Jacobs Solutions Reports Q3 2026 Results: Full Earnings Call Transcript

Jacobs Solutions (NYSE: J ) held its third-quarter earnings conference call on Tuesday. Below is the complete transcript from the call. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

84 and a 27% increase in backlog to $29 billion. 30. S. Navy and Central Utah Water District, and an AI data center project for Hut 8 in Texas.

The company's AI infrastructure buildout now represents 11% of adjusted net revenue, reflecting a significant growth opportunity. Management expressed confidence in continued growth across key sectors such as life sciences, advanced manufacturing, and critical infrastructure, with particular strength in data centers and semiconductor sectors. Full Transcript OPERATOR Hello everyone. Thank you for joining us, and welcome to the Jacobs Solutions fiscal third quarter 2026 earnings conference call and webcast.

After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Berta Seaborn, Senior Vice President of Investor Relations.

Please go ahead. Berta Seaborn, Senior Vice President, Investor Relations Thank you, operator, and 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 2 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 3. Speaking on today's call will be Jacobs Solutions' 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 flow, and balance sheet data, as well as our updated outlook.

Finally, Bob will provide closing remarks. Then we'll open up the call for questions. With that, I'll turn it over to our Chair and CEO, Bob Pragada. Bob Pragada, Chair and CEO 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. 84, supported by more than 8% adjusted net revenue growth, all organic, and more than 100 basis points of year-on-year margin expansion. 1 billion in net revenue, a 10% increase year over year and a quarterly record for the segment.

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 FY26, which Venk will walk through in more detail shortly. Turning to slide 4, 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. 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 5, I'd like to highlight a few notable project awards from the third quarter. 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 Highline Improvement Project, which will modernize roughly 40 miles of aging canal infrastructure through new pipelines, a pump station, and 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. 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 Solutions is already under contract to lead design and engineering during construction. , located in Texas.

The multiphase campus is designed to support one gigawatt of total capacity. This award is a follow-on to Hut 8's Riverbend campus in Louisiana, where Jacobs Solutions 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 Solutions 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. And finally, PA is supporting the UK Royal Air Force's 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 6. 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 buildout. 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, and 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 buildout is increasing capacity requirements in the semiconductor industry, where we are a 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 buildout 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 I'll turn the call over to Venk to review our financial results in further detail. Venk Nathamuni, Executive Vice President and CFO Thank you, Bob, and 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, and adjusted net revenue, which excludes pass-through revenue, grew by over 8%. 2%, or 109 basis points higher year over year. This resulted in adjusted EPS increasing 14% year over year. 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 us 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 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 in Q3.

Operating profit increased 14% year over year on 10% net revenue growth. PA Consulting operating profit increased 2% on flattish 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 quarter to date. Now moving on to slide 10, we provide an overview of cash generation and our balance sheet for Q3. We generated $541 million in adjusted free cash flow, which removes the impact of $110 million 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.

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 remained 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, 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. 4 billion, and we see continued runway moving forward given our strong outlook for free cash flow.

5 times by the end of fiscal year 27. Please turn to slide 11 for our updated fiscal year 26 outlook. 30, 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%. 5% and our quarterly free cash flow to be approximately $150 million. 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.

Bob Pragada, Chair and CEO Thank you, Venk. In closing, I'd like to express my gratitude for the trust our clients continue to place in Jacobs Solutions 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. OPERATOR We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand, and to withdraw your question, press star one again.

We ask that you pick up your handset when asking a question for optimum sound quality, and if muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Andy Kaplowitz with Citigroup. Your line is open.

Please go ahead. Andy Kaplowitz, Analyst at Citigroup Good afternoon, everyone. Bob Pragada, Chair and CEO Hi, Andy. Good afternoon.

Andy Kaplowitz, Analyst at Citigroup So backlog growth has obviously been accelerating over the last several quarters. 2 times book-to-bill on net revenue, as you said. So I know it's early to talk about FY27, but your exit rate in Q4 will be in the double digit at 14%. So does that mean it's possible to grow FY27 net revenue faster than FY26, or at least at this point give much higher visibility than usual toward that normal algorithm of mid- to high-single-digit growth that you have?

Venk Nathamuni, Executive Vice President and CFO Yeah, Andy, I'll take the question. Yeah, so, you know, obviously, as you pointed out, good, solid growth in Q4 that we're projecting and good growth for the full year. You know, certainly our backlog is in a really good position. I think, you know, we will defer specifics on the growth algorithm for fiscal 27 to the next call.

But suffice it to say that looking at our current backlog position, we feel pretty good about growth, at least in line with the long-term average that we put out there. Andy Kaplowitz, Analyst at Citigroup Okay, that's helpful. And then, Bob, you had comments about sort of the data center business and life sciences advanced manufacturing in general. I mean, it does keep increasing as a percentage of NSR.

So maybe how are we thinking about that sector now versus, you know, your investor day a year and a half ago, whatever it was? You know, can you grow that business sort of double digits for the foreseeable future, you know, based on sort of what you see and maybe the share gains that you've had? Bob Pragada, Chair and CEO Yeah, Andy, we absolutely can. It's a growth engine right now that is deep and broad for us with the entirety of that ecosystem.

And if we look all the way from kind of 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.