AECOM

Good morning and welcome to the AECOM third quarter 2019 earnings conference call. I would like to inform all participants this call is being recorded at the request of AECOM. This broadcast is copyrighted property of AECOM. Any rebroadcast of this information in whole or part without prior written permission of AECOM is prohibited. As a reminder, AECOM is also simulcasting this presentation with slides at the investorselections.com at www.aecom.com. Later, we will conduct a question and answer session. If you have a question, please press star, then the one on your touchtone phone. If you wish to remove yourself 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 State Harbor Statement on page one 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 call includes comments about restructuring activities that are expected to commence later this year. 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 the trends across our business. I will also provide an update on our strategic actions that have resulted in a substantial increase in shareholder value this year. 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 the year with a sharpened focus and a clear plan to maximize shareholder value, and we are delighted with our progress against this plan. This progress is no more apparent than in our plan to separate the management services segment, the near record DCS margin resulting from the restructuring actions we executed in the first half of the year, and in our ongoing commitment to focus on our higher margin and lower risk professional services businesses. Importantly, we are continuing to pursue every avenue to unlock the value inherent across our enterprise, including the additional margin-enhancing restructuring actions we announced today. Turning to our third quarter results, we delivered adjusted EBITDA of $244 million, which was ahead of our expectations. As a result, year-to-date adjusted EBITDA increased by 14% and we remain confident in delivering on our full-year adjusted EBITDA guidance for 12% growth at the midpoint. The quarter was highlighted by the highest margin in the DCS segment in the past three years, which is a clear indication of the success of our restructuring. To that point, our year-to-date DCS margins have increased by 100 basis points from the prior year. we continue to expect at least 110 basis point improvement for the full year, with another 100 basis point increase now expected in fiscal 2020. This result validates our ongoing deep review of opportunities for margin expansion and builds on the conclusions we reached last year in consultation with Bain that resulted in our completed $225 million G&A reduction. We delivered a fourth consecutive quarter of double-digit growth in management services segment, reflecting the higher returns on our business development investments, including a nearly 50% win rate over the past several years. In addition, despite the anticipated reduction of storm recovery work in the U.S. Virgin Islands, our America's design business saw continued underlying growth. Momentum across our markets is strong. Year-to-date wins of more than $21 billion reflect a 1.3 book-to-burn ratio, and our backlog is up 10% from the prior year. As a result, all of our segments have backlog at near record levels, which is the best indicator of our success in the marketplace and of future growth. Free cash flow is positive, but was below our expectations. We are pursuing a sizable outstanding balance for the FEMA-funded storm recovery work we executed in the U.S. Virgin Islands. We expect to collect what is owed to us and deliver on our long-term cash flow and capital allocation goals. Please turn to slide four. We have made significant progress on the strategic actions we have taken and continue to take to improve our margins and drive shareholder value. In June, we announced our intent to separate the management services segment. We are aggressively moving forward, are ahead of schedule, and have received positive reactions to date. We can't comment on specifics, and we are early in the process, but we are very confident that initial steps in this process have validated our view that this is a highly valued asset. We remain confident we will unlock value for our owners. Additionally, we are on track with our plan to simplify our business through the exit of at least 30 countries. We are also progressing well against our portfolio de-risking plans. We recently completed the sales of our oil and gas production services and international development businesses, which further de-risk our portfolio. And we are conducting a review of all at-risk construction exposure with the goal of having zero at-risk self-performed construction. Importantly, upon completion of this process, nearly all revenue will be generated from higher returning and lower risk businesses. Building on the extensive financial and strategic work our team has conducted in partnership with our board, we also announced additional restructuring actions today that further align our overall cost structure with our more efficient and streamlined operating profile. These actions build on the success of our previous $225 million G&A reduction and are expected to significantly benefit fiscal 2020 margins and EBITDA. As a result of our progress to date, and the anticipated benefits from this plan, we are increasing our adjusted operating margin target in the VCF segment for fiscal 2020 to at least 8%, reflecting a 100 basis point increase from our fiscal 2019 expectation and a 210 basis point increase from fiscal 2018. These actions further bolster our confidence in delivering continued strong earnings growth including our expectation for adjusted EBITDA in excess of $1 billion in fiscal 2020. We will provide formal financial guidance in November with our fourth quarter results. Please turn to slide five for a discussion of our business trends. Beginning in the DCS segment in the Americas, we delivered solid results in our capitalizing on very favorable market conditions. The fiscal health of our state and local clients, which account for approximately 75% of U.S. infrastructure spending, is robust. State revenues are increasing, reflecting the late-cycle nature of tax receipts, and rainy-day funds are at an all-time high, with further increases expected in fiscal 2020. As a result, proposed state budgets for fiscal 2020 call for nearly 4% spending growth. Infrastructure investment remains popular with voters, and states are prioritizing transportation projects, including proposals for another $8 billion of transportation-specific tax increases in 2020, with another five states set to increase gas taxes next year. The Canadian market is also robust, and execution on large projects continues to result in double-digit revenue growth led by our largest market, transportation. Turning to our international markets, beginning in the Emir region. We are capitalizing on a substantial set of opportunities in Saudi Arabia. The third quarter marked our strongest revenue growth in several years. We recently announced our selection for phase one of the $500 billion Neon Bay development. Wins on projects of this size, scale, and ambition speak to client recognition of the strength of our capabilities as leaders in megacity development. The U.K. market remains pressured from lingering Brexit concerns. However, long-term infrastructure demand remains strong. Prime Minister Johnson already announced the commitment to substantial investment in national infrastructure since his appointment last month. In fact, the focus on infrastructure and the need for significant investment to support post-Brexit changes was front and center in the Prime Minister's acceptance speech, and we are well positioned to support these initiatives. Pivoting to the Asia-Pacific region. We are continuing to execute on a near record level of backlog in our largest markets, led by Hong Kong and Australia. Even so, we are mindful of the geopolitical uncertainty and potential impacts to economic growth in Hong Kong. While our backlog creates a degree of certainty for us, the pace of awards is slow. We expect that demand will reaccelerate once the current issues are resolved and we are well positioned to capitalize. Turning to the management services segment. We delivered a fourth consecutive quarter of double-digit revenue growth despite tough comparisons in the prior year that benefited from the initial ramp-up in revenue for several large wins. Our backlog remains near an all-time high at nearly $19 billion, reflecting strong returns on our business development investments and superior execution by our leadership team. In July, our performance at the Savannah River site was rated excellent for a fifth consecutive year and our award fee was earned at more than 94%. This performance further validates our strong execution track record for our client and reinforces our confidence with the highly robust Department of Energy bid environment. In addition, after the quarter closed, we added approximately $250 million to our backlog related to our contract at the Savannah River site that will contribute to growth in fiscal 2020. And we continue to pursue a $30 billion pipeline of opportunities with several sizable decisions expected shortly on large DOE pursuits. Looking ahead, the defense spending outlook is strong. The President signed a bipartisan budget agreement that removes the risk of the spending caps imposed under the Budget Control Act, supports continued record defense spending, and adds certainty to our outlook. Pivoting to construction services. Execution in our lower-risk building construction business was strong. Backlog has increased by more than 50%, and we have nearly four years of annual revenue in backlog. For instance, in New York, our largest market, strong demand for office space was evidenced by the substantial long-term leases signed by several large technology companies during the third quarter. In addition, the rezoning of 78 blocks of prime real estate in midtown Manhattan plays to our strengths, having built approximately 60% of all buildings over 1,000 feet in New York City over the past decade. Today, nearly 90% of our revenue in the building construction business is in our four core markets, primarily New York and Los Angeles. In these markets, our execution track record is strong, and our history, scale, and market presence create competitive advantages. We will continue to benefit from the professional services nature of this work that provides for a low-risk profile, high margins on revenue after excluding pass-through costs, and generates our highest return on capital. Please turn to slide six. As this quarter demonstrates, the actions we have taken to enhance profitability and reposition our portfolio towards our higher returning and lower risk businesses are delivering results. Today, these businesses account for approximately 90% of our total revenue. Upon completion of our strategic actions, our end-state portfolio of businesses will be almost entirely comprised of our lower-risk design and construction management businesses, which provides for consistent execution, strong returns, and strong cash flow. As we will detail in our fourth quarter results and at our investor day in December, we will align our financial reporting with the changing nature of our portfolio. Specifically, we will continue to report revenue on a gross revenue basis, consistent with how we report today. In addition, we will report revenue on a net revenue basis, or NSR, which is the self-performed component of our revenue that excludes subcontractor and other direct contractor costs. This presentation will provide a greater level of insight into business performance and is consistent with the reporting practices across our professional services peer group. We will also begin to report on and provide guidance for margins on this same basis. I will now turn the call over to Troy, who will discuss the quarter in more detail.