AECOM

Good morning and welcome to the ACOM third quarter 2022 conference call. I would like to inform all participants this call is being recorded at the request of ACOM. This broadcast is the copyrighted property of ACOM. Any rebroadcast of this information in whole or part without the prior written permission of ACOM is prohibited. As a reminder, ACOM is also simulcasting this presentation with slide at the investor section at www.acom.com. Later, we will conduct a question and answer session. If you would like to ask a question during the presentation, please press star one on your telephone keypad. While preparing to ask your question, please ensure that your line is unmuted locally. I would like to turn the call over to Will Gabrielski, Senior Vice President, Finance, Treasury, and Investor Relations.

Will Gabrielski, Senior Vice President, Finance, Treasury, and Investor Relations 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 reconciliations are incorporated into our materials. which are posted to our website. Any references to segment margins or segment-adjusted operating margins will reflect the performance of the Americas and international segments. When discussing revenue and revenue growth, we will refer to net service revenue, or NSR, which is defined as revenue excluding past the revenue. NSR and backlog growth rates are presented on a constant currency basis unless otherwise noted. Today's remarks will focus on continuing operations. Financial impacts from the previously announced exit of our operations in Russia are excluded from today's discussion. On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy, and our outlook for the business. Laura Pelloni, our President, will discuss key operational successes and priorities. And Gaurav Kapoor, 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 Rudd.

Thank you, Will, and thank you all for joining us today. I want to begin by acknowledging the unwavering commitment of our professionals to our clients and to our shared purpose of delivering a better world. We take great pride in what we do. To that point, we are proud to have once again been ranked as the number one company in our industry on Fortune's World Most Admired Company List and to have recently been recognized as one of the world's most ethical companies by Ethisphere. I'm also pleased to report that this month, Engineering News Record affirmed our ranking as the number one environmental engineering services firm, placing us well ahead of our professional services peers. Our teams are the best in the industry. A great example of this is the nomination of Shaylin Batt by President Biden to lead the Federal Highway Administration. Shaylin is a great industry talent and reflects the caliber of professionals that reside at AECOM. The proof point of how the strength of our professionals translates to value creation is in our EPS growth. We grew adjusted EPS 31% last year and 28% year-to-date through the third quarter. Turning to the business, five key themes underpinned our confidence. First, we are consistently delivering on our financial and strategic priorities. These include accelerating organic NSR and backlog growth, gaining market share, expanding margins, and delivering strong per share earnings and free cash flow growth. I'm proud of the discipline our leaders have exhibited in balancing organic growth with margin expansion and profit growth while we continue to invest in the business. When you look around the industry, you can see that these characteristics make us quite distinct. Second, our Think and Act Globally strategy has transformed how we operate and how we deliver by prioritizing collaboration and innovation and emphasizing return on time and on capital. This has translated into a record high win rate, design backlog, and pipeline of opportunities. Third, our investments in digital advisory and program management have expanded our addressable market, deepened client engagement, and enhanced the value of our technical capabilities. As a result, We are supporting clients more broadly across the life cycle of their investments and enhancing value for both us and our clients. Fourth, the markets in which we operate remain strong despite recessionary pressures. A global infrastructure investment renaissance, investments in environment sustainability and resilience, and adaptation to a post-COVID new normal are secular megatrends that will continue to create growth opportunities for several years to come. Finally, our balance sheet is in great shape. This is a competitive advantage that creates certainty and allows us to deploy capital to drive value creation. Please turn to the next slide and a review of our financial performance. Organic NSR growth accelerated to 6% and was driven by a strong backlog, accelerating funding in our markets and strong execution. I should note that our growth does not yet reflect any material impact from IIJA funding, which I will discuss shortly. Importantly, we are driving increased profitability as revenue growth accelerates. Our adjusted operating margin was 14.6%, an increase of 50 basis points over the prior year. We are investing at a high rate to expand our capabilities and prepare for increased funding. Our margins remain the highest amongst our peers, which in turn maximizes the value of revenue growth. Adjusted EBITDA and adjusted EPS increased by 7% and 18%. which were both a little ahead of our expectations. Free cash flow was also strong at $183 million. On a year-to-date basis, our free cash flow increased by 15%, and on a per share basis, increased by more than 20%. In addition to the investments in organic growth, we've returned more than $400 million to shareholders so far this year. Over the past four quarters, we have returned cash equivalent to 6% of our market capitalization. As our results demonstrate, we have created competitive advantages that are differentiating our performance. Despite an unexpected market headwind from unprecedented US dollar appreciation, we have raised the midpoint of our fiscal 2022 adjusted EPS guidance for the second time this year, and we have reiterated our fiscal 2024 financial targets. As we have consistently proven, our teams are agile. and the inherent attributes of our business model and strategy result in a more predictable and resilient business. Please turn to the next slide. Now turning to our backlog, key wins, and pipeline. Our backlog in the design business, which accounts for 90% of our NSR in profit, increased by 10%. And total backlog is now more than $41 billion, a 5% increase. This performance reflects our high win rate, and our focus on pursuing and winning high-quality backlog. Our book-to-burn ratio in the quarter was 1.2 times, led by 1.5 in the Americas design business. With this performance, there are a few key wins and trends that demonstrate the success of our strategy. To that point, we were recently selected for a nine-figure program management contract for one of the largest greenfield transportation projects in the United States. Our bid emphasized collaboration across the business. In addition, we embedded key digital elements into our proposal, including the program management digital toolkit we announced last quarter to create a differentiated offering for the client. We also had several wins that showcase our sustainability and decarbonization initiatives in the transportation sector. We were selected by the Arizona Department of Transportation to develop a statewide plan to deploy EV charging stations. In addition, we were selected by New Jersey Transit to provide design and engineering services to advance the agency's zero-emission strategy. Electrification and vehicle automation are key growth markets for ACOM, and we are leading with innovation. We have developed proprietary digital tools to accelerate growth. For example, EV Ready is a tool to help clients integrate electrification of transit systems into existing infrastructure. These tools are in the market today, helping clients advance their strategies. which is furthering our reputation as a partner of choice. I'm also pleased to report that we were selected for a substantial water reuse project in California. Persistent droughts have pressured water supply, and this is a signature win that showcased our leadership in the water reuse market ahead of a substantial expected spend in the coming years. Finally, our leadership in the growing PFAS remediation market was reflected in a win to design a PFAS treatment system for the city of Madison, Wisconsin. We will be tailoring the design to match IIJA requirements and best position the project for future IIJA funding. This project is emblematic of a number of wins and opportunities we are pursuing, with smaller upfront work being awarded as our client's position for the greater IIJA funding now becoming available. Please turn to the next slide. Turning to trends across our markets. In the U.S., there has been $114 billion of IIJ funding announced as available, and notices of funding opportunities are accelerating. Consistent with our prior forecast, we expect funding will most meaningfully benefit our markets in fiscal 2023 and beyond. Today, clients are beginning to mobilize for this expected growth. We can see this momentum in our pipeline, where identified opportunities have increased by nearly 40%, and we expect bid submissions to accelerate in coming months as a result. The strength in federal spending is coming at an opportune time. Our state and local clients, which represent 23% of our NSR, are also in a strong position. Budgets are at record levels, which creates a backdrop of predictable market growth for us against the broader market volatility. Turning to our international markets, in the UK, we are benefiting from the key framework positions we have secured over the past several years, supporting strong growth in the quarter and confidence as we look ahead. In the Middle East, work is progressing on our large multi-year program management and design contracts for the substantial investments being made in NEOM and Alula. We also grew in Australia and Hong Kong, where demand for large-scale transportation projects remains strong. However, in mainland China, the ongoing uncertainties created by COVID policies continue to impact us, though we are managing through this with the performance of other parts of international business. Broadly across the business, we are delivering high value organic growth in a highly disciplined way, despite the ongoing fierce competition for talent in our industry. Our disciplined approach is resulting in profitable growth. Let's turn to the next slide. As our results demonstrate, we are operating from a position of strength with great momentum in both our business and across our markets. Our investments in digital advisory and program management have created new opportunities, differentiated us from peers, and expanded our addressable market. Our deliberate capital allocation policy has resulted in strong shareholder value creation. We have not been distracted by risky and expensive M&A. Instead, our focus is squarely on executing our profitable growth strategy, as well as returning cash to shareholders through stock repurchases at a discount to peer and M&A valuations and our quarterly dividend program. Underpinning all of this is our strong balance sheet, which is a competitive advantage. Taken together, we are well positioned for sustained growth and success, which supports our financial guidance for this year and through 2024. With that, I will turn the call over to Lara.