we received $70 million in favorable working capital adjustments from the CMS transaction and finalized ownership of Momentum shares previously held in escrow. We used these cash proceeds to further reduce our debt. In addition to our quarterly cash dividend, we also distributed the Momentum shares released from escrow to our shareholders on a pro-rata basis. This represented approximately $159 million in incremental capital returns to shareholders based on the Momentum share price when declared.

Focusing on the quarter, Q3 free cash flow was $271 million, which was in line with expectations for free cash flow innovation to inflect in the second half of the year as earnings increased and working capital improved.

During the quarter, we repurchased 101 million in shares.

Bringing our fiscal year to date repurchases to a record, 653 million.

Additionally, early in Q3 we received 70 million dollars in favorable working capital adjustments from the CMS transaction and finalized ownership of momentum shares previously held in escrow.

We use these cash proceeds to further reduce our debt.

In addition to our quarterly cash dividend. We also distributed the momentum shares released from escrow to our shareholders.

On a pro databases.

this represented approximately 159 million in incremental Capital returns to shareholders based on the momentum, share price, when declared

Venk Nathamuni: Our balance sheet strength supports continued investment in the business, along with continued returns to shareholders via share repurchases and long-term dividend growth. Our commitment to return capital to shareholders is evidenced by our 32 cents per share dividend, representing 10% year-over-year growth, as well as our material increase in share repurchase activity this year. We continue to view our shares as an attractive investment and have remained consistent buyers as a result. In total, we returned $927 million to shareholders through repurchases and dividends over the past three quarters alone. Summing this all up, we entered the quarter at the low end of our 1.0 to 1.5x net leverage target, and we're on track to return well more than 100% of adjusted free cash flow in fiscal year '25. This puts us in a strong financial position as we close out the year.

Our balance sheet strength supports continued investment in the business along, with continued returns to shareholders. We are share repurchases and long-term dividend growth.

Our commitment to return. Capital shareholders is evidenced by our 32 Cent per share, dividend representing 10% W growth.

As well as our material increase in shared reproaches activity this year.

We continue to view our shares as an attractive investment and have remained consistent buyers as a result.

In total, we returned 927 million to shareholders through repurchases and dividends over the past, 3 quarters alone.

Summing this all up, we ended the quarter at the low end of our 1.0 to 1.5 net leverage Target. And we're on track to return well more than 100% of adjusted free cash flow in fiscal year 25.

Venk Nathamuni: Finally, please turn to slide number 10. As we enter Q4, we're updating our outlook for fiscal year '25. We now expect adjusted net revenue to grow approximately 5.5% year-over-year, adjusted EBITDA margin to be approximately 13.9%, an adjusted EPS range of $6 to $6.10, and we continue to expect reported free cash flow conversion to be more than 100%. As it relates to the fourth quarter, the midpoint of our guidance implies sequential improvement in net revenue, adjusted EBITDA margin, and adjusted EPS. In summary, strong Q3 performance combined with our forecast for Q4 support our decision to raise the midpoint of our full-year adjusted earnings outlook. Now, looking ahead to fiscal year '26, we feel good about our positioning. Since we're still in the planning phase, we'll provide a more detailed update on our expectations for fiscal year '26 next quarter.

This puts us in a strong financial position as we close out the year.

Finally, please turn to slide number 10.

As we enter Q4, we're updating our outlook for fiscal year 25.

We now expect adjusted net revenue to grow approximately 5.5% year-over-year.

In to be approximately 13.9%.

And adjusted EPS range of 6 to 6 dollars.

And we continue to expect, reported free cash flow conversion to be more than 100%.

As it relates to the fourth quarter, the midpoint of our guidance, implies sequential Improvement in net revenue, adjusted ebitda margin and adjusted eps.

In summary, strong, Q3 performance combined. With our forecast for Q4, support our decision to raise the midpoint of our full year, adjusted earnings Outlook,

now looking ahead to fiscal year, 26, we feel good about our positioning

Venk Nathamuni: What we can share now is that we expect revenue growth to be ahead of fiscal year '25 with continued margin improvement as our gross margin initiatives begin to phase in. Altogether, this should result in solid adjusted EPS growth next year. In summary, we expect to finish the fiscal year on a strong note and plan to build on this performance in fiscal year '26. With that, I'll turn the call back over to Bob.

Since we're still in the planning phase, we'll provide a more detailed update on our expectations for fiscal year 26 next quarter.

What we can share now is that we expect Revenue growth to be ahead of the Scalia 25, but continued margin Improvement.

As our gross margin initiatives, begin to face in.

Altogether, this should result in solid adjusted, EPS growth next year.

In summary, we expect to finish the fiscal year on a strong note and plan to build on this performance in fiscal year 26.

Bob Pragada: Thank you, Venk. With FY25 nearly complete, we are preparing for continued success in FY26, aided by our record backlog and strong pipeline. We've navigated our first few quarters following the CMS and divergent solution separation very well and are just beginning to unlock the full potential of our business. As global secular trends take hold and our strategy to redefine the asset lifecycle gains momentum, we see significant opportunity ahead. Operator, we'll now turn the call over for questions.

With that. I'll turn the call back over to Bob. Thank you. Thank you with FY. 25, nearly complete. We are preparing for continued success in FY 26, aided by our record, backlog and strong pipeline.

We've navigated our first few quarters following the CMS and Divergent solution separations very well and are just beginning to unlock the full potential of our business.

AS Global secular Trends take hold in our strategy to redefine the asset life cycle, gains momentum. We see significant opportunity head.

Copper operator will now turn the call over for questions.

Krista: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, simply press star one again. We also ask that you limit yourself to one question in one follow-up. Your first question comes from a line of Sandeetha Jain with KeyBank Capital Markets. Please go ahead.

Yourself to 1 question in 1, follow up your first question comes from the line of sija Jane with keybanc capital markets. Please go ahead.

Sandeetha Jain: Yeah, good morning. Thank you for taking my questions. So the first one I would say on the data center submarket growth that you guys talked about, can you maybe expand on that? Are you seeing bigger scopes being assigned to JACOBS, and what type of work does it involve? Is it related to power engineering or water or just data center design? Thanks.

Yeah, good morning. Thank you for taking my questions. Um, so the first 1, I would say on the data center, submarket growth that you guys talked about, can you maybe expand on that? Are you seeing bigger scope seeing a sign to Jacobs? And what type of work does it involve? Is it related to Power Engineering or water or just data center design?

Bob Pragada: Yeah, so Sandeetha, thanks for the question. Good morning. It's all the above. So right now, if you kind of look at the three distinct sectors of data centers, hyperscalers, colos, and now what we're seeing with regards to vertically integrated, vertical integration going on in different sectors and companies organically having their own data centers, we're seeing the source of those opportunities come through that. The number of inquiries as well as engagements we have have grown substantially and the highest that they've been this quarter. The second is that they are multi-scope in that before we were doing predominantly the design, both of the gray space and the white space inside the kind of the boundary limits of the data center. Now we're seeing that scope expand into the power requirements as well as the water requirements, which in AI data centers is substantial.

Bob Pragada: And then from a delivery model, you know, traditionally we were exclusively an engineer. And as I mentioned in the script, we're actually now expanding that scope to deliver a full program and kind of full project delivery around that. You know, one other item, Sandeetha, just to add is that this opportunity with NVIDIA is pretty transformational in that this will be the reference design and the plan of record that NVIDIA will give to their customer base using the NVIDIA chip, which we're already getting inquiries from those customers back into JACOBS. So we're excited.

Thanks. Yep. So Sita, thanks for the question. Good morning. Uh, it's all the above. So right now, if you kind of look at the 3, uh the 3 distinct sectors of of data, centers hyperscalers colos. And now what we're seeing with regards to the vertically integrated um uh vertical integration, going on in different sectors and uh, companies organically having their own data centers. We're seeing the source of those opportunities come through that the number of of inquiries, as well as engagements, we have have grown substantially in the highest that they've been this quarter. Um, the second is that they are multis scope uh, in that before we were doing predominantly the design, both of the great space and the white space uh, to inside the kind of the boundary limits of the data center. Now we're seeing that scope expand into the power requirements as well as the water requirements, which in AI data centers is substantial and then from a delivery model, you know, traditionally we were exclusively

An engineer and as I mentioned in the script, we're actually now, uh, expanding that scope to, uh, to to deliver full program and kind of full project delivery around, uh, around that, you know, 1. Other item. Uh, stinky just to add is that this opportunity with Nvidia is pretty, um, pretty transformational. In that, this will be the reference design. And the plan of record that Nvidia will, will, will give to their customer base. Using the Nvidia chip which, uh, we're already getting inquiries from those customers back into, uh, into Jacob. So we're excited.

Sandeetha Jain: Great, that's helpful. And then maybe on the backlog growth in the quarter, can you talk about the makeup of that backlog and the pace of burn you expect on it? Is it more faster book and burn work or longer duration projects? Just as we start thinking about F26 top line. Thank you.

Bob Pragada: Yeah, yeah, I'll start it off and then maybe Venk can add to it. I'd say as far as the end market profile of that backlog, it is growing in the advanced facilities and water sector, probably at a faster rate than the others. And those two sectors, and to your second part of your question, tend to have larger and kind of longer tail burn profiles to them. When I say longer tail, they're still fast-paced projects, but these are projects that span multiple quarters. And we've been putting those in our backlog to date. You know, the other sectors, good backlog, but then you'd be talking about kind of four, five, six-year type of burn profiles in transportation and some of our consultancy work for defense and security in PA as well as in the public sector. So I don't know, Venk, if you want to add.

Great that's helpful. And then maybe on the backlog growth in the quarter. Um can you talk about the makeup of that backlog and the pace of burn you expect on it? Is it more faster to book and burn work or longer duration projects? Just as we start thinking about f26 uh Top Line. Thank you. Yeah, yeah. I I'll I'll start it off and then maybe they can uh, can add to it. I'd say as far as the End Market, profile of that backlog. Uh, it is growing in the advanced facilities and uh, and water sector probably at a faster rate than the others and those 2 sectors. And to your second part of your question, tend to have, uh, larger and, uh, and longer kind of longer tail burn, uh, profiles to them when I say, longer tail, they're still fast-paced projects. Uh, but these are projects that span multiple quarters. Uh, and and we've been

Venk Nathamuni: Yeah, no, you added, Bob. I'd say in addition to what Bob said, you know, pretty good balance of new wins across a multitude of end markets. I know from a burn profile, Sandeetha, to answer your question specifically on burn, as you know, the life sciences and advanced manufacturing tends to have a faster burn, and we're seeing some good improvement in that business as well. As a matter of fact, for our upcoming Q4, we're guided for that business to grow pretty strongly. And so we're seeing that momentum continue into fiscal year '26 as well. But I would say it's a pretty broad-based mix across the various end markets with, you know, water and critical infrastructure being a slightly slower burn, but gives us a lot of visibility well beyond fiscal '26.

Venk Nathamuni: And then if I could add one more thing to what Bob said on the data center point, we have more than 150 engagements today on data center, and that pipeline is growing quite nicely for us.

Including those in our backlog to date, you know, the other the other sectors, good backlog. Uh but then you'd be talking about kind of 4, 5, 6 year type of burn profiles and transportation and some of our uh consultancy work for defense and security and Pa as well as uh in the public sectors. I don't know bank, if you want to add, yeah, uh, no no, you had it. Bob I would say in addition to what Bob said you know pretty good balance of new events across multitude of end markets. I know from a burn profile thing is that to answer your question specifically on Burn uh as you know the life sciences and advanced manufacturing tends to have a faster burn. And we're seeing some good Improvement in that uh business as well. As a matter of fact for our uh, upcoming Q4 we've we've guided for that business to grow pretty strongly. And so we're seeing that momentum continue with the fiscal year 26 as well. But I would say it's a pretty broad-based mix across the various and markets but uh you know, water and uh, you know, critical infrastructure being a slightly slower burn but gives us a lot of visibility well beyond fiscal 26. And then if I could add 1 more thing to what?

Bob said on the data center point, we have more than 150 engagements today on Data Center and that pipeline is growing quite nicely for us.

Sandeetha Jain: It's really appreciated. Thank you.

We really appreciate it. Thank you.

Krista: Your next question comes from the line of Andy Whitman with Baird. Please go ahead.

Your next question comes from the line of Andy Whitman with beard. Please go ahead.

Andy Wittmann: Great. Good morning, and thanks for taking my questions. I wanted to ask Bob about the puts and takes associated with the one big beautiful bill here. Obviously, there's a lot of new policy that we've got some certainty on from the federal government here. Certainly, you'll talk about the increase to the Department of Defense. But there's also some impacts, there's some secondary impacts to the state and local governments, whereby you're seeing cuts to Medicaid and maybe some education programs in there. So I was hoping, since you didn't comment in the script on how this could affect the business, I thought I'd give you a form right here to talk about the puts and takes surrounding that and if you're seeing anything back in terms of commentary from your customers at this point.

Great. Uh, good morning and, uh, thanks for taking my questions. I wanted to ask Bob about the, uh, puts and takes associated with the 1. Big beautiful, bill here. Uh, obviously there's, uh, there's a lot of, uh, new policy that we've got some certainty on from the federal government here.

Bob Pragada: Yeah, let me talk first, Andy, about the puts. You said it, and it's putting some more stability in the state and local government, specifically around transportation and probably a little bit more of a backstop around water. But I would say the two biggest puts are around DOD and DOD infrastructure. And that's on the OBBBBB bill. But also, you know, what's going on in Europe right now with regard to GDP spend as a percent, the defense spend as a percentage of GDP. The second, I would say, is around FAA. And that actually presents a really nice opportunity. It's still kind of in the forming stage right now, but that's going to go really fast. And this bill puts some backstop on that as well. And then the last thing I'd probably point to is the reshoring activity.

Here, to talk about the puts and takes, uh, surrounding that. And and if you're seeing anything back in terms of commentary from your customers, at this point,

yeah, let me let me talk first, Andy about the puts

Um, you you you said, and it's putting some more stability in the state and local government specifically around uh, transportation and uh, and probably a little bit more of a backs. Stop around water. But I would say the, the 2 biggest puts are around, uh, DOD and DOD infrastructure. Um, and that's on the, you know, the oh triple ba, uh, Bill. Uh, but also, you know what? What's going on in Europe right now with regard to GDP, spend as a percent uh do the the defense spend as a percentage of GDP. Um, the second I would say is around FAA and uh, and that that actually um

Presents a a really nice opportunity. It's still kind of in the in the forming stage right now but that's going to go really fast and uh and this bill puts uh put some back. Stop on that uh as well. Uh and then the last thing I'd probably um

Bob Pragada: And for us, you know, with 40% of our business in the private sector, we're seeing that already, even prior to the bill. The bill kind of puts a bit of backstop there. So overall, we see it as a net positive. You know, some of the takes, some of the takes, you know, don't know how state and local governments are going to balance those requirements that the Medicaid drop presents. But today, our clients are not, you know, as far as right now, not talking about that. I think the secular trends and the needs are going to prevail here.

I'd probably point to is the restoring activity. Um, and for us, you know, with 40% of our business in the private sector um, that we're we're seeing that already even prior to the bill, the bill kind of puts a bit of back stop there. So overall we we see it as in that positive, you know some of the some of the that's the puts some of the takes um, you know, don't know how uh state and local governments are going to

The balance, uh, those requirements that uh, uh, that the Medicaid dropped, uh, presents. But today, our clients are not, uh, you know, as far as right now not, uh, not not talking about that. I think the secular Trends and the needs are going to Prevail here.

Andy Wittmann: Got it. And then maybe for my follow-up, Venk, this one's for you. I just thought maybe given that you've progressed now with the separation and some of the changes that go along with that for the organization, I just want to give you an opportunity to update us on where you are seeing the one-time costs associated with the split. I think you talked about it as you get kind of later into this year that you'd be progressing past those. But can you give us for '25 the updated budget or reiterate the budget for what those costs are going to be for this year and how you're thinking about '26 in terms of one-time costs, if at all?

Venk Nathamuni: Yeah, Andy, yeah, thanks for the question. So as you rightly pointed out, you know, with the separation mostly behind us, we are seeing a pretty significant reduction in our one-time restructuring costs. We're guided to, I think, $75 to $95 million. We're well on track with that. And just for reference, that was almost three times that number in the prior fiscal year, so a dramatic decrease in one-time restructuring costs. And this particular quarter, as you've seen, this is probably one of the cleanest quarters we've had in terms of the difference between the GAAP and the non-GAAP. And looking ahead to fiscal '26, we expect this restructuring to come down even more dramatically. And we'll obviously provide you more detailed guidance in our next quarter earnings call as we talk about fiscal '26 in totality. Thank you.

Got it, and then maybe for my follow-up. I think this 1's for you, I just thought maybe, um, given that you've progressed now with the separation, and some of the changes that go along with that for the organization, just want to give you opportunity to update us on where you are seeing the 1-time costs associated with the split. I think you talked about, as you get kind of later into this year, that would be progressing past those. But can you give us for 25 um the updated budget or reiterate the budget, for what those costs are going to be, uh, for for this year? And how you're thinking about 26 in terms of 1-time costs? But all if at all

Yeah Andy yeah, thanks for the question. So as you rightly pointed out, you know, with the separation, mostly behind us, we are seeing a pretty significant reduction in our 1 time researching costs. We guided through, I think 75 to 95 million dollars. We're well on track for that and just for reference, there was almost 3 times that number in the prior fiscal year. So dramatic decrease in in 1 time reflecting costs and this particular quarter is you've seen this is probably the 1 of the cleanest quarters we've had in terms of the difference between the Gap and the non-gaap and looking ahead to fiscal 26. We expect this restructuring to come down even more dramatically and I will obviously provide you more detailed guidance.

In our, uh, an Explorer earnings call. As we talk about fiscal 26 and totality

Thank you.

Krista: Your next question comes from a line of Andy Kaplowicz with Citi Group. Please go ahead.

Your next question comes from the line of Andy Kapla.

Please go ahead.

Speaker 7: Hey, good morning, everyone.

Andy Wittmann: Morning, Andy?

Hey, good morning, everyone.

Speaker 7: Bob or Venk, I think you said that you expect FY26 growth to be ahead of FY25 growth. I think it's a pretty big statement as we sit here in August. So maybe just the confidence around that, is it coming from this advanced facilities area in particular? Just more color around where it's coming from.

Good morning, Andy.

Barbara Bank. Like I think you said that you expect FY 26 growth to be ahead of FY, 25 growth. I think it's a pretty big statement as we sit here uh in August. So maybe just a confidence around. That is it coming from? You know, this Advanced facilities area in particular

Bob Pragada: Sure. Maybe I'll start off, Andy, from an end market perspective, and then Venk can kind of talk about how those are actualizing themselves in our backlog today. But from an end market standpoint, I'd point to three main areas, Andy. One is life sciences. The second is around data centers, which, you know, these are smaller type bookings, but they go fast. And as I mentioned on the question that Sandeetha asked, you know, our scope is growing on those opportunities. And then the third is water. And this isn't something that happened this quarter. You know, we've been talking about our backlog growth for the better part of four straight quarters. So that's the confidence that we're seeing going into FY26, but those project cycles are now starting to come to a kind of a material burn phase.

Just more color around where it's coming from.

Sure, maybe I'll start off, Andy, from an in Market perspective, and then, then can kind of talk about how those are, are actualizing themselves in our backlog today. Uh, but from an End Market standpoint. I, I point to 3, main areas, uh, Andy 1 is life sciences. Uh, the second is around data centers, uh, which you know, these are smaller type bookings, but they go fast. Uh, and as I mentioned on the question, that's in deep asked, um, you know, our scope is growing on those opportunities and then the third is water and this isn't something that happened this quarter. You know, we've been talking about our backlog growth for the better part of of 4 46 but those project Cycles are now starting to come to

Bob Pragada: So Venk, I don't know if you want to add anything else.

Venk Nathamuni: No, I think it's all good, Bob. In life sciences, you know, not only are we seeing some good momentum in the coming quarter, but we see a good strong pipeline. Water, as Bob mentioned, you know, last three or four quarters, we've talked about really multifaceted wins across not only various aspects of the water cycle, but also in terms of the multitude of years that we have visibility. And we're seeing a lot of those projects coming into fruition in Q4 and in fiscal '26 and beyond.

And we're seeing a lot of those projects coming into fruition in Q4 and fiscal 26 and Beyond.

Speaker 7: Very helpful. And then, Bob or Venk, you mentioned improvement in critical infrastructure in Europe and I think cities and places in the Middle East, which I think have been kind of watch items for you guys over the last couple of quarters. So maybe you can talk about what you're seeing there, whether it's continental Europe or the UK and the Middle East, and you know, how you think about those areas going into '26.

Bob Pragada: Sure, absolutely. Maybe I'll kind of split them into critical infrastructure. Really, what we're seeing in Europe is a bit of a rebound. We saw, we kind of telegraphed this happening. Maybe it happened a couple of quarters maybe later than what we expected. But as the UK budget has stabilized, and we saw this in the PA performance as well, that transportation component, whether it be national highways or high-speed rail, you know, those budgets are now being firmed up, and we're the recipient of both those. So kind of that transportation spend there, driven in the UK, but also in Ireland, as well as what we're seeing in the Nordics, has been solid and on the rebound, and we're getting a fair share of that. You know, in the Middle East, cities and places, which is kind of our major venue, major program piece, strong double-digit growth.

Very helpful and then Robert Bank you mentioned Improvement in critical infrastructure in Europe and I think cities in place in the Middle East which I think have been kind of watch items for you guys over the last couple of quarters. So maybe you can talk about what you're seeing there, whether it's Continental, Europe or the UK and them, the least. And you know how you think about those areas going into 26.

Sure, absolutely. Maybe I'll kind of split them into in critical infrastructure. Really, what we're seeing in Europe is a bit of a rebound. We saw, we, we kind of telegraphed this happening. Maybe it happened to a couple of quarters maybe later than what we expected. But as the UK budget has stabilized, and we saw this in the pa uh in the PA performance as well that Transportation component, whether it be National highways or High-Speed Rail, you know, those those budgets are now being formed up and we're seeing where the recipient of of both those. So kind of that Transportation spend their, uh, driven in the UK, but also in Ireland, uh, as well as what we're seeing in the nordics, uh, it's been, it's been solid and on the rebound. And, and we're getting a fair share of that, you know, in the Middle East.

Bob Pragada: And we're hopefully going to have some announcements here in the next few weeks, but that growth continues, especially as we move closer to time-based events like the Expo and the World Cup and some other major events that are happening there. So nice growth on both of those fronts as well.

Cities and places, which is our kind of our major venue major program, uh, piece, um, strong double digit growth and, uh, and we're hoping to have some announcements here in the next few weeks. But that growth continues. Especially as we move closer to, uh, time-based events, like, uh, the Expo and, and the World Cup, uh, and, uh, and some other major events that are happening there. So, nice growth on on both of those fronts as well.

Speaker 7: Helpful, guys.

Helpful guys.

Krista: Your next question comes from the line of Sabahat Khan with RBC Capital Markets. Please go ahead.

Your next question comes from the line of Sabah hot con with RBC Capital markets, please go ahead.

Speaker 7: Great, thanks, and good morning here. I just wanted to get a bit more perspective on sort of some of the evolution that we've seen over the recent quarters. You know, as you look ahead, you know, it sounds like a positive outlook to 2026. In that commentary that you provided, is there a view that some of this IHIJ funding also accelerates? And there sounds like it all needs to be more or less allocated by next year, but just wondering how the flow of funds from that bill has been contributing, and you know, do you expect sort of an uptick or how to expect that to evolve over the next sort of 12 to 24 months next?

Bob Pragada: Yeah, Sabah, I'd characterize my answer as balanced. Right? I think that if you look at our portfolio, the dependence on a strong stream of funds coming through IHIJ, especially in the fact that it's been longer than what was originally anticipated, the balance in our portfolio has allowed us to weather the ebbs and flows of IHIJ spend. Now, we don't believe that it's all going to get allocated in the next year because it was two years late. So we think that that, you know, we're only a little over a third spent through that bill. So there are discussions about what's the follow-on. So we see that continuing to flow while the diversity in our portfolio allows us to continue to grow, and that's the profile of the backlog that we've seen.

Great, thanks and good morning here. I'm just want to get a bit more perspective on sort of some of the evolution that we've seen over the recent quarters. Um you know, as you look ahead, you know, it sounds like a positive outlook to 2026 in the commentary that you provided. Is there a view that some of this I age if iij funding also accelerates in there it sounds like it all needs to be more or less allocated by next year but just wondering how the flow of funds from that bill has been contributing. And, you know, do expect sort of an uptick or I'd expect that to evolve over the next sort of 12 to 24 months

Yes, s. I I would I'd characterize my answer as balanced, but I I think that if you look at our portfolio, the dependence on a, uh, a strong stream of funds coming through IJ, especially in the fact that it's been, it's been longer than what was originally anticipated. The balance in our portfolio has allowed us to, to whether the es and flows of IJ spend now,

Bob Pragada: So kind of that first half, second half of our growth projections in '25 is representative of that. And then the second half kind of flowing into next year with what is in backlog. So this isn't speculative on what's coming, but rather what's in backlog is where we're getting that confidence.

We don't believe that it's all going to get allocated in the next year because it was 2 years late. So we think that that, you know, we're only a little over a third uh, spent through that uh, through that bill. So there are discussions about what's the follow on. So so we see that continuing to flow while the diversity in our portfolio allows us to continue to grow, and that's the profile of the backlog, uh, that, that we've seen. So kind of that first half, second, half of our growth projector growth projections in 25 is representative of that. And then the second half kind of flowing into, uh, next year with what is in backlog. So, this isn't speculative on what's coming. But rather, what's in backlog is where we're getting that confidence.

Speaker 7: Great. And then maybe if we could dig a little bit into the PA Consulting side, you know, the top line's trending well. I think the operating profit, at least on a run rate basis, is trending quite a bit above where sort of the last three years have been. So maybe if you can just talk about the sustainability of the progress in this business, a bit more color on sort of the underlying drivers here, and you know, how's that expected to trend into 2026? Thank you.

Bob Pragada: Yeah. So on PA, yes, the top line we talked about in the last quarter, it's inflected to a robust number this quarter and visibility for that to continue, really driven by stability in the UK government and an inflection point in what we're seeing as a transformational spend in defense and security and the public sector in the UK, as well as the UK MOD or Ministry of Defense leadership position that they're taking in continental Europe. The origins of PA actually come from the UK government post-World War II. That's the genesis of PA and being kind of the strategic consultant, as well as the delivery of programs within the UK government. So if you look at that growth, it is backed by a 16% backlog growth this quarter as well.

Great. And then maybe if we could dig a little bit into the PA Consulting side, you know, the top line is trending. Well, I think the operating profit at least on a run rate basis is trending. Quite a bit above where sort of the last 3 years have been. So maybe if you can just talk about the sustainability of the progress in this business, a bit more color on, sort of the underlying drivers here. And you know, how's that expected to Trend into 2026? Thank you.

Yeah. So uh, so on on PA, yes, the Top Line, we talked about it, last quarter, it's inflected to uh, to a a robust number uh, this quarter and and visibility to for that to continue. Um,

Really driven by stability in the UK government.

Bob Pragada: And the profile of that is really coming from that public sector, backed by what we're seeing in life sciences and in energy and utilities in mattress Europe. Those last two also are driving double-digit growth in the US too. So overall, we see kind of a nice trajectory for PA.

As well as the delivery of programs within the, the, the, the UK government. So if, if you look at that growth, it is backed by a 16% backlog growth, this quarter uh as well, and the profile of that uh, is really coming from that public sector back by what we're seeing in life sciences and in uh in energy and utilities, uh, in the in in not just Europe. Those last 2 also are driving double-digit growth in the in the US too. So, uh, overall, we see kind of a nice trajectory for PA.

Speaker 7: Great, thanks very much.

Great. Thanks very much.

Krista: Your next question comes from the line of Michael Duda with Vertical Research Partners. Please go ahead.

You are next question. Comes from the line of Michael dudas with vertical research Partners. Please go ahead.

Bob Pragada: Good morning, gentlemen.

Speaker 7: Morning, Mike.

Good morning, gentlemen.

Morning. Mike.

Bob Pragada: Hey, Bob, how would you assess the benefits on your focus, as you talked about in February, on the total life cycle on projects and opportunities impacting your accelerated backlog, your bookings, solid bookings growth, and your potential enhanced operating margins? And amongst those several markets that you've called out, maybe impacted by the life cycle focus, which ones might be your best, let's say, next shot to focus on growth in business? So the short answer, Mike, would be that life cycle focus, especially getting involved early on with PA in the business advisory and capital planning component of that cycle with our customers, is in real time and it's working. These life sciences, water, data center jobs that we were talking about, we were involved with our clients at that early business planning, business advisory stage.

Hey, Bob, how are you, do you assist the benefits on your, you know, Focus as you talked about in February on the total life cycle on on projects and opportunities.

Impacting, your accelerated backlog, your bookings, you saw solid bookings growth and your potential enhance operating margins. And amongst those several markets that you've called out maybe impacted by the life cycle Focus, which ones might be your best. Let's say next shot to focus on growth in business.

so uh so the short answer Mike would be that that life cycle Focus, especially getting getting involved

Early on with PA in the business advisory, uh, in in capital planning, uh, component of that, of that cycle with our customers is in real time. And it's working

Bob Pragada: And it's equating and actualizing into our clients going with us for the entirety of the life cycle. So I'd say, to answer the second part of your question, it is having a strong effect. And I think, you know, we're only in the first year of our strategy. We're going to see that continue to evolve over the next few years into energy and power, transportation, and in other sectors of our business as well.

These Life Sciences, water data center, jobs that we were talking about we we were involved with our clients at that early business planning business advisory, uh, stage. And and it's, it's equating and actualizing into our clients, uh, going with us for the entirety of the life cycle. So I'd say, um, to answer the second part of your question, it is having a, a, a, a, a strong effect. And, uh, and, and I think, you know, we're only, uh, in the first year of our strategy, we're going to see that continue to evolve over, uh, over the next few years, into energy and power Transportation, uh, and in other other sectors of our of, our of our business, as well.

Speaker 7: I appreciate that. My follow-up may be for Venk. Two thoughts. One, as you look at the margins into backlog and your margin performance, how would you break down from the mix, from scale, from cost efficiency, how that looked this quarter and how that looks as you enter into your 2026 planning budget? And maybe you can touch on some of the organic investments that you highlighted when you're in your prepared to marks on what you're spending in internal capital on to help grow the business.

I appreciate that my follow up, maybe for vank um 2 plus 1. Um, as you look at the margins into backlog and your margin performance, how would you break down from the mix from scale from cost efficiency? How that looked this quarter and how that looks, as you enter into your 2026 planning budget and maybe you can touch on some of the organic Investments That You highlighted when you when in your prepared remarks on what, uh, you're spending in in

Venk Nathamuni: Yeah, Mike, thanks for the question. So, you know, as Ricky pointed out, you know, good improvement in margins. And as we guided through for the full year, on track to deliver 13.9% EBITDA margin for the full year, which, by the way, represents a 110 basis point year-on-year increase. And as we stated, not only at Investor Day, but in subsequent earnings calls, the vast majority of those margin enhancements have come through what we call, you know, self-help and making sure that, you know, we're disciplined in our cost initiatives and so forth. Where we see substantial, you know, further progress in our margins is on the gross margin front through, you know, three facets that we talked about in terms of mix, commercial models, use of our global delivery, and so forth. Made really good progress on global delivery and mix.

Venk Nathamuni: And I think we're still in the early stages of realizing substantial improvements in gross margins across those other vectors that I mentioned. And that's what gives us confidence that our margin profile should improve in a meaningful way in the coming years. And we'll quantify the exact impact of that margin improvement in fiscal '26 coming up.

Our margin profile should improve, you know in a meaningful way in the coming years and we'll quantify the exact impact of that margin Improvement in physical. 26 coming up.

Speaker 7: And on organic investment?

In an organic investment.

Venk Nathamuni: Yeah, thank you. From that standpoint, you know, you've heard us talk about our investments in terms of our customer engagements with AI, with a lot of the products. A lot of investments also happening internally from an efficiency standpoint, looking at enterprise functions in terms of how we can improve the efficiency through automated tools, agentic AI, and so forth. And we'll provide a lot more color, but surprising to say those are all in the early stages of providing some substantial operating leverage for us going forward.

Oh yeah. Uh, thank you uh from that standpoint. You know, you've heard us talk about our investments uh in terms of our customer engagements with AI with a lot of the products. A lot of Investments also happening internally from an efficiency standpoint uh looking at uh Enterprise functions in terms of how we can improve the efficiency uh through automated tools, agentic Ai, and so forth and we'll provide a lot more color. But suffice to say those are all in the early stages of providing some substantial operating leverage for us going forward.

Speaker 7: Thanks, Venk. Thanks, Bob.

Venk Nathamuni: Thank you.

Thanks man. Thanks Bob.

Krista: Your next question comes from the line of Chad Dillard with AB Bernstein. Please go ahead.

Thank you.

You're next question comes from the line of Chad, Dillard, with a B Burnstein. Please go ahead.

Sandeetha Jain: Hi, good morning. This is Federico filling in for Chad. Thanks for taking my question. So have you seen a change in customer activity in the design business as it relates to the change in bonus depreciation, particularly for the advanced manufacturing segments?

Particularly for the advanced manufacturing segments.

Venk Nathamuni: Yeah, I'll take that. So in terms of bonus depreciation, obviously, that's one of the benefits of the OBBA deal. And we will, you know, we'll see some tangible improvement in that in fiscal '26. I think it's too early to quantify it. We are going through that analysis. And when it comes into effect, we think it'll have a big positive impact both in terms of CATS taxes as well as in terms of bonus depreciation. So we'll quantify that for our fiscal '26 guide. But as it stands now, no impact in the current quarter.

Yeah, I'll take that. So in terms of bonus depreciation, obviously, that's 1 of the benefits of the obba deal. Uh, and uh, we will, you know, we will see some

Tangible Improvement in that in fiscal 26. Uh I think it's too early to quantify it. We are going through the analysis and uh when it comes to effect within, you'll have a big positive impact both in terms of cash taxes, as well as in terms of bonus depreciation. So we'll quantify that for our fiscal 2026 guy. But as it stands now, no impact in the current quarter.

Sandeetha Jain: Okay, thank you.

Venk Nathamuni: You're welcome.

Okay, thank you.

You're welcome.

Krista: Your next question comes from the line of Juda Aranovic with UBS. Please go ahead.

You're next question comes from the line of Judah. Aronovic with UBS. Please go ahead.

Speaker 7: Hi, good morning. Thank you. Just to follow up on a PA Consulting question, the revenue growth was impressive in the quarter. Does the backlog growth you've seen over the past few quarters, in addition to the pipeline growth, support continue double-digit growth? And then on the margins, the margins have been pretty steady even as growth has accelerated. Are there investments you're making or kind of costs you're incurring that's holding back the margin? And I guess, you know, where's the utilization rate maybe year over year relative to Q2?

Hi, good morning, thank you. Uh, just to follow up on a PA Consulting question. Now, the revenue growth was impressive in the quarter, so the backlog growth you've seen, uh, over the past few quarters. In addition to the pipeline growth support, continued double digit growth, and then on the margins, the margins have been pretty steady even as growth has accelerated, are their Investments? You're making or kind of cost to see or incurring that's holding back the margins. And I guess, you know, where is the utilization rate uh, maybe a year or a year or a relative to Q2?

Bob Pragada: So maybe I'll break those down into three. The top line, margin, and utilization. Utilization actually driving margins. Yeah, on the top line, I'd say we continue to guide to that high single digits. You know, keep in mind of the double-digit growth, there were some tailwinds with regards to FX on that. But we're feeling confident about the performance from an organic standpoint and cost of currency. So that's strong. You know, on the margins and the utilization that are tied together, utilization has come back, which is strong. We're getting to the point where we are now hiring in specific areas, specifically in defense and security, public sector, life sciences, and energy and utilities. And so we do have an opportunity for increased margin. That's going to take some time. We have the highest margins in the sector or from the pure comp standpoint within the consulting world.

so maybe, uh,

Bob Pragada: And so greater efficiencies on some of the things that Venk talked about with regards to internal efficiencies driven by AI enablement, as well as some of the combined offers. The previous question from Mike Duda is around the asset life cycle. You know, when we're going to market together, and we've seen this, and we highlighted a couple in the earnings presentation, you know, these are solutions and outcome-based type of commercial models that we're driving with our customers. The size of those transactions are small, but over time, you know, when we have continued successes, we're going to see that grow.

I'll break those down into 3, the Top Line, uh, margin and utilization, utilization actually driving. Um, a margin. Yeah, on the top line, I, I'd say we we continue to, uh, to guide to that, uh, that high single digits. Uh, you know, the, the, the keep in mind of of the, the, the double digit growth. There was some some Tailwind with regards to FX, uh, on that. But, uh, we're we're feeling confident about, uh, the performance from a from an organic standpoint, uh, and and constant currency. So, uh, that's, uh, that's strong, you know, on the margins and the utilization that are tied together. Utilization has come back, which is, uh, which is strong. We're getting to the point where we are now hiring in specific areas, specifically in Defence and security, public sector, life sciences, and energy and utilities. And so we do have an opportunity for increased margin. That's going to take some time, we have the highest margins in the sector or in, in, from the peer comp standpoint within the consult.

Building world. And so, uh, so greater efficiencies on some of the things that bank talked about, with regards to, uh, internal efficiencies driven by, uh, AI enablement, uh, as well as some of the combined offers, the previous question from, uh, from Mike dudas around, uh, the asset life cycle, you know, when we're going to Market together and we've seen this, and we highlighted a couple in the, uh, in the earnings uh, presentation.

You know, these are these are uh Solutions and outcome based type of commercial models that were driving with their customers. The size of those transactions are small. Uh but over time you know, is when we have continued successes we're going to see that growth

Speaker 7: Okay, that's helpful. And then just on the NSR growth guidance, I think you maybe took it down slightly. And then the Q4 implies growth, I think, decelerating relative to Q3. I would think that assumes kind of a deceleration in PA, as you mentioned, and then a slight acceleration in INAF. But just curious how you're thinking about that. And then, you know, what do you need to see to hit the implied Q4 guide? Thanks.

Okay, that's helpful and then just on the NSR growth guidance. I think you maybe took down uh, slightly. Uh, and then the Q4 implies growth I think decelerating uh relative to Q3. I would I would think that assumes kind of a deterioration in pi, um, as you mentioned and then a slight acceleration and innies, but just curious, how you're thinking about that and then, you know, what do you need to see to hit the implied Q4 guide? Thanks.

Venk Nathamuni: Yeah, I'll take that. Fair question. I would say, you know, obviously, as you saw in Q3, pretty solid performance in terms of top line growth of 7%. So if you take the full year guidance of 5.5% and impute what it means for Q4, roughly similar outcomes. So I would say, you know, nothing significantly different from that standpoint. If anything, you know, the PA business should continue to hold steady as it has in Q3, which was a pretty substantial improvement quarter on quarter. And we're seeing similar performance in our INAF business as well. So very similar performance between Q3 and Q4, and we feel pretty good about where we stand right now.

Bob Pragada: And not decelerating.

Yeah, I'll take that. Uh, the third question I would say, you know, obviously as you saw in Q3 pretty solid performance in terms of uh, you know, Topline growth of 7%. So if you to take the full year guidance of 5 and a half percent and impute, what it means for Q4 roughly similar, uh, outcomes. So I would say, you know, nothing, you know, significantly different from that standpoint of anything. Uh, you know, the PA business should continue to to Hold Steady as as it has in Q3 which was a pretty substantial Improvement. Uh quarter on quarter and we're seeing similar uh performance in in our inaf business as well. So very similar performance between Q3 and Q4. And we feel pretty good about uh where we stand right now and not accelerating.

Krista: Your next question comes from the line of Kevin Wilson with Truist Securities. Please go ahead.

Your next question comes from the line of Kevin Wilson with truist Securities. Please go ahead.

Speaker 7: Hey, good morning. Calling on behalf of Jamie Cook. Thanks for the time.

Bob Pragada: Morning.

Speaker 7: Between water and environmental, can you speak to the trends for environmental specifically? Was this quarter a bit weaker than expected there? And then just how do you think about the differences in performance between water and environmental in the context of your long-term targets of, I think, 8% to 10% for water and 4% to 6% CACR for environmental over the next few years? Thanks.

Bob Pragada: Yeah, Kevin, as far as the projections that we put out on both of those as they break down, we're standing right behind them. In fact, right now our water sector is performing at higher than those rates today. So we see continued growth there. On the environmental piece, I really think that this is, and we kind of saw this in the early part of the calendar year on, you know, what was going on as an indirect impact of some of the US administration government actions that were being taken. And so some slowdown and some pausing in some of those environmental as well as federal infrastructure type of projects for the first half. And so we're, you know, we're seeing that from a year-on-year comp standpoint play out. Those are coming back.

Bob Pragada: And so I think, you know, as we move forward from the next quarter forward, you'll see that that environmental business started to inflect forward as kind of the regulatory environment starts to stabilize a bit. So we're seeing this as very near term in the environmental sector.

Environmental, um, over the next few years. Thanks, yeah. Kevin as far as the, uh, as far as the projections that we put out on both of those as they break down, we're standing right behind them. In fact, right now, our water sector is performing at higher than those rates, uh, today. So we see continued growth there on the environmental piece. I, I really think that this is, if we kind of saw this in the early part of the calendar year on, you know, what was going on as an indirect impact of some of the US, uh, Administration, um, government actions that were being taken. Uh, and so some some slowdown and some pausing in some of those environmental uh as well as as well as Federal infrastructure uh type of projects for the first half. And so we're you know we're seeing that from a year-on-year comp standpoint uh play out those are coming back.

Um, and so I think, you know, as we move forward from the next quarter forward, um, you'll see that that environmental business start to inflect, uh, forward as kind of the regulatory environment starts to to stabilize a bit. So we're, we're, we're seeing this as as very near-term in the environmental sector

Speaker 7: Got it. Thanks. And then for my follow-up, any update on the investment in PA Consulting? Last quarter, I know you made a point to highlight, you know, now we're, I think, six or seven months out from that March 2026 deadline. Just the range of options you're considering and how you think about valuation for that business. Thanks.

Bob Pragada: Yeah, continues to, the dialogue with our partners at PA continues to go well. We're being thoughtful. Both sides are being very, very thoughtful on how we look at performance, both from a retro standpoint as well as moving forward. And so the diligence that's going through and the collaboration on the synergistic value moving forward are all being incorporated into how we value as well as how we structure moving forward. There's been a lot of positive learnings as well as successes over the last four years. And we're structuring ourselves to where those moving forward are even going to unlock even more value in the combined partnership. So overall, I'd say positive.

Got it. Thanks. Um, and then for my follow-up, um, any update on the investment in in PA Consulting. Um, last quarter, I know you made a point to highlight, um, you know, now or I think 6 or 7 months out from that March 2026 deadline, uh, just a regular officer and and how you think about valuation for that business. Thanks.

Yeah, continues to the dialogue with, with our partners of PA continues to go. Well, um, we're being thoughtful, both sides are being very, very thoughtful on, uh, on how we look at, uh, uh, performance. Both from a, from a, from a retro standpoint, as well as, uh, moving forward. And so, uh, the diligence that's that's going through and, uh, and the collaboration on, um, the synergistic value moving forward are all being incorporated into, uh, how we value, as well as how we structure a moving forward. There's been a lot of positive learnings and as well as successes over the last 4 years, and, uh, and we're, we're structuring ourselves to where those moving forward. Are even going to unlock even more value in the, uh, in the combined partnership. So, overall, I'd say positive,

Krista: And that concludes our question and answer session. And I will now turn the conference back over to Bob Pragata for closing comments.

And that concludes our question and answer session, and I will now turn the conference back over to Bob, Regatta for closing comments.

Bob Pragada: Yes, thank you. We're excited about going forward, and we really look forward to next quarter as well as FY26. Really, really good momentum in the business, and we've demonstrated that over the course of this quarter. Thank you, everyone, for joining our earnings call. And we look forward to engaging with many of you over the coming days and coming weeks. And have a great rest of your day.

Krista: This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Yes, thank you. Uh, we're excited about, uh, about going forward and we really look forward to, uh, the next quarter, as well as FY 26. Uh, really, really good momentum in the business and we've demonstrated that over the course of this quarter. Thank you everyone for, uh, for joining our earnings call and we look forward to engaging with many of you over the coming days and coming weeks and have a great rest of your day.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.