Executive Summary / Key Takeaways

• Strategic Pivot to High-Margin Services: AECOM has successfully transformed into an asset-light, knowledge-based professional services firm, divesting its at-risk construction businesses to focus on high-margin advisory and program management, which now account for a growing share of revenue.
• Record Profitability and Strong Financials: The company achieved a record 17.1% segment adjusted operating margin in Q3 2025, exceeding its long-term target over a year early, driven by organic growth investments and operational efficiencies. Adjusted EBITDA and EPS are projected to increase by 10% and 16% respectively for fiscal 2025.
• Technological Edge and Innovation: Significant investments in AI and digital transformation are enhancing productivity and service delivery, expected to materially impact the business over the next three years by reducing delivery effort by over 15% and further expanding margins.
• Robust Market Tailwinds and Backlog: AECOM is capitalizing on accelerating global megatrends in infrastructure, sustainability, resilience, and energy, reflected in a record backlog and pipeline, with a book-to-burn ratio exceeding 1 for 19 consecutive quarters.
• Disciplined Capital Allocation: Strong free cash flow generation, exceeding $700 million in fiscal 2024 and growing 27% year-to-date in Q3 2025, supports high-returning organic investments, substantial share repurchases, and a rapidly growing dividend (20% CAGR over three years).

The Foundation: A Global Infrastructure Leader Reshaping Its Future

AECOM, a global leader in professional infrastructure consulting, has meticulously reshaped its operational landscape over the past five years. Incorporated in 1980 and known as AECOM Technology Corporation until 2015, the company embarked on a pivotal strategic transformation in fiscal 2020. This involved divesting its capital-intensive, self-perform at-risk construction businesses to concentrate on its core strengths: fee-based, knowledge-intensive professional services. This strategic pivot has been instrumental in driving a more predictable, higher-margin business model.

The company operates primarily through two main segments: Americas and International, complemented by a winding-down AECOM Capital segment. The Americas segment, encompassing the U.S., Canada, and Latin America, focuses on planning, design, and construction/program management across transportation, water, government, facilities, environmental, and energy markets. The International segment provides similar services across Europe, the Middle East, India, Africa, and Asia-Australia-Pacific. This geographic and sectoral diversification positions AECOM to capture opportunities arising from multi-decade secular megatrends.

The global engineering services market is projected to grow from $1.1 trillion in 2024 to $1.55 trillion by 2034, fueled by AI adoption, renewable energy expansion, and smart city investments. North America leads this market, with the Middle East emerging as the fastest-growing region. These trends create a fertile ground for AECOM's specialized expertise.

Competitive Landscape and Differentiated Technology

AECOM holds a commanding position in this fragmented industry, recognized by Engineering News-Record (ENR) as the number one overall design firm. It also boasts top rankings in critical sectors including transportation, water, environment, and facilities. This market leadership is a significant competitive advantage, translating into a record-high win rate of over 50% across all bids, and an impressive over 80% success rate on its largest and most strategic pursuits. This sustained success is a testament to its unmatched technical expertise, global scale, and deep client relationships.

Key direct competitors include Jacobs Engineering Group Inc. (J), Fluor Corporation (FLR), and KBR Inc. (KBR). While Jacobs is strong in digital transformation and integrated project delivery, and Fluor excels in specialized industrial construction, AECOM differentiates itself with a broader international presence and an integrated service model that combines consulting, design, and program management with a unique, albeit winding down, real estate development component. This allows AECOM to offer end-to-end solutions, often providing greater efficiency in complex, multifaceted infrastructure projects than its more specialized rivals. For instance, in the UK's AMP8 water program, AECOM secured 100% of recompetes and 60% of new frameworks, demonstrating its ability to gain market share against competitors.

AECOM's competitive moat is further strengthened by its technological differentiation and innovation. The company has been making significant investments in Artificial Intelligence (AI) and digital initiatives since mid-2023. This core technology is not merely a supplementary tool; it is fundamentally transforming how AECOM delivers its services and operates its business. Management explicitly states that AI is already impacting margins and results, with a "visible, material, and really favorable impact" expected over the next three years.

The tangible benefits of this technological edge are quantifiable. AECOM aims to reduce the effort required to deliver work by over 15% through its digital transformation efforts, an increase from its previous 5-15% guidance. This is achieved through several initiatives:

• AI-powered Bidding: AI tools are actively used across the organization to prepare bids, streamlining the proposal process and enhancing competitiveness.
• Operational Support: AI supports internal business operations and project management, driving efficiencies in back-office functions and project execution.
• Design and Engineering Transformation: The company is actively developing AI applications to fundamentally change how design and engineering work is delivered, promising profound impacts on productivity and quality.
• Enterprise Capability Centers (ECCs): These global centers leverage advanced digital tools and a shared workforce model to deliver a growing proportion of total labor hours, enhancing efficiency and quality across projects. The goal is to reach "middle digits" in total labor hours delivered through ECCs in the short to medium term.

These technological advancements contribute directly to AECOM's competitive moat by enabling higher efficiency, superior quality, and faster project delivery. This allows the company to maintain its pricing power, expand margins, and solidify its market positioning, particularly in complex projects where integrated, tech-enabled solutions are paramount.

Strategic Pillars: Driving Growth and Profitability

AECOM's strategic narrative is built on expanding its high-margin professional services, leveraging its technical expertise, and disciplined operational execution.

Program Management and Advisory Expansion

The company's Program Management (PM) business has been a significant growth engine, increasing threefold over the past four years to account for over 15% of total Net Service Revenue (NSR) by Q1 2025. This segment is on track to become the number one ranked global PM firm, having won nearly 90% of its largest PM pursuits in fiscal 2025. PM services offer margins "very similar to our design business," providing a robust and growing revenue stream.

Building on this success, AECOM is investing in its next $1 billion NSR platform: Water and Environment Advisory. This business, currently generating approximately $200 million in annual NSR, is expected to double within three years. It blends strategic advice with AECOM's market-leading technical and domain expertise in water and environment, addressing growing client demand for infrastructure-informed advisory services. Advisory services command margins "actually higher than" those of the design and program management businesses, offering a significant boost to overall profitability. Opportunities in this space include the $70 billion Digital Water market and the $200 billion non-revenue water market, where AECOM is already securing major projects like advanced metering infrastructure. The long-term objective is for Program Management and Advisory Services to collectively represent at least 50% of the company's business.

Operational Excellence and Market Focus

AECOM's operational strategy emphasizes continuous improvement and a focus on high-growth, high-return markets. The Americas segment, its largest and most profitable, consistently leads in NSR growth and margin expansion. This is driven by robust funding from the Infrastructure Investment and Jobs Act (IIJA), strong state and local budgets, and significant provincial and national funding in Canada. The U.S. market, in particular, remains a powerhouse, with only 36% of IIJA funding spent, indicating years of continued growth.

Internationally, while some markets like Australia have experienced near-term budgetary constraints impacting transportation awards, long-term demand drivers remain strong. The UK, AECOM's largest international market, is benefiting from a 10-year infrastructure strategy committing £725 billion, with substantial investments in water (AMP8 program expected to more than double AMP7 spending), energy, and transportation. The Middle East also presents significant opportunities, with investment reprioritization towards World Cup and Expo infrastructure in Saudi Arabia and growth in the UAE. AECOM's agile workforce, with over 70% of professionals fungible across market sectors, allows it to quickly pivot resources to the most promising growth opportunities globally.

Financial Performance: A Story of Execution and Value Creation

AECOM's financial results underscore its successful strategic transformation and operational effectiveness. In the third quarter of fiscal 2025, the company surpassed expectations, with organic Net Service Revenue (NSR) growth accelerating to 6%, led by an impressive 8% growth in the Americas. This performance contributed to a record 17.1% segment adjusted operating margin, a 90 basis point improvement year-over-year, achieved without extraordinary items and exceeding the long-term target over a year ahead of schedule.

For the three months ended June 30, 2025, revenue increased by 0.7% to $4.18 billion, while gross profit surged by 14.7% to $326.9 million, reflecting the shift to higher-margin services. Income from operations grew by 29.2% to $294.1 million. Net income attributable to AECOM was $131.0 million, with diluted EPS at $0.98. On a year-to-date basis (nine months ended June 30, 2025), net income attributable to AECOM soared by 92.2% to $441.4 million, and diluted EPS increased by 97.0% to $3.31, benefiting from a lower tax rate compared to the prior year.

Segment-wise, the Americas continued its exceptional performance, with an adjusted operating margin reaching a new quarterly record of 20.5%, up 120 basis points year-over-year. This was driven by growth in its largest market and high-returning organic investments. The International segment also showed margin improvement, with its adjusted operating margin increasing by 20 basis points to 11.9%, despite varied market trends.

AECOM's liquidity and capital resources are robust. Free cash flow increased by 27% year-to-date in Q3 2025, reaching a new all-time high. The company is on track for at least 100% free cash flow conversion for the full year, a benchmark achieved for five consecutive years.

This strong cash generation has fueled significant shareholder returns, with nearly $240 million returned year-to-date in Q3 2025 through share repurchases and dividends. The balance sheet remains strong, with net leverage at a low 0.6x and no significant debt maturities until 2029. The company also proactively managed its debt profile by issuing $1.2 billion in 6.0% Senior Notes due 2033 in July 2025 to repurchase most of its 2027 Senior Notes.

Outlook and Investment Implications

AECOM's management is highly confident in its fiscal 2025 outlook, having raised guidance for the third consecutive quarter. The company now expects full-year adjusted EBITDA and EPS to increase by 10% and 16% respectively at the midpoint. The full-year segment adjusted operating margin guidance has been raised to 16.5%, representing a 70 basis point increase over the prior year—more than double the 20-30 basis point annual improvement outlined in its long-term framework. This indicates that current margins are a sustainable "run rate" and not a pull-forward from future performance, with significant upside still remaining.

The long-term outlook remains equally compelling. AECOM targets a 5% to 8% NSR growth rate and is confident in achieving a 17% segment adjusted operating margin exiting fiscal 2026, with expectations to exceed "17-plus percent" thereafter. This continued margin expansion will be driven by ongoing investments in high-returning organic growth initiatives, particularly in Program Management and Advisory services, and the accelerating impact of AI and digital transformation. The company's record backlog of $17.9 billion, with 59% expected to be satisfied within the next twelve months, provides strong revenue visibility.

The "Big Beautiful Bill" in the U.S. is expected to enhance opportunities through tax incentives for onshore manufacturing, data center expansion, and energy infrastructure. Permitting reform, streamlining project approvals, is also seen as a significant tailwind, accelerating project timelines and attracting more capital. These macro trends, combined with AECOM's strategic focus on high-value, knowledge-based services and its technological leadership, position the company for sustained growth and profitability.

Risks and Mitigations

Despite a strong outlook, AECOM faces several risks. Macroeconomic volatility and shifts in government administrations can lead to isolated project delays and deferred decisions, as observed in Q2 2025, particularly within the U.S. federal government (which represents 8-9% of NSR). International markets, such as Australia and the UK, have also experienced near-term budgetary constraints impacting larger transportation awards.

The company has a disciplined risk management culture, demonstrated by its willingness to decline projects with onerous commercial risk profiles, prioritizing long-term value over short-term revenue. Legal and contingent liabilities, such as the $53.0 million loss from a refinery turnaround project in Q3 2025 and ongoing claims against the Department of Energy, pose financial risks, though the company is actively pursuing appeals and recoveries. Tax audit risks, including potential adjustments to uncertain tax positions, also exist. However, AECOM's diversified portfolio, agile workforce, and focus on mission-critical projects help mitigate these challenges, ensuring resilience in a dynamic operating environment.

Conclusion

AECOM's journey from a diversified engineering and construction conglomerate to a focused, asset-light professional services and advisory leader is yielding impressive results. The company's strategic pivot, underpinned by its market-leading technical expertise and aggressive adoption of AI and digital technologies, is driving record profitability and strong cash flow generation. This transformation, coupled with a disciplined capital allocation strategy, positions AECOM to capitalize on the accelerating global demand for infrastructure, sustainability, and energy solutions.

With a record backlog, a robust pipeline, and a clear roadmap for continued margin expansion and organic growth, AECOM is not just participating in the infrastructure boom; it is actively shaping it. The company's ability to consistently deliver on its financial commitments, while strategically investing in its future and returning substantial capital to shareholders, reinforces its compelling investment thesis as a high-quality, growth-oriented leader in the global infrastructure market.