Jacobs' Q3 2025: Contradictions Emerge on Margins, Backlog Burn, IIJA Impact, and European Growth

Date of Call: August 5, 2025

Financials Results

• Revenue: Adjusted net revenue grew 7% year-over-year in Q3; gross revenue increased 5% YOY.
• EPS: Adjusted EPS $1.62, up 25% year-over-year (GAAP EPS $1.56).
• Gross Margin: Adjusted EBITDA margin 14.1%, up 80 basis points year-over-year.
• Operating Margin: Infrastructure & Advanced Facilities operating profit up >13% YOY; PA Consulting operating profit +15% YOY with a 22% operating margin.

Guidance:

• FY'25: adjusted net revenue growth ~5.5% YOY; adjusted EBITDA margin ~13.9%; adjusted EPS range $6.00–$6.10; reported free cash flow conversion >100%.
• Q4 midpoint implies sequential improvement in net revenue, adjusted EBITDA margin and adjusted EPS.
• FY'26: expect revenue growth ahead of FY'25 and continued margin improvement; detailed FY'26 guidance to be provided next quarter.

Business Commentary:

• Strong Financial Performance:
• Jacobs Solutions reported adjusted EPS growth of 25% to $1.62, supported by 7% net revenue growth and meaningful margin expansion.

• The growth was driven by strong demand in sectors like Life Sciences, Semiconductor, and Data Center, as well as upward trends in spending across the business.

• Backlog and Bookings Growth:

• The company's backlog grew 14% to nearly $23 billion, setting a new record, with a trailing 12-month book-to-bill ratio of 1.2x.

• Backlog growth reflects strong sales performance and increased project execution, positioning the company well for future quarters.

• PA Consulting Performance:

• PA Consulting reported double-digit revenue and operating profit growth, with revenue increasing by 15% during Q3.

• This growth was supported by increased demand in the U.S. and public sector spending in the U.K., as well as strong performance in Life Sciences and Energy & Utilities sectors.

• Infrastructure and Advanced Facilities Wins:

• Jacobs secured notable awards in Infrastructure & Advanced Facilities, such as the Marinus Link project in Australia and modernizations in the Water sector.
• 
• The company's full life cycle delivery model and deep domain expertise are driving strong global demand, particularly in Water & Environmental and Life Sciences markets.

Sentiment Analysis:

Overall Tone: Positive

• Management: "We delivered very strong results for Q3, meeting or exceeding our expectations across all key metrics." Backlog "grew 14% to nearly $23 billion, setting a new record." They raised FY'25 adjusted EPS guidance for the second time and highlighted record margins and strong free cash flow.

Q&A:

• Question from Sangita Jain (KeyBanc Capital Markets): On Data Center submarket growth — are you seeing bigger scopes being designed for Jacobs and what types of work (power, water, design) is involved?
  Response: Data center opportunities have expanded materially in number and scope — multiscope work now includes gray/white space design plus substantial power and water engineering and Jacobs is shifting from design-only to full program/project delivery; the NVIDIA Omniverse partnership is a transformational reference design driver.

• Question from Sangita Jain (KeyBanc Capital Markets): Regarding backlog growth and burn pace — is the backlog composed of faster book-and-burn work or longer-duration projects relevant for FY'26 topline?
  Response: Backlog growth is concentrated in Advanced Facilities and Water (longer-tail, multi-quarter burn) while Life Sciences has faster burn; overall mix is broad-based, giving both near-term revenue (Life Sciences) and multi-year visibility (Water, Critical Infrastructure).

• Question from Andrew John Wittmann (Robert W. Baird & Co.): What are the puts and takes from the OBBBA bill (federal policy) on your business and customer commentary?
  Response: Net positive: bill provides stability/backstops for DoD, FAA and reshoring activity; potential state/local Medicaid cuts are a risk but clients are not flagging material headwinds today.

• Question from Andrew John Wittmann (Robert W. Baird & Co.): Update on one-time separation/restructuring costs for FY'25 and expectations for FY'26?
  Response: On track to deliver $75–$95M of onetime restructuring costs in FY'25 (substantially below prior year); expect these costs to decline markedly in FY'26.

• Question from Andrew Alec Kaplowitz (Citigroup Inc.): You said FY'26 growth should be ahead of FY'25 — where is that confidence coming from?
  Response: Confidence stems from sustained backlog growth and demand in three end markets — Life Sciences, Data Centers and Water — with multiple quarters of backlog build translating into material burn into FY'26.

• Question from Andrew Alec Kaplowitz (Citigroup Inc.): What are you seeing in Critical Infrastructure in Europe and Cities & Places in the Middle East going into FY'26?
  Response: Europe is rebounding (UK budget stabilization, transportation spend), and Middle East Cities & Places show strong double-digit growth tied to major events, both contributing positively into FY'26.

• Question from Sabahat Khan (RBC Capital Markets): How is IIJA funding flow contributing and do you expect acceleration over next 12–24 months?
  Response: Balanced view — only ~1/3 of IIJA spend executed so far, so funding will continue to flow, but Jacobs relies on a diversified portfolio and actual backlog rather than speculative allocations for growth visibility.

• Question from Sabahat Khan (RBC Capital Markets): PA Consulting — is the recent top-line and operating profit momentum sustainable into 2026?
  Response: Yes — PA's growth is driven by UK public sector and Defense & Security plus Life Sciences and Energy demand; backed by double-digit backlog/pipeline growth, supporting continued strong performance.

• Question from Michael Stephan Dudas (Vertical Research Partners): Are benefits from the total life-cycle focus driving accelerated backlog, bookings and margins, and which markets are next for focus?
  Response: Early involvement in advisory and capital planning is converting into full life-cycle wins now (Life Sciences, Water, Data Centers) and will expand into Energy & Power and Transportation over time.

• Question from Michael Stephan Dudas (Vertical Research Partners): How much of margin improvement this quarter is from scale vs cost efficiency, and what are you investing in organically?
  Response: Most margin gains to date are self-help/cost discipline; further gross-margin upside will come from mix, commercial models and global delivery; investing in AI, product offerings and enterprise automation to drive future operating leverage.

• Question from Unidentified Analyst (AB Bernstein): Any change in customer activity tied to bonus depreciation, particularly for Advanced Manufacturing?
  Response: Expect tangible FY'26 benefits from bonus depreciation (cash tax and depreciation advantages) though quantification is pending and will be included in FY'26 guidance.

• Question from Judah Aronovitz (UBS Investment Bank): PA — does backlog/pipeline support continued double‑digit growth; are investments holding back margins and how is utilization trending?
  Response: Backlog and pipeline support strong organic growth (high single digits guiding), utilization has recovered prompting targeted hiring in Defense, Public Sector, Life Sciences and Energy — margins can improve over time via efficiency and AI enablement.

• Question from Judah Aronovitz (UBS Investment Bank): The NSR growth guide implies Q4 deceleration vs Q3 — what do you need to hit the implied Q4 guide?
  Response: FY'25 guide (~5.5% adj. net revenue) implies Q4 roughly in line with Q3; PA should remain steady and I&AF similar — management is not expecting deceleration and feels comfortable with current trajectory.

• Question from Kevin Samuel Wilson (Truist Securities): Within Water & Environmental, how did Environmental perform this quarter and how do you view long-term targets (Water 8–10% vs Environmental 4–6% CAGR)?
  Response: Water is performing above targets currently; Environmental had near-term weakness due to earlier federal/regulatory pauses but is expected to inflect upward starting next quarter, supporting long-term targets.

• Question from Kevin Samuel Wilson (Truist Securities): Any update on strategic options for PA Consulting and valuation thinking ahead of March 2026?
  Response: Dialogue with PA partners is constructive and thoughtful; both sides are evaluating performance and synergistic value, with positive learnings guiding consideration of structure and valuation options.

Contradiction Point 1

Margin Performance and Improvements

It involves differing statements about margin performance and expectations, which are crucial for investors to assess the company's financial health and growth prospects.

Can you discuss margin performance and organic investments? - Michael Dudas (Vertical Research Partners)

2025Q3: Margins are improving through self-help, cost discipline, and global delivery enhancements. Investments are focused on AI tools for customer engagements and enterprise function efficiencies. These efforts are expected to provide substantial operating leverage going forward. - Venkatesh R. Nathamuni(CFO)

Can you discuss your utilization rates and efficiency initiatives to improve margins? - Andy Wittmann (Baird)

2025Q2: Margin performance is driven by utilization, mix improvements, and global delivery, with solid visibility to achieve a 13.8-14% EBITDA margin. - Venkatesh R. Nathamuni(CFO)

Contradiction Point 2

Backlog Burn and Growth Strategy

It pertains to the burn rate of the backlog and the company's growth strategy, which are essential for projecting revenue and growth trajectories.

How quickly is the backlog growing during the quarter? - Sangita Jain (KeyBanc Capital Markets)

2025Q3: Backlog growth is prominent in Advanced Facilities and Water sectors, which typically have larger and longer burn profiles. The Life Sciences & Advanced Manufacturing sector tends to burn faster. - Robert V. Pragada(CEO) and Venkatesh R. Nathamuni(CFO)

Can you quantify the revenue reserve? Are customers spending more cautiously? What visibility do you have for achieving 5% to 7% growth in Q3? - Andy Kaplowitz (Citi)

2025Q2: We are continuing to see the steady absorption of backlog which along with the inherent growth from these backlog lines continues to drive our revenue growth. - Venkatesh R. Nathamuni(CFO)

Contradiction Point 3

IIJA Impact on Jacobs' Business

It highlights potential discrepancies in the perceived impact of IIJA funding on Jacobs' business, which could influence investor perceptions of the company's financial stability and growth prospects.

How does IIJA funding affect Jacobs, and how do you expect it to evolve? - Sabahat Khan (RBC Capital Markets)

2025Q3: We've got about 2/3 or $12 billion worth of backlog associated with IIJA. The profile of that is very broad. The 1% of that has been delivered. About 50% of it is over $100 million. So at least a third of that is over $1 billion. - Robert V. Pragada(CEO)

What is customer sentiment, especially among U.S. government and commercial customers, amid recent political headlines? - Sabahat Khan (RBC Capital Markets)

2025Q1: We are in a strong position with a broad mix of our business being exposed to $12 billion worth of eligible IIJA projects. - Robert Pragada(CEO)

Contradiction Point 4

European Market Growth Trends

It involves differing perspectives on the growth trends in the European market, which could affect Jacobs' strategic positioning and market expectations.

Can you comment on trends in critical infrastructure in Europe and the Middle East? - Andy Kaplowitz (Citigroup)

2025Q3: Europe is showing a rebound, particularly in U.K. with improved budget stability. This leads to increased transportation project spend. - Robert V. Pragada(CEO)

What is business growth in Europe, the Middle East, and Australia? - Michael Dudas (Vertical Research Partners)

2025Q1: Europe sees demand in energy and power, and life sciences. - Robert Pragada(CEO)

Contradiction Point 5

Backlog Growth and Revenue Expectations

It involves differences in the expected pace of backlog growth and its impact on revenue, which are crucial for investor understanding of the company's growth trajectory.

Can you elaborate on the growth in the Data Center submarket and whether larger projects being awarded to Jacobs are related to Power Engineering or Water? - Sangita Jain (KeyBanc Capital Markets)

2025Q3: Backlog growth is prominent in Advanced Facilities and Water sectors, which typically have larger and longer burn profiles. The Life Sciences & Advanced Manufacturing sector tends to burn faster. - Venkatesh R. Nathamuni(CFO)

Can you discuss the year-over-year pipeline growth across the three major end markets as we head into 2025? - Michael Dudas (Vertical Research)

2024Q4: Historically, we would see a certain percentage of our next fiscal year revenue in backlog. That percentage is a higher percentage this year. - Robert Pragada(CEO)