AECOM

Good morning and welcome to the AECOM first quarter 2021 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 the prior written permission of AECOM is prohibited. As a reminder, AECOM is also simulcasting this presentation with slides at the investor section at www.aecom.com. Later, we will conduct a question and answer session. If you have questions, please press star, then the number one on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or hash key. I would like to turn the call over to Will Gabrielke, Senior Vice President, Finance and Best Relations. Please go ahead.

Thank you, Operator. I would like to direct your attention to the Safe 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 undertake no obligation to update our forward-looking statements. We use certain non-GAAP financial measures in our presentation. The appropriate GAAP financial reconciliations are incorporated into our presentation where available, which is posted on our website. As a reminder, we sold the management services business last January and sold our power and civil construction businesses in October of 2020 and January of 2021, respectively. These businesses are classified as discontinued operations in our financial statements. Today's comments will focus on the continuing operations of the professional services business unless otherwise noted. Today's references to margins and adjusted operating margins reflect segment level performance for the Americas and international segments. We will also refer to Net Service Revenue, or NSR, which is defined as revenue excluding subcontract or another direct cost. Our discussions of NSR growth rates will adjust for two fewer available working days in this year's first quarter as compared to the prior year period. Our discussion of margins will be on an NSR basis unless otherwise noted. On today's call, Troy Rudd, our Chief Executive Officer, will begin with a review of our strategy and key accomplishments. Laura Piloni, our President, will discuss key operational priorities, and Gaurav Kapoor, our CFO, 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?

Troy Rudd Thank you, Will, and thank you all for joining us today. I'd like to begin by first acknowledging and thanking our 47,000 professionals who've contributed to a great start for the year and are the key reason for our success and trajectory. I'm proud of how our employees have responded over the past year and continue to focus on the health and safety of their families, clients, and communities. We've built a track record of consistently exceeding our expectations over the past two years. And our first quarter performance continues this momentum. This is a direct result of the commitment of our teams to leverage the strength of our platform and deliver it amid an uncertain backdrop. In mid-December, we unveiled Think and Act Globally, which outlines the foundation of our strategy and the path forward for AECOM with an ambition of setting a new standard of excellence in the professional services industry. We are well on our way. We've dedicated much of our time over the past few months towards implementing key elements of this strategy. As our financial results demonstrate, we are benefiting from a simpler operating structure, strong collaboration, investments and innovation, and delivering the full breadth of our portfolio to our clients across the globe. We'll now turn to a more detailed discussion of our financial results, starting on page three. We exceeded our expectations on every key financial metric in the first quarter. Organic revenue increased by 2% and NSR declined by 2% from the prior year. Backlog increased by 8% over the prior year and included record contracted backlog, providing strong visibility. Our segment adjusted operating margin was 13.1%, which marked a 140 basis point increase from last year and a 560 basis point increase from the first quarter of 2018. Of note, international margins are now at 7%, which is more than 400 basis points better when we compare it to the beginning of fiscal 2019. We are operating the business as efficient as ever, investing in business development opportunities to position for growth and transforming how we deliver through innovation. Adjusted EBITDA increased by 9% to $189 million and adjusted EPS increased by 35% to 62 cents. Both of these metrics were ahead of our expectations for the quarter and provide a strong start to the year. We set as a measurable priority this year to improve cashflow phasing, and I'm pleased with our results in the first quarter. Operating cash flow was $7 million, and free cash flow was a slight use of cash in the quarter. This compares to an average outflow of $230 million in the first quarter over the past two years. This performance, combined with our strong balance sheet, enabled us to repurchase nearly 9% of our shares outstanding since September. We're increasing our EPS guidance to reflect the strong start to the year, the accelerated pace of share repurchases, and the lower interest expense associated with a new sustainability and diversity-linked financing. Our guidance does not include any prospective repurchases, though it is our expectation that we will continue to deploy cash to buy back stock under the $825 million of capacity remaining on our current board authorization. Please turn to the next slide. Reflecting on a first quarter performance, several key points are apparent. First, our teams have embraced our Think and Act Globally strategy. This strategy is driving greater collaboration across the organization and serves as the foundation from which we are pursuing accelerated growth and expanding our industry-leading margins. As a result, we are more deeply engaged with clients. We are expanding our advisory practice to shape how clients plan and execute their priority projects. Through our focus on program management, we are supporting clients through their largest and most complex projects. To support growth, we are investing in business development and key client account programs. And we are developing new and more efficient ways of working, led by deploying innovation at scale and executing our Workplace of the Future initiative to support the growing preference for greater workplace flexibility and to reduce our real estate costs. Second, we have created a culture of continuous improvement, and we are setting new standards for profitability in the industry. We are focused on driving efficiencies across the organization and for our clients. As a result, we are delivering industry-leading margins and unlocking capital to invest in growth and innovation. Third, we have narrowed our focus to our higher margin and lower risk professional services businesses. Over the past few months, we completed the exits of our power and civil construction businesses, As a result, our leaders are now exclusively focusing their time and resources on our largest, fastest growing, and most profitable endeavors. Fourth, several inherent attributes of our business enable us to perform and continue to invest through periods of uncertainty. These include the proven agility of our workforce, a highly variable cost structure with low capital intensity, a substantial backlog with several years of visibility, industry-leading client satisfaction, and strong cash flow. Finally, we are complementing our strong team with new leaders and fresh perspectives. Last month, we announced the appointments of Jennifer Aument as Global Lead for Transportation and Drew Jeter as Global Lead for Program Management. Both are world-class leaders who bring proven track records of success, and we are energized by the positive response we have received from both our teams and our clients since their appointments. It will continue to strengthen our teams and invest in our people to ensure we achieve our collective ambitions. Turning to review of our markets, beginning in the Americas. Our teams remain focused on building a sustainable future, and we're bringing elements of sustainability to every aspect of what we do. It bears repeating, we are the number one environment firm, the number one transportation design firm, the number one facilities design firm as ranked by ENR. We are the leader in the PFAS market, having spent decades supporting clients, both public and private. And today, we are organized around ESG as a key priority within AECOM. The Biden administration has outlined an ambitious and broad-based plan that touches nearly every element of what we already do for our clients every day in the markets where we lead. These include transportation infrastructure, clean energy, offshore wind, wetland and coastal restoration, and PFAS remediation, to name a few. Needless to say, we are well positioned to benefit from the prevailing direction of U.S. policy and funding. In the near term, as we wait for clarity on a potential larger relief and infrastructure stimulus bill, our U.S. public sector clients continue to face funding challenges. We've seen clients slow the decision-making process, and this has impacted our growth over the past several quarters. However, key indicators are trending positively. Vehicle miles traveled have recovered notably since the prior lows in April. The enacted COVID relief bill in December provides $45 billion for transportation, our largest end market, and includes $14 billion for transit systems across the country, which represents approximately 75% of normal annual funding levels. State tax receipts are benefiting from higher spending due to stimulus funding. These trends matter to AECOM. US state and local remains our largest client base at 24% of our NSR and approximately 40% of NSR in the Americas. Pivoting to our construction management business, our contracted backlog increased by 26% and our pipeline remained strong. However, our total backlog declined sequentially and client decision-making has slowed. In addition, our backlog was impacted by a reduction in scope on a large project though the impact to profitability was more limited as we continued to perform services for the client. Positively, during January, we were awarded more than $600 million of wins in our core markets. And in times like these, the value of visibility afforded by our substantial backlog and our leading market position are apparent. Turning to international markets, in the UK, our market position has greatly improved over the past several years. We've put in place the right people and strategy, and we are taking market share. This includes gaining significant positions on several leading public sector frameworks, all of which provide substantial opportunities for growth and provide several years of visibility. In the Middle East, our sizable backlog on key programs provides us with several years of visibility, especially in Saudi Arabia, where we have large roles on projects critical to the kingdom's economic diversification efforts. While others are pulling back from the market, given the slowdown in hydrocarbon-related activity, we are managing and delivering large, complex, and iconic projects, which plays to our strengths. In Australia, we continue to execute several large infrastructure projects, such as our work on the Melbourne Metro Tunnel, which is supporting high levels of activity. In Hong Kong, our business was stable, and work is progressing on key projects that are supporting high levels of backlog. Across the business, the next six months include a number of macroeconomic uncertainties, and we will be constantly vigilant to manage the business and deliver. We are energized by our accomplishments and the level of funding and long-term commitments to infrastructure investments happening across our largest markets. Our momentum instills great confidence in our outlook for the remainder of the year, and I'm excited by the opportunity to create exceptional value for our employees, our clients, and shareholders. I look forward to discussing many of these elements in greater detail at our Virtual Investor Day on February 16th. With that, I will turn the call over to Lara.