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Operator
Good morning and welcome to the AECOM fourth quarter 2021 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 investors section at www.aecom.com. Later, we will conduct a question and answer session, where you may register your questions by pressing start, followed by one on your telephone keypads. And if you change your mind and would like your question removed from the queue, you may do so by pressing start and then two. I would now like to turn the call over to Will Gabrielski, Senior Vice President, Finance and Investor Relations. Please go ahead.
Will Gabrielski
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 to the various risks and uncertainties, including the risk described in our periodic reports filed with the S&C. 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. References to margins and adjusted operating margins reflect the performance for the Americas and international segment. We will refer to Net Service Revenue, or NSR, which is defined as revenue excluding pass-through revenue. Our discussion of year-over-year NSR growth for the fourth quarter and full year is adjusted to exclude the benefit of the extra week to the prior year fourth quarter. As a reminder, we sold the management services business in January 2020, and we closed on the sale of the power and civil construction businesses in October 2020 and January 2021, respectively. The financial results of these businesses are classified as discontinued operations in our financial statements. Today's comments will focus on our continuing operations of the professional services business, 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 Filoni, our President, will discuss key operational priorities, and Garth Kapor, our Chief Financial Officer, 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 want to begin by acknowledging our teams across the globe whose contributions made fiscal 2021 a tremendous success. Our people remain our greatest assets, and it's because of their commitment to our success that we are so well positioned for the future. I'm proud of our team's accomplishments, and I'm energized by the opportunity we see in 2022 and beyond. Turning to our results. We exceeded our expectations on every key metric. highlighted by accelerating organic NSR growth, record operating margins, double-digit earnings growth, and strong cash flow. It really was a very successful year. Our NSR for the fourth quarter increased by 6.5%, which marked a third consecutive quarter of accelerating organic growth, and included strong contributions from both the Americas and international businesses. we delivered a 14.8% segment-adjusted operating margin in the fourth quarter and 13.8% for the full year. Both results exceed our expectations and extend our lead over the industry. To put this performance in context, our margin in the fourth quarter is more than 600 basis points higher than in fiscal 2018. This performance directly reflects the high value we provide the clients and the actions we have taken to create the best industry delivery platform. Looking back to February at our investor date, we set margin targets at the time that were very ambitious. Today, we're ahead of schedule on our plans. We have even greater conviction in our 17% longer-term goal, which we now view as achievable rather than aspirational. Importantly, our strong margins afford us the opportunity to accelerate investments in our teams to drive organic growth and into our digital AECOM capabilities, which I will discuss in greater detail in a moment. Turning to earnings, we delivered at the high end of our guidance ranges for both adjusted EBITDA and EPS. Full-year adjusted EBITDA was $830 million, and adjusted EPS was $2.82, which marked an 11% and a 31% increase, respectively. Free cash flow was $583 million and was driven by our strong earnings and continued high cash flow conversions. Our cash flow result is a testament to the focus on efficiently converting our earnings to cash, as well as the high-quality, low-risk mix of our business. We have repurchased more than $1 billion of stock since last September, or 13% of the company, and we have $940 million remaining under our current authorization. We remain committed to repurchasing stock with available cash and cash flow, which we believe is the best and highest returning use of our capital after our investments in growth. Turning to our wins and backlog, our win rate remains high, and we continue to gain market share. We delivered $3.7 billion of wins in the fourth quarter, including a 1.2 book-to-burn ratio in the design business. Our contracted backlog, which is a key indicator of revenue growth, increased by 18% and included 4% growth in the design business. Our pipeline of opportunities is up to double digits in America's design business. And based on our clients' strengthening funding backdrop, including benefits from the $1.2 trillion infrastructure bill in the U.S., we expect our backlog to continue to grow. Overall, our performance demonstrates that we are outgrowing the industry organically and capturing market share. There are two areas in particular that highlight our success and showcase the value we deliver to clients. we set as a key objective to substantially grow our program management business, and we are delivering. This is especially apparent in the Middle East, where we had several recent successes on high priority and larger programs where a combination of technical leadership, global thinking, and program management expertise were instrumental in our success. This includes winning significantly expanded program management and design roles in transformational projects in Saudi Arabia, such as for Alula City, and a large transportation project in Qatar, where more than 100 employees have joined AECOM from the incumbent to support this work. Second, we are demonstrating our leadership on ESG. Our investment at the Natural Capital Laboratory in the UK is a great example. We established this project in 2019 to study the environmental change and biodiversity impact with precision by leveraging drones, artificial intelligence, GIS data, and thermal imaging. The ability to more exactly measure the impacts of decarbonization is a critical element of the global agenda to drive decarbonization and carbon sequestration. Our investment in our work at the NCL underscores how AECOM and our professionals are leading in the development of standards and methods to measure decarbonization, which will be especially important for creating reliable markets for sustainability investments. Let's turn to the next slide. I mentioned earlier that our strong performance in fiscal 2021 has created the opportunity to accelerate investments and expand our advantages. We break these investments into three categories, people, clients, and digital. Beginning with our people, we're in a knowledge-based business and our diverse professionals serve as our greatest advantage. Therefore, it is critical that we have the right culture and programs in place to attract and retain the best talent in the industry. To do this, we've implemented a flexible work model designed to facilitate optimal work-life balance. In addition, we've enhanced the benefit programs and increased our investment in technical and professional development. Most importantly, our people are winning and delivering the most challenging and iconic projects. All this culminates in a culture of high engagement, high satisfaction, and low attrition. Turning to how we deliver for clients, we are leading with our higher margin program management and advisory capabilities. and investing across our key account programs to ensure our clients are benefiting from our best expertise globally. We're also developing technology to automate and pre-populate certain elements of our designs, which capitalizes on our vast expertise, accelerates the design process, and extends the capacity of our workforce. Finally, today we unveiled Digital AECOM, which brings together all of our innovative digital capabilities. After more than a year of focused investment, In the launch of many digital solutions, we are now formally rolling out our digital products. A great example of this is PlanEngage, a digital platform that reinvents the public engagement process for an infrastructure project by creating greater certainty on cost, time, and stakeholder management. Successful community engagement is a critical step in a project, but this process is rarely digitized. PlanEngage simplifies this process by integrating all the key elements of a project into a digital tool, which allows our clients to capture information to make more informed decisions and advance projects more quickly. The solution is years ahead of the competition by our estimation, and we see PlanEngage becoming the industry standard. With the passage of the Infrastructure Act in the U.S., this tool will be even more valuable. Across these focus areas, one theme is constant. Our investment will expand our advantage as demand grows and labor constraints challenge some in our industry. Please turn to the next slide. Looking to fiscal 2022 and beyond, the spotlight on infrastructure has never been brighter. In the U.S., the $1.2 trillion Infrastructure and Jobs Act marks a generational investment in America's infrastructure. This bill provides much-needed long-term funding certainty across our strongest end markets, such as transit modernization, electrification, environmental remediation, and climate resilience. Importantly, we are positioned to benefit from nearly every line item in this bill. We anticipate this funding will increase our addressable market and our most profitable business by double digits over the coming years, and we expect the most meaningful benefits in fiscal 2023 and beyond. In addition to the strengthened federal funding environment, all of our state and local clients are on equally strong footing. Today, state DOT budgets are significantly above prior projections, and the fiscal outlooks are stronger. Our public sector pipeline in the U.S. is up double digits, and with the strong funding backdrop now in place, we anticipate the pace of decisions will accelerate as well. Our international markets are equally strong. Conditions in our largest markets have improved, and we're delivering strong growth across all major international markets in the fourth quarter. In addition, we had strong backlog growth in each of our larger geographies. I'm especially pleased to see that our strategy with a focus on program management contributing to the success in places like the Middle East and in key transportation wins in the UK, where regaining market share has been a key priority. As the number one ranked transportation, facilities, and environmental engineering firm, as well as the number two ranked water design firm, we are uniquely positioned to benefit. Turning to our financial guidance, we've initiated adjusted EBITDA and adjusted EPS guidance of between $880 million and $920 million, and between $3.20 and $3.40. This reflects 8% and 70% growth at the respective midpoints. Underpinning this growth is an expectation for another year of accelerating organic NSR growth and at least 30 basis point increase in our margins to another record high of 14.1%. Our guidance incorporates all the planned growth investments we are making in our people, business development, client delivery, and digital capabilities. I also want to comment on the 2024 financial projections we shared at our investor day in February. Based on our strong performance to date, In the returns we expect on our investments, we are raising our long-term adjusted EPS guidance to at least $4.75 in fiscal 2024. This would represent a more than doubling of our fiscal 2020 earnings and a nearly 20% CAGR from 2021 to 2024. With that, I'll turn the call over to Lara. Thank you, Troy.
Lara
I am pleased with how well our teams have responded to our new strategy and their many accomplishments in fiscal 2021. In particular, I'd like to highlight our success on some of our larger key pursuits. Our global approach, technical leadership, program management capabilities, advisory expertise and multi-year investments are bearing fruit. A great example of this is in the Middle East where we prioritised as a long-term growth opportunity. We have gained market share with wins from megacities, including Neom and Alula in Saudi Arabia. Key to these successes was the integration of global capabilities, including expertise from every region and market sector. Our culture of collaboration has truly distinguished us from competitors, particularly as our clients work to address multi-decade investment programs that require more holistic thinking. Another great example is in the US, where we were recently selected for a large program for a client who selected us based on our leadership capabilities in many verticals, including in PFAS, even as PFAS expertise wasn't the main criteria in the pursuit. We are continuing to prioritize our time and capital on the best opportunities, which has been instrumental in our high win rate over the past year and in our confidence in continued market share gains. Looking ahead, our clients continue to prioritise investments in ESG and we are well positioned to capitalise on this trend. At the COP26 summit earlier this month, this commitment was front and centre as the most prominent public and private sector voices spoke with unity on the challenge and the opportunity. In demonstrating how we are leading in ESG alongside our clients, we published our global ESG report last week, which includes disclosures aligned with the SASB and TCFD frameworks. This report is an important step in our ESG journey and underscores our commitment to regularly communicating our progress on our sustainable legacy strategies. Finally, Troy spoke about our focus on ensuring we attract and retain the industry's best and brightest. And I'm pleased to report we are operating from a strong position. To that point, we conducted a global employee survey in September that revealed very strong levels of engagement, including the vast majority recommending ACOM as a great place to work. High employee engagement is also leading to the highest client satisfaction scores in our company's history in fiscal 2021. With our momentum, we are in an enviable position from which to deliver another strong year in fiscal 2022. With that, I will now turn the call over to Gar to discuss our financial performance and outlook in greater detail.
Alula
Thanks, Lara. Please turn to the next slide. Our fourth quarter and full year results serve as clear evidence of the strength of our business and the benefit of our focused strategy. We delivered accelerating NSR growth, the highest margins in our company's history, another year of double-digit adjusted EBITDA growth, more than 30% adjusted EPS growth, and a seventh consecutive year of free cash flow at or above our guidance range. Our strong financial performance is creating increased opportunities to invest in organic growth while also bolstering our confidence in delivering on our long-term organic growth and financial goals. Importantly, all of this was achieved while making critical investments in people, teams, and digital capabilities that will sustain our advantages in fiscal 2022 and beyond. Please turn to the next slide. In the Americas, NSR increased by 7% in the fourth quarter, including growth in both design and construction management businesses. Contracted backlog increased by 21% to set a new record. This included growth in the design business and a large construction management project that moved into contracted backlog and firmed up our outlook for the year. I should note that our awarded backlog was reduced by 1.3 billion as a result of this client only advancing the first phase of this project at this time. However, the economic impact of the shift is not material to our earnings outlook and our confidence in the growth outlook for the construction management business is higher than it ever has been in many years. The fourth quarter adjusted operating margin was 19.8%, a 290 basis point increase from the prior year to a new all-time high and reflects strong execution. Please turn to the next slide. Turning to the international segment, NSR increased by 6% in the fourth quarter, including growth across all of our largest regions, and backlog increased by 10%. This is a result of our organic growth investments, market share gains, and steadily improving market conditions. Our adjusted operating margin in the third quarter was 7.4%, an 80 basis point improvement from the prior year. We continue to make progress on our margin improvement initiative and remain confident in our goal of achieving double-digit international margins. Please turn to the next slide. Turning to cash flow liquidity and capital allocation. Fourth quarter free cash flow of $290 million contributed to full year free cash flow of $583 million. Our performance reflects the benefit of our improved cash phasing throughout the year, which allowed us to accelerate our stock repurchases. We have now repurchased nearly 20.5 million shares since September 2020, approximately 13% of our starting share count at an average price of approximately $51. As we look ahead, we will continue to make critical investments to build on our industry-leading organic growth. As a result, we expect our capital expenditures in fiscal 2022 to include investments primarily relating to the advancement of our digital strategy, as well as ongoing investments to reconfigure our real estate footprint and support our flexible work programs. These investments will impact the conversion of our earnings to free cash flow in fiscal 2022, However, the underlying cash generation within the business is firmly intact. To that point, we expect free cash flow of between $450 million and $650 million in fiscal 2022. Importantly, our investments in growth and innovation will continue to separate us from our peers, and we are progressing towards our 17% longer term margin target. Please turn to the next slide. For fiscal 2022, we are guiding to adjusted EBITDA of between $880 million and $920 million, or 8% growth at the midpoint, and adjusted EPS of $3.20 and $3.40, or a 17% growth at the midpoint. This guidance concentrates the improved market conditions we're experiencing today, our substantial backlog and pipeline, and the benefits of our investment in our people, client, and digital capabilities. To be clear, this guidance does not reflect any expected benefit from the recently passed legislation in the U.S., which, as Troy mentioned, is expected to benefit us more materially in fiscal 2023 and beyond. We expect our NSR growth to accelerate to approximately 6% in fiscal 2022. This is all organic growth. In addition, we project a further 30 basis points of margin expansion to 14.1% as we continue to expand our lead on the industry while investing in people, clients, and innovation. I also want to emphasize that our adjusted EPS guidance only incorporates the benefits of share repurchases completed to date. though we expect to continue to buy back stock in fiscal 2022 as part of our capital allocation program. Also incorporated into our guidance is a 26% effective tax rate. We expect to maintain this rate going forward, reflecting changes in our operating mix and structure. Finally, I should note that we expect our EBITDA to track with our phasing in fiscal 2021. Our tax rate may be lower in the first quarter, and as a result, our EPS basing may be more first-half weighted than our seasonal pattern. With our outperformance in fiscal 2021, our expectation for strong growth again in fiscal 2022, and the successful launch of our digital platform, we're also increasing our long-term financial targets for fiscal 2024. This includes our expectation to now achieve adjusted EPS of at least $4.75 in fiscal 2024, which is 10% above our prior projection and is nearly 20% compounded annual growth rate from 2021 to 2024. With that, operator, we are ready for questions. Thank you very much.
Operator
If you have a question, please register this now by pressing Start followed by 1 on your telephone keypad. If you wish to remove your question from the queue, please do so by pressing Start and then 2. When preparing to ask your question, please ensure that your device is unmuted locally. Our first question today comes from Sean Eastman from KeyBank. Sean, your line is open.
CapEx
Hi, team. Great update here. I just wanted to start on the organic NSR guidance for next year. Could you give us a flavor of how that 6% looks maybe by design versus construction management, international versus domestic? And if we're at 6% for fiscal 22, what's the updated CAGR built into the revised fiscal 24 target?
Troy Rudd
Sean Troy, thank you for the question. So first of all, when we look forward, we actually see that organic growth being relatively even across all of our businesses. When we think about our construction management and our U.S. design business, part of what we've been working to accomplish is to have them work together. So when we deliver a project construction management, there's a material or significant design element But again, we look at the market backdrop, and it is increasingly positive, and the business momentum is increasingly positive. So we see it across the Americas. We also see something similar internationally. Again, we see the opportunities across the entire portfolio of our business improving over the course of this next year. And again, it's driven by the momentum that we're seeing in the business, but also by increasingly positive markets. If we look longer term, the investment that is being made in infrastructure here in the U.S. and in the IJAA, and then the investment we're seeing being made in infrastructure globally, is very significant and long-lasting. And we actually see that being accelerated by all the various public and private ESG ambitions. If we think about it as a catalyst for really a large long-term investment being made in infrastructure. And we almost think about this as a global infrastructure investment renaissance. It's a really unusual time. And again, so we're giving that guide for 2022 based on the momentum of the business. And then in terms of the long-term, what's built in the model, I'll let Gar answer that question. Hey, Sean, this is Gar.
Alula
We do have a 6% CAGR built in for our long-term guidance as well. Now, keep in mind, off the strong 2021 and actually a very strong start off 2022 in regards to when as well, what it does not include is any material impact in fiscal year 22 for the JOBS Act. And we're very confident in our projections for long-term target of 24. Jobs Act provides a lot of certainty to that confidence now, but we really haven't fully baked it in either. As we get more clarity, it's possible there will be more incremental upside to that growth target.
CapEx
Super helpful. I guess the growth tailwinds in the U.S. are pretty obvious around the JOBS Act, but in the prepared remarks, you guys highlighted some big PM wins in the Middle East. Sounds like you unseated an incumbent there. Talked about some strength in the U.K. Maybe you could just expand on the market share element in the international business. I just want to make sure we're getting the right takeaway there.
Troy Rudd
Sure. So, again, I don't think that our viewpoint on gaining market share is isolated to international. We don't really see this across the business. But specifically with international, we are seeing opportunities across the business in program management and in, again, as I said, larger programs. You've got candidates making very significant investments in infrastructure. Australia is making those investments. The U.K. is making those investments. We see that in the Middle East. But then layer on top of that, a lot of our private client customers that are also making investments in their own infrastructure. And again, they're driven around driving their environmental and their social ambitions that they've set out. So again, we see this broadly across our entire portfolio. And again, the accelerant to that for us has been how we're delivering work for clients. how we're focused on bringing the best that we have around the globe to those particular clients and opportunities, the focus that we have on providing that front-end advice and those program management services. I mean, think about it this way. If there's so much CapEx being invested in projects over the next, let's say, between five and eight years because of the accelerated investments in infrastructure, our clients need help to manage that CapEx. So it's not just doing the design work and doing the construction work, but actually being there to help them manage these large CapEx programs, which are far larger than they've had in the past years. And, you know, for us, investing in building a program management business is our way to participate in that. So we view this as we're participating in those projects sooner, in a more meaningful way, and, frankly, longer by having our program management businesses.
CapEx
Okay, excellent. I'll sneak one last one in. So, 30 basis points of margin expansion for fiscal 22. You're also saying investments in BD, HR, digital are accelerating. What would you say the underlying expansion is there if we kind of neutralize those investments? And what kind of tail should we expect on the level of investment in the business that you're highlighting here for fiscal 22?
Alula
Sean, this is Gargan. I'll take that question. So, You know, just keep in mind, we're coming off in fiscal year 21 where expectations were at 13.2%, and we over-delivered on those. Simply put, even when you look at 22 and beyond, we're ahead of schedule in certain regards, way ahead of schedule. And nine months ago when we provided our long-term guidance of 15% being achievable, that being a ceiling, today where we sit of what we've accomplished, 15% is the floor for us. 17%, which was ambitious, we now have building blocks that are taking place as part of the investments we're making into the business that we made in 21 and will continue into 22. And what's really providing this tailwind to the second half of your question, it's simplification of our strategy. where we're focused on our key geographies, where we dominate in the business lines that we operate in those geographies. And it's taking what Troy just alluded to, our think and act global strategy. You know, 50,000 of the brightest professionals in this industry taking their ideas to our clients and delivering value to them, which you're seeing in our capture rates, highest ever we've experienced in our history. And this is all before the infrastructure renaissance Troy spoke to.
CapEx
Very helpful. Thanks so much, Jen. I'll turn it over.
Operator
Thank you, Sean, for your question. Our next question comes from Andy Kaplowitz from Citigroup. Andy, please proceed.
Andy Kaplowitz
Good morning, everyone. Morning, Andy. So, Troy, maybe you can give us a little more color into what you're seeing in core America's design. You mentioned your pipeline of opportunities is still up double digits. America's contracted backlog up 20%, 21%, although a lot of that is construction management. So did you see any acceleration, for instance, from some of your state and local customers who I think last quarter seemed to still be relatively careful about moving forward with contracts? And if not, when do you think they could start to move forward, especially considering the U.S. infrastructure bill signed today?
Troy Rudd
Yeah, Andy, so we did see an improvement in the overall America's business in terms of the client decision-making. But more importantly, we saw a willingness and some very clear agendas to put some long-term programs in place. And a lot of this was being done even without the support of the infrastructure, the federal infrastructure bill. But now, again, we're working towards the assumption that it will be signed today at 3 p.m. And when it happens, it certainly provides support for even broader infrastructure investment at the state and local government level. But again, I'll just use the example of New York and New Jersey. You know, there are plans for the large transit and transportation agencies in New York, New Jersey area to invest over the next five years, you know, almost $200 billion in capital programs. And that was before the passage of the IIJA. Obviously, this, you know, provides more support to that, but it provides more support broadly to those agencies. We saw an acceleration in the pipeline. So first of all, what we were seeing in terms of the wins, but also in terms of the pipeline of opportunities. And then we see this being accelerated, expanded beyond what we've already seen, and then into 2023. And Andy, if I can...
Lara
Andy, I was just going to expand on Troy's points. I mean, in terms of the IIJA, we see all of our capabilities being brought to every single line item of investment in that, and that portfolio that's coming up is a good balance of long-term planning work for a lot of these infrastructure agencies as well as a very robust pipeline of design build. And the other thing I think that we're seeing a lot of near-term opportunities in is a very robust program of federal work where we're very strongly positioned as well. So I think we're in a great position to attack all of that.
Andy Kaplowitz
It's all helpful, Carla. And would you say it's a bit of conservatism then that you're forecasting, you know, NSR to be up 6% in 2022? I think it's up, you know, underlying 6.5% in Q4. I don't think your comp's getting much more difficult. Anything else going on to think about? Because it seems like, you know, you could even have acceleration off Q4 levels.
Troy Rudd
Yeah, so, again, I think as we tried to point this out in our prepared comments, that we increased our longer-term view based on the performance of the business to date. and also what we saw is the momentum being created in the business that what we again the success that our people have been having with their clients into the investments that we've made and so we really haven't we really haven't sorted out exactly what the ija will mean for our business we're in the process of of doing that now we started that a while ago but we're working through exactly what that will mean so simply something what i can say is we think it provides upside to our results but Maybe you've gotten a sense of this recently, but we try to at least be, you know, somewhat conservative in our views of the business. You know, we just don't want to be out kind of, you know, making some statements where we don't think we can absolutely back them up.
Andy Kaplowitz
Thanks for that, Troy. And just a quick one for Gar, like just in terms of the free cash flow guide, obviously down versus 21 at the midpoint. Is that just extra cap-backs? and the investments you're making, anything else to think about in terms of conversion, 22 versus 21?
Alula
Yeah, Andy, it's exactly what you stated. We're making conscious investments in the business, again, to support the growth we see coming and also expansion of our margins. No longer, like I said, 15%, but really putting the building blocks and paces for 17%. So it's investment in our digital, in our IT investments. And when you look at the conversion, the underlying cash flow of the business remains strong. We've always said it will be in the mid-70s, and that's what you see for fiscal year 22, free cash flow conversion lower because of CapEx.
Andy Kaplowitz
Appreciate all the color. Yeah. Thanks, Andy.
Operator
Our next question comes from Andy Whitman from Baird.
Andy Whitman
andy please go ahead oh thanks great i want to just keep going on the free cash flow uh question there gar a little bit so i mean it's uh i guess 40 capex is up like 40 million dollars year over year i mean is should we think of that full delta is unusual it sounds like and there's a little bit of added capex this year if you could also just refresh this i mean there's some other headwinds i guess that are identifiable in your free cash flow guidance for this year Could you remind us that the CARES Act, Hedlund, I think you have to pay back half of that here in the fiscal first quarter. And it looks like you've got $20 to $30 million of restructuring costs. Are those cash or non-cash? I just want to get a better sense of what the underlying free cash flow are. And maybe if you wanted to comment, was there anything, are there any unusual collections to the positive in your guidance for this year that we should be aware of as well? Sorry, there's a lot of pieces in there, but I think that'll capture it if you address those. Thanks.
Alula
No problem, Andy. Hopefully I respond to all of them. Please let me know if I don't. So in regards to the CapEx, the $40 million, it is proper to think about it as a temporary investment we're making into the business for all the reasons Troy and I have stated earlier. There's nothing unusual related to the CARES Act. or restructuring we've had restructuring cash flow in the current year what we're expecting the 20 to 30 million dollars of restructuring which by the way relates to duplicative cost we will incur in predominantly in our real estate and and i.t uh infrastructure as we progress to a flexible workplace of the future those are going to be predominantly cash in the year. But we incurred that in 2021 as well. And there's so many puts and takes, Andy. It's hard to just point at one unusual item either in 21 or 22. We have tens of thousands of projects going on at a given point in time. So it's hard to be that precise.
Andy Whitman
Fair enough. Then, Troy, I thought we'd just check in with you on I guess, the staffing of the organization, the utilization of the organization, and the capacity of your people that you currently have in the company to handle this more work. Could you just talk about how much more flexibility your people that you currently have have to do that work, and what the recruiting environment looks like, and what that means for your overall compensation, labor inflation characteristics? I think you understand where we're headed here.
Troy Rudd
Yep, that was a very big, broad question. So I'll do the same thing. I'll be like Dara. Hopefully I'll hit them all, and if I don't, remind me. So just at a high level, absolutely. We're not unlike anyone else. There certainly is constraints in terms of our ability to bring people on in the industry. And as we see the business growing, there's no question that that becomes even more important, retaining and attracting very talented people to the organization. In terms of this year, you know, again, so far this year we've added about 1,000 people to the organization. But as we move forward, we're focused on creating a great place for people to have a career. So the things that we're doing, flexible workplace is an important element of that, right? It's actually creating an environment where people are comfortable that they want to be and it's a great place for them to be. We're looking at investing in their technical and their professional development. We've also evaluated things like benefits and compensation and making sure that we're certainly at the market for that, which all that does, again, as you said, can create some labor inflation. But the nature of our business is that a lot of those costs in our contracts are passed along to our customers. You know, if you have time and materials or cost plus contracts, there's always escalations built into that. And then as we move forward in bid projects, those costs get built into our rates and they get passed along to our customers. But more importantly... There's something that we're doing which we think is the more important element of this, which is through our investments in how people are delivering their work, we refer to this as an element of our digital investments of digital transformation. You certainly can't ask people to work harder than they are. So what we're doing is we're looking to extend people's capacity. by making these investments in digital and extending what they're able to accomplish with their workday. And frankly, at the same time, it creates a better work environment, it creates environments more fun and more challenging in terms of your career. So we believe that's a really important element of addressing that market concern and a concern that we have. And then the last thing is, we're continuing to build centers of excellence so that we can take this extraordinary capability that we have globally and ask people to participate from around the globe on projects by being members or participating in these centers of excellence or great capability. So that's sort of how we look at it as an issue. We think that it's something that's not going to impact our margins because our industry passes it along to customers, and we think we've done some things and positioned us very well so that we can manage through what would be a great problem to have. It's not something that our industry has had to deal with for a decade.
Andy Whitman
Fair enough. Thank you for the response and have a good day. Great. Thanks, Annie.
Operator
Our next question comes from Stephen Fisher from UBS. Stephen, please go ahead.
Stephen Fisher
Thanks. Good afternoon. Good morning. I just wanted to come back again to the digital investments that you're making. If you could give us some sense of are they all through CapEx or are there some that's going to the margin line items? And just some examples of, I mean, it sounds like it's IT, but maybe just some examples of what kind of investments you're making. And then just how confident we are that there will be a less visible drag after fiscal 22.
Troy Rudd
Sure. So, Steve, I'm going to let Gar answer the margin question. But first, just let me answer the second half of that question, which is we don't see this being a drag on the business or margins. We actually see this as an important path for us, you know, again, moving beyond the 15% target into the 17% range. The value that we deliver to customers and how we deliver it is what's improving our margins, not cutting costs. And so, you know, there certainly is some money that we're investing in the business to get there, and we'll continue to invest that. But we believe that will be an ongoing journey. It's not a one-time investment. That's part of how we're going to continue to invest to change the way we deliver work. The other important point here is that we're not announcing something new. We've actually been working on this and investing in this for about 18 months. What we're doing is we're starting to unveil the things that we're already having success with. And so I made reference to something that we called PlanEngage in my comments. And PlanEngage is a digital tool that we've been working with in customers throughout the globe for this past year. And they've been using it as the tool to improve their community engagement and to speed up their environmental permitting process, especially during COVID. And so this is something we think could become even more valuable, and we believe that this PlanEngage investment and this product will actually become the industry platform for how our customers across the world large agencies will use it to engage with their communities to get their projects approved. It really is a unique product. And, again, as I said, we're not unveiling it. We've already had success with it and with large transportation and transit agencies around the world. So that's an example of the things that we're talking about.
Alula
Yeah, and, Stephen, specific to OpEx versus CapEx, it goes through both. Initially when we're developing it, they'll go to CapEx, and once it's being monetized in the marketplace, or if it's internally focused to what Troy alluded to, to expand the efficiency of our workforce, at that time, they'll go through OpEx.
Stephen Fisher
Okay, that's very helpful. And then just related to the stimulus, given that, like you said, it's essentially being signed this afternoon, does this trigger any particular type of action inside the company? Is this sort of like a – or is it going to be more of a wait and see? Do you have any now internal stimulus task force to see how you're going to approach this and what to be prepared for? Just curious what today's activities actually triggers inside the company, if anything.
Troy Rudd
Well, I guess it doesn't necessarily trigger any new activity in the company because – You know, we've obviously had line of sight to this for a long period of time, and that activity has been talking to our clients to figure out how it's going to impact them and helping them understand how they can take advantage of it. So that dialogue and that signing has been going on for a while. Obviously, as we've been getting closer to something getting signed, that activity has been accelerating. And so once it is signed, it's just a continuing ongoing discussion with our clients about helping them think through their plans and think through how they're going to take advantage of this. But more importantly, as they take advantage of it, how are they going to do it? Again, you've got clients or agencies whose CapEx could be increasing by 10 times or more than that. And so that's why we say having a program management team to help them through that is so important. And that's the investment we've been making. And so we're not doing anything all of a sudden as of this afternoon. We've been thinking about this and working with our clients over a long period of time.
Lara
and stephen it's larry i mean back to troy's earlier comments it's no different to the sort of one acom approach that we're applying to all of the infrastructure programs around the world and we we see a similar very significant pipeline of opportunity there's a very strong infrastructure outlook and our program management capabilities that we're growing our front end advisory they are the critical areas of support that all of these key infrastructure agencies are looking for and where we're very strongly positioned to address that at global scale going forward.
Stephen Fisher
Perfect. Thank you very much. Thanks, Steve.
Operator
Our next question comes from Michael Freniger from Bank of America. Michael, please go ahead.
Michael Freniger
Yes. Hey, guys. Thanks for taking my questions. We're seeing a lot of M&A right now in the engineering space, including private equity. Just how are you balancing the view to reinvest in the business at the stage versus acquisition with where maybe multiples are today?
Troy Rudd
It's a good question, Mike. There are obviously, you know, again, there are two points of view in this. We have our very clear stated point of view is that we believe that investing in organic growth and keeping capital to our shareholders. Thank you. So that, again, invest in organic growth. And at the same time, returning capital shareholders is our stated point of view. And there are all kinds of ways to look at it, but we're looking at the long-term CAGR of cash earnings. And if you look at a long-term CAGR of cash earnings, we believe, as we said, we think that we're, you know, in the 20% range. If you do some analysis around the alternative, which is through M&A, you'll find that when you look at how capital is deployed, that the long-term CAGR is perhaps lower than that. Now, this also comes with the ability to actually integrate businesses and, more importantly, integrate cultures, which can be a difficult thing to do and takes years to find out whether you're successful. So we just have our point of view that we believe now that we have the opportunity to invest in our business and have turned it into the highest performing business in the industry with the highest margins. And we believe continuing to do that produces the best result for our investors, which is the highest long-term cash earnings CAGR, or cash earnings per share CAGR.
Michael Freniger
Thanks, Troy. And I guess just to follow up with that, you're, I think, one times levered. But if we assume the midpoint of your EBITDA growth and another good year of free cash flow, I mean, your leverage has moved down considerably just as status quo. So what is the right net leverage range for us to think about this business with the stability and the runway we see over the next year? Is there any view of instituting a dividend given the stability of this business? I'm just curious of how to think about that leverage range as well as we're moving into this growth period.
Troy Rudd
Yeah. So, I guess, first, I'll simply say this, that that's an ongoing dialogue we have at the board, right? How we allocate capital is an important question that we have to continue to evaluate and answer. And today, we're very clear on what that answer is. But you're right. As our business grows, our net leverage will decline, meaning that we certainly have more capacity. We think that the net leverage of one is the right place to be for our business. If we look at If you look at the, again, some different elements of this, when we look at the nature of the business, the long-term backlog that we have, the certainty we have around the business, the cost of capital that comes along with our current leverage position, then we just think we're in a very good spot to be, which is one times net leverage. And you're right. As we move forward, we will create an even larger opportunity to invest. And what you've described, the question about dividends, that's just an ongoing dialogue we have with our board about what is the right way to think about allocating capital. But today we're very clear on what that answer is.
Operator
Our next question comes from Jamie Cook from Credit Suisse. Jamie, your line is open.
Lara
Hi, good morning. Nice quarter. I guess the question, you know, you guys have made good progress on reducing the cyclicality or the seasonality associated with the free cash flow. So I'm just wondering if there's any more opportunities there or, you know, in 2022. And then I guess just my second question, I know you're still committed to sort of the double digit margins in the international business, but just sort of, you know, the timeline to get there? Are we ahead of schedule where you think you should be? Thanks.
Alula
Jamie, this is Gar. I'll take both of those questions. In regards to cash, you know, we had a very strong conversion of 80-plus percent in 2021, and the quality of the cash flow was very strong. Paving was good. But our focus across all key operational metrics is of continuous improvement so there's always going to be opportunities you know to negotiate better terms better working capital management and that's what we're going to be focused on to make sure that our phasing is optimal and we're extracting the maximum amount of conversions possible in regards to margins for international As I said in my opening comments, we had 80 basis points growth in 2021, and we expect that growth in margin to continue international as we march towards double-digit margins in international business. It's all being supported by strong market dynamics fantastic capture rates, opportunities that we're able to go get in the market, and executing upon them profitably. So we see no hindrance to our ambitions in international margins.
Operator
Thank you.
Troy Rudd
Thanks, Jamie.
Operator
And our final question today comes from Michael Dudas from Vertical Research Partners. Michael, please go ahead.
Michael Dudas
Good morning, gentlemen. And I do. Uh, two thoughts. First, maybe you could elaborate a little bit more on the opportunities. Everybody's been focused on transportation infrastructure, but on your water business, I would think that there's been some funding. It's an opportunity, certainly here and abroad that could be very supportive. Maybe share some thoughts on that and the follow up with that. You know, you mentioned you prepared marks of CLP 26. and the excitement thereabouts. You know, how is the private and public sector balancing? I'm sure there's a lot of work prior to this conference, but is that an accelerant that you'll see that you see some visibility in some of the global design business and the opportunities for energy transition advice? and efforts, certainly, obviously, the wind farm project infrastructure is quite a nice award last quarter. Back going forward in your plan in the next, let's say, next 12, 24 months.
Troy Rudd
Okay. Yeah, Mike. Mike, I'll take the first one, and then I'll share the second one with Lara. So, first of all, you're right. There is a substantial opportunity in the water business that is baked into the Infrastructure Investment Jobs Act. Again, there's some large light items, including $15 billion that are dedicated to improving drinking water infrastructure projects. There's a significant amount, I think it's over $50 billion, that is focused on PFAS and eliminating emerging contaminants. And then there's also money that will go and help improving water quality at the state level. So, again, this infrastructure bill is just so significant that we focus on the transportation element. But you're right. There's a lot of money that's going into aviation, a significant amount of money going into water, and certainly in terms of environmental remediation and contaminants, which we'll participate in. And then, you know, there are other line items included in there. There's $21 billion being dedicated to just environmental remediation work for Superfund sites. So there just are all these line items that are in that budget. And as we've said, we believe that we participate in a meaningful way in almost every single line item in that bill. And I'll let Lara answer your COP question.
Lara
Yeah, sure. And thanks for the question. It's very timely. As you know, we, in April, launched our Sustainable Legacy Strategy. Just last week, as Troy said, we also released our Sustainability Report. So COP was very timely for us and such a great platform for us to showcase our... tremendous ESG capabilities which we've had for a number of years but I feel like we're really bringing all that together very strongly and it was great to see and have such a strong presence and showing at COP and to see so many nations coming together to talk about the serious challenges of climate change and to talk about the sort of financial commitments that are going to be required to achieve that. For us, it was just a fantastic opportunity to showcase all of that and to talk to many of our partners and clients about how we take that forward. So, you know, it's a core element of our ESG strategy going forward, and I think we're in the strongest position in the industry to make that one of our key growth strategies going forward.
Troy Rudd
Yeah, and just to add two quick points to what Lara said, which is, What's been happening in the last six months has been a little unusual. We've seen private financial institutions, banks, insurance companies, and other providers of private capital change their thinking about where they're going to allocate it. So towards ESG-related projects, projects that, you know, that provide return environmentally and socially and away from other projects, which, again, we think is important because that's going into different types of infrastructures where positions support. And the other thing that has come out of COP that for us we think is fantastic is, you know, we're participating in determining how, in fact, decarbonization and sequestration is going to be measured. Because today the standards for measurement and how you go about measuring that are still yet undetermined. Until that happens and there's certainty around it, it makes it very difficult to actually have markets right, where you're actually selling carbon credits. And so, you know, we've been doing an investment in that. So you mentioned our natural capital project during the call. But we're also, you know, working again through a group that is setting the terms of, is standardizing the terms of actually measuring so that we can support decarbonization markets. So I really think that that provides us a great leadership opportunity.
Michael Dudas
Excellent. Thanks, Larry. Thanks, Troy. Thank you, Mike.
Operator
We currently have no further questions. I'll now hand back to CEO Troy Rudd for any closing remarks.
Troy Rudd
Again, thank you for your time today and participating in the call. I just want to remind everybody, I want to give a big thank you to our people for doing such a fantastic job In delivering this past year and creating momentum in the business, I hope you've walked away with understanding that there are tremendous opportunities in front of us that are long-term that we haven't seen in a long period of time. And we look forward to talking to you and catching up on our next earnings call. Thank you.
Operator
Thank you, everyone, for joining today. This now concludes our conference call. Please disconnect your line.
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