Jacobs Solutions (J) Q3 2026 earnings call transcript

Thank you, operator, and welcome everyone. Following market close, we issued our earnings announcement, filed our form 10Q, and posted a slide presentation on our website, which will reference during the call. I would like to refer you to slide two of the presentation for information about our forward-looking statements, non-GAP financial measures, and operating metrics.

Now let's turn to the agenda on slide three. Speaking on today's call, we'll be Jacobs Chair and CEO Bob Pragata and CFO Bank Nethamuni. 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, cash flow, and balance sheet data, as well as our updated outlook.

Finally, Bob 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, Bob Pragata.

Good afternoon, everyone, and thank you for joining us to discuss our third-quarter 2026 business performance. We delivered strong results in Q3. I'll quickly highlight a few key takeaways. First, adjusted EPS grew approximately 14% to $1.84, supported by more than 8% adjusted net revenue growth, all organic, and more than 100 basis points of year-on-year margin expansion.

Second, INAF posted nearly $2.1 billion in net revenue, a 10% increase year-over-year, and a quarterly record for the segment. And third, our backlog grew 27% to $29 billion, setting another new record with a trailing 12-month book-to-bill of 1.4 times on gross revenue and 1.2 times on net revenue. As we look ahead, we see continued strong underlying business momentum, as reflected by our third consecutive guidance raised for FY26, which Vank will walk through in more detail shortly.

Turning to slide four, we provide a detailed overview of the quarter. We are very pleased with our Q3 results. As strong operating performance paired with our lower share count, drove the sixth straight quarter of double-digit growth in adjusted EPS. Our margin profile continues to trend higher with our business achieving an adjusted margin above 15% in Q3, up over 100 basis points year-over-year, and up almost 200 basis points when compared to the same period in 2024. The combination of strong annual margin expansion, high single-digit organic growth, and continued share repurchases enabled by strong free cash flow generation has created a powerful earnings growth algorithm. Further, we are seeing convergence of backlog growth and overall revenue growth, and we are positioned to deliver another strong bookings performance in Q4.

Turning to slide five, I'd like to highlight a few notable project awards from the third quarter. In Water and Environmental, Jacobs is selected to provide program management and technical environmental services to the U. S. Navy's Environmental Restoration Program, primarily across the Mid-Atlantic and Puerto Rico. The work involves restoring contaminated sites, including PFAS and munitions-related projects, with the goal of reducing health and environmental risks and returning these sites to beneficial use. It extends our 40-year partnership with the Navy and underscores our leadership in delivering complex, high-impact environmental solutions.

This key win, as well as new awards with private sector clients, gives us increased confidence we will see a return to growth in the environmental sector in coming quarters.

Also in Water and Environmental, we were selected to deliver Central Utah Water District's Strawberry High Line Improvement Project, which will modernize roughly 40 miles of aging canal infrastructure through new pipelines, a pump station, a regulating reservoir, and related facilities. By converting a historic open canal into a modern pressurized system, the project will improve long-term water reliability for agricultural and municipal users, while supporting regional growth and enhance recreation along the corridor. It's part of the district's broader Nebo Regional Water Project, and approximately $1.5 billion program designed to sustain a doubling of the area's population in the coming decades. This also includes the South Utah Valley Regional Water Treatment Plant, where Jacobs is already under contract to lead design and engineering during construction.

Chifting Life Sciences and Advanced Manufacturing, Jacobs was awarded a sole source EPCM contract by HUD-8 to deliver Beacon Point, the company's second AI data center campus in the U. S. , located in Texas, the multi-phase campus is designed to support one gigawatt of total capacity. This award is a follow-on to HUD-8's Riverbend campus in Louisiana, where Jacobs is also leading program delivery. We'll apply proven design elements from back project and deploy our data center digital plan to simulate critical assets, helping to de-risk commissioning and reduce time to first revenue by accelerating the deployment of AI workloads. Initial energization is targeted for 2027. Winning a repeat sole source contract at this scale reflects the confidence clients place in Jacobs to deliver complex AI infrastructure with speed, safety, and certainty.

It also builds on our standing as engineering news records number one data center firm, a sector where we see substantial runway as AI investments increase. And finally, PA is supporting the UK Rural Air Forces Optimize Initiative, enabling RAF leaders to use data-driven insights to further strengthen operational readiness and decision-making in an increasingly complex environment. The work turns data into confident evidence-led decisions that support the RAF's readiness, and it reinforces our standing as a trusted delivery partner in the defense sector, delivering high-tempo programs that have real operational impact.

Now please turn to slide six. Given the growth tailwind we are seeing from AI investments, I wanted to take a moment to quickly highlight our position in the AI infrastructure build out. We have been serving data center clients since the 1990s and have long-standing relationships with semiconductor manufacturers that span over 50 years. Significant capital is being deployed to build AI data centers, and we have been able to grow our addressable market by expanding our scope of services which now range from chemical advisory and designed to digital twins and full program delivery. Further, the AI data center build out is increasing capacity requirements in the semiconductor industry where we are leading facility designer and we are leveraging our capabilities across water, environmental, power, and digital to further expand our market share with both private sector clients and utilities.

For context, as of Q3, the direct AI build out represented 11% of our adjusted net revenue up approximately 100 basis points from last quarter and our pipeline of future opportunities continues to grow meaningfully. Now turn the call over the bank to review our financial results in further detail.

Thank you Bob and good afternoon everyone. Please turn to slide number seven where I'll walk through our results for Q3.

Growth revenue increased more than 34% year over year and adjusted net revenue which excludes fast through revenue grew by over 8%. Q3 adjusted EBITDA was $367 million up 17% with our margin at 15.2% or 109 basis points higher year over year. This resulted in adjusted EPS increasing 14% year over year. Consolidated backlog was up more than 27% year over year to a record 29 billion dollars without trailing 12 month book to bill at 1.4 times. Book to bill was strong again in Q3 driven by good awards activity across our end markets with standout performance in the advanced manufacturing, environmental, and transportation sectors. Additionally, on a year over year basis, net revenue and gross profit in backlog increased 11% and 14% respectively during Q3.

We're demonstrating faster organic growth in the business today and strong recent awards activity positions as well as we look ahead to fiscal year 27. Regarding our performance by end market in infrastructure and advanced facilities, let's turn to slide number eight. At a high level, we continue to see strong growth rates in life sciences and advanced manufacturing as well as in critical infrastructure during Q3. Focusing on life sciences and advanced manufacturing, net revenue grew 24% in Q3. Our highest growth rate since we began reporting end markets in late 2024. Strong performance in the data center and semiconductor sectors contributed to substantial year-on-year growth and we anticipate that this trend will continue in Q4. We're seeing high demand for new projects across life sciences and advanced manufacturing, setting us up well for the new fiscal year.

Shifting to critical infrastructure, net revenue increased 9% year over year. Critical infrastructure trends remained similar to Q2 with transportation and energy and power activity leading to strong growth versus last year. We continue to expect critical infrastructure to grow in the mid to high single-digit range over the medium term. Net revenue growth in our water and environmental end market was a little more than 1%. Net revenue growth for water remained strong and as we indicated last quarter, we did continue to face year-over-year headwinds in the environmental sector. On a positive note, we're forecasting growth for the water and environmental end market to sequentially improve in Q4 based on good awards activity in the quarter.

In summary, strong life sciences and advanced manufacturing performance during Q3 was complemented by good demand across the majority of our sectors. Moving now to slide number 9, I'll provide a brief overview of our segment financials. In Q3, INAF operating profit increased 14% year over year on 10% net revenue growth. PA consulting operating profit increased 2% on flattest revenue and operating margin again came in strong at about 22%. Both segments saw only a minor operating profit growth impact from foreign exchange during the quarter. Focusing on PA, the segment experienced some temporary disruption from the recent change in governmental leadership in the UK which delayed project start dates. Importantly, we are already seeing a return to normal and our forecast indicates solid quarter-on-quarter revenue growth in Q4 supported by recent awards activity, new project commencements as well as performance for today.

Now moving on to slide 10, we provide an overview of cash generation and our balance sheet. For Q3, we generated 541 million dollars in adjusted free cash flow which removes the impact of 110 million dollars in payments related to proceeds for the PA transaction as we had indicated last quarter. This brings year to date adjusted free cash flow to 633 million dollars. Please note we will not make adjustments to free cash flow in Q4 and will return to providing guidance for reported free cash flow margin in fiscal year 27. Focusing on capital returns, we remain aggressive buyers of our shares during Q3 to take advantage of the dislocation in our share price. As a result, our total repurchases through Q3 rose to 614 million dollars which combined with dividends paid puts us on track to return more than 100% of free cash flow to our shareholders for the second consecutive year.

This brings total share repurchases since the beginning of fiscal year 25 to 1.4 billion dollars and we see continued runway moving forward given our strong outlook for free cash flow. Shifting out of the balance sheet at the end of Q3, our net leverage ratio declined to 1.8 times, achieving our target for net leverage to be below 2.0 times a quarter early and we still plan to deliver to approximately 1.5 times by the end of fiscal year 27. Please turn to slide 11 for our updated fiscal year 26 outlook. We are increasing our fiscal year 26 adjusted net revenue growth range to 9.5% to 10% year over year.

Narrowing our adjusted EBITDA margin range to 14.7% to 14.8%. Raising our adjusted EPS range to 7.20 cents to 7.30 cents and raising our adjusted free cash flow margin forecast to 8%. Notably our outlook for fiscal year 26 now implies nearly 19% year on year growth in adjusted EPS at the midpoint. As it pertains to Q4, we expect our adjusted EBITDA margin to be approximately 16% with year over year net revenue growth of approximately 14%. Furthermore, we expect our tax rate to be roughly 27.5% and our quarterly free cash flow to be approximately 150 million dollars. Overall, we're very pleased with our year to date performance and our Q4 outlook highlights that we expect a strong finish to fiscal year 26.

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

Thank you, Venk. In closing, I'd like to express my gratitude for the trust our clients continue to place in Jacobs and to our more than 47,000 talented employees for their continued commitment to delivering excellence. We're tracking very well heading into the final quarter of the fiscal year with strong Q3 performance enabling us to increase the midpoint of our full year adjusted EPS outlook for the third consecutive time. Our backlog is at record level and our pipeline continues to expand, positioning us for profitable growth in FY27 and beyond. Operator, we'll now open the call for questions.

Yeah, I think the question. So obviously, as you pointed out, good solid growth in Q4 that we're projecting and good growth for the full year. Certainly our back-up is in a really good position. I think we will defer specifics on the growth algorithm for fiscal 2017 on the next call. But suffice it to say that looking at our current back-up position will feel pretty good about growth. At least in line with the long-term average that we put out there.

Yeah, Andy, we absolutely can. It's a growth engine right now that is deep and broad for us with the entire today ecosystem. And if we look all the way from what we're doing in the high bandwidth memory chips, the water and power requirements that are feeding the data center and then the complexity that's going into the data center, our share is increasing. And the clients that we're working for have got long pipelines ahead. So the answer is absolutely yes.

Yeah. So, Sangeeta, the winds that we had in the quarter will start to burn in Q4. So, kind of that inflection point that we've always been telegraphing that would come at the end of the year. It's right in front of us. So, you'll see sequential growth in the quarter and then going into FY27 we're positioned extremely well to be on those growth rates that we highlighted during the investor day of that mid to high single digit growth for water and environmental. And the water sector continues to be high single digit growth for us. And the pipeline as well as the forward outlook is very bright. So, we're excited about the sector.

Yeah, Sangeeta. That's exactly right. You know, as our revenues compute, accelerate over the last several quarters and based on the guidance we've provided, we made a commitment to spend less than the revenue growth rate. And that's exactly what you see in terms of operating leverage. And you'll see more of that coming through in Q4 as well.

Yeah, Steve, I think if you look at the gross revenue book to build versus the net revenue book to build, let me kind of segregate those. The lumpiness in the gross revenue book to build where we would have a one five or one six. You probably even remember last year we had a one seven for a quarter. You know, that's going to come up and down as some of these larger full program delivery jobs are booked. But the 1.1 to 1.3 ish net revenue growth pretty consistent.

Yeah, so Steve, maybe I'll take the second part first and then then hone in on the Middle East. Internationally, we've done well. We're kind of in that 9% growth rate internationally. And that is probably more skewed a little bit to Australia, New Zealand, in Asia. The Middle East is stable and we've continued to do well there.

But I'd say the European areas, again, stable, mid single digits. So overall, internationally, we see some continued pipeline growth as well as stability as we look forward to Q4 as well as going into next year.

Yeah. First of all, thank you for your comments, Jamie. No, obviously, really good quarter. So I'll split the response into two halves. Like one is just focused on the net revenue growth as well as the margin expansion. So on the net revenue growth, you know, we in the Q4, so that in and of itself, you know, accounts for about 167%. So when it normalize it, you know, we are growing at 8% for the quarter. So given the fact that we grew 7.8% or 8.3% in Q3, we see good line of sight to be able to grow the 14% for Q4. That's number one. It's driven by the fact that the program Rams that we talked about in Q3 and in Q2, they are now coming into full fruition in Q4, which drives the utilization and we have good visibility into that.

So that's from a revenue perspective. When you look at it from a margin perspective, you know, we've done a pretty good job of increasing our margins sequentially over the last three quarters, as well as year on year. As you recall, you know, I think we started the year at 13.4. We went to 14.1, and then this quarter we're at 15.2, so 110 basis points of sequential growth, as well as good year on year growth. And what we're guiding for in Q4 is 16%. So really good line of sight to be able to achieve that, you know, with the increased utilization that we talked about, as well as increased use of global delivery. So a really good visibility into achieving those targets for both revenue, as well as even our margin.

And Jamie, I think on the question that you had with regards to 27 and where we can see that continued margin expansion, I'd say it's pretty balanced that we would continue to get it from both INAF as well as PA consulting, because we're right in the middle of the cost energies that we're working on with PA consulting. Just as a reminder, PA consulting does have the highest margins in that space. So, you know, we're continuing to grow on a base that's really high.

Yeah, Andy, I'll take that question. I would say, you know, obviously, you've seen with this Q3 print, you know, the gap between GAP and non-GAP EPS was primarily driven by just a tax item. But overall, you've seen a pretty significant, you know, convergence between our GAP and non-GAP numbers, except for the PA acquisition. So from that standpoint, we feel pretty good about the quality of the earnings. And we will continue to make additional progress in Q4 and beyond. You'll see it from both the P&L side, as well as in the free cash flow side. And, you know, we've already taken M&A off the table. So, you know, you don't have to expect a lot of these variances between GAP and non-GAP going forward.

So our view is that, you know, with Q4, as we stated on the Q3 call, the fact that there was a tax delta because of how the PA compensation expenses was treated. So that'll have an impact on Q4, because it's for the full fiscal year. But going forward, that gap will reduce substantially and will be more in line with our non-GAP and GAP tax rates.

Yeah, Andy, happy too. So, we had two sizable winds in the private sector. And, of course, I can't name the two clients, but they are in the industrial space. So, private sector, industrial space, long-term contracts that we won, and we were successful in the book to build, ironically, are as a result in the quarter was over 1.3 just for the environmental business. So, that balance between private and public, we're holding true to it, because in the public sector, those things that you just mentioned with regards to PFAS and the DOD continuing to go back to some of those regulatory items that got paused in 2025. We're capitalizing on that work too. So, going into FY27, we're feeling confident that our environmental business will return back to the levels that we previously had.

Yeah. So, Chad, thanks for the question. So, I'd say, as you pointed out, good expansion in margins both sequentially as well as on a yearly basis. As you may recall, when we announced our margin trajectory at the February 2025 invested day, we laid out specific things in terms of the drivers of the margin. I'd say we've shown, as Sangita pointed earlier, good operating leverage that continues to be a part of the core principle to drive continued margin expansion. So, that'll be a mainstay going forward. But in addition to that, with the other three buckets you might recall, we talked about mixed. We talked about the commercial models and then also use a global delivery. Really good progress in global delivery, especially with our lifelines and advanced manufacturing businesses, use a lot of global delivery implementation.

So, that's driving a lot of the margin expansion. I'd say in the mix site, you'll see more of an impact coming in FY27 and beyond. But operating leverage and global delivery are the bigger drivers in the first four or five quarters since we announced the targets. So, we're on track in terms of margin expansion. And just for everybody's benefit, you'll recall that in fiscal year 25, we increased our margins by 110 basis points.

And in fiscal year 26, at the midpoint of the guidance that we've provided, that'll represent another 90 basis points of margin expansion. So, 200 basis points of margin expansion, which we think is industry leading. And we have lots more margin expansion ahead of us as well.

Yeah, there's complexities that are going on, Chad, that I'd say is increasing our scope. So, that 800 volt DC solid state transformer is a big deal, as has been well publicized. But I'd say I wouldn't point to that as the single source of that reflection point. The complexity and all of the utility requirements to feed the next generation of chips is increasing the complexity as well as the scale. And so, that's where it's in the sweet spot of Jacobs. And so, if we look at the clients that we're working for, not just the hyperscalers, but also the neoclouds, we're on that journey with them. And hence, you can see the results in our performance.

So, a lot there, Mike, let me kind of take one at a time with regards to critical infrastructure. Again, really solid means our transportation, business, energy and power in cities and places. Transportation business continues to be a real growth vector for us in all geographies and growing at a high single digit rate. I'd say the sub-sectors that are channeling that growth are around aviation, the rail business globally, as well as in the ports and maritime world. Highways and bridges was a nice element in Q3, but those three, you know, we've got a market leading position there and we're seeing a lot of activity there. EMP has been really, really strong. Double digit growth predominantly in the U. S. around our T&D efforts, and I'd say outside the U. S. more on the generation side.

And so if you think Soot-Link or Marinist-Link, you know, the renewables effort that's going on outside that the U. S. has really been a nice growth trajectory for us. And then in cities and places, nice growth in the U. S. that cities and places team has some really, really strong building design capabilities, which we're able to not only apply to venues, but also is been, you know, with the resource needs that we have in data centers. That team has really been facilitating that growth that we're seeing in the data center business. I'd say probably the one area that we continue to monitor is a bit of a, I'd say temporarily pause in the Middle East or grew in the Middle East overall because of our utility work.

But that would be the only area where I'd say a little bit of a pause, but definitely some pipeline work that would show upside next year. On IJA, you know, we actually feel we've been saying this for a while with a possible extension going into December. You know, we feel like the funding flows coming from IJA will continue. We've always said that there was always a two to three year lag from the expiry date, just as monies are obligated and then spent. We're still kind of at that 50% level spent. And so going into the midterms and coming out of the midterms and everything that's being set up for Build America 250, you know, hopefully next year, the funding levels have been pretty solid as a result of those stimulus bills and will continue on feeding all those things that I for mentioned around transportation.

PA, I'd say the areas where we're starting to see some real growth, again, notwithstanding my comment in Q3 on the kind of the temporary disruption that we're already seeing come back in July. Defense and security in Europe, as the U. K. M. O. D. has taken a leadership position on what an independent Europe defense posture looks like. PA is right in the middle of that. And the synergies with the U. S. with Jacobs in the INF business on setting up that defense infrastructure, whether it be ports and maritime or manufacturing facilities for the defense primes, is something that we've already started to see some nice progress there. And the transportation in the U. S. , PA's got a strong presence in the U. K. And that's serving as a nice synergistic value as we look at the U. S. and the revenue synergies coming out of the PA relationship.

So hopefully that gives you kind of a broader overview.

Maybe I'll take the front part of that and then, Venk, you can take kind of how much of that is in backlog. So Andrew, our backlog growth just in the data center space has been significant. And I'd say kind of in the order of doubling over the period of time, the pipeline has gone up 3x. And so the visibility that we see before was probably six to nine months. We're getting visibility into the pipeline that extends out two to three years. And so this is something that we see and again, we're being selective because there is also a lot of speculative work that's out there. So the work that we are that we are pursuing, let me back up, winning, executing, and continue to pursue, are those where they're established customers of ours that we've had for a while, the neocloud providers are coming in, are normally backed by folks that we've known for a long time within the hyperscale world.

So overall, really strong trajectory in the data center space.

Yeah, and I've extended beyond this and it's just the overall AI ecosystem. You recall last quarter, we said it was roughly 10% of our business. Now it's at 11% and the growth is actually accelerating. So we are doing a good job of converting that backlog into real revenue. And that's driving not only growth for us in Q4, but we expect significant growth in fiscal 27, which will quantify.

I also want to add to this, the previous question about revenue synergy is obviously AI is a big part of what PA does as well in terms of implementing agent AI for not only their clients, but it's an opportunity for us to also use it internally, both within the PA ecosystem as well as the Jacobs ecosystem. So AI is really a big driver of our growth for us. And you've seen that being demonstrated in terms of our revenue growth, but also over time with margin expansion.

Short answer Andrew is absolutely yes. Our customers are pushing us to accelerate those designs. And we're working for the the largest high bandwidth memory chip manufacturer in the US today. So that pipeline continues to grow. And now with the announcements that you've heard from Intel moving forward, as we've publicly stated, we've been the engineer of record for Intel for a couple of decades. And in that relationship, we stayed with them during this kind of slower time. And we're starting to see that pipeline grow going in the 27.

Well, thank you everyone for joining us for our earnings call. We look forward to engaging with many of you over the coming weeks and have a great evening.