really good line of sight to be able to achieve that I know with the increased realization that we talked about as well as increased use of global delivery so a really good visibility into achieving those targets for both revenue as well as EBITDA margin and Jamie I think on the on the question that you had with regards to 27 and where we see that continued margin expansion I'd say it's pretty balanced that we would continue to get it from both INAF as well as PA consulting because we're right in the middle of the cost synergies that we're working on with PA Consulting. Just as a reminder, PA Consulting does have the highest margins in that space. So, you know, we're continuing to grow on a base that's really high.

Thank you. Your next question comes from the line of Andrew Whitman with Baird. Your line is open. Please go ahead.

Yeah, great. Thanks for taking my question. So I just think I heard a comment that you said in the fourth quarter you're going to report free cash flow without any adjustments and that's great is there a similar comment that you can make like that um related to your income statement uh i know that obviously over a year ago you announced some um actions for the for the for the iaf uh segment uh but but now bob you just mentioned that you're kind of integrating pa so um what should uh the investment community expect in terms of income statement adjustments between GAAP and non-GAAP, and not just maybe for 4Q, but how long are you going to continue to recognize something there, and when can those two converge? Thanks.

Yeah, Andy, I'll take that question. I would say, you know, obviously you've seen with this Q3 print, you know, the gap between GAAP and non-GAAP EPS was primarily driven by just a tax item, But overall, you've seen a pretty significant, you know, convergence between our gap and non-gap numbers, except for the PA acquisition. So from that standpoint, we feel pretty good about the quality of the earnings. And we will continue to make additional progress in Q4 and beyond. You'll see it from both the P&L side as well as in the free cash flow side. And, you know, we've already taken M&A off the table. So, you know, you don't have to expect a lot of these variances between GAAP and non-GAAP going forward. So our view is that, you know, with Q4, as we stated on the Q3 call, the fact that there was a tax delta because of how the PA compensation expenses was treated. So that'll have an impact on Q4 because it's for the full fiscal year. But going forward, that gap will reduce substantially and will be more in line with our non-GAAP and GAAP tax rates.

Got it. I guess just on my follow-up, then, I wanted to dig in on the environmental side. Obviously, it sounds like you had some wins here in 3Q that are going to help that growth rate improve in 4Q. I just was hoping you'd be a little bit more specific. Are these – is there a general context to something? Is this state and local? Is this federal money flowing better? Is this PFAS? I mean, there's lots of different things that you do in this. And just thought that since this is an area that seems to be undergoing a little bit better momentum, maybe you'd want to elaborate on that a little bit more.

Yeah, Andy, happy to. So we had two sizable wins in the private sector. And unfortunately, I can't name the two clients, but they are in the in the industrial space. So private sector, industrial space, long term contracts that we won and we were successful in the book to bill, ironically, are as a result in the in the quarter was over one point three just for the environmental business. So that balance between private and public, we're holding true to it because in the public sector, those things that you just mentioned with regards to PFAS and the DOD continuing to go back to some of those regulatory items that got paused in 2025, we're capitalizing on that work too. So going into FY27, we're feeling confident that our environmental business will return back to the levels that we previously had. Great. Thank you.

Your next question comes from the line of Chad Dillard with Bernstein. Your line is open. Please go ahead.

Hey, good evening, everyone. So a question for you guys on the infrastructure and advanced facilities business. Looks like on a constant currency basis, margins are about 50 basis points. Can you talk about some of the moving parts there? How much is mixed? How much is pricing? How much is leverage from technology?

And then as we're thinking through our 2027 bridge, how do you think about that opportunity? going forward yeah so chat thanks for the question so i'd say um you know as you pointed out good good expansion and margins both sequentially as well as on a yearly basis as you may recall when we announced our margin trajectory at the uh february 2025 investor day we we laid out specific things in terms of the drivers of that margin i'd say we've shown as sangeeta pointed out earlier good operating leverage that continues to be a part of the the core principle to drive continued modern expansion. So that'll be a mainstay going forward. But in addition to that, with the other three buckets, you might recall, we talked about mix, we talked about the commercial models, and then also use of global delivery. Really good progress on global delivery, especially with our life sciences and advanced manufacturing businesses use a lot of global delivery implementation. So that's driving a lot of the margin expansion. I'd say on the mix side, you'll see more of an impact coming in FY27 and beyond, but operating leverage and global delivery are the bigger drivers in the first, you know, probably four or five quarters since we announced the targets. So, well on track in terms of margin expansion, and just for everybody's benefit, you'll recall that in fiscal year 25, we increased our margins by 110 basis points, and in fiscal year 26, at the midpoint of the guidance that we've provided, that'll represent another 90 basis points of margin expansion so 200 basis points of margin expansion which we think is industry leading and we have lots more margin expansion ahead of us as well great that's helpful um and then second question on on data centers so you know with the shift from 34 volt to 800 volt architecture um are you starting to see those sorts of data centers you know coming through your design pipeline um how does the design intensity change when you're making that shift

Any call you can give on that?

Yeah, there's complexities that are going on, Chad, that I'd say is increasing our scope. So, you know, that 800 volt DC solid state transformer is a big deal, has been well publicized. But I'd say I wouldn't point to that as the single source of that inflection point. The complexity and all of the utility requirements to feed the next generation of chips is increasing the complexity as well as the scale and so that's where kind of it's in the sweet spot of jacobs and uh and so you know if we look at the clients that we're working for not just the hyperscalers but also the neoclouds you know we're on that uh we're on that journey with them and uh and hence you can see you can see the results in our uh in our performance great thank you pass on your next question comes from the line of michael dudas with vertical research your line is open please go ahead Good afternoon, gentlemen. Good afternoon, Mike. Good afternoon, Mike.

Bob, just maybe you could share some further thoughts on critical infrastructure and the tone of the types of business and what areas, you know, say with highway, maybe any brief comments on what made it happen out of the next IIJA bill. And on PA, you know, with the change in government should be helpful, but anything with the integration over the past several months and how that could drive some more, you know, growth in some maybe the business with your current customers in the U.S. or other parts of the world to help drive will be helpful on the margin and also the growth for PA itself.

Sounds great. Great. So a lot there, Mike. Let me kind of take one at a time. With regards to critical infrastructure, again, really solid growth. Just as a kind of a recap, that vertical contains our transportation business, energy and power, and cities and places. Our transportation business continues to be a real growth vector for us in all geographies and growing at a high single-digit rate. I'd say the subsectors that are channeling that growth are around aviation, the rail business globally, as well as in the ports and maritime world. Highways and bridges was a nice element in Q3, but those three, we've got a market leading position there and we're seeing a lot of activity there. E&P has been really, really strong, double-digit growth, predominantly in the U.S. around our T&D efforts, and I'd say outside the U.S., more on the generation side. And so if you think Sudlink or Marinus Link, you know, the renewables effort that's going on outside the U.S. has really been a nice growth trajectory for us. And then in Cities and Places, nice growth in the U.S., that Cities and Places team has some really, really strong building design capabilities, which we're able to not only apply to venues, but also has been with the resource needs that we have in data centers. That team has really been facilitating that growth that we're seeing in the data center business. I'd say probably the one area that we continue to monitor is a bit of a, I'd say, temporarily pause in the Middle East, still grew in the Middle East overall because of our utility work. But that would be the only area where I'd say a little bit of a pause, but definitely some pipeline work that would show upside next year. On IJA, we actually feel, we've been saying this for a while, with a possible extension going into December, we feel like the funding flows coming from IAJA will continue. We've always said that there was always a two to three year lag from the expiry date, just as monies are obligated and then spent, we're still kind of at that 50% level spent. And so going into the midterms and coming out of the midterms and everything that's being set up for Build America 250, hopefully next year, the funding levels have been pretty solid as a result of those stimulus bills and will continue on feeding all those things that I aforementioned around transportation. PA, I'd say the areas where we're starting to see some real growth, again, notwithstanding my comment in Q3 on the kind of the temporary disruption that we're already seeing come back in July. Defense and security in Europe as the UK PMOD has taken a leadership position on what an independent Europe defense posture looks PA is right in the middle of that. And the synergies with the U.S., with Jacobs in the INF business on setting up that defense infrastructure, whether it be ports and maritime or manufacturing facilities for the defense primes, is something that we've already started to see some nice progress there. And then transportation in the U.S. PA has got a strong presence in the U.K. And that's serving as a nice synergistic value as we look at the U.S. and the revenue synergies coming out of the PA relationship. So hopefully that gives you kind of a broader overview. Excellent, Bob. Thank you.

As a reminder, if you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of Jerry Revich with Wells Fargo. Your line is open. Please go ahead.

Hi, everyone. Good afternoon. Thank you for taking my question. This is Andrew Ozion for Jerry Ravitch. I just wanted to ask, you know, last quarter you saw a significant expansion in the AI-specific data center infrastructure pipeline. I was curious if we can get an update on how that's progressing this quarter, how much of that pipeline is awarded or in backlog, and what's kind of the conversion rate that you're embedding into your guidance and maybe even into next year?

Yeah, maybe I'll take the front part of that, and then Venk, you can take kind of how much of that is in backlog. So, Andrew, our backlog growth just in the data center space has been significant. And I'd say kind of in the order of doubling over the period of time, the pipeline has gone up 3x. And so the visibility that we see before was probably six to nine months. We're getting visibility into the pipeline that extends out two to three years. So this is something that we see. And again, we're being selective because there is also a lot of speculative work that's out there. So the work that we are pursuing, let me back up, winning, executing, and continue to pursue, are those where they're established customers of ours that we've had for a while. The neocloud providers that are coming in are normally backed by folks that we've known for a long time within the hyperscale world. So overall, really strong trajectory in the data center space.

Yeah, and if I extended beyond data centers into just the overall AI ecosystem, you recall last quarter, we said it was roughly 10% of our business. Now it's at 11% and the growth is actually accelerating. So we are doing a good job of converting that backlog into real revenue, and that's driving not only growth for us in Q4, but we expect significant growth in fiscal 27, which we'll quantify. I also want to add to this, you know, the previous question about revenue synergies, you know, obviously AI is a big part of what PA does as well in terms of, you know, implementing agent AI for not only their clients, but it's an opportunity for us to also use it internally, both within the PA ecosystem as well as the Jacobs ecosystem. So AI is really a big driver of our growth for us. And you've seen that being demonstrated in terms of our revenue growth, but also over time with margin expansion.

Thank you. I appreciate that. You know, I guess, secondly, are customers kind of still indicating that the U.S. semiconductor construction activity is accelerating? And maybe what are some of your early thoughts for FY27 on that front? Thank you.

The short answer, Andrew, is absolutely yes. Our customers are pushing us to accelerate those designs, and we're working for the largest high-bandwidth memory chip manufacturer in the U.S. today. So that pipeline continues to grow. And now with the announcements that you've heard from Intel moving forward, as we've publicly stated, we've been the engineer of record for Intel for a couple of decades. And in that relationship, we stayed with them during this kind of slower time. And we're starting to see that pipeline grow going into 27.

That's great. I'll pass it on. Thank you for taking my questions.

There are no further questions at this time. I will now turn the call back to Bob Purgata for closing remarks.

Well, thank you, everyone, for joining us for our earnings call. We look forward to engaging with many of you over the coming weeks. And have a great evening.

This concludes today's call. Thank you for attending. You may now disconnect.