Executive Summary / Key Takeaways

• AECOM has successfully transformed into a focused, asset-light professional infrastructure consulting and advisory services firm by divesting its self-perform at-risk construction businesses, significantly reducing risk and enhancing profitability.
• The company holds leading market positions, ranking number one overall design firm and number one in key end markets (Transportation, Water, Facilities, Environment), supported by a record backlog and pipeline, and consistently high win rates, particularly on large, strategic pursuits.
• Strategic investments in higher-margin service lines like Program Management (now over 15% of NSR) and the emerging Water and Environment Advisory business (targeting to double to $400M NSR in three years) are expanding addressable markets and driving future growth.
• AECOM is leveraging technology, including AI and digital tools, and operational efficiencies through enterprise capability centers, aiming to significantly reduce work effort and underpin further margin expansion beyond the 17% long-term target.
• Strong financial performance in the first half of fiscal 2025, including record Q2 NSR, margins, and EPS, coupled with robust free cash flow generation and a returns-based capital allocation policy, supports increased full-year guidance and commitment to shareholder returns.

Setting the Scene: A Transformed Infrastructure Powerhouse

AECOM stands as a leading global provider of professional infrastructure consulting and advisory services, a position solidified through a deliberate strategic transformation over recent years. Incorporated in 1980, the company initially engaged in a broader range of activities, including higher-risk self-perform at-risk construction businesses. However, recognizing the opportunity to enhance profitability and reduce its risk profile, management initiated a strategic pivot starting in fiscal 2020, divesting these construction operations. This move reshaped AECOM into a more focused, asset-light firm centered on fee-based, knowledge-intensive services.

This strategic evolution has positioned AECOM to capitalize on immense global infrastructure megatrends. Projections indicate a staggering $50 trillion in infrastructure investment needed through 2040 across critical sectors like transportation, water, and energy. Aging infrastructure, the imperative for sustainability and resilience in the face of climate change, and rising energy demands globally create an inevitable and enduring demand for AECOM's expertise. The company's business model, primarily generating revenue from billing employee time and managing costs, is well-suited to serve this growing market need.

Technological Edge and Operational Efficiency

A cornerstone of AECOM's competitive strategy is its commitment to technological differentiation and operational efficiency. The company is actively investing in digital transformation, integrating advanced tools and artificial intelligence (AI) across its operations. This includes leveraging AI in areas like bid and proposal processes and developing use cases for business operations and project support.

A significant focus is on transforming the delivery of design and engineering work through digital initiatives. While specific quantitative metrics for all technologies are not detailed, management has stated that digital efforts, including the use of scripts and code, aim to reduce the amount of effort required to deliver work by 5% to 15%, with expectations that investments in AI could potentially make this number even larger. This technological push is complemented by the strategic use of enterprise capability centers globally, which drive efficiency and help manage labor costs while maintaining technical quality. These investments in technology and operational structure are designed to strengthen AECOM's competitive moat, enhance project delivery, and are expected to contribute significantly to future margin expansion.

Navigating the Competitive Currents

The engineering and infrastructure consulting market is dynamic, with several large, capable players vying for market share. AECOM competes directly with global firms such as Jacobs (J), Fluor Corporation (FLR), Quanta Services (PWR), and KBR (KBR), as well as smaller niche players and increasingly, in-house capabilities of large clients or technology firms offering digital alternatives.

AECOM has established itself as a market leader, evidenced by its number one overall design firm ranking by ENR and top rankings across all its key end markets (Transportation, Water, Facilities, Environment). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, AECOM holds an estimated aggregate market share of approximately 15% in its primary markets. Financially, AECOM demonstrates superior profitability compared to some rivals, with a TTM net margin of 3.85%, outpacing Fluor's estimated 3-4% and KBR's estimated 3-4%. Its cash flow generation is also robust, with a significant increase in free cash flow in the first half of fiscal 2025, providing financial flexibility.

However, competitors like Jacobs are noted for their technological agility, particularly in AI integration, which could offer efficiency advantages in specific project areas. Quanta Services holds a larger market share in certain overlapping segments, notably in utility infrastructure, reflecting its scale and specialized focus. AECOM's competitive advantage lies in its broad technical expertise, global reach, strong client relationships, and differentiated capabilities across the entire investment lifecycle, from design to advisory and program management. The company's consistently high win rate, exceeding 50% overall and reaching 80% on large enterprise-critical pursuits year-to-date, underscores its ability to secure significant work despite intense competition.

Segment Performance and Strategic Growth Pillars

AECOM operates through three reportable segments: Americas, International, and AECOM Capital. The Americas segment, encompassing the U.S., Canada, and Latin America, remains the largest and most profitable region. For the six months ended March 31, 2025, the Americas segment generated $6,008.7 million in revenue and $402.7 million in gross profit, achieving a gross profit margin of 6.7%. The segment's adjusted operating margin reached a new second-quarter high of 19.4%, driven by strong execution, growth in higher-margin advisory services, and operational efficiencies from enterprise capability centers. Growth in the Americas is benefiting significantly from increased IIJA spending in the U.S. (less than 35% spent) and robust provincial and national funding in Canada, where the company has seen double-digit growth in revenue and backlog.

The International segment, covering Europe, the Middle East, India, Africa, and Asia-Australia-Pacific, contributed $1,776.8 million in revenue and $156.2 million in gross profit for the six months ended March 31, 2025, with a gross profit margin of 8.8%. The segment's adjusted operating margin reached 11.1% in the second quarter, continuing its trend of expansion. While near-term trends in some international markets have been mixed due to political transitions and funding reprioritizations (e.g., temporary delays in UK transportation projects, shift from giga cities to World Cup/Expo projects in the Middle East), the long-term secular drivers remain intact. Key opportunities include the significant AMP8 water investment cycle in the UK, where AECOM has secured framework capacity more than 150% higher than in the previous cycle, and the $30 billion Northern Metropolis program in Hong Kong.

Beyond its core design and consulting services, AECOM is strategically expanding into high-value, complementary service lines. The Program Management business has grown significantly, tripling in size over the past four years and now accounting for over 15% of total net service revenue. Management is confident this business is on track to become the number one ranked firm in its category. Furthermore, the company is investing in the Water and Environment Advisory business, currently generating approximately $200 million in annual net revenue, with a target to double this to $400 million within three years. These advisory services leverage AECOM's deep technical expertise and command higher margins than traditional design work, contributing to overall profitability goals. The AECOM Capital segment, focused on real estate investment, is being wound down, with the team transitioned to a third-party platform, reflecting the company's focus on its core professional services.

Financial Health and Performance Trajectory

AECOM's strategic transformation and operational focus have translated into a strong financial performance trajectory. For the six months ended March 31, 2025, the company reported total revenue of $7,785.8 million and gross profit of $559.2 million. Income from continuing operations before taxes was $439.1 million, leading to net income from continuing operations attributable to AECOM of $331.4 million. Net income attributable to AECOM, including discontinued operations, was $310.4 million for the six-month period.

The company has demonstrated consistent margin expansion, with the segment adjusted operating margin reaching 16.1% in the second quarter of fiscal 2025, a 90 basis point increase year-over-year and a record for the quarter. This performance is driving adjusted EBITDA growth, which increased by 8% in Q2 2025 to $290 million, and adjusted EPS growth, which rose 20% to $1.25, both setting new second-quarter highs.

For the six months ended March 31, 2025, net cash provided by operating activities was $341.7 million. Free cash flow in the second quarter was $178 million, contributing to $249.98 million in comprehensive income attributable to AECOM for the six-month period.

AECOM maintains a healthy balance sheet with $1.60 billion in cash and cash equivalents as of March 31, 2025. Total debt stood at $2.55 billion, resulting in a TTM net debt of approximately $1.45 billion and a net leverage ratio of 0.7x as of Q2 2025, indicating strong financial flexibility. The company's returns-based capital allocation policy prioritizes high-return organic investments, followed by returning capital to shareholders. AECOM returned $110 million to shareholders in Q2 2025 through share repurchases and dividends, and $165 million in the first half of the year. The board increased the share repurchase authorization to $1.0 billion in November 2024, with approximately $899.2 million remaining as of March 31, 2025. The company also continues to grow its dividend, recently declaring a quarterly cash dividend of $0.26 per share.

Outlook and Risks

Management has expressed strong confidence in the company's outlook, supported by a record backlog and pipeline of opportunities. The backlog increased quarter-over-quarter to a new record, driven by a 1.1 times book-to-burn ratio in Q2 2025. The pipeline is also at a record level, with growth fastest at the earliest stages, signaling continued momentum.

Based on the strong first-half performance and positive indicators, AECOM increased the midpoint of its adjusted EBITDA and EPS guidance for fiscal 2025 for the second consecutive quarter. Adjusted EBITDA is now expected to increase by 9% from the prior year, and adjusted EPS is expected to increase by 14%. Management anticipates NSR growth to ramp up in the second half of the year, contributing to a balanced performance of both top-line growth and margin improvement. They are confident in delivering on the 16.1% segment adjusted operating margin guidance for the year and believe opportunities exist to go well beyond the 17% long-term target, driven by higher-margin services, digital initiatives, and continuous improvement. The company expects to continue generating strong free cash flow, targeting 100% plus conversion of adjusted net income and aiming to achieve or better the 10% free cash flow conversion of NSR.

Despite the positive outlook, several risks warrant consideration. Isolated delays and deferred decisions on some projects, particularly those tied to changes in government administrations, can impact near-term revenue growth, as seen in Q2 2025. While not material to the overall business, legacy liabilities from divested operations, such as the DOE and Refinery projects, and potential exposure as an indemnitor on divested business surety bonds, carry inherent uncertainty regarding potential outcomes and financial impact. Tax audits in various jurisdictions also present a risk of adjustments to uncertain tax positions. Macroeconomic volatility and political dynamics globally could continue to cause temporary market pauses or funding reprioritizations, although AECOM's diverse portfolio and agile workforce are mitigating factors.

Conclusion

AECOM's strategic pivot away from high-risk construction has successfully transformed it into a focused, high-value professional services leader. Leveraging its deep technical expertise, number one market rankings, and a robust global network, the company is well-positioned to capitalize on the significant and enduring demand for infrastructure investment worldwide. Strategic investments in Program Management and Advisory services, coupled with a commitment to digital transformation and operational efficiency, are expanding its addressable market and driving industry-leading margin expansion.

The strong financial performance in the first half of fiscal 2025, marked by record metrics and increased guidance, underscores the effectiveness of its strategy and execution. While global political and economic dynamics may introduce some near-term volatility, AECOM's record backlog and pipeline, high win rates, strong balance sheet, and returns-focused capital allocation policy provide a solid foundation for continued growth and shareholder value creation. The company's ability to consistently deliver on its financial targets and navigate market complexities reinforces the investment thesis centered on a resilient, profitable, and strategically focused infrastructure consulting powerhouse.