AECOM

Good morning, and welcome to the AECOM Second Quarter 2019 Earnings Conference Call. I would like to inform all participants that this call is being recorded at the request of AECOM. This broadcast is the copyrighted property of AECOM. Any rebroadcast of this information in whole or part without the prior written permission of AECOM is prohibited. As a reminder, AECOM is also simulcasting this presentation with slides at the Investor Section website. at www.aecom.com. Later, we will conduct a question and answer session. If you have a question, please press star, then 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound or hash key. I would like to turn the call over to Will Gabrielski, Vice President, Investor Relations. Thank you, Operator.

I would like to direct 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 take no obligation to update our forward-looking statements. We are using non-GAAP financial measures in our presentation. The appropriate GAAP financial reconciliations are incorporated into our presentation, which is posted on our website. Please note that all percentages refer to year-over-year progress, except as noted. Our discussion of earnings results and guidance refers to adjusted financial metrics as defined and reconciled in today's earnings press release filed with the SEC and the presentation accompanying this call. Today's discussion of organic growth is on a year-over-year and constant currency basis and is adjusted to exclude impacts of non-core businesses. Beginning today's presentation is Mike Burke, AECOM's Chairman and Chief Executive Officer.

Mike? Thank you, Will. Welcome, everyone. Joining me today are Troy Rudd, our Chief Financial Officer, and Randy Wattring, our Chief Operating Officer. I will begin with a discussion of AECOM's results and discuss the trends across our business. I will also provide an update on our strategic actions to enhance shareholder value. Then, Troy will review our financial performance and outlook in greater detail before turning the call over for a question and answer session. Please turn to slide three. We entered 2019 with substantial momentum in our business and across our markets. From this position of strength, we initiated a series of strategic actions to maximize the profitability of our record backlog and to deliver both on our guidance for 12% adjusted EBITDA growth this year and on our long-term financial objectives. I am pleased to report that we are executing these initiatives with precision as evidenced by our 16% adjusted EBITDA growth in the first half of the year and 17% EBITDA growth in the second quarter, $18 billion of year-to-date wins, and $8 billion of wins in the second quarter. We ended the second quarter with another new record for backlog at $61 billion. Across our business, a number of important trends are becoming apparent. First, project execution across our portfolio is strong. Second, the substantial $225 million restructuring we have executed has created a more profitable company, which the margin improvement we delivered in the DCS segment this quarter demonstrated. Third, and most importantly, we have achieved all these successes while maintaining a market-leading position and continuing to win work at a record pace. Turning to our second quarter results, we delivered adjusted EVTA of $235 million, which was ahead of our expectations. Organic revenue grew by 7% and included strong contributions across the business, led by our higher margin management services and America's design business, where revenue increased by 14% and 10%, respectively. Backlog increased by 22%, and WINS have now exceeded $6 billion for six consecutive quarters. WINS included the 18-month extension for our work at the Savannah River site for the Department of Energy, a 1.2 book-to-burn ratio in America's design business, and continued strength in the building construction business. Free cash flow was $85 million in the quarter. As Troy will discuss in greater detail, our working capital position to support the storm recovery work in the U.S. Virgin Islands is now over $200 million, which has negatively impacted our cash flow in the first half of the year. Adjusted for this impact, our cash flow would have matched our expectations. Importantly, we are confident this is only a timing issue, and we expect collections will accelerate in the second half of the year. Please turn to slide four. I want to take a moment to provide an update on the strategic actions we have taken and continue to take to improve profitability and drive shareholder value. We have taken substantially all of the actions necessary to achieve our expected $225 million of annual G&A savings. As a result, we are on track to achieve DCS adjusted operating margins of at least 7% this year and a more than 7.5% margin in fiscal 2020. This momentum, which is evident in the increase in DCS margins, increases the profitability inherent in our record backlog and makes all future wins more profitable. In addition, we are no longer pursuing at-risk construction opportunities internationally. and we are accelerating the review of our entire at-risk construction portfolio. We hope to be in a position to provide updates on our progress in the second half of the year. Please turn to slide five. The steps we have taken and continue to take position us to create substantial long-term value for our investors. Upon completion, we will have a higher margin and lower risk professional services-focused business that is operating in markets where our competitive advantages are greatest. We'll maintain market-leading franchises that each deliver strong cash flow, have a high ROIC, and provide significant long-term visibility and backlog. To fully capitalize on this value creation opportunity, we executed additional share repurchases in the second quarter under the existing billion-dollar Board authorization. In total, we have repurchased $210 million of shares under this plan thus far, and we expect to be in the market in the second half of the year buying stock. We would expect to expand this authorization once the current program is completed. Please turn to slide six for a discussion of our business trends. Beginning in the DCS segment in the Americas, organic revenue increased by 10% in the second quarter and has grown by double digits for four consecutive quarters. We are benefiting from strength in transportation as well as continued storm recovery activity. In the transportation market, our largest market in the Americas, clients continue to develop new funding mechanisms to meet demand. Recently, New York became the first city in the U.S. to announce plans to implement congestion pricing, which is expected to fund a substantial portion of the identified $50 billion of New York's MTA's planned spending over the next five years. The New York MTA is one of our largest domestic transportation clients, and we are positioned to benefit. Several other U.S. cities are exploring congestion pricing. Over time, with the continued population growth expected in major metros putting a strain on existing infrastructure assets, we expect more U.S. cities to turn to alternative funding sources. Trends in Canada are similarly strong and revenue increased by double digits. Long-term growth expectations in this market were buoyed by the announcement of a 10-year, more than $20 billion infrastructure funding plan in Ontario. We are currently working on several of the largest transportation projects in Canada today, and we expect this growth to continue. Importantly, because of the strategic actions we have taken to leverage investments in IT, HR systems, project management tools, and best cost shared services and global design centers, we are better positioned than ever to fully profit from this growth. Turning to our international markets, beginning in the Asia-Pacific region, Performance across the region continued to be led by strong public sector infrastructure investment in Australia and New Zealand. Early in the third quarter, we were selected to deliver services for the Cross River Rail project in Australia and the Auckland City Rail Link project in New Zealand, the latter of which is the largest ever transportation infrastructure project to be undertaken in that country. These wins demonstrate client recognition of the strengths of our platform and enhance our confidence in continued growth. In Hong Kong, Long-term demand drivers are strong, including the government's recent announcement of the $70 billion mega Tomorrow Lantau project, a substantial land reclamation and development project that is expected to begin over the next several years. Our leadership position in this market positions us to capitalize on these substantial opportunities. In the EMEA region, Brexit-related uncertainty continues to negatively impact trends in the U.K., However, the actions we executed in 2018 to best align our business to near-term market conditions have allowed us to offset some of the market challenges and the businesses performing to expectations. In the Middle East, trends are improving. This is especially true in Saudi Arabia, where we have invested time and capital to position for a robust set of opportunities, including the $500 billion NEOM development. we have visibility to several sizable awards that would increase our visibility into continued improvement across the region. Turning to the management services segment, organic revenue growth was 14% and has now increased by double digits for three consecutive quarters. We are benefiting from 127% backlog growth since the start of fiscal 2017, which have been driven by our successful business development investments and leading capabilities, especially in the classified market. Our backlog is at record levels, including more than $3 billion of wins in the first half of the year. Looking ahead, continued budget increases and our high win rate position us for further growth. The White House's initial budget request called for record levels of defense spending in fiscal 2020. Our pipeline of pursuits remains at more than $30 billion, including a vast set of DOD opportunities and an increasing set of high-margin DOE opportunities. We are also tracking several more DOE opportunities that we expect to be awarded over the next three years that would add to our $30 billion pipeline. As a result, we believe earnings are at an inflection point with several years of visibility and backlog. Pivoting to construction services. Execution in building construction was strong, and our backlog reached a new record this quarter. Today, the building construction business has nearly four years of revenue and backlog. This level of visibility has been maintained even as we delivered four years of double-digit organic growth and achieved new records for total revenue. Looking ahead, low interest rates and strong economic conditions support continued investment across the markets we serve, including commercial buildings, stadia, entertainment, and aviation. We are pursuing more than $10 billion of opportunities valued individually at $1 billion or greater, which provides us with line of sight to double-digit profit growth for at least fiscal 2022. The civil business is performing to expectations. In power, the Alliant Riverside gas power plant is nearly complete and remains on schedule and on budget with target completion later this year. We continue to pursue actions to de-risk our CS portfolio. We have agreements to exit our oil and gas production services business, which is expected to close in the third quarter, and we are working to exit our at-risk construction businesses with hard-bid fixed-price contracting. Finishing with AECOM Capital, we closed on a property sale of the quarter, which provided a $10 million gain on our investment and an approximately 40% IRR, and we continue to make good progress on our third-party real estate investment joint venture with Canyon Partners. Our strong year-to-date performance underscores the momentum underway in the business and our progress in maximizing the potential inherent with our enterprise. I will now turn the call over to Troy, who will discuss the quarter in more detail.