Jacobs Solutions Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, operator, welcome everyone.

Following market close, we issued our earnings announcement, filed our Form 10-Q, and 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 our forward-looking statements, non-GAAP financial measures, and operating metrics. 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 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, we'll open up the call for questions.

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

Good afternoon, everyone, 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, I&AF posted nearly $2.1 billion in net revenue, a 10% increase year-over-year, and a quarterly record for the segment. 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 raise for FY 2026, which Venk 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 EBITDA 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. We're 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 Conservancy 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 enhanced recreation along the corridor. It's part of the district's broader Nebo Regional Water Project, an 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.

Shifting to life sciences and advanced manufacturing, Jacobs was awarded a sole-source EPCM contract by Hut 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 Hut 8's River Bend campus in Louisiana, where Jacobs is also leading program delivery. We'll apply proven design elements from that project and deploy our data center digital twin 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-Record's number one data center firm, a sector where we see substantial runway as AI investments increase. Finally, PA is supporting the U.K. Royal Air Force's Optimise 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, 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've been serving data center clients since the 1990s and have longstanding relationships with semiconductor manufacturers that span over 50 years.

Significant capital is being deployed to build AI data centers, we have been able to grow our addressable market by expanding our scope of services, which now range from technical advisory and design 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 a leading facility designer, 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, our pipeline of future opportunities continues to grow meaningfully. Now I'll turn the call over to Venk to review our financial results in further detail.

Thank you, Bob. Good afternoon, everyone. Please turn to slide number seven, where I'll walk through our results for Q3. Gross revenue increased more than 34% year-over-year, adjusted net revenue, which excludes pass-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 with our 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, strong recent awards activity positions us well as we look ahead to fiscal year 2027. 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-over-year growth, 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 remain 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 remains 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 nine, I'll provide a brief overview of our segment financials.