Earnings Call Transcript - ACM Q2 2025

Operator, Operator

Good morning, and welcome to the AECOM Second Quarter 2025 Conference Call. I would like to inform all participants that this call is being recorded at AECOM's request. This broadcast is a copyrighted property of AECOM, and any rebroadcast of this information in whole or in part without prior written permission from AECOM is prohibited. As a reminder, AECOM is also simulcasting this presentation with slides on the Investors section of their website. Later, we will have a question-and-answer session. I would like to turn the call over to Will Gabrielski, Senior Vice President of Finance, Treasury, and Investor Relations.

Will Gabrielski, Senior Vice President, Finance, Treasury and Investor Relations

Thank you, operator. I would like to bring your attention to the safe harbor statement on Page 1 of today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. We use certain non-GAAP financial measures in our presentation. The appropriate GAAP reconciliations are incorporated into our materials, which are posted to our website. Growth rates are presented on a year-over-year basis unless otherwise noted. Any reference to segment margins or segment adjusted operating margins will reflect the performance for the Americas and International segments. When discussing revenue and revenue growth, we will refer to net service revenue or NSR, which is defined as revenue excluding pass-through revenue. NSR growth rates are presented on a constant currency basis unless otherwise noted. Today's remarks will focus on continuing operations. On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy and our outlook for the business. Lara Poloni, our President, will discuss key operational successes and priorities; and Gaurav Kapoor, our Chief Financial and Operations Officer, will review our financial performance and outlook in greater detail. We will conclude with a question-and-answer session. With that, I will turn the call over to Troy.

Troy Rudd, CEO

Thank you, Will, and thank you all for joining us today. The second quarter was defined by change, some anticipated and some unexpected. As we've done over the past 6 years facing events that created macroeconomic volatility, we successfully navigated the business to deliver strong results. Our second quarter results are a testament to the strength of our culture and of our professionals across the organization. Our teams are the best and brightest in our industry. Through their efforts, we deliver a technical advantage to every client and every project. Importantly, they showcase the competitive edge that we have created in our platform that allows us to deliver results. I want to highlight two recent notable accomplishments that demonstrate our industry-leading market position. First, E&R released its annual survey results last month, and I am pleased to report that we moved up one place in the distinction as the number one overall design firm. We also had our number one rankings in transportation, water, and facilities affirmed. When combined with our existing number one ranking in the environment, we hold a leadership position in each of our end markets. Second, in March, we were appointed as the sole venue infrastructure partner for the LA 2028 Olympic and Paralympic Games. We are honored to be selected for an unprecedented scope that includes all critical elements of architecture, engineering, planning, program management, and construction management. The unrivaled depth and breadth of our technical expertise, as well as our proven track record of delivering past iconic global sporting events, were essential in our success. No other company can rival what we offer and deliver to our clients on these types of large complex projects. Turning to our financial results, I'm pleased to report strong second quarter and first half financial results, highlighted by record second quarter NSR, margins, and EPS. Growth was highest in the Americas, our largest and most profitable region. IIJA spending continues to increase and with less than 35% of the total funding spent thus far, several years of strong federal funding for infrastructure remain for our markets. I should note, two items impacted our NSR growth. First, we had fewer work days in the quarter due to the timing of holidays. This reduced growth by approximately 100 basis points in the quarter. Second, we experienced isolated delays and deferred decisions on a limited set of projects, which impacted our top line growth. That said, these delays are not uncommon whenever there is a change in administration, and the impact to our backlog was minimal. The segment adjusted operating margin rose 90 basis points to 16.1%, which is a second quarter record. This increase reflects strong execution, growing contribution from higher-margin advisory services, faster growth in our highest margin markets, and ongoing continuous improvement initiatives. Our industry-leading margins include record investments in innovation, technical excellence and business development, all of which are accelerating in the second half of the year based on the opportunities ahead. Adjusted EBITDA increased by 8% to $290 million, and adjusted EPS increased by 20% to $1.25, both of which also set new second quarter highs. Free cash flow in the quarter increased by 141% to $178 million. We returned $110 million to shareholders during the quarter through share repurchases and dividends and $165 million in the first half of the year. Our returns-based capital allocation policy remains unchanged, and we will continue to allocate our consistently strong cash flow to the highest returning opportunities. This includes the $900 million remaining on our current share repurchase authorization. Looking ahead, our confidence for the rest of the year and beyond is supported by several key factors. First, our backlog increased quarter-over-quarter to a new record, driven by a 1.1 times book-to-burn ratio. Our underlying book-to-burn ratio was higher, but changes in a small number of government contracts following U.S. federal agency reviews resulted in the removal of approximately $100 million from the backlog. In addition, our pipeline of opportunities is also at a record level, and growth is fastest at the earliest stages of our pipeline, consistent with our expectations for several years of continued growth in our largest markets. Second, through our Competitive Edge platform, we are delivering record-high win rates, including 80% success on large enterprise-critical pursuits year-to-date and a better-than-50% win rate overall. Our consistent success comes from strategically deploying our best technical resources to the highest-value clients and opportunities, strong client relationships, and differentiated capabilities across the investment life cycle—from design to advisory and program management. Third, global megatrends remain robust, with $50 trillion in projected infrastructure investment through 2040 across transportation, water, and energy. Aging infrastructure, growing requirements for sustainability and resilience, and rising energy demand create a favorable backdrop that drives inevitable demand. Infrastructure enjoys strong bipartisan support across all of our markets and is an essential element of thriving economies. Fourth, we are investing to accelerate organic growth and expand our competitive advantage. This includes ongoing additions to our advisory and program management teams to meet growing demand as our clients navigate greater regulatory uncertainty and larger investments. This is consistent with our long-term objective of delivering 50% of revenue from advisory and program management over time. Lastly, against a backdrop of changing political dynamics and resulting policy shifts after the unprecedented number of elections last year, a few points bear repeating. The work we do for our clients is highly technical and critical to their missions. In fact, many projects that were paused have now resumed. Given the professional services nature of our work, tariffs are not expected to directly affect our business. Over 70% of our workforce is versatile across market sectors and can be deployed to the strongest growth opportunities. Deregulation and permitting reform are tailwinds to our business, and a declining public sector workforce has been a secular tailwind for our industry and increasingly a demand driver for advisory and program management services. To summarize, our first-half results were ahead of our initial expectations. Our backlog is at a record high. This performance underscores our confidence, and as a result, we are increasing the midpoint of our EBITDA and EPS guidance for a second consecutive quarter. With that, I will turn the call over to Lara.

Lara Poloni, President

Thanks, Troy. Our consistently strong results, including quarter-over-quarter growth in backlog to a new record, are a testament to the competitive advantages created by our strategy and our relentless focus on long-term value creation. These attributes enable us to deliver even during periods of increased uncertainty. I want to spend a moment discussing trends across our largest markets and how we are positioning to capitalize. Trends in the U.S. remain robust, which is our largest market at more than 50% of our net service revenue. We have built a record backlog driven by a 1.2 book-to-burn ratio in the quarter. As Troy noted, less than 35% of IIJA funding has been spent, but nearly all has been appropriated, and therefore not at risk of being cut. This creates a great deal of visibility for our clients and for us. Additionally, the passage of the continuing resolution in March provides our public sector clients with budget certainty for the remainder of the year. This includes our U.S. state and local clients, which account for approximately 30% of our revenue. Nearly half of our state and local revenue is from the transportation sector, with the remainder primarily for water and environment projects. All of these markets utilize dedicated funding sources be it the Federal Highway Trust Fund, dedicated tax or bond measures, user fees or regulatory drivers. In addition, 75% of our environmental remediation work is driven by state and local regulations, not federal, and we are seeing increased activity as a result. We are also well-positioned to capitalize on Department of Defense funding increases where we provide highly technical and mission-critical services. In fact, our pipeline of DoD opportunities was up by double digits over the prior quarter, and our win rate on these pursuits is materially above our enterprise win rates, bolstering our optimism and growth. Canada is strong as well with double-digit growth in revenue and backlog. Prime Minister Carney's election crystallized the country's ongoing commitment to infrastructure as evidenced by key elements of the new administration's $150 billion investment plan. In addition, Quebec unveiled its 10-year budget in March, which calls for a further 7% increase to its infrastructure investment forecast, providing for a strong market backdrop. Across our International segment, secular drivers are in place, but near-term trends remain mixed. In the UK, our largest international market, net service revenue and backlog both increased, and backlog is at an all-time high. While larger transportation projects continue to face delays while the UK government works through its budgetary challenges, our large positions on key frameworks create a stable level of activity through periods of reduced large project activity. In the intermediate term, AMP8 water investment is set to more than double AMP7 in the coming years. So far, our framework capacity is more than 150% higher than in the AMP7 program. This underscores that AMP8 is a key component of our target to double our global water revenue in the next five years. We are experiencing strong growth in energy, including our ongoing work for the multi-year grid upgrade program, as well as accelerating opportunities in the nuclear power market. To bolster our capabilities in this region, we recently acquired Allen Gordon, a Scottish water and energy consultancy, which enhances our UK and Ireland presence and client relationships. Turning to Australia, trends continue to be mixed. In the water sector, growth is accelerating, with several recent marquee wins, including our recent selection as the design delivery partner for Sydney Water's capital investment program. However, this growth has been offset by a pause in the transportation market following a robust decade of investment. Even so, our backlog increased by double digits in the quarter, and our pipeline remains strong, which are good indicators of future growth opportunities. Turning to the Middle East, revenue increased in the first half of the year. While the timing of holidays impacted our second quarter results, growth remains positive. The reprioritization from giga cities to projects for the World Cup and Expo is creating new opportunities. These events have delivery date fixed, which creates visibility for our industry-leading position over the next few years. Our backlog remains near all-time highs. Lastly, in Hong Kong, work is beginning on the $30 billion Northern Metropolis investment program. This quarter, we were awarded a contract to provide technical services for the Northern Metropolis highway that will enhance East-West connectivity, further demonstrating our leading market share in Hong Kong and the scale of opportunities ahead. Across these markets, one trend is clear: the demand for comprehensive design, program management and advisory services has never been greater. We are extending our competitive advantage with investments in key growth markets and ensuring that we continue to prioritize our resources to the best growth opportunities. I couldn't be more proud of our win rates, record backlog position and excellence in the marketplace. With that, I will turn the call over to Gaurav.

Gaurav Kapoor, CFO and COO

Thanks, Lara. Our second quarter and first half results underscore the strength of our professional services business model. As a result, we are raising our EBITDA and EPS guidance midpoints for a second consecutive quarter. Our second quarter results included records for net service revenue and margins, which contributed to 8% adjusted EBITDA growth and 20% adjusted EPS growth. Both metrics were second quarter records. Our backlog and pipeline are both at all-time highs. Within this, contracted backlog in the Design business increased by 5%, and our pipeline has now set new highs in four consecutive quarters, which supports our confidence in the second half of the year and beyond. As Troy articulated, our margins were strong in the quarter and have increased by 70 basis points year-to-date, which is modest patience for the first half of the year. There were no unusual items in our second quarter or first half margins. We are confident in delivering not only on our 16.1% margin guidance this year, but in going well beyond our 17% long-term target as the opportunities for continued improvements are becoming more apparent. This includes a growing share of higher-margin advisory services, continued advancement of our AI and digital initiatives, further growth in our enterprise capability centers and our focus on continuous improvement. Turning to our segment results, beginning in the Americas. NSR increased by 6%, including growth in both the US and Canada. Growth was broad-based across all of our end markets, underscoring continued client demand from long-term secular mega trends and continued robust funding from IIJA state and local budgets and provincial and national funding in Canada. The adjusted operating margin increased by 130 basis points to 19.4%, a new second quarter high. We continue to deliver further expansion in our industry-leading margins, which are unlocking the capacity to invest in high-returning organic growth at record levels. Importantly, our backlog in the Americas is at a record level, reflecting a 1.2 book-to-burn ratio. Our contracted backlog is also at a near-record level. In the International segment, net service revenue increased by 1%, reflecting the varied trends by market that Lara reviewed earlier. A few factors give us confidence as we look ahead. First, our backlog in the International segment is at a record high; second, our pipeline is also increasing, including substantial growth in early stages; and finally, we continue to expand our margins with an increase of 10 basis points to 11.1% in the quarter. Turning to cash flow and capital allocation, free cash flow increased by 80% in the first half of the year. As a result of this strong performance, we returned $165 million to shareholders through repurchases and dividends over this period. We maintained excellent balance sheet strength with net leverage of 0.7x and certainty of low cost of debt. Turning to guidance. As I mentioned, we are increasing the midpoint of our adjusted EBITDA and EPS for the full year, which are now expected to increase by 9% and 14% from the prior year. While we have experienced greater than expected volatility in certain of our end markets, we have built a track record of delivering through periods of uncertainty, which our first half financial results affirmed. As Troy noted, we will continue to execute on factors within our control, and our confidence is high in delivering on our full year goals. With that, operator, we are now ready for questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Your first question comes from the line of Michael Feniger from Bank of America. Your line is open.

Michael Feniger, Analyst

Thank you. Good morning, everyone. Just in terms of the guidance, Troy, it implies the second half healthy double-digit EBITDA growth. Can you just talk about your visibility into that level of growth in the second half? Is it more top line based? Is it more bottom line and the confidence in the profit margins, just given some of the uncertainty out there in the macro, I'm just kind of curious what your level of confidence is on that second half when we think of top line or bottom line looking at those margins?

Troy Rudd, CEO

Good morning, Michael. I'll start with the key point and then provide more detail. The key point is that we expect a balanced approach moving forward. We anticipate continued growth in our revenue, as we indicated earlier this year, which we attribute to the macroeconomic environment we had predicted. There has been an unprecedented number of elections leading to shifts in agendas. As we look ahead, we focus on our contracted backlog, which has seen mid-single-digit growth. Our overall backlog growth continues, and we have experienced significant wins this quarter, some of which do not directly impact our backlog. For instance, when we secure master services agreements or frameworks, we don’t register backlog until we are certain we have the work to perform under a task order. We are confident in the successes we have within our backlog, which gives us visibility into future work coming from the frameworks and MSAs we've secured that will impact the latter half of the year. Importantly, our pipeline is expanding. While there have been changes in its components, growth continues. As previously mentioned, we’ve seen early-stage growth, giving us insight for the upcoming quarters and beyond. We are optimistic about growth in the second half of the year and also for the long term, expecting balanced success in both NSR growth and margin improvement.

Michael Feniger, Analyst

Are we past the worst of the isolated delays and disruptions? Do you think these disruptions might continue? Were they more prevalent at the beginning of the quarter or towards the end in April? Please provide some context on those isolated disruptions and delays, and let us know if you and the company feel confident that we have a good handle on the situation.

Troy Rudd, CEO

I would say, yes. I think we have confidence that we have our arms around it. Are we finished with the delays? I don't think so. I think they're just sort of delays caused by different reasons. Initially, we saw delays based on decisions made after the U.S. federal election. As President Trump took office, there were some changes. Our clients in the federal government represent 8% or 9% of our overall NSR. So when we talk about disruptions, I don't want to give the impression that it's across the entire business. We certainly don't see that kind of change of disruption in the rest of our business; anything from what we typically see during the course of the year.

Michael Feniger, Analyst

Great. I'm just going to sneak 1 more in there. Just on the free cash flow. Last year, you guys hit a milestone. It was 10% free cash flow margin on net service revenue. How are you feeling tracking for 2025 given that first half performance? Is there some big giveback in the second half we should be aware of? Or is there some structural fit going on in the conversion rate that we should be plugging? Thank you.

Troy Rudd, CEO

I'm going to let Gaurav take that question.

Gaurav Kapoor, CFO and COO

Hey, Michael. How are you? Specific to free cash flow, and thank you for acknowledging it was a great milestone we achieved last year. That's going to continue to be our focus on an annual basis. We want to continue to meet that great milestone of 10% free cash flow conversion. But at the same time, quarter-to-quarter, our focus always is to have as good of a phasing as we can. In the first half, it was better than we have experienced in over a decade. We'll continue to challenge ourselves every quarter to be better than what we delivered in prior years. I think for the full year, your expectations are consistent in terms of 100% plus free cash flow conversion of our adjusted net income and trying to achieve that 10% to better that again.

Operator, Operator

Your next question comes from the line of Sabahat Khan from RBC Capital Markets. Your line is open.

Sabahat Khan, Analyst

Okay, great. Thanks, and good morning.

Troy Rudd, CEO

Good morning, Sabahat.

Sabahat Khan, Analyst

Could you provide an overview of your overall private sector exposure and the specific sectors you are focusing on? Also, considering the numerous headlines from the first quarter, how confident are your customers feeling in the private sector?

Gaurav Kapoor, CFO and COO

Saba, this is Gaur. I'll take that question. Private sector represents approximately 30% of our overall business. The most important note is our private business, that 30% of the overall enterprise number I gave you, it grew in the quarter. We're seeing the same trajectory for the remainder of the year as well. More importantly, it is not as cyclical as what one would normally associate with a private business environment if macroeconomic uncertainty continues. Two-thirds of our private business is water and environment related. It's regulatorily driven; large public utilities also need to perform environmental remediation work. We've been doing this work for decades. It's very consistent and predictable. The rest of the design business is focused on our facilities business end market, but it's for ports and airports, where the funding does come from the public sector. Another great example of that is on our facility sites; we press released the Olympics 2028. It's long-term work over the next three and a half years as we support that client for that event. So that's part of our private business as well.

Sabahat Khan, Analyst

Okay, great. And then maybe just, I guess, given all that is going on, it seems like the underlying business trends are good, the balance sheet is in good shape; but there’s obviously a lot of market volatility on the stock side. What are your perspectives on share buybacks and capital allocation here for the rest of the year?

Gaurav Kapoor, CFO and COO

I'll respond to that as well, Sabah. There's no change in our capital allocation strategy. We continue to execute our capital allocation strategy in the first half and in the current quarter. Specific to our repurchases, as we've told our investors, it will be consistent with the free cash flow we generate, which generally is second-half weighted for us.

Operator, Operator

Your next question comes from the line of Andy Kaplowitz from Citigroup. Your line is open.

Andy Kaplowitz, Analyst

Hey, good morning everyone.

Troy Rudd, CEO

Morning.

Gaurav Kapoor, CFO and COO

Morning.

Andy Kaplowitz, Analyst

So, I think we understand that you want to be conservative and also invest in your business. As you said, you were 70 basis points ahead on margin in the first half of the year versus 30 basis points guided. Maybe you could just give color into the better performance in the Americas? Are you expecting to invest more in the second half? Or maybe given international margin was only up modestly in Q2, you want to be conservative? I just think more color would be helpful.

Troy Rudd, CEO

Sure, Andy. When we think about investing to create improved margins, we consider that across the entire business. Recognizing that each geography and line of business has different natural margin profiles that we simply can't control, those are driven by the market or the size or scale of those businesses. However, as we think about how we continue to invest, we'll continue to invest heavily in the second half of the year, similar to what we did in the first half. We invest in several ways. First, we're always going to continue to invest in business development. Our pipeline continues to grow. We're not going to shrink away from investing in future work or future opportunities. Secondly, we continue to invest in driving efficiency in what we do. Whether that's in how we run the business or how we deliver our work, we'll continue to make those investments, which come in the form of technology or the way our teams collaborate and deliver projects. We continue to expand the use of enterprise capability centers because they drive great efficiency in delivering our work and ensure quality. Investments in technology to support the business and our capability centers will continue in the second half of the year.

Andy Kaplowitz, Analyst

Very helpful. And then maybe just like thinking about book-to-burn, you’ve had a strong book to burn at 1.1 year. Does the current environment allow you to continue to book that kind of level of work, Troy? And have you seen any incremental slowdown in May? Or is it sort of steady as she goes here? What markets are driving that growth?

Troy Rudd, CEO

The simple answer is yes, we have confidence that we'll continue to book more business than we burn in a quarter. This might be our 18th consecutive quarter of book-to-burn greater than one, which gives us some confidence that we know how to win work. Our win rates are at an all-time high. We win more than 50% of what we bid across the entire business. The other thing to consider along with our win rates is again our pipeline, which continues to grow. We have confidence that we will continue to book more work each quarter than we burn.

Andy Kaplowitz, Analyst

Thanks, Troy.

Troy Rudd, CEO

Thank you.

Operator, Operator

Your next question comes from the line of Adam Bubes from Goldman Sachs. Your line is open.

Adam Bubes, Analyst

Hi. Good morning. I wanted to circle back to the Americas margin performance, impressive, up 130 basis points year-over-year. You cited growth in higher-margin projects, continuous improvement. But wondering if we could just unpack that 130 basis points margin performance because it really stands out. What's the greatest driver of that margin expansion? Which higher-margin end markets are supporting that growth? Any color there would be helpful.

Gaurav Kapoor, CFO and COO

Hey, Adam, this is Gaurav. I'll take that question. The exceptional performance in margin in the Americas resulted from four key drivers. We've made significant organic investments over the past few years. The results we're seeing today are based on actions we've taken over the last two to three years. It's on high return on invested capital organic investments like our program management initiative that started five years ago, which has grown from 3% to now over 13% of our overall enterprise top line. Also, we invested in our advisory business in the second half of the year where we're already seeing very good early returns, and we've improved the rigor on pricing in that business. It's a byproduct of our capability centers, which provide the best technical capabilities and also benefit us when we're going to market in pricing, as well as the work we deliver for margins. Additionally, last year, we had significant restructuring. The full benefit of that restructuring is now reflected in our results. Those advantages, combined with our structured approach to managing margins and driving organic growth, helped enhance our performance.

Adam Bubes, Analyst

Terrific. Is there a way to provide context as to the magnitude of margin differential between advisory and program management and the balance of the business, and just how you're thinking about the potential for a mixed tailwind to margins as you folks continue to grow that part of the business?

Troy Rudd, CEO

Yes. Program management has margins, net margins, similar to our design business. The advisory business has margins that are higher than that. However, we haven't provided specific guidance on what those ranges look like, but you can be assured that they're better.

Adam Bubes, Analyst

Great. Thanks so much.

Troy Rudd, CEO

Thank you.

Operator, Operator

Your next question comes from the line of Steven Fisher from UBS. Your line is open.

Steven Fisher, Analyst

Thank you. Good morning. I would like you to clarify your expectations for the growth rate in the second half of the year. If we consider the midpoint of your organic growth rate, it seems you need to be at the higher end for the next few quarters. In response to Mike Feniger's question, you mentioned an EBITDA perspective, but I'm concentrating on the top line. Given your current visibility, do you believe you're targeting the midpoint at this stage? Do you think the existing uncertainty is making you consider the lower end? How are you approaching the growth rate expectations for the upcoming quarters?

Gaurav Kapoor, CFO and COO

Steven, this is Gaur. I'll take that question. As we move into the second half of the year, I think your calculations are spot on. To achieve the midpoint, we have to deliver. Our first half growth was impacted by fewer workdays. In the second half of the year, we will see some tailwind from that. Looking at our pipeline, backlog and contracted awarded backlog all give us good confidence in the second half. We're confident we will achieve the midpoint. That said, we are not overly precise—we have many ongoing contracts. A 50-basis point variance quarter to quarter is manageable. Our organic investments and confidence in those metrics will ensure we achieve our goals and metrics for shareholder value, which reflects our cash flow metrics as well.

Steven Fisher, Analyst

Super helpful. Continued good progress on the international margin front, albeit a little bit slower than the Americas to be expected, right? I guess I'm curious if you have a playbook of things that are within your control that you can implement to drive any more improvement in those international margins? I know selectivity has been a big focus area for you, for example. I’m curious if there's anything within your control that you're focusing on in the international side? Thank you.

Lara Poloni, President

Thanks, Steven. It's Lara. I mean, I think a lot of the drivers are similar to those mentioned earlier, so the strategy to leverage our enterprise capability centers is just as mature for example, in the International segment. This quarter was tempered in terms of top line growth; however, our pipeline was up 6%. Selectivity in terms of clients and key pursuits has been our focus, and we've had good wins in both the Americas and International segments. Frameworks are particularly important on the international side, especially in the UK. We have good coverage there, not just in transportation but also in AMP8. Spring statements, new planning and infrastructure bills, and the recent election outcomes will help accelerate momentum and pipeline focus with our core infrastructure clients as well.

Troy Rudd, CEO

I want to add an important point—when we evaluate markets, we not only focus on organic growth or margin improvement but also on return on capital. Even though certain markets may have lower margins, they can still yield excellent returns, an aspect of our business we consider when making decisions.

Steven Fisher, Analyst

Thank you very much.

Troy Rudd, CEO

Thank you.

Operator, Operator

Your next question comes from the line of Jamie Cook from Truist Securities. Your line is open.

Jamie Cook, Analyst

Hi, good morning. Just two follow-up questions. One, a nice quarter. Specifically, just given where we started, for the year, in international, what is your expectation for international margins year-over-year for the full year? Do we expect them to be flat? Or can they grow just again, based on where we are and understanding the American margins were very strong, just a clarification there.

Gaurav Kapoor, CFO and COO

Specific to international margins, we expect them to continue to improve over the year. We've made significant investments, and while we saw less growth than we anticipated in the first half, the investment in our people will drive return on investment. Our international business has potential for growth consistent with our margin guidance, though it may differ from our first-half results since restructuring benefits have contributed to those results.

Jamie Cook, Analyst

And then my second question, just on your longer-term margin targets, you target 5% to 8% top line growth and 20 to 30 bps of margin expansion. If we look at your actual performance, you continue to exceed expectations on the margin side, right? You're doing better than that 20 to 30 bps margin expansion, whereas top line seems more challenging. Is there any view that we could potentially switch the targets and have a more aggressive margin target and a less aggressive top line target?

Gaurav Kapoor, CFO and COO

I appreciate the observation, Jamie, but I think we'll continue to hold to the long-term targets we've established. We will remain committed to balancing our growth and margins.

Troy Rudd, CEO

Thank you.

Operator, Operator

Your next question comes from the line of Adam Thalhimer from Thompson Davis. Your line is open.

Adam Thalhimer, Analyst

Hey, good morning guys. I'm trying to think through the gross revenue versus net revenue. I think that’s starting to reflect, you talked about walking away from some construction management opportunities. Is that reflective of you deemphasizing construction management? Or is there something starting in construction management that would cause gross revenue to increase more in the coming quarters?

Troy Rudd, CEO

That's a good observation. It is a combination of two things. One is being thoughtful about the work we choose to do and the associated risks. In construction management, we have been working through a cycle and repositioning that business to focus on different types of work. As we burn off existing backlog, we see a decline in gross revenue. However, over time, as we fill that backlog with good projects, we will see that revenue improve.

Adam Thalhimer, Analyst

Okay. Perfect. Can you give us an update on the wind down of AECOM capital? Should we keep modeling something for that business in 2026?

Troy Rudd, CEO

No, you shouldn't.

Operator, Operator

And that concludes our question-and-answer session. I will now turn the call back over to Troy Rudd for closing remarks.

Troy Rudd, CEO

Again, I just want to end by complementing all of the folks here at AECOM. They've done an outstanding job working together to navigate an uncertain environment. Their extraordinary effort is reflected in our results. So thank you to our team, and thank you all for joining us today. Take care.

Operator, Operator

That concludes today's conference call. Thank you for your participation. You may now disconnect.